HON. WAYNE SWAN MP
FEDERAL MEMBER FOR LILLEY
ADDRESS TO THE COMMONWEALTH BUSINESS FORUM
"Partnering For Global Growth"
TUESDAY, 25 OCTOBER 2011
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Thank you for your warm welcome and thank you Dr [Mohan] Kaul for the kind introduction. I would also like to acknowledge the Nobel Prize winner in our midst – Professor [Edward] Prescott – whose views I look forward to hearing.
At the opening of this forum and at dinner last night I met with political and business leaders from around the world. It's rare to find both the geographic diversity of nations represented – with members of the Commonwealth from six continents – but also the degree of shared interests.
One of the great strengths of the Commonwealth is that it brings together a handful of developed economies and a significant number of the world's dynamic emerging economies. Clearly our bonds are a product of history, but the Commonwealth has a shared interest in meeting the challenges facing the global economy.
Given the backdrop of challenges facing the US and Europe, our attention is increasingly on the contribution emerging and developing economies can make in driving global growth. Once we would have thought of the economies of the UK, Canada and Australia as being the main contributors to global growth from the Commonwealth, but increasingly we look to the economies of India, South Africa and Malaysia.
The world's emerging economies – from Asia and the Commonwealth – increasingly need to deliver more of global growth and they have encouraging potential to do so, if we get the global settings right and if we get the global and domestic reforms right. Reforms that will provide the right environment for you, the business community, to invest, generate growth and create jobs. And it is appropriate that our discussions this week focus on the changes underway in the global economy. So tonight I'd like to add three points to that discussion.
First, I'd like to talk briefly on developments in Europe – as there is not a single country or business in the Commonwealth that is not impacted by the decisions European Leaders will take this week.
Second, I'd like to add a couple of facts which I think drive home just how significant the shift underway in the global economy is.
And third, I'll talk about why managing this shift and getting the right policies in place is so important. Because at the end of the day it is about lifting the living standards of people excluded from the dignity of employment – in a word, it is about jobs. But first to Europe.
We all know that recovery in the global economy is slowing as we wait for Europe to deal with its sovereign debt crisis and for the US Congress to support a plan for recovery. We always knew that the recovery from the global financial crisis was going to be difficult – but the political malaise in both these economies is making it more difficult than it needs to be.
No one should think that events unfolding in Europe will not affect every single one of the 54 nations represented by the Commonwealth. That is why it is so critical that we see European leaders take decisive action that deals fundamentally with their sovereign debt crisis at the leaders' meeting tomorrow night. It is critical that they put in place a durable solution to address Greece's excessive levels of sovereign debt, recapitalise European banks and build a war chest big enough to end fears of the sovereign debt contagion spreading to other European countries.
At recent meetings of the G20, I have been making it very clear that our European colleagues need to take swift, decisive and credible action to prevent the crisis spreading. The world is on tenterhooks. The global economy can't afford any more stumbles or missteps from Europe. Europe has been slow to react. For that we have all already paid a high price. Anything short of a comprehensive plan risks a protracted recession in Europe with obvious implications for the global economy and our own economy and budget.
While European leaders are finalising their strategy and building their war chest, we should remember that they still need to fight the war. Beyond any announcement this week, Europe needs to put in place the reforms to gain the confidence of financial markets, make the tough decisions to put their budgets back on track, and implement the structural reforms to drive growth and build resilience in their economies.
While fundamentally the problems that Europe faces require European solutions, the global community must also support Europe in its efforts where possible. That is why we need to ensure that our international financial institutions have the resources to support the difficult adjustment required in Europe and meet possible threats to global economic stability.
We must do all we can to avoid a repeat of the massive loss of jobs experienced in recent years. And the rest of the world – much of it represented here in the Commonwealth – must also put in place the policies to lift their own economic growth and in so doing, lift global economic growth as well.
As I foreshadowed earlier, it is precisely this backdrop of old world instability which underscores why it is so appropriate that we focus on emerging and developing countries today and the implications of their economic rise for us all. This increased reliance on developing countries to drive global growth is fast tracking a significant structural realignment in the global economy.
We here are witness to an historical moment – the passing of the baton from the developed world to the emerging economies in this region.
Beneath the current tremors in the global economy lies a much stronger and more fundamental economic transformation. The weight of global economic activity is shifting. I have often characterised this as a move from west to east, but it can equally be seen as a move from north to south or from Europe and North America to Asia and Africa. Whatever its characterisation, at its heart is a shift in economic activity from advanced to emerging and developing economies. It is something that has gathered pace in recent decades and which we expect to continue for some time yet. Let me outline these facts.
Twenty years ago, advanced economies made up around two-thirds of the world's total output. Today, advanced economies account for around half of the world's total output. And in a few years time, global output from emerging and developing economies is projected to overtake advanced economies. For Australia, this shift has prompted a reversal of the “tyranny of distance” – a reference to our geographic location away from key global centres. Let me outline some further facts on this.
In the 1950s, only around 15 per cent of world GDP fell within 10,000 kilometres of Australia. Today this has doubled to more than a third of world GDP – due to growth in China, Japan and other parts of South and East Asia. And by 2050, with the continued expansion of China and India, almost two thirds of world GDP is projected to fall within 10,000 kilometres of Australia. The speed and scale of this shift towards Asia has been unprecedented.
However it is not just an Asian story. Other parts of the Commonwealth have also seen the weight of global economic activity move their way. While these facts are stark themselves, the point I want to make today is that just as the world is experiencing a fundamental economic transformation, this brings with it responsibilities.
All countries will have to play their part in driving global growth. In the Commonwealth we were partnering for global growth long before the expression was in vogue or the G20 was conceived of.
Central to the G20's work under the Framework for Strong Sustainable and Balanced Growth is a range of productivity-enhancing structural reforms to be implemented by both developed and developing economies. Because lifting global growth and dealing with global imbalances is not just the responsibility of one or the other. As is the case in Europe, all developed nations need to put their budgets on a credible path, while supporting growth where they can.
The big emerging market economies need to rely more on domestically generated demand and move toward market-determined exchange rates.
And all countries must put in place the productivity enhancing reforms that will lift growth and enhance the resilience of their economies, whether these are tax reforms, product market reforms, strengthening retirement incomes, or investments in skills and infrastructure.
It is these reforms that allow you in the business community to drive the investment and growth that will create prosperity and jobs. Structural reform is easier said than done. But if structural reforms had been put in place in Europe over the past decade, it would have been much more resilient, and we would be having a very different discussion today.
You can't keep putting fundamental reform in the too hard basket – or you end up suffering the consequences as Europe has, of low growth, unsustainable debt and unacceptably high rates of unemployment. It is why the Prime Minister and I have worked hard to highlight the importance of productivity-enhancing reform that generates jobs and invests in skills throughout the G20. Because ultimately through lifting growth, we create more jobs and better jobs, lifting living standards right around the world.
As another Nobel laureate in economics – Michael Spence – has said, there are three employment challenges that governments worldwide must grapple. First, to generate enough jobs to meet the demand for employment. Second, to supply the people with the skills they need to fill these jobs.
And third, to ensure a fair distribution of the benefits of growth.
Communities are stronger when more people have access to the dignity of employment and every individual has the opportunity to play their full part. Countries with greater income equality enjoy higher rates of long-term economic growth. It has always been a key priority of this Government to ensure that Australians have the dignity of work to carry them through life. I am sure it is a priority shared by most Commonwealth nations.
The millions of unemployed that we find across the world, particularly among the young, do not enjoy the benefits of going to work every day which is why we must do all we can to push for job creation in every forum possible – the G20, the IMF, the World Bank and CHOGM. The Australian Government, for its part, is putting in place the right policy mix in our own country to help achieve this.
For instance, we are partnering with business to meet the skills needs of our future. Through the $3 billion Building Australia's Future Workforce package, our Government aims to improve the quality of vocational education, deliver industry-focused training, and develop innovative approaches to support apprentices and trainees.
Through tax reform we are making Australia a more attractive business investment destination.
We are delivering tax cuts to those doing it tough and to provide reward for effort, and to increase workforce participation.
And we are spreading the benefits of the mining boom, so that we lift retirement incomes and provide tax relief to those businesses not directly benefiting from the mining boom.
While the near-term challenges to the global economy are immense, it is important not to lose sight of the broader transformation underway in the global economy that I talked about today.
Europe will need to tackle its problems with overwhelming force and the eyes of everyone in this room and right around the world will be fixed on them tomorrow night. But at the same time we are witnessing the most fundamental shift in the global economy as the centre of global economic weight moves from west to east and north to south.
This brings with it many opportunities for businesses like yours, right across the Commonwealth, to employ the economic dynamism that will propel us towards a prosperous future. And it brings great responsibilities to the governments of the world's emerging economies to play their increasing role in driving global growth and creating jobs.