The next Golden State and More sent in By Shaza.

With a bit of self-belief, Australia could become a model nation

IMAGINE a country of about 25m people, democratic, tolerant, welcoming to immigrants, socially harmonious, politically stable and economically successful; good beaches too. It sounds like California 30 years ago, but it is not: it is Australia today. Yet Australia could become a sort of California—and perhaps a still more successful version of the Golden State.
It already has a successful economy, which unlike California’s has avoided recession since 1991, and a political system that generally serves it well. It is benefiting from a resources bonanza that brings it quantities of money for doing no more than scraping up minerals and shipping them to Asia. It is the most pleasant rich country to live in, reports a survey this week by the OECD. And, since Asia’s appetite for iron ore, coal, natural gas and mutton shows no signs of abating, the bonanza seems set to continue for a while, even if it is downgraded to some lesser form of boom (see article). However, as our special report in this issue makes clear, the country’s economic success owes much less to recent windfalls than to policies applied over the 20 years before 2003. Textbook economics and sound management have truly worked wonders.
A flash in the pan?
Australians must now decide what sort of country they want their children to live in. They can enjoy their prosperity, squander what they do not consume and wait to see what the future brings; or they can actively set about creating the sort of society that other nations envy and want to emulate. California, for many people still the state of the future, may hold some lessons. Its history also includes a gold rush, an energy boom and the development of a thriving farm sector. It went on to reap the economic benefits of an excellent higher-education system and the knowledge industries this spawned. If Australia is to fulfil its promise, it too will have to unlock the full potential of its citizens’ brain power.
Australia cannot, of course, do exactly what California did (eg, create an aerospace industry and send the bill to the Pentagon). Nor would it want to: thanks to its addiction to ballot initiatives, Californian politics is a mess. But it could do more to develop the sort of open, dynamic and creative society that California has epitomised, drawing waves of energetic immigrants not just from other parts of America but from all over the world. Such societies, the ones in which young and enterprising people want to live, cannot be conjured up overnight by a single agent, least of all by government. They are created by the alchemy of artists, entrepreneurs, philanthropists, civic institutions and governments coming together in the right combination at the right moment. And for Australia, economically strong as never before, this is surely such a moment.
 Watch our video-guide to Australia's past, present and future, or listen to an interviewwith the author of this Special Report
What then is needed to get the alchemy going? Though government should not seek to direct the chemistry, it should create the conditions for it. That means ensuring that the economy remains open, flexible and resilient, capable, in other words, of getting through harder times when the boom is over (a sovereign-wealth fund would help). It means maintaining a high rate of immigration (which started to fall two years ago). It means, above all, fostering a sense of self-confidence among the people at large to bring about the mix of civic pride, philanthropy and financial investment that so often underpins the success of places like California.
Many Australians do not seem to appreciate that they live in an unusually successful country. Accustomed to unbroken economic expansion—many are too young to remember recession—they are inclined to complain about house prices, 5% unemployment or the problems that a high exchange rate causes manufacturing and several other industries. Some Australians talk big but actually think small, and politicians may be the worst offenders. They are often reluctant to get out in front in policymaking—on climate change, for instance—preferring to follow what bigger countries do. In the quest for a carbon policy, both the main parties have chopped and changed their minds, and their leaders, leaving voters divided and bemused. There can be little doubt that if America could come to a decision on the topic, Australia would soon follow suit.
Its current political leaders, with notable exceptions, are perhaps the least impressive feature of today’s Australia. Just when their country has the chance to become influential in the world, they appear introverted and unable to see the big picture. Little legislation of consequence has been passed since 2003. A labour-market reform introduced by the Liberals was partly repealed by Labor. A proposed tax on the mining companies was badly mishandled (also by Labor), leading to a much feebler one. All attempts at a climate-change bill have failed. The prime minister, Labor’s Julia Gillard, admits she is unmoved by foreign policy. The leader of the opposition, Tony Abbott, takes his cue from America’s tea-party movement, by fighting a carbon tax with a “people’s revolt” in which little is heard apart from personal insults. Instead of pointing to the great benefits of immigration—population growth is responsible for about two-fifths of the increase in real GDP in the past 40 years—the two parties pander shamelessly to xenophobic fears about asylum-seekers washing up in boats.
…or a golden future?
None of this will get Australians to take pride in their achievements and build on them. Better themes for politicians would be their plans to develop first-class universities, nourish the arts, promote urban design and stimulate new industries in anything from alternative energy to desalinating water. All these are under way, but few are surging ahead. Though the country’s best-known building is an opera house, for example, the arts have yet to receive as much official patronage as they deserve. However, the most useful policy to pursue would be education, especially tertiary education. Australia’s universities, like its wine, are decent and dependable, but seldom excellent. Yet educated workers are essential for an economy competitive in services as well as minerals. First, however, Aussies need a bit more self-belief. After that perhaps will come the zest and confidence of an Antipodean California.
No worries?

With two decades of unbroken growth behind it, record prices for its minerals and an insatiable market on its doorstep, Australia can afford to be carefree. Or can it, asks John Grimond?

HAPPY THE COUNTRY that never makes the front pages of foreign newspapers. Australia is one such. Only a dozen economies are bigger, and only six nations are richer—of which Switzerland alone has even a third as many people. Australia is rich, tranquil and mostly overlooked, yet it has a story to tell. Its current prosperity was far from inevitable. Twenty-five years ago Paul Keating, the country’s treasurer (finance minister), declared that if Australia failed to reform it would become a banana republic. Barely five years later, after a nasty recession, the country began a period of uninterrupted economic expansion matched by no other rich country. It continues to this day. This special report will explain how this has come about and ask whether it can last.
Those with a passing acquaintance of Australia will attribute its success to its luck in having such an abundance of minerals that its booming Asian neighbours want to buy. That is certainly part of the story. Yet Australia was not dragged down when a financial crisis struck Asia in 1997. And commodity exports have not always been fashionable. In the 1990s many thought they were evidence of an incorrigibly “old”, low-tech economy doomed to decline. Australia’s terms of trade—the ratio of its export prices to its import prices—seemed stuck at unfavourably low levels. Not until 2003 did minerals begin to boom again, though by then Australia had escaped both the Asian crisis and the recession that hit America in 2001. Five years later came the GFC, Oz-speak for global financial crisis. Yet that, too, failed to drive Australia into recession. Someone, other than Lady Luck, must have been doing something right.
In this latest crisis Australia certainly played its cards well, but the pack had already been nicely shuffled. Over a period of 20 years, from 1983 to 2003, governments of the left and of the right carried out the reforms that have made Australia one of the most open and flexible economies in the world. That description would not have accurately described the country at any other stage in its history.
The incoming government in 1983 led by Bob Hawke, a former trade unionist, was the first to take serious remedial action. With the popular, politically astute Mr Hawke presiding, and the coruscating, aggressive Mr Keating doing most of the pushing, this Labor government floated the Australian dollar, deregulated the financial system, abolished import quotas and cut tariffs. The reforms were continued by Mr Keating when he took over as prime minister in 1991, and then by the Liberal-led (which in Australia means conservative-led) coalition government of John Howard and his treasurer, Peter Costello, after 1996.
By 2003 the effective rate of protection in manufacturing had fallen from about 35% in the 1970s to 5%. Foreign banks had been allowed to compete. Airlines, shipping and telecoms had been deregulated. The labour market had been largely freed, with centralised wage-fixing replaced by enterprise bargaining. State-owned firms had been privatised. A capital-gains tax and a valued-added tax had been brought in, and the double taxation of dividends ended. Corporate and income taxes had both been cut.
These reforms have done much more to transform the Australian economy than the recent improvement in the terms of trade. They have also transformed the country.
Constitutionally, they have destroyed the “Australian settlement”—a semi-tacit compact dating from the time of federation in which the market was tamed by trade protection, centralised wage-setting, a “white Australia” immigration policy and a paternalist state within a benevolent British empire. Most of this has now gone, leaving the way open for centralising federal governments in Canberra, aided by the growth of a national market in everything from advertising to Vegemite, to erode the powers of the states and their control of public money. For their part, some states are challenging the equalising allocation of value-added tax revenues. Republicans have sought to get rid of the monarchy, an imperial comfort blanket in 1901 that seems irrelevant to many in 2011. Aborigines, whose very existence was legally ignored by the European settlers, have fought for land, equal treatment and an apology for two centuries of injustice; now they want recognition in the constitution.
Demographically, by freeing the labour market and operating a colour-blind immigration policy, the reforms have created an increasingly cosmopolitan society. In the 1940s Australia was about 98% Anglo-Celtic; by the 1980s a few other Europeans, mostly Italians and Greeks, and latterly some Vietnamese, had started to leaven the mix. Today over a quarter of the population were born abroad, and most migrants, if they are not from New Zealand or Britain, are from India, China or some other Asian country. Asians make up about 10% of the population.
Psychologically, the reforms have changed what seemed to be a defining feature of Australians’ national character: the happy-go-lucky belief that, though their country more than others might be a victim of external events, something would always turn up. Micawberism has been replaced by a realisation that Australians, like everyone else, have to be resilient, competitive and ready to take charge of their own destinies.
It is tempting to say the reforms have gone further, bringing to Australians a clarity of self-perception not always present in the past. Australians used to see themselves as sturdy pioneers, clearing the bush, rounding up sheep and doing battle with droughts, dingos and dastardly oppressors like the policemen who hunted poor Ned Kelly (never mind that he was a hostage-taker and murderer). But though their heart lay in the outback, the rest of their body was, at least from the mid-19th century, firmly in the city or, more exactly, in the suburbs, which is where most live today.
It would be asking a bit much to expect Australians to weave a new national myth around a suburban life involving barbecues, SSB (sémillon sauvignon blanc), heroes driving Holden utes (General Motors utility vehicles) and characters from “Neighbours”, a sunshine soap. Nonetheless, this era of prosperity and self-confidence should be a good time for Australians to take stock and confront any problems. On the face of it, their troubles are few: in 20 years of radical change all the obvious economic issues have been dealt with. Things are good, and the beach beckons. Certainly, the politicians seem unworried. Though they talk of reform, they spend most of their time scrapping about issues like climate change. A slight whiff of complacency pervades the groves of the capital, Canberra. That in itself should be a warning.
 Watch our video-guide to Australia's past, present and future, or listen to an interviewwith the author of this Special Report