Social democratic utopianism and capitalist realism

This is an essay I wrote for a local newsletter. It’s fairly long and I thought about breaking it up across a few posts, but what the hell…

King Dork

King Dork

‘Social democracy’ means a lot of different things to different people, and its meanings have slipped around over the decades. Once upon a time it could be synonymous with socialism; nowadays it is a title claimed by the most moderate governments and some of the drippiest Third Way intellectuals of the ‘centre-left’. Further left, it still works as a rallying point for more radical energies. In the past, a definition of the social democratic project might have been something like ‘the project of reforming capitalism in the interests of the working class’. That is broad enough to cover a fair spectrum of radicalism, but still distinguishes it from liberal reform projects.

Nowadays, however, self-proclaimed social democrats are much more likely to speak for people in general, rather than a class, though perhaps with special reference to those from ‘socio-economically disadvantaged backgrounds’, women, and ethnic minorities. Environmental concerns are likely to be central, with the likes of Clive Hamilton and David McKnight arguing explicitly against a preoccupation with ‘deprivation’ or class. It is now more difficult to draw a line between social democracy and liberalism. Though spectrum of radicalism remains, today’s social democrats might be defined broadly in terms of a desire to ‘restrain the market’, though often enough they are at pains to emphasise their understanding of the efficiency of the market in its proper place.

Our illustrious prime minister channels this rhetoric, writing in his February Monthly essay of “that particular brand of free-market fundamentalism, extreme capitalism and excessive greed which became the economic orthodoxy of our time.” [p.20] “Not for the first time in history,” he goes on to say,

the international challenge for social democrats is to save capitalism from itself: to recognise the great strengths of open, competitive markets while rejecting the extreme capitalism and unrestrained greed that have perverted so much of the global financial system in recent times… The second challenge for social democrats is not to throw the baby out with the bathwater… Social democracy’s continuing philosophical claim to political legitimacy is its capacity to balance the private and the public, profit and wages, the market and the state. That philosophy once again speaks with clarity and cogency to the challenges of our time. [pp. 20-21]

Whether Rudd can speak for social democracy is a question we’ll come back to. In any case, in that essay he gives a pretty good impression of a real social democrat. He, or whatever aide pulled the thing together, knew the buttons to push. And the fact that this stuff was said publicly by the prime minister seems to many a sign the the ideological wind has changed. If Rudd is a virtuosic opportunist – and that is a prerequisite for the job – until a few months before it had been more opportune for him to describe himself again and again as an ‘economic conservative’. But the global financial crisis apparently showed that economic rationalism, or neoliberalism, or whatever you want to call it, was rubbish. To quote the learned leader again:

The time has come, off the back of the current crisis, to proclaim that the great neo-liberal experiment of the past 30 years has failed, that the emperor has no clothes. Neo-liberalism, and the free-market fundamentalism it has produced, has been revealed as little more than personal greed dressed up as an economic philosophy… Others have argued that we are seeing a more fundamental regime change: the third in postwar history, starting with the Keynesian model, from the 1940s to the ’70s; the neo-liberal ascendancy, from 1978 to 2008; followed by a new regime, which is currently being shaped… [S]eismic changes are underway, fault lines yielding to fractures which in time may yield to even deeper tectonic shifts. Neither governments nor the peoples they represent any longer have confidence in an unregulated system of extreme capitalism. [pp. 25, 29]

That the ALP was in power for much of the period of ‘neoliberal ascendancy’ is inconvenient for Rudd’s claim that “the political home of neo-liberalism in Australia is, of course, the Liberal Party itself” [p. 27]. (Hawke and Keating, he claims, were ‘economic modernisers’, not neoliberals.) But it’s not necessarily a problem for the broader argument: social democrats who kept the faith through all those years in the wilderness can explain Labor’s apostasy in terms of its own ideological slide. Labor moved with the zeitgeist; partly because it was enthusiastically taken in, like Keating, and partly out of electoral necessity, because the media was taken in. Now the zeitgeist moves back. (more…)

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Attention deficit

It’s apparently really hard for the press gallery group mind to make sense of what the government deficit means. That’s OK, it’s confusing and there are a lot of unknowns. But in the absence of a clear framework for thinking about it, it’s tended to fall into what it thinks it knows: deficits are bad, governments are always waiting for an opportunity to slip into comfortable habits of profligacy, stimulus might seem like a good idea now, but we’ll be paying for it for years, etc. Since most of the deficit is due to a collapse in revenues rather than deliberate stimulus, the line is tempered somewhat, but because the Coalition is insinuating at every opportunity that the deficit, by its very existence, somehow reflects badly on the government, a ridiculous position has to be taken seriously.

Even prior to the deficit predicted for the coming year, the move from a 1.5%-of-GDP surplus in 2007-08 to a likely 2.5%-of-GDP deficit in 2008-09 is the biggest one-year turnaround since World War II. It is indeed a big deal. But unless you think the private sector has been chomping at the bit for more action but was ‘crowded out’ by government – in which case rush your manuscript on the real story of the Great Financial Crisis to a vanity press post haste – an attempt to balance the budget with 4%-of-GDP less spending would have just meant 4% less GDP, or worse, and almost certainly left us with a deficit still, as revenues collapsed further.

Again, government debt is always and everywhere a macroeconomic issue and not something to think about as if government were a household or a firm. There are limits to deficits, but they are very fluid and less tangible than a debt collector at the door or a bankruptcy court. They are macroeconomic limits, not balance sheet limits.

What makes the issue so confusing, besides sheer unpredictability, is that it has two relatively independent sides. There’s the problem of aggregate demand, unemployment and inflation, and then there’s the distributional problem of who’s paying in real terms in the long run.

The first side involves the question of how much the government can borrow, because if it gets into difficulties there it has to cut spending, which could aggravate the downturn. The Treasury comes to market as if it were a normal borrower, though the interest rates it pays are lower than the private sector on account of the certainty of repayment. The bond market is fairly global, so the yield on government bonds depends on global conditions. The ‘limit’ to borrowing doesn’t appear as a point where the government suddenly finds it can’t sell its bonds; rather, it manifests through higher interest rates. The stock of government debt ultimately determines the supply of government bonds, though the term make-up of the bonds (i.e., how many are 3-, 5- or 10-year bonds) may vary. (However, even in the years when the Commonwealth government had pretty much completely paid off its debt and was consistently running a surplus, it continued to maintain a $50 billion supply of bonds, because of their importance as an asset to the financial sector.)

Demand for Australian government bonds depends on the demand for government bonds as a whole, and on how bond-buyers rate the Australian government bonds relative to the debt of other governments. Though the government is pretty certain of repaying its debt, movements in the Australian dollar relative to other countries change the effective return, so expectations about the future value of the currency make a difference to the present demand for Australian bonds.

So there are two things at play here: how much demand is there for government bonds, and how is Australian government debt rated relative to that of other governments? The answer to the first question is, lots but it has started to fall, and to the second, pretty well so far. Ever since the credit crunch began, investors have piled into government debt and away from private sector debt. Consequently, the price of government bonds has risen and therefore the yield has declined. Here is a chart made from Reserve Bank data showing the yields on Australian government bonds: they have fallen 2 to 3 percentage points compared to the 6 per cent average that has prevailed since the taming of inflation in the 1990s. (The spread between 10-year and 3-year bonds has also opened up, reflecting the expectation that in the long run rates will rise again.)

graphNotice, though, that there has been an uptick this year, reflecting both the huge amount of government debt around the world flooding onto the market, and to some extent the beginning of a shift in demand back to private bonds. There have been reports of ‘horrible auctions’ in the US, UK and Europe where governments have not been able to sell what they wanted at the price they wanted, but that doesn’t mean they haven’t been able to borrow, only that they have to do it at a higher interest rate. Inevitably investors will move back towards private lending and government bond yields will rise, but at present they still enjoy an historically-low cost of borrowing, and it seems highly unlikely that private borrowing will reach pre-crunch levels any time soon.

There is a continual rumble in the press about the potential for Australia’s government deficit to take us into ‘banana republic’ territory. This reflects a myopia – endemic to Australian political culture – of the same kind that sees the Whitlam government represented as to blame for the stagflation of the 1970s. In both cases, the crisis is global, and at this point in time Australia is relatively well-off. Treasury and the Reserve Bank are now projecting that the ‘worst crisis since the Great Depression’ will be milder for Australia than the recession of the early 1990s. This may be optimistic, based on projections of a quick recovery in China and elsewhere. But when it comes to financial markets, perceptions matter, and presently the market is rating Australian debt highly.

People (like Bernard Keane in Crikey) who are laughing about Rudd accepting vindication from the same ratings agencies he was so scathing about vis-a-vis their bubble ratings miss the point entirely. The ratings have power, whether they’re rational or not. It’s true that government finances are always held hostage by capital, which is prone to irrationality, and which, at its most rational, keeps a tight rein on the political possibilities. (Jeopardise the exchange rate or look like you’re going to spark inflation, and bam.) A few variables a percentage point or two the wrong way, and things would be looking very different, as they are in many parts of the world. But that’s capitalism, and that, of course, could not make it into the narrative structures of the faux-cynical Canberra press gallery or the business press.

The second side of the whole thing is distributive. Much of the fall in government revenue is a consequence of the evolution of the tax structure during the resources boom which left the finances structurally dependent on abnormally high minerals prices. It’s not just a cyclical development that will be automatically reversed by an upswing (unless commodities prices go crazy again). Exacerbated by inevitable pressures to pay down the debt, and the slowly-erupting volcano of superannuation, a good old-fashioned distributional struggle is upon us over what gets cut and/or who pays more tax. But I’ll leave that for another post.

Published in: on 15 May, 2009 at 2:00 pm  Comments (5)  

Trouble at home

In their ‘theses on the crisis’, which I posted a month ago, Panitch and Gindin present the ascension of bank nationalisation onto the political agenda as an opportunity for some revolutionary leverage: it “provides an opening for advancing broader strategies that begin to take up the need for systemic alternatives to capitalism”.

This doesn’t have much resonance in Australia, because the banks here are not in big trouble; in fact they’ve been strengthened by the collapsing fortunes of their finance company rivals. Bank nationalisation is not on the agenda.

I wonder if housing isn’t a better focal point here. Australia hasn’t seen a housing bust to the extent the US and UK have, and it doesn’t seem likely to, except in the top end of the market. The reason is that housing demand has been outstripping supply, due mainly to population growth. According to Treasury, the increase in demand for dwellings started taking off above the supply of new dwellings in 2005.

housing-demand-and-supply

New housing construction has fluctuated around a fairly constant mean since at least the early 1990s. The construction slump of the mid-1990s reflected a housing stock that had grown faster than the demand for it. But demand caught up, and for most of the next decade, supply and demand circled one another. So far, so good, the economist might say, supply and demand correcting each other and tending towards balance.

But the market adjustment story has some problems. Between 2000 and 2006, the median first-home price doubled. Why, when underlying supply and demand for dwellings were reasonably matched? The answer lies in the investment demand for houses and the easy availability of finance for it.

housing-affordability

Meanwhile the supply of new dwellings moved up and down around its long-run average. Why didn’t the rather deafening price signal motivate an equivalent expansion of supply? Presumably because the construction industry has limited capacity, and faced workforce and materials constraints on its growth.

Now, given projected population figures, a decent case can be mounted that housing demand is going to outstrip supply for the foreseeable future, which is bad news for people who don’t own houses. The real estate industry can argue that there was no bubble in Australian real estate, that investment buyers were correctly forecasting the future. But if this is true, the price mechanism has epically failed to increase the capacity of the construction industry to provide for society’s housing needs.

If Treasury’s population projections are accurate, the construction industry needs to be much bigger, in absolute terms and as a proportion of the workforce, if these needs are to be met. There are those who see that as Australia’s way out of the recession – a movement of workers out of manufacturing and mining and into construction… But that requires a (financed) boost to construction demand from somewhere, which so far exists only in government and industry prayers.

The alternative is demand-side adjustment, which is what’s taking place now. This means the burden falls predominantly on renters – a pool of renters swelled by frustrated would-be homebuyers (although house purchase affordability has increased to some extent with the fall in interest rates and the increased first-homebuyers’ grant). Renter adjustment means some combination of more crowded households and an acceptance of higher rents. Higher rents are a flexible pressure valve because rental demand is pretty inelastic since everyone has to live somewhere, so it will crowd out other items in the household budget before households exit the market (to live with relatives, in caravan parks, etc. – which, incidentally, are already trends too).

Finally, demand side adjustment could come from reduced immigration. This is the reactionary solution. While I don’t doubt that this is going to a chronic pressure point in Australia, it’s not a nice way to go. (Disclosure: author is an immigrant and renter.) It also just shunts pressure elsewhere in the system, into the pensioner quagmire, since increased immigration is Treasury’s solution to an ageing population.

It’s obvious all over the world that housing is a fragile point in post-2000s capitalism. Housing is both a human need, and a financial vehicle for savings and speculation. House prices in Australian politics are what Americans call a ‘third rail’, i.e. what governments stay clear of for fear of instant electrocution. The Labor government’s strategy on housing focuses entirely on that small subset of policies that can be portrayed as simultaneously supporting house prices and making them more affordable. Unfortunately, ‘more affordable’ means ‘cheaper’, which, you will note, is synonymous with ‘lower prices’.

For a large proportion of the populace, including much of the working class, the house is almost as important as a financial asset as it is a place to live, given the uncertainty of living standards after retirement. Therein lies a deep contradiction, which only a radical socio-political shift can resolve.

Wound healed!

I tried really hard not to be cynical about Rudd’s apology to the ‘stolen generation’ last week. Raych and I were woken up from deep sleep, after 24 hours of travel and waiting around in airports, by the sound of a large crowd outside the window. We live opposite the Redfern Community Centre, and a giant screen had been set up to televise the proceedings.

I’m with Auswatch, and the Onion. It’s shithouse for the government to promise in one news segment that from now on everything will be different, and in the next that an axe is to be taken to public spending and taxes are to be cut. But the cheering and all the emotion in the crowd that morning made me wonder if there was something I was missing about Australian politics that made this a bigger deal than I thought.

Later, at a Redfern pub, the bartender told me that they weren’t selling jugs that day because the police had been in and asked them not to, because they were worried about trouble from celebrating Aborigines. All day and into the night patrols were stepped up. Nothing happened.

Published in: on 23 February, 2008 at 4:40 pm  Comments (2)  

Razor gang vs. Treasurer

If inflation is rising because demand is outstripping supply capacity, it’s natural to think: ‘it would be a whole lot nicer to solve this with an increase in supply capacity rather than a slowing of demand’. This has been the favourite line of every government faced with inflation since World War II – with the possible exception of Fraser’s – and it was new Federal Treasurer Wayne Swan’s line yesterday too:

The combination of strengthening wage growth and continuing weak productivity growth implies nominal unit labour costs are increasing.  This provides further evidence of capacity constraints such as skilled labour shortages and infrastructure bottlenecks.  Skilled labour shortages and infrastructure bottlenecks do require urgent attention following a sustained period of economic growth… Now this is why the Rudd Government is focused fairly and squarely on expanding the productive capacity of the economy. That is our objective.  That is our number one priority and all of the material in these figures show why that is urgent.

Trouble is that tomorrow’s supply capacity grows through today’s investment, which is also part of today’s demand, which is what’s outstripping today’s supply capacity. Swan’s invocation of education to fix the “skills deficit” and public investment to fix the “infrastructure deficit” has to be set alongside his comments in the same press conference that public spending has to be trimmed to the bone.

That means running strong surpluses and as you know we’ve got surpluses of one percent or more across the forward estimates. But we have indicated, because of the inflationary pressures, that we need to add to those surpluses by making further savings and that is why we’ve talked about the razor gang process. We understand how important strict fiscal discipline is in the inflationary environment that we are in at the moment.

These two lines are contradictory. How does the government cut back spending growth while investing in skills and infrastructure? One of these lines is an empty incantation. Guess which one.

Published in: on 6 December, 2007 at 8:34 pm  Leave a Comment  

Bob Gould is back

Bob Gould’s Ozleft site has been quiet for so long I was wondering if it was ever coming back. But now Bob’s posted another of his patented election analyses. Check it out. It’s a little different from mine in that Bob stresses the value of work within the ALP. I can see why leftists in the ALP would not want abandon the field to the party’s right, and Bob’s right that it’s worth defending the position of the unions within one of the parties of government.

The left in the Greens and the left in the ALP are on the same side. But that sure doesn’t mean we refrain from attacking the ALP in government. Socialists in the party ought to welcome a serious challenge from the left as strengthening their own position within Labor. The party won’t change without external pressure. For all the constitutional power of union delegates within the party, they don’t have much to show for their efforts to get a decent industrial relations policy.

Where I most agree with Bob – and it’s a line he’s been running for ages – is the importance of engaging with real political forces rather than isolated little sects.

Published in: on 30 November, 2007 at 7:38 am  Comments (3)  

Six per cent

So many commentators treat electoral politics as somehow reflecting the mood of ‘the nation’ as if it had a collective psyche. A few years ago ‘Australia’ was relaxed and comfortable, aspirational, sick of out-of-touch inner-city elites. Now ‘Australia’ is ready for change. The Coalition lost ‘the Australian people’ by going too far with Work Choices and ignoring the mood of the nation on climate change.

What actually happened was that a net six per cent of voters switched from the Coalition to Labor since 2004. The great Australian mood swing involved just over one in twenty.

The parties’ electoral strategists don’t see politics like the above commentators. They see things much more concretely. It’s that six per cent margin that counted.

So when Rudd claims a mandate against the left of his own party, against the unions, against the public service, he’s being dishonest. Rudd surfed the centripetal force of modern electioneering to get where he is. It was chasing that six per cent that put him there.

The fun bit of Saturday was when the Coalition got hammered. The sweetest moments were Howard (probably) losing Bennelong and Mal Brough’s much-deserved wipeout. There is something in the view that the ‘mood of the country’ has shifted – but it’s a consequence of the change in government, not a cause. It’s a morale boost for everyone left of the Liberals, and it changes the media playing field, precisely because it’s the journos who believe all that crap about the ‘mood of the country’.

But the less fun bit was watching Rudd’s ALP fill the vacuum. I say ‘Rudd’s ALP’ advisedly, because it’s not really the Labor Party of many of its members. ALP eminence and long time past president Barry Jones explained himself last year that the members and volunteers tend to be well to the left of the parliamentary party, but their energy is sucked away to the benefit of a party of the Centre Right.

The worst thing about the election – from the point of view of the Labor faithful themselves, surely, once the euphoria fades – is that it validates the strategy of the nomenklatura: what the US Democrats call ‘triangulation’, what Jones calls ‘small target’, and what Kim Beazley described as ‘under the radar’. It’s the recognition – entirely realistic – that it’s the six per cent, who once voted for the Coalition but could be turned, that count. The basic idea is that “oppositions don’t win elections, governments lose them”, so the best thing for the opposition to do is, in Jones’s words:

insist that they are above or between Left and Right in the political spectrum, emphasise immediate self-interest, avoid any public commitment to ethical or ideological causes, and never show courage in tackling unpopular issues. Pragmatism is everything. [“Where are we coming from? Where are we going?” in Coming to the Party, 2006: p. 17]

It’s a strategy that rules out any departure from the status quo, no matter who is in power. (At least, no departure for political reasons: there has been plenty of change in Australian society, but little of it has depended on one party or other being in government.)  But it’s an eminently rational strategy given the environment, and it’s hardly surprising that natural selection hones parties into machines for pursuing it.

Where does that leave the left? There’s a large number of us, really, inside and out of the ALP, and certainly more than six per cent of the electorate. On many issues we are well in the majority. It’s easy to diagnose the environment that generates the strategy that locks in the status quo. But that brings us no closer to strategies of our own.

My ultra-leftist devil, who is always talking about structure, thinks working with the Greens is a fool’s game. He sees the ALP volunteers as mugs, wasting their energy to support the state. And a Green is just another kind of ALP volunteer, since the preferences flow with the same effect. As a commenter at Leftwrites put it, you can see the Greens as a pressure valve for Labor, enabling it to move to the right because those who defect maintain the Pure Soul illusion of opposition without threatening the ALP’s two-party-preferred vote.

But my social democratic angel, who is always talking about agency, is more optimistic. The Greens are not the only way to change the political environment. But they could be part of it, if they redouble efforts to join with the traditional Labor base in the unions and public service.

In the coming months the ALP is not going to sustain the left’s euphoria. Rudd means what he says about taking on the unions and the left. He stated outright before the election that fighting inflation was going to be the government’s first priority. Yesterday he promised an elevation in the importance of Treasury advice. He has been throwing around the term ‘razor gang’, and not as a bugbear.

The Greens directly attacked Labor on industrial relations and public services during the election, and some tried to make it the centre of the Green message. I think there’s potential for the Greens to start seriously threatening the ALP base in the urban centres if it’s prepared to follow this up. Go for the most politically conscious section of the union movement. Ask loudly why Labor won’t overturn the most egregiously offensive elements of Work Choices (the ABCC building industry police force) or the most industrially important (the ban on pattern bargaining). And why is it talking ‘razor gang’?

The Greens seem worth getting involved with if they’re serious about this, because they’re the only force presently putting any fear into the ALP leadership. The fall in the ALP primary vote genuinely does worry them. They needed Greens preferences to win in more than 20 electorates this time around. As Lindsay Tanner – soon to be Finance Minister – put it in Jones’s book:

The end result has been a downward shift in the Labor primary vote, from the high forties to the high thirties. As Labor has become more entangled in the contradictions between its major support bases, more of its tertiary-educated supporters have shifted their allegiance to the Greens.

While this loss of support to the Greens only threatens a handful of Labor seats, including mine, and it is reasonable to assume that any Green MPs would probably vote for a Labor government, the threat is very serious. The Australian electoral system rewards parties that poll more than one-third of the primary vote, and punishes those that fall below it. We cannot afford for our primary vote to fall much further, and we cannot afford any more hollowing out of our activist and membership base. [“Let’s Start the Attacks”, in Jones, 2006: pp. 209-10]

If the Greens want to really hit the ALP leadership, they should go for its union base. The Green Party is hardly now seen as a working class party, but if it keeps making the effort, there is a chance it could be.

Published in: on 27 November, 2007 at 10:51 am  Comments (3)  

Stasis

Look, I’ll be handing out how-to-votes tomorrow and as the results come in I’ll be drinking beers and laughing if things go as the polls say they might. If Howard loses his seat it will make my year.

But today the ultra-leftist devil hovering over my shoulder is cackling away and the social democratic angel above my right is maintaining an embarrassed silence. First, there’s the editorial in the Australian reassuring its faithful that “A contest between worthy opponents ensures that whoever wins, Australia will be in good hands.”

Then there’s Rudd as Cartman: “Recognahz mah mandate!”

In an interview with the Herald, Mr Rudd promised to make fighting inflation central to a Labor government’s economic policy, describing rising prices as a cancer for ordinary families and the economy as a whole.

He said Labor would require all federal public sector wage deals with unions to match pay rises to productivity, and he would expect state governments to adopt the same approach.

As the latest opinion polls put Labor in a strong election-winning position, Mr Rudd took a combative tone on questions about how he would deal with pressure from Labor’s Left or the unions to change direction if the party won government. He indicated he would not hesitate to discipline dissenters.

“If I am elected I will govern in the national interest and not in any sectional interest,” he said.

“If that means we are going to have significant disagreements with individual trade unions in the future I couldn’t care less. That’s what will happen.

“In the last six months or so we have had periodic disagreements which resulted in the expulsion of a number of people from the party. If that were needed in the future I would do the same.”

The angel can’t even bring himself to quote Peter Hartcher in the Herald this morning, whose argument that “it would be a mistake to think tomorrow’s poll presents a choice between Tweedledee and Tweedledum” is so signally unconvincing that some wag of a subeditor dared headline it with the 1980s Pepsi slogan – ‘Taste the difference’. Hartcher doesn’t even seem to believe himself, despite the ritual incantation:

Certainly, there is a great deal of convergence. This is a natural condition in a successful, stable developed country. And Australia, proportionally, is one of the most middle-class countries, so it’s no surprise that both major political parties should compete for the middle ground.

Kevin Rudd’s greatest compliment to John Howard is that he is seeking to continue perhaps 90 per cent of Howard Government policies….

So what are the real differences? It is untrue that the parties are barely distinguishable.

Rudd is offering Australians a low-risk alternative government that essentially offers the status quo minus the least palatable bits – Work Choices, the war in Iraq and the person of Howard himself.

But Rudd Labor is offering some policy extras. These are an “education revolution”, the promise of an action plan for dealing with global warming, a plan for a federal takeover of public hospitals, proposals for new tax rebates for education, and a national broadband plan.

The Coalition has responded to each of these – “me too” – with a policy variation of its own. None is a carbon copy, yet they seek to fill the same policy space….

They do converge on a great deal – in the words of the online satirist Hugh Atkin, Rudd proceeds according to the “clever principle of similar difference”.

But in the areas of difference, in the space between the parties’ offerings, there is enough to define two distinct Australias of the future.

Anyway, tomorrow’s my first federal election in Australia. I hear they put on a good show. I had never heard the term ‘psephology’ until I got here, and no-one does electioneering like Australians: half the effort happens on election day itself as party volunteers campaign along the polling queues. They have raised it to a science, the bookies calculate the odds, and this adorable geek called Anthony Green gets on the ABC to talk about the marginals, uniform swings, indicative preference counts, and so on. I’ve been invited to no fewer than ten election night parties. Should be quite a spectacle.

Published in: on 23 November, 2007 at 11:13 am  Comments (3)  

The welfare-industrial complex

 

The most interesting thing about Therese Rein’s divestment of the Australian side of her business is not that it says anything about ‘modern marriages’. (A woman having to sell her hundred-million-dollar business to prevent the appearance of a conflict of interest should her husband become Prime Minister? A quintessentially modern dilemma any couple can relate to!)

It’s the nature of the business and how much it’s worth. Ingeus describes itself as a “workplace participation provider“. Much of its Australian business revolves around WorkDirections, which is a ‘job broker’, farming beneficiaries to companies looking to hire.

The business obviously depends rather heavily on government welfare policy. In the last couple of years, with tightening pressure on beneficiaries to look for work, business has boomed. Between 2005 and 2006, profits increased by a factor of eight – from $1.1 million to $8.8 million, on the back of a 38 per cent revenue rise. [David Crowe, “Sacrifice won’t go unnoticed”, Australian Financial Review, 26/5/07]

Now that Rein has to sell, the question arises as to how much the business is actually worth. It’s a tricky question. Because of the nature of the business, its earning assets are mainly intangible – how do you value the earning potential of tough welfare-to-work policies? By the simplest measure, based on a formula used for other personnel firms, you multiply earnings by ten – so around $90 million. [Crowe, again] But because company valuations are based on expectations of future profitability, and in this case profitability depends on a new Labor government not fiddling around with the Job Network too much… well, you can see the problem.

This kind of company, which exists in a netherworld between the state and the private sector, is increasingly common. Take ABC Learning. [On Friday I heard Sue Newberry present a work-in-progress paper on ABC, written with Sandra van der Laan and Deborah Brennan, at the inaugural workshop of the Australian Working Group on Financialization. All the following info comes from that presentation.]

ABC is the most successful of the child-care companies that have listed on the Australian Stock Exchange since the restructuring and extension of federal childcare funding in 2000. It owns more than a quarter of all day care centres in Australia, and has expanded into the United States, New Zealand, Hong Kong and the Philippines. In 2006 it made a profit of $81 million, off revenue of $600 million. CEO ‘Fast’ Eddy Groves [pictured above] became Australia’s richest person under 40 in 2006.

The really interesting stuff is in the valuation of its assets. ABC doesn’t own the physical property of most of its childcare centres, instead leasing them off a related property trust. ABC itself values its total assets at $2.3 billion. Only $600 million of that is in physical assets. The rest, $1.7 billion, is in intangibles, mostly put down to its centres’ childcare licences. Now, childcare licenses are not exactly assets that can be bought and sold on their own, and they aren’t that expensive to obtain. Effectively, that $1.7 billion is a valuation of the profitability of ABC’s position in the market, of the fact that it will continue to reap a large proportion of the government’s childcare subsidies. Presently government subsidies total more than $1.8 billion per year.

Published in: on 10 June, 2007 at 4:37 pm  Comments (3)  

State versus strikers

As if to emphasise that anti-strike laws didn’t arrive with WorkChoices and won’t leave with it either, on Monday the Federal Court fined the Construction Forestry Mining and Energy Union (CFMEU) and a building contractor for asking for and giving strike pay.

The incident in question happened in August 2003, under the pre-WorkChoices Workplace Relations Act. A building worker died in Shepparton, and in line with union policy, workers at another site in Melbourne stopped working until a safety audit was conducted on their own site. They returned to work the next day. Their contractor employer, B&P Caelli Constructions, paid them for the day off, which was a breach of the Act.

Along comes the Australian Building and Construction Commission (ABCC), which was set up by the Federal government in 2005 as an extra police force for the the building industry. It’s not clear how the Commission heard about the two-year-old case, but since its main raison d’etre is to police labour organisation in construction, it’s pretty clear why it would prosecute both parties.

Last September the Commission lost, and judge Tony North attacked the provision in the law prohibiting pay during a safety audit stoppage. [Masanauskus, Australian Financial Review, 12 September, 2006] But on Monday the Commission won its appeal. According to the union, about $500,000 was spent on prosecuting a total of $11,000 in fines.

Like I said the other day, eventually strikes are going to run seriously up against these laws, which are tighter under WorkChoices, and the ALP doesn’t look like changing them. The right to strike is not on the agenda, and though Labor is promising to replace the nasty ABCC with a specialist branch of its proposed workplace regulator, a day after this fine was imposed Gillard was promising that a Labor government would continue to take a “zero tolerance policy” in the construction industry.

 [Rachel Nickless, “Court gets tough on strike pay”, and Mark Skulley, “ALP: we’ll tighten the reins”, Australian Financial Review, 16 May, 2007]

Published in: on 17 May, 2007 at 10:25 am  Leave a Comment