A Huge Challenge for Australia… Are You Up To It?

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Here we go again. Australia has a new leader…the fifth in five years. That gives you an indication of just how politically unstable this country has been over the past half-decade.

The question is, will our new PM, Malcolm Turnbull, be any different from the rest? It depends. And a lot of it depends on you. Let me explain what I mean…

When you have a new leader once a year on average, there is no room for ‘leadership’. The marginal leader spends their time protecting themselves, trying to garner support and build a power base.

For the past few years, Australian politics has been about trying to establish a power base once in power. When that happens, nothing of substance gets done. It’s simply a fight for survival.

Politics reverts to the lowest common denominator. Fear campaigns trump information and leadership campaigns. Economic and social stagnation replaces progression.

But no doubt that great human emotion — hope — will come to the fore over the next few weeks. Malcolm Turnbull is a new style of leader for the Liberal Party. There will be hope that he is the one to drag Australia out of its political morass.

One thing in Turnbull’s favour is that he is less of an ideologue than Abbott. Ideology in all its hard-core forms is destructive. It’s destructive because by definition it dismisses and excludes all those who don’t follow or believe in it.

Australia needs a more inclusive leader. Not a hard core conservative and not someone beholden to union power. Turnbull at least fits the definition of that. Whether he can use it to his advantage is another question.

And that’s where you come into it. By that I mean, will the Australian electorate embrace him? I have no doubt that Turnbull understands the economic challenges facing this country. But his job is to convince us of the same and lead us into some painful structural changes to set us on a more sustainable course.

I don’t like his chances. The electorate has been pandered to for a long time and special interest groups and rent seekers are a powerful force against change. But there is always hope…for the first few months at least.

If the Libs do get a nice and prolonged bounce in the polls you can expect an election sooner rather than later. One of the reasons for Turnbull’s success is that the Libs obviously thought it was a risk taking Abbott to the next election, even with Labor offering little in the way of an alternative.

Don’t forget, Turnbull isn’t popular amongst his own party. The conservative wing of the Libs hates him. So for him to get up in a party vote gives you an indication of the concern about taking Abbott to the next election.

But don’t forget the economic backdrop to all these years of political instability. Australia’s economic uncertainty and fragility is a major reason behind the lack of stable leadership.

Despite the headline economic growth figures showing Australia’s economy keeping its head above water, our living standards are falling. On a per capita income basis, we’re going backwards. People feel this. It manifests itself in an ambivalence towards politics, at best. More realistically, it produces an apathy and disgust towards the whole political process.

What Australia needs is, simply, someone more competent. More competent at speaking off the cuff and speaking from the heart. Not blindly staying ‘on message’ no matter what the circumstance.

On this front, Turnbull will at least be miles in front of Abbott. He’s a much better orator and has a greater understanding of his subject matter, especially in the areas of finance and economics. Ideology drove Abbott, not a deep understanding of the issues or a willingness for political pragmatism.

Therefore, Turnbull should understand that Australia’s destiny does not lie entirely in its own hands. We’ve hitched our cart to China… for better or worse. And in China right now, it’s getting worse.

The stock market is in a bust phase and heading lower. The Shanghai Composite Index lost another 2.7% yesterday. As the Financial Times reports:

“It is still unclear whether the policy response in China will be sufficient . . . to dispel concerns about [a] spillover on the global economy,” Deutsche Bank analysts wrote in a report.

There was more bad news over the weekend, as data released on Sunday showed fixed-asset investment for the year till the end of August posting the slowest rate of growth for 15 years. Factory output growth also remained near its weakest level in a decade.

Get used to it. China’s adjustment will take years to play out. The big question facing markets is whether China’s leaders can continue to manage this adjustment. In the last few months, their ability to do so has come under question.

This matters hugely for Australia and there’s not much Malcolm Turnbull can do about it. What he can do though is be a leader. He needs to change the economic dialogue from ‘she’ll be right’, to ‘we’ve got a problem brewing if we don’t act now.’

Australia needs to understand that for years we’ve leveraged the gains from the mining boom into property. The ‘wealth effect’ feels good, yes, but it could prove fleeting.

If we continue to rely on the Reserve Bank for short term stimulus, and ignore the long term structural issues facing us, then Australia will have its own crisis in the next few years.

Turnbull faces a huge challenge, as do we, the Australian people. Are you up to it?

Regards,

Greg Canavan

Editor, The Daily Reckoning

Greg Canavan
Greg Canavan is the Managing Editor of The Daily Reckoning and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails. For more on Greg go here.
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