Virus exposes cracks in economy
Narrow focus on consumption and a reliance on immigration hit home as pandemic shakes our foundations, writes Lisa Denny
THE COVID-19 global pandemic has revealed an inconvenient truth for Australia — we have a national economy founded on consumption.
In fact, it is both our societal values and underlying political ideologies that are geared to increasing consumption to grow our economy rather than focusing on productivity, innovation and the traded sectors.
The prevailing premise is that greater spending by more people creates jobs and grows the economy.
Consumption — the expenditure of disposable income — includes travel, recreation, housing and home furnishings, education, entertainment, new cars, personal services and smashed avocado. This reliance on increasing consumption to grow our economy is evident in the periodic CommSec State of the States report, which outlines its eight key indicators of economic performance, all of which are based on consumption patterns: housing construction, unemployment, population growth, economic growth, equipment investment, housing finance, retail spending and other construction work.
Many Australians consider themselves lucky to live, work and raise a family in one of the least densely populated countries in the world, with an enviable climate and natural wonders on their doorstep.
UNTIL ABOUT A MONTH AGO, MANY AUSTRALIANS WERE LUCKY. NOW, MANY, MANY ARE NOT SO LUCKY. THE VULNERABILITY OF THE ECONOMY HAS BEEN HIGHLIGHTED
They even call Australia “The Lucky Country”.
Until about a month ago, many Australians were lucky. Now, many, many Australians are not so lucky. The vulnerability of the economy has been highlighted by the sudden and devastating impact of the response to the pandemic for people, their jobs and livelihoods.
Estimates by Bankwest Curtin Economics Centre suggest more than one million Australians will lose their jobs by November, and that nearly 450,000 jobs in hospitality, entertainment, tourism and personal services will be lost by August 2021, followed by jobs in the arts and recreation, construction and transport, with more than 100,000 job losses each over the next 18 months. These are all in consumption-based sectors.
When Donald Horne used “The Lucky Country” as the title for his 1964 book, he was proposing that Australia’s relative economic prosperity was based almost entirely on luck, the product of other people’s ideas rather than the strength of its political or economic system, which Horne believed was “second rate”. He argued that Australia’s lack of leadership and levels of enterprise and innovation, lower than any other prosperous industrial society, were masked by the wealth and power of the economy, largely derived from rich natural resources and immigration. Horne suggested Australia’s leaders “so lacked curiosity about the events that surround them that they are often taken by surprise”.
Almost 60 years later, these thoughts are echoed by the Harvard University Kennedy Business School, which developed a database of 133 economies to map economic progress and opportunities of the industrial and non-industrial world, the Atlas of Economic Complexity.
The analysis confirmed that Australia lacks the economic diversity and productive capabilities to enable it to grow strongly relative to other countries into the future. The authors stated the ability of a country to achieve relatively strong growth is dependent on the productive knowledge that goes into making products and diversity — the number and breadth of products a country is able to make. Of 133 countries, Australia ranks as 93rd most complex. Compared to a decade before, Australia’s economy has become less complex, worsening 22 positions in the ECI ranking due to its dependence on commodities. The report concludes that Australia’s worsening complexity has been driven by a lack of diversification of exports, and that in the future Australia is positioned to take advantage of only a moderate number of opportunities to diversify its production using its existing productive capabilities. Economic growth, according to this model, is driven by diversifying know-how to produce a broader, and increasingly more complex, set of goods and services. In Australia, export growth over the past five years has been driven by expanding its global market share of services. However, globally, long-term economic growth has been driven by diversification into new products that are incrementally more complex.
The report said that, based on Australia’s export profile, Australia has diversified into too few products to substantially increase income growth into the future.
The Atlas of Economic Complexity reveals another inconvenient truth: that our natural resources have masked, and contributed to, failing to innovate and develop
the industries needed to maintain its position in the top ranks of developed nations.
With the effective closure of Australia’s international borders to immigration as a response to the COVID-19 pandemic at least in the short to medium term, representing about 60 per cent of Australia’s historic population growth, a continued reliance on immigration as a source of economic prosperity, as suggested by Horne in 1964, is no longer possible.
So, in the face of a global recession, economic demise, a historic reliance on natural resources and lack of innovative industries combined with the prospect of low population growth well into the future, an economic framework based on increasing consumption is not likely to resurrect our economy or society.
To truly make Australia the Lucky Country, curiosity is required. It is no longer acceptable that our economic prosperity should be based on luck. In the gamut of policy options, the task may appear daunting to the Prime Minister and his Cabinet (equally as it may to state and territory counterparts). There is no more important time than now for leadership; no one wants to be taken by surprise again.
Dr Lisa Denny is a research fellow with the Institute for Social Change at the University of Tasmania.