Almost everyone agrees that free trade is a fine ideal. But like most fine ideals it is easy to rort and difficult to live up to.
Most countries espouse it in theory but find ways around it in practice. Even in dictatorships politicians are unwilling to alienate groups as powerful as farmers or car-workers. There is almost always a short-term advantage, both economic and political, to be gained by affording them some protection.
Moreover, there are genuine worries than free trade can, in the wrong hands, become open slather with the big boys trampling unimpeded on the little ones. The last talks in the Doha round collapsed because the Americans refused to allow small economies the right to erect temporary barriers against the dumping of surplus goods by the large ones.
Free trade is a fine ideal for a Utopia, but in an imperfect world it may well be an unattainable one. However, none of this worries the economic purists, who insist that any kind of protection is not only morally unsound, but economically counter-productive. It not only pushes up prices for consumers but also distorts the market by directing funds to inefficient or unsuitable industries rather than allowing their investment where it will do most good. Pulling down barriers may cause some short term pain, but it is more than balanced by long term gain.
And this applies particularly to the Australian manufacturing sector, feather-bedded for decades against real competition from imports. Thus when Steve Bracks produced his report on the car industry recommending that while tariff cuts should continue as programmed, extra subsidies should be paid to ensure the viability of the big three — Holden, Ford and Toyota — the purists rose up in righteous wrath. With some justice they pointed out that year after year the manufacturers cried poor and threatened to close their operations down unless the government bailed them out; and year after year the government caved in, but the car moguls always wanted more.
Obviously they would never stop their demands; why should they, when they won every time? So let’s stop throwing good money after bad and call their bluff. If they do pick up their assembly lines and go offshore, well good riddance. Other industries, particularly mining, are screaming for skilled labour and the displaced workers need not be displaced for long. Imported cars would be a couple of thousand dollars cheaper too.
Put like this it’s a no-brainer and makes Industry Minister Kim Carr’s claims that the car industry is absolutely central to Australia’s economy and vital to maintaining its defence capability look small-minded and self-serving. Kevin Rudd’s poignant aside that he would not want to be Prime Minister of a country that didn’t make anything is an exercise in nostalgia; Australia produces a great deal more than large, wheeled metal artefacts, even if the benefits of education, tourism and science are often less tangible. The economic purists’ arguments appear unassailable.
But they can’t be, because even the economic purists don’t rely on them when it comes to more difficult problems: like, for instance, climate change. One might have thought that the report by Ross Garnaut, himself an economist, put something pretty close to the purist view. The strategy to reduce carbon emissions was to be as nearly universal as possible. Exemptions could be made for exporting industries which were genuinely competitive with countries which had not yet introduced carbon trading but these would be phased out as quickly as possible.
Purely domestic industries would just have to wear the extra cost or pass it on to consumers — this included the big coal-fired generators. The aim was, after all, to force people to cut down their emissions, either by becoming more efficient or by finding alternatives. To provide protection for the worst of the worst would be inconsistent and absurd.
You might have expected the tariff-busters in the media, the incorruptibles who railed against the propping up of the car industry, to roar their approval. But no. Garnaut, they trumpeted, was out to wreck the Australian economy, to destroy our international competitiveness, to eliminate the entire industrial sector and send us back to the caves. Whatever happened, we should not even think of getting too far ahead of the rest of the world; we had to wait for everyone else to act before we did because we were only a small nation and the big polluters would sink us.
If we felt we absolutely had to do something, then perhaps a sort of a token scheme to be introduced very gradually? Preferably not until some time in the future, if everyone who could conceivably be affected by it was generously compensated, but that was the limit. Anything else would be just too much pain for too little gain.
These, of course, are exactly the arguments the car industry has used for decades against these very same economic purists and just as it has won in the past, so the economists will probably win this time around. Of course the stakes are a bit higher; this time if we do nothing we stand to lose rather more than a few cheap imported cars. But economists have always been a bit unwilling to consider the long run.
It was the great John Maynard Keynes who said: “In the long run, we shall all be dead”.
Yes, and that’s just the point.
CORRECTION: Last week I referred to the Persian Emperor Darius as the invader of Greece who was defeated at Salamis and Plataea. Of course I meant Xerxes; the Greeks had already seen Darius off at Marathon. Apologies to both tyrants.