Why Trump’s trade war really matters

The commentary on Trump’s new tariffs on steel and aluminium in my view have missed a central point. Most have pointed out (rightly) that this will lead to tit for tat tarrifs from the US major trading partners, but the most immediate affect will be on some of the biggest and most competitive manufacturers in the country.

Take Boeing. Boeing is in global competition with the European Airbus who both manufacture large airliners costing anything up to $300 million at a time. Although competition is largely about technical innovation and quality, there is still a large part of it on price. Much of the raw materials used are steel and aluminium. By putting tarrifs on both those materials, there will be an unnecessary increase in costs for Boeing which may tip the balance in competitiveness in future with Airbus. Boeing will source steel and aluminium at prices 10-25% higher than Airbus. Both companies will continue to source materials from the most competitive global suppliers – not US steel manufacturers who currently are nowhere near competitive in specialised materials manufacturing necessary for airliners. It is a disaster for Boeing.

And they are not the only ones. The US has by far the biggest armaments industry in the world. Both these materials are used widely in arms manufacturing. It does put them at a relative disadvantage.

Similarly with auto manufacturing. Major US owned car brands (GM, Ford) are not major exporters of cars from US factories, but they do have significant internationally competitive manufacturing plants in places like China, Mexico and Thailand from which they source significant exports. This tarrif decision may well tempt them to source even more US sales from these foreign factories. Similarly, most major European, Japanese and Korean manufacturers have set up manufacturing plants in the US, they too will no doubt go the same way as US owned manufacturers. It will also affect the emergence of high tech stars like Tesla, who must now be reviewing where they will they locate their factories for a global roll out in view of the uncertainty created by this idiotic decision.

The US only has itself to blame.

 

Russia is not as big or as powerful as they think they are, but they are still very dangerous

For all of Russia’s bluster, and however much they might dominate our news cycles, they are nothing like as big and powerful as they make out to be. In fact, their economy is almost the same size as Australia’s, except Australia has a population of a bit over 24 million, and they almost 145 million, and Russia is the biggest country by landmass in the world. Outside their top half dozen towns, they look more like a third world country with very much run-down infrastructure, and a failing agriculture sector. They have a miniscule SME sector: this is surprising particularly when one considers their population, their sophisticated universities and their advanced technologies, especially in Defence and advanced manufacturing such as their advanced jet fighters which compare very favourably with the latest US models.

Their economy is dominated by defence industries, oil and gas, and mining. They spent an estimated 5.3% of their GDP on defence, by far the highest in the top 30 economies in size in the world. This compares with the US 3.3%, even though the US spends more than the next eight biggest  economies in their annual defence budgets combined. The next biggest is China which had defence budget in 2017 of about a third that of the US at $215B or 1.9% of GDP, although a number of analysts suspect the China figure is substantially understated.

Just because Russia has relatively small economy, it does not mean they are not dangerous. They of course have the biggest nuclear arsenal in the world, a legacy of the Soviet era, and so long as that exists, the plutocracy which is the Putin regime knows it will not be provoked by the West.

Another legacy of the cold war, is their highly developed skills in the “dark arts” of subversion, information manipulation, and what used to be called propaganda. Putin himself started his career as a field officer in the KGB, and in fact during when the Berlin Wall was being torn down in 1989, Putin headed up the KGB in east Berlin – not one of his finest moments! It is as if he has been seeking revenge on the West ever since, particularly the US and Western Europe. By demonstrating chaos in Western democracies, he also demonstrates to his own population that maybe democracies are not as attractive as they first thought, particularly following Russia’s own chaotic democratic experiment under Yeltsin. A worrying side effect of this, is the relatively low support for democratic norms amongst millennials in many western democracies – a concerning development, and one not unrelated to Putin’s shenanigans.

When Boris Yeltsin chose Putin as his immediate successor in 1999, he did so thinking he would continue Yeltsin’s democratic reforms, albeit in an already highly corrupt State. Instead, over the next decade and a half, he cemented power, rigged elections, and enriched himself and his friends to such an extent that many now regard him as the wealthiest person on earth[1]. He did so by applying the dark arts learnt in the KGM to the running of a sovereign state, and to no-less than subvert and disrupt the democratic institutions of the west, democratic elections, economic institutions such as the EU. To have a pro-Russian President of the US in the White House in Trump (seemingly beholden to Putin for some unexplained reason), and EU states arguing amongst themselves of which Brexit has just been the most spectacular, is just about a dream come true for Putin. He does not need a huge defence budget if he can get these outcomes via manipulation, corruption and deceit. So how does he do this?

Given his limited economic power, he has been using his KGB skills, but updated ones now adopted to digital environments, AI and social media. He uses this to directedly interfere in the democratic and economic processes of the West. Donald Trump is simply his most public success, but there is strong evidence he has also interfered with elections across the EU, with the Brexit vote in Britain, and particularly his near neighbours like the Baltic States and the Ukraine.

The only way to stop this is to strengthen existing laws in the west, closely regulate elections, and use the rule of law as personified by the West’s Intelligence agencies (like the CIA, MI6, and the “five eyes” intelligence alliance), and to encourage and support institutions like the FBI and the Justice department in the US so that when mischief has been uncovered, that the law takes its course.

It remains to be seen whether this will occur in the US, but if it does not, the West and the US may well begin descending into the criminality and corruption of modern day Russia. The stakes are now very high indeed.

References

[1] Fortune Magazine, July 2017.

[2]World BanK Yearly  survey 2017 and the Stockholm international Peace Institute Data

Isn’t it time Australia closed its offshore detention centres

Here’s how it might work!

Since the late 1990’s, Australia has been tackling the increasing problem of large numbers of refugees arriving unannounced in boats to its shores, often promoted by people smugglers. Although it initially took a tolerant attitude to these people, the more of them who were let in, the more arrived. Egged on by the popular press and shock jocks, this intake increasingly was viewed by the Australian population as a flood (although more like a trickle by world standards). The public reaction was aided and abetted by the conservative side of politics “dog-whistling” on race which in the early 2000’s enabled them to win a couple of Federal elections. For both sides of politics, something had to be done.

The result was offshore detention centres where boats were intercepted by the Australian Navy and Customs Service (now called Border Force) and either taken back from whence they came, or transferred to detention centres set up by the Australian Government on Manus Island in Papua New Guinea, or Nauru (a poverty stricken island off the Australian north coast), or on the Australian territory of Christmas Island. These centres rapidly descended into cruel and inhuman environments to the extent that they are even today regularly cited by the Australian Human Rights Commission and the UN High Commissioner for Refugees (UNHCR) as in breach of the UN Declaration on Human Rights. Over the last ten years, this situation has done great harm to Australia’s reputation for having an almost spotless record on Human Rights (with the shameful exception of its own indigenous population).

There are currently over 300 asylum seekers housed in Nauru (Manus Island has now closed), and over 300 on Christmas Island, at a total cost of over $1billion per annum. Apart from this being an outrageous waste of money, and in spite of governments of both persuasions wishing to do something about it, they have been unable to get around the fact that it is these same inhuman conditions which have stopped additional boats from coming because people realised they will end up in them if they came. A number of solutions have been tried including swapping refugees with the US (so far 242 people exchanged) and having some of them settle in New Zealand. NZ was not acceptable because it was perceived this gives the boat people a path to a first world environment which does not provide the “right” level of disincentive, and from which it is too easy to transfer to Australia.

It is time that the centres in Nauru and Christmas Island were closed. The question is how?

Australia has perhaps had the most successful immigration program in the world growing its population from about 7 million largely British stock in 1945 to today having a population of almost 25 million people coming from over 130 counties from around the world. This has led to a highly diversified, rich and tolerant society where over 30% of the population is non-white, and which has one of highest standards of living in the world.

Since the early 1970’s, Australia’s immigration policy has largely been non-discriminatory on the grounds of race, religion and ethnicity. It is has been based on a points system whereby potential migrants need to score a certain number of points to be given Visas. These points are based on the needs of the country at any one time, so profession and education play major roles. Each year, about 25000 refugees are issued visas selected from refugees camps from around the world, and are carefully screened on security grounds and their ability to assimilate. Where the program has got into trouble in the past, is where its rules have not been properly enforced (eg in Lebanon and Somalia after their civil wars). In both cases, this led to civil unrest and criminality on the Australian homeland which historically has been very, very unusual in Australia’s migrant populations.

In early 2018, the UNHCR identified that there are over 30 million refugees housed in 125 refugee camps around the world. All these refugee camps are desperate to find permanent homes for their “temporary” populations. Australia is desperate to find homes for the inmates on Nauru and Christmas Island. Why doesn’t Australia offer to take refugees from selected camps at the rate of say 5 people in exchange for every one of the asylum seekers from the Australian detention centres (provided they meet Australia’s selection criteria for new migrants). In that way the Government will be able to close the detention centres, and play a responsible role in helping, albeit in a small way, empty the refugee camps of their populations while maintaining an orderly processing regime for international processing of refugees: in other words, no “queue jumping”. It is estimated that over 20% of the population of these refugee camps have either tertiary degrees or trade qualifications, both of which are in high demand in Australia. By selecting these people from these camps, it also does something about the issue of “queue jumping” issue i.e. where boat people are perceived to have been given higher priority for consideration of entry to first world countries merely because they are present on the ground in those countries, rather than waiting their turn to have their cases considered while they wait their time out in Refugee camps.

 

It is time to act, and get rid of this scourge on Australia’s very successful track record in immigration.

 

The are workable options to avoid war on the Korean peninsula, but it will require compromise on all sides

Summary

There is a solution to the North Korean problem, but it does require China, the US and North and South Korea to compromise. There may be a real basis for a settlement, but one no-one wants to contemplate it, least of all the Americans.

The dilemma Is this:

  • the Chinese have consistently said they have two major concerns on the Korean peninsula:
    • that if there were to be a united Korea, they would have US troops on their border, something they will never countenance; and
    • that if there was a collapse of the North Korean regime, there would be a flood of refugees into Northern China, which they would feel obliged to not only manage, but also finance.
  • The Americans increasingly seem to feel holding-on to Korea is part of their DNA in spite of the fact it seems to be leading to a nuclear exchange in North Asia which will have catastrophic consequences for the whole world. This is made doubly dangerous as we seem to have psychologically unstable leaders in the White House and the Kremlin who, for separate reasons, appear to believe this situation is to their benefit.

Any solution though involves compromise on all sides, something that has been sadly lacking until now. So what might the compnents of a settlement look like?

  1. The US offers withdrawal of all its troops from South Korea in exchange for joint security guarantees from China and the US.
  2. In return, China cuts off ALL trade to North Korea, and forces Kim Jong-un to resign and flee to a third country, with the US and China guaranteeing Kim and the major players of his regime immunity from prosecution, a safe passage and financial support indefinitely.
  3. Korea holds free and fair elections under the supervision of the UN for the whole of the Korean peninsula.
  4. The UN puts into the Korean peninsula a peace keeping force of 250,000 troops to guarantee security while this process is taking place, but excludes troops from North and South Korean, US, China, and Japan. This could be paid for by Korea, Japan, the US, China, and ASEAN, plus a small special levy on all UN nations as avoiding nuclear war benefits all nations.
  5. Both south and north Korean troops would be disarmed in the lead up to the elections. Thereafter, the united Korean armed forces would be pledged under their new constitution to be a pacifist force not unlike the current Japanese armed forces.

There are clearly a number of implications to this, most of which are canvassed below…



 

There are workable options for Korea to avoid war, but it requires compromise on all sides including the US

By

Michael J. Liley

 

In September 2017, the world appears closer to a nuclear exchange than at any time since the end of the Second World War. The apex of this tension is the rogue state North Korea which also happens to have developed nuclear weapons and is rapidly moving towards acquiring the means to deliver them across oceans.

This situation has turned out to be an early test for the new Trump Administration in the US. Unfortunately for world peace, Trump, and North Korean Leader, Kim Jong-un seem to have similar narcissistic personalities, with both behaving unpredictably and prone to taking things personally. This, of course, makes the situation much more unpredictable than if it had been between more “normal” personalities. Although this is a very dangerous situation, I would like to suggest that with creative thinking and goodwill on all sides, there is a potential solution.

China and the US will be the key to any solution, and both have a great deal to lose should we all end up in war. Donald Trump is not afraid to tell anyone who will listen that he is a master deal maker. Here, with North Korea, there may be the biggest deal he could ever make, but his understanding of world affairs is seemingly so naïve, and he doesn’t seem to listen to his senior diplomats, especially since he has emasculated the State Department for ideological reasons. He more than ever needs them but does not seem to have much faith in them, while at the same time growing the military budget by tens of billions annually.

Meanwhile, China appears to be taking a back seat, feigning cooperation with the US, but in reality, doing very little to restrain North Korea. The cutting off of the North’s trade in coal (the North’s biggest export earner) with China early in April 2017  together with recent additional sanctions, may be a sign of things to come, but there needs to all embracing actions which will starve the North Koreans out. China is still a long way from that.

China and the US will be the key to any solution, and both have a great deal to lose should we all end up in war. Donald Trump is not afraid to tell anyone who will listen that he is a master deal maker. Here, with North Korea, there may be the biggest deal he could ever make in his life, but his understanding of world affairs is so naïve, his decision making is very erratic and unpredictable which only serves to destabilize the situation. The fact that he has emasculated the State department does not help at a time when he needs their expert advice more than ever.

There is no obvious way that North Korea could be stopped by military force. At the moment, North Korea is showing off its military hardware, including nuclear weapons. The North Korean leader, Kim Jong-un, is exhibiting these capabilities to deter the West (and China) from taking any meaningful action to curb his recklessness. Yet the North Koreans are more and more prepared to be provocative, which ranges from military parades and test-firing various rockets, and threatening to fire off nuclear warheads to the west coast of the US, and recently even to Australia.

Most military experts keep reassuring us that Pyongyang does not currently have the capabilities to carry out such threats, although this is changing rapidly and Kim is increasingly sourcing his rockets from rogue suppliers in the Ukraine. However, it is true that these same military experts gave the same reassurances before the initial Korean nuclear tests, and then the first firings of their intercontinental ballistic missiles. The US is using every means it can to sabotage the development of these capabilities particularly by hacking their systems, seemingly with some success. But if nothing is done to destroy this developing capability, Pyongyang will eventually acquire the means to destroy the US (and Australia).

For the first time since the invention of the Atomic bomb, a nuclear exchange seems like a real possibility. Clearly, this is something that neither China nor the US, together with their Allies, can tolerate. Meaningful action is needed and needed urgently.

This situation is very dangerous, both in the short and long term. The World is watching, and if the North Koreans are seen to be getting away with thumbing their noses with impunity at the great powers, this is a very serious and dangerous position for all of us to be in. The implication from this is that any little tin pot regime which acquires nuclear weapons in the future will think they suddenly will have equal status to the established nuclear powers, and then who knows what might happen? Further, if nothing is done by the US and China, it will give every crazed dictator a reason to go after the nuclear option because they will then think they will be propped up (unintentionally) by the great powers. It is urgent that China and the US act in unison on this for everyone’s sake.

China and US face several options. First, bomb North Korean nuclear, artillery and rocket sites. There is no guarantee this would be successful and it would almost certainly provoke retaliation against South Korea and possibly Japan. Although the Allies have estimated they could destroy the North Korean arsenal within a couple of hours, they also believe over this period it would allow North Korea to launch artillery attacks on Seoul (the capital of South Korea and just over 50 km from the North’s border and so well within artillery range) with a population of some 10 million people. It is estimated that over this two-hour period, there would be upwards of 200,000 fatalities in Seoul alone, let alone the rest of the country.

Secondly, China and US could invade North Korea. This would make the invasion of Iraq look like a Sunday afternoon picnic, with heavy casualties on both sides, with no guarantee it would avoid a nuclear exchange.

Thirdly, special forces could assassinate Kim Jong-un much in the same way as they assassinated Osama Bin Laden in anticipation that this would lead to a people’s uprising. Most experts though appear to believe that this would more likely lead to one of his hard line Generals taking over, which may lead to an even more unstable situation.

Fourthly, China and the US could sponsor a UN resolution banning trade with North Korea for all member states and impose sanctions on all third parties (like Chinese Banks) who violate the ban. Although this would eventually lead to the regime’s collapse, it would take some time, and there is no guarantee in the meantime that the North Korean government would not set off military strikes in retaliation.

In reality, there is probably going to need to be a combination of all of these options, but the one thing they cannot do is sit on their hands and hope the problem will go away. it is urgent that the US use diplomacy to get China on board, and jointly formulate a plan. What sort of deal could result?

In 2017, China is involved with 95 percent of North Korean international trade. China could force the collapse of the North Korean regime by closing their borders and jointly penalise, with the US, any other country (or organisation) which supports them in any way. This would lead to the regime’s collapse within days. They then would need to negotiate a settlement probably including a safe passage for all the major leaders of the regime to a third country with guarantees about their immunity from prosecution. This assumes though that a desperate regime would not take military action in the meantime, but there are no risk-free options in this situation.

The settlement could lead to a militarily neutral Korean peninsula which includes the withdrawal of all foreign troops (US and Chinese), the withdrawal of the THAAD missiles from South Korea, and neither China nor the US would any longer provide nuclear guarantees. Within 12 – 24 months, there would be free and fair elections for the whole of the Korean Peninsula, overseen by perhaps a neutral entity like the European Union. In return, the united Korea would have to undertake to adopt a pacifist constitution, not unlike the Japanese one adopted after World War 2, with security guarantees from both the US and China. The new Korea would be allowed armed forces but only to be used in self-defence, just as the Japanese are able to do today.

In the interim, a UN administration would be set up to run the country and to supervise elections.  An international military and police force would be assembled to keep order but would specifically exclude US, Chinese, and Japanese personnel, and a UN appointed Administrator would run North Korea in the meantime. Once elections were held, and a constitution approved by the people, it would be up to the new Korean Government to define the way forward.

In this, the new united Korea could learn much from the German unification process in 1989-1990. For starters, they should avoid much of the huge reconstruction costs the Germans suffered by basically allowing the market, in large part, to finance it. In the German case, they allowed parity between the Deutsch mark and the East mark virtually straight away when at the time of unification the market value of the East mark was a between a half and a third the value of the West German currency. This meant that there was very little incentive for western companies to invest in East Germany, so much of the huge cost of reconstruction was born by the West German taxpayers which constrained growth of the unified German state for more than a decade. This cost far more than it need have, and left no permanent incentive for the market to move to the east to help reconstruction.

The best way for a united Korea to handle this would be by having a federation with two currencies. This would give a huge incentive for South Korean, Japanese, European, US and Chinese companies to move operations to the north as it would be much lower cost to operate than almost any other country in Asia, North America or Europe. This would rapidly allow the north to grow and develop until the exchange rates eventually come together, maybe over a 40-50 year period. This would be highly advantageous for South Korea also as it would allow them to have a low-cost economy from which they could run their considerable manufacturing capabilities with a population which speaks the same language, in the same cultural milieu, and which would increasingly operate under the same laws. The subsequent additional taxes generated by an increasingly prosperous North would largely support the building of the significant infrastructure which would need to be constructed to get the population out of poverty and into productive work.

This would be highly advantageous for South Korea also as it would allow them to have a low-cost economy on their doorstep. From here they could run their considerable manufacturing capabilities with a population which speaks the same language, in the same cultural milieu, and which would increasingly operate under the same laws. The subsequent additional taxes generated by an increasingly prosperous North would largely support the building of the significant infrastructure to get the population out of poverty and into productive work. It would also mean substantially reduced spending on defence on both sides of the border, the savings of which could be channeled into further economic development.

It is said there are two major things that worry China about Korean unification. First, a failed state on its border with accompanying refugee problems, starvation and death. China thinks it would be obliged to pick up the tab for fixing this which would be a major cost to its treasury for very little benefit. Secondly, it does not want a successful democratic state on its borders occupied by US troops and hostile to its interests.

This solution addresses both of these issues by disarming Korea, having all foreign troops withdrawn, getting the new state to renounce an aggressive armed state and nuclear guarantees, and provides an orderly transition. Just like Germany. It would create a new prosperous state with prospects of high growth for many years to come, and for which China will no doubt be its major trading partner. It would also provide stability – the thing China values above all else. In other words a much better solution for both China and the rest of the world.

A unified Korean state would be brilliantly positioned to become the new Asian economic super-tiger and a potentially politically stable one at that.

Now that would really be to China’s advantage.

 

mjlwritings@gmail.com

Skype: mliley

@Copyright Protected – All Rights Reserved

The Miracle Economy that is South Australia 2040

 

In 2015, the South Australian Premier of the day, Jay Weatherall, conducted a Royal Commission into Nuclear energy. He did this in spite of the huge opposition to anything to do with the nuclear industry throughout his Australian Labor Party, and widely in the bureaucracy as well as some parts of industry. The findings of the Royal Commission were to be an historic turning point for both South Australia and Australia itself, and turned around the historic under achievement of the SA economy compared to most of the rest of Australia.

The Royal Commission was a brave move by the South Australian Labor Premier, as his party had been implacably opposed to both nuclear power, and acceptance of nuclear waste. But at the time, SA found itself caught in the middle of inaction on climate change by conservative forces, particularly the Liberal Party under Malcolm Turnbull, then in power in Canberra and SA’s desperate need for reliable sources of power. This was not helped in late 2016, when there was a state-wide blackout due to a convergence of unprecedented phenomena happening all at once: freak storms, the breakdown of a gas fired power station, and a breakdown of supply from the national grid. In other words, an unprecedented set of circumstances, but one nevertheless which need to be addressed urgently.

The conservatives’ response to this was to cynically blame the SA government’s “obsessive” commitment to alternative energy, pointing out that this would not happen if they relied on coal. Given that no financial institution globally was financing coal fired stations in the foreseeable future without government guarantees, Weatherall needed quickly to find a short term political fix this problem. But in the long term there was no alternative but to fundamentally “change the game”.

In April, 2017, he announced his short to medium solution. SA would invest in a large back up battery facility costing over $100m, which was largely inspired by the Tesla electric entrepreneur Elon Musk. In addition the government would build a gas fired power-station as a backup for the sort of extraordinary circumstances experienced in 2017.

But in September 2017, Weatherall announced the fundamental game changer which was destined to not only change Australia’s energy landscape, but also much of the rest of the world. He began his address:

“Ladies and gentlemen, it is my great pleasure today to outline an exciting future for our great state of South Australia. Ever since we elected Don Dunstan as premier in the 1970s, South Australia has had fair claim to being Australia’s most progressive state. After the Dunstan era, there followed further progressive reforms: land rights, an indigenous governor, decriminalising homosexuality and of course big, brave festivals.  

“Maintaining the trend, SA also became a heartland for political experiments — Steele Hall’s Liberal Movement, the Australia Party and the Australian Democrats. These days, it has been South Australian Labor in the Senate, with the support of independent thinkers such as Nick Xenophon who saved Australia from the ravages of the extreme right wing ideologues of the Abbott Government.

“We now want to match these progressive instincts with an equally progressive and visionary economic future for SA, one which will take us into a new era of economic prosperity which is not reliant on the boom industries of the past – the motor industry, consumer manufacturing and fossil fuel fired energy generation.

“Now opportunity beckons. There is a chance to embrace technological change the same way we embraced social change and create Australia’s first ultra-modern, sustainable economy. In short, we want to turn South Australia over the next twenty- five years into the greenest, most technically advanced environmental economy in the world. We have the infrastructure, the resources, the skills and the money to get it done. And we will. The surplus we generate from our nuclear activities, will be ploughed back into investments which will transform the economy from top to bottom to ensure our vision is reached”.

Weatherall’s speech coincided with the launch of the SA government’s policy prescriptions as a result of the recommendations from the Royal Commission into the Nuclear industry, and it is fair to say the vision staggered Australia and much of the world.

The vision, as subsequently outlined by Weatherall’s staff, came in a number of components:

  1. South Australia will commit to being THE greenest, most advanced and sustainable state in the world –economically, financially and environmentally;
  2. central to that future will be a clean, efficient, technologically advanced and extremely valuable nuclear industry. This will be broken into several parts:
  3. South Australia will be made the centre of the world nuclear industry by providing a ‘close loop’ industry, i.e. rather than selling its uranium oxide to the rest of the world, it will rent it to them, and have the waste returned to South Australia for storage and eventual use as additional fuel in new generation nuclear reactors. Just by this alone the Royal Commission estimated this will generate for the State an additional surplus over the next ten years of $60 billion;
  4. SA will commit to spend some of that surplus to support the creation of a new generation nuclear industry, and construct under licence a generation 4 reactor from one of several suppliers under open tender such as GE Hitachi with its PRISM reactor, Rosatom with its BN reactor, and possibly from new innovative players such as Terrestrial The Mission of SANC will be to:
  5. license the building of a fast breeder reactor which will produce electricity from spent fuel rods sourced from the clients of Australian uranium exporters and eventually from nuclear fuel stockpiles from around the world. SANC will be responsible for the running of this process, and the accumulation of revenue, until the technology is mature, at which time SANC will sell it to the highest bidder provided its operational headquarters remains in SA, but substantial royalties will still flow to the government;
  6. be responsible for the export of uranium and the return of the waste from around the world, and the development of the storage facilities in South Australia;

iii.      oversee the enforcement of strict standards agreed globally for the movement of uranium oxide and waste around the world to and from Australia;

  1. provide technical advice to the federal government to ensure compliance to global standards; and
  2. provide the management and running of the generation 4 reactor and the distribution of the electricity to South Australia and elsewhere in Australia and offshore

The generation 4 fast breeder reactors had been a dream of the nuclear industry for decades, but no one has had the cash, the socio-political and geological environment nor the political will to make it happen. The Royal Commission though, after extensive global examination of the issue, came to the view that given the right commitment, skills and finance it would be possible for it to not only work but for it to be ready within ten years: and so it proved to be.

By 2025, the consortium charged with developing the reactor had not only had a pilot plant operating for 12 months, but was in the process of constructing a full-blown plant. This meant that via this new plant, it was possible to recycle nuclear waste from spent fuel rods with only 5% waste, and even that was then capable of recycling and so it too eventually ended up as fuel. South Australia was therefore in a position to deliver its promise of providing the world with a “close loop” nuclear industry, and the world came flocking to its door.

Between the time when South Australia started the closed loop policy in 2018, and the time the pilot generation 4 pilot reactor was commissioned in 2022, South Australia had earned over $40 billion in fees from those countries needing immediate resolution to managing used nuclear fuel. And all SA then did was to begin the process of turning it into green electricity, which eventually no only fed into Australia’s national energy grid supplying over 50% of national demand, but Australia became a major exporter of electricity once the power link was established across the Timor Sea to Indonesia and beyond to South East Asia.

As a direct result of the announcement of the SA government’s change of policy, and its commitment to a closed loop nuclear cycle, BHP Billiton announced it had decided to reopen for development the Roxby Downs mineral site in Northern South Australia– the biggest single deposit of uranium oxide and copper in the world, as well as numerous other minerals. This had been shelved in 2013 in view of the falling commodity prices and the uncertain future of the nuclear power industry. In the words of BHP: “South Australia changes everything”. From 2018 to 2030, BHP spent $10 billion developing the mine, but estimated over the 50 year life of the mine will make over $100 million dollars from it. It rapidly became SA’s biggest export earner, until the nuclear industry and its associated power generation and recycling overtook it in the early 2030’s.

Once the nuclear waste earnings started coming in in late 2017, SA rapidly began to commit to “greening” its economy. SA had long had a number of natural advantages, both from natural resources and its perceived redundant manufacturing and technology base. Weatherall now set about turning them into real economic opportunities.

First there was Elon Musk’s  Tesla electric car, his SpaceX – the most successful private provider of space travel, and his SolarCity – the US’s most successful solar energy company. Musk was a perfect fit for South Australia: redundant car factories, an operational space station in Wimmera Rocket Range, and the world’s second highest penetration of solar panels per household (after Queensland). Further, it had abundant sunlight both in winter and summer.

In 2018, in a joint news conference between Weatherall and Musk it was announced that:

  1. South Australia would hand over for nothing all the redundant car plants in South Australia to Tesla. Further, the government would provide $1billion dollars to adapt those plants for production of the Tesla Model S, X and the coming 3 provided these factories became the supply hub in the Asia Pacific region;
  2. Tesla would commit to developing and manufacturing an electric “peoples’” car which would be provided for every one at a fraction the cost of taxis, and ordered from the net and in the street. They would be all driverless;
  3. South Australia would progressively over 5 years make their major arterial roads into electric roads i.e. roads which are configured to charge electric cars as they drive along the roads which were in use in Europe in 2016 on a pilot basis, and have been increasingly charging buses as they drive along freeways. By 2025, most major roads in SA were electrified. The energy for these roads were provided by SolarCity with solar cells dotted along their fringes together with Tesla battery packs, as well as from the nuclear power stations. In the words of Musk: “it is a world first, but an incredibly exciting first”;
  4. SpaceX set up a manufacturing and development centre at Woomera for their state of the art rockets, but the actual launch pads were located in the Gulf of Carpentaria owing to the need for launch pads to be closer to the equator. By 2030, there were more rocket launches from the Cape than in North America owing to the insatiable demand from Asia and the lowest cost provider status of SpaceX.

South Australia had traditionally a vibrant Agribusiness sector, mostly centred on seafood of various kinds, world famous wines, and strong sheep, cattle and crops of various kinds. In 2017, for the first time in half a century Agribusiness passed the mining industry as Australia’s biggest export earner, and was seen to have as much potential as extractive industries because of the need to support the world’s growing population in the face of climate change and rapidly more variable weather.

SA is a very large state – it is twice the size of France for instance, and has always been constrained in its agribusiness growth by its lack of water. The nuclear opportunity opened up possibilities here too. With Nuclear desalination plants already in operation in Japan and Europe, and operating at a fraction of the cost of fossil fuel driven ones – even solar ones – nuclear energy seemed an obvious direction to pursue secure water for what was going to be a very fast growing population.

In 2021, the SA government announced the construction under the direction of the SANC of a  300-megawatt nuclear plant at Whyalla which would be required to drive a desalination facility with a capacity of 1 million cubic meters of potable water a day. That is enough water to support a population of between 3 or 4 million people. That same population would require between 4,000 and 6,000 megawatts of installed capacity to meet its electricity needs. Over time that facility not only supported SA’s very fast growing population, but enabled a range of new agribusiness industries to develop in the SA desert which would not have been possible otherwise

In addition, in 2017, Weatherall announced that he would invest $5 billion per annum into research in environmental technologies, funded from the nuclear royalties. The decisions about the funding allocations would be by an independent panel made up of a variety of the best environmental scientists in the world.  The only caveat was that the research and subsequent commercialization should be headquartered in South Australia. The result was that most major universities in the world opened campuses in South Australia and by 2040 SA per capita had more Phds than anywhere else in the western world. SA became the Australian hub of innovation and research for environmental industries, and the subsequent spin off companies remained head quartered in SA.

In April 2019, the new Federal Labor Government and Weatherall produced an even bigger shock than he did 18 months earlier. Surrounded by much of the new Federal Labor Cabinet: new PM Chris Evans; Penny Wong – Foreign Affairs; Tanya Plibersek – Treasurer; Richard Marles – Defence; and Anthony Albanese – Infrastructure. With them were the President of France, the Honorable Emmanuel Macron; and the Prime Minister of New Zealand, the right Honorable Bill English. Chris Evans started off:

“Today, ANZAC day, I am delighted to announce a major step forward in the modernisation of the Australian Economy which will make us, and especially South Australia, a pivotal player in Asia/Pacific region.

“Following our election mid last year we have been conducting a root and branch study of government expenditures and what opportunities exist for us to modernise and make our economy even more competitive. One of those opportunities is to help SA accelerate its transition to a clean green high tech economy. In doing so we recognised that SA’s ship- building capabilities together with its transition to a safe nuclear environment represented a very significant chance for our country.

“In 2015, the then LCP Government announced its intention to build up to 12 French designed ‘Shortfin Barracuda’. These French submarines are currently serving with the French navy as nuclear submarines and require expensive and extensive redesign to become diesel driven equivalents. Conventional power also considerably restricts its range.

“After extensive consultation with the French Government and the French builders, and strong support from our Department of Defence and the RAN, we have decided to build almost identical boats to their French equivalents including their nuclear power trains. In making this decision we believe this should be and will be above politics as it is so important to our future. I therefore thank the Leader of the Opposition for her provisional support which I received after I briefed her last night.

 Both parties, and the State Government, realise this is a big step but will be a major boost to SA transition to a nuclear future and provide us with leading edge capabilities in the Asia Pacific region. In recognition of the significance of this announcement to Australia and France, we welcome the French President the Honourable Emmanuel Macron to his first visit to Australia as President.

“My great friend and colleague, New Zealand’s PM Bill English, we also welcome. Bill is not only a great friend of Australia, he also leads the government of our greatest friend and ally, and fellow ANZAC partner, New Zealand. In doing so I would like to reveal that NZ has agreed not only to buy an additional two boats, but also take a 20% equity in the project. Over time we intend to make SA a nuclear hub in the Asia Pacific in partnership with our French partners, and intend to sell a number of additional boats to friendly allies around the Pacific rim. We estimate this could be as many as 20 boats over the life of the project. By going nuclear, there is no doubt we vastly improve the attractiveness of these boats to other buyers.

“I have to emphasise that none of this would have been possible without the visionary stance taken by the SA government in developing a “closed loop” nuclear economy, something I know our French partners are very very keen to capitalise on in the years ahead”.

To put it mildly, this caused a huge stir around the world, and certainly accelerated considerable additional interest in SA’s direction. It also played a critical role in helping SA successfully transform itself into the most prosperous economy in Australia such that today, in 2040, South Australia has the highest per capita income of all Australian states, is regarded as a model in sustainable development throughout the world, and has a population of over 5 million people, having overtaken WA and Queensland since 2020. Oh yes, and by 2040, in addition to the 12 submarines the RAN purchased, and the two for the  RNZN, so far there have been 21 sold to navies on the Pacific rim, and the Barracudas are regarded as amongst the most lethal weapons afloat and has caused many navies to play “catch up” when their power was realised. Nearly all of these boats use SA as a maintenance and technical base.

How Renewables are changing the landscape

In spite of the federal government’s bias towards traditional fossil fuels, and their continuing refusal to dismantle the subsidies to the fossil fuel industries (if you don’t believe me look at the $8 billion subsidies the federal government gives to the mining Industry per annum for diesel fuel, and the cost of non-indexation of excise on petrol –abolished in 2001 by John Howard in a desperate attempt to stay in office and estimated to have cost the treasury since then  an estimated $45billion), technologies are rapidly overtaking them.

Just this week it was revealed that the ACT government is on target to have 90% of its energy need fulfilled by wind and solar by 2020. This is in spite of Joe Hockey saying he is determined to withdraw all federal assistance to such a scheme, but lo and behold the ACT government says it doesn’t need any because these technologies are by themselves competitive with fossil fuels in the ACT. Whilst this is partly due to the special ACT environment, it is nevertheless a breakthrough.

I have always maintained that technology will in the end address successfully the climate change issue as long as sufficient money is poured into R&D and governments internationally insist on a level playing field i.e all subsidies for both fossil fuels and alternatives are withdrawn or at least be equivalent, which of course means also R&D money.

As an illustration of what can be done, it was announced last month there has been a breakthrough in solar energy technologies. The thing that has long held back the solar industry has been that it has in most cases only been possible to generate energy when the sun shines. But not at night and not when there is heavy cloud cover. Up until now there has also been a limited ability to store energy which could then be switched on at night. There have been various schemes to overcome this including new battery technologies and the use of hydro. For instance a scheme which is under serious consideration is to put 1000 square kilometres of solar panels in northern Australia and have some of the daylight power be directed to pump water up a hill to a mountain top lake and have it flow down again overnight to provide 24 hours of power. The intention of this scheme was then to distribute this power throughout south east asia via an underground cable and into the Asian power grids, thereby becoming a major source of foreign exchange.

Whilst this is a very interesting idea, it seems the latest technology announcement from researchers at MIT and Harvard may have made THE breakthrough which appears to make all this redundant.

Last month (April 2014), scientists at Harvard and MIT announced something extraordinary: they had found a way to create solar cells that can store accumulated energy from sunlight, and then, with no more than a burst of a few photons, release that energy in a steady and continuous form. These new types of solar cells, called photoswitches,  are made from a form of carbon nanotube called azobenzene, which can exist in two different configurations. One collects energy from the photons that hit it and stores it, another releases it. Because they can be switched from one form to another, the cell is essentially a battery, and this solves many of the problems of storage that arise with a weather-dependent system such as solar.

The great advantage of such a technology is that it would make possible solar cells that were an utterly stable continuous power supply. When you combine it with work being done elsewhere on solar cells that can perform in cloudy conditions, you have the plan for an entirely stable solar delivery system,  indeed, one that is more stable than the large-scale privatised power systems that we currently rely on, subject to mass technical failure, Enron-style credit events, and routine under-maintenance.

Such technology is small miracle, yet it’s only one example of dozens of advances occurring as renewable energy technology comes into contact with new materials and starts to be transformed by them. Thus, in the weeks and months before this announcement, news in renewables included: a new nanomaterial that can increase solar fuel cell efficiency by up to 80%, a solar-powered hybrid car that can charge up without needing to dock at a recharge station; and a plane the size of a 747 that will be able to fly around the world without refuelling. On every front, the renewables revolution is not merely gaining pace, but accelerating exponentially and the overwhelming reason for this is new materials.

The revolution is here. It is about time Joe Hockey and the Australian Federal Government got on board rather than making disparaging remarks about the ACT Government intentions, with Hockey in particular saying if he had his way he would shut down all wind turbines in the ACT because “he doesn’t like the look of them”. Got news for you Joe – they are here to stay. You’d better tell your fossil fuel mates the train is leaving the station and their horse and buggies won’t be able to catch up!

(Partially sourced from Crikey.com)

The contradictions of the Abbott Government

In a new federal government which has mostly been a huge disappointment, Joe Hockey stands out as being closest in it to a rational politician. Too often, the government has tended to prioritize a “tea partiest” social reform agenda (driven mostly by Abbott himself), while often eschewing the urgently needed economic reform agenda, which has always been the hardest, and most important area to tackle in Federal politics.

Abbott seems ready to implement a baffling array of side issues, long being championed by the looney right in Australia, like the Institute of Public Affairs, who are well outside the main stream, but who nevertheless are listened to by the ideological, ultra conservative, mostly conservative Catholic, cabinet of Abbott. To list them all would take up more space than desired, but just consider these:

  1. apparently it is now “ok to be a bigot” (according to the chief Law Officer in the land George Brandis), no matter how this might offend others or diminish their space under the Australian sky;
  2. nobbling the ABC, with apparently the eventual intention of selling off, at least parts of it, to News Limited;
  3. bringing back the British honors system (what a joke!);
  4. insisting on implementing the most expensive paid parental leave scheme in the world (and most eschewed to the rich);
  5. refusing to consider a free vote on gay marriage; and
  6. dismantling a website developed by the Federal Department of Health to inform consumers of the the most fattening and least fattening foods and have that reflected in food labeling – a very effective way of tackling the obesity epidemic  and one fought tooth and nail by the fast and packaged food industries. The fact that this was traced back to the assistant Minister for Health’s senior staffer, who happened to be a former lobbyist for these said industries, did not concern Abbott one iota. It is difficult not to contrast the behavior of Barry O’Farrell and Abbott and his ministers. The Abbott Fedral Government seems to be more captive of vested interests than any in living memory – and it has not even been in office 12 months yet.

Joe Hockey, on the other hand,  has exhibited mature leadership in not pandering to the nay sayers in the face of closure of smoke-stack and un-economic industries like cars, alumina and uncompetitive manufacturing. He has tabled a visionary process to funnel Superannuation monies into new infrastructure builds by effectively bribing the states to sell off their mature infrastructure assets and then put the proceeds into new start-up programs in return for the Federal government providing 15% of their cost. Now 50% of Super Funds go offshore, because they do not want to invest in start up infrastructure projects, but are more than prepared to invest in mature assets with proven revenues.

This will revolutionize the way infrastructure is financed and built in this country, at a time when construction in the mining industry is winding down. A sensible, common sense, and economically rational way of tackling this problem.

 

What Could China look like in the year 2040? A perspective for the next 30 years

from my book “Australia and the World in 2040“. Complete copies available in February 2018

In the early part of the 21st century, China was the fastest growing economy in the world and overtook the US in GDP terms in 2015. It also had the greatest foreign surplus in the world, and was the largest lender to the US, the biggest foreign debtor nation in the world.

When Xi Jinping came to power in 2011, the per annum growth of China’s economy was beginning to slow from the heady 10-15% rates for most of the 25 years to 2012 to a more modest 6-8%. Although still very high by world standards, slow growth in China meant a lessening of the Communist Party’s legitimacy (at least that was the fear in the minds of its leaders). Much of the high growth in that 25 year period had come from the rapid industrialisation brought about by Deng Zou Ping’s reforms at the 1979 plenum which turned the country into a market economy, at least for manufacturing products.

This resulted in about 400m people migrating from the country sides into cities where they manned the new factories, often in very primitive conditions. It nevertheless saw most of those 400m people go from rural poverty to earning a living wage – an unheard of event anywhere in the world up until that time. By 2010, though, much of China’s advantages in basic manufacturing were eroding with higher wages, higher costs and a higher exchange rate. Many factories were moving to lower cost countries such as Vietnam, the Middle East and Africa.

China now faced new reform challenges, which would see itself move up the “food chain” from low skill manufacturing, to high tech, innovative design and manufacturing. It also needed to rapidly develop its services sector such as education, finance, medical, bio-technology.

They also needed to rapidly reform agriculture where there was no private ownership of land (it was largely controlled by regional party chiefs), so there had been nothing like to development of rural land under private ownership equivalent to what had happened with city dwellings. As a consequence, Chinese agriculture was low tech, low productivity, and the peasants had little incentive to develop their land.

They also singularly lacked what most western countries took for granted, and which China’s rapidly growing and well educated middle class were demanding: rule of law, modern government services such as a social security safety net, modern hospitals, pensions, consumer laws, environmental laws. Most of all though, what Chinese people most wanted was a society free of corruption, especially by part bosses.

At the historic plenum in 2013, Xi Jinping discussed and flagged a number of reforms which in many ways exceeded Deng Zou Ping initiative in the early 1980s. For the first time, the Plenum’s official document committed  for markets to play a “decisive” role in the allocation of resources in the economy. In the coming years this lead to the role of state own enterprises being considerably diminished, with many of them being privatised or closed (if they were too inefficient).

The SOEs, which in 2013 represented over 50% of economic output, were also expected to stand on their own merits in terms of funding, and banks were liberalised and skilled in terms of their commercial lending activities in order for this to be brought about. These reforms resulted in a number of enterprises going to the wall (bankruptcies in SOE’s were allowed for the first time in 2016), but it also resulted in a number of them becoming internationally competitive, and a number of them grew into major global corporations. In 2014, there were 2 Chinese companies in the top 1000 companies (outside the US) by capitalisation. By 2030, there were 55, all growing out of reformed SOEs of 2014, and all public companies floated on the Hong Kong and Shanghai Stock exchanges

To support the 2013 reforms, financial institutions were up-skilled in money market operations as the Party announced that as of the end of 2014 there would be a partial float of the Yuan and a full float by 2016 when it would become the single Chinese currency, both domestic and international, and would be fully convertible. When this came about in January 2016, the currency rose by 25% against the US dollar. Interest rates became market determined by the beginning of 2015, the Chinese Central Bank was made independent of day to day government directive, but was required to work within parameters determined by the government to achieve certain economic outcomes such as exchange rate bands, inflation and unemployment had to be kept within certain bands. Between 2015 and 2020, the government also spent $250m in computerizing their services, particularly to online services, and in boosting the activities and sophistication of the Chinese Bureau of Statistics.

All these changes were primarily designed to make the economy more transparent, less corrupt,  and oriented to moving away from growth coming from investment in export industries to growth coming from productivity improvements and rapidly expanding consumer demand at home. The reforms included:

  1. key economic reforms such as liberalising the setting of interest rates (ie to the market), incentivising innovation, loosening the grip of competition-stifling state-owned enterprises (SOEs) on vital areas of the economy;
  2. allowing private ownership of rural land, and removing the ban on rural residents buying land in cities, which would allow peasants to cash in on the value of the land they work, and thus bring them up to the status of their urban equivalents. It was also hoped that this would unleash a flood of new investment in rural areas, modernising agriculture, and unleashing a further round of rapid growth, It is also seen as a key way to unleash pent up spending from rural areas which would become a major area of growth in consumer spending. This is exactly what happened from about 2018 onwards; and
  3. setting up an independent judiciary at local, regional, and national levels

While at the same time as bringing these economic reforms into being, Xi signalled there would be no political liberalisation following the Plenum in 2013. In fact he considerably strengthened the state security apparatus, doubling its budget between 2013 and 2020. Real political reform would not come until Xi successor came to power in 2023. Over Xi’s time in office, political reforms did take place mostly in the countryside, starting with the election of party officials on local councils. To stand you had to be a member of the communist party, but there were real secret ballot elections as early as 2015 in a number of rural areas. This soon spread to provincial governments by 2020, and the party then formalised its already existing factions of conservative, moderates, modernisers and liberals. If a citizen wanted to vote or stand, you had to be a member of the party. This meant that by the time the President and polit-bureau was elected by all party members in 2028, the party itself had grown from 40m members in 2013 to 750m members. 85% of these members voted in the 2028 elections.

China had always thouight of itself as a great power, it is just that western countries had not allowed it to take what regarded as its rightful place in world affairs. Since 2015, when it became the biggest economy in the world, it began to re-assert itself in the manner of a great power: by 2018, it had 4 million men under arms, 30 nuclear powered submarines and 5 nuclear powered aircraft carriers, and over 5000 supersonic strike fighters which many in the west regard as superior to the US F35 Joint Strike Fighter. It also had a global network of weapon carrying drones controlled out of Hong Kong, and a formidable international spy network.  As a great-power, it had considerable reach, but saw its primacy as being in the AsiaPacific region. The Americans also thought of themselves as an AsiaPacific power, particularly since Barrack Obama refocused them away from Europe and onto Asia in about 2010. Since then, the Pacific became the primary battleground. Interestingly though, it was not the Pacific but the Indian Ocean where tensions initially first came to boiling point between the world’s two superpowers.

Being the largest trading nation in the world, China in 2015 had built its navy into a significant blue water force, although it was still some way behind the US and even India, whose navy was by far its most significant military force. China was determined to make sure all its sea-lanes were kept open, and that trade could flow in and out of China without interference.  In 2015, the most significant of these was not in the Pacific, but in the Indian Ocean. Or, more specifically, the Arabian Sea. This had been for a century or more, one of the busiest sea highways in the world, and was critical for China in particular as the Persian Gulf was its major source of oil and gas. Since the early 1990’s, there has been a great deal of lawlessness around such states as Somalia, Yemen, and the Sudan, in many ways failed states. Somalia also played host to a network of pirates who specialised in boarding western (and sometimes Chinese) freighters, taking their crews and passengers hostage, and then demanding and getting tens of millions of dollars in ransoms.

By 2015, China had just about enough of this. In spite of a large of navies – British, French, German, Italian, American, Australian, Indian, Scandinavian and Japanese – patrolling the Arabian Sea, these hijackings persisted, and were even becoming more daring. China decided to act. First, in the face of mounting international criticism, they sent several divisions of para-troops into Somalia and effectively destroyed the pirate’s operating bases, and killed many of them. Secondly, they put pressure on world banks to freeze their assets. And thirdly, they captured and banished their leader, Jacda Bashire, to the international court in the Hague to be tried (ironic, since they were not a party to the treaty which set the Court up, and did not recognise it as a legitimate legal entity which could preside over its citizens – the same as the US). This effectively ended the pirate operations, at least for some time.

There still remained a core group of criminals who had a organisational structure, and significant wealth through ransoms. On June 5, 2017, one of China’s increasing number of cruise ships was streaming through the South China Sea 2000 kilometres south of Hong Kong and 1000 km east of Vietnam. I was 5.13am. There was an explosion. All 4232 people on board perished, 96% of them being mainland Chinese.

…..to be continued

What could Malcolm Turnbull’s Third Party look like?

With Julia Gillard’s collapse in the polls, without something extraordinary happening, it looks as though Tony Abbott will have a clear run to the Prime Ministership. Much of his own party, and the majority of the Australian people do not want this to happen, but in the absence of an acceptable alternative this is what will…

The only way to stop this, is for a third party to emerge, with a charismatic, smart and popular leader, a strong experienced team of technocratic politicians and party men and women behind him, and with it strong backing from the business and general community. Such a leader is Malcolm Turnbull.

With Abbott’s current strength, and the weakness in the Labor Party under Gillard, Turnbull’s ambition to seize the LCP leadership before the election has now evaporated. Many of us thought, that Turnbull was being a loyal party man in anticipation of Gillard gaining in the polls as we move towards the election (which is the historic trend for incumbent governments), and once parity was gained, then the LCP would panic, and turn to him. What other explanation could be proffered for such an intelligent man as Turnbull supporting the incoherent and illthought- out set of  utterances which pass for Abbott’s policies.

Since the ill-conceived Rudd Challenge, after which Gillard’s electoral support has evaporated, Turnbull has been subtly shifting his stance. He negotiated with the party a compromise on the NBN (although in policy terms it is quite ridiculous), and he now in the last week or so, is supporting a revival of the Republican debate. Both policy issues are directly against Abbott’s mantra, and particularly the Republican issue designed to directly challenge his authority (remembering Abbott was the leader of the Royalists in 1999), and he is extraordinarily reverential to both the British Crown and all things British. Turnbull is the opposite.

Could it be that Turnbull is testing the water on a third party, with him as leader.  If so, considering the unprecedented level of disillusionment with federal politics on both sides, and the unprecedented low level of popularity for both leaders of the major parties, isn’t it exactly the right time when a well positioned and led third part might succeed? Certainly, Turnbull has very considerable support with on both sides of politics, and the so called swinging voters.

Let’s for a moment consider what this party might look like. To be successful, it would require competent middle of the road politicians and ex politicians from both sides; it would require for highly skilled party machine men to commit to such a cause; and it would require considerable levels of support from business and community organisations to fund (although i suspect a copy of the Obama popular “man in the street” internet based funding model would be a real winner with lots of people).

So who might these politicians be who would commit to such a cause. Let me reel off some of the more obvious ones:

Lindsay Tanner

Geoff Gallop

Amanda Vanstone

Jeff Kennett

Kristine Keneally

Ted Baillieau

Nick Greiner

Anna Bligh

Penny Wong

Tanya Plibersek

Bob Carr

Jason Clare

Mark Dryfus

Kate Ellis

Tony Windsor

Andrew Wilkie

 

I’m sure there are many more which other bloggers could identify.

If this list is anything like accurate, then there is a party to be built in record time if it is to prevent Abbott from being PM, and surely that would be a service to all Australians, on all side of politics.

The Mountain Obama has to climb in his Second Term

With the re-election of Barack Obama for a second term, it is worth reviewing where the US is at as a society and why Obama needs to take some radical surgery to the country’s body politic to make significant progress.

First though, I should say, that if we had to have a global superpower, the US is about as benign as they come. It has been the global policeman for 75 years now, and has presided over a period of unprecedented global growth, prosperity, and largely without war (at least world war). Sadly though I fear this is all about to come to an end. With the rise of China, the US has significant foreign policy and military challenges, which will be difficult to address, especially with the current state of the US economy and what looks like a permanent realignment of relative might of the two super-powers.

Interestingly, there was recently conducted a study by Stanford University about the attitudes of senior American military officers past and present. Surprisingly, for a group you would normally expect to be strongly pro Republican, and pro military spending, nearly eighty percent of them came out strongly for deeply cutting defence expenditures and spending the money on rebuilding America, especially educational institutions, healthcare, infrastructure, and investing in innovation. What drove such a surprising result? Well one thing the US military is, it is not stupid. These officers fully realised, and articulated very forcibly, their long term future depends on a strong economy. Without economic strength, military might disappears viz; the Roman Empire; the British Empire; the Soviet Empire; the Ottoman Empire. These capable individuals realise this very much, and seemingly are willing to articulate the case for change

So far, Obama has been playing a “hands off” approach to foreign policy and when he has intervened to has been remotely i.e. using surrogate armies and/or heavy use of drone aircraft which allows US pilots to fight a war from the safety of their own US located Airbase. With China, both sides have been treaded warily as they size each other up in Asia, and Asia skirmishes have largely been between China and US allies, particularly over the islands in the South China Sea.  There will come a time though when the US will be forced to act in Asia e.g. North Korea, Pakistan, Iran. That will be Obama’s real test.

On the economic front, there is progress being made, much of it coming from market forces rather than government policies. The most significant of these is the historic comeback of the US as a global energy power, mostly off the back of technology change which has allowed access to huge oil and gas deposits from shale which previously was not possible. This means the US will be a larger producer of petroleum products than Saudi Arabia by 2020. Coupled with this, there are domestic regulations in the US which says that domestic gas demand has to be satisfied before exports can be made, and given the US’s highly developed domestic pipeline system, this means the whole of the US can be supplied from anywhere in the country. With gas now flooding the domestic market from shale, at 20% of the market price in Asia, this has given a huge boost to energy dependent industries which have all of a sudden become internationally competitive again. The lower US dollar has also helped in this. This has caused an improvement in employment rates, and with it, a pick-up in housing prices. It may be that 2013/14 will see America climb out of its self imposed trough US will become a significant exporter of gas in the next five years, no doubt causing a downward pressure on world prices, and therefore becoming a significant stimulant for the world economy.

This though will do little to solve the serious social inequity in the US which is significantly disenfranchising more than 50% of the population. For instance, less than 50% of the population pay income tax. This is not because they are cheating, it is because 50% of the population represents 3% of the national income and so simply do not earn enough money to pay income tax. This means the country as a whole is wasting large chunks of its manpower and brain power simply through lack of opportunity and a third rate education system. Coupled with health system which costs twice as much per capita than any other major OECD country, but gets fourth rate outcomes, this same 50% are poorly supported from a health perspective and from a social income perspective.

In his first term, Obama made some significant progress on these issues against fierce opposition from the Republican congress, notably in Health care, but the US is still significantly behind other equivalent OECD countries. In my view, nothing exemplifies the parlous state of American politics and economics as much as the US health system. The US currently ranks about 15th in the table of health indicators in the OECD, yet nothing gets the Republican Party so worked up than when “Obama care” comes up. Even with the progress being made, there are still significant parts of the US population without adequate health-cover, and treatment will remain significantly more expensive than in equivalent countries until Obama takes on the doctors, and introduces a national health insurance scheme with all the economies of scale that represents.
One thing we can say though is that one of the most consistent things about America throughout its history is its ability to re-invent itself when all seems lost: slavery; the Civil War; the Great Depression; Pearl Harbour; the Cold War; Russians putting the first man into space; Vietnam. Unfortunately, now almost every statistic, financial and no- financial, shows the US in decline. And its political system is so badly broken, in spite of Barrack Obama’s best efforts. There has seemed simply an inability to do anything about it, particularly leading up to the last Presidential election. One of the outcomes of that election though is the naval-gazing that has caused in the GOP, and the willingness of least some in that party to consider modernising themselves. This has not yet seen any change in their politicians in Congress and compromise from their side still seems out of the question.
Let’s take a look at these key social indicators:

  1. 1.       US Social Indicators are going in the wrong direction.
    The Table below from the OECD shows just how badly the US is doing as a society. Nearly all its social indicators are in the bottom half of the OECD league tables.  What the table below shows is the distribution of social indicators across all OECD countries, and breaks them up into countries in the top two deciles, in the bottom two deciles, and in- between. The measures include:
    a. Household income (PPP)
    b. Ratio of employment to population 15-64
    c. Unemployment rate population 15-64
    d. Reading literacy scales
    e. Poverty rates
    f. Percentage finding it difficult or very difficult to manage on current income
    g. Percentage of average gross wage to meet poverty threshold
    h. Life3 expectancy at birth
    i. Infant mortality rate
    j. Rate of positive experience
    k. Percentage of persons satisfied with water quality
    l. Percentage of people expressing a high level of trust in others
    m. Corruption index
    n. Pro-social behaviour
    o. Voting rates
    p. Tolerance of Diversity

Net Score of top decile minus bottom decile scores by OECD countries

Countries Top Tweo Deciles Bottom Two  Deciles Net Score Net Ranking
Australia 8 0 8 3
Austria 4 0 4 10
Belgium 1 0 1 17
Canada 4 1 3 12
Chile 2 8 -6 27
Czech Republic 2 6 -4 24
Denmark 10 0 10 1
Estonia 0 9 -9 32
Finland 7 0 7 5
France 1 0 1 17
Germany 2 0 2 15
Greece 0 5 -5 25
Hungry 1 9 -8 30
Iceland 9 0 9 2
Ireland 5 1 4 10
Israel 0 9 -9 31
Italy 1 3 -2 21
Japan 5 2 3 12
Korea 2 5 -3 22
Luxenberg 5 2 3 12
Mexico 1 11 -10 33
Netherlands 8 0 8 3
New Zealand 6 0 6 9
Norway 7 0 7 5
Poland 0 7 -7 29
Portugal 0 5 -5 25
Slovak Republic 2 8 -6 27
Slovania 2 1 1 17
Spain 2 2 0 20
Sweden 7 0 7 5
Switzerland 8 1 7 5
Turkey 1 14 -13 34
United Kingdom 3 1 2 15
United States 2 5 -3 22

Source: Compilation from OECD Social Indicators in Society at a Glance 2011

There are many highlights in this information, but the most worrying from the US’s perspective is that it comes 22 out of 34, behind such advanced economies as Italy, Spain, Slovenia and equal with Korea. To be fair, it is likely that many of the European countries have gone backwards since the GFC and the Euro crisis(s), but so will have the US. It is likely that countries such as Korea and Israel will have gone ahead of the US since then given neither was greatly affected by either the GFC or the Euro crisis. This probably puts the US about 25th, a disgrace given it is the wealthiest country on earth, and is the most advanced technologically, militarily, and academically.
2. US Obsession with Religion: 
If you look at the measures outlined above, many of the social indicators where the US scores badly is what could broadly be called “social tolerance”. Much of this stems from the blind adherence to religious doctrines for much of the population, and much of its politics. The US is about the only country in advanced economies where it would be impossible for a non-believer to be elected to public office. Over 80% of the population goes to church on Sundays, where in the rest of the anglo world it is less than 10%. Even in the so called Catholic countries of Europe, such as Italy and Ireland, church attendances are less than 20%.
As a direct result of this social intolerance in the US, social measures are well below advanced countries norms. Take teenage pregnancies. With the exception of Russia (practices there are distorted by the championing of abortion as the preferred form of birth control under communism, and these practices continue today), the US has the worst record of teenage pregnancies in the OECD.

 

 

Why? Primarily the opposition of the religious right, and the Catholic Church to both birth control and comprehensive sex education in schools (see table below);
Birth, Abortion and Pregnancy Rates for Developed Countries Ages 15-19 (per 1,000 population)

Countries Births Abortions Pregnancies
Russian Federation 45.6 56.1 101.7
United States 54.4 29.2 83.6
New Zealand 34.0 20.0 54.0
UK 28.4 18.6 47.0
Canada 24.2 21.2 45.4
Australia 19.8 23.8 43.6
Sweden 7.7 17.2 24.9
Denmark 8.3 14.4 22.7
Germany 12.5 3.6 16.1
Netherlands 8.2 4.0 12.2
Italy 6.9 5.1 12.0
Japan 3.9 6.3 10.2

*Note: pregnancies exclude miscarriages; data from mid-1990’s. SOURCE: The Alan Guttmacher Institute report on Teenage Sexuality and Reproductive Behavior in Developed Countries

Related to this, is the increasing trend in the US of children not been vaccinated for preventable diseases, mostly because of opposition from the religious right, who regard it as “ungodly”. The result, eminently preventable diseases such as hooping cough, measles and polio are on the rise there, when even in the developing world, partly as a result of the great work by that great American Bill Gates, and his Gates Foundation, rates are rapidly decreasing. In most of the developed world, these diseases are virtually eliminated by almost universal inoculations of the young.
3. The Paralysis of the American political system.
The US is not a Westminster style parliamentary democracy. Although difficult to believe in the current state of play, the US is not an adversarial system in the sense that Westminster democracies like Australia, the UK and Canada are. The way the US system has worked for 400 years is through compromise and consensus, with much of the power residing with the President. It depends on the legislature reaching compromises in order that the business of government gets done. Now, however, one side, The Republicans, have allowed their party to be high-jacked by extremists (the Tea Partyists), and not very bright ones at that, who regard compromise as a sin (a word used advisedly). Much of their ideology comes from the extreme right parties of Europe (Le Pen in France, the National Front in Britain, the successors to the Nazis in Germany, and One Nation in Australia). These parties generally are made up of disaffected working class voters, often extremely racist, and often under-educated. They carry with them an under-lying hatred of the way things are, and a frustration that they feel they are not getting their “fair share”. Usually, when prosperity continues these people remain in a small minority, but after the economic dislocation in Europe and the US in the last 5 years it has created an environment for extreme views to flourish, in much the same way that the consequences of the Treaty of Versailles and the Great Depression was directly responsible for the rise of Hitler and the Nazis. This time, however, the greatest victim is the US itself, where they have managed to successfully press the self destruct button. This will only be addressed by the moderates in the Republican Party recognising the need to modernise, and being able to convince the social conservatives led by the Tea Party. It is in the early stages of this playing out, but the GOP will rapidly become irrelevant without reform, and will probably lead to the emergence of a new party or permanently entrench the Democrats in the White House.
For the current state of play to continue, the US has almost become ungovernable. No matter how competent the individual is in the White House, and how much his/her heart is in the right place, there seems to be no way by which will emerge a means to bring in the desperately needed reforms which will reverse the poor social outcomes listed above, and restore the United States reputation, previously assumed by the rest of the world, as being the beacon for progressive thinking, social innovation, and sound economic management. The next three years will be critical to this, and Obama will either emerge in his second term as a reformist president in the Roosevelt or Johnston mould, or to be cast out as the biggest lost opportunity in US history.