The luck of the Aussies
Posted by admin on 10/07/2008
Australia is famously known as ‘the lucky country’. Although this was
originally meant ironically, in many ways, it is. Despite embracing
many of the financial sector innovations that have undone the American
economy, Australia has an underlying economic lifeline: its vast
natural reserves of iron ore, coal and gas mean that, as long as
China’s economy continues to expand, its overall position is much
healthier than the other Anglo-American economies that embraced and
promoted neoliberalism with such enthusiasm in the 1980s and 1990s.
Significantly, Australian policymakers can only take some of the
credit for this. One reason why the Australian financial sector is not
as badly affected as elsewhere is because Australia ‘luckily’ had its
own financial crisis nearly twenty years ago. When Australia’s sleepy
banking sector was liberalised by a notionally left of centre Labor
government, it precipitated precisely the sort of entrepreneurial
lending and recklessness that have brought America’s financial sector
to its knees. A desperate chase for market share culminated in
Australian banks writing off nearly A$30 billion of unrecoverable debts
by the early 1990s.
This may seem small beer in today’s climate, but it nearly led to
the death of one of Australia’s big four banks, and represented a major
crisis in a relatively small economy. As a consequence of this near
death experience, the banking sector is now in a comparatively strong
position. The banks are generally soundly capitalised with low levels
of non-performing loans and limited exposure to the troubled housing
sector in the US — an important consideration given the housing bubble
in Australia and high levels of individual indebtedness. Moreover,
there has been very little lending of the ‘sub-prime’ variety in
Australia, and demand for housing has remained comparatively strong.
Both sides of politics in Australia have made fiscal probity a big
part of domestic policy following the experiences of the 1980s and
early ‘90s. Government debt has largely been paid off, and compulsory
superannuation schemes have become the order of the day. The newly
installed government of Kevin Rudd has used windfall tax revenues from
the booming resource sector to bankroll the ‘Building Australia Fund’.
With more than A$20 billion to invest, it is overseen by a
relatively independent semi-government authority, Infrastructure
Australia. The federal government is now being urged by state
governments and local business to spend this money in classic Keynesian
style, in order to promote growth and insulate Australia from the
impact of any global downturn.
True, Australia is lucky to have the option. It may not be enough,
however. Australia still has the economic profile of a developing
country, in that much of its affluence is propped up by a resource
sector that remains hostage to developments in the international
economy over which Australian policymakers have no control. If China
proves not to be ‘uncoupled’ from the downturn in the US and its growth
slows significantly, Australia will almost certainly be plunged into
recession.
Despite Australia’s historical role in promoting the supposed merits
of small government around the region, its own structures of governance
remain extensive and — by contrast with the US, at least — surprisingly
competent. Australia’s policymakers have moved quickly to coordinate
the activities of Treasury, the (independent) Reserve Bank, the
Australian Prudential Authority and the Australian Securities and
Investment Commission. The hope is that these agencies will be able to
provide a coherent and coordinated response to the international crisis
and insulate Australia form its worst effects.
It will be an interesting test of the capacity of a relatively
small, peripheral economy to withstand the backwash of global crises.
The long-term geopolitical significance of recent events was clearly
revealed when Rudd suggested he looked to China to underpin Australia’s
long-term economic fortunes. The reality may be that no matter what
Australia does, its fortunes remain dependent on the price of things
that are dug from the ground.
Mark Beeson is Professor of International Politics, University of Birmingham
Posted by
admin
on 10/07/2008. Filed under
International.
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