ASIA
15 October 2014
Australia optimism?
Digital technologies are bringing a wave of improved well-being for Australian citizens, argues Ric Simes, but this is not well captured by GDP and productivity statistics.
Digital technologies are bringing a wave of improved well-being for Australian citizens and competition for the economy, argued leading Australian economist Ric Simes in a recent event with the Australian Business Economists group.
These changes are well advanced in areas like retail and the media where the consumer is in the driver’s seat and forcing business to change in terms of product offerings, location, way to market etc. It is also the case in professional services like tax and audit services.
These technologies "are transforming how individuals consume, work, learn and interact. And how businesses attract customers, organise their workplaces, generate their next product".
We should however be wary of GDP and productivity statistics as they do not capture much of this digital prosperity, cautioned Simes.
Measured productivity misses gains to consumer and social welfare such as when we no longer have to queue for 30 minutes at a government agency or bank branch thanks to digital technology. Or what about the convenience of being able to search for a needed service on the Internet?
And then there are the benefits of much greater choice thanks to Amazon. As well as reducing costs, Amazon provides millions of titles to choose from, not just Dan Brown and Ian Rankin. Some researchers have estimated that the benefits of increased choice far exceed, perhaps by seven to ten times, the benefits of improved productivity, as real as that is.
Simes argues that digital technology is bringing "a wave of new competition, a wave that rivals the scale of competition injected into the economy through the microeconomic reforms of the 1980s and 1990s". But most of this "is being driven by individuals, individuals whether they be consumers, workers, students or patients".
And while these changes are occurring more rapidly, there could much more to come. There is still great potential for digital technologies to make large improvements in Australian lives through government services and those parts of the economy where market forces are muted.
They can for example create a more responsive health system, empower patients and facilitate electronic health record systems. Education and transport are two other sectors with great potential for digitalization.
Digital technologies could also help craft a system that better supports citizens' management of incomes and risks in retirement as their superannuation assets grow. This has become necessary with the expansion of superannuation and the gradual reduced reliance on pensions. More responsibility has now been shifted from government to individuals who must make informed decisions about their retirement incomes and associated risks, with all the complexities involved.
The organization of our cities -- the location of 75-80% of our economy and jobs -- is also crying out for digital technology. Problems are mounting -- congestion, compromised open spaces, the loss of amenity.
While these are hard issues to solve, digital technologies can facilitate the better organization of our cities. And this is necessary, as Sydney could have a population of around 6.2 million by 2030, and 7.9 million by 2050. Better planning, and better use of pricing and smart technologies will all help.
"However, they will not be enough to cope with mass transit needs", says Simes. He argues that by Sydney should have proper rail grid with stations spaced roughly half the distance they are currently.
In short, digital technology is changing the face of the Australian economy and society. And properly harnessed, it could help us solve many of our future challenges. While many of the benefits of digital technology may not find their way into the GDP or productivity statistics, they are very real.
Simes' optimism is tempered in a thinly-veiled criticism of government and business economists, and government itself. He argues that making the most effective use of digital technologies is much more important than "whether we should get the budget back into balance by 2017 or 2019, or whether the Reserve Bank is going to hike rates by 25 basis points next quarter or not". These are of course the things that Australia's government and economists are most preoccupied by.
Simes also argues that cost benefit analyses can be "potentially distracting" for some big picture issues as "they risk lowering our gaze". For Australian economists steeped in orthodoxy, such iconoclastic thoughts are troubling indeed, as was evident in the discussions skillfully led by prominent Australian journalist, Ross Gittens.
But the Australian government's recent cost benefit analysis of the National Broadband Network project shows how arbitrary, hazardous and political such a seemingly technical exercise can become. And it is salutary that neither Sydney's Harbour Bridge nor the Opera House would have passed a cost benefit test in their day. Thus, cost benefit analysis "could be a distraction for consideration of a new metro system to be in place for 2050", as Simes argues.
One is left with the troubling conclusion that while market-driven usage of digital technologies will be greatly beneficial for the well-being of Australian citizens, government capacity to ensure that the country makes the most of them is more limited.
Australian government today is dominated by bean-counters. They may help Australia implement successful policies in response to financial crises as well as manage public deficits and debt. But there are very few visionaries who can build the Australia of tomorrow.
Most regrettably it seems that Donald Horne's 1960s quote -- "Australia is a lucky country, run by second-rate people who share its luck" -- still remains all too valid today, as is also evident in the deep corruption scandals that currently plague the Australian political system.
Executive Director
Asian Century Institute
These changes are well advanced in areas like retail and the media where the consumer is in the driver’s seat and forcing business to change in terms of product offerings, location, way to market etc. It is also the case in professional services like tax and audit services.
These technologies "are transforming how individuals consume, work, learn and interact. And how businesses attract customers, organise their workplaces, generate their next product".
We should however be wary of GDP and productivity statistics as they do not capture much of this digital prosperity, cautioned Simes.
Measured productivity misses gains to consumer and social welfare such as when we no longer have to queue for 30 minutes at a government agency or bank branch thanks to digital technology. Or what about the convenience of being able to search for a needed service on the Internet?
And then there are the benefits of much greater choice thanks to Amazon. As well as reducing costs, Amazon provides millions of titles to choose from, not just Dan Brown and Ian Rankin. Some researchers have estimated that the benefits of increased choice far exceed, perhaps by seven to ten times, the benefits of improved productivity, as real as that is.
Simes argues that digital technology is bringing "a wave of new competition, a wave that rivals the scale of competition injected into the economy through the microeconomic reforms of the 1980s and 1990s". But most of this "is being driven by individuals, individuals whether they be consumers, workers, students or patients".
And while these changes are occurring more rapidly, there could much more to come. There is still great potential for digital technologies to make large improvements in Australian lives through government services and those parts of the economy where market forces are muted.
They can for example create a more responsive health system, empower patients and facilitate electronic health record systems. Education and transport are two other sectors with great potential for digitalization.
Digital technologies could also help craft a system that better supports citizens' management of incomes and risks in retirement as their superannuation assets grow. This has become necessary with the expansion of superannuation and the gradual reduced reliance on pensions. More responsibility has now been shifted from government to individuals who must make informed decisions about their retirement incomes and associated risks, with all the complexities involved.
The organization of our cities -- the location of 75-80% of our economy and jobs -- is also crying out for digital technology. Problems are mounting -- congestion, compromised open spaces, the loss of amenity.
While these are hard issues to solve, digital technologies can facilitate the better organization of our cities. And this is necessary, as Sydney could have a population of around 6.2 million by 2030, and 7.9 million by 2050. Better planning, and better use of pricing and smart technologies will all help.
"However, they will not be enough to cope with mass transit needs", says Simes. He argues that by Sydney should have proper rail grid with stations spaced roughly half the distance they are currently.
In short, digital technology is changing the face of the Australian economy and society. And properly harnessed, it could help us solve many of our future challenges. While many of the benefits of digital technology may not find their way into the GDP or productivity statistics, they are very real.
Simes' optimism is tempered in a thinly-veiled criticism of government and business economists, and government itself. He argues that making the most effective use of digital technologies is much more important than "whether we should get the budget back into balance by 2017 or 2019, or whether the Reserve Bank is going to hike rates by 25 basis points next quarter or not". These are of course the things that Australia's government and economists are most preoccupied by.
Simes also argues that cost benefit analyses can be "potentially distracting" for some big picture issues as "they risk lowering our gaze". For Australian economists steeped in orthodoxy, such iconoclastic thoughts are troubling indeed, as was evident in the discussions skillfully led by prominent Australian journalist, Ross Gittens.
But the Australian government's recent cost benefit analysis of the National Broadband Network project shows how arbitrary, hazardous and political such a seemingly technical exercise can become. And it is salutary that neither Sydney's Harbour Bridge nor the Opera House would have passed a cost benefit test in their day. Thus, cost benefit analysis "could be a distraction for consideration of a new metro system to be in place for 2050", as Simes argues.
One is left with the troubling conclusion that while market-driven usage of digital technologies will be greatly beneficial for the well-being of Australian citizens, government capacity to ensure that the country makes the most of them is more limited.
Australian government today is dominated by bean-counters. They may help Australia implement successful policies in response to financial crises as well as manage public deficits and debt. But there are very few visionaries who can build the Australia of tomorrow.
Most regrettably it seems that Donald Horne's 1960s quote -- "Australia is a lucky country, run by second-rate people who share its luck" -- still remains all too valid today, as is also evident in the deep corruption scandals that currently plague the Australian political system.
Author
John WestExecutive Director
Asian Century Institute