The Australian

We Must Face up to the Challenges of Asia

Senior Fellow
Australian Prime Minister Malcolm Turnbull at a press conference in Canberra on September 20, 2015. (PETER PARKS/AFP/Getty Images)
Australian Prime Minister Malcolm Turnbull at a press conference in Canberra on September 20, 2015. (PETER PARKS/AFP/Getty Images)

Several times since becoming Prime Minister, Malcolm Turnbull has promised a government that will explain the great economic challenges and opportuni­ties facing the country and pursue policy settings that will position Australia to do well from “disruptions” occurring in the regional environment.

New leaders generally emphasise the importance of dealing with great change since this helps to justify why a new prime minister is needed in the first place.

In this case, Turnbull’s pitch is not before time. An economic reform agenda that promotes openness and adaptability is no longer a matter of ideology. It goes to the heart of whether we can continue to enjoy some of the world’s best living standards by tapping into new opportunities in the region.

The challenge is accepting that what worked so well for us during the past 20 years in Asian markets will no longer cut it. The better news is that change is not so terrifying if we understand why Australia could be better placed than most to benefit.

A major problem for Australia is the so-called Dutch disease. This is not just about declining terms of trade and growth in national income when the resource boom subsides but also about neglecting investment and research and development in non-commodity sectors as the country rode the wave of high commodity ­prices. In Australia’s case, the national economic conversation is grudgingly turning to “what now?” and “what comes next?”

Asia still will need our minerals and resources, and increasingly our agricultural and food products, but not enough to keep our national accounts in a manner in which we have become accustomed. In his short time as leader, Turnbull has emphasised that nothing stands still, and change in the region will make or break Australia. The difficult part is working out what change looks like, and even harder is how we can benefit from it.

In fact, revolutions are already happening. Let’s take automation, which has evolved into a genuinely “disruptive” technology.

Robots are getting cheaper. As one illustration, a $US20,000 ($28,600) robot can assemble 30,000 iPhones in one year at a cost of 66c each and, unlike human workers, they can work 24 hours a day for minimal additional cost.

These machines are also getting smarter. Far from just doing one thing over and over again, current and future generations of robots can multi-task and even respond to problems in real time, including those made by human employees. They also can work in perfect co-ordination with other robots, in the same factory or many thousands of kilometres away, because of advances in data and network connectivity.

Why locate a manufacturing plant in China’s Pearl River delta when it is just as cheap to do so in several sites located in reliable and stable political economies around the world?

On the face of it, this is great news for an advanced and innovative economy such as Australia’s where the rule of law prevails and intellectual property is protected. And as automation becomes cheaper, more sophisticated and “intelligent”, the factory manager will be less the boss of a team of production line workers and more a highly skilled computer scientist, engineer or systems analyst — human skills we have in abundance.

Firms are ruthless in choosing where to invest and base their operations. According to OECD rankings of manufacturing competitiveness, we are near or at the bottom. Why would GE, Siemens or Foxconn choose Australia to locate its plants when there has been little movement in making our corporate and income tax rates more competitive with countries such as Singapore and even the UK; and while our industrial relations regime is in important ways even less flexible now than during the Hawke-Keating years? Better to hire a clever Australian and lure them to the US, or Germany, or Taiwan.

Indeed, when it comes to total factor productivity growth or using labour and/or capital more productively, Australia has flatlined during the past decade despite viewing ourselves as a clever country.

As it stands, we will lose out badly to countries such as Singapore, Japan and Taiwan despite rating highly in areas such as education and skill of our workforce. A falling value for the Australian dollar by itself will not result in a flood of foreign or Australian-owned firms wanting to relocate operations here.

Bear in mind that when it comes to tapping into the economic trends and changes in the region, we begin from further back in the field than many of our competitors.

While much of corporate Australia made hay from the resources boom, the rest of the domestic economy was slow to respond and buy into the reality that East Asia, the US and Europe has become one vast integrated production zone for manufactured goods and, increasingly, services.

To offer one prominent example, an iPhone is designed, built and assembled in up to 20 countries, none of them Australia.

Geographical proximity to Asia may matter but offers us less of an advantage than is often assumed.

We will become more or less attractive a place to do business compared with economic rivals, and that will make all the difference to our future ­prosperity.

In talking about domestic policies required for adapting to global change, an honest conversation about the jobs that may be lost is needed.

But the more important message for the Turnbull government is about the jobs that will be created if his government gets it right.