Thursday 26 February 2009


Kevin Rudd used 7000 words to tell us how we got into this crisis and how transformative it will be. Apart from heralding a return to activist government, he didn't tell us anything about the future he would like to create from the wreckage.

I'm not sure how many other Australians did their penance but last week I took some time out to read Kevin Rudd's essay in The Monthly magazine entitled The Global Financial Crisis.

When I heard that the Prime Minister had given up much of his Christmas break to pen the piece, I was keen to read it. I read with interest his previous Brutopia piece in The Monthly back in 2007 and I looked forward to some special insights and vision in this latest piece. I did not get either.

The Prime Minister provided Australians with an account of the history that led us to our present crisis. Anyone who has spent anytime reading the work of American economists Paul Krugman and Joseph Stiglitz (both of whom are referenced in the piece) and many others would have found nothing new in Rudd's history.

And Rudd's attempt to pin the whole crisis on an ideology embodied solely by the Liberal Party here in Australia is nonsensical. The entire political establishment jumped on the small government, low regulation bandwagon. John Howard, Malcolm Turnbull and Peter Costello have all been quick to point out the warm embrace that Australian Labor federal and state governments, alongside the centrist Blair and Clinton administrations have given to the ideology that created the crisis. The Liberals might be closer than Labor ideologically to the thinking that created the crisis - but if so, the margin is far far slimmer than the Prime Minister suggests.

The most egregious failure in the piece however was not its account of the past, it was the absence of any vision for the future. Historians have the prerogative of writing about the past. In a time of crisis, Prime Ministers are surely compelled to give us a substantial vision of how we should and will respond to the crisis. The only clues the essay provides to the Prime Minister's vision for the future is a return to late 70s early 80s social democracy.

Rudd convinces us of the "truly seismic significance" of the crisis only to take us back to pre Neighbours Australia for the policy solution. What a let down.

I really didn't need Kevin Rudd to provide an historical account of the crisis. There are plenty of these already. What I hoped for was a well argued case for change - not just a statement of the macro obvious about the need for more activist government. Kevin Rudd should have given Australians a sense of how he would like Australia to look after the crisis - the tax system, the health system, the education system, the pension system, business regulation, economic priorities etc etc and how his vision might might come to be. This would have made for interesting reading. But it would have required imagination, courage and policy specifics.

If the Prime Minister succeeded in persuading us that we really are at a "turning point between one epoch and the next", he did nothing to convince us that he has the vision to lead us into the new epoch.

His focus on the macro issues and his refusal to meaningfully address any of the specific challenges thrown up by the crisis - apart from the obvious issue of financial regulation - was cowardly. I have an increasing sense that many of his prescriptions for economic recovery are the same.

Kev probably should have focused on his tan.

Wednesday 18 February 2009


Peter Costello's throwaway reference to Kevin Rudd's fluency in Chinese is more revealing than his empty contribution to the Chinalco - Rio discussion.

Peter Costello's piece in yesterday's Sydney Morning Herald on Chinalco's bid for a substantial stake in Rio Tinto raised some interesting points.

Strangely, he avoided what many regard as the biggest issue of the bid - whether Chinalco, as an enterprise wholly owned by the Chinese government will be a conventional investor seeking conventional returns, or a stooge serving the Chinese hunger for secure and well priced resources.

It's a classic oversight from a man with a history of blindspots. Costello managed to serve at the top of John Howard's government for more than a decade without a plainly argued analysis on issues like the Iraq War, children overboard, mandatory detention etc etc. It's like certain parts of the man's brain have been removed. Paul Keating's description of Costello as "all tip and no iceberg" nailed him.

I found something else in the article more objectionable than this omission though. Costello writes, "The ultimate decision on whether this proposal will be allowed under Australia's foreign ownership laws must be made by the Treasurer. Our Chinese-speaking Prime Minister will undoubtedly favour the proposal."

The Liberal Party's disgust at Kevin Rudd's fluency in Mandarin has been festering since Rudd was the Shadow Foreign Affairs spokesman. Downer could not disguise his contempt for the idea that his opposite could converse with the Chinese in their language. Now, once again, perhaps one of the most truly impressive things about Rudd is turned against him in an appeal to the most shameful of Australian failures - our monolingual and monocultural superstructure in a raucous multilingual and multicultural nation and region.

The implication of Costello's line is that Kevin Rudd's Chinese language skill distinguishes him from the rest Australia's monolingual white mass and somehow compromises his capacity to make decisions in Australia's best interests when engaging China. It's a line that would have flowed smoothly from the mouth of Pauline Hansen and her cohorts.

Kevin Rudd's knowledge of China and the Chinese language are great assets to Australia and a great example to future generations. Impugning him for this special talent is the work of the most base political operatives.

Also see - If you don't speak English, don't speak at all

Wednesday 11 February 2009


Telstra CEO Sol Trujillo's foray into the debate about executive salaries in companies being propped up by government money is interesting.

Earlier in the week Telstra CEO Sol Trujillo told a conference in Brisbane, "If you're the executive of a company that chooses to become government-dependent in terms of your future, they need to accept certain limitations on their compensation (salaries) because they're using taxpayer money".

Is there a company in the country that has been more dependent on the Australian government and people than Telstra?

As he reflects on his earnings in the last financial year ($13.4 million), he might like to consider that at Telstra, he took over a company that was previously a government monopoly that inherited a huge amount of benefit from that priviliged position including until recently a continued government stake. Australia's regulatory framework has long rewarded Telstra. The Howard government was especially torn between the interests of the Australian economy and those of the mum and dad Telstra shareholders to whom the great Telstra share investment dream had been sold.

Telstra's share price and Mr Trujillo's package have benefited enormously from government decisions including the decision of the Future Fund to invest heavily in Telstra shares. The Future Fund holds a 16% stake in Telstra that at last check was valued at around $7.6 billion.

The wider story though is this. Every company is dependent on government in a huge way - positive and negative. And to that extent, the community has a rightful stake in every salary. That's not an argument for over regulation of salaries. It is simply a statement of fact. Travel the world and look at the wealthiest and most functional societies as well as the poorest and most dysfunctional. The government's role and the functioning of the social contract is what distinguishes Australia from Afghanistan or Norway from Nigeria.

Telstra is a beneficiary and casualty of good and bad decisions made by government on all kinds of issues including such diverse policy areas as health, education, law enforcement and superannuation - not to mention good and bad regulation.

If it's one lesson we have learnt from the current financial crisis, it is that there is little correlation between salaries earned at the top and a real contribution to the economy - not to mention society. Many of those at the top of the wealth ladder are most culpable for the current crisis.

CEOs have been telling us for so long - especially in the finance sector - that if we don't pay these huge sums, we'll compromise our future. And look where that has gotten us.

The basic issue is that we're all a lot closer together in this process than your average CEO wants to pretend. The nurse working shifts at the local hospital, the garbage collector doing the morning rounds and the teacher doing hard yards in a tough school have been massively underappreciated during the past two or three decades while the CEOs have convinced us that the supposed genius resident in them is worth so so so much.

I didn't buy that before the crisis and the crisis has just proven the point.

Sol was right to back government controls on the earnings of companies in which the government has a big stake. Only problem is, he forgot to look in the mirror.

Tuesday 10 February 2009


It's been a very civiliised economic crisis to date. People are a lot poorer and many are facing financial ruin. There must be some anger building. The young unemployed? HECs indebted graduates? Victims of AAA rated investment products that are now worthless?

Commentary on the economic crisis and its likely impact on China frequently refers to a nominal growth threshold of 8% below which China's political stability is said to be threatened. I am curious about what that number is in the developed world?

It is conventional wisdom that countries with a functional safety net are a better bet for social stability during crisis than countries like China where the safety net is weak or non-existent. Of course they are.

Yet it occurs to me that there are many more complex issues at play in this question - and Western countries would do well to run an analysis about the fragility of their own systems.

I hope confidence in our social and political institutions is proven better founded than the confidence we once held in our financial institutions and their governance.

A rarely acknowledged factor mitigating against political instability in China is the relatively recent experience the Chinese have of the terrible hardship and brutality of political chaos. The ruthless effectiveness of Chinese authorities in dealing with political insurrection is another factor.

A decision to launch a major political challenge in China is a massive commitment for which one must be ready to face the harshest penalties and even death.

A Chinese citizen may make the entirely reasonable choice that, based on the past century of history, the corrupt strong arm of the Communist Party is preferable to the likely alternative should things start to deteriorate. That decision however will depend on how desperate things become and how effectively the government can manage the crisis.

While Chinese expectations of prosperity have shot through the roof during the past decade, Chinese people also have a cautious appreciation of how fragile periods of prosperity can be. Stability and order remain amongst the most cherished things in the Chinese mindset. Even the youngest Chinese workers can see that bitter hardship remains a reality for most of the population. And they are also aware of the profound improvements of the past two decades. They are proud of their country's elevated status in the world and they credit the government for this.

It will take a massive souring of the economic landscape to turn the increasing number of sporadic protests, usually about local land and corruption issues, into a national movement.

Western analysts spend plenty of time pondering China's fragility. I have not yet seen any speculation on the likely political implications of the crisis in Western countries. Yet it seems very possible that a continuation of the current collapse may also precipitate an outpouring of anger in developed countries. While the Chinese threshold for radical political action is tempered by their collective memory of hardship, what of developed countries? What is the unemployment threshold for political instability in the developed world?

In the West, all but the most elderly have no memory of serious hardship. World War II and the Depression are remembered only by those in their late seventies and older. Political stability is taken for granted.

The developed world has provided a linear life course for most of its people for more than fifty years. Things don't change very much and people's lives progress along a reasonably predictable course. Increased wealth and technology sweetens the course - but most people in their forties and fifties seem to be doing things the same or similar to what they were doing twenty years ago. Not so in China.

In Australia, the past decade has created new expectations of ongoing prosperity from rising property values, soaring equities - and the bonanza from a booming resources sector. There seems to be a great danger that the promise of a linear life is threatened.

Yet it's not like the boom was that good. Plenty of wealth was created and huge chunks of it found its way into the pockets of the financial engineers that brought us the present crisis and their friends in the top 1% bracket of wealth. And despite all that prosperity, our health system is a shambles, our public schools and universities are run down and our infrastructure is in a state of neglect . We couldn't fund our projected health care and pension costs during the good times - six months ago. How are we placed now?

If China's political fragility is based on a disempowered minority facing severe economic hardship, Australians might consider the situation here. We should not assume that our democracy and a freeish media provide empowerment for all stakeholders in the community - especially the disadvantaged. And we should not assume that a safety net that leaves its dependents in poverty - especially those who didn't see poverty coming - is a guarantor against fury.

Once there's enough rice in the bowl, poverty is relative. And a vote alone does not a democracy make.

Let's hope that the doomsayer who predicts "this crisis will get worse before it get worse" is wrong.