Ross Garnaut - Dog Days: Australia After the Boom

It was December 2005, and Australians were enjoying the longest economic expansion and the largest rise in incomes over a short period that a developed country had ever known.

There are Salad Days of economic policy, I said to the annual dinner of the Economic Society in Canberra, days when the economy outpaces even peoples expectations. These are the times when poor policy looks good enough, and ordinary policy looks celestial.

It was the third year in which the China resources boom was massively boosting payments for Australian exports.

Yet the Salad Days would be followed by the Dog Days, I went on to say, days when celestial economic policy looks ordinary, and ordinary policy diabolical. It will be wise to save much of the economic fruits of the China boom, in case the extraordinary conditions that we are enjoying turn out to be temporary as they always have in the past.

The rest is history. Australians now have to make the best of the Dog Days.

This book places before Australians the fateful choice that we will make in the months and years ahead, about how to respond to harder times after more than two decades of extraordinary prosperity.

The Coalitions decisive 2013 election victory in the House of Representatives gives it the opportunity to take decisions in the public interest. If it uses this opportunity to occupy the centre ground in political life and govern with the welfare of the great majority of Australians in mind, it will at once conserve most of the gains in our standard of living of the past twenty-two years and entrench itself in power for a long period.

Alternatively, if it seeks to govern in the interests of its most powerful supporters, it will not be able to lead Australia away from rising unemployment, large falls in living standards, social tension and growing dissatisfaction with our institutions. Its lifespan is likely to be short. A new government will have to deal with the problems, and we cannot be sure at this distance that it would do better.

Neither major party took policies into the recent election that came to grips with the great challenges facing Australia. Both parties proposed policies that would in fact impede solutions.

The choice for the new Abbott government is between two radically different approaches. We can continue to conduct our public life as if the approaches that seemed good enough in the Salad Days will still work in harder times. If this is our choice, we will continue to live behind the veil of ignorance that has descended over our public life during the past dozen years. We will make choices within a political culture that is distorted by the intrusion of market values into areas of public policy where they have a corrupting effect and produce poor results.

Or we can restore discipline of the kind that framed public choice in the reform era from 1983 to 2000, be prepared to think hard about policy rather than shout political slogans, and be guided by clear analysis even when it requires difficult decisions.

I call these the business as usual and public interest approaches to policy. They lead to radically different outcomes. If we continue with the former, we will live in greater comfort for a short while. But sooner rather than later we will experience deep economic recession with high unemployment probably rising with recurring recessionary episodes without falling much in the years between.

The memory of 1974 to 1983 may help older Australians to imagine this future. In some ways the starting point is more difficult than it was in 1974, and the consequences of failing to deal with problems are worse. If we choose business as usual, we can expect disappointment as public services are diminished bit by bit in response to successive fiscal crises. We can expect bitter political conflict within our society, and unhappiness about our institutions.

Such tensions would be all the more dangerous because they would emerge at a time of international financial uncertainty, in a world dragged down by the overhang from the global financial crisis, and with the causes of that crisis mostly still at large. They would come at a time of ideological uncertainty, with doubts growing about whether the political and economic systems of the developed world still have the capacity to deliver prosperity to most of its citizens. They would be all the more dangerous because they would be emerging at a time of strategic uncertainty, when Australians confident presumption that might is right and on our side is challenged by the rise of the Asian superpowers. And they would come at a time of the growing impact of climate change.

The public interest is the much harder choice, but it has better consequences. For Australia to choose this approach, many of us enough to influence policy decisions at a high political level will have to put aside the slogans that have replaced thought about public policy so far in the twenty-first century. We will have to reconsider propositions to which we have given unthinking assent. Thats hard. Harder still, we will have to change our minds when the evidence supports change. The public interest approach will not be chosen unless many Australians are prepared to support policies that sometimes go against their immediate personal interests. Political leaders will have to introduce changes that disappoint their strongest supporters.