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Free trade de-industrialises countries like Australia – Philip Lawn

As Herman Daly has said, international trade is no longer governed by the principle of comparative advantage – it is governed by ‘absolute’ advantage, which would be acceptable if all wages, conditions of employment, environmental standards, and taxation/regulatory policies were the same across the world and of high standard.

But they are not the same, and many are of appalling standard. Hence, in a global market with almost perfectly mobile international capital, productive capital simply moves to locations where the cost of production is lowest, but where, more often than not, the low cost of production is due to low wages and low standards – not due to superior efficiency of production.

It’s the reason why manufacturing has almost disappeared in Australia and throughout most of Europe. So-called ‘free trade’ agreements are documents that result in the de-industrialisation of countries with high wages and relative- ly stringent environmental standards which have been built up over decades. Most of Europe is a mess and Australia only looks to have avoided similar economic problems by plundering its natural environment and calling the liquidation of its natural capital ‘income’.

A strong economy is one with a strong primary sector (agriculture, resources, extractive industries), a strong secondary sector (manufacturing), and strong tertiary sector (service industries). The Australian economy has a relatively strong tertiary sector, virtually no secondary sector, and, because of the way it exploits its natural capital, has an unsustainable primary sector.

Look at the high-GDP nations that survived the GFC without a significant economic downturn. These countries are Australia, Norway, and Canada. What do they have in common? They have abundant natural resources – Australia has coal and iron ore, Norway has oil, and Canada has forests and tar sands – which they have been busily liquidating. A short-term but unsustainable solution to a structural problem.

As for those who believe that the transition to an economy dominated by the tertiary sector is a sign of economic maturity – no, it’s not – it’s a sign of economic stupidity. So-called ‘free trade’ agreements will undermine the ability of high-GDP countries to maintain what secondary sector they have and make it almost impossible to rebuild the secondary sector if it has been run down by a process of de-industrialisation caused largely by the degenerative forces of economic globalisation.

Assoc Prof Philip Lawn is an ecological economist working at The Flinders University of South Australia, and an ERA member.

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