“In the mid-1960s, when Australia’s trade minister Sir John McEwen was urging Holden and Ford to seek export markets in Asia, the leader of one of Asia’s poorest countries decided his country needed a car industry. Defying the advice of economists, he ordered the country’s biggest company to start making cars – with Ford’s assistance. That country was South Korea … [and] the company was Hyundai.”
Tim Colebatch, Economics Editor, The Saturday Age, 25th May 2013
The switch to laissez-faire economics in the latter part of the 20th Century brought considerable benefit to many economies that were struggling at the time. The UK had it’s Winter of Discontent and Australia was on the verge of becoming, to coin a phrase of the time, a Banana Republic.
The de-nationalisation of a number of key industries and institutions, coupled with a radical reduction, or outright removal, of tariffs and other trade barriers, brought much needed vitality and prosperity to the countries that embraced the ideology of free markets.
But, like all good ideas, one questions whether the adoption of the ideology has gone too far – from a level-headed application of some key principles to a fanaticism that is stifling good judgement – a fanaticism that is hindering, rather than helping, economic progress.
In the past two decades, Australian governments have shied away from making a call on significant investments in nation-building initiatives, leaving almost every big decision to the ‘free market’. The main exception to this rule has been, perversely, to intervene to prop up inefficient and uncompetitive industries such as car manufacturing for reasons of political expediency.
Meanwhile, other countries that have had the courage to make investments in growing industries such as information and bio technology have seen their investments pay off handsomely. Singapore’s evolution from a relatively poor country when it was formed to a global leader in trade and financial services today is a clear example of positive government intervention in the economy.
The time has come for the Australian government to be bold, to develop clear policy and supporting incentives to underpin the county’s future prosperity.
The investment opportunity set is wide and varied:
- added value in mining products
- leadership in healthy food products that are free of GMOs
- creating technology hubs with supporting financial investment communities
- doubling down on financial services (on the back of Australia’s strong and respected financial services regulation)
- the list goes on…
Australia cannot compete on low-value manufacturing – but it also cannot solely rely on comparative advantage in mining extraction. A country cannot operate a sustainable economy on the whims of volatile commodity cycles.
The time has come to take some bold decisions and put some money on the table. The South Korean and Singapore examples show that this is a long game – not something that can be manufactured in a single electoral term. Let’s hope our politicians can put the national interest ahead of vested interest, for the good of not only this generation, but more importantly for those still to come.