Published in The Australian Rationalist Vol 44, June 1997
Global Pressures on the Australian and Japan Tribes.
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.
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
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
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
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
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
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
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
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
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
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.