By Peter Anderson
Two recent publications by the Australian Government Publishing Service continue the discussion about structural reform within the Australian economy. While Macquarie University researcher Brian Pinkstone raises questions about the content of government policy, the Department of Foreign Affairs adopts a more of the same attitude.
Global Connections: A History of Exports and the Australian Economy. By Brian Pinkstone. Australian Government Publishing Service, 1992. $39.95.
Providing an impressive amount of information on the changing patterns of Australia's trading relations, Brian Pinkstone's Global Connections traces Australia's export performance from the 1820s, relating it to the pattern of economic growth.
Pinkstone is a firm believer in an interventionist approach to develop manufacturing and service exports to compensate for the long-term relative decline in returns from traditional commodity exports. His conclusions differ from some of the findings of the 1989 report by Professor Ross Garnaut, Australia and the North East Asian Ascendancy.
Speaking to Green Left, Pinkstone said experience showed that policies based on government interventionism worked, but economic rationalist policies along the Garnaut lines, like banking deregulation, clearly had failed. He believes there are opportunities for the export of particular manufactures, like ship building and medical equipment, to a wide range of markets, and it would be a mistake to concentrate only on developing markets in Asia.
Indicating Australia's dependence on the world economy, Global Connections shows that periods of economic downturn since the 19th century have all been triggered by collapsing export receipts. But over the whole course of Australian history, the contribution of exports to total domestic production has tended to fall. With the exception of the Korean War wool boom, exports have not reached 25% of GDP in this century.
"Now manufacturing exports are growing while the economy is recessed, which indicates that the restructuring of the economy has had some effect", he said.
Pinkstone argues that, because demand in Japan for Australian raw materials in the immediate postwar period focused most investor
attention on commodity production, "Failure to expand and diversify the export sector significantly ... meant that by the late twentieth century the 'engine of growth' [manufacturing] was far smaller in Australia than in all other comparable countries."
Analysing the more recent history of the Australian economy, Global Connections reinforces the now common criticism of the Whitlam Labor government's response to the economic problems which emerged in the 1970s, that is, stagflation.
Pinkstone argues that the problems arose partly as a result of the wave of worker militancy beginning in the late 1960s,which led to a shift in the distribution of income towards labour and an increase in inflation as the shift was resisted by capital. As a result, the traditional implicit cross-class alliance between manufacturing capital and the organised labour movement, which had been cemented in the period following the first world war, had virtually collapsed during the early 1970s.
The Whitlam government revalued the dollar and cut tariffs, which led to "undermining the competitiveness of Australian industry at precisely the time when, firstly, it was facing a mounting challenge from Japan and the Asian NICs [newly industrialising countries] in both domestic and export markets, and, secondly, the commodities boom was attracting capital away from investment in the manufacturing sector".
The Fraser government relied on traditional support for the resources sector. But the election of the Hawke government in 1983 was a watershed in Australian political economy, marking the turn to an externally oriented manufacturing industry policy and the reduction of protection.
The Hawke/Keating government had failed to exercise greater control over capital while the labour movement had conceded on wages, Pinkstone said. The question is whether in the 1990s the labour movement can insist on regaining the losses in income. (On current trends, however, further wage losses seem likely.)
The book does not attempt to make a radical critique of the Australian economy, but to set out new policy considerations along interventionist lines. The documentation is extensive and justifies the claim that it is the first comprehensive history of Australia's export industries.
Australia and North-East Asia in the 1990s: Accelerating Change. East Asia Analytical Unit, Department of Foreign Affairs. Australian Government Publishing Service, 1992. $29.95.
"Australia's future economic growth will depend to a
significant extent on its success in increasing its economic interaction with the North-East Asian Region."
The main thesis of Australia and North-East Asia in the 1990s: Accelerating Change is that expanding trade in value-added products and high quality services with Japan, China, the Koreas, Hong Kong and Taiwan is central to Australia's economic prospects. The report follows the 1989 watershed study by Professor Ross Garnaut, Australia and the North East Asian Ascendancy.
The Department of Foreign Affairs believes that changes in the world situation since the end of the Cold War reinforce the need to orient to Asia. But while the economies of the region are growing rapidly, it is less certain that Australian manufacturers can penetrate markets there.
To press its point that trade should switch away from traditional US and European markets, the Foreign Affairs analysis notes that "the longest period of post-war world economic growth lost momentum". In fact, the effects of the long-term decline have been evident since 1974-75.
But the multilateral relationships of Asian and world trade are more complex than they seem at first. Sixty-five per cent of Australian exports to north-east Asia in 1990 were primary products, while a large part of exports from the Asian region are manufactures heading for the US and European markets, which remain the biggest markets for manufactures in the world.
The north-east Asian region currently takes 40% of Australia's total exports and provides 30% of imports (with Japan alone responsible for 30% of exports and 20% of imports). However, the largest single part of Asian trade is internal; 40% of the trade of the Asian nations is with each other, and the figure is rising.
By comparison, the United States and the EC account for 11% and 12% of Australia's exports and 24% and 22% of imports respectively. The US is the source of 18% of total cumulative investment in Australia and the EC of around 25%.
The report admits growth in the world economy in 1992 and beyond will depend mainly on recovery in the US economy, and predicts a return to worldwide growth. In fact, there are signs of a continued slump in 1993 in the US, Europe and Japan.
Behind the Foreign Affairs analysis are both domestic and regional strategic concerns. On the one hand, it argues economic penetration into Asia is necessary if Australia is to "extend its political and strategic relevance in the North-East Asian
Region and the wider Asia Pacific area".
It says the end of the Cold War brings with it new uncertainties and risks of regional conflict but that a lessening of the US economic and strategic role in the region does not signify a move towards a tripolar, US-Europe-Japan world.
Foreshadowing a military role for Australia in the region, the report argues "it will be important for Australia to contribute to the maintenance of regional stability and security ... The Korean peninsula as well as Japan and China will command increased attention".
At the same time, Accelerating Change is buoyed by the neo- classical current of economic policy which argues for increased micro-economic reform in the Australian economy.
While Accelerating Change admits the experience has been mixed, as with Garnaut there is an underlying assumption that the Asian economies achieved success by allowing freedom to market forces. But as the example of the heavily controlled Singaporean economy testifies, political intervention has been extensive.
Without mentioning wages as such, the report does say "Progress in labour market reform has also been a significant aspect of advances in the competitiveness and flexibility of the Australian economy". It recommends pressing ahead with Garnaut's prescriptions for rapid economic and structural change.
Meanwhile, structural changes have occurred within the newly industrialising Asian economies, shifting from labour intensive production to a higher level of investment, filling gaps in industries Japan has let go. Labour intensive activities are moving rapidly to southern China and parts of ASEAN and will soon go to Indochina, a factor that underpins hopes for economic growth in Vietnam.