Thursday, November 23, 2006

GDP - Australia in its Region

Photo: Clare Belshaw and friends, Clare's birthday, four friends, six ethnic ancestries, one country.

Thinking about issues raised in my last post on the Australian Way and Mr Akya's suggestion that we should all pack up and return to Europe, made me curious as to where Australia now stands in the Regional Gross Domestic Product (GDP) rankings. GDP is a very rough measure, but it does provide an indicator of economic power.

Just to set a context here, back in the early eighties Australia was seen in some ways as the sick man of Asia.

Our economic growth had been very slow and was widely seen as likely to stay that way, creating a growing performance gap between Australia and the faster growing Asian economies, young tigers and others. This affected us in all sorts of ways.

I remember being on an official visit to Indonesia as part of a team led by Barry Jones where some Indonesian officials in private conversation expressed the view that Australia's real economic and industrial power was in structural decline. Around the same time, I was involved in discussions trying to attract new investment to Australia from US firms who expressed similar views. I did not share those views, but it was very hard to get the message across.

So where do we stand now? First some numbers, and then a comment.

The Numbers

A list drawn from Wikipedia of Asia-Pacific countries follows ranked by 2005 nominal GDP in millions of US dollars follows. I have added in the world and EU for comparative purposes. I did not find figures for Cambodia.

  • World 44,454,843

  • EU 13,502,800

  • US 12,455,825

  • Japan 4,567,441

  • People's Republic of China 2,234,133

  • Canada 1,132,436

  • South Korea 787,567

  • India 771,951

  • Australia 708,519

  • Taiwan 346,178

  • Indonesia 281,264

  • Hong Kong PRC 177,703

  • Thailand 173,130

  • Malaysia 130,835

  • Singapore 116,775

  • Pakistan 110,970

  • New Zealand 108,520

  • Philippines 98,371

  • Bangladesh 60,806

  • Vietnam 51,388

  • Shri Lanka 23,534

  • Myanmar 12,151

  • Brunei 9,531

  • Nepal 7,515

  • Papua New Guinea 3,931

  • Laos 2,875

  • Fiji 2,861

  • Bhutan 864

  • Samoa 336

  • Vanuatu 336

  • East Timor 331

  • Solomon Islands 294

  • Tonga 215

  • Kirabati 63


This is not an economics essay, so I will not comment on any problems with the numbers. I am only concerned with what they tell us about rough patterns. Those patterns explain much about the drivers of Australian economic and foreign policy. They also explain why we need to develop our own Australian way.

To begin with, Australia's position has slipped, from fifth to seventh since the eighties. If we combine Australia and New Zealand, the two economies have been interdependent for many years, we remain in fifth position, although continued growth in India will soon (if it has not already done so) drop the combined total back to sixth. Perhaps the most remarkable thing in the overall rankings has been the huge increase in Korean GDP.

Putting Australia's position in another way, in world terms we have dropped from 2 per cent to 1.6 per cent of global GDP because of faster growth elsewhere. The US has experienced a similar relative decline, from over third of global GDP down to 28 per cent. Both countries are likely to continue to slip.

Accepting that there has been some relative decline, the huge GDP gap between Australia or Australia and New Zealand combined and the next group of countries shows why Australia is and will remain a major Asian economic power for the immediate future. But the numbers show a lot more than this.

Dealing with major economic variables first:

  • They show in economic terms the changing relative Asian power equation between the US (huge but declining), Japan (very big but declining), China (big and growing) and India (a fair bit behind but growing). Managing this complex power equation is one Australia's foreign policy drivers.

  • They also show why Australia has such a strong interest in seeing economic growth elsewhere in Asia. ASEAN (the Association of South East Asian Countries), a grouping of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines), Singapore, Thailand and Vietnam, is important here. At present, ASEAN has a population of 555 million with a nominal GDP of $US681 billion. The ASEAN countries are Australia's close neighbours, the combined ASEAN/ANZ nominal GDP totals $US1,500 billion, so while rapid growth in ASEAN would weaken Australia's relative position it would also create a new southern economic power base.

  • These economic variables have led the Australian Government to adopt a complicated and multifaceted trade policy whose complexity is, I think, little understood inside or outside the country.

The core elements in that trade policy are:

  1. Support for the World Trade Organisation because freer global trade is important to smaller countries. Within the WTO, Australia's role in the Cairns Group reflects the importance of primary products to the country.

  2. Because the global moves towards freer trade have largely stalled, Australia has moved to negotiate a number of free trade agreeements building on the earlier success of Closer Economic Relations with New Zealand. The 1966 precursor of CER, the New Zealand Australian Free Trade Agreement, was one of the world's first such agreements.

  3. The pattern of current and proposed agreements reflects the macro economic patterns described above. If we take the the three biggest Asia Pacific economies, we have a free trade agreement in place with the US, are presently negotiating one with China and are in early stage discussions with Japan. If you look at ASEAN, we already have free trade agreements with Thailand and Singapore, we are in discussions with Malaysia, while negotiations are also underway for an ASEAN-New Zealand- Australia agreement.

  4. Beyond these immediate agreements, Australia is involved with preliminary discussions on a free trade agreement with the Gulf Cooperation Council bringing in our middle east markets, continues to play a major role in APEC, and on the Indian Ocean side is a member of The Indian Ocean Rim Association for Regional Cooperation. I would be very surprised if this did not lead to discussions with India, perhaps more broadly in due course, thus completing the macro pattern.

  5. In parallel, Australia has been encouraging overseas investment to build further lock-ins. Just as US and British investment was important in the fifties, then Japanese investment in the sixties, now Chinese investment (as an example) is starting to play an important role.

These various moves are designed to protect and balance Australia's longer term position as a significant but smaller player in an increasingly complex world. However, in combination with more macro developments they are changing Australia in ways (big and small) that are likely to be as dramatic and as fundamental as the changes from 1945 to 1970 or those from 1970 to the end of the century.

This may sound dramatic. If so, consider the following few examples:

  1. Australia is a super power in its immediate region, and sometimes behaves with the arrogance of one. Ten years ago few of us would have foreseen the increasing need to project force in the way we have had to in the Pacific, that the Australian Federal Police as an example would have to create an entire international arm. Our relations with our Pacific neighbours are likely to become more, not less, complicated. Questions of economic integration, of migration, are going to be very important. I can easily see circumstances where we might end up with an additional 500,000 plus short and long term Pacific Islanders residents over the next ten to fifteen years, perhaps making them the second largest ethnic group in the country.

  2. Countries in which Chinese form the major ethnic group now have a combined GDP of almost 2,900,000 million US dollars and growing fast. Add in resident Chinese populations in some other countries and you can see why, at least according to the Prime Minister (I had not known this and have not checked), the various variants of Chinese have now become Australia's second most common language. The number and I think the proportion of Chinese Australians can only continue to grow.

  3. I have no doubt that there will be a Free Trade Agreement with ASEAN. I also have no doubt that this will lead over the next twenty years to increasing economic integration between ASEAN and ANZ. If, as we all hope (the alternative is possible but too awful to contemplate), Indonesia maintains its development, the integration between Indonesia and Australia is going to become a special issue in its own right. Quadruple Indonesia's GDP, tighten the linkages between the two countries, and Australians of all types will be beating on Indonesia's door wishing to participate, while Indonesian involvement (people as well as investment) in Australia and the Australian economy will expand in just the way we have already seen on a smaller scale with Singapore.

  4. Unlike most other parts of the world, Australia has no choice but too (and will) accommodate those of the Muslim faith for both economic and political reasons. Forget immediate issues in the Middle East or the War on Terror, the immediate Australian world includes the majority of the world's Muslim population. It also includes the majority of Hindus, of Buddhists, of several other faiths. We have to find a way of melding these different faiths (and people) together in a community if we are to survive, let alone achieve our potential.

This last point links to my theme about the Australian Way.

Australia is already one of the world's most diverse countries in ethnic and cultural terms. This is where Mr Akya is, to use an Australian phrase, talking through his hat. We have already accommodated some of the most dramatic ethnic and changes experienced by any country in the last 100 years. We have done so because, and this is part of the Australian way, we are prepared to accept others as people first.

Just as we have done in the past, so will we continue to do so in the future as we move into the new world facing this country.

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