Published in The Weekend Australian on 9.11.13
EARLY in the life of any new government, impressions are formed that can be hard to shake. The new Abbott government seeks to be defined by silence: an understandable refusal to be taken hostage in the desperate battle of 24-hour news coverage. Tony Abbott is attempting to take government out of the lounge rooms of everyday Australians, to make them feel, in the words of his mentor, John Howard, "relaxed and comfortable".
Fair enough as a political strategy. But this is no time for policy complacency. As the government conveys an outward sense of calm, within the bunkers of Capital Hill trench warfare is being conducted for the economic philosophy of the new Coalition government. In one set of bunkers are the economic nationalists, in the other the economic rationalists. Standing on no man's land between the two trench lines - an awkward place to be - is the Prime Minister.
The nationalists fly their flag proudly; they even call themselves the Nationals. They fight the importation of food from countries whose seasons differ from ours but expect those countries to accept our farm produce without question. Within the Coalition they bludgeoned the rationalists into opposing the previous Labor government's final deregulation of Australian wheat marketing, the bill passing the Senate with the support of the Greens.
In yet another victory, the nationalists demanded the rationalists agree to reduce the value of private foreign investment in agricultural land subject to scrutiny by the Foreign Investment Review Board from $248 million to $15m. This policy, announced at the Coalition's election campaign launch, was to counter what the nationalists described as an exponential increase in Chinese purchases of agricultural land. A joint report of KPMG and the University of Sydney released last week reveals Chinese investors own less than 1 per cent of Australian farmland, with just 10 transactions being concluded in the past seven years.
Now the nationalists want more. They are insisting Joe Hockey block the acquisition of Australian grain handling company GrainCorp by American company Archer Daniels Midland. This week, Deputy Prime Minister Warren Truss declared the injection of new capital into Australia's grain storage and transportation system by an American company to be against the national interest. Apparently, maintaining a dilapidated system is in the best interests of Australian farmers. Denied modern storage and transport infrastructure, farmers in the western reaches of NSW would be kept poor, but at least they would continue voting for the Nationals.
In rhetoric reminiscent of the Vietnam war, Truss has warned that if the takeover is approved we will watch "the dominoes tumble" and "Australian farmers will be servants to foreign masters". These foreign masters would be American. Imagine if the takeover bid were by a Chinese firm. It wouldn't see the light of day.
Blocking the acquisition outright is most unlikely, since it would shock the global investment community. But Hockey has more subtle devices at his disposal. The Treasurer could grant conditional approval but make the conditions so onerous as to kill the deal.
That would appease the nationalists while maintaining that "Australia is open for business", to use the Prime Minister's terminology.
Putting aside the inconvenience of foreign investment in Australia reaching half-century highs when the country was apparently closed for business under the previous government, financial markets are smart enough to see through a rejection of the GrainCorp acquisition dressed up as an approval with punitive conditions.
It's hard to see the basis on which the FIRB could assess the acquisition as being against the national interest. The nationalists protest that giving ADM control of GrainCorp's infrastructure would be anti-competitive. Yet the Australian Competition & Consumer Commission has already assessed that the acquisition would not substantially lessen competition, since the merged entity would continue to face competition from rivals.
Addressing a related issue raised by the nationalists - that the foreign-owned company might have different incentives from Australian-owned GrainCorp and prevent other businesses from gaining access to the grain-handling infrastructure - the ACCC found the incentives would be no different.
But it hints that the government may want to ensure access to the infrastructure is open, regardless of who owns it. Here's where the Treasurer could impose conditions on the acquisition, assuring competition while allowing the deal to proceed.
Hockey is a rationalist but he has his hands full fending off the nationalists.
His decision on the GrainCorp acquisition is an early, defining test of the government's economic ideology. When his decision is announced, the Abbott government will look like the rationalist Howard government or it will resemble the protectionist Fraser government in which the Country Party nationalists ruled the roost.