Bridging the divide how reform consensus can unite Australia’s three economies

31 Oct 2012

In this report Daniel Mookhey argues that Australia is splitting into three economies, which are increasingly inequitable, and unnecessarily adversarial. Government needs to encourage consensus, not conflict, to ensure Australia’s ongoing prosperity.

The notion of a multitrack economy in Australia has become clichéd: ‘two-speed’, ‘patchwork’ – there’s no end to the labels bandied around. But what do any of these economies actually look like? Let’s borrow a taxonomy from Melbourne University’s Max Corden. Corden describes three economies in Australia: the Booming Tradable Sector, the Lagging Tradable Sector and the Non-Tradable Sector. The Tradable Sector produces goods and services that can be produced or consumed anywhere. Think of Apple’s iPad: it is designed in Cupertino, California; manufactured in Guangdong, China; but used everywhere. In contrast, the Non-Tradable Sector produces goods or services that must be both produced and consumed domestically.
Think of your local hospital: its services can only be produced and consumed on site. Using this taxonomy, we’ve set out to analyse who works in which sector, and how fast each is growing – in aggregate, employment numbers, and wages. We have found that over the ten years to 2011, output and wages grew faster in most parts of the Tradable Sector, but employment grew faster in the Non-Tradable Sector.
This means that an already unbalanced economy became even more unbalanced: the Booming Tradable Sector created more wealth but split it amongst fewer people, while the Non-Tradable Sector produced comparatively less new wealth but shared it amongst many more people. This partially explains why Australians read about record profits in some sectors, but job losses in others; record investments in production, but parsimonious spending on consumption; fast economic growth in the mining states, but slower economic growth in the other states. They are reading about three different economies.

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