This month's Bulletin

To survive as a robust, affluent democracy, Australia must address the crisis of direction and funding that is paralysing universities. Other education issues, and shrinking opportunities for science graduates, loom ominously for a putative "clever country" or "knowledge nation"...

The decade long dominance of markets, to the exclusion of all else, is under challenge... The airline de-regulation issue has turned. A conservative Republican administration has... embraced a significant level of regulation - because of a security emergency and a collapse of public confidence.

A government role is not necessarily a panacea... but neither does it have to involve too much bureaucracy, or even a bigger public share of the national economic cake. [Andrew Clark, AFR 8.10.01]

The Lucky Country

The Economist, [13.10.01], one of the world's most influential news publications, argues in a recent editorial that Australians should change their government on 10 November:

In economic affairs Labor would probably not depart much from the path of modernisation that it started 18 years ago. And in helping to bring an end to the attitudes of the past many associated with the White Australia that characterised the country for so long, Labor would almost certainly be more successful than Mr. Howard's team.

[Cited in The Weekend Australian 13.10.01]

Too Much Politics?

Labor's problem is too much politics and not enough economics, too much market research and not enough textbook, too much expediency and not enough principle. It would help to get a shadow treasurer who actually believed in this stuff and didn't just mouth the nostrums he thought would get him into government. [Ross Gittins, Economics Editor, SMH 29.10.01]

High Finance

The financial services sector is now the third largest in Australia, after education and tourism, according to Les Hosking of Axiss Australia. Its capitalisation is larger than the combined size of the manufacturing and resource industries. [Andrew Main, AFR 29.10.01]

Foreign Debt

Australia's net foreign debt was 38.2% of GDP in June 1996. The latest figures show it is 46.7% of GDP. Over the five years 1996-2001, it increased by $117.1 billion - equal to $63 million a day. Treasurer Costello says that it had put a premium on Australian interest rates in 1996. This still holds true. Our interest rates are higher than those in the USA, the Eurozone, Canada and Japan. [Stephen Koukoulas, AFR, 29.110.01]

The Wheels Are Falling off the Economy: the bin Laden Effect

Most recent data shows the unemployment rate rising to about 6.75%, as the rate of GDP growth plummeted to a ten year low in the first half of 2001. Many forward indicators of the labour market suggest the unemployment rate will get higher over the next three to six months. This can be attributed to several factors. One is the Reserve Bank's tightening of monetary policy last year; another is the uncertainty of the impact of the GST on spending patterns. Inflation is at a five year high, and if current forecasts are correct, it will be on a ten year high. The series of record lows for the Australian currency has had a negative effect on importers who rely on foreign manufactured equipment; business investment has fallen for two consecutive years - the first time for a decade.

The reality of a ten-year low for GDP growth and the prospect of a ten-year high for inflation would normally have the Government under the microscope for its economic management. Osama bin Laden has ensured that the electorate is focussing elsewhere than on the fact that the wheels have fallen off the economy in the last 12 months. [Stephen Koukoulas, AFR 22.10.01]

Economic Control the Central Issue?

Business groups declared that economic management would be the election campaign's defining issue and nominated industrial relations as a key difference between the two major parties. But the chief economist of the AMP, Dr. Shane Oliver, said that the election is unlikely to have any major impact, apart from adding to a bit of uncertainty. The policy differences between the Coalition and Labor are minimal, he said. [Lachlan Johnston, AFR 6.10.01]

Australia a Branch Office Economy?

The call for an overhaul of investment attraction and promotion comes amid warnings from senior business figures that Australia risks becoming a "branch office economy" unless it dramatically improves its capacity to grow local business, rather than simply importing capital. The Blackburn report also notes that Australia risks falling farther behind in the global push for capital unless it streamlines investment facilitation processes and reduces duplication between Commonwealth and State offices. [Steve Lewis, AFR 14.8.01]

Foreign Capital

Foreign capital is a mixed blessing. This does not apply so much to Foreign Direct Investment (FDI), because, unlike debt, FDI does not need to be serviced and cannot flee at short notice... Over the long term, FDI is a more expensive form of finance... but it is less risky and more productive. [The Economist 29.9.01]

Benevolent Autocracy?

There is a hubris and arrogance that is endemic, and now rampant in Australian corporations and governments. It can be seen in the operation and collapse of the insurance, telecommunications and airline industries, and in the decisions of State and Federal governments every day... No-one asked the Australian people if they wanted to go to war, to blindly follow the hawks of the world into either stupid humiliation or Armageddon... This is not a democracy, it is a benevolent autocracy run by those who see themselves in business and government as the ruling class. [Kevin Beck, letter in AFR 12.10.01]

Buy Up Casks? The ALP announcement that it would tax wine by price rather than volume or alcohol content, should be of concern to Australians. The cask wine industry pays very little tax compared to all other alcohol products because it is taxed solely by price. A five-litre cask selling for $10 pays exactly the same tax as a $10 bottle of wine, despite the fact that the cask will have seven times as much alcohol... This ridiculous distortion only applies to wine. Beer, spirits and most other alcoholic products pay tax according to their alcohol content rather than price, so the more alcohol, the more tax is paid. [Letter to AFR 23.10.01, signed by Professor Ian Webster, President of the Alcohol and Other Drugs Council, and nine others]

Follow my Leader?

The Labor leader Kim Beazley missed a golden opportunity to differentiate himself from the Prime Minister when in Perth to farewell Australia's SAS contribution to the war on terrorism. He should have said that our 150 SAS troops must be subject to clear restrictions on whom they can kill. He could also have said that the policy of bombing power stations and water supplies in Kabul should cease. It does nothing to catch terrorists and only adds to the flood of refugees... Labor's campaign tactics do not allow any hint of criticism of Howard on the war. [Brian Toohey, AFR 23.10.01]

Quote of the Season

"The top end of town, the people in our market-place, have been working really hard for the last three years, for little reward. In buying a sports convertible, which is a way of escaping the bad news, I think everyone is treating themselves". [Maserati's Mr. Herbert Appleroth, in AFR 23.10.01]

An Ombudsman for Higher Education?

This was first proposed in 1997 by the National Tertiary Education Union, when it became clear that the Howard government was encouraging the commercialisation of university work with minimal checks and balances. Most recently the report of the Senate inquiry into public higher education recommended one, but it would not address the causes of the crisis affecting universities. The real issue is reducing the destructive reliance on private funding that has cut transparency and accountability, and increased concerns about the erosion of intellectual values. This means that whoever takes government after the election needs a strategy for restoring public investment in higher education, as well as developing a regulatory framework which will restore public confidence. [Julie Wells, policy and research coordinator for the National Tertiary Education Union, in SMH 22.10.01]

University Complaints Increase

The Ombudsman has warned NSW universities that they are subject to the same level of scrutiny as other public agencies, despite being funded by the Federal Government. Key concerns are the service students are receiving and the adequacy of the information they get. Formal complaints have risen 14% over the last year. The Ombudsman received 76 informal inquiries and 48 formal complaints. [Aban Contractor, SMH, 26.10.01]

Australian Universities Under Pressure

Politicians are not prepared to fully fund the old promises of highly subsidised tertiary education, nor are they willing to reform the universities in a radical way to make better use of the limited resources available. Present funding arrangements pour taxpayers money into middle class households in affluent capital city suburbs, whose children are five times more likely to go to university than those elsewhere. [Alan Mitchell, Economics Editor, AFR 17.10.01]

Academics Support Murdoch

Rupert Murdoch told a Melbourne business audience that Australia risked global irrelevance unless it made an urgent investment in education. His address in support of public education coincided with a similar call from the president of the Business Council of Australia, John Schubert. Their views received a big tick from academics and students. [Rebecca Digirolame and Thea Williams in The Weekend Australian 13.10.01]

Teachers Assaulted

Over the last two years 1450 teachers have been assaulted in NSW; 42 received medical attention. Teachers' resignations from public schools has almost doubled over the last four years. [Robert Wainwright, SMH 26.10.01]

A People's Bank?

Former ANZ bank chief, Will Bailey, has called for a Government-backed people's bank to be created for those left behind by the deregulation of financial services. He said it could operate through post offices, and be modelled on the lines of the old Commonwealth Savings Bank. Banking deregulation had gone too far he said; hundreds of thousands of consumers had been disadvantaged in the quest by banks to satisfy shareholders.[SMH 23.20.01]

Work For the End is Near

One in five Australians is classified as a shift worker. The negative effects of shift-working include "shorter sleep episodes and more awakenings", according to Professor Josephine Arendt, in a recent issue of the leading medical journal, The Lancet. British scientists have shown that the brain can actually shrink in air travellers, whose internal body clock is in a state of perpetual confusion. It is known that eating during the "biological night" leads to greater accumulation of fat in the blood; shift workers are at a 40% higher risk of heart disease, and the body's sugar tolerance declines with nightfall, increasing the risk of diabetes. [July Robotham, SMH 9.10.01]

Female Support for ALP

In recent weeks women's support for the Coalition has fallen from 59% to 51%, and their support for Labor has risen from 41% to 49%. [Deirdre Macken, AFR 26.10.01]

Weakening Demand for Labour

Recent reports suggest demand for labour will be weak until well into 2002; job vacancies for skilled workers are close to four-year lows - the index has just recorded its ninth consecutive fall. [Fiona Buffini and Joyce Moullakis, AFR 26.10.01]

Dismal Global Outlook

We know Japan is back in recession, while Europe's economy stalled in the June quarter, and the Europeans admit it is headed for a contraction. The newly industrialised economies of East Asia aren't important to the world, but they are important to us and are already in a bad way, too. It is this synchronisation - everyone going bad together - that makes the global outlook so dismal. [Ross Gittins, SMH 24.10.01]

Japan - Sick Man of Asia?

Japan, the world's second largest economy, is on the brink of collapse. It is the only industrial country since the 1930ss to experience chronic deflation. Industrial production is falling; unemployment, bankruptcies and suicides are mounting. The banking system is riddled with bad debts. Its public debt ranks the largest in the OECD, and is still growing. The insolvency of the state itself is being feared. The cloud of debt hanging over Japan will take decades to dissipate. In the meantime, Japan faces acute political, economic and social turmoil, and significant reductions in people's income. [Gavan McCormack, AFR 12.10.01`]

Exports Slump in Asia

Exports from Japan and Taiwan - key north Asian markets - were crippled in September, providing further evidence that already weakened world economies have suffered demand shocks in the wake of the terrorist attacks on America... Japan is on the edge of a deflationary spiral. "The key problem is the confidence factor", said Damian Gilhawley, economist with China Securities. Stalled spending in the US and other key markets is pulling down Taiwan's exports, he said, which is hitting industrial production and the tertiary sector. [Andrew Cornell, Tokyo correspondent of AFR 23.10.01]

Poor Expectations

This year the world's leading economies are expected to record their worst growth since 1982, according to leaked preliminary forecasts from the OECD. Its 30 member nations are expected to grow by only 1% in 2001, slightly improving to 1.2% in 2002. The downgraded forecasts are linked to the flow-on of the terrorist attacks on the USA. This caused Australia's Treasurer, Peter Costello, to declare that Australia confronts the weakest external environment for 30 years. [Joyce Moullakis, AFR 20.10.01]

BHP Responds to Crisis

BHP warned shareholders that it faced particularly tough business and market conditions as a result of the September terrorist attacks. The managing director told the AGM that the group's profits had come under pressure, forcing a fresh assault on its cost base, and tighter capital deployment decisions. He also said that the September terrorist attacks had caused the group to form a crisis response team of 60 senior managers. [Barry Fitzgerald, SMH 17.10.01]

Commander Communications Sales Slump

This telephone equipment maker and former Telstra subsidiary has halved its revenue forecasts and cut the workforce by 12% because sales have slumped in the wake of the terrorist attacks in the USA. [Cosima Marriner, SMH 17.10.01]

Tourist Attacks and Ansett Stall Recovery

So ran the headline in the Financial Review of 17.10.01. The largest monthly decline on record, in September, reflected the impact of the terrorist attacks in the USA, and the demise of Ansett. The National Australia Bank now expects only 2.5% growth in 2001-02, revised down from the previous forecast of 3.75%. [Joyce Moullakis, AFR 17.10.01]

Gloomy Prognosis

Access Economics, an independent forecaster, considers that the shock effects of Ansett's collapse, and the terrorist attacks in the USA, could remove 35,000 jobs from the economy and reduce growth by half a per cent. Other reports suggest the tourist industry could take up to two years to recover. Remote rural and regional Australia is most affected. [SMH 17.10.01]

The Price of Progress?

According to Clive Hamilton, executive director of the Australian Institute, the evidence suggests that despite a doubling or trebling of incomes, people do not feel any better off. "Forty years of sustained economic growth was supposed to make us all better off", he said, "but it seems the opposite has happened. The problem is not growth itself, but what has been sacrificed to achieve it". Higher growth does not guarantee that well-being will be enhanced. Trading off more pollution for cheaper electricity, and accepting longer hours and reduced job security for faster employment growth... will increase GDP, but may have a deleterious effect on well-being. "In order to sustain the growth rate", he said, "the structure of the economy and the labour market have been transformed and the role of government has diminished. Globalisation has built a unified world economy, but for most people it has been an era of psychological disintegration". He went on to say that the post-war dream that we can create a better world for our children was shattered in the 1980s and 1990s, and this made almost everyone feel insecure and confused. [Julie Macken, AFR 12.10.01]

Airlines in Trouble

Swissair has gone bankrupt, the second European flag-carrier to do so after Sabena, Belgium's national carrier. It had been in trouble for some time partly due to its disastrous diversification and expansion, after taking dubious minority stakes in several wobbly European air lines. In October, 10,000 demonstrators marched through Zurich's financial district to protest the banks' failure to help. Several of America's ten largest carriers are in danger of collapse despite a government bail-out. These include North-West, Continental, and US Airways. Others in Europe are still in danger; e.g. KLM of the Netherlands. [The Economist 6.10.01]

And Ben Sandilands writes that the great aviation empires are in their worse crisis yet... there is speculation on the demise of half the airlines of America and Europe. The US is propping up its airlines as are Switzerland, New Zealand, and most of Asia. [AFR 23.10.01]

Americanisation? Qantas has announced a ten-year strategic alliance with American Airlines - the world's biggest - which will bring significant savings in costs. Cornerstone of the deal is the firm order announced by Qantas for 15 planes, and 60 options, for Boeing 737-800s. [Geoffrey Thomas, SMH 29.10.01]

Outlook for US Growth Worsens

US industrial production fell for the 12th consecutive month in September, its worst performance since World War II. Industrial production is the primary driver of demand for commodities such as copper, aluminium, nickel, coal, iron ore and crude oil. Industrial capacity utilisation fell to 75.5%, its lowest level since 1983. [Stephen Wyatt, AFR 18.10.01]

The US is now expected to grow this year by just one per cent, prompting economists to predict the global economy will slow to its weakest point in 20 years. [Joyce Moullakis, AFR 13.10.01]

US Trauma

The US Federal Reserve Bank warned that it was too early to estimate the strength or duration of the recession. Its vice-chairman said:

Our country, and our financial system, suffered a trauma of almost unimaginable proportions. If the extent of the economic damage inflicted by the terrorist attacks is unknown at this point, so too is the length of time before aggregate economic growth picks up.

[Brian Hale, SMH 18.10.01]

US in Shock

America is a nervous wreck. The initial shock and fear from the terrorist attacks on New York and Washington subsided somewhat after a couple of weeks, but now it is resurgent. Deep apprehension reaches from the bottom of US society to its very top... The American economy, already weakened before the attacks, is now suffering doubly from the uncertainty of a traumatised consumer class.[Peter Hartcher, AFR 13.10.01]

US Liquidity Squeeze

According to Gail Foster, chief economist of the US Conference Board, America is experiencing a liquidity squeeze of historic proportions. There will be 2 million job losses by Xmas if present rates continue. Corporate losses are already enormous -$922 million over three months, reduced by half with taxpayer assistance. [SMH 26.10.01]

The Thoughts of Chairman Alan Greenspan?

The global economy could be in for a very rough ride... we could be at one of those points - as in 1929 and 1973 - when the prevailing orthodoxy is challenged. It means that politicians are going to be a lot more wary about handing over power to market forces (and central banks). And it means my reputation is firmly on the line. [Attributed by Larry Elliott in the Guardian Weekly 25.10.01]

US Economy Sags

Unemployment claims reached a 10 year high; durable goods dropped in price to their lowest level for five years; Treasury notes dropped to 2.63% - their lowest level ever. Sales of existing homes increased by 11.7%. Economic analyst Rakesh Shankar said that concern about the job market will override the benefits of favourable financing conditions. [Brian Hale in New York, SMH 27.10.01]

Deeper Recession in USA?

There are good reasons to expect America's recession to be deeper and longer-lasting than most people now expect. One is the sheer scale of investment and borrowing during the late 1990s. Another is the unusually synchronised nature of this global slowdown... It is possible that the world economy as a whole may be about to suffer its deepest downturn since the 1930s... that increases the changes of a deeper recession in America. [The Economist 20.10.01]

And Australia?

Australian economic data has been resilient so far, but is now showing signs of slipping. Consumer sentiment fell by 9% in October, to its lowest level since last May. Private sector credit is slipping, and business credit is weak, but housing credit has remained strong. Employment fell by 48,500 in September, the fourth monthly decline. The annual growth rate is 0.3%, the lowest for four years. Business confidence declined by a record 26 points in September. [Economic Outlook, October 2001, St. George's Economics Bulletin for October 2001]

Corporate Fraud

According to Norman Inkster, president of KPMG Investigation and Security in Canada, men in their 40s and 50s earning about $50,000 a year, are the usual suspects for corporate fraud. He was commissioner of the Royal Canadian Mounted Police, and President of Interpol, before joining KPMG. In a survey of 19,000 companies world wide, he found 52% of correspondents had been the victims of corporate fraud in the last 12 months. Most fraud is committed by staff, he said, and is unreported. [ Tom Gulden "The Inside Job - corporate fraud is one of the world's most profitable, and least reported, crimes" in Boss, 20 July 01]

The First War of the 21st Century?

More than a decade after it turned its back on Afghanistan, the US government has now named it as a prime target in what may be the first war of the 21st century. The wealthiest nation the world has ever seen will seek to impose its will on one of the poorest, a land where life expectancy is 43, and one in every four children dies before the age of five... In Pakistan, many are warning that "the dry grass is once again waiting to be lit". If Mullah Omar declares jihad, Muslim youths from all over the world will again come to fight... The Americans will light a fire from Morocco to Mindanao, Hamid Gul said. A Pakistan defence expert warns against turning bin Laden into a martyr. If you do that, he said, "you will have more bin Ladens springing from the ashes of the first... The world will soon learn whether terrorism can really be destroyed like piracy... and if evil can be excised by armed force. [Julian Manyon, The Spectator, 22 September 01]

Dreams, Violence, Religion, and Oil

Most countries in the Arab world have a rapidly growing population, at least 60% of which is under 25. Outside the oil-rich states, this means that there is a large supply of young men with few career prospects, whose lives have no meaning except dreams, violence and religion. Most of the oil-rich states import large numbers of guest workers, who often outnumber the indigenous population... The region is full of inflammable material, as well as the oil needed to fuel the world economy. [The Spectator 22.9.01]

Opium of the People?

Intelligence reports suggest that the latest sources of funding for bin Laden's networks have been arms and drugs. The millionaire terrorist seems to have built up a lucrative business in these areas with the help of local and international mafias, whose selling and money laundering techniques he has copied. According to a UN report, opium production in Afghanistan - where bin Laden is said to be hiding - was more than 44,500 tonnes, or 80% of world output in 1999. The report put the value of that opium at $91 billion. [Martine Orange, Guardian Weekly 3.10.01]

Money Laundering

A French parliamentary report said that the City of London is a money laundering haven for billions of terrorist dollars. [Le Monde, p.29, reported in Guardian Weekly 18.10.01]

A Global Force to Police Banking?

If the new world order is not to give way to what Le Monde has dubbed the new world disorder then we must grasp the scale, complexity and implications of the challenges that lie in the rubble of New York and Washington. One of the most striking changes has been the willingness of the world, led by the United States, to hunt down the financial assets of terrorists as well as criminals, drug dealers and money launderers. As a result of President George Bush's response expansion of trade flows will be checked by what is in effect a levy on globalisation (through increased airport and insurance charges, etc) while surveillance will be increased. The global village is getting its own police force. [Guardian Weekly October 4-10 2001]

Another Quote of the Season

Today's Tories think too much. They did better as the stupid party. [The Economist 20.10.01: "Bagehot: the trap of ideas".]

UK Renationalises Railways

They are bankrupt; top jobs went to executives with no knowledge of the industry, and similarly ignorant consultants were brought in. Costs tripled. The government will, in effect, have to underwrite any future investment, which means that the rail network has been renationalised in all but name. [The Economist 13.10.01]

Public Ownership Makes a Comeback

The British government is renationalising the railway system; Air New Zealand has been renationalised; the US Senate has proposed renationalising airport security. These renationalisations spell the end of the idea that privatisation can never be reversed... When privatisation has been bungled, renationalisation may be the best option...

The outstanding Australian example is the half privatisation of Telstra... Governments cannot walk away from their responsibilities to maintain safe and affordable access to the infrastructure system... If taxpayers are going to bear the residual risk in cases of this kind, they should have access to some of the profits. Public ownership is one way of achieving this balance. [John Quiggin, Senior Fellow at ANU, in AFR 25.10.01]

Democracy and Economics in Latin America

During the 1980s many Latin American countries threw off military dictatorships in favour of democracy. Their new leaders embarked on free market economic reforms, most of which have lasted until now, but are being challenged. The region faces another economic slowdown as it emerges from recession. Economic growth has averaged only 3% p.a. in the 1990s - only 1% improvement on the 2% of the 1980s. One Latin American in three is still poor... Political parties are weak and fragmented... Politics is too often tainted by corrupt populist practices from the past, which makes it harder to reform the state. [The Economist 28.7.01]

South Africa's Private Security Industry Thrives

The S.A. Government has just passed a bill to regulate the 5,000 odd companies in the industry. Foreign firms are to be kicked out - all firms must be owned and controlled by South Africans. The industry has been growing at 30% a year, and has the largest share of the economy of any country in the world. It is expected to grow at between 12 and 17% p.a. There are already three private security guards for every uniformed police officer. [The Economist 6.10.01]

The Restoration of Capitalism in the USSR

Unemployment is rampant, estimated at 40 million. The wealth produced by the Soviet working class has been stolen by a handful of kleptocrats and mafiosi, whilst the mass of the people have been reduced to penury... A once great socialist country has been reduced to a third rate capitalist one, burdened with a huge foreign debt, and bleeding through heavy capital flight. According to a UNICEF report (November 99) about 20% of the children of the USSR and Eastern Europe are homeless. It also says that sexual slavery has returned to these countries; an estimated 500,000 women are trafficked each year from Eastern Europe and the former Soviet Union. About 15,000 Russians and East Europeans work in Germany's red light district. [Harpar Bral, The Guardian, 17.10.01]

Political Economy has Become Sociology

Sociological analysis has become central to both governance and alternative policy proposals. It applies to a small group of men who have disproportionate influence within the sociological profession. The current influence of the sociologist kings is related not to the demise of economists, but to a growing recognition that today, more than ever before, political economy has become sociology.

The sociologist kings are preoccupied with societies that can no longer provide work in the old industrial way or under conditions of earlier forms of collective solidarity... The fundamental problem which most recognise is that modern societies are too fragmented culturally to reconstitute a `collective consciousness' even if such an objective were desirable. Hence, the political and economic preoccupation with new `third ways' and new forms of community to meet the challenges of rampant individualism, loss of stable forms of wage labour, changes to gender and family relations, and the erosion of civic morality. In short, their policy objectives revolve around the task of constructing a `socialised economy' of crisis management. [Boris Frankel, Arena Magazine April 2001]

Economic Conjuring Trick?

Howard's new business policy promises something for everyone, but his commitment to review competition legislation has questionable benefits for small business... Just how a review can hand a cosy merger regime to business, increasing the likelihood of fewer, larger and more powerful firms, and also put a check on their market power for small businesses, will be a conjuring act worth sticking around for. [Katherine Murphy, AFR 27.10.01]