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Australia: This Is No Way To Run A Country

Australia, Business, China, Economics, Europe
By John Richardson on 09-Feb-2015

By John Richardson

AbbottTONY Abbott has survived an attempt to remove him as Australia’s Prime Minister.

Do you really think this will bring to an end the political instability that has resulted in four changes in PM since 2007? This really is a rhetorical question because anybody who lives and works in Australia, as I do, knows that the country’s politics are in a dreadful, dreadful mess – and that, as a result, the instability will continue.

You can, if you want to, only blame Twitter, YouTube and the rest of social media for all of this. We want everything to be summed up in a 140 character Tweet. Anything longer and more complicated than that and people the world over are losing the ability to concentrate, is a very common argument.

Equally culpable is the 24-hour news cycle, continues this theory. Journalists in Australia, and across the “free world” in general, have to compete with all the free, unverified information out there that is pumped-out by social media. So they have to be incredibly sensationalist to make a living, sometimes at the expense of the truth. They also have to produce big volumes of 30-second sound bites every day in order to be heard above the noise of all those 140 character Tweets etc.

Backing up this argument is that the four PMs that Australia has seen since 2007 (Kevin Rudd twice, Julia Gillard once and Tony Abbot once) have been in office since the rise of social media. Facebook was launched in 2004 and a  few years later went “viral”. Twitter didn’t even start business until 2006.

In comparison, the Liberal politician, John Howard, governed from 1996-2007. And before him, Paul Keating, the Labor leader, was in office from 1991 until 1996.

So it is said to be a vicious cycle. Australia ends up with politicians that completely lack vision because of the short term nature of the news cycle, as pandering to this news cycle is the only way they can win office.

People here talk about “winning the week” in terms of a politician or a party coming top of the polls during each seven-day popularity cycle. How on earth can anyone build sensible policies in such an environment?

But this misses the point – a point that is very easy to grasp thanks to the vehicle by which the supposed scourge of modern-day Western politics is delivered: The Internet.

A good example of how the Internet helps are the two slides below, which I found after a five-minute Google search yesterday.

The first slide, from the Reserve Bank of Australia’s website, shows Australia’s rising dependence on exports to China – and, of course, most of those exports are resources.


And this second slide, also from the RBA website, shows the slowdown in China’s credit growth, which I warned was happening in early 2014. This explains the collapse in iron ore and coal prices that is hurting Australia so badly.


If you stand back and do your research you will find that before 2007, the world was in an economic “Supercycle”, which was supported by favourable demographics and an alarming increase in credit.

Key to this whole mechanism was China, first as a consumer of Australia’s commodities and then a re-exporter of low-cost finished goods to Australia and the rest of the developed world.

When the 2008 crash happened, Australia only survived the Global Financial Crisis relatively unscathed thanks largely to China’s enormous economic stimulus package.

Kevin Rudd had the wisdom to warn that the resulting resources boom was a “once in a lifetime” event, but that didn’t save him because Australia was becoming a dangerously unbalanced economy.

Whilst “Stop and Go” sign operators on mines were earning Aus$100,000 a year, anybody outside the resources industry’s sphere of economic influence was struggling.

The retail sector, for example, floundered because of high inflation and a strong Aussie dollar, which, again thanks to the Internet, led to a boom in on-line shopping.

Young people were also being priced-out of the property market.

Labor politicians, against this volatile political background, thus panicked and replaced Rudd with Gillard as PM in 2010.

In-fighting in the Labor Party continued as China’s economy slowed-down and it became clearer by the day to voters that Australia was losing its way. They knew something was wrong, but couldn’t quite put their finger on what was wrong – other than, to quite rightly, hold their “rabbit caught in the headlights” politicians in total contempt.

So Labor panicked again, Gillard went, Rudd returned in 2013 as PM and lost the General Election in September of that year to Tony’s Abbott’s Liberal-led Coalition.

Just how badly Labor got China wrong immediately ahead of the election was illustrated by its Aus$33bn tax write-down in the space of just ten weeks.

At that stage in 2013, it should have been obvious to Labor that’s China “New Normal” meant a collapse in demand for commodities.

On to the stage came an overly-triumphant Tony Abbott. On the night that he won the election he reiterated three campaign promises: scrapping the carbon tax, stopping the boat people and bringing the budget back into surplus.

You can see my arguments in detail in this 8 September 2013 blog post about why I thought, and still think, that the carbon tax and the immigration issue were irrelevant and harmful distractions.

I also wrote:

As for the pledge to return Australia to a budget surplus, how is Mr Abbott going to do this if Australia’s tax receipts take a further big hit from the slowdown in China? I think that this is very likely.

Today’s leadership challenge was largely the result of Abbott’s budget mistakes. First, he promised to return the budget to surplus within his first term of office, which is scheduled to end in 2016.

This was then pushed out to 2018 because of the government’s failure to predict the severity of today’s global economic slowdown.

This “shock” slowdown could add Aus$40bn to the budget deficit over the next four years and increase pressure to find savings in the May budget. Now Treasury Joe Hockey has said that the government will not reach its goal of a budget surplus by 2018.

But, as I again wrote when Abbott was first elected, this whole focus on a budget surplus is just plain wrong:

The key will be a 20-year strategy of government spending on targeted on education, on infrastructure and on innovation in  manufacturing and services, even if it means periods of budget deficit.

The problem with Australian politics is mirrored elsewhere – in Europe, for example, where austerity has also failed. But it is still being pursued, even at the risk of a break-up of the EU.

It is not social media and the Internet that are the problems, but political leaders who lack the vision, and quite frankly the economic literacy, to stand up and admit that a whole new economic growth model is required.

Until or unless that happens in Australia, the average tenure of the country’s PM’s is likely to become even shorter.

This is all marvellous fun if you’re a political journalist, and/or spend most of your life on social media, but this is no way to run a country.