Economic nostalgia won't solve Australia's problems

At the same time, our high reliance upon retail (over 10 per cent of employment at the end of 2012) faces much greater competition from online purchasing with customers able to import any number of individual shipments that is below threshold of $1,000 with no tax or duty to be paid. Nothing has been done after a Productivity Commission concluded that it would cost $2 billion to raise $600 million of extra tax revenue.

Truth is that Australia's adherence to free trade is limited with our struggle with manufacturing and food exports meaning that tougher times lie ahead in terms of generating economic activity.

What are the solutions? More public debt?

More household spending, despite Australia already having one of the highest levels of household debt?

A free trade deal with mercantile and authoritarian China at a time when the former US Treasury Secretary argued that the US needs to do a better job at policing the Chinese cyber menace if the global economic system is to be preserved? It is argued that 'two thirds of American computer software used in China is stolen' and up 'to 20 per cent of China's growth is connected in some way to theft of intellectual property'

Even if recent trends are to occur relatively peacefully, Australia would be wise to observe potential consequences from its current economic policy stance.

Consistent with the evidence in Table 1, Ian Fletcher, an adjunct fellow with the U.S. Business and Industry Council, noted that the decline of manufacturing can hardly be offset by 'exporting soybeans and investment-banking services'.

Fletcher also argued that non-elite service-industry jobs 'are also much more productivity-constrained than manufacturing, so you're never going to be able to pay most people decent wages there'. As jobs are lost offshore, Fletcher argues that a mirage is created under the belief that higher productivity jobs remain yet there is 'no guarantee that the workers who formerly held them will find new jobs of equal or greater value'. This occurs as jobs are lost to foreign nations which subsidise production to get a foothold in strategic industries.

While no sensible commentator would suggest a return to absolute protection to give narrow interest groups special immunity from market discipline, they have good reason to challenge their own losses to other more mercantile nations.

While Fletcher's prefers a 30 per cent flat tariff on all imports to bring back high-value industries like producing flat-panel displays, another article suggests that Western societies should not merely turn a blind eye in the hope of economic gain with investor and business interests given the highest priority, 'while sweeping aside the environment, labour rights, human rights, public health and reasonable regulations'.

No one can imply the answers are easy. They are not. If we are to again have an expanding manufacturing industry we will have to become more competitive, including in terms of labour costs.

But at a time when powerful governments (US, EU and Japan) print money in the hope something magical will happen beyond the need for dramatic reform, don't be fooled by Gillard's recent claim that Australia will be ready for the Asian Century through skills and education, high speed broadband, clean energy and innovation, competition and deregulation, and tax reform (AAP, 4 April 2013).

To be frank, economic policy solutions are not going to be easy, as evident by the ongoing demise of the Australian car-making industry compounded by high dollar, high costs, excess overseas capacity, and by Japan devaluing its currency which makes its cars even cheaper (Matt Chambers and Ewin Hannan, 'End of carmakers 'inevitable' as former Ford president Jac Nasser warns of 'domino effect'', The Australian, 12 April 2013).

Tough times may be ahead, so we need to search hard for a sophisticated way out rather than merely accepting a silly notion that Australia will do well just by relying on minerals and food.