Media coverage of disasters follows a broadly similar trajectory, even though the disasters themselves might take very different forms.
The COVID-19 crisis in Victoria is no exception.
Although it is unfolding over a long time instead of in a single dramatic episode, it is possible to see familiar patterns emerging, and events over the past three weeks indicate that a notable shift has taken place.
From impact and response – which constitute the first two phases of disaster coverage – the focus has broadened to include the blame phase. From a media perspective, this can be called the accountability phase.
This shift can be explained to some extent by a change in political rhetoric. The theme of unity across levels of government and party lines has begun to fracture, particularly with remarks by the federal treasurer, Josh Frydenberg, directed at the Victorian government.
On August 7 he said Victorians deserved answers about “serious failures with deadly consequences” in the state’s coronavirus hotel quarantine system.
However, Frydenberg was only echoing what the media had already started to investigate, and journalists with trusted sources had begun getting leaks.
In mid-July, The Age drew on leaked emails to reveal that a senior bureaucrat in the Department of Jobs, Precincts and Regions raised the alarm on March 28. Senior people in the Department of Health and Human Services and Emergency Management Victoria were urged to ask Victoria Police to deploy officers to the quarantine hotels.
According to the newspaper, the police were not asked, so no police were sent.
Two months later, the first case was logged of a security guard at Rydges on Swanston testing positive for coronavirus. This cluster grew rapidly to six cases.
Even though this startling information was now in the public domain, Victorian Premier Daniel Andrews remained focused on impact and response.
When asked what went wrong with hotel quarantine, he would say only that he was ultimately responsible and that retired judge Jennifer Coate’s inquiry would provide the answers. Meantime, he would not be running a commentary on it.
Victorian Health Minister Jenny Mikakos took the same line in state parliament on August 4. She later tweeted, though, that she was “deeply sorry” if her efforts had not been enough.
“Let the cards fall where they may”, she said, referring to the inquiry.
Principled though this is, it shows the government has not sufficiently appreciated that the trajectory of the coverage has undergone that important shift, from impact and response to accountability.
Coate has herself licensed public debate about these matters.
In failing to respond to repeated questions both in parliament and at the premier’s daily media briefings, the government has lost control of the accountability narrative.
A report in The Age and Sydney Morning Herald on August 8 rammed home this point.
It stated that the executive director of employment in the Department of Jobs, Precincts and Regions had been removed from their role over the quarantine bungle.
It went on to describe a well-intentioned, if misguided, decision to engage a company called Unified Security in the hotel quarantine operation. Unified was reported to have satisfied the criteria for receiving contracts under the government’s social inclusion procurement policy.
Moreover, the government’s international trade agency, Global Victoria, with no obvious experience in security or public health, reportedly also had a role in establishing the quarantine arrangements.
Even before these revelations, frustration was building among reporters at the government’s refusal to engage on the issue of accountability.
At Andrews’ daily briefing on August 6, a reporter from The Australian, Rachel Baxendale, pressed the premier for answers.
The upshot was that Baxendale, who was only doing her job, became the completely undeserving target of a stream of online hatred, including death threats.
This response suggests several things.
First, some people have a sociopathic problem with strong women in the media who try to hold powerful men to account. We saw it recently with a similar attack on the ABC’s Leigh Sales after she had interviewed the prime minister on the 7.30 program.
Second, Daniel Andrews may retain considerable support in the wider community for fronting up every day to tell unwelcome truths.
It stands in sharp contrast to the crass name-calling indulged in by Liberal MP Tim Smith, which has undermined the efforts of his leader, Michael O’Brien, to offer constructive proposals for economic recovery.
Third, the public may still be very much absorbed in the impact and response phases of the disaster and not ready to move on to the accountability phase.
This is sometimes difficult for the media to judge.
In the aftermath of the 2009 Black Saturday bushfires, the Victorian media were noticeably slower to get into the accountability phase than were the national and interstate media.
Victoria-based journalists and editors said that, in covering a disaster close to home, it was important not to get into the blame game while the community to whom they were publishing was still acutely anxious and grieving.
With an ongoing disaster, this judgment becomes even more delicate.
However, a second line of inquiry in pursuit of accountability that might be more in tune with community sentiment is open to the media: what went wrong in privately run nursing homes, for which the federal government is responsible?
Minister for Aged Care Richard Colbeck has not been giving daily briefings. Some close questioning of him might be in order, with less risk of public blow-back.
We’re all in this pandemic together. But we’re currently leaving it to a small proportion of the community to shoulder most of the economic pain.
It’s an approach that’s compounding social and intergenerational inequity.
To date the Australian government has committed A$320 billion to support households and businesses during the COVID-19 pandemic. The Commonwealth’s net debt had been projected to peak this year at $392 billion and then decline. Now that debt is set to almost double.
Paying the debt will likely take decades. The burden will fall mostly on younger generations, through higher taxes or reduced public services such as health care and education.
Younger workers are also bearing the brunt of the immediate economic effects. Industries with the biggest proportion of young workers have been hit hard. In arts and recreation services, a quarter of workers are under the age of 25. In retail it’s about a third. In accommodation and food services it’s almost half.
In the past, governments have imposed temporary levies after natural disasters to pay for recovery efforts.
But the peculiar dynamics of this crisis open the opportunity to introduce a temporary levy now. This would enable those with secure incomes to share the pain and reduce the double impost on the younger generation.
A temporary income tax levy is not unprecedented.
In 2014 the federal government implemented the “temporary budget repair levy” to reduce the budget deficit (then A$37 billion). Gross national debt was about $320 billion. The levy increased the marginal tax rate on the top income bracket (more than $180,000 a year) from 45% to 47%. It collected about A$3 billion over three years.
Given the magnitude of the deficit we now face, a similar levy makes sense.
An example levy is illustrated in the table below (based on income tax data from 2016). A 1% levy is applied to annual income between A$18,200 and A$37,000, a 2% levy to income between A$37,000 and A$90,000, a 3% levy up to A$180,000, and a 4% levy to income of more than A$180,000.
For someone on a median full-time income of A$1,463 a week, this would mean paying an extra A$17 a week in income tax.
Over a six-month period such a levy would raise about A$6.5 billion.
The main argument against raising income taxes is that it reduces incentives to work and lowers consumers’ disposable income, which dampens economic activity (and ultimately government revenue).
This, and the politics of tax, means governments usually wouldn’t dream of raising taxes during an economic crisis, because that would further reduce consumer spending and compound the downturn.
But the COVID-19 economic crisis is unique. It is suppressing spending by those with secure incomes because people are staying home.
Analysis published by The Sydney Morning Herald and The Age shows consumer spending fell to 13% below normal in late March. One-off government stimulus payments totalling A$5 billion reversed the downward trend in the first week of April. However, the effect of the one-off stimulus payments is likely to be temporary as higher-income earners, who didn’t receive a stimulus payment, continued to reduce their spending.
If people are spending less because there are fewer opportunities to spend, this novel aspect of the crisis reduces the likelihood a temporary increase in the income tax levy would have any negative economic effect.
Right now the costs of the COVID-19 crisis are being disproportionately borne by a small proportion of the population – the 700,000 Australians who have lost their jobs and about the same number relying on the JobKeeper wage subsidy.
Many of those who have lost their jobs were already in low-paid and insecure jobs.
As previous research on the longer-term effects of natural disasters has found, these types of economic shocks widen inequalities, with most people never making up the income they lose. A levy would reduce this inequity.
An advantage of introducing a levy during the crisis is there is clear time-frame to end it. It could be tied to social distancing regulations, ending when spending patterns return to normal.
Alternatively, the government could set a specific date to review the levy. It has already done this for funding initiatives such as telehealth consults during the crisis.
As China grows more powerful and influential, we’re publishing a series, The New Superpower, looking at what this means for the world – how China maintains its power, how it wields its power and how its power might be threatened.
Visiting Wellington in April 1996, I fell into conversation with a very wise and experienced New Zealand government official. We talked about the still-unfolding Taiwan Straits crisis, during which Washington had deployed a formidable array of naval power, including two aircraft carrier battle groups, to the waters around Taiwan. The aim was to compel China to abandon a series of missile firings near Taiwan intended to intimidate voters in forthcoming presidential elections.
In this, the Americans had clearly been successful, but my Kiwi friend was worried.
Success has consequences, and the consequences here are plain: the Chinese will now do whatever it takes to make sure the Americans can never do that to them again.
That remark sparked one of the trains of thought which led to the arguments in my new book, How to Defend Australia.
His remark has been proved right. China has always had a formidable army, but only since 1996 has it begun to develop as a maritime power, as well. In that time, it has made massive and, it seems, very effective investments in the air and naval forces required to fight at sea.
Today, it is quite plainly the world’s second maritime power, behind only the United States. And it now threatens America’s maritime preponderance in the western Pacific, on which US strategic primacy in the region ultimately and absolutely depends.
This is a remarkable achievement in such a short time, with immense implications for the security of countries throughout the region, so it is important to be clear about how it has happened and what it means, including for our own defence.
This is especially important because China’s achievement has been largely misunderstood by traditional naval powers like America, Britain and Australia, whose approach to maritime strategy is markedly different from China’s.
When it comes to maritime strategy, traditional naval powers emphasise “sea control” and power projection. This means their maritime forces are designed primarily to defend major platforms like aircraft carriers and amphibious assault ships, with which they aim to project power against distant adversaries.
China’s primary strategic aim has been the opposite. It has developed its naval forces to prevent adversaries – particularly the United States – from projecting power against China the way the Americans did in 1996. This is what naval strategists call “sea denial”, which boils down simply to the capacity to find and sink the other side’s ships.
In doing this, the Chinese have had three big advantages:
First, they have been able to exploit inherent advantages of “sea denial” over “sea control”. Since the late 19th century, a whole range of systems, weapons and technologies – including radio, radar, aircraft, submarines, sea mines, torpedoes, guided missiles and space-based surveillance – have made it progressively easier to find and sink an adversary’s ships, and correspondingly harder to defend them.
Second, the Chinese were able to access an array of Soviet military technologies and develop them further as their own technological base expanded and deepened.
And third, they have had a lot of money to spend, without breaking the bank, thanks to their fast-growing economy.
As a result, Beijing is now well-placed to prevent America doing again what it did in 1996. A US naval carrier approaching Taiwan today would be at serious risk of attack from China’s formidable ships, aircraft and submarines, as well as from its notorious, carrier-killer, land-based ballistic missiles.
So much so, in fact, that Washington would now be very unlikely to risk such an operation.
This comes as a surprise to those who still believe that America’s military is unchallengeable.
Of course, it is still very powerful, with an unmatched capacity to deploy and sustain armed forces far from its own shores. But that doesn’t mean it can automatically defeat any adversary it faces, especially when that adversary enjoys the advantages of fighting on its home ground, as Russia would, for example, in a war over Ukraine or the Baltic states, or China would in east Asia.
And wiser heads in the US military establishment understand this all too well. The Pentagon’s recent Indo-Pacific strategy report concedes that China is “likely to enjoy a local military advantage at the onset of conflict” in east Asia.
In fact, that understates the problem. America has no credible military strategy to overcome China’s “early local advantages” to achieve the kind of swift, low-cost victory in a potential war at sea that everyone has taken for granted for so long.
The only serious attempt to develop such a strategy – the US military’s “Air Sea Battle Concept” – was abandoned soon after it was promulgated six years ago. The reality today is that America relies on the implicit threat of nuclear escalation, embodied in its refusal to rule out using nuclear weapons first, to compel China to concede victory when US conventional forces cannot.
And how credible is that threat when China can retaliate against any nuclear attack with a nuclear counter-strike?
This swift shift in Asia’s maritime strategic balance has profound implications for the region’s strategic future. It does not just undermine America’s ability to defend Taiwan from Chinese military pressure, it undermines the credibility of US security guarantees to all its allies in the western Pacific, including Australia.
And that, in turn, undermines the foundation of America’s strategic leadership in east Asia, and paves the way for China to take its place – just as China intends.
It is this major change in the regional military balance, along with China’s relative economic weight, which makes the rapid eclipse of the old US-led order in our region now so likely.
As this happens, however, China faces a new strategic challenge. Its cost-effective maritime denial strategy has been enough to undermine US regional primacy, but it will not be enough to take America’s place and establish dominance of its own in east Asia.
For that, it will need to be able to project its own military power across the vast expanse of the Asia-Pacific region. And that requires China to build its own carriers and amphibious forces – as it is now doing – and expand its capabilities to defend them from future potential adversaries.
This poses a whole new problem for China because now the boot is on the other foot. China has been able to leverage the inherent advantages of “sea denial” over “sea control” to counter US power projection in the region, but future adversaries can do the same to thwart China’s own power projection.
And that has very important implications for Australia’s future defence strategies.
The bad news is that we can no longer depend on America to ensure that a major power like China does not threaten us militarily in the decades ahead, or to defend us if one does. We must therefore explore – more seriously than we have ever done before – whether we can defend ourselves from a major Asian power.
It is a daunting task, but the good news, as I argue in my book, is that we can exploit the advantages of maritime denial over maritime control against China if it tries to project its power against us, or our close neighbours by sea.
By rigorously optimising our forces for a maritime denial strategy, we might be able to sustain an effective defence against a major power. That would come at a high price – much higher than we are paying for defence now – but it is a price we could afford if we decided the risks we face in Asia in the future were high enough to justify it.
Are they? That’s the big defence debate we need to have now.
“Kick this mob out” shouted the front page of The Daily Telegraph reporting the calling of the 2013 election in which Tony Abbott was to triumph. Restraint and modesty have never been the hallmarks of tabloid newspapers. Sometimes they celebrate what they claim is their impact – most famously when the London Sun proclaimed “It’s The Sun wot won it” after the 1992 Conservative victory.
But it is a long time since any tabloid newspaper could plausibly claim such a role because their reach has shrunk so markedly. In 1972, the biggest-selling newspaper in Australia was The Sun News Pictorial in Melbourne, with a daily circulation of 648,000. Its stablemate, the Melbourne Herald, was the biggest-selling afternoon newspaper with 498,000.
By 2018, the print circulation of the merged Herald Sun was around 303,000, still the largest in the country. However, in 1972, Melbourne’s population was 2.6 million and by 2018 it was 4.9 million. The Sun’s circulation in 1972 was around one-quarter of Melbourne’s population. In 2018, the Herald Sun’s was about one-14th.
This is a stunning story of commercial decline and failure. Of course, over the past two decades, all major media have had their business models challenged by the digital revolution. But the decline of newspapers in relation to population had already been going on for several decades, partly because the first source of news for most people had become radio and television. My guess is that tabloid newspapers are the least likely of all legacy media to thrive in the digital age.
Beyond the changing technologies, where tabloid newspapers are on the wrong side of history, at least part of the reason for their decline is the changes in their own product. Viewed over decades, we can see how these papers, and especially those owned by Rupert Murdoch, have been on an editorial trajectory that is self-defeating and has added to their decline. Compare the Herald Sun of 2019 with the Melbourne Sun of the early 1970s.
One of Australia’s most distinguished journalists, Adrian Deamer, the first successful editor of The Australian until Murdoch fired him in 1971, later a senior legal adviser to Fairfax newspapers, had once been an editorial executive at The Sun. In the 1980s, he told me:
The Sun was extremely competent in its coverage of news. It was short and sharp, limited background. The Sun was then a serious tabloid, not like the Sydney afternoon newspapers. Its news covered the same things as The Age but sharper. It had a very wide, comprehensive coverage of the news, although it didn’t disregard trivia. It knew Melbourne better than any other paper knew its city. It presented Melbourne to Melbourne. It was very close to its readers. A remarkable association.
Tabloid newspapers are much less close to their readers now. One indicator suggesting this is how human interest news has changed. My research showed that in The Sun/Herald-Sun and Daily Telegraph, human interest stories covering “ordinary people” comprised 10% of all stories in 1956 but only 3% by 2006. Entertainment-related and celebrity stories had grown from 3% to 12% in the same period.
Perhaps there were changes in public demand, but equally it was much cheaper to feed off the spin of the entertainment industry than invest in the reporters necessary to engage with community news.
Perhaps the clearest sign of change is in the papers’ major columnists. For more than a decade, The Sun’s columnist was Keith Dunstan. His “A Place in the Sun” was marked by warmth and humour, eloquence and lightness of touch.
Today their major columnist is Andrew Bolt. Bolt is the highest-profile person to have been convicted of breaching Section 18C of the Racial Discrimination Act in an error-filled article full of bile against his Aboriginal targets.
Recently, Paul Barry on Media Watch called out some of Bolt’s Islamophobia
And if our politicians will not speak frankly and protect us from Islam, watch out for a civil war. A frightened public will not put up with this for much longer, and will defend themselves. (15-7-2016)
On March 25 this year, ten days after the massacre, his headline was:
Christchurch: Do the Greens have blood on their hands?
The default setting for Bolt and his fellow columnists is outrage. There is rarely consideration, let alone appreciation, of contrasting views. Rather there is dismissal of climate “warmists”, political correctness, the left and so forth. Waging culture war is their core business.
Today’s tabloids are the result of a long editorial trajectory. Murdoch’s London Sun is often blamed for many of the sins of modern tabloids. It had the page three girl, was irresponsible in much of its reporting, and full of marketing gimmicks. But that paper for most of the 1970s, under Larry Lamb, had a refreshing cheekiness and humour. After another decade under Kelvin Mackenzie, the humour was gone. Its politics and its view of the world were consistently nasty.
Perhaps there was a marketing logic to this. Its main competitor in circulation, the Daily Mail, set out on a similar course denigrating racial minorities, calling for more punitive approaches to crime, and denouncing those it disagreed with.
Paul Dacre’s last memorable front page before he ended his 26-year reign as editor was about the Supreme Court judges who ruled that the executive government had to get parliamentary approval for Brexit. The story screamed:
Polarisation runs through the way tabloids frame the news – between triumph and disaster; heroes and villains; common sense and absurdity. These papers offer their readers certainty and simplicity rather than ambiguity and complexity; they give them the opportunity to vent their anger at the modern world.
We should not romanticise the old Herald and Weekly Times newspapers. Their editorial outlook was rooted in a smug conservatism. Their international coverage was simplistic and stereotyped. They were unresponsive to emerging issues on the political agenda – including feminism, multiculturalism, environmentalism and consumerism. They were indifferent to many of the injustices in society.
But there was a tolerance and occasionally a generosity of spirit that is markedly lacking in their successors. Moreover, they believed in honest reporting. This in addition to their large audiences which gave them a political relevance today’s tabloids lack.
Probably the most important journalist in the Canberra press gallery during the Whitlam government was Laurie Oakes, working for the Melbourne Sun. It is impossible to imagine any Murdoch tabloid reporter having that centrality today.
Bill Shorten, unlike his predecessors Kevin Rudd and Julia Gillard, has recently been reported as deciding not to have dinner with Rupert Murdoch in New York to pay homage. This is a sound political judgment. Very few swinging voters are reading the Murdoch tabloids.
The papers are so set in their anti-Labor ways that there is little prospect of meaningful change in their news coverage. Moreover, the anti-Labor diet has been so constant that if the readers have not yet been persuaded to go against Labor it is hard to imagine what future coverage will make them do so.
Much of their coverage of the coming campaign can be anticipated. There will be unflattering photoshops of Labor or Green politicians. Each day will bring either a triumph for the government or starkly presented disasters and scandals for Labor and the Greens. But shrillness should not be mistaken for relevance.
For a long time, the tabloids have given up trying to engage with the range of views in a pluralistic and dynamic society. Instead they have practised ghetto journalism, catering to an aged, monocultural, alienated constituency.
Commercially, this is the equivalent of a political party knowing it is bound for defeat trying to save the furniture. Politically, it means their coverage is full of sound and fury, but signifying almost nothing of electoral relevance.
This piece has been corrected. It initially read that the “Kick this mob out” front page was on the day of the 2013 election. In fact, it was the day after the election was called.
When G20 finance ministers met in Bali last week to review economic developments in the lead-up to the annual G20 summit, they could not ignore troubling signs in the global economy driven by concerns about an intensifying US-China trade conflict.
Last week’s slide in equities markets will have served as a warning – if that was needed – of the risks of a trade conflict undermining confidence more generally.
China’s own Shanghai index is down nearly 30% this year. This is partly due to concerns about a trade disruption becoming an all-out trade war.
IMF Managing Director Christine Lagarde’s call on G20 participants to “de-escalate” trade tensions or risk a further drag on global economic growth might have resonated among her listeners in Bali, but it is not clear calls to reason are getting much traction in Washington these days.
Uncertainties caused by a disrupted trading environment are already having an impact on global growth. In its latest World Economic Outlook, the IMF revised growth down to 3.7% from 3.9% for 2018-19, 0.2 percentage points lower than forecast in April.
The IMF is predicting slower growth for the Australian economy, down from a projected 2.9% this year to 2.8% next year. The May federal budget projected growth of 3% for 2018-19 and the following year.
Adding to trade and other tensions between the US and China are the issues of currency valuations, and a Chinese trade surplus.
In September, China’s trade surplus with the US ballooned to a record U$34.1 billion.
This comes amid persistent US complaints that Beijing has fostered a depreciation of the Yuan by about 10% this year to boost exports, which China denies.
These are perilous times in a global market in which the US appears to have shunned its traditional leadership role in favour of an internally-focused “America First” strategy.
So far, fallout from an increasingly contentious relationship between Washington and Beijing has been contained, but a near collision earlier this month between US and Chinese warships in the South China sea reminds us accidents can happen.
This is the background to a meeting at the G20 summit in Buenos Aires late in November between US President Donald Trump and Chinese President Xi Jinping. That encounter is assuming greater significance as a list of grievances between the two countries expands.
US Vice President Mike Pence’s speech last week to the conservative Hudson Institute invited this question when he accused of China of “malign” intent towards the US.
Are we seeing the beginning of a new cold war?
The short answer is not necessarily. However, a further deterioration in relations could take on some of the characteristics of a cold war, in which collaboration between Washington and Beijing on issues like North Korea becomes more difficult.
By any standards, Pence’s remarks about China were surprising. He suggested, for example, that Chinese meddling in American internal affairs was more serious than Russia’s interventions in the 2016 president campaign.
He accused Beijing of seeking to harm Republican prospects in mid-term congressional elections and Trump’s 2020 re-election bid. This was a reference to China having taken its campaign against US tariffs to newspaper ads in farm states like Iowa.
Soybean exports to China have been hit hard by retaliatory tariff measures applied by Beijing in response to a first round of tariffs levied by the US.
“China wants a different American president,” Pence said.
This is probably true, but it could also be said that much of the rest of the world – not to mention half of the US population – would like a different American president.
All this unsteadiness – and talk of a “new cold war” – is forcing an extensive debate about how to manage relations with the US and China in a disrupted environment that seems likely to become more, not less, challenging.
Australian academic debate, including contributions from various “think tanks”, has tended to focus on the defence implications of tensions in the South China Sea for Australia’s alliance relationship with the US.
This debate has narrowed the focus of Australia’s concerns to those relating to America’s ability – or willingness – to balance China’s regional assertiveness.
This assertiveness increasingly is finding an expression in China’s activities in the south-west Pacific, where Chinese chequebook – or “debt-trap” – diplomacy is being wielded to build political influence.
Australian policymakers have been slow to respond to China’s push into what has been regarded as Australia’s own sphere of influence.
Leaving aside narrowly-focused Australian perspectives, it might be useful to get an American view on the overarching challenges facing the US and its allies in their attempts to manage China’s seemingly inexorable rise.
Among American China specialists, few have the academic background and real-time government experience to match that of Jeffrey Bader, who served as President Barack Obama special assistant for national security affairs from 2009-2011.
In a monograph for the Brookings Institution published in September, Bader poses a question that becomes more pertinent in view of Pence’s intervention. He writes:
Ever since President Richard Nixon opened the door to China in 1972, it has been axiomatic that extensive interaction and engagement with Beijing has been in the US national interest.
The decisive question we face today is, should such broad-based interaction be continued in a new era of increasing rivalry, or should it be abandoned or radically altered?
The starkness of choices offered by Bader is striking. These are questions that would not have entered the public discourse as recently as a few months ago.
He cites a host of reasons why America and its allies should be disquieted by developments in China. These include its mercantilist trade policies and its failure to liberalise politically in the three decades since the Tiananmen protests.
However, the costs of distancing would far outweigh the benefits of engagement to no-one’s advantage, least of all American allies like Japan, India and Australia.
None of these countries, in Bader’s words, would risk economic ties with China nor join in a “perverse struggle to re-erect the ‘bamboo curtain’… We will be on our own”. He concludes:
American should reflect on what a world would be like in which the two largest powers are disengaged then isolated from, and ultimately hostile to each other – for disengagement is almost certain to turn out to be a way station on the road to hostility, he concludes.
Bader has been accused of proffering a “straw man argument’’ on grounds that the administration is feeling its way towards a more robust policy, and not one of disengagement. But his basic point is valid that Trump administration policies represent a departure from the norm.
At the conclusion of the IMF/World Bank meetings in Bali, Christine Lagarde added to her earlier warnings of “choppy” waters in the global economy stemming from trade tensions and further financial tightening. She said:
There are risks out there in the system and we need to be mindful of that…bIt’s time to buckle up.
That would seem to be an understatement, given the unsteadiness in the US-China relationship and global geopolitical strains more generally.
This article is part of our series of explainers on key moments in the past 100 years of world political history. In it, our authors examine how and why an event unfolded, its impact at the time, and its relevance to politics today.
By orchestrating China’s transition to a market economy, Deng Xiaoping has left a lasting legacy on China and the world.
After becoming the leader of the Communist Party of China in 1978, following Mao Zedong’s death two years earlier, Deng launched a program of reform that ultimately saw China become the world’s largest economy in terms of its purchasing power in 2014.
Last year it accounted for 18.2% of total global purchasing power, compared with 15.3% for the United States.
A major turning point was the 3rd Plenum of the 11th Central Committee of the Communist Party of China, which took place in December 1978. For the three decades prior, production in China was structured around a central planning model: collectivised agriculture in rural areas and state-owned industrial firms (SOEs) in urban regions. The prices of goods and services were also fixed by the government rather than determined by supply and demand.
Deng recognised that the outcomes produced by the planned economy were poor, with more than 60% of the population living in poverty. That’s why he launched a series of measures such as opening up the economy to foreign trade and investment.
He summarised his distinctly pragmatic rather than ideological approach to development with the phrase, “It doesn’t matter whether the cat is black or white, so long as it catches mice”.
Under Deng, the market wasn’t given free rein immediately. There was no reform of the “big bang” variety seen in former centrally-planned economies of Central and Eastern Europe.
Rather, in the words of Barry Naughton, China’s economy was simply allowed to “grow out of the plan”.
For example, state-owned firms were not sold off to private entrepreneurs at the outset. Rather, privately-owned companies were permitted to emerge alongside SOEs. This gave Chinese consumers choices and the competition forced SOEs to become more responsive to market demand and efficient in their production practices.
The outcomes of Deng’s reforms have been without historical peer.
The latest data put the proportion of China’s population living in poverty at less than 1%. Of course, despite hundreds of millions being lifted out of poverty, this does not mean that all Chinese are rich: average incomes are still only around one-third of those in Australia.
The reasons Deng’s reforms proved successful can be traced back to two key factors.
The first is policy logic.
John McMillan and Barry Naughton showed that the newly-emerged private sector played a crucial role in improving the Chinese economy’s overall efficiency.
Another key consideration was that China benefited from its starting point.
Jeffrey Sachs and Wing Thye Woo pointed out that in 1978, most Chinese people were poor and living in rural areas. Compared with other centrally-planned economies such as the former Soviet Union, this made the task of shifting labour from producing low-productivity agricultural output to higher productivity industrial goods easier.
Just how far along the path to a market economy has China come?
That depends on the measure and the part of China’s economy under focus.
Last month, Meixin Pei, a professor at Claremont McKenna College in the United States, pointed to China’s state sector as evidence its economic growth would slow. He wrote that China’s economy was “nowhere near as efficient as that of the US”. And the “main reason for this is the enduring clout of China’s state-owned enterprises (SOEs), which consume half of the country’s total bank credit, but contribute only 20% of value-added and employment”.
Yet, perhaps unwittingly, Pei makes an important observation. SOEs may account for one-fifth of China’s value-added output and employment. But that means four-fifths now comes from Deng’s private sector.
Careful work by Nicholas Lardy at the Peterson Institute for International Economics has concluded that by 2011, China’s public sector, including SOEs, only employed 11% of China’s labour force. As a comparison, in 2013, Australia’s public sector accounted for 18.4% of total employment. In other words, at an aggregate level and in terms of employment, the private sector is more prominent in China than in Australia.
An OECD study in 2010 found that 87% of China’s 523 industrial sectors were highly competitive. They observed that this compared favourably with international standards, including with the US.
Commentators like Minxin Pei are correct that China’s SOEs do benefit from government policy support, such as cheap loans from state-owned banks.
But the data nonetheless point to China’s private sector being hyper-competitive in the sense that despite such discriminatory policies, the sector as a whole has continued to thrive.
In a 2016 paper for a Reserve Bank of Australia conference, Nicholas Lardy highlighted that in terms of output growth, profitability and indebtedness, private Chinese industrial firms outperform SOEs by a wide margin.
The prominent and vibrant role the private sector plays in China today means that its economic growth may be more sustainable than some of its critics imagine.
That said, the pace of economic reform has slowed under current Chinese leader, Xi Jinping, who took over in 2012.
Arguably the slowdown dates back even further. For example, in terms of subjecting Chinese firms to increased competition from overseas firms, China’s trade-weighted average tariff in 2000 stood at 14.7%. After entering the World Trade Organisation (WTO) in 2001, this fell dramatically to 4.7% by 2005. Since then, no further progress has been made. In fact, in 2016 the figure was higher at 5.2%.
Similarly, four decades after Deng began to allow foreign investment into the manufacturing sector, other parts of China’s economy, particularly the so-called “commanding heights” of the economy such as energy, telecommunication and finance, remain curtailed or off limits entirely. Overall, China is less open to foreign investment than high-income countries and many emerging markets as well.
This lack of reciprocity is at least partly responsible for much of the international community’s criticisms of China’s economy today. Jason Young, the Director of the New Zealand Contemporary China Research Centre wrote last week that the current US-China trade war is really a “dispute over what models of political economy are deemed fair and legitimate economic policy-making in today’s highly-integrated global economy”.
China’s economic growth, and therefore the world’s, will be more assured if Deng’s reform legacy is reclaimed by China’s current crop of leaders. Just announced tariffs cuts and new openings for foreign investment are steps in that direction.
First, the good news. The Parliamentary Budget Office’s latest medium-term budget projections provide
independent reassurance that the government’s personal income tax cuts, announced in the May budget and passed through parliament in June, can be funded without pushing the budget back into deficit.
But they also sound warnings about the downside risks from weaker-than-assumed economic or wages growth, and from any relaxation of the spending restraint
that successive governments have maintained since 2012.
The PBO projects the federal government’s “underlying” cash balance to improve from 0.8% of GDP in 2021-22, the last year of the latest budget’s forward estimates period, to 1.3% of GDP in 2028-29.
That’s after allowing for the revenue forgone by the tax cuts. Without these, and in the absence of any other spending or revenue measures, the surplus would have reached 3.7% of GDP (my calculation, not the PBO’s), largely on the back of the “bracket creep” that would have occurred without some form of personal income tax cuts between now and then.
Even so, there’s an awful lot of bracket creep.
The average tax rate across all taxpayers is projected to increase from 22.9% to 25.2% – that is, by 2.3 percentage points. For taxpayers in the second and middle quintiles (the middle fifth and the second-to-bottom fifth) it’s even worse. They will see their average rates rise by more than 4 percentage points. The average tax rate for those in the top and bottom quintiles will climb by less than 1 percentage point.
The PBO’s projections allow for only slight additional relief; small reductions in 2027-28 and 2028-29, worth about 0.4% of GDP, to ensure tax receipts remain within the government’s “cap” of 23.9% of GDP in the final two years of the 10-year projection period.
The PBO’s forecasts don’t allow for the government’s recent decision to abandon
the previously proposed cut in the corporate tax rate for companies with annual turnover exceeding $50 million, which it had been unable to pass through the Senate. That would add the equivalent of almost 0.5 of a percentage point of GDP to the surplus by 2028-29, unless offset by other measures (which it probably will be).
By law, the PBO is required to use the same economic assumptions in framing its medium-term projections as those used in the most recent federal budget.
These requirements mean the projections are conditioned on, among other things, “above-trend economic growth for much of the period” and “a return to close to trend wages growth” by 2021-22.
This week’s national accounts data lend some near-term support to the first of these assumptions, but they (and other data) cast further doubt on the likelihood of wages growth returning to trend in line with the budget assumptions.
The PBO notes that, as a direct result of the government’s personal income tax plan, any weakness in future tax receipts flowing from “weaker economic circumstances” will “flow through directly to the budget bottom line”.
The report highlights the importance of policy decisions in stemming the flow of new spending decisions and tightening eligibility for benefit payments since 2012.
Much of the impact of these will show up more clearly over the next decade. Apart from three areas – the National Disability Insurance Scheme (NDIS), aged care and defence, on which spending is projected to rise by a little over 1 percentage point of GDP over the next decade – other government spending is projected to
fall by around 2 percentage points of GDP between 2017-18 and 2028-29.
The PBO notes that “the spending restraint seen over the past few years … may be
increasingly difficult to maintain with an improving budget outlook”.
(Unintentionally) highlighting that risk, the PBO explicitly notes that the proposed further increase in the pension eligibility age to 70 between 2023 and 2035 – which the government abandoned this week – was “projected to have a significant impact on Age Pension spending … over the next decade”.