Sweet spot – Australia's unsung success

There are only two major problems with Peter Hartcher's latest book Sweet Spot – there are no graphs or tables, and no footnotes.

Apart from that it is a slashing read that lays out just how well Australia is performing economically and in terms of social justice. But without easy access to the proof, while it is a good read, it is not as useful as it should be.

And it deserves to be well read and well-used as it proves the success of the political and economic programs of the 24 years from 1983 to 2007, programs that many on the left deride as "neo-liberal".

It would come as a surprise to most Australians to know that overseas we are regarded as a "miracle" economy.

When I was growing-up in the 60s it was the sort of term that was applied to the US; and then in the 70s to the Japanese; and then in the 80s and the 90s to the Asian Tigers or perhaps to Ireland or even Scandinavia.

It takes a hard slap on the side of the head to realise that the term now is rightly applied to Australia, and at a time in global economic affairs when being a "miracle" economy is harder to do than ever before.

This is a particularly significant book because Hartcher is the political editor for the Sydney Morning Herald, and the Fairfax press is the favourite read of those whose refrain is that "we are all rooned".

What's more, the Herald has bought in to the perception of Australia as a mean and barren society more than most organs, and you can see this in the writings of their regular columnist Hugh Mackay.

Hugh conducts focus group research and his refrain over the Howard years was that Australians were becoming meaner and narrower.

Here's what Hartcher has to say about that perception:

The wider picture is that Australia is one of the world's fairest countries, one of the most tolerant, and one of the safest.

This will jar with the image that many Australians have of their country. We have been told again and again that inequality has grown worse, that the rich get richer while the poor get poorer, that racial and religious intolerance has sharpened, and that the crime rate is on the rise.

In fact he identifies the period when Howard was in power as the period when living standards for poorer Australian improved the most.

This is after Hartcher has quoted from the OECD, IMF and UN to show that Australia has one of, if not the, highest standards of living in the world.

The rest of the book restates these themes and looks at whether this has happened by "luck" as Donald Horne's The Lucky Country argued, or whether it is a combination of inherited institutions and attitudes from Australia's earliest days being channelled and redirected by Labor and Liberal governments since 1983.

He comes down on the side of the latter.

This is a book that should be compulsory reading for every federal member of parliament as it comes as close to proving as you can in an argument about economics and social development, that the policies of the period 1983 to 2007 were the right ones.

Although this is not quite what Hartcher says in his book, and therein lie some other faults.

What Hartcher doesn't seem to appreciate is that the achievements of the last few years are the result of the momentum that built up before Kevin Rudd took power.

Since then government policies have tended to slow, and will eventually reverse, that momentum, precisely because not enough members of the current parliament, and the bureaucracy, understand how the success was wrought.

Two issues which tend to suggest that neither does Hartcher both relate to mining.

While he quite correctly falls on the economically liberal side of the debate he doesn't really seem to understand the mechanism by which it works, so he buys into both the "Dutch disease" fears about mining and the idea that the Mining Resource Rental Tax is good economics.

The Dutch disease argument is that if you have too much of your economy in an export industry it will push up the exchange rate and damage import competing industries, gutting domestic capacity and leading to a crash in the economy when the particular export industry collapses.

This is not a particularly good theory, and in the case of Australia the numbers that Hartcher uses demonstrate it is not pertinent.

He points out that the entire energy and mining sector of the economy only amounts to 8 per cent of the economy, and that mining employs just 1.5 per cent of the workforce. It is a long way from dominating.

It is also not particularly responsible for upward pressure on the dollar. When you look at a graph of Australia's balance of payments you see that we have been mostly running a deficit for years.

It is countries that run consistent current account surpluses that put upward pressure on their currency, while we are just in the position of starting to pay our accumulated deficits back.

What is putting pressure on the dollar is high average interest rates due to our overall success, not just the fact we have a mining industry.

Buying into the MRRT policy is a bigger mistake. Not only is it bad policy but it suggests that Hartcher does not understand the direction in which economic reform still needs to go.

Two of Hartcher's refrains are that we have succeeded by being outward looking, and that increases in real wealth depend on increases in productivity. The MRRT assumes that Australia can adjust its tax rate independently of what happens in the rest of the world, an inward looking policy.

But it is also penalises one of the highest productivity industries in the country. If Mining and Energy is 8% of the economy and employs 1.5% of the workforce, then that means that the other 92% of the economy employs 98.5% of the workforce.

Mining and energy are easily more productive than the average. Yet what an MRRT does is to discourage investment in a high productivity part of the economy and weights it towards less productive parts.

There are other mistakes, but in terms of the whole, they are trivial.

His basic point is well made. That Australia is a success, that it owes its success to its own efforts, and that both sides of politics – Labor and Liberal – have crafted it between them.

It's a thesis that has not been put before because so many of our intellectual class could not bring themselves to accept that John Howard was as good a prime minister as he was. That meant that not only did they ignore the achievements of Howard, but of necessity they obscured the achievements of Hawke and Keating.

Now that Hartcher has stated the facts it behoves everyone who cares about Australia should be talking them up.

As Hartcher says:

Winning sporting gold is a national triumph. Winning real gold, the gold of high incomes and high living standards, is, apparently, trivial.

It is not trivial at all, and deserves to be celebrated. Happy Australia Day (for yesterday), and many more to come.