Will it take the pain of mass unemployment, failing businesses and mortgage defaults to force Australians to understand that significant public policy and economic reforms are required to give the nation a decent chance of prospering in the decades ahead?
This article appeared in the Australian Financial Review on 24 August 2015 (subscription may be required).
If history is our guide, the answer is yes. So the test is this: are we mature enough to learn the lessons of our recent past and embrace reform before recession?
It took severe recessions in 1982/83 and 1990/91 before policy makers and the public were willing to embrace the deregulation and reform that set Australia up to capitalise on the resources boom to such an extent that it’s now close to recording 25 years of economic growth.
These historical lessons should be enough for people to recognise that the short term and populist politics which dominate our public debate will fail us now and into the future. However, it’s all too apparent that it could again take a hard lesson in economic reality to refocus public policy away from self-interest to the national good.
This is most true for the people under 45 who in their working lives have never experienced a prolonged recession with the widespread job losses, failed businesses and lost homes that follow.
The last 25 years of relative economic sunshine have let us grow slow and lazy. We have let productivity slide and shunned reform.
So before we sleep walk into recession, let’s be clear about what a recession will mean to Australia. In the early 1980s, the number of unemployed people jumped by more than 300,000 to 724,000 as the unemployment rate hit 10.3 per cent (ABS).
In the early 1990s, the unemployment rate spiked even higher to 10.7 per cent, pushing up the number of people out of work by 440,000 to more than 900,000.
What would a 10.7 per cent unemployment rate look like today? Around 1.35 million people would be out of work – 550,000 more than today. It would see the destruction of wealth and financial stability.
It is these figures that people need to consider before rejecting out of hand serious policy reform in favour of short term benefit. Real reform requires rigorous analysis, not superficial rhetoric.
The benefits of the robust reform implemented in the aftermath of the last two recessions delivered real growth and stability. Hawke and Keating’s decision to float the Australian dollar, the decentralisation of the wages system, removal of tariffs and other industry and competition reforms are widely acknowledged as key structural changes which have underpinned much of our economic success over the past quarter of a century.
Howard and Costello’s remake of the tax system, including the introduction of the GST and workplace relations reforms were also critical to our economic success.
Policy makers willingly accepted their responsibility to devise these far-reaching reforms, explain the merits of the proposals to the public and, finally, implement them successfully. The electorate proved sufficiently wise to accept that difficult change was necessary to restore the fortunes of the nation.
The end benefit was greater prosperity, higher incomes, financial security and far greater international purchasing power for average Australians.
The agenda for the upcoming National Reform Summit convened by The Australian Financial Review and The Australian will place policy issues of critical importance in the current environment firmly on the reform agenda, helping to establish the foundation for broader public debate about the challenges that will face the nation in coming decades.
These challenges are dominant in the minds of all Australian boards, including those who govern not-for-profit organisations as much as those who sit on the boards of major companies.
Directors overwhelmingly agree there is an urgent need to improve productivity, resolve the infrastructure deficit, implement tax reform and address the challenges of an ageing population.
Close to 80 per cent of our broad membership, for example, are in favour of either raising the rate of GST, broadening its base or both.
And as the voice of excellence in governance we call for reform of our fraying and broken system of government that too easily provides shelter from reform in favour of short termism.
We need to re-embrace a culture in which considered risk-taking is recognised as a core responsibility of our policy makers. Given this freedom, they could be more willing to make bold decisions that, while unpopular among interest groups in the short term, deliver tangible, far-reaching and equitable benefits to the whole community over a longer time-frame.
In doing so we must all - directors, unions, business and the community - accept the right policy decisions over narrow self-interest. Failure means a slow decline of which we are not worthy.
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