While big business ramps up its lobbying to push a new round of neoliberal economic policies after the pandemic, the question of where exactly economic growth will come from once the virus recedes remains more unclear than ever.
While forecasts aren’t worth a great deal at the moment, both the International Monetary Fund and the Reserve Bank — via yesterday’s update from its governor Philip Lowe — have a similar story: Australia will bounce back relatively quickly, if not exactly in a V-shape, with growth later this year and next year making up most, if not all, of the contraction that is under way.
The path of the immediate recovery, though, is different from the longer-term question of what the economy will look like post-pandemic, and what those differences mean for economic growth.
The closing of our borders, and the likelihood that we will not return to the relatively open borders of the pre-virus world for a long time, is the most obvious difference.
That will have profound implications for major sectors — tourism, education, construction, infrastructure — as well as the overall level of economic growth.
There’s a line of thought, peddled inter alia by the US Federal Reserve, that Australia’s economic growth world-record needs some sort of Barry Bonds-style asterisk because it relied on immigration.
But if people want to move to Australia in large numbers because they’re attracted to our society and way of life, that’s no different to economic growth generated by natural resources, or high quality institutions and civil society. (And what would the US economy look like without millions of low-paid immigrants, legal and illegal?)
As a successful multicultural society that has settled millions of people with minimal discord and run a strong refugee resettlement program for decades, Australia has nothing to apologise for on economic growth.
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The failure around immigration has related more to the inability of federal and state governments to provide adequate infrastructure in our fastest-growing cities. And high immigration leaves us exposed if a black swan event of a global shutdown of borders halts migration and travel. Which is where we are right now.
The impact on higher education will be significant because not merely is our education of hundreds of thousands of foreign students our third-biggest export but it employs a quarter of a million people, six times more than coal mining, our second highest export, and more than twice as much as the metal ore mining subsector, where our iron ore exports are generated. In fact iron ore mining is one of Australia’s automation success stories.
The Pilbara is a world leader in areas like autonomous trucks and remote-driven trains — far more advanced than anything from Google, Tesla or Uber — all deeply integrated into a production process.
Iron ore exports and prices are likely to continue to be fuelled by Chinese demand; even big slumps in other export markets such as Japan and South Korea won’t do much to undermine prices once the Chinese economy recovers.
Our exports of thermal coal are increasingly directed at developing countries willing to tolerate its carbon emissions, but a slower level of global economic growth, and India’s increasing determination to stop importing coal, may mean the Coalition’s goal of boosting exports of Australia’s worst contributor to the climate emergency come to nothing. The government will be hoping the oil price picks up soon to bolster our LNG exports.
Lower temporary and permanent immigration will also hurt construction, where new residential housing has been a mainstay of jobs in our third biggest employer. The level of residential construction activity had been declining since 2018. Any impact on housing prices — which both the government and the Reserve Bank were relying on to spur growth before the virus hit — will also have flow-on effects on consumer confidence.
With the big-employing sectors of education and construction unlikely to generate big growth, and the big mineral and energy export sectors not job-intensive enough to make a difference, we’ll be relying on health and social care to continue to drive employment growth — even more so than in 2016-18 when health and education accounted for a huge part of the jobs boom former prime minister Malcolm Turnbull can claim as his main legacy. On pre-virus growth rates, health and social care will provide one in seven jobs in Australia in the 2020s.
The fly in the ointment is that many of those workers were temporary or permanent migrants who are at risk from tighter border controls. That’s likely to see health and social care maintain its position as the area of strongest wages growth (to the rage of The Australian Financial Review, which wants doctors’ and nurses’ salaries and conditions cut) with fewer available workers to fill positions.
Health and social care, of course, are either government-run or heavily government-funded. Despite the calls for an embrace of neoliberalism now coming from business and the Coalition, it has been government that has saved the country, and government will be a key driver of employment in a post-pandemic world. The old adage of the post-war years that a government job was safe and offered high income may again be the mantra in the recovery.
Indeed lower immigration is likely to mean wages growth won’t deteriorate by as much as a rise in unemployment might suggest.
Expect a lot of pressure from business not merely to return to a neoliberal agenda of corporate tax cuts, attacks on wages and conditions and deregulation, but to reopen Australia’s borders so that temporary and permanent migrants push wages down and lift demand.
But given how tepid the economy was before the crisis due to deliberate wage stagnation policies, it’s not at all clear where economic growth will come from once normality, of a kind, is restored.