I know what you’re thinking “ this bloke is stuck in the wrong decade. Unemployment is at a twenty-two year low. We’ve got it licked. We’ve got this miracle economy and it all ends happily ever after.
Well it isn’t and it won’t.
Our real unemployment rate is not 5.6 per cent contrary to what you’ve been breathlessly told by government and media. The numbers are a fraud. If you add the total of unemployment, sickness and sole parent benefits paid, there are more people now than there were ten years ago, despite a decade of boom. We’ve just re-arranged the deck chairs. Roy Morgan Research numbers reach a similar conclusion but every quarter their press releases are discarded by a lazy media. That’s why we still have one in six children growing up in a jobless household. That’s why our long-term unemployed numbers haven’t budged.
We can debate these figures if we must, but what nobody would argue is that, come the next recession, unemployment, however you measure it, will double. It always does.
So I guess we better pray we don’t have another recession.
Apparently we have the fastest growing economy in the OECD. Curiously, we have the fastest growing level of consumer debt in the OECD as well. Call me old fashioned, but it’s not entirely clear to my business mind how we can keep sustaining 4 percent annual economic growth through 20 percent annual consumer debt growth. We have the best party on the block because we’ve borrowed more money to buy more beer.
As a nation we should be saving to invest, but instead we are borrowing to consume.
Fortunately, interest rates are at a fifty year low and it’s theoretically possible they might flat-line from here. Right at the bottom. Forever. Unlike every other market in the history of the human race. Alternatively, our interest rates may rise, our repayments may start to suck all the slack out of consumption expenditure and we could end up in a recession. It’s just a wild guess. I don’t know when, but the longer it takes, the worse it will be.
But what about the clever country? The billions of dollars we are pouring into R&D, and all that innovation and commercialisation going on everywhere? We could be the next Silicon Valley. So, I guess, could all the other next Silicon Valleys in Bangalore, Israel, Singapore, Ireland and Scandinavia.
Our problem is this – hardly any of our research and development is done by real companies with real customers. No companies, no customers, no products, no markets, no sales and distribution channels and no brands. Just lots of white coats, fancy buildings and photo-opportunities for politicians.
What we do have, thank God, is export education “ our fastest growing export industry. But instead of focussing on it and re-investing the profits for growth, we are strip-mining it to reduce the government contribution and to pay for this frolic called ‘commercialisation of R&D’.
Outside mining, we have less than a dozen companies that export more than a few hundred million dollars worth a year. We need about two hundred of them to generate the sort of growth needed to beat unemployment on a sustainable basis.
We are one of the smallest, and by far the most isolated, economies in the developed world. Logically we need to be one of its best exporters. In truth, we are the second worst. And the only country that exports less than we do, as a percentage of gross domestic product, is the US. It can afford to. It has a domestic market of three hundred million people.
But wait, haven’t we just hooked ourselves up with the world’s most powerful economy in ‘the most important policy decision for fifty years’ “ the US Free Trade Agreement? That oughta do the trick.
Not so fast. Whatever the US FTA is, it is a pygmy of a deal. We may export some more utes, some canned tuna and, over eighteen years, a little more beef. We may even export more Camrys although there’s an equal chance we’ll get the opposite if our Altona plant can’t compete with the Kentucky plant six times its size. These gains will be offset by further losses in manufacturing, IT, entertainment and other areas. There is little doubt the deal will result in a widening trade deficit with the US and will be a net negative for employment. Whatever its other merits, it’s neither a particularly big or particularly positive deal.
In fact, if you read the sort of stuff the Yanks themselves are writing about trade theory, it’s no wonder the deal got such strong support in the US congress.
In the last thirty years, American economists have recognised the power of what they call ‘Increasing Returns to Scale’. Put simply, in a global economy, the big get bigger and the meek do not inherit the earth. If in doubt, read a little Kenneth Arrow, Joseph Stiglitz or James Buchanan Jnr on increasing returns to scale. Unlike many of those driving our policy decisions, these blokes have a few clues “ and they’re all Nobel prize winners.
Some have now gone further. They’ve recognised that this changes trade economics and the old notion that all free trade always advantages both countries is now no longer true. A recent book by ex-Princeton professors Ralph E. Baumol and William J. Gomory called Global Trade and Conflicting National Interests (MIT Press) shows that the old game still advantages both countries if they have very different levels of wealth. But for countries in the same league, there can be winners and losers – and the country with the larger scale or faster productivity growth will usually get more than 100 percent of the net benefits.
Don’t get me wrong, like all the economists I’ve just mentioned, I like free trade, but it just so happens that our best deals are probably going to be the ones with China, Thailand or some of the others we are pursuing where the national income differential ensures both sides win.
So – if unemployment is much worse than we thought, and certain to go up when our current bubble bursts, and our trade position is based on theory that’s thirty years out of date, and our economy is at small scale, and our R&D efforts deliver a blank page, let me pose the challenge again:
How are we going to solve unemployment ?
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