It is hard to believe this year will mark 10 years since the Asian Century white paper documented the economic, political and strategic changes in Asia and how Australia should respond.
Although the paper initially received some interest, it all but disappeared from the national debate in less than two years. There has since been little attention in reviving interest, and even less in implementing the strategies discussed to better position Australia to leverage the benefits of the Asian century. It seems abandoned to complacency, which has plagued Australia's non-security relationship with Asia.
That is regrettable, given the increasing economic and strategic importance of the region, which is home to half of the world's population.
Twelve of Australia's 15 largest trading partners are within Asia, with China importing more than one-quarter of all our exports. Australia's exports to India have grown in excess of 16 per cent since 2006. In the past 20 years, China and India alone have almost tripled their share of the global economy. Two-way trade with ASEAN countries alone is worth over $100 billion. About 40 per cent of global economic activity is in Asia. By the middle of this century, it will comprise more than half of the global economy.
Two-thirds of Australia's exports pass through the South China Sea, including our major coal, iron ore and liquefied natural gas exports. All of which has contributed to a greater sense of regional instability than when the Asian paper was released. Politically, Asian nations have also become increasingly vocal in regional and international forums.
Another change since the Asian paper is that Australia has seen a significant decline in productivity, and slower wages growth, since 2013. Historically, almost all of Australia's longer-term growth in incomes and wages is attributable to labour productivity growth - what each worker produces for each hour worked. The favourable price of Australian exports, particularly iron ore, has masked weak productivity for over a decade. High iron ore prices generated enough tax revenue that we did not have to address productivity. Additionally, low unemployment and company profitability removed the impetus for significant reforms, like earlier microeconomic measures designed to improve competitiveness.
For example, it has been almost 30 years since we properly examined the structural barriers to industry competition. Many sectors, particularly some professions, remain immune from competition.
In short, for the past decade or more we have become complacent, relying on what Donald Horne identified almost 50 years ago as our lucky country status. The OECD sees the sustained weakness in productivity as cause for concern. If we want to lift persistently low wages growth, then we need to lift productivity.
The Asian paper's premise is that we cannot take advantage of the Asian century unless we improve our own performance. What was lost amid the early noise about our trading and security relationship with Asia was that one-third of the paper's 25 national objectives detailed how Australia could become more productive.
Recovering from COVID will require sustained economic performance driven by improved productivity. Fortunately, the Asian paper still presents a credible blueprint we can follow for our economic prosperity. It is surprising, then, that many of those 25 objectives remain unfulfilled, despite their direct connection to addressing our lagging productivity.
They include an innovation plan built on industry collaboration, supported by scientific and research capability and financing options. Also, a national framework for financing and maintaining nationally significant infrastructure in conjunction with the private sector. This would be supported by a regulatory environment that removes barriers to investment and improves competition, and an investment in skills and education to build capability and ensure talent remains at home. Other features intended to drive productivity growth include tax reform and environmental sustainability.
What all these measures share is that they involve investment. Investment in skills, technology and infrastructure that helps workers be more productive.
Ironically, any plan designed today to address Australia's lagging productivity would contain many of these same features. Apart from complacency, a single-minded focus on Australia's security has possibly diverted attention from the paper's productivity measures. It is not that the paper was silent on the region's security challenges - building sustainable security in the region was an important feature of the paper. However, the measures it described for ensuring security relied on co-operative arrangements with the region.
Asia should be viewed as an opportunity for Australia as a middle power, rather than always as a risk.
With productivity still lagging and wages growth remaining stubbornly slow, we ought to revisit the paper's recommendations as a credible pathway. The added advantage is that those measures will not only improve our own performance, but support our engagement with Asia. For example, developing Asia-relevant capabilities supports a productive workforce that is able to negotiate business relationships with the region. However, over half of ASX200 board members demonstrate little to no knowledge of Asian markets.
The deficiency is damaging to our own productivity, as it is to our capacity to effectively engage with the region.
It's hard to conceive that 10 years on from the Asian paper, we would continue to neglect the opportunities presented to us to improve our productivity and engage with the most dynamic region in the world.
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