I have the heart of a pastor and the head of an economist, at least that’s what I feel and think. The purpose of this blog is to apply both heart and head to the conundrum of the ‘road out’ of the Covid-19 pandemic, to use Prime Minister Morrison’s metaphor. 

There is a fundamental aspect of human flourishing that is of the utmost importance as our political leaders map the road out. Human beings flourish when they have freedom to engage socially, economically and politically. This, I believe, is an important theme in the Christian faith. Governments around the world have radically curbed our freedoms, generally with broad consent of their people. Of course, the longer social, economic and pollical ‘lockdown’ goes on, the more likely it is that dissent will occur. The deeper, wider and longer are the lockdowns, the more damage will be done to human flourishing. This is not to deny the direct cost to human flourishing of the Covid-19 virus – as popular radio host, Alan Jones, says, ‘Every death diminishes us all’ – but it is to recognise the enormous cost to human flourishing of measures implemented to ‘flatten the curve’ of diagnosed cases.

To date, Australia has been relatively successful in containing the virus. Our new cases per million of population are dropping convincingly. Prime Minister Morrison has wisely shifted his public rhetoric from six months of (partial) lockdown to ‘at least the next four weeks’. A phased release from lockdown, starting with education and business and dismantling state border restrictions, is desirable on condition that for some time yet, we observe social distancing in public places, diligent washing of hands, coughing/sneezing into our elbows or using tissues disposed of in the nearest bin, and staying home when sick. Public policy should focus on extensive testing, including drive-through testing and testing in regional and remote areas, and ensuring adequate hospital care for those who become seriously ill with the virus. There is a role for government funding of vaccine development, although I heard Professor Ian Fraser (who led the team that developed the Papillomavirus vaccine) state that nobody has yet developed a vaccine for any coronavirus. My own observations lead me to conclude we are doing quite well with modifying our behaviours. Most businesses have worked out how to implement social distancing quite well and we generally conform. I have spoken with many people who claim to have washed their hands so diligently that they now have eczema! 

The financial costs of this pandemic will go on for a generation at least. We are borrowing from the younger generation to pay for schemes like the enhanced JobSeeker payments, the JobKeeper scheme and support for industries such as airlines, banking and childcare. According to Federal Treasury the total financial cost of Federal Government support is $320 billion, equivalent to a massive 16.2% of our total production of goods and services in a year (our Gross Domestic Product or GDP). This increase in the size and reach of government should be reversed as soon as possible because it stifles individual freedom. Moreover, I am surprised and disappointed that I hear so many reports of businesses and not-for-profits who are virtually willing their revenue to fall so they qualify for JobKeeper payments. (I am not opposed to JobKeeper, but I think Christians ought to look to God for ideas to keep revenue up first and apply for government help last.)

The Prime Minister has ruled out tax increases in preference for growing our way out of debt. This is understandable but, as I explain below, it will take a very long time to grow our way out owing to the impacts of the pandemic on migration and international trade. Now would be a good time to overhaul our tax regime. A good start would be to dust off the covers of the tax discussion paper released in 2015. If we are to avoid increases in the overall level of taxation, we must improve the efficiency of the system as a whole. That means getting rid of wickedly inefficient taxes like payroll tax and stamp/transfer duty and broadening the base of more efficient taxes such as land/property tax and the GST. The latter will not be popular and will require deft political leadership but the only alternatives are to raise taxes (ruled out by the Prime Minister) or to force one or more future generations to pay down the debt either directly or through inflation.

As noted above, the Prime Minister has indicated that he prefers a strategy of growing our way out of pandemic-related debt. That will take a very long time because two of the major contributors to Australia’s economic growth since the early 1990s have been migration and international trade. Closed national borders will dampen both migration-related and trade-related growth. Migration rates have already slowed. That might allow time for lagging urban infrastructure to be developed, but migrant-generated spending will slow down and supply of some skills will decline. Furthermore, closed national borders will see international education contract. It has been the third-largest Australian export industry for some time now. International tourism will contract significantly too, and this is also among the largest Australian exports. Closed national borders will also slow trade in goods since both air and sea transport have been curtailed. Nearly half of international air freight, for example, is carried in the bellies of passenger aircraft. With fewer passengers flying it is much harder to book freight on airlines, although some are now using rapid conversion kits to use their passenger aircraft as freighters.

Australia is blessed to have extensive iron ore and coal deposits and massive reserves of gas. Furthermore, much of our land is suited to food and fibre production. These are currently major exports and will remain so, although slower global economic growth might dampen international demand, especially for iron ore and coal. It will be important that sectional interests are not allowed to impede production and export of minerals, food and fibre.

Social media posts and (some) news media commentators are expressing support for a reinvigorated Australian manufacturing sector. There is some political support too. It would do well to remember why Australian manufacturing declined. Manufacturing in Australia became too expensive owing to: rent-seeking by unions and capitalists in the ‘good old days’ of import tariffs, subsidies and poor quality products; high taxes; red and green tape; a complex industrial relations system (modern awards are still difficult to interpret in some industries); energy costs (now among the highest in the world); and changing consumer tastes (we like our European luxury cars, international-label clothing and cheap, imported, processed food, white goods, brown goods and building products to name but a few). If we are to see a resurgence in local manufacturing these issues have to be addressed. Protecting local industry is unethical in my opinion because it ultimately does not protect most of us from exploitation by rent-seekers and does not necessarily increase employment and income overall. (Equally, globalisation does not automatically make the poor better off because they tend to lose, not gain, jobs as manufacturing declines. There is a role for public policy to redress this.)

The immediate priority at public policy level is to provide the conditions for much cheaper energy. The government must scrap subsidies for renewable energy (it encourages rent-seeking and much of the subsidy is paid to foreign companies), and allow the private sector to build HELE (high-efficiency, low-emissions) thermal power stations and nuclear power stations using small modular reactors (SMRs) that can be built in less than two years. The priority at the level of individuals is to become more frequent buyers of Australian products, even if it sometimes costs more (which it will, given our relatively small population that means we cannot fully exploit economies of scale in manufacturing production). I have, for many years, researched the Australian content of what I buy. I have also been fortunate enough to be able to afford the higher price of many Australian offerings. I do buy products made in foreign countries (both our motor vehicles are Korean ad I use toothbrushes made in New Zealand) but I strive to avoid buying products from countries that do not value individual freedom as I do.

This brings me to the vexing issue of China. There have been calls to punish China economically for its apparent coverup of the novel coronavirus that originated in its Wuhan wet markets and its alleged manipulation of the World Health Organisation. China has become an economic power and is exerting political power more and more boldly. There can be little doubt that introducing a form of capitalism into the nation, beginning with the agricultural sector in the mid-1970s has been important to its economic growth. However, its build-up of reserves of foreign currency has enabled it to undertake a massive program of foreign investment that has, in turn, facilitated political influence. Ironically, China’s capacity to build reserves of foreign currency reflects a flaw in the international monetary system that can be blamed on the United States. You see, at Bretton Woods in 1944, when the modern international financial system was established, the Americans opposed the adoption of sanctions against nations that ran surpluses on their international trade accounts (technically, on their ‘current accounts’). We ended up with an international financial system that penalised countries running chronic deficits (which has cost the poorer countries dearly) but did not penalise countries running surpluses. It is an accounting  given that when one country runs a surplus, one or more others must run deficits. China has, as a matter of policy, kept is currency undervalued which has made its exports cheaper than they otherwise would be and its imports more expensive. There is no strong sanction against this beggar-thy-neighbour policy in the international financial system. In January 2020, China’s foreign currency reserves were US$3.8 trillion (including Hong Kong). This was 2.7 times the next largest holder of foreign currency reserves, Japan. The United States had only $128.9 billion!

Personally, I don’t believe that punishing China is a viable option. It will only provoke a 21st Century cold war (perhaps even a ‘hot’ war over Taiwan and disputed islands in the Sea of Japan). Rather, it is time for widespread recognition of the flaw in the international financial system that allowed China to accumulate vast quantities of foreign currency virtually unchecked. It needs fixing urgently! Meanwhile, Australia is correct to require the Foreign Investment Review Board to vet every proposal for foreign investment in Australia, regardless of its monetary value. Furthermore, foreign investment should be denied by default if the home country runs a chronic current account surplus since a beggar-thy-neighbour policy is prima facie not in Australia’s national interest. Nations that run chronic current account surpluses might retaliate by blocking Australian exports, but I think that risk is worth taking on principle. In any case, the policy is not directed towards any individual country, but that group of countries that does not play fair in international trade.

A few final comments are in order. We learnt from the Great Depression of the 1930s that we must never let the money supply fall. One of the major contributors to the depth and duration of the Great Depression was the collapse of banks and loss of deposits that ensued. Most money is deposits in financial institutions, so when they fail, the money supply falls. This depresses spending. We also learnt (I think) that we must not let international trade contract. When trade contracts, so does the nation’s income. Government spending is important as well but probably more because of its effect on business and consumer confidence than its theoretical ‘multiplier’ effect on the nation’s income. Since then, we have also learnt that when there is a global downturn in economic activity, policy coordination among nations is critical (international policy responses to the 1987 stock market crash, the downturn in the second half of 2000, the 911 terrorist attacks in the United States and the Global Financial Crisis attest to this). 

Governments around the world have well-coordinated (perhaps more by accident than design) policies in place to shore up their monetary systems and to boost government spending. International trade is going to be the weak link in recovery, and this is inevitable given the (wise) closed border policy of many countries and the (questionable) impetus to self-sufficiency (autarky) that is increasingly reflected in social and news media. If nations fall into beggar-thy-neighbour policies with respect to international trade, the recovery will be slow indeed.

Christians are often strong supporters of autarky. I respectfully suggest they are wrong. There are two striking examples of the power of international trade to create wealth in the Bible. During the reign of King Solomon, Israel was a significant trading nation. Peace and prosperity were enjoyed by the people. (See 1 Kings 10 and 4). On the other hand, the enormous wealth created through trade by the King of Tyre led him to exalt himself. See Ezekiel 27 and 28. Under the influence of godly wisdom international trade is a force for good in the world.

We ultimately depend upon business to create the wealth to facilitate the ‘road out’ of the Covid-19 pandemic. Whatever governments do, they must not dampen the entrepreneurial spirit. We are made in God’s image. Therefore, we are creative beings. Entrepreneurs have a ‘double portion’ of creativity and their enthusiasm for innovation ought not be quashed. In this regard, I commend the Wealth Creation Manifesto available at https://www.lausanne.org/content/wealth-creation-manifesto-bible-references. (Note: I was a member of the international group of Christian theologians, academics and business practitioners who developed the Manifesto.)