To advance Australia, ignore Rod Sims’ call for gas export controls
Let’s start with Sims, a former Australian Competition and Consumer Commission chairman. On Wednesday he argued for export controls on natural gas to lower prices. Restricting trade, or movement of capital, to quieten domestic discontent is more often used by autocrat-run countries lacking strong independent sources of policy analysis and independent media.
Over the past decade, eight non-Western countries have restricted foreign sales of natural gas, oil and similar energy sources, according to the World Trade Organisation: Argentina, Belarus, China, Indonesia, Kazakhstan, Kyrgyz Republic, Mexico and Ukraine.
One Western nation has: Australia.
This happened while, in return for $200 billion in foreign investment, Australia became a liquified natural gas superpower.
As an economist, Sims must know that the “sensible” gas prices he seeks don’t exist. Like coal, iron ore and wheat – Australia’s other vital products – prices are set in global markets. One price is no more sensible than any other.
This is the burden and opportunity of trading nations, and one that has enriched Australia since John Macarthur first shipped wool to England in 1807.
Sims’ excuse for his interventionist proposal is that it would be limited to gas not already allocated to existing buyers. In other words, gas destined for the global “spot” or on-demand market.
This is a cute way of pretending his plan doesn’t involve coercion. Australian buyers are free to buy spot gas at any time. They just have to pay the spot price, which they don’t want to. They know gas will be cheaper if they don’t have to compete against factories and power plants in Japan, South Korea or China.
Like the protectionists who have marred Australian history since settlement, they want to be shielded from free trade. Sims would do it for them.
(Producers in Australia received $66.99 per gigajoule of liquified natural gas in October. Two years earlier the price was $4.71.)
There is another path. Public figures could contribute constructively to energy policy by explaining the brutal truth: export controls would betray investors who have financed the greatest economic advancement in Australia this century.
They would expose Australia as an unreliable business partner which changes the rules when domestic politics become challenging. Australians could adapt by cutting gas consumption and increasing supply.
Whether the Albanese government will follow Sims’ advice is unclear. The signs aren’t promising. The government is responding to another economic problem – weak wages growth – by allowing unions to stage industry-wide strikes.
On Wednesday a much-admired economics commentator, Ross Gittins, endorsed the planned change, although lamented it wouldn’t go far enough to fix Australia’s “broken” capitalism which “has made sure that the plebs, punters and ordinary working families have been given enough of the spoils to keep them reasonably content”.
Wage stagnation has been an international problem since at least the global financial crisis. Economists don’t agree on the reasons, but making workplaces less flexible is self-evidently unlikely to improve their productivity, which drives economic growth and wages.
Wealth remains concentrated but, in the West, not as acutely as in the past. Around 1914, 70 per cent of British wealth was in the hands of the top 1 per cent. Today, around 20 per cent is, according to economist Branko Milanovic.
One of the reasons society isn’t less unequal is highly educated workers, like Gittins, are increasing their lead over others. Technological advances are making skilled workers more valuable, something economists call the skill premium.
In Gittins’ case, his articles can be sold to anyone with internet access. They were once limited to a few hours from a printing press.
Meanwhile, many unionised workers are stuck in a regulated workplace system that tries to compensate for their lack of skills with artificial and costly delineations about who can do what.
The award covering childcare workers, which are one of the government’s priority groups, lists 16 jobs, each with their own responsibilities, pay and titles. A level four children’s services employee is required to “liaise with families” – something the law places outside the responsibilities of his or her lower-ranked colleagues.
The rational approach would be, like most of the West and affluent Asia, to outsource professional childcare to temporary immigrants.
Convincing society to accept the change would be difficult; harder than convincing Australians to cop higher gas prices. Unions, fearing their loss of power, would protest. Vested interests would have to be stared down.
There are many other examples where society has taken the easy path. They include: huge subsidies for renewable energy without a carbon price; restrictions on apartments in quiet suburbs; pouring money into schools without forcing teachers to improve; and letting the National Disability Insurance Scheme run out of control.
Reforming policy is hard, which is why it is uncommon. Former Labor leader Bill Shorten once said Australia’s last significant policy reform, apart from the NDIS, which he claimed credit for, was the introduction of the goods and services tax. That was 22 years ago.
There is an answer. Elect politicians prepared to make tough decisions. Modern Monetary Theory, in different forms, is everywhere.