Transcript
DR DAVID GRUEN
We going... now moving onto some introductory remarks by Dr Ken Henry. I suspect that Dr Henry needs very little introduction to this audience but I'm going to give him a short one anyway. Dr Henry was the secretary to the Treasury for a decade from 2001 to 2011 and he was then appointed as special adviser to the Prime Minister, and is responsible for leading the work that will soon culminate in the publication of the White Paper on Australia in the Asian Century. He's also the chair of the Institute of Public Policy at the Australian National University and is the chair and or member of several other boards or advisory councils. And Dr Henry's going to speak to us for about 15 or 20 minutes with some introductory remarks for the conference. Ken.
DR KEN HENRY
Well, thanks David, and thanks very much for the invitation to be here and going to also welcome our friends and colleagues from the International Monetary Fund, the reserve Bank and, of course, my former colleagues in the Department of the Treasury. Very pleasing to be here with you this morning to be able to make some introductory remarks about some issues that are highly relevant, not only for us here in Australia, but for other nations, indeed, other nations right across the globe.
It's been said many times, and for good reason, that we, this generation are living through an extraordinary period in economic and social history globally. Never before have such rapid economic transformations taken place on such a large scale. Asia's rise is truly changing the world – small wonder then that it's affecting us here in Australia, especially given our strong complementarity with China, with Japan, with Korea, with India even.
For 50 years our trade with Asia as a share or our total trade has been rising, but that trend has been amplified over the past decade as China's extraordinary demand for our natural resources has fuelled a once in a lifetime surge in our terms of trade, and a boom in our mining investment that's been much talked about. There are, of course, other impacts on Australia and the Treasurer mentioned some of these just a moment ago – implications for flows of investment, implications for the creation and distribution of technologies; two-way flows of labour actually, changes in the structure of businesses and how production is spread across economies in regional and global supply chains, and, of course, not to be forgotten, implications for the natural environment.
These forces have been front of mind for Australian policy makers for some years now, and especially for me and colleagues working on the development for the Australian government of this White Paper on Australia and the Asian Century. We've been considering all of these issues in a broad context; the rise of Asia, the Asian Century, as we call it, has implications across the breadth of Australian society. This is not just an economic set of phenomena, and that's reflected in the White Paper's terms of reference, which are indeed broad, and we're considering such diverse issues as how we educate our children, how business might operate in the region, and the cultural and language competency that Australians will need to prosper in the decades ahead, and even where Australia fits into the strategic architecture of the region.
We're also considering the importance of personal relationships in areas like business and education as well as in our formal government relationships. We're thinking about Australia's place in the region across a very wide spectrum of government business and community interest.
Now, today in this conference we'll be looking closely at one dimension of Asia's rise, and that's the structural change that will be occasioned by it; it's already occurring obviously. This is only one among many that's being explored in the development of the White Paper, but I have to say it is a very weighty topic to canvas in a single day. Without wanting to influence your deliberations too much, and that's mainly because I'm very interested in hearing your thoughts on these topics, I thought it might be useful to share just some of the questions that the White Paper team has been considering over the past 12 months, organised against today's session topics.
Firstly, in respect of the prospects for Asia: when we speak about Asia's prospects in the decades ahead, we have to bear in mind that the fact of its success is not set in stone, just as no single model accounts for the success experienced by Asian nations to this point. There's unlikely to be a single model for their futures. The nations of Asia will each need to find their own paths forward, economically, politically and in institutional ways. It's reasonable to expect, however, that productivity will be the main driver of economic growth in Asia for the next decade, at least, not the only driver obviously, but a principal driver.
In the emerging economic giants, China and India, output per worker has really only started to catch up to levels found elsewhere in the global economy, including elsewhere in the Asian region. And this catch up will be based on the adoption and adaptation of technology and be based on building a more highly skilled workforce on accessing and using more capital, and more productive capital, and encouraging policy and institutional arrangements to adapt to circumstance over time. Given the low starting point of output levels per person in many emerging Asian economies, the potential for future productivity growth remains; for example, in China output per person is currently about one fifth of that of the United States, while in India and Vietnam, it's half that again, about one twentieth of US levels.
In the first session this morning it will be interesting to consider the factors that will be at play in supporting catch up, and also what things might hold nations back. Our own view is that some requirements are clearer than others; for example, embracing markets as a means of allocating resources efficiently within an economy has proved important, and we think it will continue to be important. Markets help to harness domestic savings and you get the most benefit out of investment in new capital stock.
Alongside productivity, demography, of course, has played a large part in Asia's growth story, and it will continue to play a large part in some countries, particularly in India. In contrast to the Indian story and Japan, South Korea and Singapore, the proportion of the population who are of working age is either peaking or it's already peaked. In China retirees are accounting for a high and growing share of the total population. And there will be challenges in the region, which discussed in the Asian Development Bank's excellent publication that was released towards the end of 2011, and that I'm sure Dr Menon will mention shortly.
Secondly, on implications for the rise of Asia: these developments have implications for all nations in the region and, indeed, as indicated earlier, right across the globe and that means and includes Australia, obviously. Not all developments will be positive for all sectors and all nations; inevitably there'll be stresses and strains. The impacts in recent years in Australia have been quite acute in some areas. One impact, which I'm sure will be drawn out in session two, is the implication for trade exposed non-resources sectors of the strong demand for mineral and energy resources.
In Australia high resources prices and a surge in mining investment have put pressure on labour and materials costs. Coupled with a high nominal exchange rate, this has created what's often referred to as a loss of international competitiveness. Now, of course, that decline in inte
rnational competitiveness is an expected part of the macroeconomic adjustment process. Even so, it's natural to wonder whether something shouldn't be done to tackle the decline. Certainly anything that boosts multi-factor productivity growth would help and would be worth having, but looking at the size of the economic shock confronting Australia, there's simply no feasible increase in multi-factor productivity growth that would reverse all, or even a large proportion of the loss of international competitiveness that's presently being experienced by Australia's trade exposed non-resources industries.
So in the third topic that you'll be discussing today, policy responses, I'd want to say that none of this is to say that the types of policy adjustments and other initiatives that people talk about – productivity improvements, more flexibility in product and labour markets, better quality regulation, increases in capital – it's not to say that these things are not worth talking about; absolutely, they are worth talking about. And we will have the opportunity today to consider these and other things in session three. But I might as well declare my hand early here and venture that none of us should think that there's a set of policy adjustments that will obviate the need for very substantial structural adjustment in the Australian economy.
When examining a policy question that's grabbed the attention of the media, I often find myself considering that the wrong problem has been identified; maybe everybody trained in economics feels this way most of the time. Often the debate is kicked off by influential voices calling on governments to act on all kinds of perceived problems that are, in fact, part of a transformation of the economy made necessary by some other shock. Ironically, it is sometimes the case, actually often the case that that initial shock is a thing that benefits those with the most influential voices. An example from the public debate in recent times is the frequent demand for Australian governments to do something about the high value of the dollar. Of course, the dollar moves for a great many reasons, and calls to change a feature of our economy that's been so important for absorbing shocks need to be examined with a great deal of care. It's probably worth remembering that, as a general proposition, now is the time to be building on, not throwing out the economic policy frameworks that have served Australia so well over the past several decades.
Let me conclude. Of course, it's always much easier to solve these problems in the abstract – that is, in one's mind, than in the real world where a multitude of variables comes in to play. And building consensus for change in governments, in parliaments and the business community is no easy task. Your deliberations today will help to inform the discussion that we in Australia are having about our place in the Asian Century. The White Paper will be the beginning, I hope, of a much longer conversation. It's not a document intended to offer instant solutions. Our terms of reference have us looking forward to 2025 and have been framed very deliberately to ensure that this work charts a course that will span the next decade and then extend beyond that decade. The next decade is one that will undoubtedly bring enormous change. Much of this change we won't forecast accurately, we know that, but all of this change will change the way that we work and the way that we live in this Asian Century. Thank you.
DR DAVID GRUEN
Thanks very much, Ken.