This is a long rant, folks — but it’s important. At least, if you value your standard of living and that of your kids.
Recently, the Productivity Commission — which has now replaced Treasury as the home of high-quality economic policy thinking in the Commonwealth — sought submissions on new, achievable productivity-lifting reforms. But it might just as well have sought ideas for preventing Australia from backsliding into its bad old habits. Forget further economic reform — the current challenge is to not go backwards.
The chief threat — which Crikey has banged on about now for a long time — is manufacturing protectionism, both of the modern kind, involving pumping money into local manufacturers who are otherwise uncompetitive, as we’re doing with naval procurement, and of the traditional kind, via the punitive tariffs we’re imposing on allegedly “dumped” steel.
Donald Trump’s success on a platform of raging protectionism and repudiation of free trade is only going to make that much worse. Bill Shorten, who earlier this year flirted with open protectionism for what’s left of our unviable steel manufacturing industry, has amped up his rhetoric about prioritising Australian jobs. “My party will heed the lessons of Detroit, Michigan, of Ohio and Pennsylvania,” he said last week. “We will buy Australian, build Australian, make in Australia and employ Australians.”
No mention that the bulk of jobs in recent years has come from the services sector, more than offsetting the decline in manufacturing — but then “deliver services in Australia” sounds a bit odd. Bizarrely, Shorten also said “productivity is at a standstill”. This is the kind of claim that the Coalition and business usually make, not Labor — and the Productivity Commission’s most recent analysis actually shows labour productivity continuing to grow and multifactor productivity accelerating.
Shorten is now targeting the 457 visa issue to suggest unscrupulous businesses are doing Australians out of jobs (which, admittedly, has the advantage of being true). Julia Gillard tried the same with limited success, but one feels the times will suit such an approach better in 2016 than four years ago. Don’t be surprised if the Coalition, which is normally happy to remove curbs on the 457 visa scheme so businesses can better exploit it, suddenly finds it’s worthwhile to have some sort of crackdown.
And watch for anti-dumping to worsen internationally; the US under Obama was an aggressive exploiter of anti-dumping provisions, and that will only worsen under Trump. That will, in turn, encourage our own politicians and those of every other steelmaking country to do the same. Meantime, the political rhetoric aimed at free trade will worsen: the two major political shocks of this year, Trump and Brexit, after all, have been fundamentally about repudiating free trade and immigration.
Australia is hostage to international events on that front, but the Coalition, too, deserves some blame for how badly they have handled trade. The Coalition always preferred bilateral deals over multilateral deals even before global progress on multilateral deals ground to a halt (remember John Howard virtually ignored APEC, perceived as being associated with Keating, for many years, until he thought he could exploit it to save himself in 2007). And bilateral free trade deals seemed as much about securing domestic political advantage as obtaining market access; the AUSFTA was used as an attempted wedge against Mark Latham’s Labor, while the China FTA was used by the current government to try to portray Labor as racist — while adopting its own xenophobic foreign investment policy.
What Howard, Abbott and Turnbull all failed to do was give the electorate a strong understanding of why more trade was good. Voters knew free trade agreements were supposed to be good, but figured most of the benefits went to corporations, not ordinary people — a view reinforced by how DFAT bureaucrats negotiated trade deals in collaboration with corporations but otherwise kept them secret. This wasn’t helped by the Coalition’s tendency to sell free trade agreements in purely mercantilist terms — blandly asserting they would yield $x million in additional exports without ever explaining where, exactly, the quid pro quo lay — or why that quid pro quo of easier access for foreign countries to our own markets was good for consumers. As the Productivity Commission has explained — and we’ve repeated til we’re blue in the face — the big benefits of trade deals come from our removal of barriers, not the other party’s.
And claims about the benefits of individual FTAs turned out to be fictional anyway — as we’ve now seen with the AUSFTA, which has had negligible benefits for Australia and, in specific areas like copyright, has inflicted substantial damage.
[Thanks to the unions, old-timey protectionism is back in fashion]
The Abbott government continued in the same way — secretly negotiated deals (except for corporations) and a refusal to undertake any rigorous analysis, rather than just assertions of benefits — although the TPP was so bad even the addled spruikers at DFAT couldn’t find more than a few bob in their modelling.
Now, free trade is rapidly becoming a dirty term in both Australia and elsewhere — not helped by the fact that the Coalition is gung-ho for free trade when we’re allowed to access other markets but regards it as anathema when it might involve assessing how to source our future defence capital requirements.
If you said to me a year ago that free trade was under the cosh and protectionism was resurgent but Malcolm Turnbull was PM, I’d have replied that there was your solution. What better figure than Turnbull, a gifted orator (perhaps our only gifted orator), a charismatic centrist, successful businessman and classical liberal, to prosecute the case for free trade and economic orthodoxy in ways the electorate could understand? Here, surely, was the successor, if in miniature, to Keating in his ability to explain to voters why they should back markets and economic liberalism?
And, as it turned out, I couldn’t have been more wrong. Not merely is Turnbull leading the most protectionist government in recent decades (although, if he’d been elected, Shorten would have led an even more protectionist one), he’s gone entirely missing on effective communication of the case for reform. Indeed, he’s gone missing on reform entirely. Turnbull’s is the most do-nothing government since the Fraser years. Rudd handled the financial crisis, restarted COAG’s deregulatory agenda and laid the basis for a national water market; Gillard reeled off reform after reform and got no credit for it; even the Abbott government, at least in its early stages, had a coherent deregulatory agenda — although, of course, with its sublime genius for comprehensively screwing up everything it touched, it couldn’t implement it. But Turnbull? Corporate tax cuts, free trade agreements and, contradictorily, manufacturing protectionism … and that’s it.
Now for most readers, I suspect, this is of minor importance — it’s a kind of footy-match approach to reform, ticking off who’s ahead at what stage. But it’s far more important than that. More protectionism means you and I — and every household and business — will pay more for goods and services and pay more tax. Anti-dumping increases construction costs, which cascade through the supply chain. Handouts to unviable manufacturers require more government borrowing or higher taxes. That is, right now we’re in the middle of giving ourselves a national economic uppercut.
Such thinking, however, is increasingly seen as out-of-touch, elite, “Canberra bubble” stuff that fails to acknowledge the real experience of voters.
Except, there’s nothing “ivory tower” or unrealistic about objecting to protectionism. The lessons of Australia’s embrace of an open economy are hard won. Anyone who remembers the mass unemployment of the early 1990s — the long queues for jobs, the misery and despair, the financial collapses — and the fact that we haven’t seen the same since, should be able to attest to the price we’ve paid and the benefits we’ve gained from opening our economy up.
It took brave leaders to end protectionism back then — and skilled leaders to bring the electorate with them. Returning to protectionism isn’t brave or skilled, it’s the easy option for scared politicians. It’s a fantasy, not the gritty, real-world wisdom of ordinary Aussies, that protectionism creates jobs and makes us wealthier. It makes us poorer, and we’ve seen that over the last 25 years that truth as Australia has enjoyed prosperity that most developed countries can only envy.