Australia is 'The Sweet Spot’ to be

In recent days we have luxuriated in great economic news: strong growth, low inflation, falling interest rates, low unemployment, good jobs data, renewed triple A rating by Moody’s, low net national debt, massive investment in the pipeline, and an upbeat RBA and Federal Government. Each piece of good news has added to a sense of euphoria about our situation and our prospects. We live in a great nation.

In the light of this great news, it seems a good time to review a book that transmits this very message, and asserts that our favourable position has not happened by some accident of good fortune, some stroke of good luck. In his 2011 book: The Sweet Spot – How Australia made its own luck - and could now throw it all away (Black Inc), Peter Hartcher shows how it has all come about.

It is a very readable book, filled with facts and figures and sound reasoning. For me it became a page-turner, something one would not expect when reading a book on economics and Australian history. For anyone interested in how we got to where we are, and where we might go from here, it is a great read, and eminently plausible. Of necessity, this piece can only pick the eyes out of his comprehensive account. Read the whole book to derive the insights it offers so lucidly. Much of what appears below is drawn from the book, including several direct quotes. I acknowledge their source gratefully.

Hartcher gets onto his theme early. On page two he says: “Australia today is closer than it has ever been to fulfilling the promise as a golden land, even the most golden of all lands. It is the only developed nation on earth that has not suffered a recession in the last two decades.” He goes onto record how we sailed through the Asian economic crisis of 1997-98, flourished through the US stock-market bust and recession of 2003 and grew through the global financial crisis. He talks of our low unemployment rate and our high per capita income, now well ahead of the UK and the US. Yet he ponders why we seem so unexcited about our golden land: “If this achievement had been a sporting triumph, [such as beating the US in the gold medal tally at the Beijing Olympics] Australians would have erupted in a frenzy of celebration….Yet surpassing the country [the US] regarded as the benchmark of prosperity in the key measure of income was not even noted in the mainstream media. Winning sporting gold is a national triumph. Winning real gold, the gold of high incomes and high living standards is, apparently, trivial.”

He continues: “Perhaps it’s too new, or too incredible, for Australians to absorb, but the country has now become so successful as a prosperous modern power that it can afford to take a little credit for winning the real prizes of international life, rather than just the consolation ones.”

Hartcher then details our other accomplishments: Being first in the UN’s Human Development Index that measures how well ‘people can develop their potential, and lead productive, creative lives in accord with their needs and interests’, ahead of Norway. “Australians in short, enjoy the benefits of living in the world’s superpower of living standards.” The OECD’s Better Life Index, which also includes health, education, income, personal security, working hours and community connections, found: “…that Australia’s overall living conditions were the best.” Again he scratches his head: “One of the perversities of Australia’s ascendancy as a superpower of living conditions is that its people have shown a striking insouciance about it. At two consecutive national elections – in 2007 and again in 2010 – the voters refused to re-elect the governments that presided over these conditions.”

He notes that Paul Krugman described Australia as “the miracle economy of the world financial crisis” and the OECD reported that: “in the last decade of the 20th Century Australia became a model for other OECD countries”. While many would attribute Australia’s success to the mining boom, Hartcher points out that “only one dollar in twelve generated in the Australian economy came from the combined industries of oil, gas, coal, iron ore, gold and other minerals.”

Hartcher then goes to another of his themes – the fairness and tolerance of our society: “Australia’s accomplishment is far greater than generating wealth and services for an elite…The wider picture is that Australia is one of the world’s fairest countries, one of the most tolerant, and one of the safest.” He concludes his first chapter: “So Australia has managed to become one of the richest countries in its financial wealth, perhaps the richest of all in its living conditions, and also rich in its spirit of fairness and cohesion.” and ”This book points out what the serious observers in the rest of the world have noticed but that most Australians have not: Australia has become one of the most successful countries on earth.”

Hartcher then expands: ”…entrenched egalitarianism is one of two defining themes that run through Australian attitudes.” He talks about ‘The Tall Poppy Syndrome’ and then says: ”Talk of egalitarianism in Australia is sometimes reduced to a discussion of the concept of ‘mateship’.” Later he says: ”But beneath the manners and mannerisms, egalitarianism has a deeper and harder identity. It’s called fairness. This has several manifestations. One is fairness of outcomes. Another is fairness of opportunity. A third is fairness between one generation and another.” He elaborates on the dire social and cultural effects of inequality.

Hartcher then describes the other defining strand, other than egalitarianism, running through Australian attitudes, namely freedom, which he defines as ”…the right to make your own choices in life. Freedom…includes political and legal rights” and ”…freedom to choose a course of study or a field of work or start a business.” After describing several examples of extraordinary Australians: Twiggy Forrest, Professor Ian Frazer, the inventors of the bionic ear and sleep apnoea treatment, he says: ”If you want growth and prosperity you need economic freedom.” and ”…fairness and freedom are the essential themes in Australia’s history…All countries make their way by navigating these twin currents. In making practical choices of policy the two are usually opposed: it’s an established tenet of economic policy that equity and efficiency are to be traded off against each other…Perfect equity in incomes policy… would…fail to reward initiative and effort. The economy would wither. Perfect efficiency…would create a society of huge inequality. With no social safety net to catch the most vulnerable, exploitation and suffering would go unchecked. The key to crafting a country lies in setting the balance.”

Hartcher gives a whole chapter to a detailed discussion of the claims by some that Australia is becoming less fair, more polarized and that inequality is growing, concluding that of the first type, fairness of outcomes: ”The incomes and wealth of the low-, middle- and upper-income groups have all risen in the last decade or so in Australia. And by international standards, Australian economic equality is in the middle. Of the second type, the fairness of opportunity, Australians have ample opportunity to move out of poverty, to transcend their parents’ income category, to build the lives they choose for themselves…On the third type, the fairness of how one generation treats another, Australia’s performance is exemplary, almost uniquely so. Australia’s fast-rising prosperity has been enjoyed unequally, but fairly…perfect economic equality is impossible…trying to get there would allow no room for the other essential quality in the creation of a successful modern society, freedom.”

His next chapter discusses economic freedom. Perhaps the most telling paragraph reads: ”In an overview of Australia, the Index of Economic Freedom says: “Australia’s modern and competitive economy performs well on many of the 10 economic freedoms. The country has a strong tradition of openness to global trade and investment, and transparent and efficient regulations are applied evenly in most cases. An independent judiciary protects property rights, and the level of corruption is quite low. Of the ten categories, Australia’s strongest scores were for financial freedom, labour freedom, property rights and business freedom. Its weakest scores were for trade freedom, investment freedom, government spending and fiscal freedom. Its scores on monetary freedom and freedom from corruption were middling.”

He concludes: Even as it delivers a relatively high degree of fairness to society, it has also improved the level of freedom of its economy. It is a happy equilibrium of this balance that is the source of Australia’s modern emergence as a model, a success in its own right and an example to others.” He asks “How did this happen?

Hartcher then gives an absorbing account of Australia’s colonial history in a chapter Destined to Fail, and concludes: ”Criminal, brutal, militaristic, starving and racist. This wouldn’t seem the most likely starting point for a country that emerges a little more than two centuries later as one of the world’s outstandingly law-abiding, free, peaceful, fair, prosperous, tolerant societies. Yet this is exactly what happened.”

The next chapter takes up the theme of rights in Australia and how they evolved in what began as a penal colony and concludes ”In defiance of its colonial origins, Australia was born a proudly democratic nation and a pioneer in the rights and freedoms of the people. And its burgeoning industries gave it the highest average incomes in the world.”

His next chapter describes a period when protectionism reigned. ”Australia remained addicted to its sheltered existence. The shop remained closed. Protectionism, and its supporting superstructure of controls on finance, controls on international capital flows and controls on labour, was comfortable but ruinous…Equity had crowded out efficiency.”

In the following chapters, Hartcher describes the way in which Hawke and Keating set about reducing protection: ”When Hawke and Keating took power in 1983, the average level of effective protection for the manufacturing industry was 25 per cent. By the end of Labor’s thirteen years it was down to less than 10…even when Labor left office after thirteen years the job was not yet finished.”

He then describes the changes that took place during the Howard/Costello era. ”In the twelve years before Hawke and Keating took power and the reform era began, Australia had suffered four recessions. When Howard left office, Australia had enjoyed sixteen years of continuous economic growth, on the way to at least twenty years of unbroken expansion.” He concludes: ”In the reform phase of 1983 to 2007, under Labor and Liberal governments, Australia realized it was on its own in the world. It started to make its own way. Australia had no idea how severely it was about to be tested.”

The next chapter describes how the Rudd Government tackled the global financial crisis, guided by Ken Henry’s advice: “If you really want to make a difference, go early, go hard, go households.” It is a chapter that deserves close attention for its historic value. Hartcher mentions the components of the Government response: the bank guarantee and the phased stimulus package, and acknowledged that: ”…Australia successfully flicked the switches at the right time. The switches worked because they were attached to powerful engines.” He goes on to say: ”While Australia enjoyed prosperity in the midst of international hardship, its government signally failed to win credit for its accomplishment…Two things happened. Rudd’s opponents cleverly turned a tale of extraordinary economic success into a political narrative of incompetence.” We all remember the ‘pink batts’ and ‘school halls’ campaign of the Opposition, strongly aided and abetted by The Australian.

The GFC chapter aptly titled I expect you to die concluded: ”The economy survived the most savage global economic crisis since the Great Depression…Australia’s economic success was the envy of the world, yet it seemed to hold its achievement in little regard.”

The next chapter focused on IR and Howard’s WorkChoices, the ‘structural deficit’ consequent upon the stimulus, and on productivity, about which Hartcher says: “Another vital measure of efficiency is national productivity. Contrary to popular impression, productivity is not a way of measuring how hard a country works. It’s the key way of measuring how smart a country works, in getting maximum benefit from the same amounts of human labour and invested capital…Australia performed poorly for a long time on this key measure, with a long run average of 1.2 per cent annual improvement. This almost doubled during the 1990s, thanks to the economic reforms of the 1980s and ’90s. Then it slumped again in the last decade. For the last five years it’s been below zero”. By 2007, the pendulum that swings between efficiency (productivity/competitiveness) and equity, had begun to swing towards greater equity, but that meant less efficiency.

The next two chapters address different models of society and gives examples of countries that use them. Space does not permit a discussion of them here.

Which brings us to one of Hartcher’s key chapters: How to blow it. He quotes David Alexander, former press secretary to Peter Costello: ”The most interesting aspect of the success of the Australian model is that a country can achieve a significant degree of egalitarianism without sacrificing economic freedom”, what Alexander calls the ‘platypus model’. Hartcher asserts that ”…one of the secrets of Australia’s balance is that leaders have not been slaves to ideology. Labor and Liberal prime ministers have employed policy tools borrowed from the ideological toolkit of the other side.” He quotes Hawke and Keating’s introduction of policies that were disruptive to workers, and Howard’s support for their deregulation and protectionist reforms.

He then puts his finger on what he believes is a core contemporary problem: ”It was Tony Abbott and Julia Gillard whose combined efforts brought the era of responsible policy-based leadership and ambitious reforms to a shuddering halt…their separate political calculations brought them together as the political father and mother of Australia’s new populism, an ugly, squalling brat that soon drove the nation to distraction…The advent of Tony Abbott as opposition leader brought an abrupt end to the Liberal Party’s mindset of rationality and responsibility.”. Pointing to the fact that Howard was prepared to forgo easy political advantage by supporting the government in the national interest, as was Brendan Nelson and Malcolm Turnbull, he noted that Abbott’s angry opposition broke with the Liberals’ style of responsible leadership. Hartcher says: ”Abbott’s easy change of mind in pursuit of power, his exuberant embrace of populism, mark him as an opportunist”, but he goes on to say: ”But while the opposition leader is a key influence, he cannot single-handedly change the national political and policy agenda.” Hartcher continues: ”Gillard led Labor into a wholesale retreat into populism. She identified three priorities she wanted to address, political problems for the government she wanted to fix. Each represented a retreat from policy ambition.” They were of course the ETS, asylum seekers, and the mining tax.

Hartcher is strong in his condemnation of what he sees as lack of leadership. ”Both prime minister and opposition leader had demonstrated that they were prepared to change their beliefs on major policy areas if it would help them to procure power. With leaders exposed as opportunists, political debate quickly ended up in sterile exchanges…”

Returning to the theme of his book, Hartcher writes: ”Australians created the sweet spot for themselves. The country needs to know that circa 2010-11, it offers the best living conditions available on the planet. Not because it started out that way, and not because of the mining boom, but through building, through reforms and through intelligent public-spirited leadership. And, yes, through a little luck. But as Donald Horne warned, relying on luck is an invitation to complacency. And complacency is a dreadful problem solver.” He concludes: ”If Australia is to have a golden future. It will not be gilded with the sort of gold that is discovered by digging deeper holes in the ground. The necessary gold is not to be found in the country’s pits but in its wits.”

In his final chapters Hartcher talks of other models, but there is not space to discuss them here.

The purpose of this piece is two fold: The first is to introduce you to Peter Hartcher’s splendid book, with as much drawn from it as space will allow, to inform you of his approach with the hope that you might seek to read the book from cover to cover. There is so much more in it than I can leave here. The second is to engender discussion of the issues he raises.

Australia is indeed 'The Sweet Spot’ to be. If you did not already know that, Hartcher’s book will persuade you to that view. But even without that, the economic data of the last week or two should suggest even to the skeptics that we are doing very well as a nation. While some do not feel they are doing so well, the majority ought to – there is no better place on earth to live. Why then is it that there is so much pessimism, so little confidence, so much gloom around?

As with all complex situations, the likely reasons are many: the financial turmoil and political uncertainty in Europe, the sluggish US economy, stock market volatility that imperils the pension of many, and the political turbulence in our own country, are all engendering uncertainty and apprehension among the people. But in my opinion there is another reason, one that the mainstream media seem to overlook, or gloss over, or prefer to ignore. I’m referring to the incessant negativity of the Leader of the Opposition, the approach he has taken from day one.

He has never stopped deriding the Government, never ceased from demeaning PM Gillard, never supported anything the Government has tried to do, never stopped talking down the economy and the way the Government is managing it despite all the glowing economic news of late, never prepared to acknowledge in the smallest degree the Government’s success in economic management and during the GFC, hell bent on destroying the carbon tax and the mining tax, labeling them as ‘toxic’ harbingers of an Armageddon, intent on ’demolishing’ the NBN ‘white elephant’, and repealing many other pieces of reforming legislation. Can anyone advance a convincing case that this man has not had a profound influence on the thinking of the voters and the psyche of the nation?

Here we are in ‘The Sweet Spot’ so convincingly argued by Hartcher, yet there is gloom and despondency, much of which I believe is locally created. We seem to have talked ourselves into a state of reactive depression, and one of our ‘therapists', our LOTO, keeps reminding us how depressing our situation is and how miserable and hopeless we ought to feel. We need a change of therapist.

What a pity it would be in inept politicians threw it all away.

What do you think?