the fragility of our regions and the role of the state professor william mitchell centre of full...

The fragility of our regions and the role of the state

Professor William Mitchell

Centre of Full Employment and Equity

University of Newcastle

Australia

http://e1.newcastle.edu.au/coffeeCentre of Full Employment and Equity

Recent employment trends …

FLAT

Fiscal Stim

ulus

Surplus obsession


Participation rate trends …

Peak after stimulus – 66 per cent – now 65 per cent


Unemployment rate …


Employment has fallen but so has unemployment and the unemployment rate.

Why? Because the participation rate has plunged which means

that hidden unemployment has risen. What is the impact of falling participation on the official

unemployment rate?


Parlous state of teenage labour market …

Broad underutilisation for 15-19 year olds is around 38.8 per cent


Underemployment

Underemployment is 7.8 per cent Australia-wide. Meaning total labour underutilisation is at least 12.5 per

cent given the unemployment rate. But that estimate ignores hidden unemployment which is

around 1.5-2.0 per cent (at least). Broad underutilisation for 15-19 year olds is around 38.8

per cent.


Trends in public employment by state …


But share has fallen dramatically …


Fiscal austerity …

Over recent decades there has been a shift in fiscal policy in Australian states toward fiscal austerity with a reduced role for the public sector being pursued.

Use of rigid fiscal rules – reduce flexibility of governments to effectively meet their responsibilities.

Infrastructure now funded mostly by surpluses so that the state either minimises or eliminates its net debt position.

Absurdity of AAA logic? What is the rating for? Intergenerational equity violated.


Neo-liberal mantra …

All governments have expressed concern about the deterioration in fiscal outcomes and the threat to credit ratings, professing commitment to:- Prioritising expenditure to delivery of core services;- Cutting expenditure in non-core or non-service delivery areas

and staffing;- Restricting public sector wage growth;- Neo-liberal policies that entail “privatising” public sector

activity by various means.


Evidence mounting of failure …

There is abundant evidence that the self-imposed fiscal constraints have impacted on the ability of state governments to provide the range, quantity and quality of services required by the community, particularly in an era of growing and significant income and wealth inequality.


Reductions not matched by need …

Large reductions in staffing that have occurred in recent years have been due to fiscal constraints rather than a review of the resources necessary to deliver high quality services to the community to satisfy need.

Efficiency dividends … have taken billions out of budget for necessary services.

The adequacy of service provision depends on whether frontline services keep pace with rising demand as reductions in support functions impact adversely on the ability of frontline staff to deliver services.


Privatisation

Privatisation was initially justified on the promise of superior private sector cost- efficiency and service quality gains, viv-a-vis the public sector.

As these largely failed to eventuate, emphasis shifted to exaggerating the necessity of public asset sales to lower or avoid public debt.

Change in industrial laws and industrial politics have undermined union capacity to fight.


Outsourcing

Since the 1980s, outsourcing has produced mixed results in terms of cost savings, and serious doubts over quality of service issues.

Comparisons of relative cost-efficiency usually fail to consider relative efficiency in terms of the basic objectives of the organisations being compared.

Public and private sectors create value in different ways, and utilise different forms of incentive to do so.

Strategic vulnerabilities arise for outsourcing governments from asymmetrical costs of contract failure and the ultimate inability of governments to transfer risk.


Public-Private Partnerships

Why not take advantage of the fact that the public sector has a lower cost of capital than the private sector?

Private borrowing for infrastructure development can never be cheaper unless services (employment) are cut dramatically or construction quality reduced.

With an essential public service it is a fantasy to say that the privatisation transfers risk to the private sector.

If the private provider defaults, the public always has to pick up the pieces.

There is no real risk transferred.


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The scarce funds myth …

Government has ‘more funds’ available for other vital uses – service delivery etc.- this is a nonsense argument at Federal level- at state level it implies that private borrowing is better than

public – again a nonsense argument.

Intergenerational equity – proportionally allocate costs to the generations who enjoy the benefits.

At State Government level borrowing is the vehicle for this equity.


Process of regional decline …

The fiscal austerity at the national and state levels has hollowed out the public sector.

Process of regional decline:- Public sector cuts or key industry closes;- Job losses and multiplier- Regional spill-overs- Out-migration of skills and youth- Decline of services- Housing values fall- Ageing societies with decline opportunities


Myth of the “new region”

New regionalism – another neo-liberal attack on state activity.

Claim is that regions interact directly via exports to global economy.

Nation state is irrelevant. Local innovation and entrepreneurship is the key. No evidence to support this “individualistic” mantra. Nation states are crucial to regional development.


21

What our governments should do …

Government should use its fiscal power to:- Be a major employer ensuring full employment- To maintain high quality public infrastructure- To deliver first-class services on an equitable basis

Governments face the following questions:- What is the best way to provide for the rising demand for best

practice public infrastructure and services?- What is the best way to gather the resources necessary to

guarantee this provision?


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Public provision of public infrastructure?

Typically justified on market failure grounds - existence of public goods, externalities and such does not support sufficient private returns from charges.

The presence of natural monopolies will generate excessive prices and returns should a private supplier be present.

Typically, public infrastructure services – generate benefits across time and beyond the immediate users (schools, hospitals, sewage, etc).


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What is the role of public infrastructure?

Sometimes, socially optimal user charges are often too low for a private return to be generated (railways?)

Public infrastructure investment promotes productivity and economic growth.

Provides a fundamental training ground for skilled labour – apprenticeships etc…

Beyond its economic contribution, public infrastructure provides a social fabric – social benefits.


What is role of government?

It is argued that government should only do what the private sector fails to do well.

Market failure argument means government should not replicate private activities.

But evidence of massive unmet community need – personal care services, environmental care services – that market will not deliver.

Government should also be forward-looking –for example, NBN.

http://bilbo.economicoutlook.net/blog

End of TalkThank you

the fragility of our regions and the role of the state professor william mitchell centre of full...

Documents

equity employment

aucoffee centre

cent slide

equity unemployment

public employment

state slide

equity trends

equity evidence