Sunday, November 09, 2014

Sunday Snippets – death of Peter Cullen, more on the investment strike, the new security legislation and does New Zealand do things better?

This post also acts as the Monday Forum post. Feel free to go in whatever direction you like.

Nice piece in the Canberra Times by Jack Waterford on the death of Canberra lobbyist Peter Cullen. Quite took me back. Peter Cullen was a thoughtful lobbyist who relied on rational persuasion. When he started free-lancing in 1968, there were very few lobbyists outside the industry and professional associations. The proliferation of special interest groups that we see today still lay well in the future, the word stakeholder had not yet come into use. It was, I think, easier to have an influence then. Today, the sometimes rancorous clamour of competing special pleading looking for attention can crowd out rational analysis.

The Australian Reserve Bank has released its latest Statement on Monetary Policy. The Bank expects continued subdued Australian growth, even though growth in Australia’s major trading partners may be slightly above trend. The big question mark here, of course, is China. The Bank also commented:

Domestically, an important source of uncertainty continues to be the speed and timing of the anticipated recovery in non-mining business investment. While the recent data suggest that a substantial pick-up in non-mining investment is still some way off, the fundamental factors supporting investment remain in place, including low interest rates, strong population growth, gradually rising capacity utilisation and a period of weak investment over the past few years. If the appetite for businesses to take on risk improves, growth in non-mining business investment could eventually be stronger than forecast.

When I did my annual economic update twelve months ago, I expected non-mining business investment to be stronger over 2014 for many of the same reasons outlined by the Bank now. The continuing weakness in investment in this country and elsewhere led me to pose this question last Monday: Monday Forum - why is there an investment strike? There weren’t a lot of comments, for I think that everybody is struggling with this one.

At a purely micro level in regional Australia, part of the answer is simple enough. It is harder and more expensive now to establish and grow businesses, while the local capital pools that once funded business starts and allowed risks to be spread are much reduced.    

I had also expected the Australian dollar to weaken more than it has. I still expect the dollar to weaken. A lower dollar encourages greater economic activity, although it also reduces living standards in that Australians can buy less for any given income. In this context, Canberra is interesting at the moment with continuing fights over prospective pay increases that are less than the expected inflation rate, representing a cut in real wages.

This is proving something of a poisonous chalice for the Federal Government. Having lectured the private sector on the need for wage restraint, Minister Eric Abetz is finding it remarkably difficult to put his words into practice: Does it look easy now, Eric Abetz? Meantime, Senator Jacqui Lambie’s fury over the Defence Force pay increase has created a problem for both the Government and the Palmer United Party.

In purely practical terms, and this is something that I have written about before, the combination of resource cuts with the pay disputes and other structural changes is, I think, degrading the capacity of the Commonwealth Public Service to either provide ideas or to deliver Government policies.

At lunch with Clare Saturday, she wanted to know why I hadn’t written on the Australian Government’s latest anti-terror security legislation and the threat posed to Australian civil liberties. These pieces - What Brandis won't tell us about S35P, The AFP's worrying foray into politics – will give you a feel for the discussion. It’s a major issue among Clare’s group because they see it as a mechanism for controlling the freedom of the internet, one that can and will be misused.

I haven’t written on it because I am, in simple terms, quite disheartened. I also haven’t had the time or indeed the spirit required to do a detailed forensic analysis of the legislation. We have turned terrorism and the threat posed by IS into our own existential threat that far out weighs the reality. To deal with that existential threat, we create legislation that can and indeed will be used for other purposes. And we are expected to bow down and accept all this because it will in some way make us safer. I don’t accept that.

Meantime, Barrie Cassidy’s Politics in a different key is just the latest in a continuing series of pieces pointing to the differences in policy making in Australia and New Zealand. Prime Minister Abbott gives us sound bites, Prime Minister Keys wishes to engage in discussion. Prime Minister Abbott wants instant results, Prime Minister Keys accepts that change takes time. Prime Minister Abbott hectors, Prime Minister Key discusses.

These are not insignificant differences.



Scott Hastings said...

These cuts act as a direct handbrake on the economy, the more you cut, the more revenue falls, so you need to cut more... austerity doesn't work, it has never worked anywhere on earth to grow the economy and create jobs and it never will

Jim Belshaw said...

That's a pretty universal statement, Scott. I don't think that it's true. I think in New Zealand at the time of Rogernomics, for example, major changes were required.

I would argue, I think, that it's a question of balance. It also depends upon the economic situation at the time, including the degree of openness of the economy.

2 tanners said...

They may have been required, Jim, but they didn't cause growth. A more cautious, or even expansionary approach may have seen better results. Wikipedia has a good summary:

"Over 15 years, New Zealand's economy and social capital faced serious problems: the youth suicide rate grew sharply into one of the highest in the developed world; the proliferation of food banks increased dramatically; marked increases in violent and other crime were observed; the number of New Zealanders estimated to be living in poverty grew by at least 35% between 1989 and 1992; and health care was especially hard-hit, leading to a significant deterioration in health standards among working and middle-class people. In addition, many of the promised economic benefits of the experiment never materialised. Between 1985 and 1992, New Zealand's economy grew by 4.7% during the same period in which the average OECD nation grew by 28.2%. From 1984 to 1993 inflation averaged 9% per year, New Zealand's credit rating dropped twice, and foreign debt quadrupled. Between 1986 and 1993, the unemployment rate rose from 3.6% to 11%."

It's not a success story, any more than Hawke and Keating's austerity experiment led to "the recession we had to have".