Confessions of a Meddlesome Economist by Harper Ian;

Author:Harper, Ian;
Language: eng
Format: epub
Publisher: Acorn Press, Limited
Published: 2018-08-15T00:00:00+00:00

Building a knowledge economy

Australia’s economic fortunes have always been linked to the bounty of the land. Our mineral wealth is so great that this will remain true for many decades to come, as China (and now also India) continues to develop. However, this won’t always be true. If Australians are to maintain, let alone improve, their living standards over the very long term – that is, over the course of the twenty-first century at least – we must strive to build competitive advantage beyond primary industry. Building up secondary industry, especially manufacturing, has been the traditional path of economic development. Countries like Germany, which were once also primary producers, industrialised during the nineteenth and twentieth centuries, leaving primary production behind. Even the USA, which shares many aspects of its modern history with Australia and which is still a significant producer of primary goods (although not generally for export), moved on to secondary and then tertiary industry as the basis of its economic wealth.

Australia’s comparative cost advantage in primary industry has always been so strong that it has hampered the development of secondary industry. This is the essence of our economic dilemma: we seem destined to be trapped inside the gilded cage of our world-class primary industries, especially mining, and yet there are limits to their capacity to sustain rising living standards for all Australians over the very long term. It is too late for us to attempt to develop a cost advantage in manufacturing – even 70 years of the most intense tariff protection failed to grow Australian manufacturing industry into anything substantial by world standards. With the emergence of China as the world’s ‘workshop’, Australia’s window of opportunity to develop low-cost manufacturing through export-led growth, if it ever existed, has now closed. This is not to say that manufacturing will disappear completely from the Australian industrial landscape, but to survive it must have high added value. This means it will be capital- and knowledge-intensive, not labour-intensive, and hence not the employer of large numbers of Australian workers as it was in the past.

To continue to grow Australian employment levels, incomes and living standards into the future, we must develop our tertiary industry – that is, the services sector. Services already account for nearly 80 per cent of all jobs and around three-quarters of Australia’s annual GDP. Services can sustain rising living standards if they are increasingly highly valued, especially by our export customers. Education is already Australia’s largest services export and one of our largest export income earners, and tourism is not far behind. Nevertheless, for services industries to generate more value over time they must steadily raise the productivity of the labour they employ. In primary and secondary industry, this has traditionally occurred as industries become more capital-intensive – that is, as more capital is invested per worker, each worker produces more output per hour worked. In effect, workers are given more and better tools to work with and hence become more productive. In the services sector, while

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