[Recorded 24 August 2026.]

Janet Egan is Senior Fellow and Deputy Director of the Technology and National Security Program at the Center for a New American Security in Washington, DC. Her research focuses on the national security implications of artificial intelligence. She was previously the inaugural director of policy in Australia’s Office of Supply Chain Resilience.

I caught up with Janet while she was home in Australia to stress-test the strategic case for building a large compute industry here. We discuss why training compute gives Australia more leverage than inference compute, whether hosting compute could also give us influence over AI safety, why copyright is a red line for the AI companies, and why Australia’s window to act is “a month or months, rather than a year”.

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Sponsors

• e61: a non-partisan economic research institute focused on Australian public policy. (As it happens, e61 was co-founded by Andrew Charlton before entering Parliament, though he’s no longer involved.) To receive a copy of the new essay I co-authored with e61 on data centres and the compute economy, go to e61.in/joewalker.

• Vanta: helps businesses automate security and compliance needs. For a limited time, get one thousand dollars off Vanta at vanta.com/joe. Use the discount code “JOE”.

Transcript

JOSEPH WALKER: Today I’m speaking with Janet Egan. Janet is a policy researcher at the Center for a New American Security, which is a think tank based in Washington, where she focuses on AI and national security.

And prior to that, she was the inaugural policy director in Australia’s Office of Supply Chain Resilience.

And I’m very lucky to be catching her while she’s on a trip back home to Australia.

Janet, welcome to the podcast.

JANET EGAN: Thank you for having me. I’m excited to be here.

Lessons from the AdBlue crisis

WALKER: So we’re going to talk about the geostrategic case for compute in Australia, but before we get into that: before we started recording, we were chatting about your experience in the Office of Supply Chain Resilience.

So for people’s context: there were a lot of COVID disruptions in 2021. Australia stood up this office in mid-2021. You were the inaugural policy director.

Only a few months after that office was stood up, we had what was called the AdBlue crisis. So AdBlue is this [diesel exhaust fluid] that’s used in trucks and heavy vehicles. I think about half of Australia’s road transport fleet relied on it. And a critical ingredient in AdBlue was urea, and China restricted exports of urea. I think we depended on China for 80 to 90% of our urea. We had only a few weeks of AdBlue stockpiled, so we’re facing this crisis where potentially we weren’t going to be able to, you know, deliver food to supermarkets, etc.

So I’d love to know, just firstly, how that story unfolded in the office, sort of from your perspective, and then what you learned from that experience.

EGAN: Yeah, absolutely. It’s probably one of the experiences I look back on with a lot of sleep deprivation but excitement to realise what government can do really quickly when it puts its mind to it.

So maybe a bit more background about OSCR, which we called it, the Office of Supply Chain Resilience. It was actually in formation and being stood up before COVID shocks. So the intent behind OSCR was to bring together the economic and national security considerations about supply chains into a single point of coordination across government. And this was emerging because we had the 5G security issues, where you had national security decisions really impact your economic decisions as well. And more and more the questions were coming up as to what are the supply chains where we’re really dependent on foreign countries and that are critical to the national interest. And then we talked a lot about sovereign capability, which I’m sure we’ll talk about today.

But the AdBlue crisis was one that took us completely off guard, and that’s because we spent a long time developing up these models that used Comtrade data – international trade data – to actually look at where are there real strong concentrations in supply chains, and where are we entirely dependent on just a few places in the world for something that’s critical. Urea was captured, sure, but the trade data did not differentiate between high-grade urea and low-grade urea.

Now let’s get nerdy about this. Low-grade urea is what you use for fertilisers, and so you’re putting [it] on your crops; it’s a regularly used fertiliser. High-grade urea is what was used to create diesel exhaust fluid, which is what was used for 80 to 90% of Australia’s trucking fleet, for example.

We first heard about this by industry calling us up and saying, “Hey, we’re a bit worried about these China export controls on urea. We’ve heard from some providers that they’re not able to get the stock.” And then we saw indications that other countries are starting to scramble to fly to different countries and take bulk urea and diesel exhaust fluid back to their jurisdictions. And it was then we realised, oh, actually this looks like it really could be a problem.

The interesting thing was that we’ve got no evidence that China did this deliberately as part of economic coercion or a trade dispute. One reason was that maybe it was just trying to limit a high-pollution activity in advance of the Winter Olympics, but it had massive flow-on effects.

And so what do we do as an office? The first thing was we had to find out what diesel exhaust fluid was and respond to questions of: does it really need to be there? Can we just switch it off? How would that work?

And then the full range of levers were deployed across government. And I was on phone calls to people who ran charter flights, and the biggest charter flights of the world, to work out how much would it cost and how much magnitude of diesel exhaust fluid could we bring in if we just hired the largest transport carriers in the world. I was talking to the military to work out where [were] our largest ships and could we redirect them to go pick up some of this critical supply. And then we were looking throughout the supply chain at, like, can you do rationing? Can you talk to different states and territories about how we’re spreading the limited supply we had? And trying to manage the hoarding aspect of it as well. So for a while we had enough, but everyone was spooked, so we then got shortages because of that.

It kind of turned into this all-government approach of every agency had a small stake in it. We had the Department of Industry looking at how do you build your own sovereign capability in this space. We had our posts overseas engaging with local counterparts in the northern hemisphere to work out: have you guys been affected? Do you have some we can bring online? We talked to Indonesia and got minister-to-minister level agreement to get some urea-grade supplies from them.

It was just one of those instances where it was very messy, but it gave me a firsthand account of how government can move quickly. And we did. Essentially what we managed to do was there was a fertiliser factory that was closing down in Australia. We were able to delay that closedown, redirect its approach to actually use a new reagent that we shipped in from Germany to combine it with lower-grade urea to make higher-grade urea, which was then used to make diesel exhaust fluid. And, through this sovereign initiative, we had this facility running for a period of time, and then we had to work out how to ensure they had enough COVID tests to keep their workforce operating, and how to get that supply through different floods that were happening in Queensland at the time.

So yeah, the long story short was it was not a well-organised process, and I think since then we’ve had a lot of lessons learned, and the new supply chain resilience initiatives have obviously professionalised a lot more than these scrappy days of just being on the phones and trying to find solutions. But it really impressed upon me that when you have the backing of ministers and the Prime Minister, when it is a national priority, you can just move so quickly. Within months we had solved this issue for Australia.

WALKER: It’s really interesting. I feel like government has two modes. There’s the glacial mode, which is the mode it normally operates in, and then the kind of crisis mode, where it can do things like what you just described. It’d be nice if there was a kind of third, “slow urgency” mode.

EGAN: I would love to see that. I think one of the closest things I’ve come to see in that space is when you have a small unit of people inside government who are highly agentic and empowered. There was a deregulation taskforce in 2019 whose whole mission was to go through the lens of a small business in Australia, or an individual in Australia trying to do business or work through systems, and identify where there was regulatory friction that didn’t need to be there, and trying to find pathways through.

So one example is when you have different occupational licence regimes across states and territories. The Deregulation Taskforce was like, “Wow, this seems insane. If you’re a builder in this jurisdiction, you’re not allowed to build in this jurisdiction until you’ve gone through all of these processes.”

And so I’ve seen some of that middle-range work, but you just have to have this confluence of agentic people who have backing and support to go through and cut through the people who don’t want things to happen, or at least bring them on that journey, and then to just advocate for change.

WALKER: Is talent the scarce thing?

EGAN: I think maybe there’s something… maybe there’s a cultural component too. I think there are so many talented people in government, but I think sometimes when you enter government you can be taught over time to follow process more than to think about outcomes. And then you’ve also got a layered structure that looks at mitigating risks to individuals, so your individual leadership aren’t wanting to step outside their territory to take on more risk and annoy more people. So you kind of need this confluence of people who are willing to ruffle a few feathers and people who really care about outcomes to push through some of that glacial process.

How seriously do Australian policymakers take AI?

WALKER: Okay, let’s talk about compute in Australia. So you’ve been in Australia for the last few weeks, speaking almost exclusively with Australians. When you go back to Washington, tell me how you’ll summarise your trip and what you’ve learned to friends. So, for example, is there anything that surprised you about how Australian policymakers are thinking about compute or AI in general? Any differences that you’ve noticed between how US policymakers and Australian policymakers are thinking about those topics? What’s stood out to you?

EGAN: Yeah, great question. I think the first thing that is so distinct between Washington, DC and Australia is how seriously people take AI. Again and again, I found myself having conversations where I’ve assumed that people think AI is going to be a big deal, and so I’ve started the conversation there, and find myself having to go back and retrace earlier discussions to say, “Oh, okay, here is where the pace of progress is heading. Here is the evidence that we’re continuing to see massive breakthroughs and we haven’t yet hit a wall, and here is the evidence that the recipes we have for continuing to improve capabilities are continuing to bear fruit, and so we’re on a trajectory.”

In Washington, DC, no one is… well, very few people are questioning that. It would be odd if someone said, “Oh, I don’t think AI is a big deal. Oh, I think it’s just hype.” But the amount of times I’ve been asked in the Australian context, “Wait, isn’t it just a bubble? Like, surely AI is just all hype in the market, like the companies are talking themselves up.” That is a really big juxtaposition between the two different policy landscapes.

What surprised me in the positive way, though, has been how rapidly Australia has been moving to understand and grapple with these issues. You had Charlton on this podcast most recently, and it’s been amazing to witness the journey of initial conversations happening around AI in Australia to actually delving into the issue of compute at a ministerial level. We’ve seen the Department of Prime Minister and Cabinet set up a new AI taskforce. We’ve seen a growing number of policymakers express urgency at addressing these issues.

So I think we’re on the right trend, but I do think that there are a lot of very senior people in positions in government who still aren’t grappling with the realities of AI progress.

One theory I have for this is that it’s very easy to appear knowledgeable and be sceptical, but it’s actually very costly or hard to be knowledgeable and engaged in the issues – particularly if you’re a leading economist in your field or you are a thought leader in your industry and someone is asking you for takes on AI. It’s a cheap and easy take to have to say, “Look, I’m not sure this is a really big issue. I’m a skeptic.” It’s a much harder thing to do to sound really knowledgeable and informed and engage in those issues. So I think we’re moving in the right direction, but there’s still a way to go.

WALKER: So just in 30 seconds, because I’m going to ask you a bunch of questions that elaborate on this further, but give me your ideal world for compute in Australia by 2030. So, you know, how much compute, how is it deployed, what benefits is it delivering us?

EGAN: Yeah, big question. 30 seconds. I would say we have multi-gigawatt-scale compute training clusters in Australia, done in partnerships with the leading AI companies. The Australian government is not spending money on these. We’re redirecting the massive amount of AI capex into Australia’s clean energy transition and Australia’s compute capacity.

How much does frontier access matter?

WALKER: Okay, so let’s go through each of the arguments for compute in Australia from a geostrategic perspective. I don’t want to touch the economic stuff today. But I think if we divide the geostrategic arguments up into, say, three different limbs: the first is leverage for frontier access; the second is maintaining enough inference compute so that we can continue running our sort of critical services and military functions; and then the third is having some influence over the governance and alignment of AI systems.

So if that sounds like a good map to you, let’s start with compute as leverage for frontier access. And I think both in [that interview] and in conversations I’ve had since my interview with Andrew Charlton, what’s emerged as the crux in the Australian conversation at the moment is just: how much does access to the frontier actually matter? And if it doesn’t matter that much, then compute for frontier access is redundant, or not as needed as some people might think.

So I want to start by just asking a few questions about how much access to the frontier matters. So the first question is: I think the gap between the frontier and fast followers is currently about four months.

EGAN: I think it depends on whether you’re looking at the frontier models that have been publicly released, or the level of capability held within an AI company. And what we do know is that frontier US companies who have closed-weight models, they have not deployed or made publicly accessible through API their most advanced models. Their most advanced models are currently kept internal, and I think the estimate’s around two to three months more advanced than what is their publicly available model.

WALKER: I see. So say the gap between the non-public frontier and fast-followers was six months, and we were able to maintain that distance indefinitely. In that world, how much would frontier access matter for a middle power like Australia?

EGAN: I think it matters some… I think we could be in a position where that premise doesn’t hold.

But say that premise holds. I think it does matter in some ways, because six months is a long time if you have AI agents working at machine speed to do a whole range of tasks. And if we accept the premise that AI progress is continuing exponentially and that the capabilities of models are showing no sign of slowing, I think we’re going to be able to do increasingly astounding activities through AI. And so having a six-month lead in terms of what you might do for R&D, material science, your economy, but also your offensive cyber or your defensive cyber, I think is pretty drastic.

WALKER: Right, military R&D in particular. Okay, so now what are some reasons for thinking that that gap might actually widen?

EGAN: Yes. So at the moment we’ve got an AI industry that’s characterised by US companies driving forward the frontier and Chinese companies – said in very simple terms – Chinese companies are acting as fast-followers with open-weight models. There’s a number of reasons I think that this balance might shift over time.

The first is that there’s some extent of Chinese capability that is a result of distilling US models, and it’s very uncertain how much of Chinese capability is purely as a result of distillation versus what they’re doing themselves. But I think it’s reasonable to expect that US companies and the US government [are] going to get better at preventing distillation. So that’s one thing that could widen the gap further.

Another thing that might widen the gap is this idea of recursive self-improvement, which is where you get AI making better AI, and that kind of creates this flywheel of AI progress that then gives you this intelligence explosion that’s then hard to rapidly follow – particularly if you use those intelligence dividends to push back or counter distillation or counter Chinese progress in that space, which, given the state of US-China relations, could be a real possibility.

And I think another reason that this issue might change is open-weight models are democratising access to AI capabilities, but we’re seeing now that there’s sort of discussions within China to stop making the most advanced models open weight. And so maybe there’s a ticking time clock on how long we can access open-weight models freely. And that’s because essentially every user of an open-weight model has the ability to download a local instance. Once you have access to the model weights, it’s very trivial to strip away any safeguards that have been put in place. You can just tweak the model weights, and fine-tune it and train away safety behaviours.

WALKER: Yeah, the safety filters can be changed through the inference code, but the safeguards are in the weights.

EGAN: You can tweak the weights. You can further train it, you can untrain it, you can… It’s a very trivial process to actually strip away the safeguards that might have been put in place.

And so Chinese companies – there’s rumours, and I haven’t seen this affirmed anywhere – but there has been discussions that Chinese companies are already not releasing their most capable versions in open weight, because they don’t really want to pass capable cyber weapons into the hands of everyone in a way that will get them in trouble with the Chinese government.

Now, as AI becomes more capable across more domains – and talking to the AI companies, it sounds like bio is ready for significant uplift, and they’re getting more evidence that that might be the next dual-use cab off the rank – there’s another fundamental question: are you going to keep democratising access to everyone around the world, who can then strip away all the safeguards and use it for nefarious purposes?

So there’s this ticking time bomb of a decision for China to think about how is it going to approach open-weight models. They’re not very profitable, open-weight models, because you’re not really regaining a lot of the training costs, because you’re making it available for free. And so I think any strategy that rests entirely on the proposition that we can just continue accessing open-weight models that’s six months behind the frontier hasn’t grappled with those complexities.

WALKER: Right. Okay, I have a few follow-up questions here. So one is: my sense is that cyber will end up defence-dominant and bio will probably end up offence-dominant. Is that your sense as well?

EGAN: I think that’s generally the accepted trend. For cyber, we’re expecting to see this massive dip into offence-dominant for maybe one to two years, depending on how quickly we can use AI agents running across the entire insecure code of the internet and every operating system to secure it. And that is really costly to do. I know OpenAI Foundation is actually looking at hiring people to work out a plan to do some of this stuff. But yeah, that’s very much a work in progress. So near term, cyber is offence-dominant. Later, hopefully defence-dominant, once it’s AI writing secure code.

And then you might still have some cyber capabilities that are exquisite in a form that makes them offence-dominant. So if you think about your resources in terms of compute: how much compute you’re deploying to guard your surfaces of code that you’re pretty sure is secure but know it may not be entirely secure. An AI attacker only needs a lot of compute to go after one particular section, and could probably outperform. If you have a lot of compute for one exquisite cyber weapon, you could probably still get real breakthroughs.

It’s very hard to control bio risk, because one single instance can have such dramatic effects. We saw with COVID-19 the impacts of a pandemic, and that wasn’t even an engineered pandemic designed to be as harmful as possible. I do worry about the bio space. I think the best thinking at the moment is how do you focus on the parts of the supply chain you can kind of restrict. So, for example, synthetic DNA screening: if you’re ordering gene sequences from a lab and it’s being printed for you, what requirements are there to check that it’s not part of a known virus that could be problematic, or part of an unknown virus that shows indications it could be problematic? So there’s some of the open questions as to how we manage that.

WALKER: So my next follow-up question is: what’s your rough sort of model of the CCP here and how they’re thinking about these security risks? And what are some things that could surprise us with respect to how they respond? So, I mean, if it is indeed true that AI is so strategically important, maybe they decide it’s just worth taking those risks?

EGAN: They could. I’m by no means the expert on the CCP. I have been engaged in some Track II dialogues with Chinese AI companies, and so have some sort of insight into how the frameworks work over there. The CCP is deeply involved in the development of AI models in China, to the extent that it seems to me that Chinese AI companies expect the Chinese government to weigh in on what risk is appropriate and not appropriate, and so aren’t necessarily like the US companies, who are doing their own analysis of what are their risk thresholds and safeguards.

And so then it turns into: what’s your model of actors within the CCP who are more or less bullish or bearish on AI, and are looking at rates of progress and risk? And I think there has been some discussion about how… so in China there is some discussion about risks emerging from AI, and for the CCP it’s also around information risks. So what are AI models telling their citizens? Are they aligning with good socialist Chinese values or not?

It’s probably quite a long answer to say I don’t have a very clear steer on where they’ll land on this. I do think that the Chinese government is going to regulate, and already is regulating, AI in China, and so it will probably be like a tweak and adjustment as they see more risks come to light.

WALKER: So another question is: for mitigating the biosecurity risks posed by open-weight models, one obvious solution is to just not publish the model weights, but there are other policy alternatives for mitigating those risks. For example, you could exclude sensitive data from the training corpus. Do you have a sense for how feasible those other alternatives are, and whether they’re sufficiently robust?

EGAN: Yeah, I think with bio it’s a difficult one, because once you’ve published weights, you can then train it further on additional data sources. And so if you have access to a lot of data on biological science in this field, you can then create that capability inside a very intelligent general-purpose model. So it’s much harder to sort of mitigate against that fully.

But I think it is a really big question as societies we need to grapple with, because there’s real risks to keeping everything in closed-weight models as well – like risk of power concentration into just a few companies in just a couple of countries. That also seems really risky. And so, I don’t think there’s one clear right answer here. I do think that bio is so offence-dominant that we need to start taking it seriously now, not wait till a risk starts to hit the horizon.

WALKER: Right. Now, are open-source models really Australia’s only way of pursuing a fast-follower approach?

EGAN: Hmm. Well, I think it depends what you mean by fast-follower approach here. I think the ideas of building our own frontier AI model from scratch I’ve tended to be very sceptical about, because of just the sheer costs involved in developing an AI model.

WALKER: Not contemplating that. Say, again, like a six-month gap.

EGAN: I mean, Australia could try and build out large compute clusters and distil American AI models, just like China is doing.

WALKER: And then just not publish the weights.

EGAN: But I think… One of the cruxes here is how much you think the frontier is where the most valuable activity will happen, from an economic and national security perspective. And one way I think about this is if you’ve got two employees: one of them is your intern, who’s pretty smart, fast learner, but every part of their work you need to check, because they have some ability to make stuff up and often make mistakes, and it’s not quite there. And then you also have an employee that is exceptional, your second in charge, and they’re giving you analysis and results that you rarely ever need to check, and their error rate is very low.

It seems to me that most of the most valuable economic activity comes from the one that’s most advanced – the expert in this field – not the one that is much less advanced. And so I think I tend to err on the side of thinking that the real gains and automation will come from the most capable models.

WALKER: Say in two years you’ve completely changed your position about the importance of access to the frontier. What do you think a likely reason for that would be?

EGAN: Yeah, there’s a few here. One is that data centres are just not made securely, and so companies are spending a ton of money to develop the frontier, and then the weights are easily stolen and exfiltrated. So enough actors take what they want to allow that to diffuse.

A second would be if we do start to see AI hitting a wall in terms of the known recipes for progress at the moment – which we haven’t got indications of yet – but if that happened, then a fast-follower approach might be sufficient if it’s capping the level of capability.

And then I think the third one is if the US manages to combat Chinese distillation really comprehensively and Chinese AI progress continues apace, then that would also make me reconsider, like, okay, maybe it is possible to do a fast-follower model in the longer term.

WALKER: And would that depend on some algorithmic breakthroughs or greater sample efficiency?

EGAN: We are getting algorithmic breakthroughs all the time in terms of just increasing efficiency in how we use compute for training and inference. I guess we’ve got two concurrent trends in the use of compute. Like, pushing forward the frontier needs ever more compute. So I think [for compute] the overall stock is increasing over triple a year, and you need five times the amount of compute to train the most capable model. But then this concurrent trend is that over time any given level of capability is much cheaper and more accessible because of that algorithmic progress.

So I think we’re going to just continue to see great software progress, great algorithmic progress. The thing there, though, is it diffuses fast. It’s just knowledge. And so that’s much harder to gatekeep than something like compute.

Compute-for-access

WALKER: All right, let’s talk about compute-for-access. So I have many questions I’d like to ask you here. The first is: could you just summarise how you see the differences between your preferred model of compute-for-access and my acquaintance, your friend, Anton Leicht’s preferred model of compute-for-access?

EGAN: Yeah, so Anton and I have talked a bit about this. And I am very bullish on the idea of training compute, because AI training – one day maybe we’ll be able to decentralise it fully or have greater decentralisation, but currently companies much prefer to have centralised training compute. And by that, I mean they don’t want to split their training runs of AI models over more than two jurisdictions, or two massive data centre clusters, or a handful at max. Which means that with training compute, you therefore just have maybe one or two countries that are going to host your training.

Inference compute, however, I think is much more fungible and likely to be commoditised, because you can build it in small pockets, large pockets, and you can build it around the world, and it doesn’t have the same gains of being centralised.

Now, Anton is very bullish on this idea of everyone should build out inference compute, and then you can trade access to that compute, or have companies get access to that compute in return for saying, “Hey, we will make sure that your citizens have access to the models that we’re running.”

And apologies to Anton if his views changed recently, because he did mention to me recently that he’s becoming more excited about training compute as well. For Anton’s view, he says inference is what you want. You want access to the models. It doesn’t really matter who trains it, you just want to have access.

I think, though, that if you are the country that is hosting a large proportion of the world’s training compute, you get more kinds of access.

So when I think about access, I think about the deal space of: Australia has, you know, renewable energy, geopolitical stability, good connections with the US through Five Eyes, and space… But the key barrier there is copyright. Obviously, as we all know, AI companies won’t pay for a copyright licence in Australia, because it will undermine their cases for fair use applicability in the US.

So this deal space is that you can create the conditions to welcome training to Australia, and then, because of the first-mover advantage, because companies want to have a guaranteed place to build out their compute, you can ask for a lot in return.

And so when I think of compute-for-access, I think of:

1. You get companies to agree to ensure that Australians get access to frontier models.

2. You ask companies to provide a certain proportion of their compute – it can just be a very small proportion compared to the overall compute – but [it] goes towards public good research in Australia and is accessible by Australian researchers and engineers.

3. And then you also have access to information. You have close collaboration between the Australian AI Safety Institute and the frontier labs operating in that jurisdiction.

And I think those three kinds of access are all very important.

WALKER: Got it, got it.

EGAN: And sorry, to be clear, the public compute dedication would also be for non-company employees. I’m really excited about this. So someone from an AI lab will say, “This is ridiculous. People outside the labs don’t use compute to its best advantage. It seems wasteful to give this scarce resource over to public infrastructure. We can just do more with it and do public good with it.”

My pushback against that is trying to build out an ecosystem of researchers that know how to use AI compute well and can put it towards public good challenges.

In the US, you have this new initiative – it’s been in pilot for a while now – called the National AI Research Resource, which is government-funded compute for AI researchers to use on public good research. I worry that for Australia and for other countries around the world, other governments, the cost of compute is just continuing to skyrocket, because we’re facing a compute shortage, and we don’t want researchers to be priced out of access. So for me, this is like another part of the deal: that if you’re the first mover and say we will offer you a safe harbour for training, you can extract a lot of this sort of value from the companies themselves.

WALKER: Right, right. On the difference between your and Anton’s preferred models, there’s perhaps another reason for thinking that focusing on training compute is better than merely inference, and that is that with the training compute you get a lot of the benefits of inference compute anyway, because the chips can be used for inference. It’s more efficient for the labs, because they can utilise those same chips.

EGAN: I think we are seeing a growing divergence between training chips and inference chips. I think Australia will attract some inference regardless of its approach, but what I see as a real benefit with training is just the scale it unlocks in the near term.

None of this detail is publicly attested to by the companies, but researchers have done a pretty good job at trying to guesstimate how much of the overall compute budget is used for AI training-related activities, including R&D, and how much is used for inference. Weirdly, there’s more demand for inference than is being really… I mean, companies could direct a lot more of their compute to inference, but they’re still choosing to direct… about a third to half of their overall compute spend goes towards training and R&D.

And so if you’re thinking about – if you put your hat on as the AI company, they’re saying, “We’re hitting data centre moratoriums in the US. We would like to bring another democratic power to the table in terms of thinking about AI and how we structure national security and the economy going forward. Which country shall we choose? And once we’ve chosen it, we shall build out like five to eight to ten gigawatts of training compute in short order.”

Now, this is massive amounts of compute. One gigawatt is roughly one nuclear reactor’s worth of energy, and it takes time to build. But because you get dividends from centralising your compute, training means that once you’ve locked into an ecosystem, it’s more advantageous to keep building out that one ecosystem than decentralising your training across multiple different countries.

So I think training is great, because it means that you just grab a big part of the value chain of an AI company, and then that creates the incentives. When you do that, in return for changing rules and regulations, you can extract concessions back, one of them being access to frontier models.

Yes, at the end of the day, a US company is still at the behest of the US government, but you do create an internal champion within the US to say, “Hey, no, this partner is really important. We really need access to these compute resources. We can’t just leave them as an afterthought. Can we invite them into the tent?”

And so it’s less about strong-arming any foreign government into any position. It’s more about creating the environment that means you’re a trusted partner to the US, and a trusted part of the value chain to a company that will advocate for your inclusion in discussions around how frontier AI is accessed and used.

WALKER: So of these various strategic benefits that we’ve mentioned, do you know if any of them depend on whether the compute is built and owned by American hyperscalers versus Australian companies?

EGAN: I don’t have strong views on that. I think at the end of the day, I don’t think that’s a big differentiator.

I think it will still lead to construction jobs in Australia, which is what’s mainly important.

WALKER: Okay, so just focusing again specifically on leverage for frontier AI: this word “leverage” gets thrown around a lot, and it can feel a bit hand-wavy at times. I’d just like you to add some detail, and it can just be, you know, hypothetical detail – I’m not going to hold you to this – but what could a compute-for-access deal look like here? For example, what are the enforcement mechanisms, etc.?

EGAN: Yeah, I think I haven’t thought about this in massive detail, but I think there’s something here around: you could have written in that there’s a significant financial penalty if that company fails to provide frontier access to Australians or the Australian government. You could require that access to that compute, access to the energy for that compute, relies on upholding that part of the agreement. And essentially you’re just creating the incentives for that company to advocate very heavily for Australian engagement on frontier AI issues – including when the US government might say, “Hold up, Fable 2.0, we’re restricting access to non-US citizens”.

I think the important part here also hinges on Australia’s geopolitical alignment with the US. So to model US government decision-making, you might say no one is thinking, “Hey, we really want to chop Australia out of the tent,” but no one in the US government is thinking, “Hey, we really want to bring Australia into the tent.” Australia is just not really top of mind for anyone in Washington, DC when they’re thinking about AI policy.

But once you become the valued partner of, “Hey, we’re helping you overcome domestic energy bottlenecks, we’re going to be a counterpart” – just like Pine Gap helps with signals intelligence, Australia helping with compute for AI training – I think that means you are part of those discussions in a much more natural way.

The way I say it is: it’s very hard to uninvite a friend from a party if they’ve already arrived, but it’s very easy to forget to issue them an invite.

WALKER: True, this is true. And sorry, just before we go on, to make sure I’m spending enough time on the right things: of all these possible strategic benefits we’ve laid out, do you view the frontier access as the most valuable?

EGAN: I think it is up there as the most valuable.

But one other thing I’d point out there is: we’ve had a lot of warnings that we are looking at workforce disruptions – and when I say warnings, projections. We haven’t necessarily seen it play out in the data. Although you might also look at horses in the Industrial Revolution. I don’t know if you’ve seen that meme going around: at the start of the Industrial Revolution, it was a great time to be a horse. So many horses, just going up and up. And then, just when the motor engine became cheap enough to diffuse broadly, overnight horse numbers just dropped off. So I think just because we haven’t seen signs in the economy yet of massive disruption doesn’t mean we should rest easy.

So if we are looking at a world where a lot of the valuable economic work can suddenly be automated, and a lot of those gains might be routing back to just a handful of companies in two countries, that brings concern to me about how the Australian government would provide for its citizens through a period of disruption in workforce displacement.

If you have a big part of the value chain, and if these companies are making bank, it does kind of give you some ability to redistribute some of those benefits to your citizens – particularly with training compute, because once you’ve invested in five gigawatts’ worth of energy, that’s much stickier to relocate away from. While inference compute can be built anywhere in the world and you can decentralise it, so it’s much more fungible, and [there’s] less leverage from that.

WALKER: Yeah, I’m personally sceptical of the likelihood of those Jobpocalypse kind of scenarios, but obviously it’s a tail risk that’s worth considering. Brian Albrecht, he had a great article on this, ‘You Are Not a Horse’. Have you seen it?

EGAN: Yeah, because we then just find other forms of labour and… yeah. But, hey, look at the China shock. If you look at the macro numbers, I mean, everyone’s a winner, but if you look at the micro impacts – as Australia, as the US, we haven’t really done a good playbook of how to manage economic disruption for groups of people. And I think having [the] ability to maybe rent-seek a bit, through having some of the value chain to support that change, I think is important.

But I take your point that anyone who is too certain about what’s going to happen with AI is overconfident, and we’ve just got so much uncertainty to grapple with. We don’t know how this will play out. I love this idea of radical optionality, which I think Charlie Bullock at LawAI put forward, of just: how can you increase the option space available to you for a wide variety of different futures we might be facing?

What does sufficient leverage look like?

WALKER: Okay, let’s dwell on compute for frontier access for a bit longer. So say Washington restricts major American AI labs’ ability to provide frontier access to non-American markets, and we have all this compute in Australia. We cut off the labs’ access to that compute because they’ve violated the terms of whatever compute-for-access deals that we’ve signed with them.

The optimistic view, is that the labs then go to Washington and advocate for our interests. But I can equally imagine a much more pessimistic scenario where the labs go to Washington and Washington says, “Don’t worry, we’ll just horizontally escalate against Australia and sort it out for you.” So why is that not more likely?

EGAN: I think this is a genuine thing to be concerned about. So when people talk about hard-nosed leverage, I’ve seen arguments that ASML – the Netherlands lithography machine maker – has so much leverage, and the Netherlands can pull it to extract concessions from the US.

WALKER: And it does have leverage, but within that specific narrow domain.

EGAN: Yeah, and if ASML pulled that lever, you can bet your bottom dollar there’s a trade war happening, and it’ll escalate. And I think the US would probably be the winner in that trade war.

And so I think the model for how you can use the compute soft leverage approach is trying to grease the wheels of better pathways, increase the friction of worse pathways, but you’re not trying to get to a hard bargaining agreement. You’re trying to make the case of: we are a critical part of the supply chain, and come in as a peer and a friend, rather than trying to pull hard leverage on the US.

WALKER: Got it. Okay, so I want to ask a question about that comment you just made about us being a critical part of the supply chain. So let’s talk about what that actually means. So one rough mental model I have is that in terms of using compute for our sovereignty and being able to continue to run critical national and defence functions, the relevant metric is just the absolute amount of compute we have, to be past some threshold where we can keep running those functions.

Distinct from that, thinking about compute as leverage for these larger benefits, like frontier access or influence over governance and alignment, is more about the percentage of global compute that you host. So it’s an absolute versus relative distinction. Does that make sense to you?

EGAN: Somewhat. I think it depends on whether you see a future where you want to integrate frontier models into your national security apparatus, in which case engagement with the companies is a big part of that, rather than just hosting your own cluster.

WALKER: I see. It’s not enough to merely have compute; you need compute plus the frontier models.

EGAN: Yes. And again, if you’re only looking at inference compute, I think it matters in terms of what proportion of global compute you hold. And if you can get a big share of global compute, that puts you in a very good position for a wide range of futures. But I think that it’s also about the amount of… Training compute is its own subcategory as well.

WALKER: All right, so we can talk about both inference and training compute. So what do you think is the – and again, just gut instinct, I’m not going to hold you to this – but what’s the minimum percentage of global inference compute, and then training compute, that we would need in order to have “leverage”?

EGAN: I think there’s a couple of ways to model this. I’ve heard some people say that Australia could have realistically aimed for 20 to 30% of global compute. I haven’t… that’s someone else’s BOTEC [back-of-the-envelope calculation], not mine.

I think, though, that if you take maybe the leading AI company currently – so say Anthropic – and if you hosted half of their training compute, I think that would be very good from a geostrategic perspective. If you could host half of Anthropic’s training compute and half of OpenAI’s training compute, again, super valuable.

So there’s probably a few different models to break down, and different things will get you different kinds of access and oversight and leverage. More equals more, generally, particularly as we enter compute scarcity. It seems valuable to have these resources. I think in the near term, though, the most valuable thing Australia can do is demonstrate – and this goes back to that OSCR story about AdBlue – is demonstrate that we can build data centres quickly and we can do it well, with certainty.

WALKER: Yeah, okay. Because I feel like this is a really important premise in the compute-for-leverage argument. It’s like: okay, we want leverage; what does that actually look like; and what’s the minimum percent of global compute we need?

Because if we take that 20 to 30% of global compute number: say by 2030 there’s at least 100 gigawatts of AI compute in the world, and at least 50 gigawatts of that is in the US. So if Australia has 20 to 30 gigawatts, that is half of the non-US share. That feels like a lot, given that I think we only have about 1.5 gigawatts of total data centre capacity right now, which obviously includes more than just AI compute.

So for the compute-for-frontier-access benefits to really cash out, it just seems like you need an amount of compute that, from our view here today in August 2026, seems almost unachievable.

And I’m trying to play a kind of Socratic devil’s advocate role here.

EGAN: No, I think this is fair, but I think I’d fall back on… I think it’d be great to have more compute… So I think OpenAI had internal estimates that it’s going to have like six gigawatts by 2027 of overall compute.

WALKER: Of just training compute. [The estimates were for “low double-digit GW in 2027, which implies approximately 6 GW for training alone.]

EGAN: Yeah. And so if you’re hosting half of a leading AI organisation’s training compute in the near term, I think that is a pretty good move.

WALKER: I see.

EGAN: Separating an organisation, an AI company.

WALKER: Because you’re thinking about it at the lab level.

EGAN: Yes. And a lot of the compute will be inference compute, and so a lot of what you see hyperscalers building out – there’s just so much demand for inference, so there’ll continue to be a market for that. But AI companies themselves are starting to build their own training compute and thinking strategically about which governments do we want to have to engage with closely on our training practices and deployment.

WALKER: Yeah. Because – and sorry, not to belabour this point – but if you think about the other countries in the hardware layer of the supply chain: the Netherlands has an almost absolute monopoly on EUV lithography machines. South Korea has the memory oligopoly. I think 80% or more of advanced chips are produced in Taiwan. So the question I’m asking myself is, why does leverage not look the same for the compute layer of the stack? Or what’s sufficient to have leverage at the compute layer of the stack?

EGAN: I think training compute is less fungible than chips and less fungible than memory, because you’re paying for the centralisation of a massive amount of energy and training infrastructure. I think that is a bit of a difference there.

Yeah, everyone’s still going to be dependent on Taiwan, everyone’s still going to be dependent on Micron, SK Hynix and Samsung for memory, and ASML for EUV.

But I don’t think you need to capture the absolute monopoly in compute to have leverage over frontier AI companies. If it’s the frontier AI company that is choosing to make you their secondary training hub.

I think, though, maybe to play in a bit to your point here, it also depends on what kinds of concessions and exchanges you’re asking for. So the more compute you have, the more you can rent-seek or ask for things before companies will exit your jurisdiction.

And so when you’re thinking about – if you built out [a] six-gigawatt data centre cluster in the middle of Australia somewhere, that is a pretty large investment. But also building new energy resources takes time, and if Australia can demonstrate its ability to do that well and have really rapid time-to-power, in a way that still respects different community engagements and Indigenous engagement and a range of other important issues here – companies are not super price-sensitive for that kind of trade-off. For inference, where you can build anywhere, and an inference data centre here is the same as one over here and doesn’t have to be co-located, I think that’s a different… it doesn’t give you as much asking power.

What does AI sovereignty actually mean?

WALKER: So I want to pivot to this other strategic benefit of having enough inference compute capacity to be able to continue to run our critical and military infrastructure. So do you know, firstly, in the context of inference compute, what “resilience” means?

EGAN: Oh, it’s a good question. Even the word “sovereignty”, Joe, is used by different people to mean whatever they want it to mean.

I’ve been trying to sort of do my own thinking on what does sovereignty mean for AI. And I’ve come up with this – slightly taken from UK thinking – but there’s like three parts to this:

1. Australia has access to the technology, to frontier AI, and can’t be cut off easily; then

2. Australia captures some of the value; and

3. Australia can influence the trajectory of this technology.

And so I’ve been thinking about this as a three-pillar approach to sovereignty, because at the moment sovereignty will mean whatever you want it to mean and however it can make you money, which is difficult to engage with sometimes.

So yeah, in that case, I think that depending on how much you want to use some of these models in your intelligence apparatus, in your national security apparatus, I think it does make sense for there to be some government-owned compute clusters that are ticked off at the secret and top secret level, so you can actually integrate [them] into your systems. That seems important for sovereign capability, and that means you’d want it locally hosted. I think, though, I don’t have a good model for how rapidly you would want to ramp that up, because that sort of certification can take time. You probably do want to be using some of the more advanced systems.

As one example: El Capitan, the government supercomputer in the US, at Lawrence Livermore National Labs. They host a local instance of OpenAI’s model weights. And so they have reached an agreement with a frontier AI company so they can have access to the underlying model to help them with classified and sensitive work cases. Lawrence Livermore, I think, does a lot of nuclear weapons modelling and other issues in that space.

So I think there’s options for Australia to do the same. I can’t give you a specific figure.

And then you will also have people who say, “Oh, I want my health data to stay onshore,” and that’s an example of sovereignty too.

So yeah, being really crisp and precise about what you want sovereignty to mean for you in this particular policy circumstance, I think is really important. I don’t think government will do that, because it’s so easy to wave this flag of sovereignty and have it mean whatever is advantageous. But the key question is: what are you trying to achieve with the capability? And then maybe you don’t need to have it all onshore. Maybe you want to have it overseas, but with certain protections on it. For TS [Top Secret] environments, you probably do want to have it onshore.

WALKER: Do you know roughly how much inference compute we need today to maintain national security?

EGAN: I don’t have a good insight in terms of how much AI has been adopted in Australia’s national security settings.

WALKER: I guess one thing we could say is: by 2030, it will be being used much more, right?

EGAN: Well, actually, there’s a really big question here about what is the role of governments in national security, compared to private sector actors, in an era where you have potentially the most critical national security capability of our time being developed by private sector actors.

Unlike DARPA, who was involved in the internet, AI is happening outside of government trend-setting or government investment and government oversight. And you could see a world where you actually have more private sector cyber defenders, or companies that are approved to do more defend-forward or cyber defence systems for the Australian government, or to help Australian government priorities.

The US is going down a weird road with this. I think they’ve started – and they may have already done this – but there’s been discussion about them moving down in terms of allowing private sector actors to hack back foreign adversaries. So yeah, it’s a fundamental question of what is the role of government in the age of AI. I think definitely protecting national security and setting the objectives there, but maybe you have much more private sector engagement to deliver on some of those components too.

WALKER: Say we went all in on autonomous drones. My understanding is that wouldn’t much affect our compute needs, because they have onboard compute. Do you know anything about that?

EGAN: I’m not good on drones.

WALKER: No, all good. If it’s true that the amount we need for a sovereign capability is only a small fraction of our total compute capacity, then it seems like that’s actually a weak argument for a large-scale compute industry in Australia.

EGAN: Maybe when I think about sovereign capacity, it’s: do actors in Australia, whether it’s private or public, have enough compute to defend Australia’s critical systems at scale from offensive cyber? Do we have enough compute to ensure that our critical industries – or the areas where we have strong economic presence – are benefiting from advanced AI capabilities?

And so for the first one, you might say, well, given we might want close interoperability with the Australian Signals Directorate, maybe we should have that housed onshore – that compute running frontier US models. For the second one, it’s still about sovereign capability, but it’s probably not so sensitive [that] you need to have it housed onshore. I think you want to have some Australian government access to compute. But I also think Australia’s private industry accessing compute is critical to Australian national security.

WALKER: Yeah, great. It strikes me that the amount of compute we’ll need for our sovereign capability – however you would like to define that, and you’re welcome to define that – is only going to be a small fraction of our total compute capacity. True?

EGAN: If we host training for the world and inference for the world? Or you mean demand?

WALKER: Demand.

EGAN: Demand.

WALKER: Yeah, good question. Demand.

EGAN: Yeah. I think…

WALKER: Because you see where I’m going with this? I’m like: okay, now this doesn’t feel like a strong argument for a large-scale compute capacity in Australia. This specific argument – as distinct from things like compute for leverage for frontier access – but sort of compute to maintain some minimum level of sovereign capability, again, whatever that means, is a pretty low threshold to cross. And therefore it’s not actually a strong argument for a large-scale compute industry in Australia.

EGAN: If you want to have the most capable models running domestically in Australia, you are going to need to have leverage with an AI company to say, “Can you let us have an instance of your model weights that doesn’t leave Australia?”

WALKER: Right, so it comes back to this frontier access question.

EGAN: Yes. Yeah, I would say that’s true. I think if you’re happy – well, I don’t want to say “happy” being a fast follower, because I think that’s not a good approach, to put all your eggs in that basket. But Australia can build a compute cluster itself and have it dedicated to national security use cases. But the best use of that compute cluster is with the most advanced models, which are the US models. And so I think that’s where that intersection comes to bear.

WALKER: Yep. Yeah, interesting. The crux here really is just: how important is the frontier? How do we maintain access?

EGAN: Yeah. And I think also maybe another aspect that some people group up in this sovereign bucket, is having an AI economy or AI talent in Australia. And maybe that’s sometimes underexplored, because once you’ve invited the large AI companies in and they’re able to train in Australia, there’s a range of different people – some of whom are the world-leading AI researchers, and you might have already spoken to some of them – who would love to move back to Australia and do their jobs here. And so it’s not just about you’re taxing these people’s income in the Australian jurisdiction. No, it’s about the fact that you’re then giving the opportunity to undergraduates at university, to research students and professors, to actually engage with leading AI researchers and build out our understanding of AI capabilities and how to deploy them well. And I think that is sometimes an area that’s underinvested in.

So there’s a range of different organisations now in Washington, DC who are starting to look at: imagine if you do get “a country of geniuses in a data centre”. How do you use these well? How do you extract the maximum value, from a national security perspective or economic perspective, from the compute and from the genius AI beings or agents that you have inside that compute? And at the moment, I don’t see a good pathway for Australia to actually get really good at this sort of thing unless we are engaging with the companies at the frontier and bringing people into our jurisdiction.

This sounds so silly, but time zones really matter. Having tried to work in DC time zone for the last few weeks, it is just so hard to engage and get people’s time. And actually, if you have these people in your ecosystem and provide the opportunities for our workforce and our students to grow and engage with these organisations, that seems to be a really big win in upskilling [the] Australian economy and national security community to understand what are these models capable of, what are the risks, and how do we actually employ them well for good outcomes.

Taiwan, undersea cables and data centres as military targets

WALKER: I have three miscellaneous questions on the second-order implications of compute in Australia for our national security.

So if we do go all in on compute, is there anything we should be doing to de-risk Taiwan’s role in the supply chain?

EGAN: In terms of chip dependency on Taiwan?

WALKER: Mmm.

EGAN: Yeah, I mean, there’s a range of efforts underway in other jurisdictions – so the US in Arizona, Germany in Dresden – to try and diversify advanced chip supply chains away from Taiwan. The reality is there’s just so much demand for the advanced chips coming out from Taiwan that if Taiwan goes offline, everyone is going to be very impacted by that, regardless of when the Arizona and Dresden plants come online for TSMC.

Interestingly, from anecdotes I hear – someone who works very closely on this has described this to me as more alchemy than science, building these clean rooms and fabs, because it can just be someone not washing their hands that contaminates a whole batch of chips, and the yield rate goes down. And so building the culture that surrounds the excellence of these sites takes time too.

Some people have asked, “Oh, should Australia enter the chip game?” Sure, maybe, but it doesn’t seem to be an area where we currently have any edge in that. We haven’t got the workforce, we haven’t necessarily got the expertise, and we could be another country that throws its hat in the ring to try and attract some of this, but countries are currently trying – it’s just a really sticky supply chain to shift.

Yeah, so I think it’s going to be a shared risk going forward, dependence on Taiwan for these chips. I think if we do bring on more clean room space and fab of advanced chips, it’s going to be a yes-and, because the industry will keep gobbling it up, and Taiwan will still be a fairly big player in that, I think.

WALKER: Right. Because I’m just thinking that, if there is some kind of blockade or invasion of Taiwan, the timing here could be incredibly unfortunate for a compute-in-Australia play. So I’m wondering: if we’re not going to be building chips here ourselves, is there anything else the Australian government should be thinking about for de-risking that?

EGAN: Oh, it’s a big global problem. It’s not Australia’s alone to bear. And I don’t think Australia would be worse hit than other countries in this space. I think it creates incentives for the US to be more defensive of Taiwan, but I think it’s an incredibly costly industry to try and diversify, so I’m not sure if Australia is particularly well placed to do it.

WALKER: Do you have any random takes on the question of: if we do become a large host of inference compute and we’re serving that up to other countries, what would that mean in equilibrium for the security of our undersea cables? Because, on the one hand, you can see them becoming hotter military targets. On the other, other countries now have more of an incentive to help us defend them.

EGAN: Yeah. I haven’t got many random takes, except that subsea cables are notoriously vulnerable points.

WALKER: Are they?

EGAN: Yeah. I mean, sometimes a ship’s anchor will detach one, and there’s only a few ships that can do repairs in Indonesia at one time.

WALKER: Has this happened before?

EGAN: I think that there have been disconnected or damaged submarine cables. I can’t give you specific details – I can’t remember off the top of my head. But they routinely need to get fixed or reconnected if they’ve been dislodged. I’ve also heard that sharks can chew on them as well, but maybe I’m now falling into myth and not real.

WALKER: Yeah, “sharks”. [laughs]

EGAN: But yeah, I guess you have a few different cables, and it might increase latency a little bit if it has to reroute through different jurisdictions. But I don’t think AI – frontier AI models aren’t particularly latency sensitive, because you’re already waiting for the reasoning to happen. So, like, a few extra milliseconds of delay isn’t going to be that bad.

It’s also a question of inference to what? It’s less that, as a user of AI, I need my model to respond to me instantly. It’s more that I want my agentic AI model to talk to the other agentic AI models and do complex tasks and research and then come back to me with the results. And so having more co-located compute as well kind of gives you slight dividends on having more AI geniuses working with each other.

WALKER: Right, right. So if AI does become as important to national security as we think it will be, you can easily imagine gigawatt-scale data centres in Australia becoming military targets, in the same way that the joint facilities at Pine Gap and North West Cape are considered to be military targets – and, indeed, in the same way that data centres in the Gulf states became military targets during the US-Iran war this year. Should we be planning for this as and when we begin our build-out? Should we be thinking about building them underground, or dispersing the clusters in some way so that, you know, tactical nuclear strikes are not credible? Or what do you think?

EGAN: It feels very dystopic to plan for these kinds of futures.

WALKER: But this is what you’ve got to do, right? You’ve got to make the threats non-credible.

EGAN: You could have one view of: if you are using clean energy, you can build:

• data centre cluster;

• ten kilometres of solar;

• data centre cluster;

• ten kilometres of solar.

And then that kind of spreads things out, so you’re less of a centralised attack surface.

But as you mentioned, Pine Gap is already a target in Australia. It’s not as though we’re introducing new risk in particular.

I hope we don’t get to those kinds of futures, but there are ways you can kind of make them more resilient: by still having the high-speed interconnect that directly connects these data centre clusters by these highway links, but you can have them a little bit dispersed.

WALKER: Strung out in 10 kilometre gaps.

EGAN: Yeah.

WALKER: Do you know if that’s like a no-regrets move? Or does that add significant costs to the build-out?

EGAN: I don’t know for sure, but I don’t think it adds significant cost, because of using solar, which is a sensible thing to do if you’re building out in Australia. That seems like a fine way to do it.

WALKER: Yeah. And one piece of context here is the kind of clusters we’re imagining are in remote Australia, right? They’re not around cities.

EGAN: Yeah, with training clusters you don’t need them around cities at all.

WALKER: So imagine the sort of red earth with these data centres spread out every sort of ten kilometres. That’s the kind of picture we have in mind here, right?

EGAN: Yeah.

Could compute buy Australia influence over AI safety?

WALKER: Okay, so some questions about governance and alignment. So just tell me concretely how you think a large-scale AI training compute industry here helps us gain influence over AI safety.

EGAN: Yeah, it’s an interesting time to ask this. It’s been a wild couple of months of strange incidents involving AI models doing things that we probably don’t want AI models to do. Just to mention a few: there was the Hugging Face incident, where models hacked a real-world company while they were doing a test. We’ve seen an incident where the UK AI Safety Institute misconfigured internet access for some tests on some of Anthropic’s models, which then went and created, like, human personas, uploaded malicious code, and then used the human personas to convince people to download the malicious code into software libraries.

So we’ve seen this range of incidents where we’re like, “Ooh, it looks like we’re getting more and more capable models, but they’re kind of still doing things we don’t really want them to do.” And luckily they’re not at the level of capability that they’re doing terrible things. Like, the damage is really contained in these instances.

So what does compute get us? I look at the status quo in Australia, and we’ve got this amazing new AI Safety Institute. And at the moment, AI companies are engaging quite well, because they’re hopeful of building here. If you build here – and again, as part of this deal space that you can set up – you can get access to some of the leading researchers at these organisations. You can require information-sharing. You can be involved in testing of models or incident reporting, and you can have standards and rules and ways of engaging that bind or apply to these AI companies.

The counterfactual, which we’re on currently, is that Australia can write the most informed, most beautiful, well-researched rules in the world that have absolutely no impact on AI’s trajectory. We aren’t Europe. We don’t have enough population size to give a “Brussels effect”.

If you buy the model that we don’t have enough compute to go around – it’s not that we necessarily have to be a key market that AI companies want to serve. And at the moment, Australia is getting the red carpet of engagement from AI companies, because they might build here. If that dries up, or as soon as the decision is made elsewhere, I don’t expect that we would have this level of access to the expertise and understanding of what’s happening at the frontier.

WALKER: And what could this look like at a very concrete level? What are we actually writing into the contracts, for example, that’s giving us influence over safety?

EGAN: Yeah. So I think you’d want to… I’m saying this without having thought super deeply about this, but I think you’d want some kinds of information sharing and incident reporting coming from frontier AI companies that aren’t just about the evaluations of models they’ve released publicly, but also about their internal models, which we know are the most capable and the least safeguarded models.

That in itself would give the Australian government much greater situational awareness. AI is just moving so quickly that you probably want to just build the capacity of the government, of our bureaucrats, to understand what’s happening and develop the right responses. And so some kinds of information sharing channels, some kind of incident reporting, some kind of engagement on testing of models – just like the UK AI Safety Institute does, and CAISI does in the US context. I think these things are a really good first-principles start, and then from there, as you kind of grow familiarity with what’s happening at the frontier, you can kind of refine and adjust the approach later.

Verifying international AI agreements

WALKER: So tell me about why we might want international treaties around the pace of AI, and then what verification might look like in that context. And then I’ll ask you some questions about how compute plays into this.

EGAN: Yeah. Timely question, because it’s been a big month or so for verification. So in July, I think folks would have seen there was a group of AI experts – so engineers and AI researchers across all major AI companies in the US signed an open letter saying: “We want to have the capacity to pace the frontier. We want the US government to do something for us to have this capacity. We need the tools and tactics and techniques so that we can pace.” And by “pacing”, it means shaping the trajectory and the speed of the frontier so that it better aligns with our ability to manage the risks.

Also last month, I was in the Vatican with the Global Nobel Laureates Assembly on AI and nuclear war, and it was a bunch of Nobel Prize winners and folks from the Vatican and other faith traditions talking about: what should we be doing about AI risk and nuclear risk? And the Rome Declaration that came out of that was quite similar to this, in terms of it was urging countries and nations and organisations to not advance into recursive self-improvement without first having an ability to monitor, understand and halt that if necessary.

So what this means is we’re starting to see demand for agreements, or rules or norms, around the frontier of AI. And it’s coming from both industry and other actors in the ecosystem. But the interesting part of this is that we’re also in a dynamic here – internally in the US between companies, and also between the US and China – where there’s really strong racing dynamics. That is, companies are racing at the frontier to try and advance faster, outcompete their competitors, and be the leading company or leading country. Worse is that between the US and China you have this really low-trust environment.

So the question is: how can you actually put up the settings and the preconditions so that, if you do want to have a rule or a normative approach of how you do things, how can you actually verify that people are abiding by them?

And so this brings up verification technologies. This is a very nascent field of science: what are the technical parameters or technical tools that you can use to say, are you doing X or Y? Like, are you abiding by rule A? On this big data centre, are you running inference or training? The really complex thing about this is that we don’t yet have the rules that we’re trying to implement into technologies, and we don’t yet have the technologies to properly shape what the rules are.

It’s really similar to the nuclear agreements of old time, of 1963 or whatever, when they had their nuclear test ban treaty – the limited one. There’d been advances in seismic detection technologies, and it meant that everyone agreed to ban atmospheric tests and underwater tests, but did not ban underground tests, because the technology wasn’t good enough to clarify: was it an earthquake or was it an underground test?

So you saw this international agreement that was bound by the limitations of the technology of the time. And then since then, we now can distinguish between them, and you’ve got the –

WALKER: The Comprehensive Test Ban Treaty in the ’90s.

EGAN: Yes, yes, because technology developed to enable it.

Now, with AI, everyone’s trying to speedrun verification tech. And when I say everyone, about 50 people in the world. But people are trying to advance this rapidly, because we need to fly the ship as we’re building it. What’s that phrase?

WALKER: Build the plane as we’re flying it.

EGAN: That’s exactly right. Because we need to have some technical breakthroughs that allow for these agreements to happen between low-trust actors, and also think about the agreements we want to make to inform those technologies as well.

WALKER: So how does compute play into this?

EGAN: So out of the verification tools components, compute is like one of the more promising avenues to apply tools to. And that’s because data, algorithms – the other parts of the AI supply chain – you can copy and paste them in email around the world; they’re harder to verify. Compute is tangible, physical, in the real world, and so many people are looking at compute as the way to actually implement some of these tools.

So data centres [are] detectable – you can kind of see where they are. Can you account for the data centres and then say to each data centre: what are you working on? Can you prove that you’re only doing inference or doing training? Or that you can go to an AI company and say, through, like, hardware-based attestation… So some chips already have inbuilt in them a feature that allows you to prove certain things, a trusted execution environment. And so there’s some mechanisms in the hardware that can form as a trusted attestation of what is or isn’t happening on a cluster. And hopefully we develop the technologies to do that in a privacy-preserving way, so we’re not eroding all semblance of privacy to get these attestations, but we’re still able to say: no, we can trust this. It’s cryptographically verified that this is a true statement of what is or isn’t happening in this data centre.

WALKER: Now, verification of international treaties seems like an argument for having a lot of compute in a liberal democracy, rather than an argument for having compute in Australia specifically. Are there marginal benefits to doing this in Australia over another liberal democracy, like Japan or Canada or the UK?

EGAN: Yeah, I think this is separate to the build-compute-in-Australia argument. It’s a yes-and. So I’d be really excited to see the AI Safety Institute in Australia work on verification technologies regardless of Australia’s approach to compute, because it’s a public good.

I also think it’s important for actors that aren’t in the US and China to be working on verification technologies. And Australia has played a really interesting role in being such a close ally of the US and also such an important partner to China, that having more science advance from non-US and non-Chinese organisations can be helpful in increasing the viability and acceptability of some of these technologies.

WALKER: So on that, for the US-China dyad: wouldn’t our status as a Five Eyes partner and trusted US ally make us not a good candidate for hosting the compute used for verification of international treaties? Because we’re not neutral.

EGAN: I would de-link the verification of international treaties away from who necessarily hosts the compute, because, again, China hosts compute and the US hosts compute too.

The ambition is you have many different third-party countries around the world all working together on verification technologies. And so then you get a trusted reference architecture, or you get a trusted way forward, that is then testable, verifiable, [by a] wide range of partners. And so it’s less about who’s hosting compute and can you trust their word; it’s more: do we have the technology so you don’t need to trust?

WALKER: Mmm, makes sense. Random question, but I often hear people talk about our status as a Five Eyes country as being a reason why a major lab would want to host compute here. Do you know exactly what the mechanism is there? Is it concerns about the model weights being exfiltrated, or is it concerns about distillation, or…?

EGAN: Australia’s Five Eyes status gives us, Australia, a very special relationship with the US, and this flows down into: there’s shared intelligence reporting, there’s collaboration on cyber incidents. There is such close infrastructure that links our two intelligence communities together, that means that Australia is a much more trusted actor than someone who’s not in the Five Eyes.

And so if you’re thinking about managing emerging dual-use capabilities from advanced AI models, having that Five Eyes infrastructure – where you already know your counterparts, you’re used to sharing sensitive information, and you’re united by a common national security picture – is really helpful if you’re looking at, “Oh, wow, we’ve just discovered this new dual-use capability emerging at the frontier. How are we going to manage this?” And so it seemed to be much more of a partnership with the US in that way.

Copyright: the red line

WALKER: I see, I see. Okay, so, so far we’ve discussed why we would want to have a lot of compute in Australia, but I just want to finish on this question of what would it take to get it. And we’re going to focus mainly on copyright. We’ve already touched on copyright, but I have a few more specific questions about it.

But the first thing, just to help map out, I guess, what’s at stake here – and tell me if you think this is silly or not – but you could draw a very simple matrix with four quadrants. And this is from the perspective of a major AI lab looking for its second country for training compute.

So on the x-axis you have: you can only do inference in this country, or you can do inference plus training.

And then on the y-axis you have speed to deployment. So on the bottom half it’s slow, and then on the top half it’s fast.

This is super reductive, but if I was Anthropic or OpenAI, I might be using this to decide which countries I want to pick as my second homes for training compute.

And so at the moment, in this top-right quadrant we have Texas, and in the bottom-left we have Australia. And so really the question is how do we move here, right?

Now my question for you is: where is Japan? Because my sense is that Japan is in [the bottom-right] quadrant, but I don’t have a good handle on, like, time to power and speed of deployment in Japan.

EGAN: Yeah. I haven’t looked into this myself, but [I] have spoken to people who have. And the thing with Japan is that they’re – if I understand correctly, and people might prove me wrong after this – but they’re about to switch on nuclear reactors which bring online up to 11 gigawatts of energy in the near term.

WALKER: Oh, wow.

EGAN: So Japan has a different value proposition. They already have a text and data mining exemption, so training is a tick. They are not a Five Eyes member, and they are space constrained, but that’s just an engineering challenge. So Japan is pretty prospective.

I think some of the friction in engaging with Japan is: it’s not just to pick up and engage easily. You need to make sure you’re more across… you have to hire more local staff to do more of the planning and engagement, and it’s a different approach to how you get permits and approvals. I think why it is also less attractive is that it is a close partner to the US, but it is not as close as Australia, because of Five Eyes.

And so for companies that want to keep engaging in US government approaches to AI, having a partner empowered like Australia – who can come to the table, who’s like-minded, and can address some of these really difficult national security challenges, and the trade-off between open weights and bio-risk and all these difficult, complex things – culturally it might be easier to do that in a country that shares the same culture and language.

But at the end of the day, it’s an engineering thing, and so if Australia doesn’t move soon, it’s a likely option.

WALKER: I see.

EGAN: I won’t speak for another company’s decision, but my take is that if Australia just doesn’t move quickly… The pace of change behind these AI companies is massive. They think they’re building something that might hit RSI – recursive self-improvement – soon, and that could fundamentally change the strategic picture. So they’re wanting to move very quickly.

WALKER: And then I think Canada is probably just up here [in the top-right quadrant]. They’re a little bit faster than us; they also can’t do training at scale.

EGAN: Also need a copyright change.

WALKER: Yeah. So, if Australia isn’t the country of choice – if we don’t sort out the copyright barrier – then it seems like Japan is probably the next most likely choice, if you were a major lab like Anthropic or OpenAI.

EGAN: I think that’s one option. I don’t have a good model of what their… I shouldn’t speak for any lab, and I’m not employed [by them], and not representing them. I think there’s also an option to just displace more inference compute out from the US and have more training inside the US.

WALKER: Right, double-down on the US. So we spoke about it earlier, but just to quickly recap: do you want to just give a 30-second summary of how copyright is a barrier to training compute in Australia at the moment?

EGAN: Yeah, sure. So I often see people in government say: look at all these pros in Australia’s positive column – it’s like renewables, trusted jurisdiction – and then, sure, we’ve got this negative copyright, but we’ve got so many pros. Why does it matter? I think the misinterpretation here is that copyright is actually a red line for AI companies.

And if we put our AI company hat on and think about this: so they currently have fair use doctrine in the US, which, yes, is going through court cases, but is overwhelmingly being upheld to say AI training is fair use. And so the court cases where you’ve seen big payouts – they’re not about the data that was trained on, it’s about how that data was procured, through pirated books.

But US fair use doctrine, there’s a couple of central tenets to it. The first is that the use of the material is truly transformative, and across the board everyone says, look, yep, that seems to be ticking that box. But the second one is that it is not undermining a market for licences for that data.

Now, this second component is what is at risk if an AI company comes to Australia and pays for a licence here. Because if you start paying for copyright licences in another jurisdiction, you’re actually creating the very market that can be used to say, “Hey, fair use doctrine should not apply here.”

WALKER: And to be clear, you’re not only paying for licences for Australian data, but data globally, right?

EGAN: Global data, yeah.

WALKER: Because Australian copyright law protects global data.

EGAN: And so essentially, if they take this approach, they could be opening themselves up to fairly uncapped liability for all the AI training that they have done.

WALKER: Have you seen anyone actually unpack the economics here? Is it actually uncapped liability? So the cynic in me would – and this is like an alternative view – is like: okay, the copyright question may be headed to the US Supreme Court, and maybe Anthropic is not so much interested in a solution in Australia as it is in using Australia as a pawn in any potential case. And, you know, there’s a reason that they’re likely to float with a $2 trillion US valuation. They can afford to pay for licences. We shouldn’t take them at their word that this is a red line. That’s the cynical view that some people might have. I don’t necessarily share that view. I don’t have a strong view. I’d love someone to actually unpack the economics of it for me.

EGAN: I haven’t done that, and I haven’t seen it done. That could be really interesting. I guess, though, I am sympathetic… The principled view on this is: it seems insane that these big companies have, like, taken all human creativity and knowledge and used it to create these AI models, for which the creative industries are seeing no benefit. That seems like… I can understand why people have strong views on this.

But the pragmatic point is: if they don’t come to Australia, they can go elsewhere, including just in the US, and it’s about the level of their willingness to accept that risk or not.

The indications to me, from watching this play out over the last six months, has been that this is going to be a red line.

It also seems that they aren’t particularly price sensitive; they’re licence sensitive. And so companies are probably happy to pay into a fund that then gets redistributed to creatives, or at least have money exchange hands that makes it into the right pockets, as long as it’s not through the copyright framework.

WALKER: And on that, there’s a neat proposal by Good Ancestors for a fund and an authority-to-train-in-Australia licence, but the two are disconnected.

EGAN: A training permit. And I think that, in a way, it’s Australia having the ability to ask for concessions that companies wouldn’t be able, wouldn’t want to, or wouldn’t choose to offer the world, but are willing to offer one jurisdiction for the safe harbour.

But the other piece on copyright that hasn’t yet been talked about as much, but I think is really important as well, is that our current copyright law is not good for inference either.

WALKER: Yeah, so we were chatting on the phone last week and you mentioned this, and that was a great surprise to me. I had no idea that it was potentially a barrier to inference.

EGAN: So it’s not currently… And I want to caveat, I’m not a lawyer, but I’ve talked to lawyers about this.

It seems to be a bit of a ticking time bomb. So there’s a section in the Copyright Act that says you’re allowed to make temporary copies of a copyrighted work if it’s part of a technical process, but just short-lived and technical. So an example of this will be when you’re pressing play on a movie on Netflix: it actually already makes a copy to your computer – it downloads it so that you can watch it.

Now, that’s allowed, because it’s time-limited, in-session, and it’s part of the technical process. But there’s actually specific language in the Act that says that if it’s copying a work that would be a copyright infringement in Australia, even if it was trained overseas legally but hasn’t got coverage in Australia – that’s not allowed.

And the other key issue that comes up here is it doesn’t really allow for context holding between sessions as well. So inference is changing. It’s no longer a call and response. People are developing up their own personalised AIs that integrate different materials and have context and memory of these materials, and that’s part of their value offerings. And as we get AI that kind of looks to update model weights in response to learning potentially, or saves details across sessions and has persistent memories of different works – that seems to actually run afoul of Australian copyright law.

So at the moment it’s unclear how folks are approaching this. It seems like there’s this unsolved issue that is going to rise its head at some point, but it seems like an important thing to get right, to give the certainty to allow build-out to happen.

WALKER: Yeah, that’s so interesting. I had not considered that.

Do you know how much of a window we have in order to fix copyright, for training to happen in Australia, before major labs pass us by as a significant place for their AI training?

EGAN: I think it’s in a month or months, rather than a year. And it’s moving much more rapidly than Australian policy tends to move, which is why I’m really hopeful that we can do this and do it right in the near term. Once other jurisdictions become more favourable as well – like, if Canada decides to move first, if that happens, for example – all Australia’s leverage to ask for what it wants in return dissipates.

I think it’s also important to model how AI companies are thinking about AI progress as well. So we mentioned before about recursive self-improvement, which is the idea of technology improving technology. And this isn’t a new phenomenon. We’ve had technologies improving technologies since the Industrial Revolution. But with AI, it’s AI improving AI at machine speed. And so basically capabilities progressing way faster than our ability to monitor, understand, control them.

Now, there’s some estimates from people who are close to this subject that they’re looking at 2027 for that to happen. And I think [major AI labs are] looking to build out in other jurisdictions where they can have strong governance partners and thought partners in how to manage some of these issues too, and that window I think is closing as well.

WALKER: So we’ve got to sort out copyright in the next month or two?

EGAN: That’d be good. I mean, I don’t think there has to be legislation that’s passed in the next month or two. I think there has to be a clear commitment to make this happen.

WALKER: So that decisions can be made.

EGAN: And so that decisions can be made and build-out starts to occur.

WALKER: Say the Australian government does give those clear commitments in the next month. Do you know what happens next, from a build-out perspective? Where does the next gigawatt-scale cluster in the pipeline go up? Where does the training compute get located?

EGAN: I don’t have good answers on that.

WALKER: Okay, all right.

The maximally ambitious path

WALKER: Last question. So if the PM was fully bought into compute in Australia what would the maximally ambitious execution of that vision look like? Does it require setting up special compute zones in remote Australia? What’s the mechanism there? Do we need to rely on the defence power in the Constitution? Is there some role for AUKUS Pillar 2 here? What are the actual mechanisms that the federal government could rely on if it really wanted to go for this opportunity in a maximally ambitious way?

EGAN: I love the special compute zones project that the Institute for Progress outlined. That seems net good to me. But I think Australia can be super ambitious on doing things quickly if it wants to. Even other jurisdictions have done this. So we look at Operation Warp Speed – which I know you’re familiar with – the manufacturing of COVID vaccines that the US government did through public-private partnership during COVID. It brought it down to 11 months total, from start to finish, and I think the normal range was between eight and 20 years to develop a vaccine, and the previous record holder I think was around four years, for the mumps vaccine. Humans can just do so much good stuff if there’s the right urgency and empowerment of people to do stuff.

So I think the trick for this project is making sure that it’s being built – to borrow the government’s words – built on Australia’s terms, in a way that benefits Australia. And Australia currently has a lot of leverage if it wants to be a first mover here. It can ask for a lot from the AI companies, and so that can range from BYO power, grid upgrades, clean energy, bringing talent to Australia, engaging with universities in some programs. And so I think you’d want to have your demand list right.

But then you want to make sure that the first instance of doing this ambitious project demonstrates we can move into the fast quadrant, because that’s what will attract more and more investment and give Australia more leverage in the longer term.

And so I think special compute zones make sense of – rather than allowing an actor to go through the long, many-aspect process of getting the permits in many different jurisdictions and discussions, actually bringing that process together, [in a way] that still really honours the necessary engagement with communities and impacted areas, making sure that there’s buy-in from different parts of the community and society, but actually just speedrunning that, because a lot of the time is actually just wasted in the friction between federal, local, state governments. So yeah, I’m pretty excited about what can be done in this space, if the government wants to turn its mind to it.

I think in Good Ancestors’ proposal you mentioned, there was actually a part of it that talked about: it’s not just the copyright safety that you get when you sign up for a training permit, it’s assistance from the government to work your way through all the processes and make sure that they happen in a way that’s conducive to moving quickly.

WALKER: Yeah, just on special compute zones: when I asked Andrew Charlton about this in our podcast, he said that he thought this would probably happen endogenously and we may not need to set up special compute zones. I’m curious: in your conversations with Australian policymakers, have you come across anyone in your travels who is thinking about special compute zones? Do you know if this is an active conversation?

EGAN: I haven’t found it particularly active in Australia. I do know of some… We do already see, with states and territories, some competition as to who can capture investment in this field, which I think goes to the endogenous creation of these zones, or making things move quickly. But I do think there’s probably low-hanging fruit in terms of what friction you can cut through, and then in exchange for what security uplift you can demand from companies as well.

WALKER: And have you also heard this idea that AUKUS Pillar 2 could be some kind of framework here?

EGAN: Yeah, it’s been one I’ve talked about – about six, 12 months ago, it was part of a discussion. I think there’s a range of different ways you could take it forward, because I think engaging the US government to say, “Look, you’re having more data centre pushback domestically. It’s important to run fast on these technologies. We can help.” My question is whether it’s best pushed through Pax Silica, which goes very much into – its germane issue is managing critical supply chains and partnering with allies on this. That seems a sensible way forward.

AUKUS Pillar 2 – and I haven’t touched this issue for a while, so I’m not sure who is the key champion in the US government for it… While Pax Silica has a key champion in the US government, and so, with the Trump administration, you want to have a champion for your initiative to get things to move quickly.

WALKER: I see. Say we went for this maximally ambitious approach, did everything we needed to: how many gigawatts of AI compute in Australia in the next two or three years?

EGAN: Look, I’m going way out on a limb here. I’m going to say six, and people will laugh at that. Some people will be like, “That’s not enough, that’s stupid.” Others will be like, “That will never happen in that timeframe.” But I think there’s ways to be ambitious, and solar is pretty quick to bring online.

WALKER: That seems pretty plausible to me, six. And ambitious, right? Because that would be all of OpenAI’s training compute, right? Or something on that order.

EGAN: Yeah.

WALKER: Yeah. All right, really enjoyed this. I’ve learned a lot. Thank you so much.

EGAN: Thank you for having me.

WALKER: Pleasure.

[Recorded 7 August 2026.]

Dr Andrew Charlton MP is an Australian economist, entrepreneur and politician. As Cabinet Secretary and Australia’s Assistant Minister for Science, Technology and the Digital Economy, he is one of the key leaders shaping the Australian government’s AI strategy.

Andrew shares his internal model for how AI plays out economically and what a middle power like Australia should do about it. We discuss whether data centres will yield large economic rents, the geostrategic case for a compute industry, and how the government plans to use compute to climb the stack to “sovereign AI”.

Watch:

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Sponsors

• e61: a non-partisan economic research institute focused on Australian public policy. (As it happens, e61 was co-founded by Andrew Charlton before entering Parliament, though he’s no longer involved.) To receive a copy of the new essay I co-authored with e61 on data centres and the compute economy, go to e61.in/joewalker.

• Vanta: helps businesses automate security and compliance needs. For a limited time, get one thousand dollars off Vanta at vanta.com/joe. Use the discount code “JOE”.

Transcript

JOSEPH WALKER: Today I’m speaking with Andrew Charlton.

Andrew is Australia’s Assistant Minister for Science, Technology and the Digital Economy. He’s leading several of Australia’s key AI initiatives, and he entered Parliament about four years ago as the Member for Parramatta.

Before politics, he had multiple careers. He has an economics PhD, he co-wrote a book with Joe Stiglitz. He was Kevin Rudd’s “senior” economic advisor in his late 20s, when Australia successfully navigated the [global financial crisis]. He built and sold a successful consulting business. And he wrote what is still one of Australia’s very best Quarterly Essays back in 2011.

Andrew, welcome to the podcast.

ANDREW CHARLTON: Thanks, Joe. That’s a very kind introduction.

WALKER: So today I want to learn your internal model for how AI is going to play out, its economic consequences, and what the role of the Australian government should be in all of that.

None of us can predict the future. I’m sure there are many parts of the model that aren’t going to play out in reality, and that you fully expect that. But I don’t really care about any of that. Just the mere fact that you are thinking [something] would be so interesting for me to learn.

And of course we’re going to focus mainly on compute, for reasons that we can get into.

How a minister uses AI, and thinks about its trajectory

WALKER: But the first question I wanted to ask you was just how you personally have been using the technology. I assume you’re past the getting-it-to-write-a-poem-for-you stage, but how have you been using AI in your own life and work?

CHARLTON: I try to use it as much as I can. I try to use it because it’s helpful. I try to use it to understand it, its strengths, its weaknesses. And I try to use it in a variety of different ways across a variety of different models.

I find it really valuable for simple things in life. I use it a lot with my kids’ homework. If my kid is learning a language that I don’t know or doing a subject that I don’t understand, I find it really valuable. I use it to create fun games and educational games for the kids that they use. I use it for household chores, for recipes – a really wide range of capabilities. I try and use it in different ways.

WALKER: Have you been able to automate any tasks in your office yet?

CHARLTON: We need to be careful about the way that we use it in a professional sense, especially [because of] data security.

So yeah, I automate tasks, but I do that mainly on the personal side of my life, where I feel like there are less sensitivities.

WALKER: And on the personal side, are you running agents and sub-agents?

CHARLTON: A little bit, yeah. I have an agent that gives me a news digest in the morning of what’s been happening in AI overnight. I connect it to my personal email and it can do some drafting tasks for me.

WALKER: I was chatting with Greg Kaplan last week and he was talking about how economics seminars are now just completely changed, because people are actually using the models to try and replicate the paper in real time, like during the seminar, and just tearing it to shreds even more than they normally would.

CHARLTON: Well, Greg Kaplan is one of my favourite people in the world.

WALKER: Me too.

CHARLTON: He is [an] unbelievably smart, nice and humble man. Certainly one of Australia’s best economists.

And I’ll tell you a funny story. I was going for a walk with Greg last week. And I was meeting him in a park, but as I approached him from behind, I noticed that he appeared to be on the phone. And so I just waited, and he was chatting away on the phone, and I was sort of waiting for his call to finish. And I was waiting for a little while, and then eventually I just decided I better go into his field of view so he could at least see that I was there. And then as soon as I did, he just pushed hang up and said, “Hi, Andrew.” And I said, “Oh, really sorry, I didn’t mean to disturb your call.” And he goes, “I wasn’t on the phone. I was just chatting to Claude, brainstorming some economics ideas.” So there you go. He uses it in his life a lot.

WALKER: [laughs] That’s awesome. Is recursive self-improvement something you’re tracking? So have you been listening to what the labs have been saying? For example, 80% of Anthropic’s merged code is now written by Claude itself. Have you been tracking things like that?

CHARLTON: Yeah, we have good contacts inside the frontier [labs] and we learn from them about how they themselves are using the models. And they are very extensive users of their own technology. There are coders inside those organisations who are telling me how fast their own jobs are changing as they use those tools.

I was talking to somebody at one of the major labs recently who said that in their own lives, just in the last few years, the amount of coding that they do has been dropping dramatically, because the machine can do more and more of their own jobs. That doesn’t mean their job isn’t important, but their job becomes one less of writing the code and more of the question of taste: what is the research taste that they have that enables them to direct the research, to direct the model to do the work that they would otherwise be doing? So I guess like in many aspects of AI, it takes them up in the cognitive tasks rather than down.

WALKER: And obviously automating coding isn’t tantamount to automating AI research more broadly, because more code has declining returns and there are lots of other parts of the job, like deciding which experiments to run and how to interpret their results.

But how likely is it, do you think, that at least one of the major labs hits some kind of recursive self-improvement threshold in the next five to ten years?

CHARLTON: Well, there have been lots of predictions around this. I think there’s a lot of uncertainty. And I think one thing we should say at the outset of this conversation is: I think it’s important for everybody, but particularly for me as a policymaker, to bring a lot of humility to some of these questions, because things are changing so quickly, and things that I thought were going to be true six months ago or 12 months ago are turning out not to be true. And things that I thought were going to move at a certain pace are accelerating much faster than that.

That doesn’t mean you can’t have an opinion on those things. It means you have to stay really close to them. But it does affect, I think, the way that you create policy around them, recognising that you are creating policy in an environment of great uncertainty.

The specific question you ask is one of those areas of uncertainty. People have different definitions of what AGI is or what recursive self-improvement is, and different horizons for when that might be achieved. I don’t know the answer to that, but I think it’s already very clear that these models are becoming incredibly powerful and the rate of their power is accelerating. And that means we’re dealing with an incredibly capable and in some ways incredibly dangerous technology.

WALKER: I’m curious to understand what your role looks like at the moment. So as far as I know, you’re kind of going out and working on deals with the major labs. But could you just paint me a brief picture of exactly what it is you’re doing at the moment, just in terms of the character of the tasks?

CHARLTON: Sure. I mean, it’s very wide, and the government’s approach to AI is extremely broad. There is no part of government that AI is not changing, that AI doesn’t have implications for – whether it be child safety or compute or privacy or automated decision-making across government, democracy. AI is impacting almost every area of government, just in the same way as it’s impacting almost every area of our lives.

And so the government’s approach to that is to really deliver our AI as a team effort. So every minister across the government is working on AI in their own area. And what’s happened recently is the Prime Minister has brought that together and recognised that, because this is such an important issue, such a cross-cutting issue across departments, across levels of government, he’s created the Office of AI in his own department, to be a coordinating function.

My role within that is to assist other ministers, to provide some coordination, to the extent that AI requires that, on the industrial side, and to work with different ministers around our broader government agenda.

WALKER: Having dealt by now, I assume, pretty closely and frequently with the labs and senior staff at the labs, what’s something that you understand about the labs or their staff that you think most other people in Parliament wouldn’t?

CHARLTON: I mean, they’re interesting places. They are full of a heady sense of excitement. The people working in these models have a great understanding of the potential impact of what they’re building, both for good and for bad. And some of the people who are closest to the models recognise both the opportunities and the risks.

Maybe one thing that people don’t understand – this is relevant to our audience here – is just how many Australians there are building these frontier models. I was in San Francisco recently and we had a dinner of Australians working at the frontier models, and there are a lot of them in very senior roles doing some of the most important work. Very thoughtful people, quite young people in many cases, who are right at the frontier of this technology, which is exciting for us as a nation, to be making that big contribution. It’s literally a thing inside this small ecosystem in Silicon Valley that there’s this bunch of Australians doing some of the most important work.

WALKER: We’ve got to try and bring some of them back eventually.

CHARLTON: We’ve got a plan for that.

WALKER: We might talk about that.

Is diffusion a sufficient strategy for middle powers?

WALKER: So if you take, for example, the Second Industrial Revolution in the late 19th, early 20th century, one view of new general-purpose technologies – like, in that example, electricity or steel manufacturing processes – is that the way they affect the global distribution of wealth and power isn’t so much … or the countries who come out on top aren’t so much the countries who innovated first, but rather the countries who diffused those general-purpose technologies as deeply and widely as they could.

As just a general starting point or strategy for a middle power like Australia, is that approach of just going all-in on diffusion complete? Is it correct? Would you edit that, or tell me how you think about that?

CHARLTON: Well, let me make a broader point first, which is I think there is a lot to learn from previous general-purpose technologies and their implementation in centuries gone past. The biggest lessons I take out of those were, number one, ultimately those technologies produced an enormous amount of good. They created a lot of prosperity and opportunity and paved the way for the advances of human flourishing that we’ve been lucky enough to enjoy in our lifetimes. I think that’s the first thing that I take away from the introduction of those big technologies.

But the second thing that I take away is that often the pathway towards those benefits was nonlinear. There were periods after the First Industrial Revolution where wages went backwards very materially, where the lifespan of people living in the UK was falling, not rising, after the introduction of those technologies. And it took a lot of time, a lot of effort on the part of governments and workers and others to turn that technological progress into social progress. I think that was true in the First Industrial Revolution. It was true to different extents in later introductions of these types of general-purpose technologies. And that for me is the biggest lesson.

How that benefit accrues to different economies around the world, to answer your question: there are certainly lots of countries around the world which benefited from the technologies that were invented in the First Industrial Revolution and invented in the Second Industrial Revolution. And those technologies were diffused around the world and created enormous benefits in the UK, in Australia, in Japan, in many other places. And you are right that one of the main ways that benefits accrued was not just through the invention, but through the adoption of those technologies. And that will be a part of the benefits of artificial intelligence as well. Countries that are able to adopt, able to integrate artificial intelligence – they will receive those benefits.

I was with a small business person last night who was telling me that they were saving hours every day by using artificial intelligence in their job. That is a big productivity boost for them that enables them to do more, be more competitive, be more successful in their business. I was at the optometrist last week, and the optometrist said to me, “Can I push a button and record our conversation, so that I can save myself a lot of paperwork at the end of this and see more patients, give you a better record of our meeting?” So I think there are huge benefits there, and adoption is part of the story, but I don’t think it’s the whole story.

WALKER: And what’s the rest of the story?

CHARLTON: Well, the way that I’ve described this in the past is: as we move into the world of artificial intelligence, there are benefits from the process you described, the diffusion process. That’s Australia as an AI taker, as a successful adopter. And Australia has always been a successful adopter of technologies. We were the first to take on new payment technologies – [we had] very high adoption rates of new technologies, very high smartphone penetration very early. That is valuable to us.

But there’s also value in Australia not just being an AI taker, but an AI maker. There is value in us not just buying and renting this technology from abroad and using it in our personal lives and in our businesses, but in owning this technology, building it, operating it in Australia as well. And maybe there are some differences in the way that this technology rolls out and previous technologies that you identified that make it more important that we be a maker, not just a taker.

WALKER: Tell me how you think about that difference.

CHARLTON: Well, I think about some of the technologies that you are alluding to in the early part of the 20th century – automobiles, electricity. These are not inventions in Australia, but these are inventions that were able to be brought to Australia. New businesses in Australia emerged, took those technology spillovers, created their own intellectual property around them, created their own businesses around them, their own industrial capacity around them, employed a lot of people around them – factories, utilities, all operating in Australia.

Digital technologies have some similar characteristics to that, but they have some differences as well. Some of the waves of digital technology we’ve seen in our lifetime have been able to concentrate their intellectual property and keep it in other countries and earn a lot of revenue in Australia – foreign-owned companies operating in Australia, in many ways able to extract a lot of value without employing a lot of people. Difficult for there to be big spillover benefits to other firms. Australia doesn’t have a big domestic social media company. We did have our own utilities. We did have our own manufacturing facilities. We don’t have our own internet search at scale.

So there are features of the industrial organisation and the market structure of digital technologies that mean that the diffusion around the world enables more of the value to be captured in the place where that technology was invented, and less of that value to be captured in the place where that technology is adopted, relative to the technologies of the 20th century. And that changes the way we think about the introduction of AI in Australia, and makes this question of how much we want to be a taker and how much we want to be a maker of AI a more relevant question for industrial policy.

WALKER: To play devil’s advocate briefly, there’s kind of a worry that we’re always fighting the last war here. And one potential difference between the last generation of digital behemoths and today’s AI labs is that the network effects are less clear for today’s AI labs. There’s not much stopping, you know, me as a business just switching from Anthropic’s API, or me as a user transferring my data from Claude over to ChatGPT. The labs are obviously well aware of this, and will probably try to do some things around memory to lock customers in. But tell me how you think about the difference in the network effects between those two generations, and the extent to which that undermines this concern about the rents flowing back offshore.

CHARLTON: Yeah, this is a question I think about a lot, and I think it’s really important. You are right that some of the digital technologies of recent decades have had these sort of naturally monopolistic, oligopolistic characteristics. They have real network externalities that tend towards a very concentrated market structure. A lot of them are quote-unquote “free” to the user – [there’s a] limited price signal, which makes switching less important. And they have big economies of scale. And so that’s why the Facebooks and the Instagrams and the Googles are so dominant. Microsoft, so dominant.

And I think a lot about your question, which is: will AI be like that, where there are a small number of companies that really dominate this digital service, or will it be much more diffuse? There are, as you say, reasons to think that it’s possible that there’ll be a wider number of players. One is that there is a price to the consumer. At the moment, people using Claude and ChatGPT can be on different tiers. Some of them can be on a free tier. Some of them can be on a paid tier. They might be paying $20, $30 on a mid-tier. There’s a lot of subsidy in that. So at some point, these companies are going to have to stop subsidising their users, and you’re going to bear the full cost of the machine that you’re using. It’s not like search, where the marginal cost of use is very low. There’s a real marginal cost.

WALKER: I paid some of that marginal cost over the weekend when my Fable credits ran out.

CHARLTON: Sure. And that creates the opportunity for competition, for companies to come in with a cheaper service that might better meet your demands as a user. I don’t know how you use these tools, Joe, but you might not be solving the most complex unsolved mathematical theorems that require the highest-level compute. So there might be more targeted services – that price signal can bring competition into the market. We’ve also seen the emergence of a lot of open AI models, a lot of newer models that don’t appear to be that far behind the frontier. That gives you the sense that there might be more competition in this market.

But I think there are other characteristics which suggest that these models are going to be very powerful. The collection of the most advanced frontier models are going to be very powerful. And there might be different kinds of externalities or other reasons that they remain pretty valuable organisations, similar to the digital behemoths of previous decades.

Comparative advantage versus sovereignty

WALKER: So if we ask how can Australia capture some of the value of the AI economy, it seems like a good place to start will be: where do we have comparative advantages? Because presumably the rents for us will flow there. So I want to talk about data centres and compute, and I want to start by talking about the economic case for a big domestic compute industry in Australia, and then talk about the geostrategic case.

I’m willing to believe, vis-à-vis the US, that we have absolute advantages in renewable energy production, especially for solar. But do we actually have comparative advantages? Or how would you, as an economist, work that out?

CHARLTON: I mean, let me make a point about comparative advantage in this industry. Most of our lives, when we think about industry policy, we think about it through the prism of comparative advantage. That’s the economics that I learnt at university and practised in my academic career and in my professional career as well. And that is the task of looking at where you have relative capability in your country and focusing your country’s resources, your factors of production, on those things to get the best outcome in welfare terms for your people.

But we lived in a time where the trade-off between comparative advantage and sovereignty was low. In fact, we lived in a time in the early 21st century when those things were almost pointing in the same direction. We could all focus on our comparative advantages. In Australia, that meant letting go of lots of different industrial capabilities that we had from earlier eras where we felt that we didn’t have comparative advantage. We let go of a lot of our manufacturing industry, for example, and we focused on the things where we thought we had comparative advantage – services, mining.

And at that time, that involved the globalisation of all those industries. We were just buying all those things that we were previously producing in Australia from abroad. And we were doing that at a time where globalisation was giving us comfort on the prosperity side and on the security side. And so that seemed like a safe choice. We were integrating with the global economy, and we were integrating with our geopolitical partners around the world.

That dynamic has changed, and has changed in a way that fundamentally complicates industry policy. There is now a more significant trade-off between sovereignty and comparative advantage. And that trade-off is particularly acute, I think, in artificial intelligence.

WALKER: Okay, got you. It is interesting – I’m kind of adapting a point of Tyler Cowen’s here – but I was born in the 1990s. I feel like for the entirety of my life, the world has been defined by two basic facts. One is a rules-based international order underpinned by a benign global hegemon. And the second has been the absence of a truly major technological revolution. (I don’t think you would count the internet as a truly major technological revolution, at least in terms of its effects on total factor productivity growth – it’s somewhat dwarfed by the Industrial Revolution and the Second Industrial Revolution.)

But I feel like 2026 is the first year in which neither of those things is true anymore. And I think they’re also interacting in really interesting ways, which again we’ll come to when we talk about the sovereignty and strategic case for compute.

Where in Australia’s national accounts will compute show up?

WALKER: But just to linger on the economic argument: where in Australia’s national accounts would compute show up? So say an American hyperscaler builds and owns a data centre on Australian soil. They rent that compute to an American AI lab, and then an Australian business buys some tokens from that lab when it’s using that lab’s model to do something and produces some kind of good or service. Where does that compute show up in GDP?

CHARLTON: Well, we just had our recent national accounts that came out.

WALKER: And sorry – beyond the kind of obvious investment and CapEx?

CHARLTON: Well, I mean, it’s important to dwell on that, because that’s a big part of the story.

WALKER: Well, dwell on that a little bit.

CHARLTON: I mean, I don’t think we can dismiss the CapEx, because this is one of the biggest investment booms not just in our lifetimes, but in modern history.

WALKER: Globally this year, about a trillion US being spent on data centre CapEx. And I think by the American hyperscalers, it’s like $670 billion US, or 2% of US GDP.

CHARLTON: Yeah, it is hard to overstate how big this investment boom is. I mean, if you think about the investment booms that people would have in their heads: this investment boom is getting up to 2.5% of GDP. We had a big investment boom in the ‘90s around the rollout of fibre optics – this is three times as big as that. We had a big investment boom around the world in the ‘50s and ‘60s around the rollout of the national highway network – this is probably twice as big as that. We had a big investment boom around electrification in the 1920s and 1930s – this is probably a little bit bigger than that. You have to go back to the rollout of the railways in the 1880s and 1890s to find a global investment boom that is bigger than the AI investment boom.

And that tells you something very profound. To have a CapEx investment of that scale occurring right now – that means that there is a really big change in our economy coming, and investors are willing to pour close to unprecedented resources into that change.

So, to answer your question, we are seeing that in our national accounts. Other countries in the world are seeing that in their national accounts. In the United States, they released their GDP [figures] – more than 100% of their GDP growth was AI-related. In Australia, we had a huge boom in private sector CapEx. A big part of that boom was data centre investment. But to answer your question, the private sector CapEx part of our national accounts went up in our most recent results. But a lot of that CapEx is imported. This is data centre operators importing chips.

And so we also had a big increase in our imports, and the imports substantially offset CapEx investment in our national accounts. [That] doesn’t mean there isn’t a positive benefit to us, but you are seeing the big data centre investment that’s starting to come into Australia already on both sides of the national accounts.

WALKER: Yeah, that makes sense. GPUs are probably the main cost factor in a data centre, right?

Okay, so after we’ve constructed the data centre and Australian businesses are using it via American AI labs to do stuff, where does that show up in the national accounts, that compute?

CHARLTON: Well, I mean, let’s use your example. So you were buying Fable credits this week, you said.

WALKER: Degenerate behaviour. [laughs]

CHARLTON: So that appears in the national accounts as an import. That is a services import. Already that import might be around $5 or $8 billion across the economy, adding together individuals, small businesses, large enterprises, and government. So that is a pretty material size of import. You can think of that as being even bigger than our wheat exports. So already this is a big number, a big new import into Australia of people buying access to compute. And that number is growing extremely rapidly – by some measures, by 20 or 25% a quarter. So this is a really large new category of imports for Australia.

Australia as a global inference compute hub

WALKER: Do you expect latency to continue to matter for inference compute?

CHARLTON: This is one of those things that’s moving really quickly. I think there was a view not very long ago that latency was very important, and that had a really big impact on the type of compute that would be located in Australia and where it would be located in Australia. The challenge Australia has is [that] we have a lot of space, a lot of energy potential, but we are a long way from the rest of the world, and that energy potential is a long way from Australia’s cities in some cases. And the conclusion of that was that there’ll be parts of Australia that would have great potential for inference compute infrastructure but not meet the latency requirements.

I think that is starting to change. I think the global view of that is starting to change. And there are now significant workloads for global inferencing that are being allocated to Australia, partly because the technology is improving and partly because there is a growing amount of non-latency-sensitive inference workloads. And that creates a really big opportunity for Australia. I mean, we are very well connected.

I think the thing that we need to understand when we think about Australia’s position in global compute is that every company in the world is now basically trying to do the same thing. That is, they are trying to put down compute to meet the fastest growing demand in the world. And one of the areas of the fastest growing compute demand in the world is India. Now, how do you connect India to the United States? Well, you need to have some very long cables that go across oceans, but those cables can’t go through the South China Sea. So Australia becomes a pretty important location connecting Singapore, India, the United States. And that’s why we’ve had big investment in subsea cables into Australia. And it creates an opportunity for Australia to be a hub for some quite large global workloads.

And I think we’re starting to see the opportunity there in inferencing and in training. And Australia [has] actually been quite a competitive location for that. Now, we’ve got a long way to go in capturing that opportunity, and even further [to] go in making sure we capture that opportunity in a way that benefits Australians, benefits local communities, benefits our country. But if you think about the global geography of compute, that’s our opportunity.

WALKER: One big example of latency becoming less important for inference compute has been inference-scaling: asking the model the same question but using more inference compute, so letting it think for longer to try and eke out better performance.

And of course, agents have played into this as well. So it doesn’t matter if your answer is coming back a few milliseconds later if the model’s going off and doing work for you for 20 minutes or something like that.

Do you expect those trends to continue?

CHARLTON: I do. Agents can be pretty patient. They’re not staring at their watch. Sometimes they’ve got to do things quickly, but sometimes they can be pretty patient. And I think as workloads become more complex, actually consumer demand to get the answer immediately changes. We recognise that actually it’s going to take a bit of time, and if it’s going to take two minutes, it may as well take four minutes. So I think there is a big change in the spectrum of sensitivity of inference into latency, and that’s going to create opportunities for some of those workloads that’ll be placed in places where the opportunity to do things that require less latency is greater.

WALKER: And so, given the centripetal forces are a bit overrated with respect to inference compute – so you don’t need to co-locate the data centres in the country where the end users are as much – it seems important here that a lot of the compute being used in data centres on Australian soil will be being used by people in other countries, like for example India. Do you have a sense for the balance of Australian versus overseas usage, if we had gigawatt-scale AI data centres here?

CHARLTON: I mean, well, let’s start with what we know, and that is what’s happening now. And what’s happening right now is that Australia has quite a large and very rapidly growing data centre footprint. However, only a small proportion of that are the most advanced GPUs. Compared to other countries, we have a relatively small set of clusters of advanced GPUs – there isn’t good data on this, but let’s say in the low thousands.

WALKER: And we don’t have any gigawatt-scale clusters.

CHARLTON: We don’t have any gigawatt-scale clusters.

When you compare what we have today to other countries – in a big advanced data centre in the United States, you’d be talking about tens of thousands, if not multi-tens of thousands, of GPUs. So just to anchor the conversation in where we are right now: a lot of the demand for compute from Australia is being serviced abroad. That’s before we get into “will Australia be servicing foreign demand?”. The truth right now is that our domestic demand for compute is in large part being serviced abroad.

WALKER: From data centres in Southeast Asia or wherever.

CHARLTON: [The] United States. Because that’s where the most advanced GPUs are. And we still have relatively small – both in absolute and relative terms – relatively small clusters of GPUs in Australia.

How big will compute rents be?

WALKER: Do you view the supply of compute as being quite elastic over the long run?

CHARLTON: That is a very hard question to answer, Joe. I mean, right now we have a very concentrated supply chain. We have a relatively small number of companies that are able to produce the most advanced GPUs, and that is creating significant constraints in terms of access to the most advanced chips. But there is technological innovation all the time. People are inventing, coming up with new types of chips. Whether that leads to an explosion in the future of different types of compute and there’s a big expansion, I don’t know. That will depend on our ability to innovate, develop new suppliers, provide the critical inputs. At the moment, all of those things are pretty constrained. We’ll have to see how it unfolds.

WALKER: And putting aside how they’re distributed, how big do you think the rents from a compute industry in Australia could be? Is it going to be something on the order of the mining boom, or a bit less than that?

CHARLTON: Well, this is a really important question, and I think it’s probably worth breaking down the value chain of a data centre. For every dollar of tokens that you buy, just thinking through where that dollar goes in the supply chain.

Now, I think a lot of people think that energy is a really big cost, and it is in absolute terms, but in relative terms it’s far from the biggest cost in the dollar that you spend. So if you spend a dollar on buying tokens, you are probably only spending about 5 to 10 cents of that on energy. And these numbers are challenging, because different types of workloads and different types of data centres are different – so this is very much an average of an average – but you might be spending 10-odd cents on energy, maybe less.

You might be spending less than 10 cents on the infrastructure.

You might be spending 20 to 30 cents on the chips.

A big share is what you might call the rents, or the cost of the model – going into developing the next model, paying for the researchers.

So when you think about where the value sits in that dollar that you spend – and this is really important for Australia as we think about where we want to play in this space – a relatively small proportion of that dollar is in the infrastructure and energy, and the biggest share of that dollar is in the intellectual property and the management. And we need to think about where we want to play as a country.

Because our experience – to take your question to a different era – our experience in the industries that Australia has been good at in the past… Think about the mining sector, for example. Now, the most common thing that anybody says about the Australian economy is, “Oh, you export raw materials, you export coal and iron ore, and then you import the finished goods. Australia doesn’t add any value.” That is just the most common cliché about the Australian economy. And it’s a cliché because it’s true.

However, we’ve done pretty well in that game of exporting raw materials and importing finished goods. Even though a lot of that value-added – taking that iron ore and turning it into cars and microwaves and washing machines – is done abroad, we’ve done pretty well. And the reason we’ve done well is we’ve been able to capture economic rents, because the cost of producing iron ore in Australia is very globally competitive. And so we are able to capture very significant rents in the export of those raw materials. And that has been a big part of our national prosperity. So even though we don’t do all the value-added – which it would be good if we did that, but we don’t do a lot of it – we’ve still been able to make that work for our people, deliver us prosperity.

The question that you’re getting at here is a really important question, which is: where will we sit in the AI value chain, and will we be able to extract rents from that position in the value chain in a way that keeps us a prosperous nation in the future? That’s an important question. Will the things that we appear to be good at today in that value chain – energy, infrastructure – will we be able to do those things? Yes. Will we be able to extract rents from them, or will they be commodities in the global supply chain? Unanswered question. Important unanswered question.

WALKER: Do you have a hunch?

CHARLTON: Well, it will depend on whether we are able to do those things in Australia at a price that is below the global marginal cost. And if we can, then we will extract that difference as rents. And if we can’t, we will be a provider of a global commodity that doesn’t have rents.

Time to power

WALKER: Did you see this report by the Carnegie Endowment, where the core point was that the thing that matters most to hyperscalers is time to power? I think the logic is something like: because the GPUs are the main cost component and they’re so expensive, and GPUs are priced similarly globally, really all that matters is just getting them utilised and earning revenue as soon as possible. I think a 100-megawatt data centre makes about $200 million US in its first month. I don’t think it maintains that over the full life cycle, and then the chips need to be replaced eventually.

But the cost of pushing those revenues into the future – at any reasonable discount rate – is very high. The capital just sits idle, can’t be repurposed. The chips only come in at the very end of the construction. And then also, the sooner you can get your data centre up and running, the sooner you can be serving inference to customers, the more revenue the labs can be making, the better models they’ll make, the more models they’ll have to make more better models. And there’s a kind of positive flywheel there.

So time-to-power just dominates everything else.

And in the analysis in this report, [of] the countries they looked at where compute is plausibly a big economic opportunity, the country that came out on top was the UAE. Its time to power is about 22.5 months. Just behind was the US at about 24 months. And then Australia’s at 33 months.

If we wanted to be really competitive there and drive our time to power down from 33 months to 24 months or less, what do you think are the biggest levers there?

CHARLTON: Look, time to power is important. It’s important for any capital investment, whether you are building a shop or an apartment building or a factory. If you are building it but not able to turn the lights on and get it operational, then you are losing money. That’s true in data centres. It’s true in every other piece of CapEx that an investor might sink money into.

I think there’s another thing here that’s important as well, and that is not just the time, but the predictability. If we have processes in Australia that take a bit more time or a bit less time, investors can plan around that. They don’t need to have the chips sitting idle. They can schedule the arrival of those chips in line with the development of the data centre. I think the hardest thing for the operators here is unpredictability: when they’re starting a project and then have to stop because they’re waiting for an application to go through and they’re just not getting it. Or there’s a hurdle that they can’t get past, and suddenly they need to have the chips sitting there without them being turned on.

So when you think about how does Australia become competitive in this space, which is sort of the root of your question: I think it’s definitely making sure that we don’t create unnecessary delays. But another part is making sure that there is predictability in that process. I don’t think we should be bending over backwards to avoid all the important things that we have as regulations and requirements in this country for putting down compute – things like dealing appropriately with local communities. Some of these are on Indigenous land; some of these require cables that traverse private land. We are a democratic country, and processes need to go into managing all of those stakeholders. And it’s appropriate that that happens. I don’t think we should be cutting corners in that space, but I do think we can improve the process and predictability of delivering those outcomes.

And I think for investors, if it’s predictable, that is a positive thing. And I think that actually builds social licence. So, I’m not in favour of cutting corners in ways that speeds this process up. I’m in favour of speeding it up in a way that improves the efficiency of the process. And I’m in favour of improving the predictability of the process. And I think the combination of those two things will be very valuable for investors and cause them to invest more in Australia.

WALKER: Is it conceivable we could get our time to power down to 24 months or less?

CHARLTON: Look, possibly, but there’s going to be a wide range of different circumstances for that. It depends on the location. It depends on the availability of the energy source, whether you are building it from new. It depends on the length of the supply chain. There are very significant waits for some of the components in that energy supply chain. It depends on the connectivity. Data centres don’t just need energy, they also need cabling. Some of that cabling requires going over a lot of private land. So there’s a wide range of different outcomes.

I think for us, making that as efficient as possible and as predictable as possible is the role of government. But I’ve got to be honest with you, I wouldn’t want to see us do that in a way that loses social licence, because we are running roughshod over local communities or transgressing the values that we have in Australia.

WALKER: No, definitely. Time to power will be endogenous to the social licence.

CHARLTON: Correct.

WALKER: So the Institute for Progress, a think tank in Washington, had this idea – I think a couple of years ago now, maybe last year – of special compute zones, gesturing of course at special economic zones. The idea was for America, but other countries can borrow it. The idea would be geographic zones, I guess, set up by the federal government, where data centres can be built and approvals are fast-tracked and it’s easy to connect them to the grid, et cetera. Have you heard of this idea, and what do you make of it? How could it apply to Australia?

CHARLTON: Yes. To be honest, I think it’s going to happen endogenously. And that is because data centres need those two things: they need power and they need connectivity. And those data centres will agglomerate – particularly [when] we’re talking about the big data centres. They will agglomerate in locations where both of those things are present. And I think we are already starting to see the beginning of that. It makes a lot of sense for them to agglomerate where they can share that connectivity infrastructure, share that grid infrastructure.

And from the government’s perspective, we are also keen to make sure that these data centres are located in places that deliver benefits rather than harms for local communities. And if that is in areas where they are not close to housing, where they are not impacting agricultural land, that’s a good thing as well. So I think we will naturally see agglomeration of data centres around those critical inputs. And the government is certainly encouraging of that. But I think the driver of that agglomeration will come from the data centres themselves.

Taxing compute?

WALKER: Have you thought much about how we would tax compute? So the AI tax rules are very unwritten at this stage. But compute is obviously incredibly scarce at the moment. And if it really is true that there’s only a handful of countries that are primed for building out gigawatt-scale clusters quickly, and Australia is one of those countries, could we perhaps even tax compute directly – like 1 cent per token, or whatever it is? Have you given much thought to exactly what that could look like?

CHARLTON: Yeah, it’s a bit hard to tax tokens. I’ve seen proposals like this, but tokens mean different things to different companies. So it’s pretty challenging to tax tokens. Not impossible, but pretty challenging.

The Prime Minister gave a speech about compute and the benefits to Australians just two weeks ago. And he put your question in the broader context, which is: how do we make sure that the big compute build-out delivers benefits to Australians and doesn’t deliver harms to local communities? That is a broader question than the direct tax question. But it’s the most important question. And he outlined a few elements of an approach in Australia that would be a world first, that would make sure that we capture those benefits and avoid those community harms.

One was around energy: making sure that these data centres make a positive contribution to the grid, rather than what we’ve seen around the world, which is a negative contribution, where they push up power prices for local communities. Another one was water: making sure that these data centres make positive contributions rather than taking away potable water from local communities. Another one was around intellectual property: making sure that Australian copyrighted material is paid for, not taken for free. Another one was around location and housing.

So the Prime Minister has done what no other country in the world has done, which is step in early and create a framework, a national framework, for these big AI data centres that sets the terms for them, in a way that ensures that Australia will benefit and ensures that local communities will avoid some of the harms that we’ve seen around the world, where these data centres have been rolled out in ways that have been unplanned and unmanaged.

Data centres and the social licence

CHARLTON: And those harms are not theoretical. Those harms are very real. We have seen in the United States, where in some cases the data centres have been not well managed, we’ve seen them push up power prices for local communities. The largest electricity grid in the United States is the PJM grid, and in that grid, power prices for consumers have gone up by more than 60%, and a large part of that price increase is due to the additional loads of data centres on that grid.

We do not want to see that happen in Australia, and if it did happen, data centres would lose their social licence. So we are determined, across all of these elements, to make sure that Australia is benefited by this massive new global CapEx boom, and that we step in early, set the terms of that investment, and avoid harms to local communities.

WALKER: Do you have any people working on how to address data centre nimbyism directly? And are there any particularly unusually creative ideas you’ve heard for that? So, for example, there’s this school of thought, mainly coming out of the British YIMBYs, that beauty and architecture actually are a big bottleneck for new housing supply. And there’s some survey evidence that shows that people do actually care about the appearance of their buildings. And if we could somehow – I don’t know – lower the marginal costs of producing ornamentation, or release the stranglehold of architects who are just kind of pandering to other architects on how our public spaces are designed, and maybe have more popular tastes, we could get more housing at the margin.

And there’s kind of a debate about how important that is, but it’s interesting to apply that to data centres. I mean, they’re notoriously not beautiful buildings. And I think Matt Clifford in the UK spoke about when he was leading the AI team in Number 10 Downing Street, one of his more whimsical ideas was to run an architectural prize for data centre designs.

It seems to me like one of the big risks here is data centre nimbyism, or just letting that genie out of the bottle. We saw the 12-month moratorium on new data centres in New York State. Compute is going to be really important, so maintaining that social licence is really important. A lot of effort needs to go into how we do that. Beyond the Expectations, what are some other ideas you have there, or some creative things you’ve come across in your travels?

CHARLTON: Yeah, I’m just imagining the architectural prize for the most beautiful data centre. Cue applause.

Look, I agree with the premise of your question. I think compute is a really important industrial capability for Australia. I think it’s essential that if we want that capability, that we maintain the social licence for it.

I wouldn’t, and I’m not suggesting that you did, but I wouldn’t dismiss community concerns as nimbyism. I think many of those concerns are very real. I’ve spoken to people who live very close to new data centres, and they are worried about the impacts of that data centre on their home, on the nearby schools, childcare centres.

WALKER: Yeah, when I say nimbyism, I’m thinking of, for example – there’s a lot of just pure misinformation around water usage. So you might’ve heard of these memes, like “every ChatGPT query uses a bottle of water”, or stuff like that.

CHARLTON: Yeah, there’s a lot of misinformation. I accept that.

WALKER: But there are definitely legitimate concerns.

CHARLTON: Yeah, but there is a lot of misinformation in Australia about the current impacts of data centres. But there are real examples around the world of terrible consequences for local communities – local communities who’ve had their power prices pushed up. There are genuinely families in the United States who have had a data centre cluster move in close to their home. They turn on their tap and the water is coming out with less pressure, and dirty. So these are not perception problems. If this isn’t managed well, these are real problems.

So what is our approach to that? Well, as I said, it’s definitely not to dismiss those concerns. It is to introduce a framework that can give Australians confidence that the Australian government is going to make sure that those things do not happen here.

So let me give you an example. In energy, we have said to the Australian people: number one, right now data centres are not pushing up your power prices. They are 2% of the grid. They are going to grow quickly in terms of their energy use, but we are going to look you in the eye and tell you that we are going to put in place a regime that ensures that that growth does not increase your power prices. What does that regime look like? One, it means requiring that data centres bring additional power, at least as big as, if not greater than, what they’re going to use. So that means that the data centres are not competing with Australian households for electrons – they’re bringing their own electrons. Two, that the data centres pay for any additional costs of network connection. And three, that they help us with grid stability. If you put those three things together, we can say to Australians: data centres are not today, and will not in the future, increase your power prices.

So you say to me, how do we as the government think about maintaining social licence? Well, it’s by addressing the very real concerns that people have with a strong regulatory framework that gives them confidence that we’re going to make sure that those concerns don’t come about. We’re doing that in energy. We’re doing that in water.

Now, in terms of the physical presence: I agree, a lot of people will think these data centres are ugly. A lot of the big data centres that we are going to see in the future, however, are going to be in quite remote locations, away from communities, away from agricultural land. And [for] that type of industrial capacity, probably the physical appearance of it will be less significant.

WALKER: Makes sense. So Epoch AI thinks it’s plausible that by 2030 there’ll be about 100 gigawatts of AI compute globally. You would love to see at least what percentage of that located in Australia?

CHARLTON: I don’t know the answer to that, but I’ll tell you how I think about it. I think we want to have as much compute in Australia as we can that is (a) consistent with not delivering those harms that we talked about – not pushing up power prices, not affecting local communities, not taking away potable water, not consuming land for housing – and (b) delivers the maximum value to our country in terms of prosperity and sovereignty.

So in practice, what does that mean? Well, it means that we think this is a big opportunity. [The] big opportunity you just described, we think, will be a great source of future prosperity for Australia. But we’re not going to go after that and grab it blindly. We’re going to set the conditions, which means that when we get that opportunity, we deliver it in a way that maintains that social licence. I think if we don’t do that, we’ll fail. I think if we went out there and just tried to grab as much compute as possible and didn’t think about the social licence, we would very quickly end up with a big public backlash that actually ended up putting us further back.

And we have seen that around the world. We have 11 states in the United States right now which, after a huge unplanned, unmanaged expansion of data centres, are now either implementing or considering moratoriums on data centres. We saw in Ireland, after data centres started to consume 15% of the grid, there was a moratorium on data centres around Dublin. We saw Singapore rush in and then have to pull back and stop new data centre applications. We don’t want to see that in Australia. We want data centre investment, but we don’t want to rush in, lose the social licence, and then have to back off.

That’s why the Prime Minister has set this Australian standard – world first – to make sure that we can capture a big share of the investment you described, and keep it captured in a way that maintains a social licence and delivers benefits to Australia.

So I don’t have a number. My answer is: we want as much of that as possible which is consistent with our national interests, benefits to our communities. I’m hoping that by putting those national standards in place, that number can be significant. But there’s no arbitrary number. It’s about the social licence.

WALKER: Under the constraint of not causing those harms and not negating the social licence, what’s your gut sense for how much AI compute we could be hosting here? Like, how many gigawatts? I mean, would you be disappointed if it was less than one gigawatt?

CHARLTON: Look, what I’ll say is that I think we have enormous potential. But I’ll say a bit more. I think we have enormous potential, and subject to everything I’ve just said about benefits and local community, we have enormous potential. Why? When you talk to the hyperscalers, they want a few things. They want energy – Australia has that. They want access to land – we’ve got a lot of land, particularly in remote areas where we can do this and not impact local communities.

Most of all, if they’re going to put down an asset that’s $20 billion or $50 billion, they want to make sure that that asset doesn’t become stranded. They want to make sure they are putting that asset in a place that is stable, where they can have confidence in its security, in the laws of the nation. That’s the biggest thing. There’s a lot of talk about power and water and land, but stability is the biggest thing in your mind if you are allocating a $50 billion lick of capital to a big new data centre cluster. Australia offers those things. We offer the key inputs – land, energy, connectivity – but we also offer the stability, a Five Eyes nation of security. That is a very attractive proposition.

So Australia has the ability to attract a very outsized share of the global compute boom. But because of those attractive features, it means that we can be choosy and selective. Because we are attractive, we can be, up to a point, selective about what we require of those data centres: where they go, how they connect to our grid, what they contribute to local communities. And that’s what we’re building right now. We’re taking advantage of the fact that we are an attractive location, but being smart about it, to turn that attractiveness into local benefits. That’s the process that the Prime Minister is leading today, in how we capture the biggest share we can consistent with our national interests.

The geostrategic case for compute

WALKER: Right, let’s talk about the geostrategic case for a large compute industry in Australia. So tell me how you think about the different geostrategic and sovereignty benefits to Australia. What’s your taxonomy of benefits here?

CHARLTON: Well, we talked briefly before about the geostrategic era that we’re in. You were born and I went to university in the ‘90s – an era of unparalleled optimism in globalisation, where we were embracing economic integration. The Cold War had ended.

WALKER: History had ended.

CHARLTON: Francis Fukuyama told us that history had ended and we were on a monotonic pathway towards open democracies and free markets. That turned out not to be the case. And now we have to rethink the vulnerabilities in our economy that were created by that era of globalisation. Not that there weren’t benefits from it – there were – but there were also vulnerabilities created. And now we need to layer that into the thinking that we have about our industrial structure and our comparative advantage. And on top of that, we need to layer in questions of sovereignty and security.

I guess to make this practical: we are sitting here in the middle of the Iran War, which gave Australia a very significant shock in relation to our vulnerability and dependence on foreign oil. Oil is a really important input into our economy, and we import a lot of it. And the closure of the Straits of Hormuz was a stark reminder of that vulnerability.

Fast forward ten years from today, and artificial intelligence – the tokens flowing around in our economy – will be at least as important to our economy, potentially much more important, as oil is. And the question for us is: how do we think about that dependency? Are we happy, as we might have been in the 1990s, to say we’re going to import all those tokens, import all that compute, from abroad, because we have comparative advantage in other things? Or are we going to say: actually, the world has changed. Now [it] requires us to think about vulnerabilities in supply chains, sovereign capabilities, and we need to think about our national security. And that requires us to be less sanguine about where critical inputs into our technology are coming from.

My view is that we should think through this very carefully and have a pretty strong focus on domestic sovereign artificial intelligence, for both of those reasons: both to reduce our economic vulnerability and to maximise our sovereignty.

WALKER: Okay, so you are talking about sovereign AI models.

CHARLTON: I’m talking about sovereignty across the whole stack.

WALKER: Wow, okay.

CHARLTON: Starting at energy, going right through to the data centres and the compute, right through to the training and post-training, right up to applications. I’m talking about sovereignty at every level. That doesn’t mean that we need to own every single piece of that stack. It doesn’t mean that we can’t import different components or leverage foreign technology and capability. But it means that the question of how much of each element of that stack is sovereign has a big impact on our economic vulnerability and a big impact on our security.

WALKER: Okay, so let me ask some questions going up some of the layers of the stack. Just to make this concrete, I think one risk you’re contemplating here is if we don’t have enough inference compute to run our critical infrastructure. So pretty soon AI is going to be so deeply woven into the substrate of society that it’s a utility like water or the internet – in the same way that 40 years ago or 30 years ago, if you turned off the internet, people wouldn’t have noticed it that much. If you did it today, there’d be death and disruption, because it’s just integrated into so many services and how we run society. I think we can make a pretty safe bet – or we should make a bet – that AI will be like that in a few years’ time. And so we want some kind of domestic compute capacity to ensure that we can continue to run models and we don’t get cut off, because we don’t have enough inference compute here. And maybe the weak version is you want enough to run critical infrastructure. The stronger version is you want enough for Australian businesses to be able to continue to use AI at some kind of reasonable cost. Okay, so that’s one benefit.

Just to play devil’s advocate on this: aren’t we just moving the risks up the supply chain? Because we still don’t control the chips, and one of the big monopolists in the hardware layer is TSMC, which is in Taiwan, which is obviously a very fraught region. So how do you think about that problem of we’re just pushing the risks somewhere else?

CHARLTON: I think about reducing as much risk as we can across the stack. And you are right that, as we stand today and in the short term, there are elements of that stack where we are reliant on foreign imports. Chips is a good example. But I think right across the stack, we need to be thinking about how do we reduce our vulnerability.

In some parts of the stack, we will reduce our vulnerability by having Australian-owned, built, operated parts of that stack. That will be appropriate in some areas. In other parts of the stack, we might reduce our vulnerability by diversifying the critical inputs and looking for a range of different partners. In other parts of the stack, we might think about reducing our vulnerability by relying on foreign providers, but having those foreign providers located in Australia. There are a range of different ways that we can build up our domestic sovereignty over the AI stack, and we should be thinking carefully about pursuing all of those. There are big trade-offs here. There are trade-offs between sovereignty and efficiency and cost. But we’re no longer in a world where we don’t have to think about that trade-off.

WALKER: So, for example, would you look at trying to get chip fabs built in Australia?

CHARLTON: Look, I think we need to see where the technology goes. Australia has some great capability.

I think where I would start is thinking about sovereignty at the bottom of the stack, and that means making sure that we have the best use of our enormous renewable energy potential.

Above that, thinking about the outstanding Australian data centre companies that we have, who are in many cases really at the global frontier, and building the infrastructure in Australia.

Above that, thinking about Australian models. We have a lot of Australian startups. We have some very successful Australian models – not competing with ChatGPT and Claude at the moment, but successful models in different niches doing very important work.

I think we have a long way to go in the model landscape. [There are] lots of new options in terms of open-weight models that can be made relatively sovereign – hosted, airlocked in Australia, even though those parameters might have been trained abroad.

We have options in applications. We have a great startup industry in Australia, lots of university researchers.

So I think right through the stack, we need to be thinking about how we build sovereignty and capability.

And sovereignty is on a spectrum. At one end of the spectrum, you’ve got owned, built, operated in Australia by Australians. And that might be appropriate for some applications – think about some aspects of national security or government activity, or particularly sensitive areas of health or other personal data. But you’ve also got Australians operating foreign open-weight models in Australia. You’ve got foreign hyperscalers with big pieces of kit in Australia that are on our soil, regulated in Australia. There are lots of different ways for us to get different degrees of sovereignty, and we need to be thinking about all of those.

Compute for access

WALKER: So to talk about the frontier model layer: the risk to our sovereignty here is that our access [to] frontier models gets cut off. And this is no longer hypothetical. In fact, we saw this with Fable-5 in June, where it reportedly jailbroke, and the Trump administration issued an executive order saying that Anthropic couldn’t release it to foreign citizens. And so access was cut off altogether.

Going forward, you can imagine at least three pressures on frontier labs and American administrations that might lead to further revocations of access, even to US partners and allies like Australia. One might be [that] the models, as they get increasingly powerful, are misused. And so American administrations obviously don’t want those models to be public. Another might be that adversaries or even partners are trying to distill the model weights. A third could be [that] compute is really scarce, and so it needs to be rationed, and we can’t have the Australians using Fable 8, because that means American citizens can’t. And that’s a big problem. We were talking about how important AI is, and it’s going to continue to be, for our economy. And so maintaining some kind of access parity seems like a good goal.

One idea that’s been proposed here is this notion of compute for access. And at a very broad level, it might look something like: when we’re setting up data centres in Australia, whether they’re owned by domestic companies or foreign hyperscalers, we structure some kind of a deal with a frontier lab who is renting that compute, that says: we want access parity while you’re using the compute in this data centre. This compute’s precious to you, and in return for that access parity, we’ll let you obviously use this inference compute at your leisure. But if you revoke our access, then we have the right to throttle the data centre’s access to the grid, or perhaps even just step in and kind of turn it off or repurpose it and use it for domestic sovereign AI, or something like that. What do you make of this idea of compute for access?

CHARLTON: Well, our goal here, as we’ve just talked about, is to reduce our vulnerability as AI becomes a critical input into the economy. And what you describe – compute for access – is one way to seek to reduce that vulnerability, by having some leverage in the relationship you describe.

My view is that there are lots of different ways that we can reduce our vulnerability and increase our leverage. The type of model you describe might be one way. There’s a long way to go in those relationships, and foreign governments … who also would be a party to some of those arrangements.

Another way would be to have a diversity of different models that Australia’s critical infrastructure and large enterprises are using, so we are not subject to a concentration risk around a single model or a single supplier of models. Another way would be for us to have Australian domestic sovereign AI models that we build for different applications that are important to us – that we build, own, and control. That’s another way of reducing that vulnerability. You could imagine us also having different arrangements where we have open-weight models that are operating in Australia that we control, even though they were produced abroad.

So I think all of these are important considerations for us to think about in the geopolitics of compute, but they all really are roads leading to the same destination. And that destination is: how do we make sure that Australia has capability, sovereignty, and leverage – and all of that reducing our vulnerability in a world where this is a critical input into the economy.

Parlaying compute into sovereign AI

WALKER: So let’s talk about sovereign AI now. I’m going to go out on a limb – tell me if I’m wrong – but I feel like one model you might have is ascending the stack: starting with a domestic compute industry and then parlaying that into sovereign AI. Am I on the right track there?

CHARLTON: Yeah. The oldest industrial policy trick in the book is you find what you’re good at, and then you find where in the value chain the rents are. And you use the leverage of what you’re good at in order to climb up to the part of the stack where the rents are. I think that is industrial policy 101.

WALKER: So I want you to make this really concrete and take me through the chain from a lot of inference compute in Australia to sovereign AI. So, for example, are we parlaying the compute in a physical sense – like, are we repurposing the chips? Are we parlaying it in a fiscal sense – like, some of the rents we’ve somehow taxed, and then we’re using those to fund the sovereign AI? Exactly how are you thinking about using compute as a stepping stone to sovereign AI?

CHARLTON: Yeah. Just before I answer that question, let me link this back to what we were talking about before, which is where the value is in the AI supply chain. I think it is yet to be seen whether there’s a lot of economic rents in the compute component of that that Australia will build, own, and control.

WALKER: But even if there are quasi-rents, you can still take those and then go on to the next thing, right?

CHARLTON: Correct. Even if there aren’t rents there – which we don’t know yet; there’s still a long way to go. The question is… we know that that is a capability that we have. We know that Australia is going to be very good at compute, because we have the natural advantages that we just talked about – energy, land, security, et cetera. So we know that we have a real advantage there. We know that at the moment, and probably going into the future, a lot of the rents will be higher in the stack, in the models and applications. So how do we use the strength that we’ve got in that lower part of the stack to get up to the top?

Well, in a number of ways. We have been clear about this. So we put out the expectations of these large data centres. We did that in March this year. And some of those expectations were about the things that we described earlier in this conversation: how are you going to use water, how are you going to use energy. But there was one in there called Expectation 5. [It] didn’t get a lot of attention. But it’s important.

Expectation 5, that we are applying to these data centres as they come in, is: if you want to build a data centre in Australia, you need to contribute to our AI and digital economy ecosystem. How are they going to do that? Well, if you come in and build a big compute cluster in Australia, we might, for example – and we’re still working through how these will apply; that’s part of the National Cabinet process that we’re going through right now, but I’ll use examples – for example, we might say: well, are you going to bring some of your research capability to sit alongside that compute? Are you going to build an ecosystem cluster around that compute? Are you going to be involving Australia’s research institutions?

At the moment, a lot of these big companies, they treat Australia’s research institutions as customers, not as partners. They want to sell compute to Australian research institutions. They don’t want to have a partnership relationship of co-developing intellectual property. We want to change that relationship. So how do we use the fact that all these big companies want to put compute in Australia? How do we get them to bring it here, but [make] a condition of bringing it here that they contribute to Australia’s capability in research, in startups, through the stack? It might be the things I described. It might be providing access to compute on favourable terms to Australian researchers, to Australian startups. There are a myriad of different ways that we can think about – and that we are thinking about – taking the strength that we have in attracting data centres and turning that into a growing and more capable AI ecosystem around it. That is a big part of how we propose to generate value from our strength in compute.

WALKER: So we would be physically parlaying some portion of the compute into training sovereign AI.

CHARLTON: You could imagine this happening in many different ways. And we are explicit about this in Expectation 5. You could imagine that the data centres are providing compute on favourable terms to Australian researchers who are generating new Australian models, to Australian startups who are generating new Australian applications. You can imagine us requiring those data centre providers to bring some of their own research capability to Australia, to partner with our local universities. There are lots of ways – and we’re exploring all of them – that we can take our strength in the part of the stack where we have comparative advantage and build out from there into parts of the stack where we know there are going to be significant rents and significant sovereignty benefits.

WALKER: So one of the problems here is that inference compute and training compute are becoming meaningfully different. Like, the data centres are increasingly using different chips, and training isn’t possible [at scale] in Australia at the moment – or it’s substantially blocked by our copyright regime. So we don’t have to go into this, because you’re probably constrained in exactly what you can say – you’re a member of the cabinet – but presumably something needs to happen with copyright first, for this industry policy 101 play of compute to sovereign AI to really work. We need to solve the copyright issue to enable training compute here, right?

CHARLTON: Well, the Prime Minister was really clear about this a couple of weeks ago when he gave his speech. He said that our principles here are that we want to protect Australian creatives. Going back to your fundamental question, which is what is Australia going to get out of this: well, one of the things that we’re going to get out of it is making sure that Australian intellectual property – the creativity of our media, artistic sector, musicians – isn’t given away for free. And the Prime Minister’s been very clear. He wants to make sure that our regime provides control and compensation for Australian creatives. And the Attorney-General is leading a process that will deliver that to Australian creatives in a way that is consistent with our objectives around compute.

I’ll say one additional thing, though, which is it’s not correct to say that there is no training occurring in Australia. We have Australian startups and very successful Australian AI businesses that are training and have acquired datasets to train on – licensed those datasets, purchased those datasets. Think about some of the medical AI companies that we have that are training in Australia, building in Australia, and now exporting to the rest of the world. Physical AI, which is not using copyrighted material. So there is a big landscape here around AI training. Australia wants to be successful in that landscape. The Attorney-General is leading a process on copyrighted material, and there are other parts of that landscape as well.

What does sovereign AI actually mean?

WALKER: So, concretely, what do you mean when you say sovereign AI? Because people mean 15 different things when they say sovereign AI. And presumably you don’t mean us building our own frontier AI, right? Because the costs are just so immense there. I take you to mean like a fast-follower kind of model?

CHARLTON: I mean, I alluded to this before, but let me flesh it out a little bit. When I think about sovereignty, I think about it in the deepest and broadest sense. I mean the full spectrum of sovereignty, from Australian models built, owned, trained, operated in Australia … but I also mean – there is a degree of sovereignty in having a foreign model which is located in Australia, which has a big compute facility in Australia. So sovereignty is a big spectrum, and we need to be thinking about how we maximise our equities on every point of that spectrum. And I think about sovereignty across the stack as well, right from energy through to models and applications. Your question specifically is: should Australia have our own version of ChatGPT?

WALKER: Yeah.

CHARLTON: Well, we don’t today, but we do have Australian models being built. There’s an Australian model being built called Matilda. There are other Australian models which are not competitors to ChatGPT, but are really successful and important Australian models operating in different verticals and niches. So we have Australian sovereign models.

I think we’re seeing a big change in the landscape of models that’s occurring right now. The competition between closed models and open models has the potential to create a lot more options for Australia – a wider range of possibilities for how Australians could build sovereign models. In some cases, that might be partly using open-weight models from others and building and customising on top of them. Most of the countries around the world that are building quote-unquote “sovereign models” – and I think this is really important to recognise – are not starting from scratch. They are taking existing models and they are customising them for their own domestic circumstances.

WALKER: Like existing open-source models.

CHARLTON: Correct. So you think about the Koreans, the Singaporeans – they are customising existing models to incorporate in some cases their own language, in some cases their own cultural and intellectual information. So the growth of open-weight models creates a lot of possibilities. The question isn’t just: will you build an Australian competitor to ChatGPT or not? It’s: what will the full landscape of different AI models look like? What is the wide range of different ways that those models can be built, owned, and operated? And how do we make sure that Australia is playing in as many of those spaces as possible?

WALKER: Is it inconceivable to you that we would ever build a frontier model here? Or what would it have to take for that to be true?

CHARLTON: I mean, let me answer this question the other way around: what problem are we solving by building a model? And let me give you some examples. Some countries are solving the problem of national characteristics. These models don’t incorporate enough of their language, enough of their traditions. So they’re taking an open-weight model and they’re building a sovereign model which has customers. And those customers are customers that want those national characteristics inbuilt into a model. So they’ve got a market and they’re building a product to meet that market.

Other examples of sovereign models – why you would build one, who’s the customer, who’s using it – is national security. You need a sovereign model because national security demands that you have a high degree of control over that model. That might be in the public service; it might be in national security.

So the question of what Australian sovereign models we would build comes back to: what is the use case for that model? Who’s going to use it, and what are they getting out of it? I can imagine us building sovereign models in different use cases. Sovereign models that are applicable in national security environments. Sovereign models that are applicable in areas where people really want local characteristics. Sovereign models – some of which, as I said before, we already have – in different verticals where Australia has particular strength. I hope that we have a lot of sovereign models and Australian models in areas where we’re really strong, like agriculture and mining. I can see lots of Australian entrepreneurship in those spaces, building models using Australian expertise.

So there is a big landscape here. For me, it starts with who’s the user of it – not building an Australian ChatGPT for the sake of it. What’s the reason for us to build that? Who’s the customer for that? And how do we build something which best serves that customer?

WALKER: For those sovereign models, what conditions would have to be true for it to be the government’s job to be building those, as opposed to just letting the market provide them?

CHARLTON: Yeah, good question. You would have to be providing some benefit from that public subsidy. Now, you can probably pretty easily imagine what that benefit might be in the national security environment: great value in us having Australian capability in that space which, at different levels, we have a lot of control over. You can imagine, in very sensitive areas like with Australian health data, where it might be very valuable to have a degree of sovereignty over the way that AI interacts with that data. As I said, some of these countries are doing it for national, cultural, and intellectual reasons, and that provides a motive for public subsidy. There might be grounds on transparency or privacy or equity that we want to have Australian models that have some component of public subsidy. So there has to be some reason for us to invest in those. And you can see different elements of those reasons emerging.

WALKER: Okay, so say the government funds and builds some kind of fast-follower model with some of these applications you’ve talked about – for example, national security. What does good enough look like here? How do we know if we’ve succeeded? And how do you think about the importance of having frontier capability?

So, okay, let me – in a lot of domains, call them adversarial domains, what is good enough for a model isn’t defined by some kind of absolute standard, but is measured relative to the capabilities of the adversary’s model. So a classic example would be cyber warfare. If we’ve got, you know, whatever our national cyber model is – Koala 3 or something – but it’s going up against Fable 8, that’s not good enough, because it’s going to be outmatched and overwhelmed.

You could imagine similar zero-sum dynamics for a lot of economic activity as well. So for things involving negotiation or lawyers: if the other side is better advised or better represented by its AI, the Australian sovereign model isn’t good enough, because its performance, its capability, is being measured relative to the frontier model that it’s coming up against.

Tell me how you think about the importance of the frontier here. What does good enough look like?

CHARLTON: I mean, this is the crucial question. I’ve spent a lot of the last few months talking about the importance of sovereignty, for the reasons that you and I have just discussed – because I think it’s important to our prosperity, I think it’s important to our sovereignty. But, you know, we could build an Australian public Facebook and no one would use it. So what matters here is: how are we building something that is going to find a use case and find a customer? That’s going to vary.

We already have Australian models. Let me give you one example. Harrison AI is an Australian model. It is a diagnostic model in radiology that was developed by Australians and is now used in hospitals all around the world. Why do they use that? Because it’s the best. Because it’s incredibly good. We will have a range of different models like that in Australia, produced by the more than 1,000 AI startups, some of whom will be successful. In the public sector, we’ll have models, no doubt, that deliver capability to Australians. And the reason that they find a customer is because that customer requires something that no other country can provide, which is domestic sovereignty and control.

So these models need customers, they need use cases, and that’s the constraint. We’re not building these models for their own sake. We’re building them because they are going to be used, and they will need to meet the benchmarks of those users. And that benchmark might be because it’s the best. It might be because it’s the cheapest. It might be because it’s the most secure. But these models will need to have properties that make them successful in the market.

WALKER: So when it comes to just economic activity in general, and how useful sovereign AI could be just to the average Australian business: one kind of positive argument for sovereign AI is there are a lot of pretty simple tasks which businesses are actually using state-of-the-art frontier models to do right now, which they don’t need state-of-the-art models for. Like, a simpler, fast-follower kind of model would be good enough. And so maybe one way to think about the benefit of these sovereign models is: if you ordered all the tasks in the economy according to their complexity, maybe the simplest 20% of tasks can be done by a sovereign model. And that’s kind of a nice backstop for us, but we use frontier models for the other more complex tasks. And the access is still a question there, but at least we know we’re not going to be totally screwed if we lose frontier access.

I guess one concern I have about that is whether the capabilities gap between whatever sovereign models we have and frontier AI continues to diverge. For example, if we reach a recursive self-improvement scenario. Or, you know, presumably whichever Australians are building the sovereign models will be using frontier AI to build those models. They’ll be using things like Claude Code and Codex. And so access to frontier AI is important for building the sovereign models. But also, the distribution of tasks in the economy is going to be influenced by whatever the frontier is. And so if things are very dynamic and changing quickly, maybe you just do end up in these kind of wilder scenarios [where] you do end up needing the frontier for a lot of really important stuff, and that kind of sovereign layer just really dwindles in its relative importance. Yeah, I’ll just lay all that out there. Pick something out of that.

CHARLTON: I think there’s an important thing in that, which is – I mean, you put the suggestion that Australia will be able to – I mean, you didn’t put it in this way, but I’m paraphrasing, hopefully not mischaracterising what you said – you said Australia won’t be able to compete with the really fancy end of the model spectrum, but maybe we’ll be good enough to compete at the dumber end of the spectrum.

WALKER: Yeah. We can, you know, for a few million bucks, we could probably, fine-tune an open-source model, right?

CHARLTON: So I fundamentally disagree with that. I think that, for want of a better term, the dumb end of the spectrum is going to be as competitive globally as the smart end of the spectrum. It’s going to be competitive on cost.

So just because Australia can produce a model at that helping-me-with-my-kids’-homework end of the spectrum, rather than [the] solving-an-unproven-theorem end of the spectrum, doesn’t mean that I will use an Australian model. Just in the same [way] as any other industry. There will be a huge global competition to deliver low-cost AI and win in that space.

That is currently where China is doing very well. Chinese models are proliferating around the world, not because they are the best models necessarily, but because they have a huge cost advantage. And China is pursuing an industrial strategy in artificial intelligence which isn’t too dissimilar from their industrial strategy in many other goods that we’ve seen around the world, from automotive to anything else.

So at that less sophisticated end of the spectrum, I think the competition will be just as fierce. But instead of being competition on functionality, it will be competition on cost. And if Australian businesses want to play in that space – which I hope they do – they will have to be at the cost frontier. They’ll have to be extremely capable, successful, efficient businesses competing in that space. So I think when we think about where Australian models will place, there’ll be no soft underbelly of this industry. There will just be a spectrum of excellence, and the most expensive models will be competing on capability, and at the other end of the spectrum there’ll be fierce competition on cost. Australian businesses that are successful in the digital world are successful because they are the world’s best at some point along that spectrum – either amazing functionality or outstanding efficiency. And our businesses who we want to compete in this space are going to have to be on that spectrum.

WALKER: Maybe the crux here is you think there are seriously declining returns to intelligence. Would that be fair to say?

CHARLTON: Explain what you mean.

WALKER: So, like, for a lot of businesses, what’s scarce isn’t intelligence, but it’s integrating it into their workflow, or using it in a way that makes them more productive. But there are all these messy human factors and other bottlenecks that limit how useful that intelligence can be. And just throwing more and more intelligence, more and more capable models, into businesses doesn’t get the same marginal output. And so, for that reason, the kind of fast-follower sovereign AI truly is good enough for a lot of businesses. Does that make sense?

CHARLTON: I mean, I think there’ll be a wide spectrum of models. To return to something that we said earlier: nobody has an incentive to switch out of Google for their internet search, because Google’s free. In this space, AI is not free. These frontier models are very expensive, and they’re going to get more expensive as we start to face their true cost.

That’s going to create an opportunity for competition. So you are not going to be wanting to use the most expensive model to do your everyday tasks. That’s going to create competition at the low end, but that competition is going to be fierce. It’s going to be cost-based competition. And there’ll be different models that you use for different applications. When you want to do something that requires a huge amount of capability, you will open your phone and use Fable, or whatever is the best possible model at that time. And that will cost you a lot of money.

When you want to plan what’s for dinner, you might open a much cheaper, much simpler model to give you that advice.

And the same will be true in businesses. The same will be true in government.

WALKER: I think my point about there are adversarial domains where having a frontier model really matters still stands. I still don’t feel satisfied that we’ve got a plan to ensure frontier access parity for those kind of things.

CHARLTON: Yeah, well, there are different strategies to get that capability, and you can see different countries around the world pursuing those strategies. One strategy is alignment, where you align with a frontier country, and through that alignment and that closeness, you gain access to their technology. Another one is leverage, where you have some critical input that is required, and you are trading that critical input for access.

WALKER: Like compute for access.

CHARLTON: Like compute for access. Or Taiwan has the chips; Australia might have the energy – some critical input that gives you leverage and reciprocity. Third, you could try and build it yourself. And there are countries around the world that are trying to build their own models. So there are different strategies on how you make sure that you have that capability. I think Australia is pursuing elements of all of those. We have good alignment, great allies. We have critical inputs in compute that will be valuable in the supply chain. And we also have a lot of sovereign capability that’s growing, and which we’re using our strength in other parts of the value chain to continue to expand.

WALKER: Okay, so say we decide that we just can’t continue to rely on America for frontier models, and as a backstop we, the Australian government, want to build some kind of fast-follower model – it’s not going to be able to compete, but it’s better than nothing. How do we attract, how do we compete for talent? You know, the big labs are offering salary packages on the order of tens of millions of dollars for senior staff. That’s sort of what you’re competing against. So how do you get the talent to build the sovereign AI?

CHARLTON: Well, a minute ago we talked about our Expectation 5, which is about how we use our strength in compute to grow our ecosystem, to invest in our researchers, to invest in our entrepreneurs, to support the range of capabilities we have right through the stack. Building that ecosystem generates that pipeline of talent. We don’t need every single person in that talent pipeline to come and build sovereign AI, but the stronger that ecosystem is, the more capability we’ll have.

WALKER: And then, so with that fifth expectation, we are presumably building into the contracts some kind of compute capacity that gets reserved for us. If those data centres are owned and leased by hyperscalers, presumably we’re always going to be outbid by American AI labs who are just starved for compute. And so the way around that is that we reserve some of that compute for us. Do you know roughly what enough compute is, if we were using it to build our own sovereign model?

CHARLTON: Yeah, well, we’re working through both the instruments – so we haven’t locked in on the particular instrument you described, but we’re working through what the right set of instruments are to satisfy that Requirement 5, that these AI data centres contribute to Australia. And we’re thinking through what the demand side of that equation looks like. What is the compute that Australia’s going to require for our research sector? What is the compute we’re going to require for our entrepreneurs building new businesses? What’s the compute we’re going to require for our national security and public sector?

WALKER: And do you know roughly how much compute?

CHARLTON: I think it’s changing a lot.

WALKER: Yeah, it’s going up?

CHARLTON: Yeah, I think it’s changing a lot. So thinking through what that demand side looks like is the work that’s happening now. And then thinking through how we’re going to match that demand with supply from various sources, including requirements that we put on through Expectation 5, is another part of that.

Orbital compute

WALKER: Last question: how much have you been watching what’s happening with the possibility of orbital compute – so, data centres in space? How much does that worry you, that this could just leapfrog terrestrial data centres entirely?

CHARLTON: I feel like there’s a couple of big technological steps that would need to happen between now and then. I see elements of the value proposition – that solar energy is strong and abundant, that there’s no requirement for land use and other things – but there are also huge costs in build, launch, and communications. I think this is one of those questions where there’s a lot of technological possibilities, but we have a way to go to see how it develops.

WALKER: All right, really enjoyed it. Thanks, Andrew.

CHARLTON: Thank you. Cheers.

Hey everyone, this is a quick announcement to let you know that I’m running a new series of episodes on the podcast.

The series is called ‘Compute in Australia’, and I’ll be exploring the question of whether and how we should scale up a large domestic compute industry here. Think many gigawatts of new AI data centres, some potentially drawing a full nuclear reactor’s worth of power or more – an order of magnitude larger than any clusters currently operating on the continent.1

Compute simply refers to the processing power produced by special chips sitting in racks of servers which are stacked inside those data centres. It’s become the key input for both the training and running of modern AI systems.

AI will be at least as big as the internet, maybe as big as the Industrial Revolution. And like past tech transitions, it’s likely to shake up the global distribution of wealth and power. So what is a middle power like Australia to do? What would it look like if we were extremely proactive about ensuring that we come out of this transition better than we entered it? Where in the AI value chain can we become a significant player?

At least to begin with, an obvious answer seems to be: compute.

I’ve been ruminating on this for a while now. Early last year, I started thinking about the economic opportunity – whether or not compute could become our next great export industry – and asking a bunch of economist friends what the answer to that question might be. But this year, I started thinking a lot more about the strategic leverage compute could afford us.

That new thinking was primarily motivated by my growing anxiety about our access to frontier AI. If the connection here isn’t immediately obvious, let me explain.

Pretty soon, AI will be so deeply woven into the substrate of society that it becomes a utility like water or the internet. It’s hard to picture this possibility today, especially if you view AI as nothing more than frivolous chatbots. But imagine a not-too-distant future where almost all economic and social activity – from how businesses negotiate and transact to how you access hospitals and government services – is in some way mediated through AI agents.

At that point, uninterrupted access to the AI substrate becomes critical. To take the internet as an analogy, Australia – more precisely, the University of Melbourne – first gained access to the global internet in 1989. If you’d switched off our access in the early 90s, you would’ve pissed off some university researchers and early adopters, but you wouldn’t have triggered societal upheaval. If you switched it off today, the story would be quite different.

Of course, today’s internet can’t actually be switched off like that, because it’s decentralised. And this is where the AI/internet analogy stops. Assuming frontier models continue to meaningfully outperform open-source alternatives, access to the frontier remains crucial – but control over this access may be concentrated in the small number of companies building frontier AI and in the country or countries in which those companies are based.

At least in the near term, Australia is unlikely to build its own frontier AI. We don’t have the density of talent or the colossal amounts of capital that appear to be necessary.2 Only two countries are running that race: the United States and China. Australia will generally choose American models. But American AI companies exist under American law. They can be controlled and coerced by American governments.

We caught a glimpse of this in March, when the Pentagon declared Anthropic a “supply chain risk”. And again in April, when Anthropic gave early access to a model with unprecedented cyber capabilities, Claude Mythos Preview, to selected organisations, all of whom were US-domiciled or headquartered; no Australian business or government agency was on the initial list. And we saw yet another glimpse in June, when the US government imposed export controls that denied foreign users access to Fable 5 and Mythos 5 (though in practice this forced Anthropic to suspend access for all users).

So the question I keep coming back to is: if middle powers are bound to import frontier AI, how do we ensure continued access?

This brings us back to compute. In a loosely analogous way to how Australia gave up on acquiring nuclear weapons yet maintained some influence over nuclear politics through its preponderance of uranium deposits, we may not build our own frontier AI but we can host a substantial portion of the vast amounts of compute needed to train and/or run these models. We could use this as leverage for frontier access – an idea that’s being called ‘compute-for-access’ in AI policy circles. Very, very roughly, this could look like the Australian government striking deals with hyperscalers and major AI labs: we fast-track approvals and facilitate grid access in return for the labs guaranteeing Australians access to frontier AI on equal terms to the US market, if not the US government. Of course, such an agreement doesn’t bind US administrations. But once billions of dollars of CapEx are sunk into the Australian continent, and if we are indeed contractually permitted to throttle data centres’ power supply or even step in and repurpose scarce compute entirely if we lose frontier access, it does incentivise the labs to advocate for our interests in Washington.

Now, the purpose of this podcast series isn’t to advocate for compute-for-access specifically. It’s just one example of the strategic benefits compute might offer; there are credible alternatives.

And as always, the devil will be in the details.

Which is why I’m doing this as a series of interviews – so I can explore the issue from different perspectives, and so we can see where the guests’ answers line up and where they don’t.

The compute question may be the most important question in Australia at the moment, and I don’t think it’s being covered with the rigour it deserves.

So for the next month, this is pretty much all I’m doing. I’ll release episodes across the month, as I record them, rather than all at once, because things are moving so quickly. First up is Andrew Charlton, who is arguably the key member of the Australian government shaping our AI strategy. More guests will follow.

Subscribe to the podcast wherever you get your podcasts so you don’t miss the episodes as they drop.

See you for the first episode.

Pat wrote what was the first (and may still be the only) Westminster-system equivalent to Robert Caro’s epic meditation on Lyndon Johnson: a detailed study of how Australian Prime Minister Malcolm Fraser wielded power. First published in 1989, it’s a fascinating study of how one individual climbed into the hermit-crab-shell that is the prime ministership and made it his own.

Pat is also the author of two other detailed studies of Australian political leaders, and the definitive history of cabinet government in Australia.

Pat’s work offers a picture of how human institutions – in this case, Westminster cabinets – work in practice and on a day-to-day level. Understanding the messiness, the beautiful malleability of the institutions, and their human bottlenecks has helped me build a more accurate model of the world – useful for predicting how governments may both respond to and utilise powerful new technologies.

Watch:

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Listen:

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Sponsors

• Effective Altruism Australia: how Australians give to GiveWell’s top charities — tax-deductibly, and with 100% pass-through. Until June 30, 2026, EAA is matching new donations up to $300,000. Donate at eaa.org.au/joewalker.

• e61: a non-partisan economic research institute focused on Australian public policy. To receive a copy of the new essay I co-authored with e61 on data centres and the compute economy, go to e61.in/joewalker.

Transcript

JOSEPH WALKER: Today I’m speaking with Patrick Weller. Pat is an historian, a political scientist, and an emeritus professor at Griffith University. He’s the author or editor of about 40 different books, including a study of Malcolm Fraser as Prime Minister, a study of Kevin Rudd as Prime Minister, and the definitive history of cabinet government in Australia. Pat, welcome to the podcast.

PATRICK WELLER: Thank you very much.

WALKER: So Pat, you are of course originally from England, but you’ve called Australia home for about 60 years now, I think.

WELLER: I arrived in October 1966. The day was notable mainly for Galilee winning the Caulfield Cup.

WALKER: Wow, so you’re coming up on your 60th anniversary?

WELLER: That’s right.

What Robert Caro taught him about studying power

WALKER: So I think of you as a kind of combination of a British Tocqueville come to Australia and an Australian Robert Caro, who examines the texture of political power. And for that reason, I was very excited to read in a few of your essays reflecting on your work, especially your book about Malcolm Fraser as Prime Minister, that Robert Caro was maybe the major influence on you intellectually, certainly the major influence on you with respect to your book about Fraser.

WELLER: But he adds to [three] other works which took me up there, one of which was a book which made me a political scientist rather than a historian, about how parties operated in the pre-party days in Australia. And it’s the nitty-gritty, it’s how people work, it’s the way that they understand the problems they’ve got, which I find particularly interesting.

And the second one was a book written by two Americans about the British Treasury. Now, the details are slightly outdated, but the way they did it was to point out that these are people who work with each other day in, day out. When you deal with somebody on a particular problem, you know you’ve got to deal with them next week on another problem. So it’s the routines which become important.

And the third thing was a book by Richard Neustadt, who talks about the American president and says the power of the president is the power to persuade. And what we need to do is to be looking over their shoulder to see how they see the problems.

Then Caro comes along and has this magnificent study of the routines by which Lyndon Johnson managed to create a structure of power, and he did it by incredible hard work. But it was the daily activities that gave him the power.

Too often we look at crises. I want to know what underpinned the crises.

So Caro was the last nudge, so to speak, of saying you can do things like this. And I thought, can you study an Australian Prime Minister? And who would be interesting? And this was 1983, 1984.

WALKER: So at this point we only had the first Caro biography of Lyndon Johnson.

WELLER: The first volume comes out in about 1983. So I thought, well, Malcolm Fraser might be interesting because there are two pictures here – there’s a picture of the very dominant prime minister, and everything you hear talks about he spent his life consulting. So I thought, well, we’ve got Caro Volume 1 that showed the sort of inspiration of what you can do. So let’s see if I can go and talk to Fraser and see if I can work out how he ran his government, how he ran his life – one year after he’s left power.

Now, I knew David Kemp, who was his principal private secretary, and he knew that I had in the past edited the Labour Party’s caucus minutes. They kept minutes ever since 1900, the day the Federal Labour Party met, they kept minutes. Gough Whitlam was sick of people coming to his office to look at them. It kept disrupting his life in 1972, so he contacted the ANU and said, “Can you get somebody to edit them?” And I was asked to do that.

So I had three volumes of the Labour caucus minutes, and then I was going to talk to Malcolm Fraser. So I wasn’t sure about that.

But I was interested in seeing what you could do with Fraser, so I wrote to Kemp and said, if I’m thinking of doing this, how will he react? And Kemp said that he won’t care about your politics, or what may be perceived to be your politics. The only question you’ll ask is, is he any good? David must have said yes, because I then got an invitation to come down and talk to him.

The first question he asked, or maybe the second, but “Why do you want to do this?” And I said, “Well, your image is of a very dominant prime minister, and yet everyone emphasises how much you consulted.” “Huh,” he said. “Just because I consulted didn’t mean I didn’t dominate.” And although I didn’t realise it at the time, he gave me the theme for the whole book: that he consulted dramatically, but if he wasn’t getting the answer he wanted, he kept consulting.

And he ran a very consultative sort of exercise, so that if one public servant gets a phone call at 3 AM, he knows who’s ringing. And he often had beside the bed the papers that were going to be discussed next year. So it was, “Wait a moment, Prime Minister, give me a moment to find out where you are. Right now, yes, what can we do?”

And another one who was rung up and asked something at 2 o’clock in the morning said to him, “Well, Prime Minister, I think you should consult,” named another officer. And as Fraser suggested, he said, “Oh, by the way, Prime Minister, happy Christmas.” And when he rang the other guy up at 6 in the morning, he at least started with “Happy Christmas now.” He was that sort of character.

So Caro’s approach gave a lot of useful tips about how to talk about Fraser. It’s a very different book, it’s a very different circumstance, and a very different man, but that exercise in saying, how does this work, what does he do? So I was really interested in his day-to-day operations, his timetables, his scheduling, because that’s the way that he could organise, mostly, to get his own way.

WALKER: So is there anything more specific to say about what you took from Caro?

WELLER: Caro says, “I study power because power reveals”. If you want to understand the way a person operates, his character, it’s how does he exercise power. And that’s what I think you can usefully apply to a whole set of circumstances.

And of course Caro spends 10 years writing each volume. His volumes came out in ‘84, ‘92, 2004, 2012, and we’re still waiting for the last one, of which I gather he’s written 900 pages. And since he’s, I think, now [90], we’re hoping that he will finish it soon. It’s a magnificent description of how politics actually works. What Caro does is put the institution and the individual side by side.

He wrote a very short book in the middle of this called Working.

WALKER: Great book.

WELLER: It’s a great read. It’s a fascinating study. And there’s one line there when he went and started talking to his editor, and the editor says to him, “Turn every goddamn page.” When you go through a set of things, don’t take anything for granted.

One I found: I found a note from Tony Eggleton to Fraser. Tony Eggleton was the president of the Liberal Party, former private secretary, and this was in 1977 when Fraser was thinking of calling an election. Eggleton wrote, “I just spoke to the Governor-General, John Kerr. He says that you need to give some reasons if you want an early election, which he says he hopes and expects that you will want to call.”

Now, a message from John Kerr via Eggleton to Fraser, is sort of dynamite. It’s fascinating, but you do that if you actually can go through page by page to understand the way that they work. Because prime ministers deal in detail. I mean, when I wrote one on Kevin Rudd, I was allowed to see his diary, appointment diary, so you knew who he talked to. And how often he talked to them. And you knew you could start tracing through that sort of detail, the way that he could actually operate.

How Fraser gave him unprecedented access

WALKER: Why do you think Fraser gave you such access so soon after leaving office?

WELLER: I haven’t got a clue. I mean, this was, I say, 1984. He’d been out of government for less than 12 months.

I had written a little book with Michelle Grattan called Can Ministers Cope, which came out a year or so before. We had written a book on policymaking, so he knew via Michelle who I was, and perhaps he was interested in the hope that somebody would actually write a serious history about the process of governing.

I went to see him hoping he would say yes, and expecting to talk to him and talk to his ministers and talk to some senior public servants, all of which I did.

But then at the end of the initial discussion, he said, “Oh, I suppose you want to see my cabinet papers.” I thought, yes, I’d love to see your cabinet papers.

WALKER: So just for people’s context, at this time – so today they’re not made available to the public for 20 years. Back then the rule was 30 years.

WELLER: So this is a massive time. And he said, “I’ll have a look at them to check them before I let them have them,” but he couldn’t get round to it, so he never did.

So I’d just moved to Brisbane. I spent a week a month in Canberra. The Prime Minister and Cabinet gave me an office. Prime Minister and Cabinet helped me identify things that might be useful. So a friend of mine who was head of the Cabinet Secretary said, “You don’t only want to look at these, you want to look at these files and these files and these files.” And I was given a list of all the files. All I had to do was call them up and they would appear the next day.

I wasn’t allowed to take them out of the department, and some of them were so modern they even had bits and pieces of the new Labor government attached to the last bit of the file. It was an opportunity which I’ve never had since, and I would be quite surprised if anyone gets them again in a hurry.

So he never checked; he never asked to see what I’d seen; he never wanted to know whether I’d abided by any rules or conditions. I just suddenly had access to the Cabinet files. Now, for a historian/political scientist, that’s gold dust.

WALKER: It is.

WELLER: That’s gold dust. I mean, it’s so fascinating to be able to pick a file and trace a story, and you realise the degree to which what the public sees is like an iceberg – the top 10%. And you saw how ideas come and go, how people raise them, they get sat upon, other proposals come along. They’re presented as though it was a government decision which is undisputed, but in practice it’s a whole range of compromises, proposals, all of which are tossed around within the government and within the public service.

And suddenly you can put a bit of flesh on those bones about how serious the process is. And that adds to that notion. You have to understand how they understand the problem. I mean, there’s a quote in Heclo and Wildavsky, which is the book on the British Treasury. They make the decisions. We have to understand why they make the decisions. And that’s understanding about them.

And the other thing which comes up is Heclo says governing is a process of collective puzzlement on the public’s behalf. You know, people sort of think governments know what they’re doing and why they’re doing it. Often they are not very sure why they’re doing it. And it’s a 49-51 decision at the end anyway. “Should we do this, or we do that?” “Well, I don’t know, perhaps we’ll try and do that sort of thing.” And then you start developing a policy which follows on from that.

That’s the process that interests me, less often the decisions themselves.

And then you talk to Fraser and then you talk to his ministers. Not one of the ministers said they were scared of him. And I talked to them all. All of them said several of their colleagues were scared of him. There’s something a bit inconsistent about that.

He certainly made them nervous. And he would occasionally use cabinet raising questions because he wanted to test how strongly they felt what they were proposing. And they often thought, “Oh, the Prime Minister thinks this.” No, the Prime Minister was testing them. He was testing the way that the cabinet process worked and the way that he worked.

So I came out with a totally different view of when I went in about Fraser. And I lived through the Fraser period, of course. As a Prime Minister, he was much more thoughtful than he often gave the public view. In public, he gives the view, “I know what I think.” In private view, he’s agonising about what I think. He’s looking about it, but he knows that in public you have to go out and take a strong view on this way or that way.

But it was interesting, different times. You had AM and PM on the radio. And in between, you could pretty well be left alone. Now, and you knew who had cameras, which now you don’t. So in that sense, I think you could pace yourself far more readily. But he also would come back on a Monday morning and say, “I’ve got 10 questions from all the people who’ve asked me questions.” Doesn’t say who he met. “Somebody said this, I want to know about that. Someone said this.” So the department would get a swag questions each day about who he’d met previously or who he’d met over the weekend. And he queries this and queries that.

WALKER: Okay, there’s a lot there. I have a bunch of follow-up questions. The first is, you got access to the cabinet minutes, which is the term of art for the decisions of the cabinet, the minutes; you got access to the departmental files; but I don’t think you got access to the cabinet notebooks.

WELLER: No.

WALKER: So the first cabinet notebook for the Fraser government became available in January of this year.

WELLER: Right.

WALKER: 50 years after the end of his first year in office. Have you had a chance to read it yet?

WELLER: I haven’t tried. I read some of the cabinet notebooks of the 1950s for the book I was writing on cabinet. Cabinet notebooks are not cabinet minutes. There is no record of discussion of the cabinet meeting. The notebooks are taken by the cabinet note-takers. There’re usually three note-takers from Prime Minister and Cabinet in the Cabinet Room, and they will take increasingly detailed notes for the sake of writing up the decision at the end of this process.

So at the end of the process, the Prime Minister might say, “Okay, we’ll do what the minister wanted,” or “We’ll do what the minister wanted but with the variations of blah, Smith suggested earlier”. So somebody has got to be in a position of knowing what the minister wanted and what Smith said earlier.

So the notebooks are entirely idiosyncratic. Dependent upon the person who’s taking the notes. They may be in their own shorthand, they may be including a series of ironic jokes about what had actually happened, but you can’t reconstruct from the notebooks what was said at the meeting, which you can in the British ones. So that’s one of the great differences. The British give you a much fuller version of what was actually being discussed.

So what you have here is at the end of a meeting, the Cabinet Office goes away and drafts a decision on the basis of what happened in Cabinet. It uses its notebook as a point of reference, so it says, “Okay, this is what I think was said”. Usually they’re then circulated, signed off and circulated. They don’t go to the ministers or to the Prime Minister unless there’s a point of dispute. And that doesn’t very often happen, nor very often do ministers challenge the decision.

I have heard of occasions when a minister said to somebody in PM&C, “Now I know that that’s what cabinet decided, but if they’d actually had a proper discussion rather than [inaudible], they would actually have decided something different. So why can’t we decide what I wanted them to decide? Rather than what they actually decided.” No. That’s not how it works here.

So the decision is brief. I have certainly seen decisions under the Fraser government where things were added to make sense of the decision but weren’t actually raised. I’ve seen decisions taken when there was no meeting. So on one occasion – Fraser was in Tanzania and he was in one of those debates about the independence of Rhodesia, Zimbabwe, and he rings up the head of his department and says, “I promised – I think it’s Kaunda – that I will open a High Commission. Can you check around the Foreign Affairs and Defence Committee and make sure they’re all comfortable with that.”

A few of them said this isn’t the way to make cabinet decisions, but they agreed, and the secretary duly recorded a cabinet decision for a meeting that hadn’t taken place. Well, no, not hadn’t taken place; recorded the cabinet decision although no meeting had taken place… So it’s a flexible process.

WALKER: And it’s really just guided by conventions, right?

WELLER: Absolutely.

WALKER: I mean, they weren’t really breaking a legal rule in doing that, were they?

WELLER: No.

WALKER: Yeah, I mean, it’s a very malleable kind of institution.

WELLER: There is a Cabinet Handbook. Which at that time hadn’t yet been launched into the public arena.

How he published the secret Cabinet Handbook

WALKER: Yeah, so I didn’t realise that you were the person who launched it in Australia.

WELLER: I mean, that’s why I said I’d bring props. What happened – I mean, if you look there, this is Politics, a journal of Political Science Association. And if you look at the bottom under document, it says “The Cabinet Handbook”. And if you look at the introduction, it says this is the first of bringing a document of public interest. This will be the first of a series. There never was a second. I was the editor of the journal.

What had happened was I was lecturing in first year at the ANU, and I gave a lecture on cabinet and mentioned there was a cabinet handbook and grumbled that for some reason it’s secret, which is ridiculous because everyone should be able to know how cabinet actually works. And that was it, I just had a grumble. A lot of my students, of course, public servants and part-time students.

And at the end of the next lecture, some lady walked up to me and said, “Pat, I thought you might like to see this,” and handed me a copy of the Cabinet Handbook. It was a loose-leaf folder. I have no idea who she was. I never did find out who she was. But I thought, this is, when you read it, really silly. I’d just been to New Zealand, I think, and they are actually quite public in theirs. So I thought, well, I’ll publish it, I’ll publish it in the journal.

And I asked a deputy secretary in PM&C who was in charge of the government division, later became secretary of the Attorney-General’s Department, who I’d met a few times. I said, “What would you do if I published the Cabinet Handbook?” He said, “Hmm, it’s breach of copyright.” I said, “I know. What else would you do?” He just laughed, and I assumed that the answer was nothing, which of course is what it was.

But when they produced the next version two years later, the Secretary of Cabinet, who was Assistant Secretary, who I knew well, apparently said, “Well, Pat’s produced one journal, it’s on the public record, no one’s fussed, why don’t we just publish it?” So the Cabinet Handbook came out with the Australian Government Printing Service. That’s the first half of the story. I like the second half more.

The second half was a friend of mine in Britain, a person called Peter Hennessy, who was a great journalist as well as an academic, just retiring from the House of Lords and just being admitted to the Order of the Garter. He was a great guy. I met him at a conference. And he said, “Well, you’d never get [a cabinet handbook] in our place.” I said, “Well, I’ll send you a copy.” So I sent him a copy and he sent it to Number 10 and said, “Are you going to release this like the Australians have done?” Because it was now an official document. “No way.”

So each time there’s a change of prime minister, he sent him a copy and said, “Are you going to release it?” Until John Major says, going into an election, “Just hang on a moment,” and announces during the election they’re going to publish it, and it becomes a public document. And of course, both of those are now on the web.

WALKER: That’s amazing.

WELLER: Now, this is a lovely case of – it’s a nudge.

WALKER: It’s a nudge.

WELLER: You know, everyone realises nothing much is lost when you publish the things. And other people follow up, and you eventually have most of those records are now public records, and each Prime Minister introduces his own new version of the Cabinet Handbook.

WALKER: Yeah, in preparation for my podcast last year with Glyn and Terry, I spent hours reading the 15th edition of the Cabinet Handbook and didn’t realise that I have you to thank for that.

WELLER: Well, look, it will probably have happened anyway. But it helps when it’s out already. Because there’s not a lot of logic in trying to keep it secret.

But that’s very much what interests me, is the how. If you ask Glyn, he would, I suggest, talk, as he does at times, about PM&C made sure the rules have been followed, that the criteria for the cabinet handbook had been fulfilled, that the document which was going to Cabinet is in a suitable condition to be considered by Cabinet.

I mean, up until the 1940s, the Cabinet Secretary was a minister, and the Cabinet records were sparse. You could have heard of whole things that were discussed in Cabinet which never got noted at all. But now it’s far too big for that. I mean, there may be a Cabinet Secretary for deciding or agreeing on what the agenda will be, subject to the potential veto of the Prime Minister. But everyone else has got to actually settle themselves according to the rules.

And that’s protecting, I think, everyone, because you could be assured that you can’t bounce the cabinet, just bring something up at the last minute. Prime ministers still can. But prime ministers are judge, jury, and executioner when it comes to the processes of cabinet. They can decide enough discussion’s been done, they can decide what the discussion will be about, and they sum up at the end.

WALKER: Exactly. I mean, that’s really the kind of institutional source of their power, right?

WELLER: It’s one of them.

WALKER: Being the chair of the cabinet.

WELLER: Yes. Yeah, being the chair of the cabinet: deciding who will talk in what order. I mean, ideally nothing will go to cabinet until the Prime Minister has a pretty good idea of what everyone thinks. And what everyone is going to say. And that’s the job of the Secretary of Briefing.

Now, how they get briefed varies from place to place, but that’s the power. And then it’s the power about – so what exactly was decided potentially? People stick pretty well to what the Prime Minister does, if anyone can remember them. And there are times when you have long discussions and people forget that. “Well, I’ll do what Bloggs said, but what did Bloggs say? Well, what was it that we talked about then?”

“Just because I consulted doesn’t mean I didn’t dominate”

WALKER: So let’s come back to Fraser because I’ve got a few more questions about him. I think the five kind of abiding impressions of Fraser that your book left me with were, firstly, the work ethic, which sounds kind of trite when I say it like that, but the very vivid descriptions you give of him, as you mentioned earlier, calling up a senior DPMC official at 2 AM on Christmas Day to talk about some cabinet papers – those kind of things made a great impression on me.

Secondly, how he was less intellectually secure than his public image gave off. So he was constantly interrogating both his staff, public servants, ministers with this kind of scattergun approach of just bowling questions at them. But the purpose was to stress test ideas and make sure he got to the right outcome. Because he didn’t always know what the right outcome was.

WELLER: For which we should be grateful. Prime ministers don’t think they know all the outcomes.

WALKER: Yes. It’s very admirable.

The third thing I found interesting was he had this instinct for understanding the politics of institutions and how each department has their own kind of agenda and set of objectives. And he was very determined to never be captured by a single group or department. So he didn’t want anyone to have a monopoly on his advice, and he sourced advice from a wide range of people, even people outside of Parliament, and would even sometimes have different departments working on the same question at the same time to get an uncorrelated spread of opinions.

The fourth thing I found interesting was that he had a hand in or approved virtually every decision that his government ever took?

WELLER: Every decision he wanted to be involved in. He would be involved in everything significant that he wanted to be in.

WALKER: I see. Okay. So I might have potentially misread.

WELLER: No, I think you slightly over... I mean, there were – oh, hang on, was it 19,000 decisions in seven years? That’s an awful lot each week. Now, some of them were decisions not to make a decision, but that does mean the Prime Minister was involved in actually all those decisions.

WALKER: And then the fifth thing, which of course is the kind of central theme of the book, is that he dominated through consultation.

WELLER: Yeah.

WALKER: Which is so interesting because there’s this false dichotomy that you critique, that there is on the one hand traditional cabinet government and on the other hand prime ministerial government. But he exercised a kind of blend of those two approaches and he invariably got his way, but through a process of consultation, through exhaustive cabinet meetings in “the bunker”, until everyone had just through sheer kind of weariness consented to the decision or the outcome that he wanted, the collective outcome that he wanted.

WELLER: Let me add a sixth.

WALKER: Yes.

WELLER: The sense of insecurity created by the means of reaching office. He was incredibly conscious that the events of 1975 were incredibly divisive, and he was really conscious, I think, at times that he didn’t want to do things which would divide the country as he saw it. Now, that’s totally different from what one would have expected going in. But he’s often [saying], “Well, yes, but you know, if we did that, it would do X, Y, and Z.”

And he wasn’t always bold. When John Howard starts suggesting a GST in about 1981, there’s an interesting argument going on about who was responsible for checkmating whom in those occasions. Fraser would argue that Howard was too cautious, he should have got ahead and done things; and Howard was saying, “Well, he wouldn’t let you”.

So Howard was talking about a GST and Fraser said, “You can’t have a GST, you would introduce it, it would take three years to introduce it, you’ll be running to [an] election on it and the impact will come straight afterwards and you wouldn’t win”. Howard was saying, “Well, we wanted to have a review of the financial system that could basically turn into the Campbell Inquiry,” and Fraser sat on it.

So on a couple of occasions, I talked to Howard. Howard was quite keen to talk because we had had this discussion going on about what was Fraser in favour of and what wasn’t he. I talked to him once, he got cut off, he rang up and said, “Can we finish it?” Because he had a good story to tell and Fraser was telling the opposite one.

So 11th November was never quite put behind.

I said I thought the second question was “why do you want to do [the book]?” Either the first or the second one was “should the Governor-General have done it?”

WALKER: This is in your first meeting?

WELLER: This is my very first meeting with Fraser, yeah. Should the Governor-General have done it?

WALKER: He asked you that.

WELLER: Yes, he asked me that. I said no. I said, “Well, that was before you’re coming Prime Minister, it’s not really within my remit, but since you asked, no. He should have waited till the money ran out.”

Fraser: “No, he should have done it immediately.”

But what was interesting is, having said that, he seemed unconcerned that I didn’t agree with him. And this is the other interesting thing – I know at least one senior officer in PM&C who had been working very closely with the Labour government, the Whitlam government, disappears for a time, then is, brought back, and he’s brought back to a senior job in Prime Minister and Cabinet.

One of Fraser’s advisors thinks that – I mean, this is a decision for the secretary, not for the Prime Minister – but thinks that the Prime Minister should know that he’s about to get a key advisor who worked closely with the Labor government. Fraser apparently stuck his jaw out and said, “So. Is he any good?” Didn’t care. You know, as long as they were good, he didn’t care who they’d worked for. That was their job. In that sense, that’s a lot more tolerant than I suspect most people would have given credit for.

WALKER: Yeah, it’s interesting, his sort of theory of government. I think at the end of the book you write this – he saw it as a kind of job of continuous administration. And he says that he would actually be [more] proud to have administered the government well than to be known for any single achievement.

WELLER: Yeah, it was a really interesting reaction, and not the one I was expecting. It fits – do you know the Oakeshott?

WALKER: Michael Oakeshott.

WELLER: Michael Oakeshott‘s definition of governing?

WALKER: Is this the boundless and bottomless sea?

WELLER: Boundless and bottomless sea. [Quoting from book:] “In political activity . . . men sail a boundless and bottomless sea; there is neither harbour for shelter nor floor for anchorage, neither starting-place nor appointed destination. The enterprise is to keep afloat on an even keel; the sea is both friend and enemy, and the seamanship consists in using the resources of a traditional manner of behaviour in order to make a friend of every hostile occasion.”

And the previous line is, “in government, people are not offered the blank sheet of infinite opportunity,” which is a phrase I love.

That is his image. I mean, I quote it in the book because it really came back to, when I taught first-year politics, that was one of the definitions I gave them, that politics there is not an end point. Politics is about keeping things going.

You’re never going to solve, in inverted commas, poverty. Poverty becomes relative. You’re never going to solve the economic problem. There is this constant attempt under new circumstances to work out what we’re going to do with the economy. You don’t ameliorate, get things off the agenda; they can always blow up again.

It’s not, “I did this, I did that,” he said, because you may have made a complete mess of several other things. It’s the overall picture that he thought was important. And that’s how he governed.

WALKER: Yeah, it also helped me understand how to make sense of his legacy because in policy terms the Fraser government was an underwhelming government. But I guess maybe that wasn’t quite the test that he was holding himself to.

WELLER: Ah, well, he won three elections would be his answer to that. Well, that’d be one of the answers.

And certainly the notions of economic rationalism, if that’s the word: the drys in the party only start emerging in about 1980. So for the first five years, at least part of it was trying to say “we’re a competent, if boring, government”. The line he had, “I want to get politics off the front page,” which he didn’t do, because you can’t. But that level of governing was, I suspect, what he very much saw as his role.

Are these books manuals for power?

WALKER: How do you think your book changed how Fraser saw himself and his job?

WELLER: I have no idea.

WALKER: Do you know if he read it?

WELLER: Oh, I’m sure he’s read it because I think he grumbled once about it. The last time I saw him, he cut me dead.

WALKER: What did he say to you?

WELLER: [huffs disdainfully].

WALKER: Oh, he just ignored you?

WELLER: Oh, he was giving a lecture, I walked up to say hello, he just went [huffs disdainfully].

WALKER: Oh wow. I think he comes off pretty well in the book.

WELLER: No, I think he probably does too. I think it’s a different Fraser from the people that certainly were talking about in 1975. I wasn’t trying to make him come out particularly well.

I always find it quite difficult if you finish the book on someone to then try and talk to them about it. I wrote the other one on John Button, and John’s only had one conversation really with me about it.

John said, “well, you wrote as though I wasn’t paying adequate attention to the management of the department. I didn’t think that was my job.” Okay, I should have picked that up, you know. I should have made the point that he didn’t see it as his job. And now, of course, some ministers do – most ministers don’t.

But having a conversation about “did I get you right?” I suspect that would be quite difficult. I do my best shot at trying to see what happened.

I haven’t had a discussion with Rudd either, by the way.

WALKER: Oh, interesting. So, okay, so for people’s context, the three Caro-esque studies of political leaders in power and the practices by which they governed are the Fraser book.

WELLER: Yep.

WALKER: The John Button book, Dodging Raindrops.

WELLER: Yep. He hated the title.

WALKER: Oh really?

WELLER: And then there’s Kevin Rudd.

WALKER: The Kevin Rudd book.

WELLER: Now there’s a distinction which I’ll give. The Kevin Rudd book was largely written while he was in office.

I was asked if I’d like to write a study of a prime minister in power, in office, and therefore I actually had an office in the Cabinet Suite. Wasn’t allowed to see Cabinet documents, but I could talk to a lot of people in and around the government.

I wrote the book, and on a couple of occasions I was allowed to sit in on his meeting with his advisors. On one occasion I sat in while he had a meeting with international leaders about the GFC. I was out of shot. So it was really interesting being able to see that.

So Rudd was – it was a different one because he was still worried about what was happening now. And I suspect, you know, because he was Prime Minister for much of the time. And therefore acknowledging mistakes was something which Fraser was prepared to do. But Rudd was uncomfortable with the notion I would write it up.

I mean, on one occasion, which is written up there, I was going to sit in while he had a meeting with public servants, about 30 of them, because he was going to a Go8, I think, and he wanted to be briefed. And I sat there with the public servants for an hour and a half while we waited for the Prime Minister to arrive – which was an appalling characteristic of his government. His sense of timing was very different from, say, John Howard, who was always on time for meetings.

And so he was a prime minister of great talent, but a prime minister who upset quite a lot of people on the way through. So have I talked to him about it? No. Do I know what he thinks about it? Well, I know what he quotes from it when he writes his own books. But it’s an interesting process sitting there while it’s happening.

WALKER: To what extent can your studies of political leaders in power be used as manuals by political practitioners, like Machiavelli’s The Prince?

WELLER: I’m not going to start comparing myself to Machiavelli. I think there’s a difference. Machiavelli was consciously trying to use it to teach lessons.

The Prince is how a prince should behave. And even if Cesare Borgia is the person he’s talking about much of the time, it’s not an account of Cesare Borgia’s behaviour at any given time.

These books are not trying to be manuals at all. They are saying this is how this person operated in government.

WALKER: But to what extent could they be picked up …

WELLER: Oh, other people could.

WALKER: And be co-opted as a manual?

WELLER: Oh, people could draw the lessons from it. But that wasn’t my intent.

I mean, a lovely sideline is a thing called Weller’s Law. It started as Weiler, I think, W-E-I-L-E-R. It’s not me, by the way, but it’s one of those interesting comments: nothing is impossible for the person who doesn’t have to do it.

And whenever you look at observers, it’s always so easy to do this, do that, do the other. It’s obvious that you should have done that.

I’m interested in actually asking them what they thought about these sorts of things, why they did or they didn’t do that. Because looking over their shoulder is much more interesting than lecturing them on how they should behave.

And I think if you understand how they see the world – and this is on the book I’m writing on secretaries – you know, what’s your job? How do you deal with difficult circumstances? It’s much more useful to get their view than me telling them what their view should be.

So in that sense, is it a manual? No, it’s not a Machiavelli. It’s an account of how a number of people understood the job, interpreted the job.

I mean, go back to Fraser for a moment. I asked him, when you got into the office, what were the first things you chose to do? He looked at me slightly askance and said, “that’s not like that. There are things you just do.” You know, the job determines what it is. You aren’t going in, I’m going to do this or that or the other. These are the things I have to do because I’m Prime Minister, and the job determines the way that you get to do it.

It would be quite interesting to try and do the manual thing. I noticed in the session you had with Terry Moran and Glyn, Glyn says somebody should interview [recent former prime ministers] about what they thought the job was and how well it went.

And I think that’s what you should do. I think you should go and actually talk to a group of prime ministers and say just those sorts of questions, you know, “what did you learn about being prime minister?” So it becomes a set of exercises on, you know, what worked, what didn’t work, what I thought I was doing, et cetera. That would be a – it would indeed be a really interesting exercise.

WALKER: I’ll have to think about that.

WELLER: I’m not the person to do it. You may be.

WALKER: If I did sit down with a few former prime ministers, what are some questions you think I should ask them?

WELLER: It’s things like, well, how’d you get there? What’s the job? How do you understand the job? Because I think that becomes quite important if they are running it on a day-to-day show or actually thinking they have some sort of vision that the people outside need to understand. I do think they do need some sort of idea about what we’re doing. Strategic plans are overdoing it for governments and circumstances change, but too many of them seem to have survival as the be-all and end-all. “What do you want to do?” Muldoon: “leave it no worse off than when I got there.”

I’m really interested in how they see the job, what they see as the priorities, who they could trust. It’s not a job with many friends.

WALKER: Until your book on Fraser, I don’t think there was another book in any Westminster system country that offered a detailed study of a prime minister in power, as distinct from a biography or an autobiography. There were plenty of biographies, but this isn’t really a biography. It’s a study of Malcolm Fraser as Prime Minister.

WELLER: And of course, that’s the power bit. It’s the Caro bit. How did he use his power? And the way to do it comes out of the Heclo/Wildavsky book, you know, which is to say they make the decisions. Our job is to understand why they make the decisions this way.

WALKER: But since that was published, we’ve got the Kevin Rudd book now, which is another one of yours. Are there any other book-length studies of prime ministers in power?

WELLER: In Australia, not that are consciously worried about how they operated in power.

WALKER: So it’s still just these two?

WELLER: I think it is. The Rudd one was a little more chronological.

WALKER: Yeah.

WELLER: Jack La Nauze wrote a very good book on Deakin. But he’s a historian. And Geoff Bolton‘s done a couple of good books. I think he wrote one on Barton. There’s a book on Scullin by John Robertson. Alan Martin wrote a two-volume study of Menzies.

Now, they were all historians, so they were asking, in a sense, you know, how did it happen and what do we understand about the person. I have this odd combination, perhaps, of being a historian by inclination since the age of about 12, to finding myself in a politics department purely by accident, absolutely by accident, with an interest in those questions about power and process and routine, and how those things shape what people choose to do.

So it’s a different sort of book. I know I noticed at one stage, I think it’s in this [book] actually, somebody says the best five books written on prime ministers was Judith Brett –

WALKER: The Deakin one?

WELLER: No, Judith Brett, I think, on Menzies. Me [on Fraser]. La Nauze [on Deakin]. I forget what the other two – oh yeah, one on Keating: Recollections of a Bleeding Heart.

So most of these weren’t actually books, traditional biographies. I mean, La Nauze was, but the other ones were all approaching it from a different sort of angle. And the idea was to say, how do we understand the prime minister who’s there? How do we understand what it is that drove them and how they managed to succeed.

I quite consciously say, when their front door closes, I’m not interested. And I’m not a psychologist, so I don’t even pretend to understand the psychology of prime ministers. I would make a fool of myself if I did. And I’m not interested in their private life.

So I don’t write a study looking at the agonising of this, that, or the other that may have happened. I suspect both of them were probably – Rudd [and Fraser – would have been quite good examples for somebody with that sort of skill.

WALKER: Which Prime Minister doesn’t have a Pat Weller/Robert Caro style book written about them that you’d love to see one written for?

WELLER: Well, I don’t think you could do better than – or very difficult to do better than – Watson on Keating. It’s so idiosyncratic, but it’s such a vivid picture, even if it infuriated Keating, who thinks that …

Probably recently they’ve come and gone so fast that it’s quite difficult.

Are any of them even worth it? I mean, they come and go so fast at the moment. Fraser was interesting. I’m not sure a couple of the recent ones are. Would I want to spend five years doing it? Probably not.

WALKER: Right, you need a good subject if you’re going to do that.

“A telegram that cost a house in Melbourne”

WALKER: Say we did have 10 or 20 Pat Wellers and we had a book like your book about Fraser for every prime minister in Australian history.

WELLER: That’d be great.

WALKER: Yeah, if we had that, and maybe it’s a little too late now because a lot of people have passed away, but say we did. We’re in that universe where we had all this, we had a Pat Weller–style book for every Australian prime minister in history. What do you think we would learn from the collection of books? So I’m abstracting away from particular things about how each prime minister governed.

WELLER: What are the problems of governing? Weller’s Law: everything is possible for the person who doesn’t have to do it. Our prime ministers are not fools. They don’t lack ambition, they wouldn’t have got there, and many of them are quite bright.

Why is it so difficult? Well, I think I know to some extent why it’s difficult. There’s a pile of material that’s coming in, we don’t know the answers. And governing, I think, is becoming infinitely more difficult, which I’ll quibble with you about on your reform stuff.

WALKER: We’ll come to that.

WELLER: Yeah, I know.

I mean, as I mentioned with Fraser, he had AM, he had PM. You could go on 7:30 Report or Lateline, but that was pretty well it. And you could plan your day around the media reactions. Now you just have to sit in the prime minister’s office to know, boom, boom, boom, boom, it’s happening much of the time about “what are we doing about this, what are we doing about that”. The speed at which it’s happening, the deepfake stuff, “which of these stories are even true?” It’s not the first time that people told lies about people, but it circulates at an exponentially fast speed and it’s getting faster.

So I would really like to know about how they see those sorts of changes. Now, I’m accused by some of my academic colleagues of assuming that it was always like this. And they say, “but now politics has become much faster”, etc. “And prime ministers are much less – much more demanding.” I don’t think human nature has changed. I don’t think the politicians have changed. I don’t think suddenly the current group are greedier for power than many of the people 100, 120, 130 years ago.

I think that if you really want to take it back and look at Walpole in Britain, and there’s a great book which I bought when I was an undergraduate and should have read but didn’t for a long time called The Structure of Politics by Lewis Namier, and it’s about the nitty-gritty about how people maintain their numbers by organising candidates, by persuading the opposition to go away, by giving money, by a whole range of things that they did in order to keep a majority, not by party but by a process of political manipulation. We now do it through parties. Okay, it’s different. I don’t think the humans are different.

I don’t think that you can say that prime ministers now are greedier for power than Billy Hughes, who’s always the one I use. I mean, Billy Hughes was outrageous in the way that he behaved. Oh, Fitzhardinge’s book on Hughes [That Fiery Particle] is quite good too. That’s a long way back. I mean, Hughes used to make decisions and announce them. He used to undermine anyone and everybody.

The deputy prime minister then was a bloke called W.A. Watt, who was a Victorian premier, also happens to be my wife’s great uncle. And when Hughes was overseas during the First World War…

WALKER: Yeah, sorry, just on that. I don’t know if many people know this, but Hughes governed Australia from Britain for about 16 months.

WELLER: Yes, that’s what I’m about to say. And he was insisting that he see every cabinet decision, and I worked out the price. By the time you’ve got a decision, you’ve coded it, you’ve sent it to him, you’ve decoded it, he replies – the cost of each of those was about the price of a small house in Melbourne.

WALKER: So they must have been spending millions of dollars on telegrams.

WELLER: Yes. And an awful amount of time. Yeah, he governed for 15 months and he didn’t want them to make any decisions. And then when Watt went overseas as treasurer …

WALKER: And so just for people’s context, it’s towards the end of the First World War, 1918, 1919, and that’s why he’s in Britain.

WELLER: He’s in Britain because he’s got Versailles.

WALKER: Right. And maybe he originally goes via maybe Canada, then America and to Britain, then Versailles.

WELLER: Outrageous behaviour. And then Watt, as deputy prime minister and treasurer, wants to be asked about his own portfolio, and Hughes said, “why?” So Watt resigns because Hughes wanted to be treated one way, and he treated other people with complete disdain. I mean, eventually he lost government because of it. Lost the position because of it. I mean, he was a horrible little man.

So the notion that somehow modern politicians are greedier, more cynical than people like Hughes, I think, is a nonsense. So what we need to understand is how systems have changed and how technology’s changed, and how the role of government has changed. They’re doing things in government now they wouldn’t have dreamt of doing 100 years ago. A lot of the things now being done, they’re getting involved in with state problems that are not theirs.

So I think what you need to do is actually say to prime ministers: what’s different? I mean, Menzies went to Britain by boat. It took three, four weeks – he was out of touch.

WALKER: What would you have been doing on those voyages? That seems like such a luxury for a modern politician.

WELLER: Yes, of course. He was going from London to New York. When the Korean War broke out.

WALKER: Yeah, but how do you think he would use his time? Would he be reading?

WELLER: I haven’t got a clue. I’ve got pictures of him walking around the deck with the secretary of the department.

But the deputy prime minister, Artie Fadden, was asked by the British, “are you going to be there in Korea?” And he couldn’t contact Menzies, so he had to make the decision, and he was dead scared. So Menzies arrived in New York…

WALKER: Why was he scared?

WELLER: Because he had announced that Australia would support the UN in the Korean War without asking the prime minister, because he couldn’t contact the prime minister because he was on the boat. So they get there and Menzies says, yeah, okay. But there was this time in which Fadden couldn’t contact him.

Now, you’re never out of contact now. I mean, in Fraser’s time, you we’re okay when you were flying somewhere.

WALKER: Yeah. The irony is that it would be much easier to govern Australia from Britain today because of modern telecommunications.

WELLER: Yes. My view, when you talk about the role of prime ministers, is not that they’ve become different in what they’re trying to do. I mean, Terry Moran said, “why would you try and do it if you’re flying?” And his answer was, “because you can”. You know, why would a prime minister want to give orders? Because he could.

You don’t become prime minister unless you want to exercise your authority. No one’s become prime minister by mistake. So yes, politics has dramatically changed, but the people running it haven’t.

[Another thing that’s changed:] You need a public service which has that capacity to understand what’s happening so that it can have the basis for answering ministerial requests.

Now the public service in the days of Hughes was very limited. But they had much less to do. The biggest change for government was, well, one is war. But the other is Keynes – the White Paper on Employment. So suddenly government has a macroeconomic responsibility from 1945 onwards, which means it’s interested in everything.

And then you start interpreting the Constitution to allow it to give grants on such terms and conditions as Section 96 sees fit. So these are all circumstances which have changed the role of the Prime Minister.

WALKER: Are there any interesting or instructive historical examples of how new technologies have changed practices of government? So for example, I mean, I’ve been reading this book recently, it’s called Under the Wire. It’s about how the telegraph changed diplomacy, centralised foreign ministries, sped up international crises.

WELLER: Well, the whole telecommunication thing has changed how government works. I mean, because you can get a – I mean, they say you get on a plane, you use the time flying to Britain or something as an opportunity to work because you’re on the phone with everyone, whereas you used not to be.

WALKER: Feels like there’s less thinking time. If we go back to Menzies, Menzies’ kind of three-week voyages, I imagine those would have been quite productive because ideas are kind of gestating. He might have moments of insight.

WELLER: As I said, he was walking around the deck with the secretary of his department. So, you know, “What are we talking about, Alan?” Yeah. I think pace is the thing. I mean, people can react within moments and do, and feel they have to. So the way in which government works strikes me as being much more rushed.

WALKER: Do you think prime ministers need more time to just be able to think uninterrupted?

WELLER: Well, that depends if they have a sensible capacity to think.

WALKER: There’s this Amos Tversky quote, which is, “People waste years by not being able to waste hours.”

WELLER: Yeah. Yes, they need time to think. Yes, they need time to talk it over. Do they have it? Not necessarily.

But the other interesting thing, and here’s another contrast talking about Glyn [Davis] and the difference between governments.

When Glyn was secretary of the Cabinet Office [in Queensland], he would see the premier morning and evening and probably four or five times between. They were each end of a corridor.

He sees the prime minister in cabinet possibly one meeting for briefing cabinet and hardly any more. So much of the instructions come – this is universal – come through the chief of staff.

So it’s a different sort of relationship which exists at the different levels of government, and that’s not getting any easier.

I mean, when the ministers first came to Canberra, they worked out of Parliament, because many of their departments were in Melbourne, and they didn’t have them. Now they’ve all got offices, if they want, in Canberra. They never use them – they work out of Parliament.

That’s now the difference between Britain and Australia: in Britain the secretary of the department [and] the minister have basically adjacent offices. Here, they are 50 miles apart. And that changes the way that it operates as well.

Why Pat came to Australia

WALKER: So a brief biographical interlude. Obviously we’re very grateful that you brought yourself to Australia, but I’m curious why you chose Australia. So you’re a young man, an Oxford graduate, you’ve got the world at your feet. Why you chose to come to Australia, and then why you stayed, and then why you have made Australia the focus of your academic work.

WELLER: Load of accidents. Why Australia? Well, it only cost 10 quid. I could see if I stayed in England exactly what my future would look like.

WALKER: Which was?

WELLER: I would end up teaching at a private school for the next 40 years, and I would be bored stiff after the first 10 of them. It didn’t appeal to me.

So where do I go? Well, I thought Australia looked possibly interesting. I wrote to Australia, I wrote to New Zealand. New Zealand said no thanks, and Australia said yes.

So I come to Australia with $100 and a few addresses from girls I’d met in Kangaroo Valley, which is, by the way, the 1960s name for Earl’s Court because it was full of Australians going home for a period of time. One of them – her mother’s house in Double Bay. So I went and stayed there for a bit.

The ultimate irony: I met her sister whose name was Ross, who had a daughter called Gretel and her husband called Kerry.

WALKER: The Packers.

WELLER: The Packers, yeah. So I literally had a few contacts, not a lot of money, and just went for the hell of it. And I was there for two years, which was what you were required to do if you didn’t want to pay your fare back.

I applied for a teaching job. And when I was there, it was a pretty awful place.

I applied for a lectureship in history at the University of Tasmania. Now, it was utterly outrageous. I was not qualified for the job, but I didn’t know much about it.

I got a letter back quite reasonably saying that it has been given to Dr. So-and-so. Then said, and the professor was wondering if you’d be interested in a tutorship. So I said, sure.

We meet at Sydney University, go to the pub, and he says at the end of it, “Anything you want to know?” I said, “Yeah, how did I do?” He said, “The job’s yours if you want it.” This is not something you would do now.

So I went to Tasmania. And he told me, “Well, you better start doing some research,” gave me this book on parties. “Why don’t you do Tasmania in the second half of the 19th century?” So I started on that.

After a year, he came back and said, he went on leave, “Do you want to be an academic?” I said, “Yes.” “Well, go to the ANU and do a PhD.”

And in a way, when I’ve been visiting people, the two authors of that, Alan Martin’s a historian, Peter Loveday‘s a political scientist, when I went to see them, Alan was busy, so Peter did all sorts of things about how it did. So I rang him and said, “If I come, will you supervise me?” So I ended up in the politics department.

I have never done a politics course in my life, apart from the PhD. And it took off from there.

I did half a dozen books with different people, ended up at Griffith and they gave me a chair.

WALKER: So a series of happy accidents.

WELLER: Life is a complete series of accidents. I mean, if you had asked me when I was graduating from university that, one, I would teach at a university and, two, I’ll spend 40 years as a professor somewhere, just thought that that was in Australia, I would have laughed.

WALKER: Yeah, and you’ll be sitting doing this thing called a podcast with this Australian guy talking about your books about Australian prime ministers.

WELLER: I go back to England tomorrow, probably for the last time. I’m very glad I didn’t stay there, so I’m perfectly happy that I came here.

So was it planned? No. Would I ever have told you where I ended up? No.

I remember saying at one stage I never want to be in a research job, I want to be in a teaching job, and the one place I’d never live is in Queensland… Joh Bjelke-Petersen. All of which have now disappeared.

So I hope I’ve done reasonably well at what I do. I keep doing it because I’m not very good at anything else.

WALKER: Well, we’ve got your monuments sitting all around us on the table.

WELLER: We’ve got the monuments and a couple more to come.

Why Australia’s cabinets are more collective than Britain’s

WALKER: I want to ask about Australia versus other Westminster systems. So it seems that Australian cabinets place a greater emphasis on collective decision-making than their counterparts in the United Kingdom or Canada.

WELLER: Certainly than the United Kingdom. Canada has a larger cabinet and much more consciously representative functions. That’s to say that you’re too much greater – it doesn’t matter that much in Australia which state you come from.

I mean, it may when you get it in order to get into the cabinet on some occasions, and when Labour Party starts dividing it up on number of New South Wales right that you could have, and Ed Husic ends up on the backbench, and so does Dreyfus, neither of which deserved it…

But Canada is even more representative of factions and areas of places, and because it tends not to have an inner cabinet, then much more has to be done by the ad hoc committees who’ve organised around the Prime Minister and the senior ministers. So in that sense it’s different.

Britain has always been more prime ministerial.

WALKER: So what are the historical or cultural explanations for the difference between us and Britain in that regard? Why did we diverge from the more prime ministerial style?

WELLER: Because from the very beginning, prime ministers were elected by the party.

WALKER: Oh, I see.

WELLER: So that you could actually go back – this is all part of my PhD thesis, you see. You can actually go back to the 1890s when the parties that they had often elected their leaders. And the notion that they can elect also means you can fire.

It didn’t happen much in the first 50 years, but after the Gorton case, it has always been understood that opposition leaders or ministers can challenge the leadership for the party and if you’re challenging a prime minister and you take over, you become prime minister.

So prime ministers have to be, I suspect, rather more cautious – in a way that Starmer is now finding out – cautious about maintaining support within the cabinet.

I mean, Thatcher eventually lost office because they had started introducing a system in Britain. Up until the 1960s, the British Prime Minister, as you would probably know, “emerged”. There was never a vote. Somebody took soundings to find out who had the most support.

WALKER: I actually didn’t know that. That’s interesting.

WELLER: So when Butler and Macmillan are being considered after Eden gets sick and Salisbury took soundings of the Conservative Party, probably in and out of Parliament, and say that it’s going to be Bobbity, it’s going to be Macmillan.

And it was so distasteful that they in the ‘60s introduced a system for electing them. They didn’t introduce a system for removing them. So in fact, it’s been really difficult to get rid of [a prime minister].

Now, in Australia, Menzies stands down in 1940 because it’s obvious he’s lost the support of the party. They didn’t actually get around to sacking anyone, I think, until much later. But from a very early stage, they’ve been much more democratic about the way that parties even meet.

I mean, your caucus met for the first time in 1901. Regardless of the time, it continued to meet, and occasionally the people were a bit ingenuous about what was happening. But it always understood that it elected the party leader.

In Britain, there isn’t such a thing as a party meeting, and if it is, it’s got 300 people in it and you can’t manage it. So the backbench committee in the Conservative is the 22 Committee, in which the backbenchers will meet and express their opinions, but they never actually meet the Prime Minister and the cabinet.

Whereas in our case, the cabinet and the Prime Minister, when Parliament’s sitting, meet weekly with the party, and the party can express its opinions, and the party expects to be listened to, to some extent. So the dynamic is very different.

Canada’s like Britain. I mean, Canada has had a number of occasions where the Prime Minister’s standing in the polls is under 20%. Now, that wouldn’t happen here. If you have a prime minister that’s got 20% standing, he would have been gone.

Whereas Mulroney, for instance, was on 19% when finally he was persuaded that he couldn’t win the next election, so he stood down. And, oh, what’s her name [Kim Campbell]? I can’t remember. The Canadian prime minister took over for three months before she lost the election. So that carries on to cabinet, to some extent.

WALKER: That’s interesting. That makes total sense. So then I wonder whether Rudd’s changes to how the Labor leadership is chosen in 2013 will result in less collective decision-making for Labor governments.

WELLER: No. Oh, Labor’s always been collective, in the sense that of course the other issue is that the Prime Minister doesn’t pick the ministers.

WALKER: Yes, true.

WELLER: So that...

WALKER: Breaks those patronage links.

WELLER: So Chifley had to have Eddie Ward and Arthur Calwell in his cabinet, and he couldn’t sack them. Then you have all sorts of ways about how you have to try and organise the way the cabinet works.

The Conservatives are not quite the same, but all the ministers are expected to turn up to cabinet meeting – to party meetings. And so you have your weekly party meetings. Why ministers are so relieved when Parliament doesn’t sit – I mean, Parliament in Australia sits for about one-third the time of the British or Canadian parliaments.

We lost about 60 days a year. But in Britain and Canada, I think it’s closer to 160. Massive difference.

WALKER: That’s interesting.

WELLER: Massive difference. So why don’t they sit? Because they don’t like it. They must prefer to be somewhere else.

WALKER: What do you think is the better system?

WELLER: I think they’re different. I mean, the consequence is that the Parliament meets much more regularly in Britain. Question Time is different, because in Australia all ministers can be asked questions at any session. In Britain they have set days.

You have one day a week which is Prime Ministerial Question Time. Here the Prime Minister has to turn up every day and invariably gets a fair chunk of the questions. Canada is closer to Australia, I think, in that case.

The committees are much more powerful in Britain.

I call them cousins. They’ve got the same heritage, but they’re now quite different in the way that they operate.

And the other thing is that there is comparatively little discipline in Britain. So that’s – what’s his name, leader of the Labour Party?

WALKER: Keir Starmer?

WELLER: Sorry, no, the previous one.

WALKER: Jeremy Corbyn.

WELLER: Yeah, Jeremy Corbyn voted against his government about 300 times. You’d be lucky to get away with it once in Australia. So there’s – I mean, partly numbers are much bigger. You’ve got 700 members, so on the whole majorities tend to be much bigger, so single people don’t matter.

But the notion for a long time that you could vote against your party without any consequences – I mean, the Callaghan government lost a large number of votes in Parliament. They just announced they weren’t votes of confidence, and until you announced one was, you didn’t care much. So there’s a different notion of discipline which comes.

But the argument always at caucus was everyone turns up to caucus, everyone has a voice, and the party is bound by what the majority in caucus decide. Now, the ministry doesn’t often lose, but you’ve still got to get to that stage, you’ve got to get caucus there. In Britain, you don’t. I mean, the whips blackmail people, they have all sorts of information, but the capacity to oppose is much greater.

So that changed the dynamic, I think. And it’s said of Britain, there are two ways of becoming a minister. One is to crawl up on your knees and kowtow to the prime minister, and the other is to scream from the ramparts in opposition. But they said, for God’s sake, don’t muddle the two, because occasionally a really outspoken opposition person is much better in cabinet. Shut him up.

“Our politics has always been rabid”

WALKER: I want to ask you some questions now about why the Reform Era ended in Australia. So if we take Ross Garnaut’s definition of the reform era as being from 1983 to 2000, starting with the floating of the dollar, ending with the introduction of the GST.

There’s this interesting question as to why it ended, why we didn’t keep up the pace of massive reforms. And I’ve been writing an essay on this which I shared with you yesterday I’m just curious to hear whether you think I got anything wrong or if there’s some bigger picture that I missed.

WELLER: Well, I think there’s a bigger …

WALKER: Yeah, so tell me what the bigger picture is.

WELLER: Our politics has always been rabid. I mean, Victorian 1970s, the mace goes missing and everyone knows it’s sitting in a brothel somewhere in Melbourne. Billy Hughes talks about Deakin being like a child in a lolly shop being dragged out, just kicking and screaming. The rhetoric on the conscription campaign was vicious. Vicious. The 1930s, when you had the Great Depression, what the opposition did then to prevent things happening, to have any attempt to solve problems with what turned out to be Keynesian solutions were illogical.

The split in 1955 in Victoria, there was more hatred in that than there has been for anything. I mean, our politics now are no worse than they were. I mean, I always argue Australian similes are military. In Britain, they are slightly different, more strategic perhaps. But the language in Australia is rugged.

It doesn’t matter if you’re hit over the head with an axe or stabbed in the back with a stiletto, as you are in Britain, you’re still dead. But I’m not sure it’s worse now than it has been.

WALKER: Yeah, that’s interesting.

WELLER: But this is my comment about human nature, you see, hasn’t changed. It’s the methods they’ve used.

WALKER: Yeah, yeah. I’m conscious I’m going to jump around a bit here, but that’s because I’ve got a few different questions that you’ve raised for me. So one is, how well run were the – if you know this – how well run were the Deakin and Fisher cabinets?

WELLER: Well, if you reduce the amount that they had to do – the current cabinet has to do – by about 70%, probably quite well run. Because you’ve got six or seven people. You’ve got a very small number of people dealing with a much, much narrower range of topics than you have now.

WALKER: Is that merely a function of the Commonwealth having fewer powers, or –

WELLER: You see, the Commonwealth starts –

WALKER: Well, sorry, I mean, they’ve always had the same amount of… Well, we added a few through referenda, but the High Court gave them increasingly expansive interpretations.WELLER: Oh yes, and they increasingly started using s. 96, and then they have agreements on the Grants Commission coming up in 1928-29.

So to start with, they have three-quarters or two-thirds or something as Customs and Excises. So from the very beginning, they’re looking at ways of expanding their excises.

But on the whole, you have to remember, this is a small group of middle-aged white males. That helps. And you’ve got seven or eight ministers maximum. And in the first one, three or four of them had been state premiers, which probably didn’t help much. But I mean, Forrest and Barton and Deakin and – Deakin hadn’t been state premier – but Kingston. I think Forrest and Kingston, two of them hated each other, so it wasn’t that easy. As it went on.

But it’s a much smaller job with a much smaller number of people. So yeah, they probably look comparatively well run.

WALKER: I see. Because it strikes me that the one thing those reform eras [in my essay] share in common is very well-run cabinets.

WELLER: Yeah, but now it’s a different operation. And of course at the time you didn’t have a Prime Minister’s Department.

WALKER: The Chifley and Curtin cabinets were well run.

WELLER: Reasonably, if you allow Eddie Ward to shoot off his mouth on regular occasions. Chifley in particular was quite good at dealing with Eddie Ward. He was a complete roller coaster – wrong word, but still.

But again, smaller; 15 people.

WALKER: Yeah, yeah. So the job of Prime Minister sounds a lot easier 100 years ago than it would be today.

WELLER: Yeah, but you haven’t got any of the support you had now, and you haven’t got any of the technology you had now. You’re writing letters, you’re reading letters – but of course you were dealing with less things.

I’m not sure if any of our prime ministers kept a private practice going or anything.

WALKER: Was that a thing in Britain?

WELLER: Oh, not prime ministers, no, but certainly MPs did.

WALKER: Yeah, yeah. Do you think the quality of Australian political leaders has been declining over the last several decades?

WELLER: I don’t reckon it’s been declining.

WALKER: Are there any trends?

WELLER: Oh yeah, I mean, but there are trends of which one would expect. I wrote a piece in 1986 which was titled ‘Politics As First Career’, because up until that time, often people went and made a career for themselves, and they went into politics at the age of 40.

Now, of course, we have far more who are going through ministerial staff positions and are getting into politics 10, 15 years younger, but they’re nearly all – they are almost all graduates. That may or may not be a good thing. So we’re getting them better qualified to think about things. We don’t get the Keatings.

WALKER: But are there trends in the quality – if you could somehow create an index of political leadership quality, does that line just look flat from…

WELLER: No, because Lyons was a dullard, Scullin was a failure, Fadden was pretty second-rate, Holt was pedestrian, Gorton was entertaining, McMahon was awful.

I can’t see how you – you can’t do it on qualifications because of course 100 years ago 5% of the people went to university, now we’re at 40–45%.

We didn’t have people with the ministerial staff experience because you didn’t have any ministerial staff. Which is a post-Whitlam exercise. So, we’re getting different groups. I mean, we’re certainly now getting a much greater trend of people who cut their teeth in student politics, but then go on to staff jobs, which means they have a whole range of experience about politics, which may be good or bad.

And then the circumstances they find themselves in – I mean, it’s easy to shine under some prime ministers and not under others. I’m avoiding the question because I don’t know how to answer it.

WALKER: That might mean it’s a bad question, but that’s information.

WELLER: That’s all right.

WALKER: But I learn either way. Last question: If you could summarise the course of your academic career as a journey to ask a single question, what would that question be? And then how has the answer to that question changed over time?

WELLER: Why do actors make the choices they do? That leaves me a whole range of actors I can talk about. But it is, of course, ministers, prime ministers, public servants, departmental secretaries, and when I was writing about [international organisations], in the same sort of ways, about director generals and people there.

Because I think that it’s too easy to be the glib sort of Weller Law: you know, everything’s possible if you don’t have to do it. I want to know what’s possible, what they think is possible. It may be that sometimes they are narrower than they need be and sometimes they’re not, but I can’t tell that without understanding what they’re doing.

So all these things basically – perhaps not those two, well, that one anyway – are about trying to understand, look over their shoulder and understand the job that they do. On the grounds that when we understand that, we can actually sensibly talk about what we can do about it.

Too often people write a piece about “government should do this” – it just turns out they’ve written a thesis which said that, and they’re now trying to sell their ideas to government. Or there are three rules for governments, or you know, every time you open a copy of Mandarin, it’s that somebody’s writing about the three rules which will solve the problems.

There are no silver bullets. It’s a matter of judgment and skill and knowledge. If I can get them thinking about how we’re doing it, then I’ll have achieved a reasonable purpose. But I have no ideas – I mean, it’s a modest ambition, I hope, but then I think academics have an awful lot to be modest about.

WALKER: That’s a funny and suitably humble note to finish on. Thanks for being so generous with your time, and thank you for all of your incredible work.

WELLER: It’s a pleasure.

I caught up with Dani to chat about how she’s making sense of AI and its implications for policy. We discuss:

• whether AI will be more like the internet or the Industrial Revolution,

• where in the AI stack the profits will ultimately flow (and why it might not be the model layer),

• why diffusion is the “main game” for Australian policymakers,

• whether there’s a case for government support of data centres,

• why the AI jobpocalypse story is too crude (and why humans may still have jobs even under transformative AI),

• whether AI will turn out to be a normal or abnormal technology, or both,

• and why in either case Australia shouldn’t follow the EU in legislating an AI Act.

Watch:

• YouTube

Listen:

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• Spotify

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Transcript

JOSEPH WALKER: Today I’m speaking with Danielle Wood, who is the current chair of Australia’s Productivity Commission.

Dani, welcome to the podcast.

DANIELLE WOOD: Thank you for having me, Joe.

WALKER: So just as quick context, how would you describe the Productivity Commission to people listening in from the UK or US? Because, internationally speaking, it’s a unique institution.

WOOD: Yeah, we are pretty unique. I describe us as the government’s think tank. So really our job is to make sure that government has high-quality, evidence-backed information in front of it. And we span obviously economic policy and productivity, but also social policy and environmental policy.

But we look a little bit different in the sense that we’re also designed to be independent. So we sometimes have to tell government hard truths or challenge them in terms of where they’re at on policy, and our independence from government allows us to do that.

WALKER: I remember reading a story about how Gary Banks, who was the first chair of the Productivity Commission, discovered that in a gambling reform debate in the US, people were citing evidence from the Australian Productivity Commission because all of the evidence in the US was paid for by different lobby groups or vested interests. So people just didn’t know who to trust, so they ended up citing evidence from the Australian Productivity Commission.

WOOD: I love that. I mean, that really goes to [the fact that] our job is to bring that national interest lens. And there are just so many policy debates which are like gambling where you have these really active vested interests. But our job is to pull together all the arguments, all the evidence, do that broad consultation and then give government our best version of what’s in the national interest.

Is AI as big as the Industrial Revolution?

WALKER: So today we’re going to chat about AI, and this is not going to be an exhaustive chat about the economics of AI. We’re just going to poke around a few different topic areas that I find interesting at the moment. But generally, I’m very excited to learn how you’re making sense of this unfolding technology, even just in very broad, gestalt ways.

So first question: I was catching up with a friend on the weekend and we were talking about how big of a deal AI is going to be. And when I use subjective probabilities I’m always being semi-ironic – but I said I give AI a 90 to 95% probability of being at least as big as the internet, and maybe a 20 to 40% probability of being at least as big as the Industrial Revolution – by which I mean that it could lead to a regime shift in the underlying total factor productivity growth rate. So I don’t know, maybe the growth rate moves to 3 to 5 times the historical average in the same way that through the Industrial Revolution it went from nearly 0% to modern rates of about 1% or above.

So, 90 to 95% probability of being at least as big as the internet; 20 to 40% probability of being at least as big as the Industrial Revolution. How do those probabilities sit with you?

WOOD: Look, I think that is the right way to think about the plausible set of outcomes. I mean, we think it will have a meaningful impact on productivity. It’s general-purpose technology like the previous waves. The internet was one, ICT more generally, electricity, steam – all of those things have through history fundamentally transformed the economy and touched different sectors.

The conservative view, which is probably your internet parallel, is, “hey, there’s just a whole lot of different tasks that it can do more efficiently.” And we did this exercise for some work we did for the government last year on productivity that said, okay, well, “let’s look at the evidence on these sort of task-specific efficiencies. Let’s look at, you know, the number of tasks across the economy that might be affected.” And you get a , “well, it could improve labour productivity by about 4% over a decade.” So that’s pretty meaningful. It would actually be almost a doubling of where we’ve been over the past decade, albeit from quite a low base.

The Industrial Revolution parallel, your 3 to 5 times total factor productivity, is a more fundamental change than that. And I think you start to get that sort of scale of impact in a world where AI actually changes the innovation process itself. So we know that over time it’s innovation that drives total factor productivity. If it makes us better at doing innovation, if it starts to speed up the rate at which we find new goods or new ways of doing things or ways of solving social problems, then you’re in that extraordinary world that you’re talking about. And I think that there is a real chance. I’m not good at putting probabilities on things, so I don’t know if I’ll be as specific as you have been, but I think that is a world that we could be in with this technology.

WALKER: I think that’s the crux, right, between the optimistic and then super optimistic case. It’s whether AI can automate R&D itself.

WOOD: Yep.

WALKER: So 4% labour productivity growth over the next decade, is that the upper bound or the base case?

WOOD: No, I mean, I think we said that’s a conservative case. So it’s using a pretty standard methodology. It’s sort of taking conservative end of estimates on task-specific efficiencies. So I think that is very achievable.

WALKER: So that’s 0.4% per year on average?

WOOD: Yeah, that’s right.

WALKER: As an increase to [the baseline].

WOOD: Yeah, and that’s about what we’ve been growing at on average over the past decade.

WALKER: Hence it’s roughly doubling what we’ve done in the last decade.

WOOD: Yep.

WALKER: And is there a more optimistic scenario there?

WOOD: We didn’t model one. But there’s certainly people around that have come up with closer to the sort of 3 to 5 times TFP estimates that you’re talking about. But that does, as I say, rely on much more impactful AI in terms of changing innovation processes.

The labour market implications of AI

WALKER: Let’s talk about the labour market implications of AI. So until about a month ago, Dario Amodei had been going on TV saying that AI is going to eliminate up to 50% of all entry-level white-collar jobs. And over the last 2 to 3 years, I’ve been talking to a lot of my technologist friends, some working in AI labs, and there was always this view that AI is going to bring about this very sudden jobpocalypse.

And I always had this – well, not always – but increasingly had this sense that the economics were going to be much more subtle than that, and my technologist friends would have benefited from talking to my economist friends – and vice versa. But I think that has, has increasingly happened over the last year or two.

But what are some frameworks that you like at the moment for thinking about AI’s impact on jobs?

WOOD: Great question, and I think you’re exactly right. I think the technologists are at the cutting edge, they’re living and breathing it, they may be seeing it play out in a very small set of networks where technology adoption is much faster and looks pretty different to the rest of the economy, let alone… as we start to talk about shifting preferences and things, as we will in a moment.

But the earliest framework that’s been around for thinking about this and the earliest modelling on jobs effects was really around what happens to particular tasks. And so Jobs and Skills Australia has done this exercise for Australia which basically divides every job into tasks and says, okay, which tasks are the ones that are most likely to be automated by AI? And then they say, well, what’s the bundle for particular jobs? How at risk is a particular job given that set of tasks?

So what they found when they did that exercise was they said about 4% of jobs in Australia were highly at risk of automation – i.e., most tasks can probably be done by AI. So things like data entry, you can imagine those jobs probably disappear. And from a policy perspective, we have to work to look after those workers and transition them.

You then have a bigger set of jobs, which was about 31% in the Jobs and Skills Australia estimates, which are likely to be augmented. Some of the tasks can be done by AI, some are human. And there, really the challenge is how do you upskill people to be working with the AI?

So that’s the sort of first-cut framework people used.

There has been now a lot more thinking about what I would call second-round effects and more sophisticated models. So one is really that it sort of depends on the number of tasks and how tightly those tasks are bundled together. So there’s a new book coming out called Messy Jobs, which is really this idea: if you’ve got a lot of different tasks and they’re quite different, that’s going to be harder to replace with AI. And the tight bundling is really about: are there some of those tasks that are still very much human tasks, and they can’t be separated even from the ones that can be done by AI?

The example that’s sometimes used here is the radiologist. AI can do the scan reading as well as, probably better than, a radiologist. So everyone said, okay, well, these guys are not going to exist in 5 years. But what we’ve seen actually, at least in the US, is the numbers have gone up. And the idea is that the tasks are tightly bundled. It’s the communication with patients. It’s the accountability. If something goes wrong, I need to have somebody who takes responsibility for getting the answer wrong, including through the legal system. And so we still need that person. And so they still end up having that same span of control. So that’s tightly bundled.

The second point is around how do these things actually play out in markets? So if we imagine that we’ve got a lot of augmentation going on, things are getting more efficient to produce, those services become cheaper, how do consumers respond to that? And in some sectors, if you’ve got high elasticity of demand, we’re actually going to consume more of that product. And whatever labour is left will be in higher demand. So it’s not always clear-cut that just because some parts of the job are replaced by AI, that labour demand will fall. So you’ve got that consumer response that you need to build in, and that’s going to look really different across different sectors.

And then another way of thinking about it, which I think is really fascinating, a little bit more speculative, is through the lens of: how might this start to shift preferences in the longer term? And so in a world where we have abundance of a lot of things, we can read all of the AI-generated books for zero cost, we can access any music in the world for nothing. This is all being generated by AI at basically zero cost. Might we start to value the human element and things produced by humans more? So this is a fantastic, really interesting academic – I’m not sure how to pronounce his name: is it Alex Imas?

WALKER: Yeah, I think that’s right.

WOOD: He’s written about what we might see is the growth of the relational sector. So things that are uniquely human, which is everything from care to creative outputs, to craft, artisan bread, whatever it is, things with that human touch might actually be more in demand and more valuable, which in turn supports labour market outcomes in those sectors. So it absolutely is more nuanced, I think, than those tech doomsday scenarios, but much more interesting, much more exciting. But of course, lots of implications for policy in all of that.

WALKER: Absolutely. So interesting. Okay, let me pick up on a few different threads. First one is the bundling, which I think is interesting. And you mentioned radiologists, which is a canonical example. Another good example is: I think even a few years ago, GPT-4 was scoring in the top 10% of takers of the bar exam. But being a lawyer is more than just repeatedly taking the bar exam, and there’s this very tight bundle of different parts of the job.

And actually, I think if one or a few of those tasks in the bundle can be automated, it makes the worker more productive, and so it should actually increase wages.

WOOD: Yep.

WALKER: So another interesting implication of that is obviously employers have an incentive to automate jobs for which there’s just one task left in the bundle to automate, because then they’re going to immediately reap all of the cost savings of that. So it seems like for a lot of roles for which their tasks are being automated, the wages go up and up and up until the last moment where the role then just gets fully automated. So there’s this “everything’s looking rosy, and then displacement” dynamic. Does that make sense? And then how should policymakers be thinking about that?

WOOD: Look, I think it does make sense for some roles, but not all. And I think there’s still going to be a whole lot of roles for which that judgment, accountability, piece just cannot be automated. Until we have a totally different set of institutional settings around accountability… And that’s a long way—

WALKER: We’re still going to need someone to blame.

WOOD: Yeah, indeed, indeed. And I think we still, for trust, are going to want humans in the loop in a whole lot of areas. But there probably is a subset of roles for [which] that pattern that you’ve just suggested might hold true. Truck drivers is another one of the examples where people have been saying for a long time, “these jobs will go”. Well, yes, the machine can drive the truck. Increasingly as robotics improve, maybe AI plus robots can load and unload the truck. Looking after the truck, the safety thing, making sure that the truck doesn’t get stolen, the load doesn’t get stolen – those are things which people have found quite hard to replace. But maybe, if that’s all that the human is doing that’s left, maybe it is worth the investment in trying to find alternative ways to do that. And you get more of the scenario that you’re talking about that tips over into being fully automated.

So I suspect there may be certain roles and professions where that happens, and it just means you hit a tipping point, and then you lose those roles. And so policymakers, of course, as always when there are these sort of structural shifts, have to think about how do you create opportunities for those people elsewhere. But I don’t think that will be a across-the-board phenomenon.

WALKER: Yeah, the truck drivers and warehousing personnel examples are interesting because they’re towards the lower end of the skills distribution, which is a narrative violation given so much of the talk is about knowledge workers being displaced. It’s interesting – I guess this is more of a comment than a question – but about a month ago I recorded an interview with Greg Clark, the economic historian. I’ll put it out in a month or so. But one of the surprising insights from his book on the Industrial Revolution, A Farewell to Alms, is that the biggest beneficiaries of the Industrial Revolution were unskilled workers. Their wages rose relative to skilled workers.

I think the three reasons he gave for that were, firstly, a lot of kinds of unskilled work involve dexterity, which we haven’t mechanised yet. Secondly, a lot of them require social intelligence, which again, very hard to mechanise. And then thirdly, the demographic transition began a bit before the Industrial Revolution, and that curtailed labour supply.

But yeah, again, just counterintuitive: the unskilled were the biggest beneficiaries in terms of the relative rises of their wages. But now this transition seems that it might be different to that potentially.

WOOD: I think that’s really interesting because it’s sort of the opposite of the narrative that I have heard, that over time we think a lot of technologies have been skills-biased in the sense that they’ve displaced the lower paid, less skilled workers and created the job opportunities for higher skilled workers. So that’s a really interesting counter-narrative.

I think most of the narratives I’ve heard on AI is it’s not clearly skills based. It’s more about the nature of the work. So if you’re doing something that is repetitive, if it’s, as I said, rather than a big bundle of tasks, it’s sort of one task – so this is the computer coders example – much easier to replace. And you can imagine some of those jobs are at the sort of lower income, lower education end of the spectrum; some are, like the coders, very well paid, highly skilled work that could be replaced. So I think we’re expecting less of that skills bias.

I think the bias that people are more worried about is what I call the seniority bias, which is the point that you raised before. If the skills that are not easy to replace are around judgment and expertise and accountability, how are we going to train new people coming into a profession or an area where historically the way they have built those skills up is doing the grunt work, and that grunt work is the work that is easily picked up and replaced by AI. So I think, to the extent that policymakers are worried about biases in technology, it is this question of seniority bias, and are we going to wipe out job markets for a whole lot of young people coming into different professions?

WALKER: So on the more speculative aspect of the demand side, am I right in thinking that the reason there likely will be elasticity of demand for what Alex Imas calls the relational sector is that many of those goods and services are inherently positional, and so demand for those can’t be easily satiated?

WOOD: Yeah, that’s right. So the scarcity in itself is the value. Lots of really interesting studies that show I value something more if other people can’t have that same thing. And so if I want to use the best personal trainer that I can see on Instagram, by definition, not everyone can have a session with that personal trainer. I can signal my taste by getting a tailored coat or consuming a particular type of beer. So there’s all of those very human impulses still exist in this world. And what’s scarce is this human touch.

WALKER: He also has this cute point, which is that in this world, Baumol’s cost disease becomes a feature, not a bug, because it’s a way of keeping humans employed.

WOOD: Exactly right. Exactly right. So yeah, it’s what keeping people busy. And yes, their wages are high, but hey, we’ve got abundance everywhere else. So the economy supports that.

Industry policy for AI: when to intervene, when to step back

WALKER: So let’s talk about AI and industry policy. So let me just tell you generally how I’m thinking about industry policy at the moment. I can see good reasons for using it in principle, like if there are positive externalities or if there are coordination failures or if the government needs to provide some public goods. And it seems like the main critiques are very practical and heavily context-dependent. And so if you can execute industry policy well, then it can be good.

I think the thing I just don’t know yet is whether there are any best practices that we can draw out of the success stories, because I want to know about the graveyard of failures and whether they were also using the best practices. So at least to this point, am I thinking about it [correctly] so far? Am I asking the right questions?

WOOD: Look, I think you are. And I mean, so what’s industry policy? It’s trying to nudge economic activity in a certain direction or support a new or existing sector. And why might we do that? You pointed to the sort of traditional set of arguments. There might be market failures. It could be learning spillovers. It could be agglomeration benefits. There could be need for certain public goods. So I think those arguments are well known and well accepted.

I think it is an implementation challenge, but it’s very real. So by definition, when governments are doing this, if you’re doing something more here, you’re doing less of something else, which is often not thought about when we’re thinking about industry policy. So in a world of constraints – constrained capital, constrained labour – if we’re pushing people to this part of the economy, this part is shrinking. So it’s actually really important to think about the net economic impacts. And so many of the studies of success or otherwise focus on, were we successful in growing this sector? But when studies have gone and looked at the global economic impacts, they said, actually, overall you can’t actually see any benefit or it was negative overall.

There’s a fiscal cost if we’re talking about some of the production subsidies or grants or any of the levers that governments might use. And we have to take into account the cost of that as well. And there are just a lot of implementation risks.

The biggest one, I think, is that you end up creating a whole set of firms that are very reliant on government intervention. They want that grant, they want that subsidy, and they waste a lot of resources going to governments and trying to find ways to get governments to do what they want. And that is money that’s not spent on innovation and pushing forward. So you have real risks of distorting overall economic patterns, which I think need to be taken into account. So it’s not to say that you never do it, but I think you do it pretty sparingly and where you think you’ve got a really solid case.

WALKER: So in addition to what you’ve just said, what are some lessons you think we should draw from our experience of supporting the car industry?

WOOD: Look, I think a really important one is the need for off-ramps. And if we think about some of the reasons we just said that you might support an industry like auto manufacturing, it is around learning spillovers. So it takes us a while to work out just how we do this and different businesses benefit from those learnings. We might be creating a ecosystem where you have multiple different firms and supply chains and workers that shifts you down the cost curve over time. But all of those are temporary arguments for support.

There’s very little in the way of long-term case for government support and industry policy except for a subset which is around national security resilience. But that was not the car industry arguments.

I think the challenge was we weren’t economic in a global sense at producing cars. And so governments stayed on the hook for those types of production subsidies. And increasingly they found it really hard to withdraw them. Those companies had a lot of sway. There were obviously a lot of workers in those sectors that had to go through difficult transitions once that government support was pulled out because the sector just wasn’t capable of standing on its own feet.

WALKER: Do you have a sense for whether AI at the category level – so not thinking yet about specific industry policies – will pose unique challenges for industry policy?

WOOD: There’s different levels that you can look at it. So I’m really interested in the diffusion question, which is, by the way, the vast bulk of innovation policy in Australia is around diffusion; about 1 to 2% of what we do is new-to-the-world innovation. A lot of it is picking up what is elsewhere and embedding it inside our sectors of the economy.

WALKER: Which is kind of what you expect for a smaller economy, a middle power, right?

WOOD: Exactly. I mean, great that we do that new-to-the-world, but so often I think we pick up policy debates from the US or other places which just look a lot different. So the diffusion question is really important. Should we think about industry policy for a set of AI applications or areas where we might play in the AI supply chain? I think it’s hard to justify outside of what I would call horizontal policies, policies that apply to new firms and innovative firms, but aren’t AI-specific. So government does a lot of R&D support, and that’s about trying to get the benefits of innovation and spillovers.

There were a number of things in the federal budget this year actually around loss write-offs for startups, which is about sort of cash flow for new firms. There were things around early-stage venture capital incentives. Those things that say, okay, well, we know that new fast-growing firms are a good thing in the economy. We’re going to try and address some of the pain points for those types of businesses. A lot of those AI firms will fall into that category, but it’s not specifically targeting AI firms or AI applications, if that makes sense.

WALKER: That makes sense.

WOOD: And that is consistent, I think, with a lot of the literature on industry policy that suggests doing those horizontal type policies that are good for business in general, or good for innovative business, will tend to have bigger benefits and less risks than doing really targeted kind of “picking winners” interventions.

WALKER: It strikes me another way that AI might pose unique challenges for industry policy is just that if we do get that upside growth that we were talking about at the beginning, then it increases the opportunity cost of industry policies. Does that make sense?

WOOD: So are you talking about industry policy elsewhere in the economy, or industry policy for AI?

WALKER: Generally, including AI.

WOOD: So, I mean, there’s a general issue in industry policy that as countries get richer and more productive, you increase the opportunity cost. And that’s the point that I was making before: if you’re supporting businesses in this sector, you’re moving capital, you’re moving resources. There’s a higher cost to doing that because what you’re doing elsewhere is already productive.

So to the extent that AI makes us really productive at doing a whole lot of other things, it may well make any sort of industry policy intervention a more costly thing to do.

Where will the profits flow? Chips, models, or applications?

WALKER: So my sense is that at the moment Australian policymakers are very exercised by this question of how do we capture some of the value of the AI economy and stop a disproportionate amount of the profits flowing offshore. They’re thinking about preventing what Andrew Charlton calls the “Uberisation of the economy”, where in the last generation of tech behemoths, not many of the profits were captured within Australia.

And if we simplify the AI value chain into three layers of the stack – so there’s the hardware and infrastructure layer, then the model layer, and then the implementation and application layer – my sense is that the conversation in Australia about how can we capture some of the value, is focused on the top and bottom of the stack, specifically data centres and applications. Does that check out with you?

WOOD: Yeah, I think that’s exactly right. I think what’s pretty clear, we’re not going to be playing in chips. That is a very massive economy of scale business, and there’s not many places that are doing that. Data centres, we are absolutely playing, and we can talk about this. There are good reasons for that. We’re very unlikely to be in the frontier model business. Again, it’s the scale. But I think we could be very successful in the AI application area, just as we’ve had a lot of success in software as a service.

WALKER: True, true. So let’s start with the application layer, and then I’ll come back to data centres. As you know, this is sort of a small hobbyhorse of mine at the moment. But on applications, one concern I have with the “let’s build at the application layer” vision is just – and maybe this is naive – but won’t the major labs just leapfrog any niche applications that we build with increasingly powerful new foundational models? I’m just thinking back to the early days of ChatGPT where people would like build all these wrappers and then with a new model release they would just get sent straight to the startup graveyard overnight. Are there principled reasons that I shouldn’t be worried about this question?

WOOD: I mean, I think… what are the problems that those apps are trying to solve? Often it’s an understanding of ways that businesses have structured themselves and processes, the human bit that those apps go to, which I still think the frontier models aren’t always going to be the best for. So I suspect there will still be a role for them. It’s a good question. But I think it’s going to be if they can actually find ways to solve the very real world problems sitting there inside businesses or for individuals that the frontier models can’t jump to. Then that’s going to be where they create the value-add.

WALKER: I think it definitely will make picking winners more difficult.

WOOD: Absolutely. I mean, I think this would be an extremely high degree of difficulty thing to do in this space. Let’s be honest.

WALKER: And then maybe the totalising version of the argument where it’s just almost everything in the application layer you build is potentially vulnerable. Maybe that really relies on some sort of transformative AI premise where it’s AGI or something like that. So that’s probably more speculative.

WOOD: Yeah, maybe it’s an AGI. That’s right, where we’re all, you know, building our own business applications and solutions, using it because it’s so powerful. But I do think that’s probably a way off.

WALKER: Yeah. So one reason that we might be just naturally less worried about the Uberisation of the economy with respect to LLMs is just that in contrast to the previous generation of tech behemoths, the LLMs aren’t… the network effects are largely absent from these businesses. I wouldn’t say totally absent. And there are still some ways of potentially locking in customers. Like, for example, if my LLM can remember me in previous conversations and I can’t export that memory very easily and transfer it to a different provider, then I might be locked in. But if customers aren’t locked into LLM providers, that might lead us to expect that profits are competed down for those companies. Does that make sense to you?

WOOD: Yeah, I think that’s exactly right. I mean, the network effects of things like social media platforms were overwhelming. And in those highly networked markets, you do get tipping. And that’s exactly what we saw. So you end up with one or two big providers that have a lot of power.

Here, I think you don’t really have network effects. You do have some things that might push you towards lock-in and lack of ability to switch, but they’re much less powerful forces than we saw of previous waves of technology. So I think that’s exactly right.

I think policymakers should be alive to the risks of companies doing things which could create stronger lock-in. They should be alive to mergers and acquisitions. That’s something that I think with the benefit of hindsight, some of the antitrust regulators in the US said, “maybe you wouldn’t have let Facebook buy Instagram”, those sort of things. When something’s emerging, it can look low risk, but can create greater consolidation and market power. But I think, based on what we know about the economic dynamics of these models, there is less risk of serious consolidation or less risk of monopoly power than we saw in those previous generations of tech platforms.

WALKER: And if that is true, then hopefully it would mean for Australia that more of the value will flow to the implementation and applications layer of the stack.

WOOD: That’s right, that they wouldn’t be extracting the monopoly profits or rents out of those players that come into the market at that layer.

WALKER: So another way to think about how much value will accrue to the implementation and application layer versus the model layer is just to ask what is the marginal value of intelligence itself. How much of a bottleneck is intelligence for firms? And if it’s high, if the marginal value is high, then that would favour the model layer, I think.

WOOD: Yeah, I think that’s right. And obviously that will look pretty different across the economy. As we’ve been talking about with the labour market effects, there are a whole lot of other things that aren’t straight intelligence-related that go into value creation from different jobs. So that’s right, to the extent that is the binding constraint that will favour those companies, but then the competitiveness of the market comes into play there. So to the extent that a customer can still up and switch, you’d expect some of that to get competed away.

WALKER: As a thought experiment, so take the Productivity Commission, because that’s the organisation you know best. How big would the marginal product be for you at the Productivity Commission of moving from, say, today’s models to transformative AI models? Is intelligence the bottleneck for you?

WOOD: It’s a great question, and it would depend how fundamentally we wanted to embed it into our work. So at the moment, if I think about the way we’re using AI, it’s to help with our research, to help with coding and data analysis, to summarise market information submissions, meetings that we have. So the shift to transformative AI just makes those things a little bit better and a little bit faster. It’s not the bottleneck.

I guess the fundamental transformation would be if we had AI running the end-to-end research process and reports, and it did all the things – asking the questions, going out, doing the research, somehow running consultations, coming back, forming recommendations, handing them to government. Basically, I don’t exist in that world, nor do my colleagues. So, yes and no. I don’t know whether that answers your question. But it goes to that point we’re making, I think. There’s ways to use technologies which are about task-specific efficiencies and speeding things up, and that’s exactly how we’re using it. And there are ways in which it’s a total transformation of the way you deliver things.

WALKER: So the economist Luis Garicano, who is the same economist who wrote the book Messy Jobs, which you mentioned earlier, he has this idea that middle powers should collaborate to build a CERN for AI, to fund and build open-source models that are pegged one or two tiers behind the closed-source frontier models. And the logic is that it puts a ceiling on their pricing. It prevents them from tacitly colluding because customers can always just opt for a less capable but much cheaper open-source alternative. And then that is going to let profits flow down to the downstream layer of applications and implementation. What do you make of this idea?

WOOD: Look, it’s an interesting concept. And we’ve had this debate in other parts of the economy for a long time – whether governments should have their own bank or their own super fund, which creates a competitive dynamic such that others have a stronger competitor that they have to respond to.

I think probably the added argument here is, what if it’s not just people exploiting a strong competitive position, but they’re acting in a way, because of geopolitical reasons or other things, that’s detrimental to countries’ outcomes and national security. So this is a safety net that we have this neutral global platform that people can access that isn’t controlled by a company or a government in the same way.

So look, I think it’s an interesting proposition. It would be expensive. I think there’s no question about that. These frontier models seem to cost a lot to build, although China did theirs, well, at least reportedly significantly more cheaply. It would require quite a degree of coordination and cooperation amongst middle-power economies. So look, I wouldn’t discount it as an idea, but I think you’d have to do a lot of careful work and a lot of thinking through costs and benefits.

WALKER: So on this question of diffusion, I’ve got a double-barrelled question. Can you think of any historical examples where policy has made a big difference, either positively or negatively, to the optimal diffusion of a new technology? And then does that have any lessons for AI diffusion?

WOOD: Yeah, so as I said, I think diffusion is the main game here. And ultimately whether we reap the benefits of AI is going to depend on businesses actually adopting it and changing their practices to incorporate it.

So a good example in Australia in history is called Agricultural Extension Services. And these services have been around and provided by government for about 100 years. And this is a very old concept, which is the idea you’ve got a whole lot of farmers, they’re very diffuse groups. So government would go out to farms or meet with groups of farmers and talk to them about what they know about technology in ag – which could be new crop varieties, it could be pest control, it could be land management techniques – so that farmers have the best information about how to employ new ways of doing things on farms.

And those services over time have been judged to be really effective at actually shifting farmer behaviour. There’s been some positive evaluations. And one of the reasons people posit that Australia has got such a great record on agricultural productivity is that we’ve been really good at diffusing those ideas. And actually when those extension services were really powerful was when they would take information from farmers back to researchers so they’d understand the actual problems on the ground on farms, research efforts would go into “how do we control pest X?” And then that information was then fed back to farmers again. So you had this innovation loop.

So what does that mean for AI? Well, probably the biggest challenge with diffusion is going to be around business information and then management capability, the actual capacity to roll out those changes. So you can imagine these extension services which target small and medium businesses, the ones that tend to have the challenge here. We see big business adoption is powering ahead. They’ve got the resources and the capability to do it. But small and medium businesses may benefit from these types of services that government offers, which looks at their business model and works with them on the best way to implement that.

There are lighter-touch interventions, which is just providing base-level information across the economy. And we already have AI Centre for Excellence, which is doing this. It says, “here’s what an implementation plan looks like for AI technology”. Anyone can go to the website and access that. Extension services are a little bit more bespoke and hands-on. But that may be something that we want to think about when we’re thinking about diffusion here.

WALKER: Yeah, it’s super interesting. Do you have a sense for whether AI will – even without some extra assistance from government – diffuse much faster than previous general-purpose technologies? So I was thinking about this yesterday. I mean, on the one hand, I have a sense that it could be the first self-diffusing general-purpose technology, in a couple of ways. One is that it’s piggybacking on the internet. I think it’s notable that ChatGPT, was the fastest-growing consumer internet company in history, maybe 100 million users in its first two months or something like that. But secondly, the AI can teach you how to use the AI. So in January, I used Claude to help teach me how to use Claude Code, and now I use Claude Code regularly. But then on the other hand, that’s maybe not what we mean by true diffusion. It’s not, in a really gritty way, reorganising organisational workflows and whatnot. So I’m not sure which way it breaks. But do you have a sense of whether it’s going to be much faster than the internet, electricity?

WOOD: I think it will be faster, but not as fast as some of the technologists believe. So, you know, you’ve got this book on electricity in front of us…

WALKER: I’ll hold this up for the camera. Networks of Power.

WOOD: Which looks fascinating, by the way. But what we know from those early waves of general-purpose technologies is it was decades, sometimes more than 100 years before we saw the biggest impacts on total factor productivity because businesses had to fundamentally re-engineer and reimagine and re-envisage the way they did things to get the benefits.

If we look at ICT, so computers, internet, it was faster than that, but still not overnight. And one reason was the technology itself, as you said, it actually helps with the flow of information. The other reason is maybe we’ve got better as a society. We’ve learnt how to learn, or learnt how to do these things. And so I think those same benefits will apply with AI.

But it’s still only going to be as fast as organisations and individuals adopt it. And so, yes, we’ve got those extraordinary growth statistics around individuals accessing it, but still only about 60% of Australian businesses say they’re using it in some form. And we know that for a lot of them, that’s going to be fairly superficial uses. So using it to write client emails or maybe I’ve got a customer service chatbot up and running. That’s very different to the transformation and embedding AI into the fundamental way that businesses work. And I still think it’s going to be years to decades rather than overnight. And that’s why you don’t get the productivity benefits right away. It’s why you don’t get these massive labour market adjustments. It is just slower, I think, than people imagine.

WALKER: I think that’s right. Another way to put it that’s just occurred to me, AI might help with its own diffusion, but for that to happen, you need to be using AI in the first place.

WOOD: Indeed. Exactly. Exactly. And again, we see it’s much more common amongst exec leaders in bigger corporations. It’s much more common amongst high-education, high-income workers and low-education workers. So I don’t think it is yet as embedded in every job and every business in the way that some people might assume it is.

Data centres: should Australia support them?

WALKER: So some questions about data centres.

WOOD: Your favourite topic.

WALKER: Maybe my favourite topic, we’ll see. But do you have a sense for whether there are big economic rents on offer for countries who host data centres?

WOOD: I mean, I suspect not. There are certainly conversations that Australia might be pretty well suited because we have a lot of land, we have a lot of potential for renewable energy. We’ve got a lot of wind and sun in particular. We’ve got good institutions, we’re a stable democracy. But I think broadly we will be competing in, maybe not a global market, but a regional market for compute. It’s not that other countries will not be able to build these types of data centres.

So I think it probably will be a reasonably competitive global market. It’s not iron ore or something where we’re one of few countries in the world that have high-quality deposits and therefore we’re able to exercise considerable market power. I just don’t think it probably plays out like that for data centres.

WALKER: Yeah, I think that’s probably right. So the argument for contemplating any possible government support for data centres is really an externalities argument. What things would have to be true, or what are some things that might have to be true, for you personally to be satisfied or to support the concept of subsidising data centres?

WOOD: I mean, I think it would be a pretty high hurdle for me. [If] compute was significantly constrained and without it, we couldn’t get the benefit of AI throughout the broader economy. So there’s some bottleneck in compute that meant that Australian businesses were not able to use AI without a substantial government-underwritten investment in data centres, and I just don’t see that’s going to be the world that we’re in. I think there’s pretty strong commercial incentive to build these things. And as I said, there’ll be a lot of other countries doing the same.

The other reason might be if there was a security, resilience argument that we don’t want to rely on other countries for this essential infrastructure. But again, I just think to the extent we need to make sure that we have capacity for essential government tasks – intelligence, those sort of things – probably the commercial sector already has an incentive to build that here. And we see governments already pay for a whole lot of things they need. Like, I access a secure network if I want to look at cabinet papers or those sort of things, and that’s… it’s not that government goes and builds that, they just pay for it. And I suspect the same happens here.

So if we weren’t going to have any data centres but for government coming in and supporting them and they needed to do that for a national security, resilience reason, then that would make sense. But I just think the market is going to deliver more than what we need in that sense.

WALKER: Yeah, let me add another rebuttal to the resilience rationale for subsidising data centres, and tell me if this makes sense to you. So actually I was reading the Productivity Commission’s Guardrails for Industry Policy report, which was published last year, but there was one point in that that just got me thinking about this, which was, wouldn’t we just be shifting the supply chain risk up the supply chain to chips or something?

WOOD: If we hadn’t built them yet, then potentially yes.

WALKER: If we hadn’t built them yet?

WOOD: Well, so let’s say – and this is very hypothetical world, because I said I think the market’s just going to sort this problem out. But let’s say we decided we’re not going to have enough compute to do things that we think we absolutely must have as a country for our national security. And we then go out to market to build our own data centres. But other countries are now decided that they’re going to hold up the supply of chips or whatever it is we need. We’re in that world. But if we identify it as a problem, we build the data centres now, we’re fine. We’ve then got that capacity once it’s sitting on the ground, it’s here.

WALKER: Oh, I see what you mean. We’ve got the chips.

WOOD: We’ve got the chips. So it’s only if both of those emergency situations happened at the same time and we didn’t already have the data centres here.

WALKER: Okay. So there’s one other positive externality that I could think of, but it’s a little more tenuous, and that’s just that having a lot of compute – we’re talking in the order of magnitude of tens of gigawatts, not low ones of gigawatts... But that, particularly when applied to AI training rather than just inference, will give us leverage at other layers of the AI stack, especially for frontier models, in a world where access to those models might be rationed because ultimately we’ll be importing those models from American companies, and they’re ultimately subject to the whims of US governments.

But also, we’ll plausibly be able to get access to increasingly powerful models that aren’t released to the public yet, like Claude Mythos Preview and beyond.

I say this is tenuous because I think it really strongly depends on particularities of any contracts or agreements between data centre operators, Australian governments, and frontier labs. So I don’t even know what this looks like, but it just seems like it’s possibly one other positive externality in the possibility space.

WOOD: So it’s giving us some negotiation power with either the companies themselves or the governments that are controlling the actions of those companies.

WALKER: Yep. So I’m told that Anthropic is looking for its “second country” [for training compute] at the moment outside of the US, whether that’s Australia or Japan or somewhere else, I have no idea. But if there was some MoU or bargain struck with Anthropic, which was “okay, we’re going to do up to a third of your next however many training runs and in exchange, we would like access to the next versions of Claude Mythos Preview to help with our cybersecurity when they become available”. That’s the kind of things I’m contemplating here.

WOOD: Look, I can see what you’re saying. I just wonder if it’s – if you’re talking about that as a motivation for government investment in data centres, I think it’s a fairly long bow.

WALKER: A few too many links in the chain.

WOOD: A few too many links in the chain, perhaps. Yes.

WALKER: Okay, fair enough.

WOOD: Especially when I do think we will end up with a lot of capacity in any case because of the market advantages that we have that we’ve spoken about.

WALKER: Yeah. So I was reading the government’s expectations of data centres document which came out I think in March, and it’s got five different expectations. Some of them are pretty reasonable. It’s like efficient water use and supporting the energy transition. There are others like providing skilled jobs and apprenticeships, and also favourable terms for compute for Australian start-ups and nonprofits, which feel a little bit “everything bagel” to me. I mean, reading the document, it was reminding me a little bit of reading the US government’s Notice of Funding Opportunity for new fabs under the CHIPS Act, where they were just layering on all these additional requirements. Are we being too everything bagel with data centres here?

WOOD: Look, I think there is a tendency towards everything bagel with almost everything these days. I think the requirements around water and power – I don’t think anyone is going to disagree with. I think there’s a genuine community concern, particularly if these things are going up fast, if they start spiking the prices for electricity or water, you’re going to see that social licence degrade pretty quickly. So I think the government is right to focus on that and to say that we need these firms to come up with their own solutions.

I do worry about putting a whole lot of other requirements on any sector beyond what is already there under the law around workers’ rights and protections around commercial agreements to supply to particular research organisations or centres. The Assistant Minister in charge of digital economy, Andrew Charlton, is doing a speech today around data centres and the importance of community trust. And I understand that, but I think it’s probably getting the key pieces right around water, around power, around licence within communities, rather than adding on a whole lot of other requirements, which is really pivotal for that trust piece.

WALKER: Yeah, I’ll have to read the speech. It does strike me, if you buy the very bullish arguments on the importance of data centres, then data centre nimbyism might become even more of a problem than residential housing nimbyism in the next five to 10 years.

WOOD: Gosh, that’s frightening to think that that could be the case. But I mean, there’s a very real question around degree of regulatory hurdles. And it is true that it’s just hard to build things in this country – whether that is housing, whether that’s renewable energy infrastructure, whether it’s data centres. We do ask people to jump through a lot of hoops. And I think we should be looking to streamline that in a sensible way, not necessarily remove protections, but to certainly streamline processes as much as possible. And government’s already done that to some extent through the changes it made to the Environmental Protection and Biodiversity Act last year, streamlining environmental approvals. But that’s got to be an ongoing conversation for data centres, just as it is for all those other sorts of things we need to build more of.

WALKER: Do you have any takes on this question of what if AI investment is a bubble?

WOOD: I mean, I think this is very hotly contested at the moment, certainly in the US, and you’ve got people that feel very strongly on both sides. Certainly the history of general-purpose technologies is you do tend to get some bubbles and booms and busts before you find the equilibrium. Why would we be worried? Well, if we were making all these investments that were ultimately worthless, we might be concerned about that.

I think this is probably closer to, you know, [the] steel boom and those things where at least we’ve got a productive asset at the end of it. So, yes, some investors might take a nasty haircut and that’s bad for them, but as a country, if we’ve still got these data centres that we’re going to be able to use at the end of it, it doesn’t really have the same negative productivity shocks that you might be worried about with a bubble that was producing something that didn’t have any inherent value or capacity at the end of it.

WALKER: So I want to finish on AI regulation and then some questions about how we measure progress. But just before we do that, to sort of cap off the AI and industry policy segment, to sort of bring together everything we’ve spoken about: do you have a gut sense for where in the stack the profits will ultimately flow?

WOOD: I think the chips… clearly, the upstream there. There’s just only ever going to be a small number of firms. So I think they have a huge amount of market power. So I suspect that’s where a lot of the action is.

I hope we can have a dynamic application layer where there’s money to be made and Australian firms are part of that action. But like anything in AI, I just think we’ve got to be pretty modest about forecasting where things go.

WALKER: And does it feel implausible to you that Australia could be one of the big countries in the value chain? So there’d be like the US, China, Taiwan, maybe the Netherlands because of ASML, and then Australia.

WOOD: Look, I think we have to think about it in proportion to our size. But as I said before, we have had, I think, remarkable success in the software-as-a-service area – your Atlassians, your Canvas, your Culture Amps. And we’ve done really well. We have created these ecosystems. We developed for the world from day one because the local market is small. So I think we have some of the ingredients for success. But it’s not going to be the same as having a chip manufacturer, I suspect.

WALKER: So as a segue into AI and regulation, the current most important binding constraint on training compute in Australia is copyright. And I was just hoping you could just, just for people’s context, just briefly explain your understanding of the mechanism by which our current copyright settings prevent training compute from being built here?

WOOD: So essentially, they restrict the capacity of the trainers to pick up content and use that to train off because it could be a breach of copyright law. So that’s the concern. And it goes beyond what you might normally think of as copyright-type materials. So something that someone’s written in a book or that’s in the newspaper. Potentially any use of the Productivity Commission website or scraping that material could all breach copyright laws.

WALKER: And potentially also, I mean, if labs had to pay for that, then potentially also set an international precedent as well, which might be a concern.

WOOD: That’s right. Although that is the way the market is evolving both here and internationally as we are seeing the labs now negotiating more with big copyright holders to pay for access to their material and their content.

WALKER: So it feels like we’re in limbo on the copyright stuff at the moment. I was saying Anthropic’s looking for its second country. I don’t know when it wants that additional compute to come online by, but maybe it’s end of 2026, early 2027. This feels like really urgent, but we have this very obvious barrier to training compute in Australia. And I just don’t know whether we’ve even arrived at a solution yet.

WOOD: Yeah, we haven’t. But what I would say is it’s challenging everywhere. So even though on paper our laws are stricter, it’s just a very hard issue for copyright laws – to what extent AI training is a breach of those. Because copyright is all about reproducing the material, like to what extent is training doing that? And so the US, I think, there’s some insane number of court cases running that are live right now about this very issue. So I don’t think it’s fair to say that what you can do with copyright material is clear anywhere in the world at the moment.

So we grappled with this when we were thinking about productivity opportunities and data and digital last year. We flirted with different options, and we put out for consultation the idea of: should we have text-and-data-mining exemptions? Should we have things? But where we ended up was actually, well, this is being worked out globally right now. I don’t think it’s too much of an additional barrier in Australia, and these commercial relationships are starting to build up and form as well, which is picking up the part of the market that we might be worried about. So a wait-and-see approach actually isn’t crazy in that world where a lot of this is in flux globally.

WALKER: So in the government’s National AI Plan, I noticed that they want workers and unions to have a strong voice in how AI is adopted across workplaces. Do you know, does that mean they’re thinking about regulating AI as an industrial relations issue? Because it just seems like that could potentially really slow diffusion.

WOOD: Yeah, I would be concerned if they were thinking about it like that, but I don’t think they are. So what they have said, which I think is right, and there’s a sort of – I don’t know what they call it, a council or something that’s been developed, which is bringing together business and government and unions to deal with these issues – is, really workers should be consulted on the rollout of technology. And I think that’s largely required under IR law already. And also it’s just good management practice 101 that you should work with workers if you’re bringing in new technologies. Maybe there’ll be some requirements for skilling and retraining under EBAs.

So if augmentation is the big story, as we said before, we might want to give workers the chance to build up the skills that they’re going to need for those new types of jobs. And also some restrictions around digital surveillance and those types of uses of the technologies that could have a negative impact on the quality of jobs for workers. So those are all, I think, pretty reasonable things that governments should be thinking about and businesses and unions should be working together on.

What the government said so far, and I think is good, is that’s very different to unions, or workers, having a right of veto over technology, which says, “no, we can’t use AI in this organisation”. And I would absolutely be worried about that because then potentially you are cutting off a lot of the potential productivity benefits of the technology.

So at the moment, I think we’re walking the line in a pretty good way. But that’s certainly a risk that we’re thinking about: that, at some point, people might be looking to move to veto rights.

AI risks, and why Australia shouldn’t pass an AI Act

WALKER: So in its report last year, the Productivity Commission argued that regulatory responses to AI should happen within existing legal frameworks, and that AI-specific regulation should be a last resort. I’d be curious, just to play devil’s advocate, what do you think is the most plausible reason why that approach could ultimately turn out to be the wrong one?

WOOD: I mean, I think it would be if AI was posing a lot of risks that sat outside existing legal frameworks. So when we looked at this issue, what we saw was: well, when you think about the kind potential harms from AI – product safety, privacy, defamation, consumer harms, like a whole lot of things that we already have laws around… And it seemed to us a big risk to come in and say, “okay, now we’re going to have an AI Act, and we’re going to try and somehow directly regulate this technology”, which presumably would be about trying to pick up those harms, but you create a layer of duplication, complexity. We’ve seen it sort of done in Europe already. The GDPR regime, which was around privacy law, had really slowed innovation, restricted access to products for consumers. They’ve actually interestingly just done it for AI more recently, and all the same concerns are there.

So an approach where you went to the existing laws and said, “okay, what are the gaps here? Are they fit for purpose? There probably are new things and new risks that AI is creating that we haven’t got in the legislation at the moment. Let’s fill those gaps” – seemed to be the right answer. And it was already going on. TGA had already done a gap analysis and proposed some amendments. Other regulators were doing it. We want to make sure it’s done in a systematic way. The government said it will do that in a systematic way, but that seems to capture a lot of the action. But yes, if there are harms that sit outside those standard regulatory frameworks, then that’s when that approach would have limitations.

WALKER: So on that, is your gut sense that AI will turn out to be a “normal” technology? So it diffuses slowly and our institutions shape its course and maintain in control of the technology? Or how likely do you think it could turn out to be sort of an abnormal technology where it’s less like a new tool and more like a new species, which is really fast-developing and autonomous? Because then obviously that goes to this question of whether there might be risks outside of the existing framework.

WOOD: Yeah, it’s such an important question. And so everything that I’ve just talked about – our approach, gap analysis, all of that – is AI as a normal technology. Yes, it poses risks, but we can deal with those within our standard regulatory frameworks.

There is another very live, somewhat scary conversation, frankly, that’s going on about, “Is AI godlike? Does it pose an existential threat? Is it going to turn us all into paperclips?”, which I think something we should think about, we should pay attention to. Andrew Leigh, Assistant Minister in this government, recently gave a very interesting speech about how economists should think about extinction risks more and weigh these into decision-making. And frankly, when you have quite a number of credible people in this space saying, “we should pay attention to this”, I think we should.

That said, is an Australian AI Act going to protect Australians from the existential risks of AI getting out of control? No. This is going to happen overseas, and we will get taken out in the crossfire, whatever it looks like. And so I don’t see that putting in place cumbersome or complex or unnecessary regulation… it’s actually not going to protect against that potential harm, would be the right way that we should think about it here.

Essentially, it’s a problem for regulations in the countries in which these models operate, but it’s also a global problem. We’ve just launched an AI Safety Institute in Australia that is working with AI safety institutes that exist in a range of other countries – Korea and Japan and Europe and Canada. And I think probably some global coordination that is playing a role in improving the transparency and auditing of these models, that is kicking the tyres on these risks of lack of alignment, is probably the way we play the role.

So Derek Thompson, co-author of Abundance, picked up on this “is it normal, is it abnormal”, and said, “why can’t it be both?” And I guess that’s how I think about it. I think to a large extent, I think about it as a normal technology. I certainly think about the Australian regulatory response falling into that category. But yes, we should engage with the abnormal technology risks. But I think the right mechanism for us to do that is through a sort of playing a role in global cooperation rather than weighing down domestic business with a legislative framework that, frankly, is not going to have any impact on those global existential risks.

WALKER: So my next question was going to be: if not an AI Act, what is the best way for Australia to get leverage over AI governance? So it sounds like the AI Safety Institute and that international cooperation is one way. Are there any others?

WOOD: I think there will have to be probably more formal regimes of international cooperation. Climate change is probably the closest parallel to this – the only way that we address things is through each country signing on, and everyone’s got an incentive to free ride. So we probably need some international mechanism. So I think playing a role as a good corporate citizen, developing expertise in certain areas is going to be the way that we have the biggest impact.

WALKER: One of the things I’ve been meaning to look into and I haven’t looked into this in any detail yet, is the non-proliferation frameworks. And then again, whether we could be thinking of uranium as some analogy for compute. So I think our position as a sort of upstream supplier of uranium has enabled us to extract governance concessions from countries we sell uranium to that go even beyond the baseline obligations of the NPT. I want to look into that. I mean, again, it goes to that broader, more tenuous positive externality around data centres, which we spoke about. But potentially there’s another route there.

WOOD: Yeah, I mean, it would depend whether we had a sufficient share of compute for it to be genuine leverage. And that’s going to be the difference with uranium. Again, you only got a small handful of countries that can supply that, whereas I suspect we won’t have anywhere near as much leverage from compute power.

Measuring progress in the age of AI: beyond GDP and labour productivity

WALKER: So to finish, measuring progress, which is really interesting topic. Actually the question I want to ask first segues from what we were just talking about, but that’s if – so I read Andrew’s speech, Andrew Leigh’s speech about the economics of extinction. I thought it was brilliant, one of my favourite speeches of his, just incredible clarity of thought. But the question it left me with is: if we are interested in the area under the curve – so the stream of all future human welfare… And I am on the the social discount rate should be zero or pretty close to zero bandwagon. And so I think that that stream of future welfare is an important consideration, is morally important.

And so if that is what policymakers should be thinking about, then our measure of progress should include not just the economic growth rate, but also some measure of the existential risk or hazard rate of new technologies. So I’m with Andrew so far.

But then my holdup is calculating the hazard rate is an extremely non-trivial task when you’re dealing with Knightian uncertainty… and indeed can often backfire and lead to like suboptimal policy because maybe you overestimate it and then you’re too precautionary and you foreclose a lot of potential growth. So I just don’t even know where to begin with that. I don’t know if you have any thoughts or if you’re just in the same nihilistic boat as me.

WOOD: Well, I mean, I agree with you. It’s incredibly hard. And what people have tended to do is go to experts and you get this just –

WALKER: Survey them.

WOOD: Yeah, survey the experts. And you get this like incredibly broad range. This has happened for AI – I can’t even remember the range, but somewhere between almost nothing and like 40% of wiping out humanity. I mean, it’s pretty –

WALKER: That range tells you something.

WOOD: Yeah, exactly, exactly. Just high degree of uncertainty. I mean, people have played around your nuclear proliferation example before. There’s the – is it the Doomsday Clock? The “how many seconds to midnight we are?” sort of formulations that make it a bit more tractable, but it doesn’t remove the underlying problem that you’re talking about, which is just: how do you actually inform that judgment? So look, I think it’s incredibly hard to do.

What I took out of Andrew’s speech though is: well, let’s say there’s any significant probability of P(doom), we should be making sensible policy steps to try to eliminate it.

WALKER: Directionally we should be investing more.

WOOD: Exactly. But yeah, it doesn’t answer the question of quantum. It’s easy in this case because in a way Australia can’t spend a lot dealing with this issue – the sort of interventions that we’re talking about – safety institutes and international cooperation – by their nature are almost certainly going to be worth it: relatively low cost.

Much bigger question if you start thinking from the perspective of, say, the US, and saying: should we actually just pause development of these models? And that was – remember, like a year or two ago – Elon Musk an others were saying we should just stop now. Then you’re dealing with these very big cost–benefit trade-offs without a real sense of what lies on the other side of that ratio.

WALKER: Yeah. So in the “AI as normal technology” essay, which is the big essay from early last year on which the Derek Thompson essay you mentioned was based, the two authors, Narayanan and Kapoor, talk about treating the task of reducing uncertainty as itself a first-rate policy goal. Uncertainty about AI risks, that is. I wonder if you had any thoughts about that as a policy goal, and if it is a legitimate policy goal, is there any entity in Australia whose responsibility it is currently to reduce uncertainty about AI risks, or would we need some new institution?

WOOD: I mean, it depends, and the AI Safety Institute’s new body, but if it is playing a role with these questions of algorithmic transparency – so how are people actually using these tools? That starts to give us a better picture of risk. Are people writing queries about bioweapons? And how are the AIs responding to that? What information are they giving them? Those sort of things.

So I think there is something around auditing transparency of how these things are being used in the wild, as well as how the technology is responding, that goes to this question of understanding how real those risks are. So yeah, I think again, that’s going to be part of a broader effort, which may be pushed by governments in US and China, or might come globally, that we’ll have to go to some of those questions.

WALKER: So moving on from the hazard rate now and just focusing on the growth term in this equation. If the System of National Accounts and our standard measures of productivity fail to capture a lot of the progress from AI, as indeed they have to an extent for the progress from other digital technologies, are there policymaking implications of that measurement problem that worry you? Do you have a sense for how big the mismeasurement could be? And then does that potentially lead policymakers to make bad decisions or decisions that they wouldn’t otherwise have made?

WOOD: Yeah, so the measurement problem comes about because to the extent AI products are free, like social media was free, we don’t have good ways of capturing that in the national accounts. So you’re creating this consumer value that just isn’t there because you’ve got a zero price. And this has been a long-standing problem. I mean, the earliest example was actually unpaid care work, which Marilyn Waring, fantastic New Zealand economist, has been writing about since the ‘80s.

So we’ve always known that GDP, one, is not a measure of welfare, because it misses a whole lot of things that are valuable – including these new technologies if they’re priced at zero. So yes, the measurement error becomes more acute if this is a growing share of the economy.

But what does it mean for policymakers? I think this has always been a… it’s not like people are blindly optimising policy around the GDP figure. It’s just not how policy works…

WALKER: It’s not like a speed limit in a car or something.

WOOD: Yeah, exactly, exactly.

Proper microeconomic reform, the bread and butter of this agency: you’re thinking about costs and benefits in the broad. You’re not just running at a GDP number. So it’s a problem in the sense that the number that we report and think about is probably less good as a measure of welfare than it used to be, but I think we’ve always recognised the need to think more broadly than that.

And even this government has sort of explicitly done that. I don’t know if you’ve seen the Measuring What Matters framework that they put out with the budget. So basically they said: well, GDP is not the same as welfare. Why don’t we come up with a set of other indicators of things that people value and care about. And lots of countries around the world have done this.

WALKER: This is the dashboard concept?

WOOD: It’s the dashboard concept. You basically get a broad agreement across countries, within people: what do we care about? Yes, we care about incomes and our capacity to buy things, our GDP proxy. But we want good education. We want to feel safe. We want a great healthcare system and health outcomes. We want social capital, connection. We want democracy. We want to have a say in who’s leading the country, who’s running the country. So you end up with a dashboard of different indicators that go to how well a country is performing across a range of things that matter to people’s wellbeing.

WALKER: What are some ways AI could change the economy such that labour productivity ceases to be a good enough measure of progress?

WOOD: I think a lot of it will show up in total factor productivity. So you will end up with higher gains there. So it may be that that’s where the productivity action is going forward. We do tend to use labour productivity a lot. I think partly because it’s more intuitive for people, partly because it comes out quarterly, whereas total factor productivity only comes out once a year.

WALKER: Why is that?

WOOD: It’s a good question. I don’t know the answer to that. I’ve just accepted it as the way things are. You have to get David Gruen on and ask him. [laughs]

WALKER: Yeah, yeah. But yeah, sorry, I interrupted you.

WOOD: So look, I still think those measures will be useful. I mean, the main issue is the ones that we’ve already talked about, that we’re missing bits of the output measure. If there’s a lot of free products sitting in there, you might be missing productivity gains.

WALKER: I guess if the labour share goes down or something, or if there’s a lot of displacement, then… Because, my understanding is the reason labour productivity is a pretty good measure of, or a good enough measure of welfare at the moment, is…

WOOD: Incomes tend to move with labour productivity.

WALKER: But if the labour market is like not how incomes are being distributed in the economy anymore, then –

WOOD: Yeah. Okay. Okay. So that’s probably not the world my best guess is that we end up in for the very long reasons we’ve already discussed, but let’s say we’re in the tail scenario and most people don’t have a job, then your capital share is going to be much higher. And then you’ve obviously got questions of distribution. But yes, in that case, your labour productivity is not going to tell you much about how individual people are faring. So I think that would be the issue.

WALKER: That makes sense. So it seems that if intelligence becomes abundant and really important, and the constraint on intelligence is compute, and the constraint on compute is energy, then energy is even more directly the binding constraint on progress than it is today. And maybe in that world, rather than talking about labour productivity or mainly about labour productivity, energy efficiency is a really important concept: units of output per unit of energy. Could you see that?

WOOD: Energy is your production factor rather than –

WALKER: Yeah, yeah. So like the way today everyone reports on and talks about labour productivity in the sort of national debate and the media, it feels like the conversation should shift to energy efficiency.

WOOD: I think it will be relevant. I mean, in a way I hope it’s not because I really want us to be in a world of energy abundance sooner rather than later. We do have a transition period, but I am optimistic about the potential to increase energy supply over the long term for the reason we talked about. We have abundant natural resources that we can convert into energy.

But in a short-term sense where that was your binding constraint, look, I mean, it’s certainly going to be relevant for thinking about policy. It’s going to be incredibly important for thinking about how you ration that scarce resource. Whether that ends up being your overarching macro statistic, I just don’t know.

WALKER: Well, we better leave it there. It’s been a lot of fun.

WOOD: It has been.

WALKER: We should catch up in 10 years and see…

WOOD: How bad our predictions were.

WALKER: What were we right about? Will be interesting.

WOOD: Well, assuming we’ve both still got jobs.

WALKER: Yeah, you never know. Well, thanks so much, Dani.

WOOD: Yeah, thanks for having me, Joe. I really enjoyed it.

(Episode recorded on 16 March 2026.)

Mike Pezzullo oversaw Australia's immigration apparatus for nearly a decade. He ran the Australian Customs and Border Protection Service (2013-2014), then the Department of Immigration and Border Protection (2014-2017), then the Department of Home Affairs (2017-2023). Across these roles, he was responsible for how we screen, select and integrate new Australians.

Someone with so much institutional knowledge would rarely be both recently retired and willing to speak in great depth about how the system really works, so I'm grateful to Mike for speaking with me.

We discuss the central but underappreciated fact about Australia’s migrant intake: the broad distribution of source countries among our overseas-born population is a happy accident of global migration flows, not engineered policy.

We also walk through:

• how the visa system actually screens for security and character;

• what explains Australia’s historic talent for acculturation and whether we still have it;

• why Pezzullo doubts the father of the Bondi attackers would have been refused a student visa in 1998 even with today’s digital tools;

• what a 2027 China-Taiwan blockade would mean for the Australian migration system in real time; and

• a never-aired proposal for fixing Australia’s “permanent temporaries” problem – amending the Constitution to close off the High Court’s original jurisdiction over non-citizens, replacing it with a single 30-day review.

We finish with the question: will, and should, “populate or perish” return as strategic policy? Speaking "as a military strategist and a military defence planner," Pezzullo (who is also a former Deputy Secretary of the Department of Defence and wrote the 2009 White Paper that reputedly displeased Beijing) wants Australia at 40 million people by 2050, rather than the projected 35 million.

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Transcript

JOSEPH WALKER: Today I’m chatting with Mike Pezzullo. Mike was one of Australia’s most senior and experienced public servants. Notably, he was deputy secretary in the Department of Defence, where he was the lead author of the 2009 Defence White Paper – a document that was prescient in the way it contemplated the military implications of China’s rise, and which reputedly earned Mike a trip to Beijing, where senior CCP officials unsuccessfully demanded that he change the White Paper.

But most relevant to today, Mike ran Australia’s immigration and border protection apparatus for almost a decade. He was CEO of the Australian Customs and Border Protection Service from 2013, where he oversaw Operation Sovereign Borders. He was appointed secretary of the Department of Immigration and Border Protection in 2014, ran it all the way through to 2023, including through the transition to the mega department of Home Affairs in 2017.

Today we’re going to chat about acculturation, social cohesion, and the security dimensions of immigration.

Mike, welcome to the podcast.

MICHAEL PEZZULLO: Great to be here.

How Australia selects migrants

WALKER: So I think the question I most want to start with is, what does the process of selecting migrants to Australia look like concretely? So if I’m looking over the shoulder of an immigration officer at the department, what are they actually seeing and doing? Obviously the process is going to look different depending on the visa. So maybe we could start just with the skilled permanent stream. Say I want to migrate to Australia under the points test. I check my eligibility, I check my occupation is on the skilled occupation list. I submit an expression of interest. Sometime later I get an invitation to apply and then I submit my full visa application with all of my supporting documents. What happens next?

PEZZULLO: Well, what happens next – and I’ve not been there for two and a half years now, so the extent to which they’ve progressed on this path is a bit of an open question, but certainly on the track that we were on when I left in late ‘23 – increasingly, that’s going to look automated. So you’re going to have that officer, typically working with increasingly a suite of AI tools, applying their own personal judgement, because these officers are deeply experienced. They know what they’re looking for. They know almost intuitively, because they’ve typically been doing it for five, ten, fifteen, sometimes more, twenty-plus years. They know intuitively what an objective points criteria translates into as a real human. [This applies] whether you’re looking for people with skills in nursing or welding or production, agricultural labour …

Over time though … simply because of the volume of applications and … the more rigorous checks that we’re going to want to do … increasingly you’ll have AI tools sitting beside the officer, assisting the officer. We were talking before off-camera about the change in the AI world where you increasingly are moving from a chat function to an agent-like function that inevitably will come in. There were some early versions of that starting to come into the department, both as Immigration and Border Protection, but then Home Affairs subsequent to 2017, which subsumed the immigration function.

And what you’re looking for is, you’re not obligated by law to deal with each application in the sequence in which they’ve arrived. You’re just required to give them due consideration. You can move applications around on different piles depending on regions or states that might be expressing an interest, because there’s a lot of engagement in states and territories, say about nurses or doctors or people who are willing to go, for instance, into regional health medical practices.

Over time – and we didn’t quite get there by the time I left at the end of ‘23 – you’re going to want a completely digital way of doing that. Because what you want to do is really calibrate the demand side – so [for example] doctors in regional and rural Victoria – against your applications. And then what we’re doing – largely at the moment still with human intelligence, but over time it’ll be augmented with AI – is then going through all the applications, say, for medical practitioners who have expressed a desire to go into rural or regional Victoria. [And we’re saying] “Okay, here are the top candidates based on academic qualifications, their points, and so on and so forth.”

So it’s a transition from a human-based system to what will ultimately be a human-and-machine-based system. That’s going to involve a challenge, which every large enterprise is going through, of retraining your workforce. [Some of the workforce will probably] transition into retirement not having to pick up too many of those skills. And at the other end of the pipeline, you’re going to have younger officers coming through who are just completely digitally native. And so they’ll be able to apply their educational qualifications, but also just their ease with technology, and then apply that to these tasks as I’ve been describing them.

WALKER: And does that all happen in the ICSE? So for people wondering, that’s the Integrated Client Services Environment, which is the department’s main visa system.

PEZZULLO: It certainly was when I left. Again, I’m two and a half years out of date, but that [system] is an amalgam [of digital systems and earlier paper systems]. This is a function of investment and just the take-up of tech across government. But over time you want to go to a fully digital system.

WALKER: So say with the skilled permanent stream, when if ever are applicants interviewed by an immigration officer?

PEZZULLO: It’s reasonably late in the piece. So you go through a lot of this triaging that I’ve been describing. And you’re really getting a fair way down the process of what’s called “candidate selection” before interviews are scheduled. Because … to be honest, for Australia – Canada is in the same position – you’ve got a great number of candidates in terms of quantity. And so that triaging and that selection process happens upfront and then you start talking to people at a relatively mature part of that process.

WALKER: So everyone gets an interview?

PEZZULLO: Yes, if they’re coming under the permanent program.

WALKER: Yeah. So because we’re going to focus on acculturation, I’m curious, when immigration officers select migrants in any visa class, do they consider how quickly the migrant is going to acculturate? And do they screen for values?

PEZZULLO: Indirectly. There’s what’s called a security and character check. And if you like, that’s almost a negative filter. So are there any issues of security concern or character concern that have come up in the application, either through the objective data that we’ve got in our own data holdings … There might be, for instance, a reference that you find in one of your data holdings which is adverse to that person, or perhaps suggests that further enquiries need to be made, because maybe they come from a particular area, or they’ve got associations with either criminal elements or terrorist elements that you want to interrogate.

So that’s when you do your data-checking and you’re running names constantly through … I wouldn’t call it an ever-expanding range of data sources, but certainly … a larger set of data holdings than we used to have. And we’re just constantly coming to arrangements and agreements, not just with our Five Eyes partners, but with others to mutually access each other’s datasets. So that’s one set of criteria.

Increasingly, not available for all candidates, but increasingly you can do social media scrapes. Not everyone’s online obviously, but you’d be surprised at the number of people who are online. So they’ve either got their own social media presence, they’ve posted things, they’ve posted things about themselves. In some cases, the officer will either be the beneficiary of an intelligence analyst in the separate part of Home Affairs that does immigration intelligence work, who might prompt a query saying, “Look, we found a post that you might just want to think about or look into”. It might be a post that is suggestive of a security or character concern.

And then there’s the interview process itself, and it might well be that matters come up through the interview process that give the officer cause for concern … When I was running the department, I didn’t want a particularly – it’s going to sound counterintuitive – I didn’t want a particularly fixed view of what Australian values, or if you like, the Australian character was … I know the formal document’s called the Australian Values Statement. But if you look at the values statement, they’re no different from what you would describe as liberal democratic (small-l) values.

WALKER: I read the statement in preparation for our chat. With the exception of the section on the fair go, I mean, it could be an American value statement or a British value statement.

PEZZULLO: But you want it to be, right? So I mean, is anyone seriously saying that an Italian or a Dane or a French person is any [less] committed to pluralism, the rule of law, respect for the rule of law, democratic … whether it’s a presidential system or a parliamentary system, some form of democratic system of resolving political difference. So I don’t see those as being uniquely Australian values. I know for legal and probably for political purposes we call them Australian values. [But] a fair go in other societies might be called égalité, “egalitarianism”.

So most societies have also got a sense of balancing liberty on the one hand – freedom – with, if not equality, at least equity. So my view was always – and certainly in all the instructional materials we used to give our staff on what they were looking for is – “Look for … aberrations, or look for people who aren’t going to live in that pluralistic liberal democratic society, rather than who are not going to fit into Australian society”. Because you end up in the same place … And this has been our overwhelming migrant experience … Typically if you’re going to migrate permanently, you’ve already got a sense of the country that you’re migrating to.

There’s a couple of exceptions that no doubt we’ll come to in the course of our conversation, where there are particular religions or particular cultural backgrounds that might run up against not Australian-ness per se, but pluralism, tolerance. And no doubt we’ll come to that. And I think there’s a particular issue in relation to some of the harder interpretations of Islam, for instance, particularly with the Salafistic jihadist interpretation. But we’ll come to that in a moment.

So whether you’re migrating to Canada or whether you’re migrating to New Zealand or whether you’re migrating to Australia, the model is essentially the same. We use different systems, points, and different security and character testing algorithms and procedures and processes. But essentially you’re looking for the same thing, which is not so much to say, “Joe, we want you to conform with a particular culture”. No, what we’re really asking you is to conform with a particular institutional system. “This is how we run Australia. It’s plural, it’s democratic, men and women are equal, there’s equality of opportunity, the courts dispense justice. We don’t have an extrajudicial way of dispensing justice. When a court decides something, even the government is bound”. In other words, the courts can restrain the executive government.

If we believe you as a candidate are able to live within those, if you like, institutional [parameters] … and I describe them as institutional rather than cultural parameters, because our culture, like French and Australian culture, is very different, but we’re both democracies. It seems to me the common touchpoints in migration typically to at least Western nations are a commitment to the, if you like, the institutional values of that society.

So when you do your security and character checks, you’re looking for things like criminal behaviour, obviously, criminal associations. But you’re also looking for things like extremist belief. Has the person come up in a database of extremists, for instance? Are they potentially associated with someone who might be in your extremist database? Is there anything that they said during the interview, or maybe that they’ve expressed through social media, that might give you cause for concern in terms of extremist ideation? That’s what you’re looking for, rather than a more nebulous … And I understand why in the political debate we talk about Australian values. I absolutely get that. And I get why a politician, for instance, a minister or a senior member of the opposition, would want to talk about the Australian way. I absolutely get that.

But as an administrator, turning that into something that is, if you like, able to be delivered as a program where you can train your staff as to what to look for, you can train your decision makers as to how to make decisions … There are limits to what a fairly nebulous idea of Australia – there are limits to how you can apply that in a programmatic sense. You’ve got to turn that into some decision points that are able to be documented and where the thresholds are clear.

WALKER: What’s an example of an interview question put by an immigration officer that might turn up whether someone has beliefs that are incompatible with liberal democratic values?

PEZZULLO: If the officer’s so minded, or [if the Department is] doing a particular campaign through their questioning and they want to have a discussion about men and women, equality, the rights of women to work, the rights of women to live free of domestic violence, for instance, you might probe away at that. Now you’ve also got to apply … some judgement, because it might be that the person engaging with you and answering your questions has anticipated the fact that you’re going to ask that. So you’re not necessarily getting to, if you like, deep ideation, but it might sit alongside other indicators that might cause you to be concerned.

WALKER: Because I can imagine people who are applying probably will have a pretty good idea of what the immigration officer wants to hear.

PEZZULLO: Yes, and for the most part there’s a beautiful confluence of what the immigration officer wants to hear and what the person believes. In my experience – and it’s very rare to find examples to the contrary – most people have got a positive idea of Australia.

WALKER: Of course.

PEZZULLO: In a sense it’s a land of opportunity, it’s a land of freedom. As long as you don’t harm others or adversely affect others, you basically are free to live as you want. Most people express that both in their application and through their enthusiasm during the whole candidacy process, through interviews and the rest of it. And the officers become very attuned to detecting that enthusiasm and that genuine desire.

Now, can someone mask that? Of course they can. Can someone create a legend which isn’t what they really believe? Yes. And the more skilled they are, the harder they are to detect. But then you’re really almost starting to get into counter-espionage and trying to penetrate someone’s legend. Typically, most people’s beliefs are … deeply held but lightly expressed. In other words, “I’ll say, yes, of course women should be able to dress as they choose. Of course women should have an equal opportunity to get a job”. Most people, it’s just like conversing with someone at a restaurant or in a pub, will express their view of life in pretty basic terms.

WALKER: So thinking back on your time as secretary of the Department, are there any vignettes that stand out as particularly salient around how we select migrants? Any anecdotes?

PEZZULLO: I’ve got to be a little bit careful because I don’t want to give away the tradecraft of how particular intelligence operations are mounted, or how particular campaigns are mounted through the selection process. But I certainly recall at particular times, especially when we were dealing with that period from about 2013 onwards until about 2019, with the rise of the caliphate – and we should now go into the question of the more extremist versions of Islam – what was heartening during that time is both through candidate selection, which is what you’re asking about, but also in the parallel question of the attitudes of second-generation migrants (so those who are the children of people in this case with a Muslim or Islamic faith background) is the relatively small numbers relative to population size where we were concerned.

Now, yes, it is the case that there’s an overrepresentation. This is not so much on migrant selection; it’s really about the second generation. But it makes the same point. There’s an overrepresentation, no question. And I can’t discuss the numbers simply because it’s really a matter for the head of ASIO to speak about this publicly, not me. But let’s say, for argument’s sake, there’s … several hundred hard targets that you’re looking at. That is, people you’re seriously concerned about who might take their ideation to the point of attack planning.

WALKER: Who are already in the country.

PEZZULLO: Yep, either first or second generation typically. We’re not quite at the point where we’re getting third generation yet.

And you might have several thousand who might be on the periphery of some of these more extremist preachers, for instance. So you’ve got an overrepresentation within the groups that are under investigation, the groups that are charged, and the groups that are brought before the courts and convicted – in other words, an overrepresentation typically of younger men of Muslim faith who have got a view that there’s a somehow deeply existential conflict between the West, the Judeo-Christian West, and the Christians and the Jews particularly, and Islam. And the only way to resolve that is to live in a caliphate.

And we saw this play out for real when the caliphate – which is a very different model from the Al-Qaeda model which is a very decentralised terrorist model – the caliphate of Islamic State [said]: “We’re going to create a territorial unit and we’re going to invite people from all over the world, from the universal Islamic community, to come and live their true Islamic faith where men are superior, women are in a subordinate position, your children are raised in the caliphate.”

What was heartening about that was the small numbers. Yes, there was overrepresentation. So if you look at the people who’ve been charged and convicted since, say, 9/11 – so that gives you a 25-year sample set – [that is] very much overly represented by young Muslim men. [Their religious community] is now getting above 850,000; [the] last census was about 825,000, from memory, so about now it’d be 850,000 …

WALKER: It’s the largest non-Christian faith group in Australia.

PEZZULLO: And rapidly growing, for a series of reasons. One is source-country immigration, humanitarian program, and birth rate. So at least for the moment, in the second generation, [it has] high levels of fertility relative to other groups. So [it’s] growing at quite a size. That to me is a remarkable achievement.

WALKER: The absolute numbers are small.

PEZZULLO: Correct. So yes, you do get overrepresentation, and there’s no beating about the bush. You can’t avoid making this statement. You have overrepresentation. I won’t give you the numbers, a) because they’re classified, and b) [because] I’m two and a half years out anyway. You have overrepresentation in the ASIO and AFP caseload. [They are] ahead of the second group, which is actually Caucasian men – again increasing not at a startling rate, but increasing significantly enough – who are following neo-Nazi type or white-supremacist type ideation. So those are your two groups that you’re most worried about.

WALKER : And they kind of feed off each other as well.

PEZZULLO: And they kind of feed off each other to some extent. They’ve both got a very different view about … about the very thing we spoke about a moment ago: pluralistic, tolerant, equitable, cosmopolitan, multicultural Australia. They come from different vectors against that vision. Absolute numbers are worrying enough. You certainly wouldn’t want thousands of targets, but let’s say …

WALKER: Several hundred.

PEZZULLO: … let’s say several hundred. I’m not going to go beyond that.

And I’ll just do a quick side note because we’ll come back to this, I suspect, in the context of the Royal Commission that’s currently underway: this is something that Virginia Bell, the commissioner, the former High Court justice, is going to have to think about … (And regrettably, my good friend Dennis Richardson, as of the time that we’re broadcasting this, has just recently announced he’s not going to further assist in the process, which I think is a shame, but I respect Dennis’s motivations and reasons.)

But one of the things that Virginia Bell’s now going to have to think about is … for the likely quantum and the trajectory of those quantums – one with young Muslim men typically (very few Muslim women, notwithstanding the discussion about ISIS brides who went to the caliphate)... The attack planning and the attack execution was typically younger Muslim men (although in the case of Bondi, you had the father as well, but the surviving suspect is in his twenties).

[And the other with] those caucasian neo-Nazis and/or white supremacists.

One of the things that the judge will have to consider is: what is the baseline of those two caseloads at the moment? … Because ASIO needs to think about absolute numbers rather than proportions. And then, is the resourcing level set right for both extremist Islamist attack terrorism and white supremacy and/or neo-Nazi terrorism? And she’s going to come to a view, and she might well have to give public venting to those numbers.

For the purpose of this discussion – and I’m happy to talk about white supremacists if you wish, because they’ve got an integration issue as well in a perverse kind of way – but if we’re just focused on those who follow the more extremist Salafist jihadi version of Sunni Islam, the numbers are actually quite small relative to the Australian Muslim community. And I think we should be heartened by that. That’s a good thing. As I said, based on the last census, that community is about 850,000. So those numbers, whilst worrying in absolute terms, including the numbers that have been brought before the courts and numbers prior to that who have been charged … You don’t want to see an increase in those numbers, that’s for sure. But you’re not talking about thousands and thousands of people who hate Australia. So that’s the good news.

WALKER: That’s good news… So how did we get onto this? Oh yeah, I was asking about whether you had any kind of vignettes or anecdotes about how we select migrants.

PEZZULLO: Well, at that time, just reverse engineering the answer, because we were concerned about the idea of the caliphate, extra attention and resources – and again, I’m going to be circumspect in describing the exact methodologies and the classified systems that are used – but at that time there was extra checking done on anyone who might come from countries where that Salafistic jihadi version of Sunni Islam was prevalent. So parts of Somalia, parts of Iraq, Sudan, et cetera.

And at the same time, about 2014, 2015, we achieved a number of breakthroughs in what was still the Immigration and Border Protection Department in terms of getting agreements with partners, both domestic and foreign, to link in digitally databases that had never been previously made available. So you could do some of that digital checking. Now, acknowledging that the technology’s 12 years old ... it was cutting-edge at the time, but you could run your search parameters through larger data lakes. And you’d get flags that frankly might never have been flagged to immigration officers previously.

So for instance, [at] the time of the caliphate we got access … to a number of classified US databases. I’m not in a position to [say] whether it’s FBI or CIA or someone else, I’ll let your imagination run wild.

Because the Immigration and Border Protection Department, as it then was (subsequently Home Affairs) was not a rated intelligence agency at that time, you might not have full access to all the bio[graphical] data. But you might have enough of a hit just based on basic biodata – name, date of birth, aliases – where the host agency [such as the US’s Department of Homeland Security] would say: “Ah, we need to send this file to the Australians, which we might do through ASIO”, right. So we’re not going to send it to an immigration officer who doesn’t have the quite the high-level clearances required, but a flag’s been hit. And in days of old, that immigration officer would have been none the wiser. So then what happens is they get a call from ASIO saying: “Oh, you’ve sent a ping for Joe, biodata, and an alias has come up. We’re running that lead down with our partners”, say, in the FBI ...

In that federated searching process, just that alone, [we] started to see an increase in our rejection rate. And I can’t go into the numbers, but: why? Because we were hitting databases even just at the stripped-down data layer – name, alias, date of birth, maybe region of origin, town of origin, place of birth, maybe at most. You don’t get the full FBI file, you don’t get the full CIA file, because they’re highly classified and they’re subject to different sharing arrangements. But it’s just enough for the officer to be flagged to say: “Hey, we’ve sent a file to ASIO, you better talk to your colleagues over at ASIO.”

WALKER: Yeah, interesting.

PEZZULLO: And ASIO might have access to the deeper file saying “do not issue a visa”.

WALKER: Yeah, well, which is interesting because it implies that prior to the 2010s we were letting in a lot of people who …

PEZZULLO: Before 2014. I can almost date it. So what was that? The Abbott government funded … There was some earlier work done to the credit of both the Rudd and Gillard governments where they started going down this path. But the investment in something called VRA, a public program (not classified, although elements of it are classified) – Visa Risk Assessment – was funded from memory in the [20]14–15 Budget. So we got quite a lot of money, I think upwards of $100 million, to create this federated search engine, a classified search engine.

We created, for the first time … There were intelligence officers in the old Immigration Department going right back to 1945, typically retired military, retired police, sometimes retired ASIO, very good officers, but very much working with paper files. With VRA we started to deploy digital tools. We created an intelligence cell which ultimately became a division, a whole division.

So in a bureaucratic hierarchy, you’ve got the department, which is run by the secretary; you’ve got groups that are run by deputy secretaries; and then you’ve got divisions that are run by first assistant secretaries. [This] roughly mimics the military system of an army, a corps, and a division, just in broad terms, for those of your viewers who are military—

WALKER: —minded.

PEZZULLO: Military-minded, yeah. So a first assistant secretary is broadly equivalent to a two-star general. So we created a division under a two-star civilian equivalent. And they had top-secret codeword clearances so they could engage more openly on, if you like, the under-the-line text and other information. The immigration officer, who might have a lower-level clearance, might never see the full file. But because you had this federated search capability, they were able to be advised “do not issue a visa; or probe more deeply on these questions and factors before you come to a view and then come back to us”.

And so that loop that was created between the intelligence staff and the visa issuance staff was a first, and subsequently built upon. There was further investment under the Turnbull government, as I recall. It’s not quite to that fully digital selection machine that I spoke about at the top of this discussion, where ultimately you’re going to have everything digitised, including down to having an AI agent who can not only look for those security flags and concerns, but can also say: “You’re looking for nurses in Tasmania; here are your best 20 candidates”. I mean, ultimately you want to get to that. Unless there’s been a dramatic lift in investment in the last couple of years, I don’t know that they’re close to that level, but that federated surface searching at least has been a feature of our visa risk assessment process for now 12 years.

WALKER: So that increase in the rejection rate … I don’t remember the exact increase, but I did read it in one of your opening statements to [the Australian Senate’s] Legal and Constitutional Affairs [Committee]. I can put a link in the show notes, but that implies …

PEZZULLO: I think from memory … we added something like a 1.5 percentage point lift in sort of rejections.

WALKER: Yeah, that sounds about right. So that implies that prior to 2014, we were letting in tens of thousands of people that we wouldn’t have wanted to. Is that the right order of magnitude?

PEZZULLO: I think that’s about the right order of magnitude. We’ll have to go back to the relevant … Because I did quite a lot of work on this in anticipation of one of the Senate estimates hearings, because there was a question about … particularly after the caliphate episode, whether we were checking deeply enough, thoroughly enough. I think from memory, and again I’m going to have to be corrected, and you can put a link, I think we got the rejection rate up by at least a whole percentage point, if not 1.5 or something, which in absolute numbers was in the thousands.

WALKER: Right. Yeah, interesting.

PEZZULLO: Now, not all of that, I should be clear, was about terrorists.

WALKER: Sure, of course.

PEZZULLO: In some cases, through these international checking channels, we picked up repeat applicants who’d gone to different countries with maybe fraudulent academic qualifications. And so you’ll get a hit, say, in a Canadian database saying: “No, no, we’ve seen that person before and we looked behind their application; they don’t have that degree.” “Okay, thank you. Thanks, Canada. And we’ll share our information with you.” So some of the rejections were on security grounds. Other rejections would have been on character, and other rejections would have been on basically fraud – fraudulent qualifications for instance.

WALKER: This is all under the VRA.

PEZZULLO: Yep.

WALKER: What’s your gut intuition: Do you think AI is going to net out in favour of bureaucrats using it to detect weak applications, or in favour of weaker applicants trying to get around the system?

PEZZULLO: I think in net terms, if you combine it with and keep building on these digital systems that I’ve been describing … more and more of these databases, right? So the visa officer has this force multiplier which they might not be aware of, because it’s coming through an intelligence portal And they might be reliant on CIA, FBI, MI6, MI5 information that they’ll never see. But as you force-multiply – say, we establish a relationship with the French intelligence services, or the Belgian intelligence services – it’s not just AI, but the feed. So the more data you’re pushing in, you’re scraping people’s social media, you’re hitting more and more databases, both at the biodata level but also in terms of classified holdings. And you’re moving to a sort of an AI agent model that’s helping the officer do the research. I think the balance of favour falls on the side of the officer.

WALKER: Okay.

PEZZULLO: And the reason why I say that is because a bit like crime, criminals will always be working new ways of importing drugs or conducting fraud. And if the defending organisation just stays on its own, they’ll always be overwhelmed. But the more you federate – this is a point about law enforcement, but the same applies to immigration and border protection – the more you federate with like-minded jurisdictions, and you just keep multiplying, multiplying, multiplying…

Now you’ve got to give as well, right? So if I get a French database, I’ve got to give them an Australian database. And the way you protect privacy is we say to the French, say for instance, or the Belgians or others, we say: “We’re going to give you our headlines of all our key targets, and all you get is the name, the date of birth, place of birth, and if it pings, we’ll then have a protocol to give you more.” The more you do that, the more you suppress the opportunities to game the system.

WALKER: Right. So at least with respect to immigration applications, AI will be defence-biased?

PEZZULLO: Yeah, yeah, I believe so. Again, collaboration always defeats the gamer.

Australia’s broad distribution of source countries is a happy accident

WALKER: Okay, so I’ve been trying to get an answer to this next question for more than a year now. It’s come up in a lot of my conversations with people who’ve worked previously in the Department of Immigration, and I ask, “what are the reasons that historically Australia seems to have been so successful at acculturating migrants into the Australian mainstream?” And one of the points I often hear is that we’ve always taken a mix of national and cultural groups such that no one group has formed critical mass sufficient to form a breakaway culture like the Québécois in Canada or the Catalonians in Spain.

And it is true that if you look at the spread of the 31.5% of Australians born overseas, 43 different countries account for at least 0.5% of that population each. In contrast, I think the US is much more top-heavy in terms of its distribution; maybe like a quarter of their foreign-born stock are from Mexico, for example. But what I don’t understand is, a) the extent to which that has been a happy accident versus deliberate policy, and b) if it has been deliberate, exactly how it’s been operationalised.

Because obviously since about 1973, we’ve had the principle of non-discrimination. I know that at various points in our history, governments have kind of consciously accepted refugees from particular regions with a view to kind of … counterbalancing certain diaspora already in Australia, or expanding or building out the mix somewhat. So for example, I think in the ‘70s the Whitlam government consciously took migrants from Latin America because we hadn’t drawn migrants from there before. But since then I haven’t been able to find any other more recent examples. So yeah, I’m just going to put that out there. What do you know?

PEZZULLO: It’s been driven by global population dynamics.

WALKER: Not deliberate planning.

PEZZULLO: No. And that’s a function of the shift, the very welcome shift, to non-discrimination.

WALKER: Yep.

PEZZULLO: However, and here’s the however, even if you’re open to the world, in some cases – so India is a good example, and China to some extent – the world wasn’t always travelling.

WALKER: Yeah.

PEZZULLO: It’s only been in recent years, probably from the ‘80s in the case of China, ‘90s, even the 2000s in the case of India, we have the mass migration out that you saw previously in places like Italy or Greece or Ireland and the Baltic states, et cetera. In other words, these waves go through global history as a function of two factors … the openness of the receiving society, whether it’s Australia or Canada or New Zealand, but also the temperament, if you like, or the attitude, or the sentiment, I should say, of the emigrant nation.

So for a long time, people in India, for instance, didn’t have the means to apply for the visa and to do the travel. Now they do. So you’ve had this dramatic rise … And that’s a function of two things. One, you get temporary migration with students. They can stay for a post-study period. They sometimes form family attachments, or they apply for the permanent stream. Applying for the permanent stream – just going back to our earlier conversation – from onshore is as important today as applying offshore.

In other words, you came here to do a four-year degree. You might have had a two- or four-year post-degree study and work period. You met someone, you fell in love, you decided: “I want to stay in Australia.” You switched to the permanent program, either off your own volition or through maybe a family, through a relationship, partner-sponsored visa. And what initially was a uni placement becomes a lifestyle choice.

When people from India were not emigrating, our numbers were low. We didn’t go out saying, let’s get people from India. They just simply weren’t emigrating. The great emigration from India started – I’ll have to check my data on this, but probably in the early 2000s, I’d say.

WALKER: Sounds right.

PEZZULLO: Yeah. China a little bit earlier – and China, interestingly, more from Canton and the areas around Hong Kong, so southern China more so than northern China. That probably started in the ‘80s. So Sydney, for instance, [attracted] a lot of people from Hong Kong, what used to be called Canton, they speak Cantonese, for instance. There’s an overrepresentation relative to the demographic breakdown of China.

So it’s when those waves are both attracted by the receiving country because of openness and non-discrimination in selection, but also those waves have to start. They ripple out from the source country. And then over time, in some cases, people stop migrating. So there hasn’t been an immigration wave from Ireland for decades. And if anything, people are sort of going back, particularly when Ireland became economically very successful.

So these waves go for decades and then they either peter out or they transform or they become different. The thing that slightly operates at the margin of that is the refugee intake. Why? Your system for granting asylum to people with a well-founded fear of persecution typically doesn’t mirror waves of economic emigration. It’s people fleeing from violence, torture, rape, political oppression, et cetera, discrimination on the basis of gender, sexuality et cetera. That’s a different group again. And that’s why in your refugee ranks after the Second World War, [there are] a lot of people from Eastern Europe, the Baltic States etc., a lot of people fleeing communism, for instance, in the immediate aftermath of the Second World War.

That changes dramatically, Vietnam obviously being the case in point in the ‘70s, Cambodia to some extent, and in more recent years Syria, Sudan … Somalia, places like that. Because we’ve also got a non-discriminatory policy in the refugee area, as we should, depending on the absolute size of your refugee program, you can get actually quite visible changes quickly.

So say for instance you’re taking a lot of people from Sudan. They normally wouldn’t be migrating in the way, say, Italians migrated or Greeks migrated or the Irish before them, or more recently people from China or India. They’re fleeing. And so nearly everyone that you see in Australia who’s come, who just from their physical appearance you might think might have come from Sudan, is almost certainly here as a consequence of the humanitarian stream. So that is the sort of subset within your permanent program that’s a function of drivers other than economic immigration.

WALKER: It’s kind of a remarkable fact about modern Australia that to the extent that the distribution of national groups in our foreign-born population is obviously far from perfectly uniform, but more uniform than it is for other Western democracies, that that is just the result of us kind of hopscotching our way to the mix over these successive waves of emigrations.

PEZZULLO: Yes. I can assure you we don’t have officers sitting in the permanent program saying, “what is the global distribution of Spanish-speaking people from Latin America?”

WALKER: “And we filled up our quota here, so now we’re going to go to…” – there’s none of that?

PEZZULLO: No. It … largely mirrors the world, with that exception around the refugee intake, which is probably disproportionate. So we would not, I suspect … I haven’t looked at the data for a long time, but I don’t think we’ve got the global distribution of people born in Sudan or people born of Sudanese parents in Australia. We’ve probably got a higher quotient or a higher proportion as a function of taking people who have got a well-founded fear of persecution, and granting them asylum.

But if you control for that variable, so people from Nepal or Bangladesh or India or Pakistan, and you go through with some – not oddities, but where there’s perhaps overrepresentation relative to global demography – we basically mirror the world.

WALKER: Do you think we should have a deliberate policy with respect to the mix, or like quotas?

PEZZULLO: No.

WALKER: You just kind of take what’s there.

PEZZULLO: I just think you take what’s there, based on those two factors. [You maintain] openness of reception, subject to those character and security and other checks we spoke about earlier. And then you’re basically, if you like – and Canada’s similar – through the point system … basically a reflection of global mobility.

So there was a time when people weren’t emigrating from India. There weren’t a lot of Indians in Australia. … Once they started to emigrate – a lot of them, either because family was here or they just knew about Australia as a Commonwealth country, both play cricket … they can get by very well with English, [the two countries have] similar sort of common law justice systems, [so they said] “I want to go to Australia.” Why? “Schools are better, better education. I still am devoted to my homeland, you know. I celebrate national festivals. I’m a Hindu, as the case might be. I have freedom of religious observance in Australia. I can go to the temple etc. Australia is this wonderful land. But I’ll make sure that my children understand their roots. And depending on our wealth over time, we’ll travel back.”

And in some cases – it certainly has happened in the Italian community that I’m familiar with – subsequent generations even buy property back in what is the ancestral home and almost live a split life. You know: “I’m going back to Italy for three or four months … but my main house is in Australia.” Indian people will do that. Chinese people, I suspect, will do that.

With second, third, and by the time you’re fourth-generation, they might well say: “Actually, I’ve opened up a business in India. My home is Australia. That’s where my main residence is. My children all speak Australian. They want to play for the Australian cricket team, not the Indian cricket team. And when my children speak, they sound like little Australians, you know, in terms of the accent, for instance. But I also love India, and I’ve opened up a business there.”

And you’ve seen this with Italians, you’ve seen it with Greeks, you’ve seen it with people from former Yugoslavia, that you start to live in those two worlds, and that’s a very healthy thing.

WALKER: So I mean, fundamentally what you’re talking about there is acculturation, which is a very powerful and natural process … Just so people who might be listening are clear, when I say acculturation, I basically mean what economists mean by assimilation or what people mean by integration. I avoid the word assimilation because in the Australian policy context it’s a very loaded word. But acculturation is a universal, natural, and powerful process.

PEZZULLO: Yes.

WALKER: And it’s a two-way street. And along different dimensions, the migrant culture might acculturate, might converge more on the mainstream culture or vice versa. So a classic example of the mainstream culture converging to the migrant culture is through cuisine. In the other direction, it’s like language acquisition.

And the definition of acculturation I like most is [that] it’s the diminishing of ethnic or cultural difference over time. I like that definition because it permits the two-way street. It’s about a convergence.

So just so I’m clear, what you’re saying is that we don’t need to worry about or have a deliberate policy with respect to the mix, because of this process of acculturation. But if it’s true that the success of Australia’s experience with acculturation is contingent on the fact that none of the groups have been sufficiently large that they can kind of sustain their own culture, and then you end up with … You know, you travel to California and all the road signs are in both English and Spanish. We don’t have that kind of situation. Why shouldn’t we be deliberate about the mix? Just so I’m clear, why do you think we don’t need to be deliberate about that?

PEZZULLO: I think for the reason that we touched on earlier – that the mix doesn’t matter as much as the allegiance does. It doesn’t matter whether you’re a Greek-Australian, an Anglo-Australian, a Lebanese-Australian. If you accept a number of basic precepts – we resolve our political differences through the Parliament; we have political parties and we have representation; the courts determine both civil and criminal penalties; there’s equality of opportunity and equality of employment – then your culture shouldn’t matter.

Where it does start to matter … And you’re starting to see this in Britain to some extent, [and] parts of Canada, where either because the size of the group in objective terms is large enough or in political muscle it’s large enough, you do start to see multilingual signs. You do start to see some experiments. And your viewers might be interested in looking up over the last 20 years some of the experiments that have been made, for instance, with Sharia [Islamic law] in both Canada – about 20 years ago, I think it might have been Ontario, from memory – and also there’s a debate in Britain about having Sharia, as long as it’s not inconsistent with the common law, to have a degree of being able to resolve disputes in a Sharia format.

We should stand opposed to that. Under no circumstances [should we compromise]. We have a single justice system. It’s based on the common law of England, as modified by statute. That’s it. We’ve just got one legal system.

Now, to the extent that challenges you in terms of faith – well, then you either have to make a decision about living here, or you’ve got to accommodate, whether it’s in relation to marriage or sexuality or how we resolve financial or other disputes. We do it in a secular fashion, in the case of the legal system, through the common law system. We should just have no tolerance at all [for alternative legal systems].

My preference is not to go for mix. My preference is to go for – is it rigidity? Yeah, I’d say it’s rigidity, or at least principle, really firm principles about those in that institutional design. “This is Australia.”

Now, to your point. You made a passing comment which I didn’t pick up on at the time, but I will now. “Assimilation” has got a particular connotation. And I certainly saw the back end of it. I was born in 1964, second-generation Italian. I saw the back end of this, as I remember, in the late ‘60s, early ‘70s, where assimilation was assumed to be “you’re assimilating to a culture, a monoculture, which is Anglo-Australian.”

So I grew up in a street [with] what used to be called Federation housing in southern Sydney, [with] all the houses that they built just after the First World War, principally for returned soldiers. By that stage, people have been living in the streets, say, for 50 years. They’re quite elderly World War I vets.

There were only two families in the street [who were] Italian. There was a Sicilian family down the street. We were at the top end of the street, and we were accepted, but it was always accepted on the basis of: “Oh, I noticed the other day in the backyard, you were making sausage or you were making tomato pasta sauce. I remember that during the war, you know. I was in the Second World War, you know. Unfortunately we fought the Italians. They had great food.” So you’d have that sort of discussion where you were the kind of the oddity in the street but accepted.

But every Sunday was fascinating … Very few of us drove – some drove, but the churches were in walking distance. The Italian families would go to the Roman Catholic Church. And all of the Anglo-Australians would go to the Church of England. Not Anglican. “Church of England”.

So Australia was a very different place. That Australia is very different. I remember that Australia, largely Anglo. It hadn’t yet been, if you like, affected by many migrant waves. By the ‘70s and ‘80s, there was more multiculturalism evident. The policies of the Whitlam government changed that, [and] the creation of the Special Broadcasting Service, SBS, under the Fraser government. You started to see multilingual public broadcasting, for instance. There wa no internet.

So for instance, for Italian Australians, you’d get the weekly newspaper, La Fiamma, that might have sporting scores or something from Italy. But all of my father, his brothers, so my uncles, they’d all become devout Rugby League fans, because you weren’t – except for maybe the weekly highlight package – you weren’t watching Italian soccer on TV.

Now it’s changed again, because the world has come closer through the internet. But in those days, no, they became, in my case, southern Sydney St George supporters. They were fierce St George supporters. That’s assimilation.

I think what’s happened since the ‘70s is acculturation, as you described it, and Australia looks and feels more like its demography. So, you know, whether it’s Little India or Little Vietnam, or you go to the place I grew up with in southern Sydney … a lot of Chinese people are in the suburbs of Hurstville and Kogarah. How do you know that? Because of all the signs.

But typically – and we know this through our children – second- and third-generation children, when they open their mouth or when they speak, they’re Australian. And I gauge that just by their accent.

So I think that’s a better model, where … we’ve got certain fixed and non-negotiable rules about institutional design, and then the culture just evolves organically depending on demography.

WALKER: Yeah, it’s that sort of creedal national identity. You mentioned Indian migration before. So India is Australia’s fastest-growing migrant group. I think last year there were about 900,000 Indian-born Australians, and it’s soon going to surpass the United Kingdom as Australia’s largest …

PEZZULLO: First time, yep.

WALKER: … for the first time, as Australia’s largest source country.

PEZZULLO: Yep.

WALKER: Putting aside the obvious stuff like cuisine, how, if at all, do you think that will change Australian culture?

PEZZULLO: You sometimes see in the discussion and in the policy discussion concerns expressed because a lot of first generation, less so second generation, are still tied to, say, the politics of home. So when [Indian] prime minister Modi comes to Australia, a lot of Indian – not just temporary migrants but permanent migrants – will turn out waving the Indian flag. I think that’s fine. I’ve got no issue with that. They’re proud of India’s rising status as a great power. I don’t see any clash of allegiance there.

It’s especially evident when there’s a sporting tournament, you know, when we’re hosting particularly cricket, a World Cup, either the one-day international or the T20. The crowds that you get for an Australia–India game, or say an India–Pakistan game, are enormous. And it might be the MCG, and most of them are following India. No problems with that at all. I think the fact that they’re waving the Indian flag, even if they’re first-generation permanent residents – not a problem. I’d like their second-generation kids to play for our cricket team. So, you know, I’d like to have the next Tendulkar playing for Australia and not thinking that they’ve got to play for their homeland.

I think so long as none of the communal or political differences come here … The Prime Minister talks about the Australian covenant. He’s talked about this in the context of the Bondi atrocity, that he uses this phrase, the Australian covenant – that whoever you barrack for, or whatever your culture is, or whatever your sporting interest is, or how you want to dress, or your cuisine, you don’t bring hatred, or you don’t bring differences here. I think he’s onto something there, because that’s another strand of that acculturation that we spoke about: that if you’ve got a view about how India should be run, say by a Hindu majority party, and Hindus should have special benefits over Muslims in India – okay, if that’s what you think, you go to India and prosecute that case. We don’t live like that here. We don’t have communal privileges here.

And we saw this when Modi visited in ‘22 or ‘23 ... [He received a] rockstar welcome. And they had to get sporting stadiums because there were so many people. For me, that was an expression of pride, including by Indian-Australians, in India’s rise. I don’t see any problems with that at all, whatsoever.

WALKER: Let me go out on a limb and test one potential unexpected positive benefit on you. I think Australia has what I’ve been calling a culture of acculturation …

PEZZULLO: Yep.

WALKER: … which I think partly connects to the egalitarianism.

PEZZULLO: Yep.

WALKER: And I’ve been meaning to write something about this, which I will at some point this year, hopefully. But it’s possible that the Indian diaspora kind of leans into that and supercharges it. Because India is an incredibly multicultural country. And I think people evolve or adapt ways of communicating and dealing with that difference in Indian society that maybe is quite resonant with Australia’s culture of acculturation. Total speculation.

PEZZULLO: All of us have got Indian friends, either temporary migrants or more typically, increasingly, Indian-Australian permanent residents [and] ultimately citizens … I think [this affinity is] to do with the Commonwealth and to some extent the British Empire.

Even just phrases like we talked semi-seriously, but let’s talk about it seriously – sport. If an Australian of Italian heritage – so let’s say an Italian Australian and an Indian Australian are talking about fairness, we’ll use the idiomatic phrase “it’s just not cricket”, as an example, and we both will know exactly what that means. It’s sort of distilled or derived to some extent from the Empire, from the Commonwealth. You would probably have to translate that idiom to a Chinese Australian or someone from the Middle East. They probably wouldn’t quite get it.

But with someone from India, they have come from a polyglot country, multi-ethnic, multi-religious, multicultural, very tolerant, with some outbreaks of terrible violence, but largely tolerant. And they see Australia often as a better version of that. Because, you know, for all the tolerance of India – and it is a remarkable achievement for just how tolerant and pluralistic it is for such a diverse country with so many different religions, sub-religions, sects et cetera – they do occasionally have horrific instances of communal violence.

With Australia, you get all that multiculturalism without any of the communal violence – you know, the sort of terrible violence you saw in 1947, for instance, at Partition. You don’t have any of that here.

So I think for certainly anyone who’s come from a British tradition, the Commonwealth tradition, Australia – and I suspect Canada and New Zealand are in this category as well – are almost like an ideal type, without all the class and all the privilege of Britain, of what that imperial heritage looks like when you overlay it with a fair go or egalitarianism, or however you want to couch that.

I think for others though, they quickly come to appreciate that. If you’re from Latin America or you’re from Southeast Asia or you’re from Africa or the Middle East – and we’ve all got friends in our broader friendship network or partners of our family members – they get that even though they don’t have that deep British heritage, because of that idea of the fair go.

Now I said earlier – and you drew attention to this in the values statement – that the fair go is the one thing that doesn’t kind of translate in Canada or France or elsewhere. They’ve got their own ways of expressing egalitarianism. But it seems to me that that idea of the fair go – let’s call it egalitarianism or equality of opportunity – is a universal currency.

So even if someone [is] second-generation Chinese Australian – they might not have that deep background in the Empire and cricket and all the rest of it in the way that an Indian Australian would – it’s very easy to translate, as a core simple idea about how to live, into a universal value.

Acculturation services

WALKER: Yeah, yeah, yeah, yeah. Okay, so … I like to split what we might call “acculturation policies” into two separate categories. The first is selection policies, which we’ve just been talking about, and I think there are a couple of mechanisms by which selection can affect acculturation.

One is just, as we were saying, sheer numbers. So a smaller group is going to acculturate more quickly than a larger group, all else equal. And the second mechanism is just the selection criteria – so, choosing migrants with traits that are more consistent with the mainstream culture or are going to make those migrants acculturate more quickly.

PEZZULLO: And noting what I said that that’s largely done through a filtration process. So you’re filtering on security and character. Because you’re assuming that unless there’s a derogatory holding against someone or some sort of adverse indicator, they’re in.

WALKER: Yep, yep.

PEZZULLO: So it’s that filtration process rather than thinking, “Joe will make a great Aussie.” And then once you’ve got those filters set right, it’s then just an organic demographic outcome – the weight of numbers.

WALKER: Yeah, it’s like a negative check or something. So that first stage or first category of selection policies … And then the second category or stage are what we might call acculturation services.

PEZZULLO: Yeah.

WALKER: So I want to talk about these now, and … because these questions are quite factual or empirical, and I’m just trying to learn as much as possible, I’m just going to rapid-fire a bunch of questions.

So, acculturation services: if I’m a skilled migrant, is it correct that there really aren’t any government services that I can avail myself of to help me integrate into Australian society?

PEZZULLO: Largely not, unless there’s a question about your English proficiency, in which case you’ve probably struggled to get selected in the first place for skilled migration. But for other categories, there is adult migrant education, which is really about English proficiency. It’s about ensuring that maybe a family member of someone who’s come in – so they’ve got a visa as well, but they’ve come in on a skilled program – it might be one of the family members is struggling with English, so they get into a funded program.

But look, it’s nothing like – and this is a matter of regret, I think – it’s nothing like the kind of programs that we had in the ‘50s and ‘60s, particularly under Menzies. Menzies was especially strong for all migrant groups … They didn’t really have the sort of skilled family breakdown. It’s basically all family, like the program that my parents came in in the early ‘60s. So basically what came as labourers or unskilled workers, because Australia was looking for unskilled workers.

In the ‘50s especially – [it] started to wind down into the ‘70s – there were neighbourhood groups. So there were committees of Australians, Anglo-Australians …

WALKER: The Good Neighbour Councils?

PEZZULLO: The Good Neighbour Councils. Menzies was especially strong on that. Now we’ve got a form of that in the refugee space. [We have] really, really good services … With refugees, special case, they’re not really coming here to fill a skills gap. They’re fleeing from the sorts of things we spoke about earlier. So there are government services about, “Okay, here’s how you live in Australia; here’s some English language training; this is going to make you job ready.” In those cases, through a combination of civil society groups that might be ethnically based, so Sudanese people helping Sudanese, Somali Australians helping Somalis, for instance. They’re also a version of good neighbours who are, you know, settled Australians from different walks of life, different ethnicities, who form a committee or a group in, you know, regional Victoria or regional New South Wales to make people feel welcome. That in microcosm in the refugee space used to be done on a much more pervasive basis in the ‘50s and ‘60s.

WALKER: Including for non-refugees?

PEZZULLO: Yeah, yeah. Absolutely.

WALKER: Okay. Yeah. Because one of my questions …

PEZZULLO: Well, sorry: more so in the ‘50s and ‘60s. It started to actually decline in the ‘70s. As a child growing up, I remember very little by way of services. So I was born in ‘64. I went to school in ‘69 … I don’t recall any kind of assistance from the Department of Immigration, as it then was … And I don’t mind that, because our family made its own way. Because our networks were my father and mother’s relatives. Typically some older siblings who’d come to Australia first. They helped them navigate through banking, the legal system, how to buy a house, basic English. Certainly neither mum or dad did any kind of intensive English proficiency, and they came in ‘61. So even by then it was starting to tail off.

What the government relied on was the second-generation children, as they grew up. So in my case, me. As the … oldest child, eldest son, typically I actually helped my dad translate conveyancing documents. So I remember as a 12 or 13 or 14-year-old, helping him read legal documents to do with conveyancing and the like. So you become quite skilled even at a young age, saying, okay, this is what a tax return looks like, because you’re helping Dad fill out the tax return.

But that idea in the ‘50s and probably early ‘60s of Good Neighbour Councils, reception committees – I think a version of that … requires funding, and funding is always a problematic issue, but a version of that I think would be very welcome.

WALKER: Yeah, so one of my questions was going to be, to the extent that we now take a very laissez-faire approach to integration and acculturation, how much of that is just a function of the fact that in the immediate years or decade after World War II, most of the migrants we were taking were displaced persons, [or] in other words, refugees.

PEZZULLO: Yeah … largely Europeans.

WALKER: Largely Europeans. And we do provide those kind of integration services for refugees today. But it’s just that from the ‘80s and then even more so, again, from the kind of mid-’90s, there was this shift to focusing on skills and the sort of economic rationale for migration. The balance shifted from refugees to skilled migrants, and skilled migrants don’t need the same level of support.

PEZZULLO: But even earlier than that, Joe. Ministers in the Fraser government look back at one point of regret [which is support] for Vietnamese refugees, some of whom came initially by boat, very famously into Darwin Port. [At first they came through then prime minister Malcolm Fraser], and then ultimately there was the Comprehensive Action Plan for displaced people from South Vietnam who were probably never going to go back to a communist Vietnam. They were typically Catholic, religious people from South Vietnam; they were displaced persons who came in on a program.

If you talk to the remaining ministers from the Fraser days, they would say that the sort of Menzies-style approach probably should have been put in place in the ‘70s. Because those early years in places like Cabramatta in Western Sydney were difficult because it was assumed that the children would be supported through the school system as long as the hospital or the GP had some Vietnamese language, mum or dad would kind of navigate the health system, for instance.

And [when] you talk to anyone from the Vietnamese Australian community, they would say those years were tough. And now look at the wonderful, vibrant community we have, second- and indeed third-generation now because of having grandchildren.

WALKER: Super successful.

PEZZULLO: Super-successful business people. They trade back into Vietnam. [It’s a] great language capability that Australia has.

But I think they would argue that unlike the support that we put in place, say, for people from Hungary, Poland, the Baltic States, Germans in the ‘50s – even by the ‘70s, I think you’ll find, if someone mapped the history of this, a diminution in those services.

And that’s 50 years ago, right?

WALKER: Yeah. So it’s been a while. Okay, let me keep rapid-firing. So if I’m a skilled migrant, I don’t think I’m even eligible for the Adult Migrant English Program.

PEZZULLO: Nope.

WALKER: I’m not eligible

PEZZULLO: Because you wouldn’t have got the visa without proficiency. Your spouse might be … unless you’re both primary visa holders, right? So let’s say you’ve got a couple, they’re both welders or both schoolteachers. It might be that the family, including the spouse – typically a woman, not always – maybe has got challenges with English proficiency, even though the primary holder has got good English, because that was a condition of getting the visa.

WALKER: Yep. So putting to one side the humanitarian program, i.e. refugees. And just to give people context about the numbers here, for 2025–2026, I think the permanent program is capped at 185,000 places.

PEZZULLO: I think that’s right, yep.

WALKER: In comparison, the humanitarian program is just 20,000 places. So I think oftentimes in the public conversation, refugees get conflated with migrants, but the humanitarian program is really only about 11% of the size of the permanent program.

PEZZULLO: And at times has been smaller.

WALKER: Absolutely. And the permanent program comprises the skilled stream, the family stream (predominantly partner visas), and then also a very small stream called special eligibility.

PEZZULLO: Correct. And there’s a slight misnomer with the skilled. That’s roughly two-thirds, one-third split between skilled and family.

But within [the skilled group], everyone in the family unit gets that visa.

WALKER: Oh, I didn’t know that.

PEZZULLO: Right. So it’s not like, let’s say …

WALKER: I didn’t know that.

PEZZULLO: So let’s say …

WALKER: So it’s kind of inflated. The skilled numbers are kind of inflated.

PEZZULLO: Correct.

WALKER: Because it’s not just the skilled worker, it’s their family as well.

PEZZULLO: So let’s say roughly the long-run program is about 190,000, thereabouts. Let’s in round terms call it 180,000 just for the sake of this illustration. It’s roughly two-thirds, one-third – 120,000, 60,000 – split between skilled and family. But within that 120,000, you’re not getting 120,000 skilled workers.

WALKER: Oh, that’s crazy. I did not know that.

PEZZULLO: But you do get their kids. So the idea is that the family unit comes, hopefully, and it’s a slightly gendered thing. So typically the non-income or the non-primary-income partner is the woman. [Often] she goes into part-time work. Maybe [she] has to get some assistance with English language. Although that’s not usually the case because typically with us in a skilled situation – [it’s] not always gendered in this way, but typically the male in a conventional, traditional nuclear family [has] got a uni degree, [an] IT specialty. The woman might well have some qualification. It’s not always gendered in that way, but typically it is.

But … because they either come with small kids or they decide to have children, typically in that second generation, that family unit is, if you like, a professional family. So it might be that mum, dad, say two kids – that’s four visas, but only dad is the IT specialist, say.

WALKER: So with all that context, just like putting to one side the humanitarian stream and the skilled stream, I guess you’re not left with – well, you’re left with family visas and temporaries.

PEZZULLO: Yeah.

WALKER: For those people left, is the main sort of acculturation service available really the Adult Migrant English Program? Would that be the one that stands out?

PEZZULLO: Yes.

WALKER: Including for temporaries?

PEZZULLO: No, no, because for temporaries you’re either here to study English, to study uni, but you have to have English proficiency, or you’re here in a working holiday, in which case you get by. We’re not going to give backpackers English training.

WALKER: So you’re not even eligible if you’re a temporary, but you might be eligible if you’re a temporary skilled?

PEZZULLO: Yes.

WALKER: Yeah. Okay.

PEZZULLO: But typically not the primary visa holder, because that person would have had to have already demonstrated English proficiency. It’s a question about whether their spouse has got English proficiency.

WALKER: Yeah. Okay, so a priori the Adult Migrant English Program [or AMEP – a free English language education service] seems really important. Because I think maybe – I don’t know this for sure, but maybe – the most important lever for acculturation is language acquisition. Because that kind of opens up your ability to participate in all other parts of the society.

But the evaluations of the effectiveness of that program are pretty lacklustre. So Peter Shergold’s 2019 report into settlement services for refugees mentions that only about 7% of participants in the Adult Migrant English Program achieve functional English by the end of the program. I don’t know whether actually that’s not that bad internationally speaking or something, but … yeah, I don’t know if there’s anything interesting to say on this. Just how good is the AMEP?

PEZZULLO: We had a number of runs at this, at trying to improve quality. Essentially the problem was [that] if you drive the standard too high and those scores even get lower [then typically] you’re starting to almost break up family units. That’s your problem.

So take skilled migration, which we just spoke about. It might be that someone qualifies because they’re here on a visa … Their English is not great, but it wasn’t detrimental to gaining the visa because the primary visa holder had English proficiency. You’re not going to knock someone out and say, “well, you either have to leave or improve your scores” as a function of the AMEP requirement, because … [take] the experience of Italians and Greeks. I suspect my mother, who’s a naturalised Australian … she’s well into her 80s. [And] if you tested her today, she’s got enough English to get by in a shop, but I’m not sure that she’d achieve functionality. Sorry, Mum. And she’d be okay with that, because she just needs enough to get by in a shop, getting basic banking services.

So I think in the end we’ve always come to a pragmatic view that typically, as long as you can get by, get directions, go into a shop, understand street signs – we’re not going to have variable street signs – that’s kind of good enough. And that’s a level slightly below functional. And I think the pragmatic view has always been you can spend a lot of resources getting to that next level for frankly very little return.

WALKER: Yeah, I see. So turning to refugees, would it be accurate to say that they present the most challenges from the perspective of acculturation?

PEZZULLO: Yes, by and large … I just need to step through this carefully, largely because the environments they’re coming from are so atypical or so different from Australia. It’s almost like another planet.

So if you’re coming from a place where there’s been generation after generation after generation of communal violence – say, Christians on Muslims, Muslims on Christians, Hindus on Muslims … [or] the former Yugoslavia, Serbs and Croats, to take an example. In some cases, the violence that’s built into the structure of your society also regrettably leads to attitudes where there’s lower thresholds and more acceptance of violence, simply because it’s the character of the society and the culture you’ve grown up in. And trying to get that out of a person’s thinking is the work, potentially, of generations. Potentially.

A good example: we have very little evidence in any of the security intelligence reports that I ever saw … again I’m out of date, but there’s virtually no communal schism any longer, of a material nature, between Serbs and Croats. But there was in the ‘70s. There was in the ‘70s, to the point of violence.

People coming from Sudan, because of the nature of the society there, the ongoing conflict particularly between Christians and Muslims, you’ve almost got to get people comfortable and almost teach them through settlement services that: “Hey, Australia is a safe place. We actually don’t go around butchering each other based on religious, ethnic, you know, cultural or indeed political differences”.

And that’s both a source of joy... I mean, I remember when the Abbott government opened up out of Syria something like 10,000, or was it 12,000, places principally for refugees from IS [Islamic State] barbarity, most of whom ended up being Yazidi and various Christian minority sects. They immediately embraced the idea of peace. They said, “we’re in a blessed country where you get up in the morning not fearing that by that evening you might be dead”. And this was when IS was at its most rampant, going into villages, putting people into the town square.

You’ve got to make that extra effort, not because you’re dealing with violent people – because typically they’re people who are fleeing violence – but [because] the norms, their sensibility, their understanding of society is so different from Australia. It’s almost got to be taught, to some extent at least. In other cases it’s embraced. I remember the Yazidi community out of Syria. They settled in … it might have been Wagga or Albury or one of those large regional towns in New South Wales or Victoria. They formed their own community associations [with a] common language and the like [and] were embraced almost like an organic, almost spontaneous version of that old Menzies notion of good-neighbour communities. I remember Prime Minister Abbott, Minister Dutton going to visit them. And I remember one person saying to me, because I was just chatting in the margins of one of these political visits and meetings, and they said: “You just smell the air, there’s peace,” just because you don’t have the smell of acrid smoke, burning villages, gunfire. They could smell peace in the air.

So the challenge you’ve always got with refugees, particularly who’ve come out of the most barbaric situations, is trauma. That’s what you’re really dealing with … There’s some exceptions, the Serb-Croat problem of the ‘70s being a case in point. But it’s not typically any ongoing hatred or violence that they’ve carried with them. It’s normally adjusting to a place that’s not violent.

WALKER: Yeah. I guess one other way to think about the difference might be – for, say, migrants through the skilled program, you’re explicitly selecting on traits that correlate with rapid acculturation. So things like English proficiency and education.

PEZZULLO: Yeah.

WALKER: When it comes to refugees, I mean quite rightly, you’re really just randomly sampling from the home country’s population. And if that home country is –

PEZZULLO: And hotspots – global hotspots, right? It’s a function of that.

WALKER: Yeah. And I guess that comes to your trauma point. But there’s another point, which is that if you’re just randomly sampling, then if that home country’s culture happens to be more culturally distant to your country, then they’re naturally going to be slower to acculturate.

PEZZULLO: Correct, because skilled migrants, even if they say come from more middle-income countries – so Latin America, parts of the Middle East, parts of South Asia, say middle-income – they are developing. So you come here as an automotive mechanic. You might have come from a poorer country. But you basically know what an urban motorised society looks like. Why? Because you’re a mechanic. And you might have come from Mexico or you might have come from Chile or you might have come from somewhere else that might not be per capita up there with Australia – more middle-income – but you kind of get what an urbanised, motorised, automobile-heavy society looks like. Well, that’s not Somalia. That’s not Sudan.

WALKER: Yeah. And also, if you’re educated, in some sense you’re part of a global culture. Education downloads like a particular package of modes of thinking.

PEZZULLO: Mechanics are a great example, by the way. So Audi, for instance, a very well-known case. Audi is heavily reliant on temporary skilled migrants. Why? Because they all come from the Audi mechanics’ university in Germany. And they come here and they train the local mechanics. (And I know this case particularly simply because we’ve got an Audi in our family.)

The mechanic then sometimes goes to get their postgraduate qualification or their higher qualification back at the Audi school in Germany. You know you’re part of a global network of people who work on increasingly sophisticated cars. Most middle-income countries have got fairly sophisticated cars that have got computer-assisted engines. You typically don’t have a lot of mechanical tinkering that you do under the hood any more. You just take it into the service dealership. You’ve got a sat-nav in the car, et cetera. You’ve got a sound system. Well, you can be a mechanic who’s able to deploy that skill to Australia or to Canada or to any European country where Audis are sold. Well, again, that’s so different from the experience of most typical refugee-producing countries, where very few people will drive an Audi, for instance.

WALKER: Yeah. Interesting. So four final questions to rapid-fire at you on this topic. For refugees, there’s a raft of what are called “settlement services” available. Should I basically think of those as like acculturation services?

PEZZULLO: Largely. [For] some of them, you might not agree the label is applicable. I happen to [think it is]. But they’re things like employment-readiness services. Now, is that part of acculturation? Well, in a sense it is, because work and employment, having stable employment, is part of our culture.

WALKER: Yeah. But also that’s how you interact with other Australians.

PEZZULLO: A third of your waking day, you know, eight hours at work. So getting employment-ready, employment-specialist, employment-placement services, which also then marry up with the English-language piece, that is part of enculturating you to Australia. Because apart from our family life, our second mode, if you like, of social interaction is our workplace.

WALKER: Yep. So apart from the Adult Migrant English Program, what are some of the other services available to refugees?

PEZZULLO: Especially the migrant employment services. They’d be probably co-equal with English language.

WALKER: The two big ones.

PEZZULLO: The two big ones. And the migrant employment programs are all, as with job services for other Australians, delivered through a government-regulated system, but privately delivered. So you get these private service providers who, for instance, specialise in migrant employment services.

WALKER: Okay, got it. So, well, that answers my penultimate question, which was going to be, you know, one of the most important ones. So it’d be the Adult Migrant English [Program], and Employment.

PEZZULLO: Language and employment.

WALKER: And then just finally, it sounds like it would be true to say that on a per-migrant basis, humanitarian entrants receive the most acculturation services.

PEZZULLO: Yes, if you use that label. Some people would argue, because they … are uncomfortable with the term as you and I have been using it, and they say, “no, no, no, that’s language and employment”. I argue [that] in a bigger sense, language and employment is central to culture.

WALKER: Yeah, absolutely. They’re sort of like vehicles for culture, right?

PEZZULLO: Yeah.

WALKER: Fantastic. Okay, so now we’ve got those factual premises out of the way. I want to talk about whether we’ve been getting worse at acculturation. So if you compare the success of the post-war migration program with today, has Australia gotten materially worse at acculturating migrants?

PEZZULLO: No, I genuinely do not believe that.

WALKER: Great.

PEZZULLO: I do not believe that. I think with that one exception – and I spent a bit of time earlier in this discussion on adherents of Islam, not all Islam, but who have got a particular reading of Islam that is in some cases so … adverse to a secular plural rule-of-law community … And as I said, in proportionate terms it’s not as big a problem as you might imagine [but] in absolute terms, it causes ASIO and AFP to have some concerns – we can come back to that if you wish. But other than that, we are incredibly successful – incredibly successful – at blending together different demographies, ethnicities, religions, and cultures.

WALKER: To this day.

PEZZULLO: Yes.

WALKER: Notwithstanding obviously the decline in acculturation services since the ‘60s or ‘70s.

PEZZULLO: Yes, correct. Yes.

WALKER: Is there a country in the world, to your knowledge, that’s being intentional about how it acculturates migrants? Or a country that we should look to as a model? Are we the model?

PEZZULLO: Look, I think we’re the model for us, if that’s not too much of a contradiction, because I think – and this is where some European countries have – I will actually give you one example. I was originally contemplating not naming a country. I think France has had a huge problem. Because it precisely invested so heavily in a unitary version of the French identity, largely from the imperial experience. French imperialism was quite different from British imperialism. When you’re in a French colony, you’re in France. It was metropolitan France.

And what that resulted in was when migration then started there was no need to enculture because you’re already French, because it was such a function of being a French speaker. And that was largely the francophone position. So people like de Gaulle would talk about “there is no need to enculture because you speak French”. And … language was carrying so much of the burden of identity that now … the French themselves have recognised this. I remember some of the most intriguing discussions I used to have in government were with my counterparts in the French system.

WALKER: Oh really?

PEZZULLO: Who were fascinated [by] Australian multiculturalism, and indeed for that matter Canadian multiculturalism. There’s a separate issue because of the Quebec issue, but they were fascinated [by] Australia because they said, “but you’re kind of English”. And I said, well, no, our institutions are English. Our culture has become an ever-evolving – and it’ll evolve again as more people out of the Indian community, so Indian Australians or Chinese Australians, become more senior in academia, in commerce, in cultural life, et cetera… Australia itself will gradually, through increments, change. So we don’t have a fixed idea of Australia. You tend to have a very fixed idea of France, the grandeur of France. A lot of it’s invested in language, because they’re so proud [of having] such a beautiful language.

And now you have the situation where by not having an approach to multiculturalism which accepted that you were going to, if you like, blend different ethnicities together … you go to places like Paris – and we know this from some of the terrorist incidents – there are areas of Paris, the greater Paris area, which are terrorism hotspots, because the idea of “France”, which was supposed to overcome all difference, has never really taken root – simply because someone whose background might have been African, they speak French, but they don’t necessarily accept the institutional design of France as a parliamentary democracy which is plural, courts of law, et cetera, et cetera.

Some would argue that Australia has been monocultural; I don’t fully accept that [although] it’s certainly British in antecedents, that’s true – language, culture, sport, et cetera. But I think what we’ve done is [that] we’ve evolved and we’ve, if you like, taken the best of different groups as they’ve come – but still, we’re still recognisably Australian in an institutional sense.

I think France is potentially in a world of hurt. And that’s why you have a much more extreme version of One Nation. I mean, National Front is very different from One Nation. It’s basically proto-fascist, because of the problem, as they would describe it, of these ghettos. We have virtually none of that here.

WALKER: Yeah, this is so interesting. I want to pick up on two threads here. So firstly, I’m really glad you mentioned France because I think it’s a really instructive case study. And a pen pal of mine, a guy called Mike Muthukrishna, who’s an Aussie academic – he was at LSE, he might be at NYU now – Mike’s an expert in the field of cultural evolution and he distinguishes four models of multiculturalism.

The first is called the umbrella model, which is closest to what Australia is. Then there’s the melting pot model, which is closest to what America is. The mosaic model, which is closest to what Canada is.

PEZZULLO: Yes.

WALKER: And the no-hyphen model, which is closest to what France is.

PEZZULLO: That’s France.

WALKER: No hyphen meaning that there’s no such thing as a German-French or an Ethiopian-French. You’re just French.

PEZZULLO: Yeah.

WALKER: And it’s a very rigid form of assimilationism where you have to, as you were saying, adopt the language, adopt the customs and then you can be French. And it’s kind of counterintuitive, because compared with some other European countries, France has quite generous naturalisation laws. In a formal legal sense, it’s quite easy to become French, at least for the second or third generation. But at a kind of social or cultural level, the French natives are very exclusive with respect to the French identity.

And I think this is partly rooted in the much less egalitarian, more hierarchical culture of France, as distinct from Australia’s sort of egalitarian …

PEZZULLO: Notwithstanding what the French Revolution was meant to have achieved.

WALKER: Of course, yeah. I’m using egalitarian in the kind of John Hirst equality-of-manners sense. And I think that is one of the main reasons why France has done quite poorly with integrating Muslim migrants. There’s a good book about this, which talks about how there’s been a kind of discriminatory equilibrium in France where the French natives mistrust Muslim migrants, which causes them to further separate, drives more mistrust, and then the radical versions of Islam feed off groups like the National Front and vice versa.

That was the first thing you reminded me of. The second thing was, I’m curious: … What kind of questions did your French counterparts ask you about Australia? Was it just stuff like, “how did you do it?” Or anything more specific?

PEZZULLO: In part it was “how would you do it”. But the big difference [is that] they still don’t think they’ve broken up. Because they think there’s still this sort of francophone world – and the British Empire broke up … I found myself constantly in a sense of repartee with my French counterparts, saying “we never assumed that there was ever an Australia abroad”.

The difference between us is, for you, someone in Nouméa, in New Caledonia, or French Polynesia in Tahiti, is French because they speak French. They might have locally adopted a dialect and an accent. And they used to rib the people from Quebec, they said, “well, they don’t really speak French”. They kind of do, but they don’t. So you had an assumption that anywhere in the world where you went, if you were tied in a francophone sense back to the idea of France, you were the same.

The British rejected that a long time ago, and Australia is … evolving within the British context – mixed. We never had that, from the start, because of course we had a strong Irish quotient. You didn’t have the class system. You didn’t have that sense of manners that John Hirst and others have talked about. So that’s why we might have been British in antecedents, in institutions, in a parliamentary democracy, in our common law, our jurisprudence, et cetera. But very early we, if you like, synthesised an Australian culture, in part irreverent and anti-hierarchical and all the rest of it, which was never exported anywhere. In other words, you only ever experienced it by being in Australia.

WALKER: Yeah, yeah.

PEZZULLO: The difference with France is that the French … They’ve got such a beautiful language, a deep culture, extraordinary literature. Of course you’d be proud of it. But the problem is that they – if I can say this respectfully, I hate to think what your French viewers are going to make of this – are still caught in this 18th or 19th century of France abroad.

WALKER: Yeah.

PEZZULLO: And that’s where you get the difficulties with integration … France might have been in West Africa for even a century. It probably didn’t change the cultures of those countries, whether it was Senegal or anywhere else that was in the francophone empire. They were only in Morocco for a couple of decades. So why not accept that someone coming from Senegal or someone coming from Morocco is probably going to have deeper roots [and will] go back generations and generations in their own customs, religious traditions, et cetera. And then say, that’s fine, but in metropolitan France, true metropolitan France, here are the house rules.

And by not having that house rules idea … We talked about the Menzies period. You came to Australia, you left all your hatreds behind, whether it was Serbs and Croats, or later on Jews and Muslims, or whatever the case might be. Leave all those hatreds behind. Because we’ve got house rules. I don’t know that the French ever [had them]. And Britain ironically also … through the ‘70s and ‘80s with their immigration program – particularly from the former parts of the British Empire – I don’t think went hard enough on house rules.

We have house rules here. And it goes back to the very first thing we talked about, which was the deliberate institutional design, and everyone signing up to those rules: parliamentary democracy, courts of law, courts dispense justice. We don’t have any extrajudicial or extralegal way of resolving difference. We have politics. That’s all we have. That was intrinsic to Australia’s design almost from the get-go. Largely because in the settler groups – leaving aside the soldiers and the officials, but in the settler groups – you had a mix of both Protestant landed [people] and in some cases wealthy groups, and you had the Irish.

So right from the get-go, even though there was sectarian differences and sensibilities – Protestants tended to dominate in certain professions, for instance, Catholics in others – when we then came to federate – and you see this in the constitutional protection for the freedom of religious expression that’s embedded in our constitution – we were from the get-go not going to be a sectarian society. And we were not going to be a stratified society. I don’t think you get that in former empires.

And I think that’s one of the material differences with France.

WALKER: Yeah, that’s interesting. I hadn’t thought about that, that connection to empire.

Okay, super quickly. You can only pick one. What do you think is the single best measure for the speed of acculturation? Intermarriage, language acquisition, second-generation economic mobility?

PEZZULLO: I can only pick one.

WALKER: Yeah.

PEZZULLO: Um, sport. Sport. If I can see in second-generation – not first generation – either typical or indeed abnormal levels of participation… So for instance, you see Pacific Island and Lebanese Australians and other Middle East Australians, in my hometown of Sydney, all through rugby league. They love their rugby league. Similarly in cricket, we’re seeing a lot of not just Indian Australians but South Asian Australian kids.

I only jokingly said if we ever have a Sachin Tendulkar born here in Australia, I want him to play for Australia, not to migrate back to India. It’s an odd metric and maybe a bit quirky.

WALKER: Not, it’s interesting.

PEZZULLO: But it’s foundational. I see myself as a second-generation Australian with a … broadly Australian accent, hopefully a degree of culture associated with it. But I speak in the Australian idiom, the Australian vernacular. I understand my mother well enough to be able to converse with her, but my mental language is Australian.

And my sporting preferences – now this doesn’t work for people who don’t have sporting biases, so you’re going to have to have an equivalent measure for culture or something – but a lot of second-generation young kids are sporty. Have a look at them. In rugby league… So I’m less of an expert in AFL in Victoria, but certainly in Sydney you have wonderful representation in all of those rugby league clubs. And you look at their supporter base, you know, Canterbury-Bankstown particularly, [they have] a lot of Middle East Australians because it’s geographically coherent. West Tigers, because of the western suburbs, but also some of the inner western suburbs. Sport for me is a real indicator.

WALKER: Yeah, I was not expecting that answer, but I can –

PEZZULLO: And in cricket, Usman Khawaja.

WALKER: Yeah, yeah.

PEZZULLO: Second-generation Pakistani Australian.

WALKER: Yeah. And there’s a plausible kind of mechanism there where it’s almost like a microcosm for cooperation within a broader society.

PEZZULLO: What does it tell you, right? So some sport is every week. Your parents associating as you get dropped off at training, whether it’s cricket in summer or footy in the winter. Every week you get taken to the ground. You play; have a halftime break. One of the parents does oranges; another parent does this or the other. Another parent’s running up and down the sideline, officiating. It’s a social experience. And how’s that any different from the acculturation process for English and Irish Australians playing rugby league, rugby union, cricket, et cetera, back in the day? So sport.

WALKER: Love it.

PEZZULLO: I should very quickly add: I went on [an] official visit to Islamabad. And it was the week when Khawaja had just made his debut in a Test, and my counterpart said: “oh, he’s very good, can we have him back?” I said: “no, no, he’s ours”.

WALKER: That’s great.

The temporary migration dilemma

WALKER: We haven’t spoken too much about temporary migrants, and I’ve just got one question focused on temporaries. And I went into this more with Martin Parkinson, but we didn’t really get to the bottom of how we solve this issue. So let me present my framing of the issue, and then I want to hear your thoughts on it.

Australia’s stuck in this bind where on the one hand, every night about two million people in Australia go to sleep who are not permanent residents. They’re not citizens, but they have work rights in the country. That is they’re temporary migrants.

PEZZULLO: Correct. And that’s in a population just shy of 28 million.

WALKER: Yeah, so it’s a significant percentage. And we’ve sort of drifted into this equilibrium where our society and our economy are now quite dependent on this class of permanent temporaries. So for example, I think they make up about roughly 10 to 15% of the labour force. University funding models have become quite dependent on international students. The horticultural industry is quite dependent on working holiday makers. So that’s on the one hand.

On the other hand, being permanently temporary is surely sub-optimal from an acculturation and social cohesion standpoint. It kind of violates the settler society paradigm of: “I’m coming to this country; I’m committing to the national project; I’m on a clear path to citizenship.”

So how do we resolve that bind? And what should the new paradigm be?

PEZZULLO: I think we need to be slightly careful with the premise. I’m familiar with the term “permanent temporary”. It’s not really a thing in legal terms, because temporary is temporary, even if you get a number of extensions. So [after a] four-year uni degree, you get a two-year or four-year [period] … with work rights. We get value out of that.

So you’ve come to Australia to do a four-year degree or a three-year degree, in say computer science or whatever. You get picked up during that three-year period or four-year period, depending on what your post-study entitlement is in your field, right? Now in the meantime, we don’t want you loafing about. So the idea of “this person came to do a uni degree and now they’re driving Uber” Well, that means that there’s a demand for that Uber driver, because they’re only driving because people have got the app and they’re demanding car rides. And typically… I always have this conversation with my Uber drivers, and the ones who are here [say] “I’m either about to finish my degree or … I’m in my two- or three- or four-year extension. I’m desperately keen to get a job as a computer scientist or IT whatever, whatever. But in the meantime, because I want to get income, I want to be gainfully employed, I’m packing shelves, I’m an Uber driver.” [That’s] not a bad thing, because those jobs need to be done.

WALKER: Yes.

PEZZULLO: So why would you exclude that workforce? … We’ve talked about my childhood a bit … In the equivalent of Coles and Woolies – we used to have a supermarket called Franklins – typically, the people stacking the shelves were not what we would consider to be non-Anglos. They were Anglo-Australians, typically unskilled, older Australians.

Now you go to Woolies, Coles, a lot of them are students. A lot of them are exercising their work rights, depending on whether they’ve got 40 hours a fortnight or whatever the work right entitlement is. I get a service out of that. The shelves are packed. Produce is put into the … They’re getting income. They’re either studying their degree or they’re here for that, searching for employment.

WALKER: It’s positive-sum.

PEZZULLO: It’s absolutely positive-sum. The problem becomes – and there’s a suggestion that I read recently that the Coalition might be going down the path of revisiting something that we’ve looked at before – that you get to a point where there’s no more extensions onshore; you have to go back offshore. I think we probably need to tighten up the departure rules. So you might have a two-year with a hard break, but with a right to go offshore and extend or get a new visa to come back … either in your skilled area or again in a temporary situation where you’re looking for employment.

I think if you get the departure piece right and deal with the other problem, which is the – not so much overstay problem… We’ve actually got a very small overstay issue, in the sense that last time I saw the numbers – and I’m a couple of years out of date… between the sum of all persons who have arrived in Australia since the Second World War versus all those who have departed, there’s something like a discrepancy of around … don’t hold me to the precise figure, but it’s around 80,000. Now, some of those people might have arrived decades ago and they’ve probably passed away, they’re dead. So that’s a very small amount compared to America, with what’s called the undocumented problem.

WALKER: Which might be like 11 million…

PEZZULLO: Something like that. So in undocumented terms, where we can’t reconcile an arrival with a departure, it’s about 80,000. Might have gone slightly above that in the time since I’ve been out. Very small problem.

Where we do have what’s sometimes described as an overstay problem is people on what are called bridging visas pending resolution of their status. They’ve got to the end of their, say, four-year study period. They put in an asylum application. They didn’t put it in at the start of the period, interestingly, but towards the end of their visa.

Okay, they put in an asylum claim, [and that] has to be judged on its merits … Unless the application is completely vexatious and without merit, it’s typically considered and you get bridged. And there’s different classes of bridging visas, A through to E and F, from memory. That bridging amount, or the bridging number, sometimes in the media or in public policy discussion is described as “overstays”. Well, they’re technically not overstays because they’ve got a visa. It’s called a bridging visa. [It grants] very truncated rights. And that’s a problem, because if you don’t have access to benefits and access to work rights, [it’s unclear] how you’re going to survive and get by.

So we have to solve two problems essentially. And then I think the question of mass migration or uncontrolled migration such as it is goes away. One, we’ve probably got to have a harder back end, right? You only get one extension – say, two years or three years after a degree of study – and then you have to go. If you go to ground and try to do what happens in America and elsewhere – try to disappear – well, one way or another we’ll find you, because you’ve got to surface at some point for benefits or to go to the doctor or whatever. So you certainly want to intervene well before you get to the American problem where they’ve got ICE agents deploying in paramilitary garb into major cities, doing these incredible roundup operations which at times become incredibly violent. And as you know, people have been killed in those operations. We have nothing close to that.

And then the other problem we’ve got – and this is a really hard problem to solve legally – is the rolling extension through the bridging process of reviews of reviews of reviews, whether it’s an asylum application or you’re contesting a visa cancellation.

The most radical suggestion – and this is breaking news, so I’ve never said this publicly – the most radical way to deal with that, and you probably would need a constitutional amendment, but it’s probably one that would win a lot of favour – is, because you’ve got in the Constitution … and this a whole different discussion; it would take a whole podcast of just legal discussion to explain this.

WALKER: Sounds like a fun podcast.

PEZZULLO: So I’ll give you the summary version. Because of Section 75 of the Constitution, the High Court’s got what’s called original jurisdiction. It can issue a writ that were the old common law writs that were in existence in 1901 in any case.

So you can arrive at an airport, you’ve only been in Australia for 10 [minutes], you get denied entry. If you’re smart enough and you’ve got the right lawyer, you can put an injunction in to the High Court. They’ve been in Australia for 10 minutes, and the High Court probably wouldn’t necessarily hear it. And if you put it in at 2am in the morning, the judges might be a bit put out by being woken up.

And so what typically has happened is that the Migration Act has taken that burden away from the High Court, so people aren’t just screaming into the High Court all the time, and allowed for applications to be made. So you have merits review within the department. You have administrative rights reviews in the Administrative Review Tribunal. You have judicial review through to the Federal Court. And then you can get to the High Court. So we’re not all bothering the High Court at 2am in the morning with our applications.

If you wanted to really choke that off and get to a point where [the system says] “now hang on, we will give you some review rights, but you can’t just tie us up for years and years and years, including by getting into our highest court”, [then] what you would have to do is you’d have to change the Constitution slightly to say that the High Court’s reach, or its ability to grant [an alien], even if they’ve just been here for 10 minutes, some form of injunctive relief, is denied. And what you do is you have a separate section of the Constitution that says aliens have got the legal rights such as Parliament has provided for in statute.

If you did that, what you then could do is have a statutory provision that says you get one go, and it’s a 30-day determination. That’s it. So if you’re being denied a visa you can’t take it all the way to the High Court. [It is a] really radical idea, and it would offend some people saying, “hang on, but the High Court should be able to, if you like, interrogate any decision of government”. That’s a fair view. Or you might say, “hang on, the right of access … to the ultimate form of judicial review, which is a High Court injunction or throwing out a law on constitutional grounds, is only available to citizens”. In other words, it’s a special privilege of the club, of the membership rules of the club. And if you’re an alien, to use the constitutional term – not trying to be derogatory, but just using the legal term – [government would say] “sorry, you can’t tie us up in courts for years”. That’s the only way you could cut that knot.

WALKER: Interesting.

PEZZULLO: Now, if you did that, what you could do is the parliament – and the parliament would then have to decide how many bites you could have of the cherry – the parliament might say you get one review. 30 days, that’s it.

And if the original decision to deny you a visa or to cancel it or to deny an asylum application is upheld within 30 days, you have to leave. And you become deportable at that time. That’s the only way you could.

Because otherwise – because you can’t cut the High Court out of ultimately being the recipient of someone’s injunction application – then you can theoretically, depending on how skilful your lawyers are, be here for months if not years.

WALKER: I see. So people sort of exploit that. But changing this would require a referendum?

PEZZULLO: I think so. It’s – just to be clear for your viewers – not a question that’s ever been examined formally, as far as I’m aware, by any government. But just reading the Constitution on its plain text, in Chapter 3, which sets out the powers of the judiciary, because the High Court’s got this what’s called original jurisdiction – it’s written into our Constitution – what that means is the High Court can issue an injunction against any executive officer of the Commonwealth on any matter. Then logically what that means is that … Say I’ve arrived at an airport. I put my hand up for asylum. They said “no, we’re going to kick you out”. I happen to have a free lawyer, because I phoned them or they were here. They’ve filled out the paperwork, they’ve gone into the High Court at 2am in the morning. The High Court says: “Oh, okay, we better hear that. Okay, we’ll grant you two weeks or whatever, and we remit it to the department or whatever.”

Now, you don’t want a situation where the High Court’s getting hundreds of thousands of these writs being lodged at all hours. So what the Act is designed to do is to take that pressure off the High Court. So you go through that other conveyor belt that I mentioned earlier, of internal departmental review, ART [Administrative Review Tribunal] review, Federal Court review, and then if it gets standing, ultimately High Court. But that could in some cases take years.

WALKER: Yeah, interesting. So as far as you’re aware, this hasn’t been considered by [federal] Cabinet, but it’s an idea that you’ve had.

PEZZULLO: We’ll call it a Pezzullo special.

WALKER: Pezz spesh.

PEZZULLO: And that’s the function of having a written constitution that has that power explicitly enumerated in the powers of the High Court.

WALKER: Right, right, right. Okay, so this would help with this problem of permanent temporaries.

PEZZULLO: Because what would happen is if you solve those two problems – so the High Court jurisdiction problem and the hard close on either bridging or renewals where you have to leave.

So go back a step. We talked about the three- or four-year study visa. You get two years to find a job. If you haven’t found a job within 24 hours, you have to leave. You can apply again, but you have to leave. So if you put a hard close on the rights to get renewed and you put a hard close on review and appeal rights, then essentially the problem goes away.

WALKER: Yeah, okay. Interesting. Okay, so when I was framing the problem a little bit earlier, I did it quite rhetorically and provocatively, and I’m glad that you corrected the premise that not all temporaries are permanently temporary. There’s maybe another premise that we could correct.

PEZZULLO: I think when people use that term, they mean that there’s a permanent part of the Australian demography or population and labour force which is always temporary. That is statistically right, but it’s not right at the level of the individual. It can’t be right at the level of the individual unless they abscond and they somehow kind of just disappear into Australia in the way that people have in America.

WALKER: There’s also another premise that we could correct, which is that temporaries are actually sub-optimal for acculturation. Maybe there are actually benefits where you can sort of try before you buy, or if you don’t like Australia, then you leave.

PEZZULLO: I’ve got the opposite view. I think temporary is good for acculturation, partly because, as I said, there’s increasing … Or certainly there was; I’m two years out of date. But the proportion of what are called onshore permanent applications is increasing. So you came here for a three-year degree or a four-year honours degree; you’ve got two years at the back for post-study residence, sometimes four years, but typically two years. So you’ve been here, say, for six years, right? Through that period, you fall in love with Australia, or better still, you fall in love with someone. “I want to create a family unit.”

If you’re here during your either four years of honours, or, you know, undergraduate plus honours, or your two-year bolt-on period, so that’s within that six years, you can apply for permanent residency. We know something about you. You’re paying taxes, you’re employed. You may or may not have a police record. Hopefully you don’t, because if you do, we probably won’t accept you. You’ve probably been on social media. So a lot of that checking that I talked about earlier, at the very top of this conversation about security and character, we can already start to screen based on live observation.

So because you’ve been here for the best part of six years, Joe, we know you, Joe. We’ve checked all the databases – not just the foreign databases but all the state and territory databases. You haven’t even got a speeding ticket. We’ve scraped, with some AI, your social media posts. You’re interested in sport, you’re interested in chess or origami. You don’t express, you don’t exhibit, any interest in extremism. That’s a good – that actually adds to social cohesion and the quality of the applicant, of the candidacy for permanent consideration. I’m a fan actually.

WALKER: Yeah, it’s interesting. I hadn’t thought much about that, but it’s almost like running a trial period.

PEZZULLO: And also I’ve got a greater concern. As I said, there’s two groups, socially and culturally, that I worry about, not in proportion[al] terms [but] just [in] absolute numbers: the second-generation Muslim men and some third-, fourth-, fifth-generation Caucasian white males. They’re my two groups that I actually worry about. In absolute terms, too many. In proportion terms, insignificant.

They’re permanent residents – in many cases, citizens … Simply because I was the [departmental] secretary, sometimes people would recognise me. So you get in a conversation at a checkout or in an Uber or taxi. Nearly everyone who’s temporary loves the place. They say the freedom here, I don’t want to go back, but I know I’ve got to go back. And if they knew who I was, they’d say: “Don’t worry, I’m going back.” Or “I’ve started a romantic relationship, you know, we’ll see where that goes. I’d love to have a family here.”

I think a lot of temporary migrants are sort of, in their own mind at least, guest Aussies. They’re starting to think of themselves like that, with maybe the aspiration of “I love this country so much” – wide space, freedom, economic opportunity – that they’re already starting to think of themselves as Australians.

Social cohesion and the politics of immigration

WALKER: So to finish [with] some questions about social cohesion and security. When you were secretary of the department, you appeared before the Senate’s Legal and Constitutional Affairs Committee about two or three times a year. And I went back and read all 26 opening statements between 2014 and 2023.

And it struck me that across the 26 opening statements you gave, the word cohesion appears about 33 times, and it’s usually framed as a core objective of the department’s work, whereas diversity or multiculturalism or their variants appear only about 15 times, and never as a positive value in their own right, but instrumentally or as the name of a division or a policy function. Was that deliberate, and what’s the Straussian reading of that?

PEZZULLO: The numbers tell the tale. When I was looking at the design of the functions of the department … So I was given about six months, from July of 2017 to set up the design, and Mr Turnbull gave us until December to be ready to make the change, which is pretty generous. So [we had] six months to do a lot of mapping, a lot of design work.

Looking at functions that were spread across a number of different departments: the Attorney-General’s Department; my own Department of Immigration and Border Protection, obviously I knew very well; Settlement Services; and some of the social cohesion functions that traditionally had been clustered around Multicultural Australia. They were in the Department of Social Services.

WALKER: They were moved there in maybe 2013 or 14 by Tony Abbott.

PEZZULLO: By Tony Abbott, yep.

WALKER: And previously they had been in the Department of Immigration.

PEZZULLO: Correct.

WALKER: So they were coming back.

PEZZULLO: They were coming back. So what had moved was some of the settlement services that we spoke about – so employment and English language – but also the multicultural function – so the whole idea of multicultural Australia, the Office of Multicultural Affairs, things of that nature. That was in Social Services. Some of the functions were in the Attorney-General’s Department, I think I mentioned. The Department of Prime Minister and Cabinet, and also the Department of Transport when it came to aviation security and the like. And some of the functions were in the Department of Defence, insofar as they related to cyber warfare. So [they were] quite an eclectic sort of grouping, and it struck me that we needed to think coherently because otherwise we’re just going to be a federation of tribes sort of doing functions that could be moved around later on without any kind of unifying purpose.

So as I looked at the operating model, in the same way that the Department of Defence looks at how you defend Australia and the Treasury looks at how you run the Australian economy, it struck me that our job was to think about how we run Australian society in terms of protecting its sovereignty and its security short of war. Obviously the wartime function is led by our colleagues in Defence, but everything else: the protection of our borders, the control over who enters and who leaves or who is required to leave, the sovereignty and the security of our critical infrastructure, our ability to be resilient in the face of supply shocks and the rest of it; all of the things that, if you like, the security function of Australia entails outside of a war.

When it came to social cohesion, it struck me that the positive value that mattered most was our cohesiveness: our ability to come together whether we’re dealing with a pandemic, whether we’re dealing with a major outage of our internet and cyber, whether, as we’re seeing as we speak, [we’re dealing with potentially the] loss of fuel supplies. So how do we think about working together as a society which can ration goods and services, which can prioritise essential services, which can face a common foe if it requires that, right up to, at the most extreme level, war. But short of that, dealing with terrorism.

So for me, the things that bind us together, the things that give us a common interest in defending our sovereignty, in defending our territory, in protecting our borders, that’s far more important than the diversity of our faith, our culture, et cetera. Because the latter can be managed organically. We’re not going to tell people what to believe or whether to believe in a supreme deity, and if so, which one. Those things are matters for culture. And my starting point was: the less the government has to do with culture the better. Because culture is sort of pre-governmental. It’s sort of deeper and pre-governmental, and government should only get involved in culture to the extent that tensions arise or gaps in common understanding start to arise. We talked earlier, for instance, about people wanting to live under Sharia law. Well, no, we’re not going to do that. So even though that might be organically coming up through a particular culture, we’re not going to translate that into the institutional design of Australia.

So for me, cohesion trumped diversity simply because the function of government is more about cohesion and congruence and unity than, if you like, generating, affirming, or managing difference. Because the latter is done culturally and should be done organically with, frankly, the least involvement, or the least possible involvement, by government.

WALKER: I’m heartened to hear that my Straussian reading was at least directionally correct. The other reason I appreciate your emphasis of social cohesion over multiculturalism or diversity is that it’s descriptively true that Australia is a diverse country, and there are benefits to diversity. Like, for example, there’s an economics literature showing that some level of diversity helps with innovation. But as a national identity, I don’t think diversity is adequate.

I’m quite fond of and influenced by Fukuyama’s work on identity in, I think, a book by the same name. He talks about multiculturalism just not being load-bearing enough as a national identity. You do need that additional creed around liberal democratic values and potentially also another layer of positive virtues.

PEZZULLO: Yep.

WALKER: So when you were secretary, to your knowledge, did the department have its own internal measure of social cohesion or did it just use the Scanlon index?

PEZZULLO: We certainly used a lot of academic or open-source indices, Scanlon being one. I wouldn’t raise this to the level of mathematical or quantitative design, but we certainly did scrape across all of the available data to look for the problems. Which goes back to the point I just made: cohesion is your starting point, and what you’re looking for is deviation.

So you are looking for [deviation], whether it’s through your own focus groups and your own outreach through certain community associations, whether it’s working with ASIO and going through their caseload, for instance. So ASIO would share their caseload. Typically the most sensitive information was stripped off, but even that’s not quite the case because the head of our intelligence and the senior people in our intelligence division, and myself included in this, would also see the most sensitive cases.

So we’re able to run, if you like, at the macro scale, trends across their caseload, for instance. And ASIO did their own quantitative work in terms of: “Okay, here’s what we’re seeing in terms of demography, age, gender.” And as I said earlier, there’s a particular group – some, not many, Caucasian white men, and some, not many, Muslim males. Not many in proportional terms, but as we discussed earlier, significant enough in absolute numbers to be concerned. Those are the two groups.

You wouldn’t just rely on your academic sociological research for that. You’re also running a model of sorts, I suppose you’d call it. You’d run models across caseloads that AFP and ASIO are seeing, for instance, and you’d come to a common view with them … I won’t go into too much detail here, but we certainly would do classified assessments saying: “Look, here’s what we’re seeing, both in the academic literature over here,” and you mesh that with learnings that we’ve received from the Institute of Criminology, the federal government body, the AFP, ASIO, what states and territories are seeing. Here’s what we’re seeing through the Countering Violent Extremism program, CVE. Here’s what we’re seeing through the CVE engagement with states and territories. So what are they seeing on the ground in terms of ethnic tensions, communal tensions, anti-Semitism, Islamophobia, all of the indicators?

So you’re looking for indicators of harm, and you’re essentially looking for indicators of deviation from unity, because those things, when you think about them, are the opposite of unity. So if you allow culture to do most of the heavy lifting for most people in terms of living together, being tolerant, enjoying each other’s culture, enjoying each other’s cuisine, tolerating each other’s national origin stories and the rest of it. What government’s focused on are the problems.

So that’s why you flip – you flip the social cohesion discussion for early identification of those problems and remediation of those problems rather than frankly, the easier task, which is really what I call the 1970s model of multiculturalism. So starting with the appointment of the first minister for effectively multicultural affairs – it wasn’t actually in his title – but Al Grassby. And then later on, there were ministers with dedicated titles, typically, well, initially actually ethnic affairs was the nomenclature and it became Multicultural Affairs, and that largely started under Malcolm Fraser.

That period also saw the establishment of SBS as a second public broadcaster. That probably had its role in place – in fact, more than probably, it certainly had its role in place in 1970s Australia. Because I remember 1970s Australia – we talked about this earlier – as sort of coming out of that Anglo period and then sort of grappling with: “Okay, all these Southern Europeans have turned up and they’re starting to have kids, so they’re second generation. Now we’re having Vietnamese people coming as a result of the war. Okay, what is Australia going to look like going forward?”

So Fraser, I think, was far-reaching or far-sighted in that sense, and Hawke built on that with the Office of Multicultural Affairs in the ‘80s. But then 40 years on, we’ve achieved that multicultural, polyglot, multi-ethnic, multiracial, multi-faith society. So you need to keep celebrating that. A degree of celebration doesn’t harm.

Or is that engagement with your different communities really about early indications of problems? Like, what are you seeing in your community? Well, actually, some of our young can’t get employment, or they’re discriminated against, or they feel that their culture is denigrated. Okay, that’s a really important insight.

So with the Muslim community or the Jewish community, okay, talk to our state and territory colleagues, talk across the Commonwealth. What can we do to mitigate and push back into that? Typically, the only groupings, or the only sociological elements that mean you go to further levels to actually mitigate against potential terrorism risk, are those two that I’ve been identifying throughout this discussion. Very small number of adherents of extreme Islamist ideology, and more recently – but it’s in a sense an older strand – fascist or neo-Nazi or white supremacist ideation. Very small numbers.

WALKER: So it’s interesting to hear that the department would combine the academic literature, so things like the Scanlon – I think it’s actually the Scanlon-Monash Index – with its own internal data and case files from agencies to essentially keep your finger on the pulse of Australian social cohesion.

PEZZULLO: Yep.

WALKER: Alas, I don’t have access to those kinds of confidential sources of data, but the main thing I’ve looked at is the Scanlon-Monash Index, which is probably the premier Australian index of social cohesion.

PEZZULLO: Yep.

WALKER: So it’s been running since 2007, and they have five different dimensions of social cohesion. And then they build an average. So the index starts at 100 in 2007 and it’s pretty steadily declined over the last couple of decades. It now sits at 82, which is the lowest it’s been on record.

Taking the index at face value, if you had to boil it down into a couple of sentences, what’s your general account of why Australian social cohesion seems to have declined over the last couple of decades?

PEZZULLO: They measure what they measure, and it’s a long time series. They measure social cohesion more through a lens of an appreciation of diversity. So what they’re tracking, what they say they’re tracking at least, is – and you see this expressed in political discourse as well – “Australia is starting to feel different because it’s starting to look different.”

That to me might well be a view that many people have, largely because of changes in migration patterns – we talked about that earlier – more from the Middle East, more people from India and South Asia, more people of Chinese heritage. But from the point of view of the Department, or certainly the government at large, but I think the Department in terms of its more specialised work, social cohesion is actually a narrower subset of that.

WALKER: Okay.

PEZZULLO: And social cohesion is less an attitudinal sense of what we feel about Australia ... So what Scanlon’s tracking – which is a thing, right, because they’ve got rigorous methodology which they’ve extended over a longitudinal axis now of, what, 20 years almost now. So they’ve been measuring the same thing – is how people feel about Australia in terms of probably an idealised or a memory of Australia, and to what extent it’s starting to feel different. I think it’s possible that number will continue to decline. But is that a problem? No.

WALKER: Okay, interesting.

PEZZULLO: It’s only a problem when – and you’re starting to see this in parts of Europe and elsewhere, but principally Europe – when that attitude about our cohesion’s breaking down and we’re breaking off into different tribes that are antagonistic to one another, either because we live in ghettos, or if we use the example of Sharia law, some parts of my country are under different legal systems whether formally or informally. And we’re a long way from that. If you start getting into that territory … The tell for that, the canary for that, is actually not the rise of parties like One Nation, but parties to the further right of One Nation. People might think, well, but aren’t they at the far right? No, I think they’re just the populist right, call them whatever you want. And you start to see this in –

WALKER: I mean, Barnaby Joyce can be in One Nation.

PEZZULLO: It’s pretty mainstream.

WALKER: It’s within the Overton window.

PEZZULLO: It’s very Overton. I don’t want to get into political commentary here, but I don’t think that’s extreme. What you start to see in Britain though, for instance, is where people are rebelling or reacting, if not rebelling, against things like council ordinances that say not so much the Union Jack even, but the flag of Saint George cannot be flown because it’s offensive to some groups. But English Defence League say, “Hang on, what do you mean? If they don’t like the flag, whether it’s the Union Jack or the flag of Saint George, they can leave.”

And there’s some evidence there that people are starting to organise in militias of a certain variety. In my mind, [when] that indicator where our social cohesion is breaking down to the point where it’s starting to translate into an organic separation and almost getting ready for conflict, or schisms at least, you would see enormous numbers starting to flow into things like the National Socialist Network. We’re just not seeing that.

NSN, for instance, is a whole lot of frankly misguided young men who venerate – either venerate Hitler or venerate a version of Nazism that they say should be rehabilitated from history because apparently there was good Nazism and it sort of went a bit off track. No, all Nazism was evil. That’s not One Nation, and that’s not even particularly large. It’s dangerous if you let it fester and grow, but I just don’t ...

And even the so-called mass anti-immigration rallies a few months ago, quite a few of them have been held – March for Australia, I think the network is loosely called … Yes, some neo-Nazis tried to platform themselves, and typically they were yelled down. Typically. So you’ve got people who might otherwise be on the right of the political spectrum saying too many migrants, too many migrants from certain parts of the world, I want to see less migration, certainly want to see less migration from certain parts of the world. But no, I don’t venerate Hitler and I hate the neo-Nazis.

WALKER: If you reflect on the unprecedented support One Nation’s enjoying at the moment – at least in opinion polls – and for the first time in its history it’s tied with a major party, namely the Coalition, I think it’s pretty clear that that reflects concerns about immigration. But just to narrow it down, do you think the concerns are more about the level or the mix?

PEZZULLO: Level. Level, much more so than mix.

WALKER: Interesting.

PEZZULLO: Level, much more so than mix.

WALKER: And what do you think is the biggest piece of evidence for that?

PEZZULLO: I think either quantitatively – so it’s not just Scanlon, but a lot of the larger reputable polling companies, because they’re obviously looking at major issues – cost of living, access to bulk billing, levels of migration, housing affordability. They’re sort of, in different sequence, Issues 1, 2, 3, 4, and they sort of move around. But largely it’s cost of living, housing, immigration, I’d like to visit the GP, bulk bill. They’re sort of roughly Issues 1, 2, 3, 4. So we’ve got a lot of quantitative data.

And so when the different polling companies – the ones who do the political polls as well – they then drill into the immigration question, it’s always about housing and congestion. Always.

WALKER: Yeah, yeah, yeah, yeah.

PEZZULLO: Which is never by definition about mix. It’s always about numbers.

WALKER: That makes sense.

PEZZULLO: And there’s a very tight correlation with: “I tried to get into the housing market”... Whether it’s economically true or not, whether there’s a causality … Using multifactorial analysis, some economists can sort of break that down and say: “Well, no, actually, it’s because we’re short of tradesmen or the building and construction industry can’t keep up with demand.” It’s not because there’s more migrants. Because we’ve got such a biased system towards points and skills, they’re actually coming to Australia with money. So they’re actually not a drain on our economy. They’re actually adding to our economy …

People talk about students … Typically, most of them live in student accommodation – typically, not always – rather than houses or units. So when the companies then drill into the impression that one has about migration, it’s typically about too much congestion on the streets traffic-wise and [that the interviewee] can’t break into the housing or rental market.

WALKER: Yeah, it’s a pretty classic pattern across time and place, right? Stagnant or declining living standards, dot dot dot, zero-sum thinking, dot dot dot, blame migrants.

PEZZULLO: Yeah.

WALKER: And so “blame migrants” sounds quite judgmental. There’s often quite a rational component to that because migrants are driving up the demand, but there’s oftentimes an irrational kind of scapegoating component as well.

PEZZULLO: Correct. And what’s interesting in that is when it comes to mix, because you’ve got 30% foreign-born, and what is it, 49 or call it 50%, with at least one if not both parents, those attitudes themselves, those people themselves are playing back into the question of mix. So typically it’d be highly unusual, I would have thought, but typically an Indian-Australian would not be concerned that there’s too many Indian-Australians in Australia. Or someone who gets polled and they’re of Chinese heritage, they’re not typically going to say: “no, too many people coming from China”. So the tolerance for a more pluralistic or more multi-ethnic society itself has been built into the structure of the very society that’s been polled.

WALKER: Yeah, that’s a good point. So this next question feels out of place, but I think it does connect to this conversation about social cohesion.

There’s this striking juxtaposition between the way we treat legal migrants and the way we treat illegal migrants, at least those who come by boat. It’s almost like putting Disneyland next to a gulag. And there’s a view, or like a shibboleth in Australian politics, that the very harsh treatment of illegal migrants is necessary to sustain broad public support of the high level of legal migration that we’ve had over the last couple of decades. What’s your impression of the empirical evidence for that connection? Because it’s taken as a truism, but I’ve never really had anyone explain to me whether it is actually true.

PEZZULLO: Well, in fact, Scanlon is one of the reputable time series on this. There is a correlation between a sense of the management of our borders – so the degree to which border control is being effected – and confidence in migration levels. So we’re actually out of kilter at the moment because we’ve got high levels of confidence in border protection because the boats have stopped by and large. The crisis of 2009 through to about 2013 has passed into memory. But there’s different concerns that are driving immigration anxiety to do with levels and housing that we just spoke about.

But if you go back to that period – say the Rudd, Gillard-Rudd period and very early Abbott – including looking at Scanlon but also other reputable quantitative work done at the time, people felt on the one hand, and there was a close correlation [between] “we’ve lost control of our borders” [and] “I’m anti-immigration, or I want to see fewer migrants”. So there is a nexus.

And then as you regain border control, I would argue – you use the adjective “harsh” – I’d argue through robust measures … I mean, we always ensured we’re spending a lot of money on medical care, good catering, safe transport options to get people to regional processing and the like. We can talk a bit about that in a moment if you wish.

But that sense of “there’s only one way to come to Australia, that’s through the visa system. You will not get any benefit.” And this is actually a Labor policy in the first instance, so Labor policy of 2013 adopted by the Abbott opposition: that if you come by illegal means or unauthorised means – the nomenclature sometimes varies – you’ll never be able to settle in Australia. July 2013.

We’re coming up to 13 years of that policy enshrined in law [applying] if you arrive by illegal or unauthorised means … The two terms are interchangeable. It’s just that the two parties prefer different [words]: Coalition tends to prefer “illegal”; Labor tends to prefer unauthorised. But the legal consequences [are] the same. Effective – in fact, I can give you a precise date – the 19th of July 2013, when Mr Rudd and then Deputy Prime Minister Albanese announced it, you can only apply for a humanitarian visa, if you come by boat seeking asylum, by invitation. You otherwise will never settle in Australia.

We’ve had that policy for 13 years. The consequence of that is that you will be removed to regional processing. We had two sites – Manus Island in PNG, now closed, or Nauru. That’s gone global; everyone knows that. That is the Australian policy.

We know – and obviously I’m not aware of the classified information, but we know from periodic public pronouncements – that some boats still come occasionally. There seems to be, from questions taken on notice, maybe about 100 people on Nauru, we think. Not entirely clear, and I haven’t been tracking the detail in any event. But that is below the critical mass. In other words, you don’t have enough arrivals where people think, “oh, if I get down to Malaysia or Indonesia, East Timor, there’s enough cash flow going to the smugglers that they’ll have another venture ready for me to go”.

So in other words, at its peak, so when Labor was returned in’07, they changed the law and some migration regulations in the middle part of 2008. They cut the processing time, closed regional processing, cut the processing for humanitarian visas, I think from memory, down to 90 days. That started to send a demand signal around the world … Labor subsequently accepted that’s what had happened.

Smugglers then had enough of a business case or a business proposition to actually start taking advance orders, stacking the boats, the fuel, the rations and saying: “Okay, you get yourself to Jakarta, or you get yourself to Kuala Lumpur, or you get yourself to wherever, one of my people will meet you, will take you down through some back roads, maybe to southern Java, say. And don’t worry if you miss next week’s boat, because there’s enough of a throughput going. I’ll get you on in two weeks’ time”.

That loss of control saw the 50,000-plus arrive from mid-’08 to early ‘14. And that’s the period where it sort of peaked and then was then got back under control through turnbacks, through regional processing, through temporary protection visas. And it saw conservatively around 1,600 people drown, we think, based on the information we had about likely departures versus what we know arrived, the numbers that arrived. So we think about 1,600 people died.

That effectively in the early part of 2014 stopped. Why? Because it was a global signal that that way is shut. So people stop making advanced bookings, cash starts to dry up. The smugglers aren’t getting cash flow. They can’t – it’s not economic for them to run ventures. Whereas at its peak, they were running a timetable. They’re saying, “oh look, you’ve missed tomorrow’s boat, but … I’ll get you on Thursday”.

Radical Islamism and the limits of selection

WALKER: So in this chat, we’ve touched on the question of Muslim integration, but specifically the problem of radical Islam, and I want to come to it explicitly now. So I have some questions that kind of cover some issues that we haven’t discussed so far. First one’s a philosophical one.

PEZZULLO: Yep.

WALKER: Should an open society exclude people who adhere to radical Islamic ideology?

PEZZULLO: It’s not really a philosophical question because it’s actually a matter of law and application of law. I spoke earlier at some length about the visa risk assessment application process, which is becoming increasingly digitised. If your security and character checks are working, you should – doesn’t always happen – be able to detect that in your first-generation migrants.

Now you’ve got an issue, I said earlier, candidly, that we’ve had an issue with second-generation Australian-born Australian citizens who went off to fight for the caliphate. You wouldn’t have got that through visa screening.

But more than philosophically, as a matter of law and as a matter of bureaucratic procedure, we attempt to do that. The logic being not because of your religion, but what the interpretation of your religion could lead you to do in action.

So whether you’re an adherent of the teachings of the Prophet or a Christian or any religious sensibility, if there’s a possibility that we pick up through security and character intelligence checks that you might translate that into extremist ideation and, worse, extremist intention of extremist action – ultimately building a bomb or engaging in a, say, a mass-casualty attack against a synagogue or a church, for instance – we want to keep you out.

WALKER: Yeah, okay. So just so we’re clear, because these terms can be quite slippery, are we defining radical Islam as people who believe in taking up violent means to advance [their faith]?

PEZZULLO: It’s even more precise than that, or more particular than that. Because in different parts of history, there have been Christian groups who have taken up arms. I mean, the Crusades was about that.

WALKER: Yeah.

PEZZULLO: There’s a particular strain – Salafist jihadi thinking – that really emerged after the Second World War. It’s traceable to the Muslim Brotherhood, some scholars and intellectuals in Egypt that we won’t have time in this podcast to talk about, who started to promote the idea because of the discovery of oil in Saudi Arabia, as those societies were likely to become westernised.

So under the Ottomans, there was high levels of tolerance if you wanted to practise as a Muslim. Typically, that was the majority throughout the Ottoman Empire, which of course went right down into Arabia. But there was respect for and tolerance of Christian communities and Jewish communities.

These questions didn’t really arise until you started to get the decolonisation after the Second World War. So states such as Egypt started to emerge, Jordan – Transjordan as it was called – the question of Palestine, the advent of the State of Israel, that actually started to harden views. [People said] “hang on, now … there’s a United Nations, because the empires have all largely broken up”. We talked earlier about the dissolution of the British and French Empires – well, that saw the demarcation of Iraq and Syria, for instance with the geographical boundaries being drawn. Saudi Arabia, incredibly important there because people knew that oil was going to be the future.

This movement intellectually started in Egypt, but it also took hold in places like Damascus. [Many scholars] started to say – and this is where the Muslim Brotherhood idea started to emerge – that “hang on, we’re not going to be plural societies, we’re Islamic societies. So yes, we might want to do trade with or have investment and maybe even have Western businesses here, but we don’t want to look like those countries, including in terms of religious instruction, schools, mosques, halal eating rules, and all the rest of it”.

By the ‘80s and ‘90s, and you saw this with bin Laden particularly, Al-Qaeda was one of the early adopters of the idea that this schism between the view we have of the Islamic world and how Islam can be best protected and preserved in opposition to the West is existential. “They’ve got all the financial power, they’ve got all the military power, they can overwhelm us if they choose to. So we have to take up asymmetric means”.

And you saw that on 9/11: “We’re going to crash planes into the centre of American capitalism and the centre of American military power”. And it would seem that they were also looking to target the Congress, so the centre of American political power, because it’s an existential struggle to the death. “We don’t have vast military force or financial power. They have all the power. We’ve got the deed. We can carry out the deeds that will show to them that in this struggle we will prevail, and we certainly will not surrender to your ways”.

Now, Al-Qaeda then obviously was pulverised after 9/11. They splintered off into different parts of the world. And as I said earlier, the Islamic State then emerged almost as a reaction to the defeat of Al-Qaeda on the battlefield, saying, “hang on, sure, we’ve got to take the attack into their homelands, but the first thing we’re going to do is secure our own base. And these apostate countries that are compromising with the West” – you know, including Jordan and countries like that – “no, we’re going to take over territory” – in this case parts of Iraq and large parts of Syria – “and start to run it in accordance with our belief system, which is the caliphate”.

To the extent that that idea is inextinguishable, it’s probably going to be with us for generations. The good news is that a lot of Muslims themselves are opposed to that way of thinking. In fact, some of the hardest campaigns against these extremist groupings are actually to be found in Muslim-majority countries. Saudi Arabia, Jordan. You’ve got a reformed Al-Qaeda guy in charge of Syria now. Egypt. UAE [the United Arab Emirates]. They go after these cells, frankly in a more tough and robust fashion than even we do.

WALKER: Yeah. So because you said it wasn’t so much a philosophical question for you, just so I’m clear on the claim, that the claim would be that radical Islam as—

PEZZULLO: Or Islamist, I would say. I prefer not to use the term radical Islam because even though you’re qualifying it with the adjective radical, you’re still tying it to the religion.

WALKER: Okay, so radical Islamist.

PEZZULLO: Islamist, yep.

WALKER: So radical Islamism is fundamentally incompatible with liberal democracy?

PEZZULLO: Well, just on a reading of their own belief system.

WALKER: No, that’s good. So therefore we should want to exclude migrant applicants who adhere to those beliefs?

PEZZULLO: Yes. Which is where the rigour of your security and character-checking comes in.

WALKER: Yeah, okay, great. So does the non-discrimination principle in Australian migration policy allow us to exclude migrants on that basis?

PEZZULLO: Yes, absolutely. Absolutely. Because we’re not discriminating against you in terms of your religious belief. We’re probably discriminating against you in terms of your political belief. Because you’re saying that your adherence to Islam in your particular view of the world, because you followed a particular scholar or a particular imam, leads you, for instance, to say that Jews and Christians and Muslims cannot live side by side, it’s the way of the sword. Or in some of the more extreme hate preaching that’s been the subject of discussion post-Bondi, you’re going to place emphasis on parts of the Quran that are particularly violent in relation to Jews.

WALKER: I see. So are there particular grounds in the Migration Act that allow us to exclude anyone with extremist views?

PEZZULLO: Yes, all the provisions that are underpinned by the Act in relation to security and character.

WALKER: Yeah, so good character and good order or whatever the term is.

PEZZULLO: Yeah. The phrase used in the Act which ultimately can lead to a cancellation under Section 501 – and also denial of grant under other sections – is where your presence would not be compatible with the good order of Australia.

WALKER: That’s the wording, yep.

PEZZULLO: And there’s very strong jurisprudence in relation to that, very strong.

WALKER: Like the Tien case [Tien and Others v. Minister for Immigration and Multicultural Affairs].

PEZZULLO: Tien principally. It was also affirmed in Djokovic [Djokovic v Minister for Immigration]. [That addressed a] completely different issue, but when Djokovic came there was uncertainty about his vaccination status. He wasn’t then excluded or in fact deported from Australia because of his lack of having appropriate vaccine credentials.

But because anti-vax groups started to rebel or started to get incited, and were surrounding the hotel he was being kept in … his presence here was not consistent with good order … he was deported. Right, the world’s number one tennis player.

Now, we didn’t discriminate against Mr Djokovic on the basis of his religious belief, his ethnicity as a Serbian. His exclusion was in relation to his presence being contrary to good order.

WALKER: Yeah, okay got it.

So probably the ultimate instantiation of a failure to acculturate is when someone commits a terrorist attack in their new host country.

PEZZULLO: Sure. Yep.

WALKER: Do you think there’s a way that selection criteria can filter out people like the father of the two Bondi terrorists, who first came to Australia on a student visa in 1998? Or is it kind of too difficult to see inside their minds or what they might become, and you’ve kind of got to leave those functions to other agencies like ASIO to pick up the work after the person arrives?

PEZZULLO: Look, this will, I think, be tested through the reports of the Royal Commission, the criminal trial, and any coronial [inquiry]. So there’s probably going to be three lenses put on this. I suspect all of them will find…

And certainly, Akram, either senior or junior, didn’t come to my attention when I was the secretary. And we know from what ASIO has said publicly that the younger Akram was on the periphery of a number of investigations they were conducting into street preachers and people associating with those street preachers that we just spoke about. And he was looked at, I think, in 2019 – for a period, I think from memory, of about six months, the head of ASIO has said – this is the son, not the father – and the case was effectively closed. He was associating with people expressing these sorts of views about the caliphate, about the need for Sharia, etc. – all the things we’ve just spoken about. [He] was listening, was engaged, a young man, about 18 or so, impressionable.

[He was] not deemed worthy of ongoing surveillance or scrutiny, because you’ve got to triage. You’ve got to make case prioritisation decisions. Have you got enough resources to track everyone like that? Or going back to what I said about the caseload earlier, if there’s a smaller, harder-core group of potential attackers, do you throw all of your material resources to the likely attackers as opposed to people at the periphery? This will be established through the Royal Commission and through other processes, the criminal and coronial processes, I suspect.

In relation to the deceased Akram senior – student visa, India, an Indian Muslim – I suspect it’s already been examined as part of the initial Royal Commission work. His application’s been looked at. Going back to what I said in this discussion, the digital tools were not quite what they should have been up until about 2014. So you’re talking about an application that probably would have been paper-based. A student, I think, from memory; I can’t quite recall reading the course of study that he came on. I think [he] subsequently formed a relationship here and subsequently married here.

WALKER: And moved to a partner visa.

PEZZULLO: Moved to a partner visa, and then that’s how he got into the permanent stream from off-student.

‘98, I would think looking back, the systems would be almost prehistoric compared to the sorts of datasets that I spoke about that emerged in the 2014 period and thereafter with digital access to foreign databases. But, and here’s the but, if you could conduct this mind or thought experiment – and I think Judge Bell should – knowing what we now know, that he was one of the terrorists, just now deceased, won’t be able to cross-examine him at trial obviously, although we’ll learn something through cross-examination of his son … if we could go back to that application in ‘98, and controlling for bias in terms of hindsight, would you have made a different visa decision? I suspect the answer would be no.

Were there flags at the time that … It was almost certainly a paper application, I suspect. [It] might have been in the old mainframe system, so maybe elements of it would have been digitised … The file … would have been examined either in New Delhi, when a lot of the caseloads were distributed around the world. Probably there would have been a visa officer in New Delhi – one of the last posts, simply because the size of it, where we retired the old trolleys that used to move files around to the different visa processing offices and literally were tied up with the British pink imperial era bureaucratic ribbons where the phrase red tape comes from.

There would have been a file which would be somewhere in the Department of Home Affairs.

WALKER: Here in Canberra.

PEZZULLO: I suspect so. The archive file might be actually in New Delhi because some of the archiving was done around the world, simply because of volume.

WALKER: And we have an office there.

PEZZULLO: We’d have a big immigration team in New Delhi in the ‘90s. They might have punched in some basic data into what passed as … They didn’t have sort of the computers we have today, but they would have had some desktops starting to emerge, and they would have been networked back to a mainframe back here. But the file, now I suspect the file’s been called for and it’s been carefully scrutinised.

But here’s something the Royal Commission should do. They should conduct that thought experiment and try to eliminate for as much bias as possible. Knowing that the guy ultimately, many years later, ended up being an assailant at Bondi Beach, would you make a different visa decision? I doubt it. I doubt it. Even if you had – if you could time travel and have the sort of digital capability, the data checking capability that I mentioned earlier – would he have come up? I doubt it.

WALKER: Yeah, I think this is a really important point for people to understand. Just what we can reasonably expect from our immigration system. I guess it raises the question: where, if anywhere, was the point of failure then? Is it a failure of acculturation? Is it a failure of intelligence?

PEZZULLO: It goes back to the point I’ve been making recurrently through this discussion: a small group, in absolute terms large enough to be concerned about, [but] in relative terms not, of Muslim men who are alienated and dissatisfied / disassociated from Western plural liberal norms. So again, I’m just going to have to speculate here, because I just don’t know.

So Akram Senior migrates here as a student in ‘98. Talking to people who know him, his wife and others, what was his attitude? And we could reconstruct this on 9/11. Did he cheer? Did he say, “good on you, bin Laden, you’ve stuck it up those Americans”, because the Americans, partly through support for Israel, the Palestinian cause, or whatever strand or particular sub-narrative they’re buying into, deserved a punch in the face with bringing down of the Twin Towers and so on and so forth? Or was he repelled by that? There’s an interesting thought.

As then the post-9/11 campaigns in both Afghanistan and Iraq unfolded, how did he react to those? Was it, “hang on, the Muslims are being put down”? Bush has gone into Afghanistan. Okay, maybe you can accept that because that’s where al-Qaeda was based. But they’ve gone into Iraq. Where next? We’re losing our Muslim identity around the world. Crass consumerism, promiscuity. I don’t agree with women having the rights that they’re given. How did his thinking … now the man’s dead, but to the extent you can reconstruct this, how did he react?

And it might have been that there were no indicators of this because he wasn’t chatting, he wasn’t sending people messages. But privately, to his relatives or to his friends, he was going, “Yeah, it’s good that they stuck it to the Americans”, or “It’s good that the Palestinians, you know, Hamas or Hezbollah, are sticking it to Israel”. How did that … ? What did he think about the caliphate?

We know at the end they were displaying the IS flag, the caliphate flag. What sort of discussions were being held in the household? Now, it appears – and again, we can just go off what’s been said publicly – they weren’t talking to others, it would seem. There’s this trip to the Philippines, but in more recent times. But around 2014, what were father and son talking about? The younger one was still quite young. He would have been, what, 13 at the time? How did Dad view the caliphate? Did he think those beheading videos were good? You know, people in the orange jumpsuits, Westerners being beheaded.

To answer your question, you need to reconstruct that. I think that it actually should be a case study for the Royal Commission. Because the failure-points, so-called, are: why is that behaviour not detected? Well, in a sense, it’s the strength of our society. If you’re keeping those thoughts to yourself or to your most intimate friends, you go outside and say, you know, “I hope this caliphate gets up and running” – you’re not online, you’re not in a chat group, you’re not searching the internet, you’re not sending messages to, you know, isis.com, [to a] recruitment office [saying] “I want to come and be a fighter” – then [it’s] almost impossible to pick you up, because we don’t have that intrusive surveillance that would otherwise pick you up.

Now there is then the 2019 point where we know from what Mike Burgess has said that the younger Akram became the subject of an investigation. I think he’s just been described as a preliminary investigation to see if more detailed investigation was warranted. I think that ran for, I think Mike Burgess said for, six months. And he said: “We threw everything at it, including our classified capabilities, and we came to the view that he was on the periphery of these street preacher groups.” Impressionable young man, but not requiring ongoing intrusive surveillance.

In a sense, as terrible as the outcome then was, because 15 innocent Jewish Australians were killed, the fact that the security intelligence service of your country says, “look, I’ve had a look at you, if you come up again we’ll have another look at you, but we’re not going to tag you, we’re not going to follow you, we’re not going to be on your device” – that’s actually the sign of a free society. But it then creates that risk.

WALKER: Yeah.

PEZZULLO: So if it’s just he and dad increasingly saying, “look son, we’re not even going to tell mum to protect mum” – and I think there’s a sister – “let’s go out the back and have a discussion”, [then] it’s almost impossible to break into that thinking. Because there’s no communication tell associated with that increasing ideation, that increasing intent.

Now, the Royal Commission might find otherwise, and there might have been potentially a dramatic intelligence failure. But from everything we’re hearing – including ASIO statements in relation to a Four Corners program, for instance, that was aired last month – those indicators were not available.

What if China blockades Taiwan tomorrow?

WALKER: To close, some bigger questions on the intersection between immigration and security. Take the total space of immigration policies that Australians would plausibly accept. If you were Xi Jinping, which set of policies in that space would you most like us to have?

PEZZULLO: I think he would like to have a change in an adjacent policy area – not quite immigration per se, but in some of the security checking and character checking.

WALKER: So that it is easier to infiltrate Australia.

PEZZULLO: And there’s probably not much more I can say on that. So I think the settings that he would, to the extent he’s given it any thought – I mean, he’s got a lot of responsibilities – but to the extent that he’s thought about this, or he’s caused to think about it, he would be more concerned, and he’d want to see Australia relent to the extent that he can affect that. He’d be concerned about our hardened counter-espionage and counter-interference posture that’s emerged since 2016–17, in the last 10 years.

WALKER: Anything else on that? Nothing you can say?

PEZZULLO: No.

WALKER: Okay, so hypothetical. Imagine you’re Secretary of the Department in 2027.

PEZZULLO: Yep.

WALKER: China blockades Taiwan.

PEZZULLO: Yep.

WALKER: And this triggers a regional economic crisis. Shipping through the Strait of Taiwan is disrupted.

And simultaneously, three major migration flows converge on Australia.

Firstly, the Taiwanese. There’s already a diaspora in Australia of, yes, maybe 100,000.

PEZZULLO: It might not be that much, but I’d have to check the number … It’d be in that range.

WALKER: Yeah, people shouldn’t quote me on that, but [it’s] maybe roughly that order of magnitude. Some of them will be on temporary visas. And they’ll now claim protection. But they’ll also pressure the government to accept some of Taiwan’s 23 million citizens, many of whom will be evacuating the island as refugees. Secondly, there might be Southeast Asian boat arrivals, so people from countries like Indonesia, Vietnam, and the Philippines who are pushed to travel to Australia to escape this sort of instability and economic crisis that the blockade has triggered. And then thirdly, there’ll be a lot of onshore people, out of necessity, overstaying. So people like those two million temporary migrants we discussed, who may even lose their jobs if there’s an economic downturn in Australia as well, but they won’t want to leave because of the crisis.

Okay, so having set up that hypothetical scenario, can you just walk me through how, as Secretary of the Department, you would think about that? And maybe just to sharpen the question for you, maybe operationally what happens in the department in the first 72 hours? What happens in the department in the first six months?

PEZZULLO: At a prior stage, because the Department of Home Affairs is now more deeply embedded in the national security architecture – and I can assure you, the most sensitive intelligence, including the prospects of an invasion or the prospects of a blockade or the prospects of a military strike, those assessments are given under the Secretary and a few other officers – not because they’re responsible for military defence, but [because] there’s other issues around cyber warfare, critical infrastructure protection, protection against sabotage, for instance. There’s a whole other part of the Home Affairs brain that gets engaged, not in relation to this immigration set of challenges, but Home Affairs has also got that domestic security and civil defence role.

So the secretary [of the Department of Home Affairs] is already – along with the Foreign secretary, the Defence secretary, and others – already starting to think weeks out, if not months out. And they should be thinking about this now. A whole series of preventative and mitigation measures, everything to do with keeping the internet on, critical infrastructure protection, defence against drone attack, sabotage, and the like.

Then an element of that planning – so it’s not [just in the] first 72 hours [but] actually should be weeks if not months before – would be in those three areas. What does a Taiwan, maybe, temporary humanitarian program look like? One which you’d want to coordinate with the Americans and a few others, maybe Canada and a couple of others. It’d be good to get our early share of people in advanced IT and chip making, because temporary could become permanent. So you’d have a Taiwan [humanitarian] program.

With boat arrivals, you don’t want any in a war or pre-war situation. Blockades [are a possibility in] the early phases … of a war. It’s not quite clear from your question as to whether military operations have commenced between the US and China, but you’d have to think …

WALKER: Yeah, I left that out deliberately, because it brings in some other …

PEZZULLO: Correct. So let’s assume that you’re in a pre-conflict phase, but you’re alert enough that conflict could start soon, potentially – particularly if the Chinese want to take some US assets off the table and Australia is implicated in a war. You would want to harden up your maritime border protection anyway. You don’t want any vessels coming towards Australia, whether they’re carrying people or saboteurs or internet cable-cutting equipment or whatever. So you would surge Operation Sovereign Borders [the military-led joint agency task force that helps to maintain border security]. And yes, you would be doing turnbacks. You would be ensuring that that flow is stopped.

WALKER: Because in my scenario, the boat arrivals here are probably certainly dwarfing the numbers of arrivals in 2013.

PEZZULLO: And it might be that in that circumstance you’ve got to look – and this would be part of the planning – at serious onshore detention as you sort through. So you can’t just rely on Nauru because it’s not …

WALKER: Because there are too many boats to turn back.

PEZZULLO: Too many.

WALKER: You apprehend them on the land.

PEZZULLO: If they get through that far, or you apprehend inside the migration zone and you simply accept that your defences have been overwhelmed, and you open up your onshore northern detention. Because it’s not like you’re in peacetime, saying “we’re deterring you because we’re going to send you to Nauru, and from Nauru you’re going to be put through regional processing, and then you’ll, in a peacetime context, end up in another country but not Australia.” If you’re getting to a point where the arrivals are overwhelming the catches, that peacetime arrangement falls apart.

So you do turnbacks where you can, and you should be checking as many targets as possible, contacts of interest, because they might be laying mines, they might be doing all sorts of other things rather than just carrying people. So you’d have to run an integrated border force and naval operation just for that screening. And that would chew up virtually all of Australia’s maritime surveillance capability. So different podcast, different discussion, but our ability to contribute naval and other forces forward in a Taiwan scenario, even pre-war, is very much limited just by the vastness of our maritime domain. We’ll have to, to use a football analogy, defend our own line rather than push forward.

WALKER: And when you say defend, that predominantly includes just turning back refugees? It’s not even…

PEZZULLO: If you can. Because it might be [that] you’re getting overwhelmed. It might be that the number of arrivals that are streaming through, say, Java [are substantial]. You’d work with Indonesians to try to block off the flow as much as you could. People might be slipping through PNG [Papua New Guinea] into East Timor. They might be coming the long way around from Malaysia. You’d certainly, as your first port of call, try to blockade or barricade it. Java, that’s the main thoroughfare to block off.

But let’s say you’ve done everything and boats are still overwhelming you. You have to accept a degree of onshore arrival.

WALKER: So, far from undertaking military operations, the Navy is actually getting sucked into helping turn back boats.

PEZZULLO: Some assets. Your ANZACs [frigates] and maybe your LHDs [Australia’s two landing helicopter dock ships]. You’d keep your air warfare destroyers and submarines off for other missions. But certainly your patrol boats, your frigates, and probably your LHDs. You might use your LHDs, the two large aircraft-carrier-type vessels, as helicopter carriers for surveillance. And they might be doing a combination of looking for drones and mine-laying, internet cable sabotage, as well as illegal maritime arrivals. So it’d be one operation.

Now the good thing is that OSB [Operation Sovereign Borders] is headed by a rear admiral, so they could exercise military command and command over the Australian Border Force as one joined-up operation. And they actually wear two legal hats to do that at the same time.

And then the third element, which was just the people here. Long-term permanent residents and citizens you would treat no differently. And you certainly would not go down the path of any kind of mass internment. Any Chinese Australian you would assume is loyal until proven otherwise. So if ASIO or AFP had particular concerns about a group or a cell, a network that they felt or they judged were being tasked by Beijing, sure, they get attention. Not because they’re Chinese Australians, but because they’ve been tasked by Beijing.

And then people who can’t travel back … There might be airline closures; there might be the early start of military operations as you’ve seen in the Middle East. You would be looking to extend visas.

Should ‘populate or perish’ make a comeback?

WALKER: Okay, final question. I’m cheating a little bit here because it’s a double-barrel question, but do you predict ‘populate or perish’ will make a comeback, and should it?

PEZZULLO: I think yes, and that’s simply a function of –

WALKER: Sorry, yes to which part?

PEZZULLO: To both. It’ll make a comeback. And should it? Yes, because as much as we might generate leverage through AI agent capability – so [we have a] relatively small population, but we’ve become super-productive because everyone’s got their AI agent in their workplace – there still is going to be a requirement, whether it’s in building, whether it’s in military services, whether it’s in healthcare, for humans.

And to secure Australia, just as a military problem, a population of 28 million – and that’s even if you allow for a degree of national service or a degree of conscription – is only going to generate a defence force, if you have to mobilise it to defend Australia in a war, to a certain level. Now, AI can help offset that to some extent, but as a military strategist and a military defence planner, I look at Australia – I’d want to be protecting Australia with 40 or 50 million people rather than 28.

Now, there’s all sorts of issues. I mean, where are those 20 million people going to live? Do you double or triple the size of Sydney or Melbourne? No. [Are you] in a better place where somewhere like Perth has five million people? Yes. But can Perth take five million people? Don’t know. Don’t understand enough about sustainability there.

Kevin Rudd was probably the last prime minister who talked in those terms. He talked in general terms. I think he mentioned it in his memoir, for instance, of talking about an Australia of 40 million people.

WALKER: Well, the irony of Rudd’s big Australia is that he got a lot of pushback for talking about an Australia of, I think, 35 million people.

PEZZULLO: I think it was about 35, maybe 40.

WALKER: By 2050. But today, 17 years later, that’s the ABS’s midpoint projection for 2050.

PEZZULLO: Correct. We’re on track, so our population growth has been well out relative to 20 years ago.

WALKER: Yeah.

PEZZULLO: More recent population projections are likely to be more accurate, particularly with the establishment of the Centre for Population in Treasury. But you go back to …

WALKER: And was that just net migration catching them off guard? Is that why we were always underestimating?

PEZZULLO: Yes. And not a turnaround in fertility, but less of a decline in fertility than what was predicted.

WALKER: Okay. So if the ABS’s midpoint projection for 2050 is about 35 million people, from a defensive standpoint, what would you prefer to see by 2050?

PEZZULLO: About 40 [million].

WALKER: Okay, that’s only an extra five [million] – that’s not too much.

PEZZULLO: … Yeah, but that’s another Sydney or another Melbourne.

WALKER: Yeah. And … just exactly what [does] that extra five million get us defensively?

PEZZULLO: So 40 million, it’s a function also of how much you spend on defence. But from a defence point of view, you go from a full-time ADF of about 60,000. [That’s] very light, and you don’t have any depth. And even with AI and automation and digitisation, you don’t have the hitting power that you need.

And we – a Defence of Australia podcast is an entirely different –

WALKER: We’d have to do that another time.

PEZZULLO: We’ll have to do that another time. But for an ADF of 60,000, you just don’t have enough coverage. But with a defence budget of, let’s say, 3% of GDP – just, there’s nothing magical about 3%, just more cash. So it’s about a percentage point on top.

WALKER: Because we’re about 2% currently.

PEZZULLO: 2%. Let’s say 3%, ideally a bit more than that, because it’s going to become a pretty tough world. But there’s lots of trade-offs. Where do you get that percentage point? In population terms, if you carry through current ideas about recruitment, retention, your life in the military – “do I want to do 20 years or whatever?” – and exclude for a moment national service, you get an ADF of about 100,000. And that is probably the minimum viable.

A 3% budget and an ADF of about 100,000 gives you the number of people you need to then – even if you’ve digitised, automated, gone heavily into drone warfare – it gives you the kind of size of a defence force that you’d need for the most credible contingency that we would face, which is basically a theatre-wide war where Australia’s not been attacked directly because someone’s attacking Australia, but we’re part of a theatre war which extends from the middle of the Indian Ocean probably right up to Alaska. And it’s a bit more like the conflict that we faced in 1942.

In that war, or in that kind of credible contingency, because there’s for the next century at least, all things being equal, unless Indonesia turns into a very different sort of country, it’s almost impossible to see a circumstance where Australia is engaged in an existential military conflict where it’s fighting for its life, absent a broader war.

WALKER: Yeah, I see. So it’s actually quite an important assumption here that you’re not contemplating the defence of Australia – you’re contemplating a theatre war [outside of Australia’s immediate region].

PEZZULLO: Where the defence of Australia is a subset, is a subcomponent of that war.

WALKER: Right, right. But we’re not trying to repel an invasion to the continent. Okay, so that makes more sense in terms of beefing up the ADF’s numbers.

PEZZULLO: Because what you’d want is an army in rough terms, is about a 60,000 army, and an air force of 20,000 roughly, and a navy of 20,000 roughly. They’re very much at the low end, and then probably through reserve service and/or national service, the ability to probably double those numbers in relatively short order. So you get to an army of about 100,000 or so and Navy and Air Force of roughly 50,000 each.

WALKER: Absolute last question. Do you know what kind of increase we’d need in migration levels to achieve that extra 5 million by 2050?

PEZZULLO: It wouldn’t be that much because of the compounding effect. So I’d need to look at the numbers, but I would have thought you wouldn’t be far off that with a permanent programme of 190,000 to 200,000, I think.

WALKER: Okay.

PEZZULLO: I think. Because you get generational benefits – people have children depending on fertility. They have at least two, if not three children. So you’d want to crunch the numbers, but I don’t think you’d be that far off that extra five million over what is a 25-year period with a programme of around 200,000 maybe. But I’m really just taking a stab at that, which is above our long-run historical average since the Howard years, which has been about 180,000 thereabouts. So you’re looking to put 10,000 to 20,000 on top.

WALKER: Yeah, got it. Well, we better leave it there. This has been a truly fantastic conversation, Mike. Thank you so much.

PEZZULLO: Thanks, Joe. I really enjoyed it. Thank you.

WALKER: Done. Thank you, sir.

PEZZULLO: Thank you.

WALKER: Appreciate it.

Mark Cully was the inaugural chief economist at the Australian Department of Immigration (2009-2012). His forthcoming book, Waves of Plenty (September 2026), is (to my knowledge) the first truly general history of immigration to Australia. It will fill a remarkable gap in our literature, given the centrality of immigration to the Australian story.

We discuss Australian exceptionalism in migration policy:

• The only country to have run assisted passage at scale (around 3.5 million people whose fares were subsidised).

• The first country in the world to have a dedicated Department of Immigration.

• The first country to offer migrants English-language training.

• Per capita, the world’s largest receiver of international students for decades.

• Today, the OECD country with the highest share of overseas-born among countries with more than 10 million people – around 32%, about 8-9x the world average, and projected to climb beyond 40%, a level likely not seen in Australia since the 1880s.

We walk through six decades that built the nation – the 1830s, 1850s, 1890s, 1950s, 1970s, and 2000s. We discuss why Australia eschewed slavery, why the 1850s might be the most important decade in the making of modern Australia, and what the White Australia policy was really about. We also explore what made the post-war migration program the most epic policy experiment in our history, whether migration has increased Australian living standards, and what history can teach us about the rise of One Nation.

Watch:

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Transcript

WALKER: Today it’s my great pleasure to be speaking with Mark Cully. Mark was chief economist of the Department of Immigration from 2009 to 2012, and he is the author of a forthcoming book, a history of immigration to Australia. I’ve read the manuscript, and it’ll be one of the books of the year. So Mark, welcome to the podcast.

CULLY: Thanks, Joe, and thanks for the plug.

WALKER: So the title I think will be Waves of Plenty, and it’s going to be published in September. It’s striking that there’s a huge gap in the literature. Australia doesn’t really have a general history of immigration, something that covers the full sweep from the arrival of the British through to the present day. So it’s a huge service that you’re doing for the country.

In the book, you give a kind of macro overview of that whole history. But you also focus in particular on six decades and you provide a narrative history of each of those decades. Those decades are the 1830s, the 1850s, the 1890s, the 1950s, 1970s, and 2000s.

So, as I told you before we started recording, the book left me with a number of mysteries or questions, which we’ll get to. I’ve got some big–picture questions, and I also want to go through each of the different decades and ask a few different questions on each of them.

CULLY: Okay.

Why didn’t Australia turn to slavery?

WALKER: But we’ll start with my first mystery and the 1830s.

So one of the defining features of Australia generally, but in particular immigration to Australia in the 19th century, is that there are these chronic labour supply shortages, which are a function of the tyranny of distance. I think in the book you write [that] until the mid-19th century, it was about £5 to travel from the UK to America, whereas it was about £20 to travel from the UK to Australia.

CULLY: And the amount of time it took.

WALKER: It was about three times as long.

CULLY: Yep, about three months. And you have to think about the opportunity cost of your time. You can’t earn a wage aboard a ship.

WALKER: Exactly. And [travellers had] a much higher death rate as well.

CULLY: It was about two per cent. People died on the voyage on the way over. Higher for kids.

WALKER: Yeah. I mean, in some ways it was almost like the then equivalent of travelling to the moon or something.

And so, as a function of that, Australia had these chronic labour supply shortages. And colonial governments primarily tried to address those through assisted migration.

But it’s striking that Australia never turned to slavery, like other countries – like America and South Africa – did, to solve their labour supply issues. And that’s particularly striking because, there was a local Indigenous population. And yet we still [imported] a lot of labour from either the Pacific Islands or from the United Kingdom and Ireland.

So do you have an account or an explanation for why Australia didn’t turn to slavery like some other countries did?

CULLY: People and scholars make a distinction between free and unfree labour. And you could have slavery at one continuum, and then you could kind of have, I don’t know, people just being hired as employees in a labour market and covered by kind of rights and conditions at the other end. And so when you’re asking about slavery, you need to frame it within that kind of unfree labour.

And so you would characterise the kind of conditions under which Aboriginal Australians did work in the labour market as being on the borderline of unfree. They had few rights. Their wages were grossly underpaid or often not paid at all. And they weren’t necessarily that much different from – and we might go on to talk about – the South Sea Islanders and the way in which they were brought into Australia as indentured workers.

The chronic labour shortage only started to become an issue in Australia during the 1820s, and I guess the way I’m thinking about it is that in the 1820s, we had this report that was done by [Commissioner John Thomas Bigge] – the Bigge Report. He basically ran a kind of royal commission into the operation of the convict system. And there were some concerns in Britain that being transported to Australia did not have sufficient terror attached to it. And Bigge was sent out to investigate this.

And so there was this tension between the colonial authorities and British reformers and the British authorities as to what these penal colonies were there to do. Were they there to send the criminal underclass from the UK away to Australia, so they’re out of sight, out of mind, and just keep sending them there? Or were these colonies to be – because there were two, New South Wales and Van Diemen’s Land, by that point – were they there to be something different to a penal colony? Were they to become, in effect, a dominion?

At the same time, there was a push starting against transportation for moral grounds because slavery was being contested. I think it was early 1830s that the Slavery Act was passed to abolish slavery within the Empire. So the opportunity, I guess, for slavery to take off in Australia, whatever form it might have taken, didn’t happen before 1830, which is when assisted passage started, and didn’t happen after 1830 because slavery had been expunged in the British Empire.

There are a series of papers which look at the use of Aboriginal Australians as workers in different parts of Australia. It was well known that they worked as kind of jackaroos and so on on cattle stations. It’s a fairly thin literature, I would say, so it’s very hard to be definitive about it.

I guess the one thing that people know as a kind of backdrop to this is that the population numbers collapsed calamitously. There were perhaps – Boyd Hunter’s done some work on this – perhaps about a million Indigenous inhabitants of Australia in the late 18th century. And by about halfway through the 1840s or thereabouts, the number of colonists had gone past the number of Indigenous Australians who had died principally from disease rather than from warfare.

I guess I’d observe that even in the United States, they didn’t – not in any significant scale that I know of – enslave their own indigenous people. They brought people out from Africa to do that.

The decade that made modern Australia (1850s)

WALKER: Yeah. So, question about the 1850s. I’ve come to view the 1850s as perhaps the most important decade in Australian history. And I’ve been trying to puzzle through what it means to have so many people in a country who are there for the first time.

Maybe the most striking statistic from that period is [that] I think by the end of the gold rush decade – so we’re talking early 1860s now – seven in ten people in Victoria were born overseas.

It must have been such a strange experience to live in a society where most of your fellows were not originally from the place. It almost feels like a weird Lord of the Flies kind of situation. In some very real sense, it’s like you’re creating a society from scratch.

I’ve just been recently trying to puzzle through exactly how that affected Australian culture, that influx of newcomers. And not even particular qualities of the newcomers, but just the fact of having so many new people in such a short space of time.

CULLY: Victoria didn’t have any colonists except for some, you know, renegades and kind of outlaws who were sealing along the Southern Ocean until the mid-1830s when the Port Phillip District was established. So it went from kind of, you know, basically no white people to, I think it must have been 400,000-odd by the end of the 1850s.

So it went from having no white people at all ... Between 1835 and 1850, most of what is now Western Victoria and Central Victoria, Northeastern Victoria became occupied by squatters. And there were huge numbers of sheep there. Melbourne was a big town of 20-odd thousand-ish. And then after gold was discovered in 1851 … Without a policy, the default was [that] it was open borders. There were no restrictions on anybody turning up. So long as you could find a ship to bring you to Melbourne, you could come and you could start searching for gold.

And people did come from all over North America, from all over Europe, from Britain and Ireland, from New Zealand, and I guess most famously, because it’s the way it played out over the course of that decade, from China. William Howitt was already a fairly distinguished writer in London at that time, and elderly, and he decided he’d come out to see what all the fuss was about, and wrote a memoir of his time there. It’s so colourful and so evocative of, like you said, this land taken over by these white people searching for gold.

And it was both a kind of an upheaval of everything that had gone before, but it was also this tremendous kind of a “melting pot” in that sense that people sometimes use it in the context of the United States in the late 19th century of throwing all of these people together and everyone having to find ways of accommodating the way in which they saw the world and the way in which they interacted with one another.

And it was … the birth of Australian culture?

There was certainly a lot of swagger and a lot of larrikins. There were a lot of former convicts who had come from, particularly from Van Diemen’s Land, to try to make their riches. And there were lots of colourful stories about the escapades that they got up to. And in fact, the Victorian Legislative Council tried to ban former convicts from Van Diemen’s Land coming over to Melbourne because of all the uproar that was being created.

There’s also an argument which people have been making for a long time, people like Geoffrey Serle, that if we think about the attributes of convicts and of assisted migrants and then compare those two groups with the people who came in the 1850s – we’re comparing the British and Irish in those three groups of the convicts, the assisted passage migrants, and the people paying their own way – that last group were more middle class, more literate, and more skilled in their kind of background trades than the other two groups. The assisted passage migrants were very much labouring poor and particularly from Ireland. The Irish were very overrepresented amongst the assisted passage migrants, and the convicts were also very much working class.

So a number of those people who had come, had paid their own way in the 1850s to search for gold, had spent a lot of time at Chartist rallies in Britain arguing for electoral reform. So you see a number of things kind of flowering, particularly in Victoria but also in New South Wales in that decade around seeking kind of a broad franchise. And part of the resolution of the Eureka Stockade was to settle on a broad franchise. You see the first industrial agreement in the world on an eight-hour working day for putting up the Law Building at Melbourne University. It is a very fascinating decade. I don’t know whether it’s the most consequential one in Australia’s history or not because there’s a few contenders for that. But it was a fascinating one.

WALKER: So all of those things in terms of the sort of experiences and the composition of the migrants who arrived in that decade, I think are very important. You can draw pretty clear lines from those to the egalitarian culture that Australia is known for – for example, the Chartists and whatnot. But … it’s still a mystery to me: imagine living in a country or a city where 70 per cent of the people around you are there for the first time. I’m trying to work out the importance of that fact in and of itself. And yeah, it’s still a mystery to me.

CULLY: So you can see in the letters that people write home and the guidebooks that are being produced, there’s kind of official guidebooks that are being produced by the Colonial Land and Emigration Commission... There are kind of, I guess, proselytisers and boosters who are talking about what it’s like to move to this place. So I guess it has elements of a wild, wild west frontier in the way in which we sometimes think about the way in which the expansion westwards of the United States happened. You know, a little bit lawless, a little bit wild.

There were so many people coming that ships had to wait for two days at Queenscliff before they could get a berth to land. And then when people are landing, they’re being quoted these outrageous sums of money to be able to take their bags from the Port of Melbourne into the centre of Melbourne. So they just throw them away or they have an impromptu sale down on the wharf.

There are so many people arriving that the average number of people living inside rooms in Melbourne doubles, and I think each dwelling has like eight or nine people in it. And there’s so [little] housing that they build a tent community on the edges of the Yarra where there’s 7,000 people at one stage just living in tents. So you really are throwing all these people together into a really unsettling environment.

But the probability that somebody could become extremely wealthy overnight was much higher than it had ever been previously, and sufficiently high that it brought so many people out.

There’s a quote I have where Karl Marx is writing to one of his friends in New York. He wasn’t old at that stage, but he’s saying: “Those people who’ve gone out to Australia, they don’t realise how much they’ve made our world shrink.” It’s kind of like it’s a really early statement about globalisation … That we could never have imagined this before, in the 1840s. And here he is in the 1850s, writing about this colony, Melbourne, kind of emerging overnight, and growing faster than Chicago did, for instance. I think Melbourne probably has the record in the 19th century – it grew faster than San Francisco, grew faster than Chicago – as the fastest-growing new city.

What was White Australia really about?

WALKER: Okay, one quick question on the 1890s. So if the depression of the 1890s hadn’t happened and instead around the time of Federation we had economic conditions like those of the post-war era – so: close-to-full employment, good growth – directionally how different do you think the White Australia policy would have been?

CULLY: I’m not sure that it would have been any different. The level of antipathy that had developed towards Chinese migrants from the mid-1850s through to the late 1880s … was extremely high. It wasn’t unparalleled, because it also happened especially in the United States. And in both the United States and Australia, you see this tension between the governing authorities … [They] are trying to broker these (effectively) trade arrangements to give them access to the Chinese market and to Chinese goods – so opening up these relationships under, you’ve got to say, on the Chinese side, a fair degree of duress. What we call the Nanking Treaty, they call the unjust treaty.

But on the ground, the white Americans and the white Australians, the colonists, were repulsed by the Chinese migrants. And I don’t know whether there’s a precedent for it in the US, but, you know, there is the report that was done, the Goldfields Commission report on the Eureka Stockade uprising, which I think dates from 1855, talks about yellow hordes. And this is an official government document. And that language and that antipathy: it’s in countless newspaper columns; it’s in nativist nationalist leagues that were formed; it’s in riots to remove Chinese miners in different goldfields, notably in Lambing Flat.

But I think the one that really stood out for me, which predates the recession – the depression, sorry – of the 1890s, was in 1888, where a ship sailed from Hong Kong, the SS Afghan, carrying about 270 Chinese men who were coming to Melbourne, Sydney, and then on to New Zealand. They were getting off at different points.

Under duress, the Victorian governor invoked quarantine laws to say, “I won’t let this ship dock in Melbourne.” And it then went around to Sydney, and Henry Parkes, the New South Wales premier, said, “I won’t let this ship dock in Sydney.” Somebody on behalf of the shipping owners and some of the people on board took it to the New South Wales Supreme Court, who said, “You have to let this ship dock. There are people in it who have landing permits. They are already residents of New South Wales and they’re allowed to come back in.”

And the [NSW] premier went out and said, “I cast to the wind your landing permits, your cobwebs of technical law.” And he then wrote retrospective legislation which endorsed the actions that he and his government had taken to prevent these Chinese men from disembarking. And it went all the way up to the British prime minister who said, “The people of New South Wales have gone stark raving mad.”

But you have all of the ingredients that kind of prefigured the Tampa, about “we are not letting this boat disembark, come what may”; the writing of retrospective legislation to protect what they were doing. And it was wildly popular. And I mean, Parkes took that action in part because a mob of, I think it was about 10,000 people or thereabouts, had descended and were basically going to enter the New South Wales Parliament and kind of destroy it if action wasn’t taken to prevent this boat from disembarking.

WALKER: That was 1888. So that’s three years before the economic troubles.

CULLY: Right. So it’s a story about cultural and economic protection. And there’s kind of two perspectives on how to do that, but maybe we can get into that in a minute. But there’s kind of cultural protection around “we don’t want miscegenation” (mixing of races), and economic protection in that we don’t want cheap workers undercutting our high wage rates here. And so I don’t think the 1890s depression, had it not occurred, would have altered that trajectory.

WALKER: A historian friend reminded me recently [that] another set of cultural considerations that at least the founding fathers had in mind was [that] they were looking very closely at the American experience and the Civil War, and they were keen to avoid what they perceived to be the same race issues. So they saw a sort of stability, through having a very racially and ethnically homogeneous society.

CULLY: [The closest you got to it is that] that’s the resolution that’s arrived at in Queensland. So Queensland was the only one of the colonies that made use of South Sea Islanders as indentured workers.

WALKER: On the cane fields?

CULLY: Sugarcane, yeah. They almost exclusively worked on sugarcane fields. So it’s probably more in the low 50,000s, but there were 60,000 contracts signed, as it were, if you believe these contracts are signed. But the population was maybe of the order of about 10,000 in any given year.

And the other colonies had decided, partly by reference to the United States, [that] they didn’t want their colonies to become plantation societies. And in Queensland there was a real split between the north and the south. Because the north is where the sugarcane is grown and milled and turned into sugar. And the south doesn’t have that. So there was this cleavage between the north and the south – and this was a real contest in Queensland politics from the mid-1860s through to 1900.

And in the end, it was the north that ended up voting “yes” for federation because they wanted to be able to sell their sugar tax-free within the new federation, rather than having to pay tariffs or duties on that sugar being sold into the other colonies. And the deal that was eventually done in 1901 was the first kind of act of industry policy in Australia. So there was a sweetener for the sugar industry in 1901 to kind of support the industry as it made this transition away from quite large-scale sugar plantations to smaller-scale operations.

But they had to give up their use of South Sea Islanders, and most but not all of those South Sea Islanders were forcibly repatriated back to their homes.

WALKER: But sorry, how is that relevant to the Australian founders wanting to avoid the American race experience?

CULLY: That was the closest that you got to it.

WALKER: Oh, I see.

CULLY: The Queensland model, for want of a better term, could have been replicated in other industries in other parts of Australia, and those governments in other parts of Australia said: “We don’t want a bar of it.” They didn’t want it in Queensland, and once the federal parliament had the authority over the country, it said: “No, we are not having this in Queensland.”

The most epic policy experiment in Australian history (the postwar migration program)

WALKER: Okay, the 1950s, the post-war migration program. So let me share two statements of my opinion and just give me a gut reaction to each statement. So first statement: in terms of its vision, stakes, and execution, the post-war migration program is the most epic policy experiment in Australian history.

CULLY: Broad agree.

WALKER: Next statement: Arthur Calwell was more consequential in his role as immigration minister than many Australian Prime Ministers have been.

CULLY: Qualified agree.

WALKER: He kind of fascinates me, because he strikes me as like a Lyndon Johnson-esque figure in terms of a great sense of personal agency, but also a willingness to use Machiavellian means to achieve noble ends. Because it’s quite striking that he often tells noble lies to the public to bring them onside. So for example, one of those is that for every one non-Briton, we’re going to bring out 10 Britons, and he knows that that is not achievable. He’s just an enigmatic and charismatic figure.

CULLY: Yeah, I’d say qualified agree. He was only immigration minister for three years, 1947 to 1949, and Harold Holt replaced him as the immigration minister after the 1949 election. And I think Holt was minister for about double the amount of time Calwell was. And most of the agreements that Australia signed with European countries around opening up to migrants from those countries – a number of them with assisted passage as part of the deal – were signed … many more of them were signed by Holt than by Calwell.

But Calwell is fascinating because he’s got this kind of diametric view on what kind of migrants he would prefer to have and how he would prefer to see Australia evolve. So he was terribly, terribly vindictive to people from Asian countries who were given temporary refuge in Australia during World War II because their countries were being invaded and they were able to flee and make their way to Australia. And there were maybe 10,000 of these people who were left in Australia at the end of World War II, and he said: “No, you’ve all got to go.”

And he took this woman who had … her and her family, a large number of kids, about eight or nine kids, the O’Keefes. So her first husband had died in the war and then she married a British soldier. And that by law should have made her recognised as a British subject. But he said, “No, you’ve got to go.” And he went all the way to the High Court to expel her, and the High Court said, “No, you can’t”. And then he wrote an act to say, “I can”, and it went through the Parliament, and the Liberals then reversed it.

So he had that. But then he also was extremely fleet-footed and creative in setting up arrangements to bring 170,000 people who were in refugee camps after World War II into Australia from a whole mix of countries, of people who’d never previously come to Australia. So this is not the Italians and the Greeks. This is people from the Baltic states, Ukraine, Poland mainly, and from Germany. Many of them are Jews. And they’re hanging out in these refugee camps. There were more than a million of them in refugee camps all across Europe. And the International Refugee Organisation was trying to work out ways of resettling these people in other countries across the world.

And that had not been Calwell’s preferred path. He maybe was not even aware of it early on, or just didn’t want to pay attention because Australia was not really engaged in the discussions with the International Refugee Organisation about this. But when he found that he just couldn’t get enough migrants from Britain and from Scandinavian countries, and he was hearing from his people on the ground in Europe that the calibre of these people was high, he said, “Nah, let’s go for it.”

And so he very quickly … like, within a couple of months, he got it put before Cabinet, got agreement, [and] flew over to the UK and then to Europe personally to make all of this fall into place. And then even as it kind of kicked off, he said that what they were trying to do was to – it’s a phrase economists sometimes use about skimming the cream. If you’re selecting from a pool, you want to get the cream. And he was told, if you don’t move fast, you’re not going to get the cream. So he decided to move fast.

And then even after that first agreement, what he found was the International Refugee Organisation wasn’t giving Australia a high enough priority because the US had agreed to take 200,000. So he said, “Okay, we’ll match the US. Let’s just make it 200,000.”

WALKER: Added a zero.

CULLY: Effectively added a zero. “Let’s go and do this so we can get these ships coming.” If it was the right course to bring more people to Australia, it was a fantastic deal, because Australia only paid £10 per person. The International Refugee Organisation paid the rest.

WALKER: Yeah, the US could have taken more, right? And they didn’t.

CULLY: I can’t recall how many the US took, but I think they honoured their agreement.

WALKER: I remember a line in the book where you say that if they’d been more open to migration in the ‘50s and ‘60s, we would have been left with the breadcrumbs.

CULLY: That’s about free migration, people paying their own way. And so in the 1920s, the US basically closed its doors to migrants from Europe. And it did this by putting in – well, particularly from Southern Europe – it did it by putting in place quotas.

And so in the 1900s, there were roughly 200,000 Italians per year going to Ellis Island – you know, that archetypal migration journey – 200,000 of them a year going through Ellis Island into the US. And the United States ... said: “We’re going to put a quota on the number of migrants every year based on the share of the population in 1890 when they did their census.” And that meant that the number of Italians was capped at 4,000 a year. So 200,000 a year to 4,000 a year. (And Australia actually introduced quotas as well.)

The United States had shut itself off between the early 1900s and World War II. The peak of what we talk about – the era of mass migration from Europe to the New World – went from 1840 until 1914, and then it stopped. And after World War I, it didn’t start again. And after World War I, a lot of restrictions were put in place in both the US and Australia.

So my point was, if the US had, after World War II, said “we’re open again,” many of the migrants from the countries that Australia signed agreements with – so the Netherlands, Italy, Greece, Yugoslavia – many of them would have gone to the United States instead had they been able to. But the US didn’t … begin reopening to migration until the mid-1960s. So we had this window of opportunity where economic conditions were good in Australia, where the country had not been physically ravaged by war – the people had been, a bit, but the country had not – and it looked like what it had in the 1880s. It looked like paradise to get out of Europe and come to Australia in the 1950s.

WALKER: So we might have an interesting difference of opinion on this next question. But if I recall correctly, in the book you write that the perish arm of the populate-or-perish policy was weak, and even if we doubled or tripled the population size, it still wouldn’t have helped much with defence. Why do you believe that?

CULLY: The first idea of the perish one was [that] a population of 20 million is sufficiently high to defend ourselves. So I think that’s contestable straight away ... Obviously you’re better equipped to defend yourselves with 20 million than you are with 7.5 million.

When were you going to reach 20 million by? So Menzies, when he was leader of the opposition in 1944, said: “We’ll have a population of 20 million in 20 years.” And Giblin – I can’t remember what the L and F stand for in his name off the top of my head – Giblin was a kind of senior economic adviser in the bureaucracy during the war period, and he got out a bit of pen and paper and did some jottings, and he said, “Well, if you’re going to hit 20 million in 20 years, your population is going to have to grow at an annual rate of pretty close to six per cent, and that’s not going to happen.” Just, that’s not going to happen. It’s just not sustainable to grow your population that fast.

So it’s not going to happen by 1964. It’s going to happen a good deal after that. And he said: “Look, probably your kind of optimal rate of fast population growth without straining capacity and allowing infrastructure and housing to kind of keep up is about two per cent a year. Half of that to come from migration, half of that from natural increase. So you’re not going to get there. And now the other point I make is [that] almost the entire 7.5 million people are huddled in the southeast corner of the country. And part of the idea about avoiding perishing was about protecting the north from invasion. It’s going to be difficult to defend the north even with a population that’s increasing, if they’re all huddled in the southeast corner.

WALKER: Okay, let me pick up on two things, two threads. So if by that time the way to defend Australia is just to defend the air-sea gap to the north, to make that extremely costly for any would-be attacker to cross, that’s a very capital-intensive exercise. So it relies primarily on a navy and an air force, not an army. And presumably that’s a function of GDP, so having a larger population helps with that indirectly.

CULLY: Yeah, I’d agree with that.

WALKER: That would probably be the crux of my disagreement on that, your critique of the perish arm of the argument.

The second thing I wanted to follow up on was the Giblin formulation – so the two per cent per year, one per cent from net migration, one per cent from natural increase. And obviously Calwell picks that up and then it becomes the official policy for a whole generation.

It has a very politically appealing symmetry to it. It seems like a much easier sell than saying “We’ll take 1.3 per cent from net migration and 0.7 per cent from natural increase”, or something like that. Do you know how he actually arrived at that formulation?

CULLY: I don’t. There is a memo in the archives where he explains it, and I can’t recall what it says.

WALKER: Because it almost feels like a political decision rather than just something that falls out of the demographic modelling, the one and one [per cent]?

CULLY: Well, part of the context before then was that the birth rate had slowed in the 1930s and the demographers were worried that it was permanent. So they were saying this is a structural change in family formation preferences by husbands and wives deciding what they’re going to do.

It turned out that they were wrong. Well, the structural shift they were talking about, they anticipated too early in a sense, and the slowdown in the 1930s was due to economic conditions where there was so much unemployment that people were going: “Let’s not have another child, because it’s costly and we’re not sure whether we’ll be able to raise this child well.” And once the economy turned around, the birth rate took off.

So the one per cent around the birth side was kind… at that time, an optimistic reading of what population growth from natural increase might be. And I think the idea was you probably want to keep the numbers coming from migration and natural increase in a kind of balance, even though – well, you want to keep them in a kind of balance so that you have some sense around the direction of the country in terms of the share of migrants that are in the population.

And I think Giblin, like Nugget Coombs, was an artful economic adviser, and it probably was really nicely pitched to ministers. You’ve had a number of senior public servants on your show, so you know that part of their job is to talk to ministers in a way where ministers can latch on to an idea and appreciate its appeal. So I’m sure Giblin was being “political”, quote unquote, in the way in which he put it – but I think he was probably being artful in going: “One plus one, that’s a neat way of describing this thing. You can talk about that in public in ways that people will understand, and it doesn’t sound scary.”

WALKER: There’s a Canadian immigration scholar, Freda Hawkins. And she says that the main difference between Canadian immigration policy and Australian immigration policy – and obviously this is a pertinent comparison, because Canada is the country we’re most often compared to immigration-wise – she says that the main difference is that Canada never had the strategic imperative, the security imperative, that we did because they were protected by the big oceans and the southern border with the United States. Do you know whether that lack of the security imperative, that context, gave them poorer or different policy outcomes?

CULLY: So I read her book on the 1970s to 1980s immigration policy compared with Australia and Canada. If it’s in there, I hadn’t picked that up. The main point of difference that you observe between Australia and Canada from 1947 to the late 1950s is that we got the jump on British migrants.

So we had a scheme of a £10 cap. Well, it was free if you were a soldier, a British soldier, and if you weren’t, the cap was £10. And the fare at that time to get to [Australia] in 1950 was probably about £100. So that was a huge subsidy for people. Canada didn’t do that. Canada thought when they looked at what Australia was doing [that] it would attract the idle and the work-shy.

…They copied Australia – we copied a lot of things from them – but they copied us in setting up their own immigration department about seven years after us. And then they were pretty adroit, partly because much the same as it had been a century earlier, it’s just easier to get to Canada than it is to Australia. And easy to get back if you want to go back. And so by the late 1950s, they were attracting more British migrants than Australia was.

WALKER: One of the other remarkable features of the postwar migration program is just how much effort went into very careful propaganda to encourage the Australian population to accept these migrants. There are so many anecdotes we could tell here, but the one I liked the most from the book was the millionth migrant, Barbara Porritt, who was very carefully selected and kind of almost paraded around –

CULLY: Oh, she was paraded around.

WALKER: Literally, yeah. And even when she went back to the United Kingdom for a holiday, the department officials were stressing that she might not come back, and they would go to the Porritts’ place every three months to check up on them. “And how are you enjoying Australia?” The propaganda was so carefully calculated. Counterfactually, how much of a difference do you think it made to Australians’ acceptance of migrants?

CULLY: Oh, that’s a hard question. Slight digression: one of the most popular books in Australia in the late 1950s was They’re a Weird Mob by Nino Culotta. You know this book?

WALKER: I’ve heard of it.

CULLY: Okay. Oh, this is a good story ...Nino Culotta was an Italian migrant who ends up working on a building site in Punchbowl in Sydney. And in some ways it’s very much a kind of a celebration of Australian ockerism, about migrants assimilating to Australian ways by themselves becoming effectively an ocker and learning the lingo and how to behave dreadfully to women and so on.

And the thing about it is it’s actually a literary hoax. It was written by … an Australian of Irish descent called John O’Grady. And so Nino Culotta didn’t exist. He was a dentist or something for the New South Wales government. And when the book started to sell like hotcakes, the ABC contacted the publisher and said, “We want to interview him,” and he had to come out and break the facade. “Actually, sorry, it’s not Nino, it’s John.”

But the book sold millions of copies and got turned into a movie … In a sense, John O’Grady was reflecting the way in which Australians themselves thought about these people who’d come from Europe and how they were fitting into Australian society and how they ought to fit in, how they ought to assimilate. But there’s tenderness there. So the book gets a mixed press because it’s got various racist tropes in it and it’s terrible with women, but there’s definitely a tenderness towards the Italian migrants.

And the propaganda bit – I mean, obviously Calwell was the information minister in the war before he became immigration minister, and he was a person who popularised the term “New Australians”. And … you still remember conversations you had with people in the ‘70s and ‘80s and they would talk about “New Australians”.

WALKER: Oh really? Because it’s not really a term anymore.

CULLY: It’s not a term anymore. It’s gone.

WALKER: I’ve never heard anyone use it.

CULLY: Yeah. But I heard it in my childhood.

WALKER: Interesting. So in other words, there was a kind of pervasive semi-openness to migrants and maybe that would have enabled acceptance without propaganda?

CULLY: It was a grudging acceptance, somewhat indifferent and discriminatory, but not rejection. Not rejection. And where you could cross cultural barriers because circumstance threw you into that, there was genuine kind of engagement and openness and friendliness.

I mentioned in the start of the book about my own migration story. And we settled in the northern suburbs of Adelaide in 1965. And it was a real polyglot community – well, it seemed to us polyglot, exotic. There were people from Malta, Greece, the Netherlands, Germany, Italy, and lots of Poms, Scots, Welsh, and lots of working-class Australians. And we all went to school together, we played football together, you know, we had scraps together. That’s just the kind of – it wasn’t kind of engineered, it just kind of happened.

WALKER: What’s a good number to quantify the scale of the post-war migration program? Is it [that] we added 2.5 million migrants in about 20 years?

CULLY: [1947] to [1971], 2.5 million, yep. And more than half of them were not British.

WALKER: So if you had to boil down why the post-war migration program was so successful to the most basic set of preconditions, what would they be?

WALKER: Full employment.

WALKER: Yeah, that was my first one.

CULLY: Yeah, full employment. So I think the thing about that period is – and it goes back to that kind of argument about “populate or perish” – the 1950s wasn’t really about “populate or perish”. It was really about migration as economic development.

And the people who came out, large numbers of the men and significant numbers of the women worked in factories. And they produced cars, televisions, refrigerators, washing machines in Australian factories that were then sold to the migrants and to Australians. And so they were both producers and consumers. And it was the heyday of Australian manufacturing. It’s when Australia became genuinely kind of industrialised, was the 1950s. And it couldn’t have done it on the scale in which it did without migration.

And then you had this, you know, the fascinating circumstance of a very conservative Liberal premier of South Australia [Tom Playford] adopting a kind of quasi-socialist economic and industry policy, which is all based around bringing in large volumes of workers who could also be consumers, whose wages were below the wages of similar workers in Victoria and New South Wales. And, you know, designing whole towns like Elizabeth – which is where I grew up, around that area – designing these whole towns to house these workers who would then work in the neighbouring factories. And then their children would go to school and then work in those factories, which is what I was expected to do.

And, you know, it worked until full employment stopped, and then it stopped working.

WALKER: I tried to write my own list, and full employment was the first item on the list. Possibly it just dominates all the other ones. I mean, the three others I had were:

• culturally a gradual process of focusing first and mainly on British migrants, but then gradually moving farther afield to then eastern and southern Europeans;

• thirdly, a compliant receiving population with the national security imperative, the assurances from the government, propaganda; and then

• fourthly – I’m not sure about this one – but an egalitarian culture.

Maybe that [culture] makes people more receptive. If you think of a much more kind of hierarchical culture. Imagine France, trying to do what we did ….

CULLY: Yeah, I’d probably almost give more weight to that one than your other two in a sense. The first lot of – there were very few people who were coming out from Britain in 1947, 1948. And so the displaced persons, 170,000 of those, you know, the ones who came and went to Bonegilla, that camp near Wodonga in Victoria, that was happening in 1949.

So there wasn’t really any stage at which there was this shift away from British towards European migrants. It all happened at the same time.

Almost all the British migrants were assisted, about 90 per cent, and the numbers vary by country according to the rest. I think for the Italians it was about a quarter, and that was one of the lowest ones …

WALKER: And am I right in distinguishing assisted migrants from the displaced persons, in the counting?

CULLY: Yes… The displaced persons, we nowadays we would call them refugees. We didn’t have a refugee program then. Or [a] humanitarian program. So they were called displaced persons. They didn’t have homes. Their lives had been destroyed. And so they came to Australia to resettle under the auspices of the International Refugee Organisation.

The other countries that signed agreements, the countries that signed agreements with Australia, sometimes that was done with a third-party body. I think it was called the European Committee for Migration or something like that. And they did do some of the co-funding of assisted migrants. So Australia … got the British to partly pay for assisted passage of British migrants up until 1952-ish, and then the Brits said: “Hang on, this is crazy. Why are we spending all this money sending our people over to Australia when we’ve got our own labour shortages? We’re not going to pay any more money on this.”

But the Australians were very good at hitting up not only the International Organisation for Refugees but the European Committee for Migration as co-contributors to the assisted passage. So wherever they could, Australians would always hit up other governments to pay to send their people to Australia.

The 1970s: an underrated decade

WALKER: Smart, smart deal. So moving briefly to the 1970s: you told me by email that in many ways you think the 1970s is a more compelling decade than the 1950s. Reading the book, it wasn’t obvious to me why. Do you remember what you had in mind when you said that?

CULLY: When I did the first kind of “what does the structure look like” on this book, I had four decades. And I added the 1830s and I added the 1970s. And it just became apparent to me, as I was going through and reading, that the 1970s was consequential in a bunch of ways. It was very significant for immigration.

So firstly, I think probably people are very familiar with the idea that we ended the White Australia Policy. The 1970s was the first time in which we introduced a formal refugee program. We had been a signatory. We had been a signatory that said we recognised that there are these people called refugees, but we did nothing to really to encourage or resettle refugees except when we were bullied by or cajoled by other countries to do so.

And particularly we were terrible at ignoring the plight of Chileans who were escaping the repression of the Pinochet regime in the 1970s and of Indian Ugandans who were being expelled by the Idi Amin regime in the early 1970s. We kind of washed our hands of those in ways that the Canadians didn’t. The Canadians were very generous in both of those cases. We [went] “nuh”.

But it was when we started getting boat people, “boat people” in inverted commas, arriving in Darwin, in 1976, and provoking this kind of big discussion around “what does it mean for Australia to be a country of first refuge?” It had never really been a country of first refuge before. In a country of first refuge, the refugee protocol comes into effect. You have to take these people in, determine that “yes, they are refugees and they need our support”, and you’re not allowed to refoul them. [To refoul, or force refugees or asylum-seekers to return to the country or territory from which they have fled danger, is illegal under international human rights law.] You’re not allowed to send them back.

There were small incidents where this had happened … In 1956 in the Melbourne Olympic Games, a bunch of Hungarians said: “We don’t want to go back to Hungary with the suppression of the uprising in Budapest and other places.” … Portuguese and local functionaries who had been supporting the Portuguese in East Timor came to Australia and were kind of ignored for quite a while by the Whitlam government.

So Australia was in this untenable situation where it had to do something to work out a more systematic way, a more considered way, of dealing with this rising issue of people coming to Australia seeking asylum. And it did. And it ended up being part of an international deal, with a number of countries in the Southeast Asian region and the US and Canada and what have you. And we brought in 60,000 Indochinese refugees from the late 1970s to the early 1980s, which was proportionally more per population than any other country in the world did. And that marks the genuine end, it seems to me, of the White Australia Policy.

And then multiculturalism was introduced in 1977, formally. And it’s the start of what becomes an objective system for selection of migrants and the compartmentalisation of streams of migrants into humanitarian, skilled and family reunion, and the introduction of the first points test for choosing amongst would-be skilled migrants in 1979.

Those four things are all highly consequential. Are they less consequential than the scale of migration that happened from Europe and Britain in the 1950s? Probably. When I started delving into this, I realised that I had to write about the 1970s because of those four things.

WALKER: Yeah, you’d underrated it originally.

CULLY: I had underrated it originally.

The drift into a temporary-migrant economy

WALKER: So the final decade, the 2000s. The big theme of the 2000s is this growing disconnect between the permanent migration program and the population due to the rise of temporary migrants. Are you aware of any other analogues in world history of such large populations of people present in a country who aren’t fully bought into the national project or even certain of their future prospects in that country?

CULLY: So the poster child example – well, there’s actually quite a number. So you have to think about, with the end of slavery … the use of indentured labour schemes to replace that in many countries across the world saw huge numbers of people, from China and India in particular [and] also Japan, go and work in other countries across the world. And they didn’t have the same rights as the people living there.

You still see that play out in Fiji to this day, the tensions between the Indigenous people of Indigenous heritage in Fiji and people of Indian heritage in Fiji. They’ve had coups about it.

After World War II, the archetypal example are Turkish migrants, temporary migrants, going to work in German factories.

WALKER: Guest workers.

CULLY: Guest workers. Gastarbeiter. That’s [where] the word came from. It’s a German word, gastarbeiter. And that took decades, sometimes the three generations on, [for] the descendants of those Turkish migrants, before they were recognised as being citizens of Germany.

They’re the two that stand out. Nowadays, you also have similar circumstances in several of the Gulf countries. The country which has the most Indian migrants resident in it is the United Arab Emirates, where I think there’s three million Indians living in the United Arab Emirates – higher than in the United States, or about equal with the United States – and they have no rights there.

WALKER: Another interesting example was the temporary agricultural workers from Mexico in the US in the ‘40s, ‘50s, and then to ‘64.

CULLY: That’s another good example.

WALKER: One interesting characteristic that maybe distinguishes the Australian experience is that the temporary workers in Australia, many of them, at least nominally, are here under the aspiration of permanent residency and citizenship.

CULLY: So if you go right back to 1901, the Immigration Restriction Act effectively put a ban on the use of temporary contract workers except in circumstances permitted by the minister. And then that was tightened up in an act in 1905. And we had hardly any temporary contract workers between 1901 and World War II.

We didn’t need temporary workers in the 1950s and ‘60s because we had so many permanent migrants coming. And some of them could be temporary in the sense that they decided after a number of years they didn’t like it and returned home. And there are stories, particularly of British people who got assisted passage and then spent a couple of years in Australia and then went back to Britain using it as an early prototype of a working holidaymaker scheme.

But the temporary migration programs were all designed in good faith about meeting a particular objective that, except for the temporary skilled workers one, was not related to work. And now, you know, the three big ones – the biggest one is international students, and then there are working holidaymakers, and then there are temporary skilled workers – they’re the three large ones. And they have all become de facto labour schemes as well as serving other needs.

WALKER: Yeah, there’s been this drift. So the international education industry has obviously boomed in Australia. I think it reached about $18 billion per year by 2010. It’s usually around our third-biggest export. The point you make in the book is that that is inflated because the ABS uses a conventional method of treating international students, where it assumes that all of their expenses are funded from overseas money, but obviously many of them work part-time in Australia to fund their living expenses. The specific question I had was: say you did count properly, do you know the kind of magnitude of the inflation, and would that be enough to knock [international education] down the rankings of our top exports?

CULLY: So yes, I do, but I’d probably make a few points there. So firstly, as you said, the ABS follows international statistical conventions in how you classify the export income from international education. There’s an offsetting item in the balance of payments which captures the income that is earned in Australia of people who are not Australian citizens. I’m not entirely sure of the methodology or how it’s created.

The Reserve Bank has published a paper not so long ago where they report the number. And they say currently … about 60 per cent of the export income is income generated from outside Australia and 40 per cent is generated from within Australia.

You can find means of artificially growing … of using economic policy levers to create incentives for people to alter their decisions that ends up reallocating resources to … [make] certain industries be larger than they otherwise would be. The question that you then have to ask is, is that optimal? Is that in the national interest? It’s certainly in the interest of many people in those industries. It’s certainly in the interests of vice-chancellors earning more than $1 million – earning, according to Paul Frijters and Gigi Foster, probably four times more than they’d earn for running a comparable institution in the United States.

WALKER: Wow, really?

CULLY: Mmhmm. You would have made similar points about the use of incentives in using migration rules as incentives to encourage people to work in horticulture, in abattoirs, in hospitality, where for various reasons those industries have trouble hiring enough people who are already living in Australia to take on jobs at the prevailing paying conditions.

So these are all choices that governments have made that have distortionary effects on the allocation of resources across the economy. And they’re done in ways which are quite hidden because they don’t involve the payment of subsidies or any fancy tax and transfer things. They’re just straight-out migration incentives. And they’re enabled by the fact that most of those temporary visas are uncapped.

And so if you are a young person with moderately good English who lives in Nepal, or the Philippines, you can probably earn vastly more than you would be able to earn if you stayed in your home country by coming to Australia, even if it’s for a fixed number of years – but if you can land permanent residency, all the better.

And we have allowed that to develop over time because many people still have this mercantilist attitude towards exports, that export income is a good thing because it’s good for the economy. Whereas I know you’re speaking with Martin Parkinson in this series, but he will say to you: “Exports pay for imports. That’s what they’re for.”

WALKER: So what do you think of the costs we’re not counting?

CULLY: I think the costs that we’re not counting are that we have a group of … So setting aside New Zealand citizens, which I think is definitely a special case, there are near enough to two million people in Australia who are temporarily here on a visa which has a specified end date. Many of them are being exploited through underpayment of wages or working excessive hours. And employers are able to get away with this because of the lure of permanent residence. Often they’re sponsors, and it’s their signature that’s going to matter, that’s going to help get the permanent residence.

We’ve moved away from being a so-called settlement society, where the people we brought in, who came to the country, were being welcomed as new members of this society and expected to be participants, active participants in it and in shaping the country. And now we’ve got these people here on a kind of transactional basis. And even after they’ve done their time, they still have to wait another, at least another year before, after many years already being here, before they can become an Australian citizen.

So we have, I think, maybe given too much weight to what the economic benefits of migration are without having regard to what some of the social costs are. And as well as the earlier point around “what would the shape of Australian industry look like if our international education industry wasn’t so large”, for instance.

WALKER: As one mild pushback, you could say that a benefit of the rise of temporaries is that it helps people try before they buy, so to speak. And so we might end up with more committed permanent migrants that way, because it gives people from overseas the opportunity to see whether they will be able to fit into Australian society or find jobs here.

CULLY: Yeah, I don’t deny that. And then there’s the other benefit, which is mostly on the fiscal side. So Bob Gregory has this phrase where he says these international students are million-dollar babies, because you’re getting a fully functioning, educated adult. You didn’t have to spend that first 20 years raising and schooling them. And there’s definitely truth in that.

I’m pointing to the strains that are evident from allowing this to develop in a fairly untrammelled fashion. And suggesting that there needs to be some rethinking about how much temporary migration you want and … some point at which there becomes a resolution in people’s status where they cease being temporary and become a permanent resident, or they cease being temporary and leave Australia. And at the moment, we don’t do either of those things.

Inside the chief economist’s office

WALKER: So a very brief personal interlude, but you were the inaugural chief economist of the Department of Immigration. I’m very curious whether you could share some of the more interesting questions that you worked on. And you don’t have to go into detail on each one, but I don’t even know what your role looked like or the kind of things that you were investigating. I’d be interested to hear.

CULLY: So I started in that job right at the end of 2008 and the beginning of 2009. And it was not long into the life of the first Rudd government. And the minister, Chris Evans, wanted somebody who could help him think through the interactions between immigration and the labour market and the economy. The Immigration Department was full of lawyers and there’s not a solution to a problem that a minister faced at that time that somebody in the department would write a regulation about. And he just wanted a fresh set of eyes to help him think through some of these things.

The thing that I got involved with that had the most consequence – and I worked with several other people on this – was … This was when the very first spike in international student numbers had taken off, and there were a range of overnight colleges that sprung up offering diplomas in cooking, for example, hairdressing. And a number of them were pretty dodgy.

At the time, under the existing rules in the Migration Act and particularly the rules for applying to become an independent skilled migrant … you could have basically 100 per cent probability that if you were under 30 and your English was pretty good and you enrolled in one of these courses and completed it, you would meet the points test pass mark. And there was a backlog emerging of applicants who were waiting their turn in the queue to be processed. So the current blowout that we have in bridging visas was starting to take place then as well.

And the minister wanted a review to be done. In particular, he wanted a review done of this regulatory instrument that Phil Ruddock had introduced called the Migration Occupations in Demand List. So this list was updated two or three times a year by officials in the department in consultation with employers and with the Employment Department around evidence on jobs that were in skill shortage ...

And if you could demonstrate that you had a skill – that you’re in this occupation that was on the list as a cook or as a hairdresser, for example – you got 15 extra points in the points test. And that was one of the main things that tipped you over the pass mark.

And so I got asked to lead the review of that on the Immigration Department side, and then we worked jointly with colleagues in the then Department of Education and Employment. And I was coming in as a … I hadn’t worked in the public service for 20 years, and I had no idea about my seniority and clout, and I had no idea about public service processes.

And I went to three meetings between us and the officials in Education and Employment, and we were just arguing about the terms of reference for the review. I got fed up, so I wrote a discussion paper and circulated it. And then [at] the next meeting, everything blew up and it was like: “You had no authority to write a discussion paper.” I said: “It’s a discussion paper and nobody else has seen it. We’re discussing it.”

You can see the outcome of that review in the discussion paper because it just articulates a very clear set of principles about how to think about skilled migration policy. And the government ended up agreeing to a bunch of proposals to end the Migration Occupations in Demand list.

And then a really important initiative which wasn’t in my discussion paper but was worked up by other people in the department was to make the application for skilled migration a two-step process. So the first step was an expression of interest, and after the expression of interest you would be invited to apply. Whereas [under] the prevailing law, if you applied, you had to be given a decision, and if you were over the pass mark you had to be given a visa. So it basically tried to prevent the backlog emerging, by only inviting the number of people to apply consistent with the number of skilled migration visas you wanted to issue in any given year.

It caused a huge outcry when this came out, particularly amongst Indian authorities. I can remember we had to go and see the Indian ambassador, who said “you’ve left my people high and dry,” to me and the minister. There [were] various grandfathering arrangements put in place, but it would all have been pretty sensible.

And then it all progressively got undone, particularly by lobbyists from the international education [sector] – the universities in the main – because the numbers went down quite a lot the following year, and they lobbied really hard. They got Michael Knight, the former New South Wales Minister for the Olympics, to do a review. And he’s the one whose review came up with the recommendation for a very generous post-study work visa for overseas students. And the numbers of international students have grown to levels that I thought were unimaginable back in 2010, but here we are.

WALKER: It’s funny when people talk about the influence of special interests over Australian policy outcomes, the classic examples are like the mining companies, around the mining tax. But I think the international education sector, the universities, is a very underrated example of people digging in very ferociously to defend their rents.

CULLY: Yeah.

Culture, social cohesion and integration

WALKER: I have some big picture questions. And I wanted to start with a few questions on culture and social cohesion. This is more of a comment ... but in the book you say that the two best analogues for Australia if we didn’t embark on the post-war migration program [are] Sweden and Belgium, and that counterfactually Australia might look more like those countries – very homogeneous, still rich, but [with] much smaller, older populations. The Sweden analogy is a really interesting one more broadly because Sweden has a similar political culture to Australia in a couple of ways. There’s the egalitarianism and the statism. There are all these strange parallels between Australia and Sweden.

CULLY: I put Sweden in there as a provocation because there’s a bunch of people, you know, on the left-leaning people who hold Scandinavian countries up, especially Sweden, as an exemplar that Australia might emulate. Sweden nowadays has for quite a number of years brought in significant numbers of refugees, but it’s never had migration programs like we’ve had.

The point I was trying to make was: migration has made Australia larger and has made it different. It hasn’t made it more prosperous. We probably would still be, in terms of incomes per head, roughly the same now as we are, had we not had a big pickup in, a big boost in migration after World War II.

So the reason why I picked Sweden and Belgium is we have the same population as them, roughly speaking, around the time of World War II, and we’re now 2.5 times larger than Sweden and about three times larger than Belgium. But we’ve matched the living standards of Swedes and Belgians basically all the way through from the 1950s to the present. So that’s not due to migration; it’s due to other factors.

WALKER: Yeah. I want to come back to the living standards thing because I think that’s really interesting and important. What do you think’s the single best measure for the speed of acculturation of a migrant group? So you could think of intermarriage, you could think of language shifts, you could think of second-generation wage premium – if you had to pick one?

CULLY: I think it would probably be how second-generation and third-generation see themselves, how they identify themselves.

WALKER: Through survey evidence or something?

CULLY: Possibly. But, you know, what are the bits of their parents’, grandparents’ culture that they hang on to? Do they identify as heritage-Australians or do they identify as Australians?

The intermarriage stuff is obviously a phenomenon and it’s a bit tricky to get underneath and interpret. And I’m not an expert in that field at all.

WALKER: In the sociological literature, it’s often used as the most important both cause and measure of acculturation.

CULLY: Yeah, whatever acculturation is.

WALKER: And acculturation is a two-way street as well, right? And there are different dimensions.

CULLY: The pushback against assimilation in the 1950s and then the embrace of multiculturalism in the 1970s was because the acculturation was only a one-way street, not a two-way street. And so migrants were expected to not speak their own language out of doors, not draw attention to themselves, not live in enclaves together, to suppress their identities.

And multiculturalism, the embrace of that, was partly a well-organised political reaction against the attempt by the dominant group, the Anglo-Saxons, to impose their cultural hegemony over the rest of the population.

Intermixture or – so for me, I’ll give a trivial example – would be if you turn on the television and watch one of those contestant shows like MasterChef or The Voice, you see, evidently, people of migrant heritage, second generation, third generation. They seem Australian to me. You do not see Australia on Home and Away or on Neighbours. You see it on MasterChef and The Voice. These people from Western Sydney, Broadmeadows, wherever they are – they’re people who get on with life and maybe they marry within their community as defined by their parents or their grandparents, but maybe they don’t.

And the country seems to me to be richer, culturally richer, and less homogenous for that. And the critiques about Anglo-Saxon hegemony and whiteness are less salient, I think, now than they were 20 or 30 years ago. You can’t go through the streets of our main capital cities without recognising that these are very diverse and mostly tolerant communities. I don’t deny there’s issues around so-called social cohesion and that there’s evidence of discord and some fracturing. But by and large, the Australian experience with migration is probably the best the world can offer.

WALKER: I’ve been kind of slowly trying to write this thing, maybe it’s an essay or something, on why Australia has historically been so effective at acculturating migrants. And in conversations I’ve had with various experts over the last year or two, one of the big explanations that comes up a lot is that Australia has always taken a mix of national and cultural groups such that no one group is large enough to form a breakaway culture like the Québécois in Canada or the Catalonians in Spain. And we haven’t done this in any given period, like in any one year, but we’ve done it over the course of decades by moving from, kind of hopscotching from, the British to Northern Europeans, Eastern and Southern Europeans, the Turkish, the Lebanese, the Vietnamese, the Indochinese, now today Chinese and Indians. And so we’ve ended up with this incredibly diverse overseas-born population.

But at least since 1973, we’ve had a principle of non-discrimination. It seems like this hasn’t been planned, it’s just kind of unfolded. And if that’s true, that’s a really striking fact about Australia and Australian history, because one of the most important characteristics of Australia as the OECD country with the highest proportion of overseas-born citizens or residents… we have kind of stumbled into that situation very successfully.

Are you aware of – have officials or governments ever thought deliberately about the mix? And when I say mix, I mean making sure that we have not too many from different groups. I don’t know whether that has ever been thought of in a deliberate way, and if so, what would the policy levers be? Because my assumption is that we haven’t thought of it in a deliberate way, but I’m wondering if I’m wrong.

CULLY: Well, it’s obviously – I think it has been thought about in a deliberate and quite applied way for much of Australia’s history. Some of it kind of hidden and behind the scenes.

WALKER: But I meant the post-war era.

CULLY: Okay, well, all right, restricted to the post-war era.

WALKER: I’m sorry, I meant like basically from the end of World War II to today.

CULLY: Yeah, I understand. So firstly, the door was effectively closed to anyone outside of Europe, the British Isles, and North America up until 1973. So that was very deliberate – that was a continuation of the White Australia Policy. The relaxation of that policy in 1973 had no material impact on the mix of migrants until we welcomed in the Indochinese refugees.

But even within Europe, the immigration officials would select individual migrants – they would reject people. So it wasn’t just “the doors are open for anybody from Italy or Greece”. The door is open to this many migrants from Italy and we want them to come from the north. We don’t want them to come from the South. We want them to be people with a background in skilled trades. We don’t want illiterate peasants.

And then when the door was opened to Turkey, which was defined as being European in about 1969, we want Assyrians, we want Christians, we don’t want dark-coloured Muslims from Turkey. So those decisions were all made by immigration officials personally in the 1950s, 1960s, and early 1970s. And it’s not until 1973 when those people all lose their jobs effectively as decision makers – they now have to follow rules that are written down and codified and transparent. So prior to 1973, there was heaps of discrimination exercised.

WALKER: This was the era of the Angels and Arrogant Gods.

CULLY: That’s right. Yeah, that’s the title of the book by Harry [Martin], who was a migration officer, and it’s a kind of memoir of his time and of other migration officers in the Immigration Department. So there’s no doubt they were exercising those decisions against individuals or for individuals a lot, and that altered the composition relative to what it might otherwise have been if people had just been allowed to fill their quotas according to how they self-selected.

After 1973, there was quite a reaction against firstly the thing called the Structured Selection Assessment System introduced in 1973, and then the first points test, which was called the Numerical Multi-Factor Assessment System in 1979, about criteria that might be biased against people from certain countries. And so particularly there was a big argument about English language. And how proficient people had to be in English before they would be allowed to migrate.

And that was eventually resolved by saying, yes, as a country we do want people to be – where we can exercise some choice over the kind of migrants that we want to have. So leaving aside partner visas, it’s very hard to impose requirements on “if I want to marry somebody from China who doesn’t speak a word of English, what right does the government have to tell me who I can marry and who I can live with?” So they’ve kept away from, by and large, from interfering in partner visas. But in most other visas, there has been agreement, eventually bipartisan agreement, that proficiency in English helps people, in your terms, acculturate. So that’s been quite deliberate.

WALKER: But I think this proves my claim. So if you imagine like 100 little silos representing different countries, over time it’s like we’ve filled each little silo up no further than its brim. So we’ll take this many Greek people, this many Italian people, this many Vietnamese, until we’ve kind of ended up with a really diverse –

CULLY: Except we haven’t chosen those mixes. It’s been self-selected.

WALKER: Sure.

CULLY: And it happens through chain migration. That’s how it happens. And then another chain starts. So you talked about India. You know, if you go back to pre-2000, there were fewer than 100,000 Indian-born people living in Australia, and there are now close to a million. And that’s happened through chain migration.

You would hop into a cab and there’d be some young Sikh driving the cab. You’d go into petrol stations and you just started to see that happen. And it’s been very – chain migration happens like this a lot. It happens in small areas of a given country. It’s not a national thing. I mean, you can’t speak about India as being a homogenous country at all. It’s way more multicultural than Australia is.

But a lot of the Indian-born migrants living in Australia come from the Punjab. They’re Sikhs from Punjab. They are way overrepresented in Australia amongst the Indian-born than they are in their own country.

WALKER: Like 1 in 5 Indian migrants to Australia are Sikhs.

CULLY: I think that’s right. It might even be 1 in 4, something like that.

WALKER: And whereas in India it’s like two per cent of the population.

CULLY: Correct. So these things do evolve and iterate over time. It’s really fascinating to look at when the peak population was for particular groups, communities of migrants – sorry, that language is a bit funny. People born in different countries coming to migrate to Australia. And you can check this at the different census dates. So the number of Italian-born and Greek-born in Australia peaked – what year do you think? 1971.

So the Baltics, people from the Baltic States peaked in 1954. People from the Netherlands and Germany in the 1960s. I would think most people’s guess would be it would be much later than 1971 because it’s not until the 1970s that there’s a celebration of cappuccinos and pizzas and all that stuff washing through Australian culture. But that population had already by then become quite elderly. That’s when you see the Nonnas in Black in the 1970s.

WALKER: But okay, so I take your point that we shouldn’t have this illusion of control, like this is driven by migrants making decision to move here, and then things like chain migration. Just let me push on this further. So take, I don’t know, the United States. Maybe the modal group are people from Mexico because of America’s geography. And then you see how this manifests in American society. Like, you go to California and the road signs are all in English and Spanish. We don’t – and maybe for us the modal group are like the British – but we don’t seem to have anything like that because there’s a big spread of different groups, and that is the thing that just seems to have happened accidentally.

CULLY: So I do mostly agree with that. In the appendix [of the book], I’ve got a table on the birthplaces of migrants and how that’s evolved over time.

And in the 1860s, 20 per cent of the population had been born in England. That’s to your point earlier about 70 per cent of people born overseas in Victoria in the 1850s. So at a national level, if you can think of Australia being a nation in 1861, over 20 per cent of the people resident in the population had been born in England. And then in 1901, it dropped to 10 per cent. 1947 it had dropped to five per cent. In 1961 it had dropped to two. It’s just dropping down.

And no other countries since the late 19th century, there hasn’t been any particular country that has dominated the population as an immigrant group, other than – the “British to its bootstraps” thing. So in 1947, the overseas-born share of the population was 10 per cent, the lowest it’s been if we treat – look just at the colonist population since the early 1800s at 10 per cent, but it was culturally homogenous and British Australian… I mean, people saw themselves as British. So that crimson thread of kinship, as Henry Parkes called it, in the discussions around Federation – that thread has faded and frayed, and it’s no longer so hegemonic.

WALKER: So in the last couple of months, there’s been some unprecedented polling of political opinions. So for the first time in its history, One Nation is now – its primary vote is on par with the Liberal Party or the Coalition. Tied with the Coalition at 23 per cent. There was a December … Demos AU poll. Then there was an earlier poll in December [2025] by Roy Morgan [that] had One Nation at 17 per cent nationally, more than doubling since July 2025, beating the previous record they’d set in 1998 of 14.5 per cent. [After this interview was conducted, One Nation also recorded a 22.9 per cent share of votes in March’s SA state election., and an almost 40 per cent share to win May’s by-election for the federal seat of Farrer.]

So you’ve got an anti-immigration party now enjoying unprecedented support. How do you explain that?

CULLY: There’s never been an anti-immigration party in Australia that’s had any real presence or support up until now. And when I mean anti-immigration, I mean anti-immigration in the sense of anti a certain mix of migrants.

… It’s not even comparable, but there was a lot of trade union opposition to migration in the 1860s, 1870s, 1880s. They were successful. The trade unions were successful in getting assisted passage to basically stop everywhere other than Queensland and Western Australia. And of course there was opposition to migrants from outside Britain because of the issues we’ve discussed before, around maintaining the purity of the white race and around competition for jobs. So the trade unions were the leading opposers of immigration, which is what makes the postwar migration boom under a Labor government so remarkable – a government with very deep ties to the trade union movement. So that was what was remarkable about that particular period.

The arguments about immigration have always been more concerned about the mix rather than about the level. In the past, that is. And I’m not sure whether the rallies that we’ve seen, the March for Australia rallies and the rise in support for One Nation, is an argument about level, or a reaction against level and against this idea that migration has been too high since the pandemic and it’s pushed up house prices and it’s put pressure on congestion and what have you. Is it about that? Is it about that there are too many people of Muslim faith coming in and they are not integrating in society and there’s a number of radical jihadists amongst them and they’re causing fractures in Australian society? So I don’t know which of the two ...

WALKER: And they might be connected too — concerns about the level might have spillover effects for concerns about the mix, if that makes sense.

CULLY: Yeah, maybe. But I’m not sure what it’s about, but the levels are clearly coming off. And at least at a superficial level, the kind of high-level indicators in the Scanlon Foundation’s annual social cohesion survey still suggest that a very clear majority of Australians – we’re talking kind of like four in five – are saying “we support multiculturalism and we support a diverse intake of migrants”...

WALKER: Which would suggest that the concern is more about the mix …

CULLY: Except they’re saying we support the diverse intake. Four in five are saying we support a diverse intake of migrants.

WALKER: They say that. And then there’s also net negative sentiment about migrants from Muslim backgrounds and migrants from Sudan and Iraq. So I wonder if you … take all of that together, then maybe that suggests that the concern is the mix.

CULLY: So I think there is some concern about the mix. But … the only period that I can think of in recent history that looks like now is the late 1980s and early 1990s. So there’s been a question asked in opinion polls since the mid-’50s: “Do you think the level of immigration in Australia is too high, about right, or too low?”

And in almost all polls in all years since that’s been conducted, from the mid-1950s through to the present:

• the largest group are people who say it’s about right;

• the second-largest group are people who say it’s too high; and

• the lowest group is people who say it’s too low.

There’s been only a handful of times where the proportion saying it’s too high is greater than the proportion saying it’s about right. And there was a prolonged period where that was the case from around the mid-’80s to the late 1990s. And that … kind of kicked off with Geoffrey Blainey making his remarks about wanting the rate of immigration from Asian nations to slow down, then John Howard hinting at that in the late 1980s, and then Pauline Hanson being elected to the federal parliament in 1996.

So there was definitely, it seems to me, a reaction in the Australian community, some disquiet about the volume of immigration from Asian nations over that period, even though the question was about the level. Because the migration levels in that period were not high. Unemployment was high and the immigration intake had become possibly majority Asian or very close to a majority Asian from the kind of mid-’80s through that period. And I think there was a reaction against that.

And I think that was also partly fundamentally underpinned by a slowdown in the rise in living standards. And when [living standards] started to pick up again, when our little kind of productivity boom happened in the 1990s and we started to see real income gains year on year … I think that and a little bit of similar reaction to what people had had in the 1960s to the wave of migrants from Italy and Greece [with people] just going: “Well, actually these people are … hardworking, they’re aspirational, their kids are doing well at school, they seem to be having a go.” And I think people probably became a little bit more relaxed about that over time and that fell away. But it looks to me maybe that there is some fracturing around the migrant intake at present. And whether it will abate as the level of net overseas migration continues to fall as it looks like it will do is, I think, still up in the air.

WALKER: At least until Bondi, my explanation for the [recent] increasing negative sentiment towards immigration had been three causes. Attach a roughly equal weighting to each, so a third, a third, a third, for want of better evidence.

• The first one was the stagnation in living standards contributing to the kind of zero-sum mindset. And that’s … as you know from studying history, the first scapegoat in that situation is usually immigrants.

• The second cause was the perception of a loss of control, after the post-COVID surge, in net migration.

• And then the third, which I think is the most underrated, is negative mood contagion from the United States and the United Kingdom.

And we forget that we don’t have an autonomous media ecosystem anymore. Everyone’s on the same Twitter, everyone’s on the same YouTube. All the Australian influencers are following Elon Musk and Donald Trump, and people kind of just copy and paste the same talking points. The immigration debate is very different over there because of the issues with illegal immigration that they have, which we don’t really – but I think that kind of seeps into the Australian debate.

CULLY: So I’m not going to demur from any of that. I think that sounds plausible to me. I know lots of people are going to try and push me on questions like this about my book. But it is a work of history and I’m not a commentator, or I don’t want to be a commentator about current issues, unless to the extent that there are lessons from history that might be useful.

It’s difficult to know how a government might reconcile having a Racial Discrimination Act, a non-discriminatory visa policy, and how you might square that with some preferences around adjusting the mix. I don’t know how you can do that without giving up one of those things. And that means that you are returning to something that is discriminatory by ethnicity or race or cultural background, faith or something. And we’ve said since 1973 we’re not doing that. But if that’s being entertained, then that means opening up those debates. And I can’t imagine that’s going to be pretty.

Has migration made Australia richer?

WALKER: Yeah. So to finish on some more big picture questions, but these ones aren’t related to culture: are there particular periods in Australian history where immigration has made a large difference to living standards, either positively or negatively?

CULLY: So I think the way I think about this is that there are times when if we had not had large intakes of immigration, we would have had headwinds. We would have just hit capacity. We would have been operating at full capacity and not been able to meet demand without inducing more supply. That’s one thing. I think we’d probably talk about the 1950s as an example of that.

The other thing [is that] I do not buy the argument that some people buy, that migration increases productivity. I just do not find the evidence on that at all persuasive. And I think there’s two mistakes that are made by people who talk about how migration lifts living standards.

So one is that a lot of the gain that appears in the modelling is an artefact of the age composition of the migrants being heavily skewed young. And that gives you a lift in your participation rate that you otherwise would not have had, which manifests itself in a higher GDP per capita than you otherwise would not have had. But it’s simply a function of the age of the migrants, not of their skill.

And then the second one is [that] I don’t think the kind of people who advocate these things try to work through the general equilibrium resolution of bringing in larger numbers of skilled migrants in terms of how that plays out over time into the occupational composition of employment. So at the margin, if all of your intake was skilled and it was all clustered in one occupation – engineers or something like that – it’s obviously those people coming in are not all going to be employed as engineers. So how does the intake alter, over time, the occupational composition of employment relative to what it otherwise would have been? I’m not convinced that it makes the overall composition more highly skilled. I just think there’s a lot of shuffling in the queue for different jobs.

And in a sense, this has always been the case with first-generation migrants. They pay a penalty. Even international students pay a penalty for not having been born in Australia, and they accept job offers that are inferior to what they would prefer and are inferior to what an otherwise identical Australian-born person receives, and those effects tend to wash out by the time you get to the next generation.

So the thing I dislike about the discussions about migration in Australia is that even the analysts tend to be advocates. Well, they’re either anti or pro. We don’t really have anybody like George Borjas. I guess we had Bob Birrell for a while, who was an analyst who thought that the immigration intakes generally were too high. He was probably our equivalent to George Borjas. But most of the people who work on migration in Australia are a little too selective in the way in which they talk about evidence.

WALKER: No doubt. So do you agree with Ian MacLean that on net, migration probably hasn’t mattered for Australian living standards? It’s certainly mattered for Australian GDP, but it hasn’t really changed living standards?

WALKER: So we don’t get to run counterfactuals. But that’s partly the argument I was making earlier on about Sweden and Belgium. So it’s possible that our living standards might not be as high as they presently are. But materially, I’m not sure that it’s going to be that great a difference. So I agree with Ian McLean.

The main constraint on Australian immigration over the past 200 years

WALKER: So, I have this framework in my head for thinking about our ability to accept immigrants. I think you could think of three constraints on immigration.

1. The first is the carrying capacity of the continent. Maybe that’s like a stock concept.

2. The second is the economy’s ability to absorb migrants, and maybe that’s like a flow concept.

3. And then the third is the rate of acculturation of migrants to the mainstream and vice versa.

If you think that that’s a good framework, if you look back over Australian history, which of those three constraints do you think has tended to be the binding constraint?

WALKER: So that’s a hard question … I think it’s probably important to say that up until 1950, migration wasn’t managed in the way in which we think about it now. The only real two ways the government managed migration was through the volume of assisted passage (which tended to move in line with the economic cycle) and by constraining the mix through The Immigration Restriction Act. So it’s not until the 1950s that you start to see technocratic discussions about the level of immigration and what’s optimal. And there at least on the economist side, it was about capital investment keeping pace with population growth. So it’s a pace argument rather than a carrying capacity argument.

The first kind of period where you see a carrying capacity argument come to the fore is in the early 1970s, when it became faddish to advocate for zero population growth. An early manifestation of the Greens, and the Democrats, I think, were advocating zero population in the early 1970s. And you started to get the first environmentalists arguing on carrying capacity grounds that Australia’s population couldn’t go past a certain level.

And then … I use this story that I heard Ken Henry tell when I was in the Immigration Department, about a discussion he had on carrying capacity between him and Kevin Rudd after Kevin Rudd became prime minister. And it’s such a good story. And I couldn’t use it in my book until I found out that Ken Henry had told that story on your podcast. And so I’ve used it. And it’s a great story, because there’s this confusion between Rudd and Henry about the number. And Ken Henry says he thinks the optimal size of Australia’s population, given the way it manages its resources and so on at the time, was 15 million people.

WALKER: Which is kind of a crazy thing to say, right?

CULLY: Because Australia’s population at the time was, I think, was 21 million. And Rudd misheard him and thought he’d said 50 million and Rudd said, “Great, that’s exactly what I thought, 50 million.” So it’s a … I guess Ken Henry was trying to pull him up. to make him think seriously about what kind of country Australia would look like if it had a population of 50 million versus 15 million.

But I don’t think we’ve had a proper discussion really. There’s been various attempts over time to kind of integrate a discussion around population policy and immigration policy, and they’ve always fallen over. They’ve probably always fallen over because of the vested interests in maintaining a relatively high immigration intake.

CULLY: So on that, Peter Macdonald told me that as far as he’s aware the post-war migration program is the only time a country in history has had an explicit population plan. That is to say, a target of: “We want to get to 20 million and we’re going to do it through this much migration and this much natural increase.” It’s hard to verify that, but does that check out with you?

WALKER: So I think the idea of the 20 million population target fell away very quickly after World War II, and what drove high immigration levels was labour demand, fundamentally … I don’t think there was a population plan as opposed to an annual process, under the auspices of the Immigration Planning Council, advising the Minister on what the right level of immigration ought to be in any given year.

There was a couple of times where they came up with a five-year plan. I think there was one published in the late 1950s. And there’s been various attempts by different expert advisers to government on immigration to try to get them to agree to a longer-term migration planning framework, which de facto becomes a population policy if you accept that at least on the natural increase side, demography is destiny, and things change but there’s a fair bit of constancy, so your migration policy becomes a de facto immigration policy.

So beyond the one per cent, one per cent, 70,000 people a year target, it might be true that that’s not been done in any other country. The one per cent target was only met for a handful of years in the 1950s, because there was a pretty high outflow which wasn’t being factored into the thinking properly. And that got called out by the Vernon Committee report in 1965, which said, if this is your target, you haven’t met it for the last decade and we think it’s too high a target anyhow. They wanted 0.9 per cent.

And yet there’s been, as I said, various attempts to try to get governments to think about whether a long-term planning framework on migration is a good thing to do. But I can’t think of any governments that have really kind of gone “yes, we’ll do that” – partly because they don’t really like having decisions that bind them. They don’t really like having technocrats tell them what the decisions are.

You see the way the Treasurer bristles every month ... or every eight times a year, about the Reserve Bank setting interest rates. And they would much rather have the flexibility of adapting according to circumstance.

So would it be a good thing? On balance, it probably would be better for there to be a bit more certainty. It might help state governments do better planning around infrastructure and so on. It might help with making the public feel more confident that immigration is being managed well.

But it’s not going to happen until there’s some kind of reimagination of what a migration program looks like that factors in the level of temporary migration into its thinking and that considers use of capping the number of temporary migration visas in any given period and factors in a period of time under which people can remain as a temporary migrant in Australia.

What makes Australian immigration exceptional?

WALKER: Final question: could we just pull together a list of some of the things that make Australian immigration history exceptional relative to other settler countries? So we’ve just spoken about the fact that maybe Australia is the only country to have had a population plan. It was also, I think, the first country in the world to have a dedicated Department of Immigration. What are some other things that stand out to you as unique about Australian immigration history, again relative to other settler societies?

CULLY: So we’re the only country that’s done assisted passage on scale. I don’t think many people know that it goes back to the 1830s. And I think the rough magnitude is about 3.5 million people came to Australia whose fare was either fully subsidised or generously subsidised, who otherwise probably wouldn’t have come. Some of them would have come anyhow and had their fare paid for them, but a fair number of them didn’t. So no other country did that on the scale in which Australia did over such a long period of time. That’s probably in many ways more fundamental than having a dedicated immigration department.

English language training – Australia was the first country in the world to offer that. As you said, it started in kind of baby steps in the late … started on board ships, actually.

WALKER: And in the camps in Europe.

CULLY: And in – no, was it in the camps in Europe? It was definitely on board ships, and it was in the camps in Australia like Bonegilla.

I don’t know whether any other countries have an equivalent to SBS TV and ethnic radio. There’s, I mean, possibly they do in Canada. I’m not sure. But that’s been something that Australia’s done.

Australia got a kind of first jump on exploiting the opportunity for people from developing countries to obtain an educational qualification from a developed country ... So in absolute terms, I think Australia ranks third behind the United States and the United Kingdom, but we have a much smaller population. So on a per-head basis, we’ve been first in the world for a long, long time. I’m not sure if I’m missing anything.

WALKER: We were the first to do mandatory detention for unlawful non-citizens?

CULLY: So we haven’t discussed this at all. We could go for another hour on the question of Australia’s treatment of refugees. I’m not sure whether we were the first or not. But it is a fascinating history, and with lots of suffering involved on the parts of many people about mandatory detention.

And particularly I think what was notable, I tell this story about the cycle of history moving quickly, [of] a mining camp that was set up – I think it was a BHP camp, but it could have been a Rio Tinto camp, but I think it was a BHP camp in Port Hedland – being requisitioned to house 21 Cambodian asylum seekers who’d come on a boat and had been held in Villawood for a couple of years. And they were sent to Port Hedland because they would be out of the way of lawyers. That’s why they were sent there.

And it’s no coincidence that almost all of those camps were set up in areas where it was very difficult for lawyers to go and for the public to protest. And people were treated in really inhumane ways. They were treated as prisoners. And they hadn’t committed any offence.

WALKER: I guess one other thing that makes us exceptional is the highest share of overseas-born in our population among OECD countries.

CULLY: It’s not quite … there’s funny wrinkles.

WALKER: Oh, is it Luxembourg that beats us?

CULLY: Luxembourg. Switzerland’s about up there. Israel.

WALKER: Yeah, you could say like for a country with a population larger than 10 million or something, we’ve got the highest.

CULLY: Well, I mean, everyone thinks of – so the US, if we do the comparison with the US, the US has 50-odd million people in it who were born outside of there, and they – it’s more than any other country in the world in terms of the volume of migrants they have. And there they make up about 15 per cent of the population, whereas in Australia it’s, I think it’s now nudging 32 per cent. And it will – given what’s happening, you know, even with a much reduced immigration intake, it’s still going to be rising because … it’s going to outweigh natural increase. So it will continue to drift upwards.

Somebody’s done some modelling. It might even be in Alan Manning’s new book, and he says Australia is going to come out somewhere in the 40s, 40 per cent, which, you know, it hasn’t been since probably about the 1870s, 1880s.

WALKER: Wow. Do you know when we’ll hit that?

CULLY: No. I mean, you could do some back-of-the-envelope calculations, but I haven’t bothered to try and do that. But it’s high, right? It’s high. And there’s no slowing down in the appetite of people who wish to come to Australia.

I think one of the things that intrigues me, because it goes partly to this question about living standards and partly about who benefits from migration, is if you weight the migration intake by the incomes of the countries from which they come, that weighted average figure has not altered since the 1970s. And world incomes, average world incomes, have more than doubled in that time. So that means that our intake is increasingly coming from poorer countries.

WALKER: This feels important, but I don’t know what to make of it.

CULLY: It feels important, but I don’t know what to make of it too. Because by and large those people who are coming are coming through skilled channels or they’re coming through as spouses of skilled migrants. So they’ve been vetted on their occupations and vetted on their educational qualifications and vetted on their English proficiency. And … many of them are doing as other migrants have done: they’re either succeeding in their preferred jobs or they’re doing well in their less preferred jobs, but they’re making sure their kids are doing really well.

WALKER: What do you think we should make of it, that fact that we’re increasingly taking people from poorer countries?

CULLY: I think that’s probably true for other countries besides Australia. That, you know, in the aggregate, the overall picture is four per cent of people in the world are living in countries in which they were not born. So 96 per cent of people are. But in Australia, it’s about, you know, 32 per cent. So it’s kind of 8 times that four per cent. So it’s a huge magnitude difference.

But in the OECD countries, that four per cent becomes about 15 [per cent].

It’s been rising, and rising in all OECD countries. And I think people like Hein de Haas, who analyses these kind of movements, would say you have this kind of development hump where people in very poor countries don’t have the resources or wherewithal to migrate and people in rich countries don’t need to migrate, but it’s the countries in the middle of those – so you get this inverted U shape about the propensity to migrate from given countries – and that more of the world now is in that hump and have the wherewithal to get to OECD countries.

And OECD countries have been since the 1990s, as in Australia, liberalising the opportunities for people to migrate to their countries as workers and as students. And the pressures for them to continue to do so because of population ageing are going to remain high. So it’s hard to see that tension that exists in almost all OECD countries over migration dissipating because there’s this economic need to find workers to do jobs that locals don’t want to do and just to help them manage their … shrinking. Otherwise their participation rates would come off.

We have not seen that in Australia, which has been interesting and surprising in many ways, but we will, eventually, without continuing to have moderate to high levels of immigration.

WALKER: All right, let’s leave it there. This has been great. Thanks, Mark.

CULLY: Okay, thank you.

Martin Parkinson ran the Australian Treasury (2011-2014), then the Department of Prime Minister & Cabinet (2015-2019). He’s also thought deeply about the economics of migration policy, not just in those roles, but also in his past academic life and as chair of the Australian government’s 2023 Migration Review (the most significant review of our migration system in more than three decades).

We discuss the central but underappreciated issue with Australian migration policy today: we’ve drifted into a quasi-guest-worker system without anyone voting for it. About 2.3 million people in Australia now go to sleep here every night with work rights, but without being citizens or permanent residents.

We also work through how migration affects living standards, the “Soviet-style” occupation list that governs our skilled program, how to attract true global talent, how international student fees came to subsidise roughly half of Australian university research, and what should be the upper and lower bounds for net migration. We end up in an unexpected place: how much more geopolitical weight would a larger population actually buy us?

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Transcript

JOSEPH WALKER: Today it’s my great pleasure to be speaking with Martin Parkinson. Martin was secretary of PM&C [Australia’s federal Department of Prime Minister & Cabinet] from 2016 to ‘19 and secretary of [Australia’s federal] Treasury from 2011 to ‘14. Most relevant to today, he chaired a major review into Australia’s migration system in 2023.

Just to put that into context, that was the most significant review of migration policy since the Fitzgerald Report of 1988. And the world it’s trying to grapple with is a world partly caused by the Fitzgerald Report, or the ultimate adoption of some of its recommendations by the Howard government. And I describe that world as a kind of post-settler society.

So that’s really the world that Martin’s report is trying to grapple with. And I’m sure it’ll be the kind of cornerstone of the conversation about what the next paradigm looks like for years to come.

So Martin, welcome.

MARTIN PARKINSON: Thanks, Joe. Pleasure to be here.

What surprised Parkinson about Australia’s immigration system?

WALKER: So first question: last year I did an interview with Abul Rizvi on immigration, which I think you’ve listened to.

PARKINSON: Yeah, it’s a great interview.

WALKER: Thank you. And at that point I knew very little about how migration policy worked, and so I was trying to learn very basic stuff – just, you know, the different streams within the permanent and temporary program, how net migration is calculated using the 12-out-of-16-month rule, et cetera. And it was really interesting learning all of that. And one of the first places I went to was your report just to learn some basic things and get a kind of lay of the land.

PARKINSON: You’ve got to get out more, Joe.

WALKER: I really do. It’s fair criticism. But I’m curious: you’d run PM&C and Treasury, but neither of those departments owns migration. When you came to chair the review in late 2022, how much did you know about migration policy at that point and what did you do to upskill? Who were you calling up, and what were you reading?

PARKINSON: Great question. So I’ve got a labour market macroeconomics background. So I’ve always been interested in what are the sort of drivers of labour market behaviour and macroeconomic performance. And so migration had always been part of that. But I’d never really delved into the intricacies of it.

When I was secretary of Prime Minister and Cabinet, the then-secretary of Home Affairs came to me at one stage and said “look, I think we’ve got to start to think about the structure of the migration program and whether or not some of these visa classes are actually delivering what it is that we should be trying to achieve as a country”. And that got me thinking about “well, what is the objective of the migration program”?

We had a number of conversations there. The government of the day wasn’t actually that interested in grappling with any of this. This is the end of the Turnbull era, beginning of the Morrison government, and there wasn’t a lot of appetite by the minister [Peter Dutton] to take a serious look at migration. It was more about playing at the margins. And then I left and COVID hit.

During COVID I got a call from Clare O’Neil, who said that she really wanted to take a deep step back and [a] deep think about the migration program and all its dimensions, and would I be involved? So happily [I] said yes. I had two fellow reviewers, John Azarias and Dr Joanna Howe, and we had a great team of people with deep expertise in migration. We had access to people who’d been around these traps a lot.

So a lot of it was not so much reading, but actually sitting and talking to people – understanding how the system worked, understanding the journey of the potential migrant from the point of application through the application process through to arriving in Australia.

And to be fair, one of the things that had puzzled me for a very long time – and Tony Sheppard, the businessman, had mentioned this to me years and years ago, and it just stuck in the back of my mind – he said one of the things that was really striking about that settlement-era immigration program was the emphasis being put on settlement services and integration. One of the things that as we went into looking at this was the realisation that that settlement services dimension really wasn’t there to the same extent. There’s great work being done, but it’s not the same scale and structured programs that there were with that great wave of post-World War II migration. And so that also was something for us to reflect on through the course of the whole review.

WALKER: What were some of the other things that surprised you during the process of the review?

PARKINSON: The first thing that surprised me was … because like most people, I always thought of the migration program in terms of the permanent migration program …

WALKER: Me too.

PARKINSON: … and then that being supplemented by a relatively small, highly skilled temporary migration program. And what really surprised me was I had not realised how much the temporary skilled program had morphed into a – it’s difficult to find quite the right words, but it had been eroded. It wasn’t – it hadn’t been consciously turned into a low-skilled worker program, but it had de facto become that.

That had occurred because there’s a thing called the TSMIT, the Temporary Skilled Migration Income Threshold. That used to be set such that the only people who’d come in under that temporary skilled program were very highly skilled people. But that was frozen in 2013 with the change of government, the election of the Abbott government. And so that eroded in real terms over that decade. The end result was that you had a lot of people coming in who there was no way you could describe as highly skilled.

The other thing that was really surprising to me was that when we did this, there were about 2.3 million people who would go to sleep here every night, of whom 1.8 million had work rights [and] were not either citizens or permanent residents. And I had never really appreciated during my time in government just how much those temporary streams had grown.

If you fast forward to now, that number’s probably half a million more, 2.9 million thereabouts. And that 1.8 million with work rights are probably 2.3 or thereabouts. So you just step back and think about it: now, not all those people are working, but if you think about what we’ve done, we’ve built an economy that requires something like 2 million more workers than we have citizens and permanent residents. And the magnitude of that was what surprised me.

WALKER: Yeah, it’s so interesting and important. We’ll come back to that.

How does migration affect Australians’ living standards?

WALKER: I just want to take a step back and talk about how migration affects Australians’ living standards. So if we decompose GDP per capita into three different terms – the share of the working age population, the employment rate, and then productivity – I just want to go through each of those terms and talk about how migration affects it.

So the share of the population that’s of working age, obviously migration is going to increase that share because we bring in a lot of young skilled migrants. I think that one’s pretty easy.

PARKINSON: It has big economic benefits if it’s done properly. But as Abul [Rizvi] said to you in the podcast you did with him, one of the big consequences of that is that it slows population ageing. So that buys us more time to address the sort of fundamental demographic challenges that pretty much all countries in the West face.

WALKER: I’ll come back to that, because I’ve got some questions about how we think exactly about the benefits that delivers. But migrants to Australia will probably increase the share of the population that’s of working age, because they’re very young. So the second term is the employment rate. Again, I assume migrants will probably increase that because they’re often coming in for jobs, or how do you think about that?

PARKINSON: Yeah, so there’s some data in the migration review where we look at the employment rate of pre-existing Australians and of migrants. And you see in most cases the participation rate of the migrant is higher than that of the existing population. That’s typically – if you think about it in an aggregate sense – because the migrant is younger than the average Australian. We’re not bringing in people of my age who are no longer in full-time work.

WALKER: Yeah, okay, so then that brings us to the third term, which is probably the juiciest one – output per worker. Empirically, how do you think migration to Australia affects that?

PARKINSON: So I think it depends what you’re talking about. It’s a bit like the old Castrol ad: “Oils aren’t oils, Sol”. So migrants aren’t migrants. If you’re bringing in highly skilled migrants, typically they complement the existing Australian workforce. So that’s beneficial for Australia as a whole in terms of typically boosting productivity and boosting wages, with spillover effects for the existing Australian workforce.

The flip side is if you’re bringing in unskilled workers and there are Australians in those areas, typically they’re competing for jobs. I say “typically” because there are some areas where Australians just won’t take the jobs, and if you didn’t have unskilled workers you’d have to really rethink how you manage those businesses, those sectors.

But assume that there are Australians already working in those areas. Then typically unskilled migrants or lower-skilled migrants compete with Australian workers. So the increase in the size of the labour force means that there’s not the same incentive to invest in capital-saving technologies. So you typically don’t get the same boost to overall productivity, and typically what you do is get a bit of dampening in terms of the wage growth and the employment prospects for the existing population. Now that’s very broad-brush.

WALKER: So that capital widening at the expense of capital deepening, that doesn’t happen as much for the high-skilled migrants?

PARKINSON: Well, the high-skilled, you’ve got to think of them as actually coming in with a lot of embedded human capital, either if they’re coming in or if they’re trained here. So if those high-skilled migrants happen to be people who we’ve trained at Australian universities and then they go into jobs at the skill level that they’ve been trained for, then we’re actually getting deeply embedded human capital.

But yeah, typically the higher-skilled migrants are complements for the existing workforce. And if you think of them as being a mix of those coming directly from overseas and those coming through our education system, then you’re getting a mix of different experiences, different skills, and that’s typically productivity-beneficial.

WALKER: So then putting all that together over the last, say, decade, do you think migration to Australia has, on net, raised living standards, it’s been neutral, it’s lowered them?

PARKINSON: Look, that’s an empirical question, and I couldn’t answer that off the top of my head. But I would say that if you think about moving from a migration program that is predominantly skills-oriented and high-skills, to one that increasingly is focused on no-skills or lower-skills, then it ex ante is unlikely to deliver for you the growth in living standards that you would have got from the same-sized migration program remaining focused only on higher-skilled [workers].

What those actual numbers are would be a matter of going and crunching them. Brendan Coates and the Grattan Institute folk have done some work in this space, but off the top of my head I can’t recall exactly where they ended up.

The political equilibrium

WALKER: So if I wanted to make a really broad, maybe unfairly broad, critique of the report, it would be: there was too much economics. And I’m curious whether or how you think about the political equilibrium. To make that clearer, some of the recommendations might not be able to be adopted or maintained if they lead to a lot of, say, public dissatisfaction about the mix of migrants or migrants’ ability to integrate into the Australian way of life. So I’m just curious how you think about that. Or was it sort of out of scope?

PARKINSON: No. I’m intrigued that you think there was too much economics in it, because there’s quite a lengthy discussion about what should be the objectives of the migration program.

Part of it is Australia’s economic prosperity. So that’s skills, productivity, exports and so on. But one of the other dimensions in there, [that] we’re very explicit about, is a fair labour market – building a population of Australians, a cohesive group of Australians, being able to project Australia’s interests into the world.

And then there is discussion in there about the importance of social licence and how do you get social licence. We’re quite explicit in discussing that if you don’t have effective integration, then you will have an erosion of support. So maybe – I hate to say it – maybe we’re just a bit too subtle for you [laughs]. But we definitely were not large-P political about it. We couldn’t pretend otherwise.

WALKER: You do kind of identify those considerations. But there’s no detail around, for example, how migrants should be integrated, or things like that.

PARKINSON: Well, we weren’t asked to do that.

WALKER: So that’s sort of out of scope.

PARKINSON: Yeah.

What are the objectives of the migration program?

PARKINSON: The terms of reference were really: “step back and tell us about the migration program and how it’s working”. And when we did, the first thing we sat down – I think probably in our very first meeting – we said, “what’s the objective of the migration program?” And everybody sort of scratched their heads and said, “well, is it this, this, that?”. We ended up with a whole series of potential objectives for it.

Then we said to our support team, “what are the objectives of the migration program?” They said, “well, it’s very unclear”.

It was quite clear in that post-settlement, post-World War II settlement era. Indeed, it was still pretty clear up until probably the late ‘90s, when it was still focused on the permanent migration program and the relatively small highly-skilled temporary migration program.

But if you look back over the period of the 2000s, it becomes very unclear what the program is – what the program objectives are, I should say.

And in part, I think the three of us realised that part of the challenge had been that issues had arisen and ministers had addressed those issues in isolation. So a problem would pop up over here, they’d invent a new visa class or a new set of arrangements for it, and then there’d be an issue that would pop up over here and they’d do that. And there was no overarching structure, there was no clear objective that was written down that they would go back to and say: Is our response here consistent with this objective? Is the objective no longer the correct one?”

And so that’s why we pointed out to you – it’s page 22 of the report – the core objectives that should drive the future migration system: building Australia’s prosperity, so meeting labour supply needs; supporting exports; enabling a fair labour market, so complementing employment, wages and conditions for domestic workers; and preventing exploitation.

Now, we didn’t do very much on exploitation in here because at the time we were doing this, Christine Nixon was doing the report into exploitation of migrant workers, and so we were walking together and sharing information.

But the other [objectives] were around …

• Supporting sustainable population growth – so that goes to much of the discussion you were having with Abul.

• Building a cohesive multicultural community of people who participate fully in Australian life. And if you think about that, you parse that, you’ve got to have settlement systems that don’t allow people to congregate in groups and not integrate. So we actually talk a bit about settlement support systems and the like in the report.

• Enable the reunification of families. We’ve got a very odd system of family reunion. We might touch on that later, but it’s a real crapshoot if you’re trying to get your family out to Australia.

• Protecting Australia’s interests in the world, especially with partners in the Pacific. So that’s really family ties, people-to-people ties.

• And then the last was ensuring we’ve got a fast, fair, and efficient system. Because if the Australian community doesn’t think the system is working in its interests – that it’s fair to the migrants but it’s fair to the existing Australian residents – it’s going to lose popular support.

The drift into a guest-worker system

WALKER: So we’ve kind of drifted into this almost guest-worker system. As you mentioned earlier, there are about, give or take, 2.3 million people here at the moment on temporary visas with work rights. Do you think if that system was put to the Australian public as a proposition, they would have voted for it or supported it politically?

PARKINSON: No, I don’t think they would have at all. And indeed, we say in the report that we’ve ended up with a sort of group of permanent temporaries, almost a quasi-guest worker system, without anybody consciously sitting down to decide that we should do this. And that if you asked the Australian public, as a review we thought it would be highly unlikely that they would have agreed to that.

Now, we should be careful – that 2.3 million, they’re not all people who would fall into the guest worker group. There’s only 100,000, maybe 200,000 of those who fall into the permanently temporary underclass group. That 2.9 million that we talk about, a chunk of those are visitors – in this city they’re tourists, or they’re coming to see family members and the like.

WALKER: And so they wouldn’t even get counted towards NOM, would they?

PARKINSON: No, typically not.

WALKER: Because they’ll be here for fewer than 12 out of 16 months.

PARKINSON: Yeah, they’re not going to be here for 12 months out of 16. But there’s, what, over 700,000 New Zealanders who can come and go freely. They’re not really – you wouldn’t think of them in the guest worker category. You’ve got around about 700,000 or 800,000 students. Now because of the work rights that students have, they’ve filled jobs in inner cities that are very casual.

WALKER: Food delivery-type stuff.

PARKINSON: Food deliverers, baristas and the like. But then you’ve got working holidaymakers and so on.

So you can’t say that that whole 2.3 million people who’ve got work rights would all be guest workers. But there’s a group who have come in through what was the temporary skilled migration program who are still here. And then there’s a group of the students who have graduated who have moved from bridging visa to bridging visa and are still here.

And one of the questions we had was, as you look forward, you really want to prevent the creation of a large group of people who have no pathways to permanence. So you’ve probably got to do two things. One is you’ve got to think about how do you stop that happening in the future – so how do you stop adding to that stock? And then what do you do with the stock?

Our view is in the end very similar to the discussion that you were having with Abul, which was for the group that’s already here, you find pathways for most of them to become permanent, but then tighten up on the arrangements so that people who come in the temporary skilled program don’t think that that’s a pathway to permanence, because it’s not.

And with the students, think about when you’re bringing them in and they’re going through our education system, how do you pick the best ones who are going to make a contribution to Australia? So don’t be in the world of automatic work rights post-graduation, but think about which ones you want to give temporary graduate visas to. And then from that group, think about which of those you might offer pathways to permanence. And that takes us into another issue which I assume we might come back to: how do we make sure that the international students who are graduating, who we might want to keep here, are actually being matched properly by the labour market into jobs at the skill levels they’ve been trained for.

WALKER: Yeah, we can come back to that. I had a question on … So one of the big shifts that’s happened over the last couple of decades, as you alluded to earlier, is that we no longer have control over net overseas migration through capping the permanent program. There’s been this disconnect between the permanent program …

PARKINSON: Well, we never even had control over NOM then. The difference was that we controlled the inflow.

WALKER: And so with the rise of temporary migrants, NOM is now much more volatile and much more difficult to control.

PARKINSON: Much more volatile year to year.

WALKER: So I think Canada’s capped their temporary migrants. We already capped the permanent program. Why haven’t we just put a cap on our temporary program? Or if that’s not possible, why haven’t we put a limit on visa stay periods or something like that?

PARKINSON: It’s a good question. Let’s think about what the temporary program comprises. You’ve got the demand-driven skills program where an employer is basically looking for somebody with a particular set of skills to do a job. Now, if we capped that and the cap was binding, then we’re basically saying to a bunch of employers “you can’t get people with those skills to come to Australia”. Forget for the moment whether that’s a good thing or a bad thing – the consequence of that is going to be skill shortages in the first instance.

[The] second group you’ve got are working holidaymakers, and I don’t have the numbers off the top of my head, but there can be … 200,000 thereabouts maybe. They are people whose term is capped – it’s typically 12 months, and then they can seek another 12-month period, but then they’re meant to go home.

Then you’ve got things like PALM, the Pacific Australia Labour Mobility program. Those people are term-limited, and they go.

But where you’ve had no caps until recently have been that demand-driven component – students, New Zealanders.

And if you think about putting caps on, if you cap your working holidaymaker numbers below where they are, you’re going to get screams from the industries where those people really make a contribution, so agriculture and tourism.

If you think about capping New Zealanders, well, you’ve got a huge political constituency on both sides of the Tasman. We’ve seen that over the last decade in the lobbying to get New Zealanders access to permanency. That’s not going to fly.

And if you try and cap the demand-driven component, as I said, you’re not going to have any short-term effect that doesn’t involve the creation of skill shortages.

So if you look across that component, where’s the one bit that government can relatively easily impose a cap which has been uncapped up to now, because there’s not really a political constituency, it’s students.

And yet what is the argument for capping international student numbers? I think there’s a very legitimate argument if you wanted to make it around ensuring the quality of education for everybody who’s at an Australian university. But that’s not the argument that’s being made, and it’s not the one where the evidence is strongest.

It’s really – you can actually impose a cap and hence limit inflows, because remember, NOM is inflows less outflows. So you can impose a limit on some part of inflows and it’s the politically easiest thing to do.

And we’ve got the spurious argument that the rationale for doing this is because those students are driving up house prices. Well, you know the conditions in which students live. They’re not buying houses out in the areas that Australians want to live. They are definitely not driving up house prices in the outer suburbs or in regional Australia. They are typically congregated around where the universities are themselves. And this whole argument that they’re driving house prices is spurious.

WALKER: I guess you could say they are driving rents.

PARKINSON: Well, they are in an aggregate sense. But they’re not typically renting places that Australians might want to rent.

I think there’s a legitimate argument – and the government has actually said this – that universities have an obligation to provide more housing themselves if they want more international students. I think that’s a perfectly reasonable position for governments to take, and it’s a way then of addressing this inchoate concern in the community about the link from students to house prices.

But what’s really driving house prices is not students. It’s actually supply problems in the Australian housing market.

If we just come back to NOM again, one of the things that we said in the report was, if you really want to think about this from a long-term perspective, don’t try and cap the program year to year. Don’t try and worry about the numbers year to year. Think in terms of maybe a 10-year NOM strategy and tie your NOM objectives to programs for infrastructure investment, for housing investment, for social infrastructure and the like. Particularly so if you’re talking about the state-driven part of the migration program.

WALKER: That makes sense. To what extent do our free trade agreements actually restrict our ability to cap temporary visas?

PARKINSON: So, some of our free trade agreements have labour mobility agreements in them. And that means that a certain number of people from those countries can have the right to come and work here. And if you aggregate those numbers up, the more we put them into FTAs, the bigger a group that will be in our temporary migration program.

WALKER: Do you know what some of the most important FTAs are there? I don’t think the Indian one has a labour mobility clause...

PARKINSON: Yeah, you’ve got me on that. I’m just not across the details of those FTAs.

WALKER: But sorry, I interrupted you.

PARKINSON: But it is something that maybe 15 years ago didn’t exist and now is increasingly an issue that’s put on the table in FTA negotiations.

WALKER: Labour mobility.

PARKINSON: Labour mobility.

WALKER: So the more that gets put on the table, the more we’re kind of relinquishing control of NOM.

PARKINSON: Well, of another component.

So if you think about NOM, we can’t control the outflows. And we also can’t control a big chunk of the inflow bit that we haven’t even spoken about, which is Australians returning home. One of the great ironies is that the explosion in NOM, in inverted commas, that we saw post-COVID is really a function of two things.

One, decisions that were taken by the previous government during COVID, which was to ease visa conditions so that once people could travel again, it was much easier to come back. And hence we got catch-up migration that we would have had over those years, but it all came in a one- or two-year period. So you get this spike.

But we also had a huge number of Australians come home. And when Australians have been overseas for more than 12 months out of the last 16 and they come home, then they count as part of NOM.

So those NOM numbers, they bounce around and then they plunge through COVID and then they spike back up. And now they’re coming down. Now, yep, Treasury got forecasts wrong, but it’s a pretty darn hard thing to forecast.

But I suspect if you step back and look at it in a couple of years’ time, we’re going to have had this trough, spike, end of spike, and things are going to look relatively stable again. Say, somewhere in between 200,000 and 300,000 a year in NOM.

How leveraged are universities to international students?

WALKER: So how leveraged is university research funding and domestic student places to international students? If we started cutting international student numbers, at what point would that start to trade off with research and/or domestic places?

PARKINSON: Immediately.

WALKER: Okay.

PARKINSON: So it’s worth understanding what’s happened here. If you go back in the not-too-distant history, Australian governments funded about 80% of the cost of running a university. Now they fund about 30 to 35%. That’s a phenomenal reduction. Partly what’s filled the gap has been domestic fees, paid by domestic students. But the big chunk, and the thing that’s changed most, has been international student fees.

International students: essentially their fees cross-subsidise research and probably pay almost 50% of the total cost of research that’s done in universities. This is a really important thing, because you’ve got to go back in history, but both sides of politics, both parties of government have been equally complicit in this. They didn’t want to keep funding universities. They’d limited government contributions for students. They wanted to reduce government expenditure as a share of GDP on research and development, and there was only one lever left. So they said to the universities, “go for it” – go out and recruit international students.

So the universities did. It was the only way they could make the books square. If you wanted more domestic students educated, and you wanted world-class research that was going to benefit the Australian community, you had to go and get international students.

The net result of that is that today international students contribute in the region of $30-odd billion a year through the university sector, and probably $8 or maybe $10 [billion,] thereabouts, to the VET sector. So if you cut rather than cap – remember, what the government’s done is cap international student arrivals at 295,000 – that’s going to impact on the ability of universities to fund faster growth in research. But if you cut from where we are today, there would be an immediate impact on the ability of universities to do research.

And this isn’t an abstract thing. If we think about Australian research and development expenditure, the OECD average is 2.7% of GDP. Australia spends 1.7%. To put that in context, South Korea spends 4.9% and the US spends 3.5%, and we spend 1.7%.

Of that 1.7%, the business community is responsible for about 0.8% or 0.9% of GDP. It is amongst the lowest and probably even the lowest share of GDP by the business community anywhere in the OECD. And then in the rest of that gap between the 0.8, 0.9 to 1.7, what’s happened is essentially direct government expenditure on R&D has fallen and university expenditure on R&D has risen. And so those two things have stayed roughly the same. I’m being very broad in my language here, but essentially international students haven’t just contributed to the funding of research by universities; they’ve substituted for the funding of research that had been done by government.

So the consequence for the Australian community if we’re not doing that R&D is really quite significant, because we’re aspiring to being a world-leading economy, right close to the frontier in a whole variety of areas. But we’re not actually doing the research and development that’s commensurate with it today. And then the one way in which we are funding what research and development is done is at threat of being taken away.

So that’s again one of these points I keep making: people have to think through the second- and third-order consequences rather than just focusing on cutting students because they’re driving up housing prices. When A, they’re not driving up housing prices – that’s caused by a completely different set of issues – and B, if you cut international students, this is going to be the consequence.

WALKER: Think about the trade-offs.

PARKINSON: Yeah.

Should we have an official low-skilled migration program?

WALKER: So you mentioned earlier we’ve got a de facto low-skilled migration program. Should we have an official one?

PARKINSON: That’s a really good question. And again, in the report, we put both sides and we say, look, there is a legitimate argument – socially, ethically – that you shouldn’t have temporary migration, that if you’re going to bring people here, you should give them a pathway to permanency. On the other hand, there are social and ethical arguments in favour of temporary migration programs. You’ve got to decide where you want to land on this. Our problem is that we keep talking in terms of a program that leads to permanency, but we’ve actually created this permanently temporary underclass.

So I personally am of the view that you can have a temporary program, but you’ve then got to be serious about making people go home at the end of that period. That can be part of your international education program, or it can be part of your unskilled program. But the worst thing you can do is let people stay here, [and] become part of the fabric of the community, with this constant threat that they’re going to be kicked out.

We have over 100,000 people here now who have been here over five years on bridging visas, meaning they’re hopping from visa to visa to visa while they’re trying to get permanency. And because of weaknesses in the points system, which is part of the permanent program, if you’re a weaker applicant but you can work in Australia, then there’s a real incentive to stay in Australia, work in Australia, because you get more points for being here and working here.

So you might be applying from overseas. I might be in Australia. I’m nowhere near as well skilled as you, but I’m getting points because I’ve actually come to Australia, whether as a low-skilled worker or even as a student, and I’ve managed to stay by visa-hopping, and now I’ve racked up a number of years working. So I get looked at more favourably than you. But you’re clearly going to make a better contribution to the Australian community than I am. But I’m embedded in the community.

So is it morally and ethically fair now to rip me out and tell me to go, or would it have been better to have not let me get embedded in the community? I’m an economist. That’s a political question.

Using migration to slow population ageing

WALKER: So I said we’d come back to population ageing. Just as a toy model, say you have a population where the average life expectancy is 80 and you’ve got a perfect population pyramid, so the median age is 40. And say you bring migrants in at the age of 20 to “young” the population. That first migrant who comes in as a 20-year-old is going to young the population.

But if you’ve been bringing those migrants in for, say, 60 years, the median age of those migrants – because they start to age after they join the population – is going to be 50. And so in the long term, they’re actually going to increase the median age of the Australian population unless you bring in ever-increasing proportions each year.

So tell me how you think about the value of using migration as a tool to slow population ageing, if it’s true that the level has to accelerate, and if it doesn’t [accelerate] it seems to make the problem bigger in the long term.

PARKINSON: Well, it doesn’t make the problem bigger if you look over the long time span, because you get benefit in the short term and some additional cost in the longer term. But if that benefit has been invested wisely, the community is wealthier.

WALKER: And it compounds.

PARKINSON: Yeah, it compounds.

But you’re entirely right. And I think I touched on this earlier: a key benefit of bringing in migrants is technology transfer, skills they bring, but also making the population younger. So they’re going to be in the workforce for longer, and you’re going to get the fiscal benefits, the productivity benefits, the economic growth benefits. But at the end of the day, from the day they arrive, they’re ageing just like everyone else.

So if your objective is to stop population ageing per se, then you’ve got no choice: you’ve either got to increase your fertility rate dramatically, or you’ve got to bring in ever-increasing numbers of migrants.

So I don’t think of it as a strategy that permanently prevents population ageing. What I think of it as is a strategy that buys you time to prepare, and that buys you time irrespective of how productive people are. But if you get the right migrants, it actually buys you more investable capital so that you can be wealthier when you’ve got to tackle these problems than you would otherwise be. And that to me is the important bit.

WALKER: And when you say it buys you time to prepare, what would that plausibly look like? Is it having a national debate about whether we increase the retirement age, or is it getting more efficient around aged care, or …

PARKINSON: All of the above really. So you think about retirement age. When the age pension was introduced, the retirement age for men – and I’ll get this wrong – but it was about the average life expectancy of a male, or might have even been a little bit above that. And it was a little below the life expectancy for a female.

We’ve, through considerable political pain at the outset – not that it really seems to resonate with anybody anymore – slowly managed to raise the retirement age to, what are we now, 67 heading for 68. And yet over that time, life expectancy for men will have risen from somewhere in the mid-60s to the high 70s, early 80s. Australian life expectancy is in the low 80s. Women have higher life expectancy than men. But we’ve added probably 15 to 20 years. And yet all we’ve done is add a couple of years to the pension age.

Is that a good thing or a bad thing? If you take a narrow view of wanting people to work, then it’s presumably a lost opportunity to have more people working. On the other hand, from a societal perspective and thinking about the utility of individuals and aggregating them up, people are presumably having an enjoyable time in their retirement. Otherwise they would be working.

Now, I say “otherwise” – but then you’ve got questions about, well, are there more people who’d like to work than can work who are post-retirement age? In other words, do we have discrimination against older workers and so on? All of those are arguments in there. But it does seem to me that creating the capacity for people to work longer if they wish to is socially beneficial.

But one of the challenges we have is the way our tax system works. Effective marginal tax rates for those people on the age pension become quite high if they want to keep working. As more and more of us no longer depend on the age pension and are dependent on superannuation, that becomes less of an issue. But even so, it still says that you want to think about how the tax system encourages or discourages older people to work if they want to.

So for me, it’s really about the choice set available to them. I shouldn’t say “to them”, given I’m well past that – including to me.

WALKER: “To us.”

PARKINSON: Oh, come on. You’ve got a while to go [laughs].

What “skills shortage” actually means

WALKER: So I’ve got some questions about the permanent skilled program. The first one is, I was hoping you could help me understand how to think about skill shortages as an economic concept. It feels really slippery to me.

PARKINSON: It is.

WALKER: And one of the ways in which it feels slippery is I don’t understand how it’s not just another version of the lump of labour fallacy. Because if you’re bringing in more workers to address a skill shortage, they’re going to add demand to the economy, which is theoretically just going to shuffle the shortage around.

PARKINSON: Only if there are no spillover effects.

WALKER: Yeah, so if you’re just cloning all of your workers and scaling up the economy.

PARKINSON: Yeah, which is why the people you want to bring in are those who are going to have more human capital, on average, than the existing stock.

WALKER: So the composition really matters.

PARKINSON: Composition is a critical issue. It’s not size. The size of the program has some dimensions to it, but it’s the composition of the program that’s actually critical.

WALKER: So is there anything more to say on how to think about skill shortages as an economic concept?

PARKINSON: Yeah. I find part of the issue here really interesting: skill shortages over what time period? So if I froze wage rates today, then I can point to the fact that two-thirds of Australian industries or occupations have skill shortages. But if I said, well, I’m going to totally free up the labour market and let it just rip and in five years’ time look at it, the question would be, would the skill shortages still be there or not?

Because what would have happened is that wages would be bid up in some areas, which, if you take a long enough time period, people would move, either because they’ve got skills they could transfer to those occupations or they can train for those occupations. But the flip side of that is that you shift your skill shortages down the skills hierarchy and then your question becomes, well, what happens to those industries? Do they shrink?

Because ultimately at the end of the day, as you said, if you treat everything as a fixed lump, it’s a whack-a-mole problem – pops up here, it’s got to be paid for from somewhere else. So the question is, how do I utilise skills in the best way to deliver productivity growth and the like? And can I do that in ways that don’t create skill shortages elsewhere? And if I am going to create skill shortages elsewhere, do I care? In other words, is that a skill shortage that gets created simply because wages don’t move to make that sector more productive – that is, there’s no capital deepening in that sector? You’ve got to remember here, for any fixed wage rate, the decision that the employer’s making is not just about “do I employ a person”, it’s also “how much capital do I invest in?”

There are some areas where we’ve got skill shortages where you’ve seen very, very low productivity growth because they’ve become used to relying on really low-skilled cheap labour. And if that labour price went up, it’s not necessarily the case that the sector is going to shrink dramatically. It’ll depend on the extent to which they’ve got the capacity to invest more in capital.

So classic example – think agriculture. We used to have lots and lots of people on family farms. Look at the number of people who are in the farming sector now and look at the output: agricultural productivity on big capital-intensive farms has gone through the roof. Has agricultural productivity on small family farms grown by the same factor? I’ve got a pretty good idea what the answer is, but it’s not an answer that’s popular.

WALKER: As another example, before you go on – in his new book on immigration economics, Alan Manning talks about how the car wash industry in the UK suffered a technological regress in the 2000s where they went from a lot of automatic car washes to hand washing because of the availability of really cheap migrant labour, a lot of people being paid below the minimum wage.

PARKINSON: Absolutely, yeah. My local shopping centre, or shopping centres: [at] pretty much any of the car parks I go into, there is a hand wash operation there. It used to be that there were automated wash systems in multiple places. So maybe they’re providing a higher-quality service and people are choosing that. But equally, it may be a function of the fact that there’s a lot of relatively low-skilled labour available.

Just coming back to the issue of skill shortages though: one of the things that we prided ourselves on – and I remember leading Australian delegations to the OECD annual reviews of Australia… People looked at our migration program, when it was a permanent program that was directed at skills and a small temporary program directed at highly skilled people. This is back into the early 2000s, mid-2000s. We set the gold standard. We were the system that everybody wanted to emulate.

And this gradual erosion in the skilled migration program that occurred from 2013 onwards because of the freezing of the TSMIT, the introduction of labour agreements which basically said, even those requirements that we’ve got under the temporary migration program around age, around skill levels, around English level, around wage rates – well, all of those, you can get dispensation on them. That actually was another thing that eroded the skills program.

So if you come back and start to say we want to go back to a true skills program for permanent and a true skills program for temporary – and that’s partly what the government has adopted based on the review of the migration program, by pushing up the TSMIT – you’ve then still got a really legitimate question, which is the one you asked before. What do we do about those industries that are now reliant on low-skilled labour?

Even if they’ve got capacity to displace labour with capital, they can’t do it overnight. So how do we manage that? Do we run a low-skilled, unskilled program that’s capped to assist those industries? If we do, do we run it for a long period of time? Do we make it a fixed period to allow those industries to adjust? They’re really, really difficult questions. But the really important point is: wherever you land on that, don’t allow yourself to do something that creates a new permanently temporary underclass problem.

Problems with the points test

PARKINSON: Just come back to the points system, because this is your permanent program. A key part of the problem that we’ve got with the permanent program now, and again we explore this in detail in the review, is that the permanent program is not picking people for the greatest individual contribution they’ll make to Australia.

I’ll give you a really good example. You and I are both applying for entry to Australia. You’re 39 and a half, and I’m 40 and a half. You get 25% of your potential total points because you’re under 40. I get dramatically less than that. There’s a few months’ age difference between us and we’re identical in every other respect. That doesn’t make a lot of sense.

WALKER: That’s just dumb.

PARKINSON: That’s dumb. So the Canadian system, which was modelled on ours, basically steps down each year. It takes account – there’s no drop-off.

[In] the [Australian] system now, pretty much every applicant can get the maximum number of points on all of the criteria. So you end up differentiating between you and me on the basis that you went to a regional Australian university or you went and worked in regional Australia and I happen to be living and working in London or New York or wherever. So you get points for that that I don’t get credit for.

One of the things that we urged the government to do – and they went out and had a series of consultations about it but are yet to release their response – is [to] go away and rethink the points system so that you’re using it to actually pick the best people who are going to make a lasting contribution. Put greater differentiators in the system. And things that governments in the past have done for political reasons, like give more points if you’re in regional Australia, think about whether they are really the key determinant.

Because at the end of the day, this is another issue where you’re trying to fix a legitimate problem with the wrong solution. Why is regional Australia unattractive to Australians? It’s a lack of education opportunities. It’s a lack of infrastructure – transport, telecommunications, health, social infrastructure. Why do you think regional Australia is going to be attractive to migrants if it’s not attractive to Australians?

Deal with those things and you’ll make regional Australia attractive to everybody. That’s the reason why – if you just take Victoria – Geelong, Ballarat, Bendigo are all thriving places. Because they’ve got good infrastructure, good education systems, and they’re within an hour and a half of Melbourne. So there you’ve got a geographic advantage.

But then you look at New South Wales, or more challenging still, South Australia or Queensland – where you’ve got much larger distances and smaller regional populations – if you really want people to go to those places, you’ve got to make it attractive. If you make it attractive to Australians, you’re going to make it attractive to migrants. But simply thinking you can dump migrants there and leave the absence of infrastructure that’s led Australians to no longer live there – that’s not a solution.

WALKER: This might be a naive question, but something like updating how we treat age in the points test, which is the most important factor, the most highly weighted factor…

PARKINSON: It’s 25%.

WALKER: Yeah. Updating that to something more akin to the Canadian system where each year takes an incremental step down rather than the kind of crazy system we have at the moment…

PARKINSON: But also the Canadians give less weight to age in aggregate.

WALKER: Okay. But not necessarily copying that part,but just how each year is treated, what that curve looks like – that kind of seems like a no-brainer. Just from a policymaking perspective… What are the constraints on government there? The report came out in 2023. Why isn’t that something that gets picked up the next year? Why is it 2026 and we still haven’t made an obvious improvement like that?

PARKINSON: Because at the end of the day, the benefit from doing that in isolation is quite small when the rest of the points test is skewing you in the wrong way.

WALKER: Okay, so you want to update the whole thing at once.

PARKINSON: You do it holistically.

WALKER: And that takes time.

PARKINSON: Yeah. And as I said, they’ve done the consultation process. I hope it’s not on the back burner. I really hope that come this budget we see some progress there. Because if we don’t, it’s a lost opportunity.

Our Soviet-style occupation list

WALKER: When I was learning about the permanent skilled program last year, one of the things that struck me was this thing called the occupation list, which is this funny kind of top-down, Soviet-style list of occupations that underpins really both the employer-sponsored visas and also the points-tested skilled independent visa, and the state and regional visas. Can you walk me through concretely what that list is, and how it’s compiled, and how regularly it’s updated?

PARKINSON: So this is one of those shake-your-head moments. The way it worked was that the government would compile a list of skills that were in shortage. But to do that, what they used was an occupation mapping that had been created for [the] Australia of 2001 or 2002. It’s over 20 years old, and it had been updated at the margins since then. But basically the sorts of people that employers needed didn’t exist back then – the occupations didn’t exist.

So you had this bizarre situation where I might be looking for, let’s say, a global procurement manager, because I’m running a business where I’ve got global supply chains. No such thing existed. Nothing remotely like it existed. So for me to be able to get access to bring somebody in under that category, I had to find the most comparable category. That might turn out to be “supermarket manager”. This was just nuts. And the time it took to update it, to get new occupations added to it, was incredibly long.

So employers were rightly frustrated that in a rapidly evolving world, roles that were now common but didn’t exist 20 or 25 years ago weren’t on the list.

WALKER: So how was it actually updated? Are there bureaucrats who…

PARKINSON: The bureaucrats were frustrated because it was such a difficult process to run. They had to sift through requests. And they didn’t know whether somebody asking for this particular type of occupation… they had to then go and work out, well, is this a real occupation? How important is it to the Australian economy? They were frustrated because they didn’t see the value-add of it. The employers were frustrated because the system was so clunky it couldn’t deliver them what they wanted.

So one of the things that we said in the review is “think about a risk-based approach to bringing in people”. And so if you’re talking about bringing in people under the temporary system, if I’ve got agency, it’s very unlikely the employer is going to be able to exploit me.

So what might be an indicator of agency? It would be a professional qualification and a high wage rate. So, for example, I’m a highly qualified specialist, I work for Deloitte in London or I work for Bain & Co. in New York, and they need me to come out for a three-month or six-month or twelve-month stint to do a particular job. Why am I going through a process of trying to get that person identified on a shortage list and then bring them out? Just allow those people to come and go freely, but say those people have agency, they’re not going to be exploited, because they can just get up and go to the next professional services firm.

The government adopted that. And then we said, well OK, right at the bottom of the skills distribution list, you’ve got a set of occupations where people have very limited skills, so they’re unskilled. And as Christine Nixon pointed out, those people are really ripe for exploitation. We’ve got to be very clear: the vast majority of employers are not doing the wrong thing, but there’s a small number who are, and they make it worse for everyone else. So you need a really close watch on that group.

And then you’ve got the vast group in the middle of occupations where you should be able to have more oversight than you worry about for the people at the top, because you just don’t have any, but not as much as for the people at the bottom end. And they’ve adopted that as a strategy.

And we said, you’ve also created these tripartite councils through Jobs and Skills Australia where you’ve got JSA, you’ve got the unions, you’ve got the employers. Surely, for that middle group in particular, they’re the ones who can tell you if this is a legitimate shortage or not. And so you can really get away from this clunky, rigid, old-style Soviet-style planning and to something that is able to deliver in response to changing occupations.

But yeah, some of the stories we heard were just like pulling your hair out.

WALKER: Do you remember any of them?

PARKINSON: Well, that one about the global procurement manager was a real one. The closest analogy to the person… So this is a person who probably earns multiple hundreds of thousands a year and has to be able to understand global supply chains and have links everywhere. And the comparable occupation on the list is the guy who runs the local supermarket for Coles or Woolies. No disrespect to the guy who runs Coles and Woolies, but when you’re trying to draw links that are so tenuous, it’s telling you this system isn’t just broken; it should be just thrown out.

WALKER: Is labour market testing also a bit Soviet-style?

PARKINSON: Yeah, well, it’s the same issue. That labour market testing was what was taking up so much time.

WALKER: You’re sending the government your Seek ads and…

PARKINSON: Yeah. And now what they’ve adopted – it was the first set of things they adopted out of the review – was to push up the TSMIT and then make these changes. Well overdue.

WALKER: So are you happy about that now?

PARKINSON: Happy? I think you need to be careful that the council rules don’t end up being welcomed by everybody because they were less bad than what we had there, but themselves over time become inhibitors to flexible responses. That’ll really come down to the degree of cooperation that you get between the employers and the unions in those areas.

You’ve also got to recognise that you’re not going to have those councils in every industry. So JSA’s got a big role to play there – Jobs and Skills Australia. That’s a work in progress. We’ll see how it goes.

We need to better utilise our skilled migrants

WALKER: So when it comes to our underutilisation of skilled migrants – because we have this much-vaunted permanent skilled program, but one of the issues that your review drew attention to was that we’re actually massively underutilising our skilled migrant – can you talk through specifically what you see as the problems there, and also what the magnitude of those problems is?

PARKINSON: Yeah, so it’s worth separating it and thinking about international students and the permanent program.

International students: this is a fantastic opportunity for Australia. They come to Australia, they pay us to educate them, we educate them up to the same level as our own students, and when they graduate, if they are able to stay here and work, they’ve been trained to be in what we would consider skill level 1 or 2. There’s a five-level national skills rating system, and they come out with a degree or an advanced diploma, and you would expect them to be able to work in areas that are skill levels 1 or 2.

International students, those who stay here after university, 51% of them end up working in skill levels 4 and 5, which is essentially having had no additional education. And so you have to ask yourself, well, how could they have gone through an Australian university, graduated, and be down here?

Part of it is… well, there’s a number of things that are all intermingled. One is that the post-study work rights were too short for people who needed to do supervised occupational on-the-job training after their university qualification – so if you needed to do a certain number of years to get your professional qualification. Almost certainly, if you were an international student, you would get a renewal of your visa. But if I’m an employer and I’ve got you and someone else to choose between, and you’ve got a visa for 18 months but it’s a three-year post-qualification training program, and the other person’s an Australian citizen, I’m not going to take you, right? Even though in three years’ time, almost certainly you will have had your visa renewed, and so I could have. But there was that sort of uncertainty from the perspective of the employer.

But I do think there are other issues there. The universities need to do more on work-integrated learning for everyone – that is, for both the domestic students and the international students. But it was particularly acute for the international students because they typically don’t have the same degree of networks and contacts. And so if we’re going to pick the best of the international students that we’ve trained here, keep them here, offer them pathways to permanency, then we’ve really got to make sure that that transition from study to work is as good as possible for them, as it needs to be for our domestic students.

So that’s the international student bit, where 51% of the kids who were graduating, who stay here to work, are not working at the skill level they’ve been trained for.

The really weird one, though, is in the permanent program. In the permanent program, about a third of all occupations claim to have skill shortages. Of those occupations, two-thirds have licensing requirements. Now, we know that there are about 700,000 people who have come in through the skilled migration program, the permanent migration program. The way that works: you apply, Home Affairs takes your application and says, “OK, Joe’s applying for a skilled entry”. You go off to an assessment process whereby an independent assessor concludes whether or not your skills and experience are equivalent to what you would have if you’d been in Australia. Tick. You get to come in under the skilled migration program.

You then get to Australia and find that that actually doesn’t allow you to work in the industry that you’ve just been told you’ve got commensurate Australian qualifications for. Now, by all means, there needs to be a period of perhaps training and adaptation to the Australian environment. But what’s actually happening is that a quarter of a million of those people, who we’ve ticked as having commensurate skills and experience as Australians [have], get here and are not working in the areas that we’ve said they’re skilled for, because they’re subject to licensing requirements and they cannot navigate the licensing system. That licensing system is typically run by either the state governments or by professional bodies.

And so if you want to become an electrician, it’s a minimum of eight months and around about $9,000 for you to get the additional qualifications. If you want to be a doctor, it can be 18 months or more and it’ll be $50,000. But we’ve already let you in because we think you’re an electrician or we think you’re a doctor. And then you get here and hit this system.

Just a couple of numbers to give you a sense of this. Of that quarter of a million with qualifications in skilled professions, 20,000 of those people we let in because they were teachers, 50,000 engineers, 16,000 nurses, 5,000 psychologists, and 1,300 electricians.

If you think about the skill shortages that we talk about, not all those people are going to go into those jobs even if they could. But we’ve made it really difficult for them to get into those professions, even though to let them into Australia we said, ”yep, you are able to come in because we think you’re commensurate with those professions”.

Go back to where you started the questioning about the size of the migration program, the impact on housing. There is a quarter of a million people in regulated professions, or close to… 650,000 people who we’ve decided to let into Australia because they’re skilled people. So they’re already here, but they’re not working in those jobs. If we could better match those into the areas that we’ve said they’re qualified for, we don’t increase migration, we don’t put any more pressure on infrastructure or housing, but we suddenly massively boost the supply of skilled workers. That’s got to be a no-brainer.

It doesn’t matter whether you want a small migration program or a large migration program; you surely want to best match people with the skills to the occupations. So this is just money for jam. This is just a productivity boost that’s sitting there on the table waiting for governments to do something about it.

What is the biggest problem with Australia’s migration system?

WALKER: So if you look at the migration system as a whole – all of the aspects that we’ve spoken about today, but also things that we haven’t spoken about yet – which single feature or problem or shortcoming is the one that bothers you the most?

PARKINSON: Well, let me be a politician and answer the question I want to answer, not the one that you want to ask me – but we’ll get to yours.

I think the single biggest issue that we confront on migration is confusion about what the migration program is. All this nonsense about mass migration to Australia has to be stopped by cutting the permanent migration program – that’s been around about 190,000 people a year for a very, very long time. That’s not the issue. The issue is that 2.3 million that we talked about who were here under various elements of the temporary program. So the biggest issue for me is, if we want to address any of the fundamental challenges around the migration program, getting people to understand that distinction.

Then what of the things that worry me the most? The permanent program is, I think, easily fixed. Just change the points test and let it keep going at broadly the sort of numbers it’s at.

WALKER: It’s a fairly standard technocratic exercise.

PARKINSON: It’s a standard technocratic exercise. It’s not where the problem is. The issue is in the temporary program. How do we make sure that if we’re going to run a temporary skilled program, we’re bringing in the right people? The review gave recommendations, the government’s adopted those, so now we’ve got to make sure that that actually delivers what we think it will deliver.

How do we make sure that we don’t create a future class of permanently temporaries again? What do we do about that stock that’s here?

And then the really big issue, which is the one you’ve asked me about before, is where do we land on this: is it possible to have an ethical, socially ethical temporary program for unskilled workers where there is no path to permanency? That is, they come for a defined period of time and then they go. Where do we land on that?

On that one, I just don’t know. I don’t think my view has any more merit than anyone else’s, because I think it’s not so much an economic issue as I think at the end of the day it’s an ethical issue. Do we want to run a migration program that gives everybody a path to permanency? Do we want to run one that gives people who come in under that system no path? If we want to do that, don’t give them false hope. Don’t allow them to jump visas. They come, they stay for a period, they go.

WALKER: Yeah, this is the kind of post-settler society paradigm that I said your report was trying to contend with at the start.

WALKER: Are there any models in history or in other countries that you think we should look to around that low-skilled temporary class?

PARKINSON: Well, I think what we don’t want is a kind of permanently temporary guest worker system that allows people to come in and leaves them highly vulnerable to exploitation. So if we’re going to run a temporary system, I think it’s got to have safeguards so that it minimises the risk of exploitation, and it’s got to not hold false promise to the people who participate. They’ve got to understand it’s: “you’re in, you’re out”.

Now, if they’re in and then they’re out, you’ve then got to recognise too that there’s not an incentive for them to integrate. And is that what you want as a society? That’s why I don’t feel I know even where I would land on that spectrum. And I’ve thought about it for quite a bit.

WALKER: More than most.

PARKINSON: I keep thinking you can’t hold out false hope. But equally, what potential social issues do you create if you’re giving people no incentive to integrate in the Australian community? If they’re coming and you’re not encouraging them to integrate, then presumably you don’t want them to stay for very long. And then you’re asking, well, is that a sort of program that’s really going to successfully deal with the labour shortages that you might have in the truly low-skilled or unskilled areas? I think I know the answer, but I flip-flop on it.

WALKER: And where do you stand currently?

PARKINSON: I think things like PALM [the Pacific Australia Labour Mobility program] are very clear: people can come for a defined number of months each year and then they go. And they are coming from our region, right? They’re coming from the Pacific. And they’re not really looking for migration to Australia through that to become a vehicle to residence in Australia.

But [with] some of the other programs in this area, or the way in which the visas have been used in this area, the promise has been held out to people that this will get you into Australia and the Australian job market, and then you can hop visas and eventually settle. And that’s the bit that I really don’t like.

How can we attract true global talent?

WALKER: So I’ve got five other big-picture questions to finish on. My style is really just to ask things that I find interesting and important, so I acknowledge there’s a lot of stuff we haven’t spoken about today, like for example partner visas. If at the very end you feel like there’s a burning topic that we should not omit, we can always come back to it.

But just to finish with my five big-picture questions. If you wanted to caricature the permanent skilled program, you’d say that we’re really good at taking in people around the 70th or 80th percentile of the skills distribution, but we don’t do as well for people at the 99th or above – the kind of people who are going to…

PARKINSON: The true global talent.

WALKER: Right, the people going to San Francisco and founding companies that turn out to be unicorns. Those kind of people. What’s the most ambitious possible scheme you could conceive of to make Australia much more competitive at attracting those people who are three or four standard deviations out?

PARKINSON: I would make it almost instantaneous visa approval. And then you’ve got to ask: what would be the indicators of this brilliance? And that takes you into a different issue. But I’d try and identify five or six things that were prerequisites for being in that 99th percentile. And then if you hit that, and as long as the character test was – you weren’t some sort of Jeffrey Epstein or something of that ilk – you get access to a visa in a week or ten days or something.

WALKER: So for example, if you’ve got a master’s or above from a top 100 university in the world.

PARKINSON: Yeah, or if, let’s say, you’ve got that and you’re working in particular areas right at the cutting edge, at a handful of companies that are themselves at the cutting edge. [Those conditions] might be prerequisites that in a sense short-circuit a lot of the steps that you’d otherwise have to go through. So that’s in a sense your super global talent.

WALKER: And should we do something like that in your view? Is that desirable?

PARKINSON: Yeah, I think so.

WALKER: And why don’t we do it?

PARKINSON: But small. Small.

WALKER: What do you mean by small?

PARKINSON: A small program. Because the danger with all of these things is they get eroded at the edges. They spread out. And eventually you’re bringing in people who don’t really satisfy the criteria you started off with.

We’ve tried it before with global talent visas. I’m not talking capital-G, capital-T, as in names, but things that were sort of global talent. But they weren’t really designed that well. We’ve done it with entrepreneur visas too. And in fact, a lot of those people were never really entrepreneurs. What they were doing was making a small investment in Australia in exchange for a passport. Those things are the things that erode public confidence in the system.

Is the migration system robust to AI disruption?

WALKER: If AI capabilities progress continues to accelerate and we start seeing big shifts in demand for white-collar jobs – where the changes are happening over a few months rather than a few years or decades, which is I think a plausible world in the next five to ten years, maybe sooner – do you think the migration system can keep pace with that?

PARKINSON: What do you mean? In the sense that the skills we need change quickly?

WALKER: Yeah.

PARKINSON: No, I don’t think it can. But I think in part it’s because the vast majority of us – and I put myself in this group – won’t be able to keep pace with those sorts of changes. In that sort of world, it becomes totally disruptive. And our ability to try and work out what to do… there’s a limited capacity for us to actually absorb that information and decide what to do. You can try and insulate yourself from it, but then it’s happening everywhere else, and you just get left behind.

I say this advisedly, given the hats that I wear: I think this is moving far faster than the vast majority of businesses and virtually all politicians in Australia realise. And I think we’re underprepared in our own thinking for it.

Flip it around, go back to your first question. We should be making it easier for those super talented people to come here to help. In this sort of world of disruption, having more of them in our court would actually not be a bad thing.

WALKER: So at a very broad level, can you conceive of a robust migration system for that kind of world? What are the principles it operates on?

PARKINSON: Gee, that’s a hard question. And you’re giving me, what, three seconds to respond to it? That’s one we might need a couple of bottles of red wine to work our way through [laughs].

It’s a good question. But remember, AI is not the only disruptor that we’ve got. We’ve got geopolitical disruption. We’ve got disruption in business models for other reasons. We’ve got supply chain reshoring, or friendshoring. So I think it’d be a mistake to see everything through AI. It’s potentially dramatic in terms of the impact it has on societies. But in the here and now, I don’t think we’re moving fast enough in response to a lot of more tractable issues that we’ve got to confront, without worrying about “let’s assume that AI accelerates as dramatically as it could”.

WALKER: I’m just trying to think through what’s a plausible scenario in the kind of world I’m imagining. It might be something where we’ve just given 10,000 visas to aeronautical engineers and then three months later 90% of the tasks of aeronautical engineering get automated and now you’ve got [many of] these people stuck in the country for the next nine months or something. That’s the kind of scenario that seems plausible.

PARKINSON: It could, but let’s think about it. Going from a system where aeronautical engineers are building planes – to stick with your example – to a system where all of a sudden AI is designing and building them… you’ve got a whole series of regulatory steps before AI can actually be used in any of those.

So I think you’ve got to draw a distinction between the speed with which AI capability changes and the speed with which AI capability is used. I think that “use” bit will be slower. But I do think that notwithstanding the speed with which AI capability is changing, AI use change is occurring outside of Australia a lot faster than Australian businesses and government actually anticipate.

WALKER: Just to come back to your first point, that diffusion lag presumably might buy us time to…

PARKINSON: The diffusion lag is really important. It’s a bit like going back to what we were saying about migration as an inhibitor, not a preventer, of population ageing: it simply buys you time. Diffusion lags buy you time.

One of the things that we know is if you get some firms right at the very cutting edge and your diffusion lag gets longer and longer and longer, then your firms, if they’re back here, get left behind. And in a globally competitive environment, at the end of the day, they ultimately are dead, unless you decide you’re going to do protection for everyone. And we’ve lived through that world, and that guarantees lower living standards.

What should the upper/lower bound for net migration be?

WALKER: Third big-picture question. What do you think should be the upper and lower bound for net migration’s long-term contribution to population growth?

PARKINSON: I suppose I broadly think that NOM somewhere north of 200,000 and somewhere south of 300,000 a year is probably the sweet spot. So a permanent program that’s in the high 100,000s and then a temporary program that, in a long-term effect, delivers us something like 100,000 to 120,000 a year.

Look, I’m pulling these numbers out of the air, but that seems to me to be about right. Because if you think back to what’s happened to fertility rates – if you don’t want rapid population growth, but you also don’t want a situation where your population ages really quickly and then they all die, which is the Japan, China, South Korea, potentially Italy situation we were talking about before – then it seems to me somewhere in the 200,000 to 300,000 is your sweet spot.

WALKER: So then that’s contributing maybe about, very roughly speaking, a half to two-thirds of population growth.

PARKINSON: Yeah. Because think about this the other way around. We had the Costello baby bonus. Historically, these sorts of things don’t lead to big effects. It did push up the number of births, but not a dramatically significant amount.

And if you’re looking for an economic impact, well, in the short term it takes more women out of the labour force. In the long term, when you get the benefit, you’ve got to wait for 20 years or so until those children have gone through the education system and are entering the employment market. So if you think you can fix this through fertility, you’re actually showing a willingness to engage in long-term thinking that I don’t see anybody willing to engage in on any other issue.

The Indonesian question

WALKER: So I first read your report last year when I was preparing to interview Abul [Rizvi]. I was rereading it again yesterday, preparing to chat with you today.

PARKINSON: And has it got any better in the interim?

WALKER: It aged well. One of the things in particular that piqued my interest – and this wasn’t one of the central recommendations or pieces of analysis, but it struck me as very underrated – was how strikingly small is the size of Indonesia’s diaspora in Australia. In absolute terms, it’s about 90,000 people, which is roughly the same size as the Fijian diaspora or the diaspora from Thailand. And if you put it in terms of the percentage of Indonesia’s population, it’s about 0.03%. For the Chinese and Indian diasporas, I think it’s about 0.05% (in terms of the size of their diasporas in Australia relative to the population of the home countries).

Another important piece of context here – which again I think is a prediction that’s super-underrated in the Australian discourse – is that on the central projections, Indonesia will probably be the fourth-largest economy in the world by about 2045. And presumably at that point it cashes out some of that economic power to military might. And then we’ve got a great power on our doorstep, which is something that we’ve never had in our history.

How much do you think it would improve our soft power if the size of that Indonesian diaspora was, say, doubled or tripled?

PARKINSON: It’s a really good question. But let’s step back for a minute. Indonesia being the fourth-largest economy in the world does not make it automatically a significant military power. That would be a function of its living standards and the choices it makes about what it prioritises.

WALKER: Defence as a percentage of GDP, for example.

PARKINSON: Yeah. But also, you can be a military power, but you’ve got the combination of projecting hard power and soft power. What has the US historically done? It’s projected both. What did the Soviet Union achieve? It projected hard; it didn’t project any soft power. Nobody ever sat around and said, “I want to model my economy on the Soviet Union”, or “I want a lifestyle like that of the Soviets”.

China’s a more interesting case – hard power, and I think now learning that actually hard’s not enough; you’ve got to have soft [power].

Australia’s done very well in not having that much hard but projecting quite a lot of soft power and influence. But we’ve been able to do that because we’ve done it on the back of economic success at home. If you can show economic success at home, you make yourself more attractive to others.

So irrespective of who you’re talking about – but I think it’s particularly germane to Asia and Southeast Asia – we need to get our own house in order economically, because that helps us, being able to project both hard and soft power.

Come to the specifics of Indonesia. If you go back to when John Dawkins was Treasurer [from December 1991 to December 1993] … John was making comments about how – I’ll get this wrong, the exact quote – but it was like there were more Australian kids studying Japanese than there were in the US and UK and Canada, for example. At that time, we had really thriving Indonesian studies programs at our universities too.

And we had this commitment with Julia Gillard and the Asian Century white paper [that] we were going to be teaching Indonesian, we were going to be teaching Japanese, we were going to be teaching Chinese, we were going to be teaching Asian languages in schools in Australia. All that’s gone. [In] the last decade, you can’t find reference to that “Australia in the Asian century” white paper anywhere nowadays. The previous government basically expunged it from history.

Now fast forward to your question: where is our relationship with Indonesia? We don’t have very many Australian firms that do business in Indonesia. We don’t have very many Indonesians here as part of the diaspora. We don’t have very many Indonesians studying here. We don’t have very many Australians going to Indonesia – and if they do, they go to Bali and they think they’ve gone to Indonesia. And Bali and the rest of Indonesia are very different places.

I actually think from a geostrategic perspective, cultivating our relationship with Indonesia is absolutely central. Particularly, as you said, on all of the projections Indonesia gets into the top five economies in the world in terms of size. And it’s a population of a couple of hundred million sitting on our doorstep.

It is an economic opportunity for us in terms of two-way trade but [also] two-way investment. And it’s a people-to-people opportunity for us. And they both bring with them, then, positive benefits in terms of our national security.

WALKER: And, you know, God forbid if things were ever to get tense geopolitically, just in terms of the game theory, you want a deep wellspring of mutual understanding.

PARKINSON: Absolutely.

WALKER: You want translators.

PARKINSON: Exactly.

WALKER: And we’re not even well positioned for that if you look at the withering of Indonesian language studies.

PARKINSON: Exactly. Or just look at the map. Where does Australia want to stop threats to it? It doesn’t want to stop it on our border. It wants to stop it from getting here.

What becomes critical actually is Indonesia. It’s PNG [Papua New Guinea]. It’s the Pacific. That’s the focus we should have. And that’s not about a military focus. It’s about “how do we help nurture thriving, economically prosperous democracies?” And recognising we won’t have the same global priorities and we won’t necessarily have the same values, but where can we find the mutual interests that reinforce the relationships as much as we can?

To me, education is absolutely central to that. And then it’s mutual engagement.

WALKER: Just as one little follow-up on this, say we wanted to dramatically increase the size of the Indonesian diaspora in Australia through the migration program. What are the specific policy levers there?

PARKINSON: Well, we’ve had a situation in the past where significant chunks of the Indonesian cabinet have been educated in Australia. So one of the first things I’d be doing is making it really easy for Indonesians to come to Australia and study.

WALKER: People like Marty Natalegawa studied at ANU.

PARKINSON: Yep. Mari Pangestu. There’s heaps. The former head of finance, the fiscal side, had been an academic at Monash. [An Indonesian] finance minister has studied in Australia … So finding ways to enmesh Indonesians into the Australian education system – which then means going back to things that we had in the past... ANU had, I remember much earlier in my career, just this phenomenal group of scholars who actually deeply understood Indonesia. Now if you look around, there’s a handful of them left at ANU. There’s a couple in Victoria. But it’s pretty thin on the ground.

The best way to do that is making it a priority.

How much more strategic weight would a bigger Australia buy us?

WALKER: Last question. The ABS’s midpoint projection for Australia’s population by 2050 is about 35 million people. How much difference do you think it would make to our strategic weight and national defence if the population reached, say, 50 million by 2050 instead of 35 million?

PARKINSON: Funnily enough, this is a question that my wife [Heather Smith, former federal departmental head and now president of the Australian Institute of International Affairs] and I have discussed at various times. It sort of tells you we have pretty interesting discussions at home over a glass of wine.

I think you’ve got to come back to [the fact that] there are some dimensions of the ability to project power that you gain from population size, but there are others that don’t require population size; they require high income, high living standards.

If you wanted to have a standing army that was very large, you need a large population. (We’re only talking hard power here.) If you want to engage with high-tech weaponry, standoff weaponry and the like – you’re talking long-range missiles, you’re talking ships, submarines, you’re talking jets, you’re talking drones – that’s in a sense divorced from population size. What’s a determinant there is your wealth – so your living standards, which goes back to your economic performance – and also your innovative capability, and your ability to manufacture what of those things that you actually need at home.

So I think it’s a mistake to think solely in terms of population size as a determinant of your ability to project hard power. And I come back again to what I said before: the ability to project soft power, coupled with the ability to be a prickly target.

The Singaporeans, they can’t stand up to anybody who seriously wants to invade them. But what they can do, with a hedgehog strategy, is make it very, very costly to even think of having a stoush with them. They’re not going to win, but they’re sure going to make you pay.

WALKER: They raise the cost.

PARKINSON: They make you pay a very high price. And Australia has the advantage of distance. But technology has eroded that historical advantage. And so for us, to me the issues are, you want to hold people at bay, and for that you don’t need large standing armies – because by the time they get to the coast, you’ve lost, basically. So I don’t think it’s about 50 million versus 35 million. I think it’s actually about productivity growth, raising living standards, and how smart you are in building defence capability. And that’s not just your own, but partners. And so, go back to your question about Indonesia: one of the best pieces of defence for us is an Indonesia that is focused to its north, knowing that we’ve got its south protected for it.

WALKER: So a larger population and therefore a larger GDP doesn’t not help.

PARKINSON: No.

WALKER: So for example, if increasing defence spending as a percentage of GDP is unpopular, growing your population means you can spread those fixed costs of using a navy and air force to defend the air-sea gap to Australia’s north over a larger tax base. So that’s attractive.

PARKINSON: That’s true. But if you think about adding 15 million people over and above, you’ve already got stressors on housing, infrastructure, like transport infrastructure, social infrastructure. Where are your priorities going to be? It’s going to have to be on those sorts of things.

WALKER: So assuming we can solve the infrastructure and congestion effects, how much would 50 million instead of 35 million help us defensively?

PARKINSON: At the margin, maybe a little bit, but I don’t find it a compelling argument.

I find a far more compelling argument is: what do we do at home that boosts living standards, boosts our fiscal capacity to invest in national security? And then how we invest in national security.

If you think about it, one criticism that is occasionally made is that we built part of the Australian Defence Force almost as if we were going to be fighting on the plains of western Europe against the Soviets. Realistically, do I need a swag of tanks? Hard to see. On the other hand, would I like to see much greater stockpiles of missiles, standoff weapons, naval capability, and an army that was really rapid-deployable, usable? You’d think with those sorts of questions, you’re going to lean one way or the other, and it’s hard to see that we are at the moment configured properly. But look – you and I here are both complete amateurs. This is not where I expected to go in a discussion around migration.

WALKER: You’ve just got me thinking about soft power now as well. I can see ways in which having a larger population helps with that too. [With] a larger population, mechanically you’ve got more music stars, more sports stars, more ability to host global cultural events that require high fixed costs.

PARKINSON: And presumably more people-to-people links with other parts of the world.

WALKER: True, true.

PARKINSON: But I don’t think, once you get to a certain size … we’re not in a populate-or-perish world. You’ve got to think about the capacity of Australia in a fragile environment to carry an ever-larger population.

What is your optimal population at 2050? It seems to me it’s a pretty significant set of trade-offs in a whole variety of areas around environment, infrastructure, existing social challenges and the like. Getting to 50 million by 2050 doesn’t in and of itself seem to me to solve any of those problems. In fact, it exacerbates them.

So if you want to argue population size from a national security perspective alone, it seems to me a pretty tenuous argument. Because… I find it more compelling to think that I would rather Australia was rich and able to support a small, perfectly formed defence force that had the ability to make it very hard for anybody to get close to either us or our neighbours than having a large population so I could mobilise a large army. That seems to me a continental country question. And we’re an island nation.

So if we’re an island nation – a continental nation, but an island – how do we think about the right balance there? Particularly with our geography where we have this…

WALKER: Crescent.

PARKINSON: Crescent across…

Now, even that in a way you could say is a bit naive, because there are still lots of other places you can come from if you really want to hurt Australia. But you’ve also got to think about what is the objective of anybody who wants to go to war with us, or we want to go to war with. It’s a completely different set of issues.

WALKER: So populate or perish is not making a comeback?

PARKINSON: It’s not working for me.

WALKER: We’d better leave it there. This has been great. Thanks so much, Martin.

PARKINSON: Thanks. I’ve really enjoyed it.

Immigration is one of the most important yet poorly understood areas of Australian public policy.

I learned this first-hand last year, after I did an interview with Abul Rizvi, a former Deputy Secretary of the Department of Immigration. The low quality of some high-profile responses to that interview showed me there’s a real absence of knowledge about how the system actually works. We’re starved of good information here in a way we aren’t for most other policy areas.

Part of the reason for this is simply that most Australians don’t have direct experience with the immigration system because they’re not themselves immigrants. In contrast, people have more contact with, for example, the housing system, because they’re either homeowners or renters, and so their opinions about housing are more informed than their opinions about immigration.

But the other reason is that there seems to be a dearth of good intellectual content on immigration policy. In comparison, take defence and foreign policy: it feels like every couple of years in Australia we produce and then debate a really good new book in that field.

Who is our Hugh White for immigration policy?

There’s been some excellent work on immigration policy over the last few decades, some of which we discuss in this series. But it appears less frequent or less prominent than in other fields.

Recently I’ve been puzzling over why high-quality analysis on immigration seems relatively scarce. I don’t have a complete answer, but I suspect at least part of it is that immigration policy feels intellectually low-status. Or to put it differently: it just doesn’t excite people’s intellectual curiosity (as distinct from their tribal passions) as much as topics like housing, AI, or foreign affairs. People who could write about it, and people who would read about it, don’t realise how interesting it can be. (I was one of these people until a couple of years ago.)

Immigration policy appears boring possibly because it seems like something that we have both no control over and complete control over – like some combination of “the weather” and “accounting”. On the one hand, it’s always there in the background, and feels like it just happens to us. On the other hand, it’s this clockwork system of categories and lists, points and quotas. Both framings lead to the same outcome: intellectually checking out.

But checking out is a mistake because immigration is no longer (if it ever was) merely a task for technocrats. Whether we get it right or wrong over the next few years could shape our national fortune as powerfully as assisted passage did in the 19th century, or the postwar migration program in the 20th century.

To learn as much as possible, I decided to do a series on Australian immigration policy. In constructing the series, I wanted to boil immigration down to three (more or less) mutually exclusive, collectively exhaustive interviews:

1. The economics of immigration policy.

2. The history of immigration to Australia.

3. The social cohesion, cultural, and security dimensions of immigration policy.

Then I went out to find the best guest to speak to each of those topics. As luck would have it, I was able to wrangle each guest.

For economics, it was Martin Parkinson. Martin ran Treasury, then PM&C, then chaired the Australian government’s 2023 Migration Review – the most substantial review of our migration system in more than three decades.

For history, it was Mark Cully. Mark was chief economist at the Department of Immigration from 2009 to 2012. He has just written what will really be the first general history of immigration to Australia, all the way from assisted passage in the 1830s to the present day. The book, Waves of Plenty, is out in September. (That Australia hasn’t had a general history of its immigration until 2026 is further proof of the strange undersupply of immigration content.)

And third was Mike Pezzullo. Mike ran Australia’s immigration and border protection apparatus for almost a decade. He oversaw Operation Sovereign Borders, the policy that stopped the boats. Then he was appointed Secretary of the Department of Immigration and Border Protection from 2014, leading it through its transition into the mega-department of Home Affairs, until his departure in 2023. Few officials with his depth of recent experience are out of the department and able to share what they know about how the system actually works.

Getting immigration policy right is more important now than at any point in my lifetime. And yet the quality of the debate seems to be as poor as it’s ever been. I’m not confident about the answers, but I am confident we’re not asking good questions. Good questions are specific. The debate so far has occurred at a very low level of resolution.

So I hope these interviews help people (and they did for me) understand how the system actually works, the trade-offs involved, what we can reasonably expect of our immigration system in 2026 and beyond. And some questions we could be asking to improve it.

Both served as Secretary of the Department of the Prime Minister and Cabinet (PM&C) — the most senior public servant in Australia. Terry held the role from 2008 to 2011 (including during the Global Financial Crisis). Glyn held it from 2022 to 2025, resigning only a few months ago.

Both have also held equivalent roles at the state level: Glyn as Director-General of the Office of the Cabinet in Queensland (1995–96), and Terry as Secretary of the Victorian Department of Premier and Cabinet (2000–08). Before PM&C, Glyn was Vice-Chancellor of the University of Melbourne for thirteen years, and later ran the Paul Ramsay Foundation (Australia’s largest philanthropic foundation). Terry’s career spanned senior roles across the Commonwealth and Victorian public services, including as CEO of Victoria’s Office of the State Training Board, inaugural CEO of the Australian National Training Authority, and Queensland’s Director-General of Education. He later served as Chancellor of Federation University.

In this episode, we trace the routines, conventions, and systems that shape power in Canberra. Where, exactly, does a prime minister’s power come from? What separates a good Cabinet submission from a bad one? What actually happens in the Cabinet room once the doors close? How does Australia’s Westminster model differ from the UK and Canada? And why is Australia so unusually good at bureaucracy?

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Transcript

JOSEPH WALKER: Today it’s my great honour to be chatting with Terry Moran and Glyn Davis.

I’m not going to read out their full, impressive résumés, but most relevant to this conversation, they’ve both been secretaries of the Department of the Prime Minister and Cabinet, so the most senior public servant in Canberra. Terry was Secretary from 2008 to 2011, and Glyn was Secretary from 2022 to 2025.

Today we’re going to chat about how government in Australia really works. And I’m going to play the role of an overly inquisitive, borderline annoying intern [visiting DPMC], and ask a bunch of naïve questions.

So welcome, Terry, and welcome, Glyn.

GLYN DAVIS: Thank you.

TERRY MORAN: Thank you.

WALKER: So, after my last episode with Hugh White, I had this feeling that it was sort of table stakes for political leaders and public intellectuals alike to understand the causes of the First and Second World War.

Having spent a week preparing to talk with you about how the government really works, I have a similar kind of sense; I feel like for people who want to contribute to the national conversation, it’s sort of table stakes to understand how government in Australia works.

And the interesting thing is that neither the prime minister nor the Cabinet are mentioned in the [Australian] Constitution or in legislation. Their functions are defined and shaped by conventions. And reading the details about those functions and how Cabinet works, how government works, was quite interesting. Some of the details are quite strange. So I want to get into all of that with you two today.

But the first question is, what is the biggest thing that well-informed Australians, people like the members of my audience, get wrong or don’t understand about how the federal government works at a day-to-day level?

DAVIS: Joe, thanks for that. The impossible question, of course. I’m going to actually throw it back to you.

You did a really interesting piece of work late last year, early into this year, around the quality of services in Australia and around the quality of Australian governance. That showed, perhaps to the surprise and even embarrassment of many Australians, that we turn out to be quite good at this; that by international standards governments are efficient, effective, non-corrupt — all the things that you would hope in a democracy but aren’t always true — and that the quality of the services as delivered is high.

Which is not to say they’re infallible and certainly not to say they couldn’t be improved or that there aren’t problems, but it is to say: in comparison, we do this really well.

Which takes you back to that interesting question about why. What is it about the combination of institutions and practices and cultures that have got us to this place? Australians have a “talent for bureaucracy”. That makes us cringe. How little we like that. But there is something in it. We are good at this, we do it well, and it shows up in the quality of our services.

I think if you put that as a proposition to many Australians, they would be bemused, if not outraged.

MORAN: I agree with that.

But I think it’s also the case that there’s a bit of a deficit in the general understanding of government and how it works. And particularly still, to my surprise, there’s not much understanding of what the Commonwealth does versus what the states do.

And therefore, that undermines accountability for things that could work better, like hospitals, for example.

DAVIS: And on the federal divide, I remember talking to the local manager of a Services New South Wales office, and I asked him, “So what’s the single most common inquiry in this office?” And he said it’s: “How do I put in for a Medicare refund?”

And he said, “Well, that’s a Commonwealth matter, but I just happen to have a drawer here full of forms [laughs] and I’ll just hand one over every time it comes up.” Which is a nice piece of cooperation, I thought.

MORAN: Well, when Dr “Nugget” Coombs led the Royal Commission into Australian Government Administration, established by the Whitlam government, he came back with a conclusion that there was a need for the Commonwealth Government and the States to work much more closely in delivering services at the local level. And the States were probably up for it, but the Commonwealth never was.

And so it didn’t happen. And that, to me, is one of the opportunities lost, because that would have made a quite significant contribution to improving the quality of what the government does in Australia. [Sirens sounding]

DAVIS: Sounds like they’re coming to get us, Terry. [laughs]

MORAN: [laughs] Oh no, they’ve gone away now.

WALKER: [laughs] It’s interesting on Nugget Coombs. In 1988, when we had the bicentenary celebrations, the person who won Australian of the Century was Nugget Coombs. I think that says something about the kind of talent for bureaucracy.

It wasn’t an entrepreneur or a scientist; it was Nugget Coombs.

DAVIS: With very good reason, a remarkable Australian.

MORAN: Who did some terrific things.

WALKER: I have some questions about the role of the Prime Minister, and then what you might call the core executive. As I said, until about a week ago, I kind of thought I vaguely understood how government in Australia works. I quickly realised that I didn’t.

One of the things I did was read some Cabinet diaries, just to try and build a visceral sense for the tenor of what happens in Cabinet. The two that were most interesting were Neal Blewett’s A Cabinet Diary and then Gareth Evans’ (Inside the Hawke-Keating Government: A Cabinet Diary). And Pat Weller, who was Glyn’s thesis supervisor, said that Neal Blewett’s diary, which focuses on the first term of the Keating government, can be read as a “constant search for the site of real power within government”.

It’s so interesting that even a figure like Blewett — this is a guy who was a Rhodes Scholar, a professor before going into parliament; he was Health Minister for seven years in the Hawke government and held a couple of other portfolios in the Keating government — even Blewett could never quite pinpoint the location of power in Canberra.

Maybe it’s worth just reading out this quote, because I think it’s so revealing. So this is from Blewett’s Cabinet Diary on 6th August 1992. He goes into the PM’s office to try and settle some issues. Quoting Blewett:

“Gathered in the PM’s office were Willis and Dawkins, the PM and an array of key personal and public service officials...Many of these people have more influence than us ministers. ...My whole experience of ERC—” That’s the Expenditure Review Committee. “—confirms my belief that the closer one gets to what one thinks is power the more it seems to recede. I have always assumed the critical committee of government is the ERC; now it is obvious that members of the ERC, apart from the Treasurer and the Finance minister, are second-class citizens. None of these second-class participants knows the full extent of the outlays and revenue side, nor do they participate in all the numerous side deals made in the margins of the Committee…”

So, that’s a long preface to the following question: Where is the locus of power in the Australian government today? In other words, if you could draw me a diagram, who or where is the core executive?

MORAN: Well, if I were doing it, I’d draw a big circular spot on the table, and I’d put a lot of little circles in the midst, all of which were important activities that had to find a relationship to all the others. But none of it was in the control of one person.

So the Expenditure Review Committee, policy committees of Cabinet on various things, and people who deal with foreign policy and defence — all of these things go to the heart of what the national government is on about, plus more.

To an extent, one of the things that’s commendable about the Australian system of government is the people who have positions within that bigger circle talk to each other quite a lot. And occasionally they talk to the states as well.

DAVIS: So interestingly, he’s describing the Hawke government. He’s describing Old Parliament House, because that’s where that meeting would have happened, because 1988 is the year they moved up the hill, as it were.

Which you can walk through it now; you can go to Bob Hawke’s office. It’s been left set up exactly as it was on the night they all left and moved up the hill, so you can walk through the office that he’s describing. And the first thing that will strike you is how small it is. All those people are in it; it’s a very crowded space.

Which is true of that whole building: there were 2,000 people working in a building that wasn’t meant for anything like that number. And he’s rightly describing the fluidity of who comes in and out of the rooms.

I agree with Terry: there isn’t an inner circle that controls everything, because everything is too fluid and too expansive for one group of people. It depends on the issue; it depends on the focus of interest. If, for the Prime Minister, it’s a really important topic, yes, they’ll buy in. That’s a small percentage of everything that’s going on in government.

A lot of things will be settled by ministers getting together in one or another of the ministerial suites. It’ll be settled by a minister saying to a secretary, “Go and sort this out. I don’t know what the answer is, but I want it to go away. Fix it.” There isn’t a single locus of power. Obviously, the Prime Minister is a key player, as is the Treasurer, but not on every issue. They haven’t got time to focus on every issue.

So what you’re seeing is just a constant reordering of the agenda, a constant flow in and out of people and suggestions and ideas, controlled through a set of routines expressed through the Cabinet Handbook and through the ERC rules, and what are called the BPORs, the Budget [Process] Operating Rules, and other processes. But those routines are to try and get a bit of a handle on so much that’s going on and put them through recognisable channels so there’s legitimacy to the decisions that are made.

Because two ministers talking by themselves in a room can decide something. It’s still got to go through some sort of process so that it’s recognised, recorded and acted on. And that’s why these routines are very important, and these routines, in a sense, run everybody, including the Prime Minister, who is at the centre of them, but nonetheless not so much in control that they can just rely on a decision by her or him.

MORAN: And ministers can’t spend money just because they’d like to spend money. They have to have it approved through either consideration of an issue by the Treasurer or the Finance Minister, or more commonly considered by the Expenditure Review Committee.

Similarly, many things can’t go far unless somewhere in the bureaucracy somebody has given some thought to, “Well, how would we do this and would it work?” And if they do that and then usually feed it into the Prime Minister’s Department, if the answer is, “This will be a disaster,” that stops it.

WALKER: Right.

DAVIS: And there’s the famous apocryphal piece of advice: “If you are going to do this damn silly thing, Minister, don’t do it in this damn silly way.” [laughs]

MORAN: [laughs] Yes.

WALKER: [laughs] So we might come back to some of—

MORAN: Oh, by the way, going back to Nugget Coombs, Nugget Coombs was brilliant at charming ministers all the way up to the Prime Minister. I worked for the Whitlam government when Nugget was doing stuff there, and he had quite an impact on Gough and the senior ministers.

So Jim McClelland listened to what Nugget was trying to say, and occasionally there are senior public servants who have experience that are like that.

WALKER: I remember reading in this Pat Weller book [Cabinet Government in Australia, 1901-2006] about how, I think, Roland Wilson used to come into cabinet meetings and give ministers his opinion on economic issues, and that they really took his opinion seriously.

DAVIS: Every now and again, you get an individual so respected and powerful in their own right that they can’t be ignored. The case I most cherish is from Victoria, not the Commonwealth.

After the First World War — the fire that lit the fuse and all of that that caused the war — after Sir John Monash came home, he was put in charge of building the electricity network that still serves Victoria. He did a stunning job of basically building electricity infrastructure in a state that didn’t have any, or not enough.

There was a time, which is recorded by Sir Robert Menzies when he was a state politician before he went federal, where the Cabinet met to discuss the SEC’s next budget proposal and rejected it because they just didn’t have that sort of money. The next week, when they met, a sort of embarrassed attendant came in while they were mid-meeting to say, “Premier, Sir John Monash is waiting outside to see the Cabinet,” not that he’d been invited or anything.

They didn’t know what to do, so they asked him in. They all stood up, because that’s what you did when Sir John Monash came into the room. He went to the front end of the table, sat down, and said, “Gentlemen, I understand that last week you rejected my proposal for further funding for the SEC. That’s obviously because you didn’t understand it. I’m now going to take you through it.” [laughs]

WALKER: Wow.

DAVIS: He took them through it, and at the end he said, “I take it we are all agreed,” and got up and walked out. Now, there are not many people who could pull that off but it’s spectacular.

MORAN: In the Cain years, the John Cain administration, ministers would have to go and try and see individual departmental heads about issues that they wanted to fix. Normally it should have been the other way around — that the ministers would have called in senior public servants.

But what the Cain government inherited from the previous Liberal government was a significant level of respect for the most senior public servants, which went to the point of senior public servants feeling that if they had an important issue, they should be the ones who called on a minister — sorry, the minister should call on them rather than the other way around. But that’s all gone now, too.

DAVIS: [laughs] Distant but fond memory.

WALKER: Have prime ministers been getting more powerful in Australia?

DAVIS: There’s a very interesting Canadian study by Professor [Peter] Aucoin, 30 years old now, but it basically says the core executive — the centre of government — reconfigures around each prime minister.

That the prime minister is such an important part of the system that the system actually adjusts around them. So some prime ministers are more dominant than others; some are more interventionist than others. But in a sense, their preferred style comes to dominate the process.

That’s a really interesting observation. It tells you that the core institutions are relatively malleable; that is, they can change quite quickly in response to personalities. But it also probably tells you that you can’t leave a lasting mark — that you can change the dynamics while you’re the prime minister, but when you go, the system will reconfigure around the next person.

So some prime ministers are more powerful than others. I can’t see a trend.

MORAN: Yes. If a prime minister doesn’t worry about consulting with his or her ministers and goes freelancing, they’re going to face a bit of a rebellion from amongst the ministers that could end up being a little bit tricky for the prime minister.

And so, most prime ministers expect that if there’s an important issue, they’ll hear about it from the minister concerned and they shouldn’t be facing any surprises at any point. Usually ministers understand that, but there are occasions when they don’t or don’t want to understand it.

DAVIS: And we have seen some prime ministers come to grief.

MORAN: Yes, yes. In fairly recent times.

DAVIS: That’s right. So that’s a constraint on the power. As you say, it’s not in the Constitution. You’re not elected to prime minister; you’re elected by your party and not by the people. So you’re only there as long as the party is willing to tolerate you, whoever the party is at the time.

And as we’ve seen, prime ministers who fail to carry their ministry or just don’t look like they’re coping with the job get rolled.

MORAN: So the very strength of the Australian system is in the collegiality of decisions at the top being made on important issues, so that the prime minister, the treasurer, perhaps the attorney-general and other ministers are all involved, both for technical reasons and for political reasons.

And by and large, our system continues to work really well on that front.

DAVIS: You see prime ministers [being] very careful about how they get on with their ministers and not wishing ever to humiliate them. A lot of care goes into this.

WALKER: This seems to be an interesting thing that distinguishes Australia. You often hear claims that cabinet government is dead in Canada and the United Kingdom, and it’s been replaced by a prime ministerial government, or at least by a core executive that’s not the full cabinet. Whereas in Australia, that doesn’t seem to have happened to the same extent.

Maybe that’s because political leaders in Canada and the UK are elected by a broader group than just the parliamentary party, whereas by contrast, Australian prime ministers are more vulnerable to their colleagues. Does that seem to be the reason we haven’t gone down the Canada and United Kingdom route?

MORAN: I think it’s part of it, but the other reason is that our system seems to work okay from everybody’s point of view.

DAVIS: Yes, and I’m wondering whether the UK would still think they have prime ministerial government after the sequence that took out all of those Conservative leaders in a row so quickly. That’s a bit of a reminder that the prime minister is not as powerful as the party that chooses them.

And for a government in power, you can’t go through that process of consulting widely — the population and the members of your party — because you’ve got to make a decision quickly.

MORAN: And in Australia at the federal level, prime ministers looking to make a significant decision have to be wary of different views coming from different factions amongst the ministers, both supportive and otherwise. A sensible prime minister, therefore, has got to find a way to settle everybody down and bring them on side.

WALKER: So, true or false: Anthony Albanese is more powerful within Australia than Donald Trump is within the US?

MORAN: Well, he can’t send off the bombers with nuclear weapons and destroy a country.

WALKER: [laughs] But just domestically.

DAVIS: He can’t unilaterally impose tariffs. He can’t arrest his people and have them sent offshore. He probably doesn’t authorise the blowing up of so-called drug boats. I don’t think it’s a reasonable comparison.

I think the Australian prime minister is much more enmeshed in the parliamentary and executive system than a US president, who is, after all, elected to be a sort of elected king in a way that our prime minister is not.

MORAN: An important part of how the Prime Minister operates is in the central agencies — not just the Department of the Prime Minister and Cabinet, but also Treasury and Finance. No matter how good the political advisers are, they’ll never be as much on top of the detail that those departments have got to handle for big decisions.

And therefore, they and the Prime Minister have no choice but to listen to what the official advice would be.

DAVIS: So often you get an interesting dance, in a sense. A prime minister or a treasurer or a senior minister might have a view about what they want to do, but they then have to turn to the bureaucracy and say, “There’s a global pandemic on. We need to find financial support for people who can’t work. How do we do this?” Then you rely on Treasury and/or PM&C and all sorts of people to put together the proposal.

So you know roughly where you want to go, but if you said to a minister, “Go and design me the technical specifications for JobKeeper,” it would be pointless. They don’t have the expertise or the skill.

So it is a partnership, because you could imagine a department coming back and saying, “We can’t make that work. There’s just no way that works.”

Now, you might then get an interesting situation where the government said, “Well, you’ve just got to make it work,” and then you get disasters — and those are not unknown.

But in general, what you’re seeing — “partnership” is the wrong word — it’s not ever in doubt who’s in charge: it’s the ministers, it’s the government. But it is the idea that ministers, particularly for complex technical questions, need expert advice, and they look to the public service to get that.

That’s, in a sense, when we talk about stewardship in the public service, we are in part talking about the public service maintaining the expertise to be able to respond to unpredictable circumstances. Sometimes you have expertise in the public sector that you’re not calling on all that often. That’s not really the point; the point is you need it there.

WALKER: Last week, in preparation for our chat, I read through the 15th Edition of the Cabinet Handbook.

DAVIS: Oh, you’re a brave man. [laughs]

WALKER: For people as tragically nerdy as me, I recommend it. You can get it on the Department of the Prime Minister and Cabinet website. It’s only about 50 pages long. I think the new edition’s due out soon.

DAVIS: It is. We’re all excited.

WALKER: [laughs] Reading the Cabinet Handbook, the impression I got about the institutional source of the PM’s power is that it largely seems to flow from the PM’s ability to set the agenda for cabinet. Because obviously, if matters can’t be put on the agenda, then they usually can’t be decided upon — important matters at least.

And perhaps secondarily, the PM’s power seems to flow from their ability to determine the existence, membership and terms of reference of cabinet committees. Am I understanding that correctly?

MORAN: Yes, but there are other elements in it as well. The PM has got to have a sense of where the whole show is supposed to be going, and also have a sense of what people out in the community will make of whatever is proposed to be done.

Part of the prime minister’s strength — and premiers’ too — is usually access to good quality attitudes research on where the community is at. That’s for a long, long time been very important in the Victorian government, for example. That gives the head of government, the prime minister or the premier, a bit of an advantage in dealing with his colleagues.

But it also shows that the prime minister has got to make sure that if something’s to be done, it’s not going to be something which blows up in the public’s collective mind.

DAVIS: I think you’re entirely right to say, though, that control of the agenda is a really important power. It’s not the only consideration, as Terry rightly points out, but it allows you to sequence when things are going to come to Cabinet. It also allows you to defer things that you really don’t want to have discussed for a while—or forever. And as Harold Wilson said, “A decision deferred is a decision made.” And so it does give you authority.

The committees are important as well because they report back, but the most important of those committees — the Expenditure Review Committee — although in some cases the PM is technically the chair, in practice the Treasurer is the driving force in that committee and will decide the agenda.

The other thing to say about an ERC is that because it’s doing the budget process, we’re talking about hundreds and hundreds of agenda items. This is not a small committee.

Whereas a cabinet meeting might have 10 or fewer matters, and they’re all important and they’re all mature — that is, they’ve done the work and what’s coming up is the end of a long process, rather than just something that’s been dreamt up the week before.

In that sense, they’re more routine because… the recommendations are normally accepted, because they’ve all been tested and workshopped and co-ordinated — not always, but that’s the normal pattern.

Whereas committee work is often about, earlier in the stage, trying to think through the problem and test the options before you go to Cabinet, because most committees can’t make binding decisions.

There’s some exceptions — the National Security Committee is an exception — but in most places, the committee work is more about trying to get on top of the issue. Cabinet is about making the legitimate, defining, authoritative decision.

WALKER: So when the PM wakes up in the morning, there’s a multiplicity of different types of information that he or she could read. There are overnight intelligence updates from the Office of National Intelligence, media summaries, draft cabinet submissions, forward schedules for travel, etcetera etcetera.

If you were PM, what would be the first thing that you would read on a typical morning?

DAVIS: [laughs] That’s an impossible question.

WALKER: [laughs]

DAVIS: As you say, there’s a huge amount of material, but the moment you get to work, there’s also a queue of people outside your office wanting to get in and talk to you. You’re much more likely to spend time in meetings being briefed than you are being able to read this material in the sort of detail that it warrants.

But you rely on your staff to read it and to highlight things that you need to know about, so you get summaries of summaries of summaries coming through.

MORAN: And you’d particularly want to know, before you walked out the front door of the Lodge, whether there are any really big issues breaking in the media that morning. Because you probably won’t be able to get into Parliament House or anywhere else without being confronted by journalists asking questions about that matter, whatever it might be.

So it’s not all about the policy papers; it’s also about the public presentation of them and what the public thinks.

DAVIS: Absolutely.

MORAN: One case in point from my time at the state level and at the federal level — I worked for two state governments as well as the Commonwealth more than once — [is that] the Commonwealth is short of quality attitudes research in a way that is not a problem in the states.

In Victoria, when Jeff Kennett was Premier, by agreement he set up a system of regularly testing community attitudes to the services delivered by the state government. That meant that he had a sense of what was going wrong, he had a sense of what the opportunities for new things were, and subsequent ministers stuck with it meticulously.

It really had a big impact on the quality of decision-making within government.

DAVIS: Less so at the Commonwealth level, as you rightly say; it’s not as much part of the machinery, although—

MORAN: At the state level in Victoria, both sides of politics agreed that it would be a good thing to have market research done on the delivery of government services.

WALKER: And just very briefly, paint me a picture of what the PM’s diary would look like. Are they just staggering from meeting to meeting, or what does a typical day look like in Canberra?

DAVIS: Well, it depends greatly on whether Parliament is sitting, because it’s a completely different world when Parliament is sitting. So let’s start there.

When Parliament is sitting, the tactics meetings will start very early.

WALKER: Like 7:00 am?

DAVIS: 7:00 am or earlier. The PM may or may not float in and out of that meeting. It’s normally led by the Leader of the House rather than the PM, but nonetheless the PM’s staff will be there because you’re deciding tactics for the day. But you’re also deciding what legislation you’re bringing forward and priorities, and trying to game the way the day’s likely to play out, with an eye to the media and an eye to your programme.

Meanwhile, the PM will start the day either there or in meetings with her or his own office, where they do some of that briefing we’ve just talked about — what’s going on, what’s important, what are we going to get across today. There’ll be a tricky negotiation with the secretaries who manage the diary about who’s going to get in and who’s not and how we’re going to do that. The number of people wanting to get in is always vastly over the [capacity].

WALKER: Can the PM see their own diary? I mean, I assume they’re not using Google Calendar or something. Does Parliament have its own software?

DAVIS: The PM can see it, yes, and will have on their table a little plastic folder with the printout in it. But it’ll move.

WALKER: Can they check it on their phone?

DAVIS: Yes, absolutely.

WALKER: Is it proprietary software or something?

DAVIS: No, I don’t think so. Actually, it’s a good question to which I don’t have the answer, but I doubt it’s proprietary. I suspect it’s the same system the rest of government uses, which is the same systems the rest of the world uses.

WALKER: Things like Microsoft or Google.

DAVIS: [Nods] But don’t hold me to that. I actually don’t know on the Prime Minister’s office side, because I worked in the public service, not there.

WALKER: But sorry, keep going.

DAVIS: So, you know, we’re only up to 8:00 or something, and already you’ve got a plethora of meetings. There’ll be a series of ministers hanging around outside hoping to get five minutes. There’ll be the media adviser who just wants one minute to discuss an issue, and there’ll be lots of those. Then there’ll be formal meetings through the day — diplomats and other significant people.

If Parliament’s sitting, that’s when all the big delegations turn up: the business councils, the unions, the people who want attention from the government. So you’ve got to deal with all of those; they all sit in your diary.

Meanwhile, all the cabinet meetings still happen. Committee meetings in particular still happen, particularly if you’re in the middle of a budget process. So it’s not uncommon for the bells to ring in the middle of a committee meeting, and if it’s the Reps — all the members [of the House of Representatives] having to stand up and walk out of the meeting, including the Prime Minister, to go and vote on a resolution, and then come back and pick up the meeting.

MORAN: Oh, the poultry.

DAVIS: [laughs] Yes. And so everybody’s watching the clock, which has the red and the green lights on it, because inside the Cabinet Room it’s silent; you can’t hear the bells, but you can see the lights.

MORAN: So here lies one of the differences between the American system and the Australian system.

In the Australian system, when the ministers are in Canberra, as they often are, they’re all clustered in Parliament House. And the public servants they deal with are near at hand and readily accessible. So there’s a constant flow of information into the centre of government located in Parliament House, in a way that isn’t achieved in the American system.

DAVIS: That’s true. Although there’s a fascinating difference between State and Commonwealth here, as you know from Victoria and also from Queensland. Although when Parliament sits, that’s where everybody is, but for most of the time Parliament is not sitting, ministers work in their departments, premiers included.

So they’re much more often sitting with their public servants. They spend much more time with their public servants than they do in Canberra. It’s easy to go to a meeting and hear directly from people you need to hear from. Whereas in Canberra, if you’re a public servant, you have to go up to Capital Hill in order to have your meeting. There’s a lot of sitting around in corridors waiting to get in. It’s not the intimate relationship you get at state level; that’s quite a different dynamic in Canberra.

But just to finish, that pattern of rushing into the House — and then, of course, you have to be briefed for question time. You then have to do question time if you’re the prime minister, which is a very significant commitment. All the time there are people trying to get in to see you.

It’s hard to convey just how demanding it is, whoever you are, if you’re the prime minister — and how someone like John Howard did the job for [11.5] years without falling over is a singular achievement, I have to say. You can see the exhaustion on their faces quite quickly. It is the most demanding of roles, and not just for the prime minister, for the treasurer and lots of senior ministers as well.

Parliament House reinforces this because it’s never-ending; there’s no escape, in a sense. If you’re the prime minister, you are the centre of attention the whole time, wherever you go. And, you know, just how do you get any off time? How do you get [inaudible]? Which is why The Lodge makes sense as a place that you can escape to behind a wall.

MORAN: And there are some differences between, say, Victoria and the Commonwealth in Canberra. In Victoria, years ago, when the colonial administration was being set up before the Commonwealth was formed, it was influenced by the Northcote–Trevelyan Report and the expectations that it created for politicians of a competent public service.

In Victoria, from time to time, people would question whether the public servants are any good, and that would be an opening for the advisers to jump in and join the dots if it wasn’t immediately apparent what should be done.

We now see debates about the ability of the public service to properly serve government. Some of those positions, which are critical, are well placed, in part because these days Commonwealth and state bureaucracies are over-influenced by the enthusiasm of microeconomists and macroeconomists who, in their enthusiasm, can bedazzle heads of government, whether it’s at the state or Commonwealth level.

So there’s a bit of a problem in our system, which is that we’ve allowed it to be too weighted in favour of economic enthusiasms, without putting beside that a really good understanding of what’s going on in the community and how they feel about hospitals and schools and migration and all that sort of stuff. And unless premiers try and take account of that, they get into trouble.

WALKER: Is there anything else interesting to say on what an average non-sitting day looks like? Or is it just kind of much the same but without—

DAVIS: Just the same without having to go into Parliament, into the chamber, to vote. They’re full days. But of course, prime ministers also travel a lot domestically.

So a prime minister, when Parliament’s not sitting, would be much more likely to schedule meetings interstate to go and do openings and do all of those things, many of which are programmed a long way out, so you’re sort of committed to the programme.

It gets very difficult if something arises that changes the dynamics, which only intensifies the time pressure, because often you’re under pressure to do it anyway, but you’ve had to divert to some other, more immediate issue. And so you’re constantly trying to make up the lost time. It is demanding, exhausting, and it requires a degree of good grace from everyone involved to recognise what’s being asked of an individual.

WALKER: Physical energy levels are not evenly distributed, and it makes sense that PMs tend to be individuals of unusual energy, because it does seem like such a wildly demanding role.

DAVIS: They also get good at working out what they can delegate and what they can’t — what really matters and what doesn’t. And they learn how to.

One of the reasons for some of the travel is that it just gives you thinking time. Sitting on a plane for two hours to Adelaide or Brisbane is two hours you can actually talk to people on the plane, think, work through issues. It actually matters, because otherwise there’s very little reflection time.

WALKER: All right. I’ve got about four or five pages of questions about Cabinet, which I’m going to rapid fire at you. Some are more trivial than others, but I want to be like a fly on the wall in the Cabinet Room and also kind of understand the routines.

So just to begin with, to back up a little bit, could you give a three or four sentence summary of what the Department of the Prime Minister and Cabinet does, just for anyone lacking that context?

DAVIS: The Department of the Prime Minister and Cabinet is the central agency so it runs the cabinet process — physically runs it. It organises the agendas, makes sure there’s tea and coffee, records the decisions, transmits them to agencies.

But more than that, it provides advice to the Prime Minister on every matter before Cabinet, and detailed expert advice, which means it needs to have what’s called shadow functions which look at every part of government and are able to provide independent advice on those.

So a minister going into a cabinet meeting with a submission knows that there’s been close conversation between their department and PM&C, but also knows the Prime Minister will have in front of her or him a briefing from the department that’s meant to be as thorough and, if needed, as critical as possible. It’s without-fear-or-favour advice, and that’s what PM&C does.

It also runs a whole suite of ancillary functions — the international protocol, visits. It provides support for Kirribilli House and the Lodge and so on. But its principal function is this core policy function: both understanding policy, helping set up collaborative policymaking across the whole of government, and then providing advice to the Prime Minister as that process — often a committee process, often lots of interdepartmental committees coming together — eventually has to be distilled, through the Cabinet Handbook, into a submission which is strictly ordered because it has to cover a whole set of fields, and by the time it gets to Cabinet, government should be confident that every piece of information they need to make a decision has been thoroughly tested and is before them, and that everything they’re being told is accurate.

WALKER: Mm. The facts are not being contested at that point.

DAVIS: Exactly. It’s a judgment question for Cabinet, not a facts question.

WALKER: As Secretary of PM&C, did either of you ever actually sit in on meetings of the full Cabinet?

MORAN: Yeah, every week.

DAVIS: Yeah, in Canberra every week.

WALKER: In the full cabinet meeting?

DAVIS: Yes.

WALKER: Ah, see, this is so interesting.

DAVIS: Committee meetings, including National Security and ERC.

MORAN: Yes, and the same at the state level.

WALKER: Okay. Because of course you were Secretaries of the Department of the Premier and Cabinet.

DAVIS: Not in Queensland, curiously. In Queensland there was a separate Cabinet Secretary. It was a full-time role.

MORAN: There was a separate Cabinet Secretary in Victoria. But nonetheless, the Secretary of the Premier’s Department sat in the Cabinet Room.

WALKER: So you guys saw everything in the cabinet process?

DAVIS: Certainly in the Commonwealth, yes.

WALKER: Okay, fantastic. Well, this is good because now I can ask all of my questions.

Okay, so I’m just going to rapid fire these at you. Firstly, when the doors close, how many non-cabinet ministers are present and who are they? So I think at the federal level, which is mainly what I’m interested in, you’ve got the three note-takers, you’ve got some Cabinet Room attendants who are passing things back and forth from staffers to ministers, and then you as the Secretary of PM&C. Anyone else?

DAVIS: No. And no assistant ministers. You would get called in if you were part of a submission, for your submission.

MORAN: That’s it. And then you go.

DAVIS: When the door closes, it’s the Cabinet and only the Cabinet. And the officials are silent. You’re not to say a thing; you’re never called into the debate.

WALKER: From reading the Cabinet Handbook, the figure who emerges as the most mysterious and potentially very powerful is the Cabinet Secretary. [laughs] They’re kind of like the PM’s consigliere. At the moment it’s a minister, Andrew Charlton. In the past I think it’s sometimes been a political staffer.

DAVIS: Yes, I think the practice has changed quite a lot, depending on the government in power and even the prime minister in power.

MORAN: In Victoria, unless it’s changed, it was always a parliamentarian.

WALKER: So at the moment at the federal level it’s a parliamentarian.

DAVIS: Yes.

WALKER: How powerful is that person as Cabinet Secretary?

DAVIS: Well, they don’t decide the agenda, and in that sense they’re not powerful.

The Prime Minister is the chair of the Cabinet committee, and therefore the Prime Minister settles the agenda. But the Cabinet Secretary — who was previously Mark Dreyfus, as the Attorney-General — I mean, it is a very significant role.

You do play a key role in advising the PM about what is urgent and what is not, what can wait and what needs to be settled now. You also write down the decisions of the Cabinet.

WALKER: So those decisions are technically known as the minutes, which is a little bit confusing. But in this context, “Cabinet minutes” refers to the outcomes of the Cabinet meeting, the decisions taken.

One of the interesting things I learned just while reading about how Cabinet works, reading some of Pat Weller‘s work, is that sometimes there need to be decisions about what the decisions were. It’s not always obvious what Cabinet agreed, and so there might be discussions after Cabinet about what are the actual minutes.

Obviously the people in the first instance responsible for recording those decisions are the note-takers, and so you’ve got three note-takers in the room. I don’t know if you have this information at hand — but what tends to be the professional background of those note-takers?

Because I imagine they can’t just be scribes, because there’s a level of interpretation that needs to happen, they need some policy context. So who do those individuals typically tend to be?

DAVIS: So we talked about the shadow functions inside PM&C that are expert groups around each area. Whoever leads that particular shadow function comes into the Cabinet Room as the note-taker for the item. They know the policy as well as anyone in the room.

And you mentioned disagreements about what was decided. They are, in my experience, incredibly rare. Because the recommendations have been worked through, people know exactly what’s on the table. Sometimes, if there are amendments on the fly — and that happens — you might get ambiguity.

It’s normally sorted out by the Cabinet Secretary with the PM. It doesn’t go back to Cabinet unless it’s a substantial issue. But I can remember at best not even a handful of times when that [happened].

It is a little more common with ERC only because of the sheer volume of what’s coming through. But even then, it’s a rarity. It’s a very structured process.

MORAN: And the note-takers have got an important role to play in making sure that individual departments understand what the final result as a Cabinet decision on a particular matter was.

WALKER: So, random logistical question. Cabinet meets most weeks of the year, right? But Parliament, at least for the House of Reps, only sits about 20 weeks a year.

Does that mean, for the weeks in which Parliament isn’t sitting, Cabinet ministers all have to fly back to Canberra for the Cabinet meeting?

DAVIS: Yep. Because there’s no video attendance. You are in the room or you’re not there.

WALKER: Has to be a physical meeting.

DAVIS: Yes.

WALKER: That’s tough for any ministers from WA. [laughs]

DAVIS: Absolutely. And in airports all around the country on a Sunday night, you can see Cabinet ministers waiting for their plane.

WALKER: Oh, interesting. Okay.

I’m interested in what doesn’t make it to Cabinet. That’s too broad a question, but I’m going to narrow it down. What’s an example of a borderline issue where you’d need to have a conversation about whether or not that’s an item that should make it to the Cabinet table?

MORAN: Well, you might have an issue that’s immensely sensitive politically, perhaps in the national security space. And normally that wouldn’t go through unless there was some reason the Prime Minister wanted his colleagues to know about it.

DAVIS: Yes, and the way [it works] — and it varies from government to government — but in recent years, the Cabinet will meet and, at the start of its meeting, it’ll just be Cabinet ministers. All officials will leave the room, and they will discuss anything political — or frankly, who knows what they discuss.

But they’ll have the conversation, so if there’s a sensitive matter they want to raise, it’ll be raised. There are no note-takers. There are no decisions recorded. It’s not a decision session. It’s a Prime Minister briefing the Cabinet on the issues of the day, and then the officials get called in, and they turn to the agenda and work their way through the agenda.

That provides a chance to do short briefs on current issues, and sometimes signal that, “We’ll be coming back to this in a more structured way as a Cabinet.”

WALKER: I see.

MORAN: And in the case of the Victorian system, when I was there — it might have changed, I don’t know — at the very beginning of the Cabinet meeting only ministers would be in the room, and they could raise anything of political concern about a submission that they wished.

Then that wouldn’t necessarily be placed before the Secretary of the Premier’s Department when he came in to sit in on the meeting. So there’s an opportunity for a political discourse, which is really valuable for everybody concerned.

WALKER: I’ll come back to that, because that’s one of the things that surprised me about how Cabinet works: the kind of political strategising is mixed in with the actual executive decision-making.

And I think it was for the federal Cabinet that that practice of starting the meeting with the political stuff started under Howard, I think.

MORAN: And that was the practice in Victoria under Bracks and Brumby.

WALKER: Okay. Interesting.

DAVIS: It’s not uncommon, but there are variations on where in the meeting and all that stuff.

WALKER: And even in the Keating government, they still had those conversations, but it just wasn’t routinely at the start necessarily.

DAVIS: The logic of Cabinet ministers wanting to have a political discussion with no one else in the room makes perfect sense, and that’s a standard feature of all governments.

WALKER: I’ve got some questions about submissions. Again, I’ll just sort of rapid fire these at you.

My interest here is just that if there’s a template that’s good enough for the Federal Government, that’s kind of evolved over the decades, it’s served Australia through wars and all sorts of crises, maybe there’s some lessons we could learn from that.

But the first question is: either in terms of pages or words, what’s the maximum length of a Cabinet policy submission?

DAVIS: So it’s done in terms of pages, but there’s multiple parts to a submission.

You have a two-page summary at the front end that goes through all of the core things and lists the recommendations. You’ll then have an explication area that runs through some of them.

You’ll then have a second section that goes through what are called coordination comments, where each agency provides its view. And that’s important, because if you’re a minister, you can read not just what the proposal says but what the rest of government thinks of it.

The intention there is, again, frank and fearless advice. If you think it’s a dumb idea, you say it’s a dumb idea. You say it nicely, but you say, “This would not be a wise use of public resources,” or whatever it is you want to say.

And then there are attachments at the back where you need to lay out, particularly, implementation plans and evaluation strategies.

So they’re thick documents, but in a sense, once you get used to reading them, it’s easy to go to the level of detail that you want to get into as a minister.

MORAN: And with so many different sections, those papers can’t be written with a love of exhaustive detail.

Because if you do that, they don’t get read and you have mistakes made.

When I went to be Chancellor of [Federation University], I was a bit surprised at the quality of the papers coming forward to the university council for decision. And I said, “Well, look, in government this just wouldn’t be acceptable.”

So I persuaded a very good person out of the state government to come and do a template and some instructions as to how to use it.

Transformed everything overnight.

DAVIS: [laughs] Because it does provide discipline.

That’s why I talk about it as a routine. It means, for example, you can’t put in a submission until you’ve answered all the questions in the Cabinet Handbook. That’s really important.

You can’t rush something in and try and—

MORAN: Sneak through the cost without the comment— [laughs]

DAVIS: For example, because there’s a section that, if it’s not filled in, the Cabinet Secretariat will not let it go onto the Cabinet papers, because it’s an incomplete paper.

It is a significant discipline on…

WALKER: Did you, in your time, notice any commonalities in the poorly drafted Cabinet submissions? Or is the template in CabNet so rigid that it doesn’t really permit or allow much margin for error?

(CabNet is the government’s software that facilitates the kind of end-to-end Cabinet process; that’s where Cabinet submissions are lodged and tracked.)

DAVIS: Well there is a coordination process that PM&C is central to.

When a draft is put forward, there’s then a consultation between PM&C and the agency. And if it’s a poorly drafted policy, part of PM&C’s responsibility is to say, “This isn’t up to standards,” and work through what that means.

Now, there can be a bit of tension coming out of that, to put it mildly. Nobody likes being told that their submission is not of the standard that it should be. But PM&C will be blamed if a submission does come forward [that isn’t up to standard].

MORAN: And in the case of the Victorian government, when I was Secretary of the Premier’s Department, if such a submission came forward and it was seriously deficient, I’d just simply say, “Go away and try again.”

Because I knew that it’d blow up in the Cabinet Room.

Sometimes I wouldn’t have minded too much if the particular secretary were going to cop it because of that, but that’s not really being fair to your colleagues. [laughs]

WALKER: [laughs] Yeah. So, okay. So by the time it gets to the Cabinet Room, there are rarely, if ever, any deficiencies in the submissions?

DAVIS: Well, we have to be a bit careful, though. I mean, yes, there are possibly mistakes.

Not everything is well written. Not everyone releases their inner Hemingway when they get to write the submission. I wouldn’t want to get carried away. They’re not perfect gems of documents.

They’re still human. They still have errors, and they still sometimes elide key points that need to be made. And sometimes there are people who try to push things through that they know they’re going to struggle with, so they frame it in as positive a way as they can.

So, no, it has all the foibles of anything that people are involved in. But the system is designed to minimise those, standardise the process, and provide the same scrutiny on every submission.

And that’s the key discipline in my view. It’s what happens before it gets into the Cabinet Room that decides the quality.

WALKER: So as Secretary, when you’re rejecting submissions —exposure drafts coming from the departments — can you generalise what are the common shortcomings in the ones where you say, “No, that’s not good enough. Try again”? Is it a lack of detail or…

MORAN: Seldom a lack of detail.

It’s a lack of suitable analysis of the problem.

DAVIS: A tendency to jump straight to the preferred solution and not argue why, and not argue the alternatives. And/or a failure to say, “If we did this, these are the implementation challenges we face.” And part of every submission, as you know from the Handbook, is you’ve actually got to say, “If this is adopted, here is how we are going to go about implementing it.” and “Here’s the evaluation strategy: whether we’ll know if it worked or not.”

That’s actually a tough discipline because you’re being asked to set out what the thresholds are for this thing actually to be considered a success.

WALKER: Say I’m a minister who wants to come fully informed to Cabinet meetings and contribute to the collective debate, even on a line portfolio that doesn’t directly impinge on my own — and I know not every minister is like this, and not every minister has time to read every Cabinet submission, but hypothetically I’m a minister who does. On average, how many hours would I spend reading Cabinet submissions? (And assume I don’t read the attachments.)

MORAN: Oh, well, paper’s that thick or thicker [gestures].

DAVIS: So once you get disciplined about doing it, you know how to do it and you know what you’re looking for. In a sense, you’re reading the material in the early pages of the submission.

WALKER: The executive summary.

DAVIS: To see if it raises concerns. There might be a point at which you say, “I’m pretty comfortable with this; it makes sense,” and move on. I still think you’re up for a couple of hours of solid reading.

WALKER: And that’s just picking and choosing.

DAVIS: And that’s just not diving deeper than you need to. If you want to read everything, including all the attachments, you’d better put a day aside, or whatever it is.

MORAN: Glyn’s right. Well-crafted Cabinet submissions at the Commonwealth level and at the state level are very brief at the beginning part, but able to cover all the relevant points. Therefore, a minister might want to go further if they had a particular interest in a particular point, or they were the Treasurer or Finance Minister and were really worried about the proposal to spend a lot of extra money; they needed to find some way to either justify or block it. And so it all depends where you’re coming from.

DAVIS: The Secretary of PM&C would spend several hours every week going through Cabinet submissions, not just this week’s and next week’s, but pipeline things. They would have multiple meetings with those shadow teams during the week just to review where we’re up to on submissions, including a significant one a couple of days out from the Cabinet papers being distributed to ministers, to finalise how we’re going to brief on a submission. So for us, that would take a whole day’s of work in that.

So a minister who wants to be completely thorough is looking at a fairly similar time commitment.

MORAN: In the two Secretary roles that I had, I tried to make sure that there was at least one Deputy Secretary who was really on top of the range of policy issues of concern to the government. It was his or her job to really go through it.

And if they missed anything, they copped it. [laughs] But they tended not to, so that’s just a sign that, yes, there’s a sieving process.

DAVIS: When I worked in Queensland, Premier Goss would make us sit in front of him for an hour before the Cabinet meeting, and he would practise by interrogating us on the Cabinet agenda. He would always find the paragraph you hadn’t read and ask you the probing question, and you just dreaded that sort of thing. [laughs] So we’d spend much of the weekend reading the Cabinet books and hope to get through this meeting on Monday morning.

We enjoyed it when he travelled. [laughs]

MORAN: Well, I worked for three premiers in Victoria and two prime ministers, and none of them did that to me.

DAVIS: [laughs] You’re very fortunate.

WALKER: So what’s the median length of time for drafting a Cabinet submission for the Department of Defence? Because I’ve heard some can be worked on for years before they reach Cabinet, but I assume those are outliers. Roughly, what do you think the median might be?

DAVIS: Very hard to say, and for this reason. A lot of the Defence submissions are around acquisitions. They’re around defence procurement, and they are often hundreds of millions, if not billions of dollars. And yes, they take a long time because the scale of the decision is so big and the thoroughness required, so extreme.

They’re also the largest submissions you’re ever going to see, because you’re trying to work out how you would acquire a frigate or aircraft or whatever it is you’re buying for the next 20 years. And so the level of detail is extraordinary, and years seems to be an exaggeration, but those are the ones that take enormous time, and they get workshopped through a whole set of committees long before they get to the National Security Committee.

But many Defence ones won’t be much different in calibre from those from other agencies. You’re dealing with a problem, you’re trying to outline how you’re going to manage it, what your response is. From the time you decide there’s going to need to be a Cabinet discussion of this matter through to it actually getting in front of Cabinet is typically a number of months, and there are processes long before Cabinet buys in. So if you’re a minister, you see things at the end of the chain, not along the way.

WALKER: Just quickly, you’ve mentioned the kind of standard template. It’s the executive summary, the recommendations, the analysis; it might have some attachments including the coordination comments from different departments.

I assume the actual template in CabNet is more granular than that in terms of the rubrics or the sections, and it would vary depending on the type of submission?

DAVIS: You mean the presentation the minister would make, or you mean the nature of the submission itself?

WALKER: The nature of the submission itself.

DAVIS: Well, I would have thought closer to standard than not.

WALKER: Oh, really? So it’s not incredibly prescriptive in terms of subsections and whatnot?

DAVIS: No, it is. That’s what I mean. It is quite prescriptive. I wouldn’t say incredibly, but it’s a set of headings, and you have to answer each of the headings. And the headings are designed to make you outline each relevant consideration for making a decision.

They’re the policy cycle explained. What’s the problem? What are the alternative approaches we’ve considered? Why have we chosen this particular instrument? Who have we consulted? What was the advice back from the coordination comments? And then, why these recommendations? I mean, that’s basically it. And then you start again.

WALKER: So I want to talk about the kind of vibe or tenor of Cabinet meetings now. Can you paint me a picture of what the discussion in the Cabinet Room is like? How informal can Cabinet meetings be? How heated do they get? How structured is the debate? If we’re a fly on the wall, what would we witness?

MORAN: In my experience, they weren’t heated. Ministers who had read the submissions and had something to say would invariably be heard, and that might provoke a bit of a conversation around the table.

But by and large, I think the ministers were depending upon submissions and attachments being comprehensive and capable of supporting whatever the decision was that needed to be taken. You’d sometimes find that a minister with a particular interest, perhaps the Attorney-General or perhaps a minister who was chairing the Cabinet committee that dealt with social policy issues, would come in and have something additional to say.

But by and large, the ministers bringing forward submissions proceeded on the basis that they and their department had got everything on paper that needed to be there, and therefore there could be a reasonable discussion about the merits or otherwise before a decision was taken, and it seems to work.

DAVIS: I agree with all of that. Collegial, focused on the submissions. If there were factional or other tensions, they didn’t surface in the Cabinet Room; it would be inappropriate for that.

MORAN: The point we didn’t make at the very beginning is that Cabinet is the forum for the government sinking or swimming on a variety of issues. So the ministers know that any Cabinet submission can have some deficiencies, and it’s best if they’re found and sorted out.

But also, the Cabinet submissions are really dealing with sensitive issues that everybody in the government has to get right.

DAVIS: Exactly so.

So they’re collegial. They can be funny at times, and people need sort of light relief.

I remember a Cabinet meeting in which one of the Cabinet members had just turned 50. It was his 50th birthday, and Cabinet sang him happy birthday. Then someone said at the end, “It’s a bit rough to have to spend your 50th birthday in Cabinet.” And he said, “It could be worse. It could be shadow cabinet.” [laughs]

WALKER: When I was reading cabinet diaries, the Blewett and Evans ones, three things stood out to me in my naivety. Let me summarise what they were, and you can react to them or not.

The first one was, as we mentioned earlier, the political strategising mixed in with the executive decision-making. In Neal Blewett’s diary, he talks about the kind of “general waffles” that they had, with Keating giving a broad, sweeping state-of-the-nation-type address to the Cabinet.

The second was…and maybe this was not so much a feature of your experiences in the Rudd, Gillard and then Albanese Cabinets, but it’s funny to contrast the formality of British Cabinets, which you get in accounts like Richard Crossman’s account of the Harold Wilson government, with the occasional informality of Australian Cabinets [laughs]. There are so many anecdotes. A couple of days ago in a bookshop, I just happened to pick up the new Troy Bramston biography of Gough Whitlam and just turned to the page where he’s describing the Whitlam Cabinet, and there’s Whitlam swearing at his ministers and throwing his papers across the Cabinet Room and all sorts of things like this. [laughs]

MORAN: Sounds right. [laughs]

WALKER: It was obviously an infamously rowdy Cabinet, maybe an outlier. But even in — was it in Gareth or Blewett’s Cabinet diary? — that there’s a story of Keating opening Cabinet by saying not to listen to the ABC in the morning because you can’t have “fuckers filling your mind up with shit at 8:00 am.” [laughs] So it’s funny how the Australian style is a little bit different.

And then the third thing, which I think we should talk about, is how much latitude the PM has to chair the meeting well or poorly — and the PM’s skill as a chairperson seems to be unusually important to the quality of the decision-making. Which is interesting because it’s not something most people might think about when you think about what skills are needed to be a good PM: the ability to chair a meeting well.

We’ve had PMs with different styles of chairing over the years. I think Menzies was famously very good at synthesising the debate and summarising it as an outcome which was pleasing to everyone, even people who probably didn’t agree with the outcome. Whitlam’s Cabinet was very rowdy, as we’ve said. Fraser was very domineering but he pushed people because he wanted to test ideas. Hawke was the kind of relaxed consensus-builder, he didn’t state his views too early but — and this is a quote from Gareth Evans’ diary — he could let debates turn into “Esalen sessions” which dragged on too long and sucked up ministers’ time. Howard was very punctual and businesslike. There are varying accounts of the Rudd Cabinet, but pretty negative ones in Paul Kelly’s book Triumph and Demise. Chris Barrett, who was Wayne Swan’s Chief of Staff, talks about the meetings being run inefficiently, and sometimes Rudd would use them as personal briefing sessions. Terry, I’m not sure if that checks out with your experience.

But the general point is that there’s this range of different styles which seem to matter to the outcomes and to just how well the government runs. I mean, the pace of decision-making could sort of grind to a snail’s pace, or it could be too fast, depending on how the PM chairs the Cabinet.

So could you step me through some of the, I guess, on the one hand, hallmarks of a good chair, and then, on the other, are there any habits of chairing a Cabinet that reliably produce worse outcomes for government?

DAVIS: [laughs] I think you touched on a number of the hallmarks of really good chairing. The ability to let people speak and not dominate by saying what you want out of this discussion early on, as a chair, is crucial. If you start the meeting by saying, “I’m looking for us to do this and this,” you’ve killed the debate before it has started and people will resent you for it.

If they have a chance to speak and to hear the same evidence that you’re hearing, and then you can sum it up well and provide a pathway that most people in the room can nod and say, “That makes sense,” that’s an excellent outcome.

And the chairing matters for the reason we discussed before. A PM who’s seen not to be able to manage Cabinet would quickly lose the confidence of the senior ministry, and then the broader backbench. It’s such a core skill to the job. If you couldn’t do it at least passably well, then it really matters.

The timeliness thing matters. You mentioned John Howard and timeliness; it is hugely important. There’s always such a backlog of things waiting to get to Cabinet. There’s so much material running around that if you can’t efficiently move it through, then the whole of government becomes...

Toward the end of the Hawke years, there’s a famous case about a mining lease that the government just couldn’t make a decision on, and they kept coming back and back. Gareth Evans’ diaries talk about that as a sort of signal to the Cabinet that the Prime Minister was, in their view, losing the grip on the role, and it was important in their thinking about, “It’s time for change.”

So the ability to keep government moving, to be responsive to your colleagues but to give clear direction at the end, [matters]. You want, for better or worse: “We’ve dealt with this matter. It’s finished. It’s over. It’s a clear and unambiguous decision. Now we get on with it and we move on.” Those are the skills you look for in a great Cabinet chair. Styles matter because people are different, and there are times when you do expect people to sit back and you just need a bit of venting and you let people do that.

But overall, you need things to keep moving. Above all, you need them to keep moving. You’ve only got two hours max to get through 10 of the most significant policy items in front of the nation every week. And if you can’t do that efficiently, then sooner or later people are going to get very angry that their issues are not getting dealt with.

MORAN: I’ve worked for two prime ministers and two premiers. One prime minister got into a spot of bother, but I don’t think it was driven entirely by the Cabinet process. Although the anxieties of some Cabinet members were apparent at Cabinet meetings, their anxieties were dependent upon a whole lot of things outside the Cabinet Room itself.

And so, one could have a very interesting discussion about what can bring down a prime minister or a premier, but there’ll be such a variety of possibilities that it won’t take you very far.

WALKER: Alright, so I’ve got some general questions about Cabinet and then how—

DAVIS: You’ve done an extraordinary amount of work for this discussion. Well done.

WALKER: [laughs] Thanks. Well, we’ll see what you think of these next ones. Obviously, one thing I learned is that big decisions don’t always happen in the full Cabinet. They can be stitched up in the PMO, in ERC or some other committee, or in the corridor of Parliament House. From your vantage point, what fraction of important decisions are genuinely forged in Cabinet, and what fraction are settled elsewhere and then merely endorsed by Cabinet, roughly speaking?

MORAN: Well, I’d say most decisions are worked out before the meeting and go through.

DAVIS: Yes, but it would be a mistake to think of that as Cabinet not working, because what happens is there are negotiations, discussions—

MORAN: There’s a process.

DAVIS: There’s a process that gets you there. By the time it gets to Cabinet, you are broadly looking at an agreed set of recommendations.

Not that everyone in the room will necessarily agree, but you’re not dealing with a...

WALKER: It’s a feature, not a bug.

DAVIS: Yes, and so those sorts of more tense, emotional and angry discussions are not going to happen in the Cabinet Room. They’re going to happen a long way back. They’re not going to happen in public. They’re probably not going to happen with public servants in the room. Or they’re going to happen in committee meetings.

I have seen committee meetings get pretty heated, at state and Commonwealth level, and that’s because people have genuinely different, strikingly different views about what’s the right thing to do. It’s the right process, because you then have the argument and you can move to a decision.

MORAN: There are committees that can be a bit difficult: those in social policy, those dealing with expenditure of government funds — the Expenditure Review Committee, for example — and conceivably those considering complex legislative suggestions.

DAVIS: Agree with all that.

MORAN: But the third thing is less likely than the first two.

DAVIS: Agree. Sometimes you get an iconic development proposal in which people have a view for or against a development, and there’s no way to resolve it except to have the arguments and then it’s a majority vote. They can be, in my experience, the most emotional, because it’s how you feel about native forests or ocean pollution or whatever the issue happens to be.

You’ve got people who’ve got strikingly different views, but they also represent constituencies that have strikingly different views, and there is no easy resolution of that. And so you do need a process that forces you to step through it and then make a binding call.

MORAN: And the good thing about the Australian system, at the state level and at the Commonwealth level, when compared with other similar democracies, particularly in America but also to an extent in Westminster, is that the whole process is genuinely well understood by most of the politicians on both sides of politics in Australia.

If they don’t know something, they know it’s quite easy to get most solutions or most answers that you might need from the Cabinet handbooks. And so there’s no excuse for them saying, “Oh, I’ve been surprised by this. I didn’t realise that this might happen,” because that’s just a lack of application by the minister in question — which happens.

But the colleagues don’t necessarily look upon that fondly.

WALKER: Right. So when the Cabinet debate isn’t going the PM’s way, what are some tricks you’ve seen prime ministers use to get their way in Cabinet? [laughs]

MORAN: Bad language. [laughs]

Well, I’m not serious about that, because if it’s not going the Prime Minister’s way, it might be set aside for a further discussion outside the Cabinet involving selected ministers.

WALKER: Right. So they’ll defer it. They’ll say, “We need more information,” or something.

MORAN: Yeah, something like that. It doesn’t happen often, because people know once you get to the Cabinet table, you have to make the decisions one way or the other.

And the only person that can deflect that would be the Prime Minister or the Premier, who’s not happy with where their colleagues have got to and doesn’t want the decision to be taken. So you send it out for a bit more work.

WALKER: When big mistakes are made by a government, so things that prime ministers and ministers come to regret, what’s typically the root cause of those mistakes? Is it junior public servants not having thought through the unintended consequences of their advice? Is it the Cabinet making decision-processes that don’t facilitate the right outcome? Have you noticed any patterns? When mistakes are made, what’s the root cause?

MORAN: In a few cases, the cause of the reaction was a feeling that the matter X, whatever it was, had not been subject to sufficient political scrutiny so that the government could proceed without danger.

DAVIS: Yeah, I think that’s really common, because often policy choices and political choices don’t match up. And so a Cabinet might, in good faith, make a policy choice without having thought enough about the politics, or the other way around.

Particularly if they rush a decision in response to some public crisis or moment, you can often see bad choices made. What happens is governments then, at the next election, just quietly drop whatever it was that they recognise didn’t quite work as they expected, and they move on. They don’t ever say, “We made a mistake.” They move on.

But it’s a lack of prep[aration]. It’s rushing into choice. It’s not having considered carefully enough the consequent electoral and other consequences.

There’s another factor, and that’s the temporal one. What makes sense at one time turns out not to make sense over the long run.

The case that a lot of people are talking about at the moment is the raising of tobacco taxes to discourage smoking. That was a widely accepted public health initiative that worked well, and we saw Australia’s use of tobacco decline very steadily over a long period.

What I think few people anticipated is that we might hit a point where the incentives to—

MORAN: ... to bring in tobacco illegally—

DAVIS: Yeah, a black market and the development of a... Now, that wasn’t an intended consequence, and I don’t think it was a discussed consequence, because I think the assumption was that the use of tobacco would just trail off until there would be no point in a black market. That’s not been the case.

So there you get a case of what made sense for a long time — and not just briefly, a long time — making less sense. But most people would say, “Okay, so what do we do now?” And that’s what’s not obvious.

You don’t want to give in to a black market. On the other hand, prohibition has not got a long record of success in most areas. So what are you going to do? And now you have to have a new and quite awkward policy discussion, because your policy instruments, which worked really well for a long time, suddenly no longer work.

WALKER: Can you think of any examples of physical exhaustion impairing the judgment of prime ministers or ministers and degrading outcomes?

MORAN: Not really.

DAVIS: Not examples. We’ve all seen exhausted people, and so it’s more likely to result in bad behaviour and snaps and unpleasant workplace moments. Less likely — again, because we’re discussing routines for decision-making that have channels and processes and timelines, it doesn’t play in as a factor.

You could imagine an exhausted Cabinet eventually agreeing to something because they were just so tired and sick of it and they just wanted it to go away, but I think the process mitigates against that. The decision-makers at any one time might be exhausted, but all of those people who were working on the process on the way through are not in the same place, and they’re likely to give the same advice.

WALKER: Terry, what about Kevin Rudd deciding to shelve the CPRS in the Strategic Priorities and Budget Committee? I think he’d just come off a kind of two-day mammoth set of meetings with the state premiers about... This was when he was trying to do his health reform. And then he made the decision immediately after that in a meeting of the SPBC. How much do you think his personal physical exhaustion played a role in that decision, which I think he said he now regrets?

MORAN: Well, it’s hard to know, because he had a great deal of stamina on almost any occasion which was not necessarily beguiling, but it was real. And so I don’t think the stamina issue was the point there.

He was a politician with very good judgment on both good days and bad days.

WALKER: So it’s interesting that your tenures as Secretaries at the federal level overlapped with our two biggest national crises of this century. Terry, you were obviously Secretary during the global financial crisis. Glyn, you caught the tail end of the pandemic.

If we take the Strategic Priorities and Budget Committee and also the National Cabinet as inspiration — I don’t want to talk about those two examples in particular; I more want to reflect on the general principle, but just using those as a kind of primer — how different is the optimal decision-making format in times of crisis to the optimal decision-making format in normal times, if you think about Cabinet and the machinery of government?

MORAN: Well, take the one that you mentioned, which was the global financial crisis.

Kevin [Rudd] said, “I want to have a meeting every day with you and people from PM&C and Treasury, and there is to be a briefing that goes to what’s happened overseas in the night before as part of all of that, plus any actions that might be needed.”

And Ken Henry was fabulous in doing all of that. He really got Treasury wound up to deliver. The relevant Deputy Secretary in PM&C who handled it was ex-Treasury and a respected economist. So all I had to do was orchestrate the meetings and the contributions, because the most capable people you could have advising the Prime Minister were at the table.

DAVIS: And I should say, in fairness, I came in right at the end of the COVID crisis. The heavy lifting was done by Phil Gaetjens, who was my predecessor, and by Prime Minister Morrison.

By the time I came to PM&C, the architecture that had been developed through COVID was firmly in place and well developed, and the National Cabinet had become the core institution for making national decisions. It continues, though not with the urgency it did through the COVID years.

It was quite a significant shift from the former Council of Australian Governments, the COAG process that both Terry and I knew and loved — [laughs] as state officials.

WALKER: Speaking ironically, of course. [laughs]

DAVIS: Yes. As state officials, and then something very strange about ending up on the other side of the table in PM&C.

What it did was show that national institutions can change. None of them appear in the Constitution, of course. They are all informal in that sense, and they’re custom and practice, and they’re now well established. But it was a remarkable shift, and it happened in a relatively short space of time.

And it was actually encouraging that a democracy in a crisis—

WALKER: Can be nimble.

DAVIS: Can be so nimble.

WALKER: Yeah. I have a question about National Cabinet, but we’ll come back to that towards the end. Speaking at a very high level, it seems like more centralisation in a time of crisis is appropriate?

DAVIS: Not surprisingly.

WALKER: Yeah. Yep.

MORAN: Well, selective centralisation. So you don’t have everybody in the room. You just have people who are capable and have something substantial to contribute.

When that comes down to economic issues, you don’t actually tend to want to have the Reserve Bank in the room, but you do want to have the Treasury and some people out of finance and the economists out of PM&C. And that’s what Kevin was making use of.

WALKER: Yeah. So if you could change one thing about the machinery at the centre as it exists today — so one rule, one committee, one role, one bit of digital infrastructure, whatever — to improve the quality of federal decision-making, what would you each choose?

DAVIS: [laughs]

MORAN: Give me the options again.

WALKER: Surely some things have bugged you when you were working there. It could be anything, for example a rule, a committee, a sub-committee, some digital infrastructure, a role that doesn’t exist that should or that does exist that shouldn’t. Etcetera.

DAVIS: The key thing you’d want is more time for almost all of these processes, but particularly for Cabinet and committee meetings, because everything always feels like you’re running out of time, you’re running short of time.

There’s no way to arrange the rest of life. [laughs]

WALKER: How do you create time?

DAVIS: Well, you don’t. If you’re a parliamentarian, if you’re a minister, if you’re a Prime Minister, the work you do in policy, the work you do in the Cabinet, is one small part of a much bigger portfolio of things you are constantly doing. And you’re trying to fit this in amongst everything else you’re doing as well. The exhaustion factor is non-trivial, because it really is extraordinarily demanding.

As officials, we would like more time with our principals to work through the Cabinet decision, to have a better sense of their preferences, and often that is actually a challenge. You go in to brief on an issue that they haven’t had to deal with before, they haven’t had time to think through what they think, and you’re trying to get a sense of, “What would be useful for you in helping to make this decision?” Again, it’s just down to time. You get your scheduled time to talk with them, which is really important, but it isn’t ever enough for anybody.

Everybody’s got the same poverty of time, and if there are life hacks to do with that, that would be great to know about, but I...

WALKER: “The poverty of time” — that could be a good title for a memoir of a former Secretary of PM&C. [laughs]

DAVIS: [laughs] Yeah.

MORAN: Well, by the time a Cabinet paper goes forward to Cabinet, all relevant people within government will have been consulted, and that will have influenced the nature of the decision that is available to be taken.

Mainly, in my experience, the papers that have been done on that basis go through bang — it’s not a problem. And the issue that becomes a problem is where there’s a troubling political overlay that has to be considered. But that doesn’t necessarily torpedo proposals being brought forward; it just causes a testing of those proposals with regard to the anxieties that a minister or whoever might have. Would you agree with that?

DAVIS: I agree with that entirely. Most things go through Cabinet quickly and efficiently because they have been so thoroughly road-tested that they’re not contentious.

So they invest their time on the handful where it’s really difficult to know what the right call is. And they’re often recurring issues, issues that can’t be resolved simply. They’re environmental controversies, they’re complex decisions about energy transmission. They’re the things that actually need multiple goes to get through.

We’ve just seen the environmental protection and conservation legislation go through, and the number of iterations of that over a couple of years was extraordinary because it’s such a complicated piece of machinery. You don’t make a decision. There are elements that need to be worked through systematically, and you can’t make some decisions until you’ve made decisions on the earlier ones. So you get multiple passes at it.

That’s necessary; you couldn’t easily avoid that. They are just time-consuming. And you are trying to balance interests: you’re trying to balance political against policy outcomes, you’re trying to balance development against environment. These are fundamental choices, they’re not simple, and you can’t do them in one hit. And so a lot of Cabinet time is taken up often with those sorts of very specific, very technical issues.

MORAN: In my experience of Cabinet consideration of issues, there weren’t many that had to be delayed for further consideration, largely because if they had to be deferred, there was some deficiency in the scoping of the policy challenge ahead, and/or the political challenge ahead.

So, by and large, again, you wouldn’t expect a significant issue to lay on the table with the Cabinet for six months. It’s not the way it works.

DAVIS: Once it’s ready to go to Cabinet, they just want it done and fixed.

MORAN: And they, one way or another, quickly make a decision.

WALKER: So by the end of your time this year, there was nothing that really bugged you — a process or system, that you thought, “I needed to fix that, but I haven’t had a chance to fix it”?

DAVIS: There are a thousand things you’d like to do differently. That’s not the point. It’s not your system to play with; you are part of the system.

Yes, you get a very influential voice from PM&C, but you don’t get to control everything. On the contrary, the system works best at a public service level when there’s good collaboration across the core central agencies.

When Treasury, Finance, Attorney-General’s and PM&C work well together around issues, and that goes to how the Secretaries Board runs, it goes to how a lot of the inter-departmental committees run. It’s the key role of the deputies, as Terry mentioned. They are really important.

You look for deputies who can take control of a policy issue and manage the work across government around that issue. That’s part of their role; it’s why they’re there. You try to choose well so that you get skilful people. I think Terry and I would both say we had the chance to work with some fabulous people who showed that over and over again.

A lot of the tricky issues have to be resolved internally at the bureaucratic level before they get to Cabinet. I can think of some very specific examples where there were just months of work, often with the state government involved or a major corporation or a sector, before you wanted to get anywhere near Cabinet.

Because you didn’t want to put in front of Cabinet something that hadn’t been worked through. Even if you didn’t know the answer, you needed Cabinet to have the chance — which you would often do in committee — to say, “There are three choices here and at this point what we need is an indication from you about which way we should develop.”

So, in asking you to make a final decision, we just need to know: is the inclination to go one of different ways? That’s the sort of routine work that’s going on behind the scenes long before it actually gets into a Cabinet recommendation.

But Cabinet recommendations are recommendations. You don’t put up options; you put up the recommendation. And you don’t get to that easily on really major issues.

WALKER: Imagine I become PM and I decide to make solving the housing crisis my top national priority. I say, “This is what I want my economic legacy to be. I want to be known as the guy who solved the housing crisis, and I’m going to try and do it in three political terms.”

Concretely, how is that new top priority reflected in the machinery of government, the org structure of PM&C, Cabinet committees, etc? Do I, as PM, set up a Cabinet committee for housing policy? Is a housing group added to PM&C? What happens exactly?

MORAN: Well, you’ve got to find a good source of advice on how you could solve the problem. Setting up a bureaucratic arrangement won’t solve it.

You’ve got to have a strategy for doing it. And, so far, the Commonwealth has struggled with getting a strategy. Even when Glyn was there, they were struggling to get a strategy because everybody was thinking in terms of putting it out with the private sector to build things. But that doesn’t necessarily get you what you want.

DAVIS: Terry’s right about a sequence. Until you know what you want to do, there’s no point setting up machinery.

WALKER: But say I’ve decided that. Take that as given.

DAVIS: You’re right about sequence. We’ve seen recently something that pretty much follows what you’ve just said. The government, having decided on its priority, assigns a minister, creates a new division — in this case, within Treasury — brings new skills into it, puts it on the National Cabinet agenda, and gives it enormous impetus in terms of funding. Because the ambition to do 1.2 million new homes is an extraordinarily ambitious agenda and requires, therefore, a real allocation of resources.

I guess the thing about government is you can’t just do one thing. You never have that luxury. Yes, you give it enormous advantage, you really get on with it and try to set up the structures that will allow you to do it, but what you’re trying to do is set up the structures so that that will continue while you turn your mind to the hundred other things that are going to need your attention.

So, yes, you have major priorities, but you cannot just have only priorities. We’ve seen lots of governments around the world that have announced they’ve got five key priorities and that’s what they’re going to focus on, and it lasts just a bit longer than the press release.

In the end, the reality of government is you think about the multiplicity of services you’re providing, the groups you’re supporting, the programs that you need to continue or to focus on. It does not allow for extreme focus. Even at state level, that’s very hard to do.

Governments always have signature programs, but they can’t just have those.

MORAN: So I would go to the department and say, “Could you dig out the old papers on what Sir Robert Menzies did, and also find out how he decided to handle the states and what they would do?”

Because Menzies faced this problem after the Second World War, and he actually got it all done. He got all these houses done, this land developed, all that sort of stuff. It wasn’t done just by trying to get a few companies interested in developing land or building apartment blocks.

It was done by going back to what we were talking about before. In Victoria’s case, to get through the state government, to get various things built, and all the engineering stuff that needed to be done was done through government arrangements. And it worked.

Now, we’ve embarked upon an approach where we are largely reliant on what the private sector can do, and it doesn’t seem to be solving the problem. Now, you won’t agree with me entirely, but that’s okay.

DAVIS: No no. And, as a sidebar, what’s interesting is that under artificial intelligence we now have access to all those briefs back to the Menzies period. We can interrogate them instantly. We can actually look at consolidated policy advice over decades, and we can try and have a more informed discussion about what has worked in the past and what might work in the future.

MORAN: Well, to comment on that, going back many, many years, what the Liberal government in Victoria did was set up arrangements to do a lot of the work that, under the current arrangements, is left to the private sector.

And so there was an entity that had the job of taking land and developing it for houses and other things. And there were a number of different agencies that got houses built on that land and other land. So it all worked very quickly in a way that is avoiding us at the moment.

DAVIS: Yes, but it’s also a reminder, isn’t it, that a housing question crosses a whole lot of government. It’s got to do with skilled labour, it’s got to do with financing, it’s got to do with taxation policy. Housing isn’t [just] housing; it’s actually something much larger.

The fascinating question is how, at a government level, you coordinate all of those policy inputs to try and get to an outcome.

MORAN: When Menzies approached Victoria, he managed to get a cooperative government on both sides of politics, over a period of time, to do the job. And I think, likewise, in New South Wales.

DAVIS: Yeah. Well, I’m not suggesting despair, but I’m just saying it’s a nice example of complexity and having to manage complexity.

MORAN: So I’ll finish up by saying that we assume the private sector can do almost anything, do it well, do it quickly, and do it at no great cost. But that’s not true. Many of the things that need to be done, they can’t do well.

Robodebt, employment services — disasters when they were contracted out to the private sector. But Canberra, under the influence of Treasury, still believes that if you want something done, do a contract with some firm and get them to do it for you. They might, but they’ll make a great profit out of it as well.

I think we’re being a bit naïve about who can do what with speed in an emergency. And housing is an emergency at the moment.

DAVIS: So you promised to be controversial, and here we are. [laughs]

MORAN: Oh, well, I can go a bit further if you like. [laughs]

WALKER: Please. [laughs]

Would it be fair to say that unless I established a committee or sub-committee of Cabinet for housing, I’m not truly serious about solving it? Or is it difficult to answer because it depends on what my policy is, and that might affect whether I need a committee or sub-committee?

DAVIS: Well, committees are there for a purpose. If you know the variables you need, you can just directly talk to the relevant ministers. You talk to the Immigration Minister about workforce needs, and you talk to your Education Minister about training, and so on.

Committees are most valuable when you actually don’t know what you need, and you broadly need to bring a group of people together to work your way through, to be clear about what it is that is going to be in play. So the committee might come a little earlier in the process and then—

WALKER: Maybe we do an ad hoc committee or something.

DAVIS: Yeah, and that’s not uncommon.

MORAN: Could I go one step further to test your patience on this issue?

WALKER: Yes, please.

MORAN: Arguably, what’s gone wrong with the public service here and in Canberra is the effect over many years of Treasury zealots migrating from the Treasury Department or the Finance Department in Canberra into departments, to have a strong hold over how policy is developed.

What’s been neglected is preparing public servants in various jurisdictions, including here, who have the ability to actually make things happen — like housing or land development. That’s what we used to do when Sir Robert Menzies was around, when he found a reasonable basis of dealing first with John Cain Senior’s government and then the subsequent Liberal governments in Victoria. By the time all of that was done, there had been a huge amount of land development for housing, and there’d been a great number of social housing units built all over the place.

It’s Treasury which says the only way to get anything done is to contract it out. That’s not true. Treasury — and its ideology — is standing in the way of getting some important things done in Australia.

DAVIS: So I’m just reflecting, with a little bit of irony here, how hard it is now to hire economists into the public service.

MORAN: Good. [laughs]

DAVIS: I don’t think it is good. We’ve gone from a period where people wrote books complaining that economists were running the entire APS to now it actually being—

WALKER: What was one of those books?

DAVIS: The managerialism argument. Various people wrote [on it].

WALKER: So you think it’s the opposite now?

DAVIS: Well, the argument was Terry’s argument—

WALKER: Because Terry clearly hates economists.

MORAN: No, no, no. [laughs]

DAVIS: Some of his best friends.

MORAN: Some of my best friends are macroeconomists.

It’s the microeconomists that I don’t like. [laughs]

DAVIS: [laughs] It’s not the economists, it’s the economic thinking, and in particular the principal–agent thinking that said contracting out was a viable way of managing conflicting interests.

MORAN: I didn’t know you liked economists so much. [laughs]

DAVIS: No, well, I was just ruefully noting that the Commonwealth has gone from people saying, “We’ve got a surfeit of economists,” to economists actually being quite hard to recruit and hire, and that’s just because there are so many other career options and choices for economists.

But I’m also seeing, in my time in Canberra, quite a significant pushback against the earlier attraction of contracting, and a realisation — and there are enough studies around it — that contracting hasn’t always achieved…

MORAN: We’re on the same page there.

DAVIS: On this, well, we might be at a degree of difference here.

It raises a problem, though, because if you decide to bring back into government large sections — which is what’s happened over the last three years — you immediately cop the criticism that you’re growing the APS, there are too many public servants, and so on.

Even the conversion of labour-hire employees into APS employees, which I strongly supported and think is the right thing, now attracts regular complaints that the public service is out of control and growing in great numbers, even though the costs are actually no different.

So we’re going to have that argument again about what is the appropriate scale of public service. Part of our challenge here is that governments are ambitious — they have things they want to do. Citizens are ambitious for the services they want to access. They don’t want to pay the taxes for them — nobody does — but also: how do we do this?

In the past, we’ve tried to do it with a degree of contracting. We’re now at a point where that’s much less acceptable and we’re having to find alternatives. There is a really interesting debate going on about what that might look like, and you and I have discussed it out of session — about relational contracting and the way that changes the dynamics of how contracting can work.

But we are going to have to have this discussion. You can’t be against contracting if you’re also going to be against having more public servants, if you aren’t willing to live with a reduction in what the public service can do. That’s a difficult task.

It’s interesting that the scale of the public service, at least at Commonwealth level, has broadly stayed static against population. That is, it’s grown roughly with the population, even though you can read lots of rhetoric around out-of-control numbers. It’s not the case. But you’re always having to defend absolute numbers as opposed to relative numbers, and relative numbers haven’t shifted — absolute numbers have.

WALKER: I’ll come back to the public service. I’ve got one more Cabinet question.

So, in my last conversation with Hugh White, Hugh mentioned that if, hypothetically, China attacks Taiwan and America decides to defend, the Australian decision to support America won’t be made by the full Cabinet, according to Hugh. But it wasn’t clear to me whether a decision like that would be made by the National Security Committee or in an even smaller group within the National Security Committee...

So I guess the question here is: how are decisions about going to war made?

DAVIS: I’m fortunate to have never been around Cabinet when that decision’s made, but it has been at various times. It’s not a decision I imagine anyone would make lightly.

The National Security Committee is likely to discuss such a matter, but I think it unlikely that it wouldn’t then be referred to the Cabinet. NSC after all is a committee of Cabinet, and I would expect it to be referred to the Cabinet. But let’s hope we never find out. Terry?

MORAN: Yeah, I agree. Hugh is a deep skeptic about America these days, and that probably feeds into his view as to how you’d handle the situation you described.

But I’m a bit of a skeptic about America as well in those circumstances, and I can’t see that, in the face of all of that, our prime minister could avoid going to Cabinet on the issue of whether we go there in support of America or not.

WALKER: So you think it would need to get endorsed by the full Cabinet?

MORAN: Well, it’s potentially so controversial because of the way in which America is positioning itself, and the way in which China is positioning itself too.

WALKER: Yeah. I’m curious how this happens logistically. Say you’re the prime minister: you get a call at 3:00 a.m. and Australia needs to make a decision within three or four hours about whether to support America in defending Taiwan.

Assume Parliament’s not sitting and your Cabinet are all in different cities. How is that conversation actually coordinated? Is there some kind of secure videoconferencing platform the government would use? Does everyone have to immediately jump on a flight back to Canberra? Because there’s a real time constraint here. How does that happen?

DAVIS: Yeah, this is one where I’m gonna drop out, because—

WALKER: Too sensitive?

DAVIS: It goes into administrative and security arrangements I don’t think we should be discussing.

WALKER: Yeah.

MORAN: Yeah, fair enough, and I’m reluctant as well. But the IT links around Australia, for the use of ministers in circumstances like this, aren’t too bad. So I don’t think that getting people together — which would take time — is an obstacle to people sitting around and making a decision.

WALKER: Mm. And if you think we need an endorsement from the full Cabinet, does that mean that in three or four hours we have to try to coordinate the full Cabinet to make a decision about supporting America?

MORAN: Well, ideally you’d hope that that was the way it was handled, but there may not be time for that to be the case.

WALKER: In which case it might just be the NSC.

MORAN: Yeah.

WALKER: Because the NSC can make decisions that don’t need to be endorsed by Cabinet, right? There are two committees that can: the Parliamentary Business Committee and the NSC. So the NSC could make that decision without the endorsement of the full Cabinet.

MORAN: Well, the prime minister would have to decide on that. And if the decision were going to be held through the NSC, there’d then have to be a follow-on so that all of the Cabinet was informed as to what was happening, which is not hard to do.

WALKER: Okay, to finish on a somewhat lighter note, I’ve got an assortment of questions more or less loosely relating to state capacity.

So, if we laid off the bottom 10% of performers across the APS tomorrow, what would happen in the medium term? Put aside the question of short-term disruption. On a continuum from “the sky falls in” to “nothing happens” to “actually the APS becomes quite a bit more productive,” what happens?

DAVIS: Well, think for a minute about where the workforce is because 10% across the board means 10% fewer people running the NDIS, 10% fewer people in the defence forces. Where are the big workforces? They’re either in service delivery or they’re in defence.

We can talk about what defence cuts might look like, but what it would mean for the big service-delivery agencies — for Services Australia, for NDIS, for the health system — would, in my expectation, be directly felt by the public very quickly.

MORAN: Different parts of that system you can’t tamper with. You can’t not use the health system as we know it to do that side of the problems.

But in respect of things like some of the social-welfare-type programs — like employment services, as was mentioned, and others — you could actually seek to set up a collaborative arrangement with the states and the local-government entities, to be service-delivery agents funded by the Commonwealth.

And the benefit of that is that they’re much closer to the communities affected than would be the companies that might do that work. The way in which companies have done the employment-services work has been remorselessly criticised over the years, but they still get the contracts because the Commonwealth doesn’t want to change it.

DAVIS: Doesn’t want to employ the people that would be necessary to deliver it.

MORAN: Ah, well, no — if you decide to do an arrangement with the local government, as I suggested, all you’ve got to do is give them the money and the guidelines as to what they’ve got to do.

DAVIS: Yes.

MORAN: And I’ve been talking to the local government recently on this very point, suggesting that they should give it some thought.

DAVIS: [laughs] Indeed. But I guess what you’re saying is: if you’re going to do this damn stupid thing, don’t do it in this damn silly way.

If you’re going to knock off 10% of the workforce, do the prep work in advance and think about the different delivery system, rather than imagining you could make the system more efficient just by firing.

MORAN: Yeah. But no rational government would do it if, correctly, the public service advised them on the consequences at the local level of doing just that.

DAVIS: Yeah.

WALKER: Is there actually a mechanism that exists — say you wanted to lay off the bottom 10% of performers — is there actually a mechanism that exists to do that? Are there grounds to do that?

MORAN: Well, how would you define low performers?

WALKER: Get managers to give you a score or something.

DAVIS: You don’t do an ordinal ranking.

MORAN: You’d have a revolution.

DAVIS: Yeah. Very few companies would do that, if you think about other players outside of government, unless you had a very reliable system for knowing who your performers were and being able to rank them from one to a hundred, basically. It’s crying out for things going wrong as an approach.

MORAN: Right-wing savants have these dreams, but they don’t work them out in practice.

WALKER: But you’re not calling Joe that, of course.

MORAN: [laughs] No, he’s not a right-wing savant.

WALKER: This is Socratic questioning. I don’t necessarily agree with the questions I’m putting. [laughs]

Okay, next random state-capacity question.

In a congressional system like in the US, obviously the president has greater scope to pick experts from across society to join his or her Cabinet, whereas obviously in our parliamentary system Cabinet’s formed from the parliamentarians. So it’s interesting how many different fields a single minister can potentially be responsible for across the course of his or her career.

Just for illustration, here’s the range of portfolios held by Kim Beazley during the 13 years of the Hawke–Keating Government:

• Minister for Aviation;

• Special Minister of State;

• Minister Assisting the Minister for Defence;

• Minister for Defence — which is obviously the role he was best known for;

• Minister for Transport and Communications;

• Minister for Finance; and

• Minister for Employment, Education and Training.

So that’s interesting in and of itself.

Separately, you also have the problem that, as we’ve discussed with respect to ministerial workloads, you’re not just being a minister, you’re also accountable to Parliament. There’s a whole lot of parliamentary business that detracts from your time, at least when Parliament’s sitting or primarily when Parliament’s sitting.

So, just as a thought exercise, holding everything else constant: if we could somehow switch Australia to a congressional model — so our ministers are picked by, I guess in this case, the president, and they’re not members of Parliament — would that be a net negative or a net positive for Australian state capacity?

MORAN: Net negative, in my view.

WALKER: Why is that?

MORAN: Well, because if you look at the American system, you’d say, “Shit, do we want that?” [laughs]

WALKER: Mm. But we hold everything else we love and cherish about Australia constant, and we just change that somehow.

DAVIS: You’re right to point to the trend. In my time as a Vice-Chancellor, I worked with 11 different higher-education ministers, who lasted on average 18 months or thereabouts — maybe two years.

That high turnover, in one sense, it’s why you need a good bureaucracy. If you’re going to turn the ministers over that quickly, that’s where the continuity comes.

But you can’t hold everything else constant and change something as fundamental as the role of ministers. Ministers are drawn from Parliament, accountable to it. It’s Parliament that approves the legislation; it’s Parliament that approves the budget they operate in.

We’ve talked about Cabinet government and executive government, as we should, but it sits in a wider context of a representative democracy. I don’t think you could fundamentally change that in our system. Others have tried.

The Canadians, for example, have a system where you can sort of be parachuted into the Parliament in order to be a minister. Other countries have similar things.

You could make it work in our system, potentially, but you’d actually be changing more than you think. You’d be changing the legitimacy of a minister to make decisions.

But also, Parliament is a pretty good training ground for the skills you need to be a minister — a pretty good way of sorting out who’s got the capacity. You mentioned Kim Beazley’s many portfolios. I think you could argue that he became a very effective minister over time precisely because he saw so much of government and understood how it worked.

By the time he hit the Defence ministry later in his career, he was a formidable Defence Minister because he brought a decade’s worth of ministerial experience. He knew how the Cabinet worked, he knew how to get decisions made.

You don’t start there — you’ve got to learn. I can remember, again, discussions with premiers about saying, “We could have fewer ministers,” and the premier saying, “Yes, we could. But to be good, you have to first be bad — or at least you have to be inexperienced. And to do that, you need some more junior portfolios people can learn in, so that they acquire over time the skill and the attributes.” You wouldn’t lightly give that up.

MORAN: In the Australian context, ministers are there to provide political leadership, political evaluation of what might be done in a portfolio, and to be answerable to colleagues — i.e. the Cabinet — who are all more or less of the same composition in terms of their experiences.

And my judgment is that it works well. Occasionally, you get people in the private sector saying, “Well, you know, we should just have a few business people in there to really make things fly.” But the truth is, when business people are put onto the boards, or even to be CEOs of government enterprises, it doesn’t necessarily make a huge, great, big difference.

DAVIS: Max Weber talked about politics as a vocation. And like other vocations, it had to be learnt. It needed time. It needed dedicated opportunities, and you need people who are committed to learning those skills.

They are very different skills from being a senior official or being a great business leader. They’re quite a distinctive set of skills, and they have to do with being able to communicate to the public and being able to sense the public mood and bring that into your political decisions. None of that is intuitive. It all has to be learned.

It takes time.

WALKER: And there’s no course, there’s no induction.

DAVIS: Well, there are plenty that claim, but no. It’s the sort of 10,000-hours argument.

That’s why, when we’ve had experiments parachuting people into politics, it’s generally not gone as well as people thought.

MORAN: Yeah, yeah. And so many of the people who did go into politics and ended up as ministers — Kim Beazley being one of them, Gareth Evans being another — they were exceptional performers. And there are others in the same category on both sides of politics.

And so I spend my time talking to lots of senior people in the private sector. I wouldn’t want any of them running a government department. [laughs] Because they’re not attuned to the community’s feeling about things, and the community’s expectations of what a given department might do.

DAVIS: Yeah. I’m less persuaded by that around agency leadership than around political leadership.

MORAN: Oh, sorry, I meant to be talking about political leadership, as ministers supported by public employees.

DAVIS: Absolutely. Yeah. I’ve seen plenty of very skilled people come in laterally into leadership roles in the public sector and do very well. It can be done, but it’s because running organisations has more in common.

MORAN: And I’ve recruited a few of them, but the good ones are fairly rare. [laughs]

DAVIS: Yeah.

WALKER: So let me ask you a kind of narrower version of the question.

Assume that we don’t change the parliamentary system — but somehow you could guarantee that each minister has relevant expertise in their portfolio. Would that actually be better or worse than the current system of ministers being, I guess, informed amateurs? Because maybe there are virtues to being an informed amateur. Maybe you don’t need expertise; you can bring that in…

MORAN: I’d put it slightly differently.

I would say that ministers, wherever they come from, should be open to advice from the senior public servants they deal with as to the policies and so forth which should be pursued. And, that being the case, ministers have to be given time to become aware of the nuances they will face looking after a department or agency or whatever.

To an extent, many of them now do have an opportunity to get those skills. And it’s working better here, frankly, than it does in Britain or the United States.

DAVIS: “Amateurs” is a patronising word, and it’s why I’d be cautious about it.

WALKER: Renaissance people. [laughs]

DAVIS: Being a minister is a profession in itself. And [for] the good ones, it’s not about the content; it’s about judgment, and political understanding, and skills, and the ability to persuade. It’s a set of skills. Yes, content is great, but it’s not the be-all and end-all.

In a sense, part of judgment is being able to look at the advice you’ve been given by your agencies and say, “I’m comfortable with this,” or, “I’m not comfortable with this for these reasons.” And, to go back to Cabinet processes, part of having to write a Cabinet submission like that is you’re telling the minister long before it gets to Cabinet, “This is our understanding of the problem. This is how we’ve proposed to address it.”

And the minister might say, “I don’t share your confidence that you’ve understood the problem.” That’s not uncommon. Ministers send back draft submissions and say, “You’re going to have to show me that this is as you’ve understood it.”

In a sense, they’re exercising judgment. They don’t have the content, but if they’re not persuaded, they’ll say, “No…”

MORAN: Colleagues won’t buy it.

DAVIS: Colleagues won’t buy it, and no citizen will buy it. “That’s not a plausible logic that you’re giving me here — go back and do some more work.”

MORAN: And that’s actually a strength of the system. Not an occasion to amalgamate two different types of work: what a minister’s likely to do as a politician, and what a minister might do running a department or an agency. If you tried to put those two together in the one person, probably neither imperative would fare well.

DAVIS: Yeah. There is the old rhetoric around public servants being experts who are “on tap, but not on top”. In a sense, the profession that the ministers are in is to make those calls.

WALKER: Yeah. It’s interesting that the one exception to this general rule of ministers as informed amateurs is attorneys-general. They’re generally former lawyers. Maybe that’s just because parliamentarians disproportionately are lawyers and so you’ve got—

MORAN: Plenty to choose from. [laughs]

WALKER: Plenty to choose from, or I don’t know — maybe there’s another reason for that tradition.

DAVIS: Well, also, if you’re going to be choosing judges, you want to have at least some expertise.

MORAN: And if you’re a minister who might be dragged before a court at some stage, you’d really like to think that the Attorney-General was competent to give you some advice on what to do.

DAVIS: Because the Attorney-General is considering legal advice and having to make calls on it. In that sense, I think it’s perfectly sensible.

There are ministers who draw on their own professional backgrounds... But it’s a surprisingly young profession, and so people haven’t necessarily got deep professional careers, or other careers, before they come into politics, in a way that was less true in earlier generations.

I mean, we now have a Prime Minister who’s older than the Cabinet — the average of the Cabinet — by a significant margin. That’s probably often true; Howard and others. But if you take the average age of ministers, it’s 40s and 50s, not 60s.

I’m not saying it’s a bad thing. On the contrary, you want diversity and you want span. But to get to be a minister in a government, you’ve usually had to spend a decade in Parliament, or close to it, before you get into the ministry. Which, you start to work back: how long does that give you to develop a deep professional expertise?

So we really are choosing people, we hope, on judgment rather than on content.

MORAN: Yeah

WALKER: Earlier in the year, I had a live conversation with the economists Steven Hamilton and Richard Holden, talking about the handling of the pandemic as a case study in Australia’s state capacity.

DAVIS: I listened to it. It was fabulous.

WALKER: Oh, great. And I don’t know if you can speak to this, or if you even know — maybe this is more a question for you, Glyn. But did you ever get any insight into why the federal government went all in on the AstraZeneca vaccine?

DAVIS: No, I didn’t. And it was a decision made under an earlier government, and I wasn’t in any way involved. So no, I actually have no idea.

WALKER: Yeah. That one still baffles me because even ex ante it was sort of an obvious mistake to put all your eggs in one basket like that.

DAVIS: No, but none of us can see the advice they had before them, and you’re in a global competition for vaccines. And it may have been a pragmatic judgment about what’s possible.

MORAN: Yeah, from what I heard at the time, I think that was probably the reason why they went that way — because they knew they could lock in a supply of very many doses of the vaccine that they might not be able to achieve by going to a number of different suppliers.

DAVIS: So, sorry, we can’t solve the mystery for you.

WALKER: No, no. My search continues. [laughs] My search for answers. But that makes sense. I’ve also heard maybe they were trying to kill two birds with one stone and do some industry policy as well.

MORAN: Oh, that did arise. Yeah.

WALKER: If you could boil it down, what are the specific differences that have meant the National Cabinet has turned out to be so much more effective than COAG?

DAVIS: Well, it had a crisis, and nothing concentrates the mind like a crisis to actually force you to work together.

The test will be — and it’s too early — but the test will be: before and after COVID, the National Cabinet during COVID, and the National Cabinet when COVID was over, and whether life doesn’t return to a more familiar pattern over time, where National Cabinet becomes less effective.

And look, it makes perfect sense. A global crisis that transcends ideology and party affiliation and has to be addressed is a great reason to collaborate and cooperate really effectively. It’s harder to do that when it’s business as usual.

MORAN: I just didn’t see much in it. It was just two different ways of naming something.

DAVIS: The frequency of meetings, I think, was really important. And so they got used to working together in a way that under COAG.

MORAN: But it was still the same people who would have sat around the table for a COAG decision. That’s all I’m saying.

DAVIS: That’s true. I guess there’s something about proximity, about having to spend time together over lots of issues and develop a working comradeship. So it might not have survived even the change of premiers over time.

WALKER: Yeah. I wonder if it’s sort of like that iterated-games thing. It forces you to be more co-operative or something. [laughs]

DAVIS: That’s right. It’s not a prisoner’s dilemma, because you’re doing it multiple times.

WALKER: [laughs] Exactly.

DAVIS: That’s right, yeah.

WALKER: Okay, two final questions. Australia’s “talent for bureaucracy” — where does it come from?

DAVIS: Hancock had a couple of explanations when he coined the phrase—

WALKER: Sorry I think it was Alan Davies who coined the phrase in Australian Democracy.

DAVIS: In Australian Democracy.

WALKER: But you’re right that it draws on themes in Hancock.

DAVIS: Because Hancock has a long description around—

WALKER: Hancock’s famous passage is about Australians viewing the state as a “vast public utility”.

DAVIS: Yes. I do apologise, you’re entirely right. Hancock, though, laments that it’s a very rule-bound public service at the time and has a seniority system. He talks about how, if you want to head the post office, you have to join as a clerk and work your way up over a lifetime.

WALKER: And this is before the days when it’s as meritocratic as it is now.

DAVIS: Yeah. He’s having a dig.

It’s not necessarily all true, because even in the time he’s writing in the 1930s there were some remarkable public service leaders. And then we saw that — and we’ve talked about Coombs — going into the war and seeing Australia through post-war reconstruction. I mean, this is a remarkable group of people.

We’ve always had a large state because of the nature of how we were set up by the British. That really mattered. We have actually been a democracy longer than most countries, so we’ve had longer to develop our system. I know that sounds strange, but it’s actually not. You can run a credible argument that New Zealand is the oldest continuing democracy on the planet, and we’re not far behind. That’s because we had universal suffrage, if that’s the mark of a democracy.

WALKER: From the sort of 1850s-ish?

DAVIS: Well, we didn’t…

WALKER: Universal male suffrage.

DAVIS: Male suffrage. But we had universal suffrage from the early 1900s, and New Zealand was a decade ahead of us on that.

And so you’ve had to have governments that work with the entire population for 125 years. Even the United States didn’t get full female suffrage until the 1920s, and then it takes the laws of the 1960s to make sure that voting rights are available more widely. Whereas we’ve had a genuine democratic system for a very long time. I think that’s a part of it.

We’ve had an activist state; that’s a part of it.

We’re isolated, so we’ve had to fall back on our own circumstances; that’s part of it.

But I’ll have to go back and look at Davies to see if he offers an explanation of why.

WALKER: He doesn’t really. You’d probably find it more in Hancock than Davies.

MORAN: Well, it’s not so much what has been written as what some of the old hands say about the Victorian public service. In the late nineteenth century, following the release of the Northcote–Trevelyan Report in London, the Northcote–Trevelyan Report was picked up as a basis for how you would organise the Victorian colonial service or public service. This is before Federation.

When we federated, the basis of the Federation was in Victoria, and many Victorian public servants were transferred across to the new Commonwealth public service. They took with them an understanding of the Northcote–Trevelyan principles about merit-based recruitment and advancement on merit, and so on and so forth.

So a lot of the features of the public services in Australia, but particularly the Commonwealth and Victoria, come from historical accidents over a century ago. That wasn’t towards any ill result; it was just that we were greatly influenced by what the British were doing.

DAVIS: Yeah, that clearly does matter.

MORAN: Yeah.

DAVIS: It probably helps that we don’t have an aristocracy.

MORAN: It’s a pity, actually, isn’t it? They could go in the Senate. [laughs]

WALKER: Why does it help that we don’t have an aristocracy?

DAVIS: Because in the British civil service and the British Army you had to buy [positions].

MORAN: That was in the nineteenth century.

DAVIS: Yes, in the nineteenth century. But we never had any of that in the same way, so we didn’t have to overturn a set of cultural traditions that were so much more embedded.

Northcote–Trevelyan basically said, “It’s time to begin change.” But the change takes a long time, and they recommend, interestingly, that we learn from the Chinese and use civil service exams.

MORAN: And merit-based recruitment and advancement.

DAVIS: Yeah.

MORAN: And that was early in its introduction into the Victorian public service and spilled over into the Commonwealth public service after Federation.

DAVIS: Yeah.

MORAN: So it’s a bit of good luck, in my view.

DAVIS: Yeah, I think that’s a fair call. We’ve been very fortunate and well served by it.

MORAN: And so when you look at the States — you are not going to like this — but I used to go around talking about New South Wales as the home of the Rum Corps, which it sort of was. [laughs]

DAVIS: I think the New South Wales administration improved, though, over time. [laughs]

MORAN: There were some people we both know that I liked taunting with that remark. They never liked it. [laughs]

Anyway, the point is that Victoria was the state that, in the lead-up to Federation, had a chance to form a public service on the British model. And then, after Federation, it exported into the Commonwealth those people who knew that system when they were working in Victoria and were instructed in the principles of merit-based recruitment and all that sort of stuff.

DAVIS: If you were going to be a sceptic, though, you’d say the abiding Australian fault was the seniority system that we imposed. Certainly the criticism of state systems — perhaps less in Victoria, but certainly strongly in Queensland for a long time — was that it was a very seniority-based system.

WALKER: And sorry, that’s promotion based on length of time served?

DAVIS: Length of time served, as opposed to merit application.

MORAN: Well, when I first became associated with the Victorian system, there was a very strong merit system, including merit-based recruitment in the first place into the public service. And the Commonwealth used to do that.

Another bit of history is that, when Sir Robert Menzies was Prime Minister, he was despairing of the then Commonwealth public service. He was told that the only person who could fix it had to be forgiven for the things he’d done in the past that the Liberals didn’t like, and he should be brought back to Australia from Switzerland, where he was in a very comfortable appointment, to take over reform of the Australian public service. And that was Fred Wheeler.

DAVIS: Fred Wheeler, yes.

MORAN: So Fred came back and took up the position of Chairman of the Commonwealth Public Service Board and set about a whole series of merit-based enhancements of how the Commonwealth public service worked.

When Menzies was Prime Minister and dealing with the Liberal government in Victoria, the Commonwealth reforms in Canberra had gone so well that he sent somebody down to aid Lindsay Thompson, who was then the Premier, to look at why the Victorian public service was so hopeless.

Basically, the recommendations out of that led to recruitment of a new top level in the Victorian public service, including a new chair of the Public Service Board, who was Ron Cullen, you might remember. So the Commonwealth and Victorian public services advanced under the influence of the Northcote–Trevelyan Report, with its emphasis on merit both for recruitment and promotion.

It’s a fairly conventional view of what public services should do. We were lucky here, whereas the Rum Corps ruled the roost in Sydney.

WALKER: [laughs] It’s a really interesting point. I had never really realised that point about the Victorian public service playing such an important role.

Victoria, just generally — Melbourne in particular — feels like it’s had an outsized impact on Australia’s kind of Benthamite view of government, if you think about people like David Syme and Deakin. And Henry Higgins was from Melbourne, I think?

MORAN: Yeah, I think so.

DAVIS: So David Kemp, though, would argue in his history of liberalism that Victoria was the tariff, closed-economy state, and New South Wales was the one that was much more committed to liberal trading rules. Victoria was slow to catch up.

He would, as others have done, argue that the depression here of the 1890s was largely self-inflicted on Victoria because it failed to follow open-economy-type arrangements, as opposed to New South Wales. And that’s when Sydney overtook Melbourne as the largest city in the country.

MORAN: And the public service that Victoria had then was still not too sympathetic to the sort of economic policies that prevailed in New South Wales, largely because it would have had the effect of basically reducing the influence of the public service.

This is one final point. I came in and out of the Victorian public service going back a fair way, and I was told at one stage — it was Ron Cullen who told me this — “Look, the biggest problem the Treasury has got is that they don’t employ economists.” [laughs]

Which is a fair comment, actually. And so the whole top end of the Victorian Treasury was changed to bring in a lot of economists, and things improved.

DAVIS: Your friends.

MORAN: Oh, that’s cruel. [laughs]

WALKER: [laughs] One other thing that’s just occurred to me, semi-related to what we’ve been talking about, is that Australia has maintained a distinctively Cabinet form of government, unlike the other Westminster systems like the UK and Canada. I wonder to what extent that’s connected to our egalitarianism, the equality of manners; we don’t like leaders with too much auctoritas, or the appearance of too much auctoritas, at least.

DAVIS: I’m wondering, though, whether we’re not overstating the changes in the UK, given the earlier conversation about the fact that governments reform around the personality of the prime minister to a certain extent.

Whether the UK has probably got a wider range of experience than that might suggest. Again, people have been talking about prime ministerial government for a very long time — decades and decades — but it’s actually harder to see a trend that says this is definitively happening. You can see highlights and then times when it’s [less so].

I keep coming back to the idea that any system where the prime minister can be assassinated by their colleagues is one with a self-limiting control over prime ministerial power. [laughs]

WALKER: Good point.

What do you think is a great book that remains to be written about either an underrated individual in the history of Australian government or just the mechanics of government? I’ll give you an example of a book I’d love to see written. I’d love a historian to gather up all of the red and blue books of the losing side and write a counterfactual history of Australia, speculating on what might have happened if the other party had won government. But what do you think is a great book that remains to be written?

MORAN: Glyn’s analysis of public policy in Australia over the last century. [laughs]

DAVIS: [laughs] It’s a great question. I’d like to read that book.

And people don’t know about blue and red books.

WALKER: Do you want to just give them a second explanation? Because people listening might not know.

DAVIS: So each time there’s an election, PM&C (and it happens at the state level as well) forms up two teams: a blue team and a red team. Not individuals who share that political view, but as a professional task.

WALKER: Red for Labor, blue for the Coalition.

DAVIS: That’s right.

MORAN: I think I started that pattern when I was there.

DAVIS: Possibly.

MORAN: Because all they ever did was the red book, and I said—

DAVIS: Really?

MORAN: Yeah, for whoever happened to be government. Whereas what you needed was for both sides to have their policies analysed in terms of what needed to be done.

WALKER: Wait, so do you think you might have started that in Australia or just in Victoria?

MORAN: Oh no, yeah. I’d done it in Victoria.

WALKER: And then everyone copied it?

MORAN: No, I just did it when I was in PM&C.

DAVIS: I just took it for granted. Maybe it’s a more recent tradition than [I realised]; I took it for granted that it was long-standing.

So, coming into the election, these two teams track every announcement by both sides. Then they try to provide policy briefs for an incoming prime minister — whoever is elected — that say, “This is what you’ve committed to. Here’s the program you’ve said you’ll implement. Here’s our analysis of timelines and costs.” It’s a really thorough piece of work. And then, as you say, after every election, one of them gets — well, you keep a copy.

But symbolically you’re throwing it aside because it didn’t matter. But they all exist, and they’re really, really detailed.

The head of PM&C usually meets with the leader of the Opposition in the course of an election to discuss the book.

MORAN: It was fun meeting with Tony Abbott.

DAVIS: Okay, well, I met with Peter Dutton and we had a very respectful discussion about, if he were successful, here’s what we’re ready to do. Here are the arrangements for election day and the day after.

WALKER: Oh wait, so you actually talk to the leader of the Opposition?

MORAN: Oh yeah. It’s part of the process.

DAVIS: Yes.

WALKER: I thought that conversation would only happen if they won government. You’d say, “Here’s the book.” But you show them the book?

DAVIS: No, you don’t show them the book. You just let them know what work is happening.

MORAN: And what they can receive should they be elected to be the first minister.

DAVIS: It goes down to particular examples like, “This is when we would meet on the day after, and this is what we would bring.” So you’re briefing them on what the process is going to be on election day and afterwards, but what you’re telling them is, “We’ll be bringing you this — basically your manifesto.”

It’s as thorough as we can make it, but the reason we want to give it to you as early as possible is that you — or your team — need to go through it and make sure we’ve accurately captured what you [want].

There’s always a problem because individual candidates announce things, so what is definitively [the program is not always clear], and that’s why you go through it with them.

It’s a very important process. And it means the bureaucracy is attuned to what the alternative government would want to do and has already begun thinking about how to go about doing it. I think it’s a really important tradition.

MORAN: So what I’d done down here — and I did it in PM&C as well — on top of all of that, was get the first minister’s department to prepare an analysis of current policy issues of importance, which may require some action and how you might take that action.

Invariably those papers — which weren’t just geared to things a particular party had promised — they were just the department’s view of what was really pressing at the moment and what was potentially a bit dangerous. And they were always well received.

DAVIS: Yeah. It’s an understood process, and so both sides have an investment in it. It’s really important. It’s good.

MORAN: And it’s a way of demonstrating that the first minister’s department is on the ball.

DAVIS: Yeah, that’s true as well. And the Treasury does the same; it’s not just PM&C.

WALKER: All the departments, right?

DAVIS: They all do it for their portfolios, but Treasury and PM&C tend to do broader because—

MORAN: They’ve got a better, broad view of things than those two departments.

DAVIS: So an incoming government would expect to get detailed advice on day one about their program. And they’d be right to expect it — and they get it.

MORAN: And what I did down here before going to Canberra was not only prepare that, but then get a professional editor to come in and turn it into plain English. [laughs] And then get a professional designer to come in and turn it into a publication in a magazine style. And when I did that for Julia [Gillard], she really liked it.

DAVIS: Well, I can tell that tradition continues, because that’s how it was done.

MORAN: Oh, that’s good. You mean I had an impact? That hasn’t gone away! [laughs]

Or you had the same ideas—that’s probably the story.

DAVIS: No, no. The tradition is that it has to be accessible. It has to be written for people who haven’t been in government recently, so you don’t put it in a standardised government format, you put it in…

MORAN: That’s right. And what I did down here — and I think I did it in Canberra as well — was say to the people doing it, “We’ve got to put in some nice photographs, some nice graphs on some of the issues.”

WALKER: It’s quite nice, quite flattering.

MORAN: Well, no. The model is a magazine that you would like to read.

WALKER: [laughs] Yeah, that’s clever. But what’s a great book you think remains to be written about how the government works? So, Terry, you’d like to see Glyn’s—

MORAN: Yeah, no, I’m all for Glyn writing it. [laughs]

WALKER: [laughs] Glyn, what’s your answer?

DAVIS: It’s a great question. Having somebody interview a series of prime ministers after they’ve left — to do the compare and contrast: how they understood the role, what they were trying to do, how it worked.

PMs all write their autobiography — and so they should — and that’s a useful thing to read. But having a Pat Weller go in and ask, [and do] the same interviews, so that we get a sense of how the role looks when you sit in it —because it’s so fast; it happens so quickly while you’re there that you must come out of it at the other end slightly shell-shocked by all of it.

It would be great if we could arrange for someone to walk them through it while they’re still with us and while the memories are still moderately fresh. Almost a process where, six months after you finish as prime minister, you go to the National Library or somewhere and somebody interviews you at length. And there’s a tradition of being frank, and maybe you don’t release it for 20 years or whatever, so people can say what they experienced. That is what I would like to read.

But the book I would really like to read about Australia is actually none of those. You can’t do it — there’s no way to do it — but wouldn’t it be fascinating to hear how the first Australians landed in this country, and how they dispersed, and what they discovered, and how it looked to the first human eyes to see this continent? Wouldn’t that be the most fascinating thing?

MORAN: Yeah it would be.Well, it’s been fun.

WALKER: Thank you both. Really enjoyed it.

DAVIS: Absolute pleasure.

Months before we sat down to record, I asked Hugh for the books that had most shaped his thinking on strategy, international relations and defence policy. He sent me a list of eleven. In this episode we work through them one by one, book-club-style — what each book argues, what it gets right and wrong, how it influenced Hugh’s worldview, and what it says about the big questions: Why do great powers start wars that ultimately destroy their status? What really drives the collapse of international orders? Can change be managed peacefully? And how should Australia and America respond to the rise of China?

I really enjoyed preparing for this episode. I’m embarrassed to say I didn’t have a better-than-average understanding of the causes of WWI or WWII beforehand. If you’d asked me to explain 1914, I might have given some vague answer about the assassination of Franz Ferdinand, half-remembered from high school history class. For 1939, I probably would have said ‘Hitler’. This episode has convinced me that a decent understanding of the causes of the world wars should be table stakes for public intellectuals and political leaders alike. (And to be clear, I still don’t feel like I understand them as much as I’d like!)

As for Hugh, Hugh is a mensch. I’d long been aware of him and had read some of his essays over the years. It wasn’t until last year — preparing to interview Richard Butler — that I read parts of Hugh’s 2019 book How to Defend Australia. That experience elevated him to a special group of intellectuals in my mind: truly independent thinkers. He wrote a chapter about the circumstances in which Australia would be justified in considering exiting the NPT and acquiring nuclear weapons. It’s written with an appropriate mood of gravity and sombreness, and it showed intellectual bravery — that he’s willing to follow the argument where it leads, to leave no stone unturned when it comes to keeping the torch of liberty aflame in the South Pacific. My respect for him was much deepened after that.

I hope you enjoy our conversation!

Resources

Short list: 11 books

• Donald Kagan – The Outbreak of the Peloponnesian War

• Garrett Mattingly – The Defeat of the Spanish Armada

• A. J. P. Taylor – The Struggle for Mastery in Europe: 1848–1918

• Barbara Tuchman – The Guns of August

• A. J. P. Taylor – The Origins of the Second World War

• E. H. Carr – The Twenty Years’ Crisis

• Michael Howard – The Continental Commitment

• George F. Kennan – American Diplomacy

• Neville Meaney – The Search for Security in the Pacific, 1901–1914

• Henry Kissinger – Diplomacy

• Paul Kennedy – The Rise and Fall of the Great Powers

Long list (with Hugh’s annotations)

• View the long list here.

Hugh’s 1993 Tathra note

• Read the note here.

Episode links

• Watch:

  • YouTube

• Listen:

  • Apple Podcasts

  • Spotify

Sponsors

• Eucalyptus: the Aussie startup providing digital healthcare clinics to help patients around the world take control of their quality of life. Euc is looking to hire ambitious young Aussies and Brits. You can check out their open roles at eucalyptus.health/careers.

• Vanta: helps businesses automate security and compliance needs. For a limited time, get one thousand dollars off Vanta at vanta.com/joe. Use the discount code “JOE“.

Transcript

JOSEPH WALKER: It’s my great honour to be here with Hugh White. Hugh is maybe Australia’s most prominent strategic thinker. He has been thinking about Australian strategic and defence policy for decades. He’s held positions at the pinnacles of multiple different domains — in government, the public service, journalism, academia, think tanks.

He was an advisor for Kim Beazley when Kim was Defence Minister, for Bob Hawke when Hawke was Prime Minister. He is currently an emeritus professor at the Australian National University. And he’s the author of multiple books and Quarterly Essays.

We’re doing something a bit different today.

Hugh, I’d actually been wanting to do an interview with you for years. But you’ve done your fair share of media and I wasn’t sure how much I could add to that body of work.

And so I asked our mutual friend, Sam Roggeveen, you know, “Is there a great interview kind of locked up inside Hugh?” And Sam said that, at least to his knowledge, no one had gone into your philosophical and historical underpinnings.

That gave me the idea, why don’t we sit down and talk about the books that have most influenced you, most shaped your worldview, because I think it’ll be increasingly the case over the next few decades that people will look at you as a very prescient prognosticator.

HUGH WHITE: I hope not [laughs].

WALKER: [laughs] Well, exactly. That’s right. I guess there’s a distinction between what you think might happen and what you want to happen.

WHITE: Exactly.

WALKER: Which maybe sometimes people forget.

WHITE: Yes.

WALKER: But I think it will be really interesting just to look at the sort of intellectual bedrock underneath your views.

Just for people who aren’t familiar, maybe the thing that you’ve been most clearly and consistently describing in the Australian discourse over the last few decades has been the rise of China, how China is going to become the dominant power in East Asia and the Western Pacific, and how Australia needs to adjust accordingly.

So I asked you whether you could put together a short list of the books that have most influenced you.

For people [not] watching the video, Hugh and I can’t quite see each other right now because there’s a stack of books between us on the desk [laughs]. So, this is the “short list”.

WHITE: [laughs]

WALKER: So, we have 11 books and we’re going to go through and discuss each of them. I’ve endeavored to read at least parts of all of these books, if not the whole thing. And I guess we’re going to compare notes and then we’ll discuss some specific questions about each book. And then at the end, I’ve got some general questions.

So, are you ready?

WHITE: I’m ready to go. Thanks very much. Really appreciate the opportunity. It’s been a very interesting exercise for me to revisit these books and think about how one’s ideas have developed.

Donald Kagan: The Outbreak of the Peloponnesian War [03:44]

WALKER: The first book is The Outbreak of the Peloponnesian War by Donald Kagan.

So, for each book, I’ll give a brief background of the author, a blurb for the book, just so our audience has context, and then we can start talking about it.

First published in 1969, the author is Donald Kagan. He was an American historian and classicist at Yale specializing in ancient Greece. And he taught a very popular course at Yale for decades called The Origins of War (I think one of the most popular courses at the university, period).

He wrote four volumes on the Peloponnesian War, and this was probably his best-known scholarly work. And this is Book One of those four volumes.

If I condense the thesis down into a sentence or two, for me, the question he’s trying to answer is, at what point did war between the Athenian Empire and the Peloponnesian League become inevitable? So, what was the threshold?

And he concludes, in contrast with Thucydides, that the war was not inevitable. It was avoidable, possibly right up to the last minute, potentially even after the Megarian Decree, when the second Spartan embassy requested that the Athenians rescind that.

We can explain what all that means. But my first question is, do you buy Kagan’s basic account of the causes of the war?

WHITE: Yes, I do. I mean, what he’s trying to do in the book, and the reason why he wrote a whole book on the outbreak, as you say, as the first volume of his multi-volume analysis of the whole thing, is to interrogate this line in Thucydides, very famous line in Thucydides — who, of course, was the Greek general who himself was involved in the war and wrote, in some ways, the first real history of anything and a wonderful book in itself. (It’s sort of perverse of me in some ways to have suggested Kagan rather than Thucydides as the book that has most shaped my thinking about these things.)

But what Kagan set out to do in the book was to interrogate the proposition that is in Thucydides. Thucydides said the rising power of Athens and the fear that caused in Sparta made war inevitable. At least, that’s the way his Greek is usually translated into.

WALKER: And then there’s obviously a debate around whether he meant inevitable literally or just as something like “very likely”.

WHITE: Exactly, exactly.

And so the whole book really is an interrogation of that question. And in the process, what he does is to give a very detailed — I mean, considering we’re talking about the fifth century BC, astonishingly detailed — account of what steps actually led to the war.

And as you say, he comes down very strongly on the idea that it wasn’t inevitable, that there are all sorts of points at which the war could have been avoided.

It’s a terrifically interesting analysis from my point of view, because it has throughout history, since then, always been seen as such a sort of quintessential example of strategic analysis. I mean, Thucydides’ book is such a quintessential, sort of primary example of strategic analysis. But also because it does seem to resonate so directly with the choices that we face today. People addressing the US-China rivalry have spoken very explicitly about Thucydides’ Trap.

And not just the scholars. Xi Jinping on a visit to the United States a few years ago, in a speech in Seattle, specifically spoke about Thucydides’ Trap. Is war between a rising power and an established power — a rising power like China and established power like the United States — inevitable?

And another US scholar, Graham Allison of Harvard, wrote a book which has become very famous in which he does specifically analyse that question.

So, to go back to the original, to see Kagan’s painstaking analysis of what was going on in fifth century Athens, what drove the slide to war, and which was, indeed, a catastrophic war for both sides in the end. The way in which he unpacks Thucydides’ initial distinction between ultimate causes and proximate causes... the big movements in history in the background, and then the little things that happen day by day.

I found it when I first read it — which was sometime in the ‘90s, when I was starting to think about the implications for Australia of the rise of China, and what that meant for America’s role in Asia and so on — a very compelling model for how you think about these questions.

And indeed, his answer is extraordinarily complex as you just sketched. There are very big questions about the way in which Athens’ position in Greece after the Persian Wars, after the victory over Persia, evolved: the creation of Athens, the Athenian-led alliance, which was really an Athenian empire; the challenge that posed to the traditional Spartan position in the Peloponnese; the fact that there were different kinds of power… Sparta is quintessentially a land power. It’s got a great army. Athens is quintessentially a naval power, a maritime power, which itself is very, very resonant.

And the way in which he describes those background forces and then all sorts of stuff happening. And what’s fascinating about the outbreak of the Peloponnesian War is it starts with an internal dispute in a two-bit little town that nobody had heard of called Epidamnus, which is on the coast of what’s now Albania.

And it drags in other countries — cities. It drags in Corcyra, what’s now Corfu. Drags in Corinth.

By dragging those two in, the Athenians are dragged in. It’s a fascinating account as to why that little dispute drags these other powers in.

And then that starts to worry Sparta, and then the Athenians do some stupid things, as Kagan argues. The Corinthians do stupid things. The Corcyraeans do stupid things. The Athenians do stupid things.

Oddly enough, it’s the Spartans who come out kind of as not exactly the heroes, but they do fewer stupid things than anybody else.

And that combination of grand shifts in the distribution of wealth and power on the one hand, and events, and people’s response to them — failures of imagination, as Kagan says actually in his ultimate chapter: people didn’t understand, didn’t see clearly, didn’t have the imagination to see the likely consequences of the steps they took — produced a war which they didn’t have to fight.

One of the really important conclusions Kagan reaches is that Athens really wasn’t threatening Sparta’s position — that Pericles, the great leader of Athens at the time, did accept the basic deal which had been done between Athens and Sparta at the end of an earlier confrontation, what’s called the First Peloponnesian War. And so Athens wasn’t really threatening Sparta at all, and the Spartans probably kind of understood this, but somehow things got out of hand.

And of course, when you tell the story like that, it feels very familiar. And feels very frightening. Because it does seem to offer, from 2,500 years ago in an unimaginably different social and political and geographic and military and technological setting, a set of propositions which are scarily resonant to our present predicament.

WALKER: Right.

WHITE: If you study the plays, the great plays, or you study the great philosophers, the dialogues of Plato, the Socratic works and so on. You can’t help but not just be familiar with it, but in a way to love it.

And so the sense of fifth century Athens, this was one of the most amazing moments in history.

And yet they couldn’t avoid these screw-ups. The same community that could produce Sophocles and Euripides and Socrates and Plato could produce these mistakes.

That’s a warning.

WALKER: [laughs] So many analogies to be drawn. I mean, obviously you can think of Epidamnus as like Taiwan, but...

WHITE: Yes.

WALKER: ... plenty of analogies to World War I as well.

WHITE: Absolutely. I mean, Epidamnus is Taiwan or it’s Serbia. Or it’s the assassination of the Archduke.

And the analogy there is in many ways quite precise. And this is the point about the Thucydidean distinction between ultimate and proximate causes.

If we look at the origins of the First World War — I guess we’ll come to that — all sorts of stuff was happening, centuries long, decades long, fundamental transformations in the nature of the international order or at least the underpinning distribution of wealth and power.

But then a whole lot of little things happened, and in some ways the analogy with the assassination of the Archduke in 1914 is not so much with Epidamnus because that happened a few years before. That’s more like the Moroccan crisis, for example.

Or the Balkan crises of 1909 and 1911. All sorts of bad things happened in which bad choices were made and then finally one happens which sets the whole thing off. That might be the Megarian decree.

WALKER: Exactly.

WHITE: That’s the last thing [where] you say, “Why did they do that?”

WALKER: So there’s this city in the middle of Attica, Megara. I think it’s still an occupied city.

WHITE: Oh yes.

WALKER: And Pericles issued a decree. I think the pretext was that the Megarians had violated some sacred land and killed the Athenian diplomat who went in the aftermath of that, and also given safe haven to some Athenian slaves, who fled Athens. But probably the real reason was to punish them for their involvement in the Epidamnian affair.

WHITE: Yes.

WALKER: And it was essentially one of the first instances of economic warfare, right?

WHITE: What they did was slap trade sanctions on them. Sound familiar?

WALKER: Exactly. And this was obviously an ally of the Spartans.

WHITE: Yes.

WALKER: Thucydides de-emphasises the role of that event in his account, but Kagan kind of elevates it again.

WHITE: Re-elevates it.

WALKER: Let me tell you what I didn’t like about this book. And then I want your feedback. So Kagan disagrees, obviously, with Thucydides that war was inevitable, however we want to interpret that word.

WHITE: Yes. And whether Thucydides really thought that.

WALKER: Exactly. Kagan seems to just take the literal interpretation of inevitable.

WHITE: I think for the purposes of the exercise, he takes that as his starting point.

WALKER: Sure.

WHITE: I think a classicist of Kagan’s sophistication would probably understand— and just to be clear, I’m no scholar of ancient Greek, but I understand that the word which is usually translated as inevitable means something more like “very bloody likely”.

And that’s different. Inevitable is a very strong word to use.

WALKER: That’s a strong word.

WHITE: And people use it all the time. And so I think, in a sense, he’s taking that traditional translation of Thucydides as a way of setting up the argument, because, of course, Kagan, in a sense, is no more interested in what happened in fifth century Attic Greece than we are. He’s writing this at the height of the Cold War.

And he’s very engaged… Hee becomes an active participant in contemporary debates. He became a leading Neocon after the end of the Cold War. His sons, one of them in particular, Bobby Kagan, to whom this book is dedicated, became one of the principal advocates of the Iraq invasion, for example. And there’s a very poignant passage in the book early on when he discusses the Athenian attack on Egypt, which is one of the contributing… a completely unnecessary stupid attack on Egypt, which has some resonances with the American invasion of Iraq.

But Kagan was deeply interested in contemporary strategic affairs. And in the end, I think he’s choosing to take Thucydides’ proposition about inevitability as a starting point for a conversation about how wars happen.

And so I think if you actually quizzed him as a linguist of ancient Greek, he’d acknowledge that “inevitable” is not the best translation of that formulation.

But it’s a good way— it’s a great way — of setting up the argument.

WALKER: Yeah. And Thucydides probably was being hyperbolic, if he was using it in the literal sense.

WHITE: Well, put it this way, I’ve always thought he was far too good a historian and far too good a strategist to make the mistake of imagining that anything in human affairs is inevitable.

There are always choices.

And in a sense, the great drama of this whole subject — and it’s worth making the point, I guess — the subject is how do countries find themselves going to war? Particularly, how do they find themselves going to war in really big wars against really formidable opponents? Deciding to go to war against weak countries is easy — not very nice, but it’s easy. Deciding to go to war against a major adversary is a very big step indeed. And so the question is, how do countries reach this kind of decision? And I think Kagan is setting out to really interrogate that question. And it’s a very important question.

WALKER: Let me tell you, though, what I didn’t like about it. So, let’s take inevitable as just meaning very bloody likely. Kagan says that there were pre-existing conditions that made the war possible or narrowed the choices of statesmen, but it was this sort of concatenation of mistakes and errors of judgment by statesmen, on all sides, who lacked imagination, that caused the war to start — that provided the spark.

And we’ve already touched on some of them, but just to list some of those mistakes: I think he places the most blame at the feet of the Corinthians for getting involved in the Epidamnian affair. And their miscalculation was not thinking that the Athenians would get involved.

And essentially, they wanted to mete out revenge on the Corcyrians.

WHITE: Corcyrians, that’s right.

WALKER: So Corinth was the mother colony of Corcyria. Corcyria was the mother colony of Epidamnus. An incredibly incestuous kind of quarrel. [laughs]

WHITE: [laughs] And you’ve got to remember, all of this is happening with a total population of a few hundred thousand. I mean, everybody knows everybody.

WALKER: It’s a small world.

WHITE: It’s like Canberra. [laughs]

WALKER: [laughs] And no less bloody, in the end.

WHITE: [laughs] No less bloody.

WALKER: So the Corinthians miscalculate. The Athenians get involved. Then the Athenians really make two mistakes. One is the Potidaean Affair.

So this is now in, I guess, Macedonia.

WHITE: Yes. It’s up the top right-hand corner, so to speak, of Greece.

WALKER: Another Corinthian colony.

WHITE: That’s right.

WALKER: Athens issues an ultimatum to them.

And then there’s the Megarian Decree.

So those are two errors of judgment on the part of Pericles that antagonise the Spartans.

You also have mistakes on the Spartan side. There’s a hawkish party in Sparta who’s agitating for war. And the Spartans, right up until the last moment, they don’t have to tip this thing over into war.

WHITE: And although — and Kagan describes this very well — people’s image of Sparta is that they’re all sort of crazy militarists, in fact it was a much more sophisticated, complex, weird society than that.

And there was certainly a hawkish faction. But there were also very significant elements of the Spartan polity that thought that getting on with Athens was going to be just fine. And that’s one of the reasons why it took a while for the war to break out, and it took all these incidents. The whole stuff with the Corinthians and the Corcyraeans and Epidamnians, as you said. But also the Potidaean crisis and the Megarian crisis.

It took all of that adding up to finally reach the point where the Spartans said, “Bloody hell, all right. Off we go.”

And of course once the war begins, then of course the whole dynamic changes and the prosecution of the war itself becomes an end in itself. And then people get killed.

WALKER: And you start to hate each other.

WHITE: And you end up with the dreadful sunk costs fallacy, so eloquently expressed by Lincoln at Gettysburg, that these honored dead shall not have died in vain.

But the fact is they were already dead.

I think what I like about Kagan is I think he does do justice to the complexity of the process. People often, looking back, think wars break out for simple reasons.

Whereas there are a lot of different strands, even leaving aside the ultimate causes, if you just look at the proximate causes, a lot of different strands are coming together to produce a situation where political leaders, national leaders, end up deciding that going to war is a better idea than not going to war.

Which in the end is what it always ends up being: that choice. Is it better or worse? Are the costs and risks of war better than the costs and risks of avoiding war?

WALKER: Okay, but now we’ve set up Kagan’s view, here’s what I didn’t like about it. And apologies if this is being unfair to Kagan, but this is how I read him.

The problem I have with arguments of the form, “the war wasn’t inevitable because we can imagine a counterfactual where these precipitating events didn’t happen…” So he goes through those mistakes and says, “you know, it could have gone either way, other choices were available,” and then comes to the conclusion that war wasn’t inevitable.

The problem I have with arguments of that form is that, in those universes where those mistakes weren’t made, other mistakes can be made later. So really it shows that war wasn’t inevitable in 431 BC, but it doesn’t show that war wasn’t inevitable at some point in the second half of the fifth century BC.

WHITE: Yes. That’s a fair observation, but the fact is that at every point leaders, people, have choices. And at every point it’s open to people to make a choice between peace and war.

And I think it is true that at every point it’s not inevitable, it’s not true that the only choice people have is to go to war.

People often say in connection, for example, with the non-hypothetical question as to whether Australia would support the United States and go to war against China if China attacks Taiwan… People in this town [Canberra] often say, “We would have no choice.”

That is wrong. We would have a choice. Now there would be costs for the choice not to go to war in support of the United States. But we could choose to accept those costs rather than choose to accept the costs of war.

And being very self-conscious, very reflective, very analytical, very cautious and prudent about how you weigh the costs of one side against the costs of the other. Making yourself very aware of those choices that you’re making, seems to me to be a terribly important piece of policy.

So I would defend Kagan’s interpretation, because even if a different set of circumstances had arisen; even if the Corinthians hadn’t misjudged Athens’ support for Corcyra; even if Pericles hadn’t gone in so hard against the poor old Potidaeans and not torn their wall down and one thing or another; even if he hadn’t got vindictive towards the Megarians; or even if the, so to speak, peace faction in Sparta had been more powerful and the hawkish faction had been weaker; and so even if war had not broken out when it did, then the next time a similar set of circumstances arose, and they almost certainly would have, then the Athenians, the Spartans, everybody else involved still would have had choices, and they still could have chosen not to.

And I think to ever surrender to the thought that under whatever circumstances, war is inevitable, is to let ourselves off the hook, to relieve ourselves of the responsibility for the choices we make, and putting our choices back into the middle. Our choices, our leaders’ choices, but in the end, our society’s choices — putting our choices back into the middle of the mix. Asking ourselves, “Do we really want to choose this?” Do we really think that going to war with Athens is a better idea than making some compromises, accepting what’s gone on, accepting that they’ve screwed over the Megarians in a vindictive and, frankly, unjustified — from the benefit of a lot of hindsight, what Athens did towards Potidaea and what they did to the Megarians looks unjustified. But the Spartans could have chosen to say, “Okay, you know…”

Now of course, when we view that at this point in history, in hindsight, looking back at what happened in 1938 and 1939, we think that answer is easy. We think that we have no choice. The Munich metaphor — we’ll probably come back to that.

I think it’s very important to preserve our consciousness of the fact that we do have choices to make, and I think that’s what Kagan — because he does it so exhaustively and unpacks all of those choices at such length — does it very compellingly.

And I’ve always, when I find myself thinking about the choices that I think Australia and America and other countries face as they confront the rising power of China and the fear that causes, then I find myself often going back to Kagan as the kind of way into the great Thucydidean debate.

WALKER: Next book?

WHITE: Next book.

Garrett Mattingly: The Defeat of the Spanish Armada [29:03]

WALKER: Alright.

So, the next book is The Defeat of the Spanish Armada by Garrett Mattingly. This was first published in 1959. Mattingly was an American historian, professor of European history at Columbia, and he specialised in modern diplomatic history.

This is a narrative history. You might describe it as purple prose, but it’s incredibly enjoyable.

WHITE: Oh, yes.

WALKER: Won a Pulitzer, I think.

WHITE: Yes, I think it did.

WALKER: And it, of course, describes the defeat of the Spanish Armada by the English in 1588, and the backdrop to that event.

So, why this book? Why is this on the list?

WHITE: Well, partly, in a sense, sentimentally. I read it as quite a young man — probably I was still at school — because my father recommended it to me. And my father was in the trade. He was a defence official. And my own interest in this whole business does owe something to the fact that I sort of grew up with it a bit. And it was a very uncharacteristic book for my father to recommend because, as you say, its prose at points is quite purple. It’s a very colourful narrative.

And [my father] was an engineer with, if I can put it this way, an engineer’s soul. He used to say the best way to improve a piece of writing is to cross out all the adjectives. Which is sort of what he did.

Whereas Mattingly sticks plenty of adjectives in.

WALKER: And adverbs. [laughs]

WHITE: Yeah, and a lot of adverbs.

But it really made a big impression on me, partly because of the way in which it illustrates how many different strands there are that feed into this.

Unlike Kagan, it’s not about the… Well, it is, of course, about the individual decisions people take. But one of the things it’s about is how many different players are involved. And it’s also — and this is a recurring theme, we touched on in Kagan, about Kagan’s point about failure of imagination — the mistakes that people made. In this case, particularly the mistake that Philip II, the King of Spain, made in launching the Armada to start with.

But one of the things that’s fascinating about it, it starts with the execution of Mary, Queen of Scots at Fotheringay. Which, until I read it, I had never recognized that that was, in terms of proximate causes — there was the grand sort of growth of Spanish power and the way in which Spain… And of course a whole religious dynamic, the Reformation versus the Counter-Reformation — there were very big forces at work there. But the execution of Mary, Queen of Scots was the beginning of the proximate causes.

WALKER: And she was, of course, Catholic.

WHITE: And she was Catholic.

WALKER: And he wanted her on the throne.

WHITE: That’s exactly right.

The thought that she might, if Elizabeth died — Elizabeth I, Queen of England — if she had died, Mary would have taken the throne, England would have returned to its Catholicism, and Spain would have gained an adherent and been spared a country that was becoming a more formidable adversary.

So, there was both religion and real power politics involved, and one of the things that makes the whole era fascinating is the interconnection between them.

But then, there’s this whole business of what’s happening in France, where there’s this very bitter civil war between, broadly speaking, Catholics and Protestants. But also, between supporters of Spain on the one hand, and a whole range of others on the other.

And one of the things that’s fascinating about the book is the way in which Mattingly interweaves the struggle in France, which turns out to be vital; Elizabeth’s own thinking in England, because she’s very, very reluctant to make an enemy of Spain, but in the end, not that reluctant (her decision-making, the description of her decision-making about the execution of Mary, Queen of Scots itself is worth the price of the book); and the way in which decisions are made in Rome, by the Pope; by Philip II, immured in his weird, isolated castle fortress monastery, the Escorial in the hills outside Madrid...

WALKER: It’s this sort of nerve centre of the [empire]. And he’s just there, sort of, sending out letters across the empire.

The Spanish Empire, it’s the first empire on which the sun doesn’t set.

WHITE: The first global empire. That’s exactly right.

WALKER: And he’s sort of from this nerve centre, just sending letters and correspondences out. Calling the shots.

And he seems very isolated.

WHITE: Oh, he is. That’s right. He’s an extraordinary bureaucrat in a way, Philip II, a fascinating character. He was a workaholic, and he wrote everything down.

I think Mattingly mentions it in that book. If not, it’s in another book by a bloke called Geoffrey Parker, called, I think, [The Grand Strategy of Philip II]. At any rate, he wrote all this stuff in the margins.

At one point, he writes in connection with this, “I don’t understand what this person means. This is very confusing. What am I meant to think about this?”

WALKER: And one of his generals or admirals is saying that it’s going to be easy to defeat the English fleet in the channel.

WHITE: Yes.

WALKER: And he writes, “Nonsense,” or something.

WHITE: Exactly.

And so, you get this wonderfully vivid sense of this person across the centuries. And in some ways, Philip II, heir to the unimaginable Habsburg Empire, son of Charles, [was] probably the greatest hegemon Europe has ever seen, at least before Napoleon (but Charles’ hegemony was more lasting). An extraordinarily remote character, but it feels very vivid, this man, this individual, making these decisions — and in the end, although he was a very prudent person, getting it wrong.

And Mattingly describes how he, pushed by events, pushed by the Pope, pushed by his own diplomatic representatives in France who saw the Armada as a way of prosecuting Spain’s agenda in France as well — and in the Low Countries, because the Spanish response to the rebellion of the Protestants in the Low Countries, what’s now Holland and Belgium, was central to all of this — he comes up with this harebrained scheme.

Militarily, this is a harebrained scheme. It requires one fleet to sail from Spain up the Channel. And then somehow, his commander in the Low Countries, to ship a huge army across the English Channel. This is heavy stuff. [laughs]

And one of the reasons why it’s so enthralling is that the book is a very good example of the way in which all of the stuff we’ve been talking about so far — grand changes in the distribution of power, the way in which statesmen respond to individual events, all of this sort of stuff — that’s all one thing. On the other hand, it’s the sheer military reality of this stuff.

There are two bits of it that come across here. The first is how hard it is to move soldiers across water. The fact that England is an island makes all the difference. And Philip has this very strong army in the Low Countries, in the Netherlands essentially, which he hopes to ship across the English Channel. And the Armada is really there to win control of the channel, to give that army a chance to get across into England. But it just turns out to be really hard — assembling enough boats turns out to be really hard.

And the other thing is that, as it happens, when technology comes into play, the English guns were just much better than the Spanish. And so, it’s a purely technological thing. The English had smaller ships, but better guns. And they could stand off and inflict real damage on the Spanish ships without getting close enough to grapple.

Whereas the Spanish style of naval warfare was to get so close that you actually grapple onto the ships and the soldiers who are on your ships jumped onto the other guy’s ships. Well, if the other guy’s guns were better at longer range, you couldn’t make that work.

Now, a lot of other things were involved in the outcome of the Armada, including the weather, which always counts for something, particularly in the age of sail. But when you look at Philip’s decision, sitting alone there in the middle of the night in the Escorial, a big factor… And of course, they knew that: they’d been fighting the English; they knew what they were up against.