As Austin Powers’ father once said, “there are only two things I can’t stand in this world – people who are intolerant of other people’s cultures… and the Dutch.”
Apologies to all the Dutchmen out there, I’m not intolerant of you, just an economic problem associated with your former homeland.
‘Dutch Disease’ was coined by The Economist magazine to explain the fall of the manufacturing sector in the Netherlands after the discovery of a North Sea gas field.
Essentially the emergence of a resource boom leads to a decline in other areas of the economy.
As you might have heard there’s a massive resources boom going on, yet at the same time retail, tourism and manufacturing are suffering.
The inflow of money into resources sector expands the economy.
This sounds good; however, that flowing money can also have the effect of pushing up interest rates and strengthening the Australian dollar.
These two things can do considerable damage to manufacturing, tourism and retail, as we’ve already seen.
Small and medium businesses often take the biggest hit, quite alarming when you consider that section of the economy accounts for the employment of 4.8 million Australians.
While retail and tourism can always recover, manufacturing can be hit with long term damage.
Firstly, manufacturing is made uncompetitive by the rising dollar; secondly, it struggles to retain workers as they can be sucked away to jobs in the resources sector and other areas inflated by resources.
Unfortunately, while we hear of amazing mine wages, the industry itself is rather small with around 180,000 workers, so it can’t truly cover the damage elsewhere.
The main concern with ‘Dutch Disease’ is if the resources boom comes to a screeching halt, often the manufacturing sector can’t pick up the slack because technology has long moved on.
With manufacturing contracting again in May, it appears we may be suffering the dreaded ‘Dutch Disease’.
