Obama first year, health care and the financial markets

As we came to the end of President Obama's first year in office, I wondered how to mark his performance in my own mind. I think that I would go with the President's own assessment, a solid pass. It was never going to be possible for him to deliver on all the expectations surrounding his election to office.

I don't comment a lot on US developments because I have no special expertise beyond a reasonably deep general knowledge built up over the years. I am happy to leave commentary to Geoff Robinson or Thomas, although Thomas has been much quieter since his masterly analysis of the Presidential campaign itself.

One of the things that I did not and to a degree still do not understand was the venom aroused by the health care debate. A lot of the discussion is presented in ideological terms, yet there had to be more to it than that.

The following graphic shows the formal structure of the reforms. It all seems very reasonable, yet the devil appears to lie in the detail.

Back in July in Fortune, editor at large Shawn Tully in 5 freedoms you'd lose in health care reform set out the problems with the proposed legislation as he saw it. The central issue apart from cost lies in the way the proposed legislation changes existing relationships between doctors and patients, insurers and insured. That I can understand. It also helps explain, I think, some of Kanani's earlier posts written from the perspective of a Doctor's wife.

Now that I know this, I can put a lot of the dispute about the legislation aside. It's not just an ideological political firestorm, but one that links to substantive issues. They may be complicated issues to be sure - I am glad that Australia has a simpler system - but they are the type of issues I can understand.

Staying with the US for a moment, the announcement by President Obama of a tax on larger financial institutions to recover the costs of the financial rescue package made me blink. It was partly the populist language used, although here the President is playing to his domestic support base. To get a feel for what I mean about attitudes, have a browse of John Taplin's blog. But I also blinked because it imposed a tax that was likely to affect the global competitive position of US banks, if only at the margin.

To give full credit to the Australian Government and key officials in the Reserve Bank and Treasury, they have actually played a remarkably clever game in in a very complicated global environment. I am not talking here about the stimulus packages as such, but about the way that the support measures for Australian financial institutions not only protected them from the firestorm but actually enhanced the global competitive position of Australia's banking sector.

There were costs to be sure. One side-effect was a very large increase in the market dominance of the big banks. While this will erode with time as it has done before, customers do face reduced choice.

Now at the time that the US Administration for domestic reasons has proposed the new tax, Australia is considering taxation changes that will enhance the competitive position of the country in global financial markets.

According to Mark  Johnson, the architect of the plan to develop Australia into a regional financial hub, the export of financial services can double in the next five to seven years. At present, exports account for only 3 per cent of the sector's contribution to the economy compared with 50 per cent in Britain, 25 per cent in Singapore and 8 per cent in Canada and the US.

.. it was a reasonable ambition for financial service exports to increase their "value-add" to the economy from 3 per cent to 6 per cent, Mr Johnson told The Australian yesterday.

I have always been sceptical of plans to expand Australia's role in this way. After all, they have been around for at least twenty years without obvious effect. Australia is, by global standards, a small economy. Our global economic position has tended to shrink as other, bigger, countries have expanded. Yet it seems to me that the preconditions for an expanded international role for Australia's financial sector have slowly emerged almost willy nilly.

It's not just the country's relatively strong economic position, although there is something almost eery about the way in which current thinking and discussion about the economy proceeds independently of concerns elsewhere. It is as though the global financial crisis never occurred.

In looking at the pre-conditions for a broader Australian role, I want to mention briefly just four .

• The Australian financial system has come through the crisis largely unscathed. As one measure of this, financial institutions are once again recruiting staff.
• The Australian dollar is now one of the world's major traded currencies. This has good and bad aspects, but the currency is seen as secure in the sense that the country itself is sound.
• The Australian superannuation levy ( the proportion of salaries compulsorily deducted for superannuation) has created a large and growing volume of funds under management, now in excess of one trillion dollars. This appears to have been important in easing the liquidity strains flowing from the global financial crisis.
• Australia has sophisticated financial market sand well established infrastructure including highly skilled people.            

    Just how all this will play out in practice is unclear because of the number of variables involved. However, at the very least the pre-conditions for significant growth are there,