Australia, the Plodding Underperformer

Australia sits on the world’s most valuable natural resources, yet those immense blessings aren’t matched by income levels — a failure which must be seen as an indictment of successive governments’ stewardship. More worrying, the pressures and follies that have inflicted below-par economic development are growing more pronounced

The different rates of change in world income levels have provided Australia with a magnificent base on which to build our own prosperity.  Alas, though our standard of living testifies to some success, political measures have blunted the potential level of achievement.  A less regulated, lower taxing political regime is important to enhancing our income levels. And as the 21st century progresses such a policy redirection will assume increased importance in ensuring our national security.

This graphic below presents a fascinating review of the rise and fall of nations in the GDP stakes.  Over the past half century, the constancy of the US, rise of Japan and Germany, and the more recent rise of China and India are the dominant features.  As late as 1969, Australia even crept into the top 10.

Reviewing a lengthier period, by the seventeenth century, Europe had pulled markedly ahead of the rest of the world in terms of GDP per capita. In 2011 international dollars, the highest standard of living recorded, according to The Maddison Project, was Belgium at $3400-4800 with some other European countries also relatively high. Eastern Europe, Asia and Latin America were all less than half of this.  China had an estimated per capita income of $1083 in 1661, a level that wasn’t reached again until the 1970s.  By 1913, the Western world’s living standards were two- to tenfold those of the rest of the world.

Fast forward to 1973 and this picture had not markedly changed. At that time, China and India had per capita GDPs at little more than $1000 compared with $20,000 for the Western world (by then including Japan).

By 2016, Western nations (now joined by the “Asian tigers”, South Korea, Taiwan, Hong Kong and Singapore) had per capita incomes in the $30,000-53,000 range. Some of the former Soviet satellites were approaching that level, which was double that seen in Latin America.  Income levels of China ($12,500) and India ($6,100) were on rapid growth trajectories.

Below are some estimates, drawn from Maddison, all of which are actually little more than educated best guesses (and the 1973 estimates for Russia is clearly overstated).

County 17th Century 1913 1973 2016
Belgium 3800 7290 23500 45600
UK 2000 8050 18900 37300
USA   8100 26600 53000
Russia   3400 18000 37200
Mexico 1200 7520 9000 16100
Egypt (1100) 2800 3500 11400
India (800) 900 1100 6100
China 1080 800 1200 12600
Australia   9370 23400 48800

Source: https://en.wikipedia.org/wiki/Maddison_Project

Until, post 1945, sociologists amended the notion of poverty, income levels prevailing in even the most affluent nations 300 years ago would today be considered sufficient to provide only a barely imaginable level of poverty. But the statistics illustrate how rapidly nations have been able to catch up to those whose living standards not so long ago were seven- or eightfold their own. Chinese and Indian living standards barely increased over the thousand years until the last three decades of the 20th century, but between 1973 and today those countries have experience growth in living standards of sixfold (India) and twelvefold (China). 

Many countries, like Haiti and a range of African basket cases (described by President Trump as being “questionably run”), continue to have real income levels that are only four to five per cent of those of the US.  Such countries are presently incapable of internally generating economic growth and, understandably, place a priority on extracting funding from wealthier countries. Warfare was an option, last demonstrated by Saddam Hussein’s grab for Kuwait, and is unlikely to recur on a major scale while pax Americana prevails; another survival option for the “questionably run” nations is seeking assistance — for example, by taking very large delegations to conferences where such prospects are on the table – four out of the five largest delegations at COP 24 in Katowice were African, with Guinea-Bissau the largest at 408 (Australia made do with 30).

The accelerating increase in Asian living standards is the dominant force for change.  Evidence of the astonishing rise of China, and India to a lesser degree, is everywhere:

  • At 831 million tonnes, China now produces half the world’s steel, having grown 60 fold since 1967; India produces 100 million tonnes, a 20 fold increase over the same period; by reference US produces about 82 million tonnes. In recent millennia, steel production has been regarded as the bellwether of industrial output.
  • From a standing start, China now produces about a third of the world’s motor vehicles at 30 million a year; India produces a little under 5 million but has expanded production 60 fold since 1970; US produces around 11 million vehicles a year
  • China (with Hong Kong) has close to half the world computer exports, while India after the US is the second largest software exporter.
  • Chinese living in what the World Bank defines as “extreme poverty” fell from over 750 million in 1990 to 10 million in 2015
  • In 2018 China built more skyscrapers than any other country and more in one year than has ever been built

Though, as this report illustrates, while China may well be heading towards regulatory and high tax growth inhibition, its growth rate is still double that of Australia and the (much improved) US level. 

Australian perspective

Australia prides itself as having achieved more solid growth over the past four decades than most of other developed countries, but that growth is hardly spectacular and is fuelled by our having become the source of raw materials for the Asian growth stories. There is also a mounting hostility to growth based on resource use on the part of the urban population.  This is reflected in the influence of the Greens and, to some degree, the ALP and has resulted in growth-inhibiting regulatory policies including:

  • Hostility to the development of and over eagerness to tax coal, gas and other resources, which are the nation’s most important exports
  • Determination to ensure the destructive substitution of high cost, unreliable wind and solar for low cost reliable coal for electricity generation
  • Measures that restrain the use of water for farming in Australia’s most important agricultural province, the Murray Darling, and in building new irrigation facilities and preventing land clearing in Queensland

Added to these are other measures suppressing our prosperity including:

  • The chronic inability of government to wind back expenditure programs once set in train, with a consequent reduction in labour and capital resources available for productive ventures
  • An industrial relations system that is especially vulnerable to trade union and government pressures to require wages and conditions which exceed the productivity levels that can support them
  • An education system that is focussed upon equality of outcomes rather than the promotion of excellence and which has been redirected away from school training in basic three R skills in tertiary institutions from engineering and the hard sciences
  • Wasteful spending, pandering to political fantasies, best exemplified by the decision to convert French nuclear submarines to less effective diesel power

Political risks and uncertainties

Whilst the richest country in the region in terms of natural wealth per capita, Australia is a demographic minnow and a likely economic dwarf as the 21st Century unfolds.

Our independence, like that of many other countries, is reliant on the US.  The abilities of the US to perform this role will diminish in relative terms, all the more so if the pro-growth policies followed by the Trump administration are replaced by a return to the Obama era’s focus on social welfare, virtue signalling and the appeasement of rogue and aggressive states.

Per capita, the 25 million Australians are sitting on the most valuable natural resources in the world.  As custodians we probably should have performed much better — after all, our natural wealth is not matched by our income levels — and the pressures that have led us to performing below par in economic development are becoming more prominent.  Those pressures have already brought about lower living standards than those that might otherwise be achievable.  Such lower living standards condition our ability to provide the greater self-reliance in defence that will increasingly be required.

Alan Moran of Regulation Economics is the author of “Climate Change: Treaties and Policies in the Trump Era

4 comments
  • ianl

    > ” … mounting hostility to growth based on resource use on the part of the urban population”

    As if that has not been self-evident for about 20 years. I’ve been in the very thick of that for 40 years and watched as the hostility grew and grew – all the while observing the money grabbed through taxation, “super” royalties and plain old hypocrisy in greedily consuming the products that flow from resources development.

    There are no offered alternatives to this money source, of course, just hostility to the processes while grabbing the benefits.

    Lee Kuan Yew was exactly right.

    Now one expects Pollyanna “rebuttals” which contain exactly nothing of any practical value.

  • Dallas Beaufort

    Lazy politics while relying on heavy taxation to disguise their inability to think past their navel. Outside creative politics and the reliance on a large public sector the club have no cloths.

  • Ed King

    “Australia prides itself as having achieved more solid growth over the past four decades than most of other developed countries, but that growth is hardly spectacular and is fuelled by our having become the source of raw materials for the Asian growth stories.”

    Australia’s per capita GDP growth has been mediocre compared to many other developed countries. In fact, Australia has experienced a number of per capita recessions over the last few decades. Rapid immigration-driven population growth has been used to artificially inflate overall GDP growth figures, but this isn’t resulting in higher per capita incomes.

    Rather than try to grow the economy through productivity improvements, successive Australian governments have embraced the lazy and crude approach of importing people en masse as a way to pump up GDP growth. This is an incredibly moronic strategy for a number of reasons. It is particularly self-defeating for Australia, a country so reliant on the export of finite natural resources.

    As economist Michael Reddell put it:

    “In a country with an export base almost entirely dependent on a fixed stock of natural resources – farm products, mineral products, tourism – and actually with foreign trade shares of GDP among the very lowest in the OECD, it is bordering on the insane to be actively importing lots and lots more people (as successive Australian governments have been doing in the last 15 years or so). It is a quite different matter in countries – like most advanced OECD countries now – that are trading the fruit of ideas, or that are tightly bound into sophisticated manufacturing supply chains. But this is Australia – one of the most remote countries on that planet which (like New Zealand) has failed over decades to develop many outward-oriented industries that don’t depend largely on natural resources (or immigration subsidies around export education). The fruit of the (vast) natural resources is, to a first approximation, just spread more thinly…

    Truly astonishing in fact, in the specific circumstances of Australia. The enthusiasm of Australian governments for high immigration to Australia is just as wrongheaded – and more culpable – as that of The Economist’s editorial writers. All sorts of daft ideas have had their day over history. This one – at least in modern Australia – seems based more on belief and ideology than any serious evidence that Australians themselves might actually be benefiting from the immigration.”

    https://www.macrobusiness.com.au/2018/10/no-economist-australia-not-even-close-best-economy/

  • Bushranger71

    ‘GDP is the final value of the goods and services produced within the geographic confines of a country within a specified period of time.’
    It is a pretty meaningless metric relating largely to domestic consumption and not export earnings to foster national growth.
    Virtually all individuals who flow into Australia these days are ‘economic immigrants’, choosing to come to this country to access our social benevolence like health benefits, including of course affluent retirees. Very few would be imbued with a sense of nationalism (now a dirty word) necessary to participate in the defence of this land and many would relocate if conflict threatened.
    For GDP to remain constant, sucking in 400,000 additional people each year would necessitate instant increase of production to provide their needs, which are satisfied in part by increasing non-productive imports.
    The strength of any nation must relate to what it can produce to contribute toward world needs. In particular this must involve what can emerge as finished products from an industrial base, which Australia has largely forfeited.
    It is a nonsense proposition that service industries can offset this shrunken capability. As the rest of the world advances, countries will grow their own abilities to service domestic needs.
    75% of the world is located in the northern hemisphere and remote Australia suffers in many ways from the tyranny of distance. Being less than 300 years since European settlement, there is very little of historical significance and the geographic attractions like the Great Barrier Reef are sparsely spread, involving high internal travel costs for visitors. Tourism potential for Australia is grossly overstated and many existing leisure venues are not financially viable.
    Where is the sense in relating mainly internal production to a burgeoning populace? Is it a feel good exercise just to rate Australia as better than some countries where starvation is prevalent?
    ‘Balance of Trade is a crucial reflection of a country’s business scenario and associated Balance of Payments data also highlights past performances, which should help create improved strategies. The components contributing heavily to exports/imports can be readily identified and improved.’

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