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Four steps to resurrecting Australia

“Down down, you bring me down, I hear you knocking at my door and I can't sleep at night
Your face, it has no place, No room for you inside my house I need to be alone”

'I am the Resurrection' by the Stone Roses, 1989.
Source: Lyricfind. Copyright: Universal Music Publishing Group.

Australia is facing its deepest economic chasm, caused by Covid-19 virus which forced the country and much of the world into lockdown. Local data, coupled with international experience, suggests lockdown is working to slow viral transmission, and we are moving the dialogue quickly towards an exit strategy.

It appears at this stage that through some combination of ‘tyranny of distance’, low population density, relatively uncrowded homes, a low viral load at lockdown, seasonal impacts, a prepared medical system or simply because we are the ‘Lucky Country’, Australia has fared well. We did not act as swiftly as we could (#bondi), and early messaging was confused, so it is hard to attribute it to great management, whatever is claimed ex post.

What comes next?

To date, it was possible to analyse the outbreak as an advanced mathematical problem. Now, our policymakers are faced with huge challenges ethically, socially, economically and politically, until they are rescued by medical science or favourable mutation.

These challenges are fourfold:

  • Determining an acceptable post-lockdown death rate (ethical)
  • Encouraging or enforcing lifestyle changes to slow viral transmission (social)
  • Ascertaining how we pay for committed stimulus and economic rebuild (economic)
  • Creating a vision for the future within this window of public endorsement (political)

Addressing these in turn:

1. What is an acceptable post-lockdown death rate?

This is the tricky ethical question our leaders are forced to deal with. It is critical to setting a date to exit lockdown, which in turn is critical for our economic recovery.

We cannot eradicate the virus unless we keep our borders closed forever. Hence, we will be faced with a reality that there will be deaths from COVID-19 into the future.

For what it’s worth, my simple, reductive model has about 1-5 deaths per day forecast in Australia for the first half of May, which seems like the earliest we may consider easing lockdown. This question is not an easy one to propose an answer for.

2. What changes do we need to make to our lifestyles?

The concept of exponential growth has been brought to light to non-mathematicians by the rapid spread of COVID-19 and the terrible death rates we have seen so far in places like Italy, France, Spain, US, UK, China, Iran, and increasingly much of Europe.

The concept R0 – the basic reproduction number - of a virus, tells us how many people a carrier infects. To keep a virus in check, we need to keep R0 at, or below, 1.

Immediately prior to lockdown, R0 may have been around 3 in Australia. We therefore needed to reduce and retain the rate at which COVID-19 spreads post lockdown by about two-thirds, which at this stage, we seem to have achieved.

The concepts of social distancing, self-isolation, work from home, and increased hygiene are a start. It is likely we will need to regulate capacities of venues such as bars, restaurants and transportation in future.

We will likely need to keep our borders closed for longer. Viruses do not respect national boundaries, and we cannot control the actions of other countries.

It is vital that we carefully monitor and test the prevalence of the virus in the community post any re-opening: prepare for random, compulsory testing. This is for everyone’s good.

Simply put, the clear lessons of the past few weeks will need to be learned, and applied, or we will end up with a lethal second wave.

3. How do we pay for the stimulus?

Politics and religion are taboo subjects based on strong ideologies. In recent weeks our budget-balancing government has been forced to throw their core belief out of the window.

The cost of this lockdown falls squarely on future Australian taxpayers, who have funded the averting of a potential social catastrophe by attempting to re-allocate some of the pain.

It is likely that further government spending will be required to build confidence as we come out the other side.

The key to recovery is getting people back to work, but with attempts to manage lower person to person interactions, federal and state projects can help to smooth the path.

4. What is the vision for the future?

This is our trillion-dollar question.

The public has committed hundreds of billions of dollars already to support the lockdown, and now is the time to be repaid with a grand vision for the future. We will tip in some more for that to become reality.

Now is the chance to invest in a modern communications network to replace our antiquated NBN; now is the chance to develop high-speed rail to connect our major cities; now is the chance to build renewable energy generation capability, and infrastructure to mirror our European counterparts; now is the time to embrace electric and autonomous driving, to push the boundaries of medical science, to create the southern hemisphere’s Silicon Valley, to reform our tax system, to cut red-tape, and so on.

This must be grasped at all costs, or we have missed our big chance. There is a window, but a small one at that, where everyone is on the same team, fighting a war against a common, invisible enemy.

When we roll away the lockdown, we must not find an empty agenda

In summary, it’s a tough month or two ahead for our leaders, and it’s important we all play our part in staying at home until the restrictions are relaxed, then continue to focus acutely on reducing the spread of a virus that will still be present.

 

Douglas Isles is Investment Specialist (Retail) at Platinum Investment Management, although this article is written in his personal capacity. He is also a member of the Actuaries Institute COVID-19 Working Group.

 

10 Comments
Gary
May 06, 2020

Good start but a bit superficial in parts. What happens with deaths in the second half of May, and on? The case rate is creeping upwards again. Paying for the stimulus makes no mention of whether upcoming tax cuts should be shelved or dropped. However, your item 4 is right on the money. We have a chance to make a new, better Australia with the political goodwill the government has at the moment.

stefy
May 02, 2020

Antiquated NBN?????

Ray Cameron
May 01, 2020

A great article and solid comments from your readers. Clearly we have some very good thinkers in Australia. I think a major factor in our results so far is the current bi-partisan Federal/State leaders committee. Can it continue with specialists co-opted for each of the 4 segments?

David James
April 30, 2020

Hi Douglas - thoughtful article. If you are truely interested in how point 4 could be pulled together and come to life, I outline a plan here: www.linkedin.com/pulse/australia-lucky-country-david-james/ . We have been lucky for too long, we need to start planning. Happy to disucss the structure if you'd like.

John
April 30, 2020

Paying off the debt - if we assume that the figure of $300 billion is an accurate estimate of the cost of the package, we know that there are approximately 25m people in Australia. This works out to a debt of $1200 per person. If we were to borrow the $300b at 3% (the government should be able to borrow at an interest rate less than 3%) this will mean that if taxes were increased by $1400 per person, that the borrowings would be repaid in 10 years. Relatively immaterial.

Going forward - instead of becoming Silicon Valley, why not be much more simple - start manufacturing and become more self sufficient - steel, aluminium, petroleum, chemicals, etc. Instead of exporting these materials and importing the finished product, add value to our raw materials here in Australia. Result - more employment, less Centrelink benefits paid. Will reduce the amount that we each have to pay to repay the loan for the stimulus package.

After WW2, the government decided we needed to be self sufficient, and set up the steel industry, the car industry, the electric light manufacturing industry, ship building, etc, etc. Then we let them all go overseas. Get our manufacturing back, and most of our problems will disappear

Mark
May 01, 2020

Hi John,

I've always struggled to understand this idea of Australia going back to manufacturing. Yes, it may increase employment but our relatively high labour costs in a value-added product which in reality is destined for overseas markets relegates both the raw material and the end product un-competitive.

Ill give you an example; Lets take the example of raw material where we hold a competitive advantage. Manufacturing steels from iron-ore requires a high labour margin on top of the ore price. Whilst the underlying product is competitive no manufacturing process nor the end product will give you an end product which is competitive in an international market let alone the increased cost in shipping steel as compared to iron ore.

Compare this to Brazil, where the cost of ore is comparable (more or less), the cost of Labour is significantly discounted and logistics are again discounted renders the final product a far more competitive and cheaper option for someone like China. The sector here will require government assistance for years, protection and will eventually die. The market always wins.

Invest in high barrier technological value-adding industries such as IT, Robotics, Finance where our education systems and talent has us competing to our advantage instead. Support this with a strong broadband system and we are positioned for the future.

Nima
May 05, 2020

Hi Mark,

You are correct from an economic perspective; we have a high labour rate. However, if we can control our housing price, which equates to almost 30 per cent of a typical household income, there is no reason that we can not reduce our labour cost. Additionally, if we have less money to spend on overseas travel, we will be forced to enjoy our holiday in this beautiful country which will help to distribute wealth more evenly. Furthermore, we may decide to consume less and reuse or delay our disposal - please spend an hour in your council recycle centre, and you will see how much waste we produce.

Josh
May 03, 2020

Hi John. Your maths are wrong as it is $12,000 per person, not $1200 per person.
Furthermore, only about 65% of Australians work, so roughly 16,250,000 people.
So $300bn/16.25mill = $18,461 per worker.
I’m sure the workforce participation and employment rate will be lower after this too, so more like $20,000 per working person I’d expect, or slightly more.

Plus the Government can borrow at well below 3%, which makes it easier to manage.
They can borrow for 30yrs at around 1.65% now or for 20yrs at around 1.5% or 10yrs at 0.87%

Roland
April 30, 2020

Great article Douglas - esp part 1 (value of 1 human life - priceless if it's mine?) and part 4 - with low interest costs and a populace that accepts a deficit and needs real jobs (but probably at more realistic = lower wages) it's time to move from lucky to clever.

Keith Adamson
April 30, 2020

A great article in all respects. Certainly food for thought and deep consideration.
I particularly like point 4 - Vision for our Future. Wow so visionary! I wonder if any of our leaders really have the foresight to grasp it and put a plan such as this or similar into action?

 

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