Rejecting A Chinese Bid For Land Is In ‘The National Interest’? Show Me How

If it wasn’t clear that “the national interest” was a pretty hazy criterion on which to deny foreign investment approvals, then Scott Morrison confirmed it last Friday.

The first time the Government rejected a Chinese bid for the S Kidman & Co. estate – Australia’s largest private landholding – it was because part of the property, Anna Creek, was next to a sensitive defence site.

In fact, some of Anna Creek is in the least important green zone of the Woomera Prohibited Area, which is infrequently used by the Woomera Rocket Testing Range. Nevertheless, the Foreign Investment Review Board was skittish about a Chinese company owning property nearby, so the deal was scuttled in November 2015.

The Kidman deal was then restructured to exclude Anna Creek. Last week, Morrison announced that this wasn’t enough – the property is just too large to be sold to a Chinese firm. Kidman and Dakang Australia Holdings have until Tuesday to come to another arrangement, otherwise Morrison’s “preliminary decision” to prevent the sale will become a permanent decision.

It’s easy to present the Kidman sale as a big deal. It is, indeed, an enormous collection of properties, spread across Western Australia, South Australia, the Northern Territory and Queensland. It was put together in the 1890s by Sidney Kidman, to whom the words “baron” and “legendary” are usually affixed.

But the land is in fact some of Australia’s least productive. We’re talking about desert. The Kidman holdings are enormous because they have to be – to run cattle across such stark landscape you need space.

As David Uren pointed out in The Australian over the weekend, S. Kidman & Co wouldn’t even rank in a list of Australia’s largest 2000 companies. It has nowhere near the largest number of head of cattle of Australian companies. Geographic size isn’t everything.

Still, you might object, size does matter. But how? Why? Morrison’s press release announcing his preliminary decision is completely empty on this point. It states simply that the sale of a property of Kidman’s size is not in the national interest.

How so? Is it because, as Morrison points out, there are some Australian companies that are interested in the property? This assumes what needs to be shown – that large scale foreign investment is against the national interest, but domestic investment would not be.

Usually governments feel the need to offer arguments in defence of their position. Morrison’s press release offers no justification – just “the national interest”, an empty signifier with no qualification or clarification.

If Kidman is sold, the land would remain in Australia, obviously. The property’s new foreign owners would be able to do no more or less with it than any Australian owners would.

Some have claimed that the sale might result in the loss of Australian jobs, if the new owners brought in Chinese workers. But any Australian purchaser could do the same. The thing that is stopping them is our strict immigration system, and the heavy regulatory constraints around the 457 skilled worker visa program.

Simply put, land owned by foreign investors continues to be governed by Australian law. It is private land so it can be used for private purposes, within those legal constraints. To be afraid of foreign ownership of land is to be afraid of private ownership of land. And to punish it.

Two things are going to happen if Morrison fails to approve the sale of Kidman. First, Kidman’s owners are going to get less money for their property than otherwise. Less money is less investment in Australia – with its superior bid, we can assume that Dakang believes it can run a more efficient and profitable enterprise than any other bidder. Australia is still desperate for capital investment, particularly in the vast interior. Investment brings jobs. Investment brings growth. Blocking investment harms both.

Second, any failure to approve seriously damages Australia’s reputation for stable and reliable investment, and the marketability of other properties that might be sold in the future. Hence the concern from farming groups – WAFarmers and the Northern Territory Cattlemen’s Association, for instance. All this populist handwringing about foreign investment in agriculture actually harms the real farmers who want to maximise investment and sale prices.

We have a clear national interest in attracting investment; a clear national interest in promoting investment certainty; a clear national interest in developing the interior; a clear national interest forging tighter economic links with China; and a clear national interest in allowing Australian property holders to get the best deal for their property.

All of these things encourage economic development and growth, with flow-on effects that enhance our living standards. The Coalition understood this, when, after the 2013 election, they declared that Australia was open for business. How are potential investors in Australia supposed to see that promise now?

You Can’t Blame Foreigners For High House Prices

On Friday Daily Telegraph readers learnt an “elite audit and compliance unit” of the Commonwealth Treasury has been tasked to hunt down foreign investors who have illegally bought houses in Australia.

The elite unit will then force those “dodgy investors” to sell their properties, and prevent them from “pushing up house prices”.

This is … how shall I put it … a bit iffy.

Lots of reasons have been advanced for Australia’s high house prices. Some people blame negative gearing. Others blame things like first-home owners grants, or loose lending standards by the banks, or the Reserve Bank’s monetary settings, or just an irrational market boom.

Some of these are plausible, some less plausible.

The most likely culprit is that government regulation has unbalanced the relationship between supply and demand. State governments have restricted supply at the outer fringes of our cities and placed strict limits on development in the middle. This creates artificial scarcity and pushes up prices.

Anyway, these are all good theories, and worth serious discussion.

But the explanation being advanced by the Government – that foreign investors are causing, at least in part, our globally high house prices – simply doesn’t rate.

If there is foreign demand for investment in Australia, then supply should grow to meet it – unless supply is constrained in some way. Anyway, if you’re worried about foreign demand now, wait until you hear about natural population growth.

So it’s a bit disturbing that the foreigners-make-housing-expensive thesis appears to be a central part of the Abbott Government’s economic agenda for 2015.

In March last year Treasurer Joe Hockey asked the House of Representatives Economics Committee to look at foreign investment in housing. He wanted to know the pros and cons, whether that investment boosts supply of new houses, how Australia compares to overseas, and so forth.

The Treasurer may already have his own views. Back in 2010 he claimed increased foreign investment was “forcing up prices – particularly in Melbourne but all over the country”.

Anyway, the House Committee report was released in November. It’s 148 pages but the nub is this: “No one really knows how much foreign investment there is in residential real estate, nor where that investment comes from.”

That’s it. We don’t have enough information. Anything more than that is insinuation.

Still, insinuation is something that politics excels at.

Currently the Foreign Investment Review Board screens all foreign applications for house purchase. It is illegal for non-resident foreigners to purchase existing homes. Temporary residents have to sell their houses when their visas expire.

The fear is that some foreigners evade Foreign Investment Review Board screening and buy houses illegally, or fail to sell them when they go home.

But there hasn’t been any court action against foreign investors by the Foreign Investment Review Board since 2007. The committee writes that it “defies belief that there has been universal compliance” with the rules for that long.

Perhaps. But really we have no idea. Foreign investment laws are probably broken occasionally. But then again all laws are broken occasionally. The question is whether it happens often enough to draw the attention of the upper echelons of the Australian government.

And there is no evidence – none – to suggest that.

Of course the point here isn’t the sanctity of the law. It’s the politics of foreign investment. This is a political gambit designed to play to the assumed xenophobic instincts of the electorate.

You’ve heard the rumours about people being outbid at auction by “Chinese” buyers? Well, here’s a Commonwealth government policy to match!

I’ve written on The Drum in the past about how regressive and damaging restrictions on foreign investment can be.

Recall Kevin Rudd’s claim in the 2013 leaders’ election debate that he was “a bit anxious, frankly, about simply an open slather approach” to foreign investment, particularly in agriculture.

At that debate Tony Abbott was on the pro-foreign investment side, despite the Coalition’s policy to lower the review threshold for agriculture investment.

The political hostility to foreign investment was sparked by the Gough Whitlam-led Labor opposition in the late 1960s and early 1970s, and blindly aped by John Gorton and Billy McMahon as they tried to demonstrate Liberal Party renewal.

This was an era when closing the borders to foreign money was seen as the “progressive” thing to do.

But in 2015 it seems incredible that, in such a country so hungry for capital, Australia’s political leaders are still trying to lay the blame for our economic problems on foreigners.

Qantas: The Spirit Of Australian Nationalism

It’s hard to believe but – if what the Treasurer Joe Hockey said last week is accurate – the government is seriously weighing up the partial renationalisation of Qantas.

That’s one option, anyway. Qantas CEO Alan Joyce has been complaining that his competitor, Virgin, has an unfair regulatory advantage. Virgin does not suffer under the Qantas Sale Act, which limits access to foreign investment.

So renationalisation, and the taxpayer funds it would require, would prop up the airline against its competitor.

Another option, also being considered by the government, is more straightforward: amend theQantas Sale Act which is creating the problem in the first place.

An easy choice, you’d think. But apparently the Abbott Government can’t decide whether it prefers state socialism or free market capitalism.

How on earth did the government get into this extraordinary jumble? Tony Abbott said he hopes the airline stays strong as “Qantas is a great Australian icon”.

The Australian aviation market has been indelibly shaped by the same simple, superficial nationalism which constrained Australian industry throughout the twentieth century.

The government this week demonstrated we haven’t shaken that out-dated industrial ideology.

Why else would the Coalition – a party that claims to be for free markets and an open economy – even suggest that it was contemplating, for a single second, in a partial way, the nationalisation of a private company?

For most of the twentieth century, the airline industry was dominated by ‘flag carriers’. These were big airlines, owned or sponsored by national governments, servicing international routes. Think British Airways, Lufthansa, Malaysia Airlines, SwissAir, Singapore Airlines, Aeroflot.

Flag carriers served many purposes. They were supposed to be semi-official ambassadors for their home countries. An attractive national airline was supposed to impress the rest of the world. A nice, financially stable, globe-trotting airline was a sort of demonstration of national virility.

Qantas was one of these. It was nationalised in 1947 by Ben Chifley’s Labor government. Lots of countries set up their own flag carriers in the post-war era. It was the era of national champions and “scientific” industry policy. A bonus: a government airline could be easily mobilised in case of war.

Of course, along with this model came heavy levels of protection, little market competition, and extremely high prices. The flag carriers suited the purposes of politicians rather than consumers. The airlines flew uneconomic routes just for the prestige they offered.

When the market for air travel was deregulated, the old flag carriers were left holding the can. They were over-extended and uncompetitive. They were over-unionised and over-politicised.

No wonder low-cost no-frills airlines have ripped the market apart. They’re not bound to any national feeling – or to the political controls that come with such feelings.

When it was privatised, Qantas was saddled, unreasonably, with restrictions on how much capital it could raise from foreign sources. The Parliament just couldn’t bring itself to let the flag carrier fall into foreign hands. Qantas was too special. Australia needed to keep its flying symbol.

Most foreign investment restrictions are driven by a combination of xenophobia and paranoia. GrainCorp is just the latest victim of this anti-foreign bias translated into public policy. But theQantas Sale Act lacks even that boorish logic.

Our politicians are happy to privatise state-owned firms but unwilling to accept the lack of political control that privatisation implies.

And our politicians like holding onto Qantas. Patriotism is their profession. Trite orations on Australia’s national dignity are the bread and butter of politics. They don’t pay for their flights, anyway, and they get access to the Chairman’s Lounge.

On the weekend, Alan Joyce demanded the government revoke Virgin’s international flying licence. This is an obvious ambit claim. Cancelling Virgin’s licence is unimaginable. Joyce must know this. He doesn’t think the Qantas Sale Act will be changed, but he clearly thinks he can get something.

We’ll know Qantas is playing hardball when they start re-running the ‘still call Australia home’ ads. Samuel Johnson said patriotism is the last refuge of the scoundrel. For the crony capitalist, it’s the first.

Just a year after Ben Chifley nationalised Qantas he launched the first wholly Australian-made car, the Holden FX, helpfully subsidised by the Australian taxpayer. In the words of the National Museum, the Holden “was a vivid manifestation of Australian dreams of prosperity”.

We’re in a bind with our automotive industry because, like airlines, cars are also seen as a sign of national prestige. Real countries make cars and have planes that operate out of Heathrow.

But we’ve seen how fruitless a century of automotive protectionism has been. Australia has expended billions in tariffs and direct subsidies to prop up those firms, and they’re still on the brink of collapse.

Qantas’ privatisation was left uncompleted. The government can deal with the problems caused by partial privatisation in two ways.

It could abolish the absurd, nationalist and anachronistic restrictions on foreign investment in theQantas Sale Act – completing privatisation and increasing Qantas’ competitiveness. Or it could commit Qantas to the cycle of subsidy and decline that has entrapped our car industry.

It’s amazing the Coalition government even thinks that is a real choice.

Qantas Ball Now In Labor’s Court

So now the Qantas ball is in Bill Shorten’s court.

Last night the Abbott Government announced it was not going to provide Qantas a government debt guarantee – that is, let the airline, which has a junk credit rating, piggy-back on the Government’s triple-A credit rating.

Instead, the Coalition wants to repeal part of the Qantas Sale Act, which places a limit of foreign ownership on Qantas that its competitor Virgin is not subject to, and (of course) get rid of the carbon tax.

(Happily, partial nationalisation is off the table.)

Thank goodness. A debt guarantee would have made a mockery of the Government’s professed free market sympathies. The last few months have seen an agonising debate within the Coalition as to whether they could do such a thing. It genuinely could have gone either way.

But a debt guarantee was only on the table because Labor refuses to countenance any repeal of the Qantas Sale Act.

Allowing in more foreign investment, in the words of Anthony Albanese, would turn the flying kangaroo into the “flying camel” or the “flying panda”.

Put aside the slightly xenophobic vibe there. Even if the Qantas Sale Act were repealed, the existing limitations on foreign shareholding in the Air Navigation Act would remain the same. On top of that, any investment would be subject to approval by the Foreign Investment Review Board and the Treasurer, who are supposed to take in all those nebulous ideas of national interest.

We’ve been loading up anti-foreign investment laws on our statute books for half a century now.

All this national carrier stuff about Qantas – the “still call Australia home” blather – is a political ploy. It’s the rhetoric of nationalism in the service of rent-seeking.

A debt guarantee is a corporate bailout, pure and simple.

And as with any bailout, the biggest winners of a bailout of Qantas wouldn’t be its unionised workforce but Qantas’ management.

Albanese and Shorten say they’re mostly worried to ensure that aviation jobs stay in Australia. But Qantas is shedding jobs while it remains in limbo for the Qantas Sale Act to be repealed.

Labor’s refusal to budge on the act – which would open up the airline to new sources of funding that aren’t Australian taxpayers – just adds to the instability of the airline and therefore the uncertainty of the jobs that Albanese and Shorten say they want to protect.

But ultimately, industry failure and job losses get blamed on the government in charge at the time, not its parliamentary rivals.

And, of course, Shorten’s Labor is not the first party in the world to discover the easy relationship between opposition and opportunism. Tony Abbott’s Coalition made antagonism into an art form. I wrote at the time that there was nothing wrong with an opposition opposing the government.

Yet Shorten’s approach on Qantas sits uneasily with Labor’s self-image as the party of change battling the conservative parties of reaction.

The ALP likes to see itself as the driving force behind Australian history. Labor’s role is to lead social movements and spur reform. The conservative parties are there to resist – there to restrain Labor’s overreach and sometimes reverse its excesses.

It was Labor that sold Qantas in the first place, as part of its broader liberalisation and privatisation agenda under Bob Hawke and Paul Keating.

Yet how should we square that sort of progressive approach to economics (and opening the Australian economy was definitely progressive, in any literal sense of the word) with Shorten and Albanese’s proposed bailout of Qantas’ management under the cover of nationalism? Or its refusal to connect a global airline to global capital markets?

The Qantas Sale Act is a legacy of old prejudices against foreign investment, old philosophies of corporate nationalism, and old economic beliefs about industry policy.

Consumers are showing no loyalty to Qantas, so why should parliament give it special treatment?

The idea that the same consumers who grab cheap Singapore or AirAsia fares to Bali or a Virgin ticket to the Gold Coast would seriously punish a government for allowing foreigners to buy some – not all – of Qantas beggars belief. Certainly not if the policy was explained properly.

Every opposition lives with the ghost of its previous government. Particularly during the early years of the Howard government, the Labor Party struggled against policy that it had considered in the decade before: the introduction of the GST, for instance, and the privatisation of Telstra. There’s every reason to believe that had Keating won in 1996, he would have continued the economic reform he begun back in 1983.

With Qantas, Labor is fighting the legacy not just of Keating but also the Gillard government,which was just about to approve some sort of debt guarantee when Julia Gillard was rolled by Kevin Rudd in June 2013. Albanese had been personally negotiating a deal between Qantas and the Commonwealth. No wonder this seems like a settled question.

Perhaps Bill Shorten can rest easy. Historians tend to remember parties by what they did in government, not what they said in opposition.

But by refusing legislative reform, Labor is punishing the national icon it claims to love, and risking the jobs it wants to defend.

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.

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.

Foreign Investment And The Whims Of Politicians

In September 2009, economics officials from the US embassy sat down with the then-head of Australia’s Foreign Investment Review Board (FIRB), Patrick Colmer.

The record of this meeting is one of the gems in the WikiLeaks diplomatic cables. Colmer confirmed to the embassy that the Government had changed the foreign investment guidelines in order to address “growing concerns” about Chinese investment in Australia.

New guidelines introduced in the second half of 2009 relaxed the mandatory review threshold to make small private investments easier. But, the US embassy reported back to the State Department, by excluding state-owned businesses from the relaxation, the policy was specifically designed to “pose new disincentives for larger-scale Chinese Investments”.

This, of course, was contrary to everything the Government was saying at the time.

The Trade Minister, Treasurer, and Foreign Minister had lined up to claim the changes had nothing to do with China (perhaps they could have let the FIRB know).

So we shouldn’t take on face value the comments made by Craig Emerson in the Australian on Monday, arguing that his Government is eager to attract more Chinese investment.

After the post-Rudd reshuffle, Emerson is now Minister for Trade and Competitiveness. But the FIRB reports to the Treasurer, not the Competitiveness Minister (whatever the hell that is). Furthermore, the Treasurer has a veto over the FIRB’s decisions: he can, and does, ban investments even when the FIRB has recommended they be approved.

In other words, if Emerson wants to open Australia up to Chinese investment he won’t have to convince readers of The Australian, but Wayne Swan, who sets the rules.

Well, ‘rules’ is a generous word. The foreign investment guidelines are infamously inscrutable: Stephen Kirchner of the Centre for Independent Studies had to submit an FOI just to obtain a copy of a speech that merely suggested how the FIRB would treat investments. As Kirchner wrote in February 2010, “Foreign investors cannot be expected to understand a policy that the government itself cannot properly articulate.”

The foreign investment mess is a deliberate creation of government. If Emerson is able to elbow his way into the FIRB, convince his colleagues that investment – from China or anywhere else – is to be greeted not resisted, and then clean up the mess, that would be a great thing.

But don’t hold your breath. Emerson told ABC radio on Monday he was “not so much in the camp of easing” foreign investment regulations.

So while talking about how you want foreigners to put their money in Australia is lovely, allowing them to do so would be better.

There is no reason to believe that foreign investment is a threat to Australia’s food or resource security, our sovereignty, or contrary to our national interest. Even when that investment is made by firms which are state owned.

Investors in Australia have to obey Australian law. And we have a great deal of law, covering everything from competition to environmental standards, all which treats investors equally, regardless of their nationality. That really should be all there is to it.

Every other part of this debate quickly descends into absurd hypotheticals about World War III, outright xenophobia, or trite meaninglessness. People who talk about ‘protecting food security’ should be forced to explain how limiting access to foreign capital would do anything but harm the agriculture sector.

Yes, foreigners may not prioritise Australia’s ‘national interest’ when making business decisions. But so what? Neither will Australians. The great thing about market capitalism is that they don’t have to. As Adam Smith said, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest”. The pressures of competition will make sure resources are put to their most productive use.

And (it seems strange to have to write this) limiting foreign investment means the Australian economy gets less money. Australian businesses that have to sell up will have fewer potential buyers, lowering the final sale price.

But to be fair, the Government’s doublethink on foreign investment is miles better than the outright hostility of the Coalition.

The Opposition wants agriculture to be considered as “sensitive” a sector as defence and the media – and face even greater investment restrictions as a result. This has been an over-riding obsession of the Nationals, and they seem to have been given carte blanche to write the Coalition’s agricultural policy.

For all the contradictions of the Government on foreign investment, the Opposition’s policy would be far, far worse – seriously shutting Australian agriculture off from Asian capital.

Few other areas of public policy are as governed by the whims of politicians as foreign investment approvals. If Craig Emerson would personally like to liberalise it: brilliant. But he’ll have to look at the obstacles within his own Government to do so.