Jim Stanford
Australians have a national motto that describes theirs as "the lucky country." And economic data released Wednesday seems to confirm it - at least as far as the global financial crisis is concerned. By notching solid annualized growth of 2.5 per cent in the second quarter of 2009, Australia qualifies as the only developed country in the world to have weathered the crisis without a recession, defined as two consecutive quarters of shrinking GDP.
How did they do it? True to their slogan, good fortune played a role, starting with simple geography. Australian historians typically speak of the "tyranny of distance," bemoaning the burden of their continent's location far from the rest of civilization. But this year, distance suddenly became a virtue. Being far away from Wall Street certainly buffered the worst impacts of meltdown and recession.
And while the Aussies are far from America, they're not that far from China. Australia's abundant endowment of the base minerals that China still covets (coal, iron ore and other unglamorous rocks) provided another economic boost.
Of course, digging stuff out of the ground is no way to develop a country in the long run. Like Canada, Australia faces strategic and environmental challenges from dependence on resource extraction. But for now, China's unquenchable hunger for minerals keeps Australia in the black.
It wasn't all luck and geography, though. Smart policy-making played its part, too. For example, also like Canada, Australia regulates foreign ownership of its banks. This vestige of nationalism has limited exposure to the excesses and subsequent implosion of U.S. and European banking. Stability was reinforced last October with a new public guarantee for bank deposits.
More important was Australia's quick fiscal response to the crisis. Even though Australia was relatively sheltered from the global meltdown, the Labor government quickly served up one of the world's biggest and fastest-acting stimulus packages. Initial spending injections in late 2008 focused mostly on immediate cash grants to pensioners and lower-income households with children. Across-the-board rebates were later paid out to all taxpayers. These measures shored up consumer spending, especially among lower-income households.
Phase 2 of the stimulus featured grants for school construction, including one addition or renovation for every school in Australia. This was effective politically as well as economically, since virtually every neighbourhood can see tangible benefit from the program. Canberra also doled out cash for bigger public infrastructure projects - of the sort that are rumoured to be occurring in Canada (except that nobody can seem to find one). The International Monetary Fund estimates that Australia had the second-largest stimulus injection of all developed countries in 2009, with the government pumping in substantially more than Canada and other hard-hit countries.
Thanks in part to all this spending, Australia's public debt will approximately triple in the next several years, sending the government's conservative opponents into paroxysms of debt phobia. But the country's net debt was small to begin with, and true to their national "no worries" attitude, average Aussies don't seem to be panicking. Most are just glad to keep working and spending, while the rest of the world frets.
Australia hasn't avoided the pain entirely.
Unemployment is up by almost half, and hours of work have fallen significantly. Fuelled by commodity prices, the Aussie dollar has taken off (like Canada's) and the country's manufacturing jobs are being lost (again, like Canada's). Despite the rebound in GDP, Australian Treasurer Wayne Swan has pledged to keep the stimulus money coming, resisting demands from the conservative opposition to cut back. By contrast, Canada's Conservatives seem like they can't wait to turn off the spending taps, recovery or not - in fact, it's still not clear how much stimulus is even going out the door.
Overall, Australia's prospects provide a cheery contrast to Canada's own more painful downturn. While Canadian economists are now reading the tea leaves to guess when our recession will end, Australia never had one. And no small part of the credit goes to a government response that was considerably more timely and forceful than our own.
Jim Stanford, an economist with the Canadian Auto Workers union, spent August on a book tour in Australia.