Ending globalisation a foolish wish

The pandemic has encouraged a dangerous desire for protectionism at a time when globalisation should be accelerated, not reduced, writes Greg Barns

ONE of the many downsides of the COVID pandemic is that it has encouraged a misplaced nostalgia for protectionism and a dangerous wish for an end to the globalisation era.

If you want a poorer and selfish future where lowincome earners pay more for goods and services, and where poverty in the developing world rises again then go right ahead. One hopes however that such a dystopian future remains buried.

Letters to the editor of this newspaper in recent times advocate an Australian-made perspective. Let us rebuild the manufacturing base of this country. Let us return to the days when we built cars, made clothes, and when service industries did not rely on call centres in India and the Philippines. Let us spend taxpayer funds on picking winners in industry. And of course make sure we turn our back on our biggest trading partner, China.

What is extraordinary about the anti-globalisation crowd and those who support government subsidies and other forms of industry protection is the sheer selfishness of such a perspective. They forget some irrefutable and salient facts about the cost of industry protection and nationalist economic agendas.

Industry protection, whether it is in the form of tariffs on imports, or non tariff barriers such as subsidies for domestic industries and businesses, means that prices of goods and services rise, innovation and efficiency declines. A 2017 paper by the

Productivity Commission observes that if Australia were to join the protectionist bandwagon that the Trump Administration has constructed, then the result would be catastrophic. A 15 per cent increase in tariffs, for example, would lead to a loss of more than 1 per cent of GDP every year “and close to 100,000 jobs would be lost, and up to 5 per cent of our capital stock could be mothballed. Living standards would fall across the income distribution. A household with the median weekly income would be worse off by nearly $1500 a year.” And who would pay the price? Those on low incomes.

For those old enough to remember, industry protection in Australia was disastrous. Bank service was appalling, airline travel out of reach for most, and cars and clothing cost a good deal more than if a real market operated. So disastrous that the reformist government of Bob Hawke and Paul Keating rightly dismantled it in the 1980s by putting consumers through encouraging competition, cheaper goods and more innovative services.

There is no case for industry protectionism. Apart from a few economists who have as much credibility as scientists who are climate change deniers, no expert in macroeconomics or trade policy thinks that protecting local businesses and government funded industries are a good idea.

Globalisation, by which we mean free movement of capital and labour, should be accelerated, not reduced. It is the antidote to global poverty. In a recently published World Bank paper, Christoph Lakner and colleagues note that “since 1990, the share of the world population living below the extreme poverty line of $1.90 per day has fallen from 35.6 per cent in 1990 to 10 per cent in 2015.”

And As Kenneth Rogoff, the former chief economist of the International Monetary Fund and Professor of Economics and Public Policy at Harvard University put in the Financial Review on June 15, “outside of the advanced economies – where 86 per cent of the world’s population lives — global capitalism has lifted billions of people out of desperate poverty.”

This does not mean globalisation is perfect. As Rogoff observes “the current model of globalisation needs adjusting, particularly by greatly strengthening the social safety net in advanced economies and – to the extent possible – in emerging markets, too.” But, he rightly adds, “building resilience does not mean tearing down the entire system and starting over again.”

For a micro economy like Tasmania, globalisation offers the only way out of the current long, inexorable slide into permanent intergenerational poverty as the greying population rises.

If we had truly liberal population movement — and why shouldn’t labour move to wherever there is demand — then Tasmania would attract many more migrants who are culturally diverse and young. This would mean the depressing prognostications of some in the academy about how exciting it would be for Tasmania to be an economy built on aged care and tourism, would remain fantasy.

If COVID is used by governments to encourage broader isolation and woolly headed ideas like self-reliance then global poverty will increase and in small economies like Tasmania there will be rapid decline in access to export markets, an increase in the cost of living, jobs will be lost, and the current population decline will accelerate.

Open markets work. Closed economies are the enemy of humankind. Nothing about COVID changes these perspectives.