The gilded cage down under

In the Covid-19 era, Australia stands out. It has recorded infections (nearly 31,000) and deaths (910) that are significantly lower than the rest of the world. (By comparison, Belgium — which has a third of Australia’s population — has suffered more than 25,000 deaths.)

At the same time, Australia leads the world in economic recovery, with 9 per cent growth in GDP in the last three quarters and unemployment now 5 per cent.

But here’s the paradox: we enjoy the world’s highest median net worth per adult, according to a recent Credit Suisse study, but we are currently not even allowed to travel from Sydney to Melbourne or Perth, let alone Berlin or Paris.

This paradox has led some commentators to liken Australia to a gilded cage.

Both national and state governments have implemented stringent measures that have kept the coronavirus at bay.

International arrivals have been banned since March 2020 unless explicitly approved on a case-by-case basis.

The few that succeed — including residents — must go into quarantine under police guard for two weeks at their own considerable expense. Residents, meanwhile, are not allowed to leave the country without explicit approval, which few have obtained.

This ring of steel around Australia — made possible by its geography — has been the key to the small number of Covid cases and deaths. That is why the ring of steel is widely supported and the government in Canberra is in no hurry to remove it.

At the same time, constitutionally powerful Australian state governments have repeatedly and suddenly closed their borders against visitors from other Australian states. Planning an interstate trip has become a gamble.

Another paradox: Australians are known as rebellious lovers of freedom. And yet the extreme restrictions are popular in mass opinion, Indeed, there is a high degree of trust in government, at least on this issue.

How has the economy performed so well despite these constraints?

The rebound started when infections surprisingly fell away to zero in April and May 2020 and governments began removing domestic restrictions much sooner than had been expected.

It has not always and everywhere been smooth sailing. However, the national data reveal that by March 2021 real GDP and employment had recovered to exceed pre-pandemic levels — something few other countries can boast of.

The strong recovery was a reminder of the resilience and inventiveness of the private sector; but also that when economic activity is suppressed by decree for a brief time, the rebound can be rapid once the decree is withdrawn.

Averaging across the nation, it has been sufficiently free of domestic restrictions since June 2020 that confidence and economic activity have been able to keep recovering.

The recovery has also received a boost, as in many other countries, from massive doses of fiscal and monetary stimulus and a generous furlough scheme that lasted 12 months.

The loss of international tourists and students has been painful for some sectors but offset by increased activity in others.

But anyone tempted to see the Australian approach as optimal should be aware of the problems with it. For our approach is a fragile short-term equilibrium that creates problems for the future.

Ever since the early disappearance of Covid-19 in 2020, public opinion and official attitudes have been conditioned to accept elimination as both desirable and realistic.

However, the pursuit of this goal has imposed great stresses and strains and repeatedly confronted the reality that the virus leaks out of quarantine into the community, triggering policy over-reactions.

At the time of writing, a crisis atmosphere has taken hold of the country. Several leaks of the delta variant have occurred, and three-quarters of the population have been subject to lock-down orders of varying severity and duration over the past six weeks. This is happening even though there are few cases or hospitalized victims and no deaths this year.

Adding to the fragility of the situation is the low level of vaccination so far attained. This is a product of bad luck, but also of mismanagement of vaccine procurement and distribution, and of complacency fostered by the elimination mentality. The Australian population is now much more vulnerable to the virus than most other advanced countries.

There is the prospect of vaccinations reaching a critical mass by year’s end. But the fragility of the equilibrium will continue at least until then, with the risk of rolling lockdowns, on/off interstate border closures and economic dislocation.

Looking further ahead, we should not pretend that the boost from stimulus is anything but temporary, that ultra-easy monetary policy does not create distortions and risk inflation, or that a doubling of government debt in four years will not create problems for fiscal management.

So don’t believe the hype about Australia: like many other countries, we will face these problems down the road.