Grasping Reality on TypePad, by Brad DeLong

AUSTRALIA IN 1980

• A small rich industrial country (Arndt)
• Value chain model (primary, secondary, tertiary)
• State-driven industrialization generated large secondary sector
• No answer to the crisis of the 1970s
• Postwar policy agenda exhausted and unsustainable

AUSTRALIA AT THE CROSSROADS

• Two paths forward: Mercantilist vs Libertarian
• Freebairn and others advocated libertarian path
• Australia abandoned mercantilism, but did not fully adopt libertarianism

THE POLICY PROBLEMS OF 1980

• Inflation and crisis of Keynesian macro
• Wages and labour market rigidity
• Structural adjustment
>* Tax reform
>* Fiscal crisis of the state
• Failure of financial regulation

THE POLICY RESPONSE: MICROECONOMIC REFORM

• Inflation targeting
>* Labor market deregulation
• Tariff reform: GST + Option A
>* Trilogy (fiscal constraints)
• Financial deregulation

STILL DRIVES POLICY DEBATE

• Reflexive responses not analysis
• Examples
>* Crisis rhetoric around debt and deficits
• Fear of wage breakout
>* Car industry as the historical enemy

FATIGUE OR EXHAUSTION

• Elite policy discussion suggests public suffering from ‘reform fatigue’
• Reality is that reform program is exhausted
• Key elements either completed, overdone or irrelevant

AUSTRALIA IN 2015

• A knowledge economy
• An exporter of education
• An island of macroeconomic success in a world of policy failure
• Increasingly(?) vulnerable to climate shocks
• A complex and diverse society

TWO VIEWS OF THE FUTURE (FROM QUEENSLAND)

• Four pillars (Newman): Agriculture, mining, construction, tourism
• Smart State (Beattie) Knowledge-based industries
• 20th century vs 21st

THE POLICY PROBLEMS OF 2015

• Knowledge economy
• Climate change
• End of (last?) mining boom
• Financial sector
• Inequality and inherited (dis)advantage
• Global failure of macro policy

THE KNOWLEDGE ECONOMY

• Obsolescence of value chain model
• Information and Internet
• Public goods and household production
• Education and training
• Research, development and communication

THE KNOWLEDGE ECONOMY

• Computing and telecommunications key to innovation
• Stagnation in transport, previously the leading sector
• Australia’s productivity debate misses the point

DEATH OF THE VALUE CHAIN

• Creation, dissemination and use of knowledge central to economic activity
• Does not involve processing of physical inputs
• Irrelevance of C20 notion of value added

THE RISE OF THE INTERNET

• Developed as by-product of university research communications
• Architecture depends mainly on open- source software
• Value depends primarily on user-generated content: blogs,Twitter, Facebook
• Important but secondary role of physical infrastructure
• Info superhighway metaphor both illuminating and misleading

CONTRIBUTION TO GROWTH

• Currently accounting for 20-30 per cent of GDP growth
• McKinsey, World Bank, OECD, Allens
• Implies more than 50 per cent of TFP growth
• Even larger impacts on household sector
• Still ignored in policy debate

SCALE ECONOMIES IN INFORMATION

• Cumulative and interactive nature of knowledge
• Implies potential for unlimited (qualitative) growth, even with finite resources
• Central difference between endogenous and classical/ exogenous growth theory

INFORMATION AS A PUBLIC GOOD

• Non-rival
• Cumulative
• Exclusion difficult/inefficient
• ‘Publicness’ increases as dissemination costs fall by orders of magnitude in Internet era

CENTRALITY OF NON-MARKET ACTIVITY

• Wikipedia the canonical example
• But even commercial services are almost entirely non-market.
• 500 million tweets per day, Twitter revenue $0.01/tweet
• Facebook 300 billion user hours/ year, FB revenue $0.03/hour

IMPLICATIONS FOR REFORM AGENDA

• Prices and incentives less relevant
• Financial sector has extracted wealth but not created it
• 1990s dot-com bubble
• Need to take human capital seriously

AUSTRALIA’S POLICY: FAILURES AND SUCCESSES

• Telecommunications failure: reform produced an incumbent monopolist hostile to innovation
• Education broadly successful: but deregulation agenda looks to failed US model
• Research, development, innovation: policy spasmodic and perfunctory

A POLICY AGENDA FOR THE KNOWLEDGE ECONOMY

• Knowledge as the driver of productivity
• Universal access to high-speed Internet
• Universal post-school education
• Expanded and democratised program of research and communication

HIGH-SPEED INTERNET

• Australia lags badly
• Failure of first round of telecoms reform (Telstra)
• NBN:A missed opportunity?

UNIVERSAL POST-SCHOOL EDUCATION

• High school completion already accepted as a norm (over 80%)
• Need to do the same for university/ TAFE/trade training
• Success since 1980 but
• Deregulation/competition agenda going in the wrong direction

RESEARCH, DEVELOPMENT & COMMUNICATION

• Spasmodic commitment to research
• Misguided focus on commercialisation
• Communication to broad public is essential
• Done better before 1980?
>* The Conversation: A model for the future

COMING, READY OR NOT

• Experience of 1980s reform shows attempts to resist structural change are futile
• Knowledge economy is already here and will only become more important over time