The interaction stakes climb up a notch again: after launching a forum recently, introducing podcasts (click here for the latest feed) this week also saw the launch of MacroBusiness TV, with an exclusive interview with Professor Ross Garnaut:
Rounding this out, we’ve also launched the official subreddit of MacroBusiness, err, on reddit – click here – where submissions and posts are most welcome. Click on the reddit alien in the sidebar, or to share anything form MacroBusiness on reddit, use the “Share this” button at the bottom of each post (just above the comments).
A big thank you to our Members for providing us with the support to continue this expansion – you can become a Member by clicking on the icon below:
Finally, although the Forum is starting to build up, the comments section on the blog is still the main interactive area and this week brings up a doozy from our friend in the west – and the very wrongly named – “Briefly“. In the wake of the announced closure of Fords manufacturing plant this week, here is his very insightful comment repeated in full:
The global economy is currently characterised by excess investment and over-capacity in manufacturing generally, and a whole lot of responses from competing countries aimed at improving their individual export competitiveness. A lot of things have been tried since the GFC shook global trade to its knees and provoked the steepest, fastest contraction in global trade since the 1930′s – a contraction from which the global economy has yet to properly recover. Most of the measures that have been employed have been monetary.
We’ve seen QE and depreciation in the US and UK, internal devaluations in the Euro zone, currency targeting in Brazil, tax breaks on manufacturing exports in Ireland and now tremendous monetary expansion in Japan, among others. These steps have been aimed at improving the price competitiveness of individual countries and at supporting investment/ re-investment in their respective economies.The effect of all this has been to increase competition in the traded sector and to flood the financial sector with liquidity, which has distorted interest rates and financial flows.
From the standpoint any one country, these measures are aimed at appropriating part of the demand that exists in other economies. They are not expressly aimed at improving internal demand. Indeed, in Europe, the measures taken have been intended to repress internal demand. In the absence of demand growth, these measures have only intensified competitive pressures across the global supply system generally. It is these pressures that are driving the ongoing re-alignment and liquidation of excess capacity in global production, of which the Ford closure is but one instance.
We really have to consider how Australia can fit into the hyper-competitive network that comprises the manufacturing economy. We should have a long hard look at the dynamics of global manufacturing and then ask ourselves where and how we can find a viable place in what are chronically saturated markets. Of course, there is also the reality that manufacturing investment is a beneficiary of competitive subsidies as well.
Car-makers in SE USA and China alike are recipients of State Aid of one kind or another, and it may be that rather than trying to compete against other subsidisers, we should make the most of their largesse, which reflects in cheaper products for our own consumption.We are already about to become over-invested in resources. It would be very stupid of us to become over-invested in other sectors simply because of errors we’ve made in minerals and energy.We should look back, if only briefly. For most of the postwar period, the vast acceleration of trade and investment occurred between industrialised economies, reflecting the liberalisation that occurred under GATT.
Unfortunately, during this period Australia persisted with a system of tariffs and quotas that really just increased our costs, making us progressively less able to attract direct investment and less able to hold a competitive position in the manufacturing economy. Our share of global trade and investment in manufacturing declined both while local manufacturing was protected and again when the protection was removed.At a certain level, it is probably true to say that Australian capital has forgotten how to compete in manufacturing. Perhaps this is because it has not had to compete or has found it easier to compete by retreating from manufacturing. Capital in Australia is concentrated in monopolistic rent-taking, or has been diverted into consumption.
If we are to frame new-era manufacturing policies, surely we have to be looking into the opportunities that will arise in the growth economies – in Asia, Latin America and Africa – rather than in the subsidised, competition-dense markets of the archeo-industrial economies.My thoughts are that we must set up a series of reforms that will shift capital out of rent-taking sectors and into competitive sectors. We should:- adopt an exchange rate management system that mitigates the effects of QE in other economies
- change the way we tax mineral and resource production
- abolish tax shelters in Super and Property
- abolish the monopolies in banking, media, retailing, among others
- resist the temptation to offer subsidies to individual sectors
- eschew any return to tariffs or quotas
- increase investment in infrastructure
- increase investment in science and technology, and increase efforts in pure research
- find ways to celebrate excellence and innovation
- liberalise labour flows into and out of the economy, and, in particular, ban the practice of indenturing temporary workers
- reduce company taxes rates – perhaps to 20%
- abolish payroll taxes
- rationalise taxes on land
- find ways to intensify commercial, educational and cultural exchange between this country and our neighbours, especially among the young and the educated
We have to re-build the industrial economy. I think this must consist of a lot more than trying to support car-making, important as it is.
We have to think about next-generation products and markets, about the adoption and application of best-technologies and systems, and how to best scale, finance and support them.
More of a post than a comment – on that note we welcome any submissions for guest posts, please submit for review via the Forum or by contacting us at this page.
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