Monday, November 10, 2008

What we need: Jobs? Cash? Growth?

With the economic growth slowing, with a recession looming and consumer and wholesale spending decreasing, governments have been hard-pressed to find a solution to the financial madness that has spread from the sub-prime mortgage crisis. Having over-leveraged investment loans, governments and financial entities have found themselves in a unprecedented situation where they cannot liquidate their assets (as no one wants them at the price they would like to sell for), nor can they borrow from each other as the inter bank trust and credit ratings for most companies have fell as they revealed mismanaged debts and exposure to foreign markets that have failed them. Consequentially, major governments have sought long term solutions by "creating jobs" for trade-related workers, investing in infrastructure and manufacturing is all well and good, as they make up a large proportion of the money-spending population, but true economic stimulation requires that the whole economy gains from changes in monetary policy and government plans. Most, if not all changes in Australian monetary policy has resulted in the population tightening their back-pockets, putting the extra dollars that they save( via interest rate cuts and tax savings) in their bank accounts instead of doing what the government wants them to do, go out and spend it. Creating jobs for some sectors, e.g. their funding the production of Eco-friendly cars here in Australia, planning water infrastructure(desalination plant, piping to aid farmers/crop growers) and roads, isn't taking care of the whole picture. "Opening the coffers" for such extravagant, long term projects is good for nation-building, one of Kevin Rudd's election promises, but in the current financial climate, where the Government's future fund is loosing money, and the budget surplus of $22bn. is in threat of becoming a deficit, one must ponder whether the amount short term loss can be regained in the future.

Even before the "global credit crunch" and the "sub-prime mortgage write-offs" many sectors of the Australian workforce were being cutback and displaced as jobs were flying overseas to lesser economies as companies outsourced non-essential service jobs and the nations balance-of-trade swung to the side imports. Although we have seen a massive increase in the exported volume and price of Australian ores and minerals, the product life cycle brings back the raw material as processed and packaged goods and consumables. The meteoric rise of China, and the comparatively steady growth of India saw the spot rate of steel explode and Rio Tinto and BHP, amongst others, made bumper profits while companies in other sectors also benefited from the rise of the Asian powerhouses, not because those countries were buying in massive amounts from them, rather, the rise of China let manufacturing companies cut costs by importing goods, and let textile companies cut costs by hiring cheaper labour and using cheaper materials, which they then had imported for a lower total cost.

The government did nothing about those drastic developments in the employment of Australians, yet it feels that pumping money into the Motor vehicle Manufacturing Industry is part of a solution to "kill not two, but three birds with one stone". Their initiative aims to employ more people, by rewarding companies who definitively plan to produce vehicles that will emit less carbon monoxide, carbon dioxide and other greenhouse gases, which will in turn stimulate the economy by providing more people with disposable income(spending money). The glaring flaw in this supposedly sound plan are twofold.

Firstly, promoting the production of fuel efficient, Eco-friendly cars right here is only profitable for Australian companies if the trade agreements we have with our export countries allow reasonable profits to be made. Already, there is talk of decreasing the import tariff from 10 to 5 %, making it easier for foreign companies to import cars to our market, and sell them at "Australian market" rates, effectively letting them make an extraordinary profit margin, while not demanding that those trading "partners" agree to the same deal. What chance do companies like Holden and Ford have exporting to the world when they have to pay tax between 10 to 20 % just to export cars, when Hyundai and Mazda pay 5% to import to Australia.

Secondly, the economic benefits of such a plan will not be felt for at least two years at best, and even when it is, there is no guarantee that the Australian economy will be in such a state that the people with disposable income will go out into the markets and spend it. If nothing is done to stave off recession and stimulate true growth across the country in the short term,( latest figures show that NSW is a dead weight to Australia's economy) even the best laid plans have no chance of succeeding in the medium to long term.

K Rudd and Co. need plans that will promote growth across the board, whether it be by cutting taxes to citizens, reducing the tax burden on companies that start new IT and other commercial projects, subsidize the employment of Australians in call-centre jobs, or the promotion of infrastructure growth in the Health sector, the government must ensure that all sections of the population stand to gain by the measures they introduce, or else whatever growth is seen by those favoured sectors will soon dissipate in the overwhelming tide of recession.

2 comments:

Skylark said...

young man,

I haven't gone thru the posts yet but like the very idea that you have started this...will go thru when I get the first chance...continue dear...

Skylark said...

have plenty of doctor follow ups this week and going back to work starting this wednesday after more than 2 months...so, will take more to read ur posts.....but will make time for u and read....