InSight | September edition

september edition - illustration

In this edition:

Towards a more egalitarian Australia? Making greater equality a principle for public policy

Australia's wealth is unevenly distributed. Annual incomes of over $5million exist alongside entrenched poverty and disadvantage. Should this be of concern to us?

This paper by Frank Stilwell and Kirrily Jordan lays out many of the reasons why it should - and outlines the principles and policies that could reverse the general trend to inequality in the distribution of income and wealth in this country.

Download Towards a more egalitarian Australia? Making greater equality a principle for public policy (pdf)

Reappraising Risk

The global ramifications of problems in the sub-prime mortgage market were first thrown in to stark relief by a blue-chip French-based investment bank. In a statement released on August 9 BNP Paribas tipped already febrile equity markets into a dangerous tailspin. The bank froze withdrawals from three specialist investment funds because of what it termed ‘a complete evaporation of liquidity in certain segments of the US securitisation market.'

The evaporation contributed to a financial "Armageddon", said respected commentator Jim Cramer on CNBC two days later. Unease in the United States has since mutated into full-scale global contagion. The sub-prime problems - essentially rising defaults on low documentation loans provided to those with partial or negative credit ratings - have displaced private equity as the public face of excessive leverage. In reality both are symptoms of a wider problem: securitisation.

Securitisation involves transferring non-liquid asset pools, such as mortgages or corporate loans, into more fungible or tradable products. The impact of individual default is minimised by its insertion into a larger pool of similar assets. For the initial provider of capital, securitisation has the added advantage of unblocking assets that may otherwise be required to remain on balance sheets under capital adequacy requirements. The combination of lower risk and immediate value extraction proved exceptionally alluring to United States and international investors alike.

Securitisation is now integral to many firms' business strategy and the products populate many institutional investment portfolios. Hence the global nature of the crisis now emanating from the United States. An economist from Lehman Brothers, quoted in the Financial Times caught the mood last week with a colourful metaphor. ‘We are in a minefield', he said. ‘No-one knows where the mines are planted and we are just trying to stumble through it.'

The risks posed of this kind of financial engineering are not new. In 1986 the noted political economist Susan Strange warned of the emergence of ‘casino capitalism'. By 1998, on the cusp of global financial crisis, she argued that reckless gambling had degenerated into psychosis. The glut in liquidity and rapid expansion of margin trading on complex derivatives had, she said, inculcated a pathological degeneracy. Arguably, the implications of that degeneracy are now being played out.

The problems first identified in a small component of the US mortgage market have spread much faster and more virulently than expected. All of this year's gains in the S&P 500 index in New York were wiped out in a few days' trading. Stock exchanges from Sydney to London experienced comparable declines. The re-pricing of risk has instilled fear and distrust in equal measure. Suspicion reached such dangerous levels that even the inter-bank overnight money market temporarily evaporated.

The Federal Reserve, the European Central Bank and the Reserve Bank of Australia injected over US$100 billion into the markets, with the New York Federal Reserve alone buying US$30 billion of the mortgage-backed securities that are at the centre of the maelstrom. Further negative news exacerbated the situation. In a research note accompanying the downgrade of Countrywide Financial, one of the largest and most respected mortgage lenders in the United States, Merrill Lynch committed these alarming words to print: ‘We hesitate to use the word contagion...but this market is feeling awfully similar to the fall of 1998.'

Here in Australia, RAMS Home Loans is trading at a discount of two thirds of its listing price, after disclosing difficulties in re-financing short-term debt obligations linked to US sub-prime mortgage business.

In the Cold War argot of CNBC's Jim Cramer, the escalation imperative was tipping dangerously to ‘Mutually Assured Destruction'. This forced the Federal Reserve to cut its discount rate to banks by 50%. Within hours Deutsche Bank was availing itself of the facility, seen in the past as an indicator of mismanagement. By last Monday, the problems intensified. More than 80% of the short-term financing obligations on that day could not be refinanced.

Given the global nature of the crisis, it was inevitable that the problems would spread to Europe and specifically to Ireland, which has emerged as one of the key regional centres for hedge fund and securitisation trading. Three conduit investment funds had amassed such significant losses that a EURO 17.3 billion credit line had to be put in place by the German savings bank association to stave off the collapse of Saxsen LB, the State Bank of Saxony. Coming after the near collapse of IKB last month, warnings from the German powerhouse West LB that it faces a EURO 1.2 billion exposure and confirmation from the Bank of England that it has extended a UK£314 million facility to an undisclosed recipient and it appears a truly systemic problem is emerging.

It is not, however, surprising to the central bankers or close observers of the markets. The looming conflagration over excessive leverage was signalled repeatedly earlier this year; warnings that were routinely ignored. The market's failure to inculcate the value of restraint appears to demonstrate, as Strange predicted, pathological tendencies. Diagnosis of the malaise leaves two critical questions unresolved. How could the markets get the fundamentals of risk so wrong? How could a system designed to minimise risk actually spread it?

At the operational level, a profound miscalculation of the likelihood or salience of risk factors resulted in suboptimal design. The producers, financiers and consumers of a highly leveraged variant of the American dream failed to appreciate the dynamics of integrating desire, delusion and greed with lower opportunity costs. Excess liquidity generated huge risk distortions. Arbitraging the difference between the cost of debt and rising house and commodity prices along with manufacturing profits led to abnormal returns that were enhanced exponentially by the power of leverage.

The process and its rationale percolated throughout society. From the boardrooms of Manhattan to the inner cities of the United States no barrier to lending was imposed. Just as low-documentation loans became pervasive in the sub-prime market, multi-billion dollar lines of credit were extended with little or no covenants. In part, this could be justified because the underlying debt was securitised and on-sold in the form of esoteric financial instruments known as ‘collateralised debt obligations' (CDOs). The debt repackaging was, in turn, fundamentally mis-priced by rating agencies. Despite the inherently unstable nature of its core ingredients, the reconfigured parcels were provided with implausible and unsustainable credit rankings.

Institutional actors, precluded by governance mandates from holding products with a less than investment-grade valuation, followed hedge funds into products in which the ownership of economic risk was, at best, unclear. The faith placed in these products and the ratings system now appears unwarranted. The partial internal and external collapse of the CDO market is prompting increasing margin calls that can only be met by parting with liquid assets, particularly corporate equities, thus completing a vicious circle.

The credit freeze symbolises a profound climate change in global markets. Only a matter of months ago traders and those providing corporate advisory services were speculating (and salivating at) the possibility of a US $100 billion buyout. Recent data from UBS suggests that more than US $218 billion in committed funds remain non-securitised from the top five investment banks. Major deals, such as the planned acquisition of a Texas-based utility, TXU, which was trumpeted as the world's largest ever private buyout, are unravelling with alarming speed.

Investment banks are more willing to pay break-up fees than proceed with non-economic loans for which no secondary competitive market currently exists. In the United Kingdom debt offerings for fundamentally sound corporations, such as the pharmaceutical chain Boots have been pulled amid increasingly fraught attempts to renegotiate terms. With corporate valuations slipping, reliance on much vaunted financial skills to manufacture the appearance of good performance will be treated with much greater scepticism. Engineering a winning strategy in the global financial casino has just become much more problematic.

A 2020 vision of a feed in tariff for Australia

As an Australian who relocated to California to take advantage of the sunny outlook for the solar power business over here, I watch for movement in the Australian climate debate with an eye to coming home when it finally makes sense to do so.

Sadly, the superficial rhetoric coming from both major parties makes me fear that the kinds of policies that could trigger my return, along with that of other ‘ecopreneurs', are a long way off. Howard and Rudd are both toying with climate protection policies but failing to really sink their teeth in. Instead of working out how to stop the pollution causing climate change, they are both busy working out how to trade it. A price on carbon would help but it is no silver bullet, and it will take a suite of solutions to address a problem of this scale.

With the community consistently clamouring for solar in poll after poll, any party that delivers a policy for building the renewable energy industry to supplant fossil fuel-based electricity sources should win widespread support. This policy would need to go far beyond the pathetic mandatory renewable energy target that the Howard government has overseen. Clearly it must not be an excuse for further corporate welfare to the so-called ‘clean coal' industry (a dream nearly as fantastic as nuclear power being ‘too cheap to meter') or the nuclear industry, which has hopefully suffered its final credibility blow with recent near misses in Australia and Japan. Renewable energy policy is 07's election litmus test.

solar panel photo

What should they do?

The best market-based policy to put Australia back in the race to develop a clean energy industry, especially for key technologies like wind and solar, would be a ‘Feed In Tariff', also known as a ‘renewables premium' or ‘standard offer contract'.

Where a feed in tariff is in place, electricity produced from solar, wind, minihydro or any other renewable energy technology, receives a premium price. In Germany, for example, solar PV gets four times the market rate for 20 years, guaranteed. Germany has spearheaded the uptake of solar and wind technologies with this scheme. The feed in tariff is becoming the preferred policy for increasing solar uptake, with 30+ countries using programs similar to the German model.

A premium price is obviously a huge incentive to install renewable energy technologies, but it is not a subsidy. The cost is spread around electricity users by mandating that generating companies charge all of them a little extra. In Germany it has added about 1 cent per kilowatt hour or an extra $1 - $2 per user per month. It reduces the payback on the technologies to less than 10 years and offers a Return on Investment of 8 - 9%. Moreover it creates the scale required for industries to learn how to become more efficient and less expensive, and therefore more accessible across the board. This policy has made Germany the centre of excellence in solar businesses.

The results are incredible: Germany - a geographically small, northern European nation - has more than half the world's installed solar electric systems. It gets 2.5 gigawatts of electricity from photovoltaics (PV) - a fact that contradicts Prime Minister Howard's oft-repeated lie that solar won't contribute significantly to our needs in the future. In actual fact, the 12% of Germany's electricity already coming from a variety of clean energy sources would power much of Australia. Germany has created a quarter of a million new jobs in clean tech this decade (and a capital base financing people like myself) largely through the use of a feed in tariff.

I asked an experienced economist at a solar consulting company in Sydney to explain how a feed in tariff might work in the Australian national energy market:

The regulatory agencies would establish a central renewable generator fund. The generators would charge a tariff of less than 1% of the average bill (less than in Germany), which would be collected in the fund before being dispensed to solar and other renewable energy generators at 50 cents per kilowatt-hour that they produce. This would save ratepayers and taxpayers money because it would reduce the cost of upgrading grid infrastructure (since renewables are more decentralized), and builds new generation capacity to meet peak demand (since PV produces best when demand is highest, when the suburbs switch aircon to high).

To ensure that the tariff helps build a self-sufficient industry rather than one under permanent protection, the premium paid to solar producers would be reduced over time, as in Germany. A 5% reduction per annum, for example, would track the learning curve and really make investors want to get in sooner rather than later.

Here are the sorts of benefits we could garner by 2020 with a properly run policy:

But therein lies the rub. The coal-loving leadership of both Labor and the Coalition continue to play out scripts from the 19th century steam engine economies. The one simple policy outlined above could have a very positive net economic impact on the Australian economy. It would reduce reliance on outmoded and brittle electricity grids. It would have economic benefits including jobs and technology investment nationwide. It would green our growing electricity system and diversify our supply in a low-cost way, as a hedge against the growing scarcity and cost of fossil fuels. It would give us an ‘in' to an expanding global market - the solar industry grew 70% in 2005 and is expected to be a $40 billion business by 2010. Last but not least it would significantly reduce our CO2 emissions.

A feed in tariff would cost Australians only about the price of a cup of coffee each year that it remains in place. It would ensure a new globally competitive industry in little more than a decade, after which it will no longer need the support of such a scheme. Yet it need not affect energy intensive industries if the powers-that-be want to continue to protect their pet aluminium and other producers (as in Germany, key sectors of the Australian economy can be exempted from the tariff). And it would engender energy security and price stability and lead the way into a low-carbon, climate-safe economy.

So for the market faithful on both sides of the Parliament it should be the perfect solution. But I note on Hansard that when Greens Senator Christine Milne asked a series of questions about such a policy in the Senate, it was clear the Government had no idea and the Opposition was little better informed. It seems that the world's preferred policy for supporting renewable energy has barely registered for Australia's major parties. Nonetheless I am still hoping someone introduces it before the election. I'd vote for it!

Are We Ready for a New Kind of Capitalism?

This article was adapted from the book ‘Capitalism 3.0’, by American social entrepreneur Peter Barnes.
I'm a businessman. I believe society should reward successful initiative with profit. At the same time, I know that profit-seeking activities have unhealthy side effects. They cause pollution, waste, inequality, anxiety, and confusion about the purpose of life.

I'm also a liberal, in the sense that I'm not averse to a role for government in society. Yet history has convinced me that representative government can't adequately protect the interests of ordinary citizens. Even less can it protect the interests of future generations, ecosystems, and nonhuman species. The reason is that most - though not all - of the time, government puts the interests of private corporations first. This is a systemic problem, not just a matter of electing new leaders.

If capitalism as we know it is deeply flawed, and government is no savior, where lies hope? For years the Right has been saying that government is flawed and that only privatization, deregulation, and tax cuts can save us. For just as long, the Left has been insisting that markets are flawed and that only government can save us. The trouble is that both sides are half-right and half-wrong. They're both right that markets and state are flawed, and both wrong that salvation lies in either sphere. Is there a missing set of institutions that can help us?

I think there is, and that these institutions lie in the realm of common wealth.

Our Common Wealth

Everyone knows what private wealth is, even if they don't have much of it. It's the property we inherit or accumulate individually, including fractional claims on corporations and mutual funds. In the United States, the top 5 percent of Americans owns more of this treasure than the bottom 95 percent.

But there's another trove of wealth that's not so well-known: our common wealth. Each of us is the joint recipient of a vast inheritance. This shared inheritance includes air and water, habitats and ecosystems, languages and cultures, science and technologies, social and political systems, and quite a bit more.

Common wealth is like the dark matter of the economic universe - it's everywhere, but we don't see it. Despite its invisibility, the value of this common wealth is immense. Though most of it isn't priced in markets, economists like Robert Costanza have calculated that it's worth more than all private wealth combined. In other words, most of what we cherish, we share.

It's time to notice our shared gifts. Not only that, it's time to name them, protect them, and organize them. The practical question is how.

The Evolution of Capitalism

As our economic system evolved, two parallel threads emerged: the ascent of private corporations and the decline of the commons.

In the beginning, the commons was everywhere. Humans and other animals roamed around it, hunting and gathering. Like other species, we had territories, but these were tribal, not individual.

About ten thousand years ago, human agriculture and permanent settlements arose, and with them came private property. Rulers granted ownership of land to heads of families (usually males). Often, military conquerors distributed land to their lieutenants. Titles could then be passed to heirs - typically, oldest sons got everything. In Europe, Roman law codified many of these practices. Still, many commons remained, including shared pastures, woodlands and streams.

Around the 17th century, local gentry began fencing off common lands and converting them to private holdings. Impoverished peasants then drifted to cities and became industrial workers. Landlords invested their agricultural profits in manufacturing, and modern times, economically speaking, began.

When Adam Smith wrote The Wealth of Nations in 1776, there were barely a handful of corporations in Britain or America. The dominant form of business was the partnership, in which small groups of people known to each other ran businesses they co-owned. In the public's mind, as in Smith's, the corporate form - in which managers sold stock to strangers - was inherently prone to fraud.

As the scale of enterprise grew, however, partnerships proved unable to aggregate enough capital. The great advantage of corporations was that they could raise capital from strangers. In this, they were aided by laws limiting shareholders' liability to the amounts they had invested.

By the 19th century, corporations could live forever, engage in any legal activity, merge with or acquire other corporations, and enjoy all the legal rights of real persons. By the 21st century, their power - both economic and political - stretched worldwide.

This might be well and good, were it not for three things. First, the corporation isn't a real person; it's an automaton designed to maximize profit for shareholders. It externalizes as many costs as it possibly can, not because it wants to, but because it has to. It never sleeps or slows down. And it never reaches a level of profit at which it decides, ‘This is enough. Let's stop here.'

The second difficulty is that, as noted earlier, these corporations deliver most of their profits to a small minority of the population. It's no wonder, then, that as GDP grows, so does wealth inequality.

The third difficulty is that, in spite of their prodigious capabilities, these corporations aren't making us any happier. In fact, their manic focus on selling us stuff we don't need - thneeds, as Dr. Seuss called them in The Lorax - actually distracts us from truer paths to happiness.

Sometime around 1950, capitalism entered a new phase. Until then, poverty was a widely shared American experience. Wages were low, hours were long, and unemployment was a wolf at almost every door.

After around 1950, America became what John Kenneth Galbraith called an affluent society. There's virtually no limit to what corporations can produce; their problem is finding buyers. A sizeable chunk of GDP is spent to make people want this unneeded output. And credit is lavishly extended so they can buy it.

This new phase of capitalism turned old scarcities on their head. In pre-affluent times, our chief scarcity was goods. It thus made sense to sacrifice other things in pursuit of goods, and capitalism was masterful at doing this.

Today our scarcities are different. Among the middle classes, the top scarcities, I'd say, are time, companionship, and community. Among the poor, there remains a lack of goods, but not due to a shortage of production capacity - it's due to the poor's inability to pay. The critical scarcity here, in other words, is income.

Similarly, in the early capitalist era, land, resources, and places to dump wastes were abundant; aggregated capital was the scarcest factor. That's why rules and practices developed that put capital above all else. In the 21st century this is no longer the case. As economist Joshua Farley has noted, ‘If we want more fish on our dinner plates, the scarce factor isn't fishing boats, it's fish.'

Rebuilding the Commons

The solution to capitalism's failings is to add a commons sector to balance the corporate sector. The new sector would supply proxies for unrepresented stakeholders: future generations, pollutees, and nonhuman species. It would offset the corporate sector's negative externalities with positive externalities of comparable magnitude.

If the corporate sector devours nature, the commons sector would protect it. If the corporate sector widens inequality, the commons sector would reduce it. If the corporate sector turns us into self-obsessed consumers, the commons sector would reconnect us to nature, community, and culture.

To be sure, building an economic sector is a formidable task. Fortunately, the commons sector needn't be built from scratch; it has an enormous asset base just waiting to be claimed - the commons itself, the gifts of nature and society we inherit and create together. All we need to do is organize those gifts in ways that protect them from corporate predation.

Trusteeship of Creation

Gifts of nature, such as ecosystems, habitats and non-human species, are the most threatened part of the commons today. Morally, we have a duty to preserve these irreplaceable gifts, a duty we aren't fulfilling. One way we might fulfill it is to place such gifts in trust.

Trusts are centuries-old institutions devised to hold and manage property for beneficiaries. Neither trusts nor trustees may act in their own self-interest; they're legally obligated to act solely on behalf of beneficiaries. The beneficiaries of commonly-held trusts would be future generations and all living citizens equally.

With enough such trusts, what are now unpriced externalities would become property rights under accountable management. When corporations want to pollute, they'd have to buy permits from a trust. The price of pollution would go up; corporate dumping would go down. If the trust pays dividends, income would flow to all. Non-human species would flourish; inequality would diminish. And government wouldn't be enlarged - our economic engine would do these things on its own.

Expanding Our Birthrights

Thomas Jefferson, in drafting the Declaration of Independence, called life, liberty, and the pursuit of happiness gifts from the Creator that can't be taken away - in other words, birthrights. The Constitution further guaranteed such birthrights as free speech, due process, habeas corpus, speedy public trials, and secure homes and property. Our birthrights today include the rights to non-discriminatory treatment, free public education, collective bargaining and security in old age. They can be thought of as rights necessary for the pursuit of happiness.

We're now at the point where, economically speaking, we can afford to go further. Without great difficulty, we could add three new birthrights to our economic operating system: the right of every adult to property income, the right of every child a start-up stake, and the right of all to affordable medical care. Our ability to add these birthrights isn't a matter of economics, but of attitude and politics.

Why attitude? Americans suffer from a number of confusions. We think it's ‘wrong' to give people ‘something for nothing,' despite the fact that corporations take common wealth for nothing all the time. We believe the poor are poor and the rich are rich because they deserve to be, but don't consider that millions of Americans work two or three jobs and still can't make ends meet. Plus, we think tinkering with the ‘natural' distribution of income is ‘socialism', or ‘big government', or some other manifestation of evil, despite the fact that our current distribution of income isn't ‘natural' at all, but rigged from the get-go by maldistributed property rights.

By distributing income from common trusts, we could give every American some property income without taxing or redistributing private income. By creating a Children's Opportunity Fund financed from end-of-life repayments back to society, we could make every baby a trust fund baby. And by pooling our health risks universally, as Canada does, we could protect every American from the rising cost of private health care.

A Way Forward

Earlier, I noted that corporations dominate American government most, but not all, of the time. Once or twice per century, there are brief openings during which non-corporate forces reign. I think we are approaching such an opening again.

When that opening comes, we must be ready to build a strong, self-perpetuating commons sector that can't easily be dismantled when the political wheel turns again.

Being ready then means getting busy now. We should, first of all, start noticing and talking about our common wealth. Whenever we see it, we should point to it and let the world know to whom it belongs. We should do this locally, regionally and nationally.

Second, we should demand more birthrights and property rights than we have now. Rights that belong to everyone. Rights built into our operating system. Rights that protect future generations as well as our own.

Third, we should imagine and design multiple pieces of the commons sector - that is, organized forms we want the commons to take (see ‘What's in the commons sector' below). We should build and test our models wherever possible, starting locally and working up.

What's nice about building the new commons sector is that we can do it one piece at a time. We needn't shut the economy down or delete the old operating system before installing a new one. Indeed, we're not even replacing most of the old operating system, which is fine as it is. Rather, we're adding new bits of code that allow for a gradual and safe transition.

These add-ons will curb our current system's unchecked excesses. What's also nice, however, is that not everything will change. Winners in the marketplace will still earn rewards. Government won't over-regulate our private lives or businesses. Nobody's private property will be expropriated. Markets will remain dynamic.

In short, by adding a new commons sector, we can preserve capitalism's virtues while mitigating its vices. All Americans will benefit from the health of corporations and from the health of nature and our communities.

What's In The Commons Sector

Commons institutions like these could balance private corporations.

Municipal wi-fi. Cities are starting to build high-speed wireless networks the way they once built streets. When most Americans can link their phones, computers and TVs to such networks, we'll no longer be hooked to corporate cable, telephone or media companies

Sky trusts. State, regional and federal ‘sky trusts' could reduce greenhouse gas emissions, make polluters pay, and divide much of the income among all citizens, one person, one share.

A spectrum trust. A spectrum or airwaves trust could reduce the influence of corporations on our democracy. Broadcasters would pay for their licenses, which they now receive free, with revenue going to political candidates for the purchase of TV and radio ads.

A global atmosphere trust. A global atmosphere trust would be governed by a board of trustees and a general membership consisting of all signatory nations. The trustees would decide, based on peer-reviewed scientific evidence, where to set yearly global caps on greenhouse gas emissions, and issue tradable emission permits up to that year's limit. They would make decisions by majority vote, with no vetoes.

Canberra fails to meet the work-family benchmark

Why do we still need benchmarks for work and family policy?

This question is asked in the Benchmarks for Work and Family Policies produced for the coming Federal election by a group of feminist academics, including myself. It raises the wider question of why existing policies are so weak in this area that we still need to construct tests against which to assess the parties' proposals.

Australia, as a developed country with a large surplus, is still well behind equivalent countries in its recognition that paid workers have families - and vice versa. We are one of only two OECD countries that have no national scheme for paid parental leave of any kind. We lack accessible, quality, affordable child care and do not have enough care for other family members who cannot manage alone. These deficits could explain why our workforce participation rates for mothers are well below many equivalent countries.

work&family photo

The criteria developed by the Australian Work and Family Policy Roundtable (W+FPR) for assessing policies for improving work and family interactions are not rocket science. They are simply realistic research-based proposals for a better fit between paid work and family time and tasks. Total hours worked is one element, but the criteria also include assessment of the flexibility, location, predictability and preferences which make the balancing of varied roles possible.

The W+FPR benchmarks can be found in full here. They include eleven guiding principles and nine specific policy recommendations for consideration in a Charter for Work and Family.

Assessment against these fairly basic benchmarks generates a low scorecard for either of the major parties (see table below). Neither has taken up the ideas in toto or seriously accepted the need to make ‘a strong commitment to improving the reconciliation of work and family in Australia (and) adopt a Charter for Work and Family' which gives attention to the specific issues addressed in the benchmarks.

ALP

Coalition

Recommendations 1, 2 and 3: policies to assist workers find a better fit between working hours, schedules and location and their preferences; measures that contain and compensate for long and unsocial hours of work; a better approach to part-time work

Promises to repeal the worst aspects of the current IR laws which will assist in many of the above issues. In mid July they agreed to support the right to ask for part time work, as part of a package. However, they have not stated that they will do anything about the coercive aspects of forcing mothers who are on income support into paid work - at present they can be required to take jobs that don't fit with their children's needs.

No response except to claim it's all possible under WorkChoices despite evidence from the NFAW research that this does not work, particularly for those on low incomes.

Recommendation 4: greater access to sick leave, annual leave and leave for family reasons

Says it will fix the present legislation and guarantee leave entitlement.

No responses.

 

Recommendation 5: a government funded national system of paid maternity, paternity and parental leave

Neither party makes any commitment and both voted against an in principle motion from the Greens in mid June 2007.

In mid July the ALP continued its objections to proposals in this area.

 

Recommendation 6: arrangements that ensure a relevant living wage

Will change the process for setting the minimum wage from current system to ensure fairer pay.

Happy with current arrangements.

 

Recommendation 7: fairer, more effective family tax and welfare policies

Nothing yet from either party.

Recommendation 8: a new national approach to quality, accessible, affordable early childhood education and care

Some initiatives including capital funds, co-location with public schools and funding of some preschool components and training but no comprehensive policy or overarching national approach that will deal with the complexity of issues in states, fees etc.

Fails to recognise any problems with the current system and takes no measures other than more policing of parents and centres.

Recommendation 9: Better research data and evaluation

This is always a problem - no government really likes evidence-based decision making, as it tends to interfere with political judgements.

 

The ALP is obviously ahead but from a very low base, so we wait and watch for more attention to this area of policy.

A balanced approach to the Murray-Darling Basin

Introduction

With Australia locked in an unprecedented drought, major cities facing strict water restrictions and the nation's water systems drying up, the Howard Government's $10 billion National Plan for Water Security looks like the perfect solution. Setting out ten action points, the Plan focuses on massive infrastructure investment in irrigation and irrigation technology, pipes, and water meters, and proposes an unprecedented Commonwealth take-over of water management from the states. However, critics of the plan argue that infrastructure investment and increasing regulatory red tape is not the answer to Australia's water crisis. Water policy specialists, environmental groups, irrigators and industry representatives all point out that water entitlement trading - a water market - is needed to provide a long term solution for the Murray-Darling Basin.

The Murray-Darling Basin is crucial to the long-term water future of Australia. Stretching over 3,370km and supplying 70 per cent of Australia's irrigation water,[i] water management of the Murray-Darling poses an unrivalled public policy challenge. The number of interests in the Murray-Darling Basin is enormous: state, federal, territory and local governments, irrigators and agricultural groups, urban water users, industry, environmental groups, and the tourism sector are all stakeholders. The need to consult and engage these stakeholders and involve them in taking joint action, is central to the success of any water governance plan.

Since the announcement of the Plan on 25 January it has been stymied, most significantly by the refusal of Victoria to sign onto the plan and refer water governance powers to the Commonwealth.[ii] Additionally, there has been widespread criticism of the plan in the media from irrigator groups, water policy makers, the Federal Opposition and environmental groups. This criticism largely revolves around the failure of the Plan to propose sustainable market-based solutions to water scarcity.

murray-darling basin salinity

Importance of the Murray-Darling Basin

The Murray-Darling Basin is Australia's largest river catchment, and extends from Roma in Queensland to Goolwa in South Australia, and runs through New South Wales, Victoria and the ACT.[iii] Two million Australians rely directly on the Murray-Darling Basin, and a further one million are heavily dependent on its resources.[iv] Forty per cent of Australia's gross value agricultural production is derived from the Basin, which accounts for seventy per cent of Australia's water usage.[v]

Australia is now experiencing one of the most prolonged and severe droughts in its history, which has seen the levels of the Murray River and Darling River drop to record lows.[vi] The Murray-Darling Basin, as at June 2006, was at sixty per cent of its previous minimum levels.[vii] This drought has resulted in serious water shortages for agricultural use and environmental flows, and has placed domestic use at great risk.[viii]

Until recently, most environmental use of Australia's water resources has been seen by public policy makers as ‘wasted water'.[ix] The water that runs from rivers into the oceans or evaporates in wetlands, was viewed to have much more productive uses. The need for environmental flows as a public good is now recognised: environmental flows help sustain vital ecosystems that benefit society and the economy, such as the fishing and tourism industry, and also help improve the quality of drinking water.[x]

Water management and governance in Australia

The Australian Constitution currently assigns responsibility for Australia's waterways to the states.[xi] Since 2004, the National Water Commission (NWC) has overseen Australia's waterways, after the signing by relevant states and territories of the National Water Initiative (NWI). The NWC is a statutory authority which advises the Australian governments on water policy and manages the Commonwealth's Water Fund. Water governance includes the policy areas of irrigator rights, domestic (urban/industrial usage), and environmental flows. It therefore manages multiple concerns and deals with multiple legislative frameworks: Federal, state, and municipal.

The NWI set out as its primary goal to ‘achieve a nationally compatible market, regulatory and planning based system of managing surface and groundwater resources for rural and urban use that optimises economic, social and environmental outcomes'.[xii] It sought to balance market-based governance options with vertical, bureaucratic investment in infrastructure, regulatory and engineering solutions.

By 2006 it was clear that the NWI was largely unsuccessful, with few of the Initiative's proposals implemented. Declared a failure by most irrigator stakeholders, scientists and environmentalists, the NWI's 2006 COAG report made special mention of the failure in developing water trading and markets:

Markets in permanent water entitlements (especially interstate), in derived water products, and between urban and rural areas are still in their infancy. Water entitlement holders are yet to enjoy the full and considerable benefits of secure, tradable entitlements.[xiii]

The National Plan for Water Security

The Howard Government's National Plan for Water Security is one of the largest infrastructure investments in recent Australian history, and focuses on massive irrigation infrastructure ‘modernisation', and engineering solutions to leaky pipes and boring. Amazingly, the Plan in its entirety was not taken to the Federal Cabinet before being announced.[xiv]

Almost $6 billion has been pledged to modernise the Murray-Darling Basin irrigation infrastructure both on- and off-farm, with the aim to increase water efficiency. This will focus on improving the efficiency of watering piping, improving the accuracy of water meters, and reducing evaporation in water stores (dams, rivers, etc).[xv]

At the announcement of the Plan, the Prime Minister stated that irrigators will benefit from multi-million dollar infrastructure investment, but that to do so they will need to:

meet strict new conditions. These include full compliance with the National Water Initiative, acceptance of mandated metering standards, including the metering of all bores and a new metered regime for stock and domestic use in priority catchments and acceptance of an enforceable regime on the building of new farm dams.[xvi]

This proposal reflects a massive re-regulation of irrigation and an unprecedented (in recent times) government intervention into the irrigation industry. This government intervention is in two forms.

First, it spends public money to invest in infrastructure for private use, thus creating market distortions. Under a market entitlement trading system, water users would have an incentive to invest private money into fixing inefficient irrigation and pipes.

Second, it creates ‘strict' requirements for compliance on new government regulation in water use, metering, dams, and so on. This intervention would create compliance costs for irrigators, and without adequate compensation or subsidy may drive even efficient water using irrigators out of business.

The problem of over-allocation of water entitlements to irrigators is significant, particularly in NSW. Water allocation and entitlements are managed under property rights instruments, requiring governments to purchase over-allocations. The Plan allocates $3 billion over ten years to do so, and will also provide assistance to ‘relocate non-viable or inefficient irrigators, or help them with exiting the industry'.[xvii] There is confusion as to whether Commonwealth purchasing of entitlements would be compulsory or not.[xviii]

The most contentious aspect of the Plan is its ‘new governance' arrangements. These would see the state and territory governments of the Murray-Darling Basin cede their water management powers to the Commonwealth's reconstituted Murray-Darling Basin Commission.[xix] Under the draft legislation however, the referral of powers is exceedingly broad, with the result that almost any water-related matter would be overseen by the Commonwealth.[xx] The purpose of this element of the Plan is to resolve the intergovernmental uncertainty about responsibility for management, legislation and jurisdiction of the Murray-Darling Basin. Rather than six separate jurisdictions, this proposal would have a single Commonwealth agency reporting to a single Commonwealth Minister.

Market governance: creating and expanding water markets

Water markets, particularly water entitlement trading systems, are widely seen as the most efficient way to get the best possible value - environmental and economical - from the Murray-Darling Basin.[xxi] The current water trading regime is a confused state-by-state system that lacks consistency or certainty for users and the environment.

There are four water market based systems that have been considered recently in Australia:[xxii]

The water market proposal is among the most widely supported governance system being proposed. Almost all interest groups and stakeholders support the rapid introduction of a robust water entitlement trading regime.

Water markets have distinct advantages for governance arrangements. They are flexible, allow for greater choice and create competition, incentivise innovation and efficiency and guarantee environmental flows.[xxiii] Economists suggest that the expanded water markets would spur economic growth as well as improve and protect the environment.[xxiv] The discipline created by competition among irrigators and industry for water entitlements would create incentives for inefficient water users to either to reform their practices or leave altogether.

With the government purchasing a proportion of the entitlements to ensure environmental flows, and creating incentives for irrigators and industry to include environmental flows in their own entitlement arrangements (such as covenant or option arrangements), the health of the Murray-Darling Basin can be more assured. Under this arrangement, the government would either buy entitlements to ensure environmental flows, or reduce the number of entitlements available for sale and trade to ensure that enough water is available for the environment. This would of course require a robust compliance regime to prevent over-use. The first option, although the more expensive, is the more likely, as governments would be required to respect existing titleholders. Governments cannot simply legislate away water entitlements, although they can buy them back. Compulsory buy-back of entitlements would be less likely under a free-market entitlement trading system, as inefficient water users would be able to get premium prices for their entitlements from other (more efficient) water users.

Conclusion

There are many options available for the governance of the Murray-Darling Basin. The National Plan for Water Security proposed by the Commonwealth seeks to solve the crisis facing the Murray-Darling Basin - particularly the water crisis - through regulation and infrastructure investment. A controversial policy, the Plan initially requires a wide-scale referral of the states' constitutional water management powers to the Commonwealth in exchange for investment of $10 billion over ten years.

The Commonwealth's Plan is a major investment by the Commonwealth Government, and its efforts are firmly entrenched in a particular form of governance - bureaucratic, regulatory, massive infrastructure projects - with only token efforts towards engaging with stakeholders (network), and a small proportion devoted to the buy-back of water entitlements from irrigators to ensure environmental flows.

The Murray-Darling Basin urgently needs a comprehensive and robust water entitlement trading system established. This trading system should set a firm limit on the number of entitlements available for trade, so as to ensure environmental flows. There is no need for a Commonwealth-takeover of the Murray-Darling Basin as a whole, but intergovernmental cooperation led by the Commonwealth is essential to the success of a water market, particularly in managing and regulating the market.

 

Endnotes

[i] Daniel Connell, "Wrestling with Smoke: Coming to Grips with the National Water Initiative", ANU Reporter 2007, available online: http://info.anu.edu.au/mac/Newsletters_and_Journal..., accessed 31 May, 2007.

[ii] Selina Mitchell and Sid Marris, "PM's $10bn water plan collapsing", in The Australian, 24 May, 2007, available online: http://www.theaustralian.news.com.au/story/0,20867..., accessed 31 May, 2007.

[iii] Richard Curtain, "Engaging Citizens to solve major public policy challenges", in Beyond the Policy Cycle: the policy process in Australia (Crows Nest, Allen & Unwin: 2006), p.133.

[iv] Richard Curtain, "Engaging Citizens to solve major public policy challenges", in Beyond the Policy Cycle: the policy process in Australia (Crows Nest, Allen & Unwin: 2006), p.133.

[v] Richard Curtain, "Engaging Citizens to solve major public policy challenges", in Beyond the Policy Cycle: the policy process in Australia (Crows Nest, Allen & Unwin: 2006), p.133.

[vi] National Plan for Water Security, p.3, available online: http://www.pm.gov.au/docs/national_plan_water_secu..., accessed 31 May, 2007.

[vii] Murray Darling Basin Dry Inflow Contingency Planning: Overview Report to First Ministers, Department of Environment and Water Resources, April 2007, p.8, available online: http://www.environment.gov.au/water/publications/m..., accessed 31 May, 2007.

[viii] Murray Darling Basin Dry Inflow Contingency Planning: Overview Report to First Ministers, Department of Environment and Water Resources, April 2007, p.2, available online: http://www.environment.gov.au/water/publications/m..., accessed 31 May, 2007.

[ix] J. Bennett, "Water and the Environment", in Dry Water: Policy Briefs 3, R. Grafton, J. Bennett and K. Hussey, ANU Crawford School of Economics and Government (The Australian National University, 2007), p.6.

[x] J. Bennett, "Water and the Environment", in Dry Water: Policy Briefs 3, R. Grafton, J. Bennett and K. Hussey, ANU Crawford School of Economics and Government (The Australian National University, 2007), p.6.

[xi] See the Australian Constitution, Section 100: ‘Nor abridge right to use water: The Commonwealth shall not, by any law or regulation of trade or commerce, abridge the right of a State or of the residents therein to the reasonable use of the waters of rivers for conservation or irrigation.' Any Commonwealth attempt to create a centralised national water management system must necessarily see the states cede their water management powers.

[xii] Intergovernmental Agreement on a National Water Initiative, p.10-13, available online: http://www.nwc.gov.au/nwi/docs/iga_national_water_..., accessed 31 May, 2007.

[xiii] Progress on the National Water Initiative: A Report to the Council of Australian Governments, 1 June, 2006, p.6, available online: http://www.nwc.gov.au/publications/docs/COAG_repor..., accessed on 31 May, 2007.

[xiv] "Govt defends pushing water plan past Cabinet", in ABC News Online, 13 February, available online: http://www.abc.net.au/news/newsitems/200702/s18461..., accessed 31 May, 2007.

[xv] National Plan for Water Security, p.4, available online: http://www.pm.gov.au/docs/national_plan_water_secu..., accessed 31 May, 2007.

[xvi] John Howard, Address to the National Press Club Great Hall, Parliament House, 25 January, 2007, available online: http://www.pm.gov.au/media/Speech/2007/speech2341...., accessed 31 May, 2007.

[xvii] National Plan for Water Security, p.4, available online: http://www.pm.gov.au/docs/national_plan_water_secu..., accessed 31 May, 2007.

[xviii] David Rood, Ben Doherty and Peter Ker, "Water Pressure", in The Age, 13 April, 2007, available online: http://www.theage.com.au/news/national/water-press..., accessed 31 May, 2007. See also: Jewel Topsfield, "Farmers vow to play hard ball on Murray takeover", in The Age, 4 April, 2007, available online: http://www.theage.com.au/news/national/farmers-vow..., accessed 31 May, 2007.

[xix] National Plan for Water Security, p.5, available online: http://www.pm.gov.au/docs/national_plan_water_secu..., accessed 31 May, 2007.

[xx] AAP, with Dan Harrison, "Bracks pulls plug on Murray-Darling plan", in The Age, 23 May, 2007, available online: http://www.theage.com.au/news/national/bracks-pull..., accessed 31 May, 2007.

[xxi] Blueprint for a National Water Plan, The Wentworth Group of Concerned Scientists (2003), p.12.

[xxii] Market-based water recovery, Murray Darling Basin Commission, available online: http://www.thelivingmurray.mdbc.gov.au/__data/page..., accessed 31 May, 2007.

[xxiii] Market-based water recovery, Murray Darling Basin Commission, available online: http://www.thelivingmurray.mdbc.gov.au/__data/page..., accessed 31 May, 2007.

[xxiv] Daniel Connell, "Wrestling with Smoke: Coming to Grips with the National Water Initiative", ANU Reporter 2007, available online: http://info.anu.edu.au/mac/Newsletters_and_Journal..., accessed 31 May, 2007.

Strategic directions for a national primary health care policy

Strategic directions for a national primary health care policy

Prepared by Rod Wilson, Victorian Medicare Action Group, Tony McBride, Health Issues Centre, Tim Woodruff, Doctors Reform Society

Introduction

This strategy identifies the steps required by Australian governments to create integrated and accessible primary healthcare teams at a local level. The implementation of this strategy is vital to providing a comprehensive health care system for all the people of Australia. It requires and enables governments to exercise cooperative federalism and is intended to be undertaken as a long term reform to be progressively introduced over a 5 to 10 year time frame.

illustration

Background

Most health policy analysts and lobbyists accept that improving primary health care is a priority if we are to improve the equity and efficiency of our health system. The recent paper, ‘A New Approach to Primary Health Care for Australia' by Jennifer Doggett details the many benefits of integrated and comprehensive primary care centres. We believe the model described provides an excellent basis for reform. The benefits of new infrastructure are very clear in circumstances where there is very limited infrastructure available. It is likely that new infrastructure will help to attract both staff and patients to the centres. In other circumstances however it is unnecessary, and the use of existing infrastructure as suggested by Doggett would be appropriate.

Far more important is the integration of funding and the formation of professional teams, rather than individuals working in silos. This is essential to promote integration and the equitable distribution of resources.

Principles

The following principles should underpin a primary health care system, and there is considerable evidence to show these are well supported by many Australians.

  1. Accessibility
  2. Equity
  3. Sustainability
  4. Efficiency
  5. Community engagement
  6. Cultural appropriateness
  7. Comprehensiveness
  8. Integration
  9. Universality

The development of a sound, responsive, consumer focussed primary health care system should however involve a process of citizen engagement/community consultation for the validation of these principles and to ensure that there is strong support for new models.

Current barriers

Current structures and systems for funding Australia's primary health care system are inadequate and highly fragmented and prevent the delivery of integrated, comprehensive, primary health care.

The principles barriers to effective primary health care are:

o A system-wide lack of emphasis on primary health care and prevention and a disproportionate focus on acute care and the hospital system;

o Inefficient service delivery and use of available funds due to the lack of integration of services and multiplicity of funding sources

o Inequitable access to care because funding is directed to providers[1] rather than to areas of need (e.g. rural or low-income areas);

o Inadequate information on how and where government funds are being spent and where funds are needed most;

o Lack of validated information on the kind of principles and priorities the population feels should govern our system.

Mechanisms for change

The following strategies are proposed to overcome the barriers outlined above:

1. A Needs Audit and Citizen & Consumer engagement

Find out what funds are needed, where they are required, and how the community would choose to spend them. This requires:

2. Allocate funds where they are needed. This will require pooling of existing funds to retain the quantum of available funds, but assist in a more equitable distribution to funds. This requires:

3. Regional level fundholding

4. Primary health care service provision

The purpose of the PHO would be to create integrated teams of primary healthcare workers to meet the identified needs of the catchments' population (ideally between 60,000-150,000).

5. A National Health Reform Commission

This whole process would ideally be achieved through the development of a national Health Care Reform Commission with Commonwealth and State co-operation. It could however, be introduced at an individual state level along the lines suggested by J Menadue in ‘Breaking the Commonwealth/State Impasse in Health: a coalition of the willing'. Thus, it would not require the co-operation of all states, but those who don't participate would ultimately lose out.

To realise a health system based on the principles listed, fundamental reforms to the system are required. Although this does not need to happen in a short time period, incremental change to the system will fail to adequately address the health needs of all Australians and will continue to result in gross inefficiencies and inequities throughout the country.


[1] Fee for service funding at a national level combined with co-payments inevitably result in inequitable distribution of health spending. Fee for service funding directs money to areas where providers are located, not where medical need is greatest. The facility to charge co-payments then encourages providers to go where such co-payments can be afforded i.e. areas at the higher end of the socio-economic scale, which are areas of least need.

[2] See the upcoming seminar on the use of citizen juries in health care reform, jointly hosted by the Centre for Policy Development and the Australian Health Policy Institute: http://cpd.org.au/events/citizen-juries-health-0

Crisis without collapse

This is an edited extract from ‘The Upside of Down: Catastrophe, Creativity, and the Renewal of Civilization' by Thomas Homer Dixon, who spoke at the CPD event ‘Not all Roads lead to Rome'. Download the MP3 of that event here.

The fundamental challenge humankind faces is to allow for breakdown in the natural function of our societies in a way that doesn't produce catastrophic collapse but instead leads to healthy renewal.

This idea isn't quite as radical as it first sounds. Cycles of breakdown and renewal are normal in modern capitalist economies. Companies go bankrupt, and new ones emerge in their place; established economic sectors disappear, to be replaced by industries driven by new technologies; and recessions shift capital from inefficient firms to productive ones, while helping to purge the excesses of earlier boom times. Joseph Schumpeter, one of the twentieth century's greatest economists, famously called these processes a ‘perennial gale of creative destruction' that's spurred, in part, by the relentless innovation of entrepreneurs. But elsewhere in our societies, rigidity is the rule rather than the exception. Powerful habits, beliefs, and vested interests hold sway, so things like underlying structures of wealth and power and entrenched patterns of social and consumer behavior don't really change.

And, while lots of people cite Schumpeter's memorable phrase, modern capitalist economies aren't always the paragons of adaptivity they're claimed to be. Since the 1960s, better management of the economies of rich countries has reduced short-term economic volatility. Recessions have become less severe as central banks and governments- scared of the political aftershocks of economic downturns-have learned how to maintain demand without high inflation. But this better short-term management may have just made our economies more prone to larger crises later; some economists believe it encourages a buildup of inefficient and unprofitable investment in real estate, factories, and the like. Meanwhile, in the larger global economy, financial crises, especially banking crises, have become more frequent, and they've often hurt poor countries very badly. Such crises are breakdowns of a sort, and sometimes they even lead to vital reforms-like the flowering of democracy in Indonesia that followed the East Asian financial crisis. On balance, though, they're often too severe to be helpful, and they only make people who are already desperately poor even more miserable.

So somehow we have to find the middle ground between dangerous rigidity and catastrophic collapse. In our organizations, social and political systems, and individual lives, we need to create the possibility for what computer programmers and disaster planners call ‘graceful' failure. When a system fails gracefully, damage is limited, and options for recovery are preserved. Also, the part of the system that has been damaged recovers by drawing resources and information from undamaged parts. Holling explained how a collapsed ecosystem regenerates itself by drawing support from panarchy cycles that operate both above and below-or, put differently, on larger and smaller scales-than the ecosystem itself. For instance, a forest that has burned regrows when large-scale cycles of water and nutrients help to germinate tiny seeds left behind in the soil. The recovery of San Francisco after the 1906 earthquake and fire is a good example of this process too: the disaster was limited to one geographical zone, and while people in the city worked to rebuild their individual households and businesses, relief arrived from the larger systems of American society and governments and from insurance firms as far away as London and Germany. At one point, so much gold had arrived that the city didn't have enough vault space to store it all. Breakdown is probably something that human social systems must go through to adapt successfully to changing conditions over the long term. But if we want to have any control over our direction in breakdown's aftermath, we must keep breakdown constrained. Reducing as much as we can the force of underlying tectonic stresses helps, as does making our societies more resilient. We have to do other things too, and advance planning for breakdown is undoubtedly the most important. This is the fourth action we must take if we're going to follow a positive path into the future.

We can't know exactly what breakdown will look like, and we don't know when it will happen, but we can still start figuring out now how we'll respond. In vigorous, wide-ranging, yet disciplined conversation among ourselves, we can develop scenarios of what kinds of breakdown could occur. In this conversation, we shouldn't be afraid to think ‘outside the box'-to try to imagine the unimaginable-because in a non-linear world under great pressure, we're certain to make wrong predictions if we just extrapolate from current trends. Then we need to lay down plans and organize ourselves so that we're prepared to take advantage of the opportunities that various types of breakdown might offer to build a better world. For instance, depending on the scenario, we might plan to aggressively disseminate information through the Internet, mass media, and various social networks to frame the rapidly changing situation in a humane and constructive way. Or we might plan non-violent disruption of efforts by extremists to organize themselves. Or we might organize coordinated mass civil disobedience of the kind we've seen recently in democratic popular protests in Serbia and the Ukraine. In general, we can be sure that when breakdown happens we'll be much better off if we have contingency plans ready to go.