Australia at the crossroads of globalization
SYDNEY, AUSTRALIA — A decade ago, Woolloomooloo Wharf stood as a derelict eyesore from an earlier era. Now it glitters with a Taj hotel, a top restaurant, and loft-style condominiums popular with actors like Russell Crowe. Indeed, Sydney's waterfront is thriving, boasting amenities such as doggie day care, $10 lattes, and a superyacht marina.
For 15 years, Australia has grown at an average 3.7 percent clip without any sign of recession. The stock market is up 37 percent this year, and, last week, registered a record number of trades. The boom has slashed unemployment, doubled the country's wealth, and taken care of all but pocket change on its debt.
The success has bolstered the political fortunes of Prime Minister John Howard, who just marked 10 years in power. Yet it goes deeper than one man's stewardship. Few countries have better leveraged globalization than Australia - transforming a once-isolated market into one that's taking full advantage of Asia's, and particularly China's, dynamism.
"Globalization does have winners and losers, but mostly we're a winner," says John Edwards, chief economist with HSBC Bank Australia Ltd. in Sydney. "When farmers in Korea protest against globalization, or miners in Germany protest globalization, they're protesting against us."
Australia's winning recipe does not hew to a hard-line economic libertarianism. Government turned to labor unions to help secure productivity gains, and Australia maintains one of the world's highest minimum wages, for instance.
At the turn of the 20th century, Australians were the richest people on the earth - a result of piles of gold and natural resources. But that advantage gradually eroded, until high unemployment and soaring inflation in the early 1980s convinced a left-leaning government to ditch protectionist policies and force Australian businesses to compete globally.
What followed was "an astounding period of reform," says Mr. Edwards.
The Australian dollar was floated in 1983, and trade tariffs - from clothing, auto, and wool industries - were slowly dismantled. The banking sector opened to foreign companies, seeding what would become a vibrant investment banking community - one of the pioneering industries here now, along with international education.
Major state-owned firms were privatized. While the selling of the phone company and the national airline still rankles some who say service has declined, the move also inspired many ordinary people to become shareholders in the companies. Today, 55 percent of adults here own stocks - the highest comparable rate in the world, says a national exchange spokesman. That is not counting any of the retirement accounts requiring workers to deposit 9 percent of income - some in stocks - now mandated by the government.
Higher wages, once granted easily by the government, now involve horse trades with unions. This, along with new technologies, kicked off dramatic gains in productivity.
For the most part, reformers have kept voters on board by sticking to the notion of the "fair go." This deeply held Aussie value means looking out for those at the bottom of the heap. Through all the reforms, Australia has continued to set minimum wages per industry. Benefits like healthcare, pensions, and prescription drugs are also means tested, directing more to the poor than the wealthy.
"The safety net that Australia has, which is not as generous as Europe's, has been arguably more effective at providing a cushion under those who have been adversely affected by economic changes," says Saul Eslake, chief economist with ANZ Bank in Melbourne.
Tax cuts have also been left out of the pro-growth playbook. Unlike its neighbor, New Zealand, Australia held onto a more progressive tax system.
"The Australian model - which was a fair degree of liberalization but not the full Chicago school treatment - did better," says Andrew Leigh, an economics professor at the Australian National University in Canberra.
But the marathon boom would have hit the wall years ago if China hadn't given it a second wind, say economists.
It's not simply a matter of skyrocketing prices for the Australian iron ore, coal, and aluminum that feed China's factories. (Mining now only accounts for 5 percent of Australia's GDP.) It's also the cheaper prices of toys, appliances, and office supplies that raise living standards and drive down business costs here. And it's one more strong economy to lean on.
"China allowed Australia to diversify away from Japan as it hit its slump,"says Mr. Leigh. He notes that the Australian economy took on an exceptional hue when it dodged the Asian economic crisis in the 90s, and shrugged off the American dot-com bust.
Still, the Australian reforms have come with some costs. "Working people for the last 15 years find it much more difficult to ... spend more time with families. And people are feeling less secure in their employment," says John Robertson, the secretary of Unions New South Wales.
Indeed, the number of Australians working at least 50 hours a week rose in the late 1990s to at least 20 percent - ranking their industriousness with that of Japan, the United States, and New Zealand, according to the International Labour Organization.
But labor advocates also note that fewer people are working full-time jobs and that the definition of being employed has been redefined to mask this trend.
The gap between rich and poor in Australia is widening. In 1995, the richest 1 percent garnered 5 percent of the national income; now it's 9 percent. CEO pay has also shot up in relation to the average worker. These trends, and impending changes by the government to slow minimum wage growth, are stirring popular misgivings and protests. A poll last month revealed a broad consensus that the country had become a meaner place over the past 10 years.
Polls also indicate that the culture has become more materialistic. Advertisements last month here for the $148,500 Cayman S sports car read: "Porsche's new baby. An excellent reason to delay yours." And while the net worth of Australian household has shot up in recent years, much of that wealth comes from a recent housing boom more dramatic than the one in the United States. Like Americans, Australians cashed out home equity to spend, leaving them with a negative savings rate. Drops in home values in the past few years have forced some belt-tightening.
But the painless experience might give Americans some comfort that a hot housing market can soft land, says Edwards. "It suggests that it is possible to gracefully exit a housing boom."
• GDP: $649.9 billion
• Inflation rate: 2.7%
• Exports: $103 billion; major items include coal, iron ore, nonmonetary gold, crude petroleum, and beef
• Export partners: (2004) Japan, China, US 8.1%, South Korea, New Zealand
• Imports: $119.6 billion; major items include passenger motor vehicles, crude petroleum, computers, medications, and telecommunications equipment
• Import partners: (2004) US 14.8%, China, Japan, Germany, Singapore
Source: State Dept.; CIA World Factbook, 2005 estimates