After dominating the political agenda for three decades, are the policies of economic globalisation finally under review in Australia?
Globalism advocates the policies of strict free trade, radical deregulation of the marketplace and government non-intervention in the economy.
However, following the dramatic global financial crisis and the subsequent long economic slump across the Western nations, it seems even in Australia there are the first signs of an openness to new ideas.
The Australian newspaper, a long-standing advocate of economic globalisation, ran front-page headlines on the huge decline of our nation’s manufacturing industry.
It featured Paul Howes, national secretary the Australian Workers Union, declaring that manufacturing was in “major crisis” (see page 7).
Then former federal Liberal leader, Dr John Hewson, called for a new incentive to attract Australia’s vast pool of superannuation savings to invest in the “mounting public infrastructure requirement, already running into the hundreds of billions of dollars” (Australian Financial Review, September 2, 2011).
He said that “it must boggle the mind of an onlooker” to see the $1.8 trillion in managed funds, yet so little of this is being used for long-term infrastructure investment. Instead, most of the nation’s super savings is directed into the domestic and foreign share market, “with a mounting bias to short-term liquidity”.
Hewson cited the example of Singapore’s Central Provident Fund, pointing out that the nation had been built on compulsory national savings. The government required that a proportion of this be invested in Singapore infrastructure. Such a policy seems a “no brainer”, commented Hewson.
He suggested that Australia develop a government-guaranteed, long-term infrastructure bond, an Aussie bond, to raise funds.
Instruments for raising the funds are not hard to devise. The more difficult issue, he said, would be to develop a “structure and process to manage the investment of the funds raised, preferably outside government, against strict and transparent investment criteria that assesses and ranks projects”.
Hewson also called for a new national wealth and infrastructure fund, like the current Future Fund. This scheme would also be independent of government, but would be used to manage the huge tax windfalls from the mining boom, land-use taxes and possibly the Aussie bonds and any funds attracted from the superannuation companies.
Following on John Hewson’s proposals, Josh Frydenberg, the new federal Liberal member for the Victorian seat of Kooyong, advocated a similar policy in The Australian (September 3, 2011).
He argued that some of the windfall gains from the mining boom — $30 billion this year and $65 billion since the 2007 election — should be put into an Australian sovereign wealth fund and invested for a future time when they would be needed most.
He pointed out that sovereign wealth funds (or national wealth funds) are not new. He said: “Kuwait established one in 1953, Abu Dhabi in 1977 and Norway in 1990.
“Owned by the government, these funds and others like them in Chile, Russia and Qatar hold, manage or administer a diverse set of financial assets in the pursuit of commercial objectives. They are distinct from state-owned enterprises, whose remit often includes ownership and operation of commercial businesses.”
He said that about $4 trillion in assets are held by sovereign wealth funds world-wide, and this could surpass $6 trillion in the next year. “In other words, they are here to stay,” he said.
Such funds can have several purposes. For Australians they could provide long-term wealth creation that delivers some of the benefits of today’s mining boom to later generations — intergenerational equity — after the mining boom subsides. They can also be used to stabilise revenue cycles.
In both instances, countries that significantly invest their sovereign wealth funds offshore, keep a downward pressure on their exchange rate. This helps export manufacturing and rural industries that suffer from high exchange rates.
In recent times, the call for Australia to develop a sovereign wealth fund has come from business leaders such as Mike Smith at the ANZ Bank, Ralph Norris when he was head of the Commonwealth Bank, and CSL Limited’s Brian McNamee.
Glenn Stevens, Reserve Bank of Australia governor, and the International Monetary Fund have both suggested such a fund for Australia.
Founder and long-time president of the National Civic Council, B.A. Santamaria, advocated for many years that Australia emulate Singapore’s model of economic development based on mobilising its own savings through its Central Provident Fund.
He also advocated the creation of a national development bank for investment in infrastructure and appropriate industry.
Santamaria also predicted that such policies vital for Australia’s future would eventually come to pass, because when the old policies of globalism failed, as they are failing, these policies would be part of an eminently sensible alternative.
Hewson’s final remark echoes Santamaria’s sentiments. He said: “… [T]he electorate may be surprisingly tolerant if monies from taxes/super/borrowings will not be politically manipulated but transparently managed outside the political process to the long-term national benefit.”
Patrick J. Byrne is vice-president of the National Civic Council.