This week saw the announcement of two important and, it turned out, depressing pieces of economic data. Neither of them concerned Australia directly, but both have big implications for the Australian economy.
China’s year-on-year GDP growth for the final three months of 2015 was 6.9%. This may sound great compared to the roughly 2.5% delivered by Australia and the United States, but is in fact the lowest rate in China since its massive economic modernisation began a quarter-century ago.
That was followed by the International Monetary Fund’s world economic outlook update which trimmed its forecast of global growth from 3.6% to 3.4% for this year, and similarly for 2017.
The basic reaction reported in the Australian press was along the lines of: “Yes, we knew China couldn’t keep growing so fast forever, but this is worse than we thought. And that’s more bad news for commodity prices and export volumes.”
Bond markets also responded by pricing in a 100% chance of an RBA rate cut by June of this year — which is exactly the rational response to a slowdown in our key export sector.
Ho. Hum.
What got much less attention was the IMF report also forecast that the US economy would grow at only 2.6% in 2016 and 2017, and the eurozone at a sclerotic 1.7%.
This is the truly bad news. It is more evidence that advanced economies are suffering from secular stagnation, an idea that former US Treasury Secretary Larry Summers has been pushing for some time. Essentially, the economic speed limit of advanced economies has nearly halved due to an overabundance of savings chasing too few productive investment opportunities.
Just think of all those billionaires and sovereign wealth funds looking for something to invest in at a time when the US$268 billion market capitalisation of Facebook can be created in a Harvard dorm room with a few thousand dollars and a great idea.
What it means
For Australia this means GDP growth with a 2 in front of it for the foreseeable future.
It also makes two RBA rate cuts this year more likely than one; will put the federal budget under even more strain; and make the sluggish wage growth we have seen likely to continue.
There aren’t too many good answers, but one is to provide all those savings with some productive investment opportunities. The Turnbull government’s plan to develop Australia’s North through loan guarantees — not providing the money itself, but making people believe that others believe private investment will happen — is a good example.
Author: Richard Holden, Professor of Economics, UNSW Australia
Oxfam’s latest report, focused on an increasingly obscene wealth inequality and the stranglehold exerted by a global elite, had one central message: The era of tax havens that have made this possible must be brought to an end.
The headline numbers showed that the top 1% own as much wealth as the other 99% and – even more startling – that the richest 62 individuals own more wealth than the poorest half of the world’s population (compared to 388 individuals in 2010). To put this into stark perspective, this group of 62 people own as much as the 3.6 billion people on the bottom of the heap.
Oxfam makes it clear that this distribution of wealth is not some incidental byproduct of rising worldwide prosperity. Since 2000, the poorest half of the world’s population has received just 1% of the total increase in global wealth, while 50% of that has gone to the 1% of people on the top of the pile – about 74m people. While the richest have been getting richer, the combined wealth of the poorest half of the planet has fallen by US$1 trillion (41%) in the past five years alone.
An Economy for the 1%: facts and figures.From Oxfam Summary Report
The power and privilege exercised by a global elite is forcing a crisis – and the report offers many illustrations to support Oxfam’s argument that our global economic system is broken. An industry of wealth managers, tax avoidance schemes and offshore accounting proliferate – for example, massive profits generated in core regional markets such as the UK and Japan are reported instead in countries that have no corporate income tax. As the report said:
Globally, it is estimated that super-rich individuals have stashed a total of US$7.6 trillion in offshore accounts. If tax were paid on the income that this wealth generates, an extra US$190 billion would be available to governments every year.
The equality crisis is not a simple divide between rich and poor countries. For example, a total of US$500 billion generated from within Africa is held offshore in tax havens, costing an estimated US$14 billion a year in lost tax revenue across the continent. This sum could pay for enough healthcare to save the lives of 4m children and employ enough teachers to get every African child into school.
Nations rise, poverty remains
China and India have been responsible for a dramatic increase in the combined GDP of Asian countries. These figures, along with growing prosperity in smaller nations such as Ghana, mean that average incomes in poorer countries are catching up with those in richer ones, and inequality between nations is falling.
Oxfam’s report reminds us that 36% of the world population was living in extreme poverty in 1990, falling to 16% in 2010 and meeting the Millennium Development Goal to halve extreme poverty five years ahead of target. This progress is undeniable and led to the ambitious Sustainable Development Goal to end extreme poverty completely by 2030.
However – and until we meet that goal there will always be a “however” – while inequality between countries is falling, inequality within countries is actually increasing. As much as 80% of the world’s poorest people are now estimated to live in middle income countries. During the period in which extreme poverty was halved, an extra 700m people could have escaped poverty if poor people had benefited more than the rich from economic growth.
Economies may be growing as poorer countries catch up with richer ones, but incomes of the poorest people all over the world are not keeping pace.
Other inequalities
Left alone, world gender parity would be roughly 50:50 and, if that were reflected in the wealthiest 62, I would settle for either 30 or 31 women to be a fair representation of a proportionate gender divide. In fact, just nine out of the total are women. A study from The International Monetary Fund found that higher income inequality in a nation aligns with bigger gender gaps in terms of health, education, labour market participation and representation in institutions such as parliaments. It also found that the gender pay gap was highest in the most unequal societies.
Women make up the majority of the world’s low-paid workers and are concentrated in the most precarious jobs.
Another Oxfam report from December 2015 demonstrated that while the poorest half of the planet live in areas most vulnerable to climate change, they are responsible for only around 10% of total global emissions: “The average footprint of the richest 1% globally could be as much as 175 times that of the poorest 10%.”
Listen to the 99%
Oxfam asserts that the current situation is the consequence of deliberate policy choices, of our leaders “listening to the 1% and their supporters rather than acting in the interests of the majority”.
Chief executive (UK) Mark Goldring said:
“World leaders’ concern about the escalating inequality crisis has so far not translated into concrete action to ensure that those at the bottom get their fair share of economic growth … We need to end the era of tax havens which has allowed rich individuals and multinational companies to avoid their responsibilities to society by hiding ever increasing amounts of money offshore”.
I hope that the wealthy and privileged few attending the forum in Davos will listen to Oxfam rather than their wealth managers – and start adding their considerable influence to arguably the single most effective action in the fight to end extreme poverty.
Author: Anna Childs, Academic Director for International Development, The Open University
The idea of a basic income for every person has been popping up regularly in recent years.
Economists, think tanks, activists and politicians from different stripes have toyed with the idea of governments giving every citizen or resident a minimum income off which to live. This cash transfer could either replace or supplement existing welfare payments.
However, the most important advantage of basic income may not be in its practical application but rather in how it could change the way we think and talk about poverty and inequality.
Benefits of a basic income
Giving every resident an unconditional grant, regardless of whether you are a billionaire or destitute, is a significant departure from our existing welfare state. The latter offers only limited and conditional support when working is not an option.
Support for a basic income comes from very disparate political and ideological circles.
Some libertarians like basic income because it promises a leaner state without a large bureaucracy checking people’s eligibility and policing their behavior. Others see it as enabling entrepreneurialism – the poor helping themselves.
On the left, many see basic income as an opportunity to plug numerous holes in the social safety net or even to free people from “wage slavery.” For feminists, basic income is a successor to the old demand for wages for housework.
Jobs may not be the solution to poverty.Classified ads via www.shutterstock.com
Jobs are no longer sole answer to poverty
When discussing inequality, we usually focus on employment and production. Yet, much of the world’s population has no realistic prospects of employment, and we already produce more than what is sustainable.
Basic income, however, separates survival from employment or production.
Our current answers to poverty and inequality stem from Fordism, the New Deal and Social Democracy. They center on wage labor: get more people into jobs, protect them in the workplace, pay better wages and use taxes on wages to fund a limited system of social security and welfare.
It would seem that to get people out of poverty, you have to get them into jobs. Politicians across the spectrum agree. Is there a politician who does not promise more jobs?
In most of the Global South, whole generations are growing up without realistic prospects for employment. We cannot develop the world solely by getting people into jobs, encouraging them to start small businesses or teaching them how to farm (as if they didn’t already know). The painful reality is that most people’s labor is no longer needed by increasingly efficient global chains of production.
In economic speak, a large portion of the world’s population is surplus to the needs of capital. They have no land, no resources and no one to whom they can sell their labor.
South Africa could benefit greatly from a basic income, such as the residents of this informal settlement in Soweto.Reuters
South Africa and jobless growth
Thus, to believe that jobs or economic growth is going to address this crisis of global poverty seems naive.
The example of South Africa is telling. In a comparatively rich country where youth unemployment runs at more than 60 percent, pensions, childcare and disability grants are for many households the most important source of income. Yet many slip through the cracks of this limited welfare state.
As a healthy adult male, you stand little chance of either receiving a government benefit or finding decent employment, as economic growth has been largely jobless. For an adult without children, disability is the only access to these crucial grants.
In the early 2000s, a movement emerged in support of a very modest Basic Income Grant (BIG) of 100 rand (less than US$12 in 2002) per month. Significantly, this campaign received the support of the government-appointed Taylor Committee. Its report concluded that a BIG was likely fiscally sustainable and would lift as many as six million people out of poverty. It argued that this result could not be achieved by expanding existing welfare programs. However, the proposal was dismissed by the ANC, which continued to see employment as the only solution to poverty and inequality.
Not surprisingly, basic income campaigns have been prominent in countries with high socioeconomic inequality, like South Africa. These countries have both significant resources and a need for redistribution. In neighboring Namibia, another country with extreme inequality, a similar campaign has received growing support.
Furthermore, as the Club of Rome already realized in 1972, the productivist bias of our usual answers to inequality – grow more, produce more and grow the economy so that people can consume more – is ultimately unsustainable. Surely, in a world already characterized by overproduction and overconsumption, producing and consuming more cannot be the answer. Yet, these seem to be the answers with which we are stuck: grow, grow, grow.
Given or taught?Two fish via www.shutterstock.com
Give a man a fish
To move beyond these defunct politics, we may need to think about distribution rather than production, a point powerfully argued by anthropologist James Ferguson. For Ferguson, giving a man a fish might be more useful than teaching him to fish.
The problem of global inequality is not that we do not produce enough to provide for the world’s population. It is about the distribution of resources. This is why the idea of a basic income is so important: it discards the assumption that in order to get the income you need to survive, you should be employed or at least engaged in productive labor. Assumptions of this kind are untenable when for so many there are no realistic prospects for employment.
This does not mean that basic income is a panacea. There are too many potential problems to list here. Yet, to give just a few examples: those countries whose populations would need it most might be least able to afford such schemes. And, basic income grants that are small enough to be politically acceptable may actually further impoverish the poorest if basic income replaces other grants.
Moreover, if people get money merely because they are citizens or residents of a country – shareholders in the wealth of that country – these claims become very susceptible to nationalist and xenophobic exclusion. Indeed, during recurrent episodes of xenophobic violence in South Africa, many explained their dislike of foreigners by accusing them of receiving welfare grants and public housing that should be going to South Africans.
Despite these problems, it is important to start experimenting with alternatives and to start thinking about distribution rather than production. After all, the welfare system that we have now also resulted from longstanding debates, experiments that were once considered unrealistic, ad hoc improvements and partial victories.
Author: Ralph Callebert, Adjunct Faculty of History, Virginia Tech
Most mathematical modelling used to guide our economy is simplified and only modified when it becomes so out of touch that it is dangerous. When the Atlantic cod fishery collapsed the model being used to set fishing quotas was still suggesting the fishery was healthy. In retrospect it seems a kind of madness to have kept using it.
Traffic modelling in Australia is now similarly out of touch. A recent study by the Bureau of Transport Industry and Resource Economics modelled the future of traffic in Australian cities. If it had been a mere academic study it would not be dangerous, but it is now being used to justify massive road spending.
The report suggests that travel times will blow out and road congestion will cost the economy more than A$50 billion. Congestion, it seems, is out of control and will engulf us all, with terrible economic consequences for Australian cities.
Modelling relies on heroic growth assumptions
In order to reach these numbers the report had to make assumptions about growth trends in car use per capita. The high-growth scenario is included in the red box in Figure 1 below.
Figure 1. Traffic modelling shows a sudden reversal in car use from the clear trend in Australian cities over the past decade.BITRE, Author provided
As is common in such modelling, a low-growth scenario is also modelled and then the future is taken to be in the middle.
The high-growth scenario can be seen to reverse a trend in car use per capita that appeared to be well set after a peak in 2003-04. This peak car phenomenon has been found in all developed cities and has been analysed by many commentators including ourselves.
Understanding the peak car phenomenon would appear to be a basic requirement before attempting future scenarios that wipe it out completely. However, this report has not ventured into such questions. Instead, it continues the methodology used for the past 30 years.
Travel time reality means car use has peaked
The fundamental problem is that the model does not understand how cities work. Travel time is seen as something that just expands as our cities of car-dependent suburbs grow outwards.
However, the Marchetti travel time budget of just over an hour on average has been found to apply universally across all cities. Some people can go beyond an hour and some much less, but the average everywhere is an hour. This has been found over and over to apply in every city.
If people find it hard to live with so much time “wasted”, they move to somewhere more within their travel time budget. If the overall options in housing, jobs and travel become so dysfunctional that people are forced to travel beyond their time budget then the issue becomes highly political: elections are fought over infrastructure and housing options. Cities adjust; they don’t keep expanding travel time.
It is possible to understand the global peak car phenomenon in terms of cities hitting the Marchetti wall. In our data, cities everywhere began to grow in their traffic congestion whether or not they built freeways or extra road capacity. This was because these just filled very quickly.
Rail projects unclog the urban arteries
Rail projects, however, could go around, over or under the traffic. Hence, over the past 30 years, rail lines have become more travel-time-efficient than traffic arteries. Many people, especially the young and wealthy, began to move back into areas where public transport was well provided.
The rejuvenation of central and inner areas is not just because they are cool and trendy but because they offer reduced travel time. Car use per capita goes down when there is less need to travel, especially by car.
This model does not consider this to be significant enough to consider in forecasting scenarios for Australian cities. It crudely projects a totally car-based-and-growing set of futures. It barely considers the remarkable global turnaround in the building of rail systems and the rejuvenation of cities.
Scenarios where these urban trends are considered to continue (rather than suddenly dying as suggested by Figure 1, followed by inevitable growth in car use) would make much more sense. This is the way planning is being done in cities like London.
The evidence in London and other cities – with good public transport alternatives and competitive door-to-door journey times – is that with fixed road capacity traffic volumes stay constant (or slightly decline). All the growth goes on to public transport and the car-based share of travel falls – down from 46% for residents of London in the 1990s to 32% now.
The modelling work dates back to when Tony Abbott was all about building roads and wouldn’t fund rail.AAP/Dan Himbrechts
So why have we refused to change our modelling and are still trying to justify massive road capacity increases?
Traffic modelling reports like this take about two years to produce. What was happening around two years ago was the election of Tony Abbott with his commitment to spend some A$40 billion on urban roads and nothing on urban rail.
Each road project also has large impacts on their urban economies. These are dangerous as they destroy so much of the urban fabric necessary for rejuvenation and take away the ability of governments to pay for the more important urban rail projects on their agendas.
The upturn in the graphs in Figure 1 seems to be an Abbott effect. It is rather amusing now that this report came out just as Malcolm Turnbull took over and began talking up urban rail and urban regeneration.
Such models should be put into the museum and as a better sense of where our cities can be going. This report can be easily passed over, but if the thinking behind it stays the impact on our cities will be very damaging.
Author: Peter Newman, Professor of Sustainability, Curtin University
It looks already as if 2016 will be a pivotal year for the world economy. RBS has advised investors to “sell everything except for high-quality bonds” as turmoil has returned to stock markets. The Dow Jones and S&P indices have fallen by more than 6% since the start of the year, which is the worst ever yearly start. There is a similar story in other major markets, with the FTSE leading companies losing some £72bn of value in the same period.
These declines have come on the back of a major shock to the Chinese stock market. China’s stock exchange is very different from that of other major economies, as Chinese companies don’t rely on it to fund themselves to the same extent, using debt instead. All the same, the repeated suspensions of trading as the Chinese circuit-breakers came into operation (as they do when share prices fall too sharply) spooked investors around the world.
On top of that we are seeing commodity prices continuing to retreat. Oil prices have dropped towards $30 per barrel and don’t look likely to increase soon, with Iranian and Saudi oil production continuing to sustain supply. We are seeing many emerging economies dependent on petroleum revenues suffering (Brazil, Russia), and there is speculation that many oil producers (and perhaps even Saudi Arabia) are having to abandon their currencies’ link with the US dollar.
Demand and supply
There are basically two different perspectives on why the world economy is still struggling eight years after the financial crisis. The first suggests it is suffering from too little global demand following the financial crisis. The argument is that in the world economy as a whole, consumer spending and corporate investment have been held back by a lack of confidence. This has been aggravated by austerity in many of the advanced economies in the western hemisphere after the financial crisis caused government debt to spiral.
According to this view of the world, monetary policy can’t encourage demand to pick up when interest rates are already at or close to 0%. A recovery will not be seen unless governments restore confidence through co-ordinated fiscal action – ramping up public spending worldwide. This is a basically Keynesian demand-side view of the world, echoing Keynes’ view that the post-war global economy required to be managed in terms of overall levels of demand.
An alternative view is that the world’s economic stagnation has been caused by an expansion of global savings, partly driven by the emergence of major economies such as China and India. Because business demand for investment capital has been weak, these excess savings have instead gone into things like government bonds, leading to low real interest rates.
In this world view, emerging from the crisis does not require more government spending, but an expansion in investment opportunities for the excess savings, driven by innovation. It also requires a degree of policy co-ordination between countries to gradually raise central-bank interest rates towards “normal” levels. Otherwise the imbalances in savings between East and West are likely to continue, raising the risk of recreating the bubbles in asset prices such as property, and excessive consumer spending in the industrialised countries.
Imperfect reality
As 2016 evolves we should get some insight into which of these two world views is correct as we begin to see if consumer and investment spending can recover without the need for additional government spending. In my view the demand-side argument has greater merits, but there are three qualifications. First, to sustain consumer demand in any recovery, wage levels have to keep pace with inflation. If this doesn’t happen it will continue to drive inequality and hold back consumer spending.
Second, there is the complication that post-crisis debt levels are still high in many countries. Household debt is still high relative to GDP in the UK, Spain, Portugal, Ireland, Canada and the US (amounting to between 80% and 110% of the size of the economy). And gross government debt as a proportion of the economy exceeds 100% in the US, Ireland, Italy, Greece, Belgium, Portugal and Japan.
Critics of the pure Keynesian position argue that unless these debt levels are brought down, it is difficult to see beyond a slow recovery. In the past, wars and inflation have been used as opportunities to restructure or inflate away debt. Our independent central banks make it difficult to use inflation as a way of reducing debt levels because we have given them the job of keeping inflation low. This does not prevent a co-ordinated fiscal expansion amongst the G20 economies to kick-start the world economy, but it does mean that we have a diminished arsenal at our disposal.
Third, the US was able to use its dominant position to set a clear direction for the world economy until recently, which made life easier for governments and central banks around the world. In a multi-polar world where countries set their own fiscal and monetary policies, there is the greater potential for individual countries to make policy mistakes as they (mis)interpret what is happening externally.
It would be good if, in 2016, we began to see greater macroeconomic cooperation between the G20. In an ideal world, the G20 economies would seek to share out the effort of sustaining world demand through targeted public investments designed to restore business and consumer confidence. We saw this very briefly immediately after the financial crisis. Since 2009 there have been no attempts to act collectively on fiscal policy. Those days seem unfortunately very distant now.
Author: Anton Muscatelli, Principal and Vice Chancellor, University of Glasgow
The resignation of Australia’s first minister for cities and the built environment after just 99 days is a setback for federal leadership in these areas. Yet enough momentum and goodwill have been generated to keep the flag flying. The greatest hope is that an urban consciousness in national public policy will be lodged permanently.
Even before state planning ministers assemble within months to hammer out the ground rules for federal engagement, the mutual understanding will be that the states are Australia’s primary urban governments.
In August 1945, a conference of Commonwealth and state ministers in Canberra confirmed that arrangement. The states rejected a generous proposal for a central planning bureau to provide advice, training and information resources plus cover half the costs of employing technical experts to assist local authorities.
Prime Minister Ben Chifley’s summation sealed the fate of the bold reconstruction initiative hatched by Nugget Coombs:
… the matter ought to be left to the states.
How cities became ‘orphans of public policy’
Regardless, the federal government has retained a periodic interest in cities, with mixed outcomes. Historically, most initiatives have been linked to Labor.
Gough Whitlam’s Department of Urban and Regional Development (DURD, 1972-75) injected valuable locational and equity perspectives into policy. However, a big-spending command, control and co-ordinate mission proved problematic.
Bob Hawke delivered AMCORD and Green Street as best-practice guidelines for residential development. This helped change the culture of the development industry. But the Hawke government’s main legacy, driven by Deputy Prime Minister Brian Howe, was Building Better Cities, centred on strategic housing, environmental and infrastructure projects.
Paul Keating gave us the Urban Design Task Force (1994) and the Australian Urban and Regional Development Review (1995) of federal programs for infrastructure, planning and transport.
By the time of the Rudd-Gillard governments, an actual National Urban Policy emerged to guide public intervention and private investment. Its quartet of themes remain widely accepted: productivity, sustainability, liveability and governance.
The Coalition’s contributions have been more muted.
The enduring love affair was between Robert Menzies and Canberra. The capital received extraordinary largesse to become an exemplar of modernist architecture, design and planning. Most everywhere else was ignored.
Late in his term, William McMahon instituted a National Urban and Regional Development Authority, which lingered as a commission for new cities alongside DURD.
Tony Abbott’s narrow focus on roads undercut any claim to being a modern ‘infrastructure PM’.AAP/Dan Himbrechts
The Fraser government wound down Labor’s perceived excesses but still found a rationale for inquiries into the Commonwealth and the urban environment (1978) and a pioneering study on urban environmental indicators (1983). John Howard offered various charters and best practice initiatives, notably the Development Assessment Forum (1998).
Cities have been called “orphans of public policy”, so the decisive and acclaimed entry of the Turnbull government into the fray is remarkable. Malcolm Turnbull has the credibility, nous and drive to supplant Tony Abbott as the first infrastructure prime minister. In a sense, Abbott ignored cities – except to champion motorways – at his peril.
Turnbull invigorates urban agenda
Turnbull’s transformative move has been to declare officially what has been long known: cities are “crucibles” of innovation and enterprise.
Productive cities are smart, innovative, prosperous and great places to live. Less productive cities are accordingly less liveable, sustainable and connected.
While a new cities minister will lay claim to one ear of Turnbull, wife Lucy will command the other. A former lord mayor and “city expert” adviser to the COAG Reform Council, she chairs both the Committee for Sydney and the NSW government’s new Greater Sydney Commission.
The problems of Australian cities are well documented: density (the drawbacks of low joined by the challenges of high), transport (needing greater mass transit connectivity and walkability while reducing dependence on cars), housing (affordability and variety), inequality (divided by income, health and mobility), the spatial mismatch between jobs and homes, fractured metropolitan governance, open space, environment, heritage, design.
Australia’s “broken cities”, to quote the Grattan Institute report City Limits, are:
… caught between the three tiers of Australian government, hardly registering on the agenda of many politicians.
What to do next?
The solutions are wickedly challenging. In December, the then-minister, Jamie Briggs, distilled the state of play in his keynote address to the State of Australian Cities conference. The Commonwealth was not set to take over from the states, create new bureaucracies or become a “planning approver”. Rather, there would be better co-ordination between federal agencies and across all tiers of government.
Briggs flagged collaboration with the private sector, researchers, and the wider community. He spoke of the need to secure “better outcomes” and “measure our performance”. The gaze was on the long run and locking in agreed planning and co-ordination of projects.
Smarter, more flexible and adaptable financial arrangements will come into play. The buzzwords “value uplift” and “value capture” pinpointed the need to extend federal intervention beyond cash handouts. This is code for differential tax increment financing to tap into revenues generated by rising property prices from infrastructure improvements.
Labor’s National Urban Policy framework will need to be revisited. The way forward is through intergovernmental agreements that link specified outcomes to robust and streamlined planning systems. These will need to connect up issues of housing, employment, environment and infrastructure.
This agenda has been taking shape for some time. Bellwethers include:
the Australian Sustainable Built Environment Council (ASBEC) report, Investing in Cities (2015), aimed at “maximising the benefits created by the world’s most urbanised nation”; and
COAG’s review of metropolitan planning strategies to ensure matching and orderly infrastructure provision (2011).
Ideas and inspirations abound
Several seers lit the ideological torches for the new infrastructural urbanism. Ed Glaeser’s Triumph of the City is a paean to proximity, density and light-handed regulation. In The Rise of the Creative Class, Richard Florida broadcast the competitive advantage of attracting human capital. Enrico Moretti’s The New Geography of Jobs (2012) demonstrated the multiplier effects of urban “brain hubs”.
In the UK, the Cameron government’s City Deals policy highlights an attractive model of bespoke multi-target programs for competing cities. It is aimed squarely at economic growth underpinned by enhanced tax revenue from development.
While the cities component of the new portfolio is crystallising publicly, what of the built environment? In exploring a model that works for the Coalition another exemplar is the UK’s Commission for Architecture and the Built Environment (1999-2011). Although emasculated in a purge of quangos, it was widely respected as an adviser and advocate for quality design and valuation of the public realm.
Run leanly and through a similar mix of design reviews, publications, research forums and an adviser network, an Australian adaptation could assume a timely leadership position. It would be a vehicle for many voices to be heard, not just the property and development sector. Turnbull tacitly recognised the value of this when he announced that his summer reading included Marcus Westbury’s primer for DIY urbanism, Creating Cities.
Marcus Westbury talks about the creative renewal of his home city of Newcastle.
Quite a few federal activities might be connected under this umbrella. These include State of Australian Cities reporting; the National Australian Built Environment Ratings System (NABERS); various environmental policies including management of national and Commonwealth heritage lists; leased federal airports, which have become development hotspots; the National Capital Authority; the Australian Housing and Urban Research Institute (AHURI) and the Australian Urban Research Infrastructure Network (AURIN).
Given the importance of evidence-driven policy, it is unfortunate that urban-related research is under-supported by the Australian Research Council. It barely registers in its research priorities.
Urban policy is complex because it potentially links up and intrudes into many arenas of government. The cities ministry and the new interdepartmental taskforce sit within the Environment Department overseen by Greg Hunt. As shadow minister for cities, Anthony Albanese has warned of “convoluted administrative arrangements”, with five ministers sharing responsibilities for cities and infrastructure policy.
Former professor of public administration Martin Painter identified the “impossibility of urban policy” because of insoluble administrative problems flowing from taking too comprehensive a position. His advice was “the simpler the better”.
Briggs’ successor will likely continue down the same path with a discussion paper, a national forum with the prime minister speaking, and that meeting of planning ministers to talk through approaches and decisions. There are now huge expectations that a new urban age has dawned in Australia.
Author: Robert Freestone, Professor of Planning, Faculty of Built Environment, UNSW Australi
According to the Australia Institute, the CGT exemption cost the budget A$46 billion in 2015-2016. Removing the exemption altogether would wipe out the budget deficit in one swoop.
In conjunction with NATSEM, the institute also modelled removing the exemption for primary residences worth more than A$2 million, finding it would raise A$2.9 billion dollars in revenue in 2015-2016 and an extra A$11.8 billion over the next four years.
But the political problem with such a policy suggestion is obvious. We are talking about the family home. This has always been treated as different from any other asset owned. There is a real and understandable view that your main residence, or your family home, is off-limits from government intervention.
To be fair to the Australia Institute, the report points out that the current benefits of exempting the main residence from CGT flow mainly to high-income earners, with more than 50% of the benefit flowing to the top 20% of households. The assertion that this is a perk for the rich cannot really be denied.
High-income earners have the necessary funds to improve their homes, sell them and then move to a more expensive home with a never ending cycle of tax free gains, particularly in markets such as Sydney. Mobility is certainly a factor in favour of high income earners. So it would seem equitable to move towards a system of taxing those that are making gains, merely from holding of an asset.
The Australia Institute’s proposal to remove the CGT exemption for homes worth $2 million or more could be seen as more political acceptable, as it reports that would affect less than 1% of owner-occupied house sales. So on that basis only a small number of people would be affected.
The assumption made though is that these are homes owned by high income earners. But in Sydney for example, suburbs with a median value in excess of $2 million have nearly doubled in the past year.
According to CoreLogic RP Data, in 2014, 22 Sydney suburbs had a median value of more than $2 million; in 2015 Sydney suburbs account for 40 of the 48 suburbs with a median house price above $2 million.
In Sydney’s case it is becoming clear home owners are sitting on a gold mine, a gold mine that the government only need to wait and then collect. From one point of view this would seem to be a classic example of bracket creep. On the other hand it would mean these home owners can afford to pay some tax and that it would be fair and equitable to tax such homeowners.
Some results from an ongoing CSIRO study which were reported this week indicate that 85% of people over 65 own their home outright and that such people are also only withdrawing their super at or very close to the minimum requirement.
These older Australians are asset-rich with high home values and high superannuation balances with actual low cash flows. On that basis an attempt to tax those older Australians when they move home may not be an equitable approach.
Another difficulty relates to properties that have been held for many years, which can happen with family homes. The CGT regime only applies to assets acquired on or after 19 September 1985. For an asset acquired prior to this, any capital gain on disposal is tax-free.
On equity grounds, there is certainly merit in proposing to tax the family home above $2 million dollars or more. The real problem is that our society is entrenched with mechanisms to support one owning their own home – federal and state governments offer initiatives such as first home buyers’ grants and stamp duty concessions, as well as CGT exclusions for pensioners. But any move to tax the capital gain on a home could be construed as giving with one hand and taking with the other.
Taxing the family home will bring cries of government intervention, or cashing in on a heated property market at a time when there is a failure to tackle corporate tax avoidance. It truly would be a hot political potato. It is no wonder politicians on either side are not extending their hand to catch it.
Author: Michael William Blissenden, Associate Professor in Law, Western Sydney University
Economists love Uber’s surge pricing. But it is doomed, because customers hate it.
Why?
Surge pricing occurs when the supply and demand for Uber vehicles becomes unbalanced, for example, due to inclement weather, a public holiday such as New Years Eve or some other event (public transport failure, terrorist attack, …). Supply is low (who wants to drive in a snow storm?). However, demand is high (how do I get home when the rail network is down?). So, by raising the price (sometimes very substantially), Uber aims to encourage more drivers to pick up passengers and to ration the available supply to the customers who value the service the most.
The result is a New Year filled with negative Uber articles, both in Australia and overseas.
In the Harvard Business Review, Utpal Dholakia suggests that the near universal dislike of surge pricing is due to a lack of transparency and customers’ lack of understanding about its benefits. He suggests education and transparency. But Uber is already embracing these strategies, trying to warn customers when surge pricing is likely and to make sure customers understand and agree to the surge price when requesting a car.
So Dholakia misses the key point.
It is not ignorance that leads to customer annoyance with surge pricing. Customers understand exactly what surge pricing does. And that is why they do not like it.
From the customers’ perspective, surge pricing does two things. First, it encourages more drivers and so makes it more likely that the customer can get home (or where ever else they are going) in less time (albeit at a higher – and possibly much higher – monetary price).
This is the economic ‘plus’ from surge pricing. Economists call this an allocative gain. It means that more mutually beneficial trade occurs because there are drivers who are only willing to drive for the higher price but there are also customers willing to pay that price. Setting a lower ‘normal’ price would just mean that the drivers stay at home and the customers don’t get home.
Second, however, surge pricing creates a transfer.
When I jump into the Uber car I don’t know if my driver only decided to work because of the surge pricing. He or she might have been out there anyway. And in that case, I just pay more even though the driver would have been there anyway. Of course, the driver also gets more. The money doesn’t disappear. It is a transfer. My loss through paying the higher surge price is the driver’s gain. So from an economic perspective, this transfer is neutral. But that doesn’t make the customer feel any happier.
So economists love surge pricing because it improves ‘allocative efficiency’. Customers tend to dislike it because it means all customers pay more, even if their driver would have been working regardless.
Surge pricing, and customers’ dislike of it, is simply one example of a common phenomena. When ever there is a shortage of a good or service and the market has a chance to work, the price rises and both rations existing supplies and encourages new supplies.
If a cyclone disrupts petrol supplies to Cairns, the price rises and those petrol retailers who just happened to have supplies in their storage tanks get a wind-fall gain. Customers pay more but this encourages petrol companies and private entrepreneurs to try and increase supplies.
Of course, if the same happened due to a hurricane in Florida, then “gas” prices could not rise. It would be illegal due to price gouging laws. So sellers with supplies don’t raise the (advertised) price. And it will take longer to get more supplies in (why hurry – there is no economic gain because the law has stopped the price from rising).
Some politicians in the US want to limit surge pricing claiming that it is ‘price gouging’. However, a ban is a poor way to deal with surge pricing. It just hides the price rise or leads to non-monetary payments to ration the good or service. For example, if the monetary price can’t rise, and other forms of payment to sellers are avoided, then there will be long queues and a lot of wasted time. Customers pay in time rather than dollars. And paying an entrepreneurial student to wait in line for you rather than just paying more for the relevant product is a pure waste of resources.
So surge pricing is hated by consumers and is likely to lead to legal intervention over time. But banning surge pricing just leads to queues and inefficiency.
So what is the solution?
In many markets, ‘opportunistic’ price changes don’t occur because ‘regular’ sellers and buyers recognise the long-term nature of their relationship.
Customers often have long memories. So if a regular seller raises the price today because of a temporary shortage then customers may boycott that seller when normal times resume tomorrow. And sellers, knowing this, will try to respond to the shortage by more sophisticated pricing and information to customers. So the seller may make it clear that the price is kept lower to ‘regular’ customers even though it is higher to everyone else during the crisis. Or the seller may ration supplies to a ‘fair’ level for each buyer.
It is the short-term entrepreneurs, who only supply during the crisis, who charge more. But the higher price only applies to their product and is needed to give them the incentive to overcome the abnormally high cost of supply. So the market leads to allocative efficiency while it limits the transfer for sellers who ‘would have been there anyway’.
How does this relate to Uber?
Individual Uber drivers and customers are not in a long term supply relationship with each other. But Uber has a long term relationship with both its drivers and its customers. If Uber is to avoid being damaged by surge pricing, then it needs a more nuanced approach.
For example, instead of surge pricing everyone, the price rise could depend on the customers history. Regulars get a lower price than those who have just downloaded the App due to the crisis. Of course, to encourage drivers, they would need to receive a uniform higher price. So Uber would have to sit in the middle and manage payments. This will most likely lead to lower profits for Uber in the short run. However, it will be a long run investment in goodwill.
And if Uber does not come up with a better alternative to its hated surge pricing, one of its competitors will.
At the moment Uber’s surge pricing reflects naive economics. If Uber is going to thrive long term, particularly as new ride sharing Apps emerge and flourish, then it is going to need a more sophisticated economic approach to pricing.
Author: Stephen King, Professor, Department of Economics, Monash University
Ever since computers were first introduced into the retail banking system in the late 1950s, there has been the vision of a future world where cash is obsolete. The near death of personal cheques, increase in debit and credit card use, and innovations such as PayPal, Square, Apple Pay and Bitcoin, have led us to believe the cashless society is well within our reach.
But data from Retail Banking Research, one of the most authoritative sources in the area, suggests that even though cashless payments are growing rapidly across the world, hard currency remains resilient. This trend was corroborated by a study commissioned by the ATM Industry Association of a panel of 13 countries. It suggested that global demand for cash grew 4.5% between 2009 and 2013 (when the latest figures were available).
So 50 years into the journey and we are still not there yet. However, a number of innovations have taken place around the world. Here’s how different continents stack up.
Europe
One in ten card payments were contactless for the first time in 2015 in the UK. By making small payments easier and quicker, contactless marks a major threat to cash. London is also fast becoming the world’s fintech capital, despite having substantially fewer resources available for investment than the US.
Next summer Copenhagen will host Money 20/20, the world’s major annual event for emerging payment technology. It will be the first time the forum convenes outside the US, bearing witness to the increasing importance of Europe when it comes to innovation in payments and financial technology. In countries like the Netherlands there are cafes and even supermarkets that no longer accept cash.
Many have pointed to the slow death of cash in Scandinavia, but cash is unlikely to completely die out – few may develop a mobile app suited to the needs of refugee migrants there, for example.
Contactless payments are on the up in Europe.shutterstock.com
North America
Despite playing host to the world’s top technology firms and research centres, the US lags behind when it comes to implementing some of this tech. Chip and pin payment cards were only launched in October 2015 and do not seem to have done well over the Christmas holiday season, with reports of large retailers bypassing card readers and going back to signatures. This might seem backward but it’s important to remember that chip and pin cards are as much a protocol to determine who will bear the cost of fraud as a security feature.
And, while the US has been slow to introduce chip and pin, there have been developments in smartphone payments. The bank JP Morgan Chase and retailer Walmart have both launched rivals to Apple Pay, which shows how retailers, banks and regulators are innovating to bring about faster payments and a potential cashless society.
Africa and the Middle East
The success of the mobile payments system, M-Pesa, in increasing financial inclusion in Kenya is well known, with the majority of the population able to transfer money using their phones, despite not having a bank account. And there has been similar growth of mobile payments in Botswana and South Africa. But Safaricom (the telecom company behind M-Pesa) has failed to replicate its model in neighbouring countries such as Tanzania. The jury is also out regarding the Cash-less Nigeria Project by its central bank, which aims to reduce the the amount of physical cash circulating in the economy.
M-Pesa enables users to complete basic banking transactions through mobile phones.Rosenfeld Media, CC BY
Africa and the Middle East remain the areas with the lowest global numbers of adults with a bank account while MENA countries (as well as China and other Asia Pacific nations) have been and will continue to be the worlds’ growth markets for ATM manufacturers. This suggests the high use of banknotes in the everyday life of people in these regions.
Asia, Latin America and Oceania
In China, the mobile app WeChat is one to watch. WeChat, part of digital behemoth Tencent, has grown from its original service as a messaging app in 2011 to include cab-hailing, food-ordering and money transfers. WeChat ranks as China’s most popular app with 650m users and is used to send both RMB and cryptocurrencies like Bitcoin between users.
Technology as a promoter of financial inclusion is the name of the game in poor economies where the bottom third of the population hardly have any access to the financial sector and mobile money is seen as the potential solution. Chile is a notable example of successful government initiatives in this direction. But the one to watch is the Indian government’s drive to replace money with mobile payments on top of a growing private network made up of 140,000 private business and public sector bank correspondents.
The challenge for mobile money, however, is that it sits at the intersection of finance and telecommunication and so faces regulations from both. On top of that, India and other countries in Asia and Latin America have a significant number of transactions that take place outside the formal financial sector and typically, an over-regulated telecommunications sector. At the same time, those at the “bottom of the pyramid” are fearful of and distrust established financial institutions.
No cash needed.shutterstock.com
Australia offers a much brighter outlook. The introduction of contactless payment cards in 2010 has proven hugely successful and as a result plastic has significantly eroded the use of cash and ATMs. Indeed, a recent study by the Reserve Bank of Australia found that the use of banknotes and coins fell from 69% in 2007 to just 47% in 2013. That decline took place across all age and income groups, with people in rural locations more likely to be using cash than those in major cities.
While some countries have embraced mostly electronic forms of payment, this does not mean that others still using banknotes and coins are less efficient or backward as some might seem to think. Differences between countries and between rich and poor within them remain partly due to custom, culture and regulation. But also because new technology has failed to make its case to users.
There is more innovative technology looking for a market than consumers looking for alternative ways to pay. And there is nothing wrong with existing forms of payment – they, and cash in particular, work well in most countries, for most consumers, 99% of the time. Of course, people change their habits and financial technology start-ups may one day disrupt the status quo.
Authors: Bernardo Batiz-Laz, Professor of Business History and Bank Management, Bangor University; Leonidas Efthymio, Lecturer in Management and Strategy, Intercollege Larnaca; Sophia Michael, Languages Department Coordinator/Lecturer of English, Intercollege Larnaca.
Many Australians want to grow old at home with family and friends. Yet most have homes that are inaccessible. Without intervention now, taxpayers will be asked to deal with the unintended consequences for the health, aged care and disability budgets.
We all know people who go to hospital and do not return home because they can no longer climb the stairs, get down the hall, or use the bathroom. The alternative is an extended hospital stay while they wait for expensive modifications, or placement in some distant residential facility.
The fix?
Community and housing industry leaders agreed with the federal government a voluntary national guideline and a plan to provide basic access features in all new housing by 2020. Governments at all levels endorsed this agreement through their housing, aged and disability policies. This includes COAG’s 2010-2020 National Disability Strategy.
Adding these features at the design stage is cheap and easy to do. One cost estimate is A$200-$1,000 per dwelling. This would provide:
An accessible path of travel from the street or parking area to and within the entry level of a dwelling;
Doorways, corridors and living spaces on the entry level which most people can use;
One bathroom, shower and toilet that most people can use, with reinforcement in the walls for easy installation of grab-rails if required.
The agreement does not solve the housing needs of people with significant long-term disability. This requires more thought. But it does allow most people to manage unexpected disability, illness or frailty until more substantial changes can be made.
Just as importantly, it allows friends and family who have mobility difficulties to visit and be part of family life.
Voluntary approach isn’t working
A 2015 review of the agreement indicated that the voluntary approach has failed. It estimated that, without intervention, less than 5% of the agreed 2020 target would be achieved.
Most housing is designed and built long before the buyer comes along. Builders build what has sold in the past and what they think buyers might aspire to in the future. Their experience is that most buyers do not aspire to be old, disabled or frail, so access is not high on their agenda – but it should be.
Although the features are easy and cheap to install, a change to new practices has its risks and can be expensive. Contrary to the notion that a single builder builds a home, housing construction constitutes a complex web of subcontractors and suppliers. Each is dependent on the other to avoid delays or unexpected costs.
A simple change, such as wider doorways, can throw out the preceding and following trades, and both time and money are lost.
From the housing industry’s point of view, the estimated cost of voluntarily providing these features is much greater. It is simpler to keep doing the same – there will always be a buyer at the end.
The housing industry acknowledges that when change is necessary for the common good, regulation is required. The industry first resists, then makes the change. The “conveyor belt” of housing construction adjusts, and business continues as usual.
A home’s design affects people’s lives throughout its lifetime, so many others bear the secondary costs of inaccessible design. Providing access in a home after it is built is 19 times more expensive than if it was included from the start. But it is the tertiary costs to health, ageing and disability programs that are of real concern.
The National Disability Insurance Scheme and the aged care reforms – Australia’s most ambitious and costly social programs in a generation – are based on the premise that it is both socially and economically responsible to keep people connected. This includes participating in community and family life for as long as possible.
What now?
Australia needs only to look to other countries to understand what needs to be done. The UK has legislated for minimum access in all housing since 1999. For three decades, Japan has provided financial incentives for the housing industry to build accessible housing.
Although these strategies are not without their problems, they have clearly changed the housing industry for the better.
The federal government must let go of the voluntary approach, to think long-term and regulate for minimum access features in the National Construction Code for all new housing. The agreed 2020 target can then be achieved.
As a nation that prides itself on embracing difference, a national accessible housing code is a good place to start.
Author: Margaret Ward, Research Fellow, School of Human Services and Social Work, Griffith University
That was followed by the International Monetary Fund’s world economic outlook update which trimmed its forecast of global growth from 3.6% to 3.4% for this year, and similarly for 2017.
This is the truly bad news. It is more evidence that advanced economies are suffering from secular stagnation, an idea that former US Treasury Secretary Larry Summers has been pushing for some time. Essentially, the economic speed limit of advanced economies has nearly halved due to an overabundance of savings chasing too few productive investment opportunities.
