Australia’s Unfounded Foreign Investment Fear

Nothing better illustrates how phoney the debate over foreign investment is than the Coalition’s discussion paper on foreign investment in agriculture.

This deeply unsatisfying document was released last month. That is, just a few weeks before the Commonwealth approved the sale of Cubbie Station in Queensland to a Chinese and Japanese textile consortium and the foreign investment debate blew up again.

The discussion paper proposes a government land ownership register, and proposes reducing the investment review threshold to $15 million. (These ideas are hard to reconcile with the Opposition pledge to reduce red tape, but, well, there you go.)

Yet there’s almost nothing in its 15 pages to explain why on earth we need a crackdown on foreign investment at all.

This absent justification is frustrating but it’s no surprise. The debate over foreign investment is a peculiar one. Investment sceptics never quite offer their full argument.

It ought to be an obviously good thing that foreigners give Australians money for things Australians want to sell. The original owners make the sale voluntarily and they profit. No-one is forced to sell their property to someone they don’t want to. And owners seem happy to deal with Chinese-Japanese consortiums.

Economists have been arguing for decades that as long as foreign investors obey Australian law there’s no reason their dollars will pose a problem. Foreign money is as good as local money.
That argument has been unsuccessful. The public disagrees strongly. According to a Lowy Institute survey (PDF) of public opinion over time, more Australians are opposed to foreign ownership of major companies than are opposed to death penalty or the Iraq war. Even “illegal immigration” is more popular.

The sole reason the Coalition’s discussion paper offers for even considering any change is this:

There is growing community and industry concern that some types of acquisitions may be contrary to the national interest and that a strengthening of the regime may be advantageous to the long-term prosperity and food security of Australia.

This bare sentence is all that’s offered to say we have a problem. “National interest” and “food security”? It’s hard to think of vaguer terms. The paper does not explain why foreign ownership may be contrary to these two concepts. And how could reducing investment make us more prosperous? Compounding the confusion, the paper informs us the Coalition “unambiguously welcomes and supports foreign investment”.

It’s all pretty thin and contradictory, but that may be the point. The Coalition’s foreign investment position is a hedge between free marketeers in the Liberal Party and agrarian socialists in the National Party. Tony Abbott seemed to have joined the latter side when he claimed in July that “it would rarely be in Australia’s national interest to allow a foreign government or its agencies to control an Australian business”. Happily, the discussion paper is not as bellicose.

Yet all political parties struggle to square what the public say they want, and what is truly in the national interest. As I argued in March in the Drum, Labor is no free market hero on foreign investment either. The Greens are openly hostile.

Cubbie Station is not a thriving business. It went into administration a few years ago. The Chinese and Japanese consortium, Shandong Ruyi, is picking up a distressed asset.

Nevertheless, according to Barnaby Joyce, the sale is a “disgrace”. Australians should have had a “first crack” at Cubbie Station.

In his view, the Chinese-Japanese firm might “compromise market competition”. Certainly, Cubbie Station is big. It produces up to 13 per cent of Australia’s cotton crop. But how would foreign ownership change that? If new owners have power to distort cotton prices, then so might any Australian owner who sold their crop overseas.

Or Shandong RuYi might avoid paying their fair share of tax in Australia. But the tax office is used to dealing with reluctant taxpayers by now.

In an interview with ABC Brisbane, Joyce said “land sovereignty” demands Cubbie Station stay in Australian ownership.

The political class expects policy debates to be economic debates. The language of public policy is the language of cost-benefit analyses, of trade-offs and productivity gains and multipliers and impact studies.

Yet Joyce’s idea of land sovereignty is nothing like our usual mechanical utilitarianism: he is making a moral claim. Australian land should be owned by Australian passport holders. It just should. There is no need to elaborate.

It is true that a big part of the foreign ownership debate is economic xenophobia, but that’s not the only part. For agrarian socialists in the National Party, it’s about nostalgia. It is about a rural Australia characterised by small family farms rather than agribusiness, of communities rather than capital markets, of local owners rather than foreign consortiums. It’s also a vision of a rural Australia where the National Party still dominates.

That world is rapidly dissipating in the face of global food markets and global competitors. Once successful agricultural businesses have to change or get out of the industry. So with this enormous structural adjustment, could it really be in our national interest to prevent distressed farmers from getting the best price for their assets? Surely not.