12 November 2019

Lecture at the ANU Australian Studies Institute


'Australia and the Global Economy'


Thank you to the Australian National University for the opportunity to address the Australian Studies Institute.

The ANU, since it was established in 1946, has long been at the forefront of Australian academia in thinking about how we in Australia are influenced and shaped by the forces at play in the world.

And how we in turn respond and shape those forces.

Today I want to cover three main points:

  • Outline the remarkable transformation we have seen in the Australian and global economies.
  • The new set of challenges that Australia and the world must confront from demographics and debt to environmental pressures and great power tensions.
  • The importance of recapturing the cooperative spirit of Bretton Woods so that we can meet these challenges and secure our peace and prosperity. 

1. Transformation in the Australian and global economies

Since Federation, the transformation of the Australian economy has been profound.

At the turn of the 20th century, Australia was a nation of 3.8 million people in a world of 1.7 billion.

The Australian economy looked very different to the one we have today.

The bonds of our colonial history were tight.

The United Kingdom was our largest trading partner with trade five times greater than our second largest partner the United States.

The agricultural sector made up about 20 per cent of our economy.

Mining, which was mostly gold, accounted for 10 per cent of the economy, while manufacturing stood at 12 per cent.

The majority of Australia’s population, around two thirds of people, lived outside the capital cities.

The median age was just 22 years, and men significantly outnumbered women.

Schooling was only compulsory between ages 6 and 13, life expectancy was 55 years for men and 59 years for women.

It wasn’t until 1907 that Sydney and Melbourne became connected by telephone.

Tensions between nations in Europe were building and erupted into World War 1 in 1914.

This upheaval which we remembered just yesterday on Remembrance Day saw Australia send more than 324,000 military personnel overseas only to see 60,000 not return.

One searing lesson from this time was that what happened in the world would have direct impacts on Australia, even if we were geographically far from the main arena of action.

Following the war, the mining boom of the turn of the century had collapsed, with mining’s share of output falling from 10 per cent to 3 per cent in 1919-20 and continuing to head down.

The agricultural sector expanded to over one fifth of our economy with Australia riding on the sheep’s back for a number of decades.

But Australia was also navigating dark clouds that were rolling across the globe.

The post WW1 period was marked by great political and economic instability.

Geostrategic rivalries splintered trade relations and global trade collapsed.

In the three years following 1929, trade volumes in industrialised countries decreased by almost one third. 

In the face of such tensions, governments responded with high tariff barriers, competitive currency devaluations and discriminatory trading blocs.

Economies around the world were struggling, unemployment was on the rise and hyperinflation was prevalent in many nations. 

And here in Australia at the height of the Great Depression in 1932 the unemployment rate reached a staggering 32 per cent.

We learnt the wealth- and job-destroying pain of protectionism the hard way.

For Australia to prosper we would need to understand and engage with what was happening outside of our borders and push against the pressure to look inwards.

The great power rivalries and economic tensions of this time, as we all know, eventually spilled over into World War II.

This series of events had devastating impacts on millions of people across the globe and profoundly reshaped strategic alliances and societies.

In its resolution, the world laid the foundations for the decades of prosperity that were to follow.

After 30 years of geopolitical and economic turmoil, a conference at Bretton Woods in the United States set the stage for the next 75 years of global economic cooperation.

The 44 nations who gathered, Australia amongst them, agreed on a series of new rules for the post-WWII international monetary system.

The lesson learnt from the interwar period was that free trade not only promoted international prosperity, but also international peace.

The conclusion of world leaders, such as US President Roosevelt and UK Prime Minister Churchill, at that time was that economic cooperation was the only way to achieve both peace and prosperity, at home and abroad.

The Bretton Woods process ultimately led to the formation of institutions that remain important to this day:

  • the International Monetary Fund,
  • the World Bank, and
  • the World Trade Organisation.

The establishment of these institutions, new rules and norms allowed Australia and other nations to capitalise on the opening up of trade and the scientific transformation post-war as innovation moved from military to non‑military use.

Discoveries from war time such as the humble ball point pen, the healing power of penicillin, the ‘Turing machine’ that laid the foundation of modern computing, and the ability to harness the atom for energy all shaped the world in new ways.

The post-World War II period up to the 1970s is often referred to as the ‘golden age’ of economic growth.

The world economy was two and a half times larger in 1970 than it was in 1950, adding a ‘United Kingdom’ to itself in each year over this period.

In 1945 Australia announced a substantial post-war immigration drive which would see our annual population growth average 2.2 per cent over the next two decades.

The Nationality and Citizenship Act was legislated in 1948 that created a path to Australian citizenship from 1949.

In 1957 Australia signed a trade agreement with Japan - our first such agreement in Asia, in what was a tangible and symbolic act that showed we were putting the experiences of World War II behind us.

We lifted the export restriction on iron ore in 1960 and provided the raw materials that saw the industrialisation of Japan who would become the second largest economy in the world by 1980.

The shape of the Australian economy shifted from ‘riding on the sheep’s back’ to ‘made in Australia’.

The manufacturing sector increased from under 20 per cent of the economy in 1930 to 26 per cent in the 1960s.

This created jobs for the large influx of workers, particularly from Europe, and particularly into our larger cities on the east coast.

By the early 1970s, it was clear that the nations that had opened up their economies and learned to adapt to the forces shaping the world were reaping the benefits.

Building walls to stand against the rising tides of international change is ultimately self-defeating.

Steadily, Australian governments from both sides of the political divide engaged in domestic economic reform involving privatisation, tariff cuts, deregulation and changes to our tax system that would underpin future economic growth and prosperity.

With these reforms, Australia has risen to become the 14th largest economy and today enjoys its 29th consecutive year of economic growth, a record unmatched by any other developed economy.

We have the fifth most traded currency and one of only 10 countries to hold a AAA credit rating by all three major rating agencies.

These reforms have raised our productivity and our real incomes.

Australia’s per capita real gross national income is now 75 per cent higher than what it was in 1990 and more than 3 times what it was in 1960.

Australia’s real per capita income has increased from around $23,000 in the early 1960s to around $73,000 today.

Since the early 1970s, our life expectancy has risen by around 12 years for males to be nearly 81 years, and by 10 years for females to be nearly 85 years.

As we opened up our economy, we also positioned ourselves to be part of the extraordinary developments happening in our region. Something for which both sides of the political divide can claim credit for.

From Sir Robert Menzies early comments in 1939 that “what Great Britain calls the Far East is to us the near north” to Gough Whitlam’s visits to China in the early 1970’s and more recently Tony Abbott’s historic FTAs with China, Japan and Korea, there are a lot of cooks that helped make this broth.

The rise of Asia has been remarkable.

As new markets opened up, economies that were largely agricultural have turned into manufacturing hubs, generating rapid export-led growth.

This transformation started in Japan in the immediate post war period, and then moved across north-east Asia to South Korea, Hong Kong, Taiwan, Singapore and then China.

More recently, we have seen similar development paths occur in the ASEAN nations.

Spurred on by a young population with improved access to education and health care, the economic tigers set upon a course focused on investment and adoption of technology.

Investment in infrastructure and reduced transportation costs opened up the ability to form interconnected supply chains across the globe.

This allowed firms, and the nations in which they resided, to focus on their comparative advantage.

Enhanced specialisation created an export growth model which saw Asia nearly double its share of global merchandise trade between 1980 and 2010.

Exports in Asia now account for more than one-quarter of global GDP, with exports as a share of GDP more than doubling since 1960.

China, Japan and Korea now make up the top three in our list of the top ten export markets.

Today, the Indo-Pacific continues to supply around 60 per cent of world GDP.

Behind these economic achievements is the human story of prosperity.

In 1950, about 1.8 billion people – around two-thirds of the global population – lived in poverty.

By 2015, that number had more than halved to 750 million, while the global population almost tripled to 7.7 billion.

Median incomes have risen dramatically with over 50 per cent now classified as middle-class.

The majority of this story has played out in Asia.

Since the fall of Suharto in 1998, Indonesia has more than doubled real incomes and embraced democracy.

Japan remains a wealthy economy and our second largest trading partner. India and South East Asia are growing rapidly while China is adding an economy the size of Spain to its own every year.

By 2030, the OECD estimates that more than 65 per cent of the world’s middle class will be living in Asia

Clearly the opportunities on our doorstop are immense and have never been more accessible.

The tyranny of distance is not what it was.

From islands of isolation, the continents of Europe, the Americas, Africa and Asia have become plugged in to each other, interconnected like never before.

With a few clicks on a keyboard, you can order a shirt from London or a book from New York.

The iPhone that could be in your pocket has components from 43 countries.

And Boeing in Australia is making wing parts for planes assembled in the US and sold to the world.

Services are following this path too.

The apps on our phones demonstrate this.

The first ridesharing app – Uber – came from the US. But we now have Ola from India, Didi from China and Bolt from Estonia.

You can shop around for the best and most affordable ride, and indeed people swap notes on which service is working best for them at any given time.

As consumers, we have more choice than ever before, in services as well as goods.

As exporters, we have an opportunity to sell our products and know-how to more countries than ever before.

2. New challenges that Australia and the world must confront

But just as growing wealth, new technologies and improved access to health and education have lifted global living standards, there a new set of challenges that if not addressed, will put at risk the progress we have made.

These challenges are as diverse as demographics and debt, environmental sustainability and great power relations.

Individually, each challenge is enormous and cannot be solved by any country alone.

Firstly, the global population is ageing

With average life expectancy now more than 30 per cent longer than it was in 1960, it’s estimated that we will move from one in eleven people in the world today aged over 65 to one in six by 2050.

Shifts in the world’s age structure will provide opportunities as the shape of the goods and services we consume change but will also give rise to challenges as workforces start to shrink in some nations.

Asia is home to 60 per cent of the world’s population. But it might be surprising to some to hear that Asia isn’t just growing bigger – it’s growing older too.

It’s no secret that countries like Japan are at the forefront of this trend.

They are working to increase the participation of women and older workers.

They are also investing significantly in technology to ensure they can maintain their prosperity as their workforce shrinks.

China also illustrates the ageing trend starkly.

The Chinese Academy of Social Sciences warned in January that China’s population may begin to shrink as soon as 2027.

According to some projections, by 2050 there will be more women in China over the age of 84 than there are people in Australia today.

As this ageing demographic shift takes hold, economies will come under pressure as the proportion of the working age population falls and the demand on health, ageing and pension systems increase.

Here in Australia, we are ageing more slowly, but still ageing.

We too are seeing increases in our participation among women and older workers. This is in part supported by policy changes such as childcare support and our retirement income system.

As this demographic shift takes hold, economies will come under pressure as the proportion of the working age population falls and the demand on health, ageing and pension systems increase.

At the same time, as more people save for retirement, global savings increase.

This produces surplus savings which drives down the price of funds and ultimately interest rates, a contributing factor that in part explains the low interest rate environment that is evident in the world today.

This has implications for savers, borrowers and investors and as a consequence the global economy.

Secondly, global debt levels have reached concerning levels

While interest rates remain low, global debt levels are being managed.

However, with global debt levels up fifteen per cent in the last three years, to now be at a record high of US$188 trillion or 230 per cent of global output, concerns are rising.

At these levels, the ability to respond to future shocks is more constrained, the impact of any future shock is more amplified and future generations will be left to deal with the consequences.

Thirdly, we continue to see a rapid urbanisation and related pressures on the environment

This rapid urbanisation of the global population, particularly in Asia, will continue to have implications for how we can sustainably improve our quality of life.

Urbanisation has transformed Asian societies. Urbanisation in Asia has involved around 44 million people, just under twice the size of Australia’s population, leaving rural areas in search of opportunities and being added to the population of cities every year.

On some estimates, more than half of the world’s population is now living in urban areas, and this could rise to more than two thirds by 2050.

Demand for raw materials ranging from copper through to zinc and from iron ore, lead, tin and more exotic, but no less valuable resources, such as manganese, lithium and zircon has surged. 

Australia, as have other resource-supplying nations, has clearly benefited.

The rise of commodity prices connected with this urbanisation contributed to Australia’s sharp increase in the terms of trade in the 2000s and accounted for 38 per cent of our real per capita income growth during that period.

With the world’s population estimated to grow by another 2 billion people between now and 2050 and as more people are lifted out of poverty, the pressures on the environment will only increase.

Indeed in Asia alone, energy consumption has quadrupled over the past three decades.

These challenges, many of which have been positive, have also contributed to the impact of human-induced climate change.

The challenge for the future will therefore be to use technology and policy settings to ensure that continued urbanisation is sustainable.

Fourth, greater power competition is returning after the post-cold war glow

History tells us that as economic weight shifts, so too does strategic weight.

And, as China continues to rise, competition is likely to become fiercer.

From the early 1900s strategic weight shifted from Europe towards the Atlantic as the United States’ economic and military might pulled away from Europe.

Since the 1970s we have seen the economic weight of the world slowly but surely shift eastward and become both more dispersed and more contested.

This shift accelerated as the Chinese economy rapidly expanded post‑2000.

The more recent economic rise of India only adds to the weight of the Indo-Pacific region.

In 1980, the US and Europe accounted for around half of world GDP, with China and India around one twentieth.

By 2018, the US and European share had fallen to around one-third, with China and India increasing to over one-quarter.

The more disperse and contested strategic environment has contributed to a lack of trust in the institutions created back in the mid-1940s.

The primary players are the world’s two biggest economies, the United States and China – although, of course, plenty of other countries have an interest too. 

We have also seen a rise of protectionism and nationalism and with it a repeat of the economic consequences we have seen previously.

Indeed, the current trade tensions between the US and China alone are estimated to reduce global output by 0.8 per cent or around US$700 billion by 2020.

This is harming not just the protagonists but bystanders as well.

As a result, the rules and norms that have underpinned our, and the region’s, prosperity and security are under pressure.

3. Promoting the spirit of global cooperation abroad while staying competitive and fiscally disciplined at home

In today’s global environment characterised by changing demographics, elevated debt levels, environmental pressures, and great power tensions, it’s critical that we pursue reforms at home that retain our competiveness, openness, and fiscal discipline, and that globally we remain a strong advocate for a transparent and rules-based global economic system that has strong multilateral institutions.

What is needed is hard work, good policies and the right values.

Our values are key:

  • Encouraging the individual and their enterprise;
  • upholding personal responsibility;
  • rewarding effort and hard work;
  • upholding the rule of law;
  • ensuring a safety net which is underpinned by a sense of decency and fairness

These are all values that go to the heart of what the Coalition seeks to promote and achieve through its policies.

These values underpin our core beliefs.

  • That the invisible hand of capitalism delivers far more than the dead hand of socialism.
  • That Government is not the solution to every problem.
  • That fairness is achieved through equality of opportunity, not equality of outcomes.
  • That Government has no money of its own. It’s the people’s money and every dollar of tax is a dollar less in their pocket.
  • That we should be optimistic and outward looking, confident in the knowledge that our people are our greatest competitive advantage.
  • That intergenerational equity requires fiscal discipline as the next generation should not have to pick up the tab for the last.
  • That people should be encouraged to be self-reliant, but be absolutely assured that that if they need it, the safety net will be there.

These values and beliefs underpin our economic plan to make our economy productive, competitive and resilient.

This will enable us to prosper as we navigate the currents ahead.

We need to continue to push ourselves to remain open and improve our productivity.

As I have said many times before, Australia is a trading nation. Trade supports and creates jobs in Australia, allows the sharing of technology and the exchange of ideas.

That’s why we’ve signed free trade agreements with our largest trading partners.

We now have 70 per cent of our two-way trade in goods and services with countries for which we have an FTA, up from 26 per cent when we came to Government in 2013.

Including, last week, when the Prime Minister announced the agreement to finalise the Regional Comprehensive Economic Partnership with the members of ASEAN and countries including China and Japan, who collectively make up around 40 per cent of global GDP.

Productivity and openness is not only about tariffs on goods or improving the efficiency of our agriculture, mining and manufacturing sectors.

We also need a competitive and productive services sector.

Services account for three quarters of our economy and four out of five Australian jobs, but they make up much smaller proportion of our exports.

Ensuring our legislative settings are right in the services sector is vital.

In financial services, education and health we are working to build domestic resilience and export opportunities.

For example, legislative change such as enacting the Consumer Data Right to give consumers greater control over their own data, clarifying the rules around data transfer and laying the foundation for firms to innovate and thrive both here and abroad.

Agreements such as the Asia Region Funds Passport and the Australia-UK Fintech Bridge open up cross-border opportunities for our financial sector.

Building an education system that both supports human capital here and exports those services to the region is important.

As the nature of work changes we need to train people in the services and digital technologies of the future. This has implications for our vocational training system and university sector.

We can leverage the existing strengths of our health system into export opportunities too.

For instance, Australia has become recognised as an ideal location for high-quality clinical trials.

Over 1000 new clinical trials commence in Australia each year, with the majority of funding coming from inbound international investment. 

In this environment of global uncertainty, an important way the Government can provide business with the confidence to continue to invest is to show we have our own house in order.

Responsible and disciplined fiscal and economic management is important to ensure that the nation’s finances are sustainable and that we are prepared for future challenges.

Putting the budget on a sustainable trajectory while guaranteeing Australians the services they need and deserve is one of the most important ways that the Government can contribute to a strong economy and provide the confidence needed to navigate the global challenges.

Focusing abroad, we need to turn our role towards shaping what happens beyond our borders by remaining strongly engaged with our trade partners and international institutions.

The compact at Bretton Woods which was agreed seventy five years ago, provides us with a framework which is based on cooperation and coordination that has underpinned our peace and prosperity.

We need to recapture that moment and the lessons that got us there.

Conflict between nations, aggressive currency devaluations and protectionism was the backdrop for that 1944 meeting in that little town in New Hampshire.

There was a recognition that from such conduct all parties paid a price.

As a result, those nations present reached an agreement at the meeting on a new pathway forward which would eventually see the establishment of the World Trade Organisation, the International Monetary Fund and the World Bank – organisations that have been and continue to be central to the amelioration of tensions between nations.

As the then US Secretary of the Treasury, Henry Morgenthau said of the forty four nations present, including Australia, they had not “found any incompatibility between devotion to our countries and joint action. Indeed, we have found on the contrary that the only genuine safeguard for our national interest lies in international cooperation.”

Today, Australia wants to see the WTO reinvigorated with a more effective dispute settlement mechanism and a broader remit to deal with e-commerce and the opportunities created by the digital economy.

So too with the IMF, we would like to see change to the governance structures reflecting the greater role played by emerging economies, particularly in Asia.

With these reforms, these important institutions will be even stronger and more relevant to the task before them.


As the world set out on a destructive path to World War Two, in 1939 Sir Robert Menzies espoused an important role for Australia on the world stage, saying “it is true that we are not a numerous people, but we have our vigour, intelligence and resource.”

His statement was as correct then as it is now.

Given Australia’s strong strategic, political and economic ties with key partners both near and abroad, we are well placed as a nation to play an active and constructive role.

Australia has benefited greatly from the transformation of the global economy of which we have been a key part.

But there are significant challenges ahead.

Working together and invoking the spirit of Bretton Woods we can meet these challenges and secure peace and prosperity for all.