Trade Liberalisation – Benefits and Costs

 

The trade liberalisation policies adopted since the 1970s have opened the Australian market to imports from low income nations, the main benefit of which has been to raise the effective income of most Australians by giving them access, formerly penalised by tariffs and quotas, to less expensive Asian manufactures.

 

For economic liberals, a further benefit has been the removal of a large part of economic decision-making from the deliberations of the governing class. In the former period of trade regulation, politicians and public servants involved themselves in economic decisions to the advantage of some groups and detriment of others. Advocates of trade liberalisation saw in this involvement a corruption of the political system as influential groups sought to promote their own interests at public expense. The removal of government from industry composition and market structure decisions was seen as a means of enabling the better allocation of economic resources; away from activities for which Australia was unsuited, towards those in which it had an advantage.

 

One of the arguments for tariff removal was that, as the world economy was irreversibly moving in a trade-liberalising direction, the unilateral removal of tariffs by Australia would not only increase income and improve resource allocation, it would advantage domestic economic actors who would, by starting early, be better prepared and positioned to cope with the emerging realities to which everybody else would eventually have to adjust.

 

Another, altruistic, benefit claimed for trade liberalisation was the helpful contribution that it made to lifting foreign nationals out of poverty by giving them access to some of the markets and employment opportunities that were formerly restricted to Australians.

 

The arguments in favour of trade liberalisation have been well canvassed and are widely accepted, even if some of the supporting claims are more convincing in the academy and the bureacracy than in the rough and tumble of real life. What needs to be said is that the benefits of reform have not been received without costs and the list of these for Australia is quite long. These costs are seldom acknowledged and they are worth expanding upon.

 

Firstly, unemployment is now much higher than it was in the trade regulated era. Between 1950 and 1970, the Australian unemployment rate seldom exceeded 1% of the work-seeking population. That rate has now climbed to more than 5.5%, and is arguably much more than that because the way unemployment is now measured is less restrictive than it used to be. The main reason that unemployment has increased is that trade liberalisation precipitated the closure of thousands of uncompetitive Australian manufacturing firms with the loss of the jobs, and skills, attached to them. The employment cost of transferring manufacturing from Australia to Asia has been between one and a half and two million jobs.

 

Secondly, the replacement of Australian manufactured goods with imports has been the main contributor to the deterioration of the nation’s external account. An almost immediate effect of trade liberalisation was that Australia moved into a position of chronic and steadily deteriorating deficit in its goods and services transactions with the rest of the world. The last time that Australia achieved an external current account surplus was in 1975 and since that time continuing shortfalls in foreign earnings have been balanced by borrowings, new foreign investment and the sale of Australian-owned assets. The result has been an inexorable rise in net foreign debt and a steady erosion of national sovereignty.

 

Thirdly, as manufacturing contracted, the share of the economy commanded by government has grown in response. Welfare outlays have increased to support permanently displaced manufacturing workers. Education spending has risen to prepare the future workforce for hoped-for opportunities in the post-industrial economy and (mainly) to warehouse the young unemployed who would formerly have found factory work. Delaying the entry of the young into paid work, the premature retirement of older workers and the growth of part-time and casual employment has been the means by which a reduced quantum of job opportunities has been rationed. As a consequence, the working lives of affected Australians have been shortened, thus contributing to an increase in their assistance claims on government. More than that, government has been impelled, by electoral pressure and its own expansionist inclinations, to deal with an increase in unemployment by creating jobs in and for itself. As a result, government is larger, and therefore more intrusive, than it was in the era of trade regulation, a fact rightly lamented by proponents of small government who nevertheless fail to draw a connection between the implementation of the liberal policies they advocated and the unintended consequence of now having a public sector heading towards double the size that it was in the former period.

 

Fourthly, the loss of large numbers of manufacturing firms, and even entire industries, that has resulted from trade liberalisation, has substantially diminished Australia’s technological status and capability. In world comparative terms, Australia is less technically advanced now than it was in the middle of the last century; complex industrial products, processes and projects once routinely attempted, and mastered, at an internationally competitive level, are now beyond the nation’s capacity. The dissipation of the knowledge, skills and technical capabilities that were embedded in Australian manufacturing has damaged the prospects for the nation’s future development, strategic security and relative place in the world.

 

Manufacturing, as practised in the leading industrial nations, demands high levels of applied expertise; for the material realisation of inventions and innovations, the design and engineering of products and processing systems, the management of complex supply and production operations and the steady improvement of quality and productivity. It is the mastery of the art and science that underpins this broad expertise that is, more than anything else, the measure and defining characteristic of a technical civilisation, the engine of its forward movement and the ground of its futurity.

 

From this it could be argued that to have stepped back, as Australia has done by chosen policy, from the progressive endeavour of striving to participate in the form of economic activity that defines membership in the elite group of advanced nations has been an act of national short-sightedness; an egregious error and a failure by that part of the governing class that has been the author of it, to perform its allotted task and duty.

 

Australian Productivity Council

May 2014.

 

 

Share Logo
Facebook Logo
RSS Logo
Linkedin Logo