Monday, 18 August 2014

Plenty of room for more people

Economics Correspondent

Plenty of room for more people

DICK Smith is a great Australian businessman and patriot, but on the question of population Smith continues to beat the wrong drum.
A small Australia is a stagnant, sterile Australia. Only by increasing skilled immigration significantly can Australia hope to increase its productivity and entrepreneurial and innovative cap­acity, and also remain a respectable size against our rapidly growing competitors in Asia.
Smith is probably right to support Andrew Forrest’s tough welfare reforms: breaking the vicious circle of dependency and joblessness in white let alone Aboriginal communities will require a lot more than tweaking the withdrawal rates or renaming handouts. But he is wrong on immigration.
If Australia had the density of an India or China, claims that more people would undermine Australians’ living standards might have credibility.
It is ­astounding in a nation with arable land as vast as Australia, where so many citizens have flown between Melbourne or Sydney or Brisbane on a clear day and simply looked down, that claims of environmental degradation are taken seriously.
From Thomas Malthus in the 19th century to Paul Ehrlich’s failed bet with Julian Simon in the 20th century that the world would run out of resources, economists predicting environmental or economic doom from rapid population growth have been continually proved wrong. Free markets, prices and the exigencies of the age have combined to lift agricultural and industrial productivity dramatically to protect living standards. There is no good reason why that process will not continue.
A bigger population reduces the fixed cost of government administration; a bigger benefit stems from economies of scale in industry and infrastructure. The Greens are either hypocrites or fools to advocate high-speed rail between Sydney and Melbourne while at the same time insisting on a “sustainable” population, typically code for small. Such mass transit projects within or between cities are only possible with large populations.
But in the 21st century the best argument for more people and even for higher-density living is the increased probability of mutually beneficial social or economic exchanges between individuals, households and communities that ultimately come to enrich the rest of society, too. People exposed to more diverse ideas are more likely to innovate.
Thankfully, as Smith pointed out this week, Australia is already enjoying rapid population growth without much political complaint. Australia’s natural increase has hovered around 130,000-150,000 a year for the past 20 years. But net overseas immigration has averaged about 225,000 a year since 2006, giving Australia one of the fastest rates of population growth in the advanced world.
The internecine asylum-seeker debate hasn’t poisoned Australians’ apparent acceptance of large-scale formal immigration, ­either. The government in Britain, a country with almost three times Australia’s population, is trying to cap net annual immigration below 100,000 a year to satisfy growing anti-EU sentiment.
But if Australia wants to be more than a quarry and a farm, then we need the sorts of people who will innovate and invent. Large swathes of Australia’s permanent immigrants, however, are not skilled.
Of the abovementioned net immigration, only about 50,000 are skilled migrants, a number the government expects to remain broadly flat up to 2018. Permanent “family reunion” immigration, meanwhile, is about 38,000 a year.
The potential pool of talented immigrants is stymied by a so-called “skilled occupations list” — a laughable attempt to plan the jobs market by federal bureaucrats who naturally have very little inherent ability or incentive to predict accurately what type and how many jobs the economy will require.
It should be scrapped immediately in place of far broader indicators of suitability, such as age and levels of education.
Chefs, sonographers, fitters and turners, and psychologists are in; but too bad if you’re a piano teacher, a personal trainer — or simply a literate, healthy, industrious young person capable or working in the vast range of low-skilled fields the retail and service sector has generated — you’re out. Barristers and solicitors are even on the desirable list, as if we need to be encouraging the relentless legalisation of civil society.
It should be obvious that individuals themselves are in the best position to judge how and where they might be useful in an economy, having far greater incentive to make the correct decision than officials in Canberra.
Some of the most rapid population bursts in human history have occurred, peacefully, in Australia without massive inflation or unemployment.
The 1850s gold rush saw the population triple in about a decade. More recently, Australia’s rapidly growing population has been the country’s economic secret weapon.
Australia lost and is still losing a huge opportunity to increase the number of young educated people. If only we had stimulated our economy with university-educated, unemployed Europeans and Americans during the global fin­ancial crisis rather than borrowing billions of dollars at 6 per cent to build school halls.
Smith was right this week about the pervasive obsession with GDP growth, though, which too many economists see as an end in itself rather than an artificial statistical byproduct of ­prosperity.

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