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Monday, 6 December 1999
Page: 12845

Mr McARTHUR (4:58 PM) —This morning we learned that the World Trade Organisation talks in Seattle had failed. One of the factors would have been the US President's advocacy of punitive trade treatment of countries that did not meet labour market standards—whatever his interpretation of that might have been. Appeasing domestic labour union interests to boost Vice President Gore's presidential chances is a possible motivation for the President's view. Today's editorial in the Australian Financial Review had this to say:

The United States . . . destroyed the event by acting like a self interested superpower with its unilateral presidential intervention.

Political expediency has ruled the day in these WTO talks. The fight for freer, more open and more efficient use of the world's resources is not over. Ironically, poorer nations would lose the most if the views of the protectionist protesters were to prevail.

Freer world trade would raise living standards in those Third World countries. To quote MIT economist Paul Krugman in the Australian on 2 December 1999:

Every successful example of economic development this past century has taken place via globalisation.

The failure to develop and lead a plan to eliminate export subsidies was a huge shortcoming of the Seattle WTO conference. Australia will be profoundly affected by decisions to pursue, or not to pursue, free trade, particularly in agriculture. In the meantime, we hear talk of a third way which purports to somehow reject both the free economy and socialism in the one breath. But underlying the third way is the familiar and flawed belief that state intervention in the economy is desirable in most cases.

The fundamental argument is about whether there should be a command economy, like that of the former Soviet Union, or a market driven economy. Command economies have an appalling track record of telling people where they should work and live and in deciding what should be produced and in what numbers. If you look at the five-year plans of the Soviet Union, they never met budget and, generally, they were total failures. Yugoslavia, the Soviet Union and other Eastern Bloc countries were command economies. They underperformed economically, destroyed their natural environment and were unsustainable and morally bankrupt.

In the early 1970s it was said that we were all Keynesians but, within months, high inflation and unemployment in the Western economies destroyed such a notion. One of the first to challenge the flawed Keynesian orthodoxy was Friedrich Hayek, who predicted the stagnation and undermining of individual responsibility that state intervention would, and inevitably did, bring. He foretold how the interventionist state would stifle creativity and wealth creation and lead to a new poverty of the masses. He cogently expressed this in his classic work, The Road to Serfdom, published in 1944. The Victorian government tried a command type economy in the 1980s. Wild spending programs and other state interventionist policies, like WorkCover, were a major cause of Victoria's economic basket case status.

The Kennett government, on the other hand, privatised the power and gas industries and dumped the grand spending programs. Under the Kennett government, state debt went from $32 billion to $6 billion, unemployment was almost halved and a $2 billion budget deficit—a cash deficit because they did not have the money to pay the accounts, as you would understand, Mr Deputy Speaker Hawker—was converted to a surplus of $1.7 billion in 1999. Meanwhile, the Howard government has scaled back the Keating administration's $96 billion government debt and eliminated the federal budget deficit of $10 billion. Another unwelcome hangover of the flawed faith in interventionist economic policies comes from some practitioners of faith itself. Sadly, we see certain Australian church leaders still advocating failed state interventionist policies. Their failure to grasp that wealth has to be created to pay for welfare is glaringly obvious.

However, we have one advocate on the other side of the argument: the eminent American theologian Michael Novak. In a collection of essays entitled In Praise of the Free Economy, he writes that the welfare state:

Has over-promised and underachieved

. . . . . . . . .

The problem with the welfare state is that it has been so designed that it has become a substitute for responsibility, freedom, self-control and the law.

Governments everywhere are realising that positive social and economic change must be market driven. The free economy puts economic decision making back into the hands of people themselves. The sale of Telstra shares to the Australian public—which the member for Braddon referred to—is a sign of the further development of democratic capitalism in this country, with many more people than ever before owning shares.

The world has increasingly embraced open economies. It would be rash to claim, as American thinker Francis Fukyama did in the late 1980s, that ideology is dead and that capitalism has triumphed around the globe, but the trend has been for greater economic freedom. The regimes in North Korea, Iran, Iraq, Syria, Libya and Cuba pose the greatest concern. These countries' combined gross domestic product is a mere $174 billion compared to the amazing $7.6 trillion American economy. Although the nations that today threaten free economies are no longer the size and strength of the former Soviet Union, we should be on our guard. The spread of nuclear capacity to smaller nations and the rise of religious fundamentalism is a dangerous cocktail that one day may pose as serious a threat as the Cold War once did.

The challenge for Australia, as the world's l4th largest economy, is to be an advocate for free markets and free trade. The temptations of shaky quick fixes, such as withdrawing from world trade obligations, must be resisted. Professor Geoff Blainey, writing in the Age on 15 July 1999, noted that a century ago free trade and internationalism were destroyed by protectionist ideas. He stated that an:

. . . extraordinary era of globalisation—though not as profound as we now experience—came to a halt in 1914. The building of great protective walls then became the goal of most nations.

Without deregulation and openness, Australia could not have come out of the Asian crisis as strongly as it did. Labour market and financial deregulation, along with strong prudential financial requirements, are the best protection against financial crisis.

We must protect openness, freedom and choice for they are not necessarily inevitable and irresistible forces. We must also reject the belief that the Asian meltdown was caused by a lack of intervention, and capitalism run wild. Instead, corruption, influence peddling, monopolies, state sponsored cronyism and other behaviour diametrically opposed to free, open, competitive and contestable markets were the fundamental cause of the Asian crisis. Transparency, freedom, openness and competition were the antidotes to the meltdown and not the causes. Hong Kong and Singapore did not suffer as much devastation as was wrought upon their near neighbours. High levels of economic freedom helped them.

Singapore is second only to Switzerland as the world's freest and most competitive economy. It has low income tax, no exchange controls, no controls on profits going overseas and no foreign ownership restrictions. It also has very high standards of living, with a GNP per capita of $US26,450. Singapore has performed relatively well, without retreating into protectionist and inward looking trade and financial policies. It is an experience that provides a lesson for us here in Australia. A retreat from the market would be a retreat from a better way of life for all Australians and for people around the world. The breakdown of the WTO talks is regrettable because it threatens these rewards of higher productivity and more wealth for people across the globe. Rather than pander to interest groups for expedient political reasons, the United States and the European Community should lead in the removal of barriers to trade so that people the world over can benefit from a more open and international economy.