Politics of foreign direct investment in Australia, 1960-96

Abstract

Foreign direct investment has played an important role in the Australian economy yet despite frequent public controversy there is still no general study of the politics of inward FDI in Australia. This thesis seeks to explain why Australia turned away from a long-established 'open door' policy towards FDI in the late 1960s only to liberalise policy again from the mid-1980s and why policy openness varied across sectors. In doing so the thesis tests the explanatory power of both private and public interest theories of FDI policy. Both accounts are grounded in a theory of political markets characterised by information shortages and political entrepreneurialism. This thesis concludes that Australia's FDI policy during 1960-96 principally reflected government attempts to make politically optimal compromises between competing conceptions of the public interest in relation to FDI. Yet rent seeking was rife and, to some degree, influenced popular and elite perceptions of the public interest. Liberal business constituencies and the imperative of growth-oriented policy strategies usually outweighed private interest suppliers of restrictive FDI policy although periodically the latter did find some influence. Private interests seeking restrictive policy were helped by shortages of information about the real costs and benefits of FDI, in the case of the mining industry in particular, and by popular concern about the cultural consequences of FDI in the case of the mass media. The public interest politics of FDI policy also proved to be inseparable from the use of restrictions on FDI as a second best solution to poor regulatory design, tariff policy and mismanagement of national resources. These findings about the politics of FDI in Australia suggest that when confronted by a weak economy most governments will deliver quite liberal policy in practice for all but the most politically sensitive sectors. The economic costs of economic nationalism may engender their own political momentum for the liberalisation of FDI policy. Yet the Australian experience also suggests that governments will be very hesitant to give up discretionary controls on FDI, such as the Foreign Investment Review Board. This is because they provide a mechanism for managing politically resilient economic nationalist sentiment in the electorate and for providing the odd favour to an influential private interest.