Chasing the Norm

Australian academic and blogger on politics, international relations, and culture

Category: Economics

Memo to Business: Hire better political advisors

From an article on the new NBN draft legislation:

“The talk in Canberra is that Telstra senses the government is on the ropes, and with an election coming it thinks now is the perfect time to play hardball.The closer we get to the election date the more desperate the government is likely to get and the better compensation handout it will consider.

The Rudd Government is on the ropes ? In what reality? Going by the Polls, Labor is at ahead a comfortable, 53-47% spread, while the markets have Labor at around $1.20 to the Libs $3.80 (ie around 75% odds on favourites), add in the honeymoons due to end for Abbott, that the public always give govts a 2nd term (at least since ww2) and that the government hasn’t yet switched to an election footing, you’re kidding yourself you think this government is “on the ropes”. And even if those numbers suggest to you Labor could lose, why would anyone in the government believe that giving in to Telstra would be good politics? Their original plan for an NBN and split Telstra was popular with both the public and the press, and the government’s already taken heat over being too close to business (utegate, Free-to-air tv handout, wasteful stimulus spending).
Read the full article »

A new (publicly owned) Bank?

Crikey has the scoop today that the Rudd government is considering allowing/pushing Australia post to expand its financial services into a full blown bank as a way of breaking up the stranglehold of the big four banks.

Crikey can reveal that the Rudd Government commissioned a scoping study into the establishment of a publicly-owned banking capability by Australia Post, with positive results. As Crikey detailed in August last year, Oz Post has been trying to address the long-term decline in postal volumes by encouraging mail marketing and exploiting its branch network to offer a wider range of the sort of services that still require interaction.

This already includes financial services under licence from several banks and up to 70 financial institutions in all, including business banking services from NAB and the Commonwealth. Last year, Australia Post itself began offering insurance services. About 3,300 Australia Post outlets offer external banking services now, just under three times the number of branches of the largest bank network, Westpac/St George.

While the economics have pros & cons, politically this strikes me as a very risky if not downright awful decision if followed through. Rudd already has a reputation as anti-market in the media (being a Labor MP, Stimulus spending, End of Neo-liberalism essay, keeping book tariffs etc). For a party trying to present itself as representing the future over its regressive opponents, going against the 30 year trend to privatization makes little sense. Endorsing the creation of a publicly owned bank would just about drive the economic liberals who dominate the editors/opinion leaders of the press insane and with them a chance to enshrine Labor as the default governing party for the next 20-30 years.

As I’ve argued before, many economic liberals have lost their suction to the Coalition after Howard’s departure. Rudd’s description of himself as an “economic conservative” and talk of efficiency and productivity through his investment in education lured many away. And now with Tony Abbott and Barnaby Joyce ruling the roost, the coalition isn’t the safe haven of support & re-enforcement it once was, indeed it’s looking decidedly shaky and populist.

Yet Rudd seems to have only made a half-hearted effort at recruiting them. He may talk of productivity as part of his Australia day (week) speeches, but his actions speak loudly to this skeptical and (somewhat paranoid) group. Rudds decision to not support a change in parallel imports of books despite the Productivity Commissions report is a perfect example of a policy with a relatively light cost (from a social democrat/arts supporter viewpoint) and much to gain. Indeed you could almost see the press gallery shift away from Rudd at the end of last year soon after this decision was announced (and even worse is that Rudd ‘excused’ himself in a split cabinet because one of his kids is writing a book). As an aside Bob Carr today makes the obvious point that the impending arrival of Apples badly named but oh so cool ipad makes the ALP’s decision laughable.

Establishing an aussie bank under Australia Post may appeal to many in the public superficially, but its positive political impact is likely to be small and slowly occurring, whilst re-enforcing a big government, big spending, big bureaucracy image that Abbott and the editors of the Australian are trying to pin on Rudd. This is not about the forthcoming election which is already in the bag, but a generational re-alignment of those of a liberal ideology both socially and economically who are giving Labor a fresh look they wouldn’t have considered during the 90s and most of the 2000’s. Creating a government owned Australia bank would probably scare them off, and with it a chance for Labor to establish political dominance for the next 20+ years. (Along with hopefully leading Labor to become more liberal in attitude which is why i want to see this occur along with its political benefits).

Doubting the citizens intelligence

I really like living in the ACT. It’s generally hassle free, safe, and cosmopolitan. Likewise the local government is smart, left wing and generally competent. But sometimes, (spurred on by the Greens) they pass legislation that seems to question the intelligence of local citizens, and cause hassles for retailers, for no good reason. If there’s a problem, governments all too often sees extra regulation as the solution. Two recent examples stand out.

As of January 1, free-range and cage eggs must be physically separated in stores, with clear markings, a change no supermarkets have yet to get around to making. As if like cigarettes many people were still unaware of the harm caused. Personally I always buy free range. It’s an easy moral choice, and the packs are generally easily labeled. Even if a particular brand isn’t too clear, I can easily choose another. Where free range eggs were pretty rare a decade ago, today it seems most egg brands are free range. If the government has a problem with battery hens, then it need to outlaw their sale. If not, adding burdens onto supermarkets to make the abundantly clear even more so helps no one.

[Turns out this next example is by the Federal Labor Government, my mistake] A second example (no online copy available) is the insistence that all cafes/resturant’s have a second menu for sundays/public holidays displaying the full price, rather than simply saying “10% surcharge on public holidays”.
This is part of legislation that tackles the often grossly misleading prices on cars and airline tickets, however it seems Cafes/Resturants are being caught up as well.
Again, few retailers have bothered following the legislation, with those doing so using ugly photocopies of their menus, and finding their staff are getting confused along with customers. While there’s a definite principle that everything you buy should be the labled price, a 10% charge notice for cafes at the bottom is not exactly duplicitous, or hard to figure out. Legislation of this type while honourable, also seems to be built on the presumption that consumers are unable to read the notice, calculate additional taxes or charges from the small print into their costs, or factor this in when they make purchases.

I don’t get Libertarians consuming worry about these issues. The link to ‘freedom’ is, despite their claims, so tangential as to be invisible. Most of the time this is pretty minor stuff, and if you only focus on the negatives you can lose sight of the critical importance of sensible regulations to an efficient, prosperous capital economy. But sometimes governments introduce regulations which seem to have no discernible benefit, hassle business and treat citizens like children unable to make decisions for themselves.

Gillard’s need for an Indian summer

The recent whohar with India over the stabbing murder of Nitin Garg is a class A example of how foreign policy crises shape leaders rather than are shaped by them. Neither government initiated it, and whilst the Indian government is playing domestic populist and airing some grumbles over uranium, it would probably prefer the issue goes away quickly.

Though some like Gerard Henderson seem certain Australia has an anti-Indian race problem (he’d never have said that under Howard), for myself, like most of the community, the idea seems absurd. Indians are long standing residents of this country, who don’t cause trouble, seem closely integrated and love their cricket. There are racist elements in Australia who may target all non-whites, but that’s a far cry from the absolute rubbish being served up in the Indian media scaring many potential students and migrants away from the country.

This crisis however offers a potentially career defining opportunity for our Deputy PM Julia Gillard. While clearly highly competent, there is a perception that she is a little too thinly stretched across her responsibilities. Not only as Minister for Employment and Workplace Relations; Minister for Education; Minister for Social Inclusion, she is part of the governments gang-of-four who decide most policy issues, along with being a very politically important Deputy Prime Minister, and a regular Acting Prime Minister. Errors such as the spending of stimulus money on schools that had one student or were due to close were not errors of judgement so much as of editing. Gillard also needs to get some policy runs on the board given her past golden duck efforts such as Medicare Gold. Fixing the issue now would bring short term political benefit to the Rudd Government, whilst offering a point to be remembered in by colleagues in 5 or so years she begins to think seriously about becoming PM in her own right.

Having introduced the ALP’s new IR legislation on Jan 1, it might be a very good idea for Gillard to drop her role as Minister for Employment and Workplace Relations (and Social Inclusion) and focus on education, starting with international students. The Rudd Government came to office promising an education revolution. Even including stimulus spending, it has barely touched the issue, and this challenge is a perfect opportunity to make some big changes with public support.

As our fourth biggest export industry, worth $16.6 billion, the market for international students strangely came about without much government attention. Indeed it was the neglect (if not deliberate damage) by the Howard government of the tertiary sector which lead universities to seek substantial numbers of full fee paying international students as a way to cover their budget shortfalls. This turned into a boom industry, but it is one that has been badly managed and regulated, with the collapse of four private international student focused schools in late 2009 a too common story.Though already a huge industry, the potential for turning Australia into a SE Asia education hub is enticing.

Not only is this an industry that plays on Australia’s strengths in education, culture and brain power, and not only is it highly lucrative irrespective of global financial conditions, it also delivers key diplomatic and security advantages to Australia. By educating the youth of the regions elite (and up & coming leaders) we gain crucial leverage and understanding throughout the region. In 20-30 years time, these same people will be the business, cultural and political leaders, and their views of Australia will be closely shaped by their time here. A positive view could well be the difference between a key trade contract being awarded or even back channels to avoid war and conflict. That’s not hyperbole, in the case of E.Timor a large reason why there was no firefights between Australian and Indonesian troops was because of the personal links between the two armies, averting conflict.

Immediate action is clearly needed to calm the views of the Indian population in Australia, and the Indian government and media overseas. But long term, serious action needs to be taken to help improve the international student sector, as a starting plank for delivering an education revolution. This would deliver on the Rudd governments promise of an education revolution, improve and reform a key economic industry, and let Gillard and Rudd address an area that is clearly very important to both of them, both personally and politically.

For more on the India-Australia challenges faced, and potential responses, I’d recommend two publications by the Lowy Institute: After the perfect storm: Indian students in Australia by Janaki Bahadur and Troubled waters in need of oil by Rory Medcalf.

Abbott boxed in by climate change rhetoric

Pollution_Factory There is a tendency when it comes to political rhetoric to always go nuclear. To deploy the most strident, attacking, and damaging language you can to label an opponents position or policy. And no word has more power today than ‘Tax’.

Case-in-point: In the US 2008 election, the Republicans attacked Obama for ‘palling around with terrorists’ and saw no electoral traction. Yet when they caught him saying he wanted to ‘spread the wealth’ to Joe the Plumber, their spirits soared. It didn’t help their cause that Obama had a tax cut for about 95% of the country, yet McCain still devoted almost the entire second Presidential debate to claiming Obama wanted to raise people’s taxes, causing a few wobbles from Obama’s campaign.

While there was certainly a strong case for Tax Cuts in the 80’s & 90s, today when there isn’t much fat left on the revenue side of the budget, the social stigma applied to the word is impeding our political debate. Of course this criticism has been mounted before by social democrats who want to spend more on infrastructure or key social services, but it’s also damaging the way Liberals and Conservatives develop their policies too.

A few months ago when The Nationals were the only party against the ETS in principle, Barnaby Joyce took the obvious rhetorical step of calling it an ‘Emissions Tax Scheme’ (clever guy huh). As the vote got closer, he increased the volume calling it a ‘massive tax on everything’. A theme picked up by a number of other opponents of the scheme, and instantly adopted by Tony Abbott when he took over as Coalition leader and defeated the Governments’ policy. This was not the only rhetorical attack on offer against the governments CPRS (it could also be called complex, confusing, ineffective, counter-productive, special-interest laden, bureaucratic etc etc) however “Tax” was the leading punch. To Abbott’s reckoning he had given the Government a black eye (a defeated policy), a cruel new nickname (big taxer) and was now the hero who had saved the people from a major tax. Only, and annoying for him, the people still want something to be done. However, nothing that looks or sounds like a tax can possibly be advocated by the Coalition, leaving very few options available.

If Abbott had avoided dropping the Tax bomb on the governments scheme (and he did not need to do so to have it voted down the bill) he could have offered a much simpler and attractive scheme: A Carbon Tax.

By Jeremy Hansen in the NYT (Who Paul Krugman calls “a great climate scientist. …the first to warn about the climate crisis”)

‘Under this approach, a gradually rising carbon fee would be collected at the mine or port of entry for each fossil fuel (coal, oil and gas). The fee would be uniform, a certain number of dollars per ton of carbon dioxide in the fuel. The public would not directly pay any fee, but the price of goods would rise in proportion to how much carbon-emitting fuel is used in their production.

All of the collected fees would then be distributed to the public. Prudent people would use their dividend wisely, adjusting their lifestyle, choice of vehicle and so on. Those who do better than average in choosing less-polluting goods would receive more in the dividend than they pay in added costs.

For example, when the fee reached $115 per ton of carbon dioxide it would add $1 per gallon to the price of gasoline and 5 to 6 cents per kilowatt-hour to the price of electricity. Given the amount of oil, gas and coal used in the United States in 2007, that carbon fee would yield about $600 billion per year. The resulting dividend for each adult American would be as much as $3,000 per year. As the fee rose, tipping points would be reached at which various carbon-free energies and carbon-saving technologies would become cheaper than fossil fuels plus their fees. As time goes on, fossil fuel use would collapse’….

Emissions Trading Schemes were preferred because they let governments set a limit on emissions which can be reduced over time, giving assured levels of pollution reduction. Carbon Taxes are more elusive in this area, but the same logic of a rising price = less use of carbon emitting fuels/products/technology applies. This offers a wiggle room would perfectly suit a coalition party which both wants to look serious on the issue, but doesn’t want to be too tied into international deals and wants to be able to regulate Australia’s actions in line with economic circumstances.

Carbon Taxes have the advantages of being more economically efficient, and ‘just’ in a Liberal sense of being applied equally across the population. While small refunds could be applied to some industries (such as agriculture), it likely wouldn’t be the hodgepodge of deals and allowances & exceptions that the Government has set up with its ETS (which for the Greens make it now useless). And given that a carbon tax would reward individuals who act positively to reduce their own carbon footprints, it would also be in line with the parties preference for individual responsibility and reward. Not only that, but the Coalition could even piggyback some of the potency of the tax argument, by offering to sharply reduce all income taxes in line with the CO2 taxes. Just like the GST, not all taxes are equal, and given the public demand for action, this would be strongly in line with their past actions.

Finally, if they chose to keep back just a small part of that revenue, it could be invested in what is perhaps the real and only solution to climate change: better technology. This was an argument John Howard made consistently during his final years in office, and one the Coalition could pick up and run with. Australia has the minds, the education system, and the incentives to be the ones who create the next big breakthrough that fundamentally changes how we create and use energy. We’re doing it already, but with a big injection of funds imagine what we could create, what industries would come to call Australia home, what economic returns await us.

Of course Carbon Taxes are not a new idea, and I think Paul Krugman is somewhat right that having spent so long building up a Cap&Trade system, to throw it away and start down a different path just means too many delays to accept. But it’s worth noting again, how the rhetoric we use in one area, deamonising all taxation as bad harmful policy, if not outright ‘theft’ has left Conservatives (and many liberals) unable to offer sensible alternative policies in other areas. A Carbon Tax might not be considered as effective environmentally as an ETS, but it’s just as effective (if not more-so) politically for the Coalition. But it’s now off limits.

Instead, because Abbott accepted the rhetorical framework of calling a market based system a tax (thereby ruling out both) he is left with prescious little other than Command-and-Control type regulations. Not only does this also run up against 30 years of liberal and conservative economic thinking in Australia, it may well be at least twice as expensive(p152) if not even more so. But Abbott has no real options left if he wants to propose a policy that at least looks serious.

As Al Gore has said, what is ideally needed is to ensure we “tax what we burn, not what we earn”. Gore is another who has long supported a carbon tax. If the Copenhagen Summit succeeds, then to cap and trades we must committ. But if it fails, if it is all smiling handshakes with no commitment behind them, then a Carbon tax is an alternative we need to have a serious debate about.
If only we could get over the rhetorical stigma of the word ‘Tax’.

(Incidentally, this is why I like the Constructivist approach in International Relations. Everyone wants to be a ‘realist’ about the world and how to respond to it, but when you mentally close off avenues through certain rhetoric, then your options can be utterly distorted, even harming your own interests.)

For a more details explanation of Carbon Tax (and fully sourced), I recommend having a look at this testimony to the US Senate by Ted Gaynor of the Brookings Institute

The financial benefits of a R18+ rating for games

This is our culture and our economy:

CALL of Duty: Modern Warfare 2 has racked up more record sales of $US550 million ($593 million) in its first five days, but the publisher Activision Blizzard is still concerned about weak consumer spending.
The game, a first-person-shooter that lets gamers play as elite soldiers hunting down targets from South America to Afghanistan, beat the record set by last year’s blockbuster Grand Theft Auto IV in its first week.
Last week it said it sold 4.7 million copies for a total of $US310 million ($333.3 million) on its first day in the US and UK alone.
Activision said five-day sales for Modern Warfare 2 topped the $US394 million ($423.6 million) earned at the box office by Harry Potter and the Half-Blood Prince in its first five days.
The video game bested Batman film The Dark Knight, which had held the record for the top opening weekend ever by taking in $US158.4 million ($170.3 million) in July 2008.

There is always a lag between capitalism and culture, though inevitably the dollar wins through. However it takes some time for societies to integrate in and accept certain cultural artifacts, regardless of sales. The rise of evangelical literature/music/films (such as the Left Behind series) is one example, another that suffers is video games. While you will see the occasional article in the papers about them, their coverage pales into comparison compared to films, despite computer games being a bigger industry for films, both in Australia and world wide. Indeed according to the Canberra Times (p6 Monday Nov 23 2009) this morning (no online copy) most Australian’s are gamers:

Computer games are set to be an bigger part of Christmas entertainment than ever this year, with strong growth for an industry now worth $2 billion in Australia….“The average age of the gamer in Australia is 30 and another key figure is that almost half (46%) the gamers in Australia are actually female”… Dr Jeffery Brand, the head of Bond University’s communications and media studies school, said most Australian homes had a game device.
“We have roughly seven out of 10 Australian’s playing computer games at some point in the year” he said. “Most of those, the vast majority of that 70 per cent, are playing daily or every other day”.

All this makes it even stranger then that in Australia, we do not have an R18+ rating for computer games. The Federal Classifications ACT was set in 1995, a lifetime ago in the industries view, with only limited consultation since. The biggest hold up it seems is the gentleman’s agreement that Australia has uniform laws on censorship via COAG. Despite the fact that this isn’t the case in videos (The ACT sells X rated videos, whilst other states have banned them), the convention has given South Australian Attorney General Michael Atkinson an effective veto power over such a large industry. In the last year some of the biggest computer games released including Fallout 3, GTA IV and Left 4 Dead 2 have all been refused classification (ie banned) or major changes forced on the overseas producers. That means lost sales, as people either dont buy, buy overseas, or simply pirate the game. When such contempt for the laws is commonplace, it is the laws that must change.

Yet these loses pale in comparison to the loss and harm the restrictions place on the development of a local Australian computer games industry, one in which Australia has some key niche advantages. The industry requires highly trained professionals which we produce in droves, it is an industry that depends on quality not quantity (meaning it can’t be outsourced to asian factory workers) and it is green and high paying business, returning nice tax benefits to the country. Yet both the Howard and now Rudd governments have ignored the industry, much as they have almost all high-tech industries. Australian governments it seems consider it a core business of theirs to spend billions of tax payer dollars to protect already dead industries (parts of our manafacturing and agricultural fields for instance) whilst not only ignoring but hampering the rise of new industries that seem well suited to our demographics and skills. The loss could already be measured in the billions (I know of 2 ACT games manufacturers that have closed and gone offshore in the last few years) and with video games set to grow, will be worth tens of billions in years to come.

From my reading of the Classification ACT’s it seems it would only require a change in the Federal law, and the compliance of one state or territory for video games to be classified at a R18+ rating by the OFLC and sold only in those states or territories that changed their law to accommodate it. (If there’s something I’m overlooking in my reading of the act, please email me or post a correction below.) For the loss of uniform laws on the issue, each state and territory could choose to encourage or restrict the industry in their territory. South Australian voters could continue to ban the sale of R18+ games, whilst those in the ACT or Victoria allow it. This would be competitive federalism at its best, something the constitution writers were very keen to encourage.

The potential sales revenue for any state which was the first to move would be immense. They would become the only port of call for the sale of these games, dramatically reducing overseas sales of games, and likely enticing video game production companies to consider moving their business to those cities in order to be able to freely develop their products. That reassurance would be a big boost for an industry that thanks to increasing photo-realistic graphics is having to continually re-account for why its material is classifiable as only MA 15+. What was assured of passing 5 years ago, might not today, without any significantly different levels of gore, just a more natural depiction of it thanks to better technology. Equally potential games producers (which need be only a professional working from a home office developing a game for phones as much as the multi-million dollar blockbusters like Bioshock 2 (produced in Australia) could be enticed to start their own businesses once the laws are expanded and clarified.

Despite massive tax payer funded handouts, Australia has lost much of its manufacturing industry and some of its agricultural as well But in high tech and value adding areas, such as the original idea’s, design and marketing, Australian workers and companies are almost impossible to beat. I don’t know who coined the phrase (I suspect Paul Keating), but the claim Australia needs to become the brain to Asia’s brawn has always struck me as very good economic sense. By not having a R18+ rating we are not only continuing with laws that do not reflect community sentiment, but are actively denying Australia billions in lost revenue in both production and sales in what is is fast becoming the largest entertainment industry in the world. We simply can’t afford not to make the necessary changes and get Australia’s computer games industry into action.

What’s the pay off?

Rudd is a very clever man. Sometimes however he seems to outsmart himself. Take this latest machiavellian ploy to put Costello on the board of the Future Fund:

Govt defends Costello appointment
The Australian government is not about playing politics when it comes to the appointment of former politicians to senior positions, Resources Minister Martin Ferguson says.

Former treasurer Peter Costello is the latest Howard government minister to have been appointed to a senior position by the Rudd government.

The government announced on Sunday that Mr Costello will head the board of the Future Fund from December 18.

But his appointment by the Labor government has sparked criticism from former prime minister Paul Keating, who labelled Mr Costello as “a policy bum of the first order who squandered 11 years of economic opportunity”.

“The prime minister’s goodie two-shoes approach of appointing former opponents of the Labor Party to important public jobs is no substitute for thoughtful and mature reflection as to the public requirement of those positions,” the former prime minister told AAP on Sunday.

The Howard government was rightly criticized for its arrogant politicization of many key postings. Many good institutions were damaged because of the quality and contempt in choice for office holders. To that extent, Rudd’s choice of people such as Robert Hill and Tim Fisher is a welcome return to sense, and decent political advantage. Nelson’s gig in the EU is just a pay off, but there’s enough of those in politics to not make much of a fuss over. But what is Rudd thinking appointing Peter Costello to the Future Fund board ? It’s a bad idea for three reasons:

1. Rudd & Co opposed the FF when it began and still see it as a mistake (or a “solution in search of a problem” as it was infamously dubbed). Given the fleeing of cash from the Govt’s reserves and their desire for big infrastructure developments, they want a FF with as small a media presence as possible. Appointing Costello to the board just gives it a much bigger presence for the media. It becomes a veritable institution, a junior cousin to the Reserve Bank when it comes to financial policy, and all headed by one of their chief economic opponents of the past 15 years. And he’s going to be on it’s board powerfully arguing for an economic vision that not only disagrees with the Govt, but will take pleasure in spiting it.

2. Costello may have signed all sorts of non-disclosure statements, but an ego his size will never prevent him from participating in the debate. As readers of his memoirs will know intimately, politics is personal for Costello. His smirk was never about getting policy up, but putting people down. He may won’t be the chief voice for the FF, but everything he says on economics (such as in his now regular SMH column) will be parsed for commentary on how the FF views Rudd’s government. One word about Telstra shares going down (which hurts the FF slightly) and the story will be ‘Costello slams Rudd for imperiling superannuation/debt/nations future/sunshine and rainbows/’ etc etc. Far from censoring him, it gives Costello a bigger microphone than if he was just another private merchant banker (witness how Bob Carr was regularly and unfairly slammed for his Macquarie Bank links whilst advocating removing tariffs on books)

3. The public isn’t impressed, or even paying attention. It may please the hearts of a few media folk who once had crushes on Costello, but it won’t shift a single vote in the seats Rudd needs to win, and want’s to steal from Turnbull’s enfeebled grasp. Worse, it is just going to put off a lot of labor supporting types, both in the party and out who keep wondering why their side is so weak all the time. There’s nothing wrong with putting your people in key positions. They are your people because they agree with you on the big issues and so can act as substitutes for you. Unless Rudd has figured out a way to clone himself to run every position in Govt, he needs supporters in the key positions to help push his agenda forward. Putting in people like Costello just means you face far far more roadblocks than you should have. And for no political pay off, today’s story isn’t worth anything (esp given the good economic news of this morning).

So its not good politics or economics. Why on earth bother then? I sure hope this wasn’t dangled in front of him to encourage a by-election that the Libs are sure to win in Higgins, which will help Turnbull innumerably. Likewise thank goodness Costello said yes. If he had been offered and said no (and leaked) it would look like the Govt was desperate for his help and had to go begging. Sometimes just playing a straight bat is the most sensible of all politics. Even on those times you pull off the big tricks, the pay off isn’t always worth it.

The real deficit is the one between their ears…

As mentioned below, the Liberals had a press conference this morning on debt reduction, and released a shiny new policy document. Naturally the media ignored the policy for the horse race issue, so your dutiful blogger went through and read the proposal. One problem: It doesn’t actually say anything. Here is the sum total of the Liberals policy for debt reduction 6-12 months before an election:

This morning's conference, from Turnbull's twitter feed

This morning's conference, from Turnbull's twitter feed

1)The Coalition will do more with less by reducing waste and duplication throughout the Australian Government, and between the federal and state governments.
2)The Coalition will immediately upon coming into government establish a Commission for Sustainable Finances to report within three months on waste and duplication in every agency and program of the government.
3) The Coalition will not repeat Labor’s cash splashes. Handing out $23 billion in cash may be popular, but it recklessly adds to debt.
4) The Coalition will pursue a vigorous reform, infrastructure and innovation agenda to lift productivity and increase economic growth.
5) The Coalition will support small businesses, the engine room of the economy, through our Small Business Action Plan.
6) The Coalition commits to a responsible long term objective of returning government’s share of the economy to the level achieved by the previous Coalition Government…. The last five Coalition Budgets had spending of less than 25% of GDP. Only the Coalition can be trusted to return the government’s share of the economy to this level.
7)The Coalition is committed to addressing all of these problems (Complexity, time-cost,reduced incentives etc) in a comprehensive and principled program of tax reform.
8)The Coalition will establish a Parliamentary Budget Office, which will be independent of both the government and the opposition, to ensure the public and Parliament receive honest and timely analysis of the budget, financial results and specific programs.
9) Further, the public will be able to track government debt at a real-time website detailing the size and composition of borrowings, interest paid and projections into the future.

Putting it into a list makes it look far more substantial, but have a look again at that list. Only #8 & 9 deal with specifics (both are good ideas, though the website is more about advertising, as such figures are already on budget.gov.au) Numbers 1,4,7 have been promised by every single opposition since the beginning of time but dont matter at all without specifics. (Here is just one of dozens of press releases labor put out on the issue prior to the 2007 election). Number 5 is just a statement of support, and 3 is utterly redundant (of course they won’t repeat the stimulus given its already in place and the crisis is passed!). Only 6 seems new, though as I’ve mentioned before there is no logical reason why 25% is the ideal figure (indeed in early September Hockey was saying it must be “no more than 24%, but I guess round numbers rule).

Given the bad position the Liberals are in today, only a comprehensive, detailed policy will get them any attention. If Rule #1 of Federal oppositions is don’t repeat the Fightback mistake of 93 (with Turnbull eerily imitating Hewson), Rule #2 is don’t do invisibly small target’s (ala Beazley 98) either. There is a happy balance in the middle. Howard and Rudd both won by proposing a number of key, detailed area’s of policy in ground they wanted to fight on, and then obscuring the differences on everything else. Turnbull can’t win, but he can at least fight a respectable campaign for principles he believes in by being bold. Far better to be remembered for going out fighting for your ideas (that may one day become accepted wisdom as Hewson’s GST now is), than as a front man without the courage of his convictions. (Jason Soon on Crikey makes a similar point about Turnbull’s failure to live up to his hoped-for-liberal creed)

If the brain’s trust in Liberal HQ want some ideas, how about reducing the churn of taxes/welfare as John Humphreys advocates:

The Australian welfare system—including health, education and handouts—costs more than $250 billion per year. Some of this is redistribution from the relatively rich to the relatively poor. However, about half of the welfare is pointless ‘churn,’ where the same person both pays taxes and receives welfare benefits.
Some of this churn is ‘cash churn’ where people both pay tax and receive cash from the government. But the bigger problem is ‘services churn’ where middle- and high-income earners pay tax and receive government-subsidised health and schooling services.

By removing middle-class welfare in exchange for income tax cuts, the government could reduce tax and welfare by about $80 billion without leaving anybody worse off.

Such reform would be bold, enticing (everyone, esp the press would focus on the massive tax cuts this would mean), rally the base (cutting welfare/bureaucracy) and give a radical plan to pay down the debt in their first term, not to mention long term benefits to pay for healthcare (as Humphreys’ advocates). Hell I’d vote for it…

The idea’s are out there, the Government has massive targets that can and should be hit, but so long as the Liberal Party is serving up this shallow pap, the equivalent of a warm towel to fix a gunshot, they will be rightly ignored.

An Uneasy Marriage

Politics involves three things. Power, Relationships and Compromise. And while Power (who’s up, who’s out) and compromise (who has sold out/who’s principled) are topics of endless conversation, relationships are almost never talked about. They are assumed eternal links, the union movement and labor, doctors and the conservatives. But like glaciers, their slow speed should not be mistaken for weakness and when they do bring change (Howard’s battlers) they fundamentally re-arrange politics far more than any policy or polling issue could hope for.

One of the more interesting relationships to watch over the last decade has been the de facto marriage between Economic Liberals and the small business/corporate World. On the face of it, these two groups should get along famously. The former favour a de-regulation of industries, reduced taxes, and the privatisation of government services. For the business world, this means they have to worry less, pay less, and can do more than previously. But the two groups interests don’t always run in parallel.

The clearest example of this can be found in the US at the moment, in the debate about Health Care Insurance. For the Libertarians/ardent Economic Liberals, Government shouldn’t be involved in the industry (like regulating about pre-existing conditions) and certainly shouldn’t be subsidizing or offering a public run insurance service (like Medicare). Given that health insurance is so critical, in the US businesses have slowly had to adopt a health insurance package as part of their salary offers. The problem with this is that it is very costly (and ties workers to jobs). So US firms that may compete with Canadian or European or Australian firms, have significantly higher overheads. Of course businesses in the Insurance industry love this set up, but for the vast majority of businesses in America, this is just a hassle and a cost. For them, it is far better for Government to provide Health Insurance. In this case the interests of the Economic Liberals and the Business community diverge, which Obama has been exploiting to aid his legislation, and confound the Republicans

In almost all cases, the relationship is dominated the corporate world. Business has resources to pressure politicians, and emotional arguments (you don’t want us to toss the workers onto the street) that dominate the usually more pragmatic than principled support for economic liberalism espoused by western politicians these days. In short the corporate world wears the pants over the economic liberals, and so have avoided most harmful changes save the short term pain of moving to low tariff economies for western countries in the 1980’s & 90’s. That however was offset consistently with increased corporate welfare. This payoff earned the ire of some economic liberals (though somewhat appeased as they had colleagues in government). It means taxes were higher, but whenever changes came through, like reduced tariffs, FTA’s, deregulation of industries, natural challenges (drought) or man made (airlines pre & post 9/11) the government was willing to step in to help the corporate and business world through. It contradicted all good economic policy, but it made pragmatic sense, kept business happy, workers employed and could generally be afforded.

I was thinking of all this whilst reading some recent reviews on the topic of the stimulus package in Australia. On the face of it, the Stimulus package has been a roaring success with Australia, almost alone among countries, staying out of recession. Indeed news today is that unemployment has fallen for September. On the other hand, it’s much much harder to link that spending to the economic performance of the country. We haven’t gone backwards, but nor have we gone forwards. So While the economic liberals point to this as evidence such spending routines are a complete waste of money (Malcolm Turnbull is currently making the exact same point at a press conference this morning), it’s important to note the business community isn’t completely on side with such claims.

For business, the stimulus meant a psychological and fiscal guarantee. It meant the bottom of the economy was never going to fall out, that taxpayers would in effect subsidize their continued operation, and therefore that they could continue to operate as normal. Economists models may try and sideline the role of psychology, but for the business community, such re-assurance is vital. The lure of extra corporate welfare, government spending (school construction for instance) and subsidies (pink bats) at least ensured that the economy would continue as normal, which is the pattern that we have seen. While business owners are also individuals with tax rates and an ideological worry about the debt, it has been noticeable how little energy or emotion came from the corporate world over the stimulus package. They don’t like government, but they knew they needed it. As such, economic liberal politicians who lack this connection to business (Turnbull, The US republicans) have been forced to throw themselves into the fray, without their usual cavalry, -in the form of the business lobbies-, to attack the government. They have become lonely soldiers on the battlefield, as business either holds back, or throws its self-interested lot in with the Keynsean big spenders in the hope of getting some of the loose dollars.

The relationship between economic liberals/libertarians and the small business/corporate world will continue to endure. They’ll patch things up over healthcare, and having seen off the economic crisis, will revert to attacking wasteful government spending and reject any cost cutting/tax rises to pay for the debt. But a smart politician who comes up against this collective force should recognise the fault lines in the relationship. There is a reason Howard (whose dad ran a suburban petrol station) was never keen on competition as an economic principle. There is a reason business is being very quiet about the ‘SOCIALISM!’ that Obama is supposedly introducing with his health care insurance policies, and likewise Rudd and his deficit spending. For this reason, Turnbull and Hockey this morning* are probably wasting their time trying to convince Australians they are the better economic managers by being so concerned about the debt. The public is only superficially concerned about it, and the silence of their favorite barometer, the business world, will tell them all they need to know about why they should stick with Rudd. The same thing happened in 07, when business failed to go into bat for workchoices. Noticing the quiet, the people decided that the policy was an over-reach that wouldn’t help the economy that much, and so could safely be rolled back under Rudd.

* The purpose of Turnbull & Hockey’s press conference this morning was a debt reduction strategy of 25%, which I found out about on Twitter. But when I looked for a news link, not a single one even mentioned the issue of debt. Not the SMH, not The Australian , not the ABC, or news.com.au. I love a good leadership story as much as the next political junkie, but surely just ONE reporter could actually mention the purpose of the press conference or attempt to talk about something different. I’ve seen schools of fish with more independent mindedness.

Update – Finally on the 14th, 6 days after the press conference we get our first serious engagement with the Coalitions 25% cut plans by a major media outlet. I hate that MSM v blogs argument, both are useful and necessary for different reasons, but this is a pretty stark comparison in how the media has become obsessed on personalities to the exclusion of everything else. The Australian people deserve and need better.

Brazils Emergence

This seems a pretty good decision: Rio to host 2016 Olympics
720px-Flag_of_Brazil.svg

COPENHAGEN – Rio de Janeiro’s dream of bringing the Olympics to South America for the first time became reality here on Friday when they won the vote to host the 2016 edition.

The Brazilian city saw off Madrid in the final round of voting after odds-on favourites Chicago, backed by a personal visit from President Barack Obama, had gone out in a first round sensation.

They were followed by Tokyo, the only city of the four to have previously hosted the Games, in the second round.

While I’m quite supportive of Obama’s desire to reform America’s image and world standing, he seemed to be over playing it in his bid for the Olympics. Though he was far from the only national leader to have made a personal bid with Japan’s newly elected Yukio Hatoyama also making a bid in person. And lest you have any wayward views about the Olympic committee being of and for the people, consider this data point:

the presence of 89-year-old former IOC President Juan Antonio Samaranch helped secure vital votes. [For Madrid]
His plea that ‘his days on earth were numbered’ struck a chord for many of the members who owed their positions to him during his controversial but highly successful tenure which saw the Games become the modern and commercial titan that is is now. The elimination of Chicago and Tokyo set up an intriguing head-to-head between two of the giants of sports administration – Samaranch and former FIFA President Joao Havelange, who looking far younger than his 93 years promised to invite people to a massive party in Rio in 2016 when he will be 100.

Still, despite the evident cronyism, the Olympic committee couldn’t have picked a better city. Just as the 2008 Beijing Olympics were a symbolic coming out for China, 2016 in Rio de Janeiro will help mark Brazil’s rapid rise to the center stage. This was perfectly demonstrated only last week when the US & China went with the G20 over the G8 because it includes countries like Brazil. Brazil is the 5th most populated country in the world, though only recently has begun to turn that to its strength under Luiz Inácio Lula da Silva. It has a modern economy that seems to have withstood the worst of the great recession, and if they can get their environmental concerns under control, they will be able to take their place as one of the most important 2nd tier countries in the world, alongside the EU countries, just below China and the USA. This also bodes very well for the region, as the evidence seems to suggest that economic development is closely tied to regional development, and that when you have 1-2 countries really surging ahead (as S.Korea and Singapore did in SE Asia in the 1980’s) the rest of the region will be pulled into their slip stream, like a well disciplined cycling team, and benefit immensely. Though this depends on their own acceptance of the importance of free or low barriers to trade, and economic integration. The country best placed to take advantage of all this would be Venezuela. However, Chavez, for all the good he has done for the poor and resisting power from a corrupt, power hungry elite (and compared to them, Obama hasn’t a worry in the world with the Beck/Palin crowd) seems determined to turn his country inward and backward. Likely he will still be there in 2016, scowling and spitting at Brazil, but unable to hide his jealousy of their rapid rise to wealth and prominence.

So, good job IOC. Maybe I’ll even have to buy a ticket. Would be a great excuse to visit a region I’ve come to be fascinated by.

The Liberal Party’s Economic Confusion

In my last post I remarked on the Oppositions claim to support big budget cuts, but unwillingness to back a relatively easy example of it. It goes to a much larger problem for the Liberal Party: They don’t know where to stand on economics nor how to describe their position.

The essentials arn’t in doubt, they are for the free market, with a reasonable support for government welfare services chucked in to moderate the harsher aspects of capitalism. But over the last 3 years they have seen massive shifts within this range, and varying and contradictory explanations for these positions.

When the Howard Government left office in 2007, it was championed as a great Pro-Free Market government. It had restored economic liberalism after the savage blow of losing the 1993 Fightback election, and implemented a GST, deregulated many industries, privatised and outsourced significant elements (the famous yellow pages test), and spent 11 years advocating strongly and consistently for free markets. This was seen as one of the great strengths and records of the government. Where articulate critics pointed out they had substituted a lot of populism into this mix (such as Andrew Norton’s essay The Rise of Big Government Conservatism) it was generally ignored. If they hadn’t gone as far down the path as they had liked, this weakness was only a minor issue, one that had helped keep them in power and probably Labors fault in blocking reform in the senate or scaring the people. This wasn’t an extreme or libertarian government in any sense. But it was rhetorically and philosophically clear about the direction it wanted to go, and every step further down that path was seen as a good thing.

Then in the Spring of 2008 the Financial Crisis hit and suddenly economic liberalism was seen to take a body blow. This wasn’t entirely fair, as a particular form of US capitalism, bad oversight and regulations and some distorted government policy caused the crisis which then hit around the world. Now, the former members and defenders of the Howard Government couldn’t get away from the term Neo-Liberalism fast enough. Where they had mocked Rudds 2007 accusations of their free marketer ideals, wondering if he proposed poverty and socialism instead, they now sought to claim he was completely over-exaggerating their support for the ideals. They hadn’t been a free market government, just a pragmatic, cautious one that had only been continuing what Labor had started. What was a small weakness in the Governments economic policy in 2007 was now being held up as its greatest strength in 2009. But loyalty to the old ideas isn’t going away (which is a good thing), but it does mean some serious re-writing of history and rhetorical confusion is going on right now as they attempt to find a new place from which to detail their economic position.

I wrote a while back that the big flaw of Tony Abbott’s book Battlelines (which seems to have sunk without trace) was that this confusion was visible on every page and yet never directly addressed. But theres just as clear an example in Paul Kelly’s new book ‘The March of Patriots’ (2009). Kelly is a conservative if sympathetic writer for both sides, but also one clearly in support of economic liberalisation (As I am too). But this leaves his narrative into contrary directions because of the Liberals recent re-writing (which began to occur whilst interviewing for the book)

‘The 1993 election extinguished more than John Hewson’s dreams – it terminated the neo-liberal political experiment…Hewson’s Fightback! program was the only package resembling neo-liberalism ever presented to the Australian people. Its defeat was a turning point. No Future leader – not Keating, not Howard, not Treasurer Costello – would contemplate the model or its specifics as a package. This was the conclusions from the 1993 election despite occasional polemical claims that Howard as a Prime Minister was actually a neo-liberal – Page 75

Yet just 11 pages later as he details the fall of Hewson he recognises that whilst the man was gone, very little had changed in the party:

It was a view shared across much of the coalition frontbench and it took more shape as the 1993-1996 term evolved. It was the position of Howard, Costello and Dower. Their sentiment was to avoid any over reaction filled with recrimination, to recognise the policy integrity and energy within Fightback, to review policies applying a sharper test of what the people would accept, to return to the political centre but stand by the pro-market economic reform agenda and to avoid any early detailed policy release’ – Page 86-87

Where the Coalition seethed during office that they couldn’t implement all their reforms, out of office they have come to claim this was a deliberate design. Apparently they wanted some of their bills to fail, wanted to lose on workchoices, wanted to be rebuffed by the public on selling Aus Post and others, wanted to have the democrats force them to take food out of a GST, etc etc. In office they would nod and acknowledge yes it was bad economic policy to hand tens of billions over to families on comfortable wages, but that was the price to keep Labor out of office. Now they seem willing to make welfare for the wealthy a core principle of the party.

Labor has responded to the Economic crisis by indulging their desires for government spending. In many ways it seems this has worked very well (we have stayed out of recession, unemployments stayed in reasonable shape), but a reckoning will come and only some seem (Lindsay Tanner) seem interested in talking about it, and then more as an electoral weapon than a shift in policy.

The Liberals on the other hand have got themselves completely tied up in knots. Their baser instinct and education is to return to the proud support for free markets that they enjoyed under the Howard years. To promise to cut spending and demagogue debt. But like a dog beaten too often, when anyone gets close they flinch. When media questions get too hot they jump back. No specifics, no details, and NO NO NO to means tests for government handouts. The only time the Liberal Party has looked at all comfortable in opposition was a few weeks in July 2009 when they had the issue of debt to rally them, and remind them of the good old days. (In fact it reminded them too much of them, repeating old ideas such as a debt truck) , but soon Godwin Grench reared up, Rudd & Swan managed to hold us up out of recession and the Liberals lost their nerve again.

As for Kelly, his book is thus far enjoyable (I’ll do a review when finished early next week) but it feels rather over-written, and with a deliberate eye for the future. He’s trying to make this the essential history of the period (as his End of Certainty became for Hawkies govt). But if he’s willing to uncritically accept this clear re-writing of Liberal views, then it is unlikely to gain as much traction. Nor does it have a cleaver summing up in the way the previous book had with its formulation of an ‘Australian Settlement’

Update: Michelle Grattan is clearly a reader of this blog :p

Trust Me – Tomorrow I’ll start the diet

A nice juxtoposition in this mornings paper:

What they Say:

Hockey Vows to slash $14b in spending

MALCOLM Turnbull will base his push for the prime ministership in next year’s federal election on a promise to axe government spending by billions of dollars a year.

And the Opposition Leader will blame Kevin Rudd’s economic mismanagement for the need to take a razor to spending, proposing cuts that on current levels would be worth at least $14billion a year – the equivalent of 70 per cent of the nation’s annual defence budget.

Mr Hockey refused to nominate which services would face the axe, but said there was a strong argument that government spending as a proportion of GDP should be no more than 24 per cent.

This financial year, spending is worth 28.6 per cent of GDP, with the government’s budget forecasts reducing the level to 28 per cent in 2010-11, 27.1 per cent in 2011-12 and 26.4 per cent in 2012-13.

What they do:

Coalition Votes down Health Means Testing

THE Senate has dealt a $1.9billion blow to Kevin Rudd’s health budget by rejecting plans to means-test taxpayer rebates for private health cover and increase levies on the non-insured.

The Coalition, the Greens, independent Senator Nick Xenophon and Family First senator Steve Fielding combined to defeat the three budget bills, which would have raised health fund premiums for more than two million middle- to higher-income Australians.

Manager of Government Business in the Senate Joe Ludwig appealed to balance-of-power crossbenchers ahead of the vote to pass the savings measure, which the Coalition had long vowed to oppose.

“This is a hard decision and one that was not taken lightly, but it is the right decision for Australia’s long-term economic future,” Senator Ludwig said. But the government offered no compromises, which sealed the package’s fate.

It’s easy to say you will cut immense amounts, but significantly harder to actually do so. In this case the Coalition had a case of spending that could be reduced with the cover of the Labor Government championing the bill, and in line with their major principles of individual responsibility (Private health insurance is a benefit above and beyond the norm, so those who want it should pay for it) and reducing government dependence and spending.

But they have chickened out for short term and almost pointless political benefit. No MP will keep his seat next year because of this vote, but Labor will be able to cut holes in their claims to financial competence by putting up similar bills and watching the Coalition act to keep high spending levels in place.

There’s also an intriguing claim by Hockey that Government spending as a GDP ration should be at 24% (which seems both his comfortable norm and his “emergency maximum level”). Theres no real reason why 24% should be the magic figure. There is the obvious argument that lower is better, but why 24%. It was the most common figure during the last 32 years, but hardly tracks to economic well being. (1)

Personally I think big cuts do need to be made to our welfare levels, but that should be a question of total spending vs need, rather than based around trying to hit supposed magic numbers. As the chart shows, some very successful economy’s have significantly greater Govt spending as a % of GDP, and some have quite a bit less. What’s more important is where and how that is spent, and the capacity of the country to pay for that spending.

When the coalition starts supporting the simple introduction of means-testing welfare and benefits for the middle class we will know they are beginning to be serious about cutting spending (I’m not sure the ALP is either, so we shouldn’t yet take their support for the bill as evidence of it). Until then Hockey is just using bluster and bullshit. But lets leave the final word to his predecessor as Treasurer in the Liberal Party: Peter Costello

don’t think that reducing expenditure to GDP ratios is easy. Every pressure in a democratic system is to increase spending. Resisting calls for increased spending on worthy causes (and all causes are worthy in the eyes of those who want it) is a daily struggle – week in week out, month in month out, year in year out.

(1) Whilst trying to find a good graph illustrating the difference I ran across this 2006 speech by Peter Costello claiming that “In the OECD Australia has the second lowest level of government spending as a share of GDP at 35.7%, lower even than the United States.”. Whilst the 2009-10 budget records a level of Government Payments as % of GDP at 24.2 for that year (Which also matches the figures Hockey cites for current spending at 28%.)

Update: The wise and civil Sinclair Davidson from Catallaxyfiles suggests this may include state spending, or counting the GST as Federal rather than State spending.

Why is Libertarianism so unpopular ?

If you take a regular gander at libertarian voices in this country, you often find they arn’t a very happy bunch. Despite thirty years of economic reform running almost entirely in their direction, they always have a nervous skittishness about any sign of backtracking, with frequent prophetic warnings about imminent economic doom. A large part of this is based on the widespread recognition that libertarian and indeed free market ideas arn’t actually that popular in most countries in the world. What better demonstration could there be than the 2007 dumping of the Howard Government for its support for WorkChoices, or the public embrace of Rudd and his heavy spending on health and education (the two area’s which always lead public opinion polls in terms of focus area’s over tax, security or immigration). The Liberal Democratic Party, the closest to a Libertarian party in this country, receives well under 1% of the vote

Yet Libertarian views have four significant advantages:

1) They advocate more freedom: Whatever minor philosophical differences there are, Libertarians can generally be identified as favouring social and economic freedom. Of course in individual circumstances there are debates about the consequences and the like (ie drugs, abortion, fireworks), but in general being identified as being in favour of such a key western value is of tremendous value. Conservatives have spent 30 years grasping for that mantle, and only sometimes succeed in getting anywhere near it.

2) They play to people’s self interest. Despite the obvious flaw in this reasoning, most people think they are above average, and would like a little more of their own tax dollars. Now while this can certainly be over-sold, (and the strongest vote against workchoices came from those not affected by it) this is a pretty good platform from which to appeal to people. Instead of having to make a moral or ethical case about caring for the ‘other’ as social democrats do (witness Obama’s struggle for health care in the US), Libertarians can appeal to your personal sense of competence, capability and resilience. You should choose who your doctor is, where your kids go to school, how to spend your money, etc etc. Most people seem to recognise that the common wealth benefits us all, but still see themselves as seperate from and more capable than most they run into. Libertarians get to play to this, with a clear set of policy proposals that have a logic of their own (you make it, you keep it) rather than the re-distributionism of the big government advocates (we’ll give you more in handouts).

3) It seems to work: After thirty years of general movement towards free market policies we have western societies that sit on the right side of ‘History’, have seen significant growth in GDP, disposable income, attainable products and services, quality of life, brought over a billion people out of poverty, and had few of the claimed major consequences of opponents rhetoric. Sure, the welfare state and very slow changes have been there to buffet the winds of change, and markets clearly don’t work in some areas (defence, health, education) in the way they work in others (ie need some public input to achieve outcomes), but we have reduced taxes, sold off assets, and deregulated our markets for great public benefit. Yet the favoritism for free trade and libertarianism doesn’t seem to have significantly budged despite these successes.

4) And most importantly: They are the natural party of wealth in our society. Money has always had and always will have a significant influence in democratic societies. Indeed most of the big fights that lead to democracy in the west have been centered around the wealthy trying to exert their influence (the original kings councils that ushered in the parliamentary system in Britain) and to protect that wealth from undue government control (the US ‘no taxation without representation revolution). Elections are very expensive businesses and while money usually follows power (meaning the major parties abilities to enact current changes will drive corporate interest), most businesses, entrepreneurs or wealthy agents in society would also be very sympathetic to those proposing less regulation, less taxation and an outsourced, reduced government.
The Australian Labor party is one of the most successful left wing parties in the west precisely because their union beginning and links gave them a financial base to compete with the big money interests who supported the conservatives. But given the Conservatives in Australia have only a half-hearted endorsement of free market and libertarian ideals (at the same time as introducing WorkChoices, Howard was presiding over the highest level of Government welfare spending in this country’s history), it is a wonder that business elements, especially those trying to challenge the status quo of a particular market, or those so sure of their capability in a particular arena dont try and pull the Conservatives towards the Libertarian side of the dial with strategic donations.

Despite these three great advantages, appealing to individual desire for freedom, individual self-interest and the natural alliance with the moneyed interests in a country, it is a wonder why Libertarian voices havn’t done that well. Perhaps the main reason I can see is that Libertarians have usually been unable to even agree to enter the political debate, and as such have little to no public face. Without a professional effort at public advocacy, what arguments are made for Libertarian views are usually either pitched as high economics or simplistic scare stories. Indeed whilst I am often very sympathetic with their overall ideals, and spend a fair bit of time reading libertarian literature and chatting with them, I so often feel somewhat talked down to. The answer is usually so obvious to them that your greed or ignorance seems the only reason you don’t fall to your knees and accept their wisdom.
Likewise, when presented to much of the general public, Libertarian views are seen to be representative of greed and avarice, while they see the economics and logic of their positions both more just and more likely to benefit the disadvantaged. (On that there is some scope for debate, but it’s defendable, and certainly shouldn’t be as dismissed as it currently is). Finally, both for reasons of ideology, and because of the reception that the ideology has recieved, there is a quite clear distrust if not contempt for democracy amongst a clear minority of Libertarians that then slows or even damages efforts to promote their ideas to the public.

So why then is Libertarianism such a disregarded and discredited ideology in Australia, indeed in the world?

Australias strongest Lobby

Perhaps one of the most fundamental differences on the left side of politics is between those who favour equality of outcome and those who favour equality of opportunity. The first ex-socialists, the latter shy liberals. But it is also a divide that comes out in most analysis of social outcomes too. One of the most common though often mistaken approaches I see my students taking is to look at an unequal outcome, and assume that it has occurred through an unequal or discriminatory process. Sometimes however it also seems to afflict those who should know better:

I am suggesting that there is almost a regionalisation of wealth, income and culture based on urban geography.
Battlers, migrants and assorted low-income earners who formerly lived in the inner city are now being flung out, as if by some centrifugal force, to the city’s edge. What is left in the inner city is an odd coalescence of tribes — namely students, singles, couples, dinks, gays, expats, corporates, divorcees and, most important of all, the professional and entrepreneurial classes.

One of the key drivers of social division within the city is income. Between 1996 and 2006 the average income per person in Melbourne’s Melton and Wyndham and Sydney’s Blacktown and Penrith hovered a few percentage points above or below the Australian average… However, it was a different story in the city centre. In Sydney’s inner-western municipality of Leichhardt, income levels on a per-person basis jumped from 43 per cent to 73 per cent above the Australian average over the decade to 2006…The same upshift applied to Melbourne’s City of Port Phillip, where income levels moved from 27 per cent to 50 per cent above the Australian average in a decade…At the heart of the differences is education. In the inner suburbs it’s not uncommon for two-thirds of adults to hold a bachelor degree or higher. In the outer suburbs this proportion is less than a third.

And yet this is a voice that is rarely heard in the Australian media. Name a newspaper columnist, let alone a radio broadcaster or a television presenter, who projects their perspective on life from within the middle suburbs, never mind outer suburbia.Why are there ample caricatures of unsophisticated suburbanites (Kath and Kim, Edna Everage, Kenny) but none of the inner-city elite? Is the educated well-to-do, inner-city-living class beyond parody or satire? The problem I have is that city planning, and more often Australian culture, appears to be determined by those whose lives are based in the inner city, and not by the silent majority of average Australians who live in the suburban heartland.

If you are of the first kind of lefty then these figures will shock you. Surely if one groups income is rising far faster then some sort of discrimination is occuring? Salt even suggests a reason: an absence of a definate ‘voice’ within the national discourse as the cause, resulting in an unheard ‘silent majority’ who are being excluded and deprived. Tony Abbott expresses similar sentiments in his book with a sub-heading ‘how families have been forgotten’. If the outcome is different surely the process is flawed? Perhaps not

For the latter kind of lefty and most centrists, however there is another factor at work: A self-selection bias that is going to always cause such changes, and need not expressly worry us. As Salt acknowledges the heart of the difference is education. Those who have gone to universities, perhaps even for higher research have prospered, those who have not added such skills, have in this analysis seemingly missed out. But this ignores that both groups have seen rising incomes of all income brackets during this period, so the difference is only one of relative gain. More importantly is how this advantage came to be accrued, with the HECS system Australia has a system which does not deter the poor from attending higher education:

in 1989 the government introduced a charge for university attendance – the Higher Education Contribution Scheme. This had a unique characteristic: students could choose to pay their university fees after they graduated, and only if and when their incomes reached a specified threshold – about A$34,000 a year at the time, although it has since been lowered.
The effects of Hecs have been studied extensively, particularly its consequences for access for the poor to university. The bottom line is that there have been no implications: higher education enrolments by all socioeconomic groups have increased by an average of 40 per cent. The university system is thus much larger than it was 13 years ago, and this has happened because of the creation of a healthy Hecs revenue base.

(You can find a more detailed paper on the subject here)

So the opportunity to access Higher Education in this country has been equal and non-discriminatory for the last 20 years, including this studied decade. So on the basis of the opportunity one group has taken the opportunity and been rewarded, another has not and thus not obtained it. An outcome most children would recognise as fair when taught through stories such as Aseops fable about the Ant & the Grasshopper.

Secondly and more importantly however, Salt both decries the “centrifugal force” flinging families into suburbia, yet presents the figures as if the groups were static the whole time. Rather than assume all in the city have had their incomes rise, we should expect to see that those who’se incomes were rising tended to migrate towards the city. This would be both for job opportunities and in parallel for social organisation reasons to. People with similar outlooks or culture tend to want to live nearby each other and so employers follow. If everyone was static in residence then such changing figures might seem discriminatory, but instead they are exacerbated by change, rather than mitigated by it. Secondly, if the opportunities for this benefit was equal then the different outcome is not so much discrimination as the natural variation we find amongst people in the world. Each of us have different talents, skills, work ethic and personalities that lend themselves to or detract from our ability to demand a higher income. And of course having families necessarily means some trade off between time available for involvement in culture and spent chasing career advancement.

Yet Salt plays with numbers, or mentions a single TV show in order to demonstrate that socially families are excluded or mocked. But as his concern is with economic and demographic issues, what we are really discussing is not a social but a political process. And within the sphere of politics the accusation that families or suburbia are being ignored is not only laughable but offensive.

As I was remarking to a fellow blogger the other day, families are the very first in this country to play the victim card. Whatever the overall national economic circumstances there is a omnipresent view in this country that families are doing it tough and need help. In 2007, at the end of our longest ever economic boom, Labor managed to tell families they were doing it tough as ‘working families’ and ride this resentment into government. Howard’s truthful though arrogant claim that families ‘had never had it better’ helped cut the lingering ties between the government and its former supporters.

Indeed despite Abbott’s odd chapter heading, we have never seen a government as obsessed with helping families than the Howard Government (which ruled from 1996-2007, exactly covering the period in question in Salt’s figures), as Andrew Norton made clear in his essay ‘Big Government Conservatism’

In 2004–05 Commonwealth assistance to families with children, primarily via Family Tax Benefits, cost almost $25.5 billion. After adjustment for inflation, it increased by 18% in the three years ending 30 June 2005 (included in figure 2), with the Budget papers forecasting another $3 billion a year on top of this in 2007–08.

Though the Prime Minister correctly observes that children are costly, people caring for them typically earn more than households generally. In 1996–97, two-thirds of couples with children had incomes placing them in the top 40% of households when ranked by income. By contrast, only one-third of lone adults aged 25–64 earned enough to be in this upper income group.[12] In 2003–04, market income (excluding government benefits) for the median couple with children was more than $76,000, compared to $45,000 for households generally.[13] For most couples, children coincide with the financial capacity to raise them.

The net effect of this is that 42.2% of families pay no net tax, receiving more in benefits from the government than they pay in income tax:

Take a step back and recall what happened to the politically ubiquitous working family during the past decade. The proportion with both parents employed increased from 54.5 per cent in 1997 to 59.9 per cent last year. The proportion of jobless families – where both parents were out of work – fell from 8.6 per cent to 4.8 per cent during the same period.

Oh, and the home ownership rate also rose, despite talk of an affordability crisis, from 78.3 per cent in 1996 to 79.6 per cent in 2006. Against these undoubted boosts to living standards, governments, both Coalition and Labor, decided it wasn’t nearly enough. The proportion of couples with dependent children who are tax free jumped from one in five (20.1 per cent) in 2004 to one in four (26.3per cent) in the present financial year.

Ours is a nation obsessed by suburbia, with all politicians having to pass the ‘family’ test to be elected and certainly to become Prime Minister. No single men have made it to the top, and those without kids (such as Bob Carr from NSW) are the exception that prove the rule. Over the last 20 years practically every election except 2001 was decided on the issue of who would better support families. 2007 was working families, 2004 aspirationals and interest rates, 1998 & 1993 on tax breaks and 1996 on putting ‘suburbia not special interests’ front and center.

Raising a family is certainly a tough decision, and as a country we need more kids and should encourage and congratulate those who do. But to pretend families are not being heard or looked after is a gross distortion unworthy of a federal newspaper columnist. A populist fiddle with figures that ignores the overwhelming political context where families dominate and exclude all other groups day after day. And thats fine, its a good thing our countries focus is on those seeking to raise kids, but so long as the opportunities that created this outcome are fair, then small deviations are not reflections of inequality but personal choice and natural circumstance.

Governing behind closed doors

secretRudd was already cruising prior to Utegate, but I am sure he can not believe his luck that not only did it blow up so badly, Turnbull show his weaknesses so clearly (and is still doing so), but now the Auditor-General’s report has come out to body slam the Opposition just as the new session begins. Add in the happenstance of Australian Stories’s camera’s being in Turnbull’s office when it broke (and showing them stunned and confused, raising viewer doubts on competence), and Grench’s admission he faked and scripted the whole affair, and Rudd could take the next year off and still cruise to victory next year.

But just as everyone moved on from utegate pretty soon after parliament lifted, we can be sure the media and public will largely forget it too within a few days. But what about the Public service and its relations with the Opposition? Likely this is where utegate really matters, and probably negatively for all interested in open accountable government. Leaking is a complex affair, all partisans love it when it helps them, and hate it when it goes against. More impartial observers recognise the benefit it has in keeping governments honest (particularly when the opposition is so weak as we have now) but equally government should be allowed to make its decisions largely in private. Afterall how many times have we seen good new initiatives destroyed because only part of the story got out. How often have we seen ministers ask for a range of options to fix a problem, and wake up to find the most extreme and never-to-be-chosen option splashed across the front pages as if that was the real policy of the government (such as this mistaken outcry on the govt tracking hospital staff). With a government as dominant as Rudd’s right at the moment I’d prefer to see more leaking, to keep them honest and from getting arrogant. However in a year or two when the reckoning comes to cut funding and pay back the debt, then the less media outcry over individual initiatives and more considered focus on the overall proposal the better for the nation at large.

I raise this because whilst Turnbull can still recover, the oppositions relationship with the Public Service will not. Once bitten, twice shy, the Opposition is going to stay a long way away from any leaks and suggestions from public servants, however sincerely offered. They will still filter through some claims, but by and large we can expect the flow to dry up. Whilst Howard used the AFP to intimidate public servants not to leak, Rudd has had the same service performed for him by Turnbull & Grench. Public servants watching this affair will realise the immense dangers to their careers and even well being should they get tied up with such a bumbling opposition and likely decide the risks are not worth the return (and as Turnbull’s odds on winning lengthen the incentive will further disappear).

Meanwhile, with the downfall of Joel Fitzgibbon (in part due to leaking public servants in the DOD) we have seen the move away from Special Minister of State John Faulkner into the reticent department. Where Falkner was an uncorruptable idealist, respected across the chamber on transparency and fairness issues, his replacement Joe Ludwig is for all intensive purposes a partisan hack. Ludwig is capable and smart and on historical grounds it’s likely that this government will see more openness and transparency than we saw under the conservatives. However he will not have the influence with the PM, nor the personal incentive to push for real reforms in the way government operates and its openness to the people as Faulkner would have. This is a loss to all Australians, especially those in the media and academia who make their careers based on knowing as much as possible about the actions of the government. It’s already a tough gig, with Australia way back in position 35 for overall freedom of the press. Faulkner would have had a hell of a fight to have changed that whilst the control-conscious Rudd was Prime Minister, however with his departure and the Grench implosion the potential for open government in Australia has really been set back. This is the real legacy of Goodwin Grench and the Utegate affair. A sad result for a man who seems a decent and committed public servant, who just too his partisan biases too far and ended up harming his own side most of all.

I meant to post this the other day, but circumstances took me away (well ok I was lazy) but when you are doing your taxes this year take a moment to chuck your overall income/tax paid into this website http://taxcheck.com.au/. It lays out just where your money is going to be spent over the next financial year. Pretty cool, and a very good way of showing just how large the health and welfare side of our budget really is. Fixing those costs without abandoning our principles of universal healthcare and emergency income protection is the primary task for fiscal conservatives over the next decade or two. As of yet however I havn’t even seen the hint of a new policy. Likewise many on the left who feverently support these policies are refusing to even admit there is a problem. The neo-liberal revolution has run it’s course, and the public has decided: Medicare and welfare are hear to stay. The real question is how to target and pay for them.

Photo by stevendepolo used under a Creative Commons Licence.