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    Cargo cult economics


    Has our recent prosperity all been one big, furry hallucination stoked by our collective sense of millennial transcendence? Whatever happened to living within your means? Marketing maven Ray Beatty reckons it’s about time we laid off the snooze button and put on a pot of espresso.

    Now we’re well into 2008, what do we see as our future? How much of our growth and progress is real, and how much is what I call ‘Cargo Cult Economics’, where we end up holding sacks of straw?

    At the end of World War II, villagers from the Pacific islands and New Guinea had been used to seeing an endless flow of aeroplanes flying in with huge quantities of goods and materiel for the armies fighting Japan. Then suddenly it all stopped.

    A number of movements started that attempted to stimulate this flow again. Villagers built mock airports with control towers made of timber and straw; they built dummy aeroplanes and radios and many of the modern paraphernalia that they associated with an advanced economy.

    What they did not understand is that these things do not appear by magic by being wished for. There is a huge infrastructure behind them – engineering, factories, universities and science, banks and governments and the Pentagon – that make these things possible. Without them, all you had was string and straw.

    So I get nervous when I look at our own economy. The stock market that keeps rising and rising, and then makes bone-shaking adjustments. House prices that have soared as much as 500 percent in the past decade and keep climbing, even with the hat-pin of interest rates hidden in the wings.

    They seem to work on a belief that there is an endless source of wealth that will keep flying in and will never stop. In Australia we have an annual balance of payments deficit of over $11 billion and it doesn’t matter because the price of minerals keeps rising and we still have plenty of them in the ground.

    The world is floating on a sea of cheap manufactured Chinese goods and we’re all happy with this. The fact that China now holds some 1.4 trillion US dollars of currency reserves, of which 500 billion was accumulated over the last year, is not important. After all, America is such a mighty nation that these sums, or the billions being burned up in Iraq, are trivial amounts of no importance – aren’t they?

    Now I don’t want to sound a pessimistic note here, but I haven’t heard of anyone repealing the physical laws that say what goes up must come down again at some stage.

    Of course it’s wonderful that what were once third-world economies like China and India are going gangbusters. But I keep getting this little nagging in my head that says: yes, but shouldn’t we be using this good fortune to set ourselves up for the future?

    Kevin Rudd’s promise to regenerate education is well overdue and very welcome. But is it enough to just give every kid a computer? If you scoured the stores in the New Year’s sales you would have been very hard put to find products that have been made in Australia. I know because I tried.

    We now don’t own many of our major assets anymore, so many of them have been privatised. Now we have to pay top dollar to buy and lease them back – whether it be the rental of government buildings or for the use of privately-owned goods like water, electricity and roads.

    What I’d like the Rudd Government to show us at the start of this year is a picture of what Australia will look like not in three years but in twenty years. Will we still be manufacturing? What position will we have on the slippery OECD pole? Will our expanded population have security, affluence and work?

    If we are going to continue as an affluent nation we will need more than straw aeroplanes and coconut-shell radios.

    Ray Beatty runs MarketingSolutions, a consultancy advising companies on how to turn around their unsuccessful advertising campaigns. www.ebeatty.com