The sinews of war

This Washington Post report on the cost of war confirms the rough estimate I made three months ago – William Nordhaus came out with a detailed study yielding a similar number not long after.

The other interesting number is the $2.1 billion the Pentagon says it has spent so far. This demolishes the claim that we must have war now because of the logistical demands of mobilisation. If the US decided to wait six months it could clearly do so at very little extra cost. Given the chance of securing additional allies, and the avoidance of more desperate bargains like that just made with Turkey, the US would probably save money.

Alston and the inquiry

Looking at the state of telecommunications policy in Australia, you might imagine that Communications Minister Richard Alston is spending all his time in front of that nice plasma screen Telstra loaned him to improve his insight into telecommunications policy. But in fact he spends a lot of time writing to the papers to blast all who disagree with him. The Australian Computer Society has been a regular recipient, as this Register report shows.

And he responded vigorously to my piece in the Fin last week claiming that I do not have a ‘skerrick of evidence’ for my suggestion that the suppression of the inquiry into Telstra’s structure was a response to pressure from Telstra, concerned that the evidence would be unfavourable to its commercial interests and share price. When the government first moved to curtail the inquiry, on December 19 2002, the chair of the inquiry Christopher Pyne, said it ‘would be damaging for Telstra if it dragged on too long’. Among other reports on the reaction of Telstra and its shareholders, the AFR (Government cuts short Telstra break-up inquiry, 20/12/02 ) noted “it is believed the company’s fury about the inquiry is understood by the government.” [I’ll try to provide links for this post soon.]


Anyone who followed the economic policy debate in the late 1980s, will remember the phrase “elaborately transformed manufactures”. One of the claims about microeconomic reform was that it would lead to the development of a strong manufacturing export sector to replace the import-competing sector that was contracting rapidly as a result of reductions in tariff protection.

Some early figures on manufacturing exports looked promising until it was discovered that the statistical definition of “manufactures” included things like meat and flour. So attention was focused on “elaborately transformed manufactures (ETMs)”. Despite the impressive name, this does not refer solely to high-tech products. In fact, virtually anything that you would naturally think of as a manufactured product would qualify. The Australian Bureau of Statistics gives as its examples “clothing, motor vehicles, machinery, paint ”

Throughout the late 1980s, the growth rate of ETM exports was impressive – as much as 30 per cent in some years. But, as the catchphrase of the day had it “albeit from a low base”. Since ETM exports had been virtually zero in the 1970s, the total value of exports was still small even after several years of rapid growth. But the assumption was that growth would continue and offset the loss of jobs in the import-competing sector.

ETMs were a favorite of the Hawke-Keating government and I hadn’t heard much about them since 1996, but I didn’t know whether this reflected the change of government or the lack of any real news. Checking the data, which you can find in a PDF file here, the answer is the latter. ETM exports grew to between 20 and 25 per cent of total exports of goods (a bit under 20 per cent of exports including services) in 1993-94 and have remained around the same level ever since. The biggest single item is exports of cars, which are effectively subsidised through schemes in which exports can be used to offset concessional imports of parts.

Exports of $25 billion to $30 billion* are not to be sneezed at, and without them the contraction of manufacturing employment would have been even more rapid. Nevertheless, optimistic rhetoric about the growth of a strong ETM sector forming the core of an export-oriented economy has not been converted into reality.

*Since the figure above is gross, the net contribution to GDP will be smaller (by the value of inputs) as will the net contribution to the current account (by the value of imported inputs).

Sauce for the goose

In today’s Oz Janet Albrechtsen attacks taxpayer-funded groups who support Australian intervention to secure independence for West Papua. Coincidentally or otherwise, there’s an almost identical piece in the Fin from Don D’Cruz of the Institute for Public Affairs. But what’s really striking about Albrechtsen’s piece is this observation

Maybe they miss the irony. They argue regime change in Iraq, a country enslaved by an oppressive dictator, will inflame hatred across the Muslim world, especially Indonesia. Yet their support for regime change in West Papua threatens to do exactly that. They demand we be sensitive to Indonesian concerns over Iraq yet they advocate a destruction of Indonesia’s sovereignty over West Papua.

I know irony isn’t Janet’s strong point, but I’m sure at least some readers will recognise the irony in an accusation of hypocrisy that works just as well in reverse. The arguments on regime change regarding West Papua are very similar to those on Iraq. If we choose to disregard both the principles of international law and the likelihood of adverse long-term consequences, and make optimistic military assumptions it’s possible to make a very strong case for an Australian invasion to throw the Indonesians out and institute a democratic government. Assuming that an invasion of Iraq succeeds, and that it is undertaken despite the opposition of the UNSC, considerations of international law will cease to be relevant, and arguments based on prudential concerns and military caution will be discredited to a significant extent. So why doesn’t Albrechtsen, along with other supporters of unilateral war, favour the liberation of West Papua?

Update Both Bargarz and Scott Wickstein have responded, suggesting I’ve mistakenly assumed they are opposed to the liberation of West Papua. Both give information on the evils of Indonesian rule and the dubious processes that led to its international recognition. I agree with all of this, as with the moral case against Saddam Hussein – as I said, “it’s possible to make a very strong case for an Australian invasion to throw the Indonesians out and institute a democratic government”.

But when I asked about support for “the liberation of West Papua”, I meant it literally. I’m asking why supporters of war with Iraq don’t advocate an effort by the Australian government, backed by the threat of military force, to secure independence for West Papua. As I read Scott and Bargarz, they back off at this point, for precisely the same kinds of reasons as millions of people who have nothing but contempt for Saddam Hussein back off from the idea of a war to overthrow him.

To offer my substantive views on West Papua and Aceh, I believe the best hope lies in a combination of some form of regional autonomy and the removal of the corrupt military elements that controlled both areas under Suharto and continue to have far too much power today. Good progress is being made in Aceh, and this is the most promising path for West Papua also.

Finally, I will pre-emptively withdraw the suggestion of inconsistency in relation to anyone who supports war with both Iraq and Indonesia.

Wiranto indicted!

According to UPI

U.N. prosecutors in Timor-Leste have indicted a former Indonesian defense minister for his alleged role in violence in which some 1,000 people died after the region voted to break from Indonesia.

General Wiranto, along with one civilian and six senior military officials, has been charged with crimes against humanity, including murder, deportation and persecution of people who supported the East Timor independence movement.

After winning independence in 1999, people in the region renamed their country Timor-Leste.

I assume “Timor-Leste” is just Portuguese for East Timor. Apart from this oddity, the report (which I found first on Google News) seems clear-cut. I had no idea that such serious charges were even being contemplated. This ought to have significant implications for the current crisis in Iraq, and for our relations with Indonesia, but I’ll leave them to others to work out, at least until tomorrow.

The decline of the US dollar

While the fact that the $A is now worth 60 US cents is newsworthy,this report, like most others, has the analysis the wrong way around. It starts by talking about the Australian economy and only later gets on to the real story, the depreciation of the $US against all major currencies. The same problem arises in discussions about the price of oil, gold etc – much of the price rise we have seen simply reflects the fact that the price is standardly expressed in terms of US dollars.

The US dollar was massively overvalued for most of the 1990s, causing great harm to the traded goods sector, particularly manufacturing. Manufacturing employment fell steadily during the last years of the boom, crashed during the recession and has continued to decline during the subsequent recovery. A striking manifestation of overvaluation is the fact that the US now spends twice as much on manufacturing imports as it earns for manufacturing exports (the disparity is probably greater for Australia, but we’ve never been a significant exporter of manufactures, unlike the US).

As I argue here, a depreciation of the US dollar is both inevitable and desirable. That doesn’t mean it will be painless, though. In particular, it raises the question of why anyone outside the US would want to hold US bonds, particularly with the 10-year bond rate below 4 per cent. Given a likely further depreciation of 15 per cent against the euro, and maybe more, this seems silly.

In part of course, the explanation may be the magical power of a dominant currency, reflected in the fact that for most commentators the $US/$A exchange rate is the exchange rate, even though the US is not our most important trading partner. When and if this spell is broken, long-term interest rates in the US are likely to rise to levels that reflect the underlying economic realities of chronic deficits on all accounts rather than the supposed ‘safe haven’ appeal of a reserve currency.

The moral asymmetry of war and peace

Alan Wood in today’s Oz has a piece that begins by mentioning a TV interview in which Costello showed himself totally unaware of Iraq’s population etc. He goes on to say

I doubt that any of Costello’s cabinet colleagues could have answered the question, or Martin until somebody looked it up for him. I would certainly like a dollar for all the anti-war marchers who couldn’t answer it.*

There’s an assumption of symmetry here which does not stand up to scrutiny. I don’t need to know the population of Kazakhstan, its political history, or even whether I’ve spelt it correctly, to know that I don’t support a war with that country. The fact that Australians in general, including Costello and Martin, know very little about Iraq is a good reason why we should not be fighting a war there.

The assumption that arguments for and against war should be assessed more or less symmetrically underlies a lot of blog discussion and is fundamentally unsound. Both international law and the experience of history provide a strong presumption against war, and in favor of seeking an early peace if war breaks out. Most wars turn out badly for all countries that choose to engage in them, and even in the case of defensive wars, most decisions to forgo the chance of a compromise peace based on the status quo ante have proved mistaken (Korea and Iran-Iraq are recent examples).

In these circumstances, the onus should be on the advocates of war to prove their case, as against the best available alternative which, in this case is the continuation of inspections.

As far as I can see the strongest case for war is that the current state of mobilisation is too costly to maintain, exactly the argument of the Austro-Hungarian empire when it launched its ‘war against terrorism’ in 1914.

* Wood doesn’t give a margin of error, so I’m not sure if he would have my dollar. The population estimate he gives is 24 million.