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NAB chairman Ken Henry : Australia is a country bogged down in economic quagmires

It has been a dismal week in Australia. After a near four-month break Parliament is back in a miasma of self indulgence, with the Government undisciplined and indecisive, and the Opposition playing cheap tricks to score points of no value. Neither leader shows himself fit to govern. Meanwhile the economy is starting to deteriorate, after a dismal results season, falling economic growth and investment, confusion over policy, and a jaded public seduced by populism. Dr Ken Henry, former Treasury secretary, and now chairman of the National Australia Bank, has seen two of the key strategic reports he chaired – one on taxation, the other on Australia in Asia – consigned to the archives in Canberra, a capital that has lost its way. Now read on:

Reporter: Colin Chapman

 

ken henry
Dr Ken Henry

“Do we understand the reasons for past success? Do we have any memory of the policy effort that was required to build an economy capable of generating 25 years of unbroken growth? Have weretained the capability to identify national challenges and opportunities, and to develop strategies tomake the most of them? Do we even care?”

These were rhetorical questions posed by National Bank chairman and former Treasury secretary Ken Henry as he lit a torch under the prospects for Australia and the investment community  in an all-encompassing presentation to the Australian Institute of International Affairs on September 1.

You know his answer already, of course.

“If we were to judge by the quality of what we tolerate in policy debate in Australia today, we would

have to answer these questions in the negative.”, Dr Henry said.

He was was particularly critical of Canberra politicians, who he suggested were failing to face up to the realities of the need for economic and tax reform, pandering instead to populism. He continued:

“The recent global financial crisis should have served as a national wake‐up call, but instead it appearsto have encouraged an attitude of Australian invincibility. It should have reminded all Australians ofthe fragility of our financial linkages to the rest of the world – linkages that have been critical to Australian prosperity.

“We take these linkages for granted, even as we observe continuing financial fragility and growing

protectionist sentiment almost everywhere we look.”

The NAB chairman set out bluntly three mistakes the politicians – and us all – have made.

“First, an inability to repair the fiscal position of the Commonwealth, putting at risk the AAA credit

rating that underwrote much of what we were able to do in 2008 to protect the Australian economy.

Second, an increasingly fearful attitude to various foreign investment proposals, which is putting at

risk our ability to join regional partnerships.

“And third, a populist infatuation with the profitability of the larger domestic banks, putting at risk

the robustness of the very institutions we rely on to provide dependable channels to global debt

markets – funding that provides reliable financial support for home owners, investors and

businesses.”

Dr Henry said a country “bogged down by these economic quagmires” could not possibly have a sufficient understanding of the reasons for past success, or capable of developing the right strategies that would make the most of present challenges and opportunities. “We are not invincible”, he said. “To the contrary our economic prosperity is at greater risk than at any time in my working life.”

The former Treasury secretary, and the major figure in the ‘Australia in the Asian Century white paper, told a packed audience that as political debate had decayed to populism, most Australians would believe they have been treated cynically.

So what is the solution to Australia’s problems? While acknowledging that globalization had not benefitted everybody, Dr Henry firmly rejected the kind of protectionist policies now being advocated by Nick Xenophon and a number of other groups.

“We are some distance from the place we need to be.”, he said. “In

that place, political activity would be predictable, with policy based on sound theory and robust

evidence. It would, therefore, be a place in which government policy avoided short‐termism and

had no taste for protecting vested interest; a place in which government had the intellectual

capacity and political courage to articulate a compelling vision of what could be, the challenges and

opportunities confronting us, the strategies that would best meet those challenges and

opportunities, and the investments in capabilities, systems and processes required to ensure

successful implementation of those strategies…… What we need is political leadership capable of

constructing a compelling narrative that contains a realistic assessment of present circumstances,

articulates an attractive vision of what could be, and explains the strategies that will best secure that

vision.

Australia has no such narrative today.”

As principal author of the Asian Century white paper, inevitably Dr Henry believes that narrative should encompass the opportunities offered across Asia, where growth has been staggering and now represents 40 per cent of world economic activity. “By the end of the first decade of the 21st Century, there already 500 million middle class people across Asia. By the end of this decade, that’s expected to rise to 1.7 billion people, and by the end of the next to more than 3 billion.”

Asked by Geoff Miller, former ambassador to Japan, whether Australia had “missed the boat” in Asia, Dr Henry replied that several boats had been missed, but there were still big opportunies so long as the country developed Asian relevant capabilities, shorthand for the “skills Australians need now, including knowledge of language, culture and business practice”. And more, not less, Chinese investment that only accounted for less than 2.5 per cent of the whole, compared with the US and UK, hich, together, account for nearly half.

“it is not reasonable to expect that Australian businesses will capture new Chinese markets

without being supported by the personal relationships, commercial links, and especially the funding,

that Chinese investment in Australia can provide, Dr Henry said.

“I think we may have missed some boats”, he said, “but not the boat. Many opportunities are still there, especially when we concentrate on high quality Products. That is what the agricultural sector has done. Those that have been successful have gone to the trouble of spending time in China and building trust and good relationships with their customers”

The NAB chairman said that the key to building successful relations in Asia was through though equipping individuals as well as institutions with knowledge and language skills. “Do we in Australia place sufficiently value in Asian capability”, he asked, rhetorically. ”I don’t think so.”

 

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