Friday, October 17, 2008

Hospital Cash Crisis The Result Of A Decade Of Failure

It’s no secret that public hospitals in New South Wales are under extreme pressure. Stories about various hospitals around the state have been making the front pages for years as the entire health system is increasingly squeezed financially. It’s not that less money is being spent. In fact the health budget continues to grow, but it’s not keeping pace with increasing demand or with increasing costs, and too much of it is soaked up by an inefficient, top-heavy bureaucracy. As time goes by, the impact on actual services provided to the community gets worse.

This week, the people of New South Wales were astounded to learn that Doctors and Nurses at Dubbo Base Hospital are using their own money to buy some supplies, and borrowing others from a local vet. The Area Health Service is guilty of chronic tardiness in paying its bills, to the point where some businesses now refuse to supply the hospital. It has been going on for months, and still the problem has not been fixed. People are entitled to ask what is going on when the State Government cannot pay its bills. This is third world stuff, and there is no excuse for it happening here.

Now we are told that the Royal Prince Alfred Hospital is about to close its women’s health ward, and is likely to also close its children’s ward. There’s no lack of demand for these facilities… this is cost cutting pure and simple. It’s also utterly insane. It’s like General Motors announcing it is not going to build cars anymore because they are too expensive. And it is more evidence that despite the enormous budget allocated to health, the New South Wales Government is simply not competent to manage it.

Adding to the outrageous circumstances of the decline of health care in New South Wales is the bizarre accusation by Bob Carr that Michael Costa is to blame for the financial distress of the State Government. While he is right that Michael Costa must carry the blame for his time as Treasurer, Bob Carr’s observations are a classic case of the pot and the kettle. It was Bob Carr who famously promised to resign if he failed to fix hospital waiting lists. A decade later when he finally carried out that promise the hospital system was well on the road to disaster as a result of the reorganization of Area Health Services which burdened the system with its remote and top heavy bureaucracy.

Since then it has gone from bad to worse, and the current financial crisis will see the State Government’s chickens come home to roost as its failure to invest in infrastructure and services during the good times leaves them completely unequipped to deal with the bad times.

Thursday, October 16, 2008

Fear And Greed

“Greed, for the lack of a better word, is good.” So said Gordon Gekko in the film “Wall Street” in the 1980s. Of course, Gekko was a fictitious character, and the moral of the tale was that those who lived by that creed eventually came unstuck. Despite that, it seems there has been no shortage of people who saw Gordon Gekko as the film’s hero, rather than the real hero’s nemesis.

The word “greed” also featured heavily in Prime Minister Rudd’s speech to the nation, in which he focused on the twin forces of fear and greed. Mr. Rudd has told us that the Government must first deal with the fear, and later address the greed. He has foreshadowed the idea of somehow regulating the remuneration of big bank executives, on the basis that it is unacceptable that their greed should be fed at the expense of shareholders, customers and taxpayers who are all picking up the tab for the financial mess we now confront. In doing so, he is playing to the sentiment that market forces have failed us and that now is the time for direct intervention.

Clearly, intervention is now necessary, but it’s not accurate to say that market forces have failed. The truth is that market forces are doing exactly what we should expect them to do. Market forces are punishing bad decisions, and the scope and size of those bad decisions mean that the dose of punishment is massive. Unfortunately, intervention now, especially in the United States, will reduce the severity of the punishment dealt out to those who made the mistakes. Of course, we must accept that because the alternative is to allow the financial system to fail in which case the punishment would flow through to the innocent.

The fact is that the Wall Street Masters Of The Universe were practicing the “Greed is Good” code and playing games with other people’s capital to benefit themselves. There may well also be some investment bankers here in Australia guilty of the same thing on a smaller scale. They all played up the idea that market forces should be allowed to set their salaries in order to justify themselves sucking the blood out of the financial system through complicated investment structures until nothing was left but a hollow shell. Rather than being managers of other peoples’ capital, they became buccaneers plundering it.

Now the so called Market Forces allowed this to happen, but markets always correct themselves, and that is why we can point to those same Market Forces as meting out the punishment of the Global Financial Crisis. Bailing out the World’s financial system now is necessary to preserve economic stability for the community, but that doesn’t do anything about the causes of the crisis. That’s why Kevin Rudd has identified the need to do something about runaway executive salaries.

Fear and Greed are nothing new. They have always been the primary drivers of the market place. What needs to change is who has control over the capital: the pirates who have been employed to manage it, or the people who actually own it.

Wednesday, October 15, 2008

Grant Increase Still Ignores Affordability Problems

A major part of the Federal Government’s economic stimulus package is the dramatic increase in the First Home Buyers’ Grant. Along with the other measures, this increase is intended to push money into the economy and thus encourage growth. Equally importantly, the boost to the First Home Buyers’ Grant is also intended to boost activity in the property market, and the additional increase for new construction is an obvious measure to help support the building industry. But will it work?

Prior to the Global Financial Crisis, the idea of increasing the First Home Buyers’ Grant was widely considered to be counter productive because it contributed to price growth at a time when housing unaffordability was already at an extreme level. On top of that, pushing up the demand, and the price, didn’t, and won’t, necessarily increase the supply. On the supply and affordability front, other factors are contributing to the problem.

Affordability has been directly affected by extreme fees and charges imposed by State and Local Authorities. At the same time, supply has been constrained by land release policies, along with inefficient approval processes, which are also a State responsibility. Despite all the concern which has been expressed about affordability over the past few years, the truth is that there are many vested interests in keeping prices up. Developers, Government Authorities, existing property owners all have an interest in values remaining high, regardless of what they might say about affordability. The only people who would benefit from a fall in values are those who have not yet bought and are biding their time, waiting for their opportunity.

The fact is that the housing market is still in a price bubble, partly because of the artificially constrained supply. At some stage, that bubble has to be deflated, either by values falling, or by incomes rising, or a combination of both. Until that happens, there will be many prospective homebuyers who will still be reluctant to enter the market at a time of such uncertainty. Even a $21 000 grant can disappear pretty quickly if 20 or 30 percent disappears from the price of the home you just bought.

For that reason, the increased grant on its own may not be enough to kickstart the building industry, despite the fact that construction is desperately needed.

Tuesday, October 14, 2008

Economic Plan Is Right… For Now

All of a sudden $22 Billion doesn’t like all that much. Not so long ago, the Federal Budget Surplus sounded like a colossal amount. It seemed as if the federal Government was sitting upon a pile of almost endless wealth, wealth which rightly belonged to all of us, the taxpayers and citizens of Australia. It certainly seemed as if the Government was being unnecessarily churlish in its reluctance to boost payments for old age pensioners and other welfare dependants. We are a wealthy country, and we can comfortably afford to give our pensioners a better deal.

Now, everything looks different. Not only is the Global Financial Crisis ravaging the value of share markets and our superannuation accounts, but the threat of an economic slowdown, or possibly even a recession, raises the prospect of unemployment and uncertainty. The crisis is also set to erode that massive Government Surplus through a drop in tax revenue, possibly to the tune of three or four billion dollars.

These are apparently desperate times, and while most of us would be wise to cut our spending and boost our savings, now is the time for our Government to do exactly the opposite. There are two reasons. First, and most obviously, there is a need for the Government to provide some assistance to people who are struggling to make ends meet. But secondly, and more importantly for the big picture, spending that money into the economy will help to encourage economic growth. If people have money in their pockets, they will be inclined to spend it on the things they need. Even if they blow the money, it will still feed into the economy. Economic activity means jobs, and it means bolstering the tax revenue base.

For those reasons, the $10 Billion dollar plan announced by the Government today is an investment. It is an investment into the wellbeing of the Australian people, an investment in jobs, and investment in the future. Along with the already announced infrastructure program and the banking guarantees, this plan represents a strong response to the challenges of the international crisis. It is the right thing to do.

For the Pensioners in particular, it is an important step in keeping the faith on pension payment reform. It is to be hoped that the Government will follow through and deliver the goods on full reform of pensions next year. Of course, this is where things could become awkward. No one can be certain that the worst of the Global Financial Crisis is behind us. Already half the Budget Surplus has been spent in today’s announcement. What happens if global conditions take another lurch towards the abyss of world recession? What happens if $10 Billion is simply not enough to protect against the ravages of international conditions?

All of a sudden, that $22 Billion surplus doesn’t seem quite so massive after all.

Monday, October 13, 2008

Closing Time

Police Commissioner Andrew Scippione wants licensed liquor trading hours to be cut back because he’s sick of seeing police officers assaulted. While I’m sure that many share his concern about the wellbeing of his police officers, the broader issue is of public safety and community wellbeing. While most crime rates are in fact being driven down, it is the violent crimes which are increasing, and the link to not only alcohol, but also drugs, has been well established.

While there are no doubt responsible and reasonable people who are capable of going out for a night on the town without vandalizing anything or assaulting anyone, it only takes a handful of idiots to wreck it for everybody else. They interfere with everybody else’s right to the peaceful enjoyment of a night out, and threaten the public safety.

Now, you don’t have to be drunk to be a thug, and you don’t have to become a thug if you have a few drinks, but it does seem that those who have the disposition to be unpleasant only become worse when they drink. Then of course there is the added concern about drugs, some of which are known to induce psychotic episodes.

The argument is often raised that Sydney is an international city and to close licensed venues earlier would harm the city’s image. But that’s just not true. A reputation for unchecked violent, loutish behavior does greater damage to the image. Besides, Commissioner Scippione points out that Las Angeles bars close at 2:00am, and it is a big international city too. More alarmingly, the Commissioner asserts that the rate of alcohol related violence is worse here than it is there.

While it is important to educate people to drink responsibly, and it is important to impose responsible service rules, ultimately there is only one way to make sure there are no alcohol fueled thugs wandering around at daybreak. That is to reduce the trading hours.