When I joined the Lowy Institute a little more than a decade ago, the price of iron ore was below A$30 per tonne; the Australian dollar was worth around US$0.65; the cash rate stood at 4.75%, a little way into a gradual tightening phase that would take it up to 7.25% by early March 2008; Australia's GDP per capita was still a bit below 70% of US levels; and less than 9% of our exports went to a Chinese economy, which back then had an overall GDP of about US$1.6 trillion.
A bit more than 10 years on, as I say farewell to the Institute, things have changed.
Despite falling from its 2011 peak, when it flirted with A$200 per tonne, the price of iron ore still remains more than A$100 higher than it was when I started; the dollar is currently worth around US$0.92 after breaking through parity in late 2010 for the first time in the post-float era and going on to hit a record high of more than US$1.10 in 2011; the cash rate is now down at 2.5%, its own record low; as of last year, our GDP per capita had climbed to about 135% of US levels; and in the same year, more than one quarter of our exports went to a Chinese economy with a GDP that had expanded to about US$8 trillion.
The intervening period has seen both the biggest, broadest and longest commodity boom in at least a century and the deepest and most dangerous international economic and financial crisis since the 1930s. Meanwhile, the Australian economy has kept on growing, turning in a period of recession-free economic growth that's unprecedented not just for Australia in modern times, but for any other developed economy too.
These developments have been more than enough to keep me deeply engaged with our shifting international economic environment.
However, as long-term readers of The Interpreter will know, for much of my time here at Lowy I have been focused on the prospects for, and implications of, what I call the Great Convergence. [fold]
The onset of rapid, sustained catch-up growth in the big emerging markets has arguably done more than any other single development to shape our current international economic and strategic environment. Of course, this convergence story has had its ups and downs: the debates over decoupling during the depths of the GFC were one manifestation of doubts about its durability, and the current angst over emerging market growth prospects is a more recent one. Correctly calling the next phase of that convergence story is going to be crucial in understanding the probable shape of our future international environment and should continue to offer the Institute a fruitful research agenda.
A critical aspect of this debate is what often appears to be a continuing tension between the economic and strategic/security views of where the convergence process is likely to take us. The former view of a successful convergence story tends to end up in a rather optimistic place — an 'Asian century' world of increased prosperity and deeper international engagement. Embedded in the more thoughtful forecasts is a careful recognition that reaching this destination will first require navigating some tricky territory including, but not restricted to, stresses on environmental and resource sustainability and social and political strains triggered by big shifts in income and wealth.
Yet this successful economic convergence story is often seen as contributing to a more unstable security environment, in a kind of reverse-Pax Mercatoria.
Indeed, over the past year or so, I have been struck by the number of times I have participated in discussions about the future outlook for the region which have managed to combine firm optimism about the predicted medium-term economic trajectory with marked pessimism about the likely security environment. Sometimes these have been in separate but successive sessions in seminars, and sometimes (even more strikingly) they have occurred in conversations with the same analyst, investor or businessperson.
While it's possible to think of scenarios that combine these two features — deepening economic engagement with intensifying security competition — it's not clear that this would represent a sustainable equilibrium.
The kind of international economy we have constructed, with its global supply chains and complex, highly connected trade and financial networks, is not one that's obviously compatible with major and sustained increases in international tensions. Wouldn't the good economic story tend to disarm the security competition (that is, move us back to the Pax Mercatoria)?
Or, less attractively, mightn't an adverse security environment end up undermining the positive economic one?
To put it a bit differently: who is going to be (most) right about the future: the economists or the security analysts? Interrogating these two competing views should provide some interesting and important territory for the Lowy Institute to cover.
Issues such as these, along with the big shifts and shocks to hit the global economy over the past decade, mean that it's been a fascinating time to be an international economy watcher, and Bligh Street has offered a terrific vantage point. As I move on, I wish the Institute, The Interpreter, and its readers, all the best.