Sunday, April 4, 2010

The Failure of Free Market Economics: Martin Feil

I came to know of Martin Feil when I moved to Melbourne and started to read The Age. Feil was a regular contributor to the business pages and I found him a very strange beast indeed. He seemed like a total throwback to me. I've always been a passionate supporter of free trade, open markets, deregulation - the whole 'economic rationalist' kit and caboodle. Paul Keating, the godfather of this school of economic thinking and policy in Australia, has been my hero for 30 years. Feil, on the other hand, hates Keating with a passion (but to give him his due, hates Howard and Costello too!)

So what sort of strange concoction is this man? I had to read this book to find out.

Feil's essential thesis is a quite familiar one:

'We are simply spending too much on imports, and exporting virtually no value-added products'  (p. 157)

'Decades of unremitting tariff-lowering - without the erection or retention of compensating non-tariff barriers - have led to entirely predictable adverse results. Imports have increased their share of virtually every market within Australia for merchandise goods. This has resulted in negative current-account balances for every year since 1973.  In turn, these negative balances have created a known foreign debt of  $700 billion.' (p. 219)

Feil laments the fact that we've destroyed our manufacturing base in the process of dismantling the protectionist regime Australia had built up over the previous century. Thus our industries can't compete with imports, and we have few products to export to help balance our accounts. Minerals, agriculture, education and other services are nowhere near enough.

His enemies are legion: Australian politicians; the whole economics profession; the Productivity Commission; the retail, hospitality and services sectors of the economy ('that produce nothing tangible'); and banks of course.

The global financial crisis, which Feil delights in calling the global financial disaster, is shoehorned into assuming the almost theological role of an Armageddon, an inevitable and justified outcome of the disastrous free market policies the developed world has pursued over the past 30 years. To make this case Feil almost comically exaggerates the magnitude and severity of this event, even its reach into the deepest, unknown and wilfully unmeasured recesses of our economy. He needs such an outcome to bolster his anti free-market thesis. The fact that Australia seems to have escaped comparatively lightly from the GFC is in his view illusory. Just you wait! 'How can anyone argue with a straight face that free-market economics is still some eternal economic truth?' (p.142)

One of Feil's major arguments in this book is that, while Australia was perhaps justified in removing its high tariffs regime, it should have left in place, or created, a legion of 'non-tariff barriers' to replace it in order to continue a good measure of protection for our manufacturing industries, just like every other country on the planet has done. He lists the sorts of barriers he favors, and they include this:

'Simply slowing down the supply chain through technical Customs queries, making demands for additional information, and routinely engaging in the dilatory clearance of goods by the authorities....In the case of perishable products, this may result in the loss of the entire shipment'. (p.212)

In other words Australians should resort to the base level of corruption, inefficiency, malpractice and common trickery of much of the rest of the world. I'm sorry sir, that's not my country.

On the positive side, Feil's book has some marvellous statistics and information in it, and there is much to agree with. It's well-researched, well written and a good read. (Did you know, for instance, that since 9/11 Australia's defense budget has increased from $12.6 billion to $26.7 billion in 2008-9; that Customs has forgotten about trade facilitation and now focuses on our infantile obsession with border security; that its staffing has grown from 3900 to 5450 people, and its budget has almost doubled; that the Australian Federal Police has increased its staff from 4200 to 6000? What a growth industry security is!) 

It's just a pity the basic thesis of this otherwise fascinating book is so seriously flawed and unpersuasive.   

1 comment:

  1. Marco Rudek, SydneyAugust 19, 2010 at 3:04 PM

    May I just say, and I haven't even read the book yet..., even if the author has exagurated in some points, so what?! That's what authors and directors do to get their point across, no matter if it's Micheal Moore, Al Gore or here Martin Feil. The point is nobody can seriously look at the world as it is and not see the need for a drastic change in the way we do things. Unless you are one of the top 2% and ignorant enough to not acknowledge all the environmental and human desasters in the world. A free market is no longer the answer to our problems. Yes it got us here with all the goods and bads but I really hope that in 100 years from now we will look back and laugh about this ridiculous concept called capitalism. Every era had its system, this era is over, buddy. As long as every decision in the market is solely made on pure dollar value, we are doomed. The commodities of a country belong to its people. Not to some companies or their CEOs and to the government, which is only the representative of the people and I supposed to manage these assets on their behalf and in their best interest!