Trade Liberalisation and the Australian Labor Party

By Leigh, Andrew | The Australian Journal of Politics and History, December 2002 | Go to article overview

Trade Liberalisation and the Australian Labor Party


Leigh, Andrew, The Australian Journal of Politics and History


[T]he ideas of economists and political philosophers, both when they are fight and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else.

John Maynard Keynes (1)

Labor and Free Trade

In the space of a generation, Australia's tariff walls have been dismantled. From 1970 to 2001, the average level of industry assistance fell from over thirty percent to under five percent. (2) Yet in retrospect, what was perhaps most surprising was not that the era of protectionism came to an end--after all, this was a period in which tariffs were reduced across much of the developed world--but that in Australia, it was Labor Governments that took the lead in cutting industry protection.

Not only did Labor governments reduce industry protection, they also managed to avoid splitting their party over the issue. Given the importance of industry protection to both employer and union constituencies, it is interesting to consider how Australian Prime Ministers Gough Whitlam, Bob Hawke and Paul Keating avoided the fate of British Prime Minister Robert Peel--whose repeal of grain tariffs in 1846 mined his own career, split the Conservative Party, and kept it out of power for most of the next thirty years. (3)

This paper argues that in order to fully understand Labor's tariff cuts, it is necessary to utilise not only the traditional frameworks through which trade policy has been understood--interest group politics and institutions--but also to consider the role of ideas. By taking account of the beliefs of key decision makers, it is possible to form a more complete understanding of this important set of decisions.

At the outset, this paper discusses the competing theories of trade policy, before reviewing the background of Australian trade policy since the nineteenth century. Successive sections then deal with the 1973 tariff cut, the Fraser Government, the first five years of the Hawke Government, the 1988 tariff cut, and the 1991 tariff cut. Finally, the paper discusses the trade policy of Labor since 1991, and concludes by placing Labor's decisions to liberalise Australia's trade into an appropriate theoretical framework.

Three Theories of Trade Policy

One of the principal theories of the political economy of trade is interest group politics, or public choice theory, in which politicians respond to organised lobby groups offering votes, (4) campaign contributions, (5) or both. (6) Even though the national economic cost exceeds the benefits, the politician faces a different set of costs and benefits. (7) Why do politicians often choose tariffs? Dani Rodrik argues that the reason is because assisting lobby groups through tariffs is less politically costly than doing so through subsidies. (8)

In Australia, Mancur Olson has argued that public choice theory explains the growth of trade barriers in a nation where land was abundant and labour scarce. As manufacturing employers and trade unions both lobbied political parties for higher tariffs:

 
   The result would be that frontiers initially free of cartels and lobbies 
   would eventually become highly organised, and economies that initially had 
   exceptionally high per capita incomes would eventually fall behind the 
   income levels of European countries with incomparably lower ratios of 
   natural resources to population. (9) 

Another approach is to focus on the role of institutions, recognising that the structures within which politics is played out have an impact on the final outcomes. Researchers analysing tariff policy in the United States have tended to concentrate on the pressure points within the legislature for reform. (10) But institutions can themselves have a direct impact on the policy process, by initiating or sustaining reform. (11) In Australia, this impact has come most from the body variously known as the Tariff Board, the Industries Assistance Commission, the Industry Commission and the Productivity Commission. …

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