Ideas@TheCentre
‘Building a new economy’ – really, Prime Minister?
Throughout economic history, people have fretted about where the jobs will come from to replace those lost in declining firms and industries. We never seem to learn the lesson that they have always come from somewhere, as long as the private economy was allowed to get on with doing what it does best.
At times, concerns about declining industries are heightened by the general economic climate or the high profile of the firms or industries in decline. Australia is going through one such episode of heightened public concern as a result of the pressure that the strong Australian dollar is putting on industries such as motor vehicle manufacturing.
At its peak in the 1960s, Australian manufacturing – sheltering behind a high tariff wall – employed upwards of 1.35 million people, or more than one in every four in the workforce.
If someone in authority had announced in 1970 that manufacturing was destined to shed 400,000 of those jobs over the next 40 years, there would have been panic. How could the labour market replace 400,000 jobs and absorb the normal growth of the labour force?
Yet that is exactly what happened. Since 1984, for example, manufacturing shed 150,000 jobs (and agriculture another 70,000), while ‘health care and social assistance’ generated 800,000 more jobs; ‘professional, scientific and technical’ 600,000; construction another 600,000; retail trade 500,000; education and training 400,000; and so on.
The structure of the economy is always changing. This reality makes nonsense of the recent discovery by politicians of a ‘multi-speed economy’ – as if it has ever been anything else – and of Julia Gillard’s speech last week about ‘building a new economy’ – as if the one we’ve got is in ruins. What we are witnessing is structural change around the edges, albeit at an accelerated pace due to the high exchange rate, the high terms of trade, and the mining boom. To describe it as ‘building a new economy’ is just self-serving hype from a government that wants to be seen as thinking big and firmly in charge.
If there ever really was a need to build a new economy, God help us if we had to rely on government to do it. The only contribution government should make is to apply consistent macroeconomic, trade, competition and regulatory policies that give the private sector the best shot at maintaining high employment at high levels of productivity and low levels of inflation. This framework has no room for policies that shelter declining industries. Resources must be allowed to move to their most productive uses, and failing firms must be allowed to fail. But those employed in declining industries should not just be thrown on the labour market scrapheap. There is a case for structural adjustment assistance so that a 50-year-old car industry worker, for example, can be retrained and work happily and productively for another 15 or 20 years rather than spend the rest of his life as a dependant of the state.
Robert Carling is a Senior Fellow at The Centre for Independent Studies.
