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The Australian Century?

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COMMENTS

18 May 2012 09:26

I've got a couple of upcoming talks at Bruegel and Chatham House. Bearing in mind Daniel Woker's point about European perceptions of Australia, I've been thinking about content. 

My pitch is going to be that Australia provides a useful perspective on the changing nature of the global economy. In those moments when we aren't fretting about Eurogeddon, we still spend a lot of time discussing the connected ideas of a new international economic order, the shift of economic power to emerging markets, and the arrival of the Asian Century – a combination I have taken to describing as 'our consensus future'

There's plenty of discussion as to what all this will mean for the developed world, and I reckon Australia makes for a particularly interesting case study. After all, our economy is now tied closely to developments in the leading emerging power: last year China accounted for more than one in five dollars of our international trade, and in recent years Australia has been one of Beijing's most favoured destinations for non-financial foreign investment. Australia's comparative advantage – and hence the very structure of our economy – is being reshaped by China's appetite for resources.

Meanwhile, some of our policy frameworks – particularly those around the management of inward investment – have been challenged by the deepening of bilateral economic ties. And, quite notably as far as the developed world goes, we have turned out to be one of the big winners of the emerging economic order. Which prompts two further sets of thoughts.

First, there's the way in which this shifting economic order has helped to offset or even to completely reverse what were once thought to be fundamental weaknesses in Australia's economic position. 

For instance, Geoffrey Blainey said 'distance is as characteristic of Australia as mountains are to Switzerland', and Australia's economic performance has long been influenced by its remoteness from economic activity in the rest of the world. The rise of Asia is changing this. In the 1950s, only about 15% of world GDP was located within 10,000km of Australia. By 2010, about one-third of world GDP fell within the 10,000km range. If emerging Asia keeps growing, by 2050 that figure could be almost as high as two-thirds of world GDP.

Australians also used to fret about living in an old resource-based economy that was being left behind by the shiny new economics of the IT revolution. Now? Not so much. In a world marked by the rapid industrialisation and urbanisation of some of the most populous countries on the planet, it turns out that it can be a good thing to be a resource-rich country.

This leads neatly to the second idea, which is that Australia has been positioned rather nicely to do well from the emerging economic order. Think about it this way. Assuming you wanted to design an economy from scratch to benefit from a development like the Great Convergence, what might you come up with? 

Well, you might think that lots of resources would be a good start to power all that development. But in order to avoid the resource curse you would also want the right institutions in place. Since you don't want to risk being a one-trick pony, you could think about supplementing those resources with some of the kinds of things – education, tourism – that a new middle class will want to purchase. You wouldn't want a lot of mass manufacturing that will be subjected to intensive competition from the new industrialisers. And you might want to be located close to the action, but not too close. Taken together, this isn't a terrible description of Australia.

So will the Asian Century also be the Australian Century? It's possible, but to state the blindingly obvious, no certainty. For a start, there is absolutely no cast-iron guarantee (forgive the pun) that we'll actually get the Asian Century we all expect. Forecasters have been known to get things wrong, after all. Moreover, even if we get our forecasts right, there's also no guarantee that Australia will be able to meet all of the challenges involved to make the most of the opportunity. But it's still a possibility...

Photo by Flickr user RaeAllen.

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