Is Australia’s economic luck about to run out?

Australia’s residents are fond of referring to the place as ‘the lucky country’ but most are blissfully unaware of the phrase’s origins. ‘Lucky’ was never meant as a compliment. When the late Donald Horne, a giant of Australian intellectual life, conjured the tag in the 1960s he intended it as a putdown: ‘Australia is a lucky country, run by second-rate people who share its luck.’

Much of this rings true for the Australian economic story. For most of the 20th century the Australian economy flourished because of its natural mineral endowment and its agricultural sector; commodity exports were its lifeblood. Such industry as existed was cosseted by high tariff barriers and indulged with government subsidy.

When a globalised economy arrived, ending the days of living off the farm, many thought Australia’s luck had run out. And so during the 1980s and ’90s the Australian economy underwent a dramatic transformation. The financial system was deregulated, the Australian dollar floated, the tariff walls came down, and by the turn of the century the services sector accounted for around 70 per cent of the economy.

Yet today Australia has reverted to its old ways. While other developed economies are slowing in the face of a global credit crunch, Australia has rediscovered its luck. China’s insatiable demand for coal and iron ore has fuelled a resources boom, leading to unprecedented volumes of trade. Remote mining towns in the Outback are coming back to life as miners and other workers flock to cash in on this modern variant of a gold rush. Plugged into China, the Australian economy continues to grow at 3.9 per cent — one per cent higher than the OECD average.