Academic journal article Journal of Australian Political Economy

Reflections on the International Context of Australia's Economic Boom

Academic journal article Journal of Australian Political Economy

Reflections on the International Context of Australia's Economic Boom

Article excerpt

Last year a special issue of this journal discussed 'Australia's Economic Boom 1992--?' It offered a rich and informative variety of non-neoclassical analyses of the period. However, there was relatively little investigation of Australia's experience in relation to that of the rest of the world. The international economy may have been a taken-for-granted basis for many of the contributions and for some this was explicit (Broomhill 2008, Goodman and Worth 2008, O'Hara 2008, Lavelle 2008). However, international connections or comparisons were seldom the direct analytical focus. There is no reason why they should have been and the many specific features of Australia's political economy warrant the detailed attention they received. Nevertheless, the collective scarcity of commentary on the global economy leaves some significant silences. This article argues that comparing Australia with other countries and placing it in an explicitly global context better illuminates the boom, important problems that developed within it and, at least implicitly, the constraints this places on economic management.

Many of the ways in which the international economy both conditions and limits Australia's circumstances are, of course, all the clearer after a year of dramatic financial crisis. It may be too early to see the result as 'collapse', 'devastation' and 'bust' (Broomhill 2008:13, Lavelle 2008:301, Bell and Quiggin 2008:71) but, even less than a year on, predictions of impending 'long upturn' (Dow 2008:140) now look particularly optimistic. At the time of writing, Australia had avoided the severe economic contraction afflicting many parts of the world but the question mark at the end of JAPE 61's title probably now more aptly signals doubt over exactly when the boom ended rather than how long it will endure.

This article begins by showing that Australia's economic experiences have moved in close alignment with those of other leading economies, at least since the 1920s. The alignment became particularly close from the 1970s. From 1992, Australia did grow slightly more quickly than most other rich countries, but more slowly than the average of its poorer country neighbours and trading partners in Asia.

The following section of the article situates Australia within a global process of changing class relations and a changing orientation of investment. The Australian economy, like others, was marked by growing inequality and a falling wage share of national income. This implied a higher proportion of income available for investment and Australia did achieve modest increases in rates of capital formation. This contrasted with the experiences of many other rich countries. However, as elsewhere, growth could also reflect increases in the quantity and intensity of work rather than simply capital deepening. A falling wage share could also produce problems of effective demand, increasing the propensity to borrow and tendencies towards systemic overcapacity, which militated against new investments aimed at domestic markets. In Australia, export oriented sectors, notably mining, attracted significant investment shares and achieved the highest levels of productivity.

The article then describes how Australia's openness to trade increased considerably during the boom. There was a shift in Australia's major export and import markets, with its economy experiencing significant demand pull from rapidly growing economies in Asia, particularly China. Exports and commodity prices increased rapidly in the 2000s. However, Australia's shares of global production, even of key commodities like coal and iron ore, declined, suggesting a vulnerability as commodity prices fell. Furthermore, despite rising exports, the overall current account deficit increased substantially during this period, particularly from the early years of this century, to levels higher than most other major national economies. This was matched by increased borrowing. …

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