The primitive country?

Former Liberal Senator Nick Minchin had declared that the real agenda of those who want to price carbon dioxide emissions in Australia was to "deindustralise the West."

Yet the deindustrialisation of Australia is precisely what has been happening for the past 35 years under the rubric of "economic rationalism," of which just about all in Canberra, save perhaps for the Astronomy and Astrophysics Department at ANU, have been grimly attached too.

This was not supposed to happen.

According to Paul Keating the whole purpose of the free market economic reforms, that he did so much to champion and implement, was to change Australia's position in the global division of labour from that of a provider of primary commodities to a provider of "elaborately transformed manufactures."

As someone who grew up in Western Australia I well recall that even there the goal was to engage in downstream processing, rather than the mere shipment of mineral and energy resources to other countries, for further processing into usable economic goods.

That we are having another round in the debate on the sorry state of Australia's manufacturing industry demonstrates that Australia has hardly become "the clever country" exporting "elaborately transformed manufactures" on the back of a commitment to economic rationality.

Free trade, judged on its own terms, is an abject policy failure. Indeed, we are exporting our natural resources, by way of lightly taxed multinational corporations, to China, especially, which uses those resources to "crowd out" Australian manufacturing in world markets. That is, after all, where our "comparative advantage" lies.

Though China is a country that "makes things" we need to be aware that China largely functions in the global division of labour as a regional and global assembly plant. The crucial creative technical innovations that rely upon advanced science and technology still occurs in the traditional economic powerhouses of Europe, Japan and the United States. Beijing, however, aspires to be more than an assembly plant. This is an important fact not without its implications for Australia's future.

Each of the big three global economic centres has, and has always had, a strategic approach to industry policy that is totally at variance with free market economic theory. In the case of Europe, besides being a core motivator of European integration, and Japan, that approach has been conducted within the framework of a broader social contract between capital and labour. In the US, that has hardly been the case, which largely explains why in America strategic industry policy has been developed around the Pentagon.

The Global Financial Crisis has put what is often called "neoliberalism" into the spotlight. Though fond of the term, and having used it a lot, I can readily see that it is quite misleading. For example, elite sectors in the US have always protected themselves from the rigours of the free market. None of that can be accurately labelled as "neoliberalism."

But some countries have actively followed what is called "neoliberalism" by way of compulsion or choice. Australia is one of those and Australia has done so through a curious mixture of compulsion and choice. For example, global markets through capital strikes, sometimes unhelpfully called capital flight, have compelled Australia to pursue free market economic policy. On the other hand, Australia has a political class genuinely committed to "economic rationalism."

One feature, that all countries that have loyally followed the policy programs stipulated by the free market economics share, is that they have become progressively deindustrialised.