Transcript
DR MICHAEL WESLEY
My name's Michael Wesley and I'll be chairing this session. This is a session in which we try to bring together all of the threads of the rich discussions we've had today. The real aim of this conference has been to understand and examine the policy implications of structural change in Australia and perhaps some similar countries that is been driven by the rise of Asia. And we've had some extremely interesting papers and conversations and questions around some of these issues. It seems to me having, as a non economist, sat through the discussion today there are three big overarching questions that remain for us and we have some extremely distinguished panellists to talk about these and other questions. The first question, it appears to me or it seems to me is a prudential question, and that is how do you prepare for something the occurrence of which is attended by a significant degree of uncertainty? The second question is really a political question and that question is how do you prepare, in this country, for the end of a boom when you're in the middle of a winning streak? How do you get the conversation, the national political conversation going around that? And the third one is a policy question and it was really brought out, I thought, but the papers in the discussion in session three. And that was what role should government have in shaping the economy for future challenges and changes that are coming?
To address these and other questions we have got four extremely distinguished speakers, two from Australia and two from Asia. First of all we have Dr Martin Parkinson who is secretary to the Australian treasury. As secretary he is a member of the board of the Reserve Bank of Australia, chair of the advisory board of the Australian Office of Financial Management and a member of the board of taxation infrastructure Australia, the Council of Financial Regulators, and the Centre for International Finance and Regulation. Second we've got Professor He Fan who is senior fellow and deputy director of the Institute of the Chinese Academy of Social Sciences. He was flown over here first class, that's why he's being asked to do two gigs at the conference today! Following Professor He is Professor Ross Garnaut, he is a vice chancellors fellow and a professorial fellow in economics at the University of Melbourne as well as a distinguished professor at the Australian National University. And fourth we have Doctor Masahiko Takeda who is mission chief and deputy director in the Asia Pacific department of the International Monetary Fund. The rules of the game are as follows, each of our four speakers will speak for five minutes either here from the lectern or from their seat and afterwards we will convene a general discussion with you, our audience. So without further ado, Martin, would you like to come and make your remarks?
DR MARTIN PARKINSON
Thanks Michael, it shows that you've been out of the government for a while and you've misunderstood no work before five – that was a reference to 5am. I'm going to be a bit of a magpie and touch on just a few things that have come up during the course of today's session because I think these points are worth reinforcing. Stevens and I have tried to make a number of them at various times, Phil Louw, David Gruen and others have attempted to make some of these points. So I just want to come back and touch on some of them. The first, and this goes to both Chris Kemp's piece and Bob and Peter's piece, it's the success of the Australian macro economy in adjusting this gigantic terms of trade shock we've had. It's worth reflecting on what's happened every other time we've had a big terms of trade shock, in contrast to our usual history this time we've had a period of good and sustained economic growth, contained inflation, and really good unemployment outcomes. Both in aggregate and in terms of the distribution geographically across the country our unemployment experience has been really quite good.
But the challenge for us is that as the terms of trade comes off, so as soon as it peaks it stops giving a contribution to real income growth and once it's started falling it's actually detracting from real income growth. As real income growth slows because the terms of trade stops or starts to decline the challenge for us is we've got to raise productivity growth rates and raise them significantly or we have to be prepared to see slower growth in real incomes per capita than we've become used to over the last decade. Because as Bob and Peter's paper noted and as Chris noted half of the growth in incomes over the last decade, real income per capita, has come from the terms of trade.
Second thing, and thinking about that incredibly strong growth that we've had in incomes over the last decade is it's occurred right across income distribution and there's really a sharp contrast to the experience in the United States. We've done some work comparing developments in average wealth in Australia compared to work that the Fed has done in the US. And what you see is whether you're looking at the aggregates across the two countries or whether you're looking at the distribution within Australia, Australia's experience has been dramatically different to the United States. And it's worth thinking about whether we can sustain that as we go forward.
The third thing, just to touch on is the point that again Chris and Bob and Peter have made, we talked in the past about there being three phases of benefit or impact on Australia from the change in global economic weight. One if the so called mining boom, the second is the impact on global demand on agricultural products and the third is the options that are opened up by the growth of the Asian middle class.
Just coming back to the first of those, the resource and energy related component, there are three phases in that too and it's really good that we're finally focusing on the fact that there are three phases to that. The first is prices went up, we were still just digging the same amount of stuff out of the ground, we hadn't responded, so there was a windfall to existing investments. Second was the behavioural response, big pick up in investment, the third which is the one we're only just on the verge of seeing, is going to be the extraction response. So I think one of the other messages out of this is we should stop thinking that this is a resource boom, in a sense we've misled ourselves talking about boom because boom implies there's a bust. Where we will end up at the end of this is with mining being a much larger share of a reshaped economy. That doesn't imply that there is going to be a bust. Quite the contrary, we haven't really seen the pick up yet in extraction.
The fourth point I just wanted to pick up, hopefully in the Q&A I'll come back and talk about nationalisation of the R&B but I want to pick on the issue that was touched on by Bob and Peter about fiscal sustainability. I've spoken a number of times about the yawning gap that's opened up between people's expectations of government and what they're prepared to pay for it. What was interesting about Bob and Peter's piece was looking forward and saying we need to find some way to generate growth. We can leave that to prices adjusting, wages adjusting, exchange rate adjusting, or as they propose we can do something through public provision or public support for infrastructure. But they raise then the question...So I think one it's interesting in that there was a presumption that public sector has actually got to fill in the growth whole, the second is the presumption that the Commonwealth needs to actually do something to provide more resources to the states.
Now we've talked about fiscal sustainab
ility a number of times over the last year but states have tax bases, they have chosen willingly to give away parts of those tax bases. The argument that we could increase GST, well in an economic sense you get the same impact from taking all the concessions out of the comprehensive payroll tax. You get the same impact as having another GST. So it is actually within the control of states to raise more revenue if they wish. I'm not being critical of the states but I'm just saying we shouldn't just automatically presume that the only solution is the Commonwealth coming in and finding new tax bases for the states. I'll just leave it there because I do want to come back in Q&A and talk through these and a few other things but I think it's been a great session. So I just want to thank all the speakers, it's been really informative, thank you.
DR MICHAEL WESLEY
Professor He.
PROFESSOR HE FAN
Thank you, it's a really great answer to have a second chance to talk about what I have learnt from the whole day's discussion. I would like to say a few words on how Australia can deal with the challenges facing it if it wants to have this very dramatic shift from the Asian century. The first point I want to make is, as I mentioned this morning, Australia has to prepare for the bleaker scenario of the Australian economy. One thing I learnt from today's discussion is I'm not the most pessimistic person in this room. When Bob was talking about the end of the mineral boom I think he was more pessimistic than I am. And I also share the view of Professor Krueger on the slowdown of the whole Asian economy. So when you look at Japan and Korea, you look at India and both the advanced economies in this region and the emerging economy in this region all have their problems. So you have to prepare both the brighter scenario and the bleaker scenario.
And second although an economist and not a political scientist I think politics is always important, so in addressing the challenge for the Asian century you cannot just leave the political issue aside. In this region there is still some political contest as you read in the newspaper about what is happening nowadays between China and Japan, I am not blaming my Japanese friend, but this politics is always messy. And this national sentiment you cannot ignore. You cannot just say well we can have closer economic ties with China and other emerging markets but at the same time we have this military alliance with the United States and we can have closer military cooperation with Japan. Then you would find yourself in a very awkward situation, if you had to take sides in this looming contest. If you want to walk this tightrope it is very risky, very dangerous. So this, I think, will also be an important component in the designing of Australian strategy. Saying this I noticed that an ANU, Professor Hugh Wright, proposed that actually Americans should give China more room, to accommodate China in this region, to give it an equal voice in Asian affairs. I think that's a very constructive proposal but I don't know whether people take it very seriously in the policy discussion or not.
And the third thing I think is Australia has to think very hard because now it is still like a platform to exert influence in this region. Traditionally we have the APEC as the platform for cooperation in this region but APEC has already been greatly marginalised in this region. It has been degraded to a talk show and then to a fashion show. Now the mainstream mechanism for cooperation in this region is ASEAN but Australia was not invited to that. So this is a real challenge, I think Australia has to think really hard and be more creative in trying to facilitate regional cooperation in this area.
My final point I think, enlightened by Professor Krueger, a multilateral system is more important than this bilateral. So you can follow this thought and you can argue that when Australia tries to think about its position in the future, even if you want to become a member of the Asian family you have to think beyond Asia in thinking about your international positioning, thank you.
PROFESSOR ROSS GARNAUT
I'm going to do the opposite of Martin Parkinson, Martin said he'd pick out some of the gems of the discussion, I'm going to draw attention to a few of the gaps in the day's discussion and it too will be an eclectic presentation. I thought we got a good introduction to the big picture of Asian growth today. The important thing to keep in mind is that catching up with the world frontiers of averaging incomes and productivity is the normal thing. It's what happens unless things get in the road. And there are lots of advantages in being one of the countries that's moving towards and eventually at the frontiers of world production and productivity. And countries that are being left behind notice that and put more and more effort into getting there. Into meeting the conditions for joining modern economic growth and so we've had a gradual spread of the beneficent phenomenon of modern economic growth from the original hard landing in Britain and Western Europe, gradually to more and more places.
The last quarter of the last century saw the big countries of Asia getting into that process and it's gone further this century. If we look at modern economic growth in that way then we, and we're looking 40 years ahead then we shouldn't be too impressed by the fact that some Asian countries haven't become part of the process. Anne Krueger mentioned Pakistan, Myanmar and Bangladesh, the fourth and fifth and sixth most populous countries in Asia haven't been strongly growing economies but if we're looking a long way ahead then we have to think of reasons why they won't join the process. I don't think we've spent enough time on the other end of the process and that's Japan. Japan has been mentioned a few times as a bit of a basket case but actually if Japan is the end point of modern economic growth then modern economic growth is pretty good. The Japanese have got some growth, slow growth, obscured by the demographics, if we calculate income in the way that Colin Clarke did in the first national accounts in the thirties by output per person and especially per person hour working then Japan in the last decade hasn't been that far behind Europe and the United States. It's a demographic contraction that obscures that. There's a little bit of economic growth there, there's a lot of personal security, wealthy households, better health and longevity than anywhere else on the planet, good cultural and educational base and Japan doesn't give much trouble to its neighbours. So I think that the end point of growth is something like Japan. That's where China will be in 30 years time if it succeeds. It's where Korea is heading before that and the Asia that we're going to be living with in the middle of this century is going to include quite a lot of people living in those sorts of circumstances and we'll have to related to that; lots of opportunities in that sort of world.
A few points on the Chinese structural adjustment, which He Fan touched upon, the structural transformation going on in China right now if of immense dimension. For 30 years, well for quarter of a century after the Dungis reforms after the opening up and greater use of market mechanisms so that you had the absorption of surplus labour into modern economic activities just as KUSNET's told us to expect, rising profitability, rising share of income, a lot of that reinvested underpinning very strong economic growth. Well that all started to come to an end through economic processes. About 2004 labour started to become scarce, real wages rise rapidly as we said early, 15%, 20% per annum, that's continuing, it's happened in every successful country that's now developed, it will happen more quickly in China because of the great demographic transition it's going through. Peak population will happen earlier, Anne, than you suggested, the latest census figures suggested fertility might be as low as 1
.19. Labour force will be falling within a year or two.
This demographic and structural transformation has been reinforced by deliberate policy aimed to de-emphasise the role of emissions intensive and energy intensive industries and this is having a particularly strong effect on those industries which are generating strong...Australia's high terms of trade. Most savage to thermal coal, we can come back to the detail of that. The Australian terms of trade story of the last decade is a China story, it's not an Asia story. There will be a long term Asia story but it's the exceptional growth of the energy and minerals in China that have driven the terms of trade. The particular commodities that have been at the heart of the uplift in terms of trade are falling and have been falling rapidly, iron ore, metallurgical coal, more so thermal coal. But the total commodity picture is more diverse than that, there are some commodities that will operate under different forces. Gas in its various manifestations, gold which finds its ways into the portfolios of Asian households as they become wealthy and so on. We do have to look at the detail as Peter Drysdale said at the last session. The things that have driven the high terms of trade He Fan is quite right, that story is over.
And finally a world to reinforce what Jayant Menon and Anne Krueger said about the importance of the international system, there is immense change in the international distribution of power, economic weight going on. The old structures won't work; we need more than ever a genuinely open multilateral trading system. The ideas that will move such a system forward are different in some way that I think we will find the different ideas in things that have been discussed in this region over the last couple of decades. I leave the rest for discussion.
DR MASAHIKO TAKEDA
Good afternoon, everyone, I sincerely thank Professor Garnaut's very nice assessment of the Japanese situation! I am personally a little bit more pessimistic and I am tempted to comment on that but I, of course, put it aside. My team and I have been here in Australia for the past two weeks to do an annual article for consultation and this is a bit of PR. Our concluding statement is coming out tomorrow or the day after tomorrow so those who are interested please take a look. And in this context we have reviewed the structural adjustment the economy is going through, which consequently overlaps with the theme of today's conference.
What I felt talking to people in the process of consultation, especially the private sector people, is there are big diversions between the state of the economy and people's perception. The state of the economy seems to be pretty good by any vast economy standards but people are very pessimistic about them, business and consumer confidence and so on, and I think this is partly related to the structure adjustment our economy is going through, namely terms of trade boom has led to so called two speed economy, that means there is no mining sector which is doing so well. And on top of that over the past couple of months the booming sector is now sort of under a dark cloud because terms of trade has declined. So maybe these are the things that are contributing to the pessimism which means that although the terms of trade boom is no doubt a blessing there are challenges posed by that. And this is where there is room for a policy reaction.
Thinking about policy reaction I think we can sort of divide the terms of trade booms impact into two things. One is a cyclical thing, the other is structure. Let me talk about the cyclical part. We have seen that the terms of trade suddenly improves but it can worsen very quickly. So its volatility can go up and down and that results in a shock to the economy, not the entire economy but differentiated as metric shocks across industries and regions. The aggregate shock the exchange rate can absorb to a certain extent but the asymmetric shocks you need other mechanism to offset the shocks at least partially. And there are at least two mechanisms, at least one is a labour market adjustment, especially Chris Kent explained that the labour market mechanism has improved a lot but I think there is some more room to further improve the labour market adjustment mechanism. The other one is a fiscal policy, especially the Commonwealth government fiscal policy, which can redistribute incomes through taxes or transfers. And this will offset partially the asymmetric shocks across states or industries. So these tools have to be utilised very efficiently so that the shocks can be absorbed. So this is the cyclical part.
Turning to sort of medium term structure or adjustment this involves evolution of industrial structure which is clearly beyond the mandate of my institution and beyond my knowledge of Australia. But let me make a couple of points from an economist's point of view. Number one, Asia's rise is certainly a source of opportunity but one should not focus too much on the demand side expansion because Asia's income is rising, middle class is expanding because supply side is strengthening as well. So that means for you to penetrate into Asian markets you really have to be skilled there. For example if you want to aim at high end consumer goods there are many very competitive high end consumer goods producers in Japan, Korea, Taiwan, and you have to compete with these already existing producers. So first of all this is going to be a very difficult proposition for you to penetrate for you to take advantage of Asia's rights.
Now, two more things, the number one, gains of trade based on competitive advantages, of course a very important driver of growth and income gains. And one way to look at where Australia can find opportunities is where Australia's comparative advantage is and what comes to my mind is the vast amount of land and very skilled human capital. The land part will be associated with mining, of course, and agriculture, possibly some part for tourism. And the human part is for example education or professional services. But one thing I felt this morning, and also through the consultation process, is when you talk about for example education you are basically thinking about getting Asian people to come to Australia, which is fine. But I must say if that is the only think you are missing a great opportunity. Because there are Asians rich enough to come to Australia but there are a lot more Asians out there who may benefit from, say, your ability to teach English. So you may want to go out rather than just wait for them to come to get the most out of this Asian rise. That's a point I wanted to make.
The second one, again, when you are looking for opportunities in Asia it may not be that useful actually to look at Asia's trends, you may rather want to look at Asia's challenges or weaknesses going forward. There are such things and some of them were explained by Mr Menon this morning. But just to give you a quick list of things that Asia has to overcome or cope with down the road to sustain high growth is for example infrastructure ageing, environmentally growth, the needs for innovation or productivity increase and so on. So these are potentially where you can find contributions. Just to give you one example because time is very limited, and again my knowledge of where Australia's comparative advantage lies is very limited. But when we talk about environmentally friendly growth I'm sure you already have a lot of expertise, for example water management comes to my mind immediately and carbon price experiment, so to speak. It can deliver some lessons going forward for Asia to learn from. So these are again just some suggestions as to where and how Australia can find ways to prosper taking advantage of the rise of Asia. Thanks very much.
DR MICHAEL WESLEY
Well thanks very much, Mr Takeda, and to all of our panellists. I've also just inherited a very nice watch up here that someone left, so thank you for that whoever that belonged to. We now have an hour for
general discussion and I thought I'd get things going by asking each of our panellists to answer a really easy question. And that is, let's take Jayant Menon's panglossian scenario of Asian growth from this morning where I think by 2050 Asia makes up about half of all world production. What policy choice could Australia make now that would best position Australia for that sort of Asia in 205? I would like each of you just to come up with the one policy choice you would recommend that we make now to best position us for 205. Martin, we might start with you.
DR MARTIN PARKINSON
Where to start? One policy choice we should make is to give ourselves more policy choices! Seriously, the policy choice we need to make is one that commits us to developing an adaptable flexible economy that is able to respond to the signals that we get from the rise of Asia. And that means that we're able to link high tech research development to niche manufacturers, it means that we need to be able to exploit these opportunities that come along. We talk about professional services and the capacity there to export. What do we really mean? Well frankly look at what Linfox do in Asia, massive logistic schools, so we need in a sense to encourage a flexibility and adaptability in the economy in the labour market and in the mindset of policy makers and business so they're looking out and looking for opportunities.
PROFESSOR ROSS GARNAUT
Invest much more in good education, especially to make sure that all Australians have got the educational opportunity to make their way in a complex and rapidly changing region and world.
PROFESSOR HE FAN
Would it not be that Australia could put more emphasis on the service sector because I don't think the Australian manufacturing sector can out-compete the Chinese one. You do not have a massive domestic market and you do not have a large pool of cheap labour, but the service sector is the area where you can harness more benefit. And in doing this I think you had better not think the service sector is the best in the world, better to think of the Asian market as a spring board and you build your service sector deeply rooted in the Asian market and then grow out to global giants.
DR MASAHIKO TAKEDA
I think there's a range of things that the government should do but I will just mention one as a starting point of all these, which is awareness raising. Mainly in the end the success of all Australia in the Asian century has to come from the private sector. The most important thing is for the private sector to understand that and feel that now we've got to go out or we've got to do business, more business and succeed in interacting with Asia. So in that sense this white paper project is very opportune, a very great idea, but at the same time I have to say it is coming a little bit late because Asia's growth has been going on for many years and Asia's integration in Asia has been going on. I think this being the starting point Australia should accelerate the process of opening up and doing business with Asia.
DR MICHAEL WESLEY
Questions from the floor?
PETER KROHN
Thank you, Peter Krohn from the Business Council of Australia, my question is directed to Martin. Last Friday the treasurer highlighted some of the key policy directions related to the Asian Century white paper, one of which was tax reform. We've talked a little bit about tax along the way today but I just wanted to touch on an Asian dimension and that is that the average effective corporate tax rate in Asia is 18%, the average top personal tax rate in Asia is 34%. Martin I just wondered if you could give us your perspective on how we're going to reconcile the need to have a competitive tax system in the region with, as you said, people's expectations of wanting more from government?
DR MARTIN PARKINSON
That's a loaded question, isn't it Peter? Look, countries have to make their own choices about the size and scope of government and that means they have to make their own choices about the public or private provision of different types of services. I think it's inevitable that as we confront the ongoing challenge of fiscal sustainability, both at the Commonwealth and state levels, and I've spoken about this before, this is something we will confront for a very long period of time, those discussions are going to have to occur, as a community. But ultimately the tax system, I mean we want to be careful about just focusing on statutory rates. You want to be focused on effective rates and you want to think about the base. And for us the focus on tax reform should be to make sure that we raise whatever degree of revenue that the community decides it needs or it wants to deliver the services that it's asking for and that we do that in as non-distortionary way as possible and an effective way as possible. And frankly the means we've got to get away from this mindset which is prevalent everywhere, which is give me something but make someone else pay for it. And when I say it's prevalent everywhere, it's prevalent in the business community as well as other parts of the community and we see that with the response to some of the things in the business tax working group.
TIM
My question is probably to Ross because I don't think Martin will want to answer it and the other panel members probably can't. I was struck by something Mr Takeda said; that we're leaving it rather late to get interested in Asia. And to me that's not quite true because this is about the third wave of interest in Asia. I grew up in an Australia that was very interested in Asia, partly because we were fighting a very unpopular war there at the time. But there were a lot of university departments being set up, I studied in one myself to study the different parts of Asia, and with a decade or so they had been closed, our interest in Asia had died virtually, and it just disappeared from the scene in Australian politics. We revived interest, particularly when Paul King became prime minister and we used to have these big trade seminars in Melbourne every year, which had some unbelievable acronym, I forget the name of it. But there were huge numbers of business people who came along and were really interested in dairy exports to Vietnam and I remember sitting through sessions on Indonesia and all sorts of things. They were very full and there was enormous interest and enormous growth in exports at that time. And then that too died and Asia disappeared from our focus. Now we're discovering it again. I think one of the tasks for Ken's Asia task force is to go back over those episodes and ask why did we lost interest and how do we prevent this period of interest in Asia being another ephemeral one?
PROFESSOR ROSS GARNAUT
Tim, I don't think that there has actually been periodic retreat by Australians as a community or we as a society from interest in Asia. I've been working on these things, God forbid, for nearly half a century and I think the trajectory has been one of deepening engagement with Australia's neighbours in Asia through that time. On particular issues you can see an ebb and flow of interest and you can see an ebb and flow of interest in parts of the business community. But even there in this period that you're describing, the recent one, as one of withdrawal from Asia you've had a number of one of the largest businesses in Australia formed essentially through interaction with Asia and opportunities in Asia. Looking at the community now compared with ten, 20, 30, 40, 50 years ago first of all there are many more Australians of Asian origin, many more Australians who have intimate relations with people of Asian origin. There are many more young Australians who travel in Asia with confident familiarity. There are huge numbers of Asian students on Australian campuses which is mostly a product of reforms of our education arrangements in the mid eightie
s. And that's kept on growing in spite of our putting various impediments in the way and despite the strong Dollar. To the extent that about 1.5% of the resident population of Australia is Chinese students and there is another couple of percent of students from somewhere else. They're all living in the middle of Sydney and Melbourne and interacting with other Australians. So I think the broad story is one of deepening engagement over time. We have suffered from the ebb and flow of interest from particular parts of our community. I think that it's a pity that the investment of education related to Asian languages, society, civilisation has had government support at some times and not at others so that the effort hasn't built on itself over time. It's a pity that some parts of the business community haven't put in the consistent effort that's necessary to build relations over time but I think the general story is one of a glass being more than half full.
DR MARTIN PARKINSON
Can I just add to that? Tim, I think you picked up on something that Masahiko said before which is Australia has come late or the white paper has come late to – in the sense that Asia is important. I think that misunderstands the purpose of the white paper. The white paper isn't designed to come out with ten policies that if we pursue are going to turn us into a completely different economy integrated with Asia in an environment where we haven't been previously. The white paper is really a vehicle for the Australian community to actually have a discussion about where we want to go in the medium to long term given the way the global environment's changing now. We use the term Australia and the Asian century as convenient shorthand, it's really the Indo Pacific century and it's really how do we think about what we need to do as a country to make sure that we're able to harness the opportunities and meet the challenges.
So a lot of it goes to things like you don't need to speak an Asian language to have a better understanding of Asia, but you do need to have an openness and an understanding of how important Asia is to Australia, the difference, Asia is not homogenous, the different experiences of the different countries, understanding the culture, understanding the backgrounds, understanding that's really important if you then want to think about where are the opportunities for Australia and the period ahead. So I don't think we're coming to Asia late, I think what we're really seeing is, in a sense, the next phase of what has been a gradually building up relationship and understanding over a long period of time.
DR MASAHIKO TAKEDA
Let me explain what I had in mind when I characterised Australia as a late comer. I heard during the past two weeks of consultation process that Japan's experience is being studied because Japan has been adjusting itself in a very painful way against ever rising Yen exchange rate. Some see similarity between Japan's adjustment and the adjustment that Australia is facing. In the case of Japan an important point in time is 1985 which is a plaza accord here. That's when the Yen started to appreciate very sharply. Up until then, I mean Japanese are fundamentally unglobalised inwards looking people. So workers are just happy producing things domestically and selling them to the rest of the world. But this Yen appreciation forced Japanese, especially Japanese business leaders to sort of make up their minds. They felt that well, that's it, we have to think about going out and doing business outside of Japan because of cost competitiveness. So that's what I had in mind and that was the beginning of this formation of supply chain and also it's partly related to the [unclear] Ms Krueger mentioned. So that's what I had in mind. Of course Australia has been interacting with Asia for a long time but my sense is to what extent you're being faced with strong need to do something, go out and take an initiative to make things change, so to speak, in order for you to have basically multiple engines, namely to avoid vulnerability of putting all the eggs in the mining basket.
DR MICHAEL WESLEY
I'd like to just draw out some of the politics around policy reform and the rise of Asia. Mr Takeda mentioned this perception that the Australian economy is doing very well but there is an incredible gloom and pessimism at the emotional level about it. It just strikes me that on the news, despite 5% unemployment, every time some car workers are laid off or an industry lays off some workers it makes headline news. Has the politics changed, has the politics been transformed partly by the boom and the rise of Asia and so on that makes tough policy reform much more difficult going forward?
DR MARTIN PARKINSON
Who are you asking?
DR MICHAEL WESLEY
Anyone, everyone!
PROFESSOR ROSS GARNAUT
I think this is a difficult time for hard reform simply because we've had a very long period of continued economic growth, longer in Australia without recession than in any other country ever. And that breeds complacency and when you get on top of that the series of income boosts that we've had in the past 12 years reinforce this complacency. Firstly housing and consumption boom, which was similar in kind to the Irish and the Spanish booms. We poured some cold water on earlier than others and that helped but it's difficult to imagine that we wouldn't have had a quite deep recession with a lot of the world if our good policies had not been accompanied by the stimulus in China and the opportunities for export expansion at a critical phase. But we didn't have that recession and when it didn't happen it was just one more reason why everything's all right. I think we're going to have a very difficult time adjusting to the decline in real living standards, that's going to be a necessary part of the adjustment to the end of phases one and two of the boom. We have successfully made those adjustments twice before in our history, from '31 to '27 and from '83 to '89. But on both of those occasions the willingness, well the adjustment, was supported first of all by quite leadership and secondly by having been preceded by a very tough time. That made the community more willing to accept the costs and pains of adjustment. So I think that people who actually understand the nature of the adjustment we're going to have to go through, which I'd like to think is most people here, should be helping our community to understand what's at stake.
DR MARTIN PARKINSON
Just to back in, Ross, on the long period since we had a slowdown, we're had 21 years of uninterrupted growth, if the average person works for 40 years and the population is static it says half the workforce hasn't seen a slowdown in their working life. But in fact the population isn't static it's grown very dramatically, so it says that a significant majority of our workforce has never actually had to experience the sort of difficult periods that we saw in the '70s and '80s. Now that's a great thing, and the early '90s, that's a great thing for them but it does actually mean that it makes it harder for politicians to gain credence with the community that we need to do things to avoid a problem emerging when they don't actually have any recollection of a problem. The second thing, though, I think is interesting is that the psychology of turning the news on every night and seeing riots in Greece or the latest story about impending collapse of parts of the Euro zone or the looming fiscal cliff in the United States, that doesn't actually help engender confidence. And then the third thing I think which we shouldn't lose sight of is the community...We as economists tend to think comfortably moving between the real and the nominal part of the economy, the public doesn't. You've just got to look at the sorts of feedback from some of the surveys where people say, well how am I sharing in this big change that's goin
g on in the community? They don't realise that when they go to Harvey Norman and buy their 55 inch plasma screen TV at incredibly low prices they're actually benefitting. It's Glynn's point and Steven's point of a decade ago a shipload of iron ore got us 2,200 plasma screen TVs, now broadly it gets us 22,000. That's a big change but people don't see that as them sharing in some of those benefits. They don't appreciate that and I don't think they realise that the tax cuts are being delivered and the benefit increases that are being delivered over time are also related to what's happened.
DR MICHAEL WESLEY
Professor He.
PROFESSOR HE FAN
Yes, I would like to give some observations from the viewpoint of an outsider. I remember probably in the year 2006 or 2007 when I was a member of the Chinese delegation that came to Australia for the FTA negotiations with the Australian government. What impressed me once was we went to the productivity commission and they educated us on the history of economic reform in Australia. And Australia in the past used to be a very closed economy under government protection and it worked very hard to carry on those structural reforms and make it an open event and very competitive. So good policies did happen and sometimes a crisis can just provide the momentum for reform. A good example in China is, before China's entry into the WFEO a lot of Chinese companies are frightened to death because they argued that if we open the door the wolf will come and eat us. And it turned out to be that Chinese companies are really the wolf! But this crisis maker reform story doesn't happen every time and also China can provide another example like this GFC, global financial crisis, as I think is the worst of this crisis. It isn't like what happened in the later 1990s, we took the challenge and then made the reform but this time we only stimulate the economic growth rather than facilitating the reform. So it depends.
DR MICHAEL WESLEY
Takeda San, did you want to comment on that?
DR MASAHIKO TAKEDA
Not for now.
PROFESSOR FARIBORZ MOSHIRIAN
Fairborz Moshirian, New South Wales University, just a comment first about the paper presented in the previous session about resource boom and bust. Obviously there's no question that in Australia we have to have different scenarios. One of them could be that yes, the resource boom is going to be finished, if you like, in a few years time. Naturally we have to look at comparative advantage in financial services, education and other sectors including agriculture products. And it's good to talk about a variety of scenarios. I think in that spirit we should also note that our own Australian mining sector is proactive in Africa because China is active in Africa and it is no different from seeing that motor car will rush to China, we see Japanese motor industries in China, we see European motor car industries in China. All these big operators would like to compete in China and also produce in China and sometimes export from China to the rest of the world.
Of course the dynamics of the mining sector should not be underestimated. Our own mining sector could become a major player in other parts of the world including in Africa. At the moment the size of the investment is not large. We know that Africa's infrastructure is not the same as Australia, we know there is political uncertainty. But there are dynamic forces which cannot be isolated from a particular model of resource boom and bust when we look at the basic capacity of our mining sector beyond Australia. And I think that for that very reason recently we had a conference in WEA about how Australian mining sector can explore its further activities in Africa. We shouldn't underestimate all these multi nation companies which come to us as miners, we can also have our own multinational mining sectors in other parts of the world, which could create and interesting and positive maybe impact on our economy in the medium term. I think that also reminds me that in the late 19th century we were all worried about supply of food, we thought we better go out and capture Africa, Latin America, Asia, and of course technology has changed the whole mindset by mid 20th century. So I think there are a number of uncertainties as Michael has said that need to be considered as part of the bigger picture of where we are going to be, if you like, in the next 30 or 40 years in Asia.
Having said that, let me just ask a question of Doctor Fan. I think you referred to giving more space to China as part of Asia Pacific. We know that we had or we have APEC, we also know we have G2 as opposed to G20, US versus China. And we know that G2 needs to work together but also we're conscious that in Asia Pacific there are other regional architectures. ASEAN Plus 6 does not have US in it but East Asia summit does have US and Russia, China, Japan, Australia. And obviously we have a vision for Asia. We also would like to play an important role in decades to come. I'm just wondering whether you see that China can play, if you like, a more constructive role not only as part of G2 but also as part of a regional architecture where the US and China are part of it but other players can also contribute positively for a more integrated, if you like, regional architecture?
PROFESSOR HE FAN
That's a great question but frankly speaking I do not have a very high expectation of China taking the lead. Historically speaking Chinese people are very inward looking and domestic politics always play a dominant role. So you can see that the domestic politics when Chinese politicians do domestic politics they are very smart but then when they come to the international arena it is so childish and foolish. This reflects the reality in China domestic issues are still what preoccupy the policy makers. And I totally agree with you that China should play a more constructive role in the region but the problem is we also face the same challenge as Australia, we cannot find the most appropriate platform. G20 China used to have a very high expectation at G20 but then G20 it is also marginalised to a great extent. After the global financial crisis member countries can cooperate very closely because that that time every country was using expansionary fiscal policy and the expansionary monetary policy. And then later each country had their own specific interest, some are worrying about inflation, some are worrying about deflation. Some have trader surplus, some have trader deficit. So you can see the effectiveness of G20 as diminishing. And also in this region you can see it's a challenge but you can also see it's an opportunity for Australia because no single international institution can live up to people's expectations. So there still is room that if Australia can be very innovative and create some G or some new clubs China will be willing to join. Actually I think we made a big mistake in the case of TPP when Australia and New Zealand first formed this TPP and China underestimate the importance of TPP. They thought well there are some smaller countries, like Australia, why should we bother joining. Then the United States came and we tended to overestimated the importance of TPP and we are frightened and we think it's labelled as made in America. So for Australia to play a more important role maybe it should think as an interpreter and a coordinator in the contest between the big powers.
DR MICHAEL WESLEY
Right up the back and then Bob after that.
HARRY GREENWELL
Thank you, Harry Greenwell from the Australian Treasury. I wanted to come back to Phillip Lane's presentation in Session 3, talking about difference structural change from changes in industrial structure and looking at what might happen in the financial sector in Asia. There were two points that struck me, one was his reflection that we're likely to see an expansion of and deepening of the Asian fin
ancial sector and financial integration from that. And secondly he commented on the role of Renminbi becoming an increasingly international currency, and I guess one of the comments he made was particularly in relation to increasing financial integration that's often associated with increasing vulnerability to subsequent crisis and the importance then of having the regulatory frameworks to match that. That seems to me to be a challenge for Asia and Australia equally to be thinking about. And so it's a question to all members of the panel, for your views about the extent of the vulnerability that may emerge if we do see this evolution that Professor Lane referred to and what sort of policy responses that we should be considering or debating in response?
DR MICHAEL WESLEY
Ross, do you want to start?
PROFESSOR ROSS GARNAUT
Yes, I think this would have been a much easier question to answer in1996 and it would be easier to answer in 2007 than it would be now. On the eve of the Asian financial crisis China was, the Chinese monetary authorities, the state council, were quite interested in taking the IMF advice on fairly rapid liberalisation of the capital account. Then observing what happened in the rest of Asia caused them to pull right back from that. So we had a much more cautious capital account liberalisation earlier this century than we otherwise would have had and I think that's probably been good insurance for China. China, and therefore we, would have been more vulnerable if they'd followed the Washington advice more readily. Then through the early 21st century China was edging towards greater use of fairly straightforward North Atlantic model of banking and accepted major minority equity from North Atlantic, especially New York and London investment banks and other banks into the great state owned banks of China. This was to be part of a management transformation and I think it's very likely that if that had gone on for another half dozen years then you would have had a similar sort of vulnerability in the Chinese banks as you turned out to have in the North Atlantic banks. So the models aren't as clear or straightforward as they once would have seemed.
I think we've all got a hard job now of working systematically through things that have worked and things that haven't worked. Things that have worked through the most recent regional crisis, the Asian financial crisis, and the North Atlantic financial crisis of '08, '09, include the Australian style of stronger prudential regulation than became the fashion in the North Atlantic. But I think that we, in Australia, have got some strengthening to do on that. I think that Phil Lane's paper probably threw the light onto potential vulnerabilities in the Australian system. That paper on the experience of the developed world through the global financial crisis emphasised the vulnerability of countries with large current account deficits whose banks were heavily dependent on wholesale markets. Well Australia was the exemplar of both those characteristics and we would have had a banking crisis of immense dimension if at 2:30 one afternoon the prime minister hadn't taken the advice of the treasury and the bank and guaranteed all of the wholesale debt of the private banks, effectively taking all of that risk that they'd accumulated onto our balance sheet. That's not a permanent solution to a prudential problem so we've got to think through how we put other protections in place. We've all got a lot of learning to do, I think there's a fair bit of learning's others can do from Australia, most of it positive, a little bit of it cautionary.
DR MASAHIKO TAKEDA
Let me comment on the expansion, the deepening part of the financial sector in Asia. This theme is often discussed as a self standing policy objective but that's not the way I look at it. Asia's financial sector should be expanded or deepened if that serves the region better. And from that point of view I think it's useful to go back to the challenges I mentioned earlier. Namely for example infrastructure investment, population raising, etc, whether and how the Asian financial sector serve their economies in the region in terms of handling these issues better. And just to give you an example of infrastructure funding, this requires long term funding, which can be done by banks, banks are the major player in Asia. But because of the currency maturity mismatch it may be better for these projects to be funded by bonds. That requires deepening development of bond markets. But then usually these projects are not highly rated and risky so that requires maybe credit adjustment etc. This kind of thing is quite important for example in the context of the TPP projects. And I think Australia with its very advanced financial sector has a role to play to facilitate Asia's financial deepening and I understand Australian banks, at least some of them, are active in the region but probably more can be done in this context.
DR MARTIN PARKINSON
Just to pick up on one particular dimension of greater integration in the reason because I think Masahiko is right, I mean integration per se isn't an objective. But if you think of some consequences of integration we can always talk about, and I think Phillip's paper was very good in highlighting some of the issues that need to be thought about. But it always strikes me as passing strange that we've got a region that is sitting on massive amounts of capital which it intermediates out of the region. Intermediates throughout London and New York predominantly, and invests in very low yielding assets where as what we've got is a massive set of investment opportunities in the region. We've got opportunities to improve capital allocation all over the region so it strikes me that greater financial integration and in particular, one particular dimension of that, is greater internationalisation of the use of the R&B is really a quite important step forward as we look over the decades ahead. From an Australian perspective we've got the fourth largest pool of investible funds in the world, $1.5 trillion, because of our superannuation system, and that's only going to grow in the period ahead. And it does strike me that we should be thinking about how we marshal the pools of capital in the region in more effective ways. So that's partly what's been behind our encouragement with Chinese authorities in steps to nationalise the use of the R&B, starting off with trade settlement. But equally we're working with the PBOC and the Reserve Bank now on direct convertibility, between the R&B and the Australian dollar. Will it be game changer? No, of course it won't. Is it a good step forward? Yes, it is. And it's just another one of the sorts of steps that we need to be taking in the region if we're really going to drive closer integration over time.
PROFESSOR HE FAN
Just one short comment maybe can help you to understand the reform of China's financial sector. I think there are two dimensions, one is domestic and one is international. And the domestic dimension of China's financial sector reform depends on the structural reform. If we, like in the past, still concentrate on the manufacturing sector inevitably the banking system will still play a dominant role because in the manufacturing sector they have a relatively stable cash flow and you can then utilise the banking system to provide financial support. Then if we move to the service sector you have to rely on the capital market and you have to rely on the venture capital if you want to have those high technology start ups and we have to rely on the micro finance for those small companies. In the international dimension there are three related goals for China, one is capital [unclear] liberalisation and second is internationalisation of R&B and also the reform of the [unclear]. These are three separate goals. They are a different destination but then they are towards the same direction. My reading of China's gove
rnment is that they are trying to do this. They are trying a little bit of capital account liberalisation and if there is some risk they will stop there. And then they pick up the internationalisation of R&B and they do a little bit. Then they try the reform on the R&B [unclear] so they all push in the same direction. Remember in the end we will come up with a kind of capital content liberalisation not in the US where it probably will be a capital account liberalisation with Chinese characteristics!
DR MICHAEL WESLEY
To coin a phrase.
PROFESSOR HE FAN
And also at the current stage they are using a trial and error approach. So even though you see that the internationalisation of R&B is increasingly in the past one or two years but then this is mainly drive by the expectation that R&B will further appreciate. But then the market sentiment has changed dramatically so the pace of internationalisation of R&B will slow down and then there will be more adjustment of this policy. That is my personal view.
DR MICHAEL WESLEY
Bob.
PROFESSOR BOB GREGORY
I must say, Mr Chairman, I thought your first question was terrific. I thought the answers were not good. Let me paraphrase the answers, I love doing this sort of stuff. Martin Parkinson said there are millions of things to do but let me summarise them, we should be flexible and adaptable. I haven't heard anybody ever argue for inflexibility and inadaptability.
DR MARTIN PARKINSON
People don't necessarily argue for it, it's what they do Bob.
PROFESSOR BOB GREGORY
Ross Garnaut says we need more education, well with 40% of the cohort going to the university nowadays I have no idea what he's talking about. Mr Takeda waved his arms and said we need to reform the labour market and of course didn't go on to say he meant so we can look like the United States, or...he just didn't say anything. The reason I'm going on about this is that I think when I try to write a paper about where reform should lie you're running to the problem of in the past it was sort of big bang. So when we had tariffs going from 40 to 50 to 60 everybody sort of knew that it had to be fixed, and it was. When we had a fixed exchange rate in a world where commodity prices were going up and down everybody sort of knew that had to be fixed, and it was. When the labour market looked as though it was getting increasingly rigid then Keating and Cohea said we're destroying Asia - but maybe I should say destroying the power of the union movement and walking away from centralisation of wages. The question has also been raised, well in a crisis you can introduce reforms and that's sort of true but it goes back to this question again, where is the silver bullet, what is the reform?
Now I want to say two things about that, first of all I think there is a major reform that we should be thinking about and it hardly ever gets mentioned. And the second thing I want to say is if there's no major reform but lots of little reforms maybe we should just get out and think seriously about the process of introducing lots of little reforms is harder than the process of a big one. And I think that was sort of what Martin was sort of saying. Let me tell you the big reform, if I take the number of women in the mining industry and say – and let's call that one – what's the ratio between the number of women whose principal income source comes from the state compared with the number that are employed in mining? The ratio is about 50/1. That's because roughly one fifth of our labour market, one fifth of our women of workforce age are depending on welfare payments one way and another, still. If I take the ratio of men in the mining industry to the ratio of men who are receiving their money from the welfare state the ratio is about six or seven to one. So what you do is you add up unemployment benefits, disability payments and so on. So clearly we have roughly speaking somewhere between, I don't know, a fifth of our labour market, potential labour market, or a sixth, receiving welfare payments for one thing or another. So what should we do about that? And if you look at it purely since 1975 those numbers are coming down but only slightly. So I think the major thing we have to do in this country, the major thing we have to do is think about the bottom 25% to 30% of the labour market. We don't want the education cohort at the university to go from 40 to 45, we've got to get it at the bottom. And we've got to get to the education at the bottom and we've got to get to the welfare payments at the bottom. That is extremely hard.
That requires the people in this room who are experts in a whole lot of other things to think about things they're not used to thinking about. I think that's the missing thing and I just don't think we can get onto the agenda enough. Whenever people have tried it just gets very hard and so we all have to push hard in that direction.
DR MICHAEL WESLEY
Comments from our panel.
DR MARTIN PARKINSON
Bob, I think you've touched on a very important issue and that is the whole issue of entrenched disadvantage. There's no silver bullet to that, we know that, David may have said it in the department a week or so ago, we've been working on entrenched disadvantage for so long it's really depressing but it's still there as amongst the biggest issues that we've still got to tackle. But it's the complexity of it, there are no silver bullets in this space and there are essentially so many of the people who are at the bottom end of the income distribution have co morbidity factors. They've got health issues, they've got education issues, they've got a range of other things all of which interact with one another and I think the challenge for us as a society but also for all societies we think of as peers to us is how do you tackle those sorts of problems in a holistic way. We can think of the intervention in the Northern Territory as one attempt to try and tackle that for a sub set of people. Now there are different sets of views about, A, whether that was an appropriate thing to do and, B, how successful it was but at least it was an attempt. We've tried at various times to tackle it with other cohorts in society and frankly we've not yet found, I think, a way to do it effectively.
PROFESSOR ROSS GARNAUT
Bob, I used less words than you but I thought I was saying the same thing! When I said that we've got to provide education so that all Australians have the opportunity to make their way in an increasingly complex and rapidly changing world.
DR MICHAEL WESLEY
John.
DR JOHN KUNKEL
Thanks, Michael, John Kunkel from the Minerals Council. I might start by making an unconventional plug for the mining boom, Bob, because it's probably the biggest single instrument in tackling indigenous disadvantage that we've seen in this country for three decades. I guess my other question is related to how we judge the white paper as a success, if we can, and it related to I think Professor He's earlier comment about there might be a new club we could set up. I would say that was probably the worst thing we could seek to do out of an exercise like the white paper and if anything Australia Asia over the last 30 years have been too summit centric in its thinking. But I'd be interested in others views in that.
DR MICHAEL WESLEY
Just repeat that, John.
DR JOHN KUNKEL
Summit centric, we've looked at regional architecture as the principal end of Australia's engagement with Asia, whereas it's something much more complex than leaders tripping off to an annual meeting.
DR MICHAEL WESLEY
Professor He, and I think Ross we'd be keen to hear from you on that as well.
PROFESSOR HE FAN
Just one word,
my feeling reading all this discussion about the white paper is it seems to me that Australians still think Asia is kind of a foreign environment, which is changing, and Australia needs to be adaptive to this changing of external environment. But maybe a more constructive way to think about it is Australia itself is already an endogenous factor in reshaping this region. So in that way I think you can engage Asia more constructively and positively.
I agree with John that we've got enough institutions that bring leaders together, I think the ones we have play important roles, however we don't need more. What we could do with more of is clear thinking about how international relations can evolve in support of a multilateral trading system. In support of a system of cooperation on environmental issues, including climate change, that can be mutually reinforcing. I think that some of the important ideas, in fact the core of the important ideas were at the centre of the APEC discussion in the first decade of its life. The idea of open regionalism, which Jayant Menon discussed, which has really been absorbed into the United Nations Framework Convention on Climate change with the emphasis on unilateral. Concerted unilateral efforts in emissions reduction. More and better ideas built on the ideas that worked in the past and no need for more institutions.
JIM MINIFIE
Jim Minifie from Grattan. Ross, three years ago you presented a paper called A Time for Prudence, almost three years have passed, how are we going?
PROFESSOR ROSS GARNAUT
Well I've called for prudence on fiscal expansion, for prudence on environmental management, what prudence was that one about?
JIM MINIFIE
Well it's always a time for prudence but this was really focused on coming out from the resources boom.
PROFESSOR ROSS GARNAUT
Well one day I'll be right but I think we've been spending too much money since the big consumption and housing boom of the middle of the first decade of this century. I was worried that that was going to have an unhappy end. I think it would have if it hadn't been for that resources boom. One can't be certain about how these big international macro things will play out during a stronger position, the stronger your budget is when you go into them. That's been demonstrated by our recent experience. We wouldn't have such a...we wouldn't have to look forward to a big decline in the terms of trade with so much anxiety if we'd saved more of the increase in the terms of trade from 2003 onwards. You don't need sovereign wealth funds and other arrangements, larger budget surpluses; much larger than the politics of the time could readily assimilate would have put us in a much better position. The time for prudence is when the terms of trade are still rising, I'm afraid we've past that, the time for careful management of a difficult adjustment is the time that lies ahead.
DR MICHAEL WESLEY
We've got a couple of minutes left, I'm going to ask each of the panel members to share one reflection with us. Panel members we've got some pretty important people in the room, Ken Henry's in the room, Bob Drysdale, they're both working on this white paper. We've got some journalists in the room, we've got some other extremely important people in the room. What is your big take home message from today, what is the thing that you would want everyone in this room to take out of the rich discussions we've had today? Take that in any order you would like.
PROFESSOR HE FAN
I feel this kind of pessimistic feeling among the audience and I'm quite in sympathy with this view because looking to the future there will be maybe prolonged recession or at least a slowdown of the world economy. There will be more trade protectionism and other protectionism on investment and whatever. So in that way I think Australia is in a very unique position, maybe it's the only developed country which is still the major beneficiary of globalisation. So when the time comes there is the backlash of globalisation, I think Australia should stand up and do what you are good at doing. If my understanding is wrong please correct me, I think the best thing Australia can do is promote open trade, open investment globally and also in this region. And then more Asian countries and countries in this region will follow the flag of Australia.
PROFESSOR ROSS GARNAUT
I'd like us to be thinking of managing Australia's place in the Asian century as just managing a place in the world. We need the same qualities for success in a world in which Asian countries play a much larger part as we need for success in any other world. Keeping our brains and eyes open to the humanity of other people, recognising that ultimately responses are pretty similar across cultures and become more similar over time. That a successful domestic Australia will be able to handle relations with increasingly powerful states better than an unsuccessful Australia. I'd like to see us ceasing to draw very clear lines between parts of humanity and see what's happening in Asia as just a very important part of what's happening in our overall international community.
DR MASAHIKO TAKEDA
Some time ago a Reserve Bank governor delivered a speech in which he asked if Australia is a lucky country and I agree with his conclusion, yes, there's an element of luck but luck comes to those who deserve it. In other words Australia has made great efforts and managed the economy very well so that Australia was well positioned to take advantage of the luck. So in the short term I think Australians can be a lot more optimistic about where they are but from today's discussion I can see that over the medium run major challenges need to be taken care of so it can position itself well in the Asian century. So, as I said earlier, I think there are challenges and actions that need to be taken by Australia to benefit from the future. Thank you.
DR MARTIN PARKINSON
I'm going to be perhaps a bit boring. It seems to me that the take out message I have and I'd like others to reflect on is the importance of protecting our policy endowment for our future national wellbeing. What do I mean by a policy endowment? We've done really well as a country over the last quarter century and particularly over the last 21 years because we've been open to trade, we've been open to foreign investment, we've used price signals to drive resource allocation. We've focused on our comparative advantage, we've thought carefully about how we maximise the opportunities available for our people through education and training and the way in which we've seen our place in the world. And I'd like to see us retain all of that and build on it with openness in terms of thinking about our joint future with other countries and the region and beyond. And that's where I really see the white paper as providing, as I said before, an opportunity for a conversation amongst our community about the challenges and opportunities ahead and how do we collectively grasp this so that the period ahead is even more successful than the period we've been through.
DR MICHAEL WESLEY
Now, ladies and gentlemen I'm sure that you'll agree with me that Bob Gregory's assessment of my question was eminently fair, his assessment of our panellists was unduly harsh. Can you please join me in thanking Martin Parkinson, Ross Garnaut, He Fan and Masahiko Takeda.
[Applause]
And now can I turn over to David Gruen to wrap things up?
DR DAVID GRUEN
Thanks very much, Michael, I've just got a few things that I want to say. First of all I just wanted to thank all the presenters today for what I think has been a series of very thoughtful and helpful contributions. I also think that in some ways Chatham House rules are overrated, I think we've done remarkable well in terms of a candid discussion and a candi
d exchange of views in an environment which is completely open. So I think that's been a very good outcome. Remember that all the papers should be on the web and the video that's been done of the day will be available on the web once it's done. Let me thank the co-hosts, the Reserve Bank and the IMF for joining with treasury in putting today on, I think that the sum of the parts has been greater than the individuals. I think the fact that all three of us got together and put this on has made it a really good day and I'm grateful to both the bank and the IMF for helping to put the day together. Despite the fact that I'm a great believer in the invisible hand it wasn't the invisible hand that organised all this and I want to just make mention of specific people who have enabled the day to be as successful as it has been. So that's Michael Plumb from the Reserve Bank, Maeve Sheridan from the IMF and Harry Greenwell from the treasury who have worked to put the program together and make sure it all worked on the day. And a special mention to the treasury communications team who've made it run seamlessly today. That's Louise, Elena, Carmella, Caitlin, Daniel, Gillian and Linda, so thanks very much to all of them. And finally thanks to the audience for coming, I hope you've found it a valuable experience, thanks a lot.