I could write a book on this, but to keep it brief I've been thinking a lot about a few things lately.
I contend that:
1. A large portion of the service economy creates no real wealth even though it may fill a local need.
Whilst we've all heard that argument in regards to the public service, it applies regardless of who is running the operation. If it's not creating actual wealth then it's not creating actual wealth whether it's paid for voluntarily or via taxation.
If it provides services that can't be sold overseas (eg dog washing) or is an industry largely of its own creation which produces no valuable product as such (eg the legal industry - ultimately it's largely a money shuffling exercise in a "big picture" sense) then it's not adding to national wealth. It may create activity (GDP) and it may be something we need (we do need police and we do need some form of government with its associated administration) but it won't make Australia a wealthier nation.
2. What does add to national wealth is production of something of actual value in a real tangible sense, preferably things which are either sold overseas (exported) or replace something that would otherwise be imported. For example, mining, manufacturing, agriculture, software, a small part of the service economy (eg we export education via overseas students) etc.
We have economic activity that creates real wealth and we have economic activity that whilst it may add to GDP, doesn't really make us economically wealthier as such. Smashing windows and fixing them certainly adds to GDP, but only if we start exporting glass does that become a source of national wealth. Simply running around smashing and replacing windows, washing dogs, mowing lawns and taking holidays isn't bringing so much as a single cent into this country no matter how much GDP it may add and how many people it may employ. It's activity, not wealth creation.
Now, can anyone punch a serious hole in my thinking here? Not little bits or specific examples, but the fundamentals? Can we really be a wealthy country with an economy based on dog washing and distributing imported consumer goods but without actually producing anything of value for export? My own thinking has always been no, that can't work. But it seems to have become so universally accepted that I'm starting to wonder.
Do we really need the mines, factories and farms? We could easily replace their GDP contribution via the service economy and that is a point many have repeatedly made in the broad community over the past 30 years. But I don't see how such a shift works overall - the mines bring in export income whereas taking an interstate holiday and getting the dog washed doesn't.
Relevance? Well this argument is ultimately what underlies most of the economic debate in this country over the past three decades. It is also right at the centre of many of the big environmental debates - production of something tangible versus the service economy (particularly tourism) as an alternative. So it's about as mainstream an economic issue as you could find, and yet practically nobody seems to even mention it.
Thoughts? Can an economy based on taking holidays, washing dogs and waging war in court actually work? Or do we still need the mines etc so we've got something to export in order to fund our imports of consumer goods?