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Economy

Jan 16, 2017

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It’s easy to blame “globalisation” for a host of ills. The term itself is ambiguous, except insofar as it implies some party remote from our shores. Steel mills in China, bankers in Switzerland, multinational firms without fixed abode.

As such, the term can provide useful cover for unpopular policies that are entirely homegrown.

The term generally refers to economic openness — to trade, investment, immigration and ideas. It’s meaningless therefore to refer to globalisation as if it is a single property, but there have been times when prevailing norms of international behaviour could be described as more or less open.

[Essential: voters turn on globalisation and trade]

We could go back to histories of the merchants of the Hanseatic League, or even further to aboriginal people trading in grinding stones and pituri, but a starting point for current consideration is 1944, when representatives of the soon-to-be victorious allied powers came together in Bretton Woods, New Hampshire, to hammer out a postwar economic order.

The background to the conference was the failed peace of 1918, and the isolationism and protectionism that had seen countries, each trying to pursue their self-interest, driving one another into a worsening depression and contributing to the horrors of another war. As the American political scientist Joseph Nye describes it:

“With their countries drawn into the conflagration despite their efforts to avoid it, Western officials spent the first half of the 1940s trying to defeat the Axis powers while working to construct a different and better world for afterward. Rather than continue to see economic and security issues as solely national concerns, they now sought to cooperate with one another, devising a rules-based system that in theory would allow like-minded nations to enjoy peace and prosperity in common.” — “Will the liberal order survive”, Foreign Affairs, January/February 2017

Australia was fully engaged in Bretton Woods. Our delegation included some of our most influential postwar economists: Leslie Melville, Arthur Tange and Frederick Wheeler.

From the Bretton Woods Conference emerged a number of co-operative institutions: the IMF, the General Agreement on Tariffs and Trade (later to become the WTO), and the World Bank. The spirit of such co-operation was also behind the Marshall Plan for the reconstruction of Europe, and the European Coal and Steel Community, later to morph into the European Common Market and eventually into the European Union.

The important point is that the post-1945 economic order, that brought such leaps in prosperity in all “developed” countries including Australia, didn’t just happen; it rested on a spirit of international co-operation supported by rules by which countries were expected to abide, and on domestic policies designed to ensure what we would now call “inclusive growth”.

Notably, in order to avoid countries engaging in the mutual destruction of competitive devaluations, an outcome of Bretton Woods was a de facto regime of fixed exchange rates. Fixed exchange rates work only so long as countries pursue the same pace of economic development, and that system started to fall apart in 1971, but the general co-operative arrangements remained intact, and the general path continued to be towards global economic openness.

Also by the 1970s, “developing” countries were taking advantage of a liberalised trading environment to become involved in export-oriented manufacturing, initially in labour-intensive industries, most notably clothing and simple metal fabrication. These industries were to be the first step in lifting many countries out of poverty. The “elephant curve” was starting to take shape.

Although Australia was comparatively slow to reduce tariffs, we were on a path of trade liberalisation, with imports putting competitive pressure on our manufacturers from the early 1970s onwards.

[Trump: it wasn’t the economy, stupid — it was racism]

From 1970 to the end of the century, effective rates of tariff assistance to manufacturing fell from about 35% to close to zero; manufacturing’s share of employment fell from around 25% to 15% (it’s now around 8%); and imports in relation to GDP rose from 12% to 21%. From 1972, for the first time in postwar history, the unemployment rate rose to above 2%, never to fall to such low levels again.

The easy inference is that globalisation was to blame for the destruction of our manufacturing base, and if only we could reverse it we would restore those industries.

Such reasoning, of course, is subject to the post hoc fallacy, and it overlooks the impact of technological change — including the humble technology of the shipping container — and of automation.

*Read the rest at John Menadue’s blog, Pearls and Irritations. This is part of an eight-part series on Trump, Brexit and the Lucky Country

Economy

Nov 17, 2014

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Is climate change just an environmental or energy issue? Prime Minister Tony Abbott and Treasurer Joe Hockey certainly think so, relying on that argument to try, unsuccessfully, to exile climate change from the G20 agenda altogether before retreating to allow it onto the “energy efficiency” agenda. Alas, they were routed altogether and it ended up dominating the meeting. Even so, they could be heard muttering darkly on the weekend, the real work of the G20 had nothing to do with global warming.

But let’s consult some experts on whether climate change is an economic issue or not. How about the International Monetary Fund? “Climate change is a powerful global trend that, along with trade and financial integration, is likely to have profound effects on economies and markets in coming decades,” the IMF said in a report as long ago as 2008. How “profound”? For that answer, we turn to the World Bank’s 2011 study on the economic impacts of climate change. “This initial study report … finds that the cost between 2010 and 2050 of adapting to an approximately 2 degrees warmer world by 2050 is in the range of $70 billion to $100 billion a year,” the Bank concluded.

Hmmm. But the World Bank and the IMF are both well-known dens of leftist lunacy, and it’s no surprise that they have signed up to the warmist conspiracy — all the easier for them to establish a socialist New World Order. What do some real conservatives say?

Well, there’s Germany’s conservative Chancellor Angela Merkel, who in 2009 said “climate change threatens both our security and our economic development. Failure to take decisive action will have a dramatic impact.” But despite Merkel’s free market credentials, she’s a former environment minister and a scientist. Science has a notorious reality bias. Worse yet, Merkel’s from the former East Germany.

How about a proper Tory like David Cameron? Just a couple of months ago, Cameron said “climate change is one of the most serious threats facing our world. And it is not just a threat to the environment. It is also a threat to our national security, to global security, to poverty eradication and to economic prosperity.” Then again, Cameron would say that, wouldn’t he — he’s in a coalition with Liberal Democrats. But the Conservative Party’s 2009 election platform specifically compared the problem of greenhouse gas emissions to the financial crisis.

“Just as the reckless accumulation of debt in our economy means higher taxes for the next generation; so the reckless accumulation of carbon dioxide in our atmosphere will impose costs on our children and their children. Now that we know the scale of the risks we have created and are creating, it would be selfish, irresponsible and morally wrong not to act now to reduce our carbon emissions and do all we can to protect the future.”

Still, the UK Tories have never been the same since Thatcher left. If only the Iron Lady were still around to sort out these warmists. Oh, wait, she was one herself — famously saying “it is no good squabbling over who is responsible or who should pay. Whole areas of our planet could be subject to drought and starvation if the pattern of rains and monsoons were to change as a result of the destruction of forests and the accumulation of greenhouse gases. The environmental challenge which confronts the whole world demands an equivalent response from the whole world. Every country will be affected and no one can opt out.”

Well, it’s really only the Republicans in the US who can be trusted to give an unbiased account of whether climate change is real and whether it’s an economic issue. So let’s ask, say, George W. Bush’s treasury secretary, Hank Paulson, what he thinks.

“For too many years, we failed to rein in the excesses building up in the nation’s financial markets. When the credit bubble burst in 2008, the damage was devastating. Millions suffered. Many still do. We’re making the same mistake today with climate change. We’re staring down a climate bubble that poses enormous risks to both our environment and economy. The warning signs are clear and growing more urgent as the risks go unchecked.”

Damn. OK so Paulson’s off the reservation. Surely there must be a voice of sanity on this issue somewhere? How about the Pentagon. Surely those brave fighting men don’t believe this warmist nonsense?

“As greenhouse gas emissions increase, sea levels are rising, average global temperatures are increasing, and severe weather patterns are accelerating. These changes, coupled with other global dynamics, including growing, urbanizing, more affluent populations, and substantial economic growth in India, China, Brazil, and other nations, will devastate homes, land, and infrastructure … The pressures caused by climate change will influence resource competition while placing additional burdens on economies, societies, and governance institutions around the world.”

That just leaves Abbott and Hockey. Well, someone’s got to speak up for coal, don’t they?

Asia-Pacific

Oct 14, 2014

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Should China be cowed by the blitz of lobbying about to descend on the Middle Kingdom from the angry ants of Australia in the shape of the Abbott government? According to our national media, Prime Minister Tony Abbott and Treasurer Joe Hockey are going to raise the question of the coal import duties, which suddenly became an issue late last week when the Chinese announced October 15 as the start date for the reimposition of the duties after they were stopped more than a year ago.

The sudden move by China to levy import tariffs of between 3% and 6% from Wednesday, October 15, will hit miners in Australia and Russia — among the top coal exporters to China. But Indonesia, the second-biggest coal exporter to China, will be exempt from the tariffs since a free trade agreement between China and the Association of Southeast Asian Nations (ASEAN) means Beijing has promised the signatory nations zero import tariffs for some resources. A 3% import tariff imposed on lignite (the lowest quality of all coal types) last year did not include Indonesia.

The import restrictions were first revealed in mid-September and were supposed to start at the beginning of 2015. But last week the Chinese revealed that the restrictions would begin this week, taking the Abbott government completely by surprise and throwing the free trade agreement with the country into doubt.

The Australian has reported that Hockey will raise the matter when he is in Beijing next week (he’s in London this week after Washington last week), while Abbott slammed the move in The Australian Financial Review:

“‘This is the kind of hiccup in our ­biggest and most important trading relationship that we just don’t want or need,’ the Prime Minister said. ‘We’ll work with the Chinese to get to the bottom of what seems to have happened.'”

China has shown what it really thinks of future trade relations with Australia by levying these tariffs in the full knowledge Australia will be hit hardest. China could remove those if it really wants a free trade agreement, but there has already been reports of a hold up on the question of access to Chinese markets for Australian agricultural products, such as beef.

But is there another, more pressing issue here. The New York Times reported on Saturday that the push from China for a rival to the World Bank is reaching a crucial stage, and Australia is in China’s sights.

“Beijing has asked dozens of nations to contribute funds to the bank, which it calls the Asian Infrastructure Investment Bank, and hopes it will become a global institution that rivals the World Bank. To give it broader scope, the Chinese have invited and won the support of some wealthy Middle East nations, including Qatar and Saudi Arabia. But if Washington persuades South Korea and Australia to abstain, it would all but ensure membership in the bank would be limited to smaller countries, depriving it of the prestige and respectability the Chinese seek.

“Australia, which depends on China for its economic well-being and on the United States for its security, has not announced if it will support the Chinese proposal. But the government was ready to sign up if China meets its conditions on how the bank will be governed, said Peter Drysdale, a professor of economics at Australian National University who has advised Australian governments.”

Will Australia risk alienating China by saying no, or will it risk alienating the US by saying yes to the Chinese idea? Now that’s a real quandary for the Abbott government. Or have the coal duties changed the game?

Australia

Jun 17, 2013

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Another day, another ironically Stalinist obituary in The Australian. This time it’s of Helen Hughes, an economist who worked across the world for decades, most notably for the World Bank, and in the last decade of her life, as an activist around Aboriginal futures. Nicolas Rothwell coyly notes of her time at the World Bank:

“Her particular social vision was strengthened by her study of Pacific Island region states in their post-independence phase. A range of books and papers followed: she became prominent in her field, and her exceptionally acute understanding of the interplay between ideology and economics was honed.”

Well, yes, but in the decade or so before that, Hughes was honing her understanding on the ground — in Papua New Guinea, then still an Australian colony, where she was ostensibly a researcher, but principally an activist for the Communist Party of Australia, which had high hopes of sparking Third Worldist revolution there (and good on ’em, and her!). This was no dilettante engagement — Hughes was the type who was drawn to (post-) Stalinism by its promise of certainty, the ability to calculate the falling rate of profit to three decimal places, and put the revolution in your diary.

When she left the CPA and the Left and went to the World Bank, she simply adopted its disastrous one-dimensional developmentalism, whose principal result was to draw whole nations into a net of dependency in the 1970s and prepare them for the debt catastrophe of the ’80s, which stripped their economies and societies bare in order to pay interest to Western banks. In that phase she cheerfully adopted the principles of top-down central planning then in fashion. By the ’80s and ’90s she had shifted Rightwards, ending up at neoliberal think-tank the Centre for Independent Studies, where her later focus became the development of indigenous societies through the application of bourgeois property relations.

For Hughes, private home ownership was not merely something Aborigines should have access to — which is fair enough — but something that should be imposed on all, here and in the Pacific. Communal land tenure systems should be broken up, and out of this slicing and dicing the individualist, Protestant, accumulative person who emerged from 1500 years of Christian monotheism/Roman jurisprudence/the rise of mediaeval town economy/the Venetian invention of banking and the firm/printing/the Reformation/the Renaissance would pop out fully formed in a generation. Her bloody-minded insistence on this could only be argued by ignoring any real understanding of indigenous social-cultural structures, and its oversimplifications were pointed out time and time again. This seemed to matter little.

The Right relied extensively on Hughes’ work in attacking the many failures of indigenous policy over the last 20 years, and used it to frame an idea that Lefties, led by economist Herbert Cole  “Nugget” Coombs, had projected a counter-cultural utopia onto Aboriginal societies. There was some truth to this, but the argument that such a utopia had been projected onto a blank bark canvas was nonsense — indigenous societies remained very different to settler societies. By the 2000s, Hughes’ work, by some ghastly alchemy, appeared to take the worst of Marxism — simplistic stage-ist historicism — and combine it with the worst of classical/neo-liberalism — the idea that the Protestant accumulative subject is the real and eternal form of human existence.

The result is someone like Hughes, a dedicated, hard-working, committed person, who could well come to be judged as having got nearly everything wrong.

Such a one-dimensional approach would be forgivable as a sort of myth, had it delivered results. It hasn’t. Improvements, or the slowing of decline, in indigenous communities follow many patterns, but they don’t correlate to the imposition of simplistic notions of human history and individual nature. Different things work in different places, but any sustained discussion of them tends to be pushed to one side by a near exclusive focus on Noel Pearson’s experiments in Cape York, a place where so much money has gone into mild improvements on things like truancy that it might have been cheaper and simpler to send every kid from there to Hogwarts.

Indeed so cossetted from reality have these approaches been that when fresh eyes were applied to them — Queensland Premier Campbell Newman’s — they almost got the chop. Newman saw himself as a public spending waste-buster who was colourblind to non-performance. Big mistake. The colourblind right to take responsibility without handouts is so crucial that it must continue to be funded by the state if Aborigines are involved. If you see the irony here, you’re not allowed to work for The Oz … or former Queensland MP Mal Brough …or Indigenous Affairs Minister Jenny Macklin.

The point of Hughes’ work, and the whole movement of which it is a part, is that it has little to do with the actual betterment of indigenous people. It is a culture war against social alternatives, and so its inevitable failure on the ground is relatively unimportant — though just to make sure of it, no stats are ever quoted (though references to mysterious “glowing reports” are sometimes made). For whatever reason Hughes’ past is left out of the obit — ignorance or self-censorship — it obscures the profound continuity from Left to Right, and adamantine self-certainty that others pay for.

Eventually the neoliberal, neo-assimilationist approach will be seen as the mirror of the “counter-cultural” model it sought to deal with — a simplistic projection that has a lot to do with the needs of those doing the projecting. Some may wonder whether the Right is hypocritical in this, or simply stupid. After the 2012 US election, I don’t. The Right is simply, wilfully dumb, having reduced whatever reflective capacity its politics once had to zero.

Hughes was no dummy, and her passion to categorically change things had an admirable side. Doubtless she was in the right in a whole series of debates and arguments she had. But this serial certainty, so characteristic of the 20th century — what will the future make of such people? They yearned above all for a material political process that would give a meaning to life beyond its individual flux and chaos; the more that such transformations became elusive, the more it became clear that nothing like that was on offer from the world, the more insistent became the need for it. The result is someone like Hughes, a dedicated, hard-working, committed person, who could well come to be judged as having got nearly everything wrong.

Politics

Jun 5, 2013

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A softer sounding Tony. I detect a much quieter tone of voice from Opposition Leader Tony Abbott. A lot of the old belligerence is gone. I expect the new approach to result in a further improvement to his approval ratings.

Sydney makes the competitive list. Citibank and the Economist Intelligence Unit have just released their forecast of what will be the most competitive places to do business in 2025 and Sydney makes the list in sixth spot. New York is forecast to be the most competitive city. North American cities make up almost half the locations in the top ten.

Growing to like carbon pricing. Just as a Liberal-National coalition government prepares to scrap carbon pricing in Australia, the World Bank comes out with a comprehensive report showing that more than 40 national governments and 20 sub-national governments have either put in place carbon pricing schemes or are planning one for the years ahead.

The bank mapped the countries having, or planning, some form of cap-and-trade policy:

The bank concludes in its report summary:

“Climate change requires urgent action at scale. Concerted action to mitigate climate change is as urgent as ever. Global GHG emissions continue to rise, and the window to avert dangerous climate change is closing fast. The international community has agreed to limit the increase in average global temperature to 2 degrees Celsius (°C) above pre-industrial levels. The current level of action puts us on a pathway towards a 3.5–4°C warmer world by the end of this century. Such a scenario would have a devastating impact on the climate and would threaten our current economic model with unprecedented and unpredictable impacts on human life and ecosystems in the long term. The main challenge for the international community will be to find a balance between the emerging plethora of carbon pricing schemes, which allow progress on carbon pricing initiatives at the national level, and global incentives to reduce emissions, which would allow the world to remain below a 2°C limit. Activities at a larger scale are needed for a truly transformational carbon market — one that can emerge from fragmented initiatives. The challenge then will be to develop these initiatives through linking, potentially reshaping the global carbon map.”

Where they campaign doesn’t matter. A suggestion in The Australian this morning that Labor campaign strategists are planning to confine campaigning by the Prime Minister to marginal seats that are almost certain to be lost. The rationale is meant to be that Julia Gillard will do less damage there than she would if allowed to roam in electorates with higher margins.

Perhaps that is an accurate report of what some apparatchik or other told the paper but it doesn’t make much sense to me. My experience of campaigning suggests that a leader would be better off staying in one location rather than buzzing around the country like a mad thing. In the final weeks the picture on the television screen is what counts rather than where the picture was taken.

News and views noted along the way.

Environment

Nov 20, 2012

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The World Bank yesterday released a report prepared by the Potsdam Institute spelling out what the world is likely to experience if it warmed by 4 degrees — that’s looking increasingly likely by the end of the century without some serious policy changes by governments globally.

The report essentially attempts to summarise much of the research literature that has built up since the 2007 fourth IPCC Assessment Report and puts it in the context of the path we’re on unless we start taking this problem seriously. It doesn’t make for pleasant reading. World Bank President Dr Jim Yong Kim says “it is my hope that this report shocks us into action”, as he believes “a 4 degree world can, and must, be avoided”.

For the World Bank, with a primary purpose to help impoverished nations out of poverty, “the lack of action on climate change not only risks putting prosperity out of reach of millions of people in the developing world, it threatens to roll back decades of sustainable development”.

The chart below provides an impression of the alternative emission paths and their likely implications for temperature rise. According to the report, we are on a path illustrated by the red line. However, if governments follow through on the pledges they’ve made at the UN’s Copenhagen and Cancun summits then it would put us on the purple line, giving a mean temperature rise estimate of 3 degrees.

But even this path still carries a 20% chance of temperature exceeding 4 degrees. If governments don’t make good on their pledges then the red line would imply a 40% chance of warming above 4 degrees.

Median estimates of temperature rise from probabilistic projections for several scenarios

The latest research, unlike older assessments, is more confident that land-based ice, and not just thermal expansion of existing sea water, will play a significant role in sea level rise. Older assessments were hopeful that increased snow falls might occur over Greenland and the Antarctic that could offset any melting from higher temperature. Unfortunately, the rate of land ice contribution to sea level rise has increased by about a factor of three since the 1972–1992 period. And both the Greenland and Antarctic ice sheets have been losing mass since at least since the early ’90s.

The chart below illustrates that our current emissions path (the red line) gives a mean estimate of a one metre rise in sea level by the end of this century. However, sea level would continue to rise substantially after this point. For example, even if global warming was limited to 2 degrees, global mean sea level could still rise by between 1.5 and 4 metres above present-day levels by the year 2300.

Probablistic projections of sea level rise for different emission scenarios

Rising temperatures will lead to increased likelihood of extreme weather events and heat waves. The report notes that the past decade has seen an exceptional number of extreme heat waves around the world. These events — Victoria’s 2009 heat wave and associated severe bushfire; Russia in 2010 (which claimed 55,000 lives); Europe in 2003 (70,000 premature deaths); the US in 2012 — were highly unusual with monthly and seasonal temperatures typically more than three standard deviations warmer than the local mean temperature for that period.

Another well understood feature of this warming will be a strengthening of the hydrological cycle because a warmer atmosphere can hold more water vapour. This tends to exacerbate droughts and flooding rains.

The table detailed below documents a series of extreme events over the past decade and the degree of confidence that these could be attributed to human-induced climate change. Many of these events are so outside the bounds of past experience that it seems there is a medium to high likelihood that global warming has contributed to the event’s severity.

Note: numbered references available from page 18 of the report

These extreme events, in conjunction with rising overall temperature, will take their toll on agriculture. While modelling prior to 2007 predicted some improvement in food production with warming of 1 to 3 degrees, according to the analysis, “research since 2007 is much less optimistic”. The report observes:

“These new results and observations indicate a significant risk of high-temperature thresholds being crossed that could substantially undermine food security globally in a 4°C world.”

The effect of 4 degree warming would be disastrous for coral reefs. Coral reefs would stop growing at a CO2 concentration of about 450ppm, which we’re well on the way to hitting within the next few decades. And coral reefs are at high risk of dissolving by around 2050 unless we seriously turn our emissions growth around.

Those who aren’t inclined towards conspiracy theories already know this is a serious problem. This report simply provides an exclamation point on the already apparent urgent need for action.

*This article was originally published at Climate Spectator

Federal

May 24, 2012

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“Productivity” is starting to sound a little “gourmet” — a word that means very different things to different people. But unlike the spiced-up kitchen combat of master chefs, the productivity battleground has assumed a predictable flavour, and seems to serve up the same old meal.

This week saw two new entries into the debate — Fair Work Australia’s vice-president Graeme Watson, and celebrity unionist Paul Howes. While Watson directed his attention to the “adversarial relations architecture” of Fair Work Australia, which he claimed was propped up by too many union appointments to that body, Howes urged big business to end their fantasies about a “peasant workforce” of cheap, disposable labour. While Watson sees the productivity problem as structural, Howes settles on ideology.

It is true, as Watson suggests, that the contested terrain of industrial relations can distract industrial parties (and policy makers) from the sort of mature discussions about productivity that Howes is keen to kick-start. As well, limiting the workplace relations to a focus on preventing violations and providing remedies can have the perverse effect of allowing companies to overlook their responsibility to contribute to a positive environment for workers and communities. This can inhibit the sort of best-practice approach that Watson espouses.

But the real point of ideological contention is not just the form of the industrial relations system, but the unwillingness to accept a legitimate place for unions within it.

Past productivity reforms reflected a shared understanding about the need to respond collegiately to structural challenges in the national economy, not just by affording unions a role, but by prescribing them an equal place in shaping a shared system. Significantly, these reforms took place against the backdrop of a strong industrial relations framework and were supported by public policy that backed industry reform and provided assistance when needed.

It might be a little disingenuous to suggest that a collegiate approach is totally non-existent today — in some sectors some of that former maturity (or at least recollections of it) remain. Still there appears to be much more appetite for the oft-repeated critique of productivity that just blames unions and wages policy straight up.

This is curious in light of a recent World Bank report that showed that respect for workers’ rights, supported by high rates of unionisation is conducive to business in general and to the profits, income and productivity of individual companies in particular.

Howes’ big-picture productivity plea may be a little nostalgic, but what’s the alternative? It’s certainly true that back then — as now, there were economic winners and losers (just ask a textile worker). But if past approaches taught us anything, it was about the need for creative and integrated policy responses. To date, many productivity-related issues have been dealt with in a very fragmented way — a bit of assistance here, a package there and some skills funding to the side.

There are also issues that are yet to appear on the productivity horizon and where the right policy response today may well fuel the productivity boom of the future — things like decent work, pay equity, labour standards and job security. A renewed focus on skills, training, technology and infrastructure is important but arguably these matters should be part of a modern economy and not allowed to lapse to the point of dragging productive capacity down.

Australia should also look further afield and see what new policy approaches are delivering overseas: there is after all a global contest for manufacturing business around the world and overseas responses are instructive. In Ontario, the government recently invested $80 million to create and retain jobs, innovate and diversify the economy. It has also developed an $8 billion CleanTech sector that continued to grow during the worst recession the country has experienced, and is now contributing $1 billion in exports.

Likewise in Brazil — a country that shares many of our problems like a strong currency and growth in commodities — has found some policy space to abolish the 20% payroll tax for manufacturers in four labour intensive industries, replacing it with a turnover tax of 1.5 to 2.5%. To supplement these measures, the Brazilian government took quick action on dumping and introduced public procurement rules that allow the government to pay up to a quarter more than the lowest price to secure a local supplier. France has opted for a sovereign wealth fund to invest in industry, while the UK has rolled out a renewable energy program along its coastlines.

Such policies do need to be integrated across the economy: a world-class manufacturing sector, for example, needs a world-class education and training system right alongside it. Likewise, the central place of manufacturing in contributing to science, technology and innovation needs to be better understood — especially the link to growth sectors such as health which, after all, is the biggest sector in our economy.  Worker health is also important — a global survey of manufacturing leaders placed health care No.10 on the list of factors that inform where global manufacturing businesses locate their firms.

And if industry assistance is on the cards, then taxpayer handouts should come with a guarantee that recipient businesses behave in environmentally and socially responsible ways by signing to global standards and publicly disclosing their approach to labour and environmental management.

While these topics are yet to find their way into contemporary productivity debates in this country, they certainly give us something to chew over and might provide a pleasant reprieve from what’s typically served up.

Asia-Pacific

Jan 31, 2012

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A new report has found the World Bank is badly letting down girls and students with disabilities in its educational aid programs in developing countries, while AusAID’s programs and those of the Asian Development Bank are significantly better.

The report from RESULTS International, an international aid advocacy group, looked at education aid programs run in Indonesia, Papua New Guinea and the Philippines by the World Bank, the ADB and AusAID, examining how programs were designed and their evaluation mechanisms. The three countries will together receive about $1.2 billion in aid from Australia this year, and Australia will also provide a total of just under $250 million to ADB and World Bank development programs.

Lack of access to education is a particular issue in developing countries for females and marginalised groups such as ethnic minorities and people with disabilities. There are significant child mortality and economic and personal income benefits from increases in the amount of time girls spend in education.

The good news: there has been significant progress in Indonesia and the Philippines in increasing primary school enrolment for all children, and the number of out-of-school girls is falling, with girls now 53% of out-of-school children, compared to 60% more than a decade ago. AusAID and the ADB  have a strong focus on maximising girls’ participation in education and had achieved positive results, although the report found the need for better performance monitoring and quality assurance.

The bad news: while the World Bank identified gender as a priority in its program goals and sometimes even established indicators, reporting was poor and evaluation very limited.

And it was worse for kids with disabilities. They are definitely on the agencies’ radars but on-the-ground results are limited. In 2008, AusAID launched a disability inclusion strategy and established a $30 million fund for disability-specific measures. A 2010 report showed there’d been some progress, but students with disabilities remained a low priority on the ground. But the World Bank talks about disability a lot in its program design but few of its programs address specific measures for access by marginalised groups, including those with disabilities and special needs. None of the bank’s programs in the three countries mentioned disability in their evaluations. The ADB is similar — a lot of talk about disability at an overarching level but missing from actual programs and their assessments.

The report recommends not merely the obvious like better integration of gender and disability indicators into program design and evaluation, but more concrete measures: ensuring the cost of disability access infrastructure is built into program costs from the outset, so it doesn’t get sacrificed due to budget constraints later; making sure program officials in each country are held responsible for reporting against gender and disability indicators at a country level, and scaling up projects for girls and kids with disabilities to better take advantage of economies of scale, including by working with local gender and disability-focused NGOs.

For Australia, it’s some limited good news, given AusAID’s comparative performance. But the review wants Australia, as a key donor to the ADB and the World Bank’s development programs, to start talking a lot more about these issues, and particularly about focusing on kids with disabilities.

Federal

Jan 27, 2012

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The tensions continue to go out of the tight conditions in global banking, especially in the eurozone, which has been blamed by Australian banks and their mates in the investment community and the local media looking for doom-and-gloom stories and easy headlines.

In fact you get the feeling that some of the heavy hitters of the global economy don’t think much of the recent alarmist forecasts for world growth from the World Bank and IMF and their seeming ignorance of what has happened in the eurozone banking sector in the past month.

If the improvement in conditions (from fraught to serious concern, but not fear of collapse) continues into the rest of this year, don’t expect our banks and their local mates to tell us that the easing of tensions in eurozone banking and financial markets will help lower funding costs for our banks and take pressure off their profit margins.

The World Bank got easy headlines in the past 10 days with its lurid forecast that the world faced a potential deep recession if a Lehman-type situation happened (three or four countries shut out of funding markets). The IMF and its head, Christine Lagarde, got easy headlines by suggesting the world faced the chance of a possible “1930s situation” if the eurozone crisis deepened.

Both groups warned of deeper falls in already weak levels of global growth to recession levels if the eurozone crisis worsened or some other unexpected event occurred.

But those doom-laden forecasts have been rejected by one of the heavy hitters of central banking: Mark Carney, who is head of the Bank of Canada and, more importantly, chairman of the Financial Stability Board, part of the Bank of International Settlements that oversees global banking policy, especially capital levels.

The FSB co-ordinates the work of national financial authorities and international standard-setting bodies, and develops and promotes the implementation of effective regulatory, supervisory and other financial sector policies.

Carney told Reuters TV in Davos this week in widely reported comments that the risk of a Lehman-style failure in Europe has been “dramatically reduced” by recent policy steps. Carney said the decisive action by the ECB to provide liquidity to the financial system has eased market pressure on Spain and Italy and boosted demand for their bonds:

“It is absolutely essential that the financial system, the banking system specifically in Europe, is able to finance itself on a reasonable basis, that we’re not worried about a Lehman event in Europe,” he said. “Our view is that given the measures that the ECB has taken and the heightened focus of the banking regulator in Europe on the health of these institutions that that tail risk has been dramatically reduced. That’s incredibly important.”

When asked whether that meant he was now optimistic about a positive outcome for the European debt crisis, Carney said he was merely “realistic”, which is a view far more appropriate than the headline-grabbing doom and gloom scenarios from the World Bank and IMF. Europe is not outside of the woods by any measurement, Greece still has to to do a deal, although that may be closer with reports that major banks have agreed to a interest rate on new Greek debt of 3.75%, below the 4% level rejected earlier this week by the EU and IMF

“Within that context, one is realistic because the judgment has to be made: have European authorities done enough to take away the more extreme possibilities?” Carney said. He defined “extreme possibilities” as serious debt financing troubles in a major European economy, which was the basis for the dire warnings from the World Bank and IMF.

And the improved outlook for European banks is slowly easing the tight conditions in credit markets. In fact the Financial Times and other media groups say US money market funds, which started the “mouse run” on eurozone banks by withdrawing tens of billions of dollars of deposits and short-term money from July onwards, have returned to eurozone banks (and French banks in particular) in the past 10 days, buying short-term debt. The catalyst was the €489 billion pumped into more than 500 banks by the European Central Bank.

That will see a slow easing in high interest rates for banks in eurozone markets, which will help Australian banks, which have been among the major beneficiaries from the eurozone woes.

A report from Fitch Ratings this week says US money market funds, lifted their investments in the debt of banks from Australia late last year (See, having a AAA rating means something). Canadian and Japanese banks have also been beneficiaries as well.

“US prime money market funds (MMFs) continued to reduce their exposure to eurozone banks. As of month-end December, exposure to eurozone banks was approximately 10% of total MMF holdings in Fitch Ratings’ sample, a 16% decline on a dollar basis since end-November. Aggregate MMF exposure to European banks outside of the euro zone remained stable at approximately 22% of MMF holdings. Exposure to banks in Australia, Canada, and Japan each increased relative to end November and represents more than 30% of MMF assets, up from 20% of MMF assets as of end-May 2011,” Fitch wrote.

The report reveals that the NAB, Westpac and Commonwealth are among the top 15 most favoured investments for these funds, but not the ANZ. The funds are major providers of finance for the banks. but in the case of the three Australian banks, the investments exclude so-called repurchase agreements, which means means the money market fund money is more stable.

Westpac is the bank most favoured by these funds: 3.2% of their assets are on loan to Westpac, and 4.8% of Westpac’s funding is from them. The NAB is second with 3.1% of fund assets in loans to the bank and 4.6% of the NAB’s borrowings from funds. The Commonwealth represents 2.4% of fund assets and 3.1% of the CBA’s funding is held by US money market funds. The funding include commercial paper, certificates of deposits, repurchase agreements and other securities.

This substantial increase in investment in Australian bank debt is a major reason the Australian dollar has stayed high in December and January, despite the strength of the US currency (which normally pushes our dollar lower). Foreign central banks and other big investors have also been big buyers of Australian government debt (which remains in very short supply). In fact 80% of government debt is now held by foreign investors chasing the high yield compared with record low rates in the US and Europe. These investors have also been diversifying their reserves out of euros and US dollars and including more Australian and Canadian dollars.

The dollar topped the $US1.06 mark this morning for the first time in three months as “risk on” investments return to the fore among offshore investors, especially in the US and Europe. The carry trade (borrowing US dollars and euros cheaply and buying Australian dollar assets) is helping the currency, but the surge in US money market fund investment, especially in December, has had a big impact here and will help ease tensions (and interest rates globally) if Carney’s view is accurate.

Comments & corrections

Jan 20, 2012

5 comments

How to end the pokies:

Brian Hopper writes: Re. “Mayne: let’s have a pokies debate on maximum hourly losses” (yesterday, item 4). I now work overseas yet, in another life, I was a banker, managing home loan defaults, many triggered by pokie addictions. So, at the outset let me say, I hate the bloody things!

A number of years ago I wrote to Nick Xenophon’s office with the following (cunning ) plan…

The “addiction” is triggered by the player getting continual reinforcement of being a winner (you get a $1 drop and flashing lights and “happy” sounds) as a reward. You constantly “feel” like a winner. I suggested they reprogram the machines (an easy thing to do) to change the reward sounds to three consecutive descending sounds and cut/reduce the light show.

The interesting thing about this proposal is that it does not cut numbers of machines that is fought so hard by the industry but gets right at the heart of the way the addiction is re-enforced. This is a real and effective fix. The companies have nowhere to go as far as an argument for if they challenged it they would have to do so on the basis of recognising that this reward system is fundamental to the attraction — addiction — and their profitability.

I got a response from Xenophon’s office saying that they were pushing for soundproofing of the pokie areas. So they either completely ignored my point or, more likely, deflected the point I was trying to make to seem as though they were being responsive, while actually doing nothing. An old public service trick and class 101 lesson for their political office worker bees. I responded back, but got nothing, so no surprises there.

There are simple measures that can be deployed to fix this national problem but it needs the same level of cunning that the companies use to sustain their industry. I am with The Whitlams on this; Blow Up the Pokies — they are a national curse.

Paul Bendat writes: Stephen Mayne is correct to raise the concept of hourly losses on $1 machines but his $250 number is off the mark. The Productivity Commission got it right when they said that it should be tied into what a normal person spends on an evening’s entertainment. Unless you’re regularly undertaking the degustation menu with matched wines at Vue Du Monde, highly unlikely that the normal person spends $250 an hour on a night out.

And there’s research for that. A government survey found that problem gamblers would intend to lose no more than about $120 per day even when captured by the pokie environment. Those who just want to have a flutter, about half that; $60.

The Productivity Commission was spot on about hourly loss limits on $1 machines. Stephen … not so much.

Julian Zytnik writes: I have a comment to make on the pokies issue, in particular John Kotsopoulos (yesterday, comments).

Kotsopoulos wrote: “Nowhere have I seen any evidence from [Wilkie] to support his particular approach to this vexing [mandatory pre-commitment] issue.”

I have two words for John: Productivity Commission.

How this elephant in the room can be ignored is beyond me. Their reports on gambling are the product of over a decade of research detailed to the nth degree. The 2010 report is over 1000 pages long, listed over 30 pages of additional references, and considered over 400 submissions. To describe this as a “studied” effort would be some understatement. You can’t even say “agree or disagree with it …” since there are literally hundreds of recommendations to consider.

But one thing is clear — the report supported mandatory pre-commitment, and Wilkie, Xenophon and other leading anti-pokies campaigners have made it their reference point time and again.

People have their different views on this issue, which is fine, but please spare us the standard line of “where is the evidence?”. How much more evidence do we want or need before making a decision?

Keith Thomas writes: John Taylor (yesterday, comments) says “66% are in favour [of mandatory pre-commitment for pokie use], 79% are against …”. But he misses the point: it’s not about what gamblers want, it’s about the sort of society we want — adults and children.

Australia is not America; our national ethos is still less individualistic. We have mandatory seat belts and bicycle helmets not only to protect the wearers, but also to reduce potential trauma for families and to ease the burden on hospital casualty departments. These things count for us.

Our way is more about a fair go for ALL rather than free licence for the powerful to “let ‘er rip!”

The World Bank:

John Richardson writes: Re. “Hey World Bank, unless there’s a Lehman-like collapse this isn’t ’08” (yesterday, item 18). Whilst the World Bank’s call for additional funding, to save us all from an economic Armageddon, might be akin to one of those horror movie moments, the real “Schettino” was under way down the road, where David Cameron was spelling out his vision of “moral markets” as the centrepiece of his new “responsible capitalism” while, at the same time, The Guardian’s Jill Treanor and Patrick Wintour were accusing Goldman Sachs of living in a “parallel universe“, as they gorged themselves on their latest bonus obscenity of $12 billion, an average of $367,000 per employee.

Hardly surprising then, that while the music might be about to stop yet again, so many seem to have simply stopped listening, whilst the rest are too busy doing a “Schettino” to notice.