Watch this space in 2017


As with most political issues, the following few questions are inter-related: Turnbull’s future may well depend on the economy, on whether or not a new conservative party forms and whether there is a Trump-inspired trade or currency war between China and the US; our economy may well depend on what Trump does in relation to China, let alone whether Morrison displays any understanding of economics; and so on.

Will the Australian economy improve or continue to stagnate?

In December we had the news that the Australian economy had contracted by 0.5% in the September quarter. Most of the pundits do not expect that to be repeated in the December quarter, which means we would avoid a recession (which requires two consecutive quarters of contraction).

On the other hand, commodity prices are still weak, although better than they were, and if a US/China trade war erupts may weaken again. Every reduction in commodity prices flows through a large segment of our economy, affecting the supporting businesses and often, through reductions in the workforce, local businesses, and the impact then multiplies ultimately affecting government revenue. The Christmas season may help us avoid a ‘technical recession’ (that magical six months) but will we see another quarter or two of contraction during 2017?

This year will also see the end of car manufacturing in Australia. That has implications across a number of industries and, as some commentators have noted, it has been car manufacturing that has driven much of the technological innovation in the manufacturing sector. Turnbull’s ‘innovative and agile’ economy may become a little more wobbly as a result.

The end of car manufacturing will lead to increased unemployment, not only in the car industry but in the companies that previously relied on providing parts to that industry. Couple that with the lack of wages growth (the lowest since records have been kept) and the government will be losing more in income tax revenue and paying more in unemployment benefit, making it that much more difficult to achieve its stated aim of bringing the budget back to surplus.

The economy did not go well in 2016 and the prospect for 2017 isn’t all that good. Even in his MYEFO in December, Morrison lowered the estimated rate of economic growth for both financial year 2016‒17 and 2017‒18. The new forecast rate of growth isn’t even enough to absorb new entrants into the workforce (usually accepted as about 3%) and that is without considering that the economic growth forecasts for the past few years have proven optimistic. Certainly don’t expect a boom year but how bad it may be we will have to wait and see.

Will Scott Morrison ever understand the budget?

Ever since the Abbott/Turnbull government was elected, and returned last year, the government’s budget deficit has continued to grow. Low commodity prices, over which the government has no control, and slow wages growth, which government policies have actually promoted, have not helped.

Morrison, however, continues to focus on government spending rather than revenue raising. Although he has backed away somewhat from his earlier statement that the government had a spending problem not a revenue problem, his actions have remained focused on reducing spending. (I won’t get into the MMT argument here.)

The government has ignored the opportunity to borrow money at historically low interest rates to fund infrastructure. Although it is now talking more about infrastructure, it appears it may be at a time when interest rates could be on the rise again — US interest rates are certainly likely to rise during 2017 which may force some other countries to raise theirs in order to maintain their currency.

Our Reserve Bank still has capacity to reduce interest rates (although such reductions have done nothing to stimulate the economy so far). If it does reduce interest rates, and the US increases rates, the Australian dollar is likely to drop in value. The government will claim that helps exporters but it will increase the price of imports which may not help our ‘terms of trade’ and will also potentially lower our living standards by making imported consumer goods more expensive at a time when wages are barely growing — not something that would enhance the government’s electoral appeal.

Turnbull’s ‘innovative and agile’ economy and the promise of company tax cuts — which he continues to espouse despite it being unlikely to pass the Senate — are not issues that inspire the average voter. If any benefits are to flow to the economy from such ‘policies’, they will be well beyond the next election, so Turnbull and Morrison can’t look there for short term budget improvements but they seem to have no other plans to help the economy and by implication the average voter.

Will Morrison and Turnbull finally concede that they also need to raise revenue in the next budget? That will be one to watch although I expect that, if so, they will do their best to obscure the fact.

Will there be a new conservative party?

Cory Bernardi is creating a nation-wide conservative movement but not yet formally a new conservative party. It will be interesting to watch where that goes in 2017 and whether it turns into a fully-fledged political party.

The Liberal party will no doubt do its best to stop it happening as it would further split the conservative vote, although that may not be an issue until the next federal election. If such a party comes into being during 2017, it could have serious implications for the government because it has only a one seat majority in the House of Representatives. Even if only one or two Liberal or National members in the House were attracted to the new party that would create a situation where not only does the government have to negotiate with crossbenchers in the Senate but also in the House to have legislation passed. Although the conservatives already seem to wield considerable influence in the Liberal party room, if they held the balance of power in the House, that could actually increase their influence. That may even be a consideration in the formation of such a party: if they wish to create Australia in their conservative image, having a couple of members in the current House could help them achieve that, or force Turnbull to another election earlier than he would wish.

The electoral implications are that the conservative vote could be split between the Liberals, One Nation, the Nationals and the new party, leaving open the possibility that Labor would lead on first preference votes in more House of Representative seats and have an improved chance of winning them. And it is likely that a proportion of the preferences for a new conservative party would flow to One Nation (and vice versa) before they flowed to the Liberals, so it would be very interesting.

The timing of the creation of such a party could be determined by the election timetable. The earliest a federal election can be called, other than another double dissolution, is August 2018 but such a party may like to test its electoral appeal at a state election. WA has an election in March which now seems too soon to establish the party and create an organisation geared for an election. SA goes in March 2018 and the earliest Queensland and Tasmania can go to an election is April 2018 and May 2018 respectively: so to be ready to contest one of those the new party would have to be created no later than the latter half of this year.

Will Turnbull remain prime minister?

Personally I think he will in 2017 but 2018 may be a different story — unless he voluntarily decides to toss in the towel, deciding it is just too difficult to govern his fractious coalition and cope with the constant negotiation with the Senate crossbenchers (and potentially House cross benchers) to have legislation passed.

As indicated above the earliest an election can be called is August 2018. I doubt he would dare have another double dissolution before then as that would not go down well with the electorate (but if he loses members in the House to a new conservative party he may be forced to). But if the economy continues to stagnate, or underperform as a result of a US/China trade war, that will reflect on the government, as economic performance always does even if the government has little real control over many aspects of the economy, and he may well foresee that he cannot win the next election — although he could leave an election as late as possible (May 2019) in hope that things will improve. Much will depend on his own vanity and desire to be prime minister or whether he sees a short stint as having achieved his ambition.

Another key factor will be the possible creation of a new conservative party. For Turnbull that could be both a blessing and a curse. A ‘curse’ for the reasons described above but a ‘blessing’ if it freed him to express more of his liberal philosophy rather than the conservative agenda. A Malcolm Turnbull who again expressed liberal views would probably reignite his support in the electorate but then both he and the Liberal party would need to decide what to do about it. While a more liberal Turnbull may attract votes, it may be just as difficult to form government if a new conservative party also attracts votes: in fact, a more liberal Turnbull may draw some votes from Labor and the Greens while some of the Liberal base goes to the new conservative party — that would really redefine the political landscape in Australia. It could also lead to a minority government and I doubt Turnbull would want to be in that situation.

Turnbull will have much to ponder particularly in the latter half of the year unless there is an unlikely improvement in the economy and unless the Liberal party is able to forestall the formation of a new conservative party or even the growth of conservatism in its own ranks. Will Turnbull want to continue to lead unless those things come to pass? Will the conservatives in the party room decide to move against him for a genuinely committed conservative leader rather than one who panders to them only to keep the job? After all, the result of the 2016 election means Turnbull does not lead from a position of strength.

Abbott has spoken against the rise of a new party and will some in the Liberal party see Tony Abbott as the one who can provide a bulwark against defections to a new conservative party or even its creation? Although perhaps not intended, the pressure created by threats of a new conservative party may well enhance the chance of an Abbott return to counter it.

Will Trump really threaten the world as we know it?

While Trump may cause problems for the US with his apparently contradictory promises to halve the company tax rate, spend billions on infrastructure and improve the US budget bottom line, their impact on Australia will play out indirectly through the international financial system. Of more direct consequence to Australia could be his trade and foreign policies, particularly relating to China.

Trump may wish to be more friendly with Putin and Russia but he will have to remember that China and Russia are still close, if not as close as once they were. He also sees North Korea as a threat but will have little scope to do anything about it without Chinese support although he thinks that using trade as a lever may also force China to act. He may think he is a good negotiator but he and his appointees will run up against expert negotiators and some, like the Chinese, are certainly willing to play the ‘long game’, something which Trump and his ilk seem unable to do.

Australia may continue sitting on the fence and use ‘diplomatic speak’ to suggest that differences should be resolved diplomatically but that may become more difficult under a Trump presidency. Will Australia be forced to side with either the US or China on some key issue? That will be a difficult position for Australia given that they are two of our biggest trading partners.

On trade, Trump is keen to scrap US involvement in the TPP which will effectively be its demise. Turnbull has consistently insisted that the TPP is essential to Australia’s future, so what will its demise mean for that future? It will be another piece of Turnbull’s economic plan that fails to materialise — which in the case of the TPP may not be a bad thing.

The main concern is a potential trade war between China and the US. If the US becomes more protectionist and imposes tariffs on Chinese imports, that may reduce Chinese production which in turn will reduce demand for Australian resources, with all the economic consequences that implies. It could also mean that China sends more cheap goods to Australia that formerly went to the US and that could further undermine what manufacturing we have left unless we also declare that they are ‘dumping’ goods in Australia and impose punitive tariffs which will essentially be biting the hand that feeds us. If this scenario unfolds, Australia will be in a difficult place economically and in how to respond to the challenges it throws up.

In turn, it may also mean that China pays more attention than it already does to developing nations in Africa and the Pacific and that will have foreign policy implications for Australia. We have been cutting our foreign aid budget but if China redirects its effort, we may be forced to do more in that area or accept further growth of Chinese influence in the region — which way will we go?

Conclusion

The above are just a few of the questions that could arise during 2017.

Others include:
  • Will the housing bubble burst and the construction boom come to an end?
  • What will be the effect if we lose our AAA credit rating, not just for government but for our banks?
  • How will Australia deal with Brexit and the need to negotiate separate trade deals with the EU and the UK?
  • How will we address problems meeting our climate change commitments under the Paris agreement?
And of course there are the perennials such as how we handle refugees and Australian Muslims which will be influenced by the rise of the conservative forces.

It may prove to be an interesting year both here in Australia and internationally.

What do you think?
What are your answers to the questions?

What other questions will Australia face in 2017?

Let us know in a comment below. We may use some of your suggestions for future articles.


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The barbie bigot looks back on the year


[Editor’s note: the use of ‘septic’ in this article is from the rhyming slang — ‘septic tank’ rhymes with ‘Yank’, so ‘septic’ equals ‘Yank’.]

G’day ev’ryone. Welcome back to the barbie. The big news of the year has been elections, both here in Oz an’ in septic-land.

I’ve been a bit quiet since the election ‘cause, after all, the result was a bit hard to take (an’ it was a bit cool an’ wet for a barbie for a while). Mal scraped in by a seat an’ really spat the dummy in his election night victory speech. It wasn’t really a victory at the time, ’though he claimed it was. Victory speeches are meant to be mag ... magnamus … gracious, but not Mal. He couldn’t understand how he almost lost. All the gloss an’ glitter, an’ the smile, were gone an’ he didn’t seem to know why.

He blamed Labor lies about Medicare. I hate to tell ya Mal but they weren’t lies. You didn’t even call ’em lies until half-way through the campaign — an’ it was a long campaign that bored us sh*tless. You fin’lly had to say you wouldn’t privatise Medicare but ya took a bloody long time to say it! An’ you couldn’t deny you’d frozen the Medicare rebate — right through till 2020. You reckoned you were lookin’ after Medicare but if freezin’ the rebate isn’t a threat to Medicare, I’m not sure what is.

But let’s go back a bit. Early in the year poor Mal an’ his mob were lookin’ pretty perplexed. His mob couldn’t understand how their great white hope had become an albatross ’round their necks. Then Mal had a brilliant idea. He’d recall parliament to vote on that thing about the construction industry watchdog. What a joke that is! If he really thinks there’s corruption in the buildin’ industry, why doesn’t he go after the buildin’ companies? No, it’s the CFMEU his mob is after. Can’t have a strong union tryin’ to save workers’ lives! More than a hundred poor buggers die on construction sites ev’ry year. Imagine if a hundred pollies were dyin’ at work ev’ry year — they’d soon do somethin’ about that, wouldn’ they! Yeh, all right, like some of me laughin’ mates here, you prob’ly think a hundred pollies dyin’ ev’ry year ’ud be a good thing — no-one ’ud miss ’em, right? — but I won’t get side-tracked about that.

Anyway, then he does the double dissolution thing. He thought he’d get rid of people like the Motorists Party and Palmer’s mob. He got rid of them all right but even the blokes an’ sheilas ’round me barbie could’ve told him a full Senate election ’ud lead to more dingbats in the Senate, not less. Too smart by half, poor Mal!

Look what he got instead. The Ranga Redneck made a comeback and got three of her mates with her. What a rabble! One of ‘em thinks climate change is crap, all a plot by scientists — the only thing I’ll say in ’is favour is he’s bonkers enough to put his silly ideas out there. Then there’s the one who nicked the car keys an’ writes funny — as in strange — letters to magistrates. The Ranga Redneck had to remind him that it’s not jus’ the One Nation Party but Pauline Hanson’s One Nation Party — she’s the boss! They make Ricky-the-car-nut an’ Glenn-the-brick-bookend look like Einstein.

An’ for the election, Mal had his great slogan — jobs an’ growth. What about jobs an’ growth? — nothin’. Jus’ jobs an’ growth. No plan. No ideas. Did he think jobs an’ growth ’ud magic’ly spring outa the ground jus’ ’cause he kept sayin’ it? It certainly seemed like it. After all, he was the god who’d saved the Liberal mob an’ things should happen just at ‘His Word’: an’ Mal said, ‘let there be jobs’ an’ there was … sweet fanny adams.

He might’ve won the election but you wouldn’t think so. His mob ’ave done bugger all since. They couldn’t organise a chook raffle in a pub. (I did think of another comparison involvin’ a brothel but I can’t use that at a family barbie.) They managed to lose a coupla votes ’cause some of ’em ’ad gone home. They even managed to support a vote that they were useless — which was fair enough when ya think about it but not a good look. An’ at the end of the year, look at the shemozzle they got into with the backpacker tax. 32.5%, 19%, 15%, 10.5%, 13%. Anyone else wanna make a bid? The hammer goes down on 15%! — only ’cause ol’ Ricky-of-christmas did a deal for the Greens, p’rhaps ’cause christmas was comin’. He wanted to play Santa to the farmers who norm’ly aren’t too keen on the Greens.

Mal an’ his mob had a bit of a setback when the PNG court blokes ruled we couldn’t keep the poor buggers on Manus Island any more. They fin’lly announced that they think they’ve done a deal with the septics to take ’em but we’ll hafta wait an’ see. An’ after doin’ that, they’ve sent Oz’s biggest peace time flotilla up north to stop more boats comin’. The blokes sellin’ boat places to Oz will obviously be tellin’ the customers that now you can get sent to septic-land — what a bonanza that is for ’em! An’ the government knows it. Why else send all the extra patrol boats.

An’ then there was the union stuff at the end o’ the year — the double dissolution stuff. First, Mal got the union regulation law through the Senate but have a look at how he did it. He had to get the Xylophone an’ the Beard-with-a-mouth on-side, an’ to do that he gave ’em more protection for whistleblowers. Wha’do ya reckon? — are there more whistleblowers or more unionists who need protectin’? I think you know the answer. One good thing may come of it though when it comes back to bite ‘em on the bum — ’cause one day someone’ll blow the whistle on one of their big corporate mates or even, with a bit o’ luck, on the Libs ’emselves. That’ll be worth waitin’ for.

Then they got the construction watchdog up as well at the las’ minute. Even more giveaways than a teevee show to do that one an’ whether it’ll still be able to bark is anyone’s guess. I’ll admit a coupla things the Xylophone got for his vote aren’t too bad. There’s s’posed to be more gov’ment work for Oz companies an’ they won’t get the work if they don’t pay their subbies on time. A few of me mates like that idea but wish it applied to all buildin’ companies. Was it worth it jus’ to get the watchdog in place? Mal obviously thought so. I think he even managed a smile again an’ reckoned it showed how well he was governin’ — ya reckon? In December we got the news that our economy has gone backwards — that’s good gov’ment for ya! So much for Mal’s great economic plan — you know the one — Mal’s imagin’ry friend.

But you hafta wonder who’s really runnin’ the show? The big St Bernardi barks an’ Mal jumps to attention: eyes Right; by the Right flank turn; yes, sir! Not the Mal people thought they were gettin’ an’ so his popularity has gone down the plug hole.

Of course ol’ pommy Tones is still hangin’ about, snipin’ from the sidelines, tellin’ all an’ sundry he’s still ready for the top job. If you think that could never happen, look at what happened in septic-land. If Trump can get elected there, don’t rule out Tones becomin’ PM again. If we get Tones back, would we also get Credlin back? That’s somethin’ to think about!

That gets me to the septic election. (Nice how I did that, ay?) How did Trump win? The views ’round me barbie are mixed but gen’rally we think the poor ol’ septics had Hobson’s choice — a ranting idiot or a sheila with so much baggage she was lucky she was still standin’ up under the weight. An’ Trump’s as silly as the Ranga Redneck’s mate. He reckons climate change is a Chinese plot. I’d like to see the two of ’em together on Q&A to argue that out — whose plot is sillier, yours or mine?

Me an’ me mates don’t agree with most of what Trump said but he obviously pushed some buttons for the septics — ’specially the white workers, the ones who lived in places where jobs were becomin’ as hard to find as rockin’-horse sh*t. He reckoned he can help ’em but whether he can’ill be another story.

After all the rantin’ an’ bulldust he went on with during their election, I was a bit shocked to hear his victory speech. (You know what I mean by ‘bulldust’ but after the rockin’-horse one me missus jus’ told me I can’t say that again while the nippers are still runnin’ about.) Mal could’ve taken a lesson from ’im. Think about it. Trump rants an’ carries on all through the election then gives a gracious victory speech. Mal is gracious an’ calm for most o’ the election then rants an’ raves in his victory speech. A nice pair o’ polar opposites there. Which approach would you prefer? Prob’ly neither of ’em. Why can’t politicians jus’ be honest? We know most of ’em couldn’t lie straight in bed.

That was one of Hill’ry’s problems apparently. Too many people jus’ didn’t believe her. But they thought the Donald was tellin’ it like it is. I think that jus’ means the septics are gullible but leavin’ that aside, since he was elected he’s been backtrackin’ a bit on some o’ the things he promised. Does that make him jus’ like all the other pollies? — say an’ do anything to get elected an’ then forget most of what they said — an’ yet he was the one sayin’ he wasn’t like other pollies.

Even the deal Mal thinks he’s done on the poor buggers we’ve got on Manus and Nauru could come unstuck with the Donald as president. Him an’ his supporters aren’t too keen on migrants, ’specially Muslim ones.

The Donald promised so much bigoted stuff he’ll put half of septic-land off-side if he carries through. He was so bigoted in his statements that Brandis would’ve been proud. I thought I was bigoted but I’m an amate’r compared to him.

I think the septics are between a rock an’ a hard place. If the Donald delivers what he promised, they’re in for a rough ride. An’ if he doesn’t, it’ll also be a rough ride ‘cause some of his supporters won’t take a lack of action lyin’ down. An’ when ya think about how many crazy septics have got guns an’ how many of the crazies supported the Donald … no, that doesn’t bear thinkin’ about …

The problem is some o’ the problems won’t jus’ stay in septic-land. Many of the Donald’s promises will affect the rest of us ’round the world — it won’t jus’ be the septics gettin’ the rough end o’ the pineapple. If he upsets the Chinese the way he’s promisin’ to do, Oz will get dragged under in the backwash. Here at me barbie, we’re hopin’ he doesn’t carry out ev’ry promise. Not somethin’ you usu’lly think about a polly. Most o’ the time, we wish they’d keep their promises — but not this time!

I s’pose we could say that, at least here in Oz, Mal didn’t make many promises to keep so we can’t be disappointed. An’ even some he did make are gettin’ changed a lot by the Senate — which is mostly a good thing. You might say we almost got the election right. Mal might’ve scraped in by the skin of his teeth but we gave him a parliament that really ties up what he can do.

The septics gave the Donald’s mob control of both their houses of parliament — whatever they call ’em. We know what happens when that happens. We saw it here in Oz when Little Johnny controlled both houses in our parliament. Not a pretty sight for workin’ people. So, if the Donald really wants to change things in septic-land, he prob’ly can. The septics don’t seem to think about that balance like we do. I dunno why. I don’t pretend to understand septics. Some of ’em are nice people but … Well, I’ll say it. In my bigoted view they can be a bit stupid at times.

An’ there was one big difference ’tween the two elections that I’ll say somethin’ about. The passion! Look at the septics an’ the bloody rallies they have. Thousands of ’em screamin’ out for their candidate. An’ then they had those big demonstrations about ‘not my president’. They can be passionate about their elections. On the other hand they don’t hafta vote unless they feel like it. Only half of ’em bothered to. P’rhaps with the Hobson’s choice they had, that’s understandable. So you’ve got half not botherin’, an’ half so passionate. Not a good thing!

Look at Oz. No big rallies — unless ya count those stage-managed election launch things for the party insiders an’ they’re really jus’ done for the telly. People standin’ on street corners handin’ out flyers for the local candidate, includin’ the local candidate. The image of Tones handin’ out flyers on Manly wharf on a rainy day I thought was a classic. People only votin’ ’cause they have to — but mostly ’ud rather be doin’ somethin’ else. An’ when we do get to the polling booth we have a sausage sanger. Very calm and lay-back. Which would you prefer? Me an’ me mates are quite happy with the way we do our elections. We don’t want people rantin’ ev’ry five minutes, stirrin’ up passions ya can’t put back in the bottle. A few years ago at one of me barbies, me an’ me mates decided we could solve the world’s problems — as ya do after a few beers. The answer? Export Oz beer an’ meat pies to the world so that ev’ryone becomes as apathetic as us. Passion is the killer. Passion for a cause or a political party leads to wars an’ riots. Sit back. Have a beer an’ a pie an’ chill out. That’s the Oz way. Pity the rest of the world hasn’t caught on.

Well, that’s me for the year. The best to all of you an’ your families from me an’ mine for the festive season. An’ hope you have a great festive barbie.

What do you think?
Has the barbie bigot captured the essence of the political year?

Let us know in a comment below.

This is the last scheduled article for TPS in 2016; however never say never — so check back with us occasionally. The people behind The Political Sword wish you and all whom you care about a wonderful festive season and a great 2017. Our next scheduled articles will be published on 1 January 2017, then mid January with a return to regular publication from 29 January. Keep well, stay safe and take care.


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The buck stops where?


The old adage says ‘the buck stops here’ and it applies to managers, CEOs, government ministers and similar people when they take responsibility for what happens in their organisations, including mistakes. When applied in full it leads to people resigning if more serious mistakes are made even though the mistake was not personally made by them. But nowadays modern managers are more likely to point the finger down the ladder and say the blame lies there. What has happened to the old concept of responsibility?

In my recent piece about the rise of political staffers I used the example of Barnaby Joyce blaming a ‘rogue’ staffer for changes that were made to Hansard that should not have been made. Not a hanging offence but even for a mistake of that nature Joyce did not want to take responsibility nor even to blame his Chief of Staff (who should be responsible for the operation of his office) and instead it was an unnamed staffer lower down the pecking order. No doubt it probably was a junior staffer who made the ‘mistake’ — if mistake it was and not a direction to that person from someone higher up — but it still occurred on the watch of Joyce and his Chief of Staff. They are the ones who should have procedures in place to ensure such mistakes do not occur and it is for that reason that the old adage applies.

In my early years in the public service I had one departmental secretary who I would describe as being akin to a regimental Colonel: he was somewhat aloof from the staff, worked through the department’s hierarchy and everything had to be done ‘by the book’. He did, however, defend the department strongly to outsiders, including when appearing before parliamentary committees. It was like the old attitude that the regiment (read department) can do no wrong but woe betide the junior officer (read line manager) if a mistake was made. The next manager in the hierarchy would be summoned to the secretary’s office and given a dressing down. That manager, in turn, would pass the ‘dressing down’ along the line until it reached the individual who had made the mistake. In the case of more serious mistakes the threat was that it would be noted on an individual’s personnel file, including the line managers who had overseen the mistake.

The problem with that approach was that it could, in the case of serious mistakes, appear to be a cover-up. The secretary would accept responsibility and defend the department to the outside world but ‘kick bums’ internally — out of public view.

Then came the new secretaries, schooled in modern management theory. They were taught that people are important, not just cogs in the hierarchy, and would call people by their first names. Some of them were also happy to be called by their first name. They would sometimes call upon the person actually doing the work to brief them, not just the line managers. So far, so good. Most of us would agree that some old-style managers did not treat people well when operating with a hierarchical approach.

But these new managers were less likely to bear the brunt of mistakes. Perhaps because they did involve themselves with people down the line and did not always follow the hierarchy, they were quicker to point the finger to where a mistake was actually made. You were supposed to feel that you had let them down but, to my mind, that was a little hypocritical. While the new style was meant to make you feel part of the team, the captain of the team was as likely as not to abandon you when the proverbial hit the fan and push you into the firing line, no longer accepting responsibility.

In modern corporations we see CEOs, already on huge salaries, continue to receive bonuses in the hundreds of thousands of dollars, if not a million or two, even when company turnover and profit has dropped and the share price has fallen. Are they held accountable or accepting responsibility for the success of their corporation when that happens? Why do their boards allow it to happen? It seems just another step in the diminution of responsibility in the modern corporate world. It takes something on the scale of the Volkswagen deception on emission testing to force acceptance of responsibility at the highest levels but, even then, only after the deception is discovered. Why was it allowed in the first place?

Since President Truman a number of US presidents, including Obama, have had the sign ‘the buck stops here’ on their desk, but consider Nixon and Watergate. Nixon denied all knowledge of the break-in. Even when it became clear that members of his staff were involved in organising it, he still denied any involvement. It was the leaking of the Oval Office tapes Nixon kept that made clear it was not just a case in which he should accept responsibility for the actions of his staff but that he had been personally involved. He operated on the principle that if it was difficult to find the truth, he had scope to deny responsibility and that seems to have become common for modern CEOs and politicians — hence we now have the term ‘plausible deniability’.

We saw it in Australia with the ‘children overboard’ affair (also referred to in my previous article). Political staff have learned from the Nixon experience and now work to keep their minister at arm’s length from awkward situations, so there can be ‘plausible deniability’. Staff kept the corrected advice about the children overboard from Howard so that he did not need to lie when he maintained the story. When it eventually came out the blame was shifted to the public service, rather than staff in Howard’s office because, in the hierarchy between ministers’ offices and the public service, ministers’ offices do not make mistakes (at least not publicly). And I can point to the hierarchy that operates between government departments where the Department of Prime Minister and Cabinet (PM&C) also does not make mistakes. In an example when I was still in the public service a mistake (of a minor nature) was made, based on advice from PM&C, but it was the head of the agency in which I worked who accepted ‘responsibility’ for the mistake — he was subsequently ‘looked after’.

When he was first elected Howard introduced a strict code of conduct for his ministers whereby they were held responsible for their behaviour, their pecuniary interests, gifts, travel entitlements and so on. But he lost seven ministers upholding that standard and soon retreated from it. So when it was revealed that Peter Reith and his son had run up $50,000 dollars in six years, from 900 locations around the world, on a ministerial phone card, the government ‘toughed it out’ — Reith did repay the money and retired at the next election. It was Nick Minchin who promoted the idea (now known as the Minchin protocol) that ministers, and other parliamentarians, should be allowed to repay any misuse of tax-payer funded entitlements and, if that was done, no further action should be taken. Both sides of politics initially accepted that idea to reduce ‘losses’.

By the time of ‘choppergate’, when Bronwyn Bishop used a helicopter for a short trip to a Liberal Party fund raiser and charged it to her tax-payer funded travel, then Prime Minister Abbott stood by her until that became untenable — both the media and members of his own party continued questioning it. In that circumstance, simply repaying the money was no longer enough and Bishop had to resign her position as Speaker.

Turnbull lost three ministers in the first six months of his tenure as PM: Jamie Briggs, Mal Brough and Stuart Robert; the first for inappropriate behaviour towards a female public servant; Brough stood aside pending police investigations into the Ashby-Slipper affair; and Robert for having an indirect financial stake in a company he assisted in Beijing.

But the question remains, why did they misuse their entitlements or their position in the first place? Like Nixon, do they not accept any responsibility for their behaviour unless caught? Do they not have principles that would tell them it shouldn’t be done, that as public representatives they do have a higher standard of responsibility? — or even some level of personal responsibility to operate within the guidelines? And why do those above them defend their actions or remain silent, waiting until the furore dies down?

Compare that to Andrew Peacock in 1970 offering his resignation after his then wife appeared in a television advertisement for Sheridan Sheets. Perhaps it could be construed as gaining an indirect benefit from his position as a minister in the Gorton government. His resignation was not accepted but it shows that responsibility was taken more seriously then even for trivial matters.

Similar examples of relatively minor offences occurred in relation to customs declarations during the 1980s. In 1982 Michael MacKellar and John Moore lost their places in the Fraser ministry over a colour television. MacKellar had returned from overseas with a colour television but declared it as black and white; Moore was Minister for Customs at the time. In 1984 Mick Young stood aside from the Hawke ministry pending an investigation into his failure to declare a Paddington Bear, which gave the incident its name; the investigation found he should have been more careful but had no intention of evading the duty and he returned to the ministry.

Then there is ‘misleading the parliament’, one of the worst crimes a government minister can commit. In the Westminster system, in both the UK and Australia, that was supposed to lead, in the old days, to a minister’s resignation or sacking, even if the ‘misleading’ was unintentional. That was because ministers were considered to have a responsibility to ensure everything they told the parliament was truthful — after all, they had large government departments to advise them. Even if the advice they received was shown to be wrong, they accepted responsibility because they should have checked further, had processes in place to verify the information or been more circumspect in their statement. That is often part of the political game, to prove that a minister’s statement has been based on incorrect advice. We have seen that, after the event, in the Chilcot report in the UK which examined the advice on which Blair made the decision to join the US invasion of Iraq.

In the Whitlam government both Jim Cairns and Rex Connor were sacked for misleading the parliament over different aspects of ‘the loans affair’. In the Hawke government John Brown lost his ministerial position in December 1987 for misleading the parliament regarding tenders for a theatre in the Australian pavilion at Expo 88. But no-one has stood down or been sacked for that offence since — that is 29 years in which no-one apparently has misled the parliament (not even Brandis)!

Nowadays, the word ‘intentional’ seems to have crept into that crime, so to be a sackable offence the minister must intentionally mislead the parliament.

Look again at the ‘children overboard’ in that light. Did Howard mislead the parliament? — yes. Unintentionally? — probably, but only because correct advice was withheld from him. So where does responsibility now lie if ministers are denied the information that would prevent them misleading the parliament? Should the buck still stop with them? — if a culture of protecting the minister at all costs has grown in their office and they have done nothing to discourage that, then perhaps it does.

Yes, there are varying degrees of mistakes, from minor errors to serious infractions. Would the colour television or Paddington Bear incidents merit being stood down in the modern climate? Even minor mistakes, however, are less often these days accepted by CEOs and ministers — as in Barnaby Joyce’s case. MacKellar would now likely have pointed to the staffer who filled out his customs declaration for him. Mick Young could have blamed his wife (if he dared) as the Paddington Bear was in her suitcase.

Some offences are not ‘hanging offences’ but they are now blamed on someone down the line. Resignation may not be required for minor offences but the people in charge should at least accept responsibility and explain how they will ensure such mistakes do not happen again.

So in this modern world if CEOs, prime ministers and ministers are no longer responsible, who is? It seems the buck stops with you and me, as voters and as shareholders. With the lack of principle shown by our leaders, both political and corporate, and their seeming inability to say ‘I am responsible’, it is you and I who need to place pressure back on them to do their job as it should be done. It is time we told them you are responsible for what occurs in your office, in your department, in your corporation; you are responsible for the actions of those under you; it may not always be a sackable offence but the buck stops with you regardless and you had best remember that!

What do you think?
Why do you think modern CEOs and ministers have abandoned the idea of being responsible for their organisations, let alone their own actions?

What can we do to make them accept that responsibility?

Let us know in comments below.


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The rise of political staffers: how people disappeared from policy advice

Australia represented by a prime minister and a staffer!

In October Attorney-General Senator George Brandis got into a stoush with Solicitor-General Justin Gleeson which ultimately led to Gleeson’s resignation. At one point Brandis attempted to turn the issue into an argument about what constituted ‘consultation’ but the real issue was that Brandis had decided his office should have control of what advice could be offered by Gleeson — Gleeson would not have been allowed to provide advice unless the request for advice was first approved in Brandis’ office.

The Solicitor-General acts as the first counsel of the commonwealth and in 2013 and 2014, appeared in matters involving constitutional law, extradition, migration, native title, trade practices, taxation, corporations, customs, international arbitration and criminal law.

Section 12 of the Law Officers Act 1964 sets out his/her functions:
The functions of the Solicitor General are:
  1. to act as counsel for:
    1. the Crown in right of the Commonwealth;
    2. the Commonwealth;
    3. a person suing or being sued on behalf of the Commonwealth;
    4. a Minister;
    5. an officer of the Commonwealth;
    6. a person holding office under an Act or a law of a Territory;
    7. a body established by an Act or a law of a Territory; or
    8. any other person or body for whom the Attorney General requests him or her to act;
  2. to furnish his or her opinion to the Attorney General on questions of law referred to him or her by the Attorney General; and
  3. to carry out such other functions ordinarily performed by counsel as the Attorney General requests.
Part (b) does not rule out independently providing advice to people listed under (a) but simply specifically spells out that the Solicitor-General must provide advice when requested by the Attorney-General. While Brandis as Attorney-General is the ‘first law officer’ of the land, his decision to effectively control what advice Gleeson could provide, and to whom, clearly has political implications and that comes about largely through the number of political staffers who now occupy ministers’ offices.

Paul Grimes, Secretary of the Department of Agriculture, resigned in March 2015 after a letter to his minister, Barnaby Joyce, that questioned the minister’s integrity. It arose from an incorrect statement Joyce had made to the House. Joyce quickly corrected his statement (on the same day) but the issue was that changes were also made in Hansard to Joyce’s original incorrect statement. Joyce blamed a ‘rogue’ staffer. It is standard procedure that parliamentarians are allowed to amend draft Hansard records but this is meant to be primarily for grammatical and similar errors — in other words, just tidying up their sentences. It is not meant to allow substantive changes to what was originally said. As in Barnaby Joyce’s case, errors of fact are corrected by an additional statement to the parliament.

I can certainly imagine that a junior staffer may have been given the task of ‘tidying up’ the minister’s statement in the draft Hansard and taken that a step too far. The question, however, was whether or not the minister knew, or had even directed, that the substantial change be made. Grimes’ letter suggests that he thought Joyce was directly involved. Even if not, Joyce should at the very least have accepted responsibility for what was done in his office because the changes would certainly have been cleared by a senior person in the office (as would have been done in the public service, so that such a change would never have seen the light of day).

The Joyce episode shows the modus operandi of political staff in ministers’ offices, where protecting the minister is always the first priority. A classic example was the ‘children overboard’ affair. Staffers in the office of then Prime Minister Howard kept from him the public service advice (from the Department of Defence) that the original interpretation of events, that refugees were throwing their children into the water, was wrong. That allowed ‘plausible deniability’. Howard could truthfully claim he had not lied because he was not advised of the new information — his staffers had made sure of that!

Although the people in ministers’ offices are often simply referred to as ‘staffers’, as a former public servant I take the view that for the most part they are ‘political staffers’ — they are both appointed politically and provide politically oriented advice. Their first allegiance is to their minister and their primary role is to protect him or her and ensure their minister is presented in the best light (they use ‘spin’). Their increasing role since the 1990s has to a significant extent overtaken the advisory role of the public service. The old system was not perfect but neither is the new system.

Historically the public service provided ‘frank and fearless’ advice to ministers. That was possible for a number of reasons. One was that departmental secretaries had permanent tenure. There are arguments for and against that but in its favour was that secretaries could give advice a minister may not like and not feel vulnerable for having given it. Secondly, for a long time departments saw their major client as the people for whom they had portfolio responsibility — during my time in the public service that was, for the department and agencies in which I worked, Aboriginal and Torres Strait Islander people — which meant the advice often provided to a minister was intended to assist those ‘clients’, not necessarily the minister. I can’t recall exactly when, but around 1990 that began to change with public servants being told their primary responsibility was to the minister and yet this at a time when political staffers, already with a primary responsibility to the minister, were growing in number and power. Thirdly, ministers’ offices were originally staffed by public servants from the minister’s department, many just undertaking administrative and secretarial tasks. But there was usually a departmental PPS (Principal Private Secretary) to the minister whose major role was as a conduit for two-way advice flowing between the department and the minister. They were usually up-and-coming relatively senior people and that PPS role gave them insight into the political requirements of a minister’s office, which stood them in good stead for future promotion. I had a boss during my time who undertook that role and he was later often consulted by the departmental secretary on the political implications of advice we were proposing and/or a political strategy we may need to pursue to have it accepted. So it wasn’t as though the public service ignored political ramifications but, at the time, saw them as of lesser importance than ‘sound’ advice. And after weighing the advice, or even ignoring it, the minister always had the final say.

All that changed.

It was Paul Keating in 1994 who did away with permanent tenure for departmental secretaries. He was of the view that the public service should pay more heed to ‘the will of the government’. No doubt Labor’s history contributed to that view. When the Whitlam government was elected in 1972 it inherited a public service that had known nothing but Coalition governments for 23 years. For that reason Whitlam and his ministers did not trust the public service. It could be argued that the Whitlam government may have lasted longer if it had taken more notice of public service advice but, on the other hand, that may also have slowed its reform agenda. And when the Hawke government was elected in 1983, the public service had had Coalition governments for 31 of the past 34 years — not something to instil confidence in the public service for a new Labor government.

Keating’s changes paved the way for Howard, after 13 years of Labor governments, to wield the axe when he was elected in 1996. He removed six departmental secretaries, or a third of the total number at the time. If they did not already know it, secretaries were then made well aware that their job depended on providing appropriate advice, not frank and fearless advice. Rudd did not remove any when elected in 2007 and Abbott kept it to only three on his election in 2013. While the public service has often been criticised by government ministers, of all political persuasions, for being ‘risk averse’, the uncertainty regarding the security of secretaries was only likely to make that more so.

At the same time the number of political staffers was on the rise. During the Howard years, from May 1996 to May 2006, the number of ministerial staff increased from 294 to 445. On AIMN Kaye Lee also quoted another set of figures from Adam Creighton (in The Australian’s ‘Business Review’ of June 2014) that from 1984 to 2014 the number of staff for federal parliamentarians had more than doubled to 590 — including about 420 for ministers and 88 for the opposition (which is traditionally given 21 per cent of whatever the government has). On top of that there were 925 electorate staff whose main task is ensuring the re-election of their member of parliament (including ministers) — so that is another political role. A minister then has three key sources of advice, his political staffers, his electorate staff (who can also provide information on local community views) and the public service but two are definitely political and the third, the public service, has become more political in recent years. Of course, lobbyists also come into this as another source of ‘advice’ although it comes from a clearly partisan and self-interested perspective.

At the start of his prime ministership, Howard restructured the prime minister’s office, creating his own Cabinet Policy Unit (CPU) of political appointees. He also made the Secretary to Cabinet a political position whereas previously that role had been filled by the Secretary of the Department of Prime Minister and Cabinet.

Turnbull has an advisory structure in his office that includes five main areas: international affairs, including foreign and national security policy; social policy; climate, water, infrastructure and cities policy; innovation and higher education policy; and economic policy. He did, however, appoint a public servant as his Chief of Staff, which was an acknowledgement of previous practice.

Since the Keating years, the prime minister’s office has grown from about 30 staff to over 50. Other ministers have between 10 and 20 staff on average.

While policy may still be determined by Cabinet and ministers, advice now comes from many sources and is generally interpreted by the political staffers before it lands on a minister’s desk. Even advice from the public service that implementation of a policy may create problems can often be ignored in favour of advice from political staffers that the policy may be a ‘political winner’.

There is no need to revisit the history of Peta Credlin in Tony Abbott’s office except to say that she portrays the ultimate power of a political staffer. She attended Cabinet meetings, advised Abbott on policy, controlled access and advice to Abbott and also exercised a degree of control over other members of Abbott’s party. Even many of those who supported Abbott thought that was a step too far.


The ‘children overboard’ affair showed one way in which these political staffers protect their ministers: politically damaging or risky information may never appear on a minister’s desk — they are basically deciding what information it may be ‘dangerous’ for a minister to know. Nowadays they also influence the advice the public service provides as advice will often not reach a minister unless it has been endorsed by the political staffers. I know from experience that, in some situations, public servants have virtually to negotiate with the political staffers what advice will go to a minister. What has advice come to when it has to be ‘negotiated’!

Operating that way, political staffers have even undermined ministers having the final say on policy issues. If ministers do not see appropriate advice, both pro and con a policy position or potential problems with implementation, how can they make a legitimate decision? Decisions simply become echoes of political views.

The Barnaby Joyce example shows, at the least, that political staffers may not fully understand parliamentary procedures (let alone public service checks and balances). Departments have people skilled in those procedures and processes of checking to ensure little goes wrong. At worst, it was an example of blatant over-riding of those procedures, whether by the minister or his office, all in the name of protecting the minister.

The Brandis situation exemplifies the efforts to politicise advice, no longer wanting independent or frank and fearless advice but only that advice suiting the political agenda or ‘the will of the government’, to use Keating’s words.

It seems to me that the changes that took place simultaneously within the public service and in ministers’ offices were the wrong changes at the wrong time. Surely the growth in the number of political staffers should have provided more scope, not less, for the public service to provide frank and fearless advice, leaving it to the political staffers to assess the political implications and advise the minister so that she or he could then make a balanced decision. Instead, the public service was also changed so that the advice it provided already took account of many of the political aspects. There seemed no one left who was considering the interests of the people for whom departments were responsible.

If voters are dissatisfied with politics, I suggest one reason is because most policy now is driven by politics rather than basic or frank and fearless advice about what may be good policy for particular groups of people. If both the public service and political staffers advising ministers now consider the minister is their most important ‘client’, it is little wonder that people feel left out. It is because they are!

What do you think?
Do ministers need as many as staff as they have when they also have whole public service departments to advise them?

Where does the balance lie between political advice and ‘frank and fearless’ advice?

Is Ken right in suggesting that the politicisation of policy advice has effectively removed people from the equation?

Let us know in comments below.


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Statistics are people too


On 20 October, the ABS released its labour force survey data for September 2016. The media duly reported the drop in unemployment from an upwardly revised 5.7% for the previous month to 5.6% but most also picked up that this was largely a result of a drop in the participation rate, from 64.7% to 64.5%.

Firstly, a few explanations. The participation rate was traditionally a measure of all those aged between 15 and 64 (the ‘working age population’) who were ‘in the workforce’ and, of course, owing to students and stay at home parents, and other factors, this would never be 100% — around 70% was usually very good. However, the ABS now uses the total population aged 15 and above which I think can be a little misleading because it encompasses many elder retirees — including over 450,000 people aged 85 and over, who I doubt would be considering work.

‘In the workforce’ includes those who are actually employed, whether full-time or part-time, and those who are unemployed but are looking for and are available for work. So a fall in the participation rate usually means that people have dropped out of the workforce and given up looking for work — at least for now. It should also be noted that to be counted as ‘employed’ a person only needs to have worked one hour in the week of the survey — not what most of us would call ‘employed’ but it is the international definition and the ABS uses it, arguing that even an hour’s work is contributing to the economy. What that does mean is students and retirees who may be working no more than a couple of hours a week are included in the employment count.

The ABS also provides raw figures, ‘seasonally adjusted’ figures and ‘trend’ figures. I will mostly use the seasonally adjusted figures which attempt to smooth out known large variations, such as the number of school leavers entering the workforce at the end of each year and seasonal workers who come and go from employment at particular times. The trend figures can be interesting for what they show statistically in terms of where the figures are heading. Except where otherwise referenced all the data I have used comes from the ABS website, including downloading some of their Excel spreadsheets for more detailed data, so I do not separately reference each of these individual sources.

Having said all that, and leaving aside debate about the quality of the ABS labour force data (which has been questioned), I want to pay attention to what these percentages actually mean in terms of people.

The 0.1% drop in unemployment meant that there were 12,500 fewer people unemployed. That may sound like a reasonable improvement but even at 5.6% the number unemployed is 705,100 and that is a lot of people whichever way you look at it — without including their families. But somehow, the government, the bureaucrats advising them, economists and even most of the media seem to overlook the scale of that number by focusing simplistically on the percentage. That is over 705,000 people whose spending power is limited which not only makes life hard for them but, through reduced consumption, also impacts the economy.

The situation is exacerbated when we consider the long-term unemployed — those unemployed for 12 months or longer. As at August 2016 there were 169,000 long term unemployed (based on ABS data) or about 24% of the unemployed. But in September the Department of Social Security released data showing it had 290,161 long-term job seekers on Newstart Allowance in August. No matter which figure you use, that is a large number of people ‘doing it tough’ for a long time and many of them will have little chance of ever finding suitable work after such lengthy periods of unemployment.

Considering the participation rate is a little more difficult given the way the ABS now calculates it. On their calculation, it would seem that almost 40,000 people have dropped out of the workforce but, as that now includes all people 15 and over, a number of those could be retirees. Focusing just on the working age population, at least 25,000 people (probably more) have stopped looking for work. Not large numbers in the overall scheme of things but significant in terms of the number of people involved.

Employment dropped by 9,800 but that partly hides the fact that 53,000 full-time jobs were lost (part-time employment increased by 43,200). That is on top of the continuing loss of full-time jobs over many months now. While the seasonally adjusted monthly figures vary, including both rises and falls, the trend estimates for full-time employment have been consistently lower for each month since December 2015, suggesting full-time employment is on a downward slide.

The September figure for full-time employment is the lowest since June 2015 and since a peak of 8.217 million in full-time employment in December 2015, 102,000 people have lost full-time work (or 54,000 in trend terms and 271,000 on the raw numbers). In that same time, part-time employment increased by 162,800 but, as this includes all those working one hour or more, much of it may not involve significant hours of work.

Even that is only part of the story. Since July 2014 the ABS has been providing data on ‘underemployment’ in the workforce: this includes those engaged full-time but actually working part-time ‘for economic reasons’ and those employed part-time who would prefer more hours. In the first category, there were 75,900 people, predominantly male (60,800), an increase of 3,700 over the August figure. There were 979,900 part-time workers who would prefer more hours, including about 600,000 females (that was a decrease of about 30,000 on the August figure). That is almost 9% of those employed.

If we add the unemployed, for total ‘underutilisation’ of the labour force, we get 1,760,900 people not able to contribute fully to the economy even though they wish to do so — that is about 14% of the workforce. How can our economy be going well if 1.8 million people are not contributing to production and consumption as much as they could? In economic terms they have less scope for discretionary spending: it is normal that as income falls a greater portion of it has to be spent on essentials, such as food and utilities.

To make things worse, we can also consider the data the ABS provides on those ‘not in the labour force’ (NILF) as it reveals more information about ‘hidden’ unemployment. The most recent data I could find was for 2014 (released in February 2015). A further explanation is required here. In the labour force surveys people are asked if they looked for work in the week of the survey and if they could start within four weeks: if they do not meet those criteria they are classified as not in the labour force. The 2014 NILF figures show 21,700 people who were actively looking for work but could not start within four weeks and another 53,200 who were ready to start work. In addition, there were 851,000 people who wanted work, could have started within four weeks, but were not actively looking, including 102,100 ‘discouraged jobseekers’ a majority of whom were over 55. There are many reasons why people are not looking for work, including family issues and illness, but they remain interested in returning to the workforce. While the figures may have changed since 2014, it is clear that we are talking about hundreds of thousands of people who would like to be in work but for a variety of reasons, including just giving up, are not. So now, including these ‘hidden’ unemployed, and those ‘underutilised’ in the labour force, we are talking about something like 2.5 million people. Imagine what could be done if we created sufficient jobs and hours of work to meet that demand!

Total hours worked in September increased by 4 million hours to 1.66 billion hours. This is more interesting in trend terms: an increase of 2.2 million hours and the fourth consecutive increase after declines in the previous five months but still 2.4 million hours below the December 2015 peak. Overall, total hours worked has been trending upwards since 2000 but that is largely driven by population and workforce growth. Callam Pickering from CP Economics pointed out that work hours have actually been trending downwards over that same time when calculated per person. That is a sign of the increase in part-time work.

Ad Astra recently wrote about Turnbull’s planning black hole and it is no more evident than in the lack of response to these figures. What is the government doing to provide work for the 705,000 unemployed, or to provide more work for the one million who are underemployed? What is it doing to encourage people to remain in the workforce, rather than dropping out through the sheer frustration of being unable to find suitable work? I would suggest that many of those dropping out of the workforce have found the ‘cost’ (in economic terms, which includes effort and time as well as money) of finding work too high. I have little doubt that the onerous Centrelink job search requirements would be contributing to that ‘cost’. Increasing the time before which a person is entitled to receive Centrelink payments will not help. And what will the government do to address the ‘hidden’ unemployed, those not in the labour force but who would like to be?

The government’s approach seems to be that it should all be left to ‘the market’, to businesses, both large and small, to provide employment — eventually! That does nothing to support people in the present nor even to offer hope of employment or better hours in the short term. And even in the medium term it may be no more than a mirage. As I pointed out in ‘Are governments ready for the coming economic and social changes’, we are witnessing the rise of the ‘gig economy’. While that may provide some entrepreneurial opportunities, many businesses will move to a labour-force model of part-time or short-term employment. Perhaps the rise in part-time work already evident in the ABS data may be its beginnings. Australia now has the third highest part-time workforce in the OECD, representing 32% of those in employment.

Simply relying on business to create employment, without government support, may also be fraught. The recent NAB quarterly business survey showed ‘weaker profits and softer trading conditions have led to a moderation in business conditions’. Businesses did think that conditions would be reasonable over the next three to twelve months and capital expenditure plans remained strong.

ABS data, however, suggested that business investment fell 5.4% in the June quarter, and more than 17% over the year but much of this was said to be driven by the winding down of the resources boom. Despite that qualification, the NAB survey found that ‘a broader non-mining recovery appeared to stall in the September quarter’. There was also a deterioration in the retail and wholesale sector — to me, not surprising if we have 2.5 million people with lesser income than would be provided by any work, full-time work or more hours of part-time work.

Other business indicators showed sales from manufacturing rose 0.2% (but ‒0.6% and also down 2.9% over the year in trend terms). Companies’ gross operating profits rose 6.9% but were flat over the year (or flat in the June quarter and falling 4.3% over the year in trend terms). While profits may have jumped in the June quarter, wages rose only 0.8%. So where is that money going? — not into new jobs!

All in all, the government is ignoring that labour force data is about people, not just a series of percentages. It is ignoring the unemployed, the ‘hidden’ unemployed, and ignoring the problems created by underemployment and the loss of full-time jobs. Turnbull seems to believe that businesses will come good and provide the jobs or that people will create their own jobs, all part of his new innovative and agile economy. But how do the long term unemployed fit into that scenario? How do 705,000 unemployed survive until the economy comes good with little or no government intervention? How do one million people find the work hours they are seeking? How much production and consumption are we losing by having 2.5 million people not fully engaged in the economy? How are those 2.5 million people faring? — has anybody in government bothered to ask that?

As Ad Astra asked, where is Turnbull’s plan to make job growth happen? After all, this is people we are talking about.

What do you think?
Why do the ‘experts’ talk in terms of percentages rather than the number of people affected?

Why is the government ignoring the scale of this problem and claiming success when there are marginal shifts in the percentages?

Let us know in comments below.


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All hail the mighty banks


Banks have been in the news recently and there is a clear difference in the approaches of the government and the opposition. While some may suggest that Bill Shorten is being populist in his call for a Royal Commission into the activities of the banks, particularly the ‘big four’, it is clear that Turnbull’s approach of calling them before the parliament’s Economics Committee once a year has been a sham.

Ian Narev, CEO of the Commonwealth Bank, was the first to appear before the committee and set the tone for the CEOs of the other ‘big four’ to follow — they sang from the same hymn sheet or, dare I say, had colluded beforehand to ensure the substance of their answers was so similar as to be almost the same.

There were apologies and promises to do better. There were mea culpa but of limited culpability when examined carefully.

Shayne Elliot from ANZ admitted (from The Guardian’s live blog of the inquiry):
I think as an industry we have lost touch with our customers. It’s taken us down a path that’s created bad behaviour, some poor culture and really not treated customers with the respect they deserve.
And Brian Hartzer from Westpac said:
It is clear that a trust gap has opened up, and we as an industry and as individual banks need to work to close that gap.
Generally, each bank claimed commercial confidentiality not to reveal the profit they made from housing loans or credit cards although ANZ did suggest that its profit from credit cards was only ‘a couple of hundred million dollars’ out of its total profit of $7.5 billion.

While a number of financial planners who had given customers bad advice had been dismissed, it became clear that not one manager or executive had been fired or resigned as a result of some of the banking scandals. Whatever happened to executive responsibility, ‘the buck stops here’? — now blame is shifted down the ladder, not only in the banks but also in government (but that really requires another article).

The same argument about executive responsibility was raised in the US when Wells Fargo CEO John Stumpf appeared before a US Senate Committee after Wells Fargo staff, in an effort to meet sales and revenue targets, had been found to have opened millions of fake credit, savings and other accounts for customers without their consent. US Democratic Senator Elizabeth Warren, a former Harvard University law professor, said to Stumpf:
So, you haven’t resigned. You haven’t returned a single nickel of your personal earnings. You haven’t fired a single senior executive.

Instead, evidently, your definition of accountable is to push the blame to your low-level employees who don’t have the money for a fancy public relations firm to defend themselves. It’s gutless leadership.
It’s a pity our parliamentarians didn’t follow such a line. (Stumpf has since stood down.)

The banking scandals have been spread over a wide area of the banks’ activities.

ComInsure, the CBA’s insurance arm, has refused to make payouts on the basis of dubious medical definitions and has even rejected a coroner’s ‘cause of death’.

ANZ has allegedly been involved in rigging the ‘bank bill swap reference rate’ (BBSW) which is used to set interest rates on business loans, also influences credit card and other loan rates, and is the rate at which banks lend to each other. This is similar to the LIBOR (London inter-bank offered rate) which has world-wide implications and four London traders have recently been gaoled for their role in rigging the LIBOR.

And banks have conceded their wrong doing by paying compensation to some of those who were affected by faulty financial planning advice.

Earlier this year at a Senate inquiry into white-collar crime, two economists presented an argument that banks were regularly fudging the numbers relating to clients’ income when making mortgage loans so as to make their loan portfolio appear ‘safer’.
The banks have trashed their lending standards over a prolonged period of time with significant evidence of banks massaging people’s incomes in their loan application forms to make them look more creditworthy than what they really are, which is essentially fraud.

The banks would do this for various reasons. One is the highly competitive environment between the banks. Second of all is profitability.

The safer your mortgage book looks, the lower it costs you to do business — simple as that. If you show that your borrowers are very creditworthy then you are going to get cheaper funding costs, and that’s a win-win for the bank …
Some of this results from the pressure on staff to meet sales and revenue targets. The Finance Sector Union surveyed its bank members on this and one member responded:
Managers have told us to tell clients certain things in order to get results that will generate bonuses for everyone.
The FSU’s Geoff Derrick said:
[staff] … are being pushed to deliver on sales targets to the point where some feel that they have no choice but to do anything they can to keep managers off their backs, including selling bank products to consumers who don’t need them.
Despite all that, the government’s decision to call the banks before the Economics Committee was based not on those scandals but the banks' decision not to pass on in full the RBA’s last decrease in its cash rate. The ABC provided a calculator to show how much additional interest people were paying on mortgages owing to decisions taken by the banks on interest rates. An example of a CBA mortgage of $300,000 over 30 years taken out in 2011 shows that in the last five years the person would have paid $5,214 in additional interest, made up of:
  • $1,745 because of additional rate rises outside the cycle of RBA rate increases
  • $228 from delays in the bank passing on RBA rate cuts
  • $3,241 from the bank not passing on the full RBA rate cut
The result of the banks’ decisions on interest rates is that they have increased their margin above the RBA cash rate. In 2011 the mortgage rate was on average about 3.25% above the RBA cash rate but in 2016 that had risen to 3.75%. Half-a-percent may not sound like much but when we are talking in billions of dollars it soon adds up to significant amounts (0.5% of 1 billion dollars is $5 million, so on a profit of $7 billion at least $35 million of that could be from this increase and that is just profit — the resulting increase in income would be many times higher).

Before the Economics Committee, the banks consistently listed many reasons for this embracing the actual cost to them of raising funds, including overseas funds, the requirement to hold more cash reserves, and pricing risk into their products. Since the GFC, however, the ‘big four’ have operated with a government ‘guarantee’ which, it has been estimated, saves them 0.2% on their borrowings compared to smaller banks — again a tiny percentage but amounting to millions when we are dealing with billions of dollars.

The banks also consistently rejected further regulation with arguments such as the cost of regulation would need to be passed on to customers or that there could be unforeseen consequences. They suggested that strong banks (read profitable) are necessary for a strong economy.

The government still thinks a Royal Commission is not necessary and instead announced a banking tribunal which customers would be able to approach with complaints without the need for lawyers. One consumer group suggested, however, that decisions of such a tribunal would likely be subject to appeal in the courts (as are decisions by the Administrative Appeals Tribunal) which would then mean the banks, with all their money, could tie up issues for years in the court system.

But why should we be surprised by this? It has been going on for centuries. Lehman Brothers (before its collapse) had identified that there were 11 banking and financial crises in the eighteenth century, 18 in the nineteenth century, and 33 in the twentieth century.

In Australia early in the 1890s there was a banking crisis, including a ‘run’ on banks (people withdrawing their deposits) and a number of bank closures. It was at its worst in Victoria and had been fuelled by a boom during the 1880s with increasing speculation and investment in the property market. At the time the financial sector was essentially unregulated and factors contributing to the problem included:
  • property market speculation
  • credit growth
  • unrestricted capital inflows from overseas
  • the degree of risk management within the financial system (with risk assessment being lowered to cash in on the boom)
  • competitive pressures in the financial system (which also contributed to lesser risk assessment as banks and building societies fought for their share of the boom)
Overseas factors led to a reduction in the inflow of capital, property prices crashed and the system came crashing down.

If that sounds familiar, it should. Mortgages have grown in importance in recent decades as a source of bank business and now represent 57% of the loan portfolios of Australian banks (up from about 30% a couple of decades ago). That core of property underpins the banks’ capacity to borrow overseas. Low interest rates have encouraged borrowers and allowed them to borrow larger amounts (also contributing to rising house prices). Using negative gearing and capital gains tax concessions, people have also invested in property, further fuelling the market. Competition between the banks, and the low interest rates, have encouraged the banks to lower their risk assessment of potential borrowers and, as suggested earlier, even led to ‘massaged’ income figures.

As in the 1890s, it will not take much to cause this system to crash. An increase in interest rates (becoming more likely) may well impact borrowers who have borrowed to their maximum capacity — encouraged by the banks — leading to loan defaults and pressure on the banks.

The risk is increasing and only a few days ago APRA (Australian Prudential Regulation Authority) issued an information paper on Risk Culture and indicated it would be taking a more intensive approach in its reviews of risk culture within financial institutions, including the influence of bonus payments.

In the latter half of the 1940s Ben Chifley moved to nationalise the banks by bringing them all under the then government controlled Commonwealth Bank. Although that move was not successful, some of Chifley’s comments in support of his action remain relevant:
Whatever regard they may claim to pay to the wider concerns of the nation, their policies are dictated in the last resort by the desire to make a profit and to secure the value of their own assets.

Experience of the past has been that private banks increased their lending in good times and contracted it in bad times …
He said that in 1931, as the Depression bit, the ‘trading banks refused to cooperate in proposals by the Commonwealth and States for the relief of unemployment and the revival of business activity’. Rather than helping provide a stimulus the banks had restricted new lending and called in loans, exacerbating the situation. ‘This should not be allowed to happen again,’ he said.

Chifley correctly saw that the flow of money was a major factor:
No single factor can do more to influence the welfare and progress of a community than the management of the volume and flow of money. Mismanagement of money, on the other hand, has contributed to the greatest economic disasters of modern times — booms and slumps, mass unemployment, waste of resources, industrial unrest and social misery.
The current neoliberal emphasis on the ‘free market’ means governments still do not have control of the flow of money and we are still subject to the booms and busts often caused, respectively, by capital inflows and lack of such inflows.

The banks in Australia did not cause the GFC but the collapse of the financial system in the US led to the drying up of capital on international money markets, restricting the ability of our banks to borrow necessary funds. That led to our government’s decision to provide a ‘bank guarantee’ — and then also to spend money to stimulate the economy.

In a paper by J Bradford De Long of the University of California comparing the financial crises of the 1890s and 1990s, one of his concluding remarks was:
A look back at history shows no easy way of controlling the macro-economic instability that large-scale capital inflows create. History does leave clues that a strong, credible, and credited commitment to unalterable exchange rate parities would do some good but we do not know how to create such a commitment in the age of mass politics by any means short of dollarization.
(‘Dollarisation’ refers to linking all currencies to the US dollar as was done in the Breton Woods agreement following WW2, or in some cases even adopting the US dollar as a national currency.)

So our banks are causing us problems — nothing new there. Our banks are contributing to a property investment boom that may not be sustainable — nothing new there. Any reduction in our banks’ ability to borrow overseas may lead to a credit crisis here in Australia — nothing new there. Our banks insist they will pass the cost of regulation on to us, their customers. The neoliberal economic approach adopted by our current government means it will not increase regulation so the banks will be free to continue as they are. The banks themselves claim, strong, profitable banks are necessary for a strong economy, and our government will not disagree even if the banks’ current profits are among the biggest corporate profits in Australia — in other words, the banks may be ‘strong’ but the rest of the economy isn’t.

While many things have changed in the past one hundred and thirty years, it appears banks have changed little.

What do you think?
Is the current devotion to the ‘free market’ simply allowing banks to do as they wish irespective of what is in the best interests of the country?

Has competition gone too far when banks bend, or even break, the rules to ensure profitability for their shareholders?

Let us know in comments below.


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The neo-liberal execution of democracy


In my inbox each day I get an e-mail from The Washington Post called The Daily 202. This year it has been, as is to be expected, mostly about the American Presidential primaries and forthcoming election but, in reporting Bernie Sanders’ primary win in West Virginia back on 10 May, it stated the win was not really about ideology but disaffection:
Americans, collectively, are not as angry as watching cable TV would lead you to believe. But many poorer, less-educated folks who have been left behind in the 21st century — the ones who have seen their wages stagnate, their opportunities for upward mobility disappear and their life expectancies shorten — are looking to disrupt a status quo that has not worked for them.

That’s what Sanders and Trump are both promising to do.

So how did the septuagenarian socialist do it? The bottom line is most people are not voting for Bernie because he is liberal. They are voting for him because they perceive his promised “political revolution” as a challenge to the system that has failed them.

“West Virginia is a working-class state, and like many other states in this country, including Oregon, working people are hurting,” Sanders said last night at a rally in Salem, Oregon. “And what the people of West Virginia said tonight, and I believe the people of Oregon will say next week, is that we need an economy that works for all of us, not just the 1 percent.”
We are seeing the same phenomenon around the world: the election of Jeremy Corbin to the Labour leadership in the UK; the rise of anti-establishment parties in Spain and Greece; and, unfortunately, it has also meant the rise of extreme right (and sometimes neo-fascist) parties that tap into that disaffection with the political system.

How has it come to this?

Basically, as Sanders alluded to, it is the economic approach followed by governments that, since the Thatcher and Reagan years, has been based on a neoliberal economic philosophy which appears to be benefitting the wealthy rather than society as a whole. We know the shortcomings of that approach, based as it is on supply-side or ‘trickle down’ economics, but we have seen little discussion (at least here in Australia) on the broader impact it is having on democracy.

We live in a system where a democratic form of governance is coupled with a capitalist competitive free-market economic system.

In a democratic political system all people are meant to be equal — one person, one vote, and all votes of equal value.

The neoliberals also base their political approach on the individual but tend towards the libertarian view that governments should have no role in an individual’s life choices. Thus, in Australia, we have a libertarian, Leyonhjelm, arguing against anti-smoking regulations and the mandatory wearing of bicycle helmets. While that may support individual freedom, it ignores the wider social benefits of those approaches and the cost to the community, through our taxes, of hospitalisation and associated services for smokers or cyclists suffering head injuries. If the wider community bears the cost of such ‘freedom’, then surely it has a right to say that in the community interest some individual freedoms can and should be curtailed.

The neoliberals, however, would argue that the community concern is overcome by privatising health services: then the individuals who suffer health problems from smoking or cycling accidents have to meet their own costs — but so does everyone else, including the less well-off and those cast out of their jobs by the neoliberal economic approach.

This emphasis on the individual, as applied to economics, creates even more problems. A philosopher in the 1970s, Robert Nozick, basically set out a philosophical underpinning for neoliberalism.

There is no such thing as the ‘common good’ in Nozick’s (and the neoliberals’) approach, only individuals:
While it is true that some individuals might make sacrifices of some of their interests in order to gain benefits for some other of their interests, society can never be justified in sacrificing the interests of some individuals for the sake of others. [emphasis added]
Nozick considered that the state’s single proper duty is the protection of persons and property and that it requires taxation only for that purpose. Taking tax for redistributive purposes is on a par with forced labour, he wrote. So government should play little or no role in regulating the economy: the state then can be seen as an institution that serves to protect private property rights and the economic transactions that follow from them regardless of whether we think some people deserve more or less than they have.

The neoliberal economic approach also emphasises debt. I used this quotation in my previous article but it is also relevant here. Although written about the US, it could readily apply in Australia:
Indebting government gives creditors a lever to pry away land, public infrastructure and other property in the public domain. Indebting companies enables creditors to seize employee pension savings. And indebting labor means that it no longer is necessary to hire strikebreakers to attack union organizers and strikers. Workers have become so deeply indebted on their home mortgages, credit card and other bank debt that they fear to strike or even to complain about working conditions.
The sale of public assets to relieve debt and the emphasis on the individual means the areas in which government can exercise control in the interests of the wider society are diminishing.

George Monbiot, writing in The Guardian (UK) in April said:
Perhaps the most dangerous impact of neoliberalism is not the economic crises it has caused, but the political crisis. As the domain of the state is reduced, our ability to change the course of our lives through voting also contracts. Instead, neoliberal theory asserts, people can exercise choice through spending. But some have more to spend than others: in the great consumer or shareholder democracy, votes are not equally distributed. The result is a disempowerment of the poor and middle. As parties of the right and former left adopt similar neoliberal policies, disempowerment turns to disenfranchisement. Large numbers of people have been shed from politics.

Chris Hedges remarks that “fascist movements build their base not from the politically active but the politically inactive, the “losers” who feel, often correctly, they have no voice or role to play in the political establishment.” When political debate no longer speaks to us, people become responsive instead to slogans, symbols and sensation. To the admirers of Donald Trump, for example, facts and arguments appear irrelevant.
The remarks by Chris Hedges explain the rise of the far-right and capture the same disillusion referred to in The Washington Post article. Consider also the initial success of Tony Abbott: ‘slogans, symbols and sensation’ and ‘to [his] admirers, … facts and arguments appear irrelevant’. It certainly fits!

We can also go back to Naom Chomsky in 1999 when he wrote:
… to be effective, democracy requires that people feel a connection to their fellow citizens, and that this connection manifests itself though a variety of nonmarket organizations and institutions. A vibrant political culture needs community groups, libraries, public schools, neighbourhood organizations, cooperatives, public meeting places, voluntary associations, and trade unions to provide ways for citizens to meet, communicate, and interact with their fellow citizens. Neoliberal democracy, with its notion of the market uber alles, takes dead aim at this sector. Instead of citizens, it produces consumers. Instead of communities, it produces shopping malls. The net result is an atomized society of disengaged individuals who feel demoralized and socially powerless.
Basically, democracy is being undermined, leaving people disaffected, unable to foresee how they can influence the political process for their benefit. As Monbiot pointed out, the range of politically influenced decisions is contracting. Privatisation of former public assets mean governments are controlling less and less, their decisions also cover less and less. If all our services are privatised and the individual is placed above society, what role is left for government? And in that circumstance, what is the point or the value of voting?

I wrote about this previously in relation to the situation in Greece and noted this comment from eminent economist Joseph Stiglitz:
Seldom do democratic elections give as clear a message as that in Greece. If Europe says no to Greek voters’ demand for a change of course, it is saying that democracy is of no importance, at least when it comes to economics.
We know that the bankers and financiers did say no to the democratic wish of the Greek people.

People are also further and further removed from influence over the economy, and yet the economy relies on people. The neoliberal economy has seen the rise of inequality in most countries around the world. The neoliberals see no inconsistency in inequality.

To return to Robert Nozick’s philosophy: as each individual owns the products of his or her own endeavours and talents, it is possible for an individual to acquire property rights (as long as they are not gained by theft, force or fraud) over a disproportionate amount of the world; once private property has been appropriated in that way, it is ‘morally’ necessary for a free market to exist so as to allow further exchange of the property. And the individual then has complete control as to how that property is passed on. So it is logically okay for someone to inherit a fortune having contributed nothing to gain that wealth: reward for effort or just desert do not come into it for Nozick — it is only property rights and market mechanisms that count. That, of course, is the neoliberal approach.

Piketty made this clear in his work Capitalism in the twenty-first century in which he explained the rise of rentiers (those who gain their income from rents, dividends and interest) and that the growth of such wealth is outstripping the rise of earned income.

Monbiot also quoted another author who was making a similar point:
“Investment”, as Andrew Sayer notes, means two quite different things. One is the funding of productive and socially useful activities, the other is the purchase of existing assets to milk them for rent, interest, dividends and capital gains. Using the same word for different activities “camouflages the sources of wealth”, leading us to confuse wealth extraction with wealth creation. [emphasis added]
Too much economic activity now seems to be based on ‘wealth extraction’ rather than genuinely productive activity. In Australia, the increase in the number of investment houses is a symptom of this, particularly when it is an existing house and provides no new productive activity (construction) and relies on rent and/or capital gains for a return on investment. The negative gearing tax incentive and capital gains tax concessions have distorted the market and made it more profitable to put money into ‘wealth extraction’ rather than ‘wealth creation’. And our government intends to do nothing about it because it may curtail the rights of some individuals — what it falsely called the ‘mum and dad’ investors.

The rise of the global economy has transferred jobs. Chinese manufacturing has replaced significant portions of manufacturing in the US and the UK, as well as in Australia. Even work in call centres has been ‘off-shored’. There is some evidence that the Brexit vote in the UK was influenced by the loss of traditional employment in particular areas, not just by immigration: some of the strongest ‘leave’ vote occurred in areas where major industrial plants had closed in the preceding decade and jobs had not been replaced. Some predict that ‘jobs’ will be the major political battleground in coming years arising not just from a globalised economy but from the increasing spread of robotics.

When people feel economically threatened they look to their government to relieve the situation but governments will not intervene, or intervene minimally, while they continue to pursue neoliberal economic approaches. As Monbiot pointed out, one’s capacity to participate in this new world is determined by spending power but as more people lose jobs they have little or no capacity to participate.

The next step in the process, which has already begun, is that people also then feel that the political system is failing them and will turn to those offering either radical or more despotic (even fascist) solutions. They will be attracted to solutions harking back to a ‘golden age’ — whether it is myth or reality. But in the neoliberal world the government will have almost no capacity to respond: it will be in debt; it will not have control over major economic areas that have been privatised (sold off to meet ‘debt’); it will believe it should not intervene in ‘the market’; it will continue to believe that people improve their situation only by their own individual effort; it will have no answer to those offering alternative solutions that may be attractive to the masses.

If governments across the Western world continue to follow neoliberalism in both their social and economic policies we will also see the continuing slow death of democracy, including in Australia, with more people disaffected and disillusioned with the economic and political systems and that may well lead to a willingness to embrace non-democratic solutions.

So governments beware! Your support of neoliberalism is planting the seeds for your own downfall.

What do you think?
Is One Nation and the rise of right-wing parties around the world simply a reaction against neoliberalism?

How long can democracy survive if governments continue pursuing neoliberalism?

Let us know in comments below.


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Are governments ready for the coming economic and social changes?


In 1930 John Maynard Keynes predicted widespread technological unemployment ‘due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour’.

In the decades since there has been rapidly increasing technological change but employment has generally been increasing, matching population growth, although not without winners and losers. The creation of new jobs often lags behind the pace of loss of jobs (as Keynes predicted) and those who have lost jobs are not always the ones who take the new jobs — they are often taken by the new generation.

Since the GFC, governments around the world have felt constrained in responding to the changes in the workforce because they lack money — they are in debt — and are being told by mainstream economists that they must return to budget surpluses. People losing their jobs are not being provided the full range of assistance they need to re-enter the workforce nor, in some cases, even the support to sustain themselves and their families whilst unemployed.

That is a direct result of the dominant neoliberal economic approach adopted by so many Western governments. The neoliberal emphasis on debt also has political implications and the following, although written about the US, could readily apply in Australia:
Indebting government gives creditors a lever to pry away land, public infrastructure and other property in the public domain. Indebting companies enables creditors to seize employee pension savings. And indebting labor means that it no longer is necessary to hire strikebreakers to attack union organizers and strikers. Workers have become so deeply indebted on their home mortgages, credit card and other bank debt that they fear to strike or even to complain about working conditions.
While the neoliberal approach remains in place, governments will not be well-placed to respond to current and coming changes in the economy and workforce — selling public assets to reduce ‘debt’ will not help people. Modern Monetary Theory (MMT), on the other hand, offers an approach in which sovereign currency-issuing governments are not so constrained. It is possible for a government to both retain public assets and have the money to provide more programs and assistance to people in these times of economic change. Unless governments embrace a new economic approach like MMT, then the technological unemployment predicted by Keynes is likely to be a real outcome.

The spread of robotics and computerisation throughout the workforce is already happening without us being fully prepared. While there is talk of the need for improved education in things like STEM, computer coding and even innovative approaches, and of the need for a flexible, agile and innovative workforce, these are essentially economic issues and we seem to be ignoring some wider social implications.

A basic question in the rise of robotics is that of ethics. One writer raised an interesting ethical question in the scenario of driverless vehicles: if a driverless vehicle ‘perceives’ that it is about to be involved in an accident and the only pathway to avoid the collision may involve hitting a woman with a pram, which decision will it make? A human would likely make a moral judgment to face the accident and minimise the impact by braking, swerving slightly or whatever action is appropriate but will an automated vehicle see saving itself as the primary response? Whether driverless vehicles can ‘learn’ to place humans first in such situations is debatable. While theoretically driverless trucks seem to be one of the next major targets of computerisation, I think there are still issues to be resolved but I doubt they will be prior to their introduction as the economic imperative will over-rule the ethical.

Computerisation generally will displace many people from their current work, as discussed in more detail in ‘An economy without people’. New forms of work will emerge but how long will that take? Much of the new work will require higher level skills: will we have the capacity to retrain people for the new jobs or do they simply move to the ‘scrap heap’ to be replaced by the next, better educated, generation? As unemployment increases, how will governments respond? If our government is already complaining about welfare costs, it will find it difficult to provide for the new unemployed as computerisation pushes further into the workforce. With an ageing population, there should be a need to keep more people in the workforce but that may no longer be possible.

Some unemployed may voluntarily enter ‘the gig economy’ to help tide them over. But the gig economy may also be on the rise as companies decide it is more ‘efficient’ (cheaper) to hire workers only as they are needed for specific tasks or projects rather than maintain a larger full-time workforce, meaning many more people will be forced into the gig economy. While for people it is ‘the gig economy’, for economists and businesses it is the ‘on-demand’ economy: that difference in terminology also shows how people can be removed from consideration in the coming changes. Whatever it is called, it will have many implications.

Nick Wales at the UNSW Business School has raised one basic concern:
“It polarises people”, says Wales. “Is this creating communities of entrepreneurs who have been marginalised from the traditional economy, such as housewives, students, retirees and immigrants, offering them the flexibility of part-time working? Or is it an underhand way for businesses to get around labour laws and pay these contractors low wages?”
If more and more people are working in the gig economy and on short-term contracts, what rights will workers have? They will not have paid sick days or holidays, or protection from unfair dismissal. Even many occupational health and safety rules may not apply. They will also need to provide for their own superannuation but the extent to which they can may well depend on how much they are able to earn. And will unions find new ways to cover them or is this the final death of unions? (If the role of unions diminishes even further what impact will that have on the future structure of the ALP?) Will these gig workers be treated as, or choose to become, small businesses? We have already seen the problems created by the use of ‘contract workers’ and in the new economy that looks set to expand exponentially.

How do banks respond to people who do not have full-time work/regular income if they are working gigs? At the moment, loans to such people would either be out of the question or, at best, be classified at high risk of default. If, however, this form of work becomes normal for a large proportion of the workforce, banks simply cannot ignore such a significant customer base. There will need to be innovative products that cater to the needs of such customers.

Banks may become more important in another way. There is a possibility that people will become more reliant on debt (loans and credit cards) to carry them through between gigs. It may be in the interest of banks to move into areas of lending currently dominated by the so-called ‘payday lenders’ as there is likely to be a growing market for such short-term products. Banks will have much thinking to do about their role in the new economy.

The gig economy has implications for how government views employment and unemployment as the 37-hour week may no longer be the norm. The OECD is already working on new indicators for employment and unemployment. It is likely, however, that any new definition of ‘employment’ will reduce access to unemployment benefits as it is likely to involve shorter periods of work. Even paying unemployment and other welfare benefits in their current form may no longer be appropriate as they are tied to levels of income. The ‘paperwork’ (data entry) involved in making constant adjustments as people move in and out of short-term jobs (some very short-term) will become onerous as the number of gig workers increases. New forms of payment may be required.

Then there are issues of government regulation and taxation. Already the ATO has ruled that Uber drivers must register for and pay GST as they are providing a ‘taxi travel service’. Current taxi drivers believe Uber is not competing on a level playing field because it does not need to meet the same licence and safety regulations. Victorian cab drivers are protesting a Victorian government announcement that it intends to deregulate the industry. While that may create the level playing field the drivers are seeking, they are not happy that the Victorian government is offering to buy back current taxi licences at a price below what many paid.

On the other hand, if more ‘workers’ are operating as contractors and small businesses, what impact will that have on government revenue, particularly if the push continues to lower company tax rates? Governments may need to reconsider that approach as ‘company tax’ could conceivably become the biggest source of revenue as more people in the gig economy register as small businesses to reduce their taxation.

Deregulation and ‘contract work’ or operating as a small business do not provide the full answer — although it will be attractive to the neoliberal economists and, as such, support for those approaches may be the advice that governments receive. It would mean a large workforce not protected by any provisions for safety, holidays, superannuation nor even hours of work. As Wales suggested, it would allow companies to under-cut existing wage structures and make full-time employment even less attractive for other competing businesses, creating a feed-back mechanism encouraging further use of gig workers.

The Aspen Institute in the US, however, does not believe that governments should regulate but allow companies, workers and consumers to experiment with new models:
… that can begin to give shape to a social contract for a changing economy and new century. We need a better system that ensures workers have the stability and security they need, without stifling innovation or undermining the flexibility the on-demand economy offers.
While suggesting that ‘stability and security’ are required for workers it is basically leaving that to ‘the market’ to determine. Given the history of market solutions, I would have no faith in it reaching a suitable arrangement — because, as explained in the first article in this series, ‘the market’ after all is people manipulating trading for their own advantage and it is to their advantage to have an insecure workforce that is less likely to make demands regarding wages and conditions. Government, even if intending to allow such an approach, must hover at the edges and be prepared to regulate minimum conditions.

While a new economic approach like MMT will help governments understand that they do have the money to deal with problems, it is not the answer to all the issues I have raised (it is, after all, a macroeconomic theory). I am concerned whether its Job Guarantee can be used in the new economy or whether it, too, is based on a model of full-time employment.

At Davros earlier this year, a report to World Economic Forum stated:
During previous industrial revolutions, it often took decades to build the training systems and labour market institutions needed to develop major new skill sets on a large scale. Given the upcoming pace and scale of disruption brought about by the Fourth Industrial Revolution, however, this is simply not an option. Without targeted action today to manage the near-term transition and build a workforce with future proof skills, governments will have to cope with ever growing unemployment and inequality, and businesses with a shrinking consumer base.
So the final issue is that it is not just workers who will suffer. Robotics, computerisation and an increasing number of gig workers will each contribute to ‘a shrinking consumer base’ and that has implications for business survival — in essence, their rush to reduce costs could be creating the conditions for their own demise. That in turn will impact government revenue in lower company and individual tax revenue — but only if they continue to cling to the neoliberal economic approach. If there is a silver lining to this ‘cloud’, it may be that the neoliberal economic approach will be shown to provide an inadequate response to the new situation.

With the possibility of declining consumption and problems redefining employment and unemployment, the concept of a ‘universal basic income’ may gain more traction. Although a proposal to introduce such a payment was recently voted down in Switzerland, it is being considered in Finland and the Labour Party in the UK has begun discussing the concept. In simple terms it is an income payment made to every man, woman and child. It has the potential to replace virtually all welfare payments including pensions, unemployment benefits and family support payments for children: in the case of unemployment, it would remove the need to redefine ‘employment’ to meet the circumstances of the new economy. As it would be paid to everyone, it means those who are working would also receive the payment and it becomes necessary to apply tax to the payment so that those who are in work return a much greater proportion of it in the form of tax. Even the MMT approach would require taxation of such a payment to ensure that it did not create demand beyond the productive capacity of the economy. For businesses it would help maintain the consumer base and so be of benefit to them. With fewer workers, the productivity benefits of robotics and computerisation will not be spread throughout society but further concentrated in the hands of the company owners and shareholders, unless something like a universal basic income is adopted. As robotics and computerisation spread and replace major portions of the workforce, such an approach may become the only viable option.

It appears we have a rocky road ahead. Governments will not be able to respond effectively if they cling to neoliberal economic approaches. Avoiding regulation and spending, and leaving resolution to ‘the market’ will be a recipe for disaster and even businesses will suffer. Without new approaches we will continue to have an economy in which people are placed last and well-being is barely a consideration.

It is time this conversation began because if we leave it until the impact is being felt, it may be too late to avoid a major economic downturn, ironically created by the very process businesses thought would boost their profits.

What do you think?
Are businesses blindly pursuing robotics and computerisation without fully understanding the wider implications?

Can ‘the market’ be trusted to reach new solutions or must governments first find new approaches (including MMT) to protect the people?

Let us know in comments below.


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What is Modern Monetary Theory and will it help?


Modern Monetary Theory (MMT) is a macroeconomic theory for the current age in which governments have abandoned the gold standard and also floated their currencies. It is ‘macroeconomic’ and ‘monetary’ because many of its conclusions relate to the money supply in an economy. Does it offer scope for a new economic approach recognising people? Can it better assist responses to robotics and computerisation than current economic approaches?

Historically, gold was important because coins were minted from it (and silver). Even when coins were no longer minted in gold, the currency issued by governments was convertible to gold and governments needed to hold sufficient gold reserves to satisfy a potential demand from all holders of their currency — that was the gold standard. In that situation governments could not spend without first taking money from the economy (taxation) because the money supply was limited to match the quantity of gold. Following WW2, fixed exchange rates also meant that governments, through their central banks, had to defend the rate they had fixed by buying or selling their own currency in international money markets: that also affected the money supply in their home economy and also placed limitations on government spending. Floating currencies now allow central banks and governments to target domestic economic policy goals knowing that the floating exchange rate will resolve the currency imbalances arising from trade deficits or surpluses.

MMT points out that much economic thinking since the 1980s operates as though the gold standard is still in place — namely, that governments can only fund their spending by taxation and therefore deficits are bad — but some MMT proponents and supporters argue that this has ideological (neoliberal) rather than genuine economic underpinnings.

Since the abandonment of the gold standard, most countries, including Australia, now have a fiat currency — that is, it is created by government fiat (decree) — and it has no intrinsic value. My $50 note is not matched by $50 worth of gold any longer, nor is my plastic note worth $50 itself (in 2012 Australia’s polymer notes cost 34c each on average to produce irrespective of their face value). My note has value only because the government decrees it has and the government is the monopoly provider of currency: therefore it is the currency I need to participate in the economy and to pay taxes.

MMT places this new reality at the centre of its approach. A sovereign government issuing its own currency can never run out of money, never go bankrupt or default on its ‘debt’. That in a sense was Greece’s problem: as part of the Eurozone it was no longer an issuer of its own currency. In that circumstance, as for the states within a sovereign nation, the oft-used analogy of a household budget still applies but it does not apply to the sovereign issuer of a currency.

The ‘sovereign issuer of currency’ argument leads to probably the most well-known and sometimes controversial aspect of MMT, that a government can always ‘create’ money. The critics argue such printing of money — although these days it actually requires only a few keystrokes on a computer to create deposits in the private banking system — will lead to hyperinflation as in Zimbabwe or the Weimar Republic in post-WW1 Germany. MMT accepts that inflation is one factor that imposes a limit on government spending but that limit is not reached until all the ‘real’ resources of the economy are fully utilised — all human resources (full employment) using all available physical resources. If a government continues to spend after that, then dangerous inflation may result but, prior to that point, MMT argues that government spending to assist utilisation of available resources will not lead to uncontrolled inflation. For MMT, the issue is not just money but the real human and physical resources that are available to the economy and not currently being used:
If there are slack resources available to purchase then a fiscal stimulus has the capacity to ensure they are fully employed.
As a means to help control inflation, current mainstream economic thinking accepts the Non-Accelerating Inflation Rate of Unemployment (more commonly known by its acronym, NAIRU). The Australian Treasury uses NAIRU in its modelling as the basic foundation of longer-term stable inflation — currently the NAIRU in Australia is 5% unemployment. Before NAIRU, full employment was taken to mean there would be about 2% unemployment, allowing for people moving between jobs or unemployed short term for various reasons. In practice, NAIRU provides a ‘buffer stock’ of unemployed which basically means that having those extra unemployed, above the previously accepted 2%, provides downward pressure on wages growth because the unemployed are more willing to accept lower wages simply to have a job. The argument goes that if unemployment falls below the NAIRU level the competition for workers will mean employers accept demands for higher wages thus leading to higher inflation. (Despite the whole capitalist free market system being based on competition, whenever workers appear to have a competitive advantage it is decried as a threat to the economy!)

MMT rejects the NAIRU and instead proposes a Job Guarantee for the ‘unemployed’, sometimes referred to as ‘transitional employment’ which probably describes it better. As opposed to the NAIRU ‘buffer stock of unemployed’, MMT offers a ‘buffer stock of employed’ but this is done at a ‘fixed price’ — in Australia this would be the minimum wage, inclusive of standard employment conditions. It means the government supports employment until such time as a person obtains higher paying mainstream work and it will be in productive work using under-utilised resources:
What matters … is whether there are enough real resources available to produce goods and services that are equal in value to the government’s job-guarantee spending. If these resources are available — if they are not already being used to produce something else — then the increased demand that results from the payment of job-guarantee wages will not be inflationary, regardless of what they go to produce.
On broader monetary issues, MMT says that there can only be saving in the private sector, inclusive of banks, businesses and households, if the government spends more than it collects in taxes: that is, only when the government adds money into the economy can there be private sector saving as well as investment.

A good, simplified explanation of this was provided by John Carney at CNBC in 2012:
The MMT people aren’t actually referring to you and I saving. They aren’t even talking about the entire household sector saving financial assets. They are talking about the entire private sector spending less money than it earns.

You can easily see why this would be impossible without the government spending more than it collects. Every dollar someone is paid is a dollar someone else has spent. If we all — every single person and company — spend less than we are paid, very quickly we will find we have to be paid less. The aggregate effect of savings is to reduce the total amount people are being paid for things.

So this is what MMT people are talking about when they refer to a “private sector desire to net save.” They mean that if you add up all the earning, spending and savings of every person and company in the economy outside of the government, sometimes you find that the private sector is trying — nearly impossibly — to earn more than it spends.

The only thing that can make private-sector net savings possible is government spending. If the government spends more than it takes in taxes, the private sector can earn more than it spends. Remember, if everyone pays less than they earn, some outsider must be paying more than he earns.
The MMT equation for this is:

(G – T) = (S – I)

Or in words, government spending (G) minus taxes (T) equals private saving (S) minus gross private investment (I). This is so because in macroeconomic terms the two represent the entire amount of money in the economy. And the other key of this equation is that it shows that money does not come into being in the private sector unless the government has first spent it (over many years now).

MMT points out that when governments run surpluses it leads to an increase in private sector debt because, in that circumstance, if the private sector wishes to save and invest, it has to borrow from the existing pool of money (and the government surpluses are actually reducing the money supply). This is explained by the concept that transactions between banks, businesses and households are ‘horizontal’ transactions and cannot change the amount of money in the economy (liquidity). Only a ‘vertical’ transaction between the government and the private sector can change liquidity (MMT includes both the treasury and central bank when it talks of ‘government’).

In the USA, on all occasions when the government has run surpluses, and reduced debt for a few years, it has been followed by recessions or depressions. Arising from the indebtedness forced on the private sector by the government surpluses, there comes a point when the private sector reduces spending because it cannot afford to take on more debt, thus creating an economic slow-down. In such circumstances, only government spending can relieve the situation. (It is also of interest that since 1776 the US government has been in debt in every year except for the years 1835 to 1837.)

In a globalised world, however, national economies do not operate in isolation so one more aspect needs to be added to the equation: exports (X) and imports (M).

(G – T) = (S – I) ‒ (X – M) or

(G – T) + (X – M) = (S – I)

If a country has a trade surplus that adds to private savings. Many countries, however, as Australia, operate a trade deficit which means that private sector saving is reduced and more reliant on government spending. And at a global level the nett outcome of all countries’ trade must sum to zero, so it is impossible for every country to run a trade surplus — a surplus in one country necessarily requires a deficit in other countries. So a trade deficit or surplus is not bad in itself but does affect private sector saving and creates more need for government to adjust its spending appropriately.

Although even MMT still talks about deficits and surpluses, my reading is that those words are less relevant in MMT. If a government can create money it can never really be in deficit (except perhaps in a point-in-time accounting sense). Even claiming that the deficit represents spending more than collected as taxes is not relevant. MMT says that the government does not need taxes in order to spend — it can always create whatever money it needs. The real purpose of taxes is to take money from the economy or, in economic terms, to reduce liquidity, meaning there is less money to spend and thereby total demand across the economy is also reduced. What taxes can achieve is to create ‘space’ for government spending. If an economy is already running at capacity and the government continues to spend, that is increases liquidity and demand without first making space for that spending, then high levels of inflation may result because there is more money in the economy to buy the same amount of goods and services, meaning people competing for those goods and services are willing and able to pay higher prices to obtain them. So taxes can be important in allowing government spending without dangerous inflation but are not necessary in themselves for that spending.

Similarly MMT argues that the sale of government bonds is not necessary to fund government ‘debt’. So-called ‘debt’ can actually be met at any time because the government can ‘create’ the money to do so. But as always the limiting factor is controlling demand in relation to the capacity of the economy so as not to allow dangerous levels of inflation.

MMT’s explanation is that the sale of government bonds is primarily a means of controlling interest rates: this relates to the overnight commercial bank reserves placed with the central bank but I won’t attempt to explain how that works. (This interview with Bill Mitchell for the Harvard International Review provides an explanation and also a good summary of MMT.) A secondary reason is that banks, financial markets and the private sector generally, desire government bonds as a safe haven to park money. Here in Australia, that became obvious during the Howard/Costello years when the government paid down its debt and saw little need to make new bond issues but the private sector complained and the government had to issue more ‘debt’ even though it had no debt: that fact alone gives credence to the MMT argument.

Although the approach is called Modern Monetary Theory, it places more emphasis on fiscal policy. Bill Mitchell writing on the current economic problems said, ‘until we stop relying on monetary policy and restore fiscal policy to the top of the macroeconomic policy hierarchy, nothing much is going to change’. Mitchell argues that governments have been using the wrong approach to overcome the current economic stagnation affecting many countries:
It is not that they have run out of ammunition. They have been using the wrong ‘ammunition’. For example, trying to drive growth with low or negative interest rates failed to work because the lack of bank lending had nothing to do with the ‘cost’ of loans.

It had all to do with the dearth of borrowers. Households, carrying record levels of debt and facing the daily prospect of losing their jobs, were not going to [start] suddenly bingeing on credit again.

Business firms, facing slack sales and a very uncertain future, could satisfy all the current (low) levels of aggregate spending in their economies with the existing capital stock they had in place and therefore had no reason to risk adding to that capital stock.
In the MMT model, the remedy to many economic problems is fiscal stimulus not austerity which only exacerbates the problems. And as a sovereign issuer of currency the government always has the capacity to provide such a stimulus when there are under-utilised resources in the economy.

Using fiscal policy, and the knowledge that governments can spend as much as they wish, limited only by available real economic resources and inflationary impacts, MMT suggests that the real issues are social policy issues. The debate should not be about ‘debt and deficit’ but what we as a society wish to achieve, wish to become, and, within the limits mentioned, governments do have the capacity to meet those goals. For me that is an important outcome from MMT, not just that it offers a new economic approach but that it offers scope for a new policy and political approach. To that extent, it does allow space for people by creating an economic approach that recognises social policy goals are of critical importance and the ability to achieve them is not so limited or proscribed as it is by existing neoliberal economic theory. For that reason alone MMT deserves more attention.

Next week, in the last of this four-part series, I will consider whether governments are ready for the coming economic and social changes.

What do you think?
Can MMT really change government thinking and overcome current neo-liberal approaches, not just in government but in Treasury?

Will it take a new generation of economists before MMT is accepted? Will that be too late to help the people?

Let us know in comments below.


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An economy without people


Last week I suggested that modern economic theory has lost sight of people but the reality is now becoming that many segments of the economy require fewer people to undertake the work and that has serious implications not just for the people losing their jobs but for the broader economy.

The loss of jobs is not new. In Australia since the 1970s there has been an ongoing loss of un-skilled jobs, particularly for males. In 2006 Sue Richardson, with the National Institute of Labour Studies at Flinders University, wrote in Unemployment in Australia:
By 2001, at every age, at least 20 per cent of men with no post-school qualification were not in the labour force. These men have not withdrawn from the workforce because they have handsome alternatives that mean they do not have to work … Overwhelmingly, the reason they are not in the labour force is because they cannot find work and have given up looking.
And in 2004 Bob Gregory wrote in Between a Rock and a Hard Place: Economic Policy and the Employment Outlook for Indigenous Australians:
An exceptional feature of the Australian labour market over the last three and a half decades has been the loss of unskilled male full-time jobs. This loss has been so substantial that as a proportion of males 15‒64 years of age one full-time job in four has disappeared. Most of this job loss has fallen upon the unskilled …
At the same time there were skills shortages. In September 2004 the Australian Industry Group reported a shortfall of between 18,000 and 21,000 in the manufacturing sector for skilled tradespersons.

And a shift in the make-up of the workforce was already occurring. In 2006, the then Department of Employment and Workplace Relations (DEWR) reported that between 2001 and 2006, 78% of new jobs were created in the four most highly skilled occupational groups: Professionals (17.4% growth), Associate Professionals (18.3% growth), Managers and Administrators (28%) and Tradespersons (10%) but job growth for Labourers had been only 0.6% in that five-year period.

Skills shortages continue. In February this year the Department of Employment published its list of occupations in which there were shortages during 2015. Twenty-five occupations were experiencing national shortages, including higher level occupations like surveyors, optometrists and audiologists. The list included trades such as motor mechanics and automotive electricians, bricklayers, glaziers, roof tilers as well as wall and floor tilers, air conditioning and refrigeration mechanics, chefs, hairdressers and cabinet makers.

The department also released its jobs outlook, Australian Jobs 2016. Overall employment was projected to grow by 8.3% over the next five years which appears to be little more than matching population growth. Six industries were expected to grow by more than ten per cent: Accommodation and Food Services (12.0%); Arts and Recreation Services (10.8%); Education and Training (13.0%); Health Care and Social Assistance (16.4% and it is also the largest industry by employment numbers); Professional, Scientific and Technical Services (14.8%); and Rental, Hiring and Real Estate Services (11.9%). Employment in Mining will decline (‒14.1%) as will Manufacturing (‒5.3%) and Agriculture, Forestry and Fishing (‒3.1%).

When it comes down to occupations ‘Professionals’ provided 41% of new jobs from 2010 to 2015 and employment is expected to grow by 14.5% to the end of 2020. Seventy-four percent of professionals hold a university degree. Professionals are also more likely than other workers to work full-time.

In that period of five years up to 2015 ‘community and personal service workers’ provided the second highest proportion of new jobs, 22% (they also make up about 10% of all employment). Their employment has grown by 16.3% since 2010 and is expected to grow by another 19% in the next five years. Nineteen percent hold a university qualification and 42% a VET Certificate III or higher but 55% are employed part-time. It includes child, aged and disability carers, waiters and bar attendants and baristas.

Technicians and trades work provided 11% of new jobs up to 2015 and employment grew by 5.2% in that time and is projected to grow 5.5% in the next five years. Most of these workers are employed full-time and 62% have a VET Certificate III or higher.

Among the lower-skilled occupations there were, late in 2015, 1.7 million clerical and administrative workers, 1.1 million sales workers, 1.1 million labourers and 740,000 machinery operators and drivers which is still about 40% of the Australian workforce. Their projected growth to the end of 2020 is 1.6%, 9.3%, ‒1.3% and 1.0% respectively. The groups include receptionists and office managers, checkout operators, real estate agents, truck drivers, forklift drivers, delivery drivers, cleaners, kitchenhands and packers, as well as labourers.

The more rapid projected expansion of highly qualified occupations appears consistent with the experience in America identified in 2013. But in America there had also been a loss of middle-ranking jobs, largely due to the automation of routine tasks, not only for manual labour (classified as routine manual work) but by the computerisation of office, sales and administrative work (classified as routine cognitive work). There had been an increase in the number of jobs for non-routine work, both cognitive and manual. The former (non-routine cognitive) requires higher levels of education and generally commands higher wages, but the latter (non-routine manual) involves work such as cleaning, food services, security services, home help, and so on. This is leading to a polarisation of the workforce in America, with more high-paid jobs, more low-paid jobs, and fewer in the middle.

The basic problem with those projections is that they are based on what has already occurred and do not take full account of the increasing pace of technological change nor the areas into which it might move in the coming decades (and the Australian projections are short-term, only for five years).

In January this year CSIRO (and Data 61) released Tomorrow’s Digitally Enabled Workforce in which it found that up to 44% of current Australian jobs were under threat of being replaced by robotics and other computerisation. It found that, as yet, there was no evidence of the ‘hollowing out of the middle’ in Australia but it did find:
… Australian men, particularly single men with less education, are becoming increasingly likely to drop out of the labour force. … Despite strong jobs growth in the service sector, it appears that for a growing number of men the labour market has little to offer unless they re-train.
That reflects the earlier findings of Sue Richardson and Bob Gregory. But it also found that in the future there will be a greater need for individuals to create their own jobs and even a need for higher skill sets to access entry-level positions. So a new flexible education will be required. Similarly, workplaces will need to be more flexible (which can also lead to greater casualisation and use of contract workers). Some changes, however, may lead to greater disparity in regional areas, particularly for older workers: past experience suggests that displaced older workers in regional areas do not relocate to find work but, if forced to, will relocate to cheaper housing in the same location. So new approaches to unemployment and transition to work will be required.

The difficulty with the emphasis on education and higher skills is that has already been happening in America but simply creating an oversupply. It was found that highly educated workers were being pushed down the employment ladder into lesser-skilled positions, pushing the low-skilled further down or out of the workforce altogether.

The CSIRO report did not go into the detail of individual jobs but its estimate of jobs at risk was based on a model used by Oxford University researchers who did a study of the US labour market: The Future of Employment: How susceptible are jobs to computerisation? That report found that 47% of US jobs are at high risk of computerisation. Given the work currently being undertaken on driverless cars, it is foreseen that in the next decade or two driverless trucks will become the standard form for movement of goods and many truck drivers will become redundant. Some have suggested that on major inter-state routes driverless trucks should actually have their own lane. So governments will also need to respond to those changes.

In Australia, Rio Tinto is already automating its Pilbara iron ore mines with driverless trucks and automated charge drilling and setting machines, and is also hoping to have driverless trains to deliver the ore to port (tests have been conducted but recent software glitches have delayed implementation). That is an example of even some skilled work being automated but the huge driverless trucks do require the worksite being ‘landscaped’ to suit.

As more data becomes available and can be stored, office and administrative support positions will be affected and further encroachment into manufacturing will take place. Even aspects of the construction industry could be affected as robotic prefabrication of parts takes place in factories, requiring fewer workers for the actual construction and even circumstances where robots can piece the prefabricated parts together on-site (as has already occurred in Japan).

The availability of ‘big data’ is important in expanding the reach of computerisation. For example, an American oncology centre is using computers to provide chronic care and cancer treatment diagnostics. This could be done because data from 600,000 medical evidence reports, 1.5 million patient records and clinical trials, and 2 million pages from medical journals were able to be stored and used for ‘benchmarking and pattern recognition purposes’. Examining such a vast amount of data would be impossible for a human but not a computer (if it is programmed correctly). As more ‘big data’ becomes available computers will expand their reach.

The report into the US workforce also found that automation will move into non-routine manual work in sales and services. A simple example is the increasing availability of robotic vacuum cleaners capable of replacing at least one task of a hired cleaner: how many other tasks will follow? This follows the historical pattern of technological change, namely breaking down apparently ‘skilled’ jobs into smaller unskilled components — the move from the traditional skilled ‘carriage builders’ approach to early car manufacture to Henry Ford’s production line manned mostly by unskilled workers. If this prediction proves correct, the growth in low-skilled service jobs that has been occurring in the US will actually begin to reverse during the next couple of decades.

This does not mean that all jobs in these areas will be lost but a significant proportion will be.

Jobs least affected will be those requiring creativity and social skills:
… generalist occupations requiring knowledge of human heuristics, and specialist occupations involving the development of novel ideas and artefacts, are the least susceptible to computerisation.
Others have since suggested that even some creative work can be done by computers: already there are computers capable of creating musical scores (no doubt based on ‘big data’). If that continues into the future, and AI becomes a reality, there will be almost no job that is not at risk.

This new world is giving rise to what is known as ‘the gig economy’. This means that, like a band of musicians, people will work ‘gigs’ for which they must search.

A study released in January this year by The Aspen Institute in the US found 45 million Americans (22% of adults) were working in the gig economy providing ride sharing, accommodation, food delivery and other platform-based services. For 14 million it was their main source of income and just over half, 23 million, were young, aged 18‒34.
However, most workers (72 percent) believe companies should be doing more to provide benefits, and more than two-thirds worry that as independent contractors and not employees, they don’t have a financial safety net.
Anecdotal evidence from participants suggests that many, but not all, see such ‘work’ as extra income to meet bills and so on, or as income in periods between mainstream permanent work. Or they are working many jobs to achieve a reasonable income and that can create problems — such as lack of sleep. Some examples:
[young woman in Turin]
I keep busy but I have to constantly juggle different gigs every day … What scares me most is that I have no guarantees, no steady pay, no stability. Everything could end overnight, so I can never make long-term plans.


[Uber driver in Los Angeles]
In the short term, this way of working works, but there is a long-term downside. It’s very difficult to build a future, to save for a downpayment on a house, say, or to save for [a] college fund, on a full-time Uber driver salary or even if you combine multiple freelance services.


[Airbnb host, charity worker and interior designer]
I definitely advocate this way of working, but it’s not for the faint-hearted — if you’re working three or four jobs in a day, you need to be very disciplined and have a keen sense of priority. You have to be a bit of a workaholic: finding the balance and boundaries to fit everything in can be a bit of a juggle. And obviously not having paid time off is a downside.
Some professionals can do better in the gig economy as the internet (and specific sites) allow them access to a much wider range of clients in a much wider range of locations. For some, whose work can be done over the internet, the location of the client no longer matters and, therefore, having access to a larger number of potential clients is an advantage. Conversely, the sites involved also permit potential clients to more closely match the skills of their selected professional to the work required.

Companies will rely less on full-time employees and will hire on a task or project basis. This will apply across many job categories, not just professionals. Companies will be able to hire the specific skills required for a single task, so the work could range from a few hours to a few days. People will be able to specialise and offer their skills to many clients. But this will also spread the problems described by people currently working in the gig economy.

Such an approach is already moving down the employment ladder to very mundane tasks, and to ‘micro-tasks’ such as tagging images, extracting keywords, checking address data, which sometimes may be no more than a few minutes work for each ‘job’. These are termed human intelligence tasks (HIT):
At the time of writing [August 2015] there were about 300,000 HITs on offer on AMT [Amazon Mechanical Turk]. An average Turker (as they are referred to by AMT) can expect to earn US$2 to US$5 per hour on a good day but there’s no guarantee in terms of regular work availability.
Not all of these jobs will remain. Uber, for example, is already investing in and preparing for driverless vehicles. And computers can already undertake some of the minor tasks currently available. Whether people can be prepared in time for the new jobs that may emerge, or there will simply be massive unemployment, will be the big question.

All of the above may prove to be wrong as we do not have a very good record predicting the future — some things change less than we foresee while we seem to completely miss other significant changes. In the 1960s some popular magazines were predicting that by the early 2000s we would have flying cars, or at least hover cars. I also recall a television program from that time, specifically looking at future change, that predicted we would be required to work only ten hours per week in the new millennium to maintain our lifestyle.

Cars have changed, being more luxurious and incorporating many more safety features than in the 1960s but they still have wheels and still require roads. And, in Australia prior to the GFC, individual work hours were increasing, not decreasing. Our lifestyle has changed: the average new house is now twice the size it was (as is the cost); more homes incorporate central heating and/or air conditioning; televisions have grown both larger and smaller and few households are now satisfied with only one. But the biggest change that few, if any, predicted was the explosion in digital technology; the rise of computers, the internet and the information age; and now the portable devices that allow us to access that information at any time and almost any place.

So do we have the rise of robotics and ‘the gig economy’ right? We cannot say with certainty. But to the extent that they are already happening we do need to plan for them and consider their ramifications both for people and the economy as a whole because so much work will no longer require people, or require them for only short durations. We may not get it quite right but we cannot ignore it.

Next week I will consider Modern Monetary Theory (MMT) and what it may offer to meet the challenges of the new economy.

What do you think?
How far can robotics and computerisation go in reducing the need for humans? Is there a limit?

Will unions themselves become redundant if more and more people do not have work or enter (or are forced into) ‘the gig economy’?

Let us know in comments below.


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Modern economics has lost sight of people
Ken Wolff, 7 September 2016
This is the first of four articles looking at particular changes, and potential changes, in our economic environment and approach to economics generally.

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2353NM, 11 September 2016
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Modern economics has lost sight of people


This is the first of four articles looking at particular changes, and potential changes, in our economic environment and approach to economics generally.

For those who have followed my pieces on TPS you may recall that I am qualified as a social anthropologist. I take the anthropological view that economics is about how a society uses and distributes its resources — that is any society, whether hunter-gatherer or a modern technological society. It is a view that raises some questions about our modern approach to economics.

Basically the ‘use’ of resources includes a social responsibility for sustainable use so that resources can be utilised by others when required and also be available for future generations. And ‘distribution’ of resources includes a social responsibility to ensure that everyone in a community gets a reasonable share to enable them to survive comfortably within the context of their society.

Classical Western economics, however, is based on the tenet of the rational self-interested individual: that people make rational choices in the market that best provide ‘utility’. ‘Utility’ is something that provides the user/purchaser with satisfaction and/or meets their desires in some way. Adam Smith also introduced the concept of the benevolent ‘invisible hand’ whereby decisions made in an individual’s self-interest actually prove beneficial for society.

In classical economics there are also the concepts of ‘perfect knowledge’, by which the individual makes rational decisions based on information about all the prices in the market, and ‘perfect competition’ by which a product reaches an equilibrium (supply matching demand), and its price also reaches an equilibrium for all suppliers of that product, meaning there is then no competition nor need for advertising of the product. Of course these do not exist in the real world. Neither are individuals always rational in making their decisions in the market. So what was classical economics actually describing?

Even the concept of the market needs exploring. Markets of course go back millennia but the concept of the market has changed over time. Early in human history people shared goods, then exchanged surplus goods for other desirable goods and, as villages and towns developed, for services. Money eventually became the medium of exchange for any good or service.

Markets were not always based exclusively on the individual. In medieval Europe if a merchant from town A left debts when he departed town B, the merchants from town B didn’t pursue that individual merchant directly but would detain the next merchant who arrived from town A and hold him until he, the original merchant, or anyone from town A paid the debts. In that sense, the role of the individual in the market wasn’t as important as it later became — at that time it was believed that the community from which the merchant came also had a responsibility for his behaviour (and his debts). Subsequently merchant guilds were formed in which debts could be settled and over time that grew towards individual responsibility for the settlement of debts.

The other concept relevant to the modern market is private property. While the idea of private property now dominates our economic and social thinking it was not always so. Even in medieval England when land was held by dukes, barons and the like, there was common land used by the serfs, so both common and private property co-existed. It is estimated that, although serfs had to provide labour to the rich landholders, by using the common and small plots around their own dwellings they were actually able to keep from 50% to 70% of the product of their own labour. An industrial labouring class was created during the industrial revolution with the enclosure of the commons (in modern parlance, the land was privatised) and poor farmers and rural labourers no longer had access to that land to supplement their incomes and so had little choice but to work in the factories.

In the market, the logic is that to exchange something I must own it in the first place and the other party must also own what they are exchanging. The logic of that seems apparent when one considers what a thief may offer for exchange: we undoubtedly consider that not to be a fair exchange because the thief does not actually own the item of exchange — or does he? The thief clearly has ‘possession’, so is there a logical difference between ‘ownership’ and ‘possession’ in the economic system?

The emphasis on private property as central to a market economy goes back at least to the 1700s in England. C B Macpherson, a political scientist also trained in economics, argued that political freedom came before economic freedom and was first obtained by the property-owning elites who then used their new political power in their own self-interest to entrench private property rights. And it also goes back in history in the sense that much modern ‘ownership’ is based on past dispossession of previous owners and yet the economic system is based on the modern possession not the historic ownership.

Now private property, whether physical or intellectual, is central to thinking in a modern market and in modern economics.

These concepts were put together by the philosophers Hobbes and Locke but Macpherson also argued that they were bound by the values of their time and hence developed their philosophies around the market, contractual obligations and property; and the concept that an individual is the sole proprietor of his or her skills and owes nothing to society for them — what Macpherson called ‘possessive individualism’.

In rejecting a social element to ownership, economists refer to the ‘tragedy of the commons’ to justify that individual ownership, that is private property, is superior to common or social ownership. Although the idea has a longer history, the phrase came from a paper by Garrett Hardin in 1968. It was suggested that, when people grazed their herds on a ‘common’, a self-interested individual could improve his situation by adding one animal to his herd. The individual would gain the benefit. But if each individual added an animal the common would quickly degrade. While the individuals retained the benefit of having an extra animal, the ‘cost’ (the degradation) was shared, leaving them with a self-interested benefit — before the failure of the system. Following this argument, and its corollary that Adam Smith’s benevolent ‘invisible hand’ of individual self-interest does not work for the commons, economists argue that private property, and the individual’s responsibility for that property, remedies the situation and that became central to modern economics.

That approach is based, however, on a misunderstanding of how commons worked. They were not ‘open access’ as the theory implies. Throughout the world where people shared resources there were usually social and cultural rules that controlled that sharing. In Iceland, for example, the common resource of the fisheries was traditionally controlled by kinship rules that allocated spaces on the beach, that were necessary for launching fishing boats, to individual families. In some communities in India the allocation of the common resource of water for farming was determined by community meetings. People accepted these approaches as essential for the well-being of their communities or, in other words, social responsibility was more important than individual self-interest.

The modern market idea of private property and individual self-interest has basically destroyed social responsibility and the concept of the common good and allowed polluters to pour their waste into the ‘commons’ of the rivers, oceans and atmosphere.

We now use GDP to measure the ‘success’ of our economy but the use of GDP to measure economic activity only arose after the Great Depression of the 1930s when the American government was concerned that it did not see the depression coming. The government asked economic experts for a model that would allow it to keep track of the economy and so have a chance of foreseeing such events in the future.

The use of GDP, however, was being questioned as early as the late 1950s. Even its creator, Simon Kuznets, said that ‘the welfare of a nation can scarcely be inferred from a measurement of national income’.

A major problem with GDP is that it measures only productive activity and takes no account of the losses or costs associated with the activity:
… it tends to go up after a natural disaster. Reconstruction and remediation spur intense activity that is registered by GDP, while the destruction, lives lost, suffering and disruption to families and communities in the wake of a flood, cyclone or bushfire are ignored.
Or as Robert Kennedy said in 1968:
… the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile. [emphasis added]
Yet we still rely on GDP as a measure of a nation’s progress although it has nothing to say about the well-being of the people. Gross GDP per head is sometimes taken as a measure of the economic prosperity of individuals: if that is rising people are said to be better off but it does not tell us whether that prosperity has enhanced ‘happiness’.

There is a long history in which ‘happiness’, or well-being, was removed from economics. A chapter in the World Happiness Report 2013 provided a potted history of the changes in the Western view of happiness: from the Greek philosophers and early Christian church’s view that happiness was achieved by being virtuous, to the economic theory of ‘utility’ in which individualism and consumerism prevailed — the early economic theorists brought material goods into the happiness equation, suggesting that people purchased that which brought them pleasure or happiness (‘utility’). In the twentieth century, however, economics came to be dominated by mathematical formulae and the question of whether market consumption could increase happiness and well-being was no longer a consideration.

Economists claim their field is a science and value free but the economy depends on social values like trust. We cannot even have a ‘market’ unless we trust each other. In a shop, the shopkeeper trusts that I will hand over the money after he hands over the goods or I trust that he will hand me the goods after I give him my money — otherwise we could be there all day arguing over who should make the first move. It could be argued that the behaviour of large multi-national corporations is destroying that trust, as is the use of tax havens to avoid social responsibility. And are we now so distrusting that we require automated payment systems, including even when paying for our goods in supermarkets? — now we have to trust a machine! Human interaction is being removed from the basic market process of exchange.

As Jeffrey D Sachs wrote in the World Happiness Report:
A prosperous market economy depends on moral ballast for several fundamental reasons. There must be enough social cooperation to provide public goods. There must be enough honesty to underpin a stable financial system. There must be enough attention paid to future generations to attend responsibly to the natural resource base. There must be enough regard for the poor to meet basic needs and protect social and political stability.
After all the economy does not exist in its own right. The market and the economy is people, as producers and consumers, as it has always been. It is the approach to it that has changed.

In an article in The Monthly, Richard Denniss argued that we are being led to believe that governments, in making their decisions, have to be conscious of the reactions of ‘the markets’. He wrote that we should remember that ‘markets’ per se do not have feelings, do not have needs or demands. What we refer to as ‘markets’ is actually people buying and selling and attempting to manipulate trading for their own advantage.

So historically we have moved from social co-operation in economic activity to twentieth century economic theories that have reduced people almost to invisibility. We discuss economics in terms of markets, GDP and monetary and fiscal policy as though these are entities in their own right. There is no economy without people, no markets, no goods and services without people as producers and consumers but this now gets less attention. The economy is deemed to have its own ‘scientific’ rules that operate irrespective of people and, as mentioned earlier, can now be analysed simply in terms of mathematical formulae.

Until people are re-introduced into the equation (both metaphorically and literally), the economists will not be describing the real economy nor will those utilising economic theory, such as governments (and their advisers), pay enough attention to the needs of their people. When ‘markets’ and GDP come first, people come last.

We need to measure the well-being of the people rather than only production; we need to pay more attention to the sustainability of our use of resources, not only for future generations but to ensure that current generations have reasonable and continued access; we need to ensure a fair distribution of resources, not only within our own society, but for all people globally; and only then will we have an economic approach that is realistic rather than the narrow view of current economic theory.

Next time, continuing the economic theme, I will discuss ‘an economy without people’ as robotics and other changes reduce the size of the workforce.

What do you think?
Who benefits from economic theory if it does not pay enough attention to people?

Why have we accepted the propaganda that even social progress hinges on the economy?

Let us know in comments below.


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A once and future Senate


We now know that the Senate elected at the July election comprises 30 Coalition members, 26 from the ALP, 9 Greens, 4 from One Nation, 3 from the Nick Xenophon Team (NXT) and one each from Family First, the Liberal Democrats, Derryn Hinch’s Justice Party and the Jacqui Lambie Network. Thirty-nine votes are required in the Senate to pass legislation, so the government will require either ALP or Green support, or otherwise support from nine of the eleven minor party members. Given that NXT has three Senators and One Nation has four, their support for every Bill opposed by the ALP and the Greens becomes essential. It will be a difficult situation for the government but there is another issue I wish to discuss.

Before the election, the Coalition and the Greens combined to introduce a new voting system for the Senate, the aim being to reduce the number of minor parties or people being elected despite starting with only a handful of first preference votes. It did not work this time, largely due to the election being a double dissolution, but will it achieve its aim in the future when we resume the cycle of half-Senate elections?

Senators are elected for six years but on a rotational basis so that half the Senate faces the electorate every three years. After a double dissolution a decision has to be made as to which of the newly elected Senators will serve a full six-year term and which will serve only three before facing an election. There are two ways of doing this.

The common approach has been to use the order in which Senators from each state are elected and give the first six the six-year term, with those elected from seventh to twelfth to serve three years. In a Senate election those with smaller votes are progressively ‘excluded’ and their preferences distributed and preferences from those who have an ‘excess’ quota are also distributed on a proportional basis: as that process unfolds a clear order of election emerges.

The other way, put in legislation by the Hawke government in 1984, allows the Australian Electoral Commission (AEC) to do a recount of the election as if it was a half-Senate election and those ‘elected’ under that count would be given the six-year term. The underlying idea supporting that approach was that using the ‘first six elected’ may have been fair when we had ‘first past the post’ voting but not when we have a proportional representation system: despite that, even after the 1987 double dissolution this method was not used.

Although those two methods are available, the Constitution states only that the Senate itself can decide who will serve six years and who three.

Derryn Hinch had suggested that if he did not get a six-year term he would challenge the decision in the High Court. I am not a lawyer but I don’t like his chances if he carries out that threat. When the Constitution states the Senate can decide, it would seem that it is not even bound to use either of the methods I have described.

It was reported on 12 August that the Coalition and Labor had agreed they would use the ‘traditional’ method of the ‘first six elected’ to determine the six-year Senators. That means the Coalition will have 16 six-year Senators, the ALP 13, the Greens 3 (Di Natale, Ludlam and Whish-Wilson), NXT 2 (Xenophon and Griff) and One Nation (Pauline Hanson) and Jacqui Lambie Network (Jacqui Lambie) one each. So that will be the starting point for a new Senate from 1 July 2019.

At a state level that translates as 3 each from the Coalition and the ALP in NSW; in Queensland, 3 Coalition, 2 ALP and Pauline Hanson; in SA, 2 each from the Coalition, ALP and NXT; in Tasmania, 2 each from the Coalition and ALP, and 1 Green and Jacqui Lambie; and in both Victoria and WA, 3 Coalition, 2 ALP and 1 Green.

I will basically ignore the Senators from the NT and ACT, except in discussing total numbers, because they face election every three years and the territories invariably return one Coalition and one ALP Senator, meaning that we just add two to each major party.

What becomes more important is who will face re-election in three years: 12 Coalition Senators, 11 from the ALP, 6 Greens, 3 One Nation, 1 NXT and Derryn Hinch (Derryn Hinch’s Justice Party), Bob Day (Family First) and David Leyonhjelm (Liberal Democrats). From that list you can see why the Coalition and the ALP agreed to the ‘first six elected’ method: their numbers for re-election are close and 13 of the 20 cross-benchers have to face re-election. In that regard, the government may be relatively content with the outcome from the new voting procedure and see the next half-Senate election as an opportunity to reduce the size of the cross-bench.

To be elected a Senator has to achieve a ‘quota’ which is determined by dividing the total number of votes in a state by the number of Senators facing election plus one. In the recent double dissolution that meant the vote was divided by 13, or in percentage terms a quota was about 7.69% of the vote. In a half-Senate election, the number is divided by 7 and so a quota becomes 14.29% of the vote. While preferences are important in determining who is elected, the quota achieved after first preference votes gives a reasonable indication of who will be elected, with those achieving at least 0.4 of a quota having a higher probability of achieving a full quota after preferences.

Given the results in the 2016 election who is likely to win re-election at a half-Senate election and what will that mean for the Senate from 2019?

Firstly, neither David Leyonhjelm, NSW, (Liberal Democrats) nor Bob Day, SA, (Family First), appear likely to be re-elected: their 2016 vote becomes only 0.2 of a quota at a half-Senate election. They would each require something close to a doubling of their vote and that is highly unlikely.

In Victoria, Derryn Hinch may be in with a chance of being re-elected if he can maintain his vote: his half-Senate quota would start at 0.42 rather than the 0.79 at the 2016 election. My guess is that at a half-Senate election Hinch, if he runs again, may even achieve a slightly higher vote, but even with a starting point of 0.4 of a quota I expect that he could be returned.

Jacqui Lambie was elected in Tasmania at the recent election but will not face re-election at the half-Senate election. The 2016 vote translates to 0.58 of a quota at a half-Senate election but because that vote was for Jacqui Lambie herself, it is unlikely to be repeated when she is not running. So even if she runs a Jacqui Lambie Network candidate, I would expect a very reduced vote and it is unlikely a second Network member would join her in the Senate.

Three One Nation Senators will face re-election with the NSW and WA Senators appearing unlikely to win as their starting quota would drop below 0.3. A Queensland win is possible based on the 2016 vote as it would become 0.64 of a quota at the half-Senate election. Hanson herself will not be running so that could reduce the One Nation vote but it may still be enough to secure a second One Nation member in the new Senate (unless there is a large drop in the vote, which is possible based on the past history of One Nation).

Based on the 2016 vote, NXT could pick up two more Senators in SA at a half-Senate election as it would have 1.52 quotas. As with Lambie and Hanson, however, Xenophon himself won’t be running and that may reduce NXT’s vote. Even so, it seems likely that at least one NXT member will be returned and two can’t be entirely ruled out. So NXT will maintain at least three Senators, and possibly increase that to four, in the new Senate from 2019.

One Green Senator from every state will face re-election. They are likely to have at least four and probably five returned. SA is most problematic for them largely because of the magnitude of the NXT vote. If the NXT vote drops, it may become a battle between the Greens and a second NXT candidate for the final Senate position. So that will not change the number on the cross-bench, just the composition.

So, on my estimation, it is possible that 9 of the 13 cross-benchers facing a half-Senate election could be returned, meaning there would still be 16 rather than the current 20. Counting the six-year Senators, the new cross-bench could comprise 8 (possibly 9) Greens, 4 (possibly 3) NXT, 2 One Nation, Jacqui Lambie and Derryn Hinch.

How the Coalition and the ALP fare at a half-Senate election depends very much on who wins government in the HoR because, obviously, the winning party would probably see an increased vote compared to the 2016 election. An increased vote for either party may also have some influence on the results for the minor parties, with Hinch in Victoria, the One Nation candidate in Queensland and possibly the second NXT candidate in SA being most at risk.

At best, the Coalition could win three seats in each state, although if NXT continues its success in SA it may only be two there. Even with an increased vote, and irrespective of the NXT vote, I suggest that 17 Senators is its very best outcome, for a total of 35 Senators (including the two Territory Senators) in the Senate from 2019, still four short of a majority.

The ALP’s best result, with an increased vote, appears to be 16 Senators for a new total of 31 (also including its two Territory Senators) so, as in the past, it would be reliant on the support of the Greens to pass legislation.

Those ‘best’ results for the Coalition and the ALP include the scenario that Hinch, One Nation and NXT do not win the extra seats I mentioned. If they do win, then the Coalition could expect to win 14 seats and the ALP 13, in which case the 2019 Senate would be 32 Coalition Senators, 28 from the ALP, 8 Greens, 4 NXT, 2 One Nation and Derryn Hinch and Jacqui Lambie.

In that scenario the Coalition would require ALP or Green support, or all but one of the minor party Senators to pass legislation, and the ALP would require the Greens and at least three of the other Senators, which most likely would mean gaining the support of NXT.

There are of course many permutations. Will there be a stronger vote for the Coalition or the ALP in 2019 and, if so, will it be strong enough to reduce the vote for minor parties? Will there be a resurgence in the Greens’ vote? Will the One Nation vote collapse as it has done in the past? Can NXT maintain the very high vote it achieved in SA in 2016? The answer to those questions can change what happens at the next half-Senate election and perhaps re-write my scenarios.

But unless the answer to those questions is ‘yes’, ‘no’, ‘yes’ and ‘no’, then it appears likely that the government’s Senate voting changes will not achieve its intention of significantly reducing the size of the Senate cross bench. It may have to wait until 2022, even 2025, and try, try again.

What do you think?
Let us know in comments below.


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The election in numbers 2: minor parties and independents


A number of commentators made the point after the election that almost a quarter of voters did not vote for the major parties in the House of Representatives. But that is misleading on two counts. It ignores the 5% informal vote and the 10% vote for the Greens who I think are now entitled to be considered a major party — they do contest every seat after all. That leaves about a 10% first preference vote for other than major parties and, given that there were almost 150 smaller parties and independents, that is not a significant vote — an average of about 0.07% for each of them. Many of them garner only a few hundred votes: it is the sheer number of smaller parties and independents that contributes to the overall magnitude of their vote and that was not unique to this election.

We have heard most about the success of the Nick Xenophon Team (NXT) and One Nation but they contested only a limited number of seats. Two parties that contested more seats were Family First and Fred Nile’s Christian Democratic Party, which contested 65 and 55 seats respectively. Family First gained 1.5% of the vote nationally (just over 201,000 votes) and Fred Nile’s group 1.3% of the vote (about 178,000 votes). If we consider their vote against the number of seats they contested, then Family First averaged about 3,100 votes per seat and the Christian Democratic Party about 3,240. By way of comparison, the ALP averaged 31,350 votes per seat and the Liberal Party 36,300 in the 107 seats it contested (that is the Liberal Party only, not the full range of Coalition parties). And there are about 100,000 voters per seat, give or take 10%, except in Tasmania.

Nationally, NXT achieved 1.85% of the vote, or 250,400 votes, but it contested only 18 seats (11 in SA) giving it an average vote of 13,900 per seat. But NXT was not as successful outside of SA: for example, in Queensland in Moreton, it achieved 4.8% of the vote (4,072 first preference votes) and 7.6% in Groom (6,960 votes). While those Queensland results are reasonably good for an independent or minor party, they are not extraordinary. In the 11 SA seats, however, NXT averaged 21.3% of the vote or 20,120 votes. Xenophon has been an independent Senator for SA since 2007 and his high profile and popularity translated into votes for his Team but that did not extend to success beyond SA.

One Nation contested only 15 seats, of which 12 were in Queensland, to obtain 1.3% of the vote or 175,000 votes nationally, slightly less than Fred Nile’s Christian Democratic Party and significantly fewer than NXT, at an average of about 11,700 per seat. One Nation did marginally better in Queensland, averaging about 12,300 votes (13.9%) but this varied from 6,775 (7.6%) in Leichhardt (Warren Entsch’s seat) to 18,461 (20.9%) in Wright (a conservative seat that stretches west from the edge of the Gold Coast). Ironically one of the seats in which One Nation fell below its Queensland average was Pauline Hanson’s old seat of Oxley: it obtained just over 7,000 votes or 8.4% (admittedly the boundaries have changed since Hanson first won it).

So for NXT and One Nation, their ‘success’ largely came from targeting only a small number of seats, of which the majority were in their leader’s home state. At a seat level, they actually averaged more than the Greens who, in contesting all 150 seats, averaged 9,200 votes per seat.

There was also Bob Katter, who has his own party (Katter’s Australia Party) but is perhaps more like an independent. His party contested 12 seats in Queensland but obtained only 72,900 first preference votes of which Katter himself, in the seat of Kennedy, obtained 34,300. Katter is a sitting member with a high profile but his party did not fare so well averaging only 3,500 votes (a similar average to other minor parties) in the other 11 seats.

Also at a national level, over 100 independents, not linked to any party, achieved a total of 2.8% of the vote (about 381,000 votes), more than both NXT and One Nation but at an average of about 3,400 votes per independent candidate. Even that figure is inflated by high profile and successful independents like Andrew Wilkie and Cathy McGowan, and even the unsuccessful like Tony Windsor and Rob Oakeshott. Those four alone accounted for about 116,000 (or 30%) of the votes that went to independents: if they are removed, the vote for other independents was about 2,500 per candidate which does not suggest a major shift to independent candidates.

They are still independents I hear you say and that is true. But the more successful ones had a high profile in the seats they were contesting and two, of course, were sitting members (or three if we count Katter as an independent). A vote for Wilkie or McGowan was not a genuine shift away from major parties to independents but simply support for a sitting member (a rejection of the major parties could be said to have occurred in the year they first won their seat). And Windsor and Oakeshott, although not sitting members, were previous independent members in the regions they contested. The key to successful independents seems to be their public profile and/or a grass roots movement within an electorate, such as when McGowan won Indi from Sophie Mirabella in 2013 — she was drafted to run against Mirabella by a community organisation that felt Mirabella was not paying sufficient attention to the electorate. Once they do win a seat, as a sitting member they retain that advantage in subsequent elections. Another successful independent ploy is to move from a major party as Windsor, Oakeshott, Katter and Pauline Hanson the first time around, have done, often after having first been elected as a party candidate, so their profile has already been enhanced by party support (noting, however, that Hanson was selected as a candidate but lost party endorsement prior to the election).

In the Senate there are now 20 Senators (26%) not from ALP or L/NP: 9 Greens and 11 others from minor parties — and they are each minor parties although a few of them, like Katter in the HoR, are more like independents. That number would superficially seem to justify the argument that a quarter of voters did support non-major parties but, as I said in relation to the HoR vote, whether the Greens can still be considered a minor party is debatable. In the Senate the Greens secured 8.7% of the national first preference vote (almost 1.2 million votes) behind only the L/NP and ALP and double the vote of the next highest of the other parties — One Nation with 4.3% or 593,000 votes. The Senate, however, is determined at a state level and by a complicated preference distribution process, not by national first preference votes but the national figures give an indication of the actual support across the nation for the minor parties. In that regard, at the national level, NXT secured 456,000 first preference votes (3.3%), the Liberal Democrats (Leyonhjelm’s party) 299,000 votes (2.2%), and Family First and the Shooters, Fishers and Farmers Party each secured just over 190,000 votes (1.4%). I would describe most, but not all, of the minor parties as ‘niche’ parties because they focus on only one or two key issues and so can attract a small percentage of voters who feel strongly about those particular issues — they are often issues not picked up in the broader agenda of the major parties.

But we do need to consider how the minor parties fared at the state level and achieved the outcomes they did.

NXT won three Senate seats all in SA. A first preference vote in SA of 21.7% matched its SA vote in the HoR and gave it 2.8 quotas, so it did not require a high level of preferences to achieve its three seats. NXT did contest every other state but did no better than 2.2% of the first preference vote (0.28 of a quota) in WA. So despite the high profile of NXT, it is a profile and success limited to Nick Xenophon’s home state.

Similarly, Derryn Hinch’s Justice Party contested all states but had no success outside Hinch’s home state of Victoria — 6.1% of the vote and a starting quota of 0.79. Otherwise his party did no better than 0.7% of the vote in WA and was as low as 0.2% in SA.

The Jacqui Lambie Network ran candidates in four states but like Xenophon and Hinch had no success outside her home state of Tasmania, securing a highest vote of only 0.4% in Victoria.

So it is clear that some successful ‘independents’ and their associated parties do not have national appeal but rely solely on the profile and local popularity of their principal candidate in their home state. It would appear that they formed ‘parties’ only to secure the option of an ‘above the line’ vote.

Family First won one Senate seat in SA, for its sitting Senator Bob Day, but from a 2.9% first preference vote (0.37 of a quota). Its results in other states were significantly lower, ranging from 0.64% of first preference votes (0.08 of a quota) in WA to 1.97% (0.25 of a quota) in Tasmania.

One Nation is the party that is a little different to the other minor parties because it appears, on the surface, to have had success across the country, with two Senators from Queensland, one from NSW and one from WA. Because One Nation contested all states it was able to increase its national vote to 4.3% from the 1.3% it achieved in the HoR (where it contested only a small number of seats) but again it did best in Hanson’s home state of Queensland, securing 9.2% of votes (250,000 votes) and a quota on first preference votes alone. It gained a second Queensland seat although its provisional quota (from first preference votes) was only 1.2 — so somehow it managed to make up 0.8 of a quota from preferences. By comparison the ALP went from 3.4 quotas to four elected Senators and the Greens from 0.9 to achieve only one Senator. Beginning with 0.4 of a quota is often considered the lower base from which a full quota can be gained, so a second One Nation Senator from Queensland is not really an indication of the strength of the One Nation vote but arises from the lengthy and complicated preference distribution process. Similarly, its successful candidates in NSW and WA both came from an initial position of 0.5 of a quota to win their seats (4.1% and 4.0% of the vote respectively) — although they were the highest starting quotas among the non-major parties. In NSW, however, the ALP had almost eight times One Nation’s first preference vote and in WA was seven times higher but the seat ratio became only four to one. In the other states, One Nation received only 1.8% of the vote in Victoria, only marginally more than the Animal Justice Party; in SA it achieved 3.0% of the vote, only 0.1% more than Family First; and in Tasmania 2.6% — so, for whatever reason, it performed little or no better than other minor parties in those states.

David Leyonhjelm (of the Liberal Democrats) was also re-elected to the Senate from NSW and he came from a lower starting position than the One Nation candidate in that state, with only 0.4 of a quota (139,000 votes or 3.1%) after first preference votes.

The number of Senators from the minor parties is largely a result of Turnbull calling a double dissolution election. For example, if it had been a half-Senate election, the votes received by the parties in Victoria suggest that the outcome would have been 3 L/NP, 2 ALP and 1 Green — no Derryn Hinch. And in NSW, there would also likely have been 3 L/NP, 2 ALP and 1 Green (although there could have been a battle for two spots between the third L/NP candidate, the Greens and One Nation) — so no Leyonhjelm and possibly no One Nation. For the mess the Senate seems to have become Turnbull has no-one to blame but himself. Some of the new Senators appear as if they will be more difficult to negotiate with than the likes of Glen Lazarus and Ricky Muir as they have stronger personal agendas.

In the HoR, I expect that independents like Wilkie, McGowan and Katter will continue to have success as sitting members. Whether more independents are elected in future appears to depend very much on the quality of the candidates of the major parties: the example of the reaction against Mirabella when voters perceived she was not paying sufficient attention to her electorate is instructive in that regard, as is the fact that when she recontested at this election she suffered the biggest swing against the L/NP of any seat in the country. So major parties cannot ignore independents but neither can they ignore the response of the electorate to their own candidates or they will see more independents elected.

The ALP almost shot itself in the foot in Tasmania when it moved sitting Senator Lisa Singh to the almost ‘unwinnable’ sixth position on the ballot paper but Tasmanian voters chose to vote ‘below the line’ and gave her 20,741 first preference votes in her own right: she became the fourth ALP Senator to be elected with the candidate in the fifth position being earlier excluded and the other candidate above her, in fourth position on the ballot, winning the fifth Senate place for the ALP. Although not an independent, I give that as another example of the electorate’s response to individual candidates. If she had run as an independent, after being moved down the ballot the way she was by the ALP power brokers, there is a strong possibility that she would still have won a place. That is often how successful independents are ‘born’ and if the major parties wish to keep the number of independents and minor parties as low as possible they need to heed such examples of electoral responses to their candidates.

Although minor parties and independents had some success, in both the HoR and the Senate, the overall ‘best’ average seems to remain around a 3‒4% vote for minor parties except in the home states of the key principal candidates (Xenophon, Hanson, Hinch, Lambie) and for sitting members. So it seems to come down to the local public profiles of individuals and can also be influenced by the quality of individual candidates put forward by the major parties, not simply a reaction against the major parties.

What do you think?
Is Ken right in suggesting that it is the public profile of ‘independents’ that has most influence?

Is the Senate system ‘fair’, if people can win a seat starting with only 3‒4% of the vote?

Let us know in comments below.


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The democratisation of opinion


With the rise of the internet and social media almost anyone can express their opinion to an audience in the thousands, even hundreds of thousands, no longer just to a circle of people who are physically present to hear the opinion. While that provides the democratisation of opinion, it also has a more sinister side. It has led to a widespread view that in this new democratic world all opinions are equally valid.

There is no doubt that all opinions are valid but only as personal opinions. It does not make an opinion true (that is, matching the evidence) nor does it mean that the opinion has any validity beyond its expression as a personal point of view. And yet in this democratisation of opinion, we see people maintaining that not only do they have a right to their opinion but they have a right for their opinion to be considered valid in all circumstances, even when a range of evidence refutes it. It is much like saying my opinion that 2 + 2 = 3 is as valid as the alternative that 2 + 2 = 4. No-one would argue that proposition would they? — these days the answer to that question is not so clear.

What is the opposite of opinion? — probably truth or facts. Without getting into a philosophical argument about what is ‘truth’, it is possible to employ scientific method to arrive at conclusions that are true, or most likely true. That is because scientific method is based on observations and drawing conclusions that explain the observations and that has been done for hundreds of years. It is possible to say that science still forms opinions, or what are called theories or hypotheses, based on those observations but science will change its theories when observed facts do not match the current theory.

For a long time people thought that the sun went around the earth — and why not? After all, even though we are spinning at 1670km/h (at the equator), travelling around the sun at 107,000km/h and spiralling with the sun around the Milky Way at 792,000km/h, we feel nothing but we do see the sun rise in the east every day and set in the west. Based on that latter observation alone, it is logical to assume that it is the sun that is moving not the earth. But astronomers watching the stars and planets saw something which that model could not explain: at certain times the other planets appeared to go backwards in the heavens. Eventually that, and other observations, made it clear that it was the earth moving about the sun that explained what the astronomers were observing. And so we have advanced our knowledge using that model. It is not as though science plucks its theories out of the air. They explain what has already been observed until a new observation suggests it is time for a new explanation.

And it is not just scientists who use this method. There are many anecdotal stories of farmers knowing more than scientists in particular situations and proving scientists wrong. But that is not based on some random opinion of the farmers but their own observations over many years of local weather, soil, and crop and livestock results in varying situations. Their opinion is often proved right because their set of observations is over a much longer period than those of experts who arrive for a field trip that may last no longer than a few weeks. Even though the experts are trained in their discipline they do not have the range of observations that the farmers have that are relevant to the local circumstances. The farmers’ observations may not be recorded but retained in memory, or even family tradition for observations over longer periods, but their opinions are based on long term observations. Scientists are acknowledging that history of observation and drawing it into the scientific process, just as they are now recognising Aboriginal knowledge in the management of fire, flora and fauna is based on thousands of years of observation, even if that knowledge is expressed in a different way. These days the scientists are trained so that they can apply their knowledge over a range of circumstances, whereas the farmers and Aboriginal and Torres Strait Islander people have more detailed knowledge and opinions based on decades or millennia of observation but it has most relevance only to their local conditions.

Opinions have some commonality with the scientific use of observation. Almost all opinions are based on some level of observation but the real difference between the quality of opinions is probably the extent of observations drawn upon to form the opinion. In the recent Brexit campaign in the UK, some experts were warning of the economic consequences of the UK leaving the European Union but Michael Gove, campaigning for the ‘leave’ side, suggested that people were tired of experts and, by implication, would ignore such advice. The observation that led many people to that conclusion concerned the rules coming from the EU technocrats in Brussels which many Britains saw as undermining their traditions and control of their own country. Based on that observation alone, they could validly form an opinion that questioned the experts but it should only have been the experts issuing those rules. Instead, one observation can become a wider dismissal of expert opinion.

Thus we have the questioning of the science underpinning anthropogenic climate change or even questioning climate change itself. People are perfectly entitled to have an opinion rejecting climate change but that does not make their opinion true. For their opinion to be true it would also have to be based on a set of factual observations and some of the observations used by the deniers have been shown to be false or, at best, built on a foundation of quick-sand. When by far the majority of observations support the occurrence of climate change and the probability of it being ‘man-made’ is 90% or more, then some very strong alternative observations would be required to change the current scientific consensus. The deniers have not presented such observations but still insist their opinions are not only valid but true.

I worked in Aboriginal and Torres Strait Islander affairs for many years and so I often came across people who held negative stereotypes of Aboriginal and Torres Strait Islander people. I would be asked why should they have houses when they only break them down for firewood. I knew there had been such instances, although rare, so I would not deny their opinion based on that observation but answer with a broader and more positive range of observations: all of the people who did not burn their houses but lived normal lives in them; the range of Aboriginal and Torres Strait Islander businesses; or even that many problems in housing arose not from Aboriginal and Torres Strait Islander misuse of the dwelling but from shoddy workmanship by the original construction contractors. I don’t know how many opinions I managed to change but at least I had presented a new range of observations for them to consider.

Politicians hoping to run the country shouldn’t operate from a limited range of observations but many do. They play up to their audience or constituency by presenting views based on a limited range of observations and ignoring those observations that run counter to that opinion — just as the church rejected Copernicus’s observations that the earth went around the sun. The Trumps and Hansons of the world are masters of this approach. While it may have some electoral appeal, it is not a basis on which to run a country. A government, almost by definition, must take account of a wide range of opinions (and the observations on which they are based) and either determine which are true or balance the conflicting views to come to a policy decision in the best interest of the country.

Governments often express an intention to follow ‘evidence-based’ policy, but we also have lobbying which is an attempt to convince policy makers to pay more heed to one set of opinions or observations rather than another. The big and unanswered question is whether members of government are well-placed to assess the varying observations supporting different opinions or whether they are also personally influenced by a limited range of observations. It is perhaps a belief that the latter is true that leads to public opinion that politicians are ’out of touch’ or, in other words, are not considering a broad range of observations but are overly influenced by lobbyists, a small number of interest groups, or personal opinions — each of which is focused on a limited range of observations.

Yes, we all have personal opinions that are valid as personal opinions no matter how few the number of observations on which they are based. If, however, I am willing to listen to, consider and perhaps accept a wider range of observations, then we can have a rational discussion, debate the observations (evidence) and perhaps reach a conclusion that changes my opinion or that of my interlocutor. Or we may mutually agree a different opinion that is new for both of us. If that was the way of the world, then opinions would be in their rightful place and open to change based on a wider range of observations.

Of course, there are some whose opinion will not change, who see all other observations through the prism of their own opinion or believe that the observations supporting their opinion are ‘true’ and therefore all other observations must be ‘false’. That has always been the case but with this so-called democratisation of opinion many more people now feel that their opinion must be valued as it stands. When all opinions are considered valued and valid, people defend them with vehemence as we see on blog sites and social media and do not open their minds to a broader range of observations. Instead of taking the new observations as something to be considered, they take them as a personal attack on their ‘valued’ opinion and attack in return. If this is democratic, it is a negative form of democracy — to use an old cliché it is ‘playing the man, not the ball’ and that is not truly democratic for it fails to recognise the democratic rights of your fellow citizen. Yes, all opinions are valid but only if our minds are open to consider a broader range of possibilities that may change our opinion.

And yes, this entire piece is my opinion. So now over to you for your opinion and revelation of broader observations for my consideration.

What do you think?
Do people form opinions based on only one or two observations because that is easier than considering the implications of a broader range of observations?

Or do we have different opinions because people draw different conclusions from the same set of observations?

And if so, how can all opinions be valid?

Let us know in comments below.


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The Liberals are dreaming


On Sunday morning 10 July, before Shorten conceded defeat in the election, Arthur Sinodinos appeared on the ABC’s Insiders. He claimed the Coalition had a ‘mandate’ for its 2016 budget and its company tax cuts. Sinodinos’s view takes no account of the reality of the new parliament.

Although the final count is not yet complete, it appears the LNP will win 76 or 77 seats in the House of Representatives and Labor 68 or 69 (the uncertainty at the time of writing being the seat of Herbert in Queensland). So Turnbull will form a majority government but also has to provide a Speaker. If the LNP final total is 76, which means 75 after a Speaker is elected, then the government will be reliant on one of Bob Katter, Cathie McGowan, Andrew Wilkie, Rebekha Sharkie or Adam Bandt to pass legislation that is opposed by Labor. It will also need an effective pairing agreement for those times when parliamentarians are absent for legitimate reasons.

The Senate will be more complicated. At this stage its result is less clear but we already know there will be at least six Greens (possibly three more at the final count), Pauline Hanson (and possibly another one or two One Nation members), Jacquie Lambie, Derryn Hinch, three of the Nick Xenophon Team and probably another minor party member. These represent a great diversity of views but the Coalition could require all of the non-Green Senators to pass legislation opposed by Labor and the Greens.

These independents and minor parties have their own agendas which they would no doubt wish to pursue in any negotiations in which their support was needed for specific legislation — or, in some cases, their position would not allow them to vote for some of the government’s current policies. For example, in the lower house:
  • on tax, Katter wants to remove the Fringe Benefits Tax for FIFO miners; NXT wants to limit tax cuts to those businesses earning up to $10 million and wants the temporary deficit levy to be extended; the Greens want a progressive tax rate on superannuation and want to end negative gearing.
  • on a federal ICAC, it is supported by the Greens, McGowan, Wilkie and NXT
  • on carbon emissions, McGowan wants a price on carbon (and did vote against repealing the ‘carbon tax’); NXT would like an emissions trading scheme; and Wilkie previously supported Gillard’s carbon pricing.
In the upper house, as well as the Greens and NXT, the views of Lambie, Hinch and One Nation come into play:
  • on tax, Lambie wants a financial transaction tax on high-speed share traders; One Nation wants to get rid of the Double Taxation Agreement which stops companies being taxed both in Australia and another country for the same product (that would breach many of Australia’s tax treaties and free trade deals); only Hinch is likely to support the full extent of the government’s corporate tax cuts.
  • on carbon pricing, Hinch, Lambie and One Nation all oppose an emissions trading scheme (or climate science itself).
  • on immigration, One Nation’s views are well known; Hinch supports multiculturalism and opposes the views of One Nation; Lambie wants immigrants to be screened on the basis of whether they support Sharia law.
They each want Royal Commissions into different subjects:
  • One Nation seeks an inquiry on Islam
  • Lambie and NXT want an inquiry on defence abuse and veterans’ welfare
  • NXT also supports the Labor proposal for an inquiry into banking
  • Hinch wants an inquiry into the Family Court and child protection agencies
Put that together and it is difficult to see how the government will get all its budget measures through the Senate as it is unlikely to agree to some of those positions.

Josh Frydenberg has come out and said that the government should not change its immigration policies nor support for multiculturalism which would seem to rule out horse-trading for One Nation’s vote but without those votes it becomes less likely it will get measures through the Senate.

The easiest way for the government to get legislation through the Senate will be to win Labor or Green support but that will also require compromise to meet the views of those parties.

I heard a radio report that there had been consideration of government policies in terms of which were supported by Labor or the Greens, including which of the so-called ‘zombie’ measures Labor had indicated during the election campaign that it would use in its own budget calculations, those which may be supported with amendments, and which were opposed — it was claimed that the ‘opposed’ column was quite small. (I have not, however, been able to find a written or on-line confirmation of that report.)

One measure that was mentioned was the reduction in R&D tax incentives. During the campaign Labor did announce in its savings measures that it would support the reductions. A proposal to reduce R&D tax incentives goes back to the Gillard government but was opposed by the then Abbott-led Opposition — the details have changed each time it has been resurrected. The Abbott government brought it forward again thinking, as Labor had introduced the idea, that it would gain Labor support but Labor opposed it because the Abbott government did not intend to use the savings in the way Labor had proposed. So even if the Turnbull government brings it into parliament again, it cannot take Labor support for granted unless a significant part of the savings are used for other purposes supported by Labor and that appears unlikely.

The government is also unlikely to get its company tax cuts through parliament in their current form — that over a period of ten years all companies are included. Labor only supports the cut for companies with a turnover of up to $2 million and NXT for companies with a turnover of up to $10 million. So it will be impossible for the government to pass the legislation required in the Senate without a significant compromise that limits the size of the companies to which the cut will apply. So the question for Turnbull will be whether to abandon the idea altogether (thus making significant savings in the budget) or to accept it in a more limited form.

Ironically, even the legislation for the reintroduction of the Australian Building and Construction Commission (ABCC) which was the formal trigger for the double dissolution is unlikely to pass the new parliament, even at a joint sitting. Even Bob Katter opposes it as he supports the CFMEU — despite his ‘redneck’ reputation, Katter is in many ways more like old conservative Labor.

The new Turnbull government’s problems don’t end with the new parliament. It has internal problems that will also affect its legislative agenda.

For a start, the coalition agreement with the Nationals will be renegotiated and Barnaby Joyce, as Nationals’ leader, has already indicated that he will be seeking greater power as the Nationals have improved their position while the Liberals lost ground. Such ‘power’ may require the inclusion of more National policies but whether or not we ever find that out is unclear. Joyce maintains that the agreement, even though set out in writing, must remain confidential. Labor is already mounting a campaign that it should be public and transparent because voters have a right to know what deals are being done to form their government.

Turnbull and Morrison may also face opposition to the government’s superannuation policy. The government’s own conservative members, such as Peter Dutton and Eric Abetz, have already blamed the policy for the loss of votes from the Liberal’s ‘base’. Sinodinos in his Insiders’ interview refuted that. It will no doubt come up for discussion in the party room and we will have to await the outcome. Labor will certainly oppose it in its current form although Labor’s spokesperson on superannuation, Jim Chalmers, has suggested an independent inquiry to determine whether or not it is retrospective — then Labor may support changes that are ‘workable and fair’ and not retrospective.

Turnbull may also lose some power within his own cabinet as there are increasing demands for more conservative members to be included on the front bench. In the election Turnbull appears to have lost at least three ministers and junior ministers who supported his ascension last September. What influence that will have on future government policy also remains to be seen but it is likely to be in directions that cannot be supported by Labor or the Greens.

Members of the government, including Turnbull, have conceded that they did themselves create the fertile ground for Labor’s so-called ‘Mediscare’ campaign and that they need to regain the public’s trust on health issues prior to the next election. What they will do is an unknown. Morrison has already suggested that if they were to ‘unfreeze’ the Medicare scheduled fees, then savings would need to be found elsewhere. I think they will have trouble selling that to the parliament partly because Labor takes the view that rather than just making savings, revenue needs to be raised.

So despite Sinodinos’s optimism that the government has a ‘mandate’ for its budget and policies, there appears very little chance of its key policies passing the parliament unchanged. Labor is unlikely to support even those measures it agreed with during the election if the government does not use some of the savings for Labor-supported social measures.

Many of the cross benchers have their own agenda which will also force changes in the government’s policies.

Its own conservative wing appears to have increased its influence and will no doubt use that influence in policy deliberations.

And the Nationals have also improved their relative position and will demand more of their own policies.

If the Liberals think they have a ‘mandate’ and can really implement their budget, tax and economic policies in their current form, then they are dreaming!

What do you think?
If the Liberals are saying they have a mandate, are they just creating a new lie?

How long can Turnbull survive when he has lost control of the parliament and his party?

Let us know in comments below.


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The Liberal lie continues


In his speech on election night, as reported by The Guardian, Malcolm Turnbull:
… accused the Labor party of running “some of the most systematic, well-funded lies ever peddled in Australia” in a campaign in which Labor claimed the Coalition was planning to privatise the government funded health insurance system, Medicare.

Turnbull questioned whether there would be a police investigation over the Labor campaign and he accused Labor of sending texts to voters claiming the Coalition would sell Medicare.
The Daily Mail (Australian edition) reported it this way:
“Today, as voters went to the polls, as you would have seen in the press, there were text messages being sent to thousands of people across Australia saying that Medicare was about to be privatised by the Liberal Party,” Mr Turnbull said in the speech.

“The SMS message came from Medicare. It said it came from Medicare. An extraordinary act of dishonesty. No doubt the police will investigate.”
And George Brandis said this:
I think that the thing that made the difference between a reasonably comfortable win and, if this is the case, a very narrow win for the Government, was the fact that the Labor Party threw the kitchen sink at one of the most mendacious and disgraceful campaigns that we've ever seen. The proposition that the Government planned to sell or privatise Medicare was ... a nonsense.
So they accept that the Medicare campaign by Labor had a major effect but they insist it was a lie. Why?

As I pointed out in Turnbull’s Medicare backflip — or is it? the government had begun the process of examining how the Medicare payment system could be outsourced or sold to a private provider. Although the Liberals described this as only the ‘back office’ operations of Medicare, payments are the central role of Medicare. When this first became public news in February, there was no denial that it was taking place.

It was only after Labor aired its Bob Hawke campaign advertisement, that you don’t create a Medicare privatisation task force unless you intend to privatise Medicare, that Turnbull eventually came out and guaranteed that Medicare would not be privatised and that updating the payment system would take place ‘within government’.

Thus, when Labor continued its Medicare campaign, Turnbull and other Liberals claimed that it was based on a ‘lie’. Firstly, remember that denying privatisation came late in the election campaign and only after Labor’s message was obviously having an impact. Before that, or in other words for the first few weeks of the election, privatisation of the payment system was still on the Liberal agenda. Turnbull’s ‘guarantee’ was a decision made on the run and not reflective of what had previously been Liberal policy. It was purely a last minute and desperate political decision.

Secondly, Turnbull’s denials and ‘guarantee’ did not address the other issues surrounding Medicare: namely that Medicare rebates will now be frozen until 2020, making no increase for six years; and that the removal of bulk billing incentives for pathology and diagnostic imaging services was still on the table and would be reconsidered after the election. Even the new president of the AMA, Dr Michael Gannon, not a natural ally of the Labor party, pointed out that the freeze would force GPs to charge higher fees and to abandon bulk-billing and that some GPs had already advised the AMA that they were doing so.

Turnbull’s response was that doctors could charge whatever they liked and that if the freeze was removed it would increase the scheduled fee by only 60 cents, or up to $2 if backdated. Those amounts are probably fairly accurate and sound small but if a doctor is seeing between three and six patients per hour for six or seven hours a day, five days a week for 48 weeks of the year, even at 60 cents that could add up to an extra $6000 per year which would no doubt assist in meeting the surgery’s running costs. If there are four doctors in the surgery that is potentially up to $24,000 a year, or about $80,000 if the increase is $2. So despite Turnbull’s attempt to downplay the effect of the freeze, its real impact can be quite substantial for a surgery’s business model over a full year.

The other issue relating to Turnbull’s response is that it continued to ignore the concern that people will have to pay more. By taking the approach he did, he was basically abrogating any responsibility for medical costs — that is not what people expect of the government. What they do expect is that if medical costs rise the government will assist in meeting those costs, not say it is nothing to do with them, that doctors can charge whatever they like. If anything helped raise the profile of Labor’s Medicare campaign in the last days of the election campaign then I think Turnbull’s response did.

Turnbull and the Liberals also tried to emphasise that the freeze had initially been introduced by Labor. That is true. It was introduced by Wayne Swan in the last Labor budget in 2013. What the Liberals didn’t say, thus lying by omission, was that Swan’s freeze was for a total of seven months, from November 2013 until June 2014 — of course, the savings made in that time would be built into future budgets. There was however another reason for that ‘freeze’, not just the need to save a few dollars. Indexation of Medicare scheduled benefits in November was associated with the old budget timetable when budgets were presented in August and new measures (costs) could only apply from 1 December. Since budgets have been presented in May all new measures can apply from 1 July and the change Swan made was to align Medicare indexation with the new budget timetable (most other indexed government payments had already been realigned and Medicare was one of the last). The freeze on Medicare rebates since June 2014 has been purely a Coalition government decision but, of course, they didn’t mention that.

So who was lying about Medicare? If the Coalition plans to continue the Medicare freeze until 2020, surely that is a valid point that Labor can make during an election. And if Medicare is covering less and less of the cost of seeing a doctor or specialist, that is also undermining the very purpose of Medicare. Again it becomes valid to argue that Medicare needs ‘saving’ because the Coalition’s approach would certainly mean that over time it would become worthless as health insurance. So Labor’s campaign of saving Medicare was not a lie. Medicare may not technically be ‘privatised’ but the continued impact of the freeze and removal of bulk billing incentives would have very much the same effect, pushing consumer costs higher and reducing both the health and social benefits of Medicare.

If voters responded to that, Turnbull has only himself to blame. His denial of privatisation came late so it could be questioned: the obvious response being that if you did not intend to privatise Medicare why didn’t you say so on day one of the election campaign? — why wait until you were forced to respond to Labor’s Medicare campaign? And if you only responded when forced to, can your decision really be trusted? If you are supporting Medicare, why is there a freeze on rebates for six years which is five years and five months longer than Labor’s original freeze? Why are you going to force pathologists and diagnostic imaging services to charge patients upfront and then have the patients claim a proportionally reduced rebate from Medicare?

They are questions that Turnbull just refused to address when Labor raised them. So it wasn’t simply a ‘privatisation’ scare campaign by Labor but a campaign that raised legitimate questions about Turnbull’s and the Coalition’s approach to Medicare. For Turnbull to come out and claim that Labor improved their vote because of a lie about privatisation is missing the point and is itself a lie because he will not face the truth that his other actions were still a threat to Medicare. People could see that and did believe that Medicare was worth saving.

What do you think?
Let us know in comments below.


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Turnbull’s Medicare backflip — or is it?


Turnbull recently announced that his government, if re-elected, will not change any element of Medicare. It came in response to Labor’s campaigning that Medicare was under threat, that it would be privatised under a Liberal government. The general media response was to take Turnbull at his word and that Labor’s continuing use of the campaign was no more than a ‘scare campaign’ now based on a ‘lie’. But let’s take a closer look, including a careful examination of the words he first used.

First we need to understand Medicare. Although we associate Medicare with medical services, it actually does not deliver a single such service. In essence, it is no different to private health funds insofar as it provides cover for the costs when people purchase medical services — or as it is sometimes described, a ‘universal health insurance scheme’ and we pay the Medicare levy as our insurance policy payment. Of course, it has ‘bulk billing’ which allows that medical services, if provided at a cost stipulated by Medicare, can be provided at no cost to the ‘consumer’. It is basically a payment system. The government controls policy and sets the ‘prices’ it will pay for services and also determines what services are included in the Medicare benefits schedule (which is the other work of Medicare staff, advising on those prices and services). There have been policy decisions over the years that provided additional funding (‘incentives’) to service providers, such as pathology and diagnostic imaging, if they bulk billed.

So it is similar to government provision of pensions. Government sets the policies but provides only a payment and no direct service. By way of comparison, think about the Bureau of Meteorology or the Australian Bureau of Statistics: government again controls policy but its funding of those bodies is for the direct provision of a service.

Back in February it was revealed that a task force had been established within the public service to examine the Medicare payment system, including the ‘commercial possibilities’. The government described this, however, as only the ‘back office operations’ of Medicare. From the description of Medicare, you will see that the payment system is not a ‘back office operation’ but is the core business of Medicare.

The proposed change was described as:
… part of our commitment to ensuring the government embraces innovation and is agile and responsive to changes in the digital economy.
No doubt you will recognise the words ‘innovation’ and ‘agile’ and their obviously intended link to Turnbull’s previously announced national innovation agenda. The implication being that we should support the proposed changes to Medicare as part of a much broader agenda in the national interest.

And:
Any outsourcing would only apply to back office operations and the administrative actions of making payments to individuals and providers. It doesn’t include setting fees or rebates and it doesn’t have any impact on the cost of health care, other than it may result in services being delivered more efficiently.
The latter are Turnbull’s words in parliament and remember this was only four months ago. He wasn’t denying it then.

Labor attacked then and continued the attack that the Liberal government did not support Medicare. It had plenty of ammunition including the continued freeze of Medicare rebates (now continuing until 30 June 2020) and the cessation of incentive payments for bulk billing to pathology and diagnostic imaging services. For the election, Turnbull announced that stopping the incentive payments had been put off for six months, will be reviewed, and that rents for pathologists will be reduced. How he can achieve the rent reduction is a vexed question — surely a Liberal government would not wish to interfere in the market in that way! All Turnbull has done is remove it temporarily while the election takes place. He has not said it is off the table permanently.

Labor’s attack was obviously gaining traction in the electorate forcing Turnbull to come out and say:
It will never, ever be sold. Every element of Medicare services that is being delivered by government today, will be delivered by government in the future. Full stop.
Apparently this was a ‘captain’s call’ by Turnbull but still Labor wasn’t convinced.

And I had to ask myself why did he spell out ‘every element of Medicare services that is being delivered by government’. As far as I can glean the only services not delivered by Medicare, but associated with it, are some registries of diseases kept by non-profit organisations in the medical sector. Or did he mean that payments are not a ‘service’? Or when he referred to ‘government’ was he limiting it to the ministers in his cabinet who govern the country? — in that case, what the government ‘delivers’ is the policy of Medicare. He was so specific in his statement that it hints at obfuscation.

Also he claims that these services ‘will be delivered by the government in the future’. What does that clause actually mean? It doesn’t preclude the possibility that payments could be contracted out: that is still a ‘government service’ but it has simply asked someone else to do it. Consistent with Turnbull’s statement it is not ‘selling’ the provision of Medicare payments, merely hiring someone else to undertake the task. Remember he is a trained lawyer and understands the use of words.

Subsequently Turnbull had to clarify his meaning and spelled out that payments would not be outsourced and upgrading of the payment system would take place 'within government'. The fact he was forced to do so emphasises that his opening explanations were less than clear but more importantly not convincing the electorate.

As Labor initially continued the attack, despite the denial, Turnbull said that Labor was ‘peddling an extraordinary lie, so audacious it defies belief’. Surely it shouldn’t defy belief within the Liberal party: after all they used a similar tactic regarding Gillard’s words about a carbon tax.

Turnbull also made a point of saying that the issue had not gone before cabinet and, therefore, there was no government decision. However, when Labor made an FoI request on the issue it was denied a number of documents because they involved ‘briefing the minister on a submission which is proposed to be submitted to cabinet’. Clearly the public servants had been preparing briefs and submissions on the issue: that doesn’t happen without someone in cabinet knowing about it and such submissions to cabinet are coordinated by Turnbull’s own Department of Prime Minister and Cabinet. So Turnbull’s nit-picking that the issue did not go to cabinet was a little disingenuous.

Although the task force seems no longer to be operating, Labor also points to a Productivity Commission report requested by Treasurer Scott Morrison:
… to review all aspects of human services delivered by government, including community services, social housing, prisons, disability services and Medicare.

The terms of reference include examining ‘private sector providers and overseas examples like the United States’ for alternative service delivery models.
One could ask why the United States is specifically picked out as an overseas example. If the government wished only to improve efficiency but retain services within government, it could have listed a few European countries as examples for study. No, looking to America, with its heavy emphasis on the private sector, is clearly indicating the model the government wants.

I still question Turnbull's stronger dismissal of Labor's argument. If payments by the Department of Human Services are outsourced on an American model, it would become logical in the future to also outsource Medicare payments — we already see Centrelink and Medicare in the same shopfronts and it would make sense for staff to have access to the same payment system on their computer screens. Would such an approach still be 'within government'? — it could, simply by fully moving the Medicare payments system to the Department of Human Services.

Whatever else may be said, Labor achieved its purpose and forced Medicare to front and centre of the election debate. For a while it moved discussion onto its favoured ground forcing the Liberals to respond with border security and turning back boats and revealing information they normally claim is a secret operational matter. Yes, when it comes to an election operational secrecy no longer matters!

Turnbull, as are many politicians, is a trained lawyer and knows how to choose his words carefully. He knows how to avoid outright lies but also how to avoid the truth. He knows how to say only what he wants to say and avoid adding any flourish that may reveal more than he wishes. The fact he was forced to change his words does imply that he was less than truthful in his initial statements or, at the least, was attempting to keep his options open. And perhaps even his stronger denial still has an element of keeping his options open but I leave that for you to think about.

What do you think?
Let us know in comments below.


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Time for a new economic model


Late in the 1970s Keynesian economics was largely abandoned when it failed to explain the stagflation that had occurred during that decade. Recently, in my piece ‘What economic plan?’, I quoted an Australian analyst with the CBA who suggested that recent national data released by the ABS was showing ‘bizarre’ results, an ‘anomaly’. That sounds suspiciously like the criticism of Keynesian economics in the ’70s. It suggests that it is time we reconsidered the current dominant economic models.

Under Keynesian economics inflation was normally associated with an expanding economy and increasing employment, leading to rising wages and prices. In the 1970s, however, inflation was rising but so was unemployment and production was falling — stagflation. Many put this down to the ‘oil-price shocks’ (which occurred twice during the decade) but Milton Friedman, with his monetary theory, put it down to faulty monetary policy on the part of governments and central banks. Although he had been developing his theory since the 1950s, the problems of the 1970s meant it was ready and waiting to be adopted and was initially taken up by the Reagan and Thatcher governments.

Friedman argued that inflation is always a monetary phenomenon: that prices could not increase without an increase in the money supply — he pointed out that the money supply should be matched to economic growth (GDP) to keep inflation under control and also to prevent governments simply printing as much money as they pleased. He also believed there was a ‘natural’ level of unemployment and inflation would also occur if unemployment fell below that level.

In his work Capitalism and Freedom he espoused the free market as the solution to many problems rather than leaving problems to government to resolve: government should keep an eye on the money supply and allow the market to take care of itself — the market was considered more efficient in dealing with inflation and unemployment.

His emphasis on monetarism and the free market led to two related approaches: supply-side economics and the rise of neoliberalism.

The free market which Friedman emphasised is based on the individual’s rights over private property, which the individual then uses to engage in the market. That was used by the neoliberals to place the individual at the forefront, not only economically but socially. The approach had been spelt out by the philosopher Robert Nozick during the 1970s.

Nozick considered that as each individual owns the products of her or his own endeavours and talents, it is possible for an individual to acquire property rights (as long as they are not gained by theft, force or fraud) over a disproportionate amount of the world. Once private property has been acquired in that way, it is ‘morally’ necessary (in a philosophic sense) for a free market to exist so as to allow further exchange of that property — it is only individual private property rights and market mechanisms that are logically important.

That captures much of the approach adopted by the neoliberals and helped give their approach a philosophic underpinning.

Nozick also posited that the state’s single proper duty is the protection of persons and property and that it requires taxation only for that purpose. That matches the current neoliberal argument for small government and minimal taxes and also fits with supply-side economics.

The basic argument of supply-side economics is that high taxes, particularly high marginal tax rates, are a disincentive to work, saving, investment and the efficiency of resource use. Some other taxes can also distort investment decisions by treating different types of capital investment unequally.

Supply-side proponents argue that:

  • lower taxes on wages will increase labour supply and increase employment by reducing the pre-tax real wage but increasing the post-tax real wage
  • lower taxes on interest and capital gains will lead to an increase in savings, leading to more savings flowing into capital markets and raising investment
  • for governments, lowering taxes will actually lead to higher tax revenue as people will work or invest more, thus increasing the size of the tax base
What have these approaches actually achieved since the 1980s?

Following supply-side economics, many governments around the world have, since the 1980s, lowered marginal tax rates on income, including company tax rates, and the rates for earnings from investments and capital gains. Many other economists accepted that some of the outcomes suggested by the supply-side theories were possible but their impact was measurable only in decimal points of a percentage and the benefits were not as large as claimed by supply-side theories. The tax cuts made by the Reagan government were a classic example of supply-side theory but led not to an increase in government revenue but a huge increase in government debt, which other economists suggested over-rode any potential benefit.

Economists acknowledge that supply-side actions take a long time to show their benefits — although governments usually prefer to take short-term actions.

In 1996 one researcher wrote of the USA:
Economic growth, at its simplest, is the result of more people working and more output per hour (ie, increased productivity). Given two facts — annual productivity growth of about 1.1 per cent for more than two decades, and a slowdown in the growth of the working-age population — slower economic growth is the inevitable result. Since cutting (or raising) taxes has made no obvious, large difference in productivity, the idea that tax cuts will noticeably increase long-term economic growth is without merit.
More recently, to cover the long term nature of supply-side changes, some research has looked at the history of tax cuts in the USA going back to 1945, thus covering a period of about 65 years (at the time of the research). The research was conducted by the Congressional Research Service and first appeared in 2012. It found that there was no correlation between lower tax rates and saving, investment or productivity. What was found was that the changes had helped concentrate wealth in the hands of the top 1%, and particularly the top 0.1% of income earners, as their tax rates had fallen by more than 50%.

The market emphasis on the individual, supported by the neoliberal approach, basically endorses inequality because it results from individual ‘effort’. It ignores social responsibility and the common good. I won’t go into this as we have covered it before on TPS but it leads to the economists and neoliberals seeing no role for government in ameliorating the situation, or as the philosopher Nozick put it:
While it is true that some individuals might make sacrifices of some of their interests in order to gain benefits for some other of their interests, society can never be justified in sacrificing the interests of some individuals for the sake of others. [emphasis added]
Under this approach, governments should not intervene in the market, nor over-rule individual rights to reduce the increasing inequality, although it has been government decisions, under pressure from supply-side economists and neoliberals, that has exacerbated the situation.

Greg Jericho, writing recently in The Guardian, also pointed to the unusual outcomes occurring under the current economic approach:
The OECD has just released its latest compendium of productivity indicators and it shows that across the world productivity growth was slower in the decade from 2004‒2014 than it was from 1996‒2004.

But as the OECD notes, the slowdown in productivity growth has come during a time of “rapid technological change” and increasing participation of firms and countries in the global market — things which should see improved growth.

It is a “paradox” which the authors of the paper rather unsettlingly attribute to among other things, difficulties of measurement.
For its failures, supply-side economics has been disparaged and dismissed as ‘voodoo economics’ (used by George H Bush as regards Reagan’s economic approach during the 1980 presidential primaries), although it still lingers among many governments, including the Liberal government in Australia. Despite the evidence, our government still believes that lowering taxes will help investment, economic growth and ultimately government revenue. In Fairfax papers on 9 June, Peter Martin wrote that the government’s company tax reduction would cost a nett $8 billion a year (after some increased income from personal taxation). For that cost, the benefit would be an improvement in gross national income of between 0.5% and 0.7% ‘after several decades’ or less than 0.1% per year (so low that at one decimal point it rounds to zero):
And the boost to jobs would be even smaller. Independent Economics says employment would eventually climb by 0.17% if the tax cut was funded by a tax on households, or by as little as 0.02% if it was funded by cutting government spending. That’s an eventual increase of between 2400 and 20,400 jobs. By way of comparison employment has climbed by an average of 24,000 per month over the past year. It means that after 20 to 30 years the $8 billion per year holds out the prospect of delivering an extra month’s worth of employment growth.
That certainly echoes the long-held criticism of supply-side economics that it produces only marginal improvements over very long time spans.

Another common problem is the acceptance of Friedman’s ‘natural’ level of unemployment: our government does nothing to reduce unemployment below 5%. That figure is the accepted norm within the Australian Treasury and its longer term projections, such as in the Intergenerational Reports, use that figure consistently over many years (linked to stable inflation). While it is all but impossible to achieve zero unemployment, prior to Friedman’s approach unemployment at about 2% was considered ‘full employment’. If we now accept that another 3% of the labour force (over 300,000 people in Australia) should always remain unemployed, doesn’t that also have an impact on demand and production?

To me, as an economic layman, controlling the money supply seems to have become more difficult because financial institutions have created artificial financial products that do not appear to bear any relationship to their actual value. In relation to the GFC, there was a small number of economists and market analysts, who pointed out that the total value of derivatives and futures traded was greater than the money supply in the US and of the total value of the goods being traded — so something had to give!

Following Friedman’s approach, perhaps that situation indicated the money supply was too low but, in fact, it was too high — deregulation of financial markets had seen to that!
Friedman and other monetarists envisioned strict controls on the reserves held by banks, but this has mostly gone by the wayside as deregulation of the financial markets took hold and company balance sheets became ever more complex. As the relationship between inflation and the money supply became looser, central banks stopped focusing on strict monetary targets and more on inflation targets.
For that reason, some argue that Friedman’s theory has not failed but that governments have moved away from it. Rather than controlling inflation through the money supply, control is now more focused on interest rates set by the central banks. On the other hand, Friedman argued for freedom in the markets and deregulation is just a way of achieving that — so is there an inconsistency in his arguments?

A number of governments around the world, have engaged in increasing the money supply (quantitative easing) following the GFC but it has not increased inflation (and growth) as Friedman’s theory suggests. Instead national economies are stagnating or growing painfully slowly and employment and production are not rising significantly. So if increasing the money supply is not working what will?

Whichever way you look at it there are more and more questions and anomalies in the current economic situation not explained by Friedman’s monetarism or supply-side theory.

A Keynesian would increase government spending and, if necessary, government debt to stimulate the economy. Friedman, however, warned that government debt is bad because it encourages governments to allow inflation to rise as a way to effectively reduce the debt — which was how many governments paid the debt they had accumulated during WW2. But as explained in ‘Bankers 3 Democracy 0’, such inflation is resisted by financial institutions because they are the ones that stand to lose.

Finally, some investment advisers in the US are warning that there is a danger that America could face the return of stagflation. While advising that it is only a small risk at this time, they are suggesting that investors may wish to hedge their position by placing more of their investments in gold and government bonds. If even Friedman’s approach is potentially leading to stagflation, shouldn’t it also be abandoned?

Do we return to Keynesian economics? Although supply-side economists say it shouldn’t work, it worked for Australia in the GFC: the Rudd government provided cheques to households to spend. That was pure Keynesian because it allowed a demand-driven boost to the economy without changing the underlying tax base (and thus future government revenue).

Which Australian political party will be brave enough to stand up to the economists, including those in Treasury, and say your current economic theories aren’t working? — reconsider what you are telling us and tell us something that will actually work! There are other economic approaches available, such as Modern Monetary Theory (MMT) and what is sometimes termed ‘middle out’ economics which uses a demand-driven model that emphasises the capacity for spending of the middle class to drive economic growth. Perhaps it is time that government, and the Treasury, gave these approaches more heed because Friedman’s monetary theory and supply-side economics certainly aren’t working.

What do you think?
Why should we stick by Friedman’s approach and supply-side economics when it is clear they are not explaining current ‘anomalies’ or ‘paradoxes’?

How can we support an economic approach whose greatest achievement seems to be increasing inequality?

Let us know in comments below.


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How the Liberals are destroying Australia


The image above shows rich and poor alongside each other in Mexico. Is this Australia’s future under the Liberals?

Australia has a long history of egalitarianism. Between the gold rushes and the 1890s Australia was considered a ‘working man’s paradise’. The depression of the 1890s changed that somewhat but also fostered the growth of unionism and the birth of the Labor party to represent workers’ interests. That meant that by 1911 Australia was still considered a great country for the ‘working man’ with higher wages than in many other countries, shorter hours than the USA and Canada and more holidays. Australia was also a world leader in social reforms, including universal suffrage, and was known for not having as large a gap between rich and poor as most industrial countries — it was effectively largely egalitarian.

It was not a rigid system that enforced the same conditions on everyone but a system based on the ‘fair go’. It was built on the concept that we are all inherently equal and, therefore, the differences between us should not be great if we each have a ‘fair go’ — in modern parlance, it was equality of opportunity. We were also very good at cutting down the ‘tall poppies’ when the differences exceeded what we thought acceptable.

Now much of that has changed and the Liberals have contributed mightily by their actions and also by their underlying philosophy.

What drives the Liberals’ actions is their belief in the individual, based on the John Stuart Mill maxim on freedom when he wrote in On Liberty in 1859:
The only freedom which deserves the name is that of pursuing our own good in our own way, so long as we do not attempt to deprive others of theirs, or impede their efforts to attain it.
The Liberals aim towards the first part of that statement but tend to ignore the provisos in the second part. Despite what the Liberals may think, the condition Mill imposes on individual freedom is consistent with the Australian value of the ‘fair go’: as an individual, I give others a ‘fair go’ by not depriving them of their freedom nor impeding their efforts to attain it. It shows that although the ‘fair go’ can be said to be founded on the individual, it includes a social responsibility to give others a ‘fair go’, just as Mill envisaged. In that sense, the ‘fair go’ is the true inheritor of Mill’s legacy, not the Liberals’ approach.

When the Liberals emphasise the individual they are undermining society. They sometimes speak of community spirit, such as when we pull together during times of bushfire and flood, but they do nothing to support it. Generally they believe only in the individual and the family, and community and society do not get a look in. That also provides a green light for individuals to ignore their social responsibilities and look only after themselves if that is their want — it is a green light to reject the ‘fair go’ and a green light for individual greed.

The economic emphasis on the individual is leading to rising inequality in our society. The gap between the richest and the poorest has increased significantly. The gap between the pay of a worker and the CEO of the company for which she or he works has increased dramatically in recent decades. Whereas once it was the equivalent of 2‒4 years of the worker’s wage, now it can exceed 15 or 20 years. The ‘tall poppies’ are now protected under the Liberals’ approach and are viewed by them as essential for economic success.

In Australia, based on taxation records, the top 10% of taxpayers had 25% of total national income between 1974 and 1985 but that grew to 31% in 2010. For the top 1% their share was about 4.5% between 1976 and 1984 and in 2010 was 9.2%, after reaching a peak of 10.1% in 2006 before the GFC.

In 2013, a Productivity Commission paper also showed that since 1998‒99, even just among those employed, wages had been increasing faster for high income earners than for low income earners.

Such inequality impacts equality of opportunity and this was recognised by the OECD as early as 2005:
... children of poor parents have less chance of succeeding in life than children of rich parents: a widening inequality of income risks leading to a widening inequality of opportunity. Because of these factors, a failure to tackle the poverty facing millions of families and their children is not only socially reprehensible, it will also weigh heavily on our capacity to sustain economic growth for years to come.
Given the last statement in that quotation, is rising inequality also contributing to current sluggish economic growth worldwide, not just the GFC hangover? That’s one for the Liberals to ponder, if they dare!

Australia survived the GFC thanks largely to a return to Keynesian economics by the then Rudd government (on the advice of then Treasury Secretary Ken Henry). Even now our economy has been growing at 2½‒3% a year, below our long term average but still a moderate rate of growth. So why do people feel financially insecure?

Wages growth is currently the slowest it has been in 20 years so that certainly doesn’t help but another aspect mentioned by a number of writers, including in relation to the middle class in the USA, is cuts to government services. People feel they have less social support as government services disappear, that such services will not be there when they need them. Also any increase in their wages may go in paying for services previously provided by government — their situation, at best, is not improving or is going backwards.

In Australia, the Liberals cut government services because they believe in the neoliberal economic philosophy (still based on John Stuart Mill) that the individual should be free to use, that is buy, only those services they require. That, by economic demand, the market will meet the need for those services. Government providing services for all, that many may not use, is an inefficient use of resources! The Liberals will continue to emphasise low taxes because this puts money back into the pockets of the individual to buy the services they want and government can withdraw from that provision. That presumes, however, that everyone is earning enough to buy those services which is not the case under the Liberals’ approach.

We are also seeing a rise in what is termed ‘precarious’ employment — casual and part-time work, and short-term individual work contracts. The April employment figures this year showed that 20,200 part-time jobs were created but 9,300 full-time jobs were lost (there had been no increase in full-time employment in the previous three months). Continued work is not guaranteed in such situations, leaving workers unsure of their future: they need to be earning very large amounts, as with some of the FIFO mining contractors, to make them feel such uncertainty is worthwhile. But in many cases these approaches are used to reduce wages and working conditions. As the number of full-time positions diminishes that situation worsens. The Liberals have long supported this approach, no more so than when Howard introduced WorkChoices. Unions are sometimes criticised for not paying enough attention to part-time and casual workers but that is because they tend to focus on keeping, and creating more, full-time positions as it is only a full-time position that provides economic security. There are some studies in Australia suggesting that for a family to lift out of poverty at least one member of the family has to have a full-time job — even having a number of members of the family working casual or part-time doesn’t help because they are unable to invest in a better future as their work, and income, can stop at any time with little or no notice.

So the Liberal approach to employment is also increasing economic insecurity no matter how well the economy may or may not be going.

The current Liberal (Turnbull) government is focusing on business, and small business in particular, at least to start with. A focus on small business is to some extent consistent with the ‘fair go’ but not when large businesses and multi-nationals are included, and not when increases in productivity are being pocketed as profits, not improvements in wages.

In a 2013 report for the ACTU it was found that in the 1990s there was a stability between productivity and wages — both productivity and real wages grew at 2.1% each year.
Wages decoupled from productivity in the 2000s. Between 2000 and 2012, productivity rose by an average 1.3% per year, while real hourly labour income rose by only 0.6% per year on average. This meant that labour’s share of national income fell over the decade, and fell quite sharply. In 2000, the labour share was 65.6% — this had fallen to 59.7% by 2012.
Again, this is a global phenomenon:
In developed countries, the share of labour income declined, falling by 5 percentage points or more between 1980 and 2006-07 — just before the global financial crisis — in Australia, Belgium, Finland, France, the Netherlands, Norway, Sweden, the United Kingdom and the United States, and by 10 points or more in Austria, Germany, Ireland, New Zealand and Portugal.
It is global because so many governments are following the same neoliberal economic philosophy.

If workers do not benefit from increased productivity that is not a ‘fair go’. As the ACTU report suggests, a ‘fair go’ involves profits and wages increasing at about the same rate as productivity, not one outpacing the other by a wide margin. Now, to return to a fair distribution of national income, the profit share needs to reduce, which is not going to happen under this government. So if people turn against Turnbull’s approach it will be obvious why.

The approach is justified by the ‘trickle down’ (or supply-side) theory in economics (see Ad Astra’s recent article here for an explanation), that claims supporting business, including big business, improves the overall economy — a rising tide for all. At least that’s the theory. As so much evidence shows, however, it does not work.

On matters like education and health, the Liberals prefer to follow their economic path focused on the individual and are only held in check to some extent by outcries from the Australian public that their approach is unfair. Their obvious preferred model is for privatised health and education based on the premise that the value people put on these is shown by the price they are willing to pay. They are undermining Medicare. They are reducing funding for hospitals and schools (a recent increase does not match proposed cuts already built into the budget). Yet they continue to spend $6 billion a year on a rebate for private health insurance.

Almost everything the Liberals are doing is undermining Australian communities and Australian society as a cohesive unit. Their philosophy, so centred on the individual and ignoring community support, social responsibility and the common good, is anathema to the ‘fair go’. Their focus allows them to ignore inequality because that is simply some individuals doing better than the rest. In their approach, it supposedly provides an incentive, a goal for those lower down to aspire to. They believe that aspiration will inspire people to work harder. Aspiration may have been valid when Australia had a more egalitarian range of incomes: if the CEO was only earning the equivalent of a few years’ wages of the worker, then aspiring to a similar lifestyle was an achievable goal but not when that gap can be 20 years or more, effectively requiring a lifetime's work just to come closer to the aspiration without being likely to achieve it. When an aspiration becomes unachievable or unrealistic it no longer has value but the Liberals don’t seem to recognise that.

The Liberals cannot honestly call on our community spirit when they are the ones undermining it.

In 2014, the Centre for Policy Development released a book Pushing our luck: ideas for Australian progress. Lindy Evans wrote in it of the need for a new Australian narrative. She asked for more emphasis on Australia’s democratic history: the radical path we trod in the late 1800s and early 1900s, giving women the vote and allowing ordinary people, not just an elite, to be elected to parliament. She related the story of an early member of the Australian parliament making a speech with holes in his suit pants because it was the only suit he had. The fact that Australia had the world’s first Labo(u)r government was no accident but a result of our founders ensuring that ordinary people were drawn into the political process.
The idea that human societies are not chained to repeating history and that we can create a better world runs deep in the Australian tradition. In recent years we have lost sight of how rare that philosophy was, and still is.
She called her approach ‘egalitarian nationalism’ and presented it as an alternative but inclusive national narrative to that of multiculturalism. But if the Liberals continue their destructive path, our chances of ever achieving that sort of uniting narrative, emphasising our egalitarian democratic values, diminishes by the day.

What do you think?
Can Australia retain the ‘fair go’ if the Liberals continue running the country?

What happened to Tony’s ‘Team Australia’?

Do readers have any suggestions for the post July 2 government that may help return Australia to a more egalitarian footing?

Let us know in comments below.


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Tony Abbott liked to scare us with tales of violent terrorists coming to attack us and, therefore, requiring more and more security to protect us. Even if we thought he was crazy or going too far, at least he was addressing us. Think about Turnbull’s approach and ask where are the policies, even the broad approaches, that address us, the people and communities of Australia, and our needs.

Almost every decision is based on economic or fiscal policy and every approach is predicated on supporting business. Funding for social areas of policy has been left at the levels of the Abbott government, cut again, or given only minor increases that do not match the previous cuts.

The one significant social announcement by Turnbull occurred soon after he became prime minister when he announced a funding package addressing domestic violence. That, however, was so soon after he became prime minister that it had obviously been in the making for some time previously, so he cannot be given any credit for it. Otherwise, there have been no announcements on social policy, no education policy, no health policy, no social welfare policy: each of these areas have only been considered in budget terms to address fiscal policy.

Turnbull’s major policy announcement was the National Innovation and Science Agenda in December last year. At the launch of the policy he did say:
It is believing in our human capital and remembering that the best assets we have, the most important assets we have in this country are not to be found under the ground, but walking around on top of it is the 24 million Australians, the men and women of Australia, these and their ideas are what secures our future. And this package will incentivise, dynamise [sic], energise that enormous opportunity.
Pyne, also at the launch, made clear, however, that this was ‘the centrepiece of the Government’s domestic economic policy agenda’. Despite recognising that people are central to economic activity, the innovation agenda remains an economic policy, not a social policy.

The government sees its role as supporting innovation:
… by investing in enablers such as education, science and research, and infrastructure; incentivising business investment; and removing regulatory obstacles such as restrictions around employee share ownership or access to crowd-sourced equity funding.
An emphasis on STEM education could be seen as having some social elements (Shorten had also spoken about that seven months earlier in his 2015 budget reply speech) but it is only as an adjunct to economic policy. Turnbull sees it as necessary for the jobs of the future but, as some have pointed out, there will be students who may need some, but not high levels, of those STEM skills, who wish to be plumbers, bricklayers and similar tradespeople. We will certainly still need such tradespeople into the future. Not everyone will be an entrepreneur or be starting high-tech companies. Turnbull just doesn’t seem to see that side of life. He sees such tradespeople only as small-business people and, while that may be true for a significant number, there are also many others who are employees of both small and large businesses. Where do they fit in Turnbull’s vision? Does he recognise that we actually have a shortage of skilled tradespeople as reported by the Department of Employment in February? Why don’t we also have a focus on training more people for the trades rather than his continual focus on high-tech start-ups? His only approach to the trades is the re-introduction of the Australian Building and Construction Commission!

A major focus of the innovation agenda is changes to the business environment by such measures as a tax off-set for early stage venture capital, changes to the ‘same business test’ for tax losses and reforming insolvency laws. The idea is to encourage investment in risky undertakings and encourage risk taking and entrepreneurial activity — a cultural shift as he termed it. Turnbull said:
This is not just a list of measures and incentives and the levers that government pull, this package is designed to inspire. It is designed to lead. It is designed to encourage every single business, large or small to be more innovative, to be more prepared to have a go at something new because in the world of the 21st-century, in 2015, that is how you prosper.
Although the Abbott government had cut research funding, the innovation agenda returns some of that money but places a greater emphasis on research collaboration between businesses and universities and scientific bodies for that funding. It is creating a $200 million innovation fund within the CSIRO but the government is providing only $75 million of that (and providing only $5 million a year) and the balance is to come from the CSIRO’s WLAN licence fees and private sector support. Pure scientific research is taking a lower priority and yet it is such research that sometimes makes the breakthrough that leads to other developments that can then be utilised for commercial purposes.

On the other hand, out of the $1.1 billion for the innovation agenda, most of it ($814 million) is actually for existing projects that would likely have received ongoing funding in any case — the Australian Synchrotron and the Square-Kilometre Array. So even Turnbull’s commitment to the innovation agenda is a little misleading.

The innovation agenda also gave birth to the jobs and growth mantra: ‘innovation for jobs and growth’.

Just prior to the election announcement Treasurer Scott Morrison presented the budget but said it was not a budget but ‘an economic plan’. He went on to state:
Australians know that our future depends on how well we continue to grow and shape our economy as we transition from the unprecedented mining investment boom to a stronger, more diverse, new economy.

They know that their future, their jobs and those of their children and grandchildren depend on it. This is a very sensitive time.

Australians have clearly said we must have an economic plan to make this economic transition a success.

This economic plan is the foundation on which we can build a brighter, more secure future, in a stronger, new economy with more jobs.
No mention of social issues.

The focus of the budget is on business: its key initiative is the ten-year reduction of company tax rates (at a cost of $48 billion). Like the innovation package, it is meant to support ‘jobs and growth’ but will also ‘increase real wages’ according to Morrison. The argument used by the government, and supported by many business groups, is that a tax cut will encourage re-investment in and expansion of businesses, leading to additional jobs. Although businesses continually argue this, it is not supported by history. Company tax for small businesses has already been reduced from 30 cents to 28.5 cents in the dollar from 1 July 2015. Historically, company tax has come down from 46 cents in the dollar in 1980. But we are now (again) suffering high unemployment and slow job growth, so why will an additional cut change anything?

The one announcement that may have a social aspect was:
… a new initiative to help more than 100,000 vulnerable young people into jobs, to be part of our growing economy by giving them real work experience with real employers that lead to real jobs.
But as that statement implies, it is all about economics, not the assistance those ‘vulnerable’ young people may actually need. Some may require health and social support before being ready for employment but that does not enter Turnbull’s nor Morrison’s thinking.

Some additional money was provided in the budget for hospitals and schools but it did not make up for previously foreshadowed cuts and was addressed primarily within the fiscal policy of the budget. The government had earlier announced that it would not meet the final years’ funding for education under the Gonski funding model: that model focused additional funding towards the most disadvantaged schools and students. ‘Gonski’ was clearly a social policy (with economic benefits from a more educated population) but the government’s approach shows that it is not interested in social policy — only economic and fiscal policy.

The same can be said of the government’s approach to health: it is primarily based on fiscal policy (and ideology favouring private health providers). There have been continual cuts to Medicare, through freezing the indexation of rebates, and to hospital funding — on 23 May Health Minister Sussan Ley revealed that it was, indeed, the Treasury and Finance Departments not ‘allowing’ her to end the freeze on Medicare rebates. While the government emphasises economic policy, its approach to health ignores that a healthy workforce is also essential to economic activity.

Turnbull and Morrison claim they are providing record levels of funding for health and education but, given inflation and the fact that government revenue usually increases each year (only the rate of increase varies dependent on the health of the economy), such a statement is no better than stating they are providing more funding than in 1960.

In announcing the election Turnbull continued to ignore social policy:
At this election Australians will have a very clear choice; to keep the course, maintain the commitment to our national economic plan for growth and jobs, or go back to Labor, with its higher taxing, higher spending, debt and deficit agenda, which will stop our nation’s transition to the new economy dead in its tracks.
In Turnbull’s mind there is obviously no room for Labor’s spending on social issues. Such spending will undermine his grand vision of an agile and innovative economy. He went on:
We have an economic plan for growth and jobs. Every single element of it is designed, is calculated, determined, to deliver stronger economic growth and more jobs for Australians. On the other hand, our opponents are promising to increase income tax, they are opposing a tax cut for Australian businesses.
Of course he fails to mention that, after ten years, his business tax cuts will apply to all businesses, including the 6,000 odd large businesses in Australia and the multi-nationals operating here. He fails to consider that some of the $48 billion it will cost could have been used for hospitals and schools. Simply improving business conditions and encouraging business growth does not support people who need the welfare and other services provided by government.

Even his attack on Labor’s negative gearing policy included that it was ‘blocking the road to entrepreneurship’. As a former entrepreneur himself, Turnbull seems to see that as the height of human achievement.

I was surprised that it actually took Barnaby Joyce, in his brief election launch following Turnbull, to add a human dimension to the LNP’s approach. He actually spoke about people and about politicians as people:
“We see the future of our nation through the regional towns and making sure that the problems in their lives, the concerns of their lives, are dealt with in a way that truly reflects the dignity of the people and how seriously we hold the job that they do. We have proven ourselves but we are merely at the start.”

He says he is looking forward to voicing the concerns of the Australian people in a sometimes fun, unscripted way.

“Making sure that we walk humbly with our people, not in a way that doesn’t let us have fun, not in a way that doesn’t mean that we are not, you know, turn(ed) into some peculiar creature that is completely scripted.”
What Turnbull is missing by his single-minded focus on the economy and business is that a strong economy is supported and underpinned by strong social policies: an education and training system that provides skilled workers and skills for young people entering the workforce (for all levels of jobs); a health system that keeps the workforce healthy and productive; a welfare support system that gives people the resources to be able to re-enter the workforce if they are able. Other social issues also have economic effects such as when people leave the workforce to care for aged parents or sick children and social policies should be in place that recognise this.

Even the concept of ‘healthy’ communities is important. If our communities are falling apart from lack of amenities, or even social dislocation, then that will also impact the economy. If communities are not willing, or are unable to work together, we will not even have a functioning society.

In other words, everything is intertwined. We need good social policies for what they deliver and achieve in their own right but, even in Turnbull’s terms, we need them to support the type of economic policy he is advocating. Why doesn’t he understand that?

Given Turnbull’s approach, Labor’s policy catch-cry, ‘putting people first’, may have some resonance. At least it is recognising ‘us’.

What do you think?
Will Turnbull’s blindness as regards social policy come back to bite him?

Is Labor enhancing its electoral chances by focusing on people?

Let us know in comments below.


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