The dead end plan of protectionism

The dead end plan of protectionism

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In recent months there has been a steadily rising chorus in Australia of calls for protectionism, tariffs, and for people to ‘Buy Australian’. In this article Stephen Jolly looks at what is behind these calls and the socialist view on such measures.

The mining boom has been a profits bonanza for some companies but it has had a sometimes negative impact on the 90% of the Australian economy that is non-mining. The commodities boom has bumped up the Australian dollar, making manufacturing exports more expensive. Similarly, the education and tourism industries have suffered.

Around 70% of all investment in Australia is being captured by the mining sector. To limit the inflationary impacts of the mining boom, the Reserve Bank has in the past raised interest rates which have raised the cost of borrowing for manufacturing.

Local industry already suffers from overseas competition that has far greater economies of scale, i.e. greater production output for larger consumer markets. The high dollar and lack of investment has tipped some of the sector over the edge.

In the year to August 2011, 53,800 jobs were lost in manufacturing and 30,000 of those in the three months to August. The sector has gone from employing 18% of the Australian workforce a few years ago to only 10% now.

Not surprisingly manufacturing bosses have to one degree or another called for support from the Federal government. They have been uncritically supported in this by the various unions involved in the sector, especially the Australian Manufacturing Workers Union (AMWU) and the Australian Workers Union (AWU). One measure that has been pushed by the AMWU, AWU and some manufacturing industry groups is tariffs.

Tariffs

Tariffs are a system of licences or quotas aimed at reducing the volume of imports when they could be produced locally. One problem for workers that flows from introducing tariffs is that they lead to a rise in prices for consumers as a whole, i.e. everyone has to pay more.

With less foreign capitalist competition, there is also less incentive for local bosses to reduce prices to remain competitive. In fact what usually happens is that employers use the opportunity to put up prices.

Another issue is that there is no reason to believe that the breathing space for local bosses due to a cut in imports and less foreign competition will be used to reinvest their extra profits into further production or take on more workers. Historically the opposite has been the case when local capitalists have been protected by trade barriers. Usually we see more inefficiency and no guarantees of local job protection.

A key problem with tariffs is that they lead to retaliation from foreign bosses and countries. Last year Australia exported goods worth $230 billion and imported goods worth $210 billion. Australia is a trading nation. In a trade war Australia would clearly come off second best.

But the most important reason that socialists oppose tariffs as a protectionist measure is that they are an attempt to export the problems that workers face in one country to workers in other countries. Therefore they are inherently anti-internationalist and anti-working class.

Expand the economy – who pays?

The calls for tariffs usually go side-by-side with calls for economic stimulus or an expansion of the economy. In general terms, capitalist economic expansion suits the working class better than capitalist neo-liberalism which slashes jobs and burns services. However such capitalist stimuli can only be paid for in one of three ways under a market economy:

1. Taxing workers to pay for the expansion 2. Taxing bosses, which leads to an economic and political reaction from the ruling class. 3. The printing of money, which generates inflation.

This latter problem was the main reason capitalist governments moved away from Keynesian economic policies in the early 1970s and towards monetarist, neo-liberal policies – at least until the Global Financial Crisis in 2008.

To boost the economy a government can spend money to boost demand, it can lower interest rates to make borrowing cheaper for bosses, and it can even raise public sector wages and social benefits to boost the market.

However this approach only sees one side of the dilemma facing capitalism. It ignores the other and equally fundamental question of profitability. Any policy that raised wages on a capitalist basis leads to a drop in profits for bosses. And any increase in jobs that would flow from a stimulus package would be wiped out by the impacts to bosses of a reduction in profits relative to wages.

No matter how much demand and cheap credit is available to capitalists, investment will only take place if they believe there are profits to be made. This has been the experience in Japan where a two-decade economic stagnation has not been impacted by the availability of low interest loans. You can take a horse to the water but you can’t necessarily make it drink!

To put it differently, if profit levels were enough to justify investment, the capitalists would find the money no matter what the policy of the government. At the moment profit rates in Australia for the mining industry are 37% compared to 6.5% in manufacturing. On a capitalist basis, investors will always look for the biggest possible return, therefore divestment in manufacturing and investment in mining is currently taking place. This process only further contributes to the problems facing the non-mining sectors.

Tax the rich

Socialists support measures to increase taxes on the rich – but we go further than that. The Rudd government’s attempt to tax the mining barons at 40% was actually modest by international standards. In Norway, the oil companies are taxed at 70% for example. But rather than taxing the rich to give to the poor Rudd’s tax was aimed at shifting a portion of the wealth away from the mining bosses and towards bosses in less profitable sectors.

However even this was too much for the coal and iron ore barons who waged a $22 million advertising campaign that led to the Gillard coup against Rudd. Within days Gillard had reduced mining taxes to 22.5%. Up to $100 billion has been lost in government tax revenue over the next ten years as a result of this policy retreat.

There is no attempt in any of these tax regimes to challenge the hold of capitalists over the economy. Neither Rudd nor Norway have contemplated a wealth tax that would force the capitalist class to hand over its shares to the government.

A more punitive tax system alone would encourage capitalists to find saving elsewhere; reducing wages, ignoring safety standards, increasing prices etc. Instead socialists argue for the major sectors of the economy to be nationalised under workers’ control with compensation only paid on the basis of proven need. These types of measures would go to the heart of the matter, rather than ineffectively skirting around the problem.

Political questions

Some people in the labour movement argue that piecemeal reforms are the best way to slowly shift towards a socialised economy. In reality these reforms represent the to-and-fro between the capitalist class and the working class without ever addressing the underlying contradictions of the capitalist mode of production.

If a tax regime that could actually transfer significant wealth back to the working class were ever implemented it would be met with fierce resistance from the capitalist class. They would use the enormous economic power that they have to sabotage the carrying out of such reforms.

The danger of this is not just failure to effect change, but that the economic and political chaos which would result would pave the way for a reactionary takeover. This is what occurred in Chile in 1973 where the progressive reforms of a popular government were met with a military coup on behalf of the capitalist class. This tragedy resulted in the murder of tens of thousands of workers.

The socialist solution

Instead of import controls, tariffs and protectionism socialists stand for a democratic public monopoly of foreign trade. Instead of capital controls, we stand for a public monopoly of foreign exchange. Instead of limited nationalisation of the banks, we stand for a single publicly owned and controlled bank to distribute credit.

Instead of higher taxes on the rich while maintaining a system of entrenched inequality, we stand for the expropriation of the capitalists with compensation only based on proven need. Instead of capitalist stimulus packages, we stand for production based on public need rather than private profit.

As Marx pointed out in ‘Capital’ the same people who extol the organisational excellence of capitalist factories and businesses and the sophistication of the planning techniques available to the individual capitalist enterprise, also deny the possibility that the same techniques can be applied to the co-ordination of production between the different giant enterprises which dominate the economy.

If a major company is capable of planning its worldwide operations why could not a workers’ government apply the same systems to planning the economy? These companies set production targets for their various different products, produced in the various different countries and work out the implications for all its factories making the different mixes of components etc.

In broad terms, exactly the same approach applies to the implementing of a socialist plan of production – albeit a socialist economy would be run by the majority in the interests of the majority, not a tiny rich elite.

The route to this type of society is political. We need an alternative socialist vision to be taken on by the working class and that is what the Socialist Party fights for everyday. As capitalism continues to disappoint, more and more people will look towards alternative ways of running the world.

The idea of using society’s wealth in a much more equitable way will win mass support in the future. Using the wealth and techniques already in existence, but on the basis of a publicly owned and democratically planned economy, a new society can be built.

This is a far better way forward than the nationalistic path of protectionism and tariffs that are unable to address the underlying problems facing workers and the poor the world over.