The roots of Australia’s success, and its greatest sources of future risk and opportunities, lie in its openness and resources, professor Stephen Kinsella says.
Kinsella, an associate professor of economics at the University of Limerick, has spent a year at the University of Melbourne, and spoke of his reflections on the Australian economy at the Australian Institute of Superannuation Funds’ annual Super Investment Conference (ASI 2018).
“Australia equals openness and resources,” he said. “Openness to people, ideas and capital.
Australia has done really, really, really well where they’ve let people in – not the ‘right’ people, just people, because you never know what people can do.
“[For] ideas, one of the biggest foundations of Australia’s success is its world-class higher education sector. [For capital], getting money is great, and you people are very, very, very good at it. And of course, resources. What’s important to understand about this is how these things interact – openness and resources.”
Kinsella noted, using a variety of statistics to back up his thesis, that the global economy is going through a period of de-globalisation, given that the ratio of world trade growth to GDP growth has been below trend for nearly nine years.
“This is a risk to a small, open economy such as Australia’s,” he said. “Understanding Australia’s place in the world as a small, open economy tells you exactly what you need to do in terms of thinking about how it thrives. It thrives by being open to trade, but also by innovating in terms of high-value industrial goods, high-value services.
“There are basically two main exporters of services in the world – Australia and the US. That’s it. You produce more services as a percentage of GDP than almost everywhere else on earth, and the super industry is actually a large part of why.”
But while there is much positive in Australia’s economy, there are reasons to worry.
Kinsella noted that the Organisation for Economic Co-operation and Development (OECD) data shows Australia fourth out of 39 countries in household debt, and 15th in equality. Australia ranks 14th in spending on education and 19th in outcomes. And, in figures that surprised audience members, Australia ranks fourth in unit labour costs and 6th in labour productivity but 38th, next to last, in labour compensation.
A straw poll of conference attendees revealed less than 5 per cent of those in the audience believed wages will rise more than 3 per cent by 2020.
Kinsella said the OECD figures should worry the superannuation industry.
“Poor people don’t pay super,” Kinsella said.
He proposed greater collaboration between superannuation funds and unions because the sectors have common cause around higher wages.
“I think the super industry has common cause with the union movement,” he said. “I think the super industry has common cause with any technology that helps increase wages. What I would like to see by 2019 is the super industry and the unions having some agreement in terms of wage growth. This doesn’t mean wage growth for everybody. If you’re in a sector that’s working hard and you’re in a sector that‘s producing a lot of productivity, then your workers should get paid more.”
Kinsella suggested that super and unions should collaborate on initiatives to measure productivity in the services sector.
“We know how to measure productivity in manufacturing,” he said. “We don’t know how to measure productivity in services. That’s a really positive thing that could come out of this, if there was a common cause there. Government doesn’t need to listen to unions anymore – it does need to listen to you guys.
“The super industry is an incredibly important part of not just the financial services architecture of this country, but of the economy as a whole.”