Comment

Australia’s economic woes

A homeless man sits in front of a billboard by a construction site in Sydney. File

A homeless man sits in front of a billboard by a construction site in Sydney. File   | Photo Credit: AFP

It is time for property rights to be moved away from competing private owners to governments.

Australia holds the world record among developed countries for the longest period of uninterrupted economic growth. But there are signs of this remarkable streak being in serious trouble, owing to the chaotic nature of the country’s economic system, where most productive assets are privately owned and the major decisions regarding how to use them are made by the market. In this paradigm, the livelihoods of current and future generations of Australians are being left to chance.

No jobs plan

First, consider job creation. Australia has no overarching jobs plan. Granted, private profit-driven employers in competition with each other are currently keeping most of the workforce employed. But the terms of these arrangements, including the existence of the jobs themselves, are ultimately determined privately and subject to change at any moment. One of the most important of such terms concerns pay rates. The key issue here is that many Australian wage-earners have not had a pay rise commensurate with the rising cost of living for the last six years.

This makes sense for individual businesses, because fixing labour costs helps to boost their profits. If most businesses do this, however, they end up unintentionally harming themselves as a group, since poorer workers no longer have enough spending power to buy as many goods and services (or service debts), and so sales and profits decline. Unnecessary workers are eventually laid off. If workers undertake training or education suitable for an industry that becomes unprofitable for whatever reason, then that is just how the chips fall in Australia’s economic system. A labour market paradigm with fewer upheavals and less frictional unemployment would require long-term planning and might require certain industries to make concessions at the negotiating table. Alternatively, a robust government job guarantee system could play the role of a safety net.

Second, consider Australia’s energy shortfalls. Even though Australia has some of the world’s most abundant reserves of natural gas, in early 2017, tens of thousands of Australians went without power during a heatwave. In large measure this was because private businesses correctly calculated that exporting gas overseas was more profitable than meeting the needs of the domestic market. Australia’s energy problems are often blamed on the failure of governments to set a stable investment framework. But the core issue is that the market is functioning normally. What is more, the uncoordinated decisions of businesses in Australia’s energy market are soon expected to bring about a surplus of electricity, which means lower prices and investor returns.

Will private owners continue supplying enough electricity to meet Australia’s energy needs in exchange for lower rates of return? According to the rules of the country’s economic system, it is entirely up to them. There is likewise no plan to replace Australia’s ageing power stations in an orderly fashion. Older power stations will continue malfunctioning and closing indiscriminately, causing electricity prices to move as erratically upwards as they can downwards, without any regard for the impact this has on people. A much less irrational arrangement used to be in place in Australia until around 1990: government ownership and control of electricity grids.

Changing the agenda

Meanwhile, scientists tell us we have 15 years to transition away from fossil fuel energy sources. The huge mobilisation of resources and economic restructuring required to meet environmental constraints is fundamentally at odds with the chaotic nature of market competition. An integrated public energy and jobs plan could explicitly take these constraints into account. The prospect of shifting property rights away from competing private owners to governments as a practical way of coherently addressing some of the Australian economy’s pressing problems should now be put on the policy agenda.

Chad Satterlee is an Australia-based political economist

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Printable version | May 29, 2020 5:11:07 AM | https://www.thehindu.com/opinion/op-ed/australias-economic-woes/article29291057.ece

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