Working Papers

Woodside Revisited

Ian Harper on yet another outbreak of capital xenophobia:

As in the case of the Shell/Woodside deal, the Treasurer receives no guidance from the law as to what he should consider when weighing the national interest. The Foreign Investment Review Board will offer advice based on its interpretation of the act but the Treasurer is free to decide for himself what constitutes the national interest and whether XStrata’s ownership of WMC would compromise it.

Harper explores the contradictory logic employed in both episodes.  But the real issue here is not the merits or demerits of foreign ownership in a given case.  It is that the ownership and control of equity capital in Australia is subject to sweeping ministerial discretion, not to mention the bureaucratic discretion exercised by the ACCC.  The rule of law is almost entirely absent, which encourages rent-seeking behaviour and the misallocation of equity capital.

UPDATE:  The Treasurer is being praised for making the ‘right’ decision by not blocking the XStrata bid.  Steve Lewis says it is ‘a decision that will enhance Australia’s reputation as a haven for foreign investment,’ and that ‘…the Howard Government has sent another powerful signal that Australia is open for business.’ 

In fact, the decision sends a signal that any attempt to upset the status quo in relation to the ownership and control of Australian equity capital will have to run the gauntlet of the political process, allowing special interests to seek outcomes they could not otherwise secure in the marketplace.  Rather than praising the outcome, we should be damning the process, which has Australia running the fifth most restrictive FDI regime in the OECD.

posted on 11 February 2005 by skirchner in Economics

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Capitalist Internationale?

The WSJ’s Bret Stevens reports from the WEF meeting in Davos:

At an Internet café late Thursday night, I am set upon by two Swiss undergrads who earlier in the day had participated in an antiglobalization rally. How, they would like to know, do I justify my presence at this malign gathering of the Capitalist Internationale? O that it were the Capitalist Internationale, I reply. I explain that this year’s Davos is purpose-built to satisfy all of their grievances. They think the Forum’s concern for the poor and the environment is a meaningless gesture at best and probably a devious trick. I think: “The capitalists will sell the rope from which they will hang.”

(Thanks to John Rogers for the pointer).

posted on 02 February 2005 by skirchner in Economics

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Australia Day, 2005

After 217 years, this outpost of the Anglosphere is probably in better shape than it has ever been.  The economy has been growing at one of the fastest average rates in the OECD over the last decade, the unemployment rate is at near 30 year lows, real investment as a share of GDP is at the highest levels in nearly half a century and net Commonwealth public sector debt has been all but eliminated.  Consumption growth and a widening current account deficit, far from being a sign of weakness, indicate confidence in Australia’s future growth prospects.  Perhaps less widely known is the fact that Australia has become a net exporter of direct investment capital in recent years.  At least some of Australia’s current account deficit is thus funding the globalisation of Australian business.

Against this backdrop, the Prime Minister’s approval rating is at its highest levels ever.  This is not unrelated to the fact that the federal opposition Labor Party is in disarray following its crushing election defeat last year.  The abandonment of foreign and defence policy bipartisanship under former Labor leaders Crean and Latham is at least partly responsible for this outcome.

Having said all that, Australia still has much unrealised potential.  With the anti-globalisation bloc in the Senate having been marginalised following the last federal election, there is little excuse for not completing the task of modernisation and integration with the global economy begun in the early 1980s.  2005 is likely to go down in history as the year in which this historic opportunity to finally bury isolationism, protectionism and paternalism was either seized or squandered.

posted on 26 January 2005 by skirchner in Economics

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