In another useful reminder as to why I don’t subscribe to The Economist – with a news, politics, and international affairs junkie 15 year old I’m tempted from time to time – it was hard to go past the heading of that magazine’s lead story this week:
What the world can learn from Australia: It is perhaps the most successful rich country
In the text, they make it clear that the “most successful” claim specifically includes economic success.
Okay, I’m happy to grant that Australia has done well around fiscal policy – government revenue and expenditure as a share of GDP have been stable and moderate, and government debt has been kept low. But Switzerland does about as well, and Sweden has much lower net government debt (large net assets), and both those countries manage productivity levels that are reasonably materially higher (almost 10 per cent more) than Australia.
Productivity is, in the old phrase, if not everything in the longer-term about economic performance then almost everything. And here is a simple chart showing two comparisons, using OECD data which start in 1970. The first line compares Australia’s real GDP per hour worked to the median of the top-tier group I’ve used in various posts and articles this year (the US, France, Belgium, Netherlands, Germany and Denmark). And the second line compares Australia to Norway.
Did anyone in The Economist think of Norway – not only does it have much higher average productivity (think oil and gas and few people – and good institutions/smart people) but huge net government financial assets?
Average productivity in that frontier group of six is 20 per cent higher than in Australia. In Norway it is 50 per cent higher. And 50 years ago, Australia outperformed the median member of the six, and was level pegging with Norway. Sure, the last 25 years or so haven’t been too bad, but at that rate of convergence it would take another couple of hundred years (or more) to catch up again to the top tier group. And even the very modest convergence has been supported by massive new natural resource developments. Blessed with those opportunities if a country can’t do better than Australia has done, there looks to be something quite badly wrong.
And here is the ABS measure of real net national disposable income per capita, which takes account of (a) changes in the terms of trade, and (b) the portion of the GDP gains accruing to Australians.
They had a good 15 years, but there has been no growth in this measure of real purchasing power this decade.
What might be so very wrong? Well, I’m sure there are plenty of micro regulatory things Australia – like every country – could do better. But what really stands out about Australia, relative to the other countries, is its rate of population growth. Indeed, this is what The Economist really seems to like about Australia, lauding the country’s “enthusiasm” for immigration. Whether one looks from 1970, or just over the last quarter century or even the last decade, Australia’s rate of population growth has materially outstripped those of the other countries. In the last 25 years, Australia’s population (UN annual numbers) increased by 41 per cent, while the population of the median of those high productivity group of six rose by 13 per cent. The difference isn’t wholly about migration, but immigration is the bit governments make choices about.
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. Being based in a global city – the ultimate ideas trading location – in northern Europe I guess these considerations simply never occur to The Economist’s writers, who probably enjoy the beaches and the climate when they jet into Australia without troubling themselves over whether or not the natives are actually earning leading first world incomes. Hint: they aren’t (any longer).
And thus I end up agreeing with The Economist.
“Even more remarkable is Australia’s enthusiasm for immigration”
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.
(And that without even considering the house prices, traffic congestion etc – all of which, immigration advocates will note, could – in principle – be fixed separately, but of course in practice aren’t. )
UPDATE: A post from a couple of months back that made similar points, but with some different data and a longer time horizon.