THE DISTILLERY: Prosperity prophets

Commentators nationally are falling over themselves as they jostle for the title of grand oracle in the new Australian boom. 

First into the robes is Andrew Main of The Australian who dismisses concerns about executive remuneration. His argument is fourfold: one, that Australian executives "haven't been looting...anything like...the CEOs of major US companies”; two, "we haven't had a $US1 million cap on base salaries, as the US has had for the last few years, thus encouraging all sorts of fancy footwork with options”; three, "our federal government hasn't had to bail out any companies, so the rumblings of shareholder discontent haven't been backed by a roar of taxpayer fury”; and four, "the government's actually asking people's opinion, via the Productivity Commission”. Put another way, Main is arguing that shareholders should be grateful for having been only partially looted, should thank the government for it, and should treat the bailout of virtually the entire financial system as regular business. No wonder he sees the widely panned PC report as best practice.  

Next into the turban, Michael Stutchbury and the freshly poached Lenore Taylor, write separate but similar comments on the BCA's announcement that Australian infrastructure is in a shambles and this is about to cause inflationary bottlenecks. Stutchbury continues his theme that the Rudd government should "urgently shift from the politics of the global financial crisis to the challenge of rapid economic growth on the back of China.” According to Stutchbury, "Australia's only viable response is to embark on a new wave of supply-side reform to allow the economy to grow faster.” This column wonders how this squares with Stutchbury's ceaseless campaign to 'cut the stimulus', which only now contains just such infrastructure spending, a point made repeatedly by this column. 

The great Australian vision is in not confined to the Murdoch papers. Alan Kohler of Business Spectator also throws his weight behind the BCA call for infrastructure reform based around what he sees as the "decades-long terms-of-trade boom stretching ahead”. And the glory continues at The Sydney Morning Herald with Ross Gittins also reaching for the crystal ball. He lists the downsides to not-stop endless growth, "Get yourself mentally prepared for deteriorating home affordability, a less bountiful government, the return of concern about inflation, and rising interest rates.”

Thankfully, several commentators remain sceptical of this shimmering, Panglossian future. Today's must-read comes from occasional commentator Kenneth Davidson in The Age. Davidson argues that the current ease with which Australia is attracting capital is just another bubble, "...foreign financial institutions are up to their old tricks. After getting trillions of dollars out of their respective governments to avoid GFC-induced bankruptcy – which was largely engineered by their criminal greed – because they are 'too big to fail', they are already using their influence to maintain 'business as usual'...Why funnel the money gouged out of American and British taxpayers into lending to their national economies to maintain employment when there are richer pickings elsewhere? Two of those destinations are Brazil and Australia.” Davidson concludes: "By driving up interest rates to curb inflationary expectations and the prospect of a housing price bubble the RBA is in far greater danger of creating a stock exchange asset price bubble as well as an Australian dollar bubble.” While this column could take exception to some of Davidson's solutions, the theme and tone of this piece is spot-on. If there is one lesson Australia should not ignore from the GFC it is that nations who trust 'hot money' flows to cover current account deficits are taking one almighty punt.

Two other pieces today explore several reasons why the flow of hot money could suddenly reverse. The first is by John Garnaut at The Sydney Morning Herald who asks the prickly question: "How much of China's spectacular retail sales growth – 17 per cent after adjusting for falls in prices – was simply the bureaucracy taking advantage of the fiscal stimulus to spend more money on itself?” The answer comes from, "Huang Yasheng, a professor at Massachusetts Institute of Technology and the author of a seminal book published last year on China's economic model called Capitalism with Chinese Characteristics, [who] estimates that government and corporate consumption may have jumped from 10 per cent of retail sales in the '80s to between 25 and 30 per cent since the mid '90s...The share of household consumption has fallen accordingly. Between 2000 and 2007 household consumption fell from 47 to 33 per cent of GDP, according to data...But this year the emaciated Chinese household consumer has become more so.” 

The second piece, by David Uren of The Australian, looks at the growing trade tensions between China and the world. Whilst trade protection remains a fringe issue, Uren is right in observing that as long as the yuan is pegged to a falling US dollar, pressure will mount on just about everyone else to increase trade subsidies.

For Australia, the point is that any hiccup in the Chinese growth story and the hot money that's got so many commentators making rapturous forecasts will be gone quicker than you can declare 'false prophet'.

In corporate news, two pieces today are worth mentioning. The first is Adele Ferguson's inaugural effort at The Age She kicks off her tenure with two scoops, that NBN Win is considering a float and that "former BHP Billiton chief executive Chip Goodyear is considering taking a board position at Woodside Petroleum”. Both offer fresh and useful information. Nonetheless, this column hopes that Ferguson is not tempted (or pushed) to write in the vignette-style that is damaging the analyses of many of Australia's best columnists.

Lastly, James Chessell has a long piece on Macquarie Media in his AFR Due Dilligence column. The piece lacks new material but is a good backgrounder.