Australia’s economy is in trouble and it needs change
Australia’s economic fortunes are not quite as bright as they once seemed. The economy has entered into a period where it performs sluggishly at best. No amount of denial changes this simple truth.
Too many commentators chant the refrain that the bad days have gone and the future looks bright. Optimism can be a good thing, but not if it is blindness that prevents us from taking the necessary action. Blindness can be caused by misuse of or not understanding the information available.
Coming to understand that the present crisis has not been sudden, but something that has emerged and bubbled away fro decades puts the situation into its real perspective. There has been a general slowdown in the global economy for nearly four decades since the early 1970’s.
According to World Bank data , the average growth rates for the global economy between the 1960’s and 1990’s fell from 4.9% in the 1960’s, to 3.9 % in the 1970’s, 2.9% in the 1980’s and 2.7 5 in the 1990’s. Australia followed the pattern. Australia’s performance matches this.
Another indicator of economic performance is the employment situation. In July last year, In its annual Employment Outlook, the Paris-based Organisation for Economic Co-operation and Development suggested that Australia's relatively low unemployment rates were not quite as good as they seemed, they do not take into account those who have dropped out of the search for work, and even more importantly, the third of the workforce that have to suffer casual and part-time employment. Incorporating these truths would mean a real unemployment rate of around 12%.
The Australian Bureau of Statistics’ (ABS) labour force figures show that over the medium to longer term, genuine full time jobs are decreasing. This is not a picture of health, in terms of expanding economic activity and it suggests a shrinking domestic market.
Along with the decline in growth rates over the long run, came a rise in financial investments in other than the real economy that is in the making of things. Commodity and real estate speculation, futures markets and currency speculations, and of course, the growth of debt were the high performers. These trends have fed a tendency to more and bigger economic bubbles and greater economic instability.
We measure growth according to Gross Domestic Product. The weakness here is that it does not discriminate between the productive economy and the shuffling of assets. It is clearly inaccurate. The concept of real Gross Domestic Product would be much more accurate. Even when putting aside this weakness, Australia’s Debt GDP ratio rose markedly between the end of the 1960’s and the 2008 crisis. By the 2008 fall, ABS figures showed that Australia’s private debt had topped the $1 trillion mark. This was always unsustainable.
A big part of the debt problem is foreign debt. Australia’s foreign debt grew rapidly. Between 1976 and 2008, the level of gross foreign debt increased from $8 billion to $1,072 billion or from 9 to 95 % of Gross Domestic Product. Net foreign debt increased from $3 billion to $600 billion or from 4 to 53 % of GDP. Gross interest paid overseas averaged around half of one per cent of GDP through the 1960s and most of the 1970s. It then increased rapidly and by 2007–08 was equal to 3.8 per cent of GDP or its second highest level ever. At 74 per cent of GDP, the largest holders of debt in 2008 were private financial corporations. Debt accounted for 87 per cent of net investment in 2008; the corresponding figure in 1980 was just 29 per cent.
The last two decades have seen an unprecedented rise in the quantity and proportion of investment funds used to take over existing businesses. The product has been a significant rise in the degree of monopoly in our economy. It means that fewer people are making the economic decisions that affect us all, tied up with a notable rise in the proportion of foreign ownership.
The world of finance out of control.
The inescapable conclusion is that while debt went up, economic growth went down. The point here is that there is little sign that these trends are likely to reverse in the foreseeable future. If this is so, we can expect more challenges ahead. The crisis is a long way from being over.
Government policies responding to the existing economic problems have always focused on redistributing national income upwards. The argument is that by doing this you create a better climate for investors. Consequently, they will invest more and this will overcome economic problems. The tasting of the pudding is in its eating. It has been tried the last 40 years and found seriously wanting. There is no valid excuse for continuing down the same road.
Today we have an over reliance on the mining boom (which will not last for ever) and a decline in our manufacturing industries. The world of finance is top heavy; speculative real estate prices, gambling on futures markets, an excessive credit blowout and unimpressive retail sales has been some of the products.
Not all investment is good. Investment should be geared to boost the real economy. This is not what is happening. Unhealthy, non-productive investment continues to be encouraged. What are required are measures that will build anew Australia’s dwindling manufacturing base and linking other economic sectors to this. If we continue down the path of unbalanced investment, the present problem will not only continue, but will most likely get even worse.
It is clear that what has been needed all along is the introduction of some effective regulation in financial flows, to ensure the rise of healthy investment and the curtailment of its unhealthy counterpart. Instead of this we have had ongoing liberalisation of all controls, which has encouraged unhealthy investment.
Furthermore, the lack economic democracy alienates the majority and works against participation in decision making. It strangles initiative, steals away reward for effort and broad based participation in building our future.
These comments are broad strokes aimed not at presenting a comprehensive analysis of the situation, but at raising some points for discussion. The hope is that this small effort can contribute to a large number of Australians coming together to improve their understanding of what is required, so that we can make a difference together.
