Australia in the Global Economy

Why can't Augie's campus be this inspiring? 
Inside the University of Sydney's Quadrangle. 

On Tuesday, January 11 we returned to the University of Sydney for two guest lecturers.  In the morning, we heard from Geoff Dow, a political economist, who spoke about the differences between Australian macroeconomic performance and that of other countries.  After lunch we heard from Frank Stilwell, University of Sydney faculty member, who gave an overview of why Australia is considered “the lucky country” and how the country survived the global financial crisis. 

Professor Dow used many variables to compare Australia with the rest of the world, such as unemployment, GDP per capita and the Human Development Index, and public sector investment.

According to Professor Dow’s lecture and handout, public sector investment (spending on long-term assets such as roads, bridges, dams, and power plants) as a portion of total GDP (Gross Domestic Product) is currently less than 2% in Australia.  Lack of public investment in education, health systems, and infrastructure is lower than a 28-nation average of 2.9%.  In response to the global financial crisis, the Australian government’s stimulus package gave every household $1,000 in order to augment the level of consumer spending.  Geoff Dow believes that instead of giving households money to buy consumer goods such as imported plasma televisions, the government should have invested more in public infrastructure, which generates long-term benefits to the public.  Spending the stimulus money on private goods will not benefit Australia in the future.

Professor Nesiba presenting Geoff Dow with a token of our appreciation.

Unemployment has declined since 2000 because of the Australian mining boom.   It seems to be the case that a high percentage growth in total GDP is a result of low unemployment.  In other words, when the work force is larger, output should increase.  However, this is not always true.  From the 1970s-1990s, Australian unemployment was 7.4% (quite high), but growth was 2.7% (higher than the OECD average).  High growth and high unemployment occurred simultaneously.  This is good for Australia’s economic outlook.  On the other hand, Switzerland experienced low unemployment (1.4%) during this time period, but only had growth of 1.3%.  Both Switzerland and Australia’s situations refute the common case of high growth coming as a result of low unemployment, or vice versa.    

In a list of 15 rich countries, Australia is ranked sixth for 2010 GDP per capita.  Norway, Singapore, America, Netherlands, and Canada are the top five countries on this list.  However, when the same 15 rich countries are ranked according to the 2010 Human Development Index, Australia is ranked second, only behind Norway.  This index considers factors such as life expectancy, amount of schooling, and per capita income.  Singapore (2^nd on GDP per capita ranking) plummeted to 15^th on the Human Development Index ranking.  This high ranking on the HDI indicates that Australia is a well-developed country and has a high standard of living.  In fact, Australians worked an annual average of 1,690 hours in 2009, compared to 1,802 annual average hours worked in America. 

Concerning GDP, unemployment, and inflation since World War II, Australia has gone through the both the boom and bust phases of the business cycle.  From Evan Jones (last week’s guest lecturer), we learned that in the 1950s, there was an economic boom, in which a massive power and irrigation infrastructure expansion took place, thus providing post-war European migrants a material livelihood.  In the 1960s, a massive resource boom began which was characterized by exports to Japan.  Both a decay and restructuring of the manufacturing industry and an agricultural crisis occurred in the 1980s.  A general recovery occurred because of a massive prolonged resources boom and exporting to China took place in 1990s and 2000s. 

According to Evan Jones’ handout, as of 2009-10, Australia’s primary export partners are China, Japan, Korea, India and the United States.  Australia’s primary import partners are China, United States, Japan, Thailand, and Singapore.  Their top exports include coal, iron ore, education-related travel services, and personal travel (tourism). 

Frank Stilwell, our afternoon lecturer.

Globalization in Higher Education

The University of Notre Dame crest. 

On Monday, January 10, we went to the University of Notre Dame for a lecture on globalization in Australian higher education.  Education is the third largest export in Australia, behind coal and iron ore.  Gerry Turcotte, Dean of the School of Arts and Sciences at University of Notre Dame spoke about university education in Australia and the difficulties in study-abroad students experience.  Sean Lennon from the Education Abroad Network discussed trends in international education and the ways in which Australia generates export earnings by recruiting foreign students to study here.  

Australia uses university education as an export because students come to this country to receive a higher education.  Study-abroad students must convert their own currency into Australian dollars in order to utilize the service of an Australian education.  Even though students are coming IN to Australia (which makes it seem like an import), education is an export because Australia is executing the service of educating others. 

A recent event that has challenged the sector of higher education is the rising value of the Australian dollar.  This makes it more expensive for international students to study and live here.  In addition, visa policies are making it more difficult for students to gain entry into the country.  In Sean Lennon’s presentation, we learned that China had an increase of 18.9% from 2008 of study-abroad students in Australia, but this number may plummet in the very near future.  In the course packet article “Call to Tackle Foreign Student Drop,” we read that Chinese students are discouraged by the large sum of money needed to get a temporary visa, which is required for a semester or longer in another country.  Both of these challenges create a disincentive to study in Australia. 

Inside the campus.

Private universities are a relatively new phenomenon in Australia.  Such universities include University of Notre Dame (Sydney, Perth, and Broome) and Bond University (Sydney).  UND was founded in 1989 and Bond was founded in 1987.  On the other hand, there are many more private universities with a much longer history in America.  Perhaps America has larger and older private universities because colonists established private colleges affiliated with their religion when they came to this country.

In Australia, the federal and state governments are not constrained by the same separation of church and state that is present in America.  In fact, the government supports and funds private universities associated with Catholic and Anglican religions.  The government gave the University of Notre Dame land, money and research grants in order to support the school.  The Broome campus in the Kimberley district is fully funded by the government. 

Liz and I are ready for some yummy steak!

We ended the evening with a group dinner at Phillips Foote, a restaurant near the Harbor Bridge.  We got to pick out our cut of meat and grilled it on our own.  I realized I’ve never grilled my own steak before, but it was a successful first effort!  It’s a good thing I’m learning more than Australian economics during this course! 

Even girls can grill!

A few more good pictures to share...

Me after a night at the Opera House.

What a wonderful night!

Oh, the Memories!

The Sydney Tower. 

The long awaited free weekend in Sydney finally arrived.  After our visit to the Reserve Bank on Friday afternoon we had nowhere to be until Monday morning, except to enjoy everything Sydney has to offer.  Friday night we had another group bonding session during our BBQ on the patio at the Tiffany apartments.  The guys grilled the sausages (hot dogs) and the girls contributed a huge fruit salad – pineapple, grapes, apples, bananas, strawberries, and more!  We all enjoyed relaxing together and even saved a little money by making our own food! 

On Saturday morning, Jen, Nicole, Stephanie, and I went to the Sydney Tower in the center of the city.  The Sydney Tower Observation Deck provided breathtaking 360-degree views of the city, including the Harbor Bridge and Opera House.  It stands 820 feet above the city.  I learned that the 420 windows of the tower are cleaned by a semi – automatic window cleaning machine name ‘Charlie.’  It was the perfect sunny day and I could have sat and watched the boats in the harbors on the bright blue water all day. 

A breathtaking view from waaay up in the air!

Saturday night we went to Festival First Night.  This evening celebrates the kick-off of a month-long theatre, music, dance, visual arts, and film festival throughout the city of Sydney.  All of the performers who are part of the Festival give a free performance on the first night.  We went to a band called Arrested Development at Martin Place.  It was absolutely packed with people enjoying the arts and the summer vibe of Sydney on a warm evening. 

Walking to the Sydney Opera House.

The highlight of my entire time in Sydney thus far was going to the SYDNEY OPERA HOUSE on Sunday night!  The girls went to see Le Grand Cirque Adrenaline, a show featuring extreme athletes.  Performers were catapulted across the stage from the end of a giant swing and acrobats bent their bodies in seemingly impossible ways.  I think my jaw dropped a couple of times and I could not believe my eyes.  Even though we were in the absolute last row, the view was perfect and It was such a great experience to watch a show in the world renowned Sydney Opera House.  On the way home we stopped for dessert in Circular Quay.  Chocolate Dome, Mortal Sin, and Apple Rhubarb Crumble were passed around our table many times so we could all savor the delectable desserts.  What a memorable weekend!

Overlooking the Harbor Bridge from the Sydney Tower.

Even a 21-year-old still needs a Sydney Opera House Barbie! 

A snapshot of the performances in Le Grand Cirque.

A view from an Opera House patio. 

Site Report Handout

 Part of the requirements of this course was to become an expert on a site that we visit and report on it.  Here is the handout that accompanied my presentation on the University of Notre Dame, Australia.  

Understanding Macroeconomics and US Relations in Australia

A money printing press in the Currency Museum.

Historic advertisements in the RBA Board Room.

On Friday, January 7 we visited both the American Consulate and the Reserve Bank of Australia (RBA).  The Consulate’s Economic Officer, Chris Corkey, spoke about relations between Australia and the United States.  According to our handout, the United States Consulate General in Sydney is responsible for representing American interests and assisting U.S. citizens in New South Wales and Queensland.  The Consulate is the eyes and ears of Washington, DC around the world.  At the Reserve Bank, we heard from Richard Finlay, Senior Economist.  He spoke about the RBA’s functions, history, and monetary policy as well as Australia’s current macroeconomic performance.  After his lecture, we toured the Currency Museum and saw the evolution of Australian currency over the years. 

According to the RBA’s website, monetary policy is the management of interest rates to achieve short term policies.  The RBA achieves monetary policy goals through changing the cash rate (market interest rate on overnight funds), which leads to changes in other interest rates in the market.  Australia has only experienced one quarter of economic downturn during the recent global financial crisis.  According to a policy brief article in the course packet, Australia was the first G20 country to raise interest rates in the midst of the financial crisis in response to emerging inflation risks. 

American interest rates are currently near zero, with the aim of inducing borrowing and spending to stimulate our weak economy.  Richard Finlay explained to us that currently, the Australian economy is quite strong, so its interest rates are high.  According to an RBA monetary policy graph in the course packet, high interest rates tend to curb inflation.  One reason for this is because businesses are not willing to borrow and expand operations.  Since the Reserve Bank aims to keep an average inflation rate of 2-3 percent over the business cycle, high interest rates conform to this goal of low inflation.

According to the “Australian Exports and Developing Asia” Reserve Bank of Australia article, export shares of mining, education, and tourism have changed during the period of 2000 to 2007.  Coal and metal ores and minerals have increased from 16.2% to 26.7% of total exports from 2000 to 2007.  Education has increased from 2.9% to 5.9% while tourism has declined from 7.2% to 5.4%.  The growth in Australia’s coal export volumes is quite large, but it is modest in comparison to the huge increase in demand of coal from Asian countries such as China.    

Richard explained to us some differences between the Australian Central Bank and the United States Federal Reserve System.  One of the current differences between the two entities is the ease of setting interest rates.  The Australian economy is stronger, making the job of setting interest rates easier.  The United States Federal Reserve System’s job is much more difficult because interest rates cannot go much lower than they already are. 

Another difference between the Reserve Bank of Australia and the United States Federal Reserve System is the composition of their Boards of Directors.  The Australian Board of Directors is made up of the Governor, Deputy Governor, and the Secretary of the Treasury.  Six external members include one academic and five others representing major sectors of the economy, such as coal mining, steel manufacturing, and building materials.  These external members provide firsthand knowledge of the business world.  On the other hand, the United States Federal Reserve Board of Directors is made up of one president from each district of the bank.  Since all of the directors are bankers, the board is more concentrated on finance.  

Moving on to the American Consulate, Chris told us that the relationship between United States – Australia is a model that other countries want to replicate.  This relationship is based upon the ANZUS treat of 1951.  Australia was the first country to send troops when America began Operation Iraqi Freedom. 

According to the summary article in our course pack, the 2004 Free Trade Agreement between the United States and Australia was significant because more than 99 percent of U.S. exports to Australia could be sold without a customs tariff.  U.S. manufacturers benefited because it was estimated to result in $2 billion per year in increased U.S. exports.  This agreement relates to the wine-making industry because it will eliminate tariffs on Australian wine exported to the United States, making the wine-making industry more profitable to Australia.     

Our visit to the Reserve Bank of Australia. 

Understanding Australian Tourism

Location of Tourism Australia. 

On Thursday, January 6, we visited the Tourism Australia office in the PriceWaterhouse Cooper Building.  According to Tourism Australia’s Corporate Plan, it is the Australian Government agency responsible for the international and domestic marketing of Australia as a travel destination.  We listened to Rachel Crowley, General Manager of Corporate Communication speak about the importance and changes within this sector. 

Tourism is essential to the Australian economy.  It is Australia’s largest service export and directly employs 500,000 people.  It contributes $33 billion in Gross Domestic Product and generates $92 billion of spending. 

International tourists are important to this industry.  According to the 2020 Tourism Industry Potential handout we received, international tourists accounted for 38% of tourism expenditures in 2009.  Australia has seen an appreciation of the value of its dollar, which has an effect on tourism.  International tourists are less likely to come to Australia because the Australian dollar is most likely more valuable than one’s own currency.  This makes travelling to Australia much more expensive for international tourists. 

Because of this appreciation of the Australian dollar, more and more Australians are taking a cheap holiday overseas.  Tourism Australia aims to encourage them to travel domestically.  However, Australia’s competitiveness as a travel destination has not kept up with the rest of the world.  Tourists have many choices about how and where they spend their time and money. 

A change that has influenced the tourism industry includes the rise of ecotourism.  According to the article “Ecotourism in Australia” by Tsung-Wei Lai, ecotourism promotes travel to secluded natural areas with an untouched environment.  For example, tourism in the Wet Tropics and the Great Barrier Reef increased substantially in the last decade.  This form of tourism is the fastest growing sector in the tourism industry and aims to integrate tourism and conservation in order to preserve tourist locations, making the industry sustainable into the future.    

Perhaps Australia’s competitiveness as a travel destination has not kept up with the rest of the world because the general person has a positive but shallow knowledge of Australia.  When a person thinks of this country, he or she probably thinks of the Opera House, furry animals (koala or kangaroo), and the Great Barrier Reef.  However, there is much more to Australia than these stereotypical “top 3.”  According to the Australian Government’s Tourism Industry Facts and Figures from May 2010, the top markets of inbound tourists include the United Kingdom, China, New Zealand, United States, and Japan.  These tourists enjoy the stereotypical locations, but Rachel talked about the rise of backpacking throughout Australia.  The remoteness and wildness of the Australian Outback is still appealing.

International Currency Market

The aggregate demand and aggregate supply diagram illustrates how Australia's stronger dollar is likely to affect its exports (particularly tourism) and thereby its economic growth.  The Australian dollar appreciates when tourists' demand for dollars increases (shifting aggregate demand curve to AD').  This leads to both an increase in the equilibrium quantity of Australian dollars (shift from Q0 to Q1)and an increase economic growth.

Afternoon shopping in the Queen Victoria Building.

Katrin and I walked across the Sydney Harbor Bridge...twice!  And look at what we got to enjoy!

Life is good!