Politics

A matter of sovereignty (Part 1)

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Given how poorly Australia has fared in its so-called "free" trade agreements, Dr Evan Jones asks why bother voting when corporate prerogatives take precedence over our own sovereignty? As he says, when the colonial cringe is entrenched and rampant, self-respect is always a casualty.   

“That the government signed the [Australia-US trade] agreement, knowing it is economically damaging to Australians, smacks of disrespect and desperation. One is left wondering if we need laws to prevent a government making agreements it knows are economically disadvantageous to Australians.”

Oliver Yates, Macquarie Bank executive, 16 February 2004

The coup d’état in Greece, Europe in general

Greece is in the news. Behind the white noise of widespread coverage is a coup d’état. Greece has been occupied, not by an army but by finance. By finance, by an unaccountable junta in Brussels, and by Germany in particular. The predation of Greece’s public assets continues apace.

It is staggering to confront that Germany has chosen to impose its will front and centre, rather than hiding behind the ‘troika’ of the European Central Bank, the IMF, and the "eurogroup" of finance ministers.

The sovereignty of Greece, embodied in the election of Syriza and its coalition partner to government, has been vanquished. Greece is now a protectorate of Brussels, with a comprehensive loss of national sovereignty. Voting in any country that is a member of the European Union (especially of the euro zone) is now not merely optional —  it is a waste of energy.

Abolishing the sovereignty of Greece was a relatively easy matter because the European Union and the euro zone were established precisely for that purpose. However, Brussels is not subject to member state directions but is completely unaccountable. The European Parliament is powerless. A variety of European critics, across the political spectrum, have highlighted this fact, but they are all treated as cranks by those who matter in Europe, including the entire mainstream media.

One such "crank", the Frenchman Bertrand Renouvin (a monarchist, obsessed with sovereignty) lays out the contrast between Syriza (legitimate, before the cave-in) and Brussels and its entourage (illegitimate) in accessible language.

Some European leaders, and especially their finance ministers, are happy with national disempowerment. Right wing governments in Spain, Portugal, Ireland and the Baltic countries, for example, see their own domestic prospects enhanced by a universal regime of austerity dictated from without. France has the most to lose, but its "Socialist" government is rushing headlong to eradicate the small elements of national autonomy that remain.

And all this before the imposition of the Trans-Atlantic Trade and Investment Partnership (TTIP) on countries of the European Union. Brussels is the ideal place for the negotiation of such a treaty, inevitably secretive. Once the TTIP is in place, Europe will be subject to government of the corporations, by the corporations and for the corporations. Corporate lobbyists already overwhelm any voices for a "social Europe" in Brussels.

The formal apparatus of government, at all levels, will remain in place, but it will be constituted by placemen (and women), enjoying life on the public teat for no public purpose whatsoever.

Sovereignty down under

As a federation of ex-colonies, with associated cultural baggage, the sovereignty of White Australia has not been a simple matter.

Australia came into existence courtesy of an act of the British Parliament. But there was no clean break. The Australian military was long an arm of the British military until World War II. Ditto Australia’s foreign policy, derivative, until an embassy was established in Washington in 1940.

Prime Minister Chifley’s attempt to nationalise the banking sector was defeated by appeal to the British Privy Council, then Australia’s “highest court”. Such arrogation of powers was belatedly not put to sleep until the Australia Act 1986.

Additionally, there are subtler forms of the loss of sovereignty, mostly notably reflected in the U.S. involvement in the sacking of Prime Minister Gough Whitlam in 1975. Given that the overthrow of national leaders or governments is a not unusual practice by imperial powers, sovereignty is evidently a tenuous affair.

And then there is Australia’s current head of state, who peculiarly resides beyond the oceans. Sovereignty is a more nebulous and tenuous concept than we assume.

The national interest

Beneath the issue of sovereignty, there is the related but distinct matter of “the national interest”. The national interest is elusive — sectional domestic interests are perennially seeking to have their own interests elevated to the national (or “public”) interest.

This dimension can be misappropriated, both by particular groupings and by leaders. In the late 19th Century, Chinese migrants were widely seen as a threat to the Caucasian-born population in Australia, and thus was born “the White Australia Policy” in “the national interest”. There are now those who want to prevent the acceptance of any further Muslim migrants as being in the country’s national interest. Controversial and questionable.

Nevertheless, one can get some distance on this issue if one confronts the prospect of foreign influences, the kowtowing of a country’s elected leaders to which have no evident relation to the interests of a country’s population as a whole.

There are instances in this domain where reasonable people might reasonably agree. During the 1950s and 1960s, U.S. direct investment overtook British direct investment in the Australian economy, much of it in key sectors (“the commanding heights”). It was also a period in which “transfer pricing” (the discretionary internal reallocation of corporate expenses and profits so as to minimise local taxation) took off, albeit little appreciated at the time.

By the late 1960s, a wide cross-section of the Australian population was becoming concerned about the then unmediated political acceptance of foreign investment. There developed an “economic nationalist” sentiment. A tangible reflection of this sentiment was the Whitlam Labor Government’s creation of the Foreign Investment Review Board in 1975.

A more focused reflection was Whitlam minister Rex Connor and his Department of Minerals and Energy. In the face of a booming minerals sector, and the prospect of further foreign capital control of that sector, Connor set out to “buy back the farm”. That determination required substantial sums of capital that could not be obtained through conventional sources because conventional sources frown upon ex-colonies deciding that they don’t want to remain colonies any more.

As we know, that endeavour ended badly; indeed it ended in the sacking of the Whitlam Government itself. The succeeding Fraser Government, with the economy remaining in the doldrums after the end of the long post-War boom, decided that the economy needed boosting with an unrestrained “resources led recovery”. It would be business as usual.

The FIRB survived, remarkably (formally within the Treasury portfolio), although its guidelines have been modified many times over the years, generally towards less restrictive rules. It devotes more time than it should have to to deliberations over real estate purchases by foreign interests. Large-scale would-be takeovers – such as Woodside Petroleum by Shell, and GrainCorp by Archer Daniel Midland – are placed at the discretion of the reigning Treasury Minister.

The national interest, trade and the domestic economic structure

The structure of a country’s trade with the rest of the world provides a window into the sectoral structure of that country’s economy.

In the old days, trade from white Australia was dominated by agricultural commodities and resources. Most of it involved trade with “the Mother Country” — in 1900, 50 per cent of both exports and imports were with Britain, in 1950, 30 per cent. That was, after all, the white settler colony’s “comparative advantage”, supplying “the industrial workshop of the world” with food and raw materials.

But, alas, after the 1850s gold rushes, White Australia moved to become one of the most highly urbanised populations in the world, this in spite of closer rural settlement after 1870. Thus, apart from infrastructure development employment, did a domestic manufacturing sector grow behind tariff protection barriers — first in Victoria and, following Federation, nationwide.

Twentieth Century trade remained as per usual, but in the context of more “balanced” sectoral development domestically. However, two World Wars accidentally deepened development of the manufacturing sector due to both enforced isolation and military provisioning.

Fast forward to the post-World War II period. John McEwen became Trade Minister in the Menzies Coalition government, then also Country Party leader and Deputy Prime Minister after 1958.

The new game globally was the creation of the General Agreement on Tariffs and Trade infrastructure in 1949. The formal aim of GATT was to further an international push for freer trade, with as background the rise of beggar-thy-neighbour protectionism during the 1930s Depression.

But it was the era of Pax Americana, and the U.S. wanted an international arena more favourable to its commercial interests, not least through the eradication of the tied trading structures of the British and French empires. Thus, in practice, GATT involved the pursuit of “great nation” global competition in new bottles. Australia, as ever, was a bit player on the margins — the world’s numero uno wool exporter, but so what?

McEwen and his trade bureaucrats, at the coal face, understood perfectly the game. GATT was all about reducing barriers to manufactures trade in the interests of the industrial superpowers. The U.S., contrary to the formal rules, early took both agriculture and textiles off the agenda.

For McEwen and his team, there should be no reduction in Australian tariff barriers (supporting the widespread domestic manufacturing sector) unless the big economies dramatically reduced the barriers to Australian rural exports. It didn’t happen. And it still hasn’t over fifty years down the track. In the meantime, the McEwen forces worked overtime to try to maintain Australia’s trade balance, crucial in an era of fixed exchange rates.

But, during the 1960s, there began a concerted push against tariff protection for the manufacturing sector. It was led by “free trade” ideologues, supported by other-sector vested interests (graziers, mining).

Even apart from the ideologues and the inevitable sectoral conflicts, tariffs were an unsatisfactory mechanism. In spite of an elaborate investigative structure in Australia, embodied in the Tariff Board since 1921, the system was at an impasse. It was ripe for attack.

But this imperfect mechanism existed for good reason — the political culture and policy-making institutions precluded a more strategic and sustainable approach to supporting an indigenous manufacturing sector. And thus was the tariff regime gradually dismantled, regardless of ongoing trade barriers overseas.

Lessons from the balance on current account

But what about the precious balance on current account — merchandise plus services trade, plus “primary income” (previously known as “income payable”), that includes profits and interest repatriable, a category historically and permanently in deficit. (As an aside, the primary income deficit has diminished recently, probably because of returns flowing from the 20-30 per cent of Australia’s $1.5 trillion super pie that is parked offshore.)

Historically, agricultural exports were always on a cyclical roller coaster, putting the merchandise trade balance always under threat. The instability was complemented by a seismic shift with Britain joining the European Common Market in 1973.

In the meantime, resources exports to the rescue (iron ore and coal). Ironically, it was the much reviled McEwen and his bureaucrats who provided the underpinnings for this “salvation” in the 1957 Trade Treaty with Japan. Japan was to be the first of the “Asian miracles” that soaked up Australian resources exports.

But resources exports also proved to be unstable. No matter, by this time the textbook notion of “comparative advantage”, god-given and immutable, had become gospel. Australia’s comparative advantage was in the export of unprocessed rural and resources commodities, period. This “vision” remains extant, albeit with the odd added extra (including “educational services”, much of which is dodgy, selling passports, etc.).

The hope was that resources exports would ultimately bring merchandise trade into balance, essentially by catering to industrialising Asia. The succession of industrialising Asian countries was to save Australia’s bacon — first Japan, then the "four tigers" (South Korea, Taiwan, Singapore, Hong Kong), then the also-rans (Malaysia, Indonesia), and finally China.

I refused to believe that resources exports could ever balance out Australian’s voracious demand for imports of manufactures, especially in the face of de-industrialisation locally. I was wrong, as the graph below shows. (Note that some trade balancing is due not to greater exports but lower imports due to recession, as in 1991 and 2001.)

Even the true believers could not have imagined the bounty that derived from China’s orgy of infrastructure building.

Balance on Merchandise Trade, Quarterly, Australia, $ millions. ABS 530201

But I was also right. The good times were temporary, unsustainable. The long term structural tendency towards merchandise trade deficits returns.

That a dependence on this "comparative advantage" has led to a permanent deficit on the current account has not bothered the authorities. The deficit for 2014-15 was a tidy $57 billion.

Balance on Current Account, Quarterly, Australia, $ millions. ABS 530201

With a fully floating exchange rate, completed in late 1983, the current account can stay in deficit as long as foreigners are prepared to purchase Australian dollar-denominated assets. And they have.

But at what cost? Nobody in authority bothers to ask anymore.

Coming soon: Parts 2 and 3.

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