[Modified] Submission on Stimulating Employment Opportunities in Queensland (2009)

CPDS Home Contact Formal Submission to EDC of 7 August 2009  Review of the Queensland Economic Strategy, Leading State  Commentary on 'Smart State'   Smartening up Queensland's Department of State Development   Speculations about Queensland's Economic Predicament  Recovering from Queensland's Debt Binge  Queensland's Economic Strategy  Smart State: Some Informal History  Accounting Tricks Make it Impossible to Know Queensland's Real Financial Position
Introduction +



In July 2009 the Economic Development Committee (EDC) of Queensland's Legislative Assembly released an issues paper (Inquiry into identifying world’s best practice by governments to effectively stimulate employment opportunities in Queensland) as the basis for submissions in relation to "what government should be doing to create employment opportunities and ensure Queensland is well positioned for the inevitable economic upturn".

In brief the issues paper outlined:
  • the rise in unemployment as a consequence of the global financial crisis (GFC);
  • the nature of the EDC; current inquiry's terms of reference (ie identifying world's best practice by governments to achieve the above goal, with special attention to: S&T; natural resources; comparative advantages; skills requirements; and regulation); and inquiry's timeline;
  • Queensland's economic growth - slowdown after strong growth with rising unemployment;
  • traditional and emerging economic strengths - traditionally related to natural resources, but diversifying via innovation and value-adding; exports are important.  Moreover:
    • government has identified 15 key industries and supports six Centres of Enterprise;
    • Department of Employment, Economic Development and Innovation (DEEDI) has programs to support regional, industry and business development;
    • Smart Industry Policy is current industrial development framework which aims to: connect industry with ideas; boost incentives for productivity; develop skilled people; build markets for smart products; promote innovative business culture;
  • unemployment - rising as a result of global financial crisis; higher for unskilled; particularly impacts younger / older / indigenous workers; long term unemployment; under-employment; regional variations in unemployment;
  • government's role in job creation - existing programs through DEEDI (skilling / reducing barriers / creating opportunities);  Rapid Response Teams established following GFC; Green Army initiative; special indigenous programs; example of international employment programs;
  • skills needed - international movement as economy globalises; areas of skill shortages; the need for more than training;
  • interaction between regulation and economic growth / recovery - regulation is needed but can impede business; Queensland Office of Regulatory Efficiency (in DEEDI) promotes regulatory reform;
  • submission procedures - including the threat of being held in contempt of Parliament if submissions are published without EDC approval

The issues raised by the EDC's inquiry are very complex. Due to the short timescale and other commitments, this [modified] submission merely presents notes on a way to think about those issues, rather than being the comprehensive and fully documented analysis that is really needed.

It is noted also that this [modified] submission is an electronic document which relies on other information accessible through Internet links and on JavaScript coding. It thus can not be read properly in printed form or without the JavaScript that is available on the author's web-site

John Craig


Themes of [Modified] Submission

A key theme of this [modified] submission is that (as was the case with inquiries into problems in Queensland's hospital system) the terms of reference of the EDC's  Inquiry into improving employment opportunities seem too narrow.

The Inquiry's main focus appears to be on improving 'government programs' (ie what government, especially DEEDI, itself does), whereas success in dealing with the potentially serious economic and employment challenges that now exist arguably requires more emphasis on 'governing' (ie creating frameworks within which others can 'do things').

In other words enabling economic and community development in directions that do not have to be politically endorsed in advance is likely to be more useful than government 'assistance' programs. An emphasis on 'governing' (rather than micro-management) by boosting the ability of apolitical institutions to stimulate the development of economic systems would not only make Queensland's economy stronger and more adaptable, but also strengthen Queensland's civil society. It would thus have secondary advantages by reducing traditional weaknesses in the state's political system that have contributed to periodic abuses of political power.

Other themes explored below include:

  • a brief and shallow economic contraction, a 'Benign Market' scenario, seemed to be generally expected at the time this [modified] submission was being prepared;
  • there is however a need for more sophisticated approaches to understanding the complex and rapidly changing global economic environment, and a possibility of a 'Fractured Market' scenario involving profoundly difficult economic and employment challenges;
  • Queensland's ability to respond to either scenario is constrained. The economy remains relatively under-developed, because the tactics used to promote development have been inadequate. Market-focused (rather than politically driven) alternatives are available that might be more effective;
  • international 'best practice' will not necessarily yield a locally appropriate solution. In seeking a solution, consideration needs to be given to: improving productivity; building competitive advantage; the relationship with National Competition Policies; providing financial incentives to states for developing productive modern economies; and the macroeconomic / fiscal / tax implications of the state's budget; 
  • boosting market-based capabilities to better support existing areas of economic strength and very generalised paths to diversification would be more useful than government efforts to identify and push 'winners';
  • as well as prevention through more effective methods for economic development, support for economically marginalized individuals and communities arguably needs to come increasingly through motivating / empowering individuals to support one another, rather than from government programs;
  • the major focus for regulatory reform should be on inhibiting the emergence of new 'red tape' by emphasis on non-political options for addressing new challenges.

[Status of this Modified Submission]

This is a modified version of the working draft of a submission to the EDC, which had previously been presented on this web-site as an [intended] submission.

Because of the author's prior experience over several decades of suppression of ideas [1,2,3] by Queensland's often-outdated-and-authoritarian political establishment, it was decided that a formal submission to the EDC would only be made if the Committee was prepared to approve its public release.

Author's background: includes study of leading-edge economic strategy issues on behalf of the Coordinator General's and Premier's Departments during the 1980s.

In particular this included: (a) authorship of the first report suggesting how to achieve economic diversification in directions later endorsed as under the 'Smart State' strategy (Towards a Strategy for Technological Development in Queensland, unpublished, Premier's Department, 1983); (b) participation as the Coordinator General's representative in the 1985 Task Force on Employment; and (c) an unresolved dispute with the Premier's Department following a 1992 abuse of natural justice involving  its refusal to allow merit to be considered in relation to making a senior economic policy R&D appointment (a role apparently similar to that which the author had played for a decade).

Each of the above involved options that would have speeded progress in economic development that were suppressed because they were not at the time politically / bureaucratically understood (ie respectively: (a) market, not public service, support for innovators; (b) development of the economy rather than government support for individual large investors; and (c) a theoretically and practically important breakthrough in viewing economic development as a process of systemic learning). Also each option would have boosted the economic welfare of the Queensland community, but reduced the ability of state politicians to dispense patronage.

The final episode was suggested in the public administration literature (McDermott P., `Tenure of Senior Queensland Public Servants', Australian Journal of Public Administration, March 1993) to have eroded the tradition of Public Service professionalism (an outcome that appears to have had bipartisan political support)..

The author was advised that the EDC would decide on August 5 2009 whether or not it was willing to permit a submission to be published.

Accordingly, the author asked the EDC on 5 August whether it was willing to accept a version of the 'intended' (and by-then-already-published) submission - "with slight editorial changes such as removing references to 'intended' and 'draft' submission, and the section on the Status of the intended submission".

In response the author was advised that, though approval for publication of the submission on this website could not be approved prior to its submission to the committee, it was likely that publication would be approved, providing its contents matched the version that existed on 5 August (without the items nominated as being deleted). Accordingly a formal submission was forwarded on 7 August which was similar to the draft of 5 August (less the elements nominated for deletion, and also including a number of typographic / grammatical changes and other elements that were clearly identified).

On August 10 the author was advised that the submission forwarded on 7 August would be forwarded to the Committee, and that submissions would normally be approved for publication after receipt and examination by the Committee.

When advice was received that the formal submission has been approved for publication, it was intended to add the formal submission to this web-site.

On 3/9/09 it was advised that the formal submission had been published had been published on the EDC web-site, so the formal submission was added to this web-site.

Ongoing editorial changes are being made to this present document that will not appear in the formal submission to the EDC]

[Modified] Submission Details of [Modified] Submission

Economic Context to Inquiry

The EDC's 'employment opportunity' Inquiry was commissioned because unemployment is rising in Queensland, and is expected to continue doing so, due to the impact of the global financial crisis (GFC).

The GFC's domestic impact in Australia apparently resulted primarily from:

  • constraints on the availability of capital (noting Australia's heavy dependence on international capital inflow);
  • declining demand in many developed economies, and a collapse in international trade;
  • precipitate falls in economic production (mainly in Europe and Asia).

Within Australia this resulted in: reduced consumer confidence and demand for new housing; a fall in committed resource investment;  capital problems facing various businesses;  failures by firms with high debt levels; losses by businesses and banks; declining business orders / confidence / investment; falling commercial property values; difficulties funding infrastructure investments; worsening household finances; increased household savings; and sharp falls in government revenues.

State Government concerns about ensuring job creation were expressed in the context of Queensland's 2009-10 budget in June 2009 because the GFC had both: (a) adversely impacted state revenues; and (b) threatened a rapid decline in national revenue, economic activity and employment from mid 2009 - because of adverse effects on resource-related industries and property development. Substantial declines in the Australia's terms of trade (reflecting a fall in commodity prices from boom levels) was a major source of expected problems from mid 2009.

A notable feature of the budget was a commitment to maintaining substantial state infrastructure spending (despite a rapid worsening of the government's financial position, and a resulting large budget deficit). This was seen as reducing the job losses likely because of the GFC's impact on the state's economy and government revenues (see About Queensland's 2009-10 Budget).

In the budget context various observers suggested, in relation to Queensland's economy, that: the state has suffered more than others, and has only its economic structure and financial arrangements to blame; unemployment will rise; mining / property booms have ended; business investment could fall 25%; and business has concerns (eg with higher costs which can't be passed on;  and lack of payroll tax relief / strategy for fiscal recovery). However on a positive note it was suggested that: the budget deficits would reduce the risk of economic contraction and unemployment; Queensland's performance (despite setbacks) should still be better than others; and the worst may be over in 4 years with strong growth resuming in 2011-12.

By the time this [modified] submission was being assembled, there was increasing optimism that (mainly because of aggressive stimulatory policies adopted in the US and China) the risk of the  very severe global economic contraction that had appeared likely in late 2008 could be avoided and that recovery to slow growth was imminent (see Recovery? in Managing Australia's Economic Crisis). Queensland business generally expected an improving economic outlook, though the economic news was actually worsening (CCIQ, 'Pulse survey of Business Conditions', June 2009). The RBA expected that the downturn would not be one of the more serious in the post-war period (Rollins A 'Risks to economy are receding', Australian Financial Review, 29/7/09)

Improving Understanding of the International Context

However the situation is not that simple. The above 'Benign Market' scenario is not the only possibility. .

It will thus be suggested below that, at the very least, there is a need for a more sophisticated approach to economic analysis in order to understand the opportunities and risks that will affect Queensland's economy and employment opportunities. Specifically qualitative changes in the nature of economic systems probably need to be considered, as well as well as the quantitative indicators that economists traditionally rely on.

An account of the causes and complexities of the GFC is in Global Financial Crisis: The Second Test.  That document also included speculations about the requirements for a global solution.

Apparent Causes include: prior asset inflation; declining US housing prices; an oil price spike; loss of effective regulation due to globalization; failure of post-war international financial regime to recognise macroeconomic consequences of Asian economic models, and the need which other emerging economies had to export-led development to guard against financial crises; emergence of an unregulated 'shadow' banking system in US;  high levels of household debts which caused consumer spending to fall as financial losses emerged;  innovations in financing and monetary policy; decisions by regulators and businesses; government social policies; complex financing arrangements that rendered consequences incomprehensible; possible intrinsic disequilibrium in financial markets that was not perceived by deregulators; community irresponsibility; a lack of top-level US government economic expertise because of the 'war on terror' focus; a 'savings glut' in East Asia that was vital to economic models adopted in the region; Japan's ambitions and 'carry trades'; the way Lehman Brothers failed; very high levels of corporate debt in Europe; risky investments in emerging market economies; and policy actions by governments in reacting to the emerging crisis.

Apparent complexities include: inadequate efforts to repair financial markets; side effects of radical efforts to combat crisis; deflationary demand deficit built into East Asian economic models; trade downturn; demographic transition; political risks (eg of protectionism); undermining past basis of economic globalization; need for new methods for macroeconomic management; cultural factors influencing the role of money and the methods used to promote international financial / economic regimes; and possible emergence of new global reserve currency.

An important question related to the GFC ("Why did no one see this coming?") was posed by Queen Elizabeth. In some respects the answer involves the limits of rationality in dealing with very complex systems. However at another level it reflects the fact that economists tend to focus on 'real economy' variables and have assumed that financial markets would take care of themselves - an assumption that proved incorrect because the character of those markets was changing and rendering them unstable for many reasons (eg regulatory changes; financing innovations; and the emergence of radically different East Asian economic models).

One respected economist, Robert Shiller, has suggested that economists failed to anticipate the crisis because they used the wrong economic models (specifically that their models tend to assume rational behaviour) [1]. However, the emergence of new relationships within economy systems implies that reliance on any economic model (as compared with alertness to the way in which economic systems are changing and thus invalidating earlier models) must be inadequate. For example, East Asia economic methods have become economically significant (and significant in relation to the international imbalances that contributed to the GFC) but those methods do not rely on 'rational' behaviour as understood in Western societies, so any models devised for the latter would be globally inadequate.

Unfortunately it seems possible that the mid 2009 perceptions about a short / shallow downturn before inevitable recovery (ie the Benign Market scenario) might simply reflect the same inadequacies of analysis that failed to see the GFC coming, for reason outlined in False Dawn?

Key points: 'Toxic' assets in (mainly European / US) financial institutions have not been adequately dealt with and will constrain ongoing credit operations. Higher interest rates are likely due to cost of government  to fiscal stimulus and bank bailouts. Global financial imbalances have been vitally important to East Asian economic models, but won't be sustainable in the post-GFC environment.

A 'Fractured Market' scenario involves the GFC resulting in a protracted / deep downturn, and leading to significant changes in Queensland's economic environment. Major post-GFC economic adjustments might well be needed  in Europe, North America and Asia - and business / government strategies in Queensland could not be viable unless this is evaluated.

An 'Asian Century' scenario is a further possibility leading to significant changes in the criteria for economic 'success' (which would affect what is needed to create employment opportunities) - if the financial crises experienced in major Western-style economies lead to long term setbacks.

An Asian Century?  Radically-different economic / financial practices prevail in East Asia (see Understanding East Asian Economic Models). There is some similarity to 18th-century European mercantilism under which the goal of economic strategy was to build the power of national elites, rather than improve the welfare of citizens as consumers. Accumulating a stock of 'treasure', rather than boosting value-added, could become the criteria for economic success if this becomes the 'Asian century' and East Asian economic models prevail.

A 'Global Collapse' scenario - under which economic breakdown triggers international political discord and widespread conflict - is also not unimaginable.

While only the 'Benign Market' and 'Fractured Market' scenarios are considered below,  Queensland's businesses, communities and governments need to develop the capacity to evaluate changes in the international economic environment in terms of their macroeconomic implications for the state's economy as a whole and their microeconomic implications for various industries.  In particular, because of Queensland's exposure to Asia and expectation of major economic opportunities in the region, significantly enhanced Asia-literacy is needed to maximize employment opportunities (see also China as the Future of the World?).

Queensland's Economic Challenge

Queensland's economic challenge depends on the duration and intensity of the international economic dislocation associated with the GFC. Under the 'Benign Market' scenario, the challenge is to prevent serious damage from a short term downturn (eg a significant rise in unemployment that would have feedback effects through reduced consumer spending and mortgage defaults). Under the 'Fractured Market' scenario, Queensland potentially faces a major shock that dislocates current economic activities and expectations.

Queensland needs to do a great deal to improve its ability to respond under either scenario because, despite, rapid population and economic growth, it has remained relatively under-developed economically (see Evidence in Queensland's Economic Strategy). For example:

  • GSP / capita (a measure of the economy's productivity - which in turn tends to reflect its ability to adapt to economic change) has been low by national standards - and Australia's GDP / capita has not been high by international standards;
  • the economy has remained highly dependent on export of commodities derived from natural resources (land and minerals). Basic 'commodities' are subject to boom and bust cycles (whose consequences are now being demonstrated) and some can tend to be capital intensive (and thus often a poor basis for competing with moderately-skilled low-wage economies). Those limitations led to: (a) a loss of business and government enthusiasm for mineral /energy related activities in the 1990s; (b) slow responses to the resources boom triggered more recently by China's explosive growth; and (c) vulnerability to a possible breakdown in the East Asian economic models in the post-GFC environment (see Are East Asian Economic Models Sustainable?);
  • economic growth (especially in SE Queensland which accounts for a substantial share of the state economy) has also been highly dependent on rapid population growth based on exploiting other natural assets (ie unused land and attractive climate) - and this dependence has negatives in terms of high costs to taxpayers and growth pains;
  • business and the community remain highly dependent on external investors and government to ensure their economic welfare (a common source of economic weakness in relatively resource rich regions)..

Though the national situation improved during the 1990s (arguably as a result of market liberalization), significant gains were no longer being made even before the emergence of the GFC (see Impact of Economic Liberalism in Australia)

Attempts to develop and diversify Queensland's economy have been made for about 25 years and, though partly successful, these have been much below potential arguably because substandard methods for economic development that have been adopted - involving efforts to push changes that were politically seen to be 'desirable'. Methods such as those suggested below to develop the economy and thus allow market-driven diversification could potentially achieve better outcomes in future.

More market-focused approaches to economic development have not been seen to be necessary arguably because state governments (who have the major responsibility for economic development in Australia) face inappropriate incentives. There may achieve political gains from meeting the expectations of influential interest groups that are seen to be economically 'progressive' (eg by funding education / research). However, because of Commonwealth Grants Commission practices, under which revenues are determined on a 'needs' basis and compensate for weaknesses in local tax bases, state governments have no financial incentives for ensuring that their state's economy is highly productive through meeting leading-edge market demands. Moreover state revenue sources tend to reflect the level of economic transactions, rather than whether those transactions are economically productive (see Providing Incentives for Effective Economic Development).

If the 'Fractured Market' scenario eventually unfolds, serious efforts to boost the supply side of Queensland's economy will be vital needed (to grow out of recession), rather than marking time waiting for the resumption of growth similar to that in the past - whilst accumulating huge public debts that would constrain future growth.

Methods whereby the supply side of the economy might be strengthened, and thus Queensland's ability to generate well-paid employment opportunities, are suggested in A Case for Innovative Economic Leadership. The latter recognises that improving productivity and creating employment opportunities in a relatively high-wage economy can be achieved through innovation (ie commercially exploiting new technological and market trends). Developing such a capacity in Queensland has been the goal of successive state administrations for the past 20 years (eg through 'Smart State' programs). However success has been limited arguably because of the emphasis on political 'push' (through government programs) rather than on methods that would emphasise market 'pull' (see Commentary on Smart State).

What might be done: A Case for Innovative Economic Leadership refers to the possibility of accelerating changes in the economic systems that provide support to individual enterprises, through democratically endorsed institutional arrangements which are able to: (a) identify opportunities for such changes before they are likely to be widely (ie politically) understood; (b) explore multifunctional enterprising options for addressing those opportunities in such a way that private initiatives can be taken; and (c) enable those who lead such processes to gain reasonable rewards.

Similar methods might also usefully be applied to the development / enhancement of market-based capabilities to support (for example): (a) agribusiness; (b) minerals and energy related industries; (c) growth oriented SMEs; and (d) larger regional economies.

Problems in the Inquiry's Terms of Reference

Government's best option for creating employment opportunities would involve 'governing' (ie creating a framework in which others can do things - such as creating the capacity within business and the community to better understand the international economic environment) rather than itself trying to 'do' those things itself. There are constraints built into the political process which (for example) render politically acceptable ideas likely to be commercially out-dated (see Economic solutions are beyond politics).

There are 'n' Queensland organisations (eg enterprises, associations, institutes, civic entrepreneurs) who can contribute to the Inquiry's goal, and it would be more constructive to focus primarily on what they (rather than executive government) can do. Government's most useful contribution might be to legislate democratically-acceptable protocols and potential revenue sources that might enable independent initiative in enhancing broader economic / employment systems - even though those systems have some public interest implications for the community as a whole.

A beneficial side effect of such an approach would be to strengthen civil society in Queensland - and thus lift the community's capacity to provide up-to-date and practical contributions to political debates - thereby raising the ability of the Parliament to effectively hold the Executive accountable. Though stronger economic insight in itself would be insufficient (as social, environmental, governance etc expertise is also required), stronger civil society seems to be a key to reducing the potential for abuses of political power that arise periodically (see Journey Towards a More Effective 'Fitzgerald Inquiry' and "Nip corruption in the bud": Good idea, but Fitzgerald didn't go far enough). It would also (by strengthening economic insight within the community) make a useful contribution towards coping more effectively with the challenges posed by close exposure to the crony capitalism implicit in neo-Confucian styles of socio-political-economy (see Lack of Asia Literacy in Australian's Governance Crisis).

Unfortunately the Inquiry's main focus seems to be a review of industry development and employment programs undertaken by DEEDI. Such programs (which might expect public servants to 'assist' business, industry or individuals in various ways) will often tend to be the problem, rather than the solution (eg initiatives to fill emerging market gaps can create obstacles to real development of the economy). A fundamental change in philosophy is needed to emphasise economic / community development so that focus is placed on upgrading assistance through normal market / social processes.

Moreover, to be really effective in creating employment opportunities, there is a need to change the way in which the performance of public service staff is assessed (ie so that value is not primarily placed on managing large and costly operational programs).

Other Strategic Directions for EDC Inquiry

The Inquiry should be cautious about assuming that there is any 'best practice' that can simply be copied. While it is useful to study international practices, differences in political, administrative, economic, social and cultural contexts complicate what can be learned - in relation to Queensland's needs. Moreover given possible changes in the structure of the global economic / financial environment (see above), past experience may not be an adequate guide. 

The Inquiry needs to recognise the importance of competitive advantage (ie that which can be created by strategy) rather than emphasising the traditional notion of comparative advantage (ie the factors that are innate in a given region) that were mentioned in its Terms of Reference.

The Inquiry should focus on methods to improve productivity (ie a value added measure) rather than targeting 'employment creation' directly, as sectors with increased productivity will tend to grow and create highly paid employment opportunities (because prices then fall and demand rises). Focusing directly on 'jobs' is likely to limit productivity, slow growth and ultimately result in fewer job prospects / lower incomes.

The Inquiry thus needs to consider the implications of National Competition Policy (NCP) as this has been viewed as the major source of improvements in economic productivity for most of the past two decades (ie by changing the way in which governments operate). NCP has arguably tended to complicate government as much as improve it and involved an unbalanced economic approach (as it created the incentive to be competitive, but did not ensure that the systemic capabilities were created that individual / enterprises must be supported by if they are to compete successfully).

The Inquiry's main focus in developing the economy and boosting productivity should be on improving the flow of economically-relevant information (as economists recognise knowledge as the most important factor in economic growth), rather than (for example) seeking to optimize resource usage. Effective information flows (eg those which involve seeking out technological and market trends through institutions able to appropriately adjust enterprise strategies and economic systems) will provide the means to optimize resource usage.

The Inquiry could draw attention to the possibility of increasing the financial rewards to state governments if they are successful in developing a productive modern economy by changes to federal financial arrangements (see Economic Development Incentives).

The Inquiry needs to consider the the relationship between the microeconomic issues that are mentioned in its Terms of Reference and the macroeconomic initiatives that have been taken to boost job creation through the state budget (involving large budget deficits in the hope that the economic downturn will be short and shallow - see Queensland's 2009/10 budget). This is needed to ensure consistency, and because: (a) there seem to be serious difficulties emerging in the budget position which would become critical under the 'Fractured Market' scenario; (b) taxes are a major concern of business in relation to job creation; and (c) the (Keynesian) use of fiscal policy, in an attempt to smooth out economic booms and busts, lost credibility in the 1970s because such measures tended to take so long to implement that their effect was often pro-cyclical rather than counter-cyclical.

Boosting Economic Strengths

Efforts are suggested above to develop: (a) market-based capabilities to better support existing areas of economic strength; and (b) very generalised paths to future development.

'Picking winners' (ie the 15 key industries that the EDC's issue paper mentioned) and creating arrangements for public servants to 'assist' business and industry in developing them, are likely to be far less effective than creating arrangements whereby market support can emerge for 'winners' that are determined by demand signals.

Many of the components of the DEEDI's current industry programs would be of value (eg enterprise centres; technology transfer; market development) but should be created through institutions whose market responsiveness is not constrained by potentially-dated political understanding and interest group expectations.

Likewise DEEDI's skills development programs are undoubtedly of value, but the major operations need to be hosted by institutions which ensure that the programs are more directly responsive to market demands rather than to political aspirations. It is inappropriate to seek to  identify the skills Queensland needs in future through submissions to an Inquiry. There is a need rather for the Inquiry to suggest institutional arrangements that would create a more direct relationship between demand and supply

Government programs can have a constructive role in education, in support for basic research and in stimulating action to deal with emerging public policy priorities, but the economic benefits that derive from these are likely to much greater if any spin-off economic gains are not constrained by governmental attempts to 'help' or boost government revenues. 

Supporting the Economically Marginalized

Individuals and communities can become marginalized economically - especially in an environment in which economic change is rapid (as it has been in Australia as a result of economic globalization and market-liberalization reforms, and is likely to be the case in future). 

For example, the long-term unemployed and older workers can lose touch and confidence. Young people can find difficulties if they come from dysfunctional family backgrounds or lack education / skills. They also face the sheer complexity of launching a career in a modern environment.  Individuals with indigenous ancestry probably face particular constraints partly because of a general failure to examine the practical consequences of traditional cultural assumptions. Low quality job prospects and under-employment (ie being forced to accept jobs below skill / education levels) are risks where a region's economy is poorly developed.

Over the past decade a large increase in transfer payments by the federal government compensated many who were marginalized by rapid economic change, and so reduced the level of resulting incidence of obvious social inequality. However such transfers are less likely to be viable in future - because they were funded from the escalation of capital gains revenue associated with a transitory economic boom.

More effective measures for economic development (eg along the lines suggested above) would be useful in preventing economic marginalization in future. A better developed economy would provide more support to enable individuals and enterprises to succeed in a competitive environment.

However there is also a need for support at the level of individuals and communities- and this might best be achieved by more effectively motivating / empowering individuals to support each other within family / community / business contexts (see Overcoming Social Disadvantage). As the latter notes, methods for combating disadvantage through state support have been under challenge (eg because of concerns about 'welfare dependency' and emerging difficulties in funding state welfare programs).

Reform of Regulations

'Red tape' is a constant source of frustration for business. However there is little point in trying to rationalize existing regulations (as has been attempted in the past) unless something is done to stem the flow of new regulations that arise from the expectation that political processes should be used to impose solutions to emerging problems. Exploration by the EDC of apolitical machinery for addressing new challenges might be of greatest value in terms of reducing regulatory burdens.

A particularly important area of regulation arguably involves industrial relations - where there seems to be a need to emphasise enterprise-based industrial relations systems because of the necessity for both economic flexibility and the equitable sharing of business income.

Attachment: Economic Policy Principles for Queensland

Economic Policy Principles for Queensland - email sent 12/1/15

Gene Tunny,
Queensland Economy Watch

Re: Good set of policy principles (mostly) from new Queensland think tank AiP, Queensland Economy Watch, 6/1/15

Thanks for drawing my attention to the high level economic policy options for Queensland’s forthcoming election that have been developed by the new Australian Institute for Progress (AIP). It certainly seems that economic issues will be a major focus of the coming state election (eg see Wardill S., ‘Economy is key to election for both Labor and LDP’, Sunday Mail¸11/1/15). It is thus great to see a body such as the AIP developing proposals for economic policy directions.

The following is an attempt to: (a) reinforce the point you made about one obvious deficiency in the AIP’s proposals; and (b) suggest aspects that would need to be considered in giving effect to the AIP’s list of other broad policy objectives (a list that is reproduced at the end of this email).

Your article generally endorsed the AIP’s suggested policy agenda – though you objected to its item 7 on the grounds that government should not ‘pick winners’ (eg mining, agriculture, tourism) but rather should let market forces do so while government simply: (a) reduces the regulatory burden on all industries; and (b) only intervenes where there are clear market failures. In support of your contention it is noted also that:

  • The market liberalization emphasis that was adopted in the 1980s and 1990s as the basis for strengthening Australia’s economy (ie tariff reduction, financial deregulation and microeconomic reform) seemed to emerge from OECD conclusions (in about 1970) about the effect of government efforts to strengthen economic performance in Europe in the 1960s. Governments had tried to help in the face of de-industrialization as previously important manufacturing functions shifted to low-wage economies (especially those in East Asia). It was apparently concluded that government attempts to ‘help’ had proved counter-productive (ie had slowed, rather than speeded the development of new / higher productivity economic functions);
  • Reasons why direct intervention by democratic governments is likely to inhibit (rather than strengthen) the emergence of economic functions that can enhance economic growth and high-wage job creation are suggested in Economic solutions are beyond politics (1995). The latter drew attention to: (a) the consequences of interest group pressure; and (b) the need for leading edge commercial knowledge that is unlikely to be widely available (and thus politically accessible);
  • Some recent comments which parallel your contentions are in Develop a Productive Economy - But Don't Pick Winners (2014). This included: (a) suggestions that ‘picking infrastructure winners’ through a central planning process can be just as counter-productive as ‘picking industry winners’ (eg because it may not result in selection of projects that truly match regional needs); and (b) reference to broader option to improve Australia’s economic performance (in Turning Australia Around). The latter, in turn, included reference to non-conventional apolitical methods to develop stronger competitive advantages that should work in a democratic environment.. These and related issues were also addressed in 'Australia's Competitiveness': Some Suggestions (2013),Spilling the Beans on Government ‘Assistance’ (2014) and Creating an Environment for Innovation-led Economic Growth Requires Business (Not Government) Leadership (2014);
  • ‘Picking winners’ in terms of economic functions (eg support services to desired major economic functions) is just as damaging as ‘picking industry sector winners’ that the AIP advocated. The provision of direct government ‘assistance’ to individual firms who are doing whatever is currently politically favoured is the opposite of developing the ability of the market economy to provide the necessary support to ‘winners’ that the market endorses (and is a significant obstacle to economic progress) – see Problems with Direct Government 'Assistance' (2002). The provision of direct government ‘assistance’ has long been favoured in Queensland as an alternative to development of the state’s real economy.

There is (I submit) also a need for deeper consideration of several of the other broad / overly-simplified aims that comprise the AIP’s suggested policy agenda. For example:

Queensland’s experiences in the 1970s show how it would be possible to use a broad economic policy agenda such as the AIP suggested (with appropriate adjustments) as the focus for substantial and effective enhancement of Queensland’s government and economy by stimulating mutually-reinforcing initiatives that build on existing internal and external capabilities.

By way of background I note that I had to opportunity some time ago while working for Queensland Coordinator Generals to:

  • study machinery of government issues (in the 1970s), while also observing / involved in efforts to enhance Queensland’s machinery including the means used for planning and development of infrastructure;
  • study international debates about economic strategy (in the 1980s), and author one of the first proposals for diversification of Australia’s resource-dependent economy into knowledge intensive functions (see Smart State: Some Informal History, 2012).

My ongoing interest in these areas is reflected in numerous documents on my web-site.

I would be interested in your response to my speculations

John Craig

Key Policies for the 2015 Queensland Election (Australian Institute for Progress)

  1. “Budget repair, ensuring that operating income is greater than operating expenses and that debt is paid back from cashflow and sensible asset redeployment, including sales/leases of mature assets and those that can be better run by the non-government sector.
  2. Privatisation of the energy sector so that consumers enjoy lower prices and better services.
  3. Providing a better service by government for the same or less expenditure, particularly in areas like health, education, families and housing
  4. Concrete plans to increase numeracy and literacy rates, provide children with the content and research and analysis skills to adapt to any future cultural or employment environment, and an awareness and appreciation by children of their own culture. The most important welfare measure is a good education.
  5. Investment in infrastructure that will improve the quality of life for Queenslanders and increase efficiencies leading to greater productivity and state wealth.
  6. Solving the housing affordability problem.
  7. Enabling and promoting the industries where Queensland has a competitive advantage, specifically mining, agriculture and tourism.
  8. Renegotiating the federal compact so the state has access to adequate revenue to meet its commitments.”
Queensland Economic Policy Issues

Queensland Economic Policy Issues - email sent 18/1/15

Gene Tunny
Queensland Economy Watch 

Re: Economic Policy Issues in the 2015 Qld Election – Griffith-ESA Qld event on 28 January, Queensland Economy Watch, 28/1/15

Thanks’ for your advice about this forthcoming economic policy panel discussion. This will undoubtedly complement the economic policy options for Queensland’s forthcoming election that have been developed by the new Australian Institute for Progress (AIP) to which you previously drew attention (and on which I had previously offered comments in Economic Policy Principles for Queensland).

I should like to suggest some reasons that such efforts are important.

The most obvious justification for independent economic policy analysis and debate is that there are serious deficiencies in the ‘economic’ policy options that the major political parties have advanced in the context of the forthcoming state election. Their emphasis has been on state fiscal issues (ie revenue, spending and state debt). And, while state fiscal issues are important:

  • the public sector is only (about) 30% of the economy, and the state sector is only part of the public sector (as the latter also includes federal and local governments);
  • there is some doubt about the adequacy of even the fiscal agendas that the major parties are advancing (as you suggested in Neither party gets a high distinction in fiscal policy, 17/1/15);
  • there are ‘strategic’ developments which would need to be part of any serious economic policy that don’t seem to be being considered.

The ‘strategic’ developments that appear to me to be need to be taken into account in any serious economic policy agenda include:

  • the exposed and unstable state of the global economy (eg as suggested in An Approaching Crisis?). The G20, which met in Brisbane in late 2014, did not seem to really get to grips with the challenges that exist (eg see Reducing the Risk of Financial / Economic / Political Crises, 2014). While Queensland can’t solve the world’s problems, it needs to take them into account in planning its future;
  • the growing problem of social inequality in developed economies. This has the potential to generate social and political instability – and has been seen as a challenge to the viability of democratic capitalist systems of political economy (see Who Is Failing the Lower and Middle Classes? 2014). Though Australia’s position has been relatively good to date (because of a China-driven resources boom) the problem exists here also and is getting worse (see Restoring the Viability of Democratic Capitalism, 2014). The easy money policies that have been needed to maintain growth in the face of structural international financial imbalances seem to be a significant factor in increasing inequality (because ultra-cheap credit boosts the wealth of those with existing wealth), but the existence of increasingly competent competition from low wage economies whose communities also have lower expectations in relation to public services and income transfers is arguably also significant. There is a need for any Queensland ‘economic policy’ to take these aspects into account (eg because of what the latter implies in terms of the need to emphasise the development of international competitive advantages), though the challenge arguably is not simply economic (see The Challenge and Potential Cost of Inequality and Insufficient Income, 2014);
  • the emergence of East Asia as a major source of economic opportunity and competition through the use of ‘bureaucratic non-capitalist’ methods that are quite different to those of Western societies and are neither widely understood nor easy to understand (see Babes in the Asian Woods);
  • the new attempt which seems to be being made to create an ‘Asian Sphere’ (perhaps including Australia) in which the authoritarian methods which have been the basis of the region’s economic ‘miracles’ might be freed from the constraints imposed by the ‘liberal’ (ie democratic capitalist) post-WWII international economic order that the US has championed (see Creating a New International 'Confucian' Financial and Political Order);
  • the increasing geo-political significance of financial and economic considerations (see This Could Be the Year We Acknowledge the 'Weaponization of Finance', 2015); and
  • the inability of democratic governments to take sole / primary responsibility for the implementation of some useful economic policy options (eg see Innovation-led Growth Requires Business (Not Government) Leadership).

It will be interesting to see how the Australian Institute for Progress and the forthcoming Griffith / AES panel discussion deal with such issues.

John Craig

The Black Holes in LNP and Labor Economic Agendas

The Black Holes in LNP and Labor Economic Agendas - email sent 23/1/15

Mark McGovern

Re: The black holes in LNP and Labor plans to fix Queensland’s debt, The Conversation, 23/1/15

Your article pointed to weaknesses in current LNP / Labor proposals related to Queensland’s public debt problems. However in that area Queensland’s political system has at least recognized that there is a problem.

An arguably bigger challenge involves strengthening Queensland’s economy, and this does not even seem to have been acknowledged much less addressed. Some suggestions about the need to consider more than Queensland’s debt problems were outlined in Queensland Economic Policy Issues (2015). The world economy is apparently sinking into a debt / deflationary trap because easy money policies have been used to sustain growth – but have now reached a point where they can no longer be effective (eg see also Evans-Prichard A., ‘Larry Summers warns of epochal deflationary crisis if Fed tightens too soon, The Telegraph, 22/1/15). There are geopolitical complexities in attempts to find a path to sustainable global growth because of structural incompatibilities between Western and East Asian financial / economic systems. There are social policy issues that inter-twine with economic issues. The so-called resources’ super-cycle (driven largely by a massive credit boom in China) has come to an end – and thus will put recently-rapidly-growing industries under pressure while requiring Australia / Queensland to look elsewhere for sources of growth. There are significant technological shifts on the horizon that will not only create opportunities for those positioned to exploit them, but disrupt various existing economic functions. Australia’s / Queensland’s economies’ ability to find and exploit new opportunities is anything but well developed (see How durable is Australia’s strong economic performance (Luck?)). Past efforts to strengthen Queensland’s public sector and develop its economy were frustrated by public service politicization. Government effectiveness is also constrained by perceptions (or the reality) of abuses of power (eg see Queensland’s Next Unsuccessful Premier, 2012)

Queensland debt problems need to be dealt with, but they have to be managed as only one element in a much broader agenda – as suggested in Curing Queensland’s Myopia (2011).

I would be interested in your response to my speculations

John Craig

Growth is a Constructive Goal - But is Not Guaranteed

Growth is a Constructive Goal - But is Not Guaranteed - email sent 19/2/15

Professor Fabrizio Carmignani,
Griffith University

RE: ‘Queensland’s biggest economic challenge isn’t debt – it’s growth’, The Conversation, 17/2/15)

I should like to provide some feedback in relation to your worthy effort to make positive suggestions about the new Queensland Government’s approach to the economy. My comments relate to: (a) uncertainties about growth prospects and about government’s ability to counter-balance the business cycle; (b) the importance of boosting Queenslanders’ ability to turn good ideas into new and better enterprises; (c) defects in government machinery that make it very hard for governments to spend efficiently; and (d) uncertainties about the reliability of Queensland’s official budgetary data.

My Interpretation of your article: New ALP government’s pre-election policies were modest. The economy was the main election issue. The economy is ultimately about people. Inclusive growth / welfare is important. Budgets, taxes, debt, spending are only tools. Recent governments have mistaken tools for objectives – and thus seek to minimize debt / deficit / spending. Shrinking government should not be the goal. Good fiscal policy should involve: (a) synchronization with business cycle; and (b) ensuring spending is on quality projects / programs. There is a need for perspective on Queensland’s debt. It has grown substantially since 2006-07 – and the debt / GDP ratio is now higher than elsewhere in Australia. Debt is not a problem if the economy grows rapidly. Thus emphasis should be given to growth rather than to debt repayment. There is no evidence to suggest that the private sector always does better. A final suggestion involves looking at economic data to ensure that fiscal policy is synchronized with business cycle. Thus government needs to identify / predict phases in that cycle. The data currently suggest that economy is not strong – GDP / capita is falling; only part-time jobs are being created; and unemployment is higher than three years ago.

There is no doubt, as you suggested, that fiscal considerations are only part of the economic question – and that, if the economy grows very rapidly, then any current debt levels will eventually be seen to be modest. There is also no doubt that: (a) the benefits to people (inclusive of all people) are what is important; (b) the private sector does not do everything best; and (c) Queensland’s economic position is currently challenging.

However there are considerations that complicate your suggestions.

First, it is difficult for government to make the reliable predictions about the business cycle that you advocate. The global economy is increasingly unstable – as noted in Ending Australia's Political Paralysis?. In fact, while rapid economic growth might solve Queensland’s debt challenges, there is no certainty that the international economic environment (which is plagued by the demand deficiencies and overcapacity associated with high debt levels) will allow this to be achieved.

Also, it is anything but trivial for governments to synchronize spending with the business cycle as your article suggested. As I understand it, Keynesian notions of counter-cyclical government spending lost credibility in the 1970s primarily because it was so hard to get the timing right. It usually took a long time to launch government spending programs. Thus such efforts often turned out to be pro-cyclical (ie to accentuate booms and busts) rather than being counter-cyclical.

Second, it is worth noting that while what governments do in terms of taxes, spending and regulation is important, it is not the only thing that matters. For example, while there are many theories of economic growth, it has long been recognized that knowledge / information / technology is a key factor in boosting productivity and growth. Thus to maximize Queensland’s economic growth (and to render debt levels easier to handle in the longer term) attention needs to be given (amongst other things) to the processes whereby Queensland citizens and enterprises access strategic market and technological intelligence and translate this into new and stronger economic activities. Merely acquiring potentially-economically-relevant knowledge (eg by education, research, invention, study of other’s best practices etc) is not sufficient. It was recently noted that many technologically-advanced Australians have moved to Silicon Valley because it has an environment favouring entrepreneurship (Bingemann M., ‘Brain drain worsens as 20,000 Australians work in US tech hubs’, The Australian, 17/2/15). Past efforts to develop Queensland’s economy have done too little to boost market-oriented / sustainable support for turning its citizens’ and enterprises’ good ideas into new and better economic activities (see Dumb Ways of Being 'Smart' in Queensland's History, 2015). Some suggestions about how that obstacle might be reduced are in A Case for Innovative Economic Leadership (2009).

Third, your article highlighted the importance of ‘quality’ spending by government (rather than just ‘any’ spending). However damage that has been done to Queensland’s machinery of government over the past couple of decades makes it almost impossible at present to ensure ‘quality’ spending (eg consider Towards Good Government in Queensland, 1995; Decay of Australian Public Administration, 2002; and Defects in Infrastructure Planning and Delivery in Queensland, 2002). The first of those documents emphasized the adverse effects of politicization and deskilling of the public service. The second also noted the effects of trying to be ‘business-like’ about governments’ primarily-non-business-like functions. The third referred, for example, to:

  •  the adverse effects of politicization of public services on government competencies;
  •  the adverse effects of fragmentation of responsibility that resulted from commercialization and competitive service delivery in infrastructure delivery. The latter created difficulties. Infrastructure tends to: (a) be the capital component (eg roads) of functions (eg transportation) whose other aspects governments are simultaneously dealing with; and (b) involve functions that need to be dealt with as a whole system (rather than as separate projects / enterprises). Fragmentation of responsibility tends to impede coordination with : (a) the non-capital aspects of associated government functions (eg transportation policy generally); (b) other types of infrastructure; and (c) regional development generally;
  •  the chronic difficulties that states have in performing their constitutional functions in the face of Australia’s extreme federal financial imbalances. As tariff protection did to Australia’s manufacturers, federal financial imbalances tend to force control into the hands of central groups concerned with lobbying for financial assistance - rather than empowering those with relevant experience and technical knowledge about the job in hand;
  •  failed attempts to use centralized ‘strategic planning’ methods – which suffer the same obstacles as centralized economic planning (eg an inability to access all of the information needed to make good decisions);
  •  the intrinsic complexities of using public-private partnerships for functions subject to significant market failures.

Queensland’s Goss and Borbidge governments were characterized by limited achievements because of the damage that the former had done to the state’s machinery of government. The Beattie Government then apparently attempted to ‘just get on with it’ and then experienced many crises / apologies / costly bailouts because Queensland’s machinery of government was just not up to the job. For example, a commitment was made to a new dam for SE Queensland on the basis of a six week desktop study – rather than the 6 years of feasibility studies that had been done for Wivenhoe Dam. The result was not a sparking success (see Structural Incompetence and SE Queensland's Water Crisis, 2007). An apparent emphasis on finding private funding options for dealing with Brisbane’s transport problems seemed to result in developments that arguably do not adequately accord with regional needs (see Brisbane’s Transportation Monster, 2008). Similar distortions seem to have affected federal infrastructure priorities (see Infrastructure Magic?, 2008 and A Pink Batts’ Award for Public Goods and Services’, 2014).

The Bligh and Newman Governments were characterized by increasing concerns about Queensland’s now-obvious problems (ie rapidly escalating debts and the need to prevent ineffective government machinery from simply leading to ongoing crices and rising costs). Though the situation improved, they did not seem to look deeply at the causes of those problems (eg there remained no career protection for public servants whose willingness to point out defects in politically favoured policies was desperately needed; the problems associated with attempts to use business-like methods to deal with governments’ primarily non-business-like functions remained; conflicts of interest and distorted decisions still arose from private ownership and control of some infrastructure that was subjected to serious market failures; the apparent inadequacy of revenues available to states in meeting their recurrent and capital spending expectations; and the distortions and complexities associated with federal fiscal imbalances continued). The Newman Government arguably believed that structural weaknesses in Queensland’s machinery of government that had arisen from ’gung-ho’ political approaches in the past could be resolved by more ‘gung-ho’ political tactics (eg see Reversing Queensland's Institutional Decay, 2013).

Queensland business now reportedly believes that it is importance to ‘kick-start’ infrastructure development to prevent significant reversals by Queensland’s economy (Moore T., Queensland business calls on Labor to kickstart infrastructure pipeline, Brisbane Times, 18/2/15). However until serious efforts are made to create machinery that is able to identify and implement infrastructure that meets Queensland’s real needs, there is a real risk that a ‘gung-ho’ approach to making something / anything happen will continue to impede the achievement of your suggested goal of ‘quality’ government spending (see also Sorting Out Australia's Infrastructure Mess Needs 'Government' not Micro-management, 2014). And without ‘quality’ spending Queensland’s ability to service its public debts will decline – especially as the ultra-low interest rates associated with the era of quantitative easing comes to an end.

Finally Queensland’s fiscal challenges may be more complex than is generally recognized. As early as 2001, it appeared to the present writer that dubious practices in the late 1990s indicated that Queensland was on a path that would lead to financial problems (see About Queensland Budgets, 2001+). And those expectations proved realistic (see Queensland's Debt Binge, 2012). For example:

  •  in 2001 it was apparent that: (a) government spending had grown much faster than state’s economy for years; (b) the tax base was weak and Queensland’s share of federal funds was likely to decline; (c) ‘revenue’ was being generated by raiding the balance sheets of government-owned corporations (GOCs); (d) there was a lack of transparency about the budget; (e) some capital transactions had been removed from budget; and (f) fiddles were possible in valuing state assets;
  •  in 2012 it was noted that: (a) state expenditure had grown faster than the economy during the 1990s, and capital spending had risen to 1/3 of the all-states’ total; (b) stripping the assets of GOCs to support state budget had started in the 1990s; (c) there were other indications of ‘creative’ accounting; (d) government itself had suggested in 2002 that its $5bn pa budget for capital spending was unsustainable, but the state’s annual capital budget then grew to $18bn in 2009-10; (e) there was a lack of transparency about the state’s financial position; (f) Auditor Generals had expressed concerns; and (g) the privatization of assets that was set in train in 2009 seemed to be affected by problems (eg conflicts of interest).

My suspicion is that official data concerning Queensland’s financial position should not be uncritically accepted to be reliable (see A Forensic Audit is Needed, 2012).

I would be interested in your response to my speculations

John Craig

Governments would be Stupid to Themselves Try to 'Fund Future Growth'

Governments would be Stupid to Themselves Try to 'Fund Future Growth' - email sent 15/5/16

Darryl Passmore
Courier Mail

Re: Majority of Queensland want Government to spell out a plan for future growth, Courier Mail, 13/5/16

Your article suggested that:

“QUEENSLANDERS have sent an overwhelming ‘show us the money’’ challenge to the State Government on how it intends to fund future growth. An exclusive Galaxy Poll for The Courier-Mail found eight in 10 people want the Palaszczuk Government to spell out a comprehensive plan for funding the development needed to boost the economy having ruled out asset sales. Only 12 per cent said it was not necessary. The result comes as we publish the final action plan, prioritised by readers, showcasing the best ideas generated by our extensive #goqld campaign to fire up the economy as it transitions from an unprecedented mining boom. A major theme to emerge from the campaign was the need for increased infrastructure construction to counter the dive in resources-related building.”

You also recorded the various comments on this issue by: (a) Queensland Chamber of Commerce and Industry (Nick Behrens) who implied that asset recycling (which the government has ruled out) is the only answer – as reducing services or raising taxes would be unacceptable; (b) Infrastructure Partnerships Australia (Brendan Lyon) who argue that there is a need for better leadership; (c) Master Builders Association who point to declining confidence in Queensland; (d) David Chalke (a social analyst) who advocates following the #goqld action plan; (e) Queensland’s Premier Annastacia Palaszczuk who is committed to restoring hope; and (f) Queensland’s Opposition Leader, Tim Nicholls, who supports infrastructure spending.

This all demonstrates the need for vastly better understanding of Queensland’s economic environment, challenges and opportunities – and for more serious leadership especially by Queensland business. My reasons for suggesting this are outlined in Infrastructure Spending Is NOT an Answer in Itself. The economic and financial environment is arguably much more complex than Queensland’s ‘leaders’ and general community seem to be aware of (eg see Interest Rates and The Challenge of Stimulating a Deflationary Economy). The dependence that Queensland business has had on lobbying governments to ‘do something’ (rather than itself providing the 'real economy' leadership that is impossible for democratic institutions) is a key part of Queensland’s current problem.

John Craig

Boosting Growth Without Just Increasing Debts or Drawing Down Capital Reserves

Boosting Growth Without Just Increasing Debts or Drawing Down Capital Reserves - email sent 16/6/16

Paul Laxon,
Ernst and Young

Re: Elks S., Queensland Labor blasted over super raids at its own fundraiser, The Australian, 16/6/16

While this article arguably over-emphasised your concerns about the Queensland Government’s proposal to use some surplus superannuation funds to pay down Queensland’s debt, there is a significant problem because spending (rather than increasing earnings by boosting productivity) is still being relied upon to overcome Queensland’s current economic difficulties.

Queensland’s government faces financial challenges because of unrestrained and sometimes wasteful infrastructure spending in the past and recent significant falls in revenues due to changes in international commodity markets. However more generally, Australia as a whole faces financial challenges because growth since the GFC has come to rely on increasing debt (see The Risk from Rapidly Increasing Debt to Sustain Growth). Australia’s national economic dependence on escalating debt is roughly equivalent to that in China – where it is seen as the likely cause of a financial and economic crisis (see Importing Risks from China).

Thus it is highly desirable to fully explore methods for boosting economic growth that do not simply rely on increasing debts (to which running down superannuation capital reserves to fund public spending is equivalent). A suggestion on how growth might be boosted with little reliance on debt-based spending (ie by non-political stimulation of the emergence of a supportive business environment for knowledge-driven growth) is in Another Approach to 'My Big Idea'.

I would be interested in your response to my speculations

John Craig