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Ken Henry on Australia's two speed economy « Previous | |Next »
July 16, 2012

In his speech to the Australian Conference of Economists at Victoria University, Melbourne on 12 July 2012 Ken Henry argued that Australian businesses outside the booming resources sector will continue to face falling international competitiveness and options such as “offshoring” will need to be considered.The implication is that Australia is in for some potentially turbulent times despite our strong resource-led economy.

He also argued that the debate around lifting Australia’s productivity and our international competitiveness has become confused, with a common but incorrect belief that growth in the resources sector can off-set weakness in the non-resources sector:

there is simply no feasible set of such adjustments that would reverse all, or even a large proportion, of the loss of international competitiveness that is presently being experienced by Australia’s trade exposed non-resources industries. The shock to resources prices has simply been so large that a considerable structural adjustment, including a reallocation of labour, is required. It will happen.

He adds that though it is true that Australia is not the only economy experiencing substantial structural adjustment because of the re-emergence of the major Asian economies, that is not the same thing as saying that Australia will avoid substantial structural adjustment.

He finishes thus:

It is no exaggeration to say that, if Australia is going to navigate successfully the structural adjustment to the terms of trade shock presented by the extraordinary growth of China and others in the region, a new mindset will be required: a new mindset in government, certainly; but a new mindset in business and the broader community also.

While the mining industry has surged ahead in terms of employment growth, areas such as manufacturing, transport and warehousing, agriculture and retailing have gone backwards. Hence Australia's two-speed economy and why many Australian’s seem so pessimistic despite the apparent strength of the nation’s economic performance at the macro-level.

Hence a future of constant change, structural unemployment, labour disputes and political divisions between perceived winners and losers in Australia’s non-mining and resources firms as they struggle to reinvent their business models.

| Posted by Gary Sauer-Thompson at 8:16 AM |