‘Steady and sturdy’ or managed decline? Confronting the national security implications of our declining economic performance

Uniquely among the world’s developed nations, Australia, the “Lucky Country”, has enjoyed a record-setting, unbroken period of three decades’ worth of economic growth, seemingly without hiccup, that is until the COVID-19 pandemic and its aftermath, which is now serving to reveal the cracks in our national economy.

Like many nations during this 30-year period, Australia was buoyed by the voracious demands of the world’s emerging superpower, the People’s Republic of China, thanks to a period of reform initiated by Deng Xiaoping in the late-1970s, becoming known as the period of “Boluan Fanzheng” or “Eliminating Chaos and Returning to Normal”.

As Deng’s China shook off the inherently chaotic aftermath of Mao’s failed Cultural Revolution and Great Leap Forward policy failures, many nations began to peg their economic prosperity and stability to the rising ancient power. Australia, likewise, doubled down, leveraging its vast resource and agricultural wealth to help transform China’s economic fortunes into one of the world’s major economic powers.

Seemingly unassailable in its economic, industrial, political and strategic ascendency, China’s economic miracle, much like Australia’s, avoided the worst of the Asian Financial Crisis and the Global Financial Crisis of 2008 to become the “factory of the world”, resulting in the hollowing out of many national industrial bases as globalisation took hold across the world.

The advent of “just in time” supply chains came to characterise many nations’ economic policies as offshoring became the default for many developed nations, Australia included, with only the COVID-19 pandemic revealing the vulnerabilities inherent within this approach to economic policy, shedding light on the very real cracks in the economic and security foundations of many nations, Australia in particular.

This reality, reinforced in recent years with the Russian invasion of Ukraine and increased Chinese antagonism towards Taiwan and open trade warfare against Australia during the height of COVID-19, have served to shatter the illusion of a rules-based order at home and abroad.

It is important to understand that while Australia is not alone in confronting this new reality, our history of over-dependence on both a small section of the economy to provide prosperity and stability, coupled with our over-dependence on a single market, spells major trouble for the average Australian and our national security.

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While the implications of this new paradigm are only in their nascency, the contributing factors have been quietly simmering away across both the Indo-Pacific and the broader global environment for some time, with Australia now beginning to realise the severity of its predicament.

Now a number of commentators are highlighting the confronting reality that faces Australia’s policymakers, public, and economy in the aftermath of the release of the Albanese government’s Intergenerational Report 2023: Australia’s future to 2063, which details some of the major headwinds coming our away, namely: “Major forces will shape the economy in coming years, including population ageing; rising demand for care and support services; climate change and the net zero transformation; technology and digital adaptation; and geopolitical risk and fragmentation. These forces will change the structure of our economy and how Australians live, work and engage with the world.”

Recognising this confronting reality is The Australian’s Tom Dusevic, The Australian Financial Review’s James Thomson, and Foreign Minister Penny Wong, each of whom take issue with Australia’s unofficial policy of complacency, lethargy and managed decline that seems to characterise Australian policy making and attitude towards the challenges of this new, multipolar world.

‘Steady and sturdy’ or a period of managed decline?

If you ask any Australian their thoughts about the direction and health of the country and the foundational pillars of the “Australian Dream”, no matter their age demographic, the answer will overwhelmingly be in the negative.

From older Australians, there is a firm belief that our best days are behind us, there is no belief in Australia any more, no investment in the nation, no “real” capacity in the country, effectively making us little more than a mine and farm for the increasingly wealthy and powerful nations of the Indo-Pacific, coupled with an overwhelming sentiment that young Australians are soft and selfish.

Conversely, for younger Australians, there is a profuse belief that the life they were promised is simply unachievable, as housing, quality employment opportunities, and the opportunity for financial freedom are increasingly out of reach.

Well, congratulations, it looks like former Singaporean leader Lee Kuan Yew’s “poor white trash of Asia” comments were indeed prescient.

Highlighting this uncomfortable point, Dusevic states, “‘Everyday Australians’ as our elected representatives often call us – parents with a mortgage, renters, weekend punters and workers with a second job – are feeling the big squeeze from high inflation and the Reserve Bank’s pitiless interest-rate response to it ... As a nation, we’re working more, saving less and lucky to still have the world paying us high ­prices for our exports – from precious rocks to wonderful experiences for tourists and students – but not getting the uplift in living standards we’ve come to expect.”

Yet despite this, Treasurer Jim Chalmers, at a press conference on 6 September, told reporters, “The Australian economy remains steady and sturdy in the face of unrelenting pressure. Economic growth held up relatively well despite the inevitable toll of higher interest rates, high but moderating inflation and continuing global uncertainty, particularly as it relates to China. We know that there are challenges ahead but we face them from a position of relative strength.”

However, over the immediate term, it is clear this “position of relative strength” is readily overstated, as the national economy is significantly exposed to relationship, demand, and whims of our major trading partner and major strategic threat, the People’s Republic of China.

This is something tacitly recognised by Foreign Minister Penny Wong, who, as part of the media surrounding the Prime Minister’s announcement of the Southeast Asia economic strategy to 2040, said, “Australian business knows the risk of having too many eggs in one market ... While Southeast Asia has grown rapidly, the share of Australia’s overall trade in the region has flatlined over the past 15 years. And Australian direct investment in the region is now lower than it was in 2014.”

Despite this recognition, we see declining wealth per capita, declining living standards for the average Australian, as the powers that be seek to paper over the very real and glaring structural weaknesses and vulnerabilities in the Australian economy as it has been shaped over the last three decades.

Highlighting this is David Llewellyn-Smith, the chief strategist with MB Super and Nucleus Wealth, who explains that the Treasurer favoured mechanisms such as increased migration to increase the tax base, while various “sectors” of the economy favour it for their own bottom line.

“That’s at the cost to the vast majority of Australians ... The winners of that immigration model – even in a per capita recession – are the banks, retailers and developers and if you put those three together, you get what is known as the growth lobby and they push for the model to continue because it’s good for them.”

The impact of this papering over the cracks inherent in the national economy are reinforced by comments made by AMP chief economist Dr Shane Oliver, who explained, “We’re pumping more people in but we’re not producing more stuff per person ... We’re inflating our economy by pumping more people in but it’s not giving us growth in living standards per person – we’re actually going backwards and also productivity is going backwards.”

At the same time, the government, in Treasurer Jim Chalmers, continues to stress the major achievement that is our otherwise sluggish economic growth and performance in the year to June, which saw our gross domestic product drop from 2.3 per cent annually in March to 2.1 per cent, this is coupled with a fall in productivity by 3.6 per cent, according to data from the Australian Bureau of Statistics.

This reflects the very real reality identified in the government’s intergenerational report which states, “The Australian economy, like other advanced economies, is projected to grow at a slower pace over the next 40 years than in the past 40 years. Real GDP is projected to grow at an average annual pace of 2.2 per cent – 0.9 percentage points lower than the average of the past.”

Seeking to provide a glass half-full consolation prize, the intergenerational report states, “While the pace of growth is projected to slow, the Australian economy is nevertheless projected to be around two and a half times larger in 2062–63 in real terms. The long-term projections for real GDP growth are lower than presented in the 2021 IGR. This primarily reflects the adoption of a more prudent long-term productivity growth assumption.”

So one has to ask, are we really in a “steady and sturdy” period for the immediate and long-term or are we in a period of managed decline at a time when the nation and the Australian public of all ages are looking for something more?

Understanding the national security implications

Despite the rhetoric and lofty ambition highlighted by both the Treasurer and the foreign minister, this all paints a fairly gloomy picture for the average Australian, no matter the demographic group in which they fall, but especially the younger generations.

Declining economic opportunity, coupled with the rapidly deteriorating global and regional balance of power and the increased politicisation of every aspect of contemporary life, only serves to exacerbate the very reality of disconnection, apathy, and helplessness felt by many Australians – this attitude and growing sentiment of facing a predestined outcome and the futility of confronting seemingly insurmountable challenges for little-to-no benefit and at a high risk/reward calculation.

Taking into account the costs and implications, it is therefore easy to understand why so many Australians, both in the general public and within our decision-making circles, seem to have checked out and are quite happy to allow the nation to continue to limp along in mediocrity, because, well, it is easier than having lofty ambitions.

All of this combines to form a rather confronting and disconcerting outcome for our long-term national security and one that requires remedying immediately if Australia is to be positioned to capitalise on the truly epoch-defining industrial, economic, political, and strategic shifts currently underway across the globe.

After all, how can we ask and reasonably expect Australians, particularly young Australians, to put the national interest ahead of their own, when the nation doesn’t seem to account for their own interests, particularly when taken to the end of its logical extension, the national interest is at its core, the individual’s interest?

Ultimately, Australia and Australians face these two, concurrent, yet interconnected challenges which stand as the greatest challenges of our age, so which way Australia? Do we want to be competitive, consequential and thriving, or do we want to be “steady and sturdy” in our managed decline?

Final thoughts

We have to accept that while the world is increasingly becoming “multipolar”, the Indo-Pacific, in particular, is rapidly becoming the most hotly contested region in the world. Underpinned by the emerging economic, political, and strategic might of powers like China, India, Pakistan, Thailand, Vietnam, and the established and re-emerging capability of both South Korea and Japan, in particular, are serving to create a hotbed of competition on our doorstep.

Recognising this array of challenges and opportunities, both the Australian public and its policymakers need to look beyond the myopic lens that has traditionally dominated our diplomatic, strategic, and economic policy making since Federation.

Ultimately, we need to see Australia begin to play the long game to fully capitalise on the opportunities transforming the Indo-Pacific. The most important question now becomes, when will we see a more detailed analysis and response to the challenges and opportunities facing Australia and when will we see both a narrative and strategy that better helps industry and the Australian public understand the challenges faced and opportunities we have presented before us?

As events continue to unfold throughout the region and China continues to throw its economic, political, and strategic weight around, can Australia afford to remain a secondary power, or does it need to embrace a larger, more independent role in an era of increasing great power competition?