The high road or the low road? Alternatives for Australia's future

Abstract

The OECD suggests that countries now have a choice. They can focus on development
based on either:
 competition via investment in technology and innovation - which is important in high
knowledge industries and high innovation economies, or
 competition via exchange rates and wages - which is important in industries
producing standardised, lower-tech goods and services.
The first route will maximise higher-skilled, higher-paid employment growth and living
standards. Given the lack of control over the exchange rate, the second route requires
competition based on wages. It is essential to understand that markets themselves won’t
shift a country from one path to the other.
These conclusions arise from the OECD’s recognition that technical progress - the
creation of new products or the adoption of more efficient methods of production - is the
main source of economic growth and enhanced quality of life. Technological change is,
the OECD suggests,
...also the engine for job creation as higher wages and profits resulting from
technology-induced productivity gains and lower prices lead to increased demand
for new products from existing as well as new industries (1997: 4).Further,
Competitiveness in high-technology industries is mainly driven by technology
factors and much less by wage and exchange rate movements, while the reverse is
true in low-technology industries (OECD 1996e: 12).
The OECD has shown that sound macroeconomic conditions, such as the low inflation
and reduced public sector debt visible in almost all member countries in the 1990s, are
not enough to deal with high levels of unemployment and the need to increase levels of
income:
If economic performance is to improve, additional structural reform, which can
increase innovation and the diffusion of technologies within and among national
economies, seems necessary (OECD 1997: 4 Emphasis added).