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A new economic agenda for South Australia

Analysis

South Australia could learn much from the economic achievements of the Hawke-Keating and Howard-Costello governments, writes Richard Blandy.

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I grew up in Adelaide in the 1950s. Economically, those were halcyon years. The Australian economy grew at 4 or 5 per cent each year, with scarcely a hiccup.

South Australia led the pack on the back of its manufacturing boom behind a wall of protection being built around the Australia economy to ensure that we would be more self-sufficient in the event of another global conflagration – like the one that had ended a decade earlier. The Korean War added to the acceptance of the wisdom of this strategy.

Those hiccups that did occur could safely be treated with a modest dose of Keynesian demand management, we believed. The economy remorselessly ground out extra productive potential each year – this was the supply side – and we needed only sensible demand management to harvest it in increasing employment and higher standards of living.

The supply side of the economy appeared to be bomb-proof. That being so, Commonwealth and state governments could not resist the urge to improve it.

The agenda of those times was how governments could intervene in the economy to improve the lot of ordinary Australians – not only by Keynesian demand management but by supply side interventions as well. Sound familiar?

Governments intervened with taxes, subsidies and regulations to correct for the failure of markets to take into account all costs and benefits, to build a manufacturing base to employ a larger population (that could defend us better), to bring about a fairer distribution of earnings and incomes, and so on. Sound familiar?

It was not expected that these socially useful measures could harm our bomb-proof productive capacity.

This left wing agenda was enthusiastically embraced by we economists, and gradually put into effect by a succession of Liberal governments.

But in the 1970s we discovered that the supply side of the economy was not bomb-proof after all.

This came as a shock. Questions began to be asked as the growth rate of the economy faltered and failed to respond to even huge doses of the usual demand-side tricks. At the same time, we watched other economies with nothing like our resources and capabilities burst into life. At first we attributed their success to cheap labour, but this explanation failed when eventually their earnings approached, and even surpassed, ours.

We were not alone among world economies to suffer a deterioration in our economic performance, of course. In consequence, international schools of ideas began to emerge addressing the weaknesses which had been revealed in the supply sides of many economies. They developed a new agenda concerned with what needs to be done to restore the supply side of the economy to persistent growth – such as we had enjoyed in the 1950s.

It took a Labor government led by Bob Hawke and Paul Keating to put this right wing agenda into place, supported by the Liberal Opposition benches. We moved from 17th richest people in the world (in terms of income per head), when they came into power, to 7th richest by the time John Howard and Peter Costello lost office. With full employment restored. And no rise in income inequality. Reformist, economic heroes.

The central issue was seen, then, as being how to increase the trend rate of growth of productivity in the economy. This is now seen as the central issue, again. Our rate of productivity growth has fallen greatly in recent years. Faster productivity growth reduces the rate of increase of production costs, improves international competitiveness, allows production and employment to grow more rapidly, and enables quicker reductions in unemployment as well as increases in our standard of living.

It came to be widely appreciated, but not so much in South Australia, unhappily, that the well-meaning efforts of governments to improve matters by intervening in the economy on multiple fronts actually harmed productivity growth and, by so doing, damaged the capacity of the economy to create jobs and raise standards of living.

As we have learned to our cost in South Australia, as the web of government intervention increases, lobbying government becomes a cost-effective way of staying in business. Rather than working at the hard grind of maintaining competitive excellence, we have increasingly looked to government for favours. But productive advance does not come from success in getting the ear of government for a regulatory arrangement that provides an easy life.

The new agenda – dare I say, the Hawke/Keating agenda – is about the limits of government to do good. It is about the restoration of incentive and opportunity for ordinary Australians, in all walks of life, to exercise their ingenuity, sweat and entrepreneurship in meeting their own, and our collective, productive challenges. It is about the fact that our emperors have far fewer clothes then we had hoped they could acquire.

Contrary to the concerns of some important lobby groups, this agenda does not involve abandoning the vulnerable to the wolves. The worst expression of inequality in our society is unemployment. The new agenda is about reducing unemployment, not about reducing the incomes of the poorest.

The new agenda is about letting competitive opportunities emerge, and ensuring that sufficient incentive exists for people to grab them.

The new agenda is about the confidence and team spirit that exists in small groups working to a common purpose – groups that would rather die than forsake a mate. It is a human agenda which emphasises the significance of ordinary people rather than those elected to lead them.

South Australia has no hope of turning the economic tide unless it adopts this new agenda. We may continue to be bought off at elections with the usual promises of easy solutions with a bribed new business here and a government spending program there. Our own experience over a quarter of a century shows that these are not solutions to our lack of competitiveness and the resulting lack of economic opportunities for employing all of our people who want jobs.

We are just as capable as people anywhere. It is the policies of the South Australian government that have let us down and that need to be changed. We need to knuckle down, have a go for ourselves and not believe that the government has answers – except to get out of our way.

Richard Blandy is an Adjunct Professor of Economics in the Business School at the University of South Australia.

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