Peter Varghese on foreign aid and the Australian world view

The Conversation Politics Podcast - interview with Michelle Grattan

26 August 2015


Michelle Grattan: Hello, I’m Michelle Grattan and this is The Conversation’s politics podcast.  We’re talking today with Peter Varghese, Secretary of the Department of Foreign Affairs and Trade, who earlier this month delivered an address at the Lowy Institute titled ‘An Australian World View’.  He subtitled his talk ‘A Practitioner’s Perspective’, and indeed he brings an extensive policy, and diplomatic, background to his perspective.  

He’s a former head of the Office of National Assessments and has served as a diplomat in Asia, Europe and the United States.  His own background is international:  he was born in Kenya, his parents came from India.  He arrived in Australia as a child and was educated at the University of Queensland.  Peter Varghese, as Australia’s role in the war against Islamic State is set to be expanded in to Syria, let me start with the observations in your speech about Australia and war.  

You note that war has featured prominently in Australia’s history, yet, as you put it, the paradox is that our strategic anxiety sits side-by-side with a strategic geography, which ought to be fundamentally reassuring.  What’s the explanation here?

Peter Varghese:  Well Michelle, I think historically our strategic anxiety flows from the way in which our geography and our history, and to an extent our culture, comes together.  If you just look at Australia’s geo-strategic location, you ought to be fundamentally reassured about our security.

However, if you see it in the broader sweep, of a continent which has been inhabited by a relatively small population whose cultural links are a long way away, and which for most of our history has seen its ‘near abroad’ as a region of instability, I think that all of these things coming together has helped to create this paradox where our objective circumstances, in a classic geopolitical sense, are reassuring.  But the psychology of the nation over time still is, I think, anchored in an element of strategic anxiety.

MG:  And we’ve also looked to great and powerful friends, over the years, and of course they’ve had interests that have, on occasion, many occasions, drawn us in, haven’t they?

PV:  Australia has been quite adept at attaching itself to larger powers in defence of its own interests, and one aspect of strategic anxiety is a little bit of uncertainty about whether we have the wherewithal to actually deal with any threat to Australia.  Over time we’ve developed a much greater confidence in our ability to do that, and I now think we have a framework which consists of the defence of Australia and Australian capability in an alliance framework, and that now has given us greater confidence in being able to deal with the unforeseen, than we might have had in the past.

MG:  Do you think historically we’ve given more than we’ve got back, in other words, we’ve gone to the aid of wider causes, rather than others coming to our aid?

PV:  I actually think that we’ve been astute in terms of the balance sheet between what we give and what we get.  We have actually given quite a bit.  If you look at Australia’s involvement in military conflicts, it stretches back a very long time, much earlier than the US alliance. And that was a recognition that our interests were engaged in far parts of the world, in an imperial time, but it was also a recognition that Australia must make a contribution if we are to expect support in our hour of need, whenever that might be.

MG:  Now we hear a lot about how this is the ‘Asian Century’, and yet you argue in your speech that the century may indeed not belong to any one country or region.  Do you think we’ve got carried away with a simplistic characterisation of this as the Asian Century?

PV:  No, the basic point about Asia being a region which is going to be of fundamental economic importance to Australia still holds.  The point I was making in the speech is that we’re going to be living in a world which has many different poles of power and many different poles of economic weight and Asia will be but one of those.  

It will be probably the most substantial because the combination of population and economic growth in Asia will be of an order of magnitude bigger, but a country like Australia needs to make its way in the world across the board.  Asia will be fundamental to our future.  Asian economies will be fundamental to our future prosperity.  But we need to be alert to the risks in the Asian growth story, and we need to be alert to opportunities outside of Asia for Australia.

MG:  As we look at the stock market developments in the last little while, China is obviously very front of mind.  How do you see China evolving economically and strategically in, say, the coming two decades?

PV:  This is a period of profound transition for China.  On the economic side, it is seeking to shift the model that has delivered so much success to China for the last several decades, a model that was anchored in exports and fixed investment.  Now China wants consciously to move to a different model, a model which would give much more room for the market in the allocation of resources, and which will be based much more on consumption.

Now that is an enormous transition and we shouldn’t underestimate the degree of difficulty in it.  And all of this is occurring within a political context, where the Chinese leadership remains resolutely committed to the preservation of political authority, and indeed the monopoly of power of the Chinese Communist Party.

So it is important that we understand the dimensions of the challenges that China faces, and I think it’s also important to understand that we all have an interest in that transition succeeding.  We all have an interest in China making that shift in its economic system because the consequences of failure on the part of China would be very serious for the entire region, and indeed probably also for the global economy.  So as I said in my speech, no-one gains if China fails.

MG:  Do you see this transition as leading to or promoting a China which is less of a potential threat to the region, more concerned with development and goals that are going to be compatible with good relations with other countries?

PV:  Just where China’s strategic settling point will be is very much an open question, and I don’t think we can say with any confidence that we know exactly what type of strategic power China will prove to be. China will, I think, be a combination of many different characteristics.

I think it will be a responsible stakeholder, to use Bob Zoellick’s phrase, in some circumstances, in institutions where its interests are served.  I don’t think it will be a classically revisionist power, in the sense that I don’t think it’s looking to overthrow the status quo, because China has benefited in large measure from the status quo.  But we must expect that China will want to have a much more direct influence in the institutions and the arrangements that shape our region and beyond, and we will see more efforts by China to create new arrangements, new institutions, which place China closer to the centre.  Some have said that that pattern may be reminiscent of the old Middle Kingdom, and there probably is something to that.

MG:  You’re already seeing this in the investment bank, of course.

PV:  The Asian Infrastructure Investment Bank was an early indicator of China moving in that direction.  It’s not going to be exclusively the way in which China operates, but it will be an element, and perhaps a growing element, in China’s future positioning.

MG:  Now you contest the analysis that sees US–China relations as the US in decline in the region over the time, over future time, and China rising.  What sort of narrative do you see in that relationship?

PV:  The US is a country which has an enormous historical capacity for regeneration, and it’s a country with an enormous economic depth and unparalleled strategic reach.  Often people confuse the narrowing of the margin of US influence with the decline of the United States.  

There’s no question that the margin of influence will narrow, because we’re going to be operating in a much more multipolar environment, and by definition a multipolar environment will spread strategic power differently to what we’ve been used to in the post-war period.  We need to be cautious about an inevitability about US decline.  Similarly, we need to be conscious that the China growth story won’t be a single line projection, that China will go through twists and turns, and we all hope that the trend line is certainly in a positive direction.

So the idea that we’re dealing with this simple dynamic of a declining United States and an inevitably rising China simplifies a much more complicated situation.  It tends also, importantly, to ignore the role that countries like Japan and India, and over time Indonesia in South East Asia, are going to play in determining the overall distribution of power in our region.

MG:  And to what extent do you think that the interest that Australia has with China and the interest that the United States has will diverge.  They’re obviously somewhat different at the moment, will that divergence grow or narrow?

PV:  There’ll be many common things in our respective interests in China.  Both of us want to see a stable China, because the consequences of instability are too horrible to contemplate.  Both of us would like to see a China with a strong economic foundation because it plays back in to our own prosperity.  Both of us would want to see a China which is actively engaged in the affairs of the region but also a China that is willing to be part of a regional strategic culture which puts at its heart the acceptance of certain norms of international behaviour and respect for international law.

So these are all big issues on which Australia and the US will have similar positions.  We will never have identical positions on China, I don’t think we have in the past and I don’t think we will have in the future.  But on a number of the big issues, not surprisingly given our own alliance relationship with the United States, and given the nature of our own interests, there’ll be a lot of common ground.

MG:  And the differences, are they likely to be in the economic field, or strategic field?

PV:  I don’t think the differences will necessarily be economic or strategic in nature.  The differences, to the extent they arise, tend to arise in relation to very particular issues rather than in relation to our sort of broad positioning.

MG:  Now you point out in your speech that after several decades of growth in Asia, virtually all the major Asian economies now face deep structural economic challenges, do you think that this is likely to make for a more unstable region generally?

PV:  Not necessarily, I mean my intention there was to point to an element of political economy risk that we need to be alert to.  I’m not making a prediction that this is all going to end in tears, far from it. But it is the case that when you look at the large Asian economies at the moment they all face deep structural challenges, some of them have been facing it for some time. 

It’s also the case that in many cases, their political systems are not strong enough, or not able to address those deep structural challenges.  And it’s in this intersection of economic challenge and political systems that we have an element of risk to the Asian growth story that Australia needs to be conscious of, and which would suggest that we also need to be careful about how we spread our risk globally.

MG:  Well how do we spread our risk globally, are we not, for example, taking advantage of relationships with Europe sufficiently, or should we be doing something else?

PV:  No I think it’s doing precisely what we’re doing at the moment, which is to recognise that our trade and investment interests are global and that we should be putting effort wherever we will find a good return.

We’ve made a very strong start with our three big FTAs in the Asian region, but, you know, we also want to conclude an FTA with India by the end of this year, which will be very important.  We’ve started the process of putting in place a negotiation with the European Union.  We would like to see a resumption of our FTA negotiation with the Gulf Cooperation Council countries.  We have an interest down the track in doing an FTA with Indonesia.

This is a sensible approach to maximising our economic interests at a time when global demand is likely to remain fairly slack.  We just have to make the best of what we can.

MG:  Now you mentioned Indonesia; during your career you’ve seen many ups and downs in Australia’s relationship with Indonesia.  How do you think it is at the moment, and do we have more repair to do after the recent setbacks?

PV:  Well I think some people can overanalyse the downside in the relationship with Indonesia.  The reality is we have a good relationship with Indonesia, and one which is cooperative at a number of levels.  When we last did our stocktake of the bilateral relationship, we identified some sixty areas of very direct cooperation between Australian and Indonesian agencies.  

The challenge with the Indonesia relationship is to add more layers to it so that it’s not so easily blown off course if a disagreement comes along the way.  And with two neighbours, there will be disagreements that come and go all the time and the best area for us to be focusing on at the moment is to put much more depth into the economic relationship.

Indonesia is a G20 economy.  In some respects we are competitive economies in terms of our resource base, but two neighbouring G20 economies should have a much more substantial trade and investment relationship than we do with Indonesia.  The economy and domestic development are big priorities for the new Jokowi Administration, and Robb will be taking a large business delegation there in November.  We need to find many more points of intersection between Australia and Indonesia on the trade and investment front.

MG:  And the people-to-people relationship’s not the best either, is it? I notice in the Lowy polls people, Australians, are very ‘cool’ to Indonesia compared to their attitudes to some other countries.

PV:  Well at one level the people-to-people relationship is certainly headed in the right direction, in the sense that the numbers of tourists that go backwards and forwards is going up.  The number of students from Indonesia in Australia is rising.  Under the New Colombo Plan we now have a very large number of young Australian undergraduates going to Indonesia, and that’s all very positive.  

Where we need to do much more work is to update the perception of the other country, in each country.  Australians have an out-of-date view of Indonesia.  Often the pen picture you get from Australian polling is that many Australians still think that Indonesia is still run by the military, they still see Indonesia as essentially a ‘poor’ country.

We need to update that view of Indonesia, and equally I think that many Indonesians have a view of Australia that is trapped somewhere in the fifties and sixties, and less of a sense of the diversity and dynamism of the Australian economy, and certainly much less of a sense of our multicultural identity.

MG:  One interesting, indeed rather startling, point that I noted in your speech was you talk about the reunification of Korea, and you talk in terms of not if this happens, but when this happens.  What sort of time-frame are you thinking of here, and what sort of process?

PV:  Well I think it’s impossible to put a time-frame on reunification because North Korea has been defying the laws of economic gravity now for many decades.  And that is something which our grandchildren may still be talking about or it’s something that could change quickly.  Look at what happened in Romania, an example of where something unravelled extremely quickly.  So I don’t think any of us can put a time frame on it.  But I think it will happen. 

It will happen at some point.  Whether that’s years or decades is open to question.  Then we will all have to deal with this question of what the strategic disposition of a united Korea is going to be.  Which way does it lean, towards the US, towards China, or will it want to set out in an independent direction.  There’ll be consequences for whichever choice is made. 

MG:  That’s real crystal ball stuff.

PV:  It is. 

MG:  More immediately, you make the point that we need to refurbish the multilateral system and note that some say a greater role for the G20 is a way to go.  Do you think the G20 should be beefed up structurally?  At the moment it doesn’t even have a secretariat.  Now Australia was recently the host of the G20 meeting so we’ve been through this experience.

PV:  The G20 has shown that when given a challenge it can rise to the occasion.  In managing the consequences of the 2007-2008 global financial crisis, which will in history be very well regarded.  During our year in the Presidency we did also show that the G20 could be focused on a serious agenda on economic growth and a serious agenda on economic international relations. 

At the moment I don’t think there’s a consensus for the G20 to go beyond its mandate as the premier economic grouping in the world.  One of the points I make in the speech is that we’re in a crisis of multilateralism in part because there isn’t a driving centre for the multilateral system and that over time perhaps the G20 could play that role. 

The G20 does contain an inherent balance between means and ends.  It is big enough in terms of economic weight to get decisions made and it’s small enough to have relatively intimate discussions.  So from an Australian perspective, I think there is a lot to be said for giving the G20 a wider role.  But I don’t think at the moment there is a consensus to go beyond where we are. 

MG:  On terrorism you suggest that the way we should be looking at this threat is as a potent combination of ideology and pathology and you say that terrorists are recruited at the intersection of ideology and pathology, and yet pathology hasn’t been given enough attention.  Can you explain this notion of pathology and how it can be dealt with? 

PV:  I was referring there to what is the transmission belt for terrorism in a country like Australia.  I think the transmission belts would look different if you were in the Middle East, than they would in a western country like Australia.  It seems to me that what takes someone on this journey to becoming a terrorist has what I would call pathological triggers. 

In other words there is something in the psyche of the individual.  It may relate to identity, it may relate to alienation, it may relate to a lack of connection which predisposes them to, if you like, a radical ideology.  And while we all understand the need to blunt the ideological appeal, I was suggesting that we also need to give attention to these pathological triggers.  Because if we are to deal with this issue, and it’s a growing issue, and we’re finding in Australia that people are becoming radicalised at a younger age and in a faster process, we need to ensure that we have as good an understanding of how this transmission belt works. 

MG:  And in terms of tackling the problem? 

PV:  In terms of tackling the problem, we need to do the sorts of things that we are now doing in Australia.  We need to have very good links into our Muslim communities.  We need to reinforce the view that this is an issue for all Australians to think about.  We need obviously to also take a tough line when we need to take a tough line.  That’s a very necessary element in the mix of things we have to do. 

MG:  As well as dealing with high international policy, you’ve also recently had some big bureaucratic challenges.  The merging of AusAID into the Department – how difficult has that been? 

PV:  Well it’s been an enormous organisational challenge.  Any organisational merger is difficult.  This was a large one.  It had many different moving parts and it has taken time for us to bed it down.  I think we’re now in a much more settled position organisationally.  The conceptual case for bringing AusAID into DFAT has proven to be very sound. 
The decision we took was to go for a high integration model.  Many other countries have done this in a different way and essentially bolted their former aid agencies onto the foreign ministry.  We’ve actually gone for a very integrated approach.  I think that’s the correct way to go. 

When you’re bringing two cultures together it always takes time to get to the right settling point.  Time and diplomacy.  I’m not saying it’s mission accomplished but we’ve actually made more progress than I expected at the beginning of this process.  Over time this will be shown to be a good thing to have done. 

MG:  Aid always seems an easy area for governments who are looking for cuts.  Do you think that politicians tend, and the community perhaps, tend to not value aid as much as they should in terms of a country’s soft power.  The clout that it can exert through its aid program?

PV:  If you look at polling in Australia, the level of support for the aid program would suggest that not everyone is convinced about what an aid program delivers for Australia.  From my perspective, aid is important not just in terms of the soft power issues that you raised but in terms of promoting economic growth and therefore promoting strategic stability in our near abroad, it still plays a very important role, especially in the South Pacific. 

In terms of other larger economies there has been quite a significant shift in the focus of our aid program, much more towards economic partnership rather than a traditional aid donor-aid recipient relationship. 

It’s very much the case now that aid flows are a very very small part of total financial flows in the global economy.  So the amount of aid coming into a country like Indonesia, into an economy like Indonesia, is dwarfed by other financial flows. 

All of us who are involved in the aid business, need to re-think in many ways our basic approach.  This government has, in my view, rightly put the emphasis on the contribution aid can make to economic growth, in particular the role of the private sector in stimulating economic growth, and the need for us to be much more innovative in ways of delivering aid that works.  That’s essentially been the new framework that Julie Bishop has outlined.  

MG:  You do talk in your speech about values generally underpinning foreign policy.  Perhaps we overlook sometimes the importance of aid just as the right thing for a rich country to do, to provide, that this is a value that we should be promoting. 

PV:  There would be many people in the Australian community who would see aid exactly in those terms, as the right thing to do for a country which, afterall, still is a very wealthy country.  I would say aid brings together not only values which are always very important but also our hard interests in the way I’ve just described. 

MG:  Just finally, you say that Australia has underestimated its foreign policy weight in the world and the effect on others of what we say and do.  Why do you think this has been so and in what ways should we rectify that? 

PV:  It goes back to the broader historical observations I was making about strategic anxiety in the Australian psyche and related to that, the fact that we have always been much more comfortable in the slip-stream of power than leading, with some notable exceptions. 

That has had in some cases the effect of underestimating our weight.  We are afterall the 12th largest economy in the world, we’re a very substantial exporter of key commodities, we are an emerging energy superpower and we have a land mass and a maritime zone that puts us in the top five or six nations globally. 

Australians should be confident of the ability of Australia and Australian diplomacy to have an impact and to be able to influence the big issues that will fundamentally affect our prosperity and our security. 

MG:  Peter Varghese, thank you very much for talking with us today.  That’s all from The Conversation’s politics podcast for now, we’ll be back with another interview soon.   

Last Updated: 1 September 2015