Saturday, December 12, 2009

Ken Henry's call to arms

What you do with your degree is up to you.

But you'll have to live with it.

Here's his ANU conferring of degrees speech delivered Friday:


It is a great pleasure to have this opportunity to address such an outstanding group of Australians. All are high achievers. And today is, more than anything else, an occasion for all of us to celebrate their fine achievements.

Yet, even as we celebrate past achievement, we know that for all of our gifted graduates there exists an enormous potential for future achievement.

All of today's graduates have choice. Because of their skills and the capabilities they possess, both of which have been enhanced considerably by their education at this outstanding university, they have the opportunity to choose a future. This is not an opportunity available to more than a small proportion of the world's population.

People who have that opportunity – people who are endowed with the freedom to choose a life they have reason to value – have much to celebrate. But with that freedom there also comes responsibility. And it is responsibility that I want to talk to you about today.

30 years ago I completed an honours degree in economics at another fine Australian university.

The cohort of students who graduated in the last class of the 1970s also had much to celebrate. They too graduated with a set of capabilities that endowed them with the freedom to choose a future.

And yet, earlier this year when I was invited back to that other university to address another impressive group of graduates, I had to confess that when I reflected back on the students of the 1970s, and on what they had chosen to do with their lives, there was something that bugged me.

The students of the 1970s were idealists....
They grew up in the fog of the Cold War, and faced the real risk of having to go off to fight in the Vietnam War. Then, in 1972, Gough Whitlam became Prime Minister. Access to a university education expanded enormously and Australia's involvement in the Vietnam War was brought to an end. In the 1970s, as in other periods, student idealism found expression in music and fashion. And it found expression also in a level of interest – unprecedented in Australia – in environmental concerns. Some of those concerns were motivated by the nuclear cold war horror that that generation had grown up with. But environmental consciousness was actually very broadly based.

The students of the 1970s were also deeply concerned about poverty and other forms of extreme social disadvantage. And they understood, perhaps better than any other generation, the importance of social infrastructure – infrastructure to support education and health care services, for example.

And yet, if we are to judge by outcomes, we would have to conclude that most of my generation left these concerns behind the day they graduated.

How else might one explain our failures? How do we explain the failure to deal with the extreme disadvantage still evident in many of our indigenous communities? How do we explain the failure to invest sufficiently in the nation's roads, hospitals and educational facilities? How do we explain the failure to deal rationally with the allocation of water on this driest inhabited continent on earth? How do we explain the failure to prevent the continuing destruction of habitat, vital to the survival of many of our endangered species of native flora and fauna? And how do we explain the failure in dithering for decades about an appropriate response to climate change? How to explain these failures?

If we wanted to be charitable, we might conclude that my generation simply took it for granted that governments could be relied upon to deal effectively with social and environmental matters. But in being that charitable, we would have to conclude that they had made a very serious mistake.

Governments take an interest in the things that matter to those who take an interest in them. Thus, unless the electorate is highly focussed on indigenous disadvantage, inadequacies in social infrastructure provision, the crisis in water, the destruction of native animal habitat and species extinction, there should be no expectation that governments will take an interest in any of these things.

Instead, policy decisions will benefit those with voice – even if their voice represents a peculiar minority interest.

Those who approach governments with a loud voice are usually seeking a concession. Governments grant such concessions on behalf of the community in general. What, then, about the community interest in sustainability? Who takes responsibility for sustainability?

Australian governments, for many years, have licensed irrigators to extract water from the Murray-Darling Basin at rates considered sustainable. Today, Australian governments set quotas at levels they consider to be consistent with the sustainable 'commercial harvesting' of kangaroos. If we're lucky, it will be many decades before we know whether these judgements are well based. If they are, this will turn out to be the first instance in human history of the sustainable plunder of a natural resource.

I know a bit about plunder. Most Australians of my age do. They grew up with it.

For all but a few years of his working life, my father was a timber worker – cutting railway sleepers and felling logs, principally out of the state forests of New South Wales. Saw mill owners for whom he cut logs had to pay royalties to the NSW government for what was taken out of the forest. One afternoon, as we were admiring an immense log that my father had taken out of the Lansdowne State Forest – a log large enough to provide the framing for three average-sized houses, cut from a tree that was probably several hundred years old – I asked about those royalty payments. Dad told me that the royalties payable on that one tree were a few dollars. He went on to say that he had cut down hundreds of trees of a similar size and age, but had had to leave them lying in the bush. He explained that old hardwoods typically have hollow cores – 'pipes' he called them – and the saw mill didn't consider it 'economic' to pay the transport costs that would be required to bring in a log with less than one foot of solid timber around the hollow core. That was one of the impressive things about the log we were looking at that afternoon: it had a very small 'pipe'. The problem was that you couldn't tell how hollow a tree was until you cut it down. That didn't trouble the saw mill, because it paid royalties only on what it took out of the forest. The Forestry Department – that is, the people of NSW – didn't get a cent for what was left behind on the forest floor. This, then, was government sanctioned plunder. Hundreds of trees, hundreds of years old, torn down and left to rot where they fell.

Years after that childhood lesson in the way governments operate, I learned that one of the conditions of dad's father retaining possession of his 640 acre 'soldier settler' block of rainforest timber running up the side of the Comboyne Mountain was that he 'clear' a certain number of acres each year. Over the years that I visited the old fellow's place I got to see how the trees were replaced by bracken fern and lantana and I saw how the soil washed into the creeks and gullies, replacing the native fish that had long since been plundered to extinction anyway.

Earlier generations, on both sides of my family, were 'cedar getters'. When, as a child, I asked my parents what a 'cedar getter' was, what I heard them say was something like: "well that's why we don't have any red cedar trees anymore".

My ancestors plundered the red cedar. They plundered our native hardwoods. And they plundered our native fish stocks. Other people's ancestors plundered our birds, our rock wallabies, our cycads, our fragile soils and our fresh water resources; and they plundered our natural temperate grasslands – of which less than 2 per cent now survives, and even in that alarmingly degraded state manages to provide a home to at least 14 endangered or vulnerable species of flora and fauna. Collectively, our ancestors kidded themselves that these resources, and many others, were so plentiful that no rationing was necessary – the rate of extraction would never exceed the rate of reproduction, or renewal. Our common-pool resources were thought inexhaustible. We now know how wrong they were.

The sustainability of the human exploitation of naturally occurring resources for their wood and meat products is an important topic. But it is not the subject that motivates those who take an interest in environmental sustainability. People interested in that topic are more worried about the trees than the wood; and they are more worried about the fish, the birds and the native mammals than they are the meat on their bones.

These people have a lot to be worried about, because the general body of evidence on this matter points to a rather disturbing conclusion: sustainability arguments in this more important domain – of trees, fish, birds and mammals – have influence only when it is too late.

There are well understood reasons for this, having to do with so-called 'free-rider' problems and something that behavioural psychologists, and behavioural economists, refer to as 'neglect of scope '. I don't have the time today to take you through that reasoning. Suffice to say that these things explain why our native species have to be extremely severely depleted – more or less on death row – before their vulnerability stands a chance of grabbing the attention of governments.

They explain why we humans have, in a little more than two centuries of industrial settlement, plundered to extinction some 115 species of native flora and fauna, including 23 birds, 4 frogs, 4 reptiles and 27 mammals; and why there are another 1,700 Australian species presently considered by the Australian government to be threatened by human activity .

This is a timely moment in Australia's economic history to reflect on sustainability issues; timely because, while the challenges of the past have been very substantial, in many respects they pale in comparison with the challenges that lie ahead.

I am referring to the immense challenges – economic, social and environmental – posed by a rapidly ageing, but also rapidly growing, human population on this large but fragile continent of ours; noting that over the next 40 years the Australian population will grow to be about 35 million; nearly 8 million Australians will be aged 65 or more; nearly 2 million will be older than 85 years.

I am referring also to the challenges posed by climate change – the challenges of adapting to a warmer, more volatile climate and of adjusting to climate change mitigation strategies.

And I am referring to the challenges posed by the changing shape of the global economy; with China and India, in particular, emerging as global super-powers.

The prospect of a much larger and older population raises some confronting questions about where Australians of the future will live and the large-scale economic and social infrastructure investments that will be required to sustain economic and social activity. A larger population also sharpens some old questions relating to environmental sustainability.

Climate change adaptation and the response to mitigation strategies will also have profound implications for the pattern of human settlement on this continent.

Taken together, these forces could produce the largest structural adjustment in our economic history.

And the emergence of China and India, especially because of its implications for global commodities demand, has conferred on Australia a large boost to its real wealth; but, at the same time, has set up a set of structural adjustments that will challenge policy makers for decades.

Challenges of these dimensions confront countries all over the world today. In all countries there are immense challenges that will test the limits of sustainability; economic, social and environmental.

Of course, they also offer unprecedented opportunity. This really could be a golden age for much of the world's population.

But here's the thing: the way this plays out is up to you. It is not something you should be leaving to governments. The question for you is whether you want to be able to say to your children, and their children, that you did everything you could to ensure that their generation would also enjoy the freedom to choose lives they would have reason to value.

Here's Henry on a related topic - the start of education, in 2006.

His conclusion:

A few weeks ago I was invited to visit my old high school on the mid north coast of NSW where I spent six years in the early 1970s, completing Year 12 in 1975. In the three decades since I hadn’t been back. The school has changed enormously, of course. Today’s student population of 850 is about 15 per cent smaller than in my day. And it has changed in other, quite profound, ways. The indigenous student population in my day was about three-tenths of one per cent. Today, it numbers 17 per cent. One happy consequence is that the graffiti that adorned the walls of the four brick buildings in my student years has been replaced by spectacular murals of stunning indigenous artwork. The couple of dozen demountable class rooms of my day – freezing in winter and roasting in summer – have been replaced by an additional five modern air conditioned brick buildings, networked with state-of-the-art IT infrastructure. At the centre of the school, cleverly located to achieve effortless integration with the general body of students, is an impressive purpose-built facility for students with special needs. The students I spoke to were bright, energetic and happy. The teachers appeared enthusiastic and dedicated to their students. Teachers and students alike were obviously very proud of their school. I was impressed.

And yet, I came away from the school with a sense of unease. Other things had changed at the school as well. And some of these changes were not so impressive. Given the substantial increase in year 12 retention rates over the past 30 years, I probably shouldn’t have been surprised to learn that, today, less than half the students in years 11 and 12 study mathematics. Even so, I was disappointed. I was surprised to learn that in many years it is impossible to put even one physics class together. And I was shocked to learn that the school no longer offers economics; not at all. At my old school, economics is dead. Maths, physics and economics are simply too hard. One of the teachers – who had turned his back on the study of medicine at Sydney University to devote his life to the teaching of economics – told me that these outcomes really shouldn’t surprise anybody. The set of incentives confronting teachers and students should not be expected to produce anything else. Today, many students are happy studying what this teacher and I, as students ourselves, would have regarded as soft options. Anyway, the soft options pay better. And teachers don’t get rewarded for having students achieving ordinary grades in tough subjects.

There is a temptation to think that we can indulge ourselves in consuming the fruits of this economic boom; that this lucky country of ours can afford the luxury of the soft option.

But in that temptation lurks an intergenerational tragedy: if we succumb to the temptation we will avoid its costs, but we will impose an unnecessary burden on our children and grandchildren – indeed, on all future generations of Australians. Is that to be the legacy of this period of prosperity?

Australia’s recent economic success is not the consequence of soft options. That path leads back to the economic outcomes of the 1970s. Like the study of maths, physics and economics, policy discipline is hard. But it is not too hard. Like those subjects, it is precisely as hard as it needs to be.

Related Posts

. Ken Henry's guiding principles

. Tuesday Column: It's the Treasury, but not as we know it

. The impressive Doctor Henry


carbonsink said...

So Ken Henry knows about plunder? He's worried that we only teach "soft options"? Well hello Ken, isn't this the inevitable consequence for a nation that plunders its natural resources for huge financial rewards, while failing to invest in a sustainable future? We haven't had a recession for almost 20 years, and we prosper by selling dirt to the growing economies of Asia. No wonder we've become the lazy, lard-arse, luddites of the South Pacific!

Off Topic: I just love this put down of Minchin's view that the earth has been cooling since 1998:

''That's just complete nonsense,'' says Professor Dave Griggs, of Monash University, one of 13 leaders on the subject who formed Climate Scientists Australia this year because they were so alarmed by the success of the sceptical backlash.

''The reason they say the world has cooled since 1998 is it was a particularly warm year because we had an El Nino. But that's like saying petrol prices were higher on Wednesday than on Sunday, so we haven't had fuel increases over the last 10 years. If you chose 1997 or 1999 instead of 1998, the conclusion is the exact opposite. It's childish - children's science. If you had a sixth-grader saying that you'd be ashamed.''

Adam S said...

Carbonsink, higher education and tourism are two of our biggest export industries, neither of which involve digging things out of the ground.

I would need to go looking for it, but the AFR printed a handy chart with our major export industries listed and their proportional representation. Coal was number one, of course and iron ore was second, but education was third, above any other mineral export. The education industry scarcely even existed 20 years ago. Go back a few generations and the common complaint was that we used to rely too heavily on farming for our national exports. Our economy has evolved and will continue to do so. I would expect that with our coal industry is going to be greatly diminished a decade or so from now. Countries still need iron ore to build things though, including machinery that provides renewable energy.

The fact is that many of these export industries require substantial amounts of technical expertise. We develop a lot of that talent right here in this country.

As far as the luddite tag goes, we have one of the highest enrolment rates in higher education in the world:

Does that not tell you that people value education in this country?

With respect to lazy, Australians work higher numbers of hours than nearly everyone in the developed world.

I won't disagree that we need to invest more in sustainability in Australia. The need for reform of land use, water management, salinity etc is great.

But why shouldn't we use our natural resources to our advantage? We have huge amounts of them, other people want them and we don't have anywhere near the population size or density to be a major manufacturing player on the world stage. Mining minerals is not illegal and the growing economies of Asia would get the product from elsewhere were it not for us. So a mixture of primary and services based industries would appear to be a pretty good fit for nation like Australia.

carbonsink said...

Both tourism and education are getting smashed by the strong dollar ATM. The US, Europe and Japan are still in recession. China has its currency pegged to the US dollar. Who are you going to export to? Unless you're digging up rocks, exporting is nothing but pain at the moment.

Yes we are luddites. Rather than look at the level of tertiary eduction, look at the number of engineers, scientists and mathematicians we produce. Australians may be very good at importing and using technology, but we're useless at creating it. We don't have to. We sell them rocks, they sell us iPhones.

A mixture of resources for export, and services for the domestic economy, is about all we can expect in Australia. We have no need to innovate or compete. As you point out we have resources galore that can be extracted at lower cost that just about anywhere. We can, and will, just sit on our fat lazy arses, and get lazier, and lazier and lazier.

Eventually the day of reckoning must come, but while the China-will-grow-at-10%-forever view is dominant, no-one is the slightest bit concerned.

Adam S said...

Carbonsink, we sell education to the very same people we sell base metals to: countries in South and East Asia. Tourism has suffered due to the dollar, yes, but that is as much to do with the weakness of the USD as it is the strength of the Aussie. Nought we can do about that with a floating currency. When I moved overseas earlier in this decade (2001), our currency was being called the Pacific Peso, a term of derision. It was trading at 48 US cents. Good times for Aussie exporters. When I came back in 2007 it was up over 80 cents. So swings and roundabouts.

As far as the development of technical people are concerned, the tertiary education enrolment *is* the point, though isn't it? You don't become an engineer, scientist or mathematician without a degree. We produce plenty of engineers and scientists in this country, I myself am one them, with a combined degree in both disciplines. There is innovation going on in this country, but we don't have the critical mass in manufacturing to bring the resultant products to market and probably never will. That's life I guess.

As far as what we do produce and export, it's pretty easy to see why and you are right about having not as much need to innovate. If you compare us to countries like Japan, Denmark and Singapore, who do innovate quite a bit, they do it because they have to. Those countries have next to no natural resources to draw from, so necessity is the mother of invention for them. With no investment in human capital, they would be third world economies.

China are not the only country we export to BTW. I read last week that Japan is still our biggest trading partner, and India is growing. China has really only come on the scene as a big trading partner in the last couple of decades. Our largesse due to their spending cannot continue forever, but it may not have to. At the moment, we should take advantage of the good times while they are here and invest in things that will improve the standard of living of the majority of the population (health, education, infrastructure). We could also look at a sovereign wealth fund like Norway have too, so long as we could keep the politicians hands away from spending it on pork laden projects in their marginal electorates.

carbonsink said...

Asia can go elsewhere for education. The UK and US must be looking much more attractive than Australia these days thanks to currency movements. Asia doesn't have the same choice about resources because Australia is a very low cost producer, and we are close to market.

Regarding tertiary education in Australia, the problem is not the total number of graduates we produce, but falling enrollments for the hard sciences and engineering. As a double-degree scientist/engineer, you are a dying breed in Australia, whereas I believe China produces a million engineering graduates every year.

Japan is still our biggest export market, but China has been our largest trading partner for some time, mainly because imports from China have been growing strongly. Australia's exports to China went ballistic in the first six months of 2009 thanks to Chinese stimulus, easy credit and speculative buying of commodities, mainly metals. Australia's exports to China have now fallen five months in a row and are 25% below the March peak, yet our dollar has risen from the mid 60s to the low 90s.

Volumes off 25%, prices flat since mid-year, dollar up nearly 50%. You do the math.

Adam S said...

Education is as much about the quality of the product as it is about price. You are right of course, they can go elsewhere and maybe they will for now. But the market hasn't completely collapsed and the visa restrictions in the US and UK make it occasionally hard for students entering those countries. The US has arguably the best tertiary education sector in the world, so we are always going to be up against it with those guys, but the fact that we have any kind of export market at all is cause for a minor celebration in my opinion.

As far as degrees in Australia, the company I work for now hires almost exclusively graduates in engineering and/or the Earth sciences (we provide software and services to the Mining, Civil Geotech and Environmental industries) and my previous employer (a multinational engineering firm) did the same for its Australian operations. We've never had any shortage of candidates. China may produce 1M graduates every year, but they are also a country of 1.5B people! I don't know that you can really make that comparison.

Our exports to China have eased off and yet the sky still hasn't fallen in. Other countries are starting to edge their way out of recession, which is a net positive for us. There will be some bumpy times ahead, but I think there is a chance that we may weather this reasonably well. I am cautiously optimistic at this stage.

Anyway, perhaps we should be more commenting on Ken Henry's original thesis. More on that later.

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