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after the mining boom « Previous | |Next »
October 5, 2012

I'd always wondered why conservatives are indifferent to Australia becoming an information, knowledge or digital economy. The indifference remains even though the resources boom is giving way to falling export prices and a slump in the development of mines.

Glenn Stevens, the Governor of the Reserve Bank of Australia, says:

Economic activity in Europe is contracting, while growth in the United States remains modest. Growth in China has also slowed, and uncertainty about near-term prospects is greater than it was some months ago. Around Asia generally, growth is being dampened by the more moderate Chinese expansion and the weakness in Europe. and, as a result, increasingly restrained government expenditure and declining standards of living.

That means restrained government expenditure and declining standards of living. Overall economic growth rate being essentially a composite of Australia's many different cities and regions in the context of the growth of emerging Asian economies.

RoweDGrind.jpg David Rowe

Where to next to avoid declining standards of living in a reshaped economy? Should economic policy try to kick-start those areas of the economy that had been slowed down as part of the longer-term 'structural adjustment' to the mining boom? What do the conservative, free market economists say on this issue?

In The Australian, Henry Ergas is explicit. He says that Australia should stick with exploiting its natural resources:

It's hard to disagree with Ross Garnaut that China's slowing growth will place new pressures on our economy. But the implications he derives from that are wrong-headed...Garnaut's prescription is straightforward. It's time, he said on ABC1's Lateline program earlier this week, to shift our focus towards "high-value manufactures and high-value services".... Whatever Garnaut may think, the reality is that we are and will remain a commodity-based economy. Blessed with a natural resource endowment that is among the highest in the world and extraordinarily diverse, comparative advantage drives us to specialise in mineral resources and agricultural production. No surprise then that our prosperity has always rested on putting that endowment to good use.

He adds that the challenge is to ensure we continue to do so in the face of falling prices, slowing demand and the rapid development of competing sources of supply. A sharper focus is required on our cost competitiveness in every step of major resource projects, from initial exploration to construction and operation.

It follows that the Gillard Government should repeal the carbon tax, scrap IR laws and dump the mining tax. These are reforms designed to give big mining more money during a time of falling commodity prices. Straight forward really. The problem with the Ergas option is that the mining sector is expected to rise from 5 per cent of gross value added in the early 2000s, to around 10-12 per cent in the decades to come. What of the other 88 per cent?

Ergas is right to highlight that the demand for agricultural produce increases with the economic shifts in Asia. So we are likely to see a significant increase in demand, particularly from China, for high-end agricultural products like fruit, dairy, high-grade meat and seafood. Agriculture is around 20 per cent of Australia's exports. That takes us to less than half. Why ignore financial capital?

What Ergas doesn't mention is that the middle-class consumers in the Asia Pacific region will also demand better services, goods and experiences. This leads us to the Garnaut option, which is the high-value services, high-value manufactured goods one. This results from the shift to a knowledge economy--a high-tech knowledge economy as opposed to real estate development and expansion. The argument here is that it makes sense to focus the future economy less around housing, roads, and physical capital, and more toward the accumulation of human capital and knowledge assets.

What is surprising is that Ergas offer us yet another great either or divide rather than thinking in terms of an open economy that is in transition.

| Posted by Gary Sauer-Thompson at 9:12 AM | | Comments (13)


That is a brilliant cartoon!!!!

History will probably pay more attention to whether Labor squandered the benefits of the mining boom.

whose history would that be?

David Murray on 7.30 said that the ways out of the big fiscal squeeze in the commonwealth's budget is to cut back on welfare handouts and to get hold of the productivity issue and become more productive.

Leigh Sales neglected to ask him what he meant by "becoming more productive" . She should have because "more productive" for the BCA means lower wages and reduced working conditions. For Ross Garnaut it means increased skills and better knowledge.

NSW like Queensland and Victoria says no to renewable energy. They are going to protect their coal-fired generation assets and block the shift to lower wholesale electricity prices resulting from renewables.

"They are going to protect their coal-fired generation assets and block the shift to lower wholesale electricity prices resulting from renewables."

They continue to see solar power as the problem not the smart solution. It is a problem because NSW, Queensland and Victoria get their electricity from coal — a resource that would likely see a substantial decline if renewable energy targets were increased.

By being anti-renewables they ignore the growing power of pro-sumers who have invested in rooftop solar, and who now have the power to ability to produce at least some of their own electricity needs.

As Giles Parkinson points out in Renew Economy:

The cost of solar PV is coming down so quickly that it will be a compelling idea for most customers. They now have cheaper options than simply plugging the toaster into the grid and paying whatever bill comes down the line.

We need a smarter grid--one with a peak period feed-in tariff that will help reduce peak demand. The technology to save solar power to energy storage during the day and then release it back into the building in the evening via a net metering scheme is already available on the Australian market today.

Currently, grid-connected battery systems are very expensive in the same way that solar power was very expensive just four years ago. Within a few years though energy storage systems will become far more affordable.

"whose history would that be?"

Nan @11:55AM

Yes indeed!

Ergas is one of the economic voices of Old Australia trying to coming to terms with the Asian century.

So is Judith Sloan. She is well known for her trenchant neo-liberal opposition to strong employment protection laws, high minimum wages and labour on-costs. These contribute to very high rates of unemployment, particularly among young people and migrant groups.

There is also in her opposition to new economic growth emerging from addressing climate change, an emissions trading scheme and renewable energy. Green growth is claptrap. Why? Just look at Spain is her claim. There is no argument.

She dismisses the OECD report on reforming policies supporting fossil fuel consumption or production that increase greenhouse gas emission as nonsense.

We can't have the hidden subsidies to the fossil fuel industry exposed can we. That would undercut her case for efficient markets and minimal government intervention.

Ergas and Sloan continue to adhere to the 1970s return to freer market-driven economies and neo-liberal ideology. It is as if the global financial crisis with its epicentre in a North Atlantic culture that emphasized the acquisition of money by the financial sector, never happened for them.

Had the developed world TRULY embraced a free market-driven economy and neo-liberal ideology.... I'm guessing it would have all turned to shit long ago.

The only reason this circus is still (barely) ticking over, is because of government intervention and corporate welfare.

the adverse pressures of adapting to the new globalised world are particularly centred on society's most vulnerable - the unskilled, low-skilled and those who do not fit into the international knowledge economy.

Their anger and bitterness is expressed in terms of right wing populism of Old Australia that detests and mobilise against, liberal elites on issues such as on immigration, multiculturalism, climate change etc.

Economies that industrialised world such has Australia are in the throes of a huge and painful transition.

They can only maintain their own standard of living by purchasing goods created by people in Asia whose standard of living isn't so high.

Problem? The customers are here in Australia but the jobs are elsewhere. And of the jobs that are here, many have to compete with the wages that "elsewhere" will accept.

That is what Big Mining tells us.