In Australia from the early 1970s a debate raged about how to improve the competitiveness of the Australian manufacturing industry. Other sectors (agriculture and a growing mining industry) were internationally competitive and were generating more and more exports. But manufacturing was badly inefficient.
The argument to reduce the protection behind which Oz manufacturers hid was won by the development and disbursement of elegant presentations by the Tariff Board, later renamed the Industries Assistance Commission, and at the fore of that analysis was the Textile Clothing and Footwear industries. The Australian public accepted that the protection which had been undisputed since Federation in 1901 needed to be drastically reduced because the ridiculous extent of protection was clear from the ridiculous prices of clothing and shoes that households had to pay.
This writer recalls the devastating logic of one of the arguments used by the Industries Assistance Commission in the 1970s: if Australia reduced its protection on Textiles, Clothing and Footwear, the savings to households on their annual spend on these items could (mathematically) be handed over to every worker in those sectors to allow those workers to stay at home on full pay and yet every household would still get their clothes and shoes cheaper.
That was the core argument: the benefits of globalization would be so big that consumers would benefit and yet the workers would not lose. The question not addressed at that stage was just how those workers would be compensated.
The policy necessary to implement this globalization was considered in two parts. Firstly, the Industries Assistance Commission was responsible for the efficiency aspect: resources allocation, efficiency and adaptability. Secondly, the other areas of government responsibility (taxation, social welfare) were expected to cater to the compensation aspects – equity and security.
The exact nature of this compensation group of policies was never explained. Rather, broad concepts such as “workers will move to better jobs” and “well, governments are not in the business of picking winners” extricated politicians from the need to fully explain the implications of the massive changes to manufacturing caused by globalization.
Still, the mathematics were sound: the huge savings available to Australia as a result of producing and trading according to comparative advantage should have been available for (a) a reduction in the prices of consumer and producer goods, (b) a major transfer of the factors of production into more efficient sectors, and (c) some of the funds from these efficiency gains to go to compensating the losers, notably workers in the form of Labour Adjustment Packages. And these compensating and adjusting packages were recommended by the OECD and were in vogue in European countries. All went well. Except item (c)!
The full roll-out of the compensating policies was hijacked because, as these big changes to the Australian economy were taking place, a new philosophy emerged globally. Neoliberalism.
Well, economic thought is subject to influence by political, social and intellectual trends. And from around 1980, neoliberalism replaced the Keynesian consensus that had prevailed since the end of World War II. Generalizing, the big names in implementing neoliberalism were the Chicago School of Economics, Milton Friedman, Thatcher, Reagan and Pinochet’s Chile. Neoliberalism demanded privatization, free trade, increasing the role of the private sector, shrinking the role of government, and extending the role of markets into all area of life. Critics have argued that neoliberalism has damaged social welfare nets, reduced real wages and increased inequality. More emotionally, it has been suggested that neoliberalism has effectively criminalized poverty, and the increase in incarceration rates in the USA is put forward as one piece of evidence that seems to support this. And there was also a dangerous theme in neoliberalism: a cult of the individual. Greed is good. Me, me, me.
In the Australian context the emphasis on neoliberalism reduced the bureaucratic and political concern for the compensatory packages that should have accompanied the unwinding of Australia’s manufacturing sector. Globalization led to lost jobs in Australia, most of which were quality jobs, often skilled, The new jobs created were in different industries, certainly often better jobs, but with entirely different skills required. Those who lost their manufacturing jobs could not get those new (fewer) higher-paid jobs. Rather, they went down the occupational ladder to lower skilled, lower paid positions, often part-time or casual, and many went onto the unemployment list. In sum, the results of tariff reform and the embracing of globalization created huge efficiencies, but the macro policies did not create enough alternative jobs and the adoption of neoliberalism resulted in a failure to adequately engage in micro policies.
As globalization raced ahead, the societies of western countries concentrated their attentions on the winners: these were usually educated, city dwellers and often in the professions or innovative sectors. The winners were new start-ups, importers benefiting from lower tariffs, executives of local companies and multinationals operating domestically who merrily transferred local jobs to China, the professional advisers to these companies and the politicians, experts and bureaucrats who pimped neoliberalism. These winners were also often self-satisfied, noisy, attention-grabbing, and connected to policy makers and the media. And often they were migrants whose talents or determination allowed them to move into Silicon Valley, London and Sydney and thrive there. The losers from globalization were disorganized, less able to have their opinions heard and often located in regional areas or ‘rust-belt’ areas: the old manufacturing cities of England and Scotland, the steel and coal areas of north-east USA and the regional centres of Australia.
In the greedy era of neoliberalism, the gains from globalization were pocketed by these winners. In the new atmosphere of ‘small, non-interventionist’ government, there was little support for the idea that government should grab some of these globalization gains from the winners for use in compensating the losers. Such compensating policies could have been achieved by more taxes on the winners, more re-education for the losers, more intervention to assist affected cities and regions, and transition assistance to help industries restructure rather than close.
Indeed, there emerged new attitudes towards the losers. A lack of sympathy would have been bad enough, but it was worse. Governments started to blame the losers for their lack of success. To harass them for having the temerity to ask for unemployment benefits. In their self-congratulatory arrogance the winners had no time for assisting the losers, and it was easy to laugh at them and classify them as ‘red necks’ or ‘bogans’ or ‘dole bludgers’.
It comes as no surprise then that wages for the lower and middle classes in the USA and Australia have stagnated, and that wealth and income inequality have widened drastically.
But the losers have had the last laugh. The red-necks and the bogans vote. There was amazement in London when the national vote in June 2016 was for BREXIT. There was amazement in the USA when Mr Trump was elected President. Amazement in Spain, Greece, Italy and France when non-establishment parties and candidates gained huge support. Amazement in Australia that Mrs Hanson has gained popularity. These votes are from those who have been left behind, who look back with nostalgia, and who blame migrants for taking their jobs. Sure, the anti-globalization and anti-immigrant vote may worsen the position of those losers even further. But there is a ‘lets wreck the joint’ dimension to this vote.
Globalization is now ‘on the nose’. The winners from globalization have caused this by their own greed.
Well, neoliberalism itself has started to be questioned. And governments must now review a whole range of policies to re-introduce the ‘compensating’ components of policy-making. And future policy-making must be done in the context of deep cynicism by big numbers of voters towards politicians and the Elites.
But the deep divisions in western societies which unfettered globalization has caused will take a lot longer to fix.
Mike B. Bradshaw has been an officer of the Treasury, Canberra, an investment banker, and a consultant in Europe, the USA and Asia. He now works on project financing.
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