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Economic diplomacy: Diversification dilemmas

A farmer sprays his crop in Dungowan, north-west New South Wales, Australia, May 2020 (Mark Kolbe/Getty Images)
A farmer sprays his crop in Dungowan, north-west New South Wales, Australia, May 2020 (Mark Kolbe/Getty Images)
Published 2 Jul 2020 16:00   0 Comments

Costing the D word

Diversification might be the word of the moment in the lexicon of Australian trade debate, even though few advocates make much attempt to explain how it will actually work.

But now we have two interesting efforts to quantify just how selected reductions in trade with China in different sectors might actually play out in terms of overall costs to Australian – and, for that matter, Chinese – living standards.

There are a lot of assumptions here, and these sub-sectoral studies don’t really grapple with the bigger reality that China accounts for at least one third of exports. But this is the sort of analysis that will be needed if the country is going to be able to make hard-headed decisions about future trade restraints.

The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) and, separately, University of Queensland economist Scott Waldron have now tried to quantify how the recent Chinese barley and beef export restrictions will play out. And they both provide interesting insights into the double-edged impact and the diversification opportunities.

Both these studies follow some ground-breaking work last year by the Victoria University Centre of Policy Studies (CPS) on the impact of a 25% cut in Chinese coal imports from Australia which followed the unexplained slowdown in processing of coal exports by China earlier in the year. That research found that the annual cost in terms of lost consumption would be about $31 per head for Australians, whereas there would be a much smaller loss for China.

Waldron’s broader point is that if the net public costs of trade diversification moves were better known, the government and community would be better able to make decisions about them.

Last week, ABARES released parallel research about the Chinese barley tariffs, which finds that gross exports to China of about $1.2 billion a year will probably be lost. But after adjusting for barley export redirection, alternative use of farmland for other crops, new grain exports and alternative use of cheaper barley in Australia, the worst-case loss of agriculture output would be only about $250 million.

But remarkably, ABARES finds that the tariff might cost China $3.6 billion due to its barley users such as brewers having to shift to other inputs, resulting in higher costs and less efficient domestic grain production.

Waldron takes this sort of analysis further by arguing, on one hand, that Australian exporters need to better understand what drives these Chinese decisions – for example, the way China is focused on ensuring food security with diverse supply chains. On the other hand, he warns that these interventions will recur, and so Australian producers need to both maintain alternative markets and to understand the real – rather than headline – flow-through costs, as ABARES has done.

Waldron says:

Australian farmers and agribusiness firms have benefited enormously from the trade due to the underlying drivers of supply and demand and complementarities that thrive under stable conditions. However, the risks of dealing with China are considerable and increasing and many Australian agricultural industries are heavily exposed to the risks.

Drawing on the CPS modelling approach, he broadly estimates that the combined costs of the latest Chinese barriers to barley and beef might only be about $1 a head for Australians.

Waldron’s paper contains more specific suggestions about how Australia should deal with Chinese farm trade tensions. But his broader point is that if the net public costs of trade diversification moves were better known, the government and community would be better able to make decisions about them.

Reshoring risks

World Bank economists have taken up this subject from a different angle in their latest Global Economic Prospects report, which raises concerns about the downside costs of the now widely forecast winding back of global value chains (GVCs) towards more localised manufacturing as a result of Covid-19.

Australia is taking tentative steps down this path under the government’s “economic sovereignty” strategy, although as noted here before, Industry Minister Karen Andrews has emphasised consumer nationalism as the driving force over government intervention.

While the World Bank economists note GVCs were already being wound back before the pandemic and more shrinkage will occur, they counterintuitively warn:

During the crisis, offshore sourcing has posed less risk to supply in several key sectors than has concentration of production in a few large facilities (eg. meat packing, medicines) – a reduced reliance on foreign inputs often results in an increased reliance on domestic inputs, which are also vulnerable to disruption from the pandemic.

The Bank’s East Asian regional economist Aaditya Mattoo made the point more bluntly in an Asia Society Policy Institute webinar this week, where he said that state support for reshoring – or what he calls “dependence diversion” – could quickly turn into a slippery slope towards protectionism. 

And when Australia is specifically turning to varied trade deals with India and Indonesia to diversify from risks in China, Mattoo noted that those two countries, in particular, were prone to the lure of self-sufficiency, which would likely only increase due to the global reshoring push.

Unmake in India

Remarkably, India has now put itself at the front line of the economic diplomacy manoeuvring to reduce dependence on China, driven by the deadly border clash between the two countries in mid-June. It has banned popular Chinese online platforms including Tik Tok, imposed Australian-style de facto reviews of new Chinese investment, embraced Chinese-style informal import restrictions on Chinese goods and is considering a ban on telecommunications company Huawei.

This is remarkable because only last October at their Chennai summit, Indian Prime Minister Narendra Modi and Chinese President Xi Jinping appeared to lay the groundwork for continued economic engagement, despite their strategic rivalry.

Chinese investment in India’s e-commerce and consumer products sectors has gone from negligible to about US$26 billion in the past five years, in a faster-paced mirror of what has also happened in Australia. But while India is only about half as dependent on China for two-way trade compared with Australia, it has a large trade deficit with China – unlike Australia.

Chinese investment in consumer products factories did seem to be paying off for India by reducing the Chinese trade deficit with greater local production and underpinning Modi’s “Make in India” manufacturing revitalisation scheme.

But cutting the economic sinews with China just when the Indian economy is undergoing one of the world’s larger Covid-19 slumps runs the risk of higher prices, component shortages and perhaps lower manufacturing quality, which would hurt any export push.

This seems to be a real “Make in India” moment, where the country can slide back towards Mattoo’s warning about traditional Hindu nationalist self-reliance or perhaps rethink its recent aversion to trade liberalisation via the Regional Comprehensive Economic Partnership and the moribund Australian bilateral deal.

Down on the farm

Meanwhile, the decision by chemical company Nufarm this week to stop manufacturing crop protection products in Australia is exquisitely poor timing for the government’s national sovereignty campaign. Only two months ago, the company was warning that Australia needed to boost local manufacturing to reduce its reliance on China.

This will likely make Australian farmers – who spend about $500 million a year on Chinese agricultural machinery and inputs – even more dependent on Chinese supplies, just when Chinese demand for their products such as barley and beef is in question.

But this is an area where some of Waldron’s careful diversification and risk-analysis thinking needs to apply.

While farmers do spend about $500 million a year on Chinese imports, they also sell China products valued at about $13 billion. And as ABARES has previously shown, China needs about $2 billion of those Australian commodity exports as inputs to manufacture its own food exports.


Economic diplomacy: Positive globalism and American exceptionalism

Australia’s Minister for Trade, Tourism and Investment Simon Birmingham at the National Press Club, 17 June 2020 in Canberra (Sam Mooy/Getty Images)
Australia’s Minister for Trade, Tourism and Investment Simon Birmingham at the National Press Club, 17 June 2020 in Canberra (Sam Mooy/Getty Images)
Published 18 Jun 2020 13:30   0 Comments

Hindsight

There was one phrase that would have neatly rounded out the interesting complementary speeches delivered by Australia’s two key international affairs ministers this week: positive globalism.

Here’s Trade Minister Simon Birmingham on Wednesday:

I know the WTO and its processes can seem arcane, but having an effective rule book is the cornerstone of a functional, rules-based system. It couldn’t be more essential for a country like Australia.

And here’s Foreign Minister Marise Payne on Tuesday:

Australia’s interests are not served by stepping away and leaving others to shape global order for us. Isolationism would also cut us off from the world on which we are so dependent for our own security and prosperity in the world's most dynamic region.

These are welcome but essentially unremarkable comments from ministers running a middle-power, export-oriented, foreign investment–dependent country with a proud track record of international engagement and citizens serving in numerous global jobs.

Except for the way their upbeat attitude to global engagement is quite a change of pace from Prime Minister Scott Morrison’s Trumpian swipe at “negative globalism” in his Lowy Lecture last October. That was before the bushfires, Covid-19 and China’s growing intransigence all in different ways underlined the value of Australia participating in a wide range of international institutions, despite the diplomatic trade-offs sometimes required.

While Morrison suggested some of these bodies were running out of control and threatening democratic nations, Payne is now saying that the negative globalism audit ordered by her boss has found that multilateral organisations are “vital” to Australia’s interests. So, it is perhaps not surprising that she sugar-coated the not-unexpected shift back to middle-power reality by remarkably suggesting that Morrison’s speech was trying to prepare Australia for an unforeseen pandemic. 

Economic distancing

Asia is converging into a more coherent economic entity, rather than taking sides in the US-China power struggle, according to new modelling of the region’s new trade zones – the revamped Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Partnership (RCEP).

Indeed, the Peterson Institute for International Economics modelling highlights how the two zones are creating a more traditional East Asian economic sphere at odds with the newer Indo-Pacific security framework, mainly because the US and India have absented themselves.

Trade deal modellers Michael Plummer and Peter Petri characterise the US and India’s stance on agreements which will raise the annual output of their members by US$147 billion (CPTPP) and $US186 billion (RCEP) by 2030 as “economic distancing”. India, in particular, is projected to lose US$6 billion from not joining RCEP, compared with gaining US$60 billion if it had joined:

Despite a history of political tensions in East Asia, these trends will deepen economic integration among China, Japan, and Korea, building on their already substantial production networks. The losers will be the United States and India, in economics as well as strategic influence in the region.

At odds with much of the post-Covid strategic debate, they further state, “By lowering East Asian trade costs, RCEP will accelerate the decoupling of the East Asian and US economies, arguably the most productive regional partnership in economic history.”

The modelling also finds that the two Asian trade agreements will broadly offset the US$301 billion in annual lost global income by 2030 from the US-China trade war, but not the losses to the US and China themselves.

Birmingham is due to join an online meeting of trade ministers to maintain the momentum towards the signing of RCEP in November.

But while the pan-Asian agreement is now a standard feature of the government’s growth and diversity rhetoric, the Plummer/Petri modelling does not offer much joy to Australia, due to the fact it already has trade agreements with all other 14 participants, now that India is out.

The modelling suggests it will only increase Australian real national income by a negligible US$1 billion a year by 2030, compared with US$85 billion for China and US$48 billion for Japan.

Currency reserve

When the International Monetary Fund (IMF) released its Asian regional outlook in April, Asia-Pacific director Changyong Rhee surprisingly emphasised the role of the US dollar in the region, pointing out it had actually risen in significance since the last financial crisis in 2008.

It was a nod to the way the currency’s global reserve status remains one of the most significant hard- and soft-power assets the US has – especially at a time when even the military has lost some stature by being drawn into the domestic debate around the Black Lives Matter demonstrations.

But what is more striking since April has been the roll call of high-profile US commentators worrying about the future of the currency amid the Trump administration’s assault on globalisation.

In Foreign Affairs, former Treasury secretary Hank Paulson says the enduring dominance of the dollar is remarkable, given the US economy’s relative decline over the past 50 years. But while he says the currency may retain its role, he warns:

The dollar’s status will be tested by Washington’s ability to weather the Covid-19 storm and emerge with economic policies that allow the country, over time, to manage its national debt and curb its structural fiscal deficit.

Currencies set the equilibrium between domestic economic fundamentals and foreign perceptions of a nation's strength or weakness, according to former Morgan Stanley Asia chairman Stephen Roach on Bloomberg, who predicts a US dollar slump driven by Trump’s international economic policies and a savings decline due to the pandemic recession. He says:

Like Covid-19 and racial turmoil, the fall of the almighty dollar will cast global economic leadership of a savings-short US economy in a very harsh light. Exorbitant privilege needs to be earned, not taken for granted.

But this week at Project Syndicate, former IMF economist Kenneth Rogoff took the argument further, suggesting that an underappreciated aspect of Trump’s reshoring and deglobalisation campaign would be a decline in demand for US-dollar assets just when the country has a rising budget deficit to finance. He says:

Even if the US turns a blind eye to deglobalisation’s effects on the rest of the world, it should be remembered that the abundant demand for dollar assets depends heavily on the vast trade and financial system that some American politicians aim to shrink.

Meanwhile, as the Trump administration has dithered domestically and meddled globally over Covid-19, the single most significant US pandemic mitigation action was the Federal Reserve’s swift extension of currency swap lines to more than a dozen other central banks to calm financial markets in March.

So the future of the dollar is going to rely on continued global trust in American exceptionalism, amid growing global distrust of the politicians who manage the country.


Climate change makes Covid-19 politics look easy

The Big Smoke: Sydney in December 2019 (Getty Images)
The Big Smoke: Sydney in December 2019 (Getty Images)
Published 10 Jun 2020 12:00   0 Comments

Covid-19 has been an extremely difficult challenge for national policymakers. If policy and politics are about managing competing interests and prioritising different constituencies, the varied national Covid-19 responses point to the acute challenges of getting this balance right.

How do we balance the economic implications of movement restrictions against the public health risks of increased infections? How do we weigh individual freedoms against community protection? And if we shut down elements of our economy, do we protect affected people and businesses? All of them? How much support should we give them? And for how long?

What the Covid-19 experience tells us is that the public and policymakers have a capacity to listen to and follow the guidance of experts.

Almost every country has answered these questions differently, with measures ranging from total lockdown to contact tracing, widespread testing to business as usual. These have seen varying degrees of success, of course, and varying degrees of public support for those measures.  Within Australia, we’ve seen consistent and robust debate about the policies enacted, including movement restrictions and the closure of schools, borders and businesses. Who would want to be a policymaker trying to get this balance right, and trying to sell it politically?

Climate change, however, makes the policy and political challenge of responding to Covid-19 – at least in Australia – look like a picnic, by comparison. In at least five ways, climate change is much tougher:

  1. With Covid-19, the public has a sense of what a worst-case scenario looks like. It makes justifying extraordinary measures a lot easier for politicians if they can, for example, point to dramatic scenes from a country hit hard by the pandemic to say, “These are people and societies much like ours, and that’s our future if we do nothing.”
    The same is more difficult to say of climate change – or at least with any degree of certainty. We can point to the devastating effects of disasters like the 2019–20 bushfires or the drought that preceded it. We know that climate change means an increase in the frequency and severity of such events. But we can’t definitively say that climate change caused these disasters – and plenty of voices in Australia contest any attempt to link them. The threat of climate change in this sense is a different one, and emergency measures are just a bit harder to sell.
  2. With Covid-19, we have a clearer idea about the effectiveness of different responses. We can see from other states – and from sophisticated modelling – what measures will lead towards what range of outcomes, and in what timeframe. The same does not apply to climate change. Ecosystem functions are far more complex, and the suite of possible measures – from mitigation to adaptation to geoengineering – make this a much more complicated policy challenge.
  3. With Covid-19, unilateral national action can work. Quickly closing off borders is actually possible, and if New Zealand’s experience is anything to go by, can be effective. With climate change, the nature of the atmosphere as a global commons obviously makes such actions impossible. We can focus on adaptative measures to try to insulate ourselves from the effects of climate change, but we can’t prevent disasters from happening in the first place. So we need mitigation, but one country can’t achieve necessary goals on its own. We need sustained international cooperation, with many states doing their part – which has proved to be elusive in practice. And if we think – or we’re led to think – that others aren’t doing their part for international response, major domestic mitigation efforts are that much harder to sell domestically.
  4. With Covid-19, we’re protecting ourselves and those closest to us. Covid-19 can immediately and directly affect us, family members and fellow citizens, which is how extraordinary policy measures can be justified and sold. Those most immediately and directly vulnerable to climate change, though, are seen as something other – they’re people in the developing world, other living creatures, or future human generations. We’re seldom encouraged to orient our moral – or political – concerns to these constituencies. Again, this makes mobilising and sustaining extraordinary measures harder than with Covid-19.
  5. A return to something approaching life as normal beyond Covid-19 seems possible. Sacrifices are politically easier to sell if it looks like a “for now” scenario, with effective measures in place and the chance of a vaccine on the horizon. That won’t be the case with climate, where we’ll likely be facing a world that has changed irrevocably.

In all these ways, climate change poses more profound challenges for policy and politics than Covid-19. That’s even assuming that policymakers have the political will to try to address climate change, which hasn’t been self-evident in the Australian context.

More positively, what the Covid-19 experience tells us is that the public and policymakers have a capacity to listen to and follow the guidance of experts. We seem to recognise that prevention is much better than cure. And when we recognise an issue as a crisis, we appear capable of enacting and accepting extraordinary measures.

Whether the Australian public – and in particular its leaders – can accept that climate change is a crisis is, of course, another thing altogether.


India-Australia strategic partnership: Leveraging aerospace capacity

An Indian Navy Chetak helicopter lifts off from HMAS Parramatta during AUSINDEX 2019, in the Bay of Bengal (Australian Defence Force)
An Indian Navy Chetak helicopter lifts off from HMAS Parramatta during AUSINDEX 2019, in the Bay of Bengal (Australian Defence Force)
Published 2 Jun 2020 15:00   0 Comments

The forthcoming virtual summit between Indian Prime Minister Narendra Modi and Australian Prime Minister Scott Morrison assumes considerable significance for an India-Australia strategic partnership, particularly as it comes against the backdrop of heightened friction with China for both countries. Enhanced defence cooperation between the two countries could be an important signal to Beijing of the costs of overly assertive strategic behaviour – whether in the Himalaya or in trade. For some years, defence cooperation has largely focused on the naval relationship. Now is the time for enhanced air-power cooperation.

The Modi-Morrison virtual summit is likely to focus significantly on defence and strategic security interests. One deliverable will be the conclusion of a Mutual Logistics Support Agreement, finalised at the “2+2” dialogue of the foreign and defence secretaries in New Delhi last December. The agreement will facilitate reciprocal access to military logistics facilities and may be followed by other pacts aimed at developing alternative supply chains.

Aerospace cooperation is a largely unexplored area. India’s aerospace capability has seen considerable expansion in the last decade, creating new opportunities for cooperation. The Indian Air Force (IAF) long devoted most of its attention to India’s northern and western borders. But since it began addressing Indian Ocean security in the mid-2000s, there has been a quantum change in IAF’s expeditionary capabilities. These include induction of Su-30 MKI aircraft, air-to-air refuelers, AWACS, C-17 heavy-lift transport aircraft, C-130J special operations aircraft and a significant number of helicopters inclusive of heavy lift, attack, and medium-lift aircraft.

The IAF and the Navy have been carrying out bilateral and multilateral exercises with foreign air forces and navies for more than 20 years. Having started relatively late, India-Australia joint exercises are gathering momentum.

The IACCS (Integrated Air Command and Control System), combined with satellite communications and surveillance system, now enables the IAF to cover the entire northern Indian Ocean region. With the activation of new air bases in the Indian Peninsula and the Andaman and Nicobar islands (Sulur, Thanjavur, Thiruvananthapuram, Car Nicobar), the IAF now has significant reach in the Indian Ocean. In recent times, India has used IAF’s expeditionary capability to provide support to friendly nations through humanitarian and disaster relief operations.

IAF also operates Su-30MKI, Jaguars and Mirage 2000s for maritime operations in support of the navy. Plans for permanent basing of fighter aircraft in the Nicobar islands are on the cards, enabling the air force and the navy to expand their operational reach to the Malacca Straits.

Increased Chinese naval activities in the Indian Ocean and the Bay of Bengal highlight the importance for India of monitoring strategic choke points of the Malacca Straits and the Indonesian straits of Sunda, Lombok and Ombai-Wetar. With the proximity of Australia’s Cocos islands to the Indonesian straits and that of Andaman and Nicobar islands to the Malacca Straits, there is much potential for coordinated aerospace operations from these islands to monitor these strategic choke points.

The Indian Navy, with its Boeing P-8I maritime surveillance aircraft, has considerable reach and coverage across the Indian Ocean. Its carrier-borne air power is currently limited to one aircraft carrier, INS Vikramaditya, while a second domestically built carrier is likely to enter service by mid-2021. The Navy aims to become a three-carrier force by mid 2030s.

There is some possibility for international collaboration with the US in the development of the third carrier. India-Australia collaboration in related areas of aerospace industry, in areas of hi-tech components manufacture and supply logistics is also worth exploring.

Having established the post of Chief of Defence Staff, the Indian government is now restructuring towards integrated theatre commands. However, there is still a lack of clarity in the concept and structure. An Air Defence Command and a (naval) Peninsula Command are the first two likely integrated commands to be established by 2022, which would impact the IAF and Navy the most. While integration in operations is vital, success of integrated command is dependent on well-defined operational philosophy. This has some way to go, but once in place, an integrated command structure will help international cooperation.

While IAF to RAAF and Indian Navy to RAN interactions will continue in areas of training and service specific cooperation, integrated Indian theatre commands could facilitate operational cooperation by exploiting synergised aerospace and maritime resources. This could make a major difference in areas of intelligence sharing and ISR coordination, counter-terrorism, anti-piracy, maritime domain awareness, and joint coordinated patrolling in the Indo-Pacific. A good example is US INDOPACOM’s role for decades in promoting Indo-US defence cooperation.

The IAF and the Navy have been carrying out bilateral and multilateral exercises with foreign air forces and navies for more than 20 years. Having started relatively late, India-Australia joint exercises are gathering momentum. The two-week bilateral naval Exercise AUSINDEX has run every two years since 2015, and Australia’s interest in participating in the Malabar naval exercises may gain traction in Delhi this year.

In 2018, the IAF participated in RAAF’s largest biennial multilateral exercise, Pitch Black. There are further areas for significant IAF-RAAF cooperation. The IAF can, for example, gain from RAAF experiences of rapid operationalisation of network-centric warfare concepts. The two air forces can also bring enormous weight and synergy through joint humanitarian assistance and disaster relief missions in the Indo-Pacific, an area with high occurrences of disasters.

When India’s integrated theatre command reforms take effect in a few years, the two countries can take further mutual advantage of significant aerospace and naval capabilities. By coordinating and sharing ISR activities, aerospace and naval competencies, India and Australia can contribute considerably to ensure security and stability of the Indo-Pacific in the post-Covid world.

This piece is part of a two-year project being undertaken by the National Security College on the Indian Ocean, with the support of the Department of Defence.


Designing a “built environment” for the pandemic age

Adapting to lockdown, a street library in Richmond, Virginia (Ronnie Pitman/Flickr)
Adapting to lockdown, a street library in Richmond, Virginia (Ronnie Pitman/Flickr)
Published 28 May 2020 10:00   0 Comments

We don’t give much thought to a flushing toilet, until the damn thing is broken. The same goes for the footpath that runs out the front of the house. A ribbon of smooth concrete serves as an unconscious guide for our feet, unless it’s cracked and potholed, transforming what is intended as a community service into an obstacle to avoid.

But as the world experiments with lifting the Covid-19 lockdown, we’re being encouraged to think a lot more about the everyday background of constructed items that make up our homes and cities. Little changes in this “built environment” might just keep us healthy, while a major mindset shift could help even more. This isn’t just a challenge for wealthy countries that experienced the early wave after coronavirus spread from China, but for emergent nations, too, with less established infrastructure.

The issues are in rethinking design, operations, maintenance and behaviour, all to ensure that the modern workplace – and hence the broader economy – is not so susceptible to the disruption of disease.

After all, preventing the festering risk of disease was the initial goal of those easily forgotten yet vast and complex sewerage systems that connect the sprawling suburbs with far distant waste treatment plants. Footpaths came about to keep pedestrians safe from the increasing congestion and speed of road traffic. The list goes on. Street lighting, public parks, underground trains, regulations to ensure fire safety standards or stop the use of hazardous materials, and more examples besides, all developed with the ideal of improving safety and the quality of life.

“The history of the built environment is the history of public health,” says Elena Bondareva, a consultant who has worked across the world on projects as varied as office space design to discussions about building science. You could go as far back as the earliest days of human civilization, as Bondareva puts it: “Why do you think we slept in caves, then built up villages? Why were the oldest cities in the world surrounded by walls and watchtowers?”

Now, in this new age when terms such as “social distancing” and “moist breath zone” are part of the vernacular, Bondareva sees the challenge as one where the built environment is at the forefront of reinforcing public health, in a similar fashion to the way construction standards and other measures are recognised as important to mitigating climate change. Bondareva spoke to me from the US, where she works for building science consultants CETEC, after she passed along an article written during the first weeks of lockdown, urging those with expertise in the field to advance a view.

So much of what we don’t often notice in a city is designed to keep us safe (Evan Schneider/UN Photo)

The issues raised have fascinating consequences. A front-page story last week, for example, warned of a $50 billion wipeout of the value of commercial office properties in Australia’s big cities, as companies assess whether to maintain big tower offices or persist with working-from-home measures. Consequent reduced pressure on transport networks – roads and rail alike – would be only one flow-on result. Another report this morning looked at the prospect of more people choosing to shift to regional towns away from Australia’s crowded cities that hug the coastline – and taking their jobs with them. 

Not that Bondareva is giving up on the office just yet.

“We’re social creatures. When interacting with others, we’ve evolved to consume some 90% of our information non-verbally – that’s very hard online.” While she is in no doubt there will be change, she doesn’t see a 2021 where people remain in solitary capsules connected by the internet. And besides, so many jobs simply don’t come with an online option.

But the issues are in rethinking design, operations, maintenance and behaviour, all to ensure that the modern workplace – and hence the broader economy – is not so susceptible to the disruption of disease. Shared “hot desks” suddenly seem far less desirable, while a building site might need to slow down to allow different trades the physical space required to safely get the job done.

“There is indisputable science that our spaces define our health,” Bondareva says. “Is there leadership and courage to make change based on these facts – the way we have done throughout history?” She cites past examples such as the introduction of mandatory seat belts as a measure where governments moved beyond voluntary options that private industry might recommend to tackle the road toll. Nor should this be limited to thinking only about coronavirus. Other diseases, such as obesity, diabetes, heart disease and issues related to mental health, can all be exacerbated by the places where we live and work.

Will the commuter crowds be diminished? (Evan Schneider/UN Photo)

There is a major international dimension to such debates, too. The post-Covid world could see the prospect of “leapfrogging” by emerging nations, in much the same manner as the expensive roll-out of copper networks for fixed telephone lines was bypassed by technological advances such as the mobile phone. Attracting labour to Covid-safe workplaces, for example. Regulations for new buildings could minimise the use of materials where coronavirus can linger and spread, for instance, as scientists learn more about what type of surfaces Covid-19 can survive on, and for how long. Or codes could be adopted to change the way air is circulated in a room – whether by the placement of windows, vents or coolers are placed – to limit the mechanics of airborne transmission.

“Frankly, this is where I challenge countries like Australia and the US to stay competitive because of the time lag,” says Bondareva. The adaption need for climate change again offers  a guide. “If we need at least a decade to get today’s petrol-powered vehicles off the road, the challenge is ever greater with existing buildings. This gives an immense advantage to regions developing more rapidly. If China was set to open 600 airports faster than an Australian city can get one brownfield district redeveloped, isn’t that an advantage once we put our finger on what precisely – materials, HVAC [Heating, Ventilating, and Air Conditioning], occupancy profiles, building typology – halts infectious disease transmission?”

Keeping the taps running and the power on is no longer enough.


In an Olympic-sized challenge, Japan’s golden chance could go begging

A games, without crowds? (Katharine Lotze/Getty Images)
A games, without crowds? (Katharine Lotze/Getty Images)
Published 15 May 2020 11:30   0 Comments

There have been plenty of Japanese officials weighing in on Tokyo’s Olympic rescheduling plans over the last few months. At times, it’s been hard to know who to focus on, especially when trying to follow the whole affair from Australia.

From the ageing Tokyo 2020 President Mori Yoshiro to former athlete turned Olympics Minister Seiko Hashimoto Haguida Koichi (the current Minister for Education, Culture and Sport) to Prime Minister Abe Shinzo himself – Japan’s hungry news media has understandably been asking anyone and everyone for comment.

While the Olympics press conferences in this most ordered of Asian nations were uncharacteristically haphazard at the start of this planned Olympic year, things have now slowly settled into a rhythm. It seems those responsible have also agreed on a party line too: if the Olympics can’t be done properly next year, they should be cancelled altogether.

Imagine a 2021 event where some of the competing nations were still in lockdown, while others were basically back to normal. The already uneven playing field of world sport would be even bumpier.

The cancellation position has firmed up in Japanese officialdom. First off the blocks was Tokyo 2020 President Mori, a former prime minister himself, saying that a postponement of the Games into 2022 would be impossible. If a further delay was required for public health reasons the Olympics would just be scrapped, he said.

Taking up the baton, Abe reiterated in parliament that the Games had to be held in a “complete form” for both athletes and spectators. He added that the coronavirus pandemic needed to be “contained” before that would be possible. Hashimoto, a former speed skater and track cyclist, ran the anchor leg, saying the Games’ viability did not depend on whether a Covid-19 vaccine was found in time.

Abe’s all or nothing approach makes sense if you look at it from a sporting perspective. Imagine a 2021 event where some of the competing nations were still in lockdown, while others were basically back to normal. The already uneven playing field of world sport would be even bumpier. At random times during the lead up, some athletes would be unable to prepare properly for events where tiny performance advantages can be the difference between winning gold or missing the final.

And what would it mean for the Olympic spectacle if fans were not allowed into the events, for health reasons? Try to imagine Brazil’s dramatic home win on penalties in the Rio 2016 men’s football final without a crowd. Would Neymar have sunk to the ground in tears in front of no-one? In fact, trying to picture any Olympic final without a crowd is just bizarre. All that passion released when an athlete trains for years and years and then succeeds, just screamed out to empty seats.

A full cancellation of the Games would be a gutsy decision though. Only three times have the Summer Olympics been called off completely, and on each occasion it was due to a World War. It would be sad for local supporters and for the athletes themselves, but most importantly perhaps, it would be a shame for Japan.

Before social distancing: the 2016 men’s football final, Rio 2016 (The Asahi Shimbun via Getty Images)

Quite aside from the huge expense that Japan has incurred so far, the event has incredible potential for the country to rebuild a few damaged relationships across the region. Japan has had recent trade disagreements with South Korea and the two countries have reportedly not bothered to talk on coronavirus measures. North Korea, meanwhile, remains a disliked neighbour after firing missiles into Japanese fishing areas. The country's relationship with China has been strained for years. Due to the coronavirus China’s President Xi Jinping had to cancel an overdue trip to Japan in April, but he could foreseeably reschedule that to coincide with an Olympics next year.

Those that dismiss sport as a blunt diplomatic tool should think back to the Winter Olympics in 2018, where South and North Korea showed rare glimpses of camaraderie. During the Games Kim Jong-un’s sister, Kim Yo-jong, met with South Korean President Moon Jae-in. Just months later Moon and Kim shook hands at the DMZ in an historic meeting. While relations between the two sides have definitely cooled since, the heady unity of the PyeongChang Games at least created the right conditions for talks to start.

It’s amazing what sort of opportunities, both political and sporting, an Olympics can toss up. All of these would be missed if the Olympics were scrapped completely next year. That’s why it’s so regrettable that a cancellation is being mooted at the moment by Japan’s top Olympic officials ­– even if some scientists are already saying it would be the right move.


Covid contest in Indian Ocean region: India, China jostle for top spot

Nathu La border crossing between India and China (Diptendu Dutta/AFP via Getty Images)
Nathu La border crossing between India and China (Diptendu Dutta/AFP via Getty Images)
Published 15 May 2020 09:00   0 Comments

In recent times, Australia has been searching for ways to support its Pacific “family” through the Covid-19 crisis with an eye on China’s moves. India has also been trying to help countries in the Indian Ocean region amid China’s growing influence. Responses to the corona crisis have so far largely focused medical aid. But it will soon shift to financial assistance, where India will be at a big disadvantage to Beijing.

Initial responses to Covid-19 in the Indian Ocean region by China and India have been largely symbolic. As in other parts of the world, through much of April, China focused on so-called “face-mask” diplomacy to bolster its image. China donated relatively small amounts of testing kits and protective clothing to several countries, including Pakistan, Bangladesh, Nepal, Sri Lanka, Mauritius, Maldives. China also made commercial sales of much larger quantities of supplies, some of which were of questionable quality.

India has responded in its own way, keen to position itself as the “net security provider” in a regional crisis. India sent supplies of hydroxychloroquine (HCQ) tablets to South Asian countries such as Bangladesh, Bhutan, Sri Lanka, and Afghanistan and island states such as Mauritius, Maldives, and Seychelles. This week, an Indian naval ship departed for Maldives, Mauritius, Seychelles, Madagascar, and Comoros, carrying medical teams and supplies of HCQ tablets and Ayurvedic medicines – both touted by Indian authorities as remedies for Covid-19.

India’s efforts have sometimes rubbed against regional sensitivities. Reports that Indian Army medical teams were being readied for deployment to other countries in South Asia provoked sharp responses from Bangladesh, Sri Lanka, and Afghanistan to the effect that Indian troops were not required.

Prime Minister Narendra Modi in a video conference of SAARC leaders on combating Covid-19 in March (MEAphotogallery/Flickr)

These early soft power moves by Beijing and Delhi may have been appreciated in some cases and not in others, but their effect was probably also fairly transitory. But the important story is how China and India address the impact of coronavirus on the region in coming months and years, and how each builds a narrative.

The Indian Ocean region has been a major focus of China’s Belt and Road Initiative (BRI), and the fallout from Covid-19 has the potential to severely damage it, or at least considerably alter it. A major economic downturn, including a downturn in global trade, will likely significantly reduce the need for new infrastructure as well as the feasibility of recently-built infrastructure. Many planned projects will likely be put in the deep freeze and in some cases, regional states may find it increasingly difficult to service debt loads on existing BRI projects.

Almost inevitably this will put a dent in China’s BRI, even assuming that it is willing to continue with the level of funding that it made available in pre-Covid days. In many cases, Beijing will need to decide whether to provide new loans, reschedule existing loans or foreclose on debts (which could controversially include taking control of infrastructure).

China has already “indicated some willingness” in principle to provide debt relief to low income countries, but it remains to be seen how much relief it would be willing to give – and whether it would seek strategic quid pro quos from borrowers. Widespread debt relief would also likely reduce the willingness and ability of Chinese lenders to back further ventures.

Relief supplies have been the focus of China’s so-called “face-mask” diplomacy in a bid to bolster its image (US Air Force)

Despite significant disruptions to many projects, Pakistan, China’s principal strategic partner in the region, is pressing ahead with the China-Pakistan Economic Corridor (CPEC). If anything, Pakistan is likely to double down on CPEC, reflecting how much successive governments have staked on it as the country’s saviour. At the same time, Pakistan has already asked China for debt rescheduling on US$30 billion in projects, which it is likely to obtain given the political importance of CPEC to Beijing.

Elsewhere in South Asia, China has made a $500 million loan on concessional terms to Sri Lanka, another regional partner. According to some reports, China has offered similar loans to Bangladesh, Nepal and Maldives. Bangladesh has also requested debt rescheduling or interest rate cuts on loans on several BRI projects.

India may have an ever greater imperative than China to fashion a strategy of regional financial assistance in response to the crisis.

Mishandling necessary debt re-negotiations could further dent China’s soft power in the region. But deft diplomacy – and a willingness to write off large amounts of money – could reinforce a positive image for Beijing. Indeed, stringent economic circumstances in future could improve the BRI by forcing lenders and borrowers to give greater focus to economic sustainability and value of new projects.

India may have an ever greater imperative than China to fashion a strategy of regional financial assistance in response to the crisis. India has reportedly offered a US$400 million currency swap to Sri Lanka to help liquidity and has released (a previously agreed) $150 million in currency swaps to Maldives. But its lack of economic resources means that it will find it hard to compete with China across the broader region.

As has been the case before, New Delhi may instead be forced to rely on Japan as a source of funds to balance China’s influence in the region. This may include bilateral loans such as a US$1 billion loan from Japan’s International Cooperation Agency (JICA) to Bangladesh or financing through the Japan-led multilateral lender, Asian Development Bank, which has tripled its Covid-19 facility to US$20 billion.

The corona crisis in the Indian Ocean region will probably soon move beyond masks and remedies to money. India may find that claiming the mantle of net security provider to the region can be an expensive business.


Muddled messages as Britain seeks to stay alert

The harsh UK experience of Covid-19 helps explain the anxiety surrounding the next stage (Number 10/Flickr)
The harsh UK experience of Covid-19 helps explain the anxiety surrounding the next stage (Number 10/Flickr)
Published 14 May 2020 11:00   0 Comments

After the seven weeks of lockdown, which had managed to suppress the spread of the coronavirus, Prime Minister Boris Johnson addressed the British people on the evening of Sunday 10 May to explain the next steps. Restrictions were to be eased, but moves would be tentative and contingent, checking for new outbreaks at each stage, with a possible return to more stringent measures if the virus took advantage of the relaxed rules.

The three biggest constraints resulting from the lockdown were to be eased: the limits on outdoor pursuits including regular exercise; not being able to get to work if you were unable to do your job from home; and school closures preventing parents leaving for work even if they wanted to. Thus “Stay at Home”, the previous headline advice, was qualified. The new slogan was “Stay Alert”, a very different sort of instruction.

This was not the first time the government was accused of poor communications during the crisis.

As an exercise in communication this was not a great success. A lengthy document to help explain the new guidance and provide the scientific background was not published until the next afternoon. It was only then followed by a parliamentary session and a press conference when many of the issues raised could be explored. By this time confusion reigned and the government was accused of “muddled messages” that could be dangerous in their consequences.

The largest issue was whether this was simply too early for any easing. Covid-19 was well down but certainly not out. But the source of the confusion was guidance for different sets of circumstances that kept on throwing up anomalies. Employers had to ensure social distancing at work but what was an individual desperate for the money to do if they had failed to do so? If they could not cycle or walk to work dare they use public transport? You could meet up with one person you knew outside your household in a local park, but what would happen if you came across two members of your family by chance? If no visitors were allowed, including grandchildren, why could you bring in a cleaner?

Boris Johnson was hardly a unifying figure after years of political polarisation and arguments about Brexit (Number 10/Flickr)

This was not the first time the government was accused of poor communications during the crisis. The weeks leading up to lockdown were notable for inconsistencies and sudden changes of gear, as it dawned on the government that they risked failing to grip the situation. There was talk of “herd immunity”, an important topic but not helpful as an apparent rationalisation for doing very little. The lockdown came as a result of a combination of new epidemiological advice that highlighted the virus’ speed of advance and public anxiety that while other countries moved to shut schools and ban large events the government was dithering.

Johnson was reluctant to shutdown society and the economy. His strengths as a communicator lie in his optimistic outlook and not as a purveyor of sombre news. As his government advised not shaking hands he admitted he had just done just that when visiting a hospital. He was hardly a unifying figure after years of political polarisation and arguments about Brexit. Yet once the uncertainty was over, the seriousness of the situation acknowledged, with few dissenters, and new measures were in place, the government found itself backed and trusted. The level of compliance with the lockdown measures was extremely high. In that respect the messaging worked well. For some weeks, Johnson, for a while with the Health Secretary, was hors de combat with Covid-19. The moment when he was rushed into intensive care was alarming. His personal appreciation of the support he’d been given in hospital, gained sympathy and also encouraged a more emollient and consensual tone.

The support continued despite a growing awareness that the UK was having one of the worst experiences in Europe, certainly when measured by deaths. There were a number of reasons for this. London as a global hub and the largest city in Europe was one factor. Delay in introducing stringent measures was another. There were problems, not unique to the UK, in getting adequate supplies of personal protective equipment (PPE) for frontline staff.

Yet something else was going on which was only belatedly appreciated. Having watched what had happened in Italy the government’s top priority was to ensure that the National Health Service was not overwhelmed by desperate patients needing intensive care. The special place the NHS occupies in British life made this a popular choice. Every Thursday at 8pm people went out on to the streets to clap for health workers. Extraordinary efforts were made to prepare for incoming cases, even building new hospitals within days.

But this sharp focus had costs. People ill for other reasons failed to seek the support they needed. Most seriously the burden was shifted onto the social care system (sometimes literally as elderly people, possibly still infectious, were moved out of hospital into care homes). Long underfunded, fragmented, and with carers moving within homes and around the wider community, the system struggled to cope. Most European countries had similar problems. Nonetheless the spread of the disease in care homes took a terrible toll of the most vulnerable group.

The harsh UK experience of Covid-19 helps explain the anxiety surrounding the next stage. With the economy crashing and debt accumulating the UK government is caught (again not uniquely) between a desire to get people back to work and the fear of a second peak. This tension has been reflected in the messaging to the public about next steps. It was possible to go into the lockdown with clarity but it is only possible to get out with uncertainty.