Australia’s inequity has been laid bare by the pandemic, and a return to prosperity for all requires looking at what got us here and shifting from the policies of old.
Italians have an eloquent, almost musical way with words. La dolce vita, Italian for “the sweet life” or “the good life”, is perhaps the most captivating.
Immortalised by Federico Fellini’s masterpiece of the same name, in which he depicts the decadence of Rome’s high-society.
The central character, Marcello Rubini, played by the fabulous Marcello Mastroianni, is a journalist-cum-gossip columnist who spends his time cavorting with Rome’s aristocracy and celebrityhood in search of his next story.
Sylvia, played by Anita Ekberg, is the enchanting and voluptuous American sex siren. Who could forget her famous scene at the Fontana di Trevi?
At first, Marcello’s life appears as indeed “sweet”, but as the story unfolds, it’s apparent that his glamorous lifestyle is incurably shallow as it is seductive. A lifestyle that is no longer an object of envy but a manifestation of decline.
Marcello’s plight is not unlike our own, as individuals and as a society. The quest for “la dolce vita” resonates with all of us. Getting there, however, is one of life’s grand conundrums.
Growing the economy in search of la dolce vita
Apart from being blessed with an abundance of low-complex natural resources to export, like coal and iron ore, Australia has two main ways to grow its economy, immigration and innovation.
In the mid-1990s, with the election of the Howard government in 1996, Australia’s political fraternity chose immigration over innovation. Innovation was subsequently relegated to the backbench, and the lazy way to growth was embraced. In effect, a race to the bottom.
Innovation requires imagination. And since the 1990s, our successive governments have shown a spectacular lack of imagination. In contrast, immigration is more or less a box-ticking exercise that requires no imagination and only a modicum of cerebral effort.
Without an average net overseas migration (NOM) of about 200,000 people a year over the past two decades (see the chart below), which has driven the demand for goods, services, and housing, we would likely have fallen into recession several times over.
Although NOM dipped in the two years following John Howard’s election as prime minister in 1996, it took off after that and only ended with the COVID-19 pandemic in early 2020.
In fact, our federal government’s immigration policy has grown our population by 51 per cent since 1990 (from 17.065m to 25.732m). Needless to say, relying on an ever-increasing infusion of people to stave off an economic downturn or collapse is a race to the bottom.
But as our unimaginative Governor of the Reserve Bank of Australia Philip Lowe recently announced: “Australia needs an influx of skilled migrant workers to get the economy powering again after the coronavirus pandemic.”
Conversely, the migrant component that we seem to be missing and desperately seeking is low-skilled and low-wage hospitality workers, farmworkers, and social care workers.
And although there are myriad benefits from immigration, it should not be used as the primary strategy to grow the economy, and as a consequence, become apathetic about the critical capability of innovation.
It’s R&D or bust
As well as immigration, Australia’s economy has also been propped up by the low-complex exports of minerals and agriculture that it has come to rely on. Which doesn’t augur well in a world that is betting its future on technological innovation.
According to Associate Professor of Finance at UNSW, Jo-Ann Suchard, “when it comes to innovation led economies, Australia has shifted into reverse.” And “Innovation is crucial for enhancing competitiveness, productivity, employment and economic growth”.
In the absence of effective government policy and incentives, investment in R&D has been declining for the past two decades. Business investment in R&D, for example, has fallen 12 per cent since 2013.
Oddly, the federal government continues to wind back R&D grants and other incentives along with research funding to our universities. Although the conversation around a “real” increase or decrease in university funding for research has become so convoluted that it’s difficult to say one way or another.
However, the general consensus is that research funding has been progressively cut in absolute terms and further compounded by virtually no funding from international student fees due to the pandemic and border closures.
Charting the decline
According to the Harvard University’s Atlas of Economic Complexity (below) — a measure of a society’s knowledge as expressed in know-how and the complexity of the products it produces and exports — Australia slipped from 55th in 1995 to 87th in 2018, just above Cambodia.
To make my point, it is a conspicuous coincidence that around the same time our federal government chose to ramp up immigration—the lazy way to achieving economic growth as opposed to sustainable economic growth through innovation— the latter took a nosedive.
In any case, from around the mid-1990s, we settled for mediocrity. And in 2013, we entered the dog days.
Welcome to the Dog Days
“The Dog Days” are what the Australian Professor of Economics Ross Garnaut calls the years 2013 to 2019 in his 2021 book Reset: Restoring Australia After the Pandemic Recession.
As Garnaut writes, it’s not just the COVID crisis putting a stopper on immigration that is troubling. Things had turned sour well before then:
“Australia’s economy performed poorly for most of its citizens in the seven years from the China resources boom to the pandemic. I call these years from 2013 to 2019 the Dog Days.”
He points out that unemployment and underemployment have persisted at well above the rates of other developed countries that suffered more than Australia from the 2008-09 Global Financial Crisis (GFC).
The wages of Australian workers have stagnated, and productivity and output per person have risen more slowly than in the United States or Japan and the developed world as a whole.
Not to sugar-coat it, Garnaut serves up a fairly severe indictment on the federal government and the Reserve Bank of Australia for allowing thousands of Australians to languish in unemployment throughout those years (2013-2019) while at the same time forcing the unemployed into poverty via a derisory Newstart/Jobseeker payment.
Succinctly, the federal government and the Reserve Bank’s broad-based economic policy settings were designed to suppress wages and inflation, which also succeeded in immiserating a significant portion of the population and costing the economy billions of dollars in lost economic activity.
And to put a dampener on our fate going forward and the prospect of a la dolce vita future, Garnaut warns that we are destined for more of the same:
Garnaut describes the post-pandemic world as an “unhappy place for Australians—more difficult than the seven years before the pandemic. Living standards would remain lower through the 2020s. Unemployment and underemployment would linger above the high levels before COVID-19 struck. Things would be worse than in the pre-pandemic Dog Days because we would have a legacy of extraordinary public debt.”
And be further compounded by a) the accumulating effects of climate change and b) the long-running party-political dispute of how Australia should deal with it.
On this, Garnaut argues that Australia should join forces with like-minded trading partners to create a zero-emissions world economy and grasp the opportunity to become “the world’s clean energy superpower”.
But more is needed
I would add here that there is more to do. Australia needs to better prepare itself—economically and society-wide—for the present and future shocks of climate change. From floods and fires, the disruption to supply chains and jobs, and an increase in infectious diseases that evolve into pandemics, to name a few.
That is, the response to climate change should not be reduced to solely a narrative around net-zero emissions and technology per se. Especially non-mandated emissions targets and technologies that support the continued exploitation of fossil fuels, such as carbon capture and storage (CCS).
This is simply political chatter, void of substance. The moment has not been reached in which the true gravity of the climate emergency is realised—a moment of pause when the chatter ceases and the cold chill of reality sets in.
As Kierkegaard wrote: “chattering dreads the moment of silence, which would reveal the emptiness”.
Dude, this is not la dolce vita!
This, naturally, brings us to the fundamental purpose of our political institutions, like our federal government and the Reserve Bank of Australia.
Their job is to predict the future and adjust policy settings accordingly, thereby aiming for prosperity for all. Yes, prosperity for all!
Put plainly, the aim of our political leaders is to improve the lives of citizens by directing the economy away from bad outcomes and toward good outcomes.
Good outcomes equate to living a healthy and fulfilling life—because we only get one—in a prosperous and thriving economy that is not reliant on material wealth more so than a sustainable level of sustenance and comfort. It’s neither hedonistic consumerism nor an impoverished existence disguised as austerity. That’s it in a nutshell.
But instead of using la dolce vita as a measure of society’s prosperity, our preference is for the economically myopic measure of GDP per capita (economic output per person). Which most economists agree has little bearing on the actual prosperity — or happiness — of all of the people.
La dolce vita is significantly more enticing. For instance, GDP fails to reflect economic opportunity, the welfare and wellbeing of different community groups, and the sustainability of the natural and built environments. All of which add or detract from people’s prosperity.
And importantly, GDP per capita is an unwieldy measure of “average income”—it doesn’t mean that the average worker earns the GDP average income and is thus a poor indicator of income distribution.
Labour’s share of income
With all this in mind, as a starting point, why not develop a measure that reflects la dolce vita? How about labour’s share of income? I’ll call it “La Dolce Vita line of prosperity”. And as depicted in the graph below, labour’s share of income has been in decay since the mid-1970s.
The Labour Share of Income and La Dolce Vita line of prosperity. Note the steep decline from the mid-1970s followed by the steady decline from the mid-1990s.
The labour share of income is the share of total domestic income paid to workers in wages, salaries, and other benefits such as superannuation. On the other side of the ledger is the capital share of income—the share of domestic income going to capital owners in profits—which has been steadily increasing since the mid-1970s.
This shift in income distribution from labour to capital has fostered widening inequality in personal incomes that has beset Australia significantly more than most other OECD countries.
Shaun Wilson, an Associate Professor of Sociology at Macquarie University, argued in his 2018 paper in the Journal of Australian Political Economy: that the “lengthy period of Coalition rule (the Liberal and National Parties have governed for 16 out of the last 22 years) is producing an inequality regime”. One that is profoundly political and driven by the Coalition government.
But both Labor and the Coalition are to blame. After rising steadily through the 1960s and 1970s, the labour share of income began declining from the mid-1980s. According to economist and Director of the Centre for Future Work, James Stanford, initially due to the Prices and Incomes Accords system launched in 1983 by Bob Hawke’s new Labor government and the trade union movement.
The Accord’s primary aim was to constrain wage growth and boost profits to counter the impacts of excessive wage growth in the years prior.
Needless to say, it succeeded in doing so and continued as a matter of course after that, further declining through the Howard Government years (1996 to 2007) and falling to a record low of 46.2 per cent of GDP in the March 2017 quarter before rebounding.
It’s worth pointing out that reports from the federal government’s Treasury Department, in particular, consistently deny any downward trend in the labour share of income. See for example its 2017 report Analysis of Wage Growth, in which it states: “The labour share of income has been broadly unchanged since the early 1990s”. Which is entirely false.
La Dolce Vita line of prosperity
Of course, the La Dolce Vita line of prosperity (in orange in the graph above) is an imaginary line that I arbitrarily placed at the most recent high of a labour share of income at around 58 per cent of GDP in 1975-76.
The idea would be to significantly boost the average worker’s share of income, thereby depriving some multinationals and their CEOs of a few million dollars here and there.
But who knows what percentage share of total domestic income the labour share should be so that workers are fairly compensated — what would constitute a fair share?
Besides, a low unemployment rate, or even “full employment”, is what supposedly drives wages up. Full employment, however, is somewhat of a furphy.
In the US, for example, as Garnaut pointed out, in September 2019, the unemployment rate fell to 3.5 per cent, and it still showed no signs of accelerating inflation or an increase in wage growth.
So, we might presume that unless policy settings are set to encourage wage growth instead of the reverse as we currently have, even an unemployment rate of below 3.5 per cent is unlikely to provide wages with any impetus.
Mindful that our political leaders managed to set the bar so low to make an unemployment rate of five per cent sound like a monumental achievement.
Enjoy the little things
For a targeted labour share of income to work, the maintenance and sustainability of the care economy must be instituted as the central premise for a return to civility—let alone la dolce vita! This includes the natural environment and the wellbeing and welfare and the education of every person.
And la dolce vita means different things to different people. As another brilliant filmmaker, the talented Mr Ingmar Bergman reflected on in the script of his 1982 film Fanny and Alexander:
“The world is a den of thieves, and night is falling. Evil breaks its chains and runs through the world like a mad dog. The poison affects us all. No one escapes. Therefore let us be happy while we are happy. Let us be kind, generous, affectionate and good. It is necessary and not at all shameful to take pleasure in the little world.”
In other words, do as the Romans do, “Mangia bene, ridi spesso, ama molto”.
Dr Stephen Dark has a PhD in Climate Change Policy and Science, and has lectured at Bond University in the Faculty of Society & Design teaching Sustainable Development and Sustainability Economics. He is a member of the Urban Development Institute of Australia and the author of the book Contemplating Climate Change: Mental Models and Human Reasoning.