It took a century to change our mind: Labor and the Asian Century


posted | in Feature Article

“Labor, the party that thought Australia had the most to fear from Asia, a century later became the party that adopted the mantle of preparing Australia for the Asian Century.”

As we think about the recent 2013 election, and rebuilding the party for the next one, it’s important to remember if you change the government you change the country. The electorate wants to know which party will best prepare them for the future, especially given the uncertain nature of the global economy. And Labor needs to keep this in mind looking forward to 2016 and beyond.

Most of all the electorate wants to know which party will make intelligent policy decisions. After all, intelligent people change their minds when circumstances change, and smart nations do too. Australia is a case in point. At the time of federation, Australian public debate was all about fear – fear of imported goods, fear of imported people, fear of attack and anxiety about our geographical position in the world. The national policy response was about defence – putting up barriers in case of attack. Even the choice of the capital Canberra, one hundred years ago in 1913, was partly done so inland in case of attack by sea (apart from solving a classic Sydney-Melbourne barnyard brawl). Whilst this may have been apt in the case of defence policy and military strategy, it also shaped our trade and economic policy framework as well. And most economists now think that for most of the century we paid a price for applying defence principles to Australia’s economic structure.

We need a government that has the courage to engage with the global economy in the Asian century.

For like Brazil and Argentina, Australia had run an isolated, defensive trade policy for much of the twentieth century. At the time of federation, the former Australia colonies (now states) were engaged in a vigorous debate between a free trade and protection. On the whole the colony of New South Wales supported free trade, whilst Victoria supported protectionist tariffs (which they extended across colonial borders and thought the whole continent after Federation should do the same thing). In fact, the political parties of the time of federation were called ‘Free Trade’ (led by NSW Premier George Reid) and ‘Protectionist’ (led by the Victorian Alfred Deakin). The trade unions at the time (and their newly formed ‘Labor Party’) were also divided on the issue with the NSW trade unions mainly supporting free trade (most of the unionised work for were in pastoral industries and others that relied on export income) whilst the Victorian Trades Hall, with its manufacturing and craft base were in favour of the tariff. In the end the matter was settled when the Protectionist forces gained support from the Labor Party for the tariff on the grounds that there would be an Arbitration system with legally enforced minimum award wages for the entire workforce. Eventually, the free traders joined with

protectionists to create a ‘Fusion’ Liberal party (in opposition to Labor), and when the post-Federation settlement emerged it consisted of Protection (‘Protection all round’ was the slogan of the day), a Conciliation and Arbitration system, and a ‘White Australia’ policy restricting non-European immigration.

Gough Whitlam fundamentally refocused Australia’s compass toward the Asian region.

Whilst the conciliation and arbitration system has endured for over a century, and has been shown to be adaptable to different external economic circumstances, both the ‘White Australia’ policy and the system of Protection have been removed as Australia has become an open, prosperous economy embracing ‘the Asian Century’. What was once called ‘the tyranny of distance’ by the famous Australian economic historian Geoffrey Blainey, in terms of Australia thinking itself too far from Europe and North America and too close to Asia, has now become ‘the power of proximity’. By embracing Asia, Australia has realised its geography is beneficial to its economic endowment and in the 21st century, the ‘Asian Century,’ it has found itself to be in the right place at the right time.

But for the nation they call ‘The Lucky Country’ (a phrase coined by historian Donald Horne in 1964, two years before Geoffrey Blainey published ‘The Tyranny of Distance’) it wasn’t luck alone. Australia reformed its economy and society in order to take advantage of the new wave of Asian prosperity to its north. In fact it was the party of the workers, Labor, that thought Australia had the most to fear from Asia, a century later, become theparty that most tried to prepare Australia for the Asian century with a sense of urgency. Gough Whitlam, urged on by South Australia’s progressive Premier Don Dunstan rid White Australia from the party platform in the 1960s, and in the early 1970s, both as Opposition Leader and Prime Minister, Whitlam made historic
visits to Beijing (then Peking) as did US Secretary of State Henry Kissinger and President Richard Nixon.

But momentum really occurred when Bob Hawke became Prime Minister in 1983. Over the course of a decade, Hawke and his Treasurer (and successor as Prime Minister) Paul Keating floated the exchange rate, pulled down the tariff wall, reformed the financial system, and implemented important social reforms in terms of universal healthcare (Medicare), pensions (superannuation) and ensured that education and training systems could help enhance skills and productivity enhancement in the labour market. The Hawke-Keating Government did this in conjunction with the Australian Council of Trade Unions (ACTU) through the Prices and Incomes Accord. Social protection for the most vulnerable replaced trade protection to ensure that labour market opportunities were created as the

Julia Gillard launching the Australia in the Asian Century white paper earlier this year.

opening up of the Australian economy adversely affected uncompetitive industries. Asia was embraced, with Bob Hawke forming APEC together with South Korea, and Paul Keating as Prime Minister full embracing the region, building on his international work As Treasurer. Many of these internationally minded reforms (and institutions) were supported by the other side of politics in Opposition and later in Government. Keating’s successor as Prime Minister, John Howard had supported the tariff reductions and Howard’s first Deputy Prime Minister, Tim Fischer (leader of the National Party) vigorously embraced the region, particularly Thailand,following on from the trade policy activism of early National party leaders (John ‘Black Jack’ McEwen, though a protectionist, signed a commercial agreement with Japan in 1957, just 12 years after the end of the Second World War and Japanese attacks on Australia and other targets in the Pacific).

It took over a century to change our mind about Asian engagement.

Australia’s economic reform period changed the countries fortunes around. In the 1970s we were called the ‘White trash of Asia’ by Singaporean strongman Prime Minister Lee Kuan Yew. Despite our mineral and agricultural wealth, our economic performance was one of the worst in the OECD, with double digit inflation and unemployment and industrial disputes had been an Olympic sport we would have been putting in gold medal performances. Words like ‘export’, ‘productivity’ and ‘competitiveness’ were rarely spoken of. Now the contrast couldn’t be greater. During the global financial crisis (GFC), with the collapse Lehman Brothers, Australia avoided a recession and the mass unemployment experienced in Europe and North America. In fact, Australia has been recession free since the recession of 1991-92, and we’ve managed to achieve a low unemployment rate of just over 5 per cent, together with low inflation at a time when we have been opening and reforming our economy. Like Brazil, and Chile as well, we have benefitted from the ‘bamboo shoots’ of China’s GFC stimulus package (as opposed to Ben Bernanke’s much anticipated ‘green shoots’ of recovery) and more nations are now talking of the ‘Australian model’ as opposed to ‘the white trash’ of Asia, a term that has now well and truly been confined to economic history’s dustbin.

Australia under the last Labor government released the Australia in the Asian Century white paper; a comprehensive strategy on engagement with Asia, overseen by one of Australia’s most distinguished public servants, Dr Ken Henry. The white paper outlined not just the big picture, top down, macroeconomic changes that needed to be made on the international economic stage, but also how Australian citizens could engage with Asia, through education, language, cultural exchange and employment opportunity.
It took over a century to change our mind about Asian engagement. Now, Asia is seen more as an economic opportunity than as a threat to our security. Australian history has been turned on its head. Because it is Labor; the party that in the early 20th century thought Australia had the most to fear from Asia, has in the early 21st century, become the party that sees its mission as preparing Australia for the Asian century ahead.

But now that new approach is at risk. We have yet to see the Abbott government’s fully-fledged approach to our relationship with Asia. However, not a lot is to be expected. Abbott has already shown his reluctance to engage on a meaningful level with Indonesia. And their approach to the Australia in the Asian Century white paper has been to relegate it to the dustbin of history, consigning Australia to perhaps another few years in the regional wilderness.

We need a government that has the courage to engage with the global economy in the Asian century. Labor has shown it is willing to modernise Australia’s approach to Asia. The Liberal Party, alas, have some work to do on that front.

Tim Harcourt is the JW Nevile Fellow in Economics at the Australian School of Business, UNSW, Sydney, Australia & author of The Airport Economist