Monday, February 27, 2017

Cut in penalty rates another win for 'bizonomics'

When we look at all the crazy behaviour in the United States, we comfort ourselves that it couldn't happen here. Well, last week we took another step in that direction.
Why do blue-collar workers get so alienated and fed up they vote for someone as mad as Donald Trump? It couldn't be because, while America has waxed fat over the past 30 years, their pay has been stagnant in real terms.
How have the top few per cent of US households captured most of the economic growth for three decades?
Three main reasons, which apply in varying degrees to us.
First, because globalisation and "skill-biased" technological change have produced a small number of winners and a large number of losers.
Second, because far from using the tax-and-transfers system to require the winners to compensate the losers, we've gone the other way, making the income-tax scale less progressive and tightening up on payment of benefits to people of working age.
Third, because although the economy has changed in ways that weaken organised labour, we've doubled down, weakening legislative arrangements designed to reduce the imbalance in bargaining power between bosses and workers.
The unions have been weakened by the greater ease with which employers can move their operations overseas and by the technology-driven shift from goods to services.
The legislative attack has focused on removing union privileges, weakening workers' rights and weakening workers' bargaining power by discouraging collective bargaining and favouring individual contracts.
In the US there's been a failure to raise minimum wage rates. Here, there's been a decades-long campaign to eliminate penalty rates for people working "unsociable" hours which, supposedly, are anachronistic.
The mentality that produced these developments is "bizonomics" – something that sounds like economics because it repeats buzzwords such as "growth" and "jobs", but isn't.
In Australia, micro-economic reform has degenerated into a form of rent-seeking that's saying the way to a prosperous economy is to keep business – the people who create the jobs – as happy as possible.
This bizonomics isn't new, of course, as attested by its slogan: What's good for General Motors is good for America.
As it relates to the labour market, the proposition is that the way to make things better for everyone is to make life tougher for the workers.
Pay them less, give them less job security in the name of greater "flexibility", acquiesce to business's ambition of making working life a 24-hour, seven-days-a-week affair, and we'll all be better off.
The flaws in that argument – and the price to be paid for playing this game for decades – are now more apparent.
For a start, the number of workers and their dependents far outnumbers the bosses and owners and their dependents. So if all you end up doing is transferring income from the workers to the bosses, far more people lose than gain.
Of course, that's never what we're promised. The promise is always that the loss to existing workers is justified by the gain to all the would-be workers who'll now get a job.
Trouble is, too often you end up with a lot of workers making a sacrifice with only a handful of would-be workers finding jobs.
The Fair Work Commission's decision to cut Sunday and public holiday penalty rates for workers in hospitality and retail is an experiment in trickle-down economics, based on faith rather than evidence.
That makes it like everything else on big business's "reform" agenda: the immediate benefits come directly to business – in the form of cheaper labour – but, not to worry, those benefits will trickle down to the rest of us, so in the end it will all be much better for everyone.
Do you wonder why the punters don't believe it and conclude simply that "the government" has cut wage rates to benefit its big business mates, thus adding to their disillusionment and willingness to vote for populist fringe parties?
As I've explained before, the claim that lower penalty rates in retailing will lead to growth and jobs is – like the argument for protection – based on a fallacy of composition and the absence of "economy-wide" thinking.
The most likely effect is that total consumer spending remains little changed, but more of it's done on Sundays and goes on recreation and retail.
Plus an apartheid weekend, where the high-paid still get it, but the poor have to work.
A fearless prediction: now business has got some of the "reform" it's seeking, no one will ever bother to come back in a few years' time and do a proper study to check whether all the promises we were given came to pass.

Saturday, February 25, 2017

Why we've never had 'Gonski funding'

It turns out Christopher Pyne was right: Julia Gillard's version of the Gonski school funding reform was indeed "C​onski".

The con was that the funding changes Gillard put into law in 2013 – which Labor and the teacher unions christened "Gonski" and have virtuously defended from Coalition attack ever since – bore only a vague resemblance to what leading company director David Gonski's panel recommended in its report to the government in 2011.

In a speech last week, Dr Ken Boston, a member of the panel and former NSW Education Department director-general, argued that much of what people think they know about "Gonski" is wrong. He listed four common beliefs that are mistaken.

First, many people believe the Gonski report said additional funding was the key to improving education.

Wrong. "The Gonski report did not see additional funding as the key to improving Australian education. It's most critical recommendations were about the redistribution of existing funding to individual schools on the basis of measured need," Boston said.

"The report envisaged the amount allocated to independent schools being based on the measured need of each individual school, and the amounts allocated to Catholic and government systems being determined by the sum of the measured needs of the individual schools within each system – a process of building funding up from the bottom."

This was in sharp contrast to the process of the last 40 years: top-down political negotiation by the federal government with state governments, independent school organisations, church leaders, teacher unions and others, he said.

The outcome had been that the funding allocations to the three sectors – independent, Catholic systemic and government – were arrived at without any agreed and common system of assessing real need at the level of each individual school.

School funding has been "essentially based on a political settlement, sector-based and largely needs-blind", whereas the Gonski report proposed that it be determined on an educational, not political basis, be sector-blind and entirely needs-based, as well as being bottom up, not top down.

But Gillard rejected Gonski's recommendations and stuck with the old, religion-based arrangements.

"We concluded that an additional $5 billion might be needed on top of the $39 billion being spent annually by the state and federal governments, because of the commitment given by the federal government [Gillard], after the review had started, that no school would lose a dollar as a result of the review.

"This was an albatross around our necks," Boston said.

The second common misunderstanding was that the Gillard and second Rudd governments, having adopted Gonski's approach, then reached "Gonski agreements" with the states, promising additional "Gonski funding" over six years.

Nothing Gonski about it. Gonski recommended that the loading for non-government schools as a proportion of "average government school recurrent costs" – a biased formula that meant public funding for new places for children in disadvantaged government schools automatically increased the federal government grants to non-government schools, without any consideration of disadvantage – should cease.

Gillard, supposedly that great champion of needs-based funding, kept the biased formula alive.

Gonski recommended that the basis for general recurrent funding for all students in all sectors be a "schooling resource standard" for each school, set at a level comparable with schools with minimal educational disadvantage.

To this should be added loadings for schools according to their social disadvantage – low socioeconomic status, English language proficiency, school size and location, and indigeneity​.

Calculation of the resource standard and the size of the loadings should be done by a "national schools resourcing body", similar to the former Schools Commission. Gillard wouldn't touch it.

"Like the Coalition government, Labor has ducked the fundamental issue of the relationship between aggregated​ social disadvantage and poor educational outcomes, and has turned its back on the development of an enduring funding system that is fair, transparent, financially sustainable and effective in promoting excellent outcomes for all Australian students," Boston said.

The third misunderstanding – which Boston labels "the Fairfax view" (not this time, Ken) – is that most of the problems facing Australian education would be solved if we got the last two years of "Gonski funding".

It's true that, so as to disguise the true cost of Labor's politically gutless, bastardised version of Gonski, it was to be phased in over six calendar years, with the bulk of the cost loaded into the last two years, 2018 and 2019.

This was $4.5 billion, which the Turnbull government has cut to $1.2 billion over the four years to 2021.

Even so, "providing the so-called 'last two years of Gonski funding' will not deal with the fundamental problem facing Australian education. Neither side of politics is talking about the strategic redistribution of available funding to the things that matter in the schools that need it, on the basis of measuring the need of each individual school," Boston said.

The fourth common misconception is that the two sides of politics are poles apart. At one level, yes. What they have in common, however, is that neither is genuinely interested in moving to needs-based funding.

"The government and opposition are fluffing around the margins of the issue, and neither appears to understand the magnitude of the reform that is needed, or – if they do – to have the capacity to tackle it," Boston said.

"Equity and school outcomes have both deteriorated sharply since we wrote the Gonski report. Some stark realities now shape the context in which governments – state and federal – must make decisions two months from now about how Australian education might recover from its long-term continuing decline.

"The present quasi-market system of schooling, the contours of which were shaped by the Hawke and Howard governments, has comprehensively failed.

"We are on a path to nowhere. The issue is profoundly deeper than argument about the last two years of 'Gonski funding'," he concluded.

Wednesday, February 22, 2017


Jean Blackburn Oration for the Australian College of Educators, Melbourne, February 22, 2017

I’m honoured to be invited to deliver the Jean Blackburn oration, especially to follow the inaugural oration by someone whose name will long be synonymous with education policy, David Gonski. David’s name will return in what I have to say, but let’s focus on Jean Blackburn, whose contribution we are here to acknowledge. I never had the pleasure of meeting Jean and, no doubt, hearing her frank assessment of the weaknesses in whatever argument I’d been mounting. But from all her many friends and colleagues have said about her, including my friend Lyndsay Connors, it’s clear she was both formidable and likeable. Jean was a high school teacher who became a leader in the development of school education policy from the time of the Whitlam government. Her potential was uncovered and encouraged by a friend from her uni days, Peter Karmel. As a member of the Australian Schools Commission she worked with him on the hugely influential Karmel report, staying on after he left the commission. According to Dean Ashenden, she was “among Australia’s most influential shapers of policy and thinking about schooling and about the condition and education of women and girls. She was charismatic, passionate and ferociously intellectual, and was widely admired and loved. A woman of the Left, she hated cant, loved tough thinking and insisted absolutely on open debate and hard facts.” According to Lyndsay, she was both blessed and cursed with an ability to see both sides of every argument, as well as the potential for unintended consequences from the policy changes she was part of proposing. She seems to have been among the first to realise that, far from dispensing with the problem of “state aid”, the Whitlam government was giving the place of sectarianism in Australian education a new lease on life - one that has kept it thriving to this day.

Jean Blackburn trained as an economist. She had an honours degree in economics and worked as an economist with the War Office of Industry, planning post-war reconstruction. This fact is a comfort to me as I, an economic journalist, speak to you about education. It’s likely that all of you know more about education than I do. I agreed to give this speech almost a year ago because I knew it would oblige me to get up to speed on the economics of education. Economists have a big say in education - particularly its funding - and it’s obvious that economics is important to education, just as education is important to the economy. But to acknowledge that education is important to the economy is not to imply that is the only or even the main reason education is important. Far from it. I think even the little I’ve said about Jean Blackburn will have convinced you she wore her economics training lightly, seeing it - and education - in a much broader context. According to Ashenden, she believed the job of schools was not just to prepare young people for life and work, but also to introduce them to “important achievements of the human mind, imagination and spirit to which all have the right of access”.

Why education matters more than ever

Economists are right to think of education as an important means to the end of economic growth and greater material prosperity. But they - and our business people and politicians - keep forgetting education is also an end in itself. People working in education should be shameless advocates of knowledge for its own sake. Humans are a curious animal, we want to know as much as we can about how we, and everything around us, tick. In the back of our minds we know this knowledge may one day be of practical use but, whether or not that proves the case, we still want to know. We want to know how the universe can be growing, what the invisible bugs in our stomach do to us, and how humans evolved over the millennia. The more comfortable we are materially - and don’t be misled, we’re more prosperous than we’ve ever been - the more we can afford to spend on pushing out the boundaries of human knowledge and on passing on knowledge to the next generation.

But economists are also inclined to forget that education is a means to ends other than just our material prosperity. There’s little reason to doubt that education allows us to live emotionally richer, more fulfilling lives. As NSW’s now-sadly-missed minister for education Adrian Piccoli has said, education has the power to transform lives. Recent research by the OECD has found that greater education is associated with being more satisfied with life.

And then there’s the link between education and health. The same OECD study found that both education and skills are associated with better health. The percentage of adults in member countries who report being in good health is 33 percentage points higher among those with high literacy skills and a high level of education. Of course, as we were taught at uni, “correlation is not causation”. But research by academics at the Melbourne Institute has established a causal link between education and health. It used the increase in the minimum school leaving age from 14 to 15 to study differences between those who left a year earlier and those who didn’t, and found the extra year of schooling had improved overall health and physical functioning.

That education allows us to live more intellectually satisfying, fulfilling lives has always been true, but it’s more significant now we have succeeded in raising the level of girls’ educational attainment to the level of boys’, and beyond - something that would no doubt have given Jean Blackburn much satisfaction. This major social advance has left us with much work to do in modifying the institutions of a male-oriented labour market. But that’s a subject for another day, except to the extent that the need for the provision of adequate childcare opens the opportunity for this to be combined with a big improvement in the quality and availability of early childhood education. Our need to improve our performance on education starts with much better and widespread early childhood education.

I said in my teaser for tonight that “the reasons education is central to Australia’s social and economic future keep increasing and becoming more urgent”. Here I’m referring to the effects of globalisation and technological advance - and the adverse reactions to these developments we’ve become more conscious of since just last year.

Globalisation - and improvements in transportation, and information and telecommunications - has moved many of the developed world’s manufacturing jobs to China and other developing countries. There was a time in Australia when young people could leave school with an inadequate education and still easily find unskilled jobs in manufacturing, construction and elsewhere. Not today. Notwithstanding the flurry of the resources boom, we’ve already moved a long way towards an economy that doesn’t make things so much as perform services - for each other, and for foreigners, in the form of tourism and education and exports of business services. Many of the jobs in primary industry and manufacturing are now done by machines. So far, the growth in service-sector jobs has been sufficient to keep employment high and unemployment low. Many jobs in the services sector are low skilled - in hospitality and retailing, for instance - but the fastest growth has been in jobs requiring tertiary qualifications. This, of course, underlines the growing importance of education - and of doing as well as we possibly can. Two of the biggest and fastest growing industries in the modern economy are education and healthcare. Both of those things are what economists call “superior goods” - the more our real incomes grow over time, the more of them we wish to devote to improving our health and improving our education.

All this is another way of saying we’re moving into to the “information economy” where the plentiful provision of high-quality education and training to increase the “human capital” of individuals and the workforce is of paramount importance. We’re often told that robots are about to take huge numbers of jobs in the services sector, leading to the mass unemployment the prophets of future shock have been predicting since businesses began using computers in the 1980s. Maybe it will happen this time, but I remain doubtful. Many of the jobs in the services sector are “personal service” jobs that either can’t be done by robots or that we choose not to have done by them. I find that the people who know a lot about what machines will soon be able to do don’t know a lot about human nature.

But let’s say there is a lot of disruption in the job market and people being required to change jobs and even occupations many times throughout their working lives. That says two things of relevance to educationists. First, we need to do more to ensure people leave school and university with strong foundational, generalisable and transferable skills. And, second, we need to have a VET system capable of providing the retraining so many people are likely to need.

Now let’s say it’s much worse than that and we end up with far less work needing to be done than we have workers to do it.  One possible consequence is mass unemployment, but another is most people being employed, but for much shorter hours per week - as Keynes predicted almost 100 years ago we’d end up with. The surprising fact is that many workers find the prospect of large amounts of extra free time a bit frightening. What on earth would they do with it? Two take-aways for educators. First, many people would end up doing courses and degrees for essentially recreational purposes. Second, you’d expect that the better a person’s education, the less trouble they’d have finding activities more worthwhile than watching telly or hanging around the pub.

One of the consequences of globalisation and technological advance - the move to the knowledge economy - has been to widen the gap between the wages of high-skilled and low-skilled workers. This is probably the main cause of the marked increase in the inequality of household income observed in all the English-speaking economies since the early 1980s. It’s worse in America, where real wages in the middle and at the lower end have been stagnant for 30 years, meaning almost all the benefits of economic growth have been captured by the top 10 per cent or so of income-earners. It hasn’t been nearly than bad in Australia because our institutions - such as the regular adjustment of minimum wages - and governments have done more to counter it.

The French economist Thomas Piketty has drawn much attention to his thesis that inequality is being driven by inherited wealth, thanks to high returns on capital. But The Economist magazine has advanced an alternative spectre I find more plausible. It combines the knowledge economy and high returns to high-skilled labour with a social phenomenon the better education of women has made more prevalent, “assortative mating” - the tendency for men and women to marry people of the same socio-economic status and level of education. When two highly educated, highly paid people marry and form a two-income household, they have the values, behaviours and wherewithal to ensure their offspring go to the best schools and end up with the qualifications most likely to ensure they, too, get the best-paying jobs. Thus do we end up with a new education aristocracy. If we want to diminish such a likelihood, the obvious first step is to fund schools - public and private - on the basis of need, so that schooling plays the greatest part in our pursuit of that unattainable but worthy goal: equality of opportunity.

Another consequence of globalisation is high levels of immigration, mainly from poor countries to rich countries. You can see that in the Mexicans pouring into the United States, the Poles and other eastern Europeans moving to Britain and, in Australia, the many Asian immigrants, including a fair share of Muslims. You see where this is leading. When you do so little to require the winners from economic change to compensate the losers, and then, whether by accident or design, you have an influx of immigrants, you end up with Trump, Brexit and the resurrection of One Nation.

Trevor Cobbold, that great warrior for public schooling, has said that “greater social equity in education would help reduce social alienation and division, and strengthen the social fabric of Australian society”. He’s right.

So far we’ve had a highly successful multicultural society, but instances of intolerance are growing. Distrust of foreigners and people with unfamiliar religious practices is growing, and being fanned by radio shock jocks and the tabloid press. Our cities are becoming more stratified geographically, so that anglos live in well-placed suburbs and immigrants live in outer suburbs. Schools are becoming part of this stratification, with higher SES parents increasingly sending their children to higher SEA schools - no matter how much daily driving this involves - leaving lower SES students going to increasingly lower SEA schools. Almost all non-government schools have a religious affiliation, so that, increasingly, Jewish kids go to Jewish schools, Islamic kids are able to go to Islamic schools, and Baptist and Pentecostalist kids go to “Christian” schools. This trend is being assisted by our three-sector funding system, which has continued under the Gillard government’s version of Gonski. It’s becoming increasingly possible to go through schooling without meeting people very different to yourself. And then we wonder why social cohesion is fraying.

I rest my case. The reasons education is central to Australia’s social and economic future keep increasing and becoming more urgent.

Have we been spending a lot more on education?

So, let’s get down to cases. Ever since its election, the Abbott-Turnbull government has repeated the line that “for so many years we spent more and more on school education and the results did not improve: in fact they got worse”. I’ll look at what’s been happening to results in a moment, but let’s start with whether we’ve been spending a lot more on education.   The federal minister, Simon Birmingham, has claimed repeatedly that federal funding has increased by 50 per cent since 2003. But is it true?

After more than 40 years as an economic journalist, I have some experience in fact-checking the statistical claims politicians of all sides keep making. They’re always claiming that spending on X has greatly increased and never been higher. You run such claims through a check list: have they allowed for inflation? Have they allowed for growth in the population? Are they talking about total government spending or just the spending by their own level of government?

According to Cobbold’s fact checking, when you allow for all those factors, the real increase in total government spending per student over the nine years from 2004-05 to 2013-14 was just 4.5 per cent, or 0.5 per cent per year. But it’s worse than that. Although the non-government sector enrols less than 20 per cent of all disadvantaged students, the nine-year increase for non-government schools was 9.8 per cent, whereas the increase for government schools was only 3.3 per cent. Doesn’t sound like needs-based finding. It turns out that, while the federal government was increasing its funding to government schools, the state governments took the opportunity to limit their funding to their own schools, while increasing their grants to non-government schools.

To put Australia’s funding in an international context, Peter Goss of the Grattan Institute has checked Tanya Plibersek’s claim that “Australia is slightly below average when it comes to international funding for our schools”.  She drew this conclusion from the OECD figures showing spending per student as a percentage of GDP per person, and she’s right. Although including private spending on school fees puts us slightly above the OECD average, looking just at government spending puts us at 3.2 per cent of GDP in 2013, compared with the average of 3.4 per cent. So, we haven’t had rapid growth in government spending on schools over the past decade and nor are our governments spending more than other countries are. But what about the other side of the argument: what’s been happen to the measured performance of our schools?

What’s happening to our schools’ measured performance?

The performance of our schools on literacy, numeracy and science is now measured regularly by PISA and NAPLAN. Before we start, I have to acknowledge that there’s a lot more to what schools impart to students than literacy and numeracy. These standardised tests are an imperfect way to measure the performance of schools. But I have to say they are key competencies, part of the essentials with which our children need to be equipped. It’s possible that, while not doing well in these measured subjects, our schools are doing much better in imparting “soft skills” that are harder to measure. It’s possible, but I don’t think it likely.

A good summary of what PISA tells us about our performance, using the 2015 figures released late last year, has been provided by Cobbold. Wisely, I think, he focuses not on the media’s favourite of our ranking on the league table of countries, but on how our own performance has changed over time. He finds that our results have fallen significantly over the past 15 years. We remain one of the high-performing countries in reading and science, but our maths results have slipped to about average. The results show continuing declines in the proportion of students at the most advanced levels and also significant increases in the proportion of students below the international standard. This includes high proportions of low SES, Indigenous, provincial and remote-area students. He finds continuing very large gaps between the achievements of the highest and lowest performing students after 10 or more years of learning.

Tim Dodd, the Financial Review’s education editor, summarised the results a different way: they found the standard of Australian 15-year-olds’ maths is a year behind where it was in 2003, reading standards are 10 months behind compared with 2000, and science is seven months behind compared with 2006.

A good review of the latest NAPLAN results comes from Chris Bonnor and Bernie Shepherd, two retired high school principals who’ve done a fabulous job in “data mining” the MySchool website. They say NAPLAN results have mostly drifted up over the years, whereas the latest results for literacy and numeracy show a plateauing. They note the haste with which Simon Birmingham seized on this one year of poor results to repeat his claim that money doesn’t buy improved results.

Peter Goss and colleagues, of Grattan, have pioneered the technique of converting NAPLAN data into “years of progress”, using the results of Victorian students to reveal some worrying trends. They note first that the NAPLAN “national minimum standards” are set very low. A Year 9 student can meet this standard even if they are performing below the typical Year 5 student - that is, a stunning four years behind their peers. They find that the spread of student achievement from highest to lowest more than doubles as students move through school. Low achieving students fall ever further back. They are two years and eight months behind in Year 3, but three years and eight months behind by Year 9. Students in disadvantaged schools make about two years less progress between Year 3 and Year 9 than similarly capable students in high-advantaged schools. And get this: bright students in disadvantaged schools show the biggest learning gap. High achievers in Year 3 make about 2½ years less progress by Year 9 than if they had attended a high-advantage school. They actually make less progress than low achievers in high-advantage schools.

Does spending more money buy better school performance?

This brings us to the key political question of the hour: does spending more money buy better school performance? Short answer: not if you spend it on more of the wrong things. But first, it’s surprising to have the claim that “money doesn’t matter” coming from the conservative side of politics, and even from, of all people, some economists. It’s surprising to have people who fight tooth and nail to protect and increase their personal income assuring us that spending more money on any category of spending yields no benefit. Do they follow this precept in their own spending on education? Does it mean they’re happy to send their children to the local public school, or are they sending them to expensive private schools, similar to those most of the cabinet ministers attended?

The truth is that we haven’t been spending a lot more in recent times but, in any case, much of what we have been spending hasn’t been spent effectively. Between the federal and state governments, we’ve given more to advantaged schools than don’t need it at the expense of disadvantaged schools that do need it. When you study the standardised test results, the answer to how the money could be spent more effectively - that is, in a way that increases the probability it will produce better school performance - leaps out at you: we need to spend more per student on disadvantaged schools and less per student on advantaged schools, where parents have demonstrated their willingness to supplement the school’s finances by paying fees, sometimes very high fees. In other words, the obvious way to make government spending on schools more cost-effective is to put it on a needs basis.

As an economic journalist I know exactly why Birmingham and his colleagues keep saying that spending more money on schools would be a waste of money. It’s because the Coalition government’s project is to return the budget the surplus, but do it by curbing government spending rather than increasing taxes. If saying this implies that schools’ performance could be fixed simply by schools and teachers trying harder, this is not an interpretation that would discomfort the Coalition and its heartland supporters. But on one matter I do sympathise with Birmingham: the version of “Gonski” he has inherited from Labor is far too expensive a way to move to needs-based funding. As David Gonski gently reminded us in the first of these orations, and his colleague Ken Boston more forcefully reminded us in a speech just last week, what the Gonski panel wanted was a redistribution of schools spending to make it needs-based. Its recommendation of greatly increased spending arose from Julia Gillard’s stipulation that “no school should be a dollar worse off”. One matter on which I don’t sympathise with Birmingham’s government is its quite unreasonable cost-shifting and politically unsustainable plan, announced in the 2014 budget, to reduce the indexation of federal schools grants to the consumer price index. Nothing less than indexation to the expected rate of growth in teachers’ wages is politically sustainable.

The ideal would be for Gonski’s original proposals to be implemented but, since these were quite unacceptable even to Gillard, we’re likely to be waiting some time to see that happen. But Labor’s line that Gillard’s bastardised version of “Gonski” must be honoured to the letter, in veneration of the great reformer, is dishonest and manipulative. Peter Goss of Grattan has proposed a compromise arrangement which, without requiring any more spending than the temporary extra the government has agreed to, would get a lot more schools closer to the “schooling resource standard” a lot earlier even than envisaged under Gillard’s Gonski. It seems clear that Birmingham is working on his own compromise plan, which would involve better-resourced schools’ grants increasing by less than provided for by Gillard’s Gonski - which is still law. Birmingham has hinted that he may be interested in introducing the national schools resources body that Gonski recommended, but Gillard wouldn’t touch. This could be a big step forward. But the Labor opposition is unlikely to accept any compromise, virtuously holding out for “the full Gonski” as it poses as the one true believer in needs-based funding.

Beyond the eternal fight over money: what works and what doesn’t

We’re unlikely to get far in improving school performance until we get closer to the ideal of needs-based funding - that is, until we direct more of total funding to those disadvantaged students and schools that most need additional resources. But it’s important to realise that better-targeted funding is a means rather than an end in itself. If all we did was give disadvantaged schools a big bucket of money to spend, there would be no certainty that all of it was spent in ways that actually benefited disadvantaged students.

It’s a great pity that the crazy way we fund our schools - two levels of government funding differently three different school sectors - keeps us so preoccupied that we rarely turn our mind to the more important question of how we can improve our schools’ ever less-impressive measured performance. The truth is that we have tried a lot of things that didn’t work. Dean Ashenden reminds us there was a time when we really did increase spending on schools. Over the 40 years to 2004, real spending per student grew by more than 80 per cent. What was that extra money spent on? Mainly on reduced class sizes. Smaller classes seem an obvious improvement to teachers and parents, but any amount of research has shown this does little to improve outcomes.

Next comes the Howard government’s experiment with “choice and competition”. Howard increased federal grants to non-government schools using several funding formulas biased in their favour and encouraged the establishment of many more, low-income independent schools. The justification was that greater choice - particularly choice between public and private - was one of the Liberals’ great values. It would encouraged greater competition between the sectors, obliging public schools to lift their game. It didn’t work. But it did subsidise the drift of higher SES parents who could afford private school fees away from low SEA schools, leaving them with a much harder climb to improved performance.

I think Howard’s advocacy of “choice” was much more about conservative political values - and his penchant for providing middle-class welfare to the Liberal heartland - than about economic fundamentalism. The “economism” came, paradoxically, more from Julia Gillard throughout the Labor government’s six years in office. Along with good measures such as a national curriculum, a universally accessible year of pre-school and maybe professional standards for teachers and principals, came economist-inspired measures such as standardised national assessments through NAPLAN, national reporting on schools through the MySchool website, and dabbling in performance pay for teachers. There is no evidence that this more information-based attempt to use increased competition between and within sectors to raise performance has worked. Geoff Masters, of ACER, has concluded the belief that “improvement will occur if schools are given incentives to improve” - including rewards, sanctions and the need to compete for students - is mistaken. I think that, to the extent that standardised testing encourages teaching-to-the-test and other gaming of the system - as with all KPIs - this is regrettable and to be discouraged. But you’d never convince a journalist that, because statistics can be misinterpreted and misused, we’re better off suppressing them or leaving things unmeasured. And though MySchool seems to have done little to encourage better test results, it has provided people such as Bonnor and Shepherd with a rich data set for drawing highly enlightening, evidence-based conclusions about what’s happening to our schools over time.

Conservative governments have been attracted by the idea of school autonomy - including the “charter school” variation - but research has not confirmed their success.  Similarly, the earlier fashionable, very economist-appealing idea of giving people vouchers they can take to a school of their choice, has not been supported by the many studies conducted.

What then is more likely to work?  Ken Boston reminds us that, in its last chapter, the Gonski report set out priorities for the extra funding to be provided to disadvantaged schools, including “innovative approaches to teaching and learning”. We were cognisant, Boston said, of what research was saying about the critical classroom factors for success: “instructional leadership by the principal and senior staff, diagnostic assessment, differentiated teaching, and tiered interventions to extend high-achieving students and support those falling behind”.

Adrian Piccoli has told how NSW has been using its extra Gonski funding, including that: “Our reforms focus on quality teaching - getting the best and brightest into teaching and better supporting them throughout their careers; providing more time for early career teachers to hone their skills and be mentored by experts . . .”

Gill Callister, Victoria’s Education department secretary, has said that “the wave of international evidence from the successes of the world’s very best school systems shows unequivocally that investing in teaching quality, capability and development makes the single biggest difference to outcomes.” She added that “there is strong evidence that spending on early-years education has huge impacts down the line”.

Geoff Masters says we should built the “capacity” of teachers and school leaders and ensure “high quality practice across the system”. Such an agenda would involve: a higher-status and more academically capable teaching profession; a 21st century curriculum aimed at high levels of reading, maths and scientific literacy; more flexible learning arrangements focused on “growth”; early and extra attention for children “at risk of being locked into trajectories of low achievement”; and a narrower gap between the best and worst performing schools.

Part of what Masters is advocating is “targeted teaching”, which involves careful monitoring and evaluation of individual student’s progress. The greatest exponent of targeted teaching and the “growth” approach is Peter Goss of Grattan. Teachers should be provided with the time, tools and training they need to collect robust evidence of student learning, discuss it with other teachers, and use it to target their teaching to the wide range of student learning needs in their classroom. Higher achieving students should be stretched, lower achieving students should be supported to catch up, and no student who stalls should go unnoticed. The “growth” approach means a student is benchmarked against him or her self, not just against other students. The school fosters a culture of progress, in which teachers, students and parents see learning success as being about effort and improvement, not ability and attainment, and assessment as a way to improve, not to expose student failures. The best schools in Australia are not necessarily those with the best ATAR or NAPLAN scores, but those that enable their students to make the greatest progress in learning. The goal is for each student to have made at least a year’s worth of progress every year.

According to research by the Mitchell Institute at Victoria University, 26 per cent of students fail to finish school or a vocational equivalent. I’m sure some of these people catch up in later life, while others lead perfectly rewarding lives without benefit of further education. But I fear most of the 26 per cent lead lives of economic insecurity and limited personal fulfilment. They are the shockingly high proportion of students our school system has failed. I don’t believe in KPIs, but if I were to set one for schools, it would be to get that appalling indicator of our society’s failure very much lower.


Cost-of-living talk provokes bulldust

I read that the Turnbull government has decided to make the cost of living its focus for the year. Oh dear. In that case, brace yourself for a year of con jobs and flying bulldust.

There's a long history of politicians professing to be terribly concerned about "the cost of living" and nothing good ever comes of it. It's always about saying things to keep or win your vote and rarely about doing anything real – let alone sensible – about prices.

Politicians start "focusing" on the cost of living when the spin doctors running their party's focus groups report that the cost of living keeps coming up in the things the punters are saying.

But this is a strange time for the cost of living to be high on people's list of complaints. The rate of inflation has been below the 2 per cent bottom of the Reserve Bank's target range for two years.

My theory is that the cost of living is what you complain about when you've got no bigger worries. Say, that unemployment is shooting up and you're worried about losing your job.

Politicians' professed concern about the cost of living invariably leads to bulldusting because, where prices are set by private businesses operating in the market, pollies have neither the ability nor the desire to do anything about them.

Any price you have to pay is a price some business receives. And it'd be very lacking in generosity should any government want to lower that price.

That's why so often pollies limit themselves merely to continually repeating "I feel your pain".

It seems, however, that Malcolm Turnbull's spinners are using "the cost of living" as a catch-all for "focusing" on three prices in particular: for energy, childcare and housing.

Particularly in the case of childcare, these are prices heavily influenced by government policy. The government has never wanted to talk about housing affordability, so the focus groups must be telling it to do something.

As for childcare and energy, my guess is the government has thought of these itself, believing them to offer it an edge against Labor in the eternal blame game.

If the government's latest omnibus bill passes through the Senate, it will be able to trumpet the late arrival of the big cuts in the cost of childcare first promised in the budget of May 2015.

If the omnibus doesn't make it through, the government will be loud in blaming the high cost of childcare on Labor.

There's no industry more heavily government regulated than energy. Indeed, the "national energy market" was artificially created by federal and state governments in the late 1990s. It's governed by a rule book of more than 1000 pages.

The government has three goals in energy, with plenty of room for conflict between them: to keep energy flowing without blackouts, meet our Paris commitment to reduce carbon emissions, and keep price rises to a minimum.

The industry is going through huge disruption as renewables replace fossil fuels, and the government hasn't yet come up with a policy to achieve its conflicting goals, but that's not the point.

It believes it has more credibility with voters on energy prices than Labor has, so it will have little trouble shifting the blame for price rises and blackouts to Labor. That's especially so since responsibility for energy is shared with the states, and most of the premiers are Labor.

Focusing on energy prices will also divert attention from a topic where the Coalition's credibility with voters is much less than Labor's: climate change.

Do you buy "energy"? People I know buy electricity and maybe gas as well. The pollies have switched to talking about "energy" because they don't want to mention that three-letter word "gas".

That's because the big price hikes in recent times have been for gas. It's gone from being a third of the price of gas in America 10 years ago, to three times the American price today.

When the boss of BlueScope Steel warns of a looming "energy catastrophe", that's what he's referring to. Our manufacturers now face hugely higher prices for the gas they use.

Politicians on neither side want to talk about gas prices. Why? Because federal governments of both colours were responsible for letting it happen. They allowed the development of a liquefied natural gas export industry in Queensland.

Now, all the gas produced in eastern Australia can be exported to Japan or China for much higher prices. If we want some, we have to pay the "export parity" price.

This has given a huge windfall gain to our gas producers. But it's also disrupted the electricity market by making our gas-fired power stations uneconomic.

But please don't think about that. The real problem, we're told, is too much renewable energy which, though it's been encouraged by the renewable energy target begun by John Howard and continued by Tony Abbott, is all Labor's fault.

It appals me the way first, climate change, and now energy policy have been turned into partisan, salute-the-flag issues. If you vote Liberal you're expected to be dubious about climate change and have a grudge against renewable energy, particularly wind turbines; if you vote Labor it's compulsory to love both.

There'll be a lot of game playing on energy this year, but much less effort put into fixing the problems while minimising price increases.

Monday, February 20, 2017

How Shorten is wedging Turnbull at our expense

Eighteen lobby groups ranging from the Business Council to the ACTU have pleaded with political leaders on both sides to "stop partisan antics" and reach agreement on reform of the energy market, ending all the uncertainty. Fat chance.

They're quite justified, of course. When businesses are making hugely expensive investments in generation plants that may last for 50 years, they need to know what the government's rules are – and that the other side won't come along and change everything.

But such a plea assumes our politicians are prepared to give the good government of the nation top priority.

They're not. On both sides top priority goes to winning the next election.

These days, the two sides of politics are quietly busy getting issues lined up in a way that gives them the advantage in that election.

The pollies play an unending game of "wedge and block". You try to take a position on a particular issue that drives a wedge between the different wings of the other party.

It has to decide whether to be pragmatic and take the position it knows is popular with voters, or stick with the position it nominally stands for and favours the interests and prejudices of the party's base.

If it takes the popular position you've taken, it's successfully blocked your move (but left its heartland unhappy). If it stands its traditional ground, its base is happy, but it's lost votes to you.

You've successfully driven a wedge between it and the voters, putting you on the way to winning.

Each side's goal is to manoeuvre the other side into a situation where the election campaign is dominated by those issues that favour you.

You seek to wedge the other side on those issues where you have a natural advantage (your biases align with the voters') while blocking the other side's attempted wedges on issues where it has the natural advantage.

Labor voters are proud of its advocacy of the national disability insurance scheme and the Gonski schools funding reform, yet Julia Gillard damaged both by trying to use them to wedge Tony Abbott at the 2013 election.

She belatedly proposed an increase in the Medicare levy to help fund the NDIS, hoping Tony No-tax-increases Abbott would oppose it, so she could accuse him of hating the disabled.

Abbott woke up and quietly agreed to the tax increase.

Gillard delayed the introduction of Gonski until the election year (meaning most Coalition states wouldn't sign up) hoping Abbott would oppose it and she could accuse him of hating public schools.

Abbott and his elite private-school shadow cabinet denigrated "Conski" until he woke up and claimed he was on a "unity ticket" with Labor on schools funding – a commitment he ditched the moment he'd won the election.

Look behind all the present argy-bargy between the pollies and you see Bill Shorten trying to keep alive all the key policy issues that got him so close to winning last year's election.

He's having remarkable success retaining last time's wedges against the government because Malcolm Turnbull is hamstrung by the dominant hard right faction on his backbench, which is insisting on doctrinal purity.

Last week internal party pressure caused Turnbull to disown talk of tightening the capital gains tax discount for rental properties, even though this would have blocked Labor's use of opposition to negative gearing to attract younger voters (as well as helping the budget).

Far more voters' kids go to government than non-government schools. We desperately need to move to needs-based funding regardless of school sector, so we can get on with the more pressing issue of lifting students' performance.

But Gillard's version of Gonski is way too expensive (incongruously, because of Labor's visceral fear of offending elite private schools).

It's clear the minister, Simon Birmingham, is working on a compromise, but Labor is refusing to countenance anything but "the full Gonski".

It wants to keep the issue alive and the Coalition successfully wedged.

Most voters accept the reality of climate change and want effective action to help limit it, but with the minimum increase in energy prices.

People of goodwill developed a face-saving way for Turnbull to make progress on emissions reduction without much increase in retail prices, called an "emissions intensity scheme".

Since Labor has a similar scheme, Turnbull could have blocked the climate change wedge without political risk. But the disguised deniers sitting behind him were so opposed he had to swear off it.

Neither side of politics has any interest in finding a compromise that would give our energy sector the policy stability needed for it to adjust to the world's low-carbon future.

Saturday, February 18, 2017

Our new comparative advantage: renewables

The old joke says the questions in economics exams don't change from year to year, but the answers do. Welcome to the economics of energy and climate change, which has changed a lot without many people noticing - including Malcolm Turnbull and his climate-change denying mates.

They've missed that the economics has shifted decisively in favour of renewable energy, as Professor Ross Garnaut​, of the University of Melbourne, pointed out at an energy summit in Adelaide last October.

Garnaut is chairman of Zen Energy, a supplier of solar and battery storage systems. But there aren't many economists who know more about the energy industry and climate change than Garnaut, who's conducted two federal inquiries into the subject.

He says that, since his second review in 2011, there have been four big changes in the cost of renewable energy relative to the cost of energy from coal or gas.

First, the cost of renewable energy generation and energy storage equipment has fallen "massively".

The modelling conducted for his inquiry assumed the cost of photovoltaic solar generation would fall by a few per cent a year. In practice, costs have fallen by about five-sixths since that assumption was made.

"Similarly large reductions have occurred in the cost of lithium ion batteries and related systems for storing energy," he says.

There have been less dramatic but substantial reductions in costs of equipment for electricity from wind and other renewables.

The cost reductions come from economies of scale in the hugely increased production by China and others, plus savings through "learning by doing". Advances in technology will keep prices falling after scale economies have been exhausted.

Second, there have been "transformational improvements" in battery storage technology, used at the level of the electricity grid, to ensure balance between supply and demand despite renewables generators' "intermittency​" (inability to operate when the sun's not shining or the wind's not blowing).

Third, there's been a dramatic reduction in the cost of borrowing the money needed to cover the capital cost of generation equipment.

Real interest rates on 10-year bonds are below or near zero in all developed countries, including Australia.

"These exceptionally low costs of capital are driven by fundamental changes in underlying economic conditions and are with us for a long time," Garnaut says.

Low interest rates reduce the cost of producing, storing and transporting renewable energy more than they reduce the cost of fossil-fuel energy because renewable costs are overwhelmingly capital (sun and wind cost nothing), whereas fossil fuel costs are mainly recurrent (digging more coal out of the ground).

Fourth, there's been a dramatic increase in the cost of gas - and thus gas-fired electricity.

Ten years ago Australia had the developed world's cheapest natural gas - about a third of prices in the US. Today, our prices are about three times higher than in the US.

Why? Because the development of a liquid natural gas export industry in Queensland has raised the gas prices paid in eastern Australia to "export parity" level - the much higher price producers could get by selling their gas to Japan or China (less the cost of liquefaction and freight).

It's worse than that. Because foreign investors were allowed to install far too much capacity for LNG exports - meaning none of them is likely to recover their cost of capital - they've been so desperate for throughput they've sometimes bid gas prices well above export parity.

Apart from making gas-fired power more expensive relative to renewables, this has implications for how we handle the transition from "base-load" coal-fired power (once you turn a generator on, it runs continuously) to intermittent solar and wind production.

It had been assumed that gas-fired power would bridge the gap because it was cheap, far less emissions-intensive than coal, and able to be turned on and off quickly and easily to counter the intermittency of renewables.

Now, however, without successive federal governments quite realising what they'd done, gas has been largely priced out of the electricity market, with various not-very-old gas-fired power stations close to being stranded assets.

What now? We thank our lucky stars the cost of energy storage is coming down and we get serious about storage - both local and at grid level - using batteries and such things as "pumped hydro storage" (when electricity production exceeds immediate needs, you use it to pump water up to a dam then, when production is inadequate, you let the water flow down through a hydro turbine to a lower dam).

In other words, the solution is to get innovative and agile. Who was it who said that?

Turnbull's party seem to be pro coal and anti renewables partly because they know we have a comparative advantage in coal.

We can produce it cheaply and we've still got loads in the ground. The rest of the world is turning away from coal and the environmental damage it does, but let's keep opening big new mines and pumping it out, even though this pushes the prices our existing producers get even lower.

If the banks are reluctant to finance new coal mines at this late stage, prop them up with government subsidies. Join the international moratorium on new mines? That would be unAustralian.

But get this: Garnaut says we also have a comparative advantage in the new world of renewables.

"Nowhere in the developed world are solar and wind resources together so abundant as in the west-facing coasts and peninsulas of southern Australia. South Australian resources are particularly rich...

"Play our cards right, and Australia's exceptionally rich endowment per person in renewable energy resources makes us a low-cost location for energy supply in a low-carbon world economy.

"That would make us the economically rational location within the developed world of a high proportion of energy-intensive processing and manufacturing activity.

"Play our cards right, and Australia is a superpower of the low-carbon world economy."