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Garnaut on after the mining boom « Previous | |Next »
June 6, 2013

In his Ending the Great Australian Complacency in the early 21st Century speech Ross Garnaut addresses the fateful choice that Australians will need to make in the months and years ahead about how to respond to hard times after more than two decades of extraordinary prosperity. It's not the choice at the forthcoming federal election.

The hard times choice is at a time of international financial uncertainty that is still dragged down by the overhang from the global financial crisis and where the causes of the crisis mostly remaining at large. It comes at a time of ideological uncertainty, with doubts growing about whether the political and economic systems of the developed world of which Australia is part still have the capacity to deliver prosperity to most of their citizens.

MoirAicons.jpg Alan Moir

Garnaut, now at the University of Melbourne, says that we face three big challenges if we're to avoid the end of the long boom leaving us with much to regret:

(1) The first is that our real exchange rate now needs to fall a long way to be consistent with full employment.

(2) The second challenge, he says, is to change entrenched expectations that living standards will rise inexorably over time; that household and business incomes and public services will rise and taxes will fall, as they have done for a generation.

(3) The third challenge we face is that our political culture has to changed. It has changed since the reform era 1983-2000, in ways that make it much more difficult to pursue policy reform in the broad public interest. If we are to succeed, the political culture has to change again.

Basically Australia’s external position is weak with the approaching end of the China resources boom and this will result in the fall of the foreign exchange value of the Australian dollar and it will result in reduced living standards—the amount of goods and services that Australian incomes and expenditure support—unless there are corresponding increases in the productivity with which Australian resources are used.

The key depends on how successful we are in restoring growth in our trade-exposed industries outside the resources sector and a strong revival of investment and exports in services, manufacturing and agriculture as well as some moderation of the decline in resources investment.

He says that the economic choice is that after the decades of prosperity, Australians now must choose between two radically different approaches to our problems.

Do we accept persistent large increases in unemployment and large declines in living standards under Business as Usual--[ie.,conduct our public life as if the approaches that were good enough in the days of easy prosperity can deliver acceptable outcomes in harder times].? Or do we accept a Public Interest approach: think hard about how to achieve a large reduction in the real exchange rate and how to lift productivity and to share across the Australian community a moderate reduction in living standards? The moderate reduction in living standards will be smaller and of shorter duration the more it is accompanied by restoration of strong productivity growth.

Garnaut is pessimistic given that the political culture is now one in which policy change in the public interest has become more difficult over time as interest groups have become increasingly active and sophisticated in bringing financial weight to account in influencing policy decisions.
A new ethos has developed in which there can be no losers from reform. Business has asserted a property right to continuing benefits of regulatory mistakes. It demands compensation for corrections to errors in policy. Households have been led to expect that no policy changes will cause any of them to be worse off.

The limits of intrusion of private interests of many kinds into setting the rules for a market economy have been eased. An example is the Business Council dream of ''reforms'' that advance their private interests (industry welfare,) at the expense of the rest of us.

| Posted by Gary Sauer-Thompson at 4:20 PM | | Comments (10)


The economy is undergoing a difficult transition as the investment phase of the mining boom begins to fade. The media, working in terms of black and white, are saying that Australia is heading for a recession. There has been near hysteria amongst many business commentators and economists.

Garnaut's business-as usual-approach states that business and consumer confidence will rebound when Abbott sweeps to power. That confidence is likely to unlock currently low business investment, creating a jobs bounce and a flurry of consumer spending to get failing retailers off the floor and perhaps breath life back into home lending and house prices.

This Canberra Press Gallery ignores what is happening in the global economy.

Garnaut is right. Australia is entering a new economic era now that the easy money from high commodity prices is over.

What are the drivers of future economic growth?

I remember about 40 years ago, maybe longer, looking at an economic atlas which described typical 3rd world ex-colonial economies.

Exports consisting mainly of raw materials including unprocessed minerals and similarly unprocessed agricultural products.
Low value added, low employment base.
Just like Australia then - and now.

Imports on the other hand were mainly manufactured goods, high value eg heavy machinery and tech gear, high employment base with high skills, foreign ownership and
in addition, the 'invisibles', banking, insurance and finance were subsidiaries wholly or substantially owned by old European banks [with a recent inflow of US and Japanese at the time].
Just like Australia then - and now.

The problems facing the Australian economy have never been economic in cause - always political and cultural and, as such, able then to be changed [as the emerging 'tiger' economies of the 70's proceeded to do] but cultural 'cringe' and subservience to the increasingly dominant TNCs meant we missed our chance[s] then.
And, apparently, are missing our chance[s] again.

The Coalition promises voters that on September 15 there will be no boats, no taxes and a miraculous return to the “golden days” of John Howard. Big Business thinks that things will be fabulous just because the government changes.

It's fantasy land---the big economic uncertainties have nothing to do with who is in government. They are weakness of the US recovery; the recession in Europe; the decline in the terms of trade.

"Garnaut's business-as usual-approach states that business and consumer confidence will rebound when Abbott sweeps to power. That confidence is likely to unlock currently low business investment" etc etc

How is confidence going to be restored by the Coalition's big spending cuts?

The national accounts published on Wednesday showed annual economic growth slowed to 2.5 per cent in the first quarter. Domestic demand shrank 0.3 per cent from the previous quarter as business and consumer spending slowed down.

This shows that the other parts of the economy failed to fill the gap left by a decline in new resources investment.

"There has been near hysteria amongst many business commentators and economists."

By the recession doom merchants in the media.

Yet the quarterly GDP growth was about 0.15 per cent below the long run average whilst the annual growth rate was about 0.5 per cent below the long run average. Growth is a touch below trend.

How do you get recession from those figures?

Read more:

"The Coalition promises voters that on September 15 there will be no boats, no taxes and a miraculous return to the “golden days” of John Howard..."

And that's what truly utterly does my head in!!!

Are the voters really so self-absorbed and disengaged that they CANNOT see the state of other "developed" nations around the world???

Are the voters really so deluded as to believe that Australia (in the short term) could be managing substantially better than it already is?

Are the voters really so ignorant as to demand a return to an unsustainable lifestyle which was based on fraud and fantasy?

Never mind... I know the answer...

Well, at least its honest. If we believed half the bullshit the politicians and media barons told us, we'd be anywhere but in the real.
Communities across the world are trying to hold themselves together against the onslaught of neoliberalism and techne.
It would certainly be good if people could get out of their insecurity and start seeing life realistically again, instead of being alternately spoked by shadows and galvanised by self absorption.