The digital economy is capitalism's sparkling creation or its undertaker: Former PM Keating

It's a question posed by Australian former Prime Minister Paul Keating when discussing the greater impact that the trade war between the United States and China is having on the global economy.
Written by Asha Barbaschow, Contributor
Image: Chris Duckett/ZDNet

Australian former Prime Minister Paul Keating has likened the world the kids of today are stepping into to a shallow carp pond, saying it's going to require imagination to determine how they're going to make themselves useful.

Opening his SAP Ariba keynote in Sydney on Tuesday, Keating said the biggest challenge for Australia over the next few years would be human capital.

While he said the emergence of technologies such as artificial intelligence, machine learning, and automation might take jobs as collateral, "it may well do other things" for the economy, and he has faith in the Australian people to lift the capability of those around them.

"Social policies have to be more active and reactive to circumstances," he said. But he also said what the nation needs to do is maximise the fourth industrial revolution and not just focus on exporting LNG.

See also: 4 ways leaders can prepare for the coming Fourth Industrial Revolution (TechRepublic)

Keating, at 75 years old, used his keynote address to look back over economic history, over 200 years worth, to paint a contextual image of what has led to the current global trade war that the United States and China have found themselves in.

"What we are seeing and what we are witnessing, we are watching the 20th century global order be overturned," he said.

"China is doing to the US what the US did to Germany and France [and Britain]."

Thanks to technological shifts during the industrial revolution, Keating said power was with Britain, and by the end of the 19th century with Germany, then to the US.

Notwithstanding the massive shift in wealth from the Atlantic to the Pacific, Keating said underlying the recent tensions has been a shift towards zero cost industry and deflation. That's all happening at once, he said.

"Before 1800, the work of any one of us was of equal value ... the states which had more of us were the biggest states," he said of China some 200-plus years ago.

"What the industrial revolution did was break the nexus between population and GDP."

Post Cold War, with globalisation, the shift in capital arrangement and the access to technology, Keating argued, had reinstated population as a driver of GDP. States with the largest populations would again be the largest, he said, adding that "this is why China is already larger in GDP than Germany".

See also: How China, Brexit, and the US derailed global 5G wireless

The former Labor leader touched on culture in Europe, particularly where the balance of power lies, but stressed that Asia operates completely differently. 

"There was always a hierarchy with China at the top," he said. "China's approach has always been conceptual, whereas the US is pragmatic."

Continuing, Keating said China rejects the spread of liberal democracy: The country believes in globalisation, but doesn't believe in globalism.

"Then on the stage steps Donald Trump," he said, with a smirk.

With Trump touting such an insular view of the country he is president of -- unlike his predecessors Barack Obama and George W Bush -- Keating said the aim of the US is to isolate China technically, slow it down economically, and curtail its growth.

"Trump is more narrowly defining the American interests with no real affection for multilateralism," Keating explained.

This, Keating said, will force China to work its way out of the "middle income trap" it's currently in.

The middle income trap is a theoretical economic development situation, in which a country that attains a certain income gets stuck at that level.

According to Keating, it's one thing for a country like Japan or South Korea, but for 1.3 billion people to beat the middle income trap, "[that's] the biggest challenge we've ever seen in economic history".

He said it's a case for China of being "damned if you do, damned if you don't".

Consumption is rising in China, but Keating said all of a sudden its ability to continue this has been interrupted by the US who is banning exports.

See also: Government officials confirm Trump can block US companies from operating in China

Keating said the Chinese would respond by riding Trump's presidency out.

"I don't think Trump intellectualises this," Keating said. "China isn't as trade-dependent as we in the West believe."

This can be seen in the simple understanding that the Chinese economy has no Western debt.

Spending a bit of time discussing the housing climate Australia currently finds itself in, Keating said compounding the current situation the world now finds itself in is the idea that we are living in a post-capex world, one where there is a surplus of savings versus investment.

He spoke about Trump's tax cuts, and how releasing money didn't re-fire investment firms around the world, rather it was used for share buy-backs. It is, after all, an America-first policy the Trump administration has at its core, he said.

But it isn't just Trump; it is, according to Keating, right-wing leaders like Trump that have popped up around the world, spruiking their "simple solutions for deep-seated economic issues" that have the masses onboard.

"The 20th Century global order is being unpicked," he said, again noting an "American president focused only on America".

He pointed to the current employment climate and the increasing way that a digital realm is pulling down the value of physical assets.

"We're moving to a lateral, much more horizontal, collaborative world with peer-to-peer commerce, open sourcing ... people are going to be able to create new products," he added.

"[We have a] massive revolution on our hands ... Can our market system adapt?

"Is a digital economy capitalism's sparkling creation or is it its undertaker?"


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