Colin Teese responds to Professor Max Corden’s address.
Many News Weekly readers will be unfamiliar with the name Max Corden. In economic circles, however, Professor Corden is well known.
He is, in fact, the crown prince of what Australians have chosen to call economic rationalism.
Until recently, he had long been away from the limelight. But a week or so back he once again made it into the headlines.
He is reported as saying that Australia needs a population of 40 million in order that our industries could enjoy the benefits of economies of scale.
He went further: he added that a larger population was also important from the point of view of security.
Now much of this kind of opinion is old hat. Quite possibly, earlier versions of it had been mouthed by Professor Corden himself. Expounded by a credible figure it can sound quite plausible.
However, precisely because of its superficial plausibility, it requires detailed examination. Any examination is complicated by the fact that the assertion entails an interaction between three important and controversial aspects of policy.
While the ideas recently put forward by Professor Corden are not new, they have not been heard for many years. For example, when Australia’s population was 10 million it was being said that our industries needed a domestic population of 20 million so that they could reap the cost benefits of larger scale production.
Well now that we have 20 million, it turns out – according to Professor Corden – that we need not 20, but 40 million to get the desired economies of scale. The security argument rests upon equally dubious assumptions.
When our population was half its present level, we were told that if we were to be secure against invasion (presumably from the north) we needed a population of 20 million.
Again, according to the latest Corden prescriptions, it turns out that security considerations now require that we have a population 40 million.
Of course, we are entitled to ask of Professor Corden – and others of like views – what is the magic of 40 million?
Is there any reason to believe – on the basis of the usual assumptions – that our security and economic needs can be guaranteed at population 40 million?
To take security first. In the past it had been inferred, though never specifically stated, that the threat to our security comes from our populous neighbours to the north. These nations – whose populations number billions – it has been assumed, covet our space and lifestyle.
Perhaps they do. But if so, can we seriously expect that if we settle 20 million more people within our shores, their aspirations with respect to our continent will be dissipated?
No less important, do we really believe that with 40 million settled here instead of twenty we will be any better able to defend ourselves against those with populations numbering billions?
There is a further consideration. Are any of the orthodox security considerations hanging over from twenty or thirty years ago of any contemporary relevance?
We are now into the 21st Century, and surely the least likely threats to our security come from possibilities derived from a context fifty years earlier.
Unless the present thinking of our policy makers is totally astray, surely immediate threats to our security are more likely to come from terrorist sources. And, from what we know so far, the last thing on the minds of potential terrorist groups is to take and occupy territory. Accordingly, any increase in population is hardly likely to help defend ourselves against contemporary threats.
Suppose, then, that the need for greater population cannot any longer be defended on security grounds, what about economics? Is there a case to be made there?
First we need to understand a bit of history. When we do it becomes immediately clear that Professor Corden’s economic arguments are even shakier.
It is part of the public record that Australia conducted a highly successful immigration policy in the period after the Second World War. The reason why this policy was pursued so single-mindedly are many and varied, but above all it was justified in terms of accelerating the rate of growth and development.
The view at the time was that our nation could not achieve satisfactory growth unless we were able to develop a significantly larger and more diverse manufacturing sector. New investment (mostly foreign-sourced), new industries, new jobs, migrants – that’s how the thinking went.
Quite simply, our post-war immigration program was based upon a carefully thought out growth and development strategy built around the idea of transforming Australia from an essentially rural economy to one heavily dependent upon a manufacturing industry.
It was an interlocking, three-pronged strategy: new manufacturing industries, foreign investment capital to build the new industries, and an immigration policy to help provide a sufficiently large and reliable workforce for the emerging industries.
Why foreign investment? Because at that stage of its development, Australia was not in a position to find the necessary funds from its own resources. Why immigration? Because the newly emerging manufacturing industries would require more labour than was available from home grown sources.
Of course, the ability to encourage foreign investment in new manufacturing capacity was essential to the strategy. Foreign investors would only be interested in putting up their capital if the risk element to them were to be, as far as possible, contained. At the very least they demanded, not unreasonably, that the output from their new investment could be protected in the domestic market against cheap imports.
In the process, perhaps unwittingly, Australia conducted – and successfully concluded – a unique social and economic experiment in what might be called interventionist capitalism. If only we had stayed with it!
An incoming labour force moving immediately into secure, well paid jobs meant that the new migrants were at once contributing to the economy; and at the same time fitting more easily into the new society.
Of course they put pressure on the resources of their new home. A steadily increasing and continuing migrant intake also accelerated the need for major outlays of social capital. Schools, hospitals, roads, housing, power generation, water supply, all of these had to take the strain of a rapidly increasing population.
Even more was this so, since the rapid absorption of our migrant workers into full time, well paid and permanent employment, encouraged them to take on marriage and family responsibilities. In fact initial consumption of social capital by the incoming migrant intake exceeded its contribution to the economy. Very considerable government outlays, both state and commonwealth, were needed to cover the shortfall.
Fortunately there was a compensating factor. New industrial development stimulated a very rapid growth in the economy. The farm sector got its boost from a bigger domestic market and a better ability to compete on export markets. Imports also increased, and through the application of import tariffs, provided an important additional revenue stream to government. Likewise, a fully employed, well paid workforce provided a steadily increasing income tax revenue base, which helped governments fund the additional necessary outlays on infrastructure.
The newly-emerging economy took on a profile it had never before displayed. It was growing faster than ever before, was more prosperous, and was more engaged with the world: but not in precisely the same way as many other Western economies. Essentially, the farm sector, and later mining, was generating the export income and local industries were supplying much of the home market’s needs for a wide range of manufactured goods.
A very large part of the revenue stream becoming available to governments for distribution to all parts of the community was coming from taxes generated from within the manufacturing sector.
Now with an economy of this shape, it made sense for people to assert that the more we could increase our population – and thus the size of the domestic market – the more our manufacturing sector could enjoy the cost advantages of larger scale production.
Unhappily, Professor Corden wasn’t saying that at that time. He was then arguing that the road to efficiency for our manufacturing industries was by removing the barriers to import competition. Free trade was the way to go. Expose local industry to the full blast of international competition. Efficient manufacturers would thrive in a wholly market driven economy and the others would go under.
Well, Professor Corden and his supporters had their way. The Australian market for manufactures was opened up to international competition, but the outcome has not been quite as they had expected.
Certainly, the so-called inefficient manufacturing industries’ have collapsed, but in large part nothing has taken their places. Australia’s status as a manufacturing economy has declined faster than any of the major Western economies and we now sit low on that scale.
Most of those sharing Professor Corden’s view have chosen to ignore this development – at least in so far as their public statements are concerned. But the problem has apparently been worrying him. His response now is to suggest that the key to industry growth is population growth.
Unfortunately, his prescription flies in the face of commonsense. An open market for imports doesn’t help industry development, it hinders it.
No matter how much the population grows unless the domestic market is reasonably secured for local production, manufacturing investment is discouraged.
Manufacturing investment will always chase the countries who most encourage it. The rest become importers, and that is precisely what has happened to Australia.
Consider this. One of Australia’s few remaining manufacturing industries enjoying real protection against imports is the car industry. And it is also one of our most successful exporters.
What we should be trying to find out is why!
- Colin Teese