Australia and India in the Asian Century

The Australia India Institute's Inaugural Ben Chifley Memorial Lecture

Melbourne

Speech, check against delivery

27 March 2012

It’s an honour to be asked to give the Australia India Institute’s inaugural Ben Chifley Memorial Lecture.

Ben Chifley was one of the very first Prime Ministers to recognise the opportunities for Australia of engaging with India and the rest of Asia.

Following the Second World War, he identified a ‘changed order in the world’, and had the prescience to see that Australia shared common interests and problems with the emerging nations of Asia.

This vision was reflected in his controversial decision that Australia attend the 1947 Asian Relations Conference in New Delhi, and the 1949 New Delhi Conference on the Indonesian-Dutch conflict.

During a speech for the 1949 Australian Federal election, Chifley asked Australia to look to the countries to our immediate north: “1,000 million people,” Chifley noted, “whose living standards, if increased only by a fraction, would establish a market for all that Australia could manufacture.”

Since then the population of Asia has increased threefold and GDP per capita tenfold, more than 50 per cent faster than the world overall.

Australia, meanwhile, has enjoyed more than two decades of recession-free economic growth, emerging from the global financial crisis much better than most of our developed country peers, and is enjoying an unprecedented mining boom.

But the reality of material progress should not close our eyes to the continued presence of enormous human suffering around the world and in our region: indescribable physical and emotional pain, grief and misery.

Each night, almost one billion of the earth’s people go to sleep hungry.

In India, 42 per cent of children under the age of five are malnourished, comprising one-third of all the malnourished children in the world.

Malnutrition is an underlying cause in around one-third of child deaths across the world.

Many still die from easily-preventable or treatable diseases.

Malaria still kills more than half a million people each year, most of them children from sub-Saharan Africa.

Yet despite all this suffering, within two decades the old order of rich countries lending to developing countries may be gone.

The big emerging countries — especially China and India — will be global net lenders and many of today’s rich countries will be global net borrowers.

Far from the Western tradition being the dominant civilisation in a uni-polar world, as predicted at the fall of Communism in the final years of the 20th Century, China and India, and the rest of Asia, will profoundly shape human endeavour in the 21st Century, alongside America, northern Europe and possibly Russia.

Indonesia will emerge as a major power, and a handful of resource-rich countries — including Australia, Brazil, Canada, South Africa and Nigeria — should be able to advance their interests in a multi-polar world.

Once-dominant civilisations — those of the Romans and Greeks — will remain artefacts as living standards fall in uncompetitive southern Europe.

In the first decade of the 21st Century, China’s economy grew at an average 10 per cent per annum, India’s at 7 per cent per annum and Indonesia’s at 5 per cent per annum.

Growth in America, meanwhile, averaged 1.6 per cent per annum.

In Europe it was 1.5 per cent per annum.

So we can see that from a long way behind, China’s and India’s economies are catching up in size with Europe’s and America’s.

China’s is already the second-largest economy on earth and India’s the fourth-largest, soon to take third position ahead of Japan.

Yet the value of a Chinese worker’s production is only 14 per cent of that of an American worker. The value of an Indian worker’s production is just 9 per cent of that of an American worker.

At the same time, however, a Chinese worker’s productivity increased by 11 per cent per annum during the last decade, whereas an American worker’s productivity rose by only 1.3 per cent per annum.

If these productivity growth rates were maintained into the future, Chinese workers would be as productive as American workers by 2030.

Since China’s population is more than four times that of the United States, then at a continuation of these productivity growth rates, China’s economy could be four times the size of America’s by 2030.

Similarly, if India maintained its current productivity growth rate of 6 per cent per annum, it would be almost the same size as the United States’ economy by 2030, from around a third of its size now. 

This is in large part due to India’s young population. Its working-age population is currently around 80 per cent of China’s, but by 2030 it will be larger than China’s and nearly five times that of the United States.

These are only projections, and a lot can happen in the next two decades, as we have already seen in the last two decades.

In periods of human history when societies were about as good as each other at producing things of value to them — such as food, shelter and weapons — the dominant societies were those with the biggest populations.

It was on this basis that for a thousand years before the Industrial Revolution of the 19th Century, the economies of China and India were easily the largest in the world.

As thinkers of the Enlightenment period in Europe broke the strictures of traditional dogma, new inventions, such as James Watt’s steam engine and new factories reaping the gains from Adam Smith’s observed power of the division of labour, led to huge leaps in the productivity of workers.

For 200 years, Europe and North America enjoyed massive productivity superiority over Africa, Asia and Latin America, a dominance exploited through colonisation.

But in the 21st Century, as the South outpaces the North in the productivity race, Europe and the United States are surrendering their economic dominance.

This transformational shift in the global centre of economic gravity to Asia will be the defining feature of at least the first half of the 21st Century.

It’s why the 21st Century is called the Asian Century.

If Ben Chifley were alive today, he would surely grasp the opportunities for Australia of the global economic centre of gravity shifting to our neighbourhood.

His vision for achieving what he called a ‘golden age’ depended on expanding world trade and opening new markets for Australian exports.

That is why he supported establishing the International Trade Organization, which has since morphed into the World Trade Organization.

When Chifley gave his famous speech to the ALP Conference in 1949, he spoke of the labour movement as “a movement bringing something better to the people:  better standards of living, greater happiness to the mass of the people.

“We have a great objective — the light on the hill — which we aim to reach by working the betterment of mankind not only here but anywhere we may give a helping hand,” he said.

And so it is in this great Labor tradition that I want to explore how to achieve progress in Australia, in India, in Asia; in fact, progress on earth.

Let’s start with hunger.

With almost one billion people already going to bed hungry every night, and almost two billion more humans to be added to the world’s population in the next quarter century, the task of feeding people while respecting nature is truly daunting.

A continuation of existing practices would trigger large-scale land clearing, deforestation and land degradation with its attendant destruction of biological diversity and carbon sinks.

Not only will the food production task be monumental — the Food and Agriculture Organization and the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) both estimate it will need to increase by around 70 per cent by 2050 — a big shift in the composition of food demanded will make food production more land-intensive.

ABARES expects that almost three-quarters of this will occur in Asia, with over half in China and India alone, where huge emerging middle classes will demand higher-protein foods.

Animal protein sourced from beef, sheep, chickens, pigs and fish will displace grains as a food source in these burgeoning middle class populations.

Yet the raising of these animals, especially cattle, will require vast tracts of pasture and range lands or, if they are grain-fed on smaller lots, vast amounts of grain grown on broad-acre farms.

Either way, if large-scale ecological damage and soaring food prices are to be avoided, food production will need to be concentrated on more arable land, its yields will need to be increased, and the world will need to trade freely in food and other goods.

The production task will not entail one country producing more food and others producing less.

All, or most, will need to produce much more to meet fast-growing global demand.

But through the operation of market forces, countries will specialise according to their comparative advantage in different types of food production.

Hence, countries such as India, Bangladesh, Thailand, Vietnam, China and Indonesia will continue to grow rice and other grains.

Australia’s rangelands and grazing paddocks mean we will remain a major wheat producer, among many other agricultural industries.

These rangelands also provide us with a comparative advantage to help meet the massive global increase in demand for beef and sheep meat, which will be driven by China, and for dairy products, which will be driven by India. 

Australia is a major food exporter — and our relationship with India on this front will only continue to grow.

But we will need additional capital.

Since the time of European settlement, foreign investment, particularly from Europe, the United States and Japan, has played a valuable role in the development of Australia's agricultural sector.

Now, China, India and several Middle Eastern countries have increasingly large investible surpluses that they are looking to deploy in the global food production task.

Investment from these new source countries of Asia and the Middle East could facilitate the transition of agriculture from old economy to new economy, spawning an exciting new era of market-driven regional development.

In this way, Australia and India could also share expertise and technology that could lift production yields and make crops more resistant to disease in both countries.

Last month I met with the Indian Agriculture Minister, Sharad Pawar, who was in Australia to sign a Memorandum of Understanding between our two governments on co-operation in agriculture. 

I spoke about my hope that our two countries can address the challenge of food security through greater trade and investment, and he about India's desire to export more food to Australia.

That Australia, India and the rest of Asia are now contemplating such tight enmeshment in their rural sectors testifies to the vision of Chifley and the efforts of subsequent leaders from both countries.

We place a lot of importance on contact between our respective heads of government, and the Gillard Government very much hopes that it will be possible for Prime Minister Manmohan Singh to visit Australia in the near future.

Prime Minister Bob Hawke recognised the importance of the Indian market, how critical it was that we engaged with India and the Asian region more broadly.

He pulled down our tariff walls, opened up our economy and started the process of building the open, competitive economy we have today.

Former Indian Prime Minister Rajiv Gandhi also recognised the importance of the relationship between our two countries, which was why he and Mr Hawke established the Australia-India Business Council.

Under the guidance of then Finance Minister and now Prime Minister Singh, India began its own market-opening transformation in 1991, reducing the regulatory barriers to establishing a business under the License Raj and lowering its own tariffs.

Now, the Indian economy is on the verge of becoming a juggernaut.

With its high rate of growth and young demographic make-up, its remarkable transformation is only beginning to change the world.

The Indian nation is a marvel of different cultures and ethnicities, held together in an increasingly modern, high-tech democratic state.

Australia has benefited greatly from this — from the skills, expertise and experience of the Indian diaspora.

And so our relationship has moved far beyond the simplicities of earlier years, when cricket and colonial history were the focus of conversation between our two countries.

We are now much more deeply intertwined and destined to become more so as we explore the myriad opportunities of the Asian Century.

India has youth on its side, which is an invaluable asset in an increasingly knowledge-based global economic system.

There are 100 million 17 to 23 year olds in India — four times as many people as Australia’s entire population.

At least 11 million of them are seeking a university education.

There is currently a waiting list of nearly five million.

Tens of thousands of Indian students are welcomed in Australia every year.

They are all future ambassadors for Australia, and for the Asian Century.

And we will continue to build that engagement, including through more than 300 tie-ups between Australian and Indian universities.

Australia and India have also forged a dynamic commercial relationship in more traditional areas such as energy and minerals.

Given our stable investment environment and reliable supply, demand for our resources will continue to grow as the process of urbanisation of India continues apace.

Australia is also positioning itself to sell uranium to fuel India’s nuclear energy generators, helping to guarantee security of electricity supply.

Another area of co-operation is infrastructure.

India’s Planning Commission calculates a need for $1 trillion of infrastructure investment in the country over the next five years alone.

Australia has an abundance of the critical metals and energy needed for a country going through an intense industrialisation and urbanisation phase.

We also have the managerial and financial expertise that is vital to infrastructure delivery.

And experience in building ports, roads, rail, and urban infrastructure that can help India open up in the coming decades.

These are all areas in which we’re already working together.

Tourism and financial services are other industries with great growth potential.

We also want Australian lawyers to be able to provide advice to corporate and financial services clients in India.

This would make it easier to attract new investment into areas such as infrastructure and resources, and help ensure value for money for government and business alike.

So, although we have come far, the journey that Australia and India embarked on 25 years ago still has a long way to run.

Deeper integration is possible, which is why we started negotiations on a Comprehensive Economic Cooperation Agreement last year.

A high-quality, truly liberalising deal will help both our economies, and support the multilateral system.

But achieving the level of integration our two countries desire requires more than just a trade agreement.

Just three weeks ago, business leaders from our two countries met in New Delhi for the inaugural meeting of the Australia-India CEO Forum.

Four Australian CEOs, led by Lindsay Fox, whose name is synonymous with transport and logistics, sat down with five CEOs from India — led by Naveen Jindal — to discuss how best to improve the commercial relationship between our two countries.

Both sides agreed that the Australia-India Comprehensive Economic Cooperation Agreement should be as liberalising and comprehensive as possible, in order to remove barriers to business activity. 

Mr Fox and Mr Jindal will now write to our two countries’ Prime Ministers with the CEO Forum’s specific recommendations. 

Opportunities for Australia to integrate its economy more fully with that of India and the rest of Asia in the Asian Century are virtually boundless.

However, success requires clear insight into the enormity of the global economic transformation already underway, together with much stronger personal bonds, forged out of closer government-to-government engagement.

It requires the sort of vision shown by Ben Chifley all those decades ago.

Thanks very much.

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