Saturday, April 30, 2011

Progressive Australia

PerCapita's Tim Soutphommasane discusses "Social inclusion" today 1pm Progressive Australia check the live stream http://bit.ly/maJkuv

Progressive Australia

PerCapita's David Hetherington participates in Progressive Australia event. He is a panel member discussing "Fairness, work and the economy" from 1pm to 2:15 today.

Progressive Australia will be held on 30 April and 1 May 2011 at the state of the art complex Sydney University Law School Building. For more details go to: http://bit.ly/lmj2nm

Public forum with Senator Penny Wong, George Megalogenis and John Freebairn, Melbourne, 3 May 2011

INVITATION

Please join us for a public forum, with guest speaker Senator the Hon. Penny Wong, Minister for Finance and Deregulation, and panel members journalist and political commentator George Megalogenis from The Australian, Professor John Freebairn from the Department of Economics at the University of Melbourne, and Per Capita's Executive Director, David Hetherington.

The Minister will be discussing the importance of the return to surplus, to ensure the Government can continue to provide a safety net for the most disadvantaged in our society. This will be followed by a lively discussion with our panel members.

When: Tuesday 3 May, 1.30pm
Where: Melbourne Town Hall, Condell Room
Cost: No charge
RSVP: Allison Orr, 0423 602 771, a.orr@percapita.org.au

Afternoon tea will be served.

Friday, April 29, 2011

The False Trade-Off of Prosperity and Fairness

Published by Progressive Australia in Economics, Fairness
by David Hetherington

At the heart of a debate around the future of work and the economy is a presumed trade-off: prosperity versus fairness. Economists like to dress this up as efficiency versus equity, and this is where the problem starts. Equity is as a troublesome caveat which serves to detract from the efficient (and elegant) solution in a zero-sum game. The first issue with this is that it implies a necessary trade-off between the two. The second is that it dehumanizes the central problem, which is why I prefer prosperity and fairness.

The evidence suggests that the trade-off between prosperity and fairness is far from clear-cut. Countries with higher incomes per person tend to be more equal. This doesn’t mean high incomes causes greater equality or vice versa, only that high incomes do not necessitate inequality. The great exception to this trend is, of course, the United States which has high incomes and high inequality. Yet even there, an interesting picture emerges. As inequality has grown in the US since 1970, average weekly earnings have fallen in real terms. Again, it’s not clear that prosperity and fairness are a necessary trade-off.

What is clear is that presenting prosperity and fairness as a trade-off makes people behave as though it is. The public debate takes the trade-off as a given and the public responds in kind. Ross Gittins writes of how participants in economic experiments behave less selfishly and more in the common interest when the experiment is titled Social Exchange Study rather than Business Transaction Study, or Community Game rather than Wall Street Game.

Over the last decade, the Australian public debate has embraced the false trade-off between prosperity and fairness, and the public mood has moved significantly in favour of prosperity over fairness. The reasons are varied, but the key point is that as a community, we are less willing to embrace solutions which deliver long-term prosperity and fairness if they involve any short-term sacrifice or cost. Deferred gratification ain’t our thing.

Companies fight tooth and nail against any proposal that remotely threatens their quarterly earnings, even where it’s clearly in the public interest – we now expect this. The orchestrated campaign against pokies reform is a case in point. What’s more curious is that they resist these proposals even where they may provide profitable opportunities down the track. The resistance of corporate Australia to a carbon price shows a lack of imagination about the opportunities presented by the transition to a low-carbon economy.

Individuals have also become less willing to sacrifice short-term prosperity in the pursuit of long-term outcomes which combine fairness and prosperity. Responses to Per Capita’s annual tax survey show that Australians want higher spending on public services and infrastructure, but believe their taxes are too high. They believe higher income earners are taxed too little, even when they are themselves high income earners who describe themselves as overtaxed.

This community sentiment has got politicians scared. The Rudd Government retreated from the CPRS in the face of focus group pressure, and Labor has been surprisingly reluctant to trumpet the success of its Keynesian response to the global financial crisis, presumably for fear of being painted as antiquated Lefties addicted to debt. While Julia Gillard’s (re-)embrace of a carbon price is welcome, progressive political leaders should do more to decouple the false link between prosperity and fairness by advancing solutions which instead reinforce a virtuous circle between the two.

The virtuous circle involves a recognition that markets provide powerful forces that can be harnessed to promote prosperity and fairness, but remain a means rather than an end. Market design has already been used successfully in areas as diverse as employment services and water management, and a well-designed carbon market is a logical next step.

The virtuous circle requires a further recognition that, contrary to the claims of classical economics, much human behaviour is predictably irrational. Policy should be developed with this insight in mind, rather than the assumption that individuals are perfectly rational, utility-maximising calculating machines. Initiatives which put pre-commitment limits on gambling losses, or provide opt-out default superannuation accounts explicitly recognize the limits of human rationality. And they demand small short-term costs, often by producers, in the pursuit of long-term social and economic gain.

The list of policy ideas that builds on these insights is long. We can capture the dividends of the mining boom by channeling super-profits tax into a sovereign wealth fund. We can increase housing supply by restricting negative gearing to new-build dwellings only. We can finance infrastructure by tapping the nation’s superannuation pool. We can stimulate R&D, not only through extra public spending, but also by promoting competition so that our large oligopolists are forced to compete on innovation as well as price.

Each of these initiatives will attract resistance from privileged incumbents threatened by change. Yet each advances fairness as well as long-term prosperity. As we’ve seen in the carbon tax debate, the battle will be fierce. Progressive leaders face no more important fight.



David Hetherington is the Executive Director of the progressive think tank Per Capita.

Wednesday, April 27, 2011

Gillard boldly reignites Australia's climate debate

by David Hetherington, 18 April 2011

By announcing a tax on CO2 emmissions, Julia Gillard's Australian Labor Party has taken on the fight of its political life

Finally, the battlelines are drawn, and the contours of the political debate in Australia in 2011 are clear. It’s not an overstatement to say that Julia Gillard’s Labor government has embarked on the fight of its political life. The outcome will determine whether Gillard ends up a one-term Prime Minister or a reformist leader in the spirit of Labor heroes Bob Hawke and Paul Keating.

The battle centres on carbon pricing. Against the wishes of business leaders, the labour movement and a majority of the electorate, the Gillard government has announced that it will place a tax on CO2 emissions from July 2012. This has lit the fuse on the most heated policy debate since the introduction of a consumption tax 12 years ago.

To understand the emotions this proposal has aroused, it’s helpful to reprise Australia’s schizophrenic relationship with emission reduction policy. Australia has vast, high quality reserves of coal which have underpinned the country’s economic development by providing cheap electricity. It is one of the world’s largest coal exporters. The flipside, of course, is that Australia is the world’s largest emitter of CO2 per head.

Given this, emission reduction policies were always going to be contested. Although a healthy minority of the public supported action on climate change, the conservative Prime Minister, John Howard, refused to sign the Kyoto Protocol and for a decade chose not to attempt emissions reduction.

Then the public mood began to shift around Howard. Australia endured its worst drought in a century, which many associated with climate change, and Al Gore’s Inconvenient Truth helped join the dots. The Labor Opposition was promising to act on emissions, and voter support was swinging behind them. In response, Howard committed to introduce an emissions trading scheme (ETS). This meant that both sides of politics went to the 2007 election on a promise to introduce an ETS.

To read the full opinion on Policy Network link here: http://bit.ly/fYaOJp

Sane minds know there's money to be made from green steel.

The Australian Financial Review Opinion Pages (p55 - 27/04/11)
by David Hetherington

(unedited)
The pitiful cries now emanating from the steel sector bring strongly to mind Jean Baptiste Colbert's famous observation that, “The art of taxation consists in so plucking the goose as to get the most feathers with the least hissing.” The hissing is now powerful enough to operate a battery of pneumatic jackhammers.

What AWU National Secretary Paul Howes, Opposition Leader Tony Abbott and BlueScope Chairman Graham Kraehe are all practicing is a form of NIMBYism - but NIMBYism on steroids. We might call these pumped-up NIMBYs “Bananas: Build Absolutely Nothing Anywhere Near Anyone.” Hitherto thought to be the preserve of the radical greens, our three musketeers have adapted it to carbon pollution schemes. If a single soul is financially worse off, we cannot have it. And the result will be economically catastrophic, because these Bananas will prevent the building of cleaner steel plants in Australia in the future.

In the meantime, in the real world, perhaps we could look at what saner folk are doing (not just saying).

The Europeans, for instance, have a consortium called ULCOS - 48 companies from 15 countries working to halve emissions from the steel sector. In our neck of the woods, a small New Zealand start-up called Lanzatech has formed a joint venture with China’s Baosteel, the second largest steel maker in the world, to build a pilot plant to capture carbon rich gases from the steel making process. After cooling and cleaning the gases, those gasses are fed to bugs that produce ethanol. Depending on the processes, the carbon-rich gases from 1 ton of steel can make up to 100 litres of ethanol, which is currently selling for more than $1 per litre.

Paul Howes, a numbers man par excellence, should immediately see that the money you can make from this ethanol far exceeds the cost of any carbon tax. 1 ton of steel emits about 1.5 tons of CO2 in manufacture, so at $20 a ton carbon tax you are $70 in front if you make ethanol from the carbon-rich gases. Call me old fashioned, but this sounds like profit to me. And that $70 doesn’t include the generous exemptions that are presently the subject of the hissing fits.

Posco, Korea's national steel maker, and the world third largest, has also signed with Lanzatech for another type of zero carbon steel making. In Posco’s case, the coking coal used in its steel making will be used to "reduce" the iron ore (essentially rust plus sand) to more or less pure iron. You can also do this with hydrogen and get very low emissions of CO2 from the process.

When coking coal gets expensive (the spot price is currently more than $300 a ton, to the joy of Queenslanders) hydrogen reduction becomes viable. The Koreans were going to use hydrogen from nuclear reactors, but post-Fukushima that may be more problematic.

Of course our three musketeers will dismiss this as pie in the sky fantasy. But there is another plentiful source of hydrogen, natural gas. Conveniently God put lots of natural gas just near where he put lots of iron ore - Western Australia.

And this is why BHP built, then closed, a hot briquetted iron (HBI) plant near Port Headland. It’s a long complex story, because there are technical challenges, but in the end BHP decided that it was easier to dig up more iron ore for $20 a ton and sell it to China for $130 a ton than make it into iron briquettes that now sell for $400 a ton.

This is a perfectly rational decision that will help BHP and its executives attain their profits and bonuses. But since the total resources of iron ore will only last 20 years if we ship it off at 1 billion tons per year we have to ask ourselves just what is in the best long-term interest of Australians (including Australian workers, Mr Howes).

Clearly the long-term international demand for iron ore is gigantic. Study after study has showed there is no end to the demand from China, India, Vietnam, Indonesia as they use steel to rehouse billions in the hundreds of giant cities springing out of the ground across Asia.

Clearly the future international requirements will be for low CO2 emission steel. This is what is known in the trade as a prediction.

Clearly Australia could supply low CO2 steel and capture the difference between the $130 it gets now for iron ore and the $800 a ton that is currently the world price of steel. And we can use our resources more slowly and extract more value from it. And employ many more workers.

Clive Palmer, for one, can certainly count. His company Austeel (part of his Mineralology group) has proposed to build an integrated iron-ore-to-slab-steel plant using natural gas in WA. This could, if configured correctly, make very green steel, for many years.

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David Hetherington is executive director of the progressive think tank Per Capita.

Thursday, April 21, 2011

The Drum Opinion (ABC Online)

Our false cost of living crisis

Adam Clancy
Australians are facing a cost of living crisis: prices are soaring and family budgets are being pushed to breaking point.
Leaders of both major parties have been repeating this schtick ad nauseum in recent weeks and they could not be more wrong.
According to the Australian Bureau of Statistics, households are now saving more than 10 per cent of their income. It must be pretty hard to save that kind of money were the cost of living truly punching the kind of hole in our wallets that the Prime Minister and Opposition Leader would have us believe. Additionally, credit cards and mortgages are being paid off faster than at any time in recent memory, while the surging Aussie dollar continues to keep imports and petrol prices lower than would otherwise be the case.
Given the cacophony surrounding the cost of living debate, it is understandable that many Australians feel they are not as well off as the numbers suggest they are. Lost amid Julia Gillard's “dignity of work” speech at The Sydney Institute last week was the way the Prime Minister positioned the ALP as the party of fiscal responsibility.
Foreshadowing the spin that will accompany the government's upcoming spending cuts, Ms Gillard said her decision to reduce expenditure in key areas such as medical research is “the best way of helping Australians manage cost of living pressures.” It was similarly instructive when Tony Abbott defended his controversial attendance at an anti-carbon tax rally last month by arguing that “middle Australia” was “understandably angry... about how this carbon tax will hit their cost of living.” Cost of living may not be the new black, but it certainly appears to have replaced rising interest rates as the bogeyman of Australian politics.
It may seem counter-intuitive, but the cost of many goods is actually decreasing. Research by CommSec economists has revealed the average wage for Victorians now buys you more milk, bread, margarine, cheese, steak, chicken and petrol than it did a year ago. Additionally, nationwide, clothing is down six per cent, major household appliances are down four per cent, and audio/visual equipment has dropped 18 per cent in the past year. Nor does this accurately take into account the tremendous quality improvements in areas such as mobile phones, computers and TVs which are now hundreds of times faster – and considerably cheaper – than their predecessors.


To read the full article, link here


Adam Clancy is a researcher at Per Capita, a progressive think tank, working on cost of living and quality of life issues.

Wednesday, April 13, 2011

Guardian Focus Podcast: The AV referendum

Presented by Michael White and produced by Phil Maynard

On 5 May, voters in Britain will be asked to choose whether they wish to retain the first past the post voting system or switch to the alternative vote method.

The referendum was agreed as part of the coalition agreement that brought the Conservatives and Liberal Democrats into government, and the parties are on opposing sides over the issue.

So how would the alternative vote system change politics? Who supports it, and why? The Guardian's political columnist Michael White tours Westminster to hear from MPs, campaigners, pollsters and experts.

... And finally, we hear from journalist Tim Soutphommasane in Melbourne. Australia is one of the few countries to use the AV system. Soutphommasane says that while results can be slow to come in on election night itself, AV does not lessen the drama.

To read the article listen to the podcast, click here.

Monday, April 4, 2011

David Hetherington to appear on Radio National, Tuesday 5/4/11 9am

Listen to David Hetherington, Executive Director of PerCapita, on Life Matters, tomorrow 5th April at 9am on Radio National.

David Hetherington to appear on ABC24 The Drum 04/04/11

Watch David Hetherington, Executive Director of PerCapita, appear tonight at 6pm on The Drum on ABC24.