Australia's remarkable transformation faces a test
 
Philip Bowring International Herald Tribune
Wednesday, March 27, 2002
The lucky country
 
SYDNEY Benighted land of the "white trash of Asia" - a phrase once used by Singapore's former leader Lee Kuan Yew - or superstar of the developed world? A generous, liberal and multicultural society or one defined by animosity to aborigines, Asians and asylum seekers?
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Australia attracts little attention except when one of those three problems surfaces. Yet the country has an enviable record of progress, whether measured on a 10- or 30-year time frame.
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A once exclusively white society has been transformed by multiethnic immigration, especially from Asia. Australia's economy kept growing through Asian crisis and American recession. Does Australia have something to teach the world? Has the "lucky country" just been lucky again? Or will recent gains prove temporary as fundamental weaknesses catch up with it?
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The government badly mishandled the recent asylum-seeker crisis and has been rightly accused of blowing it up for crude electoral purposes. Yet Australia has not acted very differently from other rich nations faced with illegal immigrants posing as refugees shipped in bulk by well-financed rings. Its problems with its Asian neighbors arise because their policies are to push all such people toward Australia.
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Local concerns are not a replay of the "yellow peril." Most of these "refugees" are from West Asia and South Asia, not Australia's East Asian neighbors. They offend against local instincts of fair play in a country with a large orderly refugee intake.
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There is an ongoing debate in Australia on migration, but this is mostly about numbers, not race, and cuts across political and class boundaries. Many social conservatives want more immigration for economic reasons, while many liberals and unionists want less, for environmental or worker-protection reasons.
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Immigration has not only transformed the look of Australia, it played a role in the transformation of its economic institutions. Twenty years ago this was the developed world's least open economy, with high tariffs, exchange controls and a labor market dominated by large unions and a centralized wage-fixing system. Strikes were part of daily life.
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Subsequent liberalization has brought dramatic productivity gains - which spurred trade growth, especially with Asia - and integration with the world's financial markets. A positive competition policy has helped bring down inflation and spur business efficiency. All this has been achieved while prices of Australia's commodity exports have been generally weak. Reform plus migration, not luck with prices, has been the main ingredient of performance.
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But what next? Some aspects of the Australian economy look too much like the United States for comfort. The downside of growth has been the huge buildup in foreign debt. Capital market liberalization has enabled Australia to finance current account deficits averaging 4 percent of gross domestic product. Net debt is now 60 percent of GDP, double the level in 1985.
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Most debt is in Australian dollars, so the country does not need to worry about an Asian-style crisis. But stabilization of foreign debt and household debt levels is long overdue and will slow future growth. Meanwhile any sharp rise in world interest rates would badly hurt Australia.
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None of this may bother the Asian investors who are attracted more by Australia's political stability, social freedoms and easy lifestyle than by expectations of quick profits or fast GDP growth. Foreign portfolio investors should continue to find Australia's share prices relatively attractive.
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Australia's period of outperforming may be over, however. Its lead over Asia in areas such as higher education may also be eroding. It will continue to be an example of the merits of political and ethnic diversity, but has too often indulged in ill-judged lecturing of neighbors and overidentification with Western allies.
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Indeed there is curious contrast between Australia's rapid economic and social change of the past 30 years and the slow progress of its political relations with Asia. Poor Australian awareness of the region can be partly attributed to a decline in the quality of the country's media. Parochialism have become more marked even as the nation has opened to the world. The "white trash" jibe is dead but not yet buried.
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International Herald Tribune
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