Australia’s crawling Internet speed signifies wider fiscal failure

One of the small things I noticed (and enjoyed) in Europe in the last few weeks is the speed of the Internet connections available. Even if one takes the so-called ‘low speed’ option at the hotel (invariably free), the connectivity speeds were far superior to anything I have available in Australia. That matters when large datasets are involved. We often wait minutes for datasets to download here from say the Australian Bureau of Statistics. Watching streaming video is often a case of getting it started, pausing it, and waiting an hour or more for the download to occur so that you can watch it without interruption. Australia is very backward in this regard and the reasons that we are set to become even more disadvantaged are the same reasons that the economy are heading towards recession – a neo-liberal fetish against government spending and an ideological blindness to innovation.

In the latest – State of the Internet Q1 2015 Report – produced by the cloud service provider Akami, which generally is accepted as an authoritative source, Australia, the second wealthiest nation in the world (per capita) lies a dismal 29th for Internet speed.

The Global average connection speed in the first-quarter 2015 was found to be 5 Mbps, whereas the leading nation, South Korea, where the state plans and fosters innovation of the capitalist economy, enjoyed average speeds of 23 Mbps.

Australia was ranked 15th in 2014 on GDP per capita (a measure of income per head of population) according to the IMF World Economic Outlook Database. According to the most recent 2013 Global Wealth Report published by an investment bank, Australians, based on average wealth (that is, per adult) is the second richest nation in the world behind Switzerland.

Yet, Australia languishes in 29th place with an average connection speed of 7.6 Mbps and rarely gets above 15 Mbps (6.9 per cent of the time). The following graph compares the Average connection speed (Mbps) in the first-quarter 2015 (blue bars) with the speed in the same quarter in 2014 (red triangles).

Australia is the green bar.

While our connection speed has risen marginally in the last year, we remain in 29th place because other nations have improved their network systems also.

As I type, my Ookla Speedtest results were – Download 2.28 Mbps and Upload 0.69 Mbps – very slow today and it doesn’t get much better on faster days.

You could interpret those facts as saying that Internet speed doesn’t matter. Alternatively, and the interpretation that I suggest is more plausible, Australia has been living high on the old technology but will soon decline as growth and the new technology come together in the maturing Internet age.

There is solid evidence that real GDP growth, in the Internet age, and connectivity speed are positively related. In other words, nations with higher connection speeds to the Internet grow faster, other things being equal (including total spending in the economy).

This 2015 EU study – Note on the Socio-Economic Benefits of High-Speed Broadband – is illustrative of the benefits of FTTP technologies.

This Fairfax article (September 8, 2015) – The NBN: why it’s slow, expensive and obsolete – helps to explain the mess that the current conservative (neo-liberal) government has created with respect to our network availability and speed as a result of their ideological crusade against innovation and government spending.

Please read my blogs – Public infrastructure does not have to earn commercial returns and Free public broadband is required – as background.

For international readers, the NBN refers to the development of a fibre-based National Broadband Network to replace the archaic, slow network that exists now based on dated copper wire technology that was the foundation of our national telephone network.

The original NBN proposal was to offer high-speed broadband access to all Australians whereas at present many regional areas do not have any access.

The provision of fibre to the homewould have future-proofed our national network into the foreseeable future.

The current conservative government went in to the 2013 federal election as Opposition claiming that Australia faced a fiscal emergency and would have to drastically cut the fiscal deficit and debt immediately or else the bond markets would stop lending to us and the government would run out of money.

The deficit had risen largely because of the significant stimulus provided by the previous Labor government in late 2008 and 2009, which saved the economy from recession, while the GFC was devastated other advanced economies whose governments were less inclined to introduce rapid and large stimulus packages.

In historical terms, the deficit was not large and at the time I argued it should have been much larger because unemployment still rose by around 2 per cent.

Unemployment is now higher under the current government than it was at the worst point of the slowdown in 2009-10 because both the Labor government and the current conservative government have been trying to run austerity fiscal stances.

The conservative election campaign centred on the fiscal scares was preposterous but the public does not have sufficient understanding of these matters to see through the lies and fell for the Opposition’s scaremongering.

Scrapping the NBN became one of the examples of how a conservative government, if elected, would ‘save’ the nation from ‘bankruptcy’. It was inane at best.

On January 18, 2011, the then Opposition leader now Prime Minister Tony Abbott told the media that the Government had to “re-prioritise” its spending and scrap the NBN. He was quoted as saying (Source):

It is time for the government to stop spending on unnecessary projects so that it can start spending on unavoidable projects such as the reconstruction that will be needed in Queensland … It can start with the National Broadband Network. The National Broadband Network is a luxury that Australia cannot now afford. The one thing you don’t do is redo your bathroom when your roof has just been blown off.

The reference to Queensland was to the major flooding that devastated that state in early 2011.

His logic is similar to saying that the development of the railway system or the national highway system at different points in history was ‘unnecessary’.

The NBN would have delivered benefits for many years to businesses, to health professionals (network diagnosis and operations); to educators; to researchers; to consumers and to just about everybody.

There was and is no sense to the statement (or concept) that the Government cannot “afford” its planned expenditure to develop the network.

The only real constraint that might have stopped the scheme being implemented would have been if the world had run out of fibre optic cable – highly unlikely in the foreseeable building stage of the project.

Government spending is intrinsically only constrained by real resource constraints. There are never any intrinsic financial constraints on a currency-issuing government although the political debates always focus on these aspects.

The conservative position evolved as the election approached in September 2013 and it maintained it needed to scrap the NBN and put in a cheaper system.

At the time, its public utterances on this matter betrayed an appalling lack of understanding of the concept of large, long-lived public capacity providing services over the next 50 years.

It was predicted by commentators (such as yours truly) that altering the network from the previous NBN plan of Fibre-to-the-Premises (FTTP) to the current plan of Fibre-to-the-node (FTTN) would require higher government spending outlays than the then Opposition were providing.

Leading into the election they claimed they could produce the FTTN system mixed with satellite and cable technologies and still using the old, decaying copper-wire telephone connections to houses (that have been in place for decades) for around $A28.5 billion compared to the $A44.9 billion that the Labor government had estimated their FTTP system would require in fiscal outlays.

This plan was dubbed the multi-technology mix (MTM).

The conservatives claimed their MTM system would result in lower fiscal outlays of the order of 36 per cent and, as their scarey narrative went, the government needed to save every cent to avoid a major fiscal crisis from occurring.

The other claim the conservatives made was that they would have their FTTN system operating by 2016 delivering Internet connection speeds in excess of 25 Mbps to every Australian household without exception.

The Labor FTTP proposal, which was in the early stages of construction when they lost office in September 2013, promised to deliver speeds of more than 50 Mbps to around 90 per cent of households by 2022.

So the conservatives convinced the Australian public that its system would be entirely adequate, require less spending and be in place next year.

As the Fairfax article (cited above) noted the conservative government claimed that its proposal was “Fast. Affordable. Sooner.”

After examining the newly released – NBN Corporate Plan 2016 – the Fairfax article now reveals that after two years in government:

1. The fiscal estimates of the conservative FTTN NBN plan which is now being implemented as a result of them winning office were wildly understated.

We read:

… The estimated funding required for the Coalition’s NBN has almost doubled from $28.5 billion before the 2013 election to between $46 billion and $56 billion in August … Also, the cost of repairing and maintaining Telstra’s ageing copper network was likely underestimated, as was the cost of retraining and maintaining a workforce with the wider range of skills needed to install and maintain the multi-technology-mix network – costs that are unique to the MTM.

So why isn’t there a fiscal emergency now? Answer: there never was one.

2. The proposed roll-out date of the conservative’s plan was grossly overstated.

We read:

The Coalition’s original target was to bring at least 25 Mbps to all 13 million Australian premises by 2016. That target has now been quietly dropped and replaced with a target of more than 50 Mbps to 90 per cent of premises by 2020.

At the end of July 2015, almost two years after the 2013 election, only 67 premises had been served by multi-technology-mix technologies. In the meantime … the roll-out of FTTP has continued, albeit at a lower rate than Labor originally intended.

The reference to the Coalition is the the mix of Liberal and National Party politicians that make up the current conservative government.

The point is clear – the current government’s plan has been slower to roll-out than the the progress that had been made in getting FTTP under the previous government.

3. The speed of the NBN will be so slow that our relative position will decline over the next few years.

We read:

In 2009, Ookla ranked Australia’s average broadband download speed as 39th in the world. Since then, our international ranking has steadily declined and slipped to 59th place earlier this year … [the] … FTTN technology … will not be enough to meet the needs of Australian broadband customers. In short, FTTN technology will cement Australia’s place as an internet backwater. Our world ranking could fall as low as 100th by 2020.

Whichever speed index for rankings that are used, Australia is already considered to be a slow connection speed nation. As the rest of the world adopts more FTTP technologies, we will languish further behind.

The Fairfax article notes that few “forward-looking nations” would never entertain “fibre-to-the-node technology … as an option” and where it has been tried, operators have moved to “more advanced broadband technologies like FTTP”.

Australia’s conservative government is doing the opposite – “moving backwards” in the technology.

The FTTN “will be obsolete by the time the roll-out is completed”.

The conclusion is obvious:

If in 2013 the Coalition had simply allowed NBN Co to get on with the job of rolling out its fibre-to-the-premises NBN, rather than changing it to an inferior multi-technology mix, it may well have ended up spending less money and delivered Australia a much better network.

Which illustrates the broader problem that our nation now has. The NBN disaster was driven by the fiscal mythology that the Government used to win office.

There are also arguments that the conservatives resist a fast, widely available Internet because it is able to support grass roots democratic uprisings and information sharing that undermines the cult of secrecy that the neo-liberals have introduced to their policy agendas – Trade Agreements, Refugee policy, etc.

Last week’s National Accounts data showed the Australian economy to be growing at the near-recession rate of 0.2 per cent in the last quarter.

Please read my blog – Australia national accounts – heading for recession at this rate – for my commentary and analysis.

The two spending sources of growth were private consumption and public spending. It is true that there are data anomalies that might lead to the latest results being revised. But the trend over several quarters has been for slowing growth as private investment declines (as the mining boom ends).

The outlook for private investment in 2016 is rather dire and with net exports draining growth and expected to continue in that vein, there is a need for a substantial boost to government spending.

Household consumption has to remain relatively subdued given the huge debt burden that resulted from the pre-GFC credit binge.

So now is the perfect time for the Government to admit it got the NBN development hopelessly wrong and announce that it is reverting to the original FTTP network, which will take a little longer to complete but will offer Australians network connectivity that will be viable for a few decades at least.

The investment by the Government, which as it turns out, would not be much greater than it currently proposes under the soon-to-be obsolete FTTN network, would boost growth in the coming years but also underwrite higher potential growth rates in the future, which will allow the economy to lift its employment growth rate and reduce the massive labour underutilisation rate (currently around 15 per cent of the available labour force).

Since the current government was elected, growth has fallen further below trend and would have been worse if it had have been able to implement last year’s ‘Budget’ plan.

Only the good sense of the upper house (Senate), which blocked the crazy austerity fiscal plan, saved the economy from an almost certain recession in 2015. As it is, the economy is now operating on annualised growth rate of less than 1 per cent.

Yesterday, the so-called – Parliamentary Budget Office – released its – Unlegislated measures carried forward in the Budget-September 2015 update.

The PBO is a pitiful exercise – set up by the previous Government to provide so-called “independent and non-partisan analysis of the budget cycle, fiscal policy and the financial implications of proposals”. Given it runs the standard neo-liberal line with respect to monetary systems it is impossible that it is independent.

It is ideologically biased in the same way the IMF and the OECD is.

But Australia, ever suffering the inferiority complex of being a remote Southern nation born out of the convicts sent by the British, decided if the British had its Office for Budget Responsibility and the Americans had the Congressional Budget Office, then we better have one too – and so the PBO was borne.

It is, in fact, just a diversion to allow the Government to deflect responsibility to an unelected, unaccountable body that no-one really knows anything about but comes out with these allegedly authoritative reports that somehow constitute facts that have to be obeyed.

This Report just calculates what the impact of the Senate rejections of the crazy fiscal measures proposed by the Government might mean for the underlying fiscal balance out to 2025-25.

All we learn is that, assuming their arithmetic is correct, the fiscal deficit will be higher than proposed (which is good in the current circumstances) by 0.1 per cent of GDP in 2015-16 and a bit higher after that. By 2025-26, the fiscal deficit will be $A74 billion greater than planned.

The rise in the deficit is nowhere near to the stimulus that is required right now to arrest the decline in growth and the rise in unemployment.

The problem is that the Labor Opposition has agreed to allow some of the measures through the Senate which will tighten the austerity.

And, the ‘Neo-liberals on bikes’ (aka The Greens) was quoted in the press today (Source) as saying:

Joe Hockey can either raise $18.1 billion unfairly over the the next four years with his rejected budget measures, or raise $106 billion fairly through measures like axing unfair tax breaks and asking the big banks to pay more.

Which tells us that there is an urgent need for a truly progressive political party in Australia to fill the gap left by the Labor party and the Greens.

Both the current opposition parties are running neo-liberal fiscal agendas which undermine their capacity to introduce truly progressive agendas, which includes climate change policies.

Conclusion

The NBN fiasco is part of the broader problem that plagues all advanced nations. By refusing to maintain adequate fiscal stimulus for long enough, the recovery in most of these nations has been delayed and then rather weak.

The cycle is now turning again but the detritus from the GFC has not been expunged given the weak growth in the upturn of the current cycle.

If China slows further, the world economy will also slow down further, which in many cases will push nations into recession.

Australia is in that position right now. Private spending is weak and barely supporting any growth and the external sector is draining growth.

If the latest data has proven anything it is that public spending can replace weak private spending to sustain growth.

Last week, both the Treasurer and the Opposition Treasury spokesperson admitted that the huge defence outlays on the new navy war ships which boosted public investment spending were the major difference between positive and negative growth in the last quarter.

It might have escaped their awareness that this undermined their respective fiscal strategies (actual and proposed) which are centred on implementing austerity to save the nation.

In what sense can they believe that austerity is required if private spending is now largely undermining growth and public spending is the major spending component sustaining (albeit weak) growth?

Upcoming Events in Spain

The Asociación Para el Pleno Empleo y la Estabilidad de Precios (APEEP), or Association for Full Employment and Price Stability in Spanish, is a non-profit organization that is devoted to raising awareness and disseminating Modern Monetary Theory (MMT) amongst the Spanish public.

APEEP believes that full employment and price stability are compatible if public policy is conducted within an MMT framework. The current economic crisis within the Eurozone highlights the need for an MMT approach to public policy.

In an effort to bring MMT into the political debate in Spain, they will be hosting several presentations by Warren Mosler:

– September 14, 2015 – Madrid: http://apeep-tmm.tumblr.com/image/128253931730
– September 15, 2015 – Valencia: http://apeep-tmm.tumblr.com/image/128506178765
– September 17, 2015 – VilaReal http://apeep-tmm.tumblr.com/image/128264249520

That is enough for today!

(c) Copyright 2015 William Mitchell. All Rights Reserved.