The report that Labor Senators will back the proposed FTA with the US, and that Caucus will almost certainly follow suit, is an indication that Labor has reverted to the small target strategy adopted in 1998 and 2001. The analysis done for the Committee made it clear that the economic benefits of the Agreement for Australia were trivial. This is on the assumption that there are no effects on the PBS. Since this assumption will almost certainly prove false, it’s reasonable to conclude that the deal was harmful in economic terms.
But this was always a political issue, and Labor has been comprehensively thrashed in political terms. In retrospect, it would have been better to capitulate immediately. Given that this hasn’t been done, it would have been better to withhold support and propose to renegotiate the deal after the US and Australian elections. Labor was under a lot of pressure over Iraq and the FTA, and it would have been hard to hold the line on both issues. But caving in on both, with the reinstatement of Beazley and the acceptance of the FTA is a total disaster.
Moreover, there’s no reason to expect anything better from the (still announced) tax policy, or anything new and significant in terms of health and education expenditure. My guess, FWIW, is that we can look forward to another three years of Howard. Of course, nothing is certain. The government is still unpopular, and could lose. Even if Howard gets back in, the economy could turn sour, and he could get the push from Costello. Finally, I suppose there’s a chance he might retire voluntarily.
John Quiggin 
John, you’ve done nothing for my pessimism here. How do we explain the media punditariat’s apparent severe disconnect here? This is a substantively different scenario to the 1980s, when it was elite orthodoxy vs public populism. Here, the economics profession itself is substantially divided. Why are the politics of a knock-back with good reasons so universally concluded as being disastrous for the ALP? I don’t get it. Woe!
It’s true that Latham hasn’t handled the politics of the FTA very well, but all of the Labor Premiers have come out in support of it. This, more than anything Howard has done, has shut off Latham’s options. I suppose they think, or hope, the FTA will lead to a flood of US investment in their states. They may be kidding themselves but as Paul Keating once said, the most dangerous place in Australia is between a Premier and a bucket of money.
Dave, you’re right , but this merely shows that Latham should have taken control of the debate earlier, either by endorsing the FTA or by telling the Premiers to pull their heads in.
Yes, it seems that the ALP advisers are winning again.The thing Australians liked about Latham is that he told it as it is.He told the world, many people agreed with him, of what he thought of Bush and Howard. Consequently, he acheived high popularity,and as he is now getting closer to Howards policies (and Bush)his polling is getting worse. If he lets this AFT go through, instead of using it as an election weapon, he has no chance of winning this election or the next.
Carr knows all this. It means he’s still hoping to be drafted.
Yep, my money is on Howard and Kerry to both win in a canter.
And, of course, Kim Beazley (who has no future leadership ambitions, cough cough, splutter splutter) has also publicly supported the FTA. This backed Latham even further into the corner. It’s entirely possible that if Latham goes anti-FTA, Beazley would head straight back to the back bench, terminating Labor’s chances of winning the election. Latham knows this and Beazley knows he knows it.
Besides all of this, I don’t think supporting the FTA is going to be especially harmful to Latham in itself. My guess is that voters on the left of the spectrum dislike Howard so much they will vote Labor anyway, either directly or by Green preferences. The one potential anti-FTA vote winner, the PBS, has been defused by Howard, either in fact or by obfuscation, and Labor would have been hard pressed to mount a credible scare campaign.
But damage has been caused with the swinging punters because Latham has been indecisive, following Howard rather than setting the agenda, which is what Latham did so well earlier in the year. In this sense, Mick is right. Latham has been captured by the professional advisoriat.
When Ronald Reagan was President, the Republican Right had a saying they would trot out whenever Reagan looked like he was being captured by the compromisers and vacillators: “Let Reagan be Reagan!”.
In the same spirit, “Let Latham be Latham”.
MickM, Latham won’t have a second chance if as I suspect (along with JQ and Derrida Derider) Howard wins a fourth term.
The FTA was and is a political issue just as so much of the hype on the “free market”, privatisation and the whole gamut of the Washington Consensus has been a political issue over the last twenty years or so.
The so-called left has been sold a load of garbage and the right has had a field day. The writings by Tom Frank, including a recent piece “How the Left Lost its Heart”, are well worth reading.
On the US/Australia FTA, the Americans are laughing all the way to the bank – or they will be when the deal is operative. The American working and much of the middle class won’t get much out of it – in fact, they’ll probably be worse off, as they have been consistently for the last twenty years, but the US corporations, the billionaire CEOs and others who run them and live from them will have it made.
That’s the way it’s been with other FTAs of the Americans and it’s surprising that Latham and his mob haven’t seen more clearly where agreements of this kind will lead.
In many respects, the FTA is like the Treaty of Friendship, Commerce and Navigation that the Americans tried to unload on us way back in 1948 and later years. Especially the Chifley Government but later also the Menzies Government were too perceptive to buy – for “political” reasons too, to jolly the Americans along – anything but a heavily watered down version some time in the early to mid 1950. Now at last the Americans have sold us the equivalent of the Brooklyn Bridge – from which they’ll collect the tolls while we pay the charges.
So will you be joining the Greens, John?
Wonder if anyone caught the Four Corners program on the FTA tonight, which featured Latham at his bet-hedging best on the subject of endorsing the FTA in front of an audience of leftwing unionists.
This agreement looks to be part of a larger US trade strategy, similar to their raid strategy, of unilateral moves made to secure powerful US corporate interests.
There is obviously a parallell between the US attitude in intellectual property rights to both software codes and pharmaceutical formulas: lucrative enforcement.
Interesting to see Kevin Hassett of the AEI popping up to act as an intellectual spear carrier for the drug companies. He first came to notice with a book, co-written by James Glassman, about DOW 36,000. But this work seems to have plummetted in public esteem at about the same pace as tech stocks.
The last time Hassett made a serious public statement was in an AEI seminar where he suggested that the war in Iraq would not cost much.
How does this guy get to keep his job?
Now the interests he represents suggest that drug companies, rather than bio-chemical scientists, are the agents behind progress in medications. And that they must be remunerated accordingly.
For all I know this fairy tale might be true. Does anyone have any evidence on the relationship between patent-protected high drug prices, pharmaceutical R&D and the rate of medical drug progress?
Or is the FTA Drug Company refrain just thinly veiled apologetics for naked special interests?
I haven’t had the time to look at the FTA deal in any detail and I am sure that I am far from alone.
However I would have liked to have seen that Labour was at least prepared to let the Australian people vote on whether they wanted it or not rather than cave into Howard. We may as well vote for Howard in that at least we know we are getting a proven “Honest John”.
Latham will, by following the lead of the Premiers and Beazley, to prove he is a friend of the Americans, have sold Australia’s National interest short and he will have to explain pretty clearly how a vote for him will improve the terms of the deal. I have supported his ascension as a breath of fresh air but am beginning to see that the stench is close behind.
Where is Pauline Hanson when you need her?
Jack, I think there are three reasons for the US to pursue FTAs
1. Geostrategic concerns
2. To further the interests of their multinational companies
3. To set standards for further FTAs and eventually multilateral deals in the WTO.
It seems that Big Pharma is very interested in us because we are mucking up their opportunity to charge whatever the market will bear. There is a monopolistic element in branded drugs, especially genuinely new treatments.
We have interpreted “review” as a review of procedures. It is clear, I think, that Big Pharma is happy to let that sit for the present as it will allow the FTA to slide past Labor.
Later (they are patient) it will have to change, if not through persuasion then by means of a trade dispute, which they would have an excellent chance of winning because:
1. The concept of “review” means “appellant court” to them.
2. Our processes are intrinsically ‘trade restrictive’ and as such would most likely be deemed verboten by a panel of trade laws.
Then our laws must change to fall in line with what is decided or the US can hit us with trade sanctions.
This all looks depressingly familiar.
The fix was in a long time ago, like Iraq (and then subsequently troops home), Tampa, etc here a goverment spin campaign backed up by the punditocracy, boxed in the Labor leadership.
With the level of media concentration we have, its not surprising that the goverment has been able to use it as an echo chamber to railroad any meaningful debate.
Yeah, I agree that Howard will probably win but weather Latham stays on depends on how close he gets (I predict a 1-3 seat majority or a minority Howard Government in which case Latham probably stays).
Howard has been like Captain Jack Aubrey in Master & Commander, he’s fired off everything, including the crockery and supplies at the enemy(his massive pork barrelling). After the next election is when the chickens will come home to roost and the price paid
My goodness everyone (well most) seem depressed.
O.K. Just to realign people to reality,
repeat:
Free Trade……….. Good
Autarky…………… Bad.
I think the embargo on the soon to be released book “Wealth of the nation” by Adam Smith is going to be lifted.
When it is, read it and try to understand why free trade is ALWAYS preferrable to any other option.
P.S
Anyone got a comment on
this
It;s ironic considering the WTO process being revived last week. If LAtham had said no at the start he would be sitting pretty now – he could say well we’re gonna sign with the WTO ’cause it might be a better deal. But that’s water under the bridge.
But Latham will still (hopefully) win because the anti-FTA votes will go to the Greens(and back to Labour). It will then depend upon how well the major parties’ micro-managing skills in the marginal electorates.
Latham only has to find a positive way to tap into the anti-Howard mood in the electorate. This is uncannily similar to what befell Keating and was subsequently successfully exploited in the 1995 election.
Don’t be too sure all green votes go to the ALP.I will be voting informal(Iknow waisted vote) in the Lower House,as I do not want to vote for something so bad as this AUSFT.I do believe in FREE TRADE, that is why this one is so bad.
I will then vote Greens or Democrats in the Upper House.
Can someone point me to a good explanation of how the FTA will increase the cost of the PBS? I haven’t come across an explanation, although perhaps I just haven’t been looking hard enough…
There is now a high probability that the Latham leadership is finished. I have to tip my hat to the enemy i.e. the Howard Strategy team. They have managed to corner Mark Latham and smash any credibility others imagined he had for being a visionary (After reading his speeches over the last two years I found more irrationality than vision)..in the process they have even taken Garrett down. So what was the secret? In retrospect, the ‘pre-election/early election’ game that was played out in public was just theater. The real work of the Coalition team was going on among the premiers, especially Carr and Beattie. Carr and Beattie have taken the baseball bats to Latham. They obviously don’t want him to be prime minister, probably fearing some left populist spurt on Lathams part that might reduce their power (e.g. rationalizing the health care system). The real division in the ALP is not between the right and left factions, which are essentially meaningless in policy outcomes. The real division is between the state and federal branches. The premiers prefer Howard and Costello.
Tom, it’s not easy, but if you saw 4 corners it was an excellent treatment, repeating 1pm today.
The Drahos report is still valid, I think, although Vaile and co are energetically trying to debunk their concerns.
Check out also John Merson’s paper for the vision splendid of the future, especially ‘Texas Medical Algorithm’.
Big Pharma has us in their sights and are prepared to be patient. In 5-10 years time our situation is bound to be worse than it is now. The aim is maximizing profits; health is merely the field of operation.
I disagree with nearly everything that everybody has said here, including the lone supporter of the FTA!
It has not been shown that the FTA has only insignificant benefits. The potential cost of the PBS changes could almost be rounded up to $12.45 and the agreement isn’t going to “screw the little guy”. Somebody is actually suggesting that the same sectors will shink in both countries because of the agreement! Come on people — despite your hope that the sky is falling, things are actually not that bad.
I think the ALP support for the FTA was always coming and I’m surprised that anybody was surprised. With Beazley and the FTA the ALP has no taken the sting out of the suggestion that they’re anti-american. They are not going to lose any left-wing support because we have preferential voting in this country, and they are making a stronger argument for the swinging vote. I know I’m not a good example of an average swinging voter — but I’m inclined towards the ALP (at the moment, let’s see if they can lose my support in the rest of the year).
And to the pro-trade guy (tipper?) – regional and bilateral agreements are not necessarily good because they can distort trade away from the least-cost producer and towards the partner country. It is an emperical question. This question has been answered in this case, and there is a net benefit. But this is not a forgone conclusion.
I’m going to buck the trend on this blog and predict an ALP victory.
I haven’t noticed a lot of support for the restricted trafe agreement from the economics profession.
Except for people who don’t like the laught test I haven’t seen many suuporters at all.
It is a strange unity ticket of free traders and protectionists.
Interesting that alan wood had abandoned all history on this topic.
US experts give the nod
It’s a setback for our couuu-uuu-uuuntry.
Wot a bunch of thoughtless, silly bunts those Labor supporters of this mess are. Its been obvious from the start that that this deal is a political present that the Shrub to help Johnny win the next election. The PBS may be safe for a while but the US pharma giants will slowly emasculate its independence over the coming years.
US ag lobbies will never give up their ‘right’ to some form of sneaky protectionism, just watch and wait. But the real sleeper is the IP provisions, an ongoing godsend for the corporate legal monsters of the US. See Ross Gittins column on Monday for a typical example.
P.s. for Brian, read your ancestor stuff at Back Pages, any idea what the name Reschke means?
The ALP has run its course, and the sooner it gives way to another political movement, the better. As for Latham’s leadership, I’ll take Jack, Chif or Gough any time!
I heard Bob Brown this morning saying that he opposed the FTA because it contained some many restrictions, whereas if it was really about open slather free trade, he would support it!
So there you have it: the Guru of the Greens supports unrestricted free trade.
I remember the day after the deal was announced Gittins wrote tha the deal was essentially horse trading betwen protectionists, not a free trade deal.
Why do all the ‘free market’ fans get so excited over a deal that to my brief reading only seems to increase regulation in so many areas?
Perhaps instead of scoring a cheap shot against the greens dave and co. could provide some justification of this deal that we are being asked to give a lot for.
I have not read the papers on the benefits (sic) of the FTA but my guess is that they are small because of the usual problems of trade diversion and trade creation. It is a political issue and since big brother is pushing us, I am against it! How about a real free trade agreement in the WTO?
While we are all free traders now, why not allow free mobility of labour across national boundaries?
Raja
Not much point abusing Latham for this, if (as Michelle Grattan opines), he’s just doing what business and the electorate are making him do.
Question is, why are they making him do that? What’s with the voters, if knocking back a crummy deal makes you not pro-Australian but anti-American? And if the economic benefits even according to the pro-treaty lobby are so feeble, why are business and the premiers so stoked about it? All just piss and wind?
Why are the Premiers in favour of a ‘freer’ trade agreement with thje US? Simply because they are at the techface of what it means for their communities. It means more integration with the US economy which is where our best interests lie. In my state SA, Technology Park is creating new jobs in the hitech defense and aerospace industries. Also Oz is increasingly getting involved in ‘Little Pharma’ and biotech. Where the hell do you blokes think all those graduates you keep pumping out are going to get jobs? In the smokestack industries competing with China? Get real. Our foot in the door with the US is why increasingly our Asian neighbours are queuing up to do trade deals with us. Yes we’ll have to fall in line with some of their patent laws, etc, but why the hell wouldn’t we when we are becoming increasingly engaged with developing such patents ourselves? The leftist self-loathing going on here, at our success in cutting it with the best, is bloody pitiful and don’t our pragmatic Premiers know it.
Tipper, your link to the rumblings about ditching income tax for some type of consumption tax, in the US is an interesting one. Perhaps they’ll eventually come around to the Observa’s preference for resource/carbon taxing? I’ve got a hunch they might take a bit longer to come around to the extra equity of an annual net wealth tax for the top end of town, but I can’t help the fair go upbringing down under. It’s those bloody lefty professor’s fault again!
observa
A+ for your first paragraph.
I was tempted to give you D- for your second paragraph. but then I realised that I didn’t know enough about your assertions to make a valid judgement. More research coming up I’m afraid!
I always maintain that economics is simple.
As the armchair economist says ” Most of economics can be summarized in four words: “People respond to incentives.” The rest is commentary.
Mark S, I’ve no idea about Reschke, sorry! Both my parents were here three generations, but learned German before English. German speaking died out during WW2 and I had to learn the hard way. Reschke is not in my dictionary.
Raja – if it’s positive, then why oppose it. Robert – the benefits according to the government is not small. There seems to be a desire to think the worst here. Pitty about the facts.
observa:
. . . more integration with the US economy which is where our best interests lie
Not especially. There are reasons why we export much more with Asia: US protection of its agricultural markets, better markets for minerals in Asia, more complementarity in manufactures and services. AUSFTA won’t change that much.
In my state SA, Technology Park is creating new jobs in the hitech defense and aerospace industries.
Indeed, better access to US government procurement is one of the genuine benefits to Australia; estimated value $3 million per year in the Dee report; or if you prefer the CIE report, all of $28 million. Not a big part of the story, by any account.
Where the hell do you blokes think all those graduates you keep pumping out are going to get jobs?
In domestic-market-oriented service industries, most of them, just as in every other industrialised economy in the world.
Of course, if you weren’t taken in by outmoded leftist claptrap like the “lump of labour” fallacy, your common sense would allow you to observe that the sane reason for undertaking an activity is the benefits it can generate, not the resources you can consume in it.
Our foot in the door with the US is why increasingly our Asian neighbours are queuing up to do trade deals with us.
Our Asian neighbours have been kicked up a flurry of FTA negotiations in all directions over the past few years. They’re not queing up especially to deal with us in preference to other neighbours: Singapore dealt with New Zealand before us, Thailand with Bahrain. With the Singapore- Australia agreement, there was some speculation that Australia was interested in Singapore as an access hub for ASEAN; Australia obviously doesn’t play any such role in relation to the US.
Yes we’ll have to fall in line with some of their patent laws, etc, but why the hell wouldn’t we when we are becoming increasingly engaged with developing such patents ourselves?
(1) Because whether we win or lose in terms of royalty payments depends on whether we’re a net importer or exporter of IP, not on whether we’re “increasingly engaged”, and there’s no prospect whatsoever of our becoming a net exporter. (2) Because the US regime that we’re undertaking to emulate is driven by lobbying and political donations not be economic analysis; because in certain areas, notably software development, it’s dysfunctional; and because AUSFTA prohibits us from taking the prudent course of action, namely waiting to see how the US extensions of IP rights work out in practice, and requires us to lock ourselves in to an untried regime.
The leftist self-loathing going on here, at our success in cutting it with the best . . .
The distinction between cutting it and getting done like a dinner appears to elude you. The negotiations were conducted competently on the US side; that side got the concrete gains it was aiming for, in IP, drugs prices, etc. There’s some slight bemusement in the US, how much the US drug companies got out of this, and what an advantageous precedent it sets for negotiations with other countries. Our negotiators crumbled for domestic political reasons, and now instead of a hard-headed pursuit of national interest we get soft-headed vapourings about “cutting it” at the “techface”.
. . . don’t our pragmatic Premiers know it
Our “pragmatic Premiers” make some shrewd deals (Queensland coal freight) and some crummy ones (Alcoa Victoria); they’re under no suspicion of infallible commercial acumen. There is some faint hope that there is a hard-headed assessment of national / state benefit behind their stance; unfortunately, it’s more likely to be hype, symbolism, and power plays.
John Humphreys
Robert – the benefits according to the government is not small. There seems to be a desire to think the worst here. Pitty about the facts.
You’re too modest. The CIE logo’s a better endorsement than the Tampa gang’s. And as such things go, the CIE study’s a reasonable piece of work, not outrageously biased, though Philippa’s is better. When you call your guesstimates the “facts” though — well, one can hope that that’s just self-mocking humour.
. . . if it’s positive, then why oppose it
$53 million per annum is not far off a zero, as the confidence intervals for these things go. That includes actions we could take unilaterally if we really believed we’d benefit from them, and concessions from the US we could hope to gain a little later in multilateral negotiations. In return, we make irreversible concessions that can permanently impair our domestic institutions in areas such as IP and quarantine. Put all that together, the clear policy recommendation is “Don’t do it”.
Good post, Robert McDougall.
You nailed it: “Don’t do it.”