Academic journal article Journal of Australian Political Economy

A New Economy? ICT Investment and Australia's Economic Boom

Academic journal article Journal of Australian Political Economy

A New Economy? ICT Investment and Australia's Economic Boom

Article excerpt

Happy times are here again! So goes the merry tune. What are the causes of Australia's remarkable economic turnaround and why is the economy experiencing another prolonged period of sustained employment, output and income growth? There has been no shortage of popular debate about who and what is responsible for Australia's booming economy. Past political figures pop up from time to time with reminders that Federal Labor governments and the trade union movement put Australia on the low inflationary growth path (Priest, 2007:5) Finance commentators love to crow that the good times are the flow-on effect of financial deregulation and the removal of restraints on domestic capital markets which can now freely allocate scarce resources to the most efficient users. This chorus has its epicentre in merchant banking institutions like Macquarie Bank and the Business Council of Australia where investment gurus and CEOs are handsomely rewarded with performance bonuses for engineering sophisticated financial products and brokering deals over multi billion dollar public infrastructure projects (Jefferis & Stilwell, 2006:46; Shields, 2005:302-03). The financial wizards are sometimes joined by more sober analysts who attribute the economic recovery of the 1990s to big productivity gains associated with microeconomic reform and especially the removal of international trade barriers (Gruen, 2001:64). Another stable of opinion makers argue that the developing industrial giants of China and India are largely responsible for Australia's export mining boom and hold the key to future higher rates of economic growth (Bassanese, 2007:23).

There is an element of truth in all of the above arguments. Since the early 1980s the Australian economy has been subject to a continuing experiment in free market ideas and economic liberalisation, beginning with financial market deregulation and the creation of a floating foreign exchange rate under the Hawke Labor government. Wage restraint, big reductions in tariff protection, a wave of microeconomic reforms and the creation of a decentralised enterprise bargaining system further deflated the domestic cost structure and paved the way for low inflationary economic growth. The emergence of a virtual bi-partisan approach to fiscal policy making by Australia's two major political parties is reflected in their promise to further flatten Australia's personal income tax structure and distribute the economic surplus in the form of income tax reductions (Tingle and Anderson, 2007:1).

While broad structural and institutional changes have accompanied Australia's strong performance, this article focuses attention on the contribution and significance of information and communications technology (ICT) to the economic boom. It begins with a brief overview of the 'new economy' thesis and its association with improved labour productivity and faster economic growth rates. A simple macroeconomic model is used to help make sense of the factors which determine changes in national output, income and employment growth. By analysing the differing growth components, the model assists understanding of the nature of productivity growth in the 1990s. Finally, the article attempts to examine and evaluate the evidence concerning the impact of ICT investment on labour productivity, industry output and national efficiency in the Australian economy.

Economic Growth and ICT--a 'New Economy'?

Political economists are interested in debates about the 'new economy' because the application of information technology and knowledge to industry and the workplace can increase labour productivity, reduce average costs of production and contribute to further innovation and social change. Moreover, the design and use of innovative ICT and software goods and services in an increasingly information intensive economy has implications for the ways in which working time is designed, organised, managed and located (Landry, Mahesh and Hartman, 2005). …

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