Like what you've read?

On Line Opinion is the only Australian site where you get all sides of the story. We don't
charge, but we need your support. Here�s how you can help.

  • Advertise

    We have a monthly audience of 70,000 and advertising packages from $200 a month.

  • Volunteer

    We always need commissioning editors and sub-editors.

  • Contribute

    Got something to say? Submit an essay.


 The National Forum   Donate   Your Account   On Line Opinion   Forum   Blogs   Polling   About   
On Line Opinion logo ON LINE OPINION - Australia's e-journal of social and political debate

Subscribe!
Subscribe





On Line Opinion is a not-for-profit publication and relies on the generosity of its sponsors, editors and contributors. If you would like to help, contact us.
___________

Syndicate
RSS/XML


RSS 2.0

The fault lines of the Rudd stimulus package(s)

By Arthur Thomas - posted Wednesday, 11 March 2009


Whether it is the ventriloquist in Washington or the ventriloquist's dummy in Canberra, posturing, rhetoric, and massive consumer spending incentives for voters is no alternative for Australia's realistic and effective economic management.

The infrastructure component of the package is a realistic, if not overdue, strategy especially in Queensland where the opportunity to develop failing infrastructure with massive revenues from coal exports was lost and cost Queensland millions in revenues and credibility.

The consumer-spending component of the package is where the serious faults lie by ignoring the basics behind the philosophy.

Advertisement

Successful Keynesian based revival relates to an economy capable of regeneration by revitalising a diverse industrial, manufacturing, and agricultural base with potential surplus capacity that could respond to a major boost in consumer spending. The money circulates throughout the economy saving jobs and returning to government coffers and eventually revives the economy. The trade off is a deficit of manageable proportions.

Compare that basis with Australia today.

Agriculture

Our agricultural base has been in decline for decades resulting from drought, cyclical demand, and low prices for wheat, wool, and meat. The rural economy has changed dramatically with the demise of once thriving rural centres and communities as once family owned properties became part of large mechanised operations reducing demand for local labour, services, and goods. Schools, libraries, post offices, banks, rail services, sporting and social function facilities have been decimated. While our fruit and vegetable producers have also expanded, there is more reliance on illegal foreign seasonal cash workers to compete against cheap imports.

The vast drought prone plains of New South Wales and Queensland that once supported sheep and cattle now grow cotton, consuming vast volumes of underground water as well as diversion of more vast volumes from seasonal flood-reliant major river systems. Because of world demand, cotton became one of Australia's new agricultural export earners. Drought remains the great leveller, and cotton's contribution to export revenues slumped as crops died of thirst and redundant workers in single employer townships add to national unemployment.

Consumerism

So what of the consumer?

The stimulus package strategy for the consumer is to spend, spend, spend on consumer goods to support the retail trade supposedly to support Australian industry producing those goods, maintain employment, and revive the Australian economy.

Advertisement

Jobs

The jobs, jobs, jobs strategy acknowledges the effects of the severe downturn in export resource based and support industries as thousands of workers have, and will continue to, lose their jobs.

The Rudd solution is to provide retraining to enable workers to secure employment in other sectors of the Australian economy.

So what are these other fields of employment?

What are the opportunities for high employment sectors experiencing stress and layoffs such as finance, insurance, superannuation, retail, hospitality, tourism, and airlines?

There is no comment on the other susceptible jobs lost in sales and service positions in the automotive, marine and leisure manufacturing industries?

A different scenario

Australia's economic revival faces challenges far different to that of previous serious recessions and even depressions.

Australia is now a resource-export-reliant economy in which our original agricultural sector is a poor reflection of its former self, our non-resource related industrial and manufacturing sectors, decimated by outsourcing and cheap imports.

As exports decline, Australia is now reliant on its consumer and services economy. Australia's major employers, and especially the motor vehicle and support industries, will decline, a result of global oversupply.

The triggers

An "endless supply of cheap credit and reckless lending practices" fuelled Australia's consumer economy, triggering an orgy of credit spending.

The same cheap credit fuelled the construction, housing, and investment boom, now in freefall, and decimating millions of Australian workers, retirees, and pensioner's superannuation and investments.

The global lending community has learnt a hard lesson, and stricter future credit control will restrict lending. The victims of failed investments, mortgage defaults, personal property repossessions, and credit card debt will decimate the numbers of prospective borrowers that can meet the new requirements to qualify for loans.

The Rudd Government's demand that banks lend more will have little real effect in a market with less low risk applicants.

The stimulus package and the economy

So how will consumer spending recirculate the stimulus money and reenergise Australia's economy?

First our retirees. The first splurge overlooked the stimulus funds sent to those retirees who had returned to their homelands. While none of those many millions benefitted Australia's economic growth, it did benefit other nations economies.

Expect retirees to save and others to reduce debt.

Then there are our consumer goods.

Just what percentage of local content is in Australia's consumer goods? What percentage is only part local content?

As for the agriculture and aquaculture sectors, consider the imported fruits, vegetables, juices, and processed foods, as well as a wide range of seafood.

If the government had exercised restraint and ignored rhetoric and grandstanding, the original $10.4 billion would still be in reserve for the future.

It will be interesting to see just how much of the next $40 billion will stay in Australia after deducting foreign content.

Without a broader local base, the more Australians spend on consumer goods the higher Australia's foreign debt.

And finally the jobs.

It must be great comfort to all Australians to realise that Wayne Swan has the confidence in Woolworths to reenergise the Australian economy, especially the amazing contribution over the Christmas period of the last quarter of 2008. Can he be more specific however, about the 70,000 jobs he claimed that the initiative saved in the 4th quarter 2008? Surely, he is not relying on Woolworths once again to provide the jobs for the newly retrained unemployed.

The infrastructure package does have the capacity to provide substantial job opportunities. When analysing this sector however, one sees corporations with an over supply of labour, especially union labour that are common to the resource and construction sectors. So where are the new jobs?

For Australia to benefit from the Rudd Keynesian Stimulus Package Part II our economic base will need to diversify and our trade polices need reviewing.

The Pacific Brands fiasco revealed just how little local brands contribute to Australia's economy. Pacific admitted that even before the layoffs, 75 per cent of the product content was already imported.

Pacific Brands is a glaring example, and a warning bell for Australia's future economic and manufacturing planning.

Globalisation has both benefits and detractions especially when economies morph from diversification to import reliance.

The global crisis will have a quantitative beneficial effect on greenhouse gas emissions and overall pollution, and provide a unique opportunity to monitor global warming and global dimming.

Green industries will provide some opportunity, but when considering the job skills and the sheer numbers involved in the strategic industries, one must be realistic, but not dismissive.

The bottom line

Indications suggest that this global recession will not be short and likely to continue into 2011.

Can focus on consumer spending strategies be more realistic and take into account the potential need for future financial support?

That knee jerk pork barrel $10.4 billion "initiative" would still be available to make a sizeable contribution to reducing the looming $240 billion deficit. That will be one big debt and has the potential to rapidly increase if the stimulus fails to meet Rudd's target.

While Turnbull trumpets that future generations will have to pay for the deficit, those in their 30s and 40s right now, and saving for retirement in 20 to 30 years, should pay very close attention.

Back to where it all started

Beyond the economic theorists' horizon, the Gramm-Leach-Bliley Act of 1999 opened the door to the 2008 global crisis. It was however, the Hank Paulson led "2004 Decision" that opened the lid of Pandora's Box and eliminated the "Net Asset Rule".

These events coincided with an emerging China desperately seeking massive foreign investment and markets for its rapidly growing manufacturing capacity, plus the new economic model of globalisation that created the foundation for the September 2008 global crisis.

China's record economic growth was due not to natural demand growth and sound economic planning, but to an era of reckless lending to support global consumer spending and stock market speculation.

The steel produced from the iron ore exported to China to produce export consumer goods was a small percentage to that used in infrastructure, industrial development, and construction.

Australia needs to look closer at China's hidden debt.

In Beijing alone, a drive around the new developments reveals evidence of massive bank debt. Nearly 46 square kilometres of commercial floorspace was built in Beijing between 2006 and end 2008. Today more than 10 square kilometres of Beijing's futuristic skyline is vacant, including entire empty office buildings, apartment blocks, secured luxury housing compounds, and shopping malls. Closer inspection (if you are allowed), reveals the alarming extent of deterioration. In Shanghai and many other "thriving centres", the vacant space is repeated. Despite the additional 29,000 rooms provided by the 126 new hotels in Beijing in 2008, occupancy during the Games peaked at only 67 per cent instead of the projected 80 per cent. Today, hotel occupancy ranges from 10 per cent to 30 per cent. Due to lack of response to use iconic Games venues, plans are in hand to demolish most structures and build shopping malls.

Globally, the trillions wiped from the financial systems will possibly take a decade or two to recover and banks and other financial institutions will modify their lending practices.

Under such circumstances, and with China's current overcapacity and the further increased capacity forthcoming from its stimulus package, the question for the future will be. "Who will buy China's massive production and how will it be financed?"

Canberra will need to look closely at our immediate to medium term economic strategies if they include reliance on China's re-emergence as a major consumer of Australia's resources. One needs to look closer at China's foreign resource strategies and more especially at the financial gymnastics to be employed by China's banking system to fund its stimulus package.

This economic crisis has revealed the weaknesses in the current globalisation model and this will need modification to allow a return to a form of acceptable balance and employment opportunities globally.

America's major employers of the iconic steel, automotive and aviation industries have also become victims with massive and increasing unemployment.

Answers may lie in the manner in which we address global warming and human rights and balance national interests with corporate and multi national influences. Whatever the outcome, balance of national economies and employment will become domestic priorities, and this is rapidly becoming evident within the EU.

There will be winners and there will be losers

2009 is a vastly different economical era to that of the Great Depression. A combination of responsible climate change measures, tariffs and even some protectionism, may achieve a level of refinement to avoid the chaos of the 1930s.

Can we trust our lawmakers to make the right decisions?

  1. Pages:
  2. 1
  3. 2
  4. 3
  5. 4
  6. 5
  7. All


Discuss in our Forums

See what other readers are saying about this article!

Click here to read & post comments.

7 posts so far.

Share this:
reddit this reddit thisbookmark with del.icio.us Del.icio.usdigg thisseed newsvineSeed NewsvineStumbleUpon StumbleUponsubmit to propellerkwoff it

About the Author

Arthur Thomas is retired. He has extensive experience in the old Soviet, the new Russia, China, Central Asia and South East Asia.

Other articles by this Author

All articles by Arthur Thomas

Creative Commons LicenseThis work is licensed under a Creative Commons License.

Article Tools
Comment 7 comments
Print Printable version
Subscribe Subscribe
Email Email a friend
Advertisement

About Us Search Discuss Feedback Legals Privacy