FOLLOWING his election as Opposition Leader, John Howard was soon involved in a head to head parliamentary debate with Prime Minister Keating in which both participants made claims about their own, and their opponent's, record in Government.
One of Mr Keating's proudest boasts in that debate has been to claim that "the Australian economy today is 40 per cent more competitive than when he (John Howard) was in office". Allowing the Prime Minister some parliamentary debate licence in rounding up, this claim is broadly correct: the Treasury's index of international competitiveness based on changes in relative unit labour costs shows an increase of 37 per cent between March 1983 and September 1994 (an average increase of about 3.2 percentage points a year).
Note that, on Mr Keating's basis, Australia's international competitivness also increased during the period of the Fraser Government, in which John Howard was a senior minister (though not Treasurer until 1978). Australia's "competitiveness" then increased by about 11.3 per cent (about 1.6 percentage points a year) between December 1975 and March 1983.
The more important observation about the Prime Minister's claim relates to the way in which the increase in competitiveness has been achieved.
Changes in international competitiveness mainly occur in one of two ways. First, Australia's costs (or prices) can increase at a faster or slower rate than those of our trading partners; secondly, our exchange rate can depreciate or appreciate relative to the (average) rates of our trading partners.
Taken in isolation, $A depreciation tends to increase our international competitivess by making it easier for Australian producers to compete against higher priced imports and by making it more profitable to export because of higher prices (in $A).
However, an exchange rate depreciation-induced improvement in competitivess also indicates that Australians have experienced a relative decline in living standards because we have to sell an increased quantity of exports in order to purchase the same quantity of imports.
In point of fact, this is exactly what has happened under the Hawke-Keating Labor governments. Mr Keating's 37 per cent improvement in competitiveness is more than accounted for by the depreciation of 45 per cent in the $A. He can hardly claim credit for an improvement in "competitivess" that simply reflects the response of financial markets to changes in Australia's external trading position and changes in our relative prices and costs. Indeed, about 15 per cent of the 45 per cent depreciation was needed just to offset the faster growth in Australia's unit labour costs than in our major trading partners -- more a cause for hanging one's head in shame rather than boasting about it.
Thus, on closer analysis, Mr Keating's boast turns out to be a hollow one. Labor's policies of wages restraint under the Accord actually resulted in a continuing rise in our labour costs and a deterioration in our real capacity to compete internationally. That deterioration was recouped by a depreciation in the exchange rate, which also had to depreciate quite a lot further in order to keep our international accounts even in the poor shape they are now in.
Note that, during the Fraser Government's period in office, Australia's unit labour costs also increased about 19 per cent faster than those of our major trading partners. However, this deterioration occurred in that Government's last two years, when the union movement deliberately engineered the wages "break-out" that Mr Keating himself later publicly condemned as a major cause of the large jump in unemployment in 1982-83.
The reality is that measures of changes in "competitiveness" such as that apparently used by Mr Keating in trying to score off Mr Howard are not necessarily a good indicator of a Government's policy performance. Such misuse of data does not engender confidence in the Government's ability to make sound policy decisions.
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