Judith Sloan sums up my Beyond the Boom paper in two propositions: 'what mining boom?', and 'she'll be right, mate'.
Those who have read the paper will recognise these propositions as gross caricatures. For those who haven't got round to reading the piece, I should explain that I argue that the mining boom is by no means over and in some respects has barely begun, and that it has had substantial effects on both output and income. I also point out, however, that in the ten years before the boom Australia had higher real income and output growth than it has had since, and that the income and output gains from the boom have been more modest than widely believed.
It follows that, while it will be challenging, we can adjust to the decline of the investment phase of the boom and also the decline in metals and minerals prices without a sharp decline in output or income. I certainly don't think 'she'll be right' and that we need do nothing more to secure Australian prosperity in coming decades. But I do think the big contribution government can make is in the development of the human capital of Australians.
I'm pretty sure progress does not lie in big changes in the industrial relations framework, or in returning to the Workchoices regime that Judith prefers. The industrial relations framework is serving us pretty well, and we should focus our attention on policy areas that we know can make a difference. These certainly include, for example, early childhood education and more learning support for the quarter of our school kids who perform poorly.
In passing, Judith ticks me off for not realising that the industrial relations system became national with Workchoices, rather than in the Keating reforms of 1993 and 1994. I think she will find that I nowhere attribute the national system to the Keating period, and I specifically include it in major reforms of the last 15 years. This emergence of the national system was covered in perhaps tedious detail in the 2012 Fair Work Act review, of which I was one of three panel members. I think the emergence of the national system is a great reform – Judith, I see, now wants to go back to state-based systems.
Thanks to Julian Snelder for a great phrase I wish I had hit upon myself: Australians 'pocketed the mining boom'.
This nicely captures the idea that Australians have by and large taken the mining boom in their stride. National savings have increased by about the same amount the mining boom has added to national income. Consumption, housing investment, and wages growth have all been reasonably restrained. Inflation has been within the target band. These are pretty big achievements, given the experience of past resource booms. I am not sure I agree with Julian that Western Australia is 'uncompetitive'. It shares with the rest of the country the problem of a high Australian dollar. As the investment boom declines and with it major construction projects, Western Australia is likely to find itself much less strained.
Its wonderful to find economists abroad giving a different perspective on Australian economic issues. I found Alex Tabarrok's take stimulating – particularly his view that if productivity growth does indeed hit a wall in the US and Europe, it must necessarily also hit a wall in Australia. Perhaps so, but it surely depends on the sectors where the slowdown in technology occurs. Australia is so small in comparison to the US and Europe, and its industry composition and economic circumstances so distinctive, that a global slowdown in the expansion of the productivity frontier might matter less to us than specific industry innovation.
For example, Australian average productivity would probably not be much hurt by a general slowdown in manufacturing productivity growth, and would be much advantaged if there is continued innovation in transport, logistics, health care, education, agriculture, and mining. The mix matters more than the average outcome.
Steve Grenville's take on the boom and his amplification of some of the key issues was, as ever with his writing, thoughtful and pertinent. I disagree with it so little I can only respond by commending the post to any reader who missed it.