Yahoo Finance Mining boom making us lazy and vulnerable
Australia’s 20 year economic expansion, fuelled by resource-led investment, masks a slowing in productivity growth that leaves our economy vulnerable over the long term, a McKinsey Global Institute report has shown.
The study found that one-off factors associated with the mining boom accounted for more than half the recent growth in national income.
Our high terms of trade (export prices relative to import prices) and the windfall from investment into the country accounted for 90 per cent of income growth over the past six years, said Chris Bradley, an author of the report and principal at McKinsey & Co.
Between the years of 2005 and 2011 income levels in Australia rose by more than four per cent per annum. This impressive gain however masks declines in both labour and capital producitivy, said Mr Bradley.
If the high prices that the Chinese currently pay to acquire our commodities and the vast investments don’t continue into the future, the nation stands to lose $135 billion in annual income, found the report.
Related: Investors Shift Money Out of China
“Australia can counteract this threat and raise income by almost A$90 billion per year through a concerted effort to restore productivity as the primary engine of Australia’s growth,” Bradley said in a statement.
Related: Top Australian mining jobs and salaries
Australia is currently ranked the sixth richest nation in the world measured by gross domestic product per capita, but fortunes are now boom-dependent rather than resulting from high productivity rates.
The McKinsey’s report outlined four possible scenarios for Australia’s income growth in the future:
* ‘Paradise’ -- 3.7 percent annual growth if the terms of trade remain high and productivity is restored
* ‘Lucky escape’ -- 2.4 percent if the terms of trade stay elevated and productivity stays stagnant
* ‘Earned rewards’ -- 1.8 percent per year if the terms of trade fall while productivity is revived
* ‘Hangover’ -- 0.5 percent per year, or almost no income growth, if the worst-case scenario occurs for both the terms of trade and productivity.
The McKinsey report echoes the main sentiments of a speech by Treasury official David Gruen last month.
“The gains in Australian living standards of the past decade were more easily achieved than in the 1990s, but they were achieved in ways that cannot be replicated,” said Gruen in the July 10 speech.
“The gains of the next decade will rely overwhelmingly on improvements in productivity.”
Related: How our mining boom is making us dumber
Related: Australia leading global charge on mining returns
