Posted: February 21, 2005

A Job Guarantee is indicated

Jared Diamond, who is currently a Professor of Geography at UCLA (and was earlier Professor of Physiology at the UCLA's School of Medicine - therein revealing his breadth) has recently published his latest book Collapse: How Societies Choose To Fail Or Survive (published by Viking Adult, December 2004). His book examines many different communities and nations (from Montana to the demise of Greenland!) and he also focuses on Australia's mining and agricultural industries. He examines the tension in Australia between our land and water resources and their capacity to support our rapacious agricultural practices (mostly based on producing for meat-diets). It has been known for years that with excessive land-clearing and chemical-aided agriculture that salination and erosion would render increasing tracts of the land unusable. Diamond challenges the legend that the agricultural lands are still the clue to our economic well-being. He says "While 60 per cent of Australia's land area and 80 per cent of its human water use are dedicated to agriculture, the value of agriculture relative to other sectors of the Australian economy has been shrinking to the point where it now contributes less than 3 per cent of the gross national product. That's a huge allocation of land and scarce water to an enterprise of such low value. Furthermore, it is astonishing to realise that over 99 per cent of the agricultural land makes little or no positive contribution to Australia's economy. It turns out that about 80 per cent of Australia's agricultural profits are derived from less than 0.8 per cent of its agricultural land ..." His take on mining (which he classifies as agriculture) is that it does not add to our wealth because it just irreversibly converts the environmental capital of soil and vegetation into cash! Exports are a cost and we should always realise that.

So what about this? Well, I see jobs, jobs and more jobs for our frail regional and remote communities in his prognostications. The problem of environmental decline - can be addressed by creating a new industry - 'environmental repair' and instead of providing public subsidies to agriculture and mining to wreck the place for such little return, we need to encourage permaculture farming with labour intensive production and create vast numbers of jobs as 'natural environment rangers' under a Job Guarantee - that is the most pressing need in our rural communities - jobs for the young to keep them in the regions and to keep the services (banks, shops etc) there viable. The basis of revitilising our declining and in some cases moribund regional towns is to guarantee an employment base. Introducing a Job Guarantee would solve the problem of unemployment 'hot spots' (regional clusters of entrenched unemployment) and provide these communities with an alternative employment base which might persuade them to stop ruining the land we temporarily stand on.

Meanwhile, Sydney Morning Herald economics writer Ross Gittins, who recently attacked academic economists for their lack of attention to the economics debate in Australia, writes today in his piece Macfarlane's verdict: Govt asleep at the wheel that the governor of the Reserve Bank, Ian Macfarlane, who gave evidence before the House of Representatives Economics Committee last week has effectively said the Federal Government is "asleep at the wheel". Apparently, the Government has not pursued micro-economic reform vigorously enough and now we are facing labour supply shortages and public infrastructure shortages. The Government is of-course hearing 'punish the workers more by industrial relations reform' and 'force the disabled to work for their pittance' only.

But Gittins makes a stunning error. He makes the distinction between supply side (productive capacity) and demand side (spending). Fair enough. He says the RBA is being forced to put interest rates up to slow down the economy so that we live within our supply constraints and not re-ignite inflation. He then says: "What will higher rates do to increase production capacity? Nothing. All monetary policy can do is control domestic demand; the supply side is beyond its influence." Excuse me? The rising interest rates allegedly control demand (it is moot whether rising rates are as effective as is thought by the RBA in controlling demand) through there impact on the cost of finance. One of the components of demand they thus (may) impact on (adversely) is 'private investment spending' - capital formation! This is the famous knife edge of Harrod and Domar. Investment adds to demand now and productive capacity (supply) next. The RBA clearly can influence aggregate supply if it can influence aggregate demand. One of the dangers of using interest rates as your main counter-stabilisation tool is that it may result in hysteretic effects where you not only slow the growth of GDP but also the potential GDP growth path by reducing capital formation.

Moreover, one of the glaring deficiencies in Australia over the last decade or more is the on-going deterioration in provision of public infrastructure - roads, ports, bridges, hospitals, schools. Why have we allowed our public wealth (upon which the private sector levers its own infrastructure) to decline so badly? Simple answer - we have myopically pursued budget surpluses (at both federal and state levels). That requires urgent action. There is an outcry in Queensland at present about the lack of public provision of port infrastructure at Mackay to cope with the booming demand for coal exports largely to China. Of-course, the same private sector interests who are complaining about the lack of public investment are also the first to extol the virtues of governments running budget surpluses!

Gittins is correct though to highlight the distortions in the tax system (capital gains tax reductions and negative gearing) which push private investment into housing, particularly up-market "city rental apartments." This 'over-investment' in unproductive housing is juxtaposed against the fact that the unemployed and disadvantaged in Australia struggle to find affordable housing (and in part this is why they will not move to where jobs are growing away from where they have disappeared - again myopia rules federal housing policy).

I will write another blog soon about the growing claim that there are now labour shortages that need to be addressed. If employment grows and you fail to provide training for the unemployed and new entrants then shortages will occur. But in the past, public sector employment gave our young workers the training ground (via apprenticeships) which also provided vast benefits to the private sector. But the pressure of getting qualified staff in an environment of full employment (in the 1960s not now) forced private employers to offer training as well as jobs to prospective employees. The high rates of labour underutilisation we now suffer (unemployment and underemployment) have meant that private employers can access skilled labour without having to offer the training themselves. So we need both a 'real' apprenticeship model again (not the sham the federal government calls an apprenticeship scheme) and a return to true full employment (not the sham that we are calling full employment now) to keep skills growing in line with productive capacity.

The best industrial reform the Government could introduce would be a Job Guarantee which provides an excellent environment for maintaining jobs for all but also allows them to be structured in such a way as to encourage skill development.

Blog entry posted by bill