Australia's Prospects in the Global Economy
Selected excerpts from State of the Nation 1999
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A hundred years ago, AustraliaÕs per capita income was the highest in the world (together with Argentina). Fifty years ago, Australia had the third highest per capita income in the world. It had dropped to 19th place by 1997. AustraliaÕs productivity and per capita income growth was overtaken by many other industrial and developing countries such as Japan and Singapore. Since the middle 1990s, Australian productivity and GDP per capita growth has improved, reflecting the reforms that began in the 1980s. Other industrial countries, however, have also accelerated their growth, so that AustraliaÕs ranking in the world performance tables is not improving.

Gross Domestic Product (GDP): The measure, at market, or quasi-market prices, of total production of goods and services in a given time period not taking into account wearing down of capital assets and not including goods and services used up in the production process.

Figure 1: GDP per CAPITA 1976-1998 ($A) 1989-90 constant prices

Source: Australian Economic Indicators (ABS Cat. 1350.0) World Development Indicators 1998 (World Bank)

The distribution of GDP derived from the different industries has changed markedly from 1978-79 to 1997-98. Service industries generated 26% of production-based GDP in 1978-79, followed closely by manufacturing, which had an 18% share. In 1997-98, these figures were 34% and 13% respectively. The growth in GDP shown in Figure 1 has been largely fuelled by service industries. In terms of wealth created, there is no difference in value added between say, manufacturing and services. Changing industry shares of GDP indicate that Australia is keeping up with world trends.

Figure 2: GDP by INDUSTRY 1989-90 constant prices

Source: Australian Economic Indicators (ABS Cat. 1350.0)

Figure 3 shows the trend for overseas (foreign) borrowing by government (official liabilities) and the private sector (non-official liabilities).The break in the line at 1980 reflects a move from assessment of liabilities at book value to assessment at market value.

Australia is increasing its external debt. Official (government) borrowing has not been increasing markedly, but private borrowing in the form of direct foreign (including equity) investment has risen. To the extent that this foreign investment flows into internationally competitive enterprises, this is very healthy for the Australian economy, as it adds to domestic savings and hence to productive investment. Where such investment flows into protected industries such as automobiles, it doesnÕt add to AustraliaÕs internationally competitive productive capacity. Total external debt has grown from 8% of GDP in 1976 to 59% of GDP in 1997-98.

Figure 3: NET FOREIGN LIABILITIES 1950-1998 per cent to GDP

Source: Foster, R.A. (1996), Australian Economic Statistics 1949-50 to 1994-95 (Reserve Bank of Australia). Australian Economic Indicators (ABS Cat. 1350.0)

AustraliaÕs exports are dominated by minerals and metals, services (tourism and education) and rural goods. Australian exports of goods and services are relatively low for a country of its size, ie. around 20% of GDP in 1997-98. A ratio of 30% would be much more comfortable for the economy. In the mid-1980s it was about 15%. Since then, it has risen but it is still low.

Figure 4: EXPORTS of GOODS and SERVICES 1997-98

Figure 5: IMPORTS of GOODS and SERVICES 1997-98

Source: Australian Economic Indicators (ABS Cat. 1350.0)

Imbalances of trade have no economic meaning as such and bilateral trade balances are unimportant in a liberal trading world. Nevertheless, it is important to diversify export and import markets in order to minimise the impact on Australia of changing economic conditions, especially recessions in other countries.

During the last 50 years, the United States, the United Kingdom and other European countries have declined in importance as export customers. Japan and other Asian countries have become more important. Imports have also become more diversified.

Figure 6: MERCHANDISE TRADE by COUNTRY: EXPORTS 1997-1998

Figure 7: MERCHANDISE TRADE by COUNTRY: IMPORTS 1997-1998

Source: Australian Economic Indicators (ABS Cat. 1350.0)

Australian labour participation rates (ie. working full-time or part-time, or looking for work) for men have been falling as more men have been staying longer in education.

Australian womenÕs participation in the labour force, although higher than 20 years ago, is still lower than some other industrial countries. In Sweden, womenÕs labour force participation rates are over 75% (World Development Indicators, World Bank).

More men and women have been choosing part-time employment. The part-time proportion of the labour force has increased from 7% in 1965 to 26% in 1998. More than 70% of part-time workers are women and 45% of employed women work part-time. Most men and women who work part-time choose to do so, though about a third, including married women, would prefer to work longer (not necessarily full-time) hours. Studying and caring for children are the principal, though not the only, reasons for working part-time.

Table 1. LABOUR FORCE PARTICIPATION number and rate per 100,000 population

Source: Labour Force, Australia: Annual (ABS Cat. 6204.0) Labour Force, Australia: Monthly (ABS Cat. 6203.0)

Changes in the sectoral structure of the economy are reflected in changing employment characteristics. Services have become the leading employer, opening up new opportunities for women workers. These changes are also apparent in the distribution of GDP (Figure 2).

Figure 8: MALE EMPLOYMENT by INDUSTRY 1997-98

Figure 9: FEMALE EMPLOYMENT by INDUSTRY 1997-98

Source: Labour Force, Australia (ABS Cat. 6204.0)

The essence of a market system is that while some businesses succeed, others fail. Bankruptcy laws enable those who fail to deal fairly with their creditors and to try again if they wish. Rising numbers of bankruptcies are indicators of several trends, including the appropriateness of macroeconomic policies. Their main meaning, however, is to show the venturesomeness of entrepreneurs. As protectionism declined in Australia, the incidence of bankruptcies has risen, perhaps reflecting the effects of both increasing competition and attempts to exploit new opportunities.

Figure 10: BANKRUPTCIES 1903-1997 business and non-business bankruptcies per 100,000 population

Source: Bankruptcy Act 1966, Annual Report 1996-97 (AGPS)

While the total area farmed in Australia has remained unchanged since the 1950s, the number of farms has declined steeply as their size has increased. To continue to compete internationally, Australian farming has had to become capital and technology intensive, and therefore to exploit economies of scale and to become technologically sophisticated. Computerised management covers crop and animal innovation. Cost accounting, investing in commodity, interest and exchange futures markets has become essential.

Many farmers, like those in other rapidly changing sectors, have had difficulties adjusting. Some have had to change their occupations.

Figure 11: FARM CONSOLIDATION 1955-1995 total area of farms, number of farms, average farm size

Source: Lewis, P., et al (1998), Issues, Indicators & Ideas, Longman, South Melbourne.

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