If you were wondering why the Prime Minister,
without consulting his cabinet, decided to launch Friday's ham-fisted assault
on Australians' freedom of movement, his poor poll ratings are only part of the
answer.
He invents faux security measures in a transparent
effort to look tough. And, whether it's stripping citizenship or ordering the
stopping and questioning of ordinary citizens in their daily lives, Abbott
hopes to inflame Labor into opposing him so that he can point gleefully and
shout "Labor is soft on terror!"
We already have a national reform
summit – it meets in Canberra for about 20 weeks of the year at taxpayers'
expense.
It's called parliament.
The brilliant political
strategists who brought you the fastest implosion of any postwar prime
minister, confronted by his backbench with a spill motion halfway through his
first term, think that this is a sure fire way of winning the country's
respect.
But the other part of the answer
is what Abbott doesn't want to deal with. He is straining to find an unending
series of security events, stunts and stirs because of the absence of a real
agenda for governing.
He is conjuring colourful
political tricks because he is not up to the real work of addressing some of
big, hard problems facing Australia, and none is bigger or harder than the one
Abbott ostentatiously avoided this week.
Global markets rumbled ominously.
It was the perfect soundtrack to the inauguration of Australia's National
Reform Summit, a heartfelt cry for national leadership.
The summit was a spontaneous
rebuke to the political parties. The elites of business, the union movement and
the community came together to try to goad Australia's political leaders into
doing their jobs.
"We're not going to stand by
and let another election be a race to the bottom of what we are not going to
do," said the chief executive of the Business Council, one of the prime
movers for the summit, Jennifer Westacott.
We already have a national reform
summit – it meets in Canberra for about 20 weeks of the year at taxpayers'
expense. It's called parliament.
But without leaders, parliament
is just an expensive public stage for the parading of vanities and vendettas.
Australia is in trouble, the
summiteers concurred, and is in urgent need of repair. On cue, international
financial markets issued a reminder that the world economy is exceptionally
fragile. This is no time for complacency.
Here's a bracing fact. Global
interest rates are lower than at any time in the 5000 years for which there is
any type of record, according to the Bank of England.
Mind-bendingly, rates are so low
that the interest rate on a German or Japanese government bond is actually
negative in real terms.
"Investors are prepared to
actually pay governments to look after their money", as the Australian
Reserve Bank's Philip Lowe put it.
The central banks have force-fed
so much money into the global banking system, about $US8 trillion of it, that
money is not just free. It's cheaper than free.
About $US2.4 trillion worth of
government bonds is trading at negative interest rates, according to the Bank
for International Settlements (BIS), the central bank of central banks.
This is unthinkable, yet it has
become a daily reality.
Hiding this policy behind a
technocratic term, "quantitative easing," cannot disguise the fact
that the world's central banks are lost. Or, as the Financial Times' Martin
Wolf puts it, they are not the masters of the universe, merely "apes on a
treadmill".
In spite of this unprecedented
orgy of money printing, incomes in the big, rich countries are stagnant and
falling.
Americans, Japanese and people in
the European Union have lower average incomes per head today than in 2007
before the onset of the US-led global crisis, as the international economist
Ken Courtis points out.
Living standards are falling; the
system isn't working. "If this unprecedented journey continues, technical,
economic, legal and even political boundaries may well be tested," says an
expert at the BIS, Claudio Borio, said in a March speech. This is extraordinary
stuff for a central bank technocrat.
The Western world, in a trance of
wishful thinking, invested China with magical powers to defy economic gravity.
This week, the magic wore off. China is not in the same condition as the
exhausted West; it is, however, gasping for breath. This week its share market
started to catch up with its underlying economy; the market doubled in the past
year even as the economy slowed. The Shanghai share market was merely beginning
to move back into some sort of alignment with reality.
Yet that was enough to panic
markets around the world as investors were forced to confront the possibility
that China might not be the magical solution to all their woes after all.
China spent years in a frenzy of
investment, including a great deal of malinvestment. Trillions of dollars of
new investment is going into writing down, covering up, refinancing and
reshuffling dud investments. One sign? Last year China had new fixed investment
equal to a stunning 44 per cent of its GDP. Yet all of this produced GDP
growth of only about 5 to 7 per cent.
China's economic adjustment
"is closer to its beginning than its end," as the prescient
China-watcher Patrick Chovanec told me.
With this as its backdrop,
Australia's political leaders addressed the national reform summit this week.
Tony Abbott sent a video
recording of himself giving a stump speech bragging of his government's
achievements. It was an insult to the intelligence of the 90 or so chief
executives, union leaders, economists and policy experts in the room.
For instance: "A lot has
happened in the past two years. We've undertaken budget repair with over $50
billion in savings over the forward estimates. Every year the budget deficit
will come down by about a half a percentage point of GDP."
The summit communique pointedly
rejected Abbott's accounting fantasies. It urged the government to make
"real progress in fiscal reform, not paper progress through unrealistic
budget assumptions".
The summit existed because
everyone in the room knew exactly what the Abbott government was doing, and
knew it was woefully inadequate.
Joe Hockey spoke to the group
next. He encouraged it to be "expansive and daring". Yet the
substance of his speech was on how the "sovereign consumer" was doing
most of the reform of modern economies, implicitly excusing the sovereign
government from having to do the work.
Bill Shorten spoke, too. He did,
at least, hint at the prospect that Labor was considering reform of workplace
practices. But he also repudiated a central tenet of the summit's demand for a
tax reform debate "that does not rule out options for reasons of political
expediency."
Shorten did exactly that,
emphatically ruling out any consideration of increasing the GST rate as part of
tax reform.
To sum up, the prime minister
tells us he's already fixed the problem, the treasurer tells us that the market
will fix any remaining problems, and the opposition leader can't see the
problem.
In other words, the politicians
who addressed the summit vividly illustrated the problem rather than providing
any solution. They are so preoccupied with the contest for political advantage
that they have lost sight of their responsibility to the national interest.
It fell to real experts to
address reality.
The previous Treasury Secretary,
Martin Parkinson, drew attention to the fact that, with the end of the mining
boom, Australia had entered a new era of poor economic growth.
The latest federal budget is
built on Treasury forecasts for growth to accelerate from the 2 per cent range
into the 3 per cent range.
But Parkinson said that Australia
was likely stuck with growth of 2.5 per cent instead of 3 over the next decade,
a cumulative loss of 5 per cent in economic growth.
Without remedial action, "it
means willingly accepting the impact of a recession," he said.
"The loss of GDP from a
recession is about 5 or 6 percentage points."
Without concrete action,
Australia was "sleepwalking into a real mess".
The eminent economist Ross
Garnaut pointed out that the Abbott government's projected return to budget
surplus was based on unrealistic assumptions about productivity growth.
He drew on the productivity
estimates of Janine Dixon from the Centre for Policy Studies, who found that
the more plausible rate of growth was half that assumed by the Treasury.
"A weak budget,"
pointed out Garnaut, "makes us vulnerable to external shocks. The problem
is more urgent and severe" than the country realised.
And the shocks are coming. Total
private and government debt in the major developed countries has ballooned from
$US142 trillion to $US199 trillion since 2007, according to McKinsey
consulting, an increase of $US57 trillion.
This is debt that will never be
paid back, says Ken Courtis: "You can imagine what would happen to
interest rates and the currency of a country if the government said 'Sorry
folks, we won't be paying back the money'.
So there is a lot of thinking
which we still need to do about the 'end game'."
Australia needs to embrace
national reform program that lifts growth, creates jobs, generates revenue and
pays down the national debt before the next great global crisis strikes.
There is a grim irony in the fact
that the Australian institutions that came together to form the summit are
themselves not blameless.
The Business Council and mining
industry assaulted Labor over the Rudd government's planned mining tax so
forcefully that Labor is still traumatised over tax reform. The ACTU campaigned
so powerfully against the Howard government's WorkChoices policy that the
Liberals are still traumatised over workplace reform.
These vociferous single-interest
campaigns helped turn Australian democracy into what Francis Fukuyama, in
another context, calls a "vetocracy" in another context. That is, a
system where powerful interests veto government reform.
The BCA and the ACTU got their
way. But in the process they created a system that they do not like. They
trained the political parties out of attempting meaningful reform.
The summit seems to indicate that
they are now willing to take part in more constructive problem solving. But the
evidence is that neither the Abbott government nor the Shorten opposition is
ready for that.
Abbott's alternative is to
promise tax cuts which are based, like its budget forecasts, on compounding
fantasies.
It's no wonder Abbott wants us to
pay attention to security scares, real and imagined.
Peter Hartcher is the political editor sydneymorningherald
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