Last night I attended Victoria University’s 2013 Vice-Chancellor’s Lecture and dinner. It was presented by Professor Ross Garnaut who, can I say, threw a bucket of cold water on a shocked audience of senior public servants, academics and business people in presenting a very difficult future for Australia.
The lecture was titled “Ending the great Australian complacency of the early twenty first century”. Following is an excerpt with the full speech at the end.
The long expansion culminating in the decade-long China resources boom has left three challenging legacies, that together will test the wit, the will, the values and the cohesion of Australians in the years ahead.
The first challenge is that the real exchange rate has risen during the long boom way beyond the levels that will be consistent with full employment and continued expansion in economic output once the resources boom dims its lights. It must be reduced by a large amount. That is easier said than done. A real depreciation involves not only a fall in the exchange value of our currency against others, but restraint in the passing through of the resulting increase in prices of imported goods and services into the number of Australian dollars we earn and spend.
Real expenditure has also risen above sustainable levels, but we will find that effective correction of the overvaluation of the real exchange rate will also deliver most if not all of the correction in real expenditure that is required. That still means some contraction in the overall purchasing power of Australian households and institutions as well as a larger proportionate reduction in their international purchasing power.
The second challenge is to change entrenched expectations that living standards will rise inexorably over time; that household and business incomes and services will rise and taxes will fall, as they have done for a full generation. Those expectations must be reversed in the process of dealing with the legacy of the boom, or our efforts in reform will be defeated by bitter disappointment with political leadership and eventually political institutions.
The third challenge is that our political culture has changed since the reform era 1983-2000, in ways that make it much more difficult to pursue policy reform in the broad public interest. If we are to succeed, the political culture has to change again.
The new barriers to productive change in our political culture are not only or especially a legacy of Australia’s millennial boom. They are part of the contemporary political reality of the United States and Europe. But whatever their origins in other places, in Australia the long period of prosperity has provided a congenial environment for the entrenchment of a new political culture that elevates private over public interests and the immediate over the longer term.
After the decades of prosperity, Australians now must choose between two radically different approaches to our problems.
We can continue to conduct our public life as if the approaches that were good enough in the days of easy prosperity can deliver acceptable outcomes in harder times. If this is our choice, we continue to live behind the veil of ignorance that has descended around our public life over the past dozen years. We make public choices within a political culture distorted by the intrusion of market values into relationships and processes that only work within ethical systems of other kinds.Or we restore discipline of the kind that framed public choice in the reform era from 1983 to the end of the last century, are prepared to think hard about the actual effects of policy proposals rather than repeat political slogans, and act consistently with the results of clear analysis even when that damages some interests and lesser values.
I call these the “Business as Usual” and “Public Interest” approaches to policy.The “Business as Usual” and “Public Interest” approaches lead to radically different outcomes. If we continue within the political culture of the later years of high prosperity, “Business as Usual”, we will live in greater comfort for a short while. But sooner rather than later we will experience deep economic recession with high unemployment–probably unemployment rising with each new recessionary episode without falling much in the years between.
The memory of 1974 to 1983 may help older Australians to visualise this future. As I will show, the awful truth is that the starting place is more difficult this time than in 1974 and the consequences of failing to deal effectively with problems correspondingly worse. If we make the Business as Usual choice, we can expect disappointment as public services that have enhanced Australians’ welfare are diminished bit by bit in response to successive fiscal crises. We can expect bitter political conflict within our society, and unhappiness about our institutions.
…The Public Interest is a much harder choice with more wholesome consequences. For Australia to choose the Public Interest approach, a lot of us—enough to influence policy choice at a high political level—would have to put aside the slogans that have taken the place of thought about public policy so far in the twenty first century. We would have to question the validity of propositions to which we have become attached. That’s hard. Harder still, we would have to change our minds when the evidence supported change.
The Public Interest approach will not be chosen unless many Australians are prepared to support changes that damage some aspects of their personal interests.
The problems that we face and the remedies that are necessary to deal with them are so far outside the range of Australian political discourse in the twenty first century, that political leaders will have to explain to their supporters the need for changes in some policies that have strong support. Where there is conflict between specific policy commitments, and the general commitment to govern in the interest of Australians, the latter must prevail.
The Public Interest choice would return us to realistic analysis of the consequences of policy choice issue by issue, and to policy action on the basis of analysis and the ascendency of public over private interests.
Hope is kindled.
Ross Garnaut 280513v2 Double Spaced to PRINT (1).pdf by Timmy Carey
