Sunday, June 30, 2013

How many unemployed are fighting for each job?

It’s getting worse

Unemployed per vacancy

May 2013 (May 2012)

NSW 5.8 (4.2)

Victoria 5.1 (5.1)

Queensland 5.3 (3.2)

South Australia 8.6 (4.6)

Western Australia 2.6 (1.6)

Tasmania 10.6 (8.9)

Northern Territory 2.1 (2.2)

Australian Capital Territory 3.2 (1.6)

Australia 5.0 (3.6)

Related Posts

. January 2013: Job vacancies dwindling, public vacancies evaporating

. September 2012: It's getting easier to find a job in NSW, harder in Victoria

. June 2012: Where to search for work - the Good, the Bad, the Ugly


Thursday, June 27, 2013

Who is Chris Bowen?

A lot of people want to know

Asked about the economy in his first question time as Treasurer on Thursday Chris Bowen did something extraordinary.

He spoke succinctly and sat down.

Nothing could have distinguished him more from his predecessor. Wayne Swan would have spoken for the full four minutes and then used a follow-up “Dorothy Dixer” to keep going.

It wasn’t because Bowen was unprepared. He had the facts at his fingertips (as well-briefed Treasurers always do) and he deployed them as well as anyone who has gone before him.

“I like his style,” said Australian Chamber of Commerce and Industry chief executive Peter Anderson, who Bowen made a point of phoning during a day packed with Treasury briefings, Question Time, an interview on 7.30 and being sworn in.

“He told me he was sincere about wanting to repair relations with the private sector. It felt like starting over.”

Asked the one word that best describes the new treasurer Mr Anderson picked “serious”...

“I have dealt with him as small business minister, as assistant treasurer and as minister for immigration. He gets down to work.”

“And he worries. As immigration minister I could feel the burdens on his shoulders whenever I walked into his office. He would walk out from behind his desk and sit down in a chair, and I felt as if I wanted to give him a chair.”

Business Council president Tony Shepherd said Bowen was “decent”.

“He is straightforward, pro-business by inclination, and one of those people you can talk with rather than get caught up in the politics of division.”

At the small end of town Peter Strong of the Council of Small Business says Bowen is the most impressive minister he has met.

“He gets business and he gets the fact that we vote. It might come from having grown up in Sydney’s western suburbs and having been Mayor of Fairfield. There’s nothing negative about him.”

Reportedly promised the job by Kevin Rudd during his unsuccessful attempt to regain the Labor leadership in 2012, Bowen appears to have been preparing to be Treasurer for years. He studied economics at Sydney University. His predecessors as Treasurer had arts or law degrees. And he has applied economic solutions to broader problems. Fuelwatch, promoted enthusiastically by a 34-year old Bowen shortly after his appointment as assistant treasurer in 2007 was a textbook response to concerns about imperfect competition. If consumers felt they were being overcharged for petrol, why not let them know exactly what each supplier was charging so they could vote with their feet?

The so-called Malaysia Solution for asylum seekers was another essentially economic solution. It made use of incentives. Asylum seekers who arrived by boat would be sent to the back of the queue.

Both schemes are regarded as failures. Labor abandoned Fuelwatch and the High Court struck down the Malaysia Solution, but both were innovative attempts to deal with intractable problems.

Some who have dealt with him as immigration minister describe him as ill at ease. They say he became less willing to consult as he developed increasingly draconian policies.

As Treasurer he will be watched even more closely. He is trying to get off to a good start.

In today's Sydney Morning Herald and Age

Related Posts

. Happier days. Bowen proposes FuelWatch

. Superannuation. Bowen wanted 15 per cent


Tax Commissioner: You're not Google, don't shift your profits offshore

Tax Commissioner Chris Jordan says declared war on local firms attempting to emulate the practices of multinationals such as Google and and move their profit centres offshore.

Warning that the corporate tax base was “under threat” he said local firms were starting to think that if foreign firms could route their profits through locations such as Ireland they could too.

"Australian companies are not stupid,” he told the parliament's public accounts committee on Wednesday. “They can see what is happening as a result of these international companies taking profit out of the country.”

“They are thinking: what functions can we move offshore, what functions can we disconnect and have third-party providers fulfill to put the profit in a low-tax jurisdiction and receive an exempt dividend coming back into the system.”

“Companies are putting these structures in place and asserting they have tax compliance,” he told the committee.

“That might be their assertion, but we are going to test every single aspect of those structures. We will want know whether what purports to happen actually happens on the ground"...

“It is one thing to put in place a fancy structure, but it is another to have it tested five years later, because by their nature these schemes are quite, sort of, artificial.”

“Firms in Australia deal with customers in Australia and not in Ireland for example.”

Ireland is the location used by Google to house the subsidiary it says sells advertising to customers in Australia. Documents filed by US congressional investigators show Apple products manufactured in China are resold to Apple retailers in Australia after an Irish subsidiary takes “paper” ownership in transit, collecting the profits.

“We will be taking a leadership role internationally in addressing the problem, but we need to also look at how changes can be made here,” Mr Jordan told the committee.

“The corporate tax base is under threat.”

“What’s happening is unacceptable to the community, to the government, and to regulators. It is the first time in all my career in tax I have seen an alignment of interests saying these practices are unacceptable and we need to do something about them.

A former policeman who worked as an advisor to Coalition leader John Howard in opposition during the 1980s, Mr Jordan was appointed to head the Tax Office in January from a private sector role at accounting firm KPMG.

His appointment was welcomed by the Coalition which has pledged to involve him more closely in tax design.

Asked whether the laws able to be deployed against private equity firms taking capital gains out of Australia were tough enough, he said the general anti-avoidance provisions had proved to be “not necessarily as effective as they could have been”.

In 2009 the Tax Office failed in an attempt stop the private equity group TPG repatriating $1.4 billion after floating Myer.

“I am not only talking about private equity here, but there is a problem in the interaction between our rules for countries with which we have treaties and our rules about tax havens,” he said.

“If we had more powerful general anti-avoidance provisions we could say that the only reason a firm went through a country with which we had a treaty was get protection, and all the funds ended up in a tax haven in Bermuda or the Cayman Islands - we could be able to get act anyway.”

In today's Sydney Morning Herald and Age

Recommended Reading:

. Google: Don’t Be Evil, Don’t Pay Tax - Mike Seccombe, Global Mail

. How savvy multinationals curb their tax bills, Ben Butler and Georgia Wilkins

Related Posts

. Google paid just $74,176 in Australian tax

. Let's impose a special tax, on Apple, Google, and Starbucks


Wednesday, June 26, 2013

The head of BHP gets how much more?

It's off the old scale

The head of BHP gets paid around 200 times as much as the average Australian. Back at the start of the 1980’s it was six or seven times as much.

The stark finding is in new research that uses BHP records dating back to 1887 to plug gaps in what’s known about long-run trends in Australian executive remuneration.

“What we see is a relatively high ratio of BHP CEO salary to Australian earnings at the turn of the 20th century, around 50 times average earnings, slowly dropping throughout the century save for a spike in the second world war,” said Melbourne University economist Mike Pottenger.

“Then with the arrival Paul Anderson as chief executive in 1998 there’s a vertical jump. He was paid more than 200 times average earnings.”

“Anderson was the first internationally-sourced chief executive since the very first, William Patton who was hired for 4000 pounds in 1887.”

“Anderson's successors, Brian Gilbertson, Chip Goodyear, Marius Kloppers and Andrew Mackenzien have all earned around 200 times the average – it has become the new normal.”

Working with BHP historian Geoffrey Blainey and inequality researcher Andrew Leigh who is now a Labor member of parliament Dr Pottenger constructed a range of likely salaries for the years 1887 to 1984 using the few internal memos that mentioned salaries and the known relationship between the chief executive’s salary and BHP directors fees.

From 1987 he used the executive remuneration reported in BHP annual reports and later the total remuneration including stock options and incentives.

“At all times our estimates have been conservative,” Dr Pottenger said...

“If critics want want us to exclude the incentives and options, we happy to point out that without them the CEO’s salary is still 100 times the average - roughly double its previous peak and far higher than anything thought possible during the 1970s and 1980s.”

Data provided by Egan Associates on the average CEO remuneration at Australia's top 100 companies for the last few decades suggests that BHP's experience has been typical.

“In BHP's case the merger with Billiton near the turn of this century made it a truly global company,” Dr Pottenger said. “Also just before the merger there was an air of desperation in the company. Its 1999 annual report was titled 'Under Pressure', the 2000 report was titled 'Coming out of a tight corner'.”

Dr Pottenger said BHP and other newly globalised companies appeared to have succumbed to “Lake Wobegon effect,” named after the fictional town in the US radio show A Prairie Home Companion where “all the women are strong, all the men are good looking, and all the children are above average".

“They all want to hire a chief executive who is better than the global median, ” Dr Pottenger said. “If executive's abilities are distributed along a bell curve, the only way to do that is to bid up salaries.”

“In fact they are no longer going up. Around 200 times average earnings seems to be the new normal. Something else is at work.”

In today's  Sydney Morning Herald and Age

Related Posts

. Why we've no idea what we actually earn

. Earn $210,000? You're in the top 1 per cent

. Our rich are getting richer


Tuesday, June 25, 2013


It vanishes on Monday.

There are a few other options around, but if you would like to subscribe by email, please feel free to fill in the new "subscribe to email" box on the right hand side of my homepage.

I hope you keep reading. ----->>

Recession. Gillard talks as if such talk is treason

She's wrong. We need it

The prime minister thinks reporting of the economy has been unreasonable.

She has told the Committee for the Economic Development of Australia the economy is “growing, stable and strong”, an assurance that will be welcomed a Reserve Bank so worried about the transitions underway it has cut its cash rate seven times in the past eighteen months.

Its cash rate is now lower than it was during the global financial crisis, and the Bank is holding open the possibility of cutting it again.

Julia Gillard herself acknowledged in her speech “some complex transitions underway”.

Something will have to replace mining investment as an economic driver as the boom winds back. Ms Gillard pointed to housing investment and bigger export volumes. Who knows, they might rise to the challenge and take up the slack. But it does not mean things are stable.

She said she wouldn’t mention the ‘r’ word, and got stuck into those who had.

As she put it: “Low expectations can themselves become an economic problem.”

But there is a place for pessimistic economic forecasters, including those being produced by her government’s former advisor Professor Ross Garnaut.

Without them we might fail to foresee the next economic crisis, just as we (mostly) failed to see the global financial crisis. Without them we might keep the budget too tight and interest rates too high...

The prime minister has called “a well founded positive sentiment based on facts”. The Reserve Bank bases its assessments on facts. That assessment is not yet positive, even if the prime minister’s is.

In Monday's National Times

Four years ago the Rudd-Gillard government prepared us for the worst.

It forecast a 100 per cent chance of a recession.

Wayne Swan’s 2009 budget overview intoned: “A recession in Australia has become inevitable, with unavoidable consequences for Australian jobs.”

As it turned out, Australia avoided a recession, in part because of that budget. The warning helped. It built support for the programs needed to keep Australia afloat.

Four years on there’s talk of a recession again. This time its a 25 per cent chance.

But the prime minister speaks as if it’s treason.

“Confidence matters,” she told the Committee for the Economic Development of Australia Monday. “The biggest mistake we could make would be to talk ourselves into unnecessary economic weakness.”

Amid (presumably humorous) talk of taking journalists to the Australian Communications and Media Authority she said tossing around the “R” word (she wouldn’t use it) threatened jobs and growth.

There’s another way of looking at it. It is that open discussion of early warnings can bring about the changes needed to sustain growth, as happened in 2009. It is to be hoped that whoever is power after the next election encourages rather than shuts down such discussion.

Late Monday the shadow treasurer Joe Hockey promised he would. He told the same conference it would be “the height of hubris” to dismiss out of hand dire warnings from respected observers.

One of them is the former Labor advisor Professor Ross Garnaut.

Hockey promised to “listen and prepare”.

If lower interest rates, the lower dollar and the automatic blowing out of the budget weren't enough to stave off recession he would be prepared to do more, like Labor did in 2009 - although he said he would avoid pink batts.

In today's Canberra Times, Sydney Morning Herald 

24 June 2013

Welcome to Parliament House.

Thank you for coming here to build on CEDA’s stewardship of detailed and serious discussion about the state of the Australian economy and its future.

Your presence here this week is not only very important, it is very timely, so I’m particularly pleased to join you first up today.

Three weeks ago the National Accounts for the March quarter of this year were released.

They were solid – they showed our economy is growing and stable and strong – they were good news.

The National Accounts reflected the economy’s underlying stability and strength and our status as a leading nation – yes, in a mixed world environment and yes, with some complex transitions underway.

Solid growth at 2.5 per cent for the year.

Household savings at over 10 per cent.

New business investment still around fifty-year highs as a share of GDP, at 17.5 per cent.

Productivity growth now above trend at 2 per cent.

Net exports making their strongest contribution to growth in four years.

If I can speak candidly, the subsequent discussion has been marked by some strikingly misguided commentary.

I’m not talking here about criticism of the Government’s economic policies – not at all – I’m referring to glaring misstatements about the economy itself.

If “irrational exuberance” has an opposite it’s probably “unreasonable pessimism” and we’ve witnessed that in some quarters these past three weeks.

I want to address that in some detail this morning but first I want to be clear on why I think it’s worth doing.

Simply put, your presence here in Parliament House this week presents you with a special opportunity to bring to the national economic debate the “correction we have to have”.

You can bring to the national public discussion an understanding of the facts, an interrogation of the policy demands that the facts impose on us, an understanding that the benefits of long-term reform are felt precisely over that long-term, and crucially you can present a well-founded confidence in the Australian economy.

I know you will have rigorous and vigorous policy debate and I absolutely welcome critical discussion of the Government’s policy approach.

But I know you want to hear opinion based on facts.

So that’s what I’m asking you to do while you are here – get all the facts on the table, discuss the real policy challenges, and then challenge the negative economic sentiment that is around in some quarters.

Where have the pessimists gone wrong?

First, some reporting has neglected important specific facts about the quarterly figures.

Two particular features would have given Australians some interesting insights on where the economy is headed.

New dwelling investment over the year rose by 10.2 per cent – the strongest annual growth in ten years, further evidence that the non-resource sectors of the economy picking up.

Non-rural commodity export volumes were up 13.2 per cent over the year.

This ramp up largely drove the rise in export volumes – and it is a sign that the production phase of the mining boom we have spoken about for some time is now starting to come through.

These are important signs that the transitions we planned for in the Budget are now underway – yet they went barely remarked.

Second, the most irresponsible pessimists have tossed around the “r” word.

Something not so much sinister as silly, a claim I’m frankly somewhat reluctant to repeat, even in order to contradict it, lest I give it weight.

But consider this.

For the third time in just five years, one leading firm of economists predicted a 20 per cent chance that the Australian economy will actually shrink for two quarters in a row.

Another then quoted a 25 per cent chance that growth would halt completely.

Now as Jessica Irvine has pointed out in a column for News Ltd publications, even these sensationally pessimistic statements were still forecasting the most likely outcome is growth.

Or to put it another way, even these outlying forecasts are themselves statements that the glass is actually three quarters or four fifths full.

Yet the effect on confidence can only be negative and on all the facts, is clearly not justified.

One national daily reported on its front page that our economy had shrunk if you excluded net exports.

You might as well say Shakespeare hardly earned a penny in his life, except from the theatre.

And the assault on confidence in Western Australia was particularly sharp.

This arose from the national accounts reporting that final state demand their fell by 3.9 per cent in the March quarter.

Bear in mind, state demand excludes not only net exports but interstate trade.

You might as well say the economy is shrinking in your house when you exclude the money you earn at your office.

The Secretary of Treasury, Dr Parkinson, and his deputy Dr Gruen responded to this unambiguously in Senate hearings ten days ago. As Dr Gruen put it:

The idea that in the face of the largest investment boom we have ever seen, you ignore exports and focus on the piece of the economy that is demand by Western Australia ... belongs in the comic books.

As Prime Minister, I am concerned that left unchecked, this kind of distorted coverage could continue to spread.

Australians woke last Wednesday morning to widespread news reports that markets expected the labour force figures for that day to show 10,000 jobs lost in May.

By lunchtime the ABS figures showed a small increase in jobs.

I don’t know if the Australian Communications and Media Authority would welcome a request for 11,100 corrections to be put to air but if anyone here wants to make that submission feel free to cite me in support.

We all acknowledge that forecasting is difficult – at any time.

But the continued pessimism is not being matched by the continued performance of our key economic indicators and low expectations can themselves become an economic problem.

Now, as I have said, many serious commentators have taken issue with the unreasonable pessimists.

Many of you here share their frustration.

Michael Pascoe in his Fairfax column was the most scathing but also I thought the most amusing, reporting on what he called “squawking”. This led, in his words, to squawk like:

“The national accounts suggest the economy would have contracted without a 1 percentage point boost from falling imports and rising exports…”

Michael went on to say:

It would have contracted if a meteor took out Melbourne and would have expanded if kangaroos started defecating gold.

Yes he is pretty good, isn’t he!

Now you came this morning for a discussion about the economic development of Australia, not an episode of Media Watch.

So it’s important that we be very clear about why it matters to get the public discussion right.

Dr Parkinson’s summary overall, in that same Senate hearing?

Trashing confidence for whatever reason is not in the national interest.

This is the first fundamental point. Confidence matters.

Not hope or optimism, but a well-founded positive sentiment based on the facts, recognising that our economy is growing and stable and strong.

In November 2008, in the wake of the collapse of Lehman Brothers, Reserve Bank Governor Glenn Stevens, warned about the need to go about business with a “quiet confidence” in our prospects.

His words:

Given the underlying strengths of the economy, about the biggest mistake we could make would be to talk ourselves into unnecessary economic weakness.

Still true.

Any irrational threat to economic confidence is a threat to jobs and growth.

The second reason to get the discussion right is that as economic decision-makers, we must be able to separate the signal from the noise.

We need to pick the real transitions as they are coming.

Growth in Asia, enduring for decades to come.

The peak of the mining investment boom.

The digital disruption and the clean energy future.

The pick-up in broader sources of growth beyond resources.

Critical for the economy right now – new sources of growth, sustaining economic diversity with a strong dollar.

Perhaps there’s no better example of the failure to separate signal from noise than the pessimists who say that the dollar rising is bad news and then say the dollar falling is bad news.

Last week a retail industry leader who’s spent years advocating for direct relief from the strong dollar and low-price imports did widespread media complaining that the falling dollar was bad for consumer confidence.

This actually happened.

I am sure the recent movements in the dollar will not go unremarked here, so I will say just a few things on that front.

The Australian dollar has been at historically high level for some time now and as you all know this has moderated in recent weeks.

Our high dollar reflects our strong fundamentals – solid growth, low unemployment, low debt, AAA credit ratings – but also the challenges that many other developed economies have faced in the aftermath of the GFC, the worst economic conditions in over 80 years.

More simply, the high value of the Australian dollar has been a combination of our strength and global weakness.

Our strength remains, and the good news is that the signs from America are becoming more positive for their growth.

Improvements in the US economy should be welcome – these support the global recovery and growth in the world’s largest economy provides significant opportunities for Australian exporters.

While the high dollar has provided benefits for consumers, it has meant significant challenges for some of our exporters.

As the Treasurer has said, a sustained depreciation of the Australian dollar in those circumstances would be a very good thing, to stimulate further growth in the non-mining sector – while the firms that have adjusted to the historically high dollar stand to benefit from its fall.

As a Government we recognise we need to be ready to seize the opportunities that the future will bring.

We need to make the right investments and deliver the right reforms.

Your theme this week, of “Australia adjusting”, neatly captures the elements of agency and change that are in play.

Your agenda demonstrates that CEDA, at least, is able to identify the real economic signals and to work up the agenda points for a serious discussion about what is to be done.

Productivity and structural reform: where Labor’s “five pillars” of skills and education, infrastructure, innovation, tax and regulatory reform are so vital – and form a discussion which connects to so many other key areas.

Education: as you put it, ensuring Australia’s future prosperity – nothing matters more and this week is vital for this reform.

Energy policy: a historic challenge to decouple economic growth from emissions growth.

International competitiveness: where the dollar’s recent easing hasn’t eased the demand that we plan for jobs and growth and do so through sustained economic diversity.

Innovation: where the jobs of the future depend so heavily on the ideas and the infrastructure of the future.

Health reform and funding models: the structural reforms already made to Commonwealth-State relations and the structural savings we’ve delivered in Commonwealth spending have begun a process which must continue to sustain public finances.

The big one, the Asian Century, a century of growth and change, of Asian middle-class demand for high value Australian services and goods.

Education and tourism, agriculture and advanced manufacturing, financial services, health services, digital media.

These are the real issues, the big picture, the things that matter. You are absolutely right to be discussing them here this week.

2013 is a big year for Australia.

Economic choices and political choices are before us all.

Choices with consequences, choices with purpose, choices which should be informed, informed by the facts.

The facts are these.

Labor – returning the Budget to balance faster than most of the developed world.

Our net debt – one-third Canada’s, one-fifth Germany’s and one-eighth the size of the United States.

Equivalent to a person with a $100 000 income each year having a $12 000 mortgage.

Our nation’s best ever credit rating. Interest rates are low. Inflation is contained.

The average tax to GDP ratio under Labor, well below the previous Coalition Government.

Since Labor came to power, the Australian economy has grown by 14 per cent.

And the bottom line of all bottom lines: under Labor, our nation has created more than 950,000 jobs.

You have a big program before you and I’m looking forward to our conversation because there is so much to discuss.

Related Posts

. Reporting reality

. Do facts matter?

. A win for Nate. A win for reality.


Sunday, June 23, 2013

Do facts matter?

New research suggests they matter more than we let on

Imagine an election without facts. What if that’s where we are heading?

Both the ABC and have set up “fact checking units,” innovations that would have once been welcomed. After all, without facts, how can you work out how to vote? But the new institutions have been met with scorn. The Australian newspaper has run commentary asking whether the units will check facts from a “green-left” or “so-called progressive” point of view. A Coalition senator has pointed to tweets once made by the man who now heads the ABC’s unit and asked how he can check facts when he has attacked the Coalition.

It is as if facts don’t exist independently of views - as if there are green-left facts, pro-market facts, pro-business facts, but not simply facts, able to be dug up by anyone regardless of their political persuasion.

It is true that Labor voters give pollsters a very different account of economic facts to Coalition voters.

The Melbourne Institute has been surveying consumer sentiment for decades. Among the questions it asks is whether economic conditions are improving or getting worse. Every month without exception for six years now Labor voters have been reporting brighter conditions than have Coalition voters.

But if you look back to just a month before Rudd was elected you see something remarkable. For every month under John Howard as far back as the eye can see the Labor voters reported worse conditions than the Coalition voters. The two switched their perception of the economy as soon as their side took (or lost) office.

It can’t be because the economy suddenly changed. The switch is too dramatic. And if the facts had suddenly changed the perceptions of voters on both sides of politics would most probably have moved in the same direction.

We are increasingly self-selecting our ‘news’. Whereas once one single set of news was presented to the nation each night at 7.00pm and just a couple of sets each morning in the newspapers, these days we are tailoring our own news feeds, relying heavily on twitter, web searches and sometimes openly partisan newspapers and radio stations.

Does that give us even less of handle on reality? There are worrying signs that it does.

The US went down the tailored news road early with Fox News, an openly partisan cable news channel completely unlike Sky News in Australia.

The ‘facts’ that its viewers outline to pollsters are far more likely to be false than those who rely on old-style media...

After the initial phase of the Iraq War in 2003 Americans were asked whether or not US forces had found the much talked about Iraqi weapons of mass destruction.

An astounding 33 per cent of those who relied on Fox News falsely said they had. Among those who relied on the traditional networks the proportion was only 20 per cent. Among those who relied on public broadcasting it was just 11 per cent.

Other findings in the survey suggest that the more an American watches Fox News the more likely she or he is to believe things that are false.

It would be deeply concerning, were it not for the findings of an ingenious new survey released in May.

Researchers from Yale University and the University of California San Diego wondered whether the Americans reporting false beliefs really held them or were just ‘barracking’, having a lend of the surveyors to make a political point.

Their genius was to pay for correct answers.

Without payments, Republicans and Democrats were sharply divided in their responses to factual questions such as whether American deaths in Iraq were increasing and whether or not the world was warming.

But with small payments ($1 for the correct answer and 33 cents for using the option “don’t know”) almost all of the gap disappeared.

The proportion admitting they didn’t know became huge, up to 50 per cent.

When tested with money Americans appear to have a surprisingly good idea about what they don’t know, and when they do take a stab at something they are likely to guess the truth, even when it conflicts with their political positions.

The researchers disparage polling of the kind conducted in Australia saying “just as people enjoy rooting for their favorite sports team and arguing that their team’s players are superior even when they are not, surveys give citizens an opportunity to cheer for their partisan team”.

There’s a chance that deep down we are hardwired to know what is a fact and what is not, even if we don’t let on. There’s a chance we will take seriously the work of the fact checking units even if some of the barrackers say they will not.

In today's Sun Herald 

Related Posts

. Confidence. Coalition vs Labor voters

. A win for Nate. A win for reality.

. So Murdoch is exiting British papers (funny video follows)


Saturday, June 22, 2013

What is productivity?

At times it's hard to tell, even for experts

If you don’t quite get all the talk about productivity, I’ll let you in on a secret - the Productivity Commission doesn’t quite get it either.

A few days back it published the first of what will be its regular productivity updates. The good news is it shows Australia getting (slightly) more productive. The bad news is it can’t be sure.

Productivity ought to be easy to calculate. It is a measure of how many units a nation or a firm gets out for each unit it puts in. Assessing the productivity of something such as car assembly is straightforward. If Holden or Toyota were to produce twice as many cars using no more labour and other inputs, they would have doubled their productivity.

But what about hairdressing? If the workers in a salon cut twice as many heads of hair per day would they really have lifted their productivity? That would depend in part on the quality of the hair cuts. But it would also depend on something else. Some of what they produce is the attention they give to each customer. It is an output as well as an input.

The phenomenon is especially important in aged care. The Bureau of Statistics recognises this by not calculating productivity for the “health care and social assistance” sector even though it’s Australia’s biggest employer.

Nor does it calculate productivity for “public administration and safety” workers or for “education and training” workers. Combined, those three industries account for one quarter per cent of all employment. Two decades ago they accounted for one-fifth. The hard-to-measure sectors are becoming more important.

An Australian Treasury economist Gerry Antioch this month published his estimate of the size of the so-called ‘persuasive industries’ in the United States. He has included lawyers, public relations specialists, advertising writers and ministers of religion. He has also part-counted workers such as police who spend only part of their time persuading. Previously regarded as making up 26 per cent of US employment, persuasive industry jobs now account for around 30 per cent of all employment. It is almost impossible to measure their productivity.

What is there to count? Conversions? Persuasions? Success in convincing buyers to switch from one brand to another?

It’s not only the persuasive and caring industries whose productivity is hard to measure. The Productivity Commission says the measured productivity of the electricity industry is unreliable in part because of the extra money it is spending burying cables underground. The extra spending has benefits - “visual amenity and safety” - but they doesn’t show up as increased output. It’s the same for sewage. It is now better disposed of, but that isn’t counted as output either...

And some important inputs aren’t counted at all, leading to bizarre and otherwise unfathomable fluctuations in measured productivity.

Astoundingly, rainfall isn’t counted as an input to the water supply industry. Of course it should be - without rainfall there would be no water supply. But the omission means that during times of drought the measured productivity of the industry dives, even if its efficiency hasn’t changed.

Rainfall is also an input for farms. Without it they would produce little, but it also isn’t counted when calculating their productivity. As a result, according to a Commission research note, recorded productivity growth in the farm sector has at times been negative, “not because farmers became less technically efficient, but because it didn’t rain as much”.

In mining, the key unmeasured inputs are the minerals being mined.

Yet as the research note puts it: “No amount of conventionally measured inputs - labour, capital, materials etc - can produce a tonne of coal or a barrel of oil without a coal seam or an oil deposit from which to extract it.”

The more resources that are extracted, the harder it is to find new easily accessible resources, and so the less productive the industry seems, even if it is operating just as efficiently as before.

The Productivity Commission research note is entitled: “On productivity - the influence of natural resource inputs”. The authors put forward calculations that suggest the mining industry has been getting more efficient even though resource depletion means its measured productivity has been standing still.

Sober economists don’t take seriously movements in the quarterly productivity numbers. They are weighed down by errors and likely to be revised. Only lobbyists and politicians habitually quote them. The prime minister did so on Monday.

There’s no denying that productivity matters. The Nobel prize winning economist Paul Krugman famously said: “Productivity isn't everything, but in the long run it is almost everything. A country's ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.”

But he went on to say that many of the people who pontificate about productivity “don’t know what they are talking about”.

Cutting the wages of workers at Holden will help Holden survive, but it won’t make them more productive. Productivity is output per unit of input. Labour productivity is output per hour worked.

There are times when it would help us if measured productivity shrank, such as when employers hang on to their workers during downturns, when resource companies spend billions opening new mines and gas fields that won’t produce for years, or when the government spends billions on education reforms whose payoffs will be decades away and probably unmeasurable.

We need to grope towards higher productivity. But we need to accept that at times we will go backwards and that much of our groping will be in the dark.

In today's Sydney Morning Herald and Age

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Friday, June 14, 2013

Productivity. We can't really measure it - Productivity Commission

But what we can measure, we don't like

Australia’s productivity growth is weak and likely to weaken further the Productivity Commission has found. But it says Australia isn’t alone.

In the first of what it intends to be a series of annual updates the Commission says in the four years since 2006 so-called multifactor productivity slipped by an average of 1.1 per cent per year. In the previous decade it had climbed by an average of 0.6 per cent per year.

While the update attempts to identify local causes of the downturn it says Australia is “not unique”.

France, Sweden, Ireland, the United Kingdom, the United States, Canada and New Zealand also moved from positive to negative productivity growth in the same timeframe (although in the case of the US from positive to zero growth).

It says the downturn began before the global financial crisis for reasons which are not clear. It quotes the New York-based Conference Board as finding that one of the reasons it is continuing is labour hoarding, “as businesses refrain from making significant cutbacks in resources in the hope of a recovery in global demand”.

Australian multifactor productivity climbed 0.1 per cent in 2011-12 after sliding of 1.2 per cent in 2010-11, a result still well down on the long-term growth rate of 0.8 per cent.

Labor productivity climbed by a much faster 3.4 per cent as more machinery was deployed per worker in a process known as capital deepening.

The Commission concedes that neither measure of productivity is particularly useful...

Productivity isn't calculated for the “non-market” industries of health, education, public administration and security. Health and social assistance  has become Australia’s biggest employer. And many of the outputs of the industries for which productivity are calculated are not measured, biasing down the published measures. As an example the Commission cites the electricity industry which has switched from stringing putting wires overhead to burying them underground “in response to concerns about visual amenity and safety”.

It says while the cost of putting the wires underground is counted on one side of the productivity equation, the extra benefit of putting them underground is not counted on the other.

Nevertheless the Commission reports woeful productivity performance in the mining and utilities industries with declines in 2011-12 of 10.5 per cent and 5.4 per cent per cent.

One immediate reason mining productivity is declining is a “mismatch” between inputs and outputs as money is spent developing new projects ahead of an expected payoff in production.

A longer-term reason is that easily obtained resources are becoming harder to find. High commodity prices have exacerbated the process, encouraging “even more rapid development of higher-cost less productive resource deposits than would otherwise be the case”. Improvements in mining technology have only partly offset the effect.

Productivity in the electricity industry is declining in part because of what the Commission suspects to have been “greater investment in distribution capacity than was socially optimal”. Productivity in the water industry is declining in part because Australians cut their use of water during the drought and have yet to lift it back to “pre-drought levels”.

In today's Sydney Morning Herald and Age

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Thursday, June 13, 2013

ACCI raises (two-thirds of) a glass to small business

The Australian Chamber of Commerce and Industry has recast itself as a champion of small business in the lead up to the election using a National Press Club address to launch a campaign called “The Big 4 You Can’t Ignore for Small Business”.

But the Council of Small Business of Australia says it has left two items off the list.

Wednesday’s address was silent about competition policy, where small businesses believe they are being monstered by the two big retailers, and silent about contract law, where small businesses say they are at the mercy of the shopping centre chains.

“I don’t want to attack the Chamber. It is doing a good job in an area it feels comfortable in,” said Council of Small Business executive director Peter Strong. “But it won’t address the supply chain issue because it also represents Coles and Woolworths. It won’t address tenancy issues because it also shopping centre landlords.”

“Our members face take-it-or-leave-it contracts from those landlords. They are forces to take on multinationals. We would like the same sort of protections in place for them as for consumers"...

The four concerns raised by the Chamber are red tape, an overly-complex tax system, unwieldy employment rules and inadequate roads, ports and railways.

The Chamber is especially concerned about planned changes to the fair work laws which will make “an unbalanced set of laws even worse”.

“Employers are frustrated, the small business people of Australia feel let down by the barracking and partisanship that has brought this about,” ACCI chief executive Peter Anderson told the press club.

Mr Anderson said he wanted more small business people in parliament and in the top echelon of the public service. His predecessor as chief executive, Peter Hendy is the endorsed Coalition candidate for the seat of Eden Monaro.

In today's Age

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Wednesday, June 12, 2013

Slimming down government. Why Abbott might be bolder than you think

What would Tony Abbott do? As with all potential prime ministers there’s no way to be sure. But thanks to an unusual instance of history repeating we’ve been given an unusually clear idea of what he’ll be told to do.

It is also what he wants to be told to do.

Abbott himself set up the link last March when he promised the “swift establishment of a Commission of Audit”. It will “examine the detail of what the Commonwealth government does and whether it could be done better and more cost-effectively”.

Implicit in such a task will be determining what the Commonwealth should not do - whether there are entire areas of government that should be abandoned altogether. We know this because it has already happened. The Howard government set up a Commission of Audit on taking office in 1996. The Commission’s impressively non-political report wasted not a second dealing with alleged failures of the previous government and instead turned its attention to the more fundamental questions of the what the government should not be doing, how it could perform its remaining roles more cheaply, and how it could stop the costs of its biggest payments from skyrocketing.

Its recommendations were timeless. That most were not accepted makes them no less relevant. In fact events since have made them more compelling.

Most of the time finance minister Penny Wong gives the impression things are under control. But she let down her guard briefly in the leadup to the 2011 tax summit telling delegates that “without action to curtail spending growth, the overall level of government spending under existing programs would, over the medium to long term, become unsustainable.”

The age pension is the government’s most expensive payment. Generously benchmarked to 25 per cent of male total average earnings, accessed at least in part by most retirees and set to balloon as the retired population grows, it was to climb from 2.7 per cent of the total value of Australian production to 3.9 per cent by the middle of the century. Spending on health was set to triple.

After this year’s budget the head of the Treasury secretary Martin Parkinson set out the problem starkly.

“We have a big gap between what the community demands of government and what it is prepared to pay,” he told business economists. “We have to think about savings, or new sources of revenue.”

The 1996 Commission of Audit was on to the problem early. Its report will be the first place Abbott’s commission looks...

One of its simplest suggestions was to stop increasing the pension. It is traditionally lifted twice each year by either enough to keep it at the male earnings benchmark or by the increase in consumer prices, whichever is the greatest. The Commission suggested instead adjusting it only from time to time after reviews that would have to consider “all relevant circumstances, including budget pressures”.

Entire Commonwealth operations would be surrendered to the states. Health and aged care belong there, the report says. The states run the hospitals and their governments know the most about the quality of their aged care services. The Commonwealth would retain responsibility for Medicare and the pharmaceutical benefits scheme, but it would be more stingy, requiring all but the poorest to pay more to see the doctor and to pay more for prescriptions. Before surrendering aged care to the states the Commonwealth would defund the institutions, fund the users instead and jack up the users’ own (means tested) contribution.

Responsibility for education would go to the states, along with childcare. The exception would be tertiary education where Commonwealth would be notionally in charge but would be hands-off, funding the students rather than the institutions. It would hand out a limited number of scholarships to Year 12 students each year “redeemable at any accredited institution”.

The staff savings in the departments of health, education and environment (which would also go to the states) would be enormous. Targeted departments would be required to cut their running costs by at least 20 per cent over three years. All other departments (including the usually exempt defence department) would be required to cut their costs by 10 per cent.

The states would need more money. The 1996 Commission of Audit didn’t say much about where they would get it from but events since provide a ready made solution. The states have since been given the GST. They could lift it.

It would be tempting to think Tony Abbott wouldn’t necessarily welcome such a radical set of prescriptions. But it would be dead wrong.

When announcing plans for his own Commission of Audit last March he specifically charged it with examining questions such as “whether the federal health department really needs all 6000 of its current staff when the Commonwealth doesn’t actually run a single hospital”.

He knows what it will examine and he must know what it is likely to recommend. He is prepared to consider bold options.

In today's Sydney Morning Herald and Age

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Sunday, June 09, 2013

Patently ridiculous. Why it's time to wind them back

Sunday column

Hands up if you like the idea of running chocolate through a 3D printer.

Hands up if you wish you had “invented” it?

That’s what four US inventors claim to have done. They say they also invented the (fairly obvious) related concept of keeping the chocolate at a constant temperature as it moves through the equipment. They’ve applied for a patent. If they get it they’ll make money every time someone builds a 3D printer that can make shapes out of chocolate. They thought of it first.

It raises an alarming prospect, that of 3D printing patents without end. One for each different material that can be melted and squeezed through a printing head before becoming solid - a different patent for for each different person who “invented” the idea.

Why do I think the idea is alarming? It’ll do the exact opposite of what the patent system is meant to do. It is meant to encourage innovation. But having to send off a cheque here, a cheque there to an unknown number of people who can claim to have “invented” a fairly obvious idea means some of the people who actually build things won’t bother.

You don’t need to have built something, or even know how to build something, to get a patent.

US patent 6025810 is a case in point. It is a method for transmitting information faster than the speed of light, using the fifth dimension.

All you need is to be able to claim that you thought of the idea first, and to describe it in complex language.

Jim Logan has a patent for a “system for disseminating media content representing episodes in a serialized sequence”. He is using it to demand money from podcasters. He says he invented the podcast. But he doesn’t podcast and he didn’t help develop podcasting software. His contribution was to distribute audio programs on cassette tapes in the mid-1990s and patent the idea. I distributed them while I was at high school in the mid-1970s, but I never thought of applying for a patent. Jim has already got a court to order Apple to pay him $8 million for (inadvertently) infringing his patent on the idea of a playlist...

Jim is a patent troll. He doesn’t like the term, and you can hear him quibble with it in the latest edition of the US National Public Radio podcast Planet Money. A troll is someone who neither makes the product nor provides the service but who makes money threatening legal action against people who do.

MPHJ Technology Investments and an array of shell companies has been sending out thousands of letters to small businesses across the US demanding they pay $1000 per worker because they use scanners to email documents. Almost every business uses scanners to email documents. Many have paid up.

President Obama this week published a report defining trolls as firms that “focus on aggressive litigation using such tactics as threatening to sue thousands of companies at once without specific evidence of infringement against any of them, creating shell companies that make it difficult for defendants to know who is suing them, and asserting that their patents cover inventions not imagined at the time they were granted.”

It says lawsuits by trolls have tripled in the past two years, accounting for two thirds of of all infringement suits. Obama went on the offensive, asking Congress to limit lawsuits to people who make rather than people who use technology. He also wants courts to award “loser pays” judgements where the trolls have to pay their intended victims for wasting their money and their time.

But I am not sure it is enough. I am not sure we shouldn’t abolish patents altogether. It’d do little to slow innovation in the information technology industry, almost certainly quickening it. The authors of a Federal Reserve Bank of St Louis study The Case Against Patents argue that James Watt’s patents on the steam engine held back Britain's industrial progress for decades.

They say during the thirty years of Watt’s patents they the UK added just 750 horsepower of steam engines per year. In the thirty years after they expired it added more than 4000 per year. And the engines became much more efficient. Watt had used his patents to block the development of the high-pressure steam engine.

Rather than hacking away at patents Australia has been extending them. In 1994 at the request of the World Trade Organisation Australia retrospectively extended the life of existing patents from 16 to 20 years. An Industry Commission study found the decision could have cost the economy $2 billion.

The health minister has before her a report recommending winding back the practice of extending drug patents. It’d be a start.

In today's Canberra Times and Sun Herald

When Patents Hit the Podcast: Planet Money May 31 2013

22 minutes, play or RIGHT CLICK to download mp3

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Friday, June 07, 2013

Parkinson to RBA. Don't stymie the slide in the dollar

The head of the Treasury says the Reserve Bank should be prepared to cut interest rates further as the Australian dollar falls, if necessary temporarily breaching its target and allowing inflation to climb beyond 3 per cent.

Dr Martin Parkinson is a member of the Reserve Bank board. The Bank’s governor Glenn Stevens has signed an agreement with the Treasurer to keep inflation between 2 and 3 per cent “on average over the cycle”.

As the Australian dollar slid below 95 US cents for the first time in 30 months on Thursday Dr Parkinson told a Senate hearing the Bank should “look through” the inflation consequences of the sliding dollar and continue to keep interest rates low or cut them further even as the falling dollar pushed up prices.

“I wouldn’t wish to speak on the governor’s behalf and as a board member it is always a slightly difficult situation,” he said.

“But they could basically keep interest rates at a particular point, or they could lower them further, and just accept that inflation went out of the band for a period. Then, you know, they could try and stop the second round effects.”

He was backed up by his deputy David Gruen who said the Reserve Bank’s “flexible” target meant it could allow inflation to climb above the top of the 2 to 3 per cent target band so long as it did not spark a wage-price spiral. Inflation is at present 2.5 per cent. A sudden increase in rates in order to contain inflation as the dollar fell could harm the economy and prevent the dollar from falling further. It has slid from 102 US cents to 94.6 US cents in the past five weeks.

Dr Parkinson conceded that some of the assumptions that underlay the Budget forecasts were out of date when the budget was delivered on May 14 and said he took “full responsibility”...

“When we were bedding down the budget there were movements in commodity prices and we had to say, well what do we do? Do we respond to what has happened, or do we sit? We chose to sit, and I take full responsibility.”

“With hindsight I think I would have been better off jumping in the other direction, but it was an on-balance decision".

The decision means the forecasts in the Treasury’s pre-election outlook will be different to those in the budget, taking into account what will most likely be lower commodity prices and a lower dollar. The likely difference backs the Coalition's contention that it won’t be in a position to release its policy costings until after the Treasury update when the campaign is underway.

Dr Parkinson and Dr Gruen savaged reports in each of Australia’s leading newspapers suggesting that Western Australia was in a demand recession.

“The idea that in the face of the largest export boom we have ever seen you ignore exports and focus on one piece of the economy, demand and claim that that is a recession, it belongs in the comic books,” Dr Gruen said.

State final demand in Western Australia slid 1.5 per cent in the March quarter after sliding 0.7 per cent in the December quarter.

Dr Parkinson said he would would never describe either a state a national economy as being in recession “by counting quarters of negative growth.”

“In Australia it is often said the official definition of a recession is two quarters of negative growth. I don’t know who the official is,” he told the hearing.

Asked what would constitute a recession, Dr Parkinson said he did “not tend to utilise a definition”.

“I reckon a recession is something, you know it when you’ve got it,” he said.

In today's Canberra Times, Sydney Morning Herald Related: National Times


"I think the whole idea of saying, you’ve got this thing called the economy which is totally interlinked and saying well today what I am interested in is ‘is there a recession in the housing sector or is their a recession in Victoria’, you may as well say ‘is there a recession in houses that are built out of red brick with tin roof, as against ‘is there a recession Ballarat as against Bendigo’."

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Thursday, June 06, 2013

Copyright. Users might get rights

In the land down under
JJ Harrison, Creative Commons
The composers of the iconic song “Land Down Under” might never have been taken to court for allegedly stealing notes from the tune “Kookaburra Sits on the Old Gum Tree” had a new law proposed by the Australian Law Reform Commission been in force at the time.

The Commission has proposed scrapping the existing piecemeal exemptions from the Copyright Act and replacing them with a simple exemption allowing “fair use”.

The “creative quotation” of copyrighted works would become legal as would “non consumptive use” where copyrighted material is incidentally copied in the process of transferring legally-aquired files from one storage medium to another.

At the moment both fall foul of Australian law even though both are allowed in the United States which specifically protects “fair use”.

“This would bring us into line with the United States with whom we have a free trade agreement,” said Australian National University intellectual property expert Matthew Rimmer.

“It would give people rights when it comes to technologies such as 3D printing which can’t possibly be provided for by specific exemptions because the shape of the technologies is not yet clear.”

“Men at Work and EMI could have used it as a defence in the Kookaburra case. I think what they did was fair use. It would have been allowed as a creative quotation"...

The Law Reform Commission wants comments on the proposal by the end of July. It will report to the government in November.

In today's Age

Recommended reading

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Wednesday, June 05, 2013

Every picture tells a story. From today's RBA chart pack:

Get it here

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