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Economic headwinds an opportunity, not a reason to shy away

With mixed global economic circumstances marked by stubborn inflation, faltering economic and industrial competitiveness, declining wages and per capita wealth across the Western world and now increasingly in the major emerging powers like China heightening increased great power competition seemingly paving a return to the “Roaring Twenties”, Australia faces two options for our national security: forget everything and run or face everything and rise.

With mixed global economic circumstances marked by stubborn inflation, faltering economic and industrial competitiveness, declining wages and per capita wealth across the Western world and now increasingly in the major emerging powers like China heightening increased great power competition seemingly paving a return to the “Roaring Twenties”, Australia faces two options for our national security: forget everything and run or face everything and rise.

I have a professional and personal mentor who is very fond of using my periods of personal, professional trials and tribulations as a learning opportunity with some strongly delivered statement of “Kupes, no one cares, do the work”, followed very promptly with a stern reminder that no one is coming to save you.

Granted that is among my strangest introductory paragraphs, but please bear with me, there is a method to my madness.


So, why did I choose to start this seemingly serious piece in such a manner? Well, because over the past few days, there has been a number of opinion and analysis pieces from across Australia’s media landscape not only highlighting the increasingly precarious economic, political, and strategic position which now faces the nation, but also in a vain attempt to shock the otherwise complacent Australian populace into a state of action.

Collectively these pieces and the individual and sum of the context, colour, and commentary in each reminded me of three things, the first that despite all the media coverage and policymakers reminding the nation, that as Deputy Prime Minister and Defence Minister Richard Males is fond of saying, we live in the most dangerous period in global history since the Second World War.

These comments about the geostrategic environment are only reinforced by comments made by Treasurer Jim Chalmers during his budget speech from May of this year, where he highlights the mounting economic pressures at home and abroad, The global economy is slowing due to persistent inflation, higher interest rates and financial sector strains. Outside of the pandemic and the Global Financial Crisis, the next two years are expected to be the weakest for global growth in over two decades.

The Treasurer’s comments are further reinforced by his recent statement to the New Zealand Institute of Economic Research and Auckland Business Chamber, where he states, “First, we’re both practical about acknowledging the challenge that will come from the increased economic uncertainty across the globe. Outside of the pandemic and the Global Financial Crisis, the next two years are expected to be the weakest for global growth in over two decades. And neither of us will be immune from that. Second, as free and open trading nations, we continue to press the case for the rules‑based system that has served our nations so well.

Second, each of these factors served to remind me that for far too long, Australia’s political, economic, and strategic policy class has continued to live within the “holiday from history” despite the rhetoric and that Australia’s status quo of she’ll be right” continues to hold significant sway in both the national consciousness.

Third and finally, these factors all combine to remind me of those two statements from my mentor, “no one cares, do the work” and no one is coming to save you.

Balancing between the superpowers leaves average Aussies picking up the bill

Perhaps unique among the community of nations, contemporary Australia is far removed from the economic, political, and strategic hardships that characterised the relationships and subsequent policy reactions of most nations for much of recorded history, let alone the disastrous devastation wrought during the 20th century.

Even more recently, Australia effectively managed to avoid much of the economic fallout of the Global Financial Crisis, and to a lesser extent, the economic and societal impacts of the COVID-19 pandemic compared to other comparable nations, yet we haven’t fully escaped the devastating impacts of Modern Monetary Theory (MMT) and quantitative easing (QE), fancy ways of rapidly and vastly expanding the monetary supply to rapidly propel inflation.

Yet, now the chickens are coming home to roost, as both Australia and the global economic headwinds and their impact on the world’s two superpowers, the United States and the People’s Republic of China, each having a disproportionate impact on the economic prosperity, stability, and security of the nation at both a micro and macro level, respectively.

This reality is highlighted by George Megalogenis in a piece for The Sydney Morning Herald, titled, “If the US or China falter, the average Australian will pick up the bill”, which states, “Imagine a global economy in which the United States finally gets its big call on slaying the inflation dragon right while China faces the greater risk of a crash. This era-defining shift in power – unthinkable even a month ago – moved closer to reality this week after the US and China gave conflicting reports on their prospects and policy ambitions.

“For Australia, long accustomed to the opposite forces of a rising China and crisis-prone US, the prospect of realignment contains a gift and a challenge,” Megalogenis articulates, re-establishing the now well-understood nature of great power competition that exists between the two superpowers in an era of increasingly global multipolarity.

Going further, he highlights the reality of the situation facing the two superpowers, beginning with the very real structural issues facing the Chinese economy, upon which Australia owes much of its current and previous two decades of economic prosperity and growth, stating, “China’s predicament – an ailing property sector, weak consumer demand and record youth unemployment – presents obvious risks for Australia. The shock for Australia would be compounded if Beijing figures out how to make its long-delayed transition from export-led growth to a more balanced economic model driven by domestic consumption.”

Shifting his focus towards the United States, Megalogenis advises caution despite bullish optimism from the US Treasury saying, “We should remain wary of American hubris. There remains a risk that the Fed will overshoot. Chairman Powell’s comment that recession could be avoided came as he announced another interest rate rise, and warned that one more hike was possible in September.”

Importantly, Megalogenis again pivots to Beijing, adding some important comparison between the two nations, saying, “We should also resist the assumption that China’s economy is too big to fail, and will continue to muddle through on our behalf. There is a warning in the fine print of the May budget on what a Chinese financial crisis might mean for Australia.”

This double-edged sword of uncertainty only serves to heighten global and regional concerns over long-term economic and strategic security, as any significant diminishment in the US economy would only serve to hasten the collapse of the post-Second World War, US dollar-dominated economic and strategic order (watch out Taiwan) undermining the global guarantees of peace, prosperity, and security that have reigned supreme since 1945.

Meanwhile, any significant decline in the economic stability, prosperity, and opportunity in China would only serve to embolden Xi Jinping and his regime to make potentially disastrous geostrategic moves as a means of distracting the domestic populace from the very real and concerning structural economic realities at home (think collapsing real wealth, crumbling real estate markets, and record youth unemployment as highlighted by Megalogenis).

For Australia, either or both of these outcomes would spell disaster for the Australian economy, our standard of living and quality of life as resource revenues plummet, our major strategic benefactor is humbled both militarily and economically, while our major trading partner is hobbled, all combining for one thing: a true recession.

Megalogenis highlights this, stating, “What happens if we are faced with another GFC-type shock? The budget will reflect this almost immediately in a collapse in company tax collections. But the structural damage will be far greater than in 2008–09 because of something neither side of politics is willing to acknowledge publicly ... The burden that would fall on middle Australia in the event of recession will exceed previous episodes, even if unemployment remains low, because personal taxes will account for a record share of revenue. That burden will be aggravated from next year courtesy of the tax cuts Labor inherited from the previous government, which favour higher-income earners.”

This confluence of circumstances brings me back to the comments made by my mentor: “No one cares, do the work” and “no one is coming to save you”, important reminders for both Australia’s policymakers and more critically, the Australian public.

Time to ‘do the work’

Ensconced in the protective cocoon of the post-Soviet world and well into the 21st century, many nations, including Australia, largely said goodbye to their manufacturing and industrial capabilities. Nowhere is this better reflected than in the Harvard University’s Atlas of Economic Complexity which identifies that Australia ranks 93rd out of 133 studied nations.

As part of this analysis, the Harvard atlas articulates, “Compared to a decade prior, ⁨Australia’s⁩ ⁨economy has become less complex, ⁩⁨worsening ⁩⁨⁨eight⁩ positions in the Economic Complexity Index (ECI) ranking⁩. ⁨⁨Australia’s⁩ worsening complexity has ⁨been driven by a lack of diversification of exports⁩.⁩ Moving forward, ⁨Australia⁩ is positioned to take advantage of ⁨a moderate number of⁩ opportunities to diversify its production using its existing knowhow.”

Perhaps most startling is the following statement, “⁨Australia⁩ is ⁨less complex than expected⁩ for its income level. ⁨As a result, its economy⁩ is projected to grow ⁨slowly.⁩ The Growth Lab’s ⁨2030⁩ Growth Projections foresee growth in ⁨Australia⁩ of ⁨2 per cent⁩ annually over the coming decade, ranking in the ⁨bottom half⁩ of countries globally.”

Historically, Australia’s economy has been largely defined by the export of the continent’s vast resource reserves and the agricultural booms, both of which have, in recent decades, been buoyed by the voracious demands of the Indo-Pacific and Middle East, namely China.

This comforting security blanket, flanked by education and services, has kept the Australian economy from spiralling into recession multiple times over the last two decades, propelling our per capita wealth and pushing the Australian real estate market into overdrive, enticing much of the Australian public into a sense of false security over the resilience, strength, complexity, and vitality of the national economy.

While the pandemic era did, in some ways, startle many leaders and the public across the globe into the frailty of “just in time” supply chains and the perils of offshoring major industrial capacity, for Australia, the lessons learned during the COVID-19 pandemic seem to have reverted to becoming mere playthings in political debates, all the while as the chickens of unrestricted quantitative easing come home to roost, driving surging inflation and cost of living across the Western world.

Despite successive Australian governments of both persuasions seeking to expand Australia’s integration and participation in the economic miracle that is the rise of the Indo-Pacific – China has continued to dominate the nation’s economic narrative from the housing sector to agriculture and resources and energy – often to the detriment of relationships with regional nations that approach Beijing with a degree of caution.

Furthermore, Australia’s insistence on pursuing “free trade agreements” with nations that have additional layers of legislative and bureaucratic industry protections, combined with successive governments presiding over the death of Australia’s manufacturing sector and a reluctance to invest in advanced manufacturing techniques, has prompted Australia to become little more than a mine and farm for the rising powers of Indo-Pacific Asia and the very embodiment of the lazy country moniker, which author Donald Horne originally intended the “Lucky Country” to be known as.

Addressing these issues is now of paramount importance for Australia, in particular, as we face an increasingly multipolar global paradigm where the economic, political, and strategic power of our “traditional, great, and powerful friends” is relative when compared to the rising global and regional powers, each with their own interests, designs, and ambitions for the new world order.

These points are echoed by comments made by Dr Ross Babbage of US think tank Center for Strategic and Budgetary Assessments, who spoke to Defence Connect and said, “It’s going to mean a different model, the United States won’t be able to do it on its own, it’s going to need much more coalition cooperation. And if you’d like non-Chinese industry cooperation, and in a way that we haven’t seen, probably ever, and that needs new mechanisms, and it needs new, important cooperative understandings, particularly between the democracies, not only in East Asia, but also countries like India, but also into Europe.”

Highlighting the opportunities of the path ahead, Dr Babbage stressed the importance of a fundamental rethink in the way in which Australia, in particular, approaches the challenges and opportunities of the coming decades, particularly on the industrialisation front, telling Defence Connect, “It is really critical that we make ourselves more competitive. And many Australians have forgotten that, you know, for us to be prosperous and fully employed, and have good futures for our children and so on, then, competitiveness really is critical to our success, otherwise, we’re going to be an economic backwater. And we’ll be very vulnerable in international security terms as well, and much more dependent upon other countries for our security. So we have to get more efficient and effective and more competitive, we have to attract more foreign investment and our own investment, to do sensible things in this country.”

Final thoughts

Importantly, in this era of renewed competition between autarchy and democracy, this is a conversation that needs to be had in the open with the Australian people, as ultimately, they will be called upon to help implement it, to consent to the direction, and to defend it should diplomacy fail.

Dr Babbage said, “I think what we’ve got to show what’s the vision for Australia, you know, what can we achieve and what you know if we go on the trajectory we are on at the moment. I’ll tell you what, you know, a lot of people, a lot more people in a decade’s time are likely to be either in really dumb jobs or maybe not have jobs at all, and in the society be a lot weaker and will be a lot less prosperous.

“So what we want to say is, look, there’s plenty of scope for doing more and smarter things, encouraging investment to do that, and then there will be some very, very interesting additional jobs and opportunities, a lot of high tech, and so on, I can tell you that, you know, talking to foreign investors, they’re quite keen on principle to work here, and do a lot more here and provide a lot more good jobs for Australians,” he explained.

This requires a greater degree of transparency and a culture of collaboration between the nation’s strategic policymakers and elected officials and the constituents they represent and serve – equally, this approach will need to entice the Australian public to once again invest in and believe in the future direction of the nation.

In the second part of this short series, we will take a look at the corresponding yet equally scathing commentary in recent days highlighting the growing strategic and military decline of Australia despite the rhetoric of recent months.

Get involved with the discussion and let us know your thoughts on Australia’s future role and position in the Indo-Pacific region and what you would like to see from Australia’s political leaders in terms of partisan and bipartisan agenda setting in the comments section below, or get in touch This email address is being protected from spambots. You need JavaScript enabled to view it. or at This email address is being protected from spambots. You need JavaScript enabled to view it..

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