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From The Conversation
Opposition Leader Peter Dutton’s plan to build seven nuclear power plants in Australia has attracted plenty of critical attention. But there’s a striking feature which has received relatively little discussion or criticism: the nuclear plants would be publicly owned and operated, similar to the National Broadband Network (NBN).
On the contrary, it received enthusiastic endorsement from free-market advocates such as The Australian’s Judith Sloan, who observed: “It’s how the French nuclear plants were first constructed.” It is also the way Australia built its biggest single piece of energy infrastructure, the Snowy Mountains Scheme.
But there’s a fundamental problem here. Over the last three or four decades the federal public service has been hollowed out in the name of “new public management”. This became very clear during the COVID pandemic, when state governments – who have preserved their ability to act far better – ran most of the response. There is a very real question over whether we have the governmental capacity to achieve net zero.
Dutton’s acknowledgement of the publicly owned NBN as a model worth using is a welcome advance on the view of Malcolm Turnbull, one of his predecessors as Liberal leader.
A decade ago, then-prime minister Turnbull embarked on a disastrous “mixed mode” redesign of the NBN. This reflected his belief – expressed publicly after leaving office – that a publicly owned broadband network should never have existed.
Labor is in no position to oppose Dutton’s calls for public ownership. State Labor governments in Victoria and New South Wales have re-established publicly owned electricity enterprises, while South Australia’s Labor government has floated the same idea.
Whatever technological choices we make, it is clear our days of relying on the private sector to provide vital infrastructure are coming to an end. The question now is whether the public sector can recover to take the lead.
The National Energy Market, for instance, was meant to promote competition and drive electricity prices down. It has failed to do so, resulting in a string of government interventions, some more successful than others.
Arguably the biggest failed intervention was the now-defunct Energy Security Board, a politically driven response to South Australia’s statewide blackout in 2016.
The board sought to patch up the National Energy Market with a capacity market, which was immediately dubbed “CoalKeeper” due to incentives for old coal plants to keep going, as well as new grid access charges, promptly dubbed “Solar Stopper” due to discouraging new investment in solar. Energy experts did not favour this approach.
What proved more successful as a response to South Australia’s big blackout was the decision by the state government to fund the Horndale big battery, which was, when built in 2017, the world’s largest utility-scale battery storage.
Both major parties are flagging more intervention. The federal government has stopped waiting for markets to provide clean energy in favour of seeking tenders for new renewables through a capacity investment scheme. The scheme received 40 gigawatts worth of bids from renewable developers, far beyond the goal of 6GW.
This shift has come in response to developments bogging down, hampered by inadequate regulation and local opposition driven by a combination of genuine concerns about environmental impacts and culture-war driven science denialism.
Labor’s current renewables-led strategy requires 10,000 kilometres of new publicly built transmission lines, to meet our net zero goals. We’d need even more transmission if we are to become a major exporter of clean energy, either as electricity or in products such as green hydrogen and ammonia.
On the Coalition side, no private firm is likely to accept the risks involved in creating a nuclear power industry from scratch. Government would have to lead.
As Nationals leader David Littleproud has now acknowledged in relation to finding sites for nuclear plants, the national need for clean energy is too important to allow “not in my backyard” opponents – some with only a tenuous connection to the area in question – to slow or stop government plans.
What Dutton’s nuclear gambit shows us is that, surprisingly, Australia’s two major political parties are in strong alignment on the need to rebuild state capacity.
Whether it’s Labor working to get transmission lines and offshore wind up and running or the Coalition working to create a nuclear industry from scratch, it will take a strong government with the capacity to articulate a plan, and the legal, financial and human resources to make it a reality.
All of these requirements were met when we constructed the Snowy Mountains Scheme, a decades-long federal government initiative undertaken in cooperation with Victoria and NSW.
Are they still in place? Not yet. Government capacity to act has been eroded over decades of neoliberalism. Particularly at the national level, public service expertise has been hollowed out and replaced by reliance on private consulting firms.
To rebuild the federal government’s capacity to act will require recreating the public service as a career which attracts the best and brightest graduates – many of whom currently end up in the financial sector.
The private sector still plays a central role in the construction of infrastructure, as was the case with the Snowy Scheme. But it’s up to governments to take the lead in finance and planning.
This poses particular challenges for the Liberal Party, which has long favoured the interests of businesses small and large, and has been historically opposed to public ownership. But from the late 1990s until relatively recently, Labor was also keen on privatisation.
The French Prime Minister Georges Clemenceau once observed that “war is too important to be left to generals”. As we are discovering to our cost, infrastructure investment is similarly too important to be left to private investors.
From The Guardian
The release of recent data suggesting that inflation appears to be stuck at 4%, above the Reserve Bank of Australia’s target range of 2% to 3%, has raised plenty of concern among economic and political commentators. These commentators might be surprised to learn that many, perhaps most, macroeconomists who have looked at the question have concluded that a 4% inflation rate would be the ideal target, at least providing that wages and other incomes kept pace.
The underlying reasoning is simple. Interest rates are the main tool of monetary policy. In a deep recession such as that following the global financial crisis, or in an emergency such as that created by the Covid-19 pandemic, it is desirable that the interest rate should be well below the rate of inflation. That is, the real interest rate, adjusted for inflation, should be negative.
But if the rate of inflation is too low, this policy is limited by the fact that interest rates can’t go below zero. Well, not much below – the European Central Bank cut its policy rate to -0.5% for several years, relying on the fact that banks could take a cut in their margins, while still charging positive interest rates to borrowers.
Once the zero lower bound for interest rates is reached, central banks are forced to rely on direct purchases of bonds and other securities. This policy, variously referred to as “quantitative easing”, “open market operations” or, less politely, “printing money” worked to prevent economic collapse, but created plenty of problems.
The majority of US economists in a 2017 survey agreed that a higher inflation target would enhance the ability of central banks to stimulate the economy during a recession. By contrast, there is no consensus on whether a 4% inflation rate would have any significant effect on the economic welfare of households.
If a low inflation target is such a dubious idea, why was it adopted in the first place? The answer, surprisingly enough, comes from New Zealand. The first central bank to adopt an inflation target was the Reserve Bank of New Zealand in 1989. The policy was introduced by the then Reserve Bank governor, Don Brash, later to reinvent himself as a rightwing (and then far-right) politician. Brash was backed by then finance minister, Roger Douglas, whose political career followed a similar trajectory.
A range of 0% to 2% was picked, without any theoretical basis, as the lowest that could plausibly be pursued. As Douglas said later, “I just announced it was gonna be 2%, and it sort of stuck.” While the NZ central bank was the first to adopt a 2% inflation target, others were quick to follow. The most important shift was by the US Federal Reserve, which also chose a 2% target, while initially avoiding a public commitment.
At the time, New Zealand was seen as being a star performer in economic reform, likely to overtake Australia in a matter of years. Even among those who did not share in the enthusiasm, it seemed reasonable to assume that, as it had done for most of the 20th century, New Zealand would maintain living standards similar to those in Australia.
In reality, though, New Zealand’s economic performance has been miserable. Income per person is below the Australian level. Net emigration to Australia (currently running at around 20,000 per year) reflects the higher wages and living standards available here.
While many explanations have been offered for New Zealand’s relative decline, the simplest is that of repeated failures in macroeconomic management. New Zealand has experienced a string of recessions since the adoption of inflation targeting, mostly reflecting excessively rigid application of tight monetary policy. Contrary to the idea of a recession as a temporary disruption, these recessions (particularly that of the early 1990s and the global financial crisis) seem to have shifted the country onto a permanently lower growth path.
Elsewhere, inflation targeting worked reasonably well until the GFC. But in the long period of depressed activity that followed, central bank interest rates were stuck at or near zero. Despite this failure, central banks retained the power and prestige they had attained in the early days of inflation targeting. Unsurprisingly, they have been highly resistant to any change to inflation targets, even though they have no convincing defence of the status quo. Instead, they rely on the fact that any change would be bad for faith in the central banks.
The recent review of the RBA spells this out. After conceding the strength of arguments for a higher inflation target, the review panel concluded: “Regardless of the merits of higher inflation in general, the Review does not recommend increasing the inflation target during the present period of high inflation. To do so could undermine the credibility of the RBA in responding to future periods of above-target inflation.”
Of course, once we have ground our way back down to the target, the idea of raising it will be dismissed; it would be throwing away costly gains.
So, if you are struggling with higher interest rates or worried about higher unemployment, remember that this is the price we have to pay to restore the “credibility” of the Reserve Bank.
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