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“Get out of the way” is no substitute for economic policy

The Australian economy has entered its 23rd year of expansion, an achievement that is almost unsurpassed in our economic history.

But this expansion has also seen record levels of inequality develop, a hollowing out of manufacturing and huge regional disparities arise. The mining investment boom, responsible for both huge aggregate income growth and the high Australian dollar that has damaged other sectors of the economy, is now turning into a production and export boom.

This is masking the broader pressures being felt by the rest of the economy.

While the aggregate economic figures seem strong, there is no room for complacency by governments. Our growth has not been nor does it remain inevitable.

If we put mining to one side, our growth is very fragile indeed.

A whole 0.9 per cent of the 1.1 per cent increase in GDP in the March quarter was due to mining production. That means that without mining, the economy grew a measly 0.2 per cent in the March quarter, or at an annual rate of just over 0.8 per cent – hardly robust.

Services too, the sector some trumpet as the future compared to manufacturing as the past, is also under pressure and in decline. The latest Performance of Services Index shows a contraction in the sector, while Professional, Scientific and Technical Services, the part of services that is most advanced and focused on broadly applicable innovation, shrunk by 2.1 per cent in the March quarter.

The fundamental problem is best summarised in a simple question: where are the good paying, secure jobs going to come from?

This is a question that worries unemployed under 30’s as they contemplate being abandoned by the Government’s NewStart changes.

It plagues the minds of automotive, shipbuilding and rail manufacturing workers facing an uncertain future.

But it is also the question we should all be asking if we want our children to grow up in an economy that can support them reaching their full potential.

No matter how large the sector becomes, mining cannot employ nearly enough people to generate broad based prosperity. Service jobs, largely part time and low wage, are also increasingly being offshored or made obsolete by technology while manufacturing employment continues a long downward trend.

At the core of our current economic challenges is a question about the role of government.

Some, like Prime Minister Abbott and Treasurer Hockey, view government as the problem and think all that government needs to do is “get out of the way”.

This is best typified by savage cuts to industry and research programs in the recent budget. But it ignores the proper role of government in economic development and growth.

Governments play a crucial role in determining their economy’s fate, by supporting industry, investing in skills and by laying the foundations for growth through research and innovation support.

This is a view that is increasingly accepted by the economics profession, as well as business leaders themselves. In her first address as President of the conservative Business Council of Australia, Catherine Livingstone stated:

“government has a key role in enabling business to grow and create wealth… It must be part of a strategic agenda that facilitates, enables and incentivises key sectors where Australia can succeed globally.”

“Get out of the way” is nothing but an abrogation of government responsibility and if followed around the world and through history, we wouldn’t have the Internet, GPS, WiFi, robotics, lasers, or solar panels.

Proponents of “get out of the way” don’t realise that a country’s comparative advantage isn’t just determined by nature, it is developed, invested in and harnessed by an active government. They would do well to listen to Nobel Laureate economist Professor Stiglitz, who recently called for more investment by the Abbott government, not budget cuts to fix a fictitious emergency.

Australia has a choice to make, a choice that most other advanced economies aren’t burdened with.

Unlike Germany, Japan or the UK, who have been forced to invest in strong manufacturing industries because they can’t rely on natural resources, we have the perceived luxury of relying on our natural wealth for our prosperity.

The only problem is that this reliance doesn’t offer a secure, broad based or long-term source of growth or prosperity. We have to actively choose to have a broad, advanced economy rather than a mine and farm economy, and this government is clearly choosing the mine and farm economy at the expense of broad, value adding, high employment industries.

Our current Government believes they have no positive role to play in shaping our economic future.

By getting out of the way of businesses and encouraging everyone else including workers with their demands for decent wages and conditions to do the same, the Abbott government is jeopardizing our future and selling our children short.

About Tom Skladzien

Tom Skladzien

Tom Skladzien holds a PhD in economics, was an economic adviser to Minister Combet and Treasurer Bowen in the last government and is currently the National Economic and Industry Adviser to the Australian Manufacturers Workers’ Union.

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