How countries conduct themselves globally and act to meet common challenges matters greatly to Australia. In the post-Second World War period, we have benefitted significantly from an international order shaped by US power and global leadership. Our world has been characterised by an increasingly integrated economy and the development of international rules and institutions.
The principles embedded in the post-war order have strongly supported Australia’s interests and our values. These principles include the promotion of open markets, the importance of international law and other norms to guide international cooperation, the articulation of universal rights and freedoms and the need for states to work cooperatively on global challenges. US leadership has supported global security, including through the network of US alliances and the US military presence in Asia and Europe.
Significant forces of change are now buffeting this system. How the international order evolves in response has important implications for Australia.
Debate about the future course of globalisation has intensified. Starting in the 1990s, globalisation—the integration of the world economy through flows of goods, services, capital, skilled workers and ideas—accelerated. Global trade and investment grew strongly (Figure 2.1). So too did manufacturing in Asia (Figure 2.2). Following Japan and the Republic of Korea, China became an economic powerhouse hungry for Australia’s minerals and energy, boosting our economy and increasing our living standards. Other economies in Asia also grew.
Figure 2.1 Value of global trade and investment
|Exports of Goods and Services||4.3||4.4||4.8||4.8||5.4||6.4||6.7||7.0||6.9||7.2||8.0||7.7||8.1||9.5||11.5||13.2||15.1||17.6||20.2||16.1||19.2||22.7||23.0||23.8||24.2||21.4||20.8|
|Foreign Direct Investment||2.2||2.5||2.5||2.8||3.1||3.8||4.3||5.0||6.1||7.1||7.5||7.4||7.5||9.5||11.1||11.7||14.5||18.3||15.7||18.7||20.6||21.2||22.8||24.7||24.9||25.1||26.4|
World Trade Organization; United Nations
Figure 2.2 Asia’s share of world manufacturing output
For much of this period, China’s economy expanded by around 10 per cent a year. Hundreds of millions of people in Asia escaped extreme poverty. Asia drove global economic growth (Figure 2.3) and consumers everywhere benefitted from access to goods and technologies from around the world at lower prices. In many developing countries, greater wealth and transmission of knowledge and technology drove increases in literacy and life-expectancy.
Figure 2.3 Asia’s share of world merchandise trade
World Trade Organization
At the same time, as manufacturing shifted to Asia and technological advances increased automation, advanced economies lost jobs in some industries. This disruption, together with low wage growth in advanced economies, has led some communities to question whether the gains from globalisation have come at their expense. The global financial crisis and its aftermath deepened doubts about economic openness.
Concerns about globalisation are not new. But the pace and scale of change in the past two decades have had significant political impact, particularly in Europe and the United States. Doubts about openness to the world have grown, as have concerns about the effect of globalisation, mainly immigration, on cultural identity and social cohesion.
Politics in many countries has also become more fragmented and volatile. Nationalism has become a stronger political force and protectionist sentiment has increased. The dislocations caused by globalisation are arguably one factor in the decline of some measures of global freedom and liberal democracy over the past decade.
Global governance is becoming harder
These economic, political and social changes are adding to other pressures on the international system.
While the United States remains the preeminent global power and most important influence on international affairs, it now shares the stage with a number of countries with large populations and economies. Since 1950, the United States’ share of the world economy has nearly halved, from 27 per cent to 15 per cent today (in purchasing power parity terms).2 This contrasts with China’s rapid increase, growing from two per cent in 1980 to nearly 18 per cent today. As a consequence, China along with other major and emerging powers such as Indonesia, India, Nigeria and Brazil have growing weight in international affairs.
Non-state actors, such as multinational companies, civil society groups and private foundations, are also able to mobilise resources and communities of interest globally. They are increasingly able to shape international responses to issues as diverse as climate change, sustainable development, education and health standards.
The net result is that global governance is becoming more complex. Many global institutions are finding it difficult to respond to the scale and complexity of international challenges. A greater number of major and emerging powers with divergent interests and values makes finding consensus difficult.
Rules are being contested
The international order is also being contested in other ways. Some states have increased their use of ‘measures short of war’ to pursue political and security objectives. Such measures include the use of non-state actors and other proxies, covert and paramilitary operations, economic coercion, cyber attacks, misinformation and media manipulation. In the United Nations, we have seen coordinated efforts to dilute universal human rights standards. Some states are active in asserting authoritarian models in opposition to open, democratic governance.
International rules designed to help maintain peace and minimise the use of coercion are also being challenged. Australia’s security is maintained primarily through our own strength, our alliance with the United States and our partnerships with other countries. Australia’s security and prosperity would nonetheless suffer in a world governed by power alone. It is strongly in Australia’s interests to seek to prevent the erosion of hard-won international rules and agreed norms of behaviour that promote global security.
Refusal to act in ways consistent with international law and these norms, such as Russia’s coercive and aggressive actions in Ukraine, Syria’s use of chemical weapons, and North Korea’s missile and nuclear programs, weakens global security.
Forging rules on a range of new issues, such as cooperation in outer space and governance of the internet, will also remain difficult because of differences in political systems, interests and values.
There is much at stake for Australia
We do not know yet how far these shifts will change the way nations conduct and organise themselves globally.
Economies and businesses will still trade with each other. The world will remain highly interconnected. Innovation and new technology will create employment and new ways of doing business that we can only begin to imagine. International cooperation on many issues remains not only possible but essential. Much of the institutional architecture of the international order has proven resilient and is valued by countries large and small.
Even so, the potential risks of the shifts described above are also clear. A more inward-looking and contested world would be less prepared to respond to major crises and work collectively to address global challenges. Multilateral institutions could see their effectiveness decline further. The rules and principles on which the international system has been built could erode. New approaches, contrary to our interests, might develop and ultimately prevail.
Over time, we can also expect the nature of work to change further as more jobs—or parts of more jobs—are automated. Digital platforms will allow more tasks to be done anywhere in the world. Without policy responses to manage change and seize the opportunities that will come from innovation, there is a risk that income inequality in some countries could worsen.
One implication is that pressures on governments to deliver access for their citizens to the benefits of national prosperity in a globalised world are unlikely to abate. Any pronounced shift towards protectionism as a result would impede flows of trade and investment, dampen economic growth and undermine the international rules that govern trade and allow economies to prosper together. It would also reduce living standards, including in Australia.
2 In this White Paper, economic calculations are based on purchasing power parity (see glossary). Using market exchange rates, the US economy accounted for 65.4 per cent of the global economy in 1950 and 24.7 per cent in 2016. Over a similar timeframe, China accounted for 4.5 per cent of the global economy in 1952 and 14.9 per cent in 2016.