Robert Farley has replied to my recent post on the obsolescence of naval power. Unlike our previous exchange, a pile-on where I was (as he points out) in a minority of one, Robert’s tone is mostly civil this time, and I intend to reciprocate. Our disagreements have narrowed a fair way. On many points, it’s a matter of whether the glass is half-full or half-empty.

For example, Farley observes that despite Houthi attacks, 2 million tonnes of shipping per day is passing through the Suez canal. I’d turn that around and point out that 4 million tonnes of shipping per day has been diverted to more roundabout routes. However, since we agree that naval authorities overstate the macro importance of threats to shipping lanes, we can put that point to one side.

A more relevant case is that of China’s capacity (or lack thereof) to mount a seaborne invasion of Taiwan. I said that China has only a handful of modern landing craft and that their announced plan relies on civilian ferries. Farley points out that China has constructed 16 large, modern amphibious assault vessels in the past 18 years, with more on the way. That’s more than might normally be implied by the word “handful”, but not in a way that meaningfully challenges my argument.

According to Robert’s link, the ships in question can carry 800 troops, or about 10 000 if all of them were used. That’s enough to do a re-enactment of the Dieppe raid, but not to play a major role in an invasion of a country with a standing army at least ten times as large. And the implied rate of construction (one per year) suggests this isn’t going to change any time soon. This leisurely approach is consistent with the CCPs need to maintain a public position that it is willing and able to reunite with Taiwan by force, along with a private recognition that this isn’t possible and wouldn’t be wise if it were.

Now I come to the question of expertise. Robert is miffed that as an economist, I declaim on subjects on which I have no expertise, and also by my use of the term “naval fans”. The latter was a snarky response to our previous interaction and I withdraw it.

But as Robert himself admits, naval authorities routinely make claims about the economic role of naval power on which they have no expertise (some of which have been proved thoroughly wrong by the current partial closure of the Suez Canal, as well as by lengthy closures in the 20th century). The same authorities routinely point to the vast amount of of shipping passing through the South China Sea as evidence of the need to protect this waterway against China, where most of this shipping originates or ends. This clip from Australian satirical show Utopia makes the point.

The bigger problem with claims about expertise arises when it’s applied to events that are too rare, and too unlike each other, to provide a real evidence base. That’s true of global economic crises, for example. Economists mostly failed to predict the Global Financial crisis, and disagreed about both its likely course and the appropriate policy response.

It’s true in spades about naval warfare. As Robert says “all naval wars are incredibly rare and we have to analyze the hell out of the empirical evidence we can get our hands on.” Until 2022, the only significant instance in my, or Farley’s lifetime, was the Falklands War, which can be read either as a demonstration of the continuing relevance of navies or as an illustration of their vulnerability even to weak opponents like the Argentine Air Force. But that was forty years ago, when anti-ship missiles were much less well-developed.

In the absence of significant empirical evidence, naval experts have had to rely on the outcomes of exercises and simulations to make predictions. Unsurprisingly, these have tended to reaffirm the importance and power of navies (compare the many economists who extolled the financial sector before the GFC).

In particular, most naval experts saw Russia’s Black Sea Fleet as a powerful force that would play a decisive role in a war with Ukraine. Farley points out some partial successes in obstructing Ukrainian exports, but this is nothing like the total dominance most experts predicted.

As regards Taiwan, it’s interesting to contrast the steady drumbeat of warnings from US generals and admires that an invasion is imminent with this assessment by (non-military) experts that an invasion is not likely and (on the majority view) not feasible.

I’m not sure where naval experts fall on this spectrum. But, as with economic crises, this is an issue on which you can pick your expert.

In all the discussion of Leif Wenar’s critique of Effective Altruism , I haven’t seen much mention of the central premise: that development aid is generally counterproductive (unless, perhaps, it’s delivered by wealthy surfers in their spare time). Wenar is quite clear that his argument applies just as much to official development aid and to the long-standing efforts of NGOs as to projects supported by EA. He quotes burned-out aid workers “hoping their projects were doing more good than harm.”

Wenar provides some examples of unintended consequences. For example, bednets provided to fight are sometimes diverted for use as fishing nets. And catching more fish might be bad because it could lead to overfishing (there is no actual evidence of this happening, AFAICT). This seems trivial in comparison to the lives saved by anti-malarial programs

It’s worth pointing out that, on Wenar’s telling, a project that gave poor people proper fishing nets (exactly the kind of thing that might appeal to the coastal villagers befriended by his surfer friend) might be even worse for overfishing than the occasional diversion of bednets.

Wenar applies his critique to international aid programs. But exactly the same kind of arguments could be, and are made, against similar programs at the national level or subnational level. It’s not hard to find burned-out social workers, teachers and for that matter, university professors, who will say, after some particularly dispiriting experience, that their efforts have been worse than useless. And the political right is always eager to point out the unintended consequences of helping people. But we have plenty of evidence, most notably from the last decade of austerity, to show that not helping people is much worse.

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My latest in Crikey

Peter Dutton can’t seem to take a trick on nuclear power. Any option he puts forward seems to vanish as soon as he makes a commitment.

Since Dutton became opposition leader, he’s pushed the idea of small modular reactors (SMRs). At least in their original concept, these were reactors small enough (say 50-to-70MW capacity) to be built in a factory and shipped to sites where they could be installed in whatever number was required. The leading candidate was NuScale, a US firm that had contracted with a group of utilities in Utah to develop a pilot project of 12 (later reduced to six) SMRs.

The idea had the enthusiastic backing of the Australian Nuclear Science and Technology Organisation (ANSTO), the government’s official adviser on nuclear technology. The ANSTO website includes information on how SMRs can be constructed in three to five years, and that the US will have them operational by 2026.

That sounded too good to be true, and sadly, it was — NuScale abandoned its project late last year. After a bit of prodding, ANSTO added a disclaimer and a note that the “three to five year estimate” came from a research paper by the University of Leeds, which in turn could be traced to a dodgy consulting report from 2014.

On nuclear, Coalition prefers the optimism of misleading, decade-old, unverified claims

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Having given up hope on NuScale, Dutton needed an alternative.

He settled on Rolls-Royce, a reassuringly familiar name with a long track record of engineering excellence, not always matched by its financial success (it was famously nationalised and broken up by the Conservative UK government in the 1970s). It produces the nuclear reactors to be used in the submarines we will acquire under the AUKUS deal.

Rolls-Royce also offers what it calls an SMR, though this is something of a misnomer. At 470MWe, the reactor scarcely qualifies as small. It’s far too big to be built in a factory and shipped to its installation site. The “modular” description refers to the fact that the design uses 1,500 “modular components”, which are to be produced in a factory then assembled on site. 

This is precisely the approach that was attempted, unsuccessfully, in the Westinghouse AP1000 design. Of four AP1000 reactors started in the US, two were abandoned with a loss of billions of dollars while the other two (at Vogtle in Georgia) have finally been completed, years late and billions over budget.

Despite these concerns, Rolls-Royce looked like a frontrunner, at least in the UK. Its design was the first to enter the Office for Nuclear Regulation approval process in 2021, with a target delivery date of 2030. The UK government provided £210 million (about A$400 million) in funding to support the project.

So, late last week, Dutton briefed Simon Benson at The Australian on a plan to deliver Rolls-Royce reactors into the grid by the mid-2030s. 

What could go wrong? Plenty it seems. Just as The Australian story appeared, the UK government announced the winners of a grant to build SMRs in County Durham, and Rolls-Royce was not among them. UK deployment of the Rolls-Royce design now seems unlikely.

Rolls-Royce is now talking about building its first plants overseas. Poland has been mentioned as a possibility, but that’s a furphy. Under the now-departed Law and Justice government, Poland announced deals involving a string of different reactor designs: the AP1000, the GE Hitachi Nuclear Energy’s BWRX-300 (a direct competitor for Rolls-Royce), Last Energy microreactors, and even NuScale. Few if any will actually be built. 

So, if Dutton goes ahead with Rolls-Royce, Australia could be in the unenviable situation of building “first of a kind” (FOAK) reactors with an untested design. Even more than nuclear plants in general, FOAK projects are notorious for delays and cost overruns. For a country like Australia, with no established nuclear industry or regulatory structure, it would be madness to try such a thing.

What next for Dutton’s nuclear policy? There’s still time for a climbdown before the policy is officially announced, but it’s unclear that the nuclear true believers in the LNP would accept such a thing. He could switch to a design with slightly better chances, such as the BWRX-300, but that would risk a third embarrassment if the design failed. So he has little choice but to press ahead with the Rolls-Royce dream and hope that it is not finally dispelled before the 2025 election.

My latest in The Guardian

Supermarkets are the public face of inflation. Every time we go shopping, we are reminded that just about everything costs more than it did before Covid. And shrinkflation, once subtle and insidious, has become blatant. A standard chocolate bar is now what used to be called “fun size”. A natural response, particularly for politicians seeking to divert attention from themselves, is to blame greed and monopoly power.

Explanations based on greed are rather naive. Corporate executives are paid by shareholders to be greedy – that is, to maximise profit subject to a somewhat hazy concept of “social licence” regarding the treatment of customers, employees and other stakeholders. And there is no reason to think that Coles and Woolworths were any less greedy before the arrival of the pandemic than after.

Australia’s cost-of-living crisis isn’t about the price of groceries. It’s about wealth distribution

John Quiggin

The role of monopoly power is a bit more complex. Coles and Woolworths dominate the market, but if anything their dominance has eroded in recent years as Aldi’s market share has grown. However, their capacity to benefit from market power was increased by strong growth in demand after the end of lockdowns. Under conditions of strong demand, firms with market power can pad their profit margins and amplify inflation, as appears to have occurred in this instance.

The big problem with the supermarket sector is not monopoly but the monopsony (the technical term for a market dominated by one, or a few, buyers) power of supermarkets who can push down the prices and terms they offer to their suppliers. The mandatory code of conduct proposed after a review by Dr Craig Emerson might help to address these problems.

What about divestiture? Perhaps mistaking the late Joseph Stalin for a trustbuster, Anthony Albanese has described this as a “Soviet” option. In fact, forced divestiture is a standard feature of competition policy internationally, available in such distinctly non-Soviet countries as the US and UK.

Nevertheless, divestiture is unlikely to be the right remedy for the problems of the supermarket sector. Most people have only one or two supermarkets in easy reach, and splitting Coles and Woolworths into two or more competing businesses wouldn’t change that. The problems of dealing with suppliers are better dealt with through conduct measures rather than a breakup. The only obvious targets for divestiture are the liquor businesses and the loyalty programs (Flybuys and Everyday Rewards).

But there are other parts of the Australian economy where divestiture powers could be a useful tool for competition policy. Perhaps the most notable example is that of airlines. The Sydney-Melbourne-Brisbane “golden triangle” comprises three of the busiest city-pair routes in the world, and ought to be fiercely competitive. But a single corporation, Qantas, holds more than 60% of the market under its own name and through its wholly owned subsidiary Jetstar.

There are many factors contributing to Qantas’s dominance. These include control of crucial slots and cabotage rules restricting international competition. And Qantas has received favourable treatment reflecting residual goodwill from its historical role as the national flag carrier (much eroded by the Joyce era, but still present).

But the ownership of Jetstar as a “flanker” or “fighter” brand is at least as important. Wikipedia notes that flankers are “lower-priced offerings launched by a company to take on, and ideally take out, specific competitors”, and the first example listed is that of Qantas. Forcing divestment would yield an immediate increase in competition in the airline market.

Another candidate for divestiture is Transurban, the owner of most of Australia’s privatised toll roads. Here the main issue is not competition per se, since toll roads in different locations don’t compete with each other, but the political power associated with having a single company control so much of our transport infrastructure.

It is now becoming clear that the deals that have greatly enriched Transurban shareholders have been a disaster for motorists and for coherent urban planning. The solution, as others have argued, could be to take these roads back into public ownership and redo road pricing from scratch. A breakup of Transurban into separate state-level businesses would be a first step.

Big business in Australia faces less competition than almost anywhere in the world and likes it that way. The era of privatisation and “light-handed” regulation has only made matters worse. Turning the situation around will require a full set of policy tools, including conduct measures, divestiture and, in some cases, a return to public ownership.

That’s what the Bible (or at least, the preacher in Ecclesiastes) says, and sometimes I feel as if that’s right. But right now, I’m basking in the glow of having returned final proofs for Public Policy and Climate Change: Politics, Philosophy and Economics, a text to appear in the Lecture Notes in Economics and Policy series put out by World Scientific Publishers.

As well as approving the proofs, I produced an index, using a program with the self-explanatory title PDF Index Generator (this is different from the index function in Acrobat, which indexes every word for search purposes). As with lots of software, it’s not as good as what a professional editor would produce, but much cheaper and faster. I plan to write about the economic implications some time, but this kind of thing has been going on for a long time – in my own experience, starting with desktop publishing on the Mac.

I’ve got a couple more books in the pipeline. One of them, a volume of my collected articles optimistically entitled After Neoliberalism, is almost at proof stage. The other a cartoon history of privatisation in Australia is about to start.

I’ve been spending a lot more time on the Sunshine Coast, hoping to move there permanently. Perhaps as a benefit of local training, I did better than expected in the Mooloolaba Olympic triathlon, finishing in 3 hours 14 minutes, one of my better times in a decade or more of competition.

As I’ve already mentioned, I’ll be doing a virtual version of the MS Brissie to the Bay ride, raising money to help in the fight against multiple sclerosis and to help people living with MS. You can support me here.

Here’s a list of my published output in March

Journal article

Quiggin, J. (2024) Full employment and Working Future. The Economic and Labour Relations Review, 1-12, (My review of the Albanese government’s White Paper on Employment)

Opinion pieces

On nuclear, Coalition prefers the optimism of misleading, decade-old, unverified claims, Crikey 20 March

Australia must wean itself from monster utes – and the federal government’s weakening of vehicle emissions rules won’t help one bit The Conversation, 28 March

Media

My media report for March, password quiggin (Thanks as usual to Alysha Hilevuo for preparing this)

Daniel Kahneman, who was, along with Elinor Ostrom, one of the very few non-economists to win the Economics Nobel award, has died aged 90. There are lots of obituaries out there, so I won’t try to summarise his work. Rather, I’ll talk about how it influenced my own academic career.

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Elections over the last week have seen some pretty good outcomes for the Greens and some very bad outcomes for both Labor and the LNP.

Here’s what ChatGPT came up when I asked for a representation of Green Labor

In the Brisbane Council elections, the Greens got 23.1 per cent of the vote, barely behind Labor on 26.9. The combined total of exactly 50 per cent wasn’t reflected in terms of seats, mainly because of preference leakage and exhaustion, but I want to focus on the longer term implications here.

In Tasmania, the incumbent Liberals suffered a 12 per cent swing on primary votes, falling to 37 per cent, after a series of elections in which they received an absolute majority, or very close to it, on first preferences. Most of the aggregate loss went to independents and the Jacquie Lambie network with Labor and the Greens each picking up small gains.

That doesn’t mean that all the people who voted for JLN and independents switched from Liberals. More likely, the Greens (and maybe also) Labor picked up some Liberal voters, but lost ‘protest’ voters to JLN in particular. What’s really striking here is that the combined vote of Labor and the Liberals was below 66 per cent. “Other (including informal/blank)” comfortably outpolled Labor, and came close to beating the Liberals.

Finally, in the by-election for the South Australian seat of Dunstan (vacated by the former Liberal Premier), the Greens polled 22 per cent of the vote. Starting from a primary vote of 32 per cent, which would once have been considered disastrous, Labor won the seat comfortably on preferences, a rare by-election defeat for an opposition party.

Despite this striking evidence of dissatisfaction with the two-party system, journalists reported the Tasmanian outcome as a “hung Parliament”. This is a nonsense way of describing the situation. A hung jury is one that can’t reach a verdict. An election in which no party wins an outright majority of seats is a verdict rejecting the idea that the Parliament, or at least the Lower House, should be a rubber stamp for the winning party (or rather for the leader of that party) in between elections, when the voters have a chance to switch one ruling party for another. For some years, Tim Dunlop and I have been pushing the term “deliberative parliament” to describe this outcome.

The two-party system is one which is familiar and comfortable for the political class, including political journalists. It’s striking to observe that, while there are plenty of journalists who are clearly identified with either Labor or the Liberals, or can be seen as balanced between the two majors, there are none who align with the Greens, or Jacquie Lambie, or the teal independents, even in general terms.

All of these parties, along with the various rightwing parties that have won seats in Parliament are treated by the Press Gallery as alien intruders who will soon be gone. Similarly, a “hung parliament” of which we have seen at least a dozen in Australia, in recent years, is treated as an unfortunate aberration.

For the left, the big problem here is the difficulty of establishing a working relationship between Labor and the Greens. The only place this has worked consistently well is the ACT, where some form of Labor-Green coalition has held office since 2008. There are two big problems here. The first is the general problem of a centre-left coalition (or less formal arrangement) in which the centrist party (in this case Labor) is dominant, and the left party (the Greens) must take responsibility for policies that disappoint their voters. The second, local factor, is the toxic relationship between (large groups of) Green and Labor politicians and activists, of which Anthony Albanese is a notable exemplar.

One way or another, these difficulties will have to be resolved. That will take time, and perhaps some generational replacement, so that those making Labor-Green agreements won’t be distracted by the question of who did what to whom in 2010. But the days of pliant parliamentary majorities are drawing to a end, and democracy will be the better for it.