The Asian Century

Last year the government introduced their 'Asian Century' paper. It pointed out that Australia's future lay in Asia and that the reality was that the low cost, highly innovative Asia was where world growth would be centred.

Australia has to live with this simple fact and adjust. Strangely the discussion of the paper was centred on how more language teaching was needed and how Australia had to develop new service based industries to sell to this rapidly growing industrial continent.

Virtually nobody mentioned the implied decline of low tech and manufacturing jobs in Australia. Australians are paid very well and by comparison are much less productive in terms out costs per unit than Asian economies. For many years Australia was able to maintain high manufacturing employment and let technology pass them by for decades because they were so far away.

That is no longer an option. Globalisation, which the 'Asian Century' seeks to embrace, has made the usual Australian view of ' Australian made and owned' as up to date as a dinosaur.

Australia has to learn from the successful economies of Europe. Those who held on to the old industries and work practises, such as Spain and France, have fared very badly compared to those, such as Britain, who allowed the industries to decline and shifted resources to the more modern opportunities.

The pieces linked below illustrate this. The Telstra call centres are moving to Asia where University graduates will answer your call at any time of the day or night. Telstra will cut costs, raise profits and reinvest them in the high tech sector which will provide the sustainable jobs Australia needs.

The second piece is about a US/France spat where an American industrialist declared that they would be insane to invest in France due to the poor working practises.

Trade Unions beware, protecting an inefficient job does nothing to help the future economy of any country.

Telstra's call centre move is here

The BBC report the US/French dispute here

Scarcity, choice and opportunity cost

So its the start of the course and you will all be encountering the concept of scarcity. It's a vital concept in Economics, but really not given anywhere near enough attention in VCE. This means when the exam asks about these early portions of the study design students have not revised it that well.

Therefore its really a good idea to get this right first time. I won't waste space repeating the textbooks, but I'd like to point you at some resources and draw a lesson from this concept.

A brief overview:

Scarcity is the issue that describes the problem that there are not enough resources to satisfy the wants of society. Therefore society has to make a choice about What to produce, how to produce it and who gets the goods and services produced.

The cost of the choices made is the opportunity cost, the next best alternative given up.

To reduce, but not eliminate, the problem of scarcity it is best for society to use its resources fully and efficiently and that means the economy operating on the boundary of the Production Possibility Curve (or PPF - Frontier). Please note that one text book states that you can distinguish between points on the PPF in terms of productive efficiency - this is wrong and in 2010 misled many candidates! All points on the PPF are efficient.

So what is the lesson?

In a word it is all about price.

Any system can be adopted to deal with scarcity. The method chosen in Australia is the market system. 

This means that each good and service has a price. If you can afford the price then you can have it.

So how does price allocate resources between alternative uses? The answer is that your income is like votes. One dollar equals one vote.

Households compete with each other for the goods and services produced because they are scarce. The more votes a good gets the higher the price it can command and as the price rises some people decide not to buy. The scarce resources of Australia are allocated to the uses which people will pay most for.

It may not be fair but it works.

So the prices we pay in the shops are due to scarcity. If there was no scarcity all goods and services would be free and Grand Final tickets would be available to all who want them. We can dream.

Here are a couple of Youtube links. One is a 15 minute lesson, very useful for revision too.

Scarcity, Opportunity Cost and the PPC - 15 mins

Scarcity and choice - 4.5 mins

A monthly routine - statistics and decisions

The state of the Australian economy is something VCE Economics students have to understand. For those starting Unit 3 and 4 this year then you have to know the data for the last three years and follow developments this year.

This is because not only can the questions in the exam include that data, but the exam will require students to use statistics in their answers. So it is your responsibility to keep track of them.

Why not just learn the statistics prior to the exam? That may work, but if you are following developments closely then you will gain a deeper understanding of what they mean and the significance of changes. This will help improve your answers and help you move up the rankings. Remember it is the top 10% who get 40+.

Another group of people who follow the statistics closely are the Reserve Bank of Australia (RBA). They have responsibility for keeping inflation between 2 and 3% and they adjust interest rates in order to do this.

Changes in interest rates (monetary policy) take 18 months to two years to affect the inflation rate. Therefore the RBA must look carefully at trends in the data, such as unemployment, the exchange rate, wage costs and domestic and foreign demand in order to predict future inflation and so policy changes. This makes them an excellent source of information on the data and they provide a commentary on the state of the Australian economy.

Each time the RBA make a decision on interest rates (once a month) they issue a statement. Make a habit of reading this and understanding what they are saying. The article from The Age below guides you though the latest one by putting it into plain English.

The RBA also provide a useful 'Chart Pack' undated around once every three months which provides excellent information.

The Age report is here

The RBA 'Chart Pack' can be found here

The Standard of Living

VCE Economics really has one aim. To explain what influences the Standard of Living of Australians. All that you learn can be related to this.

Unfortunately it is not at all clear what 'standard of living' means and you will profit from gaining a good understanding of this early.

There are two ways of looking at the standard of living:

Material standards of living - judged by how many goods and services the population can consume

Non-material standard of living - which relates to the wider quality of life. For example living in the UK means coping with the awful weather month in month out, while the pleasures of Melbourne's climate, whatever you may think of it, means you have a better quality of life. Leisure time and the quality of activities, levels of pollution, stress levels and so on all contribute to non-material living standards.

But how can we measure Standard of Living? As non-material living standards are important GDP alone is not enough. Indeed GDP has many shortcomings and at the very least needs to be converted to Real disposable GDP per capita.

There have been several attempts to measure the standard of living, the Human Development Index is the best known, but Australia has made its own attempt with the Genuine Progress Indicator.

Stiglitz on the problems with GDP here

The Standard of Living vs Quality of Life here

OECD Better  Life Index here

Email me at mark.russell43@hotmail.com for some notes in word format