Public ideas

Globalization and economic integration – it used to be so simple

In the postwar years, while Coalition and Labor governments were protectionist, within the bureaucracy there was a strong anti-protectionist movement – exemplified by the Chair of the Tariff Board, Alf Rattigan, who was one of the few on the public payroll game enough to advocate for trade liberalization.

Opposition to protectionism was the general culture in public service offices, in universities, and in the occasional newspaper article by “the modest member of parliament” – the nom de plume used by Liberal Party MP Bert Kelly, a passionate believer in free trade.

Protection was costly because it deprived us of the gains of trade. Behind a tariff wall (supplemented with quotas and import licensing) our industries had no incentive to innovate, and most manufacturing industries, confined to the small Australian market, could not achieve scale economies in order to reduce unit costs. Whatever workers gained in higher wages as a result of protection, they lost in excess prices for clothes, cars and other items of consumption. QED.

If Rattigan and Kelly were to come back today, they would be pleased to see that ninety percent of our imports are duty-free, and the tariff on the other ten percent averages only 5 percent. The issue of tariff liberalization has been subsumed as a minor aspect of globalization, a movement that saw the General Agreement on Tariffs and Trade (GATT) give way to the WTO with a broader remit. While protection of manufacturing faded into the background, there was liberalization of many areas of economic cooperation including finance, investment, and some services.

But that doesn’t mean we live in an economist’s utopia of international cooperation. New forms of economic nationalism have arisen, and there is a need for forms of economic cooperation, particularly on climate change, that weren’t envisaged under the old GATT rules.

Along the supply chain, from raw materials to the customer, for most products the transformational processes of manufacturing now account for a small part of the cost. Control of the whole supply chain has become an important consideration for many countries – a concern that pre-dates the supply chain shocks of the Covid-19 period. The US and China are both engaged in what may be called “strategic competition”, in attempts to control supply chains.

Then there are the non-physical aspects of international cooperation. It was all much simpler when stuff that mattered had to be unloaded from ships’ holds. Now we’re dealing with commerce in the virtual world unconnected with place, everything from movies, to software, to designs, and to financial services generally. Standards and IP licensing deals can serve as barriers to commerce – even if domestic protection isn’t the original reason for their imposition.

That’s a lead-in to the most recent contribution to the debate on trade and industry policy by the ABC’s Gareth Hutchens. He notes that global cooperation got a boost from about 1989, the year of the fall of the Berlin Wall and the integration of eastern Europe into the world economic system. The world economy reached a peak of economic integration in about 2008 – just before the Global Financial Crisis, and has been on a steep path of fragmentation ever since: After decades of rising economic integration, the global economy is fragmenting. What can Australia do about it?

Does this mean we are inevitably heading back to the era of protectionism? Hutchens quotes the IMF’s Gita Gopinath on the way countries can still manage in a fragmented world:

Yet, even in this new geopolitical reality, policymakers can seek solutions that minimise the costs of fragmentation.

The focus should be on pragmatic approaches that preserve the benefits of free trade to the extent possible, safeguard solving global challenges, while achieving domestic goals of security and resilience.

Hutchens’ article concludes with some observations on Singapore, a country that has thrived on globalization, but that has also gone its own way. It’s slightly off the topic of economic integration, but the explanation Hutchens quotes from that country’s Home Affairs and Law Minister is a very Singaporean comment, justifying its quasi-democratic political system. Do Singaporeans ever stop to think how they would manage if, like most other advanced countries, they had to deal with a large rural hinterland of people, comparatively uneducated, conservative, and openly hostile to the values of so-called urban elites? Economic policy has an easy run in city-states.

We that are left grow old …

Nicholas Gruen has drawn attention to a review, published in Quillette, of Fredrick DeBoer’s book How elites ate the social justice movement. The review – Rescuing identity politics – by Sophale Mortazavi summarises DeBoer’s by-now common criticism of those who claim to be “progressive” or on “the left”, because of their obsession with microaggressions, language and symbolism, and their embrace of postmodernism and identity politics, rather than the universalist concerns of liberals and Marxists.

The left-wing economic populism of yore has devolved into a toothless bourgeois progressivism more concerned with representation and cultural matters than material conditions.

The well-educated, well-paid liberal finds issues such DEI (diversity, equity and inclusion) to be safe territory, because even strong and effective DEI activity does not threaten the liberal’s material interests. It’s much easier for the “white” male liberal to work alongside the dark-skinned female graduate from an ivy league university than to confront the conditions among the impoverished people with whom he shares his subway ride.

Mortazavi notes that DeBoer does not accept that this division between liberals and the traditional left is inevitable. There can be a coalition between the left liberal elites and the traditional left concerned with material issues. DeBoer’s mission is “to turn liberals into leftists”. But Mortazavi believes this is unachievable because progressive elites “won’t be persuaded into an economic populism that runs counter to their own material interests”.

Is it possible that Mortazavi and other writers who complain about a woke left, unconcerned with practical measures, have invented a creature that doesn’t exist, or exists only in a few urban microhabitats. The liberal intellectual can also be a practical left economist concerned with and working towards a more just distribution of resources and opportunities. That could be a reasonably accurate description of the Australian Labor Party, which is kept focussed on material conditions by its union connections, and of the people who work in social security and consumer NGOs. Whenever we hear criticism of the “woke liberal” we should ask if it’s simply a convenient invention – an imagined enemy for the right to pursue its culture and identity wars. A campaign needs an enemy, even if it is only an imagined effigy.