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The financial future guessing game

By Bruce Haigh - posted Monday, 2 March 2009


In terms of where Rudd might place our money, or more accurately our borrowings, he and his advisers might note the conclusion of Schedvin:

By 1937 there had occurred a substantial withdrawal from the international economy. Government had learned to live without overseas capital, and total investment - which had recovered to a respectable 16% of national product - was almost entirely financed internally ... Aiding the growth in the size of the manufacturing sector was the relatively heavy fall in prices and money wages .. .The depression thus provided a powerful stimulus to Australian industrialisation, and by removing the excessive dependence on overseas capital ... helped to lay the foundation for comparatively stable long term growth in the post war period. The depression also assisted, fortuitously, the transition to a war time economy ...
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If by “the economy” we mean the creation and distribution of wealth among and for the benefit of people living within a political entity, then Rudd has a responsibility in times of a shrinking economy to provide a minimum wage, housing, health care, transport and education for adults and children least able to financially cope in the forthcoming straightened circumstances. This is survival spending, it is not designed to create jobs: it is to keep people alive and healthy and to provide the means for their children to participate in and help engineer a revitalised economy when the global economic sickness has passed. This is basic humanitarian assistance; it will not in the short to medium term, of itself, rebuild the economy.

To help pull Australia out of this depression Mr Rudd will need to take some drastic and decisive action, taking into account the lessons learnt from the last Great Depression. He will need to cancel some overseas defence orders and rethink defence requirements and strategies, utilising local capacity, particularly in ship building. He will need to take over the local car manufacturing industry, which can also be used for defence production. These decisions will protect and provide new jobs as well as build a local defence production capacity in what will be uncertain times.

Rudd can stimulate the economy by designing and building energy efficient homes using cheap and readily available materials. From my own recent experience a 12 square home* (about 111 square meters) of corrugated iron, fully insulated, can be erected and fitted out for less than $100,000. The cost of land can be kept within reasonable limits if the government purchases the land or subsidises the cost. Many developer built homes are unsuitable or inappropriate for Australian conditions and sustainable use of energy. The first homebuyer grant should have some conditionality to reflect the forgoing.

He needs to stimulate the renewable energy industry and attract back all aspects of it that fled overseas in the past decade.

The government needs to regulate the banking industry and get back into the business of banking. It needs to take over Telstra, railway infrastructure and rolling stock, and provide an air service in remote Australia. The tyranny of distance demands it. User pay systems have failed, particularly in rural Australia.

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The federal government needs to take over the management of water and abolish water licences, as a short and long term stimulator of the economy; particularly the rural economy.

The private schools must fend for themselves, that’s what private used to mean, and the funding of public education significantly must be increased, particularly in the area of skill creation. Pulling the country out of depression will require it.

Import replacement needs to be encouraged and funded, directly; and from loans through the government bank.

This depression is a direct result of globalisation. Australia should seek future protection from the buffeting of overseas financial institutions by exercising more control, discipline, stimulus and protection of its own economy.

* One traditional building "square" is a pre metric term for 100 imperial square feet (example a 10 foot x 10 foot room). This converts to approximately 9.29sqm.

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About the Author

Bruce Haigh is a political commentator and retired diplomat who served in Pakistan and Afghanistan in 1972-73 and 1986-88, and in South Africa from 1976-1979

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