CEDA Economic and Political Overview
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Thank you Kyl [Murphy, CEDA Queensland state director], it is a great pleasure to be here in Brisbane for CEDA's 2017 Economic and Political Overview.
CEDA has a long and rich tradition of contributing to the national conversation on the perennially-important subject of Australia's economic reform, so I was pleased to be invited to join you.
I know your prime interest is the year ahead – the potential pitfalls or policy progress we might see in 2017.
2016 was a quite tumultuous year – and for many, it feels as if the international community is beset on all sides.
On the one hand, we have a still troubled global economy, only sluggishly recovering from the lingering after-effects of the 2008 crisis, amid subdued growth forecasts and a disrupted labour market.
On the other, political uncertainties, driven by events in Europe and the election of a new United States President on a platform that also promises disruption, are giving rise to deeper levels of doubt about the future we had expected and perhaps taken for granted.
I'd like to start, though, if I may, not in 2017, but in 1933.
As a diplomat, I appreciate the value of a good international conference – and in 1933, there was a particularly important one, one that was, in the end, significant not despite its failure, but because of it.
The failures of protectionism
Justifiably, the writer HG Wells is much better known for his science fiction than his political and social commentary.
But Wells' contemporary description of the opening – and of the failure – of the 1933 London Economic Conference is worth repeating, colourfully capturing a sense of its importance.
In 1933, the world was in a state of crisis.
Only half-way through the Great Depression, Europe remained deeply indebted to the United States, itself forced deep into depression by the Great Crash of 1929.
The Depression was exacerbated, as we all know, by the Smoot-Hawley Act, which lifted tariffs on over 900 American lines, leading, in the early 1930s, to retaliatory protectionism and global economic isolationism.
The London Economic Conference was an effort by the six great powers of the day to pull the global economy out of the depths of that depression.
It started well enough.
Everyone understood how important it was that the global community find a way out of the Depression.
"The conference opened with a stout determination to be brilliant and eventful; the hotels were full, the streets beflagged … even the English weather seemed to make an effort. The opening addresses by the King of England and his Prime Minister . . . state in so many words that the failure of the Conference [would] precipitate world disaster."1
Wells quotes US Secretary of State Cordell Hull – the chief American delegate to the conference – on the importance of global cooperation over national self-interest.
"Selfishness must be banished," Hull told the conference.
"If – which God forbid! – any nation should wreck this Conference, with the notion that its local interests might profit, that nation would merit the execration of mankind".2
In the end, though, the 1933 conference did fail.
It fell apart, without finding a path for global reform, after President Roosevelt put American interests (largely the international debt owed to the United States), ahead of international reforms.
Hull – recognised by history as one of the fathers of trade liberalisation – was powerless, in the end, sent to London with no authority to drop tariffs or to negotiate a way out of the global monetary malaise.
This was, after all, a period of intense nationalism – a time when the world took to national responses, to domestic economic actions, without fair consideration of their international context.
Cuttingly, Wells wrote that London "rose to nothing", that it "began at its highest point and steadily declined".
From there, the path for Europe and the world is well known.
Protectionism prevailed, the economic crisis deepened through the 1930s, and by 1939 Europe was at war.
International economic and political context
Now let's flash forward to 2017, where the highly developed countries of the world are slowly emerging from their own global financial crisis.
Wages are growing slowly in many rich countries, but jobs are still hard to come by, global trade has stagnated and many countries still have too many people out of work.
The recovery, though started, is clearly not complete – and a general mood of impatience and disillusionment around the developed world has been accompanied by voices opposed to globalisation and in favour of protectionism and economic nationalism.
In recent weeks, President Trump has made it clear that the principle he took to the election remains very much at his heart: he will, in office, put America first, and he appears prepared to use tariffs and other economic measures to sustain the US economy – although we have yet to see this preparedness applied in practice.
Now, I'm not suggesting we are on a path towards conflict.
2017 is not 1933.
Far from it: our backdrop, our international context, is not the Somme, or Verdun, but 70 years of generally increasing global prosperity.
Prosperity that continues to be bolstered by growth in our region.
As Gideon Rachman so clearly articulates in his book Easternisation published last year, "the mutual economic interests binding Asia to the US and Europe remain the best hope of avoiding conflict".3
Yes, many countries, including many developed countries, like the United States, have struggled to recapture their pre-crisis growth levels since 2008.
Many populations, like those in Britain, and the US, and elsewhere in Europe, are driving home, at the ballot box, their profound dissatisfaction at the pace of economic recovery, and at the distribution of wealth and employment in a globalised market.
But the broad story of the past three generations has been more progress, more prosperity and avoidance of a global conflict.
The importance of open markets
Today I want to stress the point that, as Australia's example shows – protectionism is not the answer.
In fact, the experience of the past 80 years tells us the precise opposite.
Open markets are the key to sustainable prosperity.
Indeed, when we examine the trends in economic reform that have driven meaningful prosperity in the post-war years, trade and open markets are the common themes.
Globalisation and the liberalisation of trade and investment are essential to our collective futures.
If I can make any prediction about 2017, it is that we will have to work hard, harder in fact, to make the case for open markets and reform, both domestically and internationally, if we are to drive more growth in national incomes, a rise in productivity, and a return to global economic health.
As the Prime Minister said at the Press Club last month, "we cannot retreat into the bleak dead end of protectionism."
Political leaders and interest groups often blame trade – and specific trade agreements - for job losses and changes in industrial structure.
Yet most manufacturing job losses over the past decade stem from automation, and technological change, not from the impact of trade.
One can debate whether governments – worldwide - have done enough to support those who have lost manufacturing jobs.
But the answer to such concerns is not to put up walls to trade and investment.
Support needs to come from domestic policies, such as skills training and social protection, which can be funded from the economic growth that open trade brings.
Domestically, the Australian Government is working hard to drive economic reform in a number of important ways, including:
- By making the economy more flexible and innovative, through the $1.1 billion National Innovation and Science Agenda;
- By looking for new ways to stimulate competition across the diverse sectors of the economy, through the Harper Review; and
- By remaining internationally competitive through reforms to the corporate tax rate.
But equally important, from my perspective, are the Government's efforts to drive economic reform around the region and the world.
I said earlier that US Secretary of State Cordell Hull went on to become one of the fathers of the post WWII global regime that generated decades of progressive trade liberalisation.
That's true: he played a critical role in helping to create the framework for the General Agreement on Tariffs and Trade, the fore-runner to the World Trade Organization.
Successive rounds of negotiations under the auspices of the GATT and the WTO, along with the many regional and bilateral agreements, have been instrumental in driving economic growth and building prosperity.
That remains true today.
President Trump came to office with firm promises made to shake up NAFTA and to withdraw from the Trans-Pacific Partnership.
I hope, though, that the initial moves we've seen in the first few weeks of this presidency don't preclude future American support for a global agenda that will promote trade liberalisation.
Frankly, trade and investment reform offers too much potential for new growth for us – Australia, the United States, China, Indonesia, India or any economy worldwide - to miss the opportunities.
We have to remember the lessons of the past – including the lessons we failed to heed at the time – in finding our way towards new sources of growth.
What Australia is doing in 2017 on trade and investment reform
That's why Australia is pushing forward, improving access to markets for our exports through trade negotiations.
Because of the high-quality trade agreements first Andrew Robb and now Steve Ciobo have struck with our partners in the region – China, Japan, Korea and Singapore– we have better access into the key markets of Asia than any other major advanced economy.
These agreements of course include the elimination of tariffs, in Australia and on the part of our partners, as well as measures to open up new services trade opportunities and promote a strengthened environment for investment flows.
Investment, as Minister Ciobo – the second Australian Minister for Investment - often says, "creates jobs and drives growth".
Our free trade deals – and our trade approach more broadly, focus on ways to make Australia an attractive destination for foreign investment.
Investment supports our participation in global value chains, where we are just one of many countries providing inputs into a good or service, or else the country at the end of the production chain, making and selling a final product with inputs drawn from everywhere.
As a knowledge economy positioned on the Southern arc of the Indo-Pacific, global value chains create opportunities for our world class services exports.
Services industries employ four out of five Australians, making up more than 75 per cent of our total domestic economic activity.
And we are finding new places for our world class services, including in the goods-related manufacturing and agricultural sectors.
But there is clear potential for us to do more.
The Trans-Pacific Partnership agreement was a classic case of a high ambition trade agreement that was designed to support growth in services trade and investment.
The Government is disappointed by the Trump Administration's decision on the TPP, but we are working with our partners on next steps – and actively pursuing opportunities for new agreements.
And we are not losing sight of the importance to our long term interests of building the economic architecture of our region in a way that is consistent with our interest in securing open markets.
Our engagement in the Regional Comprehensive Economic Partnership, or RCEP, negotiations, for instance, is a major priority.
Covering almost half the world's population and 9 out of our top 12 trading partners, RCEP is an important opportunity to boost economic confidence.
It has the potential to improve opportunities for exporters; create a more predictable, stable investment environment; and support SMEs to engage in and take advantage of regional supply chains.
We are also looking to new economic partnerships with countries like Indonesia, with which we are pursuing a high-quality free trade agreement – a top priority for Trade Tourism and Investment Minister Ciobo.
We are also working with the European Union towards the launch of bilateral free trade agreement negotiations in the not-too-distant future. This promises major opportunities across the board, particularly in services and investment where the EU is already a very important partner with scope for growth.
Australia was also the first country to establish a trade working group with the UK which will be a vehicle for preparations for negotiations in due course when the UK has exited the EU.
Economic reform is an iterative process – and we are constantly working with our partners to refine the terms of our agreements to make sure they reflect our priorities and work in our interests.
As a constructive member of the WTO since its inception in 1995, we remain a passionate advocate for its role in developing and implementing the multilateral rules-based trading system, as a forum for negotiations on new rules and as home to the dispute resolution framework that came into force with the WTO and which has been a key element in ensuring that countries comply with the trade rules.
While forging agreement among the WTO's membership has become exceptionally difficult – there is virtually no prospect of concluding the Doha Round of negotiations – that does not mean that the WTO is irrelevant.
In fact the WTO continues to be a positive force for trade reform. Witness the historic achievement reached at the last WTO ministerial conference, in Nairobi in 2015, to end agricultural export subsidies. This has been a major aim of Australian trade policy for decades, and was at the core of the formation of the Cairns Group in 1984.
And any day now, the WTO Agreement on Trade Facilitation will enter into force, which will have a positive impact in lowering the costs of trade.
Australia will also continue to play a leadership role in other multilateral bodies that are champions of open trade.
Australia was the driving force behind the establishment of APEC, the premier body for advancing regional economic integration in our region.
APEC's spirit of goodwill enables it to continue to advance practical initiatives on trade and investment liberalisation in spite of rising protectionist sentiments.
The G20 is also important, as policymakers based here in Brisbane know well.
The G20's greatest successes, so far, have come at the most urgent moments of crisis.
When leaders met in Washington in 2008, in the midst of the Global Financial Crisis, their joint communique underscored, and I quote, "the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty".
We continue to advance the practical economic reform measures that G20 Leaders agreed in Brisbane in 2014 to lift global growth.
Conclusion – the importance of advocacy
Ladies and gentlemen, there's no doubt that we enter 2017 in a febrile mood.
In country after country around the world, electorates and citizenry are demanding policymakers find solutions to the economic challenges that have held us back since 2008.
Recognising the re-emergence of a protectionist mood should be – frankly – a call to arms.
It shouldn't be a signal to abandon our efforts to drive greater economic openness and more, freer trade.
Those of us who have seen the ways in which trade and investment reform has led to more income for Australians, more jobs for Australians, more investment coming into Australia to build and grow productive Australian businesses, have a responsibility, in 2017, to argue the case.
The US election and Brexit prove one thing: if we believe in what we're doing, economists, policymakers and those of us working in government have a responsibility to bring people with us.
There is a real discussion to be had about the facts and benefits that accrue from globalisation, particularly as they relate to the everyday citizen.
It's time for us to redouble our efforts – in every board room across the country, public, private and NGO – to make the case for sensible reform that will lift productivity and create sustainable employment.
There is an obvious role for strategy in this context, which is why the Government has asked my Department to prepare a Foreign Policy White Paper to guide the parameters of Australia's engagement with the world in the years ahead.
A strong economy will be a key determinant of our regional and global weight.
Yesterday, members of the White Paper taskforce were in Toowoomba – and will be here in Brisbane today – to hear from Queenslanders about how we should advance the prosperity and security of Australians in the 21st Century.
Many of you have made contributions and submissions to this process, and I'd like to thank you for that.
We look forward to presenting our consolidated views on the path forward later in the year.
What we must not do is make the mistake made by our forebears in 1933 – of failing to come together to achieve meaningful global progress.
1. Wells, HG, The Shape of Things to Come, 1933, chapter 14
2. Ibid, full text of the June 13, 1933 Hull speech available on the State Department's website at https://history.state.gov/historicaldocuments/frus1933v01/d460
3. Rachman, G., Easternisation (2016) pp 252