Trade and public compensation in Australia

Abstract

It has been suggested that openness to international trade can lead to a compensatory expansion of the welfare state. In light of declining trade protection for Australian manufacturing this paper studies the Rudd government’s industry support policies for the automotive, and textile, clothing and footwear industries. It finds that these policies have not targeted the true losers of trade, low skilled workers, but have targeted investors in these industries. This observation refutes the idea that compensation must target an industry or a class. Further, it is suggested that these programs have favoured investors over workers due to the international mobility of investment capital. These policies are therefore not a form of compensation, but a form of international competitive spending. Future studies of the relationship between trade openness and public spending need to consider the interrelationship between trade and capital mobility to fully understand state responses to economic integration.