Salad days of the China boom

Dog Days: Aus­tralia Af­ter the Boom

The Weekend Australian - Review - - Books - Paul Cleary

By Ross Gar­naut Black Inc, 302pp, $19.99

WHEN the China boom started last decade, econ­o­mist Ross Gar­naut tried to save Aus­tralia from it­self. He called for the fed­eral gov­ern­ment to re­sist the temp­ta­tion to splurge the rev­enue windfall and to salt away the ad­di­tional in­come for the in­evitable rainy day. As with other ex­perts, his pleas were ig­nored, and now the re­sults of this feast to famine ride are there for all to see.

The China ex­pert and eco­nom­ics pro­fes­sor was then side­tracked by the Rudd gov­ern­ment’s in­vi­ta­tion to head a cli­mate change re­view and help save the planet.

In Dog Days: Aus­tralia Af­ter

the

Boom, Gar­naut re­turns to the task of na­tional sal­va­tion based on the premise the boom has passed and Aus­tralia needs ‘‘ the hair of the dog’’ to re­cover from an almighty eco­nomic hang­over. His anal­y­sis of the prob­lem is su­perb, and he presents a con­cise set of sta­tis­tics to crys­tallise his ar­gu­ment, though some of his so­lu­tions aren’t fully de­vel­oped or ex­plained and one of his main reme­dies in­volv­ing cur­rency man­age­ment is high risk.

The boom to bust nar­ra­tive starts with a line from An­thony and Cleopa­tra, when Cleopa­tra said, ‘‘ My salad days, when I was green in judg­ment . . .’’ Aus­tralia’s salad days have in­volved the ‘‘ long­est un­bro­ken pe­riod of eco­nomic ex­pan­sion of any de­vel­oped coun­try ever’’, writes Gar­naut. Dur­ing this time, av­er­age in­comes rose from the mid­dle ranks of de­vel­oped na­tions to 50 per cent above that of the EU and 25 per cent above that of the US, a sta­tus not known since the boom from the gold rush of the 1850s to the 1891 crash.

The first half of this ex­pan­sion was built on the pro­duc­tiv­ity gains from the HawkeKeat­ing-Howard eras, but the sec­ond half re­lied on a hous­ing and con­sump­tion boom fol­lowed by the China-fu­elled rise in our pur­chas­ing power (known as the terms of trade — the ra­tio of ex­port to im­port prices).

One re­sult is a new era of en­ti­tle­ment that has made peo­ple ‘‘ ac­cus­tomed to easy in­creases in in­comes, ever-lower tax­a­tion and re­wards that bore no close re­la­tion to ef­fort or achieve­ment’’. Aus­tralia has be­come a lazy, high-cost econ­omy with min­i­mum wage lev­els twice that of the US and 1.5 times the EU level, he ex­plains. As Gar­naut puts it, the boom has made Aus­tralia in­ter­na­tion­ally com­pet­i­tive in too few ar­eas to main­tain full em­ploy­ment, and this makes us very vul­ner­a­ble in the next eco­nomic down­turn.

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