Posted by: michaeldavidpower | September 13, 2009

From One Down Under to Another

Last week I went through Sydney and Melbourne in a whirlwind of 18 hour days. As always, I learned much even as I shared my views in one-on-ones, lunches, large set piece events, with the Press and on TV.

Australia thoroughly impressed me, though the complacency of some of its politicians – no doubt they have been lulled into a false sense of security in the face of the burgeoning largesse coming the way of what surely is the world’s luckiest country – at times beggars belief. Below are various thoughts, neither that connected or in any way ordered that struck me along the way:

  • Australia, for all its wide open spaces, has to be one of the most “urbanized” countries on the planet. I mean this not so much literally – even though the literal observation applies too with 80%+ of the population living in the Boomerang Strip from Brisbane along the coast to Sydney, Melbourne and around to Adelaide – so much as in the way most Australians think.  Where most Aussies do not live is the Outback, a place largely disconnected from the mainstream Aussie psyche, celebrated in the likes of the Man from Snowy River yet barely even acknowledged  in today’s world. Yet it is in the Outback – in the coal mines of Queensland and the iron ore pits of the Pilbara – that the financial future of this STILL (see below!) wonderful country is being secured.
  • Australia is a lot more socialized than I realised, again especially in the urban areas. Indeed except for the free-wheeling atmosphere of the mining, agriculture and perhaps tourism sectors, one regularly gets a whiff of socialism.
  • The financial sector is both relatively closed to outsiders and so, perhaps because of this, surprisingly concentrated. The “Who’s Who” in finance is a short list where everyone seems to know each other. For a newcomer to break into this ‘closed shop’ will take both enormous effort and much time.
  • Australians are wont to use their perceived remoteness as an excuse to stay remote. Indeed I think Australia is often more remote from the world than the world is from Australia. The award-winning ad campaign for Qantas has, as its tag line, “I STILL call Australia home” (my emphasis). It seems to be directed at globe-trotting Aussies who often dally abroad seeking experience in the likes of London. Notwithstanding this, apparently such wanderers “STILL call Australia home”. So why that hesitant “still”? Why on earth, given the wonderful country that Australia is, would they be tempted to call anywhere else “home”? What is with this deep-seated insecurity of knowing where to belong and in turn feel “belonged”?
  • Remark by Saul Eslake, a leading Australian Economist, made in Melbourne: “Australia must avoid becoming the Argentina of the 21st Century.” So true: if the Peronistas increasingly evident in the Australian political scene have their way, it will be Hooroo, Sydney, G’day BA before 2100.
  • Remark made to me by an Australian unhappy with Australia’s increasing alignment with China: “Australia has been shanghaied to Shanghai.”
  • Personal insight: Geoffrey Blainey once wrote of Australia being defined by the “Tyranny of Distance“. Perhaps he wrote too soon: with the centre of economic gravity moving to the East Asian time zone, it is others (Brazil’s Vale in the trade of iron ore perhaps?) that are now being subjected to this tyranny.
  • Personal Insight: Australia’s problems – such as they are – are the problems of success and not failure. And in large part they reflect the fact that the consuming mouth of the Australian body politic does not seem to understand – nor want to understand – the productive muscle of the country. At the moment, the urbanized south East is on the take, take, take even as the politicians celebrate their (largely non-existent) role in the make, make, make of the north east and north west of the country. If only the Mandarin-speaking Premier could announce that, for instance, given that the country stands to make an enormous bundle out of the Gorgon LNG project of the NW Shelf that, in return, the government was prepared to spend even 10% of the income on infrastructure that would support its generation. Australia – like so many resource rich countries – seems to be cursed with too many barnyard animals who have a thousand ideas as to how to divide and of course consume the cake now being baked and hardly any Little Red Hens that are prepared to help bake that cake in the first place.
  • Personal Insight: Will Chinese investment in Australian – and other – resource projects – boost output and so depress the price? And are the Chinese moving beyond strategic stockpiling of the mineral product mined to the “strategic stockpiling” of the mines that produce the product in the first place? And are the Chinese buying into smaller Aussie miners – be they short of capital but with bankable prospects (especially in iron ore and uranium) or long on prospecting rights – so that they can get in under the radar screen of Australia’s Foreign Investment Review Board? Could these partial acquisitions yet become the Trojan Horses which, in future, will be used to buy bigger chunks of the Australian mining scene using as cover the fact that these acquirers will be “Aussie”?

Various other thoughts – not particularly Aussie – arising during the week:

  • How the Chinese see the current crisis: “The US spends tomorrow’s money today…We Chinese spend today’s money tomorrow. That’s why we have this financial crisis.” Cheng Siwei, Vice chairman of the Standing Committee of the National People’s Congress.
  • Great quote from Paul Krugman in the New York Times in his critique of the current sorry state of economics: “The Economic Profession went astray because economists, as a group. mistook beauty, clad in impressive looking mathematics, for truth.” But Krugman failed to answer the question he set himself of “Quo Vadis Economics?”. Also by failing to acknowledge the growing acceptance of Austrian views in economics – which can be (badly) summed up as recommending that the best way through an economic crisis is to leave an economy to its own self-correcting devices (perhaps this would happen though this advice is simply not practicable within a democracy) – he cuts himself  off from certain ‘tough love’ solutions that may yet recommend themselves to the US predicament  Though Austrian if not always classified as “an Austrian” in economics, Schumpeter wrote the following:

“This economic system cannot do without the ultima ratio of the complete destruction of those existences which are irretrievably associated with the hopelessly unadapted.” “Creative destruction” means the disappearance of “those firms which are unfit to live”.

It may be harsh but that need not prevent it from containing truth. Increasingly the US is becoming a society that anesthetizes economic pain without allowing real growth. In the US jobs market, the only material sector to add jobs in the last decade is the PUBLIC SECTOR!

Consider the following question:

Between 1999 and 2009, which country generated most private sector jobs: the US (population 307m) or Canada (population 34m)? Answer: Canada, which generated 1.5m private sector jobs as against the US’s 550,000.

  • Sun Tzu Quote “Tactics without strategy is the noise before defeat”. This caught my eye and made me think of equating over-reliance on short termism in our industry as case of too much tactics and not enough strategy. I think this criticism is particularly appropriate in a world where the paradigm is shifting from West to East.
  • Watching the circus that has become the debate over health care reform in the US brought to mind the Latin phrase – Panem et Circenses (bread and circuses). It comes from Juvenal’s Satire X (c200 AD) and was written after the death of the last of the Five Great Emperors in Rome, Marcus Aurelius, in 180 AD. (The film Gladiator very very roughly charts the start of the decline under Commodus.) The translated quote is: Already long ago, from when we sold our vote to no man, the People have abdicated our duties; for the People who once upon a time handed out military command, high civil office, legions — everything, now restrains itself and anxiously hopes for just two things: bread and circuses.

Juvenal is referring to the Roman practice of firstly providing free wheat to Roman citizens and secondly circuses. They were the most common and blatant populist methods of achieving  political power. Gaius Sempronius Gracchus introduced the grain ration or Annona in 123 BC.

The US health care debate has degenerated into a pit where it is doling out ‘bread’ and has become a circus. Obama – for all his rhetorical flourish and good intentions – may be spending money he does not have. Whilst I favour universal healthcare in countries that can afford it, I fear Obama is trying to create – with his public option – a Fannie Mae for healthcare. And we know where that ended!

Even the Great Obama should remember the following advice and observations of former US Presidents:

“When the people find they can vote themselves money, that will herald the end of the republic.” Benjamin Franklin

“Blessed are the young, for they shall inherit the National Debt.” Herbert Hoover

“Government’s view of the economy could be summed up in a few short phrases. If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” Ronald Reagan

Above all, as the Bard counselled:

“Borrowing dulls the edge of husbandry”. (Hamlet)

  • In his masterwork, 1984, George Orwell predicted democratic politicians would, in an attempt to remain popular, eventually debase (if not currencies as did the Romans, though surely they are doing this too) the language. Hence the double irony: In Maryland, those who must depend on the State for food receive “Independence Cards” to keep a record of their food hand-outs.
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