Trade lessons for small countriesby Colin TeeseNews Weekly
, July 28, 2001
readers will remember the government’s decision on Woodside. A proposed takeover by Shell was rejected - on the grounds that the takeover would be against the "national interest". Many more, no less important to the national interest, have been allowed to go ahead. What, then, is the policy on foreign investment?
We have some idea of the Labor position. On the matter of the Woodside takeover, the Leader of the Opposition was clear: Labor would allow the takeover, subject to conditions. Of course, attaching conditions to takeovers is completely meaningless. Once a takeover, subject to whatever conditions, is complete, there can be no undoing the arrangement - whether or not the government stipulated conditions - have been met. We already know that from experience.
Is the Coalition much different? As things now stand, at least in theory, any proposal is subject to consideration by the Foreign Investment Review Board. This Board is supposed to examine the issues, and, in particular, "national interest" considerations, and provide the Government with a recommendation.
In practice, the Board is dominated by "economic rationalists" who rarely recommend anything but that the foreign investment proceed. Over the past 20 years governments have rarely dissented. Effectively, then, both sides of politics have pursued a policy of open slather.
Except for Woodside, where a Coalition Government said "no".
We all know why that happened. An important by-election was looming and public feeling against the takeover was running high. One thing is certain, if there had been no by-election at which the government felt vulnerable, Shell would now own Woodside. It may still, after the next election, whoever wins.
There was a time when our policy on foreign investment was clear - and stated, at least by the Liberal/National Coalition. The Labor Party at that time generally opposed foreign investment. In respect of General Motors it never ceased to maintain that GM had set up with the benefit of a loan of £1 million from the Commonwealth Bank, and the rest of its in investment had come from profits; so in fact there had really been no capital inflow.
The Coalition policy, which Labor did not endorse, was simply this. Australia welcomed proposals for foreign investment, but all proposals would be considered against a strict measurement of the national interest. It gave no guarantees as to repatriation of either capital or dividends, but stood on its record. None had ever been refused. ( Unstated, was the proposition that investments in the form of takeovers of existing businesses would be subject to closer scrutiny than those which would add, either to the store of technology, or to existing productive capacity.)
Behind all of this was a clear and stated set of policies which the government was promoting. In particular, growth and industrial development, in support of a plan for large scale population increase and full employment
. (The latter, it should be made clear, in the literal sense of that term. Job creation marched in unison with the steadily increasing population. Foreign investment which created new productive capacity and jobs was a part of the strategy.)
Takeovers, which added nothing to either productive capacity or job creation, did not help.
The effect of these policies was of enormous benefit to Australia and complemented its aims of growth and development. It also allowed Australia to develop an industrial sector which not merely grew in size and effectiveness, but secured us as a nation with a manufacturing industry whose contribution to GDP was about the size of the OECD average. Today, as a result of adopting policies which have had the effect of diminishing the size of our industrial sector, the contribution to our GDP from manufacturing industry is way below the OECD average. In fact, in ranking terms, we are near the bottom of the OECD table.
Adopting policies of free trade, deregulation and privatisation have all, in their own way, contributed to the downfall in our manufacturing industries, and also to a fundamental change in the kind of foreign investment we now receive.
After all, there is no point in investing in productive activity in Australia. With the market freely available to imports, common sense dictates precisely the opposite - even for existing Australian manufacturers - whenever goods can be produced more cheaply elsewhere. In the absence of protective barriers the Australian Government is no longer in a position to decide what will or will not be produced in Australia. Or what industries we keep.
As for foreign investment, that will flow only towards those areas of economic activity which can be developed most cheaply in Australia. Frequently, it will be associated with minerals. Or, arising from privatisation, it will additionally be focussed upon activities previously carried out by governments. Transport, communications, gas and electric power production and distribution are notable examples, as is outsourcing by government instrumentalities.
All of these activities have attracted private investment, not necessarily in the interests of better or even more efficient or cheaper alternatives. We have accepted these practices in support of so-called globalisation.
Yet we know for certain that they result in foreign investment which, instead of adding to our store of development capital, merely replaces existing domestic capital with foreign investment. We know this to be true because governments tell us so, when they boast about privatisation activities which enable them to retire debt.
And there is no certainty that the debt retired will find its way back into Australia as new investment capital. Another adverse consequence is that the privatised enterprises may need to raise charges above what they otherwise might be, since they must pay commercial dividends after borrowing at higher interest rates than those applying to governments.Is it any wonder when we weigh these considerations that Australian has been growing at a much slower rate over the last 20 years than it did in the 20 years before?
Unfortunately that is not the end of the bad news. For reasons not entirely clear, the present Coalition government is pressing hard for a free trade agreement with the United States. Presumably it nurses the fond hope of access to the US market for agricultural products as part of that deal.
The US has given no hints that such a concession is part of its thinking. What it has said is what it wants, and hundreds of US companies back it: a more permissive attitude to foreign investment.
There must be no more Woodsides.
Having lost the battle to conclude a Multilateral Agreement on Investment, which would have secured those objectives, the US now hopes to tie Australia at least down by other means.
The Government is likely to be tempted by just such a deal, if it can tempt farmers that the benefits for the farm sector are worth the trade-offs. And Labor is not likely to stand in their way.
Only public pressure against more of the type of foreign investment we are now attracting can hold back our government from what could be a very damaging act.
We need to take a lesson from Singapore. The government-owned airline of that country now stands poised to own a significant part of our privatised airline industry. And through its government-controlled investment pool, Singapore is buying into telecommunications. It realises what our government does not: that small countries can’t play in the world of the big players without the power of government guiding its strategies.
It’s about time we learned the lesson.