As Randolph Bourne said, "War is the health of the State." He knew very well that governments expand massively in times of war. This is precisely why anyone who is concerned with individual liberty must necessarily oppose war. Anyone who claims to favor limited government while advocating war is either blissfully ignorant, or flagrantly hypocritical. A great example of such a person can be found in Neal Boortz.

It is a great shame that monetary policy is virtually ignored by politicians and the mainstream media. Responsible Americans who prefer to save their money are forced to watch it be stolen through the Fed's manipulation of interest rates, that only benefit Wall Street, big bankers, and powerful, politically connected corporations. The unfortunate truth is that our country's economy has been guided by Keynesian principles for many years. Under this system government is encouraged to stimulate demand for products during economic downturns. It is precisely what we are seeing now with the lowering of interest rates and Bush's economic stimulus package.

So when you think about the rise in the prices of common consumer goods through the years, consider this. The dollar of today is worth 96% less than it was in that fateful year of 1913. Almost one hundred years of war socialism and New Deal socialism have nearly destroyed American money.

There is only one politician who cares to address our country's monetary crisis. He is Ron Paul. Yes, that guy who is virtually ignored by the mainstream media, the one who "has no chance" at becoming president, the one who is reputedly far out on the political fringe, has it 100% correct. For everyone who is sick and tired of having their savings stolen, and the value of their dollar destroyed, there is only one prescription to cure those ills.

And you can call him Dr. Paul.

There are several schools of economic thinking about the current down cycle of the US economy.

1. The mainstream consensus of neo-Keynesian economics:  this is just another business cycle, to be treated with the usual tools.  To see this analysis, read today's op-ed in the New York Times by Joseph E. Stiglitz.
2. There are a few heretics, even some apostates.  The first question if the standard remedies of fiscal and monetary policy, plus devaluing the currency, will work this time.  The latter question the Keynesian paradigm itself.  Does it adequately consider the effect of rising debt levels?  Might the insights of Hyman Minsky show the limts to the operating boundaries of Keynesian theories?  Perhaps we need a fusion of Keynesian and Austrian economics?
3. The members of the small Austrian school of economists, vocal but powerless to affect public policy.

What if the heretics and apostates -- perhaps even the Austrians -- are right, and this cycle is different?  Let us explore this scenario and see what it says about America's geopolitical (esp. military) strength...

1. The current economic downturn takes us beyond the envelope in which mainstream economic theory works.
2. This marks the end of the post-WWII economic regime, during the last 25 years of which American public policy allowed massive growth of debt -- to both foreign and domestic creditors -- and deterioration of the competitiveness of US goods and services on world markets (i.e., decreased ability to pay our foreign debtors).

The key source of disharmony in the global economy is our foreign borrowing and weakening competitiveness.  Either would be bad; having both is deadly.

1. These US policies have resulted in great distortions in global flows of capital and trade.  For example, a funneling of a large fraction of world savings to the US (we do not invest, but spend it), including the oddity of savers in the world's poorest nations funding consumption by the world's richest nation.
2. The current economic slowdown marks the begging of the long-predicted "re-balancing" of the global economy, in which these oddities disappear and more normal patterns return.
3. The global dominance of the US depends on massive borrowing at low interest rates from a small number of governments, most Asians and oil-exporters, with no thought as to how or when we will repay these loans.

The restoration of normal economic relations probably requires the value of the US dollar to decline far below levels seen since President Nixon took us off the gold standard in 1971 (sparking the great inflation of the 1970's).  The greatest adjustment might be vs. the Chinese currency (the RMB or yuan), devaluing the USD/RMB by 1/3 to 1/2 (expert estimates vary widely).  

1. That will make our exports of goods and services far more competitive, allowing us to earn the foreign currency needed to repay our creditors.
2. That will make imports of raw materials (e.g., oil) and goods (e.g., toys and TV's from China) far more expensive.
3. The net result will be a greatly reduced US trade deficit, and less foreign borrowings.  The "outsourcing" of jobs to emerging nations will slow, as our workers become relatively more attractive for employers.  (Wages here would not crash to those of the 3rd world, as American workers and facilities are far more productive).

The UK went through a similar process starting after WWI and ending with the election of Margaret Thatcher as Prime Minister in 1979.  This is the decline and fall of the British Empire.  In 1900 their web of military bases encircled the globe.  As they grew poorer and the value of the pound fell, these bases became too expensive -- an unaffordable luxury.  Since the locals were unwilling to pay for the police services provided by the UK, the bases closed and the troops went home. 

Now it is our turn.  

This adjustment in the US economy might have consequences other than reducing our ability to buy overseas bases and fund wars.  The stress on the economy might force reallocation -- or even reductions -- in federal spending.  Increased military spending -- new generation of stealth aircraft and capital warships, a larger armies, permanent occupation of Iraq and Afghanistan, a "star wars" missile defense shield -- might become a fantasy.  We could afford to spend 14% of GDP on defense during the Korean War, when our industries dominated the global economy.  We could almost afford to spend 10% on defense during the Vietnam War.  By massive government borrowing President Reagan could spend 7% on defense.  In the coming decade we might find spending 3% of GDP too much to bear.

The dreams of so many brilliant thinkers, from neocons like William Kristol to visionaries like Thomas Barnett, will become moot.  However desirable or feasible, we will no longer have the money to fund them.  They will find themselves trumped by the bleak forecasts of Paul Kennedy, author of Rise and Fall of the Great Powers (1987).

This does not mean the end of America.  America will outlast its empire.  We were a benign hegemon, perhaps the greatest hegemon in world history.  We gave much and asked little.  After victory in war we asked for no reparations; our enemies became our friends.  Our soldiers return from overseas duty with neither tribute nor loot.  The international order we created after WWII, both economic and geopolitical, saw the fastest growth in global wealth and income since the invention of agriculture.   Our dreams of global peace brought forth the United Nations.  Our dreams of exploration landed men on the moon.  We can look back in pride at our half-century of dominance.

Please share your comments by posting below (brief and relevant, please), or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).

For more information about this subject

1. A brief note on the US Dollar. Is this like August 1914?  (8 November 2007) — How the current situation is as unstable financially as was Europe geopolitically in early 1914.
2. The post-WWII geopolitical regime is dying. Chapter One   (21 November 2007) — Why the current geopolitical order is unstable, describing the policy choices that brought us here.
3. We have been warned. Death of the post-WWII geopolitical regime, Chapter II  (28 November 2007) — A long list of the warnings we have ignored, from individual experts and major financial institutions (links included).
4. Death of the post-WWII geopolitical regime, III - death by debt  (8 January 2008) – Origins of the long economic expansion from 1982 to 2006; why the down cycle will be so severe.
5. Geopolitical implications of the current economic downturn  (24 January 2008) – How will this recession end?  With re-balancing of the global economy, so that the US goods and services are again competitive.  No more trade deficit, and we can pay out debts.
6. A happy ending to the current economic recession (12 February 2008) – The political actions which might end this downturn, and their long-term implications.
7. What will America look like after this recession?  (18 March 208)  — More forecasts.  The recession might change so many things, from the distribution of wealth within the US to the ranking of global powers.
8. The most important story in this week’s newspapers   (22 May 2008) — How solvent is the US government? They report the facts to us every year.
9. The geopolitics of inflation, an introduction  (17 June 2008) -- Inflation is probably not what you think it is.

To see the all posts on this subject, go to the archive for The End of the Post-WWII Geopolitical Regime.

Indonesia pernah mengenal Widjojonomics yang kemudian "berdialog" dengan Habibienomics lalu sekarang dengan SBY-nomics? Sayangnya, istilah-istilah ini ditelurkan semata-mata karena "dialog rejim politik", bukan karena temuan preskripsi yang manjur untuk menyembuhkan perekonomian Indonesia.

Ibarat sakit panas karena virus Roseola dan panas karena malaria, tentulah obat yang diberikan berbeda. Diagnosis dokter harus detail, bahkan sampai ke usia pasien. Jika tidak, nanti obat yang dimaksud membunuh lalat dibuat bahkan untuk bisa membunuh gajah. Atau sebaliknya.

Hari ini saya membaca edisi lama sebuah majalah, yang memuat berita sekilas tentang disertasi Presiden SBY: "Pembangunan Pertanian dan Pedesaan sebagai Upaya Mengatasi Kemiskinan dan Pengangguran", sub-judul "Analisis Ekonomi Politik Kebijakan Fiskal" (Oktober 2004). Menarik. Menganalisis sebuah upaya mengatasi kemiskinan dari kacamata pajak, bukan dari kacamata tingkat suku bunga, bukan juga dari pendekatan institusional, seperti yang dikaji dalam teori pilihan publik (public choice theory).

Presiden SBY hari ini memang dibantu sepenuhnya oleh ekonom andal negeri ini. Tentu hal ini bukan melulu tugas Menkeu atau Gubernur BI atau Menko Perekonomian, tapi juga dialog pemerintah dan wakil rakyat, dengan tentunya transparansi proses dialog ini ke publik secara luas.

Empu-empu yang memiliki preskripsi penyembuhan perekonomian negeri ini sebaiknya adalah para dokter yang andal mendiagnosis permasalahan. Kebijakan yang harus diambil pemimpin negeri ini adalah kebijakan diagnostik yang out of the box. Dialog-dialog ekonomi yang diangkat--apalagi seorang pemimpin yang memutuskan hajat hidup 250 juta orang--memang waktu itu (circa 2004) masih terpaku dengan pendekatan formal kebijakan fiskal atau moneter.

Padahal di belahan dunia lain, misalnya Amerika Serikat, pendekatan public choice ini telah diterapkan dalam pengambilan keputusan secara komprehensif. James C. Miller kepala Office of Management and Budget (OMB) semasa Presiden Ronald Reagan membantu pengesahan Hukum Gramm-Rudman yang menetapkan batas dari pengeluaran tahunan dan ketegasan pemotongan otomatis jika pagu atas tidak tercapai. Proses pengambilan keputusan atas kebijakan ini melibatkan Kongres yang cenderung bekerja atas banyak kepentingan, sehingga memperpanjang daftar pengeluaran dalam negeri mereka. Putusan ini memang sempat memperlambat pengeluaran negara yang tak perlu untuk sementara waktu. Hal ini diberlakukan sementara waktu karena efektivitas pengaturan seperti ini masih dipertanyakan.

Intinya adalah bahwa pendekatan institusional bagi sebuah negara yang "belum sembuh dari sakit 1998" adalah preskripsi yang harus diawali dari dialog-dialog antar-pemangku kepentingan. Yang terjadi di Indonesia dengan turunnya Peraturan Pemerintah (PP) yang terkadang "lari" dari asas, fungsi, arah dan tujuan Undang-undang di atasnya melahirkan fungsi baru bagi DPR: turut merancang PP. Dialog DPR-Pemerintah seperti ini mungkin merupakan proses yang tidak terbukti juga efektivitasnya.

Di luar itu, sangat disayangkan jika istilah -nomics yang ditempel ke nama pemimpin negeri ini hanya sebatas istilah tak berfungsi. Bukti bahwa tidak berbunyi? Harga kebutuhan pokok (yang tak lagi 9 nama itu) merangkak perlahan, sementara kesejahteraan atau "welfare" berada beberapa puluh langkah di belakangnya.

Setelah kedelai dan kelapa sawit, mungkin ada temuan baru untuk mengubah bahan pokok lain menjadi bahan bakar baru. Akan datang lagi agflasi beberapa waktu mendatang dengan makin gencarnya kampanye "biofuels" oleh negara-negara maju di sana. Siapa tahu minyak ikan mujair di satu saat bisa "diplintir" menjadi bahan bakar baru. Atau kulit ayam? Atau lemak sapi?

Kita punya tanah luas, dan kita punya laut luas. Namun kita juga punya masalah institusi yang kronis, yaitu korupsi yang lamban dipangkas (btw, korupsi juga masuk dalam kajian institusional). Bisakah kita membuat diagnosis yang benar mulai dari sejarah perekonomian pasca-1998 hingga rekonstruksi mendasar? Tentu tak ada preskripsi yang "sekali telan sembuh" untuk penyakit kronis. Untuk itu, -nomics yang lahir dari jargon rejim semata-mata tak patut diperdebatkan lagi. Hari ini kita hanya butuh dokter yang punya senjata obat termujarab. Less complication, more results, please.

***

PS. Dialog dan diagnosis memiliki kajian bahasa seperti ini:

• di- prefiks yang berarti dua, dua kali, atau dobel.
• Diagnosis dari kata Yunani diagignoskein yang berarti menetapkan dari evaluasi sejarah [pasien].
• Dialog dari kata Yunani dialogos, dialegesthai yang berarti pembicaraan antara dua pihak.

• The Bet
• Oil Price Touches $100 a Barrel; Signal of Pending Oil Shortages Ignored
• Holding Daniel Yergin and CERA Accountable

Unfortunately much of this analysis not only misleads but also might prove counterproductive.

First, the "typical" Peak Oil explanation is likely wrong, even myopic. For example: "Despite the talking head rationale for today's $4 rally, the underlying reasons for the 8 year+ climb in crude are geologic in nature." As I discussed here, oil has risen since the recovery began in late 2002 along with the prices other industrial materials. Expansions often strain the supply of industrial inputs, which is why copper is often called Dr. Copper (due to its accuracy as an economic indicator). Oil has risen with commodities in general over the past year, a symptom of the inflation resulting from the rapid expansion of the global money supply in the past few years -- also a typical late-cycle event.

More importantly, the straight-line extrapolations of many Peak Oil enthusiasts -- forecasting using only a ruler -- occasionally works, but usually proves unreliable over time. Cycles, not lines, dominate the real world. That is why folks earning a living in the risky business of forecasting, like Yergin, cannot be stuck clocks (always giving the same answer, right only twice a day).

So that we too are not stuck clocks, let us consider what cyclical dynamics might flatten or even decrease oil demand during the next few years?

I. A global recession

Those forecasting an immanent Peak Oil often extrapolate current economic growth far into the future. They describe rapid growth creating a world desperate for oil, which ignores the extraordinary nature of this economic cycle. The global economy has had only one recession since 1982, and that was short and shallow. The global economy has grown at aprox 5%/year during the last five years (using IMF numbers), the fastest period of economic growth since the 1960's. Perhaps the fastest rate of global growth of any five years since the invention of agriculture, as billions of people in the emerging nations and former Soviet Union join the modern industrial era.

This will not continue. Even if the foundation of the modern financial system are sound (which I doubt, as described here), the business cycle still rules. Fast growth means sharp, deep recessions. The neo-Keynesian dreams of smooth, managed growth are just that. Economists of the Austrian school will have their innings too.

Also, history shows that fast economic growth is volatile growth -- unlike riding a bicycle, where the wheels act as gyroscopes. The length and magnitude of the down-cycle might prove just as surprising and large as the expansion, and catch just as many experts by surprise.Consider the two poles of the global growth engine: China and the US.

China' s probably has a bright future, but they too have a business cycle. There are many signs the end of this boom approaches, although no one can accurately predicting when it arrives. The following bust might be ugly. China's new -- and hence poorly developed -- economic command and control apparatus makes policy errors, and hence a severe downturn, very likely. The US government's response to downturns if usually late and often misguided. And compared to the US...

• China's government has less ability to collect accurate and real-time information about the economy.
• Their short experience with capitalism gives them a short baseline with which to analyse the data.
• Their institutions have little experience in managing a rapidly growing and increasingly complex economy.

As for the US, our 25 year long debt-fueled expansion epitomizes unsustainable, even foolish, growth -- as described here: Death of the post-WWII geopolitical regime, III — death by debt.

A global recession means real GDP increases at less than 2%. This is a different definition than used for US, where a recession is unofficially defined as two consecutive quarters of falling GDP (the National Bureau of Economic Research uses a more complex and subjective set of criteria to officially define recessions). Global oil consumption probably decreases as growth falls below 2%, according to this relationship (which changes over time):

Change in liquid fuel demand = .6 * (real global GDP growth - 2%)

A global recession might bring three years with an average GDP growth of 2% (one year of which is < 2%). That would give three years to boost production for the next boom, and three years for prices to spur increased efficiency and conservation.

However painful for us, over generations of time recessions are usually forgettable (the 1930's is an exception). Even a severe recession might mark only a blip on the march to a better world, an opportunity to replace the now-rickety post-WWII economic machinery with something better suited for the 21st century.

II. Removing price ceilings on oil products.

Many emerging nations (esp. China) and oil exporters have price controls on oil products, shielding their economies from the effects of sharply rising oil prices. As a result, they consume more than they would at world prices. As oil prices rise, this both becomes increasingly expensive (in lost income or opportunity costs) and distorts their economies.

Worse, prices controls usually prove futile over time, unsuccessfully preventing the virus of inflation from infecting and spreading through the economy. As they realize this, they will likely phase out price controls in favor of less-expensive and more effective remedies -- such as fiscal and monetary policy, and re-valuing their currencies.

Higher oil prices will then work their magic in these countries as it has in the developed world, driving behavioral changes and capital expenditures which reduce oil consumption (i.e., conservation and increased efficiency). Price elasticity of demand -- the "law" of higher prices forcing less demand -- often catches even experts by surprise. Just as Newton's laws of motion often seem counter-intuitive, both nonetheless work inexorability. The resulting change in demand might astonish us.

Conclusion

A period of slow growth in oil demand, or even falling demand, will give us more time to prepare for Peak Oil. Wonderful, but only if we use it. Since the February 2005 Hirsch et al. "Mitigations" report proves that adaptation will take at least 20 years, we cannot afford any delays -- however well-intended their source.

The many post predictions of Peak Oil have created understandable skepticism about the current predictions. Another failed prediction might discredit the concept among both the public and decision-makers, interrupting the process of adaptation.

This is part of a wider problem. The exaggerated claims of certainty characteristic of much literature about Peak Oil, and the even more extreme claims (see note below) about the apocalypse following Peak Oil, are in my opinino counter-productive. They hinder our preparations for that historical period when we leave the age of oil for ...whatever comes next.

Extreme claims about the post-Peak Oil world

It is difficult to provide just one example, as there are so many contenders for most absurd doomster energy scenario. My personal favorites are the "Die Off" forecasts, apocaplyse caused by too-little energy. One of the better known is Richard Duncan's The Peak of World Oil Production and the Road to the Olduvai Gorge. Wikipedia has a brief summary. However bizarre, it is taken seriously by many folks (such a some posting on The Oil Drum, as a Google search will show). For simple rebuttals see this and this.

About The Oil Drum (TOD)

You will see it on my blogroll. Many of its contributors' work I find of great value, such as that by Rembrandt and Stuart Staniford. However, the folks running it show too little interest in grappling with opposing data and analysis. So it shows only one side of the coin.

Please share your comments by posting below (brief and relevant, please), or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).

For more information about Peak Oil

1. When will global oil production peak? Here is the answer! (1 November 2008)
2. The most dangerous form of Peak Oil  (8 April 2008)
3. The world changed last week, with no headlines to mark the news   (25 April 2008)
4. Peak Oil Doomsters debunked, end of civilization called off  (8 May 2008)

Here is an archive of my articles about Peak Oil.

Here are other resources about Peak Oil.

The following article was written on April 2000. It’s republished here on this blog as I think it’s still relevant as unions continue to have a strong grip on the Labor Party. And with a possible impending recession in the US that would inevitably effect the Australian economy, a Rudd victory in the coming election will bring the unions exercising their pernicious behind the times influence on the front benches of a Labor government. And hence exacerbate the peril of the economy of the country in conditions of recession. Lest we forget, it was in the UK in the mid-sixties under Labor governments that ‘trade-union-led “wage push” was the driving force behind inflation and subsequent breakdown of Keynesian policy’. Richard Kahn, one of the closest disciples of Keynes, when he was asked about this breakdown of Keynesian policy, he answered, ‘we never thought the leaders of the trade unions could behave so stupidly’. This stupidity was coined at the time in the term of stagflation, the proud creation of the unions.  And this doltishness of the unions is alive and well in our times as it’s still fuelled by the false Marxist doctrine of class struggle. This is the danger that trade unions could inflict to the Australian economy under a Rudd government. As for Rudd’s “education revolution” by providing students with laptops, the mountain has brought forth a mouse. Australia is already among the top nations that provides computers to its students. But on the quintessence of education revolution which has to deal with its human capital, i.e., its teachers, who have to be selected on merit and ability and on their teaching methods, two burning issues on which the education unions will not budge, Rudd remains silent. He also claims that his government will be a government of “fresh ideas and new leadership”. But after his lustful embrace of me tooism of some major liberal policies during the electoral campaign, Rudd pellucidly reveals that his government will not be a government of “new leadership” but a government of mimicry. For John Howard there is still a good chance that the minders of Kevin Rudd, couple of days before the real poll, will be telling him that the only bad news is that there is no good news.

                               ________________________________________

The ascendancy of the Labor Party to the treasury benches in Victoria, has churned in its wake a billow of waves of industrial action by an amalgam of union power that threatens to shipwreck the economic vibrancy of the state. The outcome of such fatuous action by the unions will be to induce a flight of investment capital from Victoria to other states, as current and would-be employers of this state would feel too insecure to invest in an environment of industrial turmoil. This is especially so when the Labor government and its leader Steve Bracks are perceived to be irresolute and too weak-kneed to control and rein in this outdated aggression and belligerence of the unions against employers.

The excessive and irrational demands of the unions for a thirty-six hour working week and a 24 percent increase in wages, which if they were successful in obtaining initially in the construction industry and their inevitable flow into some other industries, would have the ineluctable result of throwing thousands of workers among the ranks of the unemployed. This would be a tragic repetition of what happened in the metal industry in the late 80s as a result of excessive union claims, under the then Federal Secretary of the Metal Trades Union, George Campbell—a political stallion of the Left and presently a Labor Senator who is going to be replaced by another stalwart left-winger Doug Cameron who has indisputable credentials of being in the past a real “communist under the bed”—whom the Treasurer Paul Keating accused of having a necklace of 100,000 dismissed metal workers around his neck.

It’s obvious that the unions are afflicted by an innate inability to learn from their past sloppy errors. And like a recurring malady they are bound to contaminate the economy of the country with the calamitous mistakes of the past. The consequences of a repeated mistake, however, are more tragic than the consequences of an initial one and therefore carry a greater responsibility. An action that is performed for the first time is experimental in regard to its consequences, as no one, without the gifts of Tiresias, can predict or foresee whether its results will be benign or malign.  (Not that the unions could be excused for their first error. There was ample evidence of a global scale at the time, and enough forewarnings by eminent economists, that excessive union claims within the confines of global competition would inexorably lead to the flight of capital from regions these claims were impacting upon, and hence to unemployment.) But an action that is repeated deliberately and wantonly in spite of knowledge of its harmful effects in the past is intellectually malevolent and morally culpable.

Whose Culpability is Greater the Union’s or the Government’s?

Two questions therefore arise. Is the intelligence of unions commensurate with their powers? Or is it the case that union power is more like the wings of an eagle attached to a pigeon head? If the answer to the second question is affirmative, then one further question is posed, i.e., why then was the political wing of the Labor Party, which is now in government and having the expertise of knowing better about the dire economic effects of industrial unrest to the country nonetheless was unwilling to intervene promptly and decisively to block the irrational and pernicious claims of its industrial wing, which as a government of all Victorians—Premier Brack’s slogan—was committed in doing? Furthermore, why was the government’s immediate reaction to blame the Federal government’s industrial legislation for the ongoing industrial unrest instead of doing something that would have stifled the industrial dispute in its initial stages, for which it had prior knowledge, and using the subterfuge of an excuse that it was constrained by the legislation and could do nothing effective toward its resolution? Both the deputy leader of the government John Twaites and the Minister of Industrial Relations Monica Gould, used this feeble argument, when in fact with the return of the Premier from Davos  the latter forced the union involved in the dispute of the Yallourn power station to return back to work by imposing hefty fines upon its members, hence demonstrating that the government had the power to do something effective to resolve the dispute? Wasn’t it rather, the attempt to shift the blame to the federal legislation, a poor ruse, indeed, a camouflage, to cover its lack of will to intervene timely and decisively and derail the union from its “crashing” course? Yet, the belated action was effective, even if it was done halfheartedly. But what other alternative the government had, at the end of its honeymoon with the electorate, other than to send the stalled fire engines out to extinguish the full blown fire, if it was not to be seen, and impugned, in the electorates eyes, as politically effete and incompetent?

This is a basic characteristic, however, and an irreversible syndrome of Labor governments. To intervene in industrial disputes only when political necessity dictates, i.e., only when these disputes have reached a high point with the potential of harming the economy, and hence would be politically damaging. For organizational and ideological reasons Labor governments are not prone to intervene in the wrangles of their comrade-in-arms with employers, but do so only as a last resort.

This general inaction of Labor governments in industrial disputes is a result first, of a common ideology shared with the unions whose core emanates from the principles of socialism, and secondly, from its constitutional organizational structures that tie the political and industrial wings of the Party into a powerful body and into a compact of consensus that determines the functions of each wing. In conference after conference of the Party, the common and often repeated refrain is that Labor occupies the treasury benches only for the purpose of implementing policies which are discussed and ratified in state and federal conferences in whose conception the unions and its sundry representatives, mainly academics, have a major input. The union’s dominance is illustrated not only in the generation and formation of policies (Its architects generally are academics from the Left, whose intellectual frustration is at a boiling point because their ideas and policies cannot pass muster among other academic luminaries, but who do find a paradisiacal outlet for their “time-stopped” ideas, as well as an adulatory audience among their comrades in the unions, who normally cannot separate the wheat from the chaff of these ideas), but also on the conference floor as sixty percent of its delegates must be union representatives according to the Party’s constitution.

The larger and, especially, the more militant unions have such a firm grip in the election of delegates to Party forums, that even ministers and would-be premiers often cannot be elected to these meetings. Many ministers , therefore, who are unable to be elected to conferences on their own authority, resort to “begging” less militant unions to be placed in their delegations as constitutionally the unions have the authority to do so. Hence only as supplicants to the unions are ministers able to participate in conferences. For example, Jim Kennan, the Attorney General in the Cain Government, for many years was a delegate of the Clothing Trades Union. Likewise too, Steven Bracks, the current premier, was a delegate of the same union, who had taken Kennan’s place with the latter’s departure from politics. Other ministers who are not as fortunate to be union delegates attend conferences as visitors and observers without the right to move, or vote for, resolutions of the conference. Hence, ministers and many of their advisers are left out from the formulation and ratification of the Party’s policies. Such is the power and influence of unions in the organizational procedures of the Party, that often they cal “lock-out” important ministers who are not close to their ideological positions, from the highest policymaking bodies of the Party.

Moreover, the grip of the unions is extended to the pre-selection procedures of the candidates of the Party as well as in the choosing and changes of the parliamentary leadership, both in the state and federal domains. Who can forget for instance the telephone call that Paul Keating made, during his challenge of Bob Hawke, to Wally Curren, secretary of the Meat Workers Union asking him for his support in the coming challenge to Hawke for the leadership of the government? And Curren obliging, by forcing those MP’s from Victoria who owed their position in parliament to his patronage, to vote for Keating? This irritated Bob Hawke so much asking who Wally Curren was pretending thus ironically that he himself who had ousted and replaced Bill Hayden with union support was not cognizant of the influence trade union leaders have in pre-selections. As for the branches of the Party they play a superficial role in the pre-selection of candidates as they too in turn are influenced in their decisions by the organizational power of the unions.

          Labor Politicians at the Mercy of Unions

Being therefore at the mercy of unions for their parliamentary positions and for the buttering of their bread, labor politicians, with some exceptions, are cast as toadies of the unions. Only the Federal Executive of the Party can intervene can intervene and save a ministerial or a backbencher’s scalp from the tomahawk of the unions. This occurred when John Halpenny, the Secretary of the Trades Hall Council in Victoria. were placed in the number one position on the senate ticket, with massive union support, in the 1988 federal election, relegating the leader of the Senate, John Button, to the second position. And in the election following the one in 1988, some of the left-wing unions were deliberating whether or not to place Gareth Evans, the Minister of Foreign Affairs, in the second position on the senate ticket. Only some sober heads at the last moment saved the glitterati Minister from the rusty and blood-stained tomahawk of the unions and from posthumous obloquy. (But the power of the Federal Executive is limited, as is illustrated in the present coming election of 2007 in the seat of Coreo, where the current seating member, Gavin O’Connor, is replaced by an assistant secretary of the ACTU (Australian Council of Trade Unions), against the wishes of the Executive.)

It’s for all the above reasons, this congeniality of interests between Labor governments and unions that prevents the former from acting timely and decisively in industrial disputes. And even when they do as a last resort they cannot be impartial in their involvement. The Brack government being captive to the unions has to cater to the latter’s voracious appetite on a number of issues: On the restoration of common law damages for injured workers, which has already being done by passing the relevant legislation in parliament, on the restitution of industrial policy back to the State Government, so the latter can abolish the industrial contracts of the Federal Government, whose aim is to eliminate union dominance in industry negotiations, and to replace them with collective bargaining, hence restoring union coercion and thuggery during negotiations with employers. On these issues and on many others, the Labor government is hamstrung by union power. Whether the former will be able to deliver on these issues will depend on the political climate of the day and on the degree of resonance such a delivery will have upon the electorate.

Steve Brack’s therefore, like a trapeze artist, has to walk on a tight rope whose one end is held by the unions and the other by the community, and perform his balancing act. While gratifying the union claims, with potentially destructive consequences to the economy of the State, at the same time he has to keep its economic robustness, inherited from his liberal predecessor, Jeff Kennet, intact, hence erasing any fears or consternations the community might have about the new industrial course of his government.

It’s with this purpose in mind to win the confidence of Victorians and of some naïve employers that Steve Bracks lately set up a new stage with an old play. His government lacking any originality or lateral thinking in policymaking ransacked the ram shackled spider web storehouse of past Labor policies to bring out the nostrums of “old age”. The summit of “Growing Victoria Together”, chaired by that scion of Labor power, Bob Hawke, was such a nostrum. Imbibing a strong dose of self-deception, Bracks was hopeful that by attracting some old and new celebrities from the industrial club and from business to the summit the public would be hoodwinked and believe that something substantial would come from the coupling of these celebrities. What in fact happened, was that each spokesperson of this divided house of unions and employers, voiced plaintively their complaints and grievances against each other with the result that they were not able to reach an agreement as to how and by what prudent set of actions, they would carry out the growth of Victoria. The rhetorical statement at the end of the summit, spun by the golden threads of the cerebral and literary qualities of Bob Hawke and his wife, respectively, could hardly hide the practical hollowness of the summit. What the latter did was to set up a number of committees to look at a number of issues.  Such as education and training, investment in training, industrial relations, health and wellbeing indicators to measure performance in meeting social goals, infrastructure, the impact of payroll tax on job and wealth creation , and the audit of government services in country communities. It also set up an advisory body to strengthen community input, oblivious of the fact, that while the latter is important it is not a substitute for political leadership. Forgetful also of the fact that the achievement of this laudable “prospectus”, is absolutely dependent on calm industrial relations. And therefore cannot be achieved while the agitated firebrand steam of the unions continues unabated.

Hence, the mountain (the summit) has brought forth a mouse which is at the mercy of the cat’s paws, the unions. Furthermore, as so many of the issues are to be shoved to committees, whose members are deeply divided on the central issue of industrial relations, they are inevitably going to be dealt with in a banal hackneyed manner, since their members will be unable to reach a mutual agreement on the key issue of industrial relations. Hence the summit’s “debris-deliberations” will be proven to be a barren exercise.

The Bracks’ government by its farcical and enervating stand toward the unions and by its populist stand toward the public threatens to throw Victoria into the doldrums as well as empty the coffers of the treasury. This is not a government of substance but a government of images—the images of a dead past. But funeral rites for dead images can be very expensive to the general community, both in terms of tax increases and unemployment.                                              

The following article was written on April 2000. It’s republished here on this blog as I think it’s still relevant as unions continue to have a strong grip on the Labor Party. And with a possible impending recession in the US that would inevitably effect the Australian economy, a Rudd victory in the coming election will bring the unions exercising their pernicious behind the times influence on the front benches of a Labor government. And hence exacerbate the peril of the economy of the country in conditions of recession. Lest we forget, it was in the UK in the mid-sixties under Labor governments that ‘trade-union-led “wage push” was the driving force behind inflation and subsequent breakdown of Keynesian policy’. Richard Kahn, one of the closest disciples of Keynes, when he was asked about this breakdown of Keynesian policy, he answered, ‘we never thought the leaders of the trade unions could behave so stupidly’. This stupidity was coined at the time in the term of stagflation, the proud creation of the unions. And this doltishness of the unions is alive and well in our times as it’s still fuelled by the false Marxist doctrine of class struggle. This is the danger that trade unions could inflict to the Australian economy under a Rudd government. As for Rudd’s “education revolution” by providing students with laptops, the mountain has brought forth a mouse. Australia is already among the top nations that provides computers to its students. But on the quintessence of education revolution which has to deal with its human capital, i.e., its teachers, who have to be selected on merit and ability and on their teaching methods, two burning issues on which the education unions will not budge, Rudd remains silent. He also claims that his government will be a government of “fresh ideas and new leadership”. But after his lustful embrace of me tooism of some major liberal policies during the electoral campaign, Rudd pellucidly reveals that his government will not be a government of “new leadership” but a government of mimicry. For John Howard there is still a good chance that the minders of Kevin Rudd, couple days before the real poll, will be telling him that the only bad news is that there is no good news. 

                               ________________________________________

The ascendancy of the Labor Party to the treasury benches in Victoria, has churned in its wake a billow of waves of industrial action by an amalgam of union power that threatens to shipwreck the economic vibrancy of the state. The outcome of such fatuous action by the unions will be to induce a flight of investment capital from Victoria to other states, as current and would-be employers of this state would feel too insecure to invest in an environment of industrial turmoil. This is especially so when the Labor government and its leader Steve Bracks are perceived to be irresolute and too weak-kneed to control and rein in this outdated aggression and belligerence of the unions against employers.

The excessive and irrational demands of the unions for a thirty-six hour working week and a 24 percent increase in wages, which if they were successful in obtaining initially in the construction industry and their inevitable flow into some other industries, would have the ineluctable result of throwing thousands of workers among the ranks of the unemployed. This would be a tragic repetition of what happened in the metal industry in the late 80s as a result of excessive union claims, under the then Federal Secretary of the Metal Trades Union, George Campbell—a political stallion of the Left and presently a Labor Senator who is going to be replaced by another stalwart left-winger Doug Cameron who has indisputable credentials of being in the past a real "communist under the bed”—whom the Treasurer Paul Keating accused of having a necklace of 100,000 dismissed metal workers around his neck.

It’s obvious that the unions are afflicted by an innate inability to learn from their past sloppy errors. And like a recurring malady they are bound to contaminate the economy of the country with the calamitous mistakes of the past. The consequences of a repeated mistake, however, are more tragic than the consequences of an initial one and therefore carry a greater responsibility. An action that is performed for the first time is experimental in regard to its consequences, as no one, without the gifts of Tiresias, can predict or foresee whether its results will be benign or malign.  (Not that the unions could be excused for their first error. There was ample evidence of a global scale at the time, and enough forewarnings by eminent economists, that excessive union claims within the confines of global competition would inexorably lead to the flight of capital from regions these claims were impacting upon, and hence to unemployment.) But an action that is repeated deliberately and wantonly in spite of knowledge of its harmful effects in the past is intellectually malevolent and morally culpable.

Whose Culpability is Greater the Union’s or the Government’s?

Two questions therefore arise. Is the intelligence of unions commensurate with their powers? Or is it the case that union power is more like the wings of an eagle attached to a pigeon head? If the answer to the second question is affirmative, then one further question is posed, i.e., why then was the political wing of the Labor Party, which is now in government and having the expertise of knowing better about the dire economic effects of industrial unrest to the country nonetheless was unwilling to intervene promptly and decisively to block the irrational and pernicious claims of its industrial wing, which as a government of all Victorians—Premier Brack’s slogan—was committed in doing? Furthermore, why was the government’s immediate reaction to blame the Federal government’s industrial legislation for the ongoing industrial unrest instead of doing something that would have stifled the industrial dispute in its initial stages, for which it had prior knowledge, and using the subterfuge of an excuse that it was constrained by the legislation and could do nothing effective toward its resolution? Both the deputy leader of the government John Twaites and the Minister of Industrial Relations Monica Gould, used this feeble argument, when in fact with the return of the Premier from Davos  the latter forced the union involved in the dispute of the Yallourn power station to return back to work by imposing hefty fines upon its members, hence demonstrating that the government had the power to do something effective to resolve the dispute? Wasn’t it rather, the attempt to shift the blame to the federal legislation, a poor ruse, indeed, a camouflage, to cover its lack of will to intervene timely and decisively and derail the union from its “crashing” course? Yet, the belated action was effective, even if it was done halfheartedly. But what other alternative the government had, at the end of its honeymoon with the electorate, other than to send the stalled fire engines out to extinguish the full blown fire, if it was not to be seen, and impugned, in the electorates eyes, as politically effete and incompetent?

This is a basic characteristic, however, and an irreversible syndrome of Labor governments. To intervene in industrial disputes only when political necessity dictates, i.e., only when these disputes have reached a high point with the potential of harming the economy, and hence would be politically damaging. For organizational and ideological reasons Labor governments are not prone to intervene in the wrangles of their comrade-in-arms with employers, but do so only as a last resort.

This general inaction of Labor governments in industrial disputes is a result first, of a common ideology shared with the unions whose core emanates from the principles of socialism, and secondly, from its constitutional organizational structures that tie the political and industrial wings of the Party into a powerful body and into a compact of consensus that determines the functions of each wing. In conference after conference of the Party, the common and often repeated refrain is that Labor occupies the treasury benches only for the purpose of implementing policies which are discussed and ratified in state and federal conferences in whose conception the unions and its sundry representatives, mainly academics, have a major input. The union’s dominance is illustrated not only in the generation and formation of policies (Its architects generally are academics from the Left, whose intellectual frustration is at a boiling point because their ideas and policies cannot pass muster among other academic luminaries, but who do find a paradisiacal outlet for their “time-stopped” ideas, as well as an adulatory audience among their comrades in the unions, who normally cannot separate the wheat from the chaff of these ideas), but also on the conference floor as sixty percent of its delegates must be union representatives according to the Party’s constitution.

The larger and, especially, the more militant unions have such a firm grip in the election of delegates to Party forums, that even ministers and would-be premiers often cannot be elected to these meetings. Many ministers , therefore, who are unable to be elected to conferences on their own authority, resort to “begging” less militant unions to be placed in their delegations as constitutionally the unions have the authority to do so. Hence only as supplicants to the unions are ministers able to participate in conferences. For example, Jim Kennan, the Attorney General in the Cain Government, for many years was a delegate of the Clothing Trades Union. Likewise too, Steven Bracks, the current premier, was a delegate of the same union, who had taken Kennan’s place with the latter’s departure from politics. Other ministers who are not as fortunate to be union delegates attend conferences as visitors and observers without the right to move, or vote for, resolutions of the conference. Hence, ministers and many of their advisers are left out from the formulation and ratification of the Party’s policies. Such is the power and influence of unions in the organizational procedures of the Party, that often they cal “lock-out” important ministers who are not close to their ideological positions, from the highest policymaking bodies of the Party.

Moreover, the grip of the unions is extended to the pre-selection procedures of the candidates of the Party as well as in the choosing and changes of the parliamentary leadership, both in the state and federal domains. Who can forget for instance the telephone call that Paul Keating made, during his challenge of Bob Hawke, to Wally Curren, secretary of the Meat Workers Union asking him for his support in the coming challenge to Hawke for the leadership of the government? And Curren obliging, by forcing those MP’s from Victoria who owed their position in parliament to his patronage, to vote for Keating? This irritated Bob Hawke so much asking who Wally Curren was pretending thus ironically that he himself who had ousted and replaced Bill Hayden with union support was not cognizant of the influence trade union leaders have in pre-selections. As for the branches of the Party they play a superficial role in the pre-selection of candidates as they too in turn are influenced in their decisions by the organizational power of the unions.

Labor Politicians at the Mercy of Unions

Being therefore at the mercy of unions for their parliamentary positions and for the buttering of their bread, labor politicians, with some exceptions, are cast as toadies of the unions. Only the Federal Executive of the Party can intervene can intervene and save a ministerial or a backbencher’s scalp from the tomahawk of the unions. This occurred when John Halpenny, the Secretary of the Trades Hall Council in Victoria. were placed in the number one position on the senate ticket, with massive union support, in the 1988 federal election, relegating the leader of the Senate, John Button, to the second position. And in the election following the one in 1988, some of the left-wing unions were deliberating whether or not to place Gareth Evans, the Minister of Foreign Affairs, in the second position on the senate ticket. Only some sober heads at the last moment saved the glitterati Minister from the rusty and blood-stained tomahawk of the unions and from posthumous obloquy. (But the power of the Federal Executive is limited, as is illustrated in the present coming election of 2007 in the seat of Coreo, where the current seating member, Gavin O’Connor, is replaced by an assistant secretary of the ACTU (Australian Council of Trade Unions), against the wishes of the Executive.)

It’s for all the above reasons, this congeniality of interests between Labor governments and unions that prevents the former from acting timely and decisively in industrial disputes. And even when they do as a last resort they cannot be impartial in their involvement. The Brack government being captive to the unions has to cater to the latter’s voracious appetite on a number of issues: On the restoration of common law damages for injured workers, which has already being done by passing the relevant legislation in parliament, on the restitution of industrial policy back to the State Government, so the latter can abolish the industrial contracts of the Federal Government, whose aim is to eliminate union dominance in industry negotiations, and to replace them with collective bargaining, hence restoring union coercion and thuggery during negotiations with employers. On these issues and on many others, the Labor government is hamstrung by union power. Whether the former will be able to deliver on these issues will depend on the political climate of the day and on the degree of resonance such a delivery will have upon the electorate.

Steve Brack’s therefore, like a trapeze artist, has to walk on a tight rope whose one end is held by the unions and the other by the community, and perform his balancing act. While gratifying the union claims, with potentially destructive consequences to the economy of the State, at the same time he has to keep its economic robustness, inherited from his liberal predecessor, Jeff Kennet, intact, hence erasing any fears or consternations the community might have about the new industrial course of his government.

It’s with this purpose in mind to win the confidence of Victorians and of some naïve employers that Steve Bracks lately set up a new stage with an old play. His government lacking any originality or lateral thinking in policymaking ransacked the ram shackled spider web storehouse of past Labor policies to bring out the nostrums of “old age”. The summit of “Growing Victoria Together”, chaired by that scion of Labor power, Bob Hawke, was such a nostrum. Imbibing a strong dose of self-deception, Bracks was hopeful that by attracting some old and new celebrities from the industrial club and from business to the summit the public would be hoodwinked and believe that something substantial would come from the coupling of these celebrities. What in fact happened, was that each spokesperson of this divided house of unions and employers, voiced plaintively their complaints and grievances against each other with the result that they were not able to reach an agreement as to how and by what prudent set of actions, they would carry out the growth of Victoria. The rhetorical statement at the end of the summit, spun by the golden threads of the cerebral and literary qualities of Bob Hawke and his wife, respectively, could hardly hide the practical hollowness of the summit. What the latter did was to set up a number of committees to look at a number of issues.  Such as education and training, investment in training, industrial relations, health and wellbeing indicators to measure performance in meeting social goals, infrastructure, the impact of payroll tax on job and wealth creation , and the audit of government services in country communities. It also set up an advisory body to strengthen community input, oblivious of the fact, that while the latter is important it is not a substitute for political leadership. Forgetful also of the fact that the achievement of this laudable “prospectus”, is absolutely dependent on calm industrial relations. And therefore cannot be achieved while the agitated firebrand steam of the unions continues unabated.

Hence, the mountain (the summit) has brought forth a mouse which is at the mercy of the cat’s paws, the unions. Furthermore, as so many of the issues are to be shoved to committees, whose members are deeply divided on the central issue of industrial relations, they are inevitably going to be dealt with in a banal hackneyed manner, since their members will be unable to reach a mutual agreement on the key issue of industrial relations. Hence the summit’s “debris-deliberations” will be proven to be a barren exercise.

 The Bracks’ government by its farcical and enervating stand toward the unions and by its populist stand toward the public threatens to throw Victoria into the doldrums as well as empty the coffers of the treasury. This is not a government of substance but a government of images—the images of a dead past. But funeral rites for dead images can be very expensive to the general community, both in terms of tax increases and unemployment.