Beware the calls for National Sovereignty
In his speech to Parliament last week the Prime Minister, Scott Morrison, said that Australia’s economic recovery would be based on national sovereignty. He did not spell out what this meant, which is unfortunate because vested interests have used it to promote notions of protectionism. When recovery occurs the economy will be different to the way it was before the coronavirus crisis but there is no case for using the crisis as a pretext for a radical reshaping of the way it operates.
There are multiple reasons why it would be dangerous for the Government to pursue a policy of protection or subsidy for industry sectors such as manufacturing, even though some supply chains have come under pressure in the course of the crisis.
Firstly, the reintroduction of tariffs or subsidies for some manufacturing industries, on the grounds of promoting self-sufficiency would be illegal. Australia has entered into free trade agreements with a range of countries including China and the United States. These agreements provide for concessional entry for a wide range of manufactures including medical equipment. These concessions have been legislated so are now part of Australian law.
If Australia reneges on these agreements then the other countries, who are party to the agreements, can be expected to retaliate. That means that Australia would lose its preferential access for agricultural products to China, Japan, South Korea, Asean, Mexico, Peru, Chile, Canada and the United States.
Secondly, it would lead to a fall in the Australian standard of living and reduce the prospects for economic growth. Repatriation of some manufacturing sectors and services, such as call centres, will inevitably man higher costs. In a situation where the economy is likely to be depressed over a longer term, the capacity to pay these extra costs will be limited. This in turn will mean that the average wage will buy less, and businesses will be less able to invest in supply chains. This of course will mean less employment and lower wages.
Thirdly it will put severe strain on state government budgets. Most of the medical equipment that has been in short supply is ultimately procured by state governments. Since demand for these products is fixed by the nature of the medical problem they are needed to address, the state governments will have to cop the extra costs if they are obliged to buy Australian only products. This will mean that less money will be available for things like education and infrastructure.
Is there an alternative to cutting ourselves off from the rest of the world? The answer is yes. We should start by diversifying away from unreliable sources. These are the countries that declined to honor contracts and intervened to keep goods inside their borders in case they needed them.
Secondly businesses will have to move away from just-in-time supply chains and ensure they have some capacity to stockpile in order to meet shortages. This applies to all aspects of commerce from Woolies toilet paper to the supply of medical equipment.
Finally, Australia needs a national security plan to cover everything from global pandemics, war, climate change and global economic collapse. Senator Jim Molan has been pushing for this since he was first appointed to the Senate. We now have a mechanism to develop such a plan in the national cabinet. There are indications that the national cabinet will continue into the recovery phase. It will produce the policy framework for recovery and this will inevitably include consideration of issues around national sovereignty.
The opportunity to use these considerations to develop a national security plan should not be missed.