January 13th 2001


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Articles from this issue:

A MANIFESTO FOR AUSTRALIA

A CALL TO ARMS

Part A: Globalism - the theory and the reality

Corporate capitalism: the product of government intervention

Part B: A history of economic rationalism in Australia

Part C: How Globalism undermines the family

Part D: The cultural revolution and the new economy

Part E: A policy agenda for Australia's future prosperity

Some remarks on the new economic disorder

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Part A: Globalism - the theory and the reality


by News Weekly

News Weekly, January 13, 2001
Globalism is the ideology of "free trade." It aims to open up national economies so that multinational companies, using modern transportation and communications, can freely shift their capital, technology and products around the world so as to maximise their profits by:

• Exploiting the cheapest labor costs, shifting operations to Asia where wage rates are between 39¢ and $1.00/hr;

• Minimising their taxes (60 percent of multinationals in Australia pay no company tax and 40 percent pay hardly any);

• Merging with and taking over competitors to reduce competition and increase market share;

• Gaining larger markets in Asia, Latin America, Russia;

• Avoiding legal restraints, especially environmental and labor laws; and

• Shifting speculative capital around the world financial markets to exploit currency, interest rate, bond rate and stockmarket changes.

Globalism is the policy of the US government, the US Federal Reserve, a host of international organisations like the International Monetary Fund and the World Trade Organisation. Also driving globalism are the top 200 multinationals which have total annual sales greater than the annual output of the United States economy.

Of the 100 largest economies in the world, 51 are corporations, only 49 are countries. Mitsubishi is larger than Indonesia. Toyota is bigger than Norway.

Financial institutions and corporations make up "The Markets" - the stock, bond and currency markets - that are driving the new globalised, world financial system.

Australia and Free Trade

Since the 1980s, politicians have promised the Australian electorate that this country would significantly improve its standard of living by deregulating the economy and going down the free trade road.

Australia's Federal Treasury and the Department of Foreign Affairs and Trade (DFAT) persistently cite figures showing how much Australia would benefit from adopting free trade policies and abolishing all protection for Australian industries: imports would be cheaper, competition with foreign producers would force Australian industries to become more efficient. Hence, free trade would result in cost savings to consumers and a higher standard of living for all Australians.

The Organisation for Economic Cooperation and Development (OECD), made up of 29 of the most advanced economies, has praised Australia for slashing levels of protection, saying "its recent unilateral trade liberalisation, in effect, put A$1,000 in the hands of the average Australian family" (Open Markets Matter, OECD, 1998).

It claimed that "the cost to consumers of protection in OECD countries has been estimated to be as much as US$300 billion [annually]. The average cost to consumers of a job protected exceeds the wages of employees whose jobs are saved ... [T]he fact remains that protection consumes resources that could more fruitfully be used to retrain or provide traditional income support to displaced workers, to develop new products or new businesses."

This statistical logic of Globalism is derived from the "Theory of Comparative Advantage". It states that a nation should do away with all protectionist policies so as to purge itself of inefficient industries and concentrate on building those industries in which the country has a natural advantage because of climate, geography, wage costs, etc. Better to let an emerging economy like Fiji produce Australia's clothes while re-employing Australian textile workers in some other more profitable industry.

In individual cases, there is no doubt merit in this process. Yet economic history tells a different story to the theory of free trade. History shows that no large, successful democracy has industrialised and attained a high standard of living using the Theory of Comparative Advantage.

The historian William Lazonick pointed out in his work, Business Organizations and the Myth of the Market Economy, (1994) that the UK, the US and Japan all had to "cheat" on the free trade theory to achieve market dominance. For example, the UK only began to preach free trade economics in the 1840s to gain access to foreign markets, after it had become the world's dominant manufacturing nation.

Lazonick argues that "over the previous 150 years, England had strong-armed its way to prosperity by violating every rule of free trade ... They were determined to control the result, so that they would become the strongest manufacturers on earth." Britain picked winners and brought the economic backing of the Crown to bear in order to build the country's dominance in manufacturing.

The Crown invested heavily in industry and fleet building. It used its navy to drive out the French and Spanish so that British ships dominated key trade routes. Political measures were used to stop the Irish and Portuguese from developing textile industries that could compete with Britain's.

The Navigation Acts, the land enclosure system and a host of other measures were used to concentrate more capital than could otherwise have been obtained, to develop key industries to ensure a British monopoly in certain industries. Then Britain began earnestly to preach free trade, abolishing the famous Corn Laws in 1846 to expose their domestic farmers to competition from more efficient overseas producers.

Lazonick summed up this process in a passage that exactly describes the attitude of the United States at the beginning of the twentieth-first century: "The nineteenth-century British advocated laissez-faire free trade because, given the advanced economic development that their industries had already achieved, they thought that their firms could withstand open competition from foreigners. [They wanted] to convince other nations that they would be better off if they opened up their markets to British goods ... [They] accepted as a natural fact of life Britain's dominant position as the 'workshop of the world' [emphasis added]. They did not bother to ask how Britain had attained that position."

The US attained the same position as the British by maintaining an average 30 percent tariff through the nineteenth century and into the twentieth and through massive government subsides to industrial research and development.

Only after World War II did the US start to preach free trade. Today, the US continues to heavily subsidise industry through military contracts and by paying large subsidies to farmers and exporters.

Japan capitalised on the technology developed in the West, protected its industries, ensured that there were large competing firms in each key industry supplied by thousands of small competing component manufacturers, and gave its key industries a further strategic advantage with long-term low interest credit.

Lazonick's history of how the dominant economies developed using appropriate government support is supported strongly by Harvard University Professor Michael Porter in his book The Competitive Advantage of Nations (1990).

Professor Porter studied ten nations - Denmark, Germany Italy, Japan, Korea, Singapore, Sweden, Switzerland, the UK and the USA - and found that it was industries rather than nations that succeeded. They did not succeed according to "the Law of Comparative Advantage", but by what could be called "the Theory of Competitive Advantage."

There were four basic reasons why successful industries developed a competitive advantage over industries in other nations:

• An adequate endowment of people, capital, technology, knowledge, etc, was needed for development. These factors were not necessarily natural or endemic to a country, as the Theory of Comparative Advantage suggested. These advantages were created by deliberate policy.

• An adequate domestic market for the industry's products and consumers who demanded quality and innovation in them.

• The presence of internationally competitive suppliers and related industries that form clusters around the major industry players. These suppliers often became exporters in their own right.

• An internationally oriented business culture and intensive domestic rivalries within those domestic industries.

Porter found that these conditions served to create an intensively competitive domestic environment, so that those industries came to have a competitive advantage over rivals domestically and internationally.

He showed that the role of government was critical. Government support was in the form of subsidies, regulations, purchasing and other policies. Government facilitated, consulted, encouraged and prodded where necessary. It was neither overtly interventionist, in the old Eastern European sense, nor "hands off" in the free market sense. It encouraged intensive competition between local firms in a competitive free local market, but shielded them from external competition until they were strong. The surviving and fittest companies, having been steeled in the fires of local competition, then sought their share in the international markets.

These successful industries depended on governments picking winners and creating the conditions for them to succeed domestically and then internationally.

In summary, today's dominant economic powers did not develop according to the Theory of Comparative Advantage, as DFAT, Treasury, the OECD, the IMF and the free market think tanks claim.

Yet Australia remains fixated on this theory. Labor and Coalition governments have skewed industry, agricultural and trade policies, saying they are not interested in "picking winners". They have unilaterally slashed tariffs way below world average; tendered to industry on a purely commercial basis with no preferential contract to Australian firms; sold off the Commonwealth Bank; and used National Competition Policy to abolish domestic market support schemes for agriculture, etc. All this has been done in the face of the historical evidence that it is the Theory of Competitive Advantage that determines a nation's ability to develop industry and gain a foothold in world markets.



The logic of the Competitive Advantage model is borne out in the World Trade Organisation (WTO). The US, Japan and EU, having achieved dominance in particular manufactures or services, promote and back those WTO multilateral trade agreements that advantage their dominant industries. Where they cannot gain dominance they refuse to endorse multilateral trade agreements. They have refused to make any serious moves towards agricultural trade liberalisation because they know their domestic farmers cannot compete with low cost producers and those nations that have more favourable climatic conditions for agriculture.

Agriculture and the World Trade Organisation

In January 2000, it was not just the thousands of protesters capturing the attention of the world's media who caused the failure of the WTO Seattle conference on trade liberalisation. Contrary to the hype in Australia about the prospects and benefits of freer trade in agriculture, the major players in world agricultural commodities - the US, the EU and Japan - are simply not interested in liberalising agricultural trade.

As Table 1 shows, the level of subsidies to farmers in OECD nations averages 40 percent and in the US, the EU and Japan farm subsidies are rising.

Australia's DFAT and the Federal Treasury may view agriculture solely from an economic perspective, but the EU, Japan and US have a fundamentally different view. For social, demographic and long-entrenched cultural reasons these nations keep about one-third of their populations in rural and regional areas. For them, agriculture is not just another commercial industry, it is part of their social fabric and cultural heritage. They are prepared to use heavy subsidies to preserve agriculture the way Australian governments and businesses subsidise the arts and sport.

The US, the EU and Japan constitute about two-thirds of the world's Gross Domestic Product and dominate world agricultural trade. Understanding their perspective on agriculture should be the starting point of Australia's agricultural trade policy.

Yet successive Labor and Coalition governments, DFAT and Treasury, the National Farmers Federation and economic rationalist think tanks have strongly sold the line to Australian farmers and the electorate that if only Australia gives a lead to the rest of the world and drops its assistance to agriculture, then the major agricultural trading nations will obligingly follow suit. This is in the realm of fantasy land.

The problem has been compounded by a fundamental error our governments and bureaucrats have made about agriculture. They repeatedly claim that 20% of our agriculture is consumed domestically. Therefore, as 80% is exported, Australia must concentrate on its export markets to improve the lot of farms.

However, Mark McGovern of the Queensland University of Technology School of Business has shown that this analysis is wrong. He has demonstrated that the total value of Australia's raw and processed food and fibre market is worth $55 billion. Of this, $39 billion is consumed domestically and $16 billion is exported.

This means that free trade, which threatens Australia's $39 billion domestic market, is being pursued in the hope that it will increase Australia's $16 billion export market. But, as Table 1 shows, agricultural protection levels in the OECD are increasing not decreasing, and there is virtually no chance the major trading nations will liberalise agricultural trade in the medium term.

The wholesale deregulation of domestic agriculture under National Competition Policy has been justified on the basis that removal of the dead hand of government regulation will benefit both producers and consumers. However, the sugar industry, which once had a guaranteed domestic market, now sells its sugar at world parity prices in the domestic market. Deregulation of the dairy industry has left farmers and milk processors in a downward bidding war to sell to an oligopoly group of supermarkets, while processed milk products are largely sold into a world market where most of our competitors are heavily subsidised.

The result has seen a flood of cheap food imports that have undercut our farmers' domestic market for their products, and the oligopoly power of supermarkets has been exercised to cut the price of goods at the farm gate.

As Colin Teese, former Deputy Director of the Department of Trade and negotiator at the GATT agreement, has warned: "Thus far ... import competition for Australian food and fibre products has achieved only low levels of market penetration.

"But remember this: it is only now that the effects of deregulation and so-called competition policy - along with a more permissive policy towards quarantine - are pushing the gates fully open to imports. Be prepared for a surge in the imports of food and fibre products similar to what happened to manufacturing industry once we exposed it to the full blast of competition" (News Weekly, 16 December, 2000). If the major supermarket chains are taken over by giant European and American chains, the problems for Australian farmers will worsen as these chains will source many of their products internationally at the cheapest price.

Despite McGovern's attempts to alert our political leaders to the greater importance of the domestic market for our farmers, his warnings have gone unheeded, and our policy makers continue to open up our domestic market to imports while gaining virtually nothing on the export market.

Aiding the free trade agenda has been the weakening of quarantine restrictions on imports. Uncooked Danish pork is imported into Australia. The Australian Quarantine and Inspection Service (AQIS) recently recommended allowing into Australia California grapes. California grape vines are infected with the deadly Pierce's Disease. AQIS has recommended allowing in apples from New Zealand, which has the deadly fire blight disease.

Now AQIS is being swamped with requests for Australia to allow currently prohibited food products into the Australian market. To many commentators, decisions being made by AQIS to allow many food, animal and plant imports into Australia are being driven by free trade beliefs at the expense of Australia's many disease-free agricultural industries.

Also aiding the free trade agenda has been the emasculation of Australia's anti-dumping laws.

WTO undercuts Australia's anti-dumping laws

If Australian agriculture and manufacturing industries have been doing it tough competing against subsidised and "dumped" imports, then what they have experienced to date is just a portent of what is to come, thanks to the World Trade Organisation (WTO) rules Australia signed in 1994.

Dumping is where an imported product is sold at a "less than fair value," in order to undercut local producers unfairly.

Japan, Korea and China have highly developed government backed and subsidised industry cartels. Table 1 shows that Japan, USA and the European Union countries heavily subsidise their food and fibre products which are sold at subsidised prices onto world markets.

Companies in these countries are subsidised, given preferential government contracts and other favourable treatment. This allows them to overcharge on their products sold in their domestic market. Then they sell near or below cost into countries like Australia. When Australian companies cannot compete, they go to the wall, or are bought out by their foreign competitor. The foreign companies can then increase their prices in the Australian market.

In fact with agricultural goods, there is a strong likelihood that all food and fibre products exported by the US, EU, Japan and China are sold at lower than domestic prices, and therefore are "dumped" onto world markets.

Now Australia's National Competition Policy for agriculture and manufacturing has made it easier for foreign competitors to dump their products into the Australian markets. By virtually eliminating the two price scheme - which gave our farmers a better price in their home market - farmers are being forced to sell their products at world price levels, which are determined by the subsidised output of the US, Japan, the EU and China.

Until Australia signed up to the WTO in 1994, stringent anti-dumping laws could be invoked to stop unfair trade. But the new WTO rules provide Australia with little protection.

This has left Australia with two serious problems.

First, following the deregulation of an industry, it takes 5-10 years before foreign competitors wake up to the new trade opportunities and start to seriously challenge local producers. Hence the full consequences of 15 years of deregulation is yet to kick in fully. Australia will increasingly become a target for US, EU and Japanese companies.

Second, many of our political and bureaucratic leaders actually believe that the soft WTO anti-dumping laws are too stringent. They argue Australia would benefit from abolishing all anti-dumping laws and letting cheap, subsidised imports flood into the country. They say consumers would reap the benefit of cheaper prices and those who lose their jobs would find employment in new, more efficient Australian industries.

Again, this reasoning is in the realm of fantasy land. Australia's manufacturing and rural industries have been hammered and many companies have gone to the wall due to dumped imports. As for replacement, more efficient industries and new jobs, where are they?

Australia has happily embraced the WTO rules, but the Americans continue to apply strict anti-dumping procedures to protect their industries from unfair competition. The EU and Japanese have their own effective anti-dumping measures.

Of course, that will not stop the US, EU and Japan attacking Australia for not abiding by the WTO's rules. The whole question of WTO international anti-dumping regulations is part of a very unbalanced bargain in which the big trading nations can do what they like and small countries like Australia become easy prey.

If any future Australian government does find the inclination to shelter Australian industry from dumped imports, they will find the WTO rules a serious obstacle.

A policy agenda for agriculture

First, our policy makers need to stop the pretence that there is a realistic probability of gaining any wide ranging multilateral liberalisation in world agriculture trade. Instead, policy makers, and particularly the Department of Foreign Affairs and Trade (DFAT), need to refocus their efforts on bilateral and regional trade agreements.

Second, our political leaders and policy makers have to recognise the vital importance of the $39 billion domestic market for agriculture, and the $16 billion export market. This means that National Competition Policy has to be reversed.

It is vital that Australia's historically strict quarantine laws be maintained and not weakened in the cause of free trade, and that new domestic market support schemes be developed for Australian agricultural industries. World Trade Organisation rules were written by the major world economies to give themselves access to international markets, at the same time providing plenty of loopholes by which to continue supporting their domestic industries.

The two requirements of the rules are that government support should not, in general, be in the form of transfers from consumers to farmers and should not provide direct price support to producers.

Other than that, there is much governments can still do for farmers.

For example, the rules permit domestic market support schemes up to the value of five percent of the industry's annual output.

Annex 2 of the WTO agreement is entitled "Domestic Support: the basis for exemption from the reduction of commitments". It allows for various forms of assistance:

• Government programs can include: product and environmental research; pest and disease control services; extension and advisory services; marketing and promotional services; training services; and a host of infrastructure services.

• Direct payments can be made to producers for various reasons such as farmers suffering low incomes. The payments must be on the basis of their income and not proportional to their production.

• Governments can participate in income insurance and safety-net programs, again related to the farmer's income and not production levels.

• Payments can be made - directly or by way of government financial participation in crop insurance schemes - for relief from natural disasters.

• Governments can provide structural adjustment programs that see the retirement of farmers, or the movement of farmers into non-farm production activities, or the retirement of land from agricultural use.

To these ends, investment aid can be provided by governments.

• Government's can provide payments for environmental schemes as part of environmental or conservation programs.

• Governments can buy up and hold stockpiles of food for security purposes, and provide domestic food aid to sections of the population in need.

• Designated products can be "subject to special treatment reflecting factors of non-trade concerns, such as food security and environmental protection".

The clear message of these rules is that governments are not required to simply abolish preferential treatments for agriculture in the name of free trade.

If there is the political will, governments have an array of means by which to give preferential treatment to Australian agriculture.

Third, farmers need access to long lines of low interest credit. They need a new Commonwealth-style Bank, with a specialised section for agriculture. Subject to the vagaries of weather, pestilence and sharply fluctuating commodity prices, farmers face greater uncertainties than many industrial and commercial enterprises.

Fourth, rural and regional Australia need the restoration of health, telecommunication, educational and other services, that have been cut as part of the free market policy agenda.

Fifth, a national consensus should be sought to keep about one-third of Australians living in rural and regional areas as part of a decentralisation plan to reduce pressures on major metropolitan centres.

Sixth, Australia needs to focus its efforts on gaining access to Asian markets where the population is expected to expand from about 3.5 billion today, to over 5 billion in fifty years time. This means major infrastructure. A fast freight rail system around the continent, connected to an expanded port of Darwin, would provide rural industries fast access to Asian markets.

Such a link would allow higher valued fresh produce into Asia in four to seven days, while it still has a high shelf value. Such a rail system would allow Australian agriculture to be transformed from "tyranny of distance" goods like beef, wheat and dried fruits, to fresh produce, horticulture and dairy products.

Encouraging horticulture in areas like the Murray-Darling basin would allow farmers to shift from flood irrigation, with its salinity problems, into drip irrigation.

Such a system has huge potential for boosting incomes in rural and regional areas, while alleviating pressing environmental problems.

Manufacturing

In the 1970s and 1980s policy makers believed that Australia could let manufacturing industry slide, anticipating that the country could rely more on mineral and agricultural exports to pay for imported manufactures. But despite a huge increase in the volume of commodity exports, the long-term decline in commodity prices continually depressed the anticipated returns.

The decline in manufacturing industry has been precipitous and now risks the loss of a critical mass in many industries. Successive governments have slashed protection, done away with the Commonwealth Development Bank, ceased giving preferential contracts to Australian companies and weakened anti-dumping laws. They have taken the view that Australia does not need an industry policy because in an efficient market with rational participants the market will always decide what Australia can and should produce.



As Table 2 shows, in the 1960s and 1970s, Australia was up with the 16 OECD nations for which manufacturing output data is available. By the 1990s, manufactures' contribution to GDP declined in all countries, but twice as fast in Australia.

Australia now has the smallest manufacturing sector in the OECD except for Greece, and the smallest percentage of its workforce in manufacturing except for Turkey.

What's more, contrary to the view that small nations cannot get ahead in manufacturing industry, in the 25 years up the mid 1990s, Denmark, Portugal and Ireland had huge increases both in manufacturing employment and in their manufacturing output per head (Historical Statistics, OECD, 1999).



Table 3 shows what key indicators of the Australian economy could have look like in 1999 had Australia maintained its manufacturing sector at the same size as the OECD average, about 19.2 percent of GDP instead of 13 percent. Manufacturing would be contributing an extra $36.7 billion to the economy.

This means that because of a combination of higher manufacturing exports and import substitutions, the deficit on manufactured trade would become a surplus, and the Current Account would not have a deficit of over $34 billion, but would have a $2.1 billion surplus. This means that Australia's net foreign debt of $294 billion would no longer be growing, but would be decreasing in size. There would be an extra 483,000 employed, dropping the national unemployment rate to a negligible 1.6 per cent.

The demise of Australia's manufacturing industry is reflected in the international trade statistics. In 1980, Australia imported $10 billion in manufactures more than it exported (Economist Intelligence Unit Report, 1996). In 1999 we imported $57.4 billion more than we exported (Australia: Economic and Trade Statistics, DFAT, 2000). This is almost twice the size of our current account deficit!

This deficit was almost entirely due to imports of Elaborately Transformed Manufactures. The three largest components of these imports were motor cars, computers and telecommunications equipment, much of which Australia is capable of manufacturing domestically.

As Dr Frank Gelber, Director and Chief Economist at BIS Shrapnel, pointed out in his contribution to the book Manufacturing Prosperity - Ideas for Industry, Technology and Employment, Australia is not using its foreign borrowings for capital investment, but for consumption. The decimation of the manufacturing sector and increasing reliance on imports is the primary cause of Australia's burgeoning net foreign debt, $294 billion as of September 2000.

Increasingly, domestic production of goods and services is insufficient, so we have resorted to borrowing overseas to buy the imports we need to maintain our living standards. In particular, Australia's $57.4 billion deficit in manufacturing trade shows that our manufacturing sector is in decline and no longer produces enough to satisfy demand for consumer and capital goods in Australia.

Many economists say our nation's foreign debt is the result of our low level of national savings. This is only partly true. Primarily, our foreign debt is the result of the destruction of manufacturing. We borrow from abroad to buy from abroad what we no longer produce at home.

As Gelber comments, the solution has to reside in rebuilding "domestic industry, to generate more income both through exports and import substitution", and hence generate more savings and reduce the foreign debt.

Why does Gelber argue for the rebuilding of domestic industry to overcome our $57.4 billion deficit on trade in manufactured goods? Why not boost our export of services or of agricultural commodities and minerals? The answer lies in the hard statistics.



Consider our export of services, worth about $28 billion annually and growing slowly. Of this, $7 billion is trade transportation, which reflects our annual trade in goods and cannot be significantly increased. Another $13 billion comes from business travel and tourism, a highly fickle industry. This would have to increase four to five times to overcome the deficit on trade in manufactured goods. As for our exports of insurance and financial services, much praised by the Federal Government and DFAT, they amount to a mere $1.2 billion annually. They would have undergo a 48 fold increase to overcome the deficit in trade on manufactured goods!

As for boosting Australia's minerals and agricultural commodity exports, both price and volume are limited by overseas demand.

This means that the only way to overcome the large and growing deficit on trade in manufactures is to boost domestic manufacturing. This cannot be done without the Government playing a significant role, just as governments have done in the past, fostering a competitive advantage with their industries, as described by Lazonick and Porter.



There is scope for import substitution industries in Australia, as Table 5 indicates.

How can Australia start rebuilding manufacturing?

The US has told Australia that it is responsible for the security and stability of the nearby small countries of East Timor, New Guinea, Solomon Islands and Fiji. All are facing serious internal problems. To face these challenges, Australia will have to increase very substantially its defence force expenditures. Logically, Australia should now be seeking to rebuild its manufacturing industries on the back of its expanding defence forces, giving preferential contracts to Australian companies.

Second, Australia needs financial capital for rebuilding manufacturing. German and Japanese business have long gained a competitive advantage from having access to long lines of low interest finance. Working on the principle that industry will repay both the principal and an equivalent amount in interest, then at two percent interest a corporation has years to develop its technology, produce a product, achieve market share and even market dominance, and then make a profit and repay its loan. But at 10 percent interest - which is what many Australian companies pay when charges and fees are included - the time horizon for their investment shrinks to years. For this reason, manufacturing needs access to long-term credit, provided by a new government-backed bank.

Third, infrastructure is needed to help develop industry. The construction of a fast freight rail system around Australia linked into an expanded port of Darwin, would assist some decentralisation of manufacturing into lower cost regional centres while still giving them fast access to foreign suppliers and foreign markets.

Fourth, like agriculture, manufacturing needs a comprehensive overhaul of Australia's anti-dumping laws to stop the undercutting and destruction of domestic industry.

Fifth, all this involves a fundamental change in the attitude of our public service mandarins and politicians - something of which the electorate is becoming increasingly aware.

Partly, it involves a recognition that the burgeoning foreign debt is being used for consumption not investment. The decline of the Australian dollar, forcing up inflation and interest rates, and the burden of servicing the interest on the foreign debt, is strangling the economy.

The foreign debt has the potential to seriously destabilise the economy just as the largely private sector foreign debt destabilised several of the Asian Tiger economies in 1997-98.

Most importantly, it means acknowledging the historical evidence: the Theory of Comparative Advantage and what we call economic rationalism does not describe the economic road taken by the developed nations. The Theory of Competitive Advantage is the rule by which wealthy nations have succeeded. It is the rationale for the development of new industry strategies in Australia and should govern our attitude to the formation of new international trade agreements at the WTO.

In the not too distant future, Australia will be forced to pursue a policy direction like this, or face serious economic decline.

If globalism stalls, will Australia be left in the cold?

The globalism ideology of free trade may well be stalling. And it is not because of the wild street protests at international trade conferences in Seattle, Davos, Prague, Melbourne and many other places.

The world appears to be headed towards three huge trading blocs, a trend that a world economic downturn could well hasten.

The Director of Asian Studies at the US Council on Foreign Relations, Robert A. Manning, has summed up the situation. The Americas are likely to be dominated by the US and the US dollar, Japan is likely to dominate in Asia with the Yen the dominant currency, and Germany is the powerhouse of the European Union.

Where should Australia fit in this post-communist, new tri-polar world? Over 52 per cent of Australia's trade is with Asia. Logically we should fit into the Asian bloc. But will we fit in?

During the Asian economic crisis of 1997-98, Australia toed the US and IMF line in opposing Japan's proposal for an IMF-like Asian monetary fund to provide long-term financial stability in the Asian region.

Instead of winning friends in Asia, Australia was once again seen as the cat's paw of the Americans and the Asian attitude is "don't rely on the Americans."

The ten ASEAN nations plus Japan, South Korea and China are now revisiting the proposal. This time it is with the tacit support of the IMF.

For Australia, the chickens are now coming home to roost. At a recent meeting of ASEAN nations, Australia was pushing for an ambitious plan to merge the ASEAN nations plus Australia and New Zealand into a single free-trade market with almost $2 trillion in annual output.

Led by Malaysia, ASEAN rejected the issue so effectively that there is no guarantee it will return to the agenda. Could Australia become part of the American or EU trading blocs? The trouble is that there is no way the US or European farmers will allow easy access of Australian food products into their regions. This exclusion is reflected in current trade figures. About 43 per cent of our imports are from Europe and the US, although only about 24 per cent of our exports are to those two big economies because we have been refused access to their giant markets.

Much has been made of a recent free trade agreement with Singapore. But both Australia and Singapore have hardly any trade barriers anyhow, which means that we already have access to their markets.

Where does this leave Australia? We can't get access to the US or EU and we are not welcome in Asia, so long as we are seen as an agent of the Americans in the Asian region.

Australia does not look like being accepted into any of the major trading blocs, at a time in our history when our manufacturing is in decline, our rural industries are staggering under the free trade policies of successive governments and our huge foreign debt leaves us particularly vulnerable to a world economic downturn.

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