A Modest Member of Parliament [Bert Kelly],
The Australian Financial Review, November 1, 1974, p. 3.
The way of the reformer is indeed hard, though not perhaps in theory.
It is easy for Eccles to nag the world in general, and me in particular, about the evils of high tariff protection, how it leads to a diversion of our resources from their most economic uses, and so our standard of living is unnecessarily lowered.
And all can see that, if we block the channels of trade by high tariffs, we lessen the opportunity for our customer countries to trade with us, and so diminish the opportunity for us to export to these countries.
The PM was, of course, correct when he warned about taking silly action to prevent the importation of Japanese cars when we were, at the same time, hectoring them about their stopping the importation of our beef, particularly when Japan buys twice as much from us as we do from them.
Some people now recognise that the employment gained by high tariffs is often more than offset by the employment lost in other industries, particularly in the export industries who have their cost level increased by lavish tariff protection.
We are painfully learning that there is no such thing in economic life as a free feed, that if you make a good fellow of yourself by protecting one industry, you do so at the expense of another.
All but the dreariest troglodytes admit the excellence of Eccles’ theories. It is only when we start putting them into practise that we run into trouble. A recent example is the bounty bill for the production and sale of sealed compressors for refrigerators.
The Tariff Board recommended in November, 1973, that there by a duty of 25 per cent on such compressors plus a bounty of $5 for every compressor produced and sold, and these bounty arrangements to run for two years.
There is an Australian market for about half a million compressors a year. This is mainly met from three Australian factories — Kirbys (in Sydney) which produces over 50 per cent of the compressors made in Australia, Kelvinator (in Adelaide) and Email (in Orange).
The industry has been heavily protected at rates running from about 50 per cent to 60 per cent, depending on the value of the compressors. This high rate imposed a considerable cost on refrigerator manufacturers, though for the compressors made for Emails and Kelvinators, this was not a burden to others, only to themselves, because they only produce for themselves.
The reason why this high rate of duty was needed was not that the manufacturers were mad at making compressors, but they were not making enough to have economies of scale.
Overseas factories would make from half a million to four million compressors a year, but in Australia we have three factories making half a million of them.
This is the same kind of fragmentation that has got the car industry into such an awful mess. The Tariff Board, to avoid this, recommended that the bounty be paid only if the compressors were sold. This has the effect of limiting the bounty to Kirbys.
Now this was pretty strong medicine for the Tariff Board to recommend and the Government to accept. But we should be clear that to encourage more than one factory to produce compressors is to ensure that we will never have economic production of compressors and so will impose a burden on the economy for ever, and particularly on the makers of refrigerators.
The bill went through the House of Representatives easily, but since then the hosts of the ungodly (as Eccles calls them) have been marshalled and the bill will be emasculated in the Senate.
Eccles burst into tears of rage when he heard this, but perhaps things are not quite as serious as he thinks. After all, the bounty is only to be paid for two years and after this the industry is expected to exist on 25 per cent duty alone.
The only way it can hope to do this is to make all, or almost all, the Australian compressors in one factory. If not, a duty of 25 per cent will not suffice.
But Eccles is not comforted. He has an uneasy feeling that the industry will have a shrewd idea that when the two years are up and the bounty ceases, they will be able to go whining for emergency protection. And they will almost certainly get it, either from the present Government, or from ours if past form is any guide.
This would prevent the restructuring of the industry for its own good, and ours.
Fred is savage with almost everyone. He now knows that he and his fellow farmers pay the price for protection. He had high hopes that Mr Whitlam’s policies on protection would reduce this cost. But now both political parties seem to be running for water.
Fred says that this is typical of politicians, who kick enthusiastically with the wind, but get the wind up when it changes.