Category: Economy

  • JOHN AUSTEN and LUKE FRASER. Urbane transport policy. Part 2 of 3.

    Urbane transport policy

    This article is the second in a series about transport infrastructure. Part 1 dealt with the Prime Minister’s focus on mass transit and 30-minute cities. This deals with other matters raised by the Prime Minister: value capture, city deals. A final article will deal with the Commonwealth’s role.[i]

    Value capture

    Value capture – levying taxes on properties improved by infrastructure projects – is not novel in Australia; contributions to local infrastructure are made for some developments. But it is relatively new for major transport projects. (more…)

  • IAN MARSH. Our political system is in gridlock.

    Longer term policy making in Australia.

    Longer term policy making in Australia is in a parlous state. The scale and significance of this problem is totally unrecognised. For example, since 1996 almost no contested measure that required legislative approval has past the Australian parliament. Change to the Senate voting system was one – but it is hardly likely to weaken the influence of minor parties. The GST was another. As a result John Howard nearly lost the 1998 election. (more…)

  • JAMES MORLEY. The idea that conservatives are better economic managers simply does not stand up.

    Conventional wisdom holds that conservative politicians are more prudent stewards of the economy. These politicians are often happy to reinforce this view by citing their business acumen and denigrating the experience – or lack thereof – of their opponents.

    Think of Mitt Romney as multi-millionaire businessman versus Barack Obama, former community leader. Donald Trump also highlights his business “experience”, although his track record suggests he’s done far worse at managing his father’s wealth than a monkey throwing darts at The Wall Street Journal.

    In Australia, Prime Minister Malcolm Turnbull has positioned himself as a successful manager of economic transition in advance of the next election.

    But what if we were to take the business metaphor seriously and hold politicians to account with a performance review in terms of “measurable outcomes”? Would there actually be any evidence for the view that conservatives are better managers of the economy?

    KPIs for politicians

    The key performance indicators (KPIs) in this context are economic growth and, possibly, inflation. And you might think it obvious that conservatives outperform their progressive counterparts given their penchant for deregulation and tax cuts. Ronald Reagan’s “Morning in America” after Jimmy Carter’s era of “stagflation” would seem to settle the case.

    Or perhaps the Reagan/Carter example is too carefully selected and the actual role of politicians in guiding the fortunes of the economy is far less significant than they tend to claim. That would have been my guess before looking at the data.

    However, in a new paper, Princeton professors Alan Blinder and Mark Watson have actually looked at the data and they find a striking difference in the performance of the US economy under Democratic and Republican presidents. And the Democrats perform much better than their conservative counterparts.

    Since the second world war, average annualised growth of US real GDP has been 4.33% for Democratic presidents and only 2.54% for Republican presidents. The difference is statistically significant and robust. Inflation has also been lower under Democrats, although the difference is not significant.

    Now, you are probably thinking of a lot of possible explanations for this finding that don’t necessarily imply conservatives are worse managers of the economy. But Blinder and Watson have probably thought of even more possibilities and have addressed them thoroughly in their paper.

    In terms of the KPI analogy, the first objection might be that the executive powers of the US president are more constrained by legislative checks and balances of Congress than a CEO is by a board of directors or shareholders, let alone a prime minister at the head of a loyal party. This is certainly plausible.

    But it turns out that there is no relationship between congressional control and economic growth. Average growth was highest when Democrats controlled both houses at 3.47%, but the difference with growth when Republicans controlled both houses at 3.35% is small and insignificant.

    So, perhaps, US presidents can be held accountable for what happened under their watch.

    Measuring success

    Now you might ask, who really cares about the real GDP? Probably only a few macroeconomists like myself, right?

    But real GDP growth turns out to be correlated with a lot of other stuff that people do care about.

    For example, and probably not surprisingly, the unemployment rate fell under Democrats and rose under Republicans.

    Perhaps more surprisingly, labour productivity and real wages grew faster under Democrats than Republicans, although the statistical significance is mixed.

    Definitely more surprisingly, fiscal conditions in terms of structural budget deficits were worse under Republicans than Democrats, although not significantly so.

    Completely surprisingly, corporate profits (as a share of total income) were significantly higher under Democrats than Republicans. In the words of Blinder and Watson, “Though business votes Republican, it prospers more under Democrats.”

    So, however one sets the KPIs, the Democratic presidents come out on top.

    The secret of failure?

    Why did conservatives do worse? This is the tricky question that Blinder and Watson only partially answer.

    Republicans were in the White House for 41 of the 49 quarters since the second world war in which the US economy was classified as being in recession by the National Bureau of Economic Research.

    So maybe Republican presidents just had to deal with the hangover from the profligate Keynesian policies of their Democratic predecessors.

    But, again, there is no support for this in terms of any indicators of fiscal (or monetary) policy. Meanwhile, Republican presidents actually tended to benefit from more momentum in the economy at the start of their terms.

    Blinder and Watson find that Democratic presidents mostly had the benefit of more benign oil shocks and international economic conditions, which were arguably beyond their direct control.

    In fact, the only Keynesian story that has traction in the data is the fact that consumer confidence was higher when Democrats were elected (perhaps “Happy Days Are Here Again” after all). But, as Blinder and Watson acknowledge, sorting out causality from correlation is particularly difficult with measures of confidence.

    It’s also the politician, stupid

    It has long been thought that economic conditions have a major influence on electoral outcomes. Yet it seems the electoral outcomes can also influence economic conditions, at least with US presidents.

    Looking at the Australian context, the difference in average real GDP growth across Liberal and Labor governments is not statistically significant, although the Liberals’ average has been somewhat higher at 3.58% compared to 3.18% for Labor since 1959 when quarterly data became available.

    But a lack of significance means this could reflect just a few outliers rather than a systematic pattern. Notably, the comparison is even closer since 2008, with 2.43% for Labor in the face of the Global Financial Crisis versus 2.60% for the Liberals at the end of the mining boom.

    No matter how one cuts the data, conservative politicians simply don’t perform so much better than their opponents as they would have us believe. At the same time, the reasons for their left-wing counterparts’ economic successes cannot be easily tied to better policies. Instead, it could simply be a “feelgood factor” that, alas, few of the current US presidential contenders seem to engender.

    As for Turnbull, he might do best to focus less on his economic management skills and more on promoting confidence – or perhaps even chasing rainbows (coincidentally the name of the musical that first featured “Happy Days Are Here Again”).

    (more…)

  • National Foundation for Australian Women. Budget 2016-17: A gender lens.

    The National Foundation for Australian Women has prepared an analysis of the Budget 2016-17 with what it calls a ‘gender lens’. An executive summary of this analysis follows. A link to the full document can be found on ‘the budget’ button: www.nfaw.org.  

    Budget 2016-17 fails to bring Australian women into the centre of the economy and pushes many further into poverty. Cuts to overseas aid hurt vulnerable women in our region.

    The budget is far from fair, with just a touch of the white picket fence. It provides tax breaks for the wealthy, while low to middle income families are hit by ‘zombie’ savings from the Abbott-Hockey horror budgets. It is lacking in investments in education and training reforms which might drive innovation and jobs. (more…)

  • JOHN MENADUE. Health principles and policies for the next parliament.

    Thanks to Medicare introduced over 40 years ago, despite bitter conservative opposition, we have one of the best health systems in the world. It is sustainable but we waste over $20 b per annum. There are threats and problems that we must face.

    What are they? (more…)

  • Chris Bonnor. My Gonski is bigger than yours

    We should have known it would come to this. For years both Labor and the Coalition have ducked and weaved while the education sector battled to ensure that at least the Gonski funding hope was kept alive. Labor recast Gonski’s recommendations into a form that the Gonski panel would hardly recognize, and the Coalition was never committed – in fact it is only a few months since they announced that extra Gonski funding wasn’t going to happen.

    But the agitation wouldn’t go away and the May budget included a further $1.2 billion. It comes with certain obligations imposed on the States, somewhat of a backflip from previous Minister Pyne’s rejection of any such “command and control”. It also comes with various other conditions, including performance pay for teachers, something which was amongst the shortest-lived of Labor’s previous initiatives.

    Labor’s current Gonski commitment is $4.5 billion over 2018-19 – a much bigger ‘Gonski’. Labor Leader Bill Shorten has released a state-by-state and electorate-by-electorate breakdown of where the money will go. In effect Labor is promising what it sees as the full Gonski. It certainly isn’t and I’m not referring to money.

    In response, Education Minister Birmingham – in the new Coalition regulatory mode – was quick to point out that Labor will continue a model riddled with inconsistencies in funding between the states, territories and non-government systems.

    He could have added his own government as a contributor to such inconsistencies – but his response does raise significant questions. How will the funding be targeted, will it get there and under what forms of accountability? Even bigger questions include: what will be the purpose of this funding, how will it target need and what steps will be taken to ensure efficiency, consistency and efficacy?

    These are the same questions that Gonski asked, and to which he provided answers, several years ago – but his solutions were never taken up. Funding was to be focused on need and bring schools up to a resource standard to improve student outcomes. It was to be coordinated by a federal/state schools resourcing body to create some logic in the way schools were funded by the two levels of government.

    What has happened in the post-Gonski years is that the way we fund schools from both levels of government, has achieved almost farcical dimensions. Everyone seems to believe in equity and boosting the struggling schools – but the evidence shows that we have not been doing that. Recurrent funding increases (per student) for schools have been at the same rate for the advantaged and disadvantaged for the last six years. When it comes to school sectors, increases for non-government schools are running at double the rate of increases to government schools, the ones which enrol more of the strugglers. As I have previously shown, the differences between the states defy explanation.

    The Prime Minister and Leader of the Opposition don’t have to go too far to see what has happened in the absence of efforts to achieve better coordination. Instead of visiting their local schools for the inevitable photo ops they could dig into what the funding data is showing about these same schools. What would they find?

    Let’s start with Bill Shorten’s electorate of Maribyrnong. It includes a variety of government and non-government schools, funded in ways that must have escaped the notice of the local member. A couple of Catholic secondary schools are very well funded, in part because they enrol students with a below-average level of socio-educational advantage (SEA). The Catholic Regional College receives $15,320 per student in combined government funding – but this is over $3000 more than goes to nearby Braybrook College, a government school with an even lower SEA. It is also well ahead of Pascoe Vale Girls Secondary College and St Albans Secondary. Caroline Chisholm Catholic College, also in the electorate, is funded, by governments, at levels ahead of two of these government schools. There are also some inconsistencies between the government schools.

    In effect the Catholic schools have become more public than the government schools – but only in terms of their funding. In their operation they are private schools. Only the government schools must be available to every local student, from every family and under every circumstance. Not only that, there is a raft of quite different obligations, accountabilities, policies and practices impacting on the two sectors. The school playing field is anything but level. Go figure!

    So let’s visit the Prime Minister’s electorate in Sydney’s eastern suburbs. There aren’t too many government schools there because previous governments, in their wisdom, closed them down and the current government is scrambling to meet the new demand for public school places. In NSW public funding of non-government schools seems to have been at more sustainable levels. But Yeshiva College and St Clare’s College, in the Wentworth electorate, manage to receive more public funding than the not too distant Rose Bay Secondary College and Randwick Girls High School. Yeshiva College has just 69 students, so diseconomies of scale apply, something which raises other questions. All these schools have a similar SEA level.

    The electorate of Wentworth reveals more. The level of student achievement, as measured by NAPLAN, doesn’t significantly vary between schools which enrol similar students. But the total level of investment which goes into these similarly high achieving schools varies wildly, from around $12 000 per student in the public schools to double, and in some cases triple, that amount in the local private schools. With his background in business the Prime Minister would know about the need for investments to pay a dividend. It seems that the public investment of around $65 million each year in the private schools isn’t making much difference to student achievement. When he next wants to show that money doesn’t improve results he has the evidence on his doorstep. In the meantime, Bill Shorten might like to think about where the $15 million Gonski money he has earmarked for the electorate should not go.

    In the past, to point to this sort of thing would raise the usual accusations of the politics of envy. There is not envy behind these figures, just dysfunction. Gonski’s sector-blind solution would have avoided this happening. But both parties have avoided most of Gonski’s important solutions, and now have to give urgent attention to resolving the consequences. They either have to reduce funding to the non-government schools or level the playing field in the ways they operate. Doing nothing isn’t an option.

    But nothing is precisely what they will do.

    Chris Bonnor AM FACE is a retired Australian principal, education writer and Fellow of the Centre for Policy Development. He is a previous president of the NSW Secondary Principals’ Council and author of several books including The Stupid Country and What Makes a Good School, both written with Jane Caro. 

     

     

     

     

  • Warwick Elsche. If words were deeds.

    If words were deeds – or even credible policies – Malcolm Turnbull might already have joined the company of Australia’s pre-eminent Prime Ministers.

    All three of Malcolm’s pre-politics callings, journalism, law and banking, have involved the extensive used of the words medium. But none of these also involved the commitment, the enduring exposure, or the threat of damaging public refutation as mere words do, coming at a critical political time, from the country’s most senior political figure.

    However, in the short journey Turnbull’s eight-week election campaign has travelled so far, it seems that, from his side at least, words only will provide his and his Government’s principal armament. Perhaps this is because his Government has little else, either in terms of political stability, or actual political accomplishment to serve the purpose.

    While Labor has been noticeably slow in picking apart Turnbull’s maiden campaign efforts in early days, Malcolm would be optimistic indeed to expect this neglect by the opposition to last for the near-record 56 days of the current campaign.

    In the writer’s experience, long electoral campaigns have not been kind to incumbent Prime Ministers who initiate them.

    In 1969, for example, a super-confident John Gorton, sitting on a then record parliamentary majority, set a 60+ day campaign which he hoped would see the end of the up-and-coming new-style Labor leader, Gough Whitlam. Whitlam whittled away the record majority to within 5,000 votes in critical seats, of an improbable victory. Ministers’ seats were among 18 lost across the country.

    Again in 1984 another over-confident Prime Minister, Bob Hawke, deliberately chose a long campaign during which, he assured colleagues, the longer it went the further ahead of this opponent, Andrew Peacock, he would be. Hawke’s soporific campaign speeches over the long period again saw significant reversals – and again not for his opponent.

    Malcolm therefore seems to be taking a considerable risk seeking to see out successfully an eight-week campaign armed principally only with his eloquence.

    During his return trip to the top of the Liberal Party, Turnbull was critical of Tony Abbott’s seeming attempts to govern in slogans. “Kill the taxes”, “Stop the boats”, “Lifters and Leaners”, “Team Australia”, “Death Cult” and a handful of others did not serve Tony well. Remember the polls and his ultimate fate.

    Malcolm has chosen to start his campaign with a flurry of loud self-laudatory promises and assessments – and a slogan. And the slogan it seems has already been forced on most of his team. So far those exposed in the infant campaign like Malcolm himself, Mathias Cormann, Julie Bishop and others are peppering their electoral offerings with the boring repeated chants of “Jobs and Growth’.

    Noble objectives unquestionably. But it would be remarkable if, over the eight weeks it is not pointed out that nothing in his recent budget – virtually his election manifesto – is likely to guarantee either – nothing other than something to talk about.

    In his war of words Turnbull has already found it convenient, even attractive, to refer to the economic problems he says were created by the preceding Rudd-Gillard-Rudd Governments. Indeed, the shouts of “Debt and Deficit Emergency” from his side of politics helped propel him and his colleagues into Government.

    By election day , July 2, Turnbull’s Liberals will have been in office nearly half as long as Labor, 2007-13.

    In that time his government has increased debt beyond $150 billion. The deficit has trebled. His party has not had to grapple with the worst global financial crisis since the Great Depression that plagued more then three of Labor’s six years in office. Strangely, with these inflated problems, there is now no longer an emergency. Given the performance so far, there is, however, surely some risk in doing, as Malcolm urged addressing the media to announce the election last Sunday, “Keep your commitment to our economic plan”. Can this exhortation, given his Government’s performance so far, possibly last eight weeks with both Opposition and media on the job.

    There are several other areas where it would take a rather profound optimism to believe there will not be, at least, further intense scrutiny.

    Malcolm refers repeatedly to previous Labor Governments, particularly the last three, comparing them unfavourably with his own. If he is really upset by the internal disruption, which helped destroy that show, he does not need to go back even that far. Tony Abbott lasted as Prime Minister a shorter period than either Rudd or Gillard whose sackings Turnbull continually derides. And supposed Liberal stability in the first term has been additionally racked by ministerial scandals involving Ministers Robert, Brough, Sinodinis, Briggs, and speaker Bronwyn Bishop. Labor never matched that. Again Turnbull is surely limited in talking much more about this, one of his favourite topics, over another 50+ days.

    In one of the few areas of positive thinking – rather than merely reflecting on Labor’s inadequacies – Turnbull urges support for his party on the grounds of national security as if there was some historic backing for the claim. His party committed Australia to involvement in the Vietnam War and in 1967 double the commitment with a loss of more than 500 young Australian lives. No one anywhere now argues the wisdom of those decisions.

    Far more recently John Howard blindly followed Dick Cheney and George W. Bush in a futile bid to “sow seeds of democracy” in the Middle East. The picture throughout the whole region attests the error of that judgment. A similar decision to outsource Australia’s defence and foreign policy to one of the universally acknowledged worst-ever presidents, George Bush, in entering Afghanistan is yet to be evaluated as anything but a failure (not yet the disaster of Iraq) – but a failure nonetheless. Again, if words are your only weapon a focus on his party’s security record would hardly seem to be a winning campaign topic.

    Malcolm, speaking to the press in his electoral announcement last Sunday, spoke of the excellence and importance of Australian science. As a senior Cabinet Minister he sat in mute support as Tony Abbott ripped $120 million from Australia’s world-class scientific organisation, the CSIRO – most of it coming from the climate research section. Despite his claims, Malcolm has done little to repair the damage. Eminent scientists, locally and around the world, have condemned and lamented the wanton destruction of this organisation. The propositions on which Malcolm seems anxious to build his marathon election campaign are beginning to look flimsy.

    On an earlier day Malcolm, as opposition leader in 2009 declared that he did not want to lead a party, that did not want action on the world’s No1 problem, climate change. He again watched silently as Tony Abbott tried to damage or destroy every single government agency with any direct involvement in climate science. And, he produced a budget (election manifesto) without a single reference to climate change – another issue best avoided over a long coming eight weeks.

    To the media on Sunday he described his proposed tax arrangements as ‘the best in the world’. Unless he’s at the Australia Club or the Melbourne Club, he might be wise to keep this also off his electoral agenda.

    And on another popular Liberal line against Labor leader Shorten regarding his alleged role in the downfall of both Rudd and Gillard, Malcolm might also be more than somewhat restricted. Whatever Shorten’s involvement in either or both, immediate benefit to himself was nil. Malcolm’s own role in plotting the destruction of his leader, Tony Abbott, for his own considerable benefit has now been well documented and uncontested not only in the popular media but in several books.

    Having chosen (or been compelled) to fight this election campaign largely on words rather than performance, Turnbull faces a long and hopefully not too inquisitorial media and more importantly Labor Opposition.

    If he wanted a guide as to how it might play out, last Sunday’s meeting with the media at Parliament House after his visit to the Governor General at Yarralumla was hardly encouraging.

    Questions largely ignored the issues Malcolm sought to promote. The first four questions were inquisitive – Malcolm might have deemed them hostile – they were certainly disregarding his hopeful message.

    Malcolm – not his press officer called a halt to the conference.

    He faces another eight weeks of this. While current figures in national polls indicate a win for his Liberals, Malcolm does not have the comfortable poll margins that Gorton and Bob Hawke enjoyed when they last sought to demolish opponents with a long election campaign.

    There are risks involved – BE CAREFUL MALCOLM. Slogans and questionable assertions can be made to appear dangerously fragile to the electorate over a full-on eight week political stoush.

    Warwick Elsche, Canberra correspondent.

  • Are conservatives better economic managers?

    Are conservatives better economic managers? Part 1

    In my blog of 3 May 2016, I queried the claim by Malcolm Turnbull and apparently supported by many media commentators and also by the public, that conservatives are better economic managers. The evidence and the record do not show that.

    In last week’s budget and in the public relations selling afterwards, Scott Morrison fell back on slogans again. In this case the slogans were ‘jobs and growth’, ‘jobs and growth’. This was quickly followed by ‘we have a plan’, ‘we have a plan’. But as Ross Gittins in the SMH has pointed out, there is really no economic plan to get the budget back into surplus. The surplus is now pushed out again for years. With no real economic plan, the government again resorts to slogans at it did at the last election – ‘stop the boats’ ‘eliminate the deficit’ and ‘reduce the debt’. But we know from experience that the Abbott and Morrison activities did not stop the boats. It was a myth, but still believed by many. And the deficit and debt are much worse.

    In this blog Ian McAuley pointed out that in the post-war years only Labor Treasurers, Paul Keating and Wayne Swan have won the prestigious Euromoney Finance Minister of the Year award. Peter Costello and Joe Hockey didn’t make it.

    In The Guardian on 2 May, economist Stephen Koukoulis said

    ‘In terms of jobs, the ABS data show that average quarterly GDP growth and average monthly increases in employment are stronger when Labor has been in government compared with the Coalition. … GDP and employment growth both rise at a faster pace when Labor is in government.’

    In this blog, Ian McAuley has set out three reasons why we might be misled into believing that conservatives are better economic managers. The first is that Labor has been in office at the wrong time. Coalition governments held office in the long boom years from 1949 to 1972 and from 1996 to 2007. Both Robert Menzies and John Howard were very lucky. By contrast the Whitlam government, which made many mistakes, encountered the biggest economic shocks of the post-war era – the 1973 oil embargo, the end of the Bretton Woods exchange rate arrangement and severe contraction in the US economy after the end of the Vietnam War. The Rudd government was also unfortunate in that it was confronted by the Global Financial Crisis, the other major post-war shock.

    Ian McAuley argues that conservatives have successfully persuaded many, including themselves that government spending is inevitably wasteful and Labor is all about taxes and spending. Yet there is much more to a successful economy than budget balance and public debt. In world terms, Australia does not have a large government sector and Australian government revenue is modest in global terms. The most successfully managed economies in the western world are the Nordics that have high taxation levels and high government spending.

    As Ian McAuley also points out, there is thirdly an assumption that rich people are clever and therefore better managers. Some clever people may be good managers but many rich people have the benefit of inheritance. Other rich people like developers, are able to manipulate governments to obtain concessions, but they don’t show much ability to compete in an open market without government support. As John Maynard Keynes reminded us we need to distinguish between speculators and business persons who really make things. He might have had people like Malcolm Turnbull in mind. When Malcolm really had a business management job, the NBN, he failed badly.

    My view is that the big and beneficial changes that have set the Australian economy up in the post war years were initiated by Labor governments – the Curtin and Chifley governments, and the Hawke and Keating governments.

    The former guided Australia out of the depression of the 30s and the destruction of WWII into full employment and economic growth. The Hawke and Keating governments laid the basis for almost three decades of uninterrupted economic growth.

    The Whitlam government clearly had problems, some of which I saw at first hand…too much spending and too many government supported wage claims. There was a poisonous relationship between the Government and Treasury. Both sides were at fault The Whitlam Government did however set Australia on the path to freer trade with a 25% across the board cut in tariffs. It refused to bow to the Department of Defence and knocked back the Navy’s plan for locally designed and built light destroyers. It chose instead to buy off-the-shelf frigates from the US. The Department of Defence went into quite a sulk. Bill Hayden was getting the budget back into shape in 1975 but the improved economic performance was cut short by the Dismissal.

    The Fraser government’s economies performance was poor as both John Howard and John Hewson have told us. The Fraser Government was the most protectionists in history although Malcolm Turnbull may surpass him with the extraordinary French submarine deal. Malcolm Fraser said ‘we will give industry the protection it needs’. The effective rate of protection of the car industry rose from a high of 54% in 1974-75 to a peak of 143% ten years later. The effective rate of protection for the textile clothing and footwear industries peaked in 1984-85 at 250%.

    The Hawke and Keating governments were undoubtedly the most successful economic managers we have had. Amongst other things, they floated the dollar, reduced protection, broke the wage spiral with a wages accord, introduced the concept of a social wage and broke down a centralised wage-fixing system. The political problem for the government at the time was the ‘recession we had to have’ and record high interest rates. But successful economic management reform was the hall mark of the Hawke-Keating governments.

    The Howard-Costello government’s economic performance was poor despite John Howard grasping the nettle of the GST. The world economy and the mining boom gave the Howard-Costello governments an easy ride. But Peter Costello left us with more serious structural problems like no other Treasurer has bequeathed. He was described by the IMF as ‘the most profligate Treasurer in 50 years’. This view was shared by the Australian Treasury and the Reserve Bank. Peter Costello did achieve a brief budget surplus, but he squandered the mining boom with locked in and permanent tax cuts in response to a temporary increase in revenue There were eight tax cuts in a row.. He cut tax on capital gains by half. He made income from superannuation entirely tax free. With John Howard he handed out billions of dollars in middle class welfare. Money was being shovelled out both the front and back door as if there was no tomorrow.

    Costello was true to his ideological bent. For ideological reasons he wanted to reshape the Australian economy by shrinking the public sector. The best way to ‘starve the government beast’ he believed was to reduce government revenue so that in future governments would have to contract government spending in areas such as health and education. We are still paying for the Costello legacy and profligacy.

    The Rudd-Swan government, at a critical junction with the Global Financial Crisis, handled it extremely well. Australia was about the only advanced economy that avoided recession. Wayne Swann received international plaudits but was unable to explain his success at home. That success was obscured by the campaign of Tony Abbott with his slogans and the Murdoch media who picked holes in programs such as pink batts and the capital funding of schools. The success was blanketed out by the joint efforts of the Murdoch media and Tony Abbott. That economic success was also obscured by the political division between Rudd and Gillard. Swan also failed in his latter years to effectively bring the budget back into surplus. The Mining Super Profits Tax was good policy but in the face of a media blitz by the mining industry, mainly foreign owned the government failed to communicate the case for such a tax.

    Are conservatives better economic managers? Part 2

    In Part 1 I argued the best governments in economic management since WW2 were the Curtin/Chifley and the Hawke/Keating governments.

    More recently we have had the Abbott-Hockey team which won an election through the default of Labor and by persuading us that we had a debt and deficit emergency. It was an artifice. In fact both debt and deficit have worsened under Coalition management. The last Swann budget forecast a deficit of $ 10 .6b .It is now $ $37b. In each year the budget prospects have got worse. Our budget deficit is now in the top third of of 39 advanced economies. Debt will grow from $ 450b last year to $ 497b this year.

    From a budget and deficit emergency three years ago, the government has moved to denial that we have ever had a problem. It is abdication of economic responsibility.

    Joe Hockey used to tell us that interest rate reductions by the Reserve Bank were the sign of a struggling economy. Yet on the day of Scott Morrison’s budget, the Reserve Bank cut interest rates again. Morrison told us that it was due to lower inflation. But the Reserve Bank refuted this by pointing out that the ‘prospects for sustainable growth’ were of concern. The Bank is clearly worried about the ‘growth and jobs’ that Scott Morrison tells us will occur under his watch. Economic commentators have similar doubts.

    Joe Hockey blamed the problem of housing affordability on low income people who weren’t working hard enough and saving enough to buy a home. Malcolm Turnbull gives a variation on that theme by telling parents, presumably wealthy parents, that they should ‘shell out’ more to help their children get into the housing market.

    In any event, Joe Hockey’s performance and particularly his 2014 budget meant that Washington couldn’t come fast enough.

    Scott Morrison talks about the importance of transitioning our mining based economy to a more broadly based economy. But his budget made no mention of the importance of developing a sustainable economy based on renewable energy .That would make environmental, economic and business sense. But there was no mention of it in Scott Morrison’s ‘economic plan’.

    For years, the Business Council of Australia has been urging repair of the budget. But has now been seduced by a large reduction in company tax. Corporate Australia was the real winner in the budget.

    There is no credible evidence that a reduction in company tax or reduced taxes on the wealthy increases jobs and growth. As Michael Keating has pointed out in this blog that ‘where ever the tax rate has been changed it has never made a perceptive difference to investment, either here in Australia or anywhere else’. The ‘trickle down ‘theory does not really help ‘jobs and growth’

    And after almost three years of Coalition Government the story on business investment is disturbing. The budget is framed around business investment falling by 11% in 2015/16, falling 5 % in 2016/17 and with no growth in 2017/18. The Treasury figures also show unemployment is expected to remain at 5.5% until at least the middle oy 2018.

    The budget figures do not show much ‘growth and jobs’ in the years ahead despite what the Treasurer says. Ross Gittins in the SMH on May7/8, 2016 said ‘…there is no evidence to support Morrison’s claim that the budget will do great things for ‘growth and jobs’.

    The Supply side’ economics of Ronald Regan, cutting taxes for companies and wealthy individuals that Scott Morrison is pursuing, left the US with record deficits and debt and dramatically increased inequality. This inequality is described by the OECD as ’harmful for long term economic growth. As Nobel winning Joseph Stiglitz put it ‘the world faces a deficiency of aggregate demand brought on by a combination of growing inequality and a mindless wave of fiscal austerity. Those at the top spend far less than those at the bottom. So that as money moves up, demand moves down’.

    We are learning at last that growing inequality is not only bad for society but it is also damaging for the economy. This is the path that the Turnbull government wants to take us down.

    Malcolm Turnbull has told us many times that the Free Trade Agreements with several countries are ‘massive building blocks’ for our economy. However the Productivity Commission has warned us that there is more hype than benefits in these FTA’s. ‘Pebbles’ would be a better description than massive building blocks.

    For a government that presumably has some regard for markets and free trade, its decision on a $50 billion submarine and naval build in Adelaide is remarkable. Christopher Pyne must really be a national treasure if the government needs to spend so much money to help keep him in public life. This submarine decision by the Turnbull government will surpass by far the protection ways of the Fraser government.

    In this blog on 29 April, Jon Stanford and Mike Keating pointed to

    ‘The implications for industry policy constitute a particularly egregious element in the [submarine] procurement decision. … We need to remember that the Abbott government showed the door to the car industry. The end of the ‘age of entitlement’ meant that around $500 m. a year, not high by international standards, was too much to pay to support a high technology(car) industry that, directly and indirectly, employed around 200,000 people. Now the government is keen to support a (shipbuilding) industry with a cost disability, according to the Rand Corporation, of up to 40%. Given the likely moderate local value-added in an industry where all sophisticated hardware is important, the effective rate of protection (assistance to value added) will be much higher than this. Indeed a leaked paper from Defence suggested an effective rate of protection of 500% would be required to build the submarines in Adelaide. Even at the height of the Fraser government’s protection excesses … the effective rate reached only 143% for the car industry. … On the Prime Minister’s figures, 2,800 jobs will be created directly and indirectly, a far cry from the 200,000 jobs that are related to the car industry. Some early estimates suggest we are looking at a cost of around $4 m. for every job created.’

    It is hardly good economic or business management.

    In his interview with Laurie Oakes, Scott Morrison acknowledged that the contract with the French submarine builder had not been signed and the design and specifications were open-ended even though we have apparently agreed on a price. It sounds like a thorough business mess.

    The crack down on high income earners who mis use the superannuation system is welcome but as Saul Eslake and others have warned these same people are likely to now transfer their surplus funds into negative gearing of property, a problem which the government refuses to tackle. In its cautious way the Reserve Bank has warned about the risks of negative gearing. ’Any change which discourages negative gearing may be a good thing from a (financial stability) perspective. The concessional rate of taxation of capital gains might encourage leverage speculation, particularly in combination with negative gearing provisions’

    We are likely to see even more wasteful infrastructure spending, particularly on roads. As Michael Keating has pointed out in this blog we must have’ proper pricing signals and evaluation’ for infrastructure investment. A government that professes to understand business, markets and pricing should know this. Unfortunately it doesn’t and allows so much of road spending to be influenced by powerful motoring organisations and construction companies.

    There is no credible plan to bring the budget back into surplus or secure ‘jobs and growth’. But we will have plenty of slogans in the coming weeks as we had at the last election.

    And the budget is quite silent on the two most important issues of our time climate change and growing inequality. Ideology has been put ahead of good economic management

    The case that conservatives are better economic managers does not stand up to serious examination.

  • Bruce Duncan. Julie Bishop cuts Overseas Development Aid to record low.

    Despite lobbying from many groups, the May federal budget for 2016-2017 is hacking another $224 million from Australia’s overseas aid, reducing our aid to $3.8 billion, and as a percentage of our national income to just 0.23%, our lowest level ever. The Coalition had already cut $1.1 billion off our aid, reducing spending in Africa and the Middle East by 63%, and in Asia by 36-38%.

    According to the national coordinator for Micah Challenge, the coalition of church networks, this latest cut comes ‘on top of $11 billion in cuts to aid’ over ten years, and is the fourth time the Coalition government has cut aid levels.

    Australia’s overseas aid had dropped from 0.45% of our Gross National Income in 1971-72, but a bi-partisan attempt to raise our aid to 0.5% GNI by 2015 was initially deferred by Labor in 2012-2013, at a saving to the government of $5.7 billion; the Coalition later cut much further. As Beth Sargent from the Australian Council for International Development said, Australia is no longer pulling its weight in international development efforts.

    Why are we so mean on overseas aid?

    Surprisingly there was very little commentary on these cuts in the media, or about their significance in terms of our national interest. Partly this is explained by budget pressures, but also by the failure of politicians and opinion-makers to educate the Australian public about the urgency of overseas aid.

    Public opinion vastly overestimates the extent of Australian aid. According to a recent national poll of 1528 adults on behalf of Campaign for Australian Aid, the average of responses estimated that our overseas aid amounted to 13.28% of the federal budget, about 14 times more than the actual figure of 0.9%. Less than one-in-five people estimated the aid budget as less than 1%.

    Australia has committed to supporting the UN Sustainable Development Goals, the global effort to greatly reduce extreme poverty and hunger, and lift living standards in poorer countries especially, while all countries act urgently to sustain the environment and reign in dangerous green-house gases. Yet we are being seen as laggards in this effort, as ‘leaners, not lifters’, in the famous words of an earlier Australian Treasurer.

    As the Chief Executive of the Australian Council for International Development, Marc Purcell said, our cuts to overseas aid, including many life-saving programs, are hurting some of the poorest people.

    Avoiding failed states in our region

    Consider what reductions in aid mean in our region. Papua New Guinea has a population of 7.76 million, and is growing quickly. How is PNG to manage such an enormous process of change? It already has acute problems with providing education and healthcare, not to mention unemployment, extraordinarily difficult transport problems, issues around law and order, political stability and growing challenges from climate change and drought.

    It is vital that PNG make steady progress in all these areas, but it cannot without significant international support, especially from Australia. What would a failed state in PNG look like?

    We had the example of the Solomon Islands where in 2003 Australia led a coalition of countries and sent police and armed forces to restore order. In the next ten years until withdrawn, 7,270 Australian personnel served in the Solomons, at a cost to Australia of $2.6 billion.

    We hope for a much better future for PNG, but other countries beyond the Pacific are fragile as well and need our sustained aid and development support. Some other countries may want to fill any vacuum we leave, including China.

    The climate change imperative

    As if humanitarian reasons were not compelling enough for reasonable levels of overseas aid, climate change adds extra urgency. With our expertise in agriculture, health care and education among many other areas, Australia can contribute greatly to help other countries adjust to climate change.

    Australian know-how in dry-land farming and water management could be very important in parts of Africa and Asia. Our agricultural scientists are continually working to improve strains in crops that yield more, using less water, and are more resistant to insect pests and diseases.

    Development specialists are working to ensure our world can manage this transition to a sustainable global economy and life-style, but this will not happen unless countries like Australia recognise that it is in our own national interests to support these efforts strenuously.

    Despite serious economic difficulties, along with five other OECD countries, the British government has committed to maintain its overseas aid at 0.7% of GNI, the international target recommended by the United Nations and accepted by Australia in the early 1970s. Such is the urgency about promoting international development at this crucial time that 22 out of the 28 OECD donor countries increased their foreign aid this year.

    In the view of Paul O’Callaghan, CEO of Caritas Australia, Australia has ‘given up its shared leadership role in combatting poverty’, despite being one of the wealthiest OECD countries. Cuts to our aid have damaged Australia’s reputation internationally and set back efforts to create a more equitable and sustainable world in line with the UN Sustainable Development Goals.

     

  • John Austen and Luke Fraser. Urbane transport policy. Part 1 of 3.

    Prime Minister Turnbull made a splash on urban transport recently. He sketched a vision of ‘30 minute cities’ where residents spend on average just one hour a day travelling to regular activities like work and shopping. He also considered mass transit solutions rather than just more motorways.

    This article is the first of three raising questions about where politics and bureaucracy find themselves in transport and its infrastructure – and where they might head next. In a subsequent post, more on funding and the role of the Commonwealth. For now, the PM’s focus on mass transit and 30 minute cities:

    Mass transit                                                                   

    There is a case for favouring mass transit systems over motorways. In this, the current Rhodes Scholar distinguishes himself from the previous PM, who was more of a roads scholar (guided, one suspects, by Margaret Thatcher’s famous views on the emasculating shame of public transport ([i])). If PM Abbott’s objective was reducing travel time to power the city economy, he had it wrong: new motorways can appear liberating, but when ‘aimed’ at major centres in cities can induce more and more cars to use them – until they soon become full again ([ii]). You can’t bust congestion just by building more motorways.

    30-minute capital cities

    There is a theory, based on historical record, of long-term constant average travel times in some major cities of around half an hour. But these places mostly aren’t Australian capital cities. Our cities have around 200 years of development to consider; most evolved intensively only after the advent of the motor car; they spread out and luxuriated in wide spaces. Many Australians, especially in the biggest cities, already spend considerably more than 30 minutes commuting each way every day. Data for Sydney shows total average daily travel time to exceed 40 minutes, 35 minutes on work trips alone ([iii]).

    Little wonder that a 30-minute city is an attractive political stance. Even less wonder that sections of Sydney and Melbourne’s media dismissed the Prime Minister’s proposal as ludicrously ambitious ([iv]).

    What can the PM do about this? Will spending enough billions on big projects break the mould and reduce Sydney or Melbourne commutes to 30 minutes? Settled economic theory around equilibriums would say no. Whether the travel time is 30, 40, or 50 minutes, attempting to change these numbers could hazard many scarce billions for little long term gain: it is difficult to drop travel times sustainably through infrastructure, least of all by roads, and by inference through housing.  Naturally, this view won’t be popular with the infrastructure industry that stands to profit most directly from massive spending. But in this respect, as someone or other said recently, Canberra is not an ATM – not for the states, not for civil engineering firms either.

    So is it all hot air? No. But Prime Ministerial effort will benefit most from avoiding blank-cheque public transport evangelists and instead playing a strong and focussed hand in the game, with an eye on creating a robust Commonwealth legacy:

    • Canberra can influence better city transport design through road pricing. As distinct from charging to pay for roads, road pricing has the best potential to reduce congestion. It also can help resolve the vital but usually ignored question: which mix of transport, including public transport, gets the best results? This is especially the case if road profits are available to systems separated from car use, such as rail and bus rapid transit. Canberra can put its oar in the water here by asking for the theoretical application of road pricing in the identification and assessment of every major urban transport project proposal. An ‘as if there was road pricing’ test is a practical way of doing this today, without needing another bureaucratic study or debate on how to introduce road pricing.   Indeed, to not use such a test now entails major risks to the design, economy and amenity of Australia’s cities.
    • Distributional effects of transport projects merit closer examination. The largest economic and social gains, such as increased workforce participation, may well be reaped by helping those at the physical and social margins of our cities; in this sense, the discussion should be more about access to services and less about speed/mobility. More about the ability of the young to get to good jobs; less about pandering to the privileged few by making their drive to the CBD or holiday home a little faster under the guise of ‘congestion busting’.
    • Arising from this, as Mike Keating and Luke Fraser wrote for last year’s Fairness Opportunity and Security series ([v]), there is a need to give renewed consideration to buses in the Australian setting, including redesign of new housing developments to better accommodate buses, rather than just giving the westies a motorway, or inner city dwellers their longed-for token ‘iron pony’ (aka light rail), or some obscure minister his or her bronze dedicatory plaque on a motorway that points itself at a city centre.
    • Lastly places like Newcastle, Wollongong, Geelong and Townsville seem a much more feasible testbed for the 30-minute city than Sydney, Melbourne and Brisbane. Among other things, unlike in the big capitals, this would not require an archaeological understanding of historical agendas for these cities, and avoids angsts such as having attractions close to where people live and not just near the CBD.
    • Higher Speed rail connections between places like Newcastle or the Central Coast and Sydney can create a much larger ’30-minute city’ and the value capture from such projects might be larger than for projects confined to Sydney’s already expensive property market. This deserves proper consideration, in contrast to the eccentricities seen in Canberra’s recent high speed rail studies.

    So, lots to be done – and none of it even remotely attended to by Canberra to date. Plenty of ideas for a Prime Minister who wants to take cities seriously. But to set up a real legacy, any Prime Minister, whether Turnbull or Shorten, must ensure their Government’s actions align with a proper and sustainable role for the Commonwealth.

    John Austen is a happily retired former official. He was Director of Economic Policy for Infrastructure Australia from its inception in 2008 to his retirement in 2014. Further background is at: thejadebeagle.com.

    Luke Fraser is the founder and principal of a transport policy and investment advisory. In 2012 he was appointed to the board of the Prime Minister and Premiers Road Reform Project. Prior to this he was a national freight industry chief executive and provided advisory services to Infrastructure Australia. He recently authored a tax-rebate-based road pricing reform model for the SA government. The views expressed here are his own.

    [i] Worth quoting, a reminiscence, albeit from the other side, from UK Hansard (2 July 2003, Column 407): ‘The hon. Member for Wolverhampton, South-West (Rob Marris) said that the Conservatives had no policy on buses, but that is hardly surprising in view of the most famous quote of all time about the buses, delivered by Margaret Thatcher …in 1986:

    “A man who, beyond the age of 26, finds himself on a bus can count himself as a failure”.’

    [ii] http://www.citymetric.com/transport/does-building-more-roads-create-more-traffic-934

    [iii] 2012-13 Household Travel Survey at http://www.bts.nsw.gov.au/Statistics/Household-Travel-Survey/default.aspx#top

    [iv] http://www.smh.com.au/comment/the-30-minute-city-is-a-silly-idea-but-malcolm-turnbulls-cities-policy-isnt-as-hollow-as-it-seems-20160502-gokk5e.html

    [v] https://publish.pearlsandirritations.com/blog/?p=3834

  • Bruce Duncan. Budget ignores growing inequality

    Scott Morrison’s Commonwealth budget aims to be politically balanced but, like the Hockey budgets, neglects struggle street. The budget still labours under the neoliberal belief in minimal taxes, small government and maximum freedom for private enterprise.

    Morrison’s mantra is that cutting taxes on businesses and the wealthy will increase investment, growth and jobs. The trouble is, this is not the case, in part because the meagre income of much of the population reduces demand. It appears also that tax cuts for the wealthy make little difference to the growth rate.

    In addition, the unfairness of the economic system builds up popular resentment against elites groups who often make the rules to benefit themselves. This explains much of the disenchantment with politics that we see in Australia. We haven’t reached the situation of the United States, where anger and resentment is very evident in the widespread support for Donald Trump and Bernie Sanders. Consider also the rise of populist movements in parts of Europe with very high unemployment. Youth unemployment in Greece is at 48 per cent. How long can nations manage such social distress without turning to extremes?

    Trickle-down economics & inequality

    The trickle-down assumptions of supply-side economics have been proven bogus, but they supply a rationale for rich individuals and corporations to justify the inequitable division of wealth.

    Joseph Stiglitz and many other economists have highlighted how inequality has grown to astonishing levels in the United States and elsewhere. Mike Secombe in The Saturday Paper pointed out that in Australia, the top 20 per cent have 70 times more wealth than the bottom 20 percent. While 10 per cent of households own 40 per cent of the wealth, the bottom 40 per cent of households own just 5 per cent. Secombe quoted an OECD study that ‘growing inequality is harmful for long-term economic growth.’

    This is certainly the view of Pope Francis and other religious leaders. The Pope’s recent social encyclical, Laudato Si’, identified inequality and climate change as two of the greatest challenges to human wellbeing today. Francis highlights greater equity as a key to sustainable growth and prosperity.

    Scott Morrison declared an end to class warfare, yet it would seem that the very rich have been waging class warfare for years, largely unhindered.

    Major budget problems

    The 2016-17 budget makes superannuation somewhat fairer for low-income people, but three-quarters of the benefit goes to the top 10 per cent of taxpayers. In addition, few of the steep cuts to services and programs made by the Abbott government have been restored. Indeed, there are more cuts to health and aged care in particular, and some Medicare benefits.

    Despite strong support from business groups to lift unemployment benefits, the government curiously refused to increase them. For people going on to Newstart, the benefit will actually drop because they will not receive the small carbon tax compensation benefit. Unemployment benefits remain under $530 a fortnight for a single adult without children, not enough to pay for board at a backpacker’s and for food, medication, clothing and a phone card. Many walk the streets by day, and at times sleep rough. Increasing numbers of people are relying on charitable agencies for emergency support, and you may have seen more people begging in the streets of major cities.

    The budget does little for the homeless or those in housing stress. And what of the 600,000 children living in poverty? Instead the budget cuts 810 jobs from the Department of Human Services, and a further 344 from the Department of Social Services. There was little new for Indigenous programs either. The budget did not restore earlier cuts, and there were further cuts to Indigenous legal services and higher education participation programs.

    The extraordinary cost of housing is raising great concern in the community, as it is pricing many young couples out of the housing market, or saddling them with crippling debts. The housing bubble is also socially damaging, a source of considerable stress and delaying family formation. The budget completely resiled from any attempt to tackle the problems arising from negative gearing, as well as from capital gains taxes.

    Perhaps most surprising, the budget ignored the looming crises from global warming. At a time when Australia could be a world leader in sustainable energy, and developing ways to adjust to climate change with new technologies and know-how in farming, fishing, housing, health care etc., the Coalition seems diffident, despite the Prime Minister’s own personal views. The cuts to funding for our world-famous CSIRO, and for research on climate change, are emblematic of the blinkered thinking of the Coalition government.

    As for the budget’s centrepiece, the ‘enterprise tax plan’ to cut company tax from 30 per cent to 25 per cent over ten years, Stephen Long called it a ‘con’, and Tim Colebatch considered it ‘breathtaking’ and ‘courageous’, in Sir Humphrey’s famous phrase. Will the tax cuts produce growth and jobs? Not for years, according to Stephen Long. Small companies will likely retain profits in the business rather than risk new investment. The lower tax rate will encourage investors from overseas, but that will take years to eventuate. ‘The gains for jobs and wages are so small they are trivial’, comments Long. Malcolm Turnbull eventually confirmed that the program could eventually cost nearly $50 billion.

    One of the few bright spots in the budget is an effort to tighten multinationals’ tax avoidance and capital flight. Voters are naturally outraged at such systemic tax avoidance and governments themselves are suffering from this massive haemorrhage of capital into tax havens. All the political parties broadly support curtailing this tax avoidance.

    Yet because the Coalition had reduced its funding, the Australian Tax Office cut its workforce from 22,000 to about 18,500. In a major about-face, Treasurer Morrison announced that the ATO would now gain an extra 1000 staff, with 390 of them joining a taskforce of 1300 to ensure tax compliance by multinationals. Better late than never.

    In short, what we urgently need in Australia is stronger support for those on struggle street, and policies to restore a fairer distribution of wealth and opportunity.

    Bruce Duncan is a Redemptorist priest lecturing in social ethics at Yarra Theological Union in Melbourne. He is one of the founders of the advocacy organisation Social Policy Connections.

  • Kim Williams. Fair use does not mean free: Copyright recommendations would crush Australian content

    As someone who has spent my life running organisations that take risks, invest billions and innovate to provide the best of local and international content to Australian consumers, reading the Productivity Commission’s draft report into our intellectual property arrangements was profoundly dispiriting.

    I cannot think of another recent report that so seriously misses the main drivers of its area of inquiry – namely innovation and the incentives to produce new work. At the same time, the report treats Australian creative content and its production with a disdain bordering on contempt, and that is surprising for any economic statement.

    The commission makes recommendations which would have such a deeply detrimental impact on the ability of film and TV makers, writers, artists and journalists to tell Australian yarns, and make a living doing so, as to be worthy only of rejection.

    Take the commission’s conclusions on what drives innovation. The draft report claims our intellectual property and copyright settings inhibit investment and innovation. Really? Most people who run businesses and invest money know that what really drives innovation is a clear operating framework which enables companies and entrepreneurs to manage their risk appetite and capital investment, as well as access to highly skilled people.

    In the creative landscape, the bedrock of production is copyright – the Copyright Act provides the critical framework for ensuring returns from investment.

    The Prime Minister recognised the drivers of innovation in a statement last year. He committed over $1 billion to ensure the right incentives to innovation were in place; to encourage risk-taking; and to promote science, maths and computing in schools. There was no mention of intellectual property in his statement, given there is already a clear protection framework in place.

    So, having spent considerable amounts of time answering the wrong question, the commission then demonstrates what can only be described as a breathtaking disregard for the creativity of Australians. It dismisses concerns that its recommendations would lead to less Australian content, with this response: “most new works consumed in Australia are sourced from overseas and their creation is unlikely to be responsive to the changes in Australia’s copyright (laws).” So, that encapsulates the commission’s thinking – American and British material will suffice and Australian original work doesn’t really count for zip.

    But make no mistake, if the commission’s recommendations to implement “fair use”, for instance, were implemented, there would be less Australian content on our screens, on our bookshelves (real and virtual), and in our schools and universities.

    “Fair use” is an American legal principle which would allow large enterprises to use copyright material for free, which, under Australian law, they currently have to pay for. PwC recently estimated that introducing “fair use” in Australia could result in a loss of GDP of more than $1 billion.

    PwC’s report (provided to the commission) outlined three reasons for this collapse. First, “fair use” would strip millions away from Australian storytellers and content creators because governments, companies and large education institutions who now pay to use content, would stop paying as much or stop paying at all.

    PwC examined what happened in Canada when similar changes were made in 2012. Universities and schools refused to pay for the educational content they used. This led to a 98 per cent reduction in licensing revenue,  the closure of many publishers and a loss of jobs. Oxford University Press stopped producing Canadian textbooks for schools.

    The Canadian Writers Union’s John Degan described the effect this way: “We are headed back to the bad old days of 40 or 50 years ago, when everything you read in Canadian schools was produced in the US or Britain.”

    Second, “fair use” would permanently lift legal costs in Australia. US copyright cases are almost five times the volume of cases in the UK, whose law is comparable to ours. Good for lawyers, bad for creators and consumers.

    Third, fair use would undermine the effective and fit-for-purpose licensing system that has evolved here allowing Australian teachers to share and copy almost every book, magazine, image or journal published in the world, with their students, for less than the cost of a single book each year. This fee is paid by school departments, not students.

    None of this means that we shouldn’t continue to update our Copyright Act. Industry-led reforms to the Copyright Act are already well advanced in an unprecedented collaboration between rights holders, libraries and education institutions. They deliver on a promise by the Attorney-General George Brandis to review the Act in the government’s first period in office.

    So let’s aim for sensible reform which balances the incentives and protections for creators with the rights of consumers to access wide ranging material on fair terms.

    But remember, fair does not equal free, and no one needs a manufactured revolution driven by armchair economists who want to blow up Australia’s content sector – as this disappointing report proposes.

    Kim Williams is chair of the Copyright Agency and Viscopy. He is a former CEO of NewsCorp Australia, FOXTEL, Fox Studios Australia, the Australian Film Commission, Southern Star Entertainment and Musica Viva Australia.

  • Michael Keating. The 2016-17 Budget. Part 1 of 2.

    The Turnbull Government’s Budget for 2016-17 reflects an essentially ‘steady as she goes’ fiscal strategy. Not that that is a fault – indeed it can be a virtue, especially when matched against the give-aways in other previous pre-election budgets.

    Furthermore, we could not have realistically expected any other sort of Budget, given the extent to which the Government had narrowed its options before Budget day. In addition, a policy of matching every new spending initiative by a saving, is bound to produce minimal change; not least because cutting existing programs typically generates more opposition than the support for the new initiatives. But that said there are a few interesting and useful initiatives in this Budget.

    First, the changes to superannuation go further than just about anybody expected. While the big super funds will not welcome the consequent reduction in the funds that they have to manage, the changes should be widely supported by all but the top 4 per cent of superannuants, as better targeting the tax concessions and improving equity. In particular, I welcome the changes that should help women with broken work patterns. I think, however, that it would have been better to have reduced the threshold for the increased 30% tax on superannuation contributions to $180,000 rather than the proposed $250,000 per annum; the lower $180,000 threshold would then correspond with the threshold for the maximum income tax bracket.

    Second, the other useful initiative is the new approach to assisting young unemployed people make the transition into employment. This represents a marked improvement on the Abbott Government’s harassment of these young people, as if their unemployment was purely their own personal fault. Of course, there are risks that the new approach might be exploited by unscrupulous employers – and that has happened in the past – but this approach does seem worth trying. My main concern is that governments tend to spread the funding too thinly with labour market programs, in favour of assisting more people with the limited funds available, but at the risk of dropping the quality of the assistance to the point where it loses effectiveness.

    Nevertheless, overall, and in stark contrast to the 2014 Budget, this Budget does seem to generally pass the test of ‘fairness’. Perhaps the biggest future concern for fairness is that the Government clearly intends to increase the fees paid by university students to cover an average of 50% of course costs, instead of the present average of 40% of course costs. So far as I am aware there is no evidence that the private benefit from a university education is as high as 50% of the course costs, in which case this change will be unfair and it will very likely particularly impact on enrolments by disadvantaged students.

    I also think that it would have been fairer if the Government had kept the deficit repair levy in place which affects the people in the top tax bracket. After all the deficit is as far as ever from being repaired, and lower income people have been called upon to make bigger sacrifices to help repair the deficit in the past, and they are not now going to get any relief.

    The major criticism of this Budget, however, is that it does not really represent any further progress towards achieving fiscal repair and a return to surplus. On the relatively optimistic Budget projections we are being promised that a surplus will be achieved by 2021. But we have heard that one before, and many have ceased to believe such projections.

    Of course, some will say why should we worry? Certainly Australian Government debt is not high. Even at its projected peak in 2017-18 it will still represent only 19.2 per cent of GDP, much less than half the ratio for the US. And as for the rating agencies they lost all credibility after their incredibly optimistic ratings leading up to the Global Financial Crisis, and they still seem happy to give the US Government a AAA rating.

    Instead, the real concern about continuing budget deficits is that they have already greatly reduced Australia’s capacity to respond to the next external shock to our economy. Furthermore, these deficits are continuing even after twenty-five years of uninterrupted economic growth in Australia. While on the other hand, the risks of an external shock are if anything increasing as the world economy continues to be highly volatile and uncertain, with the outlook for China – our most important trading partner – being perhaps especially problematic.

    Frankly Australia needs a more ambitious medium-term approach to Budget Repair. The Government, however, continues to proclaim that this repair must come from more restraint on the expenditure side, and rules out increases in taxation; even if this is achieved by reductions in tax concessions, which really are an alternative form of expenditure.

    The reality is that on the evidence in this Budget, this Government is running out of options to further reduce expenditure. The Government has made great virtue of its claim that since the 2015-16 MYEFO all policy decisions have been more than fully offset, resulting in a small surplus over the four years of $1.7 billion. But this claim is itself suspect. The claimed surplus of $1.7 billion over the next four years is dependent on a projected net surplus from policy decisions of $5.9 billion in the final year, 2019-20. In the other years, policy decisions have in fact added to the budget deficit, including as much as $3 billion in the forthcoming financial year. While the likelihood of the net $5.9 billion saving being achieved in the last year is highly problematic.

    In addition, this budget is continuing to factor in $13 billion of previous expenditure savings and $1.5 billion worth of revenue increases that have not passed the Parliament. Maybe that will change after the election, and maybe it won’t. In fact, the likelihood seems to be that following the election even if the Government is returned it will not have a majority in the Senate, in which case it really needs a better fiscal strategy to repair the Budget.

    Instead of continuing to remove funding from a lot of small programs, with a loss of services – especially cultural and welfare services – the Government needs to refocus on achieving improvements to the efficiency and effectiveness of the big spending areas such as education, health, infrastructure and defence (as discussed in my article “Fixing the Budget – Part Two” and published in Fairness, Opportunity and Security). But even if the rate of growth in the Forward Estimates for these expenditure functions were reduced by as much as a feasible two percentage points per annum, it is doubtful that would be enough to restore a Budget surplus equivalent to around 1 per cent of GDP which is the medium term target.

    Furthermore, this pre-election Budget strongly suggests that this Government does not envisage that the majority of Australians actually want smaller government. Thus the overall Budget outcome according to the Government’s own figuring is that, even in four years’ time, in 2019-20, total receipts will still represent 25.1 per cent of GDP and payments will represent 25.2 per cent of GDP – both higher than under Labor’s last year in office in 2012-13 when they were 23.0 and 24.1 per cent respectively.

    As the Balanced Budget Commission of experts, appointed by the Committee for the Economic Development of Australia, found Australia has a revenue problem rather than just an expenditure problem. Furthermore, that Commission identified sufficient revenue options that had a reasonable chance of gaining majority support to play the major role in restoring the Budget to a satisfactory surplus (see my post 29 March 2016).

    In sum, sooner or later politicians will find that they have to talk about the revenue options if we want to maintain the present nature of our society and the social obligations that involves. And frankly the sooner that conversation begins the better. But unfortunately don’t expect that conversation to happen over the next two months of this election campaign.

     

  • Michael Keating. The Government’s Plan for Jobs and Growth. Part 2 of 2.

    On Tuesday night the Treasurer announced that this year’s Budget was like none other – this Budget represents the Government’s Plan for Jobs and Growth. Presumably the Government hopes that its Plan will represent such a compelling narrative that it can then sail to victory in the forthcoming election. Accordingly, in this article I propose to assess how the Government’s Plan measures up in terms of its probable impact on jobs and growth.

    As stated in the Budget the Government’s Plan for jobs and growth is based on:

    1. A ten year enterprise tax plan
    2. Continued investment in the national innovation and science program
    3. Securing an advanced local defence industry
    4. Opening up more export opportunities through trade agreements
    5. Its plan to get more than 100,000 young people into jobs.

    According to the Government’s own Budget forecasts, however, the growth in output over the next four years is expected to be relatively poor, and notwithstanding its Plan. In fact the forecast growth in GDP has been revised down yet again, and is now expected to continue growing by less than its potential in the next 2016-17 financial year. Indeed it is precisely because of this weak economic outlook, that the Reserve Bank took its decision on Budget Day to reduce interest rates to the lowest level ever for the cash rate of 1.75%. Of course, the Bank and the Government attributed the timing of this decision to the recent low inflation numbers, but those numbers only provided the opportunity to reduce interest rates. The need to reduce them was occasioned by the inadequate level of aggregate demand, and especially the poor rate of business investment in the economy.

    The good news, as the Government keeps reminding us, is that around 300,000 jobs have been created in the last year or so. But these new jobs are predominantly due to the very low rates of wage increase that have pertained in the last few years. Furthermore, according to the Budget these low rates are expected to continue, with nominal wages forecast to increase by only 2½ per cent and 2¾ per cent in the next two financial years, representing a forecast real annual increase in wage rates of only ½ per cent each year.

    No wonder employment is growing rapidly, but this has little to do with the Government’s strategy for growth and jobs. Rather what we are experiencing is how, following the reforms of the labour market by the Keating Government, the labour market is now much more flexible and how the price of labour is now much more responsive to economic conditions. But the counterpart of this success in creating jobs is that the rate of productivity increase has dropped to around only ½ per cent in each of the last two years, and is not expected to increase by much more in 2016-17.

    In that context, what is surprising and disappointing about this year’s Budget Statement on the Economic Outlook is that there is no section dealing with productivity, and this despite productivity having been at the centre of all discussion about economic reform for the past couple of decades.

    In addition to our poor productivity performance, what is also worrying about the economic outlook is that non-mining investment is projected in the Budget to continue to remain sluggish. To some extent both phenomena may be related. But this non-mining investment is precisely the area that one would expect the Government’s Plan and especially its innovation agenda to have an impact on if that Plan is to succeed.

    So what is the problem with the Government’s Plan, that its own forecasts do not seem to provide much evidence that it will be successful?

    First, one would have to be extremely sceptical about the claim that ‘the tax and superannuation plan can be expected to lift the level of GDP by just over one percent in the long term’. Frankly it is difficult to see how this claim could be modelled given the shortage of empirical evidence. Furthermore, it is most curious that this modelling was not done by the Treasury, but by private consultants, who too often assume what they have to prove. Perhaps it is therefore no accident that it is still not possible to find out how this modelling was done. But what we do know is that whenever the company tax rate has been changed, it has never made a perceptible difference to investment, either here in Australia, or anywhere else. And even if we were to accept this dubious self-described “modelling”, a one percent difference over twenty years is next to imperceptible, and Australia needs a much faster pick-up in non-mining investment than that.

    Instead the required pickup in investment will mainly depend upon the demand for each firm’s products. The profit share and the rate of return on investment is high enough, but the lack of demand is why so many firms are engaging in share buy-backs and acquisitions of existing assets, rather than expanding through new investments to create new assets. In this regard a credible path to accelerate the restoration of a sustainable budget surplus would make more difference than these tax cuts. A Budget surplus would reduce the relatively high real interest rates in Australia and would probably also lead to some further reduction in the exchange rate over time. Therefore the ten-year funding for the tax plan should be progressively re-deployed to bring the Budget back into surplus quicker.

    Second, there is the issue of what can realistically be expected from the innovation and science package. The most important elements of this package aim to improve:

    1. the collaboration between industry and researchers which according to an OECD study is worse in Australia than in any other advanced economy, and
    2. Australian business attitudes to risk and experimentation, and the incentives for early stage investment in start-ups.

    These are worthy aims, but how much difference can government make, especially when the funding largely comes from a re-arrangement of existing programs, and overall the funding has been cut for business assistance, and cut significantly.

    The third leg of the Plan is the support for an advanced local defence industry. Readers of this blog will have seen previous articles querying the suitability of the submarines to meet our defence needs and their cost. (The mistaken decision on submarines and A more efficient submarine solution.)  In brief, building the wrong boats at a cost at least a third higher than purchasing them off the shelf, is not the future for a competitive manufacturing industry. Australia does need to, and I believe can, have a future in advanced manufacturing which produces high value added products based on technological leadership. On the evidence, however, building these submarines in Australia does not meet these criteria and cannot be expected to ensure our industrial future.

    The other legs of the Government’s Plan identified above – opening up exports through trade agreements and the plan to get 100,000 young people – are also worthy endeavours, but again cannot realistically be expected to have a large impact on the economy as a whole.

    Instead having a comparative advantage in skills is the most critical element if Australia wants to pursue high value added industries based on technological leadership. The Prime Minister’s Innovation Statement did in fact recognise the importance of skills, but unfortunately his words haven’t been matched by action. Instead the funding for education and training, along with research, has been cut.

    A second critical element in improving Australia’s comparative advantage in high value industries is to make better use of the skills that are available. This is also the key to enhancing future productivity growth. But unfortunately there is considerable evidence that most firms in Australia are not at the frontier of best practice when it comes to making the best use of the skills of their workforce. What is needed is a renewed management focus on achieving improvements in the organisation of work, a principle source of innovation, and less focus on cost cutting, which at worst can lead to lower productivity.

    Closely related to this second element, and its focus on improving the organisation of work, is the scope to improve the effectiveness of education and health services, and consequently their productivity, by re-organising how they are delivered. This means breaking down some of the silos, developing teams, and particularly in the case of health it will require changes in the payments systems and consequent incentive structures.

    Finally, a good plan for jobs and growth would require much more carefully targeted infrastructure investment, based on the introduction of proper pricing signals and proper evaluation. While the use of infrastructure continues for the most part to be free, we should not be surprised if there is over-demand. Instead in future infrastructure investment (which is a huge drain on the Budget) should be guided by what will deliver the greatest economic returns, having regard to the value that users are prepared to pay for, and not in response to political whims.

    In sum, one can applaud the Prime Minister’s enthusiasm for innovation and his efforts to encourage the embrace of new technology. However, the agenda for jobs and growth needs to broadened as there is much more to do, and the funding is inadequate to support many of what the Prime Minister himself has identified as priorities.

     

     

  • Jon Stanford. French submarines and the East and South China Seas. – why?

    A response to Richard Broinowski. 

    While the government might emphasise the roles for the new submarine that may be regarded as defensive – “intelligence, surveillance and reconnaissance” – Richard Broinowski ignores perhaps the most important role, namely power projection in the East and South China Seas.

    This role was perhaps most graphically illustrated the Rudd government’s 2009 White Paper, which first made the case for 12 powerful new submarines. Rather extraordinarily, that White Paper mooted the possibility of unilateral action by Australia against a ‘major adversary’:

    “But we do assume that, except in the case of nuclear attack, Australia has to provide for its own local defence needs without relying on the combat forces of other countries. The Government considered such contingencies because although they are unlikely, they are not so remote as to be beyond contemplation. …In such circumstances, in order to defend ourselves we might also have to selectively project military power beyond the primary operational environment described in this White Paper, for instance in maritime Southeast Asia.” (Page 65)

    Lest there be any doubt, the 2009 White Paper (Page 59) suggested that “we will use strategic strike if we have to”. (Page 59) It stated that:

    “The Government places a priority on broadening our strategic strike options, which will occur through the acquisition of maritime-based land-attack cruise missiles. These missiles will be fitted to the AWD, Future Frigate and Future Submarine. …The incorporation of a land-attack cruise missile capability will be integral to the design and construction of the Future Frigate and Future Submarine.” (Pages 70 and 81.)

    Although the 2016 White Paper dropped all references to strategic strike, this does not mean that the aspiration has been discarded. Certainly, the requirement for 12 powerful, long range submarines has not changed since 2009. This is not the first time that Australia’s defence strategy has required the acquisition of a unique military platform. In 1963, the Menzies government ordered a special version of the American F-111 aircraft with the range extended so as to allow it to reach Jakarta.

    In any case, it seems clear that one of the reasons that Australia requires a unique conventional submarine is so that the RAN could undertake operations that most navies would leave to nuclear submarines, namely power projection against a ‘major adversary’ in contested waters far from home. For example, Rear Admiral Ray Griggs, former Chief of Navy (2011-14), defined the most significant operational task for the future submarine as “sinking hostile ships and submarines” and said that the area of most interest is the South China Sea. [1] Also, the new submarine will have the ability to launch either American or French cruise missiles through its torpedo tubes.

    It is difficult to build a logical strategic case for the acquisition of twelve large submarines with a very long range unless this power projection role plays a central part. Yet, as Australian Strategic Policy Institute has pointed out, it is not clear that the Americans would welcome Australian submarines playing such a role in the case of a conflict in which we were part of a US-led coalition. We can only hope that any Australian aspirations to take on a ‘major adversary’ unilaterally have, like a former sabre-rattling American general, “simply faded away”.

    [1] Peter Layton (2015), “Australia’s next submarine – will it be the Soryu”, Defence Today, Vol 11, No 4, page 8.

  • Richard Broinowski. French submarines for RAN – Why?

     

    The 2016 Defence White paper asserts that Australia’s future acquisition of 12 French submarines costing around $50 billion is the largest defence procurement program in Australia’s history. The first vessel is to be delivered ‘in the early 2030s’, the twelfth in ‘the 2040s or 2050s’. They are said to be for intelligence, surveillance and reconnaissance, not only in Australia’s maritime zones, but in our maritime approaches and further afield. They are to be ‘regionally superior, with a high degree of interoperability with the United States’.

    No doubt the boffins in Defence put much expert thought into submarine selection, but given their enormous cost at a time of financial stringency, we groundlings are entitled to candid and detailed explanations about the choice of these vessels and the uses to which they will be put.

    First, why French? Apart from its small fleet of nuclear-powered and armed ballistic missile submarines, France operates six attack submarines, currently being phased out and replaced by the Barracuda class boats also being chosen by Australia. But compared to the submarine industries in Japan and Germany, France’s is small and relatively inexperienced. Japan began its submarine industry in 1904 and its main factories at Mitsubishi and Kawasaki have designed and built a huge variety ever since. Both Japan and Germany made enormous technical strides in submarine design during World War Two when France was occupied by Germany. German submarine technology has an equally long history. Its Dolphin-class attack boats currently built by ThyssenKrupp Marine Systems and used by the German and Israeli navies are just as sophisticated as the Sōryūs.

    One suspicion worth ventilating here: Direction des Construction Navales Services (DCNS) that makes Barracudas at Cherbourg, predominantly builds nuclear-propelled submarines. Is the Australian government, which favours an international spent fuel nuclear dump in South Australia, surreptitiously planning to widen Australia’s nuclear industry by dropping nuclear power plants into its Barracudas at some later stage of their development? How would Australian punters feel about that?

    Second question: precisely how will our French boats be ‘regionally superior’? Compared to which other fleets? A cursory look at Jane’s Fighting Ships shows that a dozen Royal Australian Navy Barracudas won’t hold a candle in numbers to 15 Korean, 18 Japanese, an unknown number of Russian and nearly 60 Chinese diesel electric boats currently operating in the Western Pacific, let alone new ones constantly being built and added to these nations’ fleets.

    What about local fleets? Indonesia has had a submarine force since 1960. Its current fleet comprises five attack submarines with five more being planned. Singapore has two Swedish Vastergotland boats with more on order. Malaysia has two French-built Scorpene class boats based at Kota Kinabalu. Thailand is planning to acquire two German boats. More potent than any of these, Vietnam plans to take delivery of six Russian Kilo-class submarines between 2013 and 2020. The Chinese have considerable experience with these boats, and will be very concerned if the Vietnamese manage to operate them competently.

    These acquisitions do not represent a flat-out arms race, but add a sudden and significant new maritime sea-denial capability to littoral states in the South China Sea. Inevitably, these states will also acquire anti-submarine warfare counter measures, such as surface ships equipped with helicoptors, drones, sonars, mines and depth charges. The area will suddenly becomes a very crowded space indeed.

    According to the 2016 Defence White Paper, the Australian government hopes to be able to operate its Barracudas in these contested waters ‘with a high degree of interoperability with the United States’. But, my third question: why should we be interoperable with the US alone? Our submarines won’t even be available for deployment for another decade and by then may not be regionally superior. And is interoperability what Washington wants? Radical thought though it may seem, wouldn’t it be more productive for us to operate our boats in cooperation with those of Vietnam, Singapore, Indonesia and Malaysia? After all, their desire for a ‘rules based’ maritime environment is geographically more urgent than the perceived needs of a great power which is finding itself manoeuvred out of its customary position as top dog in the western Pacific.

    A footnote on Japan’s failed bid to sell us Sōryū submarines. On 16 April 2016, the Japanese Ambassador hosted a reception in Sydney for crews of three MSDF ships which had just engaged in exercises with RAN ships. One of them was Hakuryu, a Sōryū submarine. Amid speeches and toasts, Australian and Japanese guests were aglow with goodwill and the optimistic expectation that the imminent announcement of Australia’s next submarines would be for Sōryūs. In his short speech, Harukyu’s skipper said this was the first visit by a Japanese submarine to Sydney since 1942. There were quiet smiles at his unintended solecism. A photograph of Hakuryu heading home through Sydney Heads the next day coincided with newspaper headlines that France, not Japan, had secured the bid. The poignancy of the situation was palpable, and those of us who have had a long association with Japan felt it. The bilateral relationship is strong enough to withstand the decision, but the healing will take some time.

    Richard Broinowski is a former diplomat and Ambassador to Vietnam, Korea and Mexico. He is currently President of the Australian Institute of International Affairs in NSW. 

  • John Menadue. Are Conservatives better economic managers?

    According to opinion polls the public clearly believe that Conservatives are better economic managers. Like other Conservative leaders, Malcolm Turnbull keeps asserting that this is so.  Tonight in the budget, Scott Morrison will probably tell us about the importance of growth and jobs and that the Coalition can deliver in this area but Labor cannot.

    But the evidence does not support the view that the Conservatives are better economic managers.

    In this blog on 20 April 2016, Ian McAuley discussed this issue in ‘Are Conservatives better economic managers?‘  Amongst other things, Ian McAuley pointed out that over the last 50 years we have had 17 Federal Treasurers and that only two have been awarded the coveted Euromoney ‘Finance Minister of the Year Award’.  They were both Labor Treasurers: Keating and Swan.  The former received this award for leading major economic reform in Australia in the 1980s and early 1990s. The latter received the award because of his handling of the global financial crisis.

    In The Guardian on 2 May 2016, economist Stephen Koukoulas asserts that ‘Labor’s economic record is better than the Coalition’s‘. Koukoulas points out that

    ‘in terms of jobs and growth, the ABS data show that average quarterly GDP growth and average monthly increases in employment are stronger when Labor has been in government compared with the Coalition. … GDP and employment growth both rise at a faster pace when Labor is in government.’

    I will be posting additional articles on this issue ‘are Conservatives better economic managers?’

  • Richard Eckersley. Wellbeing and sustainability: irreconcilable differences?

    Better concepts and measures of quality of life and wellbeing make sustainable development more achievable. 

    The debate about progress and development is converging and merging with that about sustainable development. My analysis of the flaws in equating progress with modernisation, discussed in my previous article, contributes to this debate because it shows the equation counts modernity’s benefits to wellbeing but not all its costs.

    Modernity’s dominant narrative of material progress gives priority to economic growth and a rising standard of living. It is being increasingly challenged by the alternative narrative of sustainability, which seeks to balance social, environmental and economic priorities and goals to achieve a high, equitable and lasting quality of life. Material progress represents an outdated, industrial model of development: pump more wealth into one end of the pipeline of progress and more welfare flows out the other.

    Sustainable development reflects an ecological model, based on our understanding of complex systems, in which wellbeing results from many entities or factors interacting in often multiple, diffuse and non-linear ways. (Its implications include paying more attention to the quality of economic activity, not just its quantity; and trading off some growth to achieve other, social and environmental benefits.)

    One approach to measuring sustainable development is to divide quality-of-life or wellbeing measures by energy use or environmental impacts. The New Economic Foundation’s Happy Planet Index does this, multiplying national life satisfaction by life expectancy and dividing the resulting ‘happy life years’ by a country’s per capita Ecological Footprint. My aim here, however, is to assess the wellbeing side of the equation. Wellbeing measures tend to reinforce the conventional view of progress by suggesting wellbeing is continuing to increase; even indices which include environmental impacts show Western nations performing best on the social and economic measures.

    There is often an assumption, explicit or implicit, that there will be a cost to current quality of life in shifting to a sustainable path, as reflected in the title of a recent paper on the topic: ‘Untangling the environmentalist’s paradox: Why is human well-being increasing as ecosystem services degrade?’. The Happy Planet Index notes the ‘undeniable tension’ between its numerator of happy life years and the denominator of the Ecological Footprint. The Sustainable Society Index no longer aggregates beyond the three dimensions of human, economic and environmental wellbeing because of the negative correlation between human and environmental wellbeing, which it says seem to be on a ‘collision course’.

    A 2008 study comparing countries’ Human Development Index scores with their per capita Ecological Footprints shows environmental impacts rise steeply with high development. Only one country (Cuba) of the 93 surveyed met the requirements for both high development (an HDI score of 0.8 or more) and global sustainability (a footprint of less than 1.8 global hectares). Among high-income countries over the previous 25 years, improvements in index scores came with disproportionately larger increases in their footprints, showing a movement away from sustainability. Some lower-income countries, in contrast, achieved higher levels of development without a corresponding increase in their footprints.

    My wider perspective on wellbeing helps to resolve this dilemma by highlighting how Western high-consumption lifestyles and the type of economy and culture they reflect and require are not only increasing resource consumption and environmental damage, they are also hostile to health and wellbeing (especially in countries that are already rich). The importance of ‘correcting’, or at least questioning more deeply, the conventional picture of progress and development is underscored by environmental analyses which demonstrate the extent of the environmental costs, the limits they impose on orthodox development, and their potentially catastrophic impact on human health. That most measures of progress, including newer indices, do not reflect this reality – and show, in effect, that we are enjoying a high or improving quality of life even as we move ever closer and faster to an ecological abyss – demonstrates how far we have to go.

    This perspective reinforces the message which is becoming clearer from global threats to humanity such as climate change, food, water and energy security, economic collapse, and technological anarchy. This message is that we need to change the myths, worldviews and values by which we define ourselves, our lives, and our goals. The necessary transformation can be compared to that in Europe from the Middle Ages to the Enlightenment: from the medieval mind, dominated by religion and the afterlife, to the modern mind, focused on material life here on earth.

    Without this deeper change, we will not close the gulf between the magnitude of the challenges and the scale of our responses. A cultural transformation of this depth is very different from the policy reforms on which our public discussions and political debates focus and which, by and large, our indicators of development track. The 2015 Paris Agreement on climate change, hailed politically to be an outstanding success, but judged scientifically to be a failure, exemplifies well this ‘reality gap’

     

    Richard Eckersley is a director of Australia21, a public-interest, strategic research company. This article draws on a longer paper published this month in the leading international development journal, Oxford Development Studies. For those with subscription access, it is available at: http://dx.doi.org/10.1080/13600818.2016.1166197. An author version is available at: www.richardeckersley.com.au

     

  • John Menadue. Slogans or advocacy.

    At the last election, Tony Abbott gave us a long list of slogans.

    One of them was to ‘axe the tax’. And he did axe the carbon tax. But it was a serious mistake. With the continuing strong evidence of global warming, we badly need a carbon tax or an ETS to reduce carbon pollution. In addition to reducing our capacity to reduce carbon emissions, axing the tax meant that the Commonwealth Budget lost $7.6 b. p.a. in revenue. The slogan won the day. The losers were the planet and the budget.

    Tony Abbott said that he would ‘cut the budget deficit’. But we now know that under his leadership and that of Joe Hockey, the budget deficit has doubled over the forward estimates. Budget repair is still essential if we are to reduce annual interest payments and be in better shape to face possible global economic recession or collapse. The simplified slogan of cutting the deficit has not been delivered.

    Tony Abbott said that he would ‘eliminate the debt’ but net government debt has increased by almost $100b in the last two years. Yet Tony Abbott and Malcolm Turnbull tell us that they are superior economic managers.

    Tony Abbott and Scott Morrison said that they would ‘stop the boats’. They didn’t. And it seems likely that Malcolm Turnbull in his commitment to ‘continuity and change’ will continue to make the claim that the Coalition stopped the boats.

    The facts tell us something quite different about how the Coalition triggered an increase in boat arrivals in the first place and then did not stop the boats. But the slogan ‘stop the boats’ served its political purpose and an uncritical media accepted then and continues to accept the Coalition’s spin that it ‘stopped the boats’.

    Forgive me for stating the facts again, as Peter Hughes and I set out in two posts in December 2015, ‘Slogans versus facts on boat arrivals Part 1’ and ‘Slogans versus facts on boat arrivals Part 2’.

    There are two important issues relating to boats.

    The first is that the action of Tony Abbott, Scott Morrison, together with the Greens, in opposing the Malaysian Arrangement, opened the door for a dramatic increase in boat arrivals from about four boats per month at the time the Malaysian Arrangement was rejected in September 2011, to 48 boats in July 2013.

    The second is that the decision of the Rudd government in July 2013 to refuse settlement in Australia of anyone who came by boat resulted in boat arrivals falling from 48 in July 2013 to 7 per month in December 2013 when the Abbott government’s Operation Sovereign Borders commenced.

    By December 2013, boat arrivals had fallen dramatically.

    The Abbott government was only involved in the end-game and in a very marginal way. It was the Rudd government’s decision of July 2013 that was the game-changer and not Tony Abbott’s Operation Sovereign Borders and a few turnbacks to Indonesia. Yet Tony Abbot and now Malcolm Turnbull contend that they stopped the boats. The facts just do not show that at all.

    When he became Prime Minister Malcolm Turnbull promised us ‘advocacy rather than slogans’. He told us that there would be a ‘more mature and adult conversation’ about important issues.

    Whether it is on boats or negative gearing, we are seeing a continuation of slogans and very little mature conversation.

    Disappointments continue to mount.

  • John Menadue. Defence White Paper. US, China and Barracuda – class submarines.

    Rather than acquiring military off-the-shelf (MOTS) submarines, the Australian government has committed us to the French submarine that will be built to Australian specifications. It will be a ‘unique’ build, non-nuclear and very expensive

    The Defence Minister says that the Barracuda submarine will meet Australian Government ‘requirements for a submarine with considerable range and the capacity to remain undisturbed and undetected for extended periods’.

    The government hopes that this submarine will be able to operate in the South China Sea without running unacceptable risks for the crews lives,

    Notwithstanding that by the time these submarines are actually delivered these already ‘contested waters’ in the South China Sea will be much more dangerous for a conventional submarine..

    In this way the government believes it will be helping the US resist China.

    We are apparently going to do this as a US ally at a large additional cost whether or not the US needs or wants our support.

    But is it in our interest to get involved militarily against China in the South China Sea?

    Hugh White, in this blog on 9 March 2016, (Australia’s Defence White Paper and the China threat), says. 

    ‘The White paper promotes a vision of the “rules-based global order” as a seamless and indivisible whole that must be either preserved unaltered or surrendered in its entirety and it sends a clear message that Australia should be willing to join a war against China to preserve it unaltered. This is plainly wrong. … So what are the implications of the White Paper’s view of regional order for the Defence policy it presents? The blithe assumption at the White Paper’s heart is that we can preserve the current rules-based order without serious military confrontation, because China will back down in the face of our threats. … This may prove a big mistake. Over the next few decades Australia will face a new order in Asia in which the US will play a lesser role and may even play no substantial strategic role at all.’ (Hugh White is Professor of Strategic Studies and the Strategic Studies Centre at the ANU and formerly Deputy Secretary, Department of Defence) 

    On the clash between China and the US in the Pacific, Geoff Miller in this blog on 31 March 2016 said:

    ‘We don’t know how the clash between these two great powers will be resolved. But I believe we can conclude that it is not a matter for or against freedom of trade, but rather a struggle for position between a superpower and its regional challenger, taking place near the challenger’s homeland. It’s not in our interest to become involved in such a clash, particularly militarily, and particularly when our relations with both contenders are both very good and very important.’ (Geoff Miller was formerly Australian Ambassador to Japan and Korea and Director-General of the Office of National Assessments.)

    In this blog of 18 April 2016, Richard Woolcott said:

    ‘Western “rules” of world order are no longer accepted by the major countries as the basis of world order. … There is a danger that adversarial attitudes towards China based on mainly Japanese policies could become a self-fulfilling policy. The present debate on China seems mainly to assume that Australia has no choice but to support American primacy in Asia against what is perceived as a rising Chinese hegemony. This is a simplistic approach which has been challenged by Hawke, Keating, the late Malcolm Fraser and most of our former ambassadors to China as well as a number of academics.’ (Richard Woolcott was Australian Ambassador to Indonesia and the Philippines and Australian High Commissioner to Malaysia, Ghana and Singapore. He was Australian Ambassador to the UN and President of the UN Security Council. He was Secretary of DFAT from 1988 to 1992.)

    It is clearly an assumption of the Defence White Paper that we need a ‘unique’ naval capability that can operate in ‘contested waters’ in the South China Sea and close to China. I don’t think there is much doubt that that is a mistaken and risky strategy as Hugh White, Geoff Miller and Richard Woolcott outline.

    The Defence White Paper and Government also assume that the US would like our naval cooperation in the South China Sea. But that is far from clear.

    In September 2014, a conference was organised by the Australian Strategic Policy Institute (ASPI). entitled ‘Strategy -The Submarine Choice.’ The ASPI describes itself as ’an independent, non-partisan think tank that produces expert and timely advice for Australian strategic and defence leaders’. At that conference Benjamin Schreer a Senior Adviser for Defence Strategy at ASPI raised serious doubts about whether the Americans wanted us involved in the South China Sea. He said

    ‘Operationally, it is hard to see Australian submarines contributing to any critical Coalition objectives in the South China and East China seas. The underlying assumption for such a function is that the US would want Australian submarines to operate in this space, but it’s questionable that the US has ever had enough confidence in Australian submarines performing such high-risk operations. And it’s even more difficult to see any future utility in having Australian submarines hiding off Hainan to threaten Chinese vessels as they leave port or hunting down PLAN submarines in open water. Given the enormous stakes in a future crisis involving the US and China, it’d be prudent to assume that the US would want to preserve this critical role for its own undersea force in order to maintain a single line of command and control, especially escalation control. In other words, the US would be likely to regard Australian submarines as an operational liability, particularly since their small numbers would mean that they wouldn’t make a significant difference to the outcome of the conflict.’ (See link to this Conference and Schreer’s piece on pages 45-48. https://www.aspi.org.au/publications/the-submarine-choice-perspectives-on-australias-most-complex-defence-project/Strategy_submarine_choice.pdf .Benjamin Schreer is presently Head of the Department of Security Studies and Criminology at Macquarie University.)

    This assessment by Schreer is consistent with the advice I have received that the US will not cooperate in Australia acquiring nuclear powered submarines.

    In their article in this blog on 16 April 2016 ‘A more efficient submarine solution’ Jon Stanford and Mike Keating said

    ‘If the government is determined to operate submarines in the South China Sea in support of the Americans, we should make it clear that Australia’s participation is contingent on the US allowing Australia to acquire nuclear submarines. On the other hand, if Australia cannot or will not acquire nuclear submarines, then it should abandon the ambition of projecting offensive power against a major adversary in far off contested waters. As ASPI has pointed out, there is no evidence that the US expects the ADF to undertake this role, which in reality is a great power role. Abandoning this force projection mission makes the capability requirement much more straightforward. Other roles include sea denial in the approaches to Australia, together with intelligence gathering and surveillance in our region. Indeed a smaller SSK (conventional submarine) readily available off the shelf is better suited than a large boat for these tasks.’ See link https://publish.pearlsandirritations.com/blog/?p=6169. 

    The Defence White Paper and a future role for Australian submarines seem based on two very dubious assumptions.

    The first is that we should if necessary involve ourselves militarily in the contest between China and the US in the seas adjacent to China.

    The second is that the US needs or wants us to operate submarines alongside it in the South China Sea.

    We are likely to foolishly waste a lot of money on ‘unique’ submarines whose capacity to operate successfully in the South China Sea twelve years or more from now is also very questionable.

    Footnote:   The media release on the submarines says that the decision is subject to commercial terms being agreed later. This is ominous. I would have thought the commercial terms were key matters that should be resolved up front. We have had too many examples of escalating defence costs.

  • Richard Eckersley. The mismeasure of progress: Is the West really the best?

    Western liberal democracies dominate the top rankings of progress indices. But are they the best models of development when their quality of life is, arguably, declining and unsustainable.

    The measures of human progress and development that we employ matter. Good measures are a prerequisite for good governance because they are how we judge its success. They also influence how we evaluate our own lives because they affect our values, perceptions and goals. Measures both reflect and reinforce what we understand development to be: if we believe the wrong thing, we will measure the wrong thing, and if we measure the wrong thing, we will not do the right thing.

    Scientific and political interest in indicators of progress and development has surged in the past two decades. The central concern has been the adequacy of (per capita) Gross Domestic Product (GDP), the dominant measure of a nation’s performance, relative to other countries and the past. The result has been the development of new indicator sets or composite indices that include a wide range of measures – social, economic and environmental.

    Subjective wellbeing (commonly measured as self-reported life satisfaction or happiness) has attracted particular enthusiasm, with many researchers advocating its use as a stand-alone measure or a component of indicator sets and indices. Life satisfaction and happiness are believed to capture important subjective elements of wellbeing that other, objective indicators do not. A 2014 paper states that ‘there appears to be an emerging consensus in the policy community that subjective wellbeing ought to be the key criterion of policy success’.

    The idea behind this work is that better indicators of the progress of nations will lead to better choices, especially in public policy, and so to higher quality of life and wellbeing for their citizens. The United Nations Development Programme says development is about creating an environment in which people can develop their full potential and lead productive, creative lives in accord with their needs and interests; it is about expanding the choices people have to lead lives they value. Fundamental to this goal is building human capabilities: to lead long and healthy lives, to be knowledgeable, to have access to the resources needed for a decent standard of living, and to be able to participate in the life of the community. ‘Philosophers, economists and political leaders have long emphasised human wellbeing as the purpose, the end, of development,’ it says.

    Generally speaking, indicators place Western liberal democracies at the leading edge of progress, and present them as models of development for less developed nations. Typically, with indices such as the Human Development Index , the Social Progress Index and the Legatum Prosperity Index, Western nations occupy most of the top 20 places, with higher- income Asian nations filling most of the rest. Only when environmental impacts are given significant weight, as in the Happy Planet Index and the Sustainable Society Index, does this ranking change substantially.

    Conceptually, the dominant indicators of progress, including GDP, subjective wellbeing and the newer composite indices, equate progress with modernisation. The United Nations Development Programme notes that past decades have seen substantial progress in many aspects of human development. Most people today are healthier, live longer, are more educated and have more access to goods and services, it says; they also have more power to select leaders, influence public decisions and share knowledge. Thus, indicators focus on those qualities that characterise modernisation and which we celebrate as success or improvement, such as material wealth, high life expectancy, education, democratic governance, and individual freedom.

    However valuable these gains are, they do not represent the sum total of what constitutes optimal wellbeing and quality of life. Nor do they integrate or reconcile adequately the requirements of sustainability. Modernisation’s benefits are counted, but its costs to wellbeing are underestimated and downplayed. At best, the qualities being measured under orthodox approaches may be desirable and even necessary, but are not sufficient. At worst, the measures are promoting a lower quality of life and leading us to towards an uncertain and problematic future.

    Put another way, the dominant model of progress and development reflects one particular worldview: modernity. Modernisation is a pervasive, complex, multidimensional process that characterises our era. It includes: industrialisation, globalisation, urbanisation, democratisation, scientific and technological advance, capitalism, secularism, rationalism, individualism and consumerism. Many of these features are part of the processes of cultural Westernisation and material progress (measured as economic growth).

    Recent advances in thinking have dispelled the idea that per capita GDP is an accurate or adequate measure of progress (although GDP growth remains firmly entrenched as a political priority), and broadened the measures accordingly. For example, the Genuine Progress Indicator, which adjusts the personal consumption component of GDP for a range of factors that GDP ignores or treats inappropriately, tracks GDP from 1950 to the 1970s, then diverges as social and environmental costs increase. However, the alternative indices have not yet gone far enough in allowing, even encouraging, the scrutiny and critical evaluation of modernity itself.

    To the extent that new concepts of development permit more diverse, or more broadly based, forms of development, they still do not capture the depths and complexities of being human and human wellbeing. A fuller accounting demands wholly new models of progress and development. For all the new interest and effort, the work remains constrained by arbitrary disciplinary boundaries; it still falls short of explaining and resolving the inconsistencies and ambiguities that emerge from research, especially when evidence from other scientific disciplines and fields outside indicators research is taken into account. We may be making progress in measuring progress, but we still have a long way to go.

    A critical flaw in equating progress with modernisation is an insufficient acknowledgement of the ‘psychosocial dynamics’ of human societies: the complex interactions and relationships between the subjective and objective worlds that determine qualities such as identity, belonging, purpose and meaning in life, which are so crucial to our wellbeing. Existing measures reflect or capture some aspects of these dynamics, but not enough. This is as true of subjective-wellbeing indicators as it is of other measures.

    Measuring life satisfaction or happiness does not fundamentally alter the dominant view of progress. For example, the correlation between the Human Development Index and the World Happiness Report’s scores is a high 0.77. On the face of it, such associations seem persuasive, but like other indicators, subjective-wellbeing indicators fail to capture fully the psychosocial dynamics of our ways of living. Aspects of subjective wellbeing that remain unresolved or contested in the research literature include: adaptation and homeostatic control, which buffer subjective wellbeing against external circumstances and help to maintain a relatively stable and positive life evaluation; the influence of personal situations compared to social conditions; the ambiguous role of individual freedom in wellbeing; and a cultural bias towards Western societies.

    There are several streams of evidence that expose the limitations of subjective wellbeing, and cast doubt on how we currently conceptualise and measure progress and development. These are: research using wider or more diverse measures of personal health and wellbeing; what people think, not about their own lives, but about the overall quality of life and society as a whole; and people’s views of the future of society and humanity. For example:

    • The great majority of adolescents and young adults in the developed world say they are happy, healthy and satisfied with their lives, and their life expectancy continues to rise. Yet other research indicates their wellbeing has declined because of increased rates of chronic physical and mental illness. A 2010 US study by Jean Twenge and her colleagues compared the results of a widely used psychological test over a period of 70 years, and found a steady decline in the mental health of college students: compared to 1938, five times as many college students in 2007 scored high enough on the test to indicate psychological problems.
    • Australia ranks high in progress indices, including life satisfaction, yet in a 2015 survey, conducted by Omnipoll on my behalf, when asked about quality of life in Australia, taking into account social, economic and environmental conditions and trends, only 16 per cent of Australians thought life was getting better; 35 per cent thought it was staying about the same; and 49 per cent thought it was getting worse.
    • In a 2015 study of ‘societal unease’, Netherlands researcher Eefje Steenvoorden argues that it is ‘a latent concern among citizens in contemporary western countries about the precarious state of society’. This concern arises from the ‘perceived unmanageable deterioration’ of five fundamental aspects of society: distrust in human capability (to make improvements and overcome problems), loss of ideology, decline of political power, decline of community, and socioeconomic vulnerability. Societal unease is only weakly related to happiness, proving, the author says, that personal happiness is clearly distinct from societal unease, and that ‘high levels of private contentment are not to be mistaken for public contentment’.
    • A recent study that I co-authored with Melanie Randle at the University of Wollongong, investigated the perceived probability of threats to humanity in four Western nations: the US, UK, Canada and Australia. Overall, across the four countries, 54 per cent of people rated the risk of ‘our way of life ending’ within the next 100 years at 50 per cent or greater, while 24 per cent rated the risk of ‘humans being wiped out’ at 50 per cent or greater. Three-quarters (78 per cent) agreed ‘we need to transform our worldview and way of life if we are to create a better future for the world’.

    These examples all illustrate the importance of the psychosocial dynamics of progress. Unless we pay more attention to them, we will continue to miss too much of what matters, limiting our options and prospects. We will not be able to devise and implement solutions that match the scale of the problems we face.

    At the deepest level, we need to change the myths, beliefs and values by which we define ourselves, our lives, and our goals. The necessary transformation can be compared to that in Europe from the Middle Ages to the Enlightenment: from the medieval mind, dominated by religion and the afterlife, to the modern mind, focused on material life here on earth. Research into human development and progress needs to allow, even encourage, the conceptual space for a cultural transformation as profound as that which gave rise to modernity in the first place.

    Richard Eckersley is a director of Australia21, a public-interest, strategic research company. This article draws on a longer paper published this month in the leading international development journal, Oxford Development Studies. For those with subscription access, it is available at: http://dx.doi.org/10.1080/13600818.2016.1166197. An author version is available at: www.richardeckersley.com.au

     

  • Adrian Bauman & William Bellew. Does a spoonful of sugar help the medicine go down?

    “A spoonful of sugar helps the medicine go down”, according to Mary Poppins. Many more spoonfuls of sugar currently pervade our lifestyles and unconscious food choices. The recent media focus on sugar has been remarkable, but the media frenzy has sought a single solution, a quick fix, to what is in reality a complex problem: childhood and adult obesity. Rapid increases in obesity rates have occurred since the late 1980s in Australia and in many other countries, and even if starting to plateau, still leaves 63% of adult Australians overweight or obese.

    Sugar is pervasive, not only (as we might expect) in fizzy drinks and sport drinks, but also added to a surprisingly wide range of foods. These include tomato or chilli sauces, muesli bars, as well as many “low fat” marketed foods (some yoghurts for example) which are high in added sugar. But is sugar the culprit? or is it just a marker of a trend towards increased processed food, increased consumption of convenience foods, and acculturation of our taste towards increased salt, increased sugar and increased fat ? All of these contribute to the “wicked problem” of weight gain, exacerbated by decreased physical activity at work and play, and through increased car use to get to or from places.

    But how does all this relate to sugar? A recent commentary in the Sydney Morning Herald (Peter Martin, April 2) called for soft drink taxes to be introduced [i]. The idea is that we all have to eat something, but some foods contain almost exclusively sugar, and soft drinks and so-called sport drinks contain almost nothing else (what nutritionists call “empty calories” as they lack any of the nutrients, vitamins or fibre that other high sugar foods, such as fruit may offer). High levels of consumption of empty calories from sugar sweetened beverages is a clear and independent contributor to weight gain in many epidemiological studies[ii].

    Many arguments are raised against efforts to curb sugar consumption. Firstly beverage manufacturers assure us it is part of a healthy and “balanced” diet. It seems un-balanced if it’s just adding to our total energy intake, and yet corporate marketing portray empty calories as contributors to a glowing lifestyle image and as a metaphor of well-being. One must be cautious of the motivations of the food industry according to Dr Margaret Chan, Director-General of the World Health Organisation. At the 8th Global Cnference of Health Promotion in Helsinki (2013)[iii] she said “it is not just Big Tobacco anymore. Public health must also contend with Big Food, Big Soda, and Big Alcohol. All of these industries fear regulation, and protect themselves by using the same tactics (of) lobbies, promises of self-regulation, lawsuits, and industry-funded research that confuses the evidence and keeps the public in doubt”. They also contribute to the polarised argument between individual choice to consume unhealthy foods, compared to structural, societal and cultural factors that contribute to us doing so. If we accept that we are mired in advertising and cultural depictions promoting unhealthy foods, in sponsorships of major sporting events and of the Olympics, then our cultural milieu is defined by these products. Governments that choose to address the problem this way are accused of “nanny state interventionism”, but it does require complex counter marketing against unhealthy products, facilitating access to affordable healthy choices, and mandating external industry regulation (as the food industry does not self-regulate well, as demonstrated when self-regulation was tried in restricting advertising of unhealthy foods to young children).

    One strategy, suggested by Peter Martin is the introduction of a sugar tax. This will be a differential tax, with the greatest impost on food items with the most sugar, and lesser taxation imposed on foods with less added sugar. This approach has been implemented in Mexico where a 10% tax has resulted in a 12% decline in the consumption of sugar[iv] sweetened beverages. Such taxes have community support and are evidence based[v]. Free-market advocates claim this is unfairly “taxing the poor”, but from a public health perspective targeting those at social disadvantage and targeting children and adolescents are exactly the groups who consume the most sugar sweetened beverages. An even stronger rationale for a sugar tax is that it will generate revenue, just as tobacco taxation has done for several decades. This can fund the substantial government investment required for comprehensive obesity prevention, extending well beyond simply reducing sugar. This could be used to support comprehensive obesity prevention efforts, and are supported by the majority in the community. This is our only chance to build the infrastructure for a healthier community and a healthier food environment in Australia. Thus preventing obesity just won’t happen with any single strategy, and a sugar tax is but one financial mechanism for funding the complex solutions required.

    Finally the problem is not only sugar. The Hippocratic maxim of exercise and diet in moderation still holds, and while the media in faddist fashions present us with new single solutions and quick fixes, a prudent approach would be to eat less overall, eat less fat and less sugar, consume mainly fresh produce and mostly plant-based foods. Diets like the Mediterranean diet show such balance, and combined with more active daily lifestyles (and non-smoking) are the only way to make real improvements to population health.

    Adrian Bauman, School of Public Health and Charles Perkins Centre, Sydney University

    William Bellew is Adjunct Professor, School of Public Health, Sydney University.

    [i] http://www.smh.com.au/comment/obesity-its-time-to-tax-soft-drinks-20160330-gnum4b.html

    [ii] Malik VS et al. American Journal of Clinical Nutrition. 2013;1;98(4):1084-102

    [iii] http://www.who.int/dg/speeches/2013/health_promotion_20130610/en/

    [iv] Colchero MA et al British Medical Journal 2016 Jan 6;352:h6704.

    [v] Escobar MA et al. BMC Public Health. 2013 Nov 13;13(1):1.

     

  • John Austen. Grattan Institute on transport projects: a better mousetrap?

    In ‘Road to riches: better transport investment’ the respected Grattan Institute joined commentators, independent authorities and lobby groups in advancing ideas on transport ‘investment’. Like others it proposed publication of assessments for public spending; a better mousetrap to ensnare politically motivated proposals.

    The report proposed a three stage process for government transport ‘investment’:

    1. Spending only after publication, by tabling in parliament, of a benefit-cost assessment;
    2. Spending on all proposals that pass such an assessment;
    3. Independence of spending from Grants Commission processes.

    There is merit in the ideas. There also are pitfalls.

    1. Spending only after publication

    This has already been proposed by various organisations.

    Sensible transport spending choices can be made for many reasons, including ‘political’ ones. At times the electorate might want decisions for reasons other than ‘economic’ criteria set out in assessment manuals. Still, in a democracy it is important for the electorate to know what is done in its name and why.

    The case for parliamentary tabling of assessments is compelling for the Commonwealth after the High Court’s decision in Williams (No. 2). It is less important and more questionable for the states.

    1. Spending on all project proposals that pass such an assessment

    According to assessment manuals an ‘economic’ transport project need not increase GDP, because benefits are often dominated by travel time savings. Investing in all ‘economic’ transport projects would bankrupt Australia.

    Instead of just reducing travel time, transport should increase the ability of communities, particularly those with ingrained disadvantage, to participate in activities enjoyed by the more privileged. Such an accessibility agenda has better prospects for economic growth, fairness and community support than the current travel time paradigm that dominates transport ‘investment’ thinking.

    1. Independence of spending from Grants Commission processes

    The concern is that a state’s gain from Commonwealth transport gifts can be offset by reduced Commonwealth general grants.

    The concern arises when the Commonwealth spends outside the national transport network, hence the issue is network definition. That the current network does not match its description is well known, easily fixed and a national disgrace.

    The ‘problem’ would disappear if the network reflected the Commonwealth’s proper role. In fact, the problem would become a strength; providing Commonwealth and state governments with an incentive to focus on their respective responsibilities.

    Fundamentals

    Behind these specifics are fundamental questions. I become concerned when transport commentary blames politicians but ignores problems that contribute to ‘political’ decisions like:

    • Some published work being embarrassingly wrong;
    • Poor attitudes and discontinuity in transport policy;
    • The wide gap between transport and broader public policy.

    Harsh? Consider a few recent public examples relevant to major investments:

    • The Productivity Commission claimed the national access regime is not intended to apply to roads. The relevant legislation gave roads as one of the two examples of infrastructure covered by the regime;
    • Infrastructure Australia overlooked it’s (offices) own 2013 suggestion that all urban transport projects be tested ‘as if’ there was road pricing;
    • In consecutive years Bureau of Infrastructure Transport and Regional Economics revisions to road data have been nothing less than radical;
    • The High Speed Rail study purported to demonstrate a ludicrous proposition, that demand in the NSW southern highlands would be of the same magnitude as for Newcastle or the Central Coast;
    • Sydney metro apparently forgot the (extraordinary) independent and expert review by Mr Ron Christie AM which warned about the ‘breaks of gauge’ it appears to making.

    Other examples exist, such as reluctance to talk about true national objectives like defence or railway standardisation.

    Given this it would be foolhardy to fund all transport proposals with a published positive economic assessment or that pass other tests administered by bureaucracies.

    That more than just published assessments are needed is the reason for the infrastructure audit recently conducted by Infrastructure Australia. The real problem today lies in identification rather than assessment of investments.

    Stability in political and commercial systems is essential for good investments. In Australia the bedrock for such stability is the Constitution.

    A root cause of problems in Australian governments’ transport investment is a drift away from Constitutional concepts of federalism and separation of powers and instability in the Commonwealth’s ‘role’. That the drift continued under numerous governments suggests it is not the sole fault of politicians. The drift should have stopped with the decision in Williams (No. 2) but continues, unremarked.

    The real need is to improve governance of transport by:

    • Constitutionally faithful roles of: the Commonwealth in transport; the executive and Parliament within the Commonwealth. Professor Saunder’s principles warrant consideration;
    • Publishing (proposed) infrastructure contracts, including those which restrain competition to established or new infrastructure;
    • Applying Government Trading Enterprise reforms and the National Competition Policy to roads;
    • Greater conformance with precepts such as: alignment of responsibility with power; independence of decision making from beneficiaries; public sector as protector of the public interest;
    • Scrutiny of the practices of advisory institutions and departments.

    A discussion on these will not be universally welcomed. However, the Grattan Institute would be helping the community and those in the transport sector by pursuing these deeper questions rather than, like so many others, just refining a mousetrap.

     

    John Austen is a happily retired former official. He was Director of Economic Policy for Infrastructure Australia from its inception in 2008 to his retirement in 2014. Further background is at: thejadebeagle.com.

    References

    Bureau of Infrastructure, Transport and Regional Economics, Infrastructure Statistics Yearbooks 2014, 2015.

    Department of Infrastructure Transport and Regional Development, High Speed Rail Study, Phase 2 Report, 2013.

    Independent Public Inquiry into a Long Term Transport Plan for Sydney (Chair Ron Christie AM) Final Report, May 2010.

    Infrastructure Australia, Urban Transport Strategy, 2013.

    Productivity Commission; National Access Regime Final Report, 2013.

    Productivity Commission; Financial performance of government trading enterprises (various).

    Saunders, Cheryl and Crommelin, Michael, Reforming Australian Federal Democracy, University of Melbourne Law School Legal Studies Research paper 711, 2015.

    Terrill, Marion, Roads to riches: Better transport investment, Grattan Institute, April 2016.

     

     

     

     

     

     

  • Ian McAuley. Are Conservatives better economic managers?

    Here’s a short quiz.

    Over the last fifty years Australia has had 17 federal treasurers. Which two have won the coveted Euromoney “Finance Minister of the Year” award?

    As a memory jogger, below is a list of treasurers in chronological order.

    William McMahon (Lib)
    Leslie Bury (Lib)
    Billy Snedden (Lib)
    Frank Crean (Lab)
    Jim Cairns (Lab)
    Bill Hayden (Lab)
    Phillip Lynch (Lib)
    John Howard (Lib)
    Paul Keating (Lab)
    John Kerin (Lab)
    Ralph Willis (Lab)
    John Dawkins (Lab)
    Peter Costello (Lib)
    Wayne Swan (Lab)
    Chris Bowen (Lab)
    Joe Hockey (Lib)
    Scott Morrison (Lib)

    Keating won it in 1984, in recognition of the government’s role in structural reform, and Swan won it in 2011 in recognition of the government’s deft response to the global financial crisis.

    It would be arrogant (and a violation of the principles of statistical inference) for any partisan commentator to suggest this means Labor outshines the Coalition on economic management. But it is certainly inconsistent with the popular view that the Coalition is more capable of handling the economy than Labor.

    Opinion polls consistently reveal that belief. In early April, even after Treasurer Morrison had paraded his ineptitude on taxation policy, when an Essential poll put the question “Who would you trust most to handle Australia’s economy – the Treasurer Scott Morrison or the Shadow Treasurer Chris Bowen?”, Morrison at 26 percent came out ahead of Bowen at 22 per cent. Even more extraordinary was a similarEssential poll in August 2014, just three months after the Coalition’s disastrous 2014 budget, that gave Hockey a score of 34 per cent compared with Bowen’s score of 23 per cent.

    If there were to-and-fro movement in such polls that would be understandable, but that pro-Coalition bias has endured for a long time, and all the major polls give the same ranking on similar questions: the Coalition is consistently seen as better at economic management than Labor.

    There are three possible explanations for such a divergence between popular and expert opinion.

    First, Labor has been in office at the wrong time.

    Labor has a knack of winning government at the wrong time. In 1929 the Scullin Government won office just as the Great Depression was unfolding. In 1972 the Whitlam Government was met with a trifecta of the greatest economic shocks of the postwar era – the 1973 middle east oil embargo, the end of the Bretton Woods exchange rate arrangements, and the severe contraction of the US economy as its military spending (on the Vietnam War) was cut back. And in 2007 the Rudd Government was in office for the other major postwar shock, the global financial crisis. All these three administrations were short-lived.

    By contrast, the Coalition has had extraordinary luck, holding office during the long booms from 1949 to 1972 and from 1996 to 2007. The only time Labor had a similar good run was from 1983 to 2006, but these were not easy times for those whose lives were disrupted by Labor’s reforms, and most of the economic dividends of those reforms were realised during the time of the Howard-Costello Government.

    It’s not surprising therefore that such timing may have led to negative associations with Labor governments and positive associations with Coalition governments.

    We’re now seeing for the first time in many years the Coalition in office in difficult times, and it is telling that it is encountering many of the same problems that bugged the Whitlam, Rudd and Gillard governments.

    Second, many people have a simplistic view of economics.

    Over the last ten years, particularly during the years Abbot was Opposition Leader, the budget balance and public debt have become the almost sole indicators of economic management, as if there is something good about a “surplus” and something bad about a “deficit”. All other economic issues, such as economic structure, and the notion of a government balance sheet with assets as well as liabilities, have been cast aside.

    This narrow construction of economic management results in part from the pervasive doctrines of neoliberalism and “public choice”, which have tended to dominate since 1980.  Their messages are simple: all government expenditure is wasteful, government is just a big bureaucratic overhead, and governments are intrinsically inefficient. If public spending rises for any reason that’s a clear sign of profligacy.

    It is revealing to look at another recent Essential poll that asked the question “Do you think the following groups of people would be better off under a Liberal Government or a Labor Government?” and went on to list 15 groups. Respondents were in no doubt that “large corporations” and “people and families on high incomes” would be better off under a Liberal Government. But “people and families on middle incomes”, “average working people”, “pensioners” and “single parents” would all be better off under a Labor Government.

    These responses reflect a strange understanding of what “economic management” means, as if economics is antagonistic to social objectives of inclusive prosperity, as if what happens in people’s lives doesn’t matter, just so long as indicators such as GDP growth are showing positive values.

    Other polls consistently show people believe Labor governments do better on health and education, but these positive findings don’t change people’s negative perceptions of Labor’s economic management. It’s as if health and education have no economic value.

    Any economic system that does not contribute to human well-being is meaningless, and, indeed, there is no serious economic philosophy, “left” or “right”, that does not see widespread prosperity as a desirable economic objective. (Disagreement is mainly about means.)  To suggest that there has to be some tradeoff between “economic” and “social” objectives makes no more sense than the (probably apocryphal) story from the Vietnam War “We had to destroy the village in order to save it”.

    The Murdoch media, with its partisan bias, hasn’t helped. But neither have economically ignorant and gullible journalists in other media, who too readily accept propositions that there is some tradeoff between “economic” policy and “social” policy, and who look to a few simple fiscal aggregates, such as the budget deficit, as indicators of governments’ economic competence.

    The “left” itself must accept some of the blame for this situation, because so many of its more strident voices have been contemptuous of economics. People like Chris Bowen must come close to despair when he hears some people on the left parade their economic ignorance.

    Third, we think rich people are clever.

    On ABC Radio National Barnaby Joyce, commenting on the upcoming election, quite clearly played to this belief when he said:

    People are going to have a clear choice between someone who has actually made a quid in their life, made a success in their life, which is Malcolm Turnbull, or the nation being run by Bill Shorten.

    That’s it. The rich are rich because they’re clever. In fact, as some followers of John Calvin may assert, their prosperity is testament to moral virtue. They’re respectable people, who know how to run the show. They’re well-spoken and so reasonable, not like the rough and uncouth unionists who turned up at the “’royal” commission into trade unions.

    Like the fool in Shakespeare’s plays, Joyce has said what others prefer to leave below the surface.

    It would be patronising to readers to point out the fallacy in this belief. But it’s important that we recognise its appeal.

    Economic management is difficult. Just as no administration gets everything right, no administration makes a complete mess of it. Some governments enjoy fair weather, some take over the helm in times of tempest. All are seeking much the same ends.  We should be wary of any partisan generalisations about economic competence.

  • Geoffrey Harcourt and Peter Kriesler . The case for taxation.

    We were happy to sign the Australian Institute letter on taxation cuts in the Sydney Morning Herald (12/04/2016).We now would like to set out the general philosophy that lay behind our support.

    We have always argued that taxes have two main functions: first, the relative structure of taxation types and rates should reflect philosophical views on equity as between different groups in society. Secondly, the total tax take should impact on the need to achieve high levels of employment and activity, after taking into account the other main sources of overall demand at any moment of time — expected expenditures on consumption and investment, current and capital government expenditures, and net exports. Meeting these two criteria implies that sometimes the government will be in deficit, sometimes in surplus, so that neither achieving a deficit or a surplus or a balance at a moment in time or over time should be the criterion of fiscal policy, but the residual outcome of attempting to achieve these other fundamental aims.

    The corollaries of this view are, first, that hypothecation — matching particular expenditures with particular sources of finance — is a fallacy. Secondly, that achieving high levels of activity also usually implies agreeable rates of growth over time. This in turn means that even if sustained deficits result in rising debt-to-income ratios, these will not blow out for ever but will usually approach liveable-with debt-to-income ratios. That the budget be required to balance ‘over the cycle’ implies that the economy is a stationary state, i.e., on average the economy neither grows nor declines.

    Thirdly, implicit in this approach is that the total amount of capital expenditure by the government should reflect the longer-term needs of the society, especially the creation of green-friendly infrastructure, and that only in very special circumstances should government capital formation be used to achieve high levels of activity — usually it should be the second function of taxation noted above that should do this. May we add that government expenditure on the disabled, schools and teaching generally, and hospitals and medical care may be viewed as investments which result both in a more agreeable society and a more productive one?

    Finally, a distinction should be made between domestic debt raised in our economy, and overseas debt. Domestic debt requires a transfer between bond holders and taxpayers (of course, they can be overlapping sets) so that the impact on the economy is a secondary one, depending on whether there are great differences at the margin between the saving and consumption behaviour of interest recipients and taxpayers.

    There is a real burden associated with overseas debt — exports will have to be that much higher than they otherwise would have been in order to allow interest and loan repayments to be met. Nevertheless, if the borrowed funds are used wisely to finance productivity-enhancing expenditures, the level of activity would be higher than otherwise would have been the case, so that even after meeting the real burden, society will be better off than it would have been otherwise.

    All these important considerations have been forgotten in the political and other debates over taxation and spending in the last decades.

     

  • Brian Lawrence. Bracket creep and income tax priorities in the May 2016 Budget

    The May 2016 Budget will frame a political narrative about rising average incomes over recent years and the budgetary measures that will ensure that the trend will continue in the next year and beyond. This will occur despite the impact of cuts in Government expenditure over a range of services and cash benefits.

    There are two past Budget documents that summarise this kind of narrative in average living standards over the past two decades:

    • The last Budget of the previous Coalition Government in May 2007 provided a summary of the actual and projected improvements in real disposable incomes over the period 1996-97 to 2007-08, which was the period of Coalition Government. For the single person on Average Weekly Ordinary Time Earnings (AWOTE), the figure was 25.6%; see 2007-08 Budget Overview, Appendix A, Higher household incomes. In effect, this was the claim for the Coalition years.
    • The last Labor Budget in May 2013 provided a summary of the actual and projected increase in real disposable incomes over the period 2007-08 to 2013-14. For the single person on AWOTE, the figure was 11.8%; see 2013-14 Commonwealth Budget Overview, Appendix C, Helping households with the cost of living. In effect, this was the claim for the Labor years.

    What these figures hide, and the 2016 Budget narrative will also most likely hide, are the respective contributions that wages and the tax system have made to the improvement in the living standards of middle income earners; and the position of those who have fallen behind in these periods of national economic growth. They also hide substantial increases in income inequality affecting large pockets of the population; and they fail to disclose the impact that the tax system is having on income inequality after tax rates are taken into account.

    In the fifteen years since the commencement of the new tax scales which accompanied the introduction of the GST in 2000, AWOTE increased from $798.80 to $1,499.30 per week (November 2000 to November 2015), a very healthy 87.7%; and a figure well in advance of the CPI increase of 48.3% (December 2000 to December 2015).

    That figure of 87.7% is a key figure for the understanding of the current debate about bracket creep.

    Bracket creep has happened when you find that you are paying a higher proportion of your income in income tax, even when your income has moved by the same percentage as other taxpayers. Bracket creep helps the Federal Budget when the percentage collected from income tax on wages rises faster than average wages.

    The period January 2001 to January 2016 has seen some major changes in the income tax system. A comparison between the two dates allows us to compare the impacts of those changes on different income groups; and to consider who has benefited most from a period which has produced claims of structural imbalances in our tax system.

    We must be careful, however, to exclude the effect of the increase in the Medicare Levy on 1 July 2014, from 1.5% to 2.0%, to fund the National Disability Insurance Scheme. The following figures exclude the Medicare Levy.

    Over the past 15 years the net income from the AWOTE wage has fallen from 78.7% to 78.3% as a result of changes in tax rates and thresholds. This represents a loss of $5.92 per week.

    How have higher income groups fared under the successive tax changes of the last 15 years?

    Consider the position of the taxpayer now on $150,000 per year (almost double AWOTE) who has also received the same 87.7% increase received by the AWOTE employee.   This taxpayer is now paying 30.0% of his or her income in income tax, down from 31.2% in 2001. This represents a tax cut of $64.26 per week.

    For the taxpayer on $300,000 per year who has had the same increases as AWOTE over the past 15 years, the percentage of tax paid has fallen from 39.1% in 2001 to 38.3% in 2016, even after the imposition of the Budget Repair Levy of 2.0% of taxable income in excess of $180,000 per year. This is a tax cut of $46.82 per week.

    The Budget Repair Levy is a temporary measure introduced by the Tax Laws Amendment (Temporary Budget Repair Levy) Act 2014 and associated legislation, and applies in the financial years 2014-15, 2015-16 and 2016-17.

    Without the Budget Repair Levy (of $6,000 per year) the taxpayer on $300,000 per year has had a tax cut of $161.81 per week.

    These high income earners, who have been paying the top marginal rate right through the last 15 years, have benefited from tax threshold changes and tax rate changes for lower incomes, but they have also had the benefit of a fall in the top marginal rate from 47% to 45% during these 15 years. Once the Budget Repair Levy is removed, from 2017-18, the tax cuts for the taxpayer on $300,000 per year will return to $161.81 per week. For every $100,000 above that figure, the tax cut will be $2000 per year or $38.33 per week.

    Higher income earners have done rather better than the average increase in AWOTE. For example, the Fair Work Commission has estimated that, over the decade 2004-14, the real earnings of full time adult non-managerial workers at the 90th percentile increased by more than 10 percentage points over the real increase in the mean earnings of full time adult non-managerial workers; see Chart 8.2, Statistical Report, 18 March 2014.

    At the other end of the income scale is the worker who depends on the National Minimum Wage (NMW) of $656.90 per week. Over the past 15 years the successive wage tribunals have increased the NMW by 64.1%, well short of AWOTE.  Tax cuts at the lower income levels have offset some of this loss. For the NMW worker, the percentage of income tax paid has fallen from 12.7% to 8.9%, which is amounts to a tax cut of $24.89 per week.

    There is an economic case in support of the reduction in income tax on NMW workers: income tax on the NMW effectively raises the costs of employment and, to the extent that wage levels impact on employment, amounts to a tax on employment. There is good reason for the progressive reduction of income tax to zero at the NMW level. Australia has moved in the right direction, but more is needed.

    Even with this tax cut, the NMW worker is still a long way behind the average worker. The NMW and other minimum wage rates have failed to keep up with average wage increases. In 2001 the net wage of the NMW worker was 56.3 % of the net wage of the AWOTE worker. In 2016 the net wage of the NMW worker had fallen to 51.0% of the AWOTE worker, illustrating the increasing inequality of the Australian workforce over the past 15 years. The position is worse for a worker on the base minimum rate set for a trade-qualified worker. That rate (commonly referred to as the C10 rate) has fallen from 65.9% to 58.6%. The Fair Work Commission needs to address the gap between award wages and community wages.

    Since the tax scales were last adjusted for the 2012-13 year, the proportion of tax paid by NMW workers has increased from 8.1% to 8.9%. To eliminate this bracket creep, a tax cut of $5.33 per week is needed.

    The May 2016 Budget should give priority to relieving the bracket creep which has been suffered by low and middle income workers. Compensation for bracket creep is not a real tax cut. There will be no real tax cuts unless bracket creep is removed and the failure to do so will amount to a tax increase. In bringing about a fair outcome, it is clear that the very advantageous position of high income earners, even with the Budget Repair Levy, should be taken into account in the May 2016 Budget and, furthermore, unless and until the bracket creep suffered by low and middle income earners is remedied, there is a case for continuing the Budget Repair Levy on higher income earners beyond 2016-17.

    Wage increases and changing taxation rates

    January 2001 – January 2016

    Lawrence_bracket

    Notes: The Medicare Levy is not included. The figures are calculated on 52.18 weeks per year.

    Tax rates 2000–01

    Taxable income Tax on this income
    $1–$6,000 Nil
    $6,001–$20,000 17 cents for each $1 over $6,000
    $20,001–$50,000 $2,380 plus 30 cents for each $1 over $20,000
    $50,001–$60,000 $11,380 plus 42 cents for each $1 over $50,000
    $60,001 and over $15,580 plus 47 cents for each $1 over $60,000

    Average Weekly Ordinary Time Earnings, $41,681 per year: tax, $8884.30

    $79,914 per year: tax, $24,939.58

    $159,829 per year: tax, $62,499.63

    Federal Minimum Wage (now the National Minimum Wage) $20,893 per year: tax, $2,647.90

     

    Tax rates 2015–16

    Taxable income Tax on this income
    0 – $18,200 Nil
    $18,201 – $37,000 19c for each $1 over $18,200
    $37,001 – $80,000 $3,572 plus 32.5c for each $1 over $37,000
    $80,001 – $180,000 $17,547 plus 37c for each $1 over $80,000
    $180,001 and over $54,547 plus 45c for each $1 over $180,000

    Average Weekly Ordinary Time Earnings, $78,233 per year: tax, $16,972.72

    $150,000 per year: tax, $43,447

    $300,000 per year: tax, $108,547.00, plus Budget Repair Levy, $6,000.00

    National Minimum Wage, $34,277 per year: tax, $3,054.63

    Since 2003, Brian Lawrence has been drafting submissions for the National Wage Reviews on behalf of an agency of the Australian Catholic Bishops Conference, the Australian Catholic Council for Employment Relations. He is an editor of an e-book, Working Australia, 2016;  Wages, Families and Poverty.

     

  • David Peetz. Having a say at work.

    There’s a phrase you sometimes hear about the workplace: “leave your brains at the gate”.

    Workers use it to summarise the dismissive view their bosses have about the contribution employees can make – and about how much say workers have in what they do at work.

    Not all bosses are like that. But it seems most employees want more say at work – sometimes called “voice” or “participation in decision-making” or even “workplace democracy”.

    Having a say at work

    Two trends have affected employees’ ability to have more say at work.

    The first is the decline in union membership over the past three decades. It has fallen from over 40% of employees in 1988 to 16% in 2014.

    Unions were the workers’ “voice” at work. At times they forced managers to take account of, or even accede to, what workers wanted.

    Lower union membership and lower union power mean less worker say at work. Internationally, higher rates of union membership had been linked to lower inequality and union bargaining to better gender equity practices.

    The second trend is how managers have changed their handling of employees. Some are seen by employees as tightening their grip over them. Barcode measurement of workers’ task times in warehouses, their scan rates in supermarkets, how many seconds they take between calls in a call centre, are all illustrations of that.

    But some bosses are seen as giving workers more say. It’s hard to tell, but the latter group seems to outnumber the former.

    Quality circles, “open-door” policies, consultative committees and the like promote that perception. Sometimes it’s for real. Sometimes employers do it to discourage workers from joining a union.

    Often, though, it is a mirage, and lasts only until the next round of redundancies. Starbucks called its employees “partners” until it sacked 685 of them. Wal-Mart calls its employees “associates” unless they start using words like “grievance” or “seniority”; that could make them ex-“associates”.

    You can try to stop employees thinking about their rights as employees by calling them “members” or something else, but that doesn’t make much difference when the pink slips go around.

    And therein lies the problem with management-driven initiatives to give employees more say at work. What the boss giveth, the boss can take away.

    The problem runs even deeper than this. Within the workplace, there are major concerns about working hours, work intensity, work-life balance, pressures on women, “overemployment” and underemployment, demands on employees for flexibility, job insecurity, micro-management of time and managerial efforts to control “culture”. This wouldn’t be happening if power was shifting towards workers.

    Since the 1980s, Australia, like many other advanced industrialised countries, has experienced rising inequality and a growing concentration of income, wealth and power in a small group sometimes referred to as “the 1%” or, more accurately, “the 0.1%”.

    Before the global financial crisis, members of the financial elite even spoke of the rise of “plutonomy”, an economy “powered by the wealthy”.

    The physical climate is changing because those who financially benefit from carbon pollution have externalised the costs onto the rest of society, and are now resisting change with all their resources.

    All this reflects a major shift in power.

    Whatever employers have done voluntarily about employee voice, there is little doubt that the underlying trend is towards less worker power in the workplace. And less power for the multitude means less democracy.

    Giving workers a voice

    So, what should be done about it?

    At one level, laws encouraging or mandating specific mechanisms to increase employee say at work would help. In parts of Europe, and for large firms across Europe, laws require the establishment of “works councils” that give employees some say on defined workplace matters.

    It’s a good idea and Australian unions were rather short-sighted when they ran cold on it some decades ago. But as worker power has declined in Europe, so too has the incidence of works councils.

    Workers need ways to increase the reality of power at the workplace, not just the formal appearance of it.

    In the end, that means increasing the influence of worker organisations, which in Australia has mostly been unions.

    That’s not the same as increasing the power of union officials. Unions themselves need to become more democratic — not just because democracy is a good thing in itself, but also because union democracy seems likely to enhance the power of workers at work.

    You can’t have power in the workplace if you don’t first have power in the union.

    A lot of this is up to unions themselves to fix. I’ve written elsewhere about that, and won’t repeat it here.

    They’re not likely to do this on their own. There are many organisations or movements, constituting what’s sometimes referred to as “civil society”, representing various groups that are disadvantaged or disenfranchised — even the environment. In a world where wealthy interests dominate politics, if these parts of civil society act individually they won’t get far, but acting together would be a potential game changer.

    There are also questions about what public policy should do.

    Changes in policy have had no small part in union decline – in particular, by making it easier for employers to avoid or displace unions – and in the redistribution of power to a small group.

    Industrial relations laws that made it more difficult for employers to avoid unions, and simpler for employees to unionise, would therefore be a worthwhile step.

    So, too, would laws that genuinely facilitated democracy and prevented corruption within trade unions and other bodies. That’s the opposite of what the government proposes in reintroducing the Australian Building and Construction Commission. This has nothing to do with corruption (except in government rhetoric) and would instead reduce workers’ ability to unionise.

    The “other bodies” part is very important. A lot of attention has been given to union law-breaking or corruption of late, but many other examples have emerged of law-breaking or corruption in banking, insurance, financial advice, politics and administration in NSW, Victoria and Tasmania, the oil industry, franchising, agriculture, international business and politics and many other areas. It seems odd that a royal commission focused on just one area.

    Democracy requires that all areas of law-breaking and corruption be addressed. It also means placing constraints on the ability of those in positions of power to draw upon all the resources they might have to influence policy and policymakers.

    So fixing up the problem of declining democracy at work means action both within and outside the workplace. The former without the latter would have minimal effect.

    David Peetz is Professor of Employment Relations, Griffith University.  This article was first published in The Conversation on 18 April 2016.

  • Mark Beeson. Australia still hasn’t had the debate on why we even need new submarines.

    Australia is about to make its biggest-ever investment in military hardware. Although we don’t know yet whether Germany, France or Japan will be awarded the contract to build our 12 new submarines, it is possible to make a few confident predictions.

    What to expect

    First, the actual cost of the submarines when completed will be much higher than the figure that is proposed now.

    If cost were the only consideration, it would actually make more sense to let the successful bidder build them in their own country. But the construction is now seen as a de-facto industry policy for South Australia, a politically important state that has haemorrhaged manufacturing jobs of late.

    There are good arguments for maintaining a manufacturing capacity in Australia – even on national security grounds. But given the cost blowouts in the construction and maintenance of the troubled Collins-class submarines, it’s not unreasonable to ask whether building submarines is really our collective strong suit.

    Second, it’s a pretty safe bet that Japan will awarded the contract to build the submarines. This has nothing to do with the debates about the boats’ technical capacities, however. The principal reason Japan is likely to get the contract is that it will consolidate the relationship between America’s regional alliance partners and the collective effort to discourage Chinese aggression.

    There may be much to be said for such efforts. Plainly, China has become more aggressive in its pursuit of highly implausible-looking territorial claims in the South China Sea. This is something Australians might collectively feel alarmed about.

    But if Australia is trying to influence China’s behaviour, a sternly worded diplomatic note is likely to have as much effect and would be rather cheaper, too. The reality is that Australia can do very little to influence the outcome of the growing tensions in the South China Sea, with or without the new submarines.

    The third point to make about the submarines is that they will almost certainly never be used in anger.

    It is worth asking what the world would look like if we were ever in a situation where we did have to use them. The strategic – not to say economic – circumstances would be so apocalyptic that having the enduring capacity to destroy part of a notional enemy might be the least of our worries.

    In reality, the subs are supposed to “deter” our notional foe. The idea is that simply by possessing these sorts of weapons, the likes of China will be discouraged from acting aggressively. But if China is not deterred by the prospect of nuclear annihilation at the hands of the US, why should we imagine that our 12 submarines would do the trick?

    Will the subs deter other rising regional powers, such as Indonesia or Vietnam, from having hostile intentions toward us? It is quite possible that we may risk “invasion” from Indonesia – as we did from Vietnam many years ago – but this is likely to take the form of political, economic and environmental refugees in fishing boats, not the Indonesian army’s rather underwhelming might.

    The submarines could certainly deter asylum seekers, but this could probably be achieved in more cost-effective ways. It might not do much for Australia’s rather battered international reputation either.

    The flow-on effects

    China rightly points out that, unlike the US and Australia, it has not been involved in a war worthy of the name since the 1970s, when it received a humiliating bloody nose at the hands of Vietnam.

    Australia, however, has fought in Iraq (twice), Afghanistan and Syria in recent times.

    Given Australia’s enthusiasm for foreign military adventures, no matter how remote the conflict, our neighbours may feel understandably alarmed at both the submarine purchase and the relative diminishing of their security as a consequence.

    This is a classic “security dilemma” in which each side feels less secure because of the actions of the other. The all-too-predictable response is to increase spending on national defence in a futile effort to enhance security.

    History suggests that arms races end badly. The first world war had complex causes, but the simultaneous ramping-up of national defence spending by the potential belligerents didn’t help. When war did break out, the modernised, more lethal weapons systems were put to astoundingly effective use.

    The principal consequence of the inevitable but little-debated decision to acquire these boats is to contribute to a rapidly escalating regional arms race.

    This would be a ruinously expensive, dangerous and ultimately futile exercise at the best of times. But in a part of the world where there are still much better uses for public money, despite remarkable improvements in economic development, such expenditures seem entirely unjustifiable.

    At the very least, political leaders and strategic thinkers ought to be compelled to give a much more plausible and specific account of the new submarines’ real benefits and demonstrated deterrent effects.

    Being secure is undoubtedly a desirable thing. Quite what it means and how it is best achieved ought not to be left entirely to the pointy-heads in the defence establishment, though.

    Mark Beeson is Professor of International Politics, University of Western Australia. This article first appeared in The Conversation on 18 April 2016.

  • Editors, East Asia Forum. Australia’s fraught decision on submarines

    The submarine deal would fundamentally change the Australia-Japan security relationship.

    Australia is about to embark on its single biggest ever military acquisition. The Future Submarine Program (SEA1000) will see Australia purchase 12 submarines to replace its ageing Collins-class fleet.

    The SEA1000 has been a source of ongoing controversy with criticism over the lack of transparency of the process, debate about its strategic implications amidst the shifting regional geopolitical landscape, and questions about Australian economic interests and the creation of jobs in the local shipbuilding industry.

    The Australian government under prime minister Tony Abbott initially ruled out a tender process. As Yuki Tatsumi explains in our lead this week, Abbott ‘clearly preferred Japan’s Soryu-class submarines regardless of the amount of workshare or technology transfer to Australia’, ostensibly prioritising capability and cost factors ahead of Australia’s shipbuilding industry.

    Abbott was not the first to look to Japan — Labor Defence Minister Stephen Smith also considered Japanese submarine technology as a way of minimising the cost blowouts and sustainment problems that have mired Australia’s existing Collins-class submarines.

    But Abbott’s decision, in reality, was driven by the conception of a United States–Japan–Australia quasi-alliance framework.

    There was little regard for canvassing alternatives publicly. As the pressure of a looming leadership spill came to bear, Tatsumi notes: ‘Abbott reversed his government’s initial position’ and installed a competitive tender process which has delivered bids from France and Germany as well as Japan. France’s state-controlled naval contractor is offering a conventional-powered version of the nuclear-powered Barracuda-class submarine and Germany’s ThyssenKrupp Marine Systems (TKMS) are proposing a Type 216 Class submarine, an up-sized version of the popular Type 214 submarine. The Japanese government has a proposal based on the existing Soryu class.

    Japan is still considered the frontrunner because of the gathering security relationship. ‘Without doubt’, David Envall reckons, the Australia–Japan ‘relationship has deepened substantially since the historic 2007 Joint Declaration “affirming” the partnership…upgraded, first to a “comprehensive” partnership in 2008 and then to a “special” partnership in 2014’.

    Some in the United States, notably hard-line Japan defence-analyst Mike Green, as well as ex-prime minister Abbott and his former national security advisor, Andrew Shearer, are pushing the Japan option. They argue the US Navy is unwilling to provide its most advanced combat systems to Australian submarines if they are built by France or Germany, although the existing close Australian technology partnership with the United States suggests otherwise.

    Abbott penned an essay lauding Japan for building ‘the world’s best large conventional submarine’. And Shearer, in a paper for CSIS, explicitly invokes the case ‘for significantly deeper trilateral maritime cooperation between Australia, Japan, and the United States’ to respond to ‘the evolving threat environment in Asia and the Pacific, including increasing Chinese assertiveness in the South China Sea and East China Sea’.

    There are hazardous strategic implications in a potential deal with Japan. On the one hand, Hugh White argues that partnering with Japan would incur a strategic as well as financial cost. ‘Tokyo expects that in return for its help to build [Australian] submarines, it would receive … clear understandings that Australia will support Japan politically, strategically and even militarily against China’. On the other hand, a minor swarm of commentators have rushed to counter White. Stephan Fruehling argues that ‘[h]istorically, defence acquisition has done little to support strategic relationships, so cost and capability considerations should remain central [to Australia’s submarine choice]’.

    Unlike other arms transactions, the SEA1000 will have a 40 year lifespan and ongoing service requirements; this fact alone makes it a relational deal not a transactional deal. In a project of this dimension and longevity, each of the potential vendors stakes a claim of some sort in Australia’s security territory.

    A submarine deal would fundamentally change the Australia-Japan security relationship. Even a casual examination of Japanese thinking behind their bid reveals that, in the Japan defence establishment, the deal now has deep strategic undertones, even though it initially reluctantly came to the idea of selling submarines to Australia. As Tatsumi explains ‘the bid for SEA1000 is important for Japan in the overall context of deepening security ties with Australia’. Japan’s ‘2013 National Security Strategy identified Australia as an important security partner not only as a fellow US ally, but also as a regional partner that shares Japan’s key strategic interest in upholding an international order based on the fundamental norms that have underpinned the post-WWII world. Such norms include the rule of law, freedom of navigation and the non-use of coercive measures to assert diplomatic positions’.

    The Japanese Ministry of Foreign Affairs placed the deal within the context of the elevated status of the Japan-Australia ‘Special Strategic Partnership for the 21st Century’ noting it would: strengthen Japan-Australia bilateral maritime security cooperation in the Asia Pacific, deepen US-Japan-Australia trilateral cooperation, as well as contribute to Japan’s own security by improving its domestic submarine capabilities.

    A critical question for Australia is whether it can or should sign up to the current Japanese administration’s defence aspirations and its particular expectations of the partnership with it.

    These strategic questions put Australia at the centre of a seismic contest of political forces in Japan.

    The fallout from and outcome of this contest is highly uncertain. The submarine deal could represent a tipping point in its outcome.

    On one side of the fault-line there is the Abe government’s desire to take defence reforms further, with a formal revision of the constitution. The security-related bills passed in September 2015 were the tortured result of the Abe government’s ambition to expand the roles and missions of the Self-Defence Force, to strengthen its alliance relations with the United States, and to build new security partnerships with other US allies and partners. But they were tempered by a deep domestic discomfort and distrust of Abe’s intentions towards the Article 9 peace clause of Japan’s constitution.

    On the other side, most Japanese are still, quite correctly, concerned about what removal of the anchor of the peace clause in their constitution might do to attenuate, not strengthen, regional security circumstances.

    Then there is the US ambition to elevate Japan’s defence role, around the realistic assessment that Americans are less and less willing to finance a pivot to anywhere (including Asia), while keeping Japan locked tightly down to prevent military adventures. Linking Japan with trusted alliance partner Australia through the submarine purchase is seen as a useful tool to achieve this goal. But what is Australia’s interest in being the midwife to this arrangement?

    Germany and France also have long-term skin in Australia’s security space, but it’s very different from that of Japan — less complicated and potentially more complementary to the economics of Australian interests in the submarine deal. They have hinted at the potential to develop Australia as a hub for submarine building to serve other clients in the wider Asia Pacific region, an incentive for the long-term production base in Australia to which Japan cannot pretend.

    With the Turnbull government poised to announce the winner of the competitive evaluation process in the coming months, the Australian government faces a major dilemma. If the Japan bid is chosen, a clear articulation of the future strategic relationship with Japan and where it might be taken will be demanded in Australia but also by China, among others. If the German or French bid is chosen, Australia’s partnership with Japan and its surrogate role in the US alliance framework will be under a shadow.

    It will require careful management to clean up the mess that Abbott has left on the submarine deal — a lose-lose game in which none of Australia’s key partners will end up happy. It need not have been thus. And the Japan bid, succeed or fail — despite Tatsumi’s brave hopes otherwise in this week’s lead essay — will vastly complicate Australia’s otherwise benign and well-established enmeshment with Japan.

  • Laurie Patton. Generalists and specialists in the Australian public service.

    Why the ‘theory of empty spaces’ hurts public sector performance 

    The other day I was talking to a friend who recently retired from the public service. After a career lifetime of studied discretion he now wears as a badge of honour his entitlement to express independent views. Many of these are critical of the processes that played a pivotal part in his rise to a very senior posting. I have a number of colleagues who are now “ex-job”, having also held extremely high level public service roles. I enjoy hearing about their work experiences more now that they are unencumbered by ambition than was ever possible as they climbed the greasy pole.

    When I left university I briefly worked in the public service, before leaving to pursue a career that my friends euphemistically describe as ‘eclectic’. However, in a number of roles over the years I have had the opportunity to observe close-hand how public sector management operates.

    The first piece of valuable advice I was given as a junior public servant what “keep moving”. Never stay too long in the one role, even if you love what you are doing. Upward progress requires continuous lateral movement. Apart from avoiding or evading responsibility when, from time to time, things inevitably go wrong constant movement allows you to gain a broad range of policy development skills. Policy skills generally outweigh any other consideration in the minds of selection panels for senior appointment I’ve since learned.

    Someone once described life in the public sector as akin to a game of checkers. In checkers the aim is to get your ‘piece’ to the other side of the board as fast as possible. In the public service it is to move ever upwards towards the top, again as fast as is logistically practical.

    In checkers the shortest route is straight ahead. However, the quickest route usually involves sideways movement. Waiting for the space ahead to become vacant, like waiting to assume the role held currently by your ‘one-up’ is not a viable strategy.

    Constant movement from division to division, from department to department provides public servants with a wide exposure to issues and the ability to refine their policy making skills. More importantly, it enables them to maximise career progression. What is also does, sadly, is deliver an executive structure full of generalist. People who having never stayed anywhere long enough to become experts in any particular field themselves, invariably have limited respect for those with deep subject matter expertise.

    I remain perplexed about the so-called ‘pink bats’ episode, where tragically a number of people died because they were allowed to operate unsafe working practices. Apparently nobody in the relevant department thought to ensure that OH&S regulations were followed by the companies they were funding to undertake what was widely seen a clever and worthwhile project. The first thing to note is that OH&S is largely a state responsibility anyway. But more to the point, how is an accomplished musician-turned-politician supposed to know to inquire about something as basic as workplace safety? Surely Peter Garrett was entitled to assume that this was under control and in someone’s eyesight? Someone with direct and relevant experience.

    But the real flaw in the process, in my opinion, was presuming that anyone in a department that was otherwise primarily concerned with lofty issues like climate change and the like would necessarily  have had any experience in industrial relations. Where was the subject matter expertise on which the minster was surely entitled to rely?

    The impetus for this essay was the recent news that the federal public service has apparently enlisted the assistance of senior Telstra executives to help improve management performance. Having worked at Telstra along the way I found this mildly amusing. Telstra, like a certain university with which I had a close association a while back, seems to have pretty much ignored the last twenty years of public sector reform.

    The public sector has undergone significant restructuring and re-assessed its management practices in recent years. It is arguably much leaner and more efficient at senior levels than it once was. But until the theory of empty spaces is no longer a viable career plan there’s a limit to how much better things can get.

    In conversation with my erstwhile mandarin friend the other day I posed this question. Is it a given that a public sector organisation can never be as efficiently run as a comparable private business? We both refused to accept that this was the case. No more empty spaces please.