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Free Trade & Australian Manufacturing

Most Australians have a warped view about this new global game we’ve been playing for the last 40 years. Yes, manufacturing jobs are leaving for better pastures. And no, you can’t have all that ‘cheap stuff’ without paying the piper. Why? Because it’s the game we’ve all brought into – the game of international corporation globalisation.

Free Trade

I won’t spend too much time to explain what GATT (General Agreement on Tariffs and Trade) and later the WTO (World Trade Organisation) are doing other than to say the objective has been to lower tariff and non-tariff trade barriers. That is to say, the objective is to remove all of those pecuniary and protectionist humps that individual countries have in place to buffer their industries from World trade.

Free Trade is an objective that aims for a level playing field. It works for the rich (we get our shirts made with child labour in India) and it doesn’t necessarily work that well for the poor (who get polluted environments, exploited populations and few of the profits). But that’s the objective: an even competitive playing field lowers the cost of shipping, importing, integrating goods into other societies (lowering import fees, quarantines, country standards and paperwork). That makes cheaper goods for us… and the down side means low skilled jobs in Australian manufacturing (almost a 21st century oxymoron) come under pressure.

Free Trade & Specialisation

To understand why Free Trade is supposed to make everybody richer you might consider a simple example of two people who both make pies and paper pie bags.

The first person is good at making pies and not so good at making bags. The second person is good at making bags but not at making pies. By removing all of the trade barriers between these two people they suddenly realise an opportunity.

  1. If the person who specialises in making pies only made pies they could maximise their production and profits (without having to worry about making pesky pie bags)
  2. If the person who specialised in making pie bags only made pie bags they could also maximise production and profits (not wasting effort and time producing pies).

So, rather than the first person making 5 pies and 5 pie bags (a whole product) they can now make 15 pies and buy the 15 pie bags. While the second person, currently making 5 pies and 5 pie bags, can concentrate on making 15 pie bags to sell to the pie maker.

Suddenly these two people who between them only made 10 pies and 10 pie bags can produce a greater volume of 15 pies and 15 pie bags because each is able to concentrate on their specialisation. Both parties are better off because pies (general stuff) can be made cheaper, faster and better. Both parties also have a larger market.

Now, consider a slightly more difficult case where the first person can make 7 pies and 7 wrappers while the second person can make 5 pies and 5 wrappers. The first person has an absolute advantage in both pie and pie bag production. So how would they gain from trading with the less efficient person?

The answer is relatively simple: the first person specialises to produce 20 pies and the second person specialises to produce 20 pie bags. The first person makes more profit because there was an opportunity cost attached to making pie bags (when they could have made pies with the available resources). It’s more profitable to co-operate in business and produce specialised products at greater volume and probably higher quality.

Apply that to the Australian Manufacturing Industry

As trade barriers continue to lower there is a natural migration of low skilled jobs away from Australia – we have an 80% services-based economy with high production costs, high wages and a high standard of living.

As trade barriers continue to lower Australian manufacturing plants are moved overseas to take advantage of cheaper labour and laxer labour and environmental laws that allow for exploitation of people and the environment – perceived by corporations as an opportunity to maximise shareholder wealth. The win-win argument is that a dollar in rural India has a greater purchasing power than in Australia.

But that’s how we get all of this cheap stuff we’re surrounded by in our affluent Australian homes. Surprise! Somebody makes it cheaper, better and faster and it all has to be shipped to faraway markets like Australia. How much do you think an Apple iPhone would cost if produced in Australia, the United States or the European Union? The momentum of globalisation is fueled by our demand for cheaper and shiner goodies.

They have turned us into consumerist crack whores… in turn, we feed our consumerist crack goodie dealers with the coin to live in mansions. If you don’t think you’re just another junky on a sugar fix then give it all up for a month. I dare you. Stick to a basic set of clothes, eat basic local food. Wear everything out before replacing it.

The Corporation Giveth & the Corporation Taketh Away

The current phase of globalisation (starting in 1970) is driven by multinational corporations pushing across geo-political borders. It’s all about profit maximisation and expanding markets to carve out new profits.

They seduce us, the consumer, with the huge amount of choice and quality products they can push into our lives at ever-cheaper prices. We’re addicted to our iPhones and paying next to nothing for food… and we constantly bitch that the cost of living is too high. That’s the game. It’s nearly impossible to get people to buy out of that paradigm… we’re the privileged. Economics is the post-1970s God in the temple of International Business.

So don’t complain about the loss of manufacturing jobs in Australia. It’s inevitable. Undeniable. We’re a service-based economy with high wages, unionised workforces and a sense of privilege. That’s why manufacturing is moving. Even if the Australian dollar was lower than 90 cents it would still be moving because it’s not Australia’s comparative advantage. I hope that makes some sense.

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About the Author

Steven Clark Steven Clark - the stand up guy on this site

My name is Steven Clark (aka nortypig) and I live in Southern Tasmania. I have an MBA (Specialisation) and a Bachelor of Computing from the University of Tasmania. I'm a photographer making pictures with film. A web developer for money. A business consultant for fun. A journalist on paper. Dreams of owning the World. Idea champion. Paradox. Life partner to Megan.

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