Globalisation not a benefit to all: PNG leader

Papua New Guinea’s Prime Minister, Peter O’Neill, said APEC will recognise that not all elements of globalisation are beneficial for all people. Let us hope so.

PNG leader on Globalisation

The following is an extract from Papua New Guinea News Today.
Mr O’Neill went on to say, “Sentiments being expressed by people all around the world today are that globalisation is not necessarily beneficial for everyone. As a result of that, many of the most vulnerable people have been affected by some of the arrangements and agreements that we have put in place over the years. Yes, there has been growth, but there have also been people affected by the loss of jobs and income, and many small businesses and micro businesses have not been able to be competitive when larger multi-nationals come into their markets.”
Mr. O’Neill said this is particularly the case in emerging economies, as well as for some of the developed economies.
Continuing his argument, he said, “Despite some structural reforms that have been underway in our respective economies, and how we manage our state owned enterprises, these issues continue to linger. APEC has a responsibility in ensuring that we work together in enhancing how we move capital, goods and services, and skilled labour right across our economies, so that we can enhance value chains and continue to enable growth within our economies.”
Interesting isn’t it that it takes the leader of a very poor developing nation to bell the cat, as Donald Trump has done, on the false ideology that unbounded free trade will be the saviour of the world. They both know that trade needs to be managed according to the particular needs of each nation.
One thing we know for certain: economists and the left/elite have let the world down on this issue, instead of using their energies to help resolve the distortions that they have helped to create.

 

APEC 2016 in Peru discusses Protectionism

While the national leaders at the APEC 2016 conference in Peru are willing to acknowledge that “some people have been left behind,” there is little agreement on the action required to fix this.

Peru points the way

In an interview translated on SBS TV (in Australia), Peru’s Finance Minister, Mercedes Araoz said, “What they [the discontented voters] are taking issue with is valid in all societies in the face of globalisation, and perhaps a bit of rejection of it. The request is to apply some mechanism to make it more inclusive.”

Nowhere is the need more obvious to make national economies stronger & fairer than in the developing world. Apart from their own entrenched income inequalities, they are also faced with a most daunting prospect: the first-mover-advantage over them of developed nations. Indeed, it was the intention of the TPP to entrench that advantage well into the foreseeable future. For the sake of Peru, and other vulnerable nations, it is fortunate that this treaty has been put on hold. May it be buried forever, and along with it an attempt to game the system in favor of the largest corporations in the world.

Ms Araoz’s plea

Responding to Ms Araoz’s plea, I argue that the required first step is to convince national governments that they can manage their own affairs. Once that concept begins to be reconsidered, then each national government can look at the way in which it can increase the prosperity of its people.

We can look at the USA as an example. Prior to the current obsession with globalization, which started about 30 years ago, the USA domestic sales of goods and service was about 94% of GDP. They made stuff and consumed it themselves. It was a happy and prosperous period, when people served each other and shared a national vision. Now domestic sales are about 84% of GDP, and there is considerable angst throughout large sections of the nation.

Higher exports and imports in the USA have had three results:

  1. Many goods are much cheaper now than before, thus making the consumer (who has a job) better off.
  2. Businesses are more able to compete in the export market because they have access to cheaper labor, such as from Mexico.
  3. Whole cities have been devastated by loss of entire industries, and in many once large and prosperous regions of America the people are desperately looking just to survive. The cheap goods are not much use to them.

So one could ask, “Has the move towards free trade been worth the cost?” The answer has to be both yes and no, depending upon who you ask. Winners have won even more, losers have lost most of what they had before.

A new Economic Mechanism from APEC 2016

When it comes to finding a new economic mechanism at APEC 2016, one doesn’t need to be too concerned about developed nations. They have mature democracies, and the voice of the people will guide their leaders to work through the issues that I have discussed. The role of the leaders of APEC 2016 should be to find a new mechanism that will be useful for developing and emerging nations.

Thinking people must know that, while developing nations have improved their national GDP by exporting to the developed world, this is not a very good long-term strategy. If developing nations look forward to a future as just being a source of cheap imports for the West they are condemning themselves to a future of relative poverty. While there is any nation in the world that doesn’t take control of its own destiny, there will always be a cheaper source of labor upon which the West can depend.

Ms Araoz’s plea at APEC 2016 implies the need to create a mechanism that will enable each developing nation to develop a diverse economy, in which all its people can prosper. Such a mechanism would enable the full talents of its own people to be exercised within that nation, with the more skilled and talented being able to raise the (economic) boat for the entire nation.

Yet the question is, “How can this be done when the West owns almost all of the intellectual property, both that which is patented, and that which is inbuilt into their entire economic, government and educational system?”

A 20% Tariff would Level the Playing Field

The APEC and WTO objective of lowering all tariffs to zero rating is entirely misconceived. Such a strategy will not “lift all boats.” Rather, it will trap developing nations in a permanent dependency on the West. If APEC 2016 doesn’t change direction, the meeting can be considered to be a failure.

One of the strategies that could be adopted by APEC 2016 is to support the introduction of an extra 20% tariff across the board. This would give emerging industries in developing countries a chance to find a modest level of support so that they can find their feet. It never needs to be reduced below 20%, unless there really is a compelling case for goods to be 20% cheaper. What would be argument for that? The wealthy getting luxury goods cheaper?

A Hypothetical Example

Let us assume that there is a country with a population of 10 million people. In this country, the top 10% of the population earn 90% of the nation’s income. Most of the rest are either subsistence farmers or poorly paid factory workers. Let us assume that the national GDP is $40 billion, with the top 10% earning $36,000 each per year and the rest earning $450 each per year. In this country 40% of the national income is from exports, and it spends this on imports.

Now let us assume that a 20% tariff is applied across the board in addition to any current tariff. After this, innovative entrepreneurs are likely to see the opportunity to make many of the goods consumed by the top 10%, which were previously imported. As a result, demand for labor increases and whole new class of more highly skilled workers develops. As a result, a number of those previously in the bottom 90% now find themselves in a new echelon of society. Now the society’s division is 20% who command 80% of the nation’s GDP. While some of the relatively very rich will have lost some of their income along the way, following the disruption brought about by this reform, let us say that the nation’s GDP has now grown to $50 billion. All of this extra goes to the new top 20% of the population, so that their average income is now $23,000. This is lower than the previous average of $36,000, but it is spread over more people. The nation is already better off, but nothing has been done from the remaining 80% of the population.

Because there are now more relatively wealthy people, the service sector in the nation can grow as well, thus pushing up both wages and paid activity. The extra $10 million is now spent in the service sector, increasing the nation’s GDP to $60 billion. Most of this will go to the 80% poorer part of the population. This sector previously earned $450 per year; now these 8 million people share in the extra $10 billion, pushing up their average income by $1,250 per year.

Any reasonable and competent government would work towards ensuring that this virtuous circle continues to lift the income of these lower paid workers, through education, and improved skills at work.

Conclusion

It is cringe-worthy of the Australian Prime Minister, Malcolm Turnbull, to cite 1930s protectionism as if it provides the evidence for embracing free trade. Doesn’t he know that the 1930s were a very difficult period because of the crash of the world economies from over-active speculative activites in the 1920s?

Doesn’t Malcolm Turnbull know that America’s economic powerhouse was built in the 19th century, building its strength behind tariff walls?

Even less excusable, doesn’t Malcolm Turnbull know that the world became a much more prosperous place at the same time as protectionist regimes were in place in most of the nations of the world, namely, in the 1950s, 1960s and 1970s?

Rather than protectionism being ridiculous, as Obama and Turnbull seem to think, the arguments presented here are just standard economics. Unfortunately, free trade advocates, many of whom are gathered at APEC 2016 seem to have stopped thinking from first principles, and have adopted a convenient, if bogus, theory.

A “protectionist scenario” has been replayed in every developed nation: it is now being played out in China. Why shouldn’t the rest of the developing world be encouraged to follow the same pattern?

 

Muslim Integration into Australia

In Australia, a recent poll found that 49% of Australian want Muslim immigration to be stopped, citing lack of integration as the key issue.

Muslim Leaders

There is little ordinary Australians can do to overcome their fellow countrymen’s fears about the lack of integration of Muslim immigrants into Australia. There is much that Muslim leaders can do to address the perception.

They could speak out about the following obvious sore points:

  1. Argue that the full face covering of the burka is not appropriate in a multi-cultural country like Australia.
  2. Argue that polygamous marriages are not allowed under Australian law, and should not be practiced in this country.
  3. Argue that payment of taxes is a good way to demonstrate that Muslims can be good citizens.
  4. Argue that work, not welfare, is the way to be a useful member of the Australian community.

Muslim integration failures = reduced immigration.

There will be no overt “anti-Muslim” rhetoric from the Australian government, but there are many actions that a democratic government will take to address the perceived fears surrounding a lack of Muslim integration.

One of the leading ways for Muslim immigration to be restricted is to cut back on the “family reunion” programmes. This can be done just be restricting the number of visa allocated for this purpose in any one year.

The government could adopt a non-Muslim bias in accepting refugees. Since there are many worthy refugees seeking asylum in Australia, even from the Middle East, there is no reason for Australia to take any more Muslim refugees.

Muslim Integration

If Muslim leaders want to overcome the perceived “bias” in Australia against Muslim immigration, it is entirely in their hands. Open days in mosques will not cut it. It really requires Muslims to act as if they really want to live in a multi-cultural country like Australia. If they don’t, they will hurt those they love the most.

Protectionism – A Rational Economic Framework

A rational re-adoption of protectionism is the key to returning economic strength to every nation and to the world as a whole.

Radical Protectionism

In an ideal world, every country would impose a 20% tariff on all imported goods and services, across the board. This would require no policy decision making on individual industries, and every sector would share in the same level of protection from cheap imports. This would allow every nation to develop new industries, with at least a modicum of protection, to help them get started. This would be the help that developing nations to succeed in the face of hot competition from the developed nations, who are presently living off the “wealth” of their first-mover-advantage. Such an approach would certainly not lead to a trade war.

However, this idea is far too radical for most politicians and economists, and would require a Trump-like revolution to bring it about.

Rational Protectionism

Rational protectionism would be much easier to sell, being targeted at the difficult spots in each economy, leaving the current arrangements in place for all other sectors.

In the USA, Donald Trump’s proposal to put a higher tariff on US companies re-importing goods into the USA is a case in point. His proposal impacts on companies that have moved their plants off US soil to utilize low labor costs elsewhere.

Actually it is a more reasonable way to protect US intellectual property, rather than trying to bully other nations via a TPP. Ideas that are developed in the USA, using all the resources and experience of the USA, in a way actually “belong to the USA”. Thus there is a rationality to imposing the kind of tariff that Donald Trump has proposed. It could be extended to cover any products made in foreign countries, and imported into the USA, which substantially incorporate expertise developed in the USA, whether patented or not.

The concept would also make sense in Australia, which has developed many great ideas, but for which the market here is too small to properly exploit. The Cochlear implants are an obvious case in point.

Another rational use of tariffs in Australia would include horticultural products. Here we have a natural advantage in our developed agricultural methods, but this is offset by an actual disadvantage in labor in Australia being much more expensive per hour than elsewhere. Since Australia has a emotional and rational attachment to producing its own food, it would be a good first case for the doctrine of “rational protectionism” to be adopted.

A similar case applies to the foreign outsourcing of labor services. The current outsourcing framework is far from rational. In Australia, we have payroll tax (also crazy) and a superannuation levy (rational), but suppliers of outsourced labor in India do not have to face such cost hurdles. Also India’s labor cost per hour is a simple fraction of Australia’s cost per hour. Unless something is done, more and more jobs will be outsourced to foreign countries, leaving even high skilled Australians with no jobs that they can fill.

Conclusion

Protectionism is not a “danger” to the world, but if adopted rationally it will restore economic health to every nation, and actually help to build up developing nations.

A Trade War? Pull the other one!

Imposing a moderate level of tariffs, even on ALL goods entering a country, will not result in a trade war.

Trade War – a Phony argument

I recently heard a respected (and paid) Australian economic commentator saying that if Donald Trump continues with his “Protectionism” agenda it could bring about a trade war, such as the world had in the 1930s.

Surely we should be beyond such childish commentary on trade policy. The world had quite high levels of tariffs in the 1950s. There was no trade war. They continued in the 1960s. Still no talk of a trade war, with the same applying the 1970s. There is no reason that a moderate and well applied tariff regime should lead to a trade war in the 21st century. It is more likely that not invoking protectionism will lead to an increasing level of discontent.

Tariffs

Since the 1980s tariffs have been progressively coming down, with significant benefits in regard to lower prices being available for many goods. At the same time, jobs in the industrial sector have also declined from two causes. The first is that competitive pressure has made business much more concerned about costs, leading to efficiency improvement, mostly via more automation. Union leaders also realized that pushing for relatively outrageous wage and conditions was impacting on their members’ future prospects, so they led a movement to change their members’ expectations. The second reason is that jobs were exported as the replacement goods were imported. Not every part of this was a bad outcome.

Tariffs can be considered to have been previously introduced to offset an inherent competitive advantage in the exporting nation. This still continues to be the case. Yet now we realize that tariffs are not a one-way street to success. If they are set too high, this can embed business inefficiency, lead to noncompetitive wage rates, and unnecessarily result in paying higher prices for all goods and services.

Contrary to current economic thinking, tariffs are not a “curse word.” Indeed, the clear rationale for tariffs in the 21st century is to attempt to achieve a rational trade-off between lower prices and “full employment.”

A truly rational trade policy would set a moderate level of tariffs for those sectors of the economy that the government of the nation decides it wants to keep and is in danger of losing. Such a policy would not create a trade war, especially since no nation in the post-Trump world will be able to resist its compelling logic.

Not a Trade War – A Healthier World Economy

Who really thinks that a sick West helps the East? We all know that China’s exports are declining. Why is that? It is simply because the EU is not buying as many goods from China. This is because the EU is being run by ideologues who have no idea about the benefits of ensuring that all parts of the European economy are running on full-steam.

I suggest that EU economists, and those elsewhere, like the Australian economic commentator mentioned above, read George Cooper’s book, Fixing Economics (2016), to gain an understanding of the importance of a wide-spread of a nation’s wealth as a means of increasing national prosperity.

Who really can argue that impoverishing farmers in Mexico, via NAFTA, is in the long-term interests of that nation? Is Mexico a happier and more cohesive society after NAFTA? I doubt it. Reforming NAFTA is very much in Mexico’s interests, just as it is in the interests of the workers in the industrial cities of America.

We can also look at Australia as a case in point. Sure, we are still ideologically committed to Free Trade (a world-leader in this phony ideology in fact), yet those who really understand the economy, like the former Reserve Bank governor, knew that the $A had to fall in order to improve Australia’s competitiveness after the resources boom. This much vaunted period of prosperity was actually disastrous for Australia manufacturing industry, with much viable manufacturing being lost (probably forever). “Fortunately” the Australian terms of trade took a catastrophic fall, thus saving us (as far as can be done) from our own folly. Tariffs were an impossible concept for us, but a falling $A did not offend the ideologues running economic policy here.

Maintain cohesion in the nation should be a government’s #1 aim in peace time. Policies that achieve this are in everyone’s long-term interests, even if the “winners” have to take 10% off their spoils from economic success.

Go Donald Trump!

TPP – A Way to Preserve First-Mover-Advantage

The TPP is presented as opening up trade between the Pacific nations, but the sub-text is preserving first-mover-advantage.

TPP – Staying at the Top

The main thrust of the TPP is intended to extend the rule of law to cover intellectual property. A secondary purpose is to stop nations from passing laws that hurt an already established advantage in the market place. In other words, to preserve whatever first-mover-advantage has already been earned (or achieved by whatever means).

It may not have been the clearly thought through intention of the legislators, but the outcome is to ensure that nations that are already poor remain relatively poorer than the richer nations.

In Australia, we have the naive dream that we will be a supplier of intellectual goods to Asia. If this dream is realized, what is the result for Asia? Are all Asian supposed to be satisfied with supplying cheap consumer goods to Australia, while the Australians supply the more expensive and more profitable intellectual goods to Asia? At least, if the TPP deal is agreed in the USA, then Australians will be able to hang onto whatever first-mover advantage it has, and the Asians will be the poorer as a result.

The USA is beginning to feel the first winds of change resulting from the availability of cheap Asian goods. Its leaders also have a dream of hanging onto their hard-won first-mover advantage, which they hope will ensure that alternative jobs will become available from those that are lost. This, of course, is a forlorn hope, as current experience with structural unemployment in the USA has already shown.

Nevertheless, despite the weakness of the case for even more free trade, the intention of the TPP is to ensure that the developing and emerging nations will remain on the teat of the West for intellectual property for as long as this can be sustained, thus keeping them relatively poorer than the West.

First Mover Advantage

Any newly emerging nation would know that an existing first-mover-advantage is very difficult to overcome. It was an issue faced in the USA during the 19th century, when the cloth and clothing manufacturers on the US east coast found that they could not compete on a “level playing field” with the British manufacturers. Those politicians in the US who wanted to build up a US manufacturing industry argued for the imposition of tariffs. Eventually the advocates of the so-called American System, which involved introducing tariffs, won the political argument, and the USA went on to become a manufacturing power-house. As a consequence, UK manufacturing dominance came to an end. It was a hard-fought fight, even though it is obvious to us now that the advocates of the American System were in the right.

China has its own strategies for overcoming first-mover-advantage. This involves a combination of tariffs, subsidies and other protective measures to support its developing and established industries. It is also claimed that the Chinese use industrial espionage and the blatant stealing of secrets to leap-frog the hurdles standing in the way of developing high-tech industries. The TPP is designed to counter both of these, at least within the developing nations that are signatories to this deal.

So, if tariffs and cheating are not open as a means of overcoming first-mover-advantage what are the options for developing nations? If anyone knows what they are, please comment on this post.

Fraudulent Arguments for Free Trade

Advocates for Free Trade often argue that it lifts poor nations out of poverty. This is only partially true; and has a very limited impact. The wages in Bangladesh for textile workers have increased from $1 day to $2 day as a result of increased exports of finished garments. Yet any attempt to push wages higher, towards Western standards, is met the fierce resistance from the textile manufacturers. They probably use the argument that an increase in pay like that will make them noncompetitive. So unless Bangladesh can come up with new industries in which they can compete, so that there are other opportunities for the Bangladeshi people to gain work at higher pay, it looks like the future for wages in Bangladesh is likely to stop at a maximum of $5 day.

Also, the advocates of Free Trade are unlikely to be the workers who will be the first to be displaced in Western nations. If Western nations can claim to be virtuous by opening their industries to fierce competition from Asia (and from Mexico and South America), it is not the advocates of this policy that will bear the cost: it is the ordinary workers on those nations. These are the workers who are unlikely to get jobs in the “winner-takes-all” high tech jobs, such as in Apple and Google.

Another fraudulent argument for Free Trade is to cite China as a shining beacon. Certainly it has benefited from the opening of trade in Western nations. But it has made the most of this situation by protecting its own industries at the same time. With this protectionism (and possibly cheating as well), it is unlikely that China would have been able to move hundreds of millions of workers from farms to the cities. It is not Free Trade on its own that has helped China to develop. It also required the Chinese government to look after the interests of its own people.

TPP is a Moral Fraud

The TPP is advocated on the basis that it will help developing nations to develop. In fact, what it is designed to do is to entrench privilege. This is not the privilege of entire nations, but rather the privilege of corporations. It is not privilege of all corporations that is being protected: it is the privilege of those corporations that have an edge that makes them the best in the world.

I don’t want my world to be come a place in which only the “very best” or most successful have a reasonable share in its abundance. I want a world in which everyone has a fair chance of success, and a reasonable opportunity for each to share in the success of his or her own nation. That is why agreements like TPP are an anathema to me, along with anything that reduces the power of democratic governments to shape their societies according the needs and aspirations of their own peoples.

Do you agree?

Climate Sensitivity – it is not Science

The IPCC has published estimates of climate sensitivity of between 1.5 °C and 4.5 °C, but are unable to provide guidance on the likely actual level, whether it is in the middle of this range, or at either extreme. This is not science!

How can it be refuted (i.e. tested) if the premier organization does not dare make a prediction? Therefore, it is not science, since there is not an explicit statement that can be tested, and if necessary, refuted.

Climate Sensitivity

The expression “climate sensitivity” represents the warming theoretically expected if CO2 doubled from pre-industrial levels.

The use of this expression might have been an attempt to make an indirect proposition more understandable to lay-people. If so, one can say that has been fairly unsuccessful, and I believe it has stifled understanding and debate, rather than encouraged it.

In scientific circles, the effect of GHGs on the atmosphere is expressed more directly as “forcing” calculated as watts per square metre (W/m2). Scientists have calculated that the additional forcing for a doubling of CO2 will be 3.982 W/m2. (At least this part of the argument is reasonably treated as “settled science.”) So, expressing it another way, the IPCC are saying that additional forcing of 3.982 W/m2 is likely to result in an increase in global average temperature somewhere between 1.5 °C and 4.5 °C.

Complicating the use of this expression of “climate sensitivity” is the fact that CO2 is not the only greenhouse gas (GHG). What they actually mean is that any increase of GHGs resulting in a total increase in forcing of 3.982 W/m2 is likely to result in an increase in global average temperature somewhere between 1.5 °C and 4.5 °C.

One might be entitled to say that the definition and implementation of the expression “climate sensitivity” is too complicated to be useful in public debate. I prefer to use a new way of expressing this, referring instead to a “forcing multiplier,” even though it may superficially seem to be more complicated,

Converting the IPCC’s range of climate sensitivity into this new measure, we can say that the IPCC’s imputed estimate of this forcing multiplier would be from 0.38 to 1.13.

Forcing multiplier

Using the “forcing multiplier” we can directly compare forcing and warming.

We know that the additional forcing (since industrialization) from all GHGs has been 3.05 W/m2. Over that period the global average temperature has increased by 0.94 °C (from -0.44 °C to +0.5 °C). This means that the observed forcing multiplier can be simplistically calculated as 0.94 / 3.05 = 0.31. Alternatively, using a more sophisticated calculation, taking into account a number of different variables, and every annual value from 1850 to 2014, we can say that the actual observed forcing multiplier is 0.37.

We can see that the actual observed values for the forcing multiplier are slightly below the bottom end of the IPCC’s imputed range.

Alternatively, we can just say that the observed climate sensitivity is slightly below the bottom end of IPCC’s range for climate sensitivity.

This is a fact, but it is not something you are likely to find in a peer reviewed “climate change” journal.

Scientific difficulties

The major difficulty faced by most climate scientists is that their models predict a forcing multiplier much higher than the actual observed forcing multiplier. Indeed, the empirical data does not confirm their scientific analysis, so their proposition remains in limbo, and effectively “not proven.”

On the other hand, scientific propositions that are supported by the observed data are not being widely canvassed in the scientific literature. (Such propositions do exist, but they quickly disappear from view. Why?)

Currently there are no (accepted) scientific propositions to establish the forcing multiplier where both science and observations meet. We are in limbo on this subject.

We can present this problem graphically. Here we show just how far the IPCC upper range estimate of climate sensitivity (or forcing multiplier) is from the actuals. From direct communications I know that some climate scientists are expecting ocean temperatures to gradually increase, with the equilibrium (higher) temperatures of the ocean taking centuries to be achieved. While temperatures in the ocean are probably lagging the land temperature increases, there is no observable indication in the following chart that such a “catch up” has had any effect so far.

IPCC Climate Sensitivity fallacy
IPCC Forecasts cannot be trusted

On the other hand, those who try to reproduce temperature data without taking into account GHGs will continue to struggle to win the argument. As can be seen, the other variables included here, like the 11 year sun-spot cycle, volcanoes, and El Nino, are not sufficient to explain the long-term trend of an increase in temperatures.

Conclusion

If the forcing multiplier remains around the level of 0.38 per W/m2, the long-term strategy dealing with the likely continuing increase in global average temperature is clear. A steady reduction in CO2 emissions in developed nations (plus China) of about 2% per year is necessary.

If, on the other hand, if the forcing multiplier rises to 1.13 per W/m2, as the IPCC seem to either expect or are not willing to dismiss, more radical action on CO2 will be required.

Yet 165 years of evidence weighs against the wildest of the IPCC estimates. Accepting and acting upon an extreme estimate is likely to lead to extreme political difficulties right across the whole planet. The precautionary principle suggests we should wait for more definite evidence before acting on such unsupported claims.

EU Tariffs on UK goods are not scary

After BrExit, the EU and UK could impose complementary tariffs on each other’s exports at a non-discriminatory level, say 10%. EU tariffs, and balancing UK tariffs would help, not hurt, the macro-economics of both.

EU Tariffs in UK Trade

Both the EU and the UK economies are unbalanced. Some parts of these economies are going very well, but other parts are struggling. Trade is the main cause of this imbalance. Reducing trade makes it more likely that a national government could regain control of its own economy.

The continuing pressure to reduce comparative costs means that there is a growing trend for more concentration of manufacturing activity. This results in some parts of the each region booming, but other parts are left destitute. Yet “Cheaper prices for everything” is a mantra, not a complete policy. This is because it results in widespread and irreparable unemployment. It is only half a policy. A complete policy would attempt to balance employment and prices over time. 100 years of unemployment, as happened as a result of the Enclosure Movement, is not acceptable in a democracy, nor is it acceptable to most clear thinking adults.

Agricultural Subsidies cause hurt

The EU is infamous for its agricultural subsidies. These reduce the prices of agricultural goods, but make farmers dependent upon government handouts, and therefore on the tax contributions of other taxpayers. It also is in flagrant breach of the spirit of the WTO rules on trade.

If the UK did not grant its own agricultural producers EU-style subsidies, the UK could help its own farmers by introducing tariffs on all imported agricultural goods from every other nation.

In addition, if the EU continues with their agricultural subsidies, the UK would be entitled to invoke anti-dumping penalties. With that prospect hanging over their heads, the EU may be prepared to consider allowing discriminatory tariffs to be imposed on EU exports of agricultural goods into the UK, over-and-above the tariff on agricultural goods from other nations.

Tariffs are better than Quotas

Quotas can have a place in food production since it is natural objective of every nation to maintain a large measure of self-sufficiency in food for cultural and defence reasons. Yet tariffs are more economically efficient than quotas. This is because they allow the market to establish a close-to-optimal division of labour between economic sectors.

Quotas are not economically efficient. They can result in much higher prices of now-scarce goods, even leading to a doubling of prices. They can also result in super-profits for importers who have a licence to import up to the quota level, since they are now dealing in scarce goods.

 

Pumped-Hydro the way forward

South Australia, more than almost anywhere else in the world, is ripe for a Pumped-Hydro solution to its electricity supply problem.

South Australia looks to other states to rescue it from its foolish over-investment in wind-farms. Half-baked solutions won’t fix climate change! Pumped-Hydro will fix both.

SA’s experiment in Wind-power

A 2011 study by Australian electrical engineering scientists, Nicholas Cutler, et al., “High penetration wind generation impacts on spot prices in the Australian national electricity market,” provided a useful snapshot of impact of wind power on the dynamics of electricity dispatch (supply) to the grid.

Highlights identified by the publisher from their study were:

  • In South Australia (SA), wind generation has an influence on market prices.
  • Little or no correlation is found between wind generation and demand.
  • Wind farms in SA are receiving a lower average price than in other States.
  • The results highlight the importance of appropriate electricity market design.

From this study, one can conclude that not everything in the SA electricity market is satisfactory. The problems in the system also have the effect of limiting the ability of the system overall to take advantage of the wind power being generated in SA.

As I argued in 2012, the already extensive investment in Wind-power in SA meant that the electricity supply in that state was out of balance. I also argued for an upgrade to the inter-connector with Victoria was needed to fix that problem. Indeed, this was the solution adopted by SA and the national regulator. Yet it has led to even more wind-farms being built in SA, and now the larger inter-connector cannot cope.

A few months prior to the latest electricity generation disaster in SA, the SA Treasurer replied to me that he and his government were proud of their record on approving more wind-farms.

With an electrical storm hitting the towers carrying the wind-generated power  from the north of the state, and a lightning strike on the primary facility for balancing the load in SA a few days ago, the whole state was blacked-out. Yet we can see that the SA government and the advocates of more renewable energy will not accept any blame for this situation. Instead they change the subject and talk about the higher temperatures leading to the storm. While this is likely to be the case, it has nothing to do with the viability of the particular solution adopted in South Australia, where more wind-farms have been built than the electricity infrastructure can handle.

Pumped-Hydro

A primary problem with wind energy is that electricity generated during times of low demand is effectively squandered, being sold for around $10 MWh. In SA, this “surplus electricity” problem has even caused the Pt Augusta electricity generators to be prematurely retired thus building in more instability into the electricity supply system. This has meant that, during the storm, there was not enough capacity in the system to balance the load, and the Torrens Island generators had to be switched off, creating an outage of the whole state, because of “the outage of the state!” (Of course, this explanation, offered by AGL or the State government, does not make sense.)

Inevitably, electricity is generated by wind at times when it is not needed, mainly during the night, while wind generators have no capacity to increase output during times of peak demand. This means that the electricity generated during these off-peak times is effectively wasted, and in fact adds to instability in the grid, as other generators have to be shut down to accommodate the additional power being produced. It also raises the problem that back-up generators have to be provided “just in case” the wind fails at a critical time.

The conventional solution to both of these problems is to store the electrical generated during the off-peak times using hydro. For example, Denmark do this with their wind energy, selling it to Norway and Sweden, who store it in their hydro systems, using this system “as a battery,” by pumping water uphill, and then releasing it later. These countries then sell the electricity back into the European grid at a higher cost than they bought it, thus providing themselves with a nice little earner, provided the capital cost is not too high.

Also, Pumped-Hydro is used in Australia to store electricity generated by more conventional means during off-peak times, for example in the water storage facility on the Shoalhaven River in New South Wales (NSW). Here there is a hydro-electric power scheme operated as this kind of “electricity storage” at the Fitzroy Falls Reservoir.

The idea of storing electricity via Pumped-Hydro should be a popular concept in Australia: it appeals to our natural sense of maintaining a proper balance, and using everything most efficiently. Proposals of this kind can be found on the internet. It is not possible to assess the viability of such Pumped-Hydro proposals without carrying out detailed investigations. Nevertheless, the simple proposition is that, if the pumping cost plus the cost of the off-peak electricity, plus a return on the capital cost, was less than the final sale of peak electricity then we would have a viable proposition. For example, the following rough figures help us to put the concept into context:

  • Electricity stored: 6 hours a day at 500 MW = 1000 GWh per annum.
  • Cost of electricity purchased = $15 MWh = $A15m
  • Electricity sold at $150 MWh = $A150m
  • Gross Margin of $A135m
  • Other costs of $A10m
  • Net Margin of $A125m
  • This could support an investment of at least $A1 billion in infrastructure.

One does not normally associate hydro electricity with SA – the driest state in the driest continent. Nevertheless, if the Pumped-Hydro concept did prove to be economically viable, one could build such a facility in SA just off the River Murray, with one end of the system being adjacent to Nildottie, where the elevation is 43 metres, and the other being just north of Sedan Flats, where the elevation is greater than 300 metres, giving a very healthy 260 metre drop, in two steps. A rough map of this location (with apologies to the owners of this land) follows:

Pumped-Hydro
Pumped-Hydro – two dam concept

With the UK having recently approved the development of a new uranium nuclear facility, with a guaranteed cost of £92.50/MWh, one could say that pumped-hydro is becoming a more viable concept by the day. The costs of wind + Pumped-Hydro are likely to be less than half the cost of current generation nuclear power, and has none of the very large downsides that can be attributed to nuclear.

It should be surprising that those most concerned about climate change are not pushing this concept, but it isn’t. They are obsessed with solar, and nothing but solar will meet the objective of a de-industrialized world.

It should be surprising that the advocates of nuclear, on the basis of the unreliability of wind for generating electricity, do not endorse this approach. But true believers cannot be shifted.

It looks like the burden of coming up with a viable way forward for electricity generation will be left to the politicians, but even these are so blind that they cannot see the “writing on the wall,” preferring to pursue more “sexy” alternatives.

Partition – a missed opportunity

The region of Syria and Iraq needed a political solution, namely partition. This would have saved lives as well as simplifying the military task. This means that the political map should have been redrawn to reflect political realities, rather than sticking to the arbitrary post WW I boundaries.

If the major powers had been willing to accept that partition was the only solution to the sectarian divisions of these two countries the pain on the last six years could have avoided.

War is brutal and harsh

History has shown that war is difficult to avoid when the political borders join together people groups are not willing to accept each other and to work together for the common good.

Serbian discontent, matched by Austria-Hungary determination to maintain power, can be consider to the primary trigger for WW 1.

The Syrian and Iraqi conflict show a similar pattern.

Partition – a New Political Map

Drawing a new political map for Syria and Iraq would not have been difficult. This is because there was already a defacto Kurdish regime in northern Syria, and another one in northern Iraq. Apart from the Kurdish-Arab divide, the other natural division is between Sunni Arabs and non-Sunni Arabs. A new political arrangement of this region could have provided four stable governments that could have been expected to provide security for their own people, and would not have needed or wanted to turn to either the West or Russia:

  1. Syria – the southern and western part of the current nation.
  2. Iraq – the Arab-Shiite dominated region in the south of the country.
  3. Kurdistan – the Kurdish dominated parts of northern regions of Iraq and Syria.
  4. Northern Euphrates – the Arab-Sunni dominated regions of Iraq and Syria.

In an interview recently given by President Assad, the interviewer raised the prospect of partition. Assad firmly and confidently rejected this. He now expects to win, with most of Aleppo under the government’s control.

President Obama, Commander-in-Chief for the last 7 years, missed a great opportunity for peace by refusing to countenance partition. I just hope that he has not laid the groundwork for another 50 years of strife in that region by trying to maintain old and inappropriate borders.

History

An earlier version of this article was published 12 months ago. It can found here.