The ugly side of resource development

Structural reforms of rural industries of the1980's and 1990's sought to overcome Engel's Law through international competition, efficiency and productivity improvements. Serious policy failure has been the result.

In December 2005, Bill Pritchard wrote:

During the 1960's and 1970's there was a seismic shift in the intellectual environment of - agricultural economists. The discipline - became more centred on the influence of the Chicago School paradigm. By the 1980's these views had inculcated key policy arenas within the Australian Government

Prichard  International Journal of Agriculture and Food – Vol. 13 (20 Dec. 2005

Milton Friedman's modern monetarism became the genesis of structural reform of Australian agricultural.

Post 1980's rural policy concentrated upon the top 20%-25% of farmers producing 70% of production. Data analysed above, confirms failure of not only rural policy; but also, Friedman's' economic philosophy. As Australia moves toward becoming a net importer of food, the threat of emerging Australian food insecurity brings into sharp focus the need to dramatically change rural policy; and, policy recognition must move beyond its narrow focus upon a hand full of farmers to embrace the other 75% - 80% of farmers producing the final 30% of production.

The fragility of rural Australia depicted in the above statistics compounded by the resources boom property market failure has produced a toxic alchemist's mixture within regional Australia. The ability of rural industries to pay reasonable real wages sufficient to attract labour to agricultural regions is non- existent. Meanwhile, cashed up mining and exploration companies poach qualified tradesmen be they town or farm based. To date 457 visas have provided a temporary solution. This suits Australian industrial policy pushing Friedman's natural rate of unemployment as the full employment definition at 4.5%-5% unemployed. Under a deregulated labour market, migration to maintain a labour supply sufficiently ahead of demand becomes an important policy direction to manage wage push inflation.

The shortage of tradesmen in Australia be they in rural or urban areas is a hangover from the high unemployment levels of the 1980's and 1990's. In those times industry did not have to train apprentices, they simply rang the CES and pulled tradesmen off the unemployment heap. As labour supply tightened, it was inevitable that tradesmen would become in short supply. A business culture of expecting unemployed tradesmen on tap has now evolved into a strident demand that skilled labour should be waiting the pleasure of business. Industry demands that either the taxpayer train workers or they must use 457 visas. This culture has to be addressed at Commonwealth policy level.

These policy problems lie within the province of the Commonwealth Budget strategy. Solutions will require abandonment of Friedman's economic philosophy and a return to the economics J. M. Keynes. Whilst Governments and commentators claim GFC policy response was a return to the economics of J.M Keynes, it was not. The GFC expenditure strategy was quintessentially nineteenth century classical economics. Consider the template below from a nineteenth century classical economist, J.S Mills, interpreting Say's Law of Markets commonly referred to as supply creates demand.

Could we suddenly double the productive powers of the country, we should double the supply of commodities in every market; but we should by the same stroke double the purchasing power. Everybody would bring double the demand as well as supply; everybody would be able to buy twice as much, because every one would have twice as much to offer in exchange