Sunday, April 29, 2007

Mr Rudd & Luna power

Mr Rudd's performance at this weekend's National Conference has been uninspired. His policies are populism that will damage Australia and do little more than hold out a fillip of hope for a fading trade union movement. Let me pick a few of the issues that have made news headlines.

On renewables and water tanks

This is a particularly poor policy. I am interested to see how some of Rudd's leftwing supporters (who do know better) will comment on it. The proposal is to give $10,000 interest free loans to households earning up to $250,000 to fund the installation of solar panels, solar heaters and water tanks. This is part of Labor's commitment to Australian climate change issues.

The interest subsidies are not means-tested In response to criticisms of this Mr. Rudd made comments that made me think twice about my earlier suggestions that this man has intelligence. I quote a number of his statements because they equally provide a good Sunday night laugh:

‘In some parts of Sydney, families were struggling on $200,000’.

‘Our policy includes all working families… We don't have some sort of class enemy basis upon which we do this - that's the old politics of the past’.

‘… he assumed that families who were having trouble making ends meet would be the ones who took up the offer’.

‘Families were struggling with four interest rate rises and a crisis in housing affordability… (to) find the extra available funds to go out there and stump up at commercial interest rates the extra money necessary to whack on the solar panels, it's a real challenge’.

‘We're also on about the great spread of Australia - that is, a whole people from diverse income backgrounds and our message is reflected in terms of what we're doing for small business, what we're doing for families through the industrial relations policy, what we're doing for the education revolution, what we're doing in terms of broadband.’

‘ the solar, green energy and water renovations plan, outlined at the ALP national conference today, had the potential to cut 15 million tonnes of greenhouse gas emissions - the equivalent of taking four million cars off the road for a year or planting 15 million trees.’

‘This is practical bread-and-butter stuff that the Labor Party is so good at’. (My bold, what a corker!)

Yes this is the man who is leading in the opinion polls! Mr. Rudd must know that, irrespective of its distributional implications, this is a totally uneconomic proposal that even supporters of Labor see as crazy – even if, for example, the solar technologies were implemented on a much larger commercial scale. There are cheaper and effective ways of saving both water and energy than relying on backyard technologies.

I doubt even Rudd believes this lunacy – its just vote-buying populism based on community ignorance. But on the basis of such lunacy can one take Labor’s views on uranium seriously?


I am grateful that, yesterday the Labor Party at its National Conference abolished its 3 mines uranium policy. This was the obviously confused policy, that has prevailed since 1982, and which recognized the right of Australia to mine uranium in 3 locations but not in others. One of the locations (Roxby Downs) has massively expanded its planned outputs over this time to make it the largest producer on the planet - but that's fine, just keep production at those 3 locations.

It was also a plainly ridiculous policy and destructive of the national interest since nuclear fuels are a major source of electrical energy in the world todayabout 16% of the total - with Australia possessing 38% of low cost recoverable reserves. The old debate about whether the world should switch to nuclear power ended decades ago.

That the abolition of the three mines policy caused overwhelming controversy at the National Conference says much about the Labor Party and its fitness to govern federally – 205 votes for getting rid of this piece of stupidity versus 190 for retaining it does not confirm much a balance of sanity. This is a Luna Labor Party.

But the companion decision to retain bans on developing an Australian uranium industry displays even deeper illogic.

I am not convinced of the economic case for developing a dependence on nuclear fuels - as the Switkowski report emphasizes, the case seems to require that carbon emissions be taxed at a hefty rate. They should be taxed if one believes (as I do) that global warming is a real problem that we must urgently address - the issue is how ‘hefty’ is hefty?

But ruling out uranium use on the grounds of its economics is quite different from banning it at a Labor Party National Conference because a bunch of unionist hacks have confused priorities in addressing energy supply and greenhouse problems. How can use of uranium in Australia be a priori unjustified if we export it for use elsewhere? Processing nuclear fuels in Australia will involve waste disposal issues that can be addressed in Australia. If there is concern about waste disposal then why not create waste where it can be appropriately dealt with - Australia has the wealth, the regulatory framework and the physical environment to deal dsafely with the waste.

John Howard is on sound ground in pointing out the hypocrisy of Labor’s moves. Yes it is politics but fair politics. Howard too should be careful about the underlying economics. Unfortunately too he needs to watch the politics - Rudd will run a scare campaign up to the next election on whether voters want a nuclear power station in their backyard. Not many votes in the policy even if it is sensible.

I assume Labor will eventually come to its senses and get rid of its ban on a local nuclear industry. Let’s hope it doesn’t take another 20+ years.

Industrial Relations

It is deeply worrying to me that Labor says it will be a 'business friendly' party and will 'talk to business'. The worry is that a party contemplating assuming federal office in this country needs to make such statements. One wonders how it would otherwise ever hope to govern.

The difficult feature of Labor’s IR policy is that the policy seeks to come to the rescue of a fading trade union movement when Australia is currently enjoying the lowest unemployment rate, 4.5%, that it has experienced for 32 years. Wages are increasing and even unskilled workers are rejoining the workforce. Wages are growing strongly in resource sectors but are not flowing through to less productive parts of the workforce thereby increasing inflation.

The basic fallacy in the Labor Party’s IR policy centers on the notion that one can legislate in a voluntary employment situation, to guarantee minimum wages and conditions for labour, without affecting the demand for labour. You cannot - at least once the restrictions are known to those doing the employing.

The union movement in Australia now represents only 20% of Australian workers and they are very much concentrated in the public sector. Furthermore, this role will diminish further particularly if the Coialition is reelected. The Australian economy is driven largely by service industries not manufacturing and this trend will continue. Workers in these industries do not see themselves as downtrodden section of the proletariat who will inevitably vote Labor. Most see the union movement as a negative social institution that causes unemployment and pursues a political agenda that they want no part off. The main asset the union movement in Australia possesses is substantial control of the Labor Party.

Until this changes and until union leaders like, Combet and Shorten. are seen not as leading lights but as dinosaurs representing narrow, unrepresentative sectional interests, it will be difficult to get much of sense on IR from the ALP. We do not need a return to trade union-driven AIRC rulings and that’s what the new structures envisaged by Rudd will become if Labor is elected.

Prior to winning Rudd has enormous clout with the unions – back me or we will lose is his battle cry. But after winning - a great transformation will occur - and he will have no clout. The Labor Party longs for power after more than a decade in the political wilderness but the major interest group driving policy, as well as determining ALP funding, is the trade union movement.

This is a structural feature of the Labor Party that limits Labor's options to take Australia forward. To say that the policy is ‘fair to families’ or that they guarantee ‘a fair’s day’s work for a fair day’s pay’ is weasel-word nonsense. It is not a sensible basis for IR policy where 80% of workers are not in trade unions and where flexibility not a heavy-handed revamp of the AIRC is called for.

Update 1: The Business Council of Australia response to Labor's IR policy is here.
Update 2: At both Andrew Leigh's and Joshua Gan's blog my post on the subsidy proposal is represented as a criticism of its distributional implications. I think a careful reading of the text above does not support this though, I agree, I could have expressed myself better. I simply found Rudd's defence of his position comic. If the subsidy is to provide a 'second-best' substitute for a carbon tax to encourage less carbon emissions then, on efficiency grounds, there is no case for 'means testing'. My case against the subsidy is it is an expensive alternative to using fossil fuels. The extra cost would swamp any external costs saved. The best proposal is to levy a carbon tax and let consumers choose their mix of conservation and use of alternative technologies.


Jed said...

If it encourages more people to buy a solar hot water heater it is worth it...a populist policy with a good outcome is better than a populist policy with a deterimental outcome.

procrustes said...


What is a good outcome?

When the objective of the policy concerned could be met at much lower cost by using a different approach - does that make it a good policy outcome?

When the policy directs scarce resources to the relatively well-off to subsidise things they might do anyway - does that make it a good policy outcome?

When the policy does all of the above but gives you a warm-inner glow - does that make it a good policy outcome?

Damien Eldridge said...

Harry, you suggest that the ALP should talk to business but should view people involved in the union movement as dinosaurs. Why do you think business representatives are so much more worthy than union representatives? Surely both are special interest groups? Either you should talk to both of them or talk to neither of them?

I am more than happy to agree with you than the union movement have occassionally advocated policies that adversely affect social welfare in Australia. The minimum wage is a prime example of such a policy. However, I suspect that the same is true of the groups that represent business.

Damien Eldridge said...

Clarification: I think that business groups are just as likely to advocate policies that would adversely affect social welfare in Australia. I am not claiming that business groups support minimum wages.

Anonymous said...

dissapointing economics of you Harry.
Bob Gregory has pointed out the employment growth recently had been in Qld and WA not across the board but IF the IR legislation was rsposible then we would see job growth across the board.

Moreover we have seen over 1300 pages of extra legislation and even the Minister now can veto any agreement.

I do not recall the present Government doing anything with minimum wages so if you are going to criticise any party on these grounds then you have to criticise both.

Just admit it and say you are a Howard supporter and leave it at that.
Don't attempt to dissembles any policies

hc said...

Anonymous, If Bob Gregory did say that he is wromng. Since 2004 unemployment has dropped in every state except South Australia. In Victoria it fell from 5.5% to 4.9%. Agreed it has fallen furthest in WA and to a less extent Queensland. There has been broad-based job growth without a breakout of cost-push inflation.

The Fair Pay Commission substantially incrteased minimum wages last year.

I have never tried to conceal my view that John Howard is a very good Prime Minister. So I don't have to 'admit' anything. My criticisms of Kevin Ridd's policies stand.

Damien, I think that having a party in power in Australia today whose national policies are determined by non-representative trade unions is crazy. Doctors, lawyers, teachers, train drivers even economists yes! Union bureaucrats no!

My guess is that intelligent Labor knows the day of the big divorce from the union movement is coming. It may have already come - one wonders how important Mational Conferences will be for an ALP in government.

My comment on the fact that Labor is advertising that it is 'business friendly' is attempting to say this is a strange sort of position. Of course parties must talk to business and perhaps even unions. But why the need to say this?

How does the ALP see its role in a modern market economy? Isn't this need reflecting an outdated worker-versus-firm view of the world - a view that may have been relevant 100 years ago but not today.

robert merkel said...

Harry, I notice you haven't responded to the criticism that the Coalition often takes its marching orders from unrepresentative rent-seeking business groups, to the detriment of Australia as a whole. AWB, water policy, the banana quarantine, just about every single domestic defence procurement...

But on the issue of sun-worship, the reports suggest the coalition is going to throw money at solar panels on roofs. If it's stupid for the ALP to promise to subsidise a broad range of environmentally-friendly technologies, surely it's colossally stupid for the Coalition to promise to subsidise the most expensive way yet known to humanity to cut greenhouse emissions (except for the hydrogen-powered BMW 7 series, perhaps...).

hc said...

Come on Robert you know I have criticised the coalition policies on water. For example, I support the buybacks but I don't support the attempts to engineer technological fixes to MDB water management issues.

I also opposed the banana import restrictions on this blog.

The AWB acted unlawfully and was brought to account. Some have alledged that the government knew what was happening there. You seem to be going further to suggest they drove government policy. A bit difficult to believe if last week's press reports are to be believed - that the single desk function is to be taken from AWB.

I agree the $4000 subsidies for solar panels are a stupid waste of money - and in fact probably more expensive than a $10,000 interest free loan - it was my oversight not to mention this in criticising Labor's policies.

Generally I agree that rent-seeking behaviour by firms in the economy is a problem.

By the way Robert do you endorse Labor's energy and IR policies? That was the point of the post.

Jed said...

I take your point procrustes about subsidising people on $250k/yr; the cut-off point should be at least $100k lower, however that aside I think it is a valid policy, and if it is part of a suite of policies addressing climate change it is a good one.

The fact that it will help to stimulate the renewables industry has got to be an improvement on a $5Ba/yr subsidy to the coal industry!

rabee said...


Did Rudd have anything serious to say about health care?

I hope they rollback the private health insurance rebate, which to me is all about the healthy self insuring battlers (making <=$250kpa:-)) subsidizing the unhealthy rich.

Panadawn said...

I think most economists worth their salt now acknowledge that Milton Friedman may have been onto something, but it seems modern Labor haven't even heard the name. Their IR policy platform even rolls back some of Keating's reforms... why would they do that?

Anonymous said...

Harry you say in a roundabout way that yes unemployment has fallen further in WA & Qld. Fancy that.
The new IR laws would surely make it easier for the unskilled to gain a job.

Not many of those in WA or Qld in the resources boom.
Of course one might expect unemployment to fall after 16 years of consecutive growth.

Can you tell me how Howard is going to have Nuclear power without a carbon tax or equivalent?

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