The good and bad of international competitiveness

by on March 30, 2018

INTERNATIONAL competitiveness has had a bad week, whereas with a little enlightened government it could be the beginning of something really worthwhile.

We saw international competitiveness underpin the unseemly haste of the Turnbull Government attempting (unsuccessfully) to push through tax cuts for big companies because other countries were lowering theirs. And we saw the unseemly win-at-all costs attitude in international sport bring us the ball-tampering scandal in cricket.

But what if a country did something which, in the long run, would make it much more internationally competitive? Shouldn’t we ensure we do not get left behind?

This week French President Emanuel Macron said he would begin compulsory schooling for French children at age three, instead of the present six. It will no doubt make French workers more productive and internationally competitive than those whose education is three years behind, particularly as three-years-olds are more adept at picking up foreign languages than older children.

But my guess is that Macron is not doing this to improve France’s international competitiveness, but rather to enrich French people’s lives.

What should be the issue here is the purpose of the international competitiveness, not the competitiveness itself. Does Malcolm Turnbull really believe that lowering tax for mainly foreign-owned companies in Australia will create jobs and increase wages and improve the lives of Australians, or is he doing it so big business will fill the Liberal Party’s coffers to help him get re-elected.

As for international competition and the purpose of cricket, one need go no further than to quote the reply of the Japanese PoW camp commandant (Sessue Hayakawa) to the plea from British colonel (Alec Guinness) to apply the Geneva Convention in “The Bridge on the River Kwai”: “This is war, not a game of cricket”.

The aim of international cricket is to foster friendly relations and greater understanding between nations. In the Third Test in South Africa those laudable aims were as relevant to Steve Smith and David Warner as they were to the Greater East Asia Co-Prosperity Sphere.

International competition only has a place if it is seen in the context of improving lives. If Swedes live longer, Danes have lower unemployment, Americans say they have more freedom and New Zealanders say they are happier, we should ask why, and if there is anything we can do in Australia to improve our lot, materially and otherwise.

On the material front, a book published last month made a salient point. “Fair Share: Competing Claims and Australia’s Economic Future” by the former head of the Department of Prime Minister and Cabinet, Dr Michael Keating, and Political Economy Professor Stephen Bell noted that a lot of economic policies ostensibly designed to promote economic growth and higher GDP could have the opposite effect because they caused greater inequality.

They noted that Australia has done well compared with nearly all other OECD nations on a range of measures in the past three decades, but now, they say, the nation must adopt some policy changes lest rising inequality lowers the overall GDP per head.

“The postwar Golden Age link between rising wages, productivity and consumption had become severed, gradually replacing it with a growth model that combined more flexible labour markets with the expansion of credit that helped sustain consumption amidst rising inequality,” they wrote. “The problem, however, was that debt was used to support consumption.”

They cited another economist as calling it a strategy of “let them eat credit”.

They said that the prescription of business and conservative governments to apply ever more austerity in order to balance budgets and ever more calls for labour-market reform has not worked. Its results are wage stagnation, less economic activity, lower productivity and lower economic growth.

More importantly, smarter economists (including those in the IMF and World Bank) were recognising that greater inequality was causing lower economic growth. Policies geared at enabling the rich to get richer and hoping for a trickle-down effect simply resulted in a smaller overall cake.

The authors called for policy changes to make the tax system fairer and to produce the revenue needed to wipe out deficits.

The way rising inequality hampers economic outcomes, aside from making more people more miserable, is becoming more evident in education, health and housing.

In education, Australia is throwing money where it is not needed – at wealthy private schools which are educating their children very well and can continue to do so without generous top-ups from the Federal Government. That money would result in better educational outcomes if spent on poorer schools, whether public or private.

In housing, tax policies have fuelled an investor-led housing bubble that is shutting first-home buyers out. They are just 10 per cent of the market now, down from nearly double that in the 1980s.

In health, money is being syphoned out by private insurance funds and chronic over-prescription rates. That money would be better spent on public health, prevention and fairer payments to GPs so they can care better for patients and prevent costly hospital admissions.

Keating and Bell unfortunately concentrated on the economics, and like so many economists ignored the environment and the downside of unsustainable population growth.

Without addressing them, as well as revenue shortfalls and unfairness as suggested by Keating and Bell, Australia’s economic future (on international comparisons) will not be as fortunate as its past.

Of course, it will require come cultural change in the political sphere, where the “win-at-any-cost” and “whatever it takes” mentality has come to dominate, as in cricket.

One News Ltd commentator this week even thought it would be a good idea for the Coalition to craft an effective “scare campaign” against Labor’s imputation tax policy as a means of winning the next election. Silly me. I thought the media was supposed to scrutinise policiies on their national-interest merit.

The merits of educating three-year-olds in Australia would be a good start.
This article was first published in The Canberra Times and other Fairfax Media on 31 March 2018.

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