*Check against delivery*
Good evening everyone.
It’s a delight to be with you at the National Press Club.
I’d like to begin by acknowledging the traditional owners of the lands on which we meet, the Ngunnawal and Ngambri peoples.
I pay my respects to their Elders past, present, and emerging.
I acknowledge the Deputy Prime Minister and thank him for that kind introduction and for his time this evening,
And I thank Michael Fullilove, Sam Roggeveen, Clare Caldwell, and the entire Lowy Institute team for commissioning this paper, Deterring at a Distance: The Strategic Logic of AUKUS, and for organising this event.
I speak to you tonight and in this paper in a personal capacity.
These are my personal views.
I do not speak on behalf of the Government.
Fellow parliamentarians,
Fellow veterans,
Senior public servants,
Members of the diplomatic corps,
Representatives of the media,
Ladies and gentlemen,
On this very night, across the two oceans and archipelagos that make up our great region, the fate of the world is in play.
No other part of the world will have a bigger sway on the future geopolitical order than our own – the Indo-Pacific.
Home to 52 countries,
20 of the world’s 33 megacities,
Three quarters of the world’s population,
And 60% of global GDP,
The Indo-Pacific is also the locus of a stiff strategic competition.
This contest will decide the shape of the regional order.
Like it or not, the Indo-Pacific covers the most important squares on what Jimmy Carter’s adviser Zbig-nyev Bruh-zhin-ski called “the grand chessboard”.
We may come to rue that fact—but facts, friends, are stubborn.
The bitter truth is that, as Australia looks north, it sees a region whose strategic trendline is heading in the wrong direction.
Coercion has become a daily feature of regional statecraft.
Post-war norms are being flouted.
The rules-based order is under growing pressure.
These trends are occurring in the context of the largest peacetime military build-up the world has seen since the Second World War.
The Defence Strategic Review was plain-spoken on the main author of that build-up.
With a defence budget estimated to be US$711 billion, China spends more on defence than the next 25 regional countries.
It has raised spending by 75 per cent over the past ten years compared to an average of 33 per cent.
China’s rise as a military power has been meteoric.
Nothing better illustrates this than the transformation of the People’s Liberation Army Navy.
As China’s GDP soared from under US$400 billion in 1990, the year I joined the Army, to almost US$15 trillion in 2020 – more than eleven Australian economies — the PLA Navy leapfrogged the US Navy in raw numbers.
Now armed with 370 warships, the PLA Navy is expected to grow to 440 ships by 2030, compared to the US Navy’s 294 ships.
As of 2022, Beijing had taken a 57-ship lead on the U.S.
China has launched 75 new warships since 2018, compared to America’s 35.
China is now the largest shipbuilder on Earth.
Every four years, the Chinese navy adds 130 ships — more than three Royal Australian Navies — to its order of battle.
And what that means is that, with each passing year, the Australian Defence Force becomes smaller and smaller as a share of the regional balance of power.
A balance that is rapidly shifting as China asserts itself and seeks to reshape the region.
There are some exceptions to that rule.
At 4.5 million tonnes, the U.S. Navy is still much heavier than the PLA Navy’s 2 million tonnes.
It is far more heavily armed with 10,196 missile cells to China’s 4,168.
And it still surpasses China in numbers of aircraft carriers, destroyers, and in nuclear-powered submarines or SSNs.
But the shifts in the balance of power have eroded the status quo that had stabilised Asia since the end of the Pacific war.
I don’t claim any originality in making this observation.
It’s also been made by the U.S. foreign policy and defence establishment.
As Senator Roger Wicker, the highest-ranking Republican on the U.S. Senate Armed Services Committee, said recently, the strategic context is unlike the Second World War when the U.S. economy was larger than those of all its adversaries combined.
Senator Eric Schmitt has worried, and I quote, “that China’s naval fleet is rapidly outpacing our own, and that gap is only widening.”
Former INDOPACOM commander, Navy Adm. John Aquilino, has observed that, on top of having the largest navy, the PLA will soon become the world’s largest air force too.
The balance of power grows more unstable.
But sustaining a stable and inclusive balance isn’t a uniquely American responsibility.
It’s an Australian one, too.
Because Australians aren’t free riders.
We pay our fair share of defence spending.
Last year we spent 2.04 per cent of GDP on defence.
And we’re on track to spend 2.4 per cent by 2034.
As Deputy Prime Minister Marles said at the Shangri-la dialogue recently, Australia sees its investments in national defence capabilities as a necessary and prudent contribution to the balance of power.
We seek to build a sustainable balance in the Indo-Pacific in which no one country in our region is militarily dominant.
Our U.S. ally has a central role in this task.
Long gone are the days when Australian politicians could stand up and say that we don’t have to take sides.
We are firmly in America’s corner.
We chose our ally when we signed ANZUS in 1951.
And the Australian people back up this choice.
The 2024 Lowy Institute Poll shows that 83 per cent of Australians see the alliance as important to our security.
Cyclical predictions of U.S. decline have been made since the 1950s.
They have always been wrong and remain so today.
What critics miss is that the U.S. only commits a fraction of its forces to the Indo-Pacific in present conditions.
In any regional contingency, the balance would shift as America’s forces flowed into Australia’s part of the world within days.
America remains indispensable to balancing our multipolar regional order.
China can have a leadership role in this order as well.
Whatever pessimistic Western economists may theorise, much like America, China will remain a central player in the regional balance of power.
It would be futile to resist that fact or to wish it away.
But the balance of power is broader than both military giants.
That’s why, as well as deepening our alliance with the U.S., we are deepening our defence relationships with Japan, Korea, India, Indonesia, the Philippines, Vietnam, and other partners in Southeast Asia.
As Foreign Minister Wong has observed, what Australia strives for is a strategic equilibrium.
As well as collective deterrence.
A region in which the sovereignty of all countries, large and small, is respected.
One in which all countries are free to pursue their national interests within the confines of a rules-based order.
An order in which legitimate military modernisation is balanced by reassurance on countries’ strategic intent.
We are still far indeed from a new settling point.
Nowhere is that more obvious than in the changing submarine balance.
Currently, the PLA Navy fields 72 submarines and will grow to 79 by 2030.
The US sits at around 67 submarines, 49 of which deploy to the Indo-Pacific.
Of the 400 non-US submarines in the world, 166 are in our region, compared to 96 operated by the U.S. and its allies.
Why does this matter to Australia?
Because the undersea balance heavily conditions our freedom in ways large and small.
Take a case of which Australians can be rightly proud: the ADF’s intervention in Timor-Leste in 1999 twenty-five years ago.
Apologies if I just made everyone feel that bit older.
It’s an open question whether, in a similar crisis today, the ADF could risk putting a thousand troops on HMAS Canberra without adequate submarine escort, so high priority a target would it present.
And, so, our psychological freedom is put at risk.
We face the growing risk that an unchecked submarine threat could deter us today from even contemplating the sorts of actions we would consider to be in our national interest.
An enemy submarine force might attempt to prevent us from assisting an Indo-Pacific partner in need.
It might also seek to constrain America’s ability to project power across the Pacific to fend off an attack on Australia.
In a real sense, then, the defence of Bondi really does begin in the archipelagos to our north and islands to our east.
Our own submarine force has a unique role to play in preventing these scenarios.
Enter AUKUS.
This technology-sharing agreement with the United Kingdom and the United States will see eight nuclear-powered submarines in Australian service by the 2050s.
SSNs are overwhelmingly in Australia’s interest because they strengthen our ability to deter war by threatening painful consequences for aggression against Australia, its partners, and its interests.
The main reason to acquire and build SSNs in Australia is their potent strategic effect.
SSNs are worth the significant cost and effort of building them because they are optimal instruments of deterrence.
That is the name of the game that we are now entering in earnest.
Elevated to a military science during the Cold War, deterrence is a relatively new task for the ADF.
Thomas C. Schelling, one of the leading thinkers on deterrence, defined it as being “about intentions — not just estimating enemy intentions but influencing them”.
Building an independent Australian deterrent will demand that Canberra be more disciplined than it has ever been in prioritising its military strategy.
But that does not mean fixating on any one country.
SSNs, like all weapon systems, are country-agnostic.
Critics take the bait of propagandists when they assume that it targets one specific country.
Submarines reign supreme in each of the elements of a strategy highlighted in the Defence Strategic Review and carried over into the National Defence Strategy.
In a defence of Australia scenario, our SSNs would cultivate uncertainty in an enemy’s war cabinet.
Because they could be anywhere.
Maybe lurking outside the Sunda, Lombok, and Ombai straits.
Faced with a potentially devastating attack on their most prized assets, all but the most adventurous invader might be given pause for thought.
This is what AUKUS is all about.
Secondly, imagine if Australians woke to find a hostile power having achieved what has not happened since Japan ruled most of the region: threatening to isolate Australia strategically.
SSNs could play a crucial role in that scenario either with Tomahawk missile strikes or by infiltrating special forces to raid an enemy base.
Thirdly, SSNs would be extremely useful in another nightmare that has haunted generations of Australian defence planners, that of a hostile naval power seeking to close Australia’s sea lines of communications.
The fourth scenario in which submarines are of paramount importance is in contributing to the region’s collective security.
Finally, SSNs can also contribute to regional security in softer ways, such as to support the law of the sea, which is foundational to Australia’s ability to undertake deterrence missions and freedom of navigation patrols.
In the paper, I acknowledge the varied critiques of AUKUS.
Among them is the outright misinformation that the deal included some kind of quid pro quo with Washington, offering Australia’s support in a contingency over Taiwan.
This is demonstrably false.
These boats will be sovereign Australian assets, Australian-flagged, and Australian-crewed, and their operational deployments will be solely decided by the Australian chain of command.
America understands and respects Australia’s sovereignty policy.
Concerns about how potential changes of government may affect AUKUS are also greatly exaggerated.
Granted, the deal requires bipartisanship in three great democracies over three decades, but I have faith in our partners, in historic levels of support for AUKUS in Congress, and in the strategic wisdom of the Australian people.
AUKUS has already survived one change of government in Australia and is robust enough to withstand the others to come—not any time soon though.
I’m also unpersuaded by those who think that we should be prioritising cheaper suicide drones and missiles like those used to great effect by the Ukrainian Armed Forces instead of investing in SSNs.
The Battle of the Black Sea, however impressive, is not a workable model for the defence of Australia.
The Ukrainians would have more than decimated the Black Sea Fleet with anything approaching Virginia-class SSNs.
We can and we are investing in both missiles and submarines.
The one observation I would make is that AUKUS may not be ambitious enough.
I think there is a case for a future Australian government to seriously consider building SSNs continuously from the 2050s.
Building a truly two-ocean force of twelve SSNs, with six on each coast.
These could protect all our key northern chokepoints at once, doubling our patrol coverage.
Which takes us to the ultimate argument against AUKUS: the cost.
The cost of AUKUS is warranted because, on first principles, Australia needs a submarine force for its ability to deter and defeat an enemy invasion and to stealthily strike distant targets, which SSNs can just do better.
Threatening to aggressors, lethal if provoked, but not overtly provocative, SSNs are the goldilocks long-distance capability.
There is no peer platform that achieves that military effect more cheaply, aside from Australia’s excellent but outdated conventional Collins-class boats that will reach their expiry date in a decade’s time.
AUKUS is not only affordable—it is already partly budgeted.
The Albanese government has begun to fund SSNs by investing $9 billion, with $6 billion of that already offset, and a projected $58 billion until 2033.
AUKUS will cost less than ten per cent of the defence budget.
The argument that it is gutting funding from the rest of the ADF is spurious.
But it is important that advocates of AUKUS like me pay attention to these arguments, because they point to the crucial question of social licence.
Prudent governments have a duty to balance funding for Australia’s National Disability Insurance Scheme, fee-free TAFE, cheaper medicine, cheaper childcare, social housing, and power bill relief with adequate spending on the defence of the Commonwealth — on which every other progressive policy depends.
In the final analysis, the cost of AUKUS reflects the value all Australians should place on their way of life as a free people under the Southern Cross.
It is a tragedy that to prevent violence, we must make ourselves into a bigger threat to deter aggressors.
But we must.
And there is no better means of doing that than through the SSNs that Australia will get under the AUKUS deal.
Thank you very much and I look forward to your questions.
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I am honoured to have been invited to deliver the inaugural Allan Gyngell Lecture. I’m especially gratified to see so many of Allan’s family and friends here and I believe many are with us on livestream too.
Allan was a close friend. Our families have been close, and remain so. Beyond his friendship, I held his intellect, analytical skills and creativity in the field of international affairs in the highest regard.
When Steven Lowy spoke last year at Gandel Hall as we celebrated Allan’s life, he was generous in talking about all that Allan had done for the Lowy Institute as its inaugural Executive Director.
In truth, the benefits went both ways.
It was as Executive Director of the Lowy Institute that Allan regained his public voice. Those of us close to him after he left government knew what he had to offer, and he had of course just co-written with Michael Wesley ‘Making Australian Foreign Policy.’
But it was not until he took up his position at the Institute in 2003 that he was seen and heard publicly in a way he deserved to be.
We all owe much to the Lowy Institute for giving Allan the opportunity to ‘re-launch’ himself, and thus for all that he was able to offer in the last 20 years of his life as our foremost foreign policy analyst and educator.
Remembering the occasion at Gandel Hall a year ago evokes many memories. Today I want to recall two particular things that were said amidst the sombreness of the day.
The first is Paul Keating’s memorable epitaph: referring to the way he worked with Allan as his international advisor, he said “Statecraft – that was our caper.”
The second is what Sandy Hollway said when he spoke of a discussion with Allan in the early nineties about the management fad of the day, “KPI’s”.
Had it been me, I might have said my KPIs were to complete 90 per cent of ministerial correspondence within prescribed time limits, to reduce my division’s spending by 8 per cent, and to get through Senate Estimates with minimal pain.
But as Sandy recounted it, Allan, predictably impatient with such prosaic lines of thinking, proclaimed that his KPIs would be “to have between four and seven good ideas a year”.
It is those two references – to statecraft and ideas – that I want to talk about in the first part of this lecture today.
I will then move on to comment on the apparent end of the post-1980s or post Cold War era which saw some of Australia’s finest statecraft, and to offer some comment on Australia’s responses to the challenges of the new era.
The term ‘statecraft’ is in more common use in Australian policy discourse today than ever. Allan had a lot to do with that.
In 2022 ‘statecraft’ was on his short-list for the word of the year, though he eventually settled for ‘polycrisis’.
Allan spoke on a number of occasions about what he meant by ‘statecraft’.
“Nations,” he said, “need many things to succeed – a growing economy, a strong security force, resilient institutions. The art of government is the visionary and efficient coordination of all these elements by the political leadership”.
Allan saw foreign policy as a sub-set of statecraft, as “that part of statecraft that deals with the management of relations between states… (and)… manages differences and builds alignments between states in the international order.”
Separately, he offered the insightful view that the “primary function of foreign policy is to expand the international space within which the nation state can operate.”
Statecraft involves strategic decision making, and a thorough understanding of both domestic and global political dynamics, economic conditions and military capabilities.
It determines what I call our strategic weight.
For me at least, understanding statecraft and foreign policy in these terms triggers a search for something grander than the day-to-day work at the coal-face which engages most of our international policy artisans.
And that’s where ideas come into play.
With foreign policy nested in statecraft, the best of it will be underpinned by vision – by ideas.
So my pitch is this: that foreign policy – international policy in all its forms - comes at two levels.
The first is the routine, day-to-day level of policy. It’s usually responsive or reactive, requiring decisions or statements on issues and events that involve some level of national interest.
It’s the essential, day to day, bread and butter work of the policy practitioners in pursuit of Australian interests in any field - foreign policy, trade policy, economic policy, defence policy and aid policy.
It’s generally incremental and transactional. It can be tactically clever, and will always benefit from a good narrative.
Above all, policy at this level can be expected to be anchored in conventional practice defined by an established policy framework, and to that extent rarely breaks new ground.
There is of course a difference between doing this work well and doing it less effectively. Doing it well earns respect for a nation and its leaders– and is essential to its international reputation.
The second level is the kind of policy that for me at least plays most strongly into the idea of statecraft.
It is a higher form of policy. It rests on ideas that go beyond convention. It breaks new ground and reaches beyond the now to a bigger picture.
It draws on vision and imagination, and usually reflects a keen sense of history. Its objectives are long term, and its benefits are measured over time rather than by the headlines of the day.
Policy of this kind positions its exponents in new space, to reference one of Allan’s terms, and enhances a nation’s strategic weight.
Looking back on the history of Australian policy over the last 80 years, certain policies stand out for meeting some if not all of these qualities.
I will nominate a few.
The first 30 years after our accession to the Treaty of Westminster saw a number of policies that should be seen at this higher level of policy.
They include our role in the creation of the United Nations and of the Bretton Woods framework, and in support of Indonesia’s independence; the Colombo Plan; the conclusion of the ANZUS Treaty, and the trade treaty with Japan; our delicate positioning with Indonesia, Malaysia and Singapore during ‘Confrontation’ in the mid1960s; and our prompt support for ASEAN and our quick and path-breaking engagement with it.
In the 1980s, our critical role in support of freeing up world trade, and in particular in driving the Cairns Group and building the World Trade Organisation to replace the GATT, was a policy clearly at the higher end of statecraft, especially anchored as it was in the domestic economic reforms which were pursued in parallel.
Australia’s role in initiating APEC and then later in transitioning to the APEC leaders’ forum were classically acts of higher policy.
So too were our leading contributions to the creation of the ASEAN Regional Forum, the Antarctic Treaty, the Chemical Weapons Convention and the settlement in Cambodia.
The decision in 1995 to conclude a security treaty with Indonesia was another instance of statecraft at that level, one with which Allan was closely associated.
The treaty was discarded by Jakarta when the East Timor crisis broke, but within a couple of years the essence of the treaty relationship was reaffirmed in what is now known as the Lombok Treaty – and our statecraft was vindicated.
In a different way, as the region faced the Asian Financial Crisis in 1997, Australia’s decisions to extend lines of credit to Indonesia, Thailand and the Republic of Korea were fine exemplars of policy serving statecraft at the higher level.
So too was our plainly spoken advice to Washington about the way it was dealing with Jakarta.
I was in China at that time, and have no doubt that Beijing was impressed by the policy decisions it saw in 1997 – and by what those decisions said about the strength of our economy and of our banking system, and by the way we dealt with Washington.
The East Timor crisis in 1999 began with Australia in reactive mode, but bold thinking led to a different level of policy and to an intervention whose deft and skilful execution certainly reflected well on Australian statecraft.
Australia’s leadership of the intervention in the Solomon Islands in 2003 – RAMSI – is also to be commended in this context, not least because an important part of the inspiration for it the came from outside government – from a think tank.
Good ideas are not the exclusive preserve of governments.
I don’t claim this to be an exhaustive list. Nor am I intending in any sense to denigrate the more routine levels of policy making or implementation. They serve Australian interests no less.
And after all, that’s where I spent most of my working life.
My final point about what I have described as this higher level of policy is this: the resources required for innovative and path-breaking policy need not be measured in numbers.
The best of statecraft derives from ideas – and ideas come from individuals with energy who are not only empowered but also in a personal sense are wired to think.
The fact is that when it comes to policy making and advising, what matters is not the number of people engaged in it, or whether the agency responsible has a functioning policy planning branch – but whether enough of those people are endowed with imagination, and the courage and wit to express it.
Allan Gyngell was one of those.
Those of us who worked in government during the 1980s and 1990s and into the new century were fortunate to be engaged in an era of great opportunity.
This was a period which saw, in parallel, the end of the Cold War and of the Soviet Union, the liberalisation of capital flows, floating of exchange rates and the freeing up of trade in goods and services.
With fiscal discipline prioritised, ‘Washington Consensus’ was the buzz term, and globalisation was celebrated.
This was an era that was enabled by two momentous events which occurred within a short period of each other in the early 1970s: the rapprochement between the United States and China, and Washington’s abandonment of the last remnants of the gold standard.
Initially styled as the ‘neo liberal’ era, it later became the ‘Post-Cold War’ era. It was also, for some, a ‘unipolar world’ - a world in which what Washington wanted it mostly got.
It was a period of 30 years in which Australia benefited enormously both from a stable international environment, especially after 1990, and from a global economic order that was so beneficial to trading nations.
And it wasn’t just Australia that benefited: many nations grew their economies, and unprecedented numbers of people were able to lift themselves out of poverty.
But for all this, the first two decades of the new century saw this comfortable international order come under increasing strain.
A twenty year period saw Islamist terrorism on a huge scale; wars in Iraq and Afghanistan, and in Africa; a Global Financial Crisis; Russian aggression in Georgia and Crimea; China’s assertion of its claims in the South China Sea, its insouciant response to an international arbitral ruling and the militarisation of a number of islands; the steep rise of climate change in international and domestic agendas; and then economic stagnation in the United States and Europe.
To this fraying order, the early 2020s delivered three sharp shocks: the COVID pandemic, Russia’s invasion of the rest of Ukraine, and Hamas’s attack into Israel and all that has followed in Gaza and beyond.
As all this was unfolding, China was transforming – and as it transformed, so did its role in world affairs.
China’s economy grew on a scale that challenged existing institutions.
With enormous amounts of its product reaching world markets, China quickly became the major trading partner of most of the world’s nations, and through its Belt and Road Initiative and other means went on to become a new source of international development and investment funds.
As China’s economy grew, so too did its armoury as it bid to outmatch America’s military capability.
And as its armoury grew and Xi Jingping consolidated his authority, China became increasingly willing to show its muscle, endeavouring particularly to push the United States back from East Asia.
In response, the United States began to push back and, as Sino-American rivalry became strategic competition, both powers began to ‘weaponise’ their economies.
Economic disruption was then compounded by sanctions imposed on Russia after the invasion of Ukraine, and by the ‘work-arounds’ that Russia and its friends developed to beat the trade and financial transaction sanctions.
The consequences of these events have been three fold.
First, both the post 1980 liberal, multi-lateral rules based economic regime and the even wider concept of a Rules Based Order have been increasingly compromised.
At the international level, global governance has been shown to be flawed, and accusations of inconsistency, double standards and hypocrisy have become common place – on all sides.
As well, amongst trade dependent nations the COVID pandemic and then the war in Ukraine have excited concerns about the risks of dependence on global supply chains.
And the case against letting markets have their way in trade in high level technology, rare earths and critical minerals has been strengthened by the increasingly tense strategic competition.
Domestically, economic policies anchored in the ‘Washington Consensus’ have come to be held responsible for economic disadvantage and inequality.
This in turn has fed into the rise in many countries of ultra conservative political movements whose mantra is decidedly anti-globalist and nationalistic.
The second consequence of all that has happened over the last 20 years has been a portentous shift in international alignments.
With the rise of an economically strong and politically assertive China, and its increasingly close no-limits relationship with Russia, where for many years there was one strong magnet on the global map, now there are two.
In parallel, a ‘global south’ has emerged reminiscent of the NAM of the Cold War years, aspiring to much greater influence in world affairs in the name of “dynamic neutrality”.
Ironically, China has a prominent role in some of the manifestations of the ‘global south’, though not without contest from India.
And the third consequence of course has been the sharp increase, in both in perception and reality, of the risk of conflict between the United States and China.
Allan Gyngell was quicker than most in this country to recognise that the post Cold War era was at an end, and would not have been surprised to hear its last rites read, as they have been.
But I doubt whether he would have been sanguine about the new order, or about the challenges that lie ahead for Australian statecraft.
Faced with change and uncertainty on the scale we have seen, the response of Australian Governments has been to place two very large bets: on AUKUS, and on the economic policy settings recently announced by the Treasurer, Dr Chalmers.
Both are instances of policy formulation at the highest level.
Boldness and courage are implicit in both.
But both are attended by considerable risk, as all bets are.
Announced in 2021, the AUKUS partnership with the United States and the United Kingdom meets all the requirements for recognition as the best of statecraft.
It is path-breaking, it rests in a long term plan, it engages many areas of government, and its second pillar stands to be transformational for Australia’s industry as well as its defence capabilities.
AUKUS clearly bids to add to our strategic weight.
But there are grounds for concern about whether it can be realised.
Much depends on whether the US Navy can spare the submarines we want, and whether the UK shipbuilding industry can deliver on its part of the bargain.
Questions abound too about whether Australian industry can meet expectations, and about whether the Australian Defence Force and our industrial corporations can recruit people in the number and with the skills required.
AUKUS incidentally is a matter on which Allan and I differed.
Typically, he was concerned on grounds of principle: in short, he was unsettled by the extent of the dependence on Washington that AUKUS implied.
No less typically, my concern is a pragmatic one: I like the idea of AUKUS, but I worry about whether and how it can be delivered.
And of course if it can’t be delivered the consequences will be considerable – the very least of them will be that for curb-side commentators like me, it won’t be seen as a triumph of Australian statecraft.
The second big bet, as I have called it, is implicit in the speech the Treasurer delivered on 1 May at the invitation of our hosts, the Lowy Institute.
Speaking about a “world of churn and change,” Dr Chalmers set out what he saw as the future for the Australian economy and the need for what he described as “changes to the composition of our industrial base and economy in the context of net zero transformation.”
A critical subtext, as I read it, was about positioning Australia as a clean energy super power, an ambition which if it were achieved would certainly add to our strategic weight.
While economists have dwelt on the implications of the Treasurer’s statement for the domestic economy, its meaning in the international context deserves more attention.
His assessment about the end of one era and the advent of a new one was portentous.
“The Great Moderation of the 1980s”, he said, “(has given) way to the Great Fragmentation…Fragmentation of markets is limiting our choices.”
Economic security, he said, now has to be tied directly to national security. All elements of national power have to be harnessed to advance Australia’s interests. There will be “financial incentives, regulatory changes, and other enablers.”
All this, Dr Chalmers said, followed from the reality that “the Americans have been forced to reconsider their assumptions and strategies.”
He noted the significance of a statement on economic policy by the US National Security Adviser, Jake Sullivan, a year ago.
And he acknowledged the influence of recent discussions with the IMF and World Bank.
In these circumstances, he said, to leave our policy settings unchanged would be “preposterously self-defeating.”
We could be ‘nostalgists’ or ‘strategists,’ he warned.
Unsurprisingly given the breadth of the policy sweep he envisioned, the Treasurer was clear about the statecraft which underpinned the future he foresaw.
He referred specifically to the demands it would place on no fewer than eight Ministers, including the Ministers for Defence and Foreign Affairs and Trade, and the Ministers responsible for energy security and critical minerals.
Incidentally, Dr Chalmers’ lexicon is worthy of attention in itself. “The Great Moderation” and “the Great Fragmentation” are as far as I know original, and so is ‘nostalgist’.
But ‘fragmentation’ is indicative. Without dwelling on its provenance, suffice to say that it was first used by the US intelligence community in 2021.
In 2024, it bids to become the next ‘word of the year.’
Powerful as the Treasurer’s statement was, risk is evident at a number of levels.
Critical questions remain for Australia.
Clearly, as Dr Chalmers stressed, Washington has made the shift away from the neo liberal order that suited us so well.
So, to use Allan’s language, the space in which Australian policy has operated for nearly 40 years has shrunk, or at least changed in shape.
But does that mean that in the area of global trade and economics in which we have long been policy makers we must now become policy takers?
And how are we to see the future role of the World Trade Organisation, in which we have so much invested but about which Washington cares so little?
Are there implications for our many Free Trade Agreements and our regional economic architecture?
In domestic terms, the Treasurer’s references to financial incentives, ‘public investment’, ‘interventions’ and support for industry raise the spectre of subsidies and ‘picking winners.’
How sure can we be that governments will be any better at managing these ‘enablers’ in the future than they were in the distant past?
Will Australians pay for all this in higher prices at home as we did in those darker days?
I will leave it to economists to explore these risks and to balance them against the potential gains.
Suffice to say here that, as in any change, there is risk.
How it is managed will determine how history judges this bold bet on economic statecraft.
For decades it has been common for Australian strategic policy statements to begin by asserting that the times are more challenging and demanding than any since the 1940s.
This is surely so now as the foundations on which Australian foreign, trade and economic policy have been built – the free and open trade agenda and the liberal rules based order - have been eroded, and we move into a new era.
Our policy makers, while not ‘nostalgists’, will need to remember what the strategists of the 1980s knew: that is, that the nationalistic, beggar-thy-neighbour economic policies of the 1930s were as prominent along the path to World War 2, in Asia as well as Europe, as the jack-booted dictators who sought to re-arrange the political geography of Europe.
They may well also face additional challenges in managing our interests in Washington if the Great Disruptor regains the Presidency in November.
We know his economic policies - after all, the Biden Administration is well down the Trump track.
The unknowns for us with a Trump Presidency would be of another kind, and relate especially to how he would deal with those other two disruptors, Putin and Xi – and with America’s allies.
In all of this, the need must therefore be for statecraft of the highest order both at the everyday level and at that higher, imagination-requiring end of which I have spoken.
It has been a privilege to be able to speak today in Allan Gyngell’s honour. I have cited him often, and I would certainly have valued his opinion on all that I have said.
But it should be clear that I make no claim to have been speaking for him. He did that so well himself. For that, and more, he is sorely missed.
On Tuesday 25 June 2024 we held an event at the National Press Club for the launch of a new Lowy Institute Analysis paper that makes the strategic case for AUKUS, written by one of the government’s most knowledgeable and experienced defence thinkers. Luke Gosling argued that nuclear-powered submarines will be central to Australia’s ability to defeat threats of attack, counter a naval blockade, and support the regional balance of power. Deputy Prime Minister Richard Marles launched the paper, after which Luke Gosling made his case for nuclear-powered submarines, before being joined on stage by Lowy Institute Executive Director Dr Michael Fullilove AM for questions, including from the audience.
Luke Gosling OAM MP has served as the Member for Solomon since 2016. He served in the Australian Army for 13 years in the Parachute Infantry, Commandos, and Defence Cooperation Programs. He deployed to Papua New Guinea, Rifle Company Butterworth, Malaysia, and Timor-Leste, as well as working in Afghanistan.
Richard Marles MP is the Deputy Prime Minister of Australia, Minister for Defence, and the Federal Member for Corio. Richard was first elected to the House of Representatives in 2007. Refreshments and Hot canapés will be provided.
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