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The primitive country?

By Marko Beljac - posted Friday, 23 September 2011


Former Liberal Senator Nick Minchin had declared that the real agenda of those who want to price carbon dioxide emissions in Australia was to "deindustralise the West."

Yet the deindustrialisation of Australia is precisely what has been happening for the past 35 years under the rubric of "economic rationalism," of which just about all in Canberra, save perhaps for the Astronomy and Astrophysics Department at ANU, have been grimly attached too.

This was not supposed to happen.

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According to Paul Keating the whole purpose of the free market economic reforms, that he did so much to champion and implement, was to change Australia's position in the global division of labour from that of a provider of primary commodities to a provider of "elaborately transformed manufactures."

As someone who grew up in Western Australia I well recall that even there the goal was to engage in downstream processing, rather than the mere shipment of mineral and energy resources to other countries, for further processing into usable economic goods.

That we are having another round in the debate on the sorry state of Australia's manufacturing industry demonstrates that Australia has hardly become "the clever country" exporting "elaborately transformed manufactures" on the back of a commitment to economic rationality.

Free trade, judged on its own terms, is an abject policy failure. Indeed, we are exporting our natural resources, by way of lightly taxed multinational corporations, to China, especially, which uses those resources to "crowd out" Australian manufacturing in world markets. That is, after all, where our "comparative advantage" lies.

Though China is a country that "makes things" we need to be aware that China largely functions in the global division of labour as a regional and global assembly plant. The crucial creative technical innovations that rely upon advanced science and technology still occurs in the traditional economic powerhouses of Europe, Japan and the United States. Beijing, however, aspires to be more than an assembly plant. This is an important fact not without its implications for Australia's future.

Each of the big three global economic centres has, and has always had, a strategic approach to industry policy that is totally at variance with free market economic theory. In the case of Europe, besides being a core motivator of European integration, and Japan, that approach has been conducted within the framework of a broader social contract between capital and labour. In the US, that has hardly been the case, which largely explains why in America strategic industry policy has been developed around the Pentagon.

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The Global Financial Crisis has put what is often called "neoliberalism" into the spotlight. Though fond of the term, and having used it a lot, I can readily see that it is quite misleading. For example, elite sectors in the US have always protected themselves from the rigours of the free market. None of that can be accurately labelled as "neoliberalism."

But some countries have actively followed what is called "neoliberalism" by way of compulsion or choice. Australia is one of those and Australia has done so through a curious mixture of compulsion and choice. For example, global markets through capital strikes, sometimes unhelpfully called capital flight, have compelled Australia to pursue free market economic policy. On the other hand, Australia has a political class genuinely committed to "economic rationalism."

One feature, that all countries that have loyally followed the policy programs stipulated by the free market economics share, is that they have become progressively deindustrialised.

In Russia they call this "primitivisation." It is a term that has more than a ring of truth to it.

The previous approach to industry policy in Australia, the golden age of manufacturing in this country, was when manufacturing industry was promoted and protected by a developmental state. This formed a crucial part of a much wider social contract between capital and labour that helped to define the traditional Australian way of life.

That contract made Australia the best country in the world to live in.

Australia has been progressively deindustrialised not necessarily because of free trade, but because big business had decided to break Australia's social contract in the 1970s.

One can see the consequences of this break across the entire policy spectrum. Consider migration and multiculturalism. The first wave of post war migration occurred because business needed the extra labour and the social contract, which included centralised wage fixation and arbitration, ensured that the migrants did not function as a "reserve army of labour."

The social contract has since been dismantled, but the migrants keep coming, and under the "big Australia" policy heavily promoted by big business, will continue to come. The revolt against multiculturalism, that has so confounded a Labor Party dedicated to breaking the social contract in the interests of corporations, follows on from this.

The current Australian economic model is not sustainable and is fraught with risks. To appreciate this it would be helpful to briefly survey the situation in America.

In the United States private debt has skyrocketed given that, for non-supervisory workers, real wages have largely stagnated since the 1970s. The mountain of private debt that has thereby progressively grown played a key causal role in the onset of the current global economic crisis. That is to say, economic inequality, the effect and purpose of economic rationality, has greatly contributed to the global economic crisis.

In Australia the two big winners in the past 35 years have been the financial sector and the resources sector. So much so that the profit levels of these two sectors of corporate Australia are regular news items on prime time TV.

The big banks are making massive profits because consumers are laden with debt. On the old model most workers were on high real wages; the boy from Bankstown would regularly lament that wages took up too much of the economy during the golden age of Australian manufacturing. These high manufacturing wages drove our standard of living.

To be sure, workers in the resources sector, of which there aren't as many as commonly supposed, and other areas that exhibit a skills shortage, are on high wages. But the concept that Australia's workers are all "cashed up bogans" is really an urban myth. It would be better to label them "debt laden bogans."

A heavy reliance upon debt, which suits the banks just fine, is not a sustainable way to maintain an economic growth model. Better would be an economy that exhibits a higher share of income toward the wages end of the wages-profits share as we had previously. But, that requires a renewed social contract between capital and labour.

The same type of reasoning applies to the resources boom. Putting aside the issue of the distribution of the benefits of this boom, it is readily apparent that overreliance on commodity price fuelled terms of trade growth is not sustainable as it exposes Australia to exogenous shocks the avoidance of which was, supposedly, a key policy aim of the gnomes of Canberra.

Given the deregulation of global markets, global commodity price bubbles are a recurring risk. Secondly, the Chinese growth model, which helps to fuel global commodity prices, is not sustainable and one non-trivial reason for this is the level of economic inequality that it fosters in China. Beijing is interested in shifting toward high technology industry because that promotes wages growth and therefore encourages a greater consumption share of GDP.

It might be argued that what is being argued for Australia is a return to the "good old days" of wholesale industry protection. It is argued that this will just protect inefficient rust-belt industries that cannot compete in global markets.

This is a caricature.

What is being argued for is something else entirely. What is proposed is a major national effort by government to have Australia punch above its weight in cutting edge science and technology, which form the basis of industry skewed toward the high end of the manufacturing chain. Compared to its OECD partners, indeed even regional partners, Australia has a poor commitment to science and technology.

China is a major mover in global science as it tries to catch up with the West, given that it is still burdened with the legacy of having missed the scientific revolution. South Korea is another regional country spending big on science and technology. Even Turkey and Iran, which are ruled by Islamists of differing shade and degree, are making major investments in science and technology.

Lee Kuan Yew stated that Australia might become "the poor white trash" of Asia. That dismissal hurt, but we might well end up, on current trends, as the most primitive, if not necessarily the poorest, link in the Asian division of labour.

We can, and must, aspire to be something better and grander.

This even has its implications for national security given our traditional reliance upon achieving security in Asia through high technology weapons and command systems.

We should be spending more on basic science and technological innovation from which the global industries of tomorrow will rise. We should try and retain our best scientific talent rather than have them go overseas to ply their trade for the benefit of others.

We should be investing big in theoretical biology in order to better tap into the emerging biology driven economy of the future. We should be committing ourselves to being at the cutting edge of the ecologically sustainable industries, transport systems and energy sources that are mandatory for the wellbeing of civilisation. The much maligned, and now defunct, Green Car initiative was a positive development toward this end.

We should be trying to do more in quantum computing and in space technology. We should have our best young mathematical talent working on the type of mathematics that will be crucial for the development of basic theoretical science rather than have it increasingly wasted on socially destructive mathematical models of financial "innovation."

A requirement of a basic science and high technology driven approach to strategic industry policy, would be more investment in our universities and more investment in active labour market programmes designed to equip the workers of today for the exciting, and well paying, high technology industries of tomorrow. Currently our universities are in crisis, another consequence of the turn to "economic rationality." Canberra has an astoundingly lackadaisical approach to active labour market programmes.

Long run economic growth depends upon advances in knowledge and technology. That being so, it follows that resources booms and debt driven bank profits are hardly optimal sources for long term Australian economic growth. The same dynamic applies to economic inequality. As such, the high technology based industry policy advocated for Australia should be couched within the framework of a newly minted social contract.

We can scale the new frontiers of science and technology if we as a society choose to do so. Breaking the social contract and deindustrialising Australia was a choice rather than the consequence of a natural law.

Let us decide upon truly becoming "the clever country." We should do so knowing full well that free market driven countries do not become clever countries. The logical corollary is that should Australia descend into a type of primitive country it would largely have chosen to do so.

The elite political and managerial classes support economic rationality. The people of Australia have not and do not. So, when we speak of "choice" it is important that we realise that it is the choice of the elite that is being referred to.

To become a clever country the Australian political system needs to be transformed so that the people of Australia, rather than merely an Australian, are sovereign.

 

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About the Author

Mark Beljac teaches at Swinburne University of Technology, is a board member of the New International Bookshop, and is involved with the Industrial Workers of the World, National Tertiary Education Union, National Union of Workers (community) and Friends of the Earth.

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