Protectionism, Symbolism And Gillard’s Jobs Plan

Timing is everything. On Sunday, Prime Minister Julia Gillard announced her “plan for Australian jobs” at the Boeing factory in Melbourne: $1 billion “to make sure that we are a manufacturing nation”.

The next day, the nation’s largest manufacturing union assembled for its national conference on the Gold Coast. Australian Workers’ Union (AWU) chief Paul Howes announced he backed her leadership “110 per cent”.

This is as good a way to measure public policy success as any.

Gillard’s jobs plan (formally titled the Industry and Innovation Statement) is an obvious sop to the protectionist wing of the union movement.

You can read the plan yourself here. But it’s actually pretty uninspiring; a grab-bag of miscellaneous policies trying to form a cohesive whole.

Some of the policies are new. The 10 “Industry Innovation Precincts” are an attempt to cluster industries à la Silicon Valley. We’re throwing $238 million at this little idea.

Industry Innovation Precincts are no more likely to be successful than a similar Howard and Kennett joint venture: the Commonwealth Technology Port, sited in the Melbourne Docklands.
ComTechPort failed to attract digital entrepreneurs and was instead colonised by government departments. Now it’s been rebranded as an “inner urban community”. Let’s see what the Gillard precincts look like in a decade’s time.

Others policies in the jobs plan have already been announced. Legislation for the Anti-Dumping Authority is already squirrelling through parliament.

All up, the jobs plan is not really a new “$1 billion” package. It’s a $791 million one.

But the plan’s big ticket items are the worst of both worlds: they’re both administratively complex and completely unable to achieve their purported goals.

In other words, Julia Gillard’s jobs plan is protectionism as symbolism. It’s a “victory” that the old industrial unions can bring back to their members.

All large projects with a capital expenditure cost above $500 million will be required to submit Australian Industry Participation plans that detail how they intend to involve local firms in their project. Australian Industry Participation plans started back in the early 2000s but only applied to government-funded projects. The Gillard Government is extending them to independent private projects.

In practice, Australian Industry Participation plans end up being pointless red tape. Only the most reckless project manager would deliberately exclude cheaper local suppliers. The plans are mainly there to make local firms feel like they’re in with a chance.

Really large projects ($2 billion and above) that are receiving concessions to import goods tariff-free will have to “embed Australian Industry Opportunity officers within their procurement teams”. It’s not clear exactly what that means. It sounds like embedded public servants.

Now, embedding public servants in private enterprise sounds a bit creepy.

But plus a few increases to existing programs (the Government’s venture capital fund gets an extra $350 million) that’s all there is to the Government’s “jobs plan”. It’s a couple of tokenistic, bureaucratic measures presented as a great win for Aussie jobs and Labor values and the Asian Century.

The fact that union bosses have taken this thin gruel back to their members with such enthusiasm is revealing. They are as much in on the game as the politicians.

No doubt there are many in the AWU’s rank-and-file who want the Government to protect manufacturing and blue-collar jobs by major government intervention – protectionism and planning and government investment. If so, then they’ve been completely sold down the river by their union representatives.

Gillard’s Labor Party faces the same dilemma as many other labour parties around the world. The ALP has become entirely technocratic, as Tim Soutphommasane lamented in the Age recently. Managerialism has replaced ideology. Quite rightly, they’ve learned that open markets and free trade deliver higher living standards for the whole country. But this is hard on their old base. The winds of international competition have been tough on manufacturing unions.

So the protectionism we do get is tokenistic – little regulatory rules and futile programs. Nobody seriously believes these policies will have a substantial effect on the viability of manufacturing in Australia. If the Government really believed that the secret to national economic success was clustering firms geographically or forcing big projects to buy local, these policies would be 10 times as large.

In the case of anti-dumping law (which prohibits foreign manufacturers from selling products in Australia below their “normal” price) the Productivity Commission has explicitly said it exists for psychological reasons rather than economic ones.

We can see the same dynamic in the United States. The political scientist Dan Drezner noted the mercantilist theme running through Barack Obama’s recent State of the Union speech. Obama needs to signal to blue-collar manufacturing workers that he wants to protect them but at the same time the administration can’t abandon the free trade necessary for its long-term economic growth.

There was a great worry at the start of the global financial crisis that the world might take a turn towards protectionism. Politicians often respond to economic downturns by attacking trade.

But rather than demonstrating a lack of faith in free trade, symbolic protectionism does the opposite. Protectionism and state economic planning hasn’t just lost the intellectual debate. It’s completely lost the political one as well.

Remittances Dominate Aid Yet Remain Unspoken

The underappreciated thread that ties the global economy together is remittances – the money sent by migrants back to their home countries.

Remittances are the silent player in the immigration debate. They’re almost never referred to in our domestic politics or press.

The news monitoring site Factiva records just two mentions of remittances in Australian newspapers over the past two years.

Compare that to the reams of copy filed about foreign aid – 706 newspaper articles in the same period. Then add all the vox pops, chat shows, and talkback calls. Recall the hand-wringing which greeted Wayne Swan’s announcement that foreign aid growth would be modest in this budget. Yes, both left and right positively obsess about the cash the government gives to the third world.
But, even though we’re also constantly yabbering about immigrants, the vast sums of money foreign workers privately send home themselves goes entirely unnoticed.

So a new World Bank report, Migration and Remittances during the Global Financial Crisis and Beyond, released last week is all but guaranteed to be ignored. This is a shame.

The report underlines that the amount of money migrants send home far, far exceeds the amount of money the West spends on foreign aid. Remittances are a big deal.

And they’re an increasingly big deal. Total remittances used to be double the total amount of aid, which was impressive enough. But now, after the financial crisis, they are more than triple.
This is not because foreign aid has declined – official development assistance has continued to grow during the economic downturn. It’s because remittances have shot up further. While the developed world spends roughly $US100 billion on aid every year, migrants now send more than $300 billion home. And as remittances are extremely hard to measure (not all of it is sent through formal channels) it is likely to be much more.

This is a good thing. The financial crisis demonstrated that remittance income is stable income. Foreign direct investment in the developing world has wildly fluctuated since 2008 and has not yet returned to pre-crisis levels. By contrast, remittance flows have remained relatively steady. They dipped slightly in 2009 but quickly popped up again; in two years, the World Bank believes global remittances will be close to $600 billion a year.

We’re all familiar with the long-running “trade versus aid” debate. Which is the most effective development policy? There’s an increasing consensus that the actual winner is remittances.
So the significance of the global remittance economy ought to dominate the immigration debate.

But it doesn’t. Understandably, Australians look at immigration through Australian eyes. The emphasis is on us: how will migration programs affect domestic employment? How will migrants culturally integrate?

Barely do the fortunes of the migrants themselves figure. Working in the rich world, whether temporarily or permanently, is extraordinarily beneficial for people born in poor countries. The opportunities are much greater, and the prevailing salary for equivalent work much higher.

This simple and obvious fact is virtually absent from discussions about immigration. Perhaps it is an unstated assumption shared by all participants. But as the development economist Michael Clemens has pointed out, the benefits which are conferred on the migrants and their countries of origin are almost uniformly neglected by all sides of the debate.

No more so than with remittances. The flow of money from migrants helps fund investment and grow capital in the world’s poorest countries. It keeps families above the poverty line. It goes directly to households.

And as a form of third world development, remittances put no pressure on taxpayers in the first world. They are not planned by clever development economists or policymakers. They have not been coordinated by an international bureaucracy. Indeed, remittances are nothing but the result of the hard work of migrants.

That might sound hard-hearted but it helps keep the flow of money stable and targeted – certainly more stable and targeted than foreign aid, which is highly influenced by political decisions, and subject to the budget planning of treasurers for whom third world development is not an urgent priority.

But there’s also a political reason that remittances don’t get talked about. It’s in nobody’s interest to do so.

They don’t fit the left’s vision of economic development. Foreign aid is grand and interventionist and state-driven. Remittances are earned by individuals and spent in ways the migrants and their families choose. One small, pathetic, but indicative criticism of remittances from the left says they encourage “conspicuous consumption” in the developing world. It’s a common complaint and a bizarre one. Is the third world’s problem really not poverty but consumerism?

And it’s clear that many calls for foreign aid are driven by a belief in distributive justice – that foreign aid should be a penance for first world wealth. Certainly this is the message broadcast by the fashionable anti-poverty causes marketed to young people.

Nor do remittances appeal to conservative populists. Remittances offer one of the most compelling utilitarian arguments for importing foreign workers from the developing world – not only is immigration good for our economy and the migrants themselves, it’s also good for the countries the migrants come from. This is not a story that those sceptical of immigration want to tell.

But it is one we’ll have to start recognising if we want to understand our place in the global age of migration.

Car Makers Cling To Subsidies Of Old

Seeing a Commonwealth minister beg on behalf of a special interest is embarrassing.

The Manufacturing Minister Kim Carr wrote in The Australian over the weekend that automobile manufacturing is “an industry at the core of the society we want to be”.

Less than half of one per cent of the labour force works for the car industry. Yet it is, according to the Minister, absolutely central to our national identity.

Perhaps he’s right; insofar as our national identity is tied up with handing taxpayer money over to a few politically well-connected and otherwise uncompetitive businesses.

It’s all well and good to believe that Australian industry should be encouraged to “make things”. But in practise it leads to the complete subordination of an entire industry to politics, backroom dealing, and electoral calculations.

Few other industries get such hands-on cabinet attention. Every investment, every new product announcement, every decision to open or close a factory is met with a media release and ministerial statement.

In the lead up to the 2007 election, Carr spoke about how he would “thump the tables in the boardrooms of Detroit, in Tokyo, in Beijing” if Labor won government.

The promise was apparently kept. The car industry appears to have their own Minister of the Crown deputised to help with business negotiations, and their own pool of taxpayers’ money on hand to sweeten deals.

This naked corporatism is surely no person’s idea of the “society we want to be”.

The first federal tariffs in 1907 covered vehicle components, as part of “protection all round”. Since then, state support for other industries has fallen away. The car manufacturers’ stubborn hold on their subsidy is only thanks to close political friendships.

Carr’s demotion in the reshuffle late last year was widely noted. But his new roles are important too. Carr is not only the Minister of Manufacturing; he is also the Minister for Defence Materiel – that is, minister in charge of the wasteful sink-hole of military equipment acquisition.

The two roles have a perverse synergy.

Carr has long argued that that a domestic manufacturing industry is needed for national defence. He told ABC radio back in 2008 that “You can’t make a jet fighter without having a strong car industry”.

This is obviously ridiculous. Holden needs $100 million just in case World War Three starts and the international arms market no longer sells Joint Strike Fighters? Australians will need to beat their ploughshares back into swords? If the Government truly believes this scenario is anything other than fantasy, well, aircraft production is the least of our problems.

Carr firmly believes that taxpayers’ money should artificially prop up domestic manufacturing. Now that he is also in charge of defence acquisitions, it is easy to see how Australian-made military equipment will be favoured even when there is better, cheaper, foreign equipment available.

On The Drum last week, Annabel Crabb pointed out almost every other country pours cash into their automobile industry.

But that doesn’t mean that we need to keep supporting ours. Right now, the rest of the world supports the car industry for the same reason we do – because during the second half of the 20th century, manufacturing unions built extremely close relationships with political parties. Those relationships have paid off handsomely in subsidy, protection, and parliamentary representation.

There’s nothing special about automobiles that demands government support. They’re not particularly challenging to make. They’re not particularly central to the economic structure. They’re not particularly hard to buy from overseas. Their manufacturing is not particularly high-tech, at least compared to any other industry. Yet they are particularly well connected. And that’s it. That’s why we support them.

Happily, this week has demonstrated how increasingly hard it is for the automobile industry to justify their claim on our money.

But what on earth is the Coalition thinking?

A big part of Joe Hockey’s plan to reduce government spending is a $500 million cut to car industry subsidies. That would be great.

Yet last week there were suggestions the cut may be abandoned.

Shadow ministers now talk about how critical the automotive industry is. How “savagely” the Government abandoned the Cash for Clunkers scheme. How cruelly the Green Car Innovation Fund was decimated.

The Coalition was rightly scathing about these boondoggles when they were announced.

Hockey and Andrew Robb – both described by their colleagues as “economic rationalists”, in a neat throwback to the 1990s – are apparently holding firm on the cuts.

That the Coalition is going wobbly on spending reductions is no surprise, given Tony Abbott’s deliberate attempt to take Labor’s industrial base, and his embrace of economic nationalism to do so.

Still – car subsidies? If the Coalition can’t even bring itself reduce this irrational, wasteful, pointless, politicised corporate welfare program, they’re going to struggle to cut anything at all.

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.

Abbott Lines Up With Left-Wing Union On Protectionism

The Coalition’s position on anti-dumping laws is part of a worrying trend.
Rarely does the federal opposition line up with the Australian Workers’ Union on economic policy but that’s where they are on free trade. Unfortunately, the nominally market-orientated Coalition is playing fast and loose with one of its core philosophies.
This matters because as the world faces a second round of financial crises, there’s been a surge in protectionism, and it’s a fair bet Tony Abbott will be the next prime minister.
In his ”forgotten families” speech in May, the Opposition Leader made tougher anti-dumping laws a centrepiece of his economic policy.
These laws purport to prevent foreign imports being ”dumped” so cheaply in domestic markets they threaten the existence of Australian companies. The theory suggests that the foreigners will jack up prices once local companies have gone out of business.
But it’s a theory that everybody from the Productivity Commission to Nobel-winning anti-free market economist Joseph Stiglitz thinks is nonsense. Pursuing that pricing strategy would be expensive and risky. It’s hard to find an example of any company ever having done so successfully.
Anti-dumping laws are pure protectionism. They benefit a few companies at the expense of consumers. No surprise that the AWU has been campaigning to beef up anti-dumping laws for months. But a big surprise that a Liberal leader has been as well.
The government made some changes to the anti-dumping regime in June. The AWU was satisfied. The Coalition was not. Labor, they said, had ”thumbed its nose” at manufacturers. That makes the federal opposition less supportive of free trade in this case than the union movement and the government. It could be dismissed as an anomaly if it wasn’t so clearly part of a trend.
And it isn’t an argument between free-market Liberals and agrarian socialists in the National Party. Last month Liberal industry spokeswoman Sophie Mirabella said departments should buy equipment and clothing from local companies.
Doing so she came up against the Victorian government – a Coalition government. Victorian Police Minister Peter Ryan was sourcing fabric for police uniforms from a company that uses Chinese labour. Protect local jobs, or try to get the best deal for taxpayers on the competitive, international market? The federal opposition went with the former. Ryan – who is a National – went with the latter. It’s the old battle between major benefits for a few or minor benefits for all.
It goes on. The opposition has concerns about foreign investment in Australia. The bogey-man here is Chinese and Middle Eastern companies ”buying up” Australian farms. That practice is also known as ”investing”.
And investment is something you’d think a growing, capital-hungry country like Australia might embrace. Nevertheless, the Coalition has a working group to scrutinise whether it is in Australia’s national interest.
The Coalition is not alone when it wavers on free trade. The past few years of downturn has seen a resurgence in anti-trade sentiment and protectionism around the world. According to the British-based Centre for Economic Policy Research, the 20 countries in the G20 have enacted 155 trade restrictions or tariffs since November 2010.
Austerity has left politicians with a restricted set of tools to please domestic rent seekers and trade unions. When governments cannot spend, they regulate.
Protectionism is easy to sell. Who wouldn’t want the government to protect domestic jobs and industries? By contrast, the benefits of trade – cheaper goods and services for everybody and an expanding economy fuelled by engagement with the rest of the world – are more diffuse.
Yet every one of the new restrictions on trade damages economic growth and punishes consumers. Australia has largely avoided joining the wave of protectionism. That’s what makes the Coalition’s growing antipathy to free trade so concerning.
Tony Abbott has been right to oppose many proposed tax increases. But tax is only one side of the economic coin. You can’t have a strong economy without free trade. If the Coalition cannot confront this principle in opposition, it will definitely have to confront it in government.

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.

Capping trade

Last week’s Freedom Flotilla incident has highlighted an old truth. Trade – or, in this case, the forced closure of trade – is an ineffective foreign policy tool.

The blockade of Gaza by Egypt and Israel is actually a massive trade and travel embargo.

Humanitarian supplies can be legally brought into Gaza, but also much more than that: frozen salmon and low-fat yoghurt can come in too. Coriander, margarine and A4 paper cannot. Wood for doors or window frames, yes. Wood for construction, no. The list seems completely arbitrary. Hillary Clinton had to personally intervene to have dried pasta allowed in.

That’s because Egypt and Israel don’t just want to force the end of weapons smuggling. They want the trade embargo to undermine Hamas’ support in Gaza. One Egyptian politician said “Egypt will not accept the establishment of an Islamic emirate along [its] eastern border.”

Gaza under Hamas is a rogue state.

That’s a regional problem, not just an Israeli one.

Since coming to power, Hamas has led brutal attacks on opponents and civil society organisations. In the days after the Freedom Flotilla, Hamas security forces raided six NGOs in Gaza. Thuggish political violence and repression is an essential part of Hamas’ program.

And despite the blockade, with Hamas acting as an Iranian proxy, they seem to be having no problem getting weapons.

That shouldn’t come as a surprise. There have been few occasions when trade embargos have succeeded. Embargos rarely hurt those in power, who have the money and the political means to acquire things others do not.

Fifty years of economic sanctions have utterly failed to budge the Castro regime in Cuba.

And worse, they’ve given the Cuban dictatorship an easy excuse for its own failures. Directing domestic attention towards the American trade embargo is simpler than dealing with the deep economic problems caused by a half a century of socialism.

The same holds true for North Korea, where isolation from the world economy supports rather than challenges the regime. The state ideology of Juche – socialist autarky – is how the regime embraces this forced seclusion, and uses it to cement its control over the population. And, as in Cuba, the responsibility for North Korean poverty is levelled solely at the West.

Restrictions on trade with Iraq failed to topple Saddam Hussein. They were some of the toughest sanctions in history. Yet before 2003, the only major destabilisation of the Iraq government came from the bombing in 1998.

Trade embargoes have failed in Burma, Iran, Zimbabwe, and Syria.

A 2007 study of 204 separate economic sanctions over the last century found they were successful in achieving regime change in only 31 per cent of cases. Their success at disrupting military adventures was successful in just 19 per cent.

And they can have some terrible unintended consequences.

Certainly, humanitarian goods are getting into Gaza. But simply sustaining the population isn’t the main game.

The trade embargo stops Gazans from integrating themselves into the world economy. Their domestic economy is busted. It will remain busted as long as they are unable to trade. Imports to Gaza may be strictly limited, but exports from Gaza are effectively banned.

The Palestinian Trade Centre claims that, as a consequence, the number of private sector firms has shrunk at least 70%. In 2005, around 25,000 people were employed in Gaza’s clothing industry. That number is now around 230. Unemployment in Gaza is nearing 50 per cent. 80 per cent of the population relies on aid. Recent Iraqi history has taught us sudden mass unemployment is not a harbinger of peace.

There is little Israel and Egypt could do to divert hardline Hamas fighters from their path of violence. But the blockade could convince many Gazans there is no prospect for mutually beneficial cooperation with its neighbours – the sort of cooperation that open trade encourages.

The only peaceful future of the Middle East will be one with trade and economic cooperation.

History tells us the blockade is unlikely to budge their rule. Worse, it could legitimise it, in the minds of some Gazans.

That’s why what happened on the Freedom Flotilla has been such a massive win for Hamas. The blockade hides the extraordinary repressiveness of the ruling regime. Last week in Gaza there was a 2,000 person demonstration against new taxes being levied on smuggled commodities by Hamas. But the Freedom Flotilla turned the attention right back on Israel, inside and outside the Gaza strip.

And of course, Egypt’s role in the blockade has been popularly ignored.

Nations have an absolute right to defend themselves. Egypt and Israel are unquestionably justified in inspecting for weapons entering Gaza, and taking action against aggression. But rather than destabilising Hamas, the economic blockade might be only encouraging the violence.

20 years reveals gigantic strides in international trade

The politics of trade policy often obscures what should be an unambiguously positive story about the globalisation of the world economy. Goods which were previously produced on a single site are now produced in a virtual international factory-each element assembled in different countries, even continents, and linked by the international shipping network.

In his 2006 history of the shipping container The Box, Marc Levinson illustrated this by detailing the convoluted production process of a Barbie doll – Chinese workers produce the figure using moulds from the United States, machinery from Japan and Europe, and plastic from Taiwan; her hair is produced in Japan, the pigments from the United States, and the clothing from China.

Just how rapidly the world’s economies are becoming interdependent is clear when we look at the shipping container. The US-based Progressive Policy Institute has recently noted that the container capacity of an average container ship has massively increased over the last two decades. The average ship can now carry the 2,348 twenty-foot equivalent units (the size of a standard shipping container). The international container ship fleet has itself grown four-fold since 1987.

And this is only set to increase. The world’s longest container ship, the Danish-owned Emma Maersk can carry 11,000 units.

This rapid and dramatic increase in international economic integration has been just as significant for our economic well-being as have any changes in public policy. The entrepreneur who popularised the shipping container – Malcolm McLean – should be just as well remembered as the politicians who cut tariffs. And when we look at the low cost and high variety of goods available in our stores, we should remember that it was entrepreneurs who brought them there, not well-crafted public policy.