Paul Wallbank – Brilliant Communications

Category: economy

  • Australia in the Asian Century – Chapter Four: The outlook for Australia to 2025

    Australia in the Asian Century – Chapter Four: The outlook for Australia to 2025

    This post is one of the series of articles on the Australia in the Asian Century report.

    Chapter four of Australia in the Asian Century is the critical part of the white paper, describing where the opportunities and risks are for the nation as Asian societies become more prosperous.

    In the introduction to the chapter, “Australia’s 2025 Aspiration” is set out as raising per person income to $73,000 by 2025 and the nation’s living standards in the world’s top ten.

    While this is a noble target, the underpinning of that good fortune are more of the same;

    What will emerge as a result of these opportunities is that Australia’s trade patterns will change, urbanisation will continue to drive demand for resources and energy, and new opportunities will emerge in manufacturing and in high-quality food production. Rising incomes will also provide opportunities for the education and tourism sectors, and for services more broadly.

    Iron ore, coal and Liquid Natural Gas (LNG) are the basis of the projections in this chapter which, as discussed in the previous chapter, ignores alternative supplies from Africa, Mongolia and Central Asia along with the efforts of China to reduce energy density while expanding renewable power sources.

    Agriculture also has a role as does tourism and education but all of the projections are more of the same 1980s thinking we read in the previous chapter. There’s little that identifies new industries or the evolution of existing export agricultural industries such meat exports.

    The identification of risks to this rose coloured outlook skims over any internal issues such as drought, industrial disruption, a continued high exchange rate or any external factors.

    While the chapter does note the risk of commodity prices could fall further than expected, the consequences of this are dismissed with an airy reference to Australia’s fiscal position.

    While the chapter focuses on motherhood statements about innovation, research and development and ‘complex problem solving’ when looking at the opportunities there are some identifications of the real advantages Australia offers;

    Australian society reflects our multiculturalism. Australia’s socially cohesive and diverse nation is one of our enduring strengths. Our nation brings the values of fairness and tolerance to all its dealings in the region and the world.

    It’s a shame there isn’t more emphasis on this aspect as this is one of the areas where Australia can add value and has real competitive advantage.

    Overall, the Outlook described in Chapter Four of Australia in the Asian Century suffers from the same problem as the previous chapter of applying the 1970s and 80s experience with Japan and South Korea onto the development of China and India.

    What’s even more frustrating is the only specific projections are for more mineral and agricultural exports, everything else is wrapped in motherhood statements.

    The following chapters look at the specifics of Australia’s development and engagement with Asia over the next decade.

    Similar posts:

  • Australia in the Asian Century – Chapter Three: Australia in Asia

    Australia in the Asian Century – Chapter Three: Australia in Asia

    This post is one of the series of articles on the Australia in the Asian Century report. An initial overview of the report is at Australian Hubris in the Asian Century.

    The third Chapter of the Australia in the Asian Century report, “Australia in Asia” attempts to define the role the country currently plays in the region. In some ways this is the most constructive part of the paper in that it describes the lost opportunities of the last 25 years.

    Much of the early part of the chapter traces the development of Australia’s engagement with Asia after World War II; Chifley’s post war efforts with the United Nations, Menzies’ engagement with Japan, Whitlam’s going to China, Fraser’s opening to Vietnamese immigration and Hawke’s work on building the APEC agreement are all noted.

    Again are the major wars that also formed Australia’s current position in East Asia – World War II, the Malayan Emergency, the Korean and Vietnamese wars – are barely mentioned. This trivialises some of the major influences in today’s complex tapestry of relationships

    Of Australia’s closest Asian neighbour, the fall of Sukarno gets a brief nod but Suharto’s removal, the rise of Indonesian democracy and East Timor are all removed from the narrative. There is also no mention of other internal dislocations like the Cultural Revolution or the Indian Partition, all which still have echos today.

    In the introduction the Colombo Plan gets a mention and it’s worth reflecting upon its effects.

    When I worked in Bangkok in the early 1990s there were a number of business leaders who had been educated in Australia under Colombo Plan scholarships.

    That investment by Australia paid dividends through the 1980s and 90s as many of those scholarship students were ardent supporters of Australian businesses and government.

    One wonders how today’s students who’ve been treated as milk cows by Australian governments and “seats on bums” to education institutions will feel about the country when they enter business and political leadership positions over the next decade?

    The examples of Australian business engagement in Asia are interesting – Blundstone’s is a straight out manufacturing outsourcing story which doesn’t really describe anything not being done by thousands of other businesses while Tangalooma Island Resort is a light of hope in the distressed Australian tourism industry.

    A notable omission is how digital media, apps developers and service businesses are faring in Asia. There are many good case studies in those sectors but the writers seem to be, once again, fixated on the trade patterns of the 1980s and 90s rather than success stories in new fields and emerging technologies.

    Generally though the description of the Australian economy is again more of the same; a combination of self congratulations on having a government AAA credit rating, hubris over avoiding a GFC induced recession and stating how the services sector has risen to replace the manufacturing that’s been outsourced by companies like Blundstone.

    Overall Chapter Three of the Australia in the Asian Century report illustrates the opportunities missed in the last 25 years. Had this report been written twenty years ago it could have forecast a booming relationship in the services and advanced manufacturing sectors. It almost certainly would have included an observation that the days of the Australian economy depending upon minerals exports is over.

    What a difference a couple of decades make.

    The engagement of Australia with Asia concludes with a look at the changes to the nation’s immigration intakes and demographic composition. This point is, quite rightly, identified as an area of opportunity.

    Having Thai restaurants in every suburb and Indian doctors in most country town isn’t really taking advantage of the opportunities presented by having a diverse population and workforce. Chapter Four attempts to look at how these factors, and others, can help Australia’s engagement with the Asian economies.

    Similar posts:

  • Being careful what you wish for

    Being careful what you wish for

    Economist Yanis Varoufakis posted the conclusion of his speech to British Euroceptics this week with the warning “the cruellest God is the one who grants us our wishes”.

    In a time of austerity this is something we all should carefully consider. Some of these people need to be careful about their wishes;

    • Those renters hoping for property prices to drop 40% may get their wish, but such a crash will leave the economy in ruins and the renters themselves without a job to service their mortgage.
    • Landlords who fantasise about rents tripling, not realising that ripping disposable income out of their tenants’ wallets will also push the economy into recession and hurt their property values.
    • Politicians obsessing about AAA credit ratings without understanding that this locks a government into the narrow, failed ideologies of the ratings agencies – the world’s most incompetent and corrupt organisations.
    • Business leaders demanding that workers be thankful for getting $1 a hour, forgetting that Henry Ford started paying his workers so they could buy his cars and pay executive bonuses.
    • Retired folk reducing their assets to get pensions because “they’ve paid their taxes” who then find life on the aged pension isn’t so great after all.
    • Middle classes urging the government to subsidise their private school fees and medical insurance because “they pay their taxes” and end up paying even more taxes.

    Yanis himself is an interesting guy, having amongst other things taught economics in Sydney for 12 years before returning to Greece;

    In 2000 a combination of nostalgia and abhorrence of the conservative turn of the land down under (under the government of that awful little man, John Howard) led me to return to Greece.

    John Howard himself wished for Australia to return to the “white picket fence” conservative, insular nation of the 1950s. He got his wish and Australians decided they liked the past so much they decided to take the economy back to an 1850s structure of living off the sheep’s iron ore train’s back.

    Today Australia’s inward looking and insular with an economy increasingly based upon mineral exports and property speculation. With both the export markets and property prices now wobbling we might be about to find the cost of our wishes being granted.

    Similar posts:

  • Australia in the Asian Century – Chapter Two: The future of Asia

    Australia in the Asian Century – Chapter Two: The future of Asia

    This post is one of the series of articles on the Australia in the Asian Century report. An initial overview of the report is at Australian Hubris in the Asian Century.

    “Asia’s economic resurgence is set to continue” is the bold statement at the beginning of Chapter Two of the Australia in the Asian Century report and with that the chapter immediately falls back to warm motherhood statements;

    Average living standards are set to improve dramatically and transform the way people live and work. Asia’s economies are projected to expand at a strong rate. The region’s expansion and development will change the contours of Asia and the globe—opening up exciting new opportunities, while also posing some challenges.

    All of this is true, however the report struggles to identify exactly what those challenges and opportunities are as Asia develops and where Australians fit into the region’s evolving economy.

    Demographics will matter, but they are not destiny

    The constant mantra through the report is “demographics will matter, but they are not destiny.” Yet, despite the headline, Chapter Two illustrates that so far it has been destiny.

    Graph 2.6 of the report shows how Japan’s, and now South Korea’s, productivity has tailed off as the population has aged. This is to be expected when economic expansion has been based on labour intensive manufacturing, as China’s is today.

    Frustratingly, the report acknowledges this with the following paragraph;

    But the fruits of adopting new technology and adapting it will become harder to harvest. A point will come, though it’s still some way off, where the growth of labour productivity in developing Asian economies will slow—opportunities for gains from importing foreign technology and for shifting workers from agriculture to industry will diminish.

    “Some point in the future” doesn’t wash when the rest of the chapter shows off various ‘firm’ numbers estimating ‘base’, ‘low’ and ‘high’ growth rates. If you can quantify those growth assumptions, then it should be fairly trivial to estimate the turning point where aging populations start to affect China.

    Luckily others have done this work, the Australian Macrobusiness site suggests that turning point could be as early as 2015. In which case, unlike Japan and South Korea, China will have got old before it got rich.

    If this true, then IMF’s projected growth rates will miss their targets – particularly the ‘low growth’ scenario which is almost identical to their ‘base scenario’.

    Rise of the middle class

    Much of the emphasis in this view of Asia’s development is on the rise of the middle class and the report features a case study of Hitesh, a middle class stockbroker in Ahmedabad.

    While there’s no doubt Hitesh and his family’s income and standard of living are rising, the idea that several hundred million Indian and Chinese will jump to European or North American income levels before 2025 is improbable.

    Most stockbrokers in New York, London or Sydney earn between 30 and 300 times Hitesh’s $5,000 a year and in 2010, average Chinese income was a tenth of the US.

    Even if the Indian and Chinese middle classes did manage a tenfold growth in income over the next decade, the assumption they would adopt the debt driven high consumption patterns of the US or Australia isn’t a given as we see in how the Japanese middle classes haven’t aped the spending behaviour of their profligate Western friends.

    The credit and banking points in this chapter illustrate the hubris mentioned in my original overview of Australia in the Asian Century.

    And with financial systems in advanced economies unwinding the high debt levels built up before the Global Financial Crisis, financial institutions in stronger economic positions, such as those in Australia and elsewhere in the Asian region, will have opportunities to expand into new markets.

    Given the dire records of Australian banks in expanding overseas along with the “stronger economic position” being due more to government guarantees during the GFC and the desperate political desire to prop up Australia’s property market at all costs, it’s difficult to see exactly what Australian institutions have to offer Asian savers except to further underwrite the never ending down under housing bubble.

    Chapter two of the Australia in the Asian Century report finishes with an overview of the current geopolitical situation which is notable more for what has been left out. This is again probably due to Canberra public service politics and the report suffers for it.

    One major region left out is Central Asia and Russia – outstanding given the report’s view  that a resource poor Asia (that Japanese assumption again) will need Australia to fuel its energy and resources needs – which ignores the construction of pipelines and railways to China and India.

    Also missed are the projects to upgrade China’s railway and road links to Europe and Central Asia. These in themselves may trigger major geopolitical changes over the next few years, as we’re seeing today in Tibet and Xinjiang after railways were built to Kashgar to Lhasa. Yet none of this is considered.

    Not the ‘Stans should feel aggrieved, like the rest of the report the emphasis is on China and India with scant mention of other Asian countries.

    For Australia, much of the hope in the report seems to be in providing raw materials for Asia’s industrialising and urbanising societies along with being a holiday destination and education provider. This is all lazy 1980s thinking which projects Australia’s Japanese experience of thirty years ago onto China and India today.

    The predictions of Asia’s future in the Australia in the Asian Century report are largely are a continuation of the status quo. If this report had been written in 1960, it may have picked the rise of Japan over the following twenty years but the main focus would have been on Burma as Asia’s richest independent country.

    Exacerbating the report’s weakness are the assumptions that development paths will follow the same course as Japan, Taiwan or South Korea in the late 20th Century.

    Development wasn’t a smooth path in all three of those countries and each had their own unique political and economic upheavals in that time, the failure to recognise that similar disruptions will happen in Asia’s emerging economies as they develop is probably the greatest weakness in the entire report.

    It’s very easy to draw straight lines on graphs based on ‘best case’ IMF projections but history is rarely linear. This is probably the greatest intellectual failing of the white paper.

    Similar posts:

  • Australia in the Asian Century – Chapter One: The rise of Asia

    Australia in the Asian Century – Chapter One: The rise of Asia

    This post is one of the series of articles on the Australia in the Asian Century report. An initial overview of the report is at Australian Hubris in the Asian Century.

    “Just over two decades ago, the Australian Government commissioned a study of Australia and the Northeast Asian ascendancy” starts the opening of the Australia in the Asian Century report. That sentence describes how this paper is the latest of Australia’s earnest efforts to understand the region.

    The opening chapter of the report follows the sensible principle that to plan for the future we have to first understand the present so this section seeks to explain the development of various Asian economies and put those changes into an Australian perspective.

    Notable in the narrative is the North East Asian focus, while India gets a brief mention most of the story revolves around the development of China, Hong Kong, Japan and South Korea. Chart 1.2, “Asia’s economic dividend” gives the game away when all but one ‘Asian’ country listed is East Asian.

    Russia, along with most of South and Central Asia – not to mention other Asia countries like Iran, Turkey and the former Soviet Republics – rate no mention all.

    The narratives around the countries which are covered is also deficient – for instance the discussion on Japan’s, South Korea’s and Vietnam’s developments totally ignore post-war reconstruction efforts and their relations with the United States.

    China does get a more detailed examination rightly noting it was the country’s admission to the World Trade Organisation in 2001 that really set the economy’s export sector moving, however it skates over the massive dislocations and market reforms introduced in the 1980s which laid the foundations for China’s successful bid to join the WTO.

    More notably, the analysis overlooks – probably to avoid upsetting PRC diplomats and making life difficult in Canberra – the role of Taiwanese investment in China and Taiwan’s development itself.

    In a similar vein the scant discussion of India misses the role of Non-Resident Indians (NRIs) in the country’s economic development along with the concentration of power in the various industrial conglomerates like the Tata Group.

    Again, the same omission is made when discussing the South Korean Chaebols and Japanese Keiretsu. Given the investments made in Australia by all of these industrial conglomerates it’s curious they barely rate a mention in discussing Asia’s industrialisation process.

    The discussion on innovation in Chapter 1.3 is useful however it lacks substance in identifying exactly which sectors various Asian economies are specialising in and which industries are in decline as various countries move up the value chain.

    Singapore’s success in becoming East Asia’s hub for banking and corporate regional headquarters is a notable omission and again one has a suspicion this is because of ongoing Australian governments’ doomed ambitions to establish Sydney as a regional financial and business centre.

    Probably the most glaring omission in Chapter One though is the role of the United States. In tracking the rise of the Indian service sector or Chinese, Japanese and South Korean manufacturing the trade policies of the US cannot be ignored. And yet they largely are.

    That failure to acknowledge the US role means report overlooks the Clinton and Bush I Administrations’ forced opening East Asia’s largely closed economies which radically changed South Korea, Taiwan and Japan in the late 1980s and early 90s. Not to mention the critical role the US had during that period in allowing China and Vietnam to join the global trade networks.

    Chapter One of Australia in the Asian Century is an unsatisfactory introduction to the complexities of the Asian economies and one suspects is because of the compromises made to assuage the egos and groupthink of Canberra’s mandarins and politicians.

    Most importantly, it fails to put the last thirty years’ developments in Asia into an Australian context or perspective. In this respect, it’s a fitting start to a largely inadequate report.

    Similar posts: