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Ken Henry: shape of things to come « Previous | |Next »
November 4, 2009

The Secretary to the Treasury, Dr Ken Henry, delivered an important speech entitled The Shape of Things to Come for Australia: Long Run Forces Affecting the Australian Economy in Coming Decades to the Queensland University of Technology Business Leaders' Forum in October this year. Henry spells out what I've been haphazardly grappling with on this blog in a clear and concise way. It helps to clear away some of my fog.

The core statement is this:

As the Global Financial Crisis hit our shores, the Australian economy was in structural transition in response to four large, long term forces: (1) population ageing; (2) climate change adaptation and the prospect of climate change mitigation; (3) the information and communications technology revolution; and (4) the impact on Australia’s terms-of-trade of the re-emergence, as global economic powers, of China and India. Over the past year, the shockwaves from the global financial crisis have obscured the intensity and scale of these forces. But as growth resumes, they will re-assert themselves. And, as they do, the Australian economy will undergo a set of structural changes more profound than anything in its history.

He adds that over the past year, the shockwaves from the global financial crisis have obscured the intensity and scale of these forces. But as growth resumes, they will re-assert themselves. And, as they do, the Australian economy will undergo a set of structural changes more profound than anything in its history.

His argument is that Australia can look forward to a long period of unprecedented prosperity - provided we accept a raft of unpopular economic reforms that will hurt us, and don't seek to resist the change being thrust upon us. I'm more pessimistic than this.

Take the first structural trend. Henry says that Treasury had been thinking about population dynamics in terms of ageing and a rising dependency ratio, but there is now a need to factor in the long term projection for Australia’s population increasing from 28.5 million in 2047 to more than 35 million people in 2049 (due to higher immigration and increased fertility). That increase of 13 million people, or around 60 per cent, over the next 40 years, has implications for our cities (Sydney, Melbourne, Brisbane) and the environment.

How will the capital cities cope with a rapidly growing aged population? By expanding their geographic footprints at the same rate as in the past several decades, loading more cars and trucks onto road networks, continuing the traditional patterns of land use and using up natural resources. Climate change means a drier Australia, which in turns means ever more stretched water resources, the decline of the Murray-Darling Basin as a food bowl, and a population shift from the south east corner of Australia to the north. It means lots of public investment in infrastructure.

Judging by our previous history on managing water and biodiversity it will be more business as usual than adapting to climate change by the cities becoming more sustainable. the main reason why am I pessimistic is that the impact on Australia’s terms-of-trade of the re-emergence, as global economic powers, of China and India takes the form of the capital-intensive, mining sector dominating the economy, the structural decline of manufacturing, and flat to declining real wages outside the resource sector. Henry put it this way:

standard economic theory tells us that if the terms-of-trade remain at high levels, not only will the resources sector command more capital and labour, manufacturing and other industries whose relative output prices are declining will command less, even as our total stock of capital expands. Furthermore, as the factors of production are reallocated, the pattern of growth will be characteristic of what is often referred to as a ‘two speed economy’; and real wages growth and labour productivity growth will be weak – possibly even negative.

The resource sector, we should never forget, is fundamentally opposed to Australia mitigating and adapting to climate change and to the development of renewable energy. And the mining sector has captured state and federal governments to such an extent that they are able to shape the direction of public policy.

| Posted by Gary Sauer-Thompson at 5:50 AM | | Comments (9)


Ken Henry doesn't say that much about the the information and communications technology revolution does he?

there are very good reasons to believe that we have only just begun to see what the ICT Revolution promises. The ICT revolution involves what is generally referred to as a ‘general purpose technology’... These tend to possess the following properties: wide scope for improvement and elaboration; applicability across a broad range of uses; potential for use in a wide variety of products and processes; and strong complementarities with existing or potential new technologies

What this means for Australia is reducing the ‘tyranny of distance’ that separates Australia from major global markets; have profound implications for the way in which government services are provided to a rapidly growing aged population;entails substantial additional investment.

Nothing about the knowledge economy or the emergence of the creative industries. Strange.

he is light on the significance of Australia's digital future---especially when the speech was given at Queensland University of Technology, where there is an Institute for Creative Industries and Innovation and the ARC Centre of Excellence in Creative Industries and Innovation.

Maybe Henry --and Treasury--- cannot see the economics of the humanities, which are equated with digital storytelling, digital literacy and social networks? Or the economics of this doesn't count in the larger scheme of things, where resource extraction by multinational firms dominate, and shape, the Australian economy over the next 40 years. They rule the roost and call the shots.

The comment in the post:

And the mining sector has captured state and federal governments to such an extent that they are able to shape public policy.

That means clean coal as Australia's energy future. Al Gore says that "clean coal" is like ''healthy cigarettes''.

In Coming clean in the Age Adam Morton says:

The biggest barrier to CCS [clean coal] working is not, as most people assume, the science, but the cost. Researchers say the technology - capturing carbon dioxide either before or after combustion, transforming it into a liquid under intense pressure and injecting it kilometres beneath the earth's surface - is ready. But the Global CCS Institute estimates even the cheapest version of the technology is unlikely to be viable for a commercial project before carbon dioxide emissions cost $60 a tonne. According to Treasury estimates, this won't happen until about 2030. The institute says CCS will increase electricity prices by up to 78 per cent.

The Rudd Government has provided a $2.4 billion fund to cover a third of the cost of building up to four commercial-scale CCS ''flagship'' projects. Comparatively, the flagships program for large-scale solar power announced in this year's budget is worth $1.5 billion.

Says it all. The miners rule behind the spin coming from Canberra. What this means is that Australia's energy policy and to power economy relies on the silver bullet of cheap, clean coal.

the link to the artlcle by Dean Janesch in The Advertiser---managing water and biodiversity---is an important example from SA. Janesch says that there is a water crisis in the lower South-East of SA. He says:

The locals have no doubt about the causes. One common reason focused on the over-extraction of underground water. Irrigators, who have a permit to extract, had no limits on the amount until very recently and, worse, there is no cost to them.Centre pivot overhead irrigators are everywhere. The most striking sight, however, is the vast expanse of blue gum trees which are destined for the wood-chipping industry.

He adds that the drains throughout the region were dug so the post-World War II soldier settlers and other farmers could turn the South-East into a productive agricultural area. They worked, but the general opinion is they are working too well. The water table was dropping long before the blue gum explosion. The drains pour water out into the ocean before it has time to replenish the underground reservoir.

Nothing has been done. What else would you expect?

yep coal is the future. No doubt of that. The state governments are banking on coal powering Australia's electricity and its exports to India and China. Go coal they say behind closed doors.

As the right wing commentators point out we need to dump the Greens and learn to love brown coal as the future of coal is one of Australia's major source of electrical power for decades to come.

We don' t need no world Government (the UN) telling us what we should do about energy. We love coal. Love it. All the infrastructure investment should be mainly spent on ensuring that the miners can cart everr more trainloads of coal to Australian ports for export. That's out future.

Commentators always assume that an aged population is costly because of the costs of looking after old people in their dotage and paying aged pensions.
However on average, the length of stay in a Victorian nursing home is 4 months.
More than half the money spent on health care is spent in the last 2 years of an individual's life. Do we need to waste money shipping dying elders to 500km capital cities, then into intensive care, then 500km back to their country town in the morgue van when they have lung failure which the medical profession knows is fatal.
Older people don't contribute to the economy because they spend less on clothes, technology etc than teenagers and aren't paying rent or mortgages.
We have a labour market which discriminates against older workers through use of labour hire companies, employer based super schemes.
Older people need access to medical facilities and medicines as their eyesight and hearing fade and arthritic joints complain of overuse.
I think the fears of a large aged pension population will prove unfounded as retrenched older workers slip into poverty and suffer the poor health of years of stressful making ends meet on Newstart.

Yes Peter I was shocked to hear that the Water Minister will not allow recycled sewerage water from Carrum to be used on cost grounds, ie 80km of water pipes. When Carrum Sewerage works opened the claim was the water was clean enough to drink and the chairman of the MMBW drank a glass of treated water, he suffered no ill effects.

Kenneth Davidson has reported in The Age that DSE is so against reusing treated sewerage water that it trebles every cost estimate.

Why should we get serious about saving water when our water departments are still more interested in generating revenue rather than conserving water for now and the future.

Was Ross Gittins writing a fairly good peice on this earlier in the week also?
All a bit like artificial insemination.
A cow knows vaguely something is going on, somewhere, but what it can mean, she can hardly guess.