Beyond Luck; Policy Smarts Are Needed
By Brendan Augustin, Australia Institute of International Affairs (WA) President
In a true policy lab style, the Asia Agenda exercise of asking six thought leaders to reflect on the same peace and prosperity question has thrown up quite a diverse and rich broth of views. They do, however, agree on one thing: Australia can - and must – use all of its muscle to achieve peace and prosperity in a world where previous algorithms no longer compute. The alternative is perhaps too dystopian to imagine.
The most influential factor driving change is the emergence of a China that is not just content to be the economic engine of the world – and by extension of Australia. But like other great powers before it, China also wants to shape the world to benefit its perceived broader national interests. In the view of many - but certainly not all - foreign and strategic policy thinkers, China’s increasing focus on this objective is inimical to Australia’s security interests.
Another way to posit the challenge statement for the Peace and Prosperity theme is to say in order to achieve peace and prosperity we need to find a way to contain and deter China without suffering dire economic consequences.
Some of the writers take the view that all of our policy energy - Helen Mitchell uses the term "statecraft" - should be put towards having our cake and eating it too. That is to do what we can to prolong the Chinese rivers of gold for Australia, at the same time as deterring China strategically in concert with the United States and other allies and buying time to deepen trade and investment relationships with other economic partners in a sort of doomsday prepper exercise. Ben Herscovitch is confident that this “dual track approach” is feasible for some time to come, but most of the writers are of the view that we should be hyperactively seeking other options to maintain – and hopefully grow - our prosperity.
Part of that hyperactivity is focusing on “decoupling” or diversifying Australia’s trade and investment patterns, including Australia having new or rebranded sectors which would be less dependent on China, such as “critical minerals” and “exportable renewable energy” (e.g. in the form green hydrogen or undersea electrical cables). Bec Strating suggests that all of those suffering from China stress could work together to strengthen ties to “reduce dependence and shore up economic resilience” including by developing new and emerging sectors. James Laurenceson is sceptical about this effort when China remains the key customer for critical minerals due to both its industrial base and its technological advancement.
There are also many laments in the town square beyond the writers in this series about Australia’s real ability to create diverse markets. And indeed, historically some in Australia would argue that the country was able to share the significant economic success of the Asian region only because of some sort of “double happiness” coincidence – having the resources wanted by its geographically close neighbours.
Moving beyond “double happiness”
Indeed, this Lucky Country approach has meant that engaging with Asia economically has been relatively straight forward. Firstly having a base comparative advantage for products and services sought by some of our neighbours as they went from impoverished to prosperous societies. And secondly, making sure that trade and investment policy and advocacy is put to hard work – via multilateral, regional and bilateral trade and investment agreements - to extend that advantage as much as possible.
While there is evidence in our history that as a country, we have been able to adapt to changing trade and investment dynamics (e.g. the loss of trade preferences when the United Kingdom entered into the European Common Market in the early 1970s), it is also clear that the China-led boom for Australia is going to be near impossible to repeat.
So, will Australia be able to have its cake and eat it too? It is of course too difficult to predict, especially in a world that is fraught with so many challenges to the operating system which we have been using for such a long period. But we have to do what is within our control.
Peter Varghese, in the video interview on this topic, provides a salient warning that there are inherent risks if we ignore the lessons of history: the history of what has gone wrong, for example the rise in trade barriers and industry protection during in the interwar years; and the history of what has gone right, which in Australia’s case involved achieving superior returns from our public policy choices of opening up our economy; improving our productivity; and letting our comparative advantage rip.
While today’s context may not be exactly the same and we do not have all the policy levers we might have had in previous times, we should be thinking in very “cartesian” ways as to where there are real opportunities to keep our economy growing in more resilient way.
Given this challenge it is curious to observe how Australian political leaders of all colours have taken to attacking one of the mainstays of our economic resilience - immigration and international education. Australia’s ability to welcome new immigrants and its education export industry is one of the major tools we have had in our resilience kit. Yes, in a global cost of living crisis it is not difficult to see how immigrants and international students can easily be the focus of blame in the electorate for the escalation in housing and rental costs and all other sorts of ills. But defending good policy often requires courageous advocacy.
Australia has been a big winner from globalisation
Previous leaders set Australia up to take advantage of the opportunities of globalisation, and Varghese reiterates that as a country we have done amongst the best from globalisation. So today’s political leaders need to argue the case again.
Beyond the direct economic benefits of immigrants and students, the increasing number of Asian immigrants in Australia has been one of the strongest factors the country has had in the last 40 years to help enmesh itself with the region, build prosperity at home, attract high quality and productive talent, and provide us with a degree of resilience about which many other countries would be envious.
That is not to say we can just rely on old – notwithstanding still effective - tricks. Lavina Lee’s challenge that we should “focus on the neglected tasks of improving our productivity and innovation” is self-evident but never emphasised enough. Australian economic history is replete with stories of being able to innovate – but only when we absolutely have had to. One question is whether we have reached that tipping point. Another is whether the innovation we appear to be putting in motion – a reworked form of industrial policy – will be effective in fencing in our prosperity.
In short, it is obvious that to be able to continue achieving peace and prosperity Australia needs to continue having a degree of luck. This means having the smarts to keep employing domestic and international economic policy frameworks which have worked; having the openness to explore new ways of tapping into our comparative advantages – including the reservoir of talent through immigration and international students; and being more open to working with new partners in the region (and accepting the fact these countries such as India, Indonesia etc will be different types of economic partners than the tigers of yesterday). We need to do all of this at the same time as preparing for kinetic warfare in the region – both as a deterrent but also as a real defence to threats. Who said foreign and trade policy was meant to be easy.
Brendan Augustin is the President of the Australia Institute of International Affairs (Western Australia) and a director of Bina Group Pty Ltd, a consulting company. He worked in the Department of Foreign Affairs and Trade (DFAT) from 1993-2007, during which time he had diplomatic assignments in Indonesia, Malaysia, Brunei and France. After leaving DFAT he worked in the natural resources sector both in Australia and internationally.
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