By Garry Shilson-Josling.

Australia faces tough challenges from global forces such as the rise of China, Russia, the US Trump administration and Brexit, but they may not be as daunting as they seem – and may even present opportunities. That’s the message from a new report by the Committee for the Economic Development of Australia (CEDA).

There’s no denying there are serious issues to face. The report: Australia’s place in the world, sees “unprecedented uncertainty” coming from three areas:

• Global consensus on trade and investment policy is teetering.
• Military conflicts, terrorism and the new frontier of cyber warfare are threatening security.
• Crucial institutions and governance structures are losing popular support.

CEDA CEO Melinda Cilento defends Australia’s integration with the world economy and the domestic reform agenda. “I think Australia’s got a long track record of benefiting from globalisation and I think the future has to continue to be one where Australia embraces openness and embraces its connection to the rest of the world,” she told Acuity.

However, economic reform comes with some heavy baggage of job insecurity and constant downward pressure on wages in a labour market which is no longer national, but global.

Donald Trump’s intercession will, in time, be seen as a temporary digression

The political impact of economic reform can be seen around the world in Brexit and the election of US President Donald Trump, who in a protectionist move, pulled the US out of the Trans-Pacific Partnership trade deal soon after his inauguration.

Even so, Cilento points out that not all the rhetoric coming out of the White House is actually leading to action - notably Trump’s threats to restrict trade with China or to shut the US off from Mexico. “If he were to do everything he said in respect of those countries, I don’t think that would upset the applecart too much for Australia,” she says.

Alan Oxley, Managing Director of consulting firm ITS Global, takes the same view in the report, pointing to Australia’s already-low trade barriers and the limited terms of US presidents. “Donald Trump’s intercession will, in time, be seen as a temporary digression,” says Oxley.

He’s equally upbeat about the 2016 Brexit vote which will result in the UK leaving the EU by 2019. The Brexit vote, he says, was prompted more by surging immigration than by a desire to close the UK’s economy off from the world. “Claims to the contrary notwithstanding, the UK withdrawal from the EU will not create increased protectionism. It is likely to result in more open markets in the UK,” says Oxley.  

In any case, Oxley’s policy prescription for Australia is much like the half-time pep-talk from a football coach who tells the team “we can only control what we do, not what they do”. Whatever happens with trade, Australia’s economic success is the result of the drive for efficiency. “Restoring that efficiency must remain the leading national economic priority,” says Oxley.

University of Adelaide Professor of Economics Richard Pomfret also takes up that theme in the report. The political challenge for Australia is to balance the benefits and costs of further reform, he adds. “Such a balancing act is easier said than done.” 

(Pictured: Richard Pomfret)

Pomfret uses the example of working out how to help a town whose only main industry - like a steel mill – is no longer viable, but whose inhabitants are reluctant to leave. The answer has to be more creative than just supporting dying industries with ever more cash, he says, but he offers no easy fixes.   

He also cautions against erecting trade barriers and returning to protectionism, as this will not benefit Australia. Trade barriers reduce potential national income and hurt poorer consumers disproportionately. So Australian public policy should promote more trade, he adds.

Cyber promise

The report also asks whether Australia is addressing its security concerns adequately and sees economic opportunity emerging from the fog of cyber war.

Michael Wesley, Professor of International Affairs at the Australian National University, points to concerns over Russia’s use of cyber attacks on its Eastern European neighbours and claims that it meddled in the US elections. He also points to the level of Chinese investment and its unprecedented influence on Australia’s political parties and universities. 

“Where Australia appears relatively ill-prepared is in its readiness to deal with unconventional sources of influence,” he says. Australia is also “vulnerable in a world where uncontested western primacy is no longer the norm”.

Australia now ranks sixth in world prosperity rankings, down from second place in 2007. A new paper by CA ANZ analyses what this means for Australia’s future.

Coincidentally, the day after the publication of the CEDA report, Attorney-General George Brandis flagged new legislation to ban foreign political donations, strengthen laws on foreign interference and espionage, and set up a US-style register of foreign agents. These moves are a welcome indication that the government sees the vulnerabilities identified by Wesley, but they represent just a small first step on the long road that must be travelled in dealing with them. 

Professor Greg Austin, Professor at the Australian Centre for Cyber Security at the University of New South Wales, says the Australian Defence Force is “on the cusp of a revolution” with the establishment of its Information Warfare Division (IWD).  

There are opportunities in parts of cyber security for the private sector, but developments in Australia’s sovereign capability spurred by the IWD will give the country’s industrial base “a quantum leap”. “But to exploit this positioning and turn it to national economic advantage, we cannot have national economic policy ‘business as usual’. We cannot have education policy ‘business as usual’,” says Austin. 

He says Australia urgently needs a national innovation strategy aimed at best practice in war-related cyber technologies, and a range of military and public sector investments in capital equipment and niche technologies, as well as strategies - both civilian and military - for planning and fighting cyber wars.  

Voter anger 

Wesley Widmaier, Associate Professor of Political Science at Griffith, focuses on popular resistance to the kind of reforms needed to jolt Australia out of its business as usual mindset. That resistance has been exacerbated by slow recovery from the 2008 global financial crisis. “Even leaders who recognised the anger of voters toward private financial institutions overlooked long-building grievances regarding wage stagnation, economic insecurity, and the ‘hollowing out’ of the middle class.”

John W.H. Denton AO, a Partner and CEO of Corrs Chambers Westgarth, takes up that theme in the report, focusing on global and regional institutions which, along with increasingly powerful multinational corporations, are seen as threats to national sovereignty. To ensure the shift in the popular mood is restricted to the short term, the global governance regime so important to Australia as a mid-sized economy has to be reviewed and modernized, he says.

(Pictured: John W.H. Denton AO)

“But it’s an open question whether sensible evolutionary reform of the current global system is likely or even possible in the current environment,” adds Denton.

Melinda Cilento says she prefers to see the glass as half-full, but says “it would be a fool who would not listen to his words of caution”.

Hong Kong, Singapore and Malaysia outperform some G20 nations on economics, but not on personal freedoms, a new paper by CA ANZ finds.