Australia’s Descent Into Economic Mediocrity

Australia’s Descent Into Economic Mediocrity

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Countries become mediocre the same way Mike, a character in Ernest Hemingway’s The Sun Also Rises went broke.

“How did you go bankrupt?” Bill asked. “Two ways,” Mike said. “Gradually and then suddenly.”

The descent of the Australian economy into mediocrity is a topic of discussion becoming hard to avoid.

The release a fortnight ago of The World Economic Forum’s Global Competitiveness Report 2017-18 reveals the extent to which red tape, high tax rates and inflexible labour laws hurt Australia’s economic performance. The fact that the report passed almost without comment is also revealing. Sometimes people are happy to accept being mediocre.

The World Economic Forum and Davos might be where Leonard DiCaprio, Bono and Will.i.am lecture the rest of us about climate change, but it doesn’t mean that from time to time it doesn’t produce some useful research.

According to the Forum, the competitiveness of the Australian economy is ranked 21 out of 137 countries. The countries with the most competitive economies are Switzerland, the US and Singapore. Countries we like to benchmark ourselves against such as Britain, New Zealand and Canada were ranked eight, 13 and 14. (If Winston Peters supports a Labour/Green coalition government in New Zealand that country’s ranking might change pretty dramatically.)

The report assessed economic competitiveness using 114 measures such as the quality of a country’s institutions, the condition of infrastructure and labour market efficiency, with the measures derived from a combination of statistical analysis and survey data.

Our mediocrity is summed up in this sentence from the report – “Australia’s overall performance is not remarkable: in most pillars it does not rank among the top 25 countries.”

If we want our future to be as a “not remarkable” country we should be happy with such a description. If we aspire to be better than that we need to look at the threats to our economic competitiveness. And those are not hard to find.

Red tape burden

On an issue like the independence of the judiciary and the lack of corruption, Australia ranks as among the best in the world. But on red tape the answer is very different.

In reply to the question “In your country, how burdensome is it for companies to comply with public administration’s requirements (e.g. permits, regulations, reporting)? [1 = extremely burdensome; 7 = not burdensome at all]” Australia is ranked 80. Yes, 80 out of 137 countries. It shouldn’t come as a surprise to anyone that at a cost to the Australian economy of $176 billion a year, red tape is our largest industry.

Some might say such a question only gauges perceptions about red tape, not its actual impact on businesses and the red tape burden is not as bad as our ranking implies. This is a hard argument to sustain given that executives – who are surveyed in the report – have a better understanding of the effect of red tape on their business than anyone else. But even if the question does only gauge perceptions, the result is still damning. The place where red tape is the least burdensome on business is Singapore, with Switzerland ranked six, the US 12, Britain 32, NZ 21, and Canada 38. It’s hard to sell this country as an investment destination with results like this.

The report revealed it’s possible for Australia to be ranked in something even lower than 80th in the world. On the question of “In your country, to what extent do regulations allow flexible hiring and firing of workers?” Australia ranked 110. New Zealand ranked 15. On the question “In your country, to what extent do taxes and social contributions reduce the incentive work?” Australia ranked 102. New Zealand ranked 19.

An indisputable figure in the WEF report is how Australia’s gross government debt as a share of GDP compares against other countries. On this measure Australia is ranked 51. In 2005 only seven countries had a lower level of government debt than Australia. Now 50 countries do.

If rankings like these are the result of Australia holding the record for the longest run of uninterrupted growth in the developed world, one can only speculate how much more mediocre we’d become in a recession.

(Image: The Australian Financial Review, 2017)

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