Address to the Australia-New Zealand Chamber of Commerce (UK)
London
2 March 1999
I thank the Chamber for the invitation to meet and speak with you during my brief visit to the United Kingdom.
For those of you from New Zealand I know that you know that Australians always speak well of New Zealand and New Zealanders and that this is reciprocated - usually. I will be loyal to that tradition today.
1983 was a good year in Australasia. March 5th saw the election of an outstanding reformist government in Australia and that came shortly after the provisions of the C.E.R. began to operate on the 1st January that year. The list of things for which I was grateful to Malcolm Fraser and his government does not cover many pages - but high on the list is the dedicated work they did with their NZ counterparts in creating C.E.R.
Designed to encourage closer economic relations through free trade, while encouraging an outward orientation by both economies and being consistent with international obligations and our interest in the GATT, CER has worked to the mutual advantage of each of our countries. Merchandise trade between us has grown rapidly under CER. There has been a large jump in trade in manufactured goods particularly in intra-industry trade and this has led to a substantial increase in the maturity and capability of manufacturing firms in both countries. Growth in trans-Tasman services trade since 1988 when services were included in CER has, however, been less spectacular.
On the assumption that most of you are reasonably well acquainted with these developments under CER - and on the basis that it is not the most riveting subject for a brief address at a luncheon in London - I thought I would spend the rest of my time doing two things. First, commenting on a few issues of current or potential significance within our two countries New Zealand and Australia; and, second, to talk about a matter of profound importance to both of us i.e. what has been happening in East Asia and what are the prospects for that region.
In each of our countries at the moment there is considerable debate about a quite fundamental question - the capacity of government to govern. This does not go the question of the intellectual equipment of politicians although neither the commentators nor the public generally are consistently reluctant to offer their thoughts on that subject. Rather it goes to the structure and method of representation in the Parliament.
I was in New Zealand shortly after it had engaged in a collective act of national insanity by voting in the 1993 referendum to bring in the system of MMP (Mixed Member Proportional) voting for its unicameral Parliament. With the modest timidity for which I am well known I told my audience that it was going from chocolates to boiled lollies. Compared to Australia it had been in political heaven. No States and no Upper House to get in the way of good governance - after an election a Party could come to government unencumbered by lowest-common-denominator deals with minority groups to establish a majority in the House, or frustration from an Upper House inhabited and controlled by such groups.
I reminded them of the story of Richard Brinsley Sheridan. Sheridan of course was the famous eighteenth century playwright but less well remembered, perhaps, as a remarkable member of the House of Commons from 1780 to 1812. He is regarded by some as perhaps the finest orator ever to grace the House but his career in politics was stunted by his tendency to buck the party line. A Whig, he would often oppose that party's proposals in the House and on one such occasion delivered himself of the observation: "I have often heard of people hitting their heads against a brick wall but this must surely be the first time in history when they have built one expressly for that purpose."
I hazarded the opinion to my New Zealand friends that they would live to regret their decision and indeed would take the first opportunity to change it. The system, as I expected, has turned out to be a real dog's breakfast. The language of the system is as quaint as the results are appalling. The critical factor in determining the outcome of the election sounds like something from research undertaken on Viagra - "The Droop Quota" - which the literature solemnly tells us is the "mathematical formula used to calculate how many votes a candidate needs to be elected in an STV (Single Transferable Vote) multi-member seat."
When New Zealanders voted for MMP I think they thought they were engaged in a favourite public sport - punishing politicians. In fact as events have proved they were punishing themselves and I trust that it is now simply a question of when the wall will be demolished. Australia built its own wall in 1948 - my Party was guilty - when proportional representation was introduced for voting for the Senate. The Liberal and National Parties which happily took advantage of the power of these minorities in the Senate to frustrate the will of my government and that of my successor when they were in Opposition, seem to have developed a different perception since they have occupied the Treasury benches. They are now arguing the case for change but I wouldn't bet my last dollar on an agreement between the major parties, nor certainly from the fragmented beneficiaries of the present system, to change the status quo. I must say, by the way, I would no more as a visitor to this wonderful country seek to tell them how to run their affairs than I would my New Zealand friends. I would simply say to Tony - beware of P.R.
Probably nothing on the Australian political agenda creates more interest in this country, and perhaps in New Zealand, than the question of whether we will become a republic. I am not a Johnny-come-lately to this debate, having stated my position publicly in 1979 in the Boyer Lectures on the Australian Broadcasting Commission: "..I do not believe Australians would essentially be any better off as a Republic, but for reasons of national identity I would prefer to break the link with the British Crown and have our own President as Head of State, possessing formal and ceremonial powers only."
While you no doubt share my view that this concise, eloquent sentence remains, twenty years later, the perfect expression of an intelligent pro-Republican position, I imagine you are rather more interested in my assessment of the likely course of events. A referendum will be put to voters at the end of this year asking whether they favour an Australian as Head of State, which to be carried has to satisfy the twin constitutional requirements of an absolute majority of all voters and a majority of the States.
I would make these points. First, there is not, at least at this stage, a great deal of public interest in this question - you simply do not hear many people talking about it or raising it with you. This may change as the campaigns develop.
Second, the pro-Republican position has been weakened by a serious division within its own ranks. The proposal for the President to be elected by a two-thirds vote of the two Houses, which emerged from last year's Convention and is what will be put to the electorate, is being vehemently opposed - to the point of urging a NO vote - by those who favour a direct popular vote for the office.
Third, the Prime Minister who is a monarchist has, with the purest of motives I am sure, complicated the picture by his decision to put a second question - about a new Preamble to the Constitution - at the referendum. He proposes to pen the Preamble himself and having mentioned his intention to include God and a limited reference to prior Aboriginal occupation there is less than universal joy around the land. There is a considerable risk that arguments about the Preamble will divert attention from, and enthusiasm for, the main game.
Fourth, for all these reasons I feel, unfortunately, that it will be a difficult - but certainly not impossible - task to get the Republic proposal carried.
Fifth, I hope that we will hear nothing in the pro-Republic campaign of an argument used by some in the earlier stage of the debate i.e. that becoming a republic would help our economic relations with Asia because it would remove uncertainties in Asian minds about our independent status. I believe this argument is an insult to the intelligence of our friends in Asia.
This observation about Asian perceptions leads me to comment on one other Australian domestic issue before turning to economic developments in Asia. One thing that certainly has concerned Asians about Australia in the last three years has been the emergence of the blight of Pauline Hanson and her so-called One Nation Party. Hanson was an accident of politics. The Liberal Party, properly, disendorsed Hanson as their candidate for the Queensland seat of Oxley in the 1996 federal elections when she made unacceptable racist remarks during the campaign. Under the electoral laws it was too late for them to endorse another candidate. If they had been able to do so Hanson would not have been elected.
From her platform as a Federal member of Parliament she was able to build a sufficient base of support to secure the election of eleven members in last year's Queensland State election. I do not believe that everyone who voted for Hanson's candidates shared her obnoxious racist and, particularly, anti-Asian sentiments. Rather the vote reflected the uncertainties of people deeply worried by the rapidity of social and economic change together with their increasing cynicism about traditional parties and politicians. They were susceptible to the simplistic solutions of a false prophet.
I am pleased to say that my predictions that the ephemeral nature of her appeal would dissipate, particularly when her members had to face the challenges of parliamentary representation, have been borne out. She was defeated herself in last year's federal election and more than half of those elected to the Queensland Parliament have resigned from her party, basically because of its autocratic structure.
The polls currently show her support down to 2%. I believe that the evidence is now increasingly compelling to Asians - and others of our friends around the world who were worried about Hanson and what she meant for Australia - that she does not speak for any substantial section of the Australian people. Australians remain basically fair minded and non-discriminatory as befits a country which has opened its doors since the Second World War to more than six million immigrants and refugees from more than 140 countries. Hanson is finished as a significant force in Australian politics.
For Australia and New Zealand perhaps the single most important economic fact of the post-war period has been the dramatic growth of the East Asian economies. Consider the facts. In 1960 the economies of East Asia had produced less than 5% of global GNP. By 1990 this figure had grown to 25% and before the melt-down it was estimated this figure would reach at least 35% by the end of the century. One measure of that performance was that Japan, China, the Four Tigers - South Korea, Hong Kong, Singapore and Taiwan - had all achieved a doubling of GNP within a decade and had done so more than once. In all of history no other country had done this before.
In the decade up to 1996 the economies of East Asia grew at an average rate of 7-8% per annum, well over twice as fast as the OECD and more than three times faster than Latin America. It is important to note that this economic dynamism survived the challenge of the deepest recession in the industrialised economies since the Second World War. While Japan faltered and joined the United States and Europe in recession, East Asian economies maintained their growth despite that weakness in the developed economies. Against that pattern of recession elsewhere, East Asian developing economies had their strongest growth year ever in 1993, with average growth of 10.1%. This was repeated in 1994, and 1995 saw a continuing strong performance. Real output in these economies which cover one-third of the world's population increased by a third in three years.
By any criteria this was a truly remarkable performance but, as I have always argued, it was inaccurate to describe it, as was so often done, as an economic "miracle". This phrase implies that the achieved high rates of growth defy rational analysis and that I believe, is a nonsense. I agree with the 1993 World Bank study that these success stories are to be explained in terms of certain fundamentals which have operated in the region. Without being exhaustive they comprise high savings rates, a commitment to relevant education, an openness to foreign capital and technology, an increasing commitment to liberalised international trade and the concept and practice of inter-generational responsibility which meant less demands upon the State for welfare payments.
In my judgement these fundamentals did not all suddenly fly out the window in the second half of 1997. The basic weakness was the institutional incapacity of the banking and financial structures of many of these countries to handle prudentially the enormous inflow of capital - an increase to developing countries from US $46 billion in 1990 to US$236 billion in 1996 - that was a feature of this period. This intrinsic weakness was characterised all too often by the fact that governments were not sufficiently at arms length from the lending decisions of the system. Asset values were artificially stimulated by the belief that government guarantee was virtually inexhaustible. The bubble burst when the fallacy of this assumption became apparent and dramatic currency depreciation made it impossible in many cases to meet huge obligations denominated in US dollars.
Internal and external pressures are now forcing these countries to rectify this situation. If this reform is carried through - and I think it will be - and it is then superimposed upon the fundamentals I have mentioned and which are still in place, then there is no reason to believe that high rates of economic growth will not be resumed. The reform process will not proceed uniformly in each country but, in general, I believe it is reasonable to expect this scenario of the resumption of high growth within something like one to two years. There will be glitches and difficulties on the way but all of us, Asians and the friends of Asia, have a vested interest in making the achievable the reality.
The evidence is beginning to emerge to support this assessment. Both Thailand and South Korea are showing signs of recovery and while there has been some understandable concern expressed about the controls imposed by Malaysia the balance of judgement in respect of that country is optimistic. Indonesia is a special case because the challenges of economic and financial restructuring are complicated by the prevailing political uncertainties. One must suspend judgement about the timing of economic recovery until later in the year. If the election processes are allowed to operate freely and a competent leader, with a firm mandate, emerges then one would hope that Indonesia would relatively soon resume its place as a significant growth partner in the region. While I am, by nature, an optimist, I recognise the weight of these caveats.
Any serious assessment of future prospects must include China as inopportune developments in that country of 1.25 billion people have the potential to affect adversely recovery in the region as a whole. Again I am an optimist, for reasons which I believe are soundly based. China has been insulated from the currency chaos debilitating other countries by the lack of convertibility of the yuan on the capital account and the high level of foreign reserves which still stand at more than US $140 billion. But what of the future?
As with the region generally, so with China it is useful if we look at the magnitude of the economic achievement since the move towards a market economy and the opening to the outside world began in 1978. Since that time China has experienced an average annual growth rate of some 9%.
While China faces huge problems - the reform of the vast State-owned Enterprises system, the associated challenge of potentially much higher levels of unemployment and the further reform of the banking and financial structures - and these are always given considerable prominence by China's critics, there are certain fundamental positives to be taken into account.
First, China has shown an increasing sophistication in economic management over recent years. Lacking the range of instruments available to those in charge of developed economies it achieved a remarkable soft-landing from the unsustainable 12% plus rates of growth in the earlier 1990's accompanied by an inflation rate of the order of 25% - these were brought down to 9% and low single digit figures respectively.
Second, in talking to the top political and banking leaders one cannot but help be impressed by the acuteness of perception about the challenges ahead and the solutions required. There is a genuine awareness of the huge problems China faces in achieving sustainable growth rates and social equilibrium and in particular of the need for drastic surgery in the State-owned Enterprise sector. I believe this awareness will be translated -perhaps more gradually than some of its friends would like - into action and that this country will continue to be the positive influence for growth in our region that it has been since the beginning of the reform process in 1978. In their planning for sustained domestic growth the Chinese leadership is placing particular emphasis on a massive public works program and the development of the private housing sector.
Finally, let me speculate, light-heartedly of course, on that perennial chestnut - the possibility of closer political relations between Australia and New Zealand. The idea that New Zealand might join the Australian federation dates back to our first Federation Convention in 1891 in Sydney at which New Zealand was represented. At the Convention Alfred Deakin referred to New Zealand as "a coy maiden, not unwilling, and indeed expecting to be courted, and whose consent would be granted by and as a favour". This provoked the rather unmaidenly response from a New Zealand delegate that "the 1500 miles of ocean between the two countries represents 1500 reasons to say no."
The issue was revived recently by an observation of the retiring New Zealand Justice Minister, Douglas Graham, that New Zealand could become Australia's seventh State within ten years. His conjecture certainly does not reflect a poll in the New Zealand Herald (January 1998) which found that 81.5% of respondents rejected the idea of political union, and only 14.4% were in favour with 4.2% unsure. I must say these figures do not surprise me. Quite apart from perfectly natural and justifiable feelings of pride in their own national identity who would they have to kick around if they were swallowed up by Big Brother? Perhaps the best that can be said about a possible union at this point is that while we are individually quite capable of dealing with the Poms on our own, a combined All Blacks and Wallaby side would be absolutely unbeatable!
No, rather I think that our two nations, who each owe so much to this country for our democratic institutions and respect for the rule of law, will go on as far as we can see into the future much as we have in the past. We in Australia will promise never to resort to underhand, let alone underarm, tactics. Both of us will continue, within a perfectly proper and healthy sense of rivalry, to recognise that the well-being of our respective peoples will be enhanced by increasing the dialogue and strengthening the architecture of co-operation between us.
Together we have been a considerable force for good in our region. By optimising our economic growth and continuing to espouse our joint commitment to the principles of political liberalism we will best serve the interests of our own people and the cause of peaceable development in our important part of the world.