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Australia Benefits From Globalisation: Downer

This is the transcript of the speech delivered by the Minister for Foreign Affairs, Alexander Downer, at the Launch of the Monash Institute for the Study of Global Movements.

Speech by Alexander Downer at Monash Institute for the Study of Global Movements.

Globalisation: Global Opportunities And Global Responsibilities


Thank you, Professor Darvall [Vice Chancellor, Monash University], distinguished guests, ladies and gentlemen.

It is my great pleasure to address you on the occasion ofthe launch of the Monash Institute for the Study of Global Movements.

Monash University has responded creatively and very successfully to the opportunities and challenges of globalisation.

It has adopted a global strategy, establishing campuses and research links in Europe, Asia and Africa.

And now Monash’s new Institute for the Study of Global Movements aims to undertake high quality research and foster public discussion of globalisation.

I commend the University’s work and I am pleased to have this opportunity to contribute to it.

Today, I want to highlight the benefits globalisation brings and how the Government is ensuring Australians and our regional neighbours can capture these gains.

But first, what do we mean by globalisation?

In his recent book, Globalization and its Discontents Joseph Stiglitz defines globalisation as “… the closer integration of the countries and peoples of the world … brought about by the enormous reduction of costs of transportation and communication and the breaking down of artificial barriers to the flows of goods, services, capital, knowledge and (to a lesser extent) people across borders”.

More simply, The Economist magazine says globalisation is “… what happens when technology allows people to pursue their own goals and they are given the liberty to do so.”

Seen in this way, globalisation is just an extension of the personal freedoms and free markets we enjoy in our own economy to the whole world.

By extending our freedom to trade, invest, travel and work beyond national borders, we can multiply many times benefits we gain from free local markets, transactions and movements.

Artificial barriers to trade, investment and people movements are relatively new in human history.  The world has been much more globalised in previous centuries than in the recent past.

For example, in 1913, global exports reached almost 8 per cent of world GDP.  But with the trade barriers erected during the Great Depression, total exports shrank to under 5 per cent of world GDP by 1950.

After World War II, governments realised the folly of these policies and how they had contributed to the War.

Subsequently, a core group of governments established the Bretton Woods institutions.

Through the General Agreement on Tariffs and Trade, fore-runner of the World Trade Organization, and the International Monetary Fund, governments agreed to bring down trade and financial barriers between countries and build a fairer and more rules based international trading and investment environment.

By 2000, lower trade barriers and rapid falls in transport and communication costs pushed world exports to 14 per cent of world GDP.

So the world is becoming more globalised again, and world incomes are growing more rapidly as a result.

How has Australia fared in a globalised world?

Australia was always more open to international trade than most countries.

Back in 1913, Australia’s exports were 13 per cent of GDP when the world average was only 8 per cent.

However, inward looking, protectionist policies caused our ratio of exports to GDP to slip behind other countries in the 1960s and 1970s.

This hurt Australia.  Trade protectionism and a range of other poor economic policies caused Australians to slip from being the wealthiest people in the world, with the highest real GDP per capita in 1913 to a rank of 15th by 1990.

Our Human Development index rankings slipped to the same extent, to 14th.

But in abandoning protectionist policies and introducing a range of other economic reforms, Australian governments have put Australia on the way back to the top.

The Government has overhauled comprehensively Australia’s taxation system, reformed labour and capital markets and introduced privatisation into the transport and telecommunications sectors.

These reforms have encouraged firms to adopt new technologies, increase training and seek new export markets.

As a consequence, productivity growth in Australia was the second highest of all industrialised countries in the 1990s.

The Government has also repaid $63 billion worth of Commonwealth debt since 1996.

By 2002, Australia boasted the 4th highest real GDP per person among the world’s major industrialised economies.  And in 2001 Australia had the 4th highest Human Development ranking in the world.

From 1985 to 2002, freer trade and investment and other economic reforms helped raise Australian’s real income per person by over 55 per cent from $23,000 to $36,000.

So Australia is a prime example of a country that has gained from globalisation.

Globalisation: Keeping the Gains

Last month my department’s Economic Analytical Unit released a new report, Globalisation: Keeping the Gains.

This report finds globalisation is producing major gains for Australia and helping reduce world poverty.

For example, it highlights a recent World Bank study of 72 developing countries that finds, in the 1990s, globalising economies, or ones that increased their ratio of trade to GDP, grew over four times faster than non-globalisers.

These globalising developing economies also grew twice as fast as developed economies, allowing them to catch up with their richer counterparts.

In fact our regional neighbours have been some of the big gainers from globalisation.

From the 1960s on, most East Asian economies became increasingly export oriented and globalised, lowering their tariffs and expanding their trade.

They also provided their populations education and infrastructure and generally sound governance.

As a result, per capita income grew strongly in most East Asian economies’ over the last 20 years.

In the 1990s, with the exception of Japan, East Asia grew by between 6-8 per cent per annum, and the share of regional populations living in poverty fell rapidly.

Most of the region’s newly industrialising economies now have reached developed country status.

The report finds big falls in poverty in globalising developing countries, particularly in our own region helped reduce the number of people living in poverty by 200 million people in the last 20 years.

This happened despite a 2 billion increase in the world’s population.

But the numbers living in poverty in inward looking and poorly governed regions like Africa increased.

This fact highlights the vital role domestic governments must play in ensuring their populations gain from globalisation’s opportunities and respond to its challenges.

Lowering trade and investment barriers is necessary but not sufficient to ensure communities keep and spread the gains from globalisation.

Governments also must ensure domestic goods, labour and financial markets work and legal systems and infrastructure function efficiently.

They must operate stable macroeconomic policies to keep inflation low and employment full.

And they must ensure their populations have access to good quality education and health care and adequate social safety nets.

Failures in some or all of these areas are the reasons some countries are not gaining from globalisation.

Australia’s role in spreading the gains from globalisation

So what can Australia do to help spread the gains from globalisation?

Clearly, the first step to ensuring a country and its population gains from globalisation is through strong economic and legal institutions, improved market efficiency and upgraded infrastructure, education and health delivery.

Democratic and accountable Government is critical.

The strength of Australia’s own institutions means we are well placed to help others improve their institutions and their approaches to key policies.

The Government has increasingly focused its development assistance expenditure toward governance programs in five key areas:

  • Improved economic and financial management
  • Strengthened law and justice
  • Increased public sector effectiveness
  • Development of civil society
  • And strengthened democratic systems.

Indeed, 21 per cent or $370 million of our development assistance expenditure is directed toward governance programs.

With stronger institutions, countries are better placed to introduce the policies and reform vital to securing the opportunities of globalisation.

One of the main policies developed and developing countries can introduce to spread the gains from globalisation is to reduce their trade barriers.

For example, the US Agriculture Department estimates high agricultural trade barriers and subsidies, particularly in the EU, the United States and Japan, worth around US$1 billion a day cut prices for all agricultural output worldwide by a massive 12 per cent each year.

Hence, these agricultural support policies could cut agricultural output value in low and middle income East Asian and Pacific economies by over US$37 billion each year or about 5 times the US$7.7 billion these economies receive in aid annually.

The World Bank estimates developing countries would gain about US $100 billion a year if developed and developing countries removed all their trade barriers against developing country exports.

This far exceeds the US$57 billion developing countries get each year in aid.

The current Doha Round of WTO trade negotiations is a welcome opportunity to reduce, if not eliminate, these barriers.

Doha is called the development round because it is prioritising lowering barriers to developing economy trade and getting them access to cheaper medicines for major diseases like AIDS.

Australia is working hard in the WTO’s Doha Round of trade negotiations to reduce global trade barriers, particularly to agricultural exports.

And we have delivered duty-free and quota-free access to least developed country exports.

Australia benefits directly from these trade reforms.  But Australia will also gain from the improved welfare lower trade barriers deliver to developing countries.


Ladies and gentlemen

Globalisation brings with it considerable opportunities to increase the prosperity of all nations.

It is true that there is adjustment costs associated with globalisation.

But it must be said that we can not afford to turn our backs on globalisation.

One need only look at the living standards of countries like North Korea, which have shunned globalisation, to see this.

The Government is making globalisation work for Australia.

We are sustaining the momentum for trade and investment liberalisation and domestic economic reform.

And we are helping our neighbours seize globalisation’s opportunities, not least through our aid program.

The Government rejects the views of those who perpetuate myths and fears about globalisation and urge Australians to return to protectionism.

And that is why I applaud the establishment of the Institute of for the Study of Global Movements. I am confident it will make an invaluable contribution to promoting understanding and knowledge of globalisation and its benefits for Australia.

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Malcolm Farnsworth
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