With two decades of unbroken growth behind it, record prices for its minerals and an insatiable market on its doorstep, Australia can afford to be carefree. Or can it, asks John Grimond?

HAPPY THE COUNTRY that never makes the front pages of foreign newspapers. Australia is one such. Only a dozen economies are bigger, and only six nations are richer—of which Switzerland alone has even a third as many people. Australia is rich, tranquil and mostly overlooked, yet it has a story to tell. Its current prosperity was far from inevitable. Twenty-five years ago Paul Keating, the country's treasurer (finance minister), declared that if Australia failed to reform it would become a banana republic. Barely five years later, after a nasty recession, the country began a period of uninterrupted economic expansion matched by no other rich country. It continues to this day. This special report will explain how this has come about and ask whether it can last.

Those with a passing acquaintance of Australia will attribute its success to its luck in having such an abundance of minerals that its booming Asian neighbours want to buy. That is certainly part of the story. Yet Australia was not dragged down when a financial crisis struck Asia in 1997. And commodity exports have not always been fashionable. In the 1990s many thought they were evidence of an incorrigibly “old”, low-tech economy doomed to decline. Australia's terms of trade—the ratio of its export prices to its import prices—seemed stuck at unfavourably low levels. Not until 2003 did minerals begin to boom again, though by then Australia had escaped both the Asian crisis and the recession that hit America in 2001. Five years later came the GFC, Oz-speak for global financial crisis. Yet that, too, failed to drive Australia into recession. Someone, other than Lady Luck, must have been doing something right.

In this latest crisis Australia certainly played its cards well, but the pack had already been nicely shuffled. Over a period of 20 years, from 1983 to 2003, governments of the left and of the right carried out the reforms that have made Australia one of the most open and flexible economies in the world. That description would not have accurately described the country at any other stage in its history.

The incoming government in 1983 led by Bob Hawke, a former trade unionist, was the first to take serious remedial action. With the popular, politically astute Mr Hawke presiding, and the coruscating, aggressive Mr Keating doing most of the pushing, this Labor government floated the Australian dollar, deregulated the financial system, abolished import quotas and cut tariffs. The reforms were continued by Mr Keating when he took over as prime minister in 1991, and then by the Liberal-led (which in Australia means conservative-led) coalition government of John Howard and his treasurer, Peter Costello, after 1996.

By 2003 the effective rate of protection in manufacturing had fallen from about 35% in the 1970s to 5%. Foreign banks had been allowed to compete. Airlines, shipping and telecoms had been deregulated. The labour market had been largely freed, with centralised wage-fixing replaced by enterprise bargaining. State-owned firms had been privatised. A capital-gains tax and a valued-added tax had been brought in, and the double taxation of dividends ended. Corporate and income taxes had both been cut.

These reforms have done much more to transform the Australian economy than the recent improvement in the terms of trade. They have also transformed the country.

Constitutionally, they have destroyed the “Australian settlement”—a semi-tacit compact dating from the time of federation in which the market was tamed by trade protection, centralised wage-setting, a “white Australia” immigration policy and a paternalist state within a benevolent British empire. Most of this has now gone, leaving the way open for centralising federal governments in Canberra, aided by the growth of a national market in everything from advertising to Vegemite, to erode the powers of the states and their control of public money. For their part, some states are challenging the equalising allocation of value-added tax revenues. Republicans have sought to get rid of the monarchy, an imperial comfort blanket in 1901 that seems irrelevant to many in 2011. Aborigines, whose very existence was legally ignored by the European settlers, have fought for land, equal treatment and an apology for two centuries of injustice; now they want recognition in the constitution.

Demographically, by freeing the labour market and operating a colour-blind immigration policy, the reforms have created an increasingly cosmopolitan society. In the 1940s Australia was about 98% Anglo-Celtic; by the 1980s a few other Europeans, mostly Italians and Greeks, and latterly some Vietnamese, had started to leaven the mix. Today over a quarter of the population were born abroad, and most migrants, if they are not from New Zealand or Britain, are from India, China or some other Asian country. Asians make up about 10% of the population.

Psychologically, the reforms have changed what seemed to be a defining feature of Australians' national character: the happy-go-lucky belief that, though their country more than others might be a victim of external events, something would always turn up. Micawberism has been replaced by a realisation that Australians, like everyone else, have to be resilient, competitive and ready to take charge of their own destinies.

It is tempting to say the reforms have gone further, bringing to Australians a clarity of self-perception not always present in the past. Australians used to see themselves as sturdy pioneers, clearing the bush, rounding up sheep and doing battle with droughts, dingos and dastardly oppressors like the policemen who hunted poor Ned Kelly (never mind that he was a hostage-taker and murderer). But though their heart lay in the outback, the rest of their body was, at least from the mid-19th century, firmly in the city or, more exactly, in the suburbs, which is where most live today.

Watch our video-guide to Australia's past, present and future, or listen to an interview with the author of this Special Report

It would be asking a bit much to expect Australians to weave a new national myth around a suburban life involving barbecues, SSB (sémillon sauvignon blanc), heroes driving Holden utes (General Motors utility vehicles) and characters from “Neighbours”, a sunshine soap. Nonetheless, this era of prosperity and self-confidence should be a good time for Australians to take stock and confront any problems. On the face of it, their troubles are few: in 20 years of radical change all the obvious economic issues have been dealt with. Things are good, and the beach beckons. Certainly, the politicians seem unworried. Though they talk of reform, they spend most of their time scrapping about issues like climate change. A slight whiff of complacency pervades the groves of the capital, Canberra. That in itself should be a warning.