The Coronavirus is surely going to impact on the world economy for years to come.
Brian Roberts, a former professor at the University of Canberra (and Cockatoo member) says that to ensure we come out of this crisis for the better, we must start laying the foundations for the post-virus society and economy.
He reckons that Covid-19 will rewrite the economic model of development in Australia, and I must agree. His position is that if we’re to recover quickly from the crisis, we cannot leave it until the virus has passed, and that the crisis will accelerate us towards what Klaus Schwab, founder and executive chairman of the World Economic Forum, has called the 4th Industrial Revolution Economy >insert hyperlink { www.booktopia.com.au/shaping-the-future-of-the-fourth-industrial-revolution-klaus-schwab/book/9780241366370.html}<. It is not clear exactly what this economy will look like, but it will likely be more technology and knowledge driven and, hopefully more equitable, sustainable, collaborative and inclusive.
He says that most crises create opportunities for communities and individuals to be creative, innovative and take risks which they would not usually consider. Indeed economic analysis of the 1918 Spanish flu >insert hyperlink {ideas.repec.org/p/cpr/ceprdp/3791.html}< epidemic showed large and robust positive flow-on effects during the post influenza phase, with income growth across the United States with job and wealth creation up to the Great Depression. The same effect occurred in Australia.
The message is basically that even as health and economic crises develop, we have learned to become much more cooperative and creative, and we need to capitalise on these attributes to build a brighter future together when this is all over.
New economic strategies needed
Professor Roberts argues that long-term strategies are needed if the national and local economies are to recover quickly from this crisis. And in preparing these strategies, we must embrace agents of change emerging globally (pre the crisis) and learn from the experiences and innovation gained. He makes three main recommendations.
1. Re-shoring of industries
Australia has generally ignored re-shoring as an industry and job creation strategy, preferring to allow out-sourcing jobs and manufacturing investment to drift off-shore. Support for re-shoring would create jobs quickly, particularly as disruptions to global supply chains will continue for some time. The crisis has already demonstrated to us that interruption to supply chains increases considerably with distance.
2. Reduce transaction costs and strengthen local networks
In association with re-shoring, more companies are recognising the advantages of shortening supply chains to reduce transport cost and disruption risk. The current crisis will likely hasten this trend. However policy reform is necessary to reduce regional business and government transaction costs, to improve logistics management systems and to improve the efficiency of existing local and regional infrastructure and business networks.
Roberts says that building regional networks are crucial to enhancing connectivity and pooling of common-user infrastructure and resource sharing arrangements between local governments.
3. Embrace collaboration
Professor Roberts says that an increasing number of businesses recognise the advantages of collaboration – to reduce transaction costs and to improve efficiencies and competitiveness. He says economic models based on collaborative advantage >insert hyperlink {europeanbusinessreview.com/creating-collaborative-advantage/}< haven’t been matched by collaborative governance. The three levels of government continue to fight for short-term outcomes, while ignoring the benefits of a more coordinated, efficient approach.
He’s dead right. An example is the pork barrelling in respect of defence, education and sports facilities. Why do we allow governments to pour billions into private schools and hugely-expensive football stadiums? It’s because we don’t collaborate on the most efficient approaches. We cave into pressure groups.
Endogenous Growth Model
The good Professor finishes by suggesting that the economic model of competitive advantage posited by Professor Michael Porter in the Competitiveness of Nations may be over – or at least the part about the need for firms to develop export strategies. He says Australia must adopt a more sustainable economic model of development involving a balance and mix of exogenous (external) and endogenous (internal) growth strategies at the national and regional levels to support the post-coronavirus recovery.
And he’s right again. Every nation is pulling back and looking to support its local companies and workers. Strategies are needed to bring jobs home and to help them to develop new sets of skills, and to innovate and create ways of working with technology. At the core of this should be a Buy Australia campaign, with governments and the corporate sector showing the way. Wow, we might hopefully see the decline of overseas call centres. But seriously, small businesses in regional economies might begin to grow again as the national mood embraces the need to pull back, slow down and support those around us.
Recession
Blind Freddy can see we are now in recession. And we’ll be starting to use the D word shortly.
Another Cockatoo member is a recently-retired OECD economist, who has spent decades tracking the OECD economies and their policies. He grew up in South Australia (Coffin Bay actually), but now calls France home. I asked him if he agrees with my gut-feel that the economic recovery will be 5-10 years. His reply is worth your contemplation.
“I would go for an intermediate 7 years based on my predilection for biblical quotes when the flood comes – 7 lean years following 7 fat years. Uneven recovery is correct. With a bit of luck it may even be a bit cleaner and ecologically sound, and saner.
“But this crisis is not like Europe’s 2008 economic woes, and so far the solutions have been largely those that were arrived at painfully following 2008. Then, banks were the problem, this time it is the real economy. Some countries that were struggling before (e.g. Italy) will be in big trouble for a long time. It also depends a great deal on how the China – US virus rivalry plays out. Trump wants to re-open the US in a few weeks, inviting further virus proliferation, but trying to ensure his re-election via an economic boost. China is claiming that they have beaten the virus, but are very cautious. ‘Buy/make local’ national sentiment is growing everywhere.”
Coming months
Local councils are playing a wonderful leadership role at present, as is Local Government Focus which is soldiering on with important insights and information. We applaud all of you.
While most are working from home and dealing with emergency issues, if you get time to mull over medium-term strategies as above, please contact us. There’s lot to contemplate. And the nation will come out of this with a stronger appreciation of our industries and regions!
