In the absence of traditional naval warfare, the rationale for maintaining large naval forces has rested largely on the idea that trade routes must be maintained. Most of the time this argument has relied on an analogue of Lisa Simpson’s tiger-repelling rock — the claim that the very existence of large navies is the reason trade flows so smoothly.

Now, however, the catastrophe in Gaza has spilled over into a conflict in the Red Sea. The Houthi rebel movement in Yemen, backed by Iran and opposed to the United States and Israel, has begun attacking ships in the Red Sea, deterring many from travelling through the Suez Canal. One estimate puts the fall in traffic at 30 per cent.

Despite the claims of naval advocates, the Houthis were not deterred by the presence of the large naval force set up to counter them. Combined Task Force-153 was established in 2022 by the Combined Maritime Forces in the Middle East to “specifically address maritime threats in the Red Sea and the Gulf of Aden.” News reports speculated that the goal of the task force was to counter the Houthi threat.

Evidently, this goal was not achieved. After unsuccessfully attacking Israel itself (in response to the invasion of Gaza, which in turn responded to the Hamas terror attacks, which in turn…), the Houthis began attacking Israeli-owned ships in November, and have since steadily increased their range of targets to include most commercial shipping.

The United States and Britain have responded with an impressive expansion of their naval forces, including a carrier strike group, Typhoon fighter jets and submarine-launched cruise missiles. Houthi drones have been downed and Houthi bases and military launch sites targeted with air strikes.

The effectiveness of this response remains to be seen. In the absence of ground forces, air strikes have rarely compelled an adversary to surrender. And the last attempt to keep the Suez Canal open by force, undertaken by Britain, France and Israel in 1956, ended in a humiliating fiasco which produced the opposite of its intended outcome.

But let’s suppose that the continued presence of this naval force is sufficient to deter or destroy Houthi attackers and allow normal shipping to be maintained. Is this benefit sufficient to justify the required expenditure on naval forces?

If the United States decided not to maintain the forces necessary for an operation of this kind, it could save the cost of one of its eleven carrier battle groups. With a naval budget of US$220 billion a year, that would be a saving of US$20 billion a year.

But what if the canal remained closed? When a land or air route is interrupted by armed conflict, the usual response is to take a longer way around. (The tragic consequences of not doing so were illustrated by the destruction of Malaysia Airlines flight MH17 over Ukraine in 2014.)

In the case of the Suez Canal and the Red Sea, the long way around is via the Cape of Good Hope, an extra distance of around 2000 nautical miles (or about 15 per cent) in the distance from Europe to Asia. About 12 per cent of world trade normally uses the canal, so the average shipping time for all goods would rise by around 2 per cent if the canal were closed. Even for traded goods, shipping costs are only about 7 per cent of the final price, so any impact on global inflation would be imperceptible.

We can look more directly at the costs by considering estimates that the cost of a round trip from Europe to Asia would increase by “up to” US$1 million. With about 8500 round trips per year, that’s a cost of at most US$8.5 billion. On that figure, even if the threat posed by the Houthis remains indefinitely and the current force manages to keep shipping flowing, the costs to the United States would far outweigh the benefit to global shipping.

But is protecting the shortest routes for global shipping so crucial an objective that it can’t be compromised, regardless of costs? It’s worth considering some alternatives.

Protecting global shipping is a form of foreign aid. For the cost of a carrier battle group the United States could nearly double its entire overseas development aid budget, saving many millions of lives. Alternatively, the money could be spent at home, for example on repairs to America’s crumbling transport infrastructure system or on making its schools safe for children to attend.

At least the United States is big enough and rich enough to afford an annual US$20 billion subsidy to the shipping industry. The same can’t be said for Britain, a smaller and poorer country experiencing a public sector crisis. Role-playing as a global maritime power is an exercise in imperial nostalgia Britain can scarcely afford.

Similar points apply to Australia, where we have spent around $500 billion this century on our navy, largely justified by the supposed need to protect vital shipping routes. We would be better off spending much of this money on improving our domestic transport system or meeting vital social needs in health and education.

More generally, the only use of military and naval force that should be treated as unquestionably necessary is self-defence against invasion. All the other supposed benefits — creating jobs, projecting power and protecting trade routes — should be subject to the same cost–benefit test as other expenditure. Many, perhaps most, military expenditures would fail that test. •

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It is the eighth annual China Auto Forum, in April 2019, and a mere three months after the US electric car company Tesla began constructing a factory in Shanghai. The focus is on the transformation of an industry that is turning towards electrification. The executives are aware that what Wan says here can change the fortunes of their companies.

Many have tried to create a mass market for electric vehicles over the past 140 years, but all have failed. The widely held belief is that if anyone can succeed, it will be Elon Musk, the eccentric, ambitious and obscenely wealthy CEO of Tesla. But when the history of electric vehicles is written, it might be Wan Gang who will stand tallest.

The Musk–Tesla story is lore. Founded in 2003 by Martin Eberhard and Marc Tarpenning in Silicon Valley, Tesla struggled to get off the ground. Elon Musk, who had become wealthy on the back of startups like PayPal, began investing in the company in 2004 and took an active role in product design. After Eberhard was ousted following internal conflicts, Musk took over as CEO in 2008 just after the company began selling its first model, the Roadster.

Tesla sold about 2500 units of the electric sports car, but Musk’s stated goal was to make a mass-market electric vehicle. With every iteration, the car models got cheaper and sales grew — turning Tesla into the world’s most recognisable electric car brand and the world’s most valuable car maker. As of 2022, the company was selling more than 1 million cars annually. Still, the cheapest Model 3 — one that Musk promised would be the affordable car — costs well above US$35,000.

Wan Gang’s story is mostly unknown. His rise in the electric vehicle world started at about the same time as Musk’s. The car engineer by training was appointed China’s minister of science and technology in 2007. In the country’s top-down economic system, Wan’s policies incentivised the creation of hundreds of Chinese companies tied to making electric vehicles. The country now sells more than six million electric vehicles each year. That includes not just expensive cars but the complete range, with the cheapest selling for less than US$10,000.

Wan’s policies have also created some of the world’s largest and most valuable companies selling electric vehicles and lithium ion batteries. And the choices he has influenced haven’t only affected already established Chinese car companies; all big car manufacturers in the world for whom the largest market remains China have been affected.

While Musk fought Wall Street’s scepticism and benefited from waves of government subsidies to keep Tesla afloat through turbulent periods, Wan has shown how policy done right can drive technological disruption not just in China but worldwide. Both men are at the forefront of the global project to propel the world from the current economic age into the next — yet it is the lesser known of the two who has had the bigger impact.

In the mid 1960s teenager Wan found himself in the middle of a violent disruption of Chinese society. Mao Zedong’s Cultural Revolution pitted rich against poor and urban elites against rural commoners. The Red Guard, a paramilitary force controlled by Mao, subjected those in the higher classes of society, such as Wan’s family, to humiliation, beatings and persecution. The Communist Party shuttered universities and sent students to villages for “re-education.” That’s how Wan, a city kid from Shanghai, found himself in Dongguo, a village in Jilin province near the North Korean border, working with other city teenagers to build basic infrastructure.

His work ethic caught the attention of local party members, and in 1974 he was unanimously elected as a team leader. Worried that because his parents were counter-revolutionaries he shouldn’t have been promoted, Wan spoke to the head of the local party branch. “Keep at it,” he recalled being told. “One day your parents will be heroes again.”

After Mao’s death, in 1976, universities were reopened and Wan studied physics at Northeast Forestry University in Harbin and then mechanical engineering at Tongji University in Shanghai, one of China’s most prestigious educational institutions. He excelled there and won a scholarship from the World Bank to pursue a PhD in Germany. For his doctorate at the Clausthal University of Technology he studied ways to reduce the noise made by internal combustion engines — the type of engine that powers all fossil fuel vehicles in the world.

In hindsight, his decision to study cutting-edge automotive engineering in Germany was perfectly timed. Following the oil crises of the 1970s, the global car industry was undergoing a period of major change. The German car industry wanted to stay ahead of growing competition from the United States and Japan, and was crying out for engineers like Wan.

He received job offers from six car companies, from Volkswagen to Mercedes. In 1991 he chose to join Audi, the smallest of the German majors at the time, reasoning that it presented him with the greatest opportunity to rise through the ranks.

Wan began in Audi’s car development division, helping to solve technical issues in design and manufacturing. After five years he realised that in order to climb the corporate ladder at Audi, engineers had to show success in more than one department. He duly moved to production, where he focused on car paint and was soon made head of a division with more than 2000 employees.

To effectively manage them all, he deployed techniques he had learned during his years in Dongguo. On an employee’s birthday, for example, he would carry two bottles of beer to the workshop floor and spend time getting to know them. The effort paid off, and Audi eventually promoted him to its central planning division, giving him oversight of a manufacturing process that produced a car every sixty seconds.

Wan also kept a keen eye on his home country. Deng Xiaoping, who took over as the country’s leader after Mao’s death in 1976, called the Cultural Revolution a “grave blunder.” In the late 1980s he set about reforming China’s economy, including the country’s almost non-existent car industry. He welcomed foreign companies — for example Germany’s Volkswagen and France’s Peugeot and Citroën — to build factories in joint ventures with domestic players. If foreign companies were worried that their Chinese partners would steal their technology, it seemed like a cost worth paying for access to the country’s vast untapped market.

By the 1990s the Audi brand had become a favourite of China’s elite; government officials were often seen being chauffeured around in black Audi saloons. As one of the car maker’s top Chinese-born executives, Wan led many company visits to China, at a time when the country’s car industry was expanding.

On these visits he noticed how the industry’s rapid growth was increasing air pollution and exacerbating China’s reliance on oil imports. If his home country was to go the way of its Western counterparts, as its leaders hoped, then these problems would become intractable. At the beginning of the twenty-first century China was consuming one barrel of oil per person per year, whereas in Germany the figure was twelve and in the United States it was twenty.

Wan wanted his fellow Chinese to have the quality of life he enjoyed as an immigrant in Germany, but given China’s large population, he realised that this might not be possible. It was quite likely that the country couldn’t afford the bill from importing all the oil, even if that much oil could be extracted somewhere, which itself wasn’t guaranteed. Fossil fuels are finite. The way out was to develop cars that could be powered by something other than oil.

In 2000 Wan got a chance to share his ideas with Chinese government leaders. Zhu Lilan, the country’s science minister at the time, visited Audi’s headquarters and factory in Ingolstadt, Germany. During the trip — designed to showcase what state-of-the-art car makers look like — he proposed to her that, rather than continuing to tinker with the internal combustion engine, China could leapfrog the West by using a completely different technology.

At the time, the United States produced some fifteen million cars each year while China produced only 700,000. But international car companies like BMW, General Motors and Toyota were starting to work on electric cars — powered by batteries or hydrogen — that produced no particulate pollution and reduced the amount of greenhouse gas emissions. And Wan was convinced this form of transport would be the future of the passenger car. If China were to become a leader in electric cars within the next decade or two, Wan told Zhu, the country could become the electric car hub of the world.

Zhu invited Wan to come back to China and make his case to the State Council, the country’s highest ruling body. Wan knew that if he succeeded then he could alter China’s history. He found support from Li Lanqing, then vice-premier of China, who in 1952 had started China’s first major homegrown car maker, First Automobile Works. Chinese cities were starting to struggle with the problem of smog. But more importantly, if Wan was right, China could become a technology leader and avoid the humiliation of having to rely on Western countries to bring modernity to its people.

A few months later Wan moved back to China. Under the auspices of Tongji University, which gave him a professorship, he began working as the lead scientist on a secret government program for advanced vehicle technologies. Along the way he played a key role in convincing important members of the State Council to set up policies that would encourage the development of alternative fuel transport, and in 2009 he launched a new- energy vehicle program that would reshape China’s car industry.

Wan’s political acumen was essential. “The automobile’s importance to growth, trade, innovation, military technology, and the environment is, for practical purposes, immeasurable. The industry is a point of national pride,” wrote Levi Tillemann in The Great Race in 2015. “Since the time of Henry Ford, no automobile industry in the world has ever become internationally competitive without that kind of government intervention.”

In the 1930s the US government paid for the construction of more than 100,000 miles of roads under President Franklin D. Roosevelt’s New Deal. It later set up research programs to push for more fuel-efficient engines and established improved safety regulations. In the same decade the Japanese government provided cheap loans to domestic car makers, funded technology programs and undermined US players through tariffs to protect domestic companies. In other words, China’s industrial policy approach, which would rely on subsidies and regulations, was a tried-and-tested method to boost the car industry.

Wan’s plans were bigger still. The car makers he would unleash wouldn’t just serve Chinese customers but would make the sorts of cars that would dominate the future of the car industry — by throwing away internal combustion engines and placing all the country’s bets on zero-emissions transportation.

Wan’s appointment as China’s minister of science and technology came one year before China was due to hold the 2008 Olympics in Beijing. An image-conscious Communist Party spared no expense to show off what it was capable of. This would be the first “green” Olympics, the party declared, as it announced the closure of coal-fired power stations and factories for weeks, returning blue skies to the smog-choked capital. It also promised to plant enough trees to offset the emissions caused by athletes’ air travel.

Wan had been on a deadline ever since being put in charge of China’s advanced vehicle program back in 2000: to produce electric buses and cars in time for the 2008 Olympics. It wasn’t the first time electric vehicles had been launched at an Olympics. BMW had produced two prototype lead-acid battery-powered electric cars for the 1972 games in Munich. But China’s plan was far more ambitious: to have 1000 electric buses and cars ready for the Beijing games.

By 2007 Wan Gang had many research institutes and industrial partners, including state-owned car makers BAIC, SAIC, Dongfeng and Chery, working on the project. But China still hadn’t mastered the technologies required to make effective electric vehicles: efficient motors powered by advanced batteries and controlled by sophisticated software. Though it had produced and even successfully tested prototypes, China did not possess the manufacturing capability to make 1000 such vehicles. Rather than admit defeat, the government scaled back its ambitions; a BAIC subsidiary would produce fifty electric buses and Chery would make fifty hybrid electric cars.

Chery had to hire Ricardo, a British engineering consultancy, to help meet the deadline, according to Levi Tillemann’s research. After many long hours the new team had developed a system, which could be bolted on to the Chery A5, a compact car, that allowed it to automatically switch between a petrol-powered engine and an electric motor.

But work on the computer algorithms that enabled the switching had begun late in the process. That meant Chery had to specifically train drivers for the hybrids who could manually switch between electric and internal combustion engine modes. The BAIC buses seemed to work well but were retired within three years because their batteries quickly degraded.

None of this came out during the Olympics, and the spectacle had the world enthralled. “Blockbuster,” wrote the New York Times. “Astonishing,” wrote the Guardian. “The world may never witness a ceremony of the magnitude and ingenuity,” said the Sydney Morning Herald.

After the Olympians went home, the industries restarted and restrictions on car use were lifted. Unsurprisingly, smog returned to Beijing. Within months, in 2009, China overtook the United States as the world’s largest market for cars, selling thirteen million gas-guzzlers. That meant even more particulate pollution — tiny particles capable of entering the human bloodstream and leading to breathing problems. The pollution can cause cancer or stroke, and the higher the number of particles belched out, the greater the harm caused.

The Chinese leadership could see the problem from the windows of its Beijing offices. That is why, even though China’s electric vehicle industry was clearly lagging, the government’s support for Wan’s ideas to electrify transport did not wane.

Despite the disappointing delivery of electric vehicles at the Beijing Olympics, Wan was able to get approval for a bigger rollout of new-energy vehicles with a hefty subsidy for each new car purchased. The bet was technology neutral, encouraging car makers to make battery-powered cars, plug-in hybrids (large battery and a combustion engine), and fuel-cell cars (consuming hydrogen fuel to produce only water as exhaust).

The program aimed to sell 1000 new-energy vehicles in each of the ten largest Chinese cities by 2012, and the government was prepared to provide as much as US$10,000 per car in direct subsidies to incentivise people to buy them. It would also give indirect subsidies to car companies and battery makers in the form of tax cuts and cheap land for factories. The government bill for all that ran into the billions of dollars.

With continued support, the plan eventually began to work. BYD, a Shenzhen-based battery company, launched the plug-in hybrid F3DM — it looked like a carbon copy of the Toyota Corolla — months after the 2008 Olympics. Thanks to the subsidies, there were 10,000 of them on China’s roads by 2011.

Even as electric vehicles began appearing on the streets of Chinese cities, the number of fossil fuel cars sold in China continued to increase. In 2012 the country sold fifteen million passenger cars. Predictably, pollution worsened, and the figures were available for all to see with the government beginning to openly share air-quality data.

Publication of these figures was a surprise. It would almost certainly make the government look bad. But it was a calculated move. In 2014 China’s Premier Li Keqiang used the data as the basis for a declaration of war against pollution at the annual gathering of the National People’s Congress.

The government had provided a carrot, in the form of direct and indirect subsidies for electric vehicle makers. Now it had a stick. Wan Gang’s ministry was directed to work with local governments to introduce regulations to control the number of new cars on the roads each year. If city residents wanted a licence plate for a fossil fuel car, they needed to either enter a lottery or bid in an auction. Sometimes the amount they would have to pay for the new licence was higher than the cost of the car itself. For new-energy vehicles, it was first come, first served.

In 2011 the country sold about 1000 battery-powered cars and plug-in hybrids. By 2022 that number stood at nearly seven million and China had become the world’s biggest market for electric vehicles. In some years, the annual rate of growth was 300 per cent. As a fraction of all cars sold, electric vehicles now make up more than 25 per cent of total sales — a figure that is already higher than the government target of 20 per cent for 2025 sales. It’s clear the future of cars in China is electric, and the country’s push has accelerated the electrification of transport globally.

In 2018 Wang Zhigang succeeded Wan Gang as minister of science and technology. Since then Wan has remained a key player in the country’s electrification efforts, but his impact was clear even before he left his government job. Between 2009 and 2017 the Chinese government spent more than US$60 billion on electric cars, according to a study from the Center for Strategic and International Studies. To put that figure in perspective, it is more than the market cap of General Motors, which produces some eight million cars each year.

Wan’s push also created industrial jewels such as BYD, the world’s largest maker of electric vehicles, which counts Warren Buffett as one of its biggest shareholders. It doesn’t just sell electric cars around the world; it also sells electric buses. It operates electric bus factories in California and Ontario that have the capacity to build more than 1000 buses each year.

In that sense, the money the Communist Party spent has already paid dividends. Today, China doesn’t just have factories that can produce electric cars; it has an entire supply chain, from the globally mined metals that are used to make batteries to the complex software installed in electric cars. Crucially, the country also has people who can run every level of the supply chain. Though most of this talent is domestic, many Chinese electric car firms are now wealthy enough to poach staff from international companies.

Other countries are trying to play catch-up. The Inflation Reduction Act of 2022 — the largest injection of cash from a US government in climate-oriented investments — includes some US$100 billion worth of incentives for electrification of transport in the United States. Similarly, bullish plans for electric vehicles have been hatched in Europe, where strict emissions criteria have forced car makers to pivot to selling only electric vehicles within the next decade.

During Wan’s time as China’s minister of science and technology, all the countries in the world signed the 2015 Paris agreement. Electric cars are a crucial climate solution, and China has shown it is possible to scale the technology quickly. That’s led to many countries banning the sale of new fossil fuel cars by 2040 or earlier. Markets covering more than 20 per cent of car sales globally now have a mandate to fully phase out internal combustion engine vehicles.

What Wan Gang, with China’s backing, has shown is that succeeding in scaling a green technology requires supportive government policies, substantial public and private investment, and empowering entrepreneurs. Done right, it can also give a country a commanding technological lead over the rest of the world. For “climate capitalism” to work, all three are required to ensure technologies can scale within a few decades to get the world to zero emissions. •

This is an edited extract from Akshat Rathi’s Climate Capitalism: Winning the Global Race to Zero Emissions, released in Australia this month.

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What did catch their attention was the government’s cagey response when it was questioned about the decision. The 2020 stripsearch of Australian passengers in Doha cracked a mention, and there was vague talk about decarbonisation targets.

When transport minister Catherine King did finally admit that the decision had all been about defending national markets, the next question was obvious: why the initial obfuscation?

One explanation is that the government was alert to political sensitivities. The obvious beneficiary of its decision to block Qatar is Qantas, an airline that no longer attracts the national affection it once did. Revealing the real reason for the decision would have raised the question of how Qantas manages to get its way so often, despite growing resentment in the electorate. And pretty soon the talk would have turned to lobbying.

Coincidentally, Qantas’s Chairman’s Lounge — the airline’s network of free luxury lounges for handpicked chief executives, judges, politicians and senior bureaucrats — has been the subject of critical comment in the Australian Financial Review this month. The paper reported that Nathan Albanese, the prime minister’s twenty-three-year-old son, was among those entitled to enjoy the Lounge’s benefits, which include food, drink and business facilities in pleasant, secluded locations at most Australian capital city airports.

Singling out one Lounge member might have been unfair, but it did raise an important question: should politicians be accepting a gift of such value from a government-regulated company? Blocking Qatar’s expansion into Australia harms both consumers and Qantas’s domestic rival Virgin Australia, which has been denied the additional passengers Qatar Airways would have fed into its routes. All of the cabinet members who made that decision have been offered — and we know have accepted — membership of an exclusive club.

The fact that key politicians list their Chairman’s Lounge membership in parliament’s register of members’ interests — usually alongside their free Foxtel subscription — doesn’t make it right. Lawmakers (and their spouses and other family members) are receiving the equivalent of thousands of dollars from an Australian company that benefits directly from their decisions. The register’s limited transparency doesn’t change that.

And it’s not just about Qantas. Among the gifts declared by federal parliamentarians are memberships of their local RSL or racing clubs and tickets to concerts and high-profile sports events. The quid pro quo may not be clear, but it’s there — if not, who would bother? It may be that businesses are out to buy access, or simply to promote an event by luring well-known faces into the audience. Either way, they want something.

Whatever the motivation, the quo being bought by the sponsor’s quid isn’t the politicians’ to give. Their reputations, their influence and any executive power they wield is res publica — a public thing. It belongs to the Australian state and, by implication, to the Australian people.

But there’s a second reason why membership of the Qantas Chairman’s Lounge is a concern: it comes against a backdrop of a transparency regime that is miles behind those of other Western democracies.

While the European Union’s transparency arrangements aren’t perfect, at least journalists and other outsiders can broadly sketch out what lobbyists are up to. For example, we know that EU competition commissioner Margrethe Vestager met with Amazon on 21 June to discuss artificial intelligence, and that Meta had discussed digital-platform regulation with her a couple of days earlier. It’s all logged and readily accessible; and only registered lobbyists are allowed to book a meeting.

Ireland’s mandatory lobbying register goes even further. Any contact between politicians or public servants and company lobbyists has to be reported — by the company. Even a chance meeting in the aisles of a supermarket needs to be logged. A few clicks of your mouse will reveal the dates meetings occurred, who was there, and what was discussed.

Here in Australia we only know that Qatar Airways enlisted Australian lobbying firm GRACosway on 27 July because the airline, owned by the Qatari state, has to report its movements to Australia’s foreign influence register. Yet Qatar Airways doesn’t appear among GRACosway’s clients on the separate lobbyist register.

There’s simply no way to find out what contact there has been between lobbyists and government officials; meetings aren’t made public and it’s impossible to know what was discussed. The names of the lobbyists engaging on specific issues aren’t disclosed.

The lobbyist register does tell us that Qantas uses SEC Newgate, a firm with registered lobbyists that include an adviser who worked in Albanese’s office between May 2022 and March 2023. But we don’t know what meetings were held between the firm and government decision-makers in the lead-up to the Qatar Airways decision, or who attended those meetings.

This Wild West of lobbying means that an invitation-only club that counts most federal politicians as member becomes an opportunity for access — access that’s ultimately controlled by the chairman of Qantas, who issues the invitations. Any lobbyist or company executive lucky enough to have a membership in his or her pocket can easily find a way to bump into decision-makers while the warm face washers are being handed out or have a chat while queuing up for the hors d’oeuvres.

Managing this kind of access to our elected representatives is a remarkable amount of power for the Australian state to hand over to a business — a business that stands to gain from policy settings put in place by the lawmakers who accept its hospitality. The government’s decision to stymie Qatar Airways’ Australian expansion may well have been justified, but it has been tarnished by an institutional lack of transparency and the conflicts of interest underpinning Australia’s political classes. •

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A closer look reveals grounds for optimism in relation to coal, the most polluting of all carbon-based fuels. With the important exception of China, construction of coal-fired power stations has virtually ceased. Coal-fired power is already in decline in most developed countries, notably including the United States. The brief bounce in Europe following the closing of Russian gas pipelines has already ended.

According to the International Energy Agency, solar PV and wind are meeting nearly all of the growth in global electricity demand. Solar cell production is expected to increase, as is the installation of wind power following Europe’s removal of a variety of planning restrictions.

If new solar PV and wind supply more electricity at zero marginal cost than is needed to meet increased demand, they will inevitably displace coal and gas generation. Existing plants must either run at lower capacity or else be scrapped. Since China is pushing ahead fast on solar PV, it is likely that many of the coal plants being constructed at the moment will become stranded assets.

All this suggests that global carbon dioxide emissions from electricity generation will peak soon. But electricity accounts for only around a third of all carbon dioxide emissions. Transport’s energy transition is much less advanced, and that’s particularly the case with cars. The vast majority of cars on the road rely on internal combustion engines.

Demand for road travel and for motor vehicles certainly dropped sharply during the lockdown phase of the pandemic. As with most other things, though, demand bounced back as restrictions were lifted.

But this bounce obscured the fact that sales of internal-combustion vehicles had peaked even before the pandemic. A study by Bloomberg found that sales of petrol- and diesel-fuelled cars (including sales of traditional hybrids like the Toyota Prius) peaked at eighty-six million units in 2017, a year in which only one million battery-electric and plug-in hybrid vehicles were sold.

In 2022, by contrast, sales of internal-combustion vehicles fell to sixty-nine million but plug-in hybrids and battery electrics rose about ten million. With the cost of batteries falling steadily and more models coming on to the market, these trends are unlikely to reverse. Importantly, and unlike coal-fired power, China has been a leader in the transition to electric vehicles, which have already captured more than a quarter of the market there.

Declining sales of internal-combustion vehicles don’t translate immediately into a smaller number on the road. This will only happen when the number of new cars falls below the number being scrapped. Most of the cars being retired now were built ten to twenty years ago, when sales were still rising. It’s for this reason that Bloomberg estimates the number of internal-combustion vehicles on the road to remain roughly constant for the next few years before starting to decline in earnest from 2026 onwards.

Defenders of the internal-combustion engine point to a variety of obstacles to a rapid transition. The most notable are the higher initial cost of electric vehicles and the limited availability of charging stations. Neither of these objections stand up to scrutiny.

The lifetime cost of an electric vehicle, taking account of lower maintenance and running costs, is already below that of comparable internal-combustion vehicles. And, with battery prices falling, the initial cost differential is also declining.

As for charging, the technology is far less complex than the process of fuelling an internal-combustion vehicle. Electric vehicles don’t require the elaborate chain from oil wells to refineries to specially constructed service stations.

The simplest solution, for most users, will be to charge overnight at home or during the day at a parking lot or parking garage. Plug-in hybrids can be charged overnight with an ordinary trickle charger. A normal home EV charging station, sufficient to charge a fully electric vehicle overnight, will cost between $1000 and $3000.

Rapid charging at service stations is also technologically simple, even if somewhat more expensive. The availability of such stations will readily increase in line with the growth in the electric vehicle fleet.

Against this background, US president Joe Biden’s new target — electric vehicles making up 50 per cent of sales by 2030 — seems eminently feasible. A question for the longer term is how we can get post-2030 internal-combustion vehicles off the road in time to achieve net zero emissions by 2050. Given that a large proportion of vehicles run for twenty years or more, this won’t happen automatically.

One possibility is a version of the “cash for clunkers” scheme introduced in the United States and briefly proposed by the Gillard government in Australia. The US scheme involved subsidising people who traded in old gas-guzzlers and bought more fuel-efficient alternatives. The inadequately funded scheme — undermined by a complex and arbitrary set of rules about which cars could be traded in, which replacements were eligible and how the money was disbursed — was wound up fairly quickly.

A similar scheme to get internal-combustion vehicles off the road need not face the same difficulties. Once the sale of new petrol- and diesel-driven vehicles ended, complex trade-in requirements would be unnecessary; instead, a simple cash payment would be made for old vehicles. The scheme could be self-financing, with increased registration charges or petrol taxes also raising the cost of continuing to operate an internal-combustion vehicle.

As with the energy transition in general, the technological problems of a shift to electric vehicles have mostly been solved. The remaining questions are those of policy design and political will.

Unfortunately, that’s exactly what still seems to be lacking in Australia. The Labor government’s electric vehicle strategy, announced this week, included a series of small-scale initiatives but no target dates or specific goals. It committed the government to developing a fuel-efficiency target that would presumably increase demand for electric vehicles, but gave no specifics, despite already having a plan on its books prepared by the Climate Change Authority under the Turnbull government.

On this, as on many other aspects of climate policy, Australia remains an international laggard. Neither of our major political parties seems much interested in changing that.

Fortunately, the rest of the world is acting. Internal-combustion vehicles are being abandoned by most major carmakers. If government action doesn’t drive the shift to electrics, technological obsolescence will do the job sooner or later. •

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This small child doesn’t know that the street out the front of their house is, potentially, a very dangerous place. A very dangerous place: the street outside is something all parents take great care to teach their children to be wary of: never to linger on, never to cross without an adult. Remember: Look right, look left, look right again.

Luckily, pedestrian fatalities in Australia are slowly decreasing. In 1998 398 pedestrians died, but by 2018 the number had fallen to 177, though this past decade the figure has remained pretty steady. Worldwide, some 270,000 pedestrians are killed each year on roads, and this number also shows a downward trend over time.

So are our streets becoming less dangerous to walk on? Not necessarily. While safety improvements might have been made to your street in recent years, many transport studies also show declines in pedestrian mobility, especially among young children.

When quizzed on these trends, close to 70 per cent of parents in New South Wales said there’s too much traffic on the roads for their children to walk safely to school in the morning. Many parents of small children will bundle them into the car instead — much safer.

Dutch authors Thalia Verkade and Marco te Brömmelstroet are bothered by facts like these. In their new book Movement: How to Take Back Our Streets and Transform Our Lives they call for a radical rethink of our streets and the role they play in our lives.

Verkade and te Brömmelstroet lead with a series of provocations: Why do we think about streets first and foremost as places to move from A to B? Why does the need for speed and efficiency triumph over other kinds of uses? And do we even know how to imagine alternatives?

Questions like these hadn’t occurred to Verkade, a Rotterdam-based journalist, until she met te Brömmelstroet, otherwise known as “the Cycling Professor,” at the University of Amsterdam. On assignment to write a series on bicycle superhighways, Verkade’s interview with te Brömmelstroet completely upended how she thought about streets, inspiring the three-year journey of discovery recounted in Movement.

Be warned, she writes, “Read this book and you might never look at the street outside your front door in the same way again.”

The cars that ate Paris — and Los Angeles, Sydney and Delhi too

It’s hard to overestimate how radically the automobile has transformed how we live together in communities. With its mass adoption across developed nations in the twentieth century came the wholesale reconstruction of city neighbourhoods.

The principle of circulation took hold: looking down on Manhattan in the 1930s from his privileged view in an aeroplane, Le Corbusier was struck by a vision of the city as a body in need of fluidity of movement. He called motor cars “machines of circulation” and likened roads to human arteries, promoting flow and reducing stagnation. Instead of crooked laneways and dense housing, motorways were built to clear congestion and connect far-flung suburbs.

Before the transformation: Cumberland Place, The Rocks, in 1901. Rocks Resumption photographic survey/Museums of History NSW

Life on city streets changed. Playing on the street became more dangerous as more and more people drove cars. Whole neighbourhoods were demolished to make way for new road networks. Kids learned to play elsewhere.

Some communities fought back. Most famously, a Canadian journalist who had moved her family to Manhattan in the early 1950s, resisting the pull of low-rise suburbia in favour of cheaper inner-city housing and street buskers, found herself leading a community campaign to stop the demolition of her local park, Washington Square. Describing her alarm at its proposed replacement with a sunken expressway, Jane Jacobs called on her mayor to champion “New York as a decent place to live, and not just rush through.”

Jacobs would go on to lead a successful ten-year battle to save the park and the surrounding Greenwich Village, inspiring community campaigns across the world. In Amsterdam, Verkade and te Brömmelstroet write, a mass campaign of tactical resistance from community and activist groups prevented the demolition of the city centre to make way for a new road network.

Similar campaigns occurred in Australia in the late 1960s and 1970s as well, with new alliances forged in places like inner Sydney between working-class unions, student groups, environmentalists and historical preservation societies, united in their fight against proposed new motorways.

Like Jacobs, people wanted places to live, not places to rush through. The communities saved by these activist campaigns are now highly valued tracts of real estate. People love to live in places like Greenwich Village, Verkade and te Brömmelstroet’s Amsterdam, and Fitzroy, Surry Hills and Potts Point because they are walkable, loveable, liveable.

But as iconic as these campaigns to “save our streets” were, the reality is that the majority of Australian, North American and European cities were completely redesigned around the needs of the motor car. After the campaign to save Washington Square, the number of cars on roads doubled every ten years until the end of the 1970s. Ownership then accelerated even faster, until the world hit one billion registered vehicles in 2011 — one vehicle per every seven people in the world.

Those who studied the impact of motorways came to realise that the more roads you built, the more people expected to be able to drive — generating what’s called “induced demand.” If you keep on building more and more roads, people will drive more. In Australia we now have over twenty million cars for just over twenty-six million people, among the highest rate of car ownership in the world.

The next billion cars on this planet won’t take too long: it’s predicted there will be two billion cars on the roads by 2030, driven by rapid rates of motorisation sweeping across the developing world. Like first world cities, cities of the developing world are rapidly expanding their road networks to make way for floods of new cars, ushering in a tsunami of new infrastructure projects. Some twenty-five million new kilometres of roadway is expected to be laid by mid-century, a 60 per cent expansion from 2010.

At this rate, we’re careering headlong into a future of planetary-scale bitumen and concrete.

Can we imagine anything different?

If you want to see how cities could work without relying on a car to get around, visit the Netherlands, home to the writers of Movement, where a quarter of all trips are by bike. You can find more than 37,000 kilometres of cycle paths here, many of them segregated, as well as a network of bicycle “super highways” connecting towns and cities built in recent years.

This is the place where urban designers come to study how streets could work differently — not primarily for motor cars but for cyclists. Here you can find streets where cycle lanes run up the centre and cars are relegated to side lanes, where intersections like the “chips cone” assist cyclists riding together in large volumes. Sensors on traffic lights prioritise cyclists’ movement in wet weather.

But even the Dutch don’t quite have it right. Despite the investment in infrastructure, they still experience high casualty rates on roads. In 2021 a third of all road fatalities involved cyclists. This reflects the high rates of cycling in general, of course, but also shows that helping cyclists move more efficiently and across greater distances doesn’t always mean safe streets. In fact, as mobility diversifies to take in new kinds of vehicles like e-scooters and e-bikes, cycle paths themselves are also becoming more dangerous.

The authors of Movement see a big problem in valuing streets primarily for personal mobility. It turns out that even with mass investments in road networks, the average time spent travelling remains roughly the same. Why? Because greater distances also become the norm.

By prioritising investments that help us rush through, we also neglect to invest in other parts of our communities. And we neglect to account for the true costs incurred. Do we really recognise what it costs us as a society when children can’t move safely around our communities?

As much as this is a story about mobility in cities, at the heart of Movement is a call to pay attention to how decisions are being made about the street and community you live in. The message here is that how we live together in communities, and how we come to prioritise some activities over others shouldn’t be handed over to technocrats, planners, developers and politicians. We all have an interest in caring about the shared spaces in which we live.

Marco the Cycling Professor spends a lot of time campaigning for small changes to where he lives, in Ede. Why is it that a local school has prioritised a car drop-off zone but not created space for something else? How did this get to the top of the local council’s list of investments, encouraging parents to drive rather than helping them with other actions? Was it a popular vote, or did an active minority campaign for the car option when everyone else went about their lives thinking about other things? (Yes.)

Marco letter-drops the community, invites everyone to respond to the proposal, urges people to show up to the meetings. He manages to get the drop-off zone defeated.

Everyday actions can make a difference, sometimes. In Paris, mayor Anne Hidalgo has used her powers to reduce car use in the city core and plans to ban all non-residential city traffic there by 2024. Car-free zones have been created outside schools, diesel cars banned, speed limits dropped to thirty kilometres per hour, and substantial investments made in new cycle paths.

Car ownership is down to three in ten Parisians. The city is being completely reimagined as a “fifteen-minute city” prioritising access to local services over freedom of movement. Why should everyone have the right to cross the city by car whenever they want? Many other European cities are following suit.

What about Australia?

Keep spending to keep moving

Roads receive a lot of investment in Australia — collectively, it looks like we care about them a lot. In New South Wales alone, the latest budget included an $11 billion allocation for new road projects — on top of the estimated $21 billion spent on the West Connex motorway since 2015. That doesn’t include the costs of maintaining local roads, paid through council rates. In 2018–19, the national figure was as much as $8.3 billion, or an estimated half of all rates collected by local governments that year.

Massive spending like this is justified because of the way our time has come to be valued. In the field of transport economics, the value of time is expressed as a function of movement: if you are in any way held up when you are travelling to and from work in your car, then the time you are delayed is given a dollar value, multiplied by the volume of people estimated to be travelling each day for work.

On this basis, Infrastructure Australia’s Infrastructure Audit estimated the total cost of road congestion in Australia’s six largest cities to be $19 billion in 2016, expected to blow out to $39 billion by 2031. With those figures in mind, it doesn’t take long before multibillion-dollar investments to build new road infrastructure start to look kind of reasonable.

But what if we applied the “value of time” metric in other ways?

What do children sacrifice to let cars rule our streets? They lose the time they might have spent playing on the street, walking safely to a park, walking safely to school. Do we know how to value this time lost? Do we know how to cost how time spent isolated compares with time spent playing with others?

With less mobility come greater levels of obesity. A recent study by the Monash Business School Centre for Health Economics estimated the annual cost of childhood obesity in Australia at $43 million. While obesity in children is increasing for a host of reasons, one determinant is exercise. There is a cost there, being borne by children. We need to get better at valuing it.

What of other costs of car-dominated communities? There is the value of time lost when someone is killed — otherwise known as the “value of a statistical life” — which is currently $195,000 per year in Australia, or $4.5 million per death on average. In 2020, when 1106 people lost their lives due to road accidents (just over one in six were collisions between cars and cyclists or pedestrians), we can count the cost at $4.98 billion.

If you care to multiply the total number of road deaths reported in Australia between 2012 and 2021 (11,894) by the figure of $4.5 million per life lost, you’ll arrive at a figure of $53.5 billion. That’s not including the costs of serious injuries. The World Health Organization says the current global road death toll of 1.4 million per year will rise to 1.8 million by 2030. That means road traffic, judged by accidents alone, is deadlier than malaria.

There are other costs. In OECD countries, the health impacts of air pollution were estimated at US$1.7 trillion in 2010, with about half of this attributable to road transport. The evidence increasingly shows that diesel fumes increase the risk of dementia, Alzheimer’s disease and Parkinson’s disease. As research continues to show causal relationships between air pollution and human health, a bigger picture of what we are losing in cities is emerging.

Animals also suffer: some ten million are estimated to be hit on Australian roads each year. The carnage is driving some species close to extinction: recently, motor vehicle deaths were found to be the leading cause of death for the endangered Queensland cassowary, whose numbers have been reduced to a few thousand in recent years.

This is without touching on the environmental costs attached to the burning of fossil fuels, the manufacture of cars and the laying down of concrete. What is the value-of-time equation associated with how the burning of fossil fuels for transport will affect future lives?

Australians in particular are clearly being let down by allowing such a limited range of metrics to be used in such powerful ways. These metrics also miss another vital feature of public spaces — their contribution to the flourishing of individuals, communities, cities and societies. Everyday streets and public spaces are not just engineering problems to be solved, or costs to be avoided; they are also places in which social and individual benefits are realised. Can we place a dollar value on this kind of flourishing?

Ultimately, how we value our streets says a lot about how we value our time. As Annie Dillard famously wrote, “How we spend our days is, of course, how we spend our lives. What we do with this hour, and that one, is what we are doing.” No one wants to spend their life stuck in traffic, but the law of induced demand says we’re not getting that time back by spending more and more on roads. The authors of Movement have it right: it’s time to think differently about that street outside your front door. Hey, you might even like to stop and linger awhile. Why the rush? •

Movement: How to Take Back Our Streets and Transform Our Lives
By Thalia Verkade and Marco te Brömmelstroet | Translated by Fiona Graham | Scribe | $29.99 | 288 pages

The post Why the rush? appeared first on Inside Story.

A book is a chance to pull fragments like these together and discern a larger story. This one, by Wall Street Journal automotive and technology reporter Tim Higgins, is mainly about Tesla, not Musk’s space and solar energy companies, SpaceX and SolarCity. But Tesla took over SolarCity five years ago (the controversial transaction is described in detail here), and the connections across Musk’s commercial and personal activities mean anyone writing about him needs to deal with them all. “He’s charging after a personal calling,” wrote Ashlee Vance in his 2016 biography, “one that’s intertwined with his soul and injected into the deepest parts of his mind.” Vance dubbed it “the unified field theory of Elon Musk.”

As Higgins was wrapping up the text of Power Play early in 2021, the Economist published a debate between a Tesla bull and a Tesla bear. Sales of the Model 3 were surging and a sixth straight profitable quarter was announced, the first time Tesla had been profitable in each quarter of a calendar year. Its share price had increased eightfold in twelve months.

The Tesla bull declared the share price “will travel in only one direction — up.” It was “a mistake to judge the company by the standards of the firms it will leave in its tracks.” Tesla was not a carmaker, it was a technology firm that would disrupt personal transport, energy, robotics, healthcare and more. Its leader was a visionary with a “genius for turning the future into dollars.”

The bear was just as confident. Tesla’s share price would travel in reverse. It had done an extraordinary job “building a brand swiftly and making electric cars trendy.” Now though, competition was increasing, Tesla was losing market share and missing production targets. The hype about self-driving cars had worn off as their problems became clearer. Musk himself was spread too thinly. “The strains from Tesla’s expansion could again bring out his demons.”

So far, the Tesla bull is winning. In December, Time magazine declared Elon Musk its 2021 Person of the Year. Tesla Common Stock closed the first day of trading on the NASDAQ in 2022 at around $1200, a 64 per cent increase over the year, after the company reported vehicle deliveries in 2021 of 936,000, up from 510,000 in 2020. (Along with other tech stocks, they have fallen a long way since, closing at $930 on 24 January.) At the time of writing, according to Forbes Real Time Billionaires, Musk was comfortably the world’s richest person, his net worth nearly twice that of the fourth-richest person, Bill Gates.

“Elon has all these ideas and I can’t move fast enough,” confided Tesla co-founder and CEO Martin Eberhard in late 2006 as he battled to produce the company’s first cars. By August, the company had a new CEO and Eberhard had moved to a new position as president of technology. Before the end of the year he was gone altogether, although he retained a shareholding.

Incidents like this happen many, many times through Higgins’s flowing account of the rise of the pioneering electric vehicle company. This one, common in the life of high-tech startups, is especially decisive. It’s the moment when “a founder’s skills are exceeded,” writes Higgins. “[Eberhard] knew it, and so did Musk.”

Eberhard and Musk, the largest shareholder and chair of the company, discussed bringing in a chief financial officer and a new CEO. News of the search leaked, embarrassing Eberhard. The start date for production of Tesla’s first cars kept being deferred and their likely cost rising. The company needed money. Musk spoke to Eberhard. A few days later the board approved his “resignation” as CEO and new job title. Later, it got very messy. Eberhard sued Musk, they settled, they sang each other’s praises. In the meantime, the company got an interim CEO, then a new CEO. Eventually Musk took over as CEO himself, a position he has held ever since.

The technology, the cars, the funding dramas, the manufacturing and marketing, the deals, the losses and the profits; these provide the raw data for Higgins’s tale. The current that ripples through it all, though, are the stories like these, about Musk’s handling of people. Higgins’s title captures it perfectly. To do things as big as the ones Musk wants to accomplish you need a lot of people and they need to do remarkable work for you, their very best, long day after exhausting day.

“Elon” — his surname has become superfluous — seems simultaneously magnetic and repellent. The magnet seeks, finds and attracts the best and brightest people to do the work he needs them to do. These are not just brilliant young Stanford engineers who have already self-selected for tech jobs at the most interesting and promising Silicon Valley companies. They are experienced auto industry executives and production line workers, people who know how cars are made and how big motor vehicle companies work but are frustrated by their inefficiencies and conservatism. They are marketing people who understand advertising but are prepared to work for a company that doesn’t want to pay for it. They are retailers who understand the behaviour of consumers and might have been surprised by Tesla’s passionate early ones. These were people who wore delays, price rises, defects and breakdowns almost as badges of honour, personal investments in a more sustainable future.

The repellent Musk uses these people up and casts them aside when they are no longer useful, repeatedly behaving in ways that would drop the jaws of human resources (“People and Culture”) professionals. If they have worked at Tesla for at least five years, they will probably have their stock options. A highlight from Vance’s biography: when Musk’s long-serving executive assistant, who worked across all his interests and “gave up her life for Musk for more than a decade,” proposed she should be paid at the same level as other senior executives, Musk suggested she take a two-week vacation. He would do her job himself and decide whether she was still required. She wasn’t, and was given twelve months’ severance pay. “Twelve years is a good run for any job. She’ll do a great job for someone,” Musk told Vance.

Is this just Silicon Valley? America? Capitalism? Or Musk himself?

Higgins stays clear of the amateur psychology, deferring to the detail in Ashlee Vance’s biography. It describes Musk’s tough childhood in a violent place, apartheid South Africa, vicious bullying at school, and prodigious capacity for absorbing, understanding and recalling detail. When their parents separated, Elon and younger brother and sister Kimbal and Tosca lived with their mother; after two years, Elon decided to live with his father Errol, an “ultra-present and very intense” man, according to Kimbal. “There were fun moments,” Elon told Vance. “He is an odd duck… He’s good at making life miserable.”

Vance struggled to get anyone on the record criticising Errol and Erroll himself responded to his request for an interview with an impeccable email praising all his children. “Elon was a very independent and focused child at home with me.” Perhaps when your son is the world’s richest man and is making a fair fist of leading the global auto industry away from fossil fuels you don’t think you have much to apologise for.

Musk the magnet has drawn exceptionally smart, hard-working people to his enterprises to be part of a vision he pitches as gigantic and good. Tesla/SolarCity is saving humanity and the earth by shifting vehicles to electric power and electricity generation to solar. SpaceX is insurance in case it doesn’t work, the chance for human beings to survive somewhere else, most likely on a second planet, Mars. The first part, the power play, is widely supported. The second, making humans a multiplanetary species, is much more contentious. Whatever your view, it adds up to a serious industrial, political and cultural project and Musk pursues it with greater tenacity and purpose than many governments whose job it is to think this big.

Successful companies often claim a central mission, holding clear and steady across the years, a North Star that the whole enterprise steers towards — think “customer-centric” at Amazon, “organising the world’s information and making it universally accessible and useful” at Google. The mission disciplines decisions about how and where to grow. But it always iterates with new opportunities, expanding, contracting, clarifying. When Google outgrew its founding mission, it gave birth to a parent company, Alphabet, with a larger one, to make “the world around you” universally accessible and useful. Netflix completely transformed itself from a physical distributor of other people’s movies and TV shows to a digital distributor of its own.

The Tesla Motors that Elon Musk largely funded in 2003 (investing $6.35 million of the $6.5 million startup round) was building an electric sports car, a “Roadster.” It captivated early buyers with the same things sports cars have always oozed, acceleration and good looks. For some, electric power was just a novel way to improve performance on a familiar parameter. Less than two decades later, having acquired SolarCity, Tesla has dropped “Motors” from its name and says its mission, from the start, was “to accelerate the world’s transition to sustainable energy.” The product line-up now includes three batteries designed for home, commercial and utility-scale installations and a rooftop solar energy system, as well as the cars.

The electric vehicle part of the plan was laid out in “The Secret Tesla Motors Master Plan,” Musk’s “laughably simple” three-step business plan: build an expensive sports car to attract attention (the Roadster); then build a luxury sedan to compete against German luxury vehicles (which became the Model S, released in 2012); then build a car for the people (the Model 3, on sale since 2017). Along the way, it added two SUVs, the Model X and the compact Model Y.

Simple in conception, Higgins explains how extraordinarily difficult it was in practice to design, build and sell these different electric vehicles, how much else Tesla has changed about the auto business, and how electric vehicles became part of a larger energy transformation project. Several observations stand out.

First, while Tesla is sometimes perceived as a lone rebel in the automotive landscape, it has crafted some crucial partnerships that enabled it to get products to market more quickly, or at greater scale and lower cost, than would have been possible if it had tried to do everything itself. This was not easy when the company was another Silicon Valley startup with big plans; Musk’s gift was to convince powerful incumbents it was not just another Silicon Valley startup.

The Roadster was a partnership with Lotus and used the Elise chassis (the marriage was far from perfect). The early batteries were produced by Sanyo and then Panasonic, the latter joining Tesla in a partnership to create a huge battery manufacturing facility in Nevada known as the Gigafactory. Daimler Benz bought parts from Tesla and invested in the company. Tesla bought (and extensively remodelled) its automotive factory in Fremont California from Toyota, which used it from 1984–2009 in a partnership with General Motors, after GM had occupied the site from 1962.

That said, Tesla’s preparedness to build parts and products itself, to bring in-house activities that have been increasingly dispersed across global manufacturing chains, is remarkable. The book is full of examples where the company imagined it could rely on experienced suppliers to design and manufacture parts it needed but was frustrated by their quality and/or cost and eventually chose to build rather than buy. The Gigafactory is the best example: this partnership to massively scale up battery production was designed to give Tesla more control of its own destiny as it pursued ambitious targets for vehicle and solar production.

Third, Tesla’s success in producing things, especially motor cars, has mattered in the United States. In the internet age, American capitalism triumphed in Silicon Valley but collapsed in Detroit. As Tesla was battling to sell its first vehicles and finance its future during the global financial crisis, America’s car companies were going to the wall. (Tesla came close itself.) Many of the great tech successes of recent decades — Google/Alphabet, Facebook, Netflix — sell experiences, not tangible products. Apple sells devices but they are largely produced overseas, a stellar example of the globally dispersed production model. America did not make things anymore, many complained. Tesla does, and the very things that once supplied America with corporate and cultural iconography — Henry Ford, the Chrysler Building, General Motors. Now, there are Stars and Stripes decals on SpaceX’s rockets.

Fourth, Power Play shows how the Musk-led Tesla has changed more about cars than the way they are powered, often against immense opposition. Electric power itself changed more than the carbon footprint of vehicles: a watermelon-sized electric motor, fewer moving parts and a battery pack located under the passenger compartment opened up more space for occupants and luggage. Tesla also changed the way motor cars were sold — direct to customers rather than through franchised dealer networks. (Australian ex-Ford boss Jack Nasser, consulted as part of venture capitalist Kleiner Perkins’s early due diligence on Tesla, warned about direct selling, regarding his own attempt to fight the franchise dealers as one of his “biggest mistakes.”) Tesla changed the way cars are advertised (theirs are not). Along with many others, it hopes to change the way they are all driven (they won’t be).

Companies come and go around the Bay Area: Silicon Valley does not have a problem with failure. “Since organisational death, in and of itself, is not perceived as a finite expression of failure, entrepreneurs are able to entertain what would normally be considered ‘outlandish’ risks,” write Homa Bahrami and Stuart Evans in a chapter on high technology entrepreneurship in Understanding Silicon Valley. Elon Musk takes outlandish risks but he does have a problem with failure. “My mentality is that of a samurai,” he told a venture capitalist (quoted by Vance). “I would rather commit seppuku than fail.”

Musk came to Tesla already a successful tech entrepreneur, having sold the company he founded with his brother Kimbal, Zip2, to Compaq in 1999. He then received around $250 million (before taxes) from his share of PayPal when eBay bought it in 2002. Musk had been CEO at both enterprises, carrying heavy bruises from PayPal, where he was replaced by Peter Thiel in a clandestine manoeuvre undertaken while Musk was on his way to honeymoon at the Sydney Olympics. Ashlee Vance found much acknowledgement of Musk’s contribution at PayPal, where he hired a lot of the top talent, as he had done at Zip2, created a number of the company’s most successful business ideas and served as CEO during a period of rapid expansion from sixty to several hundred employees.

“I’ve just never seen anything like his ability to take pain…,” Tesla and SpaceX investor and Musk friend, Antonio Gracias, told Vance. “Most people who are under that sort of pressure fray. Their decisions go bad. Elon gets hyperrational… The harder it gets, the better he gets.” Musk says he would like to die on Mars. “Just not on impact. Ideally I’d like to go for a visit, come back for a while, and then go there when I’m like seventy or something and then just stay there.”

Business historians and management theorists are trained to look at many factors to explain the growth and evolution of enterprises, to be wary of the biographer’s temptation to personalise it all, to give too much credit to leaders, especially leaders as media-thrilling as Elon Musk. It isn’t hard to forecast a fall ahead for the Tesla and SpaceX leader, or even imagine the likely reasons. The Tesla bears and their shortselling shadows do it every day. But right now, Elon Musk has cast a spell across global business and investment. By the time you read this, it may have broken. If not, watch it closely, for it is an extraordinary thing.

One last thing: Tim Higgins says he gave Elon Musk “numerous opportunities” to respond to the material presented in the book. Musk made no specific comments, but said “Most, but not all, of what you read in this book is nonsense.” •

The post Electric ambition appeared first on Inside Story.

Until about five years ago, debates on climate policy lined up the extensive evidence of rising global temperatures and modelling showing worse to come against statistical quibbles and “sceptical” arguments that came down to the belief that “scientists are always predicting disaster but it never happens.”

In 2021, though, we no longer need to look at models to see the effects of climate change arriving faster and more destructively than most of the modellers thought possible. For Australians and many others around the world, climate change has taken the form of almost unstoppable bushfires. For those who have yet to feel climate change directly, the pandemic provides life experience of a long-predicted disaster that has turned out worse than most people imagined.

Even this direct experience has turned out not to matter much to some people. The fact that the New England area was devastated by fire in 2019 hasn’t shifted the denialist/do-nothingist position of its local MP, Barnaby Joyce, and probably won’t cost him his seat at the next election.

The same is true, in spades, of Covid. In the United States in particular, conservatives who have seen friends and relatives die around them continue to insist that the whole thing is a hoax. There’s now a whole genre of stories (reminiscent of deathbed conversion narratives) in which people dying of the disease finally urge their friends to get vaccinated or, occasionally, go to their graves still denying everything.

Despite all this resistance, we have collectively made enormous efforts to control Covid. For the most part, we have accepted handwashing, social distancing, masks, travel restrictions and periodic lockdowns even while being unsure which measures will work and which will turn out to be unnecessary. Now that vaccines have become available, the majority of the population has rushed to protect themselves and everyone else. And there is increasingly little patience for the selfish or misguided minority who refuse, even when given every opportunity to get vaccinated.

The contrast with climate change is striking. We know, from looking at successful examples, that we can greatly reduce greenhouse gas emissions at costs too small to be detectable in the aggregate economy.

By 2025, most European countries will have eliminated coal-fired electricity altogether; several have already done so. The main policy instrument used to achieve this goal has been an emissions trading scheme that requires firms burning coal, iron or gas to buy a tradeable permit. The permit price was below €10 per tonne for some years, but has now risen to €50. Since generating a megawatt-hour of electricity using coal emits roughly a tonne of carbon dioxide, the scheme effectively adds around A$80/MWh (or 8 cents/kWh) to the cost of coal-fired electricity, with a smaller effect on gas-fired electricity.

Since the emissions allowed under the EU scheme are currently around 1.5 billion tonnes, the annual value of permits used is roughly €75 billion, or around 0.5 per cent of the European Union’s GDP. This is not an economic loss; it is a transfer from polluters to society as a whole. The actual economic cost is even smaller.

The same point can be illustrated by Australian experience. The Gillard government’s short-lived carbon tax/price significantly reduced emissions. But despite Tony Abbott’s claims about a “wrecking ball” going through the economy, neither the imposition of the tax nor its removal had any measurable effect on GDP or other indicators of aggregate performance.

Ending coal is only a first step. But an extension of the same policies — a doubling of the EU carbon price, for example — would see a rapid replacement of gas-fired electricity with a combination of solar, wind, battery storage and other zero-carbon options. And even if the economic impact were quadrupled it would still be so small as to be undetectable against the background of ordinary economic fluctuations, let alone crises like the pandemic.

If the electricity supply were decarbonised, electrifying the vehicle fleet would eliminate emissions from road transport. Again, we have examples to show how easy this would be. Norway has committed to ending sales of internal combustion engines. Already, electric vehicles account for more than half of the country’s new car sales and around a fifth of the total car fleet. This outcome was achieved with a mix of fairly modest measures, such as exemptions from purchase taxes and parking fees. As the cost of electric vehicles has declined, some of the more generous measures have been scaled back.

A number of national governments have committed to ending sales of internal combustion engines, and car manufacturers have announced plans to switch to producing electric vehicles. But current policies will leave lots of petrol and diesel vehicles on the road well past 2040. Incentives on the scale of those being offered in Norway, combined with a hard deadline for removing internal combustion vehicles from the roads, if announced now, could put an end to transport-related emissions by 2035.

The main economic cost would be the scrapping of vehicles before the end of their usable life. But owners could be compensated with a version of the “cash for clunkers” scheme that ran in the United States a few years ago. This isn’t an elegant policy solution, but when we are faced with the prospect of destroying the global climate we can’t afford to worry about such things.

Other responses, including drastic limits on air travel, might seem more draconian. But we have all put up with near-total bans on international travel, and lots of constraints on domestic travel, imposed with little or no notice in response to pandemic outbreaks. Replacing business travel with Zoom has turned out to be easy. As for recreational travel, a very simple response would be to replace frequent short “getaways” with the longer holidays, taken once a year or less, that were normal in the twentieth century. This would allow trains to substitute for planes in many cases.

We have more time to act on climate than we did on Covid. But that time is running out, and we are not using it well. •

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O’Brien is intimately connected to the project, of course — it was his decision as treasurer to fund the immediate commencement of the project in 2013, despite a pending court challenge and Labor’s commitment to dump it, and his decision to issue a special letter to the contractors promising as much as half a billion dollars in compensation if the courts found the project to be invalid.

But personal vindication is not the only attraction for the Liberals. Shadow roads minister Tim Smith points to the $4 billion in federal dollars still on the table for the project that amounts, he says, to a “free road” for the state, something an O’Brien government could begin building “immediately” if elected. Indeed, he wrote in Melbourne’s Herald Sun, the Andrews government’s obstinance over the freeway “borders on pathological.”

Smith’s claims provoked the predictable responses from the Andrews government, which laughed off the project as a waste of money, and from public transport activists, who asked why, having pledged to build the project in 2014 and 2018 and lost both elections, the Liberals might see some political capital this time around. If anyone had a pathological obsession with East West Link, they implied, it must be Victoria’s Liberals.

Both criticisms are worth examining. Even if we accept the opposition’s optimistic appraisals of the project’s economic worth — and we probably shouldn’t — it’s clear that construction would not be the breeze it imagines. Since coming to power in 2014, the Andrews government has sold back many of the homes compulsorily acquired in the first run at East West Link, removed all the planning overlays and approvals that had been granted, and amended heritage protection for large inner-city parks. Building the road would require totally new approvals and acquisitions. That kind of process usually takes at least a year and a half — hardly an immediate start.

Then, in late 2019, the Andrews government nominated a section of Melbourne’s Eastern Freeway for heritage status. The opposition saw this as East West monkey-wrenching, and with some justification: the section nominated is the bit that would require major surgery to connect to an East West tunnel.

None of this makes the building of (some kind of) East West Link impossible, but the booby traps and uncertainties would undoubtedly drive up the time and cost involved. The contracting market is likely to cost in these problems, as well as the broader political risk of the project’s being overturned again.

Even if the market has not tarred the whole state with a “sovereign risk” label — as O’Brien claimed it would back when he was state treasurer warning voters off Labor and its plans to cancel the project— East-West Link would undoubtedly have one attached to it. Recall that even the first time around, in 2014, O’Brien needed to offer the private sector half a billion free dollars just to get the contractors to sign on — and that was before any governments had invalidated any contracts. A second attempt could come with truly eye-watering costs — blowing out even the most optimistic cost–benefit equations.

With that said, I’m not so sure actually building this project matters deeply to the Victorian Liberals. Having seen the debate on East West Link evolve over many years, I’m not convinced the opposition is promising to build East West simply because it believes passionately in its merits, or that the Liberals are so persuaded of its overwhelming utility that they cannot bring themselves to talk about any other projects.

East West Link is not a normal election boondoggle — it is infused with political venom, with outrage and resentment and suspicion of political enemies. It has become a kind of political totem, a symbol caught up in the culture war. A promise to build East West Link isn’t so much a serious public policy proposal but rather a pledge to hoist clan colours over the rivals’ battlements. It is a rallying call — and I’d suggest it is one pitched primarily at a Liberal Party audience.

Lord knows, the state opposition could use a little rallying. Victoria’s Liberals have been enduring a long and gruelling bout of civil strife — something I have written about on these pages before. It is the kind of thing exacerbated by lousy electoral prospects. Polling is infrequent at the state level, but Ipsos put Daniel Andrews’s approval rating at a net positive nineteen points in October last year, when Melbourne’s intense stage four lockdown was in force. The same poll had Michael O’Brien at minus twenty-four approval, and put Andrews thirty-five points ahead as preferred premier.

A month later, perhaps owing to elation at the restrictions ending, Roy Morgan had Victorian Labor with 58.5 per cent of the state’s two-party-preferred vote — better even than the 2018 “Danslide” election, and an indication that things could get worse yet for the state’s Liberals.

A mortifying example of such a fate was soon offered up by Western Australia: there, the state’s Liberal opposition was all but obliterated by Mark McGowan’s Labor government — leaving it with just two seats and the loss of official opposition status. It is little wonder that, two days after the WA election, a leadership spill was attempted in the Victorian Liberal Party — though one that didn’t quite come off.

Hence the chant of East! West! Link! It helps the state’s Liberals focus on Labor instead of themselves. While many Victorians will hear the pledge and ask if we are not, perhaps, past this issue, the intended audience will see the chant as synonymous with “wanton Labor waste” and the notion that Daniel Andrews is somehow captive to the inner-city “cultural left.” East West Link is a rallying cry, a morale booster; it is a skin to pull tight across a war drum — worn, but still making music for the troops who need to hear it.

Of course, this doesn’t mean the Liberals wouldn’t try to build the thing if they somehow plucked the rabbit out of the hat and returned to government sometime soon. Plenty of massive, expensive, disruptive, ineffective, even idiotic infrastructure projects get built mainly for their symbolic value. Many projects are built not as a means to an end — getting people in and out of the city efficiently; power to homes; clean water to taps; homes connected to fast internet — but rather as political shrines, built for the statements they make, the values they embody, the memories they honour or the causes they glorify.

But I wonder if a freshly elected O’Brien government would be willing to expend so much financial and political capital on such a project, simply to shove it up inner-city lefties, build a shrine to its abhorrence of Daniel Andrews’s alleged recklessness, and rehabilitate the one-term Baillieu–Napthine government that commissioned the thing in the first place. I would not be totally surprised if, notwithstanding the beating of the East West drum, that government discovers other pressing priorities. That, or it will be built as a tomb in which to bury a one-term O’Brien government. •

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Scott Nargar, Hyundai’s “senior manager of future mobility,” stands in the middle of the road holding a remote control. He presses a button; the steering wheel spins on its own and the car rolls backwards until it’s parallel to the kerb. From a nearby apartment window, a black cat gazes unblinkingly at this fusion of the supernatural and the mundane. And I wonder: is this what the future feels like?

Nargar opens the door and hops back into the driver’s seat. “So basically, after that, the car turns itself off, puts itself in park, locks itself and I can walk away,” he says, matter-of-factly. We drive on, and he runs me through the Nexo’s high-tech cockpit: blind spot cameras and pedestrian-seeking auto brakes; ventilated seats and a heated steering wheel.

It all sounds deluxe, but I’m mostly interested in what’s in the Nexo’s tank: pure hydrogen. Hydrogen-powered cars in Australia are rare; this is one of twenty on lease to the ACT government. The car runs on the electricity produced when hydrogen reacts with oxygen in a fuel cell. The only thing it emits is a curl of steam.

The car also filters the air as it drives. We pull onto an avenue leading to Parliament House and zip past cars belching fumes into the afternoon sky. Nargar points to a huge touchscreen display in the centre of the console showing he’s driven 208 kilometres that day. “I’ve purified 153.1 kilolitres of air — which equates to enough air for five adults to breathe for a day. And I’ve displaced nearly thirty kilos of carbon dioxide,” he says.

In May of 2020, carbon dioxide concentrations in Earth’s atmosphere reached a record 417 parts per million, which means for every one million molecules of gas in the atmosphere, 417 were carbon dioxide. These concentrations are growing steadily; in Australia, even Covid-19 lockdowns couldn’t stop the rise. Without radical cuts to greenhouse gas emissions by 2030, says the UN Intergovernmental Panel on Climate Change, a planetary disaster awaits. We must find new, cleaner fuel sources or else perish together. Renewable energy can certainly get us part of the way, but it won’t be enough.

That’s where hydrogen comes in. You’d be hard-pressed to find anyone in energy circles who disputes that, in theory, hydrogen could eliminate carbon from much of the global economy. How to do it right, and in time to avert climate catastrophe, is the conundrum now before us.

Hydrogen is the most abundant element in the universe, but you can’t see, smell or taste it. It was made in the Big Bang and went on to form stars and galaxies. On Earth, hydrogen is not conveniently available in its pure form but is bound up with other substances. Hydrogen can only be extracted without carbon emissions in one of two ways: from fossil fuels (using a technology that captures and stores carbon) or from water (in a process powered by renewable energy).

Fiona Beck, a researcher at the Australian National University’s Research School of Engineering, is interested in the latter. She and her colleagues have developed a technology that, in essence, converts water into hydrogen using nothing but sunlight. Converted to electricity, solar energy can power an electrolyser that splits water molecules into hydrogen and oxygen. But Beck’s new technology cuts out the intermediary: the solar panels have been re-engineered to create the hydrogen themselves.

“The problem at the moment is that the economics of buying an electrolyser and plugging it into renewable energy is not quite there compared to the fossil fuel methods,” Beck says. “What we’re looking at here is: how do you make it even cheaper, and actually do it all in one?”

Beck’s doctoral student Astha Sharma emerges from a lab. “She is the brains who does most of the actual work,” says Beck, motioning us both back into the lab. Inside, bundles of power cords dangle from hooks, and electrical equipment crowds every surface. On one desk sits what looks like a long black paparazzi lens. “There’s a big arc lamp in there,” says Beck. “It’s like controlled lightning. In a very small area, it’s actually a very large fraction of the temperature of the sun.”

Wearing disposable gloves, Sharma takes a tiny silicon solar cell, about one centimetre wide. Fused to that is another type of solar cell made of a material known as perovskite. She dips the cells into a clear container filled with an alkaline solution, then removes the cap from the lens. A sharp beam of light illuminates the liquid. Soon, tiny gas bubbles fizz from the cells.

“Is that hydrogen?” I ask.

“Yep,” says Beck, and laughs. “It’s actually not very dramatic.”

The project has set an efficiency record for solar-to-hydrogen cells: of the energy the cells receive from the sun, 17.6 per cent can be converted to useable energy — rivalling the most efficient rooftop solar panels, which convert about 20 per cent of sunlight into electricity. So, depending on how the technology develops, the end result may be dramatic indeed.

Alan Finkel, whose term as Australia’s chief scientist ended in December 2020, is head cheerleader for the nation’s tiny hydrogen industry. He talks up our potential to “ship sunshine to the world” — a merry description of exporting hydrogen produced with solar energy. And he proudly claims to be first on the waiting list when Hyundai starts leasing the Nexo to the public.

Finkel spearheaded the National Hydrogen Strategy, published in late 2019. It aims to make Australia a world leader in hydrogen within a decade: under the most optimistic scenario, it predicts that our hydrogen industry could be worth $26 billion to the economy in 2050.

I ask him if the economic calamity brought on by Covid-19 has damaged hydrogen’s prospects.

“I’m actually feeling more optimistic, because there’s so much happening globally,” he says. “We are seeing extraordinary monetary commitments.” He rattles off a couple made just before our conversation in the late spring of 2020:

€7 billion from France and €9 billion from Germany to expand the hydrogen industry in Europe and abroad.

Investment by Australia is far more tentative. Of two dozen or so hydrogen projects announced to date, Finkel says there are only about six “where money is actually flowing and ground has been turned.” At the time of writing, the Morrison government had committed about $370 million to support the hydrogen strategy; state governments have promised further funding, though smaller amounts.

Creating a mass market for hydrogen won’t happen overnight. “Let’s say you’re building demand for hydrogen through transport,” Finkel says. “You don’t suddenly develop hydrogen trucks and cars and develop the refuelling capability and people’s confidence in the regulations and the other stuff that makes an industry. It’s going to take years and years. So demand is the limiting factor here.”

Energy experts broadly acknowledge that zero-emissions electricity can’t solve the climate crisis alone — it simply can’t be used everywhere. Finkel cites long-haul transport, saying planes, trucks, trains and ships are unlikely to ever choof around with tonnes of batteries on board. “I don’t think we’ll ever be able to get on a big battery-powered plane at Sydney airport and fly nonstop to San Francisco with 350 passengers,” he says.

Hydrogen will also be needed to replace coal in the polluting steel-making industry. Globally, steel manufacture creates about 7 per cent of carbon emissions; a switch to green hydrogen there would be a boon for both the climate and the Australian steel towns of Port Kembla and Whyalla.

Australia is up against nations such as the United States, China, Brunei and Saudi Arabia in the hydrogen export race. But we have one distinct advantage: proximity to Asia and, in particular, Japan and South Korea, which have both wagered heavily on hydrogen.

By 2030, the Japanese government wants 800,000 fuel cell vehicles on the road, and 900 stations to refuel them. And at the Tokyo Olympics, delayed until July 2021, the flame will burn with hydrogen for the first time.

In December 2019, Japan launched the world’s first ship designed to transport liquefied hydrogen at the port of Kobe. Finkel was there as the 8000-tonne Hydrogen Frontier slipped into the water for the first time. “It hit me that this was the first ship ever made that will allow human beings to transport renewable energy from one continent to another,” he says. “It’s a new era.”

The global hydrogen economy suddenly appeared to be alive and thrumming in Osaka Bay. But the shape of the new world energy order is a huge unknown — not least because the Hydrogen Frontier will ship more than just sunshine. The launch marks the start of a controversial trial project in which hydrogen derived from Australia’s brown coal will be shipped to Japan. Some potential importers of Australia’s hydrogen, such as Germany, won’t consider hydrogen sourced from fossil fuels in the long term, even if some of the carbon that is produced is captured. But, Finkel says, “certainly Japan will, South Korea will, Norway will. It really depends on whether you’re focused on a technology and you hate it, or you’re focused on what counts — atmospheric emissions of carbon dioxide.”

According to the Sydney Morning Herald, Horsley Park is best known for three things: God, guns and horses. The suburb in Sydney’s southwest is one of Australia’s most devout — about 80 per cent of residents identify as Christian — and it’s home to the equestrian centre built for the Sydney Olympics. It also has a prominent gun shop on the main street. Soon, however, Horsley Park will add another feather to its cap: as a green hydrogen pioneer.

In August 2020, the NSW government approved the $18 million Western Sydney Green Gas Project, to be operated by energy infrastructure giant Jemena. Touted as Australia’s largest hydrogen demonstration, it will generate green hydrogen, mix it into the existing natural gas network and deliver it to about 250 homes around Horsley Park.

Alistair Wardrope, Jemena’s senior engineer, has experience in the hydrogen business that dates back to 2006 when he worked for a British electrolyser manufacturer. I ask if Horsley Park residents would notice any difference if, say, they’re boiling an egg on a gas cooktop and there’s hydrogen in the mix. Wardrope pauses, then eventually answers: “No. If, hypothetically, we add 10 per cent hydrogen, we do marginally decrease the calorific value of the gas. But we’re talking about a very, very small difference. So no. If you’re talking about boiling an egg it might take a second or two longer.”

In terms of a broader transition, blending hydrogen into the mains gas network is considered one of the easiest ways to build demand in Australia. Unlike a hydrogen-fuelled transport network — which would need new vehicles, refuelling stations, and a new tranche of regulations and laws — mixing hydrogen into the gas network requires little more than an electrolyser and a valve.

About 10 per cent hydrogen can generally be blended into the extant gas network without needing to upgrade household appliances. Jemena is trialling a 2 per cent mix and will deploy strict controls to make sure the limit is not exceeded. It’s a cautious approach, for good reason.

In 2018, researchers at the University of Queensland examined public attitudes to hydrogen use and found safety was the top concern. Of course, all fuels are flammable, and hydrogen is already being produced and used without incident. But hydrogen ignites easily, and the public will need convincing it’s low-risk. Hyundai says it fired bullets at the hydrogen tanks of the Hyundai Nexo to make sure they could withstand a prang; I ask Wardrope if Horsley Park residents are worried hydrogen in their pipes might explode.

“The first thing to point out is the amount of gas [involved in the project] in energy terms is a very, very small fraction of what Jemena moves on a daily basis,” Wardrope says. “And Jemena is very well versed in safely transporting and handling flammable gases — which is what hydrogen is.”

The NSW government wants 10 per cent hydrogen running through the state’s gas networks within a decade as part of its plan to reach net-zero emissions by 2050. If repeated across the country, that would be a fair bit of hydrogen. I ask Wardrope if projects such as Jemena’s might help move the dial — generating enough demand to create a mass market.

“It’s the chicken-and-egg scenario,” he replies. “You don’t have the users because you don’t have the infrastructure, and you don’t have that infrastructure because you don’t have the users. Where we can leverage off existing infrastructure to help break that cycle, it definitely helps.”

But even with public backing, and with the economics and engineering sorted out, the hydrogen shift seems incomprehensibly vast. It touches almost every facet of modern life. It needs to happen over months and years, not decades and centuries. It will take unprecedented political will — and vested fossil fuel interests won’t easily roll over. It will require permanent changes to not only our fuel sources but also the homes we live in, the cars we drive and the foundations of the global economy.

I ask Wardrope if he can see a road to a fully fledged hydrogen society. “I think, if we look at what’s happening around the world, the level of investment is increasing substantially in favour of hydrogen,” he says. “So do I think there will be a transition? Me personally, yes. [But] the jury is still out, it’s fair to say, which is why it’s important to do these trials. In terms of whether it will be a 100 per cent conversion? There is no precedent. But over the years, the network and energy users have gone through multiple energy transitions.”

Indeed, the tale of human energy use is filled with plot twists. We mastered fire and burnt plants to release energy derived from the sun. Agriculture turned the sun’s energy into food, and we harnessed wind to propel boats and grind grain. Since the industrial revolution we’ve liberated energy from fossil fuels — energy trapped millions of years ago in the fibres of ancient plants. Now we’re on the cusp of a new chapter — without carbon dioxide.

But hydrogen’s role in this future is far from assured. Storage and distribution is difficult and may slow the transition: exports, for example, require hydrogen to be compressed, piped, liquefied, sent out on ships and kept ultra-cold — at minus 253°C — in cryogenic tanks.

Producing green hydrogen will also require a huge amount of energy to split water molecules into hydrogen and oxygen. According to Deloitte, installed electricity generation capacity in Australia may have to increase more than fivefold by 2050 under the most ambitious hydrogen production scenarios.

In road transport, hydrogen fuel cells may be getting smaller and cheaper, but some say they’re no competition for electric vehicles. Tesla founder Elon Musk put it bluntly, deriding hydrogen-fuel-cell vehicles as inefficient and “mind-bogglingly stupid.”

And an extra degree of difficulty exists in Australia, the driest inhabited continent on Earth. Most energy production consumes water; it takes nine litres to make one kilogram of hydrogen via electrolysis. Coastal areas are the most likely sites of hydrogen production; there, desalinated sea water or waste water will probably be used.

Wardrope acknowledges the headwinds. “But when we look at history, in every energy transition there’s been a benefit, a positive outcome for the broader community and the environment,” he says. “History would suggest we are on the right path. We’re looking at the right technologies, but it’s still early days. Which is why we have to start small, but think big.”

Back in the hydrogen-powered Nexo, it’s time for my afternoon drive to end. But in navigating back to where we began, I’ve led the driver, Scott Nargar, off course. I squint at the road ahead, looking for a road sign and cursing Canberra’s lookalike streets.

Nargar, a gracious host, hasn’t tired of showing off the Nexo’s luxury features and barely seems to notice that we’re lost. As I get my bearings, he plays a sample of the car’s inbuilt ambient sounds.

“There’s the sound of the sea, or rainy days,” he says, before flicking to a track titled “Open-air cafe.” “It’s all about enjoying the experience of driving an eco-car.” He skips to a track filled with the chirrup of birds and insects. As we whiz past a supermarket, he asks, somewhat dryly, “Don’t you feel like you’re in a rainforest now?”

Later, driving home in my diesel-chewing hatchback, I wonder about this next junction humanity has reached. Time has handed us the bewildering and unnervingly urgent socio-techno riddle of remaking the world’s energy system. So in labs and universities and factories and boardrooms, people tinker and toil to keep humanity going as is, just without the carbon dioxide. But if hydrogen and renewable energy save us, should humanity just continue as normal after that? At the Australian National University, I put the idea to Fiona Beck. She nods, as if to acknowledge the question is never far from her mind.

“I’m reading Doughnut Economics, which is about how we can’t just keep going with endless growth,” she says, referencing the widely read 2017 book by Oxford economist Kate Raworth, which argues, in Beck’s words, that humanity should live so “we’re not destroying the planet, but not deprived either.”

“We need to electrify, we need to go to renewables, but we just can’t produce renewable energy fast enough. We also need ridiculous amounts of energy efficiency, and [we need] to change the way we use energy,” Beck says. “It’s going to necessitate a change in mindset — away from ‘as much as you can, as fast as you can’ to considering the limits of the world we live in — just thinking about the whole thing.” •

This is an edited extract from “Hail Hydrogen,” in Griffith Review 71: Remaking the Balance, edited by Ashley Hay.

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Global consultancy Stratas Advisors recently ranked Australia’s fuel quality as eighty-fifth in the world — between Argentina’s and Tanzania’s — on the basis of its high proportion of sulphur, a key health and environmental toxin. This is a worse ranking than all European countries, the United States, Canada, Japan, China and India, and most other countries in the Asia-Pacific region, including Singapore, Malaysia, the Philippines, New Caledonia, Fiji and New Zealand.

Australia’s poor fuel is well known internationally and recently became an issue in negotiations over the EU–Australia free trade agreement. Some car manufacturers refuse to supply certain of their new models to Australia or to downgrade the engines of cars designed for the cleaner fuel available in Europe, because of the risk of damage from our low-quality petrol.

And yet, when the regulations in the Fuel Quality Standards Act 2000 were reviewed in 2019, the federal government ignored calls from health experts and organisations to bring Australia’s fuel standards into line with best overseas practice. Expert advice was trumped by opposition from Caltex, Mobil, Viva Energy and BP, the oil companies that make up Australia’s domestic oil refining sector.

The Global Burden of Disease Study says that one of its “most alarming” findings is that “about a third of the burden of stroke is attributable to air pollution.” Air pollution is known to damage the lungs, heart and brain, it says, but “the extent of this threat seems to have been underestimated.”

Australian-based research, including the landmark Australian Child Health and Air Pollution Study, has demonstrated that even low levels of exposure to air pollution can increase the severity of asthma among children. A study recently published in the European Respiratory Journal found that Australians aged forty-five to fifty who live less than 200 metres from a major road have a 50 per cent higher risk of asthma, wheeze and lowered lung function over a five-year period than those who live further from a major road.

Lung cancer is another well-documented effect of air pollution. But newer research has demonstrated causal links between air pollution and other forms of cancer, such as pancreatic, colorectal and bladder, as well as increased mortality from all cancers. Emerging research is also demonstrating a link between air pollution and obesity, Alzheimer’s disease, dementia, Parkinson’s disease, allergic reactions and ADHD.

Perhaps the most serious impact of air pollution is on the brain and respiratory-system development of babies in utero. The link between premature birth and air pollution has been known for some time, but reports of a dramatic drop in pre-term births during the Covid-19 pandemic have led some researchers to speculate that reduced exposure to air pollution may be part of the reason. Evidence even suggests that exposure to air pollution can cause DNA changes that can then be passed on to future generations.

Despite all this evidence, public awareness of the dangers of air pollution remains low. This partly reflects the fact that the harms of air pollution can be difficult to spot at the individual level. Like smoking, air pollution increases an individual’s risk of serious conditions. Identifying the population-wide harms of air pollution means extrapolating data from large-scale epidemiological studies that clearly demonstrate the link between air pollution and serious health conditions.

Using 2017 data, the Clean Air and Urban Landscapes Hub and the Melbourne Energy Institute put the Australian health costs of air pollution each year at $17.8 billion, with an additional $4.5 billion in “welfare losses and foregone labour output.” On those figures, air pollution’s health costs are greater than those of obesity ($11.8 billion in 2017–18) and close to those of smoking ($19.2 billion in 2015–16).

Not only are motor vehicles Australia’s third-largest source of greenhouse gas emissions, they also have a greater direct impact on health than the same level of emissions from other sources — factories, for example — because of higher levels of exposure in the population.

According to the State of Global Air report, the small particulate matter (PM2.5) produced by vehicle emissions was responsible for an estimated 1715 premature deaths in Australia in 2015, more than the annual road toll. (Other harmful components of vehicle emissions are not included in this figure, and nor are coal-fired power stations, factories, wood-burning heaters and other causes of air pollution.) The International Council on Clean Transportation estimates that reducing toxic materials in vehicle emissions could cut premature deaths by around 75 per cent.

Sulphur in fuel increases the production of sulphur dioxide, nitrous oxides, carbon monoxide and other toxic gases. It also creates harmful small particulate matter that can be inhaled and can enter the bloodstream. Fuels high in sulphur also prevent the effective operation of emissions control technology, such as particulate filters, which is why car manufacturers including Volkswagen (anxious to regain its reputation after an earlier fuel scandal) will not sell their most eco-friendly cars in Australia.

Clare Walter, a PhD candidate researching air pollution and policy at the University of Queensland, says the move to low-sulphur fuel would have the dual benefit of supporting the uptake of vehicles with the most advanced emission controls while reducing toxic emissions from Australia’s current fleet.

“Our current standards are in line with those introduced in Europe in 2009 — they are known as Euro 5,” Walter tells me. “Australia did not mandate these standards until 2016, by which time Europe had moved onto more stringent standards, Euro 6.”

Why that laggard status has persisted is a case study in how clear medical evidence can be outweighed by well-organised and well-resourced industry lobbying. Despite extensive evidence of the harms of air pollution, a five-year government review into Australia’s fuel standards concluded in 2018 by recommending no changes to fuel quality until 2027.

The process began with the release of a discussion paper on vehicle emissions in December 2016, by the then environment minister (now health minister) Greg Hunt. “Around 17 per cent of Australia’s greenhouse gas emissions are from transport,” he said bluntly. “In cities such as Sydney on-road motor vehicles can contribute around 60 per cent of some noxious air pollutants.” The following year, his successor as environment minister, Josh Frydenberg, declared that “Australia’s petrol quality is the lowest in the OECD or seventieth in the world.”

Hunt’s discussion paper contained five options:

A. No change in Australia’s fuel standards (maximum allowable sulphur content in standard petrol remains 150 parts per million, or ppm).

B. Harmonisation with European standards within two to five years (low grade petrol phased out, maximum sulphur in premium unleaded petrol limited to 10 ppm).

C. As with option B, but low-grade petrol retained (maximum allowable sulphur content 10 ppm)

D. Harmonisation with the (stricter than Europe) standards recommended by the Worldwide Fuel Charter (maximum allowable sulphur content 10 ppm)

E. A gradual improvement in quality standards from 2020 with a review in 2022 (maximum allowable sulphur content for standard petrol 50 ppm) heavily favouring a reduction in sulphur levels to 10 ppm, the maximum allowed in most other developed countries.

Submissions from health and environmental groups strongly supported the options that would bring Australia’s fuel standards in line with Europe, most other developed countries, and even the United States — option B or, failing that, D.

But the government’s subsequent draft regulation impact statement added a sixth option suggested by the downstream petroleum sector, represented by the Australian Institute of Petroleum, which involved no action on sulphur until 2027. The institute argued that the refining industry would need to invest around $979 million, “which may threaten the economic viability of the remaining refineries in Australia,” and stressed that the price of petrol could rise as a consequence — two possibilities that no doubt influenced government decision-making.

Robyn Schofield from the School of Earth Sciences at the University of Melbourne is one who challenges the institute’s argument. All the Australian refiners are multinational and operate in jurisdictions requiring a maximum 10 ppm of sulphur, she says. There is no reason they can’t bring the same technology to Australia.

Schofield also argues that the cost of upgrading refineries is outweighed many times over by the health costs associated with increased mortality and morbidity caused by poor fuel quality. If the government is concerned about potential petrol price rises it could fund the upgrade itself, she says, out of the $6 billion per year collected in petrol excise, for example. The cost-effectiveness of such a move would be incontrovertible given that the cost of the $979 million upgrade would be significantly lower than the $17.8 billion in annual health costs associated with vehicle emissions.

The Institute of Petroleum also argues that the generally good quality of Australia’s air undermines the case for improving fuel standards. Not so, responds Clare Walter. “Average” measures of air quality are not an accurate representation of the risks of exposure to pollution in specific locations and among specific populations. “The air-quality models used in the government’s analysis were designed to reflect regional air quality rather than roadside air-quality conditions,” she says. “Yet much of our population lives in big cities and spends a considerable amount of time exposed to roadside pollution.”

We also need to recognise exposure among people at higher risk from air pollution, such as young children, people with respiratory conditions and the elderly, says Walter. She also questions the validity of calculating health risks based on international epidemiological studies that use finer-grained data from overseas.

Health groups contend that the calculations used by the government in assessing the cost-effectiveness of different policy options fail to take account of Australia’s underlying population health. Asthma and allergies are more prevalent here than in the United Sates and EU countries, for example, making our population more vulnerable to air pollution.

None of these or other points made by health organisations appear to have been considered by the government. Health groups and experts were limited to providing written submissions to the regulatory review process, and were then largely ignored. The review’s “stakeholder forums” and face-to-face meetings almost exclusively involved industry representatives and were dominated by the Australian Institute of Petroleum. Even high-profile government-funded organisations — the Clean Air and Urban Landscapes consortium, the Clean Air Society of Australia and New Zealand, the Centre for Air Pollution, Energy and Health Research, or CAR, and peak bodies in air, energy and health research — were excluded from full participation.

The experience of Graeme Zosky, an expert on the health impacts of air pollution who was the lead author of CAR’s submission, was typical. As deputy director of the Menzies Institute for Medical Research and a professor of physiology at the Tasmanian School of Medicine, he recalls being contacted by a consultant for input on the evaluation measures for the policy options. But he wasn’t invited to any of the stakeholder forums or interviewed by the department.

Also lacking has been any health-sector representation on the two major committees with a role in fuel standards. The health minister isn’t among the members of the Ministerial Forum on Vehicle Emissions, which is responsible for coordinating the government’s regulation of motor vehicle emissions, and the health department is not represented in its secretariat.

Interestingly, the forum’s influence on policymaking is hard to gauge because details of its meetings are not publicly available — a lack of accountability highlighted by senator Rex Patrick when he questioned a representative of the Department of Infrastructure, Regional Development and Cities during a Senate inquiry hearing in August 2018:

Senator Patrick: I presume the ministerial forum produces minutes.

Mr Foulds: No, they don’t produce minutes as such…

Senator Patrick: Do you have officials go along that take notes?

Mr Foulds: The forum has met without officials and with officials.

Another key advisory group on fuel standards is the Fuel Standards Consultative Committee, whose members include representatives of all states and territories, the Commonwealth, fuel producers, an environment protection body and a consumer interest body, but no health expert or representative of the health sector. The minister is required to consult the committee before creating or amending a fuel quality standard.

The lack of health-sector involvement in these two committees and their secretariats probably contributed to the focus on the oil industry’s perspective rather than health impacts in the final regulation impact statement, released in August 2018. The statement includes an analysis of policy options B, C and F (the industry’s option) relative to the status quo (option A), based on the following criteria:

1. Achieve appreciable health and environmental outcomes
2. Ensure the most effective operation of engines
3. Facilitate adoption of better engine and emission control technologies
4. Achieve harmonisation with European standards, as appropriate
5. Minimise regulatory burden
6. Maximise net national benefits.

The analysis demonstrated that option F only partially met the first criterion: appreciable health and environmental outcomes. It also showed that option B was the only one that would decrease greenhouse gas emissions.

The final regulatory impact statement concedes that option B was supported by approximately 60 per cent of submissions because it would deliver maximum health and environmental benefits. It also states that the proposal to reduce sulphur to 10 ppm was “supported almost unanimously — only one submission (confidential) expressed a preference to maintain current levels of sulphur in petrol.”

Yet the statement opts for the industry’s option F on the basis that it avoids the cost of upgrading oil refineries. It also makes clear that this was the option supported by the downstream petroleum sector. In relation to sulphur, the statement says that delaying any reduction until 2027 is the “best option for the viability of domestic refineries” and therefore “the best option from a system-wide perspective.”

Health experts’ detailed criticism of the methodology used to determine cost-effectiveness is not covered in the statement; instead, it focuses almost exclusively on the positions of the Australian Institute of Petroleum and other industry organisations. Tellingly, its summary of “key views from stakeholders” fails to mention any of the health and environmental groups that provided feedback on the policy options.

Following the publication of the final regulatory impact statement, the new fuel standard regulations were introduced into parliament last year.

The failure of the standards review to improve Australia’s fuel quality shows how interest groups with deep pockets can dissuade governments from making changes that reflect expert advice and promote public health. That influence explains why Australia lags behind most other developed countries in reducing the level of toxic material produced by our seventeen million cars, even though 90 per cent of Australians live in urban areas and are directly affected by vehicle emissions.

The implications for dealing with other threats to public health, such as climate change, obesity, poverty and inequality, are obvious.

One of the most frustrating aspects of this issue, according to Robyn Schofield, is that Australians “have been lulled into a false sense of security and don’t understand that these standards are being dictated by the petroleum industry.” Add to this the fact that improving fuel quality is relatively simple compared with other strategies to reduce air pollution, such as phasing out coal-fired power. Schofield describes better standards as potentially an “easy public health win” that should be a “no brainer” for governments.

At the very least, as the Clean Air and Urban Landscapes consortium suggested in its submission, the health department should be included formally in developing fuel standards. The Heart and Stroke Foundations and other public health groups could play an important role from outside by using their profile and lobbying expertise to support scientists taking on a greater advocacy role. In contrast with both the American and British Heart Associations, neither of these organisations currently takes a position on the health impacts of air pollution.

Australia has relied on high-quality scientific and medical expertise to steer us through the Covid-19 pandemic. But we don’t have a good track record in supporting research scientists outside crises. The lag between public health research findings and policy changes can be significant: it took twenty years from the discovery of the health harms of smoking until the first health warnings appeared on tobacco products, and another twenty years before tobacco advertising was banned.

We shouldn’t have to wait forty years for action on fuel quality. But history shows that overcoming the influence of well-resourced interest groups and the inertia of governments and entrenched bureaucratic cultures won’t happen without a struggle. •

The post Fuel’s paradise appeared first on Inside Story.

Except for now. This quarter, there’s little growth to be seen, and the tall buildings are relatively empty. Many office buildings in the CBD report occupancy rates below 30 per cent. In Sydney, where much of life has opened up, it’s the suburbs that are bustling. The relative emptiness of the CBD means money is staying away, no longer coursing freely through shops, cafes and restaurants. Busy intermediaries weave through the suburbs on bikes or in vans, delivering goods and food to shoppers who remain closeted away with their devices.

If the relative emptiness of the central city feels like a shock, we’d do well to remember how relatively novel is the particular, pre-pandemic form of the city we’re familiar with. Skyscrapers stacked tight in the centres, with radial train networks transporting commuters in and out of dormitory suburbs, represent distinct configurations of home and work, domesticity and commerce, that might be slipping. Has the “age of dispersion” arrived? Will investors continue to capitalise on the empty air above certain streets, building more towers for more offices, extending the decades-run of speculative property investment centred around CBD locations — or will another urban form take root?

As it happens, the tall building wasn’t welcome in Australia’s biggest cities for many years. The City of Sydney’s first modern skyscraper, the AMP building on Alfred Street in Circular Quay, was only completed in 1961, well after the first tall buildings were emerging across American cities. When it arrived at its harbourside address, it was a gargantuan structure, towering twenty-two storeys over neighbouring buildings like some kind of alien life-form. It shattered the human scale of the street, delineating new sightlines for speculative growth.

The building was only possible because of the lifting, in 1957, of the Height of Buildings Act 1912, which had been used for decades to prevent the onslaught of American-style skyscrapers on Sydney’s city centre. The Act, known as the “anti-skyscraper law,” was driven by fears that tall buildings were particularly vulnerable to the ravages of fire. Sydney’s CBD had been scarred by the events of 1901, when a massive fire in an eight-storey department store resulted in five deaths, including a young man forced to jump from a window in front of lunchtime crowds.

Gamechanger: the newly completed AMP Building in Alfred Street, Circular Quay, in 1962. City of Sydney Archives

Melbourne, too, moved quickly to limit its building heights to 130 feet, a constraint maintained during the interwar period. Architects, firefighters, fire insurers and politicians were united in their view that any building exceeding the range of fire-fighting technologies was unsafe. As a consequence, for many years our cities continued to grow outwards, not up.

Many Australian urbanists of the early twentieth century considered tall buildings to be ugly expressions of the unbridled greed of speculative capitalism. As skyscrapers spread across America, Australian architects, including those working abroad, worried they would sully the rare beauty of Sydney and its glittering harbour. A group of architects, writing from London, called for special consideration to be given to Sydney as a city of rare beauty: “the idea that such an enormous asset as this beauty… should be so recklessly undervalued as to be left at the mercy of private speculation” gravely concerned them.

During this era, the ideal form of urban progress — or what we might now call “innovation” — was to be found in the pioneering form of the suburb. Though it later became unfashionable, the suburb was born of public health crises and designed as a harmonious balancing of privacy, hygiene and social cohesion. Where English cities had been afflicted by ill-planned slums that spread death and disease, Australian cities could experiment much more freely with new spatial configurations. Ready access to nature spaces, whether public parks or private gardens, gave rise to numerous planning laws explicitly designed to protect citizens from ill-health.

This aspirational urban form emerged in the 1830s, when the wealthy and well-educated looked to the ideas of Scottish gardener and publisher John Claudius Loudon, who popularised the potential of the “suburban villa with garden attached” to create health and happiness. Another Scotsman, biologist Patrick Geddes, would devise novel ways of seeing the city as a “bio-social” unit, taking account of health, ecology and wellbeing.

Shocked by the overuse of slum clearance to eradicate disease in India in the late 1800s, Geddes, now credited as one of the founders of the urban planning movement, pioneered a different kind of public health response to city pestilence. Governments, he argued, should not only clear away slums, disrupting countless lives, but design more intelligently, placing large gardens and parks, offering fresh air and communal spaces, at the centre of communities.

Likewise, the influential idea of the “garden city,” which gained expression across English and American cities and suburbs after the first world war, was seen as a way of improving the health of the working classes. Devised by planner Ebenezer Howard, it aimed to better integrate the experience of town and countryside, doing away with the crowded and unhealthy experience of the inner city.

Health Living: City Planning Diagram 2, from Ebenezer Howard’s Garden Cities of To-morrow (Swan Sonnenschein & Co., Ltd, 1922)

So, if today’s coronavirus sparks a rapid dispersion from dense urban cores, it certainly wouldn’t be for the first time. But nor would it mean an end to the city as such. If public health crises of earlier eras gave us suburban ideals of healthy living and generous urban parks for our leisure, the lasting changes resulting from this pandemic may well lie in the new spatial patterns that emerge from how we work.

Gone like a flash, perhaps forever, is the expectation that work necessitates being in an office; just as the “internet” is no longer a thing to dial up. It’s been fifteen years since Australian urban futurist William Mitchell decried as obsolete the workplaces of the industrial revolution, those essentially Taylorist constructions that required working at the same place at regimented times. And yet it took invisible strains of virus, not wireless broadband, techno-utopianism or even the rise of a knowledge-based workforce, to accommodate widespread teleworking.

From open plan to open air?

So what comes next? When you listen to those with a stake in commercial property markets, this is just a blip. Businesses will still need their offices to differentiate themselves, cultivate workplace culture and attract the top talent. But why exactly should workplace culture and connectivity only be forged in an office?

The answer may lie in reassessing the very function of the “work space” and its role in an organisation. Many are now rethinking what these spaces need to feel like if they are focused less on providing technology for computer-based tasks — after all, these can be done anywhere — and more on the need to promote workplace culture and nourish wellbeing. These spaces must now be “healthy” — with the “healthy building” tag now a feature of premium office spaces that tout their superior air and variety of lifestyle support services. Office space designers are embracing a greater symbiosis between natural and built forms, known as biophilia, interweaving green walls, natural materials and outdoor spaces. The airconditioned nightmare of the modern, monotonous layout just might be coming to an end.

For an image of what this might look like, look at Atlassian’s new headquarters next to Sydney’s Central Station. When completed, the tech company’s headquarters are projected to be tallest hybrid-timber building in the world, featuring elevated parks, mass timber interiors and an energy-generating glass façade. This green vision accompanies the recent announcement by Atlassian’s founders that employees may work from home permanently if they choose. No doubt they expect the quality of this space to attract plenty of tenants, if not their own workers.

Beyond changes to the look and feel of premium office spaces, we should also recognise something more radical going on. The nature of work is finally catching up with the affordances of digital tech. Distances are dematerialised; computing is “ambient”; organisations are becoming more “liquid.” My colleagues may be as much in Sydney as in Singapore. The local is no longer a place to depart in the morning, but a space to dwell in while working.

Like the radical suburban experiments of a bygone era, this public health crisis may yet allow for renewed kinds of making and connecting in previously dormant suburbs and neglected peripheral spaces. It may not be a “flight to the suburbs” in a retrograde sense, but a casting off of rigid modes of separation between home and work, industry and nature, as expressed in city forms. Australia’s suburbs may yet be well-suited to a coming era of biophilic urbanism, one that embraces “green infrastructure,” regenerative agriculture and productive allotments of either low or high-density urban farms.

Indeed, many are calling for more urban farming in a post-pandemic era, building in more local, resource-efficient food supply chains across suburban landscapes. Start-ups are springing up to deliver modular, stackable, automated vertical farms. With the right vision, the sleepy Australian suburb, places we once left for a busy day in the office, may again prove vital to a healthier urban future. For those like Rebecca Scott, chief executive of Melbourne social enterprise STREAT, post-pandemic Melbourne needs to be imagined as a “huge, edible urban food bowl,” a productive foodscape created by supercharging investment not just in green infrastructure but edible infrastructure as well.

If escaping pestilence and plague gave us the suburban dream, perhaps this pandemic will seed new patterns of work–life dreaming across the low-rise landscapes of the Australian suburb. Imagine a localised urban food hub in your area that also includes co-working spaces, tech supports, arts spaces and some outdoor dining. Would you return to the CBD? Perhaps only sometimes. But meanwhile, food supply chains would be diversified, carbon offset, water saved, transport networks declogged, with working families given more time, perhaps, to spend together.

Of course, these are just speculations. Perhaps train stations in the CBD will again be at bursting point during peak hour before too long. But as previous generations of urban visionaries and designers remind us, public health crises are often times of intensive urban innovation, when radical ideas actually gain purchase and are put into action. Perhaps this, too, will be one such time. •

Funding for this article from the Copyright Agency’s Cultural Fund is gratefully acknowledged.

The post The end of the city? No, not quite appeared first on Inside Story.

Quite suddenly, doing one’s daily work no longer means long and frustrating commutes across sprawling metropolitan regions. Most offices are shut. The bars are shut, the clubs are empty, the city promenades are deserted. Many people find themselves out of a job, their gigs cancelled, their shifts gone, their employee status furloughed.

And so the dynamic rhythms of an urbane, social, inner-city life are suddenly and radically compressed — confined to a walk in the park, perhaps, a cycle around safer streets, a dash to the supermarket for essentials, and quite possibly many more trips to the biscuit cupboard.

This time, we know, will pass, but we don’t know quite when. In the meantime, how we see how our cities will need to change. Mapping and reporting a city’s rhythms over coming months will require a shift in how we think about the role and purpose of our urban spaces.

In recent years, cities have been powerhouses of the global economy. The “triumph of the city” — in Edward Glaeser’s famous turn of phrase — has been evidenced in the greater productivity and innovation that results from proximity and density.

But we now face an uncertain era in which many of the usual indicators — economic output, occupancy rates, congestion, employment — tell a story of sudden decline, precarity and isolation.

Density suddenly looks dangerous. Gathering may breed sickness.

Over the coming months, and perhaps even years, as we look ahead to uncertain recovery periods, the indicators used to judge how well a city is performing will likely stay dire. In the meantime, we can expect to see the emergence of different ways of living in cities together. Perhaps, too, we might even find better ways of valuing these things.

As the urbanist Richard Sennett reflected in his 2015 book Building and Dwelling, “the built environment is one thing; how we dwell in it another.” The urban economy has taken a huge hit: yet here we remain, in densely packed neighbourhoods, dwelling together.

Many of us find ourselves living much more locally. Gone are the frenetic dynamics of a centrifugal city that sees office workers from across a metropolitan region journeying in and out of central business districts.

At the same time, parks are busier than ever, for now, as many of us have been forced to trade regular trips to the gym for a jog, a bike ride or a skate. The search is on for local walks with not too many people, a secret beach or river run — staying away from popular places and looking for the least-worn tracks.

Cyclists find themselves on much safer streets; air quality is improving. With urban traffic down by a quarter or more, the opportunities for active transport are greater than ever. Der Spiegel reports the German government recommending cycling in order to maintain safe social distancing but also to strengthen lungs, lower blood pressure and clear airways. Perhaps governments can accelerate this shift in Australian cities too?

Dwelling together, while maintaining social distancing, provokes us to discover ways to congregate in novel ways. Residents of an apartment block in Waterloo, Sydney, gathered on balconies to join two opera singers in a rendition of “I Still Call Australia Home,” no doubt inspired by similar scenes on balconies in Italy. In the coming weeks we’ll no doubt see more experiments in community singing.

Some people are trading hectic travel schedules for closer observations of home lives. As one suddenly stranded-at-home sociologist posted on Twitter: “Things you notice on a medium-density housing balcony in #partiallockdown: bubbles floating by; a man dancing with his toddler in a bedroom; a woman skipping with rope on her 7th floor balcony; the smell of delicious food being cooked.”

Sound enthusiasts are trading novel recordings of their neighbourhoods quietened under lockdown; gardening stores report spikes in seedling sales as neglected vegetable patches are tended to with new vigour. Kind-hearted neighbours are doing letter drops offering to assist the elderly with shopping errands.

Local governments have begun to play a critical role in supporting community resilience. Major city councils and arts-funding organisations have launched new grant programs for artists who have lost gigs, reallocating future initiatives and reprioritising spending.

Can local governments follow this lead to free up funds to support vital new community initiatives? What might these initiatives look like, in a world of social distancing?

Place management and placemaking — the creative programming of public spaces that has flourished in recent years — can’t be “activating” spaces to bring a crowd, but perhaps other methods can be used to forge connections between people living together in neighbourhoods. This is a time when community resilience is vital.

In a Covid-19 world placemaking may mean helping neighbours congregate and connect digitally, curating community events online, or using public spaces to promote the services being offered by local businesses.

Combined with digital infrastructures and tools, social-distancing measures have accelerated our migration into virtual spaces. Call volumes are up 50 per cent in recent weeks, broadband demand up by 40 per cent. Dropouts are common as telecommunications demand skyrockets.

Social distancing has left us hustling on the information superhighway like never before, alt-tabbing IRL over to the URLs — especially to videoconferencing via Zoom, Houseparty, Skype, FaceTime or Google Hangouts.

Our social media platforms have become vital digital public squares, places for gathering and sharing news of the day. All-night dance parties are planning upcoming streamed events. Yogis and Pilates instructors are streaming one-on-one and group classes. Digital platforms like Slack are seeing spikes in new paid customers unlike anything seen before. Coronavirus will no doubt act as an accelerant for new habits for remote working. Will the sudden pivot towards teleworking take hold?

Likewise, new digital tools and apps enabling citizens to report symptoms and track local coronavirus cases are springing up. Stopping the community transmission of coronavirus will require more vigilant tracking of cases, and tools like bluetooth and mobile GPS allow those with suspected symptoms to report their cases, and where they are, so community members can better judge their risks when out in public.

Will such efforts at sousveillance — which essentially turn surveillance from a top-down activity to one enacted voluntarily, from below, by citizens — encourage a move towards more community-based, crowdsourced care, facilitating greater awareness of those who are struggling with health or accessibility issues in your area? Or will we see more acceptance of data-tracking by authorities for health-related, or insurance, or other disciplinary purposes? Time will tell, but perhaps we can be hopeful about how localised data might be used for good, not only for the benefit of multinationals.

Perhaps, for a brief spell, we can also wonder what a world of slow cities might look like. Environmental activists have long argued for limits to growth in order to protect vital ecosystems and to slow rising carbon emissions.

As city productivity measures plummet, we can also look to the ideas of “degrowth” activists, who see in the topography of the Australian suburban form abundant opportunities for slower, more sustainable cities. While material wealth may be less abundant, can communities learn to adapt existing public spaces for local needs like agriculture, food waste or sharing cooperatives?

During the second world war, “victory gardens” sprang up across Australian cities to increase the volume of local food production. Even after threats to agriculture supply dissipated, home gardens and gardens in parks were maintained and supported by local governments to support community morale. We might envisage similar changes to our urban fabric over the coming years.

In these past weeks, we’ve witnessed how vulnerable our densely populated cities are to sudden shock. Coronavirus may not only force us into domestic isolation for months; it may also leave our cities poorer, and growth rates lower.

Perhaps we can start looking for ways to better value the role played by city spaces in supporting measures of health and wellbeing. If this global pandemic reminds us of anything, it’s that imaginative and creative responses to crisis will always emerge — and maybe even thrive — at the local level, in a park or street or community space near you. Perhaps this is a time for us to discover the art of dwelling, not just building. •

The post Making space appeared first on Inside Story.

The commission called the results “mediocre” and “troubling,” but for some sectors they were downright appalling. In farming, mining, construction, transport and retail, labour productivity went backwards. In other words, workers in those sectors were producing less per hour than they had the year before. The latest numbers continued a trend of weakening productivity growth that the commission dates back to 2013.

To understand why Australia’s productivity crisis is so serious, it’s worth recognising why productivity matters. Through Australia’s history, our economy has become massively more productive. Australian workers today produce nearly four times as much output every hour than in the 1960s. This has been a central driver of rising living standards.

Productivity measures how efficiently the economy turns labour and capital into goods and services. When the Australian economy becomes more productive, we are producing more output from a given level of inputs. Higher productivity creates the potential for household incomes to rise faster than the rate of inflation. A more productive economy can be more generous to the disadvantaged, can reduce its impact on the natural environment, and can play a bigger role in international affairs.

Productivity doesn’t automatically bring fairness: in recent times, workers haven’t received their fair share of the modest productivity growth delivered by the economy. But without rising productivity, wages will eventually stagnate and living standards will stop increasing. Whether your priority is longer lifespans or lower taxes, raising Newstart or building motorways, you should be in favour of productivity growth. Productivity is the engine of the economy, and right now, that engine is making a nasty rattling noise.

A few weeks after the Productivity Commission delivered its damning annual update, a group of boffins gathered together in Sydney for a conference about productivity. Convened by the OECD, a global think tank for advanced countries, the event brought together international experts to discuss the problem and suggest solutions.

For Australia, the most hard-hitting presentation came from Treasury’s Meghan Quinn, who revealed that researchers in her department, led by Dan Andrews, had been investing in a new analysis that links together workers and firms, and delving deeply into fresh data about the dynamics of the Australian economy. Since 2002, Quinn showed, the most productive Australian firms (the top 5 per cent) had not kept pace with the most productive firms globally. In fact, Australia’s “productivity frontier” has slipped back by about one-third. The best of “Made in Australia” hasn’t kept pace with the best of “Made in Germany,” “Made in the Netherlands” or even “Made in America.”

And then there’s the other 95 per cent. For these firms, productivity seems an alien concept. In the past two decades, their output per hour worked has barely risen. In other words, nineteen out of twenty Australian firms don’t produce much more per hour than they did when Sydney hosted the Olympics,

What’s going wrong? Part of the problem is that many firms aren’t investing in new technologies. Less than half have invested in data analytics or intelligent software systems. Only three in five have invested in cyber security, making them vulnerable to hacking and ransomware attacks.

It’s not just that companies aren’t investing in technology — they’re not investing in anything at all. This year, the Productivity Commission had to use a new term in its report. Typically, the commission measures how the amount of capital per worker has increased — a concept known as “capital deepening.” This year, for the first time on record, the amount of capital per worker went backwards. The economy had experienced “capital shallowing.” Given that capital deepening has accounted for about three-quarters of labour productivity growth, this is frightening.

Across the economy, businesses are cutting back on research and development and investing less in good management. The share of firms that are “innovative” is no longer growing. A survey of management practices in manufacturing firms found that Australia’s managers rank below those in Canada, Sweden, Japan, Germany and the United States.

It’s been said that you could already tell in the 1950s that Detroit would one day suffer a crash. Although automakers were thriving, the city lacked start-ups. Once the traditional car-manufacturing plants got into trouble, the city slumped. What is true for Detroit holds for cities, regions and countries across the globe: newborn firms are as critical to an economy as newborn babies are to a society’s demography, bringing fresh approaches, shaking up existing industries, and offering new opportunities to workers.

Yet for all the talk of Australia as a “start-up nation,” our new-business creation rate isn’t accelerating. In fact, our start-up rate seems to be stalling, though it’s partly masked by a quirk in the way we measure new businesses. The conventional start-up figures, which are rising, include anyone who registers for an Australian Business Number. This means that when a public servant takes a voluntary redundancy, only to come back the next month as a consultant, he is registered as a new business. Likewise when a tradie is “encouraged” by her boss to become a sham contractor. Neither of these cases involves true business formation, so each distorts the data.

The way to get around this issue is to look only at “employing businesses”: firms that hire at least one worker. On this metric, Treasury estimates that the new-business formation rate in the early 2000s was 14 per cent a year. Now, it’s down to 11 per cent a year. Strip out non-employing businesses and it turns out that our economy simply isn’t hatching new firms like it used to.

Another sign that the economy may be stagnating comes from figures on job-switching. A common myth is that changing jobs is bad for workers, and is happening more frequently. In both cases, the reverse is true. Workers who switch jobs typically experience a significant pay increase. In fact, if you study wages over a career, the largest salary rises tend to come when employees switch firms. Occasionally, job changes will be involuntary and painful — but more often they are voluntary and beneficial.

To see why, imagine for a moment that Australia instituted a rule saying that no one can switch jobs. People who don’t like their boss or want to try working in a different sector wouldn’t be allowed to make the change. Growing companies couldn’t attract workers from their competitors. Such a rule would be profoundly anti-worker. Consistent with this, Treasury’s analysis finds that a drop of one percentage point in the job-switching rate is associated with a 0.5 percentage point drop in wage growth across the economy.

While changing jobs tends to benefit workers, it is happening less often than in past decades. Forget what you’ve read about a fast-churning labour market and the end of “jobs for life”; workers are staying longer in their jobs. In the early 2000s, the rate of job-switching was 11 per cent a year. Now, it’s down to 8 per cent. It’s not the fault of employees: there are simply fewer good opportunities available. According to Treasury’s analysis, much of the drop in job-switching is because workers are less able to transition from mature firms to young firms. With fewer start-ups firms, it stands to reason that there are fewer start-up jobs.

What is to be done? Some people see productivity as a matter of cutting: cutting protections for employees, cutting environmental regulations and cutting the social safety net. Yet when the Productivity Commission was commissioned by the Coalition to compile a list of reforms that might raise national productivity, weakening workplace protections didn’t appear among its top twenty-eight recommendations. Rejecting claims by groups such as the Institute of Public Affairs and the Minerals Council of Australia, the commission’s 2017 Shifting the Dial report noted that “most of the workplace relations law works well to get the balance right between the desires of firms for a fully flexible resource and the need to protect workers from exploitation.”

By contrast, a progressive plan to raise productivity would recognise that the productivity slump has coincided with the marked rise in inequality over the past generation. Earnings inequality, household-income inequality, wealth inequality and top-income shares have all risen in Australia since the 1970s. In several advanced countries, including Australia, productivity growth has outpaced real wage growth: a problem the OECD calls “the productivity–inclusiveness nexus.” Ensuring that workers get an equitable share of productivity gains isn’t just a matter of fairness. Middle-class growth supports consumer demand, which in turn allows businesses to grow. It is not a coincidence that household consumption is languishing at the same time as real wage growth has slowed.

A progressive agenda for raising productivity would fall into three categories: investing in individuals, investing in infrastructure, and investing in institutions.

Investing in individuals: Education is a critical component of productivity. The median woman with a bachelor’s degree earns roughly $800,000 more in a lifetime than a year 12 graduate who completes no further study. For men, the lifetime difference is $1.1 million. This represents a 65 per cent earnings boost for men and an 80 per cent earnings boost for women.

Graduates are more likely to start new enterprises, and more likely to engage in social entrepreneurship. Education also has positive spillover effects, with better-skilled employees raising the productivity of their co-workers.

Over the past generation, the average educational attainment of the workforce has significantly increased, with Australians more likely to complete year 12 and more likely to attend university. But the share of people completing an apprenticeship or traineeship has collapsed, and is currently at its lowest rate since at least 2005. Scandals among private vocational education providers have eroded confidence in that system.

At a school level, completion rates are up, but we have a massive challenge with test scores. The OECD’s PISA tests show a troubling trend, with teenagers’ scores in literacy, numeracy and science declining significantly since the turn of the century. This continues a pattern that Melbourne University’s Chris Ryan and I documented some years ago, when we showed that teens’ literacy and numeracy levels had failed to rise between the 1960s and the 2000s.

At a university level, arbitrary caps on domestic student places were removed several years ago. The principle was simple: if a young person is talented enough to complete a degree, why not allow universities to make a place available? The policy significantly expanded university places, and therefore the productive potential of the economy. But since the beginning of 2018, the federal government has frozen university grants, which has effectively ended the demand-driven system. This has particularly hurt universities with expanding enrolments, and has hit students who want to study in disciplines that rely heavily on government funding, particularly engineering, sciences and allied health.

In a changing labour market, we should aspire to an Australia in which all young people get a great high school education and a post-school qualification. A much stronger focus on teacher quality would improve the performance of Australia’s schools. Pre-apprenticeships can reduce dropout rates in vocational education (currently half of those who start an apprenticeship do not finish). Restoring the demand-driven funding system would enable almost 200,000 more Australians to attend university by 2030. Many of those new students would be Indigenous, from low-income families, or the first in their family to attend university.

To be productive, people also need to be healthy. As the Productivity Commission’s Shifting the Dial report highlighted, it is also vital to ensure that the healthcare system is run as productively as possible. Medicare needs to adapt to provide comprehensive care that rewards general practitioners and other providers for managing complex cases of chronic illness. An examination of the primary care system by the Grattan Institute found that the dominant Medicare fee-for-service model encourages “reactive rather than systematic care,” and that “much greater emphasis needs to be placed on service coordination and integration for people with chronic disease.” Where interventions have been identified as low value, more effort should be put into informing healthcare providers, including through “do not do” lists. Electronic health records can also improve the productivity of the healthcare system by avoiding duplicate tests and ensuring that physicians have the information they need to make the right decisions.

Investing in infrastructure: As technologies advance, no piece of infrastructure is more important than high-speed internet. The difference between fibre-to-the-premises and fibre-to-the-node is critical for applications such as cloud computing, high-definition videoconferencing, telemedicine and distance education.

Choosing to replace the fibre rollout with a multi-technology mix has led to services that are slower, less reliable and more expensive. Time without internet connectivity is a critical source of lost productivity for students and professionals working from home. Unreliable copper services are letting many companies down. The immediate needs for the NBN sound like the advice parents might give a wayward teen: more fibre, higher standards, and proper accountability when providers fall short. It’s also vital that Australia gets the rollout of 5G right, providing the enabling infrastructure not only for smartphones but also for the Internet of Things.

Open data innovation can also be a major driver of economic growth. Four-fifths of American smartphone users use an app that relies on open data every day. The British Open Data Institute has identified open data–driven businesses that employ more than 500,000 people and turn over £92 million. New Zealand’s Integrated Data Infrastructure approach combines anonymised information on health, education and crime to offer insights to policymakers and researchers. Governments at all levels should be identifying high-value datasets that can be anonymised and made available to boost productivity.

Governments also need to improve their data policies. Reinventure’s Danny Gilligan points out that government policies on privacy and cybersecurity are like a brake, while innovation policies are like an accelerator. Yet unlike a car, governments often put the brake and the accelerator a long way away from each other. “Brakes” like the Critical Infrastructure Centre don’t spend enough time talking with “accelerators” like Data61. Gilligan contrasts the situation with Singapore, which coordinates how government engages with data-economy policies to minimise the costs and maximise the benefits. Data could be a significant source of productivity gains for the Australian economy in coming decades, but only if we get the infrastructure right.

Information superhighways aren’t the only kind of highway. Traffic congestion erodes our quality of life and acts as a handbrake on productivity. A fast-growing nation clearly needs better road networks, urban public transport projects and additional parking spaces at public transport hubs. But the answer isn’t merely to “build more stuff,” it’s to build the right stuff. Infrastructure spending must be based on economic cost–benefit analysis, not political calculus. This means giving greater focus to projects that are on the Infrastructure Australia priority list, and for which a business case has been completed.

Real social gains can sometimes come from arrangements such as value capture and public–private partnerships, but the trickiest infrastructure question is “should we build it?” not “how do we finance it?” If the benefits don’t exceed the costs, transport infrastructure is a bad idea, regardless of whether it will be paid for by today’s taxpayers or tomorrow’s taxpayers. And there’s a semitrailer barrelling towards us: as the Productivity Commission’s Shifting the Dial report notes, road-user charging is set for a shake-up whether we like it or not. Right now, the system depends almost entirely on fuel taxes, which will disappear with the advent of electric cars.

Although a smooth transition to clean energy is critical to maintaining strong productivity growth, Australia’s emissions and energy prices are rising. That contrasts with twenty-one other nations — including the United States, Britain, France and Germany — that have decoupled their carbon pollution from economic growth since the start of the century.

Inevitably, our energy system will move from old coal generation to gas generation and renewables. A more productive energy system will improve the productivity of the whole economy. Delaying the transition will only push up prices and increase pollution. As the Reserve Bank warns, climate-related losses pose a risk for businesses and households, and financial stability “will be better served by an orderly transition rather than an abrupt one.”

Straightforward energy reforms can be introduced. The Productivity Commission estimates that reforms associated with the electricity transmission network — such as critical peak pricing and the rollout of smart meters — could generate large efficiency gains. It points out that plenty of other nations have replaced piecemeal solutions with a single price on carbon. It recommends that governments more clearly articulate the trade-off between reliability and cost. And it suggests that we get pricing right, so that producers pay for additional costs they impose on the system (such as frequency management), and users pay for access to the grid (so that people cannot simply use it as a back-up system).

Investing in institutions: The third part of the progressive productivity agenda is to improve institutions so that they support a more productive economy. This starts with how government institutions support innovation. As past Australian Innovation System reports have noted, innovation and adaptation to technology are vital for productivity growth. However, the 2019 Global Innovation Index ranks Australia just twenty-second in the world. Since the global financial crisis, the volume of venture capital investment has fallen by nearly two-thirds. Innovation collaboration between government, business and academia is less common in Australia than in many other OECD nations.

The economic rationale for subsidising research and innovation is that it is not only businesses that benefits from new techniques and products — the community does as well. Federal government funding for science, research and innovation through grants and tax subsidies amounts to at least $10 billion annually. But right now, there isn’t much incentive for firms to work with universities. The government has been slow to implement its proposed Consumer Data Right. Educational bodies and disability groups have complained about the stultifying effect of a copyright law that lacks fair use exemptions. Ironically, innovation policy isn’t very innovative, since the federal government doesn’t devote enough energy to evaluating the impact of its many innovation policies.

The institutions that support trade and investment are also essential to improving productivity. As a medium-sized economy, Australia’s productivity performance is invariably intertwined with our engagement in the region. World trade is just another form of comparative advantage, letting countries specialise in what they do best. Just as your hairdresser doesn’t defeat you when you get a haircut, Japan doesn’t defeat you when you buy a PlayStation. Sellers aren’t vanquishing buyers — both are benefiting from specialisation.

We must do openness better. When it comes to trade, it’s vital to recognise that the best type of trade agreements are multilateral agreements, followed by regional and then bilateral. Bilateral deals can have benefits but can also distort trade. One way of ensuring that trade agreements are in Australia’s economic interest would be to allow the Productivity Commission to scrutinise them before signing, and again a decade after they come into force. This would provide some certainty that vested groups had not captured the negotiation process, and ensure that if we make mistakes, we learn from them.

On foreign investment policy, it would be worth reviewing the plethora of screening thresholds. It is difficult to mount an economic justification for requiring the Foreign Investment Review Board to approve a $300 million business acquisition by a Canadian investor but not a US investor. It would help the public conversation on foreign investment if the Treasury set out reasons for all significant foreign investment decisions: both acceptances and rejections.

We can also be more productive through an institutional push to improve Asian engagement. As the Committee for Economic Development of Australia notes, Australia has less outbound foreign direct investment in China, Japan, Korea, India and all ASEAN countries combined than it does in New Zealand. Among year 12 students, only one in fifty study Chinese. Fewer year 12 students study Indonesian than in 1972. AsiaLink found that more than half of all ASX200 board members demonstrated little or no knowledge of Asian markets. If we are to grow services exports to our region, a higher level of Asia literacy is essential: from the classrooms to the boardroom.

And then there are the institutions that govern markets. In uncompetitive markets, firms have a weaker incentive to pursue productivity gains. One British study found that a 25 per cent increase in market concentration leads to a 1 per cent fall in productivity. Another study attributed about one-fifth of productivity growth to better competition policy.

Over recent decades, several sectors have become significantly more concentrated. The annual volume of mergers has increased fivefold since 1990. At the same time, as we’ve seen, the new-business formation rate has fallen. The result is a significant increase in market concentration across key industries in Australia. One rule of thumb is that a market is excessively concentrated if the largest four firms control more than a third of it. Under this definition, ANU’s Adam Triggs and I found that over half of Australian industries are overly concentrated. In department stores, newspapers, banking, health insurance, supermarkets, domestic airlines, internet service providers, baby food and beer, the biggest four firms comprise more than 80 per cent of the market. The World Economic Forum’s Global Competitiveness Report found that Australia does badly on “the extent of market dominance,” ranking us fifty-third in the world.

Compared with many other countries, penalties for anti-competitive conduct in Australia are too low, and our competition watchdog is underfunded. Unlike in other countries, the Australian Competition and Consumer Commission lacks a market studies power, meaning it can’t use investigatory powers to explore public interest issues such as pricing discrepancies and increased market concentration. And after approving a merger, the commission has no systematic process of deciding whether it made a mistake. Like a coach who watches the video replays, post-merger reviews of productivity, wages and prices could help improve decisions in the future.

Tax institutions matter too. Good tax reform involves closing loopholes. As the late Harvard economist Martin Feldstein liked to point out, winding back tax concessions raises revenue more efficiently than increasing tax rates. In economic jargon, closing loopholes has a lower deadweight cost than raising rates. Yet, as the 2019 federal election showed, the economics are easier than the politics. Every loophole in the personal and corporate tax system has its ferocious defenders. If Australia wants to increase productivity, it needs to consider whether it can do so with a tax system that has more holes than a block of Swiss cheese.

Another key set of institutions are those governing management quality. Firms with a healthy management culture are places where employees look forward to arriving at work, where people respect one another, and where diversity flourishes. The best companies listen to their employees, implement good ideas regardless of their origins, and aren’t afraid of change.

The quality of management directly shapes the ability of businesses to adapt and innovate. Managers who lack appropriate technical and personal skills can’t provide the leadership that their firm needs to find continual productivity improvements. Managers who face overly short-term incentives may fail to focus on sustainability and longer-term productivity gains. Discrimination and unconscious bias may lead organisations to overlook talented applicants for appointment and advancement.

There are many creative ways companies can draw on the ideas of their workforce. In one large New Zealand dairy company, for instance, the union initiated a management improvement system with the aim of boosting productivity. Workers are trained in productivity measurement, and the concepts underpinning productivity growth, such as change management and improved teamwork. From their first day on the job, they are encouraged to take responsibility for raising quality, reducing waste, and even considering whether new products can be made with material that is currently being discarded. Managers play a role more akin to coaches than commanders, urging workers to think about improving the way the firm is run. The firm raised its output and quality, but without any loss of jobs.

On a systemic level, a number of German companies foster productivity growth by having worker representatives on company boards. There is even a word for it — Mitbestimmung — meaning worker participation in a company’s decision-making. Many of these firms find that a less confrontational approach produces significant efficiency gains. This occurs to some extent in Australia through our industry superannuation system. Industry superannuation funds are established jointly through employer and employee representatives, and as they become significant investors they have the ability to encourage corporate managers to make better long-term decisions.

There is some evidence that employees in worker-owned firms, such as cooperatives, are more productive and more satisfied. Government policy could do more to foster the growth of cooperatives and mutuals by facilitating greater access to capital for such firms, and access to government grants, particularly for Indigenous cooperatives under the Indigenous Advancement Strategy program.

Productivity gains also need to be shared. Just as business owners would have little incentive to invest in productivity-boosting improvements if none of the benefits translated into higher profits, so too workers have less incentive to support measures that increase productivity if they do not lead to higher wages.

In the 1970s, real wage growth outpaced productivity gains. Economists called it “the real wage overhang,” and the solution was to moderate wage growth so that it came back into line with labour productivity. Today, the economy faces the reverse problem. Even the modest increases in labour productivity that the economy has been producing haven’t flowed into workers’ pay packets. Australia is now experiencing a “real wage underhang.”

As in other nations, this decoupling of wage gains from productivity growth has led to a fall in the labour share of national income. Some estimates suggest that the drop in the labour share since the 1970s might have been as large as 15 percentage points.

One of the theories for the drop in the labour share is that monopolies don’t need as many employees. As economist Jan Eeckhout argued at a recent Reserve Bank conference, “market power depresses the demand for labour: firms set higher prices and therefore they produce less output, for which they need less labour. For the labour market to be in equilibrium, the economy moves along the upward sloping labour supply curve until a new, lower wage is obtained.” Other research presented at the same conference found that the wage slowdown was especially pronounced in sectors that don’t face international competition. Economists have long known that monopolies hurt consumers — now it appears they can harm workers too.

Left unchecked, this trend threatens to undermine the incentive for employees to continue to pursue productivity gains. A more collaborative approach to industrial relations is likely to be in the long-term interests of capital as well as labour. As economist Saul Eslake points out, corporate managers aren’t judged on their share of profits but on their actual profits. Firms would be better with a smaller share of a growing pie than a larger slice of a shrinking one.

Government institutions often pay lip service to evidence-based policy. Instead, they’re often driven by the idiosyncratic ideas of a few people in charge — what has been called “eminence-based policy.” In my book Randomistas: How Radical Researchers Changed Our World, I argue that agencies should be more modest about theories, and more willing to rigorously evaluate programs. One way of doing this would be to systematically conduct randomised policy trials, using treatment and control groups to test government programs in the way that companies test new pharmaceuticals. Already, randomised trials have provided unexpected insights about how to reduce recidivism by drug offenders, how to use video feedback in teacher training, and how to encourage new-business formation in developing nations. Building a better feedback loop helps drive continuous improvement in the productivity of government.

Too often, Australians see productivity as a dirty word — synonymous with working harder, rather than working smarter. But productivity should lead to a better quality of life, in which people have more choices in the workplace and more opportunities to spend time with friends and family. The path towards higher productivity should also allow us to live in a cleaner environment, and to be more generous to the needy. Tackling major challenges, from gender equity to traffic congestion, is easier in a highly productive economy.

Economists talk about the “rule of seventy-two.” If you want to know how long it takes to double living standards, just divide seventy-two by the growth rate. This means that a 2 per cent growth rate doubles living standards every thirty-six years, or about once a generation. But a 4 per cent growth rate doubles living standards every eighteen years, or twice a generation. That’s why we should invest in individuals, infrastructure and institutions, to lay the groundwork for lasting improvements to Australia’s productivity growth rate.

Australia doesn’t have to choose between fairness and productivity. We should be aiming to achieve inclusive growth by sharing productivity gains across the community. This not only creates greater wellbeing but also supports ongoing reform. If an elite cabal captures all of the benefits of reform, its members should not be surprised if the next round of reforms meets a public backlash. The goal should be to raise productivity to the benefit of all Australians. •

The post A progressive agenda for tackling Australia’s productivity crisis appeared first on Inside Story.

Only with a lot of guile and resourcefulness have treasurer Tim Pallas and his Treasury team delivered a projected budget surplus, using a mix of cash-and-grab raids on obscure state funds, small tax rises in obscure areas, and unstated, obscure and unidentifiable spending cuts.

How much could go wrong when your state is booming economically — real spending in Victoria grew almost 5 per cent in 2018 — and is one of the nation’s two growth engines? When your party is fresh from a sweeping election victory in which it decimated the opposition? And when a flood of migration from overseas and interstate keeps creating jobs and new spending like a magic pudding?

Well, plenty has gone wrong for Tim Pallas in the past year (offset by his stunning success in losing weight). For example:

• Housing prices in Victoria have slumped by 10 per cent and home sales by 15 per cent, cutting more than $1 billion off the state’s stamp duty receipts in 2018–19 alone, and even more in the years ahead.

• New national accounting standards will require governments to bring many of their public–private partnership projects back on the budget books — a long-overdue move that Victoria supported. But it abruptly lifts the state’s net debt by $9.6 billion, accounting for the bulk of a spectacular growth in net debt from $23 billion to $39 billion. It also shifts $481 million of previously off-budget interest bills onto the budget.

• Labor won its second term last November on a platform that committed it to more free-spending budgets to boost investment in transport infrastructure and social spending alike. And it doesn’t pay to break promises.

The last four years have been high summer for the Victorian economy. In 2018, real spending in the state was almost 20 per cent higher than in 2014. The state now has 433,000 more people in jobs, three-quarters of them full-time, than when Labor took office in November 2014. And growth has been so high because the state’s population has increased by 570,000 in four years, or almost 10 per cent; Melbourne alone has grown by roughly 500,000 in that time. It’s been boom time.

But this boom time has not seen the state salt away funds to tide it through the inevitable bust. On the contrary. The budget surpluses have been kept small because Labor had other priorities — many of them. In the Andrews government’s first term, the state’s wage bill jumped by a third, total spending on services rose 30 per cent — and, after a slow start, transport investment almost trebled, spearheaded by its policy of removing fifty level crossings from Melbourne’s congested roads.

Sure, taxes rose in line with the increased services. Debt was piled up to finance the road and rail projects, justifiably, given how cheap it is for governments to borrow. It all went down well with the voters, who gave Labor a landslide win at November’s election.

By then, however, the housing boom had already bust. The Victorian Treasury estimates that falling home prices and sales cost the budget more than $1 billion in 2018–19, and roughly $1.25 billion a year for the next three years, relative to its forecasts in last year’s budget. (Peter Martin, then at the Age, warned at the time that Treasury’s forecasts were far too rosy. He sure was proved right.)

The boom saw stamp duty on property transfers become Victoria’s biggest tax. Its collapse has punched one hole in the budget, the new accounting standards have punched another, and the surplus was always more slender than it should have been. So how could Pallas deliver the new spending Labor promised in the campaign — on services alone, $3.7 billion in the coming financial year, plus record infrastructure spending — without big tax rises?

The answer is the real core of this year’s budget. The government leaked its own tax rises to the media early — basically, because they were surprisingly small and obscure, targeting groups with little public support: primarily, foreigners buying property, people buying luxury cars, and company restructures. They add up to just $180 million a year in a budget spending $80 billion a year. The tax hikes on foreign property buyers simply replicate what the Coalition did across the border in New South Wales.

Instead of raising taxes, Pallas and his team used a clever mix of measures to fill the financing gap and emerge with a projected surplus for 2019–20 of just over $1 billion. Their recipe (explained nowhere in the budget papers) was this:

• Spending was cut in the way governments now prefer to do it: by “reprioritising” existing spending plans (no dollar figure given); delaying projects yet to begin (saving $694 million in 2019–20); and cutting every department’s funding by 0.5 per cent, except for frontline services such as teachers, nurses and police ($251 million, but rising steeply thereafter, as a taskforce reviews all spending to search for efficiencies).

That’s on top of the annual “general efficiency” spending cuts, which in Victoria see every department start off with effectively the same nominal funding as the year before, even though inflation means that buys it about 2.5 per cent less. Sadly, often essential maintenance bears the brunt of the cuts, as you can see when you visit a Victorian national park or tourist spot and find it full of weeds. In principle, though, it’s as good a way of cutting spending as any other — and after four years of big spending increases, most departments should have plenty of fat to cut.

• Other taxes came to the rescue. Payroll tax soared as jobs boomed. And while stamp duties fell, new land tax valuations took effect, based on property values close to the height of the boom. Land tax bills in some areas are now double what they were four years ago — with disastrous effects for some, but highly beneficial effects for the budget. (Labor has promised annual reviews in future to prevent such big hikes again.)

• Commonwealth grants came to the rescue. The budget excludes all of the federal Coalition’s election promises — such as spending $7 billion itself to build the controversial East West Link (a politically inspired project that has failed three cost–benefit examinations) and $2 billion to extend the Geelong train line to Waurn Ponds — as these are not yet part of any agreement with the Victorian government (and the first is unlikely ever to be). Even without them, grants are forecast to swell by 50 per cent in five years, as Victoria’s population growth, low mineral royalties, and real estate slump qualify it for a larger share of GST funding.

• The government set up a new Victorian Infrastructure Fund and raided the “hollow logs” of the state insurance agencies to pay for it. The Transport Accident Commission, Worksafe and the Victorian Managed Insurance Authority will pay for their (in the government’s eyes, excessively) prudent management by being forced to cough up $2.3 billion in the next four years to finance priority infrastructure projects.

• Victoria’s Treasury has been optimistic in forecasting the economic parameters. In Victoria’s budget, as in Canberra’s, wage rises are assumed to rise rapidly in coming years — which many economists think unlikely. The slump in property prices and sales is assumed to turn around in coming months, giving way to a gradual recovery. And in summing up the state of the economy, Treasury argues that “the risks to the Victorian economic outlook are broadly balanced.” That’s an optimism you don’t see too often these days.

The net effect is that the state is forecast to generate a $1 billion surplus of revenue over services spending in 2019–20, and bigger ones ahead. They would help finance its record infrastructure spending, which Pallas says will average $13.4 billion a year over the next four years. Most of that is on transport, with four projects dominating: the West Gate road tunnel ($1.6 billion), the Melbourne Metro rail tunnel (also $1.6 billion), the level crossings removals ($1.45 billion), and a much-needed investment in new trains ($910 million).

The government is also planning its next wave of mega-projects: the North East Link to complete Melbourne’s ring road and widen the Eastern Freeway (total cost $15.6 billion), the Melbourne airport rail link ($8 billion to $13 billion), and its worst decision, the Suburban Rail Loop ($50 billion). The federal government, which for political reasons usually opposes whatever Victoria proposes, is however funding the planning work on the airport rail link.

All these, of course, are politically driven choices. The last thing a government on either side of politics would do is to ask the experts which projects would do most per million dollars spent to reduce traffic congestion and/or make public transport more reliable, more consistent in speed and quality, and more useful to the people it is meant to serve.

I suspect the experts might recommend that the mega-projects be replaced by spending on making what we’ve already got work better. Duplicate congested roads, remodel intersections, build more overtaking lanes and highway dividers, and lift the priority given to road maintenance. Give the rail network a twenty-first-century signalling system, more frequent services, and more maintenance. And please, focus attention on what this budget ignored: the under-resourced bus systems that serve the middle and outer suburbs of Melbourne, and country Victoria.

The infrastructure spend will see the state’s net debt rise to a forecast $50 billion by 2021–22, or 10 per cent of gross state product. I have long argued for putting infrastructure needs before debt concerns when borrowing is so cheap. Labor won the state election by doing so, but lost the federal election partly because so many voters believed the Coalition’s taunt that “Labor can’t be trusted with money.”

In politics, wheels can turn. The Andrews government would be far more secure against such taunts in 2022 if it stopped choosing infrastructure projects for political reasons and started selecting the ones that would deliver most value per dollar to Victorians. Voters have given it their trust. It must now give them value for money. •

The post Victoria: where black is always in appeared first on Inside Story.

The merits of the first homebuyers scheme have sparked a lot of debate, but the key point to understand is this: it would be a niche operation. In a housing market that in recent years has lent purchasers about $250 billion each year, the new fund at its peak would take on liabilities equivalent to 0.2 per cent of annual lending.

The transport projects announced in Melbourne, by contrast, are seriously big — and seriously unviable.

East West Link, the freeway the Liberals want to build under the inner suburbs of Collingwood, Fitzroy and Carlton, would unquestionably be a useful addition to Melbourne’s freeway network. You could drive from the Eastern Freeway at Clifton Hill to City Link at Flemington in ten minutes. It is very likely that if it is built, it will also include outlets that would shorten the journey from the eastern suburbs into the CBD and surrounding areas — and it’s those cars that the locals don’t want on their streets.

But it would be horrendously expensive. Tunnelling at freeway width costs well over $1 billion a kilometre. The whole 4.4 kilometre freeway was estimated to cost $7 billion in 2013; Morrison optimistically assumes the same cost now.

The link has been subjected to cost–benefit analysis three times, and has failed every time. The first, for the Eddington report in 2008, estimated the cost was about twice the likely benefit. The second, for the state Coalition government in 2013, was hardly any better, so the government assumed a lot of “wider benefits” to try to make it look good. And even a sympathetic Infrastructure Victoria, costing the plan at its own initiative in 2016, found the benefits would be well short of the cost: $3 of benefit for every $4 of cost.

One must add that standard cost–benefit analysis uses interest rates that are now quite unrealistic: the 7 per cent interest rate assumed is more than twice what governments actually pay. But that is true for all infrastructure projects. East West Link might well pass the test if the test were more realistic — but other projects would still return much more benefit for the same cost.

The best one can say is that East West Link would probably waste less money than the rail line Shorten has now committed federal Labor to help build: a ninety kilometre rail loop — also mostly underground — through Melbourne’s middle suburbs, from Cheltenham to Glen Waverley, Box Hill, Reservoir and Melbourne Airport, where it would connect with the future Airport Rail Link to Sunshine, and eventually, on to Werribee.

We have no cost–benefit analysis for this project, and for good reason. The Andrews government has airily declared that it could be built for $50 million, but no one believes that. If it were subjected to analysis, the Suburban Rail Loop would make the East West Link look good.

The loop would work only if future Victorian governments could do what past Victorian governments have been unable to do: shift Melbourne’s future growth from the outer fringe and the inner core to middle-suburban centres like Box Hill — or Sydney’s Parramatta, a more successful example — which would then grow to become so big that a circular train line to link them would make sense.

It might be safer to bet on seeing pigs fly. At least you wouldn’t be likely to waste $10 billion, or $50 billion, or $100 billion, on that dream.

(I know that many readers assume that rail investments must be a Good Thing. There are a lot of good rail investments governments could make in Melbourne, as urban commentator Alan Davies has pointed out, but this is not one of them. And that view is widely shared.)

What do these three plans — the home loan guarantee, East West Link and the rail loop — have in common? None of them passed any economic assessment. All of them were dreamed up for political reasons. None was put through the normal policy process. Rather, in each case, the government first decided to commit to them — then let the experts work out what they would cost.

They were adopted, that is, because a government decided it needed them for political branding — not because they would be good investments for the state or nation.

When Labor governments set up Infrastructure Australia and Infrastructure Victoria, they promised us that the new agencies would provide open, transparent, honest assessments of proposed transport projects. It was like manna from heaven. But then reality struck.

Having set up Infrastructure Australia, the Rudd and Gillard governments refused to give it adequate funding. It had only eleven staff, and was unable to carry out more than a handful of project assessments. Its advice, when offered, was ignored. Under the Coalition government, it has been much the same, with frequent changes at the top leading to changes of assessments (of Brisbane’s Cross River Rail, for example) that appeared to be politically motivated.

Infrastructure Victoria has not been politically compromised in the same way, but it has been ignored. Its advice was exactly what Labor had promised: bold, insightful and independent. As a result, it was sidelined when Labor was planning its rail loop. Political staffers replaced the experts as the government’s sounding board, and source of advice.

As Marion Terrill of Grattan Institute has argued, most recently in its excellent Orange Book of advice to the next federal government, Australia must ditch this bipartisan addiction to choosing infrastructure projects on political grounds. Anthony Albanese too has sometimes voiced the same view, but as Labor’s infrastructure minister he would take office with his priorities already decided: a host of projects chosen for political reasons, with neither bipartisan support nor appraisal by independent experts.

Some government, some day, must be brave enough to break out of this habit of treating infrastructure as a political battleground. Two political leaders must be brave enough to take the lead to achieve it. Long ago in Victoria we had an all-party parliamentary public works committee that generally operated in a non-partisan way — as many federal parliamentary committees still do. That’s one key to a solution. The other is to let your infrastructure advisers do their job.

Scott Morrison’s housing plan is less a plan than a thought bubble with virtually no details attached. On Sunday we were told it would have a capital of $500 million, but by Monday Morrison was promising to increase that amount if there was more demand. His goal is to ensure that it helps homebuyers throughout Australia, but there is no mechanism to achieve that. Another goal is to favour homebuyers borrowing from banks other than the big four, but there is no mechanism to achieve that either.

The whole thing is a work in progress, made up in a hurry, so that the prime minister had something new to announce at his policy launch — which he fed to the Murdoch press first, so that they could mislead voters by making it seem much bigger than it is. Treasury had not been consulted on the plan, the Age tells us, and neither was cabinet.

But at least this policy will have small costs — which is why Labor was quick to sign on to it, to squash the issue. More than half a million properties change hands in Australia each year, but, as Morrison has presented it, no more than 10,000 would be eligible for this scheme. That’s just as well, because the way he’s done it makes it more risky than the New Zealand scheme it is based on.

Helen Clark’s Labour government introduced Welcome Home Loans, the New Zealand scheme, in 2003. It was then enthusiastically supported by John Key’s National government, although it remained small-scale. In 2017–18, it approved just 1674 loan guarantees, and its total liability was only around NZ$30 million.

Unlike Morrison’s idea, it is carefully targeted to help those in the bottom 60 per cent of the population — those who genuinely need the government’s help to buy a property. You can’t buy an above-average property using this scheme. To be eligible, you need to be on an income that’s at best roughly average. And you must be able to raise at least 10 per cent of the purchase price independently for your deposit.

(The New Zealand government and its offshoot, Kiwibank, have other ways to help you to do that, and they play a bigger role in helping young people buy a home. In a country without compulsory superannuation, the young are encouraged to save in a Kiwibank superannuation account, from which they can withdraw virtually all their money when buying a home, and receive a home-saver grant averaging about NZ$5000.)

To be eligible, assuming you’re buying an existing property, the property must cost no more than NZ$600,000 in Auckland, NZ$500,000 in the other cities, and NZ$400,000 in the rest of New Zealand. (A$1 is currently NZ$1.06.) Slightly higher budgets are allowed for new buildings. You must be a genuine first homebuyer — no investment properties — and your income must be no more than NZ$85,000 for a single borrower, or NZ$130,000 for a couple.

Morrison has blown out those limits. His idea has the thresholds higher by half as much again as the New Zealand version: A$125,000 for a single borrower, A$200,000 for a couple. He didn’t mention any cap on the price of properties — nor on the value of the guarantees offered.

Moreover, instead of requiring applicants to have a 10 per cent deposit, he set that bar at only 5 per cent — with the government guaranteeing the banks for 15 per cent of the purchase price should the borrower default.

The lower you set the bar, the more likely it is that falling prices will leave the borrowers with negative equity: having a property that is worth less than what you owe on it. The lower the bar, the greater the financial pressure that borrowers will be under, and the higher the risk that they will default. And, as the banks warned in today’s Financial Review, the higher the interest rate they are likely to ask borrowers to pay.

One of the reasons why New Zealand’s scheme remains so small is that three of the big four banks (the same as ours, although two have different names) have refused to take part. Westpac is the only big bank participating, and Kiwibank (New Zealand’s fifth-biggest bank) writes 40 per cent of the loans.

If Labor wins Saturday’s election, one hopes it will study the New Zealand scheme carefully before deciding the design of its own scheme: it is now committed to it in some form or other, but it needs to find a way to maximise the benefits while minimising the risks.

At best, this could be a useful niche measure to help those who have been squeezed out of home ownership. As Grattan’s Brendan Coates and John Daley have pointed out in the Conversation, in 1981 even the poor in the twenty-five to thirty-four age group were mostly homeowners. Now fewer than one in four own their own home. Coates and Daley warn: “At this rate, almost half of retirees will be renters in forty years’ time.”

No political party will advocate that outcome, but that is where the existing policy is leading us. The balance has been tilted for too long in favour of housing investors. The Coalition lacked the political courage to fix it. Now, if the polls are right, Labor will have its chance. •

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Victorians will be relieved to hear that the real number is nothing like $1.3 billion. Publicly available information shows that the cost directly incurred by cancelling the contracts was $527,600,000 — a lot of money, but less than half the Age’s figure. That’s $339 million in compensation to the private sector for costs incurred (including compo for losing bids to build it); $81 million in bank fees for a facility set up for the project; $217 million in losses on swaps and other hedges; $600,000 spent by the government on legal and consulting fees to get out of the thing; and subtract from that $110 million in cash returned to state coffers. The figure has shifted a little — some of the bank fees and swaps have fluctuated in price or been repurposed for other projects — but it has remained well short of the billion-dollar mark.

The only way we can get past a billion dollars is if we include sunk costs in the total. While the Liberals were still in power on Spring Street, the government spent $365 million on property acquisitions; $200 million on planning and preparatory works; $1.6 million on policing protests against the project; $1.7 million on defending the project against court challenges; and $15 million on an advertising campaign mostly about East West Link. All that gets us up to around $1.1 billion, though the total will be a few million less by now because some of the acquired properties have been sold.

There are other, less direct sunk costs too. Money and time were “wasted” on East West Link — including the legal fees paid by community groups fighting the project; the cost of local council campaigns against the project; and the time spent on the project by government agencies, including Transport, Treasury, Planning, VicRoads, the Environment Protection Authority, planning committees, the cabinet secretariat and Infrastructure Australia — when they could have been spent on projects that actually got built and paid dividends for the community. All this would push the price tag up much higher, higher even than the Age’s $1.3 billion.

But sunk costs are supposed to be ignored in strict economic calculations, and shouldn’t be counted in the cost of cancelling. In the case of East West Link, the choice a rational actor is supposed to make is between $528 million to cancel, and the cost of continuing, and that choice depends on the return on investment.

When the Liberal government signed the contracts for the project, it claimed East West Link would produce $1.40 in benefits for every dollar invested — a $1.5 billion net benefit overall. If that figure was correct then cancelling was a horrible waste. But the benefit–cost ratio was hotly debated, with critics saying it included all sorts of rubbery numbers. One transport-modelling expert I interviewed for my research on the project says it included assumptions “you could drive a truck through.” And then there were the nebulous “wider economic benefits” added in to get to $1.40 — the benefits of agglomeration (businesses being located closely together in the CBD), for example — the kinds of thing not normally included in benefit–cost analyses by other agencies in Australia.

Transport academics and finance experts assessed the true benefit­–cost ratio at more like 0.8, or 80 cents for every dollar invested. If the state government was stumping up $2 billion in capital for the project, the loss would be $400 million. To this we must add the cost of operating the road. The commercial structure for East West Link would have seen the government pay the private sector to make the road available. These “availability fees” would be offset — but only partially — by tolls collected by the government. Financial experts projected in 2014 that if the average toll were $5.67 per trip (roughly comparable to other tolls in Melbourne) then the annual gap between toll revenue and these availability payments would be minus $251 million per year — and that would continue for decades. Suddenly $528 million doesn’t sound too bad.

Indeed, a startling number of big projects like East West Link are ultimately a waste of money. Analysing hundreds of megaprojects around the world, Danish academic Bent Flyvbjerg has shown that cost overruns of up to 50 per cent are common, and blowouts of more than 50 per cent not uncommon. On the other side of the ledger, benefit shortfalls of up to 50 per cent are very common. These are astronomical margins of error, frequently rendering projects uneconomic even if they intuitively look and feel good. And these shortfalls haven’t declined as our methods of calculation and projection have become more sophisticated. Flyvbjerg concludes that initial benefit–cost estimates are generally pure spin, deliberately inflated by project boosters simply because that is how you get funding to start a project. And once the projects start, they are nearly impossible to stop, no matter how bad the blowout.

So, if you think East West Link was a freakish one-off, think again. There are dozens of megaprojects on the books around Australia right now, and if Flyvbjerg’s averages hold — and there’s no reason to think Australia is somehow immune — they are going to cost hundreds of millions more than they give back in benefits. Whether it’s the West Gate Tunnel or North East Link in Victoria, Snowy Hydro 2.0 or Canberra’s Light Rail, Sydney’s Barangaroo or the Adani coalmine in Queensland, all megaprojects are massively risky propositions, and all are quite likely to deliver much less than they promised and cost far more than budgeted.

They can be seductive, these big builds promising thousands of jobs, huge efficiency gains, and grandeur. But, more often than not, these boondoggles are just not worth it. ●

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Yet-to-be-released budget figures show that the Turnbull government’s spending plans for infrastructure in Melbourne for 2018–19 amount to just $103 million — or less than a tenth of the $1.16 billion it has offered for equivalent projects in Sydney.

And most of its spending in Melbourne will be on putting together business plans and other preparatory work. It has committed just $49 million to build new transport infrastructure — mostly for the final stage of widening the Tullamarine Freeway.

But the new figures come in the midst of a startling shift in the long stand-off between Turnbull and Victorian premier Daniel Andrews. For years they have been at odds over the federal government’s refusal to invest in the transport projects of the Victorian government — a refusal that means Victoria has been badly shortchanged by the Turnbull government in favour of the prime minister’s home state of New South Wales.

Turnbull and Andrews, who have rarely if ever met one on one to talk about issues, will sit down soon to discuss how they can cooperate to build the Melbourne airport rail link, the proposed North East Link to join the Eastern Freeway to the Outer Ring Road, a tram or rail line to Monash University, and other transport projects.

Sources on both sides say they have already had several “productive discussions” by phone. “They’re as friendly as they’ve been in a long time,” one adviser says. Similarly positive discussions have taken place in recent weeks between Turnbull’s major projects minister, Paul Fletcher, and Victoria’s public transport minister, Jacinta Allan.

It’s too early to call it a bromance, but it is a sharp reversal of the longstanding hostility between the two governments, and it’s even reflected in 2018–19 budget allocations. The discussions, which were initiated by Turnbull, came after Victorian opposition leader Matthew Guy turned on his federal leader, accusing him of giving Victoria less than its share and favouring other states.

The budget papers for the last two years reveal that, under Turnbull, Victoria has received less than 8 per cent of federal spending on transport infrastructure, while New South Wales has received almost 40 per cent. Victoria is home to 26 per cent of Australians, New South Wales to 32 per cent.

Over 2016–17 and 2017–18, the federal government has given the states $14.7 billion of taxpayers’ money to build transport infrastructure. Of that, it gave $6.26 billion to transport works in New South Wales and just $1.15 billion for similar works in Victoria.

Melbourne, which absorbed almost a third of Australia’s population growth in 2016–17, will receive just 2 per cent of federal infrastructure spending in the coming financial year, according to the list of key projects prepared by the Department of Infrastructure.

But the long stand-off, which began with the Abbott government’s demands that Victoria build the financially unviable East West Link, a proposed road tunnel through the inner suburbs, appears to be coming to an end. Under pressure from his own federal and state MPs in Victoria, Turnbull announced last month that his government would “build the Melbourne airport rail link,” offering $5 billion in return for joint ownership of the project. While the offer was presented like a command, and was clearly intended to be abrasive — Turnbull told the Murdoch press first, then sent an email to the premier at around midnight — Andrews decided to ignore the slight and focus on the money.

After reporters criticised his negotiating style, Turnbull phoned Andrews, who thanked him and expressed a willingness to talk. Turnbull also played down suggestions in the Herald Sun that his government wanted the route changed to run through contaminated former defence land at Maribyrnong that the Commonwealth hopes one day to sell.

More phone calls have followed, including a warm one from Andrews on Monday after Turnbull announced that his government would offer $1.5 billion towards the $16 billion cost of the North East Link; $475 million towards the cost of a train or tram line from Caulfield to Monash University at Clayton, and then ultimately to outer-suburban Rowville; and funds to extend the Frankston line to Baxter and duplicate the line from South Geelong to Waurn Ponds.

“Rail link a reality,” blared the Herald Sun in its report on the Monash plan. No, it isn’t, and probably never will be. A tram line could become a reality, though; it would be very much cheaper and could go to Chadstone, the biggest shopping mall in the southern hemisphere, on its way to Clayton. A report earlier this decade for the Baillieu government warned that heavy rail would be the most expensive option to build and maintain.

Federal sources say they are open to either option. They also say Turnbull is not insisting on changing the route of the airport rail link, which is planned to go through Sunshine station to link with trains to Ballarat and Bendigo. Rather, he wants to be engaged in the project, and make it a genuine partnership between the two governments.

The sources would not be drawn on why the prime minister wanted half ownership of the rail line to Melbourne airport, whereas a month earlier he imposed no such condition when agreeing to pay half the cost of a rail line to Western Sydney airport. He still appears to have double standards when it comes to the two states.

The budget papers reveal that in the financial year just ending, his government has given New South Wales $2.7 billion for transport spending alone, roughly five times the $562 million it gave to Victoria. At least that was a more even split than the year before, when he gave his home state $3.6 billion, more than six times the $590 million given to Victoria.

But compared to its predecessors, this year’s budget seems almost egalitarian. On the figures in the budget papers, New South Wales will get a tad under $2 billion for transport spending, which is only a bit over twice as much as Victoria’s $890 million.

As I pointed out in my budget overview, despite the PM’s waving a list of new transport projects, the budget plans to cut federal investment in key transport projects by 13 per cent in 2018–19, compared to its equivalent list a year ago. Investment in Victoria, however, is projected to rise, mostly due to $504 million of spending on a package of regional rail upgrades negotiated by former infrastructure minister Darren Chester.

Even so, over the five years to 2019, the Abbott and Turnbull governments will have spent $12 billion of Commonwealth taxpayers’ money on transport infrastructure for New South Wales, but just $3 billion in Victoria.

Turnbull and his ministers blame the Victorian government for refusing the $3 billion they offered it to build the East West Link, which a conventional cost-benefit analysis revealed would return benefits of just 45 cents for every dollar it cost.

Fletcher has accused Victoria of sitting on a cash pile of $2.8 billion of money the federal government has allocated to it for projects that have yet to start, or are still incomplete. His office did not respond to a request for a list of these projects before publication.

Maybe that too is part of the warming of relations between the two governments. With an unfriendly redistribution looming in Victoria, the Turnbull government desperately needs to shore up its marginal electorates in Melbourne’s eastern suburbs — whose voters might not like seeing their taxes used to build the prime minister’s pet projects in Sydney when so much is needed in their own town. ●

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In just a decade, Melbourne has added more than a million people. It began this century with 3.4 million people. By September, on current estimates, it will have five million. In less than twenty years, its population has grown by roughly half.

That’s exhilarating. The city today has a buzz that it lacked twenty years ago. In the year to last June, an extra 125,000 people packed into Australia’s fastest-growing city. They included a net 80,000 overseas migrants, students and workers, as well as a net 9166 people, overwhelmingly young, from the rest of Australia. It gained a net 14,400 migrants from Sydney (but lost some to regional Victoria and Queensland). And there were a record number of births, because the city is now full of people in their twenties and thirties, and so babies keep popping out.

In that one year, Melbourne’s population grew by 2.65 per cent, the rest of Australia by 1.35 per cent. If this pace keeps up — and it has, more or less, for far longer than any of us expected — it will overtake Sydney within a decade to reclaim the title of Australia’s biggest city, a title it lost in 1902.

If growth is what you want, Melbourne’s got it. More to the point, it’s got it whether you want it or not.

But for many, the population growth transforming the city is more disappointment than exhilaration. In theory, governments can manage any level of population growth as long as they match it by investing heavily in infrastructure and providing expanded services. That was the key issue behind yesterday’s Victorian budget, in which treasurer Tim Pallas set out to do just that — at least for the coming year, when the government is facing an election.

But until now, that is not how the Victorian government has been run. As the table shows, it has been a chronic under-investor. Even in 2017, its investment in transport infrastructure generally, as a share of economic activity, was the lowest of any state, whereas its population growth has been the highest. Victoria has lived off the capital built by past governments.

Tuesday’s budget papers confirm that the roads have become far more congested; the past five years have brought 14 per cent more people, but only 1 per cent more road space. The growth in public transport passengers has flattened off, perhaps because people now look back nostalgically to the days when you could board a train or tram and get a seat. And while there are several reasons why ordinary young couples can no longer afford to buy a house, population growth is certainly one of them.

If the city keeps growing at this pace, the five million Melburnians of 2018 will become ten million by 2045. Melbourne has prided itself on being, as one survey keeps reporting, “the world’s most liveable city.” It was less congested than Sydney, its houses were cheaper, its train and tram networks were something to be proud of. All that is now disappearing before people’s eyes.

While those issues underlay yesterday’s Victorian budget, the politics was front and centre. There’s a state election on 24 November, and the Labor government of premier Daniel Andrews wants to be sure it gets back. Policy debates are all very good, but the policy of this government is to stay in power. Yesterday it left nothing to chance, showering money for works on schools and roads, hospitals and sports grounds, mental health programs, regional Victoria, and trams, trains and TAFEs.

Treasurer Tim Pallas put out a positive spin, reeling off his own exhilarating numbers on the growth of the state’s economy, and on its budget spending. Since Labor won power three and a half years ago, he said, Victoria has become the fastest-growing state. The output of its economy has grown by almost one-seventh in that time. It has added 334,000 jobs, more than 200,000 of them full-time. Housing and investment are booming.

And so the budget is awash with money. In some ways, the key figures of this budget are its dramatic revisions to estimated revenue and spending in the election year, 2018–19. The state now expects to rake in $7 billion (11.5 per cent) more revenue than it had forecast just two years ago — and to spend an extra $7.6 billion (12.5 per cent) on expanding the services it offers Victorians, almost across the board.

Why is revenue so much higher than Victoria’s Treasury had anticipated? Partly because soaring house prices have pushed up land transfer duties and land tax revenues. Partly because the Turnbull government keeps wanting to spend more in areas the states run — even if it discriminates against Victoria on transport investment — and partly because even GST collections are booming, and Victoria’s share is being pushed up because its share of the population is soaring.

Because this is an election budget, there are no tax increases and no spending cuts — at least, none the government owns up to. But a table in one budget paper shows that almost $2 billion of unspecified cuts will be made over the next four years to “reprioritise” spending, so that existing programs will be dumped or trimmed to pay for new ones. And we’ll never know what will be cut.

The new spending initiatives go almost everywhere — social housing was almost the only area to miss out, despite the crisis facing low-income renters in Melbourne. The new mental health spending is significant, the list of schools receiving upgrades runs for twenty-six pages, and a catchy policy offers a $50 payment to any households that sign into the state’s Energy Compare website to investigate how they can reduce their power bills. (The budget numbers imply that they expect almost a million households to do exactly that.)

A lot of care has been taken to ensure that regional Victoria gets its share of projects in almost every area — highlighted by a decision to reduce payroll tax there to only half the rate paid in the city. Melbourne is growing twice as fast as the rest of the state, and the government wants to move more of the action to the bush. A recent audit report found that in the decade to 2016, economic output actually shrank in half the municipalities of regional Victoria, including Mildura, Wangaratta, the Latrobe valley, a vast swathe of western Victoria, and even East Gippsland, where the retiree population is booming but jobs are not.

But Andrews and Pallas highlighted two areas in particular: skills and infrastructure.

A package of reforms to the neglected TAFE system is headlined by a surprising initiative to make thirty courses free of charge throughout the state. At the highest (diploma or certificate IV) levels, they include accounting, ageing support, agriculture, building and construction, engineering, plumbing, nursing, mental health, and other health and welfare roles.

The government will also fund 30,000 more training places, upgrade or add seventeen new campuses, largely in country towns, expand career guidance in schools, and begin a program to allow students to enter an apprenticeship while still at school.

The aim, Pallas said, was to challenge the assumption that kids have to go to university if they want to succeed in life — and help them become the skilled workers needed for the future Australian workforce. “Skills are the centrepiece of this budget,” he told me. “This is a Labor budget that will deliver new skills and good jobs.”

The other main theme of this budget is infrastructure. In this coming election year, the state plans to invest $13.7 billion on infrastructure, including investments by private companies such as Transurban on projects they operate for the government. In its first budget just three years ago, the Andrews government invested a puny $4.8 billion. At first sight, that is some policy shift — and a recognition that the combination of rapid population growth and inadequate investment is destroying Melbourne’s liveability.

(This figure is much higher than the one in the table above for several reasons. The earlier figure measures engineering construction, which covers most infrastructure investment, especially in transport. The government’s figures also include investment in buildings, machinery and equipment, investments by its private-sector partners — and, of course, a sizeable increase in spending between 2017 and 2018–19.)

But it’s only temporary. For the Andrews government remains bound by its commitment to keep net government debt to a minuscule 6 per cent of gross state product, the share it inherited from the Liberals. The protracted sale of the Port of Melbourne brought the debt down, and now, over the three years from 2017 to 2020, a big increase in infrastructure investment will push it back up to that low ceiling. One might note that the federal government’s net debt, by contrast, is roughly 20 per cent of GDP — and it still has a AAA credit rating.

The budget also warns us that this investment surge is a one-off. After the election, as it nears its self-imposed ceiling, the government would go back to being a chronic under-investor. Its investments and those of its private sector partners will hit 3 per cent of gross state product in 2018–19, only to then slide back to 1.5 per cent in 2021–22, and resume its usual ranking at the bottom of the table.

Unless you believe it will have fixed the infrastructure backlog by then, that is economically indefensible. Bond rates have edged up a little, but it is still very cheap for governments to borrow, and with the population on track to double within a generation, Melbourne’s needs remain immense. The government’s decision to impose such a low debt ceiling, and to maintain a AAA credit rating at all costs, are driven by politics, not economics. Queensland lost its AAA credit rating when premier Anna Bligh rightly gave priority to infrastructure investment — yet the rates it pays on its debt are only between 0.1 and 0.15 percentage points higher than New South Wales. It really makes very little difference in the markets.

In effect, Victorians are paying the cost for believing that Labor governments are fiscally more irresponsible than Liberal ones. But there are many ways to be irresponsible, and investing too little can be as irresponsible as spending too much.

For these three years, at least, Victoria will be investing across a wide canvas of transport projects. Its own investment in transport infrastructure has risen from $2.5 billion in 2015-16 to a planned $7 billion in 2018-19. That includes:

• $1.1 billion on its blitz to remove fifty level crossings from Melbourne roads. That is one of Labor’s flagship projects, funded by the state alone — although unfortunately, as the auditor-general has pointed out, they are not the fifty most dangerous or congested level crossings in Melbourne. Inconsequential level crossings in marginal seats on the Frankston line are being removed while the level crossing in Liberal-voting Surrey Hills, which VicRoads has ranked as one of the city’s worst on both counts, has been left to keep blocking busy Union Road.

• $319 million as the state’s share of works on the controversial West Gate Tunnel project, a Transurban plan adopted by the government despite the best efforts of the Liberals, Nationals and Greens to block it. The government has adopted a sneaky plan by which most of the bill will be footed initially by Transurban, but the bill will ultimately be paid by drivers on CityLink, the overpriced inner-suburban freeway, for which Transurban’s lucrative franchise has been extended for another decade.

• $571 million for another of Labor’s flagship projects, the $11 billion Melbourne metro tunnel, also entirely state-funded, which will take a decade to build. (Why can they do these things so much faster in Asian cities like Delhi and Singapore?)

• $453 million of essentially Commonwealth-funded works to upgrade the Ballarat and Gippsland rail lines. This was the legacy of former federal infrastructure minister Darren Chester, Gippsland’s MP, who used the deadlock between Malcolm Turnbull and Andrews over almost every project in Melbourne to focus the small amount of funding the federal government gives Victoria on rural roads and rail.)

• $375 million to transform the rail line from Cranbourne/Pakenham through the city to Sunbury, including a new signalling system, longer platforms and upgrading those essential, inconspicuous and often-overlooked things like power supply. Another $58 million will complete the controversial Skyrail project, to open later this year, which has elevated the rail line through some southeastern suburbs to scrap level crossings. The Murdoch press, which supports the Liberal government doing this in Sydney, has depicted it as an outrage against human rights under a Labor government in Melbourne.

• $123 million to plan the $16.5 billion North East Link from Greensborough to the Eastern Freeway — to include a significant widening of the freeway through the middle suburbs. But in a marked difference from the way the Liberals rushed through the controversial and economically unviable East West Link before the 2014 election, Andrews says no commitments will be made until after the election. Liberal leader Matthew Guy says that, if elected, his party will build the East West Link first.

And there’s much more. A lot of money will be spent all over the state to upgrade, widen, rebuild and repair Victoria’s rural and regional highways and arterial roads, and a lot more to tackle urban congestion. There will be new trains, trams and rail carriages. The government deserves a pat on the back for committing $200 million or so of its revenue windfall to lift spending on road maintenance, where the statistics suggest an alarming deterioration. It needs to do the same for bridges, after a recent report rated two-thirds of the state’s bridges as being in poor condition.

Where is the Commonwealth government in all this? On the fringes. Its own figures have consistently shown that Victoria is getting only 10 per cent of its infrastructure outlays, even though it has almost 40 per cent of Australia’s population growth. Both governments share the blame for the juvenile stand-off in which the Turnbull government refuses to support anything that the Andrews government supports, apart from widening the Western Ring Road and the Monash Freeway.

Turnbull’s latest stunt is to offer $5 billion to build a rail link to Tullamarine airport — provided that the route is changed to run through land the federal government is trying to sell, and the federal government takes 50 per cent ownership of the rail line. The offer was shared with the Murdoch press before it was shared with the Victorian government — which understandably has ignored it. When the federal government announced its support for a rail link to the Western Sydney airport, it was with no conditions, and at a joint press conference with the NSW premier. That’s how governments are meant to act.

Whatever route is chosen, the rail link can’t run through the city before the new metro line opens in 2026. Infrastructure Victoria rates the whole project as only a distant priority anyway, given that the Tullamarine Freeway widening is almost complete, which will see Skybus get to the airport as fast as a rail link could. And the polls suggest that in a year’s time, Turnbull will no longer be prime minister, and a federal Labor government would finally treat Victoria with the respect — and priority — it deserves.

After a rocky period last year when the Herald Sun commissioned opinion polls whenever things looked bad for Labor, the polls in recent months have suggested that Labor is likely to be re-elected. It’s still close — Labor polled 51–49 in the last Newspoll, 52–48 in the one before, and even better in the latest Essential poll — but what is striking is that Andrews’s personal ratings have rebounded to roughly where they were at the 2014 election. Among the mainland state premiers, the only other to achieve that feat in recent times was Annastacia Palaszczuk, who was also the only one to be re-elected. The Liberals, who seem obsessed with battles within the party, have simply not cut through.

This is a soft budget. With all that new revenue and infrastructure spending, the anticipated surplus in 2018–19 is a skinny $1.4 billion, down from about $3 billion when Labor took office. In state budgets, the surplus is essentially the contribution current taxpayers make to infrastructure spending. With Victoria’s economy where it is, the surplus should be at least $5 billion now, but Labor has used the good times to put off hard decisions, allow wasteful programs to continue — for example, paying people in uniforms to walk up and down every suburban train station at night, to make passengers feel safe — failing to tackle tax reforms, and allowing the state’s wage bill to blow out by an extraordinary 38 per cent in its four years in office — including an 11.2 per cent increase in 2018–19 alone.

If the economy keeps going well, it will get away with it. If the economy turns down, as well it could, this slack management will cause Labor serious problems ahead. Right now, the public is paying no attention.

This budget was labelled “Getting things done.” Last year it was “Getting on with the job.” Whatever Andrews’s faults and limitations, he is dogged, competent and, yes, can say that he is getting things done. People might not like him, but he has earned a grudging respect. And he, and Pallas, have been lucky to be in office at a time when the state economy is booming. Naturally, they claim the credit. ●

The post Budgeting in boom time appeared first on Inside Story.

He eventually figured it out and got me to where I was meant to be, but I couldn’t resist.

“Sorry I’m late,” I said to Uber’s Brisbane manager at the time, Sam Bool, when he met me in reception. “My Uber driver got lost.”

I had been on a panel a few months earlier with Bool, and he had suggested I call in at Uber the next time I was in town and have a look around. Though I was happy to accept the invitation, I wasn’t what you’d call a fan of Uber. But nor was I one of those who dreams of its destruction. Uber and other platforms of its kind have enormous potential, even if the company’s labour practices are far from ideal. As part of a more general transformation of work and industry, and with the right regulation and a much more ethical approach, their upside could be significant.

Indeed, Brisbane (and the rest of Queensland) already regulates Uber, and the state government’s legislation has been beneficial for everyone (though the taxi industry would argue that the new rules don’t go far enough). Among other things, drivers are obliged to pay an annual fee in order to operate; they must meet a zero drug and alcohol requirement when driving; their vehicles must have a government-granted certificate of inspection and display Uber-identification when the app is operating; and, as of 15 January 2018, they are required to have a Booked Hire Service Licence, which comes with its own set of rules.

When the regulations were introduced, Uber’s Queensland manager, Alex Golden, told the ABC that the company was “disappointed for Queenslanders who will miss out on the opportunity to make flexible money from ride-sharing… because they can’t afford the upfront costs imposed by government.” Interestingly, though, during the panel discussion where Bool and I met, Bool told us that the regulation had actually made his life as a manager easier. The fact that the government now imposed certain standards on Uber drivers meant that he no longer had to spend time enforcing similar rules and was freed up to do other things.

At this point, Uber’s year of hell hadn’t officially begun. This was before accusations of sexual harassment surfaced in the United States; before founder Travis Kalanick was forced from his post as CEO; and before the City of London refused to renew the company’s operating licence. It was also before Uber was sued by Google’s autonomous vehicle company, Waymo, for allegedly stealing trade secrets, and before Kalanick himself was sued for fraud by Benchmark, one of the earliest venture capital firms to invest in the company. I’d be surprised if these developments would have changed the essentials of what I saw in Brisbane, though perhaps they’d have changed the conversation we had.

Even before things got rocky for the company, you would hardly say it was a stranger to controversy. It was noted for — and even revelled in — its bad-boy image as a disruptor of the traditional taxi market. It openly flouted regulations and seemed almost to welcome slugging it out in court with the various governments it offended. It aggressively and shamelessly used its customer base to lobby politicians, as famously happened in New York when mayor Bill de Blasio announced he would seek to limit the number of hire cars operating in his city. It also openly opposed attempts by drivers to unionise, and indeed has spent billions on getting rid of drivers altogether through automation.

My visit began with a tour of the premises, which is linked to the separate offices of Uber Eats and the division that organises promotions with local businesses. In one section, staff liaised with drivers via telephone — hiring was done elsewhere — and it was here that I got my first glimpse of the kind of thing that many people hate about Uber. I was told that the staff on the phones worked from scripts, partly in order to make sure they never used a form of words that implied the driver was an employee. They never tell drivers to do anything; they suggest certain courses of action.

I was told the average amount of time a driver stays with Uber is four months, which struck me as an incredibly high turnover rate. It means a significant part of the business involves recruiting drivers. Indeed, a 2015 report released in the United States by Uber itself shows that, of 162,000 active drivers, 11 per cent quit within a month. Most were also part-time — 62 per cent had other jobs — and just 14 per cent of drivers were women (though the figure is even lower for taxi drivers: in the United States, 8 per cent are women; in Australia, the figure is 6 per cent).

The implication of all this is that businesses like Uber rely on the existence of a vast pool of unemployed or underemployed low-wage workers who are looking either for any sort of work at all or for some sort of income supplement. Some of them are certainly attracted by the flexibility the job provides — I have spoken to students who drive for Uber in preference to, say, working in a restaurant, because it’s much easier to fit Uber around their study schedule — but the reality is that a labour market that provided everyone with a decently paid, full-time job would be the death of companies like Uber in their current form.

The high turnover also makes it incredibly difficult for drivers to organise collectively, let alone unionise, and demand better pay and conditions. (Given its hostility to unionisation, Uber may well regard the turnover rate as a feature rather than a bug.)

Another controversial aspect of the “platform capitalism” that Uber represents is its use of rating systems that allow customers to score workers, workers to score customers, and the platforms themselves to use data to impose standards on drivers. Like many such businesses, Uber uses a star-rating system (one to five) and, as an article in the Verge points out, such rating systems have all sorts of implications for how we understand the worker–employer–customer relationship:

The on-demand economy has scrambled the roles of employer and employee in ways that courts and regulators are just beginning to parse. So far, the debate has focused on whether workers should be contractors or employees, a question sometimes distilled into an argument about who’s the boss: are workers their own bosses, as the companies often claim, or is the platform their boss, policing their work through algorithms and rules?

But there’s a third party that’s often glossed over: the customer. The rating systems used by these companies have turned customers into unwitting and sometimes unwittingly ruthless middle managers, more efficient than any boss a company could hope to hire. They’re always there, working for free, hypersensitive to the smallest error. All the algorithm has to do is tally up their judgements and deactivate accordingly.

I asked Bool if it was true that drivers are fired if their customer rating falls below a certain level (generally reported as 4.8 stars) and he told me that the star rating is just one tool Uber uses to keep a check on driver performance. Another is the “telematics” function associated with the app and the GPS tools within the drivers’ smartphones. By using those readings, Uber can tell whether a driver is holding the phone in his or her hand or has it mounted on a stand on the dashboard (as Uber recommends). It can also tell whether the driver has accelerated too quickly, swerved, or braked suddenly. Uber justifies this close monitoring of drivers as a way of improving overall safety, and it explains on their engineering website:

On Uber Engineering’s Driving Safety team, we write code to measure indicators of unsafe driving and help driver partners stay safe on the road. We measure our success by how much we can decrease car crashes, driving-related complaints, and trips during which we detect unsafe driving.

Uber uses “harsh braking and acceleration as indicators of unsafe driving behavior.” Harsh braking, says the company, “is highly correlated to unsafe behaviors like tailgating, aggressive driving, and losing focus on the road.”

Uber is not alone in using technology to monitor driver behaviour. “Black boxes” that use similar technology are common in the trucking industry. An executive at one of Australia’s biggest haulage companies told me recently that they “help our drivers understand how to be better drivers.” According to one manufacturer of such devices, “It provides instant in-cab feedback to drivers so they can adjust their behaviour accordingly, increasing safety and efficiency. It also uses on-board data to generate weekly driver skills reports, creating another opportunity to educate drivers and reinforce optimum driving habits in your company.”

For all the talk of improved safety and efficiency, though, such practices also highlight one of the least-talked-about factors shaping the future of work, namely the way the new technologies enable ongoing, real-time surveillance of employees and contractors — and, indeed, customers. We know, for instance, that Uber’s app used to track passengers for five minutes after their ride had finished, a practice that was only recently discontinued.

After the tour, I sat down with about fifteen staff members while they had their lunch. Uber provides a fresh meal for staff each day, and the common area — where we sat around a big square table — has a fridge full of drinks employees can help themselves to, along with microwaves and coffee-making facilities. After I was introduced, we went around the table and each person gave some background about his or her education and trajectory to Uber. I was invited to talk about my book, Why the Future Is Workless, and then we spent about an hour discussing matters arising.

I imagine everyone was on best behaviour, but all the same I was struck by what an impressive lot they were. Roughly equal numbers of men and women, nearly all in their twenties, all of them with at least one degree — in everything from psychology to programming — and a number with postgraduate degrees. We talked about the effect technology was having on work and they were well-versed in the pros and cons of what was happening: they joked about how most of them were likely to be made redundant by machines.

When I asked how they saw their careers unfolding, most thought that they would have many jobs across their working life and accepted this as the nature of work these days. In fact, they didn’t see it as a negative at all. They liked the idea of that flexibility and the chances it opened up for travel and different experiences. It struck me that it would have been interesting to have a similar discussion with drivers present as well. The experience of the gig economy — moving from job to job or contract to contract — is obviously very different for those with in-demand skills and qualifications than it is for those simply trying to string together enough to live on.

I asked what they thought about the prospect of driverless vehicles. Most thought it was inevitable.

“How would you explain the introduction of a driverless fleet if you were Uber?” Bool asked me.

“Well, first,” I said. “I’d stop lying about what is likely to happen.”

I told them I had recently seen an interview with Travis Kalanick in which he had played down likely job losses, even suggesting that autonomous vehicles were about “job creation.” While it is certainly true that new jobs will emerge with such a technology, there is also no doubt that what attracts companies like Uber to autonomous vehicles is the chance to lift their own profitability by reducing the number of drivers they need to pay. Pretending otherwise is nonsense, I suggested.

At the time, this might have seemed like the most pressing matter facing Uber, and I could understand why it had been raised. But the dramas that subsequently swamped the company have given it plenty of other things to worry about, to the extent that some are openly questioning its long-term viability. Still, while the corporate problems are likely to cause ongoing concerns, there is evidence that the core business of ride-sharing continues to perform strongly. The big issues are likely to be the role that founder Travis Kalanick will play in the company, and how quickly the autonomous vehicle market becomes viable.

After the lunchtime discussion, Bool walked me outside and used his manager’s app to order a car to take me to the airport (yes, at no charge). I told him how impressed I was with his team and he shook his head slightly and said, “Yeah, they’re amazing. When I was their age I was just looking to make money, to make a living. These guys really want to save the world.”

It’s easy to be cynical about a comment like that — if you want to save the world, why on earth would you work at Uber? — but I could see what he meant. Uber is hardly a poster child for a vision of a workers’ utopia, but I think we need to be careful to separate the good from the bad. It isn’t the technology per se that is the problem, but the social, managerial and economic structures within which it operates.

In trying to shape the future of work, it is important to understand how the technology can be used (and abused) and to understand the nature of the transformation that is occurring. We should be finding ways of creating the political environment in which these new tools will benefit the many and not just the few. The bare question that frames most of this discussion — “Will a robot take my job?” — is far too reductive.

I think the big mistake people make in trying to understand Uber is to compare it to the taxi industry. While it is true that Uber and other ride-sharing services have caused no end of problems for taxis, it is wrong to see them as merely a more efficient form of an old industry. At some point, especially if autonomous vehicles become the norm, the transformative power of a cheap, reliable ride-sharing service goes well beyond anything the taxi industry could imagine or achieve.

Driverless, on-demand vehicles are likely to change everything from the design of cities to the way we shop. Cars themselves will go from being a product we own to a service we order, and the overall number of vehicles on the road is likely to drop. (PricewaterhouseCoopers suggests the fall in numbers could be as high as 98 per cent.) Driving will be much safer and the knock-on effects will touch business and government alike. As analyst Ben Thompson has written, the race is on to see which company “becomes the default choice for all transportation.”

Uber is an easy company to hate. But given the extent of the transformation it represents, we are going to need a better response than that. •

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Named after the cameleers of the late nineteenth century — known as “Ghans” on the erroneous assumption that they were all from Afghanistan — The Ghan takes fifty-four hours to cover a journey of close to 3000 kilometres at an average speed of eight-five kilometres per hour. That’s slower than car travel on the Stuart Highway, where the speed limits are 130 kilometres per hour, though once it’s compressed into seventeen hours the journey by television takes only a third of that time.

One of the paradoxes of slow TV, which was pioneered in 2009 in a minute-by-minute Norwegian documentary on the seven-hour train journey from Bergen to Oslo, is its economies with time. You don’t watch people sleeping through the overnight stretches on The Ghan. You don’t have to bother booking tickets, getting to the station, manhandling luggage. The core experience is lifted out for you, in one clean stretch. Activities in the physical world are so much messier. They leak into time zones of preparation and aftermath.

The Ghan is considerably faster than a camel, which can reach speeds of around sixty-five kilometres per hour, but the televised journey evokes the immersive experience of that mode of travel, a kind of landscape dreaming in which the rider is lulled by the steady, rhythmic sway into a state bordering on hypnosis.

Not that everyone is soothed. Reactions to SBS’s 7 January screening of a preliminary three-hour version, with the hashtag #TheGhan, quickly became a stand-off between the bored and the mesmerised. The entranced reported switching on out of curiosity and finding themselves still watching two hours later, so fixated they couldn’t get up to make a cup of coffee for fear of missing something. The bored tried to stir outrage with complaints about minority-appeal experiments on taxpayer-funded TV. Many declared they were cancelling plans to make the real journey.

The entranced seem to have won out by a considerable margin. Viewing figures for the preview version were strong enough to justify showing the full-length documentary last weekend, from 2.40 on Sunday morning till 8.40 in the evening. One tweeter reported that he had persuaded his local pub to devote one of its screens to The Ghan and it had proved more of a draw than the football. As for the bored… well, one of the rules of a human experiment like this is that participants are free to leave at any time.

A word of caution, though, to those who may be rushing to make a booking on The Ghan. This is not, as some of the more disaffected viewers reported, an attempt to portray the experience of making the trip. It is not a travelogue or a tourist account. Apart from a few brief appearances by the drivers in their cabin offering easygoing commentary, we are not invited to connect with anyone on the journey. Interior shots of the corridor or dining car pick up the comings and goings of passengers like figures on a Kubrick spaceship, their talk almost inaudible on the muted soundtrack.

According to writer/producer Dan Whelan, the aim was “to make the train a character in the documentary.” Perhaps there is some affinity between the train and the human psyche, and The Ghan might be best described as a journey in consciousness. That may sound esoteric, but the immersive effect is so effortless, as so many viewers reported, that it can catch you by surprise.

The cameras provide shots from a range of positions in or around the train, on the tracks or from a helicopter circling overhead, maintaining the perspective long enough for the mesmeric effect to work. After two minutes and fifty seconds following an unbroken stretch of flat scrubby landscape on the right side of a rear carriage, there is a switch to the left side, where there is a new visual element: the shadow of the train. Any new element has the effect of putting you on the alert again, and in some instances the effect is dramatic. We cut to a shot from the rail tracks. A tiny insect flits around the lens of the camera. Then the train heaves into view and we watch as it rumbles over, all 900 metres of it.

For minds habituated to a blitz of visual and aural information throughout waking hours, there’s a luxury about the absence of any demand for filtering and sorting of material. It’s all done for you in the editing room, with a remarkably sure instinct for the natural rhythms of attention.

There is no voiceover. Information is provided as on-screen text, almost as part of the landscape. Here we’re crossing Goyder’s Line, marked out in 1874 as a warning to farmers not to push into land unfit for cultivation. In recent decades, Goyder’s Line has been moving steadily south. A bit further north, on the approach to Port Augusta, captions report that 124 camels and thirty cameleers arrived here in 1865. A superimposed black-and-white photo shows a lone camel suspended from a crane above a boat. As you get deeper into the journey, you are engaged in a form of time travel.

Shots from the front of the engine, often held for several minutes, lure the eye along the converging lines of the tracks to a vanishing point on the horizon. But however fast you go, the vanishing point will always be further off. Are we getting somewhere or going nowhere? Either prospect is inviting. Somehow, the forward drive of the train and the arbitrary peripheral moves of the camera echo the way the mind itself works.

Slow TV is a wonderful antidote to all the things that annoy you most about regular TV. It’s not for everyone, and maybe not for most of us, most of the time, but I hope we see more of it. Perhaps, as life in the real world goes off the rails in all directions, what we need is a slow TV channel, showing an unending stream of quietly uneventful journeys. ●

The post Getting somewhere or going nowhere? Either prospect is inviting appeared first on Inside Story.

But a closer look reveals a lot more good news than bad, with two major developments standing out. The first is an emerging global consensus, encompassing national governments, financial institutions and civil society, that the era of coal-fired electricity generation must end, and soon.

Typifying this trend is the new Powering Past Coal Alliance, made up of national and provincial governments pledged to phase out coal-fired electricity generation by 2030. Launched with twenty members in November 2017, the Alliance expanded rapidly to include major businesses, and now has nearly sixty members. Its government members include Britain, Canada, New Zealand and a number of other developed countries, middle-income countries such as Mexico and Costa Rica, and developing countries such as Angola and Ethiopia. Not surprisingly, Pacific Island nations, endangered by sea-level rise, are well represented.

This consensus is not yet universal. Along with the United States and Australia, a number of national governments (notably Japan, Turkey and Poland) are still trying to keep coal-fired power alive. Strikingly, most of the recalcitrant governments are led by right-wing demagogues (Australia is the obvious exception, but our policy is arguably being driven by Tony Abbott and the Liberal right rather than our notional PM), and it’s reasonable to hope that their departure will see a reversal of their countries’ positions.

The financial sector has seen the writing on the wall. After a decade-long campaign by environmental organisations to end financial support for fossil fuel investments, the tide seems to have turned in 2017. The National Australia Bank’s recent announcement that it will no longer finance new thermal coal-mining projects is part of a broader global trend. It follows the adoption of similar policies by global banks including Citi, Deutsche Bank and BNP Paribas. Until very recently, many of these banks were big lenders to the fossil fuel sector.

More broadly, most of the leading European insurance companies have broken their links with coal or are about to do so. Pension funds are following suit. Government export financing corporations have mostly abandoned coal, with Australia’s Export Finance and Insurance Corporation a notable exception.

The second factor, technological progress, has been crucial here. Not only has the cost of solar photovoltaic and wind generation continued its steady decline, but battery storage has become a realistic option, both for large-scale grid management and for individual consumers. Tesla’s 100MW/129MWh battery in South Australia, installed in a matter of months, is already playing a vital role in the Australian grid.

The combination of technological change and political consensus means that a feasible path is now open to a rapid phase-out of coal-fired power and a fully decarbonised electricity supply system over the next couple of decades.

Developments in road transport have been equally significant, and perhaps even more surprising. Only a few years ago, electric and hybrid vehicles seemed likely to remain as a niche option for many years to come. During the course of 2017, Britain, France and India all announced plans to end the sale of petrol and diesel vehicles and replace them with electric cars. China has not yet made a formal commitment of this kind, but it has made clear its intention to dominate the market for electric cars, and has offered substantial tax rebates to promote this goal. Established car-makers in the United States, Europe and Japan have responded to the challenge, shifting investment away from internal combustion models and producing a full range of electric vehicles.

Once again, the process involves an interaction between technological and social change. On the technological front, substantial progress has been made in allaying the main concerns about electric vehicles: limited range and high cost. Not only can new models travel up to 500 kilometres on a single charge, but the network of charging stations in the United States and Europe is also comprehensive enough that the risk of being stranded on a long journey has effectively disappeared.

As has often been pointed out, electrification of motor transport is useful only if electricity is generated from a renewable source. What has attracted less notice is that electric vehicles constitute a vast potential for energy storage. If vehicles are charged during the early afternoon, when solar PV generation is at its peak and relatively few cars are on the road, the economic viability of solar-plus-storage systems large enough to meet the demand peak in the late afternoon and early evening can be greatly improved.

Most of the world’s leading industrial countries are now on a path to decarbonising electricity supply and electrifying transport. China and India have signalled their intention to follow the same path, although it will take them longer to change direction and they will still be using energy at a rapidly growing rate. At this point, the only question is whether the world will change course fast enough.

Few if any of these developments have been covered by Australia’s mainstream media, which is primarily focused on the Turnbull government’s internal struggles — struggles primarily driven, in turn, by the politics of the culture wars rather than by any rational position. The euphoria with which the eight-page sketch of a National Energy Guarantee was greeted by much of the press reflected the desire for a political solution to these struggles rather than any assessment of whether the policy was internally coherent, let alone consistent with the need for a decarbonised economy.

Regardless of media coverage or the lack of it, technological and political realities have begun to bite. After cynically exploiting the blackouts caused by storms in South Australia last year, the Turnbull government has been faced with the embarrassing reality that Australia’s ageing coal-fired power stations are not the reliable source of energy presented in the mythology of the coal lobby. Rather, the South Australian Tesla battery they derided has come to the rescue when coal-fired plants have failed (ironically, they are particularly prone to do this during heatwaves), attracting international attention in the process.

Meanwhile, the central political objective of the National Energy Guarantee — forestalling the closure of coal-fired power plants — has been a failure. Despite immense pressure from the Turnbull government, AGL has announced that it will proceed with the retirement of the Liddell power plant and its replacement by a large investment in renewables, backed up by peaking gas plants.

Even more striking has been the apparent demise of proposals to develop the massive, though low-grade, coal resources of the Galilee Basin in Queensland. The leading candidate, on which the others depend, has been the Adani Group proposal for a mine at the Carmichael site and a rail line linking the mine to the Adani-owned port at Abbot Point. The project would require billions in loan finance in addition to the $3 billion or so Adani has already sunk into the acquisition of the site and the development of the port.

Over the course of 2017, it became apparent that this finance was not going to be available. Following the lead of most of the main global banks, the big four Australian banks announced they would not fund the project. The coup de grâce was the announcement that major Chinese banks, now the leaders among the few remaining international lenders to coal projects, would not support the project. It is unclear if this outcome reflects a broader shift away from coal, the poor financial prospects of the Adani project, or some combination of the two.

The company’s last remaining hope was that the Australian government would finance the construction of the rail line through its Northern Australia Infrastructure Facility, or NAIF. Despite the longstanding popular appeal of developmentalism, it became evident in the first days of the Queensland election campaign that public opinion was strongly opposed to public financing of the project. Labor reversed its previous supportive stance and announced that, if re-elected, it would veto the NAIF loan.

It was expected that such a shift, while protecting Labor’s position in the urban southeast, would cost the party votes in regional areas — particularly in Townsville and Rockhampton, where Adani had promised to base its fly-in, fly-out workforce. The first part of this expectation proved correct but the second did not. Despite a modest swing, Labor held on to Rockhampton and Townsville, and it gained enough seats in the southeast to secure an absolute majority.

Shortly after the implementation of Labor’s commitment to veto the NAIF funding, the project’s demise came a step closer with the announcement that Adani had parted ways with Downer EDI, with which it had a $2 billion agreement to operate the mine.

Despite the efforts of Trump, Turnbull and others, it all adds up to a good year for the global climate. Until recently, the idea that we could eliminate energy-related greenhouse gases seemed hopelessly utopian. Now the world has a clear path to this goal, at least in the core areas of electricity and transport, while still maintaining and improving living standards. Let’s hope that 2018 will see further progress. ●

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The last great high-water mark in public transport investment was in the years between the first and second world wars, when state governments, still in control of income taxes, could afford to electrify the suburban systems of Sydney and Melbourne, build J.J. Bradfield’s Sydney Harbour Bridge and underground railway, and maintain a network of capital-city trams. Since they surrendered their income tax powers to Canberra in 1942, they’ve been strapped for cash, and the federal government has made more and more of the decisions about where public investment goes. Where it’s gone has been into public housing and suburban sewage (at least to begin with) and education, health and interstate roads, but not into public transport.

Melbourne managed to keep its tram system — now the largest on the planet — but all the other cities ditched theirs along the way. What an irony it is that one of the main reasons for getting rid of Sydney’s trams was the road lobby’s complaint that traffic in the city’s main thoroughfare, George Street, was down to five miles an hour. Seventy years later, with traffic once again down to a crawl, the tramline is being rebuilt.

Elsewhere, governments are belatedly attempting to retrofit new rail routes and build new tramlines. Even the Gold Coast, where the Queensland government ripped up the Beenleigh-to-Southport-to-Coolangatta rail line in the early 1960s, acquired a new federally funded line in the 1990s, designed to cope with a predicted population of half a million. More recently, a tramline has been inserted into the Gold Coast highway, with an extension on the way.

But roads have always been the priority. State and federal governments invested billions in urban freeways from the 1960s to the 1990s, and then Transurban came along with offers to inject capital in exchange for long leases. The company didn’t just want ownership; it also wanted remunerative links to publicly owned freeways, with its share of the take maximised by strategically located tolling points.

Victorian premier Jeff Kennett’s thirty-three-year CityLink agreement with Transurban included a clause allowing the company to claim compensation if “new roads or public transport” had a “detrimental effect” on its financial performance. Victoria’s current government has belatedly promised a rail link to Tullamarine airport, its absence being the single biggest dent in Melbourne’s claim to be a global city. One simple accident on the “Tulla” on a Friday afternoon and thousands miss their flights, parents miss closing time at childcare centres and everyone’s temperature rises dangerously.

Tollways and freeways can certainly make longer urban trips much quicker at certain times of the day, but not at peak hour, when adding lanes might increase capacity but rarely diminishes congestion. Part of the problem is that you can’t quickly alter the public transport and road systems, and it is usually hard to increase capacity significantly.

Most of the worst traffic congestion in Australia is no longer in the inner-city areas. It’s on the freeways and tollways, where cars jostle with B-double trucks and tradies’ utes. In the past, traffic problems have been blamed on city-centred road systems, but tollways and freeways — including Melbourne’s ring road, Brisbane’s Gateway system (linking the Gold and Sunshine Coasts) and western Sydney’s M7 — increasingly bypass city centres completely. Even on accident-free days, travel times often double at peak hour. A quick check of Google traffic maps for the morning and evening peak shows plenty of twenty-five-kilometre trips taking an hour or more, especially when tollways intersect with publicly owned freeways, with many lanes of traffic being forced into just a couple of lanes.

Brisbane desperately needs another rail crossing under the river because the current two lines simply can’t cope with the three million people who live in the 200-kilometre city from Noosa to Tweed Heads. Over $3 billion was unaccountably spent on the Clem Jones Tunnel under the city’s Story Bridge without building in a rail link. Instead of the predicted 60,000 vehicles a day, it got 20,000 and went broke, and Transurban eventually picked it up on the cheap. Like the saga of the cross-city tunnel in Sydney, the project showed that the resources spent on an enormously expensive quick fix could have been much better allocated.

Simple bits of infrastructure can make a significant difference. The bus, pedestrian and cycle bridge over the Brisbane River, linking Woolloongabba with the University of Queensland, services 50,000 trips a day — a bargain at $55 million. A high proportion of Brisbane’s busway system, built over the past twenty-five years, runs on bus-only infrastructure, which offers much faster travel times than buses manage in Sydney or Melbourne (though bus-only lanes can also be helpful). The bus-only lanes on the Sydney Harbour Bridge carry more passengers at peak hour than private cars, most of which carry a driver but no passengers. Myriad research studies show that when you ask car drivers to estimate their travel time, and compare it to the same trip on public transport, they rarely calculate the amount of time it takes to find a park once they reach their destination.

Metro-wide planning blueprints should be an opportunity to deal with at least these problems. The latest of these, the Greater Sydney Commission’s forty-year plan (currently at the draft stage), divides Sydney into three “cities” — CBD/Eastern Harbour, Parramatta/Central River and Western Parkland. It promises (or at least hopes) that 70 per cent of people will live and work within thirty minutes of one of these cities by 2056. Because Sydney is built on a semi-circle – the other half is the Pacific Ocean – it has much less room to expand than Melbourne. Chief commissioner Lucy Turnbull’s hero corporations, she told us in her recent Bradfield Oration, are Lend Lease, Westfield and Macquarie Group. They have all made a lot of money, though why success in developing car-based shopping complexes is a guide to a better urban future is beyond me.

Like all such plans, the Sydney blueprint is predicated on certainties — not least that air travel will continue to dominate one of the world’s busiest routes, Sydney–Melbourne, with ten million passengers a year. A fast train, especially if it went via Canberra, would completely undercut that patronage base, but it would require new regional cities along the route, along with legislation to capture the rise in land values, and genuine coordination between the NSW, ACT and Victorian governments, an unlikely prospect. And the owners of the current Sydney and Melbourne airports would be very cross indeed.

Sydney has added a few new rail lines over the past twenty years, with the impetus for the airport line coming from a fear of transport chaos during the 2000 Olympics. One of the most difficult issues in rail planning is the trade-off between speed and the number of stations, so some supporters of the new route from the Sydney CBD to Parramatta, which is central to the Turnbull scheme, want just a couple of stops and a high-speed trip, while others, including key property developers and local councils, would like a dozen stations.

Melbourne still seems to be playing around at the edges in expanding its public transport offerings, with some modest rail additions just announced. Its new trams certainly provide better access for the full gamut of passengers, and getting rid of railway level crossings seems sensible (though road bridge overpasses are pricey). The hope in the 1990s that privatisation would improve rail services has proved illusory and the state government now provides massive subsidies to private operators. Many of the larger inner-city stations, most notably Footscray’s, have been rebuilt and some new suburbs, especially in the west, have been given better rail access via new stations on existing lines.

It’s easy to forget that transport has enormous equity implications. At any one time, at least a third of the population can’t drive because they are too young, too old or incapacitated in some way, or because they can’t afford a car or, heaven forbid, don’t want to own or drive one. A bunch of futurists tell us that electric cars, self-drive cars, and now Jetsons-style personal air transport will solve all our traffic problems. In reality, cities and congestion will always go hand in hand, and morning and evening peak hours are inevitable. Cities that don’t suffer massive congestion have either had a vast amount of public money spent on their road system compared to their population (Canberra) or experienced a relatively static population (Adelaide). The range of trips people take in cities — to go to school, to shop, to eat out, to spend time at the beach, to visit friends and relatives — won’t change too much, even with the rise of home delivery of shopping and meals. Remember when pundits were telling us we would all be working at home by now?

The federal government has finally recognised the necessity of more public transport investment, but right now most of the new housing estates on our urban fringes still follow the major road routes, and households still have to rely on their cars. Developers are also making hay with “transport-oriented” high-density apartments near public transport. But investors in inner-city apartments, who account for well over half the market, still insist on car spaces, and many of these developments are causing an exponential increase in traffic despite the fact that most residents live within a few minutes of a tram, bus or rail stop. This leaves us with a growing number of high-rise apartments abutting major roads and freeways. You can escape the noise with double glazing and air conditioning, but why on earth would anyone want to venture out onto a balcony overlooking constant traffic? Still, the developers love adding those balconies, a last gasp of defiance against climate change.

For too long we’ve let public transport play second fiddle to roads and cars. We’ve conned ourselves into thinking that a car-owning democracy offers choice and freedom of movement. But not at peak hour, not at holiday time and not when there has been an accident. Instead of relying on freeway-driven development in our outer suburbs, we should return to new suburbs being built around a growing rail and light rail system, as they were from the 1880s to the 1950s. And walking should again become a valued activity, without having to play second fiddle to motorists or even cyclists, neither displaying much respect for pedestrians ⦁

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Western Sydney is Australia’s third-largest economy. With its population set to grow by one million people over the next twenty years, a City Deal for this region will be a big deal. The two other City Deals struck so far – in Townsville and Launceston – have been more modest in scope, which makes Western Sydney the first substantial test of the Coalition’s “smart cities” approach to urban development. When he announced the policy in April last year, prime minister Malcolm Turnbull said that smart cities would deliver all the things that Lindy Deitz wants for her squinters and more: “Jobs closer to homes, more affordable housing, better transport connections and healthy environments.”

Smart cities are also designed to drive “the innovation economy,” and City Deals are at their heart. Angus Taylor, Turnbull’s assistant cities and digital transformation minister, told the Melbourne conference that “we have to reshape the way our cities work” because they are becoming “a brake on productivity.” It’s not just the time lost to traffic jams and long commutes, it’s also inefficient land use and poor matching of jobs and skills. Deitz gives the example of major hospitals in Western Sydney struggling to find staff because key workers like nurses are priced out of nearby housing.

The very things that make cities economically productive – the benefits that flow from bringing people, ideas and capital closer together – also undermine that productivity by creating congestion and pushing up rents and property prices. Existing landowners make windfall gains but the poor and the young are forced either to pay excessively for housing or to move away from the places that offer the most jobs and the best career prospects. We are “actually asking young Australians to buy a high-paid job… by buying an expensive house or renting an expensive house,” says Taylor.

Improving Australia’s cities is “not a minor issue about productivity, but a central question of economic policy,” international urban development expert Duncan Maclellan told the conference. With current policies reinforcing inequality and frustrating sustainable development, it is also a matter of fairness and environmental impact. And the fact that Angus Taylor’s cities portfolio is located within the prime minister’s department suggests that Turnbull – unusually for a Liberal leader – recognises these realities.

In his famous “It’s time” policy speech during the 1972 election campaign, Labor’s Gough Whitlam told supporters in Blacktown that almost every major national problem related to cities. “A national government which cuts itself off from responsibility for the nation’s cities is cutting itself off from the nation's real life,” he said. “A national government which has nothing to say about cities has nothing relevant or enduring to say about the nation or the nation’s future.”

In office, Whitlam set up a Department of Urban and Regional Development and involved the Commonwealth in everything from inner-city renewal and heritage protection to public transport and sewerage projects. Since then, the engagement of national governments with cities has tended to rise under Labor and fall under the Coalition. During the Hawke–Keating years, Labor minister Brian Howe initiated the Building Better Cities program, which shares some characteristics – including collaboration between different levels of government – with City Deals. The Rudd and Gillard governments not only developed a national urban policy to improve “the productivity, sustainability and liveability of major urban centres,” but also set up the National Affordable Housing Agreement and the National Rental Affordability Scheme, created Infrastructure Australia, and tracked progress in annual State of Australian Cities reports.

By contrast, the Fraser, Howard and Abbott governments tended to “stick to their knitting,” treating cities, urban policy and public transport as the realm of state governments. Turnbull is bucking this trend. The idea is to bring together all three tiers of government – national, state and local – to forge agreement on urban development goals and the measures needed to achieve them. Angus Taylor says the deals will be transparent and the lines of responsibility will be clear: “No more finger pointing, no more saying, look, housing’s the state, or local or the federal government’s fault. We put the finger-pointing aside and we say, you know, we’re actually going to solve this problem. We’re going to publicise who’s accountable for what and we’re going to hold ourselves to account.”

Taylor’s bold words are an attempt to deal with the fact that no single level of government has clear carriage of urban issues in Australia. Tim Williams, CEO of the Committee for Sydney, describes cities as “orphans of public policy.” In Melbourne, Duncan Maclennan asked rhetorically, “Who deals with the issue that we had a 20 per cent rise in property prices in Sydney last year?” His answer: “No one.” Three layers of government, he says, “is precisely the problem.”

City Deals have their origins in the longstanding French contrat de ville system, but they have come to Australia via more recent developments in Britain. Both Maclennan and Williams have direct experience of the way the deals have operated there since 2012, Maclennan as “knowledge leader” on City Deals for Britain's Economic and Social Research Council from 2014 to 2017 and Williams as a former senior adviser in the UK Department of Communities and Local Government.

Although he was initially sceptical about a private-sector-led scheme supposedly based on innovative finance models, Maclellan believes that City Deals have been “fundamentally positive” and “changed the game.” The poster child is Manchester: its agreement, the biggest and most established in Britain, has produced a revolving infrastructure fund (with the city earning back some of the tax revenue arising from the boost to economic growth), a metropolitan investment strategy, a housing investment fund, and hubs to promote apprenticeships, business growth and low-carbon initiatives.

The Manchester deal only involved two levels of government – national and local. Perhaps more relevant to Australia is Britain’s second-largest City Deal, in Glasgow, which also involved the Scottish government. The deal activates more than £1 billion (A$1.7 billion) in infrastructure investment for urban renewal and transport projects, establishes a life sciences research centre and provides targeted assistance for young unemployed Glaswegians and other vulnerable residents.

One of the most important things to come out of both the Manchester and Glasgow deals is not new money or new construction projects but innovation in the way those cities are governed. The Greater Manchester Combined Authority brings together ten separate local authorities and the Glasgow and Clyde deal brings together eight. The idea is that an overarching body can more effectively address issues that cross council boundaries, including transport planning, urban regeneration and investment strategies.

The Western Sydney City deal is also aiming for this type of horizontal integration. In bringing together eight local governments (Camden, Campbelltown, Fairfield, Hawkesbury, Liverpool, Penrith, the Blue Mountains and Wollondilly), it seeks to overcome another perennial problem of urban planning in all of Australia’s capital cities except Brisbane – the lack of an overarching authority that can coordinate policies across a greater metropolitan area. “Sydney does not exist as an entity,” says Tim Williams. “It doesn’t act as an entity; it has things done to it.”

One of the advantages of City Deals, says Williams, is that they are shaped from the bottom up, based on what local governments determine they need rather than on what central governments want to give them. And since local governments must invest some of their own money up front, they also have skin in the game. Both these factors move City Deals away from the Australian norm of top-down federal grants that are so vulnerable to pork barrelling (although it didn’t pass notice at the Melbourne conference that Australia’s first three City Deals are all in electorally sensitive regions).

One of the potential pitfalls of City Deals is the amount of effort needed to set up and implement them. Necessarily bespoke by nature, they can’t simply be rolled out across the nation. Townsville’s deal includes investment in port and rail facilities, as well as a new NRL stadium and a cooperative research centre for the development of Northern Australia. The Launceston deal includes money to move the University of Tasmania campus into the heart of the city, to redevelop the historic Paterson Barracks and support local schools to extend classes to Years 11 and 12. (Many Tasmanian high schools only go to Year 10.) Both deals are integrated to some degree with defence projects.

In Western Sydney, the deal is likely to include public transport investments, local employment initiatives and a housing package. In return for its investment, the Commonwealth will expect significant planning and zoning reforms at state and local government level to reduce restrictions on residential development and speed up building approvals. This is in line with the federal government’s dubious argument that red tape and a lack of new construction are almost entirely to blame for Sydney’s runaway house prices.

In reality, two distinct issues to be dealt with: “housing affordability” and “affordable housing.” The first relates to the general rise in house prices, which puts pressure on new home-buyers and raises overall levels of mortgage debt, with associated risks to the economy and the financial system. The second relates to the provision of dwellings for low-income households that simply can’t afford to buy or rent in the current market. While an increase in supply may help with housing affordability, it will do little to generate more affordable housing stock.

Many participants at the Melbourne conference argued that City Deals will only improve housing options for low-income households if they involve previously taboo initiatives such as inclusionary zoning. Widely used in other countries, inclusionary zoning requires developers to set aside a proportion of new dwellings in any project for sales or rentals at below market rates.

David Waldren, head of planning, design and development for the construction company Grocon, told the conference that his firm is absolutely certain that inclusionary zoning will be part of the future (though he acknowledged that rival firms strongly oppose the idea). The “notion of a fair go” is still embedded in Australian society, he argues, and would find expression in a demand to provide affordable housing options close to city centres. City Deals were an opportunity to make inclusionary zoning a reality.

One way to introduce inclusionary zoning would be to make it a condition of developers’ bids for government land like the former defence site at Maribyrnong, in Melbourne’s west. With developers incorporating the cost into their modelling, governments may earn less from the sale, but the benefit will be an increased supply of well-located affordable housing. Inclusionary zoning could also be combined with an investment strategy for not-for-profit housing providers. Duncan Maclellan says the funds unlocked through City Deals can help buy off the ideological opposition of some local governments to new social and community housing.

Whether Western Sydney’s City Deal will make much difference to either housing affordability or affordable housing will depend on the nature of the final deal struck. Given that the most urgent and necessary housing reforms lie in the realm of tax policy, and are being dodged, City Deals may be the only available option right now. They aren’t perfect, but at least they have the potential to generate coherent, region-wide land use strategies that better align housing, transport and jobs. And if they result in increased coordination and cooperation between Australia’s three tiers of government, and across fragmented local councils, then the process of striking the deals may be just as important as their content. •

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The shift in rhetoric isn’t surprising. Despite all the talk of options on the table, the government is yet to show that it’s serious about addressing housing affordability. Few of the proposals it has flagged in recent weeks would make much difference, and some would make the problem worse.

To capitalise on the government’s indecision, the opposition announced its own housing strategy last week. While most of Labor’s ideas are sensible, not many will make housing much more affordable, with the exception of previously announced changes to negative gearing and the capital gains tax discount.

State and federal governments have raised expectations among voters anxious to see action on housing. Governments now need something concrete to point to. There are options that would make a big difference, but none is politically easy. If governments want to be seen to be serious about housing affordability, they’re going to have to make tough choices and avoid the temptation to do the easy (and stupid) things.

The first step to making housing more affordable is to face up to the size of the problem. Australian house prices have more than doubled in real terms since the mid 1990s, far outstripping growth in household incomes. And while low interest rates make it relatively easy to service a loan today, slow wages growth means that the burden of a mortgage is eroded more slowly than in the past. Home ownership rates are falling, especially among the young and the poor. Without change, many young Australians could be locked out of the housing market.

Governments have long promised to improve housing affordability, yet all the while house prices have continued to rise. The politics are hard. More Australians own a house than are seeking to buy a house, and making housing more affordable means house prices will be lower than would otherwise be the case. And many people who live in the established middle suburbs don’t like the idea of more density in their neighbourhoods. If governments really want to make a difference, they need to explain why improving housing affordability matters – and why doing nothing will only make the problem worse.

While making the hard decisions, governments should also set realistic expectations. Although government policy can help, housing is unlikely to become much more affordable overnight. It took neglectful governments two decades to create Australia’s housing affordability crisis, and it will take just as long to improve matters. There are limits to what even a brave government can do.

A lack of policy ideas isn’t the problem. There are plenty, but most of them simply won’t have much effect. Some will make housing affordability worse, drag on economic growth, or subtract from government budgets that are already in trouble. And a few will make a difference, but all of them are politically difficult.

The policies that sound good, but won’t help much in practice, live in the top left of our diagram.

Treasurer Scott Morrison has shown great interest in “shared equity” schemes, which sound like a way for first home buyers to clear the deposit hurdle without significant costs to taxpayers. Such schemes come in many shapes and sizes, but in this case the government would likely stump up some of the capital to purchase a home, and later, when the property is sold, it would get its money back, together with a share of any property price growth. Such schemes already exist in Western Australia and South Australia, where government lenders have issued thousands of loans for people to purchase their own home.

There is some evidence that these schemes increase home ownership rates. Yet they are unlikely to make much of a difference to housing affordability, at least not without big public subsidies. Only one-in-five loans approved by the WA lender in 2015–16 were genuine shared-equity loans. Most were low-deposit loans to borrowers, some of whom may have borrowed from a commercial bank.

Treasurer Morrison is also keen on a “bond aggregator” for the social housing sector. The government would borrow on behalf of community housing providers, and on-lend to the providers – giving them access to cheaper and longer-term finance. While this may help to boost the supply of social housing, a substantial increase in the stock is unlikely unless there are additional large public subsidies to cover the costs of providing housing at below-market rents.

Restricting foreign investment in housing may have some impact on house prices, but again only at the margin. Treasury research suggests that foreign investment has not been a major contributor to recent growth in house prices. Of course, the government should ensure that foreign investment rules are being followed; recent reports suggest that foreign investment rules are still being broken, despite a recent crackdown.

Increasing taxes on foreign investment in housing, as several state governments have already done, and federal Labor has now proposed, may be a sensible way to raise revenue, but it is unlikely to hit house prices unless the tax hikes are very big.

Taxing vacant dwellings, a policy recently announced by the federal opposition and the Victorian Labor government, sounds attractive, but will be difficult to administer. Accountants are likely to be able to fit most vacant homes within one of the exemptions for those temporarily overseas, holiday homes and those who need a city unit for work purposes. A similar tax introduced in Vancouver this year is yet to show that it has overcome these challenges.

While those ideas won’t do much to make housing more affordable, they won’t do much harm either. Several other ideas, shown in the bottom left of our diagram, are less benign: they involve big risks either to the budget or to the economy.

The Turnbull government is reportedly still considering allowing people to use their superannuation to buy their first house. Politicians are understandably attracted to any policy that appears to help first home buyers build a deposit. Unlike the various first home buyers’ grants, which cost billions each year, letting first home buyers cash out their super would not hurt the budget bottom line – at least in the short run. But as we wrote in 2015, such a change would push up house prices, leave many people with less to retire on, and cost taxpayers in the long run. Alternatives that allow first home buyers to withdraw only voluntary super contributions are less foolish, but are unlikely to make much difference to housing affordability.

Another proposal to give first homebuyers extra tax incentives to save for a home has similar problems – it would move taxpayer money into the pockets of vendors without addressing affordability. In fact we’ve been here before: the former Rudd government’s First Home Saver Accounts provided similar financial incentives to help first homebuyers build a deposit. Treasury expected A$6.5 billion to be held in First Home Saver Accounts by 2012. Instead only A$500 million had been saved by 2014, when Joe Hockey abolished the scheme, citing a lack of take up.

The government is reportedly considering providing incentives to encourage seniors to downsize their homes, thereby freeing up larger homes for younger Australians. This idea, too, should be rejected. Research shows that downsizing is primarily motivated by lifestyle preferences and relationship changes. These considerations dwarf the financial trade-offs between having more cash to spend, but a lower age pension. According to surveys, no more than 15 per cent of downsizers are motivated by financial gain. Stamp duty costs (which are analogous to the threat of losing pension entitlements) were a barrier for only about 5 per cent of those thinking about downsizing. If financial considerations aren’t the big barrier then many of the incentives would go to households that would have downsized anyway. As the Productivity Commission found, these incentives have a material budget cost, and distort the housing market by adding even more to the long-term tax and welfare incentives to own a home.

The government should also resist the temptation to push people to the regions. Since Federation, state and federal governments have tried to lure people, trade and business away from capital cities. It has invariably been an expensive policy failure. Despite government policies of decentralisation, the trend to city-centred growth has accelerated in the past decade. Half of all net jobs growth in Melbourne and Sydney is now within a two-kilometre radius of the city centres, reflecting the rapid growth of jobs in service industries, where physical proximity really matters. In the unlikely event that government policy actually succeeded in encouraging more people to live in regional areas, it could reduce house prices in the major cities, but it would also slow growth in incomes.

The government should also tread carefully when it comes to curbing immigration, as proposed by former prime minister Tony Abbott. Slowing immigration would have a big impact on house prices. Australia’s resident population is increasing by about 350,000 a year, and over half of this is due to immigration. But curbing migration could also slow growth in incomes. Recent Productivity Commission modelling concluded that continuing Australia’s approach of taking younger, skilled migrants could result in GDP per person being up to 7 per cent higher in 2060 than if there were zero net migration.

So governments need to focus on the policies in the top right of our diagram: policies that will make a material difference to affordability without substantially dragging on the economy or the budget. Everything in this category is politically difficult.

Given the allocation of federal responsibilities, the Commonwealth can primarily intervene to reduce demand. States have more ability to boost supply, through land-use planning and zoning laws, and by releasing greenfield land. They can also make renting more attractive by reforming state land taxes and residential tenancy laws. Both levels of government can improve access by making better decisions about which transport infrastructure to build, and then introducing congestion charges.

The most obvious way the Commonwealth government can materially reduce housing demand is by reducing the capital gains tax discount and abolishing negative gearing. The effect on property prices would be modest – they would be roughly 2 per cent lower than otherwise – but would-be home owners would benefit. Economic benefits would flow too. The current tax arrangements distort investment decisions and make housing markets more volatile. Reform would boost the budget bottom line by around $5 billion a year. Contrary to urban myth, rents wouldn’t change much, nor would housing markets collapse. If phased in, the reforms would be easier to sell politically and would dissuade investors from rushing to sell property before the changes come into force. An alternative flagged by the government – limiting the number of properties a person could negatively gear – would be much less effective because few people negatively gear multiple properties.

The government should also include the value of the family home above some threshold – such as $500,000 – in the age pension assets test. This would encourage a few more senior Australians to downsize to more appropriate housing. More importantly, it would make pension arrangements fairer, and contribute up to $7 billion a year to the budget.

Making owner-occupied housing liable for capital gains tax could also reduce demand and improve the budget bottom line. But such a change might have unintended consequences. It would discourage people from moving house, since home sales would trigger liability to pay capital gains tax. Young purchasers would be tempted to choose oversized housing to reduce the number of home moves they make over a lifetime. It would be difficult to resist calls to allow deduction of interest payments (given taxation of the gains), which would wipe out most of the benefit to the budget.

Affordability would improve much more if the states did the heavy policy lifting over a number of years to increase supply.

The middle rings of Australia’s large capital cities generally have good infrastructure, and good access to city centres, where most of the new jobs are being created. These cities are sparsely populated relative to other large cities in the developed world outside the United States. Grattan Institute research shows that people want more townhouses and semi-detached dwellings in established suburbs.

Current rules make it reasonably easy to build apartments in the CBD and to develop new housing estates on the fringes of the major cities – so that is what we’re getting. But the rules make it very difficult to subdivide and create extra residences in the middle rings of the capital cities, up to twenty kilometres out of the CBD. Population density in the middle rings has hardly changed in the past thirty years, yet urban infill could supply a lot of the new housing needed.

State and local governments need to change planning laws and practice to make it easier to subdivide in middle-ring suburbs. They also need to increase density along transport corridors, which would both boost housing supply and use existing transport infrastructure better.

Increasing supply will only restore housing affordability slowly. With migration increasing substantially from about 2006, Australia’s population grew by around 350,000 per year, rather than the 220,000 per year that was typical in the previous decade. Dwelling construction did not match demand, particularly in New South Wales. It increased by about 30 per cent in the past four years, but it is still only keeping pace with current population growth. Several years of construction – probably at even faster rates than currently – will be needed to erode the large backlog that accumulated between 2006 and 2014, estimated to be a shortage of about 200,000 dwellings.

This is primarily a state government problem. While the federal government can release some of the limited stock of Commonwealth land, it does not directly control planning rules. It could provide incentives to state and local governments to increase the supply of housing in good locations, but its budget will struggle to provide incentives sufficiently large to overcome the reluctance of a state government that is not motivated to take on the political difficulties anyway.

State governments should also abolish stamp duties and replace them with a general property tax, as the ACT government is doing. Stamp duties on the transfer of property are among the most inefficient of taxes: they discourage people from moving to better jobs, or to housing that better suits their needs. Their abolition would encourage people to move as their circumstances change, making more efficient use of the housing stock. This would mainly improve economic growth rather than housing affordability, but it’s a big prize: a national shift from stamp duties to a broad-based property tax could add up to $9 billion a year to gross domestic product.

Reform of progressive state land taxes, which levy a higher rate of land tax if a person owns more investment property, could improve conditions for renters, because institutional investors would be more likely to offer long-term leases to those renters who seek greater certainty.

Such tax reforms might be encouraged if the federal government provided incentive payments to the states, which would reflect how Commonwealth revenues will ultimately benefit from the increased economic growth. A recent COAG agreement to encourage states to enact economic reforms is a step in the right direction, but more needs to be done.

Governments also need to improve transport networks by using existing transport infrastructure more efficiently and building more effective transport projects. This will make fringe suburbs a more attractive alternative to established suburbs closer to CBDs, limiting price increases in inner suburbs.

First, the federal government should work with states on the possibility of introducing congestion charging to ensure existing roads are used more efficiently. A congestion charge needs to discourage only a small proportion of people from driving to enable a big increase in traffic speed.

Second, the way governments decide on transport infrastructure investment needs to improve. Governments have tended to favour projects in swing states and marginal seats, rather than projects with the highest benefit–cost ratios. They should only commit money to a transport infrastructure project if Infrastructure Australia or another independent body has assessed it as high priority, and the business case has been tabled in parliament.

Housing affordability has vexed Australian governments for two decades, as politicians have tried to appease aspiring first home buyers without upsetting existing home owners. They have dodged the hard choices that would actually make a difference, preferring policies that are cosmetic but politically painless.

Continuing inaction will further reduce home ownership, increase inequality, dampen economic growth, and increase the risks of an economic downturn. The public has figured out that there is a real problem. Unless governments improve the reality rather than appearances, public trust in political institutions will continue to fall. Pretending there are easy answers will only make things worse. •

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“Housing affordability” is a catch-all banner for a grab-bag of public concerns linked to rising house prices. Some people resent spending more of their pay packet on housing. Some fear that younger Australians will be locked out of the housing market. Economists are worried that many people can’t find housing with good access to jobs. Patterns of home ownership are increasing inequality between and among generations. Others fret about the risks that higher house prices pose to the economy.

It’s worth teasing these issues apart to understand what should really keep policy-makers awake at night.

Most literally, housing affordability is about how much a person spends on housing relative to everything else. Overall, spending on housing has increased from about 16 per cent of all spending in 1980 to more than 20 per cent today. And this means households have less to spend on other goods and services, from healthcare to entertainment.

Australian house prices have more than doubled since the mid 1990s in real terms, far outstripping growth in incomes. Although attention is focused on the rapidly rising prices in Sydney and Melbourne (a typical house in a capital city currently sells for around six-to-seven times annual incomes, up from around two-to-three thirty years ago), prices have also risen strongly in the regions.

Of course, house prices were always going to rise as incomes increased and finance became cheaper and more readily available. These changes have helped people to access more and better housing. Since the late 1980s, the average floor space of newly constructed houses has risen by around 45 per cent. The number of spare bedrooms has also risen rapidly.

But most of the increase in the value of housing reflects increases in the price of land. These higher land prices mainly reflect restrictions on the effective supply of residential land – both limits on rezoning for urban infill and limits on developing land at the urban fringe – at a time when demand for land is growing strongly.

Of course, most Australians don’t buy a home outright: instead, they borrow to purchase a home. Housing affordability is falling mainly because it takes longer to pay back the principal on a mortgage. That takes longer because house prices have risen much faster than incomes. And nominal incomes are not rising as fast to overtake the nominal amount originally paid for a home.

While it is harder to pay down the principal, paying the interest on a new mortgage on the average-priced home is no more difficult today than in 2003: the rise in prices has been counteracted by the fall in interest rates. As for rents, they have more or less kept pace with wages over the past twenty years. Because mortgage and rent costs haven’t risen much relative to incomes, households are under relatively little financial stress. As a recent Reserve Bank of Australia article showed, more homeowners are further ahead on their mortgage today than in 2006, and fewer households are reporting financial stress events such as being unable to pay a bill.

Inevitably, averages conceal problems for some groups. In particular, it is getting harder for low-income households to pay the rent, particularly if they live in large cities. About 47 per cent of low-income households in capital cities now spend more than 30 per cent of their pre-tax income on rent, up from 36 per cent in 2007.

Higher house prices have also made it harder for buyers to save a deposit, which historically has been 20 per cent of the purchase price. In the early 1990s it took around six years to save a 20 per cent deposit for an average dwelling; it now takes around ten years.

Higher house prices and debts may not currently mean higher mortgage payments, given lower interest rates. But they do increase the risks. If interest rates rise by just 2 percentage points, mortgage payments on a new home will cost more of a household’s income than at any time in the past two decades. With interest rates across the globe at historic lows, the risk of an interest rate rise is real. And because wages aren’t rising fast, households are burdened by big interest payments for much longer.

These risks may explain the second big concern about housing affordability: the worry that “my child can’t afford to buy a house.” While buying a first home might seem “affordable” if we only look at mortgage payments relative to income today, it now involves a lot more risk.

Home ownership rates are falling quickly for those under fifty-five. Falling home ownership among twenty-five- to thirty-four-year-olds might be explained away because people are forming long-term partnerships and having children later in life. But this explanation doesn’t wash for thirty-five- to forty-four-year-olds. Home ownership among this group has fallen from about 75 per cent in 1991 to about 60 per cent today. The fall has been particularly steep among low-income households.

There are plenty of reasons to care about home ownership. Owning a home can provide a sense of community belonging, a sense of prosperity, the motivation for additional savings, and the basis for investing in a business. Under current policy settings, it provides higher after-tax returns on savings, and effectively higher income in retirement. Of course, home ownership also has its costs: for example, home owners may be more reluctant to take on a better job that would involve the emotional and financial costs of moving.

Given current rental markets and policies, renting is relatively unattractive: it is generally much less secure; many tenants are restrained from making their house into their home; and tenants miss out on the tax and welfare benefits of home ownership. Renters are forced to move much more often than home owners, and are less satisfied with their housing.

So it’s not surprising that younger generations still want to own their own home. There is little evidence that falling home ownership is due to lack of desire; rather it seems to be due to lack of opportunity, and the heightened risks.

Housing in the right places is also becoming less affordable. Australia’s large cities are increasingly divided between the middle and inner ring with good access to jobs, and an outer ring whose residents can’t get to many jobs. This divide is becoming more important because much of the net growth in jobs is occurring in the large capital CBDs. Relatively few people commute from outer suburbs to the centre – the travel time is just too long. And whereas new housing on the city fringe forty years ago still had reasonable access to the centre, new housing on Sydney and Melbourne’s outer fringes is now typically much further out. As a result, the price differential between inner and outer city is increasing. And so it’s getting harder to buy a home that has good access to the places where a lot of the jobs growth is happening.

Concerns about housing affordability also reflect worries about increasing wealth divides between generations, and among generations. The wealth of older households increased rapidly over the past decade: the average household aged between thirty-five and fifty-five in 2004 increased its wealth by $50,000 a year over the decade to 2014. Wealth was boosted significantly by the rapid run-up in the price of houses and other assets. A younger generation is unlikely to get this kind of free kick.

The increasing divide between generations can easily transmit into an increasing divide within generations. If home ownership relies more on the “bank of mum and dad,” then getting a home depends more on the success of one’s parents than on one’s own endeavours. Rising house prices are also likely to boost future inheritances, which tend to transmit wealth to children who are already well off.

Finally, concerns about housing affordability may reflect concerns about economic stability. House prices are rising faster than incomes. And households are borrowing more, particularly to invest in housing. As a result, household debt in Australia is now a record 190 per cent of household after-tax income, up from about 170 per cent between 2007 and 2015. More households are exposed: in 2002, 20 per cent of households had a debt of more than twice their income; today it’s 30 per cent.

Higher levels of debt increase the risks of borrower default and thus the risks of banks getting into trouble, with all the economic chaos that would create. But overall, the risks of Australian banking instability are low given relatively few households with high leverage of loans to total assets, and robust bank capitalisation.

Much more concerning is the risk of a rapid fall in household spending. A fall in house prices, or a relatively small rise in the interest rates paid by households, would force many households to save more – and to consume less. This would probably slow economic growth, potentially increasing unemployment and further reducing house prices.

Thus, “housing affordability” includes a wide variety of concerns: less money to spend on goods and services other than housing; falling home ownership rates; worsening access to jobs; increasing wealth inequality between and among generations; and increasing risks of a housing-led economic downturn.

Responding to these concerns requires careful analysis of the underlying drivers and of the potential impact of policy changes. Not all policy changes will make a difference to the problems that really need solving. We will look at potential policy reforms in a subsequent article. But even then, policy-makers need to be honest about how there are limits to what governments can do to get the barbecue started again. •

Monday: Assessing the solutions

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That’s not surprising. This financial year Infrastructure Australia had its average staffing level increased by almost 40 per cent: from eleven to fifteen. The Productivity Commission has a staff of 167. Yes, Infrastructure Australia has another twelve people on its board who are pretty cluey on infrastructure issues, and a larger budget for consultants than for staff. But in its seven-and-a-half years in business, neither Labor nor the Coalition has equipped it to play the role they have led us to expect of it: to be an honest expert broker, evaluating the nation’s infrastructure needs and rigorously evaluating the projects that governments propose to meet them. You can’t do that with a staff of fifteen.

So all the stories you read and heard this week about the Australian Infrastructure Plan giving the green light to a long list of projects dear to governments past and present – WestConnex and the M4 upgrade in Sydney; the East–West Link, the Melbourne Metro and level crossing removals in Melbourne; the Cross River Rail and the Ipswich Motorway in Brisbane; Adelaide’s north–south corridor and Gawler rail line upgrade; the rail link to Perth Airport; even Canberra’s sadly ludicrous light rail plan – were all somewhat premature.

As problems to be tackled, the report rates them all as priorities or high priorities – all ninety-three of them. But that is far from implying an endorsement of the solutions that state and territory governments are trying to sell to us. That would require a proper evaluation, and Infrastructure Australia hasn’t had the resources to do that yet. The only two projects the report endorses are the controversial Perth Freight Link to the port of Fremantle, and the uncontroversial widening of Melbourne’s Tullamarine Freeway.

It does provide a preliminary sorting, dividing the remaining ninety-one projects into thirty “high priorities” and sixty-one “priorities,” and into near-term, medium-term and longer-term timescales. Some of that does involve some interesting calls: a second airport for Sydney is rated only a longer-term issue, as is a decision on how to deal with future port congestion in Melbourne. The Victorian Coalition’s former plan to build a rail link to Melbourne airport is rated only a medium-term issue, as is building the “missing link” from the ring road to the Eastern Freeway. Canberra’s future public transport and northern corridor congestion are also rated as only medium-term issues, despite the ACT Labor–Greens government making the $700 million light rail plan its urgent priority.

We’ll come back to that. To me, the central thrust of this “infrastructure plan” is to restate even more forcefully the central message that Infrastructure Australia has been trying to get through to Australians ever since it began operations under Sir Rod Eddington. In infrastructure, you get what you’re willing to pay for.

I realise that the tax debate has provided formidable competition for media attention this week, but it is tragic that this critical message has yet again passed through the media largely unheard. The most important chapter of the report, summarised here, warns that the growing congestion in our cities is the result of years of underinvestment in roads and rail – not only in building them, but also in maintaining what we already have. And that, in turn, is the result of a political culture in which taxpayers and users demand better infrastructure but are unwilling to pay for it.

As the report points out on pages 76–94, there are ultimately only two sources of funding for better infrastructure: taxpayers and users. For transport infrastructure, we rely heavily on taxpayer funding, yet in a political culture that demands low levels of government debt, even the current inadequate levels “may be unsustainable in the face of increasing budget pressures.” While it urges the federal government to consider borrowing specifically for productivity-enhancing infrastructure investments, as past governments did, the report warns that government funding alone “is unlikely to be sufficient to provide the infrastructure that Australia requires… Australia needs to consider a broader system of transport pricing, both for road and public transport.”

The report argues for a mix of reforms to make better use of the infrastructure we have already, and to increase the sources of funding for new infrastructure projects. Among them:

• Commercially viable assets, such as freeways, should be converted to toll roads – in its model, under private ownership – and the revenue raised used for new transport investments.

• Road user charges (aka congestion pricing) should be introduced in place of fuel excise and vehicle registration fees, so that users pay the true costs for their use of congested roads. Infrastructure Australia urges that either the Productivity Commission or itself be commissioned to hold a public inquiry into the benefits of such a switch.

• Heavy vehicles must be charged the full cost of the (considerable) damage they cause to roads, using new streamlined technology, as an urgent reform.

• Public transport users should be required to pay a higher share of the cost of the services they use. In Melbourne, for example, it is estimated that passengers on average pay just 30 cents of each dollar of cost, leaving taxpayers to pay the other 70 cents. The report argues that while public transport will always be subsidised, this balance is wrong, and users should pay more – offset by concessions for the needy – so that governments can invest more in new infrastructure and better maintenance.

While our political leaders compete to offer attractive new investments, the report points out that these are often paid for partly by underspending on even more essential maintenance of existing infrastructure, road and rail alike. It warns of a “hidden deficit” accumulated by years of “sub-optimal maintenance” which “over time, [has] the potential for significant deterioration in infrastructure performance and much higher costs.”

The report touches on many topics in its 200 pages, too many to be adequately summarised here. A sketch of its thinking should start with its call for a National Population Policy, since population growth is the driving force of the increased demands we are failing to meet. It notes that our population growth is overwhelmingly going into four cities – Melbourne, Sydney, Perth and Brisbane – and it is essential that those cities “rapidly increase the delivery of higher-density housing… [to] provide people with high-quality, affordable housing that is well-connected to infrastructure, community public spaces and world-class amenities”.

One key message here is that we need to invest more in urban public transport, to provide better connections between home, workplace and community amenities. But that investment should not be targeted only at the inner areas where the higher-density housing is going up. Quite the opposite: one of the main messages of the report is that a far higher priority must be given to Australians in the outer suburbs, as motorists and public transport users. They suffer from mobility deficits which mean, for example, that some residents of Melbourne can access only 10 per cent of the city’s jobs within a forty-five-minute drive, and even fewer within a one-hour journey on public transport. This is serious inequality of opportunity.

Few will agree with everything Infrastructure Australia says. It advocates privatisation of infrastructure assets wherever feasible, on the grounds that private owners provide “more cost-effective, customer-responsive services.” Bank customers, electricity consumers and Melbourne rail commuters may regard this as a quaintly old-fashioned, Thatcherite view that ignores mounting evidence to the contrary. But it would be a pity if differences of opinion meant we ignored the crucial proposals for better pricing systems in road and rail alike, and the warning siren the report sounds on the “hidden deficit” in road and rail maintenance.

That is what the report is really about. So far as its “priority list” of projects is concerned, at this stage it is no more than a broad sketch, with the details to be filled in over time if and when it gets the resources to do the job the politicians claim it is set up to do.

Twenty-eight initiatives are listed as near-term high priorities:

New South Wales
Sydney Metro (the privately run rail line being built from Chatswood to Bankstown via the CBD).
Rapid transit links for buses from and to the northern beaches, and on Parramatta Road and Victoria Road.
WestConnex stage 3 to link the M4 and M5.
Upgrade of the M4 through the western suburbs beyond Parramatta.
Duplication of the Port Botany rail freight line.
Upgrade of Chullora rail junction.
WestConnex branches to Port Botany and Sydney Airport.
Preserve corridors for future Outer Sydney orbital road (M9) and rail tracks, a rail line and fuel pipeline to the future Badgery’s Creek airport, a future freight rail bypass of Newcastle, and a Western Sydney rail freight line and intermodal terminal.

Victoria
Upgrade of the Cranbourne/Pakenham rail lines beyond Caulfield, and removal of their level crossings.
Melbourne Metro (the underground rail line planned from South Kensington through the city to South Yarra).
All three parts of the controversial East–West Link: from the western suburbs to the port, to the north of the CBD, and from there to the Eastern Freeway.
Further upgrading of the Western Ring Road.
Preserve corridors for future Outer Metropolitan ring road from Werribee to Mill Park.

Queensland
Cross River rail to speed travel times to the CBD.
Ipswich Motorway.
Dedicated rail freight line to the Port of Brisbane.

Western Australia
Improved road/rail links to the outer northern suburbs.

South Australia
Upgrade and electrification of the Gawler rail line through the outer northern suburbs.

National
Develop a portfolio of projects to optimise the performance of urban transport networks.
Develop a National Freight and Supply Chain strategy.
Preserve a corridor for a high-speed rail line from Brisbane to Sydney and Melbourne.

But unless the funding issues are tackled, whatever the priority, few of these will be built in the five-year timeframe the report proposes. Economists occasionally propose reforms to road pricing, but hardly anyone has been prepared to get up in public and say that public transport users should pay more for the benefits they receive. In Melbourne, you get unlimited use of public transport for $7.80 a day, or $3.90 if you qualify for concessions – yet providing that service costs more like $25 per passenger per day.

The report sets no target for what share users should pay – I would suggest a 50:50 split as a reasonable benchmark – but it warns that excessive subsidies are locking us out of adequate investment and maintenance spending, and into a “low-cost, low-quality paradigm.” It concludes:

While there will likely be a continuing long-term case for partial taxpayer funding of public transport, the financial sustainability of the system demands a frank discussion about the fairness and efficiency of such large transfers from taxpayers to specific users. Together, road networks and public transport are the strongest candidates for reform because current approaches are not working, and the benefits of reform are so substantial.

Let the debate begin. •

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Have we learned anything from this? Listening to the state treasurer, Tim Pallas, and his opposite number, Michael O’Brien, trading blows last week, it was hard to believe we have. Both deny responsibility and point the finger at the other, cherrypicking findings and vying to appear the most outraged. More surprising, however, is the battle over the role of the public service in this billion-dollar fiasco. Behind all the bluster is a serious debate, not just about the quality of officials’ advice about the project but also about their role in our system of government.

Touted as the missing link in Melbourne’s freeway network, East West Link would tunnel under the city’s latte-sipping inner north to connect the Eastern Freeway with CityLink, then continue to the Western Ring Road. The Baillieu government adopted the link as its signature project in 2011 and just two months before the 2014 state election Baillieu’s successor, Denis Napthine, signed contracts with the East West Connect consortium to build the link – despite a pending court challenge and Labor’s commitment to can the project. On winning the election, Daniel Andrews’s Labor government did just that, paying out $643 million (and counting) in compensation. Add to that all the money spent by the Coalition on the project – give or take how many acquired properties can be resold – and that’s a fiasco well worth an independent audit.

While the auditor-general finds the Coalition and Labor governments guilty of ignoring advice, rushing processes and taking huge risks with state funds – findings echoed this week in a review of the Abbott government’s funding of the project – the real focus is on the state bureaucracy and its role in all this. “Over the life of this costly and complex project, advice to government did not always meet the expected standard of being frank and fearless,” he writes.

At every stage, the bureaucracy gave “too much emphasis to the benefits of approaches that were in line with the government’s preferred outcome and little emphasis to alternative options that could be argued were more aligned with the state’s best interests.” Some officials admitted they thought giving advice that went against what the government wanted to hear could jeopardise their careers and influence. More than that, it would be plainly naive.

The auditor-general fears this attitude poses a serious threat to the integrity of the service:

It is not sufficient for public servants to avoid providing advice or recommendations simply because they believe the government of the day does not want to hear them. Doing so is at odds with the Public Administration Act 2004 and the Code of Conduct for Victorian Public Sector Employees, which require the public service to act impartially and achieve the best use of resources.

The state bureaucracy vigorously denies this interpretation of the debacle and has rejected the audit entirely. In fact, Chris Eccles, secretary of the Department of Premier and Cabinet, argues the audit mistakes the role of the bureaucracy:

Since the earliest articulation of a professional, apolitical public service in the 1850s, the role of the public service has been to serve, and act as an instrument of, the government of the day… For a public servant to hinder progress to implement a lawful decision, constantly recontest that decision, or refrain from actions that follow from a lawful decision of a minister, would be to fundamentally undermine the Victorian Public Service as a trusted and apolitical institution, undermine the integrity of our democracy, and erode longstanding conventions that are at the heart of the Westminster system of government.

In other words, the public service has to do what it is told. We can’t have Sir Humphreys white-anting ministers and their policies. If the government’s preferences are understood and explicit, bureaucrats have an obligation to go with them. They can’t repeatedly “recommend courses of action that are contrary to the government’s settled policy” – that would subvert democracy.

The auditor-general is unimpressed by this line of argument. He argues that the public service can’t cater its advice to suit the preferences and biases of the government of the day. When advising on a decision, it has to make recommendations based on what the evidence shows is in the best interests of the state. “At critical points in this project,” the auditor-general writes, “this did not occur.” That is to say there weren’t enough public servants saying things like, “Minister, with respect, I would advise against that” during the whole fiasco. Instead they were taking hints and working to them, at least according to this report.

So is the public service’s role first and foremost to turn the government’s every wish into reality? Or do we want a more independent, feisty service, one that says, “No, Minister”? Would that jeopardise democracy, or is that a necessary check on the whims and petty interests of governments?

These are big questions. How they’re handled is not a merely abstract issue. In the case of East West Link,  the public service’s advice could have been a key reason Victorians lost a billion dollars down the drain. Indeed, it could cost us a whole lot more yet. We may have a new infrastructure authority vetting projects, but the board includes the same officials who worked on East West Link. The same people, the same departments, the same overall system are handling the $11 billion Melbourne Metro and the $5.5 billion Western Distributor. What reason is there to expect these won’t fall victim to the same pitfalls as plagued East West Link? None of the auditor-general’s recommendations have been accepted by anyone; if the report is right, that means none of the lessons have been learned.

As the blame game whirs on, the question remains: how did Victoria get itself into this mess? Was this a one-off fumble? Or are there deeper cultural and structural problems in our government, problems that threaten to derail future projects? What really went wrong with East West Link? That’s still the billion-dollar question. •

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Richardson’s plans don’t end there. Byron shire is working on a project to take the region to zero net emissions within a decade. Amid a flurry of activity in the northern rivers area, a whole range of fascinating possibilities is emerging – the creation of the country’s first community-owned energy utility, for instance, and even the possible buyback of the local electricity network to create a renewable energy–powered micro-grid for the region.

The reason that Richardson is in such a state of excitement is that here in Paris, in and around the climate talks, hundreds of mayors from across the world and dozens of regional and sub-national leaders are speaking the same language.

“It’s fantastic being here learning what others are doing,” he tells me. And in Paris, Richardson notes, it is the sub-national governments – the councils, regions and states that California governor Jerry Brown dubbed the “super nationals” – that are raising the bar on climate action. Unlike national governments, they are actually delivering on the targets needed to respond to the science.

And a surprising number of Australians are among them. Here, too, is the mayor of Adelaide, Martin Haese, who wants his city to be the first major capital to reach carbon neutrality – a target he hopes to reach as early as 2025. He has pioneered a series of battery storage incentives to encourage homes to install devices that could help manage the extraordinary levels of solar power in the local grid.

Sydney lord mayor Clover Moore is in Paris too, pushing her city’s goal of cutting emissions by 70 per cent by 2030, and lamenting the restrictive rules that prevent her team from reaching the goal any earlier.

Simon Corbell, the ACT environment minister who masterminded the territory’s plan to source 100 per cent of its electricity needs from renewable energy by 2025, is also here. Corbell’s program – with its successful reverse auction tenders – has kept the large-scale renewable energy industry alive in Australia virtually single-handedly, while federal fiddling with the renewable energy target brought the sector to a virtual halt.

And here, too, is SA premier Jay Weatherill, who is heading a twenty-strong delegation promoting that state’s plan to attract $10 billion in clean energy investment over the next decade and achieve net zero emissions by 2050. South Australia, he says, will reach its 50 per cent renewable energy target next year, nearly a decade ahead of schedule. He intends to chart a course to bring the state as close as possible to 100 per cent renewables.

It’s an extraordinary target that puts the state at the cutting edge of clean energy innovation. It carries some risks, but could bring huge rewards. Weatherill wants the state to be an innovator in energy storage and at the forefront of electric vehicle adoption and driverless car technologies – know-how he is convinced the state will be able to export. He would like an electric vehicle manufacturer to set up operations in the state as it waves goodbye to the makers of internal combustion engine cars in 2017.

Weatherill’s ambition to achieve zero net emissions seems radical in a country still wedded to fossil fuels and dependent on coal as the major source of electricity. Next March, however, South Australia will join Tasmania (already near as dammit to 100 per cent renewables) and the Australian Capital Territory (getting there within ten years) in being free of coal-fired power stations.

All this is evidence of a disconnect between the ambitions of local, regional and state governments like Byron Bay, the Australian Capital Territory and South Australia, and that of the national government in Australia. And the pattern is being repeated across the world – in Europe, the United States, Canada and elsewhere.

Corbell says that one of the key reasons the Australian Capital Territory has been able to be so ambitious is the absence of a significant fossil fuel lobby in his territory. In other states, he says, ambition has been hampered by “fear and ignorance” driven by “vested interests who don’t want to change the way the energy system operates.” These vested interests, Corbell says, are “aided and abetted by politicians who are not prepared to imagine the different future. We need more people to imagine and demonstrate that a different future is possible and it is affordable.”

California governor Jerry Brown expanded a little on those opponents in a conference with Weatherill in Paris on Monday. They are, he said, businesses and politicians who fail to imagine anything other than past practices. This failure of imagination perhaps best explains the disconnect between state and regional governments and Australia’s federal Coalition government, and between the Coalition’s own rhetoric and actions. For all that Malcolm Turnbull would like “innovation” to be the buzzword associated with his government, it is all but absent from where it is needed most – in the transition to a decarbonised economy, possibly as early as 2050.

Last week in Paris, environment minister Greg Hunt highlighted how the Turnbull government is dealing with the climate targets it is bringing to Paris. For the government, it is essentially an accounting issue, one in which Australia can use a favourable deal in Kyoto way back in 1997 to help reach modest targets for 2020 and 2030. Australia, Hunt insisted, will meet its 2020 target of a 5 per cent cut in emissions from 2000 levels with ease.

And even though five European countries have decided to tear up their surplus credits, amounting to more than 620 million tonnes of CO2 [subscript 2] equivalent (or more than Australia’s annual output), Australia has no intention of doing the same with its surplus of 128 million tonnes.

“The important thing is for Australia to meet its targets,” Hunt said. And it appears that it will do so without even having to reduce its level of industrial emissions. Indeed, for nearly every tonne of abatement the government is buying – at the average price of around $13 per tonne, it says proudly – another tonne of CO2 [subscript] equivalent is being emitted by the electricity sector alone, as the brown and black coal-fired generators reassert their dominance over the energy mix in the absence of a carbon price.

Yet, at the same time, Australia is supporting a target of “well below 2°C,” and even a reference to a tighter target of 1.5°C, without having any long-term policies to meet those targets. (They were dumped with the removal of the carbon price.) The minister didn’t blink when asked about this after arriving in Paris for the final week of the talks. “Ours is a 2030 target,” he said.

This disconnect is extended through to other policy levers. The government is focused on innovation, yet it refuses to ditch legislation that would abolish the very agencies that could deliver it – the Australian Renewable Energy Agency and the Clean Energy Finance Corporation.

The Greens are the only party that seems to understand that this is any sort of problem. They have sent both energy spokesperson Larissa Walters and leader Richard Di Natale to Paris, and must be rejoicing that the sort of policies they advocate are not deemed radical here, as they are in the Australian press, but part of the mainstream of the conversation going on in Paris.

“The transition to the clean energy economy is happening,” Waters says. “The transition is on, and my hope is that the government stops putting its head in the sand and accepts that there is a transition.” •

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In 2005 she married Jason Osborne, an IT professional who worked in a city bank, and they began planning a future with children and their own home. They didn’t even bother looking in the inner city. Alice’s friends told her “it would be six, seven [hundred thousand dollars]-plus for anything decent.”

Alice’s sister lived in Point Cook, a new suburb twenty-five kilometres southwest of the CBD. It was growing fast, with new shops, schools and childcare centres. The couple liked what they saw. They bought off the plan and in a couple of years moved into their four-bedroom home. They caught the Werribee train to work, and life was good.

Then Alice had their first child, William, and took nine months off. When she went back to work two days a week, Jason took three months’ paternity leave. After he returned to work, they enrolled William in the new childcare centre at nearby Sanctuary Lakes while Alice continued her part-time job.

The two days Alice worked were hectic. She woke at 5 am so she could get to work at the Murdoch Children’s Research Institute by 7 am. (Jason dropped William at childcare at about 8 am on his way to work.) This allowed Alice to leave for home at 3.30 pm. She was anxious to keep William’s days in childcare as short as possible.

Naturally, problems sometimes occurred. On one day, Alice left around her usual finish time to get back to Point Cook and pick up William. But at North Melbourne station she heard announcements that trains were suspended indefinitely on the Werribee line. There were replacement buses, but she was already imagining the crush to get on board. By now it was after 4.30, and the childcare centre closed at 6.30 sharp. Alice “began freaking out.” She called Jason at his CBD office. They made a snap decision to brave the traffic in a taxi. The fare cost $90.

With the birth of their second child, Lucy, Alice again took nine months maternity leave, then returned to work. Jason again took paternity leave for three months. During that time they decided that their carefully calibrated “tag-in, tag-out” arrangement was unsustainable.

They assessed options, laid out spreadsheets on the dining room table, pored over the weekly budget. Could they afford to live on one salary and keep up the mortgage? If Alice continued to work as before, Jason would have to get two kids off to childcare during peak hour. He’d probably get to work even later than 10 am. As well as it taking longer to get two kids out of the house, Point Cook’s growing population and increasing traffic congestion had by that point doubled the time it took Jason to drive to the train. He also had to park further away from the station. Would it hurt his career?

There was also the high cost of childcare, which would eat into Alice’s salary. But the logistics – the traffic, the limited public transport, the exhausting distances – proved to be the clincher. Remembering that day at North Melbourne station, the frantic taxi ride, Alice gave notice to her employer. For the foreseeable future, her career in public health was over.

She tried to keep her hand in with some university teaching, tutoring in genetics a couple of times a year. But she found it too hard to keep abreast of developments in her field of prenatal screening for birth defects. On the other hand, she was over-qualified for most jobs that came up around Point Cook.

The family lives more frugally since Alice stopped working in public health. Their last proper family holiday was three years ago, though sometimes they go camping. Two days a week Alice works at William’s primary school. She collects a half-day’s salary for teaching sewing classes, and dabbles in a sewing business from home. Perhaps she’ll consider getting a teaching qualification herself once Lucy starts school, so she can work part-time while staying close for school pick-up.

One thing they won’t do is move from Point Cook. The community spirit is strong, and Alice loves the place. But for all its positives, she is clear that if she lived closer to the city she would not have been forced into the trade-off that cut short her career.

The Osbornes are typical of millions caught on the far side of the new urban divide changing Australia and challenging longheld ideals of economic opportunity and fairness. This is the growing gap between people who live near the centre of Australian cities and those who live near the outer fringes.

The two groups experience city life very differently. For those on the wrong side of the divide, poorer access to jobs affects their ability to maintain and build a career over time, and long commutes are expensive and exhausting. In some cases, commutes can make juggling the responsibilities of home and work so difficult that some – usually women – have to give up work altogether.

Employees living furthest from the centre of Australia’s five biggest cities also get paid less. The average yearly individual income among employees living within ten kilometres of Australia’s five largest cities is a quarter higher than that of employees living more than twenty kilometres from city centres.

In Sydney, the highest-earning twenty-five to sixty-four-year-olds are clustered around the inner suburbs, Sydney Harbour and the North Shore. Typical incomes in Bondi, by the sea, and St Ives, in the north, are also comparatively high, above $60,000. Incomes in western suburbs such as Bankstown and Wetherill Park are typically below $40,000. In Brisbane, typical individual incomes are highest – above $60,000 a year – among people living near the centre in places such as Bulimba or Ashgrove, and in well-located riverside suburbs. Incomes in more distant suburbs are typically below $40,000.

The income gap between inner and outer suburbs is growing. Since the mid 1990s, income growth among people living in suburbs close to city centres – Alexandria in Sydney, for example, and Albert Park in Melbourne and Morningside in Brisbane – has been 3 or 4 per cent a year (adjusted for inflation). Incomes in the west and southwest of Sydney, the far southeast and northwest of Melbourne and in the southern suburbs of Brisbane suburbs have barely grown over the same period.

The changes are reshaping cities, the opportunities they offer and their very identity. Living north or south of the Yarra River used to be Melbourne’s biggest class marker. The working class lived in the north, the well-heeled in the east and the south. But people on high incomes have increasingly clustered in inner suburbs on both banks of the river. In Brisbane the economic and cultural divide between people living north and south of the Brisbane River is eroding, with proximity to the city centre increasingly desirable.

The pattern is less pronounced in Perth, where incomes have grown strongly across the metropolitan region, a legacy of the recent mining boom. Perth’s smaller manufacturing base also means the decline of that sector has not hit the city as hard. Nevertheless, income growth is still highest close to the city centre.

Part of the reason outer suburban residents earn lower incomes is that they are more likely to be employed casually in lower-skilled roles. Casual employees account for almost half of all sales workers and labourers in outer suburbs but fewer than 10 per cent of the management and professional jobs concentrated in city centres. The average weekly wage of casual workers Australia-wide is $538 per week, less than half the average weekly full-time wage of $1276. Almost a third of casual employees are underemployed and want to work more hours.

Differences in wealth, or assets, can give a more meaningful indication of people’s material living standards than differences in income. For example, a retiree may have a low annual income despite having accumulated extensive assets during a long career. It is difficult to get an accurate geographic breakdown of wealth in Australia, but we can use house prices as a rough proxy for wealth distribution in Australia’s big cities.

The highest property prices are increasingly found in suburbs close to the CBD. Households with the greatest levels of wealth congregate in the parts of cities with the best access to jobs and transport. The further you go from city centres, the more house prices fall. The declines in house prices as you get further from the CBD are steepest in Sydney and Melbourne, the two cities with the greatest concentrations of knowledge-intensive jobs in the inner city. They are also the cities that sprawl furthest and offer the worst access to jobs.

Of course, access to jobs and transport are just two factors in creating a person’s wealth; education and skill levels are also vital. A strong link now exists between skill levels and where people live. University graduates are concentrated in Melbourne’s inner suburbs, for example, and in some middle suburbs east of the city centre. Outer suburbs have lower shares of university graduates. And the closer residents live to city centres, the greater the number and range of high-skilled jobs they can reach by car, bicycle, foot or public transport, which better services the inner city.

There are many stories like Alice’s. In common with a great number of people who live far from city centres, she isn’t reaping the full material benefits that living in a city should bring, benefits that previous generations of Australian city residents enjoyed before the new divide set in. There are a number of ways this division can be broken down; here, we’ll focus on one key area for change.

Enabling people to live closer to jobs and transport, and to choose the kind of home they want, means that more homes need to be built – especially semi-detached terraces, units and townhouses, and low-rise flats – in established inner and middle suburbs.

Critics of greater inner-urban density sometimes conjure up images of downtown Shanghai, or of high-rise apartment towers dwarfing suburban homes. But well-designed new housing, close to jobs and transport, can be found in Potts Point in Sydney, South Yarra in Melbourne, New Farm in Brisbane and Subiaco in Perth, among other places. These are some of Australia’s most populated areas, but they are also desirable and often prestigious places to live.

The benefits of giving people more housing options are considerable. Households wouldn’t get everything they want, but a wider range of choices would make a great difference to many people’s lives. The whole community benefits, too. Enabling people to live closer to jobs would contribute to economic growth by giving people a wider choice of jobs and employers a better choice of employees. And if new housing doesn’t get built in places with good access to jobs, it will continue to be built in areas with poor access to jobs, exacerbating the growing social and economic divide.

The biggest barrier to new housing near employment centres is the system of state and local government rules and processes that dictate where and how new housing is built. The complexity and delay built into these processes can make getting permission to construct new housing expensive and uncertain, and frequently impossible. Dramatically simplifying and streamlining these processes is an urgent priority.

Less complexity shouldn’t mean lower standards, though. In fact, higher standards are essential if the community is to accept a simpler, faster and less costly system.

Local residents’ interests are protected by arbitrary barriers that slow down all proposals to build housing and make them more costly or completely unviable. A better way to achieve clearer and higher standards is through clear codes or standards that determine approval for more kinds of home development. Housing codes can protect existing residents from badly designed developments while reducing the costs of planning approval processes.

Compliance with the code could be assessed by a builder, surveyor or consultant, and permission to build would not have to be sought through an authority such as a local council. This doesn’t mean a free-for-all: buildings that are later found not to comply with the code can be demolished or modified at the developer’s expense, with substantial penalties for the professional who endorsed it. Alternatively, planning approval could be granted by an authority such as a local council, but through an accelerated process.

Codes would cover aspects of the scale and appearance of buildings and how they integrate into a street. These include height and overshadowing in outdoor areas, privacy and the appearance of new developments from the street. They would also cover internal features, such as how much sunlight can enter living areas, and the amount of private open space. Homes that comply with the relevant housing code will be well designed and respect neighbourhood character.

Some state governments are using these kinds of code already, but largely for detached houses or in limited locations. They are not yet enabling the mix of housing in the mix of locations that people want. Applying housing codes to all residential areas would make a big difference to the availability of a variety of new housing.

Sometimes governments call existing rules and processes “codes” but allow for a lot of discretion and uncertainty in practice. If codes are to offer certainty, developers and builders should not have discretion over whether to apply them. Local communities’ interests should be respected from the start by the government involving them in developing the housing code that applies to their area. In most cases communities shouldn’t need to go to a tribunal or court to enforce local rules.

Ministerial interventions in the approval process for individual developments erode the trust local residents have in the system, giving them little reassurance that their interests will be respected. Planning ministers should decide the content of the rules, guided by deep community engagement. Indeed, they have a democratic mandate to do so. But they should not be the umpire as well.

And, as the NSW Independent Commission Against Corruption points out, clarity and simplicity also reduce the risk of corruption.

To succeed, any change needs to work for existing residents of established suburbs, as well as for prospective residents and the city as a whole. Genuine engagement is essential to achieving change that ensures everyone has their interests respected, even though not everybody will get everything they want.

The first step is citywide engagement to allocate responsibility for managing population change and building new homes across the city. This should reflect the broader needs of the city and the interests of all its residents. Plans should identify where new housing will be built, and what new transport connections are required to improve residents’ access to jobs. If the plans are based on good engagement that creates a real sense of community ownership they will also help different levels of government and different organisations work in the same direction, rather than opposing developments for short-term political gain.

To turn the plan into reality, each local council must have realistic housing targets. Every area needs to accommodate its share of population growth. Housing targets can distribute growth fairly and encourage local councils not to think only about short-term benefits to local residents at the expense of people living elsewhere in the city.

Local communities can then agree on how to meet their housing target in a way that works best for their area. As in Vancouver and Seattle, local residents should decide on design guidelines that are sensitive to the existing character of their neighbourhood. Buildings that can house the same number of households can be made to look and feel very different.

The community should also be involved in deciding what mixes of housing should go where, so that different types of household can live in the area, including older downsizers, young couples, families and single-person households. Finally, issues that existing residents rightly care about – such as maintenance of privacy, minimisation of overlooking and overshadowing, and placement of garages – should be built into local codes.

State governments have a critical role to play. They have the authority to push local councils to stick to their housing targets. They can require local plans to include enough land zoned to allow new housing. They can offer praise and extra funding to those that are succeeding, while naming and shaming laggards, and if necessary applying financial penalties.

In line with citywide plans, state governments also need to ensure more housing is accompanied by better transport. Depending on the location, this could involve more infrastructure, or better ways to manage congestion and parking. These transport improvements need to be paid for and implemented, not promised then forgotten. Otherwise, geography will increasingly be destiny. •

This is an edited extract from City Limits: Why Australia's Cities are Broken and How We Can Fix Them.

The post The new urban divide, and how to deal with it appeared first on Inside Story.

Three statistics issued in recent days reveal the scale of the problem.

• On 26 March, the Bureau of Statistics issued the latest national population figures. They revealed that Australia has grown by more than three million people in just eight years to last September. We are gaining almost 400,000 people a year. Every two and a half years or so, we add another million people.

• On 31 March, the Bureau released its regional population estimates for the year to last June. They showed that almost half of that rapid population growth is going into just two cities: Melbourne and Sydney. Add Brisbane and Perth, and almost three-quarters of it is going into just four cities.

In a single decade, Melbourne added three-quarters of a million people; it is now growing at almost 100,000 a year. Sydney added more than 600,000 people – equivalent to adding almost half an Adelaide. Perth’s population swelled by a third, Brisbane’s by a quarter.

This is extraordinarily rapid growth. It is roughly double the rate Australia averaged in the 1990s. You will not find it happening in any other Western country. How are our governments providing the extra infrastructure needed to service all these extra people?

• On 1 April, the Bureau released its estimates of engineering construction work in 2014. You might wish it was an April Fools’ Day joke, but sadly, that’s not so. It reported that work done on infrastructure plunged last year for the second year in a row, falling 12.5 per cent below its 2012 peak.

In every mainland state, infrastructure investment is now in freefall. In most of them – New South Wales, Victoria, Queensland and South Australia – the work carried out in the December quarter was down by between a quarter and a third from its recent peak.

But hang on, you say: isn’t that because the mining investment boom peaked in 2012? That’s true, it is winding down. And our governments have told us that they’re increasing infrastructure investment to fill the gap, and to help sustain economic activity as the mining boom subsides.

But what they’re doing is the exact opposite. Since 2012, the Bureau’s figures show, public sector investment in infrastructure has collapsed even faster than private sector investment. In 2014 alone, it shrank 15 per cent. Since 2012, it has shrunk 20 per cent.

At the very time when Keynesians would expect governments to increase their investment, to pick up the slack left by the winding down of the mining boom, the states in particular have given priority to getting their budgets back in surplus.

In the past two years, investment carried out for the public sector, whether by government workers or private sector partners, expanded only in relatively small pockets like the NBN, sports stadiums and ports. Other areas saw massive cuts. Instead of investing more in roads and rail to match the rapid growth in the population, governments cut investment in new roads by 15 per cent, in rail by 26 per cent, and in bridges by 30 per cent.

In some areas, the deep spending cuts might seem like a good thing: $2.7 billion was cut from investment in the electricity network (no more overpriced transmission lines) and $1.9 billion from water, sewerage and drainage (no more overpriced desalination plants).

But when all our big cities are choking on their traffic and our public transport is far below the standard of our new rich Asian counterparts, surely the money saved on electricity and water should have been invested in transport infrastructure? Instead, our governments, presumably acting on advice from their economic officials, have simply slashed investment.

That is bizarre. On the one hand, federal Treasury recently forecast that Australia’s population will have grown to forty million by 2055 – and the vast bulk of the sixteen million-plus extra people will pile into Melbourne, Sydney, Perth and Brisbane. That growth will roughly double their populations.

Yet Treasury’s state counterparts are telling their governments it is not crucial to build the infrastructure that will be required to preserve those cities’ liveability and economic efficiency. Rather, they say, the crucial thing is to maintain or regain an AAA credit rating – a rating designed for countries with low population growth and hence little need to borrow to build infrastructure.

Germany’s population, for example, is projected to fall over coming decades. It has little need to borrow to build new infrastructure. Australia is a very different country.

We already have a vast backlog of infrastructure needs after decades of underinvestment. In the twenty-five years to 1987, public infrastructure investment averaged 8 per cent of GDP. In the past twenty-five years, it has averaged 5 per cent. That is a very big decline in infrastructure investment. Privatisation of electricity and other assets explains part of it, but only part. The more infrastructure we need, the less of it we are building.

Why? Because to invest, governments need money. To get money, they need to either raise taxes, slash other spending, borrow, or fudge it by getting the private sector to borrow the money – at far greater cost, since the banks know that governments will pay them back, whereas private infrastructure builders can go broke, and often do.

The problem is that voters don’t want their governments to do any of those things. And governments lack the courage to tell voters that unless they do them, our cities will grow ever more congested, and our government services ever more inadequate to meet the demands a growing population places on them.

As I write, the ten-year bond yield for new Australian government debt is 2.33 per cent. New South Wales and Victoria can borrow at interest rates of about 2.6 per cent. The other states can borrow at around 3 per cent.

While scandalously few cost–benefit studies of transport projects are ever published in Australia – that is one of our problems – it is widely agreed that many smaller projects, such as removing level crossings, streamlining complex intersections, and updating railway signalling, would deliver benefits several times greater than the cost of building them. And that’s on the standard, outdated assumption that the government funds the project by borrowing at rates of 6 or 7 per cent.

At current interest rates, in an underperforming economy at some risk of recession, it is simply a no-brainer that our governments should be borrowing as much as they can sensibly invest to start repairing the infrastructure backlog, and fit our big cities for the growth they have had in the past decade, let alone the growth to come.

Yes, the states would lose their AAA or AA credit ratings, and have to pay more on their borrowings. But the interest rates they pay would still be extremely low, for the full duration of the loan.

When the loan ends, they would have to repay the debt or refinance it at whatever the rates are then. That should impose a discipline on them to pick only the projects where the benefits will outweigh the costs: no indulgences like Melbourne’s loss-making East-West tunnel, or Canberra’s proposed Northbourne Avenue tram line.

It can be done. As respected economists Max Corden and John Freebairn have argued in an excellent paper on the issue, “it is important to avoid purely political or populist decisions in choosing government investment.” Governments need to set up better institutions to evaluate and publish the economic merits of alternative projects, including the assumptions relied on for the evaluation. We also need a firm federal–state agreement to share their costs (and benefits), rather than using an utterly ad hoc approach, as the Abbott government has.

But the infrastructure backlog we face is too big to be tackled by borrowing alone. We need to bite the bullet and raise more revenues from the users of roads and public transport, and conduct a hard-headed review of public transport services to reduce their costs.

To give one illustration of the latter: the Alamein line in Melbourne is a charming historic relic of the railway age, but on an average weekday in 2011–12 its six stations were used by just 4746 people. Taxpayers in Melbourne pay 70 per cent of the cost of running the public transport system, while the users pay only 30 per cent. Should we adopt a goal that users should meet half the cost of running public transport services?

Congestion pricing has been adopted in cities like London, Stockholm and Singapore to help pay for new transport infrastructure and encourage people not to drive on congested roads. After initial opposition, London’s £10-per-day tax has broad bipartisan and community support, and is estimated to have reduced traffic volumes by at least 10 per cent from what they would have been in its absence.

Tolling existing freeways is seen as a political minefield. Yet the Kennett government showed how, when voters realise that the tolls will pay for improving the freeways (or building new ones), the political cost can be inconsequential. And such tolls could play a big part in financing an attack on the infrastructure backlog.

For example, Melbourne transport planners argue that the city’s biggest single need is for a second motorway over or under the Maribyrnong, to take the pressure off the overladen Westgate Bridge. But a second Maribyrnong crossing will be expensive. If it is to be financed by tolls, then tolls will need to be reintroduced on the Westgate, otherwise no one will use the new crossing.

It would probably be easiest if governments were brave enough to grit their teeth and announce that all existing freeways would become toll roads, with tolls at relatively low levels.

Last month’s tax reform paper confirmed that Australia is one of the most lightly taxed countries in the Western world. Only Korea and Switzerland have lower government spending. But since John Howard almost lost office in 1998 over the introduction of the GST, governments have lacked the courage to argue that we should tax ourselves more to build the infrastructure we need. They have also lacked the courage to argue for more borrowing to build infrastructure.

And so, people, we have a problem. We are fenced in by the community’s opposition to increased debt, tax rises and spending cuts.

If we persist in punishing governments that increase borrowing, increase taxes or cut spending, we rule out all possible ways to tackle our infrastructure problem. Our roads will become more congested, and our public transport more inadequate to the demands placed on it as our cities double in size.

We need a better balance between prudence and vision. •

The post How to bridge the infrastructure gap appeared first on Inside Story.

THE first motor cars I knew that conquered Australia’s distances were not really Australian. My mother had a brother in North Queensland and a cousin in Sydney. At Easter and Christmas times, they would converge on Brisbane by motoring down the Bruce and up the New England highways in Volkswagen Beetles.

Designed to cruise a network of high-speed autobahns across Germany, the early VWs had become masters of Australian roads as well. They finished first and second in the 1955 REDeX Round-Australia Trial and took the first six places in the Mobilgas event two years later.

When my uncle was single, he’d do the 1500 kilometre trip from Ingham straight through, stopping only for petrol. After he married and had very young children, they’d pack everything in like a ship’s galley and turn the Beetle’s back seat into a playpen. Without compulsory seat belts or baby capsules, the kids rolled about, playing and crying and dozing. I was jealous; it looked a much more exciting carriage for Australian holidays than my family’s Holden station wagon.

The cousin in Sydney also had live luggage, a golden retriever that no doubt required a few more stops on the drive, but was so sweet-natured it would probably have held on till Queensland if you had asked.

VW Beetles, according to Bernhard Rieger, performed this kind of local heroics all over the world. The “people’s car” became “an icon with multiple nationalities.” In Germany, it was the most popular motor vehicle in the 1950s and 60s, solid, reliable and comparatively cheap to buy and maintain, its export success tracking a country emerging from its horrendous recent history and producing something of quality that the rest of the world wanted. In the United States, the major overseas market, the Beetle became the motor car of the counterculture — compact, cute, unconventional and completely inconceivable in Detroit, where size, power and baroque styling ruled.

In Mexico, where the Beetle was manufactured from the 1960s, the vocho or vochito started out as the vehicle that the slowly expanding middle class could afford, unlike the much larger cars General Motors and Ford were trying to sell to the wealthy. After tax breaks were announced for cheap cars in the late 1980s, VW cut the price by 20 per cent to get under

the fourteen-million-peso threshold (around US$5000). “Together,” it declared, “we are building… a fairer Mexico and a more prosperous future for our children.” Made in Puebla, the hardy, economical, easy-to-repair vocho became a “quotidian item,” a “carro del pueblo whose technical characteristics appeared to lend the automobile a cultural affinity with everyday life.”

Advertising helped shape the Beetle’s appeal. In an episode of Mad Men, one advertising executive is scathing about VW’s 1960s “Think Small” campaign, where a miniscule Beetle sits in an acre of blank space. “No chrome,” he says. “No horsepower. Foreign.” But another executive reads it differently: “Honesty. I think it’s a great angle.” Don Draper sees it too: “Love it or hate it. We’ve been talking about it for the last fifteen minutes.”

The Beetle became “one of the world’s most recognised shapes,” up there with the Coke bottle, but with locally crafted appeal. Germans started calling it the Käfer, importing the US nickname. Many women in the United States were encouraged to take up driving because there was finally a car that seemed to be designed for them. Mexicans responded to an image of the vocho, shaped as a loaf of bread and as much a part of their everyday lives.

All these nationalities elided the VW’s founding under the Third Reich. The people’s car, like the people’s refrigerator, the people’s television set, the people’s apartment, the people’s tractor and other commodities, was intended to “usher members of the Volksgemeinschaft into a novel era of affluence,” to “turn the average German from a spectator into a practitioner of modernity.” Hitler commended the people’s radio receiver, Volksempfänger, as a model for the Volkswagen. This was a basic radio set, retailing for a quarter less than conventional sets, developed in 1933 by a radio industry consortium formed under Joseph Goebbels’s propaganda ministry.

Hitler launched a prototype of the people’s car in 1938. A big factory was built and used to manufacture motor vehicles during the war, though not the Volkswagen itself. Located in what became the British-controlled zone of postwar West Germany, in a town renamed Wolfsburg, the factory and the design were promising enough to retain, but not so promising as to be worth pilfering by the victors, as happened to some other German engineering developments.

The distinctive shape, the rear-mounted air-cooled engine and the torsion-bar suspension all survived. The people’s car became the planet’s, “a prime example of West Germany’s successful postwar reconstruction under American auspices.” The world knew all too well what Germans had done; the Volkswagen showed what they could do now.

AUSTRALIANS do many things. This year, a bunch of them turned a Great American Novel into a Hollywood movie that grossed nearly $150 million at the US box office. Thirty years ago, a few of them sailed a yacht called Australia II to win the America’s Cup. Fifty years ago, one of them won the ladies singles at Wimbledon for the first time; another shared the Nobel Prize for Physiology or Medicine; and many started using the first telephone cable under the Pacific Ocean to speak with the world.

In Sydney, a hundred years ago, a company was formed to take Australia into the wireless age. It would become a big manufacturer of consumer and industrial electronic equipment, but began by merging the small Australasian businesses of two European wireless companies, the German Telefunken and the British company formed by the Italian inventor, Marconi. At first, the main business was maritime, providing communication between ships and shore stations, but entrepreneurs soon imagined stretching the new technology further, to link Australia directly with the far-off hearts of the old European empires.

White Australians cared deeply about conquering this distance. While Amalgamated Wireless (Australasia), AWA, was trying to do it with wireless communication, others were thinking about doing it with air transport. “Australia’s consciousness of isolation from what it has always held to be important, its European origins, has resulted in Australia playing an extraordinary and disproportionate part in the conquest of distance by air,” wrote historian W.F. Mandle. Australian pilots, he says, “were the first to fly over every ocean in the world, save the Atlantic.”

The Germans made it to Australia by wireless quicker than the British did. They built high-power stations at Berlin and Tsingtao, on the Chinese mainland, to communicate with their Pacific colonies, New Guinea and Samoa. The British were slower, surrendering the early lead Marconi’s company had established in long-range wireless. Eventually they conquered the distance to Sydney late in the first world war. A decade later, AWA opened commercial services that Australians used to exchange direct wireless telegrams with people in Britain and North America.

In a 1929 talk, “Bridging the Gulfs of Distance,” for one of Sydney’s first radio stations, AWA’s managing director said, “If we develop wireless possibilities to their fullest extent, Australia’s isolation will be destroyed... No other country has so much to gain from the fullest development of wireless communication, and I consider that wireless is the greatest gift of science to Australia.”

As the second world war broke out, the wireless company opened new headquarters in York Street, Sydney. It was the tallest building in the country for nearly two decades. The flashing red light at the top was the last thing many Australian soldiers saw as they sailed away to the world. After the war, the company expanded its manufacturing of industrial and consumer electrical goods and was a major investor in Sydney’s Channel 7 and later Channel 10 TV stations. Only in the 1970s and 80s did various kinds of crisis force the break-up of Australia’s great wireless conglomerate and the disposal of its once-imposing wireless tower.

“WHATEVER you do in life,” implores Ivan Deveson, “don’t do it all your life.” He didn’t, though he spent a lot of time in motor cars. Growing up in Melbourne’s West Coburg, he joined General Motors Holden as a manufacturing cadet in the mid 1950s and stayed with GM for more than thirty years, much of it spent working overseas.

While on a GM Scholarship, Deveson was the 1958 Young Man of the Year in Flint, Michigan and met his future wife, a Mexican-American, who worked at the GM Institute. He was part of a team of Australian expats who set up an engine plant in apartheid South Africa in the 1960s; he managed the Copenhagen plant that was GM’s first outside the United States in 1923, and closed it after the oil crisis killed GM’s plans to start manufacturing for export; he had a senior job at GM in Detroit in the late 1970s, before returning to GMH at Fisherman’s Bend.

Taking early retirement in 1987, Deveson became managing director and CEO of Nissan Australia, which produced Pulsars, Pintaras and Skylines at the Clayton factory it bought from VW Australia in 1976 when local assembly of Beetles ceased — VW had made 260,000 cars and 75,000 light commercial vehicles there from the 1950s. Thrust into the middle of the Button Car Plan, which cut tariff protection but encouraged Australian car manufacturers to produce and sell at least 40,000 of every model in their line-up, Deveson found himself one of its first casualties. He resigned in 1992 when Nissan’s Tokyo head office decided to cease manufacturing in Australia.

Over the next twenty years, Deveson got on with those other things he hadn’t been doing all his life. He served as a director of companies including the Commonwealth Bank and Mount Isa Mines, and as chairman of the Seven Network when it was floated out of receivership in the early 1990s. He became foundation chancellor of RMIT University and lord mayor of Melbourne for three years from 1996. Watching the collapse of General Motors in the 2000s, he worried that he and his colleagues should have done some things differently during the company’s golden age.

THE young AWA took Ivan Deveson’s career advice for a short time. After starting out in marine wireless communications, its founding chairman looked around for other business opportunities and settled on motor cars. He persuaded the board to acquire the local dealership for Chevrolet while a critical director was overseas. The Marconi wireless men, still the biggest shareholders, were unimpressed and eventually forced the chairman’s resignation. His shares were sold and ended up mainly in the hands of shipping companies, AWA’s major clients. The wireless company would stay a wireless company.

Wireless led it to motor cars anyway. In the 1920s and 30s, AWA started selling two-way radios to police, ambulance, fire and other emergency vehicles, to taxi-cabs and to delivery trucks. As the one-way communication business of radio broadcasting grew and private motor car ownership expanded, AWA made and installed car radios: soon enough, a car wasn’t really a car without one.

All these new applications of wireless technology stimulated demand for wireless devices and equipment. Just a few months after Wall Street’s Black Tuesday, AWA announced the acquisition of a site on Parramatta Road at Ashfield, about eight kilometres from central Sydney. Then being used to assemble Dodge motor cars, the site had previously been the location of the failed attempt to produce the “Australian Six,” a motor car “Made in Australia, by Australians, for Australia.” (There is one in Sydney’s Powerhouse Museum.)

The Ashfield Radio-Electric Works, with its many new workers, was opened by a grateful prime minister James Scullin in 1930. It became the home for AWA’s much-expanded electrical manufacturing and fared a good deal better than the industry it replaced. Motor vehicle registrations did not reach their 1926–27 peak again until after the war, but the number of new radio listener licences grew even more strongly in the 1930s than it had after the birth of broadcasting in the early 1920s. AWA landscaped the Ashfield grounds, christened the site “An Australian Factory in an Australian Garden,” and installed a bust of Marconi out the front.

THE VW Beetle ceased production in West Germany in 1978 but was made until 2003 in Mexico. A “Beetle” can still be seen in showrooms around the world but it is a New Beetle, a front-wheel-drive sedan built on the VW Golf platform since the late 1990s. Its shape echoes the original people’s car, but the retro concept was dreamt up in California and the car has always been manufactured in Mexico.

The AWA that is celebrating its centenary this year is an information technology services company, turning over around $40 million in annual revenue and employing about 300 full-time staff and 700 agents in country Australia. It is a very different organisation from the large, vertically integrated industrial and consumer electronics business that existed until the 1980s, but it still uses the red-and-white circle logo that used to glow in neon on the AWA Tower. Market research found Australians still felt the name and brand implied values the company wanted to preserve: “established, Australian, solid.”

The crises that rocked AWA in the 1970s and 80s are still being debated. Some tell a story of suicide, of a company that lost sight of its founding mission to bring wireless and electronics to Australia. Others see business as usual, an enterprise that changed direction because it found a more profitable business to be in (gaming, which ended up with Jupiters and eventually Tabcorp), and buyers that valued the older business units more highly than did the existing shareholders. Others recall a foreign exchange trading scandal reported to have cost the company $50 million: a former employee finally pleaded guilty last year to four charges of falsely obtaining a (much smaller) financial advantage.

Others, still, see the hand of policy. They blame governments that eliminated the long-standing mechanisms of public support they think Australia needs if it is to have a strong domestic manufacturing sector. The chief target is the Whitlam government, which started the long program of tariff reduction by announcing a 25 per cent cut in all tariffs in 1973, soon after AWA had entered into a joint venture with European consumer electronics giant Thorn, to manufacture colour TV sets. Of course, for the opponents of protection, Whitlam’s dramatic decision was a breakthrough to be celebrated, the beginning of the end of the wrong turn taken early in the twentieth century when Melbourne’s protectionists crafted more of the industrial policy of the Australian federation than did Sydney’s free-traders.

IAN McLEAN is not so sure about the completeness of the “wrong turn.” His wonderful economic history Why Australia Prospered argues that, in the light of recent research evidence, “a more nuanced assessment of the impact of the tariff may be in order.”

Why Australia Prospered is both expansively ambitious and narrowly precise. McLean wants answers to the big puzzle of Australia’s persistent prosperity over more than two centuries. Why did Australia get rich and stay rich?

He is more interested in very long-term factors than those that determine economic fortunes from week to week or year to year, and much less in the fate of particular enterprises or the reputations of their CEOs. As an economist he needs a metric, so he interprets his task as “accounting for the variation across time in Australia’s average level of income, and its changing relationship to the levels of income in other countries.”

Industry protection is just one of many issues that McLean explores — though, given its significance in Australian economic policy, it is a crucial one. He does not dispute the now “orthodox view” that Australia’s high tariff and non-tariff barriers after the second world war reduced economic growth, so agrees that the lowering of protection following the 1970s improved productivity and living standards. But while only offering “an interim assessment” of the implications of the recent research, McLean thinks it is not clear that freer trade before 1914 and then between the wars would have resulted in greater prosperity. That’s potentially an important qualification for the manufacturing activities established and publicly supported at that time.

He judges that “there was limited scope for Australians to protect their prosperity from the severity or duration of negative impact of… international shocks” between 1914 and 1939. With the country carrying a heavy debt after the first war with Germany, confronting increasing international political tension and a broken global trading system, and burdened by a narrow industrial base, McLean finds it “difficult to see how a significantly higher level of prosperity could have been attained in Australia in the 1920s under an alternative growth strategy.”

McLean is a meticulous analyst and a calm judge, comfortable with unorthodoxy and big turning points if that is where the evidence leads. He is sceptical about neat, single-issue explanations of Australia’s long record of economic prosperity. “The economist’s preference for parsimony when building theories of complex phenomena” has to be relaxed for any “satisfactory account.” He assigns a “prominent role” to abundant natural resources, but is curious about how Australia avoided the “resource” curse that inflicted other countries: corrupt allocation of those resources, adverse impacts on other sectors, lack of investment in education.

He notes moments of “luck” — finding gold in the 1850s near the already-developed port and town of Melbourne rather than, say, in the remote Pilbara — but thinks the incidents where chance contributed to the prosperity of a “lucky country” need deep analysis before concluding that luck is all it was. He thinks distance mattered but not that it was a tyrant: “the exceptionally long-distance economic relationship with Britain was integral to sustaining Australia’s high level of prosperity for almost one and a half centuries.”

Being a subject of British imperialism was not necessarily a drag: for the measured economic prosperity of the early settlers, it was a boon. They took land from the original owners, labour from the convicts and subsidies from the British taxpayer. Their descendants, of course, paid the price fighting the Empire’s twentieth-century wars, and GDP per capita is a poor measure of the human trauma wreaked on the people who gave over the land and labour.

Reflecting on why Australia was, and remains, so rich, McLean thinks two themes are central. “First, the interactions between the principal determinants of growth have been more important to the outcomes than the role of any one factor — such as investment, institutions or resources. And second, it is precisely due to the shifting basis of its prosperity that Australia has managed to sustain its status as a rich economy over so long a period and despite numerous negative shocks.”

Yes, Australia’s prosperity has often come from primary industries, but they have shifted between farming and mining, and “within each of these among a range of foodstuffs, fibres, minerals and energy sources. And for part of the twentieth century, when commodity-based prosperity proved elusive, manufacturing played a supporting role.”

What can Australians do? They do many things. They adapt.

OUR relatives didn’t drive Beetles all their lives. Three growing kids pushed my uncle’s family beyond the capacity of even an ingeniously packed one. My mother’s cousin bought one of the first Golfs when VW introduced them to Australia in 1976.

Our last family car was the first new one. It was not a Holden, but it was made in Australia: a Ford Fairmont, the fancy version of the Falcon. We drove it up the Queensland coast in the January of the 1974 floods and it rained and rained. A few nights were spent in a beach house at Yeppoon, staring through the deluge at a grey Coral Sea, before it all got too much. A few more were spent getting on each other’s nerves in a motel in Rockhampton, waiting for the rain to stop, then another, stuck with dozens of cars on the north bank of the Calliope, waiting for the river to go down.

When it did, my father, a cautious driver, inched through the flowing water, tapped the brakes a few times on the other side to dry them out, then flattened it. We couldn’t get back down the Bruce Highway fast enough. I don’t remember talking much; maybe we listened to the radio a bit. The Ford Fairmont was magnificent. This was what Australians did. •

The post The adaptable country appeared first on Inside Story.

AT A BUSY intersection on Melbourne’s Nepean Highway, looking out over eight lanes of traffic, stands the imposing bronze figure of Sir Thomas Bent. Amid the noise of cars and trucks, few pedestrians stop to read the text on his plinth, which gives the outline of a long political career – as speaker of the Legislative Assembly 1892–94, premier of Victoria 1904–09, parliamentary representative for Brighton for thirty-two years, and a councillor of Brighton and Moorabbin for forty-five years.

But it is Tommy Bent’s surname that gives the best clue to his character, if not his impact on the city. In the early 1880s, his public and private roles – as commissioner for railways and as a property speculator – neatly overlapped. He not only promised to build railways to MPs’ electorates in exchange for political support, he also pushed through suburban lines that directly boosted the value of his own subdivisions.

As historian Michael Cannon writes, “Hardly a member of parliament whose vote could be bought went without his bribe in the form of a new railway, a spur line, or advance information on governmental plans to enable him to buy choice land in advance – the value of which was enormously enhanced when the line went through.” It was the decade of the land boomers.

Given such naked self-interest, it is remarkable how many of Melbourne’s early railways turned out to be good long-term investments. Despite waste and corruption, much of the network proved useful, giving the city a radial suburban railway that brings “quite remote suburbs close to the city,” in the words of historian Robert Lee. The Port Melbourne railway, which opened in 1854, kicked off decades of railway building that profoundly influenced Melbourne’s evolution as a city of suburbs.

Above: Much of Melbourne’s present-day rail network had been built by 1894. The blue and red indicate lines that were losing money at the time.
Photo: victorianrailways.net

While they didn’t experience the same rail-building frenzy, other major Australian cities also invested significantly in rail infrastructure in the late nineteenth and early twentieth centuries. As a city of the motor age, Canberra is an exception, although it is worth remembering that Walter Burley Griffin and Marion Mahony Griffin did design local rail and tram networks that were never built. That vision influences proposals for a light rail network under discussion in the national capital today.

Sydney’s first railway line, from the city to Parramatta, opened in 1855, and rail lines to Newcastle and Wollongong followed. These became the three main lines that crossed the colony – west to the Darling River, north to the Queensland border, and south to the Murray at Albury. Although these routes would become part of the city’s commuter network, Sydney’s first truly suburban railway was the Belmore line, which opened in 1896.

In Adelaide, a steam railway opened between the city and its wharves in 1856. Extensions were added to the jetties at Grange and Semaphore in the 1880s, and in 1873 a separate route was built to Glenelg. Brisbane’s first railway opened in 1875, a link to Moreton Bay was built in the 1880s, and lines north to Caboolture and south to Tweed Heads followed. In Western Australia, the 1881 rail link between Perth and Fremantle was built primarily to transport goods to and from the port; today, it too serves suburban commuters.

The expansion of Melbourne’s network slowed in the early twentieth century. The opening of the Glen Waverley line in 1930 marked the last outward extension of the system for eighty years. Spending on improvements continued, though, with the Victorian government embarking on what was then the largest conversion to electric rail lines anywhere in the world. Although the final cost of the scheme exceeded £6 million – equivalent, as a share of Australia’s annual gross domestic product, to more than $11 billion today – the efficiency gains quickly became apparent.

Sydney’s electrification was even more ambitious. The city’s rail system was far less developed than Melbourne’s and public transport was based primarily on trams. As tram services converged on the city centre in the morning peak, Sydney’s narrow streets struggled to cope. In the absence of a harbour crossing, there were also problems at Circular Quay, where up to seventy-five ferries an hour were docking at or approaching the wharves.

In 1912 engineer J.J.C. Bradfield was appointed to lead a new Sydney Harbour Bridge and City Transit division within the public works department. He spent the next twenty years trying to realise his dream of electrifying Sydney’s railways, building a loop beneath the city, extending suburban rail lines to the eastern suburbs, and linking lines north and south of the harbour via a bridge. With the first world war intervening, the first electric and underground trains didn’t run until the end of 1926. Legislation for the Sydney Harbour Bridge passed in 1922, and the “stupendous steel arch railway bridge – the largest arch railway bridge in the world” finally opened in 1932.

In retrospect, these decades were a high-water mark for urban rail. As car ownership took off in the 1950s, passenger numbers began falling in every city. In 1955 there were almost seven times as many people as passenger vehicles in Australia; by 2001 that figure would fall to two. In some places, railways were shut down altogether.

But investment didn’t dry up completely. In Melbourne, a city loop was carved out beneath the central business district, opening in 1985. In Sydney, the remaining components of Bradfield’s rail vision were built, with the loop to Circular Quay completed in 1956 and an eastern suburbs line opened in 1979. In Brisbane, the city rail network was finally electrified. Generally, though, these were decades of line closures and plans for new services not carried out.

THEN something unexpected happened. In the 1990s, after decades of stagnant or declining patronage, urban rail began to win back customers. The reasons varied from city to city.

In Sydney, annual passenger journeys rose by a solid 11 per cent between 1998–99 and 2010–11, probably influenced by factors such as increasing traffic congestion and petrol prices. The same factors were at work in Melbourne, but there the numbers almost doubled, driven by rapid employment growth in the inner city. In Southeast Queensland, passenger journeys jumped from an annual forty million to sixty-five million in the decade following the building of a railway to the Gold Coast and a branch line to Brisbane airport.

The most spectacular growth was in Perth, where patronage grew more than 500 per cent in two decades, reflecting major investment in new lines. In the 1970s there had been pressure to close down the entire Perth rail network – just forty-eight kilometres of track – because the capacity of rail was “well above” requirements and buses were considered to offer greater flexibility. A well-organised protest campaign and the election of a new government in 1983 brought a change in policy. Over the next decade, the rail link to Fremantle was reopened, the network was electrified, and new lines were built north to Joondalup and south to Mandurah. By 2010–11, total passenger boardings were approaching sixty million a year, up from fewer than ten million in 1991. Within three months of the Mandurah line’s opening in late 2007, two-and-a-half times as many passengers caught trains each day as had used the buses operating on the route previously.

Adelaide is the exception, and contrasts starkly with Perth. In the early 1990s the networks of both cities had fewer than ten million journeys per year. Two decades on, with no significant investment in rail, Adelaide’s passenger numbers are still below ten million.

Faced with increasing – and costly – congestion in most capital cities, Infrastructure Australia argued in 2008 that major new investments in rail were needed to deal with future decades of population growth and the increasing economic, social and environmental costs of road transport. Some of that investment is under way. In 2010, more than half of the investment recommended by Infrastructure Australia ($4.6 billion in total) was for urban rail (both heavy and light). Projects include the regional rail link to separate regional and metropolitan trains in Melbourne, the Adelaide rail revitalisation program and the Gold Coast (light rail) rapid transit system.

Many more projects are in planning or on wishlists. But there’s a problem: rail is very expensive. State and federal governments lack funds and are averse to taking on debt. Does the history of rail provide any guidance as to how it might be funded in the future?

AUSTRALIA’s first rail line, to Port Melbourne, was built and financed by a private company (assisted by generous land grants for stations, workshops and the route itself). The business proved profitable, and the Melbourne and Hobson’s Bay Railway Company soon opened a branch line to St Kilda and then amalgamated with another private railway to develop a network in the city’s south and east.

But this successful private investment proved to be the exception to the rule. The Sydney Railway Company went broke before its line to Parramatta opened in 1855. When the government took it over, New South Wales became home to what one historian describes as “the first government owned railway in the British Empire.” As economic historian N.G. Butlin writes, Australia’s transport problem was firmly back in the lap of government. It has remained there ever since.

Supporters of rail often argue that governments should simply borrow the money to build new lines, as they did in the past. But this argument ignores a big part of the story: the substantial public debt accumulated to build rail assets also had social, economic and political consequences.

Government-backed bonds sold in London funded Victoria’s spectacular burst of rail construction in the nineteenth century, but the income from these investments fell short of expectations.Rail’s operating costs grew from 50 per cent of railway revenue in the 1860s and 1870s to almost 70 per cent of revenue in the following decade, and there was not enough profit to service the growing debt.

In the mid 1880s, annual investment in suburban and rural railways peaked at a remarkable 6 per cent of Australia’s national product. Between 1875 and 1892 the colonies’ combined public debt quadrupled from £54 million to £198 million – from less than 40 per cent of gross domestic product in 1870 to more than 100 per cent of GDP in the 1890s. When British financiers withdrew their capital, the boom went bust. According to Butlin, over-investment in rail played a leading role in the balance-of-payments crisis and the decade-long depression of the 1890s.

Victoria was left with a legacy of debt. As Michael Cannon writes, the growing interest bill on capital costs and accumulated losses “crippled Victorian budgets for decades.” What he called “the incubus of the railway boom of the 1880s” was still weighing heavily on the taxpayer in the 1960s.

Funding for the ambitious expansion and electrification of Sydney’s rail network was more carefully considered. A third of the cost of the Sydney Harbour Bridge, for instance, was to be paid by a “betterment tax” imposed on landowners north and south of the harbour whose holdings were likely to rise in value as a result of the bridge; the other two-thirds was to be repaid from the railways budget, with the Railways Commissioners predicting a profit of £250,000 in the first year of operation. The state government borrowed money in London to fund the expansion of Sydney’s rail system, with repayments to be covered by increased profits from the electrified suburban system.

But the Great Depression cut passenger numbers and trains faced intense competition from road transport as – in historian Robert Lee’s words – “unregulated private buses picked the eyes out of the most lucrative urban transport markets.” By the time the Sydney Harbour Bridge opened in 1932, the debt situation was so bleak that the premier, Jack Lang, considered suspending loan repayments. Six weeks later the state governor dismissed him on the grounds that Lang’s plan for dealing with the financial crisis was illegal. Robert Lee argues that the events of 1932 have inhibited public transport spending in Sydney ever since. Governments have been “so scarified” by Lang’s fate that they have not dared to make the investments necessary to cope with ongoing growth.

Between 1922 and 1932 £30 million had been spent to electrify Sydney’s railways, build the underground city circle and construct the Harbour Bridge. It was a massive investment, equal to about 4 per cent of Australia’s annual gross domestic product and equivalent to around $50 billion today.

Residents of Sydney and Melbourne continue to benefit from the imprudent spending and mistaken assumptions of earlier generations – and the political corruption of people like Tommy Bent. But it is hard to imagine either city without its existing rail network.

If Sydney did not have railways, residents would need to travel those 5.85 billion passenger-kilometres each year by other means. If buses took three-quarters of these passengers, then their load would triple and extra buses would be struggling through increased car traffic. Since rail currently accounts for 44 per cent of journeys to work in the central business district, a large proportion of those extra buses would be trying to cram into the narrow streets north of Town Hall in peak hour, replicating the tram jams of early twentieth-century Sydney.

Of course, imagining the implications of less rail investment is interesting but not scientific or conclusive. If Bradfield’s vision had never been achieved then Sydney would be a different city. Perhaps it would be less centralised, with jobs more evenly distributed across the metropolitan area. Or it may have fewer people and a smaller economy because growth would have been constrained by lower mobility.

“Transportation technologies have always determined urban form,” says urban economist Edward Glaeser. This means that when we consider investments in transport systems in coming years, we need to think about more than the financial costs and benefits. We also need to consider what type of cities we want and how different transport choices will shape them in different ways. We need to determine our priorities too: do we invest in transport in order to lift productivity and efficiency, to redress spatial inequality, or to protect the environment? Can we do all three?

WE CAN’T build our way out of traffic congestion by constructing more urban freeways, which the evidence suggests will tend to encourage more car and truck journeys rather than fewer. To improve urban efficiency, public health, environmental protection and spatial equality, we need far greater use of public transport – especially with our growing urban populations and the rapid rise in freight transport on city roads. The challenge is to take Australian cities back to the future, to an era when the private car was less dominant than it is today.

Part of the solution is to use existing public transport systems more efficiently by organising networks better and upgrading existing services. As transport planner Edward Dotson told a Victorian parliamentary committee in 2009, it should be possible to “progressively raise the maximum practical, reliable capacity” of Melbourne’s existing rail lines to a target frequency of “no less than twenty-four trains an hour” (or one train every 2.5 minutes). Infrastructure NSW points out that today’s CityRail express service from Newcastle to Sydney is slower than the prewar “Newcastle Flyer” steam train, suggesting significant room for improvement. In peak periods Sydney’s trains carry far fewer passengers than many railways overseas – partly because they use two-door, double-decker carriages, which transport between 50 and 150 per cent fewer passengers per hour than three-door single-decker carriages. (Double-decker carriages have more seats but less standing room and are much slower to load and unload at stations.) Such problems are not simple to fix, but they do not generally require billions of dollars.

The question is whether entirely new rail lines are also a necessary part of our urban transport future. To what extent do we need to replicate the massive investments of the late nineteenth and early twentieth centuries?

High-capacity automated urban rail systems (like subways) have five times the passenger capacity of a four-lane freeway. While they’re not as advanced as metros in many other countries, Australia’s newest urban rail lines – the Joondalup and Mandurah lines stretching north and south of Perth’s central business district – have more than three times the capacity of the three-lane Mitchell and Kwinana freeways, which run parallel.

As well as offering the potential for high-frequency, high-speed, high-capacity services segregated from road traffic, rail offers reliability, safety and passenger comfort. It has a much smaller carbon footprint than private car travel: a commuter driving alone in peak-hour Melbourne traffic produces roughly three-and-a-half times the carbon dioxide emissions of a train traveller covering the same distance. And people are generally willing to walk longer distances to railway stations than to bus or tram stops, with obvious health benefits, because trains will take them further and faster.

But rail has disadvantages, too. It takes a long time and a lot of money to build, and is difficult to change. Land must be set aside or acquired. It is generally better-suited to travel in and out of a city centre than to travel between neighbouring suburbs, yet in Australia’s dispersed cities only about 20 per cent of jobs are located in central city areas. (While close to half of the work trips to Sydney’s central business district are made by train, rail comprises only 5.3 per cent of all journeys in the Sydney region.)

Nor is rail always an effective option for trips made for social and leisure activities, shopping, or access to education or health services. Most of these trips are local, and buses are generally a better way of expanding transport options within the outer suburbs of Australia’s growing cities.

Infrastructure NSW argues that investment in new heavy rail lines is not justified and that buses are “the most appropriate public transport mode for most of Sydney over the next two decades.” It proposes rationalising bus routes to create “a primary network of fast, frequent and direct services” that have the speed and reliability to compete with car travel. In practice, this means fewer bus stops spaced further apart, as well as greater priority for buses on city roads – in other words, getting buses to operate more like trains.

But different bus users have different needs. A peak-hour commuter wants the bus to take a direct route with as few stops as possible, whereas a retiree may want to access the shopping centre one day, a bowls club the next and a hospital every now and then. (In Melbourne, more than two-thirds of bus users do not have a driver’s licence.) Even if it involves a slower, more circuitous journey, many users need a bus service that stops at as many places as possible.

Even if improved bus services can meet these twin challenges, the experience of the Mandurah line in Perth suggests that urban passenger rail can do something qualitatively different. Not only can good rail services encourage a more rapid shift from car travel to public transport, they can also induce new travel that had not been previously anticipated. If people find it easier to travel to a wider range of jobs then workforce participation can increase and productivity rise as workers’ skills are better matched to jobs.

Increasing numbers of those jobs are likely to be clustered together. If we accept that knowledge-intensive industries will drive employment and productivity in coming decades then bringing employees together in efficient ways is particularly important. Despite the rise of new communication technologies, evidence shows that proximity matters more in the knowledge-intensive sector than in other industries. Edward Glaeser calls this “the central paradox of the modern metropolis – proximity has become ever more valuable as the cost of connecting across long distances has fallen.” Given its capacity and speed, rail is the most effective way to bring people and firms together.

This is one of the major arguments for the proposed Melbourne Metro, a nine-kilometre rail tunnel with five new underground stations running under the inner city. A report by SGS Economics and Planning concludes that the Metro would enable businesses to achieve “higher productivity through economies of scale and scope” and workers to “more rapidly accumulate skills and knowledge.” There would be benefits, too, from “knowledge spillovers,” as individuals and companies learn from one another.

THIS brings us back to how transport choices shape the city in fundamental ways. Melbourne’s city loop is a vivid example: before it opened in 1985, retail and office space was clustered around Flinders Street station to the south of the central business district. The loop helped to spread activity further north and enliven previously dormant parts of the city. This is the upside of rail’s inflexibility – because it is fixed, it provides a more certain carrot to attract developers and finance.

Recognising the desirability of more rail is one thing. Working out how to pay for it is another. The critique of standard cost-benefit analysis is that it fails to capture the wider economic benefits associated with the increased proximity that investments in public transport can bring. If these pluses can be calculated in project appraisals, along with all the health and social gains, then governments could borrow with greater confidence that increased revenue will fund repayments. This is the approach being taken with London’s £14.8 billion Crossrail project. And while the history of rail funding serves as a warning against amassing high levels of government debt, there are positive lessons from those investments too. The “betterment tax” used to partly fund the Sydney Harbour Bridge captured some of the windfall gains flowing to landowners as a result of linking the city and the North Shore. In Melbourne, a special levy was imposed on city rates to help fund the city loop.

If we build more urban rail in the twenty-first century then it is reasonable that funds should be recouped from those who benefit. Property owners are an obvious example, but it might also be worth considering increased fares, particularly since the subsidies for rail disproportionately benefit inner-city workers in well-paid jobs. Smart cards mean pricing can be used to discourage discretionary journeys taken at certain times in certain directions – in peak-hour heading towards the city, for example.

It seems logical that drivers should also pay because they will gain when new rail lines reduce the pressure on roads. But the relationship between transit and traffic is contested. Some evidence suggests that roads are less congested in cities with large, well-established rail systems, and some studies show that new public transport at least reduces the rate of the growth of vehicle traffic. The counter-argument is that latent demand for road space is so great that even if a new rail line encourages some drivers to catch the train, others will quickly take their place behind the wheel. If this is true then the logical response is a pricing system, such as congestion charging, to manage demand. Governments could sell or lease urban freeways to private operators and allow them to introduce time- and direction-based tolls. The capital raised could be devoted to new rail lines.

None of these measures is politically easy. But there is evidence that voters have a big appetite for changes in urban transport. With leadership and a clear linking of costs and benefits, new urban rail lines might yet have a place in our future transport mix.

Perhaps the most obvious lesson of history is that urban rail can continue to benefit a city more than a century after it is built. As J.J.C. Bradfield wrote about the Sydney Harbour Bridge, “Future generations will judge our generation by our works.” •

Peter Mares is the Cities Fellow at the Grattan Institute and an adjunct research fellow at the Swinburne Institute for Social Research. A longer, fully referenced version of this article is available on the Grattan Institute website.

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IT WOULD be easy to believe that the extraordinary decision by Qantas to shut down its mainline operations was a response to a fever-pitched stalemate in negotiations with key unions. The root cause of the shutdown, however, is the sub-par performance of Qantas International. It’s this underperformance that has driven the new Asian airline strategy, the offshoring of jobs, the need to contain wages, and the shedding of labour in the pursuit of productivity improvements – all key issues over which there is union and management conflict.

The international business has performed beyond expectations on only one or possibly two occasions over the past ten to fifteen years. The metric that is used to determine whether it has under- or over-performed is the return on assets; the last time Qantas International reached its return-on-assets target was in 2008. During that year the Australian economy was booming and there was no growth in the supply of seats in the market. These two events coincide once in every decade or decade and a half – not great odds for Qantas shareholders.

The sub-par international performance has meant that the highly profitable domestic and regional businesses have had to prop up the ailing international business financially. What can Qantas do for the international business to enable it to profitably stand on its own two feet?

My ten-point plan for the group would include the following.

1: Lobby the government harder

Qantas’s relationship with the federal government has clearly suffered as a result of recent events. The airline must fix this quickly and re-engage the government on critical issues.

One good that has come out of recent events is that the government now knows how urgent and structural the problem is for the international business. It also knows that unless the structural problems are addressed they will flare up again in three or five years’ time during negotiations on a new agreement.

The most pressing issue to be raised with government is the persistent excess in the supply of seats. The government has consistently agreed to requests by foreign carriers that are majority government-owned for greater access rights, which has allowed the share of the international market operated by these carriers to grow from 20 per cent in 1991 to 47 per cent in 2011.

It has also allowed Middle East carriers, including Emirates and Etihad, to increase their capacity at a compound annual growth rate of 26.3 per cent since 1991, a period in which the average growth rate for the market has been around 5 per cent. At the same time, other privately owned carriers – including Air France, Alitalia, Austrian airlines, KLM, Lauda Air, Lufthansa and Swiss Air – have simply stopped Australian operations. For inbound tourism, such carriers are critical.

The Qantas Group has to demonstrate to the government that providing government-owned carriers with additional rights is not in Australia’s public interest. It is hurting net international and domestic tourism and crowding out the expansion ambitions of Australian carriers and other privately owned foreign carriers.

Alternatively, Qantas could try to convince the government that the international arm of the airline should be nationalised and that it coordinate with Tourism Australia to turn around the net international tourism deficit.

2: Reduce spending on fuel hedging

Higher oil prices have devastated the airline business – and particularly the international business, in which fuel is a high proportion of total cost.

The problem won’t go away. Oil prices are set to trend higher over the next ten to twenty years, causing further headaches for international airlines. One thing the Arabs learnt prior to the GFC is that oil demand is extremely insensitive to price, which means that revenue goes up when the oil price goes up – by a lot. They understand that the key risk associated with pumping too much supply into the market is high because the downward impact on the oil price can be large.

International airlines all around the world must have plans in place to account for the trend in oil prices. For Qantas, those plans should include lower levels of fuel hedging using financial instruments. The additional volatility in the global economy means that the use of financial instruments such as swaps and options for fuel hedging will become more expensive. The natural response to this higher cost is to use these instruments less and rely more on costless measures to protect against price rises.

One of the strengths of Qantas International is that it has the greatest costless protection of any airline in the world, including key competitors. The reason is simple: as the price of oil goes up so does the Aussie dollar. This relationship has held true for almost thirty years, except for an eighteen-month period in early 2000 when the US Federal Reserve decided to jack up interest rates by 190 basis points.

Any costs that Qantas finances in US dollars – fuel costs, purchasing or leasing aircraft, spare parts and charges at foreign ports – fall as the Australian dollar strengthens.

As the oil price increases, Qantas International must risk extracting maximum possible benefits from this costless oil protection to draw its unit costs closer to its rivals.

3: Protect revenue from higher oil prices

Qantas not only enjoys one of the most powerful natural forms of oil price cost protection in the world, but also one of the most powerful forms of oil price revenue protection.

When the oil price goes up as a result of the strength of global oil demand, the price of other commodities invariably increases. When the prices of these other commodities rise, this helps Australian jobs, income and wealth, which in turn drives air travel.

Qantas needs to convert this strong Australian demand into revenue growth. It can do so by not overreacting to strong demand growth by adding too much supply, but instead allowing yields to grow to finance higher unit costs.

Qantas international should take a leaf out of the accommodations sector’s book – grow revenue proportionately more through yield and not volume because volume growth adds to variable costs at the same time as putting downward pressure on yields.

Qantas International has a very strong presence in the Australian point-of-sale market (at least before the weekend), just as other foreign airlines have strong presences in their own home markets. With commodity prices set to increase over the years ahead this presence will be increasingly important as the Australian economy continues to be one of the fastest growing advanced economies in the world. Qantas needs to position itself better to capture this growth.

4: Take advantage of fuel efficiencies

In a trending oil price environment the airline needs to pursue fuel efficiencies. The purchase of the fuel-efficient Boeing 787 aircraft – expected to be 20 per cent more fuel efficient – is definitely a step in the right direction. This will only yield benefits, though, if the fuel cost savings are not captured by a higher price for the aircraft, in which case any potential gain is offset by an increase in depreciation costs.

5: Reform airport regulation

In Australia, Qantas International is exposed to the strongest privately owned airport monopolies in the world. The market power they possess is enormous, and mostly manifests itself in the transfer of risk away from the airports and towards the airlines. Qantas must continue lobbying for more aggressive regulation of airports.

Many of Qantas’s international competitors don’t have the same problems because the owners of the airline also own the airport, as is the case for Changi and Dubai airports. An increase in airport charges at these airports is a transfer from airlines like Qantas to the owner of the airlines against which they compete.

6: Change the seat mix

The proportion of premium seats on Qantas International flights is high. While this works extremely well during good economic times it is often catastrophic in bad times. It makes Qantas’s performance more cyclical than for airlines with lower premium mixes.

The global economy will be more volatile in the future as governments around the world tighten their budgets, particularly in key advanced economies, and the fears over sovereign debt crises take time to subside. Airlines with high premium mixes are likely to experience more volatile earnings, making it more difficult and costly for them to raise capital (as credit ratings decline). Qantas international should consider further reductions in its premium mix over the period ahead.

7: Improve leading indicators

Airlines at the moment tend to be slow to react to periods of revenue or cost adversity. Instead of pulling seats out of the market when things are getting tough, they reduce the average price or let the loads on the plane slip until it’s unbearable. This is precisely what happened during the GFC.

Airlines must react more nimbly to adverse economic conditions. Qantas can lead the way here. It should invest in a team that can put together a custom-made set of leading indicators that give insight into underlying demand on all routes six to nine months into the future.

When these indicators show that demand is going pear-shaped the airline can prepare to pull capacity out of the weakest routes and transfer it to the routes where it is expected to be strong. Capacity must be sufficiently flexible to allow this to happen. In some cases this is difficult because airlines may have to give up the rights to landing slots at airports, but this would have to be assessed on a case-by-case basis.

8: Improve yield and revenue management practices

The yield management systems of airlines all around the world have been deeply affected by the GFC. These systems attempt to forecast demand for a particular flight well in advance of departure and use that information to determine how many seats will be offered at different price points.

Forecasting demand today, however, is significantly more difficult because it is coming out of a GFC-affected base. This is making it almost impossible for the complex mathematical algorithms used by yield management systems to get the best possible revenue result for the airline. For this reason, it is extremely important to have very senior and exceptionally talented analysts working on yield management to detect when the computer gets it wrong. Qantas has an opportunity to lead the way on this.

9: Stop the brain drain

A significant amount of talent and airline experience has left the senior executive of the Qantas Group. They include the likes of Colin Storrie (former CFO), Peter Gregg (former CFO), Geoff Dixon (former CEO, Qantas Group), John Borghetti (former CEO, Qantas Airlines) and Grant Fenn (former Group Executive in charge of strategy and freight). They also include many others in the senior management team who now work for competitor airlines.

This brain drain will eventually undermine decision making at Qantas because it affects the accuracy of the information at the disposal of senior management. The Qantas Group must stop this labour leak to ensure that the best minds are making decisions about the international business.

10: Improve the Qantas board

The current Qantas board lacks depth in aviation experience. Of its eleven members, only Alan Joyce (fifteen years), Richard Goodmanson (three years) and James Strong (eight years) have worked in an airline at a senior level.

Anyone who has spent a long period working in an airline will tell you that it takes several years of full immersion in aviation work to fully understand its complexities – and even after that decisions are extremely difficult to make. While bankers and miners will all have useful input into the various financial impacts of decisions, and these types are needed on the board, there is a need for additional people with aviation experience to provide more rigorous testing of and feedback on aviation capacity and investment decisions. They will also be able to understand, and quickly absorb, detailed board papers and presentations that would not not need to be watered-down for those with less aviation experience.

Given the Group’s expansion into Asia, it would also appear suitable to have a board member familiar with doing business in Asia – a point well made at the recent AGM. •

Tony Webber was Qantas Group general manager microeconomics and then chief economist between 2004 and April 2011. He is now managing director of Webber Quantitative Consulting.

Tony Webber discusses this article with Peter Mares on The National Interest

The post Qantas: a ten-point plan appeared first on Inside Story.

BACK in December 2009, Ken Henry presented the federal treasurer, Wayne Swan, with the final report of the Australia’s Future Tax System Review and the government buried it. The government formally released the report in May 2010, and promptly buried it again with its “deft” handling of the resource super profits tax. Henry made 137 recommendations; the federal government responded to three and a bit, and not at all well. Next week’s tax forum will look at a few more.

Reading the Henry Report is far more interesting than watching rampant self-interest fight the same tired pitched battles over tax in the guise of national debate. It would be nice if Australia’s future tax system looked a little more like Henry’s recommendations than the soul-destroying edifice it is now. And Henry is far from an impractical theorist: “In principle, the home production of alcohol would be subject to tax,” he observes. “In practice, this is unlikely to be feasible.”

So, in the belief that sense will ultimately prevail with tax reform as it will with a carbon price, here is a look at the future from the perspective of a sustainability practitioner: a brief look at taxation and public policy, environment taxes, housing, resources, transport, and charitable organisations. No room this time for Henry’s treatment of insurance, nor for smokin’, drinkin’ and gamblin’. The complexities of personal and corporate tax, superannuation and transfer (welfare) payments are still baffling the real experts.

As with all public policies, a tax policy needs to be effective, efficient and equitable. To be effective, taxes need to raise enough funds to pay for public security, health, education, transport and essential infrastructure – and a heap of other things that society may want to support. Societies may also agree to use them to discourage private actions that impose costs on the rest of the community (problem gambling, for instance), and encourage private actions that benefit others (certain donations, for instance). Taxes will be efficient if their administration costs are low. Equity is a bit trickier: “Taxes will be equitable if different groups pay taxes at levels that each sees as fair. Discuss.”

To achieve all this, Henry advocates whittling the current labyrinth down to clear and simple taxes on just three things: income, consumption and resources (which includes all the things in Australia that aren’t going anywhere – land and the stuff under it). Payroll tax and other odds and sods would disappear. The logic is impressive. Federalism and self-interest are the hurdles. The politics are horrendous.

Move people, not houses

Henry proposes that stamp duty and any other tax on the transfer of property should be scrapped. This should encourage land and buildings to be better matched with their most valued purpose, reduce the overall cost of housing, and increase incentives for large-scale housing investment.

Housing affordability is a real issue: prices have risen from three times to five times average earnings in just the past fifteen years, and the proportion of fifty-five to sixty-four year olds with mortgages has increased from 13 per cent to 30 per cent in the same short time (make you feel better?). While the population is growing at 1.7 per cent a year, housing completions are falling by 2 per cent. So more people are sharing, which sounds good, but it’s only because the leave-home age has risen from twenty-four to twenty-eight. Mental health costs must be soaring.

Reducing transaction costs helps reduce the size of houses and enables people to live closer to where they work. The higher the cost of transferring property, the more likely that people stay where they are, even when it doesn’t suit them. Empty-nesters are more likely to stay in houses with empty rooms; families needing more rooms are more likely to renovate than move to a larger house. Renovations usually add needed space, and a bit more to make sure, and I’m pretty sure they rarely shrink a house. Henry suggests that stamp duties also increase commuting, unemployment and barriers to entering the housing market, and hold back productivity growth. They’re a fly in the economic ointment and need to be Morteined.

Looking for opportunities off the back of such a move, a developer might build a portfolio of similar-style properties of different sizes in the same area so that people can transfer within that portfolio at minimal cost. They might design better granny-flat options. They might work with governments to reform related transaction taxes. Even real estate agents could benefit: some might seek a slice of the saved stamp duty; others might be happier instead with the increased turnover.

Land tax is proposed to replace stamp duties, consistent with the overall model of taxing what cannot be recreated (land, non-renewable resources, licensed markets) while maximising its economic potential. The tax would only apply to the unimproved value of the land itself, so as not to penalise improvements. But Henry recognises that many groups – pensioners and farmers, for example – may have valuable land with low incomes, so suggests using the income tax system to compensate low-income earners for the land tax. Others, including businesses, might need to reconsider their impact.

Taxing transport

Currently, two-thirds of Australian wealth is generated in the cities, but that is hampered by congestion – a $20.4 billion impost by 2020, or about 1.5 per cent of GDP, not counting the trauma some feel in peak hour or trying to get home for preschool pickup. Unless you’re careful, more roads are counterproductive: between 50 and 100 per cent of new capacity is filled by new road users within three years. So what do we do?

Better charging for road use, says Henry, as you’d expect from an economist. Our $16 billion in road-related taxes basically pays for new roads, but not for their wear and tear, policing, the annual $15 billion worth of accidents and whatever value you want to put on 1616 deaths. Those costs all come out of the general budget. The Henry insights are, first, that cars actually have zero impact on road wear-and-tear, which means that fuel taxes massively subsidise heavy vehicles; and, second, that electronic mass-distance-location charging is now available for those same heavy vehicles.

The Henry solution? User charges for heavy vehicles, an annual registration fee of about $500 per light vehicle to give unlimited access to the public road network, a congestion charge for peak demand areas, and a greenhouse gas emission charge as part of a broader emissions trading scheme or carbon tax. These taxes would account for the social, environmental and economic costs of traffic, so all other fuel taxes should be abolished. As should those pesky bugs, stamp duties.

It follows that Henry also suggests abolishing taxi licence fees, other than those needed for safety and service of the taxi system. Plates worth up to $477,000 would be a thing of the past (though the transitional compensation calculations could be fun). Anything that reduced the cost of taxi hire would be welcome, with taxis a regressive cost on the community: the poorest 20 per cent of the community spend more than twice as much of their income on taxis as other Australians because they are more likely to live in areas poorly serviced by public transport and/or not to have a car.

Any shift from road to rail will help with emissions, road congestion, the essential restoration of our rail system, and regional economies. The trade-off might be a day’s delay in deliveries by rail. But frankly, I’m amazed by what gets to me overnight at little cost, and I’d be happy to wait an extra day and be able to drive on highways without risking yet another truck-horror fatality. Rail-based freight companies may stage a comeback, and corporates might encourage them with rail-freight preferences. Taxis would be more common and mobile, with more frequent and cheaper trips replacing airport carparks full of cabs. Who knows, there may even be a real challenge to the tip-depriving monopoly Cabcharge’s 10 per cent.

Taxing resources

As flagged by its sledgehammer name, the main purpose of the government’s resource super profits tax is that we/they want more of the cash from resource extraction. Though reasonable, this is only a secondary argument for Henry.

Henry’s main argument, which I’d imagine would be a lot easier to sell politically, is that tax (in other words, fiscal policy) may be a better way to manage the mining boom than interest rates (monetary policy): it would help to get the most value from finite resources, maintain a balanced economy, and not penalise the rest of us. He argues that the owner of a non-renewable resource – us – erodes its value if it exploits the resource either faster or slower than the optimal rate, calculated against the market’s expected rate of return:

Arguments for exploration and production faster than this rate can fail to recognise that resources kept in the ground will generate a better return for the owner if higher rents can be obtained in the future (due to future higher prices or lower exploration and production costs). Similarly, arguments to bring forward exploration and production to create jobs can fail to recognise that this may be at the expense of future jobs in the resource sector (as there is a finite stock of resources) and may have an adverse impact on other sectors in the economy from which labour and capital are diverted.

Each month, the Reserve Bank looks at raising interest rates to dampen the isolated effects of the mining boom; meanwhile, the rest of Australia and the world economy are doing well to stay afloat. With mining accounting for just 1.4 per cent of jobs directly and another 3.5 per cent indirectly, it means that one-twentieth of the economy is setting policy for the rest, and not delivering the best deal for either its developers or the resource owners. Which all suggests that the resource super profits tax is a good idea, but like many other recent ideas it seems to be in the wrong hands for effective implementation.

Here is another case for better modelling and planning of the national environment, social and economic effects of major new investments or regional developments. While each project may be worthwhile on its own terms, particularly to its promoters, collectively they may be counter-productive. Without wanting to undermine a thriving market-based economy, there is a point where responsible governments will take a national view. Accurate information from a source broadly trusted is what is needed – if the adversarial system works in the law, a big “if,” it may not work in public policy. Such information sources are badly needed.

Not-for-profit environmental and social organisations

So you’re an NGO. Henry would like to simplify things for you. Which of the forty pieces of legislation administered by nineteen different agencies grants you your tax concessions? Your “public benevolence” status is defined by the Charitable Uses Act of… er… 1601 (the “Statute of Elizabeth”), so modern niceties like human rights, animal welfare, international aid and disaster relief need a separate application. But be wary. Henry assumes that not-for-profit organisations, “like for-profit [ones], will seek to maximise their profits in support of their philanthropic activities.” So, tax exemptions on the commercial activity of NFPs should be removed, because they “don’t provide an incentive for NFPs to undercut the prices of their for-profit competitors.”

But why would/should they? Orthodox economists struggle with any other model of firm performance other than profit-seeking, and use that assumption to support a range of findings. (Joke: How does an economist cross a river? First, assume a bridge.) But NFPs will maximise their social service activities and expenditures rather than any profits from them, and pricing is set accordingly. Any commercial services are priced at market rates, because they’re intended to raise funds for the social services, and to do otherwise would cause a backlash by other market participants who might otherwise be friendly to the NGOs.

These thoughts are very relevant to the current pokie-reform debate. Henry draws attention again to the obvious discrepancy of large mutual NFP clubs competing on a tax-exempt basis against commercial hotels and restaurants who do pay tax. Though tax-exempt, these clubs are not bound by the same rules as philanthropic NGOs, and “are free to spend their mutual receipts as they wish.” Where the only substantive activity of the club is to provide gaming, catering and entertainment to its “members,” “it is not clear that the wider community should entirely forgo tax on all of these profits, although some concession could be retained, particularly to support smaller [real mutual] clubs.” The discrepancies are highlighted by the clubs’ dependency on gambling. The 300 clubs without gaming averaged profits of $18,000 in 2005 (the last year the ABS/Productivity Commission published data), while the 1716 with gaming did a little better: $334,000 on average.

Spilling over into the carbon price debate

Henry stresses the idea that externalities or “spillovers” can work both ways. “An example of a negative spillover is where a river is polluted by inappropriate use of a fertiliser, causing harm to downstream users of the water. But spillovers can be positive too – a farmer who maintains native vegetation may deliver biodiversity benefits for the community, but will generally not be compensated for this service.” As these spillovers are not priced, or are priced poorly, “the environment is allocated inefficiently between its different uses, resulting in excessive environmental degradation.” Taxes can be used to address these spillovers.

It’s a theme that continues in the politics around climate change. Taxes can be used to price spillovers, but Henry is the zillionth economist to confirm that a properly designed emissions trading scheme (which is not a tax) is the best way of handling spillovers on greenhouse gases:

Market-based approaches allow the market to determine the lowest-cost means of abatement. Such approaches therefore provide the opportunity to deliver improved environmental outcomes at the lowest economic cost. They also provide strong ongoing incentives for investment in technology research, development and deployment, and in efforts to improve energy efficiency. [The] economic outcomes have often exceeded expectations as a result of market-oriented policy changes, as firms take up opportunities and incentives to innovate and improve productivity.

This time, maybe.

As with similar Productivity Commission reports and the like, the Henry Report is a rich vein of ideas and research on sustainability-related issues. While the final recommendations of these kinds of inquiries rarely make it through our poll-driven politics as a coherent body, they do provide ample material to support or counter a view or argument. Let’s use them when we can. •

The post Tax reform: a world of opportunity appeared first on Inside Story.

THE ARRIVALS hall was small and airless, filled with people pushing, shouting, cursing and sweating as they jostled towards passport control. A single bag scanner had been set up to deal not only with hand luggage but also with the overloaded suitcases, brightly coloured plastic sacks and various other odd-shaped packages that passengers had checked in before departure. Those waiting, or rather hoping, to collect their belongings included people who had landed several days before but whose luggage had not. Despite the heat and crush no water or other refreshments were available. It was, in short, every traveller’s nightmare vision of a Third World airport, minus only the gun-toting customs official trying to extract a bribe.

The setting was Juba, the capital of South Sudan, which, three days after my arrival, was to become the world’s newest country. The South’s government, which is building a new airport alongside the existing one, could offer reasonable excuses for the state of the current facility. The Republic of South Sudan, as it is now known, is one of the world’s poorest and least-developed nations, thanks largely to nearly forty years of conflict since Sudan achieved independence in 1955. A flashy airport was not – and should not have been – the first priority when the last war with the Arab-dominated government in Khartoum ended in 2005.

And besides, who could have predicted the volume of air traffic circling into South Sudan today? When I first came to Juba six years ago there were no commercial flights, so I flew in on a cargo plane chartered by South Sudan’s rebel army. (There was only one hotel in the city, which had been held by the northern army during the war, and barely any paved road.) On the way out of Juba the cargo plane was full, and after sitting on the tarmac – literally – for several hours, I ended up catching a lift home in a very smart corporate jet hired by some British oil executives, among them Phil Edmonds, the former English cricketer.

Later, it was possible to fly in from Kenya on a scheduled flight twice a week. And today three commercial airlines fly from Nairobi to Juba each day, two of them twice daily, including the national carrier Kenya Airways and a budget airline, Fly540, with which I flew this time. There are also direct flights from Khartoum to the north, Ethiopia to the east and Uganda to the south. Indeed, the arrival within an hour of planes from each of these places was one of the reasons that the baggage area at the airport was so chaotic.

Presidents and prime ministers travel in a different style, of course, and don’t have to worry about lost luggage. The birth of a new nation doesn’t happen every day, and numerous African leaders – as well as senior European and US legislators – flew in on their private jets for the independence celebrations, forcing the closure of the airport to commercial traffic for two days around the main event. East Africa, which felt the effect of South Sudan’s wars as refugees streamed over various borders, was well represented, with the Kenyan, Ugandan, Tanzanian, Rwandan and Ethiopian leaders all arriving at the John Garang Mausoleum in Juba in convoys of luxury, bullet-proof vehicles for the official ceremony on Saturday 9 July. “VVIP” guests from West Africa included Goodluck Jonathan of Nigeria and Teodoro Obiang from Equatorial Guinea, while South Africa’s Jacob Zuma and Rupiah Banda of Zambia were among those who flew in from further south with the obligatory retinues of advisers and bodyguards. Then, shortly after noon, the Republic of South Sudan was born, and within hours the foreign leaders were back at the airport, boarding their private planes.

If they’d wanted to, the leaders arriving from beyond East Africa could well have returned home on commercial airlines with not much less convenience – something that was inconceivable even just a few years ago when a cross-continent trip promised to be an ordeal, and a very long one at that. One of the first elections I covered in Africa was in Liberia, another country emerging from devastating conflict, in 2005. Those were days of fatter newspaper travel budgets – an era when trips were normally approved or not by a foreign editor based on the merits of the story rather than on the cost of getting there and travelling around. Getting to Liberia from Nairobi proved difficult. There were no direct flights to Monrovia, Liberia’s capital, and the travel department at the Times of London, where I was then working, could find no connecting flights within Africa either. Instead, I flew to Belgium, and from there to Monrovia, a journey that took about two days with the stopover included, if I recall correctly. My expense claim was not insignificant.

This was not a Liberia-specific problem; the destination could have been any one of several capitals in West Africa. Back then, travelling across Africa by plane invariably meant first leaving Africa.

Six years on, the situation has changed drastically. Kenya Airways, part-owned by the Dutch airline KLM, now flies to Monrovia three times a week. In West and Central Africa it flies to Ivory Coast, Benin, Nigeria, Senegal, Ghana, Cam­eroon, Mali, Equatorial Guinea, Sierra Leone, Chad, the Central African Republic and Gabon. Earlier this month, it commenced flights to Ouagadougou, the capital of Burkina Faso. East and Southern Africa are even better served. Even though North Africa is still poorly connected – to get to Tunisia recently my best option was via Doha, in Qatar – Kenya Airways now flies to thirty-five African capitals or main cities out of fifty-four. At the pace new routes are being added, the company’s claim that it intends to serve every African capital by 2013 doesn’t seem too far-fetched, especially if Mogadishu in war-torn Somalia is left off the list.

Kenya Airways has the widest network on the continent, but it’s not alone in spreading its wings. Ethiopian Airlines, a respected international carrier, now serves around half of Africa’s capitals or major cities. And South African Airways is not far behind. In Sub-Saharan Africa, only West Africa lacks a carrier with links across the continent, and surely that will change soon. A number of smaller regional airlines are also expanding quickly, serving domestic and other short-haul destinations. South Africa has several budget airlines that have drastically reduced the cost of flying. In Kenya, Fly540 offers internet booking and flies to numerous cities and towns around the nation daily, as well as to neighbouring countries. With cut-price fares aimed mainly at local middle-class travellers, it has already carved out a healthy niche for itself in the market.

Another Kenya-based airline, Jetlink, serves a similar clientele, and has opened up new routes that the bigger players have overlooked, including to places like the Democratic Republic of the Congo. Journalists, aid workers and businesspeople trying to reach eastern DRC used to have fly to Rwanda and then make a journey of three or four hours by taxi to the border. I once tried a different, more direct route, flying from Nairobi with a conservationist in a tiny two-seater plane he’d built from a kit. We bought fuel for the flight early one morning at a petrol station near Nairobi’s Wilson Airport, and then set off on the five-hour journey. Initially, as we flew low over the Rift Valley, it was spectacular. Later on it became deeply uncomfortable after I was unable to keep my lunch down as we circled over a lake and the bottom of the conservationist’s airsick bag gave way.

Today you can fly with Jetlink directly to Goma, the main city in east DRC, a journey that is quicker, safer and easier on the stomach. That’s not to imply that flying within the DRC using local airlines is safe. Indeed, the country has one of the worst safety records in the world. Some of its airports are in terrible shape, as are many of the planes, which saw better days when they were still in the air above the then Soviet Union. Every few months there seems to be another accident with dozens of passengers killed. It’s a record that still tarnishes the entire airline industry across the continent in the eyes of some. Indeed, a few years ago when my newspaper needed to fly me to London the person booking the ticket got into a flap when British Airways flights came up full. Feeling guilty about the nightmare journey – or even the crash – I was about to endure she booked me a business-class ticket on Kenya Airways. Sadly, this precautionary move on the part of my employers has not been repeated, and I’ve never turned left when boarding a plane again.

The benefits of the rapid opening of African skies are many. Increasing numbers of middle-class Africans can now afford to fly – not just within the continent, but onwards to faraway destinations such as China, where thousands of Africans land each week to buy cheap goods for resale at home. Businesspeople on one side of Africa can now get to major cities on the other the very same day; leave Nairobi on Kenya Airways at 9.30 am and you will arrive in Liberia at 3 pm on the same day. A vast and diverse continent has become a much smaller place.

This is surely a boon for investment in places like the Republic of South Sudan. Before the country became independent, the global drinks giant SABMiller was one of the few multinationals willing to take a punt on its future, spending many millions of dollars building a large brewery on the edge of town. Now that Sudan’s split has gone ahead peacefully, what would stop other companies having a look? Certainly not logistics or travel fatigue, since you could leave a European capital in the evening and be in Juba before noon the following day.

Getting around the new country is more tricky. Distances are vast, and the road network poor. Currently the United Nations operates most of the internal flights. But a few commercial carriers have already started operating, and the market can only grow. And the new airport, hidden behind a giant poster of the Southern president, Salva Kiir, during the independence celebrations, will make things more comfortable. Though as I sat in the old airport waiting for my flight home it suddenly didn’t seem so bad. The Wi-Fi hotspot and cold Coke, luxuries absent while I was waiting for my luggage on the way in, might have had something to do with it. •

Come fly with me
Broadcaster Robyn Williams looks at how aviation can deal with the carbon challenge

The post A shrinking continent appeared first on Inside Story.

WHEN it rains, Australia’s big cities break. The traffic banks up. The air thickens. The stormwater drains, built decades ago and hardly thought of since, cease to drain. The work–life balance skews towards a space and time that is neither public nor private, a kind of nowhere time spent in traffic, on a railway platform or in a bus shelter. Sometimes it seems that any extra stress – a sharp downpour, a heatwave, a sporting fixture or a car accident – takes the city past the point where it works. For a few hours, sometimes as long as a day or a week, we glimpse a future in which living in an Australian city is no longer consistent with having a good life.

In 2008, the human race passed a significant milestone. Since then, most of the world’s population has lived in urban areas, with the shift driven mostly by rapid development and internal migration in China and India. With 90 per cent of the population already living in urban areas, Australia is ahead of the trend. Cities here generate 80 per cent of national wealth and 75 per cent of jobs. And as Australia’s population expands from today’s twenty-two million to a projected thirty-six million by 2050, most of the increase – if nothing is done to prevent it – will need to be accommodated in cities.

Who, if anyone, can control this growth? Eight state and territory governments and more than 155 local administrations are responsible for city planning. As we track our individual courses between the private and public spaces, the offices, the couches, the beds and the bars, the schools, the offices and the parks, we traverse all the complexities of the city system – the many owners, the many different authorities, all with their stake. These vested interests sprawl from the financial heart through to the pleasant middle suburbs, each with its own lobby group, and on to the greenfields developments on the edge.

Constitutionally and historically there is little natural role for the federal government in city planning. The Howard government shunned it. In fact, one of its first acts was to cancel the Building Better Cities program of the Hawke and Keating governments, with the Coalition’s transport and regional development minister, John Sharp, arguing that there was “no clear rationale or constitutional basis for Commonwealth involvement.” Sharp’s eventual successor, current infrastructure minister Anthony Albanese, has claimed that when it took power the Rudd government found “not a single urban planner in the entire Commonwealth Public Service – not one.”

But now, in what is surely one of the least-examined areas of public policy development since Labor came to power, the federal government is trying to get back into the game. This year’s federal budget included a statement by Albanese, “Our Cities, Our Future,” laying out a national urban policy. It hardly got a mention in the media. A few days later came the government’s population policy. It got plenty of coverage, but only because it didn’t nominate an overall target for population growth, instead discussing how to house population increases in the regions and what might be called the politics of place. “Population change is not only about the growth and overall size of our population,” according to the policy, “it is also about the needs and skills of our population, how we live, and importantly, where we live. Population change impacts different communities in different ways.”

In truth, the urban policy and population policy documents are a pair and don’t make sense if they aren’t viewed together. But perhaps the lack of serious media attention is understandable: these are documents rich in colour pictures and tangled syntax but short on the specifics of what the federal government intends to do, and how it intends to do it.

Yet there are strands of coherent policy, and signs of new ways of thinking. The National Broadband Network will overcome the disadvantages of isolation. The regions must be strong if cities are to be liveable. Communities must be sustainable if they are to be productive. Suburbs built when oil was cheap, women were in the home and the population was youthful are now increasingly unsustainable and obsolete. And in all this the federal government needs to be involved. The politics of place can’t be left to local government and the states.

TWO decades ago Brian Howe was the minister responsible for the Building Better Cities program, launched in 1991 by the Hawke government in cooperation with the states and territories. More than any other contemporary figure, Howe carries the legacy of Labor’s past intervention in the politics of space – and, as I found when I spoke to him recently, he is once again closely involved in the development of policy.

“The rate of population growth and the distribution of the population is largely shaped by the Commonwealth, through immigration policy and through the capital funds it provides to the states and territories,” Howe told me when we met at Melbourne University’s leafy Parkville campus, in the midst of Melbourne’s multilayered, public transport–rich inner suburbs. “And yet the federal government has generally kept out of planning and managing cities.” But Howe believes that the mounting urban challenges are “driving the Commonwealth to a greater awareness of the spatial implications of its policies and encouraging it to work more cooperatively with the states.”

Howe was first alerted to the renewed federal interest in better cities in 2008, when he was invited – along with about twenty others, including the former lord mayor of Sydney, Lucy Turnbull, economist Saul Eslake and other professional observers of urban policy – to dine at the Lodge with Kevin Rudd. Howe had dealt with Rudd years before, when Rudd was a bureaucrat in Wayne Goss’s government in Queensland and Howe was trying to steer through the Building Better Cities program. Queensland’s Labor government “got it” better than most. Brisbane’s inner suburbs were revived by Better Cities, thanks largely, says Howe, to the vision of the Goss government.

Now, with Rudd in Canberra, it seemed as though some of that vision might be revived. Ideas were tossed around, solutions proposed. Things began to move.

In March last year the federal government released the State of Australian Cities report, the first comprehensive attempt to provide an overview of the health and productivity of urban areas, and their likely futures. It concluded that although Australian cities are now among the most liveable in the world, the future could be bleak if nothing is done.

Already, road congestion costs an estimated 1 per cent of gross domestic product, or around $10 billion – and the cost is estimated to double by 2020 if nothing is done. Family lives are being worn thin by congestion fuelled by urban sprawl. The quality of the air, already responsible for more than 2 per cent of all deaths, according to one estimate, is deteriorating. Public transport systems are suffering from decades of underinvestment. The level of car dependency is rising faster than the rate of population growth, making us more vulnerable to rising petrol prices and less capable of adapting to the imperatives of climate change.

It sounds bleak, but among governments and town planners there is a great deal of unanimity about what needs to be done. Melbourne, Sydney, Canberra and the other mainland capitals all have plans to increase the density of the middle-ring suburbs by building higher-density housing along public transport routes and in designated activity areas. The aim, which has been shown to be realistic, is generally to build more than half of new homes in existing suburbs.

But the plans are falling far short of their aims. They have been frustrated by the sheer complexity of the organism of the modern city, the lack of good models for retrofitting existing suburbs, and the cheapness and ease with which new greenfields developments can be built, free of the local activism that complicates inner-city development.

Working with many levels of government is a slow and careful business, and these are the early days. The issue is whether a government grappling with so many other problems can hope to achieve its vision. How do we change the complex system of cities in Australia? And can it be done in time?

In December 2009, the Council of Australian Governments, or COAG, added urban planning to its agenda, revealing a consensus that city planning, far from being a matter solely for local and state governments, was an important issue of national policy, needing shared objectives. Brian Howe was appointed to chair an expert panel, whose members include his fellow diner at the Lodge, Lucy Turnbull, and a range of people from government, architecture, planning and the building industry. The panel was charged with devising agreed national criteria for urban planning, and reviewing capital city strategic plans against these criteria. The resulting report is due to go to COAG later this year.

It’s a significant development because all governments have agreed that the criteria will be used to guide federal infrastructure funding to the states. As Brian Howe says, “We have to understand how investment in infrastructure can be reflected in plans for particular spaces – and it’s all becoming more urgent because we are going to have massive population increases especially in Melbourne, Sydney, Brisbane and Perth.” To get federal money, the states will have to address agreed national targets for urban planning.

Meanwhile a small Major Cities Unit has been set up inside the Department of Infrastructure and Transport. In the lead-up to Albanese’s budget policy statement, it issued the State of Australian Cities 2010 report, followed by a discussion paper on urban policy. The resulting submissions demonstrated nicely the thicket of vested interests in city planning, and the impossibility of ever achieving consensus. Local authorities each argued their own cases. The Property Council of Australia wanted a streamlined planning process, with a single authority in charge of urban planning in all major cities. The Save Our Suburbs group insisted that most Australians still wanted single residential houses, and that higher-density development would harm mental health. The Greens argued that no additional money should be spent on roads until public transport targets were met. Qantas wanted open space preserved around airports, so that planes can come and go throughout the day and night.

When it finally arrived, the Albanese statement was hardly a big spender. It allocated $20 million for capital works to improve the quality of life in cities, and $100 million to help state and local governments plan employment precincts and multifunction developments in the suburbs, to cut down on travel time. Featuring in both the population plan and the urban plan was $61 million for “smart management motorways” using data collection sensors and control tools to reduce congestion and emissions on major roads.

None of the funding measures was large, and the policy was full of general statements of intent and short on specifics. (Albanese did not respond to requests to be interviewed for this article, and he has not expanded in detail on his plans in public.) Yet throughout the text was a persistent theme. This money – limited though it was – would be spent on “demonstration projects” that meet the guidelines being developed by COAG. These projects would “drive urban renewal” and “show how new investments in community facilities and better planning can help improve quality of life in our outer and growth suburbs.”

To outsiders, the processes of COAG and the federal government seem to fall a long way short of what is needed. Peter Newton, a specialist in sustainable cities at the Institute of Social Research at Swinburne University of Technology, describes the documents that have emerged so far from COAG and the federal government as curiously process-driven, seemingly devoid of any sense that the complex problems of the city come down, in the end, to the management of individual spaces.

Brian Howe acknowledges that he is involved in a convoluted process. This is the reality in a federal system of government, where the states have planning powers but the Commonwealth controls most of the money and governs population policy. It has been done before, though, with some success – and by the same method: demonstration projects that have prospects for replication.

ANTHONY Albanese began his career as a research officer for Tom Uren, the urban and regional development minister in the Whitlam government. It was Uren who first adopted the idea of a spatial approach to the causes and symptoms of disadvantage, tackling issues of urban planning with passion and energy. He promoted the restoration and reuse of derelict inner-city areas such as the Glebe Estate and Woolloomooloo in Sydney. But Uren’s wider agenda was frustrated by the antagonism the Whitlam government provoked in the states.

This was the legacy that Howe faced as a minister in the Bob Hawke and Paul Keating governments almost a decade later. The Australian economy was being reformed and opened up to international competition, and these vast changes had their impact in the suburbs and the cities. As Australia changed its economic policies, Howe was interested in the changes at street level – in the politics of space, not least the big areas of industrial land left vacant and unused as the country’s manufacturing industry was gutted.

The Building Better Cities program was first funded – to the tune of $816.4 million over five years – in the 1991–92 budget. Sensitive to the acrimony created by the Uren initiatives, the program moved slowly, kicked off by a special premiers’ conference and proceeding through new, and at the time groundbreaking, intergovernmental agreements under which funding was tied to agreed outcomes.

Spread across the country, the small amounts of money available would hardly have achieved much. Every state wanted its cut, and some state premiers wanted the dollars to flow to their pet projects. To get around these problems, the process selected particular projects and, through partnerships between federal and state governments and private developers, demonstrated how social justice and urban renewal might be achieved through the good management of space.

Federal money was used to remove the barriers to change and make it possible for the vacant industrial spaces of the inner cities to be rehabilitated and reused. Sites were decontaminated; flood mitigation works were carried out. Previously these had seemed like prohibitive barriers to private development.

The legacy of the Building Better Cities program is visible in developments such as the Honeysuckle area in Newcastle, which, as Howe puts it, allowed that city to reimagine its future in the wake of twin earthquakes: the natural disaster of 1989 and the recession of the early 1990s and closure of the steelworks.

In Sydney, old industrial sites in Pyrmont-Ultimo were transformed and the light rail link introduced. Building Better Cities was responsible for the revitalisation of the suburbs of inner Brisbane, the redevelopment of contaminated and disused industrial land in East Perth, the redevelopment of the Launceston railyards and the transformation of institutional land at Janefield in Melbourne into a new suburb.

By the time the Howard government cancelled the program, the demonstration effect had done its work. Private investment, along with some state contributions, was enough to maintain the development momentum. Today, Building Better Cities is credited with having kickstarted the redevelopment of Australia’s inner cities – and all with a surprisingly modest amount of federal money.

SO ARE we ready for another Building Better Cities program? Is this what the vague talk of federally funded “demonstration projects” is all about?

We live in different times, and the challenges are different too. Building Better Cities was about the inner suburbs, and largely about old industrial sites. Now, the emerging consensus is that the focus must shift to the middle suburbs – the spaces into which almost half of new homes must be accommodated if cities are to remain sustainable.

How might the federal government help there? Swinburne’s Peter Newton recently led a research team that set out to provide a model for the retrofitting and regeneration of existing Australian suburbs. Newton calls them the “greyfields” and he can get a glimpse of them each day from his office a few metres from the railway line that runs through the university’s Hawthorn campus. Brownfields, he says, are the industrial sites – docklands, old factories and warehouses – that were the main focus of the Building Better Cities program. Greenfields are the sprawling, easy-to-establish yet ecologically unsustainable developments on the edges of Australian cities.

In between are the greyfields: the middle suburbs lying within a radius of between five and twenty-five kilometres of city centres. Here, housing density is low – as few as eight homes to a hectare – and the houses, built after the war, are ageing as their occupants age. They fall a long way short of modern energy and water efficiency standards and yet, compared to the greenfields, they are rich in transport, services and access to jobs.

It is in the greyfields, Newton says, that we have the potential proving ground for a new logic of urban development. The problems, though, are immense. Planning codes are designed, as Newton puts it, to “manage impacts, rather than to deliver visionary outcomes” and every suburb has its action group resisting medium-density development.

Most development is piecemeal, presided over by local governments and carried out by small developers. So long as greenfields and brownfields sites are easily available, big developers will shun the complexities of development in the greyfields. What is needed, says Newton, is an equivalent of the Building Better Cities program to provide demonstration precinct designs that would involve new methods of cooperation between government and private developers and also new methods of community interaction.

Because the most efficient retrofitting of suburbs can be done at the precinct level, government might act as an honest broker, encouraging groups of owners – ageing couples looking to downsize, for example – to partner with builders. Several housing blocks could be combined into bigger townhouse and unit projects, with renewable energy generated on site, water efficiently used and reused, and buildings put up rapidly, thanks to modular construction. The original owners would share in the proceeds of the development and would have the option of living in the regenerated precinct.

The demonstration precincts would display the best of planning and building, showing that medium density need not mean lower living standards, and that a suburb can be both busier and better.

Newton advocates a single greyfields regeneration authority – equivalent to the existing greenfield growth-area authorities and brownfield redevelopment bodies in most states – which would transcend local government boundaries and have real political and financial clout. Instead of development being spurred only by the sale of land, spatial information would be shared to allow development opportunities to be spotted ahead of time.

Along public transport routes, developments might reach as high as eight storeys thanks to “as of right” planning codes. In the spaces between, precincts or infill might reach three to four storeys, and be mixed in style, characterised by good and ecologically sustainable design and interspersed with areas where heritage values or other factors make retrofitting inappropriate. Spaces that once carried one or two detached houses would instead have two to eight townhouses in mixed layouts.

If Australian cities are to get better as they get bigger, it is the greyfields that have to be transformed. Based on offerings to date from federal and state governments, Newton is not optimistic. So far he sees nothing in the documents put out by government that suggests attention is being paid to where and how such transformation might be achieved.

The research report that Newton’s team recently delivered to the Australian Housing and Urban Research Institute warns that if nothing changes, “There is a prospect of system breakdown in key urban infrastructures over the next twenty years, especially for those cities facing rapid growth and operating within the context of late twentieth century ‘business as usual’ practice.”

The report notes the initiatives of the new government, but states that only “significant intervention” is likely to achieve change. “So far,” says Newton, “I have heard nothing that sounds to me like the equivalent of a Building Better Cities program.”

HOWE acknowledges that action co­ordinated between different levels of government is “crucial, but historically difficult to achieve... Australia’s system of government is not especially conducive to providing the kind of leadership that will deal successfully with resolving so vexed a problem as our future city development.” But the COAG process has placed an emphasis on transparency and national outcomes “in contrast with the more usual adversarial and inward looking discussions between jurisdictions.”

All of which makes him cautiously optimistic. The challenge for the future, he says, will be to make truly far-sighted infrastructure decisions, which will entail not only more effective governance, but also new partnerships between government, business and civil society.

An optimist would say that the vision is developing, that the process is under way. That these things take time. A pessimist sees only process, wordy documents and little action. Meanwhile, the city continues in its chaotic, complex fashion. And when something goes wrong, it breaks. •

The post Who should look after the cities? appeared first on Inside Story.

EVERY year tens of millions of rural migrant workers go back to their hometowns to celebrate the Lunar New Year Festival, or Chinese New Year, China’s most important annual event. And while this is a time of celebration for these millions of people, for the Chinese authorities it’s an anxious and logistically fraught few weeks. This year, shortages of seats on trains and buses and a further increase in the number of travellers have coincided with bitterly cold weather that has closed roads and disrupted train lines.

Although the day itself fell on 3 February this year, the epic movement of people began almost a month ago. Everybody was trying to avoid the peak travelling season, which began on 19 January. And while migrant workers constituted a considerable chunk of travellers, just about anyone in China who had left home for one reason or another was trying to make it to a long-awaited family reunion.

Urban workers from the most affluent cities in the east and south of China, for instance, were bound for their villages and towns in the underdeveloped central and northwest of the country. Shenzhen, in Guangdong province, is one of the departure cities, and it is from there that Wen Yu, one of the migrant workers, set out for home. An employee in a Hong Kong garment factory in Shenzhen, by the time I met her Yu had been queuing for more than ten hours next to a ticket window at the railway station in Guangzhou, Guangdong’s capital.

Yu is a short, slim twenty-seven-year-old worker who had made the two-hour trip from Shenzhen to Guangzhou a week earlier. Each day since then, she had dutifully headed to the ticket window at Guangzhou Railway Station, and eventually her persistence paid off. Having bought her ticket she could now embark on the 2000 kilometre journey to Chengdu, in Sichuan province. It would take about thirty hours to get there.

Amid the chaos at Guangzhou Railway Station, every available space to sit, rest or wait was priceless. By one estimate, twelve million people – a figure impossible to confirm – joined the exodus from here.

“I have been waiting to go and see my parents since last Chinese New Year,” Yu told me while she kept a close eye on her belongings and the time. She couldn’t afford to miss the 9 am K192 Guangzhou–Chengdu train. And, she added, “I also want to see my three-year-old daughter.” Yu’s daughter is just one among the estimated one million children left behind with relatives by rural migrant workers, and is being looked after by her parents. Yu will spend nearly three weeks at home before heading back to Shenzhen.

Yu works a twelve-hour day. She left the southwest province of Sichuan two years ago to work in Shenzhen, a promised land for migrant workers where dreams don’t always come true. “I send money home, I keep some for me and save to go home for the next family reunion,” she said. She makes around A$15 a day. “It was a good year.”

She has paid nearly A$30 in a cheaper “hard seat” carriage. She would have preferred to pay less, but this was one of the last few tickets to Sichuan. Thousands of others were left waiting, sitting on the dirty floor of Guangzhou Railway Station while a searing Chinese rap song served as a soundtrack. From time to time, a sudden frenzy would break out. Somebody, somewhere, had heard more seats had been made available. The stampede to the ticket windows left – for a brief moment – floor space for those who were just too tired to go. And then anger spread. Still there were not enough tickets available.

As 3 February approached, the desperate ones, those who couldn’t get train or coach tickets, had one more option: ticket scalpers. They are swindlers ripping off desperate souls. The Chinese government is aware of this and has promised ticket scalpers will be severely punished. The government says that 1800 ticket scalpers have been arrested and 14,000 tickets confiscated over the past two weeks.

But the crackdown on ticket scalpers doesn’t seem to have reached Guangzhou Railway Station – or not when I was there. My translator was approached five times by scalpers offering tickets for more than triple the normal price. The transactions were carried out openly and the police contingent at the station seemed more concerned about harassing a bunch of migrant workers who had become a little rowdy.

Last year’s official statistics indicated that the 200 million migrant workers are mainly farmers turned low-paid, unskilled urban workers. These people are the driving force behind China’s economic rise.

The Pearl River Delta area – where Shenzhen, Guangzhou and Zhuhai are located – is the magnet for about half of this army of migrant workers. They come principally from central China’s Hunan province, from northwest Sichuan province and from the southern provinces of Jiangxi and Guangxi, adjacent to Guangdong. They end up in the sweatshops or factories set up by businesses based overseas or in neighbouring Hong Kong. They often work overtime with low pay and inadequate safety protection. Their pay, although rising steadily in recent years, still lags behind the national average.

In Shenzhen, where migrant workers are paid better than most, the average pay is still less than A$15 a day. They live in overcrowded accommodation with no public facilities. For those migrant workers who have brought along their families, education for their children is non-existent.

THE annual journey back home for migrant workers has become a major test of China’s transportation system. It is estimated that each day during this year’s festival 6.2 million passengers were on the move – an increase of more than 10 per cent over last year. As Wang Yongpin, spokesperson from the Chinese Railway Ministry, told Xinhua news agency, “The volume of passengers increases each year, but this year we are expecting 230 million people.”

To cope with this demand, Guangdong’s authorities added more trains and buses. During the peak season, 9000 buses departed each day; meanwhile, according to the local railway ministry, more than four million passengers left daily on trains. Nearly 600 trains were added to the system and, in order to aid the flow of passenger trains, the freight rail system had been cleared.

Modernisation of the train system has become a priority for the Chinese government. Over the past five years, China has dramatically upgraded its vast rail system. The government has allocated 50 per cent of its A$53 billion infrastructure budget to building high-speed railways. It has laid down a remarkable 15,000 kilometres of new rail lines and introduced some of the most sophisticated high-speed trains. According to official figures, 1200 high-speed trains are in operation with speeds reaching 300 kilometres per hour or more.

These very fast trains have become the symbols of China’s modernisation. But according to a China Daily newspaper story published last month “the opening of more fast train services has led to fewer regular trains being available for budget-conscious passengers.” Indeed, few of the migrant workers will be travelling on these state-of-the-art trains because they can’t afford the A$50 tickets – equivalent to a month’s earnings in some cases. And most of the migrant workers come from provincial villages, places that fast trains don’t pass or won’t stop. Slow-train tickets cost less than A$30, so it’s not surprising that migrant workers keep opting for the old, overcrowded and poorly heated green trains.

Adding to the problems has been the weather. China has experienced one of its worst winters in thirty years. This has been especially the case in the southwest part of the country, the main source of migrant workers. The severe winter snow – up to twenty centimetres in some parts – has covered some of the key roads and railways heading to provinces such as Chongqing, Guizhou, Guangxi and Hunan.

None of this is good news for the government. Delaying journeys or closing roads means disrupting the flow of people eager to get back home. This becomes a political test, something that the Chinese government takes very seriously.

If something goes wrong, it presents a rare challenge to the Chinese Communist Party. For officials any major problem with the flow of travellers might end their careers. “A massive failure of the transport system will become a political issue and heads will roll,” says Judith Clarke, a Hong Kong–based academic.

The last major debacle came in 2008 when a snowstorm before the New Year Festival caused significant disruption. Many roads were closed and trains could not run. Some migrant workers lost their lives in the ensuing chaos. The Chinese premier, Wen Jiabao, had to intervene to impose order and mobilise the army to help sort out the mess. No senior politicians lost their jobs, but some heads lower down the hierarchy had to roll.

The Chinese government is determined it won’t happen again. A couple of weeks ago the Public Security Bureau in Beijing held a press conference to announce that road closures had to be better coordinated and no local officials could close a road without seeking approval from above. “We gained a lot of experience and learned lessons from the disaster relief work in 2008, with one of the important rules being not to seal off highways unless there is no other choice,” Feng Wilin, the Director of the Hunan Highway Administration, told Xinhua news agency.

Three weeks ago more than 70,ooo people had to be evacuated in Hunan because of the weather. In Guangxi 132 roads were closed because of the snow and icy conditions. The heavy snow also affected airports. Nearly 530 flights in the airports of Shanghai and Hongqiao were delayed.

The long-awaited Lunar New Year Festival is in full swing. And while millions of migrant workers – and others – have been looking forward to this annual family gathering, the Chinese government is no doubt looking forward to 27 February, when all of this will finally be over. •

The post When Chinese migrant workers go home appeared first on Inside Story.

ECONOMIC reform in Australia has been a triumphant success. From the mid 1980s on, it pulled our relative economic fortunes out of their decades-long decline and propelled us through the Asian crisis. Reform was built on simple and compelling principles, including some that affronted the commonsense beliefs of many ordinary Australians. Surely tariffs create jobs? Well, they don’t – and so we cut them.

But having made such progress, we’ve gone backwards in one area, and all in the name of a kind of faux economic rationalism. Enter fiscal populism. Rather than simply getting budgets into operating surplus – mostly a very good thing – Australian governments have embraced the notion that all debt is bad. But most of the time debt is only bad if it’s used to fund recurrent expenditure – see Charles Dickens on the difference between small sustained operating profits and sustained losses; it’s the difference between happiness and misery. But debt can also help us fund investment.

By focusing on the costs of debt but not its potential benefits, we find ourselves where we could have expected to be. Australian government debt has been lowered to zero with a mix of asset sales and a string of Commonwealth surpluses made up of that portion of surging revenues from the mining boom that wasn’t refunded to taxpayers as tax cuts. State governments, which carry much of the capital investment burden of the Australian public sector, have also borne down on debt.

But the glories of unburdened balance sheets have been purchased at the cost of growing deficits in precisely the thing that higher government debt might have funded – infrastructure. Partly filling the gap has been private investment in some kinds of infrastructure, funded by tolls on roads and/or rent payments by government to investors. While superficially attractive, and almost certainly better than no investment at all, most of these public-private partnerships, or PPPs – in all manner of infrastructure assets, from roads and railway stations to hospitals and desalination plants – have been built at a higher cost to the public than would have been the case if they had been built the way they used to be, as government-owned assets built with debt finance.

There are many small reasons why PPPs generate bad value, and one big reason. The small reasons all relate to the artifice required to involve private investors in some specific piece of capital, like a road, a hospital or a desalination plant. They need reassurance from governments that some future government investment – say a competing road or hospital – won’t “strand” their asset. As a consequence, the transfer of risk to the private investor is always uncertain, and where it can be brought about it’s usually at the cost of the government’s binding its own plans for infrastructure well into the future. This can involve huge and uncertain costs.

The big reason is straightforward. Given that infrastructure assets are typically highly capital intensive, and even allowing for some reasonable loading for the risk of specific infrastructure projects, governments face much lower costs to mobilise the necessary capital to build them.

Just as arbitrary debt restrictions imposed upon a household or a firm would be a recipe for long-term impoverishment (at least relative to what it might otherwise have achieved), so too for the public sector – and obviously so. Indeed, as Australian households have borrowed more and more, there is a particular perversity in arbitrarily constraining the borrowing of the entity that enjoys the lowest borrowing cost – the government – especially at a time when our largest cities groan under the weight of a widely recognised infrastructure crisis.

If it means anything, fiscal conservatism should mean prudently building the net worth of the public sector and doing so in a measured way – that is, at an acceptable risk. In an environment in which some infrastructure assets typically enjoy a rate of commercial return well above the cost of borrowing (not to mention additional returns to society and improved environmental amenity), borrowing should be encouraged up to the point at which further borrowing would constitute an unacceptable risk. This is how public companies and many households are run.

Had the NSW government chosen to fund the toll roads that now encircle Sydney, the state would have acquired ownership of a stream of revenue with a net present value of around $12.8 billion (in 2009–10 dollars), at the cost of increasing its borrowing by $7 billion, according to indicative modelling in a recent study my colleagues and I at Lateral Economics carried out for the councils of Western Sydney. In other words, by taking on a little more risk the state would have set itself up to increase its net worth by around $5.8 billion. Factoring in the additional risk the government was taking on, we calculate that its net worth could have increased by $4.6 billion. By today over 60 per cent of the original borrowing would have been paid off, leaving a cash flow to the budget of $379 million each year after interest payments and even after provisioning for further principal repayments. In the unlikely event that New South Wales suffered a credit downgrade as a result of funding these projects then the investment – even taking into account the additional interest costs associated with such a downgrade – would still have been very worthwhile.

ONE touted benefit of privatisation is that the owners of an asset have the incentive to manage it for the long term – in contrast to politicians whose objectives are often dominated by the next election. Alas, as Australians are beginning to realise, far from liberating us from the tyranny of the short term, private investment in infrastructure is yet another manifestation of the dominance of short-termism in politics.

The politicians of the last twenty years have served their own short-term electoral interests by mortgaging their constituents’ future. Their constituents are now paying. True, they are not paying as much public debt interest as they would have been had governments invested in debt-funded infrastructure. But they are paying inflated tolls on roads and heavy mortgage repayments that reflect the lack of land release and the loading of infrastructure charges onto the land that has been released. And they are paying with their time as they wait at peak hour in traffic that has slowed to a crawl or crowd into late trains and buses.

All that having been said, popular concern about fiscal laxity is not only well-founded but has also helped create a great public asset. This couldn’t have been better illustrated than by Australia’s performance during the recent global economic crisis, when our exceptionally strong balance sheet gave us the strength to stimulate the economy and thus avoid recession.

For this reason, any move towards higher debt-funded investment in infrastructure should not be – nor even be suspected to be – a simple lurch towards profligate spending, complacency or pork-barrelling. Properly done, a move towards a more balanced approach to managing the public assets and liabilities – to a better balance between monetary and physical assets – should be done in the context of further building Australia’s now enviable reputation for fiscal prudence.

This requires that additional debt-funded investment in economic infrastructure be accompanied by further institutional development – the same kind of institutional development that higher-income countries have typically embraced in the last three decades in their monetary policies. We should continue to run operating surpluses except during cyclical economic downturns, and to build the institutions capable of entrenching a culture of prudence and integrity in the investment of such funds in infrastructure. Major decisions should not be made except on the basis of public, independent, expert advice.

With our commitment to further economic reform in the balance, it’s hard to think of a more timely issue. Compared with the political nightmare of tax or tariff reform, refashioning the management of fiscal policy and the management of the government balance sheet in this way would be child’s play. Just as businesses have to turn a profit, politicians have to get re-elected; done right, a change of this kind can be in their own long-term self-interest. Add to that the fact that, at least at the federal level, timid governments don’t seem to last.

Oppositions find it hard to argue for more debt because… well, who wants more debt? But once securely in government, prudently expanding borrowing to fund much-needed infrastructure at the lowest possible social cost is a political no-brainer. The electorate likes to see governments investing in the future. And the alternative – arbitrarily restricting investment while commuters nurse their resentments in traffic jams or waiting for late trains – is a political road to nowhere.

Of course an opposition would object to rising debt, as oppositions are doing whenever they get the chance right now. But against a confident and visionary government – especially one receiving regular public advice on the sustainability of its budget from an independent and highly regarded economic agency like a beefed up Audit Office – they’d be an easy target. “Will opposition members tell us which major infrastructure project they’d shelve to retire debt?”

As Kristina Keneally prepares for political oblivion, and John Brumby sweats it out wondering if he’ll get back in, it’s possible that the penny might drop. They should ponder this fact. Had New South Wales or Victoria funded the tollways that now thread their way through Melbourne and Sydney, those governments’ net worth would be billions higher with millions rolling into their budgets each year and debt attributable to the roads steadily falling.

They’d be well set up for the next generation of infrastructure investment for which, as ever, the electorate clamours. •

The post Paying for Australia’s infrastructure deficit appeared first on Inside Story.

What kind of urban environments are we going to live in? Harry Triguboff, the multi-billionaire Meriton apartment developer, told us on Dick Smith’s Population Puzzle, screened on ABC1 just before the federal election, that if Sydney made its parks smaller it could fit in more housing. Where is the vision of a great city? Where is the public acknowledgement that Sydney’s foreshores and huge national parks give it character and liveability?

The dreams and achievements of Australia’s town planners are celebrated in Robert Freestone’s handsomely illustrated book, Urban Nation. The book began life as an attempt to advise the federal government on Australia’s planning heritage. Ironically, successive federal governments, including Labor, have so weakened the relevant body, the Australian Heritage Commission (now a mere “Council”), that Freestone’s heritage recommendations will fall on powerless ears.

Canberra takes centre stage in Freestone’s book as our only capital city created on the basis of an international planning competition, with leasehold land giving its successive planning authorities much more power than equivalent bodies enjoyed in the established cities. There, colonial and then state governments sold off most of the land into freehold title, securing one-off additions to the government coffers but losing much of their authority over land use.

Melbourne, Adelaide and Perth retain most of their original urban parklands, as some of the elegant plans in Freestone’s book attest. The banks of the Yarra River, much more vigorously alienated than the Sydney harbour foreshores, now see wharves and industry giving way to upper-middle-class apartment blocks. In terms of open space, Brisbane is in a much more parlous condition than Melbourne, which reveres its grand inner-city parks (though, despite vigorous protests, the Victorian government did build the Eastern Freeway right through the middle of the Yarra Bend Park). The largest bit of green space near the Brisbane CBD is a golf course, two-and-a-half times the size of the Botanic Gardens. The Bjelke-Petersen government made the problem even worse when it built a freeway on the northern bank of the Brisbane river.

Queensland also became the first Australian state to pass a Canals Act in 1958, and developers were invited to regard mangrove swamps as dirty, useless places to be cleaned up and built on. Oddly, Freestone is more interested in the town planning principles applied to the estates themselves, including the street layout, than he is in pointing the finger at generations of planners and architects who paid little or no attention to the massive ecological damage to which they effectively gave their blessing.

Apartment blocks and canal estates now dominate over two-thirds of the coast of the 200-kilometre city that extends from Noosa to Coolangatta, and only a few kilometres of shoreline has been left undeveloped. Insurance companies would withdraw cover from these potentially fragile properties if they could get away with it. Local governments from Gippsland to Bryon Bay have belatedly begun rejecting development applications on sand dunes, with a renewed consciousness that quite a few Gold Coast apartment blocks almost collapsed in the 1967 storms. (Only tons of emergency rock ballast kept the foundations from washing away.) If it weren’t for its great national parks, the coastline between Newcastle, Sydney and Wollongong would go the same way as Noosa to the Tweed. And it is only the absence of water views – because much of the foreshore is dominated by dirty chemical industry – that stops western Melbourne colliding with Geelong.

Australia’s major cities and their suburbs are degraded by constant traffic. Sydney has the nation’s most criticised public transport system, but at least it accounts for 15 per cent of all trips. Brisbane City Council area, where only 9 per cent of all trips are by public transport, now out-performs Melbourne, on 8 per cent, where farcical privatisation has wreaked havoc with perception and usage. Melbourne’s superb trams remain a potent urban symbol, but the train system simply isn’t reliable enough to get more people out of their cars. And all of this was compounded by Jeff Kennett’s decision to give Transurban the kind of monopoly that has made its toll-based freeways successful time savers.

In Brisbane, Campbell Newman, a lord mayor elected on a promise of eliminating gridlock, couldn’t get away with putting a toll back on the publicly owned Story Bridge. So when it came to the public–private partnership to build Australia’s longest roadway tunnel under the Brisbane River – the “Clem 7” – it didn’t have a monopoly on the route. With less than half its predicted usage, the $4.2 billion folly has left hapless shareholders asking sharp questions about the ethics of projecting traffic numbers. Brisbanites are flocking to the city’s excellent and ever-expanding busways.

FROM the 1950s to the 1980s potential suburban building blocks remained readily available in most of our cities, though in Sydney this meant giving up some of the green belt. But as councils and state governments charged more for roads, water and sewerage services, the price of land skyrocketed, exacerbated by strong demand. We’ve been stuck with high-priced housing ever since. Short of a depression, this won’t change. But, with many of our inner suburbs well served by public transport, apartment developers could bring cheaper purchase and rental options onto the market if they built apartments without on-site parking. They could also build apartments aimed at the likely users – often unrelated students, nurses, teachers, cleaners – not simply aimed at the investment market. Something as simple as having the toilet separate from the bathroom can make such housing more amendable to group households.

If the cities are in trouble, and our leisure spaces increasingly commercialised, can’t we simply retreat to our own backyards? As Tony Hall argues in The Life and Death of the Australian Backyard, 80 per cent of city dwellers still live in dwellings with backyards, where kids, pets, gardeners and aged relatives find activity and often solace. In a society besotted with screen-based infotainment there is a lot to be said for ready access to a backyard or a park.

Given the enormous pressures for new housing, it is important to appreciate, as Hall explains, that the traditional Australian backyard is disappearing more rapidly from new suburban estates on the urban fringe than it is from established suburbs. In what he terms the “roof to roof” estates, huge houses cover an increasing proportion of the land, whatever the lot size. Most of these houses have little or no provision for cross ventilation, lack eaves and require reverse-cycle airconditioning, by far the largest consumer of energy in houses like these (unless the media room is up and running twenty-four hours a day). Hall uses aerial photos to show that many of these new dwellings don’t have enough space for a vegetable garden – and if they have a pool they don’t allow enough space for the 20,000-litre tank they should have to keep it topped up. Instead they meet cosmetic sustainability regulations by shoving in a small, slimline tank.

The new outer-suburban settlements, so reliant on air conditioning and desal water, have huge carbon footprints, even before you calibrate in the two cars. Ironically, in the inner city, most of the new apartment blocks are just as carbon-intensive, with airconditioning, multiple car spaces and lifts to move people from floor to floor and to get you to your basement garage. The Seidler Riparian Plaza office and apartment block in Brisbane has seven floors of above-ground parking, giving every Porsche and BMW a water or city view. The rich in Australia house their cars well.

While the successive metropolitan plans that Freestone outlines in Urban Nation still direct the overall shape of our cities, more and more of the real planning decisions are being taken under the poisonous rubric of “infrastructure,” the cult word of the decade, and everybody wants more of it. Cost-benefit analyses, if they are undertaken at all, are done by self-interested engineering and accountancy firms and they almost always recommend the project proceed, whether it’s a tolled tunnel, a desalination plant or even a new rail line when making better use of existing lines often makes more sense. The proud statutory planning authorities that shaped our cities in the past – usually with a strong sense of public good – have been supplanted by ministerial short-termism, as demonstrated in the ever-changing promises to “fix” Sydney and Melbourne’s public transport.

Government ministers with responsibility for planning now see themselves as facilitating quick-fix – and preferably highly visible – structures, presented in the language of pseudo-sustainability. Any city dwellers who can still afford to buy or rent a backyard should retreat to it promptly. •

The post Retreat to the backyard appeared first on Inside Story.

McKew’s position also resonates with recent studies by the Sydney Business Chamber and the Independent Commission Against Corruption – both of which argue for root-and-branch reform of Sydney’s local government arrangements, which have defied change since the 1950s.

As for the state government, the word emergency springs to mind. There is no one on the bridge, and the biggest ship in the fleet is drifting in a sea of political indifference and ministerial and bureaucratic turbulence.

At the local level, forty-one metropolitan councils and around 500 elected part-time councillors struggle to cope with an ever-increasing load of parochial demands while being pushed to comply with a metropolitan planning strategy that has no statutory force and changes its shape, chameleon-like, every few years.

With a population approaching 4.3 million, metropolitan Sydney’s health and environmental infrastructure is under extreme stress; and the extraordinary inadequacies of the public transport system have now been laid bare with the release of the final report of the independent public inquiry commissioned by the Sydney Morning Herald and chaired by Ron Christie.

It is not stretching the point too far to assert that Sydney has lost its way. Barely a week passes without an announcement of yet another cabinet crisis, bureaucratic mishap or policy blunder. Around town and across the region there are clear signs of a widespread diminution of public confidence in the capacity – if not the ability – of the state government to govern the metropolis effectively, efficiently, sustainably.

The key question is simply stated. At the metropolitan level, how should we best manage the urban environment and its associated land uses, its transport systems and its infrastructure?

Some Sydneysiders might be excused for believing that because Clover Moore MP is also the mayor of the City of Sydney, finding an answer to this question is her responsibility. But if we are talking about the metropolitan region, nothing could be further from the truth. Lord Mayor Moore’s bailiwick is no more than a tiny chunk of a balkanised region. She sits as only one of about forty-one mayors, all of whom must work within a welter of state government controls emanating from Macquarie Street.

There is no mayor of metro Sydney. Finding leadership or political responsibility for the metropolis as a whole is a fruitless exercise, because neither of these rare commodities exists in this city. Nor is there a Minister for Sydney or a government agency solely responsible for metropolitan planning. There is not a single bureaucrat or politician who can raise his or her hand and say I am the one when it comes to a search for a leader or champion for greater Sydney.

The reality is a fiendishly complex array of ministries, departments, authorities, commissions and other units of government – not one of which can claim a leadership role.

Amid this chaos, the Christie report has helped to peel away the bureaucratic detritus that has clogged (if not prevented) the delivery of a world-class public transport system to a long-suffering public. According to Christie, institutional deficiencies constitute a core weakness in the current arrangements. The inquiry report presents a prima facie case for a unitary approach to transport planning and management in order to counter the current “mess” involving “a highly fragmented and divisive public transport planning [system].”

There is no doubt that metropolitan governance is a complex matter with no universally applicable model. Given the constraints of his terms of reference, Christie is understandably reluctant to grapple seriously with this issue – one which obviously subsumes the second-order issue of public transport with which he has dealt very forcefully and effectively. The consequence is that designing a framework for governing metro Sydney is left floating for another inquiry on another day.

When that other day arrives, we might hope that serious attention is given to what comparable cities have done or are doing. London has gone for a council and an elected mayor for the entire metropolitan region. Portland, Oregon, has a metro council. Brisbane, unique in Australia, has a single metro-wide council and mayoralty. There are numerous other cases worth looking at.

Successful models are noteworthy for at least one reason: the fact that they bring a strong metropolitan view to the integrated resolution of land-use and transport planning problems at a regional scale. In most cases the provision of local services remains the responsibility of local councils.

The Christie report is a courageous and cogently argued case for an end to cowboy transport planning for Australia’s biggest city. The report pulls no punches in its careful exposure of past mistakes, mishaps, policy stumbles and the like, while acknowledging occasional successes such as the Epping–Chatswood rail link.

But if you were hoping for an inspirational journey into the more daunting territory of metropolitan governance itself, you will have to wait. And the mayors and councillors of Sydney’s forty-one councils can relax. Under Christie, they are safe.

Safe, that is, until a future state administration – perhaps encouraged by strong and persuasive signals from Canberra and from a cluster of powerful lobby groups – summons the guts and gumption to give the issue of metro governance the kind of objective public scrutiny that has been the singular hallmark of the Christie Inquiry. •

The post Sydney adrift appeared first on Inside Story.

SOME YEARS AGO, when I was a fellow in a Cambridge college for a few months, I met a very pleasant man, Alan Whitehouse, who was (and remains) a BBC transport correspondent in northern England. He’s an expert on rail. I recall being mightily impressed that the BBC had such a specialised post – in fact, they seem to have several transport specialists – but I’ve since realised that it simply reflects the significance of transport in general, and public transport in particular, in Britain.

Perhaps better known and certainly more infamous than my dinner companion is a man named Richard Beeching. In 1966, as chair of the British Railways Board, Dr Beeching was responsible for axing 4000 miles of British railway track. The phrase “the Beeching Axe” is still occasionally heard in this country; although it’s not quite as much of an historical landmark as, say, the Norman Conquest or the execution of Charles I, it’s recalled as a significant moment in the making of (post)modern Britain.

While many rural communities in Australia have been devastated by the decline of rail over the years, there is no equivalent in Australian popular memory of Dr Beeching or his axe. And while the many failings of public transport in Sydney might well be a stick – as if there were any shortage of them – with which to beat the Carr/Iemma/Rees/Keneally government of New South Wales, it’s hard to imagine the disruption of just a single line being quite the story it is in London. Plans to close the Northern line for maintenance each weekend for more than a year recently made front-page headlines in the Evening Standard. An increase in public transport charges – as in the recent rise of a standard bus fare from £1 (A$1.80) to £1.20 – is always big news, for a day or two at least. And when Londoners decide where to live, the cost of public transport will be factored carefully into budgets, with the potentially much higher cost of a long or complicated journey weighed up against the money saved and floor- and garden-space added by living further from the centre of town.

In fact, apart from the weather it’s hard to think of anything so woven into the fabric of most people’s everyday lives as public transport. The long commute, usually by train or bus, is a way of life for many Britons, and especially for Londoners. Just as outback Australians are fabled for regarding a 500 kilometre journey as “just up the road,” so some Londoners treat a ninety-minute or more journey to and from work as a routine affair. They simply stick their noses in some reading – perhaps a chunky paperback or one of the free giveaway papers or magazines distributed outside many Tube stations – and let the world pass by. Several of my own colleagues here on the Strand live in or near Cambridge, an expensive forty-five-minute express ride station-to-station; but few people live or work right next to railway stations, so they, too, would spend a solid ninety minutes or more travelling each day. A late evening or early morning work engagement in London usually means a night in a guest house or, for the better-off, a small flat tucked away somewhere in this sprawling city. Balancing work and family in these circumstances can be quite a juggling act.

About private transport, too, there are fierce debates, made even more fierce by the increasingly fraught issue of climate change. The congestion charge – introduced by the former mayor of London, Ken Livingstone, in 2003 – has changed the feel of the city. Drivers must now pay £8 for the privilege of driving a car into the centre of the city on weekdays between 7am and 6pm, and this means that central London is dominated by taxis and buses to a much greater extent than when I first lived in Britain a little over a decade ago. This is partly because the introduction of the measure was accompanied by an increase in the number of buses on the road – the money raised by the congestion charge is supposed to fund investment in public transport – so that one of London’s most recognisable images, the red double-decker, is ubiquitous on virtually every thoroughfare.

While the charge was once opposed by conservatives and is still controversial in its effects, London seems a more pleasant city for these changes. Although the current Conservative mayor, Boris Johnson, has decided to abolish the western extension of the zone to Chelsea and Kensington introduced by his predecessor in 2007, the original boundaries remain in place and are now more or less taken for granted. The charge will rise to £10 with the abolition of the extension, but Johnson decided that a higher charge of £25 for heavy-polluting vehicles, to which Livingstone was committed, would not go ahead. Labour critics sniffed class warfare here, a case of the Tory mayor protecting the London equivalent of the Toorak tractor.

We’ve never even contemplated buying a car of any kind in London, and I can think of few occasions – except the occasional shopping trip to the likes of Ikea – when we would have much benefited from having one. It would be useful, occasionally, for a weekend out of town, but many people in our situation hire cars for such occasions, or even join a car club that allows them to pay a subscription and then acquire a car for casual use fairly cheaply. We use buses as far as possible, the Tube fairly regularly but less often – mainly because it’s dearer – and overground trains and river ferries hardly at all. And many Londoners ride bicycles, dorky-looking foldable things that, child of the BMX era as I am, I can only look on with amused contempt.

In fact, I can only think of one friend who uses a car to get to work in central London. He lives in exclusive Primrose Hill and is a partner in an investment bank which provides him with a parking space. And he drives an electric car which, like vehicles that use alternative fuels, is exempt from the congestion charge. Most ordinary mortals, of course, couldn’t afford regular city parking even if they didn’t have to pay the charge. When I first arrived in London, I recall seeing a real estate advertisement that seemed to be offering a flat at a fairly reasonable rental; it was actually offering a car park space. One newspaper recently reported that some home-owners are earning as much as £7000 a year by hiring out their driveways for parking.

I take my young daughter to her nursery on the bus – a twenty-five or thirty-minute ride from our home in peak hour – and it can be a trial, but a minor one. For some reason, buses are more friendly places than the Tube. Perhaps it’s partly because you see at least some of the same faces regularly if you catch the same bus each day. One of my students told me that on the Tube you never speak to a stranger, or even someone you half-recognise; it’s a kind of local etiquette. And I think he’s right – so much so that there was a rather bizarre column in a now defunct giveaway newspaper that basically involved people asking other people for a date on the basis of having seen them on the train. If you’re going to go to the trouble of placing a personal ad, you’d think that you might also be capable of striking up a conversation on the Underground.

Buses can be crowded, but considering the size of London and the vast scale of the whole operation they are less busy than I expected. While we sometimes have to stand, it’s very unusual if at least one passenger doesn’t offer my daughter a seat. Even in the recent snow, the buses on our route held up well. Sometimes, especially when I’m commuting alone, I catch the Tube, but it’s an expensive habit – prices for Zone 1, the inner city, rose from £1.60 to £1.80 a trip earlier this year. And getting off at the stop closest to home, Holloway Road, on an evening when Arsenal is playing at home is something that anyone with an ounce of common sense will do their best to avoid.

For the most part, London is a city that works pretty well for its commuters. An Australian friend based here recently revisited his hometown of Perth and, forgetting that he wasn’t in London, became impatient at the “long” wait for a bus. There’s something admirable about the tolerance, patience and courtesy that most people show one another in the remarkable business of transporting millions of Londoners from their homes and back again each day. These modest virtues can be overlooked or taken for granted until something like the London bombings comes along to challenge the delicate balance of self-interest and regard for others that helps make them possible. •

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AUSTRALIA’s big cities are in trouble. It’s true that they’ve survived the threatened recession courtesy of a vast amount of infrastructure spending, especially on roads, bridges, tunnels and continuing house and apartment construction. Booming real estate markets have hardly eased up, much to the regret of sensible economists. Overseas students still flock to our colleges and universities and help populate the new apartment blocks. The banks still throw money at negatively geared housing investors and can be coerced by first homeowner grants to give low-income earners a once-in-a-lifetime chance of securing a mortgage. And our biggest cities are still growing rapidly. In 2007–08 Melbourne added 74,000 new dwellers, the 200 kilometre city from Noosa to the Tweed 62,500, Sydney 55,000 and Perth 43,400. In percentage terms southeast Queensland is still growing most strongly of all.

Despite, or perhaps because of, all this growth, big-city dwellers are unhappy. Peak-hour traffic gets worse and worse; the cost of water and electricity keeps going up; and local councils provide fewer and fewer services – yet the rates still rise – and have outsourced almost all new building and renovation approvals, so ratepayers have to cough up for those as well. Some state governments seem so incompetent – New South Wales heads the list – that Armageddon appears nigh. The doom-watchers got very excited in 2006 when it looked like Brisbane would run out of drinking water, in 2008 when petrol prices spiked and again this September when Sydney and Brisbane were covered with red dust and they literally ground to a halt. Suddenly climate change came to the front door of every apartment, house, office and school, and there didn’t seem much that our many ministers for climate change – are they for it or against it? – could do.

In the midst of these multiple urban crises state governments continue to churn out regional and city plans to direct growth. In every case these documents have some sound data and some useful mapping of urban phenomena, overlain with softcore urban photography of happy families and happy workers creating instant new communities. All the big issues, from homelessness and the erosion of greenspace to the fate of people who have no access to public transport, are subsumed under headings like “strong communities” and “smart growth.” These documents become more and more fatuous with each “iteration” (the favourite word in an era in which government pronouncements must be tweaked by wordsmiths who will be held accountable if they fall into the mortal error of making a testable promise).

In Perth, responding to the need for longer-term thinking, Richard Weller and a group of fellow architectural researchers have bravely compiled Boom Town 2050: Scenarios for a Rapidly Growing City. This gargantuan volume, 454 pages at $95, will find its way onto the shelves of local architects and graphic designers, but is pitched well beyond what interested citizens are likely to pay. The book is a visual extravaganza, full of tempting possibilities: using hundreds of maps, aerial photographs, tables and scenarios it attempts to convey the possibilities and constraints facing the Perth urban region. Whether your interest is in water, energy, waste, transport, housing or food this book has something for you. As a devotee of narrative non-fiction I find it too discontinuous to add up to a persuasive argument, but Wikipedia editors, architects, town planners, engineers and others who embrace the bititisation of knowledge on the web will no doubt relish the interpretative challenge.

The publication of Weller’s book, and the availability of metropolitan plans for Australia’s four largest urban areas – Sydney, Melbourne, Adelaide and Southeast Queensland – make this a good time to assess where Australian cities are going, and why we might want to change direction.

CENTRAL to the problems faced by Australian cities is transport. In Perth’s case, as Weller points out, fully 20 per cent of the land area of the suburbs is given over to roads. Apart from proposing fewer roads in new developments, he argues that in a car-free suburb all sorts of uses could be made of existing roads, from stormwater filtration to linear public parks. Much of this has already been done reasonably well in Canberra, our most ambitious town-planning experiment, but regrettably the road system there has still been the major driver of the location of new suburbs.

If the media is any guide, Sydney is the prime example of a city in which the road and rail system is in constant crisis. But despite all the criticisms levelled at that city’s public transport, it still carries more people and accounts for a higher proportion of all trips – about 14 per cent – than any other system in Australia. The rail network is extensive and effective, but it is so popular at peak hour that it becomes very congested. But so does rail in London, New York, Tokyo and lots of other big cities. Sydney’s buses cater for the areas unserved by rail, but unlike the retrofitted Brisbane busway system, few of Sydney’s buses have their own right of way. Where they do – as in the bus lanes on the Harbour Bridge – the reduction in travel time is impressive.

When governments look like they are not coping they turn to big spending promises. The NSW Labor government – its fingers burnt by the gross underutilisation of the cross-city tunnel – lurches from one transport promise to another, none of them well thought out. It has all become so embarrassing that Four Corners recently devoted an entire program to the hastily developed plan for a CBD-to-Rozelle “metro.” What a contrast with the carefully designed Bradfield Plan, which gave Sydney its underground railway and the Harbour Bridge. Everyone now rues that the proposed rail line to Manly and Narrabeen wasn’t built at the time.

In Melbourne, the previous state government’s botched privatisation of the rail system has distracted attention from just how extensive the network really is. With a bit more investment it could carry a lot more people. And Melbourne, thankfully, as the only Australian city that didn’t garrotte its tramway system, now revels in the eighth-largest network on the planet. What a civilised way to travel.

Australia’s third-largest city is also preoccupied with the utopian notion of “eliminating gridlock.” Brisbane’s lord mayor, Campbell Newman, is pouring billions of ratepayers’ funds into propping up public–private partnerships to build tunnels, bridges and freeways. Along with the state government, he has also put money into expanding a successful busway system. Understandably, he has little interest in what goes on beyond the council’s borders – and that is where the real trouble starts.

Only 2 per cent of travel on the Gold and Sunshine Coasts is by public transport. There, urban development has been led by a road system that simply cannot cope with the population growth, no matter how much it is augmented. The rail line via Robina has still to reach Coolangatta (the coastal rail line was foolishly closed and the reservation given over to property interests in the early 1960s) and the railway to the Sunshine Coast won’t get there for another fifteen years. Sydney and Perth revel in their surf beaches, relatively well-served by public transport, but in surfless Brisbane you still can’t catch a train to the beach. Instead we have thirty million road pilgrimages per annum as the residents of Brisbane escape to one or other coasts in their 200 kilometre city.

The smaller capital cities have nowhere near the congestion of the big four. In 2007–08 Adelaide grew by 13,000 people, Canberra 4500, Darwin 3300 and Hobart a mere 2000. They all have tolerable public transport systems, though their outer suburbs remain entirely dependent on the private car. The new Adelaide plan, like most other metro plans, advocates “transit oriented developments.” Public servants joke about Canberra’s 20-minute peak hour, but it is disgraceful that its privatised airport, full of offices and seconds shops, is now the most congested place in town. Surely it is the right of all Australian citizens not only to visit their national capital but also to escape it without undue obstruction.

ALL THIS CONGESTION, and the inability to provide public transport efficiently to low-density outer suburbs, have brought repeated calls for greater urban densities. The pros and cons of urban consolidation – in terms of energy use, quality of life, landscape impact and cost of living – have been much debated in recent years. This debate has been sidestepped in the current crop of city plans, because now we have a new, even more slippery term, “compact settlement.” Melbourne and Brisbane have both embraced the concept, aiming for fifteen houses per hectare in new settlements. To put that in perspective, the average Australian housing block has never been “the quarter acre block” of popular mythology – in the experience of people born after 1966 it’s much nearer to a sixth of an acre, or around 600 square metres. To fit fifteen houses into a hectare, you are looking at a maximum block size of 400–500 square metres, leaving land aside for road access.

Or you can go for medium- or high-density housing. Almost all new structures over three storeys now have lifts and air-conditioning throughout, which means they are still highly energy-intensive forms of housing. Architects, despite “green building regulations,” don’t seem to worry much about cross-ventilation any more. The developers never did.

The Victorian government proposes to place the half a million new people it anticipates swelling the metropolitan area in the next thirty years equally between established areas and new growth areas. Most other big-city metro plans have similar aspirations. Developers are encouraged to embrace high-rise in and near the city centres, and in the case of Sydney in the major regional centres as well.

Australia’s large port cities have traditionally been highly centralised, housing government offices, business and transport termini in and near the city core. Sydney has long had Australia’s most effective urban centres, from Chatswood and Parramatta to Hurstville and Blacktown, an achievement celebrated in the title of Sydney’s 2005 metro strategy, City of Cities. All of Sydney’s main centres hang off the rail system, which has even been augmented to service some formerly car-based universities, most notably Macquarie and the University of Western Sydney. And both Sydney and Brisbane have direct rail links to their airports; Melbourne is yet to play catch-up. Like Melbourne, Sydney took hospital decentralisation seriously. Brisbane never has. Over two thirds of all hospital beds in Brisbane are to be found at the three hospitals within five kilometres of the CBD. In the location of state government offices central Brisbane is even more dominant, with government accounting for over one fifth of CBD office lettings, in marked contrast to Sydney and Melbourne, with less than 10 per cent of office space occupied by government.

Office space and the CBD don’t even rate an entry in the sparse index to Weller’s book on Perth. Adelaide, meanwhile, still has plenty of room to grow – and at 1.2 million residents it remains our most civilised large city, with only modest population pressures. But local boosters, as in Canberra and Hobart, would still like to see much stronger population growth.

IN THE FACE of the urban water crisis, most state governments are talking about “waterproofing” their cities. The most popular way to do this is to pour billions of dollars into desalination plants, vastly more energy-intensive than treatment and recycling. Perth has attempted to sidestep the energy problem by using a wind farm to the north of the city, but of course that electricity could equally be used to replace dirtier power used for other purposes. At least Perth has the excuse of being our driest capital. Sydney, Brisbane, the Gold and Sunshine Coasts have much healthier rainfalls. The construction of a desalination plant abutting Coolangatta airport is one of the greatest public policy follies of the new century. There are 100,000 properties on the Gold Coast that could easily have 20,000 litre tanks retrofitted, at half the cost of the desal plant. And that doesn’t take in the cost of pumping the water to Brisbane.

The dominant suburban form of all our capital cities creates a landscape that lends itself to the relatively economical retrofitting of water tanks, which could provide the washing and garden-watering needs of most suburban households, leaving the central water supply for kitchen and bathroom. Regrettably, most state and local governments have abandoned their water tank subsidy, undermining any sense in the electorate that we might take some responsibility for our own survival.

At precisely the time when we should be reducing our dependence on coal-fired power we are embracing desalination, and throwing away the compliance achievement of Brisbane during the drought of 2005–06 when households got their water consumption down to 130 litres per head per day, one of the lowest levels in the developed world.

IN PERTH’s Boomtown 2050 Weller and his colleagues don’t come up with too many solutions but at least they identify the problems and have some suggestions as to possible responses. This is to be applauded: the multiple and often contradictory scenarios outlined in the book will at least get people thinking, in stark contrast to the slippery language that now infects every major government urban-planning document produced in Australia.

Many of the best planning decisions made in Australia’s capital cities can be traced back to the big planning reports produced from the late 1940s to the 1960s, in which coherent arguments were made in continuous prose rather than today’s dot points. If you want to find out what is happening in Australia’s cities today, don’t go to the well-doctored planning glossies. You would be much better advised to attend a major railway station at peak hour, sit in a freeway traffic jam thirty kilometres out of town, bid at a house auction or inspect the abandoned excavation for a failed inner-city office block or apartment tower. Thank goodness the “Rudd Bank” never got up, otherwise we’d have an even greater rash of energy-intensive buildings that require us to burn coal merely to allow their occupants to move from floor to floor. •

Boom Town 2050: Scenarios for a Rapidly Growing City

by Richard Weller
University of WA Press, 2009, $95

South East Queensland Regional Plan 2009–2031

Department of Infrastructure and Planning Brisbane, 2009

Melbourne @ 5 Million: A Planning Update

Department of Planning and Community Development, 2009

City of Cities: A Plan for Sydney’s Future

Department of Planning, 2005

Planning the Adelaide We All Want

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