An important part of reducing inequality and rising living standards is being aware of the global economic circumstances and understanding what potential shocks could be on the horizon.
The world we currently live in is vastly different to that which prevailed in the early 1980s when the recent wave of globalisation was getting started. Between 1987 and 2007 global trade grew at a rate in excess of double the rate of growth of global GDP thanks to new economic power houses like China and other emerging economies. This was a period of rapidly expanding foreign direct investment and global supply chains. It made sound economic sense in this period for Australia to integrate fully into the global economy and ride this wave that saw commodity prices boom and investment in our resources sector explode.
The situation in the global economy today is vastly different. In the last few years global trade growth has only just equaled global GDP growth and global growth has been slow by historical standards. The expansion of global supply chains has been checked and foreign direct investment flows have been curtailed. More recently, geopolitical uncertainty and tensions between key nations have mounted. Economic headlines are dominated by a potential for a trade war between China and the USA while the latest act of terrorism and political instability in key nations saturate the daily news. This is not a global political or economic environment in which Australia should place all its economic eggs in the globalisation basket.
In current circumstances it would be simple common sense to make Australia more self-reliant and resilient to global economic and political shocks. This will require bold new initiatives to build domestic demand, support Australian business, ensure that our workers have the incomes to buy more of the products and services produced within Australia and continue to expand our population.
Despite buckets of rhetoric about jobs and growth both the Abbott and Turnbull governments have been plagued by policy paralysis. Sound bites and slogans do not deliver an economic transition. Australia made no progress over the last few years in adjusting to slower growth in emerging economies and more normal commodity prices. Now we have the added complications of heightened economic uncertainty in both the United States and Europe.
The failure of the Australian economy to transition from the mining boom to more broadly based and sustainable sources of growth is underlined by recent low growth rates. The fact that inflation has remained well below the Reserve Bank target rate also suggests that economic activity is lackluster and that the much talked about transition is a myth.
But working Australians did not need the recent national accounts or CPI figures to realize their part of the economy had gone into reverse gear. Real wages have stagnated for several years. Workers have not been receiving their fair share of productivity improvements for a long time, while profits have soared. Headline figures about unemployment levels provide a misleading guide when trying to judge the strength of the labour market. In recent years much of the job growth has been casual or part-time with no security and no benefits. Making ends meet has been an uphill struggle for working-class families for some time. As housing costs and other expenses continue to rise most working families now feel they are being asked to climb a mountain just to survive. Australia has forfeited its reputation for a fair go as income inequality has increased.
In these tense and turbulent times Australia needs to rely more on our own communities, businesses and multi-cultural population to provide economic security and good quality jobs. Our government needs to support local endeavor with action not just empty words. This means boosting investment in infrastructure, providing incentives for research and development, while making our health, education and community services world class. Public investments in these areas should have been implemented during the last four years when it was evident the resources boom was over and new domestic engines of economic growth were required. But it is not too late to take bold initiatives now.
The business community in Australia will respond positively to rising demand for the products and services they provide. In a world where we cannot be confident about the levels of international demand it makes sense to boost sales at home. The combination of a much-needed pay rise for local workers and a buy Australia campaign is required to boost domestic demand and underpin economic growth going forward. Rising domestic demand, rather than cuts in company tax, are more certain to spur local investment and generate jobs.
This is an extract from a new report by the ACTU, Rising Inequality: An Australian Reality, published on 12 September 22017. Read the full report.
ACTU, 'The Australian economy and its people', Evatt Journal, Vol. 16, No. 4, September 2017.<https://evatt.org.au/the-australian-economy-and-its-people>