Over the last few months media commentary regarding the Australian economy has turned decidedly gloomy. The wonders of the mining boom are now being questioned, the U.S. and European economies matter again and people are starting to wake up to the reality that an economic strategy that basically relies on China dragging Australia along for the ride might not be that clever.
For more than two years this site has been warning about the dangerous economic position the Government and policy makers are putting Australia in due to their lack of vision and obsession with the mining boom.
Many economists also talk of the multi-speed Australian economy but this is gibberish of the highest order. Different sectors of the economy are always ticking along at different rates. A multi-speed economy is not an issue if the economy is structured properly.
As I have stressed before, the big problem we have is that the Australian economy is dangerously unbalanced and over the last few years in has become even more unbalanced.
Besides commodities; educational services and tourism are Australia’s other big export earners. Tourism has been in trouble for years even before the high Australian dollar caused the sector further grief and the number of overseas students heading to Australia has slumped over the last year or so.
Thankfully booming commodities prices, a robust housing market and Government spending have been able to keep the GDP numbers in the black, but the economic storm clouds have been gathering for some time.
Over the last few quarters house prices have shown weakness and have fallen in many capital cities. It’s hardly a housing crash, but a few years of gradually falling home prices would put a major drag on the economy especially if it scared foreign investors away.
Today BHP Billiton reported a record profit of $22.5 billion so clearly there has been money to be made in the resources sector. But the Australian media treat BHP as if it were an Australian company that is focused on operations in Australia.
It isn’t. It’s a globally diverse company with shareholders (i.e. owners) all over the world. Yes the company will invest much of that profit back into Australia but it will also invest in places such as South Africa, Brazil and Algeria as well.
The point is that the $22.5 billion is not ‘ours’. It won’t all be raining down from the heavens to be picked up in people’s yards across the nation. Some of that profit will find its way back into the Australian economy of course, but a lot of it will also head offshore.
Back in September 2009 I wrote an article: LNG billions: is Australia getting a good deal from the Gorgon Project? in which I attempted to highlight that as a nation, Australia is probably not managing the resources boom very well.
Somehow over the last 20 years or so we have created a pretty stupid Australian economy. Most of the advanced mining equipment used in Australia is imported. We dig up the iron ore, send it to steel mills overseas and then import much of the steel back again to build the infrastructure for new mining projects.
Most of the technology you see around you in Australia was probably designed, developed and manufactured overseas. Countries like Japan and Germany develop technical competence at home and then set up manufacturing hubs overseas whereas in Australia we have basically just given up.
This week BlueScope Steel announced plans to effectively wind down steel production in Australia. Jobs will be lost, competence will be lost and more of our mining infrastructure will be built from imported steel using iron ore from mines in Australia.
This may not matter if former Treasury boss turned Gillard advisor Ken Henry’s ‘Golden Age’ continues. Certainly for Ken his Public Service pension and high paying advisor job means his own little Golden Age is well underway already.
But it may not be so golden for those who will lose their jobs at BlueScope or for those who may find themselves unemployed in the future as the manufacturing sector continues to shrink.
It may also not be too golden for tens of thousands of Australian’s if the ‘Golden Age” which is suppose to last out to 2050 according to Henry, comes to an end much sooner.
Just to make matters worse the Government is attempting to push though it’s carbon tax which is hardly going to encourage manufacturers to invest in Australia.
As happened in Europe, manufacturing jobs will drift across to China. It seems when it comes to carbon emissions the ‘out of sight, out of mind’ approach works a treat.
I am not a trade protectionist as such, but that doesn’t mean we shouldn’t do anything to try and keep industries alive in Australia especially a potentially strategic one like steel making.
Still, there is work around for people to install imported digital TV tuners paid for by the Government..well at least for a while. Let’s hope those jobs are longer lasting and safer than those created temporarily during the pink batts fiasco.
As each day passes, the stupid Australian economy gets just that little more stupid.
Greg Atkinson is the editor of Shareswatch Australia and the Managing Director of Ohori Capital He is originally from Australia but currently resides in Japan. He can be followed on twitter via @GregAtkinson_jp