Foreign Investment Is Always A Two-Faced Policy

Julia Gillard was right to say in the Guardian over the weekend that Kevin Rudd’s last-minute criticism of foreign investment during the election was “bizarre” and cheaply populist.

But glass houses, meet stones. Remember Gillard’s attack on the 457 visa scheme? It was announced on her Western Sydney safari as a way to put “Aussie workers first”. It was exactly the same cheap, populist economic nationalism she accuses Kevin Rudd of indulging.

Kevin Rudd’s foreign investment stance was a policy burp expelled in the middle of the Rooty Hill debate.

It stunk. It didn’t fit very well with the wonky image that he had crafted over such a long period. Kevin Rudd is supposed to be cosmopolitan, serious, worldly. Not reactionary, populist, and parochial.

The politics of foreign investment in Australia has been rife with this sort of incongruity.

Australia has always been utterly dependent foreign capital to finance its development.

We’re small, open, and desperate for other people’s money. We have more economic opportunities than capital to service them.

Luckily other countries have been eager to oblige.

But that luck usually goes unnoticed in the foreign investment debate. The developing world would kill to have as much money knocking at its door as Australia does. Poor countries obsess over how to attract foreign investment.

In the first half of the 20th century opposition to foreign investment within was a minority view held mostly by Labor’s far-left base. They were convinced that British financiers controlled the economy.

It was a fringe obsession. Then in the mid-1960s, Arthur Calwell fatefully decided he could make political capital out of opposing foreign capital.

Robert Menzies and his treasurer Harold Holt did all they could to attract British and American money.

But Calwell had let the cat out of the bag. On both sides of politics, the young blood that took over at the end of the 1960s reversed the foreign investment consensus.

In his important 2000 thesis, Christopher Pokarier points out there was a subtle terminological change in government documents around this time. What had been described benignly as “overseas investment” became the faintly more sinister “foreign investment”. (Pokarier’s thesis is available here.)

John Gorton was an economic nationalist. Gorton’s Coalition successor William McMahon introduced the first economy-wide foreign investment restrictions.

Labor’s myth-making industry has cast Gough Whitlam as a cosmopolitan reformer open to the world.

But the central plank of his economic policy was opposition to foreign investment.

Where Labor supporters of the 1930s were angry about British financiers, Whitlam’s intellectual backers were angry about American multinationals. The story was the same – foreign money meant foreign influence – but Whitlam’s supporters told it with a more scholarly and respectable veneer.

Whitlam ditched the outright xenophobia of his forebears and replaced it with the paranoid “it’s time to start buying Australia back”.

His government imposed the political control over foreign investment that we still have today.

When it returned to power in 1983, Labor did a partial reversal, jettisoning economic nationalism for market reform. The big dramatic gesture was Paul Keating’s 1984 decision to allow in foreign banks – those very same foreign banks Labor had railed so long and hard against.

The awkward contortions of today’s Labor on foreign investment represents a clash between Gough Whitlam’s economic nationalism – passionately held by the ALP for decades – and the shock modernisation of the Keating era.

The thing about market reform is that it leaves little room for politicians with bold nationalistic vision. Nobody is going to win an election calling for more foreign ownership of Australian assets. The Keating legacy is uncomfortable. Labor has not removed Whitlam’s foreign investment controls. Nor has the Coalition.

Barnaby Joyce made headlines last week when he condemned an Indonesian government plan to invest in cattle farms in Australia. As of today, Joyce is now federal Agriculture Minister.

He joins a long National/Country Party tradition of internal Coalition dissent on foreign investment dating back to John McEwen.

But like McEwen before him, Joyce is also a developmentalist – he wants state action to help build up rural areas. As Christopher Pokarier points out, Australian development needs foreign capital. You can’t have one without the other.

The Liberal Party is trying to play both sides of the fence too.

Under Tony Abbott’s new cabinet arrangements, the traditionally National Party-held Trade portfolio is now a Trade and Investment portfolio, and its minister is Andrew Robb, easily one of the most free market Liberals. At his press conference announcement yesterday Tony Abbott made much of the Coalition’s support for foreign investment.

But that support had some caveats – “It’s got to be the right foreign investment, it’s got to be foreign investment which is in our national interest”.

The Coalition comes to office promising a crackdown on foreign investment, not a liberalisation. The government intends to dramatically lower the review threshold for foreign purchases of farmland and to institute a register of foreign farm ownership.

Pro-investment rhetoric is no compensation for anti-investment reform.

The two-faced policy approach we’ve had since Arthur Calwell won’t be gone any time soon.