The Australian economy has held up pretty well against the storm of the global financial crisis, but it appears the financial crisis is starting to bite here too. China’s economy is slowing, which will reduce our exports of resources. It is the resources boom which has insulated Australia from the bulk of the global economic storm so far.
I published this graph in a previous post, How an ETS would create economic chaos to indicate Australia’s recent dependence upon resource mining.
Any commercial enterprise with this type of graph of its product mix would have identified this as a commercial risk and acted to mitigate the risk of the main product line going sour for some reason. These actions might include investing in value adding from that product, increasing sales in other existing product lines, not locking in investment in this product line too far in the future, while ensuring that product can be supplied for as long as there is demand for it ……..
Another risk mitigation strategy would be to ensure that the business does not place critical reliance on the cash flow from this one major product. Australia has not made the most of any of these risk mitigating opportunities. Therefore as the demand for our resources slows, we are going to feel a bit of a pinch.
Fortunately this slow down shouldn’t last too long. The world’s financial industry is starting to settle in corrective and remedial action. This will take time to come around, but it will. The upturn will be gradual though, as finance and credit will become available again a bit at a time, not in one wave of a magic wand. In the meantime industry needs to slow activity until the financial markets get back onto firmer ground.
Imagine though if the downturn in industry was imposed for ten years? That is what Australia is facing with the cap, tax and (one day) trade Carbon Pollution Reduction Scheme. It is our boom and bread and butter industries – mining and agriculture – that will feel the main impacts. Industry will take time to implement the cleaner technologies, once they become technically realistic and cost effective.
Industry invests less in R&D and innovation in a downturn because most efforts and money are spent on ensuring survival. No sense investing heavily in next generation technology if the risk you won’t be around next year is getting uncomfortable.
Also, government invests less in innovation when tax revenue falls. Social security, health, education, policing and security are basic services expected of a government in a developed country. It is the other areas in which there is more flexibility in spending, and that is where the cuts will be made.
Hopefully the policy makers are reviewing their strategy regarding CPRS already.
What would you do if you were part of the government policy making team? What risk mitigation strategies and policy changes would you be taking now?
Filed under: Carbon Pollution Reduction Scheme, economics, Emissions trading, ETS, politics, scepticism | Tagged: Australia, Carbon Pollution Reduction Scheme, climate change, economy, emissions trading scheme, ETS, global warming, politics |