Alan reports that MOST ECONOMISTS worldwide believe Australia has the world’s best-managed economy. This is not a fact the Coalition debates. Their argument instead hinges on why our economy is in such good shape.
The reasons that snake oil salesmen like Hockey and Abbott put forward include:
- The surplus Labor was gifted (although Hockey can't honestly discuss the size of the surplus or the size of the current deficit)
- The mining sector
- Demand from China
- Commodity prices
1. Howard’s surplus
Denmark, Spain, Finland, Iceland and Chile all had strong surpluses in 2008, yet suffered severe reversals. In contrast, India, Israel, Poland and the Slovak Republic all had deficits, yet emerged pretty well.
Neither debt nor deficit were primary factors, and it seems likely they were not significant factors either.
2. Mining?
Brazil has strong iron ore exports but went into recession, along with other ore exporters and has barely recovered since. Russia, the USA and South Africa are big gold exporters, as is Australia. Of these, only one escaped recession.
3. Trade with China?
The Euro Area, New Zealand, Russia and Japan all have substantial exports to China but none was spared the ravages of the GFC. It wasn’t even specific to Iron ore to China - Brazil, South Africa, Ukraine and Canada were in the same league, but suffered a great deal more than Australia.
4. Strong commodity prices?
Few prices remained high through the critical period. Iron ore prices surged in 2008, but other prices collapsed. Aluminium – in Australia’s top four mineral exports – boomed in 2005 then plummeted in 2008. The price of crude petroleum – Australia’s second top energy export – rose steadily from 2004 then collapsed in 2008. Exporters, other than Australia, all enjoyed the same profit windfalls, but went backwards through the GFC.
What about our strong banks?
While strong banks are a good thing, the strength of our system is comparable to: Canada, Japan, Luxembourg, New Zealand and Norway who all experienced four, five or six quarters of negative GDP growth.
It is clear that everything the Coalition cites has had no discernable effect on how well we made it through the GFC, but is there any evidence of what did make a difference?
The evidence from an OECD research paper suggests that the 2009/10 stimulus packages were critical.
Australia did two things differently to the rest of the world.
Firstly, Australia moved swiftly with sizeable cash handouts to families. According to the OECD, in the early months of the GFC the Rudd Government gave 3.3% of its GDP to households. Next highest was the USA, which allocated just 2.4%. Not enough, it seems. The other 34 member nations of the OECD – the grouping of developed, free enterprise democracies – averaged just 0.7%.
This was followed by even greater amounts spent on infrastructure. No other nation effected this twin strategy – handouts to households first, then building assets – to anywhere near the same extent.
Most governments cut taxes to stimulate their economies. Only Japan, France, Denmark and Mexico joined Australia in giving more money out rather than taking less in. Economists call this spending versus revenue. Of those five, Australia spent by far the most and did so fastest.
Figure 3.3 (above) shows the increase in investment spending as a percentage of GDP. Clearly, Australia’s was greatest. Poland was second — although its percentage was only half Australia’s.
Of all 34 OECD countries, only two experienced just one quarter of negative growth in 2008, thus averting a technical recession — Australia and Poland.
Authorities advancing this analysis include Joseph Stiglitz of Columbia University, UNICEF consultant Bruno Martorano, UBS chief economist Scott Haslem, World Bank managing director Juan Jose Daboub, Queensland University’s John Quiggin, Sydney University’s Rodney Tiffin, the Australian Trade Commission’s Tim Harcourt and most of Australia’s government, business and union peak bodies. Plus economics journalists outside Australia.
Nobel Prize winning economist Professor Joseph Stiglitz
The consensus outside Australia is compelling.
As Prof Stiglitz wrote:
‘Kevin Rudd … realized that it was important to act early, with money that would be spent quickly, but that there was a risk that the crisis would not be over soon. So the first part of the stimulus was cash grants, followed by investments, which would take longer to put into place. Rudd’s stimulus worked: Australia had the shortest and shallowest of recessions of the advanced industrial countries.’
Why does this matter? Two reasons. First, Australians are entitled to base their vote on valid analysis rather than the falsehoods rife in the mainstream media.
Second, according to the OECD, another severe downturn is likely.
Will Australians stick with the managers who took Australia from 12th-ranked to top of the world during the last downturn? Or switch to the Coalition, whose proposed policies saw the nations which implemented them fare poorly?
Despite what Old Rupert is telling us... the choice is ours.