March 11th 2017

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Articles from this issue:

COVER STORY Money flows freely to fuel anti-coal campaign

CANBERRA OBSERVED People and renewables get on till pay day arrives

EDITORIAL Commission report demonstrates old saying about statistics

ENVIRONMENT Ignore claims that Antarctic ice sheet will melt away

SAME-SEX MARRIAGE Taiwan society divides over gay agenda

ECONOMICS Globalisation: a bumpy ride for some

GENDER POLITICS Parliamentary stalemate on same-sex marriage

CULTURE WARS Samizdat and the internet

FOREIGN AFFAIRS Theresa May prepares Britain for post-EU life

HISTORY Christianity and progress in human happiness

MUSIC What's the score? Originality v novelty

CINEMA Silence: Stamping on the face of faith

POETRY AND SOCIETY The modern world and damnation as voyeurism

SOCIETY The working class and globalisation

BOOK REVIEW The man who split the party

It's time to build new water storages in the Basin

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Globalisation: a bumpy ride for some

by Colin Teese

News Weekly, March 11, 2017

My intention since the beginning of this year has been to write about free trade. It’s time to have another look at the subject, if only to recognise that free trade and its associated economic elements have taken on consequences which its proponents must surely recognise. Also, public opinion has turned more skeptical.

I don’t want to cover the ground Craig Milne apparently traversed at the 2017 NCC National Conference. I fully agree with the points Mr Milne made.

Shanghai, China, has certainly flourished on free trade.

But more can be said. Once, ordinary families could expect to buy a house, with the breadwinner in stable, regular employment, and could expect to pay it off over a working life. Not any more. Home ownership, for such Australians, is moving further beyond reach with each passing year.

Not that Australia is a special case. Other nations have been no less badly affected. Because of the harm done to jobs and the economy in the United States by unrelenting import penetration, Donald Trump, against all the odds, managed to get himself elected President of the United States.

Beyond the U.S. and Australia, with few exceptions, other Western economies have fared much the same. Like Australia, they have been transformed from high-wage, low-cost economies into low-wage, high-cost economies with stagnant real wages.

All this being said, it is time to examine the context within which free trade was thrust upon us.

No inevitability

To do that we have to understand globalisation. For the last three decades globalisation has been presented as if it were some kind of inevitable evolutionary economic outcome. German Chancellor Angela Merkel recently claimed just that. The Chancellor is wrong. Globalisation is nothing more than a new economic construct. Actually, three constructs pushed together.

Globalisation, neo-liberalism and the Washington Consensus (an economic plan encompassing globalisation and neo-liberalism, devised by a combination of the U.S. Treasury, the International Monetary Fund and the World Bank): three strikingly similar ways of describing much the same thing.

That things is new form of economic organisation in which the production, delivery and financing of goods and services are left almost entirely to market forces. Democratically elected governments and the politics that go with them, under the new economics, are largely excluded from their traditional roles as guardians of national and community interests.

U.S. President Ronald Reagan once famously asserted that governments were part of the problem rather than the solution.

The new economics had a few essential elements:

1. Privatisation of publicly run utilities such as electricity generation and distribution, education, public transport and others. Despite the fact that these are all natural monopolies not necessarily best disciplined by markets.

2. Permitting capital flows across national borders outside government control, and thereby subjecting national currency adjustments to the ebb and flow of international capital movements.

3. The demand that wage and labour markets should similarly be subject to market forces rather than negotiated arrangements.

4. Free trade, that is to say no border protection in any form, including tariffs, was to be the universally accepted trade policy.

One result was that elected governments were constrained by a straitjacket of rules (for example, public-sector borrowing requirements) when it came to shaping national budgets. Even so, governments embraced globalisation, which would support the freest possible flow of market activities across national borders.

Proponents enthusiastically asserted that globalisation was not merely inevitable, but that the economic growth gains arising from it would ultimately lift the yoke of poverty from the entire world’s poor.

Twenty-year report card

Brave words – though these extravagant claims did not find universal acceptance. From the very beginning there were pockets of discontent. One was the U.S. think tank the Center for Economic and Policy Research (CEPR). After 20 years of globalisation, the CEPR decided it was time to evaluate the new experiment.

Based on careful assessment of the data, the CEPR published its findings. These showed that for the countries the CEPR had been able to measure, all but two had enjoyed worse economic growth performances during the 20 years of the experiment than had been managed in the previous two decades. The two that had prospered during the globalisation years were China and India, neither of which had embraced the “reforms”.

Things have not got better. It is not going too far to claim that the new economics was principally to blame for the 2007–08 global financial crisis (GFC) from which the world is yet to recover.

The Australian voting public was never wholly behind the idea – perhaps they were smarter than the politicians recognised. They could never be quite convinced of the benefits of being offered the chance to buy public assets that they thought they already owned – like the Commonwealth Bank and electricity generating plants.

None of this has, however, prevented successive governments – labour and conservative alike – from continuing to push the idea in the face of mounting public opposition.

The matter of financial deregulation and floating the currency proved easier to sell. It did not so directly touch the hip-pocket nerve in the same way that privatisation did and, in any case, was difficult to understand.

Yet financial deregulation and currency changes have had profound, and sometimes adverse, implications touching all aspects of economic life – including housing affordability, small business prosperity and, especially, exporting.

When we allow our currency to rise in value against those of our trading partners, our exports become more expensive and producers lose sales to international competitors who have managed their currencies.

Having a managed currency confers a permanent export advantage (think about the big exporters such as Germany, Japan and China). Increasing their exports means they have accumulated ever-larger cash surpluses. Good for them but bad for others. Not all trading partners can run cash surpluses; a surplus in the hands of one partner necessarily creates a deficit in the hands of another.

Discussion of capital movements and currency manipulation leads us naturally into the consideration of free trade, since the two are joined at the hip.

Does free trade always benefit the importing country? Not an easy question to answer. The better question is whether the benefits of free trade fall with equal measure on all citizens in the importing country. The answer to that question is emphatically ‘no’. Notwithstanding, advocates of free trade will argue that consumers (and therefore everyone) enjoy the benefits of free trade in the form of cheaper goods.

Further, while they concede that import competition will destroy some local businesses, resulting in unemployment, they insist that the disruption will be only temporary. In that view, the unemployed will easily find jobs in new businesses that will start up.

Experience contradicts this assertion. Employees displaced will not necessarily find new jobs, or even any jobs.

Furthermore, tariff-free entry for goods will benefit consumers only if the lower prices are passed on rather than retained as extra profits. In Australia we have evidence that the lower prices have not always been passed on.

So, where does that leave us with the experiment with open markets free of government interference and control? The scorecard does not read well.

A reflection

Much of the neo-liberal, globalisation framework has been captured by far-right interests. It has been noted that, at the extremes, left and right converge. Communism, after all, was an international movement (Lenin believed you could not have it in one state). He also believed that government, ultimately, was unnecessary.

Subscribing democracies have been plagued with rising inequalities, high unemployment and low wages growth. What about developing countries? On paper the outcomes there look better, but really only the poor in China, and to a lesser extent India, have gained. And, if Mr Trump is right, those gains have come at the expense of U.S. (and Australian) workers. Is globalisation, after all, just spreading the wealth differently?

Economics aside, however, has globalisation been better for the wider world?

American economist Dani Rodrik suggests it has not. He has developed a “trilemma” theory. He argues that it is impossible to have Democracy, Deep Global Integration (including economic integration) and National Sovereignty. Any two in combination is possible, but not all three.

He’s right. Trying to pretend otherwise has led the world into its present state of crisis – not merely economic crisis, but to the domestic political crises that most Western democracies are now confronting; and further, into the international instability facing all of us.

The folly of trying to manage nation-state democracies in circumstances where governments are precluded from functioning as coordinating elements is now being fully exposed.

The election of Donald Trump in the U.S. and the turmoil paralysing Europe are examples of what can happen. Economists behind the globalisation experiment all believed that if politics could be excised from the equation, economics could deliver the best of all possible worlds to all people. They have been tragically mistaken. The ideals to which they remain firmly committed are coming apart before their eyes.

What we are seeing, not for the first time in history, is that ultimately politics trumps (no pun intended) economics every time. Nation-states with essentially different cultural identities don’t easily surrender their independence to ideologies – economic or political.

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