52. Performance-Linked Micro-Tariffs

The let­ter fol­low­ing was addressed to Prime Min­is­ter Keat­ing, 8 July 1995, and later posted on my web­site (http://thormay.net/politics/politic5.html). The reply to me from a min­der was what you might expect: vapid. Nev­er­the­less the points out­lined remain ger­mane to any Aus­tralian gov­ern­ment. Why have I res­ur­rected it here? Well occa­sion­ally web page sta­tis­tics show up some­thing inter­est­ing. Some­body has been access­ing the arti­cle. Curi­ous, I checked and was imme­di­ately struck by the rel­e­vance of “per­for­mance-linked micro-tar­iffs” to Australia’s econ­omy in 2011. What do you think?

Dear Prime Min­is­ter,

Your gov­ern­ment does not have my con­fi­dence on the mat­ter of tar­iffs. You won’t get to read this, being a busy per­son, but with luck an econ­o­mist some­where will put the fol­low­ing argu­ments into a com­puter. For the record, here is the main rea­son for my dis­quiet, and a cou­ple of sug­ges­tions.

1. The Gov­ern­ment has lost the plot on macro-eco­nomic pol­icy. Specif­i­cally, it needs to get sophis­ti­cated about the ancient con­test between free trade and pro­tec­tion. A binary mind-set on this mat­ter is as naive as a so-called left/right dis­tinc­tion in polit­i­cal belief. There have been good rea­sons to demol­ish blan­ket tar­iff bar­ri­ers over the last two decades. There are now com­pelling rea­sons to grad­u­ally estab­lish what I will call “per­for­mance-linked micro-tar­iffs” in selected sec­tors of Aus­tralian indus­try. 

2. The proper role of Fed­eral Gov­ern­ment is to set incen­tives and mech­a­nisms that will keep the Aus­tralian pop­u­la­tion socially sta­ble, employed, pros­per­ous and rel­a­tively safe. The Government’s desire to over­come a cer­tain com­pla­cency and lax­ness in eco­nomic per­for­mance has been laud­able, but its doc­tri­naire cure is lay­ing the seeds of a long-term dis­af­fec­tion which will erode the state itself. The Gov­ern­ment has become the vic­tim of it’s own “free mar­ket” rhetoric, a com­mon fate of all pro­pa­gan­dists.

3. Per­for­mance-linked micro-tar­iffs are one pro­posal to address a nexus of socio-eco­nomic prob­lems. Let me briefly iden­tify the main prob­lem fac­tors that must be rec­on­ciled:

<> Aus­tralia must chan­nel its eco­nomic sur­plus, the sav­ings of indi­vid­u­als and indus­try, into pro­duc­tive local invest­ment (and that doesn’t mean real estate devel­op­ment).

<> Aus­tralia must pri­or­i­tize its imports, ensur­ing the entry of pro­duc­tive equip­ment, ser­vices and knowl­edge, but rationing the inessen­tial accord­ing to the bal­ance of trade.

<> The Reserve Bank or some com­pa­ra­ble insti­tu­tion must regain con­trol of transna­tional cap­i­tal flows with­out sti­fling indus­try.

<> Aus­tralian indus­try must remain com­pet­i­tive and a cred­i­ble player in world mar­kets.

<> Aus­tralian man­age­ment must remain open to inter­na­tional “best prac­tice”, but also com­mit­ted to those social val­ues which make our cul­ture fairly attrac­tive to the gifted, the lucky and com­mon folk alike. We note that much past man­age­ment prac­tice has been insu­lar and timid.

<> Aus­tralian peo­ple must be able to antic­i­pate a rea­son­able reward for effort, rea­son­able secu­rity of employ­ment, and a rea­son­able prospect for the ambi­tions of their chil­dren. These con­di­tions have dimin­ished dras­ti­cally for well over half the pop­u­la­tion: the less gifted half. I know this half. As an edu­ca­tor I pick up some of the human flot­sam in a TAFE col­lege. For all the value of DEET funded lit­er­acy pro­grams and the like, I know in my heart of hearts that Aus­tralia, like every coun­try, will always have a huge pop­u­la­tion of indi­vid­u­als only suited to semi-skilled work. For such folk, vague polit­i­cal nos­trums about reskilling the pop­u­la­tion have the smell of Marie Antionette’s advice to “let them eat cake”. Prime Min­is­ter, we have to put the less gifted half of Australia’s pop­u­la­tion to work in indus­try (they can’t all sell ham­burg­ers), or they will bury us. This search for unskilled or semi-skilled work is the major imper­a­tive fac­ing all gov­ern­ments every­where.

4. What­ever the past short­com­ings of ear­lier attempts to build import replace­ment indus­tries in Aus­tralia, those indus­tries which were estab­lished behind pro­tec­tive tar­iffs did provide employ­ment for the less gifted half of the pop­u­la­tion. The tar­iffs were surely an impost on the whole pop­u­la­tion, but they were also a way of redis­trib­ut­ing income, a way that was polit­i­cally sub­tle and accept­able. Nowa­days we have a much vaunted “social wage”. This includes a huge bill for unem­ploy­ment pay­ments, and all kinds of sub­si­dies for the unem­ployed. We have thou­sands of “out­work­ers” work­ing in piti­ful con­di­tions for low, unde­clared income which they use to sub­si­dize unem­ploy­ment ben­e­fits. We have a huge pop­u­la­tion of unem­ployed young peo­ple who are edu­cated into being social and eco­nomic out­casts. These out­comes are nei­ther polit­i­cally ratio­nal nor eco­nom­i­cal.

5. Never mind “import replace­ment” for its own sake. The gov­ern­ment needs to develop clear, cred­i­ble incen­tives for the devel­op­ment of “employ­ment gen­er­at­ing indus­tries”. There is a pop­u­lar belief abroad that the two cen­turies-old con­tract between cap­i­tal and labour is break­ing down under the impact of com­put­er­ized automa­tion. It need not imply a Lud­dite men­tal­ity for the Gov­ern­ment to take a lead in encour­ag­ing tech­nolo­gies, new and old, which will soak up the unskilled and semi-skilled labour pool. How­ever, use­ful poli­cies will first require the Gov­ern­ment to accept that such a semi-skilled labour pool is per­ma­nent (i.e. let’s get past the ide­o­log­i­cal cant).

6. Present global eco­nomic con­di­tions imply that (at least) tra­di­tional employ­ment replace­ment indus­tries like tex­tile, cloth­ing and footwear, would require some kind of tar­iff pro­tec­tion to sur­vive on a large scale in Aus­tralia. The trick is to provide pro­tec­tion with­out engen­der­ing the dis­ec­onomies from inef­fi­ciency seen in the past. Any kind of gen­eral tar­iff would be a blan­ket with many dark, musty cor­ners for breed­ing the wrong kind of advan­tage. When I worked for the Tar­iff Board in the mid-1960s fairly gen­er­al­ized tar­iffs were the only kind which seemed admin­is­tra­tively sen­si­ble. Elec­tronic com­pli­ance tech­nolo­gies, used cre­atively, should offer more flex­i­ble options now.

7. The pur­pose of a per­for­mance-linked micro-tar­iff would be to estab­lish a set of ground rules under which des­ig­nated indus­tries could earn a degree of mar­ket pro­tec­tion. The mech­a­nism would need to be trans­par­ent and self-adjust­ing. With enough polit­i­cal will, any affront to World Trade Orga­ni­za­tion rules could surely be finessed. The over­rid­ing cri­te­ria must be fair­ness to a pop­u­la­tion for whom the Gov­ern­ment has a direct duty of care, before fair­ness to inter­na­tional fora. Bet­ter eco­nomic minds than mine can devise clever mech­a­nisms, but here is one sug­ges­tion to stim­u­late inven­tion.

<> Let every worker in a des­ig­nated indus­try be worth a “tax­a­tion unit” to an employer. The value of the tax­a­tion unit would be linked to the social secu­rity cost of an unem­ployed per­son plus an indexed pro­duc­tiv­ity mea­sure of the employee in his or her par­tic­u­lar work­place.

<> Let a gen­er­al­ized sales tax be added to goods or ser­vices gen­er­ated by the indus­try.

<> Tax­a­tion units earned by an indus­try employ­ing work­ers would be trans­ferred as a “pro­duc­tiv­ity credit” to earn a sales tax rebate. The tax­a­tion unit trans­fer would thus amount to a vari­able tar­iff on com­pet­ing imported goods and ser­vices. The pro­duc­tiv­ity com­po­nent would advan­tage pro­gres­sive enter­prises. This tar­iff could be achieved, how­ever, with­out nakedly appear­ing to vio­late world trade rules.

As a free cit­i­zen with 1/17 mil­lionth of a deci­sive elec­toral vote [sic: update – 1/22 mil­lionth] I can hardly expect to be heard. Yet every echo begins as a whis­per. I hope that the pre­ced­ing com­ments find a res­o­nance before we all face seri­ous polit­i­cal trou­ble.

Yours sin­cerely,

Thor MAY

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