Two hundred and fifty years after the publication of Adam Smith’s Wealth of Nations, our leaders insist that the prosperity of citizens rests upon a trickling down of bounty from the export of raw materials. This simplistic narrative is told, and retold, by almost every newspaper editor in the country, over and over again, in the form of a Gregorian chant without end.

Australia has a reputation for egalitarianism. It is not deserved.

Extract: Address to the Royal Society of NSW, October 2024.

This is a nation based on mercantilist plunder.

By Ken Henry

Economists are uncomfortable with this story. But I wonder how many Australians understand how our celebration of mercantilist plunder has contributed to an erosion of the nation’s manufacturing capability, undermined labour productivity growth, and depressed the living standards of workers. I wonder how many understand how this narrative has contributed to growing inequality in Australia, especially as between successive generations.

Australians are aware that the living standards of today’s workers are under pressure. They now have lived experience of the impacts of climate change and large-scale environmental degradation. They know that these impacts are getting worse, and that they will be much worse for their children and grandchildren. And they are aware of a growing concentration of wealth, increasingly in the hands of those who have privileged access to the continent’s natural resource stocks, and those who no longer must work for a living.

These developments are part of a broader intergenerational tragedy that also features young workers being denied a reasonable prospect of home ownership; young workers burdened by mountains of public debt, the punishing costs of securing a tertiary education and the need to satisfy the increasing demands of ‘credentialism’; young workers held back by a tax system that relies increasingly upon fiscal drag. Young workers, a declining proportion of the population, are having to pick up the tab.

Why has this been tolerated?

One explanation, voiced often in various groups concerned by what they see happening around them, is that all these things are the consequence of market systems designed by heartless neoclassical economists, prisoners of abstract theories.

That perspective is understandable. But the truth is much worse than that. The intergenerational tragedy playing out in Australia could have been avoided had our political system not been so dysfunctional, its leaders less inclined to turn a deaf ear to well-reasoned policy advice drawn from the textbooks of neoclassical economics.

But we shouldn’t blame our political leaders either. After all, they are the product of a democratic system. Instead, we need to look at those who elect them; we need to look at ourselves; all of us.

Every generation of Australians since the first wave of European settlement has celebrated plunder, dumb luck, and ‘finders keepers’. This is what we mean by ‘a fair go’. In considering the merits of any policy proposal, every generation of Australians accorded the privilege of suffrage has only ever asked one question: what’s in it for me? And because we celebrate plunder, we idolise those who plunder the most. They are our role models.

There is no Australian success story more wholeheartedly celebrated than the export of something taken from nature. Because our political leaders know this, they work hard to be seen to be complicit in these stories. An instructive example is then Prime Minister Howard’s wanting to take some credit for the announcement, on 8 August 2002, of a 25-year Australian LNG supply contract to China. According to Mr Howard, persuading China to relieve us of some of the burden of our natural gas reserves was ‘a great Australian team effort’. Team Australia. All of us.

Two decades later, Australia is the world’s second largest exporter of natural gas, and the fossil fuel industry is warning that we don’t have enough gas available domestically to heat homes on the east coast of Australia. So, a gas import terminal is being constructed on the NSW coast. Apparently, it should be underwritten by the Australian taxpayer. This is the sort of game Team Australia plays.

It is time to ask ourselves some serious questions about the consequences of our ‘fair go’ ethos. Questions like these: Why have we supported a set of public policies that have heavily degraded the natural environment; energised a drift of wealth away from workers, in favour of retirees, property owners and mercantile interests; and entrenched an economic structure that, for two decades, has delivered very low productivity growth and even weaker real wages growth?

Over the first two decades of the 21st century, as productivity growth slowed sharply, the structurally adjusted level of Commonwealth government spending accelerated, increasing at almost precisely the rate projected in the first Intergenerational Report, published in 2002. And, despite the warnings written into the Intergenerational Report, the tax system that Australian governments have been relying upon to support that spending is in much worse shape today than it was then. There has been no structural reform of the tax system in the past 24 years. For more than two decades, we have been on notice that our tax system will prove incapable of delivering what what will be asked of it. But we just couldn’t be bothered.

The present generation of Australians faces a reckoning. This is the first generation unable to make a credible claim that future generations of Australians will be better off than they are.

That’s a serious matter. An inability to make that claim threatens a key pillar of the social compact upon which the legitimacy of our democratic system of governance depends.

There is a narrow pathway out of this emergent intergenerational tragedy, and the threat it poses to Australian democracy. But navigating it will not be easy. It will take uncommon leadership that makes the case for this generation not merely asking what is in it for them, but instead, doing what they can to secure prosperity for future generations of Australians.

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Continue reading the full address.

Or watch the recording of the address.

https://johnmenadue.com/a-nation-based-on-mercantilist-plunder/

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