Economics
Trucking – it’s not an “employer-employee” issue
Each year in Australia there are around 180 road deaths involving heavy vehicles, 100 of which are on highways (roads with speed limits of 100 km/h or higher). In the first seven months of this year, according to the Transport Workers’ Union, 132 people, including 34 truck drivers, have been killed in truck crashes.
Last Saturday there were convoys of trucks in Canberra and state capitals, organized by the TWU and by industry groups (the National Road Transport Association, the National Road Freighters Association, and the Australian Road Transport Industrial Organisation), in a demonstration calling for the government to honour its commitment “to empower the Fair Work Commission to set enforceable standards in transport to make the industry safer, fairer and more sustainable”.
The issue goes back to 2016, when the Coalition government abolished the Road Safety Remuneration Tribunal. That tribunal had set minimum pay and conditions for road transport drivers, including owner-drivers.
It’s an important issue, because it recognizes the shared interests of employees working for trucking companies, the interests of owner-drivers, the interests of all other road users who use the same roads as fatigued truck drivers, including owner-drivers under pressure from supermarket chains and other big corporations. The Albanese government recognizes similar joint interests in the gig economy.
More broadly it’s a challenge to the Coalition, and to others who hold to an economic model of “employers” and “employees”, in an enduring win-lose conflict. The Coalition’s rationale for abolishing the Road Safety Remuneration Tribunal was to protect the interests of small business owner-drivers, as if anyone with an ABN, de-facto, is in the Coalition’s camp. Do owner-drivers really want to be squeezed out of a decent income, and to be unable to earn enough to maintain their trucks in adequate safety standards?
If we pay truckies properly, be they owner-drivers or employees, we may have to pay a little more for our food and other necessities, but we will all be a lot safer on our roads.
Is the insurance industry too risk-averse?
It’s tough enough living in a country of droughts and flooding rain. Add extreme weather events associated with climate change and insurance becomes even more problematic.
Choice, in association with other organizations, has published a report: Weathering the Storm: Insurance in a Changing Climate. It is about a suite of problems people experience in the house and contents insurance market – complex product design, non-standard terminology, vague definitions (particularly “flood”), unaffordable premiums, exclusions, and difficulties in making claims.
It also goes into systemic and public policy-related problems in the insurance market. Insurers apply broad risk assessments, and generally offer no incentive for people to mitigate their own risks (adding to moral hazard throughout the insurance market). It is hard for people to find objective information on risks. People who re-build after fire or flood usually have to comply with updated standards, the cost of which is not covered in replacement policies. And the community, through the governments we elect and fund with our taxes, should take some collective responsibility, particularly in relation to building on flood-prone land. The Choice document suggests that government-funded relocation insurance is morally and economically justifiable in many cases.
In fact Choice lets the insurance industry off rather lightly. The purpose of insurance is to help people cope with risks which are beyond their individual resources. In some areas where risks are statistically predictable, such as car accidents, the insurance industry does a tolerably good, if high-cost, job. But where the consumer faces risks with a very high cost, or where risks are hard to calculate, the consumer is often left bearing the open-ended risk. Insurers excel at selling people cover they do not need, such as add-on warranties, and for risks they could bear themselves, such as the first $1000 on home contents, while leaving consumers exposed at the top end. See the paper Over-insurance – why it matters.
We become vividly aware of the cost of under-insurance when people lose their houses or businesses, but the cost of over-insurance goes on quietly draining money from consumers’ pockets.
If owners of homes or businesses could be offered policies covering them for all costs above, say, $100 000, people would have an incentive to reduce their own risk, reducing the cost of moral hazard for all who take insurance, and would have some assurance that they can re-construct. Finding $100K is difficult for most people, but it is far less difficult than finding an open-ended sum that may stretch to millions.
But that doesn’t fit the insurance companies’ business models. What they offer isn’t “insurance, but a mechanism for spreading the costs of minor and predictable risks.
They’re much safer without children
These are not the only costs imposed on the community by insurers’ risk-averse business model. Just this week there is news of children’s jumping pillows being removed from holiday parks and community clubs, because insurers are no longer willing to underwrite the liability risks. If children are engaged in dangerous play, mucking around in stormwater drains, diving into shallow ponds, or for the more adventurous smashing shopfronts and stealing cars, that’s not of concern to insurers. But the costs to the community, although not easily measured, are high. Liability issues and insurers’ risk aversion impose a terrible cost in terms of safe community events that never occur.
That is not a moral judgement of the industry: it’s the way the market works – or rather the way it doesn’t work. As is the case for market failures generally, there is a case for a strong public policy intervention – perhaps compulsory re-insurance through a publicly-owned insurer, supported with public revenue. It would require some higher taxes, but those taxes would be more fairly distributed, and less costly, than the haphazard way we presently pay for adverse incidents involving high risk and uncertainty. One of the basic functions of government is to cover risks and uncertainties that individuals and the market cannot cover: we should use it for that purpose.
Australia’s rental market – it’s complicated
Life’s tough for renters, but the rental landscape if far from uniform. It’s hard to identify bright spots, but there are some particularly tough geographical and demographic sectors of the rental market.
Two recently-published documents provide some hard data about Australia’s rental market.
The first, by Fred Hanmer and Michelle Marquardt of the Reserve Bank, New insights onto the rental market, published in the Reserve Bank Bulletin, pulls together regional and time-series data on the private rental market over recent years, particularly the years before, during and after the Covid-19 pandemic.
They explain, for example, why the rental component of the CPI significantly understates the rise in rents advertised by property owners. That’s because the CPI is softened by the influence of existing, ongoing rental agreements.
They explain how the pandemic changed the dynamics of the rental market. As the pandemic broke out, it seems that no one wanted to be within cooee of the CBD: rents within a 12.5 km radius of the CBD plummeted. But that didn’t last long, and inner-city rents have bounded back. Nevertheless rents in many inner-city areas, including some in Sydney and Melbourne, remain below pre-pandemic levels.
The other document, by the Australian Housing and Urban Research Institute, is Mapping Australia’s older, low-income renters. It traces the rapid recent growth, and projects rapid future growth, of the number of low income older (50+) renters. Typically such renters are female, living alone, and not in the labour force. They tend to be living in outer-suburban regions. Many are in public housing, but at present rates of construction the supply of public housing will not keep up with the growth of low-income ageing renters.
Are you lonely tonight?
If you are, you’re likely to be young (particularly aged 18-24), probably living in a disadvantaged neighbourhood, and there’s a chance you may be suffering a chronic disease. Paradoxically, you’re not alone in your feelings: 1 in 3 Australians feel lonely, but they don’t talk about it.
These are some of the findings, many counter to our stereotypes of loneliness, in the State of the Nation Report: Social Connections in Australia 2023, to coincide with Loneliness Awareness Week.
In the introduction Michelle Lim, Chair of Ending Loneliness Together, makes an important distinction between social isolation and loneliness:
While many Australians believe they are one and the same, there is a significant difference. Loneliness is a distressing feeling we get when we feel disconnected from other people, and desire more (or more satisfying) social relationships. Social isolation (or being alone) is a physical state where you have fewer interactions with others.
For example, while 40 percent of people who live alone are lonely, 49 percent of people who live with an extended family are lonely. (That’s a confirmation of Émile Durkheim’s 19th century research; we can be lonely in a crowd.)
Loneliness is largely a hidden condition. The report finds that around half of those who are lonely feel a sense of shame about their loneliness, and conceal their loneliness.
Unsurprisingly addiction to social media is associated with loneliness. And as would be expected in a society where social skills are important assets in the workplace, the authors find that a lonely person is not a very productive person.
They’re rich but they don’t understand wealth
“Let me tell you about the very rich. They are different from you and me”.
So wrote F Scott Fitzgerald. These aren’t the people getting around in top-of-the range BMWs: rather think Ferraris. They aren’t the people travelling in the front of the plane: think private Cessna Citations.
They are in the ranks of Australia’s 400 wealthiest families. They are being targeted by Goldman Sachs’ “wealth management” sector, as reported by Jemima Whyte and Aaron Weinman in the Financial Review: Goldman Sachs: Australia’s ultra-rich are Asia’s “biggest opportunity”. Good luck to the “wealth managers” – if they succeed it will mainly be a transfer from the undeserving to the undeserving, but it will have little to do with wealth.
It’s worth reading their short article, because it provides an insight into what the Ferrari and Cessna Citation class understands by “wealth”. Not the wealth of a well-educated and skilled population. Not the wealth of a society abounding in trust and other aspects of social capital. Not the wealth of a thriving natural environment. Not the wealth of universities, libraries, roads and railroads – our common wealth. Not even the wealth of well-functioning markets – the wealth Adam Smith wrote about in The Wealth of Nations.
Rather, it’s the illusion that money is wealth – the illusion of confusing the symbol (money) with the reality.
George Monbiot also writes about the very rich: All-consuming: The power of the very rich prevents us from addressing our two greatest existential threats.
Those two closely-related threats, “environmental breakdown and food system failure”, aren’t getting the media or policy attention they warrant.
That’s because “governments have failed to break what the economist Thomas Piketty calls the patrimonial spiral of wealth accumulation”. For those who accumulate enough wealth, a positive feedback cycle can develop without practical limit – the more you have the more you can accumulate.
In fact what Monbiot writes about goes beyond the mathematically compounding growth that Piketty observed. It also involves the ability of the ultra-rich to sustain the political and economic arrangements that have favoured them.
If we interpret Monbiot’s message as yet another “left” case against inequality, we are missing the gravity of his message. Monbiot is writing about a class that is so short-sighted, and so ignorant of the source of prosperity, that they pose a threat to human life:
The effort to protect Earth systems and the human systems that depend on them is led by people working at the margins with tiny resources, while the richest and most powerful use every means at their disposal to stop them.
It’s a pity that Adam Triggs put his work behind a paywall. His Canberra Times article – Is every billionaire a policy failure? – covers the rise of billionaires in Australia – from 96 in 2019, to 139 now. Like Monbiot he is not writing from some “left” perspective. Rather he points out that many of our billionaires have made their money from successful capture of economic rents, in sectors such as property development and finance, where there is inadequate competition and the protection of privilege through favours granted by government. Triggs’ article describes a structurally weak economy, essentially concluding that most billionaires have arisen because of policy failures, confirming the veracity of Alexandria Ocasio-Cortez’s aphorism.
Will we miss the opportunity to develop a renewables-based manufacturing sector?
In comparison with other “developed” countries Australia has a small manufacturing sector, accounting for about 6 percent of GDP. In the USA and most western European countries manufacturing accounts for 9 to 15 percent of GDP, and in manufacturing powerhouses such as Japan, Germany and South Korea it comes to more than 18 percent of GDP.
Up to the later part of last century, manufacturing was seen as crucial for a nation’s prosperity. At its peak, around 1960, manufacturing accounted for about 25 percent of Australia’s GDP: there has been a steady decline since then. That decline is a story of lowering tariff and related protection, the shift of labour-intensive industries to low-income countries, and massive scale economies in globally competitive companies, such as car makers, with value-added operations around the world.
In view of the high economic cost of our old tariff-protected manufacturing, and the years of disruption associated with its decline, it’s understandable that many are wary about ideas of Australia re-establishing a large manufacturing sector. Economists with a preference for free markets take a disparaging view of anything that could be called an “industry policy”.
But there is also a view that’s been around for many years, that our dependence on a dig-it-up-and-ship-it-out minerals sector has carried a large opportunity cost, because we could have been exporting more value-added products, and have been less vulnerable to swings in our terms-of-trade.
That view is expressed in an Australia Institute paper Australia at risk of exclusion from renewable manufacturing boom by Charlie Joyce, Anne Kantor and Jim Stanford.
Their vision is realistic, but to understand that vision we need to dispel visions of factories making Holden cars or Bonds underwear. The manufacturing sector we develop around adding-value to critical minerals will be capital-intensive and export-oriented, and it will be energy-intensive – renewable energy intensive.
The authors mention the head start the Americans have given themselves (in spite of Republican opposition) with their Inflation Reduction Act. In response, other large industrialized countries such as China, are developing industry policies to grow their own renewable-based industries.
Free-market economists are likely to trot out the usual line that when other countries engage in a race to subsidize their industries, the wisest thing is to sit on the sidelines. Memories of the prisoners’ dilemma game of tit-for-tat protectionism and currency devaluation in the 1930s still infect economists’ thinking.
But such is the global challenge of decarbonization that it is probably more productive to think of different countries’ industry policies as a cooperative venture to meet an urgent global need, rather than as competitive protectionism, and it is unlikely that any country will be trying to offload an excess production of green steel or batteries any time soon. The authors present a credible case for $80 to $140 billion, over ten years, in government support for a domestic renewable industry. That’s about the same as the Commonwealth outlays to subsidize private health insurers.
An alternative view is that Australia could become a “green” version of Saudi Arabia, as an exporter of hydrogen, with the electrolysis process fuelled by renewable energy. We would continue as a basic commodity exporter, but that commodity would be hydrogen rather than coal. Sam Varian, of Schwartz Media, puts cold water on that vision in a 10-minute clip. Hydrogen is not easy to transport; it is most economically used close to its source for processes such as the reduction of iron ore to steel, replacing coking coal. That’s the path we should take, he suggests, backed by economist Nicki Huntley.