The truth about recent policy trends: an alternative opinion

So expect more demands in Western nations by business leaders for further reform. For instance, in 2008 General Motors offered to buyout 74,000 American union workers, earning an average $28 an hour with new workers, who would earn an average $14-16 an hour; while the whitegoods manufacturer Fisher & Paykel announced that it would move production away from Australia to Thailand in order to save costs given that Thai workers would be paid about $2 an hour compared to $18-$21 in Australia.

Though the demise of manufacturing has been largely offset by the increasing importance of the service sector, what happens if service jobs are then lost to a well educated workforce in China and India? In 2004, the accounting firm Deloitte Touche Tohmatsu estimated at least two million service jobs globally would be shifted in coming years (about 1 per cent of the world’s service sector, while the Communication Workers of America estimated that 3.3 million US jobs may leave the country by 2015, including 500,000 technical jobs.

Of course, such a level of employment migration may not affect the wealthy nations in a major way for some time yet. After all, the US, EU (25 nations), Japan, Canada and Australia still represent about 69 per cent of world GDP in 2007 (nominal terms) compared to 13 per cent for the four largest developing economies with their large populations (China, Brazil, Russia and India).

But though both developed and developing nations have much to fear from lower US economic growth, longer term trends may be of some concern to Western economies. A recent Global Insight survey predicts that 31 developed countries will grow by an estimated average 1.6 per cent in real GDP during 2008 compared to 6.7 per cent for 54 developing markets (down from 7.5 per cent in 2007), the largest difference in the 37-year history of the survey.

As the former Secretary of Labor under the Clinton Administration, Robert Reich noted in the New York Times (February 13, 2008), declining purchasing power in Western nations - made evident by a trend towards lower real wages - will hardly encourage corporations to invest in domestic factories or equipment if demand drops for products and services across the board, as the rich will invest much of their surplus wealth around the world where they can get the highest returns.

With a recent Goldman Sachs study suggesting that the world’s middle class (incomes of US$6,000-$30,000) will increase by 2 billion by 2030, it is worth noting that Wal-Mart already relies on international sales for 24 per cent of its total revenue (8.9 per cent a decade ago).

So what are the answers? Do we just accept a trend towards a more level playing field and the increasing importance of developing nations? After all, 2007 World Bank data indicates that Australia’s national per capita income ($US33,340) in real purchasing power terms was still six times that of China ($US5,370) and 12 times that of India ($US2,740).

But beware of the rise of China. Though foreign corporations were still responsible for 90 per cent of China’s high-tech exports and 20 per cent of it GDP by 2006, can we afford to allow a rising non-democratic China to increase its influence or purchase Western corporations? One has only to note how China pursues value-free economic relationships with energy-rich dictatorships in Central Asia, South-East Asia and Africa, including Sudan which supplies 60 per cent of its oil to China. And how it utilises its authoritarian basis to boost economic development at an even faster rate than India with its interest groups much less capable of forcing greater consideration to social and environmental issues.

Of course, there are no easy answers for Australia or Western nations given that China’s booming economy has indeed helped boost national wealth.

But if trends towards freer trade are to continue without a greater link between political and economic considerations, the immense struggle for resources (in both national and domestic terms) will persist and may complicate Australia’s ability to find the vast resources needed to upgrade infrastructure, public transport, desalination plants, and even industry needs, along with social welfare needs.

Already, Labor’s Defence Minister Joel Fitzgibbon stated in July 2008 that Australia should abolish the States given a Business Council of Australia report that over governance cost Australia about $9 billion a year; the current New South Wales Labor government appears determined to privatise its electricity retail business despite majority opposition within the NSW Labor Council and opinion polls; while Labor state governments seek to limit wage growth, notwithstanding the Australian Education Union negotiating a 15 per cent rise over three years for Victoria’s teachers.

While there is a need for Australia to remain competitive in terms of taxation levels and greater labour market flexibility, we may need to promote a considerable degree of government intervention to ensure that Australia can meet the challenges ahead.

But whether we can do so remains to be seen given the ongoing importance of the economic imperative in a world where most developed nations remain committed to freer trade.

So Australia’s most prominent political commentators (including Paul Kelly) need to reflect the difficulties ahead for Western nations rather than merely supporting the status quo as if everything is OK and free markets are the perfect solution.

As for Dr Peter van Onselen, there may indeed be a market for trivial accounts of political leadership, but one can only hope that more Australian academics and commentators emerge capable of both defending liberalism and highlighting the enormous policy difficulties ahead for Australia and the world in the 21st century.