Trade and Industrial Policy of Australia †MyAssignmenthelp.com

Question: Discuss about theTrade and Industrial Policy of Australia . Answer: Introduction This article is to emphasize on the trade and industrial policy of Australia by Allan Fena to derive shaping up of comparative advantage of the subject. There are five parts of this article which are furnished below in five paragraphs. Main objectives of the paragraphs are given below to answer the questions as per requirement of the article: The basic of the article with emphasizing on the main issue of the article The article is about the evolution of trade and industrial policy in Australia. This article gives an outlook about how a resource based Australian economy has turned into import substitution industrialization since federation. In early 20th century, the structure of the Australian economy was export oriented. GDP of Australia has started from 12% in early 20th century. Then in 1961 it had achieved its highest peak of 29%. This economy had started to fall down after its peak season and fell to 14% in 2000 and in 2014 it has arrived at 6.4%. Australian economy was headed by mining, aquaculture, hunting, agriculture and fishing. Iron and Coal ore were two main export products of Australia for which it was called 'quarry economy '. After attempt to promote economic diversification in Australia, it is felt that the country has come back to the point where it started century ago. This article basically tried to explain the various reasons and underlying issues which are instrumental to be come an industrial economy was a mistake. It shows the present situation. This article tried to rule out the causes of shifting a natural resources based economy to an industrial economy, from an export based economy to import based economy with the related problems and subsequent solutions for it.(Commission, 2016) Australia is a small, rich and industrial country but not so advanced with its economy like that of European countries. Australia is very rich in natural resources from time beginning. It had one of best wool which was exported to England's mills. In 18th century, people were coming for settlement and possessed large farmlands to produce best quality of wool with the objective to export that to England. Thus workforce had better knowledge in agriculture in comparison to industrialization. This practice facilitates towards growth in domestic demand as well as foreign demand. Australian economy was export dependent but it was not fixed by the market force. It was never allowed by the direction of economic development. This point was raised by the supporters of diversification as vulnerable. But the supporter of comparative advantage argued that Australia has shown its worst performance when it altered its direction of development. Australia proved Adam Smith by doing extremely well fro m its natural advantages that free market and free trade is best. This article is raising a valid question about the interference and regulation of that potential economy by the government of Australia. Now the country is facing extraordinary resource boom and it is exhausted now. Does it worth to promote competitiveness supported by government? It expresses worries that why a rich and wealthy country like Australia does not remain its position in 21st century. Is open economy a threat for a country which has abundant of natural resources?(Maddock R, 1987) The derivation of the concepts the article demonstrates Australia attracted white people from Europe for its huge natural resources and agricultural potentiality. These resources financially helped Australia through export to lead the standard of life as per the benchmark of first world. Thus the Australian community lived there, survived and thrived. This development of economics actually led exploitation of natural resources and agriculture also. If an economy depends on commodity exports then capital has an inward flow, which leads to develop capital equipment with growth in manufacturing goods for domestic consumption. At the end of 19th century, Australia was the wealthiest country so far per capita income in the world. It was definitely an example for a colony. Australia achieved this position by exporting wool and gold. Thus Australian economy had its limitations depending on two products. Comparative advantage of Australia depends in primary products and the theory stated of free trade. According to Adam Smith, the free trade is t o allow its resources to allocate most efficiently, exporting the best production and importing the rest (McCord, 1970). But Australia is equipped with abundant land resources and scarcity of labour and capital which is the paradox of Australian economy. So its natural comparative advantage lies in the exploitation of natural resources. Hence, diversification was only one way to deal with this situation to reduce exploitation of natural resources. To extend the economy, diversification is one answer for dependency of few products. Over dependency on few products has both short and long run vulnerability(Leonard, 1987). Depending on commodities means entering into the commodity cycle which has both good and bad times. This cycle may be either excess of demand or depressing shortage. This is the time when government should intervene to channelize the development in a better direction. Generally government has two options. One is to shelter for ensuring protection of domestic industry from competition and second is to provide materials for local industry (Lusztig, 1962). Normally government imposes a tax on imported goods to protect local products which is called protective tariff. This step becomes political because if export depending country imposes protective tariff then its export obviously is to be internationally challenged. Some experts argued that protectionism have turned a flawed decision but this is not true in fact. Actually this decision had mixed results. The policy was successful because it has fostered large manufacturing sector which accelerated the growth and development of Australia. But in the contrary it was a clear failure because industrial policy with protectionism refers inefficient manufacturing sector which was unable to cope up with the economic development.(Wilson, 2013) Main theories, which are drawn upon by this article The article draws upon the attempt of economic diversification in manufacturing sectors in Australia through import substitution industrialization (ISI) (Attard, n.d.). The decision to develop manufacturing sector was a big mistake and had an adverse effect. Australia imposed protective tariff. In 1866, first protective tariff was introduced. In 1908 the Commonwealth Customs Tariff was introduced and then Lyne Tariff was introduced. After First World War during Great Depression, protectionism had great advantage in Australian economy. It did not pose any challenge to the autonomy of business. Protective tariff was supported and imposed by several governments. But in 1991, the Hawke Government decided to phase out of tariff protection, Australian settlement were dismantled. Import Substitution industrialization was abandoned because it failed to do its role. The ISI was a faulty decision because in 1980's, current account deficit rose from less than 2% to almost 6% of GDP (Sims, 2013) . In 1986, Australian dollar collapsed in value and Treasurer stated Australia as a third rate economy, A banana republic. As Australia has been suffering from declining economic development since the Second World War. And definitely the result was due to protectionism. Economists Kim Anderson and Ross Garnaut argued that Australian economy is paying as it is trying to oppose the laws of economics; some economists argued that without protectionism Australian economy would have been a smaller, weaker, less diversified economy. Protectionism was widely used in the late 19th and early 20th century. ISI strategy was impressively successful because value added grew at least 50% faster in manufacturing than other sectors in the economy. Employment growth was nearly double in manufacturing sectors. In early 20th century Australia became high income country only through expansion of manufacturing sectors. The ISI strategy had also resulted in capital widening. Due to this strategy, Australi a has emerged in job creations due to industrialization. But the problem is quality of jobs were not up to the mark. Butler argued in 1972 that a small economy is said to be industrialized until it could export complex manufacturing goods without state's intervention like subsidisation. Actually with protectionism, the manufacturing sectors grew up without competition and this leads to toll for any economy (Jericho, 2012). Structurally the economy never been diversified and must have lacking economies of scale. Australian consumers had to pay extensively for this strategy. They had to compromise with global standard as imports were restricted. Australian manufacturing sectors failed to provide the product range and quality available overseas. Australian economy adopted ISI strategy was not the problem (Anon., 2017). Problem was that the strategy was taken for a long period of time. Mill stated that protectionism is good as a defensive measure for a short period as a temporary measur e (Chenhall, 1984). Australian economy was forced to review its protectionism with the Uruguay Round. After this Uruguay Round, agricultural products were to get new opportunities for improved market access which made tariff reduction attractive. Already Australia was facing East Asian countries aggressive export led economy (Carson, 2010). Derivation of the hypotheses, ideologies and values Australian governments were dismantled progressively the ISI strategy. Australian economy was under continuous experiments in more active industry policy. Hawke government renewed industrial policy through the accord and sectorial industry plans. All manufacturing sectors like PMV, steel, heavy engineering and textile were targeted. Government was to give efforts to purchase as a development lever, tax concessions for research and development were introduced and most importantly export promotion was set up. In 1992, Australian economy seemed to move beyond protective state truly. Australia's industry policy was less grand nature. Some combination of the reforms was lower exchange rate and active industry policy. During 1980's and 1990's, manufacturing sectors doubled its share of goods and services. Shifting from ISI strategy, import was more increased beyond its calculations. After recession of 1990-91, slow recovery of economy started with fiscal and macroeconomic consideration to restructure the economy. And this was the main priority of new economic policies. In 1996 with coalition came back, focus was on imposing economies rather than by launching new program during first budget. Coalition gave privilege to PMV and textile, clothing and footwear industries as these are stated as sacred cow of the Australian economy. According to Adam Smith, Australia suffered lack of open or market economy in Australia (Oslington, 2013). A market economy is consisted by resources like land, labour and capital. These resources are owned by individual and controlled in the market place. In this system, government has a very small role to play. This system also features two important forces like self-interest and competition. This theory is about 200 years old, but still it is relevant in todays global economy. Australian economy did not follow this theory and paid a toll on its economies. The most well-known theory of population is the Malthusian theory (Huzel, 2006). He stated that food increase in arithmetical ratio but man himself increases in geometrical ratio. So for development in any society, population has to be controlled. If population control is not ensured, economy cannot be developed. Spencer argued that in this world only the fittest could survive. (Spencer, 1884) So in economy, if protectionism for long run is to given to an economy, it cannot sustain because without competitiveness one cannot survive. In case of Australian economy, when it was under protection, China was emerged as leading exporter in global market with cost effectiveness. (Taylor, 2010) Comparative advantage was first described by David Ricardo. Comparative advantage occurs when a country produces a good or service at a lower opportunity cost than another. This means a country can produce a good relatively cheaper than other countries. This theory leads to protectionism but in global economy international trade has an impact due to protectionism. (Maneschi, 1998) The basic argument of the article with the derivation of its effectiveness Now the question is all the resources are to end at one day. Australia has to think whether Australian economy is to develop a more vigorous manufacturing and traded services sector (Janda, 2017). This debate remains a fundamental difference of opinion between interventionist and non-interventionist. Capital market is imperfect and so market can be failing. This is now well accepted and understood. In 1997, Marceau report said that innovation is one of vital element where Australian economy actually failed to perform (Hughes, 1997). So in 2000, the Howard Government launched its most important industry policy statement. This policy was based upon enhanced research across a range of programs. In 2015, the coalition government changed its shift to the idea of innovation, translation into competitive firms and products should be the main target of Australian economy. The 2015 Australian innovation system report announced the defence Procurement as a support for local manufacturing indus try (Anon., 2015). Next generation submarines are now constructed in Australia. It is a huge shift which advocates trade and business with needs of more active government role. Australian economy did very well with its abundant and various resources and performance was too good globally. It took very less time to become rich and potential economy. With tariff protection, Australian economy eventually shifted to market enhancing economy with introduction of brisk competition. These reforms would invigorate the manufacturing sectors and grew extensively with rationalism. It became more efficient and competitive in nature. Australia took time and did respond hesitantly towards market economy. This hesitancy has both bad and good impact. It seemed to be rewarded and made compulsory back to the resource based political economy which is its basic nature. Australian economy can engage much more systematic transformation to promote industry growth. As Australia suffered from fewer comparati ve disadvantages, shifting from manufacturing to services was proved good. Services are closely related to manufacturing and Australia needs time to establish a strong position in high value service sectors. References: Anon., 2015. Australian Innovation Report- 2015. Mark Cully, Chief Economist. Anon., 2017. Australian economic Review. Wiley Online Library, 50(3). Attard, B., n.d. The Economic Hostory of Australia from 1788- AN Introduction. [Online] Available at: https://eh.net/encyclopedia/the-economic-history-of-australia-from-1788-an-introduction/ [Accessed 25th october 2017]. Australian, T., 2013. The Weekend Australian. [Online] Available at: https://www.theaustralian.com.au/business/business-spectator/australia-urged-to-diversify-economy/news-story/dad48c19861bac7b93eb3c20faee3a04 [Accessed 21 October 2017]. Carson, D., 2010. 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