John Howard was Prime Minister of Australia between 1996 and 2007. He is in London as guest of the Legatum Institute.
This week’s release of the Legatum Prosperity Index, a global assessment of wealth and well-being in 104 countries, provides a good occasion to assess government policy and the global economic crisis. As the Prosperity Index finds, there is a strong and mutually-reinforcing relationship between a nation’s economic growth and the happiness of its citizens. In particular, whether people have freedom of choice and opportunity in their lives is a strong determinant of their life satisfaction and their productivity. Yet being heavily in debt severely limits the choices available to both individuals and governments.
This is a major reason why governments ought to be pre-occupied with debt repayment; so should Oppositions, because the task is a mammoth one. Britain’s Conservative Opposition, eschewing the customary timidity of Oppositions which have big poll leads, showed much courage in spelling out in such detail, at its recent annual conference, proposed expenditure cutting plans, if it wins government.
The task of debt repayment ahead of my country, Australia, is not as great as in Britain. This is because Britain started so deeply in debt, whereas when the financial plunge hit the Australian budget was in surplus, and the nation had no net debt. In fact the stimulus package in Australia, as a proportion of Gross Domestic Product, was larger than that of Britain’s; 4% in Australia against 1.1% in Britain. There are plenty of people in Australia, myself included, who think that the Australian Government overdosed on the stimulus, taking a little too much liberty with the benign starting point. Both nations have big challenges. Britain has had to pour enormous sums of money into her banks, something Australia has not found necessary, because our banks were not as heavily geared.
Even more important, is the challenge to understand the reasons for the great financial meltdown of 2008, and not be seduced by the false argument that it was caused by a systemic failure of free market capitalism. This argument is easily put because, in the search for scapegoats, there are some quickly identifiable targets, who can be readily besmirched, namely wealthy bankers and other financial manipulators largely, but not only, from Wall Street and the City of London. It was their greed, so the argument runs, which produced the excesses surrounding the securitisation of housing loans and as a result the collapse of major financial institutions such as Lehman Brothers, and the onset of the dramatic events of a little over a year ago.