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the dark side of a resource boom « Previous | |Next »
May 17, 2006

Ken Henry, Secretary to the Treasury, gave a speech to the Australian Business Economists in Sydney the other day. The speech explores explore some of the implications for the Australian economy, and Australian economic policy, of the re-emergence of China as an economic power.

The immediate consequence of China’s impact on the price of energy and of commodities in general for Australia is extraordinarily high terms-of-trade. Other economies are having their terms-of-trade hammered. Henry says that:

High terms-of-trade should be good news. But it is the sort of good news that has policy makers sitting on the edge of their seats. And for good reason: earlier terms of- trade booms have not always been comfortable times for Australian policy makers...The present high terms-of-trade might turn out to be short-lived. Yet, in thinking about the implications for the Australian economy of the re-emergence of China, India and others, it would not be prudent to ignore the possibility that the terms-of trade remain well above historical levels for a considerable period of time.

What is the consequence of that?

Henry's speech explores 'what might happen to the Australian economy if it turns out to be the case that the terms-of-trade are permanently higher, even if not quite as high as at present.' The picture is one of a two-speed economy as resources shift away from the south eastern Australia to the mineral states. We have booming mining activity in the west offsetting sluggish manufacturing growth and employment in Australia's east. That means depressed wages, stunted manufacturing, job losses and an exodus of workers and investment from Sydney, Melbourne and Adelaide to the mining states.

| Posted by Gary Sauer-Thompson at 8:20 PM | | Comments (4)


That is probably not a bad thing, 8 million of 20 million live in the Sydney and Melbourne regions. It might help balance the continent a bit.

There are definitely two economies in Australia - east and west; and at a pinch three as Queensland has a development-state policy like the Asian nations. A movement of skills might help balance them a bit.

Western Australia should suceed from the rest of Oz,and the sooner the better.I tell you what,you can keep the Opera house.Oh shit I forget it's owned by the Queen.

There is the political implication of this.

There are many more marginals in NSW and Victoria than in resource rich areas. Expect more by way of economic protectionism---eg.,subsidizing the car manufacturing industries.

The Treasury Secretary warned that government should help – rather than resist – the shift from manufacturing and services in the south-east to mining in the north and west.

He was opposed to business welfare even as he warned of years of pressure for manufacturers.