Category Archives: Economics

The Mystery of Low Productivity

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It may not be all to do with having too many people making coffee for other people who could boil a kettle and make themselves a cup of caffeine-rich brown liquid in much less time than they have to wait for an expert to do it for them with a hissing big machine and put a beige heart-shape on top.  In the last few days I have had a cluster of revelatory experiences . . .

It’s rare for an email to go astray, and when it does happen one usually gets an ‘undeliverable’ notification. But it’s now common not to get a reply. It’s called “ghosting”. A month ago I sent five emails to businesses that had expressed some interest in sponsoring my Lions Club’s art show last year – but only when the impact of Covid-19 had passed.  Not a single one replied, even to say, “Sorry, times are still bad.” Or “Buzz off or I’ll call the cops.” Nothing. So I’m wasting time following up: “Perhaps my email of 9 June found its way into your Junk folder…”

Twice in the last week I’ve had occasion to contact private companies and been told, “Oh, the person responsible for that is away for a month.” I gently suggested that a) I was talking to that person’s deputy and b) even if so-and-so was physically away they probably still had access to a telephone and an inbox. I refrained from any sarcastic mention of carrier pigeons. “Yes, but I’ll have to wait for so-and-so to come back to give you a definite answer.” People are scared to take responsibility.

I attended a first aid class (CPR and defibrillator operation) run by a very well-known NGO. It ended with a practical test and… Hurrah! All fifteen of us passed! No we jolly well didn’t, not really. We got certificates for showing up and paying a fee. If that applies in other fields… well, perhaps that’s why people are afraid to take responsibility: they know they’re not competent.

My bag was searched at the Aldi check-out. I had some mixed grain wraps in there, just purchased from a rival shop where I had declined a receipt. Fortunately the brand was one that Aldi doesn’t sell or I might have been writing this in a cell. I under­stand: shoplifting is on the rise, forcing businesses to divert resources to strengthening security.

I was just notified that an old class action against a company that had misled its shareholders had been settled, and Mrs SG’s and my pension fund had benefited to the tune of $1,090.60.  How many hours of costly people’s time had been expended on achieving that movement of money from one set of pockets to another set (mainly in the well-cut suits of lawyers)?

This week I spent half-a-day shopping around for cheaper electricity, having been informed in a curt email that my tariff was about to increase from 34.96 to 49.5c/kWh. Disingenuously I phoned to report an apparent misprint, and was told, “No, that’s the rate you’ll be charged if you do nothing, but I can offer you a special rate. And if you can find an even better one with another supplier, come back to us and re-negotiate.” I shopped around, found a better rate and took it. Life’s too short to bugger about endlessly. ’Scuse my French.

We used to put all our rubbish in the dustbin. Now we have three wheelie-bins: Green for organic waste; Yellow for stuff that can be recycled; and Red for real rubbish destined for landfill. If one is conscientious, getting it right takes time. And the last time I was in our local civic centre I saw this Recycling Hub! Don’t get me wrong, I like it, and I tipped several dozen blister-packs (bonded plastic and metal, hard to separate) into the top right-hand slot. But this means more person-hours spent unproductively – not in producing goods and services that people want.

Storing Green Energy

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Mrs SG and I are big fans of green energy. We have as many PV panels as we could cram on our roof, and they generate an average of 18kWh/day. That varies a lot through the year, of course. At the moment they are managing 10kWh/day, but the midsummer record is 31. As it happens today is the 9th anniversary of the panels’ installation and their total output has been 60,831kWh. I estimate the financial return on our investment to have been 8.8%pa – not taking into account depreciation (the system will probably outlive Mrs SG and me), the public subsidy or the value of carbon credits that we had to sign over to the installer.

We don’t have a battery though. When we have surplus production we sell it to our French-owned supplier (on average 6kWh/day) and when we’re running our centralised heating/cooling system we buy to make up our deficit at more than three times the price at which they buy from us.

Tesla Battery – the biggest in the world when it was built in South Australia

Some people talk glibly about large-scale battery storage to solve the problem of intermittent output from solar panels and wind turbines, but the cost of this strategy is not sidely understood. AGL (an Australian company that generates and distributes electricity, and has been characterised by Greenpeace as the country’s biggest emitter of greenhouse gases) has commissioned a huge Li-ion battery to be built on Torrens Island, South Australia. It will have capacity for 250MWh and cost A$180M (US$130M at the present rate of exchange). The capital cost is therefore A$720/kWh (US$520/kWh). Feel free to check the maths in case I’ve made a mistake.

Our car – an average-sized petrol-driven sedan – has a fuel tank that holds 51 litres. 1 litre of petrol contains 8.8kWh of energy. Therefore the cost of a Li-ion battery with the energy capacity of our fuel tank would be 51 × 8.8 × US$520 = US$233,000. This is an order of magnitude more than we paid for the car.

So how does AGL think it can make money from this huge battery? The answer lies in the magic of the free market, which now prevails in Australia thanks to the fragmentation and privatisation of what used to be a publicly-owned monopoly. According to the Australian Energy Market Operator (AEMO) the average wholesale price of electricity in 2020-21 ranged from A$0.045/kWh in Tasmania to A$0.072/kWh in NSW. At these prices AGL would have to fully charge and discharge its battery at least 4 times a day to turn a profit.

Nuclear: the clean, green political no-no

But, due to wildly mismatched supply and demand profiles, on 22 occasions last year the market price of electricity spiked about A$5/kWh. That’s not a misprint: five dollars per kWh!  So AGL will keep its powder dry until there is a sudden extreme shortage and then sell the contents of its battery to the highest bidder.  If the whole battery is emptied at A$5/kWh (which is nowhere near the maximum price, mind) AGL will receive a windfall of A$1.25M. At its maximum discharge rate the battery will empty in an hour.  Great for price spikes and short-term outages, but it’s not like having a hydro-electric dam full of water.  Hence the need for:

  • Snowy Hydro 2.0 – pumped storage for 350GWh (1,400 times more than AGL’s battery) that’s expected to take 8 years to build and cost at least A$5bn. That’s equivalent to US$10/kWh, about midway between our petrol tank and AGL’s battery on a logarithmic scale.
  • Back-up dispatchable power (available at the push of a button) from some other source. The Government favours natural gas, of which Australia has an abundance; green voices propose biomass; some contrarians suggest nuclear power, which is a political no-no at the moment.

That’s all. There’s no punchline.

Fruit

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We welcome birds to our garden,
But one thing we won’t pardon:
      Subjecting a nec–
      Tarine to a peck;
At that our kind hearts harden.

We put a net over our small-ish nectarine tree again this year, and with the help of safety pins did a better job of bird-proofing it.  A couple did find their way in and needed help to escape.  I think they spread the word, because we had no further avian trouble and we harvested a bumper crop.  Unfortunately our electronic scale’s batteries died at just the wrong moment, but we filled four-and-a-bit buckets and only had to cut out about 5% of the juicy, golden god-blessed flesh.

With such a surfeit of fruit to deploy, the next apple crumble that Mrs SG made was a nectarine crumble – and pretty good it is too – and the freezer is two-thirds stuffed with bags of sliced nectarines.  A reminder of summer sun when winter comes.

Fruit is in the news in Australia, and in the UK too.  As we have become wealthy (Australia’s per capita GDP is five times the global average) we have become lazy. It’s a socio-economic sickness that infects all rich nations sooner or later: it happened in Rome too, a long time ago.

A symptom of this infection has been highlighted by another: Covid-19. It seems that we no longer pick our own fruit and vegetables. Before the borders closed that arduous, low-paid work was done for us by European backpackers and Pacific Islanders on special work visas. Unemployment has peaked as businesses have been forced to close – many never to re-open – yet farmers cannot find people willing to pick their fruit.  The Government has just announced a shipment of ni-Vanuatu workers to save the day, riding the foam as the US cavalry used to ride the prairie on similar missions.

Does this mean that we’ve lost our oomph, our get-up-and-go, our will to work and strive and build a nation? I fear it does. Let us hope that China’s burgeoning wealth brings it to the same torpid state before Xi Jinping becomes master of our world.

PS Watch out for the announcement of the winner of this year’s Stroppy (the Stroppy Git Award for Meaningless Twaddle). The excitement is mounting and assessment is under way!

Slavery

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There is an upsurge of guilty feelings about slavery, especially in the UK. Statues of people who made fortunes from that evil trade in the eighteenth and nineteenth centuries have been wrenched from their plinths. There is agitation to re-name city streets – even Liverpool’s Penny Lane, because it may have been named for the slave-trader James Penny.

And I have just read a review in the Guardian Weekly of Nicholas Rogers’ book ‘Murder on the Middle Passage’, which deals with horrific crimes committed against African slaves for the sake of profit. It made me think…

Slavery has existed for millennia, considered a perfectly normal aspect of human society and economy. It is often said that all nations have practised slavery but only the British abolished it. This is probably true, if one considers the laws that were passed by the British Parliament that were then enforced by the British Navy.

Slavery that is legally sanctioned, where one human and his/her offspring are the property of another, no longer exists anywhere so far as I know. But the ILO estimates that 40 million people suffer some form of virtual slavery. One hears of sex workers whose passports are withheld by their ‘owners’, debt bondage in the brickfields of India and kidnapped migrants on Thai fishing boats.

But there are conditions of employment that have become normal, but in some respects are worse than slavery. If one has paid for and owns a slave, one has an interest in keeping him or her fed, clothed, housed and healthy. I think of the ‘labour lines’ on a Sylhet tea plantation I visited in 1967. The living conditions were basic and the wages almost non-existent, but the benign Scottish manager ensured rations and medical care were available, and even schooling for the children. How different it is for employers who engage ‘contractors’ who are obliged to be available for paid work but have no guarantee that it will be offered.

Should there perhaps be a legal option to sell oneself into a form of slavery, rather like the bonded labourers on whose sweaty backs the Fijian sugar industry was built? Or the Pacific islanders who used to cut cane in Queensland?

More provocatively, will future generations vandalize the statues of contemporary heroes because of our appalling acceptance of the enslavement of other species?

Home-Grown Fruit and Stroppy 2019

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Nectarines

Today’s my birthday and therefore the day to announce the winner of this year’s Stroppy. But first I make will make another announcement: Mrs SG and I have harvested our nectarine crop! It amounted to 7.2kg after cutting off the rotten bits. St Bernard’s Market is selling yellow nectarines A$2.99/kg at the moment, giving our crop a retail value of A$21.50. Mrs SG wondered aloud whether that would cover the cost of watering the tree for a year.

I was reminded of an email circulated recently by my old friend Ron Allan. It was a picture of lots of tomatoes with the caption “Growing your own tomatoes is the best way to devote 3 months of your life to saving $2.17.” Well, Ron, even if that’s US$2.17, we did much better than that!

That curtain-raiser is little more than an excuse to display a colourful picture of our nectarines. Now to the main business. The winner of the 2019 Stroppy Award for Meaningless Drivel is … drumroll … the South Australian Academic Health Science and Translation Centre, for this passage from a report to the state government agency SA Health:

“What we can deduce from our work is that it is possible to generate a narrative around the experience of multiple stakeholders, going through a large-scale system change, in ways that both acknowledge the limitations of the data but support the emerging themes from the data, and from other (realist) literature reviews.”

A worthy winner! Thanks are due to Brad Crouch, the Advertiser’s Medical Reporter, who drew this to my attention.

Privatisation

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I was always a reluctant believer in the conventional wisdom of privatising everything that wasn’t nailed down, and much that wasn’t. Some services really should be provided by governments, I thought, especially in cases where:

  • There is a natural monopoly.
  • Access should not be restricted by ability to pay.
  • Private control may confer disproportionate power.

I deplored the rush to privatise utilities, transport infrastructure and a mind-boggling range of government activities including even prisons and aspects of the military.

Land Titles Office, South Australia

The stupidest example to come to my attention recently was the South Australian Land Titles Office in my home state of South Australia. Did the cash-hungry Labour government never pause to wonder why a consortium comprising a commercial bank and a foreign pension fund would be willing to part with A$1.6 billion for the right to run the LTO for 40 years?

Anyway, I have just read a concise and well-documented article by Ross Gittings, economics columnist with Fairfax Media, entitled ‘The Experts Told Us Not To Worry’. I recommend it – if you can find a way to read it without subscribing to the Sydney Morning Herald. He chiefly blames state governments and their supposedly expert advisors, who little dreamt of the depths to which private investors would sink in the pursuit of monopoly profits, or the enormity of the loopholes in the regulatory frameworks conscientiously erected in a vain effort to protect consumers.

Do you have a favourite privatisation horror story to share?

Hats Off to Hong Kong

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I was looking for tiny watch batteries, variously coded 377 and 626. By Googling I found a source in Australia that offered them at A$6.90 each; and two others that offered them at a mere A$2.90. But I ended up ordering six from Hong Kong for a total payment of A$5.94, including Australian sales tax (A$0.54) and postage (about A$1.35). They arrived and they work. Is this really the most efficient way to distribute consumer products?

Elite Education

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When I went to university there were places for only 10% of each age cohort. By implication, the cut-off IQ level was around 120. Selection was based on examination results and an interview. At my university (Cambridge) there were men’s colleges and women’s colleges and men outnumbered women 10-to-1.

Now the situation is very different, throughout the rich world. About 50% of school leavers go on to university, which means that the implied IQ threshold is around 100 and a university degree does not have the cachet it used to. So it matters more which university one has gained a degree from.

Oxford

In the UK there is the ‘Russell Group’, which includes Oxford and Cambridge; in the USA there is the ‘Ivy League’. Here in Australia the Australian National University (ANU) stands at the head of a handful of Australian universities in TopUniversities’ global Top 100. ANU is ranked 20 and the Universities of Melbourne, New South Wales, Queensland and Sydney are bunched between 40 and 50.

The University of Adelaide is ranked 109. This is not bad, but if a foreign student is looking for somewhere to gain a prestigious degree he/she will probably prefer one of the others. So what is the University of Adelaide doing to clamber up the rankings? According to recent reports it is:

  • Seeking to merge with the University of South Australia, which is ranked 264.
  • About to advertise eight academic posts, for which only women may apply. The pool of potential candidates, from which one hopes the university will select the best, has been reduced by 50%.

On top of that, I have just read an article in the Guardian Weekly saying that the Russell Group universities have been criticised for failing “to recruit students from neighbourhoods where few traditionally enter higher education.” Labour MP David Lammy is quoted as saying, “Real progress in this area will require radical and punitive action by the government and Office for Students.”

Cambridge

I know I risk being called an elitist, and perhaps I am. The kind of education that can and should be given to someone near the top of the intelligence bell curve is not the same as can and should be given to someone in the middle. Moreover, in even the most egalitarian of societies there must be a highly educated layer of leadership with exceptional qualities. Intelligence is not the only quality that matters, but it’s probably the most important and it correlates positively with some of the others. Fiddling with recruitment of staff or students in the interests of social engineering is dangerous and wrong and it makes me stroppy.

Does anyone disagree?

Why Are Wages Stagnant?

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EPSON MFP image

Governments around the world have been throwing money at their economies in an effort to accelerate inflation. Unemployment rates in the USA, Australia and elsewhere have been falling. And yet real wages have been stagnant for decades.

Well, let me qualify that last statement. Average wages have been stagnant. Some people’s wages have soared while some others’ have gone backwards.

So what’s going on? I have several theories, which are not mutually exclusive:

  • Inflation happens when supply is inelastic in response to demand.  But for many things that we buy nowadays supply is very elastic indeed. Think about software, on-line entertainment, information, e-books (subliminal ad: Buy my books! Buy my books!), pharmaceuticals and other hi-tech products that cost heaps to develop but very little to replicate.  (Conversely, inflationary efforts have been spectacularly successful in real estate markets.)
  • Consumers are still enjoying the benefits of shifting manufacturing from high-cost countries to low-cost countries. That process will continue for some time as China takes its turn at outsourcing low-skilled and/or high-polluting processes to poorer countries.
  • Outsourcing of services is in its infancy. We’re used to dealing with call centres and tele-scammers in low-wage places, but there’s still a long way to go in back-room financial and legal services, technical support, marketing, R&D…
  • There’s another kind of outsourcing too: to customers, who work for nothing. It’s most obvious in supermarkets, where we’re encouraged to scan and bag our own groceries. And have you ever tried to get technical help online from Microsoft? They refer you to other customers who may have worked out the solution to your problem

  • ‘Uberisation’ has entered the lexicon. Transmogrifying people from employees to self-employed contractors is one thread in a weave of digital platforms, casualisation, zero-hours contracts and exploitation of immigrants working illegally** which all tend towards erosion of wages.
  • Social policies and compliance requirements that discourage taking on staff. Outsourcing to a contractor, without inquiring about their employment practices, is safer and generally cheaper.

Six theories. Any more?

** I have in mind foreign students in Australia, who are allowed to work 20 hours per week but have been found working much longer hours for 20 hours’ pay. Their employers tend to be franchisees, who claim that the onerous terms of their franchises don’t allow them to pay legal wages. The franchisors hold up their hands in horror: “How terrible! We deplore this! We didn’t know!”

Location, Location, Location

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There were two stories in my local newspaper that included land values. Interestingly, the two values were almost identical, but the parcels were of very different sizes. A cattle station south of Birdsville, extending over 1.65 million hectares, was valued at $33 million. A commercial site occupying 7,535m2 in North Adelaide has been bought by the State Government for $34 million.

On a per-hectare basis, those values work out at $20 and $45 million respectively. Like the real estate agents always say – location, location, location!

The view near Birdsville, Australia