Why the domestic market is so important.by Colin TeeseNews Weekly
, May 19, 2001
The neo-classical experiment has failed. Again. As it did in the first part of the 20th century. Except for those unwilling to acknowledge the cracks opening up all over the deregulation, privatisation and so-called free trade experiment. Yet, it remains the policy prescription that most of the Western world - Australia included - staked its economic future on some 25 years ago.
Look at the evidence.
As to economic performance, we can now consider the figures on growth rates - thanks to a study of 116 countries by American scholars, using IMF and OECD data. Measured against the preceding two decades, all but a handful of those 116 countries recorded lower growth between 1980 and 2000 than for the period 20 years earlier. These included Australia.
Of those countries that took the neo-classical experiment seriously, only Britain recorded a slight increase in the rate of growth of its economy in the period 1980-2000 as compared with the previous 20 years.
The outstanding growth economy in the latter period was China (though from a low base). And, as we all know, that country has not followed the deregulation experiment.
Australia, on the other hand, has. And, as many of us might have already concluded instinctively, it is to be found among the overwhelming majority of economies that have gone backwards.
Privatisation and so-called deregulation has fared little better than economic growth. Airline deregulation is the latest casualty. What has been happening recently in Australia demonstrates how important the previously maintained Two-Airline Policy and the regulatory mechanisms of the former Department of Civil Aviation were for airline safety standards in Australia.
Nor can the opening up of banking to international competition be said to have delivered better outcomes. The same can be said of privatisation. Neither here nor overseas have private operators delivered either cheaper or better electricity, public health or education.
As to the centrepieces of the experiment, so-called free trade and financial deregulation, have, here in Australia, combined to deliver an imbalance on the trading account sufficient to permanently threaten the nation's economic stability.
That, along with an unwelcome and disgracefully high level of permanently unemployed.
Notwithstanding, the Australian Government, for some inexplicable reason, has decided this is moment to pursue the matter of a so-called free trade area with the United States. Perhaps it is associated with what may be thought advantageous from such action in an election year.
In the days of an independent Public Service it was customary, in the run up to an election, for departments - within their areas of expertise - to develop policy initiatives for consideration by the Government.
In my experience it is inconceivable that trade officials would suggest a free trade initiative in the present circumstances.
Despite all the evidence in the other direction, neo-classical economic ideologues have, apparently, once more convinced our Government that the removal of trade barriers automatically benefits the country removing them- whether or not the gesture is reciprocated.
Theoretically, that may be true in certain highly qualified circumstances for very large economies.
In practice it is never true. And small, open economies, whose industries are always prone to swamping from the output of larger trading partners, are especially vulnerable. For them the domestic market is always of pre-eminent importance, and it, of course, is seriously at risk in a free trade environment.
As it stands, free trade ideology, in the hands of economic rationalists and their followers, has turned Australian industry into the sacrificial lamb of trade policy. For manufacturing industry, massive reductions in protection and a dilatory use of measures needed to arrest the flow of dumped imports, has proved disastrous.
And now, competition policy, along with a permissive attitude towards quarantine and dumping matters, threatens to undermine the farm sector.
And yet, the Howard Government is being advised - or should one say ill-advised - by ideologically committed counsellors to pursue a free trade agreement with the US, when the circumstances simply don't favour Australia.
No doubt bogus arguments will have been advanced to demonstrate alleged "enormous benefits" to us. The government, unwilling to open itself to alternative advice, may well have swallowed them.
Advice from the same quarter, probably also explains why the present generation of public officials - in both quarantine and anti-dumping administrations - are permitted to pursue policies which, in effect, allow imports a preferred position over domestically produced goods, even beyond the needs of WTO rules.
The Australian government is surely the only signatory member of the WTO that allows its officials the right to interpret WTO rules in ways that disadvantage its own farmers and manufacturers.
More than that, the Australian Government appears not to understand the basis upon which international trade negotiations are conducted- at least by the most significant players.
Trade negotiations are not now, nor were they ever, clinical experiments in the service of free trade ideology, but rather mechanisms through which trade concessions are exchanged.
If you are a small player, like Australia, the best you can hope for is an exchange that gives as much as it takes. More likely, though, you will come out on the wrong side of the balance in any exchange with the big players.
And the US has already served good notice on us. While its response has been ambivalent, we have been left in no doubt as to at least some of the specific US demands, even at this early stage. It wants our quarantine regulations relaxed, and our single selling desks for certain agricultural commodities abolished. There will be more demands. Realities
Presumably, those advising the Government will recommend going along with their demands. What else can they do?
One of the facts they (and the Government) will have to face is that negotiating realities being what they are, we have chosen to be the demandor party.
And one with little bargaining coin, having already reduced our tariffs to negligible levels unilaterally.
It is a cardinal rule that one never initiates a negotiation when the only bargaining coin one brings to the table is that which one cannot afford to give up. Especially when the negotiating adversary is by far the more powerful. As things now stand, that is what the US is demanding of us.
Of course, if we were not carrying ideological baggage, we could conjure up some negotiating strength. And if we understood the rules, we would already have stated our wants in much the same way that the US has done with us.
We would, for example, have pointed to the trade balance heavily in Australia's favour due to trade restrictions on imports of importance to us. And be reminding them of the US delay in agreeing to abide by the umpire's decision on its own lamb restrictions. We would insist that its anti-dumping laws and procedures be brought into strict line with the agreement it signed when it joined the WTO.
Also we would be tackling its agriculture subsidy arrangements. This has been the line taken by Brazil, Argentina and Paraguay in their free trade negotiations with the US.
But don't expect any of this from our side unless there is a complete change of ideological heart.
With the present disposition of both major parties, the real danger is that we will concede ground in the areas of quarantine and agricultural marketing and gain nothing of substance in return. Just what we can't afford.
Concessions on quarantine will seriously harm Australia's national interest in ways that will be irreversible. Once the gate is opened for the entry of diseased plant and animal life into Australia, it can never again be closed.
The economic losses flowing from such action could be massively and permanently harmful to our economy. There is no way they could ever be replaced.
With all this in mind why are we pursuing a free trade arrangement with the US when we know with certainty (because it has told us) that America won't consider liberalisation on agriculture except in concert with the European Union?