Month: February 2011

Anti-Dumping Laws: In Whose Interest?

It’s hard to top deposing a Prime Minister. But having the management of Rio Tinto replaced by monkeys (as Australian Worker’s Union boss Paul Howes suggested last week) would be pretty impressive too.

The AWU celebrated its 125th anniversary with bluster and assertiveness. It’s been swinging wildly at mining companies, foreign imports, and ministers in the Government it installed.

None of it shows the AWU in a particularly good light. Take for instance the union’s campaign to strengthen the Government’s anti-dumping laws.

“Dumping” occurs when a foreign firm exports into Australia products and sells them for a price lower than in their home market. The idea, in theory, is to put Australian firms out of business, and then jack up prices. Our anti-dumping laws impose selective tariffs on goods to compensate. Lots of countries have similar laws.

So it may seem the union’s “Don’t Dump on Australia” is of minor importance. But the campaign against dumping exposes a simple truth: the union movement is a special interest, acting on behalf of a few favoured sectors of the economy.

Because from the very beginning, anti-dumping laws had almost nothing to do with the theory of dumping.

The first anti-dumping law was enacted in Canada in 1904. New Zealand imposed one in 1905, and Australia in 1906. The US joined the anti-dumping club 1916; South Africa and Great Britain five years after that.

But it was only in 1923 the economic theory of dangers of dumping was formulated, by the economist Jacob Viner in his book Dumping: A Problem in International Trade.

So what inspired the earlier anti-dumping laws? Politics, not economics. The Canadian government first imposed anti-dumping laws to curry favour with domestic steelmakers feeling threatened by cheap US imports.

The rest of the world followed suit. For Australia, anti-dumping legislation was a simple component of “protection all round”.

In other words, anti-dumping is not a measure to defend the integrity of free trade (as Howes claimed last week, saying foreign competitors were “cheating”) but a measure to undermine it.

Anti-dumping laws are protectionism, pure and simple.

As the failures of state socialism have become clearly manifest in the last few decades, Viner’s theory of dumping has been abandoned, along with the arguments for infant industry protection, import quotas, general tariffs, and trade subsidies.

After all, the dumping thesis relies on the possibility of a foreign producer, having eliminated all its competitors, raising prices. But it’s hard to find in the literature an example of a firm ever doing so. It’s not a very good strategy: it’s expensive, and its reward is uncertain. Even if a firm managed to eliminate all its competitors, the moment it raised prices new competitors would flood back into the market.

And if imported goods are only cheap because they’re subsidised by foreign governments, that’s a straight transfer of wealth from overseas taxpayers to Australian consumers.

A Productivity Commission inquiry last year found while anti-dumping measures benefited a few companies, those benefits came at the expense of everybody else’s economic well-being.

It did, admittedly, find the overall cost to the economy was likely to be very small. So the commission recommended keeping the laws for a very specific reason – to placate the fears of some firms (and the union movement) about tariff reform.

That is, for politics, not for good policy.

You could dismiss the Productivity Commission as unforgivably neo-liberal.

But even the Nobel Prize winner Joseph Stiglitz – hardly a doctrinaire free-marketeer – describes much anti-dumping laws nothing more than “creative new measures to block imports” which make “little economic sense”. The first world, Stiglitz argues, uses anti-dumping legislation to shield itself from third world competition.

The AWU is welcome to stand up for what it perceives to be in the interests of its members. That’s its job – to seek special privileges for those who pay the annual fee.

But the union cannot claim the policies it pursues are in the general interest of the Australian economy. (And, as Stiglitz might add, in the interest of third world workers.) The union’s ferocious advocacy of anti-dumping laws is a small but indicative reminder of this.

If the AWU was concerned with all Australians they would campaign to eliminate anti-dumping laws. Lower prices and a more competitive economy benefit unionists and non-unionists alike.

Unfortunately the Federal Coalition has joined the AWU on its anti-dumping crusade: Tony Abbott has also called for an examination of the anti-dumping regime to protect jobs.

The review of 2010 federal election by Steve Bracks, John Faulkner and Bob Carr has reaffirmed the relationship between an antagonistic union movement and a deferential Labor Party.

Given the union movement’s willingness to forego the national interest while protecting its client industries, this should not be welcomed.

Striving For Political And Economic Freedom

It was no surprise that the Economic Freedom of the Arab World Report was launched in Cairo last year.

Egypt has been at the centre of economic liberalisation in the Middle East.

Hosni Mubarak stubbornly resisted political and democratic change, but had much ambition in the economic sphere. The end of the dictator’s grip on the Egyptian presidency comes after a substantial economic reform program.

So the world observes in Egypt not only a people trying to free themselves from dictatorial rule and a police state, but another illustration of the close relationship between economic and political liberty.

Introduce one, and people will demand the other to match.

Reform needs consent. Mubarak isn’t the first dictator to fall because he ignored this requirement, and he won’t be the last.

The Economic Freedom of the Arab World Report rates the 22 members of the Arab League on measures of economic liberty: tax rates, size of government, security of property rights, monetary soundness, regulation, labour market flexibility, and trade barriers.

When the report was launched eight years ago, Egypt was near the bottom of the rankings. For its effort, the country is now dead in the centre. Not as economically free as Kuwait or Bahrain, which occupy the top positions, but doing much better than Algeria and Syria.

Egypt’s government launched an economic reform program in 2004. The tariff burden was reduced from nearly 15 per cent to 5 per cent. Egypt re-engaged forums of trade liberalisation, and facilitating import and export. The company tax rate was reduced from 40 per cent to a 20 per cent flat rate, and their progressive income tax system is now levied at a maximum rate of 20 per cent. The rolling series of privatisations, which had petered out in the late 1990s, were rejuvenated.

As a consequence of these changes, Egypt increased its GDP growth from 3 per cent per year at the turn of the millennium to around 7 per cent. That figure only modestly declined during the financial crisis, to 5 per cent.

And unemployment – commonly cited as a source of Egyptian unrest in the wake of the Mubarak regime’s privatisations – declined during the reform period. At 12 per cent in 2003, unemployment is just over now 9 per cent. Economic reform has been disruptive. It always is. But it has not hollowed out the Egyptian labour market.

Poverty, of course, remains a major problem, as it does across the developing world. Yet while Egypt is very poor, it is not as cripplingly so as those under it on the economic freedom rankings.

Alexis de Tocqueville said the most dangerous moment for a bad government is when it begins to reform itself.

While deregulations, privatisations and other economic liberalisations are rarely popular on their own behalf, the wealth and economic growth they spur usually is. The challenge for would-be reformers is to demonstrate the connection between growing prosperity and those disruptive reforms. And to ensure those benefits can seep through the entire society as quickly as possible.

Any attempt to demonstrate that connection is going to be tough while a country is ruled by a dictatorship.

No amount of positive economic reform will excuse the absence of individual liberties, widespread government harassment, arbitrary arrest, political repression, a justice system divorced from the rule of law, rampant corruption, and restrictions on freedom of expression. And nor should it. An increase in GDP is no comfort for someone who has been tortured in custody just to fill an arrest quota, or someone who is unable to report a sexual assault for fear of being seen as “fair game” by police.

In the same period when Egypt was rapidly up the economic freedom rankings, its ranking by Freedom House, which measures civil and political freedoms, remained stagnant. That stagnation hides hundreds of thousands of individual human traumas at the brutal hands of the state.

Dictators can’t always have it both ways. They can’t reap the benefits of economic growth – with their higher tax revenues and more luxuries to hand to political supporters – and maintain complete political control at the same time. No country can be both a police state and a market paradise.

Sure, the Chinese model seems to suggest otherwise. But China is less economically free, more decentralised, and its constituent parts more unstable than the first country appears. And the Chinese story, like the Egyptian story, isn’t over yet.

Not all economic reform is the same. In developing economies like Egypt, the benefits of privatisations can easily be corrupted by bribery and secrecy.

After all, the idea behind privatisation is not merely to get enterprises off government books as quickly as possible. It is to reintroduce market competition, improve services, and make those enterprises more efficient. Consumers should be the beneficiaries, not politically connected oligarchs.

Unsurprisingly, Egypt’s privatisation program has been dogged by corruption allegations. Whether justified or not (there’s every reason to suspect in many cases they are) those allegations reflect a lack of democratic openness. Egypt ranks poorly on Transparency International’s Corruption Perceptions Index – consistently well below most other Middle Eastern countries.

Corrupt practices, whether on a large or small scale, are the manifestation of a broken, undemocratic, and illiberal political system. A corporate tax rate of 20 per cent sounds wonderful, but is illusory if daily business requires greasing the palms of bureaucrats and police.

Despite a decade of reform, Egypt may no longer have one of the most unfree economies in the Middle East. Yet compared to the rest of the world, it is still terribly over-regulated, corrupt, and dominated by state subsidies and restrictive labour practices. Craig Emerson correctly wrote in The Australian last week that “Political freedom without economic freedom would dash the hopes and aspirations of the region’s youth for a better life.”

The military takeover has underlined how much work there is to be done if Egyptians wish to be both prosperous and free. There are some worrying signs. At this stage the new leaders seem more interested in cracking down on strikes than democratisation. “Stability” is the catchcry of tyrannies everywhere.

The military has, however, promised to continue economic liberalisation.

And if last few weeks have demonstrated anything, it’s that a country cannot reform its economic system and leave a corrupt and oppressive political, judiciary, and administrative system in place.

Why We’re A Nation Of Homebodies

Most Australians think of themselves as highly mobile. We’re a nation of immigrants, after all. The phrases ”sea change” and ”tree change” are commonplace. But the data suggests otherwise. Compared to the rest of the world, we don’t like to budge.

An immigration department analysis in the 1990s found that the median distance Australians moved was just 16 kilometres over an entire decade. So when Julia Gillard doubled the places in her Job Seeker Relocation Assistance Package, it was actually quite a big deal.

A 2010 election promise, the program gives unemployed workers grants of up to $9000 to travel to find work. It has been expanded to help rebuild Queensland. But the package has an importance that extends beyond welfare, or the Queensland floods. It’s a recognition that Australian job seekers aren’t very mobile.

Perhaps fair enough: Australians like their home towns. As Dr Johnson put it, people ”have a strong attachment to the habitations to which they have been accustomed”.

Yet compare us to the United States. Migrating within the country is a big part of America’s employment culture. Americans are twice as likely to move interstate as Australians. We all know of New York as a city of migrants, but those migrants are as likely to be from within the US as beyond.

The World Bank has demonstrated a clear empirical relationship between high levels of population mobility within a country and that country’s economic growth. In the US, those who travel to find work earn, on average, around 10 per cent more than those who do not. And, unsurprisingly, internal migrants are substantially more likely to be employed.

No surprise then that internal migration is an even bigger deal in the developing world. Right now, China is in the middle of the Spring Festival, an annual event where around 130 million Chinese travel back to their home towns to celebrate Lunar New Year. In 40 days during January and February, there are more than 2 billion journeys taken by migrant workers, reflecting the enormous shift of Chinese labour from the country to the city.

The boom in the Chinese economy is just as much to do with this migration as it is with the slow introduction of liberalised trade. If the 20th-century United States had one of the great mass internal migrations, as the World Bank argues, then the migrations within 21st-century China will be tenfold more spectacular and a hundredfold more significant.

So why are Australians so stagnant? It’s not just a cultural thing.

A big cause of American internal mobility is tertiary education. American students typically travel across the country for the university that’s best for them. Then, when those students look for work, they cast a wide net with an open mind.

But in Australia, our government’s higher education policies encourage uniformity, not diversity. All our top universities offer pretty much the same courses, taught in pretty much the same way, and confer pretty much the same quality of degree. Students can’t justify moving to attend a university offering the same service as a university in their home town. Then, when graduates look for jobs, they only look for jobs near home.

America’s more flexible labour market makes for more entrepreneurial and assertive employees. Just like international immigration, there are few more entrepreneurial activities than leaving home to find a better life.

The Howard government had a similar relocation program to that being introduced by Labor.

Like the Howard-era policy, Gillard’s relocation isn’t just a free ride to Queensland. The package contains penalties. Workers who take the money but ditch their new job within six months are ineligible for unemployment benefits for 12 weeks, if they don’t have a reasonable excuse.

Welfare lobbies and the Greens have embraced the idea of more social assistance, but they bristle at the penalties. We’re used to that: these groups are always happy introducing more cash incentives to get into work, but never happy with disincentives to fall out of it. Mutual obligation has been a tried, tested, and largely bipartisan feature of Australia’s welfare system. Anyway, it’s hard to imagine any better way to protect the scheme from manipulation.

What little debate has surrounded the relocation package has focused on this penalty. But let’s discuss what the package means: why Australians are so reluctant to move for a better job, and the policies that have unintentionally made us that way.

Beyond The Chaos, Federalism Lives On

The critics of political theatre suggest Anna Bligh has shown successful leadership during the Queensland floods and Cyclone Yasi.

Julia Gillard’s notices have been somewhat less positive. Trying to emote in front of TV cameras, she’s looked wooden. Like Samuel L Jackson in the Star Wars prequels, Gillard is talented but the script gives her nothing work with.

That’s a show of leadership succeeding at the state level, and failing at the federal level.

So aren’t you glad we still have states?

The last few years have seen a chorus of voices claiming the very existence of state governments – therefore the entire basis of Australia’s federal system – is anachronistic, a relic of the colonial era, and the biggest impediment to national reform.

Tony Abbott and Bob Carr are openly dismissive of state government powers. John Howard never saw a centralisation he didn’t like. Neither did Kevin Rudd.

Our opinion and letters columns are littered with complaints about wasteful duplication and how just darn unnecessary those states are.

But in the wake of this year’s natural disasters, perhaps federalism could find a few more friends.

Putting aside the performances of Gillard and Bligh, it would have unthinkable for a federal leader to take responsibility for this month’s disaster efforts: floods in Queensland, Victoria, New South Wales, South Australia, and Tasmania, and floods and bushfires in Western Australia have all had their own characteristics. Affected states have each had separate and specific needs. They require their local leadership and expertise.

Busy with the floods and cyclone in Queensland, a lone prime minister spread too thin would have had to virtually ignore the devastating fires in Western Australia.

The idea of federalism suggests the closer governments are to those they govern the more responsive and representative they will be. State governments can respond better than Canberra. The start of 2011 has surely demonstrated the validity of that claim.

It’s not even an issue of competence. Politically, Anna Bligh’s government has been on the nose all through 2010. But her “bloody awful tough year” – to use the premier’s words in December – was all but forgotten as the waters rose and the storm approached.

And it’s not to say we won’t find Bligh government failures before and during the floods and cyclone. We haven’t heard the last question about the management of the Wivenhoe Dam, or the Queensland Government’s decision to forego insurance.

But decades – hell, a century – of rolling federal government fiascos should leave us in no illusions Canberra could do any better.

Much has been made of the comparison between the natural disasters of 1974 and this year. But bookended by the Brisbane floods in January, and Cyclone Tracy that Christmas, 1974 was also one of the defining moments for the relationship between the Commonwealth government and its state counterparts.

The two disasters came smack bang in the middle of Gough Whitlam’s push to steam roll his agenda over the states. (Malcolm Fraser would later describe a Liberal approach as “new federalism”. Gough’s plans could perhaps be described as “no federalism”.)

No surprise the events of 1974 led to more restructuring in favour of the federal government. A Natural Disasters Organisation was set up after the Brisbane flood. Cyclone Tracy confirmed the Commonwealth’s pre-eminent position. As the director of operations and plans in the Natural Disasters Organisation recalled, it was these twin disasters which gave the “impetus to the development of legislation and new arrangements for states and territories”.

Unsurprisingly, the reconstruction of Darwin (the Northern Territory was already under Commonwealth administration) was plagued by delay and indecision. Budgets blew out. Accusations of bureaucratic empire-building were thrown around. The Darwin Reconstruction Commission fantasised about building a “Canberra of the North”.

Where state powers were eroded after 1974, perhaps the aftermath of January 2011 will bring us, slightly, back the other way.

Gillard’s uninspiring attempt at leadership might give some small reason to hope for the future of federalism.

After all, Canberra’s failures are federalism’s last remaining defence.

The Prime Minister coincidentally suggested over the weekend she would be pulling back on Kevin Rudd’s grandiose health reforms; reforms which were to place Canberra squarely in the centre of our health system.

Queensland – poor Queensland – which had embraced Rudd’s reforms with open arms, will likely now have to keep responsibility for their own hospital system, just like all the other states.

The parameters of this cut-back health reform will be debated at COAG next Monday.

But there’s no doubt Gillard is looking to take health reform off her prime ministerial plate. Rudd’s plans to have the Commonwealth assume the vast bulk of responsibility for health and hospitals are being abandoned.

Federalism is the structure of government which the designers of Australia’s constitution intended. That structure has been battered down for a century.

But right now our Commonwealth Government is uninspiring, unloved and, completely unable to pursue its own policy goals. Federalism may have some life in it yet.

Taylor confirms curriculum motivated by ideological antagonism

Finding the philosophical assumptions that underpin a curriculum is careful work. It involves looking less at what’s included than what’s absent.

So it was refreshing to see an article in Crikey on Monday by Tony Taylor, which confirmed everything we discovered in The National Curriculum: A Critique. Taylor simply and forthrightly spells out the curriculum’s ideology in a stark few hundred words.

Of course, that’s not his intention. Taylor drafted a previous iteration of the history curriculum, and claims to be a consultant on this one. He intends to defend the curriculum, but he accidentally condemns it.

Take Taylor’s apparent rebuttal of David Daintree’s claim in our book that the curriculum largely ignores and consistently denigrates the role of Christianity in Western civilisation:

Christianity is covered in Year 8 under “the spread of Christianity”, medieval Europe under the Crusades (not so good, that bit), the medieval dominance of the Catholic Church and the Spanish conquest of the Americas (another not-so-good bit).

Could there be any more concise summary of the curriculum’s hostility? Certainly, as Daintree points out, Christianity, and religion in general, is responsible for much historical wrongs. But religion is responsible for much good too.

But weighing up the pros and cons of religion is, contra Taylor, not the point. It’s an undeniable historical truth that Christianity is one of the keys to understanding the development of Western civilisation. Europe’s advances in law, philosophy, and even science have been conceived of in largely Christian terms, by largely Christian people. To imagine that Christianity’s importance can be neatly summarised by a) the Crusades and b) the conquest of the Americas is not only unhistorical, it’s dishonestly antagonistic.

Taylor would be welcome to hold that view in a polemic. But such polemics should not be imposed on a curriculum that will be imposed on every Australian school student.

A much less typical view of Taylor’s is in response to the shadow education minister Christopher Pyne’s view that the curriculum unjustly underplays the English Civil War:

As for the Bill of Rights and the English Civil War, the former is covered in Year 10 under the optional “egalitarianism” and the latter is arguably just a series of confused and confusing localised squabbles that may have a special significance for UK history, but not for anybody else (unless they like dressing up in period costume).

“Just a series of confused and confusing localised squabbles” is a strange way to describe the revolt of parliament over the monarchy, the trial and execution of the King of England (an extraordinary break with the past) the declaration of a republic, and its disintegration into dictatorship.

The English civil war echoed through the intervening centuries. It was just as important as the French Revolution. If not more: the principles that were developed after the civil war have become the principles on which liberal democracy has been implemented around the world.

There is a direct line from the Rump Parliament to the Declaration of Independence, to the Declaration of the Rights of Man and the Citizen, and, even, to self-government in Australia.

This is a strange thing to have to remind one of the designers of the national curriculum.

If the intention of the national history curriculum is — or should be — for Australian students to understand how their world became, then Taylor’s bizarrely dismissive attitude about one of the foundation events of that world is astonishing.

And if we needed confirmation that the national curriculum is motivated by an ideological antagonism to the history of Western civilisation, Taylor’s short column is it.

The Truth About Energy Subsidies

Is the Australian Government subsidising the fossil fuel industry?

So said the Climate Institute, when they heard Julia Gillard was scrapping solar schemes to pay the flood bill.

This claim shouldn’t be casually dismissed.

Because it’s one thing for fossil fuels to be cheaper and more efficient when all energy technologies are competing on a level playing field.

But it’s quite another if government policy is artificially boosting the competitiveness of fossil fuels. If, in other words, taxpayers’ money is being used to boost the dirtiest technologies and suppress the cleanest.

Would it be unfair to describe this argument as typically “neo-liberal”? The Climate Institute’s claim suggests a free market in energy, where the Government treats all forms of energy production neutrally, would be a more environmentally friendly one than what we have today.

One writer on Greenpeace Australia’s website condemned “taxpayer handouts” being used to “line the pockets of the wealthy fossil fuel industries”. Remove corporatist government subsidies – instantly get a greener Australia.

It’s a shame these claims don’t really hold up.

The definitive version of the subsidy argument is contained in a 2007 Greenpeace paper written by a researcher at the University of Sydney’s Institute of Sustainable Futures.

And the Institute of Sustainable Futures’ definition of what constitutes a subsidy to the energy industry is broad, to say the least.

Take, for instance, what the paper describes as the largest subsidy to the energy industry – roads. In the author’s view, roads are a government subsidy to private transport, therefore a subsidy to petrol, therefore a subsidy to fossil fuels.

Never mind buses use roads too, or bike lanes are being built into roads across the country – two climate-friendly modes of transport which would struggle without roads.

But, on the facts, this subsidy claim is wrong. The Department of Infrastructure’s own figures show the money raised by road and vehicle-specific taxes ($16.2 billion in 2006-07) is much more than is spent by all levels of government on roads ($12.1 billion the same year).

Anyway, it’s hardly reasonable to describe government investment in roads as a direct subsidy to the energy industry. Unless you are happy to describe government investment in health as a subsidy to the pharmaceutical industry. Or government investment in schools as a subsidy to the whiteboard industry.

Certainly, other subsidies exist, but it’s unclear why they would be of deep concern to environmentalists.

The Greenhouse Gas Abatement Program, for one. Or the Low Emissions Technology Demonstration Fund, which supports a range of carbon capture projects. There are more.

These are programs specifically designed to make energy more environmentally friendly. It’s a bit rich to insist, on the one hand, the Government should encourage cleaner energy, and, on the other hand, criticize the Government for implementing projects which try to.

It’s hard to see many environmentalists congratulating a government which eliminated those sorts of programs. Sure, Greenpeace would like those programs to be replaced with fully renewable energy programs. But subsidies are either bad or good. It seems Greenpeace would like their elimination to be contingent on introducing other subsidies. Hardly the most principled anti-subsidy position.

Complicated tax arrangements for company cars are often cited as subsidies, without the proviso that those arrangements are designed to ensure company cars are treated exactly the same as all other forms of income.

Similarly, some environmentalists are also upset about fuel tax concessions for primary producers being available to miners. But, like it or lump it, miners are primary producers too. The fuel tax concession is not an energy subsidy. Quite the opposite. It’s a measure to ensure the tax office treats all forms of production the same.

Instead, the environmentalists just want to penalise miners for existing.

Nor does Australia’s lack of a carbon tax constitute a subsidy for energy. Well: any more than our lack of an idiot tax constitutes a subsidy for idiots. The Gillard Government argues the externality of carbon pollution should be internalised through some sort of price mechanism. But the absence of that mechanism is not a “subsidy” in any useful sense of the word.

This is not to say that, globally, subsidies to fossil fuels aren’t a problem. The 20th century’s mania for central planning left its mark on the energy sector.

Electricity and petrol was as subject to misguided industry policy as any other industry. The global energy landscape is a mesh of tax breaks, tariffs, quotas, preferential planning and regulatory controls price controls, grants, government investments, rebates, and outright subsidies.

Government support for fossil fuels in the last century was as fashionable as government support for renewable energy is today.

If we were smart, we would approach this modern fashion much more cautiously, keeping in mind the perverse consequences of the fashions of past.

According to the OECD, eliminating global fossil fuel subsidies would reduce energy-related carbon dioxide emissions 5.8 per cent by 2020 compared to the baseline scenario. Because subsidies to favoured industries are inefficient, the world economy would be richer to boot.

The OECD is very careful defining what constitutes a subsidy.

The Climate Institute and Greenpeace aren’t. They want to make a political point: that free marketeers, so diligent finding government programs to cut, deliberately ignore taxpayers’ money being handed to their fossil fuel mates.

Cutting those subsidies would be the lowest possible hanging fruit of emissions reduction. If they existed, doing so would have bipartisan support.

But apart from a few emissions reduction programs – which most environmentalists would oppose eliminating – they are nothing more than green mythology.