N eoliberalism and Australia's Economic Relationship with Japan: Policy Paradigms in a Global Political

This thesis is presented for the degree of Doctor of Philosophy of Murdoch University

1996

Mark Beeson B.A Honours (Murdoch) ii

I declare that this thesis is my own account of my research. It contains as its main content work which has not previously been submitted for a degree at any university. iii

Abstract

The increasing internationalisation and integration of global economic activity has meant that the way nations seek to manage and accommodate such external imperatives is a critical determinant of national economic welfare. There has, however, been a notable variety of responses to these ubiquitous forces. In Australia, neoliberal ideas came to exert a powerful ideational influence over policy-makers during the 1980s as they attempted to reposition 'Australia' in response to the exigencies of external competition.

This thesis will argue that Australian policy makers' commitment to neoliberal ideas meant that policy was constructed within a limited set of theoretical parameters, which were unable to take account of the specific corporate and governmental practices of major trading partners. The thesis analyses the utility and effect of neoliberal ideas on the conduct of Australia's international economic relations, with particular reference to Japan. Japan is Australia's principal trading partner, an important potential source of investment capital, and the dominant economic actor in a region with which Australian policy­ makers seek greater 'integration'. This important economic relationship provides an appropriate case study with which to test the efficacy of the neoliberal model and the assumptions that inform it.

It will be demonstrated that some of the central concepts and assumptions of neo-classical theory, which are central to the discourse of neoliberalism, bear little resemblance to commercial practices in the region of which Australia is a part. In the course of this study, it will be argued that the dominance of neoliberal ideas may be best understood by considering their discursive influence, particularly as this was reinforced by an influential group of academics and government officials. The theoretical assumptions of these ideas will be examined, and the preconditions that rendered them attractive at a specific historical juncture detailed. It will be suggested that neoliberal ideas informed a specific political rationality which had discernible effects on a range of policy issues in Australia, but which was especially evident in the area of external economic policy. iv

Acknowledgments

While it may be obligatory to acknowledge help and assistance in an undertaking such as this, my gratitude and thanks are, nevertheless, genuine if inadequate acknowledgment of much generous assistance.

I would like to express my alphabetical appreciation to the following colleagues and friends who made especially helpful contributions to the completion of this thesis: Bruce Campbell, Mark Cloney, Richard Higgott, Jane Hutchison, Dick

Robison, lllan Warchiver, and Gary Wickham.

In addition I would like to acknowledge the support given by the staff of the Politics Department, the Asia Research Centre, and the participants in the Centre's post-graduate seminar series.

Two people merit particular thanks. As the thesis progressed, it became increasingly apparent just how critical is the role of a supervisor. In this regard I was especially fortunate in having someone who not only gave generously of his time and energy, but was a crucial source of both intellectual and motivational support. Thanks indeed to Garry Rodan.

Finally I would like to acknowledge the invaluable contribution Ann Firth, who not only provided incisive commentary on earlier drafts of this work but, perhaps equally as important, the emotional support and encouragement that helped me get to the end of it. Again, many thanks. v

Abbreviations

ABS Australian Bureau of Statistics

ACA Australian Coal Association

ACTU Australian Council of Trade Unions

AJRS Australia-Japan Research Centre

ALP Australian Labor Party

AMC Australia Manufacturing Council

AMWSU Amalgamated Metal Workers' Union

APEC Asia Pacific Economic Cooperation

ASEAN Association of Southeast Asian Nations

AUSPECC Australian Pacific Economic Cooperation Committee

BIE Bureau of Industry Economics

BoJ Bank of Japan

CFMEU Construction, Forestry, Mining & Energy Union

DFAT Department of Foreign Affairs and Trade

DITAC Department of Industry, Technology and Commerce

EFIC Export Finance and Insurance Corporation

ETMs elaborately transformed manufactures

EU European Union

FDI foreign direct investment

FIRB Foreign Investment Review Board

GPE global political economy

IC Industry Commision

lAC Industry Assistance Commision

JETRO Japan External Trade Representative Organization vi

LOG less developed countries

LOP Liberal Democratic Party

LNG liquefied natural gas

MITI Ministry of International Trade and Industry

MoF Ministry of Finance

MFP Multifunction Polis

MTIA Metal Trades Industry Association

NEDO New Energy and Industrial Technology Development Organisation

NIE newly industrialising economy

OECD Organization for Economic Co-operation and Development

OPTAD Organisation for Pacific Trade and Development

PAFTAD Pacific Trade and Development Conference

PBEC Pacific Basin Economic Council

PECC Pacific Economic Cooperation Council

PM&C Department of Prime Minister and Cabinet

SES Senior Executive Service

STMs simply transformed manufactures vii

Contents

Page

Abstract ...... iii

Acknowledgements ...... iv

Abbreviations ...... v

Contents ...... vii

Tables ...... xi

Introduction ...... 1

Chapter 1: The Global Political Economy ...... 7

Part 1: International Economics ...... 9

Production and Labour ...... 13

Ford ism and Flexible Production ...... 15

Transnational Corporations ...... 17

The Circuits of Capital...... 20

Part 2: International Politics ...... 23

Theories of the State ...... 25

TNC-Government Relations ...... 27

Inter-state Relations ...... 29

Hegemonic Stability and Structural Power ...... 31

The Neo-Gramscians ...... 35

Conclusion ...... 39

Chapter 2: Neoliberal Governance ...... 41

Neoliberalism as a Political Rationality ...... 43

Political Rationality ...... 45

Discourse Theory ...... 47

Neoliberal Theory ...... 49

The Neo-classical Influence ...... 51

Neo-classical Assumptions ...... 54

Neoliberalism: A Critique ...... 56

The Political Effects of Neoliberalism ...... 59

Expertise ...... 62

The Political Implications of Expertise ...... 64

Conclusion ...... 68 viii

Chapter 3: The Rise of Neoliberalism in Australia ...... 72

The Historical Backdrop ...... 73

Australian Economic Structures ...... 75

The Politics of Structural Adjustment ...... 80

Bureaucratic Structures and Expertise ...... 85

Bureaucratic Reform ...... 87

Policy Implementation ...... 91

Political Pressures ...... 95

Neoliberalism and the 'Big Picture' ...... 99

Conclusion ...... 1 01

Chapter 4: Understanding 'Asia': The Theoretical Debate ...... 1 04

Epistemic Communities ...... 1 05

The Drysdale Line ...... 110

The Garnaut Report ...... 113 Keeping the Faith ...... :...... 115

Re-interpreting 'Asian' Development ...... 117

Strategic Trade and Industry Policy ...... 120

Industry Policy in Australia ...... 123 The Neglect of History ...... 126 Conclusion ...... 130

Chapter 5: The Political ...... 132

Part 1 : The Developmental State ...... 133

Making a Miracle ...... 135

Bureaucratic Politics ...... 136

Managing International Structural Adjustment ...... 140

The Political Dimension ...... 145 Part 2 : Collective ...... 148 Production and the Japanese Firm ...... 150 Japanese Industrial Groups ...... 152

Keiretsu Networks ...... 154

Sogo Shosha ...... 155

Japan's 'Peculiar' Import Profile ...... 158

Industry Policy ...... 161

Conclusion ...... 164 ix

Chapter 6: The Regional Context ...... 166

Part 1 : Australia's Regional Economic Policy ...... 167

APEC's Precursors ...... 169

APEC's Rationale ...... 172

The US and Japan ...... 17 4

Part 2 : Japan and the Region ...... 177

Japanese Economic Expansion ...... 179

The Structure of Japanese Capital in the Region ...... 186

Japan as a Regional Power ...... 191

Japan and the Politics of Regionalism ...... 194

Conclusion ...... 197

Chapter 7: Australia and Japan ...... 199

The sogo shosha in Australia ...... 20 1

Japanese Investment in Australia: An Overview ...... 202

Manufacturing ...... 207

Manufacturing: A Contemporary Overview ...... 211

Banking and Finance ...... 213

Japanese Banks and Security Houses in Australia ...... 214

Assessment ...... 218

Real Estate and Tourism ...... 219

The Influence of Individual Companies ...... 220

Tourism ...... 223

Resources, Mining and Agriculture ...... 226

Securing Resources ...... 228

The Agricultural Sector ...... 229

Trade and Investment with Japan: An Overview ...... 231

Conclusion ...... 233

Chapter 8: Case Studies ...... 235

The Coal Trade ...... 235

Corporate Japan and the Coal Trade ...... 236

Price Determination ...... 238

Overview ...... 240

The Car Industry ...... 241

Interventionism ...... 243

The Politics of Car Production ...... 245

The New Generation of Shipbuilders ...... 249 X

The Emergence of a New Industry ...... 249

The Japanese Ferry ...... 252 Assessment ...... 254 The Multifunction Polis Project...... 255 The Genesis of the MFP ...... 255 The Australian Response ...... 258

Assessment ...... · ...... 260 Conclusion ...... 262

Chapter 9: Conclusion ...... 265

Theoretical and Practical Implications ...... 268

Bibliography ...... 279 xi

Tables and Charts

Page

Tables

Table 1: Circuits of Capital and Links with the Global

Economy ...... 21

Table 2: Major Business Groups Formed Around General Trading Companies ...... 156

Table 3: APEC Member Statistics, 1992 ...... 172

Table 4: Japan's Overseas Direct Investment by Region and Industry, Cumulative Total, FY 1951-FY 1992 ...... 180

Table 5: Japanese Cumulative Investment by Industry, 1951-89 ...... 205

Table 6: Direct Investment in Australia by Sector: 1983-95 ...... 206

Table 7: Motives for Japanese FDI ...... 208

Table 8: Japanese Business in Australia: Date of Establishment, Type, Number ...... 209

Table 9: Australia's Commodity Trade with Japan ...... 227

Charts

Chart 1: Trends of Japanese Direct Investment by Region 1986-94 ..... 182

Chart 2: Australia's Share of Total Japanese Overseas Investment ...... 203

Chart 3: Japanese Direct Investment Into Australia ...... 204

Chart 4: Japanese Investment Into Australia, By Type of Capital ...... 204

Chart 5: Japanese Institutional Distribution of Outstanding Assets ...... 216 1

Introduction

Capitalism, it might be supposed, is everywhere and at all times much the same. By definition, of course, this observation must be at least partially accurate. The qualities that distinguish the capitalist system - market-oriented commodity production, private ownership of the means of production, the selling of labour power, and individualistic, acquisitive behaviour - are necessarily present in any set of economic arrangements and relationships dubbed capitalist. Yet what is noteworthy and surprising about capitalism in the contemporary global political economy 1 (GPE) is the continuing degree of variation within nations on these central themes. Ironically, the apparent demise of capitalism's only serious modern rival, central planning, has served to highlight rather than erase the ways different nations have approached the problem of national economic management. Moreover, there are, as we shall see, substantial grounds for thinking that different forms of capitalist organization may confer particular advantages on economic actors located within particular nations.

The potentially crucial role of national governments in determining the basis upon which national economic spaces 2 are integrated into the wider GPE has spawned a voluminous literature. The state of 'the state' and the impact of transnational economic forces on national governments have become major objects of scholarly interest and debate, much of which will be drawn upon in subsequent chapters. In what follows, however, I will not be principally concerned with mapping and measuring the decline of the nation state or governmental authority. Rather, a central intention of this thesis will be to consider the differences in policy responses to what are the seemingly ubiquitous imperatives of global competition. Why is it that some countries have adopted market-conforming policies, for example, while others have favoured initiatives that are more akin to nee-mercantilism? Specifically, how·did a

1 I have employed this term in preference to the possibly more customary 'international political economy' because, as we shall see, the status of the nation state and the inter-national system of states are becoming increasingly contested. Moreover, as Gill observes, financial systems and production processes 'are increasingly planetary in scope'. See: Gill, S (1992) 'Economic Globalization and the Internationalization of Authority: Limits and Contradictions', Geoforum, 23 (3): 276. 2 This rather clumsy formulation is preferred to the more customary and euphonious 'national economy' because this latter term is itself increasingly problematic in the wake of the internationalisation of economic activity. Quite simply, it is no longer clear what the 'national economy is any longer, or where its boundaries may be drawn. 2 particular set of ideas - known as 'economic rationalism' in Australia, but more generally as neoliberalism - come to exert such a powerful influence on the conduct of economic policy in Australia? Moreover, what has been their impact on the content and direction of government policy?

This latter question informs the second major concern of this thesis: what has been the effect of a neoliberal policy framework on the conduct of Australia's international economic relations? Rather than attempting to deal· with all of Australia's manifold relationships I shall focus principally on the bilateral relationship with Japan. There are several reasons for focusing on the bilateral relationship with Japan in particular. Firstly, Japan is Australia's largest trading partner and a significant source of foreign investment. Secondly, Japan is the dominant regional actor in an increasingly 'tri-polar' economic world. Thirdly, Japan provides a useful 'counterfactual' for the Australian experience: not only is there nothing inevitable or 'natural' about a preference for nee-liberal policies, but Japan demonstrates the potential for different economic trajectories and outcomes under state-led capitalist development.

The central argument of this thesis, which emerges from a consideration of the Australia-Japan relationship, is this: Australian policy-makers' commitment to neoliberal ideas meant that policy itself was constructed within a limited set of theoretical parameters; policy was consequently unable to take account of the specific corporate and governmental practices of major trading partners. This theoretical difficulty was particularly evident in relationships like that with Japan, where market mechanisms were not necessarily predominant determinants of economic activity. One of the major intentions of this thesis will be to draw attention to the manner in which neoliberal ideas discursively defined and delimited the problematic of international economic policy. Moreover, in what follows it will be demonstrated that the central concepts and assumptions of neo-classical economics, which were an integral part of the overall neoliberal approach, bore little resemblance to commercial practices in the region of which Australia is a part. Yet such ideas have been, as we shall see, instrumental in redefining the style and objects of government in Australia since the 1980s.

Initially, however, consideration will be given to the state of the contemporary GPE, and some of the more important theoretical contributions that have attempted to make sense of it. For the sake of convenience, discussion is divided between broadly defined political and economic areas. While this is an inherently artificial distinction, it helps to structure what otherwise threatens to 3

become an unwieldy exercise. Chapter 1, therefore, pays particular attention to changes in the production process, the increasing mobility and power of financial capital, and the critical role of the transnational corporation (TNC) as an organiser of global production - in fact, the more overtly economic aspects of the GPE. Subsequently, the relationship of these structures and processes to political entities like national governments and increasingly important transnational organisations is reviewed. The overall intention of this chapter is to delineate the ubiquitous forces and structures that constrain all governments to some degree in an increasingly integrated international economic system.

One might intuitively expect that such powerful and apparently irresistible international forces would mean that individual governments had little scope for policy autonomy. There is, indeed, a good deal of evidence to suggest that national sovereignty has been diminished and that the purview of governments is increasingly circumscribed. But what is most remarkable in the contemporary GPE is the continuing variations in the policy rationales of different nations. Chapter 2 begins the process of attempting to account for some of these differences. The intention here is to consider the impact of particular ideas and their influence on the scope and content of subsequent policy. It will be suggested that at different times within different nations distinct 'political rationalities' exert a powerful ideational influence within policy-making elites, which may come to determine the content and direction of subsequent policy. The political rationality that has been most influential in Australia since the 1980s has been one that drew much of its theoretical inspiration from neo­ classical economics. Consequently this chapter closely examines the manner in which a distinctive neoliberal political rationality came to exert an ideational dominance, its epistemological predicates, and its subsequent development as a distinctive mode of governance.

Chapter 3 pays more attention to the specific causes that underpinned neoliberalism's rise in Australia. While part of neoliberalism's influence was discursively achieved, as the previous chapter argued, there were also important contingent political and economic circumstances - especially the manner in which many economic entities in Australia were integrated into the wider GPE- which made neoliberal ideas increasingly attractive. These are given extensive consideration as they not only help explain the alignment of political forces sympathetic to more deregulatory policies, but they largely determine and circumscribe the manner in which Australian based enterprises might interact with international economic partners like Japan. This chapter will 4 also illustrate the impact of the neoliberal political rationality outlined earlier on Labor's economic and social policies. It will be suggested that a combination of political practices designed to achieve the specific goals of international economic reorientation and national reconstruction intersected with expert discourses that claimed to have the technical solutions to Australia's perceived problems,a process that reflected and reinforced the influence of neoliberal ideas. One of the keys to explaining the influence of neoliberal policies in Australia during the 1980s, I shall suggest, is the productive intersection of a reform-minded government bent on re-structuring and revitalising the 'Australian economy' with a bureaucracy steeped in an increasingly technocratically defined competence.

The perceived need tor change and dissatisfaction with 'traditional' tools of macro-economic intervention provided the preconditions in which neoliberal ideas were able to gain ground amongst elite policy-makers. Chapter 4, therefore, takes a closer look at some of the more important individuals that championed neoliberal ideas in Australia. It will be suggested that an influential 'epistemic community' played an important role in promoting a specific set of policy initiatives designed to provide a rationale and framework tor the conduct of Australia's external economic policies. Close attention will be paid to the work of two academics in particular - Peter Drysdale and Ross Garnaut - as they have played a large part in determining the direction of Australia's overall foreign economic policy in general, and that with Japan in particular. As partof this process, the theoretical assumptions and propositions evident in their work will be subjected to rigorous scrutiny and compared with other interpretations of the Asian about which they claim authoritative knowledge.

In this regard, Japan provides an important measure against which to judge the theoretical utility of the neo-classical paradigm that informs Drysdale and Garnaut's work. Chapter 5 is, therefore, dedicated to a detailed analysis of the Japanese political economy. Initially, Japan's post-war development is examined, especially the distinctive government-business relations that promoted its remarkable growth, before moving on to consider the equally noteworthy corporate structures which have been integral to economic expansion in Japan. Not only does this provide a case study with which to test the explanatory efficacy of the neo-classical model, it gives a detailed picture of the Japanese economic entities and actors with which Australian-based firms and policy-makers must deal. It will be suggested that the neo-classical model's lack of historical and national specificity provides an inadequate basis on which 5 to comprehend the highly distinctive practices that characterise the Japanese political economy.

The potential efficacy of a more expansive theoretical approach than that provided by the neo-classical paradigm is also apparent in a regional context. It is a major contention of this thesis that the production strategies of the Japanese TNCs, which are the most tangible manifestation of the bilateral relationship from an Australian perspective, can only be understood within a regional or even a global framework. Attempting to account for the behaviour of such firms and their position within individual nations is not possible without a wider frame of reference. For this reason chapter 6 is taken up with a detailed examination of regional production networks and strategies. The intention here is to situate the investment and production strategies of Japanese TNCs within the overall context of the region of which Australia is a part. It will be suggested that only this level of complexity and specificity - something conspicuously neglected by more orthodox neo-classical accounts - can account for the way economic entities based in Australia are integrated into such strategies. Furthermore, it will be demonstrated that - in contradistinction to the claims of the neoliberal model - Japanese capital may be encouraged to invest precisely where market forces are either constrained, or where contingent 'distortions' make such locations more attractive.

In chapter 7 attention is given to the specific Australia-Japan bilateral relationship in the light of the above. The historical linkages between Japan and Australia are considered, and a close examination of the nature of Japanese involvement in the areas of manufacturing, real estate, resources and banking is undertaken. The intention here will be to measure the effectiveness of the neoliberal policy paradigm in transforming the bilateral relationship with Japan. It will be suggested that despite deregulatory initiatives and the opening up of the 'Australian economy' to market forces, there has not been a significant increase in general manufacturing investment of the sort anticipated by the architects of neoliberal reform. On the contrary, the pattern of Japanese involvement in Australia has followed, not surprisingly perhaps, a Japanese logic that has seen little noteworthy change from an established pattern of using Australia as predominantly a commodity supplier. Where there has been a significant change it has been in areas like real estate, where deregulation in both countries has facilitated the movement of potentially destabilising and speculative flows of financial capital. Despite the restructuring and relocation of large sections of Japan's manufacturing base, it is generally moving to 6 consolidate the tightly integrated production networks to Australia's north, rather than Australia itself.

Finally, chapter 8 presents tour case studies which in their different ways illustrate the specifics of the Australia-Japan economic relationship, and raise doubts about the adequacy and utility of the neoliberal paradigm both theoretically, and by implication as a basis tor policy. Chapter 9 is the conclusion which draws together the implications of the above. In this regard, attention will be drawn to the discursive authority of the neoliberal model and its impact on the conduct of Australia's external economic relations. It will be suggested that the there are substantial grounds tor questioning the efficacy of the neoliberal model both theoretically and as a basis tor policy. However, whatever the relative merits of neoliberal ideas, thinking of them as part of a specific political rationality can, I will argue, help explain both the content and style of government in Australia since the 1980s.

Overall, therefore, this thesis will argue that the neoliberal assumptions inherent in Australian policy-making contain serious theoretical - and by implication - pragmatic shortcomings. While the scope for autonomous policy construction may be increasingly circumscribed by developments in the global political economy, national policy-making elites still play a crucially important role in determining the form and content of economic activity that occurs within national borders. This thesis will demonstrate that adherence to a predominantly neoliberal policy paradigm in Australia meant that policymakers and advisers were often unable to comprehend either the activities of important regional economic actors like Japanese multinationals, or the strategies of their political counterparts in institutions like the Japanese bureaucracy, much less produce policies that might transform the broader bilateral relationship of which such actors were a crucial part. Consequently, the bilateral relationship with Japan has not been transformed by the Hawke-Keating governments' policies of economic opening and domestic reform. If the desiderata of economic policy in Australia is a more 'balanced' relationship with countries like Japan, in which . Australia is not just a source of commodity exports and a target tor speculative capital flows, then this thesis clearly reveals that only a paradigm that recognises the specificities of individual bilateral relations, and which develops policies accordingly is likely to deliver the sort of outcomes policy-makers desire.