Speech to the Asia Society and the Economic Club - "The Real Task of National Preparedness"
MON 24 SEPTEMBER 2012
New York City, USA
Subject(s): Foreign Affairs
Your two societies, rich with history, perform a vital contemporary role.
One way I describe today’s environment for decision-makers is this: almost every hand on the lens is tightening the focus.
Flattening our perspective, simplifying our picture – and missing complexity.
Yours is one of the few that is working to wind the other way – encouraging us back towards “deep focus”.
When half the world is looking through the camera lens of a mobile phone, you’re seeing it like Orson Welles.
Dedicated to seeing the complexities – to seeing the world through the long view, in perspective, in depth.
So that’s the kind of discussion I’m looking forward to joining in today.
Now, if there were a simple story of my country’s economy today – it would be “strength”.
For those of you who are not familiar with Australia’s position, let me describe our economy to you through the facts.
Private investment huge – record highs, up $983 billion since late 2007, equivalent to two thirds of our annual GDP.
Public debt small – peaking around a tenth of the level across major advanced economies.
Growth totalling eleven per cent over the past five years.
Unemployment at five point one per cent today.
Job creation strong – around 800 000 jobs in the past five years – in an economy with over eleven million workers.
Inflation under control –at thirteen year lows.
And the bottom line, remarkable: the Australian economy has grown every year for the past twenty-one in a row.
Australians have lived through a generation of growth.
Some observers boil that all down this way:
A simple phenomenon, a mining boom – with a simple explanation, Chinese demand for commodities – and entailing a simple risk, slowing Chinese growth and lower commodity prices.
But a story that simple is rarely accurate. And if you only guard against simple risks, you won’t be ready for the most challenging threats.
So let me add some depth and perspective today.
First, Australia’s economy today is less reliant on our natural resources and our mining boom than you might believe.
Mining employs two per cent of Australians.
In the next four years, we expect three times as many new jobs to be created in health care, social assistance, education and training as will be created in mining.
That doesn’t include Australia’s professional, scientific and technical services – where employment is also forecast to grow faster than in the mines.
Our third biggest export is education – mostly tertiary education.
Nearly eighty per cent of Australia’s gross value added is in services.
Our finance industry alone generates a greater share of our value-add than mining.
Domestic consumption accounts for over 55 per cent of our GDP.
Of course Australia gains greatly from our rich natural resources and the industries which develop them.
But resources is part of the whole.
With the scale of our resource industries within Australia’s economy better understood, consider this next.
Australia’s mining boom has long to run.
The key is to understand that Australia is experiencing a series of booms: first in prices, then for investment, then for production.
Our own economic planning took into account that the price peak would be reached in 2011.
Now, the scale of this peak has to be understood.
This year for iron ore, contract prices will come out around US$126 a tonne – and next year they’re forecast by Australia’s Bureau of Resource and Energy Economics to moderate to an average around US$101 a tonne.
Ten years ago we got around US$20 per tonne.
This year contract prices for high-quality hard coking coal will come out around US$211 a tonne – and the Bureau forecasts they will fall next year to $US183.
Ten years ago we got US$50 per tonne.
These are pretty representative examples of the decline in commodity prices – in turn, pretty good examples of where the wide view gives you a very different impression from the close-up.
Clearly, we’d prefer prices to stay higher for longer.
And the easing in prices squeezes profits, meaning slower revenue growth for Government and hard decisions on the expenditure side.
But equally clearly, if you’d offered us today’s prices ten years ago, we’d have grabbed them with both hands.
And if you offered any country Australia’s fiscal position, they’d grab it with both hands too.
The larger point though is this: the peak of the price boom comes as an unprecedented investment boom is now underway.
The sources of those investments are themselves diverse.
We’re not leveraged against any one national economy – indeed the United States was the biggest source of investment in Australian resources in the past five years.
And this investment is creating jobs and wealth now and building the capacity for the production boom which will follow.
So the Australian economy is more than just mining.
The mining boom is more than just a price boom.
And the long term health of our resource industries and our economy as a whole is less exposed to a slowdown in Chinese demand for coal and iron ore than you might think.
Consider our plans for the future exploitation of our gas reserves.
Seventy per cent of our liquefied natural gas exports go to Japan – and changing patterns of energy demand in developed Asian economies are creating new market opportunities.
Take the Ichthys liquefied natural gas project in northern Australia which starts operation in 2016.
A Japanese-French joint venture between INPEX and Total, this is the biggest single investment by a Japanese company outside Japan.
This single project will boost Australian export income by $72 billion over its life.
And the entire first fifteen years’ production of LNG from the project is already priced and sold: mostly to Taiwanese and Japanese buyers.
Or the Santos Gladstone LNG project: another joint venture, this time involving French and Malaysian investors.
A pioneering project which will convert coal seam natural gas into liquefied natural gas for global export, this project alone will supply 11 per cent of Korea’s domestic gas needs and 9 per cent of Malaysia’s gas consumption.
These are only two examples of the projects which are securing the future of Australian mining and extraction.
Gas is a key example of the strength and diversity of the Australian resource industry.
Our gas exports should more than double as a share of our energy exports over the next two decades – they’re now forecast to reach more than a quarter of Australia’s net energy trade by the mid-2030s.
Now, Australia is an open trading economy, operating in a demanding world economic environment.
We must use the opportunity of today’s strength to invest in the drivers of future prosperity. We know this.
And in saying all this, the point I’m making is not to replace one simple story – fragile prosperity based on a boom and at short-term risk from slowing Chinese growth – with a different simple story – good times that will last forever with no risks at all.
What I want is to replace a simple story with a more serious and detailed account of what’s going on in Australia.
With that said I also want to press on to a more serious and detailed account of what’s going on around Australia – in Asia.
The best advice I can give anyone thinking about Asia is this:
Never mistake the waves for the tides.
Of course the waves, the short term changes, matter.
Knowing whether China is growing at eight, or seven and half, or seven per cent, understanding the different elements of that growth, and how that growth is now sustained, is far from trivial.
I’m not here as an economic forecaster – what I’d say about the debate about the likely outcome in China is principally this.
Even if growth were slower – even at six per cent – that is very substantial and continuing economic expansion.
The very fact that six per cent growth is the bad scenario – the so-called “hard landing” – is itself an illustration of a considerable degree of continuing strength.
Indeed with China forty per cent larger than it was five years ago, six per cent growth today is a bigger contribution to global GDP than eight per cent growth would have been in 2008.
In any case, while it’s rightly a matter of hot debate, the centre of my thinking is not on China’s waves.
I’m more focused on reading the tides.
I am struck that many of the familiar illustrations of Asian growth also illustrate how much growth and change lies ahead.
We’ve all heard many times that the majority of Chinese people now live in cities – but the really startling fact is that this means almost half of all Chinese today don’t live in a city.
Perhaps another 250 million Chinese will move to the cities in the next twenty years.
We’re talking about a century of change, not a business cycle.
I know that many draw a simple inference from change in Asia:
China is rising as a near-term competitor in our product markets and we have to work harder to compete.
That simple inference is half-right, at best – and for a decision-maker, half-right might as well be wrong.
So let me add some depth and perspective to the picture of regional change.
First, it’s not just China – it’s Asia.
Our century will be defined by the rise of many countries and many cultures, not just one.
By Indonesia, a diverse society, a vast Islamic population, a democratic state, a nation of two hundred and forty millions.
By India, a vast democracy, a historic civilisation, home to more English speakers than the United States.
By the rise of social democracies and liberal markets in a region of change stretching not just from “Suez to Singapore” but north to Samarkand and east to Seattle.
It’s not just new competition – it’s new consumers.
We must understand what a middle-class century in Asia means – because it is a key point for advanced, service-based economies like ours.
What do we do best? We make and sell goods and services to middle-class consumers and we invent new ones.
What is happening in Asia this century?
The creation of a middle-class which grows by more than a hundred million every year.
Not just new consumers – it’s consumers who want to buy new things.
Once you’ve built cities, they fill with city-dwellers.
So once you’ve sold them concrete and steel, iron and gas they buy wine and movies and music, retirement financial products and bespoke tourism experiences and food which is the product of clean and sustainable agriculture.
There are a thousand examples – but one conclusion.
In the century ahead, it’s precisely economies like ours – advanced, knowledge-oriented, service-rich economies – which are best placed to prosper.
But only if we keep lifting productivity – if we keep driving innovation, keep generating new ideas.
Australia’s economy is a highly productive one today.
We rank above South Korea, Japan, Canada and the UK for labour productivity – indeed Australia is one of the top 12 international performers for labour productivity levels.
And in the year to June 2012, our labour productivity grew at two and a half times the average for the last decade.
So for us, lifting future productivity even further demands a really sophisticated agenda – from innovation to infrastructure, tax reform and regulatory reform.
Above all, we must stay in front in the education race.
Now education’s centrality to economic development is far from new.
America’s GI Bill is known the world over: Auden’s veterans “encamped upon the campus plain” became the world’s biggest middle-class in the 1950s and 1960s.
And education has already been central to the extraordinary rise and growth of Asian economies – Japan, South Korea, Singapore and Hong Kong: now China and India.
There’s a reason nineteen universities in Asian nations are now ranked in the top 100 universities worldwide.
There’s a reason that the symbol of Hiroshima University is the phoenix, that its motto can be translated as: “try new things, do new things”.
These nations know that a complicated world demands a quality education.
We know it too. Education is more important to nations like Australia and the United States than ever before.
First, because the achievement of Asian nations in education sets us a standard we must meet at home.
That is why I have set a new goal for 2025 – to return Australia to the top five in school educational attainment in the world.
Australia’s universities are already highly ranked on the world stage.
According to the latest Shanghai Jiao Tong University Ranking of World Universities, one in eight Australian universities is in the top 100 in the world.
And we have sent ambitious goals for skill formation and university attainment.
By 2015, 90 per cent of young Australians aged 20 to 24 will have attained a year 12 or an entry-level qualification at certificate II or above.
By 2025, 40 per cent of all 25 to 34-year-olds will hold a qualification at bachelor level or above, up from 35 per cent in 2011.
Second, to prosper in Asia, we’ll need to know Asia.
We’ll need Asia-literate policies and Asia-capable people.
And those demands are ever growing.
Last year, I commissioned what in the Australian system is known as a “White Paper” – on Australia in the Asian Century.
This will be a national blueprint for a time of national change – designed to set ambitious national goals for lifting the Asia capabilities of the Australian Government and people.
And third, to prosper in this new Asia, we’ll need to stay smart and innovative, productive and capable.
Australia must be a country that makes and sells ideas.
Because the big unanswered question facing countries like ours isn’t the growth rate of China’s economy later next year.
It is what the basket of consumer goods and services will be for middle class Asian consumers later this century.
Can we conceive of the new products and services which fill that basket – will we make and sell those things – and keep our economies strong?
In turn, the most challenging risk to Australia – and to countries like Australia – isn’t China growing more slowly than we predict in 2013.
Just as the real task of national preparedness isn’t fiddling with the dials of the macro economy this quarter to take care of the third quarter next year.
The most challenging risk is if we can’t make and sell the things that Chinese and Indian and Indonesian and Thai consumers are buying in 2033.
And the real task of national preparedness is this.
Building the skills and the knowledge of our people – accumulating and deploying the human capital – lifting productivity, generating innovation, making ideas.
So – that’s the picture I see from Australia.
The Australian economy is a “coat of many colours”: the miners’ fluorescent yellow shines brightly as a part of the whole.
This century will see the rise of a region which spreads thousands of miles west and south beyond China, in which economic changes create new markets not just new competitors.
And education is more important than ever before, because Asia’s people are learning, because our people must know Asia, because it is education which best equips our economies for the change all this creates.
Societies and economies like yours and mine have some superficial differences – but the things we share run very deep.
We’re democratic and corruption-resistant. We’re already urbanised and internationalised. We’re already market-oriented.
Growth for us requires enormous sophistication. Many one-off historic step-shifts lie behind us. We’ve picked the “low-hanging fruit”, we need to be smart to find our future.
And if I can leave you with one illustration that best demonstrates how decision-makers are thinking about this:
When the formal meetings at the G20 or APEC are over, the officials may still be talking about the macro-economy, investment, finance and trade the leaders are talking to each other about our people, about improving and expanding universities, skills and schools.
I’ve spoken today about a century of change in Asia and what it means: it’s no accident that the conversation happens here in the American north-east, here in New York.
The fact that this truly global forum for free thought and speech is hosted in a truly global city in the United States is no accident or coincidence.
Rather, it is a tribute to the history and values of this city, this nation, a tribute to your remarkable people – and to the history and values we share.
We are two free peoples of the New World, two young nations born of the Age of Reason, two friends and allies still in a century of change.
You are generous and far-sighted hosts and I look forward to our conversation.