There is increasing debate about appropriate goals for Australia's future population growth with a rhetorical contest developing in 2010 between advocates of creating a 'big' Australia through high rates of immigration and of 'sustainable' (ie modest) population growth.

This document briefly suggests the probable advantages and disadvantages of a 'big' Australia through maintaining rapid migration, and some of the complexities involved.

In particular it suggests that there seem to be undiscussed issues in relation to pressure to sustain high rates of migration on economic grounds, because:

• claiming that rapid population growth (through migration) provides a solution to labour shortages is dubious, as a large additional workforce is required in 'migration industries' (ie those which develop facilities and provide services to meet the additional needs of migrants). Whether migration results in a net increase or decrease in labour for other than 'migration industries' requires complex calculations, not simplistic claims;
• Australia's housing market is widely perceived to be a 'bubble' that could burst (and damage the banking system) because properties are unaffordable for many and rising interest rates exacerbate this risk. Strong demand for housing boosted by rapid migration is one way to reduce the risks facing significant segments of Australian business (and the economy generally because capital inflow for property development obtained through Australia's banks has been the primary way in which Australia's current account deficits have been counter-balanced);
• despite efforts to diversify Australia's chronically resource-dependent economy since the 1980s, it remains relatively underdeveloped because of the poor strategies adopted. 'Migration industries' provide a basis for economic growth that do not require the effort and initiative needed to diversify into new high productivity activities; and
• 'migration industries' could be a means for stabilizing Australia's economy through the turbulent years ahead, but this will not be sufficient and even exploiting this opportunity effectively and productively requires a radical change to tradition assumptions about how growth and development are best managed.

The concept of a 'Big Australia' was advanced by a former ALP Prime Minister (Kevin Rudd) and involved an increase in the population from 22m in 2010 to 36m in 2050 by maintaining migration rates well above traditional levels.

The federal Opposition rejected this idea on the basis of concerns about the stresses associated with rapid growth - and proposed reducing net overseas migration from about 300,000 pa to 170,000 pa ('No Vacancy', Courier Mail, 25/7/10).

Mr Rudd's ALP successor as Prime Minister (Julia Gillard) expressed a similar view -  though another former ALP leader suggested that Ms Gillard's rejection of a 'big Australia' was merely designed to hold Western Sydney seats (given concern there about asylum seekers) as she had also suggested that the question was not about migration levels but rather about planning and policy (ie to ensure that growth occurs where the jobs are) [1] . Ms Gillard subsequently noted that migration rates were projected to decline significantly in any case because residency provisions related to student visas had been tightened up.

The advantages of a 'big' Australia would seem to include:

• potentially heading off the fiscal difficulties governments face in meeting the health and welfare costs of an aging population where the numbers dependent on government funding increase and the percentage of the population of working age declines. This difficulty should be reduced if migration succeeds in mainly attracting younger people;
• boosting Australia's defence capacity; and
• providing a larger domestic market, which would both: allow many domestically oriented industries to be more viable; and be of benefit to businesses seeking to develop new products and services ultimately destined for international markets.

Providing more workers to meet labour shortages is often asserted to be an advantage of rapid migration, though this claim is anything but certain (see below).

The possible disadvantages of a (relatively) 'bigger' Australia would seem to include:

• uncertain environmental sustainability. Though Australia is a very large continent with a population of only 22m, and thus has a relatively low average population density by comparison with some countries, it also features apparently severe environmental constraints including:
  • limited fresh water supplies - especially away from the east coast;
  • limited good soils. Though some regions are rich agriculturally (and food produced in Australia apparently supports some 80m people worldwide), the average depth of soils over the whole continent is understood to be only something like 1mm because of the vast areas of desert and poor 'scrub';
  • fragile environments which have proven in some cases to be badly degraded and to become unusable as a result of agricultural development and irrigation - a phenomenon which seems likely to be only partly corrected by the adoption of more appropriate agricultural techniques;
• complications related to unauthorised migration of asylum seekers - which puts such people at risk and generates public concerns (eg see Complexities in the Refugee Problem);
• increasing congestion and difficulties in providing infrastructure in major existing cities which seem to accumulate most of any population increases because of their relatively attractive employment prospects and facilities.

Australia's economy has experienced a period of sustained fairly strong economic and employment growth since around 1990. Though there was some dislocation after 2008 as a result of the global financial crisis (GFC), this was less than suffered by most developed economies as a result of both:

• efforts by the federal government to counter the effect of the GFC (eg by stimulus spending, and guaranteeing bank deposits so as to ensure that the international capital inflow needed to balance Australia's large current account deficits was not disrupted by the international credit crunch); and
• China's efforts to counteract the GFC - mainly by instructing state-owned banks to make credit available liberally for property and infrastructure development - which maintained the boom benefiting Australia's important mineral and energy export industries.

Claims have frequently been made that rapid migration is essential to provide the workers (especially skilled workers) needed to support Australia's growth industries, though there is also a diversity of other views.

The Debate

Over past 6 years Australia's population growth has increased from 1.1% pa to 2% - and economic expansion has also been at record levels with low unemployment. Rising population has reduced, rather than increasing unemployment (James C 'Population growth should not need to be reduced - the issue is planning', 26/7/10)

BCA (Katie Lahey) described migration and major component of population growth needed to ensure a strong economy. This view was echoed by Victorian Employers Chamber of Industry (Steven Wojtkiw) (Urban R. and Chambers M 'Abbott's policies on migrants panned', Australian, 26/7/10)

Universities have warned that cuts to international student visa numbers could cripple nations fourth largest export market. ALP claimed that Opposition leader had added up migration cuts from current Government policies and claimed them as his own (Karvelas P. and Maher S 'Student visa cuts to cost jobs: uni', Australian, 26/7/10)

Politicians and business totally misread public sentiment on population growth and immigration - so the idea of a 'big Australia' is now fatally compromised (Lunn S. 'Politicians, business misread mood against big Australia', Australian, 26/7/10)

Opposition proposals to cut migrant intake can be criticised as economically damaging - but will appeal to those in congested communities suffering from state government failures to provide infrastructure. Population grew at 2% pa because of uncontrolled foreign student intake and strong economic growth (Atkins D 'Abbott figures he's on a winner', Sunday Mail, 25/7/10)

Australia's future is entirely dependent on China's (hopefully continued ) voratious appetite for Australia's resources. But producing this takes a lot of workers. This boom has created 245,000 jobs in WA in 7 years - somewhat less than one year's migrant intake. Where will jobs come from? Population growth is now very strong, but economy depends on low-jobs resource industries. This raises risk of 'Dutch disease' affecting rest of economy - ie of high exchange rates reducing competitiveness of other industries. Warwick McGibbon suggested a sovreign wealth fund to channel resource earnings away from economy generally. What happens if Australia runs 250,000 immigration program and resource boom ends? This is why business supports rapid migration ie because it provides customers. There is a need for a large population to get domestic scale for national industries (McCrann T 'Population policy pyramid', Australian, 24-5/7/10)

Australian Industry Group (Heather Ridout) argues that population issue should not be debated in election 'hothouse' and that the important issue is to ensure that growth is better managed in future. (Karvalas P 'Keep growth out of election: Ridout', Australian, 24-5/7/20)

There is strong concern about the impact of immigration on Australians' lifestyles - particularly in terms of congestion and inadequate services (Hewitt J 'Immigration is just another dirty word', Australian, 24-5/7/10)

Inflation is increasing (with potentially undesirable economic effects) because of the rising cost of urban infrastructure. But the problem lies in inefficiency in providing infrastructure rather than in high rates of population growth (Stutchbury M. 'Failure to face growth is the runaway train', Australian, 24-5/7/10

Immigration will remain strong while there are jobs to be filled. Immigration is dictated by labour market - and will be strong when economy is strong (as demographer peter McDonald repeatedly explains). Immigration is the solution, not the problem. It is integral to growth and can't be reduced without reducing growth. The real task is to manage growth - not to see this as the problems and state governments have failed in this. Proper federal-state coordination on transport, land, water, infrastructure and rapid transit have been absent. Most migrants will move to the cities because this is where unemployment is low. Treasury predictions of 36m population by 36m by 2050 are based on an annual growth rate of 1.2% which is below the 1.4% average growth of the pst 40 years(Kelly P 'Small thinking in great leap backwards', Australian, 24-5/7/10)

PM's emphasis on a 'sustainable population' is an excuse for failing to tackle tackle questions of infrastructure, the environment and social policy -according to leading economists (Uren D 'Population focus a cover for failure says RBA director', Australian, 23/7/10)

PM's claims that cities would run out of water if populations become much larger are false - as water mainly needs better management (Stutchbury M., 'Gillards water shortage really a mirage', Australian, 22/7/10)

PM questions whether western Sydney and SEQ have reached their growth limit without destroying Australian way of life. But business (eg Michael Chaney, Woodside / NAB) suggest that paranoia about asylum seekers in preventing sensible debate - and that Australia needs migration to fill jobs in growing economy (Franklin M., 'Not going forward, PM', The Australian, 21/7/10)

The need for skilled labour in the mining industry must be met mainly by temporary migrants, because of inadequacies in the provision of apprenticeships within Australia (Chambers M., 'Migrants must fill labour gap', The Australian, 21/7/10 )

Federal government's changes to skilled migration program (making it demand rather than supply driven) could hold back economic recover. ACCI (Mary Hicks) suggests that lack of labour could mean less work can be done. AIG (Heather Ridout) also warns of skilled labour shortages as recovery gathers pace (Kerr C and Dodd M., Changes to skilled migration program a 'threat to recovery', The Australian, 8/2/10)

Influential businessmen are concerned that Australia's economy will stagnate unless intake of skilled migrants is kept at present levels (Gluyas R. and Hepworth A., 'Business supports Rudd's 'big Australia', Australian, 21/7/10

"Australia still needs a sizeable intake of immigrants to ensure its labour needs are met while the economy continues to grow strongly. That approach has basically worked well for decades and will continue to do so. (Hewitt J. "Plenty of announcements but little real policy, The Australian, 20/7/10

Minister for Resources and Energy (Martin Ferguson) suggested that 'a key potential constraint on economic activity was demand for skilled labour' and that 'comments by the opposition immigration spokesman, Scott Morrison, calling for cuts in Australia's immigration program shows a lack of understanding of the resource industry's needs and the impact on the economy' (Dodson L. 'Skilled labour fuels the boom', Australian Financial Review, 12/4/10 )

There is a need for relatively high rates of migration to provide the labour required to sustain Australia's economic growth. (McDonald P Stop migration and risk wage inflation and interest rate hikes, Crikey, 8/4/10

Professor Phil Lewis (University of Canberra) suggested that, rather than making a fixed pool of jobs more available to Australian residents, cutting immigration could cost Australians jobs (because of the demand and jobs that providing housing and services for immigrants creates) (.Dunkerley S Cutting migration could cost jobs, Brisbane Times, 16/3/09)

In May 2008 the federal government proposed increasing migration as a way to meet labour shortages and gear Australia for what was seen as the new global competition for workers. (Kelly P. 'Rudd taps global labour pool', Australian, 17/5/08), and in October 2008 reduced immigration was seen as a way to respond to feared rises in unemployment [1].

Hollow populist election campaign has led to collapse of support for 'Big Australia' - and strong population growth. Business / economic and political elites always supported this, but community (stretching back to White Australia policy) did not. There is a need for debate about the advantages / disadvantages [1]

Both parties are pushing the idea of 'sustainable' (ie low) growth for Australia's population. But this does not fit with their other commitments to fiscal fortitude. BIS (in Aging and Asset prices) has recently drawn attention to the financial cost of a deteriorating age dependency ratio. Aging is likely to reduce asset prices substantially (eg housing prices). As well as increasing healthcare and pension costs, BIS analysts suggest that aging will also tend to force interest rates up [Mumford G., 'Facing up to the true cost of aging', AFR, 6/8/10]

The issues involved in population debate have become confused. Australia is a choice destination for those wishing the emigrate. Thus Australia needs to choose who to take - and should emphasise those who fit in with Judeo-Christian culture [1]

All election promises of future budget surpluses depend on 'China luck' - leading to high prices for, and large exports of, iron ore and coal. But China is at a turning point - with  migration of cheap rural labour to urban export factories now being replaced by worker unrest driving wages higher. China's growth could accelerate as it shifts to higher value-added production. Rising wages wiill boost consumer spending and cut trade surpluses; increase inflation unless credit is tightened and currency is appreciated. But China may resist adjustment pressure on manufacturing. Australia must exploit its 'China luck' without being overly dependent on undemocratic one-Part state. But Australia would be foolish to block China's access to resources simply to avoid being a 'big Australia'. Rising China-fuelled wealth will fund denense budget and increase demand for many services. China bounty is needed to invest in infrastructure, and bigger population can sustain better infrastructure (eg mass transit). It can also ease problems with 2-speed economy by providing large home market [1]

Australia needs a population policy - but advocates of a big Australia have bundled many immigration issues into one debate - and brandeed opponents raxists. 725 of Australians believe that 36m population by 2050 would be madness.  Opponents claim that Australia's economic potential can only be achieved by growth - even though globally there are resource and environmental constraints. These limits apply in Australia. 85% of continent is arid. Huge spending on roads has not stopped traffic congestion. Large populations don't guarantee prosperity. Two countries with highest per capital incomes have small populations [1]

Productivity boosts can grow economy even if population growth slows [1]

The population debate by federal politicians has been irrelevant - as most of the adverse consequences of rapid population growth are the responsibility of state governments, and migration is the only issue in which the federal government has direct involvement [1]

Victorian premier (Steve Bracks) argued that Australia should recommit to multiculturalism, and avoid isolationist approach to immigration. This would have economic benefits. Isolationism / monoculturalism like that giving rise to the White Australia policy was not in Australia's interest. While diversity is challenging - it is needed for new opportunities and next generation of technologies. All Australian governments since 1973 have supported multiculturalism, and the view that diversity is strength (Lunn S'. We can't return to fortress Australia', A, 20/8/10) [Comment: Traditional multiculturalism appears to involve highly simplistic assumptions about the implications of cultural differences - see Moving Australia Beyond Traditional Multiculturalism]

Concept of 'small Australia' is disastrous.  The ultimate resource is people - and being close to others (for ideas, supply, demand) is economically beneficial. Australia has always benefited from migration - and new ideas migrants bring. It is thus strange that political leaders have rejected the idea of 'big Australia'. Australia is not over-crowded. In fact problems in providing infrastructure largely result from low densities. Companies can adapt to growth, because they respond to price signals. Infrastructure could be arranged the same way. Politicians have not created the right conditions for infrastructure development. (Norberg J. 'Populate or live in boredom', Australian, 20/8/10)

Debate about population has highlighted the fact that Australia (with an aging population) needs more people who can work. However there is also concern that many individuals / regions can't get work - and they resent the fact that it is seen that (a) skilled migrants should get jobs and (b) economic growth seems only to benefit affluent Australians, while struggling individuals / regions do not benefit. There will be support for immigration if we don't leave large numbers of existing population languishing. The solution is not more protectionism, but rather a new social contract involving nation giving all a firm foothold in the mainstream economy [1]

Governments can't actually do much to affect population growth (and in Australia's case this is certain to continue). Moreover of this merely obscures attention from more important policy issues [1]

Australia's population is aging, so there is a need until the mid 2020 for high rates of migration by younger workers in order to offset the effect of retiring baby boomers [1]

However, while specialised skills complicate the situation, rapid migration overall can not seriously be advocated as a solution to shortages of labour in Australia

Reasons for suggesting this are outlined in What is the net effect of immigration on labour supply and employment?. The latter was based on an attempt some years ago to estimate the effects of the large interstate migration flows on SE Queensland and on the effect of high rates of catch-up infrastructure spending.

In brief this suggested that:

• on the basis of very simple modelling, that developing the facilities and services for large and increasing numbers of interstate migrants into SE Queensland (eg housing, infrastructure, retail centres) and meeting their ongoing needs for goods and services employed a workforce in the region roughly equal to the pool of workers available from the cumulative effect of inter-state migration over the 20 years since interstate-migration started accelerating, as well as a somewhat greater workforce elsewhere (ie at the time net interstate migration of 40,000 pa seemed likely to generate equivalent-full-time employment for about 83,000 workers in the region (thus supported a total population in the region of about 250,000 - which was greater than the 225,000 net migrants to the region over the preceding decade) as well as providing employment for about 90,000 workers elsewhere);
• though the net national effect of interstate migration to SE Queensland on labour demand would not be as high as this suggested (because increased demands for labour from rising SE Queensland population would be offset by declines elsewhere), for international migration those offsets would not be available, so international migration might generate labour demands much greater than (eg almost double) the increase in labour supply available from the increased population;
• backlogs in infrastructure provision (because there was only a slow response in providing additional infrastructure when interstate migration accelerated) has constituted a further source of labour demand more recently so that the probable net effect of past and current migration was to significantly reduce the availability of labour for functions other than providing goods and services to migrants.

When this was drawn to the attention of the federal Minister for Immigration and Citizenship (Chris Evans) in 2009, an acknowledgment was received that the issue was complex (ie that there was no simple relationship between migration and changes in the net labour force).

Those rough and now dated estimates don't give a definitive answer, but do show the need for proper analysis before any claims are made about the effect of migration on the net availability of labour.

Even suggestions that younger workers are needed to replace the large numbers of baby boomers who are retiring may well be invalid - because, if (as is possible) migration generates demands for labour that are roughly equal to the numbers of workers in the migrant population, then no amount of migration will reduce the coming labour shortages associated with domestic demographic changes (eg the aging population).

The difficulties Australia's mining industry has had in obtaining the skilled labour required by a minerals boom undoubtedly have a relationship with migration, but this is been complicated because of the simultaneous boom in catch-up infrastructure spending by governments.

In looking for explanations of labour shortages facing the mining industry, problems in the planning and development of public infrastructure need to be considered. Governments launched massive and fairly ineffectual catch-up investment programs at about the same time as a mining boom was getting under way, because large backlogs had developed in the provision of infrastructure as a result of defects in machinery for planning and developing infrastructure (eg see Infrastructure Constraints on Australia's Economy, 2005 and Structural Incompetence and SE Queensland's Water Crisis, 2007).

The latter suggests (based on observing Queensland's apparently-typical experience) that states have had difficulties for decades in dealing with infrastructure.

Why?

Firstly they lacked the fiscal capacity to produce plans that were much more than paper exercises. because the fiscal imbalances built into Australia's federal system (which were amplified by the escalation of special purpose federal funding in the 1970s) made it essentially impossible for them to realistically take full responsibility for their constitutional functions, and they were politically happy with this situation. 

Then it appeared that states' problems were compounded in the 1980s and 1990s by attempts to reform governments to make them politically responsive (which resulted in politicisation and serious losses of practical knowledge and skills) and more business-like (which resulted in fragmentation of responsibilities so that no one was in any position to plan anything realistically).

Budget-linked attempts at central strategic planning were then put in place - which (like federal government attempts to optimize resource allocation) tended to resulted in decision making by those who didn't have the practical knowledge or experience required to do so competently.

Because an infrastructure backlog was becoming apparent, Queensland's capital works budget (previously about $3bn pa) was increased in the mid 1990s to $5bn (which was considered unsustainable) and then continued increasing up to about $18bn pa.

Some of this spending has been on expensive facilities that may not really be appropriate, because of: (a) the complexity of the challenge; (b) the lack of relevant knowledge and skills; and (c) political influence by self-interested private infrastructure proponents.

For example, transport is of key importance - yet viable strategies have not emerged (eg see Brisbane's Transportation Monster, 2008). Urban footprints have been defined for cities on environmental grounds, and this makes it impossible to access the cheap rights of way required for freeway-based transport systems (which are traditionally associated with urban sprawl). However urban densities are not sufficient to support viable mass transit systems, and attempts to boost urban densities have proven problematic.

Because this public spending boom coincided with a mineral investment boom there was: (a) a shortage of skilled labour; and (b) significant escalation in project costs - often around 30%.

The problem was then compounded by a rapid rise in immigration (in order to 'overcome labour shortages' and provide taxpayers to cope with the effect of an aging population). This resulted in faster growth in urban populations, and thus greater pressure on governments to increase their catch-up infrastructure spending - with unknown overall consequences in terms of the availability of skilled labour.

Australia used to have a Loans Council which tried to ensure that the total level of government demand for labour anc capital did not exceed that available. An entity with similar goals could probably have played a useful role over the past couple of decades.

The economic case for increasing migration can't be that this will increase the net supply of labour. Rather migration is more likely to be economically significant through providing affluent customers for the 'migration industries' that have developed. The latter involve the resources devoted to (say)  developing facilities (housing, shops, infrastructure etc) and providing services (retail, health, education, etc) to meet the additional needs of the accumulated population of migrants.

The overall growth of Australia's economy is more influenced by the growth of such industries than it is by export-focused resource industries (which directly and indirectly employ comparatively few people). This can be a mixed blessing, of course, because the positive impact of 'migration industries' on a region's economic growth can be reversed, in the event that an economic shock dislocates the migration flow - as may possible have befallen Queensland

Speculations about Queensland's Economic Predicament (email sent 18/10/10)

David Uren

RE: Sunshine state the new laggard as confidence falls, Australian, 18/10/10

Your article pointed to indicators of weaknesses in Queensland's economy (eg weak property market; poor business conditions; weak retail growth).

While there are several plausible causes of this that your article mentioned (eg adverse impact of strong $A on tourism, and failure of mining boom to produce consumer demand spin offs), I should like to suggest that understanding might be improved by considering the effect of population growth.

Queensland's economy (especially that in SE Queensland) has apparently been highly dependent on the 'migration industries' stimulated by rapidly increasing population - originally associated with strong interstate migration from NSW and Victoria (see Strategic Significance of Migration Industries). Any slowdown in population growth is likely to have the same sort of feedback effect (through reducing job prospects) as rapid population growth did for many years (through increasing job prospects). While I am not sure what has now happened to population growth, I recall hearing recently that: (a) interstate migration has now reversed - ie more people move from Queensland to Victoria than the other way around; and (b) international migration has fallen following tightening of residency concession for students. If population growth has slowed significantly, this would tend to explain the weaknesses in property markets and consumer demand that your article mentioned.

Note added later: Official data showed that in 2009 Queensland's population growth remained above the national average but had slowed [1]

A contact subsequently informally advised that:

"Qld's total population is growing by 97,018 as at end of march 2010 (latest figures available) - of which 44,833 is net overseas migration and just 11,012 is net interstate migration - so total net migration is 55,845

Now just two years ago, Qld's total growth was 121,419 (calendar 2008) of which 84,275 was net migration, of which 21,228 were from interstate

Over the last 12 months net overseas migration to Qld has fallen from 19,308 in the three months to march 2009 to 10,876 to the march qtr this year and net interstate migration has fallen from the mid-5000s qtrly range to just 1,430 earlier this year - preliminary figures suggest that more people are leaving Qld now than arriving from interstate - the 1,430 figure is the lowest since records have been kept, which started in 1981"

The possible significance of these estimated declines in migration (ie 74% in interstate migration and 44% in international migration year-on-year to the first quarter of 2010 - a weighted average of 48%) is that total annual migration in 2010 might be (say) 44,000 less than the 84,275 in 2008 (on the VERY conservative assumption that: (a) the annual decline to March 2010 represents the total decline over the two year period; and (b) indicators that the decline increased further throughout 2010 can be ignored).

In 1995 the present writer estimated that developing facilities required by 40,000 pa interstate migrants moving to SE Queensland provided employment for about 83,000 workers in the region, and thus provided a livelihood for about 250,000 of the region's population (and the latter, at that time, was more than the total number of interstate migrants to the region since this trend started accelerating in the 1970s).

A reduction in overall migration of (say) 44,000 will have a similar effect, though in the reverse direction - ie remove the need for about 90,000 jobs (presumably mainly in SE Queensland), and thus the livelihood of around 250,000 people.  To some extent such a reduction in labour demand will be good news in relation to expected labour shortages to meet the needs elsewhere of the mining boom - though the impact on stagnating SE Queensland's economy for many years could be significant.

Though 90,000 jobs might disappear due to a (say) 44,000 fall in net in-migration, this would not happen overnight. Firstly the jobs involved in 'migration industries' include not only housing, but also the development of (say) shopping centres and infrastructure and in service industries supporting employees in those industries and their families. Any effect on increasing unemployment would be phased in over several years, and each year there would be (say) 15,000 fewer people in the region seeking jobs. Thus the impact on unemployment levels is hard to estimate (ie just as estimating whether migration increases or decreases the available labour force, estimating whether there is any net increase or decrease in unemployment from reduced migration requires complex modelling).

The real risk is that the decline in migration could be self-reinforcing, and so continually increase its employment impact - just as appeared to happen while in-migration was increasing.- and now perhaps eventually lead to net out-migration from the region .

It can also be noted that: (a) the sun-state phenomenon (ie cheap housing, low costs, good environment) which drove interstate migration to Queensland has now been offset by negatives such as escalating housing and utility costs and congestion; and (b) Queensland's economy remains very poorly developed.

Economic growth statistics long showed that Queensland's economy outperformed the national average - but what was seldom mentioned was that much of this was due to faster population growth, and that Queensland's per capital gross state product remained well below the national average [1] due to its poorly developed economy (eg see Queensland's Economic Strategy, 2002). Given the lower average wage rates that this implies, strong migration to Queensland (and the amplifying effect of job opportunities in 'migration industries') requires cost and amenity incentives that may no longer be readily available in Queensland.

John Craig

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Other indications that all is not well in Queensland's Economy [added later]

In Queensland projects worth $40bn have been abandoned since 2007, with $308bn deferred. New projects are down 25% on 2009 and government stamp duty fell $1.4bn in 2009-10. Also 25,000 full time jobs have been lost since 2008, and apprentice numbers are down 50%. High property prices make it hard for first home buyers. Queensland abandoned more projects from 2007 to 2009 than the rest of Australia combined. High profile construction firms have failed. In the 1980s there was a short sharp downturn, but there is now no obvious end to a protracted problem. Government stimulus programs are winding down. While the number of projects is increasing and the numbers abandoned is declining, the number of new projects over past 3 months was 31% below rate in 2009. State Urban Development Industry Association warns that firms who have kept staff on, will soon need to start retrenching. There is also concern about poor prospects of apprentices. Government is sponsoring a forum in February 2011. Queensland has been hit because of reliance on resources and tourism, and interstate migration has fallen to lowest level in 20 years. Michael Matusik argues that main problem is over-regulation, and this won’t be addressed at forum. Competition in construction industry is forcing profits down. Queensland’s situation is like that that started in NSW 10 years ago. While its economy was diversified, when housing affordability became a problem the foundations were laid for problems that still exist (Gaynor M., Numbers are not pretty as state construction industry struggles’, Courier Mail, 13/12/10)

 

'Migration industries' have been an important component of SE Queensland's economy since interstate migration accelerated 3 decades ago (apparently as a result of a sun-state phenomenon and reduced death duties). While immigration and the rising population changed the character of SE Queensland (ie made it both less provincial and more congested), strong immigration probably had a negligible or negative impact on the availability of labour to do anything other than build facilities for immigrants.

'Migration industries', with similar effects, have also arguably developed elsewhere in Australia as international migration escalated in recent years.

Such industries create feedbacks between an economies' growth and migration. Thus:

• not only are increases in migration likely to be self reinforcing, but any reduction in the numbers of migrants is likely to disrupt a region's economy (and thus potentially increase unemployment); and
• job opportunities for migrants are strongest in cities which have attracted past migration flows and thus stimulated the 'migration industries' that attract more migrants.

Moreover while rapid migration arguably creates job opportunities and stimulates economic growth, it does so while avoiding the need to genuinely develop a productive modern economy. The emphasis that governments have given to 'growth management', while neglecting economic development, has not been constructive (eg see SEQ 2001: A Plan for an Under-developed Economy).

Encouraging growth based on 'migration industries' (which, in effect, are based on selling Australian lifestyles to the world) can be seen as yet another symptom of the 'resource curse' that universally limits the economic potential of regions with rich natural assets (see below). As one observer correctly noted, one can't reduce migration without reducing economic growth. However achieving growth simply by increasing population does not necessarily boost welfare (as GDP / capita may in fact stagnate or decline even if total GDP grows strongly).

Australia's Continued Economic Under-development

Australia remains a poorly developed resource-dependent economy despite efforts in recent decades to correct the problem.

Explanation

In 1900 Australians' incomes (measured by GDP / capita) had been the world's highest, but relative incomes declined steadily for most of the 20th century. By the late 1970s it had been concluded that this was the result of:

• specialization in resource related industries (ie agriculture and mining) which were: a steadily declining component of the global economy; subject to chronic booms and busts (as a result of cycles of under and over investment); and often not highly productive (except during booms) despite the significant technological advantages Australian producers always sought because they tended to involve competing with low wage producers in less-developed economies;
• very poor tactics for economic diversification - involving tariff protection of manufacturing industries to service domestic markets.

In the 1980s, determined efforts were made to diversify Australia's economy through market liberalization. Essentially this involved requiring strong competition and removing regulatory obstacles to competition.

For several years this resulted in a reversal of Australia's long-term down-trend in relative income levels, but by about 2005 productivity growth was stagnating.

Arguably one reason for this is that requiring enterprises and individuals to compete does not (in itself) ensure that they have the capacity to do so in high productivity activities, because competitiveness has a 'systemic' character (ie depends on all elements required for an industry's success both existing and being effective). Effective development of new industries suffers a 'chicken and egg' constraint, because enterprise type 'A' will require support from enterprises type 'B' and 'C' (say) - but no one may be justified in setting up 'B' and 'C' type functions until there are many type 'A' firms already operating, and this can't happen in the absence of 'B' and 'C' (see The Inadequacy of Market Liberalization).

However a second constraint on efforts to diversify Australia's involved the weaknesses of Australia's institutions as a result of the classic 'curse' that natural resource wealth seems to expose all communities to.

About the 'Resource Curse': All regions with rich natural resources suffer serious constraints on economic development, because those resources encourage and allow the emergence of political and business elites who promise easy wealth through exploiting those resources but lack either the motivation or the ability to develop more sophisticated and productive economy (see Curse of Natural Resources)

In Australia's case the effect has been a highly dependent community - dependent on investors exploiting natural wealth and on government to redistribute that wealth. Perhaps because of the high level of dependency on government, government 'assistance' was seen as the most appropriate way to support potential new industries (ie politically-driven versions of 'B' and 'C' type functions were established to 'assist' enterprises of type 'A') and the result has been to impede real economic development.

Indicators of the resulting unsatisfactory outcomes and suggestions about solutions (via an emphasis on true nation building) are outlined in A Case for Innovative Economic Leadership.

Furthermore while Australia's economic prospects remain highly dependent on exports of minerals and energy, official expectations of a sustained boom (based on industrial development and urbanisation in China and elsewhere) seem very likely to prove wrong. And if the 'wheels don't fall of the Chinese wagon', than Australia will be confronted with, and dependent on. a regional political and economic environment in Asia that Australian's have no way of either understanding or dealing with effectively (see Babes in the Asian Woods and

Australia's Vulnerable Economy

The global economy faces severe constraints because of the world's failure to date to address international financial imbalances (see Too hard for the G20?).

Simplistically it can be said that these imbalances arose from: (a) the dependence of East Asian economic models on domestic demand deficits because of their the lack of a true 'capitalistic' focus on profit; and (b) the easy money policies adopted elsewhere (especially in US) to sustain global growth despite demand deficits in East Asia (and elsewhere). No matter what cyclical recoveries are engineered by private or public initiative in countries whose current account deficits are essential to maintain growth because of the character of East Asian economic models, financial imbalances must eventually lead to a global economic dislocation.

More importantly for Australia (given current dependence on a minerals and energy export boom) China's 'Ponzi-like' economy is likely to be headed for trouble when these financial imbalances can no longer provide new positive cash flows for wasteful investment (see Headed for a Crash?).

In this potentially unstable international environment Australia has a particular vulnerability related to the need for (say) $50-60bn per annum in foreign capital investment to balance similar current account deficits. It has often been suggested (eg by Bank of International Settlements) that Australia faces the risk of a currency crisis because of: (a) this dependence on foreign capital; (b) the fact that this has mainly been attracted by Australian banks for investment in property; and (c) this has created what some observers believe is a 'bubble' in housing prices (see Maintaining Capital Inflow in Defending Australia from the Global Financial Crisis).

If this 'bubble' were to deflate it might prove difficult to maintain capital inflow into Australia in the face of external credit constraints, and a situation like that in the 1890s might recur when constraints on inflow of capital forced banks to accelerate the decline in property values (by withdrawing investment) and ultimately a real estate crash resulted in numerous bank failures.

Clearly maintaining strong migration rates aids in maintaining housing prices - even if this is at the cost of making housing unaffordable for many.

Towards Effective Management of Both Growth and Development

Some suggestions about the adjustments which seemed likely to be required to deal with the risks Australia faced because of the GFC were put forward in 2008 in Defending Australia from the Global Financial Crisis - on the assumption that the GFC reflected a structural, rather than a cyclical, challenge (for reasons similar to those mentioned above) .  Adjustments suggested included: more realistic government machinery; short term counter-cyclical policy; recognition of the need for structural adjustment and adoption of methods to facilitate change; ensuring effective community awareness and involvement; and participation in global initiatives.

More recently A Case for Innovative Economic Leadership suggested ways to increase the resilience of Australia's economy in responding to potential economic shocks. This suggested enabling the accelerated development of regional industry clusters and rearranging tax powers so that state governments have financial incentives to take economic development (not just growth) seriously.

'Migration industries' are certainly a potential growth option for Australia's economy.  However the disruption associated with congestion and inadequate infrastructure makes it appealing to divert as much as possible of the net population growth away from existing major cities (eg by significantly boosting growth in larger existing regional centres).

Some suggestions about managing economic and urban development outside Australia's major cities are presented in Re-imagining the Federation to Develop New Cities. This advocates a rethink of the traditional emphasis on politicisation and centralisation as the best way to manage growth and development.

In brief, it is suggested that past problems in managing growth reflect fundamental defects in Australia's federal system, and a simplistic approach to economic development. In particular:

• the failure of state governments in providing infrastructure required by growth are largely the result of: (a) federal government efforts to micro-manage state functions - particularly since the 1970s; and (b) increasing politicisation of public administration since the 1980s with a nominal goal of overcoming 'bureaucratic resistance' to at-times-foolish political agendas and ensuring a more 'business-like' approach to governments' mainly-non-business-like functions. These obstacles need to be overcome;
• tactics exist to accelerate the development of high value-added economic functions in larger regional centres, and thus create strong population 'magnets', but these tactics require leadership by apolitical entities operating with government encouragement and under democratically-endorsed protocols;
• state governments (who have primary responsibility for economic development) need financial incentives to do so effectively, as their political incentives (like those of the federal government) are to obstruct the process by counter-productive interventions in an attempt to 'help'.

If population inflow to several regional growth centres could be initiated through methods such as those suggested then the emergence of 'migration industries' would be very likely to generate large numbers of job opportunities and thus sustain (and perhaps) accelerate that inflow.

In passing it is noted that the serious defects in Australia's system of government that are hinted at above, are addressed more comprehensively (though at present in only a preliminary way) in A Case for Nation Building, In brief, this suggests an emphasis on 'nation building' (rather than the tradition of promising to 'build particular things for the nation') because the limits to rationality that make it impossible for central planners to effectively control an economy apply equally to the functions of governments.

In October 2010, proposals about rethinking Australia's approach to the future (especially in relation to population, the rise of 'Asia', a potential commodity super-cycle, and the need for more effective government) were put forward (by Brian Haratis of MacroPlan) as the basis for a national debate on 'Australia 2050'. Some comments on the issues raised in the MacroPlan proposals are outlined below.