Published in The Australian Rationalist Vol 44, June 1997

GREGORY CLARK is a former Australian diplomat who was professor of economic and comparative culture at Tokyo’s Sophia University. He is currently president of Tama University, a small specialist university near Tokyo.

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While considering the topic of this conference I came across the issue of Business Week just after the French elections. ‘A New Maginot Line: The French reject the global economy,’ was the headline. So if France, with over 12 percent unemployment and with little else to show from its decade long obedience to globalist economics – fiscal austerity, deficit reduction, antiprotection and high interest rates – to consider that demand creation and job expansion should be a first priority, then it is and global, even though quite a few mainstream economists are now moving to the same conclusions as France has.

Globalisation – broadening the framework of political, economic and other activities beyond the boundaries of the nation-state – is obviously desirable at times. But the problems we see in Europe today – the anti- immigration backlash, the EU and common currency delays, the push to regional autonomy (Wales, Scotland, the Basques) – also suggest that globalisation is not necessarily the moral imperative some assume. As the summer issue of “Foreign Policy” puts it, there may also be limits to globalisation.

In the case of Australia, those limits are clear. It has gained much by breaking out of its former parochial isolation. But the false globalisation of econonmic rationalism has helped wreck a once fine economy. Pseudo Asianism and the attempt to play Cold War politics have distorted Australia’s foreign policies. And now we have the ugly debate over multiculturalism, a result of naive assumptions about Australia’s ability to absorb large numbers of foreigners.

Let me begin with the multi-cultural debate. Many assume that Australia with its wide open spaces is better able than most to absorb foreigners. But nations also have psychologies, and it is here that Australia has problems.

Ultimately the nation is a group, just like any other group. And all groups discriminate when it comes to accepting outsiders as members; if they didn’t they would cease to function as groups. This university happens to discriminate harshly when it says it will not accept people below a certain academic standard. So the question is not the fact of discrimination but the criteria on which it is based. And here we have a choice – between the more rationalistic, principled, approach of the secondary or gesellschaft group which says people who share the attributes of the group should qualify for admission, or the more instinctive approach of the primary or gemeinschaft group which restricts entry to those who can share the feelings of the group.

Most of us find it easy to relate to the secondary group approach; few would disagree if this university says people who lack academic ability do not qualify but the primary group approach also has its validity- a bricklayers team which owes its efficiency to the close bonding of its members is quite entitled to refuse membership to another bricklayer who would disturb that bonding. Similarly with other primary groups such as the family or club, village or tribe. Often outsiders are barred simply because they are outsiders – the family for example. Or if the group does admit outsiders, it demands total adaptation to the mores and feelings of the group.

Where does this put the nation? Obviously it has secondary group aspects – the group of people who come together consciously to improve their economic and cultural welfare. Outsiders who can contribute to those goals should qualify for admission. But a large instinctive, or primary group element, may also involved. And to the extent these primary group feelings also keep us together and working cohesively, they have their validity. But to the extent they exist there are obvious limits to the nation’s ability to absorb outsiders. Nations with a strong cultural or ideological, ie secondary group, identity such as France or China can try to ask the outsider to accept the national culture or the state ideology – the attributes of the nation group. But some other nations – Japan par excellence, and Australia too to some extent – rely much more on the primary group approach. Their ability to absorb foreigners is bound to be more complex.

Japan is criticised for its national exclusivism, but praised for its enterprise management. Yet both have the same origins, in the Japanese wish to see almost all their groups – the nation, the school or the enter group terms, as communities of held together by emotional bonds. I have argued elsewhere that relative isolation from foreign conflicts for most of Japan’s history is the main reason it has retained this approach (The Japanese Tribe, Origins of a Nation’s Uniqueness, The Simul Press, Tokyo, 1976 – in Japanese). Meanwhile with the Eurasian continental peoples – China, India, the Middle East or southern Europe – constant conflict, contact and competition with other peoples forced long ago the creation of strong, reasoned national cultures or ideologies. Japan missed out on this experience. So it just stayed as it was. It is the tribe that became a nation, with a strong legacy of village and then feudal mores injected en route.

Nor was it just Japan, Indonesia was also developing on much the same village-feudalistic pattern, until interrupted by colonisation Even today it retains many ‘Japanese’ style values. The Philippines showed similarities too, though it never got much beyond extended village (barrio) values. But perhaps the closest to the Japanese model, as some sociologists and political scientists are slowly coming to
realise, was none other than us north European peoples. Relative isolation from the Eurasian civilizational mainstream allowed us also to develop slowly as village and then feudalistic societies. Like Japan, we imported rationalistic civilization from outside at our own time and pace. On this basis we progressed while retaining a more communal, primary group approach to many of our more functional groups, including the nation.

This was particularly true for Britain, whose island isolation long resembled that of Japan. Its early industrialisation based on practical technologies and group cooperation, its lack of legalism, its pragmatic conservatism, its liking for tradition and ritual, its need for monarchical symbols, its aggressive militarism and its dislike of rigid ideologies – all resemble what we see in Japan. It is no accident that the collectivist style of Japanese enterprise management, which exports badly to Sinitic East Asia, has done so well in Anglosaxon culture societies.

However, the north European peoples were never quite as isolated as Japan. Many in our more educated classes have now moved firmly to embrace more rationalistic values, to rely more on reasoned ideologies and principles rather than the gut instincts and feelings. As such they find it easy to embrace the idea of the multicultural nation, almost as a matter of principle. But among the less educated, or conservatives with strong memories of the past, a preference for the more communal approach to nationhood remains. It should not be too surprising if these people tend to resist multicultural experiments.

Australia provides a particularly good example of this dilemma. I have argued elsewhere (Quadrant, July-August 1996) that bush development, geo. graphic isolation and the convict heritage pushed Australia even further in the Japanese direction than most other Anglosaxon culture societies. (For what it is worth some Japanese scholars argue that Japan’s intensely groupist ethic also has ‘bush’ and ‘convict’ origins – the result of outlaws from the Sinified culture of western Japan coming together in egalitarian groups to develop the waste lands of northern Honshu.) Many of the qualities that we like to see as distinctively Australian – the mateship ethic, the anti-tall poppy egalitarianism, the weakness of ideologies, the pragmatic anti-intellectualism, the strong in-group intimacy in relationships, even the larrikin ethic – all have their Japanese equivalents. The strong practicality and group cooperation ethic that underlies Japan’s manufacturing productivity also had its equivalent in the extraordinary ability of Pre-1970s Australia to produce a wide range of goods at close to world competitiveness. Obviously Australians have done far less than Japan to codify those values; indeed, and as in other Anglosaxon societies, Its educated classes now take a pride in trying to deny them. But their influence was, and to some extent remains, quite strong – particularly in less urbanised areas.

Attitudes to foreigners have also been similar. White Australia exclusivism closely resembled Japan’s former exclusivism – a strong gut feeling that outsiders who could not be assimilated easily should stay outside. The few foreigners given Japanese nationality had to take a Japanese name, as if they were being adopted into the ‘famfly-nation’. As with White Australia and its aborigine population, Japan minority peoples – the Ain-us, Okinawans or Koreans – had to be either ignored or totally assimilated. To recognise their separate cultural identity would undermine the familial basis of the nation.

Under globalist pressure, both Japan and Australia have now moved away from this tight exclusivism. But once again tile parallels are striking. Japan in the 1970s saw a spate of best-selling books claiming to define national identity, many foreigners or Japanese pretending to be foreigners (my own book on Japan coincided with that boom). Australia of the 1960s saw the fascinations with ockerism and Bazza MacKenzie, and the popularity of They’re A Weird Mob by the alleged Italian, Nino Cullotti.

With identity thus defined, the doors began to open. Foreigners now find it much easier to gain Japanese citizenship. There was also, until recently, the bizarre blind-eye toleration of large numbers of illegal migrant workers, many from Iran of all places. But Japan has balked at largescale legal immigration. Australia has not balked, even though in many ways its society can be as subtly complex as Japan’s. Bout it doer, take a gradualist approach, trying to absorb the outsiders through a kind of cultural osmosis. And when this works it is highly attractive: second generation Italian youths working in the family restaurant speaking perfect Strine. while relaying orders in perfect Italian to the parents in the kitchen; Chinese students or Japanese retirees who have come to love Australia’s happy-go-lucky casualness.

But if it does not work? As with Japan, the a attractions of the average Anglosaxon culture society are not necessarily obvious to all foreigners (unless we really believe that fish and chips, the Royal Family, meat pies and Waltzing -Matilda are major contributions to world civilization). Some like to think that
the friendly familiarity of the society will be immediatelv obvious and attractive to the outsider. But today when the dropouts from our once closely-knit societies are out there mugging, shoplifting and generally indulging in the pursuits that mark the breakdown of the typical Anglosaxon culture society it is much harder to assume automatic assimilation, as the British are now painfully discovering. The outsiders may prefer to stay in their ghettos, inviting a backlash, which in turn invites the counter- backlash which says that all who oppose the multiculturalist experiment are racists. It is time to put an end to indiscriminate use of the word racist. It is not racist for me to say that I believe certain people have values and attitudes that make them hard to assimilate into my particular group. Nor is it racism if I say I prefer to deal with people who share my values; we do this every day in our choice of friends. Racism only comes into it if I discriminate because I believe the values and attitudes of my race are superior to those of the foreigner

In this sense, often it is the nation with open borders that is racist. The French, for example, assumed that the objective superiority of French civilization was so obvious that anyone exposed to it would want to become French. Only now are they discovering painfully that many in their large Arab minority have little interest in assimilation, that the Arabs regard their own Islamic civilization to be at least the equal if not superior to that of France. US willingness to assimilate outsiders in large numbers owes much to a conscious ideology of national superiority – the USA is the best, Number One, the home of the free, etc. But even the USA has had its problems. With the possible exception of Japan, the educated or bureaucratic elites in all societies tend greatly to overestimate the attractiveness of their culture and the national ability to absorb foreigners. Australian multiculturalism could be guilty of the same hubris.

Progressive, educated Australians might enjoy the diversity of cultures and lifestyles that foreigners bring with them. But if others have other ideas? This is as much their society as it is ours, True, some of their economic objections to immigration are haywire. But anger at the way cynical ‘politicians have
favoured minorities to gain the ethnic vote is quite justified. To ignore their views is the worst kind of elitism.

Gut feelings that immigration threatens the traditional fabric of the society may also be justified. For example, a feature of both Japanese and until recently the Anglosaxon and other north European culture societies was the highly instinctive nature of the moralities. As in Japan today, Australians a generation ago did not have to lock their doors, count their change, hire lawyers constantly, worry about debts not being paid etc. People tended instinctively to trust each other. What happens if the outsiders are tempted to take advantage of such innocence?

Japan faces just such a dilemma today. Many are amazed by the honesty of the Japanese in everyday dealings, But all Japan has done is take the instinctive morality we find in any primary group (do any of us steal happily from our spouses or children?) and expand it to operate at the level of nation. But precisely for that reason the morality is highly vulnerable to criminally minded outsiders able to take advantage of Japan’s very weak anti-crime precautions. Japan. is now being hit by a wave of highly organised gangs of Chinese jewelry thieves, Korean pickpockets, Iranian drug sellers, etc.

True the wave of globalisation that reaches us in so many other ways – the media, travel etc. – probably guarantees the eventual breakdown of these instinctive, traditionally-based moralities anyway, We have seen this already in the Anglosaxon culture societies, and we are beginning to see it in Japan. But can we really condemn the more conservative in our societies who feel a nostalgia for such values and that immigration contributes to their breakdown? In Australia, the fairly irrelevant question of whether Australia should have the queen as titular head of state has to be debated and referendumed at length. Meanwhile the far more important question of immigration policy and racial composition is shuffled aside by labelling all dissenters as racist.

In Australia we have had an extra imposition, namely the Asianists – people who have almost no real interest in Asia but who believe constant talk about links into Asia will somehow open an Asian cornucopia. Once again the parallel is Japan, which seems innocently to believe t that bringing all manner of foreign fads and fashions will somehow result in something call kokusaika, or internationalisation, More mature nations realise the need to go out and study the foreigner first.

For example, the EU annually sends up to thirty young business people to Japan !or 18 months intensive training in language and business. Over the past 15 years the Irish (of all people) have sent over 40 young technical and science graduates to live and work in Japan. Australia has done nothing. Many US universities now have programs to get young Japanese studies graduates into Japan for employment, with permanent staff in Japan to help them find positions. As someone once closely involved with the establishment of the Australian-Japan Foundation, I have long urged that well-funded body to do something similar, rather than wasting money of sending potters and digeridoo experts to Japan and subsidising second-rate Japanese academics to study Australia, in vain.

A 1980s burst of enthusiasm in Australia for learning Asian languages ended up by fobbing it all off on to the school kids (who then have to suffer the poor teaching in the schools) instead of concentrated language study for mature Australians who plan to live and work in Asia. Deep down most Australians have a gut suspicion that anyone who can cope with Asians and speak their languages must be somehow non-Australian. How else can we explain the extraordinary situation where hardly any of Canberra’s academic or bureaucratic Asian ‘experts’ can speak any Asian language, and seem to have a vested interest in keeping those with genuine Asian expertise out of the picture? Even those who lament the lack of Australian interest in Asia try to push out potential rivals in the ‘let’s get to know Asia’ industry.

Australians in Tokyo are a microcosm of the same syndrome. Few of the top businessmen speak Japanese. At one stage recently none of the top diplomatic officials in the Australian Embassy here could speak Japanese. For most of my stay in Japan the procession of non-Japanese speaking ambassadors to Tokyo has been as embarrassing as the neverending parade of non-Chinese speaking Australian ambassadors to Beijing (the British have long insisted that their ambassadors in both countries have fluent language ability). Almost all Australian journalists and most of the embassy media officials here over the years seem to have been chosen specifically for their lack of knowledge of Japan and Japanese; inevitably they end virtually in each other’s pockets, sniping against the few Australians here able to survive without having to rely on official handouts and the solace of a highly ghettoised Embassy. (For most of my time in Japan I have been excluded almost entirely from all Australian official cultural or media activities towards Japan, including the lavish Celebrate Australia festivities of 1995 which saw even US academics with slight Australian-Japan connections brought here at great expense. This is despite over 20 years of university experience here, appointments to several dozen government committees, 200,000 in book sales and almost daily appearances in one or other of the Japanese media.)

Within the Canberra bureaucracy, the Asianism-multiculturalism industry disguises a racism as bad as anything White Australia could produce. In effect it says that we Australians do not have to go out and get properly involved with Asia. A few Crocodile Dundee slaps on the back, constant assurances that Australia is part of Asia (which it is obviously not) markets while using predatory pricing to expand sales in other peoples’ markets. In the domestic economy the resources that lose employment in competition with monopolists can at least hope to be re-employed by those same monopolists. But what happens if they lose out in competition with Japan? Move to Japan and seek re-employment?

Even Reaganite USA and Thatcherite UK had the sense to realise this problem back in the 80s, when they threatened restrictions on imports from Japan to force the Japanese to transfer some of their car, TV and other production abroad. Meanwhile Australian economic rationalists were happily telling us that if we left everything to the free hand of the market, Japan would soon have no choice but to begin to build car and TV factories for us in Australia. Why? Because 19th century free trade theories assumed decreasing, not increasing, returns to scale. So if Japan tried to monopolise output of a wide range of goods or even a single good, its supply of production factors would become scarce, costs would rise and it would have no choice but to increase imports or begin to produce some of those goods abroad, In the real world, of course, almost all production, not just for individual firms but entire industries and even economies to some extent, operates on the basis of increasing returns: the more you produce and the wider the range of goods you produce, the better your infrastructure becomes and more competitive you become. Our economic rationalists (I prefer to call them fundamentalists) have yet to catch up with the 20th century, let alone the fist.

The ‘infrastructure’ factor also destroys much of the established free trade-comparative advantage theory towards developing nations. The theory, too, is based almost entirely on a 19th century world that saw capital, labour, and natural resources, and later techology, as the immobile factors of production. But in today’s world capital, technology and most natural resources move freely and at little cost, across national boundaries, Only two factors remain fairly immobile, and therefore crucial to national competitiveness. One is labour. Another is ‘infrastructure’ used in the full sense of the word to include not just roads and bridges but everything needed to get factories and firms up and running – networks of parts makers, suppliers and repair shops, schools and technical colleges, experienced managers, markets, and lashings of good Aussie beer and food are all we need to impress the natives. If some of those Asians want to come to Australia to confirm what splendid chaps we are, then why not. And if we get better Italian lunches or Chinese dinners as a result, so much the better, I call it the GNI factor – Gross National Immaturity. Far from integrating ourselves into Asia, we are creating a situation where Asia is forced to look at us, and wonder.

The same GNI factor inspires the economic rationalists who have long told us how the Australian economy can revitalise itself though total free trade and laissez faire integration with Asia. Not only have their predictions proved wrong, worse, they fail entirely to realise just how totally the Asian example has destroyed the laissez faire dogmatism of their rationalist slogans.

Take for example just one of the blind spots in economic rationalist theory, namely the problem of what I call ‘monopolist’ economies: Within the domestic economy even our economic rationalists admit there should be some controls to prevent dynamic firms taking advantage of scale economies to drive competitors out of business. But in the international economy they say no. Yet it is here that controls are most needed. An aggressive producer and exporter like Japan, Korea or Taiwan, for example, can easily gain an advantage over potentially more or equally efficient producers elsewhere, simply by getting into production faster, and protecting home workers with skills, workers used to factory discipline, entrepreneurs, a middle class, a proper banking and legal system, a distribution system, law and order, telephones that work, controls on corruption, reasonably competent bureaucrats, even something called an industrial ethic which says the natural function of societies is to produce needed goods and services.

With ‘infrastructure’ added to the picture, backward nations face a famine and feast situation. Without it they cannot possibly hope to progress, no matter how cheap their labour might be. But if the government of a backward nation decides to break the rules of free trade, WTO etc., and goes out of its way to offer would-be investors the subsidies, tariffs, guaranteed domestic markets and other forms of industry policy that allow a few labour intensive boot, textile or radio factories to get into production? Obviously the cost of producing those boots, textiles or radios will be very high. But as a result of that production, the ‘infrastructure’ improves slightly and profit margins improve. This encourages more investment which further lowers ‘infrastructure’ costs, which further raises profit margins, which encourages even more investment. It is the economic equivalent of spontaneous combustion, with each new investment behind the protective walls creating better ‘infrastructure’ which encourages more investment. The famine becomes a feast.

Eventually ‘infrastructure’ costs fall to a level where even exports are possible, which causes an even larger rush of investment, which explains the explosive progress we have seen not just in Taiwan and Korea but even in unlikely *economies like Malaysia, Thailand and now even Indonesia. This ‘bushfire’ effect only begins to be damped off when labour shortages finally emerge and force large wage increases, as we have seen, first in Japan, then in Singapore, Hongkong, Taiwan and Korea, and now in Thailand and Malaysia.

Meanwhile what is happening in the advanced economies? Obviously under free trade they will begin to lose their more labour-intensive industries to the ‘bushfire’ economies. Rationalist economics says this is good: it frees production factors for employment in the technology or capital intensive industries. What they should really be saying of course, is that it frees production factors for employment in ‘infr astructure’ intensive industries. And to the extent that the advanced economies retain an ‘infrastructure’ advantage, a production shift is possible, provided these economies have in place the industry policies that guarantee new areas of domestic and export demand. But such industry policies are usually denied by our economic fundamentalists. The ‘infrastructure’ advantage is quickly whittled down, as we have seen so tragically in the case of Australia where key industry after key industry has been allowed or even encouraged to collapse.

True, some loss of ‘infrastructure’ advantage was inevitable. After all, and contrary to 19th century free trade racism, we Westerners have no God-given superiority when it comes to work ethic, technology, entrepreneurial spirit etc. On the contrary, many others – the Sinitic culture peoples especially – can do just as well if not better, They can quickly catch up, as we have seen in Japan and Singapore and increasingly in the second tier Asian economies. Meanwhile politicans like Hawke and Keating, to the enthusiastic applause of our alleged Asianists and economic rationalists, were boasting that Australians could easily compete in Asia, despite higher labour costs, because they were clever and creative people (an ugly form of racism incidentally), Today Australia has to compete with clever and creative Japanese and Singaporeans on the basis of its cheaper labour.

And what happens when ‘bushfire’ development spreads to the large population economies like China, India and Pakistan, as it inevitably will? Here the damping-off effect will not happen until well into the 21st century. Meanwhile, as we see in China, the ‘infrastructure’ is improving almost daily. Textbook economic rationalism does not even begin to think about these things, let alone offer a solution.

Fortunately there is a solution, albeit very crude and erratic, namely the exchange rate, As developing economies like China, or ‘monopoly’ economies like Japan, or clever, creative economies like Singapore, Hongkong, Taiwan and South Korea, flood the world with highly competitive exports of goods and services, their trade surpluses balloon. This eventually forces their currencies to appreciate to the point where the once advanced economies who have foolishly sacrificed ‘infrastructure’ at the altar of rationalist economics can compete again.

In Australia, for example, it was this belated exchange-rate protection that finally allowed some domestic industries to survive and which allowed the car industry the breathing space needed for productivity improvements, even as rationalist fundamentalists were insisting those improvements were due to lower tariffs. Indeed, without the massive protectionism provided by the collapse of the Australian dollar, almost all the impQrt-competing industries and quite a few export industries would have been totally wiped out. As it was, quite a few were wiped out in the seventies and early eighties when tariff protection was being cut while the Australian dollar was still heavily over-valued.

For a long time I used to wonder why economic rationalists who quibble over tariffs worth a few percent manage to ignore the far greater protective effect of exchange rate shifts, often in the order of hundreds of percent. Then I realised that most of their textbooks were written before the era of floating exchange rates. Whatever the reason, the net effect of their policies is that far from embracing free-trade globalisation they have ended up embracing the crudest form of protectionism – exchange rate protectionism. It is across-the-board, with all import-competing industries, including TCF industries, protected regardless of merit. It lowers Australian living standards via-a-vis the rest of the world. Its only merit is acrossthe-board encouragement for export industries, something that could easily be realised by other policies.

True, in the face of rapidly rising Asian competitiveness some dollar devaluation was inevitable. But the intelligent use of industry policies, including tariffs, could have reduced greatly the amount of devaluation needed to retain Australia’s competitiveness. True also, Australia’s limited domestic market means tariff or other forms of industry policy protectionism risk allowing inefficient producers to dominate markets. But there is an simple answer to this problem, which some years ago I suggested in the book Shutdown: The Failure of Economic Rationalism and How to Rescue Australia (1992, The Text Publishing Company, Melbourne, edited by John Carroll and Robert Manne), namely forcing foreign investors to bid for the right to privileged access to the domestic market in exchange for large-scale, state-of-the-art, mid-tech factories that promise high productivity and even future export. Malaysia, for example, with a much smaller domestic car market than Australia’s, has in just ten years created a successful car industry from scratch and now exporting worldwide us’ just this technique. Taiwan, Thailand, Korea and even Singapore to some extent have done the same in a variety of mid-tech products.

With its former ‘infrastructure’ advantage and much larger domestic market Australia could have done even better, despite its relatively higher labour costs. It would now have a range of industries providing much employment and adding enormously to ‘infrastructure! But to our economic fundamentalists this invoked the dreaded policy of ‘picking winners! In a 1995 ABC TV debate with the Industry Commission chairman, Bill Scales, I was told contemptuously that I was advocating a ‘Dutch auction’ approach. Curiously, one of the more sensible tenets of rationalist doctrine says that governments should always force investors to bid for rights when restricted access to a lucrative market is being provided.

Even our industry policy advocates turn their noses up at mid-tech industries. Australia should aim for leading-edge technologies, they say, as if such can be produced out of the blue with the flick of a wrist from a weakened industrial base. If Japan and Singapore have any lesson for us at all, it is that if you get the mid-tech industries right the high-tech industry then follows on naturally. Walk before you run.

How did Australia get to have such an immature industry debate? Travelling between Japan and Australia during the past 20 or so years is like watching a bad Punch and Judy show. On one visit I am told how Australia no longer needs big factories, that it will revolutionise manufacturing with small outfits of 50-100 employees using CAM/CAD techniques to produce goods that will sweep world markets. A few years later I hear no more about CAM /CAD, but I do hear a lot about how clever, inventive Australians are ideally suited to making small-volume, specialised goods for world export. What’s more there are two splendid examples – a company selling quality yacht winches around the world and another selling a very effective kind of hearing aid. But when I arrive back few years later I find that the owners of both companies have sold out to foreigners, and one of them has moved into stock market takeovers. No matter. This time Australia has discovered East Asia, and BHP’s rationalisation plans will allow it to make a fortune in Asian markets with its steel. Next comes a promised flood of Japanese investment in Australian manufacturing. Then it is a McKinsey list of small aggressive exporters who will add billions to the trade surplus. Or it is APEC and the MFP which will definitely kickstart the economy. Or Australia will become the information technology giant of Asia.

Meanwhile BHP has cut steel output, the McKinsey list is forgotten, the MFP is dead, APEC is a bureaucratic mess, IT industries are running heavy deficits and so on. But no matter; each round of happy talk keeps the media rationalists chattering on for another year or so with happy promises of a golden industrial future by which time another theme has emerged. Meanwhile too, factories keep closing, unemployment rises, and the current account remains weak despite massive devaluation. One is reminded of failed Marxists insisting that all would have been fine if their program had been carried out 100 per cent (only 80 per cent is not enough it seems). True, the massive collapse of the Australian dollar has helped expand some manufactured exports. But to claim that as a victory for rationalist economics is like the drunk hit by a truck, who is taken to hospital where he discovers God, and who then advocates drunkenness as the key to Salvation.

A major target of Australian rationalist dogmatism is the car industry. The economic fundamentalists say it has too many makers and therefore lacks global competitiveness. But it was precisely those people who back in the 1970s insisted that all and sundry should be allowed to set up factories in what was then a heavily protected market, and then later insisted that the protection be lifted allowing the imports that have since shrunk the domestic market. Having created this mess, the fundmentalists then say no to the industry policies that could help to clean it up by encouraging mergers, cutting imports or subsidising exports. Fortunately the collapsed dollar has helped save the industry.

Tariff protection for cars means consumers pay an extra $3000 on say a $15,000 car, the fundamentalists say Cut tariffs and domestic demand will expand by that $3000 amount, helping other industries. But the extra demand only occurs if the consumer buys a car. And by laissez faire definition, the chances are it will be an imported car. In that case Australia, far from gaining $3000 worth of demand, in fact loses $15,000. And it also loses ‘infrastructure’ as the car industry shrinks.

Worse, rising car and other manufactured imports force the exchange rate to fall even further. In which case, the burden on consumers via the rising price of all importables and most exportables, is far greater than anything resulting from that $3000 dollar tariff. Worse, much of that extra burden on consumers goes to foreigners, via the higher price of imports (with a tariff, the extra paid does at least go to other Australians). Economic fundamentalists seem to have an image of factory managers and owners as a bunch of indolent dolts who can only be spurred into productivity by the harsh lash of international competition. People who believe this clearly have never set foot inside a modern car factory.

The economic fundamentalists say the extra $3000 per vehicle lowers the world competitiveness of producers that have to buy vehicles. But there is hardly an economy anywhere that does not tax producer goods in one way of another; Singapore has a tax of over 100 per cent on vehicles and yet manages to stay competitive. Japanese producers pay far more than they should for a whole range of goods and services. But Japan maintains competitiveness quite well, mainly because much of the extra paid ends up being used to maintain employment and improve ‘infrastructure! In any case, if taxes and tariffs do hurt exporters they can easily be compensated by rebates or subsidies, as most of the East Asian economies have shown.

The $3000 extra per vehicle represents a tax imposed mainly on consumers to cut unemployment, preserve the industrial base and prevent the more harmful and expensive protectionism that would result from further Australian dollar devaluation if the car industry collapsed. A lot of taxes are imposed on both consumers and producers for purposes far less worthwhile than that. Fundamentalists say production factors released by a car industry collapse would automatically flow into new and more competitive industries. But if you believe that you believe in fairies. The lesson of Japan is that you preserve every industry possible, even backward TCF industries, until after the new industries have emerged. That way you preserve crucial ‘infrastructure! In the meantime there is a good chance those backward industries will make a comeback by finding new technologies and products, as has happened in Japan, even with TCF industries.

Let me conclude. It is true that Australia and the other advanced economies since the sixties have had no choice but to adjust to the fact of rapidly rising Asian competitiveness. Some shift in relative incomes was inevitable. But sensible industry policies, including policies to have the Australian dollar devalue quickly rather than belatedly, would have greatly reduced the amount of shift. This is especially so in the case of Australia, where high minerals and farm goods exports, not to mention fundamentalist high interest rate policies, work constantly to keep the Australian dollar chronically over-valued. Lack of industry policies has led to the worst of all possible worlds – laissez faire leading to the loss of key industries, rising imports, forcing the belated devaluations that might have helped keep some of those industries in business if they had occurred earlier. ~

Of course, if the fundamentalists embrace a vision of Australia which concentrates on minerals and farm goods, with almost no manufacturing of import competing goods to speak of, fine and good (that certainly is the highly irresponsible attitude of the many miners and some farm goods producers who oppose industry policies so loudly). But in that case they need to tell us what they plan to do with the massive unemployment that would result, not just from manufacturing loss but also the loss of the service industries that depend on that manufacturing and its employment. Those who understand economics would also need to tell us whether they can avoid the classic immiserising export situation – the more you export goods whose demand is inelastic to price, the more export prices fall and the less you receive in total even as exports increase.

Fundamentalists point to the turn-arounds in the USA, British, Australian and New Zealand economies as proof that their reformist policies work. Like that drunk who discovered God, they forget about the truck that hit those economies, namely the severe recessions and trade deficits that followed laissez faire policies in all these economies, leading to the currency collapse that eventually saved them. The Australian dollar went from 400 yen in the early 1970’s to almost 70 yen. The US, UK and New Zealand currencies all had similar or greater declines. It was this massive exchange-rate protection that revived those economies. The large inflow of funds from abroad in the case of the Australia, New Zealand and the US, thanks to high interest rate policies, also helped. And already it is clear in the cases of Australia and New Zealand that the protectionist gains from currency depreciation quickly run out once there is even mild rebound in the currency.

No one should deny the benefits of some rationalist reforms – enterprise restructuring, eliminating welfare waste, less government regulation, labour market reforms, some privatisation etc. But the first priority in any economy is to create the domestic demand that allows the benefits of these reforms to emerge without agonist recession. Sometimes ‘Maginot Lines’ are needed to create that demand. Such certainly was the case with Japan, which has got to where it is today by doing anything, including even delaying reforms and blocking imports, to maintain demand and prevent ‘infrastructure’ damage. Meanwhile GNI Australia says the reverse.

In foreign policy we find the same GNI factor at work. Australia of the immediate postwar years was not known for progressive thinking. Yet many of its policies then made some global sense – support for the UN, promoting Indonesian independence, putting the lid on latent Japanese militarism, the Colombo Plan. Since then and in the name of the global Cold War struggle we have seen a gradual decline into foreign policy incompetence – the bumbling embarrassment of SEATO, active support for a range of incompetent Asian dictators, the attempt to prevent Lew Kwan Yew’s election in 1959 (then seen as a dangerous pro-communist), the Vietnam intervention ‘to prevent the thrust by China between the Indian and Pacific oceans relying in the first instance on its North Vietnamese puppets’, active support for Indonesia’s takeover in East Timor, and now the bizarre tie-up with Japan and the US to ‘preserve Asian security’ which taken to its logical conclusion will see Australia in a dangerous military confrontation with China over Taiwan.

Popularisation of the foreign policy process is part of the reason for this decline. It guarantees lowest common denominator decisions – decisions so much in conformity with the conventional wisdom that they cannot be disputed by GNI editorial writers and commentators. The scope for thought-out strategies that run counter to the wisdom is close to zero. We find the same thing in Japan, whose foreign policies are also woeful. The naive APEC euphoria is a case in point.

I have described elsewhere the flawed political origins of APEC (Quadrant, July/August 1976). But even its economics are flawed. Economic blocs that bring together nations with roughly similar competitiveness make sense, if only because of the scope to expand markets. The Australia-New Zealand CER is a good example. An Australia-USA trade tie-up would also offer economic gains. But a grab-bag bloc like APEC which tries to include everyone and anyone regardless of development stage is meaningless, or worse. Promises of eventual and total free trade will inevitably be reneged on by developing nations which still have to protect domestic industries to overcome ‘infrastructure’ weakness. Meanwhile the high-labour cost economies face the relentless inflow of competitive imports from the once-backward economies that have reached ‘bushfire’ takeoff. With APEC there is the further problem of US sponsorship for NAFTA, which at heart is an anti-Asian bloc since it seeks, rightly, to protect Latin American exports from Asian competition in the US and Canadian markets.

APEC will almost certainly collapse under the weight of its own unreality, with ASEAN coming to be seen as the representative Asian bloc. But Canberra keeps on trying. As with the MFP ( the multi-function polis that Japan was supposed to build for us back the 1980s and which Canberra kept clinging to long after it was clear Japan was not interested in the slightest), ideas involving East Asia, once fed into the bureaucracy, easily acquire gospel status. The effort to push APEC at all costs, and in the process antagonise Malaysia by actively opposing its rival proposal for a East Asian Economic Grouping (which would have excluded the US), has already done enormous diplomatic damage to Australia. The economic damage will soon follow.

I also blame Australia’s Cold War involvement in the Anglosaxon intelligence club for much of this foreign policy degradation. To gain access to the US and UK worldwide spy network, Canberra has to try to prove it is top spy in Asia, relying on networks that are laughably incompetent. It also has to prove that it is ‘reliable’. True, we do not have to look for spies under every bed – though it is almost certain that the CIA has had willing collaborators in top policy positions, and together with certain foreign lobby groups have greatly influenced the course of the ALP and hence Australian politics in a rightwing direction. Rather the influence comes indirectly – through deliberate selection of pro-US hawks for sensitive positions involving ties with the US, which in turn gives these people a lock on important information and contacts, or simply the creation of a climate where dissenters from hawkish conventional wisdom are pushed outside as potentially unreliable. The spies themselves, those self-appointed guardians of the Australian national interest, are second raters with a consistent record in the past for supporting policies that have done great damage to the Australian national interest.

Within the media their influence has been highly pervasive, and not just via the now discredited Cultural Freedom link. Working in External Affairs in the 1960s we would regularly be asked by ASIO-ASIS in Melbourne to submit information requests to be passed on to a ‘well-known’ Australian commentator who would shortly be visiting such-and-such an Asian country. Sure enough, a month or so later one or other of Australia’s few foreign affairs commentators at the time would turn up in said country, filing his allegedly objective reports warning of communist threats etc. During the crucial Vietnam War years, British intelligence was actively feeding the Fairfax press with bogus analyses prepared by a front called Forum Features. Sydney University’s Current Affairs Bulletin, with its seemingly academic but relentlessly anti-Asian communist tracts, was also intelligence-related.

Even today it would be no exaggeration to say that most Australian journalists working in Asia are targeted by ASIO-ASIS with offers of scoop tidbits and information leaks in exchange for cooperation. Many do cooperate, particularly those who lack Asian language ability and background and otherwise would not make it in Asia. Collaborating Australian firms are similarly rewarded, with access to information from decoded business correspondence between Japan and Australia.

But perhaps the greatest harm has come from the infiltration of our universities, a fact happily admitted by Frank Cain in his laudatory history of ASIO’s attempts to counter anti-Vietnam protests ( he also has something to say about ‘The Bulletin’, then under the editorship of such people as Peter Coleman and Donald Horne). A major aim has been to deny any serious appointments to progressives seen as in any way dangerous. In 1962, because I was seen as a safe Foreign Affairs conservative who had been trained in Chinese to top UK Foreign Office interpreter level (a fellow student of Chinese in those days was David Wilson, later governor of Hongkong), I was offered a good position in the ANU international relations department. Since I was about to go to Moscow, I asked for a postponement. In 1969 1 went back to the same ANU people to find out whether the original offer was still open. This time in addition to Chinese I had Russian (also to the top UK level), workable Japanese, one of the few books on Chinese foreign policy that could be reissued today without rewriting (but panned by the resident ANU expert for saying that genuine concern over Taiwan rather than aggressive expansionism was the key to Chinese policies), and an almost completed Ph.D. thesis on Japanese overseas investment. But by that time I was actively criticising Canberra’s Vietnam and China policies. I was quickly shown the door.

Fortunately in my case I could create an alternative career in Japan. But many bright, progressive Australians (some Asian-language speaking) blacklisted by ASIO and its friends who were pushed out of crucial appointments, often without realising why, have never had the chance to make a comeback. The fact that these people have for the most part got it right on foreign policy, and the spies got it wrong, makes no impression at all. Once you are tagged as a potential subversive the stigma remains for life.

Once again there is an eerie similarity with Japan. There the people who had the courage and intelligence to oppose past militarism are still seen by the Japanese establishment as somehow traitorous, to be denied any role or even voice in the Japan of today The supporters of that militarism are seen as having had their heart in the right place, even if they got some of the details wrong. They have retained much of their former power and influence. Some have even managed to expand it.

Similarly with Australia’s economic debate. Those who back in the 1980s realised the folly of economic fundamentalist dogmas were dismissed as snake oil peddlers and flat-earthers. Simply to be labelled as ‘protectionist’ was enough to draw hisses from a media brain-washed audience. Even when it is clear the economic rationalist experiment has failed, and Australia’s share in Asian markets is falling rather than rising, the ‘protectionist’ labels and stigmas persist

Some time ago I wrote to that hotbed of GNI economic rationalist wisdom, the ‘Australian Financial Review’. It was in response to a caustic column entitled ‘Time for bleating protectionists to dry up’, by one Imre Salusinszky. Imre had savagely attacked B.A.Santamaria for suggesting that the Australian economy and society of his youth were better than what we had today. Imre said the claim was basically uncheckable since we would have to go back to dinosaur days. As it happened, the ‘AFR’ of that day led with an article about how sacked executives could claim large handouts. The next day (14 January 1997) the ‘AFR’ led with an article devoted to the squalid details of yet another casino takeover. The editorial was on the importance of the gambling industry for the future of Australia.

For comparison I decided to go back to ‘dinosaur’ days. I dug up the ‘AFR’ of 14 January 1969, the earliest year for ‘AFR’ backnumbers held in Japan. It led with an article on the expansion of nylon yam production. It listed an unemployment figure of below three per cent.

Needless to say, the ‘AFR’ declined to publish the letter setting out these details.

What to do? For the moment, at least, Australia needs to concentrate on getting its own society and economy right before trying to tell the world what to do. If it wants to venture further afield, it should concentrate on its own region – New Zealand, the South Pacific, PNG and possibly Southeast Asia. Globalisation can come later.