Australia: Foreign Policy in a Changing World — Sir Zelman Cowen Oration

Address by Department of Foreign Affairs and Trade Secretary Dennis Richardson

The Australian Club, Melbourne — E&OE

12 October 2011

Acknowledgements and AIIA

In tonight's address I want to focus on:

First, a disclaimer. I was invited to give this address some months ago and provided the title of the speech quite a while back. So my remarks should be seen in their own right and not within the context of the review of Australia and the Asian Century just announced by the Prime Minister. My address does not seek to pre-empt that review.

Now to the first question, how is the world changing? The best response I have heard to that is a speech at a recent National Security Leadership Forum by Allan Gyngell, the Head of the Office of National Assessments (ONA). We are good mates and he gave me permission to extensively plagiarise what he said.

If the ten years before 9/11 were marked by the end of the cold war, the triumph of globalisation and the merging of domestic and foreign economic policy, in the decade afterwards it was the amalgamation of domestic and foreign security policy that mattered.

We've just lived through what might be termed the National Security Decade — a period in which most governments, including Australia's, fundamentally revised their ideas of what national security is, who is responsible for it, and how it is done.

We now live in a world in which economic power — and all that flows from it in terms of strategic capability — is shifting from the Atlantic, where it has resided since the industrial revolution, back to Asia.

The reasons for that are complex, but they boil down to the great interconnected threads of the information revolution and the other technologies which drove the development of global supply chains and global finances, all coupled with the power of demographics.

At its simplest, this is the story of China's rise, which is now well known and documented.

China's rise was reinforced by the global financial crisis, and that crisis hasn't yet played itself out.

So our biggest short-term strategic uncertainty — by some distance — is the global economic outlook.

This has political, social and strategic consequences

— it is an open question whether advanced economies have the fiscal strength or the policy repertoire to respond well to any new and significant global downturn

— so fiscal consolidation combined with weak growth and high unemployment in the US and Europe is likely to increase social and economic strains, and may spur protectionist sentiment.

China, it's true, still has a lot of untapped potential. Between now and 2030, more than 200 million rural Chinese workers are likely to move to cities. But as China shifts from an investment and export-led economic strategy to one based on consumption, it risks more volatile growth.

We're in unfamiliar territory. A world in which emerging economies are driving recovery while developed countries lag is one we haven't experienced before, and we don't know where it might lead.

One of the clearest ways in which we are seeing global power shift is through its impact on the institutions the world uses to organise itself. Multilateralism is in a period of complex transition.

Organisations like the UN, the IMF, the World Bank and the G7 are under structural pressure. And the WTO is struggling with paralysis in one of its pillars — trade liberalisation.

Newer forums like the G20 and proto-groups of the emerging powers like the BRICS (Brazil, Russia, India, China and South Africa) reflect this new order

— but nothing is yet fixed and the whole system is in flux.

That leaves a gap in global leadership. As we've seen — and climate change negotiations are just one example — none of the new powers wants to take on the sort of responsibilities for global stability and sustainability that have been mainly borne by the US since the Second World War

— so we may need to adjust to a world where states end up competing less over who acts to shape the world than over who manages to avoid bearing the costs of doing so.

The next few years will be a critical period for the US, but America's superpower stature is not at risk over the short to medium term. For all its problems, the US still possesses a combination of strengths unmatched by any other great power:

But Washington is under much greater global scrutiny than it was 12 months ago as it faces tighter fiscal and strategic restraints

— the US is only slowly coming to grips with the need to rein in its massive fiscal deficit and maintain its competitive edge.

President Obama's strong focus on domestic renewal won't diminish his commitment to maintain US global primacy

— though as it juggles many pressing priorities, the US will look for much more help from allies such as Australia.

In East Asia, and globally, the US–China relationship will remain the most crucial, even as both sides struggle to keep it on an even keel

— what China does and says — and what it doesn't do and doesn't say — is an ever-growing part of the economic and strategic diet of many states

— and China's maritime assertiveness, in the South China Sea for example, will spur more clashes with its neighbours and perhaps the US — miscalculation and escalation can't be ruled out.

China's leaders see domestic instability as their biggest problem, and they believe that solid economic growth, low inflation, leadership unity, and zero tolerance for organised opposition are the answer

— but they also believe that military and other power-projection capabilities will protect China's broadening strategic interests and deter US intervention.

Japan is still a major power and a key player in the world economy, but looks set to keep slipping in relative and absolute terms. But Japan will remain a major power and a critical trading and investment partner for Australia. We should not forget that.

— And Europe does not simply belong in the past.

The most worrying challenge in East Asia remains, of course, the DPRK and its nuclear program.

Russia will remain a nuclear superpower, but its economic and demographic challenges are immense.

India's economic and strategic rise probably now has enough momentum not to stall in the next ten years. Serious structural problems may constrain its economic growth, but its importance to Australia, and the world at large, will continue to grow.

Closer to home, Southeast Asia should remain stable enough to sustain reasonable levels of growth. But, with patchy governance, and perhaps with the exception of Vietnam, its emerging economies won't emulate the blistering takeoffs of Singapore or the Northeast Asian powerhouses.

The good news is that intelligence-led law enforcement operations have degraded regional terrorist networks, confining Islamist extremism to a fringe phenomenon. Due to sustained pressure from security forces, Indonesia is safer from terrorists than it has been for a decade. But terrorism won't be stamped out any time soon

— small but tight-knit extremist groups remain and can be expected to strike from time to time

— and separatist conflicts, especially in the southern Philippines, help breed the conditions in which terrorism can regenerate.

Among the countries of Southeast Asia, Indonesia matters most. Its transformation over the past 15 years has been remarkable. It is in Indonesia's own interests that it continues to embed democratic traditions and maintain solid economic growth. But it won't be without its challenges.

The most volatile area of the world stretches from the India-Pakistan border through Afghanistan, the Middle East to the Horn of Africa. Within that arc, intractable conflicts, nuclear armed states, endemic poverty, major power competition and Islamist terrorism all come together.

It has long been relevant to Australia. Since 1948 there has been no year in which Australian military forces haven't been serving in some capacity in the Middle East, and look also at our commitment in Afghanistan

— the region will continue to be a major source of demands on and hazards for Australia, ranging probably from requests for involvement in conventional war, peace keeping and humanitarian assistance missions, to irregular immigration.

The protest movements that recently erupted in the Middle East and North Africa are unlikely to run their course in the next few years. The region may be just as messy and complicated in 2020 as it is now, and no less of a global preoccupation.

The Arab Spring has probably encouraged Iran's determination to build its influence in the region

— its Islamic revolution is underpinned by distinctly Persian nationalist ambitions. Tehran sees itself as a major power and wants the clout to go with it. That helps drive its nuclear program and its support for armed groups in Lebanon, Gaza and Iraq.

For Australia, both the subject matter of global politics, and the players in it, range beyond individual countries. Pressures for cooperation and competition are increasing across the range of what is sometimes called the global commons — the high seas, outer space, the climate system and the connective tissues of cyberspace.

The 'headline' transnational challenges — terrorism, cyber, organised crime, people movement, and climate change — will persist and change shape rather than diminish or disappear.

And more actors are now involved. New technologies have empowered groups and individuals ranging from pirates to fraudsters, from people smugglers to computer hackers, who can now have a real impact on state power.

Cyber power is becoming an important dimension of state power — including for Australia, helped by the cyber dimension of our alliance with the US. If it's integrated with other kinds of power, cyber power can have more pluses than minuses for us.

Australia is well placed in this changing world. We have quality human capital and natural resources. With our LNG, coal and uranium we are already a significant energy exporter. We are also a significant exporter of agricultural produce. So we have a lot of what the world will want in the 21st Century.

Our trade and investment patterns are diversified globally. China, Japan and Korea take just over 50 per cent of Australia's merchandise exports. We have completed a remarkable agreement for trade liberalisation and closer economic integration with the ten ASEAN economies. Our inward and outward investment and financial flows are becoming more diversified but remain dominated by the United States and member countries of the EU. And we have expanding economic interests in the Middle East, Africa and Latin America.

All up, Australia is not as small as we like to think of ourselves. Compared to the United States and China, yes; relative to others, no. Our challenge is not to punch above our weight, but to punch up to our weight.

Of the 193 countries that make up the UN, we are the 6th largest in land area, the 13th or 14th largest economy and about the 50th most populous — in other words, of the 193 countries in the UN, about 140 have a smaller population than Australia. We have the 13th or 14th largest defence budget in the world, and within four years we will become one of the 7 or 8 largest aid donors in the world.

What we also have is a proud record of international engagement, both globally and in our own region; from the establishment of the UN in 1945 to the Cairns Group, to the prevention of mining in Antarctica, to APEC to the G20; from the support for Indonesia's independence in the 1940s, to the Colombo Plan, to ASEAN's first Dialogue Partner to Cambodia to East Timor.

What we don't have is a natural, weighty grouping such as the EU or ASEAN. Our history has consistently been to be put in what can only be described as 'the Others', as in the 'Western European and Others' (WEOG) in the UN. Hence, our bilateral, regional and global diplomacy does need to be active and creative, as it has generally been over the decades.

Prediction is always difficult, but the following are some of the big challenges with which I believe Australia will be confronted over the next 20-30 years.

The inter-relationship between the United States, China, Japan and India will provide the backdrop and centre point to much of what unfolds in East Asia and beyond — just as the Cold War provided the backdrop and centre point to the second half of the 20th Century

— as a middle power we have a national interest in the embedding of regional architecture, such as the East Asia Summit, which provides a forum for the open discussion of all issues and which continues to embed the habits of consultation — something which ASEAN has been so successful in fostering

— making the existing architecture work effectively is fundamental to peace and prosperity in the wider region

With a few exceptions, our East Asian and South East Asian neighbourhood will probably become increasingly wealthier and more confident. For the first time we will have a neighbour — Indonesia — which will have a bigger economy than our own. This will require a psychological adjustment by Australia, as will an Indonesia which continues to embed democratic norms. We will need to rethink engagement strategies and expectations.

The changes in East Asia challenge our capacity to become genuinely Asian literate. Not just to talk about it, but to do it. It ought to be a cause for concern that our education system has become less, not more, able to support that necessity. In DFAT we see it every year in our recruitment drives. But others have spoken about that, and here, I can add little to the critique.

The bureaucracy also needs to relearn the fact that knowledge of another country is highly relevant to advice and decision-making which materially affects another country's interests. And DFAT needs to be more robust in its advocacy.

The changes in East Asia, both economic and strategic, will see a real growth in regional defence expenditure. This will not be directed against us, but it will mean that the capability gap we have traditionally enjoyed in the wider region will significantly diminish and, in some instances, probably disappear. This in turn will raise questions — not now but well down the track — whether we will be able to continue to meet our defence needs with just under 2 per cent of GDP

— EU countries and Canada are in different strategic circumstances, so we should not look there for comparisons.

None of this should be seen in dramatic terms, or in terms of growing threats. Rather, it is a natural consequence of countries getting richer and modernising their defence capabilities in the process. We will not be able to ignore that reality.

But the growing wealth of East Asia will not be shared across much of the other part of our neighbourhood — the South Pacific. Here, climate change and other constraints may present us with opposite challenges to wealth and confidence. Over time, that could lead to serious questions of labour mobility if some of the smaller South Pacific Island countries are to develop sustainable economic growth.

Beyond the immediate neighbourhood, we have yet to develop a genuine strategic partnership with India, and our trading relationship remains far too narrowly based. So the potential for growth is great.

— it is important that we see our recently commenced economic partnership discussions with India, and with Indonesia for that matter, as having implications and returns beyond trade. That may not sit well with economic purists, but it is our challenge in today's world.

At its simplest, as an open economy and middle sized power, Australia has an interest in a rules based international order broadly supportive of the free flow of ideas, goods and services.

It is in our national interest that the UN functions more effectively and that, over time, it is reformed.

As the body which provides the basis for our presence in East Timor and in Afghanistan, and as the body which provides the basis for our sanctions against Iran and the DPRK because of their nuclear programs, it is only reasonable that, from time to time, Australia seeks a temporary seat on the UN Security Council.

If we take its resolutions seriously, we should take its membership seriously. And if we take its membership seriously we should be prepared to play our part from time to time.

Beyond the UN and its various agencies, some of which provide enormous value, we have other global forums. None is more important to Australia than the G20.

The G20 provides the best hope for the global economy managing the existing challenges with a broadly coordinated, cooperative approach. That is why, in 2008, we argued hard for a G20 leaders' meeting and against a G13 or G14, from which we would have been excluded.

— and that is why the Prime Minister, the Treasurer and the Foreign Minister continue to be so actively engaged.

Should the G20 fail, it would likely be replaced by a grouping of which we would not be part, despite our economic size and success. In such circumstances we could not count on any other country to effectively represent our interests — neither the US, nor Indonesia, nor any other.

For the first time, the G20 has provided a relatively small global forum in which Australia shares the table with a number of countries with which we have not historically had deep and broad-based relations, but which are becoming increasingly important on the global stage

— chief amongst these are Brazil, Mexico, Turkey and, of course, India. And, in certain aspects, South Africa.

So the G20 provides an opportunity, not only to pursue global economic interests, but to develop key, emerging bilateral relationships

— take, for instance, Brazil. Destined to be one of the world's biggest economies within a decade or so and a major player in international forums, we have no historical or other natural starting point for our relationship. Until recently, it has largely stagnated. And even today our diplomatic presence there reflects the world of 40 years ago, not the present, let alone the future. To varying degrees, the same could be said of Turkey, Mexico and South Africa.

In conclusion, I would make two additional observations. The first concerns the fact that I have not sought to cover all the bases. There are many relationships and issues important to Australia over the coming decades which I have not mentioned — Vietnam and Antarctica being two diverse examples — but I wanted to draw out themes, not the waterfront.

My final observation concerns prediction and global and regional changes over the coming decades. Whatever our views and certainties now, the totally unexpected — the Black Swan — is the one certainty in an uncertain future. We do not know what or when but we do know it will be something which none of us can see today

— that may be obvious. But it is only by being conscious of the certainty of the totally unexpected that we can keep an open mind. And only with an open mind can you retain the flexibility to respond sensibly to the big surprise, to the big shift which changes the fundamentals

— that, ultimately, is the true test of foreign policy professionalism in a changing world.

Thank you.