Lessons from Down under; Americans Can Find Parallels in Australia's History
Byline: Richard W. Rahn, SPECIAL TO THE WASHINGTON TIMES
SYDNEY, Australia -- Unlike most of the world, Australia did not have a recession during the last two years. In fact, it has not had a recession in the last 19 years. Its economic growth rate is higher than in the United States, and the unemployment rate there is only 5.1 percent. From the middle 1800s until the early 1900s, Australia enjoyed a higher per-capita income than the United States. It then fell behind, but in the last couple of decades, it has gone through an economic revival. There are positive and negative lessons for the U.S. and the rest of the world from Australia.
Sydney is a beautiful city by the sea, where approximately one out of every five Australians lives. Despite having a land mass almost as large as the United States, Australia's population is only about 1/14th (22 million people) that of the U.S. Because of the distance from Europe, significant immigration by Europeans lagged the U.S. by almost 200 years. Both the United States and Australia are English-speaking countries that have benefited from abundant natural resources, many educated immigrants, the rule of law and the heritage of English common law, which have helped enable them to be successful democracies.
Australia and neighboring New Zealand have become economically freer over the last 30 years. The United States improved its Index of Economic Freedom ranking during the Reagan and Clinton years, but reversed course in recent years. When the new rankings are published for 2009 and 2010, a much larger drop in the U.S. ranking in economic freedom is almost a certainty.
In 1900, Australians enjoyed the highest per-capita income in the world. But then they retreated behind high tariff walls in a misguided attempt to protect manufacturing industries, created a judicial-based wage-determination system as a way to redistribute income in the name of fairness and engaged in excessive economic regulation. All of those measures slowed economic growth and reduced Australia's global per-capita income standing from No. 1 to No. 14. Reform began in the 1980s and early 1990s, as tariffs were gradually reduced and capital markets were liberalized. These had some beneficial effects, but it was not until labor markets were liberalized and public finances were reformed that the economy took off. …