“How would you like to pay for that?” is the question we get asked at checkouts. It is a question that many of our politicians and commentators would struggle to answer when they call for Australia to become more economically independent. Those calling for Australia to cut trade, investment and immigration links after Covid-19 are arguing that Australia can have its cake and eat it too. They are wrong. Increased economic independence would mean significantly reduced living standards for Australians. Those advocating such policies should be honest about the cost.
Global integration clearly has its downsides. We are living with them right now. Increased financial integration means more severe financial crises. Increased trade integration means we are more exposed to the economies and policies of other countries. And increased people-to-people links mean one country’s disease can quickly become a global pandemic.
“Remember the good times” is what we tell people when they lose a loved one. We remind them that the decades of good times far outweigh the bad times they are currently experiencing. The same is true for global integration. One or two years of economic pain from Covid-19 does not justify throwing out the decades of uninterrupted prosperity delivered by Australia’s openness to international trade, investment and people.
Those advocating a more closed Australia are quick to talk up the benefits of greater economic independence — the absence of pandemics, global financial crises and trade wars are certainly among them. But those advocating a closed Australia are suspiciously silent about its costs.
Consider trade first. Exports contribute almost $400 billion to the Australian economy each year, or around 21 per cent of our GDP, and are linked to more than 1.5 million Australian jobs. How do those advocating a more closed economy plan to fill this hole? Some suggest that domestic demand could fill the gap through a national Buy Australian campaign. This is a laughable proposition. More than 70 per cent of Australia’s agricultural production is exported. More than 25 per cent of our tourism industry relies on international tourists, to say nothing of universities and mining. The only way domestic demand could absorb this enormous excess supply would be through a catastrophic collapse in prices, sending the vast majority of Australia’s farmers, tourism operators, universities and mining companies into bankruptcy.
The Buy Australian argument is similarly tone deaf to the challenges facing poorer Australians who cannot afford to hold such luxurious opinions. For them, trade has dramatically reduced the cost of living. Compared with a decade earlier, audiovisual and computing equipment is 72 per cent cheaper, cars are 12 per cent cheaper, toys and games are 18 per cent cheaper and clothes are 14 per cent cheaper. Do those advocating a closed Australia honestly believe poorer Australians could afford to see their cost of living rise to this extent?
These huge numbers don’t even come close to the benefits of trade to the Australian economy. The reason we trade is the same reason you don’t perform your own surgeries, service your own car and cut your own hair. Specialisation makes us rich, generalisation makes us poor. Trade has led to enormous productivity gains in Australia by allowing us to specialise in the things we are good at making, earn $400 billion each year selling these things to the world, and use some of this money to import the things we are bad at making. Those who advocate a closed Australia are advocating taking resources away from the sectors in which we excel internationally — agriculture, mining, education — and putting them into sectors where the world leaves us for dead.
Trade is vital to innovation and competition. Australian businesses that actively innovate are more than twice as likely to export than businesses that don’t. This is no coincidence: a closed Australia is a less innovative Australia. Competition creates innovation. Trade in education and tourism are just as vital to Australia’s international image, our commercial links and our influence overseas as they are to our economy: Indonesia’s former vice-president, trade minister and finance minister all studied at the Australian National University. You can’t buy that sort of influence.
Foreign investment is no different. Australians don’t save enough to finance the amount of investment we need at home to maintain our standard of living. In normal times, we come up short by almost $60 billion. That’s $60 billion of extra capital we would need if we were to close up shop. Where would this come from? It would have to come from the pockets of Australian households and businesses via higher interest rates on mortgages, credit cards and business loans.
Foreign investment gets projects and companies off the ground that then employ more people. Little wonder that one in four of the biggest employing businesses in Australia have more than 50 per cent foreign ownership. Foreign investment from Canada, the European Union and the United States alone contributed to employing around 676,000 Australians in 2015.
Immigration is no less important. The Labor Party is now calling for reduced immigration after Covid-19 to give workers a fair go, despite the lack of evidence that immigration reduces local wages in Australia. The question for Labor is the same: how does it plan to pay for this? In recent years, population growth, two-thirds of which has come from migration, has accounted for most of Australia’s economic growth. How does the Labor Party propose to fill this gap? The silence on these questions is deafening.
Over the next few months and years, Australia will continue this conversation about whether we should have a more closed and independent economy. Some are advocating a light touch — stronger domestic capacity to manufacture medical equipment (although a larger national medical stockpile would presumably achieve the same thing at smaller cost to the economy) — while others are advocating something much more severe.
Calls for the latter are nothing more than economic populism, plain and simple. They are arguments by those who, having not done their homework, claim that Australia can have more economic independence without any cost. It is a dishonest argument. Those who push for a more economically independent Australia must answer a simple question: “How do you plan to pay for that?” •