Media & Speeches

The Social Compact Behind Globalisation is Failing

This opinion article by Jennifer Westacott was published in The Australian Financial Review on 20 June.

Few corners of Australian society are being spared the impact of globalisation, yet those who are most vulnerable to our uncertain world economy are routinely missing from the conversation about how to manage it.

It's important that our nation's most prestigious meetings – such as this week's Crawford Australian Leadership Forum, "Global Realities, Domestic Choices: Responding to a Digitalising, Deglobalising, Post-truth world", co-sponsored by the Business Council and The Australian Financial Review – shine a spotlight on these critical issues. However, we can't afford to fall into the trap of elites talking only to elites.

The sense of resentment in the community is real, and it must be understood. It's not enough to simply wallow in despair that expert opinion so often falls on deaf ears, or use our frustration at the state of public debate as an excuse for inaction.

Economic liberalisation is a social compact. In exchange for rising incomes to help them look after their local needs, people are asked to accept an ever-changing economy with industries that rise and fall with the tide of global progress.

After a decade of phenomenal income growth, built on the back of a deregulated economy that reaped the benefits of increased global trade, business investment has now slowed and wages growth has fallen flat.

The resurgence of populism and protectionism, including in Australia, belies the fact that this social compact has been undermined. Many people are no longer seeing the day-to-day improvements in their living standards that they have come to expect.

In this climate, it's understandable that they will be more receptive to opportunistic politicians who express sympathy for their hardship, inflame their anger at their perceived foes, and make unrealistic promises that cannot be delivered.

The risk now is that Australians, unable to see for themselves the benefits of globalisation, lose faith in the recipe that has delivered record-breaking prosperity: a competitive economy in which businesses, small and large, have the means and the motivation to invest in better jobs with higher wages.

This crisis of confidence in our system isn't something that can be fixed with a public relations campaign. It's not enough for people to hear this message; they must see it in their lived experience. They need to be reassured that a vibrant, growing economy doesn't just deliver benefits for some, but for all – indeed, for them.

The alternative recipe – returning to a heavily regulated economy, with all of its illusory benefits – would be disastrous. For instance, reduced trade barriers have boosted the real income of the average Australian family by $3900 a year, and one-in-five Australian jobs rely on open trade.

Shutting off trade would cut the purchasing power of the poorest 10 per cent of income earners by 63 per cent. By contrast, people on high incomes would lose 28 per cent of their spending power.

However, while trade has been good overall, it hasn't been good to everyone – for instance, workers in traditional industries who fell out of the labour market and, for whatever reason, weren't able to get back in.

Make no mistake: Australia must protect its citizens rather than leaving them at the mercy of global markets. But we can't do it by pretending Australian industry can be walled off from international competition.

The only real security that Australia can offer its citizens in the 21st century is to build their capacity through education and training, and ensure our businesses have the best chance of competing on the world stage.

Business leaders must deal ourselves back into the social compact, because it is essential to delivering mutual benefit across our nation.

Successful businesses will need to fundamentally redefine their purpose beyond delivering profits to shareholders, and beyond our traditional understanding of corporate-social responsibility or shared value. Business will also need to own the sustainability agenda, environmental and social.

Crucially, we must take ownership of the transition in the workforce rather than abrogate it to government. Business leaders need to know what's happening in their sectors and equip their people for the big changes ahead.

Where government must take action to safeguard the livelihoods of its citizens, such as through much-needed reform to education and training, business must be at the forefront of advocacy – not just behind closed doors in Canberra, but out in the community.

In short, we must make sure that aggregate growth translates to local benefit. Rather than being allowed to pool in certain cities, or among certain citizens, the business community must ensure the benefits are felt by all.

Jennifer Westacott is chief executive of the Business Council of Australia and a speaker at the ANU Crawford Leadership Forum.