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Aug 30, 2011

The return of protectionism: the gang’s all here

Protectionism is alive and well and has strong allies in the public policy arena.

Bernard Keane — Politics Editor

Bernard Keane

Politics Editor

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.

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50 thoughts on “The return of protectionism: the gang’s all here

  1. Bellistner

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

  2. Jimmy

    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

    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

    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

    The only way to save Manufacturing.

  6. Gavin Moodie

    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

    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

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

  9. [email protected]

    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

    [email protected] 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.

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