Labor’s privatisation solution to very public problems

Paul Howes

The job of Labor is always much harder than the job of those we oppose. The deal we strike with the Australian people is a more demanding one because they expect us to move the country forward – to reform.

That’s not to say the Coalition does not reform at all; examples can be cited. But reform is not their sole purpose for existing.

The Coalition can always fall back on the easy position of treading water. When the electorate gets spooked, the Coalition can offer themselves as the party of not much. This will always be their natural ground. Labor can never outflank them on that.

Our deal is different. We are not there to rule, we are expected to take things forward. Labor is there to be the party of the big picture. We don’t have a choice in this.

Australians will only support the ALP so long as we keep up our end of this bargain. If we consistently fail to deliver, then we will slowly ebb away. That’s a tough mission for any organisation because human nature is to settle in and resist change.

Fortunately, however, these are natural times for reformers. Our world is evolving at such breakneck speed it is virtually impossible for anyone to deliver the status quo. Great reform is required just to keep up.

Labor must redefine its policy agenda to suit the times, so it can continue to achieve its core goals of greater egalitarianism and opportunity.

Implementing a meaningful reform agenda will always require a level of disruption. Although Labor has a proud tradition of minimising disruption, especially on society’s most vulnerable, hard decisions still have to be made.

The Hawke-Keating legacy is one of great economic reform achieved without the brutality of Thatcherism, but we should never be shy of slaying sacred cows just because it will upset noisy people today.

As always, some of those sacred cows will belong to our own side of the political divide. But as progressives, this should not hold fear for us. It’s why we’re here.

Development of infrastructure

Modern Labor has always been at its best when it rejects policy ideology and thinks creatively about achieving outcomes. We must always follow the light on the hill, but we should never be dogmatic about what path we take to it.

So with that in mind, what do the key ­pillars of a meaningful, big picture reform agenda look like for the Labor Party in 2013-14?

I believe the first thing our movement needs to recognise is the key to improving the majority of Australian lives is development of infrastructure. The fact is we have reached a point where improving the cities in which the vast majority of citizens live will do more to improve their quality of life than simply increasing income. It’s vital to acknowledge this.

Unfortunately, too much of the labour movement’s focus has been directed to hip pocket issues and not on improving their workers’ well-being through better work-life balance and access to services.

I think the average Australian worker would prefer to see Labor clear the way for an investment that cuts her commuting time in half, rather than an intransigent battle that puts a few more dollars in her pocket – which is just eaten up by more dead time in traffic. In order to remain relevant, the union movement can’t approach the economic debate simply as snarling hard heads ­determined to get our piece of a narrowly defined pie.

Unions must recognise the key to meaningfully improving Australian living standards is to boost our multi-factor productivity. Our growth in this department has been poor in recent years, and is no doubt affected by ageing and congested infrastructure.

Impact of commuting

Sydney loses 13 days per worker a year in commuting. Canberra, by contrast, loses eight. These five lost days have a significant impact on the productivity of Sydney-based firms, acting as a drag on Australia’s economic performance.

It is scandalous that our major cities are in the poor condition they’re in and most disappointing is the role my side of politics has played in creating the mess. The historic occasion of wall-to-wall Labor governments in 2007 should have heralded a new era for a party that prides itself on nation building.

In my home state of NSW, we instead chose the narrow path of politics and vanity projects over substantial public infrastructure investment. It is sad to think a government that went effectively unchallenged for 12 years is unable to point to a legacy project in the same class as the Harbour Bridge – something that will still serve future generations. Instead, Labor chose to foolishly put up the “we’re full” sign and close its eyes to the ­crisis.

Yet with population growth, you can either plan for it or let it happen to you. In most Australian capital cities we chose the latter and are now forced to deal with the aftermath.

In my view, Labor lost the 2011 NSW state election as much on congestion as on any of its internal scandals. Nothing provides you with a sour taste about your government quite like a daily traffic snarl to and from work.

If the key to improving people’s lives is infrastructure, then we need to acknowledge the traditional role of government in this area is insufficient and Labor needs to embrace alternative sources of funding.

Government simply does not have the capacity to make meaningful inroads into the trillion-dollar infrastructure deficit the country faces. It’s a fact we cannot escape. Australian governments are asset rich and cash poor. We simply can’t borrow and spend our way out of the infrastructure hole we have dug for ourselves without creating an unsustainable debt burden.

Role of privatisation

Enter privatisation. Unfortunately, this remains the kind of issue that sends many unionists running out the door and straight onto a picket line. For them, selling any government-owned assets amounts to selling off the family farm and must therefore be resisted at all costs.

Today, this reaction is less ideological than it is reactionary. Public sector ownership means familiarity.

There is the perception that the government will be more lenient on inefficiency. It is the opposite of big-picture thinking.

Because the big picture reveals that the labour movement has nothing to fear from privatisation – unless we choose to stubbornly remain on the sidelines with our arms crossed refusing to help mould the ­circumstances under which it can occur. That’s when we can get burnt.

Fortunately in this country we have a form of privatisation available to us which is enabled by a uniquely Australian system – superannuation.

I know it is far from an original idea to suggest linking our $1.6 trillion superannuation savings pool with our $1 trillion infrastructure deficit. And it is not, of course, this ­simple.

Risk-averse superannuation investment, aimed at producing steady, predictable returns, is not well aligned to the huge unknowns associated with greenfield infrastructure development.

At the same time, governments from across the nation have experienced the problems that occur when greenfield predictions go awry and promises to private investors are not met. Yet Infrastructure Australia has found there is $219 billion of “lazy” capital in government-owned ­brownfield infrastructure.

Super solution

One can only imagine how our cities might be transformed if governments suddenly had $200 billion to invest in road, heavy and light rail, and ports. The construction activity alone would provide a much-needed kick to our economy as it transitions into the production phase of the mining boom. But as things stand, it is not only unionists and true believers that are wary of privatisation – it is the broader public as well.

The commonly held view is that if the ­government owns a profitable asset, then the average person is best served by keeping it that way.

It is not a perspective devoid of logic. After all, if the job of a private owner is to generate maximum profits and the job of a government owner is to please the public, it’s hardly unreasonable to favour the latter.

And, of course, there is no shortage of examples both here and overseas of ­privatisations that have done little to advance the public interest. Sydney Airport springs instantly to mind.

National secretary of the Australian Workers’ Union Paul Howes says some state infrastructure assets should be turned over to industry superannuation funds, so that $1.6 trillion of Australian retirement savings can be invested in nation building projects.

But the good news is that linking super and infrastructure offers far more than simply gaining access to an attractive pot of money. It actually offers a distinct form of private ownership that delivers the best of both worlds to working people. In this way it should rightly be seen as “social privatisation”.

Labor must unambiguously back the social privatisation player in this fight, because superannuation investment, unlike many other forms of private investment, is fundamentally aligned with the public interest and Labor values.

Superannuation investment has a long time horizon. It is not narrowly focused on annual results and has no pressure to aggressively slash costs or gear up for ­short-term gain.

The imperative, rather, is to steward the investment so that it’s capable of delivering the kind of steady, predictable returns that super seeks. That means taking a responsible, long-term view when it comes to employment and service provision. This alone should be of extreme interest to the labour movement.

Double benefit

A superannuation fund manager is going to be in a much stronger position than ­government to invest in upgrades and improvements.

The managers of a publicly owned infrastructure asset must lobby a cash-strapped Treasurer if they want to upgrade facilities; and they have little chance of success if the proposed investment is unspectacular and therefore unlikely to win any votes.

The situation is fundamentally different for a responsible super fund manager, however. That upgrade, no matter how unsexy, will have no trouble gaining approval if it will improve the asset over the long term. And unlike other forms of privatisation, social privatisation means the public gains financially in two separate ways.

As taxpayers, they benefit instantly from the sale and as superannuants they will benefit during retirement from the returns.

There are already some excellent examples of social privatisation at work: Melbourne Airport, the M5 upgrade in Sydney, Port Botany, Port Kembla and Brisbane Airport, to name just a few. In the case of Melbourne Airport, jobs have increased by 20 per cent since it was sold to superannuation interests.

Yet currently only 5 per cent of all Australian superannuation is directly invested in infrastructure. As such, our superannuation system is too heavily oriented to the equities market. Roughly 50 per cent of all Australian superannuation is held in equities, with some funds even having 60 per cent of total assets exposed to equity market ­volatility.

Across the advanced world, the average exposure to equities is only 14 per cent.

Of course, this means that during bull runs Australian superannuation contributors are big winners, but they are also highly exposed to busts. It is not the sort of white-knuckle ride workers approaching retirement want to take.

The global financial crisis brought this into stark relief.

According to OECD analysis, Australian superannuation funds lost more in the period between 2007 and 2012 than any pension system in the world, with the ­exception of Iceland, which famously defaulted. Heavier investment in infrastructure assets by superannuation funds would help smooth this out.

Industry Funds Management (IFM), the biggest private owner and operator of ­Australian infrastructure assets, has repeatedly stated it is hungry for more infrastructure investments, but government is failing to create the conditions under which this can occur. You can see why IFM has such an appetite. In its 17 years, its infrastructure-heavy portfolio has delivered returns averaging net 12 per cent a year.

So the case is clear. Labor must properly recognise the benefits of social privatisation and start working to convince the public accordingly. Remaining rusted on to our ­traditional anti-privatisation position is ceding the debate to the Coalition in the short term and, more importantly, denying significant quality of life improvements for working people in the long term.

Improving quality of life

Of course, switching our focus to infrastructure means more than simply making sure the funding tap is turned on full blast.

A key part of the Labor agenda must also be to take a hands-on role in how we develop our major cities so they can offer improved quality of life to the millions of Australians who live in them.

The truth of the matter is our cities have reached their limits in terms of growing outwards and it’s time for them to grow up – ­literally. Urban density and infill will need to ­be part of the solution to fixing our congestion problem, by permanently moving people closer to where they need to be rather than shipping them great distances on a daily basis.

Labor must not turn its back on suburbia, but nor should it assume this is necessarily the way the bulk of Australian city-dwelling families will live in the future.

The days of the quarter-acre block as default must necessarily be ending. Our population growth dictates it.

My role as head of the Australian Workers’ Union takes me all over Australia to places where the chattering classes rarely venture. The suburbs may be home to the much-mythologised “aspirationals”, but we would be foolish to think the status quo is delivering widespread contentment there.

In fact, what we are creating is a potentially devastating social divide; a generation of millions of Australians forced to deal with inadequate infrastructure and community opportunities.

You will see a greater gap between the haves and the have-nots of our major cities in terms of physical access to quality schools, healthcare providers, professional opportunities and leisure amenities than you will detect by simply looking through the prism of income.

Access to the inner city

So it is unsurprising that we are already seeing Gen Y singles and young families abandon the notion of the outer suburban house in favour of inner-city apartments.

This is not simply a case of wanting to be closer to the city’s “buzz”, it’s actually deeply practical. People need to be close to where the good jobs are, and many of those quality jobs tend to cluster around city centres.

In many capital cities we are instead creating a situation where most service sector workers can’t live anywhere near the areas they are meant to be servicing. It is simply unfeasible in the long term to have a city in which a waitress has to live more than an hour away from the inner-city cafe in which she works.

Sydney and Melbourne are developing rigid, concentric circles of extreme wealth fanning out towards battlers. This is not the road to a productive, happy city.

A Harvard study recently found that the key driver of intergenerational social mobility is access to commuting infrastructure. Communities with long commute times were the least likely to see children born in the bottom income bracket move up.

Of course, creating much denser and more diverse inner-city suburbs will stir up vocal and impassioned nimbyism. But it must be stared down. Upgrading existing infrastructure closer to the CBD is much more achievable than endless greenfield construction.

Labor must keep an eye on whose interests it is we prioritise – the elites who already own a sizeable chunk of the city and want to keep it for themselves, or the kids growing up in the suburbs who will need a piece of it to prosper.

Asylum seekers

If Labor recognises that improving our major cities is the single most important way to improve the lives of the working men and women we represent, then we will no longer have to keep contorting ourselves into ­dangerous and disingenuous positions when it comes to other issues, such as that of asylum seekers.

I thought it was particularly telling when the new Liberal Member for Lindsay on Sydney’s western fringe, Fiona Scott, attempted to conflate the issue of refugees and outer Sydney road congestion, during the recent election campaign.

“My recommendation is go and sit in the emergency department of Nepean Hospital or go and sit on the M4 and people see 50,000 people come in by boat,” she said.

The Coalition, of course, is keen to allow this furphy to continue in the public consciousness, because irrationality suits their political purposes.

Labor cannot. Unfortunately it must be Labor’s destiny to occupy the messy middle when it comes to asylum seekers, because messiness is the only option available to those who are not lying or are not delusional.

The Greens on the left have an easy ­solution. The Conservatives on the right have an easy solution. But both are destined to deliver appalling outcomes and, ultimately, to fail. There is no simple solution to the asylum seeker issue and Labor should abandon the ridiculous pantomime of pretending that there is. Political debate just doesn’t have to be this way.

Voters are not children. They do not need everything in neat black and white. They just need to respect that fact that grown-ups are seriously and earnestly trying to deal with the situation as prudently as they can.

We need to stop playing the Coalition’s game of pretending there is a war-like crisis that requires a “mission accomplished” banner to be rolled out over it.

With roughly 50 million displaced people in the world desperately in search of a home, Labor’s aim should never be to ape this patently childish approach.

It’s stupid and millions of voters recognise this. Millions more would recognise it if we bothered explaining it clearly. But so petrified are we of explaining to the electorate what we discuss among ourselves, that we have played straight into the Coalition’s hands.

Since 1976, only about 60,000 people have landed on Australian soil by boat seeking asylum – the bulk of them in the past few years. But that’s far fewer than the number that will turn up to the NRL grand final. In that same period, Australia’s population has grown by roughly 10 million people.

Congestion, not racism

We are a country that is big enough in size, spirit and ambition to accommodate those that want to come here. A big Australia is a prosperous Australia.

Instead of dancing awkwardly to the conservatives’ tune when it comes to refugees, we should do what we do best – take a step back and see the bigger picture.

Most Australians are not innately antipathetic toward refugees. As much as the ­macchiato-sipping set would like to believe our issue with refugees is that the suburbs are full of racist hicks, it’s actually not true.

In her strange sort of way, Scott actually recognised this, and was seeking to exploit it.

Many perfectly non-racist Australians simply feel the pinch of our towns and cities failing to keep up with our growth and are highly receptive to arguments about “unauthorised arrivals” flooding in to clog up the joint further.

People are feeling the lack of infrastructure in our cities biting, but no side of politics has meaningfully offered a proper solution for fear of upsetting public opinion. And into that vacuum float poor old refugees.

If Labor can disaggregate these concerns it will do itself, and the nation, a great service. Offer a solution to one and you can afford to take the honest high road on the other.

None of these issues are easy for our side to deal with. All will require significant political capital to be expended.

But Labor cannot allow our policy ­positions to calcify.

The Australian public will have no use for Labor if we do not offer genuine, big picture, progressive change.

We must accept that the tougher, reforming path belongs to us. So we may as well march bravely along it.

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Paul Howes is the National Secretary of the Australian Workers’ Union, a member of the ALP national executive and a director of AustralianSuper. This is the first of a new monthly column Mr Howes will be writing for The Australian Financial Review.

The Australian Financial Review