Not Living Off The Sheep's Back

On my all too rare visits to Australia over the last 20 or so years I’m often left wondering how is all this “lifestyle” bankrolled?
Back in the 80s Australia was on a long, slow slide in the national wealth rankings. There was primary industry but hardly any manufacturing industry to speak of. Back then one would conjecture what really made us any different from Argentina and Lee Kuan Yew even forecasted that Australia would become “the poor white trash of Asia”. Is Australia’s revived affluence just good luck and high iron ore prices?
Peter Hartcher the international editor of the Sydney Morning Herald and contributor to The Diplomat, writes in his article Global 100 National Champions: - Australia fully joined one of the metatrends of our era – globalisation – just in time… As we approach the 20th anniversary of the first wave of the Hawke-Keating tariff cuts, implemented in 1988, it’s now clear the Australian initiative occurred just as the world entered a phase of energised integration without precedent.
No economist myself, I’ve taken the liberty of summarising Hartcher’s article, basically by cut and paste. You can of course read the whole piece in its entirety. A decade later, (after the Hawke Keating government started implementing Liberal Party economic policy- M.F.) communism collapsed in the Soviet Union and in 1992, India’s then finance minister and now Prime Minister, Manmohan Singh, began to bring socialist India into the global market economy. Of course in 1978 Deng Xiaoping had moved China into its post-ideological phase and began China’s transformation into a market economy. With these three momentous political acts, the world economy was set to become a global economy for the first time since the half-century before World War I.
If not for the entry of those three great blocs, the number of people in the world market would have been about two billion. Instead, it stands at six billion today and a great transformation is under way.
Australia did not want to join this global movement. With the exception of Australia’s miners and farmers, already competitive in the wider world, no Australian industry wanted to be pushed from the domestic nursery into the hard world of global grown-ups.
Nevertheless,Australia, the reluctant globaliser, has become one of the success stories of the international economy, held up by the Organisation for Economic Co-operation and Development as a “model economy” for others to emulate.
Australia’s per capita income has risen in the world, ranking from 15th at the nadir of its performance in the 1980s to eighth today.
In the last decade unemployment has halved; the country’s unemployment rate is its lowest in 30 years. Net household wealth has doubled. Real wealth has increased by much more in the last 15 years than in the previous 30.
Remember Australia the farm and quarry? That picture, pretty accurate in 1950 when primary products accounted for 90 per cent of national exports, is now gratifyingly out of date.
Manufacturing, which had feared for its survival as Australia’s markets were opened, has adapted well despite serious competition from China, India and other Asian countries.
By 2004, exports of manufactures and services had surged to make up 45 per cent of the national export base. Better yet, two-thirds of Australia’s manufactures exports are not simple hunks of metal but are so-called elaborately transformed manufactures, higher value-added products like scientific and medical equipment and mechanical and electrical equipment.
As tariffs on manufactures have fallen from an average of 15 per cent in 1988 to 3.5 per cent today, the volume of Australia’s manufacturing output has grown by some 40 per cent and exports have multiplied by 500 per cent.
The reinvigoration of Australian manufacturing happened just in time – it coincided with a great boom in world manufacturing trade, which burgeoned by an astonishing twenty-fold expansion in the two decades to 2000. Something similar is now under way in the growth of global services trade.
And it’s not all just about waving goodbye as the freighter leaves the dock. Corporate Australia’s 4,012 foreign affiliates were selling $142 billion worth of goods and services directly into foreign markets in 2002-03, according to an Australian Bureau of Statistics estimate.
This means that Australian-invested subsidiaries, branches and majority-owned joint ventures abroad were selling 96 per cent as much directly into offshore markets as Australia was selling in conventionally-measured goods and services exports.
So the real value of corporate Australia’s total offshore sales is about double the traditional measure of exports.
Australia’s performance is not just a commodities boom based on a voracious China. Apart from the fact that the commodities boom has kicked in for only the last four years, the extra increment of mining output in 2005, for instance, contributed only 0.1 per cent to Australia’s annual economic growth of 2.7 per cent in that year.
The commodities boom is a tailwind helping Australia’s economy along, but it is, in the scheme of things, a modest bonus and not the basis for the national trajectory.
All in all, says Keating, “Australians have gained more from globalisation than it has taken from us.” Yet even Paul Keating could not do all this single-handedly. The government can only set the framework – it does not create the products, find the markets, make the sales, and create the wealth. That task falls to Australia’s private sector. The political leaders can wear the cocked hats and set the course, but it is companies that pull the oars of national economic progress.
Which Australian companies have prospered in this globalising marketplace?
There are some predictable answers, there are also many surprises in a survey of Australia’s champions of the new, globalised world economy. We see that the long competitive experience and natural endowment of the Australian mining sector translates into highly internationalised mining giants – BHP-Billiton, Rio Tinto, Woodside. No surprise there.
Likewise, from the rump that was once Australian manufacturing we now see competitive manufacturers like Ansell, Cochlear, CSL, Mayne Pharma, Orica, Rinker and Amcor, all of which make at least half their money outside Australia.
In a global economy where demand for services is exploding, there are some healthy signs of life in Australian services firms like Sonic Healthcare, ABC Learning and Flight Centre, all of which generate a quarter or more of their revenues abroad. And there are some standout success stories – Westfield, CSL, Billabong – demonstrate that it is impossible for traditional industry policy approaches to “pick winners”. Which industry bureaucrat in Canberra would have put shopping centres or surfwear or serums on the list of Australia’s international commercial priorities?