There are two phrases that sum up John Edwards' new book, Beyond the Boom, a Lowy Institute Paper released last week. They are:
- Mining boom? What mining boom?
- She'll be right, mate.
While I disagree with both propositions, I am in heated agreement with Edwards' dismissal of the pessimism of two eminent Australian economists, Ross Garnaut and Bob Gregory. Both predict tough economic times ahead for Australia based on a difficult transition from a mining-investment-led economy to something else.
Should we accept Edwards' assertion that the mining boom was overrated? Of course, he accepts that mining investment shot to close to 10% of GDP – something which is almost without historic parallel – and that pre-2008, mining company profits were making a massive contribution to the ramp-up in company tax receipts.
His two main point of defence are that mining is just not big enough and national income was growing as strongly, if not more strongly, in the decade before the mining boom commenced.
To some degree, it is not important to resolve this argument. Whether the surge in mining investment and production was a boom or not, the real key is that soaring terms of trade propped up per capita net national income in the context of very weak or negative productivity growth. And boom or not, at least we didn't blow up the fortuitous occurrence of the higher and sustained terms of trade, with the exchange rate doing lots of heavy lifting and well behaved wages overall removing any inflationary pressures.
On the second issue (she'll be right, mate), Edwards is adamant that all the important economic reforms took place during the Hawke-Keating era (during which Edwards was a player). He pays some lip service to the introduction of the GST, but essentially, all the really necessary policy reforms are done, according to Edwards, and everything that is left is small beer.
Some of his descriptions of policy areas are quite inaccurate. It was not Keating who introduced a national industrial relations system – that was Howard. And to say that the industrial relations changes introduced in 1993 were all that is required for the smooth operation of an open and flexible labour market and economy is just risible.
Indeed, introducing a national system was a mistake; we would have been much better off leaving the state systems intact as a means of ensuring that interstate economic differences are recognised. And the changes introduced in 1993 were modest; the game changer came with Peter Reith's Workplace Relations Act, although sadly there has been a fair bit of backsliding with the Fair Work Act.
While Edwards is correct to point out that the largest slab of the economy and employment is in the services industry, his belief that the only scope for higher productivity rests with more investment in human capital is naïve. Take education and health, both sectors riddled with overstaffing and restrictive work practices. There is enormous scope to improve productivity in these sectors which has nothing to do with pouring more government money into education and skill training.
Edwards perpetrates another myth loved by the Left – that the income tax cuts provided in the 2000s were a mistake, robbing the government of valuable revenue. In fact, those cuts made considerable sense both in terms of eliminating insidious bracket creep and spreading the benefits of soaring mining profits to the broader population. If we look at the figures now, we are returning to a situation where the only sustainable growth of government revenue is from income tax, but this is increasingly being derived from bracket creep, which disproportionately hurts the lowest income earners.
Edwards' book is a rollicking read. He nails his colours to the mast, cherry picks the data and imposes his own clear interpretation on economic developments and reform options. It should provide the basis of reasoned debate on a very important topic – how Australia can enjoy ongoing economic prosperity on a sustainable and equitable basis.