Friday, August 05, 2011

Two part economy

I've been living in Dubai for the past six years, and I see an interesting comparison with Australia.

Let me give a brief bit of background.

In Dubai we had the construction boom the whole world was talking about.

There were two important things the world got wrong about it, which is relevant to the subject.

One, "that's what oil money does". In reality, oil money had nothing to do with it.

Dubai has never had much oil. There's been a brief burst of income from the sixties from a couple of small fields, which was very sensibly invested in infrastructure.

Two, "Dubai is all about real estate". In realty, from its beginnings in the 1880s, it was about business, about trading. Oil is less than 5% of the economy.


Actually there's a third thing the world misunderstood. 'Dubai' didn't put the mind-boggling sums of money into its vast developments. A huge amount of the money was from outside investors, who poured literally hundreds of billions of dollars into the emirate.

Dubai, as always, put money into infrastructure designed to support the real economy, including a vast new road system, the first Metro rail system in the region, a huge new public bus fleet, huge development of Dubai International Airport and the start of a brand new airport which will, when it's eventually finished, be the largest in the world.

(Sceptics should bear in mind that in just fifty years Dubai International has gone from start-up to now being the world's fourth busiest international passenger airport, with 50 million passengers. It's also the world's seventh busiest cargo airport, handling nearly three million tonnes last year. And it's rapidly climbing both league tables.)

I'm not really digressing, because the point is that Dubai very clearly had a two-part economy. The boom of the temporary real estate bonanza was one part, the other part, the important part, is the real underlying economy.

That's where I see the comparison in my first sentence.

Australia clearly also has a two part economy, the temporary commodities bonanza and the real underlying economy which is the important part.
As with Dubai, the wealth being generated by the bonanza isn't being fairly or widely spread. As with Dubai, it's dependent on outside factors beyond our control. As with Dubai, it will come to an end. And we need to strengthen our real economy for when it does end.

We need to get on top of the situation, and quickly. The irreplaceable natural resources are being taken, huge profits are being made but as a nation we're not getting our fair share.

We must maximise national income from the boom while it lasts, to invest in developing the real economy. In both infrastructure and business.

For example, we need a rethink on tourism, which includes appointing new people with new thinking. Since the Hogan 'shrimp on the barbie' campaign we've got it wrong time and time again and our tourism revenues have long been on the slide.

We need more manufacturing, and in particular value-added industries.

Sending so much raw wool overseas for others to turn into consumer products and sell around the world at a good profit is the least possible business we can do with the resource.

We should be keeping plenty of it back here and processing it for our designers to turn into high-value materials, fabrics, clothing, furnishings.

We cut down our trees and sell them as woodchip. We should be using it to create more wealth for ourselves by making everything from top level furniture to toothpicks from it.

Exporting being difficult because of the tyranny of distance has long since been untrue. Our big trading partners are now in Asia, but even north America and Europe are easily reachable with modern transport.

We need an efficient, fast rail system to move material around the country to manufacturing and export points. We need airports - and an airline - relevant to the twenty-first century.  And we need the ports upgraded so that we can ship exports out efficiently instead of seeing dozens of ships anchored on the horizon waiting to get in.

The frustrating thing is that with the quality of our politicians and the level to which our politics has sunk, none of it will happen.

We'll continue to let the bonanza slip away from us and we'll continue to do the simplest thing possible.  Shear it, grow it, dig it up and send it in bulk overseas for others to make the profits from.

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