BRISBANE – beware the ‘natural resource curse’.
The warning came yesterday from Nobel Prize-winning economist Joseph Stiglitz (pictured) at the University of Queensland Centenary Oration Series in front of a packed audience including former Prime Minister Paul Keating.
“Natural resources lead to an appreciation of the currency and that leads to an imbalanced economy because it’s hard for any other sector to do well, competing with imports or exporting,” says the former economic advisor to the Clinton administration.
“You’re selling off your assets and in many cases you’re selling them off at a very low price.”
Despite applauding Australia for its financial regulation system and a well-designed stimulus package last year, Stiglitz called for the reinvestment of resource industry profits into industries that will add value and boost long-term productivity in Australia.
“If you are taking resources out of the country and you are not reinvesting those resources in one way or another – a stablisation fund, human capital, infrastructure – then your economy is getting poorer, not richer, and a good accounting framework can show that,” he says.
“When you’re taking out natural resources from an economy you ought to have a subtraction from GDP - a firm that held a resource and was selling it off would take off depreciation and that would show up in its books as depreciation.”
The former World Bank chief economist told the forum that social problems from the sub-prime mortgage crisis will continue to hinder spending and investment in the US, but policy-makers in Australia have done a much better job.
“Whenever I give a talk in Europe I always thank the regulators there for inviting our mortgages in - if they hadn’t bought 40 per cent of our toxic mortgages, the downturn in the United States would have been much worse,” says Stiglitz.
“I can’t thank Australia quite as much as I think you didn’t buy that many because you have the misfortune of having good regulators.
“The Australian stimulus was not only timely, it was actually one of the best-designed stimulus packages of any of the countries of the world, and the result of that is that Australia had, among the advanced industrial countries, the shortest and the shallowest of economic downturns.”
Don’t miss the August edition of Brisbane Business News for a comprehensive analysis from Stiglitz, an author on the recent crisis, globalisation, the roaring 90s and the real cost of the US war in the Middle East.
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