It is easy to denigrate ‘free trade’ because like democracy, it is not perfect. Developed countries unwisely continue to protect politically-sensitive markets. Developing countries, in too many cases, fail to apply the same standards as the developed world, leading to accusations of ‘unfair trade’.
But in spite of these imperfections, one thing is very clear: the 30-year journey of opening our economy to outside competition has been the stimulant that has substantially improved Australian living standards.
Let’s consider some basic facts.
Since the economic reforms of the 1980s, Australia’s national disposable income per capita has increased by 71 per cent in real terms.
In addition, the price of goods and services in Australia has remained lower and more affordable than in most developed countries.
According to Australian government statistics, since 1985 the cost of major household appliances has dropped by 47 per cent, small electrical appliances have dropped by 51 per cent, furniture by 25 per cent, and clothes and footwear by an average of 37 per cent.
A recent Commonwealth Bank survey showed that car affordability in Australia is at a 35-year low. It now takes an average wage earner only 28 weeks to purchase an average priced car, compared to 42 weeks in the mid-1990s.
While we have taken significant steps to open our economy, we shouldn’t pretend that Australia is as pure as the driven economic snow.
Although it is true that many of ‘Fortress Australia’s’ tariff walls have been torn down by Labor and Liberal governments, the economy still contains substantial impediments to trade despite the sizable economic costs. Now, in the face of fear and uncertainty, we must defy calls for new protectionist measures and hasten the speed of opening our engagement with the world economy to ensure that we can compete in a rapidly changing environment.
There are two global changes creating a new wave of opportunity that demand our domestic attention -the stunning growth of the middle class in Asia and the rapid technological developments that are changing the way we work and live.
We are hearing more often the term ‘Asian century’. It should not be dismissed as just a glib political phrase. It has serious and long-lasting consequences.
The OECD defines ‘middle class’ as those living on incomes of between $US10 and $US100 a day.
With this definition in mind, the OECD reports that in 2009, Asia accounted for 28 per cent or 525 million of the world’s middle class, and 23 per cent or $4,952 billion worth of global middle class spending.
The OECD has projected that by 2030, Asia will account for 66 per cent or 3.288 billion of the world’s middle class, and 59 per cent, or $30,596 billion worth of global middle class spending.
That means there will be over two billion more middle class mouths to feed, spending an extra $27,000 billion, in just twenty years in Asia alone.
Australia is already benefiting from this growth. The most commonly recognised beneficiary is the resource sector. The current resource boom, rather than being the economic and social problem many would have you believe, is benefiting Australians directly and indirectly.
According to ABARES, the growth in exports of resources in the decade between 2000 and 2010, tripled in terms of both value and employment.
While there is a massive glut of investment in the resources pipeline, the benefits of a growing Asian middle class are not restricted to mining. The agricultural sector also stands to profit.
Unfortunately though, we appear more interested in worrying about what Asia is selling here and how much they are investing, rather than recognising the enormous opportunities that Asian markets are offering.
While there are some genuine concerns with food imports, few Australians appear to be aware that our food exports to China are nearly twice the amount that we import. Many mistakenly think it is the opposite. And many would be surprised to learn, given the rhetoric of many protectionists, that 93 per cent of Australia’s daily domestic food supply is produced by Australian farmers.
The reality is Australia produces enough food to feed 60 million people each year and we export 60 per cent of our total agricultural production. Export markets are crucial to the sustainability of the sector. Rather than trying to ‘protect’ farmers by resisting the forces of an open economy, we should remain engaged in the world economy and continue to seek out new opportunities abroad.
Australia has always required foreign capital for growth and we always will. We need this investment to capitalise on growth opportunities. A government study in 2004 found that foreign investment accounted for 14 per cent of employment, equivalent to around 1.3 million jobs, 25 per cent of private capital expenditure and 42 per cent of private R&D expenditure.
We should never forget that we are a nation founded on direct foreign investment. This is a point that the Bob Katters of the world seem to forget as they campaign against foreign investment, trying to capitalise on fear rather than provide any evidence of a problem.
Policymakers should not overreact to fears about foreign investment and cheap food imports. While creating a national register to increase transparency is a wise and level-headed response to these concerns, other changes in this area, based on little evidence other than hearsay and panic, will undoubtedly create more problems than they solve.
For instance, the most common reason cited for the desperate need to increase oversight of foreign investment rules is the ‘new black’ of protectionism: food security. This faulty logic seems to be that dastardly foreign purchasers are strategically buying up farm land so they can cut it out like an MCG drop-in pitch to take back home for its use there.
Opening our economy to increased trade has resulted in a vastly more prosperous nation.
But, as former prime minister, John Howard used to say, economic reform is like a foot race with an ever receding finishing line: you have to run faster and faster to stay ahead.
These global changes are making us run even faster than ever before. These changes are not without pain.
But, in a dynamic economy, change will always occur. As the Treasury secretary Martin Parkinson said recently, government intervention-however politically popular at the time-will only increase the eventual pain. He rightly concluded that ‘it is the poor who typically pay the ultimate bill.’
Our open economy has demonstrated that trade stimulates growth, creates wealth, produces jobs, improves competition, generates innovation, and provides more choices to the consumer at a lower price.
The challenge for those of us who believe in the ongoing benefits of economic reform is to keep up the fight to ensure that we continue down the path of economic freedom.