But the argument they made, and then repeated and repeated, was that our living standards were tied to the success of Australia's exporters. Their logic went like this: international competitiveness drives exports, exports drive growth, growth drives jobs and jobs support living standards. Australia could boost its international competitiveness if it cut costs and became more productive. Therefore, if we accepted the sacrifice of lower wage increases in the present, as well as large-scale structural adjustment, we would all be better off in the future. It was a compelling argument, and it worked. As an economic narrative it was remarkably successful. It helped a sceptical public understand why exporters were so important and then eventually support the need for change, even if it meant taking real wage cuts. That narrative then provided the intellectual justification for decades of other reforms that have helped the economy record 23 years of uninterrupted growth.

But something happened to the story this week. One of Australia's most respected thinkers mounted a frontal assault on it. Ken Henry, a former Treasury Secretary, told a gathering on Tuesday at the Australian National University in Canberra that Australia desperately had to abandon that story and fashion a new economic narrative. "The idea that public policy should be organised to protect and advance the interests of exporters has no support in economics," he said. The focus on exports as the foundation of living standards had become so "deeply entrenched" in this country it was crippling sensible attempts to deal with some of our biggest challenges, he warned.

Where is his evidence that our focus on international competitiveness is impeding our progress? "From late 2003 accelerating world prices of Australian mineral and energy exports caused a significant real appreciation, in the order of 50 per cent," he said. "The real appreciation damaged our international competitiveness." But, according to the narrative that places international competitiveness on a pedestal, "if our international competitiveness falls then governments should do something about it". "Thus, successive Australian governments have had to respond to various proposals [since 2003] designed to reverse the real currency appreciation caused by international price inflation: cut business costs, especially wages and taxes, boost productivity and cut government spending." This is what successive Liberal and Labor governments were called on to do when the terms of trade were rising strongly, from late 2003 to 2011.

Now the terms of trade are falling, and as concerns increase about our declining aggregate real national income, what is the current Abbott government being called on to do? "Well, it will sound familiar," Henry said. "Cut business costs, especially wages and taxes, boost productivity and cut government spending." See what's happening here? "No matter what the malady", he says, the predominant economic narrative "will always prescribe the same treatment". Henry believes the dominant narrative does not suit the world's changed economic conditions.

He provides three examples of public policy areas that have struggled because they have butted against the ingrained logic of the old narrative that values international competitiveness above all else: the mining boom, climate change policy and the Asian century. When it comes to the mining boom, Henry says policymakers should have been asking themselves how the huge increase in profits of the the boom could have provided for higher value "foundational investments" in Australia for the benefit of future generations. But the old logic would not tolerate higher taxes on our mineral and energy exporters. "Even a consummate communicator was going to have difficulty explaining why it made sense to apply a new tax to an accelerating export sector while at the same time promoting the narrative that the cost competitiveness of exports was the principal driver of growth, jobs and living standards," he said. "One might even have been accused of wanting to kill the goose that was laying the golden eggs."

The same thing happened to our climate change policy, he says. The old logic "sees any domestic price on carbon as an unfair imposition on Australian producers who have to compete internationally. Exports will be weakened, imports will be encouraged, GDP will be damaged, jobs will be destroyed and living standards will suffer." And when it comes to competing with China and other Asian countries? According to the old logic, "our international competitiveness is being damaged by the costs to business of a set of national attributes developed over generations" in Australia, such as excellence in governance, safe working conditions and a concern with environmental sustainability and animal welfare. "For good reasons, many Australian policy thinkers would rank these attributes among our greatest assets in doing business in Asia," Henry says. "But [the old logic] maintains that all are costly to business; that Australia's international competitiveness could be improved by ditching any or all of them."

He says the case for reforms to boost competition, improve labour market flexibility and provide the conditions for productivity growth is strong – but it does not rest on export competitiveness. These things should be pursued "because they expand opportunities, enhance freedoms and, in so doing, improve the wellbeing of the Australian people". He proposes that we adopt a new narrative, fit for a modern Australia. We need an economic narrative that explains how our national endowments – economic, social and environmental – drive our national performance. He says governments need to feel comfortable with the fact a country's national endowments favour some industries and products over others.

That means governments should not shy from backing particular industries and products, or "picking winners". "In developing compelling narratives, there is no choice but to identify winners," he says. "That is a large part of what makes them compelling. "We [therefore] need a richer understanding of international competitiveness. And that understanding has to be both capable of, and comfortable with, identifying winners of a more internationally competitive Australia." And an internationally competitive Australia should be a place "in which government policy avoids short-termism and has no taste for protecting vested interest". Above all, "the public policy of Australia should be directed to ensuring that all Australians, including those not yet born, are endowed with the capabilities that afford them the opportunity to choose a life of value".

The speech was a great one. Let's hope our politicians heard it. Ross Gittins is on leave