Ritualised Forms

Homage to Contemporary Bullshido

Gitto, the Pavlovian economic oracle conditioned to ignore questions

Foreign investment, the economic stimulus we love to hate



If foreign investment in Australian businesses is so unpopular with so many people and such a hot potato for Malcolm Turnbull and his government, why do we persist with it?

Short answer: because we prefer our material standard of living to go up, not down.

If foreign investment in Australian businesses is so unpopular with so many people and such a hot potato for Malcolm Turnbull and his government, why do we persist with it?

Short answer: because a generations worth of economic mantra has conditioned us to think that taking more foreign investment is the only way to raise our living standards (despite evidence that, for the majority of us, that probably isn’t the case unless we take on loads of debt).

That, of course, is before we get to the question…… If foreign investment is so dubious for so many people, with the economic benefits so questionable for so many why do our politicians and the mainstream economic media persist in exhorting it? (rather than making it work for us)

Short answer: Because it works for them, or has worked for them, and they lack the ability to ask if what worked for them will continue to work for others, or they don’t care about the others, or they have been conditioned in a Pavlovian sense to behave in a particular way when presented with stimulus (like a question about their assumptions)

This week an Essential poll revealed the full extent of the public’s reservations about foreign investment. Foreign investment in mining was regarded as “bad for the economy” by 28 per cent of respondents.

For investment in ports it was 37 per cent and for investment in agriculture it was 44 per cent. For investment in infrastructure such as electricity it was 45 per cent and for investment in real estate it was 54 per cent.

The most opposed to foreign investment were voters for minor parties such as One Nation and the Xenophones, but Greens voters weren’t far behind. Then came Labor voters and, finally, voters for the Coalition.

But even among Coalition supporters there were almost always more saying it was bad than saying it was good.

That is all pretty straightforward reportage, as you’d expect of a veteran 40 year journalist.

When you remember that our level of material prosperity has been dependent on foreign investment since the arrival of the First Fleet, it’s a wonder so few punters can join the dots.

When you think it is now nearly 240 years that the people of this land have been sucking in more than they generate through doing anything other than selling off the fruit of the land, it’s a wonder so few economic commentators can ask the question ‘are we capable of being productive through our own efforts, applying our skills, rather than just importing more people, taking on more debt, or selling off more of the landscape’. Indeed it’s a wonder so few economic commentators can bring themselves to ask questions at all.

Viewed through economic eyes, the First Fleet was just the arrival in this country of its first foreign investor, in boats laden with labour, materials and supplies, intent on getting a new subsidiary going.

There were a lot of imports with, on the other side of the transaction, an inflow of foreign capital owned by the British government.

Viewed through the eyes of the people who decided upon it the intention of white settlement was to become self-supporting as soon as possible. 240 years later it would appear it still isn’t. I’m not sure of Gitto’s historical frame of reference but the colonisation of Australia was essentially run as a loss leader operation out of the UK (which had discovered its previous prison regime of hulks and North America – was floundering with shipworm and rebellious colonists).

The term’s gone out of fashion, but since white settlement Australia has always been a “capital-importing country”.

It has Gitto, but right from the get go it has always told itself ‘we are building a developed economy’ and would create a diversified economy capable of generating wealth through its own endeavours – I know you will recall Keating’s ‘Banana Republic’ thoughts, back then we were a banana republic of circa 16 million punters and now we are a banana republic of 25 million punters with a considerably less diverse economy.

And all that capital we have imported has become a debt burden which we need to support (privately) though jobs that, courtesy of a mining boom and debt explosion fuelled by the banks (which helps to nail our dollar – and competitive position vis a vis the rest of the world – to the roof) and has become a burden we are handing over to a generation doing little more than part time hours at Harvey Norman’s or in the aged care sector, in the form of the largest mortgages on the planet and the largest inter generational mortgage ever bequeathed.

What that generation (and some of those doing the handing over) is asking is ‘why are we importing capital if the only thing we are doing is roasting our externally competitive position?’ and ‘why are we importing capital if we are doing nothing with it except creating additionally expensive houses?’ and ‘why is so much of the capital we import not even checked regarding its veracity vis the potential for it to be the benefits of corruption?’

To develop a country economically you need lots of money – known here as financial capital – to pay for all the construction and equipment, known as physical capital. Where does this money come from? Someone has to save it by not consuming all their income.

We have been doing this for more than 200 years Gitto – through the greatest gold rush the planet has ever seen and the once in a thousand year mining boom. And our business model now has us further in debt, and more pathetically exposed, and taking less tax from the offshore interests we have sold our assets to than we ever have before.

We aren’t actually ‘developing’ our economy, we are developing our expensiveness, while selling off citizenship and income generating assets.

That of course is before we wonder if anyone really needs to save any more because central banks just keep printing money into existence to seek a yield, finding a home (in Australia) and to nail our currency to the roof.

Ultimately we come back to the possibility that to develop a country economically we need a business model or a plan and from there to the possibility that in 240 years our plan hasn’t really delivered, and from there to the possibility that we could visit it, look at it, and maybe ask questions about it, with a view to getting one which works rather than just flooding the model we have with more cash and not asking questions.

Ideally, all the savings necessary to finance the economic development of our country would come from Australians. Then we’d own everything ourselves and all the profits would belong to us.

But we’ve always had a small population relative to the huge opportunities to farm our land, exploit our untold mineral wealth and develop our economy in many other respects, such as making ourselves an attractive destination for tourists and university students.

What utter bullshit Gitto, we have more than enough miners and farmers, mate. They employ circa 2-3% of the population. If we take the mining boom we have just had explode in our face while we were reading the small print, we have invested that capital you refer to in making gas more expensive in Australia than Australian gas in Japan, or in creating so much capacity to produce iron ore that a national duopoly (which we don’t tax because it does its marketing in Singapore and gets its finance out of London) has crashed the price and driven competitors from the market, while making our economy ever more captive to the whims of a one party dictatorship needing to rebalance its dodgy loan and construction bubble – and away from the product we have used a lot of that capital we import to over invest in.

And then those tourists and students Gitto. Have we sold off any significant number of the tourism infrastructure assets to outfits paying tax elsewhere or employing foreign nationals in 457 visas to import that capital, mate? Those students – are they by any chance responsible for the Icarus like increases in the cost of our university courses, or the blossoming of a landscape of meaningless vocational and tertiary courses which are largely about importing more people – which may or may not have merit – but has less impact on improving our competitive skills position than pound of warm butter on the bottom of a heated pan?

Is this an intelligent thing to do Gitto?

foreign investment in Australia 2014-2015

Foreign investment in Australia 2014-2015.  Note that about half is into Real Estate (Residential and Commercial) which may not require superior management and technology skills Foreign investment is sometimes claimed to bring, and ask how much of it is likely to lead to a more competitive economy rather than simply bumping up the price of local assets for locals.


So, from the beginning, we’ve always invited foreigners to bring their savings to Australia and help us develop our economy much faster than we could if we relied solely on our own savings. That’s what makes us a capital-importing country.

Note how the conditioned economic commentator is unable to ask questions about cause and effect [whether the capital importation has actually worked as a country economy development agent] or the continued viability of what may have worked in the past vis the future – but to go back to Gitto…..

Then our capital importing country status is central to making us an economic basket case – and the question for us (or our future generations) becomes on of ‘should we import capital to make ourselves an even more spectacular basket case or should we develop a plausible economic narrative and import capital to fund that (if we can find investors in that) solely to the extent that it makes us a more competitive economy, and ease back on the capital importation which serves us (the people already here) absolutely no purpose at all apart from to make our competitive position more overtly woeful and the things we produce which we use more expensive.

The attraction to the foreigners is that they own the businesses they build and keep the profits they make.

…and avoid the taxes they should pay, and employ the people they like on 457 visas, and behave like oligopolies to maximise those profits by lobbying our politicians, or creaming us more with their margins, or shunting us through 6 banks of phone messages to have our calls recorded for coaching purposes when we get to talk to the peon who provides us with their message.

Indeed for most foreign investors in Australia there is a case for saying they wont invest unless they are allowed to feast on the economy from an oligopolistic rent seeking position, unless they are allowed to carry away the goods, or unless they have a residence right attached – which could make the sentient reader wonder if this is ‘investment’ in the sense we used to read about it in our textbooks.

Economically Australia resembles the late Ottoman era, where a Sultan and the Viziers decided to sell off all of the loan servicing and productive assets of the Ottoman empire as tax free ‘concessions’ which became inordinately expensive for the Sultans subjects to use, or where the new owners became depressingly more likely to boss the locals around or cream them for profits.

The attraction to us is we get a bigger economy than we otherwise would. The foreign firms provide a lot of employment for Aussies, buy a lot of their supplies from local businesses and, of course, pay tax to our government on their profits.

What economy are you looking at Gitto? What you write there may seem plausible in the textbooks but requires seasonal adjustment in the real world. Here in Australia they buy profit maximising rent seeking enfilades in an economy of the oligopolistic dinosaurs, and invest in as little physical plant as they possibly can, while cross pricing the sales through Panama registered entities so that our budget gives them a tax refund because of the losses they make here.

Is bigger better Gitto? At what point should we ask if savvy is sometimes better than size? For if size is the only thing it is about then shouldn’t we just level with the people here and import the quarter acre yearning masses from somewhere else and fire up the dozers? And even then shouldn’t we ask what they will all do once they get here, and at what point that massively larger nation will need to compete with the rest of the world for its crust?

That’s always been the deal. Had we kept the foreigners out, our economy and population would now be much smaller than they are and, in consequence, our standard of living would be much lower than it is.

But would we have need for the foreigners or their money if we had a more competitive economy? Are you positing Gitto, that the only way to increase our economy is to increase the numbers of people living here – and if we go there what is the point of that for the people already here? and should we ask the question of what the foreigners do when they get here? – apart from make things more expensive for the locals, and to join them in sitting around wondering when we will create the competitive economy which will meaningfully employ their sons and daughters in careers more substantive than the part time hours in retail or aged care?

Would that standard of living be lower if we didn’t take on so much debt? And if (as we know) the answer is yes then shouldn’t we be asking if we should be taking on debt to buy trinkets or doing something about making the debt we take on do something productive for us first, before we take it on?

At first the foreigners most willing to invest in Oz were the Brits. Then it was the Americans, then for a few decades the Japanese, and now the Chinese.

I’m old enough to remember when it was American investment that people objected to when we first started worrying about “selling off the farm”.

But when the Japanese economy was riding high in the 1970s and ’80s, and Japan began looking for profitable investments here, I remember how much the farmers carried on. They thought Japanese feed lots were the beginning of the end of Oz.

The Japanese came and stayed and eventually the farmers realised they were no threat. But now it’s the Chinese, and farmers are back to manning the barricades. They’re going to dig up our farms and take them back to China.

Is that the risk Gitto? Or is it more the risk that they will staff those farms with punters shipped out from China and sell the production they create only in China meaning that we reduce supply in our own market – have you ever tried to buy tins of baby powder Gitto (and found lots of people standing around with trolleys waiting to load up and ship elsewhere before anyone else buys it?)

Those Brits and Americans and Japs you refer to investing here in the past in agriculture – what percentage of our foreign debt do they represent? And how does that stack up against the debt we chalk up for non productive uses like cities full of dog box apartments, or container ships full of trinkets to distract ourselves with? (rather than making ourselves economically productive?) If you are old enough to recall the Americans then what are your observations about the different characteristics between them all since then – or are there none that you have observed? How have we learned from them in that period?

You know they will because their skin’s a different colour. Or maybe they’ll sabotage the communications and power networks they now own, just before they invade us.

Gitto if you want to call us racist then you should have just come out and called us racist. But lets look at the dynamic. Is there no difference between

  • the Brits and Americans (who had laws akin to ours and whom we fought alongside for a couple of world wars)
  • to the Japs (who at least manage to swap parties eventually and were pretty overt in pooh poohing the idea of them ever having a military capacity ever again, and have since provided us with an A class example of the Zombie like qualities of an economy which over invests in dodgy debt fuelled real estate transactions, and the societal extinction inclinations of handing over intergenerational debt serfdom)
  • to the Chinese (an overtly corrupt one party state with a large military currently laying claim to some islands in the South China sea, who slips wads of cash into the coffers of our politicians and foreign ministers, and who are seemingly transplanting a monoculture to some of our inner suburbs – see photographs from Box Hill or McKinnon High Schools in Melbourne – and who our legal system comes up with ‘does not compute’ whenever we need to engage with on a legal basis (either get our people out of China or get theirs back from China when they have done something noteworthy here). Should we ask any questions at all about a heavily armed nation which represents a strategic concern, and demonstrates considerable flair for flouting international convention and laws, wanting to buy communications and power infrastructure in Australia through state owned entities? Or is to do that racist?

Are those examples all one and the same Gitto? Or do people suggesting they are different in terms of their implications for ordinary Australians, the Australian economy, Australian legal processes, and Australian policies and politicians have a point? And if we assume that they do have some sort of point are we better off looking at what that point may or may not be or should we simply sit back and point to those asking the questions as ‘racist’? At what point should we ask questions about who invests in Australia, and why, and the impact they have? (on the economy, the wider society, and the people in it) Or should we simply never ever ask questions?

The globalisation of financial markets has made it much easier for money to move between countries and thus complicated the picture I’ve just described.

These days, we can borrow foreigners’ savings, not just let them set up new businesses here. And it’s easier to sell them existing businesses.

It’s easier for foreigners to buy some shares in listed Australian companies (known as “portfolio investment”) rather than acquiring a controlling interest in a new or existing business (“foreign direct investment”).

Yes, and these days the capital we borrow can depart the moment it finds something not quite to its liking – like tax, like probity, like labour laws, like capital restrictions in its homeland, or corruption investigations in the farthest reaches of the world. This means that global capital can quite easily speculate in Australian financial assets (often borrowing the funds to do so offshore – where the speculation is only for financial instruments, but quite often borrowing their capital from Australian banks where there is a physical asset they want to buy – eg an apartment – which feeds back as their investment nailing our economy into basket case status with an uber expensive currency to play with for all the locals). What is your point in raising this Gitto (apart from padding out your piece?)

Before globalisation, countries tended to be either owners of many foreign businesses (“equity capital”) or to have a lot of their businesses owned by foreigners. They either owed a lot of money (“debt capital”) to foreigners or foreigners owed them a lot of money.

Where are you going with this, Gitto? You have already said Australia has always (from the first fleet at least) been a capital importer. If they actually own the business here then we can assume they will want to run it efficiently (unless they want a loss for taxation purposes – here’s looking at you Chevron – or do the marketing out of Singapore and price transfer the proceeds through Panama registered entities, or staff the local subsidiary with nationals of another economy, and sell the entire production there, having as little to do with the Australian economy as possible). We can assume that if they are an equity speculating presence in our financial environs then the attraction to being in Australia may revolve solely around yield (beginning with 1.5% being the base rate here and 0.0% being the base rate on offer in much of the developed world – and if that is largely the case are they ‘investing’ in us because of the investment case and worthiness of our economy, or because it is about the last and safest yield they can get anywhere? [in which case shouldn’t we be asking questions about how deep their love for us is?]).

These days, every country does a lot of both. At March this year, we owed $2126 billion to foreigners, while foreigners owed us $1098 billion, leaving us with net foreign debt of $1028 billion.

Yes Gitto, nicely spotted. Australia has a net foreign debt of $1.028 Trillion dollars. Servicing that debt is going to be a tie loosening experience for someone at some time and that someone may want to think about what they can productively do to service it. You are telling them to max out the card and pawn stuff off the mantelpiece – is there another way?

Foreigners had equity investments in Oz worth $996 billion, while we had equity investments in other countries worth $1012 billion, leaving us with net foreign equity assets of $16 billion. You read that right.

Yes Gitto, you are the Master. We read that right. Australia has an equity investment position vis a vis the rest of the world equal to about 1.02% of its foreign debt to that same world. That could bring the meandering reader of this piece back to the question of if there is much point in mentioning it in this piece but we can leave that question in the readers mind to be explored some other day.

But if this makes you think we’d be better off borrowing all the savings we need rather than selling off the farm, remember this final complication: foreign direct investors in Australian businesses don’t just bring their savings, they also bring their managerial skills and often their more advanced technology, which Australian workers learn to use and then take on to local businesses.

Hell yes, Gitto, those foreign managers we get in for farming and mining – they have positively revolutionised the place, haven’t they. They sure are doing stuff that we couldn’t – having graduated from the most expensive universities in the world – ever think of being able to do ourselves. Though as someone who visits farms quite a lot (some foreign owned and some local owned) it all looks as though they are doing much the same stuff to me and more disturbingly it looks like they are doing much the same stuff they were doing thirty years ago. And that kid I spoke to about some insurance the other day – it was a bit difficult trying to understand what they were saying as they read from the script in Manila but I am sure they were far superior than anything I could expect from a local. Of course when I pop into an Aldi and experience the delights of foreign investment in undercutting a local oligopoly I am all in favour of foreign investment – but I do find myself wondering if we have created a national economic zoo of rent seeking oligopolies; across banking, insurance, grocery retails, gas, electricity, airlines, mobile phones and telecommunications simply to provide a backdrop where foreign management and systems look like an upside and do wonder if there is an easier way to have a competitive economy.

And in this ever more integrated world, foreign investment and international trade tend to go together. Going for trade without investment is another way to be poorer than necessary.

But if we are looking at ways to make the economy poorer than necessary how does the comparison stack up between…….

  • toning down the ‘investment’ (at least to that which makes our economy more globally competitive/efficient/employs more locals/adds to local skills/or even rewards local tax paying investors).


  • selling off the productive assets we have (or have invested in in the past, or are natural monopolies) and allowing foreign controlled or owned entities to behave as oligopolies while hollowing out our competitive position with the funds they use nailing our currency to the roof, or allowing their ‘investment’ to create an algal bloom like phenomena in the middle of our largest cities in the form of silent (and often ugly) dog boxes.

Doesn’t it come down to when we want to be poorer rather than if we are or aren’t going to become relatively poorer (if we assume we aren’t going to make ourselves productive with the funds we import – and after 200 years you could make a case that we simply don’t learn all that well) and who the beneficiaries are in deciding later rather than sooner (and if the beneficiaries tend to be older, Audi driving, hits and memories music listening members of the babybooming fraternity, or scions of the global 1% keen to not contribute to Australia any more than they are legally required to after they have paid our politicians to craft the laws to suit them – shouldn’t we ask questions about that, and how much it benefits us as a society [as socialist as that may sound] and about what sort of balance we should be looking for. Or should we just assume that all foreign investment is good, is innocent, is harmless and comes with no negative effects at all?)

Ross Gittins is the Herald’s economics editor.

Gitto is also an oracle of a discredited economic mantra which stopped being plausible in 2008, and has played the role of Banquo’s ghost for economic policymakers ever since. What he is doing in the mainstream economic media still beats me


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