Fear and Greed – Australia and the Rise of Asia

Professor Michael Wesley is director of the Coral Bell School of Asia Pacific Affairs and an author, most recently of Restless Continent: Wealth, Rivalry & Asia’s New Geopolitics which is an integrated account of the economic, political and strategic trends across the world’s largest continent and which provides a guide for thinking about Asia’s future – and the world’s. Michael Wesley addressed The Sydney Institute on Monday 2 November 2015 to discuss some of his findings for his most recent publication.

FEAR AND GREED – AUSTRALIA AND THE RISE OF ASIA

 

MICHAEL WESLEY

 

Gerard, thank you very much for that warm introduction and thank you Anne for the invitation to speak at The Sydney Institute. I have watched many Sydney Institute speeches over the years and it’s a great privilege to be here.

I’ve titled tonight’s talk “Fear and Greed – Australia and the Rise of Asia”. The book I have just published is actually not about Australia; it’s about Asia and the way in which it is changing with important implications for Australia. Tonight I thought I’d talk a little about Australia and our approaches to Asia.

A year ago, at the G20 summit in Brisbane, German chancellor Angela Merkel reportedly asked former prime minister Tony Abbott about Australia’s approach to managing its relationship with China.

 But I happen to think that formulation “fear and greed” captures some of Australia’s dilemmas about the rise of Asia.

Fear and greed could be the shorthand way of talking about Australia’s never completely reconciled twin impulses towards Asia. On the one hand, there has been a remarkable and persisting economic complimentarity between this country and the modernising societies of Asia. As Asian societies have developed, beginning with Japan back in the late nineteenth century, they seemed to exhibit a remarkable demand for the materials that the Australian economy produces cheaply and in abundance. In another piece of writing, I have characterised Australia’s luck as being that of both geology – the substances that we have in the portion of the earth’s crust that we own – and geography – the fact that we exist relatively close to these big consumers and these big developing societies.

So, fear and greed, are the twin impulses that Australia has used to chart its course in relation to Asia. For some of you, this might seem preposterous, given that we’ve just racked up 70 years of safety and prosperity. Arguably, the last 70 years have been the safest and most prosperous that Australia has ever enjoyed. So, where is the fear and where is the greed you might ask? My answer to that, and it’s the place where I begin my book Restless Continent, is that this era of safety and prosperity that Australia has enjoyed is the result of a remarkable confluence of events and circumstances.

Those 70 years were built on what I call a coincidence of economic and security dynamics in our part of the world. Sixty-five years ago, the United States through the San Francisco treaty system established a structure of security in the Asia-Pacific region. It signed bilateral or trilateral alliances with a group of islands really off the coast of Asia. Japan, and eventually Korea, Taiwan, The Philippines, Thailand (not an island but part of the Asian coastline) and, of course, Australia and New Zealand. This was a period of time when Communist China was closed to the rest of the world economy leaving the United States to become the dynamic centre of the regional economy. And so

Restless Continent is a book essentially about how those benign conditions that led to Asia’s rise and the remarkable stability in Asia and the consequent prosperity and safety of our own society may very well be coming to an end. It’s a book that I’ve written because I believe we stand on the threshold of a genuinely new period in Australia’s relationship with Asia. Restless Continent argues that Asia’s rise was built on a pragmatic agreement first arrived at in August 1967 in Bangkok, the capital of Thailand. Five non-communist states in Southeast Asia came together – Thailand, obviously, the Philippines, Indonesia, Singapore and Malaysia. At that meeting in Bangkok in August 1967, they agreed that it was only by shelving their rivalries that the countries of Southeast Asia could stabilise and concentrate on their own economic development and prosperity.

This was an agreement that worked remarkably in Southeast Asia. As the 1970s and 1980s progressed, it was a pragmatic agreement that spread to the rest of Asia. By shelving rivalries and putting aside differences, overcoming ideological disagreements the societies of Asia could invest in their individual prosperity and their collective safety and prosperity as well. But

Restless Continent is an attempt to peer into the future of our region. To look at the world’s most populous continent, the continent that is soon to be home to 60 per cent of the earth’s population and around the same percentage of the world’s productivity. It is also a continent that has become, as I say in the book, a slow motion arms race, the biggest on earth. We tend to think of our own weapons acquisitions, controversy over our submarines and our surface ships and other weapons acquisitions as something that is occurring in isolation here. It is not. Australia is just one of a dozen countries in our immediate region that is either acquiring or significantly renovating and expanding its submarine forces. That is why what we buy in terms of our submarine purchases are so important.

In looking into the future, I realise that this is a fraught process. There is so much serendipity in history one can’t accurately predict what’s going to happen. But I can identify two trends and two conditions that are the underlying forces that will shape how history plays out along the world continent, as Sir Halford Mackinder used to call it.

For most of the last 500 years, the economic linkages that Asian societies have had with countries and regions not within their own continent were much more important and much more consequential than the economic linkages that they had with their neighbouring societies. That is one trend that is very rapidly coming to an end. In the book, I provide evidence and statistics, and examples of a range of different types of interdependence that is growing across Asia. I talk about energy.

The big, growing economies of Asia are the most intensive energy users on the face of the planet. This is a trend will accelerate in the future. China has been the big mover for the last 20 years. It will continue to be the big mover for the next 20 years. After that, according to international energy agency statistics, India takes over and becomes the big energy user in terms of energy consumption growth.

Then there is Asia’s increasing manufacturing interdependence. One of the cutting edge trends of the global economy is distributed manufacturing. The use by multinational firms’ advances in manufacturing technology, communications technology and management sciences, enables them to break up the process of manufacturing into smaller and smaller pieces and site each of them at the lowest cost and best position to create our cars, our refrigerators, our computers and so on. The cars that we drive, the computers that we use are no longer made in any single country. They are made in a myriad of different countries and brought together and assembled in another, then exported to us.

Nowhere in the world, in no other region in the world, is this process more advanced and moving ahead with more rapidity than in our own region. Asia is much more advanced in distributing manufacturing than Europe is, than the Americas are or any other region globally. This is a dynamic that is increasing.

Increasing interdependence in services is another cutting edge trend in the global economy.

 One of the joys I had in writing the book is to look at some of the statistics that are produced by the World Tourism Organisation. Many of us probably don’t realise such a thing exists but it does; it is a UN agency. Asians, particularly the Asian middle classes, have the biggest growth in demand for international tourism. By a factor of three to one, they are choosing other Asian countries to visit, rather than Europe or the Americas or elsewhere. There is an incredible curiosity about other Asian societies and cultures and civilisations.

So trend one is interdependence. Trend two is almost its polar opposite, and that is rivalry. There is deepening rivalry between the powers in Asia today. Even though the United States is not in Asia, I define it as a power in Asia. But it’s not only about the United States and China. There are other highly consequential players. Japan – normalising in the words of security jargon. India is increasing its own great power pretensions and its view of itself in the world and its own region.

What are Asian states rivals over? Are they rivals over territory, are they rivals over bragging rights, are they rivals over other things? No, they’re rivals over primacy. What do I mean by primacy? Primacy is something that great powers strive for. They have striven for primacy in history and they have striven for primacy because it is the best risk mitigation strategy that a great power has yet been able to think of.

. Without having to coerce, without having to put significant assets on the line, without even necessarily having to accept their particular behaviour.

Primacy can be exercised through a variety of means. It can be exercised through institutions, through rules, it can be exercised through relationships. All great powers do it and, of course, our part of the world has seen a remarkable period of American primacy. We have witnessed how the United States can shape the way countries in this part of the world act, the way they calculate, the way that they conduct themselves, all according to rules of the road that the United States supports and is very comfortable with.

Of course, the biggest challenger to United States primacy is China. For China, there is simply no option to cede to US primacy. China sees its interests expanding as its power expands. For the Chinese, there is simply too much risk in ceding to American primacy. The energy flows that I mentioned before, that China is so dependent on. There are the sea lanes that are controlled by the US Navy. For China, there is an unfinished set of historical issues. One is the fact that it regards Taiwan as a province of China while it is divided from China through a political solution imposed at the end of the Second World War.

Beijing realises that, while American primacy endures, China can do very little about this ongoing historical anomaly.

Other countries are not so sure about this and, of course, the counter strategy to primacy for countries such as our own is to assert and maintain the principles and the ability to maintain our autonomy. To be able to resist and to say no when we want to say no. Which, arguably, we have been able to do through this period of American primacy. A lot of countries are looking at the prospect of Chinese primacy and developing their own counter strategies. That is what the Japanese are doing with the most significant re-interpretation of the Japanese constitution for 70 years. The Japanese have real concerns about what Chinese primacy looks like. The Indians have great concerns, the Vietnamese have very great concerns and so on. And Australia should have very great concerns as well.

The geography of competition is incredibly important. I have a chapter in the book drawing attention to Asia’s strategic geography and the places in Asia that this rivalry will start to play out. The punchline is that some of this geography is uncomfortably close to our own shores. The other condition is the fact that

Rivalry means that the economic interdependence, which in Europe led to a political solution without war, is not a prospect in Asian because the rivalry is too great and the mistrust is too great. At the same time, the historical working out of deepening rivalries with war is no longer on the table. Many of these countries are nuclear armed, and the levels of economic interdependence are too deep and too great. The cost of a war would be catastrophic. So rivalry and interdependence hold each other in check and position Asia for a long period of what I call rivalrous interdependence. An uncertain period of shifting patterns of rivalry and alliance that will define this region for the rest of our lifetimes, the rest of this century.

in which to prosecute their bids for primacy, to try and draw the smaller countries of the region towards their own systems of determining the rules of the road, and the institutions that will determine how this part of the world works.

I would predict that Asia has already entered a period in which the real competition is not military but diplomatic and economic. I would predict that we are entering a new age of geo-economics, a new age in which economic statecraft is the way in which countries, particularly big economic powers, attempt to influence and establish primacy over smaller countries. As Asia moves into an age of geo-economics, it will take the rest of the world with it. That is its economic weight and the way it will start to dominate economic dynamics and diplomatic trends for the rest of the world. The age of geo-economics will be dominated by one question: How can economic relations between large economic powers and smaller economic powers be so structured that the states of our part of the world will comply with the great powers’ strategic preferences.

The Trans Pacific Partnership is a piece of American geo-economic statecraft. I have no doubt about that. Senior Obama administration figures, including the Defense Secretary, have been talking about the Trans Pacific Partnership in this way. The US Defense Secretary has said: “The Trans Pacific Partnership is more important to the United States than another aircraft carrier.” That is a classic statement of geo-economics.

The way I read the TPP is less as a trade agreement, although it will have trade benefits, and more as a counter in US strategic thinking to China’s increasing economic centrality in the region. The United States is using the promise of preferential access to the future of the global economy, and the interdependent globally distributed manufacturing process – the interdependence in services – to tie the region, the states of the region, into a demanding rules-based agreement through the TPP.

The Chinese have countered with an idea for infrastructure. One Belt-One Road it’s called in the jargon – a silk road economic belt stretching across the heart of Asia, west to Europe and a maritime silk road stretching down the Chinese coast across south east Asia, through the Indian Ocean to Africa and beyond to the Mediterranean and Europe. You’ll be pleased to know that President Xi Jinping, in our parliament last year, said that there will be an offshoot of the maritime silk road that will make its way towards us. Now

, to tip the liberal trading system in China’s favour. It is, at base and despite myriad Chinese denials, designed to extend and entrench a pattern of China centred trade investment and production sharing relationships.

It is also a bid for primacy. A primacy based on deepening economic relations with countries that border China and an attempt to use infrastructure connectivity to deepen regional economies’ dependence on the Chinese economy. There’s a lot being written and said today that China is no longer a communist country and that China has become capitalist. You see this written repeatedly in many, many very reputable places. I would counter that, in one sense, China is deeply communist. It is deeply Marxist in its philosophy of history. A close reading of Chinese government statements can leave you in no doubt that that is the case. It is Marxist in that its leadership believes that the evolving economic structure of the world constantly creates contradictions between the economic basis of human activity and the political super structures that sit on top of economic activity. And that history moves through the “resolution” of these contradictions.

This is the approach to the pacification of Tibet and Xinjiang that China has used. It has used economic interdependence and economic development to change the material conditions on the ground in those restive provinces. In grand Marxist style, this will bring about a transformation in the political outlook and political structures in those places. It also lies behind the completely inexplicable behaviour that China exhibits in the South China Sea.

That somehow the Chinese will drive other countries away from China. But if you understand the way the Chinese Communist Party looks at the world, what it is doing in the South China Sea is deeply rational and completely in accord with its understanding of how history works.

Geo-economics is a strategy for China to challenge the United States for primacy without risking conflict and without risking war. It believes that patterns of interdependence between the Chinese economy and those of regional states, will bring a change in the economic facts on the ground and eventually political structures, such as the outdated political structures of US alliances in the region, and US bases in regional countries will be swept away as these contradictions are resolved.

We should be in no doubt that China regards its economic relationship with Australia in terms similar to the way it regards its economic relationship with regional countries: through a strategic geo-economic lens. The post war coincidence of security and economic dynamics in our part of the world has crumbled. Australia has struggled to marry together its two competing impulses of fear and greed. We have struggled to reconcile our very productive economic relationships with Asia and the worrying strategic trends that we’ve seen in academia and think tanks, and in government. There are two conversations going on about Asia. One is the conversation of economists. That all is good, that all is going in the right direction, and that Australia is integrating unproblematically with Asia. The strategists on the other hand have a much more gloomy outlook.

The first one might be called economics will save the world, the belief that we saw very strongly manifested in the early 1990s in the Keating Government, that the economic dynamic between Australia and Asia will simply reshape the strategic dynamics. The belief that economics will take the Australia-Asia relationship onto a new plane and completely reshape all other relationships, strategic, cultural and so on.

The second approach was the Howard Government approach. We could call it, “It’s the economics, stupid” which was the belief of the Howard Government that if you got bilateral economic relationships right you could manage the difficult political and diplomatic and strategic issues. The belief that if there are enough common economic interests the difficult issues could be managed away.

The third approach is what I call the quarantine approach. This is the belief that you saw in Dennis Shanahan’s article in The Australian on the weekend, that one can construct two relationships, two separate relationships, with a country like China. One will be economic and based on prosperity, the other strategic and based on mutual calculations of safety. You keep the relationships quarantined from each other and you play each of them according to their merits. But none of these approaches has yet worked. And none of them will work in the dawning age of geo-economics.

Because that’s how the great powers are thinking. The great powers are bringing together those two logics in ways that we are not. Perhaps because of our liberal political tradition, we’re uncomfortable bringing strategy politics and economics together. But this is the mindset that arguably the new age in Asia will demand of us.

China is utterly delighted that countries such as Australia and the Philippines, Japan and Vietnam are separating economic dynamics from strategic dynamics. The fact that China has been able to achieve remarkable gains in the South China Sea, while countries like the Philippines, that are directly affected, are not willing to endanger their economic relationships with China over this challenge. This is a cause for celebration in Beijing. Australia has an interest in preserving its autonomy, in this new age of geo-economic competition, and of course we do. We also have a broader interest in helping and encouraging other smaller countries in our part of the world to preserve their autonomy.

So while we’ve been fully aware that American primacy, for the last 70 years, has conferred privileges on the United States, we have been able to forge our own way to differ from the United States on important questions of regional order and philosophy in the region. We must preserve the same sort of autonomy in the years ahead. We were able to do it effectively in the past against the United States because we understood the way the United States worked, how its primacy worked and what you had to do to resist it.

. And how best to protect our autonomy in whatever resolution occurs either permanently or temporarily in the primacy contest to our north. We need to move from fear and greed separated to a much more integrated economic and strategic statecraft.