Salad days of the China boom
Dog Days: Australia After the Boom
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
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.