I never thought I would be talking about a war in Europe in the 21st century, I thought we had left that habit behind in the 20th century.
February 24 2022 has been a turning point as the Russian invasion of Ukraine created a new level of uncertainty in world affairs.
In 1989-91 we saw the end of the Cold War which had been the central defining event of the period 1945 to 1989. President George HW Bush spoke about a ‘new world order’; the Soviet Union had collapsed, China was opening up peacefully for international trade, and the US was the sole undisputed super-power.
It was then fashionable to be optimistic about world politics.
This new world order represented the ‘triumph of the Western idea’ of liberal democracy and free-market capitalism. The new era created ‘the liberal peace’. There was talk of the ‘McDonald’s Golden Arches Theory of World Peace’; no two countries selling McDonald’s fast food had ever gone to war against each other, trade was creating a more peaceful world, and it was knitting the world together. Technology was shrinking distances, enabling the quick movement of goods and services around the world.
But the Russian February 2022 invasion of Ukraine has forced a more sombre appraisal of the notion of the world’s ‘progress’. Ukraine represents the best-situated, most productive piece of Russia’s former Soviet empire, and so it was the logical place for Putin to start rebuilding the Russian empire.
Optimism has now been replaced by pessimism.
Three Impacts of the Invasion of Ukraine
First, there is the disruption of grain and sunflower oil (Russia and Ukraine produce 70 per cent of the sunflower oil exports). Shippers can’t get insurance to move items in and out of Russian and Ukrainian ports. In short, the world’s largest wheat exporter has invaded the world’s fourth-largest wheat exporter.
Food shortages are helping to create increased cost of living pressures (which are exacerbating the slow global economic recovery from COVID). The UN Secretary General has warned about the risks of a global famine. For example, 80 per cent of the 100 million Egyptians rely on Ukraine/ Russian food exports; 50 per cent in Lebanon (both countries are already in crisis). Hungry people become angry people. Additionally, the increased food costs will make the relief work of international humanitarian organisations even more difficult
Second, there is the disruption of fertiliser supplies to the international market, and so there will be reduced harvest yields.
Third, there is the disruption of the Russian supply of energy to the world market (it is the world’s largest exporter of natural gas, most of which is sold to Europe). Climate change has helped produce record summer temperatures and so people need air-conditioning/ cooling. Energy prices have increased.
The invasion has also been a tragedy for Russian farmers. Tsarist Russia was a major wheat exporter. But production was wrecked by post-1917 communist collectivisation farming (and by the 1970s Russia was even having to import wheat). The collapse of communism enabled the farm sector to get back on its feet and in 2016 Russia again became the world’s largest wheat exporter. This is all now back in chaos.
Ironically, depending on how long the crisis continues, Australia may have extra markets to fill the vacuum caused by the Russian/ Ukrainian supply issues. Australian farmers could see some economic benefit to the Russian invasion.
Lessons from the Ukraine Crisis
First, just because something is ‘mad’, doesn’t mean that a politician won’t do it. Commentators (including myself) were convinced that Putin would not invade Ukraine. But we were wrong.
Second, the world has multiple ‘realities’; what may seem ‘mad’ to one person, is not necessarily ‘mad’ to another. By Putin’s standards he has acted rationally. A Chinese attack on Taiwan may seem ‘mad’ to many Australians – but not necessarily to the Chinese leadership.
Third, ‘distance’ didn’t die. ‘Just in time’ thinking – which relied on efficient long supply chains (rather than extensive supplies of products stockpiled at the store) – made for a world of low costs. But it was also one of high danger; it has made us vulnerable to supply shocks. ‘Just in time’ will need to be replaced by a more cautious ‘just in case’ thinking.
Owing to ‘just in time’ supply lines, Australia has outsourced a lot of manufacturing to cheaper overseas suppliers. There has been the elimination of ‘fat’ in systems.
A contrasting view of ‘redundancy’ from the 1930s: Sydney Harbour Bridge will outlast many of the buildings surrounding it; because of ‘redundancy’, it can hold more transport than it currently carries. We need to get back to that cautious method of thinking.
Finally – by way of encouragement – humans have proved to be adaptable. The COVID19 pandemic has created immense problems. The UK government (which has the world’s best collection of national economic statistics) had to go back to 1709 (the year of ‘Great Frost’) to find a year of comparative sudden decline in economic output. 1709 was before the 1750 British Industrial Revolution and so farming was the key economic activity. By contrast, the two World Wars of the 20th century hardly show up in the century’s statistics.
The COVID19 pandemic has shown the resilience of many people. For example, cafés were closed and then they did takeaway food. Meanwhile, working from home has been the most significant boost to Australian productivity in many years because people could work at their own pace, and they did not waste time travelling to and from work.
Australian Rural Health
As already suggested, the Russian invasion contains both good and bad news for Australia’s rural sector.
On the one hand, there could be increased demand for Australian food. Australia has 26 million people and produces enough food to feed 60 million. On a per capita basis, Australia is a major food exporter. There could be a boom for Australian farmers.
Additionally, the conflict and resulting global famine is a reminder to all Australians about the importance of developing an Australian food and fibre strategy. Agriculture is on the frontline of Australia’s future. It deserves far more attention from Australian politicians and the media.
On the other hand, young people (and perhaps some older people) will be troubled by all this talk of disaster; war in Ukraine, COVID, and climate change (manifested in Australia via floods and bush fires). This crisis is exacerbated by the intensity of social media, hence, my concern with building up resilience:
‘Resilience is the capacity of any entity – an individual, a community, an organisation, or a natural system – to prepare for disruptions, to recover from shocks and stresses, and to adapt and grow from a disruptive experience’ (Judith Rodin The Resilience Dividend, p 3).
There is no one single key to guarantee resilience; indeed, resilience may be difficult to identify in specific situations, we can improve resilience in Australia, but I doubt that we can make a ‘resilient Australia’ permanently because of all the emerging issues (such as climate change).
Improving resiliency in Australia will require new mindsets, from how we raise children to how governments run the national economy. ‘Resiliency’ in its own right should be a topic for risk committees and boards and all other organisations – we need to ‘talk up’ the issue. More long-term thinking is required (and not just a short-term focus)
Conclusion
Australia is in the quietest corner of the globe, it is surrounded by a giant moat and so don’t get fooled by the politicians complaining of the ‘flood’ of a handful of asylum seekers. Imagine being in Poland today and helping 2 million Ukrainian asylum seekers.
By 2030, 65% of the global middle class will live in Asia – right on Australia’s doorstep. We will be at the centre of global economic action.
Australia has done well responding to changing power balances. In 1945 Australia’s main export partner was the UK, then it became Japan, and now it is China (30% per cent of exports go to China).
Who’s next? Will it be India?
Perhaps it will eventually be Africa, which is currently undergoing its own economic revolution. Africa’s population has grown 11-fold since 1914 (Asia’s grew about four times). Africa’s population will be 2.4 billion in 2050; by 2100 Africa’s population could represent 35 per cent of the world’s total, Nigeria’s population alone by then will be larger than the US’s. There is scope for Australia’s agricultural services, Australia is the only developed country to do the dryland farming seen in Africa. We therefore need to explore the economic opportunities in Africa
To sum up, the world is becoming an even more uncertain place. Yes, it has some bad developments – but there are also some good developments.
Keith Suter
Keith.suter@globaldirections.com.au
www.globaldirections.com.au
https://podcasts.apple.com/au/podcast/global-truths-with-dr-keith-suter/id1349621064