My take on the debacle . . .

Here’s my article from last week’s Fin which it placed below the headline “ALP sold itself short instead of selling its strengths”. I’ve also done an interview with Michael Duffy on Counterpoint which was recorded last Thursday, but went to air last night.

How did it come to this? That’s what the last two Governments asked themselves as they fought for their lives in the last two elections. Howard had presided over a decade’s surging prosperity; the ALP Government had protected that prosperity with a fiscal stimulus that Economics Nobel laureate Joe Stiglitz described as world’s best practice: as good as it got – anywhere.

Part of the answer is to be found in this paradox: In seeking political advantage – in playing politics ahead of truth-telling and governing well – they ended up with a travesty of the very political objectives they were so desperate to achieve.

Take John Howard’s Workchoices. It was obvious that workplace deregulation would hurt Australia’s lower paid workers though Howard was right that it would help generate jobs for those even further down the pecking order. A frank acknowledgement of that could have saved Howard by creating the space around which he could have built a political and economic strategy to deal with the downside.

When Workchoices was cooked up, every time the Government of the Lucky Country looked, there was another few billion dollars in the kitty from surging company taxes on Australia’s miners. Usually playing political catch up, the Government shovelled it out the door as fast as it could – much of it to those battlers who were in the firing line of Workchoices.

So Howard could have focused those giveaways around the political economy of Workchoices and sold it as a wage/tax trade-off of precisely the kind that the Hawke Keating Government made a staple of their thirteen year reign. Instead he went out to sell the spin doctors’ message – that Workchoices would unchain our heart. Oh wait . . . that was the GST. Anyway you get my meaning.

The ALP Government managed to spin doctor its way to plenty of similar own goals including several right at the heart of its political viability. Some of us with some experience of government were stupefied to hear of the Government’s ‘root and branch’ review of taxation to report in an election year. I wondered what Rudd was thinking then. I wonder if even he knows now. But the announcement sure sounded visionary in the euphoria of the 2020 Summit.

Another trick from the political playbook is to divide your opponents. John Howard became so preoccupied with it that he tied himself into all sorts of contortions – like firing an environment minister for meeting quite properly with lobbyist, Brian Burke. Why? Because it seemed like a good idea in the 24 hours that Howard was going after Rudd for meeting with Bourke. Such frivolous invoking of the grave principle of ministerial responsibility only managed to highlight how much it was being traduced elsewhere. And it created an atmosphere of chaos. As in the dying days of the Whitlam Government, people wondered “What next?”.

Likewise the ALP Government focused as much on dividing its opponents over its emissions trading scheme as it did on the increasingly labyrinthine content of its own scheme. And then, famously walked away only to discover that its popularity had been built on the Australian people’s hopes for something better. We see political principle and political pragmatism as somehow in competition, but for a skilful politician – I’m thinking of Bob Hawke above others – they inextricably complement one another. As it learned in hindsight, in its passing pursuit of political opportunity it subjected itself to mortal political danger.

Consider the Government’s Building the Education Revolution (BER) program, the centrepiece of its best practice stimulus package. Lateral Economics’ calculations based on OECD methodology suggest that each dollar spent on the program generated a tax windfall of 36 cents from the ‘otherwise unemployed’. And that’s before you count the value of thousands of new school buildings. Using ‘otherwise unemployed’ resources, the opportunity cost of those buildings wasn’t so much more than the cost of their materials.

That dwarfs the waste from haste which Brad Orgill’s BER Implementation Taskforce guessed was around 5-6 cents in the dollar. But this message never got out to Australians. Why’s that?

Initially the Government was trumpeting all the schools that were beneficiaries. But once the ‘waste’ meme started spreading, they largely fell silent. Why? It had become ‘the Opposition’s issue’. In a private conversation with the Prime Minister’s Office I criticised the strategy of creating diversions to crowd out awkward issues. One staffer responded, “well it keeps BER off the front pages”. But it didn’t. Diversions are just that. In this case what they certainly did do was keep the Government’s side of the story out of the news.

For Oppositions it’s much harder, but in Government, endlessly optimising the spin cycle isn’t necessary – you can frame the issues. And if it doesn’t divert and confuse you about what really matters, and what you’re achieving it certainly does that with the electorate. The ‘waste’ meme was a political dagger at the Government’s throat. But that dagger could have been turned at their opponents’ throat if the argument could have been won before the campaign. The Government could have commissioned independent evaluation of the program long before Orgill and challenged the Opposition to debates in new school halls all around the country.

Had it been successful in challenging the Opposition’s framing of the stimulus (and some other issues), had it only committed to what it knew it could deliver, by the time Government had called “game on”, it would have been game over.

This entry was posted in Economics and public policy, Politics - national. Bookmark the permalink.
Subscribe
Notify of
guest
26 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Arjay
Arjay
11 years ago

Nicholas,
You like many have failed to look at the most fundamental influence over our economy and that is how the new money needed for increaces in GDP and inflation is created.With a GDP of $1.2 trillion,each yr inflation + GDP averages 6.5% which means $78 billion is added to our economy.Keating should never have sold off the Commonwealth Bank,since it used to create a lot of this new money needed for the growth of our economy which reduced our taxes.

In 08/09 the RBA gave the Aust Govt an exceptional dividend of $ 5.9 billion which is a small fraction of the $78 billion that the private banks add to our economy each yr.Even with a fractional reserve capacity of 12%,our banks don’t have enough deposits to meet our needs thus have to borrow from the international reserve banks who just generate this money in their computers anyway.This is why we are in so much debt.Our personal debt is now greater than our GDP.

GDP you’d think belongs to all Australians.Why then do we borrow money from foreign banks to equal what is rightfully what is ours in the first place?

Inflationary money created by the banks devalues the our currency.It is like you counterfeiting money and loaning it back to us at interest.Our new money is created as debt when in fact should be created as a tax credit.

How do you rationlise a banking system that produces virtually nothing and has the most powerful institutions on the planet?

JamesK
JamesK
11 years ago

While I don’t disagree with any of this, I see it from a slightly different point of view. I still see the fundamental problem with Labor is their total lack of any old school head kickers.

Abbott launches into the pack windmill punching like his life depended on it, whereas the other side of the fence would be lucky to muster up a limp wristed slap.

It has been argued that Abbott’s claims about BER are ridiculously over the top and lack any credibility. Yet Labor allow him to repeat them over and over again until in the public’s eye they have become true.

Keating would have absolutely smashed this out of the park. He would have put the blowtorch on Abbott’s claims, and rammed home how far from reality they really are. He would repeat this over and over again and would mercilessly ridicule Abbott as a lightweight with no credibility.

Abbott is a relic from a bygone era of politics, the last of a dying breed. But with both parties now full of bland, white-bread, risk-averse, career politicians he finds himself with no real competition.

observa
observa
11 years ago

Might well have got away with the BER waste if it hadn’t been preceded by the insulation debacle which in turn was preceded by failed Fuelwatch and Grocerywatch. Tossed in there too was Oily’s sudden clampdown on solar subsidies with the green inspectors and green loans to boot. It all added up to a growing perception that Labor was big on startups but never finished anything(the housewife’s lament) and the logical next step was to assume they didn’t really know what they were doing. Hence the BER blowouts gained so much traction without much goading from the Opposition. There was another thread in there too that once Kev came back from Cope and had to break the bad news on the GMI, the fairly friendly librul media turned nasty all of a sudden. Think Marr, Flannery and Adams here and Hell hath no fury like a lefty spurned by their own and even Aunty suddenly became uncharacteristically prickly.

The really dumb thing (and it’s an inherent fault in leftys) was to give handouts in the specific form of free house insulation to allcomers. Kev was on a roll with no strings attached cash handouts before that, but make it specific like insulation and 2 problems immediately arise. The obvious spike in specific demand with concomitant supply problems and then there’s the politics of envy. How do you think folks felt that had shelled out their own hard-earned for insulation? Exactly the same as many school communities would with specific building handouts if they weren’t anointed. Just waiting to pounce on any shortcomings and pounce they did on any perceived waste naturally enough. Dumb politics when they could have handed out cash grants to all school communities to spend how they best saw fit, but they wanted plaques to unveil instead. The plaques are still there waiting for them now.

Corin
Corin
11 years ago

Hi Nick, I wrote this on Fred Argy’s post and it seems relevant to your’s as well (at least in passing):

Hi Fred

I wrote this last year: http://www.theaustralian.com.au/news/opinion/on-the-wrong-track-when-politics-drives-wages-policy/story-e6frg6zo-1225769982854

I think I would describe myself as a combination of Option 3 and 4 in your paper. No one seriously believes in no regulation at all. Well I guess some do, but they just weird people with weird odd political axes ….

I think it is a question of whether tax/welfare policies are better or more efficient in generating equity than labour regulation and I would say they are.

I think for example the awards could whither and we could be left with the 10 national standards and minimum wages without a great social cost and we could gain a lot more flexibility that way (and you wouldn’t need to diluite unions overly or bring back AWAs). I’d say labour market policy has bee poorly served since Keating left office. Hawke’s Accord was a good model that reform can be bought through the social wage.

Both Howard and then Rudd/Gillard have had no tool for advancing reform of the labour market that produced greater equity and efficiency together.

I tend to find your arguments drift a little bit toward the interventionist for my taste but so long as they aren’t industry specific or corporate welfare in another form I can perhaps go there …

The links were good. This debate is not that dissimilar from Nick post on the failure of Labor to have a vision beyond next week!

Cheers
Corin

Butterfield, Bloomfiled & Bishop
Butterfield, Bloomfiled & Bishop
11 years ago

ah Observa,
you claim there was BER waste but have no evidence. Brad Orgill struggled to find any.

you claim the insulation policy was a debacle. however before the policy came in there were on average on the bravest assumptions for the industry 80 fires of the 70,000 houses insulated over a number of years.

on the worst figures provided by the Opposition and assuming ONLY 10% of fires were due to insulation put in prior to the policy there were 157 fires on the 1.1 million houses provided with insulation.

Even on this little metric fires fell tenold!

We aren’t even looking how much energy was saved!

Geoff Robinson
11 years ago

Labor seemed to regress to the popular pre-Keynesian view that the only jobs created by govt spending are those directly employed, thus the BER rhetoric about keeping tradies in jobs.I know there was concern about the stimulus leaking to imports but still..

observa
observa
11 years ago

It’s like this BBB. You can’t very well represent the side of politics that damns every death or injury on a building site, implements OHS law that requires no worker stand above 2metres without a scaffold or harness and then try and defend some immigrant with his and the householder’s kids up on a roof in bare feet sliding around on plastic because the roof is hot. It’s not a good look mate and one fire is one too many as the Courts are constantly reminding us. When these L-Platers promised virtually free insulation to all, we rolled our eyes at inevitable rush of greenhorns and fast buck merchants that would pour into the market, only to be chopped off at the knees when the inevitable occurred.

It was the same with Minister Garrett having to step in and chop the solar subsidies when the industry could knock out a system for ‘free’, as a result of overproduction(catchup) of panels with the GFC. So much for the great moral imperative of saving the planet then eh? Greening is not for everyone folks, just a select few compassionatte with the bucks. Why then didn’t they recognise the same fallacy of composition constraints with ‘free’ insulation?

Anyway my opinion was irrelevant as it was up to the faceless men to judge and judge they did. QED.

observa
observa
11 years ago

By the way BBB, watch out for inevitable change to those solar RECs again now that the industry is knocking out 1.52KW systems for $1889 net cost to the householder. I just had one installed on a renter and advised 4 others to grab this ‘reshiftable’ energy bargain likewise before the boom is lowered again.

It’s all crap as Tony knows only too well and this succinct analysis shows-
http://brookesnews.com/?p=92
and the MSM are beginning to smell a rat too post Copenhagen-
http://www.businessspectator.com.au/bs.nsf/Article/solar-PV-AGL-fuel-cell-carbon-abatement-pd20100830-8T5VK?OpenDocument&src=spb
And naturally if the price drops to the point where every battler and working family can expose their disgusting Green fallacy of composition, chop goes the weasel!
Some folks are more environmentally equal than others don’t you know?

Matt C
11 years ago

Corin and Nicholas,

I’d be interested in hearing more about what role you see the unions playing in future reform efforts, and about how you see the current IR system as a constraint on efficiency.

Corin
Corin
11 years ago

Matt C, I think Nick is saying that ‘it takes two to tango’ and the unions are lacking intellectual power and control of their ranks (particularly in building unions). Only Combet say could have brought the majority of unions into a dynamic tension, with a better social wage outcome for the low paid at the expense of re-igniting the power of the AIRC. Clearly Work Choices was a dog of a policy but Fair Work has some longer term problems stored up in it in my view that we’ll see once full employment hits in a few years. Hawke and Keating were served by an ACTU leadership that has more qualities than the current one. Either Labor needs to reduce union power in its ranks or the unions need to become 21st century thinkers. Someone like Dean Mighell has hardly understood the significance of the 1980s and 90s let alone that these times are 20 or 30 years ago. Whilst he was expelled, his kind are still holding significant power.

If you believe in the NAIRU my view is that alongside tariffs and NCP, the Accord followed by enterprise bargaining (then Howard’s AWAs) reduced it from 7% or more in the mid 80s to under 5% in recent times. Who knows where it is now … has it crept up a bit with abolition of Work Choices – hard to know.

Having said that the inflation numbers are pretty reasonable at the mo …

I think the other issue that needs to be more considered is employment participation, this is why I favour wage/tax/trade-offs. People have become obsessed by productivity which is fine but Australia has a participation problem as well. Policies are needed for both. Labor in my view has a vested interest in concentrating on productivity as inducing higher participation would most likely result in more downward pressure on wages at the low end.

This is why reform is hard for Labor now. Not to mention the ETS where the ‘losers’ receive a great compensation boost to income but all they can see is a higher electricity bill when they go to vote. This takes courage to push through.

These are all moot points in my view as Labor would have won the elction if it didn’t drop the ETS, so whilst a scare campaign can hurt proponents of reform it also gives you the wind in your sails. Much to say …

Corin
Corin
11 years ago

I meant ‘not’ re-igniting …

Tel
Tel
11 years ago

Given that BER was best practice it should have been a piece of cake to just document where the money went, what was built, where, how much each piece cost, which company built it… After all one of the ALP election promises was more transparency in government and all that 2.0 crap where data would be easily available on the web.

Strangely no one can seem to point out where the BER has been accounted and documented in a transparent manner. If it’s out there then give me the URL by all means.

Spending 3/4 million dollars on the auditor general to deliver a long winded description of bureaucratic process but no tangible explanation of what people actually got for their money just doesn’t convince the average punter, who is watching a current affairs reporter pointing at a little tin shed that cost more than my house and land. Giving them a website where they can type in their postcode and it gives a list of exactly what was built for how much money might be a bit more convincing. At least it would have some instinctive feel of reality about it.

MikeH
MikeH
11 years ago

In summary instead of governing like they promised they started running government like the Party does in NSW, from then on they were dead ducks!

Matt C
11 years ago

Corin and Nicholas,

Thanks for your responses. I’m a bit reluctant to respond… as Nicholas knows, I work in the union movement. I emphatically do not purport to speak on behalf of the organisation I work for, or for the movement more generally, but I’m concerned that any comments I make publicly on a subject like this could be misconstrued. I suppose this mirrors some public servants’ reluctance to embrace the Government 2.0 agenda for which Nicholas has been a prominent advocate.

I would, though, like to challenge Corin’s assertion that the Fair Work Act may substantially increase the NAIRU, with the implication being that it represents some dramatic re-regulation of the labour market. I disagree. I think there is the danger that we apply mid-1980s thinking to the public policy problems of today.

In the mid-80s, there was a reasonable case to be made for the existence of a “real wage overhang”; unions were therefore persuaded to engage in wage-tax trade-offs and allow real wages to erode to some extent in exchange for ‘social wage’ benefits. Today, the wages share of factor income is at its lowest point since December 1964, and real unit labour costs continue to fall. Days lost to industrial action remain near record lows and show no sign of increasing. Only 16.5% of employees are paid rates of pay stipulated in awards or the National Minimum Wage, a fraction of the comparable figure in the 1980s.

I do not see how the Fair Work Act represents a reversion to some demonised industrial past. There is little potential for wage rises in one sector to flow through to other sectors, the supposed fatal flaw of an earlier age of industrial regulation. The only means by which gains can flow through in that way under the FW Act are through equal remuneration orders on gender grounds (which have existed in the federal legislation since 1993, including during the Work Choices period) or the Low Paid Bargaining Stream, the scope of which is relatively narrow. In both cases there are significant legal hurdles to clear, and gains are by no means automatic or mechanical.

I would also like challenge Corin’s suggestion that unions are not concerned with increasing labour force participation. On the contrary, it is a significant concern. However, I am not convinced that allowing real wages to erode in exchange for tax tradeoffs is the best means to promote participation. Decent wages encourage labour supply. There is also credible evidence, for example by Buddlemeyer and Kalb at the Melbourne Institute, to suggest that a minimum wage increase yields a greater labour supply response among particular key groups of low paid workers or potential workers (such as single parents and partnered women) than changes to LITO or reductions in the lowest tax rate (where such changes have a roughly equivalent aggregate cost as the modelled increase in the federal minimum wage).

I have rambled a bit here, but my main point is that I disagree that the FW Act threatens productivity or employment and disagree that reducing real wages is the best way to induce labour supply.

On the broader question of the union movement’s role in progressive politics, I am interested but will remain mute.

I would like to reiterate that these comments represent my own personal views.

Butterfield, Bloomfiled & Bishop
Butterfield, Bloomfiled & Bishop
11 years ago

observa it is like this. The Hawkes report showed what happened in the four deaths.

one died from heat exposure. The other three from electrocution from a banned work practice.
We know two employers are being prosecuted and the other probably wil be.

No it is apparently the buyer not the employer who is responsible for workforce safety. By gingo don’t tell that to the 80-85,000 who bought insulation before the policy!

observa
observa
11 years ago

You’re lecturing a ‘willing buyer willing seller and let both beware’ man here BBB, but I live in a much murkier and shadowy world than that nowadays. Apparently Coles or Woollies directors have to accept liability for a 2 or 3 times removed trucking subbie bending the rules way down the distribution chain but Govt officials are always pure as driven snow and blameless. I subcontract a tradey and he falls off a roof and I won’t know how much I’m responsible for that until we get to your librul Courts. Employ the same carpenter with a White Card and that’s me 100% cooked whatever I say. These same union members and public servants will naturally want totally immunity from any liability when they get a number of quotes to get something done around their home and accept the cheapest price which will knowingly entail cutting their own official OH&S rules as employees. Then we get into a lecture about fair trade coffee and exploitation of LDC workers apparently. It’s a wonder these moralising unionist public servant types can find anything to buy nowadays when they go shopping with their cossetted and protected incomes. Somehow they seem to manage. The same people who’ll tell you all work accidents are preventable and if they’re not God help the exploiting employer, when their greatest risk at work is a paper cut or a coffee scald.

Corin
Corin
11 years ago

Matt C, I didn’t say it did substantially increase the NAIRU, what I said is it may increase it and probably by a ‘bit’ rather than say 1 or 2 per cent. Look I don’t especually care if tax credits are paid to employers (wage subsidy for low paid) or employees what I care about is that the economy can afford to employ the most people.

Corin
Corin
11 years ago

Matt C, I suspect there is a little bit of megaphone diplomacy here between us and the reality is you have distorted my view which is that employment supply must be created and employment demand in one policy otherwise the policy won’t work. Raising minimum wages may create more demand and perhaps as much as tax incentives, but a wage/tax/trade-off is a credible means of creating both at the same time. Here’s where Labor’s overt connection to the current union leadership stops them from acting in a more reforming manner. That connection is Labor’s greatest strength and greatest weakness. In my view, for Labor to dominate Federal politics it needs a union movement that works for the national interest not the interest of members. This is the unions dilemma as much as Labor’s! http://www.onlineopinion.com.au/view.asp?article=10081

BTW – I don’t for a minute think the FWA was why Labor lost. Clearly Abbott thought that the labour market is one fight he doesn’t want as leader and that is politically astute. I think politics has to be broader than work issues and Labor lost on the failure to have a broader narrative for why it needed a second and third term. That’s for another day … when I have more energy!

Matt C
11 years ago

Corin,

Apologies if I misunderstood and misrepresented your position.

We disagree on the desirability of wage/tax trade offs at the bottom end of the labour market, and I suspect that no amount of dialogue between us will budge our respective positions.

My point was that, contrary to the assertions of columnists for the Australia, the Fair Work Act does not represent a reversion to pre-Keating industrial laws.

Corin
Corin
11 years ago

Matt C, I largely agree that FWA is not a throw-back to the early-mid 80’s industrial landscape. I think your point about only 16% of workers being on awards misrepresents how much the wage case decision impacts on wage increases and underestimates how the most vulnerable workers in the economy for dismissal are working on those wages. Not to mention the role of entry-level employment.

I think Fred Argy makes a reasonable case that education is critical and I think that tax and education policies are better devices now for social democrats than labour laws: http://www.theaustralian.com.au/national-affairs/commentary/markets-bring-mobility/story-e6frgd0x-1225781310921

BTW – you sound like the sort of reasonable union leaders we need! Personally, I’m not asking for agreement, I think Nick’s ‘dynamic tension’ is a good concept. I’ll probably not agree with you on some things and you’ll not agree with me, but the capacity to ‘do a deal’ in the interests of the low paid/unemployed is what is needed. I can’t for minute beieve that Keating and Kelty didn’t have massive ‘barny’s’ over what wage restraint/social wage should end up being …

observa
observa
11 years ago

Here’s an interesting one for you Nic. A bloke who’s putting other people’s money where his mouth is-
http://www.businessspectator.com.au/bs.nsf/Article/Abandoning-a-treacherous-market-pd20100903-8WSTX?OpenDocument&src=sph&src=rot
Clearly he’s saying Keensian stimulus on credit rather than real savings is delusional in the longer term and is prepared to stand by that judgement. We’ll see if he’s correct over the next year or two presumably.

Matt C
11 years ago

Thanks Corin,
You’re right, it’s not important for everyone on the left (broadly defined) to agree, but very important that we have discussions like this one.

I’d like to point out, though, that I’m far from a union leader!

observa
observa
11 years ago