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International affairs

Growth 58: Competing From Australia

This big-picture CEDA research collection looks at Australia's place in the globalising world economy of the early 21st century. One key conclusion: distance is not dead as a challenge for Australia.

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Report highlights

Australia's distance from the rest of the world and its small size present us with special challenges over the coming years, says this major new report from CEDA.

But Competing From Australia also highlights strengths in Australia's services, resource and manufacturing sectors that can underpin continued economic prosperity.

Several of the papers in the collection note that Australia is relatively weakly integrated with the global economy, and faces problems in engaging more deeply with it.

For instance, Australia ranks 20th out of 22 nations for "trade intensity" - that is, international trade as a percentage of overall national economic activity. And it ranks 27th out of 29 nations for intra-industry trade as a share of total manufacturing trade - an indication of our low involvement with "global supply chains". These global supply chains are complex cross-border alliances between firms and parts of firms.

The report suggests that the "tyranny of distance" which Professor Geoffrey Blainey first described in 1966 remains alive and well despite modern transport and telecommunications. Indeed, new economic thinking suggests that distance is an impediment to economic development, and to the development of knowledge-based economies in particular.

A key paper by ANU's Professor Glenn Withers spells out that distance still matters to Australia. It matters not only because goods are shipped around the world, but because services are most easily delivered and business deals most easily agreed when people are close to each other. And trade, service delivery and collaboration are all becoming more important, not less important, to economic activity.

Other papers, by Victoria University's Professor John Houghton and the Department of Industry, Tourism and Resources' Andrew McCredie, explore the rise of global supply chains. Australia risks being marginalised in these global supply chains, the report suggests.

At the same time, Competing From Australia points out several ways in which the Australian economy is succeeding. Many of our major services industries, in particular, are expanding overseas, often through investing in foreign companies. Many of our manufacturers continue to make progress in overseas markets.

Australia has also shown a capacity for what is called "systems integration" (putting together existing technologies in new ways) and for innovation in resource industries.

How Australia can prosper

To engage more closely with the evolving world economy, the report suggests, Australia will need to:

  • Maximise our ability to interact with world markets.
  • Minimise communications and transport costs.
  • Build on our services and resource industry strengths.
  • Take advantage of skills developed in response to Australia's small size and distance from markets, perhaps most notably its "generalist" skills such as the ability to integrate existing components into systems - so-called "systems integration".
  • Foster innovation, particularly in so-called "traditional" industries, including those industries that rely on the resources sector.
  • Continue to build human capital - the sum of Australians' abilities, skills and knowledge - both through immigration and through investment in education.
  • Continue to support inward and outward foreign direct investment as well as trade.
  • Continue to emphasise economic openness and flexibility.