Wake up to our future

According to the recently elected Labor MP, Andrew Leigh, Australia remains “The Lucky Country”. Leigh refers to Australia’s low unemployment rate (5.3 per cent); Australia’s low government debt (predicted to peak at 6 per cent of GDP in 2011-12); our geographic position close to Asia; and the “bipartisan consensus” that has underpinned major economic reform, such as tariff barriers now being close to zero on most goods.

But the Gillard Labor Government should pay greater attention to recent export data rather than assuming all is well. Given the ongoing struggle of Australian manufacturing and growing competition to Australian agriculture, I would like to know just what kind of jobs will be created to attract Australians and migrants to regional cities.

Why? Because World Trade Organization data indicates just how dependent Australian exports are now on mining, that we are becoming more dependent on agriculture imports, and that the concept of comparative advantage does not explain who gets greater global share.

Take agriculture. While Australia’s agriculture exports increased ($US16.4 billion to $US26.1 billion) between 2000 and 2008, agricultural imports increased at a much faster rate ($US4.2 to $US10.4 billion). In other words, the agriculture export-import ratio in Australia’s favour declined from 390 to 250 per cent.

While we celebrate our farmers producing world-class products and being amongst the least government assisted in the developed world, protectionist economic powerhouses and developing nations with much lower labour costs are smashing Australia in global agricultural export terms. Between 2000 and 2008, this included the EU ($230 billion to $566 billion), the US ($US71.4 billion to $US140 billion), Brazil ($US15.4 to $US61.4 billion), and China ($US16.4 billion to $US42.3 billion).

But the lack of diversity of Australia’s economy is much worse if we recognise the ongoing importance of manufacturing to the global economy. In 2008, manufacturing exports dwarfed global agricultural exports ($US1341 billion to $US10,458 billion), and represented 65 per cent of total world merchandise trade ($US16,070 billion).

While Australia’s manufacturing exports increased from $US15.2 billion to $US29 billion between 2000 and 2008, imports increased much faster (US59.1 billion to $US137 billion). This meant that Australia’s already high export-import manufacturing ratio worsened from 389 to 472 per cent.

No surprise here. China’s manufacturing exports exploded from 2000 to 2008 ($US220 billion to $US1330 billion), along with Brazil ($US32 billion to $US86 billion), and India ($US33 billion to $US112 billion).

So what about services? Maybe, but world merchandise exports still dwarfed world commercial services exports in 2008 ($US16,070 billion to $US3,780 billion).

Perhaps we can overcome our high dollar (in times of a commodity boom) to attract much greater numbers of tourists and their money, although Australia’s share of global travel exports (in value) increased from 2 to 2.6 per cent between 2000 and 2008.

Maybe the universities can encourage governments to increase international student numbers further, despite public opinion currently opposing high immigration, with foreign students a major reason why Australia’s net overseas migration rate reached a record 298,900 in 2008-09.

Perhaps we should just put our heads in the sand and hope that the current mining boom lasts forever. As good old communist China rises, maybe we should just enjoy the ride and hope its government buy our bonds for generations to come when the US disintegrates? Maybe we can increase our record household debt-to-income ratio to an even more ridiculous level.

Perhaps we should invest our mineral wealth in more shares given Andrew Leigh’s observation that Australia’s superannuation system “ensures that individuals get the benefits of a sharemarket that has historically outperformed all other asset classes”. Only trouble is that the Reserve Bank has indicated that having your money in term deposits in Australian banks between March 2000 and February 2010 would have delivered an average interest rate of 3.92 per cent compared to 3.7 per cent earned by the median retail super fund (according to the research company SuperRatings). While this period involved “two big busts on equity markets, the Bank for International Settlements indicates that globalisation and financial market liberalisation has made financial crises more common”.

Oh, I almost forgot. There is Labor’s great broadband plan, the National Broadband Network, although it will create new possibilities and save much time and travel. But who is to say that businesses will not utilise faster broadband to acquire more cheaper goods and services overseas. For instance, faster broadband could make radiologist costs a lot cheaper if carried out offshore.

Fortunately there are signs that parliament may be stirring.

Concern about the foreign ownership of agricultural land has already led South Australian independent senator Nick Xenophon to indicate, in late July 2010, that he would put forward a Private Member’s Bill requiring the Foreign Investment Review Board to look more closely at foreign ownership of rural land.

The Nationals MP John Cobb also backed a Greens plan for the registration of all foreign purchases of land and water supplies, despite the Coalition Treasury spokesman Joe Hockey opposing the idea of a registry. Cobb declared “I think there is a good case for Australia, particularly the federal government and the department of agriculture, being aware of how much agricultural land is owned by foreign interests”.

The Liberal Senator Bill Heffernan also supported the register plan given his belief that Australia should re-think its approach to agricultural resources. Heffernan noted that China is embarking on a plan of agricultural ownership to safeguard future food supplies.

Currently, the Foreign Investment Review Board only examines purchases of more than $231 million, although all investments by foreign governments, or any company owned by them, must notify it and receive approval before making a direct investment regardless of the value.

Will a Labor government do much? I don’t know. After all, even at a time of record home unaffordability, foreigners are still predicted to buy a significant proportion of Australian homes. A recent National Australia Bank residential property survey believed 9 per cent of all house purchases in the next 12 months would be by offshore buyers (or about 47,000 of the 520,000 properties). This was despite foreign investment laws (from April 2010) again restricting foreign investors to new-home purchases with temporary residents only able to buy existing housing for their own use while residing in Australia.

I hope Labor can address various industry concerns rather than merely allow an industry structure even more dependent on mineral exports and the growth of China. But I am more hopeful that independents and individual MPs (and others) may express their industry concerns to counter an almost blind faith in freer trade. As Grow SA chief executive Mike Redmond noted in June 2009, “If consumers knew what they were trading off, in fair wages, superannuation and food safety by not insisting on local food, they’d be quite surprised”.

Although I remain a supporter of freer trade (within reason), all evidence needs to be exposed to inform the public and show that the world does not simply operate in accordance to any theory or ideal. This is demonstrated by a protectionist EU easily outperforming Australia in agriculture, and the current free trade climate continuing to benefit communist China most.