Illustration: Kerrie Leishman It smacks of complacency, of a belief that nothing much has changed or could change. But that's not how Ian McAuley, an economist at the University of Canberra, sees it in his chapter of a new book from the Centre for Policy Development, Pushing Our Luck: Ideas for Australian Progress. McAuley argues that, after another round of good luck with the resources boom, we need to secure our long-term prosperity by building a more resilient economy. (He harbours the eccentric notion that there's more to economy policy than balancing the budget, but even Abbott has abandoned that goal.) ''The legacy of our economic history conditions how we think,'' McAuley says. ''After Federation we diversified our economy by building up a strong manufacturing base behind tariff walls. That started out as a smart policy, but it has left us with an undue concern for 'making things' rather than creating value. ''Our success in commodities, which allows for little product differentiation, has contributed to a 'price taker' mentality in business and therefore an obsession with production costs. We think about productivity in terms of mere cost reduction, particularly when labour costs are involved …

''And our strong growth in the 20th century has created unrealistic expectations about profitability; we find it hard to imagine that the days of easy investment returns may be behind us.'' We need to break free of the notion that our economic fortune must inevitably be driven by the fluctuating demand for minerals and energy, McAuley argues. And our dependence on coal exports makes us particularly vulnerable. ''As more countries place a price on carbon, or switch to other energy sources for local environmental or health reasons, there is a chance that we could find ourselves left with some large holes in the ground and idle ports and railways.'' The experience of many countries shows that an abundance of natural resources can become a curse because it leads them to keep all their eggs in one basket. ''The consensus among economists is that countries can avoid the resource curse only by treating natural resources as an opportunity to invest through a sovereign wealth fund or domestically in education and infrastructure.

''We should see carbon pricing as an opportunity for industry modernisation, to prepare for an era in which many countries are cleaning up their energy sectors and limiting their carbon emissions.'' McAuley says the old manufacturing model was one in which physical capital was expensive and labour was comparatively cheap. Our thinking, still focused on physical capital, distracts us from a new realisation of the meaning and role of capital. ''Capital in the form of a row of machines or a fleet of trucks is less important than the capital in the form of ideas, skills and education, capacities to communicate and to work with others - human capital, in other words. It is the knowledge worker who is emerging as the capitalist of our day, but we are a long way from recognising this.'' Rather than thinking about manufacturing and its products, we should think about activities people undertake in adding customer value. Some activities involve transformations to physical products, but there are many other ways to apply skills to add value. ''Policies directed at developing manufacturing for its own sake are bound to fail. Those that enable businesses to adapt to big changes and to develop strong positions in global value chains are more likely to be effective for all businesses, regardless of their sector.''