‘JOBS & GROWTH’ – AN OXYMORON February 2018

February 2018

J & G
‘JOBS & GROWTH’  (Matt Peyton/Invision for Hasboro/AP Images)

Government Ministers trumpet the phrase ‘Jobs and Growth’ but the Fates, Clothe, Lechesis and Atropos have decreed for Germany, the United States and Australia it is either Jobs or Growth, not both,  in the current global economic situation. In this strange economic cycle of low inflation, low interest rates, low wages and low unemployment, the term ‘Jobs and Growth’ is oxymoronic.

The mantra ‘Jobs and Growth’ implies increasing employment will be accompanied by rising wages – this is not happening for three (among several) reasons: there is toxic under employment in industrial economies; automation is increasing; there is business migration to low cost countries.

Data emanating from Germany and the United States, both strong export oriented industrial economies, provides a bleak picture. For Australia the implication of this data is sobering.  Australia still relies on natural resource exports with little added value/fabrication component and has been losing industrial capacity for some time. Without strong manufactured exports, wages growth becomes more difficult to accomplish than for industrialised economies.

The German Predicament
Since the GFC, employment in Germany has been slowly rising with unemployment around 4%, but this has not translated into increased wages or wealth creation for the Lower and Middle classes. Germany, among other OECD industrialised countries, is experiencing a widening wealth gap. In Germany, the bottom 60% of the population own 6.5% of the wealth while the top 10% own 60% – this gap is increasing. With wages declining in relative terms and with consumer prices rising by 24% in recent years, citizens are sliding into poverty. This rising inequality commenced with the unification of Germany.

The United States Predicament
Wealth inequality has been increasing since the 1970s.  As with Germany, rising employment has not translated into higher wages for the Working and Middle classes. Wealth disparity is becoming worse – currently the bottom 60% of the population own 2.6% of the wealth while the top 10% own 80%. Like Germany, unemployment rates are low, round 4% (2017), but wages have remained static. Since the GFC, unemployment has decreased leading to a tighter labour market, but this has not put pressure on wages although, with the threat of higher interest rates, there might be an improvement. In the years before the Trump election, the income share for the top 10% of earners was about 49% leaving 90% of workers with 51% of income – this disparity is worse than before the 1930s Great Depression. Households are doing worse today than in 2007. Upper incomes have recouped losses but Middle and Lower incomes have not. Trump trumpeted a better America for the Working Class, of course he won. (Germany and the United States – Springing into Inaction. Geopolitical Futures, January 2018)

The Australian Predicament
Commencing with the really bad news first, the IMF has reported Australia has the fastest rising inequality rates in the OECD over the past thirty years. (Fiscal Monitor, IMF). The latest OECD data illustrates an  income inequality ranking  of 22 out of 35 countries surveyed. Figures from an Oxfam report and the IMF indicate the top 1% of Australians (240,000) own more than the bottom 70% of the citizens, that is 16.8 million. The disparity gets even worse, in 2008 there were14 billionaires, however,  in 2017 there were 33 billionaires. Oxfam has described the overall situation as a broken system where people struggle to get by. (G Hutchens, The Guardian, 22 January 2018) This dire situation is not unexpected where an economy (Australia) relies on natural resource exports.  Much has been written on the fictitious trickle down effect in resource oriented economies– the  Australian situation proves the trickle down effect has been minimal. . The Treasurer has recently cited the creation of 400,000 jobs as evidence of successful Government policy (with flat lining wages} but this is merely a reflection of trends in Germany and America. All are caught up in this weird economic cycle, exacerbated by the under employment in the respective economies. (The Guardian, 12 October 2017) The Treasurer also endeavours to portray Australia as a country where inequality is not worsening, This is plainly not true and currently the inequality gap is widening. (Oxfam)

The poverty trap is catching more Australian citizens. With wages growth around 1.2% and inflation at 2.0%, living standards are declining. This situation is depressing the economy due to declining taxable income and consumer spending which accounts for 50% of the economy. (Trading Economics)

Both Germany and the United States have a strong industrial manufacturing base supported by innovative research facilities. In the UN Innovation Index  Australia rates poorly. Rankings are: United States – 4, Germany – 9,  Australia – 23 (slipping from 19). (World Intellectual Property Organisation, UN, June 2017)

If Australia is to slow down the rising wealth inequality, it must  encourage innovation and entrepreneurial activity, and increase research funding.

Research and Innovation
Australia trails other OECD competitors in innovation and industry research expenditure. Rankings in the Innovation Index have been slipping for the past three years : 2015 – 17, 2016 – 19 and 2017 –23. (UN World Intellectual property Organisation.) There has been a marginal improvement from 22 – 21 in the UN Global Competitiveness Index.  (Economic Forum, Davos, 2018)
These rankings place Australia at a competitive disadvantage with other exporting nations.

Factors working against Australia are:

  • the legacy of disparate regulations resulting from the transition from Colonies to Commonwealth,
  • the three year political cycle,
  • inadequate and capricious funding – current Australian funding is about 2.2% of GDP while competitors are round 3.0%,
  • success rates for Government research grants are round 20%,
  • research funding requires a minimum ten year certainty – the three year electoral cycles prevent this.
    (Dr  Leigh Dayton, Research and Innovation in Australia,
    ABC Science Show, 18 February 2018)

The above problems are reflected in the number of patent applications from Australia for the billions of dollars of R & D spending and also the number of start-ups created per billions of dollars of research spending – both are below the OECD average.

The conclusion is that Australian culture must change to:

  • the encouragement of entrepreneurs,
  • a tax system that encourages risk taking,
  • the removal of rent seeking – a characteristic of a  nation’s reliance on natural resource income,
  • a mindset that does not fear failure. (The Guardian 22 June 2018)

So, a crucial factor in this discussion to ‘Advance Australia Fair’, is the role of universities and research institutions and their support by Government. Australians need look no further than the straightened circumstances of the nation’s science and research industry caused by a shortage of resources. Parliamentary Library documents show for 2014-15, that Government funding was 0.56%  of GDP, the lowest rate since 1978-79. Further, OECD stastistics on Government R & D expenditure, place Australia 16th of 18 – spending only 0.4% of GDP. With contributions from the States and private enterprise, however, the ranking improves to 9th with 2.1% of GDP compared to industrial leaders in the 3 – 4% range of spenditure.  Australia’s future can no longer rely on ‘the sheep’s back’, ‘the Mile that Midas touched’ or ‘Crocodile Dundee” – it has to come from science, technology, invention, innovation and funding.
(The Conversation, Infographic – Science and Research,
22 June 2016)

More problems for Higher Education were highlighted  by Universities Australia Chairman, Professor Gardner, who indicated Government funding cuts of $2.2 billion following the recent MYEFO update, will leave universities ‘frozen in time’. (Weekend Australian 13/14 January 2018). The prequel to this situation  was the statement by Dr Ian Jacobs, Chancellor UNSW, to the effect that current Government policy is not in Australia’s long term interest since it implies universities are an expenditure problem not a long term investment. The remarks by Dr Jacobs were driven home by the 2017-18 Budget which cut $384 million of funding over two years.
(The Conversation & UNSW News Room, 9 May 2017)

It is unsurprising that Australia shows a decline  in OECD ratings due to Government funding history and current policy. In 1974, the Government provided 90% of university income; by 2010 this had reduced to 42% and by 2014 it was 20% for the major research universities. The hollowing out of this pillar of the Australian economy has been supported by Labor and Liberal Governments to the present day.

Last Word
The Australian economy will partially reflect trends of other industrialised export-oriented economies, however, Australia is in a fundamentally weaker situation due to reliance on natural resource exports.

Employment opportunities could improve but wages growth will be suppressed for global reasons beyond Australia’s control and the wealth gap will continue to widen.

The road to Australia’s salvation lies with science, technology, invention, innovation and funding. Until hightech-manufactured exports constitute a significant part of the Australian economy, pressure will remain on wages growth.

The mantra should be ‘Jobs and Exports’.



Current Affairs Flash Points