Interview: Polar Eclipse
Industrial: Wrong Turn
Unions: Star Support
Workplace: Checked Out
Economics: Sold Out
Politics: Green Banned
History: Potted History
International: Curtain Call
Review: Little Fish
Poetry: Slug A Worker
The Locker Room
"Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler from a few years back." (J M Keynes: General Theory of Employment, Interest and Money)
Keynes was on to something here. Our IR policies are boiled down versions of the lunacy sprouted by the HR Nicholls crew in the early 1980s. Peter Costello was one of their pin-up boys then after attacking the workplace rights of abattoir workers.
When the Future Fund was announced in May it was said to being funded by sale of the remaining government interests in Telstra (John Garnaut and Stephanie Peatling; 10th May, 2005, SMH). This month we have the government saying it will buy part of the Telstra shares with the Future Fund.
The announcement of the Future Fund was reported fairly heavily at the time of the budget, usually as an example of the prudence of the government and Mr Costello in particular. Alan Kohler in the business pages was the most realistic reporting on it as not so much prudent "economics" but as a long term war-chest for the government to ensure their future for the next 30 years.
Ken Davidson has been hammering away at the ALP and the Coalition for years in the Age and is about the only media commentator to point pout the folly of the fund and its potentially disastrous consequences for "Howard's Battlers".
A fan of the old J M Keynes, Davidson uses a treasure trove of Keynes observations, not written as an academic scribbler but as a player in public policy debates during the depression of the 1930s. Keynes was horrified at the policies adopted from the 1920s in the UK. His observations and advice, as quoted by Davidson in his editorial in Dissent (no 18, Spring 2005) are apposite today:
"...a speculator is one who runs risks of which he is aware and an investor is one who runs risks of which he is unaware. The management of stock exchange investments of any kind is a low pursuit, having very little social value and partaking (as its best) the nature of a game of skill from which it is a good thing for most members of our society to be free...(Keynes lecture at Kings College Cambridge 1938).
Keynes knew a thing or two about the stock market being a regular player at that casino himself, and often enough sending himself close to the wall. (see Skidelsky's biography (vols. 1and 2)of Keynes on this).
As the government has proudly set out to use pubic money to invest/speculate on the stock exchange as some form of future security we as members of this society are sadly not free of this low pursuit.
As a blogger at http://www.henrythornton.com/article.asp?article_id=3273 puts it "This is where we need to scrutinise carefully the possibility of political sticky fingers wanting their pet projects approved in the application of the Future Fund. We have already seen politics coming into the application of the National Heritage Trust, which is being used at least partially as a National Party slush fund. Back in October, when election promises were all the rage, the Treasurer to his credit wanted the fund to be administered by an independent statutory authority. But the Sorcerer, John Howard, wasn't satisfied with that promise and insists that the Government should have final control."
What we have is the Treasurer engaging in what is risk and choice. He is risking your money when he has a choice to use it otherwise. You have no choice in how he risks it, only you bear the risk if the gamble fails. He is not risking his superannuation, just yours.
Howard and Costello claim to be looking to the future, making tough decisions because of the ageing population and intergenerational equity, protecting us from future debt problems. Keynes had a pithy line on this too:
"A country is enriched not by the mere negative act of an individual not spending all his income on current consumption. It is enriched by the positive act of using these savings to augment the capital equipment of the country. It is not the miser who gets rich; but he who lays his money out in fruitful investment." (Keynes: Essays in Persuasion 1931)
As Davidson asked in The Age "What should governments do with budget surpluses - give the money back to taxpayers, dabble in the stockmarket through the $16 billion Future Fund or invest directly in transport, communications and environmental infrastructure as well as human capital in the form of education, vocational training and R&D?"
I vote for the latter. The government has been actively disinvesting in all those areas for years, and is quickening the pace of this as it claims to be implementing its "Plan" To Secure More Jobs and Higher Wages in a Stronger Economy." (quoted from a publicly funding direct mail from my local MP received on 22 August 2005)
The pamphlet says the government is making changes to secure more jobs, higher wages and a stronger economy. It says the future fund will secure a stronger economy. How? By "investing" in the stock market with this investment controlled by fund management types. However, as Ken Davidson puts it:
"The sharemarket today is a vehicle for "real" disinvestment. It produces liquidity for entrepreneurs trading in shares. But share trading adds nothing to the efficiency or profitability of a business, be it a mine, farm or factory, unless it results in a change in the control of the business for the better.
Fund managers are not employed for their management skills, and where they find themselves with a parcel of shares in an underperforming company, their instinctive response is to sell out before the herd.
What is important in the issue of whether the Government should be diverting taxpayers' money to the sharemarket is that, although pumping extra billions into the market will cause share prices to rise, that rise does not cause an increase in the profitability or the export performance of companies concerned."
Davidson, in another article where he looks at the governments current advertising campaign on the workplace notes the following, when discussing the government's admiration of the New Zealand reforms of the early 1990s:
"Two New Zealand Treasury working papers, published in 2003 and this year, question the economic benefits of the deregulated labour market. They calculated that between 1992 and 1996, the relative price of labour to capital fell 22 per cent and suggested that this resulted in "Capital Shallowness", which is a problem for New Zealand."
The Future Fund, lauded as the security for the future by so many, seems a prime candidate for this fate. There is no move from the government to expenditure in the building blocks of the future, only moves to allow free rein to the speculators (aided by further tax cuts barracked for by the ALP as well).
This week we have the sad spectacle of the incompetence of these supposedly successful economic managers (the govt) handing out truckloads to the Nats (good on you Barnaby for sticking to your constituency but you sold yourself short I feel) but then realising the truckloads might have broken down before they left the container yard and having the bright idea that the Future Fund would take are of that. Even the afore mentioned fund managers blanched at that one. Investors as Keynes b noted run risks they are unaware of, and this one is clearly seen as a risk they are very aware of.
What isn't at risk is Telstra's profit for the next few years. With such "market power" the company has been using that position to drag in the cash from "all of us". I personally resent this but for the time being at least 51% of that profit is in public hands and thus potentially usable for the physical and social infrastructure that is the real backbone of a successful, equitable, healthy future.
Instead we have the continuation of the sale of all we own, the continued denigration of people employed by the public to administer the services the economy needs, and the continued attack on the working conditions of "all of us" in the name of a future they are selling as fast as they can drag in the cheques.
A government seriously committed to "safeguarding wages and conditions" would make serious commitments to training, education, OHS, health. They government has undermined TAFE colleges (an estimated 270,000 people have been turned away from TAFE since 1998), slashed university funding, diverted huge amounts to private schools (without requiring the schools to sign up to AWAs) away from a commitment to quality education for all.
The minister Rev Kev has said awards need modernising because of the needless red tape involved in 4000 federal awards and 40000 wage rates. How does he simplify: by trying to get all 9 million workers on to individual wage rates. Maths I am shaky on but I think that means 9 million agreements and 9 million wage rates.
Securing their future by having to acquiesce to lower wages "freely chosen" the government sees this as necessary for a competitive global economy. As John Legge points out in the same issue of Dissent a 1% fall in wages will cost the 4 million lowest paid Australians $18 million per week. Those who will supposedly be newly employed as a result will take home approx. $6 million a week (as the govt claims the fall will generate a 0.15% decrease in unemployment). The other $12 million goes guess where? That's right, to the "investor". Not to renewal of infrastructure, capital equipment or anything else that would secure the future of the company and possibly the newly employed. The company shares would also they hope rise, as they record profit increases and the dealers look kindly upon them. However that investment on the exchange is not in wealth creating asset either, but is invested by those who have what economists like to call a "liquidity preference" ie want to be able to buy and sell quickly and often.
At the same time this is all happening Australia continues to run a current account deficit. So we have a government setting out to deliberately channel money away from investments in schools, telecommunications, water, electricity, public housing, TAFE, universities, health. The current account deficit is dealt with by them by ensuring interests rates remain relatively high b international standards so that overseas money keeps financing that current account. The future fund is going on to the stock market, fueling speculation and reducing long term yields. The long term is supposed to be what that fund is about.
But wait, all government have latched on to the other way of financing that long term investment needed. Apart from attacking wages, thus reducing business costs further, the other method is the public private partnerships. Businesses who enter into these look for high yields (approaching 20% return on their investment). Public borrowing costs more like 6%, so we are handing over 14% more than we need to private "investors" who do not look a gift horse in the mouth. Public Private partnerships will be financed partly by the Future Fund too. So the fund will thus further contribute to the dismantling of public ownership by financing private sector investments in infrastructure they see as a profitable (tollways, school building) at a return of 20% whey not?)
Davidson sums up that the with the sale of Telstra "the Howard Government will have sold a $100 billion worth of public assets built up by ten generations of Australians. And for what? To promote speculation in already overpriced shares."
See Dissent; no 18, Spring 2005; Also Ken Davidson's regular column in the Age. The two referred to here are from the 19th May 2005 and 14th July 2005.
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