The splendid Know Your Meme website could really do with an Australian politics page, dedicated to cataloguing the asinine catchphrases and themes that clog up our political debate.
For example, there’d be considerable benefit, and not a few laughs, in collecting the entire GFC-era debate about whether tax cuts are better economic stimulus than handouts. That was the Turnbull-era Coalition’s sole line of economic argumentation while the world fell apart in 2009, complete with authoritative American economists being cited as evidence that the Rudd government’s handouts would just go straight in the bank whereas “permanent tax cuts” would be splurged.
That meme was retired a couple of months after the 2009 budget — which the Coalition insisted was initially too optimistic — when it changed tacks and began saying the government had been too successful at stimulating the economy and needed to cut back on expenditure or it would drive up interest rates. That’s been a staple of Coalition economic rhetoric well into this year, at least until the May budget, when they started getting their wires crossed about whether some minor nips and tucks to middle-class welfare constituted sensible reining in of spending, or a savage assault on our aspirational classes. Eventually they settled for the former and didn’t block the measures.
But the real death of “Labor spending is driving up interest rates” was yesterday, when Joe Hockey issued a media release on the CPI figures without blaming Labor’s fiscal policy once. That might be because Hockey has finally taken notice of Glenn Stevens, who has repeatedly indicated there was no link between the government’s fiscal policies and pressure on interest rates, or just because Hockey wanted clean air for his line that the inflation outcome showed now was not the time to introduce a carbon price.
The more recent meme has been sovereign risk.
This first appeared in relation to the federal government’s mining tax. Sovereign risk originally referred to the risk of default, a serious and economically catastrophic outcome. But in the hands of the mining companies and their media cheerleaders, it morphed into a more general meaning of governments doing anything that a business doesn’t like, no matter how much it might be in the national interest.
Note of course that such a definition was highly selective — the term never applies to conservative governments. Thus, Colin Barnett’s decision to jack up mining royalties out of the blue in this year’s WA budget wasn’t “sovereign risk” — it is apparently something only non-conservative governments are capable of.
Tony Abbott picked up the theme, and during the election campaign claimed Australia was a poorer destination for foreign investors than African countries such as Zambia, and he’s ramped it up further since then, telling miners in Perth that “for the first time in generations there is now a sovereign risk, a question mark over our country”. Joe Hockey has echoed the theme, insisting the government is creating “sovereign risk” via the carbon pricing scheme. The clown prince of climate deniers, Chris Monckton, got in on the act last week with a similar line.
So, how’s all this sovereign risk stuff playing out then?
Well, yesterday’s Deloitte Access Investment Monitor showed investment “both in terms of the value of projects under way and the value of those in the pipeline has rarely ever looked better. The value of projects in the Investment Monitor database has lifted by 8.4% over the past three months to $831.7 billion”. And investment in our mostly foreign-owned mining sector dominates. Plainly, neither the mining tax nor the carbon pricing package — remember it was announced in February that the government intended to establish a carbon price from July 1 next year — have done anything to slow the flood of investment, domestic and foreign-sourced, into a sector that claimed the mining tax would drive it offshore.
And then there’s the dollar. Our manufacturing sector is on its knees praying for a bit of sovereign risk to switch off the jets underneath the Aussie, but nothing doing. Certainly not while the Republican Right appears hell-bent on smashing the US economy for the sake of spiting Barack Obama. Between the sclerotic Europeans and their state of denial about PIIGS and right-wing nut jobs in the US, the Australian dollar is now a “safe haven”, according to screen jockeys as reported in the interior pages of the financial press.
It’s important to labour this point. The data has comprehensively demolished the claim about sovereign risk. It was absurd last year when the share prices of Australian miners were outperforming those of foreign-based miners amid claims the RSPT would destroy the industry. It’s even more demonstrably absurd now. And there are a lot of guilty parties who bought into the “sovereign risk” line. Business Spectator, and particularly Robert Gottliebsen, was among the most enthusiastic in its own war on the mining tax. And a host of corporate leaders have trotted out the “sovereign risk” line on the carbon pricing package.
It’s time to call bullshit on “sovereign risk”.
What the incessant repetition of the theme does, however, is give a good insight into the mentality of those reciting it. It’s the same mentality that is being manifested in a more extreme form in the US: once you regard your opponent as illegitimate, no tactic is unjustified in trying to destroy them. That’s why the Republicans are happy to smash the US economy into a wall, even at the cost of millions of unemployed — because removing Barack Obama justifies it. And it’s why Tony Abbott, speaking as the alternative, and likely next, prime minister, is happy to suggest foreign investors are better off taking their money to Africa rather than investing it in Australia.
Fortunately, so far investors are ignoring him. In droves.
Excellent. Once that one is stowed away, can we do a job on ‘commercial in confidence’ and the idea that tenders that are to be funded with public money must be secret?
Sovereign risk was almost real during the GFC but unfortunately the Liberal Party Cheersquad (MSM) didn’t report it. Rio Tinto nearly brought the GFC to Australia when they were planning to allow a Chinese state owned company Chinalco to purchase an 18% stake in their company for the fire sale price of just under $19B so that they could service their debt problems. Rumours were that Tom Albanese was not just asking for the deal to be approved, he was begging. Of course it still wouldn’t have changed the fact that the company was still mostly overseas owned but I don’t want to bore people with facts. This “sovereign risk” was so real that all twits on both sides of the politics divide recognised the danger. Maybe I was a sleep at the time but I don’t remember them banging on about it at nausea like most other things, like stop the waste, stop the boats. Maybe Tony couldn’t spell sovereign to put in his scripted speech or maybe their Liberal Party mates didn’t want them to highlight their total incompetence. Luckily, China abandoned the idea and decided to come to the world’s rescue by putting a floor under commodity prices.
Funnily enough the only one who picked it (although he too didn’t blame Rio rather it was the Government’s fault) was Barnyard Joyce. Who would have thunk it?
That’s tosh. How do you know what the investment influx would have been, absent mining and carbon tax threats? Does the phrase ‘confounding factors’ mean anything to you? Like sky-high commodity prices, for instance?
And increased sovereign risk was mentioned in connection with the WA royalty increase (theaustralian.com.au/business/mining-energy/fortescue-takes-brunt-of-states-royalty-hit/story-e6frg9df-1226059937274). It just wasn’t a very big risk elevation in comparison to the RSPT expropriation.
“sovereign risk…first appeared in relation to the federal government’s mining tax” is bull, too. You can argue about its ‘true’ or original meaning all you like, but the fact remains that the phrase has been used for many years (internally, not just for public consumption) by the mining and other industries to indicate the potential politically-driven downsides of doing business in given jurisdictions.
BK wrote: “Sovereign risk originally referred to the risk of default, a serious and economically catastrophic outcome.”
No, not “originally” but the proper and only definition of sovereign risk remains exactly what it always has. It is indeed utter bullshit and I wrote about it in Crikey this time last year and it got some commenters hot under the collar (you Mark D.!). I am not about to let a bunch of neo-con anti-government fat cats redefine words for me.
[((crikey.com.au/2010/07/26/citizens-on-the-citizens-assembly/))
No sovereign risk
Michael R. James writes: Re. “For Twiggy, war on Labor and MRRT remains an option” (Friday, Item 24). Adam Schwab has made a rare strange error, because it is completely inappropriate to refer to whatever mining tax risk issue he discusses as sovereign risk. As has been pointed out by others, when the Don Voelte boss of Woodside first raised it as a scare tactic early in the RSPT war, the IMF and World Bank do not even include Australia on their lists of countries rated for sovereign risk — i.e. because the risk for our country is immeasurably small. The word refers to countries ability to service their sovereign debt, i.e. the government’s foreign borrowings. The kind of thing that Argentina did a while back and Greece was at risk of until rescued by the EU.
Rio, Woodside and BHP-B have considerable projects in all sorts of countries which actually have serious sovereign risk — which does add a lot of risk to doing business in those countries. So add hypocrisy to the charge sheet along with their scare-mongering reprehensible, irresponsible behaviour.
Ian Verrender had a detailed article on the topic in The Sydney Morning Herald.
Without trying to fall foul of Godwin’s Law I suspect Schwab has fallen prey to the phenomenon described thus (cited by Verrender): “Joseph Goebbels, the master of propaganda, noted: ”If you tell a lie big enough and keep repeating it, people will eventually come to believe it.”]
And my response to another commenter who didn’t like my Comment:
[Thanks, but I’ll take Ian Verrender and the IMF/World Bank definitions, and common sense any day to a couple of wild statements in a barely readable comments thread. Possibly you mean the ones that begin “comrade Verrender” or those that talk about “nationalization by communists”, or the ultimate, that we will be turned into Zimbabwe. Even if it were synonymous with “country risk” all my objections remain — it is quite absurd and irresponsible to invoke such a thing for Australia. The big three in Australia have projects in Democratic Republic of Congo, Mongolia, Mozambique, Kirgizistan and Tajikistan. These actually risky countries are what you apparently believe it is fair for the miners bosses to compare to Australia if they don’t get their way. Funny that Norway is not considered risky despite its 95% resources tax.]
And another:
[I don’t care if a Nobel prize winning economists said it, or tried to redefine it. It is an obscenity against the language and clear meaning to try to use the term “sovereign risk” for whatever the miners wanted to gripe about — a tax change. And of course they were merely playing politics and actually damaging our sovereign reputation in a totally unacceptable, indeed deceitful and dishonest fashion. Personally I think the ASX or ASIC or whoever is supposed to deal with these things should be empowered to punish companies that make such destabilizing remarks that are patently untrue and which they know to be untrue. And their remarks did in fact cause a drop in the stock market that even rippled around the world — it certainly seemed like a deliberate strategy to use bully tactics to scare the electorate, shareholders and governments, and so surely fits the description of an illegal share manipulation by spreading false rumour and incorrect information.]
Language evolves, MRJ. That’s why we have the word ‘etymology’. Deal with it.