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The latest Harvard University ‘Growth Lab Atlas of Economic Complexity’ has revealed a startling insight into Australia’s economy – painting a picture of an unsophisticated economy, comparable to developing nations in Africa and central Asia, which has a dramatic impact on Australia’s long-term national security.
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Australia has enjoyed a well documented, record-setting three decades of uninterrupted economic growth buoyed by the voracious appetite of a growing China, however all good things come to end as the political, economic and strategic competition between the US and China enters a new phase placing both the global and Australian economies in a precarious position.
From the South China Sea (SCS) to the increasing hostilities between India, Pakistan and China in the Kashmir region of the Himalayas, the Indo-Pacific's changing paradigm, combined with the growing economic, political and strategic competition between the US and China, continued sabre rattling and challenges to regional and global energy supplies travelling via the Persian Gulf and an increasingly resurgent Russia all serve to challenge the global and regional order.
For Australia, a nation that has long sought to balance the paradigms of strategic independence and strategic dependence – dependent on strategic relationships with global great powers, beginning with the British Empire and now the US – and a rising economic dependence on the developing nations of the Indo-Pacific who are now emerging as some of the world's largest economic, political and strategic powers.
This delicate balancing act served the nation well while the US remained the world's pre-eminent economic, political and strategic power – however the rise of China and India, combined with the increasing prosperity and assertiveness of other Indo-Pacific powers ranging from Indonesia and Pakistan to traditional regional powers like Japan, is serving to undermine both the economic and strategic foundations that the Australian strategic policy community and government have based advice and policy upon.
The growing period of economic, political and strategic competition that has come to characterise the relationship between the two great Eastern and Western linchpins of the Indo-Pacific – the US and China – has had marked impacts on the cohesiveness of the region and the enduring stability of the global economic, political and strategic order, as allies like Japan and South Korea turn on one another, rekindling ancient rivalries and enmities, driven by contemporary economic and strategic concerns.
The nation's focus on taking the economically easy, and what some would call lazy, path to prosperity was the focus of the latest Harvard University ‘Growth Lab Atlas of Economic Complexity’ study, which places the stagnating Australian economy in 93rd place, behind Kazakhstan, Uganda and Senegal and just ahead of Pakistan and Mali.
The state of play
Australia's economy is largely defined by exporting natural resources – buoyed by the voracious demands of the Indo-Pacific, namely China, has prevented the nation from spiralling into a recession and reinforced the nation's balance sheet for nearly 30 years – however, this focus on raw resources, flanked by agriculture and services diminishes the complexity and competitiveness of the national economy.
The ABC spoke with economist and UTS industry professor Warren Hogan who outlined his thinking behind Australia's dependence on raw resources exports, saying, "One of our great strengths in this country is our significant natural resource endowment — partly a result of our size and also our geology.
"The flexible Australian dollar has been very useful cyclically to help take some of the heat out of the economy and to help it when it's soft, but that high level of it, because of the resource exports, has probably hurt some industries."
Economic slowdown v economic diversity
Repeated attempts to stimulate Australia's economy through tax relief and interest rate cuts appears to have done little in the way of stimulating domestic consumer and economic confidence, despite a turn around in the nation's trade surplus on the back of mineral exports resulting in a larger than expected surplus of $5.8 billion, as was recently announced by Prime Minister Scott Morrison and Treasurer Josh Frydenberg.
Undeniably, China is an immense economic, political and strategic power – with a voracious appetite driven by an immense population and the nation positioning itself as the manufacturing hub of the world – however, beyond the 1.4 billion people, Indo-Pacific Asia is home to approximately 2.5 billion individuals, each part of the largest economic and industrial transformation in human history.
While successive Australian governments of both persuasions have sought 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.
Countering areas of weakness
Despite Australia's widely recognised position as providing a world leading research and development capacity – supported by both private and public sector research and development programs driven by organisations like the CSIRO – traditional areas of high wage-costs and low productivity in Australia's manufacturing industry, exemplified in the failure of Australia's domestic car industry and in the series of cost overruns and delivery delays on both the Collins and Hobart Class programs, have characterised Australia's reputation as a manufacturing economy.
Enter Industry 4.0 – the combination of additive manufacturing, automated manufacturing and data sharing, with a coherent National Strategic Industry development policy can compensate and in some cases overcome the traditional hindrances faced by the Australian economy, with public-private collaboration essential to ensuring the long-term sustainability and success of Australia's defence industrial base and broader manufacturing economy.
While industry largely provides the technological expertise, government policy provides the certainty for investment – particularly when supported by elements of Australia's innovation and science agenda combined with grant allocation and targeted, contractual tax incentives (signed between the Commonwealth and the company as a memorandum of understanding) linked to a combination of long-term, local job creation, foreign contract success, local industry content, and research and development programs, which are critical components that can be used to empower and enhance the overall competitiveness.
Supporting the development of both Australia's defence industrial base and the broader manufacturing economy also requires the legislative power of government to counter-balance industry development policies of allied, yet still competitor nations like South Korea – which leverages the industrial development policies of export oriented industrialisation (EOI) to develop its economy into a major economic and modern, advanced manufacturing powerhouse.
This is done through a range of government-driven incentives for industry, including corporate tax incentives, employment incentives and payroll tax incentives. Australia's now firm commitment to developing a robust domestic defence capability requires innovative and adaptive thinking in order to expand the capabilities and competitiveness of the domestic industry.
Your thoughts
Developing and implementing a cohesive, innovative and long-term vision for Australia's sovereign defence industry capability can also serve as the basis for developing and in some cases redeveloping a robust, advanced manufacturing economy taking advantage of Australia's unrivalled resource wealth – supporting the broader national security and interests in the Indo-Pacific.
Australia's position and responsibilities in the Indo-Pacific region will depend on the nation's ability to sustain itself economically, strategically and politically. Despite the nation's virtually unrivalled wealth of natural resources, agricultural and industrial potential, there is a lack of a cohesive national security strategy integrating the development of individual, yet complementary public policy strategies to support a more robust Australian role in the region.
Contemporary Australia has been far removed from the harsh realities of conflict, with many generations never enduring the reality of rationing for food, energy, medical supplies or luxury goods, and even fewer within modern Australia understanding the socio-political and economic impact such rationing would have on the now world-leading Australian standard of living.
However, as events continue to unfold throughout the region and China continues to throw its economic, political and strategic weight around, can Australia afford to remain a secondary power or does it need to embrace a larger, more independent role in an era of increasing great power competition?
Let us know your thoughts and ideas about the development of a holistic national security strategy in the comments section below, or get in touch with
Stephen Kuper
Steve has an extensive career across government, defence industry and advocacy, having previously worked for cabinet ministers at both Federal and State levels.
