Leadership that will define the world

Two important leadership processes will take place in coming months that will have significant implications around the globe.

The United States will conduct its 57^th Presidential election on 6 November with incumbent Democrat President Barack Obama being challenged by Republican nominee Mitt Romney.

Later this year the Chinese Communist Party will hold the 18^th meeting of its National People's Congress, which will oversee the generational change in the party leadership that only takes place once every 10 years.

Both leadership processes are taking place during a period of economic uncertainty, domestically and internationally.

The early stages of the campaign for the US presidential election have laid the groundwork for what is shaping up to be an acrimonious and personal campaign.

On the economic front, the recent release of employment statistics showed that the US economy remains in the doldrums despite trillions spent on stimulus and other efforts to generate growth.

Already Democrats are seeking to counteract the inevitable Republican assault on President Obama, with a coordinated attack on Romney's personal wealth (estimated at more than $250 million), his business dealings and his character.

Due for imminent release is a film made by a former Republican policy adviser about the President's half-brother George Obama, who lives in a slum on the outskirts of Kenya's capital city Nairobi.

The film reportedly seeks to compare the lifestyle of the President with that of an African slum in order to portray President Obama as heartless for not doing more to support his sibling.

While the US has a robust political system, the danger of this bare-knuckle campaigning is that it will deepen the existing enmity between the two major parties and reduce the potential for compromise on important economic policy debates.

This was reinforced in recent days when leading Democrats reportedly said they are prepared to take the US over a "fiscal cliff" whereby the Bush administration tax cuts will expire and large scheduled spending cuts are automatically activated.

While I do not subscribe to the theory that the US is in an irreversible decline, there is little doubt it faces tough times.

A protracted negative presidential campaign is unlikely to do much to improve consumer and business confidence which has struggled to recover in the wake of the 2008 financial crisis that had its origins in the US housing market.

Harvard professor Greg Mankiw recently posted a chart to his blog that shows on one employment measure the US economy remains close to the lows experienced after the crisis.

Whoever wins the election will face a massively challenging environment, as the US balances its mounting debts with the need to stimulate growth.

In contrast to this very public and highly competitive electoral process, there will be an overtly smooth transition in China from current President Hu Jintao to current Vice-President Xi Jinping.

Current Premier Wen Jiabao is expected to hand over to Vice-Premier Li Kejiang.

There is an expectation that all other positions of the nine member Politburo standing committee will change, while more than 14 of the full 25 member full Politburo are expected to retire.

Thus far, China has been able to leverage its huge reserves to invest in infrastructure and to stimulate economic growth through other policy levers.

There are serious questions about how much of this funding has been invested efficiently and in the most important parts of the economy.

The concern is whether too much of the nation's wealth has been misdirected and whether it is delaying, rather than averting, a more serious slowdown in the Chinese economy.

There are regular reports about China's "housing bubble" and an oversupply of apartments that dwarfs the US housing situation prior to the 2008 crisis.

That is not to say that China will inevitably suffer the same fate for it has a very different economic model, however it does point to tensions that have built within China during the past few decades of record growth.

While Australia is not in a position to influence the outcome of events under way in either the US or China, we should be mindful of the risks and opportunities that may arise.

That is why it is important for the Labor Government in Australia to gets its wasteful spending under control and ensure government finances are on a long-term sustainable footing.

As respected business leader Don Argus warned this week, under this Government growth in spending has outpaced revenue, which is "ultimately unsustainable".

Australia must improve its budgetary position to ensure we can withstand any future economic shocks and be ready to capitalise on opportunities.