by Michael Roberts
Australia has a general election on Saturday. The opposition
Labor Party has been leading in the polls and given a redistribution of
the seats in parliament that favours Labour, it is expected to gain
office and defeat the incumbent coalition of the National and Liberal
The usual thing said about Australia’s economy is that it is the
‘lucky country’. It was the only OECD economy to avoid a slump during
the Great Recession and has enjoyed 28 consecutive years of real GDP
But there have been quarters of downturn and when the sharp increase
in population (mainly through immigration) is taken into account (up
from 15m in 1980 to 25m now), per capital growth is not so stellar –
about 1.7% a year compared to average annual real GDP growth of 3.1%.
Even so, Australians have experienced a much faster improvement in
national output and real incomes than just about any other advanced
capitalist economy in the last 30-40 years.
However, growth has been slowing significantly in the last few years,
down to 2.3% yoy on the latest data. Indeed stripping out population
growth, real GDP per capita has been no more than 1% a year since the
start of the global Long Depression ten years ago.
Apart from immigration, Australia has been ‘lucky’ because of its
close proximity to the fastest growing giant economy of China over the
last 25 years. “Australia was uniquely placed to benefit from China
and Asia’s long-term growth by exporting resources, agricultural produce
and services to the region”. Also the economy benefited from an influx
of skilled labour through immigration from all parts but also
immigrants who came with wealth of their own to invest.” (Hockey)
The relative success of Australian capitalism has been expressed in
the profitability of its capital. I collated three measures of
Australia’s profitability as a capitalist economy since the early 1980s
and profitability has risen by 40-60% – with only some signs of
flattening out since the Great Recession.
But Australia is heavily dependent on its exports to China and world growth in general.
China is now the largest source of foreign investment in Australia,
leapfrogging the US. Total investment in real estate was $74.6bn, up
from $51.9bn a year earlier. And it’s mainly in real estate. This has
led to a massive house price boom. Household debt has rocketed to 165%
of personal disposable income.
And although unemployment rates are relatively low, much of the new
employment has been in temporary contracts and part-time. As a result,
while the employment participation rate has been rising and the official
unemployment rate has been falling during the housing boom, the
‘underemployment’ rate is near all-time highs.
Wage growth is also slowing.
You can get a job in Australia, but don’t expect it to be on a
permanent contract or full-time. As a result, productivity growth has
fallen from near 2.5% a year in the 1990s to under 1% a year now as
capital investment is stagnating.
Australia may be a ‘lucky country’ but luck can change. The economy
relies on raw material exports and so is vulnerable to any plunge in
commodity prices and if China were to slow down or the trade war with
the US really spike, then Australia is vulnerable. The OECD put it this
way “a negative external shock cold prompt a sharp cut to incomes, a
rise in unemployment and downturn in consumption. This would increase
mortgage stress and further escalate a fall in house prices. A currency
depreciation would also be likely.”
Ratings agency Moody’s has just forecast that
Sydney house prices will drop by 9.3% this year, revised from its
January prediction of 3.3%. It’s a similar story in Melbourne, with
Moody’s original January forecast of a 6% decline updated most recently
to an 11.4% fall this year. The Reserve Bank of Australia warned that
more than 3% of Australian homes are in negative equity.
There is little to choose between the current government and the
opposition on economic policy. Both are pledged to cut back on
government spending, cut taxes and yet run tight fiscal budgets. It
seems that government services and employees are the fall guys here.
And then there is climate change. Of all the major advanced
capitalist economies, global warming is likely to damage Australia more
than any other. Climate change in Australia has been a critical issue
since the beginning of the 21st century. Australia is becoming hotter and will experience more extreme heat and longer fire seasons. In 2014, the Bureau of Meteorology released
a report on the state of Australia’s climate that highlighted several
key points, including the significant increase in Australia’s
temperatures (particularly night-time temperatures) and the increasing
frequency of bush fires, droughts and floods, which have all been linked to climate change.
Yet the economy depends very much on its fossil fuel exports and
developing the mining industry. Non-renewable fossil fuels still account for about 85 percent of Australia‘s electricity generation. Australia is one of the world’s largest per capita emitters – producing some 1.3 percent of global carbon emissions in 2017 with only 0.3 of the world’s population.
While the centre-right government insists it is on track to meet Australia’s commitments under the 2020 Kyoto targets,
it also seeks to placate the country’s powerful extractive industries
and energy sector. A week prior to the election, incumbent prime
minister Morrison announced $20.7m for a new school of mines and
manufacturing at Central Queensland University.
Problems for Australian capital are hotting up in many ways.