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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Free trade: myth and reality (letter)


by Colin Teese

News Weekly, December 14, 2002
DIALOGUE ON ECONOMICS (2)

A reply to Hal Colebatch's letter

Sir,

Without in any way contesting Mr Colebatch's standing as a commentator, I would like the opportunity to comment on some of his observations.

On "free trade", the economics text books tell us it cannot work without the presence of two conditions - full employment and perfect competition.

Why these conditions? Because without full employment the economy's productive capacity will always be underutilised. And without perfect competition consumers won't be in a position to make properly informed choices.

As we all know the former is not now present in Australia, and the second cannot ever be.

Practical experience backs up theory. Back in the early 1980s, the Industries Assistance Commission modelled the effects of free trade for the Hawke Government.

Anticipating huge benefits, its first model assumed a realistic amount of unemployment from the effects of cutting industry protection. The model predicted a disastrous economic outcome. The same data was remodelled assuming full employment. It demonstrated healthily positive results, which were transmitted to the Government and became the basis for its policy of dismantling of industry protection.

Mr Colebatch advances all the generalised arguments about the benefits of free trade, deregulation and privatisation - that is more rapid economic growth and lower prices.

He also insists that protection raises costs to consumers. If this is really so he needs to explain, why the massive devaluation of the $A over the last decade or so - which of course makes imports dearer - has not resulted in higher consumer prices?

The fact is that imports, like Mercedes Benz, are priced to what the market will bear. Here it is a luxury car. In Europe it is priced to the middle class.

As to economic growth, I prefer to trust fact rather than assertion.

The Centre for Economic and Policy Research in Washington has drawn upon World Bank and IMF data from 116 countries to test the assumption that globalism - i.e., trade liberalisation, financial and other deregulation and privatisation - has spurred economic growth. It measured growth in per capita output 1960-80 compared with the 1980-2000 free market period.

From 1960-80 aggregated output per person grew, on average, by 83%. 1980-2000, for the same 116 countries, it grew by 33%.

Only about a dozen out of 116 countries examined experienced better growth performances over the1980-2000 period. Most notable of these were India and China, neither of which has followed the deregulation path, i.e. the "Washington Consensus"

Russia, which followed the deregulation model has done worst. The number of poor (living on less than $4 per day) has risen from two million to 60 million in little more than a decade. Brazil, Argentina and Mexico - all deregulating enthusiastically - have also done appallingly.

Finally a word about sugar. Mr Colebatch, as a consumer, resents the idea of keeping out subsidised Brazilian sugar to help Queensland producers. I wonder whether he would get support from Western Australian wheat farmers if he were to suggest their livelihoods should be threatened by cheap subsidised imports?

Australians need to understand that in a world awash with subsidised products freely available for export, there is nothing we use that cannot be bought cheaper from overseas. But how would we pay for it all?

Bob Santamaria, of course, understood all of this, which was why he questioned the merits of deregulation.

Colin Teese,

Brighton, Vic




























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