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Henry Thornton - Contributors: A discussion of economic, social and political issues Blogs
IMF throws in the towel
Date: Wednesday, September 21, 2011
Author: Henry Thornton

The IMF Chief Economist Olivier Blanchard has thrown in the towel and downgraded the lumbering international agency's economic forecasts.

Though Blanchard still expects 4 % growth for the world, hardly shabby, his forecasts for developed countries have been edged down from 'barely acceptable' to 'bloody miserable'. (These are technical economic terms that sound far more impressive in French, ze language of love.)

As warned yesterday, expect a backflip from Madam Legarde on the question of whether developed nations should tighten their belts or send out for more pizza.

Australia's Treasurer has been made 'Finance Minister of the year', an accolade that must peeve Ms Wong. Henry recalls once being told that 9 out of ten winners of Btitain's 'entrepreneur of the year' award ended up broke withing 2, or was it three, years.

Flushed by the award, will Treasurer Swan now blame the slippage into developed nation misery as an excuse to abandon the 'return to surplus by 2013' promise.  Like 'no carbon tax' and 'we will never send asylum seekers to countries who have not signed the UN protocol and dealing with refugees' this budgetary election commitment will prove to be just as firm.

In the gloaming

Amongst the fading light, the Rugby World Cup was meant to kindle light and hope, that is until Australia was choked into an all-but-impossible position by an inspired Ireland.

TP Maher reports here, and if he stays off the turps will continue to do so as the tournement unfolds.

[Ed: We must apologise and withdraw.  TP Mahar would never dring turpentine.  We acknowledge that he is a lifetime single malt quaffer.]

Saturday Sanity Break, 21 December 2013
Date: Saturday, December 21, 2013
Author: Henry Thornton

Mrs Thornton has been out and about testing the state of retail sales. She claims to have noticed that things are far from 'hopping', and has taken advantage of the post-Christmas sales that have been brought forward. The nice man selling pasta at the Camberwell market said: 'Its very quiet this year', a sentiment echoed by other retailers. Mrs T scored a fine new pair of sandals that she'd had her eyes on for months for $25, and the shop brought in for her another pair for the same price.

Australians know things are crook in what once was called the 'miracle economy'. They are hunkering down, with inexpensive Kris Kringle gift-giving instead of making the retailers rich. Mrs T has an interesting theory about how the self-made well-off people of our generation are helping their children and grand-children cope with high house prices, ridiculously expensive child-minding and poor job prospects, which we hope she will put down on paper.

The Oz today has the extraordinarily arresting headline 'IR law puts brakes on carmakers'.  If this is 'news', Henry is a monkey's uncle.  The story of how aggressive and greedy unions have ruined one of our last remaining cottage industries is well known.  Mrs T's labor-voting mates to a woman/man all say 'let the car makers go'.  The Productivity Commission's estimate that subsidies to car-makers add up to $30 billion is a terrible indictment of governments of both stripes over the years - and they boast of removing tariffs.

Big spreads on 'The Lucky Country 50 years on' in the long weekend AFR.  We awoke this morning to the dulcet tomes of Ross Garnaut and George Megalogenius debating their books Dog Days vrs The Australian Moment on ABC radio. George trying to be optimistic, Ross doggedly (I knew you'd like that, Comrades) defending his pessimistic view of Australia's future.  Henry in fact thinks the gloomy one is closer to the mark, but here's the catch.  If we are to avoid serious recession we need to reduce the massive cost overhang that is causing companies and entire industries to shut dowm.  Professor Garnaut has no plan to abolish the cost overhang, and in the absence of a successful plan to do just that we face a long slow time of austerity and quite probably a serious recession.

More here on Dog Days.    And here on the more general issues.

Happy Christmas, gentle readers. We hope you will all be present and correct after (frugal) festivities and that someone figures out how to fix the national cost overhang without a serious recession.

The mad penguin theory of innovation

'Multimillionaire gambling polymath David Walsh says he has stumbled across the answer to an important evolutionary puzzle: why species produce surprisingly high numbers of unpredictable risk-takers who embark on irrational behaviour. They are the mad scientists, odd-ball inventors, and unduly confident entrepreneurs who apportion their time very differently to the rest of us'.

Read on here.


'The Australian cricket team is headed for number one screams' a headline this morning. 'Ouch!' is Henry's reaction.  Please do not tempt the gods in that obviously risky manner.

Will the pestiferous poms -  minus Trott and Swan, and who knows who - climb off the mat to deliver a knock-out blow on Boxing day?  Will 'Pup' again win the toss and bat on a splendid batting pitch on day one, and which turns into a mine-field about 30 minutes before tea on day two?  Will rain end Australia's chances of a fourth win? These are the questions that any serious cricket tragic will be pondering as he/she chews the Christmas turkey on Christmas day.

'Players will be sanctioned' the eminant sporting writer informed Henry as we rode together on the tram yesterday. He's already acknowledged the wisdom of Henry's attack on the hypocrisy of the AFL's fining Melbourne for 'tanking' while asserting it was not for 'tanking', or agreeing that Essendon would not be paying coach Hird in 2014 if he got the full amount due upfront, presumably delivered by Santa, before the end of 2013.

'Demetriou's got to go' was the conclusion as the tram turned into Collins Street.

The Keating.

Joe Hockey ran close, with his 'fit in or f**k off'' advice to Holden.  Glenn Stevens' 'the glass is half-full' also gave it a shake, and provides a model for boosters of Australian cricket.

But regular correspondant Gary Scarrabelotti wins the inaugural Keating award for the 'bravest political truth-telling for the year'.

'The future, if there is one, for Australian manufacturing would look like this: a mass of small- and medium-sized businesses, staffed by a workforce of non-unionised worker-owners, with the companies they own being run according to Open Book Management (OBM) principles'.

Other finalists may be viewed here, along with the contribution in 1986 that led to the creation of this award.

Words you need to know.

A reader has provided the following definition of a most useful word, especially with the festive season soon to be upon us..

Wamblecropt: 'Wamblecropt means overcome with indigestion. Once upon a time, you might observe that your stomach was wambling a bit. If the wambles got so bad you couldn't move, you were wamblecropt. It's the most beautiful word in the English language to say aloud. Try it'.

Our correspondant adds: 'I find 6 and 8 prevalent, indeed almost viewed as a core competency, by many in the corporate world'.

Nine (even) more useful words here

We wish all of our readers, special correspondants and regular writers every good wish for the festive season.

Please do not forget that you can elevate your loved one to Goldmember status for a mere $55.  Goldmembership would provide shreiks of joy, for example, if it was a gift in a Kris Kringle.  'The gift that keeps on giving'.  

Or go to Amazon, where a Kindle version is a mere $9.99 and a secondhand copy is a snip at (gasp!) $71.89. A new book bubble in the making?

Image of the week

Courtesy Sun Herald

Competitiveness, education standards
Date: Thursday, December 19, 2013
Author: Henry Thornton

Its official, government needs to do the heavy lifting of economic reform.  And the biggest area for reform is the labor market, the area where the Rudd'n'Gillard'n'Rudd government(s) did most damage to Australia's competitiveness. This, of course, is the area in which reform, at least of 'WorkChoices' dimemsion, is 'dead, buried and cremated'.

Greg Sheridan comes out punching today. 'Abbott must crush excess regulation if he is to keep the economy viable in the region'.

He quotes the World Economic Forum. "The main area of concern for Australia is the rigidity of the labor market, where the situation has detiorated further".

Then in the fin, one Max Mason reports the boss of PIMCO, 'the manager of the world's biggest bonds fund'.

"Due to elevated cost structures and a high exchange rate, Australia Inc is increasingly unable to compete in a fiercely competitive global market".

Henry cannot find the link, but the article is on P21 of the fish'n'chips version.

And we must salute Ben Bernanke in his last act likely to influence Henry's comfort in old age. Mr Bernanke has announced a tiny start to ending the 'taper' (printing money) and interest rates likely to be lower for longer. This led US share to rocket up, with Australian shares following in hot pursuit this morning.

'The US Federal Reserve announced plans to trim its aggressive bond-buying program on Wednesday but sought to temper the long-awaited move by suggesting its key interest rate would stay lower for even longer than previously promised'. Read on here, fellow oldsters.

Education standards

Regular readers may recall Henry's perhaps eccentric views that it is the rise of women in a wide range of professions that has led to falling standards of education in Australia.

This is because, before women had reached for the stars, bright women traditionally went into nursing and teaching.  Result, excellent teachers and nurses. Implication, well educated young people, a small proportion of whom went to universities the supplied excellent tertiary teaching.

Now of course, when women are Governors General, Prime ministers, police bosses, barristers, brain surgeons, Qantas pilots, even journos, and other high skill jobs too numerous to mention, it is the (ahem) less talented women (and men) who on average become teachers.

A professor-pal of Mrs Thornton revealed a staggering fact that explains why China's educational standards are so much better than Australia's.  In China, said Professor reported, women with the highest secondary school marks typically become, wait for it, doctors and teachers.  Guess which country is in the top few, perhaps even top, in the catagory of 'educational standards'.

With all the flack flying about on the issue of Gonski (now Gornski to chair the ANZ bank) and the division of an increasingly large dollup of dough among schools, etc, will someone in authority please focus on the 'cultural' fact of the quality of teachers and how these can be improved.  The private schools typically have teachers of higher quality than the government schools, and this is not just a matter of higher rates of pay.

Christopher Pyne, this is your holiday task.  If you fail to find a solution, you should be made to sit in the corner with the hat with the big 'D' on it.  Education reform won't save us from the current oncoming deep s**t, but it might help us (Correction: I mean any young person reading this column) in 20 or 30 years.


It was so 'orrible in Perth that Henry began to feel ever so slightly sorry for the Poms.

Henry and Bert have tickets for the Boxing Day test - paid for by Bert! - at the 'G', and by then any slight sorrow will have been washed away in the haze of another festive day or two.

One saw slight signs of Pommie backbone as the tail enders actually scored a few runs, and the Aussies have been allowed (gasp!) a few beers, so perhaps the forth test will offer more of a contest.

Fiscal mess; cost catastrophe
Date: Wednesday, December 18, 2013
Author: Henry Thornton

Australia's fiscal situation is a real mess, far worse than most people imagined. The latest announcement may or may not continue the modern tradition of a Treasury department that cannot understand that repeated failure to present sensible 'realistic worse cases' destroys its own reputation and makes ordinary Australians worry that our economic and political elite don't know what is going on.

Henry cannot understrand the current opinion polls that show Labor well in front after only 100 days of conservative government finding trouble under every rock they turn over.

The case for fiscal austerity is widely endorsed - eg by editorials in the AFR and The Australian today - while the SMH emphasises that tough measures will only be accepted by voters if the overall package of spending cuts and tax hikes are seen to be 'fair'.

The required process is the same as that required by any person or company that has been living beyond his/her/its means. First cut spending and charitable grants.  Then review options for raising money, and a government of course has punitive taxation to make this part of the process technically simple.

But the outlook is so gloomy with $120 billion of deficits predicted for the next four years that many entrepreneurs would prefer to declare bankruptcy. Joe Hockey and Tony Abbott have no such option and will emerge from the coming fiscal struggle far older and battle-scarred than they are now.

Difficult as the struggle for fiscal sanity will be, it is no-where near as serious as the problem of reducing Australia's cost overhang.  The high level of costs explains why vehicle manufacturers, Qantas, tourist operators, educationaliasts and almost all small businesses are suffering with inability to makes acceptable profits, or in some cases total inability to make a living.

One reason for high costs is a greatly overvalued Australian dollar. The dollar now seems to be on a downward trend, and the battle to regain competitiveness must shift to the question of how to prevent the automatic flow-through of inflation that will result from the dollar's depreciation. Actually, costs have to fall substantially if competitiveness is to be restored quickly, and achieving this will require an unprecedented degree of political, business and worker cooperation.

'Economic reform' - cutting red tape, simplifying approval processes - will help but can contribute only a small amount in any one year.  'Reform' can make Australia more competitive in a decade or two but can contribute little in the immediate future.

If cooperation is not achieved, the traditional remedy of deep recession will be required.  Experience in Southern Europe provides little comfort.

Not much about the cost overhang in the RBA governor's opening address at Parliament, available here.  

Italy on the brink.

Ambrose Evans-Pritchard says that 'Italy’s president fears violent insurrection in 2014 but offers no remedy'.

'Events in Italy are turning serious. President Giorgio Napolitano has warned of “widespread social tension and unrest” in 2014 as the Long Slump drags on.

'Those living on the margins are being drawn into “indiscriminate and violent protest, a sterile lurch towards total opposition”.

'His latest speech is a veritable Jeremiad. Thousands of companies are on the “brink of collapse”. Great masses of the working people are on the dole or at risk of losing their jobs. Very high rates of youth unemployment (41pc) are leading to dangerous alienation'.

Read on here.

Saturday Sanity Break, 14 December 2013
Date: Saturday, December 14, 2013
Author: Henry Thornton

During recent years Australia’s budgetary position has been blown apart by foolish and misguided fiscal frolics of the previous government.  Treasury and the Reserve Bank are  of course well aware of this but cannot say this with an equally blunt manner, at least in public. A return to significant budget surplus is the only sensible course, and this will take time and great effort.  Unless Australia’s voters are convinced of the need for fiscal reform, the political fallout from sensible changes to policy will be considerable.

Australia however faces a far larger problem than restoring fiscal sanity. The bigger problem is a cost base far above that of competitor nations.  Henry is in no position to offer precise estimates, but the evidence is overwhelming. The vehicle manufacturers cannot survive without significant subsidies. Qantas is losing vast sums of money on its overseas routes. Inward tourism is struggling. Tertiary education is losing overseas customers. Small businesses throughout Australia are closing shop. Consumers and businesses alike are groaning under the burden of massive cost hikes by electricity, gas and water suppliers.

It is becoming accepted that part of the problem is an ‘uncomfortably high’ dollar. The Reserve Bank has responded with partial success by cutting interest rates and more recently the governor has said limited direct intervention may be used to further reduce the currency. Eventually there is likely to be a far larger currency depreciation imposed by market forces.

Whatever the degree of currency depreciation there will be no automatic resolution of the problem of Australia’s excessive cost base.  Currency depreciation was an important part of Australia’s response with the onset of global depression in the 1930s.  But severe depression meant that cost levels were reduced at the same time and the Australian economy quickly became more competitive.

In the 1980s, as part of the so-called Banana Republic crisis, the dollar fell a long way. The government’s response was to turn a budget deficit into a surplus and to negotiate with unions to secure helpful cuts to real wages.

The team at Henry Thornton.com believe that both fiscal reform and cuts to the domestic cost base are needed now. Without direct action to contain or even reduce the cost base the market will reduce costs by imposing a severe recession and it will be very hard for the Abbott government to avoid being blamed for such an outcome/

Innovative policies are needed to resolve both fiscal catastrophe and the national cost overhang.  In the 1950s, Britich economist James Meade suggested that the British government simply give the coal mines to the mining unions.

Gary Scarrabelotti this week suggests a version of this policy to deal with the cost overhang problem as it applied to vehicle manufacturing.

'The future, if there is one, for Australian manufacturing would look like this: a mass of small- and medium-sized businesses, staffed by a workforce of non-unionised worker-owners, with the companies they own being run according to Open Book Management (OBM) principles.

'That is to say, the employees would hold major stakes in the businesses where they work and the management of these companies would empower the workers to have a decisive role in directing the operations of the business, above all at the workplace level'.

Read on here.  Innovative policies like this are a vital part of avoiding serious recession, which is the usual way an economy purges itself of an excessive cost base.

Graduation Day 2013

Yesterday the Thornton family gathered at Melbourne's Exhibition building - the place where Australia's first national government met - to celebrate the graduation of two offspring, Eliza and Timothy, and that of (it seemed) thousands of their co-graduands.

Hard seats, hundreds of metres from the action (but with a big screen), a procession of academics in Hogwarts-style gowns and funny hats (most of the males without ties), even a Mace.  Much bowing and tipping of the funny hats, often with toothy grimaces as T Abbott is depicted by the AFR's Rowe. The authority figues (on this occasion) were Deputy Chancellors, Deputy Vice Chancellors and Deputy Deans, a veritable flotilla of deputies.  The whole event took more that three hourts, longer if one stayed for the champagne and sushi after the formalities were completed. Oh, I nearly forgot the fine address by Henry's old mate, Keith Hancock, on how the world had changed since he was a new graduate.

As readers who have attended graduation ceremonies will know, each lad or lass mounts steps, waits in line until their name is called out, then walks across the stage, bows to the (deputy in this case) chief who is handing out certificates, receives his or her ticket to ... whatever job excellence or influence can get them.

A highlight was the wonderful pronunciation of the names.  Clearly a strong grounding in Mandarin is needed at Melbourne University, and with our limited knowledge of that increasingly important language we felt those reading out the names did  a wonderful job.  Except in the case of Henry's daughter Eliza. Here I list the five first names (not 'Christian' names necessarily) and the five after that of the Thornton's darling Eliza. Yudi, Hao, Xuan, Zhimo, Fengqin, Eleeeza, Sejung, Quinwei, Nicholas (a break in the series), Hyukjoo and Lucinda.  

Degrees were handed out like eggs produced by chickens in modern egg-producing farms, and one is aware from feedback from our young darlings that is how teaching is conducted at Australia's modern degree-factories. A David John Black received a doctorate for his finding that: '... approximately 20 % of working-age employees can be deemed over-educated'. It was unclear if Dr Black's research related to the whole world, just Australia or some collection of countries presumably including Australia. But it was clear that Melbourne University is engaged in industrial education on a grand scale, and it is highly likely that many of its graduates will find jobs (if they are lucky) for which they are overqualified.

There is (we hope) only one more graduation ceremony to attend, when our oldest son Bert gets his Juris Docter (not actually a doctorate, but like other aspects of modern tertiary education, this is an inexplicable mystery) from Monash University sometime in 2014.  Will Monash hire the MCG, one is gforced to ask, to release an even larger flood of graduates onto a severely over-supplied graduate labor market? 


Fiona Prior visits Yoko Ono's exhibition at Sydney's MCA and pays homage to the visionary, loving and naughty spirit of the Ono/Lennon partnership.


The pestiferous poms are finally feeling the heat, real heat, in Perth.  If they think bowling is hard work, just wait until they are under a helmet with the sun blazing down facing Mitch Johnson with his 150 km an hour thunderbolts.

Sadly, footy in the news again.  The AFL famously said Melbourne was not guily of throwing matches but fined them anyway. They have a notoriously weak drugs policy and generally act like bullies in primary school. Now these iconic sporting managers have insisted that James hird can only be paid in a lump sum to avoid the AFL obiter dicta (that someone failed to write down) that the hapless James Hird receive salary in 2014. Gor blimey, Mr D, do you think we are all complete idiots?

Image of the week - to be provided after Henry's morning walk.

Economic straight talk
Date: Friday, December 13, 2013
Author: Henry Thornton

Thank goodness, comrades, some straight talking on Australia's economic problems/challenges.

Most important is RBA governor Glenn Stevens who has provided a long interview to the AFR.  Highlights include:

* Economy. Forecasts revised down 'But there are some promising signs, I think'.

* Monetary policy. Markets have priced in one chance in three of another rate cut in February. Stevens will not pre-empt the board's decision then.

* On the US Fed 'taper' and the Aussie dollar. 'You have had extraordinary policy accommodation by the Fed and, by the way, not only by the Fed, by the Bank of England, by the Bank of Japan and, in various respects, by the ECB as well. So the extraordinary policies that we’re seeing isn’t just an American phenomenon but it will be the Americans who I would expect will be the first to be able to say, “Look, we don’t need that level of extraordinary accommodation now because things are improving.”

'I think you’re right to expect that the pressure on our own currency to be downward and not upward in that world, though presumably some of that’s already embodied in the current pricing, but I would expect we will probably get some more adjustment when the event comes to pass'.

* On the likely future value of the Aussie dollar. 'I don’t think the extent of our knowledge about what’s correct is that good, but I did think 95 was rather too high. I thought 85 would be closer to the mark than 95 at the time we started to make some comments some months ago, but, really, I don’t think we can be that precise. I just think that if things over the medium term evolve as we’re presently assuming – and I think it’s reasonable to make these assumptions – it’s going to be surprising if a nine at the front is the right number'.

* On the embryonic housing boom. 'I haven’t felt particularly constrained thus far by what has been happening in housing. The view that I’ve held to this point is that we want more dwelling construction. ...
'we have seen an appreciable pick up in investor activity in Sydney ... and people ought to be careful here. Property is not the sure fire, guaranteed way to wealth that we tend to assume. Prices can fall, they don’t always rise and be careful how much leverage there is'.

* So-called macroprudential tools to limit the supply of capital to parts of the housing market,..., even though in some other countries ... seem to be going into it solidly.
'We’ve thought about these issues and we have had, as well, preliminary discussions at a working level with APRA and other agencies about if we needed to do something like that, ...
 'My general attitude to macroprudential tools is I think they’re potentially a useful adjunct to other policy tools that help you manage some of these tensions for a period of time. I think it would be a bit naïve and contrary to the lessons of history to expect that prolonged use of regulatory tools, and that’s what they are, they’re regulatory tools, and we know that regulatory tools over a prolonged period to try to make up for the fact that the price of credit is, in some sense, not in the right place'.

* On intervention to drive the dollar down. 'To the extent anything we’ve said has had some effect at nudging it down, I would regard that as probably nudging the market in the direction of the medium term equilibrium and therefore not inappropriate. But I don’t harbour the illusion that mere words ... are all powerful. They’re certainly not.

* Fiscal policy.
'I  don’t think there’s a need to do a big, discretionary, aggressive tightening in order to achieve a surplus in a particular year'.
'The real question is have we got the revenue streams to cover the good things the community wants the government to give us out over the medium term'.

* Productivity and real wages.
'Wages growth in nominal terms have slowed, to some extent that was expected, but it has been quite responsive to the softer labour market. But the deeper thing that’s happening is, real national income is growing more slowly because the terms of trade aren’t rising, they’re in fact falling a bit. That’s already showing up in slower growth in real wages,...
'I think there is a conversation to have with the community there, I think it will resonate, and what they most need is, I think, a sense that the people who are in charge understand the problem and have a plan that’s going to work, that’s what people want to hear'.
There is an understandable sense stepping carefully through the daisies on this issue, and I recommend readers go the the section about two-thirds of the way through the discussion.

* A nightmare scenario, that unconventional super-easy US (and Eurozone, and Japanese) monetary policy continues.
' I am reluctant to speculate about nightmare scenarios openly but if they all keep doing QE forever does there come a time when we, you know, over the various cycles that the interest rates just keep trending down and we end up in the same place as them. ...
'Beyond that it’s hard to see unless there was a complete retreat in our own country from rational policy making generally which I don’t think that’s happening at the moment and it’s up to you guys in the serious media and us and others [including business leaders] to articulate why sound policy frameworks keeping making sense'.

Read the full transcript for yourself here.  It is a path-breaking contribution, and well done to both Glenn Stevens and the AFR.  My main criticism is that Michael Stutchbury did not ask Glenn Stevens about the potential value of a broad-based tax on capital inflow to tame the dollar, as promulgated here.

We also need some further straight talk on how to convert a fall in the nominal exchange rate to a fall in the real exchange rate = rise in Australia's competitiveness. The real nightmare scenario is what happens if we fail in this vital matter. (More on that issue here.)  

The float of the Aussie dollar

This week has provided Paul Keating, John Stone and various other previous players - even Henry's editor - with a wander down memory lane. 

We read with astonishment Peter Martin's account in the SMAGE.  Mr Martin has done some deep delving and, except for a typo (similar to that in one of Paul Kelly's books), has nailed important parts of the 'inside story'.

Time to turn one's mind to the third test starting today on the 'green monster' in Perth.

GMH off the pot, so what?
Date: Thursday, December 12, 2013
Author: Henry Thornton

Will they or won't they ... queue up for more taxpayer's money? Well, now we know.  With a sweeping global restructure underway and a new CEO appointed, an engineer, (and a mother), it was an obvious decision to quit manufacturing in Australia where unions are too demanding, costs generally are too high, the exchange rate is too high and the local market is too small. The hand-outs on offer were simply too small and (one suspects) the Abbott government too determined not to be conned once again.

The political firestorm is intense and will worsen as an indebted government finds itself unwilling to go further into debt to subsidise failing businesses. Yet in the wake of each large and obvious failure there will be increases in government outlays (eg unemployment benefits) and reduction in government receipts (lost income tax and reduced GST receipts, to name only the biggest two.)  The budgetary situation is already known to be far worse than believed at the time of the final Labor budget and will become far worse if the issues that added up to GMH ceasing vehicle production here are not addressed.

Gerard Henderson's 'Return if the Industrial Relations club' could not be more timely. Three paras from the introduction lays out the policy issues with crystal clarity.

'Labor’s commitment to abandon Work Choices was central to Kevin Rudd’s landslide victory in November 2007. The task was undertaken by the Deputy Prime Minister Julia Gillard in her capacity as Minister for Employment and Workplace Relations.

'The Rudd/Gillard changes, as embodied in the Fair Work Act, had the effect not only of junking Work Choices but also of dismantling many of the earlier Howard reforms and some of the Keating reforms, built as they were on the ethos that centralised wage fixing should have a diminishing role and focus largely on a safety net.

'Despite increased recognition of collective bargaining, industrial relations in Australia is now more centralised and regulated than it was a quarter of a century ago. This is despite the fact that the Australian economy is more diverse, more reliant on small business growth and operating in a more competitive global marketplace'.

Here is a link.  It comes highly recommended by Henry.

An innovative approach to reducing cost levels is badly needed, but changing IR law has been ruled out for this parliament.

The Abbott government is already plunging in the opinion polls.  Whether these polls are accurate is impossible to say, and there is a long time until the next election (if the normal timetable is adhered to.) But there will be shivers crawling up the spines on the Treasury benches, and glee on the Labor side as they perceive the consequences of their mistakes being blamed on the new government.

Reform is needed but any serious reform will be blocked by the current Senate.

Henry is no politician, but as an economist believes government must tell Australians with crystal clarity just how bad is the situation we find ourselves in, and to provide options.

Sadly, there is no evidence that Mr Abbott and Treasurer Hockey 'get' the point Henry is trying to make. (Not just Henry - see Ross Garnaut's Dog Days and talk to just about any clear-thinking economist.)

In the end, the continued loss of jobs and indeed whole enterprises will force the government to face reality.

That is when we find out where this government is going to be ranked - as one-term losers, as do-nothing hang-abouts like Fraser and Howard, or another great reforming government like those of Hawke and Keating and Howard and Costello.

Perform or get off the pot
Date: Wednesday, December 11, 2013
Author: Henry Thornton

The imbroglio over the future of manufacturing in Australia is roiling Australian politics.  This morning on ABC radio, Acting PM Warren Truss was putting the point that Holden should make its intentions clear, like a women who has been dating a married man for years and now wants him to make himself an honest man. Kim Carr, on whose watch Ford and Mitsubishi gave up building cars in Australia, was metaphorically frothing at the mouth about the approach of the pretenders somehow accidentally installed on the government benches.

[Technical note: 'Frothing at the mouth can be caused by any of the following medical conditions: epilepsy, Bell's (sic) palsy, facial diplegia, tumors, cranial verve palsies, or unconscious patient. It can also be caused by trauma and snake bite'.  We sincerely hope it is just the trauma of finding himself on the wrong side of the chamber that is causing Senator Kim's frothing.]

The core reason for the demise of the manufacturing industy is Australia's excessive cost base. As we have pointed out, an excessive cost base is Australia's biggest economic problem, and there is no-one in authority who seems to understand this key point, or if he does, he ain't sharing it with us, the voters. But as the cases pile up - Holden, Qantas, manufacturing in general, tourism, education, health services - it will become increasingly difficult for the Australian government to avoid the conclusion.

Not all journos are bereft of proper analysis. Earlier this week, Grace Collier said Holden is paying its workers two or three times what it should.

'ONLY $150 million a year will save Holden? Rubbish. The Holden Enterprise Agreement is the document that has utterly sunk Holden's prospects. It defies belief that someone in the company isn't being held to account for it.

'Holden's management masks a union culture beyond most people's comprehension. Employment costs spiralled way beyond community standards long ago. Neither "pay freezes" nor more money will save Holden, but getting the Fair Work Commission to dissolve the agreement and put all workers on the award wage might be a start'.

Ms Collier is a Churchill of Australian economic policy, warning us all of the threat from, not Europe, but everywhere.  There are plenty of appeasers, prominant among this group being yesterday's industry minister, Kim Carr.

Read on here if you have paid the extra (beyond the fish'n'chips version) required to get digital access - this policy will not last, Comrade readers.

In the Age, Tim Colebatch made the case for the appeasers. He says that the cost of supporting the car industry is minor compared with the losses Victoria and the country will face if taxpayers don't cough up to keep the zombie car firms pretending to be alive.  This is the core argument of the appeasers of Australian economic policy.

Read on here.

In the Oz today, Steven Schwartz disposes of this argument with great satiric style: 'While Holden continues to be coy about its future, opposition spokesman on innovation and industry Kim Carr advocates taxpayer subsidies to keep it in business. This is not a waste of money, he says, because “every dollar we put in "generates about $20 for the economy”.

'Astounding!' says Mr Schwartz, 'Put your money in the bank and you’re lucky to collect 3¢ in yearly interest, but hand a dollar over to Holden and it miraculously turns into $20.

'Applying Carr’s arithmetic, the $1 billion offered to the car industry by the Abbott government should generate a return of $20 billion.

'But with such a lucrative return, why think so small? Why not give Holden $5 billion and boost the economy by $100 billion? Or better yet, why not toss in $20 billion and earn enough to eliminate the entire government debt?'

And Mr Schwartz has one of the best killer lines Henry has seen this year.  'Giving Holden another $1 billion is like putting a Band-Aid on a corpse'.

Clearly Joe Hockey is vying to be the first winner of the Keating, a new award invented by Henry now that a credible recipient has emerged.

'Mr Hockey told Parliament Mr Devereux should “come clean with the Australian people” and be “honest”.

Either you’re here or you’re not,” he said. Make up your mind/ tell us the truth.

Readers willing to propose other potential winners may contact Henry here.

Saturday Sanity Break, 7 December 2013
Date: Saturday, December 07, 2013
Author: Henry Thornton

We salute the life of Nelson Mandela, a man who changed global politics and relations between those with different skin colors more than just about everyone else.  What a hero, and how satisfying it is to hear reiterated Australia's leadership role in bringing down the south African regime that treated Mandela so harshly.

Australian economy

'Happy birthday, floating Aussie dollar' is the news for Monday, anticipated (of course) by the Oz yesterday and today.

After serving Australia so well for thirty years, it is ironical that now the Aussie is floating higher than we are all comfortable with.

My differences with John Stone are documented here, and his opposition to the float is widely documented in the Oz today, but there is one issue we agree upon - there are occasions in which markets call for intervention. The past year is one in which some sand in the gears of capital inflow might have served Australia well by getting the rampaging Aussie dollar to a lower, more sustainable level.

The death of the auto industry, the dire straits of Qantas, pressure on all Australian industries are made worse by a too high dollar.  But the underlying cause is the high cost base.  It is worth noting that the greatly excessive Australian cost base occurred while the RBA was focussing on keeping goods and services inflation low.  Now this high cost base is strangling our economy and there is no easy remedy.

Here is a suggestion for the newly confident Treasurer Hockey. 

First put the real issue on the agenda for public debate.  Then persuade the 50 most influential business leaders to take a 10 % wage cut, and to publicly ask the government to help them impose a similar cut on their workers.

Do not miss the Raff Report by veteran analyst, Nick Raffan. Here is a snippet:

'US coincident indicators have been looking pretty good. And so they should with durable goods orders starting to plateau. Industrial production lags new orders by six to nine months and longer for some items like large aircraft. In terms of manufacturing the US should remain robust through the first half of 2014. But then what? The next cycle will be a downturn and it is curious that the Federal Reserve is considering tapering its printing of money exercise near the peak of a cycle, rather than soon after take-off in 2010/2011'.

Final business embraces real diversity

 'Diversity in business is not just about having more women in management or on boards of directors.

'There is a wider diversity issue that is being taken seriously by many large and small companies. They are supporting programs to create inclusive workplaces for ­lesbian, gay, bisexual, transgender and intersex employees. [Ed: This para might have included something about skin color.]

'Senior executives of five major employees spoke about these important issues on Tuesday at the Pride in Diversity annual conference in Sydney called Pride in Practice.

'The speakers were Luke Sayers, chief executive of PwC, Matt Comyn, group executive, retail banking services at Commonwealth Bank of Australia, Andrew Stevens, managing director of IBM Australia and New Zealand, Jennifer Williams, CEO of Red Cross Blood Service and Jack Percy, managing director of Accenture'.

HenryThornton.com has long advocated such a policy, and one of our most read blogs of 2013 was based on promotion of the role of ladies in business - linked here.

However, an earlier article from a clearly misogynous reader (NOT Tony!) shows what great progress has yet to occur in the wider population.

For more in this vein, some of it acceptably PC, type 'Women' into the search box on Henry's home page.


Only the boring 'James Hird peptide' imbroglio to entertain us with footy this week, so let's just have a brief gloat about the state of the hapless Pommie cricket team, apparently still reeling from the powerful attack by Mitch Johnson at the Gabba.

Dropped catches, exhausted bowlers and a captain batting like he rather be home in England, yesterday's action had it all. Go Aussies, go.  Can't wait for the WACA.

Remember the cost, gentle readers.  A country's economic state is broadly inverse to its sporting prowess, and out sporting teams have improved substantially.

Image of the week.

Courtesy The Oz

Shrinking to greatness
Date: Wednesday, December 04, 2013
Author: Henry Thornton

The mighty miner that is RIO is shrinking its way to greatness according to the AFR's Matthew Stevens.  What about Australia?

'Last year Rio spent $US17 billion against its business and over the past three years the capital program has averaged out at $14 billion annually.

'Not only was that level of investment unsustainable, it was also indicative of an era when the miner “lost focus on what really matters”, [Sam] Walsh declared at Tuesday’s Rio investor day.

'But by 2015 Rio will have delivered on the demands of senior shareholders by trimming that spend to $8 billion and started returning excess capital to its battle-scarred owners. The net result of this plan will be a 20 per cent reduction in capex over each of the next three years.

'The journey to 2015 will also see Rio make a sustained assault on its debt. It plans to reduce it from $US22 billion to something in the mid-teens by the end of next year, paving the way for a serious step-up in dividends and the potential for more profound capital management'.

In the fish'n'chips version of the fin, right next to RIO's shrink'n'grow paen, is the sad story of 'Oxford Economics', apparently suffering its own problems with costs in Australia's high cost economy, especially the bits with a view of Sydney Harbour.

In a recent 'small briefing', reports Jonathan Shapiro, the Oxford group gave their views of the global economy, a somewhat 'mixed picture'.

'The most glaring chart showed hourly unit labour costs in manufacturing, measured in US dollars, which had Australia at about $US47 ($43), $US12 more than the $US35 in the US and the euro zone. Even in Germany, which Walker suggested was the most productive economy on the planet, unit labour costs were lower, at around $US40, leaving Australian industry without much of a hope.

'The rate of change of labour costs since 2000 has been exponential, almost doubling in US dollar terms, a rate only exceeded by China’s tripling and matched only by Brazil'. (Read on here.)

Precisely Henry's point, achieved without inspiration provided by a view of Sydney Harbour.

In fact, if one looks diligently through the pages of today's AFR, one can find many stories about Australia's cost blowout.

This is Australia's greatest economic problem, comrades, (as argued here), and what a pity the RBA fails to recognise this in its regular literary gems on the economy (eg here)

Henry was labelled 'deliberately pessimistic' in 1986 and, as we now know, despite Paul Keating's subsequent brave policy action Australia still suffered 'the recession we had to have'.

The question is this.  If one of the world's greatest mining companies, one with a strong Australian heritage, is cutting costs rigorously, and thereby shrinking itself to greatness, what is Australia's government doing about the macroeconomic version of the same mess?  Is Tony Abbott Australia's Sam Walsh?  Of course, a company's CEO has more freedom to act than a Prime Minister or President, but  the analogy is valid, and no-one else seems to be asking the right questions.

Readers who failed to see last night's Kerry O'Brian - Paul Keating love fest should do so to see the great man in action. 'We fixed up the joint' is the summary.

Sadly, Henry has missed the first three episodes in this fascinating Quadrology [Ed: is this a word Henry? Henry: it is now.] and must now await the ABC's boxed set, iview having apparently removed episodes 1 and 2, the second of which extends the love-in to include the RBA's RA (Bob)Johnston.

Stop press: Australia's GDP is still growing, thanks to mining, but slower than expected with manufacturing, electricity and gas, etc and wholesale trade actually shrinking.

Macrobusiness's Leith van Onselen provides an excellent coverage.

Australia`s dog days
Date: Tuesday, December 03, 2013
Author: Henry Thornton

The year is winding down with the nation in a sombre mood.  Glenn Stevens' 'glass half full' encouragement has been overtaken by Ross Garnaut's 'Dog Days'.  The Thornton family children, and their friends, are battling to find jobs in a weak labor market, and goodness knows how bad it must be for young people without degrees who have been priced out of the market by a ludicrously large hike in wages of apprentices, courtesy of the late lamented Labor government's 'Fair Work' Commission. Today's news includes young people seeing economic prospects as their biggest concern.

Australia's biggest economic problem is not the budget deficit, which is however a pretty big and intractable problem. Rather our biggest economic issue is a cost structure that is slowly choking various industries, even mining, where there is said to be a 30 % rate of unemployment among geologists. Qantas is losing vast sums of money on its overseas routes, the vehicle manufacturing industry is in the zone of the walking dead and Australian assets are being snapped up, except for Graincorp, which the government has bravely said is not for sale.  The NBN's budget is said to be growing every time it is reported on, and seems certain to create one of Australia's greatest fiscal fiascos.

The Labor opposition, largely responsible for the budgetary mess, due to its hugely wasteful spending during the global crisis but also for failing to nurture serious strategic thinking in Treasury, threatens to bring on a US-style Tea Party debt and deficit impasse. It also plans to fight to the end to refuse to allow the government to roll back the carbon tax, a policy that was  put to the people as explicitly as any policy in Australia's history. Announced intention to foster a more civilised discourse in the national parliament is looking certain to be ditched as the political infighting hots up.

The new government is determined to progress in a measured way but is grappling with largely intractable consequences of Australia's double-digit cost problem. This has been recognised by no official source, and its causes may not be fully obvious to the Prime minister and his cabinet. The RBA, whose history of first rate analysis makes it eminently suitable to ring the bell on this issue, continues to discuss the economy in terms of Keynesian sources of demand.  It's senior officers point out that a good burst of infrastructure spending would compensate for the precipitate decline in mining investment, but fails to ask why mining investment has dried up and why there is little investment in other sectors to compensate. 'It's the high dollar' says the RBA 'and we shall talk it down, and if the circumstances are suitable we may kick it along' - presumably with some of the $8 billion of fresh capital handed over by the Treasurer.

Some experts opine that the dollar at 90 cents to the US dollar is approaching a viable level.  I doubt this - with productivity about 70 % of USA levels, a 70 cent dollar would be nearer the mark.  But even if some crisis or other - perhaps the US Fed finally biting the bullet on beginning the 'taper' combined with more bad news in our economy - drove the Aussie dollar down toward that figure, what is the plan to encourage domestic costs to drop , or even to stop rising?  The Hawke government had its 'Accord' to provide a framework, but the more traditional approach, beloved of the Tea Party fanatics, is deep recession.  Preparing the nation for some austerity is vital, and was a key feature of the Hawke-Keating government at the time of its 'Banana Republic' crisis, but Mr Abbott's ministers are yet to overcome their strong silent Aussie male weaknesses of communication.  Of course, they need proper advice if they are to begin to think about these issues in any deep way, and I fear they are not getting it.

The global economy is showing only sluggish recovery, along with concern that the west may be facing a long period of Japanese-style deflation. China is seeking to rein in inflation and will find its pivot to consumerism very hard to handle. The imbroglio in the East China Sea may help stimulate the global economy, as rearmanent did in the 1940s, but there are evident dangers that some overreaction by one side or another may create some hot shooting. Snowdon's releases of more evidence of spying will add to complexity to all nations' security and diplomatic efforts.

In this vast, bubbling cauldron, there is not much more the RBA can do to help solve Australia's economic problems.  Interest rates may already be too low to prevent further cost disequilibrium. Getting real about economic analysis, and communicating this to the Treasurer and the Prime minister, is about the best contribution that Glenn Stevens and his team can make at this point.

Trouble is, their view may echo that of former RBA governor Bob Johnston, who told this writer (years after the event), that Treasurer Keating never fully forgave the RBA for its strong stand that led to his 'Banana Republic' action. A nutty response, of course, but officials in our system are supposed to show courage whatever the personal consequences.

But perhaps the 'bottle' is less than half full and if this is indeed the case we shall all pay the price.

Ed: The RBA left the cash rate unchanged.  Here is its Dog Day commentary.

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