I had this article published on Online Opinion. Not many responses which I was disappointed about asI thought I thought it was a good one.
Free Trade's not Free, Bring Back the Tariff!
Following on from the recent announcement at the APEC Summit of yet another major push for free trade, I was disappointed to note that the Australian public has once again been largely let down if they were hoping for some critical discussion around this issue.
Both Labor and the coalition are apparently united in the depth of their belief about free trade, pursuing it with an almost religious zeal. While the Greens have expressed some concerns about wanting to see definite outcomes, they can hardly be seen to be challenging the juggernaut. Adding to this, there is also something of a tendency within the media to report on free trade with the assumption that it is entirely positive.
But is free trade really all that good? Apparently not all of us think so.
The Courier Mail recently reported (16th Nov) that Bob Katter's Australian Party, which actively advocates protectionist policies, may do as well in the upcoming Qld election as One Nation did in 1998 when they secured 11 seats. “That is just parochialism and xenophobia!” I hear you say, “North Queenslanders are famous for it.”
Here is where I warn you not to be too quick to judge. I am certain that there is at least some genuine, well thought out concern amongst these voters; concern that somehow government and big business have been steadily pulling the rug out from under the little person.
The idea of free trade is of course based primarily on David Ricardo's 1817 theory of 'comparative advantage'. Comparative advantage is a lovely little mathematical proof that even if one party is better at producing everything, the greatest efficiency in production can be attained, and all parties can benefit, if each trading party focusses on producing what they are relatively best at, and they trade freely with one another for the rest of what they need.
With a little teasing out, however, we can discern some serious problems with this theory:
While the maths is correct, the equation does not take into account all factors. Specifically, comparative advantage does not take into account the costs associated with shifting a regions productive infrastructure from where it is now to producing what it is relatively best at producing. Is getting a cheaper banana worth reinventing a whole region's economy? You might recover the cost over time but in a shifting global economy, economic restructuring will be a continual process.
Neither does comparative advantage take into account the costs of trade; the ports, the ships, the rail lines, the petrol. As well as the economic costs, we can also look at social and environmental costs in relation to both this and the above point.
David Ricardo himself recognised that the theory only works if capital is immobile. In other words, if foreign investors are able to purchase a region's productive assets, whatever benefits may be due to that region through comparative advantage will be reduced or potentially eliminated.
Free trade encourages large scale, export-oriented production processes. This means that it tends to concentrate wealth, with an increasingly high percentage of any benefits from free trade accruing to the already wealthy.
Free trade will in some circumstances trigger the so-called 'race to the bottom', where in their efforts to compete successfully with one another, various nations go on a cycle of lowering wages as well as workplace and environmental standards etc.
Considering these problems, I think it is fair to say that all that the mathematical proof of comparative advantage tells us is that it is possible for all parties to benefit from free trade, not that they necessarily will.
Personally I think that Bob Katter, at least in broad principles, has got this one right. I think that we, economically as well as socially, along with our environment, would be better off encouraging diversity and some degree of self-reliance within our domestic economy through economic protectionism than we would be in pursuing free trade.
In saying this, it is important that we do not set our tariffs so high that they support profiteering or gross inefficiency within domestic markets; moderation is the way forward.
Perhaps it is worth remembering here that Australia's first and second Prime ministers were members of the Protectionist Party. Who will claim these votes in the modern Australia? Labor and the coalition are locked into the free trade agenda, at least for the foreseeable future. While they may effect Qld politics, I do not believe that the Australian Party has got what it takes to make a march on the southern states.
The Greens on the other hand could be big winners here. With their established national presence, in advocating moderate protectionism, the Greens could potentially increase their country vote, chew further into the Labor Party vote across the nation, and start driving wedges into the coalition, some elements of which recognize the value of economic protectionism.