I would love your feedback! Please give your thoughts on the scales on the sides and bottom :-)
When it comes to economic theories there are few more controversial than the 'trickle down' idea of economics.
Wow. I think I fell asleep just writing that sentence.
Let's make it a bit more interesting.
Last night, over a drunken conversation with a friend discussing how shitty our respective countries were becoming, I had an epiphany.
There. Better.
For the past two decades 'trickle down' economics has been a term assigned to the conservative view that tax breaks and subsidies to the wealthy and big businesses will lead to economic prosperity (eventually) being felt by the lower classes. Essentially if the government gives tax breaks to wealthier individuals they are more inclined to spend the money in stores which in turn boosts the economy. It has been the governing principle of the Bush and Reagan administrations and in Australia was championed by John Howard and his disciple, current Prime Minister Tony Abbott, is more than happy to pick up the baton.
With the latest budget in Australia we have seen an incredible amount of economic austerity for the lower classes (read: the complete destruction of the Australian social welfare system) whilst the more prosperous individuals (including the mining companies) have gotten off relatively lightly.
From an outsiders perspective the idea of 'trickle down economics' is a solid one. The company (or wealthy individual) gets the tax break from the government > goes to the local store and buys their item of choice. > The store manager makes money from the sale and pays the employee that sold the item their wage. > The item is then shipped to the customer via a delivery person who is also paid by the store. Thus the idea of the trickle down effect: Government gives to individual who in turn purchases item which leads to store, delivery person and employee all making money.
The same theory works when applied to businesses. Government gives tax break or subsidies to corporation who in turn sets up businesses in the city or regional area. This boosts employment in the local area with the business needing new employees, drivers, shopping at local markets etc etc.
It's a viable economic model and, despite my ideological disagreements with it, could certainly lead to a prosperous community.
Except that it's not any more and it's all because of one little word:
Globalisation.
Yes, globalisation. That lovely little all-encompassing term. Our almost borderless society has shifted the way that we view the world and so must it also shift our economic principles.
Thanks to the Internet and globalisation we are no longer living in the insulated community that has nurtured us for so long. We are all part of a big, wide world.
So how does globalisation change the trickle-down theory?
Well let's look at how the new world works:
Government gives tax break to wealthy person > wealthy person goes online and buys a TV from Japan > money goes into Japanese corporation's pocket and completely bypasses Australia with the exception of a smattering of dollars going towards taxes.
See what happened there?
The tax break went to the wealthy person but nothing trickled down to the Australian working at the store. The store, in turn, closes down because no one buys their TV at a brick and mortar store anymore and the employee, driver and manager of the store are all out of a job.
This isn't some wild conspiracy theory. In Australia Harvey Norman, the biggest chain of electronics and white goods, posted a net loss of 31% and its Chairman, Gerry Harvey, blames the fact that people are purchasing their goods from overseas Internet retailers. This will cause him to close a variety of stores in order to stay solvent.
Let's take another example of call centres. Why should Telstra pay $16 per hour for a worker in Sydney, Australia when they can pay $3 per hour for a worker in Manilla, Philippines? They're spending more than 5 times the price for a worker just because of their location.
Now here's the thing. This isn't a protectionist rant about how we have to keep shopping locally for the good of the country. I'm actually a huge fan of globalisation and the fact that I, in turn, have a choice of where I shop online. The ease and convenience that comes with globalisation is a huge boon to me and I want this to continue. I shan't be shedding tears for Gerry Harvey nor anyone else because I believe that we, as a nation, have to shift ourselves away from the traditionalist idea of being a resource based economy (more on that in a further blog post).
But what about businesses? They're always employing people.
This is true. In many cases I support tax breaks for small businesses (being a small business owner myself I can understand how a little help from the government in those early years can go a long, long way).
However there does come a time when it just gets a bit ridiculous.
Let's take a look at the mining companies.
The mining companies (lead by Australia's favourite woman Gina Reinhart and Australia's newest political 'superstar' Clive Palmer) have received some 60 billion dollars worth of government subsidies over the past few years. This is despite the fact that they are employing fewer and fewer people and the majority of them are owned by foreign companies. What we're seeing is a major excavation of Australia's natural resources, a dependence on fossil fuels (whilst the world is shifting towards renewable energies) and almost zero 'trickle down' effects. This is what the governments of Australia, both State and Federal of both parties, have been subsiding. It's a joke.
The idea that the mining companies need economic incentives to mine coal and iron ore in Australia is ridiculous. The coal and iron ore aren't going anywhere. They're going to still be in Australia no matter how much we make the mining companies pay for their diesel fuel.
So this is, among many reasons, why the current budget is bad for Australia. It champions the now antiquated economic theory that may have been effective in 1950 but has no place in 2014.
