60 Minutes in Lebanon

It is doubtful that Channel 9 really needs to conduct an investigation into how its crew came to be arrested in Lebanon. It was right in the middle of this story, in it up to their eyeballs, and they no doubt already know exactly what happened.

The "review" is not independent. The people doing the review are all connected with Channel 9. If there was a major bungle by a Government Department or a Bank, and the Department or the Bank simply conducted an internal review, 60 Minutes would scream "cover-up". The "review" may be simply an attempt to buy time and hope the public loses interest in this debacle.

There is evidence the Channel 9 network paid $69,000 directly to the personal company of Adam Whittington, the imprisoned head of Child Abduction Recovery International. News Corporation has reported that Channel 9 made two separate payments in this case totalling more than $115,000.

Given this, rather than buying time, Channel 9 should do three things. First it should do would it would demand of anyone else in a comparable situation – provide a full accounting to the public of exactly what it did, what money it has paid or promised and to whom, and which of its personnel decided on or approved the actions it carried out.

Second, it should change its ways in relation to chequebook journalism. Chequebook journalism is a slippery slope where media outlets risk losing their moral compass. You can end up like the UK paper "The News of the World" did in 2011, caught paying bribes to police officers to reveal information about cases.

If there's nothing wrong with chequebook journalism, let TV stations always reveal when they do a story and they have paid someone for their role in it, who they have paid, and the amount. Let's have the full story. Many stories are presented as being justified in the pursuit of openness and transparency and the public's right to know. It is therefore hypocritical for those paying for the stories to shy away from saying how much was paid, to whom, what it was paid for, and why it was paid.

 
Third, it should resolve never to pay money in order to create news, and certainly not to facilitate the commission of a crime. Journalists should report the story, not be the story. If you pay the Beaconsfield miners for their story after they are rescued that is one thing – it should be disclosed – but paying money to set up a story is another thing altogether. It runs counter to the ideals of journalism which should have ethical principles and truth telling at its core.

Channel 9 Owes Public Explanation of Lebanon Conduct

Channel 9 must now provide what its 60 Minutes Program would require of anyone else involved in a debacle like the child abduction in Lebanon - a full accounting to the public of exactly what it did, what money it has paid or promised and to whom, both before and since the abduction, and a full accounting of which of its personnel decided on or approved the actions it carried out.

Channel 9 has embarrassed Australia and its diplomatic personnel, has put its own employees in danger, and has almost certainly been involved in a conspiracy to break the laws of another country. People are not entitled to take the law into their own hands, and two wrongs do not make a right.

60 Minutes seeks to shine a light in dark places and is strident about the public's right to know. On this occasion the public has a right to know exactly who in its organisation did what, and who is responsible for this.

Australian Business Culture Doomed to Remain in the Stone Age?

On April 14, the Knowledge Nation 2016 Summit was convened in Sydney, involving leaders in science, technology and innovation, to consider how Australian society may be successfully transformed into a prosperous, globally competitive, knowledge-based economy. Elena Douglas, Convenor of the Summit, outlined the nature and urgency of this challenge in The Australian (‘Yes, we have innovation skills, but we must foster entrepreneurialism’, April 14, p. 12).

Although Elena Douglas highlights a number of home truths about the Australian economy and business culture which obstruct economic revitalisation, there are also a number of significant factors which she does not discuss, but which are central to any serious attempt to foster such a transition.

Acknowledging the quickening pace of technological innovation in the world economy, it is argued that Australia needs to become an ‘agile’, innovative economy, which will require a new sense of purpose and collaboration between government, business and educational institutions. Cultural obstacles are identified – lack of ambition (the ‘lucky country disease’), and a business culture too focussed on short-term return.  

Much of this criticism is valid particularly in relation to an Australian business culture preoccupied with short-term economic return. A longer-term view of the Australian economy and governance since the 1980s, however, points to a number of other uncomfortable truths which need to be faced up to by national leaders if any genuine progress towards economic and cultural renewal is to be realised.

The neo-liberal orthodoxy which has dominated Australian business and government thinking since the 1980s represents a major barrier to economic innovation and renewal. Too great a reliance upon market processes alone has resulted in the hollowing out of the Australian economy through the widespread destruction of existing enterprises and a failure to deliver new ones with higher technological sophistication and global reach.  That this failure has been met with calls for an even greater reliance upon small government and deregulated market processes is an impediment to national economic renewal. Basic lessons have not been learned.

At the same time, other economies in Pacific Asia have modernised - developed new, globally oriented and knowledge-intensive industries from relative economic backwardness and left Australia behind. We are left with no alternative, but to import virtually all elaborately transformed goods that we associate with our First World lifestyle. In return, for the most part, we depend on mining and agriculture for export income.  A key observation, however, is that these economies – South Korea, Japan and China, have not engineered this success on the basis of crude free-market principles, but coherent, mercantilist national strategies. These societies have not relied upon ‘comparative advantage’ as determined by market forces, but have created their own advantage through strong pro-active government, focussed government-business collaboration and an unswerving sense of national purpose. Former US Assistant Secretary of Commerce, Clyde Prestowitz, has highlighted this dilemma. The trade policies of the free market West have become increasingly divorced from reality. The reality, he argues, is a global economy where “roughly half the countries are more or less free trade driven, while the other half are neo-mercantilist (Prestowitz, 2009).”

Furthermore, before there can be any paradigm shift in investment priorities from short-term to strategic long-term innovation outcomes, there has to be an honest recognition of the extent to which Australian business elites have become dependent upon quick returns from crude, low-level capital widening based on rapid population growth and city building. The economic pie does get bigger, but the growth is largely ‘more of the same’, doing what we do already, but on an ever larger scale; with declining GDP per capita.

So entrenched has this approach become that, in its 2015 Intergenerational Report, the Australian Treasury calculates that  nearly half of Australia’s modest expected annual economic growth to the year 2054-55 will be due to continued high  population growth. It is worrying that the Australian Treasury engaged in outright political deception in overemphasising the negative implications of reducing population growth, while largely ignoring the serious social and economic problems of high population growth.

It is simply muddle-headed to bemoan the Australian business culture’s fixation on short-term financial gain and upon the domestic market rather than global competitiveness, when the primary economic strategy of the Australian Government and the Australian Treasury is to facilitate, encourage and reward such entrepreneurial backwardness. Moreover, powerful business interests (retail, housing construction and banking), which have benefited from this failed strategy continue to successfully lobby government for its perpetuation.

Nevertheless, crude growth is politically seductive; it has created an illusion of prosperity and even the illusion of good governance – an economy that is ‘the envy of the world’. It is worrying that the Prime Minister, Malcolm Turnbull, on his recent visit to China bragged about the “remarkable resilience” of the Australian economy in context of the Global Financial Crisis and its aftermath. The fact is that Australia faired reasonably well through the GFC because of a mining boom propped up by Chinese iron ore demand and reliance upon a high population growth capital widening strategy. The reality is that, when the Chinese demand for Iron ore rapidly subsided, the Australian economy was exposed as ill-equipped and underdeveloped in the global high-tech stakes. In terms of economic modernisation, high population growth and city building is now exposed as a road to nowhere.    

The Federal Government’s response to this is woefully inadequate. Instead of a robust hands-on approach by government, as practiced by our successful regional neighbours, the Federal Minister for Industry, Innovation and Science, Christopher Pyne’s key initiatives for correcting the situation have been to offer tax breaks for start-up firms, to flag the creation of a special visa to attract smart minds from overseas and to reprimand those who suggest that the Australian Government might spend more on public research and development. A whole hearted commitment to Australia paying for and generating its own human capital seems to be beyond the Minister’s and the Government’s expectations.

Australia is now behind the eight ball in the economic modernisation stakes. The 1990s and the recent mining boom have been an era of lost opportunity for Australia. Until our economic and political elites can face up to this, talk fests and any amount of hand wringing about Australia’s falling position in global knowledge economy rankings will likely fail to rectify the situation.

The contradictions are staggering. While the Federal Government insists that the public research sector has to pay its own way through stronger links with private industry, its continuing commitment to high population and crude growth sees a disproportionate share of Australia’s limited wealth being diverted into urban infrastructure and other spending in our ballooning capital cities.

Population Growth Driving Infrastructure Deficit

Josh Gordon is absolutely right to raise the problems associated with Melbourne's rapid population growth of the past decade. It is absolutely correct that politicians and economists are allowed to get away with murder by talking about economic growth when they should be required to talk about GDP per capita. It is like saying that because more people have moved into your street, that the street has more money, and therefore you are richer. You are not personally richer at all – indeed the probability is that your street is more crowded and that in amenity you are poorer.

Melbourne's rapid population growth is the reason there is an infrastructure problem. The Queensland academic Jane O'Sullivan has done research which shows that in a stable population the community needs to set aside around 2 per cent of its income to repair and replace ageing infrastructure, but that in a community growing by 1 per cent it needs to set aside 3 per cent of its income to keep up, and in a community growing by 2 per cent it needs to set aside 4 per cent of its income. The infrastructure task doubles, with only 2 per cent extra people to pay for it.

 
Little wonder that Councils and State Governments in rapidly growing populations are unable to keep up. It is not that they are lazy or incompetent or corrupt, it is that the task is too big for anyone. This is also why we are seeing so many Councillors and State Governments having short political life expectancies. If they worked on getting the Federal Government to reduce the greatly increased net migration rate of recent years, their job would become achievable and their political life expectancy would increase.

http://www.theage.com.au/comment/governments-cannot-keep-using-population-growth-to-inflate-economic-figures-20160412-go4wxz.html

Colin Barnett Right About Gas Reservation

Unaccustomed as I am to agreeing with WA Premier Colin Barnett, he is right to observe that Western Australia is the only state to reserve 15 per cent of gas deposits for domestic use, and that the LNG industry in Western Australia enjoys more public support than the coal seam gas industry in the eastern states.

It may well be the case that people are more supportive of an industry if they feel it can benefit them. In the eastern states both manufacturing industry and consumers have been offered nothing except the prospect that locally produced gas will all be exported and the price will go up!

Public opposition to coal seam gas has forced a ban on it in Victoria, and projects being halted in New South Wales. Labor in the Northern Territory has said it will ban onshore drilling if elected.

The Federal Government and the gas industry would do well to listen to Colin Barnett and stop being so greedy and trying to have it all their own way. 85 per cent of something is, after all, a lot more than 100 percent of nothing.

Australia Should Come to the Table

Timor-Leste has launched compulsory conciliation proceedings under the United Nations Convention on the Law of the Sea (UNCLOS), with the aim of concluding an agreement with Australia on permanent maritime boundaries.

UNCLOS provides an internationally accepted method for delimiting maritime boundaries which Timor-Leste is confident would place oil and gas reserves in the Timor Sea within its territory.

However Timor-Leste can’t have an independent umpire decide a maritime border with Australia because in 2002 the then Foreign Minister Alexander Downer decided to pull Australia out of the compulsory jurisdiction of international courts and tribunals in relation to maritime boundary matters. This decision was made just two months before Timor-Leste achieved its independence.

Timor-Leste’s Prime Minister, Dr Rui Maria de Araujo said “establishing permanent maritime boundaries is a matter of national priority for Timor-Leste, as the final step in realising our sovereignty as an independent State.”

I agree with Timor-Leste’s Minister of State, Agio Pereira, who says this process is still worthwhile. The conciliation will lead to a report after 12 months. Both sides can appoint two members and have to agree on the chair of the conciliation. If Australia declines to participate, the UN will intervene to appoint experts.

East Timor and Indonesia have committed to formal talks on the boundary but Australia refuses to negotiate a permanent sea border. Australia should come to the table and participate in these proceedings in good faith.

Further reading: 

My speech on the Timor Sea Maritime Boundary given to Friends of Dili 15 March:

 

http://www.kelvinthomson.com.au/editor/assets/160315%20Timor%20Sea%20Maritime%20Boundary%20-%20Friends%20of%20Dili.pdf

Council Mergers in NSW – Back to the Future

The Liberal Premier of NSW, Mike Baird, is advocating the merger of local councils across NSW, with a view to reducing their numbers from 152 to 112. The basic arguments put forward to justify council amalgamations are somewhat predictable, reflecting the premise that less government is better government. Council amalgamations, it is asserted, will result in improved economies of scale and improved service delivery for residents, with modelling showing that $2 billion in savings would be achieved over the next 20 years. While much is made of the fact that many local governments in NSW currently spend more than their revenues, the fact that such a saving would represent only a small proportion of aggregate council expenditure over this period goes barely acknowledged.  

To date, Premier Baird’s proposal has met stiff resistance. Anger amongst residents and councils is widespread, including affluent and lower socio-economic councils alike. There is much about the NSW Government’s proposal that is not transparent. Claims of improved financial efficiencies do not seem to stack up, and many proposed council mergers do not reflect the formal criteria put forward by the Baird Government.

The NSW Government’s heavy handed response to such resistance is all too familiar to Victorians who experienced forced municipal amalgamations during the 1990s under the Kennett Coalition Government. There, too, resistance was met with a ruthless determination not to allow local community sentiment and identity to stand in the way of municipal ‘reform’. The Victorian experience should serve as a warning to the people of NSW. There was a lot more involved in forced municipal amalgamations than imagined economies of scale in services delivery.

The Kennett Government’s policy approach was firmly founded on neo-liberal tenets - intent on maximising property investment opportunities by opening up established urban areas to massive redevelopment and densification. With this goal in mind, it set about coercively limiting the capacity of municipal government and local residents to defend their local urban environments from unwanted change. Council amalgamations set in motion a wave of urban ‘renewal’ - dramatically increased residential densities - across metropolitan Melbourne with only superficial regard for the preservation of neighbourhood character and valued community amenity, which has continued to the present day. The property development industry has had a field day. Fortunes have been made through the institutionalised vandalism of inherited urban amenity. Despite superficial claims of improved efficiencies from larger Councils, the underlying motivations were clearly political. The priorities of local constituents can be more easily suppressed within a smaller number of bigger councils.

This is part of the NSW government’s hidden agenda. Recent public statements by Sydney architect, Penelope Seidler, clearly represent the big property development interests behind the Baird Government’s push to reduce the number of councils. Arguing that the Baird government’s municipal rationalisation agenda does not go far enough, and acknowledging the ‘huge resistance to higher density” development in Sydney, Seidler explicitly cites small local government as an obstacle. Small local governments in her view, have allowed “local vested interests groups [to] get hold of these councils and there’s too much self interest in there.” For the most part, the local vested interests that Seidler refers to are simply the priorities and values of local residents and community groups. However, the objection that small local government is prone to minority group capture completely misses the point. Local government should be about local capture. Residents should be entitled to a real say in the character of the street and neighbourhood in which they live. As one academic (Allan, 2003) has stated: “The smaller the council the more control and hence responsibility citizens feel for its operations.” This is what the Baird Government and the property industry are opposed to. To facilitate their own capture of the urban development agenda, they need to undermine the existing democratic ‘capture’ by local residents that stands in their way.

Council amalgamations in Victoria ushered in a worrying sea-change in the very nature of local governance. Council amalgamations were accompanied by legislation which facilitated greater state government control over council decision making. At the same time, there was a shift from administrative to managerial values. Public servants were transformed into managers and the public into customers. And there was an accompanying shift which saw increasing local government reliance upon market values. For a period, local governments were dissolved and CEO’s installed. Local public servants were required to adopt private sector principles and practices, rendering councils less politically responsive to local aspirations and more ‘business like’.

Since the 1990s, there has been increased expert scrutiny of issues relating to council amalgamations and associated claims of beneficial scales of economy. Studies have noted widespread disillusionment with the “almost universal belief in amalgamation as a panacea for improving the operational efficiency of municipal service delivery”. Nevertheless:

…despite increasing scepticism in the broader Australian local government community, which echoes similar sentiments in American and Canadian policy circles…. Australian state government policy seems largely immune to doubt and continues to employ amalgamation. (Dollery and Fleming, 2005)

The Baird Government’s determination to push ahead with council amalgamations in the face of deep public resistance and questionable economic assumptions is a case study in the persistence of the big end of town in promoting bad ideas and democracy busting.

Supporting Local Steel Does Not Jeopardise Trade Deals

Claims by Liberal Government Ministers that if Australia required the use of Australian made steel in government projects that this would tear up or invalidate existing Free Trade Agreements are without foundation and are simply scaremongering.

A court or tribunal MIGHT find that a particular contract or provision was not legal under the FTA. This would invalidate the contract, but have no impact on the FTA, which would continue as before.

Whether a court or tribunal WOULD find that a particular contract or provision was not legal under the FTA depends on the particular facts. While some of Australia's FTAs contain rules preventing discrimination in government contracts, others do not. Those that do – the US FTA, the Korea FTA, and the Japan Australia Economic Co-operation Agreement – contain exemptions, such as for defence contracts and for SMEs.

For a government procurement contract or provision to be invalid:

(1) a company in another country would want to obtain a contract for the supply of steel to the Australian Government,

(2) the company would need to be based in a country which had an FTA with Australia that contained rules preventing discrimination in the awarding of government contracts,

(3) the government contract would have to be for a purpose that was not specifically excluded from the government procurement rules, such as defence procurement, and

(4) the company would need to win a legal challenge against the contract. The government could argue that foreign firms were not being discriminated against; they could win the contract, all they were being required to do was to use Australian steel, as local companies were being required to do.

As I said earlier, even if these hurdles were all jumped, all that would happen is that the contract would be invalid – the FTA would continue as before.

I personally think it is unwise to agree to government procurement provisions in trade deals. They can fetter the capacity of governments to act in the best interests of their own industries and workers. I don't mind if other countries do it – why shouldn't they support their own industry and their own workforce? The China FTA contains no government purchasing rules because the Chinese Government itself wanted to make its own decisions about purchasing. And the US Australia FTA exempts the US steel industry from government purchasing rules, but not Australia's! Those Liberal Ministers who now say we are blocked by the US trade deal from helping the Australian steel industry should explain the negotiating genius of the Howard Government in achieving this outcome.

But to claim that we can't support local steel in government procurement contracts because they will invalidate existing Free Trade Agreements is scaremonging nonsense. The reason Liberal Ministers say we can't give local preference is because they basically don't want to.

Senate Education and Employment References Committee on the Exploitation of Temporary Resident Visa Holders

The recent report of the Senate Education and Employment References Committee on the exploitation of temporary resident visa holders, ‘A National Disgrace: The Exploitation of Temporary Work Visa Holders’, highlights the way in which current visa arrangements facilitate foreign worker exploitation and fail to protect the job opportunities of local workers. 

Including visa holders from New Zealand, the number of temporary visa holders in Australia has remained steady at around 1.8 million persons since 2013 (primary and accompanying visa holders combined). The majority of these visas have work entitlements attached to them.  The Committee’s report is valuable for its emphasis upon the broad range of such visas available and the scale of the associated flows. A major focus of the report deals with exploitation linked to the skilled temporary entry 457 visa.

The 457 visa category is demand driven, uncapped and virtually all occupations entering under the 457 visa program are exempt from labour market testing. A serious broadening and strengthening of labour market testing requirements for 457 skilled temporary entry visa holders, as recommended by the Committee, is essential. The flow of these workers has been slow to respond to worsening labour market conditions for local workers in many occupations. A factor explaining this is the pathway between 457 sponsorship and permanent residence, providing a back door to permanent migration for many workers who would not otherwise gain entry as independent applicants. About half of those sponsored on a 457 visa go on to acquire permanent residence. The link between skilled temporary entry and permanent residence needs to be reconsidered. With this motive in play, 457 visa holders are easily exploited because running foul of their sponsor jeopardises their prospects of permanent residence in Australia

457 visa holders, especially in the IT area, are paid at low rates compared with Australian industry norms. Further, as the report indicates, local training efforts are likely put at risk from easy access by Australian employers to relatively unchecked temporary resident flows. The recommendation to apply a training levy upon employers for each 457 entrant has merit, as does the recommendation to require employer sponsors of trade workers to demonstrate that 25% of their total trade workforce consists of apprentices. The recommendation that sponsors of 457 professionals be required to employ an Australian tertiary graduate is also sound.

Contrary to claims by government and business leaders that the 457 visa entry only consists of migrants with occupations that are in short supply in Australia, skills targeting under the program has been consistently poor. Only a relatively small proportion of skilled temporary entry workers arriving under the 457 program (around 36%) have had occupations listed on the Skilled Occupation List (SOL), which purports to identify occupations in short supply in the Australian labour market. Major anomalies have resulted. The SOL has included many occupations that were known to be in over supply. In recent years, for example, cooks have figured prominently in 457 visa arrivals even though cooks were not on the SOL.

 
457 temporary residents aside, the now massive temporary resident migrant flows include student visa holders (uncapped), working Holiday Makers (uncapped), and bridging visa holders. A factor which has had a severe impact on the job prospects of local workers is the ease with which temporary residents have been able to easily shift from one temporary resident visa type to another, enabling them to prolong their access to the Australian labour market irrespective of prevailing labour market conditions.

Current Tax Settings Lead to Empty Houses!

At the last census there were nearly 120,000 empty dwellings in the greater Sydney region. When combined with under-utilised dwellings, such as those let out as short-term accommodation, the total number reaches 230,000 in Sydney, and 238,000 in Melbourne. These empty dwellings could more than account for the present supply shortfall in housing!

The question is why are these homes are being left vacant when they could command the highest prices or rents, given they are concentrated in central parts of all our metropolitan areas? The answer is that dominant driver of negative gearing is where the capital gain is the main objective rather than the rental yield. On the urban fringe, where there is less expectation of capital gains, there are much lower rates of empty dwellings.

The current tax settings are driving a mismatch between the supply of housing and housing need. This is exacerbating inequalities experienced in our major cities, driving unaffordability in central, well connected and serviced parts of the city. This is not the fault of the planning system, as property developers would have us believe. The situation is likely to have worsened since the last census in 2011 as more housing is being delivered precisely in the locations where there appears to be a concentration of homes standing empty, where supply is being driven by a desire for capital gain not rental yield.

Labor’s policy, addressing this crucial issue of housing affordability will make speculative investment to obtain capital gains less lucrative by reducing the capital gains tax concession from 50% to 25% for all assets purchased after 1 July 2017. This will stem the speculative investment in property that has raised house prices and lowered more productive investment. Negative gearing and capital gains tax exemptions for investors have been a dead weight on the ability to create more housing affordability.

 
Despite the strong economic arguments behind this reform the Liberal Government has chosen to embark on a scare campaign embracing a Chicken Little approach. A far cry from Malcolm Turnbull saying in his 2005 tax paper, that the capital gains tax discount along with negative gearing was a “sheltering tax haven” that is “skewing national investment away from wealth-creating pursuits, towards housing”, and has caused a “property bubble”.

Report Indicates Pentridge Tower Should Be Scuttled

An independent research report released today by the Australian Population Research Institute (TAPRI), ‘Sydney and Melbourne Housing Affordability Crisis: No End in Sight’, has highlighted the flawed approach to housing development currently pursued in Wills, where the main preoccupation of urban planning in relation to the Pentridge Prison site and other activity centre locations is for high rise apartment development. The report finds that such high-rise apartments remain unaffordable to most people and they are unsuitable for younger persons establishing or raising families.

Urban planners have consistently underestimated the proportion of new households over the period to 2022 that will be family households. Not only are record high housing prices driving down levels of home ownership amongst younger persons, but years of ill-conceived housing policy assumptions have resulted in a supply of housing unsuited to raising families.

The report’s findings are particularly relevant to the federal electorate of Wills, in stressing that the “greatest need for additional dwellings is from new young households and recently-arrived migrant households”, not simply for ageing one and two person households as falsely assumed by professional planners to date. 

Official Victorian government population projections for the City of Moreland show that the municipality’s population is not expected to age dramatically. In light of this research, the 19 storey Pentridge tower and other high-rise apartment proposals for Moreland should be scuttled, and planners should turn their minds to retaining family friendly housing in Wills.

The report also vindicates Labor’s pledge to abolish negative gearing tax concessions on new housing. Based on an analysis of housing markets in Melbourne and Sydney, the researchers concluded that rampant house prices, together with continued high net overseas migration, over an extended period have disenfranchised a growing proportion of the younger generation from home ownership. The report’s authors specifically criticised Prime Minister Malcolm Turnbull’s opposition to Labor’s negative gearing reforms as “monumental insensitivity to the growing catastrophe flowing from record high housing prices for the next generation of home owners.”

20 Years in Federal Parliament

Today I clock up 20 years in this House. It is a great honour to serve here, and in an age of the 24/7 media cycle and a cultural tendency to chew politicians up and spit them out, a remarkable honour to serve for 20 years.

George Bernard Shaw said the reasonable man adapts himself to suit the world, while the unreasonable man insists on trying to change the world to suit him, therefore all progress depends on the unreasonable man. For much of my political career I have been in this sense unreasonable.

I couldn't have done this without support. I want to thank the voters of Wills who have stuck with me in good times and in bad. I want to thank my partner Kerry and my children Ben and Naomi, my father Allan and other family members.

I want to thank my office staff – Mimi Tamburrino, Tim Hamilton, Mark O'Brien, Julie Ryan, Cate Hall, Nosrat Hosseini, and many others who have served over the past two decades.

I want to thank the Labor Party members and volunteers in Wills – families like the Hosseini family, the Ouaida family, Angelo Koutouleas, Oscar and Alan Yildiz, Gino Iannazzo and Vic Guarino and so many others.

I want to thank the Trade Union Movement – Ged Kearney and Dave Oliver from the ACTU, Ben Davis and his team at the AWU, Tony Sheldon and his team at the TWU, Glenn Thompson and the Manufacturing Workers Union, Earl Setches at the Plumbers, Dave Noonan at the CFMEU, the Institute of Marine and Power Engineers and many more.

And I want to thank some business leaders too for their support and encouragement – Dick Smith, Graham Turner and Geoff Harris from Flight Centre, Robert Rio from Rio Industrial, Hugh Middendorp from Middendorp Electrical amongst others. To all of you thank you, for the chance to do this.

Rising Unemployment

Unemployment is back up to 6 per cent, off the back of a decrease in full time employment of over 40,000. The number of unemployed is over 760,000.

This number is way too high. This lingering and even rising unemployment number is a recipe for long-term unemployment, which in turn is a recipe for social disadvantage and the drugs, crime, homelessness and mental health problems that go with it. It is particularly not good enough when you realise that the developed countries that we did so much better than during the Global Financial Crisis have now improved and many of their jobless rates are lower than ours.

We are still running migrant worker programs as if the mining boom was in full swing, but it is not. It is high time we reduced those programs and gave our unemployed - our young people, our indigenous unemployed, and our older workers who have been thrown on the scrap heap prematurely – a decent chance to do the jobs that do become available.

If Australian workers lack the skills to do these jobs, this needs to be rectified, and our education and vocational training programs made to effectively prepare them for the world of work.

Intergenerational Equity – Intergenerational Report 2015

The real purpose of the Intergenerational Report 2015 was to try to justify the 2014 Budget cuts to pensions, education and health. The report made numerous misleading claims to try to convince us that we could not afford our present levels of commitment to older and younger people.

The first misleading claim is that labour force participation is going to fall and reduce per capita economic growth. The second misleading claim is that the costs of providing for an older population will increase significantly as a percentage of GDP over the next forty years. The third misleading claim is that in order to deal with these costs Australia must maintain high immigration, on the grounds that migrants tend to be younger than the average resident. The Intergenerational Report assumes Australia's population will rise from 23.8 as of mid-2015 to 40 million in 2055, a massive two-thirds increase in just 40 years. The Report is completely inadequate in dealing with the numerous economic, social, and environmental consequences of such an increase.

In fact an analysis of the Report by Bob Birrell and Katherine Betts shows there is NO net change in per capita economic growth over the next 40 years. There is a slight fall in real per capita economic growth from declining labour force participation of 0.1 percentage points a year. But this is totally offset by an increase of 0.1 percentage points a year because the proportion of the population who are children will fall relative to those aged 15 plus. Any decline in labour force participation of those aged 15 plus is offset by the rising share of the population in this broad age group. ("The 2015 intergenerational Report: Misleading findings and hidden agendas", Bob Birrell and Katherine Betts, The Australian Population Research Institute, Research Report, July 2015). It is regularly the case that the people who want to use a scare campaign about population and workforce ageing to attack social security "accidentally" forget to take into account the ways in which population ageing makes life easier for governments and communities.

The Report is also misleading about rising medical and hospital costs. It is true that health expenditure is rising and will continue to do so. But the vast majority of this extra cost is due to the higher costs of providing health care for everyone, including the implementation of new technology. While Commonwealth spending per person is projected to increase by $3700 by 2054-55, $3100, or 84 per cent of this, can be ascribed to non-demographic causes. Ageing is only a minor factor. (Ibid). I don't accept that our spending on health, welfare and pensions is unsustainable. We spend a lower proportion of GDP on government funded age pensions than most OECD countries.

And what of the third claim that we need high migration to slow down population ageing? Bob Birrell and Katherine Betts have calculated from the data in the report that every extra 70,000 migrants up to the year 2055 only increases economic growth by a mere 0.06 per cent. And yet an extra 70,000 net overseas migration adds over four million people, and the Report says nothing about the extra costs on the community that this imposes. Indeed the Report works on the basis of population growth between 2015 and 2055 of nearly 16 million!

The infrastructure costs of such an increase are glossed over with the claim, which Bob Birrell and Katherine Betts describe as bizarre, that infrastructure costs "are not linked explicitly to demographic factors".

The Report also is misleading about the issue of productivity. It says high levels of migration MIGHT increase productivity because migrants may, on average, be better educated than the average Australian. No evidence is advanced to support this optimism, and given the extent of the rorting of migrant worker and overseas student programs it seems to me to be doubtful. In any event Ross Gittins has reached the opposite conclusion - that high migration lowers national productivity. Rapid population growth, through its effects on congestion and land and housing prices, acts as a drag on productivity.

The Report also papers over the impacts of rapid population growth on the environment, saying the 'level of government spending on the environment is not directly linked with demographic factors". This is amateur hour. Population growth is a direct and indirect cause of environmental damage and should not be glossed over in this way. The fact that State and local governments have to do much of the heavy lifting in terms of maintaining water quality, and environmental repair, does not make these costs any less real.

The IGR finds that per capita income will be higher in real terms than it is today. Its modelling shows an increase, in constant dollars, from $64,400 to $117,300 by 2054-55. Bob Birrell and Katharine Betts say our descendants should he selves be able to comfortably deal with any extra costs that arise from providing for a larger cohort of older persons (Ibid, p.6). They say the IGR's own data show that the supposed ill-effects of ageing are trivial, and should be easily managed by future generations themselves. The IGR's lukewarm endorsement of massive immigration-driven population growth just about completely overlooks and fails to take into account the massive costs of such growth. (Ibid, p.v).

The problems which the Intergenerational Report 2015 says are looming are looming due to the policy failure of neo-classical economics, which has dominated economic policy-making since the 1970s. Its signature policies of economic growth, rapid population growth, globalisation, free trade, privatisation, and deregulation have progressively generated deficit and debt, de-industrialisation and unemployment, and a declining capacity to care for older Australians, younger Australians, and the environment.

After the war the Marshall Plan of 1947 paved the way for the re-industrialisation of Europe and a long period of economic prosperity. Lessons learned from the 1929 financial crash and the Great Depression saw an essentially tripartite political setting, with business, labour and government roughly in balance.

The free trade theory of comparative advantage espoused by David Ricardo in the 19th Century and the Washington Consensus in the 20th was not actually applied in western countries. Countries which actually applied the theory, for example Somalia with its comparative advantage in agriculture, continued to specialise in agriculture and remained poor. By contrast, Korea, through very heavy- handed industry policy, broke away from its comparative advantage in agriculture, and it's GDP per capita skyrocketed, whereas Somalia's remained static.

Other Asian nations which industrialised were also successful. As Eric Reinert says a nation with an inefficient manufacturing sector is much better off than a nation without any manufacturing sector at all.

But from the mid 1970s neo-liberal economic policies started de-industrialising countries both in the developed world and in the developing one. Free trade has undermined the manufacturing base of many western countries, including Australia. Neo-classical economics has failed to distinguish between the financial sector and real wealth creation. Where Roosevelt's New Deal reigned in the financial sector to become the servant rather than the master of capitalist development. Countries which did better during this period, such as Brazil, India, and China, did not embrace or implement neo-classical economics.

We need to return to the middle ground represented by initiatives such as the New Deal. Otherwise we will continue to de-industrialise, with the financial sector destroying value in the real economy, and business, labour and governments out of balance. Our debt and deficit will continue to grow, and we will be unable to meet the needs of older Australians and younger Australians, and we will continue to trash the environment in a futile quest for economic growth in the mistaken belief that this will solve our problems.

Intergenerational Equity - Change in the Eighties

John Edwards (Australian Financial Review March 2015) said "Elected on a platform of opposition to the Campbell recommendations and of budget expansionism, the Hawke Government abruptly moved in the reverse direction".

And there is no shortage of people working for big corporations or their political or media cheer squads who are happy to regard the 1980s and 1990s as a halcyon era of political and economic reform which served Australia well. The argument goes that floating the dollar, pulling down tariff barriers, deregulating the financial markets, and implementing National Competition Policy, laid the foundation for economic growth and rising living standards in the years that followed. It is said that Australia's income per head rose during this period as a result of these changes.

But less simplistic and more detailed analysis suggests that the deregulation and destruction of industry support, and the ripping up of the Australian Settlement which occurred in these years and subsequently, has not been the claimed road to paradise. Much of Australia's increased income has been a consequence of exports to China. China's increased prosperity has led to demand for Australian commodities, particularly minerals. The mining boom could not go on forever, and it has not. It has come at the cost of narrowing our economy, when we need a broader, more resilient, one.

Secondly Bob Birrell and Ernest Healy have pointed out that the achievements of the 1990s were not just attributable to the protection offered by the low Australian dollar and therefore vulnerable to the currency rise that came with the mining boom, much of the elaborately transformed manufacture (ETM) exports of the 1990s can be attributed to foundations which had been established during the protectionist period, which the market liberal policies of the 1980s and 1990s dismantled.

Peter Sheehan and colleagues showed that ETM exports from the mid-1980s to the early 1990s were predominantly those which had benefited from "industry specific policies directed at increased outward orientation and export levels". (P. J. Sheehan, Nick Pappas and Enjiang Cheng, 1994, The Rebirth of Australian Industry, Centre for Strategic Economic Studies, Victoria University, p. 30). The industries included telecommunication equipment, cars, computers and pharmaceuticals.

Motor vehicles were a standout, with an average annual rate of export growth of 16 per cent over the decade to 2000-01. Pharmaceutical exports grew by 21.4 per cent per annum during the same period, to $2.4 billion. (Jonathon Coppel and Ben McLean, 2002, 'Trends in Australia's  Exports, Reserve Bank of Australia Bulletin, April 2002, p.3).

New enterprises were not significant contributors. Bob Birrell and Ernest Healy present the heretical hypothesis that the tariff protection and industry policy support of the pre-reform era laid the foundation for Australia's ETM export successes in the 1990s, and that once this support was removed in the 1990s and 2000s that the success was short-lived.

Dennis Glover, Lecturer Graduate School of Humanities and Social Sciences at the University of Melbourne, draws a parallel between what happened to English workers in the first three decades of the 1800s and what happened in Australia from the Mid-eighties and the 2015. ("The unmaking of the Australian working class - and their right to resist", The Conversation, 3 August 2015).

Dr. Glover says that at the end of the eighteenth century the English working class of hand loom weavers, agricultural labourers, iron workers, miners and so on lived a largely rural existence, employed at home or in small workshops, with strong connections to village or parish life. But by the 1830s many had been agglomerated into large factories. Towns like Manchester, Liverpool and Leeds had been transformed into the "dark satanic mills" of Blake's poem. Crammed into dangerous slums, many died young and poor. The old world had been physically transformed: bricked over, blackened, cheapened, uglified.

Dr. Glover says something just as dramatic happened in Australia during the past three decades. He says the transformation from the industrial to the post-industrial era has been so total as to constitute the sociological equivalent of an extinction event. (Ibid). "The queues of workers' cars lining up each morning to get through the factory gate - gone. The publicly owned banks and utilities - gone, or about to go...... Secure, full-time employment, with its guarantee of holidays, sick pay and promotion - in many industries long gone. The working class dream of home ownership and upward mobility via cheap land, equal educational opportunities and cheap land - all are on the way out"(Ibid).

Dennis Glover describes this as the un-making of the Australian working class. "Just as 18th century England's green and pleasant fields were paved over with brick, its vocations replaced by the steam-powered machine, its pastoral life rent asunder by the regimentation of the Industrial Age, in just 30 years the world of the Australian working class, with its factories and unions and quality public services and the communities they supported, has been made all but extinct, wiped out, like the dinosaurs, by the fiery asteroid of creative destruction". (Ibid).

He describes this as the revolution the little people lost, and makes the astute observation that the little people, the losers, refuse to go away. They vote against more "economic reform" - they won't support a higher GST and they won't support more privatisations. One might add that they voted out the party of Workchoices and they don't support deregulated university fees or Medicare co-payments either.

Dr Glover asks why they don't thank Paul Keating for liberating them from their dull, monotonous, supposedly unskilled and unimportant jobs making cars? He answers by saying that Australia's working class won't easily give up without a fight, won't voluntarily accept poverty, and won't surrender its culture and traditions without a struggle. "Australia's wilful working class deserves to be rescued from the condescension of the economic reformers. Just like the members of the English working class who went through the Industrial Revolution, the people who have experienced the destruction of their industries and communities in places like Dandenong and Doveton in Melbourne's South-East, Norlane in Geelong, Broadmeadows in Melbourne's north, and Elizabeth outside Adelaide, where the car factories and canneries are still being closed and unemployment is still well above 20per cent after 25 years of economic growth, have something important to say to us" (Ibid).

He concludes with the observation that we should try to make economic change work for everyone.

Right wing commentators and economists regularly say the world is changing, and changing rapidly, and nations must change in order to survive. This is a classic case of seeking to profit from their own wrongdoing. Much of the change that is happening is being driven by policies advocated and implemented by right wing commentators. Much of the change is not inevitable. The fact that it is making it tougher to survive should be cause to question our policy directions, not head even faster towards the cliff.

One of the defining features of modern political life is a pervasive loss of faith in government's ability to solve problems, or indeed do anything much at all. Sally Young, Associate Professor of Political Science at the University of Melbourne, says we are living through a lost era of policy making. She says that politicians of today are suffering a crisis of confidence about whether their policy making can make a big difference. (The Age, 1 April 2015, p.20 ).

She notes that the Prime Ministers of the seventies built things. Gough Whitlam left behind Medibank, women's health centres, the Family Court, single-parent pensions, public transport projects, sewerage systems, the Arts Council, the National Gallery, Triple J and Legal Aid. He gave us free tertiary education, the Trade Practices Act, no fault divorce, needs based schools funding, the abolition of conscription, the Heritage Commission, aboriginal land rights, voting at age 18 and fair electoral boundaries.

But the situation since the 1970s has deteriorated dramatically. Erik S. Reinert from The Other Canon Foundation set this deterioration out in detail in 2012 in his paper "Neo-classical economics: A trail of economic destruction since the 1970s". He says that three decades of applying neoclassical economics and neo-liberal policies have destroyed, rather than created, real wages and wealth.

Reinert starts by observing that after the Second World War Two institutions were established which provided the conditions for an unprecedented increase in human welfare. The 1947 Marshall Plan paved the way for the re industrialisation of Europe and other nations all the way to Japan. The 1948 Havana Charter established rules of international trade that made this industrialisation possible. It allowed for "infant industry protection" where unemployment was present in a country. There was a tripartite political setting, with a balance of power between business, labor and government.

Countries with a diversified economy prospered. For example South Korea diversified away from agriculture and raw materials and into manufacturing industry. It did not continue to rely on its 'comparative advantage' in agriculture, instead using heavy-handed industry policy to break into manufacturing. On the other hand Somalia was richer than Korea until the mid 60s, but in Reinert's words "continued to specialise according to its comparative advantage in being poor".

Reinert says that the theory of "comparative advantage" advanced through David Ricardo's free trade theories was in practice only applied in the colonies. He says that the US Washington Consensus free trade theories were for a long time mainly intended for export, not for use at home. He says that "Unfortunately, in the end the West also started believing in the propaganda version of its own economic theory".

The world development record, expressed as a growth rate of GDP per capita, is described by Reinert as excellent from 1950 to 1973 but dismal from 1973 to 2001. He says that during this period Latin America experienced a string of 'lost decades'. Real wages in Peru were more than halved when the free trade shock and subsequent deindustrialisation hit Peru starting in the mid-1970s. Africa's beginning industrialisation was reversed, and the communist economies became poorer than they had been under a notoriously inefficient communist planned economy. Reinert concludes from this period that a nation with an inefficient manufacturing sector is much better off than a nation without any manufacturing sector at all.

Reinert says that even the United States finds that too much free trade has undermined its manufacturing base. The West has embarked on an attack on wage levels and purchasing power in the name of austerity. The results are likely to be just as harmful to real wages and purchasing power as they have been wherever they have been applied. A wave of neo-classical wealth destruction hit Latin America in the mid-seventies. It also hit the little industry Africa had managed to build. Another wave of destruction hit the centrally planned economies after the fall of the Berlin Wall. The fall of the Wall heralded a period of Western triumphalism, an in particular a failure of mainstream economics to distinguish between the financial sector and real wealth creation. This has now caught up with country after country in Europe and beyond.

Three economies which have done well during these lost decades have been Brazil, India and China. Reinert notes that they escaped the free market fundamentalism and free trade shock that accompanied the fall of the Berlin Wall. In these countries neoliberalism was met with resistance from a critical mass of economists.

Reinert says that what is needed is to recapture the middle ground. He supports the principles of the Havana Charter, unanimously approved by the members of the United Nations in 1948, as a blueprint for a world economic order that creates, rather than destroys, mass welfare. He says that of the three political systems which brought financial capital under control during the 1930s, - communism, fascism, and the New Deal - there is little doubt what most people today would choose. But that needs to be kept as a live option, and neoclassical economics is failing to do this. It fails to distinguish between the real economy and the financial sector, with the risk that financial sector stops adding value to the real economy, but starts to parasitically destroy value. (This paper is online at http://mpra.ub.uni-muenchen.de/47910/).

Intergenerational Equity – The Australian Settlement

The argument over protection versus free trade has been around for well over a hundred years. Indeed it was the dominant political debate at the time Australia was becoming a nation. And many of the arguments of the time sound familiar to our ears and ring true today. Bob Birrell writes in his book "A Nation of Our Own" that free trade was seen as the policy of the pastoralists (p.169). That is still true. It is the agribusinesses that push hardest, by a mile, in favour of the free trade agreements that Australia has entered into in recent years.

And back then, as now, the protectionists were people who wanted to promote a diverse industrial base. Protection was also seen as crucial to the well-being of the working class. The great Liberal Alfred Deakin declared in 1901 that "if federal protection increases the manufacturers' profits, state laws must provide that the employee shall secure his share, perhaps by means of special boards for wages and hours, according to the plan partly adopted by Victoria". (Robert Birrell, "A Nation of Our Own", p. 170.)

A similar insight into why the protectionists did not support free trade comes from the Bulletin's leader writer, James Edmond, in his 1900 tract "A Policy for the Commonwealth". He says "No country ever became a great industrial state under free trade unless it had cheaper labour than its neighbours, and cheap labour means degradation and slavery... Nor can any nation, in these days of cheap freights, remain a great industrial state under free trade unless it pays as low wages as the cheapest of its rivals, or unless its workers can hold their own by exceptional skill". (Ibid). Observers watching the way in which nowadays the rich get richer while low paid workers are becalmed or going backwards might think Mr. Edmond just as relevant today.

The view of many protectionists and particularly the social democrats among them was that Australia should learn from the mistakes of the 'old world' and become a 'new world’, free of both the social divisions and strong class boundaries of the United Kingdom, and the slavery which had blighted the United States.  We were to do our own dirty work rather than expect someone else to do it. Australia was not to be like America, where competition reigned supreme at the expense of workers' long-term will-being. This outlook was egalitarian, and helped give the Australia of the Federation era a democratic culture – that Jack is as good as his master, and down with "tall poppies", or at least those who give themselves airs. (Ibid, p. 281).

Bob Birrell concludes that the Federation era and the 'Australian Settlement' offers ideals directly relevant to our present dilemmas, and that it is a shame that it has been disparaged by Australia's cultural gatekeepers. (Ibid, p. 283).

It has been fashionable for years to deride the Australian economic, political institutions and culture of the Federation era, often referred to as the Australian Settlement. And the Settlement itself was effectively torn up several decades ago.

But I believe many of the things done at that time served Australia well and indeed are key reasons why we developed a more egalitarian, more prosperous, fairer society than many other countries were able to accomplish. Darin Acemoglu and James Robinson have written a book about why some nations have succeeded in generating sustained economic growth through industrialisation and others have not, titled "Why Nations Fail" (Crown Business, New York, 2012). They regard Australia as a success story.

They focus on the role of what they describe as "inclusive institutions", which include democratic accountability and the rule of law. Once they are established, these institutions create circumstances where the government is accountable and responsive to citizens, and where the great mass of people can take advantage of economic opportunities. Acemoglu and Robinson say that these institutions tend not to emerge in "extractive economies", where the economy is based on natural resources, and their exploitation is dominated by a narrow elite. Too often the elite uses its political power to prevent the development of inclusive institutions which could provide a pathway to industrialisation. (Ibid).

Argentina is a classic example. It is a country rich in natural resources, and at the turn of the twentieth century it was prospering; it was as wealthy at the time as Australia. But its large landholding elite conceded little to either urban or rural work forces. It did not industrialise, and remained an extractive economy and society. It was therefore highly exposed to commodity downturn in the 1930s and it did not handle the Depression and its aftermath well. Political turmoil led to military coups in 1943 and again in 1976. From being one of the world's most affluent nations at the start of the twentieth century, it finished the century a long way down the chart. In 2001 it defaulted on its debts.

Australia could have had a similar experience, but we did not. New South Wales was indeed an ideal location for an extensive pastoral industry based on cheap convict labour. In the early nineteenth century its political leaders wanted to turn New South Wales into an extractive economy free of inclusive institutions. Their first problem was the British Government, which was persuaded to lay the foundation for a working democracy in the colony of New South Wales.

Their second problem was Victoria. The Victorian gold rushes of the 1850s led to direct conflict between the gold diggers and the pastoral landholding class. Victoria got limited parliamentary democracy, and then small farmers. The Victorian Government also took up the cause of protection to provide additional employment opportunities and in order to create a more self-reliant society. Protection was strongly, but unsuccessfully, opposed by the pastoral elite and their merchant supporters, and by the end of the nineteenth century, in Victoria, although not in New South Wales, most leading politicians were committed protectionists.

The Victorian Alfred Deakin was both a protectionist and a radical social democrat. His parliamentary group wanted to create an Australia free of the old world class and caste differences. Deakin was able to implement much of the protectionist agenda, including its social democrat dimension, between 1905 and 1909 when he was Prime Minister of a government which ruled with the support of the Labor Party.

Deakin expressly set out to make Australia a more diverse and self-reliant industrialised economy. He and his supporters were worried that Australia could become, in his words of 1905, an economy of "hewers of wood, drawers of water, shearers of wool, and growers of wheat". (Bob Birrell, "Federation, the Secret Story", Duffy and Snellgrove, Sydney 2001, p. 203). Furthermore the Deakin Government linked receipt of tariff protection to the payment of 'fair wages', establishing the Commonwealth Arbitration Court, which incorporated the principle of a living wage into its determination of industrial awards. Australia developed a reputation as a 'working man's paradise'.

Australia was hit hard by the Depression, but the Australian Settlement and the Federation-era institutions survived the test. There was little social unrest, and after the Second World War Australia's manufacturing exports expanded and we enjoyed a golden age of prosperity.

Between 1946 and 1974 real per capita GDP increased at an average annual rate of 2.2 percent. From 1974 to 1991 it slipped to 1.5 percent, and between 1991 and 2010 it was still lower than in the post war years, at 2 percent. (Ian McLean, "Why Australia Prospered", Princeton University Press, 2013, p. 16).

Of course during these later years the Australian Settlement has been abandoned. Industrialised countries benefit from the productivity gains that flow from adopting the latest technology in manufacturing. On the other hand, economies based on natural resources face diminishing returns. Miners have to dig deeper or exploit ore bodies with lower mineral content. Farmers have to farm less productive land, or add more fertiliser or water to their crop. This leads to lower returns on capital and labour.

But before the Australian Settlement was abandoned, Australia had a vibrant manufacturing industry, thriving in such diverse areas as pharmaceuticals, chemicals, automotive, iron and steel, and telecommunications.

Our pharmaceutical industry had prospered due to the Labor Government's Factor F scheme. This piece of industry policy paid drug companies who increased their research and development, production and exports from Australia. It was successful in increasing exports of pharmaceuticals from $321 million in 1990-91 to $894 million in 1995-96 and $2.3 billion by 2001-2, jumping by a factor of seven in just over a decade. Later on the program was cut and in the decade after 2001-2 we built up a trade deficit in drugs of $6.9 billion. Pharmaceutical company executives contrast the present situation with the Factor F era. According to the head of AstraZeneca it manufactures in Australia because the Labor Government "incentivised pharmaceutical companies to invest in sophisticated manufacturing facilities in the 1980s". ("Pharmas need to more drugs", Nigel Bowen, The Age, 19 May 2014).

 

Professionals Australia and Contracting Out

This week I was visited by a member of Professionals Australia who expressed great concern at the loss of science and engineering skill sets to the Australian Public Sector, and particularly the Department of Defence.

He described to me an epidemic of contracting out, involving a push to have as much work as possible done by private industry, and as little as possible done by the Defence Science and Technology Group within the Department of Defence, and the removal of staff with decades of high-level experience.

I share the concern of Professionals Australia about this modern fad. I think it is important that the Australian Public Sector builds up and retains genuine expertise. Without it the chances of delivering infrastructure projects on time and on budget diminish. It is a false economy to contract out all the project delivery functions – we need people who know what they're talking about inside the tent, as well as outside it.

The contracting out obsession also has a real cost in terms of education and training. For many years large public sector agencies like Defence have been prepared to invest in education and training their staff, to the benefit of the nation. Private sector companies don't have the same enthusiasm – they want someone else to do the training. The risk is that no-one does it, and Australia becomes a less clever country than we need to be.