Ken Henry: policy resilience and the reform narrative

The Australian “mercantilism” narrative, with its obsession with exchange rates, is crowding out important debate on future economic prosperity, according to the former Treasury boss.

This will be something of a homily to some of my colleagues in the economics profession who have felt motivated to involve themselves in the task of economic reform. I hope the address will be of wider interest.

Recently, one of those colleagues, Ric Simes, called for a clearer focus on ultimate objectives, and much less on rhetoric. Similar views are being expressed by leaders of business. The Business Council of Australia recently launched a publication entitled Building Australia’s Comparative Advantages. In the words of BCA president Catherine Livingstone, the report underscores the case for “putting in place deliberate strategies to improve our competitiveness, fostering innovation and playing to our strengths”. Catherine argues that it is time “to confront our complacency”, and that we need “to imagine and fashion our future”, then to pursue “a path of purposeful action”. She argues that there is no point in pursuing “growth” that doesn’t generate “wealth” and that so-­called “structural reform” must assist in “transforming the economy”.

In this address I am going to focus on two questions: how should one assess the wealth of a nation; and what are its policy determinants?

These questions were the subject of Adam Smith’s Wealth of Nations, published in 1776. In that treatise, the Scottish moral philosopher mounted an assault on the dominant economic narrative of the time, which held that the wealth of a nation should be measured by its reserves of gold, which represented the accumulated bounty of its export activity. Before Adam Smith, if public policy had a purpose, it was to protect and advance the mercantile activity that generated exports.

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