Centre for Policy Development's Blog, page 95

Ian McAuley | What Credit Ratings Don't Tell Us

Bill Shorten might be using the downgrading of European economies as an opportunity to crow about Australia's prosperity – but being rich and having a sound economy are not the same thing, writes Ian McAuley.

When Standard and Poor's cut France's AAA sovereign credit rating and downgraded the ratings of eight other European countries, Bill Shorten couldn't resist an undignified outbreak of Schadenfreude:

"S&P's decision overnight to strip France of the exclusive, top-tier AAA credit rating confirms once again the stark contrast between Australia's rock solid economic fundamentals and the fiscal challenges facing Europe and other parts of the world" he said in a statement last Saturday.

Shorten must be one of the few people who still take these ratings seriously. After all, S&P was one of three agencies that was still giving Lehman Brothers a strong rating just days before it declared bankruptcy in September 2008. As if to confirm the irrelevance of ratings agencies, France's cost of borrowing has actually fallen in the days since its downgrade.

His main error, however, is to confuse a credit rating with an assessment of Australia's "economic fundamentals".

A credit rating, even if accurate, is simply an assessment of a government's capacity to repay its debt; it says little about a country's underlying economic strength. It would be amazing if Australia, with its huge mineral reserves and low government debt, did not have a high credit rating.

It happens that countries with strong economies, such as the northern European countries, are also those with AAA credit ratings. But most oil-exporting countries, many of which have very weak economic structures, also have reasonably strong credit ratings. Being rich and having a sound economy are not the same thing.

Europe's main problems are an immediate fiscal crisis which could drag the region into a prolonged recession, but most European countries have far more economic depth than Australia.

France is a world leader in high value-added industry, in aerospace, pharmaceuticals, telecommunications, defence equipment and civil engineering. It may have high government debt — about 80 per cent of GDP — but much of that debt has gone to fund productive infrastructure, such as its high speed rail network and urban metro systems. By contrast we struggle to keep our car industry alive and have a third world rail network. We may have low public debt, but on the other side of the national balance sheet we don't have much in the way of public assets.

When the mineral boom eventually ends, Europe's troubles of 2012 will be no more than a memory. Most European countries will still have reasonably strong and diversified economies. By contrast, unless we modernise our economy, we could slip into a condition far worse than a recession. Nauru provides an extreme example of what happens once a commodity-based economy loses its export base.

Australia's economic weaknesses are not of this government's making. It was the Howard government which squandered the benefits of earlier economic reforms and allowed our public revenues to be diverted from national investment in education, infrastructure and environmental protection, and re-directed to middle-class welfare and tax breaks for the well-off. They left us without debt on the fiscal balance sheet, but they left us with a huge liability to replace and repair our worn and crumbling infrastructure. Those are liabilities which staff of the ratings agencies don't see.

So far, however, both the Rudd government and the Gillard Government have continued with the Howard-Costello policy, with a little tinkering at the margins, most notably in relation to labour relations. It is yet to tackle the hard task of re-building our economic strength to ensure that our prosperity can endure once the mineral boom has ended.

First published 17th January 2012 on New Matilda here.

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Miriam Lyons | ABC1 The Drum

On ABC's The Drum, Miriam Lyons shines her policy light on certain highly contentious issues, such as the oz car industry subsidies, pokies reform, huge bank job cuts planned while profits soar, the controversial SOPA bill before the US Congress and the reprinting of Mein Kampf.

She is joined at the table by Marius Benson, Judith Sloan, Simon Birmingham, Mark Pesce and Clementine Ford to chew over these hotly debated policy issues.

WATCH the conversation on ABC The Drum TV here.

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Ben Eltham | Why We Love The Car Industry

Australian politicians have always been revheads when it comes to manufacturing policy, no matter how expensive it is. Ben Eltham on Kim Carr's latest effort to keep us making cars.

We Australians love our cars.

On the level of everyday sociology, there aren't too many objects as prized and loved as the wheels most of us own to get around in. Despite all the rhetoric about rising petrol prices and inner-city apartment dwellers, theABS statistics tell us that the ownership of passenger vehicles continues to rise. There were 552 passenger vehicles for every 1000 people in 2009, up from 510 vehicles per 1000 people in 1999.

Australians also celebrate the culture of cars. We hold national festivals of automotive culture at events like Bathurst's Mount Panorama and Canberra's Summernats.

The pivotal cultural importance of cars, particularly to Australian baby boomers, was recently documented in the ABC's fine social history, Wide Open Road. For many older Australians, cars really were the freedom machines of suburban lore: the vehicles that enabled their escape from parental supervision, and the scene of their early sex lives.

The suburban aspect of the car's significance shouldn't be glossed over either. Australia's unusually decentralised urban planning means that most of our new housing built since the 1950s has followed a pattern of suburban sprawl. In the vast tracts of cul de sacs and strip malls that ring Australia's big cities, cars are not just a rite of passage, they are a transport necessity.

All of this helps to explain why car making is such a politically loaded issue in Australia. Quite simply, few politicians want to be seen to be letting the car industry die, whatever the economic cost.

But dying it is. Making cars in high-cost, low-volume Australia is uneconomic on a global scale, and has been for some time. Australians buy around one million new cars a year. Unfortunately for the workers that manufacture cars in Australia, most of those sales are imports. The Mazda3 has eclipsed the venerable Holden Commodore as Australia's most popular car, highlighting the trend. More generally, the consumer trend toward smaller cars and SUVs has also hurt local car makers, as most of the cars on the market in these classes are assembled overseas.

The hyper-competitive global auto industry is ever the graveyard for governments and investors. Because of the iconic status of car manufacturing and the outsized position it occupies in the minds of politicians and policy makers, auto-manufacturing is the recipient of generous government subsidies and special industry protections almost everywhere in the world.

Australia is no different: the auto industry here has long been the recipient of considerable sums of taxpayers' cash. And there is still a tariff on imported cars coming into Australia, even it is now only a negligible 5 per cent, down from more than 100 per cent in the years of Australian protectionism, before the Hawke-Keating government began to dismantle Australia's tariff walls.

That government largesse shows no signs of abating. Industry Minister Kim Carr was at the Detroit Motor Show last week, throwing millions of taxpayer dollars at Ford, in an attempt to convince it to keep making the Falcon in Australia. $34 million was promised, plus an unstated figure from the Victorian government, all for the purposes of keeping the Falcon and the Territory on the production lines. "This funding will also see the Falcon produced at Broadmeadows in Melbourne to at least the end of 2016," the press release stated.

The problem of how and how much to support the car industry has divided the Opposition. Pro-industry types like Ian Macfarlane are in favour of more support. So apparently is Tony Abbott, who recently declared that "without cars … we are not really a sophisticated economy any more." Economic dries like Joe Hockey and many backbenchers are against.

The reaction to the news from the commentariat to the new assistance was predictably cynical.

Most economists and analysts groaned at the prospect of yet more money being poured down the bottomless pit of automotive manufacturing subsidies. After all, Mitsubishi extracted hundreds of millions of dollars in state and federal support in the years running up to its decision to close down its Australian operations in 2008. Despite all that cash, it shut up shop anyway, laying off 1700 workers. That was taxpayers' money rather poorly spent, to say the least, as the Productivity Commission has repeatedly lamented (pdf).

You need not be a rabid libertarian to note the negative economic impacts associated with car industry assistance. Tariffs are a device to transfer wealth from consumers, who pay more, to producers, who receive direct and indirect subsidies. Those subsidies support local jobs in the manufacturing industry, but at a price. The Productivity Commission estimates the total subsidy is something like $23,500 per worker. Yes, you can take issue with modelling and the econometrics and quibble with the numbers and so on. But there's no doubt that, in the end, we all pay for the pleasure of sustaining a local car industry.

That pleasure is largely psychological. Australia could import 100 per cent of the cars we drive, if we wanted to, just as we currently import 100 per cent of our airliners and computer chips and wind turbines. That's what New Zealand does. That's what Switzerland does. Neither country is exactly an innovation backwater or a deskilled rust-belt.

What's more, with unemployment still around 5 per cent and the mining industry crying out for skilled trades, most of the workers currently employed in the auto industry will be able to find new jobs, especially if they're prepared to move to Western Australia or Queensland. Some might not even have to move: mining companies are increasingly employing workers on a fly-in, fly-out basis.

All this sounds like a hymn to the efficiency of the open market, and to some extent it is. There is an unavoidably difficult truth to face when we discuss local manufacturing, which is that the high Australian dollar and the small size of our local market makes many aspects of Australian manufacturing uncompetitive. Fairfax's Ian Verrender outlined the uncomfortable verities last week when he pointed out the obvious: making cars in Australia was never particularly sustainable, and has only been so in the long-term with massive government subsidies. "While we're at it," Verrender continued, "let's be brutally honest. There is no such thing as an Australian car industry. It is an American and Japanese car industry with a couple of plants here."

Politicians like to say they're saving local jobs. But they're also sending money to Detroit and Tokyo.

If Australia can succeed as a manufacturing nation at all, it is almost certainly as a niche producer, exporting high-value, high-innovation products that have a technological edge on their competitors. This has been the case for our successful manufacturing exporters in the biotechnology sector, like Cochlear (whatever you think about their industrial relations policies). It's not likely to be the case for cars, where the scale of investment required be globally competitive is always going to make it tough in Australia. A more likely candidate for success is, ironically, the field of mining services, where innovators that seek to supply better solutions to the huge local mining sector can take advantage of strong local demand, a highly-skilled workforce, and huge multinational customers desperate to reduce their costs.

The car-making debate also brings up that perennial policy chestnut, the debate about whether governments can "pick winners". The simple answer is generally no. The slightly more complex answer is yes but the question itself is a bit of a furphy.

Governments pick winners all the time, simply by dent of being governments. Creating the legislative framework for an entire society is nothing more nor less than picking the winners and losers. Think about the myriad of laws and regulations and policies that affect almost every industry. Economic activity cannot occur except inside a system created these laws, and they inevitably benefit some and cost others.

For that matter, the rule of law itself is a massive subsidy to people who own wealth and property, and against those who might like to redistribute it for their own purposes. Governments that pick winners are as common as those that raise taxes, and for much the same reasons. Next time you hear Tim Wilson from the Institute for Public Affairs complain about governments picking winners, you might want to remind yourself that theIPA itself receives a tax exemption as a non-profit institution, and so do its donors.

What about the local industry? It was left to veteran automotive journalist Toby Hagon to make the case for the car markers. "If we took the same cut-the-ropes approach to other industries that many Australians want the government to take with the car makers we'd be devoid of anything useful," he writes.

Local car makers will soldier on, even if they are steadily losing support in the broader community. There is some hope that if the Aussie dollar falls to 90 or 80 cents to the USdollar, making cars locally might suddenly be competitive again.

As a lone voice for the auto industry, Hagon also made an important subsidiary point, which is that government policy is a crucial aspect of many different industries; the car industry is by no means unique. "Our mining industry would be nothing like it is today," he wrote. "It receives more in assistance than the car industry despite being the economy's golden child. Farmers would be walking off the land and private schools would be out of action."

We rarely hear from the victims of Australia's economic reforms in the 1980s and 1990s: the low-waged workers whose industries packed up overnight in Victoria and South Australia, many of whom endured years of unemployment and grinding poverty as a result. The debate about economic reform tends to be skewed towards the winners of the reform process: highly skilled, tertiary-educated white collar workers such as economists and journalists, and the business lobby that has a vested interest in the most efficient use of its available capital. When it comes to picking winners, the thrust of the last 30 years of reform has been to create advantages for those who benefit from that reform, at the expense of the workers in the industries that are being propped up.

In the argument about industry subsidies, therefore, no-one is completely pure. And that's a point worth remembering. We live in a democracy. When our political representatives decide, rightly or wrongly, to support a particular industry, they are almost certainly doing so because they believe it is what their constituents want. This might or might not be wise. It might or might nor be economically "rational". But, in a democracy, it is certainly legitimate.

First published 16 January 2012 in New Matilda here.

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Ben Eltham | Common Sense is in the Eye of the Beholder

It's the start of another new year and another new Ben Eltham article. First up Ben Eltham takes a close look at the use of the word 'common sense' to justify certain political agendas. What do politicians really mean when they say that a certain policy or idea is 'common sense'? Common sense implies a certain basic level of accepted beliefs. But who defines what these beliefs are?

Is it common sense to ensure there are no incentives for desperate people to risk their lives coming to Australia by boat? Or does the real common sense lie in recognising that asylum seekers pose no threat, and could be humanely and cheaply processed once they arrive? Is it common sense for Australia to enjoy cheap energy by exploiting our natural bounty of mineral resources? Or is it common sense to stop burning coal altogether, given that we're cooking the planet? Is it common sense to balance the books and make sure the budget is in surplus? Or does it make more sense to borrow a little bit of money to invest in nation-building projects for Australia's future?

That's the trouble with common sense. One person's common sense is another's suicidal madness.

Common sense is a proxy, in a way, of all the things that seem self-evident in your own worldview. Much like beauty, it's in the eye of the beholder.  Unfortunately, those with a different view aren't likely to agree.

This article originally appeared on ABC's The Drum here.

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John Menadue & Arja Keski-Nummi | No man is an island, they say. So why the sea of heartbreak?

Opponents of the Gillard government's so-called Malaysian solution need to think again, writes John Menadue and Arja Keski-Nummi in The Age here. They look back at the agreement, the opportunities it offers for steering us on a different course and why Australia needs to work constructively with its neighbours.

"Whether countries in the region are parties to the refugee convention or not, they have been loath to recognise that they have asylum seekers and refugees on their soil. They have tended to label refugees as migrants or illegals. So it is with China, a signatory to the convention, but which regularly returns people fleeing from North Korea. Another signatory, Papua New Guinea, returns Irian Jayan refugees to Indonesia.

The focus on whether a country is or is not a signatory to the refugee convention is a political smokescreen designed to confuse. It implies that being a signatory means a country has in place a robust and effective protection system and that it does not return people to danger. But the two examples above suggest otherwise.

The real issue we should be concentrating on is how best to support transit countries such as Malaysia to develop their own laws and policies on effective asylum and refugee protection and to create a system to assess the refugee claims of people in their territory."

Continue reading John Menadue & Arja Keski-Nummi's opinion piece in The Age here.

PUBLIC SERVICE IN THE NEWS | Can transnational corporations deliver public goods to citizens?

Scandalous cost of justice: £861 a night to lock up young crime suspects… £650 to stay at the Ritz > Locking up young crime suspects for a night costs more than a suite at London's Ritz hotel, it was revealed today. While the highest price of a bed at one of the country's privately run secure units is £861, a stay at the Ritz costs £650. Charities have condemned the 'outrageous' waste of taxpayers' cash after spending figures emerged from the Youth Justice Board.

Rest easy, citizens, Serco rides to the rescue >  THE Government is lining up civil servants, staff from embassies abroad and Hampshire-based services giant Serco to replace immigration officials at ports and airports who will join the national strike. Mark Serwotka, general secretary of the Public and Commercial Services Union, said: "We have serious concerns about the private contractors' ability to do the job, and the use of them to cover for striking staff. This latest revelation further underlines the sheer desperation of [the UK Border Agency] to paint a picture of business as usual when it's obvious to everyone that's not going to be the case."

New contract for housing of asylum seekers > The multi-national corporation Serco has been urged to sign up to a set of housing quality standards after being named as the likely provider of accommodation to asylum seekers in Glasgow. Serco Civil Government is set to take over the multi-million pound contract from the charity YPeople (formerly YMCA Glasgow). All the successful providers are major multi-national security companies, with the Government opting to have no provision in the public or voluntary sector.

Public Sector in America 'Petri dish' of innovation > Even against crippling debt, the public sector in America is a Petri dish of innovation, driven by an activist populace, a culture of creativity and a growing tradition of philanthropy.

Big Society is failing the 'little society' > Government report calls for new measures to remove barriers for small organisations and community groups. The report states that "Big Society doesn't do enough to help 'the little society': Without a coherent implementation plan, there is confusion over message, whilst smaller charities face barriers in contracting and commissioning policies."

 

Find more ideas and publications on the Australian Public Service in one of our major research programs here.

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IPAA 2012 International Congress | 18-20 September

The Institute of Public Administration Australia's 2012 International Congress will be held in Melbourne, Australia, bringing together more than 1000 administrators in one of the largest gatherings of public administrators ever held in Australia. Already the ideas and speakers on the program are impressive – find more here.

Speaker highlights include:

DR SHASHI THAROOR is a former UN Under-Secretary-General and Indian Minister of State for External Affairs. India's central and state government employ 10 million public administrators, serving a population of 1.2 billion people. Dr Tharoor will examine the challenges of administering in both a super-state and in the international arena.

DANIEL BELL is Professor of Ethics and Political Philosophy and Director of the Centre for International and Comparative Political Philosophy at Tsinghua Univeristy in Beijing. The author of China's New Confucianism (Princeton University Press, rev. ed. 2010), he will discuss trends in political reform in China and their normative challenges to 'Western' ways of political thinking.

TERRY MORAN was, until very recently, Australia's most senior public administrator.  As Secretary of the Department of Prime Minister and Cabinet, he chaired the Advisory Group on the Reform of Australian Government Administration which developed a comprehensive blueprint for reform of the Australian Public Service.

BILL EGGERS literally wrote the book on Gov 2.0 in the US. He is also the author of If We Can Put a Man on the Moon… Getting Big Things Done in Government and is one of the United States' best known authorities on government reform.  He is currently the executive director of Deloitte's Public Leadership Institute and is responsible for research and thought leadership for Deloitte's Public Sector practice. See his latest thinking @wdeggers

PETER SHERGOLD is Macquarie Group Foundation Professor at the Centre for Social Impact and is the new head of the New South Wales Public Service Commission. From 2003 to 2008, he was Secretary of the Department of the Prime Minister and Cabinet.

Find more speakers here and program highlights here.

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MORE INFO & REGISTER for IPAA2012

Proudly supported by the Centre for Policy Development's Public Service Research Program.

The CPD Public Service Program aims to develop a robust knowledge base about the state of the public service: its funding and capacity; performance in delivering community services; and attitudes toward and expectations of the Australian Public Service. Click here to read more.

Find more ideas and publications on the Australian Public Service in one of our major research programs here.

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IPAA2012 International Congress | September 18-20

The Institute of Public Administration Australia's 2012 International Congress will be held in Melbourne, Australia, bringing together more than 1000 administrators in one of the largest gatherings of public administrators ever held in Australia.  A range of important speakers and innovative sessions have been confirmed.

Reforming Public Services Summit | Melbourne, 7-8 May 2012

Real reform towards citizen-centred social policy
 and empowered users of public services


Why a Summit on Reforming Public Services? Reform of public services has been a constant theme amongst governments, policy officials, and service delivery organisations for the last two decades.

Despite the constant talk, real change towards citizen-centred social policy and empowered users of public services is hard to find. What is more common is a pattern of frequently restructured financing arrangements for service delivery and re-badged programs which have little impact on the experience of users of services. For instance, in the name of 'health reform', the Commonwealth Government has in the last 18 months established no fewer than eight new national statutory authorities to administer health care.

This Summit over two days will review the progress, and the stalemate, in reform of public services, and explore prospects and strategies for reform.

Full details and registration here>

 

Proudly supported by the Centre for Policy Development's Public Service Research Program.

The CPD Public Service Program aims to develop a robust knowledge base about the state of the public service: its funding and capacity; performance in delivering community services; and attitudes toward and expectations of the Australian Public Service. Click here to read more.

Find more ideas and publications on the Australian Public Service in one of our major research programs here.

[image error] Help us counter evidence-free attempts to downsize and privatise our public sector – Become an Ideas Sustainer.

 

Reforming public services summit | Melbourne, 7-8 May 2012

Real reform towards citizen-centred social policy
 and empowered users of public services


Why a Summit on Reforming Public Services? Reform of public services has been a constant theme amongst governments, policy officials, and service delivery organisations for the last two decades.

Despite the constant talk, real change towards citizen-centred social policy and empowered users of public services is hard to find. What is more common is a pattern of frequently restructured financing arrangements for service delivery and re-badged programs which have little impact on the experience of users of services. For instance, in the name of 'health reform', the Commonwealth Government has in the last 18 months established no fewer than eight new national statutory authorities to administer health care.

This Summit over two days will review the progress, and the stalemate, in reform of public services, and explore prospects and strategies for reform.

Full details and registration here>