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Panel Question: ‘Are we facing the end of free trade?’

John Mullen introducing panellists in Spanish.

RON MANNERS: I must congratulate the translators, you have firstly the challenge of translating from Australian to English, and then from English to Spanish. Good luck!

This is a serious question. I don’t accept a bad reputation for free trade or globalisation. I think the bad reputation has been earned by the special interests that have perverted the process of free trade and globalisation. Very few universities in Australia teach the public choice theory. I hope your universities teach the public choice theory because it explains how concentrated benefits go to certain people who work very hard to bring in and maintain legislation which is sometimes very bad policy. They spread the costs of these bad policies over millions of people like us and we bear these costs but we don’t march in the street because we are too busy doing our own business. They are the people, these vested interests, who seek special privileges. They are the people who work too hard to bring in these policies that we sometimes say ‘how did that ever get into Parliament?’, ‘how did that get past Parliament?’ It’s the same explanation of how some of the worst people get to the top. They work harder to get there because they have an interest in getting there. The really good people have enough self-esteem, they don’t have to work hard, they get invited.

JOHN CHISHOLM: I think the evidence certainly supports that with all of the players you just mentioned, Trump, Marine Le Pen, Russia and so forth, but I’m an optimist. Yes, I do think we’re going through a de-globalisation phase but I’m also confident that long term the benefits of free trade will be rediscovered and it may be through new techniques, that aren’t available to us yet, that new technologies will be made available. Men and women will find new ways to self-organise. They may have to go underground in order to do it. Imagine a version of Uber or AirBnB that is so completely distributed and peer-to-peer, that people could connect with each other for whatever it is that they wanted to do, transportation, lodging, any service or product at all, and find each other and engage in free trade. I’m optimistic that that will be possible. If BitCoin doesn’t make it as a cyber-currency and I’m cautiously optimistic that it will make it, but even if it doesn’t make it, I think there will be something else, that is smart and more secure and more readily decentralised than it. That’s where I see the long-term going in terms of globalisation.

Short-term we are absolutely facing some challenges. The reason the challenges are hard for us is because the benefits of trade barriers and protectionism are clear and specific and identifiable. In the short-term if someone’s job is saved as a result of a trade barrier or protectionism that is immediately identified. It may be short-lived because that industry that that individual is a part of may disappear very quickly, if it is not subject to market force. I like to say protectionism doesn’t save industries; it freezes them so they can’t evolve. Imagine an organism from 100 million years ago, trying to compete with an organism on earth today. It wouldn’t be very competitive, because the organism today has had 100 million more years to evolve and improve its techniques for evolution.  The same thing occurs with industries that aren’t subject to market forces. We see that in Detroit, for example, in the US automotive industry. So I think it is incumbent on all of us, to be able to articulate as best we can the benefits of free trade. They are widely distributed, they’re hidden. To use the words of Bastiat, they are ‘unseen’. It is our job to make them as tangible as possible and in the course of today’s discussion, we will do some of that.

RON MANNERS: There are some losers, absolutely, but they’re not caused by globalisation or free trade. I’ve been fortunate enough to be a part of this process in mining and exploration around the world, where the average mining company board now has directors from so many different countries. We all share technologies that enables us to use the very best exploration techniques, drilling techniques, metallurgical techniques, marketing techniques for the metals. We’re mining deposits that twenty years ago were sub-economic and would never be mined. We’re surrounding ourselves with new townships, new schools, and new generations of young people that used to be educated to age eight, now they’re educated to age 16. I see so many advances. These are the middle-class people who have been lifted by the productivity process that’s been generated by globalisation and free trade. The people that have missed out not because of globalisation and free trade, they’ve missed out because politic is broken. Politics is broken in my country, Australia. From what I’ve learnt recently about Spain, politics is broken in Spain. If you measure it by what governments do well, one thing governments do well is steal our money. In Australia, an economist some years ago said if the government steals more than 25% of our money, the country is doomed. In Australia, we’re beyond that. We’re at 26.5%. Worst here, you’re at 43 per cent. Forty three per cent of your money is stolen by your government. People that are paying the huge burden in just seeing their money consumed by government, they’re the people, they’re the forgotten people. They’re the people that my heart reaches out to. They’re the people that developed a voice and they haven’t got it in a situation where politics is broken as it is. We must repair politics. We must drive politicians into a corner where they only do a legitimate few things that governments can do best. We must seize back from them and do what we should be doing for ourselves.

JOHN CHISHOLM:  Well there absolutely are some losers of free trade in the short-term, but all of us are winners in the long-term. A century ago, 40% of the US workforce was engaged in agriculture. Today is about 2% and yet the US population is about 3 times as large today as it was century ago. So 38%, 40-2%, a huge number of agriculture employees have lost their jobs over a century. Is that a bad thing? Well, no. They have moved onto better jobs in manufacturing and IT, jobs that have more value added, jobs that let them make more money and enjoy a higher quality of life. So there are losers in the short-term, but all of us are winners in the long-term in two ways. One, in greater choice of products and services of free trade and two, lower costs of products and services. Take the iPhone for example. The iPhone would be impossible without globalisation. The iPhone uses about 75 elements in the periodic table. That’s about two thirds of elements in the periodic table. There is no country on earth that has all of the elements required to make an iPhone. You have to have free trade to create an iPhone. If we try to make an iPhone all in one country, say the United States, first of all, it wouldn’t be an iPhone because it would have to use other substitute materials and two it would be more expensive than it is today and therefore less accessible. So we enjoy more choices and lower costs. We forget we can get goods and services for lower costs by going overseas and that frees up capital here that we have to reinvest in new products and technologies that helps our local economy. Larry Summers, the former US Secretary of Treasury, was one of my classmates at MIT and he says the price of virtually every products in the service category that’s subject to market forces has declined over the last twenty or thirty years. It’s only the ones that he calls politically inflected, the ones that are insulated to market forces where prices have not gone down. Those are things like healthcare, housing , education. In these areas we have seen a skyrocket in costs because they are not subject to market forces. These improvements of quality of life do not necessarily translate to increase in GDP, or GDP per capita, but they improve quality of life nonetheless. Who would rather have a television from 1980, as compared to one today? Probably no one. It probably wouldn’t have as many channels or features. Who would rather have a mobile phone from 1980 as compared to one today? Probably none of us because mobile phones didn’t exist in 1980. You can see how our quality of life has improved thanks in large part to free trade and globalisation. Many of the improvements nowadays in particular do not increase GDP, they either do not affect it or decline it. When the camera got incorporated into the mobile phone GDP decreased. Sales of cameras are much smaller than they were twenty years ago before they were incorporated into cell phones. All the sharing economies, virtualising of products and services, all the entertainment, education, increasingly healthcare are either not increasing or decreasing GDP. GDP per capita is less and less a good measure of quality of life.

JOHN CHISHOLM: When I think of unemployment the first thing that comes to mind is entrepreneurship because a disproportionately large percentage of new jobs come from small companies and start-ups. I don’t we can blame globalisation on a decline in entrepreneurship. If anything, globalisation makes entrepreneurship easier. Goods and services are available at lower costs. It takes less capital for me as an entrepreneur to start a new company. There are many more new products and services available that I can either improve on or provide services to the suppliers of those products and services, or address niches between those products and services if I’m an entrepreneur. The more globalisation there is, the more opportunity there is for me to find more niches to fill or consolidate. I started my first company in 1992. I’ve had a chance to see how the environment for starting a company has changed in the last twenty five years. In most respects, it’s easier in my view to start a company today than it was twenty five years ago. You can find customers more easily. We didn’t have the internet twenty five years ago. Now you can go online to announce what you have and to let people come to you. You can go online to find suppliers. You can see which potential products and services are available that you might be able to combine in novel ways to make new products and services. You can see which investors have an interest that aligns with yours. You can outsource complete departments that don’t align with your competitive advantage so you don’t have to waste time doing those things, let someone else handle them. In all of those ways, entrepreneurship has become easier in the last twenty five years. There’s only one sense in which entrepreneurship has become harder in the twenty five years in my experience and that’s regulatory compliance. Let me just use two examples. One is workers status law. This is the law in the US that determines a worker is an employee or a contractor. So if they’re an employee, the employer is responsible for all kinds of benefits. If they’re a contractor, there is simply a transaction with the individual just as if they were a third party supplier. Well there’s a six page form, the Workers Standards Form, IRS Form SSA that has to be filled out for every single employee to determine whether they are an employee or contractor, if you want to make the case that they are a contractor. If you don’t want to take the risk of mischoosing, you can hire another firm who will hire the individual as an employee and you hire that firm as a contractor. An expense and hassle for  a young entrepreneur is certainly a challenge and may be insurmountable. I could give dozens of examples, they vary from industry to industry of all the different forms of regulations that have made starting businesses harder. One other example is licensing. Now over two thirds understand the positions in the US require people having a license to practice whatever they do, whether it’s a nurse or a massage therapist or whatever, even braiding hair. A practice as safe and innocuous as braiding hair, which has been around for thousands of years in over of half the US state requires a license. Well many of the people braiding hair are young, black women and to get a license in some states, a cosmetology license, might cost thousands of dollars. These young, black women can ill afford a thousand dollars for a license to do what they are passionate about doing. So this is where I think we need to look to find the obstacles to employment.

JOHN CHISHOLM: Well I’ll just offer one thought and then I’ll seek the guidance of my fellow panellists here. If you thought that measure was going to happen sometime in the near future, the prudent thing to do it seems to me would be to go ahead and position the new factor or plants, or production facility, outside of the country in question before the law takes effect, so you are not penalised for the process of moving it overseas. That is clearly counter-productive from the standpoint of what the law intended. I think it show how it is so difficult to predict the unintended consequences of putting regulations like that in place.

RON MANNERS: While this discussion has been going on, I’ve thought of two wise observers. One was Ayn Rand who wrote many interesting books, but she made the comment they can only do to you what you let them do to you. I always remember that as inspirational. Another was a friend of mine, Harry Browne, who wrote a book, ‘How to Be Free in an Unfree World’. I reckon it is a book that has guided me because the Australian Tax Department got too greedy with me at one stage and I left Australia. I didn’t work in Australia for seven years, I worked elsewhere and it was probably the best seven years of my life in business. After seven years, the Australian Taxation Department invited me back, to come back on my terms and I thought that was pretty reasonable. Don’t let them do things to you, it’s for you to stand up against them and be strong.

I’ll cover one point that hasn’t been covered before it’s to do with politics being broken. I run the Mannkal Economic Education Foundation. Over twenty years we’ve sent more than 1000 young Australians around the world to think tanks to understand the comparative advantages of one country versus another, so they have built into their mind the freedom to go wherever they choose to go. We concentrate on young people. I don’t waste any time on people over the age of 40. I learnt from the Free Market Roadshow two years ago in Greece that there is a similarity between Greece, in Spain and Australia, and that is that anyone over 40 is comfortable. We’ve made our own arrangements. We know how to get around and get through all the loopholes. We’re happy with that change. It is the young people that are being left with the debt, that rolling avalanche, that tsunami of debt that is going to engulf our children and our grandchildren. It’s the young people that we must focus our message on because they’re the people that will get angry about what’s being done to them. The Chinese government is terrified of their young people, absolutely terrified. The Australian Government is starting to realise there’s a backlash from the young people when they realise what’s being done to them. Cultivate the young people and develop in them the “angry spirit” that we should have ourselves.

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