The Global Financial Crisis is the big concern of the moment.Â The extent of fragility behind Kevin Rudd’s Government and the economic stimulus plans is unknown, but I suspect the economic prospects for this country are far graver than we are being led to believe.Â
One thing Australia could be doing, is comparing notes with the drivers of the economy in Israel.Â The economicÂ analystsÂ wouldÂ quickly notice that the situation facing the two countries is ready comparable.Â Both have stable and highly regulated banking industries (unlike the US), both are dependent on export trade, and both are self sufficient producers to their domestic markets.
The World bank measures the comparative size of world economies, and the 2007 rankings (Atlas method) showed the size of Australia’s economy to be $893 Trillion (ranked 15th) and Israel $162 trillion (ranked 43).Â Given the population of Australia is almost four times greater than Israel, the comparative wealth in the economy on a per capita basis is a factor that should be given greater attention.
There is a great interview with the head of Israel’s Reserve Bank in the Jerusalem Post.Â Some of Stanley Fischers comments resonate, particularly his note that “If we prevent banks from taking risks we could be sorry about that.”Â His summation of the economic outlook for Israel is very relevant for Australia.Â For some time now Israel has been purchasing foreign currency to prevent a rapid appreciation of the value of the Shekel, and the flow on effect of the export market becoming too expensive.Â A side benefit, due to the strengthening of the $US against smaller currencies, is that the worth of this investment is now a significant income stream for Israel.Â Â
Â In Australia, the reporting of the financial markets is a superficial story of doom and gloom.Â Nobody has stopped to ask whether Australia is buying foreign reserves (however we seem to be spending a lot on International aid). Â Based on what I have read about the economy in Israel, I have further questions regarding the economy in Australia:
- Have our economic masters considered a cap on the percentage of an asset value that can be mortgaged?Â
- Will handouts to consumers in Australia boost domestic spending, or will they just be used to counter the increased cost of living?Â
- Are the tax rates in Australia placing us at a disadvantage due to their uncompetitive nature?Â
- Will the lowering of interest rates actually curb inflation, or is monetary control of fiscal policy a thing of the past?
I’m not sure that we can have the same degree of confidence in the policy direction of Australia.Â One area where I do think the Government’s strategy is right is on the focus of employment and job creation.Â The only issue is, what type of jobs?Â There are far too many people in Australia working in roles that do not create economic growth.Â Roles that redistribute wealth, create bureaucracy, and deal with esoteric ideas ahead of the production of goods and services are the type of jobs that will only worsen a recession.Â We need to redirect our workforce into the development of infrastructure, manufacturing and production, skills creation, and the development of commodities for sale and purchase.Â
Israel has performed remarkably well in this respect.Â They have industries for hi-tech, agribusiness, and sustainable energy production.Â Australia could well learn from the extent of Israel’s economic production, and bring many of these productive growth generating industries into the domestic market.