Economic performance in Australia and the US since 1980

In a 20 March blogpost Grogs Gamut uses graphs to show how gradual growth increase is better than a boom-and-bust cycle, by comparing real GDP growth in the US and Australia over a number of decades. Thinking of the GFC you can reasonably say that the reason Australia didn't see negative growth, as the US did, is because of more regulation of our banking system. So it's reasonable to say that it is better to have a regulated banking system than to allow banks to do anything they like; the public interest is not served when corporations are allowed to operate unfettered by any laws. So Gamut's post is a clear fillip to moderates and a slap in the face to economic libertarians. The IPA should note this fact.

But I also think there's more to the story than just this, and it gets back to how the US manufacturing industry has been hollowed out since Bill Clinton granted Most Favored Nation status to China in 2000 - this is the point in time at which the trends for Australia and the US start to diverge. Clinton's move led, a year later, to China entering the WTO.

At the time Clinton was pushing for China's acceptance by the world it was said jobs would be created in the US. What happened instead was the hollowing-out of the US industrial heartland. Both jobs and manufacturing capacity migrated to China. 

In Australia, low-value-added manufacturing started to move to Asia earlier, in the 1980s under Hawke because of his deregulation policies. Australia's economy adapted during a time of growth, and people reskilled or leveraged their existing skills to find jobs in industries where there was demand for their effort and time. The way things are now in the US, American workers are effectively competing against lower-wage workers in Asia for the same jobs, which has pulled down US wages. In some industries, those wages have dropped so low that Asian corporations are setting up manufacturing plants in small, rural US towns where they can take advantage of a skilled workforce as well as proximity to their target markets. And tax breaks, and a supine town government. This is one form of economic integration.

I also think there are further reasons why Australia has fared better in the Asian Century, than the US, and it has to do with a different kind of economic integration.

One reason why Australia is an attractive location for Asian people to live is because the time zones are so close; it's only a couple of hours difference between Sydney and Beijing. But look at another demographic fact: since last year we see that the most-spoken second language in Australian homes is Chinese. I wonder how many businesses there are that are operated in Australia by ethnic Chinese and that serve the Chinese market? The large number of workers in Australia who speak both Chinese and English is a valuable resource because it allows Australian businesses to provide higher-value products to Chinese consumers - the rapidly-rising Chinese middle class - including the kinds of services (in addition to education, which we already provide in quantity) that China needs to negotiate its massive demographic shift from being an agrarian economy to being an urban economy.

And not only the time zones but also geographic proximity. Some exports to Asia are facilitated by how close Australia is to the region, for example in the case of food. And it's not just China, either. There are 190 million people in Indonesia and the same economic transformation that is so loudly talked about happening in China is also happening there.

So Hawke and Keating turn out to be visionary leaders who made sometimes unpopular decisions in the national interest. Building on their innovations, Gillard has made Asia a primary focus and if we can stop talking about the stale fact of the ALP's leadership there are a lot of things that can be said to stimulate Australian businesses to develop better ideas in this area. The media has a role to play in this regard. The Opposition has already started to pay attention, with Abbott in his new Plan suggesting a new kind of integration: a 'new Colombo Plan', with some of Australia's high-performing students having the chance to be placed inside Asian universities where they can soak up the culture and learn to speak the language of Asian business.