Following the US into Decline

[The new Australian government, elected in September, has refused to do anything to help to retain car manufacturing in Australia, and all three manufacturers (GM, Ford and Toyota) have now announced they will close within the next 2-3 years.]

trickle-downIt’s amazing the Abbott government can run such a market-fundamentalist industry strategy, to general acquiescence, in the face of so much obvious evidence of the profound damage the same strategy has done to the USA.

The free-trade doctrine has seen US industry hollowed out, and industrial jobs exported en masse, as US corporations moved their plants to countries with cheap labour and few environmental constraints.  The US used to have consistent trade surpluses, but since 1976 it has run enormous trade deficits that free-market policies have done nothing to reduce.  The trade deficit leaves the US indebted to the world, and increasingly dependent on China, which holds the most US debt.

According to simplistic free-market rhetoric, people were just supposed to get jobs in more competitive industries.  However median wages in the US have stagnated since 1970, and men’s have declined markedly.  Median wages increased by less than 15% over 35 years, then fell back during the Global Financial Crisis.  They still have not returned to the level of the late 1970s.

The GFC is another free-market accomplishment.  Financial markets were deregulated, and proceeded to create vast and unsustainable amounts of debt, until the whole house of cards collapsed and triggered deep and continuing recession over much of the world.

The same free-market mentality denigrates government spending.  As a result, US infrastructure is degrading and collapsing.  Engineers estimate the US has a $2 trillion deficit in infrastructure maintenance.  Roads are being de-paved.  Many bridges are in danger of collapsing, and some have.  The nation that proudly built the Interstate Highway system, under Republican President Eisenhower, now refuses to maintain it.  The can-do nation has become thewon’t-do nation.

As the US declines economically, US society turns in upon itself, becoming more polarised, more intolerant and less able to pull together to get itself out of the mess.  This is exacerbated by the huge increase in inequality delivered by free-market policies.

Australia is not as badly off as the US, thanks to our stronger, though waning, tradition of the fair go.  However we are on the same path, and the Coalition wants to accelerate our decline.

It is in this context that we should see the departure of car makers, the collapse of a cannery and the threatened collapse of Qantas.  These developments are not just blips in Australia’s continuing adaptation to a changing world.  They are part of continuing de-industrialisation and dumbing-down that is leading, inexorably, to our subjugation to foreign money and interests.  Before too long we’ll be reduced to being maids and baristas in a land we don’t even own anymore.  How ironic.

There are fundamental problems with the free-market notion of an open economy, in which we will supposedly just switch to providing services to other countries.  Such jobs rarely provide the income and security of a manufacturing job, as the US has found.  Mining is not our saviour, because it creates few jobs and most of the profit goes overseas.

An open economy might sound alright in theory, but we make ourselves dependent on long supply lines and on countries with divergent interests and often unstable politics.  Australian industry was protected and built up between the wars.  Without this modest base, our capacity to meet the threat of Japanese invasion, while cut off from old supply lines, would have been even more precarious.

Missing from the simplistic thinking of market fundamentalists is the notion of an industrial ecology.  Each industry that establishes and survives creates conditions conducive to more industries developing.  The Japanese figured this out long ago and protected their industries until they became more viable.

Our economic performance in the free-market era, since 1980, has never matched our performance in the post-war years, when we still had protections, along with substantial government involvement in the economy.  That performance cannot just be attributed to pent-up demand from the war, because it lasted 25 years until the oil shocks.

Even if it might cost Australia a little more, in narrow terms, to have our own industries, because we are a smaller market, that won’t matter if we’re richer for having a healthier economy and society overall.

The reason free markets don’t work as well as claimed is because the theories behind them are nonsense.  The neoclassical theory of free markets is a laughable abstraction that claims economies are close to equilibrium, but then market crashes ought to be impossible.

Free trade is supposed to be justified by David Ricardo’s theory of comparative advantage, but in Ricardo’s day very little finance crossed national borders.  Today investment money flows rapidly around the world.  If the money goes overseas it’s a no-brainer that our jobs go too.

So why do we put up with political parties (on both sides) in thrall to such nonsense?  And why does Prime Minister Abbott get away with telling us, almost in so many words, that he wants our incomes to fall, so we’ll be more “competitive”?

Wake up Australia.