Australia has a high level of personal wealth, which sharply contrasts with the simplicity of its economy. Experts have become very concerned about this paradox, as the country’s economic complexity has continued to decline over the past decade. A study from Harvard University shows that Australia’s economy now ranks 105th out of 145 nations, a significant drop from 93rd place less than ten years ago. The study attributes this decline mainly to a lack of diversification in exports.
Australia’s economic focus shifted in the 1970s when the nation adopted free-market principles and embraced globalization. It took advantage of its rich natural resources to become a major global supplier of raw materials and food. However, this strategy has led to unintended consequences. Australia now has the lowest level of manufacturing among the 37 OECD countries, accounting for only 5.1% of its GDP. The emphasis on raw material exports is increasingly concerning as the global trend is moving away from specialization and toward self-sufficiency and protectionism, led by countries like the United States. This change in global attitude has prompted a rethinking of Australia’s long-held economic policies.
The upcoming closures of key metal processing facilities in Whyalla, Port Pirie, and Mount Isa have urged both federal and state governments to step in. Unlike past administrations that might have allowed these private companies to fail, current governments are actively trying to keep them afloat. For instance, when the South Australian government placed the Whyalla steelworks into administration, the federal government offered a $2.4 billion support package to maintain operations. These actions raise a vital question about the government’s role in helping struggling industries.
Roy Green, an economist at the University of Technology Sydney, argues that these government efforts should be considered co-investments in future processing technologies, not bailouts. He points out that Australia invests very little in adding value to its raw material exports. Green notes that while Australia produces 50% of the world’s lithium supply, it captures only 0.53% of its value because 90% is sent to China for processing. He believes this model is not sustainable and that Australia needs to build its own processing capabilities for materials like antimony and rare earths, which are essential for advanced technologies like touchscreens. Green views the recent actions of the government as a significant step forward, indicating a shift from pure free-market thinking towards the development of an independent capacity to compete globally.
The collapse of Australia’s car industry in 2017 serves as a warning. After World War II, the industry was protected by high tariffs, but these were reduced over time, making local manufacturers such as Ford, General Motors, and Toyota less competitive against a surge of imported cars. Moreover, rising energy prices on the east coast rendered energy-heavy industries unmanageable.
The idea of comparative advantage is also being re-evaluated. China‘s heavily subsidized industries and control over raw material processing have positioned it as a price-setter for many commodities. Chinese interests have helped Indonesia become a leading nickel supplier, which resulted in a near shutdown of Australia’s nickel production over the last two years. China also holds a near-monopoly on refining rare earths, especially in the heavy rare earths sector. Green argues that Australia cannot depend solely on comparative advantage; it must instead develop a competitive edge within these supply chains. Without matching or shifting away from these subsidies, Australia risks losing its materials to China, which would gain a monopoly on the vital metals and materials of the future. The article suggests that government involvement and strategic investment are no longer debatable but essential for Australia’s long-term economic health.
