Australia's Economic Performance
Chapter 1 indicates that the starting point for the analysis of any economy should be an understanding of its past and present performance. It is the present and past performance that needs to be explained by the analysis and that provides the baseline that allows us to understand what Australia does well and not so well, and what Australia needs to do to improve. Australia has generally outperformed other OECD nations over the last decade while maintaining a prudent fiscal and monetary stance, a position that provides for greater flexibility than most OECD nations when it comes to dealing with volatility in the global economy. However, there are issues concerning Australia's reportedly poor productivity performance and the impact of the run-up in resource exports in recent years. The chapter also provides background on the forces and trends that are shaping the global economy and provides a context for Australia's economic future. The upshot is that while Australia's economy has performed well over the last several years, there are concerns and debates about its economic future that are best addressed through a detailed understanding of Australia's competitiveness.
International Assessment of Australia Competitiveness
Competitiveness has emerged as a pre-eminent issue in many major economies around the world. Chapter 2 reports assessments of Australia from international sources that focus on international competitiveness and related matters, such as ease of doing business, economic freedom, prices and costs, the knowledge economy, human development, quality of life, transparency, and corporate governance. The major sources are identified, their main findings with respect to Australia summarised, and implications for Australia that come out of the sources provided. Results from all the sources are used to build a detailed picture of Australia's advantages and disadvantages and to identify issues that require further analysis and action. Throughout, Australia is compared with two sets of countries, a comparison group of mostly OECD countries (the United States, Canada, Denmark, Finland, Ireland, Israel, Netherlands, New Zealand, Norway, Sweden, and Switzerland) along with three Latin American countries that are competitors to Australia in some sectors (Argentina, Brazil and Chile), and a group of Asia-Pacific economies (China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, New Zealand, the Philippines, Singapore, Taiwan, Thailand and Vietnam). The idea is to capture how Australia stacks up against similar economies and against economies that are increasingly important as markets and competitors.
The sources that assess economies as a whole that are described in Chapter 2 are helpful, but the reality is that nations, regions, and companies compete in specific industries versus specific competitors to serve specific customers. Aggregate measures cannot tell us what drives a nation's competitiveness in individual industries.
Competitiveness in the Real World
Chapter 3 introduces a framework to assess competitiveness in specific industries across the economy and the results of a detailed survey on Australian competitiveness based on this framework. The chapter uses results from individual Australian industries: the iron ore, wine, automotive, and higher education industries, to show the shortcomings of the aggregate assessments of competitiveness and the value of the present approach. The chapter also shows how the approach introduced here can be used to develop specific strategies to improve the competitiveness of individual industries and of economies.
Drivers of Competitiveness in Australia
Chapter 4 uses the methods and survey introduced in Chapter 3 to examine the drivers of competitiveness across the entire Australian economy. Survey responses from hundreds of individual industries were aggregated up to 32 sectors that cover the entire economy. The results show clear differences in importance and in Australia’s performance in firm-level drivers, industry-level drivers, cluster-level drivers, national-level drivers, and supranational-level drivers of competitiveness. They show the importance of institutions, financial systems, economic conditions, infrastructure, workforce, tax systems, and regulatory systems to competitiveness in Australian industries. They also show Australia's strength in institutions, society, macro-economy, and financial systems, as well as concerns about taxation, regulation, some work-force-related drivers, and infrastructure. In addition, from a methodological standpoint, the results show how the methods employed can generate a comprehensive picture of the competitiveness of the nation's economy and can allow analysts and governments to home in on the drivers that are important to the key industries in an economy, in order to identify which advantages can be leveraged and which disadvantages need to be overcome.
Workforce, Infrastructure, and Natural Resources
The first four chapters show that there are a number of key issues that cut across Australia's economy that must be understood, and dealt with, in order to improve Australia's competitiveness. Chapter 5 focuses on an assessment of Australia's workforce, infrastructure, and natural resources. The prosperity of any economy depends on the effectiveness and productivity of its workforce. As a nation with a small population in a huge land mass, and one that is distant from many of the world’s traditional economic centres, Australia has distinctive infrastructure challenges that it has yet to master. While Australia might be the lucky country when it comes to natural resources, luck will only get Australia so far, particularly if resource abundance is not managed properly. Australia has high levels of education participation, and achievement, but there are mismatches between the education and training base in the country and the needs of business, and counterproductive workplace relations sometimes prevent Australia from fully realising its advantages.
Economic Policy, Regulation, and Tax
Chapter 6 outlines some of the main features of Australia's economic policy, regulation, and tax policy, as they influence Australia's competitiveness. Economic policy – in particular fiscal policy, monetary policy, competition policy, exchange rate policy, industrial support policy, trade policy, and investment policy – influence the position of Australian companies, industries, and the economy as a whole. Australia generally gets high marks on economic policy, but there are fears that politics might eventually get in the way of good policy. Regulation on entry, product standards, safety standards, the workplace, the environment, and numerous other areas provide the rules within which businesses can operate. Australia's regulatory system is rated highly by international standards, but a cumbersome, redundant, and sometimes conflicting regulatory regime leaves many frustrated. A nation's tax system influences its competitiveness through the number and type of taxes, tax rates, tax thresholds, compliance costs, and the way in which taxes are collected. While Australia's tax system appears to have advantages versus several OECD nations, the efficiency of the system has been questioned, and emerging competitors in Asia are seen as having more favourable systems. The tax system also appears to provide incentives for some talented Australians to emigrate to other destinations.
The Knowledge Economy, the Asia-Pacific Region, and the Role of Cities
Chapter 7 looks at the opportunities and challenges for Australia associated with the emergence of the knowledge economy, the rise of the economies of the Asia-Pacific region, and the growing importance of cities as engines of economic development and competitiveness. While the knowledge economy – in which value is generated through the intellectual property that is embedded in high-value goods and services – has the potential of freeing Australian companies from the tyranny of distance, the reality is that relatively few Australian companies seem to be able to sell knowledge-intensive products and services globally. The rise of the Asia-Pacific region would appear to be a huge advantage for Australia, but there is a question of whether Australia and Australian companies have the knowledge, connections, and drive to penetrate these markets in the face of cultural differences and tough competition from both inside and outside the region. Cities are becoming increasingly important as engines of development and competitiveness, as they generate new knowledge, connect countries to the rest of the world, and leverage national advantages into international markets. However, Australia's cities are too spread out, do not function in a particularly efficient fashion, and are less plugged into regional and global information, financial, and managerial flows than they need to be for Australia to maximise its competitiveness.
Scenarios for Australia’s Economic and Business Future
Australia's future is not pre-ordained, but instead will be influenced by both external forces and internal strategies. Chapter 8 maps out several scenarios for Australia’s future depending on how it manages the opportunities and challenges associated with globalisation, increased use of ICT, the rise of the Asia-Pacific, increased emphasis on sustainability, potential resource constraints, the increase in importance of quality of life in influencing competitiveness, and a range of other trends. The chapter identifies four pairs of scenarios, half positive, half negative, depending on the outcomes of the interaction of external forces and internal strategies. Australia's resource position could allow it to move from Lucky Country to Competitive Country or could create a limited One-Legged Stool economy. Globalisation and the flat world, in Thomas J. Friedman's phrase, could result in Australia as Flattenor in the Flat World or Australia as Flattenee in the Flat World. The rise of the Asia-Pacific region could result in Australia Riding Tigers, Dragons, and Elephants or being Eaten by Tigers, Burned by Dragons, and Trampled by Elephants. Trends in globalisation, information and communication technology (ICT), the knowledge economy, sustainability, and quality of life issues could result in a situation in which The World Turns toward Australia or one in which The World Turns away from Australia. Perhaps the most interesting feature of the scenarios, positive and negative, is that they are all plausible, and the choices that Australia makes will go a long way toward determining which outcomes occur.
Implications for Australia
Chapter 9 outlines the implications that come out the earlier chapters. There are global implications involving the challenges created by the Global Financial Crisis, the emergence of new competitors, the increasing ability of companies to place individual corporate activities in different locations, and increasing interconnections around the world that are combining to make the competitiveness of nations and regions more important than ever before. There are numerous implications that are specific to Australia. Australia’s recent economic performance gives the nation the opportunity to act from a position of strength, but raises the potential for complacency. The rise of Asia-Pacific economies will provide Australia a unique opportunity, but only if Australia and Australian companies can outcompete others to serve regional markets and take advantages of regional resources. Modern ICT can allow Australian businesses to penetrate world markets like never before, or could allow foreign businesses to penetrate Australia like never before, or both. The increasing importance of sustainability, resource constraints, and quality of life in driving competitiveness can provide additional advantages for Australia provided the country can leverage these drivers appropriately.
There are many implications for specific drivers of competitiveness. Chapter 9 highlights many of Australia’s significant advantages and disadvantages and makes suggestions as to how to leverage the advantages and minimise or overcome the disadvantages in order to improve the country’s competitiveness. It shows that Australia has been a lucky country in many ways, but that Australians have made a good deal of that luck themselves. The challenge is how to move from being the lucky country to being the competitive country. What is daunting, but exciting, is that while Australia is certainly subject to global forces, global markets, and global competition, its economic fate is to a great extent in its own hands.
We hope that policy makers, business people, and business/economic analysts in Australia find the tools, conclusions, and suggestions in this book useful as they move forward the competitiveness agenda in Australia. We also hope that policy makers, business people, and business/economic analysts elsewhere learn from the Australian experience as well as from the approaches to competitiveness suggested in this volume.