OPINION: by Craig MilneNews Weekly
Has trade liberalisation helped or harmed Australia?
, June 22, 2013
The trade liberalisation policies adopted since the 1970s have opened the Australian market to imports from low-income nations, the main benefit of which has been to raise the effective income of most Australians by giving them access, formerly penalised by tariffs and quotas, to less expensive Asian manufactures.
For economic liberals, a further benefit has been the removal of a large part of economic decision-making from the deliberations of the governing class. In the former period of trade regulation, politicians and public servants involved themselves in economic decisions to the advantage of some groups and detriment of others.
Advocates of trade liberalisation saw in this involvement a corruption of the political system as influential groups sought to promote their own interests at public expense. The removal of government from industry composition and market structure decisions was seen as means of enabling better allocation of economic resources — that is, away from activities for which Australia was unsuited and towards those in which it had some advantage.
One of the arguments for tariff removal was that, as the world economy was irreversibly moving in a trade-liberalising direction, the unilateral removal of tariffs by Australia would not only increase income and improve resource allocation, it would advantage domestic economic actors who would, by starting early, be better prepared and positioned to cope with the emerging realities to which everybody else would eventually have to adjust.
Another, altruistic, benefit claimed for trade liberalisation was the helpful contribution that it made to lifting foreign nationals out of poverty by giving them access to some of the markets and employment opportunities that were formerly restricted to Australians.
The arguments in favour of trade liberalisation have been well canvassed and are widely accepted, even if some of the supporting claims are more convincing inside the academy and the bureaucracy than in the rough and tumble of real life.
What needs to be said is that the benefits of reform have not been received without costs, and the list of these for Australia is quite long. These costs are seldom acknowledged and they are worth expanding upon.
First, unemployment is now much higher than it was in the trade-regulated era. Between 1950 and 1970, the Australian unemployment rate seldom exceeded 1 per cent of the work-seeking population. That rate has climbed to about 5.5 per cent, and is arguably much more than that because the way unemployment is now measured is less trustworthy than it used to be.
The reason that unemployment has increased is that trade liberalisation caused the closure of thousands of uncompetitive Australian manufacturing firms with the loss of their jobs and the skills attached to them. The employment cost of transferring manufacturing from Australia to Asia has been between one and a half and two million jobs.
Second, the replacement of Australian-manufactured goods with imports has been the main contributor to the deterioration of the nation’s external account. An almost immediate effect of trade liberalisation was that Australia moved into a position of chronic and steadily deteriorating deficit in its goods and services transactions with the rest of the world.
The last time that Australia achieved an external current account surplus was in 1975, and since that time continuing shortfalls in foreign earnings have been balanced by borrowings, new foreign investment and the sale of Australian-owned assets. The result has been an inexorable rise in net foreign debt and a steady erosion of national sovereignty.
Third, as manufacturing contracted, the share of the economy commanded by government has grown in response. Welfare outlays have increased to support permanently displaced manufacturing workers. Education spending has risen to prepare the future workforce for hoped-for opportunities in the post-industrial economy and (mainly) to warehouse the young unemployed who would formerly have found factory work.
Delaying the entry of the young into paid work, the premature retirement of older workers and the growth of part-time and casual employment have been the means by which a reduced quantum of job opportunities has been rationed. As a consequence, the working lives of affected Australians have been shortened, thus contributing to an increase in their assistance claims on government.
More than that, government has been impelled, by electoral pressure and its own expansionist inclinations, to deal with an increase in unemployment by creating jobs in and for itself. As a result, government is larger, and therefore more intrusive, than it was in the era of trade regulation, a fact rightly lamented by proponents of small government who nevertheless fail to draw a connection between the implementation of the liberal policies they advocated and the unintended consequence of now having a public sector heading towards double the size that it was in the former period.
Fourth, the loss of large numbers of manufacturing firms, and even entire industries, that has resulted from trade liberalisation has substantially diminished Australia’s technological status and capability. In world comparative terms, Australia is less technically advanced than it was in the middle of the 20th century.
Complex industrial products, processes and projects once routinely attempted, and mastered, at an internationally competitive level, are now beyond the nation’s capacity. The dissipation of the knowledge, skills and technical capabilities that were embedded in Australian manufacturing has damaged the prospects for the nation’s future development, security and relative place in the world.
Manufacturing, as practised in the leading industrial nations, demands high levels of applied expertise for the material realisation of inventions and innovations, the design and engineering of products and processing systems, the management of complex supply and production operations, and the steady improvement of quality and productivity. It is the mastery of the art and science that underpin all of this expertise that is, more than anything else, the measure and defining characteristic of a technical civilisation, the engine of its forward movement and the foundation of its future.
To step back, as Australia has done by chosen policy, from the progressive endeavour of striving for a participation in the form of economic activity that defines membership in the elite group of advanced nations, has been an act of national short-sightedness, an egregious error and a failure by that part of the governing class that has been the author of it, to perform its allotted task and duty.
Craig Milne is executive director of the Australian Productivity Council, a private-sector consultancy industry assistance organisation originally founded in 1969 as the Commonwealth-funded peak body dedicated to productivity promotion and improvement.
Second thoughts about globalisation
History of globalisation
We tend to forget that the first stirrings of globalisation during the Age of Navigation ruined Latin America, Asia, India, and China. That was the premise of my first “Spengler” essay at Asia Times Online on January 27, 2000:
“Item: After the conquest of the New World, Spain’s entire capture of precious metals went to India and China to pay for luxury cloth and spices. That did for approximately 90 per cent of the indigenous pre-Colombian population.
“Item: The African slave trade instituted by the Portuguese and later the British first produced sugar in Brazil and the Caribbean, to be turned into cheap intoxicants for the European market. Tobacco was a second absorber of slave labour. Cotton became important much later. Production of these vices did for a third of the West African population.
“Item: In order to sell cheap cotton cloth to India, the East India Company arranged for Indians to grow opium and for Chinese to buy it. All the silver mined in Latin America, which two centuries earlier had passed to China to pay for silks, found its way back to Europe to pay for opium. That did for untold millions of Indians and Chinese.”
The loss of life was frightful. The Taiping Rebellion of 1850 to 1864 in the wake of the Qing Dynasty’s humiliation by the British claimed 20 million lives, most of them civilians. Millions starved in Bengal when manufactured cotton replaced the local handwoven cloth.
Extract from David P. Goldman (“Spengler”), PJ Media (New York), June 5, 2013.
Abolish company tax, impose 10 per cent revenue tariff on imports
Since the U.S. corporate income tax now produces less than 10 per cent of federal revenue and less than 2 per cent of gross domestic product, abolish it. Get rid of it.
Think of it. A continent-wide nation that doesn’t tax business.
Assume this would cost the Treasury $250 billion in lost revenue. How to make it up? Put a 10 per cent tariff on imports entering the U.S., which last year added up to $2.7 trillion. This tax reform would thus be revenue neutral.
And what would a corporate income tax rate of zero, with a 10 per cent tariff on goods entering the U.S.A. from abroad, accomplish? First, every U.S. corporation that had moved abroad in search of lower taxes in recent years would start thinking about coming home and bringing its production and its jobs back to America.
Second, that $2 trillion in income U.S. companies have stashed abroad would come roaring back into U.S. institutions.
Third, foreign companies would begin to relocate and produce here in America, both to get around the tariff and pay no taxes….
From 1865 to 1914, America had 10 Republican presidents. All believed in financing government by taxing imports, not the incomes of U.S. citizens or the U.S. companies that employed them.
Extract from Patrick J. Buchanan, “Abolish the corporate income tax!”, The American Cause, May 31, 2013.