The Move from Labor Protectionism to Neoliberalism in Australia - Case Study Example

HOW THE MANUFACTURING INDUSTRY IN AUSTRALIA HAS BEEN AFFECTED BY DEREGULATION DURING THE MOVE FROM LABOUR-PROTECTIONISM TO NEOLIBERALISM. Name: Institution affiliated: Date of submission: Tutor: Introduction The move from labor protectionism to Neoliberalism in Australia has had it effects in the manufacturing industry. Australia has increasingly grown economically in the world thus their push for Neoliberalism in the world has been felt. Before the move by Australia from the protectionism to Neoliberalism, there existed the industrial policy in the manufacturing industry. The policy had been created to promote the growth and establishment of new manufacturing industries in Australia. Prior policies that aided the growth of the Australian economy were the protectionism, but they later changed and moved to Neoliberalism when the domestic industries had grown strong enough to compete with the foreign industries. Deregulation refers to the process whereby the state reduces the regulations that govern certain aspects of the country. Australia used Neoliberalism as the deregulation policy in the economy of the country Protectionism Protectionism is a policy that countries use to help protect the domestic companies and industries from competition from foreign companies. Countries do this by imposing tariffs, import quotas, subsidies and other restrictions that undermine foreign investments. It restricts trade between states, which in turns helps to promote fair competition between the goods and services that are produced in the country and those imported or produced by foreign investors. The protectionism policy is usually in contrast with the free trade since the governments usually increase the trade barriers thus undermining the interstate trade. Although economists and the world trade organizations are usually against the trade restrictions imposed by governments, the governments also consider the effect that a non-tariff state would have on its citizens. The citizens’ risk losing their market control within the state thus it may affect their living standards negatively and also the economy of the country. In the case of new and young industries, protectionism helps them to grow as they are nature to the point where they can compete with the already established foreign companies. The theory of protectionism helps the local companies since the tariffs increases the costs of foreign goods making the local goods be preferred to the foreign goods. Protectionism means that the government enacts laws that protect the citizens. Such laws include collective, bargaining, competition, equal opportunity, intellectual property, minimum wage, child labor, occupational safety and health and environmental protection [Ton12]. Neoliberalism Neoliberalism is viewed as the revival of the liberalism policy. The liberalism theory had its weaknesses, but the Neoliberalism has had its improvements. It has undergone a growth process in the past years making it more adaptable. Neoliberalism is a policy that was coined in the 1930s by scholars such as Alexander Rustow in their desire to avoid the repeat of the economic failures that faced states before this period. Neoliberalism is a lot more the opposite of protectionism. Neoliberalism entails the belief that economists have that the governments should not intervene in the economy. The aspects of the economy of the country should be left with the market forces thus the individuals will be left in the mercies of the self-regulating markets [Dav05]. Protectionism was adopted after the World War I and II and during the period of the great depression. The world war period between the years 1918 to 1945 was characterized by destruction of the agricultural and manufacturing centers. Protectionism and nationalism in the emerging world economies such as Australia was also evident during this period. The governments of such countries were forced to intervene in modifying the trade cycles to help strengthen their domestic institutions. The great depression period saw the collapse of the world trade, and this enhanced the promotion of the protectionism policy in most states as they tried to strengthen their economy. After states had started to stabilize economically, the idea of Neoliberalism came into being. They started to promote world trade and the foreign investment policy. Neoliberalism has been embraced in many countries in the world including USA, Chile and Australia. The neoliberal policies have been embraced Australia by both the labor party and the liberal party. Australian government pursued the economic liberalization program by privatizing the government corporations, floating the Australian Dollar and reducing the trade protection for the domestic entrepreneurs. Manufacturing in Australia Manufacturing entails production of goods in the economy using labor and machines and other biological and chemical processes in the formulation of the goods. In Australia, the manufacturing industry managed to reach its peak in the 1960’s when it controlled about 25% of the country’s gross domestic product. It means by this time; the companies had picked well in terms of production, and there was a surplus in the economy. Protectionism was no longer working for the Australian economy. It was so because what the country was producing was only within the country and could not be exported by the companies to gain enough foreign exchange. Protectionism deterred both exportation and importation of goods. Tariffs set by the government did not affect only foreign investment but also exportation of goods from the economy to other foreign markets [Ben09]. High taxes that were also imposed on the local markets who wanted to export their surplus good. Thus, they preferred selling their goods locally to importing their goods since they made no profits in that. The move led to saturation in the domestic market and it in turn forced the government to intervene and find ways to reduce the tariffs imposed on the goods. The Neoliberalism policy was adopted to bring about equilibrium in the Australian market. With the establishment of this policy, the goods that were not readily available in the domestic market could be imported from other producers and the surplus in the market was exported to other countries. Neoliberalism was a policy adopted to reduce the government involvement in the economy. With almost zero tariffs in the economy, the companies were encouraged to grow, and new companies were established. The growth encouraged competition from within the domestic industry and from the foreign investors. Foreign investment was encouraged, therefore, bringing in new ideas and products into the market. How deregulation has affected the manufacturing industry with the move from labor-protectionism to Neoliberalism Increased competition Competition is a major problem that companies usually face. With the emergence, growth and development of new companies, the competition faced by companies has increased. During the period between 1900to 1970 when protectionism had been adopted in Australia, the companies only competed amongst themselves. In as much as the protectionism policy was adopted to promote industrialization in the country, production of goods was only for the internal consumption in the state. It means that there was limited growth in production of goods since it was done according to the demand within the state. Protectionism only promoted growth of industries within the state, and this limited the industrialization process. Protectionism also promoted monopolies and oligopolies within the state. One or a few companies control some aspects in the economy. Such types of market structures distort the economy as they control the market through determining the market prices. After the protectionism period, the government of Australia adopted the Neoliberalism policies. It was done to allow foreign direct investment in the country [DrT10]. With the adoption of the Neoliberalism policy, the investors were allowed into the Australian market. The government reduced its policies by reducing the taxes the investors are supposed to pay. It means that the market forces are left to fluctuate freely and are determined by the demand and supply forces. The Neoliberalism period was adopted after the 1970 in Australia. The deregulation in the economy increased competition in the market. The reduction in the governmental interference in the economy, foreigners were encouraged to participate in the economy. Before, the companies that existed in the country were few but foreigners brought in more ideas that helped in the growth of more companies that increase in the industrialization of the country. In the domestic market, the citizens are usually risk-adverse. Thus, they tend not to invest in the creation of new companies. Capital also posed a major challenge in the domestic creation of new companies. The companies that already existed during the protectionism era started to face stiff competition from the companies that were being created. The competition forced companies to be innovative in production thus the quality of goods and services produced in the country improved [DrT10]. Establishment of unions and cartels to facilitate productivity Foreign direct investment (FDI) is usually characterized with the growth of large companies that bring in competition to the already existing companies. Domestic companies are usually smaller in nature and the competition created by the bigger companies may lead to the collapse of the smaller ones. Trade cartels may be established where a number of smaller companies come together to form a bigger company. The foreign companies’ control of the market is then shared with the new cartels. A health competition is thus established, and the local companies still have enough control of the economy. The cartels also help in protecting the consumer. With a single company in the domestic market, the prices may be set high thus the consumer will be suppressed. The cartels help in creating many companies producing the same but differentiated products. The prices are thus reduced to suit the consumers’ pockets. The prices of the goods will be controlled by the demand and supply forces in the economy [Rob121] With the establishment of new companies, the consumers and laborers are usually faced with some problems. Although there are regulations that are set to protect the consumer and the employees in terms of wages, the foreign companies may still device ways to suppress the employees. The companies may choose to pay the employees lower wages. Thus, the employees are pushed to form trade or labor unions. The trade unions are usually organizations that are created by workers who set to achieve a common goal. The trade unions help the employees to push for their rights and standardization of their salaries and wages. The companies are usually pushing to realize the welfare of the shareholders that is profits such that they at time end up not considering the welfare of employees and also that of the customers. The push for profits is usually turned to the consumer where the prices of the goods and services are increased. The welfare of the employees is also not taken care of since the working conditions are sometimes neglected, and the salaries paid to them are usually lower. The unions help to protect the consumer and the employees by pushing for quality in the goods produced and rights of the employees [Joh03] Employment During the period when Australia had adopted the protectionism policy, the employment rates were quite low as the citizen investors tend to create smaller companies. Capital to put up bigger industries and manufacturing companies is usually big which the citizens usually don’t have. Unemployment during this period was, therefore, a major problem facing the economy in Australia. The government of Australia had also invested in educating its citizens, thus, a sizeable population in the country possessed the skill to work in the industries yet the industries available were not enough to employ all those citizens. The Neoliberalism policy in Australia has led to the establishment of new companies that has in turn led o the creation of new employment opportunities. Importation of employees from the foreign countries is usually expensive the foreign companies operating in the domestic market of Australia. The manufacturing companies opt to take workers from the domestic market. The move helps in creating employment opportunities in Australia. The sizes of the manufacturing companies that are owned by the foreigners are usually bigger in size thus they tend to take in a large number of the citizens and offer employment to both the skilled and unskilled labor [Joh06]. World trade The protectionism policy was adopted not only in Australia but also in other countries that had a substantial control of the world economy. The countries that adopted the protectionism were responsible for the collapse o some of the world trade organizations. Australia adopted a closed economy for their market such that there was non-interference of the world in their economy. Surplus in the other countries could not be exported to Australia as they were working to industrialize the country with the available skills within the country. The move from protectionism to Neoliberalism in Australia led to the re-establishment of the world trade organization and other trading blocs such as the ASEAN and the European Union. After Australia had adopted the Neoliberalism policy, they pushed for other countries to adopt the same in order to allow free trade through the interstate borders. The surplus from the goods from the manufacturing companies would be easily exported to the other countries through the trading blocs. Australia reduced tariffs that were imposed on the foreign investors in during this period to encourage trade between the states in the world market. The move by the Australian government to reduce tariffs led to an increase in the rate of industrialization in the country. Investors were encouraged develop new manufacturing plants in the country. The same happened in other countries and the process there was surplus production in the manufacturing industry to be exported to other countries. The best way to trade the surplus products with the world was through the use of trading blocs. It would be easy for the countries to trade their products with the other states through the trade blocs [Ker05]. Revenue from exports and imports The protectionism era in Australia was a time that the exports from the country and imports into the country were limited. The revenue collected by the government from the taxes of imports and exports was limited. It means that finances that government had was not enough to sustain grow and development of industries in the country. The adoption of the Neoliberalism policy led to the creation of new manufacturing plants through the foreign direct investment. As a result of the FDI, there was a surplus of goods from the manufacturing industries which led to an increase in exports. Taxes levied on the exports provided for an increase in revenue collected by the country. In some instances, there were goods that were also not locally available that the consumers needed. The importation form other countries led to an increase in government collection as the investors imported their products into the country [EAh06] Conclusion The move from the protectionism policy to the Neoliberalism policy by the Australian government has had a significant effect in the manufacturing industry not only in Australia but also in other states. The rate of industrialization before was lower during the protectionism period as compared to the Neoliberalism period when the rate of industrialization in Australia increased. More manufacturing plants were introduced into the country after the Neoliberalism period. The economy of the country has thus increased significantly with the manufacturing industry contributing to the growth of the economy. REFERENCES Ton12: , (Tony, 2012), Dav05: , (David, 2005), Ben09: , (Ben, 2009), DrT10: , (Dr. Tú, 2010), Rob121: , (Robert & Leslie, 2012), Joh03: , (John & Claus, 2003, p. 86), Joh06: , (John M. K., 2006), Ker05: , (Kerry, 2005), EAh06: , (E, 2006, pp. 329-330), Read More