September 10, 2012
One major mega economic trend is the world economy shifting from west to east. Australia is potentially well-positioned to take advantage of the new world economy.
Today we have a mining bust in iron ore prices (55%) that few predicted in the mining industry, Treasury or the Gillard Government. Those in the mining industry saw sky high iron ore prices, and they believed these would continue, and they geared up their expansion plans for the ongoing boom.
They held to this belief even though post the global financial crisis Europe was in a depression and the US in a recession; and so the demand for Chinese manufactured export goods would fall, and there would be a decline in the Chinese steel mills demand for Australia's iron ore.
What we were feed by the mining boosters was the eternal Chinese boom story:----ongoing Chinese urbanisation will effectively guarantee strong demand for commodities such as iron ore for the next couple of decades, while Beijing has several economic tools with which to arrest any immediate dramatic slowdown. Things are otherwise to this booster narrative.
In the AFR Elena Douglas points out that:
the terms of trade dividend delivered by the Chinese hunger for our commodities was returned to Australians as family payments A and B; royalties and tax receipts which could have been invested in productivity improving reform of all levels of education.... Real income growth that lasts comes from productivity improvement, and education is one of the biggest productivity levers governments have access to. It’s the education system, stupid, and it always will be.
Education is crucial for the development of high-tech manufacturing in Australia.