If the foreign account deficit is as constant as it is month after month, while Australia is exporting the most amounts it ever has, how can the economy be in good shape? If you are exporting the largest dollar amounts ever have wouldn’t this be the time to be in front? The pure luck Australia has in the global demand for resources combined with our keenness to dig it up and sell it as fast as possible, for other more innovative countries to value add to them and make a larger profit per ton of resource must be the most short sighted approach to building the wealth of a nation in history, given the talent available locally to value add. Combine this with a once in a lifetime housing boom that has created a false sense of wealth, the Australian economy cannot survive with the prosperity that it currently has the illusion of providing. What will happen to the economy when the global demand for resources is reduced?

A week or two ago the headlines in the West Australian was that house affordability was out of reach for many. Today horror horror the economist are horrified that prices might drop by up to 20 per cent. There is as much science and honesty in the assesment of the economy today as their is in the global warming (sorry climate change) debate. All I can say is that anybody who wants a job head West. If you can breathe and show up for work you are needed. That is good news. We are importing skills from PNG, Phillipines, South Africa etc etc. These skills include cleaning, cooking and driving machinery. If our economy isn't good now I would hate to see the amount of wealth in good times.

Its a house of cards, in any event.

Thankfully the casino operators can keep minting chips and that seems to keep the punters happy.

Just dont expect to redeem your winnings when the bills come due.

Lots of opportunity to spend money, more than ever before.

Lots of opportunity to earn money, more than ever before.

Is the economy in good shape?

Well if you are smart and have energy it has never been better.

If you are not smart or lack energy, it is no worse than it has ever been.

There is nothing worse than an economy in recession, except in depression. The one good thing which the incumbent government has delievered is a sustained economic performance which means the cycle of recessions which we experienced in the post WWII - 1990 period has been broken.

Sure, some private individuals are borrowed up. Their security is being used, they are grown up enough to decide for themselves.

When it is public debt, the problem is different, vested interests spending taxes on indulgences and junkets like nationalised industries and loss making sheltered workshop for unionists is no way yot run an economy.

This government has it right, leave people to spend on their own account and leave them with more in their pocket instead of directing funds through taxes into indulgences as noted above.

Yes there are many opportunities right now, nobody can argue this. The question is, are these the right opportunities for a sustainable and prosperous future. Will Australia be another Nauru? Well maybe not. The Government has done so well by cutting back public spending to reduce the pubic debt but is this at the expense of the future generations. Most mortgagees can sell there house to pay off there dept (most!!). Now we must decide what the government is for?? Is the government there to hand out natural resources as fast as companies can apply to exploit these opportunities? Obviously, during the resource exploitation stage there is prosperity for all involved, government, company, employees and share holders alike. Now lets not forget the government did not create the natural resource or the global demand, they got lucky. Sure the government facilitated the availability for these resources to be used. Or is the government there to give a framework for society as a whole to function in a sustainable and prosperous future (or at least the vast majority of people). Now it seems that instead of directing funds through taxes into indulgences government is giving resources away. (Any vested interests??).

Regarding unions and the protectionist mentality that has prevailed in the past, and has proven to create lazy industries, I think all but the diehard trade unionists will concede that this can never happen again.

Now what about the skilled shortage that is currently talked a lot about, and I am unsure to what extent it exists.
Scenario
1) 10 years ago the government planned the resource boom, but due to incompetence did not plan for the people to exploit it.
2) The resource and housing boom fell into the governments lap, and did not realise that skilled people are needed to fully exploit the boom until now.
3) Or skill shortage is another way to reduce the labour costs to companies by claiming the unavailability of local workers and importing foreigners.

pmikkels:

You are right with your scenario 3. The Howard government, in partnership with private enterprise, has already succeeded in socially engineering a financially unstable employment "market" - (what happened to employees?) They are insecure, afraid, cowed and depressed (tried to get a mortgage from a bank lately, when you say you are a casual worker ?)

Their overall objective is to subjugate the workforce in order to maximise profits to the business owners, whilst driving down costs (i.e. employees wages) to the level of the Chinese peasant (about USD500 per year I am told). Economics 101.

If all else fails, threaten them with the sack and/or replacement with cheap foreign labour (er.... those Chinese peasants again).

Simple really !

Why do we put up with this sh!t?

The government cant control private spending and debt levels, nor should it (apart from the obvious, more taxes). People need to be free to make their own choices.

The biggest skills shortages happen around resource booms. I've lived in a couple of towns when a mining frenzy hit, and local businesses lose all their staff to the mine. They cant compete with the money being offered by the mine, and being in rural areas, cant just attract more workers from the next suburb. $30,000 a year for welding at the local engineering firm just cant compete with $90,000 for the same job at the mine. Those that do stick with their employers in the interests of longer term job security, are often forced out of the housing market (if renting), as the spending power of others rises substantially, landlords raise their rents. Young families have zero chance of affording even the worst quality house.

The Australian economy, to a large degree, much is presently dependant upon the export of raw materials into the industrial furnace of China. Having said that, you would have to also consider that the Australian economy is part and parcel of the world economy and therefor subject to all its gyrations. All the economies today are linked in a thousand ways. As a general remark, these gyrations are manifested as a crisis or collapse in the national market. One major factor is a crisis of oversupply and a lack of customers. Fords, G.M. and Chrysler have had oversupply problems and sacked about 100,000 workers since 2001. Then we have the national interests, every nation becoming more competitive and more productive. And the end of that road leads to trade war and shooting war - each against all.

One gigantic problem is the enormous amount of debt the U.S. holds and is on the increase! It was not that long ago that the U.S. was transformed in a very short space of time from the worlds largest creditor to the worlds largest debtor. That has global implications. The boom went 25 years ago and there has been no recovery since then

"for other more innovative countries to value add to them and make a larger profit per ton of resource must be the most short sighted approach to building the wealth of a nation in history, given the talent available locally to value add."

I remind you that anyone is free to value add, if they think they
can make a profit and sell on the global market, like the rest of
us. If you have a great business plan to show that you can do it,
no doubt there will be plenty of investors.

Its not the Govt's job to run companies, they simply create a
suitable economic climate. Innovation etc, can then thrive.

Fact is we still have a pretty inflexible labour market. So
why should investors build factories here? In WA there are
plenty of jobs but no takers. Clearly people want a job a
few minutes from where they live and many aren't prepared to
move to find work.

Should it be of concern to the government that the foreign account deficit is at constant record levels? To create a more flexible labour market should we import workers at the lowest possible cost? Does the reserve bank though interest rates attempt to control private spending? Should everything be privatised roads, police, schools etc.? What should the government control? If a natural resource is valued at x today and 100x in a generations time should we dig it up now or later? Who owns the natural resources?

There are many questions and I do not propose to have the solutions, however I do not see the local or global benefit to use resources to produce consumer goods that value add to land fill. Y

Regarding interest rates to control consumer spending, the reserve bank raises interest rates to reduce consumer spending. People with a mortgage are affected straight away, renters a short time afterwards so these groups have a reduced ability spend. Now for the other group, those who are home owners with invested monies, this group has had an increase in the amount of money available to spend, in essence an increase in interest rate increases the wealth of the fortunate ( This group for the most part have worked hard, sometimes for generations to get there). I am talking about interest rates as a tool of spending control here and do not judge or begrudge anybody for there position on the wealth ladder.

I have thought for a long time that introducing tariffs, (and I am well aware that protectionism in the past has created profiteering, lazy local companies, eg. the local car industry) on imported products that are produced by slave or exploited labour or products that come from countries with lower production standards (environmental, WHS, building codes etc.). Even if the labour rates where equivalent between two countries, the country with the lesser standards will be cheaper and more attractive to produce in; these standards are controlled by government. It is not just higher labour costs that reduce the attractiveness of production in Australia.

I think it really is a deck of cards and that we have sold out our long-term economic future for short-term political gain.

I remember back at the start of Howard's reign when many international economies were realigning themselves for the future.

Some chose the high-tech, knowledge-based route (such as Ireland and India) and are now beginning to reap the rewards.Others invested in manufacturing and are also beginning to do well.

We chose a low-tech service based route and have to compete directly with our neighbours. Our neighbours however, are among the lowest cost manufacturers on the planet and we can't compete with them, as the outsourcing of labour and plants has shown.

We have taken a turn up a dead end alley and it's probably too late to go back.

It's been said that Australia is "a farm, a quarry and a nice place to visit" and not much else.

With the decline in manufacturing and erosion of working conditions we are going to become the poor white trash of the Pacific and will end up waiting on tourists when they come over here to buy up what's left of the country.

On top of this is the cult of privatising everything we can.The money raised didn't go toward improving the assetts that were sold as happens in non-government cases. Much of it as used for political pork-barrelling.

Over 4% of our GDP leaves the country as dividends to foreign investors and isn't reinvested in the economy. The Telstra sale will boost this significantly when the company inevitably becomes foreign owned.

"It's been said that Australia is "a farm, a quarry and a nice place to visit" and not much else."

If you stop and think why that is so, its because manufacturing
for so long was protected by high tarrifs, that it became lazy,
unefficient etc, in global terms. Mining and farming in Aus are
world leaders in global terms. But the sheep eventually collapsed
from all the weight, it can't afford to carry a lazy and expensive
manufacturing industry anymore, so we need to restructure, which
is what we are doing.

Look at the cars on our roads. They are not made in China.
20% are now locally made, the rest imported from Europe,
Japan, Korea etc, countries which have similar wage structures
as our own. But alot of them are smaller, more fuel efficient
cars, which consumers have voted for in a big way. Clearly
Ford and GM got it wrong, their problems in the US are exactly
the same.

The reserve bank focuses purely on inflation, as do reserve banks
around the world. If inflation goes up, interest rates go up,
that cools the economy down, brings inflation back down again.

Some high tech, innovative industry is developing and doing well.
We need more of it. Let China make the 4 $ shoes, consumers
benefit by lower prices. Consumers are the big winners when
it comes to global trade. What would your computer have cost you,
if it was Australian made? What about the cheap power tools that
you buy at Bunnings? etc. etc.

Fact is that we can't even fill the manufacturing jobs that are
available now, as many Aussies don't want to work on production
lines anymore, prefering a cushy job

Sorry Yabby - not quite true!

In short, the reason why we are still a farm and a mine is because of "Pig Iron Bob" (John Howard's hero) - who said we should grow it, dig it up or shear it off a sheep's back. This narrow and ignorant attitude persists today with out exception.

Example: You know that little company Nokia? Well...it would still be a fishing/timberlogging company without the Finnish government's positive support of the firm.

NO Australian government has EVER supported the R&D rhetoric they sprouted. That's why we have no high tech industries in Australia.
QED.

Does anybody believe that the resource boom will last for ever? Will the droughts that seem to be occurring more regularly reduce the amount of agricultural export? Should we be setting up a contingency plan? If we have the resources the ball is in our court. The natural resources that exist should be controlled by the government to ensure that the most amount of money is returned for there use, there once off use!!

Let’s take old growth logging for wood chip as an example. If the Governments selling price was higher in the first place, companies would have to value add in order to make the same profit. Thereby, bringing more money into the country for fewer resources used. If a company produces something it’s there business what they sell it for, but if its gifted to them like a natural one off resource, then I think it should be the governments job to ensure that the country is benefited the most it can be, after all they manage the resources for the owners (is that us?).

I am not sure the selling price of woodchip but I think it is about $10-20 per ton, while sawn hardwood is worth anywhere between $400 -$4000 per ton depending on quality and species. Yes there will always be wastage, and yes this can be chipped creating close to 100% log recovery at the maximum possible selling price. But hey if the logs are as good as free why bother!!

BTW Yabby....

There was a competitively-priced, Australian-manufactured laptop made in Australia in the late 80's; the Dulmont Magnum.

Even the silicon was made in Australia ! Imagine trying to do that now ! Sadly it's not possible. So have we gone forward or backward? Go figure.

Iluvatar, I remind you that the Dulmont Magnum had an Intel
microprocessor. Aussie made you say? What about ram chips?
HDD? So they put it in a box here? Clearly it was not a success
or the company would not have folded.

Yup, there are innovative companies here, just not enough.
The bionic ear, DBS seeding systems, Austal Ships, CSL, CAD
laser systems, etc. etc. What they export is based on their
IP.

Nokia? My present Nokia was designed in Finland, made in
China!

Nobody says that the resource boom has to last forever. Ah
pmikkels, first you want companies to explore for minerals,
find them, develop mines, take huge risks. Now you want the
Govt to control the lot! If you did that, how much foreign
investment do you think you would receive in future in
Australia? If Aus won't supply the minerals, buyers will
go elsewhere, its as simple as that.

Woodchips make about 160$ a tonne. Companies like Gunns
make wooden flooring etc. They will value add that timber
that is worth it, not that timber that isnt.

I remind you that miners pay royalties and taxes. You are
free to go out into the desert and risk your money to find
some minerals, if you think there are big quids in it. We
need more exploration.

Well Yabby, you are well informed !

Re: the Dulmont Magnum

In fact all components, where practical and commercially sensible. were sources from local manufacturers. Of course it made no sense to purchase the main processor and memory, since they weren't manufactured here anyway. The main I/O processor was designed by a team at UNSW and built as part of a multi-project chip at AWA Microelectronics fab. plant at North Ryde.
So, my main point was that the state of the art was used in its design and construction in Australia! This is no longer possible.

Re: Nokia. You missed my point.
Don't care where your Nokia handset is manufactured. The IP (and profits) remain in Finland.

NO hightech, startup companies thrive without their own domestic government support. Our's has never given that.

Forget the extractive industries! They are intrinsically parasitic, low tech and wasteful. Doesn't take much intelligence to dig a a hole ! What will they do when all the trees are felled and all the oil/coal/minerals are gone?

Australia's support for the knowledge industries is almost totally absent. (Oh well, I guess that is OK so long as the beer is cold and the footy is playing! duoh!)

Illuvatar I would go so far as to say this government is hell bent on destroying the knowledge nation,

- offshoring all government IT work, even when government departments are world's best practice or security of data can't be guaranteed
- spending less money on education, even though education is the fourth largest export earner, ahead of wool
- questioning the quality of our educators, when clearly there is a surplus of available teachers in some states. Would this have anything to do with breaking teacher unions?
- making it difficult to access research funding unless the research has a clear commercial benefit. Why doesn't the coal industry pay for its own research? Why starve research into solar technology?

billie:

Interesting questions.

I shared a lab with Martin Green at UNSW. He is most noatble for pioneering work in semiconductor Solar Cell design and manufacturing.

We don't hear much from him these days!

"Don't care where your Nokia handset is manufactured. The IP (and profits) remain in Finland.
NO hightech, startup companies thrive without their own domestic government support. Our's has never given that."

Ok so you arn't worried about actual manufacture in Aus. Yup,
plenty of hightech startups get going, plenty of venture capital
around, if you have a great idea and business plan and are not
just daydreaming, as many do. Also lots of Govt help available.

I put a few bucks into such a comapany, via the ASX, highly
speculative mind you. They have received various Govt assitance
for various work they do. CSIRO gets another huge annual dollop.
There are great tax deductions for research too. Our main problem
however is still industry attitude. Life was such a breeze when
they had high tarrifs to protect them from the real world. Just
put the price up 10% every year, easy peasy. Now they have to compete
in the real world, its sorting out the men from the boys.

So a change of attitude is required in manufacturing!

Billie, school starts this week and 200 teacher vacancies are
unfilled in WA. Today I heard that they are bringing in 300
police recruits from overseas, to fill urgent vacancies there.
There are jobs in Australia. People just have to get off their
butts and go where the work is. Clearly Melbourne is not the
centre of the world anymore :)

Yo Yabby.

Lively discussion on this page!

So what exactly do you think is wrong with our economy, and what do you think should be done about it, if anything?

Iluvatar thinks it should be knowledge-based, others think it should be based on moving to exploit the resources boom. What's your take on it?

I reckon we've had our head in the sand for too long... neglected education, neglected real training of trades and professionals and as a result we have the skills shortage we have now.

No workers for real jobs, just for miners and shearers and lots of Mac jobs !

Thanks for the heads up about the teaching jobs Yabby. There appears to be a shortage of Italian teachers.

Yabby there are clearly jobs where you wander in off the street ask for work and get it. I visited WA and looked for work in WA last year and wasn't successful so why would it be different now?

From my previous experience in WA, you can wait a while to secure a professional position, and in fact in many years graduates have to travel east for work. So why would "a bloody Victorian" knowing the WA employment prejudices rock up and expect to land a job. Over here in the east "youse" are multiple female sheep not the second person plural.

Why should I uproot myself from family, friends, professional relationships to look for work. And why should I return to the state where I was seriously underpaid, lived in incredible hardship and was the victim of violent assault simply because my family was in the east and was unable to take legal redress

Billie, I know nothing about you, your personal experiences, what jobs
you looked for, why you didn't achieve what you wanted. It
would also be very foolish of me to judge the WA economy by the
experience of one single person.

What I am telling you is the situation as a whole over here, as
evidenced not just by me, but by just about everyone I speak to
or anyone else who comments in the press about the overall
WA situation.

Fact is WA is booming, there are jobs everywhere, virtually every
employer I speak to is wondering what to do about it. That includes
the State Govt. Recently I ran into a 22 year old kid, not so
long in getting his ticket, who is a roof carpenter. He's hired
a couple of mates, they do the roof carpentry for builders
of homes. He's making 90 grand a year, working for it, but
basically the world is his oyster right now! Thats just one of
many young enterprising people who is thriving, grabbing the
opportunities presented and making stuff happen.

I am not sure of your age, but if I was a young Melbourne kid,
complaining about how tough things are in Melbourne, I would
have jumped in my ute ages ago, got my arse into gear and gone
where the action is! If I think back 30 years, thats actually
how I landed up in WA 30 years ago and its the best thing I
ever did. Like they say, some people make it happen, some
watch it all happen and some never knew it happened. All very
true, but at the end of the day its up to the individual to
be responsible for their lives, not the Government.

“it can’t afford to carry lazy and expensive manufacturing industry anymore”

Yabby “Afford” is a curious word in that at the time you mention we were running a balanced current account and we could afford what we consumed, unemployment was a real 1.5%. What we can’t afford is the current situation where this country borrows a billion dollars a year so we can keep a huge number of people near or bellow the poverty line wasting their productive capabilities that’s what I call “lazy”. We are now and until our credit runs out a successful “cargo cult”. The concept of the “lazy manufacturing industry” has been shown to be a furphy by the last thirty years of current account deficits.

What of that deficit? The banks borrow the foreign currency to cover it and in the long term the creditors hope that we will eventually earn sufficient foreign currency to pay them back. But we have been running continuous deficits for 32.5 years! The banks are then stuck with the Aussie dollars that they changed, what have they done with these? They have aggressively lent them out and people have bid up the price of real estate all over the country to unaffordable levels! People have also bid up other assets to ridiculous levels! The banks are running out of borrowers. Also our interest rates must maintain a margin above the US rate.

Yes a few tens of thousands of people could get jobs in Western Australia, but there are a few million in unemployment or underemployment trouble.

On technology, in 1966 we were third on the space race podium being the third country to launch a satellite Wresat. Now who do we buy a nuclear reactor from? Argentina! There is currently an exodus of solar voltaic experts. Yes we have a handful of high tech companies. But no country in the world has developed technology without government help, this includes USA Europe, Japan, China, India etc. Where would we need to look now to find a country as technologically unsophisticated as Australia? Probably West Africa!

Brightspark, I remind you again and again, that the debt you talk
about is not our country's debt, it is private debt. If you as
an individual go and pay far more for a house then it is worth and
the price crashes one day, that is your problem. The Economist has
pointed out time and time again that Australian houses are overvalued
based on the fundamentals.

No furphy at all about "lazy" manufacturing. Either they can
compete on world markets or they can't. They can't expect other
efficient exports to keep subsidising them, or they will drag them
down too. Thats the problem with manufacturing, it sucked on the
protectionist tit for far too long. Without it, many are battling
to cope.

You keep telling me about all these unemployed. Well they are not
in WA, but then WA, with only 10% of the population, generates
30-40% of exports. If we can compete on world markets, why can't
you?

Yes Australia has invented many great things, with good scientists.
Thats not the problem, the problem is taking things from that point,
to the point of actually making money. That should be the role
of industry combined with venture capital. Australian industry
is unlike American industry, where there is plenty of venture capital
and they take calculated risks.

What has changed in Australia in the last 15 years or so, is the
one trillion $ that now sits in workers superannuation accounts.
Thats as much as the whole ASX is worth. We need to use more of
that huge sum as venture capital for new startups. Its starting to
happen, but slowly.

So there is now money there, where there was none, it just needs to
be used in an efficient way in the future and some of it invested
in calculated risk, such as solar etc. Just doing the science and
then have everything goes offshore, is not the answer.

Er... Yabby....

You can only compete on a world market by digging it out of the ground and flogging it off to some other developed market!

Where's the value add in that?

FU2, I have an old geography school book from the 60s, in which
it states that it was illegal to export iron ore from Australia!
We thought we had none, or very little. It turns out that we
actually have 500 years worth, that we know about. We can
thank Charles Court for making that happen, the man had
vision.

If you ever bother to go to the NW, today's mining is a pretty
sophisticated industry and the spin off from mining has been
various manufactured gear for that industry. In my past life
I used to go to the cargo area at Quantas, three times a week
or so. I'd see what was being flown out each day. You would
be amazed as to how much mining gear is flown out, despite it
being so heavy and expensive to airfreight.

If you look at Africa, Russia and various other parts of
the globe, there are actually still quite large amounts of
resources to be mined. Doing so efficiently is not as easy
as you might think and the West Australian mining industry
is now using their developed skills to apply that knowledge
elsewhere.

In farming we once again lead the way. Look at where subsidies
go, its nearly all to the East

(:-O) Whistling in the wind

“Where would we need to look now to find a country as technologically unsophisticated as Australia? Probably West Africa!”

You might even suggest Nigeria, however, our level of political sophistication tends to hide our technological naivety.

It is really sad that some folk seem to have this short term perspective of how Australia rates in world terms. Having lived in Europe, USA and Australia, I prefer to rely on my own experiences, rather than second hand opinions of journalistic hacks ro TV shows. Anyone who thinks there is a better place to live and bring up a family than Australia is singularly mistaken. Sure we do not have the competitive dynamics of USA, and we don’t have the violence either. We do not have the history of Europe and we don’t have the rigid class structures either. We don’t have a lot of things but we do have the opportunity to form our own society, something which most parts of the world have less individual influence over.

For some of us the glass always starts half full and we top it up by our own efforts and industry.
For those who expect life to deal them a perfect hand to play or expects the government to make sure no one else is allowed to get a better hand than them, it will always be half empty.