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The best way to protect jobs is through continuing to trade

05 June, 2009

About a decade ago I changed jobs. I left the Australian Council of Trade Unions (ACTU), where I had held the position of research officer (a position Bob Hawke held in the 1950s and 1960s) to join the Australian Trade Commission (Austrade) as Chief Economist. Source: Tim Harcourt.

When I told my boss, Bill Kelty, the legendary ACTU Secretary about the potential job offer from Austrade, he said to me the words I will never forget. 

“The job would be an extension of the work you’ve done here at the ACTU. Here you have made the economic arguments that have helped to improve the wages, job security and working conditions for workers now. At Austrade, you would help find the export and investment opportunities for Australia that will create jobs for future generations of Australian workers.”
The importance of Bill Kelty’s message has been rammed home through to me recently as the Global Financial Crisis (GFC) engulfs the global economy and the world’s labour markets. Whilst in the midst of the race to find “recession porn” and talk about job losses – the most high profile being Pacific Brands – and lost business contracts, there is little reporting of the economic gains and job creation that Australia has experienced through greater engagement in the global economy.
In fact, a new report from the Centre for International Economics (CIE), released by Trade Minister (and a former ACTU President who worked hand in glove with Kelty on the Prices and Incomes Accords) Simon Crean shows how much Australian workers have gained from trade since Australia became an open economy.
Amongst other findings the CIE found that, since Australia reduced tariffs and became an open economy, trade liberalisation had contributed a 2.5 to 3.5 per cent contribution to GDP or an increase in real income of $2,700 to $3,900 per annum for the average working family. The study also found that around 23 per cent of Australian workers – or more than one in five – were directly involved in trade-related activities.

The study showed that exports help create jobs and around 1 in 7 Australian workers were involved in export activities and around 1 in 10 in import-related activities (we need imports to be able to export and 45 per cent of exporters also import). The reductions in protection, enabled export industries to flourish, and enabled Australia to pick up dynamic efficiencies and productivity gains across the economy that helped create jobs and reduce unemployment.
But what about the GFC? Will there be a return to protectionism around the world, even if it doesn’t occur to the same extent in Australia? The CIE shows that a ten per cent rise in global tariffs would reduce world GDP by 0.2 per cent, equivalent to $110 billion, with a loss in global welfare (household consumption) being some $84 billion.

In short, raising tariffs would make everyone worse off, not better off, as it did during the Great Depression when countries engaged in tariff wars and ‘beggar-thy-neighbour’ exchange rate policies. In fact, in the Great Depression, here in Australia the economists of the day advised governments to do the three worst things you can do in a slump, that is, cut government spending, cut wages (the Arbitration Court cut the basic wage by 10 per cent) and raise tariffs.
Fortunately, we have learnt a lot since the 1930s and we now know that a fiscal stimulus, growing wages in line with productivity, and keeping an open economy with an accommodating monetary policy is the way to go to economic recovery. That is why Simon Crean is so vigorously prosecuting an activist trade agenda in the World Trade Organisation (WTO)’s Doha Round and through a series of free trade agreements (FTAs) across the globe.  This will ensure that trade will help stimulate recovery and reverse the fall in living standards that the GFC has imposed – particularly on the world’s poor.
Of course, the quality of jobs created by trade matters as well. A study I prepared for the University of New South Wales (UNSW) using Australian Bureau of Statistics (ABS) data, showed that, on average, exporters were ‘better bosses’ in terms of wages and labour standards both here in Australia and overseas. The study showed that at the micro level that exporters, on average, improve the quality of employment in Australia as they are innovative, invest in technology and education and training, and achieve higher levels of productivity and profitability, relative to domestic businesses.

The study found that, exporters, on average, pay 60 per cent higher wages than non-exporters, but are also found to achieve higher standards of occupational health and safety, equal opportunity employment practices, better working conditions and more likely to be unionised and use collective bargaining agreements when compared to non-exporters. A similar result occurred when concentrating on just the manufacturing sector. As the industry moved up the value chain away from low-cost assembly to higher skill, research and development (R & D) and design, wages and conditions improved along with productivity in the export sector. The result of this Australian study is also consistent with overseas studies of exporters and the labour market in both mature and developing countries as diverse as Bulgaria, Chile, and Taiwan.

What about foreign direct investment (FDI)? A study by Access economics on the effect of FDI on jobs found that a majority of foreign owned firms in Australia accounted for 14 per cent of employment (equivalent to around 1.3 million jobs) and made significant contributions to output (value added), exports and R &D expenditure. These findings have been replicated in developing economies – particularly in China.
In conclusion, exporting is an important guarantee of job creation and job security as it improves the micro-efficiency and productivity of the Australian economy. As Bill Kelty said to me, 10 years ago, it’s our job at Austrade, to scour the world for export and investment opportunities, to help create employment for current and future generations of Australian workers and their families to the benefit of all of us. And now, with the impact of the GFC affecting the Australian labour market, I especially see how important Bill Kelty’s advice was on the importance of trade and Austrade’s role in job creation.

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