Category: Australia

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.

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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.

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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.

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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.

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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.

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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.

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Google announces eTown awards for Australian towns

How prepared are communities for the digital economy?

I don’t normally post media releases onto the site, but it appears there’s no posting of the Google eTowns announcement. As I’m writing a story for Technology Spectator on it, here’s the release.

One thing that leaps out when reading the media reports on this is how many outlets just copy and paste. Only the Fairfax entertainment reporter went to the effort of rewriting the release and adding some additional context. You have to wonder how long ‘churnalism’ can survive given readers are onto this laziness.

 

EMBARGOED UNTIL THURSDAY 30th AUGUST, 4:30PM (EST)

 

Perth wins top spot in Google’s eTown Awards

Western Australia capital beats out eastern states as centre of digital boom

Perth leads the list of Australia’s top 10 eTowns, Google announced today. This new Google award recognises and ranks those communities which are outpacing the rest of the country in having its small businesses use the web to connect with customers and grow.

The web is transforming all businesses in Australia, not just those typically considered to be “Internet businesses”. The digital economy is already worth as much as Australia’s iron ore exports, according to Deloitte Access Economics, and it’s forecast to grow by $20 billion to $70 billion by 2016.

To provide a snapshot of this vital economic activity, Google looked at more than 600 local government areas to analyse which communities are contributing the most to the digital economy. The top 5 metropolitan and top 5 regional eTowns for 2012 are:

Metropolitan

  1. City of Perth, WA
  2. City of Yarra, VIC
  3. City of Adelaide, SA
  4. North Sydney, NSW
  5. Ryde, NSW
 Regional

  1. Byron Shire, NSW
  2. Meander Valley, TAS
  3. Cessnock, NSW
  4. Wingecarribee Shire, NSW
  5. Scenic Rim Regional Council, QLD

Federal Small Business Minister Brendan O’Connor, who is launching the inaugural eTown Awards at an event in West Perth today, said;

“The digital economy is fuelling Australia’s economic growth and it’s important businesses of every size are well equipped to take advantage of the potential.  I hope this award encourages other small businesses to get online to connect with people who are actively looking for their products and services.”

Perth’s Lord Mayor Lisa Scaffidi said, “Perth may be known for its mining boom but this award shows that our businesses are actively grabbing hold of the digital boom. The City of Perth is proud of its eTown Award and I am delighted to represent an area whose businesses are so connected with both their local community and the entire world thanks to the web.”

Online advertising is a growing phenomenon and Google, through its online advertising and other services, is in a good position to act as a barometer for the strength of this commercial activity – particularly in small businesses. To come up with the eTown Awards list, Google analysed data on the number of local businesses in each local government area which are advertising with Google AdWords and/or have created a free website using Google and MYOB’s Getting Aussie Business Online initiative.

Byron Shire, home to the popular holiday destination, leads the regional eTowns list with a high proportion of accommodation, recreational hire and tours providers using the web to drive their businesses.

Claire Hatton, Head of Local Business for Google Australia said, “The eTown Award winners show that anyone anywhere can reap the benefits of the digital economy. These days being on the web is as important as having a phone. Australians expect to be able to seek out products and services online, and local businesses need to be found to compete.”

For more information about the eTown Award winners and for case studies on how local businesses are succeeding online and driving economic growth, visit www.google.com.au/ads/stories [NB: website will be available after embargo lifts].

Media are invited to attend the announcement of the eTown Awards with the Minister for Small Business, Perth’s Lord Mayor and Google Australia.

Local businesses located in each eTown may be available for interviews.

Thursday, 30th August at 2:00pm – 3:00pm
The Yoga Space
Shop 11, Seasons Arcade,
1251 Hay Street, West Perth.

To RSVP to the event or for interviews please contact:

Redacted

Notes to Editors

  1. AdWords is Google’s online advertising system which enables businesses of all sizes to advertise relevant text ads next to Google search results. Businesses decide the text and their budget and only get charged when someone clicks on their ad.
  2. The Google eTown award top ten list was created by comparing the number of small and medium sized enterprises that used AdWords in each local government area and/or have created a website using Google/MYOB’s Getting Aussie Business Online. The results have been normalised for the relative population of each LGA.

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