Trading in platitudes, Brian Easton

APEC in Focus
S McMillan, B Ramasamy & F Holmes
Lincoln University Press and Daphne Brasell Associates, in association with the New Zealand Institute of International Affairs, $29.95,
ISBN 0 909049 29 7

Malcolm Templeton’s Human Rights and Sporting Contacts and Trevor Richards’ Dancing on our Bones are about the same issue although sometimes the reader might think the authors were in different countries, so different are their perspectives: Templeton provides a comprehensive account of New Zealand’s fraught relationship with apartheid South Africa in the context of New Zealand’s entire foreign diplomacy; Richards’ account is that of the much vilified, but eventually successful (nowadays even respected), protest movement he led.

Living as I do, on the margins of the Wellington Establishment and many protest movements, but closely observing both, I am struck by the enormous difference between their perspectives. Both writers deeply oppose racism, so one might think they were on the same side. Yet each occasionally slags the other off. Neither quite comprehends the constraints the other faces: the officials attempting to provide coherence to a foreign policy of which this was but one aspect, the protesters committed to a single objective, but riven by tactical and strategic divisions.

Here my remarks are preliminary to a review of the APEC debate where again the officials and the public could well be in different countries. This time there appears to be no commonality of ultimate objective that is not platitudinous. Moreover, economic issues seem to me to be more technical, so it is not merely a matter of the path to attain the end, even if it could be agreed upon.

While I have referred to the “APEC debate”, APEC is symbolic of the wider issue of New Zealand’s role in an increasingly globalised world. Were APEC to vanish, the debate would continue just as ferociously. APEC is especially prominent in 1999 because the annual conference of its members has been held here, and because the Government has chosen to make that conference a key part of its re-election prospects. I doubt it will get as much purchase as the 1981 Springbok Tour did. But in a year in which everything else the National Government has done seemed to turn sour (if it was even noticed), while things it did not do captured the headlines, APEC must seem a jewel in a battered tiara.

APEC, formed in 1989 when the Australians, in particular, became nervous about weakening of international commitment to globalisation and the dangers of the consolidation of economic blocs, may be an appropriate symbol for globalisation. Thus was promoted a regional grouping around the Pacific Basin. (The “Asia” of the title is anomalous for every member state has a Pacific coastline, while some major Asian economies – especially those of South Asia and the Middle East – are omitted.) It is a loose federation – membership is voluntary – platitudes are spoken, motions are passed, and promises are made. There is no enforcement mechanism.

It is true that the members have committed themselves to free trade and investment in the region by 2010 for developed countries and 2020 for the developing ones. I do not know of any thoughtful observer who expects these commitments to be met in total, although there should be some progress. One will not be surprised if they are hardly met at all. A decade or two is a long time in an economic policy regime. The meeting in Bogor, Indonesia, in 1994 did not envisage the Asian crisis of the late 1990s, which has led to some members expressing doubts they will be able to meet the goal. There will be new political leaders in 2020; there may not even be an APEC then as we know, or can project, it today.

If the commitments are met, it will be more to do with each country deciding that winding back protection is in the economy’s internal interest. There is a standard economic argument for this. Tariffs, it is said, are penalties on the unprotected (typically export-oriented) industries of an economy. Eliminating them benefits the growth-oriented sectors. New Zealand has made a fetish of extending this approach to a “trading naked” extremism, the term for the strategy of stripping away all interventions, derived from the image of someone at a picnic taking off all their clothes in the hope that others will follow. While we have claimed extraordinary benefits from the strategy, the objective evidence is an embarrassingly poor economic performance: rising unemployment, poor productivity increases, modest economic growth funded by rising overseas debt. The punchline is that the rest of the picnic looks at the naked one, and puts on another jersey.

How New Zealand chose the trading naked strategy is a puzzle. I am not sure that the official papers, had we access to all of them, would throw much light. My impression is that its adoption has been ideological – a misinterpretation of what economic theory has to say. Certainly most first-year economics courses demonstrate that under certain conditions free trade maximises economic output. Understandably, those who struggle to pass Stage I
economics are impressed by the elegant result, and do not notice the multitude of assumptions, or go on to look at a variety of conditions where free trade is not optimal. Economists tend to debate whether the deviations from the assumptions are sufficiently large to justify an alternative strategy to free trade. I have no sense that such a debate went on within the New Zealand policy community, or that the complicated judgements that an extreme free trade stance involves were ever made. If they had been, a more strategic approach to liberalisation would surely have taken place.

One political factor is that while the extremism of New Zealand may have done little for the New Zealand economy, or even damaged it, some powerful groups benefited, or thought they did. Undoubtedly the last decade’s economic policy has been very comforting to the finance sector and they in turn have supported it in their self-interest under the misapprehension that what was good for them was good for the nation. The export-oriented resource sector, especially farmers, also thought the strategy would be beneficial, but their gains have been minimal – far less than the advocates promised. Not surprisingly, the farmers have turned against the National Government, although they are split between those who want to intensify the strategy, and those who have doubts. The difficulty for the public debate is that if the extremist policies are unconvincing, unproven and failed, it does not mean that all strategies that embrace globalisation are equally unsatisfactory.

It is a fundamental requirement of democracy that good government depends on an informed public. I have heard enough of both sides’ rhetoric on APEC and globalisation to be confident we have not got one. The danger arises if, as argued in my recently published The Whimpering of the State: Policy after MMP, policy outcomes under the new electoral regime are going to reflect more closely what the public think, rather than what they are told is good for them. If so, poor quality debate about – and poor understanding of – trade policy will lead to poor quality policy. Conceivably, given a public which sees the only choice as between trading naked and high protectionism, we could get a government that pursues the latter, which is likely to lead to outcomes as disappointing as the former has. Over-dressed at a picnic means at the very least going short on vitamin D, and hardly being able to move means missing out on the fun.

How one raises public understanding is barely addressed, because each side is concerned with ideology rather than education, which requires putting both sides of the case, and encouraging the listeners to make their own evaluation. Government departments are poorly placed to carry out this task, the Ministry of Foreign Affairs and Trade especially so, given its outward-looking direction, and its poor connection with the wider population. Admittedly the Ministry supports the New Zealand Institute of International Affairs, but that mainly provides a reasonably independent bridge between the diplomats and the Wellington (and wider) Establishment. In any case, its interests tend to be in politics rather than economics. This NZIIA member cannot recall a single attempt to grapple with economic globalisation qua economics by a wide debate on the economic issues and options. On those occasions when there has been some nibbling at the topic, the range of expert views has been tightly circumscribed and the discussion has been confined to the platitudinous.

The NZIIA’s situation is well captured in its publication APEC in Focus. This slim volume – no longer than a long academic paper – is in two parts. Two-thirds is an essay jointly written by Stuart McMillan, ex-leader writer at the Christchurch Press, and Bala Ramasamy, a senior lecturer in economics at Universiti Tenga Nasional, Malaysia. It compares and contrasts their respective countries’ official attitudes to APEC. It is a useful exercise for it clearly shows that different members can have quite different attitudes to the organisation (and probably to globalisation).

But the key element is left out, because there is no mention of the actual trade (and related internal) policies of the two countries. One only need recall Robert Muldoon on sporting links to know that politicians can make all sorts of promises for international consumption, and practise quite different policies domestically. My impression is that New Zealand’s external presentation is not too different from its practices, but I am less sure of Malaysia. I refer not only to Prime Minister Mahathir Mohammed’s widely publicised statements following the onset of the Asian crisis. I have spent some time looking at motor-vehicle manufacturing: Malaysia, like other East Asian producers, has a record of protection and assistance that would fuel every prejudice of an anti-APEC protester. Perhaps the NZIIA is constrained from looking too closely at domestic policies, but an opportunity to inform has been missed. Of course, there is useful information in the booklet. For instance, it reports that our Foreign Ministry argues for APEC in terms of a platform that gives New Zealand more leverage in world affairs, an objective that need not be compromised by a more cautious approach to globalisation than trading naked.

I take it that the New Zealand-Malaysian comparison was seen to be too thin by itself, and a paper on “The Asia Pacific Region: Competition and (sic) Co-operation or Confrontation?” by NZIIA president Frank Holmes was bolted on to bulk out the publication. This does Holmes no service, for it is a paper first presented in October 1998, with a backward look at the Asian crisis (then already over a year old), quoting a limited number of sources, and providing neither great insight nor a comprehensive overview. (As I write, all informed eyes are on China, on which the essay provides no guidance.) There are important and uncomfortable things to be said about the Asian Crisis, the way it is leading to a re-evaluation of Asian growth and prospects, and how that will impact on APEC. Sadly the opportunity was missed.

Perhaps I am asking too much. This booklet may be for the Foreign Affairs corps, their local friends, and their overseas equivalents. It is not one to give the more thoughtful anti-APEC protesters and expect them to become much better informed.

In many ways APEC is a distraction from the real issue of globalisation. If there is any international institution we should be focusing on, it is the World Trade Organization, with its power to make binding decisions on international trade malpractices. (One might regret that it did not meet in New Zealand in 1999.) Most of all, we need to be thinking about globalisation far more rigorously than those engaged either in the shouting match that has dominated the public debate on trade policy, or in the tiptoeing around the crucial issues that seems to go on within the two camps. Until we do, we are likely to be left with an international trade and domestic industrial policy inimical to the interests of New Zealand, either because it is extreme, or because a moderate one is crudely applied. It is far from clear how we move to a more sophisticated debate. If the result of the 1999 focus on APEC is a review that concludes “could do better”, we may be at last on the way.

Brian Easton’s new book, The Whimpering of the State, will be reviewed in our December issue.

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