Unheralded and almost unnoticed, the world has seen the emergence of a new economic model.
It is a developed country that enjoyed faster economic growth than the US over the past decade. Yet it also offers universal healthcare and other social welfare benefits that the US does not. Unemployment is similar to America’s, but without the glaring income disparities that characterise US growth. It is a country that seems to have achieved a sweet spot, combining the vigour of American capitalism with the humanity of European welfare, yet suffering the drawbacks of neither. And it manages this while keeping a consistent budget surplus. That country, rolling into its 16th year of uninterrupted growth, is Australia.
“In the last decade of the twentieth century, Australia became a model for other OECD countries,” wrote the 30-nation club of rich economies in its latest annual assessment of the country. Australia, which started life as a dump for Britain’s criminal effluent, was such an unlikely candidate to be any sort of economic role model that it should give hope to others. Australia’s economic development in the twentieth century seemed to be arrested at the quarry-and-farm phase. And when the founder of modern Singapore, Lee Kuan Yew, forecast in the 1980s that Australians were destined to become “the poor white trash of Asia”, he seemed to know what he was talking about. In 1970, Australian per-capita incomes were the fourth highest in the world. In the 20 years that followed, its ranking fell inexorably. By 1991, Australia was placed 19th. Other countries surged. Australia stagnated.
That changed with the 1983 election of a Labor government. The partnership of Bob Hawke, prime minister, and Paul Keating, his treasurer, turned out to be a case study in the political management of a dramatic programme of reform. The Hawke-Keating years were followed by a conservative government led by John Howard, who pressed ahead with another wave of economic modernisation.
The net result has been 22 years of near-continuous reform. In the national budget announced on Tuesday, Peter Costello, the treasurer, polished the model a little further – he cut taxes for the fourth consecutive year and began a sweeping reform of superannuation to improve savings, while adding funding for national infrastructure and scientific research.
Australia’s per capita income is now ranked eighth in the world. In the last decade unemployment has halved. Net household wealth has doubled. Australia, brags Mr Costello, has become not the poor white trash but “the strongman of Asia”. Most economists see no early end to the expansion. “We are in a 20-year upswing,” says John Edwards, HSBC Australia’s chief economist.
Australia is a model in another sense, too. Its socio-economic arrangements offer an alternative to the two familiar options of the American versus the European. Mr Howard says the key is balance: “There is much in American society that I admire but I have long held the view that the absence of an effective safety net in that country means that too many needy citizens fall by the wayside. That is not the path that Australia will tread. Nor do we want the burdens of nanny-state paternalism that now weigh down many economies in Europe.”
The US may be a rich country but its bounty is very unevenly shared. One result is that for the broad mass of its citizens, America has the sort of health indicators of a much poorer country. Australia has chosen a more egalitarian policy set. Life expectancy is the fifth highest in the world. Child poverty is half the American rate. No one in Australia dies because of lack of health insurance.
But neither does Australia suffer the customary handicap that goes with a humane welfare system – a crushing burden of government spending. As a proportion of gross domestic product, total government spending in Australia is the third lowest in the Organisation for Economic Co-operation and Development and slightly less than in the US. The federal government has run a surplus in nine of the past 10 years. Last month it paid off all outstanding federal debt – the federal government is debt-free for the first time since the 1970s.
However, Australia is far from perfect and its reform drive has faltered in recent years. It has failed to manage properly the problems of its success. After such a long boom there is a shortage of skilled workers and the country suffers from underinvestment in new infrastructure. Further, it has a chronic current account deficit of a yawning 6 per cent of GDP. Economic reform is a continuous process.
Yet it has become a case study in the benefits of economic reform. It is a prototype society illustrating that vigorous capitalism can coexist with a humane welfare system.
The writer is an author, most recently of Bubble Man: Alan Greenspan and the Missing Seven Trillion Dollars, and the international editor of The Sydney Morning Herald