‘It has been 25 years since our last recession, yet in the past five years we have had as many prime ministers as Greece.” George Megalogenis has written an engaging and, as the opening passage suggests, sobering essay on Australia’s economic prospects. One of Australia’s foremost commentators, he argues Australia faces a stark choice: recession or renewal.
His latest Quarterly Essay revisits themes that have pervaded commentary on Australia, including his own, for at least 50 years: luck and mismanagement. His analysis is imbued with Donald Horne’s famous aphorism that Australia is a lucky country run by second-rate people who share its luck.
A former press gallery journalist, Megalogenis is dismissive of an Australian politics at once increasingly strident and shallow, which plainly has no plan for an economy entering what he calls the “danger zone”, where a recession is likely. He argues the free-market principles that have guided Australian policymaking since the 1980s have gone awry and need to be updated to reflect the lessons of the global financial crisis. “The default setting of politics in the 21st century — to trust the market — has proven to be bad economics, even for Australia, the only high-income country to avoid the Great Recession,” he writes.
Without a significant change of direction, he isn’t optimistic. “Almost every economic advantage we enjoyed before the global financial crisis has either diminished or disappeared,” he says, pointing to increasing household indebtedness, coupled with sky-high house prices, the Reserve Bank’s dwindling monetary policy ammunition, an entrenched budget deficit and China’s economic slowdown.
Most pundits would agree. In its 25th year of economic expansion, Australia’s hitherto miracle economy is showing signs of fatigue. Wage growth has almost ground to a halt while business investment outside the resources sector is sluggish, despite rock bottom interest rates. The home building boom has peaked just as population growth has fallen to its lowest rate in a decade. Meanwhile the US economy, overwhelmingly still the world’s most important, is facing a recession.
Megalogenis dwells on Australia’s dependence on the housing market — “a corrupted market created with the blessing of politics” — to sustain growth. Indeed, the share of speculative investment in total lending in Sydney and Melbourne has grown to around 40 per cent, about double usual levels. Home values to GDP are higher even than in Japan and Ireland before their respective housing crashes. Public investment in infrastructure has halved from 8 per cent of GDP in the 1980s to around 4 per cent now, while the contribution of the property sector has soared to above 6 per cent.
The author’s solution is more government regulation and expenditure, especially in edu- Quarterly Essay 61: Balancing Act: Australia Between Recession and Renewal By George Megalogenis Black Inc, 144pp, $22.99 cation and infrastructure such as transport, communications and water security. He bemoans the “misguided faith in the open economic model” and wants to see “a permanent change in the relationship between the state and the market’’. Returning public infrastructure investment to the levels of the 1960s — more than 10 per cent of national income — would create jobs, he argues, and prevent swaths of the workforce ending up on the structural unemployment scrapheap (and on to government pensions) as occurred in Britain and Australia in the 80s and 90s.
Balancing Act includes the sort of data analysis for which Megalogenis is well known. For instance, contrary to conventional wisdom, most of the 1.6 million new, full-time jobs created since 2000 have been filled by men. “Ignore the white-guy whinge about how women, and the Chinese and the Indians, are pushing him to the sidelines of the culture,” he says. The construction, professional, scientific and technical service industries have in fact made up for the sharp fall mid-80s.
He is scathing about the performance of Australia’s two main political parties, which stand “for little more than acquiring power”. Voters have realised this too, with a growing share opting for minor parties. But Megalogenis reserves the bulk of his criticism for the Howard government, whose supposedly irresponsible