Executive summary



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SCENARIOS FOR AUSTRALIA TO 2025


Table of Contents


EXECUTIVE SUMMARY 3

INTRODUCTION 4

SCENARIO 2: SMART RECOVERY 18

SCENARIO 3: TERMS OF TRADE SHOCK 28

SCENARIO 4: RING OF FIRE 36

LIST OF INTERVIEWS CONDUCTED 45

REFERENCES 45

EndnotesACKNOWLEDGEMENTS 51




EXECUTIVE SUMMARY


In preparation for the 2012 version of the national workforce development strategy, the National Workforce and Productivity Agency (the Agency) has developed four scenarios encompassing a range of plausible alternative futures for Australia. The scenarios have been developed to help deal with the uncertainties involved in assessing future demands for skills. The four scenarios that have been developed are:

The Long Boom: This scenario is based on a quick recovery by the world economy from the uncertainty of 2011-12. Australia prospers through strong demand for resources, agricultural products and services to Asia, particularly China and India. In a restructuring economy, firms adopt productivity-enhancing strategies to remain competitive.

Smart Recovery: The key characteristic of this scenario is instability in global financial markets, which continues until 2014-15. Economic growth accelerates after governments in the United States and Europe constrain the rate of growth of government debt to a path that markets accept as sustainable. Australia moves out of a low growth economy thanks to the power of technology and the adoption of knowledge work as a critical factor in productivity gains and new job creation.

Terms of Trade Shock: In this scenario new global sources of mineral and energy resources lead to oversupply and strong downward pressure on prices. Australia’s terms of trade fall, returning to historical levels, and the dollar loses value. However technology and innovation drive industry restructure and competitiveness, and the other non-mining industries do better.

Ring of Fire: This scenario is a world of ongoing uncertainty and volatility characterised by sovereign debt, bankrupt governments and a string of political crises involving many small shocks. Australia becomes more conservative and protectionist, leading to lower productivity growth and lower economic growth.

In order to estimate the skills needs associated with each of the scenarios, they have been converted into a series of macroeconomic and industry projections. These form the basis for projections of the implied labour market demand for additional skills to 2025.





INTRODUCTION


The Agency intends to publish the 2012 version of its national workforce development strategy at the end of this year. This strategy will necessarily be largely based upon an assessment of Australia’s future need for skills and how this need can most effectively and equitably be met.

The development of skills involves a considerable investment, particularly by individuals, but also by employers and governments, and this investment in education and training often requires these various parties to make a commitment for some years. Realising the full benefits of this investment takes even longer—often a lifetime—so the national workforce strategy must take a long view of future demands. On the other hand, the longer the view, the greater the uncertainties involved.

These uncertainties include the limitations of forecasting into the future labour market. Indeed, it is difficult to forecast with confidence more than just a few years ahead.1

One way of handling these uncertainties is to develop a number of scenarios which encompass a range of plausible alternative futures.2 These scenarios can then provide a framework to assist with:



  1. Analysing and understanding emerging complexities;

  2. Exploring areas of uncertainty;

  3. Assessing interdependence and coherence; and

  4. Assessing ‘what if’ events.3

In contrast to predictions, scenario analysis does not rely on historical data or expect the past to be recreated in the future. Rather, scenarios try to consider possible developments and turning points, which may only be tenuously connected to the past.

The Agency has accordingly developed the scenarios described in this publication to create several plausible future worlds for Australia to 2025. A set of possible future outcomes has been generated and the development paths leading to these outcomes are considered.

These scenarios have in turn influenced the economic modelling of the supply and demand for skills to 2025 that will inform the forthcoming 2012 strategy.

Our intention is that by comparing these plausible alternative scenarios, the significance of different uncertainties can be better appreciated. A comparison of the model results based on these scenarios allows us to identify how much difference possible alternative future developments are likely to make to the demands for different skills and why, and what responses might then be most appropriate.

In developing the four scenarios described here and the related modelling the focal question is: 'What are the key factors driving the demand and supply for skills in the Australian labour market to 2025?’ To answer this question the scenarios have been built up around the following key drivers:


  1. Social, demographic and cultural trends

  2. Economic and financial trends and globalisation

  3. Labour force, industrial and workplace trends

  4. Science, technology and innovation

  5. Governance and public policy

  6. Sustainability (focus on water, energy, population)

Based on our assessment of these key drivers we have developed the following four scenarios which describe four different plausible paths for Australia that could influence the evolution of the demand and supply of skills between now and 2025:

  1. Long Boom

  2. Smart Recovery

  3. Terms of Trade Shock

  4. Ring of Fire.

The Long Boom scenario is based upon a quick recovery by the world economy from the uncertainty of 2012. This occurs through the responsiveness of the market and effective policy adjustments by world leaders. Australia prospers through strong demand for mineral and energy resources, agricultural products and services to the growing economies in the stable Asian region, particularly China and India. High costs of production and changing technologies make it difficult for some traditional employers of low-skilled labour to compete and the Australian economy restructures.

The key characteristic of the Smart Recovery scenario is instability in global financial markets, which continues until 2014-15. The Asian region—including Australia—is not immune. Economic growth resumes again after governments in the United States and Europe constrain the rate of growth of government debt to a path that markets accept as sustainable. The period of low economic growth has, however, a number of enduring effects on skills, the take-up of technology, and improvements in productivity, and has different sectoral impacts. Harnessing the power of technology is a key reason Australia is able to move out of a low growth economy. Knowledge work, requiring increased investment in education and training, is recognised as the most significant contributor to productivity gains and new job creation.

The Terms of Trade Shock scenario reflects a strong supply response to the continuing high demand for resources. But new global sources of mineral and energy resources lead to oversupply and strong downward pressure on prices. Although the ongoing growth in China and India and long-term contracts largely protect export volumes, prices fall so that Australia’s terms of trade falls, returning to historical levels, and the dollar loses value. However the other non-mining industries do better and technology and innovation drive industry restructure and competitiveness. New opportunities are developed in advanced manufacturing.

The Ring of Fire scenario is a world of ongoing uncertainty and volatility. In an interconnected world, boom/bust cycles are more severe and widespread. They are characterised by sovereign debt, bankrupt governments and political crises involving many small shocks rather than a ‘big bang’. Environmental events occur in and close to Australia and their impacts are costly. We respond by being more conservative, with increased saving and reduced consumption, reduced risk taking, and increased protectionism which reduces trade between countries. This leads to lower productivity growth and lower economic growth.

The main characteristics that distinguish these four scenarios principally relate to different possibilities in the development of global economic and political relationships. Three scenarios mainly reflect different possibilities for the rate of development in China, India and East Asia, the stability of world financial markets, and their consequences for global politics, especially in the Asia-Pacific region. The other scenario—the Terms of Trade Shock—also takes account of these factors, but is distinguished by a major increase in the supply of resources which lowers commodity prices and Australia’s terms of trade.

By comparison some of the other drivers have a broadly similar impact on each of the scenarios, which means that there is less uncertainty about their possible impact on the future demand and supply of skills. For example, the demographic ageing of the population is relatively well known and understood, and its impact on skills is unlikely to vary much from one scenario to the next. The composition and quantum of migration does, however, vary significantly across the scenarios, but these differences in migration largely reflect different responses to other features of the individual scenarios. The impact on each of the scenarios from changing lifestyles, social and cultural values, and workforce trends is largely a matter of degree rather than being fundamentally different. Furthermore the differences in this impact again tend to reflect responses to the economic circumstances that are a feature of each scenario. The sectoral impact of these behavioural influences, however, probably accounts for somewhat more difference between the four scenarios.

For the most part, Australia is an adopter of technologies developed elsewhere. It is likely that the technologies that will have a significant impact over the next fifteen years have already been developed, given the lead time involved in major breakthroughs. The biggest technological impact is likely to come as these known technologies are deployed. It is here that the most uncertainty exists in relation to the nature and magnitude of their impact, as well as the speed with which they are adopted and lead to increases in productivity.4 For example, the National Broadband Network (NBN) is expected to improve productivity,5 but it is still uncertain how quickly the effects will be felt or how large or widespread they will be. The speed of adaptation will be heavily influenced by the economic environment and its impact on government and business behaviour. And again for this reason, the sectoral impact of technology in the four scenarios may be more marked than the aggregate impact.

The response to sustainability issues, such as climate change impacts, is also expected to be broadly the same across all scenarios. There will be some response in each scenario, with the key difference being in the speed of adaptation. This is strongest in the Long Boom, while government action would probably be constrained, limited by fiscal capacity and the cost to business of tough regulation, in the Ring of Fire scenario.

For the most part, government capacity to respond to the challenges imposed by each scenario and achieve good policy outcomes is potentially an independent variable. However, this capacity is also heavily influenced by the specific circumstances of each scenario. In addition, government capacity to bring about change is uncertain. On the one hand, favourable budget positions associated with strong economic growth make it easier to compensate the disadvantaged and thus to ‘buy’ change in areas like responding to climate change or the development of skills. On the other hand, some painful changes involving industry restructuring or workplace ‘reform’ may be opposed until sufficient people are persuaded by deteriorating conditions that there is ‘no alternative’.

Structure of this document and next steps

This document contains the four scenarios outlined above in full. At the end of each of the four scenarios, there is a summary of the factors that drive the economy and employment up in that scenario, as well as factors that drive the economy and employment down.

The Agency is publishing these scenarios and the associated economic modelling alongside a discussion paper to aid the development of the 2012 national workforce development strategy, planned to be published before the end of the year. These can be found at http://fwapn152:9081/national-workforce-development-strategy/2012-workforce-development-strategy/2012-workforce-development-strategy.html.
SCENARIO 1: THE LONG BOOM6

Introduction

The world centre of gravity shifts back to Asia by 2025. China, India and Indonesia comprise three of the four most populous countries in the world (the other is the US) and India is set to surpass China as the world’s most populous country. Despite setbacks along the way, China emerges as a world economic and political power, its economy at least four times the size it was at the beginning of the scenario period.

The Indian economy is driven by an astonishing demographic dividend — a youthful population.7 The average age of an Indian in 2020 is 29 years, compared to 37 for China and 48 for Japan. India has a huge and growing middle class and makes a major investment in education, training 500 million people in vocational skills between 2012 and 2025.8 By 2025, 200 million Indians earn on average more than the average Australian.9

In this world, China remains our largest export market for a range of exports including higher education, iron ore, coal, liquefied natural gas (LNG) and food products and is the largest source of migrants.10 The success of the Chinese economy is critical to the success of our resources sector and the multitude of services and technologies that supply it. Following hard on the heels of China is India which has implemented a huge infrastructure construction plan to meet their needs for roads, railways, ports, airports, electricity grids and generation capacity, spending on average nearly US$200b per year in partnership with the private sector.11

The Global Financial Crisis proves to be a turning point, with economic and geopolitical consequences. The Chinese and Indian economies surge ahead. China, in particular, relies much more heavily than in the past on domestic demand and less on export demand to propel its growth.12

During the scenario period, Australia’s terms of trade declines moderately from the historically high levels of 2010-11.13 The Australian dollar also remains high, though declining moderately over time. Capital deepening is intense. Increased saving by government and households exerts further downward pressure on the exchange rate as reliance on foreign capital inflow is reduced and there is less pressure on our interest rates relative to overseas.



This is a story of economic success and prosperity for Australia beginning in 2012.

The reports of debt problems and political instability in Europe and the US dominating the headlines of 2011 have dented our confidence in the banking system and the ability of governments to address critical national financial structures. This in turn has impacted our appetite for risk, our savings and investment behaviour, and hence the prospects of economic growth. We have been forced to recognise how complex and interdependent the global financial system is.



It is a clarion call to governments everywhere. As a result, credible plans for restructuring are produced, backed by continued progress in reducing public and private debt to GDP in the advanced economies and realignment of exchange rates. The European financial crisis is stabilised and later resolved. Strong global economic growth ensues.

In Australia, our appetite for risk and investment turns upwards and savings levels are high.



China and India together create a huge demand for mineral resources, especially coal and iron ore. Australia is well placed to supply large volumes of these commodities efficiently. This is due to our high quality resources, efficient infrastructure and globally competitive companies. Australia benefits from the high prices and volumes. Mining companies invest in exploration and mine development activities as well as land restoration and rehabilitation. There is also investment in Australia’s science and technology in areas such as automated mining, robotics and deep sea engineering.

Critical to our prosperity is China’s success in growing its domestic economy, beginning in the first decade of the 21st century, as urbanisation, development of urban infrastructure and the fast pace of industrial development drive the Chinese economy forward at an astounding rate. Growing its domestic economy allows China to absorb its own production and to better balance its trade with the US in particular, providing an improved basis for sustained economic growth.



Government is well funded. Australians benefit from taxation of the highly profitable resources sector and the many businesses that support it, as well as businesses successfully serving Asian markets. The government benefits from near to full employment and strong taxation revenues on property, goods and services, as well as a modest minerals resource rent tax on iron ore and coal. As a result, it is able to spend on infrastructure, services and welfare and meet electoral demands and expectations, while also adding to national savings.

But this is not a time for governments to undertake transformation, vision or paint the big picture—there is simply no reason to take the risk of implementing difficult reform. Citizens are content—we are the lucky country. For citizens, the high Australian dollar means lower costs of imported goods and the attractiveness of overseas travel. People feel wealthy. We have spending power online and overseas, and the housing sector is reasonably buoyant.

Our government uses its financial strength to address the availability of public services and their efficient delivery. Businesses facing competitive challenges in a high cost economy equally embrace opportunities for productivity gains and for new products and markets.



Australia experiences skill shortages that drive up wages. Immigration is a key source of skills. Skills shortages have made human resources a strategic agenda in organisations and placed the HR manager at the top executive table. Organisational capability and capacity is a source of competitive advantage. The best companies compete for the best employees, with in-house training, fitness and social responsibility programs as well as strategies to better use the existing skills of their workers to aid retention. These companies are also innovative and use technologies to drive efficiencies.

But our needs outpace the supply of people with the required skills, and high levels of migration, both temporary and permanent, are essential to supplement domestic supply. Net overseas migration declines slightly later in the scenario in line with the moderating terms of trade. China becomes the biggest source of migrants, followed by India and then the UK.14 The Australian population is culturally diverse and benefits from the entrepreneurial drive and higher level of labour-force engagement of second generation migrants.15



Unemployment is low, jobs for lower skilled workers are available and older Australians can choose to work if they want to. Australians have many opportunities to work although some work is in regional and remote locations. Low-skilled people enjoy access to work in domestic, aged care, health, leisure and hospitality services sectors driven by a retiring and ageing population with the ability to pay and a younger generation willing to spend freely on experiences, entertainment and dining out. However there is an increasing gap between highly skilled and low skilled workers — the skill ‘haves’ enjoy a strong position in the labour market while skill ‘have nots’ are increasingly trapped in low wage employment.16

Most mining companies have Indigenous training and employment programs. They lead in this area, taking advantage of the youthful and growing Indigenous populations in remote and regional areas but find difficulty in training sufficient numbers to meet their needs. They open themselves up to criticism of poaching from employers in other sectors that have invested in training. Opportunities for women’s participation grow, partly due to the traditionally higher participation of women in the care and health services sector and increased participation in the highly remunerated resources sector.



These are boom times for the construction industry. Investment levels are high and new infrastructure is needed. The resources sector brings resources on stream rapidly to take advantage of high resource prices, investing in the infrastructure of logistics, ports and railways. Governments flush with money invest in infrastructure to support the settlement of migrants and to maintain the efficiency of cities.

Regional and rural economies are buoyant. They benefit from government spending and from a strong agricultural economy even as input costs of energy and water rise. The broadband capacity created through the NBN also benefits regions economically and socially as it allows improved access to the online world.

But benefits are distributed unevenly. The recruitment of skilled workers on temporary contracts and a fly-in, fly-out basis for mining regions creates pressure on local communities. The benefits of the NBN can only be realised from innovation and enterprise which is missing in some regions and more prevalent in others.17 Responsiveness to the opportunities to innovate is often linked to the presence of an innovative university or training institution in the region.18



Australia benefits from compulsory superannuation legislation, building a very large national savings pool that injects investment funds into Australia and internationally, as well as ensuring improved retirement incomes for Australians. Reasonable performance of the super industry, especially from investments in the resources and finance industries, maintains the value of investment portfolios and the confidence of individuals in their personal finances.

Underpinning the scenario is the economic and social success of foreign direct investment (FDI) from Asia, as well as the political stability of the region. Worldwide, Japan, India, China, South Korea and Taiwan are among the top ten origin countries for FDI.19 The Chinese five year plan achieves its objectives in the 5 years from 2012, facilitating inward investment and trade and internationalising the yuan, and very large foreign direct investment abroad by business and individuals follows. The five year plan also sees the emergence of a services and high value technology and engineering capability that China exports to the world.

Australia offers a stable AAA investment rating and is among the top twenty destination countries for FDI.20Australia continues to attract a large proportion of this investment into mining, agriculture and property. This investment brings with it an increased utilisation of Chinese engineering and fabrication capacity in building Australian infrastructure.21 By 2015 China’s development is less resource intensive,22 but by then Australia is deriving benefit from the growth of other Asian economies, particularly India and those resource exporting countries that have become wealthy by supplying Chinese demands for food and resources.

Wealthy Chinese become great consumers of high fashion global brands and invest in real estate around the world.23

On April 15th of 2011 the Economist reported:

“Developing countries are becoming hotbeds of business innovation...they are coming up with new products and services that are dramatically cheaper than their western equivalents: $3000 cars, $300 computers and $30 mobile phones that provide nationwide service for just 2 cents per minute. They are reinventing systems of production and distribution, and they are experimenting with entirely new business models.”24

Why? Because they are dreaming bigger dreams — driven by a mixture of ambition and fear...ambition to bestride the world stage and fear of even cheaper competitors in, say Vietnam or Cambodia — they are relentlessly climbing the value chain.25



Climate-related events continue to grow in frequency and financial/economic cost. Increasingly wealthy societies are concerned about a range of environmental and resource scarcity issues—climate change, peak oil, food security, and biodiversity. A cashed-up government and a reasonably prosperous private sector respond. There are good economic motivations to address these pressing issues.

The high cost of resources motivates resource-intensive industries and countries to become less resource-dependent. China in particular commits to environmental technologies and carbon reduction to build capability that is now exported around the world. China is also one of the leaders in low-material manufacturing innovation.26

This is also a story of a population ageing in style. Older baby boomers want to work longer and they have many opportunities. They engage in retraining, they actively pursue hobbies, health and well-being, and they can afford it. This generation utilises reverse mortgage schemes rather than forego lifestyle choices. But inevitably, by 2020 they are slowing down and moving out of the workforce in large numbers.

Many new economic activities and opportunities are driven by the aged baby boomer cohort, not least because the populations of Europe, Japan, US and China are also ageing, facing similar challenges and presenting similar opportunities. There are more jobs in health, home and aged care. The care sector professionalises, embracing training, quality and assurance systems, OH&S and risk management, logistics and utilisation of communications technologies.

Government partners with the private sector to ensure adequate aged care facilities and also provides subsidies for accommodation and servicing to non-profit providers, state housing authorities and local governments. Significant construction activity is triggered by the need for accessibility and safety in public places and for aged accommodation and retrofitting of individuals’ homes.

The costs of an ageing population take an increasing share of the budget, particularly health costs, but are affordable because government budgets are healthy. The dependency ratio is maintained at low levels due to Australia’s highly responsive temporary skilled immigration policies, the numbers of work opportunities for older workers, and the investment to improve the employability skills of those people on the margin of the workforce.



Yet even as these boom conditions prevail, restructuring presents a challenge.

Employment is high, output growth is strong in our mining and agriculture sectors, revenues are good, there are funds in the budget to spend on electoral promises, but pressure grows for government to address the loss of competitiveness in key sectors.

In a restructuring economy, a significant number of businesses in the large employer and traditionally lower-skilled sectors face challenges from international competition, exacerbated by the high Australian dollar, particularly in the early years of this scenario. Tourism and manufacturing suffer. Education exports are challenged by both the high Australian dollar and by technology. Firms adopt productivity-enhancing strategies to remain competitive.

Access to the economic advantages of the long boom is not available to everybody. Those with health problems, restricted mobility and family responsibilities are unable to move to where jobs are located and are impacted by the loss of jobs in manufacturing.

Boom times result in high returns to investors and owners of successful businesses and large salaries and rewards to executives, amplifying the wealth differential between the well off and the less well off. Government is challenged to ease the burden of structural adjustment and ensure a fairer sharing of the fruits of faster economic growth.



The downturn in enrolments of overseas students impacts the budgets of education institutions. Education provision in VET and higher education is financially dependent on high numbers of overseas students. As a result of continuing high exchange rates these providers face significant revenue adjustments.

And in addition global competitors who take advantage of online formats compete with Australian providers. Where education providers excel in world competitive terms, students continue to be attracted to Australia, but the US is a more prestigious and lower cost option while the Australian dollar remains high, and US higher education providers are globally aggressive in attracting students and revenue while the economy is in recovery mode.27 Online offerings from prestigious universities in the US with access to some of the best-known experts in the field challenge higher education providers. The result is that key employer and some traditional export earning sectors face a low growth future.

Other obstacles exist and new challenges are emerging.

Despite the many commercial opportunities in Asia, Australia’s success there is compromised by commercial, legal and cultural differences and conditions which make market entry a long term, patient and often costly exercise.28 We come to grips with the challenges of the ‘Asian century’ and build the business, language and cultural skills we need for doing business in the region.

The strong mining sector, in any case a small employer, addresses skilled labour shortages through increased automation. Growth in mining drives demand in the construction sector which increasingly meets its skills needs through temporary migrants.

Short term migration, which critically supports high labour market flexibility, is less certain. There is competition for skills from other countries experiencing their own economic success and with requirements for health and care workers driven by ageing populations.29 Repatriation of earnings is not as valuable as wealth increases in nations supplying migrant workers to Australia. The loss of a secure supply of skilled overseas workers is important to many sectors and supply of skilled medical professionals, trades and engineering occupations is at risk. Employers now know that alternative sources of skilled people are needed.

Workforce participation is high but uncertainties in the supply system, including the impacts of the ageing baby-boomer cohort, are increasingly felt as the decade progresses and most keenly from about 2020. Work-life balancing reduces intensity of work and fertility rates increase, reducing women’s participation in the 25 to 34 year old age group.30

We know the maximadversity or change stimulates innovation, risk taking and investment in new strategies and market opportunities.

Some of the stimuli for change are environmental change, energy costs, weather and natural disaster events, and the impacts of the high Australian dollar on trade-exposed activities.



The challenges of technology-forced change result in new innovative approaches and stimulate new business models and strategies. Technology has transformed the market models of many traditional activities. Major impacts have been felt by retailers, publishers, the business travel industry, higher education providers and shopping centre owners as online and video conference technologies replace traditional approaches. However, technologies enable some Australian companies to redesign their business model, invest in viable, niche manufacturing activities and engage in incremental innovation for productivity gains. Capital is available along with optimism and confidence, and Australian business takes on the challenge of change.

Critically, the investment in innovation, scientific and technological adaptation and the attendant skilling and jobs creation is possible largely because of the restoration of economic and financial stability which makes financial investment in these activities viable. In addition government has funds available to assist. It maintains vocational education and training and higher education providers in regional areas and invests in employability skills and return-to-work programs for long term unemployed. Regional and industry-specific assistance packages are developed. These also ensure that mining companies’ purchasing strategies benefit qualified local manufacturers.

Sectors that particularly benefit from technology include environmental intelligence, modelling and management, energy, education, health, military and transport.31 The strong public budget situation means that ongoing investment in science and technology can be sustained in schools, universities and vocational education and training.

Companies in the manufacturing, education, agriculture and tourism sectors invest in innovation, new product development, more productive processes and the creative strategies required to meet the challenges and opportunities of ongoing development and change in our Asian region.

Energy costs rise due to demand and supply factors and the price rise acts as a stimulus to innovation and investment in operational and logistics efficiency improvements, reduced energy-intensive processing and alternative energy sources. Households respond by investing in energy efficiency and smart energy management systems and appliances.

Damage from extreme climate events makes investment in rebuilding necessary and pushes building standards to higher levels to improve bushfire, drought, flood and storm resilience through the application of materials science, design, stormwater and grey water technologies and engineering. The economic costs from extreme weather events are partly offset by the stimulus spending that follows and the opportunity to redesign and re‑engineer critical infrastructure to promote both resilience and efficiency.

Water quality, soil quality, land erosion and salinity, reforestation, land restoration, plant species and wildlife protection, national land and marine wildlife reserves, and increased awareness of biodiversity continue to be significant challenges. These environmental challenges particularly affect our tourism, agriculture and forestry sectors, and Australia’s scientific research agenda is re-directed towards addressing them.

Our universities and vocational education providers go online with a student-centric offering priced to be accessible throughout Asia.



The Chinese economic miracle also brings with it changed circumstances. Higher labour costs in China change the economics of manufacturing32 and some manufacturing and resultant jobs swing back to Australia.

Thus through these turning points the character of the long boom alters in response to the excesses and disparities it has engendered.

Drivers of the economy and employment: Up

  • Financial stability returns internationally as credible plans for resolving debt problems are agreed and implemented.

  • Rapid urbanisation and industrialisation in the populous countries of China and India drives demand for mineral resources and energy ahead of global supply capacity and high prices are sustained.

  • Australia’s mining companies are efficient and able to respond to the demand, exporting large volumes and investing in new developments.

  • Global supply capacity is slow to respond and match the quality of Australian resources.

  • Alternatives to coal-fired energy are not available to meet the level of demand.

  • The Asian region is stable politically and socially.

  • Developing Asian countries create demand for protein-based and western-style food and fashion and branded products, and for professional and scientific services.33

  • The population grows due to migration and higher fertility in good economic times, though the growth moderates over time.34

  • The economy is strong and job opportunities are available in the mining sector and related construction activities. However, increased automation and continued use of temporary migrants reduce job opportunities in the sector.

Drivers: down

  • A significant number of businesses in the large employer and traditionally lower skilled sectors face challenges from international competition.

  • Due to global competition for skilled labour, short term migration, which critically supports high labour market flexibility, is no longer assured.35

  • Location of many resource sector jobs is distant from urban populations and Australia’s geographic labour force mobility is low.36 Skills constraints, particularly relating to specialised and experienced people, occur elsewhere in the economy as the labour is lost to mining and related construction.

  • Climate-related events continue to grow in frequency and financial/economic cost.

  • The downturn in enrolments of overseas students due to the higher dollar impacts the budgets of education institutions.



SCENARIO 2: SMART RECOVERY


Introduction

The boom has left a long legacy. Australia’s short history is a history of boom and bust. However the more than decade-long boom preceding the onset of the global financial crisis has created a sense of entitlement to the benefits of high levels of government spending, middle class welfare, secure jobs and strong property markets appreciating the value of the family home and the spending power of a high Australian dollar. Productivity has fallen,37 and technology take-up and innovation is below other comparable economies.38

Australia avoids a recession in the years immediately following the Global Financial Crisis. But the protracted downturn in Europe and the instability in global financial markets cause investors to be skittish, lenders to be risk averse and consumers to be cautious. These are the harbingers of the further stalling of the economy. Then the Chinese and Indian economies slow for a few years, as China responds to inflationary pressures and adjusts to lower export growth, while India’s limited capacity to pursue reforms reduces its growth potential. The demand for Australian resources slows, Australian economic growth is patchy, and unemployment edges up. Australia’s terms of trade also moves lower.



However this is not a permanent situation. Governments in the United States and Europe constrain the rate of growth of government debt to a path that markets accept as sustainable and global growth resumes around 2015. The restoration of economic stability and government momentum in Asia allows it to resume strong growth, and after some time in the doldrums, demand for our resources and services recovers strongly and new market opportunities emerge. As a consequence, the Australian economy recovers in 2014-2015, returning to strong economic conditions. The terms of trade turns upwards and shows steady growth, though not reaching the historical highs achieved around 2010-2011.

Australian companies and government are challenged by the period of relative economic stagnation to improve productivity. Policies addressing weaknesses in productivity and supply of skills, and the adoption of new technologies and other innovations, create a revitalised knowledge economy.39 Australian businesses successfully execute strategies to achieve international competitiveness. This proves to be key to sustaining the subsequent upswing.



But the world has changed. The low growth in the Australian economy changes the number, nature and location of jobs and when the upswing happens, jobs are different and some participants have exited permanently. Any competitive advantage Australia had in tertiary education, mining sciences and technology and professional and technical services is challenged by the competitive models of China.40 Environmental impacts call for new approaches to systems of production. As well, the very low prices for products and services from low per capita income and populous nations are a disruptive force for all business.

This is a scenario where the Australian economy is patchy.

This century, the economic condition of Australia is closely coupled to the performance of the Chinese and Indian economies. The Australian economy benefits from high demand for Australian resources and agricultural products and very high pricesgreat for the mining sector and the many businesses that serve itbut not so good for others. The resultant high terms of trade increasingly undermines Australia’s price competitiveness in the education, manufacturing and tourism sectors.

Australia has weathered the Global Financial Crisis comparatively well. Yet instability re-emerges in the global financial markets as the underlying debt problems in the US and Europe and slower growth in India and China continue to bite.

In retrospect nobody is surprised by the further slump in our fortunes. The catalyst is the failure of European governments to stabilise and then resolve the government debt to GDP crisis affecting their economies, which leads to a more general loss of confidence in financial markets that spreads across the globe. Prior to and during the downswing, the Euro zone and the US work through the long tail of structural weaknesses in their economies revealed by the onset of the Global Financial Crisis. The US reliance on Chinese investment in their bonds causes the US to call on higher domestic consumption in China and opportunities to rebalance the exports between these two countries.

The response of leaders is disappointingly slow and inadequate in view of the size and complexity of the problems, and the downturn remains unresolved for some time. Confidence in US financial markets which has been built upon the hope that they will be capable of rapidly fixing these problems proves to be ill founded. Investors see their savings erode as share markets decline around the world back to levels of a time well before the Global Financial Crisis. Exchange rates decline and private savings rates increase (albeit from constrained incomes). Capital deepening is reduced.

But several other important factors are also in play: Chinese economic growth slows considerably. India proves to be unable to pursue necessary regulatory reforms and slows too. Reduced demand for resources also slows the potentially very large Indonesian economy.

Australia’s deteriorating economic conditions until 2014-15 cause significant outflow of capital seeking ‘safer economic havens’ with less exchange rate risk.

Stalled economic growth over the next few years impacts sectors and states unevenly. The resources and construction sectors experience cyclical instability. The large, highly efficient and well-capitalised resources companies and mines continue through the period, experience lower prices but are profitable. However, without the stimulus of stellar prices to accelerate supply capacity, these companies cut back and postpone their development plans, unable to justify so much capital expenditure at the lower resource prices.

Retail is under significant pressure from a number of fronts: an ageing population has different needs; loss of consumer confidence and financial well-being in the post Global Financial Crisis world spawn the value shopper and online trading; consumption behaviours change. Online retailing grows by more than 12 per cent per annum five years in a row at the expense of in-store sales.41 Australia’s share is substantially depleted when the Chinese manufacturers flood into direct online selling—quality fakes on line for a fraction of the price of the real thing. Brand value is difficult to defend. Traditional retailing shrinks; shops are replaced by collection points for goods shipped from around the world; the new retail experience is costly, highly personalised and culturally sensitive.42 The high street becomes accessible and reliant for its viability on entertainment and social experiences.

Domestic tourism turns down and numbers of tourists from China fall due to slower growth in China, although visitor numbers (including tourists and students) from other destinations increase due to the low Australian dollar. Working holidays are more attractive so backpacker numbers increase but this is a two-edged sword as backpackers and students take jobs otherwise available to less skilled workers. While there are good returns from agriculture, the application of science and technology to production, processing and manufacturing of agricultural products means this has little impact on the creation of low-skilled jobs.

Sectors which were previously negatively impacted by the high terms of trade do better when the economy stalls, having already made some tough adjustments. Some hard-hit companies in the remainder of the economy fold or move activity elsewhere in the world. They cut costs, reduce staffing levels and move to contracting and casual and part-time employment. Long term unemployment grows and remains high.



But there is a limit to how far you can cut before you no longer have the resources and capacity to regrow. Business has already made tough adjustments and now they need to find a means of competitive advantage in a low growth economy. They seek to introduce new technology and redesign processes to achieve productivity benefits and gain competitive advantage. But finance is difficult to get, exacerbated by the prolonged European and US financial crisis. It is also highly conditioned and expensive. These companies are however better prepared for the upswing in 2014-2015 as confidence returns. Dramatic and short sighted responses have led other companies to reduce their resources to the point where they have lost capital: human, intellectual and organisational. When growth prospects re-emerge, they are slow to respond and in the intense competition for people and knowledge that ensues, these companies are left behind.
From the gloom there is some unexpected good news. Regional areas benefit from access to the online world of social and economic activity as a result of the broadband capacity created through the NBN. This force for change works in tandem with changed work opportunitiescasual and part-time work and work-from-homeand the search for low cost housing to bring more people into regional areas and create revitalised, if relatively poor, regional communities. The Government reinvests modestly in energy, rail infrastructure and rolling stock, and invests, under pressure from the community, in industry and regional assistance despite the fiscal constraints it faces.
Some sectors remain globally competitive. The Australian agriculture sector is competitive when the economy stalls as is the Australian overseas education sector. Many of the skilled labour supply pressures are reduced by the economy stalling. This is a boon for the growing health and care sectors, which are now able to recruit in a less tight labour market.
Despite the low growth, the resources sector continues to do well. Producers still benefit from fixed prices, and many new projects were already scheduled before growth slowed. Project construction continues and there are skills shortages in some areas. However with slower than expected growth, new projects are not considered until 2015, with considerable lead time to follow before they come on stream.

Government struggles to meet the electorate’s expectations with a reduced revenue base. All sources of tax revenue are reduced, stretching the budget—also stretched by the costs of an ageing population, particularly health costs and retirement pensions. Poor performance and budgetary difficulties in the first few years of this scenario force the government to review middle-class welfare. Older Australians would like to work to provide for their retirement, but the jobs are few and many find themselves retiring early. State and Federal budgets are also stretched to meet the costs of adverse environmental events—bushfires, floods and coastal erosion, including the additional costs of meeting expectations by the community that government would underwrite the costs of these events.43 Government in straitened circumstances cuts funding to health, care and community services.

While the economy stagnates, Australia reduces permanent migration, but migration increases again when growth is stronger. Birthrates slow as the economy turns down. Unemployment leads to a harder line by the electorate on numbers of permanent migrants per annum and numbers sink but recover quickly when growth improves. The flexibility of temporary skilled migration policies, student and working holiday visas is key to meeting Australia’s fluctuating skills needs as they are able to be ‘turned off’ when jobs are few.

Women are active participants in the labour force. This is partly driven by financial need, the decision to delay childbearing because of tough economic times, and the availability of jobs in care, health and domestic services sectors, but other long-term influences are at work. The growth rate of women’s participation is higher than men’s. Culturally, attitudes to women in senior positions are changing. Women are occupying many management and technical roles, earning high salaries and influencing company family and childcare policies and flexible work arrangements. A better balance between work and family, health and well-being is achieved for both women and men, resulting in a modest downward adjustment in the average hours worked.

As Australia’s ageing population prepares for a long and healthy retirement, the performance of their savings and the efficiency of the superannuation and financial services industry changes plans and expectations. Poor performance of the share markets and of superannuation investments up to 2015 bites into the savings of the near-to-retirement population, and many investors exposed to the mining boom lose out as a result of taking a big bet on the future of the Chinese economy. Poor and unpredictable returns until 2015 generate a low tolerance for risk, increased regulatory scrutiny and a preference for value preservation. With the fall in the value of superannuation funds, fewer retirees are fully self-funded and their incomes are lower. There is a greater reliance on the government pension. Postponement of retirement is not an option as jobs are not there. The aged baby boomers move into long retirements in reduced circumstances and they are not happy.

The sheer size of funds under management is an opportunity for Australia.

The size of Australia’s super industry creates an ongoing search for investments that produce sustainable returns.



And then the economy turns up...

The upswing begins when the European financial crisis is stabilised as credible plans for its resolution are introduced leading to a continuing reduction in the ratio of debt to GDP in the advanced economies, and the Chinese and Indian economies recover. Once again Australia is tied to the fortunes of these populous countries and their fast-developing economies.

Government and industry leaders play a significant role in stimulating and driving the upswing. High and increasing demands on the health system, aged care system and the need for governments to find productivity improvements pressure governments to find new solutions. Disenfranchised workers, particularly older baby boomers feeling pushed out of work by the poorly performing economy, use their voting clout to demand action by government to ensure services delivery and to restore a strong economy. There is recognition that government has to act or it will face defeat. Faced with a loss of competitiveness there is general agreement that businesses need to improve their use of skills and to respond quickly to market changes and global market competition.

Productivity and innovation are necessary. Employers need to look beyond cost cuts and retrenchment of labour. What is required is investment in innovation and renewal. Capital deepening focuses on human capital development. Creative and strategic people find their way back into management positions and boardrooms. The value proposition that organisations have delivered historically is no longer sufficient to take them into the future. A new game strategy is required and to deliver it, technologically literate, innovative and strategic people. Investment in people, skills and the organisations that enable them to contribute and prosper as individuals are good bets while the economy is stalled up to 2014 -15. When the economy recovers these forward-looking organisations are the first to exploit and benefit from the opportunities.

Knowledge work is recognised as the most significant contributor to productivity gains and new job creation. Merely paying lip service to this is no longer adequate. It is further recognized that breakthrough innovations and creative strategic thought are imperatives for competing in the global economy. This proficiency in knowledge working, especially utilizing new technologies, is a necessary criterion for most jobs. It is very hard for people who cannot demonstrate this proficiency to find skilled employment.

“The great tension here arises at the political level. Over time, the world’s rebalancing demands greater consumption and lower savings among the large developing countries, even as developed ones, the United States foremost among them, save, invest, and export more. Fostering policies that raise productivity, and avoiding or altering polices that impede it, will help ensure a smooth transition. Getting this wrong—failing to generate at least modest and broad-based continued income and employment gains in developed countries—raises the odds of a political backlash that will hurt the citizens of wealthy nations and of those moving up the wealth curve alike…

“To eke out even modest GDP increases, OECD nations must achieve nothing short of Herculean gains in productivity. In the 1970s, the United States could rely on a growing labor force to generate roughly 80 cents of every $1 gain in GDP. During the coming decade, assuming no dramatic increase in hours worked, that ratio will roughly invert: labor force gains will contribute less than 30 cents to each additional dollar of economic growth. To maintain a GDP growth rate of two to three percent a year, productivity gains will have to make up the other 70 percent…

Companies across the globe consistently cite talent as their top constraint to growth…

“In the United States, for example, 85% of the new jobs created in the past decade required complex knowledge skills: analysing information, problem solving, rendering judgment, and thinking creatively. And with good reason: by a number of estimates, intellectual property, brand value, process know-how, and other manifestations of brain power generated more than 70% of all US market value created over the past three decades...

“But in the end, the real game changers will be breakthrough innovations created by companies: history shows that a majority of productivity growth—more than two-thirds—comes from product and process innovation.

The productivity economy will reward ‘do it smarter’ companies that build a better business model.

“Besides providing powerful incentives for companies to deliver their traditional products and services more efficiently, the new environment may make selling productivity—finding marketable ways to ‘do it smarter’—the most transformative business model of the next decade. This push is bound to have a ‘no pain, no gain’ dynamic. Innovation, by definition, is a disruptive process.”44


Critically harnessing the power of technology and associated improvements in the supply and use of skills are the key reasons Australia is able to move out of a low growth economy. Technology precincts become popular in urban locations where critical mass can be achieved. The opportunities for enhanced productivity cross public and private boundaries and are systemic in nature. They include: smart power grids to reduce loss over the grid; smart homes and buildings to manage and reduce demand for power; intelligent transport systems to synchronise between different transport modes and services and to manage existing road networks to reduce the need for new capital works; online services delivery of documents, permits and information to reduce operating costs; identity management to reduce the incidence of fraud and identity theft; smart campuses to increase the reach and effectiveness of teaching particularly at tertiary level and to reduce capital items such as large lecture halls; smart emergency response systems; and an electronic health record and electronic patient tracking systems to allow information to be collected and used.

The path to achieving these outcomes is a particular challenge. Ownership is vested in public and private sectors, there are multiple and often conflicting objectives and complex systemic risks, and the government has less money to invest. Government needs to bring new skills in designing and facilitating cooperative projects and aligning various interests in the outcome. Many of these projects address enormous problems being faced elsewhere in the world, and the opportunity available to Australian governments is to work with Australian research institutions and industry to create new businesses that are global leaders. The productivity gains are very significant for the Australian economy and public sector spending. But rational and sensible thinking alone is not sufficient to cause these significant projects to happen. Despite a lack of funds, government is coerced over the line. The economy slows, recovery is extremely challenging, some really big ideas are needed and the success of one big government idea, the NBN, is encouraging.

Sensing technologies, new battery technologies, new materials science, solar and wind power technologies and micro and nano-technologies are complicit in these smart system projects and Australia has strong research capacity in many of these fields.45

But it is a different Australia that emerges. Technology, a critical driver of the return to prosperity, also reduces the need for people in workplaces through increased mechanisation, use of smart technologies and redesign of work processes.

Sensationally described as a jobless recovery, it is also a recovery that calls for people with higher levels of skill. The world has changed. Australia’s competitive advantages are different and need different skills, in science and technology and in complex decision-making. Australian battlers are angry, unemployment stays relatively high and the disparity between high and low incomes increases, bringing with it distrust of those in positions of authority on high incomes. As the economy improves post 2015, employers are faced with the need for highly skilled workers and government faces social and economic disparities and an increasingly divided and unequal community.

Workers retrenched in the low growth phase lose confidence, and the longer they are without work, the more their skills are depreciated and their attitudes entrenched. These people are not able to and do not return to work voluntarily. The government needs to make a very large investment in reskilling, and in family- and older worker-friendly workforce engagement policies.

It is not easy. Australians have done it hard for the best part of 10 years and then when the economy turns up, the opportunities are going to a few highly skilled and well paid people—and some of them are from overseas. It isn’t a fair go!



Without enough skilled workers for the jobs that are now needed, Australia’s dependence upon the temporary skilled migration program deepens but at a time when the economies of the source Asian countries are also growing again. The temporary migration system has significant value as a skilled labour ‘buffer’ but it is less assured.

The cycle upswing means a boom for childbearing and related services, as occurred in the years 2005 to 2009.46 Delays to childbearing during the economic stagnation reverse when the economy turns upward. Women who have postponed childbearing are now having children at the same time as the younger group of women reaching childbearing years. This has the effect of a boom for birth-related medical services, childcare, retailing for babies and children. Importantly for governments, this impacts the numbers and location of pre-schools and schools.
Drivers of the economy and employment: down

  • Protracted downturn in Europe, global instability in international financial markets, lower interest rates, $A comes down to 75c in late 2014.

  • Chinese and Indian economic growth slows with China growing at 5 per cent.

  • Australia’s productivity growth continues to be poor during this period.

  • Environmental events cost the economy dearly and hinder production in agriculture and mining sectors and the performance of the tourism sector.

  • The underlying cost base for business risesenergy and utility costs rise, the best skills are lost to mining, the IR environment impacts productivity improvements and pay levels,47 administration of the carbon tax is costly—all affect commercial overheads.

  • Poor performance of the stock market and lowered interest rates reduce returns on savings and drive $A down.

  • Risk-averse business and population move to a low credit environment and capital investment and investment in growth is replaced by cost reduction, overhead removal and fiscal restraint.

Drivers: up

  • Over time, exchange rates are adjusted and governments’ debt to GDP declines.

  • The upswing then begins as the Chinese and Indian economies resume strong economic growth. Domestic demand rises in China driven by targeted policies and increasing personal wealth, and as a result China achieves a greater balance between domestic savings and investment, with greater local consumption, reduced surplus savings to invest overseas and greater consumption of US exports.

  • The terms of trade and the $A recover much of the lost ground from 2014-2015. Once again Australia benefits from the fortunes of these populous countries and their fast developing economies.

  • Australian governments and industry leaders provide leadership in achieving productivity gains in public and private sectors.

  • Australian businesses successfully execute strategies to achieve international competitiveness.

Drivers: down after the recovery

  • Technology changes the nature and number of jobs, and Australia encounters what becomes known as a relatively jobless recovery. Many low skilled workers are trapped in low skill/low wage work or out of the labour market altogether.

  • Responding to domestic social, environmental, economic and technological challenges of a huge scale and complexity, China and India build and mature their professional services and industrialised manufacturing sectors.

  • Baby boomer Australians have separated from the workforce and are not capable or confident to return.

  • Skilled people from populous Asian nations respond to their own economic opportunities in the upturn, and become a less predictable source of skills to buffer our economic cycles.



SCENARIO 3: TERMS OF TRADE SHOCK


Introduction

Once again we have ridden on the back of our high quality resources, benefiting from the extraordinary economic and industrial growth of China for nearly two decades since the mid 1990s. It has been a ‘bet the farm’ strategy, especially when evidence of the extent of restructuring has highlighted the vulnerability of sectors of the Australian economy exposed to the high terms of trade.



Manufacturing, tourism, agriculture and traded education have been the big losers. The loss has been particularly keen in manufacturing, where science and engineering skills and knowledge accumulated over generations have been lost. Primary producers in some areas, unable to compete with overseas suppliers, and larger more efficient producers, have been forced off the farm. Many Asian investors have benefited from low-priced agricultural assets as a result.

Three critical global factors influence the events that unfold in this scenario. One is the re-rating of the Australian dollar resulting from ongoing uncertainty in global financial markets. Another is competition from other resource producing nations, facilitated by Chinese investment into technologies and infrastructure in these nations. The third is geopolitical issues in our region.

These forces for change were very much on the radar of global business in 2011. They were already participating actively in global supply chains and joint ventures. Australia’s global resources companies were well able to take advantage of these opportunities, but it meant very little for the Australian economy.

From 2015, Australia’s terms of trade drops rapidly below the historically high levels of the previous decade, stabilising in around 2018. The Australian dollar follows suit. This is the opportunity to balance the economy, to slow the pace of restructuring, and to build strong and internationally competitive export sectors.

This scenario continues the story of the development and sophistication of the Chinese and Indian economies. Both China and India continue to urbanise and develop industrially, in India’s case often leapfrogging old industrial practices as they move into new service areas and complex high technology manufacturing. Per capita income remains comparatively low in these countries, held down by the huge rural and regional populations.

This pool of surplus labour means the continuation of relatively low cost labour, but now with high value-add production of goods and services. Chinese export services include complex manufacturing and industrialised construction, competing away many lower-skilled jobs and the work of tradespeople in developed nations. Nevertheless Chinese and Indian wages in high value industries do rise considerably over time, partly to retain their employees who can relatively easily migrate.

Chinese and Indian industrial development continues to demand resources—iron ore, coal, gas, uranium and othersand Australia has been a reliable supplier for many years. However the super prices earned over the first decade of the 21st century come to an end.

Oversupply lowers resource prices. High prices have been an incentive to bring supply from other nations on stream. Overseas investment has been strategic and long term, directed towards infrastructure and supporting political stability. Australia too has invested in expanding resource supply capacity, and now our actions and those of other nations to expand resource capacity have created an oversupply. This puts strong downward pressure on resource prices and to a much lesser extent on volumes, which are mostly subject to long-term contracts.

Energy, another key Australian export commodity, is also faced by new competitive supply. China and India have invested heavily in Australian energy and this has been a major stimulus to the Australian economy over many years.48 As other reserves are developed elsewhere in the world, this investment is competed away.

In 2015 the discovery of abundant coal deposits in Mongolia and gas under the South China Sea diverts investment into development of these resources. Mongolia has far larger deposits and closer transport and infrastructure links to markets in China—it is an attractive long-term proposition for China.49

The ability to develop African energy resources and the possibility of accessing the oil and gas in the Arctic are the wildcards of the early part of the 21st century.50 Greater political stability in Africa and the retreating sea ice sheet in the Arctic bring both of these massive resource sources into production in 2020. Australia’s mineral and energy resources prices stay down.

As the Chinese economy and its influence in global economics grows, US and China strategic and political rivalry niggles away at Australia’s relations with China. There has been an uneasy tension between the two big economic powers—the US and China—for many decades. The South China Sea is a strategically important shipping route for the US and Australia, as well as being one of the contested territories for a number of the smaller Asian economies. China has been aggressive in its territorial claims on many occasions, although this has not amounted to much more than minor skirmishes and military posturing.51

Australia’s strategic alliance with the US places it in a difficult position, as its economy is very reliant on trade with China. Now the Chinese view us as a risky source for essential imports.52 They have the incentive, the financial strength and now the political imperative to invest and purchase resources elsewhere.

Our savings and investment behaviour is heavily influenced by the European and US financial markets and the economies of those countries. There is continued progress in reducing governments’ debt-to-GDP ratios in western economies and realignment of exchange rates. The European financial crisis is stabilised and confidence in financial markets gradually returns. Investment returns in non-resource industries improve significantly, but generally weak demand in the developed countries and Australia means that investment is subdued.

The household savings rate increases because of consumer caution, but this higher rate of savings from lower incomes results in much the same total volume of funds available for investment. Overall the deficit on the current account of the balance of payments increases, there is greater reliance on foreign capital inflows, and interest rates are higher.



The economic growth of China and India powers ahead, consuming large volumes of the world’s commodities. Environmental issues become more serious as a result, people become more aggrieved, and they are prepared to lobby government for change.

The summer of 2013 provokes anger when drought in China causes shortages of hydro-electricity and people find themselves without air-conditioning and elevators in stifling and humid conditions. Poor air quality increases the incidence of asthma and breathing diseases. Carbon reduction becomes a more pressing priority and China targets carbon fuels such as coal for drastic reduction.



Other longer-term forces are also at work in the world. Recycling and re-use of materials and more advanced engineering design reduce material content in many products and in construction activities—the ongoing dematerialisation of the products we use. Traditional metal forms are replaced by apparently radical new technologies and the products of materials science.

The result is long-term reduced prices for mineral resources globally and lower volume growth for Australia. The resource dividend is removed from the budget and Australia’s terms of trade declines in the first half of this scenario. This occurs while the global economy grows—slowly in Europe but strongly in Brazil, Russia, India and China which are not dependent upon resource exports. This is ‘back to the future’ for Australia and once again it is seen as a ‘poor value-add’ economy selling cheap resources while other more ‘developed’ nations turned out high-value products with those materials.

Many parts of Australia’s mining sector are severely impacted. Prices drop and returns to shareholders decline. Investment and construction activity turn sharply down.

Australia’s large global resource companies have strategies to spread their risks. With large high quality reserves that can be operated at low cost and shipped efficiently they are still able to cover their costs and be competitive in international markets. They have invested in operations elsewhere in the world and diversified into other strategic resources for a growing Asian market,53 and there is less impact on their employment numbers and economic viability.

The biggest impact is felt by those miners who have justified development projects on the basis of the high prices. Projects are mothballed or scaled back and contracts with services and construction suppliers terminated. The companies become takeover targets or go into receivership.

India is the next big developing economy. India transforms itself in a few short years and its economy replaces China as the fastest-growing economy before 2020.54

Personal wealth increases and consumer demands for higher value products grow. Consumer interests demand more choice and competition. Legislation to open the retail sector to overseas interests opens the way for private sector investment in modern retailing formats55 featuring global brands and designer labels. Health services are becoming more sophisticated. There is rapid growth in demand for protein foods and westernised diets, including wheat-based and processed foods.56



India provides many opportunities apart from supply of needed resources. It continues to have an overwhelming need for infrastructureroads, railways, ports, airports, electricity, telecommunications, oil and gas pipelines and irrigation. The Indian government estimates that public spending of nearly US$200b annually is required over the period of this scenario to meet this need.57

Government supplements its own capacity through public-private partnerships designed to attract foreign capital and knowhow. Although the private sector response is subdued, India still provides opportunities for Australia in construction and professional services,58 including engineering, architecture, project management and project finance. Urbanisation creates opportunities in high-density housing and urban infrastructure.

The Australia-India relationship has been historically strong. But we do not have a dream run. Although political and cultural differences sometimes get in the way, China proves to be a significant competitor for construction of infrastructure and their industrialised processes are second to none.

Australia now has a competitively priced and growing inbound tourism sector designed to meet the preferences of tourists from Asia. Also, with the downturn in the Australian dollar, Australia is once again thought of as an attractive low-cost holiday destination.

Global agricultural supply is competitive and growing but there is still a significant calorie shortfall given a world population of about 8 billion (and growing). Driven by the increase in demand for protein, clean farming and westernised products,59 Australia’s agriculture and food processing activities are competitively priced on world markets.

The scientifically savvy primary producer is now the norm. Agri-science and education and outreach services help farmers to continuously monitor and manage to optimise production in sustainable ways, challenged all the while by variable climate and severe weather events. While direct foreign investment into Australian resources sector has declined, agricultural land is the clear exception and is highly prized as a strategic resource for the westernising Asian food and beverage markets.60 Ownership may be foreign, but the skills and knowhow to farm the land are Australian.



The challenges of climate change and adverse weather events continue to be major stimuli for new scientific advances, new technologies and their application — on the land and in urban areas. Droughts highlight the scarcity of water on this driest of continents and our dependence upon unpredictable rainfall.

Technologies that create a membrane to reduce evaporation in water storages, telemetry systems to measure and monitor, water treatment systems and low energy pump technologies61 are the results of concerted research and development effort and funding. Along with resources pricing and full cost recovery policies, we manage down water wastage.

Australia adapts to higher temperatures, storms and floods. Entire urban systems are redesigned to include ponds for storm runoff, underground passive water storages and vegetation in and around buildings for cooling and temperature control.62 In an environment where finance is not easy to get and government budgets modest, there are some very hard economics behind these initiatives and they pay off.

The Indian government estimates 500 million Indian people need to be trained by 2025. In 2012 the Indian government sets a very ambitious training agenda and begins a process of establishing 1500 new institutions of higher education.63 Yet this is not enough.

Australia plays a very big role in meeting this off-shore demand. Significant technology developments in media and digitisation merge entertainment and learning, and enable interaction and engagement in exciting ways. It is a very different delivery model—highly customer centric, location independent, mobile, multilingual and very low cost.


India’s Planning Commission has an ambitious training agenda. Just 11 per cent of the nation’s 17 to 23 year olds are pursuing higher education and the level of unmet demand for university places runs at about 4.7m places each year.64

The flow of resources and expertise is not all one way, however, and India is enjoying the benefits of a youthful population. Over the years to 2025, India develops its health, aged care and community care capabilities and builds skilled capacity in these areas. With relatively low per capita wealth, these young people are willing to work anywhere in the world. This provides an enormous skills dividend for Australia, experiencing the demands of an ageing population. The Australian government develops an appropriate settlement plan to avoid the social disruptions of short term skilled migration. Indian people are important citizens in the mix that is multicultural Australia.

When our terms of trade erodes, it becomes clear that Australia needs to fast track the development of new areas of higher value-add economic activity.

Australia seeks to re-establish a viable manufacturing sector, this time based on technology and innovation and not tariffs. Small technologies, micro fabrication and new materials sciences generate new approaches.65 Australian manufacturers improve their profitability by costing in the environmental impacts of transport and by life-cycle assessment. They find that they can be competitive, but time, skills and managerial capacity have been lost and our science and technology have been directed to other sectors. Capital deepening is focused on both tangible and intangible capital for the development of advanced manufacturing.66 There is also the challenge of a low growth population with new attitudes to consumption.

Despite the odds, we recognise that manufacturing brings with it skilled work for Australians, regional distribution of economic activity and greater economic resilience. There is a new high technology opportunity and Australia has to participate.



Highly skilled design and engineering enable and drive the next great technology boom. It starts, not in Silicon Valley or Mumbai, but rather where the great high-tech skills-based manufacturing hubs are found in China, Germany and Japan. Robotics and gigantic printers replace assembly lines. Smaller bespoke production centres arise closer to markets, providing completely tailored manufactured items.

Environment and energy play a big part in changing the way industrial processes and systems are designed, using new ways of thinking about the industrial system not solely reliant on new technologies for their performance. The companies behind these new approaches continue to improve at dramatic rates—they have not run out of ideas.67



Case studies reported by the University of Cambridge Institute for Manufacturing show that it is possible to:

  • reduce the energy used to make their product by over 40% in five years

  • reduce landfill waste by 100% (zero to landfill)

  • reduce water consumption by over 70% in three years

  • convert almost all (99%+) raw materials into end products with hardly any waste

  • collect their product from customers and reuse them for new customers

  • design buildings that need no central heating or air conditioning systems.68


By 2020 Australians are feeling less wealthy. For Australian households, the cost of living has increased. Australia is reliant on imports of most manufactured items—cars, equipment and electrical and white goods—all of which are more expensive because of the low Australian dollar. Coal and gas are cheaper but energy costs still increase with the imposition of the carbon tax69 and as generators and distributors fund necessary capital investment for technology upgrades. Water is more expensive because of the costs of desalination and recycling, and proper cost recovery for irrigation.

Environmental events increase the costs of insurance and local council rates increase to fund necessary community services. Property prices in Australia remain flat and no longer create a sense of optimism and financial wellbeing. Investments in resources stocks in particular have caused shareholder losses and this sets back the superannuation plans of many older Australians. Deferral of retirement is not an option—baby boomers are moving into older age in large numbers, they have run out of puff and are finally prepared to admit it. They want to enjoy the balance of their years at a slower pace.

Previously long-term unemployed people, particularly males aged 25 to 55 years, find opportunities in food and local tourism industries. The regional location of these opportunities helps to reduce regional differences and social issues. Women participate in most areas of work. Precision high-tech manufacturing plays to the strengths of women who have moved very quickly into these new manufacturing and engineering jobs. Males and females find employment in the sizeable aged care area, although salaries are modest.

The economy has rebalanced to offer opportunities in a wider number of sectors and locations, supporting the development of regional and rural areas—the digital economy is not location-specific. Clever things can be done anywhere, any time.

Skilled people are in high demand. Technology and innovation are driving industry restructure and competitiveness. With lower overall wealth, salaries at the top end cannot be maintained at previous high levels and there is less hollowing out of middle-income jobs. As a result income disparities are reduced. This has re-established higher levels of trust in government and the corporate sector. There are fewer jobs in a high technology workplace, but there are fewer Australians of working ageit works OK.

With low interest rates the Australian dream of home ownership is in reach. We appreciate the efforts of business to become internationally competitive and drive high performance. Their success is creating opportunities for our younger citizens.
Drivers of the economy and employment: down


  • The Chinese invest strategically in resources countries to ensure security of supply and price competition.

  • This plus the price incentive to other nations to bring resources on stream for the expanding Chinese and Indian economies results in significant global over-supply and strong downward pressure on resource prices.

  • The volume of resource exports is largely maintained, but less is directed to China and more to other markets. Export prices are substantially lower.

  • The prolonged failure to recover fully from the global financial crisis and the uncertain outlook for global financial markets also puts downward pressure on the Australian dollar.

  • Tension between the US and China follows a period of rivalry. Trade with China slows because we are a US ally and are considered a risky source for China’s strategic imports.70

  • The 12th Chinese five-year plan builds increasing sophistication of science and technology in China and the government is prepared to invest in low carbon approaches. This builds capability that China exports around the world.

  • Material content in many products and in construction is reduced by recycling and re-use of materials and more advanced engineering design, and radical new technologies and the products of materials science replace traditional metal forms. The previous direct link between economic growth and equivalent growth in new raw material use is permanently severed. The result is long-term reduced prices for Australia’s mineral resources and flat volume growth.

Drivers: up

  • The European financial crisis is slowly stabilised and confidence in financial markets gradually returns as public and private debt to GDP is gradually reduced in the advanced economies.

  • As it urbanises, India provides opportunities for Australia.

  • The economy rebalances to offer opportunities in more sectors and locations.



SCENARIO 4: RING OF FIRE


Introduction

In this scenario we paint a picture of an unnervingly volatile world. The geopolitics of our region is fraught with minor skirmishes and contests over resources and territory,71 world economics remain unstable, and the impacts of extreme environmental events cause us to be ever vigilant and risk averse. In this world there is no place for certainty.



Doubt is not a pleasant condition but certainty is an absurd one (Voltaire)

This is a globalised, interconnected and interdependent world...

More than 70 countries engage freely or mostly freely in the global economy.72 The financial system is truly global in nature, highly complex and interwoven, creating risks of fallout far from the origin. But distinctive national, regional and diasporic interests prevail. Views differ on the rules for the conduct of commerce and the rules of law, with distinctive meaning and values embedded in the ways states and individuals represent their interests and conduct their affairs.

In a protectionist world, Australia too is protectionist. We hunker down and protect jobs through increased regulation, making markets less efficient and leading to an increase in the NAIRU (the rate of unemployment consistent with non-accelerating inflation). Inflationary pressures and interest rates are higher. We take a short-term attitude to investment in people and economic activity, vote against migration and experience very low population growth.

But globalisation is the new paradigm. We cling to nationalism and protectionism against a tide of international investments into Australia and new global models of commerce.



...a more populous and inequitable world. Our world has eight billion people and inequality, poverty and the environment present us with problems of an enormous scale and complexity.73

This is a scenario where the issues of our human and social future play large. The pressure is on to address the disastrous impacts of storms, flooding and cyclones on a scale and severity never before experienced. Large numbers of poorer people in low-lying coastal lands of Asia and the Pacific are dispossessed of their homes, livelihoods and communities.74 Short-term and long-term solutions are called for and the international community has to pull together to respond quickly to disasters while also building a sustainable long-term future through global solutions, laws and policies.


This is a story of risk and uncertainty for Australia

The economy is volatile and unpredictable. In this scenario the business environment is characterised by volatility that is only stabilised slowly. The rolling financial crisis of 2007 to 2014, termed the Global Financial Crisis, has proved to be part of a recurrent pattern of volatility coupled with currency debasement.75 Europe undergoes a serious and protracted downturn.

Experience has revealed many structural problems in the global financial system. Global boom and bust cycles are more interconnected, and more widespread and severe as a result. The shocks keep coming, with shorter and shorter intervals between them. Any and every market is vulnerable to a shock or disturbance, so nothing can be taken for granted for any extended period of time. Adjustment of the ratio of public and private debt to GDP and realignment of exchange rates occurs only slowly.

Sovereign debt problems are always on the front page. Governments’ inability to address social, financial and civil issues and debt problems in the major banks dominate world headlines, causing rapid and dramatic falls in share markets followed by resurgence as any light appears on the horizon. Dramatic volatility in share-markets is the norm.

Risks have been borne unequally. The Global Financial Crisis and its long tail have demonstrated that the systemic financial risk was under-priced to investors.76 In effect, it has been taken onto the balance sheets of society as governments support their failing or ailing economies—a cause of social anger in the US, Europe and elsewhere among those who have lost jobs, savings and their houses as a result of the crisis. Public budgets are weakened by government bailouts of key financial institutions during each ensuing financial shock. Debt to GDP ratios escalate with every major crisis that necessitates the use of public funds to prop up key industries or key asset values.

Unemployment rises, especially long-term unemployment, and labour force participation falls. As a consequence, skills are lost, inequality increases and there is less social inclusion.

People around the world are expressing their anger and frustration at corporate and government economic failures,77 what they see as stumbling efforts to make key decisions, and the austerity measures imposed on them.

Governments and the private sector have failed spectacularly on many occasions and not just in managing the global financial system. The tsunami and consequent nuclear disaster in Japan in early 2011 has proved that the private sector cannot be trusted to act in the wider public interest, and if Japan cannot ensure nuclear safety we certainly cannot believe that other less sophisticated economies can. Nuclear is off the agenda even in the face of climate change.

Man-made disasters, oil spills, loss of traditional fishing habitats and impacts of global climate change on poor populations in low-lying countries bring home to us the excesses in both the corporate world and the developed nations that have brought this about. 78



Australians lose their confidence in those that govern them and make the decisions that affect their lives. Australians reject changes to political agendas. They are not able to see the benefits and do not believe the promises. In this weakened position, government plans with short time horizons and immediate hip pocket policies. There is no big picture planning and no ground-breaking policies even at a time when breakthrough and innovative thinking are needed to solve seemingly intractable problems. Capital deepening in both tangible and intangible capital is reduced.

Fiscal and governance capacity are poor. Government budgets are down as the resources sector winds back and the tax base reduces. Tax reform is voted down by a frightened electorate. Special interests demand additional public spending and a weakened government finds it difficult to refuse. As a result the government has increasing difficulty controlling its budget outlays. It fails to rein in spending, leading to budget blowouts and reinforcing the conviction that the government is not to be trusted.

But all the while, Australians know that Australia is a lucky country. With continuing uncertainty comes increasing recognition that governments need to act, but there are numerous constraints. While we expect Government to fix it for us, we see that it is out of their control. We are nationalistic and patriotic and defensive of what we believe is Australian.



There is an uneasy stability in our region. China is the biggest global economy. The US will not cede strategic equality to China but the West no longer dominates international structures. The US-China relationship is influenced by the quantity of US bonds held by China. The US calls for higher Chinese domestic consumption and lower levels of saving to rebalance trade between the nations. Demands for faster appreciation of the Chinese currency against the US dollar go unheeded.

The resort to economic autarchy and protectionism further damages international cooperation. Not all Asian countries support China’s voice at the world and regional table. China’s aggression over disputed maritime claims in the South China Sea and what is seen by neighbouring nations as resources hijacking keep tensions running high between Asian nations.79 On occasions, military face-offs and the many threats to use force result in skirmishes, some of which seriously risk becoming full-scale war.

India’s development is hindered by political differences with Pakistan and the political unrest within neighbour nations. In Asia we observe the petty political and military stoushes between nations, the cronyism and corruption of minor Asian countries, the human rights and civil liberties breaches and the arms build-up. These nations seem unable to avoid or manage extreme environmental degradation. The distribution of wealth is a problem, with some segments of the population hungry, homeless, without work and disenfranchised.80

Australia’s outbound FDI is reined in following a series of political stoushes in the region leading to state resumption of control of foreign investments.



The size of economic development of China and India is still significant if uneven and sometimes faltering. The stop-start pattern of economic development impacts Australia’s terms of trade, which broadly stabilises after an initial steady fall to 2018, although it continues to fluctuate.

Along with most of the rest of the world Australia lurches from one crisis to the next. Localised environmental events occur regularly in Australia and overseas with disastrous consequences. We look in awe at natural disasters on the increase —floods, bushfires, famine. Social media and mobile technologies bring these human and environmental dramas to us through the lens of the victims, amplifying the human suffering and pain.

The impacts of climate change have proven costly to the Australian economy—$9 billion was taken out of the economy by floods in 2011 and each year since then something of nearly equal proportion and consequence occurs, either in Australia, New Zealand or close nations. It is no longer a sense of these events happening in far-away places, it is close to home and we feel uneasy and insecure. 81 We still look to government to underwrite our risks—it is out of our control and of an enormity we cannot easily comprehend. We did not cause it so it must be someone else’s responsibility.

Environmental refugees are arriving on Australian shores in large numbers from our Pacific region. We feel a responsibility to receive them as part of our migration intake and to settle, educate and employ them.

The cyber opportunity proves disruptive...

By 2012 it is obvious that cyberspace is the new territory for business to conquer. The web-enabled world is anarchic and subject to fashion, and it is invented and reinvented continuously as young people across the world contribute their innovations. Global cyber superpowers are challenged by their size and structures to stay ahead. New rules of business are written by companies that apply technology in new ways, and these rules undermine the positions of existing players and change the game.82 It has become very obvious that Australia’s retailers, universities, entertainers, publishers and others, made complacent by the boom spending spree of the first decade of the century, were in a ‘cyber vacuum’. They have reacted too slowly and found themselves competing with global online companies.



...and anarchic. WikiLeaks opened our eyes to the power of social networks and cyber hacking. In 2011 the Arab Spring and the Wall Street protests demonstrated to business and governments the power of cyberspace in mobilising people around the world and recruiting people for action. Power shifts to the community, governments lose control of restraints on freedom of speech and minority groups are able to represent themselves and gain a global audience. The London street riots demonstrated that long-held patterns of behaviour, respect and authority are no longer useful.

In an interconnected world, the cyberspace has a worryingly high impact...

Even when we don’t intend it, bad things can happen. Neither pernicious nor deliberate, on 6 May 2010 Wall Street’s Dow Jones Index plummeted almost 1000 points in a matter of minutes, wiping US$1 trillion from the value of US stocks. ‘Many blamed this volatility on the new generation of electronic exchanges that can move large volumes of stocks quickly through high-speed computer-generated trading systems.’83



...and increases the incidence of cyber attacks and cyber espionage, and the organisation of globally networked crime.84 Don’t search for a Mr Bigcrime is organised in networks enabled by cyber technologies.

It is no wonder that fear and uncertainty drive financial decisions and our attitude to risk. Time horizons for planning are short and we do not believe that a better outcome will be delivered in the long term. We have learnt to hedge our risks and we know how to assume a worst-case scenario in our planning. We reduce consumption except for non-discretionary items and when we do spend, we spend on something very special that we deserve—a luxury item, a special experience. Despite cautious spending we find it difficult to increase our saving from our more constrained incomes.

Investment in business development and growth is hampered by the short-term horizons for business planning and the reduced supply of debt finance as a result of banking crises. Investment in technology for new products, services or productivity gains have been put on ice. Companies hunker down, proceed with caution, reduce debt, implement strong risk-management systems and improve the quality and frequency of communications with spooked investors.



Countries around the world protect their industries and jobs by implementing protectionist policies. The flow of goods and services around the world is reduced, impacting Australia’s export industries with some exceptions in food and resources. This slows but does not stop the global investment spree by China in resources and agriculture around the world and militates against the export-led growth of the Chinese economy. China is forced to develop its domestic consumer economy but feels no pressure to increase its imports.

At a time when international co-operation is required to address ‘wicked’ problems, we have become more inward-looking and conservative. Australians ask government to protect their jobs, companies and assets. This ‘batten down the hatches’ population sees former high levels of immigration as a drain on resources and a stress on the ecological system. Combined with low fertility, Australia’s annual population growth is very low.

Women have delayed childbearing in order to hang onto their jobs and contribute to family finances. In straitened financial circumstances, governments eventually feel impelled to remove childcare subsidies and reduce maternity provisions, limiting the work choices available to women and increasing the compromises involved in making quality childcare decisions. Work is harder to get and hold onto.

Employers reduce their risks of carrying costly overheads, including the responsibility to provide maternity leave and work flexibility, by moving further towards casual, part-time and contracted work. Australia’s temporary migration program is preferred as a means of meeting fluctuating skills needs—it is cheaper than training in-house and there are no retention costs.

Corporate Australia is a poor investor in the future of their employees and of the labour market. Apprenticeships are reduced to record-breaking low levels and Indigenous employment programs are slowed except in remote areas where local rejuvenating Indigenous populations provide an outstanding source of skills and labour. Companies are risk averse so very little happens that is leading edge. Employees hold onto their jobs, work longer hours, seek job security and are less demanding of wage increases.



Australian superannuation funds perform unevenly at a low rate of return. Australia’s compulsory superannuation policy has built a national savings pool providing investment funds into Australia and internationally, but the pool of capital increases very slowly due to lower incomes from which to save, even though the savings rate is higher. This savings pool also performs unevenly and cannot be relied upon.

Australians have largely withdrawn from trade in stocks and shares, leaving the superannuation funds as key drivers of the market. Super funds have low tolerance for risk and invest in defensive stocks such as utilities, direct property and especially bonds, adopting conservative inward-looking strategies.

Disappointing and erratic outcomes from share investments wear down even the most enthusiastic investors. As significant numbers of baby boomers reach retirement they are aware of the poor performance of their super fund managers. There has been pressure on government to reduce compulsory savings levels and apply more regulatory pressure to the super industry including enhanced prudential requirements.

Savings in superannuation are a very illiquid asset for early stage-of-life needs such as health costs for childbirth, early childhood and education so compulsory superannuation comes in for a lot of criticism from the younger generation too. They need the cash now to carry them through periods of low or no income, and they need it now to get into home ownership. Government is forced to reconsider compulsory contributions and examine the alternative national savings models of Singapore,85 now emulated by Shanghai,86 with greater flexibility and sensitivity to the needs of different life stages and circumstances.



This is a story of an ageing population that is fearful of stopping work, faced with uncertainty in superannuation returns and a volatile housing market...

Older baby boomers hang onto their work for as long as they can. They defer retirement and vacations. They are challenged, however, by their physical limitations and work with employers to redesign work to suit their abilities.



...and of young people who struggle to get into the job market. This is a critical and strategic issue for Australia. Employers are not taking on inexperienced young people although they are qualified, and are not investing in their ongoing development when they do. Cynical of the return on the investment they make when work is either not available for new graduates or is insecure and stop-start in nature, young people often give tertiary education a miss. This is less true for young people from better financial backgrounds who study with the support of their parents, and reach higher levels of education because there is not a job immediately available. This in turn amplifies differences in access to education by socio-economic status and ultimately to well-paid work and the resilience to meet the challenges of work and society.

Some people are caught in long-term unemployment. Those aged between 25 and 55 who are long-term unemployed remain unemployed as fortunes and work opportunities wax and wane.

Amongst this volatility and nervousness, Australian companies can compete

Our resources companies can meet demand at competitive prices. The resources sector is competitive globally because of existing long term contracts and because of the quality and efficiency of extraction and transport of Australian resources.87 However, bringing new production on stream is impacted by the uncertainty and unrest in the Asian region. Supply systems are not able to respond to the on-off nature of demand and so investment scales back to manage the risks. Australian resource companies find it hard to raise competitively-priced capital from local risk-averse lenders. Interest rates are low and stay down but capitalisation rates are high, reflecting the risk rating of investment.

But globalisation has brought with it global models of resource exploitation and nationalism is creaking. The resources sector has invested in remote mining technologies, in many cases operated from other parts of the world by specialist providers with proprietary technologies, reducing employee numbers.



Our agricultural sector is competitive. Slower gains in agricultural productivity and the loss of the rice bowls of Asia—the low-lying lands impacted by floods and ocean surgeshave caused food shortages, high prices and disadvantage to poorer nations. It is a world in which water is a scarce and contested resource, where energy prices are high and oil more difficult and costly to extract, putting even greater pressure on food production and shipping costs. The growing, urbanising and westernising Asian markets of India, China and Indonesia want more food, more protein and more westernised foods and beverages.

Science and technology applied to agriculture and food processing is important in a hungry world and a changing Asia...

With a history of publicly-funded research with specialisation in agriculture, and a proud tradition of agricultural industry adjustment and innovation, Australia’s agricultural and food sector is well placed to solve problems and to provide food exports. Despite the global political uncertainties, Chinese and other overseas countries invest in this sector, wanting to secure their food supply. This supports adaptation to climate change without government subsidies.



...and there are opportunities for the creative industries in digital media and entertainment. Australians seek respite from the gloom at the movies and in musical theatre. The online media world is global, very personalised, and interactive. The various forms of media require people skilled in design, puppetry, music, graphics and animation, and arts graduates work alongside computer scientists and systems engineers—in sound, light, colour, graphicsblurring distinctions between reality and simulation. Australia contributes in these creative areas and benefits from the National Broadband Network.

But investment in science and risky start-ups is off the agenda. Australia’s venture capital sector is devastated as investors withdraw from risk exposures and flee to safer havens in the early years post Global Financial Crisis. Government withdraws its historically significant funding of medical and biotechnologies and in any case, without local companies of size, there is no local market for these technologies. With perfect commercial good sense they are sold to overseas interests. With no investors in the market to take the risk on Australian technologies and with Australian companies remaining poor investors in technologies and preferring to buy in from overseas, there are few opportunities here. Scientists, inventors and entrepreneurs find better prospects elsewhere in the world.

Sectors are impacted unevenly. Discretionary spending stops and household savings increase. Interest-bearing deposits are favoured over securities and over longer term illiquid investments such as real estate. The volatility of the housing market impacts the construction industry. House prices have come off their highs so people feel poorer and act accordingly. People are less confident to seek debt in the first place and lenders more prudent in their lending. DIY house repairs and renovations, sewing and gardening make a return, benefiting the suppliers to these markets.

Local tourism prospers as Australians stay home. International tourism suffers as a consequence of environmental disasters and political unrest and because it costs more to fly. Airlines continue to face challenges from increasing fuel costs, environmental taxes and the aggressive competitive strategies of low-cost and possibly government-subsidised airlines.88 Faced by escalating costs and threats to Australian jobs, Australians continue to call for renationalisation of strategic assets such as airlines, utilities and roads.



Drivers of the economy and employment: down

  • Ongoing volatility of markets and economies around the world, with a protracted European downturn. Adjustment of public and private debt to GDP and realignment of exchange rates occurs only slowly. There is reduced trade between nations and increased protectionism.

  • Severe and unpredictable weather events including droughts, floods, bushfires and hurricanes, and natural disasters such as earthquakes and tsunamis, occur on a regular basis. These cause damage to agriculture, mining and tourism activities and cost human lives. Low-lying areas of the Asian food bowl flood regularly with devastating consequences.

  • Political unrest in parts of Asia, ongoing nuclear warfare threats and skirmishes over resources, especially water security.89

  • Things are tense between the US and China with a risk of brinkmanship in their economic and financial dealings as neither faces up to the domestic policy consequences of curing the imbalances in their financial relations.90 Australia as a US ally seems an increasingly risky source for China’s essential resources imports91

  • Indian and Chinese economies advance in a stop-start manner hampered by political unrest, border protection issues and human rights and environmental problems of scale and complexity. Australia’s terms of trade varies in response.

Drivers: up

  • The lower Australian dollar benefits trade-exposed industry sectors

  • Resources companies can meet demand at competitive prices and the agriculture sector is competitive

  • Science and technology in agriculture and food processing



LIST OF INTERVIEWS CONDUCTED


Chuck Berger, Director of Strategic Ideas at the Australian Conservation Foundation

Gerard Bond, Former Head of Human Resources, BHP Billiton

Denise Bradley AC, Emeritus Professor at the University of South Australia

Patrick Coleman, Director Policy at the Business Council of Australia

Mark Cormack, Chief Executive Officer at Health Workforce Australia

David Epstein, Former Head of Public Affairs, BHP Billiton

Geoff Garrett, Queensland Chief Scientist

Ross Gittins, Economics Editor of the Sydney Morning Herald and Economic columnist for The Age

Steve Hatfield-Dodds, Research Director of the Integrated Carbon Pathways collaboration, CSIRO

Andrea Hull AO, Professor Emeritus at the Victorian College of the Arts, University of Melbourne

Gerardine Kearney, President of the Australian Council of Trade Unions

Megan Lilly, Director of Education and Training for the Australian Industry Group, Chair of Manufacturing Skills Australia

Hugh Mackay, Honorary Professor of Social Science at the University of Wollongong

Ian McAllister, Distinguished Professor of Political Science at the Australian National University

Andrew McCredie, Executive Director of Australian Services Roundtable

Peter McDonald AM, Professor, Director of the Australian Demographic and Social Research Institute, Australian National University

Barry McGaw AO, Professorial Fellow at the University of Melbourne; Chair of the Board at the Australian Curriculum, Assessment and Reporting Authority

George Megalogenis, Journalist/Columnist for The Australian

Chloe Munro, Chair of the National Water Commission

Graeme Pearman AM, Honorary Senior Research Fellow at Monash University

Barbara Pocock AM, Professor, Director of the Centre for Work + Life at the University of South Australia

Chris Sarra, Executive Director of the Stronger Smarter Institute, Queensland University of Technology

Carlyle A. Thayer, Emeritus Professor at the University of New South Wales at the Australian Defence Force Academy

Michael Wesley, Executive Director of the Lowy Institute for International Policy

Hugh White, Professor and Head of the Strategic and Defence Studies Centre at the Australian National University, Visiting Fellow at the Lowy Institute for International Policy

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Ralston, B et al. (2011), ‘India’s long-term growth potential and the implications for Australia’, Economic Roundup, Issue 3, Australian Treasury, http://www.treasury.gov.au/documents/2206/PDF/Economic_Roundup_Consolidated.pdf, accessed 21 February 2012.

Reinhart, C and Rogoff K (2009), This time is different: Eight centuries of financial folly, Princeton University Press.

Saliba, G and Withers, G (2009), ‘Scenario analysis for strategic thinking’, in Argyrous, G, Evidence: A practical guide for policy and decision making, UNSW Press.

Sanwal, M, ‘Onus is now on everyone’. English.xinhuanet.com, 29 November 2011, http://news.xinhuanet.com/english2010/indepth/2011-11/29/c_131276562.htm, accessed 6 March 2012.

Sen, A (2009), The idea of justice, quoted in ‘Freedom and prosperity’, The Australian Financial Review Magazine, May 2011.

Springut, M et al (2011), ‘China’s program for science and technology modernization: Implications for American competitiveness’, http://www.uscc.gov/researchpapers/2011/USCC_REPORT_China's_Program_forScience_and_Technology_Modernization.pdf, accessed 6 March 2012.

‘Strategies for regional growth’, http://www.rdamurray.org.au/Strategies_Growth.aspx, accessed 5 March 2012.

Terblanche, A (2010), Address to ADC Future Summit 2010, Melbourne, Victoria.

Tingle, L, ‘What the boom will bust’, The Australian Financial Review Magazine, October 2011.

Treasury of Australia, Budget 2011-12, http://www.budget.gov.au/2011-12/content/bp1/html/bp1_bst2-02.htm, accessed 31 January 2012.

‘UNODC's Action against Corruption and Economic Crime’, http://www.unodc.org/unodc/en/corruption/index.html, accessed 6 March 2012.

US Energy Information Administration (2009), Arctic oil and natural gas potential, http://www.eia.gov/oiaf/analysispaper/arctic/index.html, accessed 6 March 2012.

WA Resources campaign, Youth unemployment up again, with many young Western Australians missing out on benefits from the boom, http://www.wajobs.org.au/2012/01/youth-unemployment-up-again-with-many-young-western-australians-missing-out-on-benefits-from-the-boom/, accessed 30 January 2012.

Wade, M, ‘A trillion reasons to find Indian partners’, Sydney Morning Herald, 25 October 2011, http://www.smh.com.au/business/a-trillion-reasons-to-find-indian-partners-20111024-1mga4.html?skin=text-only, accessed 6 March 2012.

‘A wealthier China shapes global luxury landscape’, English.xinhuanet.com, 10 December 2011, http://news.xinhuanet.com/english/china/2011-12/10/c_131299030.htm, accessed 6 March 2012.

Welch, C, ‘New era of stability in some African countries’, http://www.theaureport.com/pub/na/12261, accessed 31 January 2012.

Welch, D, ‘Code red: The cyber spy threat’, The Saturday Age, 24 September 2011.

Westmore, P, ‘Bushfire victims take NSW, Vic govts to court’, News Weekly, 14 April 2007, http://www.newsweekly.com.au/article.php?id=2814, accessed 6 March 2012.

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White, H, ‘Australia’s future hostage to rivalry between China and US’, The Age, 25 October 2011.

‘Why a lack of competition is holding back Australia’s financial sector’, Banking Review Media, 20 January 2010, http://www.bankingreview.com.au/2010/01/why-a-lack-of-competition-is-holding-back-australias-financial-sector.html, accessed 6 March 2012.

‘The World Turned Upside Down’, The Economist, 15 April 2010.

Yeow, L, ‘Look offshore for new directions and real value’, The Australian Financial Review, 9 November 2011.

Zoll, A and Layton, S, ‘National debt: A tsunami of red ink’, Chicago Tribune, 25 April 2010, http://articles.chicagotribune.com/2010-04-25/business/sc-nw-national-debt--20100424_1_national-debt-interest-rates-treasuries, accessed 6 March 2012.


EndnotesACKNOWLEDGEMENTS


Scenarios

The Agency would like to thank the following people for their significant input into the development of the draft scenarios:

Consultant futurists:

Susan Oliver, Dr Peter Hayward

Speakers at the scenario forum jointly hosted by the Academy of the Social Science Australia and Skills Australia:

Dr David Gruen, Executive Director Macroeconomic Group (Domestic), Treasury (Economic and financial trends and globalisation)

Professor Graeme Hugo, Director of the National Centre for Social Applications of Geographical Information Systems, University of Adelaide (Social, demographic and cultural trends)

Professor Sue Richardson, Principal Research Fellow, National Institute of Labour Studies, Flinders University (Labour force, Industrial and workplace trends)

Dr Michael Keating AC, Board member, Australian Workforce and Productivity Agency and Professor Glyn Davis AC, Vice-Chancellor and Principal of the University of Melbourne (Governance and public policy)

Professor Anthony Arundel, Australian Innovation Research Centre, University of Tasmania and UNU-Merit, University of Maastricht, The Netherlands (Science, technology and innovation)

Dr Kerry Schott, Managing Director, Sydney Water (Sustainability (focus on water, energy, population)

Members of the Steering Committee:



Professor Gerald Burke, Dr Tom Karmel, Dr Michael Keating, Marie Persson, Professor Sue Richardson, Keith Spence, Glenn Wightwick, Dr Glenn Withers
We would also like to thank all those who attended scenario development workshops in 2011.



1 Lewis, P (2008), The labour market, skills demand and skills formation, Occasional Paper 6, Skills Australia and Academy of the Social Sciences in Australia.

2 Saliba, G and Withers, G (2009), ‘Scenario analysis for strategic thinking’, in Argyrous, G, Evidence: A practical guide for policy and decision making, UNSW Press.

3 ‘Scenario analysis for strategic thinking’.

4 Keating, M and Smith, C (2010), Critical issues facing Australia to 2025: Summary of a scenario development forum, Academy Proceedings 1/2011, Academy of the Social Sciences in Australia.

5 Allen Consulting Group (2010), Quantifying the possible economic gains of getting more Australian households online, http://www.dbcde.gov.au/__data/assets/pdf_file/0004/135508/Quantifying_the_possible_economic_gains_of_getting_more_Australian_households_online.pdf, accessed 27 March 2012.

6 This scenario does not assume the normal trade cycle disappears. Rather it is predicated on the presumption that markets and governments will be sufficiently efficient and flexible that cyclical fluctuations in output and employment are not severe and do not affect the rate of growth over time.

7 Ralston, B et al. (2011), ‘India’s long-term growth potential and the implications for Australia’, Economic Roundup, Issue 3, Australian Treasury, http://www.treasury.gov.au/documents/2206/PDF/Economic_Roundup_Consolidated.pdf, accessed 21 February 2012

8 ‘India’s long-term growth potential and the implications for Australia’.

9 Myer, S, ‘Asia focus a smart call for schools,’ The Sydney Morning Herald, 3 May 2010, http://www.smh.com.au/opinion/society-and-culture/asia-focus-a-smart-call-for-schools-20100502-u195.html, accessed 28 February 2012.

10 China was Australia’s largest source of migrants in 2010-11 with 29 547 places or 17.5 per cent of the total migration program (Department of Immigration and Citizenship, 2010-11 Migration Program Report, http://www.immi.gov.au/media/statistics/pdf/report-on-migration-program-2010-11.pdf, accessed 20 February 2012).

11 ‘India’s long-term growth potential and the implications for Australia’.

12 Currently China exports 17% of GDP (purchasing power parity). According to the CIA World Factbook, ‘The government vows, in the 12th Five-Year Plan adopted in March 2011, to continue reforming the economy and emphasizes the need to increase domestic consumption in order to make the economy less dependent on exports for GDP growth in the future. However, China has made only marginal progress toward these rebalancing goals’. India’s GDP (purchasing power parity) is USD$4.463 trillion and exports are USD$298.2 billion (both 2011 estimates). India’s progress is constrained by ‘widespread poverty, inadequate physical and social infrastructure, limited non-agricultural employment opportunities, insufficient access to quality basic and higher education, and accommodating rural-to-urban migration’ (Central Intelligence Agency, The world factbook, https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html, accessed 21 February 2012).

13 Treasury of Australia, Budget 2011-12, http://www.budget.gov.au/2011-12/content/bp1/html/bp1_bst2-02.htm, accessed 31 January 2012.

14 See note 10 above.

15 Partridge, J and Furtan, H (2008), ‘Increasing Canada’s international competitiveness: Is there a link between skilled immigrants and innovation?’, paper presented at the American Agricultural Economics Association annual meeting, Orlando, 27-29 July, http://ageconsearch.umn.edu/bitstream/6504/2/454620.pdf, accessed 6 March 2012.

16 Buchanan, J (2006), ‘From “skills shortages” to decent work: The role of better skill ecosystems’, NSW Board of Vocational Education and Training, https://www.training.nsw.gov.au/forms_documents/industry_programs/workforce_development/skill_ecosystem/buchanan.pdf, accessed 28 February 2012.

17 See ‘Strategies for regional growth’, http://www.rdamurray.org.au/Strategies_Growth.aspx, accessed 5 March 2012.

18 Organisation for Economic Co-operation and Development, Policy brief: Higher education and regions, September 2007, http://www.oecd.org/dataoecd/60/51/39311062.pdf, accessed 6 March 2012.

19 Dencik, J and Spee, R (2011), Global location trends: 2011 annual report, IBM Institute for Business Value, http://public.dhe.ibm.com/common/ssi/ecm/en/gbe03456usen/GBE03456USEN.PDF, accessed 21 February 2012.

20 Global location trends: 2011 annual report.

21 ‘CITIC Pacific Mining Sino Iron project’, http://www.projectconnect.com.au/Project_Details.asp?PID=349, accessed 6 March 2012; WA Resources campaign, Youth unemployment up again, with many young Western Australians missing out on benefits from the boom, http://www.wajobs.org.au/2012/01/youth-unemployment-up-again-with-many-young-western-australians-missing-out-on-benefits-from-the-boom/, accessed 30 January 2012.

22 The Chinese economy is slowing in 2012 and this scenario assumes it continues to slow but still grows in single digit levels.

23‘A wealthier China shapes global luxury landscape’, English.xinhuanet.com, 10 December 2011, http://news.xinhuanet.com/english/china/2011-12/10/c_131299030.htm, accessed 6 March 2012.

24 The world turned upside down’, The Economist, 15 April 2010.

25 The world turned upside down’.

26 Sanwal, M, ‘Onus is now on everyone’, English.xinhuanet.com, 29 November 2011, http://news.xinhuanet.com/english2010/indepth/2011-11/29/c_131276562.htm, accessed 6 March 2012.

27 White, A (2011), ‘Chinese students' international study: Factors feeding the decision process’, International Education Intelligence, Vol. 24, No. 1, http://www.wes.org/ewenr/11feb/feature.htm, accessed 6 March 2012.

28 KFC, AMWAY, Best Buy are examples of US market entry failures. Fosters is an Australian example. See Chung, M (2008), Shanghaied: Why Fosters could not survive China, Heidelberg Press.

29 See Birrell et al. (2006), Evaluation of the general skilled migration categories report, Australian Government, http://www.immi.gov.au/media/publications/research/gsm-report/, accessed 31 January 2012.

30 See McDonald, P (2011), ‘The determinants of Australia’s future demography’ in Productivity Commission, A ‘sustainable’ population? — key policy issues, Canberra, 21-22 March, http://www.pc.gov.au/research/conference-proceedings/sustainable-population, accessed 6 March 2012.

31 As an example refer to: ‘ARC research priority 3: Frontier technologies for building and transforming Australian industries’, http://www.research.swinburne.edu.au/grants-contracts/funding/arc/research-priority-3.html, accessed 6 March 2012. Priority goals given include smart information use, advanced materials and frontier technologies such as nanotechnology, biotechnology, ICT, photonics, genomics/phenomics, and complex systems.

32 Rabinovitch, S, ‘China labour costs soar as wages rise 22%, CFA Institute Asia Pacific’, Financial Times, 25 October 2011, http://www.ft.com/intl/cms/s/0/25f1c500-ff14-11e0-9b2f-00144feabdc0.html#axzz1nScHru2j, accessed 6 March 2012.

33 Pingali, P (2004), ‘Westernisation of Asian diets and the transformation of food systems: implications for research and policy’, ESA working paper no. 04-17, http://ageconsearch.umn.edu/bitstream/23795/1/wp040017.pdf, accessed 6 March 2012.

34 ‘The determinants of Australia’s future demography’.

35 See note 29 above.

36 While research shows that mobility between jobs is high in Australia, changing place of residence for a new job is less common. For example, calculations based on Australian Bureau of Statistics (2009), Residential and workplace mobility, and implications for travel, cat. no. 3420.0, http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/3240.0October%202008?OpenDocument#Publications, accessed 6 March 2012, show that fewer than 3000 people who moved to Sydney from interstate in 2008 did so because of better access to or prospect of work.

37 Australian Bureau of Statistics (2010), Measures of Australia's Progress, cat. no. 1370.0, http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/by%20Subject/1370.0~2010~Chapter~Productivity%20(5.5.2), accessed 6 March 2012. In the most recent productivity growth cycle (2003-04 to 2007-08) there was an overall decline in Australia's productivity. Output growth during this cycle averaged 3.6% per year, while total inputs grew at an average 3.8% per year (labour at 2.4%, capital at 5.4%). The -0.2% difference between input growth and output growth was the average annual decline in productivity.

38 Department of Innovation, Industry, Science and Research (2008), Review of the national innovation system, http://www.innovation.gov.au/Innovation/Policy/Documents/NISOverviewRecommendations.pdf, accessed 6 March 2012.

39 Review of the national innovation system.

40 Springut, M et al. (2011), ‘China’s program for science and technology modernization: implications for American competitiveness’, http://www.uscc.gov/researchpapers/2011/USCC_REPORT_China's_Program_forScience_and_Technology_Modernization.pdf, accessed 6 March 2012.

41 Online retail grew by 14% in the UK in 2011 and the same is predicted for 2012. In Europe, it grew by 18% in 2011 and over 16% is predicted for 2012 (Centre for Retail Research, ‘Online retailing: Britain and Europe 2012’, http://www.retailresearch.org/onlineretailing.php, accessed 30 January 2012).

42 Cunnane, C (2011), Customer-centric retailing 101, customer intelligence and engagement strategies, Aberdeen Group.

43 For example see Westmore, P, ‘The environment: Bushfire victims take NSW, Vic governments to court’, April 14, 2007, http://www.newsweekly.com.au/article.php?id=2814, accessed 28 February 2012. Also refer to Queensland floods and Victorian bushfire incidents.

44 Bisson, P et al (2010), ‘The productivity imperative’, McKinsey Quarterly, June, http://www.mckinseyquarterly.com/The_productivity_imperative_2630, accessed 6 March 2012.

45 See note 31 above.

46 ‘The determinants of Australia’s future demography’.

47 Business Council of Australia, ‘Fair work system must help Australia compete and prosper’, http://www.bca.com.au/Content/101937.aspx, accessed 17 February 2012.

48 Indian investment in the Australian resources and energy sector is currently growing strongly, for example in Queensland coal fields (Ralston, B et al. (2011), ‘India’s long-term growth potential and the implications for Australia’, Economic Roundup, Issue 3, Australian Treasury, http://www.treasury.gov.au/documents/2206/PDF/Economic_Roundup_Consolidated.pdf, accessed 21 February 2012).

49 ‘Mongolia: Coal discovery confirmed at Khar Tarvaga’, The Asia Miner, April 2008, includes a note that Mongolia has an estimated 150 billion tonnes of coal resources, mostly undeveloped due to poor infrastructure, lack of exploration spending and access to markets, which is now changing. Based on analyst forecasts, it is expected that Mongolia will become a key supplier of energy in the forms of coal and uranium, as well as base metals, to the burgeoning China market over the next decade, (http://www.asiaminer.com/magazine/current-news/news-archive/80/1205-mongolia--coal-discovery-confirmed-at-khar-tarvaga.html, accessed 6 March 2012).

50 Commentary on resources potential includes Welch, C, ‘New era of stability in some African countries’, http://www.theaureport.com/pub/na/12261, accessed 31 January 2012. But an alternative view is expressed in Dubbelman, B, ‘Political instability seen as threat to African economic growth’, Polity.org.za, http://www.polity.org.za/article/political-instability-seen-as-threat-to-african-economic-growth-2012-01-19, accessed 6 March 2012: This is not an impediment to Chinese investment. Also see Holslag, J, ‘China and the coups: Coping with political instability in Africa’, African Affairs, May 2011, http://africacenter.org/2012/01/china-and-the-coups-coping-with-political-instability-in-africa/, accessed 6 March 2012. The Arctic could hold about 22 percent of the world’s undiscovered conventional oil and natural gas resources (US Energy Information Administration (2009), Arctic oil and natural gas potential, http://www.eia.gov/oiaf/analysispaper/arctic/index.html, accessed 6 March 2012).

51 Interview with Carlyle Thayer, Emeritus Professor at the University of NSW at the Australian Defence Force Academy.

52 White, H, ‘Australia’s future hostage to rivalry between China and US’, The Age, 25 October 2011.

53 Interview with mining industry executives.

54 India Brand Equity Foundation (2012), ‘Indian economy overview’, http://www.ibef.org/artdispview.aspx?in=36&art_id=31080&cat_id=140&page=1, accessed 6 March 2012.

55 ‘India close to allowing access for foreign retail’, http://www.bloomberg.com/video/70317722/, accessed 6 March 2012.

56 ‘Westernisation of Asian diets and the transformation of food systems’.

57 ‘India’s long-term growth potential and the implications for Australia’.

58 ‘India’s long-term growth potential and the implications for Australia’.

59 ‘Westernisation of Asian diets and the transformation of food systems’.

60 Bita, N, ‘Asia leads the charge in Aussie land grab’, The Australian, 2 July 2011, http://www.theaustralian.com.au/national-affairs/asia-leads-the-charge-in-aussie-land-grab/story-fn59niix-1226085921522, accessed 6 March 2012.

61 Susan Oliver, personal communication, 28 February 2012.

62 Susan Oliver, personal communication, 28 February 2012.

63 ‘India’s long-term growth potential and the implications for Australia’.

64 Wade, M, ‘A trillion reasons to find Indian partners’, Sydney Morning Herald, 25 October 2011, http://www.smh.com.au/business/a-trillion-reasons-to-find-indian-partners-20111024-1mga4.html?skin=text-only, accessed 6 March 2012.

65 See note 31 above.

66 Intangible capital’ refers to intellectual property and human capital more broadly including knowledge and ‘know-how’.

67 Evans, S et al. (2009), Towards a sustainable industrial system, with recommendations for education, research, industry and policy, University of Cambridge.

68 Towards a sustainable industrial system.

69 Business and industry bodies comments on introduction of carbon tax include NSW Business Chamber (2011), ‘Carbon pricing: Key issues for industry’, http://www.nswbusinesschamber.com.au/NSWBC/media/Misc/Lobbying/Analysis/Carbon-pricing-Jun-2011.pdf, accessed 6 March 2012.

70 ‘Australia’s future hostage to rivalry between China and US’.

71 Interview with professor Carlyle Thayer, Emeritus Professor at the University of NSW at the Australian Defence Force Academy.

72 Terblanche, A, Address to ADC future summit 2010, Melbourne, Victoria, May 2010.

73 For demographic data see Central Intelligence Agency, The world factbook, https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html, accessed 21 February 2012.

74 Park, S (2011), Climate change and the risk of statelessness: The situation of low-lying island states, United Nations High commissioner for Refugees, http://www.unhcr.org/4df9cb0c9.pdf, accessed 6 March 2012.

75 Reinhart, CM and Rogoff, KS (2009), This time is different: Eight centuries of financial folly, Princeton University Press.

76 Harper, I, Address to ADC future summit 2010, Melbourne, May 2010.

77 Zoll, A and Layton, S, ‘National debt: A tsunami of red ink’, Chicago Tribune, 25 April 2010, http://articles.chicagotribune.com/2010-04-25/business/sc-nw-national-debt--20100424_1_national-debt-interest-rates-treasuries, accessed 6 March 2012.

78 Climate change and the risk of statelessness.

79 Interview with Carlyle Thayer, Emeritus Professor at the University of NSW at the Australian Defence Force Academy.

80 For research study on global economic inequality refer Davies, J et al (2005), Personal assets from a global perspective, United Nations University, http://www.wider.unu.edu/research/projects-by-theme/poverty-inequality/en_GB/personal-assets-from-a-global-perspective/, accessed 6 March 2012. Also refer to studies in Global Governance and Conflict and United Nations Office on Drugs and Crime, ‘UNODC's action against corruption and economic crime’, http://www.unodc.org/unodc/en/corruption/index.html, accessed 6 March 2012.

81 Costs of reconstruction were estimated at $9b to $10b. For review of overall costs to the economy see Macquarie Group, 2 March 2011, ‘Economic impact of the Queensland floods’, http://www.macquarie.com.au/mgl/au/advisers/keep-up-to-date/oxygen/march-2011/economic-update, accessed 6 March 2012.

82 Traditional organisations such as Australia Post were early victims of the digital age: ‘20 years ago, traditional mail accounted for 80% of Australia Post’s profit. That fell to 58% a decade ago, and this year it will record a loss of some $204m’ (Durie, J, ‘Electrifying future for switched-on post’, The Australian, 18 June 2010).

83 Liondis, G, ‘ASIC likely to go slow on multiple exchanges’, The Australian, 18 June 2010.

84 See Australian Institute of Criminology, ‘Transnational and organised crime’, http://www.aic.gov.au/en/crime_types/cybercrime/transnational.aspx, accessed 28 February 2012; also David Irvine, Director General of ASIO quoted in Kitney, G and Kerin, J, ‘ASIO chief warns on cyber attacks’, The Australian Financial Review, 30 July 2010; and Welch, D, ‘Code red: The cyber spy threat’, The Saturday Age, 24 September 2011.

85 Callick, R, ‘The Singapore model’, The American, 27 May 2009, http://www.american.com/archive/2008/may-june-magazine-contents/the-singapore-model/, accessed 6 March 2012.

86 Dong, W, ‘Can health care financing policy be emulated? The Singaporean medical savings accounts model and its Shanghai replica’, Journal of Public Health Advance Access¸ 4 July 2006.

87 Interview with mining industry executives.

88 Air China is the most profitable airline in the world and was rated by Skytrax as a four-star airline in June 2011. It is the largest state-owned airline in China, and possesses the best aviation fleet. See ‘Air China airline’, http://www.chinahighlights.com/china-airline/air-china.htm, accessed 6 March 2012. Etihad, Qatar Airways and flydubai are majority state-owned — 100% for Etihad and flydubai, 50% for Qatar — and all three have been among the brightest growth stories in a region already noted for its rapid development. See Centre for Aviation, ‘More Middle Eastern airlines poised for profits’, http://www.centreforaviation.com/analysis/more-middle-eastern-airlines-poised-for-profits-61687, accessed 6 March 2012.

89 Goble, P, ‘China enters Centre Eurasia’s water wars’, Georgian Daily, 21 November 2009, http://georgiandaily.com/index.php?option=com_content&task=view&id=15735&Itemid=65, accessed 6 March 2012.

90 Beattie, A, ‘Trading blows: Global economy US-China relations, which will shape the 21st century commerce, remain beset by mutual accusations of distortion’, Financial Times, 5 July 2010, http://www.ft.com/intl/cms/s/0/7eebef04-8865-11df-aade-00144feabdc0.html#axzz1oISz2OZj, accessed 6 March 2012.

91 ‘Australia’s future hostage to rivalry between China and US’.



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