Australia’s strange American dream
The Nobel laureate’s rock-star reception in Sydney last week probably drove Tea Partiers crazy back home as he explained why the U.S. economy isn’t the state-of-the-art machine conservatives might think, with its widening income inequality and decrepit infrastructure. It was fascinating to hear Stiglitz take on Australian Prime Minister Tony Abbott for trafficking in the same economic ideologies threatening to turn the American dream into a nightmare of permanent haves and have-nots.
“The problem is not the economics; the problem is the politics,” Stiglitz told a capacity crowd of more than 2,000 on July 8, imploring them to reconsider their affection for the U.S. economic model.
The U.S. system still trumps most, but the world might also learn from Australia. It’s that rarest of things: a commodities-based economy that hasn’t succumbed to the natural-resources curse of kleptocracy and authoritarianism. Because the spoils from digging iron ore, coal and copper out of the ground were reasonably well-managed, Australia’s prosperity has been spread more broadly than in the United States. In recent decades, median household income has increased at almost twice the pace of the OECD average, or roughly 3 percent. Nor did Australian politicians deregulate the financial sector to the point where the kids ruled the adults.
Still, the past 10 years saw the emergence of a two-speed economy. Thanks to China’s boom, mining-heavy regions saw a burst of growth, while many urban areas fell behind. That prompted Abbott’s predecessors, Labor Party Prime Ministers Kevin Rudd and Julia Gillard, to favor taxes on mining. The money would help narrow the wealth gap and finance investments in education, training and infrastructure needed to raise productivity and create jobs.
Abbott’s top priority when he came to office last September was killing all traces of such levies. Far from trickling down, Stiglitz thinks wealth concentration among mining interests and political pandering will make Australia poorer. “If you tax iron ore it’s not going to get mad at you and walk off to another country,” he said, while also rebuking Abbott and his Tea Party-like “obsession” with debt and deficits.
As politics trumps sound economics, Australia is adopting the most ruinous aspects of the American political landscape. Polarization is now de rigueur in Canberra, where Abbott’s team derides anyone favoring a more moderate path as unfit to govern. Expect little to get done in the capital even as Asian nations in Australia’s backyard restructure their economies and become more competitive.
The deteriorating level of discourse was bemoaned as far back as September 2011, when Gillard was taken aback by jeers directed her way. At rallies, protesters opposed to her views on taxing mining companies and carbon emissions showed up with coffins and “Ditch the Witch” placards. “I don’t like it when I get a sense of a kind of - with all apologies to our American friends - a kind of Americanization of our debate,” she said at a community forum back then.
We’ve seen the Americanization of the election cycle. In February 2013, I wrote about how Australia established a record seven-month-long election campaign almost unheard of in parliamentary democracies. Seven weeks, if that, is more the norm. More recently, Abbott proposed the Aussie pursuit of U.S.-style college education deregulation, allowing universities to charge what they like come 2016. Maybe the free market should let deans value their services as they see fit, but is sky-high tuition and crushing student debt (the changes would up loan interest rates) really the way to go?
The real danger, the one that has Stiglitz so incensed, is Abbott’s dogmatic reading from a playbook that’s more Ronald Reagan, circa 1984, than economic reality 2014. Killing mining taxes is only the most obvious of steps in that direction. Natural resources, after all, belong to the Australian people. Anyone can dig them out of the ground. Why should executives at BHP Billiton Ltd. and Rio Tinto Ltd. get wildly rich as many of Australia’s 23 million citizens fall behind?
Part of the “rents” that miners generate should be shared. The fact that it isn’t as mining grows because of Chinese demand, Stiglitz says, explains why Australia’s Gini coefficient, a measure of inequality, is rising. A day after his Sydney talk, Stiglitz buttressed his argument in a Project Sydicate op-ed.
“Australia should be proud of its successes, from which the rest of the world can learn a great deal,” he wrote. “It would be a shame if a misunderstanding of what has happened in the United States, combined with a strong dose of ideology, caused its leaders to fix what is not broken.”
Abbott might want to tend to what IS broken, if polls are any guide. He’s no more popular than Gillard was. At his next speech, he may be confronted with “Ditch the Americans” signs.
*The author is a Bloomberg View columnist based in Tokyo.
BY William Pesek