The price of freedom

Russian aggression is ushering in a new economic era in which national security and economic security are intrinsically linked. By Josh Frydenberg.

The threat to the international rules-based order means national security and economic security are now linked.

In the post-World War II era we have seen a period of remarkable global stability and prosperity, underpinned by a well established international rules-based order.

This system has allowed trade and investment to flourish and seen dramatic improvements in global living standards, with more than 2 billion people lifted out of poverty in just the past 25 years.

Australia capitalised on this environment by pursuing hard-won domestic reforms, often enacted with bipartisan support, that opened up our economy to the world, increasing competition and lifting productivity.

Today the global environment is again undergoing profound change. We are living through a pivot point in history, no less important than the fall of the Berlin Wall and 9-11.

We are not witnessing a rerun of the Cold War that was an ideological contest between communism and capitalism. Rather, in today’s civilised and globalised world, we now are being challenged as to what limits we will accept to the use of brute force.

The unprovoked and unjustified Russian invasion of Ukraine just 13 days ago is the most serious violation of our liberal rules-based order since World War II. It has eerie parallels to Hitler’s 1938 seizure of the Sudetenland, which led to anything but ‘‘peace for our time”.

Putin has been called many things: a gangster, a dictator, a pariah. But what he is, after all, is a ruthless exponent of realpolitik and a believer in a Greater Russia and a new imperialism.

That in itself makes him a danger to his neighbours, but in possession of a massive nuclear arsenal, it makes him a danger to the world.

With the US war weary, the French distracted, the Germans passive and China supportive, he saw his chance to move. But in doing so, he miscalculated and underestimated the response.

Liberal democracies are now awake, inspired by the courageous defiance of the people of Ukraine. Nations the world over are pushing back against autocracies who undermine the rules-based order through the use of force and economic coercion.

Some of these trends were evident before the invasion. It is no secret that Australia has itself been subjected to economic coercion in recent years.

While these acts put the world on notice, Russia’s act of outright aggression is ushering in a new economic era.

It is redefining globalisation as we know it. National security and economic security are now intrinsically linked.

In this new era, Australia and liberal democracies must stand up and give effect to their collective will.

First, we must come together and send a strong signal that the use of military might and economic coercion will not be tolerated and will not be allowed to succeed. Business must join with the government in heeding this call.

We cannot accept that might is right militarily or economically. It is why we have joined the unprecedented global effort to evict Russia from the international economy.

Piece by piece, Russia is being removed from the global economy and Putin’s plug is being pulled from its socket.

Importantly, we have the financial and economic arsenal to achieve this. Other countries that may seek to follow Russia’s example must take note.

But we must not be naive about the costs these necessary actions will also impose on the West. For liberal and free nations, this is a price that we must be willing to pay for the right to live free of fear and coercion.

Second, we must strengthen and realign our critical supply chains as we move into this era of heightened geopolitical risk.

As part of globalisation businesses sought to drive down costs, moving towards just-in-time delivery. Now, whether around the Cabinet table or the boardroom table, these strategies are being recalibrated, starting with critical sectors. Just-in-time is moving to just-in-case.

This is not to say that a country like Australia must be self-sufficient in every area. That is neither practical nor economic. However, governments and businesses must price in this new risk and seek out reliable partners to build more diversified and robust supply chains.

Across liberal democracies, a paradigm shift is taking place. Done the right way, this will not come at a cost to our prosperity, but rather help to secure it.

Third, the more dangerous and unpredictable strategic environment we now face will require from liberal democracies a sustained and substantial increase in defence spending. It is a trajectory Australia is already on.

This year, as a share of GDP, the defence budget is expected to reach 2.1 per cent up from 1.56 per cent when we came to government.

Our vital long-term investments in defence capability are only possible if we can maintain a strong economy and a strong budget. Economic strength is the foundation of our national security.

The events in Ukraine must be understood for what they are and the profound impact they will have at home and abroad.

The international rules-based order that has underpinned decades of relative peace and prosperity is now under threat.

We cannot pretend otherwise. We now have a new national project. We are determined to see freedom prevail.

Josh Frydenberg is the Federal Treasurer. This is an edited extract of his speech at The Australian Financial Review’s Platinum 70 Year gala dinner in Sydney on 09 March.