Yesterday’s National Press Club speech by AWU boss Paul Howes and the latest economic update from the Organisation for Economic Co-Operation and Development provide a telling contrast that demonstrates where economic debate currently is in Australia and where our political debate may well be headed.
Howes’ speech, and his feisty Q&A session afterwards, was a blast from the past, full of union (and business) golden oldies such as “picking winners”, “industrial policy vision” and government intervention “to guide the economy”. From his comments yesterday, there’s little to distinguish Howes from the likes of BHP Billiton chairman Jac Nasser, former Future Fund head David Murray or Clive Palmer. Each in their own way want some sort of preferment for their company or sector.
But in contrast to those three, Howes is always up front about his motivations — the interests of AWU members are his No.1 priority and he happily admits it. That is what he is elected and paid to represent. And at least we were spared the usual complaint about the need for IR deregulation.
In a nice piece of timing, the OECD update, issued as part of its latest global update, confirms that the very things Howes railed against, the investment boom, resources and the high dollar, are forecast to combine to give Australia the fastest economic growth in the OECD in the next year. The organisation also said Australian unemployment would remain well under the 7.9% rate for the OECD areas, and the 11.1% rate for the eurozone. The OECD said:
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“Australia can be expected to keep reaping benefits from the mining boom. Despite sharp sectoral disparities, economic growth should be around potential in 2012 and 2013. Mining expansion will continue, but some other sectors are having to adjust to the high level of the exchange rate and raise their productivity, which can be expected to weigh on the labour market. Faster fiscal consolidation will also weigh somewhat on demand.
“Restoring fiscal leeway while macroeconomic conditions are still favourable, and the terms of trade high, is welcome. In the absence of inflationary pressures, the accommodating monetary stance which accompanies this budget-tightening should help limit the risk of weakening employment. The authorities should preserve the economy’s flexibility and facilitate the adjustments made necessary by the changes under way, rather than impeding those changes by, for example, subsidising certain sectors.”
Australia’s forecast growth — 3.1% this year and 3.7% in 2013 — is in strong contrast to OECD forecasts for the eurozone to contract by (a seemingly optimistic) 0.1% this year, 2.4% in the US and 2% in Japan. The OECD saw no sign that China’s economy will surprise on the downside, fears of which have emerged in the past couple of weeks. The organisation sees China’s economy growing by 8.2% this year and 9.3% in 2013. India’s economy is expected to grow at 7.1% and 7.7% next year.
That sort of optimism about our economy was absent from Howes’ speech. Indeed, what Howes did was — quite effectively – channel the widespread sense of discontent that pervades Australia currently, the sense that if the economy is performing well it isn’t delivering any benefits for voters. This is why Howes’ speech is more important that the usual self-interested statements of business leaders. This isn’t just a faintly aggrieved sense of entitlement that people should be getting more; it’s a concern that for all the benefits of economic growth over the past 30 years, Australia isn’t necessarily better and certainly isn’t fairer for it, a feeling that emerges in the intense hostility of voters to privatisation, for example, or towards banks or executive remuneration.
It’s a strong instinct to return to greater levels of economic regulation. It may well be a key reason the government gets no credit for such a well-performing economy.
Howes thus proposed a series of interventionist ideas that could have been unearthed from a time capsule from the 1980s and 1990s or recycled from that old argument about following the overseas models of countries such as Sweden or Germany (or even Singapore), urging the government to ditch its “passive” mindset and help manufacturers take advantage of the rise of China where, he observed, Australia’s economic future lay:
“It’s time to take control of our own economic destiny.We need to be doing the spade-work now — investing in the growth industries that will support Australian jobs, and underpin our future prosperity. We want Australia to rediscover its industrial policy vision. We have the opportunity to leverage our great resource gifts by adding value to them, and developing our champion industries.
“It should be clear that government has a role to play in securing our economic future — but Canberra policy makers seem stuck in the mind-set of passive government. Now is not the time to be passive … We have to fight to save manufacturing.”
The problem with such winner-picking is that it’s hard to find an example that has worked successfully, unless you call taxpayers spending tens of thousands of dollars per job success, which is where we’ve ended up after two decades of automotive industry policy.
Howes also made the point that the major obstacle to growth in industry was the strong dollar (not the carbon tax):
“I don’t believe that is the major issue affecting our trade exposed value-adding industries — it’s the dollar. It’s the dollar. It’s the dollar.”
This ignores the huge benefits to consumers from the high dollar (consumers of course rarely get a look in when business leaders, unionists or commentators opine about economics). For the first time we have a floating exchange rate that has helped protect the economy during two resources booms in five years, along with the GFC.
Aided by fiscal intervention from the federal government and quick changes to monetary policy by the RBA (plus the bank deposit guarantee), Australia missed being flattened by the GFC and at the moment the dollar and monetary policy are taking the strain (and have done for the past three years) from the eurozone’s problems. Our system of economic management is actually working exactly how it is supposed to operate.
Like any smart politician, Howes is trying to tap into how the community feels, rather than how economists think it should feel. The problem is, such interventionism will start erasing the benefits from the hard work of the past 30 years. And you can bet the community won’t be happy about that either.