Bluescope Steel mugged by Chinese reality

“If China can peg its currency to a declining US dollar, persisting in ideologically driven free-market purism is nothing but grand folly.”

By Gary Scarrabelotti^*

The scrapping of a thousand jobs announced by Bluescope Steel this week should have come as no real surprise to attentive industry watchers.  Yet the news from Bluescope is nonetheless shocking.

Paul Howes, National Secretary of the AWU, declared manufacturing in Australia to be in “a major crisis”.  And the left wing of the union movement wants Australia’s major miners to fund the re-industrialisation of Australia.

Howes is right about the state of manufacturing.  And he is also right to call into question – as he did in a Sky News Agenda interview — Treasury’s cop-it-sweet approach to the mining boom, high A‑dollar, and their destructive impact on the pitiful remains of Australian manufacturing.

Labor figures like Senator Doug Cameron are also right to call on the mining industry to play its part in re-industrialising of Australia.

But wait.  What about a resources rent tax (RRT)?  This is the tax that Australia really needs – not a Carbon Tax.  But we well remember that it was Rudd-Gillard Labor that systematically bungled the design and implementation of the RRT.

First of all, Labor ambushed the mining industry.  It pretended to the industry that no such tax was on its agenda; then it sprang on the mining companies a tax over which they had not been consulted.  Eventually, after being made to look “mean and tricky” by the mining industry’s anti-RRT campaign, the government backed off and watered down the tax, cut a crude deal with the big-three miners – BHP Billiton, Rio Tinto, and Xstrata – and finally took a hefty cut in the amount of tax it had hoped to raise.

Abbott rent tax

Like it or not, a future Abbott government is going to have to re-visit the RRT as a matter of priority.  There is a straightforward solution that Abbott could safely make his own: introduce a simple increase in the corporate tax rate for mining companies.

Whatever its final design, however, an RRT should form a key element in any strategy to reindustrialise Australia.  As the late, and my much admired friend, Mike Davis (aka Sir Wellington Boote of HenryThornton.com) used to argue, a RRT should be used to fund major investment in university level, manufacturing-relevant education and research: especially education in the fields of mathematics, engineering, design, computing, robotics, and the like.

Mike was spot on.  One of the key issues confronting industry in Australia is the lack of a deep manufacturing-related intellectual and skills base of the kind that could support high-end manufacturing enterprises. The one really significant contribution a government could make in this area would be sustained, long-term investment, via a manufacturing industry higher-education “future fund” abundantly supported by an RRT.

But it is not all that could be done.

Paul Howes was also right in his Sky interview to argue that Australia must tackle China on the diplomatic front over its mercantilist trade policy supported by its artificially low Yuan.  While diplomacy in this matter is our duty, it is hard to see how it is going to budge the Chinese over a matter which they see as central to their national interest.

What is really more urgently required in Australia is for us to break the taboos surrounding discussion of the neo-liberal consensus on free trade, freely floated currencies, and tariff measures.

As we all know, the floating of the Australian dollar by the Hawke government was and remains the single most important policy measure supporting Australia’s presently enjoyed prosperity. However, a freely traded currency and minimal tariffs do not carry with them a guarantee that that this prosperity will be permanent or unmixed with injury to the economy and to the lives of many Australians.

China’s options

The fact is that the so-called “Washington consensus” has been brilliantly exploited by the astonishing rise of China as a manufacturing and trading power to strengthen itself strategically at the expense of the USA and of all those nations — including Australia and the now unGreat Britain — which have bought the “Washington consensus” lock, stock and barrel.

China’s rise has been accompanied by – and, in part, accomplished by – stripping us, first of all, of our domestic markets for locally manufactured goods and, then, of our manufacturing capacity itself.

We are not talking simply about a forced change in the nature of our economies, as grave a matter as that is.  What we are talking about is a strategic shift of economic power of such magnitude that it imperils not only our capacity to preserve certain social goods — such as employment in general and manufacturing employment in particular — but also the very sinews of national power and sovereignty.

What we are talking about is a strategic shift of economic power of such magnitude that it imperils … the very sinews of national power and sovereignty.

The rise of China, pursuing a national interest economic and trade policy in a “neo-liberal” international trading environment, has led to the acquisition by China of options, so to speak, over what we make and buy, over who will work in our society, over where they will work, and over what they will work at. Few were those who imagined in the hey-days of free market reforms the possibility of such a development.  And yet it has happened.

There is no good us repeating over and over the free-trade mantra in a world where the greatest manufacturing power intends to prosecute economics strictly in its own interests.

If China can peg its currency to a declining US dollar, persisting in ideologically driven free-market purism is nothing but grand folly.

^*This is an edited version of an article originally published on HenryThornton.com 24 August 2011.