Has he got the ticker? A survey of Australia May 7th 2005
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Has he got the ticker? Also in this section
The limits to growth Australia’s constraints are all on the supply side. They need to be tackled. Page 3
Beyond lucky The economy has a lot more going for it than mineral resources. Page 5
In nite variety A beautiful empty country full of tourist attractions. Page 6
The reluctant deputy sheri Australia’s skilful foreign policy has made it many friends. Keeping them all happy will not be easy. Page 7
God under Howard The prime minister keeps on winning elec- tions because he understands how Australia has changed. Page 9 Australia’s economic performance has been the envy of western countries for well over a decade. But, says Christopher Lockwood, the Australians old and new country now needs a new wave of reform to keep going The country seems to be at ease with its new- HE best-loved character in Australian ment, but to win re-election on, policies est arrivals, but not yet with its rst Tfolklore is the battler , the indomi- that were as brutal as they were necessary. inhabitants. Page 11 table little guy who soldiers on despite all It was under this remarkable Labor team the odds, struggling to hold down his job, that the really tough things were done: the raise his family and pay o his mortgage. near-elimination of tari s, the oating of Drizabone Battling adversity, after all, is what Austra- the exchange rate, the rst moves towards But water shortages can be overcome. lians excel at and have done since 1788, enterprise-level rather than industry-wide Page 13 when the rst convicts were disgorged on pay bargaining that was to break the to that fatal shore to build their own pri- power of Australia’s unions; not to men- son. Not for nothing is Gallipoli, a cata- tion bank deregulation and the introduc- strophic failure redeemed by a heroic evac- tion of compulsory saving for pensions. uation, Australia’s most celebrated The Labor reforms have transformed military engagement, marked by a public Australia, making it a model of revival for holiday. The battler spirit has enabled Aus- the world. The Liberal Party too, then in tralians to survive and prosper in the driest opposition, deserves credit for supporting inhabited continent on earth, full of the them, because Labor lacked a majority in most poisonous snakes, the largest croco- the Senate. The result has been an econ- diles and the most terrifying sea-creatures. omy that is about to enter its 15th succes- John Howard, who last October was sive year of continuous growth. It also en- elected prime minister for the fourth time, joys low in ation, the lowest unemploy- has made one of the most successful politi- ment for almost 30 years, negligible cal careers of modern times anywhere by government debt and regular budget sur- appealing to those ordinary battlers. pluses. Australia has shrugged o its main The battler spirit has its good points trading partners’ crises Asia’s nancial and its bad. At its best, it has enabled Aus- meltdown of 1997-98, Japan’s decade of tralia to undertake wrenching reforms stagnation, America’s tech-stocks crash when they were most needed as in the with scarcely a backward glance. A list of sources can be found online 1980s, when the then treasurer ( nance However, the qualities that have www.economist.com/surveys minister), Paul Keating, said Australia was served Australia so admirably when times on the way to becoming a banana repub- were tough are less useful in periods of An audio interview with the author is at lic. At the time, Mr Keating and his boss, prosperity. In 1901, when Australia be- www.economist.com/audio Bob Hawke, were able not just to imple- came an independent federation, it was, in1 2 A survey of Australia The Economist May 7th 2005
750 km Timor Sea Darwin Coral Sea
G INDIAN r Katherine e a t PACIFIC B NORTHERN Port a rr OCEAN TERRITORY Douglas ie r OCEAN R 0.2 e ef 32,962 QUEENSLAND Port Dalrymple Bay wards, chief economist at HSBC in Sydney, Hedland AUSTRALIA 3.8 25,037 agrees. We didn’t believe our luck, he Uluru WESTERN (Ayers Rock) says. We have failed to invest su ciently AUSTRALIA to sustain the upswing. SOUTH Brisbane AUSTRALIA 2.0 AUSTRALIA But now there is a chance for change. At 32,195 TOTAL: 1.5 NEW SOUTH WALES last October’s general election, Mr How- g 24,330 in 6.7 19.9 rl ard’s coalition gained control of the Sen- a 27,962 Great D 28,615 Perth Adelaide Dareton ate, though because of the oddities of Aus- Australian Bight Canberra Sydney Mildura tralia’s constitution the change does not M urr ay AUSTRALIAN CAPITAL take e ect until July 1st. But on that date, for SOUTHERN OCEAN Melbourne TERRITORY the rst time since 1981, Australia’s prime VICTORIA 0.3 minister will command a majority in both Density of population, per sq km: 33,601 0.0 Population, 2003, m 4.9 TASMANIA houses of Parliament. The list of what below 1 5 - 10 above 30 ’000 28,905 Tasman GDP per person, 0.5 Hobart needs doing is a long one: more labour- 1 - 5 10 - 30 2004, $ 19,968 Sea market reform, more tax reform, more in- vestment in people and infrastructure, and 2 terms of income per person at purchasing- immigration to impressive levels. By pro- better relations between the federal power parity, the richest country on the viding sensible subsidies for private health government and Australia’s six states and planet, thanks to abundant minerals and insurance, he has brought down the cost of two territories, all Labor-controlled. innumerable sheep. But it became compla- the health service. None of it will be easy, but for Mr How- cent. By the 1950s it had dropped back to Besides, the lull in productivity-boost- ard it is a sweet opportunity. In the early 6th place, and by 1990 to 18th though it ing reforms was not wholly his fault. 1980s, when he served as treasurer in the has since climbed back to 8th, thanks to Throughout his rst three terms, his co- government of Malcolm Fraser, he was two decades of reform. alition, made up of the Liberals and the convinced of the need for radical reform, But for most of Mr Howard’s nine years smaller National Party, was hampered by but could never persuade his boss to agree. in o ce, productivity-boosting reform has its lack of a majority in the Senate, the up- In opposition for 13 long years, he had to been on the back burner. There has been per house of Parliament. This meant that watch as the bold Mr Keating won himself a degree of reform fatigue, says Michael much of what the government wanted to renown (if not a ection) as the world’s Keating, a former head of the civil service do reform Australia’s archaic system of greatest treasurer . Now, nally, he has the who is now at the Australian National Uni- industrial relations, privatise Telstra, its te- mandate he has always lacked. versity in Canberra. There is not the same lecoms monopolist, change its media In 1998, Mr Howard devastated the sense of crisis that existed in the 1980s. laws was blocked, abandoned or never hopes of his Labor opponent, Kim Beazley, In fairness, the toughest measures were even started. when he wondered aloud, on radio, already in place when he took o ce, and whether he had the ticker for the job. He Mr Howard does have a few reforms of his Crunch time was calling into question Mr Beazley’s po- own to boast of. The biggest was probably The fact remains that a second wave of re- litical toughness, and perhaps even taking the granting of full independence to Aus- form is now urgently needed. The Austra- a dig at his less-than-trim appearance. Mr tralia’s central bank in 1996, and the bank lian economy is bumping up against sup- Howard duly won his second election. Mr has discharged its in ation-controlling ply-side limits. In February, Ian Mac- Beazley resigned as leader after a third mission admirably and sometimes farlane, the governor of the central bank, Howard victory, in 2001, but four years on bravely. Mr Howard and his treasurer, Pe- said the country had to get used to growth he is back in charge of Labor. Mr Howard ter Costello, have run a tight ship, virtually rates beginning with a two or a three, has proved a good manager and a skilled eliminating national debt with a succes- rather than the three or four that has been political tactician but not yet a great re- sion of budget surpluses. But their most the norm for the past decade or so. He was former. The interesting question now is visible reform, the introduction of a 10% promptly proved insu ciently pessimistic this: has Mr Howard got the ticker? 7 value-added tax, has not been a wholly when the gures for 2004 were published, happy experience. To get it approved, they showing that GDP growth in the last quar- had to o er too many exemptions. ter had slowed to 1.5% on a year earlier and How do they do it? 1 Still, Mr Howard has other things be- to a dismal 0.1% on the previous quarter. Australian GDP, % change on a year earlier sides economic reform to his credit. In the Sober voices such as the OECD, as well as 6 past few years, his government has done a more excitable ones from the opposition, 5 sterling job on its diplomatic and trade re- blame this on labour shortages, infrastruc- lations. One result has been that Australia ture bottlenecks and lack of training. 4 is now the only major economy to have a One outcome has been a ballooning 3 bilateral free-trade agreement with Amer- current-account de cit. In March, it hit 7.1% 2 ica while also actively discussing one with of GDP, nearly a percentage point more 1 + China. In the late 1990s, Mr Howard than it was when Mr Keating was put in 0 adroitly saw o a xenophobic challenge mind of banana republics. Chris Richard- – from Pauline Hanson’s One Nation party. son, director of Access Economics, an in- 1 As one of the most multicultural societies uential think-tank based in Canberra, 2 1990 92 94 96 98 2000 02 04 on earth, Australia enjoys excellent race re- puts it bluntly. We have failed at manag- lations, and Mr Howard has quietly raised ing prosperity, he concludes. John Ed- Source: Thomson Datastream The Economist May 7th 2005 A survey of Australia 3
The limits to growth
Australia’s constraints are all on the supply side. They need to be tackled
OU can see it best from the air. At Dal- on productivity, until recently Australia’s relations jurisdictions. Yrymple Bay in Queensland (above), on most impressive statistic. Throughout the There is no escape. The state of Queens- any given day recently, more than 40 huge 1990s, and into this decade, labour pro- land’s website, for example, lists awards ships have been lining up waiting to take ductivity (the amount of output per hour for bagmakers, beauty therapists and on coal. Australia has plenty of the stu , worked) grew at more than 2% a year, workers in butter and cheese factories, and China’s demand for it is so voracious among the highest rates in the OECD and along with 293 others. The national Ses- that this year’s contracts are being signed much better than America’s (see chart 2, sion Singers (Backing Vocals on Records) at prices 70% higher than last year’s. But next page). America is still signi cantly Award does not just spell out pay and the infrastructure not the mines, but the more productive than Australia, mostly conditions in minute detail, it even speci- rail links to the port and the loader itself because it uses far more information tech- es the time of night when the singer must cannot keep pace. That is one reason why nology, but the gap has been slowly clos- be put into a taxi home. Australia’s exports have stagnated, even ing. However, there are now signs that It is true that the awards system these though its terms of trade (the ratio of ex- Australia’s productivity growth is slowing. days a ects only about 20% of workers: a port to import prices) are more favourable Small wonder, then, that as the date far bigger share (36%) are covered by a than at any time since the 1970s. when the government will take control of more familiar system called enterprise bar- Dalrymple Bay is the most obvious the Senate approaches, business-backed gaining, brought in under Bob Hawke’s bottleneck, but there are plenty of other and free-market lobby groups are scurry- government in the 1980s and extended un- examples of supply-side constraints. Re- ing to publish their wish-lists. The fourth der Mr Howard. But the long arm of the serves of surplus capacity have been ex- Howard term, they reckon, marks a his- AIRC reaches here too: it has to certify that hausted by growth. Congestion at ports toric opportunity to do things that no pre- any such agreement passes a no disad- and on rail networks is only part of it: g- vious government has had both the will vantage test, meaning that the terms and ures from the National Australia Bank and the means to tackle. conditions are no worse than if there were show that capacity utilisation in manufac- no agreement. turing industry is at its highest level for 15 Axing awards A similar test applies to one of the How- years. Most serious, because slowest to rec- Top of everyone’s list is Australia’s labour ard government’s most trumpeted tify, is a shortage of skilled and even not- market. Australia long ago evolved a achievements, the introduction of Austra- so-skilled people. Australia’s unemploy- highly idiosyncratic system of industrial lian Workplace Agreements (AWAs), ment rate has fallen to 5.1%, which the relations in which, for great swathes of the individual contracts between an employer OECD regards as being close to rock bot- economy, not just detailed pay scales, but and a single employee. The great advan- tom in an advanced economy. hours of work, tea breaks, holidays, sick tage of AWAs, and to a lesser extent of en- Chip Goodyear, chief executive of Aus- pay and many other conditions in all, a terprise bargaining, is that they provide for tralia’s largest company, BHP Billiton, says breathtaking list of 20 allowable areas much more speci c linkages between pro- that among his biggest headaches is nd- are centrally determined. ductivity and pay. The government says ing enough quali ed engineers to run his This is done through a system of the results have been excellent, for em- mines; he would like to recruit in China awards , sets of rules each covering a spe- ployees as well as employers. The average and India, if the government will let him. ci c industry or sometimes a business. weekly pay for workers on AWAs is about This is particularly remarkable given that There are about 2,200 federal awards, 35% higher than for workers on collective mining, these days, is more than ever a granted by a hugely powerful tribunal agreements. AWAs cover only 2-3% of the capital- rather than labour-intensive busi- called the Australian Industrial Relations workforce, but have a much bigger e ect ness. A shocking proportion of the fruit Commission (AIRC), plus another 2,000 than their numbers suggest because they crop in the state of Victoria is left to rot be- granted by ve of Australia’s six states. in uence enterprise bargaining. cause there are not enough fruit pickers. (The state of Victoria has ceded its powers One e ect of all this is that Australia’s The central bank points to labour short- in this area to the federal government.) minimum wage, at A$467 ($365) a week, is ages in industries ranging from construc- This means that a big employer may have among the highest in the world. Moreover, tion and engineering to accounting and IT. to deal with no fewer than six di erent, the minimum wage is revised upwards an- These bottlenecks are taking their toll and sometimes inconsistent, industrial- nually by an unelected committee. 1 4 A survey of Australia The Economist May 7th 2005
2 Industrial relations was the one area of ter Saunders, of the CIS, gives the example reform in which the Hawke-Keating Labor Keep it up 2 of a single parent with two children who governments pulled their punches be- Australian labour productivity per hour worked would nd that, with a part-time job pay- cause of their union connections. Mr How- As % of US productivity at purchasing-power parity ing A$24,000 a year, 74 cents of each extra ard has been held back by his lack of a Sen- 86 dollar earned would disappear in taxes ate majority. In an ideal world, he would 84 and lost bene t. A family with two chil- now take an axe to what remains of a ludi- dren and a single earner on average pay 82 crously complicated system, scrapping faces an e ective marginal tax rate of 61%, awards and the AIRC, though perhaps re- 80 one of the highest gures in the OECD. taining a single national minimum wage, 78 It is not, the prime minister explains, an set by Parliament at a much lower level 76 easy problem to solve, because the two than the present one, and some basic na- 74 simple solutions ending means-testing tional rules on holidays, maternity leave 72 for bene ts or scrapping bene ts alto- and the rights of part-timers. gether both have severe disadvantages. In practice, though, not even the inti- 1964 70 75 80 85 90 95 2000 04 But improved bene t-tapers would help; est employers are advocating this. In Aus- Sources: Groningen Growth and Development Centre; and there is a sound economic argument The Conference Board tralia, notions of mateship and the fair for not means-testing some bene ts (child go are still strong, and the prime minister bene t, for example) at all. Australia also is wary of following the American model the way in which it is levied. Australia’s needs to reform its generous disability too closely. But employers want to see the top rate of income tax is 48.5%, kicking in at payments, which are out of control: over number of allowable areas in awards only A$70,000, about 1.4 times average the past 20 years the proportion of adults slashed to perhaps six; the AIRC stripped full-time earnings. The threshold is being receiving the bene ts has more than dou- of its role as an arbitrator; an end to the no raised to A$80,000 in July, but that will bled, with much of the increase attribut- disadvantage test; and a single, uni ed ease the burden only slightly. In America, able to bad backs . federal industrial-relations system put in by contrast, the top rate kicks in only on in- One further tax reform that Mr Howard place. Other items on the wish-list include comes of 12.5 times average earnings. Aus- could deliver is the ending of an over-gen- hacking away at the rules that make it hard tralian employers are pushing hard for a erous giveaway to the middle classes: the to sack unsatisfactory sta . Mr Costello, less incentive-eroding tax structure, but taxation of capital gains on assets held for the treasurer, says this has been blocked in seem unlikely to get their way. Voting is at least a year at the low rate of 24.25%. Not the Senate no fewer than 41 times. Phillip compulsory, so Liberal politicians do not only does this encourage all sorts of cre- Ruthven, chairman of IBIS, a Melbourne have to worry about getting their natural ative accounting, but it has also helped forecasting and business-information supporters to the polls, but instead concen- pump up a troublesome property bubble group, and a refreshing optimist, sees radi- trate on swing voters most of whom are (see next article). cal industrial-relations reform as, above not top-rate taxpayers. So far the government has given little all, liberating for the individual worker. Reform at the other end of the scale is a indication of how much, if any, of this it is better bet. Australia’s generous system of likely to tackle. But interestingly for a party Taxing questions bene ts, coupled with relatively high tax whose discipline over the past decade has Next on the wish-list is tax. Australia is levels at the bottom end, mean that people been legendary, the Liberals now face dis- widely seen as a low-tax economy, with on low incomes can easily face an e ective sent in their own ranks. A ginger group the federal government taking around 21% marginal tax rate of 60% or even more. Pe- of around 30 mostly young Liberal MPs is of GDP and the various state, territorial pushing for sweeping tax cuts. and municipal governments another 10% on top of that through value-added tax Not too greedy 3 Inferior infrastructure and local imposts such as property taxes Tax revenues as % of GDP, 2003* Taxes and industrial relations are areas and stamp duties. That, indeed, is well be- where the left and the right are never likely 0 1020304050 neath the OECD average of around 36% to agree: but in the area of investment, the (see chart 3). Sweden government’s Labor critics and its natural But, argues Peter Burn in a paper for the France supporters in business have formed com- CIS Centre for Independent Studies ( ), a † mon cause in condemning Mr Howard’s free-market think-tank, the gures are mis- OECD total record. In evidence, both camps cite a leading. The OECD average is unweighted, Germany sheaf of recent reports pointing to various OECD meaning that low-tax America counts for Britain bottlenecks and shortages, from the , the same as high-tax Luxembourg. If the the IMF and Australia’s own central bank. average were to be weighted by GDP, Aus- New Zealand Naturally, they disagree on what to do tralia’s tax rate would come out slightly Canada about it. For Labor, the solution is rela- above it. Taxation in Europe may be Australia† tively simple: spend more. The cautious higher, but Australia is, in fact, a relatively Mr Costello’s obsession with running a † high-tax economy compared with those of Japan constant budget surplus is seen as a its principal markets, in Asia and America. South Korea wasted opportunity. Limited borrowing And during the Howard years the tax take United States for investment purposes would indeed has gone up slightly, not down. have been perfectly reasonable, especially † Worse than the level of tax, though, is Source: OECD *Provisional 2002 given that government debt amounts to1 The Economist May 7th 2005 A survey of Australia 5
2 only 2.3% of GDP, compared with an several state governments as well as the federal government is setting up 24 techni- OECD average of around 45%. federal and any number of local ones, is cal colleges in competition with the TAFEs Businessmen such as the redoubtable sure to be a regulatory nightmare. Things which will concentrate on trades, mainly union-busting Chris Corrigan, head of Pat- are not as bad as they used to be: it took a di erent kinds of engineering. rick Corporation, disagree. The private sec- century for Australia’s states to adopt the The new colleges may shake things up tor can handle all of Australia’s infrastruc- same railway gauge, and the rules for road a bit, but there is an endemic lack of com- ture needs, he reckons, if only government haulage have only fairly recently been uni- petition in Australia’s educational system. would get out of its way. He should know: ed. But many people believe that Austra- Bob Carr, the premier of New South he is trying to build a A$3 billion inland lia has one layer of government too many. Wales, says that, as a matter of policy, the railway, connecting Melbourne to Bris- The states guard their powers too jealously performance of public schools in his state bane, with a spur to Sydney, and his big- and have frosty relations with the centre. is not published. This means that parents gest problems are regulatory, not nancial. The same caveats apply to another of nd it hard to make rational choices un- Chip Goodyear of BHP Billiton is in the the supply-side constraints on Australia’s less they choose to go private, which a same camp. His company has no real infra- economy: education. Australia’s educa- third of them now do. Competition is also structure problems because for the most tional indicators are good, but not great. lacking at the university level, which is the part it has built its own railway lines to Participation in non-compulsory educa- responsibility of the federal government. connect its mines with port facilities it also tion is below the OECD average, and drop- Although universities have been given owns. Dalrymple Bay, which is fed by out rates at universities are an appallingly limited freedom to set their own fees, they state-owned railways, may be congested, wasteful 40%. remain tightly controlled by Canberra bu- but Port Hedland, in western Australia, One reason is that Australia’s public reaucrats: the number of places they may certainly is not. The private sector, he reck- schools are not well run. The money for o er in every discipline is set centrally. ons, is better at planning for the future them comes mostly from the central gov- There is room for more competition in than is the public sector. ernment, but they are administered by many other areas too. Paul Keating, the for- But even if the Howard government state governments. Their curricula are rig- mer prime minister, who did more than gets much better at tackling its infrastruc- idly laid down by state governments, and anyone to open up Australia to compe- ture problems, there is one constraint it can schools are among the last bastions of un- tition, claims that the Liberal government do little about. Australia is a federal state, ion in uence in Australia: headteachers likes business, but it does not like compe- and most such decisions are made not by have few powers of discipline. tition. Thanks to tari cuts to almost noth- the federal government but by those of the According to Brendan Nelson, the edu- ing, large chunks of the Australian econ- six states (New South Wales, Victoria, cation minister and a rising star in the Lib- omy are now ercely competitive. But Queensland, South Australia, Western eral Party, the federal government is now there are still too many protected sectors, Australia and Tasmania) and the two terri- concentrating its e orts on training, on including newsagents, the legal profes- tories (the Northern Territory and the Aus- which he thinks the states have done sion, most public services, health insur- tralian Capital Territory, around Can- poorly. He is scathing about the states-run ance, pharmacies and international avia- berra). All eight are Labor-controlled, and TAFEs (Technical and Further Education tion, where signi cant barriers to entry all have shown more interest in delivering colleges) places where, he says, people go remain. Cracking some of these open services such as health and education than to learn party management and belly- would yield valuable supply-side bene- in infrastructure investment. dancing, whereas the number of places for ts and help keep a remarkable success Besides, a really big project, involving would-be car engineers has been cut. The story rolling. 7 Beyond lucky
The economy has a lot more going for it than mineral resources
OST people know three things about well connected to Asia. With freight same as all of mining put together. MAustralia, and all of them are wrong. charges amounting to as much as 50% of Still, minerals do matter. They are emi- They think it is vast, remote and lucky as the delivered cost of mineral commodities, nently fungible products (a tonne of ore is in the lucky country , meaning blessed that relative proximity gives it an advan- a tonne of ore) and have proved easy to di- with natural resources and therefore in fact tage over rivals in, say, Latin America. A vert from weakening markets (such as Ja- unlucky , because resources diminish consignment of iron ore from Brazil takes pan) to rising ones (such as China). So they the incentive to specialise in less capri- twice as long to reach Shanghai as from have played a big part in helping Australia cious sources of wealth. Australia. And lastly, far from being (un) adapt as, one after the other but not all at But Australia’s true strengths are quite lucky in having lots of commodities, Aus- the same time, its various markets have the opposite. It is in fact a highly urbanised tralia’s is an economy based overwhelm- gone through di culties. And, thanks and even compact country, with over half ingly on services, which make up close to mainly to China’s insatiable appetite for of its population living in just ve cities, 80% of output, more than almost any- them, prices have recently been at record and almost 85% living in towns. It may be where else. Tourism alone (see box, next levels, lessening a nasty balance-of-pay- impossibly remote from Europe, but it is page) accounts for 5% of GDP, about the ments problem. The big mining compa-1 6 A survey of Australia The Economist May 7th 2005
A beautiful empty country full of In nite variety tourist attractions
WENTY metres below the surface of days, a third of the reef is protected, Daintree national park is one of the Tthe Paci c is a good place to re ect on meaning that shing and collecting coral world’s nest rain forests. Sun-lovers will the majesty of Australia’s natural bless- and shells are completely banned. That nd mile after mile of deserted beach. ings. The Great Barrier Reef must surely protected part is now becoming an exten- Port Douglas, the departure point for both rank among the world’s natural wonders. sive nursery for sh-breeding, helping to the reef and the Daintree, is a lively resort Along the hundreds of miles of its coral restock the entire reef. It makes sense, town with excellent eateries. And that is expanse, even a dilettante diver with but Mr Rumney says. Perhaps as much as just one part of one Australian state. From a day to spend recently encountered reef A$4 billion ($3 billion) of the tourist in- Uluru to the ancient Tasmanian forests, sharks, schools of barracuda, friendly dustry is reef-related. Why would you from Sydney (surely one of the world’s giant cod, turtles, manta rays, strange jeopardise that for the sake of A$350m of coolest cities) to the magni cent wine- jelly sh (some deadly) and myriads of shing? A big cod is worth far more alive lands of the south and west, Australia is a smaller iridescent sh of many di erent than dead. remarkable place for a holiday. kinds. Scaremongers have often shrilled Boat operators are helping out in a No surprise, then, that tourism gener- that the reef is dying, a result of agricul- hands-on way. The most serious threat to ates over 10% of Australia’s export reve- tural run-o from the over-farmed the reef is not agricultural run-o (which nues and directly employs 500,000 Queensland coast. In truth, the preserva- warms the water and increases its nutri- people (as well as many more indirectly). tion of the reef is something of a success ent level, so that the coral gets choked by Despite the tyranny of distance , in the story, a combination of active govern- algae and dies), but a nasty star sh called phrase coined by the Australian historian ment intervention and the bene cial ef- the crown of thorns, originally imported Geo rey Blainey to capture Australia’s fects of responsible tourism. in the ballast tanks of foreign vessels, isolation, tourism is one of the country’s It used to be deemed that tourism which devours coral polyps. At least one fastest-growing industries. And new was the enemy, says John Rumney, big diving operator, the Quicksilver, has sources of visitors are still opening up: manager of the Undersea Explorer, a ship hired divers to collect the o ender. last year about 250,000 came from China, that combines eco-tourism with scienti c Not everyone comes to Australia to nearly 50% more than the year before. research. But tourism has given people dive the reef, but even for landlubbers the Once again, Australia seems to have an incentive to preserve the reef. These Queensland coast has much to o er. The struck it lucky.
2 nies, BHP Billiton, Rio Tinto and Woodside, that is one reason why Air France runs its extraordinary and potentially dangerous have turned in thumping results that have Asian sales operation out of Australia, borrowing binge. Globally low interest pushed the stockmarket to new highs this even though it has no direct ights to the rates have been a prime cause, but Austra- year. Next year’s results could be just as country yet. American Express has based lian politicians have stoked the re with good, given the stunning rises in contract its Asia regional operations centre in Aus- their own unwise decisions. prices now being negotiated. But the year tralia, and Deutsche Bank uses Sydney and One, in 1999, was to cut the rate of capi- after? High prices are driving big capacity London as its two global hubs for process- tal-gains tax to 24.25%. This marked the be- increases everywhere, not just in Austra- ing foreign-exchange transactions. Mr ginning of an Australian love a air with lia, so price falls may not be far behind. Dra n quotes the World Bank, which says owning a second home. A contributory As for remoteness, it is all a question of that Australia is about the easiest country cause was a practice called negative gear- perspective. Remote Australia is rapidly in the world to start a business, with regu- ing , under which the entire cost of a mort- turning itself into a regional hub for all latory procedures taking only two days, gage on a rental property can be o set sorts of businesses. Foreign direct invest- and the World Competitiveness Yearbook, against the owner’s income not just from ment (FDI) has been ooding in, thanks to which judges Australia the best place in that asset, but from any source. Nor does a robust legal system, transparent and ef- the Asia-Paci c region for patent and copy- the property actually have to be rented fective government and a multilingual right protection and the second best for out: it need only be available for rental , workforce strong in IT skills and nance. transparency in government policy. It is so if the owner sets the rent high enough, The government claims that last year (ad- also a remarkably IT-savvy place, for he gets a holiday home with half his mort- mittedly an exceptional one) Australia which the government, a world leader in gage paid for by the taxman. Generous de- chalked up an astonishing A$57 billion e-government, can claim much credit. preciation allowances and grants for rst ($42 billion) in FDI, which compares im- homes have also helped to push up house- pressively with the $60 billion that went to Softly, softly price in ation. China, with 65 times as many people. Two other reasons to be optimistic are that Along with the property boom has Much of this money has been chasing Australia now appears to have a good gone a sharp rise in household debt. Mea- Australia’s mineral assets, but much, too, chance of avoiding the twin evils of reces- sured as a proportion of disposable in- has been aimed at the service sector. One sion and in ation as its economy starts to come, this has doubled over the past de- in four Australians was born outside Aus- tighten; and that it has not, so far at least, cade to over 160% (see chart 4, next page). tralia, and these days those outsiders come su ered the property-price crash that On the other hand, the debt is well cov- from a bewildering (but increasingly many people feared. ered: gross household wealth is eight times Asian) array of countries, making Austra- Property prices have been a worry, income, twice what it used to be. But, with lia by far the most polyglot country in the though. Over the rst four years of this de- two-thirds of household wealth now held region. According to Gary Dra n, head of cade, the main indices showed house in the form of property, against a third in Invest Australia, a government agency, prices rising by close to 100%, thanks to an shares and other nancial assets, the hous-1 The Economist May 7th 2005 A survey of Australia 7
2 ing market can have a big e ect on the Aus- changes. Under Ian Macfarlane, who has tralian economy, for good or ill. How profligate can you get? 4 been governor since that year, the bank Property prices appear to have peaked Australian household debt has not been afraid to use this power, even at the end of 2003 and may have dropped as % of personal disposable income when the government has strenuously ob- slightly in 2004, although such averages 180 jected. A quarter-point increase in March conceal big di erences between di erent this year was textbook stu : a small rise kinds of property. A further decline is pos- 160 now to avoid a larger one later. But politi- sible this year, especially after a rise in in- 140 cians would not have dared do it at a time terest rates in March. But there is certainly when the economy is visibly slowing. no sign of a free fall. And despite more 120 Most economists reckon that Austra- than a year of soft house prices, consump- 100 lia’s boom still has some way to run. Min- tion has held up pretty well. It looks as eral companies are falling over themselves though the central bank, which raised in- 80 to add more capacity, and reforms after terest rates twice in 2003 but not at all in July 1st should provide at least some sup- 2004, has managed delicately to de ate 1994 96 98 2000 02 04 ply-side boost. And apart from the housing Source: Reserve Bank of Australia the bubble without causing a crash. market, most economic indicators still look healthy. The corporate sector is in es- The early bird neglect to rein in in ation before it can take pecially good shape. Pro ts as a propor- But what of the wider economy? We have hold; and the second is to over-react to it tion of GDP are at a 50-year high, and so is arrived at an interesting and delicate time once it appears. The result is high in ation business investment, which is running at in our business cycle, says Saul Eslake of or a severe recession, or possibly both. 14.2% of GDP. Unlike households, busi- ANZ. Every recession in Australia’s post- Perhaps the greatest single achieve- nesses have used the fat years to pay down war history has started at precisely this ment of the Howard government was to debt, so if further rises in interest rates are point, he explains: when the economy is grant the central bank full independence needed, they will do little to hurt employ- stretched as tight as a drum, and when two in 1996, so it no longer needed the trea- ment. Australia is in good shape to mistakes are typically made. The rst is to surer’s agreement for any interest-rate weather a period of lower growth. 7 The reluctant deputy sheri
Australia’s skilful foreign policy has made it many friends. Keeping them all happy will not be easy
N TWO successive days in October America and the West, and away from the sian government, it was hugely resented, O2003, Australia’s two houses of Par- enthusiastically pro-Asian sentiments of especially by the powerful Indonesian liament met in joint session to hear rst his predecessor, Paul Keating. On the very army. Throughout the presidencies of B.J. President George Bush and then President day on which the new government was Habibie and Abdurrahman Wahid, and Hu Jintao of China. Though many Austra- sworn in, America dispatched two aircraft- well into that of Megawati Sukarnoputri, lians, and not just of the left, found it hard carrier battle groups to the Taiwan strait relations between Australia and the largest to decide whether it was the warmonger after China started lobbing missiles to- and most powerful member of the Associ- or the tyrant whose presence they found wards the island. Mr Howard endorsed the ation of South-East Asian Nations more objectionable, the visits proved one deployment, to Chinese fury. (ASEAN) remained glacial. point: Australia has become a country of The Asian nancial crisis of 1997-98 At the same time, ties with America im- disproportionate consequence in world caused a certain amount of Schadenfreude proved, especially following the election a airs. It has achieved the unlikely feat of among Australians, who still remembered of George Bush, whom Mr Howard found close friendships with both the world’s the warning issued in the 1980s by Singa- much more congenial, personally and po- most powerful state and its most populous pore’s prime minister, Lee Kuan Yew, that litically, than Bill Clinton. But the biggest one, friendships that are being turned into they risked becoming the white trash of change came on September 11th 2001. Mr hard cash. Last year Australia signed a free- Asia . It also led directly to the collapse of Howard felt the terrorist outrage deeply, all trade agreement with America; in April it General Suharto’s regime in Indonesia, the more so because he was in Washing- opened negotiations on one with China. which in turn led to the event that most ton, DC, on that fateful morning. Australia These days, Alexander Downer, Austra- alienated Australia from its Asian neigh- invoked the right of collective self-defence lia’s e ective if prickly foreign minister, bours: its intervention in East Timor, after under the ANZUS security pact to pledge can plausibly say that there is no need to that wretched Indonesian province voted its support for America. Along with Tony trade o America against Asia : Australia for independence and then descended Blair, Mr Howard has proved one of Amer- has managed to have both. into mayhem. In 1999, Australia organised ica’s most steadfast allies in the war on ter- This has not, however, been easy or and headed a multinational peacekeeping ror, volunteering to send Australian troops straightforward. After John Howard took force to which it contributed 5,700 of its for the invasion of Iraq even though the o ce in 1996, Australia’s priorities seemed own troops, half the total. Though this was war was deeply unpopular in his country. to swing back clearly in the direction of done with the acquiescence of the Indone- Although several Asian countries, includ-1 8 A survey of Australia The Economist May 7th 2005
2 ing Japan, South Korea, Thailand and the Bambang Yudhoyono, a courtesy he had Philippines, later sent troops too, Austra- not extended to previous presidents. Boomerang 5 lia’s two Muslim neighbours, Indonesia A further sign of Australia’s rehabilita- Demand for Australian exports and Malaysia, were strongly opposed. Mr tion in the eyes of ASEAN came last No- 5 Howard did not help matters by agreeing vember, when Australia (along with New ASEAN Japan with an interviewer that he was America’s Zealand) was invited to attend ’s Taiwan deputy sheri in the region. summit meeting in Laos. Shortly after that 4 came the second tragedy that profoundly South Korea Malaysia Good out of evil changed Australians’ and South-East China & Thailand Hong Kong Philippines Two tragedies have helped to reshape Aus- Asians’ views of each other: the tsunami 3 India tralia’s relations with South-East Asia. The of December 26th. The response by ordin- Indonesia rst was the Bali bomb of October 2002, ary Australians was magni cent. They do- Vietnam which counted 88 Australians among its nated about A$300m ($235m), to which 2
202 victims. In its wake, the police forces of the government added A$1 billion. But Income per person (log of GDP person) Indonesia and Australia embarked on a even in such adversity old habits die hard: programme of close co-operation that the troops Australia sent to the devastated 0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 Relative share of Australian exports worked, and has gone on working, surpris- province of Aceh were viewed with suspi- ingly well. Some 30 people suspected of in- cion by the Indonesian armed forces, Source: Access Economics volvement in the attack have been which are suppressing a secessionist upris- rounded up. Jemaah Islamiah, the al- ing there. with Malaysia. The real prize, though, will Qaeda o shoot held responsible, may not Plainly, there are still tensions: Mr How- be the proposed FTA with China, poten- have been eliminated, but it has been ard caused o ence by refusing to sign up to tially the rst that China will sign with a badly weakened. The Australian intelli- ASEAN’s treaty of amity and co-opera- developed country. gence services now work very e ectively tion which he instinctively feels is anti- If ever there were two countries that with their counterparts in Indonesia, Ma- western. In general, he has preferred bilat- were made for each other, at least eco- laysia and Singapore, and this practical co- eral arrangements to multilateral ones. nomically, it must be Australia and China. operation has given a boost to the relation- This has its drawbacks: driven mainly by Australia has the raw materials coal, iron ship at higher levels. For example, Mr concern about China, Asia is moving fast ore, gas and even oil that China needs; Howard last year attended the swearing-in towards some form of regional institution- China makes all the manufactured goods ceremony for Indonesia’s president, Susilo building, with a planned East Asian Com- that Australia needs to import. munity , consisting of the ten ASEAN na- A graph of a country’s demand for raw tions plus China, Japan and South Korea, materials, as it happens, looks a bit like a being its most promising form. Mr Howard boomerang (see chart 5). At a certain stage must do much more to ensure that Austra- of development, as with, say, Japan in the SOUTH lia is moving in the same direction. In the 1950s and 1960s, demand for metal and CHINA KOREA end, he will probably have to back down coal becomes intense as rail networks are JAPAN and sign the treaty. built and demand for cars, fridges and MYANMAR The use of bilateralism as a political other materials-heavy goods soars. Later and economic tool is also much in evi- on, as the country gets richer still, demand TAIWAN dence. Last year, Australia completed ne- switches to less weighty goods: nancial gotiations on a free-trade agreement (FTA) services, music, movies and holidays. Aus- THAILAND with America, which took e ect on Janu- tralia’s good fortune is that, not long after VIETNAM FTA PHILIPPINES ary 1st. It has also signed s with Thai- Japan began its backswing, China started ACEH land and Singapore, and is studying one booming. And it could be a long time be- MALAYSIA fore China’s demand for raw materials starts to ebb. Once the rift caused by the NAURU Taiwan crisis in 1996 had healed, Mr How- INDONESIA PAPUA NEW SOLOMON ard started courting the Chinese and never GUINEA SINGAPORE BALI ISLANDS stopped. This year’s statistics are likely to show that China has become Australia’s EAST TIMOR second-biggest trading partner, taking over from America (see chart 6, next page). INDIAN If it could, Australia would go on hap- PACIFIC OCEAN AUSTRALIA pily being friends with both China and America. But there is one obvious pro- OCEAN blem, notes Hugh White, head of the Stra- Canberra Sydney tegic and Defence Studies Centre at the Australian National University. In the past, Australia’s biggest trading partner, Japan, NEW ZEALAND was a close ally of its closest ally, America. SOUTHERN OCEAN The America-China-Australia triangle is a 2,000 km di erent construct altogether. 1 The Economist May 7th 2005 A survey of Australia 9
2 Before September 11th 2001, China was ners is Papua New Guinea. It is far bigger regarded as a strategic competitor in Lands of opportunity 6 than the Solomons (5.8m people rather Washington and as the engagement in Australia’s top trade partners, $bn than 500,000), very much closer, and was Iraq winds down, it is sure to become so Exports: Imports: an Australian colony until 1975. It has an again. Already, tension between America 1994 2004 1994 2004 appalling AIDS problem, a history of at- and China over Taiwan has been ratcheted 30 tempted secession and abortive coups, up a few notches. And Australia has al- and an economy that has stagnated since ready been drawn into Sino-American ri- 25 independence. In the hope of forestalling valries by an American demand that it 20 its collapse, Australia has long thrown help lobby European countries not to lift 15 money at it: now it is throwing people. their arms embargo against China. In an exercise modelled on the Solo- 10 This unwanted loyalty test will seem as mons intervention, but without the mili- nothing compared with what will happen 5 tary component, Australia in December if America has to assert itself again in the 0 2003 launched its enhanced co-operation Taiwan strait, and asks as it surely will Japan United China South New Britain programme for Papua New Guinea, send- States Korea Zealand for Australian support, citing the ANZUS ing Australian police o cers and civil ser- pact. The di culty of being all things to all Source: Department of Foreign Affairs and Trade vants to work there. Something similar, men would rapidly become apparent. but on a much smaller scale, is happening strumental: it helped to focus minds on the in Nauru. The jury is still out on the new The near abroad dangers of failing states. doctrine of co-operative intervention , These storm-clouds aside, one unsung suc- The Solomons, a collection of 1,000 is- but at least the Australians are trying. cess of the Howard years has been its will- lands wracked by civil war and political If only they could show the same ingness to take up the burden of the South and economic breakdown, marked a key imagination in their relations with East Ti- Paci c, a collection of dysfunctional island departure for Australia. Little more than mor, which they bravely helped create in nations that no one else wants to grapple two years ago, the Australian government 1999. Australia and the world’s newest with. The rst instance was the Australian- was still insisting that it could not pre- country are still locked in a nasty argu- led intervention in East Timor, in 1999: but sume to x the problems of the South Pa- ment over the share-out of revenues from that involved two dozen countries and ci c countries . But as the situation in the oil deposits in the Timor strait. was blessed with a full-scale UN Security islands, a three-hour ight from Brisbane, The original deal, based on a carve-up Council resolution. More recently, Austra- continued to deteriorate, the government going back to the time of Suharto, when lia has found itself drawn into much performed a complete U-turn. In July 2003, Australia was one of the few countries in smaller-scale operations with a big civil- it established and led a multilateral, but the world to recognise the occupation of ian component in the Solomon Islands, in overwhelmingly Australian, regional-as- East Timor, was extremely favourable to Papua New Guinea and even in Nauru: all sistance mission. The Australians are now the Australians. It should now be renegoti- countries that became independent only training the Solomons’ own police, and ated, because on any reasonable reckon- in the late 1960s or 1970s, and have sig- have brought in a team of civil servants to ing most of the oil lies in Timorese waters. nally failed to prosper. Elsina Wainwright, help rebuild the country’s economy so Australia has o ered big concessions, but an analyst at the Australian Strategic Policy that it will eventually be able to function not yet big enough. Its continued mean- Institute who has written on Australia’s on its own. ness to East Timor is a blot on its otherwise near abroad , sees September 11th as in- But what really spooks Australian plan- shining foreign-policy record. 7 God under Howard
The prime minister keeps on winning elections because he understands how Australia has changed
EN minutes into the service, and sev- suburb of Sydney for just one of ve Sun- founded Hillsong, once wrote a book Teral young women are openly weep- day services, each 90 minutes long. After- called You Need More Money . This is not ing. Others are collapsing into their seats, wards they queue to buy recordings of the so much religion but self-help for the apparently in religious ecstasy. Almost ev- sermon they have heard in the esh only would-be a uent. But with its heavy-rock eryone is reaching out with their arms, minutes earlier. Not one but two collec- hymns of praise to the bountiful Father, its palm forward, hoping perhaps to touch tions have been taken. massed choirs, its dancers and its howling the face of God, but lending the proceed- Hillsong tells people what they want to preachers, there is no denying that, on a ings an oddly sinister air. Welcome to Hill- hear: that God loves them, that they are certain level, it works. song, said to be Australia’s fastest-growing special, that if they believe they will It may be tempting to dismiss Hillsong church, having risen from a congregation prosper. Not much is said about loving as an extreme example of prosperity of 45 when it rst started in 1983 to more your neighbour as yourself or indeed Christianity and ignore it, but John How- than 15,000 now. Well over 2,000 people about an austere and unworldly man ard and his Liberals certainly haven’t. In pack into its hangar-like hall in an inner named Jesus. Pastor Brian Houston, who 2002, when Hillsong opened a new, bigger1 10 A survey of Australia The Economist May 7th 2005
middle-income earners. In all, it promised an extra A$66 billion ($51 billion) over four years. It seemed to work. Increasingly, the suburbs are places not of deprivation, but of aspiration. Take Campbelltown, a district in south-west Sydney that falls partly within the national constituency of Werriwa, the seat once held by Gough Whitlam, Labor’s 1970s prime minister, and more recently by Mark Latham, who led Labor to catastrophic de- feat in last October’s general election. The Liberal Party hardly bothers to campaign here: at the Werriwa by-election in March, held to replace Mr Latham, who quit Par- liament, it did not even eld a candidate. Even so, on the Campbelltown council God loves us Labor cannot muster a majority. Camp- belltown’s Labor mayor, Brenton Ban eld, 2 complex in north-western Sydney, Mr trate on their own families and homes, is honest enough to acknowledge that Mr Howard came along to open it. Peter Cos- says Hugh Mackay, a social researcher and Howard makes a good job of coming tello, the treasurer, has spoken at Hill- journalist. Not for nothing has Backyard across as an average bloke , the sort that song’s annual conference. In fact, many Blitz been one of the most popular televi- understands the suburbs. He is right, be- members of the Howard cabinet are de- sion programmes of recent years, at a time cause that is where the prime minister vout Christians (although Mr Howard when six of Australia’s top ten charities comes from. He is the son of a garage himself is somewhat ambivalent). In Can- have seen their takings fall. owner from the Sydney suburbs, whereas berra these days, political prayer break- By 1996, Labor had alienated too many his opponent, Kim Beazley, is the son of a fasts have become unmissable. Australian battlers with its obsessions Perth MP and minister. Yet the place hardly seems to be in the with ending the monarchy, declaring Aus- And although Campbelltown has its grip of the religious right. A couple of miles tralia part of Asia and apologising to its Ab- pockets of high unemployment you even from the Hillsong church is Oxford Street, origines none of which are barbecue see the odd gra to in Glenquarry Estate with a high concentration of gay bars and stoppers , as Mr Howard would say. The most of it looks prosperous, and is becom- clubs: Sydney and San Francisco still vie secret of his success, he insists, is that he lis- ing more so. Its green hills are alive with with each other for the title of the world’s tens to people, not least by frequently go- the sound of building, and its ritzier areas, gay capital. Those otherwise inclined ing on talk-back (phone-in) radio. such as Denham Court, are the site of would not have to walk far to nd a num- We’ve ended the perpetual seminar on amazing mansions built by local people ber of entirely legal brothels. Australia’s our identity, he claims. who have made good. Will such people go evangelical churches may be booming, but on voting Labor? Perhaps not. the country still embraces staunchly lib- From the suburbs It is often said that Mr Howard keeps on eral values. Yes, Tony Abbott, the health With four general-election victories under winning elections because of the econ- minister (and a former monk), has been al- his belt, Mr Howard is probably the most omy, stupid. But it isn’t quite that simple. lowed, from time to time, to raise the sub- successful serving democratic leader in the Of course a 14-year boom helps, but voters ject of abortion. But no one seriously be- world and most observers reckon he in- seem to realise full well that the ground- lieves that the Howard government is tends to run for a fth term in 2007. The se- work was laid by Labor’s reforms. Labor going to open that Pandora’s box. Yes, Fam- cret of his success is to be found in the sub- now has to do more than just convince vot- ily First, a new party of the right, picked up urbs, the vast sprawling expanses of ers that it can handle the economy as well a Senate seat in last year’s election. But the Australia’s ve big cities, and most of all in as the Liberals; it needs to convince ordin- Senate’s election rules are so strange that Sydney. It is pre-eminently here, in the Syd- ary middle-class people that it under- such quirks can happen and then zzle ney suburbs, that Australian elections are stands their concerns. The trouble is that out again. won and lost. And it is here that the Liber- too many of Labor’s leaders are creatures The attention paid to Hillsong is a als have made deep inroads into what was of the trade unions: at worst, apparatchiks symptom of something much broader: Mr once solid Labor territory. such as Simon Crean, a former leader of Howard and his party have understood, Liberal politics, reckons one pundit, is both the trade-union movement and of and pro ted from, a big shift in Australian about ignoring the people who are never the Labor party and now shadow trade attitudes. When he rst came to power, he going to vote for you, ignoring the people minister; at best dependent on union said he wanted to preside over an Austra- who are always going to vote for you and money and votes. Yet only 23% of the lia that was relaxed and comfortable , a concentrating on those in the middle. In workforce are unionised. remark that was much derided at the time, the run-up to last October’s election, the The enduring power of the unions was but has come in a way to de ne his leader- government targeted the kind of lower- neatly demonstrated in January, when La- ship. After the economic upheavals of the middle-class young families who live in bor had to choose a new leader following 1980s and early 1990s, Australians now the Sydney suburbs. It announced huge the resignation of Mark Latham, who had want to turn inwards a little and concen- give-aways for families and tax breaks for led them to defeat in last October’s elec-1 The Economist May 7th 2005 A survey of Australia 11
2 tion. The man they should have chosen was Kevin Rudd, by far the brightest talent How Howard gets his way 7 on the Labor front bench. But Mr Rudd is a Seats held in Australia’s: former diplomat, not a union man. Insid- House of Representatives Senate* ers say that he was in with a chance until Country Liberal National Party Independent National Party/ the Queensland unions more or less or- Party 12 2 Country Liberal dered their MPs not to support him, hand- 1 Party ing victory to Kim Beazley, the veteran for- Independent Others 6 mer leader whom Mr Howard has 3 7 C O A COA defeated twice before. L I L Labor Party T Labor Party IT I I That said, the present opposition front 60 O Liberal 28 O Liberal bench looks a good deal less union-domin- Total: N Party Total: N Party ated than in the past, and now boasts 150 74 76 33 Source: Parliament of Australia *From July 2005 some impressive talent, including Mr Rudd, Wayne Swan, the shadow treasurer, and Stephen Smith, the shadow minister Mummy parties sympathetic and hap- ing away at the government for not invest- for industry. piest when doling out wads of cash ing enough, to some e ect. Another factor against Labor is Austra- whereas the federal government is best Mr Beazley has a ne line in indigna- lia’s federal system. The state governments suited to Daddy parties: stern, moralis- tion when he savages the government for spend the money that touches people’s ev- tic, taking tough and unpopular decisions. squandering Labor’s legacy by failing to in- eryday lives: on local roads, on schools, on That is why, he reckons, the Liberal-led co- vest and using its surpluses for question- doctors’ surgeries (though not on universi- alition has been in power in Canberra for able projects in marginal constituencies. ties). Federal government spending goes 34 of the past 50 years, against Labor’s 16, But too often, Labor still talks in terms of on things that seem more remote, such as and why Labor controls every one of Aus- insiders and outsiders. The problem is that defence and foreign policy, as well as tralia’s state governments. most Australians now consider them- macro-economic management. There is, though, a little hope for the op- selves neither; they simply feel classless Bill Bowtell, a political consultant, bor- position. Labor has at least started to un- and successful. Perhaps Australia has just rows a line from an American columnist, derstand that it cannot a ord to cede the become more sel sh. If so, that is both par- Maureen Dowd, to describe state govern- economy entirely to the Liberals. Mr Swan, ties’ doing; but Mr Howard’s has been ments as the natural province of the new shadow treasurer, has been bang- much better at exploiting it. 7 Australians old and new
The country seems to be at ease with its newest arrivals, but not yet with its rst inhabitants
T SEEMS hard to believe that only a few danger of being swamped by Asians, she gian ship that the Australian government Iyears ago Australians were fretting, and said in her maiden speech in Canberra. ordered out of its waters after it had picked the rest of the world gaping, at the mete- Mrs Hanson and her party have al- up 433 refugees, most of them Afghans, oric rise of a chip-shop owner from ready become merely a footnote of his- from their own leaky boat. The govern- Queensland. In 1996 the unknown Pauline tory. The lady herself was convicted of ment argued that allowing boat-people to Hanson stunned everyone by winning a padding out her party membership list to land merely encouraged a dangerous traf- seat in the federal Parliament. She then qualify for election expenses, though the c and gave them unfair precedence over founded a party, One Nation, which won conviction was overturned. She fell out others patiently waiting in third-country 23% of the vote and 11 of the 89 seats in a with her party and ran as an independent holding centres for their chance of a new Queensland state election in 1998. In the in last October’s general election, losing life in Australia. But the way that the policy general election in the same year, it bagged heavily. Remarkably, her crusade seems to was used for political advantage, with 9% of the national vote, though only one have had little long-term e ect: anti-immi- some success, has done lasting damage to Senate seat. grant feeling in most other rich countries Mr Howard’s reputation. Still, it is worth Mrs Hanson’s message amounted to a runs much hotter, and a party like One Na- recalling that the Labor Party supported mixture of complaints about unemploy- tion would not have faded so fast. Austra- the decision to push the Tampa back. ment, taxation and globalisation the lia, despite Mrs Hanson’s claims, is proba- The Tampa a air made the Howard small-town, small-business gripes that bly more receptive to immigration than government look racist, but the gures tell have fuelled populist movements down any other country. a di erent story. In the year to June 2005, the decades. But two of her claims were It has not always seemed that way. In Australia will have admitted around seen as especially alarming: that the gov- August 2001, the Howard government, 120,000 immigrants, as well as almost ernment was favouring Aborigines over then facing a di cult election, scored a no- 14,000 refugees. As a share of Australia’s white people, and that immigration was ticeable bounce in the opinion polls after population of just over 20m, that is well hurting the average Australian. We are in the Tampa a air. The Tampa was a Norwe- above the number for America, which1 12 A survey of Australia The Economist May 7th 2005
2 takes in around a million a year but has a what, after all, is Australian culture? It is al- landers (natives of the far north). population 15 times greater. Moreover, the ways shifting. That’s how a Chinese im- In every sense, the Aborigines are at the Australian intake has been slowly creep- migrant can become Lord Mayor, he ex- bottom of the heap in Australia. They did ing up during the Howard years. As with plains with a smile. not get the vote until 1962. Their life expec- many things, it is better to look at what the A quarter of Australia’s population was tancy is 21 years less than the Australian government does than what it says. born abroad, and another quarter is made average, with double the rate of infant In 2005-06 the total is set to rise by up of rst-generation natives. At a time of mortality. Aborigines are three times as 20,000 because of Australia’s labour globalisation, this is a tremendous likely to be unemployed as the average shortage. We can take so many precisely strength, and with unemployment at its Australian, and 16 times as likely to be in because we control the borders, says lowest level for almost 30 years further im- prison. Even where they remained on their Amanda Vanstone, Australia’s immigra- migration is unlikely to provoke much dis- ancestral land and found employment un- tion minister. And for our refugees, we content. Parts of Sydney are already start- der white farm-owners, new equal-pay aim to give priority to those most in need, ing to feel noticeably Asian. The suburb of rules in the 1960s worked to their disad- not those who can pay for passage. Cabramatta, in the south-west, has a large vantage: compelled to pay Aborigines the There have been changes in the mix of Vietnamese population: walk around its same as other workers, the farmers pre- immigrants too. The White Australia era main market area, and you will hardly see ferred to re them. is long gone: these days, more than a third an English sign. But it is not a ghetto: most In a remote town such as Katherine, in of each year’s intake comes from Asian people who live there work elsewhere, the Northern Territory, it is easy to see the countries, and the proportion goes on ris- and as people get richer, they swiftly move scale of the problem. Wherever there is a ing. Around two-thirds of immigrants are to more a uent areas. patch of grass, it is likely to be occupied by now admitted on the basis of their skills, a group of Aborigines who have trekked in using a points system to pick the most use- The rst shall be last from outlying communities, where there ful people; the other third comes from re- If Australia has embraced its immigrants, it are no jobs and nothing to do, and are sim- uniting families. The points allocations has been much less successful in coming to ply camping out. Often, they turn to drink. can change from year to year as the needs terms with its terrible past. When Captain On the other side of the continent, in of the economy alter. Critics call this Arthur Philip landed with the First Fleet at Dareton, a small township just north of cherry-picking from poor countries that Sydney Cove in 1788, the original Austra- Mildura in New South Wales, a group of desperately need the services of the lians had already been there for 50,000 Barkindji elders paint a picture of a dismal trained people they have invested in. But years. There were, perhaps, a million of life. There is work for no more than four or nobody disputes that the system bene ts them, members of some 300 distinct na- ve weeks a year, they say, picking fruit. Australia. With unemployment so low, the tions . The settlers seized their land, driv- There are development projects, but most country could easily take in a lot more im- ing them o it and shooting them if they of the money gets creamed o by white- migrants as many as 250,000 a year by resisted. Because the Aborigines did not fellas . The Aborigines are charged more in 2025, reckons Phillip Ruthven of IBIS. practice settled agriculture, they were shops than the whitefellas, and they live in To the visitor, Australia seems like a deemed to have no claim to the continent the most basic public housing. These are, model of harmonious race relations. No they inhabited. Today, there are just perhaps, the most unfortunate of all the matter where you come from, people as- 400,000 Aborigines and Torres Strait Is- Aborigines: neither making their way in1 sume you are a native because in this melt- ing-pot of a place you might very well be. Ahmed, a Kurd who escaped from Sad- dam’s Iraq in the 1980s and now drives a Sydney taxi, says he has never encoun- tered any real racism. This is a great coun- try. If you want to work and stick to the law, people are going to welcome you here, and you can do well, he says. Some have done very well indeed. John So arrived in Australia as a poor im- migrant from Hong Kong 30 years ago. To- day, he is Lord Mayor of Melbourne, Aus- tralia’s second-biggest city, having twice been directly elected to the job. Mel- bourne is a showcase for Australia’s multi- culturalism, he says. Its Lunar New Year celebrations attracted 200,000 people, and Diwali and the Thai water festival also bring in the crowds. Australia has always been a land that welcomed people, a land of immigration, says Mr So: it is just the ori- gins of the people that keep on changing. In other countries, he thinks, such high lev- els of immigration might not work. But Not yet reconciled The Economist May 7th 2005 A survey of Australia 13
2 the cities, where some, especially those of title a concept that struck down the doc- icy of returning land to the Aborigines. mixed race, have done well, nor living the trine applied by the British settlers that the From the early 1970s onwards, a number traditional life that still continues in the re- land they had found was terra nullius, be- of government-funded Land Councils moter north, but existing on the margins of longing to no one. have been charged with acquiring land for the farmland that once belonged to them. Native title, however, as was clari ed Aborigines. Again, the land in question There are a few signs of hope, but not by further legislation and case law, is not does not go to individuals but is held col- many. One is that Aborigines are at last usually the same as ownership. It involves lectively. The biggest of these schemes was starting to take part in mainstream politi- a package of rights, such as the right to set up in the Northern Territory, where Ab- cal institutions. John Ah Kit is a minister in graze and to hunt, the right of access to sa- originals and Torres Strait Islanders make the Northern Territory’s government, one cred sites, and the right of transit. It does up a quarter of the population. Four coun- of only two Aborigines to hold such high not, in general, confer a right to royalties cils there own about 44% of the Territory, o ce. Four of the 13 Labor members of the from any minerals that might be found un- having bought it from existing owners or, 25-strong state Parliament are Aborigines. der the ground, and it can co-exist with more usually, having had Crown land Our people used to feel excluded from other rights, such as pastoral leases. But transferred to them. Similar but smaller government, but we’re trying to change formal leases take precedence, and can of- schemes operate in the other states. In all, that, says Mr Ah Kit. In New South Wales ten extinguish native title altogether. around 16% of Australia is owned in this (where there are larger numbers of Ab- way. But there are no prizes for guessing origines, but they make up a much smaller Ours, but not ours alone that most of it is remote and unfarmable. percentage of the total), Linda Burney, a Native title generally accrues to communi- Noel Pearson, a prominent Aboriginal state MP, is an eloquent and visible ghter ties rather than individuals, and therefore leader, has long argued that encouraging for her people’s cause. cannot be traded. It is not, in short, all that people to remain on such land, where they Another undoubted bright spot is valuable; and it is extremely di cult to es- are almost totally dependent on the poi- painting: aboriginal art, a haunting swirl tablish in the rst place. To assert it, a group son of welfare, is a disastrous policy. of colours and shapes, has taken o in a must demonstrate a continuous connec- Some draw a comparison with the res- big way in Australia and in the wider tion with the land in question. As Rick Far- ervations on which American-Indians world. A third reason for optimism is min- ley, a dogged campaigner on aboriginal have become progressively more alien- erals: many rms now accept that they and agricultural issues, puts it: That’s a bit ated from the rest of America. should pay at least some royalties to the hard if you can’t get to your ceremony Sadly, the Howard government has land’s traditional owners, even though grounds because you’ve been out on a come up with very little in the way of fresh there is no legal obligation. mission or reserve, or because the pasto- or interesting alternative policies. Many Australia has at last accepted the obvi- ralist wouldn’t let you on to his lease, or be- Aborigines now seem to have nothing ous, that a terrible injustice was done, and cause there is no record of your grandfa- more to hope for than an apology for such that restitution ought to be made. But ther on his traditional country. terrible abuses as the stolen generation : how? The drive for reconciliation has Native-title cases are also expensive to Aboriginal children taken from their moth- taken two main routes. One is legal: in a bring. The main bene ciaries seem to have ers to be brought up by whites, an evil that ground-breaking decision in 1992, the Aus- been the lawyers. went on until the 1970s. And it is sadder tralian High Court accepted for the rst Also promising at rst, but in the end still that Mr Howard stubbornly refuses to time that there was such a thing as native even more disappointing, has been a pol- o er that apology. 7 Drizabone
But water shortages can be overcome
HE Great Anabranch of the Darling Bulpunga, home of Keith Forster and his except for some plants in a few sad pots. Triver on the edge of the outback in re- wife, Pauline. Mr Forster’s farm, at 10,000 This is the Australia that Jared Dia- motest New South Wales looks far from acres (4,100 hectares), is one of the smaller mond has written about in his latest book, great these days. A looping 290-mile stations: the average is four times that, and Collapse . This American anthropologist (460km) subsidiary course of the Darling, the largest over 100,000. But without wa- shows how over-farming has exhausted its lower reaches ran dry two years ago ter, they all face ruin. Mr Forster has stoi- Australia’s soil, and how too much clear- after ten years of drought. Now its bed is cally sold o most of his sheep. The land ing by man and trampling by sharp- dry red dust. Spear grass and salt bush used to support around 3,000 of them; hooved sheep has harmed its ability to re- have sprouted along its length. Not even now he has only 100, and those only tain water, exacerbating the e ects of insects stir in the heat of the austral sum- thanks to a well, unused since his grandfa- drought and increasing its salinity. What mer. It seems impossible that life could go ther’s time, that he rediscovered. Even in little water there is has often been wasted on in such a waterless place but, however normal times, each sheep needs three or on growing inappropriate crops. He con- tenuously, it does. four acres, rather than a single acre being cludes that there are too many people. The The Anabranch used to water a string able to sustain ve or six sheep, as in rainy best estimate of a sustainable population of 40 big farms along its length, including England. Mrs Forster has let her garden go, is 8m, he says, well under half the present1 14 A survey of Australia The Economist May 7th 2005
2 gure of 20m. Mr Diamond’s analysis is right, but his conclusion looks wrong. It underestimates the resourcefulness of men like Mr Forster, and the impressive e orts that Australia’s government is now making to deal with its water problems. As a continent in its own right, Australia is able to take full control of them, unlike countries such as Pakistan or Israel that depend on rivers arising beyond their boundaries. Along the Anabranch, Mr Forster is managing a project to replace the natural ow with a network of pipelines, drawing water from the Murray river to the south as well as the main stream of the Darling. The Battle on 190 miles of plastic pipe and the required pumping stations will cost A$54m ($42m), more carefully. But Australia’s federal sys- Besides, there is plenty of water in tropical but will safeguard 2m acres of farmland. tem gets in the way. Water is traded e ec- northern Australia. Great pipelines might The scheme will also save water, avoiding tively within states, but not across state carry it south. Or perhaps Australians, losses from evaporation and seepage, and borders. Eventually, though, the federal who have tended to settle in the temperate should be ready in a year. government in Canberra will surely take south, may start to migrate north. Mr Forster’s scheme for husbanding control and establish a single national wa- this precious resource is only one of scores. ter market. Work on this is under way. Room for many more And in urban areas, Australia’s state gov- Mr Diamond is being too pessimistic, No one knows how many inhabitants ernments are playing their part by promot- for several reasons. One is Australians’ Australia might, in time, come to support. ing water e ciency with hard cash. Most willingness to embrace radical change A century ago, people talked of an even- important of all, much of Australia has de- when they have to. Another is the power tual population of 100m. These days, veloped what is probably the world’s most of technology. Perth and Adelaide, the two expectations are more modest, but 50m by advanced water-pricing and trading sys- big Australian cities with the worst water- mid-century seems entirely possible. Liv- tem. Farmers have to pay for their water; a supply problems, are both starting to ex- ing on the driest inhabited continent is a basic allocation to cover human and ani- periment with desalination, which sci- challenge, but Australia’s battlers have mal needs comes with their land, but any- ence is making more e cient and a ord- shown they can overcome it. They have thing beyond that, say for crops, costs able. Australia has a predominantly turned around a failing economy and money. The more you pay, the more prior- coastal population with a plentiful supply made it one of the world’s most dynamic ity you get if supplies run short. Farmers of sea water and abundant access to en- and resilient. They are coping with radical who do not use their full allocation can sell ergy, in the form of coal, uranium (though demographic and ethnic changes. They the remainder; indeed, anyone can take it would have to overcome its aversion to belong both to the West and to Asia. They part in the water market, and water rights nuclear reactors rst) and solar power, for have created a tolerant yet orderly society, are now increasingly being separated from which the country’s vast, empty, sun- and have married mateship with rugged the land they came with. baked interior presents ideal conditions. individualism. They have got the ticker. 7 There is, however, a catch. Water mar- kets are well developed in New South Wales and Victoria, the dry southern states O er to readers Future surveys Reprints of this survey are available at a price of that depend on the Murray and the Dar- £2.50 plus postage and packing. Countries and regions ling. But in Queensland, where the Darling A minimum order of ve copies is required. The EU’s eastern borders July 2nd rises, they are lagging behind. Because Send orders to: America July 16th Queenslanders get plenty of rain (the trop- The Economist Shop Japan October 8th ical north of Australia has no water short- 15 Regent Street, London SW1Y 4LR ages), they are pro igate with the precious Tel +44 (0)20 7839 1937 Business, nance and economics International banking May 21st resource, starving the downstream Mur- Fax +44 (0)20 7839 1921 ray-Darling system, Australia’s principal e-mail: [email protected] Pharmaceuticals June 18th river network. Irrigation in Queensland is Higher education September 10th often done by means of open channels, Corporate o er The world economy September 24th not pipes, so much of the water is lost. 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