Prof Peter Drysdale explains Rudd’s demise to foreigners in his weekly digest

Professor Peter Drysdale  of the ANU’s East Asia Forum, veteran of Australia’s foreign economic relations with the region, outlined the demise of Rudd to the readers of the Forum’s weekly digest.  It kind of helps to remind us how strange this would look to foreigners.

Many of our international readers are perhaps justifiably baffled by the overthrow last week of former Australian Prime Minister, Kevin Rudd, by Australia’s new Prime Minister, Julia Gillard.

Rudd stood tall on the international stage. He led a government, alone among all the OECD countries, that steered Australia successfully through the Global Financial Crisis, without recession. He was among the most effective of the protagonists that influenced the launching of the G20, meeting this weekend in Toronto, a new group that has promise of providing a greater measure of international and political security because it is more representative of global power than its predecessor, the G8, and is more adept at dealing with the problems in global economic governance. He swiftly moved to have Australia sign the Kyoto Protocol. And Rudd, among all global leaders, had a surer grasp of Chinese affairs than any major political leader outside China, when that is a political commodity in drastic short supply at a time of great need. In dealings with China he communicated with dignity and uniquely in the Chinese language. He had the correct strategic sense of how urgent it was to begin re-crafting arrangements in Asia and the Pacific to provide greater opportunity for dialogue on political as well as economic affairs in a way that comprehends the huge transformation of economic and political power that is taking place in our region.

These were impressive international political assets, and unquestionably huge assets for Australia. And, at home, he brought leadership to reconciliation with indigenous Australians and set in motion a substantial social and reform agenda. Rudd’s achievements in his short tenure in office were undoubtedly considerable.

Objective analysis suggests that Rudd was poised to win the next election, due within the next six months or so, despite a big drop in popular support driven by gaffs in the implementation of expansionary spending programs, a reversal of course on climate policy and questions of leadership style and process. The truth is that these questions provided the opening for factional powerbrokers within the governing Labor Party, in which Rudd had no permanent factional base, to settle scores. And amid the political uncertainties a sudden fracture of trust between Rudd and his Deputy led her to seize the unexpected prize.

Prime Minister Gillard is a very talented and polished political leader. There are likely to be few fundamental changes in Australian foreign policy direction. Rudd has chosen to continue in play. His foreign policy initiatives and big international diplomatic goals, in relation to China (of which Ms Gillard has a very sure grasp), climate change and regional architecture, are matters of deep foreign policy strategy that will not change and on which Rudd’s talents are likely deployed in some way.

The transfer of leadership has cut the Australian Prime Minister out of the G20 Summit in Toronto, where Rudd was also due to have important bilateral discussions with President Obama. That is a pity and an important cost to Australia’s national interests of the events of the last week in Canberra.

Other recent articles in which you may be interested from the East Asia Forum are listed below. You can click the title of each one or visit www.eastasiaforum.org for daily content.

Peter Drysdale,
Editor, 28th June.

This entry was posted in Economics and public policy, Politics - international, Politics - national. Bookmark the permalink.
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anon
anon
11 years ago

Rudd stood tall on the international stage. He led a government, alone among all the OECD countries, that steered Australia successfully through the Global Financial Crisis, without recession.

This statement is based on what exactly?

The reason for Australia riding out the GFC relatively unscathed is due to (1) our heavily regulated financial system, which was set up well before the Rudd Government took the reigns; (2) strong resources sector/exporting minerals to china etc; (3) a huge budget surplus left over by the Howard government, which Labor managed to squander away over less than 1 full term in office.

Mainly though, I’d say the GFC didn’t effect Australia so much due to points (1) and (2).

observa
observa
11 years ago

Streuth! Is Drysdale writing a flowery resume for a job application for Rudd or what? Rudd will be lucky to get a diplomatic posting in Kabul by the sounds of Gillard and Gang today.

And as for instrumental in setting up the G20
http://www.news.com.au/business/breaking-news/g20-leaders-agree-to-halve-global-debt-by-2013/story-e6frfkur-1225885035695
Whoopee on that outcome and just like Copenhagen, seeya in Seoul with carbon offsets naturally and book now for the next exciting car-b-q kiddies.

Michael
Michael
11 years ago

Anon, the Prof’s comments were written for an international audience that isn’t solely comprised of partisan liberal supporters who read The Australian.

anon
anon
11 years ago

Actually Michael, I don’t read The Australian that often. I just have enough common sense to know that a man, regardless if he is the PM of Australia or even the President of the Universe, cannot solely be responsible for the prosperity of an entire country. And one cannot argue with aforementioned points (1) and (2). Neither have anything to do with supporting Liberal or Labor. They are just facts.

Also, I can’t really say that I feel his ability to speak Mandarin was an “unquestionably huge asset for Australia”. This article by the ‘Prof’ (with no disrespect) seems slightly bias if you ask me…

Edward Mariyani-Squire
Edward Mariyani-Squire
11 years ago

anon said:

The reason for Australia riding out the GFC relatively unscathed is due to (1) our heavily regulated financial system, which was set up well before the Rudd Government took the reigns; (2) strong resources sector/exporting minerals to china etc; (3) a huge budget surplus left over by the Howard government, which Labor managed to squander away over less than 1 full term in office.

Although it is prima facie reasonable to say that (1) payed an important part in shielded the Oz financial system from the worst of the shocks in the US and Europe, and that (2) contributed to the buoying up of the economy (or at least part of it) thankis to China’s continued demand for mineral exports, it is not prima facie clear that (3) (a) played no part in further boosting aggregate demand or that (b) it provided an unnecessary boost.

Do you know of any modelling work that supports either (a) or (b)?

anon
anon
11 years ago

it is not prima facie clear that (3) (a) played no part in further boosting aggregate demand or that (b) it provided an unnecessary boost.

Are you suggesting that its possible that the Howard gov’s surplus provided a further boost, or that the Rudd gov’s spending provided the necessary boost?

I don’t have any models to support anything; models are an economist’s forte.. I am just a humble little accountant. Maybe you could come up with a model to support the theory that throwing $900 at every taxpayer in Australia was a significant contributing factor to Australia’s salvation from the GFC?

Alphonse
Alphonse
11 years ago

A pity the surpluses in the boom years weren’t adequate for the bust years. A little less middle class welfare from our purveyors of rectal fiscitude would have been handy.

Peter Whiteford
Peter Whiteford
11 years ago

Anon – having a surplus – which was a Very Good Thing – doesn’t itself provide a boost, in fact I would have thought the opposite. Spending some of the surplus does provide the boost, so the good thing was having the means to spend without increasing already very high debt levels (which is part of the problem in Europe). I would also think that the fact that Australians kept up their retail spending at the end of 2008 – in sharp contrast to the USA and the UK for example – contributed to consumer confidence and helped avert rising unemployment.

anon
anon
11 years ago

Peter, I agree with you that government spending boosts economic growth (well, there’s nothing to argue here really, its just macoeconomics 101), however, what I was suggesting, is that the funds necessary for that boost were attributed to the Howard government’s sound financial management over the span of a decade, and thus, the Rudd government was not neccessarily responsible for steering us successfully through the GFC, as the good Professor Drysdale suggests.

dorinny
11 years ago

Since you have joined quite a few conversations around here, is there any chance you could change the ‘anonym’ to a pseudonym so we know when it’s you and when it’s someone else? It’s important for identities to be stable if we’re going to have a conversation, though they needn’t be passport identities.

Nicholas, sure thing.

Jim
Jim
11 years ago

‘In dealings with China he communicated with dignity and uniquely in the Chinese language.’

Wonder what they made of being called “rat-fuckers” then?

Yeah Prof, Rudd was a class act alright.

Tel
Tel
11 years ago

The reason for Australia riding out the GFC relatively unscathed is due to …

(4) starting with interest rates high enough that there was headroom allowing a substantial interest rate drop, that being the single most significant stabilising factor and the one factor unavailable to any other Western Democracy (especially the USA).

However, it’s amazing how many economists love to ignore intrinsics: Australia produces lots of food and raw materials. Other countries depend on manufacturing. The technology to deliver manufacturing output has rapidly become more efficient in the last 50 years, the number of people engaging in manufacturing has also increased, the number of people total has massively increased. Supply and demand says it all…

And Rudd, among all global leaders, had a surer grasp of Chinese affairs than any major political leader outside China, when that is a political commodity in drastic short supply at a time of great need. In dealings with China he communicated with dignity and uniquely in the Chinese language.

It’s fair to point out that knowledge of Chinese language and culture is not hard to find in Australia. That’s not to pretend I could personally do better, but anyone with a telephone and a bit of nous could quickly hire Australians who have extensive family and business connections in China and full native language speakers from early childhood. Come to think of it, you could do much the same with regards to connections into India, various European countries and probably half of Africa and chunks of the Middle East. We should be a great trading nation, rivaling Singapore in every respect, but sadly we aren’t which is worth a bit of navel gazing contemplation IMHO. We have excellent international connections, good telecommunications (perhaps a touch overpriced), a stable and well respected legal system for settling disputes, plenty of people with administrative, IT, and bookkeeping skills, a solid banking sector (especially when compared with the global field, who are decidedly shaky). Why do we operate as an international backwater?

Tel
Tel
11 years ago

… the funds necessary for that boost were attributed to the Howard government’s sound financial management over the span of a decade, and thus, the Rudd government was not neccessarily responsible …

From a decision-making point of view, it is a lot easier to break out the emergency rations when everyone is starving, than it is to plan ahead by laying down stores and putting that emergency kit in place before it is needed.

That said, private debt (particularly housing debt) in Australia did increase dramatically during the Howard years which has made the whole country more fragile in a GFC type crisis of credit, and it was exactly this type of debt that put the USA onto the cliff edge. Howard would have even better prepared Australia for the GFC if he had discouraged the ballooning of housing speculation, but then everyone is wise in hindsight (everyone except Steve Keen, who would not want to be climbing Kosciusko tonight, not with all that Global Warming making the ski-lift operators happy, and the brass monkeys nervous).

Private debt is easier to deflate than public debt, precisely because you can allow some of it to fail: people make a loss, some default, some go bankrupt but it gets wound up cleanly and legally. Not an ideal way to run affairs but not as bad as getting stuck with massive unserviceable public debt (e.g. Greece and Spain).

Edward Mariyani-Squire
Edward Mariyani-Squire
11 years ago

anon @ #6:

Are you suggesting that its possible that the Howard gov’s surplus provided a further boost, or that the Rudd gov’s spending provided the necessary boost?

I was referring to the “squandering” of the surplus on the stimulus package.

Maybe you could come up with a model to support the theory that throwing $900 at every taxpayer in Australia was a significant contributing factor to Australia’s salvation from the GFC?

As you said yourself (#9):

government spending boosts economic growth (well, there’s nothing to argue here really, its just macoeconomics 101)

.

anon
anon
11 years ago

As you said yourself (#9):

government spending boosts economic growth (well, there’s nothing to argue here really, its just macoeconomics 101)

That would have been a wonderful stimulus for the economy if it was given on the proviso that (1) funds would be used only for the purpose of spending, and not for the purpose of saving or paying off one’s debt, and (2) funds would only be used to pay for Australian goods & services.

One thing the $900 bonus was good for, was forcing all those slack-arses who hadn’t lodged their 2008 tax returns yet, to finally get around to it. Good if you are in the business of preparing tax returns.

it was exactly this type of debt that put the USA onto the cliff edge.

Not exactly this type of debt. Our banking system is very different to the USA (we have far fewer banks, high capital reserves, strong supervision by regulators..) and not just any Joe Shmoe can get a mortgage. Our low-doc loans, and loans where more than 80% of equity is borrowed are usually sold together with mortgage insurance, and since the GFC, low-doc loans are pretty much non-existent.. Subprime lending was big in USA but before the GFC, most people in AU hadn’t even heard of subprime, and many people still have no idea what it is.

For any one who is still confused, you might find this cartoon to be quite useful

is there any chance you could change the ‘anonym’ to a pseudonym

Nicholas, I responded to this earlier but for some reason it isn’t shown here – I shall henceforth go by my usual pseudonym, ‘dorinny’.

Edward Mariyani-Squire
Edward Mariyani-Squire
11 years ago

anon @ #16 said:

That would have been a wonderful stimulus for the economy if it was given on the proviso that (1) funds would be used only for the purpose of spending, and not for the purpose of saving or paying off one’s debt, and (2) funds would only be used to pay for Australian goods & services.

The argument that the stimulus package was not really stimulatory because most people either saved the money or paid off debts seems fair enough if we were talking about the US, where the Bush rebate seems to have had little effect. This argument was used by the Liberal Party at the time of the stimulus package. It was theoretically backed by appeal to the Permanent Income Hypothesis. The evidence, however, suggests that most Australians did spend a fair proportion of the package. Estimates vary – one of the more conservative (based on surveys) being about 41%. (This is conservative because people seem to underestimate how much they are going to spend, and overestimate how much they are going to save or pay off their on credit cards.)

There are significant differences in spending behaviour (i.e. responses to receiving a lump sum payment from govt) between ‘high’ and ‘low’ income households, however. Higher income households tend to spend less of a lum sum bonus. This may be because their immediate expenditure needs are lower and their levels of indebtedness are higher.

dorinny
11 years ago

Edward, just out of curiosity, what do you think would have been a better stimulous? Cash bonuses or cutting payroll tax?

I deal with dozens of business owners who can’t raise the level of salary they are paying because doing so would push them over the threshold for payroll tax. Wouldn’t higher salaries provide a larger incentive to spend, particularly if you know that it isnt a one-off cash grab? Or even just cutting taxes in general.

Certainly, cash bonuses contribute to some economic growth, but I don’t believe that it was the most adequate use of public funds. Maybe the Rudd government boosted growth by spending billions on infrastructure and cash bonuses, but what have we got to answer for it now?

Peter Whiteford
Peter Whiteford
11 years ago

“The head of Woolworths says many Australian retail jobs were saved by the Federal Government’s stimulus measures, which were implemented in late 2008 and the first half of last year.

Mr Luscombe says the Australian stimulus payments were introduced at exactly the right time.”

http://www.abc.net.au/news/stories/2010/05/27/2911287.htm