(c) Copyright 1999: Graham L. Strachan.
Alexander Downer set the tone of the ‘debate’ on globalisation when he announced it officially to the Canberra Press Club on December 1, 1997. People were either ‘globaphobes’, irrationally in fear of it, or ‘globaphiles’, irrationally in favour of it. A balanced viewpoint was apparently not to be permitted. One of the committed globapliles is a Mr. Gerard Jackson of The New Australian.
Based on very scant evidence, Mr. Jackson has chosen to mount an attack on my views, or more correctly what he imagines to be my views. He has no way of knowing what my views are. He has not read either of my books. He bases his entire claim as to what I think on a very brief synopsis of my book on my website, and a couple of other articles only mildly related to the topic. Mr. Jackson is inventing views for me, then attacking his own inventions.
Some of his inventions are quite absurd. He accuses me of claiming that economic rationalism is the ‘ideology of interventionism’. I claimed no such thing. It seems Mr. Jackson is one of the newer intellectuals who assume that if you challenge their views you must believe the exact opposite. The idea of a view in between seems to be beyond them. Still, if Mr. Downer’s mind works that way, why not Mr. Jackson’s?
Jackson accepts uncritically what he’s been told: that economic rationalism is free market economics: ‘...it means free markets or it means nothing at all’, he declares. And since it obviously doesn’t mean nothing at all, it must mean free markets. Ole! ‘That’s why I call myself a free marketeer’, he proclaims. And if that’s not proof enough, Professor Fels agrees with him. Well, so far we’ve had a circular argument, a declaration of personal faith, and an appeal to authority, all of which are logically irrelevant.
You see folks, whether or not economic rationalism is genuine freee market economics is not determined by what Mr. Jackson or even Professor Fels claim it is, but by the facts. And the facts are that a proper free market is not simply a market free from government regulation, it is an unregulated COMPETITIVE market. Even Professor Hilmer would agree with that, thus the National Competition Policy.
Furthermore, a competitive market is not just anything Mr. Jackson wants it to be, it is a clearly defined thing: a market of potentially unlimited competitors, competing on more or less an equal footing, in a market which newcomers can freely enter, and in which none can control price [Adam Smith, ‘The Wealth of Nations’]. Something like it probably existed for a while in Britain during the Industrial Revolution, but once big business came on the scene from around 1870 onwards, [Parkinson, ‘The Rise of Big Business’], the truly competitive market disappeared and has never been seen since.
Why? Because big business bought up or destroyed smaller competitors in the marketplace and produced a situation called OLIGOPOLY....market control by a few large firms, with weaker competitors struggling to survive on the periphery. Oligopoly was not a competitive market, and until the advent of economic rationalism nobody seriously suggested that it was. Oligopoly was regarded as a symptom of market failure, only marginally better than outright monopoly [see Galbraith, ‘American Capitalism’]. It is all well documented, so there’s no excuse for Mr. Jackson not knowing about it.
The reaction of governments was to protect smaller competitors in the marketplace with exemptions under trade practices legislation and other measures which enabled them to build up power which countervailed the power of the oligopolists. In that way the numbers of competitors were kept up in the marketplace and some semblance of competition was maintained. It is significant that government regulation was introduced in the first place in a bid to PRESERVE competition, not destroy it, a fact economic rationalists choose to overlook. Whether it succeeded or not is another matter.
The outcome was known as the MIXED ECONOMY, basically a market economy but with government intervention to cushion the public from its harsher effects, because markets cannot act morally [see F.A.Hayek, ‘Law Legislation and Liberty’]. The mixed economy was the form of economy which persisted in the ‘capitalist’ world for the last part of the last century and the first 80 years of this. Chomsky has argued that it, and not any mythical ‘free market’, is what built the wealth of the Western world. Sure it had Keynsian financing and welfare socialism superimposed on it from the time of Rooseveldt’s New Deal onwards, but it was still basically the mixed economy. According to Chomsky, countries which have tried full free market economics have ended up ‘basket cases’ [Chomsky, ‘Prospects for Democracy’].
Suddenly in the early 1980s the economic flavour of the day was again ‘free markets’ and ‘competition’ (‘Thatcherism’ in Britain, ‘Reaganomics’ in the U.S., and ‘economic rationalism’ in Australia). This all sounded like neo-classical free market theory risen from the dead, but there was one small item missing: the COMPETITIVE MARKET. The form of most markets was still that of oliogopoly. Freeing oligopoly up by deregulating it could only have one effect: to consolidate oligopoly.
So how do economic rationalists get around the problem of a lack of a competitive market? Simple. They redefine oligopoly as the competitive market. Should the reader think I’m making all this up, here’s how the Hilmer Report deals with it:
“Early economic work suggested that large numbers of competitors were important for the effective working of competitive forces. However IN SOME CASES competition between A FEW LARGE FIRMS may provide more economic benefit than competition between a large number of small firms.” [Hilmer Report, p. 3].
Fair enough, but what about all the other cases where it doesn’t? No answer. They’re what G. H. Lewes called ‘provisional elements soon disregarded’. Oligopoly is it. The oligopolists dominating markets by this time were Transnational Corporations (TNCs), which is where economic rationalism fits in to globalism. Removing government protection from smaller competitors in the national marketplace freed things up so TNCs could buy up or destroy nationally based firms and integrate national economies into the global economy, which is precisely what has happened.
Under the ideology of economic rationalism (‘oligopoly economics’) free market language and free market concepts are bandied about, but the meanings have been changed. ‘Free’ now means freedom for large firms, particularly TNCs and firms owned by global investors, to do what they like, wherever they like, anywhere in the world, without interference from national governments and without having to accept any social responsibilities. Think I’m making that up too? The Australian government recently tried to sign the Multilateral Agreement on Investment (MAI) which would have turned precisely that scenario into international law.
THE PROMISES: Having changed the meaning of ‘free’ and turned oligopoly into a competitive market, the Hilmer Report then goes on to claim that oligopoly will deliver all the advantages which were supposed to flow from a classical free market....businesses will improve their performance, new products will be developed, there will be lower prices and improved choice for consumers, increased employment opportunities for the community as a whole [Hilmer Report p. 1]. It even tends to promote equal treatment of workers according to race and sex (it’d have to wouldn’t it?) [Hilmer Report p. 5]. On the other hand Galbraith said oligopoly cannot guarantee new products, prices no longer reflect consumer demand, and it can lead to profitable and comfortable stagnation [‘American Capitalism’].
But so much for the theory, what have been the RESULTS? So far economic rationalism has delivered on NONE of its promises, and the best economic rationalists can do is urge people to hold on a bit longer, have faith, withstand a bit more pain and eventually 'market forces' will deliver the gain. In New Guinea they call it cargo cultism. Here it enjoys the respectability of an economic theory.
WHAT ABOUT THE CHEAPER PRICES?: the best the Australian newspaper could come up with were these [The Australian, 5 August, 1998]: Pork was 3.8% cheaper and poultry was 1.5% cheaper in June than it was in March 1998 because of a ‘surge in imports’ from Canada and Denmark, and ‘over-production at home’. Cheese prices had also fallen ‘sharply’ (sic) over the previous 12 months, by 2.1%. This was ‘courtesy of stiff competition from New Zealand and a local production boom’. Clothing prices fell by a whopping 0.1% in the 3 months to June ‘under intense price pressure from cheap imports’. The other “big winners from more open markets” were new car buyers. No figures were quoted, but the ‘trend’ was supposed to have been ‘downward’, except for the March 1998 quarter when the prices rose 3.1%. Imports again were the big winner, with Hyundai outstripping the traditional market leader, (the local) Holden, for the first time. Overall food prices INCREASED during the previous 12 months. The cost of living had INCREASED, ‘but only by a fraction’.
And the price? A nation in return for a few cheaper groceries.
What about ‘IMPROVED CONSUMER SERVICE AND CHOICE’?: experience worldwide has shown these are delivered to the best paying 20% of consumers. The middle 60% get worse service and choice and pay more for them, while the bottom 20% can’t afford the services at all. This is the result of the cessation of cross-subsidisation between products which makes no sense to economic rationalists. Nor do they want the least profitable customers, who fall back on the government and the taxpayer. Here are some examples, mostly American but the trend is the same here too.
Banks now want medium to large ‘investors’, not small depositors. America’s second-largest bank is increasing the minimum balance for a standard, no-fee checking account to $6,000 in New York and $7,500 elsewhere. Certain banks are offering high-end customers substantially better interest rates on personal loans and other products than low-end customers. The American airlines are reducing the size of economy class cabin space to make room for more first-class seats. Services and comfort to economy class flyers have been cut back. Leg room in economy class has been reduced 15% by some airlines. Lower-fare passengers are permitted only one carry-on bag while full-fare business passengers continue to enjoy the traditional two. The telephone companies want long distance business calls which are profitable, but not the domestic market, and certainly not the bush. In privatised health, wealthy customers get private rooms and lobster salads on the menu. The bulk of the community put up with reduced services and higher health care premiums, while around 20% of the population have no access to any health care at all because the cost of health cover is beyond their means.
Economic rationalist ‘competition’ does NOT lead to better consumer choice or service for the community as a whole. It leads to cutbacks and price hikes for the majority in order to provide more VIP services to the best-paying minority. It’s a form of reverse cross-subsidisation. Instead of the wealthy subsidising the poor, the poor subsidise the wealthy.
What about the ‘RISING LIVING STANDARDS’?: a Melbourne University study released by the Governor-General during March 1998 found that 5.5 million Australians (30% of the population) now live below the official poverty line. In mid-1998 the media were flogging the line that the average wage was supposed to be $712 per week. That was the figure for for full time adult work. It ignored the fact that 1 in 4 jobs is now part-time. The average wage for part-time work was around $420/week, which brought the real average wage across the board down to $598/week. Even that was too high because not all part-time work is paid at the adult rate. Far from ‘raising living standards’, economic rationalism is lowering them, and it’s the same worldwide.
What about ‘INCREASED EMPLOYMENT OPPORTUNITIES’? In the 12 years 1985-1997, the era of economic rationalism, 3.3 million Australians were retrenched and had to find replacement jobs, in what the Sydney Morning Herald described as a ‘massive downsizing of the nation’s workplace’. According to Mr. Jackson, this was NOT DUE TO ECONOMIC RATIONALISM, it was caused by wage fixation at a point higher than the market clearing wage rate. Ludwig von Mises said so. Where has Mr. Jackson been for the last 10 years? Union coverage is now at around 30% and NON-union workers are being paid marginally higher than union members under awards. While Mr. Jackson quotes theory, he ignores this:
Between 1990-95 Shell had shed almost 2,000 jobs, Telstra will ‘cull’ 25,500, the Commonwealth Public Service was cut by 27,000 permanent positions by the mid-1998, the number of public sector employees in NSW fell by 90,000 between 1991-7, BHP (now a TNC) will sack 2,500 when it closes its Newcastle plant, and another, 800 at Port Kembla. The four major banks eliminated 30,000 full-time jobs 1991-7, and will eliminate a further 60,000 by 2005. December 27, 1997: the financial services industry had reduced employment by more than 10 per cent over the past 5 years, despite the sector’s burgeoning growth. The finance sector had pared its workforce by 16% since 1991. The insurance workforce had been cut by 35% in the same period, despite the managed funds industry’s ‘spectacular growth’. January 21, 1998, it was announced that National Mutual and MLC would merge, targeting cost reductions of $200 million a year over 3 years by ‘removing overlapping functions and through staff cuts’. February 1998: the ANZ Bank announced the layoff of 1,700 staff. The Commonwealth Employment Service was disbanded in May 1998 with a loss of over 4,000 jobs. March 7, 1998: Queensland’s state bank Suncorp-Metway announced it would start rationalising its staff with hundreds of jobs expected to be lost as branches close. April 3, 1998: National Australia Bank announced it would cut an estimated 4000 jobs and close scores of branches. April 4, 1998: the Bank of Melbourne announced further job losses. June 27, 1998: BHP made a loss, and planned to sell assets worth $% billion. It had already taken the responsible step of slashing 5000 jobs. August 6, 1998: 626 redundancies would result from waterfront reform. The official unemployment figures have been stuck on about 8% for years, but nobody really believes it. A person is classed as ‘employed’ if they work one hour a week. Then people who have given up looking for a job are excluded from the figures by introducing a thing called the ‘participation rate’. Typically the participation rate is around 63%, which means that around 37% of people who should have a job, but have given up looking for one, are no longer classed as unemployed. The Australian Bureau of Statistics (ABS) estimated in 1997 that against an official unemployment figure of 800,300, the number of Australians unemployed and wanting to work, or employed and wanting more work was almost 2.5 million, which is 25% if there really are 10 million in the workforce. Long term unemployment is also increasing. In December 1997 the ABS found that 33.6% of unemployed people had been out of a job for more than 12 months, and that figure had increased from 30% eighteen months previously. The problem is not confined to ‘blue collar’ work. The jobless rate of graduates from various universities ranges from 14.2% to 36.1%. Excluding computer science graduates, 34% of those with a basic science degree were still seeking work 5 months after graduating.
And none of that is supposed to be due to economic rationalism! The fact is unregulated oligopoly (economic rationalism) is NOT creating the promised jobs, it is eliminating them and that is fact! The academics will tell you that after it stops eliminating them, it will start creating them again. The new ‘Australian dream’ is that Australia is going to become the ‘great financial centre of Asia’, and that jobs destroyed in ‘traditional industries’ will be replaced by jobs as ‘financial advisors’. It’s nonsense. Professor Lance Endersby has pointed out that examples like Zurich show that financial centres are not great job generators.
THE PRODUCTIVITY COMMISSION itself, the watchdog of economic rationalism, in a recent report showed that 1970-1998: Unemployment has risen; the demand for labour has failed to keep pace with supply. The proportion of long-term unemployed had increased from 5% to about 30%. The long term unemployed are unemployed longer....a year or more, instead of 2 months. The extent of underemployment and hidden unemployment has also increased. Most jobs growth (>95%) was confined to just five industries: community, education and personal services, wholesale and retail trade, construction, and public administration and defence. Most job losses (>95%) were accounted for by different five industries: transport equipment and machinery; textiles, clothing and footwear; metallic products; electricity, gas and water; and food, beverages and tobacco. employers have “been driven to change workplace arrangements and to make other equally disruptive reforms – many of which have increased the capital to labour ratio” (they’ve done away with labour through ‘downsizing’). Job turnover and mobility rates suggest the equivalent of the entire national labour force has to find a new or different job every 4 to 5 years.
Despite what Mr. Jackson might have been told in economics lectures, economic rationalism began with the Hawke government from 1983 onwards when it began to implement the recommendations of the Campbell Report. Paul Keating as treasurer floated the dollar and allowed in foreign banks. It has been a staged process ever since then. The Hawke government also stopped the Franklin Dam by invoking a U.N. treaty, so those other aspects of globalisation, the transfer of political, legal, and cultural sovereignty away from nations and into the control of ‘institutions of global governance’, began then too. To suggest as Mr. Jackson appears to, that globalism is restricted to economics is absolute nonsense. Even Alvin Toffler defined it as ‘the notion that nations are obselete’ [‘The Third Wave’]. Bill Clinton has described it as ‘economic and political integration’ [in Buenos Aires 1997].
As a result of the unregulated oligopoly policy over 90% of Australian big business is now globally owned. The levels of global ownership werre (at last count): processed food 95%, motor vehicles 100%, chemicals 98%, pharmaceuticals 100%, mining and minerals 97%, electrical 98%, banking 86% (and rising fast), confectionary and beverages 84%, manufacturing 57%, insurance 82%, building materials 88%, hotels, major and resort 75% and oil and gas 92%, funerals over 50%. Allan Asher of the Australian Consumer Commission admitted on Lateline last year that 80% of the Australian economy is now foreign controlled.
THAT THE 'FREE MARKET' is all a MYTH is revealed by the following: As soon as the regulations protecting Australian-owned smaller business were abolished, foreign-owned TNCs began lining up for subsidies and protection paid for by Australian taxpayers and getting them. In January 21, 1998: Cabinet agreed to provide $300 million in taxpayer funds to underwrite Australian trade contracts with Korea. January 22, 1998: Representatives of the tourism industry emerged from meetings with the Federal Tourism Minister, Mr Thomson, yesterday confident the Howard Government would consider extra funding in the May Budget to help the industry deal with the Asian currency crisis. August 1997: the Howard government announced a $600 million taxpayer-funded package to help the Australian private health funds which were faced with membership defections. August 1997: ‘The chemical giant Du Pont was paid almost $60 million in government aid to keep manufacturing textiles as tariffs were reduced. [It took the money and ran]. Late 1997: The government announced a $1.26 billion ‘Investing for Growth’ package which includes a $556 million increase (increase!) in government support for private sector (big business) research and development. February 2, 1998, it was announced that two of Australia's biggest employer groups, the Metal Trades Industry Association (MTIA) and the Australian Chamber of Manufactures (ACM), would merge, creating a powerful voice ‘to lobby the Federal Government on industry protection’. Both want to use their power ‘to step up pressure on the Howard Government for more industry assistance’. February 2, 1998, John Howard said the Government would provide aid to businesses exporting to Indonesia, partly to combat ‘actively avaricious competition from US exporters’. That assistance – which the Prime Minister said would be uncapped, in the form of export insurance, and on a case-by-case basis – follows a recent government decision to support Australian companies selling into the slumping South Korean market. January 29, 1999: the federal government has paid Comalco $100 million-plus to induce it to go ahead with an alumina refinery in Gladstone. In December 1997 the federal government committed $40 million to help Visy Industries decide to build a pulp mill at Tumut. The Federal Government’s ‘major projects coordinator’, Bob Mansfield controls a pool of funding worth $500 million.
In the meantime, as is to be expected in the absence of any regulation, OLIGOPOLY is merrily consolidating its way to outright monopoly, all welcomed by economic rationalists as ‘increasing competition’. In 1997 financial giant Morgan Stanley Group Inc., merged with Dean Witter Discover & Co. to form an even bigger financial giant. In April 1998 US financial giants Citicorp and Travelers merged in a record $70 billion deal, the largest corporate merger ever, to form an even bigger financial giant still: the world’s biggest financial services company. Drug giants Glaxo Wellcome and SmithKline Beecham are going to merge creating the world’s largest drug maker with a market capitalisation of $160 billion and annual sales of more than $27 billion. WorldCom is going to acquire MCI Communications for $36 billion. Meanwhile BankAmerica is merging with NationsBank, Sanduz with Ciba Geigy, Mitsubishi Bank with the Bank of Tokyo, Union Bank Swiss with Swiss Bank Corp, Banc One with First Chicago NBD, and KKR with RJR Nabisco. AT&T Corp. acquired Tele-Communications Inc. for $48 billion merging America’s largest long-distance phone company and the second-largest cable-television concern. January 25, 1999: Vodafone and Airtouch of the US are going to mega-merge. January 1999: Zeneca pharmaceuticals shareholders must vote on a planned merger with Astra of Sweden next month.
AS FOR THE RURAL SECTOR which brought me under considerable fire from Mr. Jackson, it is fact that there were 172,000 farms in 1985 and that 40% of them have now gone. It is fact that 35 farmers a week are leaving the land never to return. According to Mr. Jackson this has nothing to do with economic rationalism either, the farmers were 'too inefficient'. It serves them right, they deserve to lose their farms. If some rural communities disappear as a result, ‘so be it’. Stuff ‘em. People have to learn to fit in with the econometric model or go find another planet.
As a result of 'financial deregulation', the value of the Australian dollar is now determined by the global markets. Over $1 trillion a day changes hands in the global markets, and 95% of it has nothing whatever to do with the production and consumption of goods and services essential for the human race. It is speculation: the buying and selling of money, shares, commodities futures or other ‘derivatives’ the sole purpose of which is to make a ‘quick buck’. Not only that but it is conducted largely with imaginary money, credit extended by international money-lenders. The credit ‘money’ is backed up by nothing. It will exist only so long as people continue to pretend that it exists.
On top of that, most of the so-called securities traded on the global markets are only remotely based on any tangible asset....the so-called ‘derivatives’, derived from tangible assets, agreements to do things with tangible assets at some time or other. The global economy is 95% gambling using imaginary money, and trading in imaginary assets.
The slightest provocation, even whispering the words ‘banana republic’ (Keating in 1984, sending the dollar down to 57c US), can send the speculators into a panic, causing them to unload Australian dollars, driving down its value, driving up the price of imports, driving up the cost of interest payments on Australia’s foreign debt. They can bankrupt companies who’ve borrowed too much money, and even destroy entire economies as it has done in Thailand, Indonesia, South Korea, Russia, and Brazil.
That is the unstable system Australians have been committed to by their own governments in the name of financial deregulation and ‘globalisation’. Even some of the speculators themselves are becoming jittery, understanding just how close to global deflation the whole system is. In the wake of the Asian collapse, global speculator George Soros called for dramatic reforms to limit speculative capital flows. Soros: “The received wisdom of economic theory is that markets tend towards equilibrium. This may be true for the market for ordinary goods and services [it isn’t] but it’s emphatically not true for the financial markets.” [Speech in Davos, 1998].
Mr. Fred Argy, Secretary of the Campbell Committee which recommended the deregulation of the Australian financial industry in 1981said this fourteen years later: “I’ve become increasingly disenchanted with the behaviour of the financial markets. Quite frankly the benefits of financial deregulation are not what they were expected to be, or what they’re made out to be.”
In the meantime Mr. Jackson no doubt will stubbornly insist that the export of Japanese steel to the US is ‘dumping’ whereas forcing US bananas and hormone treated beef on an unwilling Europe is ‘free trade’. He will also insist that the employment of child labour throughout Asia is doing those countries a favour....and on it goes. Mr. Jackson’s greatest enemies are not ‘globaphobes’, they are facts, and an economic theory which is threatened by facts hasn’t long to run.
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