Australia needs to remember that embracing open markets can only be done with well developed market institutions and social safety nets.
Whether you love or loathe the President-elect of the United States, Donald Trump can get an economic policy issue media attention, as well as himself. Take the issue of trade and jobs, for example. After being a niche research topic that a few trade and labour economists (like me) were involved in, but few others in the media paid attention to, the Trumpster has thrust trade and jobs into the headlines. It dominated the presidential election campaign especially in the swing states of Pennsylvania, Michigan and Wisconsin (which remarkably Hilary Clinton didn’t visit) and even at the APEC Summit at Lima. I was gob smacked to hear Australian Prime Minister Malcolm Turnbull and Trade Minister Steve Ciobo talking about trade deals that are “good for workers” all the time at press conferences in Peru. Although back in 1992, the first President George Bush said he signed the free trade agreement with Canada (the predecessor to NAFTA) because he wanted to create “good jobs at good wages.” Whether he did achieve this wish in reality it seems, can be tested by the 2016 election outcome, where blue collar voters rebelled against free trade agreements.
This issue has an important history in Australia too. In 2000, when I was newly appointed as chief economist of the Australian Trade Commission (Austrade) I wrote a paper for the Centre for Applied Economic Research (CAER) at UNSW that showed that Australian exporters, as employers, on average, paid 60 per cent higher wages than non-exporters. Exporters also achieved higher levels of standards in occupational health and safety, equal employment opportunity, employment security and invested more in education and training, on average, than non-exporters. Also they were on average, more unionised than non-exporters, and utilised certified agreements (enterprise bargaining) than minimum wage awards. As a former ACTU economist I thought therefore that exporters, on average, were good employers and an open economy worth supporting.
I concluded, that on average, exporters had been good for workers as they had progressively ratcheted up wages and conditions (at home and abroad) and created at least as many new jobs as we lost in import competing areas like textiles, clothing and footwear. However this wasn’t a mercantilist (“exports good imports bad”) argument as two thirds of those companies who exported simultaneously imported or used imported components in production. The evidence showed that the exporting sector or more precisely, the traded goods sector was generating “good jobs at good wages”. The results were published in the Australian Financial Review, on the day that Doug Cameron was about debate the late Senator Peter Cook about “free trade versus fair trade.”
This debate also raged in OECD countries with British economist Adrian Wood seeing the loss of blue collar jobs in western countries but employment growth in the developing world. The issue also became entangled with the questions about the role of technology, which now is causing disruption to white collar jobs (even journalism!) as well as blue collar jobs. You can see this influence too in the immigration debate in the post Trump world with Bill Shorten toughening his stance on guest workers with 457 visas.
However in all the noise over the trade and jobs debate politically there are three conclusions that can be drawn from the evidence so far.
Firstly, not all trade agreements are good. Some can be distortionary in terms of trade, some can go too far into non-trade issues (like plain packaging cigarette advertising or the pharmaceutical benefits scheme) and some can cause harm by cutting other trading partners out.
Secondly, you can be for an open economy, even if you are against a certain free trade agreement. Many traditional neo-classical economists hate “preferential” free trade agreements and prefer multilateral trade liberalisation (even though the WTO is as dead as a Doha) or even unilateral liberalisation (Australia in the 1980s and 1990s).
Thirdly, who advocates a free trade agreement will make a difference as it how it plays electorally. If the free trade advocate wants trade liberalisation because its “good for workers”, is in other fora opposing minimum wage increases, workers’ rights or wanting to strip away penalty rates, then it’s unlikely to get such a good hearing.
Finally, it’s important to remember in light of Donald Trump’s triumph, that Australia is not America. The deterioration of working conditions in the USA, particularly in the previous “blue wall” of Democrat held swing states, made such anti-free trade anti-immigration rhetoric of the “Trump-licans” (Trump Republicans) appealing. The minimum wage has lost pace with living standards, 90 per cent of Americans have received no real wage gains in 20 years, there’s growing wage inequality and the American labour market is losing the labour mobility it was once famous for. In fact Vermont Senator Bernie Sanders tapped into that same anger in the Democratic primaries, that Trump drove home in the general election, whilst Hilary Clinton was found to be flat-footed instead making an unusual speech about a “basket of deplorables.”
By contrast, Australia does have a federal minimum wage that is regularly adjusted, and a labour market that has delivered employment growth for nearly 26 years after we embraced an open economy (we in fact cut tariffs in 1991 during the last recession but achieved a quarter century of economic growth since). By contrast to the USA, the rise of Asia economically has been seen as an opportunity rather than a threat. But Australia also needs to remember that embracing open markets can only be done with well-developed labour market institutions and social safety nets to be successful. And this has been the historical Australian judgement of balancing right of the exporter-entrepreneur to have a go and with the right of the Australian worker to a fair go. That is why we are better placed in tackling the trade and jobs issue than President Trump is, especially if it’s all about tariffs on Chinese goods (that would be most likely counterproductive by inviting retaliation) and nothing is done about the decline of US labour market institutions.
Tim Harcourt is the JW Nevile Fellow in Economics at the UNSW Australia Business School and host of The Airport Economist on Sky Business News and Qantas. www.theairporteconomist.com