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The return of protectionism: the gang’s all here

The successful economic reform project of the last 30 years stands at an important juncture. A key component, free trade, is under increasing pressure from organized labour, the balance of power party and conservatives, and all that stands in the way is a minority government.

I suggested a fortnight ago that in their obsession with securing power, the Coalition had “defected” from the consensus of the last 30 years, abandoning the rules by which the political game had been played in Australia, give or take the occasional breach by both sides, since 1983. Events since then have only reinforced that perception.

First there was the Coalition’s bid to overturn the government’s decision on New Zealand apples, initially via a measure that would have clearly breached WTO rules until a measure of sanity prevailed.

Now there’s a clear push for manufacturing protectionism from Sophie Mirabella, who while – like everyone else – is unwilling to cop to the protectionist label, is talking the crudest kind of protectionist rhetoric about “playing fields not being level” and “subsidized goods distorting our markets” (“our” being the key emotive word).

Like every other protectionist, Mirabella labours under the delusion that protectionism helps an economy, rather than damages it, and the most intelligent response to another country inflicting damage on their economy is to damage your own. You punch yourself in the face, well, cop this — I’ll give myself a black eye.

Meanwhile, Barnaby Joyce has been ramping up his xenophobic campaign against foreign investment, claiming an OECD report showing we had fewer restrictions on foreign investment in agriculture and mining than other countries was a problem, rather than a positive. Although, oddly, Joyce’s economic nationalism seems to disappear when it comes to the sale of Cubbie Station, the interests of which Joyce has enthusiastically devoted himself to ever since he arrived in Federal politics.

The array of foreign–owned agricultural companies bidding up the price of Cubbie has elicited no comment from the locally-based senator thus far. Possibly Joyce thinks it OK for Cubbie to get a top sale price from competition engendered by foreign investment, but not farmers elsewhere.

Yesterday Tony Abbott spoke at a CEDA conference and sought, as is typical of him, to hold all positions at once:

The Coalition is strongly opposed to industry policy that props up over-manning and feather-bedding or that does not count the cost of intervening and honestly face up to it. On the other hand, if there’s a respectable case that can be made for maintaining a heavy manufacturing base on the grounds of national security, the inherent value of a diversified economy or the transitional costs of shutting down capital intensive industries only to start them up again when market conditions change, there needs to be a forum where it can be addressed.”

So in essence, Abbott, yet another proclaimed non-protectionist, supports protection in the right circumstances, but favours the Right’s traditional justification for protectionism — “national security” (normally the phrase is “strategic industries”) — rather than the Left’s traditional justification, supporting well-paid local jobs. Both are just excuses for propping up uncompetitive industries for political reasons.

In the Coalition’s case, its commitment to protecting industry is particularly amusing given its role in stopping the one policy measure that would have mitigated the impacts of the resources boom on the manufacturing sector, the RSPT. And Paul Howes, Dave Oliver and even Heather Ridout all have the excuse that in demanding industry assistance they are merely doing their job of representing the interests of those who pay them. What’s the Coalition’s excuse?

In some parts of the Liberal Party, sense still prevails. This week Josh Frydenberg called for a sovereign wealth fund to offset the mining boom, following the lead of Malcolm Turnbull on the issue. The Greens — who favour a heavily interventionist national industry policy — also back a sovereign wealth fund.

But protectionism, once considered dead, buried and cremated, now has a strong array of allies in Australian public policy: left and right-wing unions, major employer groups, the Greens and the Federal Opposition. Free trade has in its corner Treasury and a minority Labor government that, mostly, has so far resisted pressure – a particularly commendable feat from Kim Carr, long the doyen of Labor industry policy, who has stuck fast to the mantra of innovation rather than protectionism. But even Labor has thrown money at the steel industry to prop it up in the face of a high dollar and Bluescope’s dud management.

And for how long will Labor resist the pressure if the dollar remains strong and job losses keep mounting?

Several Coalition MPs are eager to turn the adverse conditions facing manufacturing into an excuse for more industrial relations reform. They’re drawing on the growing commentariat consensus that Something Needs To Be Done about Australia’s productivity.

It’s a measure of how poor our economic debate can be that discussions about productivity still, in even otherwise well-informed minds, default to thinking about ways to make Australians work longer hours for less pay and poorer conditions.

As I pointed out back in June, labour productivity data shows that productivity in Australia fell off a cliff under that all-you-can-eat IR reform buffet of WorkChoices. Reform advocates might argue that WorkChoices didn’t have long enough to have an effect – but that hasn’t stopped them from arguing, only two years into the Fair Work framework, that that has failed and needs an overhaul.

A decline in productivity under WorkChoices was actually predicted by Treasury in advice to then-Treasurer Peter Costello, who curiously decided not to release it, until FOI guru Michael McKinnon obtained a copy.  As Treasury pointed out, IR reform must necessarily decrease productivity by bringing into the workforce lower-skilled workers who currently aren’t competitive with the rest of the workforce.

The productivity = IR deregulation crowd don’t even know their history. As a Parliamentary Library paper showed a decade ago, labor productivity growth was higher in the 1990s in Australia than in the 1980s, but lower than in the 1970s — the archetypal period of stroppy trade union leaders, rampant industrial warfare and heavily regulated industrial relations.

Still, constantly pointing out such inconvenient facts appears useless. The refrain that all would be well if Australians were stripped of conditions and unions were curbed a bit more is being heard again and again. It’s an article of faith among many, and not amenable to rational argument.

50
  • 1
    Bellistner
    Posted Tuesday, 30 August 2011 at 12:58 pm | Permalink

    And just the other day, Abbott came out and all but admitted that he’d bring back Workchoices MkII.

  • 2
    Jimmy
    Posted Tuesday, 30 August 2011 at 1:20 pm | Permalink

    When will true liberals realise that Abbott is not the man they need and if he wins the next election his complete lack of economic management and his ridiciulous magic pudding promises will cause the liberal party irrepairable harm.

  • 3
    Holden Back
    Posted Tuesday, 30 August 2011 at 1:21 pm | Permalink

    You missed Sharman Stone complain about inequitable rules for acquiring property for Australians and New Zealanders in each other’s country.

    No, really.

  • 4
    John Newton
    Posted Tuesday, 30 August 2011 at 1:27 pm | Permalink

    Fee Trade Bernard - you mean like NAFTA? You mean like American farm subsidies? Why not Fair Trade?

    And as for New Zealand apples, when the WTO ignores environmental protection, I really do think we should tell them to go jump.

    Read Raj Patel’s Stuffed and Starved for some interesting information on that benevolent organisation the WTO.

  • 5
    Michael
    Posted Tuesday, 30 August 2011 at 1:42 pm | Permalink

    BRING BACK “WORK CHOICES”
    The only way to save Manufacturing.

  • 6
    Posted Tuesday, 30 August 2011 at 1:48 pm | Permalink

    Of course Crikey has its own advocates of protectionism in Margaret Simons and today’s anonymous editorialiser, this time to protect ‘quality’ print journalism which is apparently crucial to support Australian democracy, presumably in the same way that Athenian democracy depended on quality papyrus journalism.

    US farm subsidies are destroying US agriculture just as much as European Union agricultural subsidies are ensuring that European agriculture remains permanently crippled. The World Trade Organisation doesn’t ignore quarantine protection but it does ignore trade protection using excessively protective quarantine conditions.

  • 7
    Scott
    Posted Tuesday, 30 August 2011 at 1:55 pm | Permalink

    Are people forgetting what Productivity is? It’s just GDP/labour hour. So if your labour hours are growing faster than GDP, productivity will drop.
    Over the years than Workchoices were in (2006 - 2008), monthly hours worked grew faster (at 0.28%) than monthly GDP growth (0.24%). So of course, productivity suffered. But more hours worked is not a bad thing, especially for those that now have some income.
    The 2 years before (2004 - 2005), monthly GDP grew at the same rate (0.17%) as monthly hours growth (0.17%).
    The 2 years since (2008-2010), monthly GDP has grown at a higher rate (0.1%) than monthly hours (0.04%).
    Productivity is not the be all and end all. It doesn’t tell the full story. It’s important, but I would argue that job creation is more important. Job creation turns into higher GDP/capita (i.e Standard of living) whereas productivity sometimes does not.

  • 8
    Mark Duffett
    Posted Tuesday, 30 August 2011 at 1:55 pm | Permalink

    So what did drive productivity growth in the 1970s? Capital investment and technological innovation?

  • 9
    C@tmomma
    Posted Tuesday, 30 August 2011 at 2:17 pm | Permalink

    You can’t have any sort of productivity increase without a job to increase the productivity of. Mining employs less than Manufacturing. Therefore, to increase the nation’s productivity we need to keep creating the Manufacturing jobs of the future as the old ones wither and die on the vine.

  • 10
    Jimmy
    Posted Tuesday, 30 August 2011 at 2:27 pm | Permalink

    C@TMomma- That is completely true (although you could probably just say “jobs of the future” rather than “manufacturing jobs of the future”) and the MRRT package and the Carbon Tax package both seem to provide the opportunity to do just that.

  • 11
    Peter Ormonde
    Posted Tuesday, 30 August 2011 at 2:30 pm | Permalink

    Top piece Bernard and a top comment from Scott.

    The appalling thing about the “manufacturers” - the only thing they seem good at is manufacturing excuses. They do not invest. They do not train. They do not innovate. They are dragged kicking and screaming into export lured on by Government handouts and help ….
    When will Australia actually get a capitalist class? The current batch of rent-seekers are a sorry excuse for a class at all. Maybe the refugees were accepting will bring a much needed entrepeneurial approach like they did after ww2.
    Not worth feeding this mob.

  • 12
    Jimmy
    Posted Tuesday, 30 August 2011 at 2:36 pm | Permalink

    Peter - I am shocked “Maybe the refugees were accepting”?

    Michael - How does screwing your employee’s improve productivity? Innovation is the key, we will never compete with China or India on employee conditions so we need to be smarter.

  • 13
    Michael
    Posted Tuesday, 30 August 2011 at 2:53 pm | Permalink

    JIMMY
    W-O-R-K C-H-O-I-C-E-S-!
    Simple, easy to spell and very effective.
    Workers want security? Take a pay cut, offer flexibility, vary working hours, no penalty rates, etc then they might compete. Otherwise amigo its ‘hasta la vista’!
    Watch QANTAS - same story.

  • 14
    C@tmomma
    Posted Tuesday, 30 August 2011 at 3:01 pm | Permalink

    Jimmy,
    You may be interested in my reply to Rundle’s rant too. :)

  • 15
    Jimmy
    Posted Tuesday, 30 August 2011 at 3:13 pm | Permalink

    Catmomma - I could only get about 1/3 of the way through reading that rubbish from Rundle but having gone back to look at your comment all I can say is I whole heartedly agree with you.

    If these trade exposed industries can’t take the compensation given to them under the Carbon tax (which the Grattan Institute today states is to generous) and turn it into a competitive advantage or to finance some innovation then no matter what the govt (either colour) does they will be doomed to a slow death.

  • 16
    michael crook
    Posted Tuesday, 30 August 2011 at 3:58 pm | Permalink

    Mark: one of the things that drove productivity growth in the 1970’s was the Whitlam government and a climate that allowed some of the worst excesses of unsafe work practices to be ameliorated. The thirty seven and a half hour week, and better construction safety practices all helped. I worked on refinery construction in Gladstone in thoses years of struggle and it was amazing the changes that occurred over that period, all for the better. But, alas, the employers struck back in the eighties by bringing in the deadly 12 hour rotating shifts which caused productivity to plummet, and showed how little the employers (or state Labor governments) cared about employee safety. To the employers in manufacturing and mining who adopted these practices, their workers were no different to a tonne of steel or a litre of hydraulic oil, a tool to get the job done. To those of us in project management who were a bit brighter, we realised that a fully informed participatory workforce was worth a million bucks, all you had to do was treat them like adult human beings and they would respond accordingly. This message has still not got through to either the Liberals or the generations of manufacturing and mining employers since.

  • 17
    SBH
    Posted Tuesday, 30 August 2011 at 4:06 pm | Permalink

    Jimmy and C@tmomma you’ve gotten Keane all wrong. The outcome he forsees , Tom Freidman-like, is a world where the west continues to create an unlimited supply of ‘information jobs’ and all the world’s manufacturing workers achieve a living wage thus killing the competetive advantage of a third world of dangerous militarised factories in dormitory towns far from home where you’re one of the lucky ones cause you’ve got a job paying $40 a week. Still at least the people that make flat screen teles are’nt down a chinese mine. As for Rundle - pfft

  • 18
    Viking
    Posted Tuesday, 30 August 2011 at 4:21 pm | Permalink

    by Bernard Keane
    “The successful economic reform project of the last 30 years stands at an important juncture. A key component, free trade……..” Tell me Bernard, how many economic downturns have we endured in the past 30 years of your ‘successful reform’. The latest which the world is experiencing at this moment sees europe and the USA in a financial quagmire unprecentended in the past 70 years, and this is due to the free Free Trade employed by the moguls who command our capitalist system. The billions of dollars donated to these financial paper shufflers has not extricated the US or europe from their dire situation but further lined the pockets of the purpertrators of the situation. Free trade is akin to communism in that they are both lofty ideals which must fail because of human frailties.

  • 19
    Microseris
    Posted Tuesday, 30 August 2011 at 4:22 pm | Permalink

    Globalisation via “free trade” is a race to the bottom. Its already happening in many western countries like the US. A significant proportion of their manufacturing has collapsed and many of the lower levels of the service industries are often the working poor. On current trends, either most manufacturing will head overseas or pay and conditions for workers in the western world will head towards those in developing countries within the next decade or two.

    Innovation is a thumb in the dam wall. May hold off for a while, until the developing countries catch on or snaffle the ideas.

    One day we will pay top dollar for manufactured goods, having lost the expertise to make them ourselves. Hopefully we are still producing all the food we need.

  • 20
    tone16g
    Posted Tuesday, 30 August 2011 at 4:28 pm | Permalink

    Sorry, but what’s wrong with protecting what you have? I actually expect my government to provide protection in a whole range of areas - invasion by foreign armies, threats by armed thugs, underweight meat at the butcher’s, vermin in the streets… I’d actually like some protection from feeling ashamed at my country in relation to asylum seekers too, but some things seem just too much to ask.

    I think part of the problem with a debate about “free” trade, is how narrow the definitions are.

    Capital is supposed to be free to move about the globe, but labour must be tightly regulated. In fact, in some of our trading partners, labour is regulated with beatings, imprisonment and death, if they are protectionist enough to want to organise to protect their rights.

    And I’m deeply suspicious of statistics being used to measure “productivity”. Productivity - what even is that?

  • 21
    Jimmy
    Posted Tuesday, 30 August 2011 at 4:33 pm | Permalink

    Viking - I think Bernard might have been referring to Australia rather than the global economy and the US and Europe do not even come close to embracing free trade. Both have massive subsidies in agriculture for a start.

    The US does embrace capitalism at the expense of a decent health, welfare, and public school system plus a decent minimum wage and employee rights.

    Europe’s issue’s are at least partially born out of a to generous welfare system which enabled retirement at 55 in places like Greece which caused a significant drain on govt funds.

    In short it isn’t the abolition of trade barriers that caused their problems but it is one of the things that is preventing us from following suit.

  • 22
    Jimmy
    Posted Tuesday, 30 August 2011 at 4:36 pm | Permalink

    Tone16g - “Sorry, but what’s wrong with protecting what you have?” Would you prefer the govt spent you tax payer money paying bluescope to make steel or investing in infrastructure at ports, or new rail or even the NBN that makes it easier and cheaper for all business to compete?

  • 23
    Jimmy
    Posted Tuesday, 30 August 2011 at 4:44 pm | Permalink

    Michael - Cutting employee’s wages and conditions is not the answer, not only does it only shift money from one sector of hte economy to another (ie from workers to shareholders) it is gerneally counter productive as it demotivates employees meaning they are less productive. There was a case recently where an employer in the US cut employee entitlements and saw a massive increase in theft, not because the employees sold what they stole they just wanted to make a statement.

    If workchoices was the answer the US wouldn’t have the problems they do.

  • 24
    michael r james
    Posted Tuesday, 30 August 2011 at 4:49 pm | Permalink

    It’s a measure of how poor our economic debate can be that discussions about productivity still, in even otherwise well-informed minds, default to thinking about ways to make Australians work longer hours for less pay and poorer conditions.

    Exactly as our million dollar man, Glen Stevens, was implying just yesterday. When these people at the top of the heap think of productivity they apparently are so clueless that this is all they can imagine. And there is no point, other than raising my blood pressure, in mentioning that Kim Carr sticks “fast to the mantra of innovation” when no Australian government ever, ever supports it. His only Green car initiative was an overt subsidy for Toyota to assemble its hybrid vehicles here! Vastly less than a single Silicon Valley entrepreneur (Elon Musk) is doing. (I suppose I should grant some brownie points for the NBN, we’ll see.)

    And incidentally France manages to have a productivity higher than the US despite the things that economic rationalists sneer at: 6-7 weeks annual vacation, 34 hour week, generous welfare system. France is famous for its dirigiste tendencies (championing big industry like high-speed trains, nuclear power, Airbus, Telcoms etc) which the textbooks say should be disastrous, yet it has more companies in the Fortune 100 or 500 (World) than any other European country (yes including UK and Germany).

    But Bernard has not done anything here other than give a rant not so different to every neo-con or economic-rationalist like the ones he criticizes (Craig Emerson; purlease, let’s not get confused about Costa who was just a ratbag with a Napoleon complex). Perhaps tomorrow BK could tell us in broad outline what exactly such a naked free-trade open economy will create in the next 5-10 years? As economists in the US have pointed out, Apple can be the most valuable company in their country but it will never employ more than a few percent of what GM or Ford, or even their remnant steel industry still does (about 100,000 versus 500,000 in the 90s). Of course not that we could ever create something remotely like Apple; nor can we even grow apples to compete even with NZ.

    BK has more or less acknowledged that the steel industry’s lack of competitiveness has nothing to do with productivity. They could bring in coolie labour and work them 24/7 until they died on the job and it would make no difference to the fundamental problem: China’s (and much of Asia’s) currency is about 40% undervalued and AUD is about 40% overvalued. The international monetary system and the international financial system are both dysfunctional. Given that these have changed at approximately 30 year intervals in the last century we are well overdue (since the Nixon Shock withdrawal from the Gold-Dollar link in 1971) for a serious rethink/remodelling of how exchange rates are determined.

  • 25
    C@tmomma
    Posted Tuesday, 30 August 2011 at 5:23 pm | Permalink

    So, to use the Capitalist’s reasoning, if we cut the amount of money they are paid, their productivity will increase. Sounds like a plan!

  • 26
    Gederts Skerstens
    Posted Tuesday, 30 August 2011 at 5:25 pm | Permalink

    Peter Moronde (typo) : “Maybe the refugees were accepting will bring a much needed entrepeneurial approach like they did after ww2”. Got that one right, pal.

    Jimmy went for Morality: “…The US does embrace capitalism at the expense of a decent health, welfare, and public school system plus a decent minimum wage and employee rights.”

    As worthy an approach as any. So let’s expand it to what runs the World’s economy - Chinese Manufacturing and why it runs it. Chinese Manufacturing is displacing all others because it’s cheap. It’s cheap because process workers get 68c an hour, have No health system and No rights, no holidays no retirement, nothing.
    It’s immoral that the gang that runs China flourishes because of these conditions and the West packs up. It doesn’t have to be that way.
    Like I said months ago, Back to Tariffs.

  • 27
    TheTruthHurts
    Posted Tuesday, 30 August 2011 at 6:03 pm | Permalink

    As the country heads into recession(1st quarter down 1.2%, 2nd quarter results next week), it will become harder and harder for retail and manufacturers to compete in the domestic market and with the high Australian dollar even harder in the foreign markets.

    It appears the country is now suffering from an economic dilemma called dutch disease. This is when a resource heavy country pushes up the value of it’s currency, causing retail, manufacturing and services to suffer. These people will then move from these sectors to the mining sector which sounds okay until the boom bursts and you are left with thousands of workers who are not skilled up in non-mining jobs.

    Ironically Kevs mining tax probably would have some what helped in stopping dutch disease… unfortunately Labor stuffed it up, much like most of their ideas.

  • 28
    Carolyn Hirsh
    Posted Tuesday, 30 August 2011 at 6:06 pm | Permalink

    It’s the writers’ festival this week, so here’s a poem, non rhyming.

    HUH?

    The Coalition opposes
    over-manning, feather bedding
    of manufacturing industry.
    The Coalition opposes
    ignoring costs of intervention
    in manufacturing industry.
    The Coalition supports
    the need to honestly
    face costs of intervention
    in manufacturing industry.

    But

    The Coalition supports
    maintenance
    of manufacturing industry—
    (on the grounds of National Security).
    The Coalition supports
    intervention
    in manufacturing industry
    in the service of a
    diversified economy.

  • 29
    Peter Ormonde
    Posted Tuesday, 30 August 2011 at 6:15 pm | Permalink

    Skirts,

    Yes tariffs…. and what you end up with is a collection of unproductive, undercapitalised, sluggish, lazy industries that just suckle at the public t*t. By protecting them the government penalises every other sector, imposing additional costs and inefficiencies. A recipe for crippling an economy and creating a class of spongers.
    We’ve been there and done that and it doesn’t work. History really isn’t your strong suit is it?
    No assistance should ever be unconditional. Any - ANY - assistance should oblige the recipients to fulfill specific obligations, in training, in investment and in achieving broad social and economic outcomes. They should become “good corporate citizens”. Otherwise, they just take the money and run.
    Sadly Australian “capitalists” think they can strip-mine their workers and the community like any other quarry.
    And tariffs are really just another element of their protection racket.
    No one can compete with China on costs. But we can compete on other tracks, ask BMW, Renault, Citroen, Volvo and Saab for some hints.

  • 30
    Gederts Skerstens
    Posted Tuesday, 30 August 2011 at 6:19 pm | Permalink

    Doesn’t scan or rhyme, on any line, Carolyn.

    Now here’s something to live by:

    And how can Man die better,
    Than facing fearfull odds
    For the ashes of his fathers
    And the temples of his Gods?”

    (Joan Baez).

  • 31
    Tim nash
    Posted Tuesday, 30 August 2011 at 6:53 pm | Permalink

    You can learn a lot about protectionism from the factory floor.
    I work in manufacturing (in a train factory) and have noticed pretty much the same opinion across the board.
    An argument started recently at work when explaining how New Zealand apples being imported to Australia is a good thing and that Australia offloads fruit and goods to New Zealand all the time.
    I argued that New Zealanders for example don’t like being flooded with cheap Australian Sauvignon Blanc.
    But apparently, once our goods leave this shore they enter a twilight zone where Australians arrogantly couldn’t care less how they effect other markets.
    Basically as long as we don’t get flooded by someone else’s apples then its fine to flood their markets.
    What is scary is when Governments take the same opinion as a factory worker.

  • 32
    TormentedbytheDs
    Posted Tuesday, 30 August 2011 at 7:08 pm | Permalink

    Now it seems that the mining boom is so good that if we don’t work in the industry we should take a pay cut. Fan F**king Tastic. And that crap about shares and super, well super has managed to increase at the rate of inflation over the last twenty years. Getting that I am being dudded feeling?

  • 33
    Gederts Skerstens
    Posted Tuesday, 30 August 2011 at 7:16 pm | Permalink

    Tim Nash referred to flooding markets.
    A feature of flooded markets is that once the flooding has drowned local competition, the cheap flood-produce goes to whatever price the producer says. We got flooded by good French brandy going for peanuts some years ago which knocked out our own producers. It went from peanuts to nuggets once the market was cornered. The Chinese will do the same; when there’s no spoons but Chinese spoons, they’ll cost five times more. Whatever it takes, Tariffs, Subsidies, Bans, Boycotts, they can’t be left to corner everything.

  • 34
    David Hand
    Posted Tuesday, 30 August 2011 at 11:02 pm | Permalink

    Hey Bernard,
    You don’t need to worry that free trade is only now supported by a minority government. It is deeply rooted in the Liberal camp as well and if they ever got a sniff of the treasury benches, all this protectionist noise would evaporate like snow in the summer sun.

    The Liberal protectionist rhetoric is purely political to capitalise on the deep disaffection with the current government. As an example, look at all the protectionist commenters on this thread, Tony is speaking to them and their ilk.

    Rundle put it well in his piece by saying that Emmerson may well call Abbott an “unreconstructed protectionist” but Labor’s heartland is full of “unreconstructed protectionists”. So the current Coalition tactics are entirely political, though I agree when you stray into the agrarian socialist party, AKA The Nationals, protectionism is a true belief.

    The law of comparative advantage was written into economics textbooks a century ago and is no longer controversial, though it does not stop the protectionist bandwagon. The great depression was made far worse than it otherwise might have been due to the collapse of international trade.

    Make no mistake, the apples and bananas bandwagons are pure protectionism with a thin veneer of quarantine issues to give them some respectability.

  • 35
    BruceMcF
    Posted Wednesday, 31 August 2011 at 1:47 am | Permalink

    How odd, though, that while protectionism never works, every large industrial nation became a large industrial nation on the back of a protectionist policy.

    The only two choices in Bernard Keane’s mind are the neoliberal faith taught in most of the Uni economics departments to the “best and brightest”, and an across the board protectionism. But the reality is that successful economies have for centuries taken measures to protect the development of the new growth industries of the future.

    One of the obvious measures that Australia could take would be to prevent the ozzie dollar from skyrocketing past purchasing power parity. A nation with a sovereign currency has the power to discount its currency, and discounting the ozzie dollar when it threatens to become overvalued would be an important protection against the current risk of establishing an export-oriented high tech manufacturing or high skill service industry in Australia.

  • 36
    jeebus
    Posted Wednesday, 31 August 2011 at 2:20 am | Permalink

    Exactly BruceMCF.

    It’s not so much subsidised goods that are distorting the global economy as much as subsidised currencies.

    Currency pegs, carry trade, and money pumping have distorted global markets to the point where the Aussie dollar is now overpriced by more than 30% against the US (by purchasing power parity). Now factor in that the US dollar is itself overvalued against the Yuan by about 50%, and simple math tells you that Chinese exporters come into the Australian market with an 80% price advantage over local manufacturers.

    It’s no bl**dy wonder they’re struggling!

    And when we say local manufacturers, we’re not talking only about people in factories or on production lines. We’re also talking about high paying export oriented industries like software development, where Australian companies are at a massive disadvantage in bidding for overseas contracts.

    With such monumental distortions of global markets, it makes perfect sense for the Australian government to adopt some measures to protect local manufacturers.

    It is facile to think of trade protection as an ‘all or nothing’ approach. The government can no longer sit on its hands.

  • 37
    Peter Ormonde
    Posted Wednesday, 31 August 2011 at 5:01 am | Permalink

    Bruce and Jeeb….

    Bruce you are right of course … historically - protectionist policies did nurture manufacturing cultures… but not here. Here they nurtured a rentier culture where the private sector refused to invest, refused to innovate or conduct R&D, refused to train their workers, refused to look outwards and simply attached themselves to the public teat. They penalised the entire country and poisoned the soil in which any productive enterprise could grow by saddling them with their own inefficiencies and high costs.
    Unconditional protection produced a weak undercapitalised, uncompetitive, inefficient and essentially parasitic manufacturing sector. We picked winners and penalised - excluded - new sectors and industries.
    Jeebus… here’s an illustration: imagine for a moment how much software development would have been happening had we engendered a local hardware industry thriving behind a wall of protection… in which any and all computers used in Australia were either locally made or attracted massive tariffs… so that say we had a PC costing $10,000 a throw. That’s how protectionism works. The costs are huge, the profits are squandered and the real penalty is paid not just by consumers but by the future and our kids.
    We only have a software industry at all because we were not suckered into nurturing a protected hardware (technology input) sector. The software industry exists only because it emerged in the midst of tariff reductions.

    None of the above should suggest I disagree in the slightest with your perceptive view on currencies and the financial sector. That’s where I would be looking to construct a more conducive climate for manufacturing and investment… but not unconditionally. And we cannot do that on our own.

  • 38
    Tom Mullin
    Posted Wednesday, 31 August 2011 at 5:14 am | Permalink

    Usual neo-liberal clap trap. Doesn’t work, hasn’t worked and never will work … except for a tiny percentage of the population.

    Look at the massive subsidies for German manufacturing, both direct and indirect. Which is why we buy German goods. As a German businessman once said to me .. how many tons of iron ore do you have to dig up to buy one Mercedes?

    Look at the countries who have gone down this route the furthest, the US and the UK. Bankrupt the both of them, with collapsing standards of living. Average wages in the US haven’t risen for decades.

    And we should copy all that? All sacrifice our lives to the alter of the ‘efficient markets theory’ or ‘free trade’ (if it exists anywhere), or infinite salaries for CEO’s? Yeh right.

    Investment in ‘ponzi housing booms’ … ok. Investment in R&D, skills and manufacturing … not ok = pretty much the official positions of the Treasury and the RBA.

    Is it just me or do some others also see the irrationality of this ‘argument’ (if you can call it that)? And where will we all be when the (increasingly ponzi like) mining boom ends?

  • 39
    Peter Ormonde
    Posted Wednesday, 31 August 2011 at 5:31 am | Permalink

    Jings Tom,

    I’m a long long way from being a neoliberal… but I was heavily involved in looking at these issues when I worked with the Metalworkers National Research Centre a few decades back.
    And we studied the successful innovative export oriented manufacturing sectors like Scandinavia, Germany and the like - and we also looked at the unsuccessful ones like England. People talk about us having now contracted the Dutch disease, but we had the English disease for 70 years and it was chronic.
    I’m not saying one cannot cultivate and nurture efficient industry - but a blanket wall of protection - handed out on the basis of feeding a select few winners - is not the way to do it.
    Any assistance provided to employers either directly or via tariffs should be conditional, should require major investment, not just in technology but in people and R&D. The car plans developed under John Button were an attempt at this and they are why we have Holden today, why it is exporting and is almost - almost - on the verge of being stable and successful.
    But all of it isn’t worth much if the financial system continues to undermine their viability. No amount of protection or assistance will help if Australian banks and international capital are permitted to continue strip-mining the place as they have always done, and while the recipients of assistance just take the money and run.

  • 40
    jeebus
    Posted Wednesday, 31 August 2011 at 6:44 am | Permalink

    Peter, I am disappointed in the extreme spin you applied to my comments.

    I specifically mentioned that discussion of trade protections should not be framed around an ‘all or nothing’ approach, and yet you go off some hypothetical rant where trade protection of any kind means Australia blocks all imports, controlled economy, think of the children, blah blah.

    No country in the world bans all imports - not even North Korea - so for you to suggest (even as a hypothetical scenario) is not only ridiculous, but degrading to rational discussion.

    China has many trade barriers and protections, not to mention the brazen manipulation of their currency. Their economy has grown at an average of almost 10% for two decades now. So clearly not all trade protection is a bad thing.

    All I am saying is that the hands-off approach Australia has taken is not sustainable.

    I’d like to know how any Australian company can remain competitive in overseas markets when their cost jumped unexpectedly by 40% in the space of a few months then stayed that high for the last few years. I’m speaking from firsthand experience, as a person whose export industry has been almost single-handedly wiped out by Australia’s appreciating currency.

    It takes longer to build an industry than to destroy it. Manufacturing has already had the fat cut out of it. If Australia wants any non-mining exporters left, the government needs to act now.

  • 41
    AR
    Posted Wednesday, 31 August 2011 at 8:09 am | Permalink

    Echo chambers & memory holes, is it any wonder that “decisions are made by those that turn up” as they are usually the ones so totally lacking in ideas, originality, independence of thought, ethics and humanity as to be able to grind on & on when everyone else would rather get a life.
    Speaking of which, did anyone see the Rodent last night on 7.30 with woeful excuse for an interviewer? Embodied all of the failings I listed above and then some.

  • 42
    michael r james
    Posted Wednesday, 31 August 2011 at 9:59 am | Permalink

    @BruceMCF
    I made the same point yesterday but for some reason the post has never come out of moderation; here is my last paragraph from that post:
    …………………………
    ((crikey.com.au/2011/08/30/the-return-of-protectionism-the-gangs-all-here/#comment-155851))
    MICHAEL R JAMES Posted Tuesday, 30 August 2011 at 4:49 pm |
    Your comment is awaiting moderation.
    …………..
    BK has more or less acknowledged that the steel industry’s lack of competitiveness has nothing to do with productivity. They could bring in coolie labour and work them 24/7 until they died on the job and it would make no difference to the fundamental problem: China’s (and much of Asia’s) currency is about 40% undervalued and AUD is about 40% overvalued. The international monetary system and the international financial system are both dysfunctional. Given that these have changed at approximately 30 year intervals in the last century we are well overdue (since the Nixon Shock withdrawal from the Gold-Dollar link in 1971) for a serious rethink/remodelling of how exchange rates are determined.
    ………………………..

  • 43
    michael r james
    Posted Wednesday, 31 August 2011 at 10:11 am | Permalink

    TOM MULLIN Posted Wednesday, 31 August 2011 at 5:14 am |

    Look at the massive subsidies for German manufacturing, both direct and indirect. Which is why we buy German goods. As a German businessman once said to me .. how many tons of iron ore do you have to dig up to buy one Mercedes?

    There is something to what you say but actually people around the world buy Mercedes because it is perceived as highly desirable and extremely well engineered. Of course the biggest car manufacturer in Germany and Europe is VW group.

    You’re right that German industry is subsidized but it is by the Euro. Because the totality of the EU countries keeps the Euro much lower than if Germany still had its Mark and this means intra-EU trade is very much in favour of Germany and ditto makes their exports much more price competitive. The politicians know this which is why they are trying to save the Euro but the voters do not really understand how disastrous it would be, particularly for Germany, if there was a breakup (eg. into a core rich countries of EU etc).

    As I (and BruceMcF) said, the world’s monetary and financial systems are broke. China has a case for staying out of it and might be the reason why the rest of the world might eventually try to address it. You may be aware that Keynes had suggested a more sensible system not based on the USD, way back at the time of Bretton Woods. The US simply dismissed it and they are likely to be just as intransigent today even though it could be to their benefit too.

  • 44
    michael r james
    Posted Wednesday, 31 August 2011 at 10:45 am | Permalink

    I may end up re-posting all my moderated post in bits!
    Reading some of the other post (eg. JIMMY at 4:44 pm), here is my relevant bit from earlier:

    MICHAEL R JAMES Posted Tuesday, 30 August 2011 at 4:49 pm | Permalink
    Your comment is awaiting moderation.
    ……………………
    And incidentally France manages to have a productivity higher than the US despite the things that economic rationalists sneer at: 6-7 weeks annual vacation, 34 hour week, generous welfare system. France is famous for its dirigiste tendencies (championing big industry like high-speed trains, nuclear power, Airbus, Telcoms etc) which the textbooks say should be disastrous, yet it has more companies in the Fortune 100 or 500 (World) than any other European country (yes including UK and Germany).

    ………………………………………….

    As I have written before it is a wonder that the US system works at all. Would you be motivated to be productive if they paid peanuts (insufficient to survive on a single salary/job; see Barbara Ehrenreich’s “Nickled & Dimed”, an eye opener), got two weeks vacation and no healthcare etc and at the same time see that the top 5% own 60% of the nation’s wealth.

  • 45
    Jimmy
    Posted Wednesday, 31 August 2011 at 11:50 am | Permalink

    Jeebus - “Their economy has grown at an average of almost 10% for two decades now” They were coming off a incredibly low base and have the “advantage” of being able to say, “This village is being torn down and we are building a city/dam/power plant here”.

    It was only after China started opening up it’s economy that it’s growth started to take off and the question will be whether their current level of “protection” starts to constrain that growth as it becomes a more advanced economy.

  • 46
    Peter Ormonde
    Posted Wednesday, 31 August 2011 at 11:55 am | Permalink

    Dear Jeebus,

    Sorry - sincerely - There was no extreme spin intended … early in the morning … the pills hadn’t kicked in… I was just trying to illustrate how protectionist policies in one sector cruel the chances for others.

    The point I’m trying to make - badly obviously - is that while we can argue a special case for an industry - be it jobs or “national security” (apparently according to Abbott), there are costs which go beyond the obvious direct costs of higher prices and featherbedded industries.

    Protectionism - at least as it has been practised - also imposes hidden costs by making new emerging sectors and industries unviable and puts a serious brake on diversification and expansion.

    To be honest after looking at this for a very long time I’m really not sure what the answer is… “free” trade isn’t free at all and the negative effects are compounded by the impact of the financial system. But it saddens me to see union officials again forming a common cause with the employers going cap in hand to the government asking for bail outs for bosses that aren’t worth the air they breathe.

    Once again … not offence or spin intended mate… the whole thing just makes me a very grumpy curmudgeon indeed.

  • 47
    SBH
    Posted Wednesday, 31 August 2011 at 12:03 pm | Permalink

    Good article by Ross Gottins today in the Age. Education would be a better place to spend money than propping up manufacturing.

  • 48
    SBH
    Posted Wednesday, 31 August 2011 at 12:05 pm | Permalink

    sorry ‘Gittins’ of course

  • 49
    Policeman MacCruiskeen
    Posted Wednesday, 31 August 2011 at 1:00 pm | Permalink

    SBH …

    Point well proven I’d reckon … if inadvertently.

    Gittins seems to be getting more sensible and incisive every week I think. Maybe it’s just me getting more conservative, but he seems to be raising the real issues that should be preoccupying the minds of economists and others.

  • 50
    jeebus
    Posted Wednesday, 31 August 2011 at 10:11 pm | Permalink

    Thanks for the apology, Peter. It’s much appreciated!

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