Country reps bring it to the big smoke

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One thing that Tony Abbott has got right just at the moment is his intention to keep the Nationals out of the Trade portfolio. From the AFR:

Nationals MP Barnaby Joyce has criticised plans to deny his party the trade portfolio should the Coalition win government, saying the position needs to be held by somebody with an affinity for agriculture and manufacturing.

…“Trade affects the end user, the farmer, the manufacturer,’’ he said. Agriculture, so often the sticking point in FTA negotiations, was often excluded from final deals, leaving local producers at a disadvantage, he added.

“These things are termed FTAs but they’re bilateral trade agreements euphemistically called free-trade ­agreements,’’ he said.

“I’m coming across, during this ­campaign, so many farmers groups, fruit growers, grain growers, cattle producers, saying ‘at the end of this ­so-called free trade process we don’t get allowed into their market.’

“We need to make sure in negotiating these agreements we get proper access for our beef, for our grain, for our fruit. If we don’t, we have to make sure we look after our food producers.

Actually, this statement makes perfect sense. FTAs do little for Australia. They tend to be politically driven and hence subject to all sorts of distortions, not to mention their rather obvious preferential nature. The US free trade agreement has done nothing to boost our exports to that country. Anyone with exposure to the inside negotiations of the deal  knows full well that the economics were dubious, the diplomats were appalled and the politicians delighted.

Multilateral trade agreements are better by design and effect, even if in today’s global war for production they are unlikely to be achieved. As such I don’t see preferential agreements evolving towards later multilateral agreements either.

But there are three reasons why the Nats have a questionable claim to the trade and investment portfolio. Chaps like Barnaby Joyce have an admirable national interest fervour but their application is self-defeating. Sometimes the national interest is better served by enlightened self-interest and the area of trade is one such example. I have three reasons for why.

First, trade is the life blood of the global (and local economy). It is the primary mechanism through which the globe makes productivity gains as competitive advantage drives specialisation. Regular readers will know I’m no extremist on this issue, believing as well that an essential counter-weight in economic diversity is sensible. But it is a  inviolable truth: slow trade and you’ll slow the development of global wealth, including in Australia in the long run.

Second, in an economy like Australia’s, which has massively over-concentrated, trade and investment are a vital channel for local competition and hence productivity. I’m not of the view that inwards investment should simply sell off local assets to fund our over-consuming habits. Market structure is a consideration. But I am of the view that inward investment and trade it essential if we are to prevent local rentier capitalism from dining out on our prosperity.

Lastly, even in the case where monopolies are up for grabs, there is still a productivity case to be made for foreign personnel and expertise. If a global predator wants to pick up an Australian asset then it might just be because they’re better at the business than the local owner.

Australian farmers have singularly failed to grasp the nettle of globalisation with little value-add beyond the farm gate, bugger all global brand development and next to know outgoing investment into the supply chain. The Kiwis have done far better.

The current batch of Nats don’t impress with the nuance of their views and if they and their constituents can’t make a global go of it then sell it to someone who can.

Meanwhile, Bob Katter, whom I like, and Clive Palmer, who is always entertaining, faced off in their debate yesterday and aimed to outbid the Nats in the bailout stakes:

Mr Katter said his big picture is all about development.

He argued the mandated use of Australian-made ethanol and steel, secured government bonds for pensioners and a 10 per cent charge on all imports would deliver a bigger and better Australia.

Mr Palmer, who is leading the Palmer United Party and standing in the Queensland seat of Fairfax, wants a 15 percentage point cut in income tax, the abolition of fringe benefits tax and tax deductibility of home loan payments.

If I can say so, Bob Katter’s idea would institutionalise rent-seeking and return Australia to its slow and steady 20th century decline. We’ve been down that road and know where it leads. Clive Palmer’s plan to make the first $10,000 paid on every home loan tax-deductible each year is insane.

David Llewellyn-Smith
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Comments

  1. I’m not sure the political affiliation of the Australian trade minister makes much difference to multilateral trade negotiations. The lack of progress in WTO negotiations will continue whether Australia has a Nationals, Liberal or Labor trade minister.

  2. Australian farmers are not ignorant and stupid as you like to portray them

    “Australian farmers have singularly failed to grasp the nettle of globalisation with little value-add beyond the farm gate,”

    You obviously know nothing of attempts made by various farming groups to do exactly that. The problem is over-regulation, trade union intransigence and just plain inflated cost from the farm gate on.

    It’s not farmers that are the problem here but your mates!

    • I haven’t painted them as stupid. But it’s obvious they’ve failed. It’s been obvious for the ten years I’ve been researching and writing bout it.

      That you have mates that have tried is not relevant. Listen to yourself. It’s all the guv’ment’s fault!

      • Then why the hell did you use the term bucolic…you think they all sit out on their farms pleasantly contemplating the billabong?

        Why did they fail???????? I can tell you why from practical experience.
        NZ has a much less sclerotic business environment. You need to look at what the hell is wrong. The fact that there is almost not a single primary industry of any kind that can do any downstream processing here should be telling you something. Then add in the fact that any manufacturing we have, other than for housing, is leaving here in droves.

        Yet somehow you manage to single out farmers as being unsuitable to hold a trade post

      • I’m not using as a derogatory term (but I’ll change it) and if NZ has more dynamic business culture, which I agree with, then there’s nothing wrong with importing more of it.

        As for why they shouldn’t get the portfolio, because they have offered no solutions. No cutting of “regulation” as you put it, just protection.

      • Oh…and Labor has?…or Libs have? They BOTH have a record of already abysmally failing this portfolio.

        This really has been just dozey stereotyping!

        I’m not saying anyone will do the job properly. I just despise this stupid sterotyping.

        What farmers really need ARE a few Bucolic Buffalos to send a few people ‘South’

    • I’m surprised that growing local food processing industries in Australia doesn’t get more favoured support on MB. After all, much is said about supporting Australian Manufacturing, at substantial costs too.

      • What can I say? I support the car industry because it’s one of our last heavy industries and if it goes we have nothing to replace it with. I’ve simply a bridge too far for me endorse letting it go.

        That is the only component of manufacturing I’ve argued in favour of direct support.

        99% of my energy and framework is about boosting the macroeconomic settings for all manufactures.

      • Your support for the car manufacturing industry is well argued and understood. I just think that here is a huge opportunity to leverage our agribusinesses into more value add enterprises. Regional jobs and industries are desperately needed and help to justify the expensive infrastructure many want to see built. Not to mention the many social benefits of more jobs and industries in regional centres. The Coalition and particularly Nats should be all over this.

    • “The problem is over-regulation, trade union intransigence and just plain inflated cost from the farm gate on.”

      No, that’s not THE problem. Those are consequences.

      Debt is the problem. More specifically, usury is The Problem.

      You have to look at the Big (global) Picture viz “globalisation” and “free trade”, and their impacts on agriculture & manufacturing in “developed” nations vs “developing” nations, in the context of Time. Multi-decadal Time.

      The long time scale, creeping globalist control formula — finance “growth” of real-world productive ag / manuf. in country A for X decades; introduce “competition” by financing development with lower labour/regulatory costs in (more highly populated, “poorer”) country B; thus, hollow / buy out now “wealthy” (ie, debt-dependent) country A’s ag / manuf. sectors; and most important of all, slowly but surely gain total practical control of both A & B via indebtedness; rinse and repeat with countries’ C & D & E etc etc — is simple. It is directly consequential to the predatory actions of the international finance sector. The root of whose ever-growing power comes directly from usury.

      You cannot intelligently discuss “globalisation” and “free trade”, or their impacts, without first discussing the absolutely central role of the usurers.

      For far too many observers and commentators, there is no forest. Only the trees.

  3. HnH,
    It is very difficult to set up a primary based secondary enterprise. The usual accounting and financial traumas are compounded by government distortions in the marketplace, and a punishing tax regime. Employment issues, trade barriers that only go one way, usually against Australia, and absurd free trade agreements that are anything but, compound liabilities that are absolute for the Australian business but non existent for foreign firms, Easier to negatively gear!

    • I know. Which is why I spend most of my time arguing to change the fiscal settings that make it so, even though most of the rent-seeking commenters ignore the fact.

      But it’s no excuse for zero global agribusinesses.

      • Its been far easier to sell our agribusiness off, and I dont think the FIRB or Government (either side) has really raised an economic structure argument in any of the sales they have looked at.

        It has always appeared to me that international players have valued Australian agricultural production assets far more than anyone in Australia.

        One of the things I was continually asked anywhere in the Middle East and Central Asia is why Australian produce isnt a bigger player. You can get quite a lot of Australian produce in many places, but it is invariably always brought in by local players, never Australians.

      • “It has always appeared to me that international players have valued Australian agricultural production assets far more than anyone in Australia.”

        Not just Ag assets Gunna. We regard all assets as something we can happily sell off to pay for our current over-consumption.
        P.S. I’m starting to get bloody tired about foreigners bringing technology here with their investment. It sure doesn’t apply to Ag assets! All Campbell Soups managed to do with Arnotts was reduce the size of the biscuits and make them out of cheaper ingredients. Schweppes just removed all the fruit from Cottees jams! etc etc

  4. I have no ax to grind, on this Aussie Farming issue, however a few years back I was involved in an effort to introduce a system of electronic tagging for livestock that enabled the Chinese consumer to trace exactly where the beef/lamb/pork, in their supermarket in Shanghai, had come from.

    The system is not perfect but it did close most supply loop holes and give the consumer more confidence in their food supply chain.

    We tried to push the concept of localization hardest, this regional tagging was enabled with electronic tags. Basically producers could local develop brands and charge a premium because the beef/lamb…came from a specific region, similar to what happen with French wine and cheese.

    Needless to say it was a complete waste of time, many local cattle men are so entrenched in their ways that all they could see were costs and more work none of which helped them get livestock to the trading yards. i must have heard a thousand times that my money is made at the trading yards, not in the Shanghai supermarket. (Logically that’s the same assaying that French vintners product is grapes delivered to the crusher. It is silliness, in my mind, but then I’m not a farmer nor a cattleman.

    • In the Far North my grandfather was arguing that cane growers should be focussed on net sugar yield, rather than gross cane yield, back in the 1930’s. He was pretty much scorned at the time. 60 (yes, SIXTY) years later growers started to wrap their heads around it, but only after the industry was on its knees. Many still don’t get it. My pissy little part time cane farm tops the sugar yields just about every year in our region. The “professional” growers don’t come close – the result of listening to fertiliser reps instead of doing more learning themselves.

      My father was pushing banana growers to focus more on small fruit with great taste (i.e. quality) for 20 years. He even developed a growing system that did this with equivalent yields, lower costs and pretty-much no chemicals. He died before any industry players even bothered to try to understand the goals let alone the method.

      No, unfortunately there are very very few commercial-scale farmers that have any concept of how to even start to compete in an open market. I suggest those that tend to join and stay in the Nats are the ones least likely to have a clue. Those that do are getting on with business.

  5. Bob Katter’s idea would institutionalise rent-seeking

    Once again we are presented with a false dichotomy. Under the current system of government, the choice is NOT between:

    a) institutionalised rent-seeking; and

    b) no institutionalised rent-seeking.

    Under the current system of government, the choice IS between:

    a) institutionalised rent-seeking with a particular set of beneficiaries; and

    b) institutionalised rent-seeking with a different set of beneficiaries.

    As discussed many times on these pages, one of the problems with “rent-seeking” is that people are prone to identifying it when they are not the beneficiaries, but blind to it when they are.

    That in turn arises from the lack of a logically coherent model (such as the metastability model) of what constitutes “rent”. One person’s “rent” is another person’s “property right”.

    Is the component of Microsoft’s profit which arises from its ownership of the compatibility monopoly a “rent”? Some say it is. Some say it isn’t.

    Miners, for example, might argue that there is no need for a “rent” tax because they themselves are the rightful freehold owners of the resources. In many jurisdictions this is legally the case: resources are owned freehold, not by the crown or the state. From whom does one “seek” rents if one is their rightful owner?

    Even in Australia the nature of mineral rents is disputable. Are the property rights over these minerals owned by the Crown in right of the Commonwealth? Or are they (historically and constitutionally) owned by the Crown in right of the respective States? A central government “resource rent tax” would be seen by many people in robust federations (Canada or the United States, for example) as the most egregious central government rent-seeking.

    This is not to suggest that one view is “right” and the other view is “wrong”. It is simply to point out – yet again! – that one’s view of a rent depends on one’s view of property rights. For the people of Western Australia, the imposition of central government rent taxes on “their” resources is itself a form of “rent-seeking” by the people of Sydney.

    (And again, lest it be thought that this is simply a “states rights” argument, let me note that the same problem occurs within states. The people of north Queensland – who were promised their own state at the time of federation but then double-crossed – regard Brisbane as a rent-seeking monster!)

    Is the system of fuel excise – effectively a ”distance tax” imposed disproportionately on those foolish enough to live far from the metropolis – rent-seeking by the politically powerful metropolis??

    Is the vast, convoluted and needlessly expensive system of compulsory private, define-contribution superannuation (which forces captive Australian customers to feed billions of dollar per annum into the Sydney-dominated finance industry) “rent-seeking”??

    Without a coherent way of answering these questions, it is mere partisanship to condemn Bob Katter for “institutionalising rent-seeking”.

    • Rubbish. My definition is pretty simple. Let’s use Wikipedia:
      In public choice theory, rent-seeking is an attempt to obtain economic rent, (i.e., the portion of income paid to a factor of production in excess of that which is needed to keep it employed in its current use), by manipulating the social or political environment in which economic activities occur, rather than by creating new wealth.

      That’s what will increase in a protectionist environment with inequitable results for the polity. It’s not a complex post-modern equation.

      • OK.

        Let’s go through and identify the implicit assumptions. That is, after all, what “critical thinking” is all about.

        “[R]ent-seeking is an attempt to obtain economic rent, (i.e., the portion of income paid to a factor of production in excess of that which is needed to keep it employed in its current use), by manipulating the social or political environment in which economic activities occur, rather than by creating new wealth.”

        First let’s separate out the components:

        a) “rent” is defined as the portion of income paid to a factor of production in excess of that which is needed to keep it employed in its current use;

        b) “rent-seeking” is defined as:

        i) an attempt to obtain rent,

        ii) by manipulating the social or political environment in which economic activities occur,

        iii) rather than creating new wealth.

        Note, first, that this definition concerns itself only with very narrow aspects of economic activity: “production”, “income” and “wealth”. It is as if the past forty years of economic enquiry into other fields of human activity and existence had never occurred.

        Secondly, there is an implicit assumption these things – “income” and “wealth” – can be assessed in ways which are agreed by all the players in the game. I refer the author of this article to “The insufferable conceit” posted by blogger “Sell on News” on this very website on 4 May this year, and to the comments on it.

        There is in fact no logically coherent way of mapping ordinal preferences onto cardinal numbers in a way which allows the preferences of one individual to be compared with those of another using the operators cardinal arithmetic, other than by invoking arbitrary individual assumptions concerning initial-state distributions of rights. And if one does not apply cardinal operators, how does one intend to make the necessary assessments?

        For example, how can this restrictive definition be applied to anything which involves intangibles? Are urban planning restrictions – which aim to preserve ambience – a form of rent-seeking? How would one go about determining the “income” flowing to that factor of production? Or the “wealth” derived from it?

        But let us pass over these epistemological difficulties.

        Let us go on to look at limb (b)(i). It may be readily observed that this definition concerns itself only with active “attempts to obtain”.

        Obtain from whom?? The very notion of “obtaining” invites the question. “from whom”?

        Let me ask again one of the questions raised earlier. Is the component of Microsoft’s profit which arises from its ownership of the compatibility monopoly a “rent”? From whom was it obtained? To whom do such “rents” – if they are “rents” – belong?

        Likewise, is the proportion of income going to a miner in excess of that which “players in the game” might assess as being likely to deter the construction and operation of a mine a “rent”? From whom was it obtained? To whom do such “rents” – if they are “rents” – belong?

        Do they belong with the miner? The state? The central government?

        If – for example – it is assumed that part of the profits of Western Australian miners is “rent”, and if the central government imposes a tax on that rent, is that not an attempt to obtain rent??

        Now let’s move on to limb (b)(iii): “rather than creating new wealth”.

        What if the outcome of obtaining the supposed rent is to create wealth, but:

        a) the wealth is created from different activities than would have been undertaken without obtaining the supposed rent (perhaps by subsidising an industry or subsidising the customers of an industry); and/or

        b) the wealth benefits a different set of beneficiaries than would have been the case but for the obtaining.

        Is such activity (i.e. the “obtaining of income in excess, etc, etc”) to be arbitrarily excluded from the definition of “rent-seeking”?

        If so – gosh! – how terribly convenient. I venture that the original beneficiaries – the ones from whom the supposed rents have been taken – would find that definition somewhat lacking in usefulness as a description of the human condition!

        If the proceeds of “obtained rent” in the example above are used – say – to support the incomes of urbanites in Sydney and Melbourne – who would otherwise have been forced to “create new wealth” by engaging in industries which actually enjoyed a comparative advantage, then is that not “rent-seeking” by the very definition presented above?? Or is it arbitrarily excluded from the definition?

        The same argument could be employed in relation to fuel excise which draws from the internationally competitive export-earning industries and regions a portion of the income they earn, and re-distributes it to the metropolis.

        Assuming that those industries and regions do not go out of business (i.e. that they can still attract factors of production to carry on even after paying the “distance tax”), is not the fuel excise “rent”? Is fuel excise not “rent-seeking” by the very definition presented above???

        If the central government forces people into a convoluted and needlessly expensive system of compulsory private superannuation in order to line the pockets of Sydney financiers (who might otherwise have been engaged in other employment) , is that not “rent-seeking” by the very definition presented above????

        But let us now turn from active to inactive.

        Many readers will be aware of the great philosophical questions concerning inaction. If I stand and watch while a child drowns in a two-foot pool of water, am I guilty of murder? (Some say “Yes”. Some say “No”.)

        Likewise, if the central government stands by idly while an oligopoly develops (and in Australia you would be spoiled for choice with examples) does that avoid the definition of “rent-seeking” because it does not involve an active “attempt to obtain”??

        Soon-to-be-federal-minister Andrew Robb has announced his desire to do just that. Is that rent-seeking/em>??

        I do so look forward to the answers to these questions.

        If these are not rent-seeking, then by what arbitrary – and convenient – assumptions are they excluded?

        If they are rent-seeking, then is my original proposition not correct? Under the current system of government, the choice is between:

        a) institutionalised rent-seeking with a particular set of beneficiaries; and

        b) institutionalised rent-seeking with a different set of beneficiaries.

      • And . . . . an “attempt” by whom??

        Let us imagine, for example, that a parliament dominated by metropolitan members spontaneously decides to spend tax revenues on improving the facilities of the capital city.

        Back on 23 April, Unconventional Economist drew our attention to the following:

        The evidence clearly shows that inner city areas have higher incomes. In many cases, considerably higher than suburban or outer suburban jobs. Our inner city areas are places of privilege in terms of the jobs they provide but also in terms of the riches of social infrastructure funded by the taxpayer. Heavily subsidised public transport networks are mainly designed to get inner city workers to and from their higher paying jobs. Taxpayer funded cultural, recreational and social infrastructure is concentrated in inner city areas, arguably where it is of more benefit (it is certainly more accessible) to inner city workers than residents of middle or outer suburban areas with suburban employment.

        [Looking outside Australia for a moment, it is interesting to note that in Britain – excluding Northern Ireland – the region which receives far-and-away the largest per capita public spending is . . . . . wait for it . . . . London. Arguably this is mostly spontaneous. Nobody actively “attempts to obtain” it. The politicians simply regard it as self-evidently a “good thing” to spend money on high culture and sport –GBP9.3 billion on the London Olympics alone! – and other facilities for the grand capital.]

        Assuming that the “factors of production” paying these taxes do not cease work or go out of business, the taxes paid on their incomes must be in excess of the amount required to attract them, and they must be – by the definition offered up earlier – “rent”. Indeed, by the definition offered up earlier all such tax must be a rent tax unless the factors of production paying them cease work or go out of business.

        Is rent directed to improving metropolitan facilities by the spontaneous actions of metropolitan politicians “rent-seeking”?

        Or does that also conveniently fall outside the definition?

        Some people might regard such a selective definition as . . . . wanting.

        (A logically coherent definition of rent is couched in terms of metastable distributions of rights.)

  6. Hang on! Palmer wants a 15 percentage point cut in income tax, the abolition of fringe benefits tax and abolition of tax deductibility of home loan payments?

    Does this stack up in budgetary terms?

    Am I (gasp) considering a vote for Palmer??