May 23, 2012

Howes wants the magic pudding, OECD says it’s already here

The contrast between Paul Howes' Press Club address yesterday and the OECD's overnight forecasts demonstrates the current tension in economic debate. Glenn Dyer and Bernard Keane report.

Yesterday's National Press Club speech by AWU boss Paul Howes and the latest economic update from the Organisation for Economic Co-Operation and Development provide a telling contrast that demonstrates where economic debate currently is in Australia and where our political debate may well be headed. Howes’ speech, and his feisty Q&A session afterwards, was a blast from the past, full of union (and business) golden oldies such as "picking winners", "industrial policy vision" and government intervention "to guide the economy". From his comments yesterday, there's little to distinguish Howes from the likes of BHP Billiton chairman Jac Nasser, former Future Fund head David Murray or Clive Palmer. Each in their own way want some sort of preferment for their company or sector. But in contrast to those three, Howes is always up front about his motivations -- the interests of AWU members are his No.1 priority and he happily admits it. That is what he is elected and paid to represent. And at least we were spared the usual complaint about the need for IR deregulation. In a nice piece of timing, the OECD update, issued as part of its latest global update, confirms that the very things Howes railed against, the investment boom, resources and the high dollar, are forecast to combine to give Australia the fastest economic growth in the OECD in the next year. The organisation also said Australian unemployment would remain well under the 7.9% rate for the OECD areas, and the 11.1% rate for the eurozone. The OECD said:
"Australia can be expected to keep reaping benefits from the mining boom. Despite sharp sectoral disparities, economic growth should be around potential in 2012 and 2013. Mining expansion will continue, but some other sectors are having to adjust to the high level of the exchange rate and raise their productivity, which can be expected to weigh on the labour market. Faster fiscal consolidation will also weigh somewhat on demand. "Restoring fiscal leeway while macroeconomic conditions are still favourable, and the terms of trade high, is welcome. In the absence of inflationary pressures, the accommodating monetary stance which accompanies this budget-tightening should help limit the risk of weakening employment. The authorities should preserve the economy’s flexibility and facilitate the adjustments made necessary by the changes under way, rather than impeding those changes by, for example, subsidising certain sectors."
Australia's forecast growth -- 3.1% this year and 3.7% in 2013 -- is in strong contrast to OECD forecasts for the eurozone to contract by (a seemingly optimistic) 0.1% this year, 2.4% in the US and 2% in Japan. The OECD saw no sign that China's economy will surprise on the downside, fears of which have emerged in the past couple of weeks. The organisation sees China’s economy growing by 8.2% this year and 9.3% in 2013. India’s economy is expected to grow at 7.1% and 7.7% next year. That sort of optimism about our economy was absent from Howes’ speech. Indeed, what Howes did was -- quite effectively – channel the widespread sense of discontent that pervades Australia currently, the sense that if the economy is performing well it isn’t delivering any benefits for voters. This is why Howes' speech is more important that the usual self-interested statements of business leaders. This isn’t just a faintly aggrieved sense of entitlement that people should be getting more; it’s a concern that for all the benefits of economic growth over the past 30 years, Australia isn’t necessarily better and certainly isn’t fairer for it, a feeling that emerges in the intense hostility of voters to privatisation, for example, or towards banks or executive remuneration. It's a strong instinct to return to greater levels of economic regulation. It may well be a key reason the government gets no credit for such a well-performing economy. Howes thus proposed a series of interventionist ideas that could have been unearthed from a time capsule from the 1980s and 1990s or recycled from that old argument about following the overseas models of countries such as Sweden or Germany (or even Singapore), urging the government to ditch its "passive" mindset and help manufacturers take advantage of the rise of China where, he observed, Australia's economic future lay:
"It's time to take control of our own economic destiny.We need to be doing the spade-work now -- investing in the growth industries that will support Australian jobs, and underpin our future prosperity. We want Australia to rediscover its industrial policy vision. We have the opportunity to leverage our great resource gifts by adding value to them, and developing our champion industries. "It should be clear that government has a role to play in securing our economic future -- but Canberra policy makers seem stuck in the mind-set of passive government. Now is not the time to be passive ... We have to fight to save manufacturing."
The problem with such winner-picking is that it’s hard to find an example that has worked successfully, unless you call taxpayers spending tens of thousands of dollars per job success, which is where we’ve ended up after two decades of automotive industry policy. Howes also made the point that the major obstacle to growth in industry was the strong dollar (not the carbon tax):
"I don't believe that is the major issue affecting our trade exposed value-adding industries -- it's the dollar. It's the dollar. It's the dollar."
This ignores the huge benefits to consumers from the high dollar (consumers of course rarely get a look in when business leaders, unionists or commentators opine about economics). For the first time we have a floating exchange rate that has helped protect the economy during two resources booms in five years, along with the GFC. Aided by fiscal intervention from the federal government and quick changes to monetary policy by the RBA (plus the bank deposit guarantee), Australia missed being flattened by the GFC and at the moment the dollar and monetary policy are taking the strain (and have done for the past three years) from the eurozone's problems. Our system of economic management is actually working exactly how it is supposed to operate. Like any smart politician, Howes is trying to tap into how the community feels, rather than how economists think it should feel. The problem is, such interventionism will start erasing the benefits from the hard work of the past 30 years. And you can bet the community won’t be happy about that either.

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6 thoughts on “Howes wants the magic pudding, OECD says it’s already here

  1. JamesH

    “The problem with such winner-picking is that it’s hard to find an example that has worked successfully” – Commonwealth Serum Laboratories (CSR). Commonwealth Bank. Qantas, until recently. Telstra (until Saul Trajillo). All the power infrastructure governments are now trying to privatise. TABCorp. The Snowy Mountains Corporation. Aerospace Technologies of Australia (now Boeing Australia). All the airports.

    A-list corporate Australia is full of successfully “picked winners” – companies founded and grown by government, then profitably sold off. The ‘hard work” of the last 30 years has a large part consisted of corporate boards growing fat by appropriating the cream from the dividend streams of former government enterprises.

  2. bluepoppy

    Well put Jamesh. It beggars belief that it was a Labor government that first started the great national sell-off of public assets and without permission from the electorate.

    It would be difficult for a union leader, whose charter it is to represent member interests, acknowleding sometimes in pursuit of that goal, other inequities and bad choices will inevitably be made. The key is for other groups like the Greens and democracy advocates to also defend their member interests to offset the extremes of the other.

  3. Tom McLoughlin

    I tend to agree. Howes’ gratuitous attack on the Greens as being opposed to jobs, suggests he wouldn’t know a sunrise economic sector (like renewable energy) if it bit him on the *rse.

    The prominent reporting of Howes’ call for embrace of embittered ex ALP thinkers, in a sort of Labor lite 60ies love in, was also amusing.

    I think Howes’ would do better pushing the fairly obvious rhetoric that the reason union membership is relatively low is that unions have won so many profoundly serious issues, at the least in principle, in terms legislated safety, and conditions, that about 80% of workers take that collateral benefit for granted without bothering to join or pay their fees.

    Ergo, like the miners’ tv PR campaigns of yesteryear – ‘unions: you would miss them if they weren’t there’ – to all those slackers who benefit from awards but don’t join and pay their dues.

    In short it’s not the raw membership numbers, it’s the numbers benefiting from awards, that provides the true metric of union relevance and significance. This perspective seems so blindingly obvious it amazes me that the junk narrative of the big media with their corporate client vested interests can get away with the sneering and disrespectful tone to unions for so long and so brazenly.

    Imagine the big media coming out with saying good nutrition and widespread medical care is an irrelevancy now because life expectancy is so much longer. Derr, non sequitur anyone?

    (Another thing on my mind, is how discredited the big media in the form of News Ltd/Corp now is internationally, and post Leveson and Finkelstein Inquiry, yet the same big media are so fond of saying our parliament is the one profoundly tainted and broken, at almost every turn. As the commentators from Fairfax are also fond to do. Seems more than a coincidence here that this kind of bully ragging by one institution of another is just at the time government proposes some regulation of fat cat big media journos where STARTING wages are like $100K pa, or about double average wage. Seems to me it’s not parliament that is broken, but the big media model of objectivity.)

  4. michael r james

    I suspect the Crikey authors would say that JamesH’s list rather proves the point. With one exception all those companies are or were natural monopolies. Some will argue several were struggling or coasting along under government stewardship (Qantas, Telstra precursor). The one real exception of CSL is a pointer to where serious government seed funding or legislation could have really done something significant: biotech and medicine.

    Obviously I have a self-interest, being a biomedical research scientist, but people like me (indeed the generation who taught me) have been pleading the case for at least 3 or 4 decades since it became obvious that this was going to become an absolutely huge world industry. As it is we not only poorly fund our academic research (relative to our OECD peers), biotech start-up funding is close to zero because of our timid banks and minimal venture capital. Our size means that there is a real role for government to both support our extremely competitive researchers (and keep them here) and to create a functional investment environment (eg. just think of what a modest slice of the banks easy $30 billion annual profit could do). Despite all the negative factors we still have successes like CSL, Biota and Cochlea. Imagine what real support would do.

    Perhaps BK & GD would respond that we could do that instead of pouring endless billions into loser industries like steel and car-making. I am unconvinced these things are mutually exclusive though I agree that there is something wrong with the mindset that supports old tech and avoids new tech.

  5. AR

    150% agreement with above, esp the iniquitous sell off by hawKeating (as LABOR FFS!!!) of so many of the tax built assets of the past.
    That Shortarse is dissing the Greens is no surprise, wot else would a vat-bred apparatchik do?

  6. jeebus

    The government does not need to pick winners in private industry.

    It just has to focus on the key services of health and education, big infrastructure projects like roads, rail, the NBN, the smart electric grid for the electrification of transport, and on redistributing wealth.

    Yes, I said redistributing wealth.

    It’s a fact that wealth has the tendency to concentrate and to trickle up. It’s also a fact that when concentrated, the wealthy few will engage in rent seeking, regulatory capture, and monopolistic behaviour to entrench their power.

    Australia has become a much less egalitarian nation, and this is what is breaking our social cohesion.

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