Friday, November 27, 2009

Perhaps Malcolm Should Practice His Diplomacy

It has been described as a Liberal Party meltdown. A dozen senior party members have resigned their front bench positions. Tony Abbott has launched a leadership challenge with the support of senior colleagues such as Nick Minchin and Eric Abetz, and it now appears that all of them are prepared to swing their support around to Joe Hockey as a consensus candidate should he be prepared to put his hand up. Malcolm Turnbull has vowed to remain leader until such time as his party removes him, while his deputy has denied reports that she has tapped him on the proverbial shoulder and told him to step down. Could it possibly be any more dramatic?

Well, yes it could, because if a change of leadership takes place before the Senate gets to vote on the proposed emissions trading scheme then the deal brokered by Ian McFarlane with Climate Change Minister Penny Wong will be dead in the water and the legislation will be rejected. That’s when things could become really dramatic. It would be the second rejection of the bill and therefore a trigger for a double dissolution election. Of course it would be up to the Prime Minister to decide whether or not to pull that trigger, but under the circumstances that might well be seen as a very tempting option.

In that case, the government could be expected to win the election, and a joint sitting of both houses of the parliament could be expected to pass the legislation. The catch for Kevin Rudd though is that he will miss his self imposed deadline for passing the legislation before the Copenhagen climate summit in December. It is now four weeks to Christmas and there is no way to fit in an election before then, and absolutely no chance that any politician would ever call an election for Boxing Day. Even a January election date would be highly unusual, so the chances are that any double dissolution would be in February at the earliest.

But having missed the Copenhagen deadline, and with the scheduled date for a normal election rapidly approaching, the case for having a double dissolution election in February is debatable. Either way, it appears that the Rudd government Emissions Trading Scheme is not going to be passed on time, and that means that the whole question of Climate Change Policy will be a central election issue, whenever the election might be held. That is, unless Malcolm Turnbull somehow manages to hang on to his leadership, regain control of his party, and deliver the passage of the legislation in the Senate. Now that would be a miracle.

Unfortunately, Mr. Turnbull appears to be in a no win situation. Even if he survives the present leadership challenge, the substantial lack of support exhibited by such a large chunk of his party means that it is very difficult to see his leadership regaining legitimacy. There are 35 Liberals who wanted to dump him on Wednesday, and at least a dozen who should resign from the party if they fail to dump him now, because they can no longer coexist. Of course, they won’t do that. Instead they will lie in wait for their next opportunity to challenge again. In some respects it is kinder for Malcolm Turnbull to be put out of his misery now.

He shouldn’t worry too greatly however. With Kevin Rudd’s habit of finding jobs for former Liberal politicians, I’m sure Mr. Turnbull can look forward to a plum posting in the diplomatic service. If only he could learn to be a bit more, well… diplomatic.

Thursday, November 26, 2009

Saving Lives Should Be More Important Than Saving Money

It’s hard to believe that it has happened again. After all of the promises that the system would be fixed, that procedures would change, that people would be better trained, a 000 operator this week has hung up on a caller because he could not provide a street address. After so many failures in the past, and especially the tragedy which saw 17 year old David Iredale die alone in the wilderness, the people of New South Wales were promised that the lessons would be learned. Obviously, they haven’t been.

On Monday this week, Stuart Jamieson called 000 from a remote property near Moree because his friend had become seriously unwell working in the extreme heat. Following the prepared script for the standard procedure, the operator asked for the address. When told that the property does not have a street number, the operator apparently insisted that “every house in Australia has a street number”, and ended the call. She hung up. She did not send an ambulance. Fortunately, Mr. Jamieson was eventually able to get help from paramedics from Goondiwindi, across the border in Queensland.

It’s obvious that there are shortcomings in having all emergency calls taken in a centralized call centre which is hundreds of kilometers away. Operators have no local knowledge, leading to mistakes where ambulances have been sent to the wrong town because of similar sounding names. There are shortcomings in having operators follow an inflexible script on a computer screen in front of them which depends on a street address, but allows for no variation in unusual circumstances. But the most astounding shortcoming of all is that apparent inability of some people to make a common sense judgment call, and make a decision without a computer program telling them what to do.

What has happened to people? Why are some of them so stupid? And why are they getting jobs where they have life and death responsibilities? Surely any reasonably sane and sensible person would realize that just because a street address can’t be located doesn’t mean you can pretend the person in distress doesn’t exist, or doesn’t matter. Surely any reasonable person would know that if the system isn’t able to deal with a problem then it’s time to exercise the one thing that makes human beings better than machines: the ability to think for ourselves. Or, have we somehow created a generation of people who no longer have that ability, who are stupid, or who simply just don’t care?

I suspect that the whole debacle is based on the stupendously stupid notion of economic rationalism, where the cheapest option is always seen as the most cost efficient. It’s cheaper to answer all emergency calls at a centralized location so therefore it must be better. It’s cheaper to employ people who cannot think for themselves so therefore it must be better. It’s cheaper to accept criticism for sometimes getting it wrong than it is to strive to always get it right. The trouble is that it’s just not true. It is a belief which is based on the false assumption that saving money is more important than the quality of the outcome, and in this case the outcome is whether or not we save lives.

Wednesday, November 25, 2009

CPRS Is Not The End Of The World

The Telegraph today has run a front page story telling us that the proposed Carbon Pollution Reduction Scheme will cost us all $1100 per year in increased living expenses. According to the Telegraph, electricity will increase in price by more than 20% by 2012, while grocery prices are expected to rise by 5%. Gas and other fuels will also increase in price, although the impact on the price of petrol will be softened by a reduction in excise. Altogether, there is no doubt that things generally will cost more. But is that really any surprise?

The whole point of manipulating the price of anything in this fashion is to influence behavior. In this case, the idea is to change the nature of the entire economy, encouraging a move away from activity which is emissions intensive towards the so called “low carbon” economy. In that respect, a scheme which did not make such things as coal fired electricity more expensive would simply be a waste of time. In fact, the concessions already given to emissions intensive trade exposed industries have been criticized by climate crusaders for that very reason.

So why go to all the trouble of changing people’s behavior and shifting the focus of the economy? It certainly seems to be a lot of expense and trouble to go to, so there must be a motivation for doing so, especially when it involves added expense and inconvenience. What we have been told is that the cost of doing nothing would actually be greater. What we have been told is that paying a little more now will save us all from a much worse cost as time goes by. Although the emissions trading scheme might well increase our cost of living by $1100 a year, we are told that not having such a scheme will cost us all a great deal more.

But how are we to know if that’s right when it seems there is no shortage of sceptics, some of them with impressive scientific credentials, who are prepared to say that the science is wrong, or that emissions trading won’t make a difference, or that the whole thing is a massive fraud to cover up the redistribution of the world’s wealth? There’s no shortage of conspiracy theories, ranging from the downright whacky, right through to ideas that sound pretty reasonable, such as the view that climate change is occurring naturally and anything we as human beings do is insignificant and potentially futile. It can be tempting to throw up the hands and plead that it is all too hard, and simply give up.

Unfortunately, the truth is that the bulk of credible scientific opinion is that climate change is real, that human activity is having an impact, and that if we don’t do something to change our behavior it will only get worse. It is true that the cost of living will go up, but it always goes up anyway, and if the climate crusaders are even halfway right it’s a small price to pay to prevent a far greater cost. But it is also true that there will be money to be made from not just emissions trading, but from renewable energy technologies, ecologically friendly manufacturing, and a whole range of new opportunities. Money is made from economic activity, and nothing generates more activity than large scale change.

Yes, change of such magnitude also inevitably brings dislocation and displacement, which means that there will be winners and losers. Some people will be better off, and others will be worse off. The challenge for any government presiding over such a change is to provide assistance for those who are left worse off, to compensate them if necessary, and to help them to find their way to the new opportunities which will be created. But the bottom line is that just because the price of electricity is going to go up doesn’t mean that it’s the end of the world. In fact, it could be said the end of the world, at least as we know it, is precisely what this is supposed to prevent.

Tuesday, November 24, 2009

Financial Services Reform Must Remove Conflict Of Interest

Amidst all of the attention on the proposed carbon pollution reduction scheme, the report by the parliamentary committee examining the collapse of Storm Financial has been overshadowed. That’s unfortunate because there are significant issues arising from the report, and the events with which it deals, which deserve some attention. While the emissions trading scheme will have an effect on all of us and the way we live our lives, the way that the financial services industry does business also directly affects everybody who has investments. And thanks to compulsory super, that means pretty much all of us.

One of the central concerns of the report was expected to be commissions paid to financial advisers by the originators of investment products. Such commissions could be reasonably presumed to have some influence over which financial products an advisor might recommend, rather than simply considering the best interests of the investor. The simple solution would be to abolish the commissions altogether and replace them with a fee for service model, where the customer might perhaps pay an hourly rate for advice, rather like a lawyer or an accountant. The committee however did not make that recommendation.

Instead, while calling for an examination of possible alternative methods of payment, the committee recommended the creation of a fiduciary duty for financial advisors, which would legally require them to place the interests of their clients first. It also recommended that a professional standards board and a compensation scheme should both be established to help protect the best interests of investors. But as long as financial advisors are being paid by the companies which provide the investment products there will continue to exist the potential for a conflict of interest.

The fact is that many people who are employed as so called financial advisors are really just salesmen for the products that they recommend. They are primarily answerable to the companies that pay them, as any other employee would be. Even if they believe that a product is not necessarily the best choice for their client, they remain under pressure to recommend it anyway. Many finance professionals in such a position would welcome the clarity provided by a legal obligation to put the customer’s financial best interests first.

There are also broader questions about the impact of trailing commissions and management fees on the long term value of investments. That is something which directly impacts all of us through our superannuation, and over the lifetime of our investment can make a dramatic difference to the final result. That question is subject to another review currently under way, but until there is fundamental change in the way investment services are sold, the best interests of the customer will continue to come second.

Monday, November 23, 2009

The User Has Already Paid

When the expression “user pays” was first coming into frequent usage some years ago, I took exception and complained at every opportunity that the user has already paid, and that such fees and charges amount to double dipping. The rot began to creep in with an ever expanding range of government charges for things which we had previously been able to take for granted. We all pay our taxes, both direct and indirect, to state and federal governments, as well as hefty local government rates and charges. And yet we were still expected to dip our hands into our pockets and come up with even more spare change to pay ever increasing “user pays” charges.

Such rip-offs range in size from a few dollars for tolls on roads which should have been paid for by registration fees and fuel taxes, through to developer levies adding up to six figure sums to pay for utilities infrastructure which was supposed to be paid for out of our rates money. But even the small charges of a few dollars here and a few more there quickly add up to amounts which severely dent the family budget. Just ask the people who are spending a hundred dollars a week or more for the privilege of driving their car to work and parking it in the city. Never mind that they have no choice because the public transport is either inadequate or nonexistent.

Of course, it wasn’t long before private enterprise realized that governments were onto something here, and were sucking copious amounts of cash out of the pockets of ordinary everyday people who are left with no choice but to pay up. Banks began introducing fees for customers who had the audacity to keep an account with them, another fee for daring to withdraw their own money, and then fees for closing accounts, changing accounts, or for even receiving a printed statement. Once it became obvious that the banks were getting away with robbery, it wasn’t long before other corporations followed suit, culminating recently in the outrageous demand by Telstra that customers who want to pay their bill should also pay a fee for doing so.

Now, the latest attack on the financial health of average everyday Australians has come from the real estate rentals racket, er sorry industry. It seems that estate agents are engaging third party operators to collect rent from their tenants, which is all very well, but it’s the tenants who are expected to pay a fee for this so called service. The fact of the matter is that the tenants have an obligation to pay the amount of their rent, no more and no less. They should have the right to pay in cash, by cheque, by bank deposit, or any means of legal tender. If the landlord, or the landlord’s agent wishes to engage a rent collector, that is their responsibility.

Even if you accept the obnoxious concept of “user pays”, this practice is still repugnant. It is the agency, not the tenant, who enjoys all of the benefits of such an arrangement. The agency can operate a cashless office, employ fewer staff, and generally reduce overheads. It is the agency who is the “user” in this case, not the tenant, and so the agency should pay for the service provided by any such third party operator. Efforts to coerce the tenant to pay this ridiculous fee are simply wrong, and should be illegal.

The good news is that there are some encouraging signs that the tide is turning. We have seen the banks begin to wind back some of their fees, and we should encourage them to do more in that respect. We have seen Telstra respond to customer pressure and abolish its stupid and insulting fee for payment of you bill. And it appears that the New South Wales government is likely to deal with this obscene rent collection fee in next year’s revision of tenancy law. But there is a long way still to go to undo the damage of unfair “user pays” fees and charges, and the only way to beat them is to keep on refusing to be treated like mugs.