Up from down under: The industrialised country leading the race out of recession is - Australia. And this time it is driven by an export revolution. Robert Milliken sees hope for an end to the boom and bust cycle

A MONG the statistics to tumble out of Canberra, the Australian capital, last week were those showing the country's divorce rate had soared to its highest point in 18 years. 'Boom in Bust-ups,' said the Canberra Times.

For Elizabeth Seddon, the director of a Canberra counselling service called Relationships Australia, the boom was directly linked to Australia's economic recovery. 'Economic hardships are always a major factor leading to divorce,' she explained. 'The end of the recession means people can afford to take their separations one step further.'

She could have been speaking about the national psyche. Australia has emerged from the recession of the early Nineties with remarkable speed. At 4 per cent, its annual growth rate is faster than that of any other industrialised country except its neighbour, New Zealand, and Turkey.

Australia was the first such country to enter recession, after a boom economy in the 1980s which was characterised by the speculative antics of Alan Bond, the late Robert Holmes a Court, John Elliott and other high-flying tycoons who built vast international empires funded largely by debt. Many of the tycoons are now dead, broke, in prison or facing lengthy court cases.

Now corporate Australia has emerged leaner and meaner, and Australians have sought a collective divorce from the roller-coaster past that left the economy shell-shocked. As the new boom takes off, though, some are wondering nervously whether that bust-up will simply be followed by yet another.

So far, there are encouraging signs that this recovery will be sustained. The latest national accounts show profitability at record levels, with no hint of a wages explosion or inflation. At 1.4 per cent, Australia's inflation rate is the lowest in the Western world. Business and consumer optimism are the highest in five years. During the first three months of this year, corporate profits were 34 per cent higher than in the previous quarter, exports far outstripped imports, and the number of Australians going bankrupt declined significantly.

The stock market stormed ahead last year, although it has come back some way alongside world markets in the last few months. Stockbrokers Barclays de Zoete Wedd forecast the stock market would generate returns of 22 per cent in local currency terms over the next 12 months.

There are two key black spots in all this: unemployment, which remains stubbornly high at 10 per cent, and business investment, still frustratingly low. The latter trends are hardly surprising, given the traumas the Australian economy has been through. The recession left many companies burdened with mountains of debt, and led to a radical downsizing of staff, not just among the ranks of corporate middle management, but across the board in banks and government-owned enterprises as well.

This came on top of the Labor government's micro-economic reforms of the 1980s, which subjected the economy to its most radical upheavals in almost a century. As Treasurer (finance minister) and then Prime Minister, Paul Keating introduced changes designed to dismantle a heavily protected and regulated economy by floating the Australian dollar, deregulating the financial markets, slashing tariffs and reforming the labour market.

Australians will always remember Mr Keating for two of his most notorious quotes. In 1986, he warned them their country was in danger of becoming a 'banana republic'. In 1990, he described the recession as 'the recession we had to have'. Only now, as the nightmares recede, are some wondering whether his blunt talk may have had a point, in shaking the country out of its complacency.

What makes this recovery differ ent from others is the decline of the old 'lucky country' mentality, the belief that Australia would bounce back as soon as the rest of the world was ready to resume buying its wool, wheat, iron ore, bauxite and other raw commodities. The contribution of minerals and farm products to exports has steadily declined over the past decade. Last year, one-third of exports were manufactured goods and services.

Faced with the loss of their guaranteed home markets after the tariffs were taken away, Australian manufacturers have been forced either to go to the wall or to seek new outlets in the wider world. After deriving its initial impetus from revived public spending and housing construction, Australia's recovery is now driven by exports, many produced by younger, smaller companies which have carved out niche markets for hi-tech goods, particularly in the booming economies of Asia.

Ralph Evans, the managing director of Austrade, a government organisation to promote trade, cites two of the biggest strides: 'elaborately transformed manufactures', exports of which have grown by almost 20 per cent over the past five years, and cars, with exports increasing four times in 10 years. He says both areas are typical of the export culture which has followed micro- economic reform. 'There are a great many companies for whom the Rubicon has been crossed. They have learned to be international, and Asian markets loom large in their mentality.'

John Prescott, the managing director of Australia's largest company, Broken Hill Proprietary (BHP), the steel and resources giant, says that the government's pre-recession moves to make the economy more competitive are now reaping results. Three weeks ago, BHP announced a record profit of Adollars 1.2bn ( pounds 620m); more than 40 per cent of its steel is now exported. 'This recovery differs from previous recoveries in that it has not been led by an upswing in commodities,' Mr Prescott said. 'The encouraging aspect has been the growth in net exports despite subdued economic conditions in some of Australia's largest overseas markets in Europe and Japan. That suggests Australia has improved its competitive position . . . I think there are signs that this may be a fairly sustained recovery.'

There are also indications that Australian companies are calling a halt to the retrenchment spree. The Australian Chamber of Commerce and Industry, which represents 300,000 companies, found in a recent survey that only 6 per cent of businesses expect their workforces to decrease from now on, compared with 36 per cent a year ago. Ian Spicer, the chamber's managing director, said: 'This recovery is more solidly based than others, because it comes from more productivity and more competitiveness.

'One of the exciting trends in Australia is to see employees and union leaders being more concerned about product quality, enterprise efficiency, the costs of producing goods and the ability to sell them. These things were not to the fore in Australia in the past, when the economy was cosseted. They are now.'

One company that has learned to adapt to such changes the hard way is Prestige Group, a subsidiary of a British parent company of the same name, whose Sydney-based operation produces saucepans, non- stick baking dishes and other kitchenware.

John Heng, the British-born chief executive, admits bluntly: 'We originally came to Australia because we knew we'd have tariff protection.' When the government dismantled tariffs in the late 1980s, Mr Heng said, Prestige 'hit the recession pretty hard'. Faced with a domestic Australian market of only 17 million people, and a flood of cheaper imports, Prestige seriously considered closing its doors.

Since then, the company has turned itself around. Exports have risen from zero before the recession to one-fifth of production, all to countries in Asia and the Pacific. In three years, productivity has increased by 63 per cent.

'We have achieved this not by raising wages but by getting the management and workforce together in the common cause of survival,' Mr Heng said. 'Contrary to some stereotypes, the Australian worker is smart. In a country like this, with lots of sunshine and sport, most people don't want to work more than five days a week. We've accommodated this in our workplace arrangements, and got rid of the old adversarial industrial relations climate which Australia inherited from Britain and which used to make it such a strike- ridden country. Our factories now operate 24 hours, six days a week. If we hadn't taken these steps three years ago, we wouldn't be here now.'

Last week, the Australian government awarded Prestige the Australian Best Practice accreditation, making it a benchmark in staff relations for its industry.

For many Australian companies that came through the recession by developing niche products, exporting has now become integral to survival. JNA Telecommunications, which began in a Sydney suburban backyard 30 years ago, won a lucrative contract this month from stiff international competition to supply a digital voice and data network to the Chinese province of Henan.

When Bryan Sue San joined JNA as general manager 15 months ago, exports were zero. Next year, they are forecast to comprise 35 per cent of turnover. 'In the bad old days of total economic regulation, the incentives to search for niche markets weren't there,' Mr San said.

Roger Perkins, managing director of the Bliss Corporation, a Sydney-based engineering group, is convinced that Australia's economic upheavals of the 1980s have forced businesses to stop talking about becoming international and start doing something about it. His company recently sealed a deal to supply ground tractors to Singapore Airlines, and sales to other big Asian airlines have followed. Ten years ago, 85 per cent of Bliss's business was done in Australia; today only 15 per cent is. 'We wouldn't have a business if we weren't exporting,' Mr Perkins said.

Unlike some of his colleagues, though, he believes talk of a substantial economic recovery is premature. 'It won't be sustained until businesses start reinvesting.' Such reinvestment is crucial to the Keating government's strategy of maintaining 4 per cent-plus growth for the rest of the 1990s and wiping out its budget deficit by 1997 without cutting public spending or raising taxes.

Australians are deeply conscious that their New Zealand cousins across the Tasman Sea have already achieved such goals. New Zealand's 1980s economic restructuring was more sweeping than Australia's, partly because New Zealand did not have to contend with the internal bickerings and centrifugal forces inherent in a federal system.

Australia's federal and state governments recently agreed to tackle such antiquated barriers to efficiency. They will introduce 'national competition' legislation designed to subject businesses, professions and government enterprises throughout the country to the same set of competitive rules.

Paul Barrett, executive director of the Business Council of Australia, believes these changes will prove historic: 'It is our own version of the European Community's decision to complete the single market, and will enable Australia to enjoy the economic benefit of being one of the world's dozen largest economies, rather than running the country as nine units with different rules.'

If he is right, and if Australians can learn to love their new export culture, then the lucky country will be fortunate indeed.

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