A Modest Member of Parliament [Bert Kelly], “We may not like it, but times change,” The Australian Financial Review, August 12, 1977, p. 3. Reprinted in Economics Made Easy (Adelaide: Brolga Books, 1982), pp. 46-47, as “The Cost of Protection.”
The Roman Emperors had many weaknesses and one that stood out was their habit of beheading messengers who bore them bad news.
I was reminded of this unfortunate tendency when the Industries Assistance Commission (IAC) draft report on textiles, clothing and footwear was made public.
It was greeted with many biting and petty criticisms from the textile lobby who surely take the prize for being the loudest in their condemnation of the generous treatment they have been receiving in recent years. They ran true to form on this occasion.
I am going to try to dissect the reports in this article. Even with Eccles’ assistance it will be a task of infinite labour to do it well.
I find that there is so much meat in these reports that I guess I will be feasting on them on many occasions.
My object this week is to record my gratitude to the IAC for doing the measurement which has made it so hated by those who do not want to face the facts of life.
Eccles has been plodding after the tariff hare for years now and latterly I, too, have been wandering after it in a desultory manner.
Only those who have been engaged in a similar exercise will know the infinite labour entailed in doing the measurements.
Since electronic calculators have come in, the task has been made a little easier, but even with these adventitious aids, measuring the cost of protection has been an awful burden.
But now the IAC is doing the measurement for us and Eccles and I want to record our gratitude.
Let me give some examples. Eccles has been nagging me for years about there being no such thing as a free feed and that someone always has to pay for tariff protection to any industry.
But the problem has always been to measure the cost of the feed that some people long ago used to think was free.
It was a considerable breakthrough when Mr Henderson, the highly respected director of ACMA, that prestigious group of secondary industry statesmen, admitted that there was a cost of protection.
I quote him yet again with gratitude and approval:
I fully accept the IAC argument that the consumer must pay for tariff protection. There is no question about this. I will also accept the arithmetic that the cost is around $4300 million annually.
But it is one thing to say that the total burden weighs about $4000 million and another to break it up into its component parts, but this the IAC recently has been doing.
It told us some years ago that the burden of protecting the car industry was $400 million and undoubtedly the cost of far higher now — at least $500 million.
And now it has told us that the cost of protecting the textile, garment and footwear industries has been about $800 million a year.
But that figure is a year old and is certainly higher now — around about $1,000 million. So we can see that Mr Henderson’s $4,000 million is likely to be an underestimate when the other heavy industries are also put in the balance.
Another interesting figure of the estimated cost to the average household to protect these three industries is about $200 each year for each family.
That’s the kind of figure that even Fred can understand, though I don’t think he will like it.
When I first became interested in tariffs I used to believe that, if Eccles exposed the economic facts of life so that he who runs could read, people would accept the economic logic of the argument, and so right would triumph.
Long and bitter experience has taught me that this is not necessarily so — right does not automatically triumph, not in the short term, anyway. But it probably will in the long term if I live till then.
The people who dislike the figures the IAC has given will abuse the IAC, the system, Eccles and even me and this will make them feel better.
But unless they can knock the figures out at the next IAC hearing, economic logic will win in the end. And indeed it is in the process of doing so.
For instance, when the IAC report was released, Mr J. E. Baird, the managing director of Onkaparinga Textiles Ltd said:
I think we are all learning to live with the fact that tariffs won’t continue forever and that the industry has to gear itself to living with that sort of situation.
So people are learning to accept the inevitability of change, even if they don’t like it.
Australians in general and exporters in particular owe the IAC a debt of gratitude for doing their measurements so fearlessly. We must see that they do not get the Roman Emperor treatment!
A Modest Member of Parliament [Bert Kelly], “How do we cure our tariff disease?,” The Australian Financial Review, August 26, 1977, p. 3. Reprinted in Economics Made Easy (Adelaide: Brolga Books, 1982), pp. 93-95, as “Textiles (3),” under the date June 24, 1977.
The IAC report on textiles, clothing and footwear was so unpopular with some people not only because it measured the cost of sustaining the industry, but even more resented was the IAC’s clear recognition that even at this cost of $800 million, the industries would continue to shrink. I quote from the report:
Even if the structural and other improvements are made, there are few activities that will not require increasing levels of assistance at continually increasing cost to the rest of the community.
The decline of large sections of the industry is not caused by bad management or by lazy workers but simply by most sections being labour intensive and our labour costs, particularly for female labour, being much higher than those of our competitors.
The gap between the wage rates will continue to widen.
Some sections of the industry, for instance those producing rugs and blankets, are competitive at low rates of duty and these sectors will remain, but most of the industry will gradually shrink.
It can only be saved in the long term without raising costs to consumers by subsidising it directly from consolidated revenue.
This would have the great advantage of everybody knowing the cost of sustaining it and it would also mean that there would be no need for prices to rise as they do if the industry is protected by tariffs and quotas.
If prices rise any further it will pay us to fly to Singapore just to buy new clothes.
So nothing but a direct subsidy can save some sections of the industry in the long term and this is where the Government action in asking the IAC to work out ways of keeping the industry in its present form for three years is so hopeless.
It can’t be kept in its present form — it would be like holding down a safety valve on a pressure cooker, it could indeed by done for a while but it would have devastating results in the end.
If a subsidy to the industry is the only way to help maintain it, there is nothing to stop the Government using the same money to help wind down the industry.
But the Government has asked the IAC to fossilise the industry and this is to be done to safeguard employment.
The Government however appears indifferent to the employment in other industries that will be put at risk by so doing.
The most important, and the hardest to measure, is the employment lost because the economy is sick with inflation.
The Government is always expressing its concern about the damage done by inflation, but really inflation is only another name for rising prices and the commodity group that is rising fastest is clothing.
The Government must know that taking further action to protect the industry will make price rises inevitable.
These, because they feed back into wages, jeopardise employment in other industries.
But there are other ways in which employment will be put at risk by protecting industry by tariffs and quotas.
Recently merchants in the Philippines, encouraged by their Government, were so enraged by our actions in stopping their textiles coming in that they threatened to put barriers in the way of exports of our steel.
This created a furore in Port Kembla because of the threat to employment.
And before the resent ASEAN conference the Malaysian Minister for Trade had encouraged barriers being put in the way of imports of our butter, sugar, flour and GM-H spare parts.
It was only when the Australian Government offered $90 million in aid that these restrictions were reluctantly removed.
So clearly employment is at risk because of the likelihood of retaliatory action and here again the export industries are the ones to suffer.
The export industries are weakened in another way.
Now that we have an exchange rate that moves in response to market forces every barrier that prevents imports coming in is an automatic barrier to exports going out.
So Fred and his fellow exporters are automatically harmed. They don’t know about it, of course, but it happens just the same.
Almost everyone, even the Government, now recognises that tariffs must be lowered so that our standard of living can rise.
But tariff reductions are like parliamentary salary increases, they are usually seen as justified but not just now.
The time is never ripe, so we continue to wander aimlessly down the road to ruin, unable to make up our minds.
There has been a lot of comment lately about the British disease. Well, we’ve got one of our own.
A Modest Member of Parliament [Bert Kelly], “The naked emperor and the PM,” The Australian Financial Review, September 9, 1977, p. 3.
In mid-August when the Industries Assistance Commission (IAC) draft report on textiles, garments and footwear was made public I said that I was afraid the IAC risked suffering the same fate as befell messengers who brought Roman emperors bad news and were beheaded.
Perhaps the IAC is not going to have its head cut off but it looks as if it may lose other vital organs.
This is supposed to teach it and other independent minded bodies not to step out of line — not to give the government news that it doesn’t want to hear.
As the years go steadily by and as Eccles’ insidious indifference gets me deeper and deeper into disfavour with the good and great, the once rosy visions that one day I might be a minister is fading as the mists in the morning.
But I have been told by many past and present ministers that the quality they most value in their advisers is the courage to give their masters news that they know will be unwelcome.
If this applies to the run of the mill ministers, if such a term can be used about such exalted beings, how much more should it apply to prime ministers?
A prime minister is indeed an exalted person and, even more important, he is powerful, and at a frown from him almost every knee tends to bow, so he is likely told what his advisers know he wants to hear.
This is all the more reason he should treasure above rubies the advice he gets from people or bodies who are brave and competent enough to tell him what they know he doesn’t want to hear.
I, of course, am not in this category. I tremble if the Prime Minister even glances in my direction as he did once or twice, and if he were to frown at me my knees would turn to water.
One of the Prime Minister’s troubles is that there are too many people around like me.
So the Prime Minister’s attack on the IAC for telling him what he didn’t want to hear was very disappointing indeed.
From now on the Prime Minister is more than ever likely to receive the same treatment from people around him as did the emperor in the children’s story.
His courtiers were afraid to tell him that he was marching around naked, and it was only when some innocent child blurted out the awful truth that the emperor realised that he was making a right exhibition of himself.
What has the IAC done that is so bad that it should be so publicly clobbered?
First, we should remember that the IAC doesn’t make decisions about tariffs, it only makes recommendations which the Government can follow or not as it sees fit.
Second, the Prime Minister is evidently cross because the IAC cannot find any easy answers to the mess the economy is in.
He seems to think that it is either incompetence or calculated indifference to unemployment that makes the IAC tell the truth about industries.
Or does he think there are some easy answers to be suddenly discovered by a more subservient department or body?
Does he think that you can create employment by increasing tariffs?
But everyone who has any economic understanding know that you do not solve unemployment problems by raising tariffs. All you do is shift the unemployment from one industry to another.
And the sad part of this whole business is that the IAC has been punctilious to recommend the gradual reduction of tariffs while the economy is so sick.
In its recent draft report the IAC was particularly careful to recommend gradual tariff reductions so that grave social problems involved did not become too painful.
Yet the Prime Minister seems to think that the IAC goes rushing around recommending the reduction of duties regardless of social consequences.
I know that Mavis will be angry with me if I say this, but I simply have to state that the Prime Minister’s attack on the IAC illustrates yet again the gaps in his economic understanding and his apparent indifference to the health of the export industries who have to bear that tariff burden.
But it also illustrates a more serious flaw in his makeup and that is a tendency to bully lesser people.
He doesn’t have any trouble bullying me because I am timid as well as modest, but, as I said before, there are too many people around like me.
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