Fear is crushing reform spirits

Productivity-driven reform is impossible when the rhetoric is all about threats to security and sovereignty.

Not since the World Trade Center bombings almost two decades ago have world events conspired to create such a climate of fear. In the coming election year, conservative forces will stoke fear in the Australian electorate with the aim of persuading voters that a change of government is too risky. It’s a tried and proven copybook, but it will have high costs for the country: essential economic reform is impossible when people are so frightened that they bunker down and cling onto what they’ve got.

Consider a couple of chapters from the playbook. Just weeks before Al Qaida’s attack on the World Trade Center, a Norwegian vessel, the Tampa, sailed into Australian waters under the guidance of the Australian rescue coordination centre, carrying asylum seekers it had rescued from a sinking vessel.

The Howard government introduced the Border Protection Bill, which deemed lawful any action taken by officers or agents of the Commonwealth. Labor opposed the bill on the basis that no one should be exempted from Australia’s laws relating to assault and murder, however unlikely those crimes would be committed.

Speaking on the bill in Caucus, I concluded: “This will cost Labor the election, but we must oppose it.”

I was right. The Howard government warned there might be terrorists on those vessels and Labor was portrayed as traitors to the Australian people.

Throw forward to the period leading up to the 2013 election. Labor’s market-based carbon price would wipe Whyalla off the map, force up the price of a leg of lamb to $150 and jack up electricity prices to unimaginable levels.

Then in the 2019 pre-election period, Labor’s support for the Medevac legislation, possibly allowing up to a couple of dozen sick asylum seekers to be treated in Australia, would cause a flood of “murderers, rapists and paedophiles” who would take the places of Australians in public hospitals and on public housing waiting lists.

These fear campaigns were not conducted exclusively by the Liberal and National parties; they were assisted and funded by Facebook groups and conservative supporters including NewsCorp outlets.

Labor, too, has run effective scare campaigns, its 2018 claim that the Turnbull government planned to privatise Medicare helping it gain 14 seats. But in the modern era it hasn’t resorted to race-based politics.

For a government keenly searching for a bogeyman, Chinese spies and their Australian sympathisers seem ideal. To be clear, China has been behaving appallingly in the last few years, in the South China Sea and Hong Kong, threatening Australian exporters with reprisals for Australian government national security measures, launching spurious anti-dumping actions and harassing Australian journalists in China.

But if the Australian government has a national security announcement to make, it should hold a media conference instead of tipping it out the previous evening to its favourite NewsCorp newspapers so they can spin it as anti-Chinese, complete with mugshots of suspicious Chinese academics.

And if national security officers are going to raid the home of a state Labor MP, or any elected official for that matter, perhaps it would be prudent that the media not be invited to accompany them.

Notice that in the US Presidential election campaign Donald Trump refers to his rival as “Beijing Biden”, to China as “Chin-ah!” and to COVID-19 as the “China virus”?

Now that all those Sudanese gangs the Liberal Party claimed were preventing Melburnians from going out to restaurants have disappeared, conservatives will be keenly looking for a new group to vilify.

A restraint on the Liberal Party doing this is its hold on the marginal seats of Chisholm, Reid and Banks, which have large numbers of Chinese-Australian voters. But that won’t stop the Liberals’ conservative proxies and NewsCorp.

After a couple of early slipups, where Prime Minister Morrison appeared to take on the mantle of deputy sheriff to Trump, he has been adroit in his public statements about the Australia-China relationship. Foreign minister, Marise Payne, and trade minister, Simon Birmingham, have been excellent. So, too, has the Labor leadership.

But in a climate of fear engendered by COVID-19, its economic aftermath and the fractured relationship with China, words such as “security” and “sovereignty” are appearing every day in the government’s economic rhetoric.

By way of example, security and sovereignty have provided the political context for Liberal interventions in gas markets.  

In a climate of fear, productivity-raising economic reform, vital to Australia’s future prosperity, will be impossible. The landmark reforms of the Hawke-Keating era to fashion Australia’s open, competitive economy, though undertaken in challenging economic circumstances, nevertheless were sold to the Australian people in a spirit of optimism about the future.

At a time of great-power rivalry, when the global trading rules are being flouted, the main political parties should reject the political allure of turning inwards, protecting industries under the banner of sovereignty and intervening unnecessarily in markets. And the Coalition’s proxies and media allies should refrain from further damaging Australia’s trade relationships by stoking Sinophobia.

Craig Emerson is a distinguished fellow at the ANU, director of the APEC Study Centre at RMIT and adjunct professor at Victoria University’s College of Business.

Protectionism won't make Australia great again

Trump-like tariff shelters for 'strategic industries' would shrink the economy and make genuine reform impossible to achieve.

If some business representatives had their way, a few microeconomic changes such as cutting the company tax rate and putting workers on individual contracts would place Australia on the road to redemption following the recession triggered by the COVID-19 pandemic. Tariffs, too, might be making a comeback, with a key member of the Federal government’s National COVID-19 Coordination Committee, Andrew Liveris, having defended the Trump tariffs as part of a “long game” against China.

Liveris has advised Trump on manufacturing and trade policy. Upon his appointment to the  Coordination Committee, Liveris signalled https://www.afr.com/politics/liveris-calls-the-start-of-the-on-shoring-era-20200408-p54i37 the advice he would provide: "Australia drank the free-trade juice and decided that off-shoring was OK. Well, that era is gone," adding “If I can achieve anything like what we achieved in nine months with Trump, I'd call it a massive success."

There’s been lots of talk about self-sufficiency in strategic industries. Oh, to be considered a strategic industry! I warned here two weeks ago https://www.afr.com/policy/economy/road-out-leads-back-to-productivity-20200420-p54lbe, beware the ideologues, especially the rent-seeking variety who purport to champion free enterprise but in truth favour private enterprise financially supported by taxpayers.

Genuine microeconomic reform is impossible in a shrinking economy. Try explaining to workers, the unemployed and people dependent upon government support that yes, a policy reform is sending them backwards, but they should be grateful since they would go backwards even further in the absence of reform.

Reform is possible only when a government is helping make the pie bigger and everyone gets a share of it. That was the recipe of the Hawke-Keating reforms. And it worked. A Productivity Commission report https://www.pc.gov.au/research/ongoing/trade-assistance/2018-19/trade-assistance-review-2018-19.pdf released last week, but overwhelmed by the blanket media coverage of COVID-19, reported on Australia’s tariff reductions that began with the 25 per cent across-the-board tariff cut by the Whitlam government in 1973, accelerated by the Hawke and Keating governments, with the Howard government applying the finishing touches.

Labor governments took on supporters of tariffs who had no problem with the Fraser government’s effective rates of protection of 140 per cent on cars and 250 per cent on clothing and footwear.

The Productivity Commission explains: “As a result, Australia has become a more globalised and competitive economy, generating vast benefits for consumers.” Those benefits have come in the form of lower prices for cars, whitegoods, shoes and clothes, especially the cheaper shoes and clothes bought by poorer people.

The Labor Party of the 2020s hasn’t turned its back on those reforms, as confirmed recently by its shadow trade minister, Madeline King https://www.afr.com/policy/economy/why-free-trade-can-save-us-20200427-p54ngt but the rent seekers within the business community are back. A virus pandemic is just the tonic for the rejuvenation of protectionism.

While manipulators of industry policy flirt with tariffs and subsidies for designated strategic industries, let’s not forget the free-trade agreements Australia would be violating with the United States, ASEAN, China, Japan, Korea, Malaysia, Indonesia, our Trans-Pacific partners, the members of the Regional Comprehensive Economic Partnership and those fuddy-duddy nations in the 164-member World Trade Organization.

As we breach the agreements we have negotiated and signed in good faith, please spare the outrage and indignation when our trading partners retaliate, blocking off access to their markets as they seek to create their own strategic industries.

It’s true that President Trump is getting away with violating the global trading rules by slapping tariffs on steel and aluminium imports not only from China but also from the European Union and other allies, on the pretext of national security. The US has invoked an otherwise dormant national-security clause in the 1947 General Agreement on Tariffs and Trade, the predecessor to the World Trade Organization.  

Trade Minister, Simon Birmingham’s push back last week https://www.afr.com/world/europe/trade-minister-takes-aim-at-european-push-to-bring-supply-chains-home-20200430-p54oss against renewed European calls to re-shore industries behind new tariff walls was refreshing, a voice of reason in an international sea of insanity. Have the Europeans forgotten the lessons of World War II and the reasons for establishing global trading rules shortly thereafter: to help prevent World War III? 

In the absence of accommodative monetary and fiscal policy, there will be no V-shaped recovery. Many heavily indebted companies, burdened with the massive loss of revenue from the shutdowns, will collapse when creditors can no longer carry the weight. Workers, fearful of their job prospects, will refrain from discretionary spending. Under pre-existing policy settings, businesses, already refusing to invest before the COVID-19 crisis, will not take chances with risky, new investments.

Reducing or removing the disincentives to invest inherent in Australia’s company tax base is essential. Cutting the rate doesn’t do that. Rather, it confers a windfall gain on profits from all prior investments made at the 30 per cent rate. And companies are gifted the tax rate cut regardless of whether they commit to new investment.

Getting the macroeconomic settings right to grapple with a recession of a magnitude not seen since the Great Depression is paramount. But if policy makers delve into the Trump playbook and seek to make Australia great again in a return to our protectionist heyday, they will impoverish a generation of our most vulnerable citizens.

Craig Emerson is a Distinguished Fellow at the ANU, Adjunct Professor at Victoria University’s College of Business and Director of the Australian APEC Study Centre at RMIT. He was an economic adviser to Bob Hawke.