Building prosperity: Australia's future as a global player

It's often said that one can't argue with success. In fact, one can and one should, for complacency can be an enemy of sound judgement. And this is particularly the case when the discussion turns to the state of the Australian economy.

It's certainly true that the Hawke, Keating and Howard eras brought overdue economic reforms-tariff cuts, freer capital markets, freer industry policies, tax reform, some privatisation, enhanced fiscal management and more stability-oriented macroeconomic policies. And it's certainly true that these free-market reforms helped Australia boost productivity and economic growth while slaying the inflation dragon-which in turn helped Australia weather the Asian financial crisis two to three years ago.

Unfortunately, such success has led to much smug, glib satisfaction in policy circles. Specifically, it's led to the widespread perception in the community that no further economic reforms are needed.

This is wrong. After all, the Australian economy remains only half reformed and fully 'globalisation fit'. So instead of taking a pause, blinding themselves to the reality that the forces of globalisation do not rest, our policymakers should fully embrace the free markets, individual enterprise and global capitalism. In so doing, they should look to the lessons of economic history.

A look at 250 years of economic history shows recurrent patterns of 20-30 years of growth acceleration that are carried by innovations and new leading, as-yet-unregulated industries. Steam and rail once played this role, later electricity and motor cars, lately the e-economy. Stable prices, low interest rates, and low social conflict typically help the supply potential to grow fast.

Alas, such exhilarating phases have always been followed by 10-20 years of deceleration and disappointment, such as in the 1930s and 1970s. Then, it typically becomes harder to profit from technical opportunities, as imitators crowd in.

New regulations and taxes burden the leading growth sectors. What is now for example occurring are high fiscal burdens on third-generation telecoms, as governments artificially limit the supply of licenses and then pocket billions of license fees obtained at auctions. The economic tide turns often when unexpected raw-material bottlenecks emerge. Is the recent oil price explosion a harbinger of a cooling in the global growth climate?

Social conflicts and ruthless redistribution battles typically increase. Labour becomes more aggressive and manages to gain clout. The reregulation of New Zealand labour markets, with compulsory unionism, higher minimum employment conditions and growing 'administrative guidance' is typical of coming downwaves. And it should be noted that the reactionary labour market policies in Wellington are eagerly watched by the newly reform-shy ALP.

International competition comes under populist attack. One is reminded of the blinkered economic nationalism of the 1920s and 1930s that created the Great Depression when one listens to the Single Issue Promoters that protest in Seattle and Melbourne.

Finally, decelerating supply-side growth is often accompanied by growing security burdens. Prospective Australian defence reactions to more instability to our North would fit historic patterns.

To be sure, none of the points makes a rerun of the 1930s or 1970s an immediate prospect. But an intelligent reading of the history of long waves of economic growth should forewarn us: We ought to think about coping with the prospect now while the going is good. When the easy global supply growth ebbs away, the ill-prepared are always hit hard.

The next time round, globalisation will accelerate and reinforce the impacts of bad policies.