tag:theconversation.com,2011:/id/topics/five-pillar-economy-16450/articlesFive Pillar Economy – The Conversation2015-05-10T21:01:52Ztag:theconversation.com,2011:article/414312015-05-10T21:01:52Z2015-05-10T21:01:52ZWhy health should be one of Abbott’s ‘pillars of the economy’<p><em>In his 2013 election campaign, Tony Abbott promised his government would build a world-class “five pillar economy”, encompassing manufacturing, agriculture, services, education and mining. On the eve of his government’s second budget, Michael Woods argues that health should have been one of those pillars.</em></p>
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<p>Australia’s health system is both important and big: as a proportion of the economy, as an employer and as a cost to taxpayers. It’s big business, and it’s only going to get bigger, so governments need to play close attention to creating a sustainable health system.</p>
<p>The country spent <a href="http://www.aihw.gov.au/publication-detail/?id=60129548871">A$147 billion on health in 2012-13</a>, which is just under 10% of the country’s Gross Domestic Product (GDP). Only a decade ago, this figure was much lower at 8.6% of GDP. </p>
<p>Countries such as the United Kingdom and Norway spend a similar proportion of their GDP on health, and Canada and France spend a little more. The United States is in a class of its own, at 16.9% of GDP. In 2002, the <a href="http://www.aihw.gov.au/publication-detail/?id=60129548871">OECD median in health spending</a> was 8.2%, and it had grown to 9.2% a decade later.</p>
<h2>A large chunk</h2>
<p>The health workforce is large and diverse. In Australia, <a href="http://www.aihw.gov.au/workforce/">approximately 600,000 workers</a> are registered as health practitioners, of whom more than half are nurses and midwives. Added to that are many more who provide support services. In fact, health care and social assistance is now <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/8155.0">one of the top three employers in the economy</a>, along with retail and construction. </p>
<p>But the health workforce needs reforming. High-cost professionals are performing procedures that could be safely undertaken by other health workers. The demand for nurses is outstripping the supply of those skilled and willing to work in the health sector. And the <a href="https://www.hwa.gov.au/our-work/health-workforce-planning/health-workforce-2025-doctors-nurses-and-midwives">shortage of many health services in rural and remote Australia</a> is an ongoing concern. </p>
<p>Somewhat ironically, the agency that led research and funding into workforce reform, Health Workforce Australia – was itself a victim of the <a href="http://www.budget.gov.au/2014-15/content/overview/html/overview_key_initiatives.htm">2014-15 federal budget</a>.</p>
<p>The health system is also at the heart of some of the country’s strongest fiscal pressures. Of the <a href="http://www.aihw.gov.au/publication-detail/?id=60129548871">A$147 billion spent on health in 2012–13</a>, more than two thirds was funded by federal and state taxpayers. </p>
<p>The federal government spends over 40%, with the big ticket items being the <a href="http://www.mbsonline.gov.au/internet/mbsonline/publishing.nsf/Content/Home">Medicare Benefits Schedule</a>, the <a href="http://www.pbs.gov.au/pbs/home">Pharmaceutical Benefits Scheme</a> and payments to the states (and territories). It’s not surprising then that these items are in its sights come budget time.</p>
<p>The states <a href="http://www.aihw.gov.au/publication-detail/?id=60129548871">spend a further quarter</a> of the total, mainly to meet the costs of their public hospitals. And, of the rest, households directly spend nearly 20%, and indirectly meet another 8% through health insurance premiums.</p>
<h2>Growing share</h2>
<p>The health system will continue to grow. Government expenditure in 2011-12 accounted for 6.5% of GDP but by 2059-60, this is <a href="http://www.pc.gov.au/research/completed/ageing-australia/ageing-australia.pdf">expected to rise strongly to 10.8%</a>. </p>
<p>With incomes rising and expectations increasing, people want more timely access to high quality health care. New technologies, pharmaceuticals, diagnostics and treatments are contributing to that growing demand. </p>
<p>But some <a href="http://www.oecd.org/health/health-systems/health-at-a-glance.htm">moderating forces are at play across many OECD countries</a>, including Australia, due to the purchasing policies of governments and the more rapid availability of lower cost generic drugs. Still, health care is labour intensive, and wage growth will add further to cost pressures.</p>
<p>A more complex driver of growth is population ageing. As the <a href="http://www.challengeofchange.gov.au/">latest Intergenerational Report</a> notes, for both pharmaceutical benefits and public hospitals expenditure, spending on people aged 85 years and older is over four times the per person average for the whole community. </p>
<p>Many older people have chronic health conditions that require long-term collaborative health care, and yet many are living healthy and active lives in the community before succumbing to frailty and expensive interventions. The interplay of these forces on costs and the workforce are yet to be fully understood.</p>
<h2>Making the right changes</h2>
<p>There is some good news: the <a href="http://www.aihw.gov.au/publication-detail/?id=60129548871">expected average lifespan</a> of those born in 2012 places Australia in the top seven among OECD countries. The health system, together with education, employment, housing, nutrition and other factors, all play a part in this.</p>
<p>The not-so-good good news is that 63% of the population is overweight or obese, up from 57% in 1995. The health status of those in rural and remote areas is lower, and as the <a href="http://www.dpmc.gov.au/pmc-indigenous-affairs/publication/closing-gap-prime-ministers-report-2015#targets">Prime Minister has reported</a>, closing the gap in life expectancy for Australia’s Indigenous population within a generation is not on track.</p>
<p>We clearly need to ensure the health system is sustainable. And it won’t be enough if this budget produces yet another series of disconnected expenditure cuts and revenue raising measures. All governments, collectively through COAG, need to engage the health sector and the whole community in a serious policy dialogue. </p>
<p>The most important questions are: how do we reduce demand on our health system? That is, how can we rebalance our focus toward wellness, prevention and primary care? Second, how do we make the current system more efficient? And third, when and how do we efficiently expand expenditure on the system, while making sure it will be sustainable for future generations?</p><img src="https://counter.theconversation.com/content/41431/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Woods is a consultant to the OECD Southeast Asia Regional Programme.</span></em></p>Following our series on Tony Abbott’s five pillars of the economy, today we look at a sector overlooked by the prime minister.Michael Woods, Professor of Health Economics, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/410792015-05-08T01:25:34Z2015-05-08T01:25:34ZAustralia’s five pillar economy: services<figure><img src="https://images.theconversation.com/files/80920/original/image-20150508-1234-1xy4wvc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">China should be a source of major opportunities for the Australian services sector, but these elude us.</span> <span class="attribution"><span class="source">Image sourced from www.shutterstock.com</span></span></figcaption></figure><p><em>In his 2013 election campaign, Tony Abbott promised his government would build a world-class “five pillar economy”, encompassing manufacturing, agriculture, services, education and mining. Two years later, as his government prepares its second federal budget, just how are these sectors faring?</em></p>
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<p>Australia’s advanced services - including legal and accounting services, engineering and architecture, financial services and management consulting - are growing rapidly. As the mining boom winds back and manufacturing continues to decline, they are the strongest growing sector of the economy and are seen by some as Australia’s great economic hope in the pivot away from mining. </p>
<p>Advanced services are very high value services characterised by their knowledge intensity and generally serving business and government, rather than households. Advanced services can be delivered remotely (for instance, by email or skype) and are therefore capable of being exported, as opposed to other professional services like hairdressing.</p>
<p>Employment in the professional services sector more broadly, which includes most of the advanced services, grew last year at 10.6% compared to 1.4% for the total economy. </p>
<p>While this growth was somewhat exceptional, the decadal growth rate of 4.1% per annum for professional services is the highest (except for mining) of the major industry sectors defined by the Australian Bureau of Statistics. Its <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/6291.0.55.003">share of total employment</a> has increased from 7.3% to 9.4% over this period. (These figures are for hours worked to allow adjustment for the increasing proportion of part-time work).</p>
<p>However, this growth is largely domestic. There is little evidence of the growing participation of Australian services organisations in the rapidly growing global trade in advanced services. Although the data has its limitations, it indicates that our trade in business services is concentrated on the old world slow-growth markets of the United States and Europe and much less so on meeting the rapidly growing demand for such services in Asian countries, especially China.</p>
<p>China’s demand for business services increased by 7.5% per annum over the three years to 2012 in US dollar terms (the latest available) to exceed US$42 billion. Australian exports of these services to China totalled US $129 million - a 0.3% share - while the United States exported US$4 billion.</p>
<p>Our failure to penetrate these markets has been generally blamed on restrictive practices of these countries designed to protect their own firms. A major breakthrough achieved by the Abbott government is the signing of a series of free trade agreements (FTAs), not only with China, but also with South Korea and Japan, each of which reduces the barriers to export of Australian services to these countries. </p>
<p>These FTAs have been widely welcomed by industry and <a href="http://servicesaustralia.co/media-releases/china-australia-free-trade-agreement-paves-the-way-for-australian-services-export-boom">the Australian Services Roundtable</a>, the peak industry body for the services sector. </p>
<p>But a <a href="https://bluenotes.anz.com/media/320138/CHAFTA_2.pdf">report by the ANZ bank</a> assessing the likely implications of the China FTA, suggests that exports in business services will receive less of a boost than other service areas directed largely at households, such as health care, motor car insurance and funds management.</p>
<p>Of these the ANZ identifies health care as one of the largest of the opportunities in the China FTA agreement and the government includes this in its definition of advanced services. China’s ageing population with increasing levels of chronic disease, and a currently dysfunctional health system certainly offers an opportunity for Australia’s increasingly internationally focused private health sector. China will need to spend a larger share of its budget on health care and its increasingly affluent middle class will demand better health care and be prepared to buy it from private providers. </p>
<p>However it seems that the opportunity provided for business services by the FTA will be modest and Australia’s burgeoning business services sector will remain largely domestic. The Asian opportunities will continue to elude it. </p>
<p>So despite the good intentions, the Abbott government’s free trade agreements (FTAs) are likely to provide only partial support for its Five Pillars strategy. If the Abbott government is really serious about an advanced services pillar it needs to have a better formulated policy development process to assist our professional services firms to significantly expand their exports to the Asian markets.</p>
<p>This would require greater understanding of the important role played by networks of professional services firms in driving the growth of global cities. These networks, often controlled by large services firms, such as Pricewaterhouse Coopers, KPMG and Boston Consulting Group, through offices in New York and London, integrate highly specialised services drawn from the most knowledgeable teams in the world. </p>
<p>Participation in these networks is both a product of specialised expertise and cultural knowledge. While the reasons for the current participation deficit are likely to be complex, they may be as much cultural as technical. </p>
<p>The depth, quality and relevance of our education system is critical to cultivating the skills necessary for a country to develop a globally competitive services portfolio. Given the strategic role of these services as engines of modern economic growth it would indeed be unfortunate to be left behind.</p>
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<p><em>This is the fifth piece in the series. Read others <a href="https://theconversation.com/au/topics/five-pillar-economy">here</a>.</em></p><img src="https://counter.theconversation.com/content/41079/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bruce Rasmussen has previously undertaken work for the Victorian Government on the global services trade</span></em></p>In our final piece on the five pillars of the economy, we look at services. It’s the great economic hope - but opportunities in the burgeoning Asian market elude us.Bruce Rasmussen, Director, Victoria Institute for Strategic Economic Studies, Victoria UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/406392015-05-04T19:26:17Z2015-05-04T19:26:17ZAustralia’s ‘five pillar economy’ - manufacturing<figure><img src="https://images.theconversation.com/files/80235/original/image-20150504-2081-kt87jf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Manufacturing's share of Australia’s gross domestic product has fallen from 12.9% in 1979 to 6.2%.</span> <span class="attribution"><span class="source">Image sourced at www.shutterstock.com.au</span></span></figcaption></figure><p><em>In his 2013 election campaign, Tony Abbott promised his government would build a world-class “five pillar economy”, encompassing manufacturing, agriculture, services, education and mining. Two years later, as his government prepares its second federal budget, just how are these sectors faring?</em></p>
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<p>Manufacturing has changed the world and is itself changing, more fundamentally than at any time since the industrial revolution. Does this spell the end of manufacturing in Australia, or a new beginning?</p>
<p>Our immediate challenge is that the resources boom has ‘hollowed out’ the sector in a number of ways. First, the high Australian dollar, associated with rising commodity prices, <a href="https://theconversation.com/does-manufacturing-have-a-future-in-australia-3098">has made traditional low cost manufacturing uncompetitive</a>. This has come to be known as the “Dutch disease”, following the similar impact of North Sea gas discoveries in the 1970s.</p>
<p>Second, under pressure to open new mines, resources companies raided manufacturers for skilled workers instead of training their own, offering wage rates that manufacturing employers could not afford. This might not have been so damaging if the companies had sourced their equipment and infrastructure locally, but much of this was sourced from abroad.</p>
<p>Third, the increased terms of trade resulting from high commodity prices masked a slowdown of Australia’s productivity performance since the end of the 1990s. The complacency induced by the mining boom distracted the attention of policy-makers from other sources of growth, such as manufacturing, which would eventually be needed to “rebalance” the economy.</p>
<h2>Still an important pillar</h2>
<p>That said, it is important to recognise that manufacturing is still an important pillar of the Australian economy, and despite recent setbacks has infinite <a href="https://theconversation.com/as-china-changes-from-worlds-factory-to-innovator-australia-needs-to-keep-pace-38497">opportunities for growth and diversification</a>, particularly in global value chains. Would anyone know from the doomsayers that the total value of manufacturing production is one and a half times higher today than it was in 1979?</p>
<p>Yet the manufacturing share of Australia’s gross domestic product has fallen from 12.9% in 1979 to 6.2%. This is because the economy grew by a factor of three over this period – twice as fast as manufacturing. Manufacturing exports also increased in value but declined as a proportion of total exports from 49.6% in 2006 to 35% today, due to the increased share of commodity exports.</p>
<p>On the face of it, workforce trends tell a dismal story, certainly since 1985 when manufacturing was the largest jobs category in the Australian economy at 16.5% of total employment. Since then, it has dropped to 7.9% of the total, reflecting a decline in the manufacturing workforce of 18.7% to around 920,000. This compares with an increase in total jobs of 43.4% over the same period.</p>
<p>Moreover, it is anticipated that by the end of 2018, manufacturing employment will fall by another 40,000, with the end of car assembly. But we should bear in mind that many jobs that are integral to manufacturing are classified as services. These jobs include engineering, design, marketing and other professional and technical services. Rather than thinking of manufacturing as being in decline, it is more accurately depicted as <a href="http://www.igi-global.com/book/global-perspectives-achieving-success-high/94872">part of a value chain where value creation is outsourced or acquired elsewhere</a>.</p>
<h2>A different composition</h2>
<p>Clearly while manufacturing retains a major presence in the Australian economy, it is generating a very different composition of output and employment from the past. It must respond to global competitive pressures, more complex market conditions and rapid technological change, but is it doing so fast enough? The evidence indicates only a partial shift so far from low cost competition to higher value adding sectors and from low skill, routine jobs to high skill, high productivity jobs. </p>
<p>There are more than 80,000 manufacturing businesses in Australia, mostly under 100 employees, with the larger ones accounting for more than a quarter of the economy’s total R&D expenditure. However, we are now seeing a sharp decline in manufacturing investment from a peak of $14.4 billion in 2005/06 to $8.8 billion in 2013/14. This is the lowest level in 12 years, as profit margins fall behind other sectors, at a time when global opportunities are at their greatest.</p>
<h2>The rise of ‘micromultinationals’</h2>
<p>Around the world, <a href="http://mitpress.mit.edu/books/making-america">large vertically integrated manufacturing operations are being superseded by smaller, interdependent production units</a> which supply specialised products and services, often intermingled, to global markets and value chains. Sometimes they are outsourced components of the larger operation, but mostly they are clusters or networks of small and medium enterprises (SMEs) that have become known as “micromultinationals”. </p>
<p>These globalised SMEs are characterised by relentless innovation, which includes but goes beyond technology development and adaptation. They also pursue non-technological innovations such as business model transformation, design-led innovation and new manufacturing methods, in turn enabled by digitisation, machine learning and the intersection of the physical and virtual worlds in the “internet of things”. </p>
<p>In Germany, this new approach to manufacturing and its integration with services is called <a href="http://www.manmonthly.com.au/features/what-is-the-fourth-industrial-revolution">“Industry 4.0”</a>. It is driven by a well-funded “innovation ecosystem” of large and small firms, universities, Fraunhofer Institutes and government, supported by strong workforce and management capability and informed by sophisticated “technology foresights” which mark out areas of future as well as established competitive advantage.</p>
<p>Other countries are also adopting this approach, most recently the UK which has invested heavily in its “Catapult Centres”, as well as the Netherlands with its “top sectors” strategy and the US with a network of National Manufacturing Institutes. Australia has exemplars in its small number of high performing manufacturing micromultinationals, but <a href="https://theconversation.com/productivity-commissions-myopic-failure-on-industry-assistance-28616">a lot to learn</a> about building a competitive knowledge-based economy.</p>
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<p><em>This the fourth piece in the series. Read more <a href="https://theconversation.com/au/topics/five-pillar-economy">here</a>.</em></p><img src="https://counter.theconversation.com/content/40639/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Roy Green has received funding from a range of public and private sources to undertake research in manufacturing and innovation.</span></em></p>There is a future for manufacturing in Australia - but we need to follow some international lessons to build a competitive knowledge-based economy.Roy Green, Dean of UTS Business School, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/407012015-04-30T20:46:04Z2015-04-30T20:46:04ZAustralia’s ‘five pillar economy’: mining<p><em>In his 2013 election campaign, Tony Abbott promised his government would build a world-class “five pillar economy”, encompassing manufacturing, agriculture, services, education and mining. Two years later, as his government prepares its second federal budget, just how are these sectors faring?</em></p>
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<p>The prices of exported goods over the past year have stabilised or fallen, particularly for iron ore, oil and coal. Australia’s mining sector is also moving from the construction phase (which creates considerable employment) to the operation phase (which requires up to 10 times fewer workers). So it’s a good time to have a look at the mining sector in a more historic context and examine the outlook for the future.</p>
<p>Australia’s mining sector has been hailed as a saviour to the economy, protecting it from the effects of the severe economic downturns experienced in the USA, Europe and other countries during and after the global financial crisis of 2007-08.</p>
<p>There is no doubt that the minerals and energy boom of the 2000s was responsible for much of the growth in commodity export earnings. It also protected economic growth rates and, to some extent, jobs during this time. The mining boom was in large part due to the significant increase in demand for raw materials and energy by China and India during their very rapid economic growth over the past decade.</p>
<h2>Mining and the economy</h2>
<p>The mining sector currently <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/5206.0Dec%202014?OpenDocument">contributes</a> around 8.5% to Australia’s GDP (total output), and <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6291.0.55.003Feb%202015?OpenDocument">employs</a> around 2% of the workforce (about 220,000 people). </p>
<p>However, as with most primary products, this underestimates the impact of the mining sector. Downstream processing sometimes means that production is not counted as mining output, and is instead counted as manufacturing. There’s been a lot of discussion about taxes – but for 2013-14 financial year, the mining sector <a href="http://www.minerals.org.au/file_upload/files/reports/DAE_-_MCA_Royalty_and_company_tax_estimates_30_July_%281%29.pdf">paid</a> about $12.7 billion in taxes (which includes just $170 million from the now defunct carbon tax), and another $10 billion in royalties as payment for the minerals (to state governments).</p>
<p>The mining sector’s biggest impact is on exports - in <a href="http://www.industry.gov.au/industry/Office-of-the-Chief-Economist/Publications/Documents/req/REQ-March15.pdf">recent years</a> it has made up over 50% of Australia’s total export earnings. The effect of the mining boom on exports has been huge – for example, between 2000 and 2010, the value of exports from mining <a href="http://www.agriculture.gov.au/abares/publications/display?url=http://143.188.17.20/anrdl/DAFFService/display.php?fid=pe_abares99001790_12a.xml">rose</a> by over 120%, from $63 billion to $139 billion.</p>
<p><a href="http://www.industry.gov.au/industry/Office-of-the-Chief-Economist/Publications/Documents/req/REQ-March15.pdf">According</a> to the Australian Bureau of Statistics and the Department of Industry and Science, earnings from minerals and energy exports reached $195 billion last year. The graph below shows that iron ore and coal dominate export earnings, followed by liquefied natural gas (LNG). </p>
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<iframe src="https://d3602hfvnbc5pq.cloudfront.net/BwBJR/3/" frameborder="0" allowtransparency="true" allowfullscreen="allowfullscreen" webkitallowfullscreen="webkitallowfullscreen" mozallowfullscreen="mozallowfullscreen" oallowfullscreen="oallowfullscreen" msallowfullscreen="msallowfullscreen" width="100%" height="360"></iframe>
<p>The mining sector is largely dominated by a few large firms – economists would say that it has a “high concentration ratio”. While there are over 1300 mining firms in Australia, production is dominated by very large firms, such as <a href="https://theconversation.com/au/topics/bhp-billiton">BHP Billiton</a>, <a href="https://theconversation.com/au/topics/rio-tinto">Rio Tinto</a>, Xtrata, <a href="https://theconversation.com/au/topics/shell">Shell</a>, Chevron and Woodside Petroleum. The development of mining has relied heavily on foreign investment, without which we would have a much smaller mining sector than we have today.</p>
<h2>The ups and downs</h2>
<p>At the federation of Australia in 1901, when primary industries were relatively more important, the mining sector contributed about 10% to total output, largely due to gold mining. </p>
<p>However mining’s production and significance fell over the next 50 years, and in the 1950s, demand for Australia’s minerals and energy was much, much lower, and the costs of production and transportation much higher. </p>
<p>In the 1960s, things began to change. The United Kingdom joined the European Union and traded less with Australia, so Australia began to look for new markets in Asia. Australia abolished post-World War II legislation that prohibited selling minerals to Japan (which was originally put in place for fear by some that iron ore might be used in weapons against Australia), and today Japan is Australia’s second-largest export destination after China. </p>
<p>From the 1980s onwards, growth in emerging Asian economies saw demand rise even further. On the supply side, larger, more efficient shipping lowered the costs of the transport of minerals, and new technology lowered mining extraction costs.</p>
<p>The following graph shows how significant the change over time has been in the value of mining exports to the Australian economy.</p>
<p><br></p>
<iframe src="https://d3602hfvnbc5pq.cloudfront.net/jAxUw/2/" frameborder="0" allowtransparency="true" allowfullscreen="allowfullscreen" webkitallowfullscreen="webkitallowfullscreen" mozallowfullscreen="mozallowfullscreen" oallowfullscreen="oallowfullscreen" msallowfullscreen="msallowfullscreen" width="100%" height="520"></iframe>
<h2>Changes ahead</h2>
<p>Short-term forecasts are that increases in supply by other countries, together with slowing demand, will see a fall in export earnings from mining over the next year or so. Also, as economic growth in China moderates, so will its demand for raw materials.</p>
<p>However, demand for energy will continue to grow worldwide, and by 2020, it is <a href="http://www.industry.gov.au/industry/Office-of-the-Chief-Economist/Publications/Documents/req/REQ-March15.pdf">estimated</a> that Australia will be the largest exporter of LNG in the world, and probably also coal.</p>
<p>Australia currently has long-term (over 20-year) contracts to supply gas to China, India, Japan and South Korea. According to <a href="http://www.industry.gov.au/industry/Office-of-the-Chief-Economist/Publications/Documents/req/REQ-March15.pdf">forecasts</a> by the Department of Industry and Science, minerals and energy export earnings will increase by around 6% per year between now and 2020. </p>
<p>So, while the mining boom is over, and the industry moves into its operational phase and therefore employs fewer workers, the outlook seems generally good. </p>
<p>But as economists often say, that is assuming nothing else changes. </p>
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<p><em>This the third piece in the series. Read more <a href="https://theconversation.com/au/topics/five-pillar-economy">here</a>.</em></p><img src="https://counter.theconversation.com/content/40701/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anne Garnett receives funding from Australian Research Council, and the National Centre for Vocational Education Research.</span></em></p>The mining boom is over and the industry is employing fewer workers – but the outlook for mining in Australia seems generally good.Anne Garnett, Senior Lecturer in Economics, Murdoch UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/408312015-04-28T20:07:11Z2015-04-28T20:07:11ZAustralia’s ‘five pillar economy’: education<figure><img src="https://images.theconversation.com/files/79415/original/image-20150427-23936-jfy020.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Education is a central economic pillar, but of greater importance is its contribution to our society. </span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/defaultbb/3753829500/in/photolist-6HHmJh-9SYj35">Flickr/Bb Inthavong</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span></figcaption></figure><p><em>In his 2013 election campaign, Tony Abbott promised his government would build a world-class “five pillar economy”, encompassing manufacturing, agriculture, services, education and mining. Two years later, as his government prepares its second federal budget, just how are these sectors faring?</em></p>
<hr>
<p>Education is a central pillar of our economy. Not only does the education sector employ <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/6291.0.55.003Main+Features1Feb%202015?OpenDocument">nearly 8% of Australian workers</a>, it is <a href="https://internationaleducation.gov.au/research/Research-Snapshots/Documents/Export%20Income%20FY2013-14.pdf">our fourth largest export earner</a>, after coal, iron ore and natural gas, bringing in around A$16 billion in 2013/14. </p>
<h2>More educated, more social benefits</h2>
<p>But what is much more important for us is the contribution that education makes to our society more generally. Economists often talk about education as being an investment in human capital. </p>
<p>What students learn in our schools, vocational education institutions and universities are the skills required to contribute in a modern economy. While estimates of the contribution of this human capital embodied in workers to output vary considerably, <a href="http://www.nber.org/papers/w17487.pdf">recent research</a> suggests that the contribution is large.</p>
<p>While higher education in particular can have considerable benefits for those who study, via gaining better jobs and higher wages, university-educated workers have potential flow-on or ‘spill-over’ benefits for the rest of society. </p>
<p>Economists have <a href="http://eml.berkeley.edu/%7Emoretti/socret.pdf">found evidence</a> of highly educated workers boosting overall economic growth, and of such workers raising the productivity (and thus wages) of less educated workers who work alongside them.</p>
<p>Education more generally has been found to have other social benefits, including lower crime, improved health, lower utilisation of welfare payments, higher civic participation and improved outcomes for the children of more educated individuals.</p>
<h2>Our universities are under-funded</h2>
<p>The expansion of higher education in Australia has been rapid. My research using figures from Australian Censuses shows the proportion of working age individuals with a bachelor degree or higher has risen from just 7% in 1981 to 28% in 2011. But government funding of higher education on a per student basis has not kept up with the costs of providing this education. </p>
<p>Student contributions via the HECS (now HELP) system have made up some of this shortfall, but it has not been enough, leading universities to look for revenue elsewhere, particularly from international students.</p>
<p>A university education is far from a ‘sure bet’. Many individuals who have completed a university degree do not obtain a high-paying professional or management level job (28% according to the 2011 Australian Census). </p>
<p>While investing in a university education has a <a href="https://minerva-access.unimelb.edu.au/handle/11343/33655">large positive return</a> on average, there is risk that many students will end up with large student loans and little means of paying them off. And this is a risk that is not at all easy for them to diversify. </p>
<p>Higher education is also an investment that is currently not tax deductible. If a firm invests in a piece of capital equipment, or an individual invests in shares or property, the associated costs are tax deductible against income earned from those investments. Individuals cannot deduct the costs of their university education against future potential earnings.</p>
<p>While acknowledging that the individuals who gain most from higher education should contribute to its cost, ensuring that their contribution is set at an appropriate level is very important. Proportionate government subsidisation appears warranted, given that such investments are not currently tax deductible. </p>
<p>If we do not get the cost-sharing balance right, the individual incentive to invest in higher education may become distorted. Given the importance of human capital to our productivity and thus future quality of life, we distort investments in human capital at our peril.</p>
<h2>International students provide necessary funding</h2>
<p>While the education of international students brings in considerable revenue to higher education institutions, this income has flow-on effects for the rest of the economy. </p>
<p>Workers employed by institutions spend their wages on products and services, which increases employment in Australia. And unlike income from mining exports, the consumers of these education services (the international students) also reside in Australia, further increasing spending on local products and services, particularly food, housing and transport. </p>
<p>These additional university revenues are also used to fund in part the education of Australians, and also important research activities within universities.</p>
<p>One of the main attractions of studying in Australia for our international students is the opportunity of staying in Australia afterwards to work and live in our very attractive society. This opportunity is extremely important in maintaining the competitiveness of studying in Australia relative to our competitors, particularly the UK, the US and Canada. Australia is by no means a cheap destination for international students. </p>
<p>Maintaining our competitiveness in the future will remain a challenge. Tinkering with immigration rules may have consequences for this very important source of revenue for our higher education institutions.</p>
<p>While university rankings are often maligned, international students do look at them. Ensuring Australian universities do not fall down these rankings amid expanding higher education sectors in Asia requires strength in the research performances of our universities. </p>
<p>Education and skills development are central to our society and our material well-being. Ensuring that Australia continues to encourage appropriate investment in education into the future will be a key objective for our policy makers.</p><img src="https://counter.theconversation.com/content/40831/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Coelli works for the University of Melbourne. He receives funding from the Australian Research Council to research issues related to the role of skills in the labour market.</span></em></p>Education is a central pillar of our economy. Not only does the education sector employ nearly 8% of Australian workers, it is our fourth largest export earner.Michael Coelli, Senior Lecturer, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/403882015-04-26T19:31:48Z2015-04-26T19:31:48ZAustralia’s ‘five strong pillar economy’: agriculture<figure><img src="https://images.theconversation.com/files/79216/original/image-20150424-25553-e60llc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Agriculture remains a major employer in Australia but the challenges of competition, food security and climate change are on the horizon.</span> <span class="attribution"><span class="source">AAP image/supplied by Graincorp</span></span></figcaption></figure><p><em>In his 2013 election campaign, Tony Abbott promised his government would build a world-class “five pillar economy”, encompassing manufacturing, agriculture, services, education and mining. Two years later, as his government prepares its second federal budget, just how are these sectors faring?</em></p>
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<p>Agriculture has always been and is likely to remain for some time, an important component of the Australian economy. While agriculture contributes just 2.3% of GDP, its diminishing importance is not the result of any reduction in output but rather to the growth in manufacturing and the service-based sectors of the economy. </p>
<p>Today, more than 307,000 people are employed in agriculture. Agriculture is the biggest employer in rural and regional communities, but if we consider all those employed in the input and output sectors, food manufacturing and processing, distribution and retail, agriculture <a href="http://www.nff.org.au/farm-facts.html">provides employment for more than 1.6 million Australians</a>. </p>
<p>Today, Australia’s 135,000 farmers produce enough food to feed 80 million people. Not only do they provide 93% of the domestic food supply, but it supports an export market valued at more than A$41 billion per annum – <a href="http://data.daff.gov.au/data/warehouse/agcstd9abcc002/agcstd9abcc0022014/ACS_2014_1.0.0.pdf">that’s over 13% of export revenue</a>, according to the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES). </p>
<p>By value, ABARES figures show the major commodities are grains and oilseeds (29.8%), meat (24.0%), the industrial crops (sugar, cotton and wine)(13.5%), wool (7.0%), dairy (6.6%) and horticulture (4.5%). </p>
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<img alt="" src="https://images.theconversation.com/files/79230/original/image-20150424-14535-sh9nio.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/79230/original/image-20150424-14535-sh9nio.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=884&fit=crop&dpr=1 600w, https://images.theconversation.com/files/79230/original/image-20150424-14535-sh9nio.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=884&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/79230/original/image-20150424-14535-sh9nio.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=884&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/79230/original/image-20150424-14535-sh9nio.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1110&fit=crop&dpr=1 754w, https://images.theconversation.com/files/79230/original/image-20150424-14535-sh9nio.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1110&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/79230/original/image-20150424-14535-sh9nio.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1110&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Dairy accounts for 6.6% of Australia’s exports.</span>
<span class="attribution"><span class="source">www.shutterstock.com</span></span>
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<p>With population growth and rising personal income, the emerging middle class in Asia provides the major market for over 60% of Australian agricultural exports. Not surprisingly, China (22.0%) is Australia’s single most important market, but sales to Japan (9.4%), Indonesia (7.3%), Korea (5.8%), Malaysia (3.0%) and Singapore (2.8%) continue to grow. </p>
<h2>Trade agreements and protection</h2>
<p>However, in supplying the increasing demand for food in the region, Australia faces some serious competition and some major institutional impediments. While Australia accounts for just <a href="http://faostat3.fao.org/home/E">1% of global agriculture production</a> according to the Food and Agriculture Organization of the United Nations (FAOStat), despite the emergence of the World Trade Organisation in 1995, the majority of sovereign states have sought exemptions for agriculture and food. </p>
<p>Rather than to rely on global markets, most of the world’s most wealthy industrialised countries have sought to protect their farmers from competition through maintaining high import tariffs, import quotas and direct price support mechanisms. </p>
<p>Today, <a href="http://www.oecd.org/tad/agricultural-policies/producerandconsumersupportestimatesdatabase.htm">the OECD estimates</a> that producer support estimates amount to more than US$257 billion per annum. While European farmers receive the bulk of the support (US$116 billion), and farmers in Japan, the US and Korea receive US$54 billion, US$31 billion and US$22 billion respectively, farmers in Australia receive just US$960 million in government support. </p>
<p>Recently negotiated bilateral free trade agreements will provide some relief in the mid to long-term, but the sector continues to struggle with falling commodity prices and declining profitability. Perhaps more than any other sector of the economy, agricultural productivity in Australia is highly dependent on seasonal variations in rainfall. </p>
<h2>Challenges to the industry</h2>
<p>Climate change is influencing both the intensity and duration of rainfall and thus redefining the suitability of many areas for farming. For some farmers, this will inevitably mean surrendering their farms as the level of farm indebtedness becomes unsustainable. </p>
<p>For others, significant investments in infrastructure and technology will provide the key, but as agriculture is and will always remain a high risk industry, the sector often fails to attract the required investment capital. Historically, farmers have responded to their eroding terms of trade by increasing productivity. For many farmers, consolidation provided immediate gains from the economies of scale, but over the last decade, productivity has begun to decline. </p>
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<img alt="" src="https://images.theconversation.com/files/79231/original/image-20150424-14577-457kx6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/79231/original/image-20150424-14577-457kx6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=899&fit=crop&dpr=1 600w, https://images.theconversation.com/files/79231/original/image-20150424-14577-457kx6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=899&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/79231/original/image-20150424-14577-457kx6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=899&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/79231/original/image-20150424-14577-457kx6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1130&fit=crop&dpr=1 754w, https://images.theconversation.com/files/79231/original/image-20150424-14577-457kx6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1130&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/79231/original/image-20150424-14577-457kx6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1130&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Less rainfall is affecting the agricultural industry.</span>
<span class="attribution"><span class="source">www.shutterstock.com</span></span>
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<p>Today, agriculture in Australia faces an acute shortage in skilled labour. Our farmers are ageing and the uncertainty in returns associated with year-to-year variations in rainfall and price volatility present an image that too few university graduates find appealing. </p>
<p>While commodity prices are trending downwards, increasing costs are putting more pressure on profit margins. However, it’s the cost escalation post farm-gate that continues to put most pressure on Australia’s international competitiveness. </p>
<p>The Australian Export Grains Innovation Centre (AEGIC) <a href="http://www.aegic.org.au/media/news/2013/12/supply-chain-costs-impact-global-competitiveness.aspx">recently estimated</a> that bulk handling charges, freight and port charges amounted to 25-30% of the costs of grain production. The high value of the Australian dollar hasn’t helped either. </p>
<h2>Holding onto our advantage</h2>
<p>Recent falls relative to the US dollar have provided some relief, but a low dollar will inevitably result in an increase in input costs for chemicals, fertilisers and farm machinery. </p>
<p>But as a commodity, food is fundamentally undervalued. The FAO suggests that as <a href="http://www.fao.org/docrep/014/mb060e/mb060e00.htm">much as 35% of the food produced</a> is wasted along the food chain. As a society, we need to ensure that the prices we pay at a retail store truly reflect all the costs of production including our environmental footprint. </p>
<p>Australian farmers are world leaders in dryland farming, natural resource management and sustainable agriculture, but it’s hard to be green when you’re in the red. </p>
<p>Consumers are showing much greater interest in food quality, and food safety is paramount. In this respect, Australia has an enviable reputation. However, to protect that reputation, a whole of supply chain approach must be adopted. </p>
<p>While many lament the Australian government’s rigid approach to “fortress Australia”, biosecurity must prevail to protect Australia’s clean and green image and our reputation for producing safe, nutritious food.</p><img src="https://counter.theconversation.com/content/40388/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter J Batt is principal of Peter J Batt and Associates, an international agribusiness marketing and rural development consultancy. He is an adjunct professor at Curtin University in Perth and an Honorary Senior Research Fellow at the University of Western Australia</span></em></p>As the Coalition government prepares its second budget, how is the “five pillar” economy promised by Tony Abbott faring?Peter J. Batt, Adjunct Professor, Curtin Business School, Curtin UniversityLicensed as Creative Commons – attribution, no derivatives.