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Punching Above Our Weight

If Australia wants to maintain its influence in the world, it needs to keep reforming its economy and increase its population, says Paul Kelly

ustralia’s opinion makers love to old fashioned debates we once had about power discuss our identity. Paul Keating were infected with racism, imperialism and a left the Lodge eight years ago but the cultural cringe that could only dismay today’s identity debate, while devoid of its sophisticated and cosmopolitan Australians. Past A previous passion, still exerts its hold leaders such as Billy Hughes, Arthur Calwell over the quality media. This is no bad thing. Yet and ‘Black’ Jack McEwen were obsessed with its endurance highlights by omission the debate Australia’s power, or rather its lack of power, Australia refuses to have—over the nature and and the ideas they championed of nationalistic extent of its power in the world. imperialism, racial-based mass immigration and This is a subject not to be raised in polite an unforgiving protectionism are now out of sight company and rarely to be confronted in the and out of mind, interned as the aberrations of straightjacket of Canberra officialdom. There are political primitives. other debates that command attention—our ties with America, our engagement with Asia, our counter-terrorism strategies and our defence force Paul Kelly is Editor-at-Large at The Australian. structure. But as a nation we prefer to discuss He is the author of numerous books including the various parts of our existence rather than the The End of Certainty: The Story of the 1980s totality of our existence. (1992) and Paradise Divided: The Changes, the This is because we have belatedly learnt how Challenges, the Choices for Australia (2000). to behave in civilised company. We know that the

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There is one discussion that we do have about important in Asia, nearly half, 46% disagreed. power. It is about the morality of its use. As Only 30% felt that Australia ‘is able to influence academics and journalists are less subject to moral major issues in ways important to Australia’. and religious codes in their personal lives so their And 52% said it was now harder for Australia to claims to be moral guardians of Australian policy influence trends in world politics. These are the have become more presumptuous and pompous. people, of course, charged with this precise task. Their broad conclusion is easy to summarise—the It is fashionable to debunk the Government’s Keating Government was immoral and the 1997 Foreign Affairs and Trade White Paper Howard Government is more immoral. Keating’s that missed the Asian financial crisis but its offence was to seek a personal relationship with arguments have a long-run validity. The White President Suharto to leverage a series of foreign Paper warned that the disparity in growth rates policy objectives. Howard’s offence is deeper: it is between Australia and industrialising East Asia the absence of any moral conscience in his pursuit meant that the gap in economic size, technological of objectives from East Timor’s independence to and industrial sophistication will narrow, and, as border protection to his alliance with President a result ‘Australia will be able to rely less on its Bush in the so-called war against terror. When strategic and economic weight in the region to survival is not an issue then morals command a achieve its policy objectives’. In short, its relative premium. power is in decline. This idea is no longer popular. Since the Asian crisis the Howard Government has been an Since the Asian crisis the Howard exponent of the opposite view. It argues that our Government has argued that our influence in the world is increasing (when has any influence in the world is increasing government said otherwise?) with Foreign Minister (when has any government said Alexander Downer insisting that Australia is otherwise?) with Foreign Minister a very significant nation and the world’s 13th largest economy. However, notwithstanding such Alexander Downer insisting that cyclical trends, the challenges that face Australia Australia is a very significant nation and are immense. the world’s 13th largest economy. They begin with the 1997 White Paper’s projection of a relative decline in Australia’s ‘hard’ power in its own region. The best two measures Our focus on morality helps to substitute that define our ‘hard’ power are population and for any sustained debate about national strategy. GDP. At Federation some of the Founding Fathers This is because in the two generations since the dreamt that in 100 years time Australia would have Vietnam War Australia’s strategic circumstances a population of 50 million or aspire to become a have been relatively benign. (It also reflects our second United States. But its arid centre and ‘she’ll be right’ fatalism). Australia is a more distance from European cities defied such dreams. confident nation today and is conscious of its Australia is dwarfed by its neighbours—Indonesia transition to national maturity. Sooner or later, (215 million), China (1.3 billion), India (1.1 however, it must confront the strategic debate billion), Thailand (64 million) and Malaysia (25 inherent in its national situation. million). Current trends suggest that over the next half century this gap between Australia and The coming decline of Australian relative its region will increase and that it will increase in power proportional terms. A premonition of the problem is identified in Australia’s economic growth over the past Making Australian Foreign Policy by Allan Gyngell decade tops the rankings among the industrialised and Michael Wesley when they report a survey OECD nations. It has been a stellar performance. they conducted of DFAT’s policy officers (242 But many East Asian nations at an earlier stage responded). While 51% agreed that Australia was of economic development than Australia can be

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expected to record higher growth rates in coming security terms virtually co-terminus with the US, decades. When the ANU’s Professor Glenn is fully integrated into the US economy (which Withers superimposes current economic trends takes more than 85% of its exports). Finally, the and population projections he finds that Australia’s United Kingdom is a member of the EU outside GDP ranking slips by mid-century from sixth to the Euro zone, enjoys its trans-Atlantic links 11th in the Asia-Pacific. Indonesia, Thailand and is a member of NATO. These constitute and Hong Kong—all smaller economies than for our former Empire partners an intensity of Australia’s today—would be larger. China would regional bonds and networks that transcend any be more than 30 times as large; Thailand now a comparable ties Australia is likely to create with its third the size of Australia’s economy would be own geographic, political and economic partners. larger. It is true that Australia benefits from being Second, Australia is in a region where in a dynamic region. However, as the 1997 White dislocation and conflict are on the rise. Australia Paper says (or sometimes leaves unsaid) these is the metropolitan power in the South Pacific economic trends mean the advantages Australia and a key player in a trouble-afflicted South enjoys in technology and economic weight will be East Asia. The South Pacific is increasingly beset eroded or reversed over time. by state failure and self-determination disputes; It is easy to say that such long-run trends defy witness the recent crises in Fiji and Solomon precise prediction. It is however difficult to argue Islands and the alarm in Canberra about Papua that this trend is improbable. And if it is probable, New Guinea’s stability. The future of East Timor then this decline in Australia’s ‘hard’ power must remains problematic. South East Asia represents have serious consequences for its future influence. an intersection of rising Muslim extremism, growing secessionist disputes and weak central Strategic realities governments, notably in Manila and Jakarta. The The situation is compounded by a series of Howard Government’s 2000 Defence White Paper strategic realities. First, unlike the situation facing said that Australia ‘cannot be secure in an insecure many other middle powers there is no political region’ yet our own region is becoming more or regional economic union for Australia to join. insecure and the forces driving such insecurity will Australia will not join the European Union. It will not be expended soon. not become a state of the United States. It will As a consequence Australia will have to assume not be accepted as a fully fledged member into a greater role within its own neighbourhood not any subsequently created East Asian economic just as a security partner but to uphold civil society union. In short, it will not find safety in numbers and check the drift towards failed states. This by trading away sovereignty to enter a regional awareness is seen in the Howard Government’s federation. Its location and the absence (apart from more interventionist approach to Papua New New Zealand) of neighbours at a comparable stage Guinea and Solomon Islands. The threat of of economic development means that Australia’s Islamic terrorism will drive Australia into deeper destiny will be determined as a free standing collaboration with Indonesia, the Philippines and nation state and not as a component in a larger other regional partners—a direction set after the political, economic or regional bloc. This will Bali bombing. be the situation regardless of how many current Third, as a free standing middle power model FTAs Australia signs with the United States Australia is highly exposed to the impact of or anybody else. In this sense the contrast between Australia’s Australia will have to assume strategic circumstances and those of the original a greater role within its own member nations of the old British Empire are illuminating. Ireland has solved its centuries old neighbourhood not just as a security dilemma by joining the EU with some panache. partner but to uphold civil society and South Africa is destined to a leadership role within check the drift towards failed states. its own deeply troubled continent. Canada, in

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influence will be determined, in part, by these It begins with a recognition that assets—GDP, population size and technological ‘hard power’ assets are important sophistication. and that Australia’s future influence Our improved relative economic performance will be determined, in part, by these since 1983 has been a trigger for favourable global re-assessments of Australia. Globalisation assets—GDP, population size and while constituting a challenge for Australia is technological sophistication. also a distinct opportunity. Australia has been more successful in adapting to globalisation than many other nations. This is a function of our globalisation. In the globalised world relative ability to embrace economic reform and a more economic power is changing faster than before. flexible economy, the quality of our institutions The consequences of nations getting things wrong and governance and our capacity to maintain a (for example Indonesia and Thailand in the Asian skilled workforce. However despite this success crisis) are worse than before and the dividends there is a deep uncertainty about the place of that flow from getting things right (witness Australia in the global economy and the political Ireland and Australia itself) over the past 15 years left and right seek to repudiate the framework of can be immense. Globalisation also demands the past generation. the management of multifaceted change. There The logic of Australia’s position is to convert is not much point being a superior electronics the non-availability of any political or economic producers if your financial system is broken union into a plus—that means becoming a state- (witness Japan) or a major resources producer of-the-art exemplar of the globalisation model. if you have a susceptibility to systemic failure It requires becoming one of the most open and (witness Argentina) or being the world’s biggest competitive economies in the world exposed to oil producer if you are a dysfunctional society global markets and the disciplines they demand. exporting terrorists (witness Saudi Arabia). One This is the direction in which Australia has been of the laws of the globalised age is that you are heading since 1983, however there is a reluctance only as strong as your weakest link. among political leaders to articulate this goal as a The point, overall, is that Australia’s strategic national strategy. circumstances are unique. Our national debate This is because they fear it will frighten too needs to be anchored more firmly in this reality. many people and vested interests and, in turn, Australia’s situation is not that of Sweden or provoke a backlash. This reflects the Howard Canada or Japan and whether the issue is global years—Howard is a ‘two steps forward and one people movements or the Iraq war or the Kyoto step back’ reformer, not the neo-liberal depicted Protocol it is to be expected that Australia’s by his critics. However this political/psychological response will reflect its unique national interest. threshold needs to be crossed. The Australian The revival of the ‘national interest’ phrase—it people now expect economic progress and such appears in the title of both 1997 and 2003 foreign progress is maximised by making Australia a policy White Papers—is welcome. There will model of successful globalisation or, put another always be differences over what constitutes the way, making globalisation work in our favour. national interest but its injection into the foreign The sooner this reality becomes explicit in our policy language of Coalition and Labor helps to political dialogue and public policy the better. re-focus the public debate. This recognises that our economic destiny is more in our own hands than many concede. The economic response For example, the Secretary to the Treasury, Given Australia’s position as outlined, what Dr Ken Henry argues that the best response constitutes a strategic national response? over the coming decades to the ageing of the It begins with a recognition that ‘hard power’ population is to tap the sources of faster GDP assets are important and that Australia’s future growth for Australia. This involves further

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reform to labour, product and financial markets, half century of today’s rich countries will be lifting the workforce participation rate, lifting heavily dependent on demography. The rich skills levels, improving the education system countries will divide into two camps—most from early childhood to university to lifelong with declining and ageing populations facing the learning, reforming welfare to promote the risk of economic stagnation and a small group transition from welfare to work, and encouraging of rich nations led by the US that take the path greater microeconomic reform by strengthening of population growth and immigration. This will competition, efficient resource allocation, be one of Australia’s vital choices. Garnaut sees boosting productivity in the water, energy and a large gap in economic performance opening transport infrastructure and fostering a culture between nations of immigration and other rich of innovation. It is a daunting list—and the nations. For Australia it is the choice between a discretion in this matter is entirely our own. strategy to stay relatively young or submitting to Putting a premium on this reform agenda is the European twilight of decline. not to underestimate the benefits to Australia A decision by Australia to commit to a of either closer trade and investment ties with growth strategy that involves both fertility and the US or our emerging role as a supplier to immigration would be a sensible response in the China’s expansion—prospects that can excite national interest. There are political and policy the imagination of politicians and publics. The hurdles to such a decision. The political hurdles deeper integration of Australia into both the would arise from being so forthright about US and Chinese economies is important and population growth. The main policy concerns historic in its own right. But it is part of a larger arise from the contentious debate about whether story—the internationalisation of Australia’s public policy can influence fertility. The evidence economy and society as the best guarantor of its is mixed but that is no reason why the Australian future growth. Government should not make its own assessment In this process Australia is learning that a of this matter in the cause of trying to stabilise market economy creates a network of global fertility decline. Is this not a desirable outcome? stakeholders and that ours are more diverse than is usually appreciated. Our major region for trade is Northeast Asia; our six main trade partner The second strategic response to nations are, in order: the US, Japan, China, the advance our ‘hard power’ is the UK, New Zealand and South Korea (three from renewal of Australia’s tradition as an Northeast Asia); the regional bloc that constitutes immigration destination. Australia our most important trade partner is the European should decide to remain a country Union (our trade with the EU outranks that with the US); and our main investment partners are of population growth into the 21st the US, the European Union (mainly because century by relying upon immigration of the UK) and Japan. This shows Australia as and seeking to stabilise the fall in its a nation with global economic interests and fertility rate. regional economic priorities.

Population growth In Australia there is a tendency to denigrate The second strategic response to advance our the link in developed nations between population ‘hard power’ is the renewal of Australia’s tradition and national power. This is not the case in the as an immigration destination. Australia should US. For example, in his book The Paradox of decide to remain a country of population American Power, Joseph S. Nye Jr. from Harvard growth into the 21st century by relying upon University’s Kennedy School of Government, immigration and seeking to stabilise the fall strongly asserts this link. Nye says: ‘Population is in its fertility rate. The ANU’s Professor Ross one of the sources of power and most developed Garnaut argues that the success over the next countries will experience a shortage of people

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as the century progresses. Today the US is the the latter option would not erode our standing, third largest country; 50 years from now it is still respect and influence within the region. It would likely to be third (after only China and India). also, eventually, undermine our national self- In its effects on population and the economy, esteem and encourage the multiple social and immigration bolsters America’s hard power.’ The equity problems that come with low economic same argument applies to Australia. growth and population decline. It seems to be an embarrassment in Australia to state this truth. However it was made explicit last he issue here transcends numbers—future year by one of our leading economists, Professor Teconomic success will be productivity Max Corden, who pointed out that any form of driven and the sources of productivity will be defence ‘costs money and the need is unlikely to a competitive knowledge-based economy with increase with population but the capacity to pay a premium on investment in human capital for it will’. Corden said: ‘I have no doubt that and a capacity for innovation. Many critics of Australia’s influence, whether in the region or the population growth assert that it is unnecessary world, would increase if it were a substantially as long as Australia invests enough to become a larger economy able to provide more funds in aid, strong IT and high productivity economy. But in contributions to international organisations these paths are not mutually exclusive. Indeed, or in joint international action.’ He went on they are just the opposite. Australia needs to lift to say that ‘there are many ways in which other its game in education, research and innovation. countries can benefit or harm us, and also many However a growing society wired into the global ways in which we can do some good in the economy and attracting a skilled international world—if that is our desire’. labour force is Australia’s best choice. The conclusion from these arguments about economic size, population growth and Our diplomatic mission has been productivity is the interaction between domestic captured in the phrase that we are and foreign policy—Australia’s success in the ‘punching above our weight’. But it world will be a function of its success at home. is not just a boast—it is engrained The challenge facing Australia overall is to increase its capacity to meet its responsibilities. into our foreign policy culture and For many years, indeed for decades, our how Australia sees its role in the diplomatic mission has been captured in world. It implies that we possess an the phrase that we are ‘punching above our influence beyond our power. weight’. This is the ritualistic boast of our Prime Ministers and Foreign Ministers. But it is not just a boast—it is engrained into our The difference between having a population foreign policy culture and how Australia sees its growth strategy and not having a population role in the world. It implies that we possess an growth strategy could be significant. The influence beyond our power. successful combination of two policies—strong However the phrase is evidence that our economic growth and strong population focus has been on punches, not the weight. growth—would exert a significant impact on The reality is that any serious long-run view Australia’s GDP rating by 2050. For example, in of Australia must also focus on its weight. The his recent BCA paper Glenn Withers argues such strategy should be to increase that weight— a trajectory would take Australia by mid-century because it is weight that matters and it matters towards the GDP of middle ranking European for middle powers, not just for superpowers. It nations and keep us around the GDP of middle is as though we have gone to the races and are ranking Asian nations—as opposed to the low betting on the jockeys and not the horses. We growth path that reduces Australia to a third need to enhance the weight we are so proud to order of economic weight. It is fatuous to think punch above.

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