Thursday, May 31, 2012

Abbott faces stiff challenge in fighting carbon tax

With one month to go before the carbon tax starts, Tony Abbott's effort to repeal it is about to get harder.

Following the GST's implementation, then treasurer Peter Costello ridiculed Labor's rhetoric of GST-based impending disaster.

Come July 1, Abbott is likely to face similar efforts to ridicule his claims of the carbon tax's impact.

Because polling shows Abbott winning on a platform of repealing the scheme after the next election, businesses hard hit by the carbon tax are likely to wear the short-term pain.

The real impact will be a slow burn affecting industries making long-term decisions about future investment viability.

Last week's announcement by Norsk Hydro to close its Kurri Kurri aluminium smelter is a clear example.  The carbon tax was one of several factors that contributed to the plant's closure, as well as the high dollar, rising metal prices and collapsing global prices for aluminum.

But unlike the other contributing factors the carbon tax impact is exclusively the consequence of government policy.

There was a lot of criticism that the plant was energy inefficient, undermining its competitiveness.  But the company could have recapitalised in its investment if it foresaw a profitable future.  It chose not to.  In the long run, the smelter was faced with a perpetually increasing electricity bill, which is a key input into its cost structure.

Kurri Kurri's situation will now be replicated all across the country.  Businesses that are dependent on cheap energy will experience declining profitability and decisions to recapitalise won't be taken.  Greenfield investments also will never be made if they are exposed to the cost of a carbon tax that's designed to annually increase.  For a country that has always been an investment capital importer, the impact will be felt on job creation across the medium and long term.  All of the carbon tax's pain won't be felt at midnight between June 30 and July 1, but it will be felt eventually.

By comparison, the ''new economy'' of Greens leader Christine Milne will be built off the back of the carbon tax, which acts as a subsidy for lower-emissions industries.

But it won't be good for the economy.  ''Green'' companies will use more investment capital to produce less, undermining economic growth.  That was the experience of Spain and its carbon-based regulation that led to every ''green job'' in the economy coming at a cost of two jobs elsewhere.

This leads to the second challenge facing Abbott:  opposition from rent-seeking beneficiaries.

The carbon tax acts as an internal economic tariff to protect the interests of low-carbon investments at the expense of the rest of the economy.

Like traditional protectionism, the carbon tax will create a constituency of rent-seekers who will fight to protect their interests.  Abbott will face a backlash from renewable energy companies claiming that repealing the tax will result in lost investment and jobs.  Technically they'll be right that their business will be harmed.  But it will require them to ignore that disproportionately more investment and jobs would flow if the scheme were scrapped.

At least in the bad old days of tariffs, heavily protected manufacturers arguing for tariffs were identified as rent-seekers.  Recent media coverage suggests carbon tax-dependent industries aren't receiving that treatment.

The Sydney Morning Herald's Peter Hartcher recently reported that one of the world's largest investors in lower-carbon technologies, General Electric, considered Australia ''the new China''.  Uncritically, Hartcher quoted GE's Australian chief executive Steve Sargent, praising the carbon tax:  ''We have to look at these things through a positive lens, not a negative lens ... it's driving investment in renewables.''  He'd know.  The company he leads is one of the main commercial beneficiaries.

Not that Hartcher is alone.  Following a March interview with GE's vice-chairman John Rice, the ABC reported him applauding the Australian government ''for having the courage to go through with (the) carbon tax''.

According to Rice, the carbon tax is ''gutsy''.  But nowhere in the article did it highlight that GE would gain a considerable commercial advantage from the scheme, mentioning only in passing that it manufactured wind turbines.  It's like asking Holden how it feels about receiving its recent $275 million taxpayer subsidy from the government.

To his credit, in the original interview ABC finance presenter Alan Kohler identified GE's vested interest, but it was cut in subsequent coverage.

GE is not alone.  In April last year, corporates that stood to commercially benefit from a carbon scheme signed a joint letter supporting the tax.  Signatories included Alstom, which sells public transport rolling stock to governments;  Better Place, which wants to commercially establish an electric car network;  and Pitt & Sherry, which sells environmental consulting services.

In March last year Westpac's Gail Kelly argued on ABC's 7.30 that ''as quickly as we can get to an actual (emissions) trading scheme (away from the carbon tax) would be best''.  That the ETS would give Westpac a new financial instrument to trade wasn't mentioned.

The carbon tax is a reminder of the perils of allowing big business and big government to collude because they advance their interests at the expense of taxpayers and consumers.  Uncritical analysis of the commercial interests of corporates bodes poorly for Abbott continuing to highlight the damage of the carbon tax that will be felt across the long term just as the number of rent-seeking beneficiaries capable of funding a pushback to protect their interests will be growing.


ADVERTISEMENT

Tuesday, May 29, 2012

Gillard plays the unedifying ''small Australia'' card

It's obvious what Julia Gillard was doing when she claimed Enterprise Migration Agreements for mining projects would not favour foreign workers.

Talking to the press on Saturday, the Prime Minister said, ''I can assure everyone that we will be putting the interests of Australians at the front of the queue and we will be putting Australians looking for work at the front of the queue.''

Ah, yes.  Our old friend The Queue.

There's not much more evocative in Australian politics than The Queue.  For more than a decade it's neatly divided asylum seekers into moral categories.  The virtuous wait in refugee camps;  cheaters hop on boats.

Even more than most politicians, Gillard thinks carefully about what she says.  Her advisors are smart.  When she brings up The Queue in the context of immigration, it's not likely to be a slip of the tongue.  Language matters.  This language is about those who are deserving and those who aren't.

Especially considering that just like the Refugee Queue, the Mining Jobs Queue is fictional.  It doesn't exist.  As Peter Martin pointed out in Fairfax papers on Monday, Enterprise Migration Agreements are used for work Australians simply don't want.  There can be no queue if nobody is standing in it.

Most press about this furious little debate has focused on how it makes Julia Gillard look weak, and her hold on the Lodge look weaker.  But the debate reveals something more important than the leadership soap opera.

Think back to the 2010 federal election.  Few things in that campaign were more dispiriting than the ''small Australia'' doctrine.

Both the Coalition and the ALP tried to link resentment about asylum seekers to resentment about traffic congestion.  The whole thing was farcical.  Gillard took Western Sydney MP David Bradbury to Darwin to hunt for refugee boats.  And the opposition, trying to demonstrate just how serious they were about slowing immigration, proposed to rename the Productivity Commission the ''Productivity and Sustainability Commission''.

The last few days have made it clear the small Australia doctrine was not a temporary anomaly, confined to a weird election held under weird circumstances.  It's no longer just asylum seekers that are controversial.  Bipartisan immigration scepticism now looks like it could be an enduring feature of the Australian political landscape.

The Enterprise Migration Agreement is going ahead.  But the announcement sent the Government into a tailspin.  In Parliament on Monday, Gillard didn't want to say whether she supported the agreement.  How extraordinary:  it's her own Government's policy.

The unions are opposed to the migration agreements, and Gillard owes her position to them.  But unions make all sorts of ambit claims which the Labor government pay no attention to.  This one was apparently too big a deal to dismiss.

So the worst part is that instead of ignoring the unions' shrill protest, the Prime Minister has all but apologised for thinking about foreign workers.

From Gillard's press conference on Saturday:

My concern here, and the concern of the Labor Government, is always to put Australian jobs first ... we put Australian jobs first and now we are putting Aussie jobs first too ... we're working to make sure Aussies get jobs first ... we are skilling Australians first and getting them the jobs first ... Australians will always come first in getting these job opportunities.

And with the hastily announced Jobs Board (a mining jobs website with the purpose of favouring domestic workers over foreign ones) the Government is ratifying the union movement's claim that immigration crowds Australians out of work.  This is a staple argument made by opponents of immigration, and it is completely wrong.  No Australian Prime Minister should indulge it.

Yet this time last year it seemed we'd gotten over small Australia.

The May 2011 budget was a repudiation of the previous year's excesses.  It was then that the Government introduced the Enterprise Migration Agreements policy in the first place.  Wayne Swan also announced another 16,000 immigration positions, the majority of which were skilled migrants sent to rural areas.

Australia's great project has always been to attract more workers and a bigger population.  The 2011 budget resumed that course.

But at that stage the next election was far in the distance.  Now one is closer — with or without the Thomson and Slipper scandals — and the Labor government is much more frail.  Gillard knows if she doesn't play the Aussie-jobs-for-Aussie-workers card in the future campaign, then the Coalition certainly will.  If the past is any guide, they probably will anyway.

The good money says the next election will be played out on the depressing terms of the election of 2010 — a populist, unedifying backlash against population growth and immigration.  Australia will not be better off for it.


ADVERTISEMENT

Sunday, May 27, 2012

Obama beats Bush in assault on civil rights

America's security powers continue to grow.

It's been fun for the left in Australia to fixate on the Republican candidates for the American presidency.  It's been fun to joke about their policy quirks and eccentricities.  Fun to pronounce that nothing is scarier than the prospect of a Santorum or Romney administration.  Yes, the Republican race has been a convenient distraction.

Because it would not do to dwell on an uncomfortable, undeniable reality — Barack Obama, the left's man in the White House, who was supposed to restore America's standing in the world and end George Bush's assault on civil liberties, has been much worse than his Republican predecessor.

Obama has undermined more individual rights, and hoarded more presidential power, than Bush ever did.  It's not that he has simply failed to roll back Bush's anti-terror excesses.  Although that is true, as well.  It's that Obama has trumped them.  More than 10 years after the September 11 attacks, the White House is still amassing extra security powers.  On December 31, Obama signed the National Defence Authorisation Act.

This act allows the military, without judicial authorisation, to arrest and indefinitely detain anybody within American borders.

This power is quite an increase.  Under the Bush administration, the military could legally arrest and detain people only in other countries.

American citizens were protected by an 1878 act banning domestic military deployment.  Obama no longer observes this legal nicety.

And Obama has claimed the right to assassinate any American citizen he deems a terrorist threat, at any time, according to nothing but his judgment, anywhere in the world.  As a former CIA chief recently pointed out, while the President needs a court order to eavesdrop on Americans abroad, he does not need a court order to kill them.

There's more.  George Bush's once-controversial covert surveillance program has dramatically expanded under Obama.  The President's emergency powers have been boosted.  An executive order Obama signed in March (number 13603) grants more to the president in an emergency than any order yet, allowing the government to take over all food, transport, water, energy and health resources and, if the President wants it, to reintroduce conscription.

Executive orders are used to bypass the usual checks and balances in Congress and the courts.  As the Cato Institute's Jim Powell pointed out last month, there is nothing in order 13603 about protecting constitutional rights.

No wonder the director of the American Civil Liberties Union is ''disgusted'' by the Obama administration's record.  Sure, Obama has withdrawn troops from Iraq.  Mission accomplished, as they say.  But, on the other hand, he has also personally pioneered an entirely new, more enduring form of global warfare.  Drone attacks will remain long after the wars in Iraq and Afghanistan have faded into historical memory.

Because drone war is permanent war.  It is limited by nothing more than the whims of the president.  It is the first war run entirely by the CIA.  It is conducted on the territory of countries to which America is not formally hostile.  And it took until February for the administration to even admit the drone war existed.

George Bush's wars of liberation, right or wrong, had their precedents.  Barack Obama's never-ending global bombing campaign by remote control is his innovation.

It's a fair bet that no administration will ever shut down the drone program.  A competent intelligence agency can always find new threats for a bombing into the Stone Age.  So if we simply apply the criteria the left used to condemn Bush as one of the worst presidents in history, there is no ambiguity.  Obama is far worse again.  Not that you would know about it.

Partisanship has a habit of excusing anything, with 77 per cent of those who describe themselves as left-wing Democrats wholeheartedly approving of Obama's drone program.  Imagine if a Republican did the same thing.  There would be anti-drone marches in Washington and candlelight vigils in Paris and Berlin.  Now the left is more interested in complaining that Republicans are sceptical about climate change.  They ignore, excuse, even — according to the polls — defend their President's abominable record on war and individual rights.  Because he isn't a Republican.


ADVERTISEMENT

Friday, May 25, 2012

Nasser tells it like it is

It's not quite going from the sublime to the ridiculous — but it's close.  Two speeches have captured the national headlines over the past week.

First there was Jac Nasser, the chairman of Australia's biggest taxpayer, BHP Billiton, outlining his plan for a more productive and prosperous nation.

Then came Craig Thomson, claiming he did not use his trade union credit card to pay for prostitutes.  As a result, parents around the country are now having a difficult time explaining to their children what's being talked about in the nation's Parliament.

Nasser got the front page for a day.  Thomson has had the front page week after week after week.  The different media treatment of the speeches says something about our priorities.

And it reveals what the public finds more interesting.

From the important to the incredible is a better description of the news cycle last week.  The sorry saga of Thomson will ultimately end up as a political footnote.  But what Nasser said could prove to be something of a turning point in the debate about the shape of Australia's future.

Nasser said two things of particular significance.  The first had to do with industrial relations and tax.

He declared Labor's industrial relations laws were hurting productivity and he basically said trade unions had too much power.

''It is important to have a co-operative framework within which to engage employees who choose union representation.

''But we do not believe that the influence of unions should be disproportionate to the level of union membership which today accounts for around 15 per cent of employees in Australia's private sector ...''

That's strong stuff.  And it's from the chairman of a company that's traditionally been more sympathetic than its competitor, Rio Tinto, to unions.  Such criticisms of the so-called Fair Work Act are not new.  What's special about Nasser's remarks are that now even BHP is critical of the country's labour laws.

Nasser's comments about tax were along the same lines.

''It is the right of governments to set the tax regime but I cannot overstate how the level of uncertainty about Australia's tax system is generating negative investor feedback.  People don't know where it's going.''

This was just days after Wayne Swan reneged on his commitment to cut the corporate tax rate and instead spent the money on handouts to families to compensate them for the carbon tax.

Again, there was nothing original about Nasser's statement.

It's impact rests on the delicious irony that it's the carbon tax that forced the government to break its promise on the corporate tax, and it was BHP's chief executive, Marius Kloppers, who urged Julia Gillard to introduce a carbon tax in the first place.  In September 2010, when the PM started to justify the carbon tax, she named Kloppers as someone who supported the tax.

The second thing of significance in Nasser's speech was his defence of Gina Rinehart, Andrew Forrest and Clive Palmer.  Not too many business leaders have had the courage to come out and back those such as Rinehart, Forrest and Palmer who have been successful, as Nasser put it, ''by their own toil''.

It's one thing to jump on the industrial relations and tax bandwagon, as many corporate bosses have done recently, but it takes some fortitude to confront a government and a treasurer and tell them they're wrong.

The government can be remarkably vindictive.  Look no further than the government inquiry into the media that was aimed fairly and squarely at Rupert Murdoch.

Nasser's statement that ''attacking individuals and specific industries doesn't build confidence in our country — nothing good comes from this'' was merely a declaration of the obvious.  However, it's a statement too few people in Australia have been willing to make.

It's unlikely the Gillard government will pay too much attention to Nasser.

The Prime Minister won't be quoting him in support of industrial relations reform, as she quoted Kloppers on the need for a carbon tax.  But in any case it's unlikely that Nasser made his speech with the purpose of influencing Labor government policy.

The purpose of Nasser's speech was to tell the Australian public what he thought it needs to hear.  He won't be too concerned about the government.

He knows that given the government's predicament, ministers will spend more time worrying about what Thomson said than anything the chairman of BHP Billiton said.


ADVERTISEMENT

Thursday, May 24, 2012

Voters strain at paying for even small carbon cuts

The carbon tax and similar measures involve us making sacrifices to forestall what the government says will be catastrophic human-induced climate change.  So how much do people consider they should pay to avoid these costs?

According to a Galaxy survey conducted last week, only 5 per cent of people said they would be prepared to pay more than $1000 a year and 37 per cent said they weren't prepared to pay anything.  Thirty per cent said they were prepared to pay more than $500 a year.  Reluctance to pay was highest in Queensland, Western Australia and South Australia.

In a survey such as this many respondents overstate their willingness to pay.  Some people's responses may also have been conditioned by government misinformation that implies only the ''big polluters'' will pay.  In fact, firms have to pass on the costs to the consumer — all of us — as the government acknowledges.

Willingness to pay to combat global warming can be compared with what people are paying now and what they will pay in future.

Renewable energy requirements cost $2 billion a year, rising to $4bn by 2020.  We have $2.7bn a year in government subsidies paid to dozens of programs.

These include carbon capture and storage, the Australian Solar Institute, ''clean technologies'', Sustainable Cities and $988 million for the Department of Climate Change.

The average Australian adult now pays $100 a year for renewable energy and $135 a year on various carbon reduction schemes.  As of July, the carbon tax will be raising $8.6bn in 2012-13 or $430 a head.

This brings total payments per adult to $665 a year.  In addition the $20bn ''Clean Energy Fund'', will cost Australians $1000 a head to support proposals that cannot obtain commercial funding and are, almost by definition, losers.

But this is just the beginning, designed to bring a 5 per cent reduction in emissions by 2020.  The government's target is to cut carbon emissions by 90 per cent by 2050 to reduce Australia's emissions to the world average.

To meet this at the lowest cost, according to Treasury, would involve at a minimum a $150- a-tonne carbon tax equal to annual payments of at least $3000 a head.  Any tax rate less than this and we won't meet the target and the radical economic restructuring — the closure of the Kurri Kurri smelter is a foretaste — will have been for nothing.

With the carbon tax, the renewable energy requirements and other measures, Julia Gillard has moved us forward on what former prime minister Kevin Rudd called the ''greatest moral issue of our time''.  But the grand objective of taking measures to save the world from some supposedly disastrous future has all but disappeared from government policy statements.  It has been subsumed into measures that involve bribes to voters and green industry lobbyists together with funding and regulatory instruments to restructure the economy in directions favoured by the intelligentsia.

Regrettably, replacing low-cost mining and energy industries that make use of our comparative advantage with alternative activities would dramatically reduce our overall income levels.

Early evidence of this is provided by a recent Productivity Commission report, which demonstrates how forcing electricity supply away from coal has contributed to a marked downturn in energy sector productivity.

Last week's Galaxy survey followed one two years ago.  The recent survey shows, if anything, a greater reluctance on the part of consumers to pay the costs involved.  And the commitment of Coalition state governments to require the costs of some of the carbon taxation measures be printed on energy bills will increase awareness of costs.  Fortunately, as evidenced by the Galaxy survey, public opinion is decisively against carbon tax impositions.

Notwithstanding the vast taxpayer sums spent on pushing the global warming scare, and promoting government handouts, people are unwilling to pay even the initial low tax instalment that the government says is necessary.  And opinion polls demonstrate that carbon taxes are crucial to voters' ballot box intentions.


ADVERTISEMENT

Wednesday, May 23, 2012

Qantas proved right in resisting unions

Qantas announced changes to its aircraft maintenance arrangements yesterday.  The result is 500 staff in Victoria will lose their jobs.  The unions will blame the airline and governments for job losses.  Chief executive Alan Joyce will probably cop more vilification.

Already, Qantas unions have condemned the move and claim the company has a broader social responsibility to retain jobs and train more people on aircraft maintenance.

However, the announcement is another reminder of the challenges facing Qantas.  It highlights the difficulties companies encounter in staying internationally competitive while managing a confrontational workplace relations system.

It is more than six months since the Qantas dispute ended in spectacular fashion.  The airline grounded its fleet and Fair Work Australia terminated bargaining between the company and three unions.  Industrial action ceased because, with the termination, it became unlawful.

In the meantime Qantas has negotiated a settlement with the union covering its 1600 aircraft maintenance engineers, the Australian Licensed Aircraft Engineers Association.

The settlement, approved as a workplace determination by Fair Work Australia, was a clear win for Qantas.

To set the scene.  Qantas aircraft engineers were and remain the highest paid in the world.  More than 90 per cent of Qantas aircraft maintenance is undertaken in Australia.  The engineers average long service and low employee turnover;  they appear to be satisfied with their careers

The ALAEA was regarded as the most militant of the three unions during the dispute.  It vigorously pursued its claims by taking strike action, imposing work bans and cancelling planned strikes at short notice.  Aggressive statements emanated from its federal secretary.  He notoriously advised passengers not to fly with Qantas.

The ALAEA claim sought control of the Qantas maintenance program, pay increases of 5 per cent per annum and a doubling of redundancy entitlements.  None of these claims were won.

The ALAEA wanted the heavy maintenance of new A380 and B787 aircraft performed in Australia.  The union proposed a new hangar be constructed at a cost of $95 million for this purpose.  Present work practices were sacrosanct;  change would not be entertained.  The modernisation of the fleet with different maintenance requirements apparently was irrelevant to the ALAEA.

The settlement allows heavy maintenance of the new aircraft to be undertaken overseas.  A new hangar will not be built.  Work practice changes to improve productivity will be entertained.  The intensely competitive and volatile nature of the international airline business is recognised.  The impending loss of 500 jobs demonstrates that Qantas has to adapt to remain competitive.

The pay of aircraft engineers is increased by 3 per cent a year.  Fewer restrictions apply to working extended hours when circumstances dictate.  Redundancy pay at the present standard of four and three weeks per year of service is retained in the settlement.

The comprehensive win for Qantas raises the question of why the company and its customers had to incur extensive losses and inconvenience during the protracted dispute in 2011.

The Gillard fair work system has transformed workplace bargaining.  The rules favour unions and place them in a privileged role.  Union leaders have been emboldened to expand their bargaining agendas and push for greater control over decisions about running the business.

Qantas had the capacity and foresight to resist the union strategy.  Many employers lack both and concede to their detriment.

For Qantas the settlement of two claims involving international pilots and ground staff remains.  These will be arbitrated by Fair Work Australia, which does not have an enviable record of recognising the competitive realities of modern business.

If uncompetitive settlements result then further Qantas jobs will be in jeopardy.  Also, the viability of the Gillard fair work system will be open to more doubt.


ADVERTISEMENT

Tuesday, May 22, 2012

Locking people away forever because ASIO reckons

It's a scandal that administrative decisions which result in indefinite detention are made outside judicial scrutiny.

In his 1885 book An Introduction to the Study of the Law of the Constitution, the great English jurist AV Dicey said, ''No man is punishable or can be lawfully made to suffer in body or goods except for a distinct breach of law established in the ordinary Courts of the land.''

This, he argued, was the first principle of the rule of law.  With his book, Dicey shaped the English-speaking world's legal philosophy.  He formalised the ideals suggested in documents like the Magna Carta, but which can be traced back to Aristotle.

So compare Dicey's high principles to a statement made by the head of ASIO, David Irvine, to a parliamentary committee in November last year.

Explaining why he wouldn't even tell Parliament the grounds on which his organisation makes security assessments for refugees, the ASIO boss said, ''Once the criteria for making assessments are known, then you will find very quickly that all the applicants will have methods of evading or avoiding demonstrating those characteristics.''

The Department of Immigration only refers asylum seekers to ASIO for security checks after it's been determined they qualify for refugee status.  It's one of the last steps.  By the time ASIO looks at them, the Australian Government already believes they have a well-founded fear of being persecuted.

So when a refugee receives an adverse security assessment, they're thrown into administrative limbo.  They are unable to return home (too dangerous for them) and they are unable to enter Australia (too dangerous for us).  The result is indefinite detention.  It's a classically bureaucratic non-solution.  Just lock them up forever and hope the problem goes away.

This is pretty bad, but no-one said national security wasn't about tough choices.

What makes the situation fundamentally and egregiously illiberal is the fact that these refugees have no idea why they have been detained.

The refugees are not told why ASIO believes they are a security threat.  They are not told what evidence the belief is based on.  And they have no opportunity to challenge the assessment.  There is no review process where the merits of their case can be scrutinised.

In the interminable debate about asylum seeker policy, much has been made of the distinction between incarceration — which happens to criminals — and immigration detention — an administrative process which all asylum seekers undergo.  Temporary administrative detention is not punishment.

But when a person is detained indefinitely because the government believes they are a security threat, that distinction is nowhere near as clear.  We should never be asked to take a government department on its word that someone must be locked up.

This makes the claims that there are heavy national security issues at stake quite hollow.

No doubt there are circumstances where security demands that some people not be let into the country.  David Irvine assured the parliamentary committee that ASIO makes negative findings sparingly and hesitantly.  In his words, ''We do not take a decision to issue an adverse security assessment lightly and nor are we contemptuous of or blasé about the human rights of the individuals involved.''

That may be true.  ASIO could be bureaucratic paragons.  But with no checks, we cannot have any confidence they are.  Ronald Reagan was fond of the phrase ''trust, but verify''.  It applies here.  A liberal society trusts its bureaucratic and judicial administration because of safeguards built into that system — not because of the inherent honesty and virtue of the public service.

So the issue here is not simply about justice for the 50-odd refugees stuck in this administrative black hole.  Without institutional safeguards, the Australian public should have no confidence in ASIO's decisions.  The ASIO chief may have meant his assurances to be comforting, but they only remind us that his assurances are all we've got.

In a story on Monday night, the ABC's 7.30 spent time discussing the adverse assessments made about refugees with links to the Tamil Tigers.  The program offered up academics with different views about the security risks they presented, and an interview with a former member now living in Australia.

All very interesting.  But this debate is in many ways premature.  It grants the system an institutional legitimacy which it does not have.

By not implementing a right for refugees (or their security-cleared advocates, or a tribunal) to question the merits of individual cases, we have, by accident, established a system where we literally lock people away forever just because somebody at ASIO ''reckons''.

It's hard to imagine anything more illiberal, anything more contrary to Dicey's great principles, than that.


ADVERTISEMENT

Tuesday, May 15, 2012

The unhappy compromise of European ''austerity''

Has austerity worked in Europe?  Well, if ''austerity'' means savage cuts to government spending, then there has been no austerity.

Figuring out whether a particular policy approach to a given problem has been successful is complicated, and the answer is rarely clear-cut.  This gets a lot harder when it's not obvious that policy approach has even been taken.

The French election earlier this month was a referendum on Nicolas Sarkozy's apparent austerity approach.  But between 2007 and 2011 — that is, since the financial crisis began — France actually increased the size of government as a percentage of GDP from 52.6 to 55.9.

It's the same in virtually every other major European economy.  Italian government spending has gone from 47.6 per cent of GDP in 2007 to 49.9 per cent in 2011.  Greece went from 47.6 to 50.1.  The United Kingdom jumped from 43.9 to 49.0.  Spain was at 39.2 in 2007, and is now at 43.6.

These figures come from the European Union's statistics agency, Eurostat.  There are other sources, and other ways you can slice and dice the numbers.  The economist Veronique de Rugy looked at the raw and inflation-adjusted expenditure figures published by the OECD.  She found the same thing.

Each approach tells a variation of the same story.  All of the major European economies are spending more now on government than they did before the global financial crisis began.

That's not to say there hasn't been some cutting.  In Greece, Spain, and Italy, spending peaked in 2009.  A large part of the expenditure growth has been due to unemployment payments.  But, as the free market economist Russ Roberts recently pointed out, the makeup of government spending shouldn't matter — according to the Keynesian model, all government expenditure should boost demand.

There is no avoiding it:  European spending is much higher now.

This simple fact ought to put a big question mark on claims of cruel austerity.  After the French and Greek elections, Paul Krugman wrote in the New York Times that a ''Franco-German axis ... has enforced the austerity regime'' on Europe.  But European governments haven't turned off the tap.  They haven't even decreased the water pressure.  At most, they've slowed the pace of growth.

So why is there an electoral backlash against a policy that doesn't exist?  There are two things going on.

First:  voters don't like cuts.  As a general rule, the public isn't happy when governments announce they are going to spend less.  The size of those cuts is a mere detail — after all, voters don't respond to Eurostat data, they respond to impressions.

Political leaders have been stuck between two rigid forces.  On one side, there is the economic need to demonstrate, loudly and confidently, to financial markets that they can keep their budgets under control.  But on the other side, there is a political need to keep the faucet of government benefits flowing to voters and special interests.

The inevitable compromise satisfies nobody.  There's neither enough restraint to make serious headway into restoring fiscal credibility, but more than enough to upset groups that rely on taxpayers' largesse.

This is doubly a problem because the usual benefit of cutting spending — cutting taxes — can't be delivered.  In many cases taxes have gone up substantially as governments try desperately to bridge the gap between revenue and expenditure.  Raising taxes without corresponding increases in services is not the best way to buy popularity.

The second reason is more politically fatalistic.  Voters punish governments when things are going badly.  It doesn't matter whether it's those governments' fault or not.

The Australian academic-turned-parliamentarian Andrew Leigh found in a 2009 paper that voters respond more to a government's luck than its competence.  If the global economy does well, incumbents benefit.  If it does poorly, oppositions benefit — no matter who is responsible.

This effect might seem unfair, but it is remarkably persistent.  Another paper, also published in 2009, built on Andrew Leigh's work by looking at disaster relief in India.  It found many voters even punish incumbent governments for bad weather.

So the foul economy was always going to make European voters hostile to incumbents.

Yet none of this explains why claims of European austerity are so overhyped outside of Europe — why our economic commentary is littered with moral lessons supposedly drawn from their mistakes.

Yes, advocates of aggressive fiscal stimulus would be no more pleased by the European experience than anyone else.  There hasn't been any austerity, but there certainly hasn't been any ambitious increase in government spending either.  After initial stimulus programs at the start of the crisis, governments pulled their horses back.

But those governments' reluctance to toss budgets further into deficit on another round of stimulus has, somehow, been recast by Keynesians as a test of high-brow economic philosophy, rather than a test of policy compromise and half-heartedness.

So, despite a demonstrable lack of austerity, the ''age of austerity'' has become a legend — as if it is a natural experiment in free market economics, proving once and for all the efficacy of a small-government approach to dealing with recessions.

If only.  Surely both Keynesians and free marketeers should be able to recognise the European approach for what it is:  an unhappy compromise that satisfies nobody.


ADVERTISEMENT

Sunday, May 13, 2012

The politics of projection:  there's a reason we can't all just get along

Politics is almost entirely in the eye of the beholder.  Obviously conservatives, libertarians, progressives and environmentalists have different ideas about government.  But their clash goes much deeper.  Political disagreement isn't really about politics.  It is about competing worldviews;  different conceptions of ethics, morality, relationships and communities.

With that in mind:  how polarised do you think Australian politics has become?  Have Australians really bunkered down into bitter, warring camps on issues such as climate change and refugees?

How you answer says a lot more about you than anything else.  According to a fascinating paper just published in the Journal of Personality and Social Psychology, the more radical your politics are, the more radical you imagine everybody else's politics to be.  As the authors find, ''people project their own polarisation onto others''.

Projection is a basic human trait.  We believe others share more of our attitudes than they do.  If we like dark chocolate, we assume others like dark chocolate.  If we like walks in the park, we assume others like walks in the park.  Humans are social animals:  it's important that others validate our preferences.

In politics, this doesn't necessarily mean we think everybody agrees.  (Although psychologists have found we imagine a false consensus about everything from animal rights to nuclear energy.)  But it does mean we assume everybody is as passionate as we are.  So when radical partisans encounter disagreement, they see aggressive conflict and polarisation.

Projection confuses virtually every aspect of politics.  It makes us assume a greater degree of consensus on the big moral questions than there really is.  When that consensus is shown to be an illusion, it breeds hostility.

In a book released in March, The Righteous Mind:  Why Good People are Divided by Politics and Religion, the American academic Jonathan Haidt explains the psychological basis of our political divide.  Using thousands of interviews, Haidt discovered that progressives had three moral foundations for their political views.  But conservatives had twice as many.

Progressives are driven by compassion, fairness, and liberty.  Conservatives share those ideals, but they add group loyalty, respect for authority, and ''sanctity'' — that is, a sense that some things, like marriage or the flag, should be sacred and untouchable.  Both sides have to manage trade-offs between their ideals, but conservatives have more ideals, and have to manage more trade-offs.  This explains a lot about why left and right are at loggerheads.

Haidt argues that conservatives cope best:  when they project their own moral beliefs onto progressives, they recognise compassion, fairness and liberty, and identify that loyalty, sanctity and authority are missing.

But when progressives look at conservatives, they get bewildered.  Projecting their moral framework onto conservatives doesn't seem to explain much.  So the progressives offer different explanations:  conservatives must be selfish, heartless.

Kevin Rudd famously wrote that free market conservatives dressed greed up as economic philosophy.  He might just as well have said he was completely mystified that anybody could disagree with him.  Rudd could not reconcile his moral philosophy with the beliefs of others.  His projection failed.  And people attack what they cannot understand.

Rudd's successors are no better.  Julia Gillard and Wayne Swan claim they represent the ''fair go''.  Perhaps this excites Labor's base, who can smugly fantasise that if the left like fairness, the right must like unfairness.  But conservatives like fairness too.  For them, fairness manifests as an interest in working hard and not relying on charity — or welfare.

When progressives look at their opponents, they don't realise the right has a different and legitimate moral framework.  And when radical partisans of all stripes confront their opponents, they imagine a great political divide, and become more radical in response.

When we believe our values are the only possible ones, we make politics more hostile than it need be.  We're angry not because we think we're all different, but because we think we're all alike.


ADVERTISEMENT

Friday, May 11, 2012

Great expectations vanish

The federal budget was entirely predictable.  The dodgy accounting.  The flimsy ''surplus''.  The higher taxes on the wealthy.  The bribes to the favoured constituencies.

The only surprise was that business was surprised that the government broke its promise to cut the corporate tax rate.  Nothing the Gillard government does should surprise anyone.

It's ironic that business leaders are now complaining that Julia Gillard abandoned her pledge on company taxes.

When the PM broke her promise to the electorate not to introduce a carbon tax, business welcomed the ''certainty'' a carbon tax would provide.

Supposedly, one of the original justifications for the mining tax was that it would fund a cut in the company tax rate from 30 to 29 per cent.

Instead, now the mining tax will pay for higher welfare payments to low and middle-income families.  Treasurer Wayne Swan's calculation was easy.  There are no votes in reducing company taxes.  But there are votes in 1.5 million families getting a welfare payment of a few hundred dollars more.

This government never ceases surprising the business community.

Business is surprised the government is still pursuing a carbon tax.

Business is surprised it won't amend the Fair Work Act.  Then on Tuesday, business was surprised at the non-arrival of the promised company tax cut.

Business people are supposed to be clear-thinking and hard-headed, yet bosses and their associations fall for the government line time and time again.

Business in Australia left it to the resources companies to fight the mining tax , partly because it was believed every other non-resources company would benefit from the raid on the miners through a lower company tax rate.

Well it didn't quite turn out that way.

None of the 30 chief executives whom the PM entertained at dinner at the Lodge a week ago should be surprised that while the PM was talking about building constructive relationships with business, her Treasurer was penning the press release repudiating his commitment to cut company tax.

The truth is that politicians will always act according to their conception of what's in their own best interest.  It's a truth too often forgotten by bosses who think they're making a deal with the government and the government will stick to it.  If it's not in a politician's interests to stick to a deal, the chances are they probably won't.

This latest episode of the company tax rate in the budget is proof of this.

Chief executives should remember that politics is not business, and business is not politics.  In 1790, Edmund Burke, in his classic work of conservative thought, Reflections on the Revolution in France, warned of the dangers of priests getting too involved in politics.

What he said about priests could apply to business leaders in Australia.

''Those who quit their proper character, to assume what does not belong to them, are, for the greater part, ignorant both of the character they leave, and of the character they assume.

''Wholly unacquainted with the world in which they are so fond of meddling, and inexperienced in all its affairs, on which they pronounce with so much confidence, they ... [know] nothing of politics but the passions they excite.''

Burke was responding to the priests taking to the pulpit to welcome the unfolding French Revolution.  Burke commented that while he could understand the enthusiasm for a change of regime, the revolution would ultimately end in tears.  Burke is famous because, of course, he was right.

Within two years of Reflections appearing, the Terror began.  Within a decade, France had a dictatorship.

Be careful what you wish for, was Burke's credo.  Business in this country said it wanted a carbon tax.  But the carbon tax is the reason there's no reduction in the company tax rate.

To give itself any chance of surviving at the federal election, the government has to be seen to compensate families for the cost of living increases resulting from the carbon tax.

Another reason Burke is famous is because he had a great turn of phrase.

Here's his description of politics in revolutionary France:

''Every thing seems out of nature in this strange chaos of levity and ferocity, and of all sorts of crimes jumbled together with all sorts of follies.  In viewing this monstrous tragi-comic scene, the most opposite passions necessarily succeed, and sometimes mix with each other in the mind;  alternate contempt and indignation;  alternate laughter and tears;  alternate scorn and horror.''

He could have been writing about the tragi-comic condition of federal politics in Canberra.


ADVERTISEMENT

Tuesday, May 08, 2012

We can't stop climate change — it's time to adapt

The release of the Productivity Commission's draft report into climate adaptation at the end of last month could have been a spark that changed the debate in Australia.

That's because it implicitly suggested that adapting to climate change — regardless of whether its origin is anthropogenic, ''natural'', or whatever — is now the main game.

And the PC is not alone.  In the 2007 report of the Intergovernmental Panel on Climate Change, there was just one chapter on adaptation.  The previous report in 2001 was the same:  one chapter.  Now, according to the outline of the 2013 report, the adaptation section will blow out to four chapters.

This new attention on adaptation makes sense.  Nobody believes global emissions will be reduced to the extent the IPCC claims is urgent and necessary.  Supposed deadlines for action have come and gone, over and over.  By 2012, sceptics, alarmists, realists, and optimists should all agree that seriously mitigating climate change is a pipe dream.

So, given this, it was very disappointing the Productivity Commission's draft report entered the public sphere with such a quiet thud last fortnight.

The mainstream press had a few short, passionless bites.  The online specialty service Climate Spectator, which usually scrutinises every aspect of climate economics and politics, simply reposted a newswire report announcing the release.  No further analysis apparently needed.

The final product will be released at the end of this year.  But even in draft form, it starkly illustrates how much of a philosophical shake-up moving from a mitigation focus to an adaptation focus will be.

The PC's report discusses worthy things like emergency management and information gathering.  But its bulk argues this:  in order to boost the resilience of Australian society, a rigorous program of deregulation, tax reform, and liberalisation is needed.

According to the PC, Australia needs economic growth and regulatory reform to deal with climate change.  Yes, it is very disappointing this report didn't get the attention it deserves.

As the PC says, regulations can make the economy inflexible.  They make it harder for us to adapt to change.  After all, individual regulations are written with certain circumstances in mind.  When those circumstances change (as they would in a world with a shifting climate) the existing stock of regulations can add friction to adaptive action.

Other regulations increase costs and thereby reduce adaptation incentives — like those which meddle with insurance markets.

It's the same with many taxes.  The PC rightly says ''taxes that influence the way resources are used ... could inhibit the mobility of labour, capital, or both''.  For example, property taxes make it more expensive to move out of low-lying areas at risk from sea level rises.

Government programs can also impede flexibility.  Drought assistance creates an incentive for farmers to stay on marginal land, rather than relocating.

These are the practical issues.  But an adaptation program is more than just a collection of policy recommendations.  It is a different philosophy.

Rather than focusing on a single, over-arching, world-historical goal (achieved through unprecedented consensus and political action at the national and international level), adaptation focuses on process, institutions, and diversity.  It asks:  what makes communities most flexible, resilient, and responsive to environmental change?  It's about developing strategies to deal with uncertainty, not politics to achieve global reform.

In a 2009 paper published in the journal Atmospheric Sciences, Robert L Wilby and Suraje Dessai characterise this as the difference between top-down and bottom-up approaches.

The IPCC looks top-down.  This view is purpose-built for mitigation, but no good for adaptation.  The IPCC struggles to assess climate change risks on a continental scale, let alone regional scale.

As Wilby and Dessai point out, the IPCC records a low level of scientific agreement even about the direction of rainfall change in much of Asia, Africa, and South America.  That degree of uncertainty offers no guide for practical action.

By contrast, a bottom-up approach focuses on how communities adapt to local pressures, not global ones.  After all, it isn't the United Nations that will adapt to climate change.  It is individuals.  This approach is less flashy, but then, why should climate policy be flashy?

And emphasising adaptive capacity and resilience is a good thing, regardless of whether climate change is a naturally occurring phenomenon or the result of human recklessness.  Wilby and Dessai call adaptation measures ''no-regret'' or ''low-regret''.  The PC calls them ''win-win''.

In his 1992 book Earth in the Balance, then senator Al Gore wrote that adaptation was a ''kind of laziness, an arrogant faith in our ability to react in time to save our skins''.

Gore was writing when the IPCC was in its formative stages.  This sort of thinking led to an explicit decision to focus on global emissions reduction.  That decision has shaped the last two decades of climate debate.  (Even including one chapter on adaptation in the 2001 report was seen as somewhat revolutionary.)  But the decision built an analytical framework which no longer makes sense.

As a paper published in the journal Regional Environmental Change last year put it, under an adaptation-focused framework, ''Science would thus place itself in the role of being a tool for policy action rather than a tool for political advocacy''.

Because the arrogance now rests with those who still believe they can coordinate massive, immediate global political action towards a single goal.

It is, surely, time to face up to the demands of adaptation.


ADVERTISEMENT

Friday, May 04, 2012

Despite the tough talk, spending is on agenda

Victoria's Budget documents lay into the previous government's spending profligacy.

They point out that spending has outpaced state product for many years and that it needs to be pulled back.

Fair enough.  But the facts undermine the government's spin that this is a tough Budget.

State Government debt as a share of the state's output will continue to rise, in spite of some optimistic revenue projections.  The Baillieu Government might be winding back some of the Brumby Government's waste, but the Budget documents show that, inflation adjusted, next year's spending is actually set to increase.

Central to the government's professed toughness is a 4200 reduction in the number of public servants.  But this amounts to just 1.3 per cent of the government's 334,000 employees and follows an increase of 13 per cent in the past three years.

Although in office for little more than a year, the current government is already finding new and creative ways to spend our money.

Symptomatic of this is the $58 million the Government is to spend on helping the manufacturing industry raise its productivity.  This sort of ''I'm from the government and I'm here to help you'' approach is all the more unbelievable in view of the government's obvious inefficiency in running its own operations.

In opposition, the Baillieu team roasted Bracks/Brumby over their wasteful spending on water.  That spending and a host of regulations stemmed from the ALP's spineless refusal to contemplate building a new dam.  It may not now be possible to close the Wonthaggi white elephant desalination plant.  But rather than avoiding new spending, Water Minister Peter Walsh last year hand-picked members for an inquiry to examine ''strategic priorities'' for water delivery.

The inquiry members' backgrounds made it predictable that the report's recommendations would be framed in the context that climate change, contrary to all the evidence, means permanent drought.

Repeating the ALP Government's litanies, the report includes calls for ''smarter'' water use such as recycling stormwater, even though studies show that this delivers little water and at high cost.

Naively, Minister Ryan has established a new bureaucracy, the Office of Living Victoria, with plans to introduce new regulations for stormwater harvesting and ''to improve the performance of new buildings''.  These measures also camouflage tax increases on water — a levy ''to promote sustainable water management'' plus an increased Melbourne Water Corporation dividend paid for by consumers.

The Budget does show modest progress towards reorienting spending into supportive directions.  For example, transport infrastructure spending is reprioritised away from rail to road, on which 95 per cent of journeys are made.  And it reallocates training funding into areas that add productive skills.

But disturbingly government spokesmen have been defensive and apologetic about the modest cuts that have been made in the Budget.

This is unfortunate since and the Baillieu Government has not yet repaired the imbalances that it inherited and governments generally consider they need populist big-spending proposals to take to elections.


ADVERTISEMENT

The Rise of China is the Real End of History

War makes rattling good history;  but Peace is poor reading.

Thomas Hardy, The Dynasts


Reprising Hegel's view that the Battle of Jena in 1806 represented the ''end of history'', Francis Fukuyama described the 1989 fall of communism in similar terms.  Fukuyama was heavily criticised at the time and so, no doubt, was Hegel, but both dates saw dramatic changes in politics and international relations.

As a turning point 1806 culminated a thousand years of warfare where princes, whose authority was derived from God, gave orders and common men followed.  From then onwards kings and other statesmen would govern by consent, slavery would become unconscionable (a notion first widely promoted in The Saxon's Looking Glass, published in northern Germany in 1250) and national self-determination would become paramount.  Liberty and equality (communism gave a second wind to the third arm, fraternity) became the tenets of acceptable government or at least its slogans.

The overthrow of communism in the Soviet Union between 1989 and 1991 represented the end of a very short history, really only confined to the Cold War of the previous forty-five years and, at a stretch, the period from the 1917 Bolshevik coup.  The Soviet Union sought to redefine political interaction by specifying class rather than state interests as the criteria for friendships.  The Soviet system was based on a belief that it would outperform market capitalism.  Its failure to do so led to its collapse but for much of the period from 1920 it used Russian resources to undermine foreign regimes in a far more systematic way than had previous states in pursuit of their policies.

Bonaparte used the slogans of the French Revolution to support his attempts to conquer the world and was thwarted by English wealth and the opposition of the Continental nationalistic forces he stirred.  But as the nineteenth century progressed, balance-of-power considerations remained dominant in a world where there remained a potential and a will on the part of powerful nations to use war to obtain territory and other gains.  France felt threatened by its Carolingian co-successor, Germany, which was out-birthing and out-growing it.  When Prussia seized tutelage over Germany from Austria, France was crushed in the subsequent Franco-Prussian war of 1870 and paid a massive indemnity of 5 billion gold francs (fully 40 per cent of the Versailles imposition on Germany).

Among the dominant Western powers in the 1815-1914 era, wars were confined to colonial land grabs including rivalry for the lands in the decaying Ottoman empire.  Disputes within Europe were mainly settled amicably, sometimes as in the border between France and the new Italy, through plebiscites.  There were some potential conflicts, as with the 1911 Algeciras crisis over rival French and German rights to Moroccan resources, but perhaps for the first time in history, the world's greatest power, Great Britain, did not seek any new territories other than in areas then considered to be unoccupied.  It was joined in this pacific policy by the United States, its rapidly growing former colony, which Britain took considerable steps to avoid antagonising.

As events unfolded, the pacific Anglosphere was to be engulfed in the Continental crisis.  Even so, on the eve of the 1914 conflagration it was no longer considered legitimate for a nation to seize the territory of any other country, still less to liquidate or enserf an existing population of a state that was an accepted member of the international comity of nations.  This comprised Europe, North America and latterly Japan.  Nor was it acceptable to invade another country for plunder.

But as 1914 was to prove, these forces had not consolidated.  While property rights had become accepted as more-or-less inviolate, political control continued to be contested.  French fears about its increasingly powerful neighbour were joined by Russian fears over German intentions regarding its Polish possessions.  Germany considered itself hemmed in by France and Russia which, as the nineteenth century was ending, was experiencing the fastest economic growth in the world.  The other European player, Austria, was increasingly seen and recognised to be an archaic anomaly.  Its dominant German and Hungarian elites controlled dissident Czechs, Slavs and others who wanted out.  Hence it had insecure credentials as an enduring political entity and was vulnerable to internal fracture and became the touchstone for the 1914 conflict.

The new world hegemonic ideology in communism was one enduring outcome of the 1914 conflagration.  This dramatically punctured the previously established inviolability of private property.  But even the communist ideology operated ostensibly within the Wilsonian Fourteen Points, which re-asserted the central notion that government by consent was the only legitimate form of government.

In this respect, the rampant nationalism that emerged in the 1930s in Germany, Italy and Japan was a throwback to a former brutal imperialism that reached back further to a xenophobic form of tribalism.  Hitler sought to seize the territory of those who would be reluctant citizens.  For over a century no other government had aspired to do this to countries under a recognised form of government.  Hitler also restored a notion, antiquated for 800 years, of displacing or enserfing pre-existing people to provide lebensraum for Germans.

His Axis partners were more interested in seizing wealth and access to resources but resettlement territory was also a consideration.

The defeat of the Axis powers was a confirmation of Hegel's End of History and Wilson's Fourteen Points.  The redrawn territorial boundaries that accompanied it were confined to shifting Poland west at the expense of Germany (and expelling Germans from other eastern European countries).  The Soviet victors, however, pursued the seizure of private property with little pretence of compensation.  But this was not, beyond the first few years, as war booty-indeed, after the mid-1950s Russia was a net subsidiser of the Eastern Bloc countries, many of which enjoyed greater prosperity.  And its excursions beyond the heartland in Cuba and Africa were even more economically draining.  Russian support of client communist movements in Korea then Vietnam (in both of which China was a reluctant associate) was a means of amassing more territory to the faith.  But there was no conceivable means, or intent, of making economic gain from arming the insurgents/communist state aggressors in those two wars and other ''national liberation'' movements.

The seizure and nationalisation of private property was central to the communist creed but had been abandoned by all other political movements in the modern world in the aftermath of the French Revolution.  Even in newly colonised Third World areas, as in India, prior property rights were respected.

With the Axis powers' nationalistic fuelled interlude repulsed, the communist crusade for dominance became the sole agitational force for governmental change.  Communism's dead end was formalised in 1990 when its claims of its economic system to greater efficiency combined with a new universal brotherhood finally crumpled.

So we entered a new End of History.  This contained two dimensions.  The first was an affirmation of the principle of government legitimacy dependent upon consent of the ruled.  The second was a re-affirmation of the principle of inviolability of individual property rights.  The potency of this owed much to the developments that paralleled the collapse of communism, which demonstrated practical means of national enrichment in the rise of the ''Asian Tigers'' (Singapore, Hong Kong, Taiwan and South Korea).

War always entails a negative-sum outcome.  But during the over 150 years prior to 1990, forced land seizures and colonisations became accepted to be negative-sum games to both victor and defeated (perhaps the sole exception was Prussia's defeat of and reparations from France).  The Asian Tigers showed a better way forward.  By the mid-1970s these four states were showing a new path to enrichment through trade, something Japan had previously achieved before embarking on imperialistic adventures.

This success undermined popular notions that the Third World was destined to remain poor in relation to the existing pantheon of wealthy developed countries.  By the 1990s China and the last great nationalist freedom-fighting nation, Vietnam, had decided to emulate this success by liberalising their economies, strengthening individual property rights and embracing trade.  They were accompanied by additional private-enterprise-based economies — India, Indonesia, Thailand and others — which deregulated crucial economic controls.

Any policy involving colonisation of lands from which previous inhabitants were expelled (or worse) made even less sense from the 1990s onwards as population growth was ceasing across all nations.  The changed international ethics preventing political seizure of territory was, in any case, reinforced by lebensraum becoming unnecessary.  Lands for agricultural settlement were no longer needed due to rising agricultural productivity, and the nightmare of an overpopulated world was transposed into the need for coping with diminishing and ageing populations.

From the last decade of the twentieth century, warlike statements and posturing were confined to marginalised, impoverished nations like Iran.  Iran and other Islamicists might aspire to greatness militarily but still remain economically puny and easy meat even for their tiny proclaimed foe, Israel.  The Islamicists might strike terror in the peoples they oppose but they are economically weak even with their oil riches.

The End of History, Fukuyama-style, meant market competition triumphing over socialist planning.  But its more lasting effect was the re-enthronement of property rights that must be respected, not usurped;  this process and the overthrow of communism itself owe much to the demonstrable superiority of alternative economic-political systems.  The superiority of an approach that respects property rights rather than, Proudhon-style, considering them to be theft was reinforced through the mutual gain that is trade.

The upshot is that if China takes world economic leadership from the USA it will not steal the resources of others any more than US companies seize foreign assets.  Chinese companies, increasingly in alliance with others, will buy, not seize, what they wish to obtain.

China may, like Japan before it, fail to reach dominance in the twenty-first century.  The USA, if it can rediscover the elixir that enabled it to recover from the Nixon-Carter years, may retain its leading role.  But if not its replacement in China and India is by powers that simply want to trade and have no significant territorial aspirations in Europe, Asia or elsewhere.

Certainly, if the replacement of US hegemony is by China then the outcome will be inferior to a USA that is self-consciously in favour of liberty.  But any future hegemony is almost certain to be based on mutual gain that stems from trade and respect for property.  It is no longer legitimate or profitable for a nation to forcefully seize land, people or resources.  Formerly Third World nations have achieved the fastest rates of economic growth mankind has ever experienced without contemplating the need to obtain political control over markets or sources of raw materials.  All that is needed can be bought.  In no case has success been achieved with warfare.  This demonstration effect indicates that any change in political control of territory is in the future most unlikely to mean the seizure of private property.

This atrophying of the concept of warfare to exploit a neighbour's wealth is the real End of History.  Economic growth and the discovery of its secret is a clear game-changer.  It has already brought a prolonged period of relative peace — perhaps the longest such period ever.  It has, we may hope, eliminated the traditional long-standing cause of conflict.  While it may be over-optimistic to see this as a new era when conflict and war cease, in the future conflict will be in pursuit of other than economic benefits.  And the aggressors' focus on protecting and promoting belief systems (the most obvious being religious beliefs) rather than on internally generated economic wealth leaves them weaker than their victims in this highly important element of successful aggression.


ADVERTISEMENT

Thursday, May 03, 2012

Get used to a different way of working

Fluid work practices give people control over their destiny, not job insecurity.

We expect economic and labour market policies to foster job security.  But many factors impinge on job security.

Every generation experiences change in how work is performed.  Today, ubiquitous information technology is transforming how we work.  Socially, the characteristics of an integrated 24/7 lifestyle are becoming more common.

Business has to be flexible and capable of adapting to new circumstances.  Failure to adapt will likely spell the demise of the business.  Workers should recognise that work practices need to be flexible to ensure the firm is productive and competitive.

It is a fact that in 2012 Australian workers cannot be guaranteed job security.  At the same time, most can look forward to regular employment throughout their working lives.

The pace of change affecting businesses impacts on how we work.  Independent contracting and labour hire have become more widespread.  Casual and fixed-term employment are entrenched modes of work.  It is estimated that more than 4 million people, about 40 per cent of Australian workers, are engaged in these employment categories.  Some lament the spread of these work categories.  The ACTU, for example, yearns for a return to the 9am to 5pm, Monday to Friday, permanent employment model.  It has instigated a campaign to rein in what it labels ''insecure employment''.

Opponents of more flexible work options presume they are basically exploitative.  This is far from the reality and is a view not shared by many workers.  Workers in most industries embrace different modes of work.  It has underpinned our strong jobs and incomes growth.

Many Australians embrace the freedom offered by contracting and labour hire.  It affords them independence and control over their own destiny.  It allows them the opportunity to grow a business and directly benefit from their skills and knowledge.  They place a premium on a satisfactory balance between work and private life.  Careers are often pursued jointly with partners to maximise family and job potential.

Many workers also choose casual employment.  It is often a pathway to permanent employment for young workers.  An ACTU survey shows that 50 per cent of casual workers do not want to change to permanent employment.

Businesses in a variety of industries have to deal with peaks, troughs and seasonal variations in operating conditions.  The managing of such demands through a permanent workforce is untenable.

Flexible work arrangements will become increasingly relevant in keeping older workers in gainful employment.  This is an important labour market policy issue as we start to deal with the consequences of our ageing population profile.

So most workers understand the changes taking place in the workplace and appreciate the opportunities offered by technology.  They comprehend the need for businesses to be adaptable and competitive.  The firms with the best prospects are those where the management and workers have a shared understanding of the challenges facing the business and the aspirations of its employees.

The opponents of flexible work options massively overstate their unpalatable features.  Exploitation occurs under every labour market model.  The regulatory system should ensure exploitation is deterred and penalised.

The opponents of flexible employment call for controls to limit its attraction.  The ACTU supports this position to justify even more workplace regulation.  Its proposals to limit flexible employment would involve punitive taxes, additional obligations on employers, union consent before engaging contractors, new agreement clauses facilitating transfer to permanent employment and secure employment orders by Fair Work Australia.

It is a difficult balancing act for governments to devise workplace regulations that facilitate job security.  The Gillard government's fair work system has reimposed a regulatory burden akin to the 1980s.  Employer decisions to recruit staff are now influenced by the risks associated with unfair dismissal, adverse action claims and termination payment exposures.  Firms have been placed into administration because of unsustainable liabilities arising from termination payment obligations.

The Gillard regime is unsuited to the workplaces of 2012.  To impose more regulation as the ACTU proposes would be to destroy jobs, productivity and investment.  Our labour market experience would mirror the persistent high unemployment of the failing European economies.

Permanent employment would become the privilege of a few.  Unemployment and underemployment would rise.  Young job seekers would be hard hit.  More jobs would move offshore to flexible labour markets.

Australians value choice, freedom, independence, individuality and having a go.  They accept the risks of relying on reward directly linked to effort.

Flexible work arrangements reflect a dynamic modern labour market.  They are crucial to investment and future job security.


ADVERTISEMENT

Wednesday, May 02, 2012

Defend nannies to oppose the nanny state

The Australian Childcare Alliance wants to get its hands on all Australia's children.

Currently, their expressed gripe is with nannies, who they claim have ''no childcare qualifications'', but most of the Alliance's arguments could be equally applied to parents.

The Childcare Alliance, which claims to represent 70 per cent of the long-day childcare sector, made their anti-nanny pitch as part of a paper responding to Tony Abbott's commitment to ask the Productivity Commission to explore extending childcare subsidies to nannies.

According to the Alliance, nannies just do not cut the mustard.  Their paper claims that ''the nannies course available in Australia is a baby-sitting course and falls significantly short of the standard set in long-day care centres where carers are university-trained and have ongoing intensive training and all-day supervision''.

The fact that workers in the long-day childcare sector have extensive qualifications may be something that many parents appreciate and, if they do, it will be a commercial boon for that industry.  However, while there is some evidence that exposure to such an environment is beneficial for children, there are equally strong views that children up to the age of three, in particular, thrive most in their own home, whether cared for by parents, grandparents or a nanny.

A few years ago, there were reports of increased stress levels in children placed in long day care and claims that primary school teachers could pick out the children who had been in long day care — and not for their educational advancement.  Parents placing their children in such care were made to feel guilty for doing so.  Now, the boot is being placed firmly on the other foot.

The Alliance's position has some powerful friends in the media.  On a recent edition of ABC TV's influential Lateline program, host Emma Alberici introduced a segment by saying that ''the scientific research is clear and unchallenged that every child should be in pre-school by the age of three and it should be provided by the state''.

There is some evidence that pre-school has benefits, but it is hardly strong enough for it to be mandated by the state to the exclusion of other options parents may choose.  Indeed, some studies, such as that by Kay Margetts of Melbourne University's Graduate School of Education, have shown that, contrary to the Childcare Alliance's claims, children in longer care had lower levels of co-operation and academic competence than their peers once they were all in school.

The fact that the Childcare Alliance have made ludicrous claims about dangers in the home, such as power points and pets, for children supervised by nannies, tend to indicate that they are a bit desperate in their anti-nanny crusade.  And, of course, a child at home with a nanny will often be taken to the park, to the shops, to playgroup, to swimming lessons, and on play dates with other children.  This is not education within the four walls of a childcare centre, but education in the real world.

Further, if an untrained nanny is a problem, surely the same argument applies to untrained parents.  Most parents have no tertiary childcare qualifications, having not even done the ''baby-sitting course'', so on a certification basis the nannies might be at least one small step ahead.

And if the ''public health'' debate is a guide, then it will not be long before government start mandating parental qualifications.  Already some states are insisting on police checks before prospective parents can undertake IVF — how long before this is extended to some other aspects of parenting?

Initially, the ''public health'' advocates were devotees of information campaigns, but are gradually moving towards the advocacy of more invasive public policy.

Following the same pattern, the Federal Government has begun mandating certain amounts of pre-schooling, rather than letting parents decide.  It is clear that the institutionalised childcare zealots want to save the children from the in-home carers, be they nannies or parents.

Many parents will choose long-day care, either because they think it delivers the best outcomes, or because their personal circumstances dictate it.  Other parents will want to keep their children at home through all their pre-school years.  Some will choose a mix of both.

And, in the long-run, it probably won't make too much difference.

Bryan Caplan, a professor of economics at George Mason University, has extensively studied adoption and twin research and shown that, while upbringing might have some effects during childhood, once children reach adulthood they will revert to the path their nature pre-ordained for them in matters such as financial success, health, happiness and values.  Twins, who are separated at birth, and adopted out, end up closer to each other on a range of criteria, than either one does to his or her adoptive family.

So, instead of mandating a particular form of childcare, let parents decide and resist the Childcare Alliance's push to get the nanny state to crack down on nannies.


ADVERTISEMENT

Tuesday, May 01, 2012

Nudge nudge, wink wink, nanny soaks the poor to fatten the budget

As the ''beer up, cigs up'' headlines of yesteryear illustrate, governments have long imposed taxes on consumer products as a quick fix to plug fiscal gaps.

It is probable such headlines could reappear next week as the Gillard government aims for its first budget surplus.

In 2010-11 it is estimated alcohol and tobacco excises raised $9.236 billion, and GST on processed foods (negotiated by the Australian Democrats who deemed them unhealthy compared with fresh food) raised $3.895bn for a total of $13.1bn in revenue.

To put this amount into perspective, these taxes raised more revenue last year than the $11.4 billion expected to be raised by the controversial carbon and mining taxes next year.

But where are the protests and ad campaigns against these odious taxes?  While these taxes substantially add to federal government coffers, their policy rationale has gradually transcended the traditional revenue raising grounds for their imposition.  Increases are now deemed necessary to make us healthier, reducing the costs on the public health system.

With the ''nudge'' theory of behavioural economics still all the rage in policy inner circles, tax increases attempt to redirect the pattern of consumer expenditures in ways more convivial with the preconceived policy preferences.  But with nanny state rationales increasingly used to justify increased rates of tax on consumer products, it is more important than ever to ask the hard questions about their effects.

First, consumer taxes hit the poorest the hardest.

The available evidence shows that Australian households in the lowest income brackets pay up to three times as much in taxes on alcohol, food and tobacco as those on high incomes.

Perhaps the most disappointing aspect about this inconvenient tax truth is that social welfare lobby groups, such as ACOSS, have remained silent or even supported these tax increases despite them hitting low income earners hardest.

Numerous studies have also shown that raising consumer taxes rarely achieves stated health policy objectives.

Taxes often miss their target to assist those with the potentially biggest health problem because habitual drinkers, smokers and junk food eaters tend to be generally unresponsive to tax induced price increases.

People who exercise their consumption in moderation are also punished by higher consumer taxes imposed on health policy grounds.

In other cases, tax policy efforts to quell consumption of unhealthy products are thwarted because consumers switch between similar products.

The result of the federal government's alcopops tax experiment was that consumers switched from ready-to-drink pre-mixed drinks to beer, wine and spirits with no effect on binge drinking.

Reports both here and overseas have also illustrated that high commodity taxes create lucrative black markets for tax-free alcohol and tobacco.

Research suggests that the illegal tobacco market in Australia alone has grown to up to 2.3 million kilograms of tobacco consumed, or 12 per cent of cigarettes sold, representing hundreds of millions of dollars in lost tax revenue.

Most fundamentally, the problem with imposing taxes on consumers to pursue nanny state health objectives is that they infringe on the exercise of freedom of choice.

As philosophers in the classical liberal tradition have noted for centuries, the locus of decision making in a free society should reside within the individual.

It is the individual who should discover his or her own preferences about ways of living, and learn from their own mistakes and those made by other freely acting individuals.

According to this view, governments should not paternalistically interfere with actions by individuals that render no harm to third parties, even if they do harm one's health.

The Gillard government's argument that drinking, smoking and eating junk food raises health system costs for the abstinent is, if you'll pardon the pun, a smokescreen.

First, publicly subsidised medical treatment through Medicare promotes moral hazard in the form of bad health decisions made by individuals, since the costs of those decisions are borne by the community as a whole.

In any case, revenues raised from alcohol and tobacco excises are far in excess of even the most generous of estimates concerning direct healthcare costs of treating drinkers and smokers in public health facilities.  The most recent government study in 2008 showed that total federal government revenue (excise, customs, wet tax) raised from alcohol was $4.1bn whereas for healthcare costs attributable to alcohol was $1.6bn.  For tobacco, federal revenue (excise and customs) raised $5.7bn and healthcare costs were $500 million.

Second, private health insurers are prevented by legislation from varying members' premiums on the basis of health status including drinking and smoking history.

Allowing public health providers to directly charge fees for treatment and abolishing community rating of health insurance premiums would mean people more directly bear the costs of their own consumption decisions on their health.

The absence of policy respect for individual choices, including a refusal to adopt reforms making health costs more visible to consumers, has led Australia down the path of a ''health harassment society''.

Government regulated or financed product packages, billboards, and print, radio and television advertisements scream at Australians about the health risks of consuming certain products.

On top of these costly interventions, and indeed the threats of more to come such as plain packaging and floor prices, the consumer tax system is being reinterpreted as a prod to nudge people towards a better state of health.

Although the irony of pouring new nanny state policy wine into old consumer tax bottles seems to have escaped public health lobbyists and government agencies, isn't it reasonable all the same to ask if this effort is worth the cost?

Because at the very least, we know that every nanny state tax is doing damage to your wallet and your liberties.


ADVERTISEMENT

Convergence Review is clever, subtle ... and worrying

One pregnant sentence in the Convergence Review says, ''It is important to note that the current Australian Press Council regime where members can opt out or reduce funding is not an acceptable situation.''

When the review's draft terms of reference were released in 2010, nobody expected proposals to regulate ''fairness'' in newspapers would form a core part of the review's final report.

And that sentence's claim — that voluntary press regulation is unacceptable, and regulation is necessary — undercuts the review's repeated assertions that its ''underlying approach [is] in favour of deregulation''.

The Convergence Review's final report was released on Monday.  Its task was to develop a framework whereby all media communications is regulated equally, regardless of whether it is distributed by radio, television, or the internet.

So it's disappointing that the review got caught up in the swirling currents of vitriol between Rupert Murdoch's newspapers and the Gillard Government.

The Convergence Review has proposed a new, mandatory agency to regulate ''standards'' in news journalism and commentary.  In this, it offers a watered-down version of the proposals made by Ray Finkelstein in the Independent Media Inquiry earlier this year.

But Finkelstein Lite is also Finkelstein Possible.

Unlike Finkelstein's proposal, this new body would not be a statutory authority, but ''industry-led''.  It would be funded by a mixture of private and government money.  It would be analogous to the Australian Press Council, but no newspaper or broadcaster would be able to quit the new agency if they didn't like the way they were being regulated — by law, membership would be compulsory.

And unlike the Finkelstein report's proposal, it wouldn't have an absurdly large jurisdiction.  It wouldn't catch those websites that had just 41 hits a day, or those tiny street magazines, or those email newsletters.  Just the really big guys — Fairfax, News Limited, Ten, Foxtel, etc.

Indeed, the Convergence Review is a very clever document.

It avoids being too clear about what ''sanctions'' the industry-led regulator would have in its tool kit.  And it is ambiguous as to how the regulator would enforce its sanctions.  A short sentence buried in the report's appendix suggests that enforcement would be ''contractual'' rather than legislative.  This odd distinction raises many more questions than it answers.

But nowhere is the cleverness of the Convergence Review clearer than in a diagram which visually represents the media outlets that would fall under the jurisdiction of another new regulator — the ''super-regulator'' — which is to replace the Australian Communications and Media Authority.  (The diagram is on page 12, for those playing along.)

Media organisations will have to meet certain revenue and audience thresholds to qualify.  Those thresholds just happen to include all major newspapers and broadcasters, and they just happen to exclude all online media.

The thresholds have been drawn to make sure that Telstra, Apple and Google just fall just below them, and smaller broadcasters like Macquarie Radio Network and Grant Broadcasters pop just above.  How convenient.

To be fair, this is thankfully a long way from the expansive plans of an interim convergence report released in December, which would have included everything except ''emerging services, start-up businesses and individuals''.

But it's pretty clear why the thresholds have been drawn so precisely.  First:  nobody wants to wake up to the headline ''Gillard government's plan to regulate the internet''.  Second, and more critically:  the Convergence Review doesn't seem to have quite figured how converged regulation could actually work.

By deliberately excluding even the biggest websites, all the Convergence Review does is kick the ball down the court, and hope the super-regulator will take responsibility later.

It's a neat way to avoid seriously rethinking the justification for old, legacy media regulations.  And, given the Convergence Review's focus on political feasibility above all else, it helpfully avoids upsetting the status quo too much.

Take for instance the Australian content requirements currently imposed on broadcasters.  Sure, it would be tough to ween the culture industry off those long-standing subsidies.  But it will be even tougher to shoehorn those requirements into the online world.

The best the Convergence Review can do is offer future online media outlets that provide ''professional television-like drama, documentary or children's content'' an option to be taxed to support a ''converged content production fund''.

Right now this is all hypothetical, because the Convergence Review draws its thresholds just above Telstra, Apple, and Google.  Good decision.  Another unhappy headline would be ''Gillard Government to introduce internet tax''.  But that is the practical upshot of its proposals ... just not yet.

For the Government, the Convergence Review has the advantage of being possible to implement.  It's Conroy-ready.

But like Finkelstein's proposal, the Convergence Review recommends a substantial intrusion into the free press.

Yes, not every little blog will be wrapped up in its regulatory arms.  But it would still impose a regulatory body on newspapers, with some unspecified coercive powers, overseeing what is printed.

Don't be deceived by the claim that the standards body would ''industry-led'':  it would be a compulsory regulator administering compulsory regulation.  There is a world of difference between that and the currently voluntary Australian Press Council.

The authors of the Convergence Review have gone to a lot of effort to make their report subtle, not-too-obvious, politically feasible, and to avoid obviously upsetting the status quo.

But that shouldn't be any comfort for those of us who still value freedom of the press.


ADVERTISEMENT