BREXIT A WINDFALL FOR UK AND OZ
... but will the pollies get it?
Harry Richardson is a long-time student of Islam and author of best seller, "the Story Of Mohammed - Islam Unveiled', http://thestoryofmohammed.blogspot.com.au
Now that Brexit is a reality, the talk has turned to trade. Who will be allowed to trade with who? Who will get a free trade deal? Who won’t get a free trade deal? Who will be the new trade winners and who will be the losers?
The whole free trade thing can be extremely confusing. I know I had things completely about face until I bought my Ducati 900SS motorcycle.
I bought it nearly new in 1993. Fire engine red (is there any other colour?), it was my pride and joy. I learned a lot from that motorbike. It taught me the limit of grip on that little roundabout between Coogee and Bondi (ouch). It taught me where the speed cameras were on the Pacific Highway (ouch, ouch, ouch). Strangely enough, it also taught me the awesome benefit of free trade.
Ducati brought out its legendary vee twin engine in the early '70s. Coupled with a great frame, suspension and brakes it should have been a winning package. At that time however, Italy had high tariffs on imports. For that reason, all the ancillaries on the bike were Italian. Without putting too fine a point on it, they stank.
You were lucky if the electrics and instruments worked when it was dry. In the rain, forget it. The carbies were fine at 100mph but a nightmare on cold mornings or through Sydney traffic.
This was fine for wealthy purists who only rode on dry weekends. For an average Joe like me who needed to get to work every day, it was no good. Ducati sold few machines and they lost money on the ones they did sell. Eventually they went broke and were nationalised by the Italian Government.
Even subsidies from the Italian taxpayer were unable to revive their fortunes of course.
In the late1980s however, something unexpected happened which turned things around completely. Italy lowered tariffs on manufactured goods substantially. A private company then bought Ducati and began selling them with (shock, horror!) reliable Japanese electrics and carbies.
Sales went through the roof. They were selling them by the thousands and ploughing profits into R&D and new models. Not only Ducati, but Aprilia and MV Augusta took off. New factories were built and workers were hired by the thousand. The whole industry received a new lease on life.
So who were the winners and losers in all of this. The biggest losers of course, were the owners of the substandard Italian parts makers. It is tempting to say that the workers in these factories also suffered. In the short term, this may have been true. In the longer term however, thousands of jobs were created at Ducati and more jobs means higher wages (provided you don’t flood the country with low wage migrants).
There were plenty of other winners too. Ducati customers like me got a terrific bike (and NSW got thousands in speeding fines). Italian taxpayers had a burden lifted and instead received a tax contribution. Ducati workers and management profited handsomely. Many other small firms gained contracts tied to construction of factories and supply of parts and services to these economic success stories.
Notice that the Italians gained in this example not by exports but by imports. A nation which doesn’t have tariffs can import parts and materials cheaper than one which does. This makes tariff free areas more attractive to manufacturers. This is a major reason why Singapore and Hong Kong became manufacturing powerhouses.
Unfortunately, when thousands are hired over a period of years, no one notices. When 100 workers lose their jobs this week however, it makes front page news. When the lousy Italian electrical firms went broke they screamed blue murder about the evils of free trade. Meanwhile, no one stood up for the thousands of workers who would later be hired at Ducati, Aprillia and MV Augusta.
The people who really love to restrict trade of course, are governments themselves. Firstly, they get to collect money for doing absolutely nothing. Who wouldn’t want a gig like that? But more important to them is the prestige that goes with it.
The politicians become the gatekeepers. They decide who pays what and who doesn’t. Who will succeed and who will have to fight tooth and nail just to survive (or even fail). They love the sense of omnipotence and power. They also love the bribes (oops, I meant campaign contributions) which come flowing into the party. They love to puff out their pathetic chests and tell us mere mortals how they are directing the economy. They love to pretend that they are in control. “We will create jobs and growth!” they holler. “We will fire up the economy!”
“Yes” I scream back at my long suffering TV. “And I will save this man from drowning by taking my foot off of his head!”
In 1776, a Scotsman called Adam Smith published his ground breaking book, “The Wealth of Nations.” Smith explained the awesome benefits of capitalism and free trade and the Poms took to it like ducks to water.
They abolished piracy (for themselves as well as others) through some tough love, a coil of rope and the yard arm. Whilst this was a disaster for the Islamic world and particularly the North African Barbary States, it opened up the oceans to a tsunami of wealth-generating trade.
The Poms then built the largest and most successful empire ever. The secret of their success was not looting the wealth of their conquests (though that surely happened to some extent).
The success was based on trade which benefitted both parties. Large sections of the empire were run by private companies. Most of the empire gained not just railways, ports and technology. They gained systems of justice which protected property rights. Most importantly, they gained access to world markets.
When the Empire was handed back, the Poms kept it as a free trade zone which benefitted all parties. I guess that is why it was called the common wealth.
When Adam Smith wrote his famous book, the fastest form of human transport was a horse. The only way to power a ship was by wind or oars.
By 1910, not much more than a century later, men were riding in aeroplanes, electric power was becoming widely used and railways circled much of the globe.
In 1930, the USA passed the infamous “Smoot-Hawley” bill in response to an ordinary recession. This raised tariffs greatly on hundreds of items representing hundreds of special interest groups.
The result was a massive reduction in not just US trade, but world trade. Whilst it wasn’t the only Government stuff up responsible for the Great Depression, it was one of the major ones. The suffering it caused cannot be imagined today. My own parents were severely malnourished children as a result. Many think it even contributed to the rise of Hitler and WW2.
So if we know that free trade is a blessing, it is clear that the UK has an incredible opportunity through Brexit. The UK will have no restriction on trade with the other 27 nations of the European Union, nor we with the UK.
The European Union no doubt would love to punish the UK for leaving. Unfortunately for them, there are just too many special interest groups in Europe.
If the European Union tried to close this gate they would fall foul of the WTO, wipe out much of Germany’s car industry and would be shown up for the economic vandals they are.
What this means is that if Australia were to sign a free trade agreement with Britain right now, we would get a free trade deal with the whole of Europe.
This would lead to an explosion in trade for Australia and the UK and make the UK a trading hub between Australia and Europe. This would give a huge boost to all areas of our industry as well as a much needed boost to the UK economy.
It would be particularly beneficial to our farmers. They (and the Kiwi farmers) were the hardest hit when the UK closed its borders to us in the seventies. To have access to Europe would be a game changer for our struggling rural areas.
Nothing is going to happen before the election of course. Whoever becomes our next Prime Minister however, should jump straight on the next flight to London and offer a free trade deal between Australia and the UK. Instead Turnbull, in his first week of re-election, has resolved to visit NZ's PM Key to discuss what to do about Brexit. Um.... the Kiwis are about to be our competitors Mr Turnbull, and you are about to inform them of how we can beat them to the punch with our dairy products?
Of course the Kiwis are far too emotionally attached to their sheep to crack our live sheep markets but the dairy products market is about to be thrown open again. Get a ticket to London, not Wellington, Mr Turnbull.
A deal should not be some negotiated mishmash of special interests and sacred cow mentality. It should be a one-page document which removes all tariffs and restrictions on trade between our great nations.
This is a chance to create lasting prosperity by removing one more level of Government bungling and incompetence from our economy. Let’s hope our next PM has the good sense to act while the opportunity presents itself.
This may seem like a long shot, but then so was Brexit. Let’s keep our fingers crossed and hope that common sense is on a roll.