The international system is going through a period of profound change. This paper examines the nature and extent of this change and its implications for the international community. It argues that the forces now shaping the international system have the potential materially to transform the Western liberal order. This order had its origins in the European states system several hundred years ago, but has now expanded well beyond Europe to be of global reach. Since the end of the Second World War the norms, rules and institutions at the heart of Western liberalism have matured considerably and gained wider acceptance through strong American leadership of a diverse coalition of Western governments. Events over the coming decades may well serve to further consolidate the universal reach of Western liberalism, but this is far from assured. One way or the other, however, developments will certainly transform the ‘context for living globally’.

More than two thirds of Australians remain optimistic about Australia’s economic performance in the world. Optimism about Australia’s international security has increased substantially since 2005. Australians feel most warmly towards New Zealand and Great Britain, significantly less warmly but still quite favourably towards a number of countries including Singapore, Japan, the United States and Vietnam, and most unfavourably towards Iraq and Iran. Malaysia, China and India are viewed with moderate warmth.

Most Australians agree that our country needs strong defence forces,but we are much less sure about what exactly we need them for. As a result we fi nd it hard to decide what kind of military capabilities Australia should have. Today these decisions seem harder than ever, with little light being shed by acrimonious debates between supporters of ‘continental’ and ‘expeditionary’ strategies. Both sides of this debate have merit, but striking the balance between defending the continent and defending wider interests is no longer the hardest or most important question for Australian defence policy. Our challenge today is not to decide whether or not to put more emphasis on defending wider interests, it is to work out how to do it.

John Howard is an unlikely prime minister to have made a decisive contribution to Australia’s foreign policy and national security. Before he assumed offi ce in 1996 Howard’s 22 year career in parliament had been conspicuous for its focus on domestic issues and limited attention to the wider world. Yet a decade later Howard’s foreign policy was a defi ning aspect of his prime ministership and the basket of foreign-defencesecurity policy had assumed a saliency in Australian public debate and elections not witnessed for a generation. Howard believes foreign and security policy is one of the main achievements of his government.

The Australian economy is now in the sixteenth year of uninterrupted expansion, the longest boom in its history. In the last fi fteen years wealth has more than doubled, output has increased by nearly two thirds, the capital stock by more than half, labour productivity by a little under half, and the number of jobs by a quarter. The growth of income per person has been faster in Australia over the period than in Canada, the United States, the United Kingdom or New Zealand. The Australian economy has become more closely integrated into the global economy, with exports and imports increasing as a share of GDP, and Australian businesses often now investing more in the rest of the world than foreign businesses invest in Australia. The performance of the economy since 1991 is all the more remarkable because during the previous twenty years it experienced fi ve recessions, two of them very severe.