Deepak Lal: The lucky country

With the economic downslide having been arrested, one notices a certain emptiness in Australia's intellectual life.

I first went to Australia in the late 1970s. I remember noting that as we flew from Singapore to Sydney, we entered Austalian air space soon after our departure, and then flew over endless expanses of desert and wilderness for hours on end. I remember being amazed on arriving in Sydney that, the news was all about strikes and the shenanigans of a Trade Union movement even more truculent than its British counterparts. This seemed strange in a country which was not a small densely packed island, but a wide open, thinly populated country, with vast natural resources. Whereas the slow growth in post-war Britain ensured that the central political economy conflict was about relative shares, its duplication in the vast and potentially immensely rich Australian continent seemed to make no sense. It was also a country whose lack of class consciousness and open bonhomie were more reminiscent of its American cousins than its British forefathers. It was also a predominantly white country. Yet it seemed to be a country which had lost its way.

Its growth, despite its mineral and agricultural resources, was anemic. It was suffering from stagflation. It had one of the most protectionist regimes in the world, and still paid obeisance to Keynesian macro-economics. The British entry into the EU had deprived it of its traditional markets for its agricultural exports, and the high cost and heavily protected industrial sector were incapable of providing an alternative source of growth.

Over the years, I have periodically been back to Australia, and noticed slow improvements in both the economy and the public mood. But on a recent visit, after a gap of about seven years, I found the country transformed. The mighty trade unions have been tamed. The country's mineral exports are booming, as is a vibrant domestic services sector. An independent Central Bank has ensured that there is little inflation and official unemployment rates are low""though it seems, as in many developed countries, there are growing numbers of the "disabled" on the public welfare rolls. The country is now no longer predominantly white. In fact Perth looks more like an extension of Singapore. The cities strung along the coast have fabulous restaurants serving every cuisine from around the world. The young have an elan and joie de vivre which is almost Californian.

So how did this transformation take place? It is remarkably the result of an intellectual conversion amongst the political classes because of the preaching of a number of economists and the skilful implementation of their advice by politicians""of whom the current Prime Minister John Howard has been the most skilful. I was fortunate in being a visiting fellow at the Australian National University on that first visit to Australia when this conversion was taking place. At its centre were ANU economists. Australian economists had already made important theoretical breakthroughs in developing the ideas of James Meade's Theory of International Economic Policy, about appropriate balance of payments adjustment policies (the so-called Australian model of the balance of payments due to Salter and Swan), and the theory of protection""including the extremely important concept of "effective protection" (which Max Corden had made his own). They, along with Heinz Arndt and Fred Gruen (all at the ANU), were instrumental in generating an important public debate on both Australian protection and macro-economic policy, and the damage past policies in these areas had done to Australia's prosperity. This debate was influential in converting both the Australian Treasury and increasingly many politicians to the virtues of economic liberalism.

But, equally important was the role played by two unique public institutions: the Industry Commission and the Productivity Commission. These are technocratic institutions staffed by economists entrusted with doing cost-benefit analyses of various public polices. As they came to be staffed increasingly by the "new economists" and their students, they provided the empirical validation for the case for economic liberalism. My friend, the late Richard Snape who at Monash trained many of these young technocrats, was also at these institutions as the Deputy Chairman at the end of his life. I was in Australia to deliver the 2006 annual memorial lecture in his name set up by the Productivity Commission (available at www.pc.gov.au). Many of the Australian economists who have successfully fought the rampant dirigiste impulses I saw on my first visit to their country were there. They have reason to be proud of their splendid achievement.

But now that Australia has fulfilled its destiny of becoming the lucky country, with unparalleled growth for over a decade and its vast mineral resources promising a continuing bright future, I also felt a sense of ennui engulfing the intellectual classes. With no serious domestic problems to exercise them, most of the debates are about various politically correct themes""aboriginal rights, global warming, foreign aid, etc.

In these areas John Howard continues to exhibit a deftness which prevents them from becoming a threat to Australian prosperity. Thus, having refused to sign the Kyoto Accord, he has cleverly split the opposition clamouring for carbon emission limitations to overcome the severe multi-year drought that has devastated Queensland. Without debating the causes of the drought, Howard has suggested that Australia may need to switch to carbon-free nuclear energy""which the opposition opposes""particularly as Australia has large uranium reserves!

I found these public debates to be pale imitations of those taking place in Europe and the US. Despite the tremendous strides in the local provision of art and culture, Australia still feels rather provincial. For the mass of Australians, a prosperous life in the sun and the sand seems like paradise. But for the intellectuals, artists and entrepreneurs, as the local canvas is limited by the thinness of the population, success in the metropoles (the US and UK) still marks the sign of having arrived. I would thus expect future Australian entertainers, journalists, businessmen and academics to still seek their fame and fortune by moving on from the lucky country.