FORGET 2000, WHAT ABOUT 2050?

Treasurer Costello is on record with the gibe that anything past Christmas is long-term by Australian standards. So, what do we call it when we try to think about making it to 2050? Stupid? Heroic? Bizarre?

Let's give it a go anyway. Here is the question. Are there obvious ongoing adjustments we will need to make to Australia's economy if it is to deliver our children and grandchildren the things we and they ultimately want from it. On a first dip these rewards include reasonable environmental quality, a sufficiency of satisfying jobs, enhanced worker participation and comfortable levels of goods and services all round. Formal econometric analysis, relying on various empirical parameters is not much help, simply because, over decades, those parameters are going to change in ways we cannot predict. Economic models are at their most useful when studying the consequences over the next year or so of marginal changes in policy settings.

For a hundred years the Australian economy's output has grown in reponse to the needs of a growing population (taking in each others' washing) and an increasing in vestment of capital and technology per worker. For much of that time we have been able to find exports which the world has wanted to pay for the imports we wanted. All the while, growth has occurred in a rigid lock-step relationship with primary energy use and with residue emissions, most notably carbon dioxide. The importance of this is that energy use and materials throughput are the main drivers of environmental degradation, be it inappropriate land use or pollution from unprocessed materials residues.

It is only recently, lagging behind most of our OECD counterparts, that energy and materials use per dollar of GDP have shown signs of falling. This process of so-called 'dejouling and dematerialising' reflects the services sector's growing share of the economy as well as a steadily improving technical efficiency. The economy has been 'delabourising ' for somewhat longer. Job-shedding started in earnest when the tractor's roar tolled the demise of the farm labour force. And in sectors where capital has not been busily replacing labour, we have become uncompetitive---jobs have shipped out and low-tariff imports have shipped in. Capital now needs unskilled labour, whether for producing or consuming, less than labour needs capital. The result is not only job losses but declining wages and conditions for the unskilled. Conversely, technologically-sophisticated capital-intensive production requires a small, skilled labour force which is well-placed to bargain for high wages.

What a bind! When we get economic growth we get faster environmental degradation and slow-rising unemploymant and when we do not get economic growth we get slower environmental degradation and fast-rising unemployment. It may be even worse than that. When we get economic growth as conventionally measured, we may actually be getting negative economic growth as measured by a yardstick that corerects GDP for the losses of natural capital that the market does not pick up.

The somewhat desperate conventional wisdom is that going for growth is the better choice here, notwithstanding the simple calculations that suggest even optimistically high rates of growth will not solve the unemployment problem. Preferring growth is not the same as getting growth though. Getting growth depends on domestic and international demand. Although it is disguised by the expanding demands of a growing population (we need one per cent growth just to stand still), per capita demand is unlikely to be growing much in an Australia where unemployment is high and the middle of the income distribution is being hollowed out. Like it or not, growth in the world economy is a necessary condition for growth in an open Australian economy.

What then, we have to ask, is and will be happening in the global economy? Right now it is experiencing a shakeout that would warm Marx's heart. Triggered by excess capacity in many sectors, particularly manufactures and primary products, the weak are going to the wall, taking their bankers and suppliers, and even whole countries, with them. For example, the world has the capacity to produce 60 million cars a year but can only sell 44 million. In such saturating markets relentless technological progress is driving prices down rather than profits up. Meaningless fluctuations in financial markets are translating into further destruction in the real economy. If globalisation means anything it means that everything is connected to everything else. So when the dominoes start falling there is no stopping them. The worst-case not-implausible scenario for the global economy is a depression lasting for decades. Yes, it is a wildcard scenario but wouldn't it be sensible nonetheless to spend time planning how we would hold Australian society together and ready to bounce back if it eventuated? And no, it is not defeatist, it is dumb to believe that Australian society could never collapse. One interpretation of Hansonism is to see it as a withdrawal by the dispossessed of the system's badge of legitimacy.

Managed growth is a second global scenario, one in which some mix of the United Nations, major trans-national corporations and first-world countries co-operate to try and create a global capitalist system that works 'better'. The model could be a civic capitalism in which a global floor is established for working conditions, human rights and environmental protection, things we all want from the economy if it is possible. Or the model could be a more competitive capitalism emphasising the removal of barriers to investment, trade and capital flows and regulating anti-competitive behaviour and destructive speculation. While inevitably a minor player in this scenario, Australia would presumably be trying to exert some influence over the taming process, however it evolved.

Alliance capitalism is another possible model for the managed growth scenario. Modern economic ideas suggest that, in unregulated markets, positive feedback mechanisms are likely to allow larger companies to grow relentlessly at the expense of smaller companies. Many industries (eg petroleum) already comprise one or a few firms. In coming decades, it would be unsurprising to see an ever-increasing fraction of Global World Product being produced by an ever-decreasing number of trans-national corporations and consumed in the first world and, to a lesser extent, in the second world. This would leave perhaps a hundred third world countries with stagnant or declining domestic economies largely decoupled from the global economy or outside the trading blocs that are emerging as stepping stones towards a more global economy. As each industry is reduced to a few major players, they will cease serious competition and will instead collaboratively manage production, distribution, and pricing to their mutual benefit. If the global economy does come to be dominated by a handful of non-competing mega-corporations, will this be the prelude to a ‘post-capitalist managerialism’ era in which competition gives way to ‘property management’? Have we given any thought to how we might survive in a world like this? Suggested answer is No.

Long Wave Growth is a third scenario, brighter than Falling Dominoes and not necessarily incompatible with Managed Growth. While the saturating sectors of the global economy are sorting out who will survive and shedding excess capacity, the growth sectors are busy building capacity, soaking up mobile investment capital and increasing gross world product. Under this scenario, the turbulence we are currently witnessing is simply punctuating the end of a 50 year growth wave of steel, oil, motor vehicles and chemicals that was driven by ever-cheapening transportation and communications technologies. If the incoming long wave mimics its predecessors, the world economy's growth rate should climb to a peak in the 2020s before beginning to decline slowly for several decades thereafter. While it may seem plain that any new wave's growth sectors will inescapably rest on information processing and transfer technologies, there are other possibilities. Medical and agricultural biotechnologies would be the best bet here and nanotechnologies (micro-assembly techniques) would be the outsiders. The point for Australians is that if the long wave starts rolling and we are not riding in its growth crescent, we will be riding in its no-growth crescent. In the no-growth crescent, rents are minimal (that's econotalk for 'no fat') and the only prospect to be contemplated is a never-ending struggle to compete, with survival being the best you can hope for. This fate is particularly likely for small players and small countries who do not have the financial and political leverage to access what are largely uncompetitive markets.

As it happens, one thing we have been talking about, ever since 'clever country' days, is how to get into the upcoming growth industries. Everyone, from new growth theorists to interventionists to gung ho free-marketeers, agrees on one thing---the value of investing in healthy, educated workers. As Lester Thurow says, technology is making skills and knowledge the only sources of sustainable strategic advantage. There is less agreement about producing more workers, whether in the old-fashioned way or by immigration.

But what else? The conventional wisdom of the moment is that if we can get infrastructure costs down through privatisation, competition etc, reduce business taxes and minimise business obligations to the wider community we will find ourselves competitive; business can be left to pick winners.

The not-so-conventional wisdom is that we need to do much more than that. An 'evolutionary economics' perspective would suggest that the linkage-structure of an economy influences that economy's ability to learn and adapt to rapid change in growing markets. This means actively encouraging the development of collaborative relationships between companies (eg in R&D) and providing support for technological and structural change in the economy. There may even be a place for a strategic trade policy of targeted assistance to specific export industries.

And if we are going to try to pursue environmental, social cohesion and equity goals in tandem with economic growth, we have a smorgasbord of 'third way' recipes that purport to pick a path between libertarianism and undiluted protectionism without wandering off into ultra-green post-materialist pastures. There is Anthony Giddens' Blairism, Mark Latham's Radical Centre and Hugh Emy's Social Markets, to name three that are familiar to Australians.

The problem would be to convince the punters to give any such variation on the social democrat theme a decent shake. Why? Well, quite apart from fear of change and tax phobia, people are sceptical. From Britain to Sweden, no approach to managing first world societies seems to have worked terribly well since the end of the long post-war boom in the seventies. Been there, done that, didn't work. The various middle ways being suggested now are well-meaning multi-layered approaches to complex problems but, in most people's eyes, cannot be readily differentiated from what has gone before. Somehow, we have got ourselves into a situation where our world is changing dramatically but, as long as we stay within the present paradigm, we can only respond marginally.

Does this mean that a frustrated polity might insist on a national paradigm switch? Probably not without a further strong squeeze on Joe Ordinary's quality of life. Our style is more 'boiling frog' than 'bull-at-gate'. Still, just suppose. A switch to either a neo-liberal society or to a protectionist back-to-the-fifties society would be least surprising. Any of a switch to luddite fundamentalism, or deep ecology or ruthless ultra-nationalism would be more surprising but not totally inconceivable. While two generations is long enough for people to forget the evils of fascism, communism amd socialism are still tainted by Stalinism and are not present candidates for a paradigm shift. Since all of these alternative to muddling into slow decline are a bit scary we really do have to make a big effort, without putting the voters offside, to get a better match between rate of change and capacity to adapt and to build our capacity to resist foreseeable shocks and squeezes.

For example, by 2020, if we continue our present behaviour, we may find that we have sold off most of our natural gas. Domestic oil, which will start running out after 2002 or so will have almost gone. The price of oil imports will soon begin to escalate, perhaps slowly, perhaps rapidly. Will we, by then, have made substantial progress through the long capital-hungry transition to renewable and non-polluting energy sources? Will we be managing energy demand with such Snowy Mountain-size projects as high-speed ground transport between Gladstone and Adelaide?

Another example is the need to begin remaking our biggest cities and head off the urban blight and decay that seems inevitable under shrinking public-sector budgets and growing populations. Somehow, if we are going to protect urban quality of life, we have to find the will and cpacity to ameliorate air, water and noise pollution, congestion, degrading services, crime etc. It will take decades.

The need to provide facilities and income support for an ageing population (immigration is no answer) is another perfectly foreseeable major challenge for coming decades. The need to invest in health and education has been mentioned. There are others, all containing the repeating message that the only way to make progress on large projects when investment funds are limited is to start now.

What then are the home truths that emerge from daring to ask if and how Australian society is going to make it to 2050? Here are three which the pollies should be sharing with their constituents.

One. When the posturing stops, no-one has a really convincing strategy for creating an economy which will deliver jobs, environmental quality and participation as well as economic growth to our children and grandchildren. Even if the global economy is smiling, our efforts to find growth could well be unrewarded. Equally, there is no insurance against a turbulent global economy and it could destroy us at any time.

Two. People have to accept that because there are no magic spells for achieving high quality of life for most Australians in 2050, we have to explicitly adopt a trial-and-error approach to policy making. Politicians must not pretend that their experiments are anything other than experiments. Voters, for their part, must encourage politicians to experiment widely, unblinkered by ideology. When an experiment works, we build on it. When an experiment fails we move on. There is no other way.

Three. If we do not make progress or, worse, regress on people's demands for jobs, environmental quality and meaningful participation as well as for purchasing power, Australian society is in danger of decaying, or of collapsing into chaos or of turning to extremism.

Doug Cocks, Nov 1998