For over a century, as governments and central banks have come to play a larger role in society, the lives of more people have been affected by economic theories than at any time in history. It is also a time when prosperity, once the preserve of a small minority, has become universalised, not merely in the United States, Western Europe and countries like Australia, but throughout North Asia and increasingly, China and India.
Over that time, the dominant paradigm in the West has swung from Adam Smith’s model of laissez-faire capitalism, which was discredited by the Great Depression in the 1930s, to Keynes’ model of large-scale government intervention, which foundered in the stagflation of the 1960s and 1970s, to the free market economics of Friedman and Hayek, which has shaped government policies in Australia and across the West since that time.
Within Australia, the financial deregulation implemented by the Hawke and Keating governments in the 1980s and 1990s, and the extension of these policies in the Howard era, has transformed the Australian economy, exposing it to the forces of international competition in a way that has never been seen before in Australia’s history.
The upside of this has been low inflation and cheap consumer prices of both local and imported goods. Since most people now live in large cities, many have welcomed these changes.
The downside has been the collapse of iconic Australian manufacturing and agricultural industries, a growing dependence on imports of essentials such as petroleum and electronic goods, and a soaring national debt, the impact of which has been hidden – for a time – by high commodity prices and low interest rates.
To quote the words of Oliver Goldsmith:
“Ill fares the land, to hastening ills a prey,
Where wealth accumulates, and men decay.”
Successive governments have justified the changes by appealing to the mantra of economic efficiency, structural adjustment and micro-economic reform, and have set up and bankrolled nominally independent agencies such as the Productivity Commission to advance the agenda.
Australians have been told repeatedly, there is no alternative, and those who rejected the economic orthodoxy were dismissed as economic Neanderthals, or ignored.
The Department of Foreign Affairs and Trade (DFAT) totally upholds this view. Its website lists seven benefits of free trade agreements, including “FTAs foster freer trade flows and create stronger ties with our trading partners”, “FTAs can increase Australia’s productivity and contribute to higher GDP growth”, and “FTAs can enhance the competitiveness of Australian exports”.
Now, a group of prominent Australian economists, principally from Adelaide University and the ANU, have jointly published their own critique of the free trade agreements that the present and previous governments have been hell-bent on signing.
The co-signatories of their open letter include Paul Kerin, Head of the School of Economics and Richard Pomfret, Professor of Economics, University of Adelaide, Bill Carmichael, former chairman of the Industries Assistance Commission, and Professor Richard Blandy.
Dismissing the benefits of free trade agreements as “mythology”, they said the claims put forward by DFAT are “without any basis in fact”.
They said that in each FTA completed to date, the feasibility study released in preparation for negotiations projected the potential or possible gains for Australia. “They did not, and could not, project what was actually achieved from the ensuing negotiations.”
The economists said that those projections were subsequently used to create an unreal public perception about the outcome of negotiations.
“The projections assumed that all or most of our trade barriers, and those of the negotiating partner, would be removed. This meant the gains projected at the outset conveyed nothing about what we achieved from the negotiations.
“Yet they were still quoted to support the agreements after they were signed, as though they reflected the actual outcomes for Australia.”
They cited a study of the Australia-U.S. free trade agreement, by ANU economist Shiro Armstrong, using methodology developed by the Productivity Commission.
Armstrong wrote: “The data shows that … Australia and the United States … are worse off than they would have been without the agreement.”
He added: “The agreement was responsible for reducing — or diverting — $53.1 billion of trade with the rest of the world.”
The economists said that Armstrong’s ANU colleague Peter Drysdale has measured that cost in terms we can all understand: “Australia alone has suffered trade losses the annual equivalent of the current price of around 18 Japanese, German, Swedish or French submarines through this deal.”
It is time that the government’s obsession with free trade deals was replaced by a credible industry policy to restore Australian primary and secondary industries, which have been destroyed by policies created and implemented by bureaucrats in Canberra.
Its object must be to support Australians first in agriculture and manufacturing.
Peter Westmore is national president of the National Civic Council.