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AFTER REFORM: THE ECONOMIC POLICY AGENDA IN THE 21ST CENTURY
FH Gruen Lecture Australian National University, 4 October 2016
A POLICY AGENDA FOR THE KNOWLEDGE ECONOMY
Policy debate dominated by discussions
- f ‘reform’
AFTER REFORM: THE ECONOMIC POLICY AGENDA IN THE 21ST CENTURY John - - PowerPoint PPT Presentation
AFTER REFORM: THE ECONOMIC POLICY AGENDA IN THE 21ST CENTURY John - - PowerPoint PPT Presentation
AFTER REFORM: THE ECONOMIC POLICY AGENDA IN THE 21ST CENTURY John Quiggin University of Queensland and FH Gruen Visiting Chair, ANU FH Gruen Lecture Australian National University, 4 October 2016 A POLICY AGENDA FOR THE KNOWLEDGE
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THE 20TH CENTURY INDUSTRIAL ECONOMY
Three stages of production Primary: agriculture, forestry, mining Secondary: manufacturing Tertiary: transport, distribution, finance GDP and National Accounts Measure value-added, avoid double counting
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HOUSEHOLD VS MARKET
Central division between household and market production
Roughly, between men’s and women’s work
Households
Household production Reproduce labour force
Other non-market activity less important
Charities, clubs, churches
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AUSTRALIA IN 1980
A small rich industrial country (Arndt) Large but declining manufacturing sector Service sector growing, but problematic Postwar policy agenda exhausted and unsustainable No answer to the crisis of the 1970s
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THE POLICY PROBLEMS OF 1980
Structural adjustment Crisis of Keynesian macro Wages and labour markets Fiscal crisis of the state Failure of financial regulation
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THE POLICY RESPONSE: MICROECONOMIC REFORM*
Australia at the Crossroads Getting prices right
Free trade, tax reform
Financial deregulation
Floating currency, banking competition
Rolling back the public sector
Privatisation
Labour market reform
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STILL DRIVES POLICY DEBATE
Reflexive responses not analysis Examples
National Reform Summit Crisis rhetoric around debt and deficits Failed attempts to marketise human services (VET sector)
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FATIGUE OR EXHAUSTION
Elite policy discussion suggests public suffering from ‘reform fatigue’ Reality is that reform program is exhausted Key elements either completed, overdone
- r irrelevant
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THE POLICY PROBLEMS OF 2016
Secular stagnation Growing inequality Increase in monopoly & arbitrage profits Climate change Financial instability Fiscal crisis of the state (still!) But ... Internet
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SECULAR STAGNATION
Low productivity and economic growth
- bserved in many countries
Gordon, Rise and Fall of American Growth Australia: Zero MFP growth since 2003 Eurozone: GDP still below pre-crisis level
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GROWING INEQUALITY
Rise of the top 1 per cent Within that group, top 0.1 and so on Peeling the onion With weak aggregate growth, less for everyone else Failure of ‘trickle down’
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MONOPOLY AND ARBITRAGE
Financial sector dominates profit share
tax avoidance, regulatory arbitrage
Key tech sectors monopolised by intellectual ‘property’ Privatisation and regulated monopoly Increasing concentration in many industries
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CLIMATE CHANGE
Biggest market failure in history (Stern) Energy prices don’t reflect social cost Health effects of coal make this even worse Urgent action needed, but market-based policies face resistance
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FINANCIAL INSTABILITY
Banks continue as before No real change since GFC
rigging markets, facilitating tax evasion failing to finance productive investment
Sector needs massive contraction
Unlikely to come without a crisis
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FISCAL CRISIS OF THE STATE
Needs for human services increasing faster than market GDP But, still strong resistance to increased taxation Chronic debt/deficit ‘emergency’ Austerity
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THE RISE OF THE INTERNET
Developed as by-product of university research communications Architecture depends mainly on open- source software Value depends primarily on user-generated content: blogs, Twitter, Facebook Important but secondary role of physical infrastructure
Info superhighway metaphor both illuminating and misleading
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CONTRIBUTION TO GROWTH
Currently accounting for 20-30 per cent of GDP growth
McKinsey, World Bank, OECD, Allens
Implies more than 50 per cent of TFP growth Largely ignored in policy debate
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CONTRIBUTION TO WELFARE
Substantial but hard to quantify Goolsbee and Klenow estimate $3000/ year based on time use of 1 hr/day in 2005 Must be much larger today
So large that a valuation based on market prices may be impossible
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THE KNOWLEDGE ECONOMY
Obsolescence of value chain model Intellectual 'property' and monopoly profits Public goods and non-market production Education and training Research, development and communication
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THE KNOWLEDGE ECONOMY
Computing and telecommunications key to innovation Stagnation in transport, previously the leading sector Australia’s productivity debate misses the point
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DEATH OF THE VALUE CHAIN
Creation, dissemination and use of knowledge central to economic activity Does not involve processing of physical inputs Irrelevance of C20 notion of value added
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SCALE ECONOMIES IN INFORMATION
Cumulative and interactive nature of knowledge Implies potential for unlimited (qualitative) growth, even with finite resources Central difference between endogenous and classical/exogenous growth theory
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INFORMATION AS A PUBLIC GOOD
Non-rival Cumulative Exclusion difficult/inefficient ‘Publicness’ increases as dissemination costs fall
By orders of magnitude in Internet era
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CENTRALITY OF NON-MARKET ACTIVITY
Wikipedia the canonical example But even commercial services are almost entirely non-market. 500 million tweets per day, Twitter revenue $0.01/tweet Facebook 300 billion user hours/year, FB revenue $0.03/hour
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IMPLICATIONS FOR POLICY AGENDA
Profitability unrelated to social value
Wikipedia v WhatsApp Irrelevance of financial market valuations
Prices and incentives less important Human capital critical Shift from market to household sector implies fewer hours of paid work
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PRICES AND INCENTIVES LESS RELEVANT
Prices no longer closely related to social
- pportunity cost
Implies we can redistribute income with little social cost
Return to progressive taxation More provision of public goods
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A POLICY AGENDA FOR EGALITARIAN ABUNDANCE
Towards a post-scarcity society Knowledge as the driver of productivity Universal post-school education Universal access to high-speed Internet Expanded and democratised program of research and communication
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BEYOND SCARCITY
Anything that can be digitised rapidly becomes free Potentially encompasses most of current GDP Internet of Things Shift from market to non-market activity
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MARKET WORK, NONMARKET WORK AND LEISURE
Keynes and Economic Possibilities for our Grandchildren
A couple of generations early
Take productivity gains as reduced hours
- f market work
Guaranteed Minimum Income/Universal Basic Income What about housework?
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UNIVERSAL POST - SCHOOL EDUCATION
High school completion already accepted as a norm (over 80%) Need to do the same for university/ TAFE/trade training Success overall since 1980 but Failed reform of TAFE sector, for- profit fiasco
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RESEARCH, DEVELOPMENT & COMMUNICATION
Communication to broad public is essential
Done better before 1980? The Conversation: A model for the future
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AT THE CROSSROADS, ONCE MORE
The 20th century model has broken down and the era of reform is over Knowledge economy is already here and will only become more important A future of egalitarian abundance is possible, but not guaranteed
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AFTER REFORM: THE ECONOMIC POLICY AGENDA IN THE 21ST CENTURY
FH Gruen Lecture Australian National University, 4 October 2016