MacroscopeAustralia’s new PM confronted by economic challenges of globalisation

The first time I met Malcolm Turnbull, Australia’s new leader, all he could talk about was Japan. It was June 2002 and the Goldman Sachs banker-turned-politician couldn’t comprehend how a smart, democratic government could simply stand by as an enervating malaise strangled the economy.

When I asked him whether something similar could happen in Australia, Turnbull stared out his Sydney office window. “There are real risks for Australia in globalisation and we could be a loser in the future just as we have been a winner to date,” he said.

Those risks are more than obvious now. Unlike Japan, Australia isn’t suffering from deflation and demographic blight. But its leaders, too, are guilty of not moving fast enough to adjust to a changing economic reality. Over the last two years, neither then-Prime Minister Tony Abbott nor Treasurer Joe Hockey implemented the structural reforms needed to increase incomes and boost competitiveness.

Rather than invest in education, training and infrastructure and tweak taxes to empower small businesses, Abbott’s team protected mining billionaires (by scrapping carbon-tax policies). His government championed fiscal austerity even as the economy experienced its weakest run of growth since the 1991 recession. Business leaders complained, rightly, about a lack of resolve to overhaul an outdated labour market. As a historic property bubble from Sydney to Perth massively outpaced wage growth, Hockey told voters they were imagining the problem.

In fact, it’s the government that’s appeared blind to the competitive pressures of globalisation. For years, China’s voracious appetite for iron ore, coal, copper and other commodities fuelled growth and filled Canberra’s coffers. That dampened the urgency for Abbott or his predecessors to diversify growth engines away from the mining industry, leading to a two-speed economy and widening inequality.

There’s plenty of blame to go around, but Abbott’s Liberals deserve much of it thanks to Prime Minister John Howard’s failure to diversify the economy during his 1997-2007 term. Howard’s stint followed those of Labor Party reformists Bob Hawke (1983-1991) and Paul Keating (1991-1996). Governments during the Hawke-Keating era lowered trade tariffs, opened the financial industry, floated the Aussie dollar and built a compulsory, national pension system. And then Howard coasted, riding China’s coattails and leaving economic management to the central bank.

Howard’s successors, the Labor Party’s Kevin Rudd and Julia Gillard, should’ve done more to rebalance the economy. But their fight to impose taxes on excessive mining profits, share Australia’s wealth and put a price on carbon emissions was the right one. By contrast, Abbott allowed even Beijing to grab the mantle of leadership on climate change away from Canberra.