December 14th 2002


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Articles from this issue:

COVER STORY: Why the Liberals were wiped out in Victoria

CANBERRA OBSERVED: First strike? With what?

VICTORIAN ELECTION: Cause of Liberals' decimation clear

Higher costs force up cover price of News Weekly

STRAWS IN THE WIND: Physician heal thyself

The panacea of free trade (letter)

Free trade: myth and reality (letter)

HOUSING: A solution to young home-buyers' nightmare

Universities: quantity replaces quality (letter)

Medicare (letter)

Ignored Australians (letter)

ECONOMICS: Just how real are Japan's money woes?

COMMENT: The cause one dares not criticise

SUGAR: Sugar cane farmers rally to unite industry

MEDIA: Counting the cost of the Pay TV war

HISTORY: Revisiting the Dismissal

ASIA: Taiwan Strait's delicate military balance

BOOKS: Dry: In Defence of Economic Freedom, by John Hyde

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The panacea of free trade (letter)


by Hal G.P. Colebatch

News Weekly, December 14, 2002
DIALOGUE ON ECONOMICS (1)

Sir,

News Weekly under B. A. Santamaria was a courageous organ that told unpalatable truths. I hope you will have the courage to allow me to say it is high time a competent economist or economic historian took Mr Colin Teese's writings to task. I make this suggestion also for the sake of News Weekly's credibility in other areas.

Mr Teese appears obsessed with hatred of free trade. This has even led him to write approvingly of the Australian Democrats, whose social and family policies are, as far as I can tell, the polar opposite of everything News Weekly and the National Civic Council stand for.

He seems unable to recognise that tariffs (a) inflate costs for domestic producers, in particular farmers and miners, making it harder for them to export, as well as for all fixed-income earners who cannot pass these costs on, and (b) punish the workers of other countries, in particular the poorest countries, by denying them markets.

Damaging

The overall effect damages both standards of living for all and world peace. He suggests free trade was responsible for the Great Depression and 20th Century totalitarianism, claiming:

"Neo-classical economic and financial policies ... had come close to destroying capitalism by the 1930s; and ... assisted the rise and spread of communism."

The opposite is true. The Great Depression had many causes, including delayed effects of the First World War, nothing to do with "neo-classical economic and financial policies". Most countries had high protection.

The major single cause, however, was probably the US Hawley-Smoot Act, the result of lobbying by the National Association of Manufacturers and the American Federation of Labor which further raised US tariffs and prevented other countries selling to the US and therefore prevented them having the money to buy from it.

The Depression was made worse in Australia by the Scullin Government's response of raising tariffs yet further, thus making Australian primary producers yet more uncompetitive. The many causes of the Depression can be traced back not to deregulation but to government intervention of various kinds.

Similarly, the rise of Fascism in Italy, of Nazism in Germany, and of aggressive militarism in Japan, were largely due to those countries being shut out of the global economy by trade barriers.

This bred resentment, aggressive nationalism and support for extremist parties prepared to pander to prejudice and intuition rather than rationality.

Goods could not cross frontiers so eventually armies did. It may be extremely harmful for the peace and well-being of future generations to now implant an idea that the disease was actually the cure.

Subsidised sugar

Turning to Mr Teese's favourite industry, Queensland sugar, this industry has probably had more government subsidy, protection and other support than any other in Australia.

This has done great damage to the rest of the country, and probably to other Queensland industries.

In 1932, when depression-hit Australia needed all the political talent she could muster, Queensland Senator General Sir William Glasgow, a man of the highest ability, forfeited his career for having dared to make a speech suggesting the high levels of support for sugar were distorting the Queensland economy.

I believe News Weekly favours a social policy that encourages small independent farms. Historically, West Australian and other farmers who made their own jams and preserves, using subsidised Queensland sugar, had their costs at least doubled. Of course their costs were also increased by tariffs on machinery, clothing, textiles, footwear and all manner of other goods. This helped send many to the wall.

Mr Teese writes of the situation today: "[G]iven that our sugar tariff is zero, how could we keep out Brazilian imports?".

The obvious answer is: why should we want to keep out Brazilian imports? Importing cheaper sugar both benefits Australian consumers and helps relieve poverty in Brazil, a country whose agricultural workers are desperately poor.

What right has Mr Teese to tell me I must pay more for my sugar than I need to? If Australians consumers pay less for sugar it both gives them a higher standard of living and allows them to produce goods for export more cheaply. Economics and Christian charity come together here.

It is ironic that while Mr Teese rails against economic deregulation - perhaps what he would call laissez-faire - his own prescriptions in the realm of international trade seem to be: "Let the poor starve!"

The flintiest-hearted capitalist might point out to him that people without incomes are seldom good customers. The precept on which human civilisation and progress have been built is not that trade is a zero-sum equation but that both parties benefit.

Further, those who must pay more for their supplies of anything than their competitors, other things being equal, become uncompetitive.

In 1991, on the centenary of Rerum Novarum, Pope John Paul II issued Centesimus Annus, a strong endorsement of the ethics of a free-market economic order.

In the same year Prime Minister Hawke rightly stated, following the Garnaut Report on Australia's trade relations with North-East Asia:

"The most powerful spur to greater competitiveness is further tariff reduction. Tariffs have been one of the abiding features of the Australian economy. Since Federation ... the supposed virtues of this protection became deeply embedded in the psyche of the nation. But what in fact was the result?

"Inefficient industries that could not compete overseas; and higher prices for consumers and higher costs for our efficient primary producers.

"Worse still, tariffs are a regressive burden - that is, the poorest Australians are hurt more than the richest. We have rejected the views of the so-called 'new protectionists' because they are simply proposing, in effect, the same discredited trade policies that had isolated our national economy from the rest of the world and caused great damage we are all working to repair."

President Zedillo of Mexico, speaking at the World Economic Forum in Davos in 2000, said:

"In every case where a poor nation has significantly overcome its poverty, this has been achieved while engaging in production for export markets, and opening itself to the influx of foreign goods, investment and technology."

For most of the 20th Century Australia had a high-protection economy. It declined economically compared to other developed countries. For example, its per capita GDP expressed as a percentage (i.e., the index taking the average of a group of "rich" countries including Western Europe and the US as 100.0) declined from 132.3 in 1950 to 99.9 in 1975. It hit a low point of 88.6 in 1992, and since the adoption of more free-market economic and trade policies has begun to recover.

This can be put another way, giving a longer picture: in 1870 Australia's per capita GDP was 187% of the average for "developed" countries. By 1997 it was 84% of the average.

I suggest the evidence of the failure of protectionism and regulation is overwhelming and the reason both major parties turned away from high protection and high regulation was not "curious", "unclear" or "surprising" as Mr Teese claims. It was simply and unavoidably the correct policy.

Hal G.P. Colebatch,
Perth, WA


(See also Colin Teese's reply)




























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