My latest in The Conversation via my Substack

If you believe Newspoll and the Australian Financial Review, Australia wants to go nuclear – as long it’s small.

Newspoll this week suggests a majority of us are in favour of building small modular nuclear reactors. A poll of Australian Financial Review readers last year told a similar story.

These polls (and a more general question about nuclear power in a Resolve poll for Nine newspapers this week) come after a concerted effort by the Coalition to normalise talking about nuclear power – specifically, the small, modular kind that’s meant to be cheaper and safer. Unfortunately, while small reactors have been around for decades, they are generally costlier than larger reactors with a similar design. This reflects the economies of size associated with larger boilers.

The hope (and it’s still only a hope) is “modular” design will permit reactors to be built in factories in large numbers (and therefore at low cost), then shipped to the sites where they are installed.

Coalition enthusiasm for talking about small modular reactors has not been dented by the failure of the only serious proposal to build them: that of NuScale, a company that designs and markets these reactors in the United States. Faced with long delays and increases in the projected costs of the Voygr reactor, the intended buyers, a group of municipal power utilities, pulled the plug. The project had a decade of development behind it but had not even reached prototype stage.

Other proposals to build small modular reactors abound but none are likely to be constructed anywhere before the mid-2030s, if at all. Even if they work as planned (a big if), they will arrive too late to replace coal power in Australia. So Opposition Leader Peter Dutton needs to put up a detailed plan for how he would deliver nuclear power in time. cr

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So why would Australians support nuclear?

It is worth looking at the claim that Australians support nuclear power. This was the question the Newspoll asked:

There is a proposal to build several small modular nuclear reactors around Australia to produce zero-emissions energy on the sites of existing coal-fired power stations once they are retired. Do you approve or disapprove of this proposal?

This question assumes two things. First, that small modular reactors exist. Second, that someone is proposing to build and operate them, presumably expecting they can do so at a cost low enough to compete with alternative energy sources.

Unfortunately, neither is true. Nuclear-generated power costs up to ten times as much as solar and wind energy. A more accurate phrasing of the question would be:

There is a proposal to keep coal-fired power stations operating until the development of small modular reactors which might, in the future, supply zero-emissions energy. Do you approve or disapprove of this proposal?

It seems unlikely such a proposal would gain majority support.

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Building nuclear takes a long time

When we consider the timeline for existing reactor projects, the difficulties with nuclear power come into sharp focus.

As National Party Senate Leader Bridget McKenzie has pointed out, the most successful recent implementation of nuclear power has been in the United Arab Emirates. In 2008, the UAE president (and emir of Abi Dhabi), Mohamed bin Zayed Al Nahyan, announced a plan to build four nuclear reactors. Construction started in 2012. The last reactor is about to be connected to the grid, 16 years after the project was announced.

The UAE’s performance is better than that achieved recently in Western countries including the US, UK, France and Finland.

In 16 years’ time, by 2040, most of Australia’s remaining coal-fired power stations will have shut down. Suppose the Coalition gained office in 2025 on a program of advocating nuclear power and managed to pass the necessary legislation in 2026. If we could match the pace of the UAE, nuclear power stations would start coming online just in time to replace them.

If we spent three to five years discussing the issue, then matched the UAE schedule, the plants would arrive too late.

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Read more: Dutton wants Australia to join the “nuclear renaissance” – but this dream has failed before

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It would take longer in Australia

Would it be possible to match the UAE schedule? The UAE had no need to pass legislation: it doesn’t have a parliament like ours, let alone a Senate that can obstruct government legislation. The necessary institutions, including a regulatory commission and a publicly owned nuclear power firm, were established by decree.

There were no problems with site selection, not to mention environmental impact statements and court actions. The site at Barakah was conveniently located on an almost uninhabited stretch of desert coastline, but still close enough to the main population centres to permit a connection to transmission lines, access for workers, and so on. There’s nowhere in Australia’s eastern states (where the power is needed) that matches that description.

Finally, there are no problems with strikes or union demands: both are illegal in the UAE. Foreign workers with even less rights than Emirati citizens did almost all the construction work.

Despite all these advantages, the UAE has not gone any further with nuclear power. Instead of building more reactors after the first four, it’s investing massively in solar power and battery storage.

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Time to start work is running out

The Coalition began calling for a “mature debate” on nuclear immediately after losing office.

But it’s now too late for discussion. If Australia is to replace any of our retiring coal-fired power stations with nuclear reactors, Dutton must commit to this goal before the 2025 election.

Talk about hypothetical future technologies is, at this point, nothing more than a distraction. If Dutton is serious about nuclear power in Australia, he needs to put forward a plan now. It must spell out a realistic timeline that includes the establishment of necessary regulation, the required funding model and the sites to be considered.

In summary, it’s time to put up or shut up.

Managers need to recognise that the best way to dissipate authority is to fail in its exercise

My latest in Inside Story

Authority is powerful yet intangible. The capacity to give an order and expect it to be obeyed may rest ultimately on a threat to sanction those who disobey but it can rarely survive large-scale disobedience.

The modern era has seen many kinds of traditional authority come under challenge, but until now the “right of managers to manage” has remained largely immune. If anything, the managers’ power has increased as the countervailing power of unions has declined. But the rise of working from home and, more recently, Labor’s right to disconnect legislation pose unprecedented threats to the power of managers over information workers — those employees formerly known as “office workers.”

To see how this might play out, it’s worth considering the decline of another once-powerful authority, the Catholic Church.

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My latest in The Guardian

Just two weeks after Prof Allan Fels reported on the extent of monopoly power and resultant price gouging, Australia’s supreme body on competition law has delivered its answer.

The Australian competition tribunal has determined that the banking industry has all the competition we need and that no harm will be done by allowing ANZ to swallow one of the few competitors to the Big Four by acquiring the banking operations of Suncorp. This was the latest in a string of defeats for the Australian competition and consumer commission (ACCC), the regulator formerly headed by Prof Fels.

In effect, the tribunal reversed the burden of proof. Whereas the ACCC said it was not satisfied that the merger would not reduce competition significantly, the tribunal said this was not enough. It was up to the ACCC to prove the seemingly obvious point that a large firm taking over a smaller rival would reduce competition.

Perhaps this is a case of ‘Buggins’ turn’, with the ANZ having missed out on the acquisition party so far

In making its decision, the tribunal referred to the competition provided by Macquarie Bank, the sole survivor from the rush of entrants to the banking industry in the wake of deregulation in the 1980s, and to the role played by mortgage brokers like Aussie Home Loans (established in 1992).

This account ignores the disappearance of Advance Bank, St George Bank and the Bank of Melbourne, all swallowed by Westpac, Bankwest (now part of the Commonwealth Bank) and digital bank “86 400”, taken over by NAB, among others. But perhaps this is a case of “Buggins’ turn”, with the ANZ having missed out on the acquisition party so far.

Most of the institutions that have disappeared were originally either building societies or publicly owned lending institutions. That’s true of Suncorp bank, formed from a merger of Metway (the former Metropolitan Permanent Building Society) and the Queensland Industry Development Corporation (formerly the Queensland Agricultural Bank).

In the pre-deregulation era, these institutions provided important competition for the private banks, which were subject to relatively stringent regulatory constraints in return for privileged access to support from the Reserve Bank. Deregulation removed those constraints, while maintaining the benefits of bank status. Non-bank financial institutions found it nearly impossible to compete, and most turned themselves into small banks, ripe for takeover.

Competition did produce some reductions in bank margins over the course of the 1980s, though much of the reduction was offset by increased fees and charges. But in the 15 or so years since the global financial crisis, margins have barely moved. Meanwhile, the average new mortgage (adjusted for inflation) has risen by about 60%. So the banks are making a lot more money for the same basic service.

As in other industries, such as electricity and telecommunications, the privatisation of government enterprises in the banking sector was undertaken in the belief that competition would protect consumers from exploitation. This was the central theme of the report of the National Competition Policy Review Committee, usually called the Hilmer review after its chair, Fred Hilmer, who subsequently became (among other things) a director of Macquarie Bank. The central theme of the review was the need to protect private enterprise from the unfair competition of the public sector. The ACCC was supposed to keep private monopolists in line.

Thirty years after the Hilmer review, it’s evident that nothing of the kind has happened. Markets are as concentrated as ever and the ethic of public service which continued to influence firms such as Qantas, Telstra and the Commonwealth Bank for some time after privatisation has long since disappeared.

If competition policy is to have any real effect, it must be strengthened. First, responding to the latest tribunal decision, competition policy should reverse the burden of proof. Any acquisition by a dominant firm should be presumed to be anti-competitive, and it should be up to the acquirer to prove otherwise. As recommended in the Fels report, there should be a divestiture power, enabling previous mergers to be unwound.

But this is unlikely to be enough. As in the cases of electricity and telecommunications, it is necessary for the public sector to re-enter the market. In the case of banking, the urgency is increased by the rapid disappearance of cash, which is increasing our dependence on banks whether we like it or not.

We need a public guarantee of access to cash, perhaps provided through Australia Post. In the longer term, as physical cash inevitably fades, we may need to consider the provision of digital cash issued by the Reserve Bank. This could provide the basis for publicly guaranteed savings accounts, independent of the private banking system.

Decades of “light-handed” regulation under neoliberalism have done little to benefit Australian households. In competition policy and elsewhere, it’s time to for government to get a bit more heavy-handed.

Over the last few years, the Australian and UK Labor/Labour[1] parties, have followed strikingly parallel paths.

• A better-than expected result with a relatively progressive platform (Oz 2016, UK 2017)
• A demoralizing defeat in 2019, followed by the election of a new more conservative leader (Albanese, Starmer)
• Wholesale abandonment of the program
• Failure of the rightwing government to handle Covid and other problmes

Because we have elections every three years, Australia is now ahead of the UK and we now have a Labor government led by Anthony Albanese. In its election campaign and its first eighteen months in office, Labor ran on a platform of implementing rightwing policies with better processes and minor tweaks to the most repressive aspects. This is, AFAICT, what can be expected from Starmer in the UK.

But over the last month or so, we’ve had a series of significant policy wins, which may set the stage for more.

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My latest piece in The Guardian.

The long-running debate over “price gouging” should have been settled yesterday by the release of a report by Allan Fels, the former chair of the Australian Competition and Consumer Commission (ACCC). The report, commissioned by the ACTU, found that a wide range of Australian industries are characterised by limited competition, giving powerful firms ample scope to extract large profit margins.

Consistent with international evidence, most of the inflation observed in the wake of the pandemic was captured in the form of increased profit margins. Contrary to the dominant economic model – in which inflation begins in the labor market, with higher wages being passed on to prices – the recent inflation has seen wages lag far behind prices. In some countries, notably the US, real wages have recovered, but in Australia they are still well below the pre-Covid level for most workers.

The facts are clear enough. But they raise the question: why now? In addition to market power, much of the discussion of price gouging has focused on denunciations of corporate greed and on the various tricks (such as “shrinkflation”) that can be used to raise prices surreptitiously.

But personal greed isn’t new (it’s one of the seven deadly sins, after all). There’s no obvious reason to think that corporate managers have become personally greedier in the years since the pandemic.

More importantly: greed in the form of profit maximisation is the driving engine of capitalism. That’s why Gordon Gecko in Wall Street, echoing his real-life models Ivan Boesky and Michael Milken, said: “Greed, for lack of a better word, is good.”

In corporate-speak, this is usually shrouded in euphemisms like “shareholder value”, or softened by pledges of “corporate social responsibility”, but profit is still the main goal.

Devices like shrinkflation have also been around for a long time. In his classic 1933 work The Theory of Monopolistic Competition, which (along with the contemporaneous work of Joan Robinson) introduced the idea of imperfect competition, Edwin Chamberlin described this and other deceptive practices.

As for uncompetitive markets, this is certainly nothing new in Australia. It has mostly got worse over time, particularly as public infrastructure services have been sold off to private monopolies; but this trend hasn’t been uniform. Notably, the arrival of Aldi has provided some competition for the dominant supermarket chains, Woolworths and Coles. And there has been no particular change that would explain the upsurge in profit margins over the last few years.

Rather, recent inflation has resulted from the interaction between corporate market power and pent-up demand from forced saving during the lockdowns. Economic analysis, including my own work with Flavio Menezes (quoted in the Fels report), shows that increased demand allows firms with market power to increase their margins, exacerbating any initial inflationary shock.

Unfortunately, the process does not work smoothly in reverse. Because wages are slow to adjust, a policy-induced slowdown – such as that now being engineered by the Reserve Bank – will prevent wages from catching up to past inflation, effectively freezing higher profit margins into place.

What then, should be done?

First, instead of focusing solely on the consumer price index as the measure of the “cost of living”, we should be looking at profit margins – largely determined by the gap between prices and wages. Restoring wages is more important than a rapid return to an arbitrary target rate of CPI inflation.

In the longer term, we need to tackle the problems of an economy in which most markets are dominated by a handful of firms. In part, this can be achieved by strengthening the powers of the ACCC. Most importantly, as suggested in the Fels report, there is the possibility of breaking up firms that are already dominant in their markets – Qantas is an obvious target here.

But in an economy as small as Australia’s, dominance by a handful of firms is inevitable in many cases. One possible solution, suggested in the Fels report, is more extensive price regulation.

In the case of infrastructure utilities, the remedy in most cases is to abandon the failed experiments of privatisation and corporatisation and return to public ownership. Ideally, this would involve a statutory authority model in which the objective is to maximise social benefits rather than profits, while setting prices sufficient to cover operating and capital costs.

It’s another idea that’s been around for a long time. But it’s one that might be worth trying.