"But aren't we are better off than ever before ?"
Some are, to be sure. Our rich have never been so wealthy, relative to middle class Australians. The whole world has developed even in the last 10 years, offering more and better household gadgets, cars, communications, and medicines. But the countries with a higher standard of living now have more than we do. Our governments have been maintaining an illusion of wealth, getting money to spend by selling off assets developed by earlier generations, and wooing foreign investors long after our need for them has waned, thereby placing us further in debt.
Looking closely, you can spot some of the indicators of our national decline:
Houses built for average Australians today are smaller than those of the 1960s. Large families that were once supported by one wage earner now require two for a smaller family. Unemployment that was once as low as 3% is now around 3 times higher, depending on whose figures you believe. An Australian dollar that was once worth one and a half USA dollars was worth 67 USA cents by the end of 1997, and falling. Ordinary wage earners now pay rates of income tax once reserved for the rich. Newspaper reports quote Asians as saying that our cities are dirty, our universities not particularly good. Americans warn visitors to our cities of the dangers from crime. And, according to the latest edition of Janes World Armies (a globally respected military journal) we skimp on defence.
Australia is not alone
The world abounds with poor countries that were once prosperous.
In the 1920s Argentina could compete with Australia for the title of richest country on Earth. By 1950, only 30 years later, it had become a "developing country" and its citizens tasted poverty and despair.
Before World War 2, Britain was Europe's richest country: for decades after it was one of the poorest.
Centuries ago Portugal and Spain were the great explorers of the world, but by 1945 were regarded as "developing countries".
Is it not possible that the same fate could befall Australia?
For a forthright description of the difficulties faced by countries on the verge of prosperity, see Malaysian Prime Minister Dr. Mahathir's famous speech.
Australians have invented some great products
During its period of prosperity Australians invented some great products, many of which were manufactured here, providing jobs for our workforce. We can recall with some pride our world firsts: the rotary motor mower (Victa), the Hills clothes hoist, the pop-top drink can, wine casks, brick veneer building construction, reinforced concrete, the self erecting crane, the marine torpedo (sold to the British Admiralty around the turn of the century for 100,000 pounds), a winged yacht keel (part of the America's Cup winning combination), pedal powered wireless, the flying doctor service, mobile police radio, the refrigerator, and so on.
Increasingly though, in modern times, Australia has failed to grasp the wealth that could be made from manufacturing, by failing to commercialise its inventions.
Manufacturing opportunities lost
Typical of Australia's failure to capitalise on its industrial opportunities is the story of the atomic absorption spectrophotometer. A scientific measuring instrument for chemical analysis, the atomic absorption spectrophotometer was developed by Australia's C.S.I.R.O. and has been used all around the world for 30 years. A factory employing 400 people was set up to manufacture these instruments in Melbourne . . . but it is now entirely owned by the USA giant Varian Corporation. Australia no longer has an interest in its manufacture.
Lack of a sensible industry policy is why Australia never developed a processing industry to quadruple the value of its wool clip. We had our C.S.I.R.O. hard at work improving wool's properties, making it fireproof and easy to wash etc. but abandoned to foreigners the conversion of our raw material into usable products. Australia developed the world's most efficient spinning method - self twist yarn - now used throughout the world to spin not only wool, but also synthetics such as acrylic. But we failed to use this invention ourselves to process our major product, and today receive mere peanuts for our wool. Products of rural industry are no longer in great demand. In 1987 Australia had to export twice the quantity of raw materials to receive an income equivalent to that we received in 1954.
"Stay with wool and mining. Leave computers to others." was the advice given by a committee Australia set up to answer the question "should we stay in digital computer technology?" This was at a time when Australia was only the third nation in the world to produce a digital computer, and its politicians were getting nervous about being up with the leaders. The committee consisted of two people from Britain and one engineer from Australia.
In 1955 Australia made a transistor radio. But we took the advice of another committee which decided we should stick with vacuum tubes. Within a few years vacuum tubes were obsolete and we lost our electronics industry.
We should not be asking competitors to make decisions for us. Remember this next time you hear an American accent telling us how to run our economy.
Short sighted reports by committees are not unusual. The 1980 Myers report concluded: "The ability of the government or people of a small country such as Australia, to influence the development of new technologies and their use in the world, is probably extremely limited."
"A small population is no excuse." says Helen Hughes, Professor of Economics at the Australian National University. "Countries with a smaller population such as Sweden, Denmark, Norway, and Switzerland, and a country with a similar population like the Netherlands, have done much better and have higher incomes, by and large, than we do."
During World War 2 Australia developed an aircraft manufacturing industry, and by the 1960s was building the Mirage jet fighter. But by 1985 our aircraft industry was not even given an order for the air force training plane it was developing. Instead, our government bought the Swiss made Pilatus, a plane which did not even meet the original brief for a side by side trainer. In a world where air travel and the requirement for aircraft has become commonplace, our governments do not even support the building of a training plane.
Meanwhile, smaller Sweden with half our population, builds and sells its own SAAB jet fighter that can take off and land on ordinary highways. The same country's Volvo car corporation exports to the world and at times pulls in 10% of Sweden's GNP . . . whilst we allow any profits from car making in Australia to be spirited away by foreign owned multinationals. And our "developing" neighbour, Indonesia, now makes its own military and passenger aircraft.
Profits for foreigners
Debts and taxes for Australians
Of course, not all products are high technology ones. Like people anywhere, Australians need their bread, biscuits, lollies and drinks, some banking services, a bit of insurance, a few medicines, and so on. All these things are made or provided in Australia, by and large as a result of the efforts of Australian workers. But who controls those workers? Who, as owners, get most of the profits?
According to AUSTRADE, this is how much of our enterprise has been transferred to foreign interests:
Processed Food 95%,
Motor Vehicles 100%,
Pharmaceuticals 100%,
Confectionery & Beverages 84%,
Manufacturing 57%,
Building Materials 88%,
Mining 97%,
Electrical 98%,
Banking 86%,
Chemicals 98%,
Insurance 82%,
Hotels 75%,
Oil/Gas 92%.
Foreigners and multinationals own most of Australia's industry ! They invest here in the hope of making profits, and, not being dills nor inexperienced, that is exactly what they do. When they take their profits home, as they eventually do, they contribute to Australia's current account deficit.
The current account deficit is simply a measure of how much more wealth has gone out of the country than has come in during a particular time period. It is therefore a measure of Australia's increase in debt.
Yet Australia's current account deficit is not a consequence of too many imports. Our imports and exports are roughly in balance. Our deficit overall comes from the large interest and dividend repayments (net income category) to foreign lenders - both by our governments and private companies and individuals.
We are living in an occupied country !
Multinationals have availed themselves well (for their own gain) of policies designed to help Australians . . . tariffs for instance. They use slippery accounting methods designed to minimise their declared profits (and hence taxes) in Australia whilst transferring wealth by stealth to parent or sister firms overseas. The process of transfer pricing is indeed the bane of tax-payers, governments and the tax office alike.
Sensing public uneasiness with the level of foreign ownership of Australia, our government several years ago established the Foreign Investment Review Board. But Australia's Foreign Investment Review Board really exists just to rubber stamp and make people feel as if there is some monitoring going on of foreign investment. The Board does attempt to keep foreigners out of bulk purchase of residential property, but other than that they have rejected very few foreign investments.
Meanwhile, somehow, the debts must be paid, and so the Austalian government continually searches for new ways of extracting more tax from the only source that can not escape it - the Australian people.
Who is to blame?
If you feel, as I do, that something is seriously wrong with the way Australia's industry policy is being managed, then some obvious questions are: "Who is responsible?" "How can we fix the problems?"
Culprits suggested from time to time have included Australian businessmen and entrepreneurs; the banking system; foreign investors and multinationals; trade unions; universities and training institutions; state and federal governments.
I lay the blame squarely with Australia's federal governments for the simple reason that, as the alleged representatives of the Australian people, they are the only ones in a position to co-ordinate all of the above. If the Australian people can not rely on their federal government to control the economy of the country in their interests then they can rely on nobody. Free market forces can't be relied on, as they are motivated primarily by greed rather than by considerations of what may be best for the people. Same for the banks, same for foreign investors.
The question of why Australian government has been so inept is an interesting one deserving a web page of its own. For now, I will continue to explore the question "How can we fix the problems?" related to industry policy, but do so in the knowledge that identifying the answers related to industry policy is futile unless and until the fundamental problems with the Australian federal government are fixed.
Is tariff protection the answer?
A tariff is nothing more than a selective tax placed on a particular imported good. It makes the imported good more expensive, and in doing so enables the domestic producers of that good to sell their product at a higher price than they otherwise could.
Older Australians remember that back in the 1950s when the nation was still prosperous, Australian industry was strongly protected by tariffs. Several of Australia's minor political parties (One Nation, Australia First, and others) attract some support by advocating a return to tariff protection. They recall not only Australia's past, but the success of Japan since World War 2. Japan has been strongly protectionist of its industries when it thought advantageous, although not so much with tariffs as with other non-tariff barriers.
Opponents of tariff protection claim it breeds lazy, inefficient industries. This is undoubtedly true when a tariff is left in place for a prolonged time, without monitoring its level, value, and cost. Opponents of tariff protection claim tariffs increase the costs of business resources and so disadvantage non protected industries, making them less competitive internationally. The same could be said of most taxes. Opponents also point to international treaties (such as GATT) that Australia governments have signed (foolishly some would claim, and without reference to Australian citizens) which make a return to widespread tariff protection difficult if not impossible.
Economics literature suggests that in most cases a subsidy to industry is preferable to a tariff. Sweden has developed its own
defence aircraft directly through government subsidies to defence industries. Opponents of tariff protection will sometimes admit that there is a good case for trade protection (subsidies) for defence industries as long as this is restricted to national defence, and is not wasted. Support for maintaining a manufacturing base in case of war is common.
Ironically, it is tariff protection that encourages foreign investment in an attempt by foreigners to jump trade barriers; the higher the tariff the more likely foreign investment becomes. Those who oppose uncontrolled foreign investment in Australia (as I do) must keep this irony in mind.
So what is the answer? My belief is that our government should be prepared to use a wide range of protective measures (tariffs, subsidies, quotas, inspection of imports, a tax on payments going out of the country, and anything else that will work) in a carefully controlled way to foster carefully selected industries to achieve specific objectives. Of the measures suggested, the one having most appeal to me is a subsidy, which can be directed to companies that are substantially Australian owned, and even to particular products if appropriate. In giving a subsidy to industry the government is in any case only returning some of the costs government itself imposes on industry in the form of taxes, excise duties, and compliance costs caused by government legislation and regulation.
Specific objectives might be to reduce temporary high unemployment; to establish a new industry that could benefit the economy; to retain a strategic industry that might otherwise be lost to cheaper imports (temporarily cheaper that is, considering only the dollar costs without the social ones). Australia's steel industry comes to mind. How is it that our biggest steel maker, BHP, is reducing steel making in Australia whilst Japan, with a higher wage structure than ours and using our raw materials, can continue?
Carefully selected industries would be only strategic ones or ones likely to be at least economically viable in the long term, and preferably the most profitable; they would include industries where we would appear to have some natural advantage (the steel industry comes to mind again); they would NOT include industries dominated in Australia by multinationals (which would not be here unless they were, perhaps secretly, making a profit already).
Careful control of protective measures would include continual monitoring of the costs and results of the protection, adjustment of the rate as appropriate, and perhaps eventual removal of the protection. All this would best be done not by politicians, but by independent, patriotic Australian analysts having skills in industry and economics, free from lobbying by vested interests.
Most of the problems with tariffs arise because they are not set sensibly. They are set by politicians of doubtful loyalty and knowledge of technology, influenced by lobbyists for vested interests, namely businesses seeking assistance. A cynic might ask how can tariffs be set sensibly? Governments such as Australia's almost seem to demand that special interests influence them to get what they want at the price of society. The same is as true for subsidies as it is for tariffs.
Which is why I stated above that identifying the answers related to industry policy is futile unless and until the fundamental problems with the Australian federal government are fixed.
Is foreign investment good for Australia?
I think the answer is "yes" if proposed investments are examined on a case by case basis, and only those which clearly benefit Australia are accepted. There are certainly win-win situations in which both the investor and the host country can benefit. But the answer is "no" to uncontrolled foreign investment, which in so many individual cases costs Australia more in the long run than any offsetting gain.
Malaysia's Dr. Mahathir has helped his country develop into one of Asia's so called "tiger economies" by encouraging foreign investment, but said in his famous speech after the Asian economic crash of late 1997: ". . . you should also appreciate that we of South East Asia at least, are now very scared about foreign capital. We thought they were helping to prosper us. We conducted roadshows to encourage them to invest in our share and financial markets. We will continue to do so. But we will have to be more circumspect."
In a stinging indictment of uncontrolled free trade and free market forces, he said:
"I mention all these because society must be protected from
unscrupulous profiteers. I know I am taking a big risk to suggest it, but I
am saying that currency trading is unnecessary, unproductive and immoral.
It should be stopped. It should be made illegal. We don't need currency
trading. We need to buy money only when we want to finance real trade.
Otherwise we should not buy or sell currencies as we sell commodities."
The full text of Dr. Mahathir's speech is well worth reading.
Unscrupulous Profiteers
" . . .society must be protected from unscrupulous profiteers" says Prime Minister Mahathir, after describing several instances in which America has used government legislation to halt free enterprise practises that were seen to be against the interests of its society as a whole.
To me, this seems to be an important point often overlooked, and hardly ever mentioned, by Australia's supporters of free trade, MAI (Multinational Agreement on Investment), and economic rationalism. If those supporters choose to disregard David Kidd and Dr. Mahathir, they would probably also disregard the results of NAFTA, the North American Free Trade Agreement, as described in a letter signed by hundreds of dismayed citizens groups in the countries concerned. They would have to disregard the Pope of the Roman Catholic Church too, who in January 1998 warned Cubans against "the blind market forces" of global capitalism. "The wealthy grow ever wealthier, while the poor grow ever poorer" the Pope declared, to explosive applause in the Plaza of the Revolution. The Pope was speaking at the climax of a five-day visit to Cuba.
The free enterprise system provides great incentive to innovate and to work, leading to vigorous economies far more successful than others that the world has experimented with. But it also provides opportunities for the unscrupulous to enrich themselves without offering any benefit to society in return. In my view, eternal vigilance and decisive intervention is required of the Australian federal government if the excesses of profiteers are to be restrained so that the people of Australia may prosper. I don't believe it's been happening !
It goes without saying that I opposed any Australian involvement in the MAI, that proposed Multinational Agreement on Investment which would have ended any chance Australia may have of controlling its own industry policy. One of our politicians actively led the successful campaign against it, a position vindicated by the final report of the Australian Joint Standing Committee on Treaties after MAI negotiations had been abandoned - The MAI research by GWB provides more details.
Who was the one politician? Why, the same one all major political parties combined to oppose, the one ridiculed consistently by the mass
media, Pauline Hanson. Does that suggest anything to you about the trustworthiness of the major political parties and mass media?
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The purpose of this web page is to alert Australians to a well disguised fact: Australia, per head of population the wealthiest nation on earth at the beginning of the 20th century is no longer anywhere near the richest, and indeed is headed for third world poverty. Due, in large measure, to the policies our governments have been following.