Friday, January 14, 2011


In his latest offering, conservative Australian cartoonist ZEG imagines a minor tragedy in the Queensland floods. For overseas readers I maybe should mention that Queensland's best known beer is identified as: XXXX (Fourex)

Governments subsidize folly

With sometimes fatal results

WITH memories of the Victorian bushfires still fresh, the Queensland floods are yet another grim reminder of how cruel the Australian environment can be. The scale of the disaster, with its terrible loss of life, requires us to consider whether present policies properly manage the risks that environment creates.

The simple answer is that they do not. Rather, successive governments have allowed development in high-risk areas without requiring that development, and more generally those areas' populations, to face a price signal that properly reflects the costs those risks create. This has attracted additional activity to risk-prone areas, compounding the pain when catastrophes occur.

At the heart of the problem is the fact that each time disaster strikes, governments cover a large share of the losses borne by homeowners and businesses. This amounts to providing insurance at no charge, subsidising activity in high-risk areas at the expense of the areas where risks are lower.

Moreover, the willingness of governments to underwrite these risks at no charge has increased steadily since the Menzies government expanded drought relief in the 1960s, with ever fewer disciplines being imposed on public disaster assistance.

The unsurprising side-effect has been to reduce the take-up of private insurance, with the result that developers, homeowners and businesses are not exposed to the premiums that could force them to recognise the risk locating in disaster-prone areas involves.

That reduction in demand for private disaster insurance is then compounded by other distortions. High taxes on insurance are the most perverse of these, as they both discourage insurance take-up by low-income consumers and shift what demand there is to policies with high deductibles.

As well as suppressing demand, state and local governments reduce the supply of private insurance, particularly against floods. They do this by not providing adequately detailed maps of flood proneness. Deprived of that information, insurers cannot align premiums with risks, forcing them to charge high prices so as to reduce the losses to which they might otherwise be exposed.

This effect is substantial, with international studies suggesting that where reliable evidence on risk-proneness is unavailable, premiums are 25 per cent higher than need be. And in addition to responding by increasing premiums, insurers expand the range of exclusions, making insurance cover even less attractive.

The overall impact, cumulated over many years, is threefold. First, excused from the need to pay risk-reflective premiums, activity in disaster-prone areas expands beyond the point where its benefits exceed its costs, with the shortfall being foisted on to taxpayers who finance the "free" insurance governments provide. As property values rise, the quantum of the shortfall increases, compounding the distortion.

Second, absent an explicit price on risk, there are too few incentives for risk mitigation. Homeowners, for example, have less to gain from local government initiatives to reduce risk exposure, weakening the pressure for those initiatives to be undertaken. And for the same reason, there is less opposition to developments that increase risk than there should be.

Third, a vicious spiral is created, in which the increased scale of the population affected and the losses incurred, combined with low levels of insurance coverage, make it inevitable governments will step in with generous disaster relief.

This then merely confirms that taking out proper insurance coverage is individually irrational, reducing coverage ever further below adequate levels and accentuating pressures for future bail-outs.

A forthcoming paper by Anthony Bergin from the Australian Strategic Policy Institute canvasses options for breaking out of this morass. It is, in my view, impossible to do so without making disaster insurance coverage mandatory, offsetting the otherwise strong incentives for free-riding.

This is not to ignore the difficult issues mandatory coverage would raise. Nor is it to claim that insurance, with its risk-reflective price signal, would be a panacea. Rather, such a price signal will never be sufficiently granular, nor sufficiently responsive to individual mitigation efforts, to provide all the incentives for efficient investment in risk reduction.

There will therefore be a continuing role for building codes and other land use controls in managing the risks of catastrophic loss. But a price signal would reduce the load that has to be placed on those command and control regulations, with all the imperfections they inevitably entail.

But this does not exhaust the distortions that need to be addressed. Rather, it is also apparent that governments have underinvested in collective goods that could reduce catastrophic risks. Simply put, in cost-benefit evaluations of projects such as extending dams and building new ones, and of burning-off in high bushfire risk areas, too low a value has been put on avoiding outcomes with a very small probability of occurring but that result in massive costs if they do eventuate.

Environmentalists rightly stress the importance of taking these low probability-high consequence risks into account in the context of climate change. But they ignore those risks when it comes to decisions they dislike. And state and federal governments have been far too willing to bend project evaluation processes to pander to the greenies' demands. The result is to increase the likelihood of devastating loss.

We will never be able to completely avoid those losses, nor would it be sensible to try. The Australian environment has always been, and will always be, harsh and unforgiving, and the costs it imposes are inevitably high. But it is inexcusable for governments to make those costs greater than they need to be.

Now is a time to be generous. But as Queensland rebuilds, we owe the victims of this disaster a serious, considered reassessment of policies that have failed time after time, and that left as they are, will only fail again.


Greenie Boycott of Israel is beyond the pale

Anthony Albanese

AS part of Leonard Cohen's successful world comeback tour in 2009 he included a concert at Ramat Gan stadium near Tel Aviv in his itinerary.

For that he was condemned by some activists for promoting a cultural exchange in Israel. Never mind the fact that proceeds from this concert were directed to the Fund for Reconciliation, Tolerance and Peace. Groups which directly benefited included the Parents Circle, made up of both Palestinian and Israeli parents who have lost children in the Middle East conflict with the aim of promoting peace and reconciliation. Cohen described the concert as "representing a triumph over the inclination of the heart to despair, revenge and hatred".

The decision of the Greens Party-controlled Marrickville Council to "boycott all goods made in Israel and any sporting, academic, government or cultural exchanges", is unfortunate and misguided at best.

The council goes even further and suggests that any organisation or company with links to Israel should be boycotted also. It is not clear how much of ratepayer funds will be expended on this research.

It is doubtful how fair dinkum [genuine] the Greens Party councillors are, given that the resolution carried a month ago included a third point, that they would write to local parliamentary representatives "seeking their support at the state and federal level" and Greens mayor Fiona Byrne has not actually sent the correspondence.

It's not as if there are no policy challenges or local issues facing the mayor of Marrickville. The council is in the process of laying off staff, the mayor votes to close down Marrickville West Public School's childcare centre which provides vital support to disadvantaged families and the Greens have opposed a series of modest affordable housing proposals.

This ill thought-out attempt to challenge the state of Israel through a single local council in the inner west of Sydney is clumsy and counterproductive. I believe that engagement between peoples promotes understanding and tolerance and is worthwhile whether it be between national leaders or student exchanges.

Progressives have long argued for multilateral solutions to foreign policy issues and have therefore emphasised the role of the UN and other institutions. The Marrickville Council resolution contradicts this with its unilateral declaration that sanctions will be imposed and funded by ratepayers.

As Local Government Minister during Labor's first term I saw many examples of how local government has moved beyond rates, roads and rubbish, particularly in service delivery and community engagement.

International engagement through the development of sister cities programs is, in my view, positive as it promotes understanding and tolerance across geographic distances and cultural divides.

As a strong advocate of justice for Palestinians I, along with Joe Hockey, established the parliamentary Friends of Palestine group and was its founding secretary. Any lasting resolution to the Middle East conflict cannot be at the expense of either Palestinians or Israelis. Surely contact and engagement between Palestinians and Israelis is a precondition for a peaceful settlement.

If simplistic slogans were enough to resolve this issue it would have become a historical footnote of the last century.

Australians are making a contribution to global tolerance by the way that we have developed as a multicultural society. The inner west of Sydney is a microcosm of what is desirable in the international community, a place where neighbours live in harmony regardless of religion or race.

As it stands all those who attended the recent concerts of Leonard Cohen are in violation of the decree from the Marrickville mayor made on their behalf; lucky Cohen didn't try to perform at the Enmore Theatre!


Greens responsible for inadequate dams

There should be a weir across every flood-prone river in Queensland. A Leftist critic below points out why it has not happened

NO new dams of significant size have been built in Australia for more than two decades. During the recent long drought, the dam question arose again but the response from experts and governments was along the lines of: "Why build a dam if the climate has permanently changed in a way that means there will be less rain in future?

Opposition to dams has been a key success in the development of the green movement and the Greens party since the early 1980s. But the term opposition understates the situation: it is really demonisation of dams. In the Green quasi-religion, dams are evil, akin to a Satanic force. Thus, there must never be any big new dams built. Not ever. The Green policy is expressed at their website as a principle: "There should be no new large-scale dams on Australian rivers."

Had the Greens been as influential in the second half of the 1970s as they have been since the mid-80s, it is unlikely that the Wivenhoe Dam, on the Brisbane River, 80km from Brisbane, would have been constructed. (After years of planning and building, it was opened in 1984.)

The Wivenhoe was designed, following massive floods in 1974, with a flood mitigation function alongside the usual water supply role. Like all dams, it is an example of human beings changing the natural world, by unnatural means, into something very useful and necessary to us in terms of our needs, standard of living and future progress.

To the Green mentality and ethos, changing nature is destroying nature, dams are an assault on the "delicate balance" in nature, an example of human arrogance going too far.

In this regard, the Green outlook is a remapping of traditional Judeo-Christian beliefs and myths about the Garden of Eden and fall from grace as a result of humans eating from the tree of knowledge. We polluted the garden with our progress and Judgment Day is coming for us all, but we may seek salvation through 'sustainability'.

It is indicative of our strange times that opposition to dams, as a matter of principle, can be seen as left-wing. What is the traditional practice of left-wing parties in power on this question? What is the left-wing theoretical foundation for a policy on dams?

In practice, revolutionary left-wing parties in power - such as the communists in Russia/Soviet Union in the 20s and 30s and China in the 50s and 60s - were gung-ho in the building of dams. They did so because making a revolution is about changing things for the better, raising the standards of living and opportunities for liberation from wage slavery. To borrow from Karl Marx, it's about "unleashing the productive forces" - not forcing them into a sustainable relationship with nature.

It's about an attitude based on "You ain't seen nothin' yet!", not "tread gently - nature's resources are finite". But this is red politics, not green.

In chapter one of The Communist Manifesto, Marx expressed his enthusiasm for the revolutionary consequences of the rise of the new bourgeoisie in transforming nature and extending human horizons. He said: "It has been the first to show what man's activity can bring about. It has accomplished wonders far surpassing Egyptian pyramids, Roman aqueducts and Gothic cathedrals; it has conducted expeditions that put in the shade all former Exoduses of nations and crusades."

It is unlikely that he would not have been as awe-inspired by the wonders of large-scale dam construction and the range of benefits on such a vast scale arising from dams: the capture and storage of safe and reliable water supply, generation of hydro-electricity, irrigation, flood mitigation and recreational uses (all on a scale unimaginable in Marx's time).

The Wivenhoe Dam on the Brisbane River worked effectively in mitigating bad floods around Brisbane in 1999 but, alas, despite its 1.4 million megalitre flood mitigation capacity (on top of its water supply capacity of 1.1 million megalitres) it could not stop the extensive damage that occurred during the current floods.

There needs to be debate about all this. To what extent did the Wivenhoe mitigate the flooding of Brisbane? How much worse would it have been without that mitigation capacity?

And, while rejecting dogmatic opposition to dams, let's look to the future: geo-engineering and its possible roles in controlling rainfall.

It always strikes me, when these issues arise, how backward the social system of capitalism really is. Human lives and billions of dollars are lost, yet only a pittance is invested in geo-engineering research and development, let alone dams, and even that is contested by the reactionaries.


NSW: Aboriginal land council accused of theft and fraud

Among Aborigines, obligations to relatives far outweigh obedience to whitefella's law. So results like the one alluded to below are routine

Authorities are investigating allegations of theft and fraud at the Wellington Local Aboriginal Land Council. The Aboriginal Affairs Minister, Paul Lynch, has appointed an administrator to take over the organisation for the second time in two years.

Wagga based administrator, Andrew Bowcher, appointed a new board and Chief Executive in 2009. However he says in the past year the organisation has deteriorated.

"The Wellington Aboriginal Land Council unfortunately has for a period of months not been functioning," he said. "They haven't had their doors open, they haven't been able to have regular meetings and get the land council sort of moving. "There's been some allegations of some theft and fraud which we've got to work through as well."

Mr Bowcher says a meeting will be held with members next week to consider the council's financial position and the whereabouts of books and records. "It does seem like there are accounts owing and I'd encourage any creditor or anyone who is owed money by the land council to contact us," he said. "It is important that we get a good position of what is outstanding out there and the quantum of that as well."


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