Fair Trading

The politics of international trade are, once again, rumbling ominously, and predictably so. Instead of criticising the views of those who have missed out on jobs and opportunities, perhaps it’s time for intellectuals to catch up with reality.

It’s said that the case for free trade is counter-intuitive. While the principle of comparative advantage tells us that both sides gain from trade (because I take advantage of what you do best, and you take advantage of what I do best), many people see trade as a zero-sum game, with exports as a gain and imports as a loss.

The reality, of course, is a good deal more complex than either the pro- or anti-free-trade views would have it. The opportunity to trade undoubtedly stimulates growth. On the other hand, countries that have modernised over the past century through trade, such as Japan, South Korea and most recently China, are hardly examples of free trade. All three, in their different ways, developed their manufacturing industries through policies that controlled access to their domestic markets for competing products while making the most of export opportunities.

Australia has benefited from these developmental policies in two ways. Exports of Australian raw materials and energy helped to power manufacturing in each of these countries in turn. Second, as Australian consumers, we see the everyday benefits of cheap imported manufactured goods.

You can buy a kid’s T-shirt for $5 which, when you think about it, is truly astonishing. The cotton has been grown and processed, turned into fabric, fashioned into a T-shirt, put on a ship and exported to Australia for not much more than the price of a cup of coffee.

Of course, as an importer of manufactures, there has been a price to pay. Australia has long since lost the middle-to-larger-scale manufacturing firms which once constituted the textile, clothing and footwear industries. About the best you can do, if you want to support Australian brands, is to search out clothes that have been designed in Australia. For a while, it was hoped that Australia might demonstrate an advantage in more technology-intensive manufactures. But even more complex goods, where labour costs are not so important, have lost the battle to survive. Very soon, Australian-made cars will be a thing of the past.

Most Australians seem to accept this. We accept that we export raw materials, and buy back manufactures. When jobs are lost, we expect that the workers concerned will either find others, or more likely, will simply be absorbed into the huge pool of people on benefits of one kind or another. Unlike the Americans, who do little to support displaced workers, Australia usually makes retraining of some kind available. While older workers will almost certainly struggle to get a proper job again, there is enough support, or so we console ourselves into thinking, to keep them going until the pension comes up. Younger job-seekers can always go into tourism or other services.

So sure are we of the benefits of this world of managed trade, that we do little to maintain even those industries where we do have a comparative advantage. Access to cheap power for processing raw materials is no longer assured, because we export so much of our gas and shut down coal-fired power stations. Green politics produces strange choices. Although we have plenty of uranium, which produces carbon-free power, nuclear energy is off the agenda. Even burying other people’s nuclear waste may not be allowed.

Tasmania has been particularly affected. The state is not allowed to produce more hydro-electricity, which is renewable, because that involves damming rivers. So desperate has the Tasmanian employment situation become that less-sustainable industries are replacing those that are more sustainable. Commercial forestry based on managed native forests is out of the question, yet fish farming, which is anything but sustainable, continues to grow.

We are a land of happy consumers, with big houses and fine apartments to put all our stuff in. Indeed housing is one of the few activities we support, to the detriment, in this case, of consumers. While common sense may yet prevail in relation to targets for renewable energy, if only because we do not like it when we have to eat pizza by candlelight, we like to think that, whatever happens elsewhere, matters will trundle on much as before. Are we being clever, or foolish?

The answer depends upon the way we view the global economy. If globalisation represents the triumph of market forces, then more of the same will, over time, allow more countries to lever themselves up to the light. As wages rise in one country, investors turn to another, spreading employment even more widely.

At least, that is the dream. The reality is that all human enterprises are, in part, political constructs, and global markets are no exception. The underlying story is not about trade, it is about international political economy—the relationship between economic and political power. The US has been both a winner and a loser in this struggle.

It is investment that makes trade happen, and that means not just capital but also investment in knowhow and in technology. Japan and South Korea developed their own industries, but also benefited from their security-based relationship with the United States. Both have more-or-less democratic governments. China is different. China has parlayed access to its cheap labour in return for technology. It knows all that the West knows, and more. It has no concerns about its environment, and with no democracy, does not need to do much about rising inequality, either.

At the same time, democracy in America has been distorted, some would say even destroyed, by corporate power. With little effective labour market regulation and fewer manufacturing jobs, many people and many areas too have simply fallen out the bottom. Wall Street’s hyper-competitive banks figured out ways to extend mortgages to many of these unfortunates, and came up with all sort of financial products to achieve this, with predictable results.

Unfortunately for the Americans, there are no simple remedies for this kind of damage. What, as Australians, should we do about our own situation? Just let it rip? Winners are meant to compensate losers, and in fair-minded Australia, where everyone votes, we have lots of transfer-payments.

As with any policy value, free trade can go too far, especially when, in the real world, it is facilitated trade, not free trade, that prevails. Australia has ridden its luck well, but if China falters, so do we. Apart from housing, there is not much to fall back on. As for innovation, no Australian government shows any signs at all of understanding the relationship between innovation and having firms, well-established ones, not just “start-ups”, to do the innovating. Innovation can only really occur when we have virtuous cycles of production, investment, training and research.

Investment in people is most important of all, yet I am not sure that we “get” this. Too often, we grab what we can, without building for the future. Take the case of the higher-education sector. More and more Australian universities are importing academic stars from overseas to boost their international rankings. This enables them to attract more students, who are sources of income for buying in even more expensive stars. But the playing field is not exactly level: Australian academics have a hard time plying their wares elsewhere. We are not seen as “stars”, and in any case, comparable countries, such as Canada, give preference to their own academics.

Insufficient investment in our own people will eventually prove unsustainable. It’s a bit like the top English soccer clubs, who recruit the best players from all over the world to play in the premier league, but can no longer sustain a competitive national team.

What are our kids going to do? In a caring country, each region, indeed each city has a responsibility to its own people, not just to help them when they have lost their jobs, but to support their careers. Yet we have no sense at all of national human resource development. We import people to fill gaps, rather than training our own. The most adroit job-seekers will no doubt have the contacts to make it somewhere in the global workplace. But many other job-seekers will not.

It is disturbing that unless unemployment rises, we don’t even acknowledge that we have a problem. In an increasingly competitive world, you get what you pay for. But you also pay for what you get.