"You Australians are smart people. We can't understand why you still think you need to make things". So said a senior bureaucrat in the Commerce, Industry and Technology Bureau of the Hong Kong government. It is a neat summary of the different world views held by the policy elites of Hong Kong and Australia.
This opinion was expressed just a few months before Kevin Rudd's immortal commitment to the Labor national conference in April. "I don't want to be a prime minister of a country that doesn't make things any more".
Presumably the Labor leader didn't ask the opinion of the farmers or miners or consumers who end up paying the price for these sorts of promises. No one at the ALP conference announced that "I don't want to live in a country that forces me to pay for the inefficiencies of its manufacturing sector". Rudd demonstrated that quaint attachment to the belief in the necessity of making things that has been possessed by every politician who has ever got their hands on industry policy. The element of reality that's missing is the cost of converting Australia into a nation of cobblers and tinkers.
There's a fair degree of truth in the statement that Australians are smart people. By and large we are. The problem is that unless we are forced to be smart we won't be. Tariff protection and centralised wage fixation didn't do much to encourage Australian employers or employees to be smart.
This Sunday is the 10th anniversary of the handover of Hong Kong to mainland China, and just a few days later the Asian financial contagion began. These serve as reminders that few economies have had to confront the sorts of challenges faced by Hong Kong. Nothing concentrates the mind like a crisis. In four days in October 1997 the Hang Seng Index lost a quarter of its value, while over the space of a few months property prices in the territory halved.
As significant as was the financial collapse of 1997, a far greater threat to Hong Kong's prosperity was posed by changes that had been occurring on its doorstep, namely the rise of low-cost manufacturing operations in China.
Although the impact on Hong Kong of a new factory over the Chinese border in Guandong making plastic flowers might not be as immediately obvious as a disintegrating exchange rate, the second development can be more easily managed than the first.
Hong Kong's response to the growth of Chinese manufacturing was not based on sentiment. Few places in the world owed more to the things they made than did Hong Kong. After World War II, manufacturing had lifted Hong Kong from poverty, but its citizens were willing to forgo their attachment to manufacturing in exchange for a better economic future
Instead of committing themselves to a race they knew they could not win, Hong Kong's business and political elites were smart. They turned their attention to the economic activity in which they had a competitive advantage. Those advantages were things such as the quality of its workforce, the territory's legal system and the absence of corruption (at least relative to many other countries in the region). These are features Hong Kong continues to benefit from as it faces off the challenge from Shanghai to make itself the region's financial centre.
Hong Kong learned to stop worrying about making things and started worrying about how it would provide the services needed to those who did make things. In the end this wasn't too difficult. To most people in Hong Kong, being a lawyer, accountant, insurance broker or engineer was preferable to working on a factory floor. Hong Kong now has a higher per capita gross domestic product than Australia, and the territory has no natural resources to speak of.
In this country, sentiment still pervades economic policy making. We continue to believe that participation in the manufacturing process is somehow superior to growing something or mining something or providing a service. Politicians ignore the reality that in Australia in recent years the annual rate of growth in communication, property and business services is more than twice that of manufacturing.
In that same speech to the ALP conference Rudd said, "the future I see for Australia is one fundamentally shaped by the rise of China and the rise of India". The question is whether our response to the rise of China and India is going to be stupid or smart.
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