In a galaxy far, far away … Australia

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Sunday, 23 March 2014 18:30 by Ken Wolff

At Davos in Switzerland in January this year the 44th annual meeting of the World Economic Forum (WEF) took place. About 2,600 representatives of government, business, civil society and academia took part, from over a hundred countries. Australian businesses that attended included Leighton Holdings, Fortescue Metals, Westpac, Westfarmers, Coles and Telstra. International corporations included Nestlé, Royal Philips, Microsoft, HSBC, Total and Heineken. Among the political leaders were Shinzo Abe, Japanese prime minister; David Cameron, British prime minister; Benjamin Netanyahu, Israeli prime minister; and Hasan Rouhani, Iranian President. Christine Lagarde, head of the IMF, was also there. Quite a gathering.

This year’s programme, which consisted of more than 250 official sessions, was organized under four thematic pillars: Achieving Inclusive Growth; Embracing Disruptive Innovation; Meeting Society’s New Expectations; and Sustaining a World of 9 Billion. Discussions on these issues challenged long-held assumptions about society, politics and business in an effort to generate the powerful ideas and collaborative spirit needed to manage the future course of world affairs.

Our prime minister (cough, spit!) was there and made a speech, one of 254 speakers (one for each official session). I will admit I began watching Tony Abbott’s speech when it was broadcast live on ABC News24 but, with my anger rising and the potential for collateral damage to the television and nearby furniture, was forced to turn it off. From what I later learned, I didn’t miss much. Here was I thinking that in a forum like the WEF Tony Abbott might actually say something meaningful … talk about being delusional!

What it did do, however, was make me look more deeply into what was being discussed at Davos and I was surprised at what I found. The range of issues on the agenda and the number of papers and reports supporting discussion was quite staggering. That led me to the title for this article. I know Abbott’s main reason (perhaps his only reason) for being there was that Australia is hosting the next G20 meeting in November this year and he was to give an outline as to where Australia would lead that meeting. But surely, given the issues being discussed at Davos, one would think he would address at least one of them in detail or dare to ‘challenge long held assumptions’ (as reported as an outcome of the meeting). No, not Abbott, he attacks the Labor party! He did brush on governance and taxation, but not in any profound way, and focused on free trade. He ignored almost all of the risks facing economies and businesses (after all, the WEF is dominated by big, and I mean big business) that are clearly laid out in the agenda for the meeting and, in particular, ignored the social risks.

There were papers on what is called ‘the global agenda’ and the trends for 2014. These forecasts are based on worldwide surveys of business people and samples of the general population prepared by Global Agenda Councils attached to the WEF. The top ten trending issues were:

1. Rising social tensions in the Middle East and North Africa
2. Widening income disparities
3. Persistent structural unemployment
4. Intensifying cyber threats
5. Inaction on climate change
6. Diminishing confidence in economic policies
7. A lack of values in leadership
8. The expanding middle class in Asia
9. The growing importance of megacities
10. The rapid spread of misinformation online.

The second major input was a report on ‘Global Risks’ (its ninth edition). The report for the 2014 meeting included the following top ten risks:

1. Fiscal crises in key economies
2. Structurally high unemployment/underemployment
3. Water crises
4. Severe income disparity
5. Failure of climate change mitigation and adaptation
6. Greater incidence of extreme weather events (eg floods, storms, fires)
7. Global governance failure
8. Food crises
9. Failure of major financial mechanism/institution
10. Profound political and social instability.

Fifty risks, including those ten, were plotted on a risk chart with the traditional axes of ‘Likelihood’ and ‘Impact’ (again based on survey responses). The events listed in the top right quarter (ie more likely with high impact) included:

  • Income disparity (most likely, seventh-highest impact)
  • Extreme weather events (second most likely, fifth-highest impact)
  • Unemployment/underemployment (third most likely, fourth-highest impact)
  • Climate change (fourth most likely, second-highest impact)
  • Cyber attacks (fifth most likely, eighth-highest impact)
  • Water crises (sixth most likely, third-highest impact)
  • Fiscal crises (seventh most likely, highest impact)
  • Ecosystem collapse (only rated fourteenth most likely, but sixth in terms of impact).
Obviously businesses are concerned about these risks, not for any altruistic reasons but for the impact on their capacity to ‘do business’ and their ‘bottom line’. In other words, for business these are seen as pressures on the market or issues that may distort the market. Also the social unrest that may result is not good for business — or government.

Putting the two lists together, it could be said that the key threats are:

  • Climate change and environmental issues (failure to address climate change, water crises, food crises, greater incidence of extreme weather events, ecosystem collapse)
  • Increasing inequality (widening/severe income disparity)
  • Unemployment/underemployment (structurally high unemployment, with particular emphasis on youth unemployment and its longer term implications for economies and social stability).
The reports indicate that while there is action on climate change it is not moving fast enough which, it is suggested, leads to the perception that little is being done. One report suggests $70-100 billion per year to 2050 is required in developed countries to effectively address climate change: another that, although $1 trillion has already been invested in renewable energy, a further $1 trillion per year is required. A complete transformation of economies is necessary: but one report positively suggests that such transformations have occurred before, eg the first industrial revolution and the digital revolution. So what is Australia doing? Eliminating the carbon tax and support for renewable energy industries. Our prime minister also suggests that fires and floods are normal in Australia, are not occurring at a more frequent rate, and that any expert who says otherwise is ‘talking through [their] hat’. To top it off on 6 February he proudly announced he wanted to make Australia the ‘affordable energy capital of the world’. How? By using cheap coal, the same energy source we are trying to reduce because of its impact on climate change. Yes, Australia has lots of cheap coal — just a shame that our grandchildren may not have much of a planet left on which to enjoy this cheap energy!

Yes, on climate change Abbott definitely believes Australia is on another planet. Or, perhaps as I suggested in an earlier post, taking us back to the 1800s: my prognostication in that article that we may need to use more coal and timber is coming true.

Forty-four per cent of Australians think the economic system favours the wealthy (from surveys conducted in 2013). That percentage is low on a global scale (60% in North America; 70% in Europe; 64% in Asia; 70% in the Middle East and North Africa) but still significant. The WEF reports indicate that while inequality is a major problem in developing countries, it is also significant in developed countries and has the capacity to increase social unrest:

The incredible wealth created over the last decade in the US has gone to a smaller and smaller portion of the population, and this disparity stems from many of the same roots as in developing nations.

First among them is a lack of access to high quality basic primary and secondary education for all segments of our society. Additionally it has become prohibitively expensive for the average middle-income family to send their child to college in the US; higher education, once seen as the great equaliser and engine for economic mobility, is becoming unaffordable for far too many.

I will address inequality in a future post but here in Australia, following the argument in the quote, dismantling the full impact of the ‘Gonski’ funding reforms for education will only increase inequality; creating more independent ‘public’ schools is likely to lead to increased fees, further fuelling inequality; trying to reduce workers’ wages, such as the government’s recent submission to Fair Work Australia to examine whether penalty rates are still valid in a modern economy, may only lead to the ‘working poor’ and greater inequality as in America.

Unemployment appears not to be a major problem in Australia, although there is still significant youth unemployment and underemployment, which has been an issue for some years. Abbott’s approach, like John Howard’s, is that ‘any job is better than no job’ even if it is at the minimum wage or lower. It seems we will end up with a class of working poor not because of happenstance (read bad economic management) but because Abbott actually wants to create it — at least then some of the big companies supporting him will have the cheap labour they so crave.

The Global Risks report actually made ‘global governance failure’ the pivot of all the risks, arguing that as the risks are global or have global implications (especially for global corporations!), they therefore require global action. Such action is reliant on global governance mechanisms, so that was a major concern. To my mind, this is simply big business shifting the responsibility.

Why did Abbott ignore these issues at Davos? Why are Australian businesses ignoring them when the rest of the world’s businesses are seeing them as major threats? Perhaps our only hope is that the global corporations operating in Australia start making noises to the government that these issues should be addressed or they may take their business elsewhere. Other factors are already tempting big business to leave Australia: cheaper labour costs in Asia; and the emergence of the Asian middle class which prompts companies to take their production closer to such a large and growing market. If we don’t address other issues that global corporations are concerned about, such as those raised at Davos, what will we have left to attract any business — and that situation will be worsened by forcing the closure of our own local businesses with decisions like that regarding SPC-Ardmona.

One other interesting report, and it was a ‘featured’ report, which suggests it was deemed to have some significance, was ‘Towards the Circular Economy: Accelerating the scale-up across global supply chains’. A couple of quotes summarise the gist of the report:

Progressive companies and forward-looking governments are shifting their attention from old style sustainability — a linear concept that goes from take and use to dispose — towards a ‘circular’ approach. This ‘circular’ approach effectively decouples growth from rising resource constraints in a world that will add 3 billion middle-class consumers over the next 15 years …

… Leading global companies are already building the concept of the circular economy into the way they do business. It is helping them to drive innovation across product design, to develop product-to-service approaches and to test new ways of recovering materials from redundant products such as old mobile phones. Heineken, for example, is now pursuing circular practices across its whole value chain.

China is adopting the circular approach in its latest five-year plan.

For business, the approach is deemed profitable. The value of the market in consumer goods in Europe is estimated at €3.2 trillion ‘of which 20% could be recuperated through smart circular practices’. In layman’s terms it is about taking ‘recycling’ to the next level.

Has anyone heard of this being discussed in Australia? I certainly haven’t but I am retired and outside the loop where such things may be raised. But leaving that aside, I have not seen it mentioned in the many articles I read. (After completing my original version of this piece, I did eventually find one article in Casablanca’s excellent Cache) So where is Australia on this? On another planet, or just so far behind we can only see the dust of those ahead of us!

I honestly do not understand which planet Abbott (indeed, much of Australian big business) thinks we are on — it is certainly not the planet Earth in the Milky Way but perhaps another earth in a galaxy far, far away …

What do you think?