Australia's Place in the World

National South Australia and the Level 13, 440 Collins Street Northern Territory Melbourne VIC 3000 Level 5 GPO Box 2117 2 Ebenezer Place Melbourne VIC 3001 Adelaide SA 5000 Telephone 03 9662 3544 Telephone 08 8211 7222 Email [email protected] Email [email protected] New South Wales Victoria and Tasmania and the ACT Level 13 Level 14 440 Collins Street The John Hunter Building Melbourne VIC 3000 9 Hunter Street GPO Box 2117 Sydney NSW 2000 Melbourne VIC 3001 GPO Box 2100 Telephone 03 9662 3544 Sydney NSW 2001 Email [email protected] Telephone 02 9299 7022 Email [email protected] Western Australia AUSTRALIA’S PLACE IN THE WORLD THE PLACE IN AUSTRALIA’S Level 5 Queensland 105 St Georges Terrace Australia’s place in the world Level 17, 300 Adelaide Street Perth WA 6000 Brisbane QLD 4000 PO Box 5631 GPO Box 2900 St Georges Tce Brisbane QLD 4001 Perth WA 6831 Telephone 07 3229 9955 Telephone 08 9226 4799 November 2017 Email [email protected] Email [email protected] NOVEMBER 2017 Australia’s place in the world November 2017 About this publication Australia’s place in the world © CEDA 2017 ISBN: 0 85801 315 0 The views expressed in this document are those of the authors, and should not be attributed to CEDA. CEDA’s objective in publishing this collection is to encourage constructive debate and discussion on matters of national economic importance. Persons who rely upon the material published do so at their own risk. Design: Robyn Zwar Graphic Design Photography: All images: iStock Photo Library About CEDA CEDA – the Committee for Economic Development of Australia – is a national, independent, member-based organisation providing thought leadership and policy perspectives on the economic and social issues affecting Australia. We achieve this through a rigorous and evidence-based research agenda, and forums and events that deliver lively debate and critical perspectives. CEDA’s membership includes 750 of Australia’s leading businesses and organisations, and leaders from a wide cross-section of industries and academia. It allows us to reach major decision makers across the private and public sectors. CEDA is an independent not-for-profit organisation, founded in 1960 by leading Australian economist Sir Douglas Copland. Our funding comes from membership fees, events and sponsorship. CEDA – the Committee for Economic Development of Australia Level 13, 440 Collins Street Melbourne 3000 Australia Telephone: +61 3 9662 3544 Email: [email protected] Web: ceda.com.au AUSTRALIA’s PLACE IN THE WORLD 2 Contents Foreword – Melinda Cilento, Chief Executive, CEDA 4 Executive summary 6 Contributions 8 CEDA overview – Diane Smith-Gander, Board member, CEDA 11 Section 1: Global Economy Chapter 1.1 20 The international trade inflexion – how serious is it? Alan Oxley, Principal, ITS Global Chapter 1.2 30 Australia in the global economy Professor Richard Pomfret, Professor of Economics, University of Adelaide Section 2: Global Security Chapter 2.1 40 Are Australian responses to the change in global security adequate? Professor Michael Wesley, Professor of International Affairs and Dean of the College of Asia and the Pacific, Australian National University Chapter 2.2 50 Are Australia’s responses to cyber security adequate? Professor Greg Austin, Professor at the Australian Centre for Cyber Security, University of New South Wales Canberra and Professorial Fellow, EastWest Institute Section 3: Global Governance Chapter 3.1 62 Are global governance structures still working? Associate Professor Wesley Widmaier, Associate Professor of Political Science, Griffith University Chapter 3.2 72 The future of global governance John W.H Denton AO, Partner and CEO, Corrs Chambers Westgarth Acknowledgements 79 AUSTRALIA’s PLACE IN THE WORLD 3 Foreword There has been much talk about the changing global environment in recent years with significant shifts in the global economy, politics and governance. As a result, the standards and institutions that Australia has relied on, in some cases for decades, to underpin global rela- tions are moving. CEDA has commissioned the research in this report to examine the impact of these shifts and how well prepared Australia is to respond. Australia’s place in the world examines these issues through the perspective of experts in three areas: • The global economy – in particular looking at trade and investment; • Global security – from more traditional military conflicts to the emerging frontier of cyber warfare; and • Global governance and institutions – examining what has caused the discontent with global institutions and if they will continue to be important for tackling significant issues facing nations including Australia from terrorism to climate change. AUSTRALIA’s PLACE IN THE WORLD 4 Growing discontent with aspects of globalisation has been a factor contributing to some surprising results in recent years from Brexit to the election of US President Donald Trump. Australia’s geographic isolation and more than a quarter century of sustained economic growth have shielded us from some of these drivers and the more extreme responses seen in other countries, but that does not mean we are immune. Globalisation has delivered significant benefits for Australia. But it is important to ensure that we remain well positioned to continue to reap the benefits of global engagement, that those benefits are broadly enjoyed, and that we are prepared for emerging threats and challenges. I would like to thank the contributing authors for their work on this timely CEDA report. I hope it generates discussion on issues fundamental to Australia’s future prosperity. Melinda Cilento Chief Executive CEDA AUSTRALIA’s PLACE IN THE WORLD 5 Executive summary The world is a dramatically different place than it was two years ago. Brexit, the ascendancy of Donald Trump, increasingly deadly civil wars, the global refugee crisis, cyber crime, the continuing rise of China as a global super- power and the ongoing threat of terrorism have created a global climate of change and uncertainty. This poses both challenges and opportunities for Australia. There are challenges to our national security, to the way we conduct trade, manage our alliances and even, potentially, how we go to war. This report addresses Australia’s place in the world at this time of unprecedented uncertainty. CEDA has assembled some of Australia’s leading thinkers on the global economy, global security and global governance to analyse the current state of play and assess how Australia is responding. Global economy The modern international economy has, for decades, been built on the notion of free markets backed by a series of free trade agreements. Brexit and the election of Donald Trump were severe shocks to this system, with Trump attempting to back peddle from any free trade agreement that does not result in a trade surplus for the US. In their respective chapters, Alan Oxley and Professor Richard Pomfret make the case that a return to protectionism is not necessarily inevitable and would not benefit Australia. AUSTRALIA’s PLACE IN THE WORLD 6 Professor Pomfret notes in his chapter that Australia has been one of the world’s best-performing economies over the past quarter century. This is attributed to past policies to abandon protectionism and promote domestic deregulation. He argues against any return to protectionism by Australia, arguing instead that Australian public policy should promote more trade. Global security While terrorism remains a primary threat to global security, cyber attacks pose a growing threat that requires a determined response. Cyber attacks are increas- ing in number and growing more sophisticated. We have seen in recent times allegations of state-sponsored cyber attacks and even the use of cyber attacks to interfere with the political processes, including elections, within other countries. Australia is not immune to such threats, including the threat of cyber war. Future wars may take place in cyber space. Professor Michael Wesley notes that Australia is currently not well prepared to deal with unconventional sources of influence and is “vulnerable in a world where uncontested western primacy is no longer the norm.” In his analysis of Australia’s response to cyber security threats, Professor Greg Austin notes that “a case could be made for shifting the public rhetoric away from terrorist threats to a much more nuanced approach to the threatening technologi- cal environment that Australia faces in military uses of cyber space.” While Australia does not yet have capabilities to carry out cyber war, this could provide a growth area for Australia’s cyber security industry. Global governance The final section of this report turns attention to the role of global governance institutions in the global economy. The recent surge of populist sentiment against the liberal foundations of modern trade is analysed by Associate Professor Wesley Widmaier. He contends that our cultural stress on balancing the rights of capital and labour may provide a solution for this growing discontent. John Denton furthers this point, noting that Brexit and Trump’s election, triggers of global uncertainty, may have been in part a backlash against globalisation noting “citizens are disillusioned with (what has been for many) the failed promise of globalisation to make everyone better off and angry about the imposition of rules and laws by absent, anonymous, non-democratic agencies.” He calls for reform of the global governance regime to ensure the backlash against globalisation is temporary. Australia, he writes, must be an advocate for globalisation but changes need to be made to ensure globalisation works for the benefit of the majority. AUSTRALIA’s PLACE IN THE WORLD 7 Contributions Chapter 1.1: Alan Oxley The international trade inflexion – how serious is it? Alan Oxley, Principal, ITS Global, provides a current overview of the global economy, focusing on three prevalent macroeconomic topics; free trade in Asia, protectionism, and Australian international economic policy direction.

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