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The Forum > Article Comments > Backs to financial future > Comments

Backs to financial future : Comments

By Greg Barns, published 30/11/2010

Australia is looking decidedly protectionist and xenophobic about Chinese investment.

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Mac

I agree that in the past we may have paid too little attention to the human and economic transition costs of structural adjustment. The fact is, though, that changes in the structure of the economy are inevitable in response not only to trade competition but also changing tastes, technologies, and resources. An adaptable and resilient economy is preferable to cope with these changes, and open economies tend to be more adaptable because they have access to the latest innovations, ideas and products.

If you’ve studied East Asian economic history you’ll know how important trade was to the economic transformation of Japan and the “tiger” economies. You’ll also know that there is serious debate about whether the role of government, especially MITI, in Japan helped or hindered its economic development. It is certainly blamed for Japan’s relative economic stagnation in the past 20 years, when other more nimble economies have been able to rebound from economic shocks.
Posted by Rhian, Tuesday, 30 November 2010 10:45:57 PM
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Rhian,

I agree with your latest comments, but with some reservations. Trade and a flexible economy were certainly essential to Japan and S.Korea's economic success. You appear to be claiming that this is evidence of a free trade regime, however their trading policies were not 'free trade' on the Anglo-American model but more along mercantilist lines, in my opinion. That is, they took an industry/government based approach to development and trade. So the reasons for Japan's remarkable transformation are due to social/political factors and government policy (and perhaps a lack of natural resources).

As to Japan's stagnation, I suspect that this is a result of those financial policies that underpinned Japan's first 40 years of development. Japanese financial institutions lent at well above Western prudential levels, I wondered at the time ( the 90s) how long the country would be able to sustain this policy,now we know. 'Japan as #1' was the fashion at the time and we all wanted to learn from the master.
There's nothing unusual in Japan's relative decline, historically no nation has been able to dominate the world's economy for more than a century,Britain, the nation that invented industrial civilisation, was overtaken by Germany and the US by 1900.

I agree in regard to the very ambiguous role of MITI, there was no consensus amongst the experts as to its effectiveness at the time I took the course.

So,in summary I'd say that arguing that Japan's flexible and innovative industry is due to free trade policies is 'begging the question' in the philosophical sense of the term.
Posted by mac, Wednesday, 1 December 2010 8:23:33 AM
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Yabby
My premise is simply this. If a nation is growing bananas and has enough to supply the domestic market and maybe export a few tonnes to nations who cannot grow bananas, why import more bananas that you don't need and put the local farmers out of business. The local farmers have to abide by the Australian laws in relation to tax, GST, wages, use of pesticides/chemicals etc.

Imported goods are a russian roulette - you don't know what you are getting and more importantly ignorance about the working conditions of the people employed in that industry.

I grant you that part of the problems with FT is the fact that it is a myth and hardly a level playing field in terms of wages, subsidies etc which distort the basis of FT. I don't think this situation will change and it will never be a perfect system while wage disparity remains at the heart of it. If the middle class is destroyed in the West because of pressure to lower wages to compete with developing countries, and a whole new class of poor is created, I cannot see that as being of benefit to anyone, including developing nations.

That is of course a worst case scenario. There is nothing wrong with trade per se only if we are importing stuff that we don't need to the detriment of our own farmers and consumers. Food imports have not made food cheaper at POS even stuff that has been shipped all the way from China.

Trade has in some cases improved the lot of a small group of people in pooorer nations, but it has not had the effect of overall improvements to living conditions and in many cases caused food shortages. Why sell to a poor local market when you can sell to a richer one for more money - and the wealth obtained by this transaction does not filter down to workers (there is no formal IR system).

This is just one article on the effects of FT/globalisation on poorer countries.

http://www.helium.com/items/140623-the-devastating-effects-of-free-trade-policy-in-mexico-and-china?page=2
Posted by pelican, Wednesday, 1 December 2010 8:30:45 AM
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Pelican, your banana story happened to Australian farmers, but in
terms of lamb and in reverse.

American farmers are pretty hopeless lamb growers, unlike Australian
farmers. Americans used your justification to deny Australian farmers
access to their lamb market.

The net result was that lamb was so expensive in the US that consumers hardly bought it, eating pork, chicken and beef instead.
American lamb consumption dropped to below 1 pound/ head per year.
Eveyone lost. Luckily our free trade agreement has changed all that.

Third world countries have indeed lost in international agriculatural
trade. As have Australian farmers. Because farmers were not competing with other farmers, but with the treasuries of the US,
EU, as they dumped hundreds of billions of $ of subsidised crops
onto world markets, for their own internal political reasons.

That is not free trade and the problem is not free trade, but
politics and political pork barreling.
Posted by Yabby, Wednesday, 1 December 2010 9:21:35 AM
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Greg Barnes is looking at this problem through the lenses of an obsolete political view.

He said:
If the Greens and the xenophobes in the major parties are allowed to
set the rules on foreign investment then Australia can kiss goodbye
to the days of sustained economic growth.

He has not realised that that economic growth is ending.
The Europeans and the US have been struggling with their low growth
for sometime and now even Australia's growth is sagging.
It has finished and globalisation will go with it.
However the Chinese are still buying up all the land and oil fields that they can lay hands on.
They are not doing it for our benefit but to ship the production back
to China.

The time has come to think of number one as everyone else is doing just that.
Export of natural gas should be either wound back or stopped.
In a very few years our oil import bill will exceed the cost of the
NBN EVERY YEAR !
We import around 500,000 barrels a day at US$85 (current) price and
our local production is falling at 4%. You work it out, we just cannot keep it up.
Posted by Bazz, Wednesday, 1 December 2010 3:47:13 PM
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Considering how anti competitive China is, I really do shake my head in sorrow when I read these kinds of articles. Just look at the financial services sector in China to see how anti competitive they are.

The big Government connected companies in China dominate their industries.

I'm sorry, but part of me feels we should be applying the same rules to Chinese companies as is applied to Australia companies in China. I don't see the communist party allowing 100% of any resource project by a foreign company.

Add in China's woeful record on IP protection, the opaque rules that bestow favour on the select few.

Maybe it's time Australian's started to invest more at home and have a greater say in our future. What's the point of having the 4th largest investment pool in the world if we don't use it for our long term benefit.
Posted by JJO, Friday, 3 December 2010 4:30:57 AM
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