Protection in Australia has been more than a policy: it has been a faith and dogma. Its critics, during the second decade of the twentieth century, dwindled into a despised and detested sect suspected of nursing an anti-national heresy. For Protection is interwoven with almost every strand of Australia's Democratic nationalism. It is a policy of power; it professes to be a policy of plenty. It promises to the Australians, not only the industries which are necessary in time of war, but also the enjoyments which are desirable in time of peace. The very word appeals to them, because they believe in their hearts that both their enjoyments and their existence need to be protected against extraordinary dangers. Like the Englishmen of early Tudor days, they imagine that the poverty of their neighbours is a menace to themselves, and need but little persuasion to 'cherish and defend themselves and hurt and grieve aliens for the commonweal.' They believe that a high average standard of living for individuals must be the first aim and achievement of national energy, and are resolved to defend their sovereign purpose against the onslaughts of frugal and unscrupulous foreigners. There are economic onslaughts and there may be military onslaughts. Protection, they are convinced, is a bulwark against both.
Behind that national fervour there is the pressure of particular interests. These interests have to some extent created the fervour and to some extent exploited it. Among them must be reckoned the interest of the Commonwealth Treasury. Despite the rapid growth of direct taxation during the war, half of the revenue from taxation which Australian Governments collect to-day comes from the Customs and Excise tariff of the Commonwealth. It is true that a considerable number of Customs duties aim openly and honestly at revenue, but there is also an unmeasured and very large return to the Treasury from duties which are intentionally, though clumsily, Protectionist. Thus the interest of the central Government has been in superficial accord with that of the industries which have come to it a-begging. The fervent community has encouraged its complaisance by applauding every deed of indiscriminate charity. Moreover, since the Commonwealth makes its customary levy upon the goods which flow to Australia as a result of the borrowings of private persons and State Governments, it reaps its most bountiful harvests in the periods of national extravagance.
With such unity of spirit subsisting between private interests, public opinion, and the Commonwealth Treasury, it is not surprising that the tariff has grown rapidly both outwards and upwards. A document prepared for the International Economic Conference of 1927 estimates the 1925 level of the Australian tariff as 145 per cent. of its 1913 level--an increase with which no other country can compete. But it is easier to illustrate the increase than to measure it. In August, 1928, the Australian Tariff Board reported: 'The tariff wall is markedly rising. In the Customs tariff, 1908, there were only eight items which provided ad valorem duties of 40 per cent. or over...In the existing Customs tariff there are 259 items or sub-items which provide ad valorem duties of 40 per cent. or over...' It is necessary to know something of the history of this expansion.
The chief dates are: 1902, when the rival fiscal parties agreed upon a 'compromise tariff'; 1908, when Deakin's Government, with the support of the Labour party, established a Protectionist tariff; and 1921, when the Hughes Government widely extended this tariff in order to safeguard industries which had sprung up under the natural protection enjoyed during the war, and to satisfy the ambitions of economic nationalism which the war had stimulated. In this year also was established the Tariff Board, a body intended to be representative of the chief economic interests of Australia. The Government hoped that this new authority would make the tariff 'scientific' and 'elastic.' Elasticity was greatly desired because Australia was feeling the pressure of external competition, particularly from countries with depreciated currencies; science was demanded because some industries were complaining that they were burdened by the protection of others.
The duties of the Tariff Board, as laid down by the Act of 1921 and succeeding Acts, were to advise Parliament on tariff business requiring legislation, and to advise the Minister of Trade and Customs on matters of administration. Advice has usually meant decision. In some matters the Minister cannot act legally without this advice; in others he is bound in practice to follow it. The Tariff Board has, in fact, wielded effective power in originating duties and deferring them and altering them and even (by classifying specified goods as 'concession items') dispensing with them. It has, it is true, complained recently that Parliament does not always accept its advice when that advice is unpopular. It is, nevertheless, a body which makes decisions. It is at the very centre of Australia's Protectionist system.
Every system of tariff protection imposes costs in the hope of creating benefits which will outweigh the costs. The Tariff Board, in its earlier years, seemed only to see the benefits; but, as it grew in experience, it began to insist upon the costs. In its earlier reports there was the stir of missionary ardour. The Board exhorted Australia to 'foster' those industries which she had already established; it proclaimed enthusiastically the 'undoubted benefit that would accrue to the industrial community by the retention of the money now sent out of the country in payment of imports.' It took credit to itself for interviewing 'distinguished visitors, commercial and industrial leaders, and journalists from Great Britain,' and for impressing on them the need of making their country so far Protectionist that it might grant preference to Australia's primary products.
All this Australia applauded. But suddenly, in June, 1925, there came a perplexing change. The Tariff Board had perceived, not only rising duties, but rising costs. The apparently healthy steel industry had declared that it could no longer survive without increased protection. No sooner had it put forward its plea than the workers employed in it appealed to the wage-fixing authorities for their share of benefit. 'In this way,' complained the Board, 'the benefits of Protection might be nullified and the system itself endangered.' The report of the following year was positively alarmist. The Board still assumed that the price of labour was the predominant element in cost, and warned Australia that the custom of 'passing back and forth between the Federal Arbitration Court and the Tariff Board for increments in wages and duties' must produce 'an ever increasing wage rate and an ever ascending tariff.' It declared that the burden of Australian costs had laid any and every industry in the Commonwealth 'open to the commercial attack from Continental countries.' In face of these 'onslaughts' the Board saw only one way of salvation--more protection and quicker protection. Believing that it could save the country, and that nobody else could, it called upon Parliament to 'clothe the Prime Minister or the Minister for Trade and Customs with power to increase the general tariff rates to any extent found desirable after report and recommendation by the Tariff Board.' Without some such heroic remedy, and without a change of heart in the industrial unions, it could see 'nothing but economic disaster ahead.'
In the annual report of 1927 it painted a gloomy picture of soaring duties and stagnating industries, of a national policy going bankrupt, of a Protectionist system 'failing to protect.' Inspired by a kind of gloomy wisdom, the Board now understand that it was vain to blame greedy trade unionists and cunning foreigners for every misfortune and difficulty. The whole nation must bear the responsibility for the success or failure of the national policy. In a long homily on 'The Abuse of Protection' it convicted of sin one class after another: urban trade unionists, who sought to grow fat at the expense of the rural worker; manufacturers, who squandered the benefits of Protection in profits and dividends when they should have been reducing prices and replacing obsolete plant; farmers, who would not understand that they were supposed to be the basis of the whole system, and were threatening its foundations by demanding that they, too, must be protected, 'not merely from foreign countries, but from sister dominions.' This piece of plain speaking concluded by reminding the Australians that they had given short shrift to the aboriginals 'on the plea that the white man could develop a high civilisation and make better use of the country...' What if other peoples should use the same argument against them?
By the following year the Tariff Board had to some extent recovered from this hysteria, and discussed in a more measured tone the inflation of Australian costs. While it insisted that these costs were not wholly due to Protection, it suggested that the Government might profitably fix a maximum limit for the protection which it was economically sound to grant to any industry. But it possessed neither the training nor the leisure to investigate the costs of the Protectionist system considered as a whole. In 1927 the Prime Minister appointed an 'expert' committee to undertake that formidable task. The committee published its report in 1929.
While insisting that it has not been able to secure complete data, and that its calculations are only provisional, the committee estimates that the excess cost of that part of Australia's production which enjoys tariff protection (about one-quarter of the total production) is 24 per cent. The money figure, excluding £3,000,000 which is estimated to be the real cost of the preferences granted to Great Britain, is £36,000,000. In an attempt to apportion the incidence of this cost among Australian industries, the committee eliminates £7,000,000 which falls on luxury expenditure and sticks there, and then allots £6,000,000 of burden to naturally sheltered industries, £10,000,000 to the protected industries, and £13,000,000 to the export industries.
The naturally sheltered industries and the protected industries recover their costs in prices, or more than recover them. The export industries, being forced to sell in the world market, where the national State cannot adjust prices to its liking, recover nothing. The committee estimates that the tariff has raised Australian prices generally about 10 per cent. above what they would be under a purely revenue tariff. The full burden of this excess cost falls on the export industries of wool and wheat and mining. But Australian prosperity and even Australian solvency depend upon these industries. For many years Australia has been borrowing from abroad sums of money which exceed the annual charge for interest upon her accumulated external debt. She has not been making present payment for all her imports. The time will come when her annual borrowings must grow smaller than her annual interest charges. This will force her to increase her exports. Obviously, it may become dangerous to pile the residuary irrevocable cost of Protection upon the export industries.
The outward thrust of the tariff is far more dangerous than its upward tendency. It is possible to argue strongly for Protection as a policy of power, whereby the nation decides that certain industries are essential and that it must protect them at any cost. This was the policy adopted by the Tudors and praised by Bacon. But it may be doubted whether it is possible in a democracy, where the State attempts a weak impartiality in distributing its favours, and concessions are wrung from it by partnerships of covetousness. Democratic politics, like international diplomacy, develop a theory of 'compensations' under which the tariff elaborates itself. Under an extensive tariff one industry's protection becomes increasingly visible as another industry's cost; sooner or later that industry will be tempted to demand for itself protection, so that it may bear the cost.
There tends to be a drift towards a position in which nearly all industries enjoy protection; but obviously, before this position has been reached, Protection will have ceased to protect. 'The people of Australia,' says the expert committee, 'must soon face the question of how far this can go on. At present almost every unsheltered industry is demanding assistance to meet the cost of assisting other industries, and each alleges that its difficulties are due to these costs. Reliance upon Government aid is increased, and discontent also, through real or supposed differences in benefits received. Clearly, we might reach the stage when the Government would be promoting each industry by taxing all the others, and the end in effect would be a perverted, expensive, and very unstable "Free trade”.
It might have been expected that the primary industries which produce for export would have revolted against this system. Instead, the weaker of them have adopted the policy of the French nobleman, who declared, while the old monarchy went riotously bankrupt: 'When others hold out their hands I hold out my hat.'
To grant protection is in Australia generally regarded, not as the conferring of a favour, but as the recognition of a right; and what is due to one is clue to all. If any industry is 'entitled to a fair Australian price,' then every industry is entitled to this price. This doctrine appears without any apology in the following Ministerial statement, which (one imagines) astounded the gathering of economists who listened to it:
"It is now generally accepted that, in a country where wages and the prices of secondary industry products are removed from the field of intense overseas competition by means of the Arbitration Court and the Customs tariff respectively, the dairyman is entitled to a fair Australian price, based on Australian living standards for that part of his output which is consumed by Australians, and that he should not be too rigidly governed by conditions ruling at the other end of the world.' The Minister who enunciated this doctrine has been very ingenious in applying it.
The Australians have learned that it is more pleasant to dump than to be dumped upon. Ever since 1906 the Australians have, very properly, attempted to protect themselves against dumping, and have professed great abhorrence for that practice. But the extension of Protection has now forced them to adopt that same practice themselves. It is by dumping that they give the dairy farmer his 'fair Australian price.' They subsidise the entry of his butter into the world's markets to the extent of 4½d per pound. A duty of 6d per pound, which keeps New Zealand butter out of the Australian market, enables the butter industry to squeeze the necessary subsidy out of Australian consumers. The same methods prevail in other industries. Thus, in 1925-26, the Australians paid £27 per ton for their sugar, which was sold at £11 6s in the world's markets. For their own dried fruits they paid £57 a ton, while Englishmen were buying them for £37 a ton. The discrepancy would have been still greater did not Great Britain contribute a preference of £7 a ton.
There is no logical end to this process. A community which seeks justice must seek impartial justice. If the dairyman has a right to be protected, the wheat farmer, when he finds himself in difficulties, has an equal right to be protected. In 1929 it seemed that the price which the world would offer for a bushel of wheat must fall below the average cost of producing a bushel in Australia. A movement began among wheat farmers for claiming their right to 'a fair Australian price.' Fortunately for Australia, a bad harvest in Canada improved the position of sellers. The agitation died down. But the misfortunes of the Canadians are an inadequate insurance for the Australians. Suppose that Canada had enjoyed a bumper harvest? Or suppose that the American farmers (who also were demanding a dumping scheme) had imposed their will upon Congress? If either of these events had occurred, Australia's wheat industry might have become resolutely mendicant. But this is an economist's nightmare - of 'Australia as one enormous sheep bestriding a bottomless pit, with statesman, lawyer, landlord, farmer, and factory hand all hanging desperately to the locks of its abundant fleece.' The fleece is indeed abundant; it supplies more than one-quarter of the world's demand for wool and four-fifths of its demand for fine wool. But in this age of synthetic substitutes it is not certain that the world will continue to pay for wool the amount which Australia needs for the protection of all her mendicant industries. As a timely warning, the price of wool declined in 1929, almost to the extent of one-third.
So there are economic limits to the extension of Protection. Its logical extension may continue so long as the subsidies upon export do not extend to staple commodities, and so long as the prices of these commodities provide a large enough fund from which to draw the subsidies. The cost of Australia's sugar scheme is estimated to be £3,000,000; the cost of her butter scheme is estimated to be £4,000,000. Australia exports more than three-quarters of her production of dried fruits; but since the total value of this production is comparatively small, the cost of subsidies for dumping is only a few hundred thousand pounds. In the careless days of high living and plain thinking there seemed no reason to be niggardly about these small sums.
Even so the Australians became aware of some very inconvenient tendencies. The immediate effect of subsidising an industry is to remove or to mitigate the economic check upon its expansion. Margins are extended and the average cost of production is raised, with the result that there is a continual clamour for increased subsidies. It has twice been necessary to raise the export bounty on butter. Sugar has demanded more drastic action. Imports of sugar are prohibited, and the extension of planting is controlled by Government through a system of compulsory licences. If there is any logical conclusion to the process, it is this. Yet Australia might avoid this conclusion if she could find some other community to carry her costs. With 'adequate' preference the merry game might continue a long time yet. But this is a fantastic speculation.
When Australia's supply price for wheat rises or threatens to rise above the world's demand price, the economic check is in fact imposed. It has, indeed, been suggested that Australia might increase her population to such an extent that she could consume all her own wheat. Beyond mentioning the opinion of agricultural experts that her wheat production is already sufficient to provide bread and seed for a community of more than 20,000,000 people, it is unnecessary to consider this proposal except as promising material for an economic farce. (First Citizen: 'What, sir, is your profession?' Second Citizen:
'I am a mouth.')
Wheat covers more than two-thirds of the cultivated area of Australia; the value of its annual production ranges over £40,000,000. Two-thirds of the production is exported; one-fifth to one-sixth is eaten at home; the rest is seed. The proportion of exported wheat to the total crop is not diminishing but increasing. The home consumer could not pay the sensationally increased price which would be necessary to raise by 5d or 6d the average price per bushel received by the grower. Australia could not carry this cost. Nor is she likely to persuade the world to accept her definition of a 'fair price.' Most of her customers are poorer than she is; and they, too, have their idea of a fair price. If they can get what they want from other sellers, Australia, for all they care, may go out of business. This is sad but true. There is no health in Australia unless she can maintain her competitive strength.
An estimate of the committee which examined the tariff here becomes relevant. The farmer, if the burden of Protection were lifted from his shoulders, might hope to make an additional 7d on every bushel of wheat which he produces. The committee does not recommend that this burden should be lifted. It contents itself with suggesting that it might be reduced. It recognises 'in the tariff as a whole, in spite of its undoubted extravagances, a potent instrument in maintaining at a given standard of living a larger population than would have otherwise been obtained.' Assuming that the output of the industries which could not live without Protection has a value of £75,000,000, and that the cost of protecting them is £36,000,000, it inquires whether Australia would have been able under Free Trade to make good the difference between this production and this cost, Alternative production to the value of £47,000,000 would have been necessary, and the committee, after a rapid survey of Australian resources and world markets, concludes that Australia could never have achieved this.
The committee does not examine the interesting possibility of subsidies to alternative production which would be comparable with the present costs of Protection; it is content to contrast the results of the existing system with the probable results of laissez faire. It considers that under Free Trade conditions the Australians might have enjoyed a higher real income per head of the population, but that there would have been a smaller population to enjoy it. It believes that the benefits of the tariff have (taking the present population for granted) outweighed the costs. 'But the benefits and the costs do not march together. As the tariff grows, the costs overtake the benefits, because the benefits have natural limits while the costs have not.' In short, Protection has been profitable up to a point, but Australia has reached or passed that point. The medicine of the body economic should not be made its daily food. It might even pay the Commonwealth (tacitly admitting a property in protected interests) to compensate certain industries for the withdrawal of Protection; the committee says that there are industries whose products impose costs 'as much as double of the wages and salaries paid in producing them.' The practical problem, the committee pleads, is, not whether there should be limits, but how these limits should be determined. It urges the critics of the report to confine their criticisms to these main issues.
This is too much to ask of economists. Politicians may be content with remedies, but economists must first be certain about their diagnosis. Before the committee had completed its investigations, Dr. Benham had already published his study of The Prosperity of Australia, in which he arrived at a very different diagnosis. He concluded that an Australian population no less numerous than that of to-day would have enjoyed, under Free Trade, a higher standard of living. It is possible that a majority of economists (if we can imagine them being called to a poll) would vote with Dr. Benham. The uninstructed layman may derive considerable pleasure from watching these professional contests, and may even applaud when either party makes a palpable hit; but he dare not offer himself as a referee. He cannot decide the issues which are in dispute; he can only feel certainty about those matters which the contesting economists agree not to dispute.
All Australian economists endorse the warnings which the Tariff Board has uttered in recent years. All of them are agreed that the soaring costs of Protection are menacing Australian prosperity. The guardians of Australian orthodoxy have thought it necessary to refute these exasperating calculators; but the great majority of Australians is unaware that there is anything to refute. The Australians are a good-tempered, open-handed people. They dislike refusing favours, and they do not count costs. Within a few months of the appearance of The Australian Tariff, they voted, by an overwhelming majority, for more Protection.
Keith Hancock's
AUSTRALIA
(1930)
from:
the
athouse
