A continuing debate? Protectionism and free trade in Australia

The Australian Foreign Minister Kevin Rudd is worried. Just prior to flying to the US for defence talks, he extolled the merits of free trade. Economies, small or large, had 'to maintain an open international trading system.' Artificial trade tariffs had to be avoided. Crisis was no excuse for protection.

In his keynote address at the Australian Historical Association's Perth meeting in July last year, Ross McKibbin, currently of St. John's College, Oxford, noted the role protectionism played in shaping Australia's political, and in so many ways, its social path. Instead of embracing the free trade dogmas of Britain, Australia, at its foundation, decided to impose a tariff regime. This was a social ethos in action.

Within Australia itself, divisions over whether incipient industries should be protected were rife. In the 1890s, New South Wales preferred to avoid tariffs while Victoria took the opposite route. After federation, trade within Australia would be deemed free, as long as a tariff would be imposed on goods coming into the fledgling state.

By 1905, the protectionists were in the ascendancy, and Alfred Deakin's policy gained prominence. To qualify for protection, companies had to pay their employees 'a fair and reasonable wage."

The 1907 Harvester Case, in which Mr Justice Higgins of the Commonwealth Court of Conciliation and Arbitration delivered his renowned judgment on the 'living wage,' confirmed what became a remarkable statement of social policy in Australia. According to Higgins, Sunshine Harvesters could only receive protection from North American competitors in the event it provided its workers with what amounted to the living wage.

'The Australian form of wage determination was,' McKibbin points out, 'intimately connected to the fiscal system, and when in the 1980s a serious attack on that system was made, the consequence was also a serious attack (only partly successful) on the existing structure of industrial relations and wage-fixing.'

Higgins' role has been seen as nothing short of remarkable. The federal system was fragile. For one thing, the union movement hardly expected him to hand down the ruling he did. Some academics speculate that Higgins might himself have been dabbling in a bit of nation building.

The legacy was not something that would last. Protectionism as an idea started to gather dust. Australia, somewhat eccentrically, then took the high road with free trade. In the 1980s and 1990s, its market was deregulated by successive governments, with devoted enthusiasm.

The Australian dollar was floated. Microeconomics – the study of the firm rather than the study of macroeconomics – became the scientific mantra of governments. From 1970 to 2001, according to Andrew Leigh, the current federal member for Fraser, industry assistance, as an average measure, fell from over thirty percent, to under five.

Leigh also goes on to note that three significant decisions on the reduction of trade barriers took place in Australian trade policy – 1973, 1988 and 1991, all incidentally, being made by Labor Governments.

Free trade tends to be spoken about in absolute terms when it tends to be relative. Few countries genuinely follow an unadulterated model, mixing and matching interests they feel fit their local economies.

Australia, oddly, is an exception, allowing an assault, to take one blatant example, on its Pharmaceutical Benefits Scheme via the Medicines Working Group. The assault, conducted via the free trade agreement with Washington, was mitigated to a certain extent by public health advocates in this country. The PBS, as a result, has been hampered in its efforts to keep down prices.