Two lesser-known economic good news stories provide a revealing perspective on the mainstream economic paradigm, and on Australias current state.
The first economic miracle is Mauritius, brought to our notice by Joseph Stiglitz in the Guardian. Mauritius gained independence from Britain in 1968, and with few natural resources in its Indian-Ocean archipelago its economic prospects were rated as pretty dismal. Bucking the usual prescriptions of economists (sell your soul and your land to overseas investors and tourists), and despite per capita income of less than $400, Mauritius decided to invest in its one major asset – its people.
Today Mauritius offers free education through university for all of its citizens, transport for school children and free healthcare including heart surgery for all. 87% of Mauritians own their own homes and they accomplished this without fuelling a housing bubble. Mauritius has a diverse economy, a democratic political system and a strong social safety net. Per capita income is more than $6,700. The country has progressed from the sugar-based monoculture of 50 years ago to a diversified economy that includes tourism, finance, textiles, and, if current plans bear fruit, advanced technology.
Stiglitz identifies three key choices that have made a difference.
First, Mauritius recognised that without natural resources, its people were its only asset. With potential for religious, ethnic, and political differences, education for all was crucial to social unity. So was a strong commitment to democratic institutions and co-operation between workers, government, and employers precisely the opposite of the kind of dissension and division being engendered by conservatives in the anglophone world today.
Second, Mauritius has decided that most military spending is a waste.
Third, the question is not whether we can afford to provide healthcare or education for all, or ensure widespread home ownership. If Mauritius can afford these things, we certainly can. The question, rather, is how to organise society. Mauritians have chosen a path that leads to higher levels of social cohesion, welfare and economic growth and to a lower level of inequality.
The second economic miracle is Australia – in the nineteenth century. Thomas Barlows The Australian Miracle – An innovative nation revisited (Picador 2006) does not deserve its obscurity. Although it is pitched as much towards science policy as local history, it tells an amazing story.
Between about 1820 and 1870 Australia transformed itself from a barely subsistence-level economy to the country with (it is claimed) the highest per capita income in the world. Over this long period the economic growth rate averaged about 4 per cent, around three times the global average for the period.
Barlow argues that the transformation was not just due to the gold rush of the 1850s. Wheat and wool were more important. However wheat and wool did not automatically yield riches. The real story is the innovation performed by many Australians, and the innovation took the form of importing breeds, technology and ideas and adapting them to Australian conditions. Only after a great many innovations in basic agriculture, breeding, machinery and so on did wheat and wool become the great wealth generators.
Through the twentieth century Australias place in the league table of wealth gradually slipped. Still, we enjoyed a relatively high level of wealth despite our work hours decreasing to less than 40 hours a week. However since 1983 there has been a big increase in work hours, so that in the twenty first century we work longer hours than Japanese and Americans. Thus although our economy has allegedly boomed, it has been at the cost of our formerly easy-going life style.
I draw different lessons from Barlow, who exhibits fairly mainstream attitudes to political economy. I think three central factors are important. They are mining, finance and a colonial mentality.
We have what someone has called the curse of natural resources. We have become dependent on digging stuff up and shipping it, unprocessed, overseas. Although we are clearly still innovative people, our dominant economic players are not very interested, because they can make a lot of money running a quarry. Thus our industrial diversity stumbles along, occasionally putting on a spurt but then being undermined by those vested interests and the misguided free-trade ideology.
Financial markets focus on making money – by any means. You invest in something and wait for the rewards to roll in. That something can be a scheme to exploit natural resources at rates far above sustainable levels, or wage slavery in a poor country, or a housing bubble or other such pyramid scheme. People who deal in finance typically lose sight of the real world, where actual wealth creation, or extraction, takes place. Thus financiers are, to a large degree, parasitic. So productive innovation is neglected or undermined.
I lived and worked in the United States for fifteen years. One thing I learnt is that when Americans decide to do something, they dont ask for anyones approval. They just go and do it. I might detest what they do, but I acknowledge that when they threw off the colonial shackles in the Revolutionary War they grew up and learnt to stand on their own feet. We have never done that.
When I returned to Australia (in 1983) I was assured Australia had overcome its cultural cringe. That may have been true in some parts of the arts, but it was not and is not true in foreign policy or industry policy. Our approach to both is dominated by a colonial mentality. We only do something if it has been proven or approved in another country. We are afraid to step out into new territory, to follow our own path. In the minority of situations where we do, the first thing our media report is how the rest of the world views us – do they approve, are they impressed? It is childish.
The people who were powerful in 1901 had mostly got that way by serving overseas interests, mainly British financial interests back then. Since then we have put our allegiance up for sale to a succession of other powers, political and financial. The same mentality has persisted for a century in our power establishments. They do very well for themselves by reflexively looking for who they can serve, via overseas investment and such. Our country remains a financial and corporate colony. Most of us are sold down the river.
Thus are we undermined and diminished as a society by mining, finance and the colonial mentality.
Economic growth is not an end in itself. The early growth during these two miracles was appropriate because it lifted people from subsistence to a comfortable living. After that we should focus on quality of life, not quantity of production, and we badly need to make that shift before we destroy the living planet.
Thus I do not think Australia should be the wealthiest country in material terms. However we should be a leader in quality of life. Yes, we have lots of sunshine and so on, but we are stressed, our health is declining, and our politics is dominated by fear. We should be doing much better. We could be living well while working 35, 30, 25 hours a week, ceasing our assault on the environment of our fragile continent, and enjoying fulfilling lives.
Australia has everything going for it. Large land and ocean areas, many natural resources, innovative, educated people, people who speak every major language in the world, secure borders (despite the current paranoia), a strong, relatively tolerant culture (despite recent assaults on it), and so on. That we struggle and complain when we have such advantages must bemuse many other people.
I think the leadership we have had for a century has been of very poor quality. I think we have been childish to put up with it. Its time we grew up.