In his December Innovation Statement, Prime Minister Malcolm Turnbull set the scene for how his government will handle Australia’s economic transition from the “mining boom” to an “ideas” or “innovation” boom.
“What is going to drive Australian prosperity in the years ahead? How does our economy transition? Our innovation agenda is going to help create the modern, dynamic, 21st-century economy Australia needs.”
And now that the Federal Budget has been released into the wild, it’s even clearer that Turnbull has innovation firmly in his sights, with the most generous measures reserved to help small businesses flourish.
But as always, innovation statements and budgets serve up a generous sprinkling of jargon to go with their insights… it can leave you asking the same question as Kanye’s Twitter feed – what the fuck am I reading?
Fortunately, we’re here to cut through the crap and make life a little easier to understand, so here’s what you need to know about where Australia’s economy is heading.
The mining boom
“From the middle of the previous decade, Australia enjoyed a sharp run-up in the prices of our key commodity exports. This led to an unprecedented boom in mining investment. The benefits were spread beyond the narrow confines of the mining industry in numerous ways, with strong growth in employment and wages across a range of industries around the country,” – RBA Assistant Governor Christopher Kent.
The first thing you need to understand is that a country is a bit like a business; it needs to make money to survive.
And in Australia, while the bulk of our economic output comes from our services sector (finance, tourism, healthcare etc), most of our growth over the last few years can be attributed to the stuff we pull out of the ground – iron ore, coal, nickel, copper, and gold to name a few.
This is mainly because China, which has experienced double-digit economic growth a few times in the last decade, was using our ground-stuff to feed their development frenzy… they just couldn’t get enough of it.
Increased demand for commodities served to push prices up, making our mining companies and government big money, and creating a tonne of jobs.
Between 2002 and 2012, the price of our mining exports more than tripled and by 2013, it was estimated to have lifted household disposable income per capita by 13%. In other words, we made a lot of bloody money.
And even though mining only represents 7% of our Gross Domestic Produce (GDP), combined with the agricultural sector it helped our economy to grow at an average annual rate of 3.6% over the last… well, 15 years.
To put that in perspective, the OECD average growth rate (made up of 34 other mostly developed economies) sits at 2.5%.
The problem with this kind of accelerated growth is that once it slows down, everyone begins to feel the pressure, just as much we felt the sweet, sweet rewards.
The end of the mining boom
Of course, nothing lasts forever. In the same way that increased demand drives prices up, if no one wants to buy something anymore, prices go down.
And that’s exactly what happened when China decided it was time to slow their economy down and stop building… suddenly they didn’t need to buy as much of our exports anymore.
So while we still have plenty of candy to go around, all of our friends have gone on diets. Typical. Don’t get me wrong, we still make a shit load of money through mining, and we probably will for a long time, but we need to keep our economy growing, right?
The ideas boom
So if we’re not selling as much ground-treasure anymore, what do we do instead? Enter the ideas boom.
It turns out that with high levels of education in this country, we have a pretty good opportunity to drive growth through services and innovation.
Instead of selling commodities, the plan is to shift our focus towards selling more services, in turn, increasing our service based economy.
And we are starting to use technology to drive innovation; in fact, Sydney is now considered one of the biggest fintech (financial tech) hubs in the world.
But how does that help us grow?
Well, by carving out a global niche in key service areas such as healthcare, education and tourism, or creating new and highly profitable businesses, we encourage investment in Australia, create more jobs and increase our profits… Which all translate to growing our economy. Simple, right?
Why should I care?
When growth slows down or stops, company profits go down with it. Jobs are cut, foreign investors withdraw their money and we head straight for a big fat recession.
In short, times get tough for everyone.
That’s why old mate Malcolm is pushing innovation so hard; we can’t rely on our ground-candy forever.
And the beauty of innovating to succeed is the possibilities are endless… as Turnbull said in last year’s Innovation Statement, “Unlike a mining boom, [the innovation boom] can continue forever, it is limited only by our imagination, and I know that Australians believe in themselves, I know that we are a creative and imaginative nation.” Powerful stuff.
How is going?
So far, not bad! Given that this is quite a sizeable economic shift, our economy has remained fairly stable throughout.
And despite cutting rates on Tuesday in an effort to drive growth, the Reserve Bank are pretty stoked about it too, with deputy governor Philip Lowe citing low unemployment rates as key indicator of success.
“Low wage growth is one of the factors that has underpinned the reasonably positive employment outcomes.”
How our economy will continue to perform stands to be seen, but all signs are pointing to success at this stage. Moving forward, all eyes will be on a nervous government with a business-heavy budget to come up with the goods.
Feature image: bullhorn.com