Pearls and Irritations

If the opinion polls are correct, Australia will have a new federal government around May 2019. A new prime minister will likely take charge, which would make seven in the past decade, compared to four in the previous 32 years.

This instability has long prevented consistent domestic decision making. Now it is starting to change Australia’s relationship with Asia.  

Australia’s strong economic performance since 2007 has been underpinned by high immigration, and by Asian, especially Chinese, demand for mining and agricultural products, tourism services, education and health care. A property boom, driven by a growing population, low interest rates and credit expansion, has underwritten a prosperity that threatens to be ephemeral.

All this has fostered complacency. Prosperity has allowed politicians, especially conservatives, to indulge in populist politics. The focus has been on nationalism, security and resistance to immigration, fueled by barely-concealed xenophobia. Visions of a white, Christian Australian identity increasingly dominate the political debate.

Even a minister from the governing conservative Liberals admits the party is seen as anti-immigration, anti-women, and in denial on climate change. Worse, tacit bipartisan support exists for these views. The centre-left Labour Party is reluctant to take principled positions for fear of hurting its electoral prospects. Supporters in its traditional blue-collar workers’ base share the opinions of reactionary conservatives.

Asian policy makers need to recognize Australia’s shifting political environment.

First, political uncertainty will worsen. Internecine warfare within parties makes for policy flip-flops. As in many Western democracies, the share of the vote of the major parties is falling. Independent candidates as well as smaller parties, such as the right-wing nationalist One Nation, have gained traction. They now are kingmakers and can shape the political agenda. Balanced, well considered policies, especially on the country’s Asian relationship, are difficult to implement.

Next, policy paralysis is contributing to economic weakness. Australia’ long property boom is deflating, driving a slowdown as construction activity falls and negative wealth effects reduce consumption. Banking, heavily exposed to property and besieged by governance issues, may further tighten credit compounding any downturn. In the September 2018 quarter, the economy grew by only 0.3% — less than an expected 0.6% and below the 0.9% expansion in the previous period.

Canberra is unlikely to seek reforms needed to address the narrow industrial structure, lack of competition, limited tax base, high welfare spending, record levels of household debt, infrastructure weaknesses, declining educational performance, low productivity, and rising inequality. Given a sceptical electorate wanting both lower taxes and increasing levels of public services, leaders can only offer slogans not policies. Prime Minister Scott Morrison specializes in simple-minded formulas such as: “stop the boats;” “jobs and growth,” and “getting on with the job.” A weak Australian economy is problematic for Asia given the high level of Asian investment in Australia and Asia’s role as a trading partner.

Thirdly, Australia’s commercial relationship with Asian neighbors is increasingly fractious. Exclusion of Huawei, the Chinese electronics group, from certain telecommunications contracts on alleged security grounds and rejection of Hong Kong-based CK Group’s purchase of infrastructure assets highlight this trend. Application fees, punitive provisions and tighter government scrutiny are increasingly barriers to foreign investment in real estate and agriculture.

Fourth, Australia is moving more firmly into the U.S. camp geopolitically. Former Conservative Prime Minister John Howard viewed Australia as America’s deputy sheriff in the Asia-Pacific region, which U.S. President George W Bush, upgraded to a full sheriff. Current political posturing is exacerbating this tendency, increasing tensions. Australia hosts U.S. military facilities and is committed to participating in U.S.-led freedom of navigation exercises in the South China Sea. This makes it difficult for Australia to work constructively through diplomatic channels to counter China’s extraterritorial claims and achieve a subtler great power balance within the region.

Hasty decisions driven by domestic politics threaten to drive inconsistent foreign policy and bring Australia into conflict with its neighbors. Take for example, an ill-considered proposal to change long-standing policy and move the Australian embassy in Israel to Jerusalem. Announced in an unsuccessful move to try to retain deposed Prime Minister Turnbull’s seat in a by-election in a seat with a significant Jewish population, the move antagonized Indonesia, a key Asian ally.

Fifth, cooperation between Australia and Asia in dealing with regional issues is threatened, for example over illegal immigration. In violation of its international obligations, Australia has a policy of turning back migrant boats with often fatal consequences. Refugees are processed in prisonlike facilities offshore and excluded from Australia even when they have legitimate asylum or humanitarian claims. Australia has paid Cambodia, Papua New Guinea and Nauru to host these inhumane processing centers and accept asylum seekers. These actions merely transfer the problem to poor Asian countries which struggle to cope. An Australian government less concerned about tub-thumping nativism and pandering to a vocal domestic minority would seek a regional approach to the problem.

Finally, Australia has reduced foreign aid funding by 25% cut in real terms since 2013 which particularly affects poorer Asian nations, traditionally beneficiaries. This shortsighted move undermines long-term cooperation, not least over immigration but other strategic or economic issues.

Australia’s engagement in multinational efforts on issues such as climate change is declining. The government has failed to provide leadership, focusing instead on short term issues such as consumer anger at rising electricity costs, concerns about future living standards and a large and powerful fossil fuel industry (the Prime Minister once sang an ode to a lump of coal in parliament).

Australia is increasingly trapped by its contradictions. It is a country which believes itself to be European despite its location and rising proportion of non-European citizens. A nation of immigrants now less open to immigration. A country economically-dependent on Asia which seeks to be America’s political partner. A nation reliant on free trade antagonistic toward major trading partners.

Australia is, in the words of a former conservative politician, Johannes Bjelke-Petersen, running uncomfortably along a barbed wire fence with a foot on either side. Asian policy makers, always equivocal about Australia’s regional engagement, will be tempted to pay less attention to a fraught relationship, despite the serious political and economic interests at stake.

Satyajit Das is a former banker. His latest book is “A Banquet of Consequences” (published in North America as “The Age of Stagnation”).

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