Protectionist: Changing course a must for Australia

# Martin Feil
# July 9, 2008

WE ARE at a watershed in our lives. From the early 1970s until now, we have participated in an economic experiment that was intended to create an international economy without barriers......

This was the sort of language used by the economic rationalists who morphed into free market economists. The rusty sheds are long gone. But so has most of our manufacturing capacity. We have watched our manufacturers sell their brand names and move their businesses to Asia. The services industries have not filled the exports shortfall.

Our foreign debt has been increasing by $50 billion a year for the past three years, despite the mining boom. We owe $600 billion to the rest of the world. We owed $180 billion 12 years ago. We owed nothing in the '70s.

The grand experiment hasn't worked. We were supposed to create outward-looking industries that could compete on even terms with the rest of the world. This didn't happen........

Change will only occur if we acknowledge that what we have done in the economy has not been the most successful economic strategy we could have devised.

Our leaders need to stop ignoring the trade barriers that the rest of the world uses. There is no such thing as free trade. Every country uses non-tariff barriers and gives preference through procurement to its own industries. Tariffs are passe. Non-tariff barriers are used by every industrial nation. Subsidies are a fact of life in the European Union and the US. There are no Fiats in Paris or Toyotas in Seoul. Why is that? The tariffs are low. (Zero for Fiats in the EU). Education and labour mobility are all very well but they are long-term, indirect solutions. We need to do something now.

Those manufacturers who are left have had enough. The remnants are ready to go offshore now.

The services sector, the media and the bureaucracy need to stop criticising manufacturing. They are the recipients of a lot of protection themselves, which they do not acknowledge. It is hard to lose your job in the public service.

In the past 10 years, many Australians have believed that it is stupid to work hard. Easy money from ever-rising stock markets was the way to go.

Making things takes education, time and a never ending commitment to the people who work with you.

The refrain about turning back the clock by bringing back high tariffs is true. They are past their use by date. In contrast, non-tariff barriers such as subsidies, government preference and local design rules have never stopped being introduced and have increased in the rest of the world.

Free trade is an even more antiquated fantasy. We can't turn back the clock to the simple 18th century times of David Ricardo when Pax Brittanica was the prevailing force. Even then the world economy was a much more complex place than Ricardo ever dreamt.

We need to change our minds, our attitudes and our approach if Australia is to remain a small, rich, economy whose ownership is basically in the hands of its inhabitants.

We are truly at the point where what is left of Australian manufacturing (and these are the really good stayers who have survived the free market pogroms) think that they should move offshore and simply live off their intellectual property and market conduits. More of the same 1970s policy will convince them to leave.

They must be convinced to change their minds.

Martin Feil is a tax and industry policy consultant and a former director of the Industries Assistance Commission.