Our happy isle basks in the cargo cult economy

Melbourne Herald Sun, Friday December 31, 2010
It's a new year tomorrow, so how are things with the cargo cult economy?

You might remember from past New Year Marketeer columns that I recalled how the natives of New Guinea believed that the material goods brought to them by allied troops in WWII were gifts from the gods.

Food, machines, weapons, motor cars all appeared magically from the belly of cargo planes. After the war ended the gifts stopped. Then movements grew up to encourage the gods to restart their largesse - "cargo cults".

So they built air ports out of straw, planes of bamboo, radios from coconuts - to encourage the return of these magical goods. And even when repeatedly the cargo did not materialise, they blamed sorcerers and crooks, but continued to believe.

In much the same way, in the western world, for years investors believed stocks would always go up, wealth would always grow, goods would always flow, donated cheaply by the goodwill of China, and that economies never needed to balance.

Then two years ago the GFC blew down the straw airports and banana-leaf control towers leaving us all much poorer, sitting on a pile of straw.

So of course we have now learned our lesson and started building some substance, right? Developing new industries and infrastructure and manufacturing so that we will once again produce real products, instead of inflating share prices?

Well, er, no. You see the natives of this happy isle have indeed been blessed by the gods. We are being showered with cars, clothing, wide-screen TVs, flown in from overseas in cargo containers.

We can sit back in our deck chairs or our computer desks knowing that all these luxuries and goodies are being supplied by the world, and all they want in return is a few rocks from our gardens.

Well we have such big gardens and so many rocks that we will never have to worry about working again, will we?

I mean they are already paying us twice as much for our rocks than last year and even while the world was in crisis, our plane loads of cargo kept landing like clockwork.

Now some pessimists are calling out, what happens if the world doesn't want our rocks any more? Or how come the rest keep getting smarter and developing their science and industry, while we are re-arranging our stacks of straw?

For all the sarcasm we pour on the times, the 1950s and 60s wealth was used to give us the industries and infrastructure that allowed us to grow into a leading economy. Today we see any such initiatives maligned at both federal and state level.

A broadband network? "We can't afford it". But if we can't afford it now, when will we ever get up to world speed?

Desalination? "A waste of money". But what happens when the next ten-year drought hits our expanding cities?

"Universities should work on a user-pays system". This said by politicians who were themselves able to advance in life because of free education.

Investing our good fortune on the future, rather than buying yet more throw-away consumer goods, is not fanciful idealism, it's good sense.

We need to plan the use of all that money that's pouring in. Because sure as eggs, some day those cargo planes will stop landing, and so will those happy new years.

China rules through our Cargo Cult addiction

Melbourne Herald Sun, 3rd January 2010

On New Year 2008 I described the state of world business as “Cargo Cult Economics”. Remember those natives of war-time New Guinea who believed that wealth was delivered by the gods? The planes would always land, bringing them food, clothing, machines - it was magic, they came out of thin air.

But once the war was over, the goods stopped coming. So the natives made gifts to appease the gods. They built aeroplanes out of straw and copra, radios out of coconuts, control towers out of bamboo poles. They believed that the cargo would always come.

So in our cities and Wall Street we believed that income would continue to grow, share prices would never fall, houses were solid investments.

By New Year 2009 the economic tsunami had demonstrated the flimsiness of our beliefs. Superannuation was supposed to be rock solid but it dissolved like sand. Banks crashed. Share prices crumbled, much of the world went into recession. At last we could see through all these financial facades and concentrate on building something real.

But wait a minute - here’s New Year 2010 and what do we see? All those coconut and banana structures are being rebuilt. Everybody is triumphant at having successfully saved our sacred cargo cult. The control towers are still built of bamboo and straw, the radar is a spinning gourd shell.

But the natives are living well. We have ample supplies of any goods we fancy. Beautifully made and very cheap, kindly provided by the hard working gods from Beijing.

These generous souls also allow us to continue our extravagant lifestyle, by giving us money whenever we need it. Currently America owes China about a trillion dollars for government securities alone. Whenever Uncle Sam needs a buck, Uncle Hu Jintao delivers.

Then last month we saw vividly where it was leading. China decided it did not want to be restricted by a Copenhagen treaty. So it told Obama, Brown, Sarkozy, Merkel, Rudd and the rest of our leaders to shut up and sign what it dictated. The world was going to play by China’s rules or not at all. After some vain protests, our leaders meekly signed the filleted accord.

China learned the lessons of world diplomacy from the best teachers. The British Empire fought the Opium Wars between 1839 and 1860 so they could feed the Chinese people constant supplies of opium. We knew an addicted people was in our power.

Well now the West are the addicts. Dependent on China for their tellies, iPods, clothing and - soon - cars. We’re also addicted to money. Where do you think all these billions spent on financial bail-out schemes will come from, ultimately? More loans from Uncle Hu?

Those of us in marketing are just the front-end of the process. We sell the products, wherever they were made. We build the straw and bamboo store fronts, and stand there handing out the toys and gadgets made afar. We don’t create the goods, our tools are smoke and mirrors.

The world has very little time to get real. We’ll never cure the addiction so at least let’s make more of the dope ourselves. Like adding value to the minerals we’re feeding into the furnaces of Asia’s industry.

Trouble is, our politicians have seen what happens to those who try to expose the cargo cult or preach reality. They are ripped apart by a raging mob. (Here we call this an election.)

Whatever persuasion you are, it’s time to stop berating our politicians and start encouraging them to be brave. It’s going to take some tough decisions if we’re to break the addiction of cargo cult economics. Happy New Year.

Ray@ebeatty.com