Adam Creighton

The Weekend Australian - Review - - Books -

‘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

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