Month: October 2011

Why Doubt Free Trade With China?

On Wednesday Tony Abbott told The Age that he would make a free trade agreement with China less of a priority than one with Japan – because China, he pointed out, is not a market economy.

Of course, there’s nothing sacred about bilateral free trade agreements. They’re a poor cousin to multilateral agreements. They can be written well or poorly. A lot rides on their negotiation, and interest groups and rent seekers will want their say.

But the pros and cons of bilateral agreements plainly have little to do with the Opposition Leader’s scepticism about a trade deal with China.

Last week’s comments are not isolated. Abbott also wants tougher laws against anti-dumping, to penalise goods subsidised by foreign governments. With these policies, the Opposition Leader is close to endorsing retaliatory protectionism.

Abbott says he wants to ensure a “genuinely level playing field with a fair go for Australian companies”. In recent interviews, he has begun to talk not about “free trade” but “free and fair trade”.

Abbott is not alone. Barnaby Joyce also talks about his full-bodied support for free trade but only if it is “genuine” free trade. The AWU’s Paul Howes says, “If trade is going to be on, it’s got to be on a level playing field.”

Of course, the entire point of free trade is that the playing field isn’t level. The world isn’t flat. The world is very bumpy. Different products are made more efficiently at different places. Environmental, geographic and social conditions vary wildly. If anything, the process of globalisation has emphasised just how different parts of the world are.

Free trade is beneficial precisely because the world is heterogeneous, not homogenous.

This applies even when those differences are created by deliberate public policy choices, not “naturally”.

Yes, China is not a market economy. As John Lee pointed out in Crikey last week, it would be flattering to even call it a mixed economy. It is led and dominated by the state, rigged so state-owned enterprises are the main beneficiaries, and corrupted by industry plans and subsidies.

These are all bad things. But to retaliate – or, to use less-loaded language, compensate – by bumping up our trade barriers would be compounding one error upon another.

We should feel sorry for Chinese taxpayers when they are asked to stump up for ever more industry subsidies, not resentful of them. China is a developing country. Yet it is taxing its citizens in order to prop up businesses. Which then go sell their products below the market cost to rich countries. These subsidies are a direct wealth transfer from third-world taxpayers to first-world consumers.

As Professor of Economics Donald J Boudreaux describes this perverse strategy: “To make its country’s exports artificially more abundant and artificially less costly for foreigners to buy, a government taxes its citizens, effectively forcing people within that country to bestow benefits on people outside its boundaries.”

It’s tragic. But Australians are the beneficiaries of such misguided policies, not the losers.

There is no reason to believe the efforts of foreign governments to build industries using subsidies and industry plans will be any more effective for them than it has been for us – that is, it will be entirely fruitless and extremely expensive.

So foreign subsidies do nothing to undermine the case for free trade. Self-sufficiency is no virtue. Just as it is nonsensical for an individual to make everything they need themselves, it is nonsensical for countries as well. Free trade would be beneficial even if Australia was the only country in the world that believed in it.

The union movement offers one further objection to trade with China – the Chinese government artificially undervalues the yuan, deviously making their exports more competitive than if their currency had been floated.

Perhaps. Currency demagogues in the United States (where the strength of the yuan is a major political issue) have long pointed to the Economist’s Big Mac Index, which compares the price of the iconic hamburger around the world. It’s a rudimentary but evocative test of currency health. It measures a standardised product, allowing us some indicative comparisons. The Economist found the yuan could be undervalued as much as 44 per cent.

At least it did until the index was drastically revised this year. Big Macs should be cheaper in countries with low labour and land costs. The index was adjusted to take account of that obvious complication. Its revised data suggests the yuan is much less undervalued than everybody originally thought.

The Big Mac Index is certainly crude. But we know an artificially low yuan is bad for China itself. An undervalued currency is an effective subsidy to exporters at the expense of domestic consumers, raising the price of imports and increasing costs across the economy.

In the last 12 months domestic pressures have been getting more intense. The Chinese growth model is a ticking time bomb. What we’re seeing is not cunning manipulation of a currency to undermine international competitors. We’re seeing an economy teetering on the edge of the abyss – and Chinese policymakers know it.

It seems bizarre to claim economic self-harm in China justifies economic self-harm in Australia.

But that is exactly what Tony Abbott, Barnaby Joyce, Paul Howes and other free trade sceptics now recommend.

Idealism Turns Us On, But Reality Bites

There’s a particularly idiotic moment in the 2003 movie Love Actually when British Prime Minister Hugh Grant loses it. Grumpy at President Billy Bob Thornton for hitting on No. 10 staff, he breaks off script at a press conference, describes his American ally as a ”bully”, and abandons the ”special relationship”.

Unbelievable? Absolutely. But what really throws this scene into the realm of high surrealism is the grinning faces of the PM’s political and policy team. Their leader has threatened the leader of the richest and most powerful economy on the planet. And Grant’s staff – who would have to deal with the consequences – are over the moon about it. Hooray!

Pop culture doesn’t do politics very well. The depictions of government (and the people we elect) in movies and television are either wilfully naive, or naively conspiratorial. Take The American President, where a Michael Douglas administration is inspired by the love of a good woman to decarbonise the US economy. Right now, in 2011, radical climate change action by America is pretty unlikely. But it was ludicrous to imagine when the film was made in 1995. In more pessimistic and dramatic films, politicians and governments head up elaborate conspiracies – they manufacture fictional wars (Wag the Dog), run military actions in secret (Clear and Present Danger) and cover up murders (State of Play, Absolute Power, and Enemy of the State).

But here’s the funny thing. All of these conspiracies pretty much work. They’re successful – at least until the movie’s hero intervenes. Doing the wrong thing might be wrong, but the movies assume it will be simple.

In the movies, covering up a conspiracy is no big deal. When needed, the wheels of government move effortlessly. It’s the same in the films with a more optimistic view of political leadership. Prime Minister Grant or President Douglas only have to put their foot down to get stuff done. Governments in the movies are competent. They’re nothing like the real world. In the real world, government projects are characterised by disappointment and compromise. Political operatives, not experts, make the final decisions over policy. Petty leaks and cheap betrayals are commonplace. Political favours are used like currency.

Even the worst fictional depictions of politics typically exclude the sad reality of policy botches, bureaucratic waste, and politicians with an exaggerated sense of self-importance.

More than anything else, the television show The West Wing has demonstrated pop culture’s bizarre faith in the competence of government and the goodness of politics. The show has a cult following among political boffins. No wonder: The West Wing flatters the political class by its suggestion that every person involved in politics is well informed.

And extremely well-intentioned. The West Wing‘s President Bartlett (pictured) is incorruptible. Power has done nothing to him. If anything, holding the most powerful office on earth has made him more honourable. And his staff are all dedicated to public service, extolling self-sacrifice and duty.

Something’s wrong here. In The West Wing‘s depiction of politics, there appears to be no politics. As Gene Healy, the author of the book Cult of the Presidency, has written: ”Fans of the show never saw the sort of infighting, backstabbing and jockeying for position that appear in real-world accounts of White House life.”

No wonder virtually every character in The West Wing has an unwavering faith in government action as the solution to every problem. They never come up against incompetence or dysfunction. And barely any opposition.

This matters because these portrayals of politics shape in a big way how we understand real-world politics. Rather than pointing at the inevitability of much government failure – caused by its plodding bureaucracy, its base politics, and the inevitability that power will be used to pursue private interests – movies and TV trivialise it.

If only the good people were in charge. If only Mr Smith really had gone to Washington. If only political leaders didn’t use their powers for evil. If only politicians weren’t weak.

Politicians have tried to exploit these sorts of sentiments, but the dull, sad reality of government always sinks in. Reforms go off the rails. Supporters lose faith.

There are rare exceptions, like Yes, Minister, and the more recent, even more cynical The Thick of It. But these are great because they are depressingly authentic compared with what we usually see on our screens.

Even in the darkest political thriller, pop culture’s overwhelming vision of government is optimistic, almost utopian. Shame the real thing can’t live up to the fiction.

Why Care About Freedom Of Speech?

The terms of reference for the Government’s independent media inquiry are limited but its ambitions apparently are not.

The inquiry released an issues paper last Wednesday which raised a big philosophical question: why should we care about press and speech freedoms?

Citing Oliver Wendell Holmes’s famous justification for freedom of the press, the paper asked, “Does this ‘marketplace of ideas’ theory assume that the market is open and readily accessible?”

The ‘marketplace’ theory holds remarkable currency. Justice Holmes provided the world with the metaphor (“free trade in ideas”) but the concept is older, variously attributed to John Milton in the 17th century and John Stuart Mill in the 19th. The argument is simple and appealing: we need to allow controversial statements because only through open discussion can issues be resolved. Democracy requires debate, so speech liberties help us maintain our democracy.

But the ‘marketplace of ideas’ theory is actually pretty flimsy support for freedom of speech.

After all, actually-existing non-metaphorical markets are anything but free. Many goods are illegal to trade or own – drugs, guns, hand grenades. Products and services are highly regulated. The circumstances which they are sold is carefully proscribed – most obviously alcohol or cigarettes. Even in an ideal ‘free market’ there would be much state involvement. Property rights have to be protected and contracts enforced.

So, as the economist Ronald Coase once sharply pointed out, if we treated ideas and speech as we treat the real marketplace, we’d be blessing all sorts of objectionable government interventions. (Coase went on to wonder why intellectuals were so accepting of regulation in real markets but not in metaphorical ones; he was writing in the early 1970s, before intellectual fashion had completely turned against free speech.)

This is not just being tediously literal. The ‘marketplace of ideas’ metaphor is the only justification for press freedom the issues paper mentions, and it frames the paper’s questions about ‘access’ to the press. The inquiry asks whether individuals (or groups) should be granted a right of reply if they have opposing views, or if their “honesty, character, integrity or personal qualities” have been questioned.

Implicit in the marketplace of ideas theory is that freedom of speech has a purpose. It is utilitarian. The only way to come to the truth about an idea is to freely debate it. The best ideas – that is, those which are most true – will out-compete the rest.

Yet it’s trivially easy to demonstrate this ‘marketplace’ is distorted. Some have access to louder megaphones than others, as everybody keeps pointing out.

And if speech has a utilitarian purpose, it never quite achieves its ends – even once ‘truth’ has been obtained through free discussion, speech freedoms continue to allow wrong ideas to be broadcast.

The utilitarian approach sows the seeds of its own failure. Twentieth-century commentators were more honest about that. One commentator in Forum in 1949 argued free expression “is a right because such expression is of benefit to the community. Obviously, then, the community through the government may at any time limit this right for its own protection.”

The marketplace of ideas theory doesn’t capture the true value we place on free speech. No-one believes that, for instance, 9/11 Truthers no longer have a right to share their opinions, no matter how discredited and ludicrous those may be.

Instead, we need to think of freedom of speech as a right, not a tool to achieve an end.

Freedom of speech is a subset of freedom of conscience. Not for nothing does the first amendment of the United States constitution bundle the right to exercise religion with the freedoms of speech and press. Liberty of thought is meaningless without a corresponding liberty of expression. What we believe, we should be able to say.

The American revolutionaries argued a people were only as free as their press. Echoing those sentiments, the legal academic Lee C Bollinger wrote in 1983: “Free speech is not just a practical tool for making systemic repairs, but an affirmation or statement of what we value as a people.”

(Just because the right to free speech cannot be absolute does not make it less of a right – the common law has for centuries recognised speech is limited insofar as it is threatening or defamatory. Expression is not unlimited either. Punching someone in the face may be “expressive” but does not deserve free speech protection.)

Characterising freedom of speech as a right rather than an instrument has policy consequences.

For instance, the right to speak must be also the right not to speak; to determine the content of your speech. This principle is breached clearly by one of the major proposals of the media inquiry issues paper – a legally guaranteed right of reply which would treat newspapers as regulated common carriers.

Those who hold a ‘marketplace of ideas’ view of free speech may find this proposal unobjectionable. But those who believe free speech is a human right should be repulsed. Perhaps newspapers should open their pages for wide-ranging debate. But that’s ultimately between them and their readers – a free speech choice, not a free speech requirement.

As Bollinger argued, “The reason we shelter speech is as important as the speech we shelter.” The frame in which we understand free speech shapes our attitude towards it. The dominant policy view – seemingly held by those who drafted the terms of reference to the media inquiry and those who drafted its issues paper – is that freedom of speech is only of utilitarian importance. But that view has too many limitations and inconsistencies to be useful.

We do not want the Government managing public debate for all sorts of reasons. First among them is that any attempt to do so will necessarily abridge our basic right to freedom of speech.

Submission to the Independent Media Inquiry

Introduction: The Independent Inquiry into Media and Media Regulation raises troubling freedom of speech and freedom of the press issues. A free and independent press is an absolute necessity for a functioning democracy, and freedom of speech is one of the basic foundations of individual liberty.

Available in PDF here.