Governments are forever immersed in the daily challenge of responding to what the former British Prime Minister Harold Macmillan once knowingly described as “events.” It was he who coined the resounding phrase the “winds of change”. Governments become so embroiled in the details of policy, and the political in-fighting to secure their survival, they rarely have the opportunity to look over the horizon to see what may be heading our way.
Closely constrained as a minority government, employing the sterling services of Ken Henry, the Gillard government has had the courage and vision to focus — just for once — on what lies ahead for Australia. The global and economic shifts we face outlined in the White Paper are truly astounding:
The Asian century is an Australian opportunity. As the global centre of gravity shifts to our region, the tyranny of distance is being replaced by the prospects of proximity.
The share of world output within 10,000 kilometres of Australia has more than doubled over the past 50 years to more than a third of global output today, and this share will rise to around half of global output in 2025.
If Asia’s development proceeds, the number of middle class consumers in the region will grow from around 500 million today to 3.2 billion by 2030. Nine out of ten new middle class consumers worldwide will be in the region.
While we may hope that successive governments will have the capacity to resource some of the immense initiatives that will be required to respond to this great opportunity, the key message of Julia Gillard in launching the report was that an effective response must be multi-dimensional and collective: “This is not just about the role of government but also about challenging business, unions, universities, civil society and the media to engage in the region… a coordinated effort from the entire community.”
Economic growth
The continued rapid economic growth of Asia is projected in the White Paper, with huge gains in productivity anticipated. (Presently, per capita productivity in China is only 20% that of the United States.) Effectively the Australian economy will be carried along in the slipstream of the advancing Asian economy, continuing Australia’s record of economic growth. This places Australia in the happy position of being an advanced industrial country with a consistent 20-year growth rate comfortably between the low rates of growth of the West, and the high growth rates of Asia.
However, the emphasis upon Australia’s economic contribution to Asia’s growth is forecasted in the White Paper to be dependent upon commodity exports. Mining exports are forecast to increase to 65% of the total by 2025; manufacturing will reduce from 30% of exports in 2015 to 15% by 2025; while services that compose 80% of the Australian economy will only rise from 8% of exports in 2015 to 10% in 2025.
While Australia’s career as the lucky country seems destined to continue, there are two deeply worrying aspects to this export profile. Firstly, why is Australia apparently trapped at the low value-added end of the international value chain? Secondly, what on earth is going to happen to global emissions and other pollution when another 3.2 billion people begin to consume like the middle classes of the West?
Fortunately the answer to both these dilemmas is the same: Australia must strive to use all of its skills, knowledge and ingenuity to make the Asian Century a sustainable century. Government, business, professions, and universities must endeavour to transform production processes, materials, technologies, products and consumption to achieve sustainability. This expertise in sustainability could be a key success factor in Australia’s engagement with the Asian century.
The sustainability imperative
In 1996, while teaching at the CEIBS Business School in Shanghai, I encountered a senior executive of General Motors. He told me that when he first arrived in China, looking out of his apartment window in Beijing in the morning, he saw thousands of cyclists briskly making their way to work. Now he looked out of his window and all he could see was traffic gridlock of cars and trucks barely moving at all. I asked him what he was presently working on, and he replied: “We are building the biggest car plant in China in Shanghai.”
China is now the world’s largest vehicle market with in excess of 30% annual growth. Despite this record growth in China’s automobile industry, as of 2010 average car ownership in China was just 38 cars per 1000 people, compared to 815 cars per 1000 people in the United States. If China reached the level of car ownership of the United States, there would be more cars in China than currently exist in the whole world.
The future of urban transport in Asia?
Highlighting the White Paper’s whitewash on sustainability, Ross Gittins focused on the significance of the figures buried in the report: in the 19 years to 2009, Asia’s energy consumption more than doubled and its share of world energy consumption jumped from 25 to 38%. In 2009, fossil fuels accounted for about 82% of Asia’s energy mix. As a consequence Asia accounts for about 40% of global greenhouse gas emissions - up from 31 per cent in 2001. China recently overtook the US as the world’s largest emitter.
China now emits 7,711 million tons of carbon, with the United States following with 5,425 million tons. The US is still number one in terms of per capita emissions among the big economies - with 18 tonnes emitted per person, while China, by contrast, emits under six tonnes per person, and India only 1.38 tonnes per person.
However, if the middle class of Asia grows at the rate projected in the White Paper, and consumes products made out of the same materials by the same technologies in the same way as the West, the planet’s environment will be in desperate trouble.
None of this is inevitable. China plans to extend the rail network by 24,900 miles to a total of 74,600 miles by 2020, offering a viable transport alternative. China has set targets for limiting greenhouse gas pollution and other dangerous emissions. China’s 12th Five Year Plan (2011-2015) calls for a 17% reduction in carbon intensity and a 10 % reduction in total NOx emissions. Restructuring and reforming China’s transportation system will make a significant contribution to these goals.
China once had the view that the primarily objective was to pursue Deng Xiaoping’s injunction to get rich, and they could clean up afterwards. With their water, air and environment facing serious threat, China now realises this is not a viable strategy. As Ross Garnaut argued in The Conversation last week serious improvements in energy efficiency are being made, along with transfer from fossil fuels to hydro, wind, nuclear, biomass and solar. A similar trajectory in the use of steel is awaited.
Australia’s role in Asia’s sustainability
Australia’s contribution to making Asia’s value chains sustainable, designing new sustainable products and services, and developing new business models could be critical. In infrastructure and property development Australian companies have world-class expertise in designing and building to the highest environmental standards. As the CSIRO’s Future of Manufacturing initiative shows, we are becoming versed in flexible manufacturing with advanced materials. Australia’s advances in clean energy technologies and energy management systems will prove invaluable to Asia.
Australia’s lengthy experience in producing wholesome food will be appreciated throughout Asia. The expertise of the Australian finance sector in providing sustainable financial products and solutions in Asia will be valued. The educational role of Australia in providing world class opportunities for Asia will continue to grow. Finally there is the potential for a growing market for legal, professional and technical services as Asia strives to enhance the performance of its markets and institutions.
In helping to transform Asia, Australia can transform itself into an agile, flexible, knowledge-based economy in the coming century. But first, it requires a coherent and strategic policy framework that makes sense of the political, economic and social challenges ahead.