Toying With Collapse
Key decision makers are deliberately dismantling the Australian economy. Do they know when to stop? By Tony Shepherd.
Jenga, the kids’ game in which people take turns removing wooden blocks from a carefully constructed pile, was devised by a British family living in Ghana. They took the name from kujenga, the Swahili word for “build”.
But as we know, Jenga is not about building anything. It’s about trying avert a total collapse.
This is the game we are now playing with the Australian economy. Various politicians and business people are each making individual decisions to remove blocks from our complex economy, unaware whether the block they remove will be the one that causes the whole thing to crash.
We are about to learn just how fragile our economy is. At this stage, nobody knows. This is uncharted territory for even the most sophisticated economists. All they really know is that each time a piece of the economy is withdrawn - gyms and clothing stores one day, the entire construction sector the next - we get closer to the sort of collapse that will take a generation or longer to rebuild.
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The popular perception is that we are simply putting the economy on hold, and we can press play again as soon as the coronavirus is under control. But by then, many businesses will have gone beyond the point of return. Many have already. If a row of 10 shops closes, how many will have the credit to start up again? How many will be in so much debt that it would be easier to just walk away, leaving their creditors, to use the Jenga analogy one last time, to pick up the broken pieces?
But here is some good news. It might not seem like it now, but the world’s leading decision makers have a distinct historical advantage over previous economic crises. Unlike the Great Depression and the various recessions since then, every decision made today is a deliberate one. We are not responding to market hysteria or credit collapse, which are irreversible economic forces. Rather, we are responding to a medical crisis. How much we allow this virus to affect our economy is wholly determined by the way we respond.
The disadvantage we do have is that we are not as equipped as we should be to deal with it. Decades of pointless debates about identity politics and catastrophic climate change have made our political class complacent about the inevitability of the genuine crises that punctuate, indeed define, human history.
Politicians who populate their offices with advisers skilled at hosing down confected outrage on Twitter are not pivoting easily to the war footing they should have adopted in January.
This crisis requires historic levels of leadership and innovation. And while Scott Morrison has been among the world’s best leaders to date, keeping Australians relatively calm while minimising the disruption business, I fear that he too is not thinking as innovatively as he should.
We have already quarantined the country from the rest of the world, and are slowing the spread of the virus. Now we must think strategically about our objectives and methods. More than at any time since World War II, we need a co-ordinated approach, clearly defined so that all Australians, from childcare workers to ASX200 CEOs, know their role.
The main objective, as we have known for months, is to prevent the elderly and sick from catching the virus. We can do this without shutting down entire sectors. The people who are most vulnerable to the virus generally do not work in, say, mining and retail. Surely there are ways to keep those industries working while we protect the vulnerable.
As Adam Smith, the father of modern economics, argued in 1776, a nation’s wealth is measured by its economic activity, and the amount of wealth that is reinvested into the economy increases the ability to generate subsequent wealth. In other words, what we do today will overwhelmingly determine whether even the hardest-working small business owner is able to stay afloat tomorrow.
We are not reinvesting now. Most businesses are not even paying their debts, preferring to hold onto whatever cash they can. More businesses still are waiting for the handouts that banks and the government are now promising. While many of these measures are essential to saving people’s livelihoods, and are difficult to argue against, the best way to survive this crisis is to minimise the number of sectors removed from the economy.
Do not think that the economy is like a computer. You cannot put it to sleep or switch it off and expect it to fire back up in exactly the same state. If we don’t manage this economic crisis correctly, much of the Australian economy will not fire back up at all.
Tony Shepherd AO, a former director of the MRC, is a leading Australian businessman who oversaw the construction of the Sydney Harbour Tunnel for Transfield, and is on the board of the Greater Western Sydney AFL club and the SCG trust. He was also the chair of the National Commission of Audit, 2013-14.