Transcript - CNBC Squawkbox



SUBJECT/S: Regulation of Direct Foreign Investment, Free Trade

BERNIE LO: Wayne Swan is former Deputy Prime Minister of Australia and joins us live from Brisbane. Wayne thank you for joining us this morning its good to see you its been a while but you paid as much attention as anybody did to the decision by Treasurer Morrison denying the access to the consortium for Ausgrid. Your thoughts? Was it xenophobia or did it make sense?

WAYNE SWAN: No it was none of those things at all. I think it was the correct decision and I don't believe the Chinese authorities would be too surprised by this decision. We've had a surge of Chinese investment into our country particularly over the last decade during my six years in the job Chinese investment in Australia went up very fast and it continues to do so and now its broadening out across the Australian economy, its no longer just investment in commodities and miners. It's now far more broadly based across services and networks and so on but we've always operated - and I outlined in 2008 a series of guidelines by which we judge whether a foreign investment is in the national interest and national security grounds are one of those guidelines.

LO: So Wayne what you're saying is it was basically China and its aggregate investment that maybe tipped the balance a little bit because I mean Chinese investment in Australia has been diversified hasn't it? Many different industries, many different facets. There's no one concentration there's no monopolistic power in any one.

SWAN: And the guidelines don't allow that but just because one project is ruled out on national security grounds doesn't mean to say there is a problem in the investment relationship. I personally dealt with the Chinese authorities on some issues dealing with national security and I found them very understanding about us applying national security grounds just as they would apply national security grounds when they made the judgment that those issues were at stake. So there's nothing new in the Australian government on one or two occasions applying national security grounds, we see that in our national interest and there's no doubt that the Chinese operate the same way so despite those statements that you played to air before, I believe the Chinese authorities, behind the scenes, would absolutely understand why the Australian government took the decision that it did.

LO: I have heard some say that they lumped the participants in this proposed transaction together wrongly. I mean one of the parties of course was Li Ka-shing's Cheung Kong group which has done business in Australia for a long long time and I've heard that maybe that shouldn't have been lumped together with the broad umbrella label as 'Chinese investment' at least not per se.

SWAN: Well I think you've almost answered your own question. I think the judgment here was about the nature of the asset. One of the bidders is a broad investor in Australia, they have been welcome here and they're welcome in the future but they were seeking to invest in a different type of asset in different circumstances which triggered the National Interest Guideline. They are welcome to invest in this country and and it was in no way it was discriminated on the basis of that company alone, it was the asset that they were seeking to invest in.

LO: Wayne, did you find it a little bit odd, or at the time a little bit unusual, the fact that Prime Minister Turnbull, at the same time this decision was coming, to warn against rising protectionism within parliament, was that odd timing for comments of that tone?

SWAN: Well I think that's part of a broader debate. You might have noticed we've had an election or two in Australia in recent times and if you like, there's been much more polarisation in our political system part of that has been the election of members of minor parties to the parliament who don't necessarily support open, free or fair trade. So I think his remarks were to be seen in that context and certainly not into the context of the operation of the foreign investment review board or China, for that matter. 

LO: What we saw in the last election of course, Wayne, was arguably representative of a movement that has kind of swept across the world. I mean the whole Trump movement in the US which gained a foothold. Do you think there's any turning back - do you think this is a short-term phenomenon or do you think this is part of a longer term fundamental shift?

SWAN: I think we have a very big challenge Bernie unless the G20 grasps the nettle and says that inclusive growth is part of the policy toolkit it wants to put out there, the growing concentration of wealth and income and growing inequality around the globe is going to continue to feed people at the political extremes and result in polarisation and, if you like, opposition to a whole range of policies which have been considered settled. So I think the G20 ought to be taking the advice of the IMF and taking on board a growth agenda particularly through the deployment of fiscal policy but when it does that it ought to be talking to the world about the fact that these increasing concentrations of wealth and income are not the way ahead. 

LO: Wayne how do you think, you know, how do you think that everybody kind of lost control of the argument that free trade, open and unfettered trade, bringing down barriers and bringing down borders benefits all. I mean for generations it was a non-partisan issue both right and the left, could find elements to agree on that free trade brought better jobs, more income and made people better off. How did we lose control of that whole argument? 

SWAN: Well we should have a sole discussion about this sometime because whilst in the developing world millions of people were lifted out of poverty the benefits weren't fairly shared in the developed world. So you look to America for example the middle class there has been hallowed out [and] there's greater armies of working poor. The distribution of incomes particularly in the developed world have led to a backlash which is perfectly understandable and just because some people say globalisation is good doesn't mean to say that that they should ignore the distributional outcomes of that globalisation and in parts of the western world those outcomes have been terrible for the great mass of the population in those countries and this is the matter we should be debating globally and it's what the G20 ought to really be focusing on.

LO: Wayne, before we let you go though - I mean you and I will talk about this again many many times, it's an issue you can't settle in one, two or ten conversations - but how does one be act as or be a cheerleader or a fan of free trade and capitalism breaking down borders and barriers and yet be a fan or redistributionist economics. I don't understand how you can put those two in the same sentence.

SWAN: Well because that is a false dichotomy. Capitalism has always worked best when we've had a very good set of rules and regulations where the private sector works well with the government sector. It doesn't necessarily mean big government, it doesn't necessarily mean high tax. What it means is that you have cooperation so that the people who are supporting this system are fairly beneficiaries of its distribution. Mark Carney gave a great speech about this a couple of years ago. He pointed out that unfettered market capitalism, if you like, will destroy capitalism in the end. We need a mixed economy out there that grows for the benefit of all, not just a few. So we should definitely come back and talk about this some other time. 

LO: Wayne, you're on my good friend. We'll make it a date.

SWAN: Because I know you don't agree with me Bernie so…

LO: That's okay, that's okay, that's what makes the world an interesting place. I love talking to you Wayne, you're welcome any time. Thankyou very much - Swanny as I call him.