June 16th 2001

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Articles from this issue:

COVER: How the Sun Causes Global Warming

Tokyo debt threatens global economy

Victoria - Battleground State

Army Behind moves to oust Wahid

The Media

Straws in the Wind


Behind the morning after pill

Wanted - a genuine British opposition

Eminem's contribution to culture

Nevada - the US model at its worst?

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by News Weekly

News Weekly, June 16, 2001

McGovern figures correct


The pages of News Weekly have recently contained two important contributions to the so-called free trade vs protectionist debate, or a better term would be the regulation-deregulation debate.

Pat Byrne's Cover Story "The facts behind the rural revolt" drew attention to the now well-known paper by Dr Mark McGovern on the Unimportance of Exports to Australian Agriculture, published in the Australasian Journal of Regional Studies in 1999.

McGovern's paper established, using well-known and accepted methods, and using Australian Bureau of Statistics (ABS) data, that in 1993-94 (the latest figures available at the time) that only about 22 percent of the output of Australian agriculture was directly exported.

The integrity of this simple, incontrovertible finding has never been seriously questioned. The reaction to this paper has, however, ensured that it will stand as one of the best-known papers in recent years. For as long as we can remember the '8o per cent myth' has dominated the national psyche, namely that 8o per cent of our agricultural products are exported.

A number of important policy formulations have been based on the 8o per cent myth, springing from the Department of Foreign Affairs and Trade (DFAT), the Australian Bureau of Agriculture and Resource Economics (ABARE), the Federal Treasury, the Department of Agriculture, Fisheries and Forestry, as well as the National Party and the Coalition as a whole, and the National Farmers Federation (NFF).

Basically, as Pat Byrne recounts, these figures were used to justify the argument that deregulation would ensure that our farmers became more efficient and therefore more competitive in export markets, and that any damage to the relatively small domestic market would be justified by larger gains on the international markets.

The publication of the McGovern paper therefore questioned a fondly-embraced shibboleth and accepted wisdom of the market fundamentalists pursuing deregulation with an ideological vigour. It thereby also questioned the wisdom of the advice given to and by, senior bureaucrats, the decisions of ministers, and of some farming organisations.

Meanwhile at the research end, progress was made in the form of the "Customs House Agreement" in May 2ooo, which confirmed the integrity of the McGovern paper and examined the issue (later raised in a letter to NW by Thomas Bradley on June 2, 2oo1) of the value of the indirect exports of agricultural products, i.e., adding the value of agricultural products in exported processed agricultural commodities.

of course, there are different ways of making this calculation, which lead to different results, depending on the accounting methods adopted.

A fair summary of the results of these different methods of calculation of the direct plus indirect percentages of agricultural output which end up as exports would probably range from a more likely 3o per cent to a very, very generous 4o per cent.

Certainly, under no circumstances, and by any stretch of the wildest imagination, could the oft-quoted shibboleth of 8o per cent be justified, and could be accorded no basis in fact. This agreement was supported by the ABS, which is the prime source of national statistics.

What followed was one of the most unedifying scenes I have witnessed in many years of economic research and policy formation. While a small committee of the Queensland National Party (the Agricultural Production Destination Committee) stubbornly persists in convincing others of the veracity of the McGovern and Customs House findings (which were never seriously questioned by professional economists and which now appear with the passage of some time to be optimistic!), opposition from some sources embarrassed by the important new revelations included

(a) unsuccessful attempts to discredit the findings;

(b) gradual modification of the 8o per cent myth to a marginally lower figure; but mostly

(c) simply ignoring the evidence of the research.

It seems that one has a rather touching and old-fashioned na•vete to hope that policy-makers will first seek the facts, i.e., seek the real numbers, consider the implications of the numbers and trends, consider alternatives and seek the best policy solution to achieve a given end.

Certainly the old-fashioned economics had such a process in mind. Also, one would hope that new information, such as that from the McGovern and Customs House work, would be welcomed rather than ignored.

In Australia today, one gets the impression that the Canberra cocoon of market fundamentalists (read economic rationalists) practise their economics more as an ideological crusade rather than with professional objectivity, and will continue to ignore outside realities, questions and evidence which they would prefer not to face.

One can only agree with Pat Byrne's observation that the National Party Federal leadership has been in a state of denial over this research. When it comes to a choice between professionally recognised economic research and the influence of advisors, it seems that the advisors win every time, with 'Yes Minister' regularity.

In the long run, however, the advisors do not have to accept the inevitable electoral consequences of their advice, while the ministers will face the much bigger challenge to convince anyone that this was, after all, really in their best interests - witness this agricultural export question, the dairy industry, trade policy and so many other extreme policy decisions.

Professor Rod Jensen, Emeritus Professor of Economics, University of Queensland

Prudent investment


Thank you to Colin Teese (NW, June 2, 2oo1) for highlighting the illogicality of Government disregard of shareholder interest in HIH.

Similarly illogical is the lack of control of the interests of shareholders in small business.

In Australia, shareholders' capital can be trapped legally in small business and loaned interest-free to dubious enterprises.

Without vast resources for legal action, some shareholders can only sit by and watch their assets being whittled away. When the "collapse" finally comes, it is not of public interest.

Politicians assert confidence in ASIC to regulate small business. However, while ASIC's attention is focussed on the big collapses and blinks at false practice in small business, it will continue to foster the growth of those who would eventually attempt the big rorts.

Our society not only loses the taxes that would accrue from prudent investment of shareholders' trapped resources, but suffers greatly from the policy of shutting the stable door when the horses have bolted.

All parents know that correction of their children in small lapses saves much agony in the long term. What a pity our politicians have forgotten this.

M. Wellby, Stirling East, SA

Irish economy


In the article "The Lost Years"(NW, June 2, 2oo1), Dr Peter Brain says that Australia should follow the lead of Ireland and offer subsidies and tax holidays to multinational information technology companies to attract them here.

Around two-thirds of the top 2o United States IT companies have manufacturing facilities in Ireland. Companies such as Microsoft, IBM, Dell, Compaq and Hewlett-Packard will be familiar to News Weekly readers.

Could the Irish strategy be duplicated in Australia? I suggest not.

What Dr Brain appears to have overlooked is that Ireland is a member of the European Union. This, as much as tax holidays, is what attracted these companies to Ireland because it guarantees them access to a market of 35o million people.

Even if we offered tax holidays, would these IT companies be keen to establish facilities here when the best we can guarantee them is a market of 19 million Australians? Almost definitely no.

This strategy has served Ireland well. It has an unemployment rate of four per cent and GDP growth of seven per cent. However, it has also paid a high price for the narrowing of its tax base. It now relies on grants from EU headquarters in Brussels to fund many social programs and no longer controls its own interest rates. These are set by the EU.

These multinational IT companies exercise a political leverage in Ireland similar to that exercised by multinational car companies in Australia. Consequently, Ireland's economic sovereignty, like Australia's, is significantly compromised.

Peter Golding, Burwood, Vic

Drug treatment


One can argue little with John Barich's article on drug abuse (NW, June 2). However, it seems to me our efforts will continue to provide little success unless everyone is involved in what needs to be a radical transformation of both individual and societal values.

Much emphasis is placed on the abuse of the so called 'hard drugs', while the problems caused by alcohol misuse are ignored. It has never seemed to me to be realistic to expect children to be drug free while Dad continues to 'enjoy' his alcohol and Mother her tranquillisers. This can hardly be avoided when the media continue to encourage the idea that to every problem there is a quick and easy answer.

The most fundamental human 'right' is the right to life. on this all other rights depend, whether they be the objective ones of freedom and property, or the multiple subjective ones, such as freedom of speech or to privacy.

The basic right is challenged at both ends of life by an expanding 'Culture of Death' calling for more readily available abortion, and 'euthanasia' in one of its many guises; and glossed over by one of the many euphemisms used to make the dangerous, and even the abhorrent, seem desirable.

Secondary to and concurrent with, reaffirming that life is precious, must come a change in thinking about ourselves and others. This may be summarised all too briefly as:

* Happiness is in helping others, and in what endures, rather than in what gratifies, is temporary and leads to comparisons. Success is measured in giving rather than in getting.

*Self-worth lies in who one is, rather than in what one has. Love is in the giving of oneself for the good of the loved one, rather than in physical affection and sexual gratification.

*Suffering leading to wisdom and growth, rather than to a demand for 'compensation'. Ethics involve contributing rather than comparing.

* Freedom 'for' is orientated to developing my talents and making commitments, rather than freedom from' which indulges every whim and avoids every inconvenience.

* Rights belong equally to each and every person, not just to the most vociferous.

The Common Good depends on every one contributing to something concrete, specific and actualisable, rather than making the best of a "dog-eat-dog" world.

If indeed "the thin line between good and evil runs through every heart", winning the drug war depends more on you and me than on Government action, more on our changing our philosophy and our actions than on outside influence.

It might even mean we become content with less, so that we may be more content.

Dr A. W. Hartwig,

Auchenflower, Qld

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