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Australia, no sólo es cuestión de materias primas: una comparativa con Latinoamérica 1

 

Imagen realizada por el autor del artículo

Algunos se preguntan por qué Australia es una economía desarrollada si sus exportaciones, al igual que las economías latinoamericanas, son mayoritariamente materias primas sin transformación, como lo son el hierro, el carbón,  el gas natural, el petróleo y el oro (The Observatory of Economic Complexity).

Además, a diferencia de la mayoría de países desarrollados, la mayor parte del territorio de Australia es tropical y propensa a sequías (Australian Bureau of Meteorology) y enfermedades típicas de zonas cálidas, como la malaria.

Australia, al igual que LATAM, sufrió un proceso de “desindustrialización” a partir de la década de los 70s, producto de una manufactura no competitiva (Mclean, 2013). A tal punto que el entonces Tesorero Paul Keating advirtió de los peligros de que Australia se convirtiera en una “banana republic” (aquí un articulo interesante relacionado con el tema).

En este post se establecen algunos rasgos distintivos de la economía australiana que pueden dar luces sobre su desarrollo económico.

 

La herencia industrial de Australia

Ya desde el siglo XIX Australia jugó el rol de despensa de recursos naturales, exportando materias primas con poco valor agregado e importando bienes manufacturados; la típica dinámica centro-periferia que tanto conoce Latinoamérica (LATAM), y que Prebisch (1986) identificó como fuente de sus males económicos .

Sin embargo, desde su fundación como colonia, Australia fue un componente del imperio británico, el centro industrial más desarrollado y el taller del mundo en el siglo XIX. Esto significó que tuviese acceso a importación de maquinaria y equipo de la más alta tecnología de la época y una inmigración mayoritariamente inglesa. Además, contó con los beneficios otorgados por la libra esterlina, la moneda de curso forzoso de Gran Bretaña y de gran demanda mundial (Mclean, 2013). 

Para hacerse una idea, la libra esterlina era el dólar americano de la época, al ser emitida por la mayor potencia industrial del siglo XIX. 

En la segunda mitad del siglo XIX, Australia ya contaba con un ingreso per cápita similar al del Reino Unido (UK), y muy por encima de los países de LATAM, los cuales en su mayoría continuaban por debajo de España, la que fuese su metrópoli, y Brasil por debajo de Portugal. Esto sugiere una gran diferencia en el trato económico que le dio el Reino Unido a su colonia.

 

Gráfico 1. PIB per cápita.

Gráfico realizado por el autor con datos de Maddison (2008)

Aunque no se cuentan con todos los datos del siglo XIX, se puede dilucidar que los casos de Uruguay, Chile y Argentina, son excepcionales. No obstante, estos estuvieron muy por debajo del ingreso per cápita de Australia y su vecina Nueva Zelanda (otra excolonia británica). Después de todo, no pudieron heredar los activos que su metrópoli nunca consiguió.

Vale la pena señalar que si se toma otra fuente de datos como los de Bolt, Jutta, Robert Inklaar, Herman de Jong and Jan Luiten van Zanden (2018), los niveles de renta per cápita sufren algunos cambios, no obstante, el argumento expuesto anteriormente queda inalterado.

Hoy día, Australia cuenta con su propia moneda, el dólar australiano, de mayor jerarquía y soberanía monetaria que los países de LATAM. 

 

La industrialización de los vecinos

En el siglo XX, la industrialización y rápido crecimiento económico de los países del este asiático favorecieron Australia a través de la demanda de recursos naturales. Su cercanía y la reducción de los costos de transporte desempeñaron un papel medular, como también lo hizo la diversificación de sus socios comerciales, apuntando menos hacia Inglaterra y más hacia Asia. 

Primero, se benefició de la industrialización de Japón a finales del siglo XIX, luego el despegue industrial de los conocidos Tigres Asiáticos, Corea del Sur, Taiwán, Hong Kong, Singapur (Mclean, 2013). Y el más reciente, la industrialización de China y su demanda de materias primas como nuevo taller del mundo.

En resumen, Australia se diferencia de LATAM en su origen, como colonia de la potencia manufacturera del momento, y en su situación geográfica, cercana a los centros industriales del este asiático.

No por nada Australia es conocida como el «lucky country». Pero la prosperidad no es solo cuestión de buena fortuna. No todos los que ganan la lotería mantienen la riqueza. 

 

No todo es cuestión de suerte

Tanto Australia como LATAM han contado con oportunidades similares; las dos han experimentado en diversas ocasiones auges de los precios de los recursos naturales.

Igualmente, aunque Australia tiene mucha más cercanía geográfica, ambas fueron testigos de la industrialización asiática acelerada y su necesidad de importar materias primas.

Entonces ¿Por qué Australia prosperó mientras LATAM quedó rezagada? ¿Acaso todo lo definió el origen colonial?

Si se indaga sobre la evolución económica del siglo XX, se puede advertir que en comparación con LATAM, Australia invirtió una mayor porción de su ingreso (Feenstra, Inklaar and Timmer, 2015).

Aunque se pudiese argumentar en el caso australiano que las altas tasas de inversión relativas a su economía fueron posibles por su alto nivel de renta, lo cierto es que los países del Este asiático aumentaron sus tasas de inversión cuando seguían siendo más pobres que muchos países latinoamericanos.

La capitalización de la bonanza de los recursos naturales a través de la inversión es pieza clave para entender el crecimiento y el desarrollo económico en general, y el de Australia, en particular. Pero eso es tema de la segunda parte del post Australia, no sólo es cuestión de materias primas: una comparativa con Latinoamérica 2. 

 

Referencias

Feenstra, Robert C., Robert Inklaar and Marcel P. Timmer (2015), «The Next Generation of the Penn World Table» American Economic Review, 105(10), 3150-3182.

McLean, Ian W. (2013). Why Australia prospered? The shifting sources of economic growth. Princeton University Press: United States of America. p.281

Maddison, Angus, 2008. University of Groningen. 

Maddison Project Database, version 2018. Bolt, Jutta, Robert Inklaar, Herman de Jong and Jan Luiten van Zanden (2018), “Rebasing ‘Maddison’: new income comparisons and the shape of long-run economic development”.

Prebisch, Raul (1986). El Desarrollo Económico de América Latina y Algunos de sus Principales Problemas.

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Income distribution and investment. What Australia has to show to South America

This post is part of a series of posts that seeks to show some characteristics of the Australian economy that allows us to get some takeaways from the experience of such a strong resource-rich economy.

As it is usual in this blog, a comparison between Australia and some South American countries will be made. Mexico is included in the sample given its economic importance as a Latin American economy.

 

Capital accumulation and economic growth

The economic literature acknowledges capital accumulation as a key element of economic growth (Harrod, 1939; Domar, 1946; Kaldor, 1957, 1962) and historically the industrial revolutions played a central role in such growth (Murphy, Shleifer, & Vishny, 1989; chang, 2007, 2010). Thus, De Long & Summers (1991) found that the machinery and equipment investment has a strong association with economic growth and suggest that governments should not impede the import of capital goods.

Capital goods embody technology (Kaldor, 1962; De Long & Summers, 1992) and the economic growth and development requires an increasing capital stock that only can be brought about by investment. In this order of ideas, a key characteristic of fast-growth economies is the high investment rates. For instance, a big difference between South American and East Asian countries lies in the relatively high investment rates above 30% as a share of GDP sustained over time in the latter ones.

In the context of resource-rich economies, the investment rates also stand out as a feature that distinguishes Australia from South American countries (see A brief comparison of Australia and South American countries as resource rich-economies), and it also can be seen in the agricultural sector (Some differences between the agricultural sector of Australia, New Zealand, and South America ).

 

Are bigger profits being invested?

As a result of the production process, a magnitude of value is created and takes the form of income that is distributed between the capitalists and workers in the form of profits and wages, respectively.

By principle, the investment depends on the profits the capitalists can get, not only because more surplus means more resources to invest, but because profits are the driver of capitalist society (Marx, 1867). As it is stated in Kaldor (1961):

investment and accumulation presuppose that the rate of profit is high enough (in the words of Ricardo) to afford more than the minimum necessary compensation to the capitalists ‘for their trouble, for the risk which they must necessarily encounter in employing their capital productively‘ (p.189).

However, it is noteworthy to mention that capitalists can decide not to invest their profits or invest a relatively small share of them despite making profits because the Investment is a very unstable variable that does not depend only on profits but also on expectations (decisions of human beings are hard to predict).

As investment is the task of the “capitalist class” in the society (Lewis, 1954) and if they are getting overtime a bigger portion of GDP in the form of profits, we can expect that the investment rate as a percentage of GDP should also be bigger over time, after all the capitalists are getting profits. In other words, high inequality (more money in the hands of capitalists) should be accompanied by more investment

Let’s see the data about inequality. In South American countries the Gini is higher (more unequal societies) than the East Asian countries and Australia. Remember that «a Gini index of 0 represents perfect equality, while an index of 100 implies perfect inequality» (see world bank data here).

Figure 1. Average Gini index 1980-2019 selected countries

Source: graph made with data from The World Bank

However, the investment rates of South American countries are much lower than the East Asian countries, which have held investment rates above 30% of GDP sustained over decades. (The South American economies’ external constraints: a comparison with Australia and East Asian countries).

Latin American countries did not achieve the threshold of 30% of GDP, with the exception of Venezuela. However, this country is an oil exporter that did not diversify its productive matrix and could not sustain the high levels of investment after 1980 and fell dramatically.  

Table 1. Investment rate as a percentage of GDP

Source: own calculations with data from Feenstra, Inklaar and Timmer (2015).

More inequality has not translated into more investment and thus, we have societies in the worst of both worlds in South America; a very unequal society without fast economic growth. In other words, more resources in the pocket of relatively few people are not going to more productive investment to grow.

 

What about Australia?

Australia does not have a diversified external sector, most of its exports are made up of raw materials from natural resources (the Observatory Economic Complexity). One could argue that that country is in the same situation as Venezuela. However, historically it has been a more equal society than the Latin American countries (McLean, 2013) and up to date, Australia keeps relatively low inequality (figure 1).

In Australia, the capitalists play their role as a class that invests, judging by the relatively high investment rates since the 1950s (see the rates in the post A brief comparison of Australia and South American countries as resource rich-economies).

If we take the Australian investment per worker as a benchmark and compare it with the one held by the South American countries, we will see that each of these economies fell far behind the Australian marks from 1950 to 2017.

The exception is Venezuela that in the 50s and 70s reached the level of investment per worker that Australia held. Nevertheless, Venezuela could not maintain a relatively high level of investment rates per worker and Australia could.

Table 2. Investment per worker as a percentage of Australian investment per worker

Source: own calculations with data from Feenstra, Inklaar and Timmer (2015).

In general, in South America, the investment has been far below the Australian levels.

Although in some South American countries the investment per worker has increased as a share of the Australian investment per worker, it remained low and even has fallen in Colombia, Ecuador, Mexico, Paraguay, and Venezuela.

Chile stands out among the South American economies, but on average between 2010 and 2017, the investment per worker barely approach 50% of Australia’s. Keep in mind that Latin America is told that Chile is a successful case thanks to orthodox-market friendly policies.

 

In the absence of Investment, the way out is devaluation

As already have seen, the investment rates have been relatively low throughout the time, thus the labor productivity is relatively low. That is to say, the South  American economies do not count on enough capital goods technologically sufficient to compete in the global market with the industrialized economies.

The only way a country can cope with its worldwide competitors without investing enough is through devaluation. In other words, lowing the cost of its manpower in international terms. It is the way how the capitalists in the developing world compete in the international field.

We can see in table 2 that all the South American currencies have depreciated significantly. Differently has been the behavior of the Australian Dollar and the East Asian countries taken in the sample.

Table 3. Average devaluation (Official exchange rate: national currency per American dollar)

Source: graph made with data from The World Bank

We have seen that historically Australia has invested much more than all the Latin American countries measured by the rate of investment to GDP and by investment per worker, thus, it is not forced to compete through devaluations in the international markets.

A central question can be raised: Why do capitalists invest more in Australia than in South America? However, the answer to this question is beyond the range of this post.

 

Takeaways

Inequality has been relatively high in Latin American countries and investment rates throughout the time have been relatively low in Latin American countries. That is to say, the South American countries have a model where the income is concentrated in a few hands and such an income does not go back to the economy as an investment to ample the productive capacity. Business people in South America do not perform their tasks in the system as the capitalist class.

The Latin American countries as developing economies with backward technic-scientific economic apparatus compete in the world market through devaluation instead through investment and capital formation that boost productivity gains. In other words, they compete impoverishing their labor force in terms of foreign currency. 

 

References

Chang, H. (2010). 23 Things They don’t Tell You about Capitalism. Londres: Penguin Books.

Chang, Ha Joo (Ed.) (2007) BadSamaritants: The Myth of Free Trade and the Secret History of Capitalism. Londres, Reino Unido: Bloomsbury Press, 254 p.

De Long, B., Summers, L.H., 1991. Equipment investment and economic growth. Quarterly Journal of Economics 106 (2), 445–502.

Domar, Evsey D.  Capital Expansion, Rate of Growth, and Employment. conometrica, Vol. 14, No. 2 (Apr., 1946), pp. 137-147

Feenstra, Robert C., Robert Inklaar and Marcel P. Timmer (2015), «The Next Generation of the Penn World Table» American Economic Review, 105(10), 3150-3182.

Harrod, R. F.  An Essay in Dynamic Theory. The Economic Journal, Vol. 49, No. 193 (Mar., 1939), pp. 14-33

Kaldor, Nicholas (1962). Capital Accumulation and Economic Growth. Cambridge REPRINTED FROM THE THEORY OF CAPITAL MA9MILLAN & CO LTD

Kaldor, Nicholas. A Model of Economic Growth. The Economic Journal, Vol. 67, No. 268 (Dec., 1957), pp. 591-624

Kevin M. Murphy, Andrei Shleifer, Robert W. Vishny. The Journal of Political Economy, Volume 97, Issue 5 (Oct., 1989), 1003-1026.

Lewis, W. A. (1954) Economic Development with Unlimited Supplies of Labour

Marx, Carlos (1867). El capital: crítica de la economía política (vol. I). Ciudad de México, México: Fondo de Cultura Económica, 769 p.

McLean, Ian W. 2013. Why Australia Prospered: The Shifting Resources of Economic Growth. Princeton University Press: United States of America. P.281.

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Traits of the Australian long-term economic growth, a comparison with Chile and Argentina

I have been studying the Australian economy and this time I will show some general features of the long-run economic growth of Australia aiming at the composition of the GDP, and do a parallel with the economies of Chile and Argentina, two Latin American economies I think Australia share some similarities with as the resource-rich economy.

As developing economies, the Latin American countries grew faster than the Australian economy. The chart below illustrates the GDP index that shows the evolvement of each economy’s growth rates from 1950.

Taking a look at the GDP growth the first feature that catches my eye is the steady growth of Australia compared to Chile and Argentina. The second one is that Argentina’s growth pace was higher than Chile’s one, although the latter was more steady than the former.

 

Figure 1. GDP index from 1950 to 1917

Source: graph made with data from Feenstra, Inklaar, and Timmer, 2015. The data corresponds to the Penn World Table, version 9.1

 

The Australian GDP composition 

In the long term, Australian economic growth has been driven by a combination of exports, public spending, and imports. All these components grew faster than the GDP.

The investment performed below the growth of the total economy, although it delivered a positive trend and kept close to the GDP growth (dotted line).

 

Figure 2. Australia GDP growth per component

Source: graph made with data from Feenstra, Inklaar, and Timmer, 2015. The data corresponds to the Penn World Table, version 9.1

In the eighties some institutional reforms took place worldwide and the economies opened up and international trade was encouraged, and Australia was no stranger to it when governments of the left and of the right carried out from 1983 to 2003 a range of market economic reforms (The Economist, 2011).

If we take a look at the data since 1980, we can see that the picture does not change much from the latter. The two main forces that boosted Australia’s economy were exports and imports which behave in a balanced way, followed by public spending.

It is well known that imports do not belong to the GDP accounting, but such imports are made up of capital goods that expand the production and productivity of the country, among other goods.

 

Figure 3. Australia GDP growth per component from 1980 to 2017

Source: graph made with data from Feenstra, Inklaar, and Timmer, 2015. The data corresponds to the Penn World Table, version 9.1

If we take a look at the indexes from 2000 onwards, the investment picked up somewhat and was the third-fastest component, while the public spending grew virtually as fast as the whole economy measured by the GDP.

It is clear according to the data that in general public spending and investment have translated into a growth of the external sector.

 

Figure 4. Australia GDP growth per component from 2000 to 2017

Source: graph made with data from Feenstra, Inklaar, and Timmer, 2015. The data corresponds to the Penn World Table, version 9.1

Note that in the last decade China has grown very fast and it is the main commercial partner of Australia, thus, the latter has benefited from the Asian country significantly with the exports of iron ore, petroleum, gas, coal, among other goods (The Observatory of Economic Complexity). If I am not mistaken, such trade has encouraged not only exports and imports, but the investment.

 

Differences between Chile’s and Australia’s traits

As we saw in the figures, Australia is not an economy driven by investment besides other sectors as the industrialized east Asian countries such as Japan, South Korea, and now China. As a resource-rich country, it has been driven by the external sector where investment has not stood out, sharing a very similar pattern not only to its neighbor New Zealand (Feenstra, Inklaar and Timmer, 2015) but also to the Chilean case as it can be seen below.

 

Figure 5. Chile’s evolvement of GDP per component

Source: graph made with data from Feenstra, Inklaar, and Timmer, 2015. The data corresponds to the Penn World Table, version 9.1

Like Australia, Chile grew mostly thanks to its external sector. One remarkable feature of Chile is its clearly external surplus illustrated in the long-run data with exports growing faster than imports.

Chile delivers neither an important long term public spending nor an investment growth rate; while the investment performed significantly below the GDP with a negative trend with an increasing gap with the economy, in Australia that variable grew below the whole economy but at least kept the same positive pace (let’s say it was stable).

It is known that compared to South American countries, Australia has delivered higher investment rates as a percentage of the total economy (figures shown in A brief comparison of Australia and South American countries as resource rich-economies).

 

Differences between Argentina’s and Australia’s traits

Argentina is another economy that has been subject to comparison with Australia (See this short article).

From 1950 and 2017 Argentina’s economy grew much faster than Australia’s economic growth, as we saw in figure 1. Briefly speaking, such growth was driven by the investment and the public spending that expanded together at the same pace and above the GDP.

However, contrary to the Australian and Chilean cases the external sector grew unbalanced with imports increasing faster than the exports. In other words, in Argentina, the public spending and investment growth have not translated into more exports but have boosted the imports significantly as we can see they fluctuated coordinated.

What does an unbalanced external sector mean? In the long run, if you import more than you export you are getting a debt denominated in a  foreign currency. That is less monetary sovereignty

 

Figure 6. Argentina’s evolvement of GDP per component

Source: graph made with data from Feenstra, Inklaar, and Timmer, 2015. The data corresponds to the Penn World Table, version 9.1

 

Takeaways

Although Australia is a rich-resource economy as Argentina and Chile are, its economy grew steadily from 1950 to 2017, a feature that the two South American countries did not share because their economies were subjected to fluctuations.

In the long run, Australia has grown thanks to the external sector which expanded together with sustained public spending that grew faster than the whole economy. On the other hand, investment performed below the GDP but with a positive trend following the trend of the economy.

The figures of Chile’s long-run growth show wide positive net exports (exports minus imports), however, contrary to Australia the public spending did not play a relevant role, and investment grew slower than the GDP with a negative trend that widened the gap with the economy. 

On the other hand, Argentina grew faster than Australia and was led by a combination of components, namely: investment, imports, and public spending. However, contrary to Australia and Chile, the external sector of Argentina is its weak point. For some reason, its investment and public spending do not find a way to encourage exports.

 

References

Feenstra, Robert C., Robert Inklaar and Marcel P. Timmer (2015), «The Next Generation of the Penn World Table» American Economic Review, 105(10), 3150-3182.

The Economist. The Next Golden State. May 28th-Jun, 2011

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