The first time I met Malcolm Turnbull, Australia’s new leader, all he could talk about was Japan. It was June 2002 and the Goldman Sachs banker-turned-politician couldn’t comprehend how a smart, democratic government could simply stand by as an enervating malaise strangled the economy.
When I asked him whether something similar could happen in Australia, Turnbull stared out his Sydney office window. “There are real risks for Australia in globalization and we could be a loser in the future just as we have been a winner to date,” he said.
Those risks are more than obvious now. Unlike Japan, Australia isn’t suffering from deflation and demographic blight. But its leaders, too, are guilty of not moving fast enough to adjust to a changing economic reality. Over the last two years, neither then-Prime Minister Tony Abbott nor Treasurer Joe Hockey implemented the structural reforms needed to increase incomes and boost competitiveness.
Rather than invest in education, training and infrastructure and tweak taxes to empower small businesses, Abbott’s team protected mining billionaires (by scrapping carbon-tax policies). His government championed fiscal austerity even as the economy experienced its weakest run of growth since the 1991 recession. Business leaders complained, rightly, about a lack of resolve to overhaul an outdated labor market. As a historic property bubble from Sydney to Perth massively outpaced wage growth, Hockey told voters they were imagining the problem.
In fact, it’s the government that’s appeared blind to the competitive pressures of globalization. For years, China’s voracious appetite for iron ore, coal, copper and other commodities fueled growth and filled Canberra’s coffers. That dampened the urgency for Abbott or his predecessors to diversify growth engines away from the mining industry, leading to a two-speed economy and widening inequality.
There’s plenty of blame to go around, but Abbott’s Liberals deserve much of it thanks to Prime Minister John Howard’s failure to diversify the economy during his 1997-2007 term. Howard’s stint followed those of reformists Bob Hawke (1983-1991) and Paul Keating (1991-1996).
Governments during the Hawke-Keating era lowered trade tariffs, opened the financial industry, floated the Aussie dollar and built a compulsory, national pension system. And then Howard coasted, riding China’s coattails and leaving economic management to the central bank.
Howard’s successors, the Labor Party’s Kevin Rudd and Julia Gillard, should’ve done more to rebalance the economy. But their fight to impose taxes on excessive mining profits, share Australia’s wealth and put a price on carbon emissions was the right one. By contrast, Abbott allowed even Beijing to grab the mantle of leadership on climate change away from Canberra.
Australians need Turnbull to lead on reform, not relax. The new government must be less ideological about attaining budget surpluses and more attuned to how Australia risks getting left behind by globalization. It must invest more in human capital to increase productivity and in physical hardware — better roads, ports, power grids and telecommunications systems. Turnbull needs to create new jobs to mitigate the hollowing out of industries, including manufacturing.
He also must overhaul an antiquated tax system to encourage Australia’s best and brightest to create a homegrown Apple or Google. The good news is that, as far back as 2002, Turnbull was mulling this very problem. At the time, he said Australia’s tax system was “totally uncompetitive,” driving would-be entrepreneurs to Silicon Valley and Singapore. “These risks are real, because the playing field is, by force of geography, tilted against us,” Turnbull told me. “The allure of Bondi Beach isn’t enough to make us competitively attractive to the talent we need to attract and retain.”
For 15 years now, Turnbull has been touted as a future Australian prime minister — the Sydney Morning Herald didn’t dub him the “raging Turnbull” for nothing. Now he finally has his chance to rage against the Canberra smugness that’s holding back one of the world’s great economies. I’m convinced he knows what needs to be done.
William Pesek is a Bloomberg View columnist based in Tokyo.