Category: Australia

Running out of luck

Is Australia’s luck running out in the digital and Asian economy.

Last week I was lucky to get along to Digital Australia and Emergent Asia panel held at PwC’s Sydney office where the panel looked at how Australia’s industries are adapting to the digital economy and evolving Australian markets.

The outlook from the panel was generally downbeat about the ability of Australia’s business leaders and politicians to adapt to the changes in the global economy although there were some optimistic points about the resilience and flexibility of the nation.

I did a write up for it on Technology Spectator which is online at It’s Not Good Enough To Be Clever

The challenge is on for Australia’s business leaders – let’s see if they are up to it.

Australia in the Asian Century – Chapter Six: Building capabilities

How can Australia build a productive workforce to take advantage of the Asian Century

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

Of all the chapters in the Australia in Asian Century discussion paper, Chapter Six has probably attracted the most opprobrium because of the fine words which haven’t been matched by government policy and action.

Parts of this chapter have a strong “school marm” tone as it tries to mandate the composition of company boards or the locations of where students will study. Overall though, most of the objectives are either motherhood statements, impractical or at odds with the actions of both state and Federal governments.

National objective 9. To build the capabilities of Australian students, Australia’s school system will be in the top five schooling systems in the world, delivering excellent outcomes for all students of all backgrounds, and systematically improving performance over time.

  • By 2025, Australia will be ranked as a top five country in the world for the performance of our students in reading, science and mathematics literacy and for providing our children with a high?quality and high?equity education system.
  • By 2015, 90 per cent of young Australians aged 20 to 24 years will have a Year 12 or equivalent qualification, up from 86 per cent in 2010.
While these objectives are worthy, there’s little discussion of exactly how this will be achieved beyond broad statements. Again it’s notable that these aspirations are being laid out at a time when funding is being cut and staff retrenched in both state and Federal government education departments.

National objective 10. Every Australian student will have significant exposure to studies of Asia across the curriculum to increase their cultural knowledge and skills and enable them to be active in the region. All schools will engage with at least one school in Asia to support the teaching of a priority Asian language, including through increased use of the National Broadband Network.

Says who? Who exactly is going to force a school to engage with at least one school in Asia? These are the sort of broad brush statements that detract from the report.

These kind of statements are the “thought bubble” approach to policy that marks much of what passes for governance in Australia today and such poorly thought out programs end up at best wasting money. At worst, the unintended consequences of a ‘policy’ thought up on the back of beer mat end up causing more damage than good.

Such a program could work well if properly thought out and integrated properly into the long term curriculum of the students but it would take proper leadership from state and Federal education ministers.

National objective 12. All students will have access to at least one priority Asian language; these will be Chinese (Mandarin), Hindi, Indonesian and Japanese.

This is good and fair, but is something that was supposed to have been put in place thirty years ago. Instead the proportions of students studying Asian languages has steadily dropped.

As newspapers have reported there are barely a dozen Hindi language teachers in New South Wales, so the priority needs to be training teachers to deliver the courses.

Such inconvenient logistical problems are an excellent example of those well meaning but poorly thought through “thought bubbles.”

National objective 12. Australia will remain among the world’s best for research and teaching in universities, delivering excellent outcomes for a larger number of Australian students, attracting the best academics and students from around the world and strengthening links between Australia and the region.

  • By 2020, 20 per cent of undergraduate higher education enrolments will be people from low socioeconomic backgrounds, up from 17 per cent in 2011.
  • By 2025, 40 per cent of all 25 to 34?year?olds will hold a qualification at bachelor level or above, up from 35 per cent in 2011.
  • By 2025, 10 of Australia’s universities will be in the world’s top 100.
  • A larger number of Australian university students will be studying overseas and a greater proportion will be undertaking part of their degree in Asia.
This objective really smacks of poorly thought out ideas on the run and illustrates starkly the differences between the well meaning objectives and the behaviour of governments.
It’s almost impossible for ten of Australia’s universities to make it into the more reputable measure of top 100 universities when for the last three decades research and post graduate programs have been slowly strangled by falling government funding.
Even if a Gillard government were to change that trend, it’s unlikely Australian universities could make up the lost ground in 13 years.
Mandating that “a larger number of Australian university students will be studying overseas and a greater proportion will be undertaking part of their degree in Asia” is nice but who is going to force students to study overseas and specifically in Asia?
More to the point, what are notoriously conservative Australian employers going to do with all these graduates of Asian universities?

National objective 13. Australia will have vocational education and training systems that are among the world’s best, building capability in the region and supporting a highly skilled Australian workforce able to continuously develop its capabilities.

  • By 2020, more than three?quarters of working?age Australians will have an entry?level qualification (at Certificate III level or higher), up from just under half in 2009.
  • Australia’s vocational education and training institutions will have substantially expanded services in more nations in the region, building the productive capacity of the workforce of these nations and supporting Australian businesses and workers to have a greater presence in Asian markets.
Given the week before the Gillard government cut apprenticeship funding and the NSW government announced it was further emasculating its state TAFE system a few days after the report was released, this objective can be treated purely empty words.

Business capacity

One of the reasons why Australia engaged so little with Asia over the last twenty five years is because the business community became focused inwards rather looking for opportunities in foreign markets. So the idea of getting more Asian experience into boardrooms is laudable but the solutions proposed impractical.

National objective 14. Decision makers in Australian businesses, parliaments, national institutions (including the Australian Public Service and national cultural institutions) and advisory forums across the community will have deeper knowledge and expertise of countries in our region and have a greater capacity to integrate domestic and international issues.

  • One?third of board members of Australia’s top 200 publicly listed companies and Commonwealth bodies (including companies, authorities, agencies and commissions) will have deep experience in and knowledge of Asia.
  • One?third of the senior leadership of the Australian Public Service (APS 200) will have deep experience in and knowledge of Asia.
This objective has drawn a lot of scorn from the business community and for good reason – how is a Federal government going to mandate that a third of the ASX200 will have “deep experience and knowledge of Asia”?
While the aim of having a third of the senior public service possessing Asian experience is worthy, this is almost impossible given the deadline for this is thirteen years away, any bureaucrat hoping to have “deep experience and knowledge of Asia” would have had to have been working on it for the last five or ten years. If this program isn’t in place now, it isn’t going to happen.

Society

Probably the biggest strength of Australia as a nation is in its diverse and relatively tolerant society so this section of the report is notable for what it misses in opportunities.

National objective 15. Australian communities and regions will benefit from structural changes in the economy and seize the new opportunities emerging in the Asian century.

Another worthy aim and its notable that the region cited in the case study is Darwin, a city whose economy is being wildly distorted by the LNG boom which is driving up prices and labour costs. If anything Darwin is an example of Australia turning its back on opportunities and focusing on a quick, resources driven buck.

National objective 16. By preserving and building on our social foundations, Australia will be a higher skill, higher wage economy with a fair, multicultural and cohesive society and a growing population, and all Australians will be able to benefit from, and participate in, Australia’s growing prosperity and engagement in Asia.

Cant and motherhood statements as one would hope all government seek to build a fair and cohesive society on our social foundations. It’s interesting that much of the poorly thought out, short term tactics by publicity hungry politicians probably does more to damage Australia’s institutions than other factors.

Overall this chapter deserves to have drawn the most criticism with its motherhood statements and wholly unachievable aims.

Most disappointingly, it skates over Australia’s diverse workforce and provides no ideas on how to harness the talents of the country’s ethnic groups in building ties and improving the nation’s skills.

Image of the Harbin Snow and Ice Festival from EmmaJG on Flickr

Australia in the Asian Century – Chapter Five: A productive and resilient Australian economy

Is Australia’s economy as strong as we think in the Asian Century?

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

Chapter five of Australia in the Asian Century looks at the domestic settings the nation needs to achieve the “2025 apirations” described in Chapter Four.

To do this lays out a number of national objectives to achieve Australia’s 2025 Aspirations which are at least ambitious. These include education, innovation, infrastructure, communications and tax.

Education

National objective 1: All Australians will have the opportunity to acquire the skills and education they need to participate fully in a strong economy and a fairer society.

Probably the most worthy of the report’s objectives is to improve the nation’s already good level of education. Unfortunately the detail in the report is lacking beyond rehashing existing programs.

These programs do cover important initiatives such as improving literacy rates amongst the disadvantaged which is essential if Australia is going to address its poor participation rates which are going to be one of the major domestic challenges for the country in the 21st Century.

At the other end of education though there is little more than empty words as the discussion of workforce training is rendered hollow by the decision to further cut back apprenticeship training and universities find their funding continually reduced making it less likely they can get into the world’s top rankings.

Most importantly, there is little space given to addressing Australia’s poor performance in the STEM – Science, Technology, Engineering and Mathematics – subjects.

Innovation

National objective 2: Australia will have an innovation system, in the top 10 globally, that supports excellence and dynamism in business with a creative problem-solving culture that enhances our evolving areas of strength and attracts top researchers, companies and global partnerships.

More fine words but this commitment to ‘innovation’ is again hollow when the Federal government cuts commercialisation incentives and export program.

Any talk of encouraging innovation is pointless anyway without reforming the nation’s tax system which currently favours asset speculation over building productive businesses and products – we’ll come to the tax impasse later.

Infrastructure

National objective 3. Australia will implement a systematic national framework for developing, financing and maintaining nationally significant infrastructure that will assist governments and the private sector to plan and prioritise infrastructure needs at least 20 years ahead.

This section is a sour sick joke which illustrates all that is wrong with Australian governments at all levels. Infrastructure planning for the next 20 years should largely be in place now and the fact it seen as being a national objective by the authors of this report

At best this section of the report reads like an ode to the corporatist ideologies of the 1980s and in fact illustrates exactly where Australia lost its way in the 1990s as the country’s business leaders realised that Asia was too hard when there were easy pickings in convincing gullible Liberal and Labor governments into selling assets cheaply and exploiting the resultant monopolies.

Communications infrastructure

National objective 4. Australia’s communications infrastructure and markets will be world leading and support the rapid exchange and spread of ideas and commerce in the Asian region.

This is a fine objective and may be achievable if the National Broadband Network is rolled out on time and isn’t affected by poor management decisions or gutted in an act of political bastardry by a future Liberal government.

Hopefully this is one are where actions will meet the the report’s words.

Taxation

National objective 5. Australia’s tax and transfer system will be efficient and fair, encouraging continued investment in the capital base and greater participation in the workforce, while delivering sustainable revenues to support economic growth by meeting public and social needs.

In 2007 the then Labor Prime Minister Kevin Rudd appointed Ken Henry to review the Australian tax system. That report was comprehensively ignored and the effects of the political bumbling around that lead to Rudd’s axing as Prime Minister and Gillard’s incompetent half-baked Mining Tax.

To have an efficient and fair tax system which encourages investors and workers should be a given. That it has to be spelt out, and then ignored, probably illustrates the greatest failure of Australia’s political and business leaders.

Australia’s current tax system is probably the economy’s greatest weakness as much of the resilience boasted of in the report is based around stimulating the housing market, the wealth effect in turn is reflected in the country’s affluence measures.

Reforming the Australian tax system to favour workers and investors over property speculators is going to require great strength by the politicians who attempt to do it and they’ll need the reform of business leaders and the financial media. None of these three groups have the courage or integrity to be trusted to carry this out in the next 15 years.

Reforming regulation

National objective 6. Australia will be among the most efficiently regulated places in the world, in the top five globally, reducing business costs by billions of dollars a year.

Possibly the greatest hubris in today’s Australia is about the efficiency of the nation’s regulators. In reality Australia is a country that’s quick to legislate but slow to regulate.

We’re very good at passing laws and regulations, not to mention building bureaucracies of thousands of memo writers to oversee these rules, but we aren’t very good at actually enforcing them.

Real reform in regulation is essential to a resilient Australian economy, but like taxation reform this is a complex and thankless task for any politician who attempts it.

Sustainability

National objective 7. The Australian economy and our environmental assets will be managed sustainably to ensure the wellbeing of future generations of Australians.

A worthy objective – unfortunately the ideological war that saving the Murray-Darling has become, the bitter argument over the carbon tax and Australia’s rejection of clean tech entrepreneurs makes one wonder exactly where the country can have a competitive advantage in this area.

One rare note of warning with this report identifies sustainability issues as affecting Australia’s ability to supply food to the growing Asian economies. This is a fair warning but its unlikely opportunistic politicians at all levels care too much to distract them from politicising discussion on the sustainability of various Australian communities and industries.

Sound economic policies

National objective 8. Australia’s macroeconomic and financial frameworks will remain among the world’s best through this period of change.

Approaching this section fills one with dread at the prospect with being served up with more hubris wrapped around Australian exceptionalism.

While the section doesn’t disappoint in this aspect, the writers have identified serious weaknesses in the funding structures and regulation in the capital markets. This probably reflects Ken Henry’s background in the Treasury.

The not unexpected emphasis on AAA credit ratings and the size of the Australian superannuation industry make one wonder why we bother with restrictive economic policies when we clearly have the capacity to fund productive national investment.

All the criticisms of the earlier parts of this chapter flow from this bizarre form of Australian Austerity that has crippled investment in education and infrastructure over the last thirty years and ditching that mentality could be the greatest reform of all.

Every objective objective in the chapter is worthy and true, but state and Federal government actions are acting directly in the opposite direction to the stated intentions of the chapter. The introduction says;

We have made substantial reforms and investments across the five pillars of productivity—skills and education, innovation, infrastructure, tax reform and regulatory reform—and these efforts will continue.

This is not true – in almost every single one of these areas, Australia has been at best treading water. Just in the weeks before this report was released the Federal government’s mini-budget further cut innovation incentives.

The New South Wales government announced in the week the report was released that it would de-skill the state’s workforce even further by following the TAFE “reforms” introduced by Victoria and Queensland which have seen industry training reduced to churing out pointless barista and nail grooming certificates.

At the same time, the regulation “reforms” introduced by successive Liberal and Labor governments at state and Federal levels have followed the 1980s ideologies of gifting assets to ticket clipping managerial and banking classes. Nowhere is this more apparent in the debacle of Australia’s soaring power bills which are becoming a real competitive disadvantage to the nation.

Infrastructure is probably the biggest failure of successive governments, the same corporatist ideologies of the Liberal and Labor Parties of the last 30 years have prevented the construction of infrastructure beyond toll roads which favour the same ticket clipping bankers.

Much of Australia’s core transport infrastructure such as power companies, railways and ports have been sold off to the ticket clippers who have in turn “sweated” these assets by charging monopoly prices while spending the bare minimum to keep them running.

At present Australia has a resilient and productive economy, as did Ireland and Spain before the economic winds turned against them. It’s hard not to think that if a similar report had been written in Madrid or Dublin five years ago the same chapter would have read much the same as Australia’s today.

The big challenge will come for Australia when China, India, South Korea or Japan hit a tough spot.

Even with the rose glass projections of the previous three chapters of Australia in the Asian Century, it’s at least reassuring there are a few notes of warning in this section of the report.

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

Chapter Four of Australia in the Asian Century charts where the economies will be engaging over the next decade.

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.

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

Chapter two of Australia in the Asian Century attempts to predict the development of the region’s economies over the next decade

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.

Being careful what you wish for

Sometimes its best our wishes don’t come true

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.

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

Chapter two of Australia in the Asian Century attempts to predict the development of the region’s economies over the next decade

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.

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

Chapter one of Australia in the Asian Century looks at how the region’s economies developed

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.

Australian Hubris in the Asian Century

Australia in the Asian century is the story of opportunities missed.

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

The release of the Australia in the Asian Century discussion paper today raises the question of where the country sees itself and where it is going. It lets us down on many levels.

While there’s a lot more to discuss in the paper, which I’ll do over the next few days, there’s a few issues that come to mind on first reading.

The reliance on mining

A constant  in the discussion about Australia’s future is the continued mining boom. This was the underlying theme of Monday’s Mid-Year Economic Outlook and is also the case in the Asian Century paper. Here’s chart 4.4.2 from the document which shows the forecast makeup of Australia’s exports.

Today mining exports are shown as being just over 50% of Australia’s trade with Asia and have mineral income growing to well over 60% of trade by 2025.

What is frightening about this is the belief across Australia’s political and business leaders that the mining boom is here to stay and will continue to keep growing.

Little risk analysis

Also notable about the report is how little acknowledgement of risk there is in the document. Most of the risks are dismissed in six paragraphs in Chapter 4.4

Geopolitical risk does get its own chapter, but even there most of the challenges are glossed over. Eventually most of the risks are dismissed with this line.

None of these developments of themselves make major power conflict likely—in some important ways they will probably act as a constraint. All the major powers recognise how interdependent their economic interests are.

This is reminiscent of the line used in the late 1980s – “no two countries with a McDonalds have ever gone to war against each other.” A glib nonsense which ceased to be true when NATO attacked Serbia in an effort to stop the massacres of the Yugoslavian disintegration.

Trivialising the big risks

Had anyone predicted in 1986 that within five years, there would be a bloody civil war in Yugoslavia, the Eastern Bloc collapse and the Russian Empire’s eagle replace the hammer and sickle on the Kremlin they would have been dismissed as fools.

Yet that is exactly what happened.

The risk of instability within the People’s Republic of China isn’t mentioned or even the effects of what a collapse of North Korea would mean to South Korea – another key Australian mineral market – both of which would have massive effects on Australia’s export markets over the next decade.

While I’m certainly not forecasting the collapse of either the DPRK or the Communist Party of China in the near future, these are massive risks to any plan which purports to look at the next decade. Ignoring them or trivialising them does not help the paper’s credibility.

Australian hubris

Most notable in the white paper is the tone of Australian Exceptionalism through the commentary. In the Prime Minister’s speech she said “we are the nation that stared down the economic crisis.”

Calling massive stimulus packages, reinflating the property market and guaranteeing bank liabilities is hardly ‘staring down’. Australia’s avoiding going to into recession after the 2008 crisis was due to the “go early, go hard” philosophy of pumping money into the economy which was learned by Australia’s bureaucrats in the 1990s recession.

That policy worked to stave off recessions during the Asian currency crisis of 1998, the Long Term Credit Bank collapse and the post September 11 uncertainty. It worked on massive scale during the post-Lehmann Brothers collapse.

Crediting Australia with some sort of miracle economy is hubris on a grand scale and hardly the basis for developing a sensible plan to guide us through the next decade.

What is Australia’s competitive advantage?

Essential to understanding where the nation can prosper from the rise of Asian economies is where our current strengths lie. Apart from empty phrases on “skilled workforces” and “new opportunities will emerge in manufacturing” there’s no explanation of exactly where Australia can profit from these.

In fact most of the case studies refer to Australian companies outsourcing or Asian trading patterns that really don’t need any skilled or valued added contribution at all, a case in point is the story of ‘Hitesh’, one of India’s rising middle class.

Hitesh, 31, is a stockbroker in a firm that he opened with his friend several years ago. He brings in an annual income of US$5,280, placing his family squarely in the middle of Ahmedabad’s middle class.

Nowhere does the case study explain exactly what Australia can offer him – the air conditioners and cars certainly won’t be made or designed in Australia and his daughters’ educations in 2025 might well come through the internet from MIT or the London School of Economics instead of them flying to Melbourne to drive taxis and do barista courses in the hope of getting Australian permanent residency.

In fact if anything, it’s difficult to see why an Asian company would choose to do business with an Australian stockbroker when they earn thirty to a hundred times more than Hitesh.

1980s thinking

Much of what is in the white paper is what we’ve heard before in the 1980s – back then it was Yuske in Nagoya who was going to buy our wine and come to the Gold Coast for holidays.

There’s nothing in the projections we haven’t heard before, except today we’ve squandered two decades of opportunity by ramping up our property markets and building an unsustainable middle class welfare state.

Sometime in the 1990s – possibly around the time of John Howard’s election – Australia turned inwards and insular. We had the opportunity  to position Australia as a credible mid-level power in the region but we chose instead to renovate our kitchens.

That opportunity has been lost and repeating the mantras of the 1980s with the words ‘China’ and ‘Chinese’ substituted for ‘Japan’ and ‘Japanese’ won’t cut it.

Australia in the Asian Century was an opportunity to show some vision and stake a claim on sharing some of the 21st Century’s riches. Instead the writers chose to give us platitudes underpinned by the certainties of a never ending economic boom.

What are businesses thinking about?

The City of Sydney Business Awards recognised the best of the city’s commercial communities, but what’s going through the minds of the finalists?

Last night the Sydney Business Awards honoured the city’s best enterprises at a gala dinner where a whole group of great businesses were acknowledged for their great work.

The awards were the result of a three month process where the public voted on several hundred businesses to determine ten finalists in each category. The finalists were then evaluated by judges for each category. I judged the Online Business group.

The Events Agency who organized the awards today sent me a word cloud taken from the winners’ entry forms. This illustrates what the entrants were talking about in their submissions.

A wordcloud of the Sydney Business Awards winners entries
The word cloud of the Sydney Business Awards winners’ entries.

Staff is the biggest issue for businesses, followed by the two instances of ‘increase’ caused by one having a capital and the other not. If we combined the two instances ‘increase’ would probably be the biggest word.

Given training is one of the other big words we can see the real challenge is training up staff. Marketing and funding also figure prominently.

While basic and from a very narrow survey base, that word cloud gives us some ideas of what worries business owners and a base to start answering those challenges.

The word cloud also explains why education, training and industrial relations are such important issues to the business community which is something both politicians and the media should consider.

Overall the quality of the businesses entered into this year’s awards was terrific. In the online section I really struggled to separate the great finalists and there was very little between Appliances Online who won the category and the two runners up.

What’s also interesting is how many of the finalists in other categories had strong online presences, illustrating how the web is important for all businesses.

Congratulations to all the entrants and particularly Climate Friendly who not only won the main Business Award but also the Sustainability and Environmental awards. Glebe Medical Centre was the winner of the Small Business Award and the Healthcare and Fitness category.

For those who didn’t win this year, it’s worth entering next year as good businesses only get better with time. Hopefully we’ll see your business or vote next year.

A swelling feeling of pride

How much pride can we take in the work we do?

Doctor John Bradfield shaped modern Sydney. His program of public works, such as building the Sydney Harbour Bridge and the city’s railway network served the city for nearly a century.

The picture of him from the NSW State Records archives riding the first train across the Harbour Bridge shows him swelling with pride. And so it should.

What we need to ask ourselves is whether our works could survive a century of massive change and become an international icon as the Sydney Harbour Bridge did.

If we can just strive toward that – even though most of us will fail – we can be proud of our works as Dr Bradfield was when he rode that train across the Harbour Bridge.

Travel review – Jetstar JQ406 Sydney to Coolangatta

Jetstar delivers on the low cost operator promise, just don’t expect anything more than a flight.

One of the delightful aspects of the low cost airline model is the contempt management has for their customers.

That scorn for the people who fund management’s salaries is guilty pleasure to watch on a third rate TV “reality” show, but it’s not fun when you’re on the receiving end.

So with a fixed smile and a grim determination not to to let the bastards grind me down, I headed to Sydney Airport to catch Jetstar’s flight JQ406 to the Gold Coast

Check in

It’s no conincidence people make reality TV shows documenting the clash of penny pinching, ticket clipping corporatism with the modern lumpenproletariat; the queues are long and the tempers are frayed.

The key to your temper surviving Jetstar’s check in is not to have checked baggage so you can dodge the general grumpiness in the queues.

Otherwise have your all your documents handy when you get to the check in clerk as they are quite friendly once they realise you aren’t going to mess them around.

Seats

A positive with Jetstar is the seats are spacious and comfortable compared to their Virgin competition and Qantas cousins.

While seat comfort isn’t an issue on a one hour flight it is a plus on longer flights and actually makes Jetstar a reasonable choice if you want to sleep on a ‘red eye’ from Perth.

Meals

As a low cost airline, meals and drinks are an extra charge on Jetstar and really who can be bothered on a mid-morning one hour flight?

During the Flight

An irritation with JQ is the early “turn of electronic devices” policy that sees cabin crew telling you to turn off devices the moment the plane starts its descent.

On short trips this weird policy means as little as twenty minutes time available to use a laptop or tablet, if you want to work on your flight then choosing Virgin or Qantas will give you more time to get things done.

On arrival

Baggage collection was surprisingly slow for a relatively quiet airport and Coolangatta Airport’s management save a few bucks by opening a minimum of luggage carousels which can cause crowds if two flight arrive at once.

Getting away

Coolangatta Airport is a delight for transport with plenty of taxis, including Maxi Cabs that seat half a dozen people and a regular city bus service that runs the length of the Gold Coast.

Overall Jetstar delivers what it promises, an 21st Century air flight that does its best to imitate a 20th Century bus.

If there is an alternative at a reasonable cost then go for it, otherwise accept the low prices and avoid checking baggage.

Paul travelled to the Gold Coast courtesy of Microsoft to attend their Australian TechEd event.