TRADE: by Colin TeeseNews Weekly
Making sense of trade policy
, September 8, 2001
The Treasurer has been in the news lately, disseminating a somewhat confusing message about globalisation.
It is, according to Mr Costello, here to stay, whether we like it or not.
He's right, of course, in this one sense. There is a phenomenon properly called globalisation. And it is here to stay. But it isn't what the Treasurer means by globalisation. Properly identified, the concept of globalisation is nothing more than recognition that, over time, the world has been drawing closer together. In fact ever since men learned how to communicate more rapidly across continents and oceans. The more easily and quickly we have been able to reach each other, the closer nations and people have been drawn together.
These days some like to call it the communications revolution, but really, it's globalisation, and it has been going on for centuries. And it surely is both inevitable and unavoidable.But Mr Costello is talking about not globalisation, but corporate capitalism; and that is neither inevitable nor unavoidable.
It is however the current orthodoxy so far as economic management is concerned - at least in the English-speaking, developed world. And, even within that narrowly defined group, practices differ widely.
Corporate capitalism is not easily defined in simple terms, but we can identify certain of the fundamental characteristics that lie behind it. Free trade is one, both in so far as goods and services are concerned. So is the deregulation of financial markets.
Now, for popular consumption, all of this is dressed up as if it is derived from a respectable body of economic theory. It isn't. In fact these economic prescriptions have no sound theoretical basis. Rather, they derive from an ideology rooted in the idea that economies work best if they are left free of government interference or even oversight. In Australia, this has been dubbed "economic rationalism".
As presently formulated its principles are said to derive from what has recently been described as the 'Washington consensus'. Nobody seems to be able to explain how this so-called consensus was arrived at, or who were the parties to it.
One thing is certain, however. Economic policy in Australia, for almost a generation, has been fashioned as if we were part of that consensus.
There is another certainty. If Australia was a party to any arrangement as to the formation of economic policy according to some pre-determined ideology or doctrine, the government who so committed Australia has not taken the trouble to inform either the Australian Parliament or the people.
But what about the policy and whom it advantages?
Well, it certainly is not Australia. As far as we are concerned, the introduction of free trade and deregulationist policies has achieved a kind of economic miracle. The kind we don't want.
It has turned what was a perfectly well functioning economy in the early 1970s into one which today is dysfunctional in many important respects. And most certainly, even as the advocates of the present policies admit, it has changed the balance of fairness.
The process which has taken us to the point where we are now at was begun, it should never be forgotten, by the incoming Whitlam Labor Government in 1973.
At that time, Australia was running a strong currency, a healthy trade surplus and, despite a deficit on what was then called the invisibles account (now we call it services), the current account was in surplus.
Obviously this healthy state of affairs displeased the Whitlam economic advisers. On advice, the Government's response was to cut tariffs by 25 per cent across the board - presumably, to offset the trade surplus. (Australia must be the only country in the history of international trade, which, as a response to its trade surplus, has opened the floodgates to imports.)
Less innocent economies happily pocket surpluses in the certain knowledge they will be needed to offset future deficits.
And that was not to be all. In order to curtail further the surplus, the Government embarked upon an offshore spending spree in order to further run down the surplus. For example, our Foreign Affairs Department was encouraged to buy overseas property.
Of course the policy worked. The precious surplus quickly evaporated. But there were consequences. Whether or not they were unintended can only be known to the Whitlam Government and its advisers.
Cutting back on protection began the process of eating into the market share of domestic manufacturing industry. Farmers were encouraged to believe that this was of benefit to them. The message was that the cost price squeeze affecting farmers was due to tariffs, and that manufacturing industry and city workers were riding on the backs of farmers.
It wasn't true, of course, but it struck a chord with many farmers and the architects of the new economics were able to find a temporary ally.
What really happened was quite different. Cutting industry protection sacrificed local industries to imports. This, in turn, led to unemployment. Workers previously employed became a charge on welfare. Revenues were curtailed by reductions in PAYE tax collections as a result of unemployed workers. Also tax collections from tariffs were seriously curtailed.
Pressures mounted on the budget. Funds were not available to be chanelled into areas of health and education, or, incidentally, in farm support.
As the level of manufacturing declined we imported more and more of what we needed. The current account slid quickly in to irreversible deficit that has now reached critical levels. Debt servicing and interest payments accounts for more and more of our overseas earnings. The more so since the currency has moved into steady decline in value.
It is worth recalling that the value of our exports measured in US dollars is about the same as in 1973. Yet all of the goods we have to import have risen out of all proportion with our capacity to pay for them.
Farmers, who it was said at the beginning would be winners out of these economic changes, are now among the biggest losers. What they were not told is that a prosperous manufacturing sector was essential for their prosperity, and, further, that once industry protection was reduced the next focus would be on farm produce protection.
It was necessary, farmers were eventually told, to dismantle our own barriers to farm imports if we were to have any hope of opening up overseas markets to our farm products. And this was vital, they were further told, given that we sold 80 per cent of our output in overseas markets.
That, too, turned out to be incorrect, and farmers now face a future every bit as grim as manufacturing industry unless the policy of reducing farmers' border protection can be reversed.
The fact is that farmers and city people in Australia depend upon each other. One group cannot prosper without the other.
Now the policies which have led city and country into this sad plight, may have been implemented in a global world, but the fault lies not with globalisation. They have resulted by the application of deliberate and perverse policies by successive governments. They are neither inevitable or irreversible. Governments have implemented them. They may be changed by governments.
Ordinarily, that would be no problem for electors. But the difficulty is that both the major parties stand for the same policies. The challenge for voters then is to keep rejecting the major parties in favour of independents, who are prepared to stand up and demand change, and to keep doing so until independents are of sufficient strength to change the course of policy.
At that moment, perhaps, even Mr Costello may be prepared to accept that what he calls globalisation is neither inevitable nor unavoidable.- Colin Teese