Home' Policy Magazine : Policy Vol 31 - No 2 Contents 16 POLICY • Vol. 31 No. 2 • Winter 2015
AUSTRALIA’S FUTURE IN THE BALANCE
Fraser years, we were well below the trend. I was
new in the country at the time and found the
policies here confused and amounting to monetary
masochism. Because of protection and structural
rigidity, macroeconomic policy was toothless.
The upswings in the business cycle (that short
three-to-five-year cycle of aggregate demand) were
weak, unemployment ratcheted up, inflation was
entrenched, there was much discussion about
income redistribution. It was not a happy time—at
least not from where I was in Canberra.
We had another big event in the early ’80s: the
second oil crisis and a wage explosion which led
to a recession. We then had the famous Keating
sobering-up crisis that “we had to have.” More
recently, a big event was Wayne Swan’s spendathon,
a world-record swing from surplus into deficits.
And the effects on economic growth were minimal.
Big cost, small benefit!
If we stand back a little further, we see that there
were two periods of deceleration into below-trend
territory and a period of acceleration into above-
trend growth (1983–2003).
This pattern of alternation between generation
spans of negative and then positive surprises for
most people is well known in economics. It reflects
what economic historians have long documented
and what is known in the literature as the
‘Kondratieff Cycle’—named for a Russian Marxist
statistician, who did a lot of work 100 years ago
to study the capitalist system. He established that
Marx’s ‘crisis of capitalism’ was not terminal but
sooner or later was followed by generation-long
accelerations of economic growth. Kondratieff
understood more about waves than Kelly Slater.
These long waves of economic growth are a
socio-psychological phenomenon. It seems that
the public mood—the zeitgeist, as the Germans
would say—swings between generations of
innovation, youth, reform, and generations that
take economic growth for granted. Things then
slow down, untenable social economic positions
are defended by political lobbying, worries
about income distribution are ubiquitous. The
vigour of the market is replaced by the rigour of
Though not by nature a Jeremiah, I think that
we are now in a Kondratieff down-wave. Therefore,
we have to think very hard about what to do if we get
something like a repetition of the Fraser-Whitlam
experience. That would mean that the next up-
wave will be delayed until 2025 or so. On the other
hand (as I show in The Case for a New Australian
Settlement), we could become a frontrunner that
catches the next up-wave early—if we play our
What can be done? To answer this question, you
need a theory. My study of long-term economic
history and my understanding of international
economic growth and others don’t—suggests to
me a theory of economic growth that runs roughly
like this: The economic literature states that the
supply of goods and services begins with the
mobilisation of production factors. Economic
growth happens when more labour and skills are
being utilised, when more capital and technology is
employed, when more natural resources are tapped.
But these are only proximate explanations of
growth. The immediate question then is: why do
some countries in some periods, for example,
employ and develop more skills, and others don’t?
Why, for example, do some countries develop
natural resources and others die of the fear
of fracking? The answer to that proximate
explication is of course that either there is the right
entrepreneurship or it is lacking. Entrepreneurship
is a general quality in people—not only in
businesspeople, it’s in private people as well. Of
course, there are producers, who think about new
knowledge, new products, and new production
processes, although they know that it is risky
to develop and test new knowledge. It is always
risky: Will a new idea be technically feasible? Will
the market make it commercially feasible, i.e.
profitable? Entrepreneurship is also present for
example when young people invest in themselves:
do they acquire the right job-ready skills, or do they
prepare themselves to become couch potatoes?
Now, all this is very risky. People have to incur
Entrepreneurship is a general quality in
people—not only in businesspeople, it’s in
private people as well.
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