Big wheels keep on turning

So, if the "two-speed" (or, more accurately, "multi-speed") economy is not new, and indeed its intensity is in fact lessening, why is it such a feature of the Australian economic debate?

One reason may be that it is the more populous south-eastern states which have been in the "slow lanes" in recent years. New South Wales, which used to style itself as "the Premier State" and still expects others to see it as such, has ranked between sixth and eighth in economic growth in all but the most recent of the past nine years. Victoria's ranking has also slipped since 2005-06 (although it, like NSW, had a relatively good 2009-10).

Queensland has had a fairly spectacular fall from grace. Having only twice ranked below third in terms of economic growth between the early 1990s and 2006-07, it has ranked fourth or fifth in each of the past three years.

Even though Queensland is usually regarded as a "mining state", its mining sector is a lot smaller than Western Australia, and it has been hit hard by the downturn in two of its other mainstays - tourism and property development. It is also discovering that it can't provide the services expected by the increasing proportion of its population who grew up in the southern states, while keeping state taxes as low as those who have lived in Queensland much longer have come to expect.

And while Western Australia has been at or near the top of the growth pile in the past two years, and looks like remaining there for some years yet, a decade ago it was among the nation's cellar-dwellers, its pleas that monetary policy was being set according to the needs of the then booming eastern states being ignored not only by the Reserve Bank (and properly so) but also by the eastern media.

There is also a significant element of "swings and roundabouts" in the divergent experience of different sectors of the economy. The retail sector, for example, grew at a faster rate than the economy as a whole in all but one of the eight years between 2001-02 and 2007-08. It hasn't done so since, and it's unlikely to do so in the current financial year either; but retailers have had, in Kevin Rudd's memorable rendering of the Australian vernacular, "a fair suck of the sauce bottle" over the past decade, and there's no compelling reason why monetary or fiscal policy should be especially influenced by the fact that retailing is now growing at a slower rate than the economy as a whole.

Some other sectors, such as manufacturing and tourism, are confronting structural and cyclical challenges, and there is perhaps more of an argument for policies to help in dealing with those; but again there is no reason why they should be given disproportionate weight in calibrating overall macro-economic policies.

The simple fact is that the Australian economy can't be like the children of Lake Wobegon (in Garrison Keillor's stories), where every state and every sector is above average. Partly thanks to Australia's fiscal transfer machinery (including the much-derided Commonwealth Grants Commission), the divergences which do exist across our vast and varied continent are less than they could be, less than they used to be, and less than they are in most other comparable countries.