Peak living standards- Greg Reid
In China living standards are rising but in Australia a long term decline may have begun. The mining boom has plateaued without ever conferring advantages of cheap resources or power to the wider economy. Instead, high exchange rates have all but crushed our manufacturing sector. “Services” touted as the new economy are in many cases more cheaply delivered via the internet or 457 visas. The baby boomers are retiring while the new generations face crippling house prices and rising unemployment. But beyond these local factors much larger trends are also at work.
Ballooning global consumption is driving global warming and a rapid depletion of critical minerals. The impacts of climate change are an increasing economic burden that seems certain to become much worse before the use of fossil fuels is seriously curbed. There are alternative energy technologies like wind and solar but their broad deployment will be limited by the exhaustion of critical elements such as neodymium and germanium.
Consumption is now on such a vast scale that elements that were once common such as copper, tin and lead are becoming severely depleted. Some elements may be replaced with less suitable or less efficient materials but others are simply irreplaceable.
Phosphorus is essential to all life and phosphatic fertilisers underpin most of global food production. Phosphorus cannot be substituted yet the supply of phosphatic minerals will become limiting within a generation.
A sustainable global economy is not really optional but the current economic paradigm clings to the delusion that free markets will deliver unlimited growth. In the real world that growth is uneven, wasteful and dangerously short sighted. China will continue to grow in the near term but there are not enough resources on this planet give them all an American lifestyle. Instead, wealth will polarise and growth will falter with heavy consequences for “open-pit” economies like Australia.
China is already investing massively to become a competitor in the professional and service sectors and this too does not bode well for Australia.
In a world destabilised by climate change and diminishing resources the long term economic drivers will be efficiency, clean technology, conservation and recycling. The size of that economy will depend on whether the change is early enough to preserve sufficient reserves of key resources.
Adjusting the current paradigm will require levies on activities that ignore or socialise consequences. After all, in a properly functioning market the price should reflect full downstream costs. Perhaps a good place to start would be with a levy on fossil fuels that is neither a tax or trading scheme but a proportional cost of climate impacts.
Living standards rise when costs fall relative to income. Global markets simply redistribute costs and income but the system is actually less efficient with market distortion by dominant
players, massive transportation costs and end waste. Some prices fall but only because the social and environmental costs are hidden by distance and deferred. This short sighted approach is accumulating huge structural and environmental problems that are already impacting living standards. If future gains are to be made it will have to be with real efficiency improvements that make and deliver products with less energy, less waste and less downstream consequences.
Past generations were prepared to make sacrifices for a better future. In contrast, current society seeks to defer costs to coming generations with the weak excuse that new technology might be cheaper. There is also a growing political tendency to wilfully deny or ignore the accumulating problems but like it or not a major change in global economic winds is on the horizon. Resource depletion and climate destabilisation will halt the unlimited growth model in the next few decades. Free trade and free markets will have to give way to sustainable trade and “full cost” markets. If Australia is not to find itself declining in an “open-pit” economy then it is time to start actively building the industries that will serve in a world of constrained growth.
Greg Reid is a NSW member of ERA