Bruce Duncan. On resetting our economic compass after Covid.

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Photo Public Housing Rubik’s cube minimalism. Mathew Perkins 2016, flickr cc.

4 June 2020.

Greatly concerned about the social and economic consequences of the pandemic, significant voices are urging us to reshape public policies, and reset our compass towards a fair and sustainable economy. The Reserve Bank Governor Philip Lowe, in a speech on 21 April, urged collaborative economic reforms to develop “strong and sustainable growth, and rising living standards for all Australians”.

But, as Dr Joe Zabar deputy CEO of Catholic Social Services Australia comments, we need tax reform, but not necessarily tax cuts, industrial relations reform “but not reduced working conditions and job security under the guise of increased flexibility”. And, of course, we need policies to provide full employment.

For decades, conservative governments have brandished our national debt in elections as a fetish to justify cuts to social services, or to privatise government services like unemployment agencies and the devastated technical training and education sectors.

Faced with an economic disaster rivaling the 1930s’ Great Depression, Australia’s State and federal governments together endorsed a massive program to support millions of jobs and thousands of businesses. In May, Treasury revealed that it had overestimated the cost of the JobKeeper program by $60 billion. What should the government do with this: save it, or bolster demand in the economy?

Former head of the Departments of Prime Minister & Cabinet, Finance, and Employment & Industrial Relations, Michael Keating, argues that the government needs to increase demand with spending to keep businesses operating and workers employed. He advocates especially broadening JobKeeper to those who missed out: casuals who have been with an employer less than 12 months, temporary visa holders, many of whom have been in Australia for years waiting to become Australian citizens, and employees of universities and of some foreign businesses. Their work, spending, and taxes help maintain the economy.

Can we afford humane social & economic policies?

Sydney. John Cooke 2016.
flickr cc. 

A major reason for Australia’s poor economic performance in the past decade, in Keating’s view, is that the Australian Treasury and Reserve Bank have continually underestimated the rate of growth in wages because of faulty economic theory which ignored distribution of income between wages and profits. As a result, low wage growth has held back consumer demand and business investment. Keating’s solution lies in wage increases and increased government support by a modest increase in the minimum wage, or by government payments/tax relief, and especially by improved training and education for skilled workers.

Australia can readily finance a substantial increase in spending, according to John Edwards in Win the war but lose the peace? in Inside Story. Edwards is a Senior Fellow of the Lowy Institute for International Policy and a former member of the board of the Reserve Bank of Australia.

Much of it can and will be resolved by a couple of keystrokes and a bit of creative accounting. What is really happening at the moment is that the RBA is creating money to give to the government in exchange for bonds, not directly, but via the secondary market in bonds. The government will pay interest on the bonds, most of which the RBA will then give back to the government as part of the profit it pays to its owner, the Commonwealth. To the extent that the government’s spending is financed by this roundabout money creation by the RBA, it is free. There will be no bill to pay, ever.

But he warns that the RBA cannot buy government bonds forever, and interest rates will eventually rise, though that is not the problem now. Debt can be repaid over time with modest inflation and increased productivity.

Michael Keating also argues that Australia can readily support increasing public debt from 41% of GDP to about 50% in 2023. This need not burden future generations if the interest rate for borrowings, currently close to zero, is less than the nominal rate of growth of GDP.

What needs to change

Where our governments are failing young people is especially in addressing climate change and providing affordable housing. Many young people are postponing marriage, and home ownership has fallen from 75% in 1991 to about 60% now. Keating proposes developing multi-centre cities in major capitals and regional centres linked by rapid transport, and increased housing density and diversity around city centres.

Keating regards climate change as “the most important challenge facing our planet”, which will greatly damage the wellbeing of future generations. Carbon pricing will be essential to stop global warming rising beyond 1.5C by 2050. He endorsed the views of Ross Garnaut in his recent influential book Super-Power: Australia’s Low-Carbon Opportunity about how Australia can secure a sustainable future.

Australian manufacturing can also be revived. Emeritus Professor Roy Green, former Dean of Business at the University of Technology Sydney and Conjoint Professor at the University of Newcastle, outlined reforms needed for Australian manufacturing, and was critical of “the neoliberal orthodoxy ascendant in the central agencies, explicitly ruling out, for example, gas reservation and a sovereign wealth fund”, when proposed in 2011.

Among Green’s recommendations were to reverse the decline in spending on research and innovation, notably in engineering and information technology, and to increase expertise in workforce and management skills: “it is clear from the evidence that involving workforces in the range of decisions that affect them contributes to superior productivity performance, so why wouldn’t we encourage this practice, or even mandate it?” He called for substantial public funding “to repair the damage to the TAFE system from market contestability, and to place vocational education and training at the heart of the strategy to rebuild manufacturing capacity”.

Green concluded that we need a new growth path which “also addresses the broad issues of climate change and social inequality”.

These are key objectives in the UN Sustainable Development Goals, which are so closely aligned with Pope Francis’s 2015 document, Laudato Si’. Francis argued the moral case for reforming our global economic systems to eradicate severe poverty and inequity, and for urgent action to rescue our natural environment and so avoid the imminent “catastrophe” of global warming. Supported by every nation in the UN General Assembly in September 2015, the Sustainable Development Goals offered a roadmap for how to reach them.

Savage bushfires presage the future

Former fire chiefs have warned that Australia will see more intense fire seasons like last summer, and this will be the new ‘normal’.  Global warming is pushing us into a fiery future, with some recent climate models indicating Australia could face “warming of up to 7℃’ by 2100 if emissions continue to rise unabated”. We thought a rise of 3℃ temperature would be extremely frightening. The effects of a rise of 7℃ are unimaginable.

The ABC’s Four Corners program on 18 May, Australia’s most senior former public servants and scientists reveal their anger about climate policy failure, brought home how appalling have been climate policies of Australian federal governments for a decade. According to Martin Parkinson, former Secretary of the Department of Prime Minister & Cabinet, climate policy “is a mess”. Former Treasury Secretary Ken Henry thought the toxic politics were about personal ambition using ideological divisions to advance personal interests. “We have all failed… I look back on it now and I still feel gutted”.

Unfortunately, the omens from the Morrison government are not good. The government has dimmed hopes to put a price on carbon and seriously reduce our greenhouse gas emissions. Instead our Prime Minister favours advisers from the fossil fuel industry. Energy Minister Angus Taylor is appealing to new technology like unproven carbon capture and storage and is strongly promoting gas as the priority fuel, despite it further increasing greenhouse gases. Yet renewables are cheaper than and environmentally far preferable to gas.

No one can underestimate the challenges Australia faces in the triple interconnected crises of climate change, Covid-19, and the economy. But these also provide opportunities to rework our economy and social systems to forge an equitable and sustainable future. Much depends on governments listening to sound expert opinion, and breaking free from the excessive influence of special interests.

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