Economist John Edwards questions the notion of an economic crisis (Laura Tingle in the AFR, paywalled, unfortunately) in relation to the resources boom. For at least nine years, Ross Garnaut has been warning about “The Great Complacency”, that we are squandering the benefits of the resources boom and are ill-prepared for its aftermath. Andrew Charlton, talking to Phillip Adams, has a nuanced view, but sees difficult days for us if China crashes, builds less infrastructure and needs less of our iron and coal.
Charlton regrets the eight tax cuts delivered by Costello and Howard. People often talk of Norway, but Chile too has long created a sovereign wealth fund to lock in permanently the benefits of mining. We have largely spent the benefits on consumption.
Edwards fingers those tax cuts also, but questions the very nature of the ‘boom’. Edwards points out that in the 10 years prior to the resources boom Australia grew more rapidly than during the socalled boom years. Other factors, such as the GFC, have had a greater impact.
He says we haven’t just “complacently dozed through an unparalleled opportunity to reshape their nation and prepare for the challenges ahead.”
“Australians have been saving more, investing more, working more and learning more”, he says.
“During the mining boom Australia’s capital stock has increased by nearly two-thirds, a larger share of Australians have jobs, the share of young people in training and higher education has increased markedly, household saving has increased from zero to one-tenth of household disposable income, national gross saving has risen to well over one fifth of GDP, the current account deficit has narrowed, household credit growth has slowed sharply, and Australian banks have dramatically reduced their dependence on foreign borrowing and thus the vulnerability of Australia’s financial system to global shocks.
“Of the biggest investment boom in Australian history, well over four-fifths has been matched by Australian savings.”
(I wonder how that last fact matches with the often repeated claim by Hockey et al that we are borrowing overseas to pay the interest on our government debt.)
Edwards big emphasis is on human capital, which we have been developing and will serve us well, with further development, in the future.
Economic change is about more than money. During the years 2003 to 2013 a net 2 million long-term migrants settled in Australia.
“This vast, transformative migration, the full effect of which has yet to unfold, has occurred not only without serious controversy, but almost without notice”.
The socalled budget ‘crisis’ is mainly a revenue problem. It will be fixed by some restraint, certainly, but mainly by restoring revenues to historic percentages of GDP. I pointed out here that Hockey has manufactured a crisis by limiting revenues to 23.9% of GDP. Lifting that by a notch or two, manageable over time by bracket creep, would do wonders for the deficit.
Edwards argues that we need “continuous reform and adjustment to entrench our prosperity, but in order for it to be deliverable it has to be based on a recognition of success and making sensible claims for the outcomes”. In that we need to be careful that ‘reforms’ don’t advantage one group to the disadvantage of another.
Nevertheless, the high dollar, now based on our comparatively high interest rates rather than the price of commodities, which have been falling, is still a drag on traditional areas such as agriculture and tourism as Charlton notes. But overall, he says, mining employs far fewer people than knowledge based services and elaborately transformed manufacturing.
Edwards says that it is in these areas, exporting services and goods to the developing markets of Asia, that our future opportunities lie.
Edwards says that people no longer believe the crisis story, “the story of prolonged failure; imminent catastrophe, sweeping advantages that flow from the kinds of reforms that are sometimes advocated.” Tingle says this:
poses some big questions for our political class about whether they need to, or are even able to envisage, a different script to the one that has dominated their working lives and institutional memories.
There’s an opening for a political leader who excites us with vision, just as Kevin 07 did perhaps a little in an era now fading into the past.
John Edwards is an economist who is a member of the Board of the Reserve Bank of Australia, Visiting Fellow at the Lowy Institute for International Policy, a member of the Board of Skills Australia and Adjunct Professor at the John Curtin Institute for Public Policy at Curtin University. In January 2012 he was appointed one of three members of the Australian Government’s Review of the Fair Work Act. He just published ‘Beyond the Boom’, a Lowy Institute booklet.
Lateline also has the story.