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Category: Economics

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  • Industrial Policy-Making After COVID-19: Manufacturing, Innovation and Sustainability

    COVID-19, Industry & Sector Policies

    Industrial Policy-Making After COVID-19: Manufacturing, Innovation and Sustainability

    by Mark Dean, Al Rainnie, Jim Stanford and Dan Nahum

    Authors

    Mark Dean

    Laurie Carmichael Distinguished Research Fellow

    Al Rainnie

    Jim Stanford

    Dan Nahum

    Economist

    As Treasurer during the 1980s, Paul Keating lamented that Australian governments had for decades been allowing the country’s sophisticated industrial base to fall apart as unsophisticated raw materials came to dominate the nation’s exports and as a result, its economy slipped into developing-world status. Keating’s famous warning of Australia’s looming ‘banana republic’ status spurred the Hawke and subsequent Keating Labor governments into action on economic restructuring, which included considering a range of industry policy intervention options to put Australia on a track to advanced, industrial status, as had been the aim of post-war nation-building that helped to institute an advanced manufacturing industrial base in Australia.

    But since the 1990s, the ‘default’ economic and industry policy setting of government has ultimately been to favour resource extraction as our national strength. Even despite the growing threat of climate change and global economic crises that make a shift to ‘green’ industrial transformation a pathway pursued by many other nations, current Coalition government policy continues to reflect deliberate, calculated emphasis on the extraction and export of raw materials. Australia risks cementing its developing-world economic status if we do not consider important industry policy challenges.

    The COVID-19 pandemic has drawn attention to opportunities for Australia to not only rebuild, but reconstruct our economy in a way that capitalises on our national manufacturing potential and their ability to contribute to a sustainable recovery from the economic and social crisis that has culminated in lockdowns and recession. The future development of Australia’s manufacturing industry must focus on the opportunities presented by renewable energy to drive innovation, industrial transformation and a green future shaped by a skilled manufacturing workforce.

    Researchers from the Centre for Future Work, Mark Dean, Al Rainnie (Centre for Future Work Associate), Jim Stanford and Dan Nahum, have co-authored a new scholarly paper which will be published in the academic journal, the Economic and Labour Relations Review and is currently available as an online-first publication at their website.

    The article analyses Australia’s opportunities to revitalise its strategically important manufacturing secor in the wake of the COVID-19 pandemic, considering Australia’s industry policy options with reference to both advances in the theory of industrial policy and recent policy proposals in the Australian context.

    To examine the prospects for the renewal of Australian manufacturing in a post-pandemic economy, the article draws on recent work from The Australia Institute’s Centre for Future Work – specifically, Dan Nahum’s research into manufacturing and sustainability in Powering Onwards and Jim Stanford’s research on post-COVID-19 manufacturing renewal and Australia’s record on robotics adoption, in synthesis with analyses from published and forthcoming research from Al Rainnie and Mark Dean relating to critical evaluations of the Fourth Industrial Revolution and its implications for the Australian economy.

    The aim of the article is to contribute to and further develop the debate about the future of government intervention in manufacturing and industry policy in Australia. Crucially, the argument links the future development of Australian manufacturing with a focus on renewable energy. The purpose of this article has been to interpret the decline of manufacturing in Australia over the last generation and to identify the core principles and policy levers that would facilitate a revitalisation of our domestic manufacturing capabilities. The paper considers the history of half-hearted attempts by Australian governments and industry to spark a recovery: these attempts have largely lacked any critical consideration of the structural factors that inhibit a full-scale transformation of Australian industry. Such a transformation would in fact require consistent and systematic policy settings.

    The Coalition government’s evolving policy framework – focused on tax cuts for high-income households and companies, subsidies for further fossil fuel use, and further interventions to weaken industrial relations practices – reflects its attempt to use the pandemic as an opportunity to reinforce its previous commitment to a business-dominated economic strategy. But Australia can, and must, do better than this. The article analyses the possibilities and the challenges of developing a new industrial policy that is informed by modern understandings of technology, sustainability and social cohesion.

    A modern, sustainable industry policy is not a catch-all solution to addressing climate change, economic crisis and pandemic recovery – but it does hold great potential to help redirect Australia’s lurch further towards the banana republic status first identified nearly forty years ago.

    You can access a pre-publication version of this article below and those with access can read the article publication on the Economic and Labour Relations Review website.



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  • Video: Myth & Reality About Technology, Skills & Jobs

    Video: Myth & Reality About Technology, Skills & Jobs

    by Jim Stanford

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    We are constantly told that the world of work is being turned upside down by ‘technology’: some faceless, anonymous, uncontrollable force that is somehow beyond human control. There’s no point resisting this exogenous, omnipresent force. The best thing to do is get with the program… and learn how to program! Acquiring the right skills (usually assumed to be STEM or computer skills) is the best way to protect yourself in this brave new high-tech future.

    But what if technology isn’t all it’s cracked up to be? And what if you invest in learning the current hot coding language, only to see it replaced by something totally different as soon as you graduate?

    In this 30-minute video, Centre for Future Work Economist and Director Dr. Jim Stanford takes on several myths related to technology and jobs.

    He argues that technology is neither exogenous nor neutral: innovation reflects the priorities (and the power) of those who have the resources to pay for it. By some indicators, jobs are becoming less technology-intensive — and this is undermining job security and living standards. Finally, we need a more holistic and democratic approach to skills and training: one that respects the all-round interests of workers as human beings (not just ‘producers’), and accepts that skills alone are no guarantee of decent, fair jobs in the future.

    The video is an excellent, free resource for adult education workshops, career development courses, and union meetings.


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    Dutton’s nuclear push will cost renewable jobs

    by Charlie Joyce

    Dutton’s nuclear push will cost renewable jobs As Australia’s federal election campaign has finally begun, opposition leader Peter Dutton’s proposal to spend hundreds of billions in public money to build seven nuclear power plants across the country has been carefully scrutinized. The technological unfeasibility, staggering cost, and scant detail of the Coalition’s nuclear proposal have

  • Investing in Better Mental Health in Australian Workplaces

    Labour Standards & Workers’ Rights

    Investing in Better Mental Health in Australian Workplaces

    by Liam Carter and Jim Stanford

    Authors

    Liam Carter

    Anne Kantor Fellow

    Jim Stanford

    Australian society is experiencing an epidemic of mental illness that imposes enormous costs on individuals with poor mental health, their families, and the broader economy. There is no doubt that the stress, isolation and disruption caused by the COVID-19 pandemic has made this crisis even worse.

    Unsafe workplaces contribute significantly to the incidence of mental illness and injury. Workplace factors which contribute to mental health problems include unreasonable job demands, exposure to violence and trauma, long or irregular working hours, an absence of worker voice and control, and bullying and harassment.

    New research from the Centre for Future Work suggests that by requiring stronger monitoring and prevention measures in Australian workplaces, a significant share of mental illness and injury could be avoided. In addition to reducing the toll of mental illness for workers and their families, these measures would also generate substantial economic and fiscal benefits.

    Even before the COVID-19 pandemic, one in five Australians reported mental health challenges of some sort. And the total costs of poor mental health on Australia’s economy, government, and society were estimated by the Productivity Commission (2020) at a staggering $200-220 billion per year.

    Studies indicate 15% to 45% of mental health problems experienced by employed people are attributable to conditions in their workplaces. This suggests that the costs of workplace-related mental illness and injury are enormous.

    Our new report surveys the range of different costs arising from workplace-associated mental ill health: including reduced labour force participation, absenteeism, reduced productivity, high employee turnover, workers compensation costs, and others. Total costs to society from workplace-associated mental illness (including direct costs to victims and their families, as well as economic and fiscal costs) are estimated at $15.8 billion to $17.4 billion per year.

    Preventing mental health problems caused by work-related factors and stressors would expand Australian GDP by $3.5 billion per year, and reduce government expenses (for health care and other services) by $2 billion per year.

    Unfortunately, Australia’s system of work health and safety laws does not treat workplace mental injuries with the same rigour and oversight as physical injuries. The current regulatory system does not specify explicit, enforceable requirements compelling employers to take mental health risks equally seriously – nor does it equip workers, their representatives, and regulators with the tools needed to ensure employers live up to those responsibilities.

    It is past time for Australia’s WHS policy-makers to address the mental health crisis in Australia’s workplaces head-on. Upcoming state-Commonwealth policy dialogues regarding reforms to Australia’s Model WHS Laws are a crucial opportunity to modernise Australia’s practices, and catch up with other industrial countries.

    The economic and fiscal benefits of preventing workplace-associated mental illness and injury are substantial – and would be shared by employers, governments and workers alike. But the human benefits of preventing needless mental health illness and injuries, for affected workers and their families, are priceless.



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  • Budget Analysis 2021-22: Heroic Assumptions and Half Measures

    Tax, Spending & the Budget

    Budget Analysis 2021-22: Heroic Assumptions and Half Measures

    The Commonwealth government has tabled its budget for the 2021-22 financial year. The government is counting on a vigorous and sustained burst of consumer spending by Australian households to drive the post-COVID recovery. Yet the budget itself concedes that the main sources of income to finance expanded consumer spending (namely, wages and income supports) will remain weak or even contract. As shown in the Centre for Future Work’s analysis of the budget, these two dimensions of the budget are fundamentally incompatible.

    While an abrupt turn to austerity was avoided in this budget, overall program spending is nevertheless declining substantially: falling $60 billion this year (or around 3% of Australia’s GDP) as COVID support programs are eliminated. And the new investments announced in some programs neither offset the contractionary impact of overall spending cuts, nor come close to meeting the real need for expanded services in any of these areas.

    Our briefing paper on the 2021-22 Commonwealth Budget describes the contradictory macroeconomic logic of the budget, and the risks of an economic recovery that is overwhelmingly dependent on consumer spending – at a time when consumer incomes are constrained by stagnant wages and cutbacks in income programs. It also reviews specific spending announcements in several key areas of relevance to workers and labour markets: including aged care, gender inequality, superannuation, manufacturing, and higher education.

    This budget was an opportunity for the government to recognise that a sustained recovery needs a balanced and inclusive economic and fiscal approach. Full recovery can only be underpinned by a commitment to more secure jobs, higher wages, expanded public services, and a broad portfolio of high-value industries. Sadly, the budget fails to deliver on all these counts. The government has not truly accepted its responsibility to oversee a lasting and inclusive reconstruction after the terrible events of the last year.



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  • New Research: Commonwealth Can Afford $10b for Aged Care Recommendations

    New Research: Commonwealth Can Afford $10b for Aged Care Recommendations

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    Implementing the recommendations of the Royal Commission into Aged Care Quality and Safety will require additional Commonwealth funding of at least $10 billion per year, and there are several revenue tools which the government could use to raise those funds, according to a new report on funding high-quality aged care released by the Australia Institute’s Centre for Future Work.

    Key Findings:

    • While the Royal Commission’s 148 recommendations were not explicitly costed, the Centre for Future Work report shows that $10 billion per year (approximately 0.5% of Australia’s GDP) would be the minimum required to move forward with the urgent reforms in regulation, employment practices, and quality benchmarks advised by the Commission.
    • Australia’s public spending on aged care is much lower than other industrial countries with better records of aged care service. It also notes that Australia’s overall tax collections are also much smaller (by about 5% of GDP) than the OECD average, and have declined relative to Australia’s GDP in recent years.
    • The report recommends that initial improvements in aged care funding should proceed immediately. With the Budget projected to incur major deficits for many years (due to the COVVID-19 pandemic and recession), it is neither necessary nor appropriate to fully ‘fund’ incremental aged care spending in the initial and most urgent years of reform.
    • However, as economic and fiscal conditions stabilise, additional revenue sources will be important in underpinning high-quality aged care. The report highlights five specific options for raising additional revenue – two of which were proposed by the respective Royal Commissioners:
      • A 1 percentage-point Medicare-style flat-rate levy (proposed by Royal Commissioner Briggs)
      • A set of modest adjustments to personal income tax rates, preserving the existing progressivity of the system (similar to the proposal of Commissioner Pagone)
      • Cancelling the legislated Stage Three income tax cuts scheduled to begin in 2024 (which deliver most savings to the highest-income households)
      • Reforms in the treatment of capital gains and dividend income in the personal income tax system
      • Reforms to company taxes to eliminate loopholes and raise additional revenues

    “Australia is one of the richest countries in the world. There should be no argument over whether we can afford to provide top-quality, respectful care to the elders who helped build our economy and our society,” said Dr Jim Stanford, Director of the Australia Institute’s Centre for Future Work, and co-author of the report.

    “The government has access to a whole suite of revenue options to support the ambitious and quick implementation of the Royal Commission’s recommendations. That effort must start with the 2021-22 Commonwealth budget.

    “There is no immutable economic or fiscal constraint holding back the government from doing right by Australia’s elders. The only question is whether this government places enough priority on caring for seniors with the quality and dignity they deserve,” Dr Stanford said.

    ANMF members have been calling out the failures in aged care for many years and urging governments to make the changes needed to ensure dignified care for older Australians. Governments have ignored these calls for as many years. This cannot continue. The findings of the Royal Commission into Aged Care Safety and Quality have made this abundantly clear,” said Annie Butler, ANMF Federal Secretary.

    “This research demonstrates both the need for investment in the aged care sector and how it can be achieved leaving the Government with no legitimate excuses for continued inaction.

    “However, there must be appropriate “strings attached” to any increases in funding provided to aged care providers, providers must be made fully and transparently accountable for the use of taxpayers’ money and assure Australians that their money is going directly to quality care for their loved ones.

    “If Australia is to regard itself as a compassionate, decent society the Morrison Government must stop the suffering and neglect of older Australians by acting now,” Ms Butler said.

    “This report explains why aged care workers are left in tears after their shifts,” said Caroyln Smith, United Workers Union Aged Care Director.

    “The $10 billion annual funding shortfall is leading to horrendous human costs in aged care, with older Australians left unsafe and vulnerable, and workers left physically and emotionally exhausted.

    “This report once again underlines that the Federal Government needs to substantially and effectively address the human toll the aged care crisis is taking on older Australians, their families and aged care workers,” Ms Smith said.


    Related research



    Funding High-Quality Aged Care Services



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  • Funding High-Quality Aged Care Services

    Public Sector, Procurement & Privatisation

    Funding High-Quality Aged Care Services

    by David Richardson and Jim Stanford

    Authors

    David Richardson

    Senior Research Fellow

    Jim Stanford

    Media release



    New Research: Commonwealth Can Afford $10b for Aged Care Recommendations

    Implementing the recommendations of the Royal Commission into Aged Care Quality and Safety will require additional Commonwealth funding of at least $10 billion per year, and there are several revenue tools which the government could use to raise those funds.

    While the Royal Commission’s 148 recommendations were not explicitly costed, the Centre’s report shows that $10 billion per year (or around 0.5% of Australia’s GDP) would be the minimum required to move forward with the urgent reforms in regulation, employment practices, and quality benchmarks advised by the Commission.

    The report notes Australia’s public spending on aged care is much lower than other industrial countries with better records of aged care service. It also notes that Australia’s overall tax collections are also much smaller (by about 5% of GDP) than the OECD average, and have declined relative to Australia’s GDP in recent years.

    The Centre recommends that initial improvements in aged care funding should proceed immediately, even before new revenue measures are implemented. With the Commonwealth budget projected to incur major deficits for many years (due to the COVVID-19 pandemic and recession), it is neither necessary nor appropriate to fully ‘fund’ incremental aged care spending in the initial years of reform.

    Eventually, however, as economic and fiscal conditions stabilise, additional revenue sources will be important in underpinning high-quality aged care. The Centre’s report highlights five specific options for raising new funds – two of which were proposed by the respective Royal Commissioners:

    A 1 percentage-point medicare-style flat-rate levy (proposed by Royal Commissioner Briggs).
    A set of modest adjustments to personal income tax rates, preserving the existing progressivity of the system (similar to the proposal of Commissioner Pagone).
    Cancelling the legislated Stage Three income tax cuts scheduled to begin in 2024 (which deliver most savings to high-income households).
    Reforms in the treatment of capital gains and dividend income in the personal income tax system.
    Reforms to company taxes to eliminate loopholes and raise additional revenues.
    The government could use any one of these measures (or a combination of them) to support the implementation of the Royal Commission’s recommendations.



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  • Australia’s Electricity Infrastructure Undermined by $1 Billion Per Year Under Investment

    Australia’s Electricity Infrastructure Undermined by $1 Billion Per Year Under Investment

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    The resilience of Australia’s electricity infrastructure is being undermined by a chronic pattern of underinvestment in maintenance and upkeep, the result of rent-seeking by private electricity producers and a deeply flawed regulatory system.

    That is the conclusion of a detailed review of empirical and qualitative data on the transmission and distribution system contained in a new report from the Australia Institute.

    Key findings:

    • The electricity grid is facing increasing challenges: including increased severe weather events, bushfires, and the need to reliably integrate new renewable energy generation into the system. But years of underinvestment in capital and maintenance have left the system vulnerable to disruptions, failures, and disasters.
    • The report shows that maintenance and operating costs across the system should be increased by at least $1 billion per year, to match historical levels of real spending per electricity customer.Real per capita operating and maintenance expenditures have been slashed by 28% (in distribution) and 33% (in transmission) compared to 2006 levels.
    • The electricity industry is allocating just 15% of its revenues to capital spending, despite the needs for new capacity and upgrading – down from 25% in 2007.
    • Within this shrunken envelope of operating and maintenance costs, the industry’s focus has shifted away from hands-on upkeep of the grid in favour of managers, sales staff, financial experts, and other overhead functions. There are now 40% more office managers and professionals working in the industry (mostly in finance and sales) than electricians.
    • With this expansion of unproductive corporate bureaucracies, productivity in electricity has performed worse than any other sector in Australia’s economy: real output per hour worked has fallen one-third since 2007. This trend is worsened by chronic underinvestment in hands-on maintenance and upkeep, causing greater vulnerability to outages, accidents, and shut-downs.
    • A perverse pattern of behaviour has emerged in the regulatory system, whereby transmission and distribution companies submit requests for operating expenses which the AER seemingly rolls back – only to have those artificial budgets underspent by the companies, who are allowed to keep some of the savings. This artificial process has padded already-rich profits of energy companies, while ignoring the real needs of the grid for improved equipment and reliability.
    • The statistical analysis in the report is supplemented by evidence gathered from 25 front-line power industry workers, who attest to their personal experiences with underinvestment, poor maintenance, safety hazards, and environmental damage.
    • The report makes 7 recommendations for regulatory reforms that would allocate more resources to the real work of maintaining and upgrading the grid (so it is better prepared for future challenges like climate change and growing renewable generation), while reducing the waste of unproductive financial and speculative activities.

    “The stresses on Australia’s electricity grid are becoming more severe – including climate change, bushfires, and integrating renewable energy. We should be investing more in the quality and safety of the grid, not less. But the combination of energy company greed and deeply flawed regulatory practices is producing systematic underinvestment in this vital piece of electrical infrastructure,” said Dr. Jim Stanford, director of the Australia Institute’s Centre for Future Work.

    “Australia’s fragmented, irrational electricity system has produced soaring prices for consumers, shaky reliability, but soaring profits. It’s time to rethink the fundamental priorities of the regulatory system – starting with channeling more needed investment into the power grid,” Dr Stanford said.

    “Over the past 15 years, high-vis maintenance and transmission workers have been replaced by telemarketers, spin-doctors and banking spivs. This has done nothing for network reliability, but has left us unprepared for the challenge of extreme weather and the incorporation of renewables to our energy supply,” said Michael Wright, Assistant National Secretary of the Electrical Trades Union.

    “Substantial investment is needed to retool for an unpredictable future. Energy generation and distribution is the backbone of industry and jobs and privatisation has simply cost consumers and jobs. Governments must stop inviting private sector financial parasites to feast on our energy system and instead focus on the mammoth task of preparing for climate change,” Mr Wright said.


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    Missing a Stitch in Time:



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  • Missing a Stitch in Time:

    Electricity Markets & the Grid, Environment & Jobs, Industry & Sector Policies

    Missing a Stitch in Time:

    The Consequences of Underinvestment in Proper Upkeep of Australia’s Electricity Transmission and Distribution System
    by Alia Armistead, David Richardson and Jim Stanford

    Authors

    Alia Armistead

    Researcher

    David Richardson

    Senior Research Fellow

    Jim Stanford

    Media release



    Australia’s Electricity Infrastructure Undermined by $1 Billion Per Year Under Investment

    Australia’s electricity industry constitutes a large and critical component of our national economic infrastructure. The industry produces $25 billion per year in value- added. It employs around 50,000 Australians, paying out $6 billion per year in wages and salaries. It makes $45 billion in annual purchases from a diverse and far-reaching supply chain, that provides the sector with inputs ranging from resources to equipment to construction to services.

    Most important, of course, the industry literally keeps the lights on: it provides an essential input, electric energy, without which no other industry could function and the safety and comfort of Australians would be immediatel jeopardised. In this regard, electricity is clearly an essential service: a utility vital to virtually everything else that occurs in the economy and society.

    Given that critical importance, we would assume that investing in the proper capitalisation, modernisation, upgrading and maintenance of this system would be a top priority of economic policy and corporate decision-making. Unfortunately, however, irrational and unintended consequences arising from the business-friendly, market-driven regulatory regime presently governing Australia’s electricity sector have produced exactly the opposite result. A structural pattern of sustained underinvestment in the upkeep and quality of the transmission and distribution grid is jeopardising the safety and reliability of the network – and harming both the people who work in this industry and the customers they serve.

    The present system was established on the assumption that profit-seeking behaviour of private businesses, with appropriate regulatory supervision, will best ensure an efficient allocation of resources, top quality service, and lowest possible prices for consumers. On every one of these grounds, however, the system has failed. Alongside chronic underinvestment in the system’s equipment and reliability, there is abundant evidence of an enormous waste of resources by self-dealing, rent-seeking corporate entities – diverting billions of dollars of expenditure away from necessary upkeep, redirected to ultimately unproductive activities (including overlapping corporate bureaucracies, frenetic selling and re-selling within the industry, and intense financialisation) that have nothing to do with the production and delivery of reliable, affordable energy. The national grid is unable to meet several challenges to its safety and reliability: including its ability to safely withstand extreme heat and severe weather events, and its capacity to adjust to the accelerating roll-out of variable and distributed renewable generation investments. The workforce in the industry has lost jobs and real incomes. And consumers (both residential and industrial) have faced an unprecedented and unjustified inflation of electricity prices.

    To be sure, this privatised, fragmented, and badly regulated industry has been consistently and increasingly profitable for its owners. Given the monopoly power these energy businesses have been granted over a critical piece of public infrastructure, these profits are hardly a surprise. What is surprising (and disappointing), however, is how Australia’s regulatory regime has failed to recognise and respond to these perverse outcomes. Despite growing evidence of deteriorating efficiency and reliability, and the inflation of both prices and profits, regulators continue with a business-as-usual approach to managing the industry. This approach routinely turns back legitimate requests for needed upgrades, modernisation, and maintenance on the system’s real capital base – while turning a blind eye to the rampant waste of resources on unproductive and self-serving corporate functions. Given the increasing pressures associated with climate change, more severe and frequent bushfires, population growth, and the shift to renewable generation, this business-as-usual approach cannot continue.

    A timeless adage reminds us that ‘a stitch in time saves nine.’ Prudent attention to maintaining productive assets in top quality condition, and upgrading capital in line with new technology and evolving best practices, is a hallmark of efficient and successful management. Australia’s electricity industry is controlled by self-seeking private businesses, and a few state-owned corporations directed to act just like them. They are governed by a regulatory system which places far too much faith in the inherent efficiency of private sector actors. Hence the industry is failing to make that stitch in time. Australians will pay the price for the chronic neglect of proper maintenance and upkeep of our electricity system in many ways: through a system that is inefficient, unreliable, cannot meet the challenges of the coming energy revolution, is unduly expensive to consumers, and which in many cases is unsafe for both workers and the public at large.

    This report provides evidence of a pattern of systematic underinvestment in the upkeep and capability of Australia’s electricity grid, drawing on three major sources of data:

    • A project to gather original qualitative data from dozens of power industry workers employed on the front lines of maintaining Australia’s transmission and distribution network. Their personal and professional experience attests to a widespread and sustained pattern of underinvestment and neglect, and provides worrisome details regarding the consequences of that underinvestment for the well-being of workers, communities, and the environment.
    • A review of other research and findings in the public domain (including several government commissions and inquries) regarding the importance of a top-quality, well-maintained electricity grid for our economy and society. These previous studies have also warned that the current system is falling behind in safe and efficient upkeep of its capital assets.
    • A review of available quantitative data – from the Australian Energy Regulator, from the Australian Bureau of Statistics, and from individual companies. This review confirms the steady decline in allocations of real resources to the capitalisation and good operating condition of the transmission and distribution grid. And it documents the erosion of real maintenance and upkeep according to several indicators, alongside evidence of unprecedented inflation in both electricity prices and industry profits.

    The main findings of this comprehensive qualitative and quantitative analysis include the following:

    • First-hand accounts from dozens of electricity sector workers in various roles and all parts of the country confirm the ongoing failure of the current system to allocate adequate resources to pro-active maintenance, upgrades, and safety, with serious consequences for workers, community safety, and the environment.
    • Real spending by the transmission and distribution sectors on operations and maintenance of the grid has been reduced by at least $1 billion per year since 2012.
    • Adjusted for inflation and the expanded base of customers in the network, real operating expenditures per customer have declined by 28-33 per cent since 2006.
    • Even within that contracting overall envelope of spending on maintenance and operations, several indicators confirm a reallocation of resources away from concrete system operation and maintenance, in favour of corporate overhead functions, re-selling, and financial activities.
    • The transmission and distribution system now employs 40 per cent more managers and office-based professionals than electricians.
    • Capital investment, spending on materials and equipment, capitalised own-use activity, and employment of electricians, linespersons, and related specialists have all declined markedly in the past several years.
    • Fundamental measures of efficiency in the industry (including total factor and average labour productivity) have also deteriorated, dragged down by misallocation of resources to corporate and overhead functions.
    • The squeeze on maintenance and upgrading expenses resulting from a combination of AER pressure and corporate profit-seeking has not produced savings for consumers. To the contrary, prices for both residential and industrial users have soared dramatically (almost doubling in real terms) since 2000.
    • High electricity prices have boosted revenues and profits in the industry – which have doubled in nominal terms since 2006, and grown substantially as a share of the industry’s total value-added. The AER’s superficial and ineffective oversight processes have not prevented private energy businesses from profiting through underinvestment in the industry’s asset base, and exploitation of consumers andworkers alike.

    After reviewing this worrisome evidence of systematic underinvestment in the quality and capability of Australia’s electricity grid, the report concludes with seven concrete recommendations to begin repairing and reversing these irrational and destructive outcomes. These include:

    1. AER determinations of allowable capital, upgrading and maintenance investments by regulated businesses should be ascertained on the basis of concrete bottom-up auditing of system capability, reliability and performance, undertaken by independent arms-length technical experts. Regulation of capital and maintenance expenditures needs to be ‘grounded’ in analysis of real-world challenges and constraints facing the system – including assessments of additional requirements arising from climate change and severe weather, risk mitigation (including bushfire prevention and vegetation management), and challenges related to the growth of distributed renewable generation. A broader economic benefit test should be applied to ensure the interests of workers and the community are factored into decision-making around capital investments and upkeep.
    2. Once appropriate levels of system capital and maintenance expenditures have been identified, explicit mechanisms must be established to reflect and recover those costs in regulated electricity prices.
    3. When adverse events (such as severe weather, bushfires, or other occurrences) necessitate capital or repair expenditures above and beyond previously approved regulated levels, provisions for additional cost recovery must also be accessible.
    4. Costing of capital installation, upgrading, and maintenance expenditure must take explicit account of the need for high-quality skilled, certified labour to perform that work – including appropriate wages, entitlements and working conditions in line with industry best practices.
    5. The accelerating transition to renewable energy sources, through both utility- scale projects and distributed sources, poses a unique and historic challenge to the capabilities of the national transmission and distribution grid. The AER, in conjunction with the AEMO and other industry bodies, should undertake a thorough assessment of the investments and system changes that will be required to meet the new requirements of an increasingly renewables-focused power system. This assessment must incorporate a broader economic and social cost-benefit lens, rather than the current narrowly-defined conception of economic costs. The findings of this assessment must then inform the AER’s subsequent determinations regarding allowable capital and maintenance expenditures by regulated businesses.
    6. Businesses which underspend allowed capital and maintenance budgets should be issued financial penalties which offset the impact of this underspending on their operating margins. This would eliminate the current perverse incentive for private transmitters and distributors to artificially suppress needed maintenance and upgrades in the interests of a short-term bonus over and above their already-substantial profit margins.
    7. The AER must undertake more detailed reviews of the submitted overhead, marketing, and financial activities of regulated energy businesses. Instead of providing blanket approval for whatever operating expenses companies deem to be in their interests, within an overall ceiling that is not differentiated with respect to specific cost activities, the regulator should focus on reducing the deadweight costs of duplicated, self-serving corporate bureaucracies.

    It is past time for those in charge of Australia’s electricity system – both private owners and government regulators – to acknowledge the widening tears in the fabric of this vital public service. And it is well past time for them to begin making the necessary repairs.



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  • Rage & Optimism as an Activist Economist

    Rage & Optimism as an Activist Economist

    by Alison Pennington in Crikey

    Alison Pennington

    Senior Economist

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    Originally published in Crikey on April 23, 2021

    Crikey is reclaiming the “angry woman” trope in a new column about what women achieve through rage, passion and determination. In this inspiring and poetic feature with our Senior Economist Alison Pennington, Alison explains how rage about how the economy works (or doesn’t work) powers her forceful work as an activist economist.

    We are pleased to share the article by Amber Schultz, with kind permission from Crikey media.

    Belittled for being angry, Alison Pennington is breaking the mould of boring economists

    Centre for Future Work senior economist Alison Pennington makes no apologies for harnessed rage.

    By Amber Schultz

    April 23, 2021

    Alison Pennington

    Anger is an emotion we’re rarely told to express. Passionate women and people of colour are often framed as overly outspoken, enraged, shrill or resentful. Their fights are discredited the second they raise their voice.

    But regardless of how it’s framed, anger gets results. When directed in the right way, rage can inspire change. It pulls people out of their homes, it causes them to rally outside Parliament, call out bullshit and fight for what they believe in.

    This week Crikey spoke with Alison Pennington, a senior economist with the Centre for Future Work, about what’s got her riled up this week — and how anger has worked in her favour.

    Crikey: When has rage worked in your favour?

    Alison Pennington: My analysis has force because I feel plenty of rage, and the immediacy of every moment. Being passionate is about giving a shit. “Giving a shit” suggests you have a moral code. I make no apologies for harnessed rage.

    My rage is harnessed as a slow-burning force. I want to dismantle the logic of those creating harm and inequality and establish better systems and processes. That requires equal parts rage and optimism.

    Crikey: Have you ever been called out for being angry?

    I have had years of experience of being belittled or seen as not serious, or as capable, because I give a shit.

    I worked in budget at the Department of Finance. When policies hit my desk for review, I could envision how they impacted working Australia on the ground. I’d suggest additional assessments of clearly damaging, non-transparent government proposals. I was routinely told that caring was getting in the way of efficient rubber-stamping. “Just let it wash over you.” I was also told I was “a bit of a bogan”!

    Crikey: Do you fit the mould of a typical economist?

    Most economists are men in corporate jobs who are actually paid to maintain this air of authority, objectivity and distance from emotion. Bringing your humanity to the table every day is much harder than hiding silos of self-congratulatory authority, which is the way that economics is consistently being taught.

    People don’t want to see impersonal suits wearing economists as authorities and people telling them what their life is like and what it should be like. They want to see someone who talks like them, and thinks like them, or is as angry as them and as concerned as them.

    Crikey: What’s got you riled up this week?

    There was an agricultural worker of 15 years. She provides 14 years of blemish free loyal service as a mushroom picker and then gets injured, and then suddenly, in the six months after that, there’s four disciplinary warnings against her. Finally, the employer finds “the evidence” that she can be sacked because she put her mushroom picking knife on the wrong hook.

    The Morison government has gone about increasing the power of employers in our industrial nations laws to screw over workers in the workplace, and that was just a story that really highlighted the difference between rhetoric and reality.

    Prime Minister Scott Morrison and the government can say that they care about women’s work opportunities and making sure women have opportunities to work and close the gender pay gap and all that but like this is what it looks like on the ground.


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  • Submission to the Senate Select Committee on Job Security

    Insecure & Precarious Work

    Submission to the Senate Select Committee on Job Security

    by Dan Nahum

    Author

    Dan Nahum

    Economist

    The Senate Select Committee on Job Security was appointed 10 December 2020, to inquire into and report on the impact of insecure or precarious employment on the economy, wages, social cohesion and workplace rights and conditions. This includes the extent of insecure and precarious employment in Australia, the impacts of COVID-19 with respect to job precarity and insecurity, the digitally-mediated ‘gig’ economy, and other matters. The Centre for Future Work has made a submission to the Select Committee.

    Economist and Director Dr Jim Stanford and Economist Dan Nahum presented evidence to the Senate Committee hearing in Melbourne on 20 April 2021. Read the transcript of their testimony below.

    Over time, insecure work has become more prevalent in the Australian economy. These types of employment – including but not limited to jobs without paid leave – shift financial burden and risk from employers to workers. The economic brunt of the COVID-19 pandemic was felt most acutely by this significant proportion of workers who were in casual positions or worked variable hours. These effects were disproportionately experienced by women and young workers.

    The rebound in casual employment since May 2020 constituted the fastest surge of casual job growth in Australian history – over 400,000 jobs. And other forms of insecure work have also surged since the recovery began: for example, the number of ‘owner-managers of unincorporated enterprises without employees’ – the most precarious business structure, and which includes gig workers – has grown to record-high levels, and in February 2021 accounted for well over a million Australian workers.

    It is no coincidence that the expansion of precarious labour has occurred at a time of record-low wage growth. Precarity makes it more difficult for workers to organise and collectively bargain. And on an individual basis, it undermines workers’ ability to ask for higher wages.

    While much of the government’s Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Act 2021 (Amendment Act) was abandoned during its passage through Parliament, the remaining provisions still push the dial in precisely the wrong direction. The new legislation explicitly confirms the right of employers to define workers as casuals, even if the work they perform is regular.

    Improving the security of the labour market for workers and their families should be a key component of a long-term strategy for inclusive economic recovery, including expanded public investment, increased spending power for workers to lift aggregate demand, and improved job stability and equity. To this end, our submission makes several recommendations that would help to reduce the incidence and consequences of insecure work, and enhance the access of Australian workers to better, more secure jobs. These include recommendations dealing with:

    1. The importance of governments’ commitment to a macroeconomic vision of full employment, such that workers would have more secure job opportunities to choose from.
    2. Governments must enable platform (or ‘gig’) workers to access the same rights, entitlements and income and safety protections as permanent, conventionally employed workers.
    3. Casual employment status should be limited to situations that are truly ‘casual’ (for example: job roles based on seasonal, fluctuating or peak demand).
    4. Employees of any employment status who do not have regular hours should be notified of their hours at least two weeks in advance.
    5. Governments should commit, wherever practicable, to employ staff in permanent and direct positions, rather than temporarily and/or through third parties such as labour hire companies.
    6. Governments should preferentially procure from Australian firms that demonstrate adherence to norms of secure employment, including permanency and adequate working hours to support a living wage.



    Full submission



    Transcript

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