Time to spend, and not on lollies
Australia's current economic woes can be likened to the country's 'milk bar' economy from the 1950s. Photo: Paul Jeffers
For many of us, the humble milk bar was a venerable Australian institution. Who does not have treasured childhood memories of going there for everyday necessities like bread and milk?
Our elders usually gave a tip at the successful completion of an errand. It meant the chance to buy loose lollies from the shop's display cabinet: cobbers, bananas, red frogs, clinkers, chocolate freckles, musk sticks, milk bottles or maybe a sherbet bomb.
The best tactic was to ask the owner for 10¢ worth of mixed lollies, knowing that they would err on the side of generosity.
The milk bar was the first sign of postwar affluence and the prices were reasonable, not exorbitant.
Today milk bars are fast disappearing, the victims of consumer changes, cars, convenience stores and the tentacles of supermarkets. The odd one still endures, due perhaps to a propitious location. The inner suburbs of Melbourne are replete with what were once milk bars; some still have the signage but many have been converted into housing.
In 1952 economist Douglas Copland, then the inaugural vice-chancellor of the Australian National University, created a stir when he commented on the way the Australian economy was developing.
Copland drew attention to the unbalanced nature of the economy's production mix between capital goods and consumption goods, arguing that the imbalance was impairing Australia's development. And, Lord, did we have to develop, with a huge immigration program in place and our economy then having a manufacturing sector that employed a quarter of the workforce.
He memorably stigmatised our plight as a ''milk-bar'' economy.
The imbalance could only be rectified, Copland argued, by redirecting flows of resources to the basic industries, by allowing more access to foreign borrowing, more immigration, and a longer working week.
Copland wanted the federal government to borrow money offshore and spend it on capital goods from overseas, which would help speed up Australia's economic development.
So effective was his criticism that a representative of the Federated Retail Confectionery, Refreshment and Mixed Business Association of Australia wrote to Copland resenting the inference that milk bars be ''suppressed, controlled and if possible exterminated in the public good''.
Copland responded, pointing out that it was a generic term, not a specific attack upon the country's milk bars.
He drew the association's attention to ''extreme shortages of coal, iron and steel, bricks and mortar'' and the ''poor condition of both power supplies and transport services''.
The idea of borrowing money to speed up the building of the infrastructure necessary for Australia's industrialisation left politicians gobsmacked. Bob Menzies eventually got his way and enticed Copland into taking a diplomatic posting.
Last week, two members of the Reserve Bank board, John Edwards and Heather Ridout, said now was the time for the Gillard government to be bold and borrow to fund big-item infrastructure needs, especially when the cost of funding these works was modest.
The idea also has a rationale in that the Australian economy is flagging and business conditions are soft.
Those who decry Australia's minuscule public debt really have no answer to the idea.
In that respect shadow treasurer Joe Hockey's promise to quickly achieve a budget surplus once in office and maintain it, regardless of the state of the economy, reeks of a schoolboy error in basic economics.
The fact, too, is that it is the public sector that has to spearhead the drive to provide nation-building efforts like more transport links, schools and universities, and recreational and health facilities. These are all pressing needs in all the big cities.
If our political masters are reluctant to get taxes to pay for this, then public borrowing is the way to go. It will not endanger our AAA credit rating.
Australia's productivity has sagged and we are now bottom of the class of 50 economies.
When the Labor Party was in opposition it took the Howard government to task for the country's productivity slowdown. Now Treasurer Wayne Swan finds himself dogged by the same problem, and only a big increase in public infrastructure spending will fix it.
Alex Millmow is senior lecturer in economics at the University of Ballarat.