Is Coalition Economic Policy A Nauru Solution?

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How did a gathering of professional economists rate the policies of the two major parties? And how does the Coalition’s rhetoric about economic management sit against its record? Ian McAuley reports from the Australian Economic Forum

At about the mid-point of the election campaign I was at the Australian Economic Forum – a gathering of professional economists from corporations, government departments and universities.

We heard Nobel Laureate Joseph Stiglitz, former chief economist of the World Bank, heap praise on the Australian Government’s response to the financial crisis. He reminded us that we have come through with very low public debt (about 6 per cent of GDP, compared with 40 to 120 per cent in other countries), low inflation and strong employment.

Stiglitz talked about waste — but not the minor waste associated with our stimulus programs. Rather, he referred to the huge waste of unemployment, which would have occurred had we placed debt reduction ahead of economic stability – the policy which the Coalition says should have been pursued.

Participants at the conference were generally supportive of the Government’s longer-term economic program – building the nation’s productive capacity through investments in broadband, education and better natural resource management. And while there was some criticism of the detail of the Government’s mining tax proposals, there was also a recognition that it makes sense to take some of the bounty of present strong commodity demand to strengthen our economy so that we can thrive when the mining boom is over. And there was a strong call for a carbon price; no-one at the Forum called a carbon price a “big-new-tax”.

By now it is clear that the Coalition has no intention of restructuring the economy.

Its approach to the public balance sheet is to reduce debt, rather than to invest in public assets. It would avoid waste, at least the sort of waste that is revealed in audit reports, by withdrawing from programs. (If you do nothing you cannot be accused of waste!) The Coalition has traditionally preferred subsidies and personal transfers to direct government programs, which means that there is far less accountability for expenditure: if a school building is 10 per cent over budget audit processes expose it, but if a family blows a generous maternity allowance on the poker machines it passes unnoticed. Above all, the Coalition, in its promise to scrap the resource tax, has made it clear that it wants the mineral boom to flourish, regardless of its consequences in terms of economic volatility and distortion of economic incentives.

I would describe the Coalition’s economic policy as the “Nauru solution”. We can recall that island’s spectacular prosperity in the 1970s and 1980s when its economy was based on phosphate mining. Even as their island was literally exported away, Nauruans lived for the present, and those years of plenty are now a distant memory. Nauru is now begging for economic activity: it is even willing to take up opportunities rejected by Timor Leste. It’s a dismal thought that we too may become another poor country in a prosperous region.

Yet, in opinion polling, the Coalition consistently leads Labor in response to questions on the important issue of economic management.

There is no single explanation for this contradiction between professional opinion and public perception. In part, it’s an outcome of the media’s ways of presenting economic issues – issues about economic structure are not easily accommodated in quick grabs. Also, there seems to be a shortage of economic expertise among journalists, who are more intent on quizzing politicians about petty budgetary details rather than on issues of economic policy.

Above all, while it deserves credit for engaging in economic re-structuring, the Government has not been forthcoming on economic policy. Economic re-structuring can be painful in the short term. If we divert some of the proceeds from the mining boom into much-needed public investment, we will have to scale back our current consumption for a few years. A price on carbon will be painful as we make the necessary personal and corporate adjustments. Also, because of the geographical distribution of our mineral resources, there will be regional consequences. These are all hard issues to explain to an electorate which has enjoyed a long spell of rising incomes.

The problem is not without precedent, however. Australia has been through a round of economic adjustment, steered successfully by the Hawke and Keating Governments. The political challenges of reducing tariffs, introducing competition policy and de-regulating financial markets were difficult, but perhaps the difference is that those governments were not hampered by an opposition denying the need for structural reform.


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2 Responses to “Is Coalition Economic Policy A Nauru Solution?”

  1. Dave Graham

    The quiet perception is both parties in this election are impotent. All policies are essentially knee jerk populist initiatives that ultimately will not contribute to progressive developmental thinking.

    Admittedly the constraints of elected periods of office make for short term policies however foundations can be laid for futurist developments such as water supplies, demographic decentralisation.

    Of particular interest, and already there is a realistic demonstrated impact on the australian economy, is the productivity aspect of the new generation manager and worker in the under 40’s bracket. Their lesser worldly intelligence and more self serving approaches. The recent published report on this very subject highlights the concerns australia will have for its future growth and most importantly, economic independence in the international market.

    Every aspect of social and financial regulation will be reviewed within the next 5 years as a direct result of the international competive pressures that will leave australia lagging.

    Regardless of Human Rights and International pressures, developing countries will have a greater influence on the development of australian culture and economic growth. The Mineral Boom is a repeat of the Wool and Wheat Boom and if history has taught us anything it is not to be centralised in our productivity base but we still pursue the short term dollar.

    Touching very lightly on well reported aspects, they predict 60% of the population will be retired within the next 10 years and who will replace these people and skills and corporate knowledge. Australia is importing short term fixes for labour shortages, but not considering the intellectual values. On social levels, cultural imports are changing the social structure and particularly the Law and Order foundations the effects which run through the community.

    Australian politics needs to establish social order and responsibility and not cosmetic approaches but deep seated trends and values to ensure competitiveness on the world market. This entails unpopular stances on issues and we do not have the depth or the strength of any political party to introduce these.

    Issues of education are more significant than identified. The calibre of the university graduate is measured at 58% of those produced in 1980 in a developing electronic world, health services are unsupported by developing infrastructure. The future is being presented on a repainted renovated 200 year old building rather than servicing and maintaining the utility and social infrastructure.

    There is more lessons to be learned from the rise and fall of Rome today that we give credit for and more significantly, the future is well projected in HG Wells novel 1980 which essentially states the world is run by corporations and the masses are appeased by entertainment..

    The development of the world is now projected to completely change its growth cycle within a 10 year span rather than 30 years as in 1960 and 60 years in 1900. As can be appreciated, the realisation of todays mistakes will be experiencesd at least three to four fold within the average workers lifespan and this will reflect in increased voting based on short sightted emotional personal needs. This will create a downward spiral in calibre of political, social and financial reactionary initiatives and development which will go against International trends from developing countries that do not have the same Kindergaten mentality.

    Ownership of australian businesses and their resources will incrreasingly continue to go overseas and be controlled at corporate levels. Australia needs to invest in itself and increase its confidence in its own abilities and as such has to develop its own economic and corporate character.

    Issues of Human Rights and International Labour policies are effective but when other signatory nations ignore or go there own way and disregard the principles, it makes Australia a marionette. Australia needs to develop corporate and economic muscle to effect an influence.

    All of this, spells the demise of the political parties as we know them. New more representational parties for the needs of the day will arise and be supported by voter passion simply because the under 40’s have not experienced any financial and economic hardship which will come with the “medianisation” of the worlds societies. (demonstrated by Japan, Korea, India, South Africa, Malaysia, Singapore etc and their growth over the last 60 years in increased standards of living and increased wages etc).

    Nationalistic sentiments akin to the 1900’s is increasing in the younger generations of all countries and with it the territorial parochial attitudes that will impact on societal development.

    It is generally conceded that 2010- 2015 is the arrival of the point in human history whereby both nations and the physical world needs to be considered and if there is any faltering at this stage, the remedial period will be decades.

    Agricultural needs both the product and the ability to produce foods is increasingly dominat in economic needs to support populations, coupled with water supplies these make for rich grounds for future international conflicts. Predominat in this is the protection and ability to renew fish/seafood stocks and territorial rights will feature more within the next 5 years with the marked reduction in world production of fish catches.

    None of these inter-related issues are addressed by current parties and their impunity to liability or responsibility for this future are demonatrated as you mention by their shallow policies.

    You can fool half the people half the time but there comes a time when the reality bites.

    Political parties need to be confrontational on all matters the public are already aware of, that impact now and will in the future on their lives, but most importantly are reported daily in papers, articles and documentaries.

    Australia needs to develop and cease propping up failing managements such as ineffective states and business ventures with a finite economic credibility.

    The australian public needs to be told gradually so they develop with the needs and growth requirements. Politicians need to be more topical and open.

    This may mean the shrewder parties present unpopular confrontational policies which in the short term deny them government, however in the longterm, proven tright they will hold power for much longer than a 4 year term because of their foresight.

    Gillard has past economic credibility to support her but isnt representational of progress, Abbot has proven he is a swinging opportunist and both are not representing their parties abilities and future. Both have unreported significant intrinsic failures which if presented to the voter would deny them office today. Tomorrow, the populace will have to deal with rectifying those errors and australia isnt economically socially or financially prepared to minimise these damages.

    All of the success or failure rests on the politicians being open and frank about the reality of the future and in doing so, educating the under 40’s voter who votes on emotion. (This is not discounting the grey vote seeking a more secure retirement). All in all, 53% of the population.

    Where has the innovative and world leading inventive australian gone.

    Stop the emotive issues and deal with the commercial reality, you need to drink and eat , to live in non high density environments to sustain mental balance, you need to integrate with societal change and economic demands, to be able to work.

    Look to Ireland. Apart from the Financial mismanagement and the effects, the true harm came with the social decay which occurred because of the removal almost overnight of the migrant worker in the lower economic occupations who having worked sufficiently over 2 – 3 years to establish a financial independence then went back to their homeland which then experienced a “boom”. Overnight, there was no-one in Ireland to empty the bins and the resulting unemployment has seen a social shift in the native Irelander to undertake the “menial” taks to earn a living. Their expectation of social status ignorant of the economic reality has seen a resurgence in their parochial biases as reaction to hardship and the need to find a scapegoat.

    You are partially right when you say …”Above all, while it deserves credit for engaging in economic re-structuring, the Government has not been forthcoming on economic policy. “. There has been cosmetic restructuring but in the eastern states in areas historically supported but now ineffective and unproductive.

    To use the 200 year old building analogy, the principle still applies. We go into the next round with the same building trying to apply it to the need for four more buildings. Paint will not do it, capital investment is essential and if private monies are relied upon, although valuable, then corporate economic control will prevail as the influencing factor in subsequent growth and governments will be reactionary impotent regulators.

    The hard yards are yet to befall us. We can either be prepared or be overtaken. Consumerism will be replaced by essential materialism (Maslows Hierarchy of needs). 2010 – 2020 is the era of rationality not seen since 1929 and the corporate and individual intellectual appreciation is less than what is was 30 years ago.

    Will you build a housing complex on todays rich market garden inner city location and force the more costlier growing food in marginal outskirts land.

    What sake the golden goose.

    Reply
  2. Explorer

    The mix of mining and agricultural exports has a skewing effect on our economy as a result of the high value it causes for the Australian dollar.

    Our manufacturing industry has been hollowed out and cannot compete internationally and against imports, partly because of the strength of the AUD and partly because Australian wages are higher than in other countries like China, Vietnam, Thailand and South Korea and so jobs that can be exported on a cost efficient basis will be.

    These exports of largely unprocessed minerals are not sustainable. The iron ore of the Pilbara is expected to be exhausted in 50 years based on current growth of mining. As minerals are exhausted our economy will undergo dramatic change. We are also seeing the significant change in the agricultural sector because of scarcity of water. Based on the mainstream science, this problem will increase as climate change increases.

    As our exports fall and imports increase we will need dramatic restructure of our economy. It will not be a period to enter with decayed infrastructure. It will also require massive investment in other industries and in the skills base to support them, in competition with countries that have established physical and human capital and proven capacities in globally competitive industries. All of this will have to be funded and so private and public savings from the minerals boom are vitally important.

    As an aside, Nauru had tried to save and invest during their export of phosphate but lost millions in a fraudulent financial scheme.

    The need to scale back current consumption may not be as great as you suggest as much of the dividends from our largest mining companies are paid overseas.

    The desirability of a federal mining tax at least partially reflects the failure of the state governments to capture a share of the upside in minerals prices from long lived projects when negotiating royalty payments.

    Reply

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