- OUTLINE OF THE TEN POINT PLAN (TPP) -

Foreword: The TPP concerns the policy that has been called 'economic rationalism'. The latter has produced some positive benefits but also had disastrous effects on some communities and led to a looming overall problem. Some 500,000 jobs have been lost due to tariff cuts, the trade deficit is $1bn per month, overseas debt increases by $30bn pa, and current deficits are funded partly by selling off ownership of Australian industries. 10 steps are suggested that might overcome these problems.

Introduction: For 25 years Australia has tried to improve economic efficiency by exposing firms to market forces - the doctrine of 'market rationalism'. The intent was to open overseas markets for agricultural products and create more efficient domestic industries. This strategy was theoretically sound but failed in practice - as evidenced by the current account deficit and chronic unemployment (especially for youth). The Society's goal is to revisit industry policy.

How did we get into this position? Australia has taken a uniquely theoretical position (involving free trade / economic rationalism) that the major economies have not followed. General solutions to fundamental problems can't come through peripheral policies (such as productivity improvement). This won't lead to the whole changes needed for our relatively simple imperative. To improve the current account we must increase exports or decrease imports - not argue that the deficit doesn't matter. And such measures as balancing the budget, improving government enterprise efficiency, privatisation and deregulation have nothing to do with the current account. Similarly programs to aid youth, regions and the retrenched are not a comprehensive solution to the unemployment problem which is due to loss of local market share by Australian manufacturers. The competitiveness of manufacturing has been eroded by many government initiatives (eg tariff changes, preference for developing countries, additional statutory costs, reduced research and other subsidies and floating the $A) (p4). The intent of these changes was to drive productivity improvements, to become globally competitive (p5); but this theory failed as (a) manufacturing's share of GDP fell from 26% to 14% and (b) foreign debt has escalated.

Is this the best outcome? Market forces have been emphasized for 25 years. At the same time market failures have impacted disastrously (eg artificially high $A; high unemployment; failure to achieve micro-reforms needed for firms to compete; falling market share as quantitative restrictions removed; financial system failures with easy credit in 1980s; export falls due to Asian crisis; failure to ensure value added to resources). Governments have paid lip service to the idea of supporting Australian enterprises is justified by market failures - but in practice the market has ruled. Tariff reduction has been seen by Government, the Productivity Commission and Treasury as the sole (theoretical) goal. The US's 40% lamb tariff shows that we still do not have a level playing field, and East Timor shows the continued need for a defense capability.

The Society's view: Productivity improvement is needed (and been achieved) but this has not protected industry against (especially international) market failures, and it can't resolve equity problems. Productivity improvement alone can't support Australia's current living standards. Manufacturers competitiveness depends on the time taken to complete a task and the cost involved. If costs are uniform - price can be related to efficiency. In the newly-industrialized-countries low wage costs are combined with modern equipment - and means that efficiency doesn't equate to low costs. Thus high wage countries must lose its markets (unless barriers are created by government or freight costs) no matter how efficient it is. It doesn't matter that wages are directly only a small component of costs - as they are a good index for costs generally.

What should we do? There are good theoretical arguments for trade liberalization - but no major countries have followed them. Policy needs to acknowledge this reality.

Ten Options are then suggested:

1. an industry policy review and renewal initiative - to recommend assistance measures based on a stock-take of industry and the work of 14 industry specific task forces, with a National Development Authority established to implement the plan;
2. restraining unfair trade - through anti-dumping measures, voluntary restraints, and regulation of imported food;
3. achieving international competitiveness - through domestic preferences for Australian made goods; incentives for processing of raw material exports;
4. education, training and productivity - with emphasis on education leading to basic engineering capabilities; public funding of training; productivity (ie the output / input ratio); design excellence; and government awareness of requirements for competitiveness
5. tax equity - in relation to scope for transfer pricing and manipulating where profits are earned, and ;
6. testing credentials - related to conditions of employment in competing nations;
7. imposing an imports duty to replace payroll tax;
8. monitoring cash flows and currency manipulation - noting that floating local currencies do not balance a countries cash flows;
9. improving the business environment - reducing government compliance costs;
10. being good stewards - preserving established public and private enterprise capabilities

Conclusion - Working together: Australia has a multi-cultural society. There is a tendency to bash the Australian ethos (and to write people off as lazy, poorly educated, undisciplined). One of the USA's great strength's is people's view that it is a great place. The Society wants to fight the negatives to ensure that Australia is a better place for our children.