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It’s the stupid Australian economy, stupid.

August 24th, 2011 · Greg Atkinson · 19 Comments

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


19 responses so far ↓

  • 1 ken dorge // Aug 25, 2011 at 7:52 am

    the economy is not stupid. it’s the unprincipled politicians who are handmaidens of sectional business interests who have created this policy mess which results in a stupid culture of self seeking selfish interest backed by powerful business lobbies which distorts the economy for their own benefit, and ultimately ruins the country, economy and all Australians.

  • 2 Greg Atkinson // Aug 25, 2011 at 8:10 am

    Ken I think in addition to politicians and business leaders that we have to accept that the general public has also played a part in shaping the economy. Unions and labour laws have also played their as part as has consumer spending trends for example.

    I also think the “lucky country’ mentality doesn’t help either. It appears that notion has morphed into a belief that the economy is almost bulletproof and we all deserve a big house, a couple of cars and a plasma TV.

  • 3 Mr Editor // Aug 25, 2011 at 1:52 pm

    I agree with Greg, Australia is day-by-day becoming more vulnerable to ruptures elsewhere in the world — and the policymakers that are running this place are happy that this is happening (“Golden Age”? Don’t kid yourself).

  • 4 Greg Atkinson // Aug 25, 2011 at 3:55 pm

    An example of our attitude is reflected by the woes of the tourism sector. For years we sat back an expected tourists to flock to Australian because we have a big rock in the middle and nice beaches.

    Back in mid 2009 I touched on this subject when I wrote:

    “…I was bemused to read how various officials and economists explain the plunge in the number of tourists visiting Australia. The economists focused on the stronger Australian dollar and said Australia was becoming expensive for tourists while tourism officials suggested the decline in the global economy meant people has less money to spend on trips, or that swine flu has stopped travellers in their tracks.

    All good reasons but they overlook one simple truth – Australia as a tourist destination is boring and does not always leave visitors with a favourable impression of the nation.

    Years ago I transited through Cairns Airport and watched as dozens of Japanese tourists were subjected to some of the rudest customer service I have ever seen. Instead of a friendly smile and some appreciation that many Japanese may not be masters of English, I witnessed staff at a snack bar openly be quite rude and hostile towards the Japanese simply because of some language difficulties.

    After I arrived in Sydney I thought about the whole Australian experience as if I were a visitor from another country. If Cairns left a bad impression on the Japanese than Sydney would have convinced them that Australia is somewhere you visit once, see the beach, hold a koala and never visit again.

    The taxi rank at the international terminal sums up the city…it functions…barely, but on the global scale things it is not something you want to experience again. Yes I know all cities in Australia are not like Sydney but think about; is there anything terribly exciting about moving between Australian cities when you could travel the same distances in Europe and move between Rome and say Budapest?

    I won’t even mention what a debacle it is trying to get through customs and quarantine at Sydney Airport…it all just makes me fear flying back to visit family and friends.

    So what is my point? Well it is that Australian’s are becoming complacent and think that just because our nation is blessed with natural resources, unique animals and great beaches that this somehow makes us winners. Actually it doesn’t, it just makes us lucky and we are really pushing our luck recently.”

    From: The S&P/ASX 200, the U.S. economy and Australian tourism. (July 2009)

    I am not sure much has changed today…but at least we can still blame it on the strong AUD 🙂

  • 5 Ned S // Aug 25, 2011 at 6:19 pm

    I think I could become truly distressed if I have to cope with seeing Gillard and Swan try to explain what Plan B is Greg.

    As to Aussies generally, while I nearly puked when I read that Gillard reckoned Oz was our little safe haven in a big bad world, huge numbers lapped it up is my guess.

    And as to Aussies dealing with Asian tourists specifically, you have to remember that a quite sizeable minority do still like Pauline Hanson.

    Finally, when it comes to high expectations, why wouldn’t one have them when they see even those who contribute zip and don’t want to contribute zip being able to live along quite contentedly on tax payer handouts?

    Of course a lot of the “rich” countries seem to be figuring out in a hurry that they were never really especially rich at all – Rather, they’d just borrowed a lot of money! 🙂

  • 6 Stillgotshoeson // Aug 25, 2011 at 7:27 pm

    Can’t say I liked Pauline Hanson, however I do agree with some of the “one Nations” ideals.. It was never about a “white australia” and all that associated crap.

    It was the “different rules for some” that she argued against (poorly at times)
    The position was if you come to Australia for a better life for yourself and your family then abide by the Australian Rules.
    If your customs/ideology/religious/ beliefs clash with ours then ours take preference.

    I agree with this..

  • 7 Ned S // Aug 25, 2011 at 8:03 pm

    Remember one of the One Nation posters stuck on a power pole in Brissie in the early 2000s I’d say Shoes – Just blatantly racist against Asians.

    A lot of it is the knuckle dragging ‘redneck’ fear that arises from the certainty that they won’t be able to compete – And retreat into some thought process that tells them they shouldn’t have to compete given they were lucky enough to be born here. (Or are white. Or whatever.) And figure that entitles them in some way or other?

    Though yes, I very much doubt you suffer from those fears – Though the bottom 10% (or 15% ?) of Oz knuckle draggers very well could? – And quite sensibly too as I don’t think they’ll be able to compete either!

    Which is just Darwinism in action. And not a bad thing at all for mine. But then I’m not a politician in our Oz democracy or someone who is strongly nationalistic.

  • 8 Greg Atkinson // Aug 26, 2011 at 7:57 am

    One issue I did not mention above was our constant on again/off again discussion about if Australia is part of Asia or so. Personally I don’t see how it matters.

    Economically speaking the focus on Asia as a destination for Australian exports is part of the reason our economy is now unbalanced. Of course it’s good to open up new markets for our exports but we shouldn’t have taken our eye of established markets while we were doing that.

    We also don’t seem to be that active in markets such as Russia or Eastern Europe and our exports statistics show we are not exactly blazing a trail in South American either. I suspect that this is because these regions have plenty of their own resources but how about services exports?

    Don’t get me wrong, our trade relationship with Asia is very important but maybe we need to be casting our export eye in other directions as well?

  • 9 Ned S // Aug 26, 2011 at 8:46 pm

    “how about services exports?” – Maybe I’m just feeling negative Greg, but what sorts of services? As by and large Oz imports any sort of smart services/the results of same don’t we? So we don’t especially have them to export would be my take on it.

    Agree that pretty much any export market is a good market though.

    From the sublime to the ridiculous: The Russians were quite fond of our kangaroo meat for a while. They accounted for 70% of the market – Lots of it went into making sausages apparently? (The imports were banned a few years ago with E. coli contamination being the stated reason. Though it’s possible the Russians were playing some sort of political/protectionist(?) game maybe? I didn’t really follow it.)

  • 10 Greg Atkinson // Aug 27, 2011 at 9:11 am

    Ned I wrote a while back about setting up Australia as a regional centre of excellence for advanced medical treatment. In other words we invest in all the machines that go ‘ping’, put a lot of dollars into training medical staff and build start-of-the-art facilities. We could then earn dollars by offering advanced medical care the growing middle class of Asia and beyond. (I think the term now is medical tourism)

    Darwin could be a good spot for a hub like that..it’s just hours away by plane from some of the key markets. There would be other hubs of course..possibly near casinos 🙂

    It’s a win-win, we get excellent medical facilities for our own people and also earn exports dollars. Other countries are doing this but we seem to be way behind the pack on this one.

    I reckon we should also get into the space-port business in a serious way as there are also big export dollars to be made there.

    I ranted on about these ideas way back in late 2008 in: Actions to stimulate the economy in 2009 and beyond.

    I even suggested starting a nuclear power industry which by the way, I still think is a good sector to get into.

  • 11 Ned S // Aug 27, 2011 at 5:47 pm

    Gillard seems to be pushing the line that working smarter is the answer Greg.

    It has to be done simply to hope to remain even close to being competitive of course – Given our high wages – And high welfare liabilities. But the fundamental issue to me is that any other stable country can potentially work just as smart – Given a bit of time to get their skills up to speed anyway. And trying to set one’s national economy up on the assumption we’ll be able to stay one step ahead of the potential competition in that regard ad infinutum, seems like wishful thinking to me.

    When I look at the real basis of trade originally, it was primarily to do with regions/countries exchanging stuff they had/could produce with other regions/countries that wanted it but didn’t have it/couldn’t produce it – From what I can make of it? So it was an absolute sort of thing in many ways. But more and more what we are seeing is that lots of countries can produce lots of things. And it basically comes down to who can do it cheapest. (With quality being important of course; But history having taught us that quality issues resolve themselves over time – Japan was a classic example there as I understand it? That went from being nation that produced cheap junk, to rather the opposite today.)

    The medical tourism idea – Anecdotal only of course, but the last three GPs I’ve had anything to do with in Oz have been Egyptian, Chinese and Filipino. So it could well be another case of us importing smarts. If it is, I struggle a bit to understand why Oz isn’t producing enough docs. (It isn’t as if anyone wouldn’t have prdicted a shortage with our aging population; The wages certainly seem attractive enough; The job security would seem pretty good looking forward; And the work environment isn’t that onerous I’d say? Though the years of training that are demanded could be a onerous. And I think I’d personally find being a doc pretty hard on the head – I’m just not a natural “people type person” as they say. And the risk of being sued is a bit of worry.)

    But anyway, could it be that the cost of training them here is too high maybe? And it’s cheaper to poach foreign trained ones??? (Plus I also have the sneaky thought pop into my head occassionally that the docs’ equivalent of the AWU (the AMA???) just could have a fair bit of political pull and mightn’t be all that genuinely keen on seeing Oz have plenty of docs – Which would result their wages going down just maybe? :))

    At this stage it’s even just possible that medical tourism could start to work the opposite of the way you’d like to see. Example: I had a chat to a dentist in Oz a couple of years ago and he quoted about $3,200 (as I recall) to do some non-urgent work. Now knowing as I do that it’s possible I’ll have a trip to Asia one day, I’ve just put the work on rhe back burner with the possibilty of getting it done there considerably cheaper, sounding like an option worth doing a bit of research on in the interim.

    I’m not real impressed by the West’s attempts to “work smart” over the last decade – We had the dot com thing; Then the financial engineering thing – With both seeming to be bits of debacles in lots of ways. Though ultimately some benefit flows from them of course – But enough to offset the pain/losses? I’m not at all convinced …

    I can see why gov is pinning its hopes on mining. It’s a basic no-brainer sort of thing which is also a bit of a natural for Oz. Which if it goes ahead nicely, would also potentially delay having to tell Aussies just how much harder and smarter they are going to have to work in the future to have any hope of staying in the hunt going forward. (Though agriculture and tourism both remain very sensible options.)

    Interesting that Glenn Stevens recently told the pollies that there’s only so much he can do and they should start looking at what they do; Including labour relations – “Ouch” said the Red Queen!!! (Indeed, it could possibly have even warranted a political cartoon if The Honourable Member for Dobell hadn’t been so busily hogging all the limelight. :D)

    http://www.theaustralian.com.au/national-affairs/lucky-to-lazy-country-review-industrial-relations-laws-to-stop-decline-says-glenn-stevens/story-fn59niix-1226123230338

  • 12 Ned S // Aug 27, 2011 at 6:19 pm

    Off topic, but the latest I read on Graig Thomson is that he wasn’t specifically “told” what he could and couldn’t use his Union issued credit card for – So he’s not necessarily technically a crim unless it can be proven any of the expenditures he personally put on that credit card were inherently criminal in themselves perhaps???

    With the implication being that so long as neither he nor the Red Queen nor the ALP generally suffer any sort of conscience attack and fall on their swords (NOT BLOODY LIKELY MATE!!!), he and the Red Queen and the ALP generally just might be able to continue to limp forward?

    Though I also suspect Craig’s chances of being endorsed as the official ALP candidate for Dobell at the NEXT Federal election are low? 😀

  • 13 Ned S // Aug 27, 2011 at 7:37 pm

    One more thought:

    I personally suspect it’s just possible the ALP’s recent insistence on focusing attention on problems that we just could have in the year 2100 AD (Specifically climate change; With Krudd and Juliar being the self appointed saviours of our collective future world regarding same – Hmmm?) just could be helping to focus people’s attention on problems we just mightn’t have until 2030 AD (or whatever?) perhaps???

    Not that I’m against looking forward! – Indeed, I’m VERY much in favour of it … But it doesn’t seem helpful to ESPECIALLY focus on such potential problems unless one has workable and genuine solutions perhaps?

    And the ALP (and Greens) don’t especially seem too … IMO anyway. (Not that the Libs do either – But the Libs just maybe recognise their limitations and aren’t insisting on focusing attention on issues that might/or might not(?) impact the globe in 90 years that they don’t have genuine solutions to at this time should they happen maybe?)

    I really do find much that’s going on in Oz at the moment quite strange. (Though not the debt issue – We’ve been there and done that before. Or even the demise of a superpower – We’ve done that too – Eg the UK and USSR.)

    Seems to me the one we should be REALLY concentrating on is the aging population – That’s the upcoming issue that the “developed” world generally has not struck before. Climate change is an issue for the future – Should it actually happen perhaps?)

  • 14 Lachlan // Aug 28, 2011 at 5:59 am

    “I can see why gov is pinning its hopes on mining. It’s a basic no-brainer sort of thing which is also a bit of a natural for Oz.”

    Ha ha ha Ned that’s funny. Got this image of the convicts, ball and chain attached to ankle and picking away at rocks in the quarry. Yeah keep the expectations low mate. 🙂

  • 15 Lachlan // Aug 28, 2011 at 6:23 am

    Seriously though, if we’re going to be measured by ideas coming from Canberra then we best keep the expectations low too.
    When I was at school in the 70’s 80’s it was all about getting to uni and probably pursuing a science career or something similar. Last week I while driving through inland areas of our central Qld I considered that it may be about time to drag my still fairly young son up there and introduce him to the mining scene, try to influence his outlook a bit. Convicts are well paid in Oz and the boy has always loved his diggers/trucks/trains etc. Could make a good geologist too…I guess I better be prepared for something completely different though.

  • 16 Greg Atkinson // Aug 28, 2011 at 9:12 am

    @Ned I think you might be right in regards to medical tourism working backwards. Unless we implement a strategy at a national level to set up Australia as a medical hub for the region I am guessing that role will go elsewhere. Another problem is that the chances of Australia having a national strategy full stop is close to zero if it involves the State Governments.

    @Lachlan The 70’s & 80’s is when it became hip to go to university to study anything and if a lad were to learn a trade then he mustn’t be that bright. Now some folks wonder why we have a trades skills shortage!!

  • 17 Lachlan // Aug 28, 2011 at 11:23 am

    Huh, yes Greg ain’t that the truth. Probably get the littl’n all geared up for his future there and the pendulum will swing back the other way. Murphy’s law or something.

  • 18 Greg Atkinson // Aug 31, 2011 at 6:24 pm

    According to an article by Andrew Burrell in The Australian today:

    “An independent report released by the National Institute of Economic and Industry Research showed local steel content in Australia’s major resources projects stood at only 10 per cent, with the rest imported from Asia.”

    So we dig up the iron ore & coking coal then ship it to Asia (on ships we don’t build or own of course) and they send us back the steel.

    As Forrest Gump would say: “Stupid is as stupid does”.

  • 19 Greg Atkinson // Sep 13, 2011 at 9:44 am

    Looks like another one of Australia’s big export earners is in trouble. According to an article in The Australian today:

    “Big falls in English-language college enrolments and offshore visa application are early signs of more general pain in the sector, which includes vocational training colleges and universities.

    “With the continuing decline of the pipeline, any turnaround in the current trend is nowhere in sight,” Ms Blundell said. “Any changes in policy that might create an upturn in Australia’s competitiveness and attractiveness as a study destination, and therefore in offshore visa grants, will take time to have an impact.”

    Original article: Foreign education loses $18bn premium

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