Arnold Kling  

Australia's Economic Miracle

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Peter Gallagher links to a speech by Gary Banks, Chairman of Australia's Productivity Commission, on that country's high productivity growth of the past several years. He credits improvements in policy.


As you know, the reforms really began with the lowering of barriers to foreign competition in goods and financial markets in the 1980s. As tariff reform and takeover pressure began to bite, managers began to devote more attention to improving the performance of their business...
Reforming anti-competitive policy is generally a lot harder than implementing it. For one thing, producer interests (including employees) become rather attached to it and they fight hard to retain what they perceive as their entitlements. The story of economic liberalisation in Australia thus has as much to do with politics and institutions as with economics. That said, the economics profession in Australia has played an important role both in identifying necessary reforms and demonstrating the likely payoffs, and in selling reform to governments and the wider community.

For Discussion. Banks is saying that industries always ask for tariff protection, but in fact they are helped more by competitive pressure. Are there any counter-examples, of industries that were given protection but were able to increase productivity to return to the point where they were competitive internationally?


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COMMENTS (10 to date)
Eric Krieg writes:

It's happening right now in the steel industry. The protection given to the industry was prefeced by the need for consolidation (the fragmaneted US steel industry is not internationally competitive because smaller companies don't have economies of scale to compete).

Loe and behold, consolidation has occured.

Chris writes:

Pat Buchanan argues that high tariffs are necessary for national security. If all steel is produced abroad, how will we be able to produce armaments and supply our economy in the event of a world-war?

I fully agree with the logic of free trade and, in the words of one of this board's regulars, the "gods of creative destruction." But Buchanan's argument for national autonomy gives me pause.

Randall Parker writes:

I think the Japanese industries that had domestic protection but which were heavily export-oriented continued to improve efficiency in order to compete internationally. It is my understanding that there were substantial barriers for car imports for years. Not sure if there still are.

Eric Krieg writes:

The national defense argument seems hollow. First, silicon is more important to the miltary these days than steel is. Secondly, we are NEVER, repeat NEVER, going to fight another all out war like we did in WW2. We are NEVER going to run into a situation where we can't buy our military needs either here or abroad. Wars just are not going to have the scale or scope for such a thing to happen. Smaller regional conflicts are the future.

Eric Krieg writes:

You can't just superficially look at Japan and say that their mercantilist economy is one to emulate.

Japan really has two economies. One is export oriented, consisting of hyper-competitive companies like Sony and Toyota. The other is amazingly inneficient, and totally domestic oriented.

It is the domestic oriented companies that are protected by the tarriffs. Their inefficiency is a result of their protection. And over the last 13 years, it is these companies that are responsible for the Japanese economic stagnation.

I predict that in 10 years Honda, Toyota, and Sony will all be American companies. They will be headquartered here, their stocks will be listed here, and their upper management will be staffed by Americans. These companies manufacture here, design here, and sell here. And America is where the profits are.

Chris writes:

> Secondly, we are NEVER, repeat NEVER, going to fight
> another all out war like we did in WW2.


The lesson of history is that one can never say never. Many thought that World War I was a war to end all wars; it was impossible to forsee mankind tearing itself apart on that scale ever again.

http://www.bartleby.com/65/ke/KelloggB.html

I don't agree with everything Buchanan says on the subject, but you can read it for youself:

http://www.amconmag.com/08_11_03/cover.html


> First, silicon is more important to the miltary these days than steel is.

At the rate we're going all silicon will be produced by Pacific Rim nations.

Eric Krieg writes:

>>The lesson of history is that one can never say never. Many thought that World War I was a war to end all wars; it was impossible to forsee mankind tearing itself apart on that scale ever again.

Eric Krieg writes:

>>At the rate we're going all silicon will be produced by Pacific Rim nations.

Eric Krieg writes:

Did anybody actually read the Chairman's speech? If not, please do so. It seems that Australia has had its own Reagan Revolution, without a Reagan-like figure.

The reason countries like Japan and Mexico have faltered is because the people of Japan and Mexico have not made the tough choices, like Americans and Australians have done, to restructure their economy. The question we should be asking about China is whether the Chinese people will find their own Reagan or not. That will determine the future of China more than anything else.

Marina writes:

Probably Australians need to "bring up" the new generation of the economists and analysts, but the government should carefully watch and control the number of the graduates in order not to train them in surplus and not to raise the number of uneployed.

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