ALP’s immigration extremist bemoans missing economic complexity

Labor’s shadow assistant minister for Treasury, Dr Andrew Leigh, has penned an article in The Australian bemoaning Australia’s lack of economic complexity, which resembles a poor developing nation:

[A] troubling picture comes from the Atlas of Economic Complexity…

According to the latest rankings, the world’s most complex economies are Japan, Switzerland and Germany, while the least complex are Liberia, Guinea and Nigeria.

As you might expect, economic complexity correlates pretty highly with a country’s income level – in fact, it explains about four-fifths of the variation across nations. But complexity also turns out to be a good predictor of future economic growth, even given a country’s level of development. Take two countries with similar levels of income, and the growth prospects of the more complex country are better than those for the less complex nation.

How does Australia fare on the Economic Complexity Index? In a word, badly. Out of 133 economies the experts have assessed, we come 86th, below halfway. The three countries ahead of us are Albania, Oman and Paraguay. When it comes to living standards, Olympic prowess or international heft, Australians think of ourselves as being in the league of Germany. But an objective analysis of the complexity of our economy suggests that it looks more like Albania. It isn’t just that we export relatively few products; it’s that the kinds of things we export tend to be exported by pretty undiversified countries.

An easy response would be to say Australia’s lack of complexity is a response to the mining boom. But it turns out that even in 2000, before the mining boom, Australia’s exports weren’t particularly complex… [It] fell markedly over the past generation. On their measures, we have never been an especially complex economy. But we’ve gotten a lot “simpler” in recent years.

Creating a more dynamic and complex economy isn’t an easy task. But if we get it right, it’ll ensure more jobs and better wages for Australians.

Dr Andrew Leigh is justified in raising this issue. The Deloitte Economic Sophistication Index similarly ranked Australia’s economy poorly on economic sophistication:

The problem I have with Dr Andrew Leigh is that he is also a strong proponent of the mass immigration ‘Big Australia’ policy (see here, here, and here), which has helped to make Australia’s economy less complex.

Tradable goods and services are those that can be sold at locations other than at the place of production (i.e. can be exported overseas). Non-tradable products are those than can only be sold at the place of production (eg, coffees, personal training and haircuts). Tradable firms are typically more productive than other businesses because they benefit from economies of scale and must be competitive against firms both nationally and internationally.

You will note from the above that the most sophisticated nations have big manufacturing (tradeable) industries. Most of these economies also do not rely on immigration (population growth) to drive their growth.

By contrast, Australia has let its manufacturing industry collapse and now has the lowest manufacturing share across the OECD.

Instead of focusing on productivity-driven growth, Australia has relied on importing hundreds of thousands of warm bodies every year, alongside increasing household debt, to drive consumption and malinvestment into property and catch-up infrastructure.

In turn, by pursuing the mass immigration policy, Australia has encouraged growth in low productivity ‘people-servicing’ industries, alongside diverted the nation’s productive effort away from genuine business investment toward houses and infrastructure.

Perversely, importing a million extra people every four years – as was the case pre-COVID and is projected in the Intergenerational Report – also diluted Australia’s mineral base – the primary source of the nation’s wealth – which then made us poorer per capita.

IGR NOM projection

It is hypocritical for economists like Andrew Leigh to pontificate over Australia’s lack of economic complexity while at the same time championing mass immigration.

This is not what smart, sophisticated countries do. They grow by focusing on quality productive growth, not quantity-based ‘dumb’ population growth.

Simply adding more people is not a sustainable economic model and won’t lift Australia’s living standards.

Unconventional Economist
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