businesses will face in the AsianCentury. lt was emphasised thatbusinesses must adapt to thedemands of Asias emerging middleclass and position themselves inthe global value chain at the highend. Productivity growth would befundamental.

This is good generic advice. Buteven the most productive of Aust-ralianmanufacturingbusinesseswillstruggle to achieve export success ina high exchange rate environmentcaused by the demand for ournatural resources. Remember, unlikeminerals production, Australia doesnot have a near-monopoly on highvalueadded manufacturing, noreducation or tourism far from it.

Even the most productive ofAustralian manufacturingbusinesses will struggleto achieve export success

in a high exchangerate environment.

Yet since 2oo9, the real effective

exchange rate in the US has fallenby 10%, while in Australia it hasstrengthened by 23%. That businessesoutside the mining sector are strug-gling is plainly evident. In 2oo8o9,

AS|A'S R|SlNGSHARE OF WORLD OUTPUT

Per centPer cent

100

l75 t

75

l

50 -2l 50

25 rj 25

l

0 '1 ~~' 0

1950 1970 1990 2010

I Asia I North America and Europe I Rest of the world

Note: GDP is adjusted for purchasing power parity (2011 prices). Source:The Conference Board (2012).

'Chart 1.1: Asia's rising sourced from the Australia in the Asian CenturyWhite Paper

Australias exports of elaborativelytransformed manufactures thatis, manufactured goods that have

a high value-added component

totalled $29.5 billion. By 2011-2012,this number had actually fallen to$28.1 billion. During this period,the structure ofAustralias economyand exports became more skewedtowards mining, an industry whoseoutput comes with a useby dateattached.

Third, in articulating the types ofpolicies thatwill be needed to succeedin the Asian Century, theWhite Paper

was mostly silent on what will needto be sacriced. Nowhere was thismore clearly seen than in the caseof higher education. lf higher value

added production is to be the nameof the game, then clearly that beginswith investing in human capital.

Consistent with this, several

relevant numerical targets wereset: by 2025 the proportion of 25 to34-year-olds holdingaqualicationatthe bachelor level or above will rise by5 percentage points, the proportionofhigher education enrolments fromlow socioeconomic backgroundswillrise by 3 percentage points, 10 ofAustralias universities will he in theworlds top roo, and so on. in other

words, Australian universities will

need to produce more teaching andresearch, and ofa higher quality. Yetat the same time, the scal target is to

achieve budget surpluses, on average,over the medium term. Somethinghas to give.

The economic rise ofAsia providesa worthy focus ofgovernment policy.Noting the opportunities it providesis the easy part. What comes now seizing these opportunities andreaping the rewards is much harder.

Iohn Laurenceson is SeniorLecturerat the School ofEconomics, Universityof Queensland.

2012 James Laurenceson.Posted 29 October 2012.

The Conversation l http://theconversation.edu.au

Australia's Engagement with Asia