Is the lucky country's luck about to run out?
Economist Matt Drennan says it’s time for Australia's political leaders to acknowledge that our relative economic good fortune is attributable as much to luck as good management.
Australia is widely regarded as the poster boy of world economies, especially when compared to many of its OECD (Organisation for Economic Co-operation and Development) benchmarks (basket cases).
Hell, Wayne Swan even won the Stephen Bradbury Treasurer Award or something, didn't he?
My view – the success we have enjoyed relative to most of the rest of the world comes down to pure luck.
Luck that we had resources China needed, luck that our banks had not ventured offshore in a big way after getting their fingers burnt up to the elbows during the last cycle, and luck that we entered the global financial crisis (GFC) with no net Commonwealth Government debt – thanks to John Howard's paranoia about the issue.
Yes the lucky country concept is alive and well.
Our resilience had very little to do with the Government's stimulus measures following the GFC, and equally little to do with the role of our various regulators.
Seeing Bob Carr announced as the replacement senator and minister for foreign affairs after several denials confirms you can't believe everything the politicians say.
So why should the reasons touted as our salvation from the GFC be any different?
Unfortunately, our pollies and institutions have been so busy bragging about our success, they have failed to protect the economy from the inevitable impacts flowing from it.
Think about it – our short-term success has sowed the seeds for the next cycle. Australia offers much higher interest rates than elsewhere in the world as a result of our hither to strong economy.
That attracts investors, and because they need to buy Aussie dollars to invest, forces up the exchange rate.
Now that's great if you are travelling overseas or buying stuff in the US; but lousy if you run a traditional retail business, are in inbound tourism, or are trying to compete with imported manufactured goods.
Throw a carbon tax on top which is over double what they pay in Europe and you really get business worried. By the way, see if you can find anyone in China or India that knows when they are planning to introduce one.
You get the picture.
Meanwhile much of the union movement has been running around maximising salary increases and minimising productivity offsets under the debacle that goes under the misnomer of The Fair Work Act 2009.
Problem is, no one planned on business calling a sub from the bench.
When profitability is threatened and work relations become untenable, business adapts wherever possible. Where it can't, you go out of business.
So how do you adapt? The first cab off the rank is to substitute capital for very expensive labour.
Ask the train drivers in the Pilbara how good they feel about their high wages when Rio is scheduling to replace them with driverless trains in the next two years.
Why did Qantas ground its entire fleet, establish Jetstar and pursue its now defunct Asian based airline strategy?
Because the outdated award conditions in this country force them to if they want to compete. (They even codenamed the Asian airline project "Darwin"!)
Apart from capital substitution, we are also witnessing country substitution.
No, I am not talking about the long established practice of outsourcing, although the banks are pursuing that much more aggressively now. I am thinking more about investors and buyers of our exports.
Already, Indian and Swiss mining companies are flagging that Australia's carbon tax is making investments in our mining industry less attractive than Asia and Africa.
It won't stop investment, but over time we will increasingly miss out.
The high dollar has also seen foreign student enrolments in universities drop 20 per cent this year. Do you think that's an isolated result rather than the beginning of a trend?
So what, if anything, does this mean for our future?
Well, for starters the real unemployment rate is well above the published 5.2 per cent (watch this shoot up over coming months).
More importantly, if an administration focuses solely on how the economic pie is divided rather than spending equal time encouraging it to grow, productivity plummets, industry shrinks, and the economy loses its ability to remain self-sustaining.
Can't happen here? I bet that's what the Greeks said.
Already, the number of days lost to industrial disputes has doubled during 2011. Not a great harbinger for future productivity growth.
Don't misunderstand me: I am not forecasting Armageddon for Australia.
It is just another boom-bust cycle in resources which occurs every 30 years or so.
The problem is, not only do we manage Not to take advantage of the bounty, but through bad policy and short-sighted ambitions we actually consciously machine gun ourselves in the foot.
Matt Drennan is an economist.
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