I blame Geneva. It’s such a gorgeous-looking city (see the Wikipedia article for examples), it’s no wonder trade ministers would prefer to keep visiting it than actually reach an agreement. And, so, another long meeting of the Doha round of the WTO has failed to get a deal.
There’s some useful coverage at The Economist (though one should always keep in mind that publication’s biases when reading anything it publishes). Apparently:
In the end, it was a dispute over protection for developing countries’ farmers that proved the deal-breaker. The draft text envisaged a “special safeguard mechanism”—a right for developing countries to raise tariffs to protect their farmers against a surge of imports. America wanted the import volume that triggered the mechanism set relatively high; India wanted it low. Deadlock ensued; and that was that.
The Economist article also notes another major bone of contention - the USA wanted the ability to raise agricultural subsidies if it chooses; others wanted a limit imposed somewhere around the current actual level of support.
Further useful background at the Financial Times, again making the point that the direct effects will not be that large, as most countries have tariffs and subsidies that are considerably lower than the limits that would have been mandated in the agreement. The FT also argues that it’s not correct to portray this as a simple dispute between the developed and developing world; agricultural exporters like Brazil would prefer lower agricultural protection levels in India.
Trying to make sense of international negotiations is near impossible, but it seems the failure to reach agreement is bad news for the developing world, particularly their farmers. An ABC online article reports
Oxfam International Trade spokesman in Geneva Amy Barry said it was a case of the straw that broke the camel’s back, marking a missed opportunity for developing countries.
“Developing countries have suffered for too long from unfair trade rules, these talks began with laudable ambition: fairer trade. The fact that we don’t have a deal, the farmers will have to wait even longer,” she said.
It sounds like it’s a loss for Australia’s farmers as well, though the ones in the southern part of the country have of course got much bigger problems in the short term.
Links to further informed commentary appreciated - I’ll update the article if necessary.
UPDATE: There’s a post at Frogblog (blog of the New Zealand Greens), arguing that part of the problem is developed countries’ keenness to push for speedy opening up of free trade in services. A couple of economics professors look back in history to the founding of the GATT and note the foreign policy implications of trade.
UPDATE 2 a lengthy report by the World Development Movement that heavily criticises rich governments for the failure, in the context of a critique of the so-called “Washington consensus” that the least developed countries are best served by trade liberalization.
“The Economist”… why give a warning on bias, Robert?
One should always keep in mind the biases of EVERY publication one reads, si? No need to single out “The Economist”.
True, but I find The Economist has to be particularly carefully parsed because they’re a) a real cheer squad for let-her-rip economics, and b) report on topics on which I know relatively little about.
Agreed: let-her-rip economics is a scourge on the planet. “The Cars that Ate China” on ABC-TV was a gem.
Missed it, unfortunately. But it’s fascinating watching the Economist trying to report on matters relating to health in the USA. They tie themselves in knots trying not to admit that “socialized medicine” in Europe produces much better results, at much lower cost, than what the US does. Furthermore, the bits of the US health system that work the best - notably, the VA system for veterans of the US armed forces - are the socialized bits…
It’s the same old story pretty much: every country wants to protect its’shithouse industries, and force other countries to dismantle theirs - with the US and India being the most intransigent reps of developed and developing countries.
Of course, developing countries can make a better case - they don’t want nascent industries raped by international competitive when they could very well be competitive in a few years’ time, and don’t want the monopoly conditions on goods that currently exist, where developed countries undercut the market till it collapses and then charge whatever they like.
In the developed world, they only excuse we have is primary producer lobbies.
Imho, it’s a misnomer to call it free trade - there’s almost nothing free about it. Really it’s a systematic bullying of developing countries so they they give their goods up for less and are forced to buy more shit from the developed world. It’s sad.
“I blame Geneva. It’s such a gorgeous-looking city…”
Carn Robert, Canberra has a big splashy water jet on a beautiful ornamental lake too….
The most sense to date “No deal is better than a bad deal”. Yep, Indian.
From Robert’s “Economist” citation:
And why shouldn’t this be a very valid stumbling block? The US is saying: “At the moment we a fighting this trade war with a blunderbuss, but we reserve the right to fight it with a howitzer.”
If the US were a small part of the world economy or a small player in agriculture, then this arrogant unilateralism wouldn’t matter.
But quite evidently, the US is neither small nor unimportant.
No counter-party in their right mind could accede to this US demand.
Cutting through all the nonsense that tends to accompany these free trade/fair trade/let us not trade at all arguments - tariffs and protection fucks peoples shit up.
And the real irony here that many opponents of free trade completely and utterly miss is that the only beneficiary of industrial protection and tariffs are the wealthy and the politicians that maintain protectionist regimes. Tariffs don’t protect wages, they protect capital. And they protect the worst sorts of capital at that.
This sort of protectionism reduces the net benefit of human welfare - but it’s uneven. Consumers pay more for their products they buy and become net losers, while domestic producers effectively get their capital investment protected and become net winners - yet the whole thing gets sold as protecting the jobs of Joe Public even though the protected jobs are lowly paid, inefficient and are a barrier to investment in higher skilled/higher paying jobs that increase standards of living. Not only that, but there is no evidence at all that tariff reductions cause net increases in unemployment over time - so they don’t even save jobs!
Ordinary Joe gets screwed comprehensively - not only is he forced to pay more for the stuff he buys, he also gets stuck working in an economy where industry development (and the increased wages that accompany it) have great big whopping barriers thrown in front of it because its more profitable for industry to keep paying low wages in inefficient, ordinarily uncompetitive industries that live off government protection than it is to get their shit together and move to higher valued products.
Ever wonder why the biggest opponents of reducing tariffs are business owners? Without tariffs, most of those guys would be screwed, replaced with with smarter people, using higher skilled inputs producing products with higher value or the same products with much greater efficiency.
Tariffs kill poor people for the sake of propping up the profits of politically well connected business owners.
The best thing any government can do if it actually gave more of a shit about its citizens welfare than its political welfare would be to cut tariffs unilaterally (like a number of successful nations have done, including Australia).
What makes trade negotiations the most inane process ever invented is that nations, effectively, are doing nothing more than saying “I wont reduce my tariffs and improve my citizens standards of living until you do first!”.
Like, WTF kind of universe are we living in!
For all the intelligence of the political class in the western world, when it comes to issues of trade we all act like a bunch of fucking drongos. I cant think of another issue where such stupidity and base political self-interest of political parties is so easily substituted with fabricated dross about “looking after the working man”, nor one where such dross is so easily and widely accepted by the rest of the population as fact.
Shits me to tears it does.
!-rant over-!
Possum: that’s a bit OTT.
If you’re a worker in a car component factory in Adelaide or Melbourne, it’s quite possible you’ll be worse off for some time if the collection of tariffs and subsidies that protect our car industry go.
Of course, the rest of us might well be better off (lopping 10% off the price of imported cars would suit the majority of us who drive them just fine), but the transition costs to of eliminating protection shouldn’t be ignored.
Robert - I haven’t had a bit of therapeutic spleen venting like that for a long time.
I honestly feel much better now!
I agree completely that transition costs shouldn’t be ignored - but we also need to acknowledge that the transition costs are a proverbial piss in the ocean compared to the accrued benefits or removing tariffs. Short term adjustment programs for the very few people that lose their jobs in the short term definitely need to walk hand in hand with big reforms like removing a large tariff wall - but that’s just responsible governance, and certainly not a reason why it ought not to be done in the first place.
When it all comes down to the very nitty gritty of it, the political Planck length so to speak - tariff retention is an exercise in sacrificing human welfare for political welfare.
Robert I agree with Poss - as I often find myself doing. We in Australia have gone through the ‘transition’ before - especially in the car industry. There is no doubt that in other industries the cost of vehicles is a significant cost which impacts on their ability to deliver a service - whcih impacts on employment. Other countries can work through the transition stuff. It just needs a bit of guts to make the decision to do it.
I nearly wept when I heard this news on the radio this morning - the implications for some people in the world will be very, very dire. Also, the voxeu site that you link to in the post highlights the potential negative global foriegn policy consequences (cf 1930’s).
Robert,
I would suggest you add that it would also suit the rest of the people who do not drive imported cars - their cars would also be cheaper, but perhaps more likely to be imported. Possum’s third para covers the ground nicely.
The only people helped by these sorts of government actions are the rent seekers. But then, that is true of much government action.
KB,
The foreign policy consequences of trade doctrine are so fundamentally important.
To use a bit of cliched, reductionist West Wing piffle - “free trade stops wars”
Liberalised trade is the glue of international co-dependency because it ties everyone’s wellbeing and self interest into everyone elses well being and economic and social development.
Why fight when you can sell widgets and both win?
To use a bit of cliched, reductionist West Wing piffle - “free trade stops wars”
Which is what Normal Angell said about the times he lived in - four years before WWI broke out.
Poss: People will die (many people) because a few dickheads in a beautiful city decided to support their cigar-chomping mates rather than the population of the world at large. And there may be wars as a result. What sort of dumb, gutless, worthless bloody decision is that? When the alternative is that the whole world gets richer?
What’s all this beautiful city stuff? I’ll be honest with you: I’ve been through Geneva a few times, and I thought it was a dump. It’s certainly one of the least attractive cities in Western Europe. Just the kind of bland place in which bland bureaucrats can come together to decide how to interfere in the global marketplace.
BBB
There’s a pdf attached here that’s worth a look
Robert, that history of the GATT only mentions its predecessor the International Trade Organisation in passing. The ITO was a far more ambitious effort to marry free trade to full employment which became GATT after it fell over. I immodestly cite my own article for further info. Maybe these multilateral affairs need to offer the workers of all nations a little bit more in order to succeed:
http://www.search.org.au/projects/roundtables/first-roundtable/sydney/dymond-paper
I’m pretty sure it was Abba Lerner - way back in 1936 - who demonstrated that a tax on imports is exactly equivalent to a tax on exports. Raising tariffs is an exercise in shooting your own economy in the foot.
Russell: very interesting, I’ll add the link.
Tim: also interesting; are you intending to write anything specifically on today’s events?
This reminds me a bit of fascist Italy howling down the League of Nations in the Thirties…( Sear ‘ The Dark Valley ‘ by Piers Brendon)…and we know what happened then. This is a signal failure of a 150 yo democratic-socialism that has seriously lost its way. And that is partly why both the far left and right fascists feel so emboldened. They shouldn’t really though, because the next political phase-transition will be to libertarian-socialism. ( Or not at all) So its bad news in the short-term. Good news in the long tale. Trust me - I’m an economic witch-doctor.
Thanks Robert. I have been thinking of writing something on the whole less than stellar Doha round. Do you know of any detailed articles on that subject?
well said possum I agree 100%. Also I havent followed these talks for a while, did the EU have much to do with the failure too? I know France was majorly holding up these talks to begin with?
Not really.
This was a case of “I know this is important, but I don’t know the real story. Help me out here, please!”
Robert - you could scan the documents here
Interesting that yet again the States is going around telling people to drop tarrifs. Hello America? And Europe and Japan. It really is the most. If you wanna reserve the right to subsidize your farmers whilst telling others to open their markets don’t spout free trade. Call it by its real name: mercantilism.
The Economist like most people that bear that title professionally would regard their approach to the matters they address as scientific rather than political. Altho’ I think you can take ‘em up on that when, as you mention, you’re dealing with matters where market fundamentalism is contradicted by data - like socialized medicine - I think that to a large extent you can count on a certain reliability with publications of that ilk because they have to be reliable to perform their function.
.
That doesn’t mean that there’s no ideological bias of course. Scientists (real or imagined) tend not to realize the extent of default bias in their enquiries. For myself I prefer to remain thinking of economics as one of the three branches of practical philosophy albeit the most scientific amongst them.
This theoretical world has never existed.
Governments respond to real pressures, not theoretical opportunities.
And of all the real pressures, the one that has the greatest weight of money behind it is the US demand to keep its option of ramping up its subsidies at the expense of overseas producers of agricultural products.
It should not be forgotten that for an Indian wheat farmer, failure to sell his crop is much more dire than a factory worker at Adelaide Mitsubishi who loses his job, as unsettling and as upsetting as that may be.
And as power-brokers in a democracy, the Indian political classes understand well the difficulties involved with selling to evicted farmers and their families the elegant beauty of free trade, especially when it involves millions of tons of heavily-subsidised US wheat.
India acted quite rationally at Doha.
Adjustment costs.
Trade deals are negotiated by bureaucrats who don’t have to recognise a domestic constituency - their papers always mention “there willbe adjustment costs” but by the time you ever get to implementation, they become someone else’s problem and kind of get forgotten.
As I understand it the Dofur talks failed because of Indian and Chinese reluctance to reducing tariffs on agricultural produce. Both coutries still have the vast bulk of their huge populations dependent on rural incomes. In terms of stability who could blame them? If true this is interesting in passing that a democracy and a pretty rigid command economy could think the same way. IMHO the US who made the demands that supposedly broke the camel’s back could have been a bit more mindful of just how vulnerable both India and China could be to a rural insurrection.
You are completely wrong on that. How about you find out why the Doha Round failed before giving us your next four sentences of totally uninformed comment? And find out about their economic drivers. That’s not so hard to do in this age of internet access.
No sarcasm intended please enlighten us GregM.
I’m just watching Lateline Business, and am coming late to this thread.
What does it mean to say that the collapse “costs australia $7 billion”? Isn’t that fairly trivial in terms of our balance of trade? And how do those costs get calculated?
Please take that as a request for information, not as any sort of evaluative comment.
We may simply be reaching the limits of multilateralism in trade talks as the number of countries involved gets larger and larger. Developed countries might be reaching the point where their own advantage would have to be voluntarily relinquished for genuinely free trade progress to occur - no matter how elegant the arguments in economic textbooks. Which country would be the first one to do that? This article was written before the most recent events, but is pretty useful:
http://www.opendemocracy.net/article/the-progress-of-trade-why-doha-matters
Kim: as I understand it, it’s based on the assumption that given unsubsidised, free markets, we can buy cheaper and sell dearer. Which, overall, tends to be true. The dollar figures are calculated by the kind of econometric modeling that is being used to calculate the impact of climate change; take them with a considerable amount of salt.
As you’ve correctly identified, the actual difference is pretty small, partly because the Doha deal didn’t actually reduce tariffs and subsidies; it just set ceilings that were considerably higher than what most countries are actually doing.
The benefits of these deals are usually exaggerated, from past experience. The US-Australia FTA, for instance, was worth sweet stuff-all in raw economic terms. And 99% of the modeled advantages could have been obtained by unilateral measures by Australia without signing up to the stupid bits that potentially put the PBS and any chance of sane copyright laws at risk.
Rob - given what a big issue it was at the time (in 2004) - I was surprised that there was so little evaluation of the US/Aus FTA down the track. I’d have expected Quiggin and other econobloggers who’d spilled so much ink on it to revisit it - but I guess that no one was mandated to collect data on it specifically, leaving it as a big research task. But the bits and pieces I have seen suggest it was either underwhelming (particularly in terms of Oz access to US markets) or negative (in terms of some of the domestic implications).
So do we assume that a country like Australia has relatively little to gain from a WTO round? Not that I’m saying that’s not a reason for pushing for an outcome. Though - and it’s not my area - there may be other good reasons for not pushing for an outcome.
Kim, I think it means that someone has calculated that we would have sold $7 billion more stuff to other countries, presumably agricultural produce.
I doubt whether any of the numbers have much real science behind them, but they impress until you realise that relatively speaking they are actually quite small, although $7b to farmers is quite a bit.
I don’t know where to start on this topic, but you need to go back a bit.
The Seattle Ministerial in 1999 failed because the developing countries were sick of being screwed through lack of access for agricultural products to rich countries and extremely unfair procedures within the WTO. That was part of it. There was also a real success on the part of the ferals in disrupting the meeting, and Bill Clinton threw away the script he’d been given and virtually joined the ferals.
Doha in 2001 was meant to rectify the problem of agricultural access. (It was also meant to restore faith in capitalism two months after S11- “you are either with us or against us” and “the world needs a favourable result at Doha” - but that’s by the by.)
The price to be exacted in return was the inclusion of the the so-called new issues or Singapore issues - investment, competition policy, government procurement and trade facilitation.
The last of these is fairly innocuous, but not the other three.
(I’m quoting myself there, link later.)
The inclusion of the ‘Singapore issues’ was loathed by the developing countries. What happened in a further abomination of process was that India was persuaded to abstain on their inclusion in a final all night “Green Room” meeting, while those most affected were waiting in the hotel foyer for their cabs.
(The Green Room still exists - it’s about 30 countries meant to negotiate on behalf of the rest. The selection is the thing. No-one will say how it’s done but if you front and your name’s not on the list you won’t get in.)
India said it couldn’t vote “no” because of the retribution that would surely follow. Nothing is decided in the WTO until everything is decided and one vote can kill the deal as everything is done by consensus.
In the next Ministerial in Cancun the whole thing fell over, strictly speaking when the Mexican chair closed the meeting when the real bargaining was about to begin. But there was real intransigence. Japan and Korea were adamant about including all four of the ‘new issues’ and most of the developing countries were not going to have a bar of it.
The real thing about Cancun is that the developing countries found there courage and just as importantly, their solidarity.
Now India, no longer afraid, told the US to get nicked. They had been warned. After the Hong Kong Ministerial India said there would be no further progress until the developed countries put their heads in a different place.
This meeting isn’t a full Ministerial. It’s a mini-ministerial of about 35 countries to try to thrash out two main agreements, which would later have to be ratified by the whole group. India was claiming to represent the G33, a bunch of developing countries. But there were other groupings not represented, like the whole of Africa and the G70 which is the ‘Least Developed Countries’. These groups also found their courage at Cancun, with some assistance from the NGOs. If India had caved the deal still probably would have gone down.
If you want more detail on the story thus far you could do worse than have a look at my Reaching for the moon: how the poor lost and won at Cancun which still reads pretty well and most of the links work. I was more up to date on trade issues then.
After Doha the US passed the Farm Bill in direct contradiction to the spirit of Doha. But Bush needed to do that to gain his Trade Promotion Authority from Congress. Without that he has no power in that area and countries would need to fight their way through the Washington lobbies. With the TPA Congress gets one look only at the finished product, which they accept or reject as a whole.
Have a look at this piece and first link on this page from the Third World Network. It’s a useful site to find out how the other half are thinking.
Please note they haven’t fixed cotton yet. In fact seem to be avoiding it. This is what I said about cotton in 2003:
BTW, I’m with Katz.
Thanks, Brian.
Excellent analysis, Brian.
And a fascinating insight into India so recently finding its voice in the world.
Katz said:
“this theoretical world never existed”
Look out the window - it’s the one you’re in now.
From regional level trade integration like the European project starting with the Schuman declaration and ending with the EU, through global architecture starting from GATT and moving through to the modern WTO - smaller barriers to trade placed between nations increases trade volumes (!! shock horror), increases incomes, improves standards of living as a result (again, comparative advantage works - shock, horror part 2!!) and has dramatically increased the reliance of each nation’s economic output on the economic inputs of other countries.
It’s hardly rocket science that those participating in the trade liberalisation process have dramatically reduced conflict levels between other participating nations - organised inter-state violence becomes to expensive a proposition to solve political disagreements.
And just what is so theoretical about comparative advantage anyway? What’s theoretical about Europe not engaging in the orgies of violence in the last 50 years that so often dominated their history for the previous 2000? But most importantly in this context, what’s theoretical about trade liberalisation increasing growth and reducing poverty?
In international economics there is a consensus on two key points, a consensus far larger and far more empirically stable than that which exists for scientists on AGW mind you, just to give you an idea on how the data plays out here.
1.Trade liberalisation stimulates economic growth.
2.Economic growth reduces poverty.
The only arguments over these two foundational points is with the boundaries and magnitudes of this reality, and the nature of exogenous shocks and governance arrangements that can depress and sometimes void these relationships for periods of time.
We know that the net benefit to human welfare increases via the increased growth that occurs from trade liberalisation, we know that over the long term it is a win/win scenario. But over the short term, we also know that the distribution of costs and benefits from trade liberalisation are not homogeneous. The transitional effects and the policies that need to walk and in hand with it are the important parts - but that’s all about how to get from A to B and reduce the time it takes, the argument over whether B is in fact a better or worse place to be in terms of human welfare has long been concluded by a vast consensus.
You have no argument from me at all that the US and Europe and Japan are the toxic trio on international trade architecture and all for purely political reasons - to the point where the consequences of their actions on global poverty are literally criminal. But India is no goody two shoes here - they’ve become the fourth great recalcitrant, but with the ludicrous consequence of them also having the most, relatively, to lose from their actions than the other three.
When you say, “It should not be forgotten that for an Indian wheat farmer, failure to sell his crop is much more dire than a factory worker at Adelaide Mitsubishi who loses his job, as unsettling and as upsetting as that may be.”
That is the wrong comparison - the comparison needs to be between Indian service workers/textile workers/non-wheat farming agricultural workers and Indian wheat farmers. The former can all purchase staple food products cheaper (increasing the size of the basket of goods they can buy with a given income as a result, and hence increasing their standard of living) with foreign sourced, cheaper wheat imports, whereas the Indian wheat farmer on the supply side faces a more complex set of circumstances.
To dismantle the tariff wall also requires India dismantling their price floors - which is the big political issue for India here on wheat.So we can’t just say that all small Indian farmers will take a price hit in the face of cheaper imports, we have to look at how the floor price (or its removal) would impact on ordinary price transmission on the one hand (bringing into play the spatial distribution of both wheat production and the manufacture of its down stream products) as well as the crop substitution capability (like oilseeds set) on the other.
Some farmers will be worse off, some farmers will be better off, some farmers wont notice the difference and some farmers will simply change crops. So the results, again, would not be homogeneous - at the firm level they never are.
Which, again, brings into play the necessity of transitional programs to accompany any removal of the tariff wall - but they are politically difficult because people dont like change when they think they will be losers, whether they actually would be losers short term or not.
India, BTW, has the largest area of wheat under cultivation of any nation but is only the third largest producer.That inefficiency depresses incomes. Tariff walls and floor prices simply perpetuate low income growth among the poorest farmers - hardly a glorious outcome.
India did the rational thing?
Humbug - India did the thing that was easiest for their politicians at the expense of faster domestic poverty alleviation.
Bulldust.
The economic units may be increasing in size, but there are more hinderances to the flow of goods, capital and labour worldwide today than in 1914.
And in 1914 the US, Germany and France — three of the four largest economies — pursued policies of economic nationalism.
Possum C, I might come back to this tonight, but in simple terms trade is vastly overrated as the prime driver of growth. As a generalisation, trade acts as a positive feedback mechanism to a growing economy. But the decisions that lead to growth can include, and typically did for the successful Asian economies, a mix of picking winners, government subsidies, preferential government purchasing and tariffs. Each country has to find it’s own path, but in general it’s the internal economic decisions that are most important. In some cases, especially in mature economies, reducing tariffs might be just what the doctor ordered. The problem with the Washington consensus is that it imposes externally determined solutions, a one size fits all approach. Worse still the solutions imposed are often the opposite to domestic practice within the major powers.
Kim, on the dollars, I believe in this case the calculation may be in relation to the actual tariffs that wouldn’t have been collected.
One of the problems is that these self-same tariffs are often a source of scarce revenue to poor countries to provide essential services and infrastructure.
The thing is, the Indians really have shot themselves in the foot.
In the first place they’ve cruelled future industrial export markets - a particularly stupid move on the part of a country that claims to be on the cusp of export-led industrial takeoff. In the second place they are (contrary to what you’d expect) a net exporter of food so their farmers would get a net benefit from the lack of barriers. In the third place, much of their population is urban, whose interest is overwhelmingly in cheap food wherever it comes from. And finally their very poorest farmers are largely subsistence ones, who have little interest in market prices of food because they don’t participate in the market.
On the Angell thesis that trade-dependent countries would never go to war with each other because the economic consequences must vastly outweigh any possible benefit from winning, he was only wrong in overestimating the power of reason.
The economic history of the world from 1918-1939 was a spectacular vindication of his point - as Katz points out, in some respects we still haven’t recovered economically from WW1. It was a point well understood by the founders of the EU, whose motives were precisely to make future wars between major European powers impossible.
“whose interest is overwhelmingly in cheap food wherever it comes from”
I’d have though their interest is overwhelmingly in having a sustainable food supply ….
Poss, I like your column and generally agree with most things you say but I must disagree with you here.
Everything in it’s proper place and proportions at the proper time.
A high degree of economic integration proved completely ineffective at preventing the outbreak of WW1. I see no necessary link between ever increasing trade liberalization and increasing peace and prosperity.
I think it’s pretty clear that complete removal of tariffs would see our auto industry disappear. This would be a great shame because it is one of the last bastions of high tech, high skilled manufacturing jobs as far as I am aware. By exposing our skilled manufacturing to an arena in which they simply can’t compete, we have basically dumbed ourselves down in that respect. We are little more than a farm and a quarry. I do not see a stable long term future in simply exporting rocks and having to import everything else we require becuase we now lack both the skilled workers and the infrastructure to do much of anything else.
When I left school and was looking for a job in this resource town, the world no longer wanted much of our rocks and the price crashed and the jobs went. This WILL happen again someday. How are we going to continue to pay for a largely imported standard of living, commodity wise, when are only really valuable exports are worth bugger all? We can’t produce our own anymore.
I’m not suggesting that we return to Fortress Australia but I think we won’t know what we’ve lost until we end up needing it.
Katz - using 1914 as the baseline is extraordinary mischievous.
The period starting roughly in 1870 and going through to 1913 was the first wave of trade liberalisation where the costs of trade
barriers across the world were in systematic decline relative to the value of the benefits of currency stability via the gold standard
on the one hand and the massive reduction in transport costs on the other. Over that period world trade volumes increased by a factor of
20 gross, a factor of 10 as a proportion of world output.
WW1 put a stop to that, where the interwar period witnessed increasing net levels of trade protectionism globally, currency stability
taking a slide and transport costs increasing sharply. By the time Smoot-Hawley came around in 1930, global trade fell into a ditch (and
rooted the purchasing power of the poor in the US during the depression as a charming side effect) where we didn’t start to recover until
postwar reconstruction. It wasn’t until GATT that global trade volumes unrelated to reconstruction efforts again started to grow sharply
as a proportion of world output.
For the period up to WW2 I suggest this excellent paper with data:
THE RISE AND FALL OF WORLD TRADE, 1870–1939
http://www.econ.ucdavis.edu/faculty/amtaylor/papers/w9318.pdf
Following WW2 I suggest our own Productivity Commission, especially Box 1.2:
http://www.pc.gov.au/__data/assets/pdf_file/0004/9067/chapter01.pdf
The data speaks for itself.
Brian - I don’t think anyone is saying that trade is the prime driver of growth, just that it’s the prerequisite that helps everything else one might do to obtain growth. If a nation doesn’t trade, they become isolated from the benefits of comparative advantage, they boost their inflation (which kills real wages growth), they run into capital scarcity and get stuck wrestling with division of labour issues that would ordinarily be completely unnecessary.
Trade isn’t about divvying up the pie - it’s about making the pie bigger in the first place so there is more of it to divvy up. When you equate trade with the Washington consensus it’s just plain weird, trade existed before that piece of institutional architecture turned into an exercise in mediocrity, and will exist long after it disappears up its own fundament.
I just continually fail to understand why some parts of liberal politics in the west are so keen on supporting protectionist rackets that not only protect the most exploitative types of capital (and which are bound up in some of the most tawdry political corruption in history), which not only retard income growth of the poorest nations, but which fundamentally flick the bird to anyone trying to get out of poverty (not to mention the sheer environmental vandalism it does). Tariffs and blunt forms of protectionism don’t protect workers, it doesn’t protect the poor - it protects inefficient, exploitative capital that only survives because of the political connections of it owners.
I just do not get it.
Apologies for the formatting there folks - cut and paste from word sometimes doesn’t work as well as it ought to.
“I think it’s pretty clear that complete removal of tariffs would see our auto industry disappear.”
This is horseshit in its purest form.
Tariffs have come down from hundreds of percent in the 1980s (once you count the effect of quotas) to 10% now, plus a few subsidies, and the industry hasn’t disappeared. On the contrary, it actually makes cars that people want to buy. Getting rid of the remaining tariffs won’t make a jot of difference to the prospects for the industry. This will depend on much bigger forces, like its ability to adapt to a climate-constrained world.
What katz said. As to industrial markets and India’s supposed ‘lost opportunity’, the idea that there are mandated stages of development, (agricultrue, secondary industry , tertiary industries)in a particular order, is simply projecting European development of the past onto current and future development strategies.
India’s comparative avantage lies in a huge english speaking population who are IT savvy, and who are able (thanks to technology and their past imperial history) to compete successfully in a lot of the service sectors that were supposed to provide employement for the displaced industrial working class of the rust belt western capitalist countries.
The ‘transition costs’ of structural change are costs only to the extent that the domestic political class is forced to pony up some compensation, otherwise there is no immediate costs at all for the poltical class, only for the households of the working and lower middle class. Those layers are easily dealt with while ever shame and the fear of falling living standards and indebtness make themselves felt.
I distrust all elaborate theories concerning trade. Looking at what economies and countries do, rather than reading and listening to the daleks who write about these things is far more instructive. The US, Japan, Korea and Malaysia all adopted their own pathways to indsutrial development none of which bear the slightest resemblance to the official recommendations which have become fashionable again in the last 25 years.
I would not expect Brazil, India and China’s political class and official intellectuals to forget either their own experience of the 19th and 20th centuries, or to have anything less than high ambitions for their heimats in the 21st century. It’s the way of the world.
That means scribblers and babblers from the ‘end of history/McDonalds business methods means never havinng to go to war/the earth is flat’ school of contemporary babbitry, will be as wrong as their optimistic liberal predeccessors of 1913 were concerning the mission civilitrice of Manchester liberalism.
What Spiros said.
We used to make cool cars cos that’s what you used to do. Make things well, because you give a shit.
Then that went out the window, and our cars became pieces of trade-protected shiite.
Now they’re getting okay again, thanks to the realisation that they actually need to be to sell.
Now let’s put the tighteners on fuel efficiency and alternatives, and there’s no reason why we shouldn’t have a viable future industry.
patrickg, possum comitatus’s post at 10.54am and derrida derider’s post of 12.07pm, above, do that.
Amused,
Who here has even mentioned “mandated stages of development”? Like every other nation in the world, India will have the full spectrum of industry where the composition changes according to their domestic investment and policy framework at any given period.
And while, undoubtedly, India has a comparative advantage in many areas of white collar services that can be exported - it will never provide the bulk of their economic activity (anymore than mining or agriculture provides the bulk of Australia’s, or manufacturing the bulk of China’s or Intellectual Property the bulk of US economic activity despite populist cliches to the contrary).
Economies are big, broad beasts.
You might also be happy to know that comparative advantage and “growth alleviates poverty” arent theories any more than they are elaborate, they are simply reflections of global observable reality over the last 100 years where we could measure poverty, exports, imports, prices, income and economic output.
While every country in the world adopts their own relatively unique path to development, even similar European nations had vastly different experiences, the 4 you mention - the US, Japan, Korea and Malaysia all had one thing in common - they knew when to reduce their protection on specific goods and services that were so obviously hurting their development. But the big lesson with those 4 that will apply to India is that Japan didn’t learn that mercantilism leads to an economic cul-de-sac, one which they’ve spent the last 25 years trying to get out of.
Free trade stops wars better than anything else humanity has invented - we have the last 50 years to show us that, with Europe particularly and North Asia specifically.
Out of curiosity, has there ever been another 50 year period in the last 500 years where Japan, China and Korea hadn’t gone the fisticuffs?
No it isn’t.
The point about 1914 is that this date did represent a highpoint in trade liberalisation, but nevertheless, that highpoint was still marked by significant feaures of economic nationalism (not to mention imperialism).
I don’t deny that there has been significant liberalisation of capital flows since the last lowpoint (say 1945). Yet at the same time there has been significant added restriction, especially in the developed world, of labour mobility.
Moreover, since 9/11, international flows of capital have also become more constrained, especially in the US, by a raft of restrictive measures.
Moreover, the agricultural subsidies enacted by the US represent a significant threat to free trade.
All of this adds up to a refutation of Posse C’s assertion that we live in a borderless world, or indeed that the political economy of the world is at present trending towards borderlessness.
Don’t get me wrong Katz, the world isn’t becoming borderless!
We’re just becoming much more co-dependent on each other than we’ve ever been before. Even in the great trade expansion up to 1914, the nature of that trade was chaotic with mostly raw materials (resources and agricultural products) coming in and out, with some manufactured exports adding to the mix.
But now the trade is much more sophisticated where raw materials get exported to a place where they get transformed into a usable commodity, which then gets exported to somewhere that makes a component of a widget, which then gets exported to somewhere which imports a whole heap of components to actually assemble and manufacture the widget itself, which then gets exported all over the place to either be used as a widget or to become yet another input in some other widget still.
The supply chains from raw material to final product are much more complicated, web like and far more internationalised than at any period in our history. Yet what that also delivers all of us is cheaper stuff at every stage of the product development cycle (which in turn, keeps average global prices down and allows for larger real domestic wages growth).
The types and sizes of capital that has been constrained since 9/11 is really really small compared to the global pool that’s sloshing around, and I agree with you completely on US agricultural subsidies. That toxic trio of Japan, the US and the EU (now with India seemingly determined to add itself to that grotty little pro-poverty party) has done and continues to do untold damage to global poverty alleviation.
I also like your point about constrained labour mobility –an interesting topic all on its own. But I wasn’t actually arguing that the world is becoming borderless, just more co-dependent.
To give an example, imagine if in 1913 the islands of Malaysia were swallowed by the sea. The world would have had a very small hiccup and just moved on.
Now if Malaysia was swallowed by the sea, everyone would be impacted everywhere because of their particular spot in global supply chains. The world would experience a major, if not an economically catastrophic disruption.
Yet it’s not just Malaysia in that situation, most nations outside of Africa if swallowed would produce the same major impact on the rest of the world.
Co-dependency in action, all underlined by trade. But particularly the free trade of goods and services across national borders
I agree with your distinction between borderlessness and co-dependency.
And I agree with your description of the main features of co-dependency.
An interesting question is when you subtract co-dependency from borderlessness, what is the residue?
Possum Comitatus,
On the issue of the frequency of armed conflict between nations in the last 50 years-you of all people should know that correlation does not cauastion make. Do not mistake my drift. I am not opposed to trade between nations (or people for that matter) at all. On the contrary. Trading goods and services is as natural and as uniquly a human activity as language, in my opinion.
However there is a big difference between my belief in the essentially human nature of bartering and trading, with the ludicrously over determined blather about ‘global free trade’. For one thing, the nation state is not an essentially human activity. It is a political solution created by humans to particular problems/conundrums that seems to have worked reasonably well (world wars notwithstanding) until fairly recently. Its limitations as an enduring solution to the problems it was designed to deal with over the last five hundred years of so, are now becoming apparent.
This is not a call for the abolition of the ‘nation state’, as such. It is to indicate that the blather about the liberatory nature of the latest project, namely, ‘global free trade’ has all the hallmarks of earlier projects for the dissolution of conflict and inequality, in a general application of a highly theorised and ideological set of propositions, most of which are simply unable to predict anything at all, under conditions of severe inequality and fierce competition between people for resources, power, recognition and respect.
I remain as ever, deeply sceptical about both the project itself, and its boosters and spruikers. There is no such thing as a ‘free lunch’, and the accelerated circulation of capital, goods and to a lesser extent, but by no means insignificant, the movement of peoples, is bringing about change and upheaval on a world historical scale. This is to be expected. What irritates is not the trade itself- it is the breathless boosterism of the latest project of pax liberalism being mistaken for a solvent for every ill, when the far more important and interesting question is one which seeks answers about the conditions which permit the development and deployment of global free trade blather in the way we have experienced it for last twenty years or so.
Anyway, time will tell. As someone once said, ‘in the long run we are all dead.’
“THE ongoing Doha round of World Trade Organisation (WTO) talks is seen to be undermining regional integration and economic development efforts by African countries, analysts have noted.
Economist Thembinkosi Dlamini from the Coordinating Assembly of Non-Governmental Organisations (CANGO) said the negotiations currently going on in Geneva, Switzerland undermined and compromised the efforts being made by the continent towards regional integration.”
That’s from here. It seems not everyone thinks global free trade is the way to go. While I see that economic ties can promote peaceful co-dependence, how far that goes is another matter - presumably the states of the former Yugoslavia were fairly well integrated, before war broke out.
I also find Possum’s description of free trade very unrealistic. “The supply chains from raw material to final product are much more complicated, web like and far more internationalised than at any period in our history. Yet what that also delivers all of us is cheaper stuff at every stage of the product development cycle …”
It also gives us vast areas of monoculture agriculture with huge inputs of chemicals and fertilisers. This is an ecological disaster. Visit China and breathe the air and have a look at some of their technicolour rivers - coloured from chemicals from factories. More of this would be good? Free trade guarantees there’ll always be somewhere free from proper regulation for companies to move their most dangerous and polluting production.
Hmm. Did my comment get moderated out or something? I think spiros is a big enough boy or girl to handle a slight poke in the ribs, just like the one he/she gave me.
Spiros, I think you will find the the domestic auto industry is not in good shape simply due to insurmountable might of cheap foreign competition. Remove the last of the tariffs and subsidies and it will go the way of so many of our manufacturing industries.
Probably not, BoyfromFlynn. It’s always possible that a ‘good’ comment that the spaminator grabs gets tipped out with the rubbish when we are emptying the spam bin. If that happens, it’s gone, and if anyone here did it by accident then by definition they don’t know they did it.
On the point you make, I tend to agree. It’s facile to say that a change in the terms on which you do business by 10% in favour of the competition makes no difference. That’s after there has already been about a 37% change already if you go by the TWI and 75% change against you in the $US.
Australian auto producers seem very marginally profitable in terms of the funds employed. Rationally they should all probably pack their bags and go. The companies might actually be better off if they did. But according to the AFR yesterday the auto industry made about $5 billion worth of exports. That’s a $10 billion turn around in terms of our trade balance if we import all that stuff instead.
That’s not something the Government can contemplate with equanimity, if, unlike some industry modelling, all those employees don’t find something else useful to do in the real world.
But maybe trying to hang on is just delaying the inevitable.
Why wouldn’t Toyota consolidate all it’s manufacturing for both countries in the US since we signed a preferential (I won’t call it “free”) trade agreement with them?
Gotta go now. Hope to comment on a few other things later.
Cheers Brian.
It seemed to go through from this end, that’s why I was wondering.
Yes, I really think if the last of the auto tariffs and subsidies go, so will the industry and like you said, it will impact on our terms of trade.
As I said earlier, I would not advocate a return to the full extent of fortress Australia but I think it really is prudent to question the wisdom of exposing every sector of an economy to the unfettered market. What might be the long-term consequences? As healthy as our economy has been in recent times, the fact is we are not a tiger - we are a minnow. Aussie manufacturing did not wither on the vine because it was no good - it just couldn’t withstand being bombarded by huge foreign competitors with access to enormous pools of very cheap labour.
One result has been the shrivelling of local ingenuity. No matter how clever or usefull your idea, it can often no longer become an industry here because many kinds of highly skilled labour have departed these shores. Even if you succeed, it probably won’t be long before you are swamped by imports that can be sold more cheaply than what you can produce for. And so we export good ideas for a pittance or for free and then buy them back for much more.
So we have headed down the path towards an economic monoculture - we are good at digging up rocks which we have been blessed with in abundance, but little else. This is fine as long as the world is willing to buy lots of our rocks at a good price, but………..
I think that one day, those who say that usefull and valuable local industries that have since vanished, deserved to die because they were uncompetative in an open global market will come to realise that we may have thrown out the baby with the bathwater.