Why is southeast Asia so concerned about AUKUS and Australia’s plans for nuclear submarines?

James Chin, University of TasmaniaThe announcement of a new strategic alliance between Australia, the US and UK (AUKUS) has caught many by surprise. Besides France, which reacted with fury over Australia’s scrapping of a major submarine deal with a French company, few countries were as surprised as Australia’s neighbours to the north, the ASEAN members.

In particular, Indonesia and Malaysia have come out strongly against Australia’s plan to acquire a fleet of nuclear-powered submarines with the help of the US and UK. Even Singapore, Australia’s most reliable ally in the region, has expressed concern.

The Afghanistan debacle has left a bad taste among many Indo-Pacific countries, and some are wondering if the timing of the AUKUS announcement was intended as a show of US power in the region to reassure jittery partners.

Fear of a nuclear arms race

To understand the deep anxiety in Kuala Lumpur, Jakarta and other ASEAN capitals requires some context on where they are coming from.

First, many of them think there is no such thing as acquiring nuclear-powered submarines without the prospect of acquiring nuclear weapons in the future.

Australia has not joined the Treaty on the Prohibition of Nuclear Weapons, which requires parties to agree not to develop, test, produce, acquire, possess, stockpile or threaten to use nuclear weapons.

The Morrison government says the treaty would be inconsistent with its alliance with the US, a nuclear weapon power.

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However, Australia did ratify the Treaty on the Non-Proliferation of Nuclear Weapons in 1973 and the Comprehensive Nuclear Test Ban Treaty in 1998. And Prime Minister Scott Morrison said last week Australia has “no plans” to pursue nuclear weapons.

Yet, some ASEAN countries are worried the AUKUS agreement is a clear signal the West will take a more aggressive stand towards China by admitting Australia to the nuclear club.

Both Indonesia (the unofficial leader of ASEAN) and Malaysia fear AUKUS will also lead to a major arms race in the wider Indo-Pacific region.

The potential for conflict in South China Sea

The new agreement also signals that the US, Australia and UK view the South China Sea as a key venue for this contest against China.

The ASEAN nations have always preached maintaining southeast Asia as a “zone of peace, freedom and neutrality”, free from interference by any outside powers. In 1995, the member states also signed the Treaty of Southeast Asia Nuclear Weapon-Free Zone, which committed to keep nuclear weapons out of the region. Not a single nuclear power has signed on to it.

Although everyone knows China, the US, Britain and France have ignored these protocols by manoeuvring armed warships through the South China Sea — not to mention China’s building of military bases on disputed islands there — ASEAN does not want to see this number grow.

A Chinese missile frigate launches an anti-ship missile during a military exercise in the South China Sea.
Zha Chunming/Xinhua/AP

Australian nuclear-powered submarines have the potential to change the dynamics in the South China Sea and make the Chinese much more nervous. There have already been plenty of “close encounter” incidents between the Chinese and US navies in the disputed waters, as well as the Chinese navy and ships belonging to ASEAN members. The region doesn’t need yet another potential “close encounter” to worry about.

The ASEAN states are already very worried about the China-US rivalry playing out in its backyard. And the new AUKUS agreement reinforces the idea that the opinions of the ASEAN members matter little when it comes to the superpowers and how they operate in the region.

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The region has always insisted on the idea of “ASEAN centrality” in their relations with the world — that ASEAN members must decide what is best for Southeast Asia — but as AUKUS shows, nuclear nations play a different game.

Indonesia is especially unhappy with Australia given the new agreement will affect it directly, given their common maritime border.

Morrison had already been forced to cancel his upcoming trip to Jakarta after President Joko Widodo said he would be unavailable to meet — a decision that was made before the AUKUS announcement. This will add another layer to the strained relationship.

Is there anyone happy about the deal?

While in public, most southeast Asian governments have expressed uneasiness with AUKUS, there is a school of thought that says the more hawkish voices in the region will probably accept the agreement in the long term, as it will help keep China’s aggression in check.

For those in the “hawk” camp, the number one long-term threat to regional security is China. Many think the strategic balance of power has been tilting too much in Beijing’s favour in the past decade, especially after China started rushing to build military bases in the South China Sea and using its navy to protect Chinese fishing vessels in disputed waters.

So, they believe any moves to remind China it does not have a carte blanche to do what it wants in Southeast Asia is a good thing.

Japan and South Korea are clearly in this camp and their muted reaction to AUKUS suggests they are in favour of a “re-balancing” in the region. Taiwan and Vietnam are probably on this side, as well.

The only downside is that Australia may use its nuclear-powered submarines to bully ASEAN countries. If Canberra uses its nuclear submarines as a bargaining chip, it will simply turn public opinion in the region against Australia.

Implications for Australia-ASEAN relations

If anything, the AUKUS move reinforced the widely held perception that Australia’s mantra of being “part of the region” is, in fact, “empty talk”. Australia has firmly signalled its intentions to put its Anglo allies in the US and UK first.

AUKUS also reinforces the view that Australia cannot be accepted as a regional partner or player. This, of course, is nothing new. For years, the ASEAN bloc has seen Australia as “deputy sheriff” to the US, though this view would not necessarily be shared in public.

So, while AUKUS came as a surprise to many in the region, an alliance of this sort was probably bound to happen. It’s just that nobody expected it to happen so soon.

James Chin, Professor of Asian Studies, University of Tasmania

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Don’t abandon plans for high-speed rail in Australia – just look at all the benefits

Thomas Nord/Shutterstock

Marcus Luigi Spiller, University of Melbourne

The Grattan Institute’s call to “abandon” plans for any high-speed rail network in Australia fails to look at the wider benefits such a project can bring by way of more productive economies and more sustainable towns and cities.

The study authors argue the development of any bullet train network linking Brisbane to Melbourne via Sydney and Canberra is “unsuitable for Australia”.

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But what their argument neglects is that a project like high-speed rail has a unique capacity to reshape cities and population settlement patterns in positive ways.

A question of cost

The institute’s study says the idea of high-speed rail is an unwanted distraction in policy-making for the nation’s transport future. Its case relies on a review of the high-speed rail experience in Europe, Japan and China.

All of these nations, it says, have vastly different distributions of towns and major cities to that in Australia, which has extremely long distances between a few large cities.

The study also critiques a 2013 Commonwealth analysis that found a A$130 billion high-speed rail project linking Brisbane, Sydney and Melbourne would generate a benefit-cost ratio of 2.3 to 1.
So every A$1 invested in a high-speed rail network would generate A$2.30 in benefits such as travel time savings, avoided vehicle operating costs and reduced road congestion.

But the Grattan study authors say that figure is based on a “cherry-picked” discount rate of 4%. This is economics jargon for the minimum return that the community would expect from the investment of its collective resources in any project.

The Grattan study also says the 2013 cost-benefit analysis did not allow for cost over-runs. Nor did it consider the greenhouse gas emissions associated with the enormous quantities of concrete and steel needed to build the infrastructure.

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So why are some people, including the federal Labor Party, still so enamoured with the idea of high-speed rail when others would have it binned?

Some projects reshape cities

Not all transport infrastructure projects are equal when it comes to cost-benefit analysis. Some investments have a transformative effect on population settlement patterns – they shape cities and regions.

The Sydney Harbour Bridge and the Melbourne Underground Rail Loop are classic examples of city-shaping projects. Each altered travel times between different parts of the metropolis, which then shifted the location preferences of households and businesses. This led to a substantially different city structure compared to what might otherwise have developed.

Other projects, the vast majority of government transport outlays, merely follow or service the pattern of settlement established by the city-shaping investments. These “follower” projects include the local arterial roads and tramways that circulate people and goods within cities.

The Commonwealth’s official guidelines for major project evaluation recognise this distinction.

New ways of living, learning, working and playing become possible with city-shaping projects. By comparison, the procession of follower projects simply perpetuates settlement patterns and economic structures.

This is the claim and appeal of high-speed rail. Advocates argue such an investment would divert a significant proportion of urban growth from the far-flung suburbs of metropolitan areas to new regional locations. That’s because these regions will then have similar travel times into core city labour markets.

In these regional locations, households would enjoy greater housing choice and affordability, more walkability and better access to open space. They could even have better access to a range of community facilities than their metro suburban counterparts.

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Advocates also argue businesses in the big cities and intervening regional areas will be able to connect with each other at lower cost and source the skills they need more efficiently. This would boost productivity.

Consider all the benefits

The 2013 analysis took into account issues such as congestion, emissions (from travel) and transport accidents. But it did not attempt to quantify and monetise the effects of high-speed rail shaping cities and regions.

Arguably, the most important set of benefits from this investment were left out of the economic evaluation, simply because they are difficult to measure.

Modelling how the supply chains of businesses might change under the influence of city-shaping projects, or how the housing preferences of people might shift, is undoubtedly challenging. But being difficult to measure makes these impacts no less real.

Despite this limitation on the scope of benefits, the 2013 study said the high-speed rail project would return a benefit-cost ratio of 1.1 at a 7% discount rate, which the Grattan study says is the usual test applied to transport projects.

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Grattan says the project barely scrapes in at this higher discount rate and implies many other projects would offer ratios greater than 1:1 and should be preferred. These would typically be smaller, follower projects that address local congestion problems.

But a project achieving a 1.1 benefit-cost ratio means Australia would still be better off undertaking the project compared to a business-as-usual case.

If the transformative effects of high-speed rail include more compact and walkable cities with less car dependency and greater productivity, then such a network has good reason to keep its grip on the Australian imagination.

Marcus Luigi Spiller, Associate Professor of Urban Planning (honorary), University of Melbourne

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Vital Signs: NBN’s new price plans are too little, too late

Lack of speed kills: finally NBN Co is thinking about a genuinely 21st century offering for customers.
http://www.shutterstock.com

Richard Holden, UNSW

This week NBN Co announced pricing changes for the National Broadband Network.

It includes a new plan boasting a download speed of 1 gigabit per second and an upload speed of 50 megabits per second for $80 a month.

These are 20-fold improvements on the maximum NBN speeds now. Almost a decade since the first customers were connected, NBN Co is thinking about a genuinely 21st century offering in terms of speed and price.

The NBN is late, over budget and slow. Australia places 58th globally for fixed-line broadband speed. Not only do the NBN’s advertised speeds lag international standards but the actual speeds often don’t come close to what is promised.

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Customer interest as a result has been unenthusiastic. NBN Co may well need to take a massive write-down on its assets because they don’t look like they’re worth A$50 billion.

All of this was entirely predictable, based on politicians failing to remember three basic lessons from Economics 101.

1: Technology often outstrips imagination

The history of innovation is littered with examples of remarkably important things being invented with no clear purpose in mind, or by accident, and then exceeding our wildest expectations.

Penicillin and vulcanised rubber (which led to the tyre for automobiles) were both invented by accident. The world wide web was developed as a means of communication among particle physicists. Most of us carry around in our pocket a computer (mobile phone) roughly as powerful than the world’s faster supercomputer circa 1985. Those have turned out to be pretty useful.

When the Coalition decided to scuttle Labor’s NBN plan for fibre-optic cable to every premises, on the basis that “fibre-to-the-node” and using existing copper telephone wires to the premises would be much cheaper, this is what the chief spruiker of the Coalition’s NBN plan, Malcolm Turnbull, said about broadband needs in 2010:

There isn’t much or anything you can do with 100 Mbps that you can’t do with 12 Mbps for residential customers.

The breathtaking lack of insight and imagination in this comment is responsible in no small part for the Flintstonian broadband infrastructure Australia now has.

Prioritising speed of roll-out (which hasn’t even happened) over speed of internet (which sure has happened) was a massive mistake.

2: Positives justify subsidies

You having fast internet is good for me when we connect. When consumers can connect quickly to a business’s website that’s good for the business. It makes it more profitable for businesses to invest in their internet operations. This has benefits for other consumers and even other businesses.

A great illustration of this is in Dunedin, New Zealand, where there have been all sorts of business-to-business spillovers from the city having the fastest internet speeds in Australasia. The ABC’s Four Corners program has highlighted how this has revolutionised New Zealand’s video-game development industry, among other things.

Economists call spillover effects to third parties externalities. Pollution is a negative externality, while the benefit of fast internet is a positive externality.

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A sound business model for the NBN ought to recognise the positive externalities and ensure they are incorporated into the price mechanism, by offering a partial subsidy to encourage people to sign up. Like the reverse of a carbon price.

One of the NBN’s key problems is the way successive governments structured national investment in it. Setting up NBN Co as a quasi-corporate entity needing to make a commercial rate of return on the roughly A$50 billion investment in the network was a huge mistake. It was the opposite of providing a subsidy.

The telecommunications companies who retail the NBN have complained that NBN Co’s wholesale price points mean it is hard for resellers to make a profit. It’s a kind of quality death spiral: an unattractive product means fewer people buy it, leading to the product getting worse, leading to even fewer people buying it.

3: Uniform pricing doesn’t work

Finally, it’s never a good idea to charge everyone the same price when there are different costs to serve different people.

The idea was that higher returns from easy-to-service city homes would subsidise the higher costs of service homes in regional and remote areas. But city homes, precisely because they are cheaper to service, have other options. If not enough city customers signed up to the NBN, prices would be driven up, making the network even less attractive to city customers. It’s textbook adverse selection, just like in health-insurance markets.

The government tried to get around this by banning competition. But that’s never really possible, especially from technologies not yet invented. Like 5G. The 2010 business case assumed no more than 16% of households would go wireless. Oops.

As economic journalist Peter Martin wrote in 2011:

NBN will never make a return on the cost of its capital or meet its customer targets if it faces competition. Its corporate plan says so, at point 1: “The plan assumes effective regulatory protection to prevent opportunistic cherry picking […] the viability of the project is dependent upon this protection.”

What to do from here

Multiple governments have bungled the NBN. But there is a way to salvage things – a bit.

Holding constant the technology (fibre-to-the-node), the best thing the government could do is write down its investment massively – ideally so low that it can flog NBN Co off to someone who can be subject to access regulation – ensuring, like other utilities, ownership of infrastructure doesn’t stymie competition – and make a modest rate of return.

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Our super funds are always sticking up their hands for infrastructure investment. This would be a good one.

Ideally, though, the technology should be fixed. Fibre-to-the-premises was always going to be expensive, but it was also going to be fast, and as future-proof as we could get.

Lack of imagination and inability to think past 12 Mbps less than ten years ago should not hold the nation back now.

Richard Holden, Professor of Economics, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Who are the wealthy retirees targeted in Labor’s plans?

Roger Wilkins, University of Melbourne

In Labor’s budget reply speech, Bill Shorten reaffirmed the plan to remove refundability of dividend imputation credits. His pitch was to Australian voters on lower and middle incomes, in which he pledged to look after the country’s ageing population:

We know that giving older Australians the security and dignity they deserve matters more than an $80 billion corporate tax cut.

The issue of whether or not retirees should be able to get a refund in dividend imputation has sparked considerable discussion of retirees’ income and wealth.

The Household, Income and Labour Dynamics in Australia (HILDA) Survey shows that, overall, retired people tend to have lower incomes than the population as a whole, but higher wealth. This is because retirement typically involves ceasing employment and reducing income, while wealth tends to accumulate with age, at least up to the point of retirement, mainly due to paying off the mortgage and accumulating superannuation.

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The different mix of income and wealth for retired and non-retired households means it’s not straightforward to compare their economic well-being. For example, the HILDA Survey data show that only 23% of retirees aged 60 and over have above-median incomes (compared with 50% of the population as a whole); but 62% have above-median household wealth.

That said, retirees are generally wealthy if they have both above-median household income and above-median household wealth. With this definition, 20% of retirees aged 60 and over are wealthy. This compares with approximately 28% of the Australian population as a whole.

What does retirement wealth look like?

Among retirees aged 60 and over, wealthy retirees are on average about two years younger than other retirees, having an average age of 71.8. Nearly 97% of wealthy retirees own their home, compared with 76% of other retirees.

These retirees have net wealth in 2014 (when wealth was last measured by the HILDA survey) averaging over A$2.4 million at today’s prices.

While wealthy retirees have high average holdings of superannuation, investment property and other investments, the home is still the most important component of their wealth. The home is also the most important asset for other retirees, but in 2014 it was worth an average of only A$400,000 (at today’s prices) for these retirees, compared with A$800,000 for wealthy retirees.

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Wealthy retirees get most of their income from superannuation and other investments, although government benefits (mostly the Age Pension) nonetheless average over A$11,000 per wealthy retired household. For other retirees, the Age Pension is the dominant income source, averaging A$24,000 per household.

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The HILDA survey data indicates that both wealthy and other retirees on average pay little income tax – A$4,256 for wealthy retirees and only A$94 for other retirees. Indeed, less than 30% of wealthy retiree households, and only 5% of other retiree households, are estimated to actually pay any income tax.

Moreover, the data show that 42% of wealthy retirees, and 22% of other retirees, have negative income tax because of dividend imputation credits received on their holdings of Australian shares. This does not take into account taxes and imputation credits on dividends received by superannuation funds.

Given the tax-free status of superannuation in people’s “retirement phase” (albeit now only on the first A$1.6 million), it’s likely that more than 42% of wealthy retirees, and more than 22% of other retirees, effectively have negative income taxes.

Whether you consider Labor’s plan good or bad policy, given its exemption of pensioners, it is clear that its impact will be most acutely felt by wealthy retirees.

Roger Wilkins, Professorial Research Fellow and Deputy Director (Research), HILDA Survey, Melbourne Institute of Applied Economic and Social Research, University of Melbourne

This article was originally published on The Conversation. Read the original article.

Inside Google’s plans for its shiny new headquarters

Australia: Defence – The F-35

The F-35 Joint Strike Fighter is central to Australia’s air defence plans for the years ahead, however, the continuing delays are causing major issues for Australia’s current defence needs. The link below is to an article that examines the F-35 development program in some detail.

For more visit:
http://www.latimes.com/business/la-fi-0612-fighter-jet-testing-20130612-dto,0,4701367.htmlstory

Malaysian Sharia Law Outrage as Man Plans to Marry Young Girl He Raped

The link below is to an article that reports on a crime that is being pushed aside under Sharia Law in Malaysia.

For more visit:
http://www.guardian.co.uk/world/2013/may/22/malaysian-rapist-marries-victim-girl

Nigeria: Boko Haram and Amnesty

The link below is to an article that reports on plans to offer amnesty to Boko Haram in Nigeria, despite their terrorist acts.

For more visit:
http://www.persecution.org/2013/04/07/should-nigeria-provide-amnesty-to-anti-christian-boko-haram/

Nigeria: Plan to Grant Boko Haram Amnesty

The link below is to an article that reports on plans in Nigeria to grant Boko Haram amnesty, which I have to say I find difficult to accept.

For more visit:
http://allafrica.com/stories/201304050714.html

Syria: Plans to Arm Rebels Meeting Resistance

The link below is to an article reporting on the latest developments in the plan to arm Syria’s rebels.

For more visit:
http://www.guardian.co.uk/world/2013/mar/15/plan-arm-syrian-rebels-eu