No. 70

Rent seeking resurgent

STONE the crows! What’s next on the policy agenda, White Australia? Perhaps not, but other elements of the bipartisan economic agenda that shaped Australia for the first 80 years of federation are back in fashion.

The old arbitration system, now badged as fair work, is re-regulating employment. We are now hearing protectionist pleas, the same as existed in 1900, the same as occurred every time in the next 80 years when anybody dared suggest that tariffs were a wealth transfer paid by consumers to uncompetitive industries.

Protection was always a fraud on the taxpayer. As Paul Kelly pointed out a generation back, while protection was a pillar of federation from the start, its flaws were always apparent, making Australians reliant on government intervention rather than individual enterprise. [i]

And it is nonsense on stilts now, with the potential to erode the benefits of the minerals and energy boom.

Craig Emerson knows it. Last week the Trade Minister secured cabinet support for his free-trading plan for Australia in the international economy. The document is a cogently constructed case for the bleeding obvious – that free trade has enriched Australia by reducing the prices consumers pay, encouraging industry to focus on products and services where they have a comparative advantage and increasing overall economic performance, as open markets catalyse productivity improvements.

“Trade liberalisation therefore can drive wider economic reform, lowering prices not only to export industries but to the nation’s consumers as well,” Dr Emerson’s statement says.[ii]

Sensible stuff, accepted by all but rent seekers since the Hawke-Keating-Howard consensus presented us with the incontrovertible argument that as a trading nation Australia wins when its export industries become more efficient and wins even bigger when other countries open their economies.

But no longer. Australian Workers Union leader Paul Howes says that because the “developed world is increasingly adopting a more protectionist approach,” no one with “half a brain” would propose trade liberalisation. [iii]

And Treasurer Wayne Swan, despite claims he is a long-term free trade supporter, is said to have questioned the efficacy of Dr Emerson’s ideas given, “the government was already fighting for reform on a range of other fronts.”[iv]

That Paul Howes has many members in manufacturing, a sector of the economy protectionism was always intended to promote, makes his arguments unsurprising. In invoking the spectre of cheap Chinese labour last week, Howes channelled union officials from a century ago:

This week, AWU National Secretary Paul Howes was in Melbourne to talk to our 250 members at Viridian, a major glassmaker at Dandenong, where the pressure of the Chinese dumping under-priced products on our market is causing real pressure.  The company welcomed his presence as he told our members the AWU will fight to stop the destruction of our manufacturing industries. “If we lose places like Viridian, if we lose industries like glass manufacturing, they will be gone forever,” he said. His visit was part of the AWU’s Don’t Dump on Australia campaign – a fight to save jobs now for you, and in the future for your children and grandchildren. [v]

Perhaps Wayne Swan’s focus on politics over policy is equally unsurprising, given the government’s present polling predicament, with the coalition at 55 per cent of the two party preferred vote. [vi] But for a self-proclaimed reforming treasurer Wayne Swan should know better and be out there backing Emerson up.

Internationally, Australia is in no position to adopt protectionism again. For a start, as a trading nation we need to keep pushing for a successful completion of the Doha round of free trade talks. According to the World Trade Organisation cutting barriers in agriculture, manufacturing and services would add the equivalent of Canada’s economy to global output. [vii]

At home the return of tariffs, especially in tandem with the resurgence of industrial regulation, would make it harder to kick-start now stalled productivity improvements.

As Dr Emerson warns, “Local businesses that themselves are doing everything in their power to be efficient and internationally competitive will nevertheless be hampered if other parts of the economy, especially producers of non-traded inputs, are inefficient and if government regulations, taxes, fees and charges are unjustifiably onerous.”    [viii]

Even worse, the emerging orthodoxy, that holds economic efficiency is optional and assumes the requirements of the free trading state are secondary to the requirements of the welfare industry, makes a case for protectionism. As Martin Fiels puts it in explaining why the EU, US and Japan have barriers against agricultural imports:

The conventional free-market wisdom is that those who are poorly educated or trained, or who live in the wrong place, should simply get educated, move and change jobs. But life doesn’t work that way for most of us. [ix]

That these ideas are getting a run at all demonstrates the danger we are in of undoing the achievements of the great Labor reforms a generation back.

But even worse is the new danger to free trade from environmental activists who assume the interventionist state is essential to addressing global warming.

There is already talk of countries slapping “border adjustment measures”, the Crows think it means import taxes, on energy intensive products from countries which do not put a price on carbon. [x]

This is the sort of stunt sure to appeal to any government with inefficient but politically powerful industries facing international competition – if EU officialdom and the US congress get hold of the idea it will be harder to export anything agricultural into Europe or the US.

Or anything manufactured into Australia. Imagine what the AWU could do with an argument based not on protecting members’ jobs from Chinese industrial products but saving the planet by taxing carbon rich imports.

Inevitably the Chinese would respond. And quicker than you can say “Smoot Hawley” the world would have a trade war with everybody asserting they were acting in the interests of the environment.

When free trade is off the agenda all sorts of ridiculous rent seeking starts.

stephen4@hotkey.net.au

Endnotes


[i] Paul Kelly, The end of certainty (Allen & Unwin, 1992) 5

[ii] Department of Foreign Affairs, “Trading our way to more jobs and prosperity,” April 2011 @ http://www.dfat.gov.au/publications/trade/trading-our-way-to-more-jobs-and-prosperity.pdf recovered on April 17

[iii] Matthew Franklin, “PM faces a union revolt on trade,” The Australian, April 13

[iv] Matthew Franklin, “Cabinet split on free trade push,” The Australian, April 15

[v] Cesar Melhem, “Victorian weekly update, April 14” @ http://vic.awu.net.au/216141.html recovered on April 17

[vi] Dennis Shanahan, “Carbon plan takes toll on Labor: Newspoll” The Australian, April 5

[vii] WTO, “Ten benefits of the WTO trading system,” @ http://www.wto.org/english/thewto_e/whatis_e/10ben_e/10b00_e.htm recovered on April 17

[viii] Foreign Affairs and Trade, op cit,

[ix] Martin Feil, The failure of free-market economics (Scribe, 2010) 216

[x] Marcus Priest, “Price carbon or cop the tariff: expert,” Australian Financial Review, April 12

'2012