On Thursday, I joined John Humphreys of the Australian Taxpayers’ Alliance and Professor Chris Berg of RMIT University for an ATA livestream discussion on productivity (see Productivity ideas with Chris Berg). One of the most interesting parts of the conversation was on artificial intelligence (AI), which I’ve repurposed for my latest Economics Explored podcast episode.
Thankfully, the Australian Government has so far resisted pressure—particularly from unions and lobby groups—to introduce heavy AI regulation. Instead, it has adopted a wait-and-see approach, unlike Europe, where regulation is already slowing the rollout of new AI tools. Chris welcomed this hands-off stance, seeing it as giving Australia a chance to capture the benefits of AI adoption more quickly.
One of the more provocative points from Chris was his description of AI as providing “effectively infinite intelligence.” I challenged this idea, suggesting that while AI can synthesise vast amounts of existing knowledge, true intelligence involves solving new problems. Nonetheless, I share his view that AI represents an extraordinary advance.
We also discussed who wins and who loses in an AI-driven economy. Contrary to the usual automation story, Chris argued that it may be highly educated professionals who face more disruption than low-skilled workers, since AI excels at writing, analysis, and other cognitive tasks. At the same time, concerns remain about those unable to use the technology being left behind effectively.
Beyond work, AI raises broader social and ethical questions. We talked about AI companions, therapeutic uses (such as support for people on the autism spectrum), and risks of parasocial relationships or loneliness. The potential benefits are real, but so are the challenges.
Finally, one of the more imaginative suggestions was that low-skilled work in developed economies could in future be done by humanoid robots remotely operated from overseas. This would create a new twist on globalisation and migration policy—an idea worth thinking through further.
Overall, it was a fascinating conversation, with plenty of optimism from Chris about AI’s productivity potential, tempered by my own caution about the risks and unknowns.
If you’d like to watch the whole conversation with Chris, you can check it out on the ATA YouTube channel. In addition to discussing AI, we also discuss Australia’s Economic Reform Roundtable.
This article is cross-posted at queenslandeconomywatch.com. Please send any comments or questions to show host Gene Tunny at contact@economicsexplored.com.
Nineteenth-century American economist Henry George blamed poverty and depressions on landlords. George argued that their rents were associated mainly with public investments and should be shared with the community. Show host Gene Tunny speaks with returning guest John August about Georgism—the economic philosophy of Henry George that advocates for a single tax on land value. They explore the ethical and economic arguments behind taxing land, its historical popularity, and how it is perceived today. The discussion covers economic rent, speculation, tax distortions, and housing policy, critically examining Georgism’s assumptions and limitations.
Please let Gene know your thoughts on Trump’s tariffs and any questions or comments regarding this episode by emailing Gene at contact@economicsexplored.com.
You can listen to the episode via the embedded player below or via podcasting apps including Apple Podcast and Spotify.
Georgism, developed by Henry George in the 19th century, proposes a radical approach to taxation by advocating for a single tax on land values to address economic inequality and reduce speculation.
While most economists reject Georgism, the theory continues to have passionate advocates who argue that land value taxation could create a more productive and just economic system.
The Georgist perspective highlights how public infrastructure and community development can increase land values, creating unearned income for property owners without compensating the broader community.
Modern Georgists have moved away from the original concept of a 100% land value tax, instead advocating for a significant increase in land value taxation as part of a broader tax reform strategy.
The theory raises important questions about property speculation, economic rent, and the potential for less distortionary forms of taxation that could promote more equitable economic development.
Links relevant to the conversation
John’s federal election campaign website: John August for Bennelong
Transcript: Rethinking Property and Taxation: The Georgist Approach w/ John August
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
John August 00:03
The Georgists make, I think, a very good pace that recessions are associated with, over investment and land and property bubbles and so on. Now, whether you could stay there the cause of it, or just part of the wave that crashes, you know that a more subtle issue. The Welcome
Gene Tunny 00:25
to the economics explored podcast, a frank and fearless exploration of important economic issues. I’m your host, Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode. Please check out the show notes for relevant information. Now on to the show. Hello and welcome to the show. Today’s episode, I’m delighted to welcome back a long time friend of the show, John August. We dig deep into the economic philosophy known as georgism. Georgism is an economic philosophy advanced by 19th century American economist Henry George author of the 1879 bestseller progress and poverty, as Sylvia NASA explained, in Grand pursuit her amazing history of economic thought. George’s premise was that poverty was growing faster than wealth, and that landlords were to blame. They were collecting fabulous incomes not for rendering a service to the community, but merely because they were lucky enough to own real estate, having identified rental income as the cause of poverty, he proposed a massive tax on land as a cure. So that’s a nice, concise summary of georgism from Sylvia NASA. Georgism is rejected by most economists and is not as popular as it once was, although it still has some adherence, as John points out. This episode, I’m pleased to have caught up with John to discuss georgism and its legacy. I need to note that John is the fusion Party candidate for the Federal seat of benne long in the upcoming Australian federal election. If you’re a regular listener, you’ll notice that I’ve had two fusion party candidates on in the last few weeks. That’s not necessarily an endorsement of the party or its policies. It reflects the fact I have a disproportionate number of fusion party members who listen to the show and actively engage with me, which I must say, I enjoy and I’m grateful for. They’re saying interesting things that are worth talking about, and they’re saying them in good faith. And I’ve been happy to have these candidates on my show. I’ve previously had guests from other larger political parties on the show before, and I hope to do so again in the future. Okay, before we get started, a couple of things. If you’ve got any thoughts on this episode, if you’ve got thoughts on what I said, what John said, or if you’ve got thoughts on other episodes, please get in touch. You can email me at contact, at economics explored.com, I’d love to hear your thoughts. Second. I’ve got to give a quick shout out to our sponsor, Lumo coffee. They’re top quality organic beans from the highlands of Peru are packed with healthy antioxidants and economics explore. Listeners can enjoy a 10% discount. Check out the show notes for details. Now, let’s jump into the episode. I hope you enjoy it. John August, welcome back onto the program.
John August 03:40
Yes. Thank you. Gene, good. Good to be back again. Maybe one day, I’ll figure out something more creative to say than that. But never mind, that’ll do for the present. Very good.
Gene Tunny 03:48
Well, yeah, good to catch up. I mean, we’ve been meaning to have a conversation about georgism for a while, based on the economic or the economics and the philosophy of Henry George, so a US economist, you would say, in from the 19th century, who actually had some significant links to Australia. So I want to chat about that. And also want to chat about the fact that you’re running for Parliament too, for Ben, along which is John Howard’s old seed, if I remember. So had
John August 04:22
your that that’s correct. And then there was John Alexander, and then there was Maxine McHugh, and goodness me, um, Jerome, I think is the is the current member. So, yes, but I just happened to be been living in John Howard’s seat. So that’s just coincidence. And I put my hand into the ring multiple times over the last few years, I’ve actually outlived a lot of a lot of candidates. So Jerome like style. To be fair, he has lived in the area for quite some time, so he it’s so not to put down any other candidates, but he certainly has that genuine connection to the area, right?
Gene Tunny 04:58
Yep. So. You’re running for fusion party now. I chatted with one of your colleagues the other week, Owen Miller, who’s running for wills in Melbourne, and we talked about housing policy. So we had a good conversation. I’ve got some interesting feedback on that, so I’ll probably talk about that the next episode. I still have to think about some of it. So I think, you know, the ideas are, what I’d say at the moment is that the ideas are quite, you know, they’re very, what’s the word, not radical. But they’re, they’re different from what most people would be recommending. So they go quite a long way. And so they’ve generated quite a bit of feedback. So,
John August 05:38
well, look, I will say I have listened to a lot of your podcasts over the years. I have to admit, I just missed out on Owens one. Because what I do, I guess, every so often, I go and check your website and download a whole bunch of them. And I will say that I do that, but what I hadn’t read, I hadn’t listened to that particular podcast. But my more general sentiment is that, you know, housing has been an issue for probably as long as we can remember, and I think we really do need to turn things upside down in some ways to make any progress. And I don’t know the details of that episode, but I would certainly say it is time to try something radically new. And I don’t want to sort of cross with what Owen says, but I’ve said for a long time that our economy is out of balance. And obviously, whenever something’s wrong, people say it’s out of balance, and they’ll say, Oh, well, this is what we need to fix. But I do tend to think there’s too much economic energy, for want of a better word, poured into speculation and too little into genuine wealth building. So
Gene Tunny 06:39
Arlen and I did talk about the, you know, his concern about the amount of speculation and housing and what that what that’s doing to property prices and housing affordability. So, yes, well, I mean, if you get a chance here, be great if you can have a listen and let me know what you think.
John August 06:56
I’m intrigued that you’ve had a lot of reaction to it. I mean, you’ve been quite gracious in interviewing me multiple times, and I had people have found our discussions interesting, that the fact that people have sort of reacted to Iowans one, I guess that’s that’s a good thing in its way as well.
Gene Tunny 07:13
Yes, yeah, particularly the proposal regarding taxation of capital gains of owner occupied housing, I think is, is, is controversial.
John August 07:24
I would say that’s a very Georgia sentiment. I would would suggest, you know, whether I want to say land value taxation or however you cut it, yeah. I mean, georgism does emphasize land value taxation, but there’s various different ways of getting to that notion. Yes, so,
Gene Tunny 07:39
so that’s what I want to chat with you about today, because the way this conversation came up is that I think you once asked me, Do you hear much about georgism? Do you hear much about the ideas of Henry George and I had to admit, in the circles that I travel in, I had to say, well, actually no, but apparently you’ve got a different experience. So could you tell us a bit about that, please. John, okay, well,
John August 08:02
when you’re involved in progressive circles and you’re sort of thinking about, you know, what’s wrong, right or wrong with the economy, goodness, goodness me, have them describe it. You, you it’s very easy to stumble across Georges, who, goodness me, you might say, are a very passionate and evangelical. I don’t know whether this will get past the keeper, but, you know, a bit like Scientologists in their way, which is not to obviously, I guess I’m not trying to be too derogatory. I’m saying, Look, they’ve got an interesting point. They’ve got some interesting things to say, but the fact that they’re so passionate about it, and the fact that it’s a movement, you know, one of my metaphors has been, they’re like the drunk guy with a guitar at a party that won’t leave you alone. And for me, having the experience of people who were so passionate advocates. Where do you want to say they’re like Christians or evangelicals or whatever? For me, I really noticed that as a thing, as a movement, and you know, you hadn’t experienced in it. For me, it was a bit of a surprise, because I thought, you know, everybody would bump across a jaw just at least once in their in their life. But also talking to you, it’s possible to be, shall we say, pro land value taxation. Or say, you know, Land tax is a good thing. Now you say it in general terms, you give it a nod, but it’s not something you would prioritize. It’s not a hill you would die on, or something you would, you know, man the barricades for, but George, just take it one step further. Not only do they give it a nod, like I guess a lot of economists would would, but they take it one step further. It’s a cause. It’s something they advocate about. It’s something they they get into and put push forward. So there’s a definite movement out there. And I know there’s the public Australian publication, progress, and I think that’s by the Melbourne group, prosper. And you know, one of the things that they did at once, they don’t know if they’re still doing it, but they were running around in. Melbourne, sort of checking out how many vacant blocks do we have. And then they were doing an analysis of the water usage of blocks of units. And they were saying, Look at all this land being held out of use. And you know, people who were talking about supplies, sort of say, Oh, the government needs to release more land. And they say, Well, hang on. What about all this land that seems to be held out of use. And that was a very good point that they were making. And these are the sort of stories that they tell. But as we move on, I’ll sort of say that there’s a certain thing where I’ve been thinking about georgism so much, partially because you have these passionate people, or at least I’ve experienced these passionate people, you know, sort of pouring their this intellectual force onto me, and a while ago, I actually took the time to think about it very hard and very carefully, and I actually found that while there’s what you might call the minimalist georgism That I endorse, I endorsed it way back when, and I still endorse it, but the more I look at the economic theory behind it, the more I think, hang on, you guys are overstating your case, or you’re getting things wrong. You know, there’s, there’s basically a whole lot of things where, here’s a wheelbarrow, and you’re trying to, you know, load a load of VW into it, rather than a few bags of cement or whatever, you know, but, but, yeah, I guess that’s certainly something we can start to look at. It’s that it’s sort of got to do with, like, here’s the fair point they make, and here’s this broad economic framework that they build around it. And I’m looking at that economic framework and going, I don’t know about that, you know? Yeah, so I suppose, shall we? Shall we get started on that and see, see how we go?
Gene Tunny 11:36
Yeah, absolutely. So I just want to, I just want to convey what I’ve always understood georgism to be about. It’s about the notion that, well, you know, land is the, you know, one of the fundamental factor of production, and there’s a, there’s a rent that’s earned from the land, and the idea is to tax, you know, the bulk of that rent, essentially, isn’t it? It’s to take a huge amount of that, that rent, the ground rent, the rent from the unimproved, or the the unimproved value of the land. So not taxing any betterment, anything that you’ve added to the land, and potentially having a single tax. So georgism is associated with having that site value tax, or land value tax as the single tax. Is that? Is that right? I
John August 12:29
think historically, that was the case. But I think most modern Georges just sort of say that, like, look, it would be good to have a lot more of our tax going via land value taxation. And I think few of them would say, let’s do 100% but they’re more saying, no, let’s double it. Let’s triple it. And you know, as the economy settles and hopefully people get used to it, maybe one day we’ll have 100% but I don’t think many Georgia actively say 100% but you know certainly that historically, I do believe that was the case, right?
Gene Tunny 13:03
And with the So, with, with the georgism. So this is associated with Henry George, who was a an American economist, and he had a link to Australia, and he gave a famous talk in Australia that was well attended in Melbourne. I believe, do you know that store at all?
John August 13:22
Well, I do believe he toured Australia, and he gained a lot of converts. And the other thing is that a lot of our council rates are sort of my understanding is that we tag into the unimproved value because of Henry George’s inspiration. And people were listening and thought, hey, that’s a good idea. But notice that’s how we levy rates, which is a small part of, I guess, the total tax take, the total expenditure of government. And my understanding is that originally, Canberra was also built somewhat along Georgia’s lines. But what they wanted to do was say, we want to have good economic activity. We don’t have speculators sort of sitting on land and sort of using that to sort of make profit with. So Canberra was constructed on a very different basis. Now, you could say that Georgist ideal in Canberra has been diluted lately, and that’s a more complicated story that I’m not really on top of. But you know, it is my understanding those two things in Australia, did have a Georgist inspiration? Yeah,
Gene Tunny 14:24
yeah. So, yeah. Good point about local government rates and and now, I mean, the main tax base in Australia is, is income, okay? So the well, particularly at Commonwealth level. I mean, I guess all over Australia. That’s where the bulk of the tax revenue is is raised from. It’s by taxes on income. Is by taxes on, you know, company profits. And then we’ve got the GST, of course, Goods and Services Tax. So and land value taxes are going to be a much smaller percentage of. Of the of the total tax take. So not really where, you know what the Georges would be advocating for.
John August 15:07
Okay, so, So way back when I think I told you a story, and it’s a story that I still get behind, and I still endorse it, is that if we have a property and you know that the council builds a garbage dump close to us, we’re probably going to, you know, run to government or run to the courts and try to get compensation for that. But if the government builds, let’s say, a railway station about a kilometer distance, obviously, if it’s too close, we might whinge about the noise, but if it’s a kilometer distance, it’s just going to increase our land values. But while in the first case, there’s a cure of people wanting to give the government, wanting compensation of the government, in the second case, there’s no queue of people who have said, Wow, you government who increased my land value, I’m so guilt ridden by that. Here’s your share of that, right? Yeah, that that is a story that I still relate to, and the story that the Georges tell. And certainly it is possible to see that like on the one hand, there’s speculation, there’s buying land, letting its value grow, but there’s this ethical problem where it grows as a result of other people’s effort, and you get that bonus, and there’s a moral problem with that. And I think that’s what the Georgia site, and I do quite agree with that. But you know what you were saying earlier? I think you mentioned two things. One was site value improvements, and then economic rent. Yes, and one of the interesting things, and then you’ve got economic rent. Another interesting story is to do with dead weight loss. But the thing about economic rent is that in classical economics, rent was like unearned income, so it’s just just a bounty that comes in. And according to neoclassical economics, economic rent is any return to something that is in fixed supply. So you have quasi rent, or you say something is in short term shortage, so it will earn a rent. And the georgists love to sort of grab hold of just the definition, the classical economic definition of rent. You know, this is unearned, but they don’t want to acknowledge the neoclassical innovation or change in ideas. And I’m respectful of both these ideas and saying history of ideas. And you know, one idea was for one purpose, another idea was another purpose. Let’s not dismiss any of them. But the other thing is, they love to grab hold of concepts in neoclassical economics, like dead weight loss. Now it’s my understanding that deadweight loss comes from neoclassical economics, so they want to grab the classical economic definition of economic rent, but then ignore the neoclassical definition of economic rent and grab hold of their definition of deadweight loss. So they’re sort of picking and choosing selectively. And if you go to Georges, there’s two ways that they relate to this. One is a conspiratorial approach, and another one is, Don’t look behind the curtains. Now the conspiratorial approach and you will find it. They say that neoclassical economics was developed to defang Georgist economics because it had this critique of capitalism and how land value was accumulating. So people develop now classical economics to defang it. And they also change the definition of rent from the from the, from the classical economic to neoclassical, to defang it. And if you actually look at, I think it was Marshall, one of the people who got behind, I think, the marginal economics revolution, and he actually looked at georgism. And if you look at what you might call the vibe of the thing, you know he was into georgism. He was into justice and understanding economics from a like justice and what’s fair point of view. And he developed marginal economics. And there were a lot of, I think you could say legitimate improvements to economics that came from neoclassical economics. And it was actually someone who was involved in that that did that. So I think it’s a it’s a distortion to say that. And there are some commentators who say, look, one of the things they did was that they did sort of put some of the ideas, if George isn’t, to one side. And, you know, went to went to neoclassical economics. But when I say, that’s the conspiratorial No, that’s the conspiratorial node. And then there’s another one, which I call the Don’t look behind the curtains thing, because, you know, in the pages of the Progress magazine, you actually have someone who is saying, Oh, well, neoclassical economics emphasizes this. Classical economic. Neoclassical economics emphasizes this. You know, George just emphasized this. And here’s. These all different schools of thought which emphasize different things, but it ignores that, you know, classical economics had one definition of economic render. Now, classical economics had a different definition of economic rent. So that’s the narrative that I call the Don’t look behind the curtains narrative. And you know, another thing that you will find in georgism, if you look around is what I call an accounting error. They will say, look, here’s this taxation. It causes a distortion to the economy and and that’s your your your dead weight loss. And obviously their argument would be that land value taxation doesn’t cause dead weight loss. So it’s the more effective form of taxation. Now let’s say, look, there’s a broad sentiment here, which I will actually endorse, say, but in now, it’s nice to have the least distortionary form of taxation, as I say, I think that is where a moderate number of mainstream economists will get on board. As I say, though it’s not a hill they will die on. It’s not saying there were man the barricades about but they will nod and go, yeah, yeah, that that’s that’s a fair point, yeah. So, so they will say that, but then, if you read some of these narratives, it’s like there’s an accounting error. They forget that the tax might actually be spent on a public good, and you might get a return on that expenditure that actually exceeds the distortionary cost of the tax, right? So they’re forgetting one of the accounting columns, which is, yes, your tax, but the tax is actually spent on stuff, and what’s the return on the expenditure associated with the tax. Now, don’t get me wrong, it’s still, there’s still a good argument for saying we should minimize the distortionary effects of every tax. Okay, fair enough. That’s that’s a certain valid concept, so you park it over there. But when you look at the analyzes, they say, here’s the tax, here’s the distortion. And look at how much the distortion sort of messes up the economy, and they forget to mention that the taxes are actually spent on something in the economy. So there’s this sort of administrative error, you might say, or an accounting error, forgetting one of the columns.
Gene Tunny 22:06
Well, I mean, are they arguing that their their land value tax, that’s, that’s the period away way to raise the revenue. So they’d be proposing a tax, a switch, a change in the tax mix,
John August 22:18
that is, that is correct again, you’re, you’re, you’re taking one well, correct me if I’m wrong. It’s my understanding that the dead weight loss concept comes from neoclassical economics. So taking one concept from classical economics, that definition of economic grant, and then grabbing your concept of dead weight loss from neoclassical economics and saying, Look, if we, if we do this, you know, we will have less distortion, and therefore less better prosperity. And that’s an argument which holds weight. I mean, I’m not going to argue with it. But notice, when you do the balance sheet, there are many parts of the balance sheet when they’re making the argument. You like to take my word for it. It’s something I’ve noticed along the way.
Gene Tunny 23:00
Yeah, well, let’s talk about that. So just on the taxes being distortionary, so that’s correct, and that’s because you earn an extra dollar, the government will take a proportion of it, and it takes a higher proportion, the more the higher income you are. And so there’s an argument that, you know, there will be some people who don’t work that extra hour because, well, they only, they don’t keep as much of it as I’d like to keep. So there’s the potential of income tax, in particular, reducing labor supply, of affecting work effort. And there’s, you know, huge literature on that. To what extent does that? Does that occur? But we think, and also commodity taxes or they’re going to discourage some consumption, and there’s going to be a dead weight loss associated with that, a loss of consumer surplus. So we know that those taxes are distortionary. The argument for land value taxation is that if you tax the the unimproved value of the land. If you’re just taxing the the value, or the the return to the the owner of the land that’s generated from it just being where it is, rather than any improvements they’ve they’ve made to the land, then that’s not going to affect behavior, because the land can’t move. I mean, the land’s there, okay, the land’s not mobile. It’s not, you know, if you tax the there’s that whole debate about billionaire taxes or wealth taxes, and one of the common rebuttals, or the or points that’s made is, oh, well, they’ll just leave. They’ll just leave the UK. They’ll just go, they’ll just go elsewhere. Well, the land can’t go anywhere else, so there’s no deadweight loss associated with that. That’s the That’s the view.
John August 24:48
Yeah, well, I would certainly agree with that argument. I suppose taking it a bit further, there’s the distinction between the unimproved value and the value of. Of the, what do they call it? The the add ons, I forget what the word the improvements. That’s right, improvements. And look that there’s a certain logic in that that makes sense. But equally, they’re sort of, they’re forgetting that these things are entangled. Because the more valuable the land is the more flaws you can build and the more flaws you can build profitably. So in a sense, you are making a profit from putting improvements on the land, but you can make more profit from improvements if the value of the land is larger to start with. So in a sense, it’s it’s post both valid to separate these things out. And I think the Georges make a fair point, but what they forget is how entangled these things are as well. And you know, one of the things that Georgia say is land is not created anymore. And there’s a lot of maxims that they say like that, which I guess you say, are true, but misleading. Land is not being created anymore, but possibilities for higher density land use are being created over time. As land becomes more valuable, you can actually put a building with more floors on it, and do that profitably in a way that makes sense. So there’s sort of some of these, as I say, some of these economic maxims that come out of georgism. And I think you sort of think of that and go, maybe it’s sort of true, but there’s a bigger and richer picture here, which is not to say that it’s wrong, I suppose, but you can see there’s, it does feel like George isn’t is missing out on stuff. Because when I think Henry George was operating it, you know the idea that someone would go in and build a 20 story, you know, apartment block. I mean, basically people would build something with two or three stories, if you were lucky. So you know that the world was different back then. So
Gene Tunny 27:01
yeah. So let’s check out his dates, 1839 to 1897 his writing was from Wikipedia. It was immensely popular in 19th century America. Sparked several reform movements of the progressive era, and he inspired the economic philosophy known as georgism, the belief that people should own the value they produce themselves, but that the economic but that the economic value of the land should belong equally to all members of society. And he famously argued for a single tax on land values it would create a more productive and just society. So, yeah, I mean just fascinating. And I mean hugely popular at the time, and apparently they had, when he was buried, there was one of the, you know, was it a fifth of the population of New York City, or turned out for the burial, or something like that? I think I saw. It was just, just extraordinary to
John August 28:01
me. But it sounds quite possible. Yes, apparently he was at the focus of quite a substantial movement. And the interesting thing is that he was somewhat contemporaneous with Marx. And the thing is, in the UK, people being denied land. Wasn’t that strong a thing? I think there was the enclosures movement. There were diggers and levelers and so on. But Mark’s been close to be worried about factory owners paying people the absolute minimum rate, and then they’d be cast off onto the street. And notice Henry George had his sentiment more was rather than the business owners, you know, paying their employees whatever amount. He was saying that people will charge such high rents that people will be on the scrap heap. And it’s interesting. I’m not well, who knows. I’m saying a lot of these things. I’m not sure if anybody else has identified them, but I did notice a certain parallel between marks and George in, in, in in that way that they were both saying, Look, business or landlords or whatever, are going to do certain things and screw people over. And now there’s a certain logic in both of them, I suppose. But it’s interesting that when marks appeared on the scene, you know, all that stuff about diggers, levelers and and the enclosures act and so on, I think that had sort of passed, it seems
Speaker 1 29:23
okay. We’ll take a short break here for a word from House sponsor.
Speaker 2 29:29
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now. Back to the show.
Gene Tunny 30:02
So you made that point about the value of the land being improved or increased by infrastructure. I think Cameron Murray did some estimates of how much gold coast light rail increased the the value of of property around around Gold Coast light rail, which I thought was a good study. I’m trying to remember, I think Cameron is he’s a supporter of are they do? They call them Betterment taxes. Is that something that you support? Yeah, Betterment
John August 30:30
taxes. Now, he was originally talking about the right to build higher floors and the right to that space above the thing and being charged for that space. And I have to say, obviously he’s going along the lines of Betterment taxes, but, but it was actually his inspiration that made me think, land may not be created anymore, but opportunities for more intensive land use are being created. And in a sense, it was his perspective that was a bit of a leg up to me developing that particular insight. So, so yes, I have to give a nod to Cameron on that one. And yeah, he was saying that the ability to build buildings, that bit of space should actually be auctioned off. So yeah, and you can wonder what’s going on there is that bit of space more properly attached to the improvement or the land. And again, George, by distinguishing, you know, unimproved value of land from improvements, it’s sort of a useful concept, and I don’t want to deny the worth of it, but when you start to unpack it, my God seems getting muddled and complicated. You know, yeah,
Gene Tunny 31:40
yeah, I think that’s the good point. Difficult. It could be difficult to apply. Yeah, absolutely. John, can I ask about as a What’s your view on the you know, a lot of economists argue that we should move away from stamp duty on property transactions. We should move to, well, land tax increase, increased land taxes. Or have people they can opt out of paying the stamp duty and then switch to land tax. Do you have any thoughts on those type of proposals?
John August 32:14
Well, I’m broadly supported of that because, you know, let’s say it’s an economic abstraction, but you can say, if people can move, they should be able to move. And if you have blockages to that, like people have to play stamp duty, then that’s a disincentive for them to move. And I mean, that’s an abstraction, I think it has a definite amount of validity, and that if you have paid your land value taxation, then when you reach the point of wanting to sell your property or buy someone else’s property, the cost of doing that is like, well, just, you know, whatever legal costs or administrative costs, but there’s No actual Extra, extra financial tax that’s really at the point of point of sale, and that that’s a good thing, because you increase sales. And one economic principle is if everyone buys and sells, and everybody is closer to optimum, or closer to their their maximum happiness, and so on. And you know, I think you can undermine that economic principle, but there’s a certain amount of truth to it, and by implication, if people are moving around, but but going off on a bit of a tangent, we do have the situation at the moment, I think I’ve mentioned it before, where you have reasonably well to do suburbs. They have schools, and the school teachers, the people who clean the schools, the nurses who work in the hospitals. You know the fire is the police can’t actually afford to live in that area. And, like, you have to say, look, there’s something wrong with this picture. And some councils are developing key worker accommodation, which is a particular style of public housing, you might say. So, so yeah, that that’s sort of, I guess, complicating the whole, whole picture of like, stamp duty and like. What I’m trying to say is, it’s good if people are buying and selling to move where they should be, but the deeper story is if people, if police policemen, or police officers and nurses and so on, can’t actually move to be close to where they were. You know, that’s that’s a bit messed up as well. Yeah,
Gene Tunny 34:22
it’s interesting. That whole the fact that they’re having to find, you know, provide key work accommodation. And this is in, you know, this is not someone, somewhere remote where it might be. You know, there’s only so many properties, and it’s costly to build a new one. This is in the middle of, presumably you’re talking about places like northern suburbs of Sydney. Are you North Shore Sydney? Yeah, that’s right. Yeah, right. And because I know, I mean historically, like the education department would provide houses for teachers in remote parts of of Queensland or new. South Wales, I think, and and I visited a town in or I visited a potato processing facility in in the Riverina, and that company, it actually owns them houses in in the town, I think it was Hillston, because for accommodation for their their workers, because they know that otherwise they may not be able to find places to live. It’s extraordinary that they have it schools and and, you know, all councils are having to do that in major cities. It’s extraordinary. Yeah,
John August 35:33
yeah, so, but I suppose, look, we might move on to some other things, I suppose, but I’ll there’s, there’s so many things I can say, but let me try to say a few more things. Now, one of the things that George talks about is they talk about the division of labor, but they don’t talk about skilled labor. And there’s, like, a moderate number of holes in their story. Because one Georgia story is that if you have, let’s just say, a township, and all it’s really got is one railway state, and over time, it builds into a decent sized Township. And George says that between when the township starts up and when it matures, five or 10 years later, the the wages of basic labor will not increase, but the rents will go up, right? And on the one hand, he’s true to say that, but George has also talked about division of labor and specialization, and while that observation, he said, is true, the opportunities for skilled labor in a mature economy will be there that weren’t there when it was first starting out. So so while the way so the wages of unskilled labor may well be the same, it’s quite possible there are now opportunities to skill labor, so the average wage will go up during that growth period, but, but the George’s perspective just focuses on how rent is going to go up, and doesn’t talk about how the economy will change over time. Then there’s sort of quantum, Quantum Leap effects, where, let’s say you have a bookstore, and then the bookstore has to compete with like overseas booksellers on the internet, so it can’t be profitable. And what then happens is those bookstores are replaced with service stations, because basically you have to fight buy petrol from somewhere locally to put in your car, but you can sort of basically buy books by post. And that’s saying that the I guess, the ecosystem economic the diversity in your local economic ecosystem, will sort of be affected as rents go up and opportunities are less so, you know, there’s, there’s some interesting Georgia’s perspectives and, and, oh yes, there’s one or two others like, you know, the idea that Georgia’s taxes will not distort the economy as much. I mean, you have all this picture of, like, macro economics, of, you know, taxation, productivity, inflation, employment, unemployment, and so on. And in all the stuff that I read in Henry of George’s commentary, of all the articles I’ve read, maybe only one, incidentally, spoke about macro economic concepts. I mean, yes, they will bang on about you know, look, this text is less distortionary and, and that’s probably true, but they never go into the whole macro economic picture. Another one is that interest rates are an important part of our economy. And, you know, I think, think what I think I’ve had a separate discussion with you. And, you know, let’s say one of the things you might at the story we’re all told at school is, you know, you go and get a bank loan. And what that means is that, rather than saving for 30 years and then buying a house, you can buy the house now and then pay the loan off for 30 years. And it’s actually better to get that house sooner. And that’s a story that’s told at school. But the problem is, when we go out in the world, it’s not like the houses have a fixed price. It’s more a price that is bidded for. And we go out to the bank and basically get bigger and bigger loans and bid up the price. So it’s not like we’re getting a bank loan for something that was a fixed, fixed cost. The the cost is sort of the purchase price is influenced by the loan that we get and that sort of, you know, the availability of money in the interest rate and so on. And my broad, broad brush approximation is that the front end the developers, there will be, I think, a fixed price for land, and they’ll buy a certain amount based on interest rates and their expectations of future return. But when we buy stuff, the supply is fixed, and we bid up the prices, partly based on on bank loans. Now there are some George’s comment commentators, as I said, 10 years of articles, and maybe one of them talked about interest rates, and it was more saying that if you actually hold. Land, then you don’t have to pay interest on it, or you can get a lower rate of interest. And I know Cameron Murray, he was talking about the idea that people might strike an option and convert their land, and you have the idea of you can be paying interest on land, or if you own it outright, then you’re only paying the opportunity cost of not developing and I think Cameron Murray develops that theory a bit. And so notice this. These are all very interesting stories. And you know, you read 1010, years of George’s publications, and one article might comment on this factor, or another article might comment on that factor. And yeah, it’s a bit strange. It seems that there’s a lot more that could be done with these Georgia’s ideas than it isn’t
Gene Tunny 40:46
a lot more. What do you mean exactly? Where do you think that I’m just trying to, I’m just trying to understand what’s, what are the implications of what you’re saying? I mean, what is your
John August 40:57
there’s economic modeling which sort of says, oh, you know, we increase tax and we reduce economic output, and that’s sort of going to say, you know, what’s the size of the economy, what’s GDP like, what’s productivity like, what’s employment like, what’s inflation like, and so on. And okay, so we change the tax we we change it from what we’re doing, from the mix tax mix we have at the moment, to one that’s based on land value taxation, and what’s the macro economic effects of that? Now, I suspect they would be positive, but apart from just this hand waving argument of, oh, you know, the economy will be less distorted, there’s not really a development of the macro economic consequences of this sort of tax shift, and I suppose also the fact that interest rates do mesh into our story. And, you know, we don’t want, just want to think about, you know, the the escalation in property values. We probably also want to think about what interest rates are doing along the way. And I suppose one thing that the Georges have is they have a particular perspective on business cycles, and that, you know, investment in property is a trigger for business cycle, so they expend a lot of intellectual energy on that particular story. And, yeah, but, but anyway, look, there’s, there’s other things I could say, but maybe I’ll leave it at that for the present, I suppose. Well,
Gene Tunny 42:15
I mean, at times it is. I mean, we know that. I mean, there have been several crashes in Australia, well, and in the US. I mean, there’s been at least one. There was the crash or the recession in the early 90s. I mean, that was preceded by the boom of the late 80s, and a large part of that was, you know, a lot of commercial property investment. And in the US in the lead up to the financial crisis of 2008 we obviously had all of the, you know, the big housing boom there. So, yeah, I mean, clearly, okay,
John August 42:50
well let, let’s say the the thing is that the jaw just make, I think, a very good case that recessions are associated with over investment and land and property bubbles and so on. Now, whether you could say they’re the cause of it or just part of the wave that crashes, you know, that’s a more subtle issue. But certainly property bubbles and property disruptions are associated with recessions and, you know, just have something interesting to say there. But, you know, there’s just no, I guess there’s just so much to think about. You know,
Gene Tunny 43:27
yeah, yeah, absolutely. I mean, I think, I think you raised some important issues. I think we’ll have to come back another time to the impact of of interest rates on or credit and interest rates on property values, because clearly there’s a relationship. And you would have seen, have you seen the Saunders tulip research, the RBA discussion paper on housing there their model? I’ll send you.
John August 43:54
Who knows? I have a vague feeling I’ve glanced at it five or 10 years ago, but yeah, I guess it’s not something I’m mindful at the moment. Let me see. Now you’re talking about, let’s see so, so remind me what was some of the content of that paper.
Gene Tunny 44:11
So trans Saunders and Peter tun who are working at the Reserve Bank at the time. Peter is a colleague of mine at Center for Independent studies now trends now works at Queensland Treasury Corporation down the road from me. At the moment, they developed an econometric model of the Australian housing market and the variables that move property rents and property prices the most interest rates and the population growth, so yeah, or dwelling stock per capita, yeah. Well,
John August 44:46
you’ve probably heard me talk about population growth and infrastructure deficit and this sort of thing. Now that you’ve mentioned it, I do remember one of the stories that Cameron Murray told was that you can, you can rent. Rent a house, or you can rent money from the bank to pay off your house, sort of thing, correct? And that was a very cute sort of way that he had of describing some of these interactions, so that, yes, I would say, like, look, interest rates are part of the picture. I tend to think that what you might call the underlying Georgist ideas about land ownership, injustice might also be a part of the picture, but notice, I’m not going to just focus on Georgia, the Georgia part of the picture. I think there’s a lot of complexity there, and I think interest rates are part of it. As I say that in all the Georgia literature that I’ve read, I mean, I’m not saying I’ve read everything, but obviously you’re in Australia to read the Australian publications. You read them for 10 years, and an interest rates get mentioned maybe once or twice. So for me, there’s a, there’s a rich picture here that seems to be ignored, much as you know, Georges have a part of it, right?
Gene Tunny 45:52
It’s a fascinating philosophy, and one that until, I mean, you know, we had that conversation, and you asked me, Are you running into any Georgist? And I had to say, well, actually, no, but
John August 46:04
Well, I can only suggest that you check out what is it called prosper in Victoria. And they have a website where they sort of basically sing the praises. And if you read it now, whether or not you’re persuaded by it, you can certainly see that this is a movement, and people you know, have strong feelings about this, you know, so that that might sort of, and as I say, I’m surprised that it seemed to me I was stumbling over Georges all over the place that we’re all trying to convert me. Like in some circles, you might stumble over Christians who are all trying to convert you, or whatever, you know, so and you haven’t had that experience. Well, here you go.
Gene Tunny 46:39
No, well, I think a lot of economists will, yeah, they’d be. They skeptical of it, particularly, I mean, he’s known for that argument that. So the idea is this economic rent of land. So the you know, what they people earn from the property just because of the fact that you know it’s there, it’s in a particular location. It’s nothing to do with anything they’ve they’ve done, or improvements they made of the property. The idea is that should be shared by society. So he essentially wants to make land into common property. And I think that’s, yeah, that’s obviously going to be
John August 47:17
something, many things I could bring to bear. And obviously that, it’s hard to crank them out of the top of my head, but I remember I actually looked at, I think, one of the maybe it was business review weekly or or some sort of, some sort of record of, like, the 20 most prosperous businesses in Australia. And of those 20 businesses, maybe two, three, maybe four at the most, were into resources in some abstract way. And like, two of them were in the resources in the sense of mining, and maybe two of them were into property, but the rest of them were into retail or logistics or computer services or whatever. And you know, you’re sort of saying, Well, hang on if you know, if land ownership is such a parasitic growth on our economy? How come there’s so many strong industries in other areas? And, you know, that’s a question I do ask myself. Now, it’s obviously possible that, you know, under the surface, you know, the the landlords are leeching out of out of our society, and that’s quite possible, but it does run a bit counter to just looking at the 20 most successful businesses in Australia, maybe
Gene Tunny 48:23
we have to come back and chat about speculation another episode, because there would be quite a lot to talk about. I mean, the what I’m wondering is, I mean, do you what do you think of the argument that, I mean, a lot of this speculation is necessary to be able to take advantage of new opportunities. I mean, as part of that whole process of creative destruction. I mean, you know, ex post, or after the fact, it becomes obvious that, yeah, okay, so there was a lot of over investment in particular areas. I mean, the original.com boom, the railway mania in the in the 19th century. I mean, you know, I guess the commercial property boom in Australia in the late 80s, there were so there are, you know, so many examples, but ex ante, or before the fact, it may have actually made sense to, you know, to devote all of these resources because, you know, it did look like a, you know, there were profitable opportunities at the time. And you know, who is to judge what is, what are, what are good investments to make, ex ante, other than the people making them? So that’s the that would be the standard economist or, or, you know, rational economist response to these concerns about speculation. So just thought we’d end on that, and whether you have any reflections on that. Okay, well,
John August 49:42
I think you’ve gotta distinguish two elements here, like the Georgia sort of say, look like the the government has built a railway station increase the value of your land. And you know, it’s someone else’s efforts that have increased your value. Mm. So that’s sort of like saying, Look, here is speculation. Someone else has done something to increase your value, and you’re getting a bonus as a result of someone else’s efforts. Now, if it’s a speculation in the sense of like, here’s a radical new product that you’re putting out, okay, and it’s not environmentally effective. You’re paying your staff well, and you’re not, you’re not selling in a manipulative way. But for some reason it goes really well in your business absolutely explodes. That’s, I guess, what you call legitimate speculation. So, you know, I guess there’s what you might call speculation in innovative ideas, where you are actually carrying something forward. And I suppose, look, the whole thing about georgism, and I mean, there’s so many rabbit holes you can go down, but they do celebrate their idea of genuine enterprise. Yes, so. And I would actually say, Look, if somebody starts up a green grocer, and there was no green grocer before, and there was a market for it, and all these people go and say, Oh, those carrots are really good. I’ll buy some or whatever. You know, they are actually helping things along. So I suppose it’s a matter of whether this style of speculation is you are taking a gamble, and you’re not parasitizing or someone else, or if it’s speculation, where you’re doing something and then somebody else does something brand, and you get the benefits of that. Now I think that’s a worthwhile distinction to make. Let’s say some people, I mean, it was Cisco things settled, obviously, but you know, the people originally behind Cisco. They put some money into it, and it really flew. And I have to say, well, good luck to them on that one. You know, I suppose that’s genuine speculation, where it, where it gave an ethical return, I guess you would say, and, and that is a distinction that I will make. And I do actually echo some of the Georgia sentiment, which talks about genuine enterprise, real enterprise or real creativity behind business. And I think I’ll run with that Georgia sentiment, right?
Gene Tunny 52:08
Oh, well, yep. I mean fascinating, fascinating body of of literature, of thought there. So yeah, John, thanks so much for the chat. It’s always great chatting with you, boy. It’s got lots of interesting things to say. Make Me Think about a lot of issues. I’m going to gonna have to do a bit more research on georgism Make sure I fully understand it. And I think you made, made a lot of good points. And yeah, thanks, thanks again for your time, and I hope it all goes well out on the campaign trail. So all the best for that, and look forward to catching up with you sometime again in the future.
John August 52:42
All right, and you know, obviously, if I’m in Brisbane, I’ll look you up. And please do look me up if you’re in Sydney anyway,
Gene Tunny 52:49
will do Okay. Thanks, John, okay, then Sid, righto, thanks for listening to this episode of economics explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact at economics, explore.com or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting out lets you, then please write a review and leave a writing. Thanks for listening. I hope you can join me again next week.
Speaker 3 53:40
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Credits
Thanks to the show’s sponsor, Gene’s consultancy business, www.adepteconomics.com.au. Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple Podcasts and other podcasting platforms.
Are Trump’s tariffs a masterstroke of economic negotiation or a blunder with global consequences? Show host Gene Tunny and returning guest Darren Brady Nelson debate the rationale behind punitive tariffs, the backlash from markets, and whether this is all part of a broader deal-making strategy. They also discuss Elon Musk’s DOGE initiative and Darren’s run-in with a wild turkey on Wisconsin’s special elections campaign trail.
Please let Gene know your thoughts on Trump’s tariffs and any questions or comments regarding this episode by emailing Gene at contact@economicsexplored.com.
You can listen to the episode via the embedded player below or via podcasting apps including Apple Podcast and Spotify.
Timestamps
Introduction and Market Reaction to Trump’s Tariffs (0:00)
Darren Brady Nelson’s Run-In with a Wild Turkey (1:45)
Trump’s Executive Order “Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits”:
Note this reporting: ‘Top Trump trade advisor Peter Navarro denied that Trump’s new tariffs are being used as a tool to negotiate better trade terms with other countries.’
Transcript: Trump’s Tariffs: Art of the Deal or Economic Disaster? w/ Darren Brady Nelson – Bonus Episode
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
Gene Tunny 00:00
Gene, welcome to the economics explored podcast, a frank and fearless exploration of important economic issues. I’m your host, Gene, Tunny, I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode. Please check out the show notes for relevant information. Now on to the show. Hello and welcome to the show. This is a special bonus episode of economics explored to talk about, among other things, what else but the new reciprocal tariffs that President Trump announced in the Rose Garden earlier this week. We’ve seen the S and p5 100. It’s fallen around 10% ASX 200 it’s down 4% over the week. So big impacts on global markets. The IMF Managing Director has called the tariffs a significant risk to the global outlook at a time of sluggish growth. Before we get into it, I should say this episode sponsored by Lumo coffee, they’re high quality, organic coffee from the highlands of Peru. It’s jam packed full of antioxidants. So economics explore. Listeners can get 10% off. So check out the show notes for that link. Now, back to the show. We’re going to be talking about the tariffs. We’re going to be talking about Doge, and also elections that we’ve had in recent, elections in the US, in Wisconsin, the upcoming Australian election. My guest who else? It’s my good friend, Darren Brady Nelson, who’s joining me from Milwaukee, and he’s just he’s had some recent run ins with Turkey, Turkeys on the campaign trail in Wisconsin. Darren, good to have you back on the show.
Darren Brady Nelson 02:06
Great. Yeah, good to see you too. Thank you. First, you got to
Gene Tunny 02:10
tell me what happened with that Turkey. I heard you had a run in with a turkey on the campaign trail.
Darren Brady Nelson 02:15
I did. I did. Yeah, I’ve been doing sort of, you know, you know, like you, well, a little bit similar to you. I mean, you, you actually set up your own firm, and all adept at economics and all that sort of things. You You certainly taken, you know, being, if you like, a freelancer, independent, to sort of higher levels than I have, I’d kind of just go fly solo. And that’s what I do, kind of economic stuff, mainly. But sometimes I get weird stuff, like elections. So, you know, I did the, obviously, the Trump election, I think we spoke about that, you know, last year at some stage, or in the wake of last year, and then more recently, I got, you know, kind of involved in the Wisconsin Supreme Court election. So in the US, pretty much most of the courts, the judges run for office like, you know, politicians, the only exception being the US, you know, Supreme Court. So anyway, so there’s a big election for one, you know, one, one seat was up for contention in Wisconsin, and so, you know, I’ve been doing that for the past five weeks or so, you know, literally going out there and knocking on doors and speaking to people and, you know, handing out literature. So, you know, I’ve become, the past couple of years, the door knocking economist, but as you mentioned, I’ve also become the turkey fighting economist as well. So what happened is there’s a suburb called Wauwatosa in in Milwaukee County. So Milwaukee County’s got the City of Milwaukee, which is dominates, but it has a bunch of other kind of subsidiary cities or suburbs, including Wauwatosa. And just just one morning, when I meet on the second house, I went to Wauwatosa. You know, just after 9am I was walking up to go knock on the door, and I heard this hissing behind me, you know, you know, I don’t know what I was thinking, I guess. I thought maybe cat or something, I suppose. And then I turned around this really huge Turkey. I didn’t even know turkeys could get this big. Was kind of like chasing me. Essentially, I didn’t even know it was until I got up to, you know, nearly to knock on this, this person’s door. And, you know, it was a big male Turkey and all puffed up and all this sort of stuff was like, you know, like, about four feet tall. The thing was huge, you know, a meter. And obviously they puffed themselves up. So, you know, obviously it took me a little bit unawares. And, you know, I tried to shush it off and scare it off with loud noises, but it was not going down for that. And fortunately, there was like a, you know, winter is, you know, pretty much over. But, you know, they had, like a kind of a plastic shovel. Lot of Wisconsinites just keep their shovel just sitting outside. I say most people don’t just steal people’s shovels, I guess. But anyway, it was there. It was, it was, it was plastic, so it wasn’t like a big metal one. So I grabbed that ice, tried to, you know, like, you know, poke it and, you know, have it scare away. But I sat there for like, up to 10 minutes, literally fighting this turkey with a shovel, it would not it kept on coming. In fact, I hit it like several times. Usually when you hit something once it runs off, right? But this thing would not run off. And I actually got saved by just some retired lady and her rather large dog cut me going for a walk, and she sicced the dog on on the turkey, and it finally took off. So, yeah, there’s my weird story about, you know, getting attacked by a turkey, obviously, um, you know, I certainly wanted, um, you know, Brad Schimmel to win pretty badly, but I’m not sure about, you know, fighting a turkey for him, right?
Gene Tunny 05:58
Okay, so Turkey’s protected. I mean, you didn’t harm the turkey, did you? I mean, you just sort of
Darren Brady Nelson 06:05
harm that Turkey because it because they have these, these, you know, really, I mean, they’re not going to kill you, but they could, they have these spurs on their, on their, you know, their feet, so they could, you know, you know, cut you up pretty nicely. So they’re not harmless birds, right? They’re not like, you know, maybe not like an emu or something like that, which is obviously far bigger and, you know, can probably, you know, break your ribs or something if it kicks you. But they’re not, they’re not harmless. They’re not like, gonna kill you, but they’re not harmless, right? So, no, they’re not protected. In fact, while with toast, has had a problem with wild turkeys for quite some time. They need to probably call them actually,
Gene Tunny 06:45
okay, well, thanks to that old lady and a dog. So, yeah, the
Darren Brady Nelson 06:51
dog, the dog was great. So it was a really large sort of golden retriever or something. So, yeah, okay, so
Gene Tunny 06:57
you’re, you’re able to answer my questions regarding Trump’s tariffs, among among other things. So, Darren, first, what’s your assessment of the market reaction? I mean, the market reaction has been pretty bad. It’s it looks like a mark of disapproval for the tariffs. What’s your assessment of it, please?
Darren Brady Nelson 07:15
Um, yeah, that’s not, yeah, that’s a reasonable assessment. Do I think it’s going to be some sort of like even medium term thing for the markets. No, I think they’re going to bounce back fairly quickly. So, you know, my, you know, we’ll obviously get into a bit of, you know, I’ve been kind of like changing my views on tariffs in recent times, not to the point of being like pro tariffs or pro protection, or anything like that. But, you know, I mean, I think that the White House statement, the executive order, and the accompanying statement, you know, sets it out pretty well. I think, you know, the reasons for it, and the whole backdrop, I think it’s actually a and, you know, it’s actually one of the best written executive orders I’ve actually seen, you know. So I don’t know who actually wrote that, but you know it certainly, you know, doesn’t it’s not, you know. I mean, Trump talks in terms of, and sometimes he speaks and he and he trolls people talking about beautiful tariffs and, you know, that sort of stuff. And but you know, I know people have been in the Oval Office with him, and I don’t think he he is a protectionist, nor does he think tariffs actually, you know, ultimately, if that’s all you’re doing, it’s not going to, you know, really create wealth. It’ll help domestic industries, for a time, certain domestic industries, but you know, at the end of the day, it’s not going to, obviously, we’ve seen what happened to, you know, the the automobile industry in Australia, eventually, you know, tariffs and subsidies and all the right and regulations that all directed to help them, eventually they collapse and fail. But that’s what, what Trump’s trying to do is really more art of the deal, and I’ve kind of first started to get a feel for that. You know, that that’s what he was trying to do in, I guess, probably 2018 particularly talking to, you know, a a former Cato economist, who, obviously Cato is, you know, like kind of the libertarian think tank in Washington, DC. So if he was convinced that that Trump wasn’t a protectionist and was just doing it for Art of the Deal purposes. You know, that’s that’s pretty good evidence, on top of what I’ve also seen since then as well,
Gene Tunny 09:29
right? Okay. Now, who do you think drafted that order? Was it Peter Navarro? Is Peter Navarro still involved in in the White House?
Darren Brady Nelson 09:41
I understand he is, I don’t look it’s hard to say who actually, literally drafted that I’m sure was, you know, I’m sure if someone drafted it, and there was a team with input, but you know, it just like, you know, I’ve seen a lot of government stuff across multiple countries, and it just, you know, you know, particularly, I guess, you know, Trump has, you know, him. Self, obviously, what’s what the weave? You know, how? Obviously he does the weave when he’s actually speaking. You heard that term, the we, yes, yes, yes, yeah. You know, he kind of, you know, wanders around and goes kind of off on tangents and comes back and all that, you know, like, you know, I’m not sure how he writes, To be honest, I’m, you know, but I doubt he wrote that, but, so, you know that, I mean, in a nutshell, what I understand, and I remember this, you know, particularly after a g7 meeting, I think in 2018 and I wrote an article about it, which I sent to you. You know, we’re, you know, basically the the g7 leaders were complaining about, you know, some of the tariffs, obviously. And then Trump, you know, hit back with, like, you know, hey, Canada, you’re doing this, you know, these partners are doing these ones. Okay, fine, let’s all get in a room and let’s get rid of all our tariffs, or, you know, or at least significantly reduce them down to, you know, very small numbers. And of course, Trudeau and everybody else backed off from that idea, you know. So that tells me, you know, these criticisms aren’t really necessarily some big stance on principle about tariffs, and not even just simply, hey, you’re harming us with this tariff, which, of course, yes, you know, there’s, there’s that, but I think, I think there’s some broader stuff and bigger stuff going on we can get into later, but, but, you know, at a simple level, I think, again, it’s art of the deal. I think Trump’s doing this. And, you know, as Dan Mitchell, who’s, you know, and you know, essentially, I’ve seen ardent opponent of terrorists, but he’s kind of a little bit of an ardent opponent of Trump, no matter what he does. But he, you know, he says, you know, he points out rightly, these aren’t simply reciprocal at times, like, you know, not just the same level as, you know, China or Canada or the EU that’s true, as far as I understand. But they’re punitive. But they’re punitive with a point to get these people into a room, basically to do a deal, to ultimately, you know, sort of get better trade arrangements, lower tariffs, and not just tariffs, but other non tariff barriers to trade, which there’s plenty of. And because, you know, the US, you know, certainly seems like they’ve kind of allowed countries to kind of hit them harder with stuff over the years, and the US not sort of retaliating, and now they finally are, and they’re making up for lost time.
Gene Tunny 12:25
Yeah, look, Darren, I think you there’s some interesting points you made there. Now the issue about Yeah, you rightly acknowledge these tariffs aren’t genuinely reciprocal. They are. Some of them are punitive, and a lot of economists and market commentators have been shocked by the formula that was used to calculate them. So it’s it’s either 10% or it’s the if there’s any sort of restriction on any imports, then it’s a minimum of and that could be for biosecurity reasons, as in Australia. So one of the things they’re concerned about beef, and I mean, we’ve got very strict regulations on food that can be imported. And so that’s one of the points of contention. But it’s basically, what was it? It was the trade deficit with a country divided by the the exports of that country to the US. And that’s a that’s a percentage, and they divide that by two, and it’s, it’s either that or 10% whichever is greater. So an economist are just sort of scratching their head, how does this make any sense? So that’s one of the, one of the concerns. You mean, where’d you get this formula from? Well, that’s the formula. That’s how that’s basically what everyone’s what everyone’s reporting, how they figured out, how they
Darren Brady Nelson 13:39
actually I contend whether that’s actually in the executive order. But anyway,
Gene Tunny 13:43
that’s, you can work that out from the chart that, you know, the chart he held up on the, yeah, the Rose Garden. So that’s, that’s essentially how he’s come to this. There’s this bizarre formula that that no one can figure out. So that’s one of the concerns. But I think that’s good. You’ve acknowledged that these are punitive. You think this is about the the art of the deal. Now, this is what Scott Besson, the Treasury Secretary, was saying. He was trying to hint, oh, okay, this is, look, we want to have a negotiation with these countries. But then Caroline Levitt, or someone from the White House, has come out and said, Oh, no, this is final. So, I mean, what’s your so is your? Is your view that this is the start of a negotiation with different countries, and so we will have lower tariffs eventually. Or how long is this going to last? How do you see this playing out?
Darren Brady Nelson 14:32
Look, you know, it’s obviously hard to say how long, and it’ll probably be be on a country to country basis. I think some will kind of go all right, you know, like, let’s we’ll come to the table pretty quickly. I didn’t hear the comment by Levitt that you’re saying that doesn’t sound accurate. That doesn’t sound in keeping with, you know, not just Trump over, you know, his previous presidency in the start of this one, but obviously he’s famous for the art of the deal, his book. So. I don’t think Trump’s change on that that, you know, I think he’s changed in terms of the art of the deal, with dealing with Democrats and and the kind of the his ardent left opponents, I don’t think he’s given up that you can’t do a deal with them, right? But that’s not applying this. That doesn’t apply in this setting. I don’t think and, and, you know, in terms of, yes, I think you can do a deal with any country, you know, Canada, China, EU, all that, even though there’s obviously people there who you know, are reluctant to do any deal with with Trump, because they just don’t like him, right? They don’t like what he stands for. They don’t like his style, etc, etc. And then there’s kind of that long standing and growing kind of European disdain for the US anyway, that that’s a separate issue, I suppose, but so, yeah, I totally see it as art of the deal. You can find a statement or something, but that’s not I think that the weight of evidence suggests it’s art of the deal. It does get more complex, because Trump is a bit of a troller, and he and he’s, he’s loose with language. But, you know, I was thinking that too. And I was thinking, Wait a second, maybe not so much, because if you’re doing the art of the deal, if you make it explicit that, well, this is the art of the deal. I don’t actually believe in tariffs, and I don’t really want to keep them on, you know, people might balk and go, all right, we’ll just wait it out for a while, because, you know, you know, he doesn’t really believe in this, and he’ll eventually just get rid of him, right? He’ll, he’ll, he’ll bow to the, you know, the pressure, if the markets don’t recover quite the way we think they will, or, or of the political pressure, or, you know, Republicans in Congress, you know, get weak knees. So I think, you know, actually, to give him a little bit more credit, I think sometimes this trolling also does have a purpose besides the fact he may enjoy the trolling in the first place because you let your opponents note leaner, you know, or your negotiating partners, know, look, I’m not really serious about my position, then that that really undermines your art of the deal. Basically, does it not so. But I think ultimately, you know, he’s not a believer in protectionism, or, you know, like tariffs are somehow the long term path to even domestic growth of industry. So, you know, I think the way to the evidence is, you know, in that and you could certainly, you know, I, you know, I haven’t looked at their formula that you, that you suggest they’re using, and if maybe that is true, I didn’t see that in the executive order doesn’t say that it doesn’t exist, just because it’s not an executive order. But I didn’t get that impression from the executive order. And, you know, ultimately, you could certainly make a cost benefit analysis, you know, case, you know, like, obviously discounted over time, if Trump is doing an art of the deal and he gets a lot of these lower tariffs and other non tariff barriers to trade, putting side, obviously, we can talk about the defense argument too. I think you could certainly make a case, because I think that the world, the WTO and all these things, have just not been doing. They’ve been doing a very bad job, you know, over not just years, but probably decades. Actually, it just hasn’t been really particularly when it comes to non tariff barriers to trade in particular, that I think there’s a reason why Trump and some others are just starting to move to these bilateral trades, because the WTO is just kind of captured by dei and green stuff and all the rest. You know, it’s no it’s no longer devoted to free trade as such,
Gene Tunny 18:37
right? And so do you think that these the failure of the WTO, this is behind the large trade deficits that the US has with China and other countries. Is that the is that the contention definitely
Darren Brady Nelson 18:52
with China, I think, I think it’s huge. I think, I think these trade deals, you know, particularly when they’re like, 8000 pages long, etc, like the, you know, the Trans Pacific Partnership. It’s just a lot of just like, Yeah, you know, we’re gonna help my friends over here. We’ll help your friends over here. We’ll help my friends over here. Blah, blah, blah. They’re not free trade agreements. They’re not even vaguely like, free trade agreements used to be done, you know, once upon a time, I’d argue, you haven’t even had a free trade agreement. You know, maybe you could say, in the early days of these, of these multilateral, you know, gat and stuff, maybe there was some, you know, a period of time where you really were, you know, and probably were moving the in the direction, back in the direction towards free trade. And I say back, because really, since World War One onwards, you haven’t seen much in the way of actual free trade agreements, which used to be very small and didn’t have to say a whole lot, you know, as you’d expect, a free trade agreement too. You know, you’re not sitting there picking winners and losers, which is what they do now. And sadly, you know, they were so keen to get China into the WTO, they just threw all sorts of, you know. Unfair sort of advantages their way. There’s no way Communist China that could do nothing well, all Sun is this, you know, turns into this powerhouse of capitalism purely because they were really good at stuff, or even purely because they had cheap labor, because a lot of stuff that’s going over there is even capital intensive sort of manufacturing and other items, which you know, obviously, over time, China got better at this and that, no doubt, but you know, to suggest, all sudden, almost overnight, China is super awesome at all these things. I know I don’t think so well, what
Gene Tunny 20:37
are some of the unfair advantages you do? You think that China has had thrown its way that, you know, that the White House would be concerned about, what do you think? What is it specifically the Trump administration is concerned
Darren Brady Nelson 20:50
about? Well, clearly, they’ve bought off a lot of politicians. I mean, you know, over the years, you know, to get these sweet deals. They’ve been, you know, the Bidens, the Clintons, the Bucha, over the years, they’ve thrown a lot of money at these people to get kind of sweeter deals. And it’s not always, yeah, it’s not always the stuff you can just pick up the Trans Pacific Partnership and see the bias in there, although you can still see it in there too. But I think it’s, kind of, kind of, if you like, the shady stuff behind the scenes that have been done,
Gene Tunny 21:28
yeah, yeah. I mean, it’d be, I mean, I’m, no doubt there are. I mean, I’ve had guests on this show
Darren Brady Nelson 21:33
labor in Australia, too. I mean, it’s just like, there’s a lot of stuff that’s gone down that’s, you know, it’s been documented. Some people have actually been prosecuted for saying something. Some people have not. So, you know, some stuff, you know, obviously hasn’t gone to court or trial. So you could say, well, that’s just conspiratorial, yeah, yeah, maybe, maybe not. You know, the world’s not sort of, you know, there’s a lot of nefarious things that happen this world, you know, I don’t know why people seem surprised as though, like, this is, you know, everything’s above board, you know. I mean, China’s clearly set out its strategy, and it’s not, oh, we just want to be, you know, just compete in free trade agreements with the world and just be a part of the international community. They fairly well documented their grand strategy in particular, you know, China, I’ve seen particular has so they’re not, you know, they’re not, sort of like, Oh, we’re not going to do shady deals, because, you know, that’s beneath us,
Gene Tunny 22:36
right? Okay, what I would, what I’m wondering about, Darren is, what does this mean for us, consumers and businesses? Because China has become the new workshop of the world. Our mutual friend Dan Mitchell, who you mentioned before, he’s pointed out the tariffs there are tax so you can argue about to what extent the the tax is borne by by foreigners, by by exporters, who might have to cut prices to be able to keep selling to the US or to sell elsewhere. But there’s no doubt that they are a tax, and us, consumers and and importing businesses, will pay more Dan quotes, some estimates that it could cost Americans 2000 to $4,000 reduction in disposable income. What do you think will be the impacts on consumers of the Trump tariffs, please? Darren,
Darren Brady Nelson 23:34
yeah. I mean, I would say that analysis sounds fairly incomplete, because you have to take in in account the whole sort of, you know, gambit of taxes, like the ones that the people who are now paying more tariffs weren’t paying in terms of domestic taxes, you also have to take into effect, obviously, you know, Trump has a huge tax reduction package that’s that’s going to be coming up, so you have to factor that in as well. So to just suggest that it’s just purely tariffs, and there’s going to be no changes to other taxes. So Dan’s right, it is a tax, which means you have to look at the whole sort of like, what’s Trump doing on all the taxes, basically, that are obviously under his disposal at the federal level, of course, and includes, obviously international as well. So again, you could certainly make it a case. I think it’s not unreasonable to, you know, particularly if you’re going to have a trade off and you’re going to have lower income taxes, lower corporate taxes, maybe lower capital gains taxes and that sort of thing, and then you you know, I’m not going to talk about these particular punitive tariffs, but I can see, you know, you know, a sensible level, obviously much lower, once you get, hopefully, people in the room, and you start getting tariffs and non tariff barriers lowered, at least on a bilateral basis, bilateral, bilateral, bilateral, that you could end up with an actual lower tax burden on American consumers over time. Even though you putting aside, like the spike, obviously right now with tariffs. And also you have to throw in the fact the US, unlike a lot of countries, is less reliant on foreign trade than it has historically been. It’s got a huge domestic market, and there’s competition domestically now, again, like I’m saying, in principle, I don’t favor like, hey, we’ll just throw tariffs on because, you know, we want to help out industry a over industry b. Or, you know, domestic industry a versus its its foreign competitors. Like I said, I think in the context of this, I believe this is Art of the Deal. It’s not, they’re not going to keep these in place, they’re going to, you know, massively lower them when they get deals, you know, with each country, China and the EU will probably be the last to come to the table. In fact, I would argue EU will be the very last China will come to the table, much quicker than the EU will, actually, because I think China is so reliant on, you know, you know, sort of, according to the US, I think it’s, it’s, you know, G, G’s pride. At the moment, the EU is a bit different. They, like I said, there’s such a, weirdly enough, I don’t think G. And oddly enough, the Communist Chinese, even though they obviously want to ultimately be the number one power in the world that, weirdly enough, there’s not at the same time, there’s not this kind of decades grown up anti Americanism that you have the EU. So that’s kind of interesting kind of dynamic that’s going to make doing a deal with the EU probably the most difficult. I think, ultimately, weirdly enough, yeah, I know it’s weird. It’s kind of, in one sense, China should be the most difficult, because obviously they want, they want to, you know, supplant the US as the top strategic power. But then you have the EU, you know, with its long standing disdain for American culture, and particularly, obviously, for Trump and mega, Chinese probably don’t, you know, they kind of have, probably have a weird respect for Trump and mega that the EU does not. That’s interesting.
Gene Tunny 27:12
Who is it the Chinese blame for the century of humiliation? I mean, would that be primarily the British because of the Opium Wars? Probably is, I guess
Darren Brady Nelson 27:21
so, yeah, I guess so, yeah, you know. And look, let me put this all in the context of, you know, you know, I was straight up Dan liberty, Dan Mitchell, Libertarian, slash, classical liberal view of tariffs. But the thing is that what I’ve noticed is a lot of people like Dan, and he’s my friend. He’s, you know, he’s turned into a religion, as though, like, you know, like he won’t complain about other taxes so much, but tariffs are, like, sacrosanct, you know, like they’re not, they’re a tax, you know, like they’re not a super special tax, in some sense, you know. You know, they behave like a transaction tax for the most part. And as you mentioned, yes, they get shared between producers and consumers, whether they’re domestic, and in this case, obviously the producers will be the foreign ones. Whereas, you know, normal transaction tax analysis, you’re thinking in domestic context. But that’s fine. It’s, it’s, it’s pretty much the same thing. Well, it’s been on elasticities of supply and demand, obviously, you know, in particular markets, you know how much, which will depend, obviously, on competition versus, you know, how, how much of a cartel type of industry it is, etc. And what you mean, what are the substitutes and compliments, etc? But yeah, I’ve noticed this weird thing. And I think I also had this once about time, like, tariffs, oh, they’re the special tax that you can never, ever do, any ever put on for any reason whatsoever, even if you actually lower taxes elsewhere. You know. So, no, I think, I think that’s kind of ridiculous sort of stance. Well,
Gene Tunny 28:53
I think the point you make about you talked about elasticities. And I mean, if the Trump tariff formula actually had an elasticity or two in it, then you might think, oh, okay, there’s some logic to it. And there is that concept of the optimal tariff for a large country like the US, which can actually affect the terms of trade. So but, I mean, my concern is just how, just the formula that’s been applied, how wide ranging it is. It doesn’t seem I mean, I can’t understand it. I mean, I don’t think they’ll last either. I mean, I think we both agree this is, this is temporary. I have a different hypothesis to why it’s temporary. I think it’s it’s going to be temporary because the people on Wall Street, the people in Connecticut who had got the hedge funds, they’re going to be knocking on the door of the west the West week, saying you’ve got to stop this. This is, yeah, this is costly this week.
Darren Brady Nelson 29:48
Yeah. What’s the sorry, forget the name escapes the who’s the UK Prime Minister that these sort of people pushed out the door fairly? Liz truss, sorry, yeah. Let’s trust Trump is not. Liz truss. They’re not going to be able to to they can come knocking on the door as much as they like. First of all, Trump knows the game as well as they do, right? So he’s he, you know, I’m not sure Liz really understood it as much. And I’d say the US is a much bigger, more powerful country, etc. But also, Trump has almost been killed. I don’t think the hedge people are going to be able to pressure him like you know, maybe they could have in 2017, 1819, but they’re not going to be able to this time Trump. Trump’s sticking to his guns on all these things. Obviously, we’ll talk about Doge as well, but he’s sticking to his guns. I The hedge fund people in Connecticut? No, they got zero influence on Trump. Well, the
Gene Tunny 30:44
benefit, the the what Trump has in his favor is that there’s still a huge demand for US Treasuries, right? There’s still, you know, they talk about the safe asset shortage, so people want to hold US Treasury bonds, because they’re seen as safe. And even, like, if you have global turmoil, people still want to hold US Treasury bonds because they’re seen as safe. So whereas with the UK, I mean people, you know, the people in the markets, go, Oh, we’re, we’re concerned about their ability to repay all this debt, and yeah, we’ll punish them in the in the bond market. So yeah, that’s, that’s really what, what brought down Liz truss? So, yeah, I think he’s a lot in a lot firmer position than than trust. I think he can, yeah, I don’t see any threat to him. I mean, he can’t be kicked out, like Liz truss. I mean, he doesn’t have a he’s in for the next, next four years, isn’t he true?
Darren Brady Nelson 31:38
And it’s actually have said, or the, you know, like, you know, some of the stuff, you know, I mentioned, you know, the kind of the dirty deals and the that are done, you know, I never thought about these things much prior to the 2020s and I probably would have been like, you like, oh, you know, like, you know, kind of like, oh, I don’t know about that. But now here’s the other context, the West globalists. There’s a war against Trump and people like Trump. So this is also and a lot of these people are hedge managers, so there’s that. So they’re trying to make the markets look tanked and make Trump look bad as much as they can as well. So it’s not just purely, yes, there are people literally are scared and whatnot and but there’s also people because, you know, we have BlackRock. It’s not like these markets are. There’s sort of cartel elements to these markets. They’re not these purely competitive markets, and no one’s really influencing it. And this is purely just a sensible market reaction to stuff it. It’s partly that, but it’s also partly people trying to make this happen as well, the black rocks of this world as well. They who are just ardent opponents of Trump, right? And they’re opponents of Trump, they’re opponents of, you know, me lay their opponents of Orban. They’re opponents of all these, you know, these Trump like movements. I know Milo is a bit different, but he’s also, you know, he’s a strong ally of Trump as well, even though, obviously he takes kind of a more libertarian approach that Dan Mitchell would approve of in Argentina. But they’re both on board with fighting, sort of the globalists, right? The Black Rocks, the the weft and all that sort of stuff.
Gene Tunny 33:19
Darren wasn’t Wall Street, weren’t BlackRock and Ray Dalio and all the hedge funders. I mean, maybe not Dali. I can’t speak about him specifically, but my impression was that they were all in favor of Trump, and the didn’t the stock market have a bit of a boost when he got elected. So, I mean, people, people that you’re talking about, were actually excited about Trump, but now they’re not, because they see that the diet, the adverse consequences these tariffs. Did you see Jim Craver Cramer was on with Aaron Burnett on CNN the other day, just saying, What madness it is. I mean, the I just can’t understand that argument. I mean, wasn’t
Darren Brady Nelson 33:54
Wait a second. When were they on board? I don’t I never heard them release statements Well,
Gene Tunny 33:59
I mean, well, the markets were, the markets got a boost when Trump was elected, and when he and he is Trump, was actually claiming that. Well, he was claiming credit for the markets going up when they were starting to think that he could get elected. So, yeah,
Darren Brady Nelson 34:13
look, he does, you’re right. I mean, all politicians start doing that. They claim, you know, markets go up purely because of them, and then when they go down, that’s not to do anything with them. Obviously, it’s a mix of both. But no, there’s the black rocks. And people have never been on they didn’t also turn to Trump, you know, this time around, he has, you know, this is like a drop dead war to the death, almost, you know, actually, literally, maybe also death, you know, between sort of globalists and the kind of, like the nationalist sort of movements of Trump and Orban and Milo and people like that. I don’t know why you’re smirking at me. This is fairly
Gene Tunny 34:53
honestly, Darren, I don’t, I don’t understand. And I mean, most of these people just want to make money, don’t they? I mean, I don’t know about this. Whether you how you can call them. Maybe they they’re more, yeah, definitely, they’re going to be more in favor of, you know, free or globalization, than, say, the people in the current White House. But I just, I just can’t understand this well, I think deliberately crashes the market. That doesn’t make any sense to me. We’re talking
Darren Brady Nelson 35:19
about Soros did the exact same. Soros, back in the day, did the same thing, not for some market driven purposes, for his political agenda. Soros did this, you know, once upon a time. So these people, I mean, Bill Gates, is long removed from like, Oh, I’m just trying to make a profit at Microsoft. I mean, they’ve moved on from this. They have other agendas that they’re using their wealth for. This stuff’s pretty well documented, and it’s not documented on fringe websites. It’s documented fairly well, you know, maybe not on CNN, but it is documented on Fox Business and plenty of other sort of websites like that.
Gene Tunny 35:59
I think if you can send me some links to that. Darren, I’d appreciate it. Yeah, honestly, I’m, I’m skeptical. But look, it just doesn’t, it just doesn’t appear that. It just doesn’t make any sense to me that they would want to crash the market in that way. There are a lot of people who, from what my impression is that there are a lot of people on Wall Street who are mad at Trump at the moment because of what’s happened in the markets due to his tariff announcement. So these
Darren Brady Nelson 36:27
people support, you know, the COVID restrictions that I mean, this little mini crash from Trump and his tariffs is nothing compared to what happened, you know, under the very end of Trump and, you know, for another, you know, the first year or so, Biden and these people were very supportive, yet they were getting smashed in the pocketbook. Were they not? So people aren’t just motivated purely by profit, and even people in Wall Street and et cetera, aren’t just purely profit, particularly if they have kind of, you know, obviously, if they’re not in a position where, if they lose right now, they’re gone. You know, as long as they can recover and they have other purposes, and they can have other influences and and hopefully make a buck, obviously, as well as, you know, pursuing, you know, what are their sort of broader goals they have, like a Bill Gates or, or George Soros or, you know, Larry Fink, because they all have broader goals and, and, you Know, weff in particular, you know, their website sets out those goals, and they’re not just to, oh, let’s we want more free trade. That’s not their goal,
Gene Tunny 37:29
right? It’s the great reset you’re talking about. We had an episode on the the great reset a while back. People
Darren Brady Nelson 37:34
always go like, they go like, Oh, I’m skeptical. And then I immediately send them the link to their actual website that talks about the great reset. It’s like, it’s that it’s not like a crazy conspiracy theory. They set it out quite clearly. What they’re trying to do,
Gene Tunny 37:46
what I’ll do is, I’ll put a link in the show notes to our chat about the great reset, and because I think we had a good conversation about that a few years ago. So just finally, on the tariffs, Darren, you you mentioned, you know, other considerations, or other considerations, I presume you’re talking about national security. What do you see a national security aspect to these tariffs?
Darren Brady Nelson 38:12
Yeah, I think there is. I don’t think that’s the main one. Obviously, if you go through the big list, you know, there will be for China, without a doubt that that’s actually with China. It’s, that’s, that’s actually maybe the number one reason, actually with China. I think you can probably, you know the notes, you know where Adam Smith sets out the three exceptions defense is not before he tried to free trade. Yes, yeah, where he sets out the exceptions to free trade, you know, where it is legitimate to do, you know, tariffs or whatever else, right? So defense is number one, and then the next two are almost kind of the same thing, a little bit different. The second one’s the reciprocal, you know, straight up reciprocal. And the third one is the punitive one. And he sets out for a goal, though not punitive, just to be punitive, obviously punitive to then get them back to the negotiation table, and then, you know, open up both markets, if you like. Are, you know, more than just two markets, perhaps. So Adam Smith sets out the himself, sets out the reason for the punitive tariffs, right? So, you know, which we obviously spent a lot of time on previously. So you know, Adam Smith himself, who is obviously against mercantilism, if you like mercantilism, obviously thought like this was a good long term strategy, right? You know, mixed in with the concept of, like, we want lots of gold and all that sort of stuff. But that’s obviously not an issue nowadays. So, yeah, defense definitely it. You know, I’ve surprised in recent years to learn that just the amount of stuff that, you know, the US military relies on China for, you know, inputs, it’s that’s just like, No, it’s like, it’s one thing to rely on Canada or Australia, obviously, or even like countries that may not be your allies, but aren’t literally. Your rivals and could be your enemies overnight, you know, if something went, you know, you know, in Taiwan, if something happened, for instance, which, of course, the US doesn’t rely on Russia in any way, for, for, you know, defense related inputs, but it does for from China,
Gene Tunny 40:17
right? Okay, so national security. I mean, this is interesting that you think that’s, I mean, that’s part of it. But the the biggest story is you think that you agree with Trump, that you think America is getting ripped off. I mean, I’m just trying to understand what the what is it? How are they getting ripped off? I mean, what’s, what are the consequences of that, that jobs and factories have gone overseas, and the idea is to reassure those jobs and factories, is that the idea? Well, look,
Darren Brady Nelson 40:43
you know, I think it’s partly that. I mean, I’ve just purely as an, you know, you know, the evidence I’ve seen, you know, has looked like the US has done a lot of bad deals that that have, if you’ve like, skewed things in favor of Mexico, in favor of Canada, even in their, you know, their overall North American agreement. But more importantly, obviously, you know, through the WTO, things skewing towards China and other agreements. So, you know. So I think they are trying to rebalance, you know, basically, in a nutshell, to others like, you know, look, I can’t speak for Navarro. And all his views, I think you seem to know a lot more about you know him, and you know where he comes from than I do. Maybe he’s got something, a grand strategy that’s beyond just, hey, let’s kind of, you know, level the playing field, you know. I think this is ultimately just kind of aimed at that, because I don’t think you know Trump, or you know, a lot of Americans don’t feel as though they can’t compete if the fields you know more level than it has been in recent decades you know, particularly from you know, probably Clinton onwards, perhaps longer, but at least since then. So you know, that’s, that’s my take on it, that, you know, ultimately these punitive tariffs and putting again, defense to the side for the moment, defense is a different issue, and I think you’ll have to treat it separately. But of course, you know, you can get, you know, obviously the there’s a danger the military industrial complex claiming things are skewed. You know, you know that things are important to them when maybe it’s not. So there’ll be a lot of you know that obviously this will have to be looked at closely to make sure that it’s not just you end up just protect, if you like, really end up just protecting industries over a longer period of time, rather than, you know, having really good, you know, national security reasons for, for, you know, sort of like taking, you know, so making it hard for China to have an input into, you know, this or that particular, you know, crucial security or defense aspect,
Gene Tunny 42:50
yeah, okay, okay, Darren, I think we’ve chatted plenty about tariffs for the time being. Let me it is totally out of the deal. Yeah,
Darren Brady Nelson 43:04
go ahead, yeah. Look, I think this is, you know, something about this tells me I’m right when, when people get, like, just overly emotional about it, like, particularly economists. I kind of kind of not saying you but, you know, but I’ve been talking to libertarian and classical liberal economists, and they don’t even want to consider that. You know, that maybe these trade deals have not been very good and skewed. They don’t want to consider that. They don’t even want to consider that this is Art of the Deal. They don’t want to even consider that the Trump is anything but a protectionist. They don’t want to consider that tariffs, oh, yeah, their taxes. Remember, their taxes, you know. Thus, let’s look at the overall tax mix, including tariffs. They just have, like, this is like a sacred cow. You can’t ever put a tariff up for any reason or put a tariff on even if you can actually say, you know, these Adam Smith reasons, defense, reciprocal, punitive, to then recapture a more free trade arrangement. I’m surprised at the amount of people who they have such emotive responses to it. And they’re not. They don’t go, oh yeah, okay, let me consider this, you know, or you know. Okay, fine, show me some of the evidence for that, etc. No, there. It’s usually a very visceral reaction right away. Perhaps 10 years ago, I might have had the same or maybe seven years ago, I might have had the same reaction too. Well,
Gene Tunny 44:29
that’s what I’d like to see. I’d like to see what is that evidence that that is being claimed, that of these skewed trade agreements, I think it would be good for for the White House to put that out and then have more targeted. I mean, if the genuine reciprocal tariffs, or if they’ve got a beef with a specific country, then then actually, you know, provide the evidence for that, and rather than just what they’ve done. But look, if you’re saying, look, I mean, maybe it is out of the deal, well, I don’t. Know what’s going on in Trump’s head? Yeah,
Darren Brady Nelson 45:02
look, I would, I think, I think, I think you may have relied too much on reporting and what they’ve done. I think, look at that, go, go to the source, and I sent you the link to the White House, their whole, you know, the executive order, plus their whole rationale for that order. And then, you know, judge that alongside of the commentary of whoever else.
Gene Tunny 45:24
Okay, right? Oh, Darren. I think we’ve chatted plenty about tariffs before we better get on to Doge. Elon Musk is, I think he’s finishing up his what was it 130 days as a special government consultant. And I mean, what’s your assessment of how Doge has performed? It’s been controversial. There was a whole, I mean, USA ID was shut down. There are concerns about what that means for Well, for the countries that it used to support, there are concerns about what it means for us soft power around the world. What’s your assessment of how Doge has performed,
Darren Brady Nelson 46:03
they’ve actually opened my eyes. They’ve actually performed better, you know, even though they don’t, you know, it’s not like, you know, typically, you know, if they, if the White House would have asked us, you know, hey, you know, you know, let’s see. We probably would have got a team of economists or whatever. And there’s nothing wrong with that. Of course, that’s typically how it would be done. But it’s interesting in this, you know, given, yeah, it’s interesting that they’re the tech people, the tech gurus that they got, and they AI wizards, I’ve been, you know, and I’m not a, you know, I’m a skeptic of AI like, you know, and this kind of tech in general, you know, like, I’m kind of like, you know, sure, I have to use tech, and I’m not like, against AI or anything like that, but, you know, I’m skeptical. And I’ve been like, they’ve kind of opened my eyes, like, wow, the stuff they found and how quickly they found it, and how broadly they found it. And then, you know, I was also like, you know, when the first thing they went after it was us a ID, and I’m glad you pronounce it that way, because I used to go USAID, and because it gives it, it gives it a sound of because it isn’t really a foreign aid organization. That’s the thing. I thought it was too It isn’t that, you said soft power. That’s being kind, that’s being very kind to what they do, you know, the, you know, Clinton Foundation and all the other stuff that they fund. I’m not sure. You know, it’s not quite the foreign aid organization that people kind of thought it was, including me, the the amount of Basic Black Ops, political black ops that this thing funds is like that surprises me, too. I didn’t realize that’s what it largely does. You know, for every mosquito net that it may provide in Africa, it’s that’s like, that’s mini skill for what it actually really does. So it’s not just that it’s inefficient and waste, if you like, wasting taxpayers money. It’s, again, it’s far more nefarious than even I kind of thought it might be, to be honest. So now understand why they went after it first. It wasn’t purely like, yeah, you’re wasting taxpayers money on this or that, including, you know, political donations and all these things. And of course, to only one side, it’s far worse than this. So I’m impressed by that, and also things like, you know, finding even though, obviously, social security isn’t really something that you know was going to be a reform target for the Trump administration, in fact, they kind of said the opposite. And obviously, pretty much Republicans and Democrats have said this for decades. We can get onto this, and I think they should just copy the Australian reforms in the 1990s they’re not perfect, but, boy, they’re pretty darn good by comparison. But anyway,
Gene Tunny 48:53
this is, you mean, the individual retirement accounts, superannuation, superannuation, yeah, it’s not
Darren Brady Nelson 48:59
perfect, you know? And then there’s the labor unions and all the, okay, it’s not perfect, obviously, but, you know, it’s, it’s, you know, the US Social Security Systems, clearly, the worst system in the Western world, it seems, as far as I can understand, but, but, you know, Doge is just targeting the the weird stuff, like, Why do you have people on the rolls that are 160 years Old? Clearly, no one is 160 years old, right? So, you know, all that sort of stuff, you know. And as if we went in there, we probably it would have taken us forever to get to that sort of stuff, right? You know. No, no, I think you know, over time, you know, Doge, if they keep it around, I think they need to, obviously, bring in economists and you know, and hopefully they’ll work closely with OMB, which they probably are, I’m not, you know, I don’t know, in Treasury, although the US Treasury doesn’t quite have the same broad role that the Australian Treasury does. You know, it’s very much focused on tax and debt, not so much spending, which is weird. I kind of was surprised to find that the US Treasury doesn’t. Even though they dole out money, they they leave it to OMB to do that, right? So that’s kind of what OMB kind of focuses on, spending and stuff like that. Well,
Gene Tunny 50:10
yeah, I’ll have to look at the specifics. I thought, how they how Doge has been so successful, is that they actually, no, I’m saying that it’s part of Treasury.
Darren Brady Nelson 50:18
Your Treasury doesn’t focus on, they have the data, but they’re not like the way that you’ve worked in the Australian treasury, yes, and state treasuries, you know, they’re heavily involved in what gets spent, right? You know,
Gene Tunny 50:33
yeah, to an extent. I mean, you
Darren Brady Nelson 50:35
know, by agency, by agency, there’s a, there’s a negotiation process, yes, yes. They don’t do Treasury doesn’t do that. It’s they kind of leave it to OMB to kind of do that in along with the Congressional Budget Office. And, you know, it’s kind of a, it’s a, kind of a different sort of system. But yeah,
Gene Tunny 50:52
from what I saw, that they were able to tap into some Treasury system that gave them really amazing data on all of the payments going out from US government. It’s quite extraordinary, and that’s how they’ve been able to be, you know, do as much as they’ve done.
Darren Brady Nelson 51:07
Yeah, Treasury has got data, but it’s weird. It’s like they have it, but they’re not like, they don’t actively use it, and they’re not involved in the process of spending like an Australian Treasury is, or even the Queensland treasury. So, but you’re right, yeah, they, yeah, I understand, you know, I’ve seen some of their data, which is public, obviously, and obviously, Doge has got access to much deeper, and I’ve data than, than what we can get at the public level. Yeah, yeah. Okay. So I’m impressed by just, you know, just the way they get, you know, even when, when, when, you know, the the Republicans in Congress were going to go along with this ridiculous, you know, spending budget. And, you know, Doge got onto it really quickly and went, Wait a second. They found all this stuff really quickly, you know, like the speed and the depth and this, you know, scale and scope. It’s like, it’s fairly impressive. Now, ultimately, when they kind of do the report, you know, by the Fourth of July next year, maybe it’ll probably come out on the Fourth of July, I suppose, you know, it’ll be a grant, you know, kind of a ribbon cutting exercise, maybe, type of thing, you know, if they continue to carry on, or whatever, however they hand us over, maybe to OMB. Then, obviously, OMB has got plenty of economists, you know, but I’m impressed by the tech people, and I still think they should be involved and rolled into an OMB and a Treasury or whatever CBO, because, you know, they’re, you know, quite impressive. What they can do so quickly, just on going
Gene Tunny 52:43
back to us a ID, what evidence is that they is there that they are running Black Ops? Is that just a Is that for real, or is that just a talking point from the doge folk?
Darren Brady Nelson 52:53
No, they said it out. They said they put out a great detail. They give you the numbers and stuff. You know, you mentioned the Treasury data stuff. They weren’t, yeah, they’re not. Such as a talking point. Obviously, it gets turned to a talking point for both sides, you know. You know, one side who says, yeah, and then the other side goes, no, that’s not the case. No. Doge, I found that, you know, they don’t just talk they they provide data, you know. And yeah, like I said, I didn’t, you know, like, six months ago, I didn’t, you know, I didn’t have a particularly strong view one way or the other, towards USAID, to be honest, you know, you know, except for, like, just the broader argument that a lot of economists have made, how foreign aid just doesn’t really work. It’s not, you know, East Asia and other places. You know, using market reforms has done way better than Africa, South America, etc, through this, this, this foreign aid. You know, plenty of economists have documented that, you know, conceptually. So, you know, I guess I had that view of it. But, you know, I was surprised that it really wasn’t really much of a foreign aid, you know, outfit, which is why it’s officially called a ID and not actually aid. You know that lot of people are careful not to call it US aid, to make it sound like a straight up foreign aid organization, which I didn’t know really, to be honest, I was kind of surprised too, you know. So they kind of opened my eyes at the, you know, corruption, which is beyond just inefficiency and waste, you know. I think you know, when it comes to corruption, that should certainly be the number one target. Then, you know, waste, and then you know, just kind of efficiencies, if you like, third. And I kind of miss that. I missed that kind of the corruption element of things, I suppose, I guess I realize that there’ll be elements of government that are corrupt to whatever extent, and fraud too. Obviously, that’s what they’ve been highlighting at the Social Security Administration, not suggesting the Social Security, you know, the SSA are fraudulent in them. Cells, but they’re being taken for a ride at times, I think, is what Doge was suggesting, right? It might
Gene Tunny 55:08
have to come back to Doge and have do a bit of a deep dive on some of these, yeah, some of these issues. Just, just so, yeah, I better do, sounds like, I better have a closer look at some, you know, some of what it’s found, and just try and figure out what’s going on. All right, just before we go, Darren, I gotta ask you about the Wisconsin special election. So the Democrats won is the US falling out of love with Maga
Darren Brady Nelson 55:32
no Wisconsin’s kind of Wisconsin’s always weird, but it’s a purple state. It does these weird little swings. It’s not a referendum on Trump. I mean, two things, it’s certainly, I guess it’s a silly referendum on some of Trump’s supporters of Wisconsin who couldn’t be bothered to get out to vote. And I think it’s also a referendum. The weird thing, because I was involved, you know, I did the Trump sort of campaigning stuff last year, and it was all hands on deck by, you know, all sorts of organizations. It wasn’t all hands on deck this time for the Supreme Court, even though it’s very important, because it has national consequences. Basically, the Republicans could maybe lose two seats in the house because of this? Right? Yeah, right. Two seats in the house, in the House of Representatives, not talking about the state legislature. Talk about the in Washington, DC, right? So, and some other stuff too. There’s other things, important things that you know, the Wisconsin Supreme Court will decide on that that have, obviously, state significance, but they also will have, you know, some federal significance too,
Gene Tunny 56:42
because of the boundaries. Is it the electoral Yeah,
Darren Brady Nelson 56:45
you know, gerrymandering? Yeah, both parties do it, but you know, that’s Australia did the same thing. It’s not like no one’s clean on the gerrymandering thing, but so, yeah, gerrymandering, essentially,
Gene Tunny 56:59
we turned it into an art here in in Queensland, I think we were the best at it for a while. Some of those large, all of those regional like we had these huge electorates in the cities, but the these electorates in the in the regions with far fewer people, and so, yeah, there are many more regional members that are the city. It’s
Darren Brady Nelson 57:19
exactly the same thing Wisconsin. That’s the Democrats complain that that that’s the case. The Republicans are, you know, making it a bit too suburban or rural and not urban enough. And, you know, so, yeah, so, yeah. So, so, basically, so, two things, you know, the trump the mega supporters, they didn’t take the election seriously enough. They didn’t come out. And also the various groups, even the one I was involved with, we didn’t get started till the end of February. This is something that should have jumped in by the bare minimum, the beginning of January, probably really mid November, you know, like once Trump won, get stuck into it, because this was such an important election, I’m not gonna, you know, I won’t blame the Schimmel campaign, because, you know, they only have, you know, they certainly attracted a decent amount of money, you know. And obviously more money was poured into Schimmel and Crawford. These were the two opponents, Brad Schimmel and Susan Crawford. So Brad Schimmel was the Republican, Susan Crawford was the Democrat, with the weird caveat of, they don’t actually officially run as Republican and Democrat. You know, kind of how they do at, you know, like City Council like Brisbane, yeah, and in the US, they had the same convention that council level, they don’t officially run as Democrat or Republican. But you kind of figure them out fairly quickly. Although you do get at council level here, you do get some people literally aren’t either party, you know. They’re just people who’ve been in the community, like I mentioned, wabatosa. There was this guy I kept on seeing his sign up, and he was the only person I saw his sign up next to Schimmel and next to Crawford. At times it’s like, Who is this person? Like both sides, like him, you know. So he’s got to win. He was just kind of a local guy sort of thing, you know. So, so anyway, so it was combination of, yeah, they didn’t get out the vote early enough. They didn’t make, you know, an effort. They poured a lot of money into stupid TV ads. I think that everybody on both sides complained. Were just awful. You know, from both sides, everybody, like that was the feedback I was getting. It’s like, no one liked anybody’s TV commercials. They just weren’t very good. So, anyways, yeah, but, but what did get up is the voter ID constitutional referendum, the Wisconsin State Constitution. So that will be in the Wisconsin State Constitution that you will have to have voter ID. Now it’s also in the context of there already are voter ID laws here, right? Yeah, you can change laws, right? So, and the Democrats were looking to change those laws to not have voter ID. Basically, um. Which, you know, does seem weird, because, you know, even labor, I don’t think has ever suggested that you shouldn’t have voter ID, have the greens. I wonder if the Greens have ever suggested that.
Gene Tunny 1:00:10
I’m unsure. I honestly don’t know. I mean, the greens are more I mean, they’re, yeah, they’re focused on the big issues for them are obviously the environment, but also housing affordability. I mean, housing affordability is pretty dire here in Australia at the moment. And I mean, the Greens have a lot of policies on that. I don’t think they’re the right policies, but at least they’re, you know, they’re concerned about it, and they’re and they’re, you know, they’re making a lot of noise about it. So, yeah, I mean, we’re having an election that’s coming up on third of, think it’s the Third of May. It’s early May. So, yeah, I don’t know if you’re keeping an eye on that, Darren, if you have any thoughts on what we’re in for over here.
Darren Brady Nelson 1:00:50
Yeah, look, I don’t have strong thoughts on it. I have, you know, kind of fairly shallow thought because it, you know, it’s like, I mean, obviously, even in the internet age, obviously, I have access to all the same information as you do sitting in Australia as you do with the US. But it’s funny, when you’re not sitting in the country, you just, there’s kind of you just don’t soak the stuff as much. So, you know, look, I obviously listen to, you know what? You know friends like you or or mutual friend, Alex Robson has to say about, you know, what he thinks about the election and others. So I understand it’s, well, I don’t know. It’s kind of going back and forth, is it not? My feeling is Dutton will win, or, you know, Dutton, it’s not like Dutton literally wins, obviously, but the Dutton government will win. But, you know, maybe scraping it in, I guess it will be a landslide mandate sort of thing. Anyway, it’s
Gene Tunny 1:01:43
actually swung back to the government, to the Labor government, being returned, at least as a, probably as a minority government with support of TEALS, those, you know, those independents.
Darren Brady Nelson 1:01:57
I think dun will still win. That’s all I’m saying. Yeah. Okay, interesting. I think you’ll still win, because the poll, the polls, they’re always a little bit biased against conservatives. Right now, that’s on steroids in the US, right particularly when Trump’s on the ballot. You know, the polls are just like they were wrong. They were dead wrong. They were, they weren’t even close in the US right now, I’m not saying they’re like that in Australia there, but they are skewed and biased a little bit away from conservatives in Australia as they are, I believe, in UK, Canada. So I think you need to factor that in a bit. It was scomo. I mean, like scomo the other he’s got, you know, really not much of a chance. You know, now,
Gene Tunny 1:02:42
was seen as a bit of a disappointment in the end, I think so. Oh no, no,
Darren Brady Nelson 1:02:47
I agree. I mean, I’m not depending scomo How he performed, what he actually won, yeah, but he was, he was not, he was not, you know, favored in the polls very often, right in the lead up to that election.
Gene Tunny 1:02:59
Oh, not to for 2019 That’s right. He, that was a, that was a real surprise. He, he had a good campaign in 2019 but in 2022 I think
Darren Brady Nelson 1:03:08
everyone, well, I’m talking 2019 sorry, yeah, early 2019 Yeah, yeah, just Yeah. I mean, the mainstream media is left leaning. It just is, you know. And their biases, you know, come through, you know Murdoch? Yeah, Murdoch’s in the middle. He’s not right wing, he’s not left wing. He’s murdered Rupert Murdoch, that is, I’m not. His kids are left wing, lock Lachlan and all the rest. But, you know, give Rupert credit, you know, he’s a, you know, he talked about, you know, he said, Oh, Wall Street, you know, these people just want to make a profit. But that’s Rupert Murdoch, to be honest, you know, like he’s backed left and right over the years. I don’t see him as an ideologue. He owns more left wing publications than he does right wing ones, you know. And it was Roger Ailes, you know that, you know, kind of was the brainchild behind Fox News. Murdoch just saw an opportunity. Like, wait a second. I mean, he’s not blind. Freddie, you can see all the mainstream media was all left, left wing, right in the US at the time, and the new cable. Well, CNN wasn’t all that left wing back then. To be honest, they were. They kind of did actually have a decent mix back in the day CNN, but he certainly saw a market for a rate leaning cable TV, Fox News, you know. So I’m not
Gene Tunny 1:04:27
sure what left wing publications you think Murdoch owns, unless you’re claiming the Times and the Wall Street Journal are left wing. Oh,
Darren Brady Nelson 1:04:36
he owns lots of stuff around the world. He still own a lot of stuff that lean left. You know, I’m not sure if he, if he’s divested of some of that stuff over the years, the times, sorry, what did in London? Yeah, he owns the times. That’s, that’s that leans left. Yeah, definitely. And the Wall Street Journal is, at best, a neocon sort of Reg, um. Of it’s basically a combination of neocons and Neo Neo liberals. So whether you call that left or not, I don’t know, but it’s certainly there hardly free marketeers at the Wall Street Journal.
Gene Tunny 1:05:13
Certainly everything’s nothing’s like it once was Darren. I mean, it’s we live in, live in interesting times, don’t we? Right? I think we’ve, we’ve had a we’ve had a good chat of, I think it’s, it’s good to catch up with you on tariffs, and what’s been happening with with Doge, and your experience in Wisconsin, your your story about the turkey, I’ll have to look out for them. I mean, we have those little bush turkeys in here, scrub turkeys in Brisbane, you’d be aware of, but you wouldn’t get cornered by one of them for 10 minutes.
Darren Brady Nelson 1:05:49
I’ve seen, you know, my, my, my niece’s cat chases those things around. So no, you know. Do you have any, you have any views on the the Canadian election?
Gene Tunny 1:06:00
No, I think it’s extraordinary. Mark Carney was it was parachuted in. I did, didn’t see that coming. I don’t follow Canada closely enough. I know that he could get a benefit from the spat with the dispute with the US. I mean, that could actually help him out, couldn’t it? I mean, that could help the liberals in in Canada, yeah, yeah.
Darren Brady Nelson 1:06:22
Actually, the person who saw that, apparently, and probably not the only one, but, you know, some years back, was a Tucker Carlson, how’s that, right? Yeah, yeah. He saw that, yeah. He saw that, that he’d probably be parachuted in for Trudeau at some stage. Yeah. But interesting enough, it seems that the, you know, the opposition leader there is, he’s, he’s doing an uncomfortable game of, you know, trying to be, I’ve seen the conservative alternative a little bit Trump, like on certain issues, but on tariffs, not like Trump, you know. So it’s, it’s not going to be an easy balance for him to do, I imagine. Yeah, well,
Gene Tunny 1:07:00
lots of fascinating, fascinating things to always talk about with you, Darren. I really enjoyed the conversation. Anything you want to say before we wrap up, you can have the final word.
Darren Brady Nelson 1:07:11
Okay, well, look, you know, I predicted shimmel And I didn’t get that right, you know, hopefully I’ll be better on Dutton and the Canadian election. Because, you know, yeah, I hope, I hope those two governments win, but we’ll see what happens.
Gene Tunny 1:07:26
Well, I hope you’re right about the art of the deal, that’s all. I just hope this is part of his negotiated strategy.
Darren Brady Nelson 1:07:32
Well, yeah, I am too. I’m no supportive, like you have tariffs for tariffs sake. No,
Gene Tunny 1:07:38
yeah. Okay. Very good. Darren Brady Nelson, thanks for joining me. I really enjoyed the conversation. Thank you.
Credits
Thanks to the show’s sponsor, Gene’s consultancy business, www.adepteconomics.com.au. Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple Podcasts and other podcasting platforms.
Show host Gene Tunny and the World Bank’s Nilima Ramteke delve into the transformative impact of fast payments. They discuss how Project FASTT (Frictionless Affordable Safe Timely Transactions) bridges financial gaps and drives inclusive economic development worldwide. For example, they cover how QR codes and mobile apps make digital payments more accessible for small merchants and rural communities.
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Central banks, in collaboration with private sectors, play a key role in designing and implementing fast payment systems.
QR codes and mobile apps make digital payments more accessible for small merchants and rural communities.
Fast payments offer an alternative to cryptocurrencies in emerging markets, significantly where volatility and regulatory risks hinder crypto adoption.
Transcript: Inside Project FASTT: Real-Time Payments for All – EP278
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
Nilima Chhabilal Ramteke 00:03
So the inherent characteristics of FPS is to receive funds in instantly on a 24 by seven basis for 365 days over the year.
Gene Tunny 00:22
Welcome to the economics explored podcast, a frank and fearless exploration of important economic issues. I’m your host, Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence, and by hearing a wide range of views, I’m delighted that you can join me for this episode. Please check out the show notes for relevant information. Now on to the show. Hello and welcome to the show. In this episode, I’m joined by nalimah Aram Takei, a senior financial sector specialist with the World Bank’s Payment Systems Development Group, nalima brings a wealth of experience from her extensive career, including over two and a half decades at the Reserve Bank of India, where she worked on implementing and overseeing Payment and Settlement Systems. Now at the World Bank, nalima is CO leading efforts to promote fast payment systems worldwide, including project fast FAS Double T, an initiative supported by the Bill and Melinda Gates Foundation. These fast payment systems enable frictionless, affordable, safe and timely transactions, providing critical infrastructure for real time financial inclusivity the World Bank is supporting the implementation of fast payment systems in various countries and regions, including the Gambia Mauritania, Liberia, Sierra Leone, Guinea Somalia, Central African economic and monetary community and Georgia. You can find further details via our link in the show notes. In this episode, we discuss the benefits of fast payments, their transformative potential in both developed and emerging economies, and the challenges of implementation, ensuring access to underserved populations. Before we dive in, I want to thank Lumo coffee for sponsoring this episode, economics explored. Listeners can enjoy a 10% discount on their premium organic coffee from the highlands of Peru. You’ll find the details in the show notes. Now let’s jump into the episode. I hope you enjoy it. Helena, thanks for joining me on the program.
Nilima Chhabilal Ramteke 02:34
Thank you for having me here. Jen, it’s good to be part of this podcast. Thank you so much. Yes,
Gene Tunny 02:40
no problem. I’m keen to learn about Project fast that you’ve been involved in at the World Bank. So project FA s TT, can you tell us a bit about the project, please, what it stands for and what your involvement has been, please. Nalema,
Nilima Chhabilal Ramteke 02:59
thank you, June for the question, and as you spelled out yourself first with the double T stands for missionless, affordable, safe, tangy transaction. This is an initiative support on past payments, supported by the Bill and Melinda Gates Foundation to further accelerate the adoption of past payments worldwide, and this is an ongoing work of the World Bank over the last two and a half decades in the field of payment systems, to basically Where we are supporting jurisdictions, as the developers say, reliable and efficient national payment systems. And this comprises a bit a lot of other things, like the legal and regulatory framework, the large value payment system, security, settlement, foreign exchange. Then we have the retail payments. One of them is the past payment, then the government payments, remittances, and also oversight and cooperation. And with the new developments which are happening, we are also supporting in the FinTech, notably on the crypto, CBDCs and open Banking project fast is a comprehensive knowledge product of the past payment FPS, and it’s organized as a toolkit across four broad thematic areas. One is the flagship reports, which covering the FPS developments framework and which incorporates the lessons learned through the wide number of technical assistance projects around the world, and also the research across all facets of FPS development. And this framework actually aims to provide the holistic tool for policy makers to manage their FPS journey and conceptualize this. Nine and implement the FPS, which again, is a continuous part. Then second is the portfolio of case studies covering a wide area of diverse experiences in terms of geography, Country Profile and the key aspects of FPS developments, such as the ownership models, payment types enabled, among the few things. Then the third point, the third thematic area, is focus notes, which we call technical notes and webinars, providing technical deep dives into topics of high relevance for fast payments, such as interoperability, cross border Overlay Services, then messaging standards. These are certain things which are there. And as part of the fourth one is a global tracker for the FPS, which provides the essentials of the past payments initiatives around the world. Our aim is to use the project fast in providing technical and financial assist support and help our client countries build technical, operational and regulatory capacity to implement the state of the art, safe, efficient and low cost past payments in their jurisdiction. Also the toolkit provides guidance on the aspects that authorities needs to consider when developing a FBA system. Another important objective of this toolkit, that is the project. First toolkit is to act as a catalyst in fostering an international dialog and facilitating a concerted agenda the global FPS development by involving global stakeholders, partners, including the standard setters like the cpmi, the central and regional central banks across the jurisdictions, And also in light of the FSB and the g20 cross border roadmap. This, this helps, and if you see the project Nexus is also referring to the the our FPS tracker, as well as part of their development thing. So these are certain things, and our aim is to keep on updating this and expanding the Toolkit by capturing the latest developments and innovations which are happening in this space. Gotcha.
Gene Tunny 07:28
Okay, so it sounds like your project. This project fast. This is providing the capability, is providing case studies lessons. So the is it typically central banks in in the countries which will be implementing the fast payments. I know in Australia, our reserve bank was involved with the, I think it’s the Osco system. If this is what we’re talking about, we’re talking about the almost real time payments that occur. You transfer money straight away to someone else or another business. And then, whereas years ago, it would have taken a day or two for it to get through, it had to, had to settle who’s implementing this in the different jurisdictions. Can you give us some examples, please? Elena,
Nilima Chhabilal Ramteke 08:13
well, it depends on the jurisdictions how they want to do. VC, the central banks themselves being implementing the system. There could be the collaboration as well between the central banks and the private or it could be a private initiative as well. But definitely the the central banks play a role as the regulator and overseer of this infrastructure. So if you, if you if you see like the, if we can go to the benefits of it as well, we can talk on that, yeah. But normally, it’s not that. It is only the central banks which we implement, like the in in Australia, like you mentioned, the NPP system. It’s like a collaborative effort, and market peers are quite involved in that,
Gene Tunny 09:01
yeah, yeah, yeah, absolutely. Okay. And so what are the what are the benefits to the the fast payments? So why would the World Bank be interested? Why would Bill and Melinda Gates Foundation be interested in this? What do they see as the benefits of it? Yeah.
Nilima Chhabilal Ramteke 09:16
So, like the past payments, like the name suggests itself. It’s instant real time for rapid payments and with various name it’s called. It’s basically a reflection of our meeting our end users demand for round the clock availability, and providing, instance, availability of funds for the pay space, in the sense the beneficiaries, and which actually resonates with the time where everything is so instant and is available around the clock. So the inherent characteristics of FPS is to receive funds in instantly on a 24 by seven. Basis for 365, days over the year, and the main characteristics of past payments, like I mentioned, it’s the instant so instance availability. It’s immediate exchange of messages from the payment messages, and immediate availability of funds for the beneficiaries. It also supports, actually, a wider area of use cases as well, like the P to P payment, person to person payments, person to merchant payments, and also supports bill payments as well. And you can the governments have also used for what to say, instant payments, or payments for the benefit in times of emergencies as well, like we have seen during the time of COVID. So many governments have used this infrastructure for transferring funds the beneficiaries as a social benefit transfer as part of this, using this infrastructure, also because of the the service the FPS, not only provides access, but definitely depends on the design as well access to the banks, but also the non bank players. And this expands the coverage and and what you say, availability of infrastructure to the underserved population as well. And this helps in facilitating financial inclusion, and this is one of the objective of the World Bank and for Financial Inclusion. And that’s why, apart from other reforms, which we always do in the payment systems, fast payments is one of the benefits out of that. Yeah, and also with the the the advent of technology, the fast payments also support QR payments aliases, like you have in in in Australia, you can use your corporate ID, your email ID. So similarly, these first payments across the globe also provide a lot of support various type of aliases. Then you have the near field communication. So this gives a good user experience, which actually has helped in expansion of the usage of the past payment one more from the merchant side as well, is the the the use of QR codes which pass payments facilitate a small merchants. Does not need to have a boss terminal. You can just have a QR pasted, printed and pasted. So it’s like an asset light infrastructure which is required, so which has also helped in the onboarding of merchants and merchant accepting digital payments on the far flung areas as well. So what we see is that the fast payments deliver a lot of benefits. It also offers as a gateway to other financial services for the other otherwise excluded population, and enabling them to get access to other financial services, like the credit which they were not otherwise having access to. And also, as I mentioned about allowing small businesses are also getting on board and and it has also helped the government to better deliver their social assistance payments, especially specifically during, especially during the crisis, pandemics or national disasters, as well a good fast payment systems also infrastructure also helps in reducing the cost and times associated with international remittances. So what we have seen is that the FPS has helped in reducing uncertainty, because you get the funds immediately responding to immediacy in a increasingly digital economy, fostering interoperability and competition. That is what we mentioned about access to banks, non banks and everybody can getting a level playing field, and also because of the support of areas. We don’t need to share your credential or bank details, you can just say, share your email ID, and that’s it. So you don’t the security aspects are also taken into account. So in a nutshell, this is where we see one of the drivers for fast payments adoption as well. Yeah,
Gene Tunny 14:36
no, it’s all it’s interesting. I mean, I like that example of the QR code. I can see how that can work. And I’d like to come back to that point you made about the underserved population and how there may be you look at what infrastructure is required, and I think we can talk about that in the challenges, the the of implementation. And okay, so I want to ask now to Lima about, what are the challenges in implementing these fast or instant payments? I think you sort of alluded to some of them before, in terms of, well, what if you have a population that’s underserved? I mean, in many emerging economies, as we know, there’s a large informal economy, still many people live and work on the land. It can be difficult to to reach those, those populations also, I imagine things like, I mean, yeah, just the basic digital infrastructure. Can you tell us a bit about the the challenges of implementing the fast payments, please?
Nilima Chhabilal Ramteke 15:37
Yeah, so I think you yourself had identified a few of that. But before we go to the challenges, probably what is required would help us. Yes, sure, yeah, standing better. What is the challenges? So for implementation, pass payments, like we see for all IT related payment systems development, it actually requires, thorough market consultation and preparation to onboard all type of stakeholders that would be part of it. It also needs to leverage bodies such as the National payments of financial institution inclusion councils. So because this is past payments we are talking about, then you need to look at those aspects as well. A lot happens also on the adaption, on the design choices, because who all will be there, how the system would be, will function, so that goes as part of the design. And because we see that the requirements varies across jurisdiction, so you cannot have one size fits all approach for this. So you have to have your systems designed to meet the needs of the country, and also needs to, because it also needs the countries, needs to, or whoever is implemented, needs to have the technical capability and the conducive legal and regulatory environment and framework for supporting that. So establishing a sound and efficient governance framework is also key, which involves that you have all your stakeholders on board. And this will also include that whatever system you design should give a good experience to the users as well. The other enabling environment which is required is the adoption of the smartphones also, if the if the smartphones are not there the country, mobile feature phones also, then you need to have the channels to support those type of transactions as well. So there is a cost cutting legal provision. So to tackle that is also key to that, and such as the cyber security aspects, because you are looking at infrastructure which is totally digital, so you need to have those aspects as well as consumer protection, because you are looking at serving population which was earlier and served they may not be financially literate. So that brings us to the challenges which are there, and some of the key challenges, typically, what you mentioned about the emerging markets is about the lack of infrastructure, both the payment infrastructure as well as the enabling IT infrastructure, also the internet penetration, specifically for the rural areas, the emerging and means markets also face issues and constraints because of the private player may not be wanting to so some of these areas also, as I mentioned about the smartphone or mobile phone penetration. So that’s an important key aspect, because we are looking at the first payments, which is more mobile based access channel. Then also, one needs to look at the financial literacy aspects, which is because we are trying to see population which was earlier, not financially included so and also because the trust the system should provide, and because so far, the economy was more cash driven, so now you’re moving from cash to a digital aspect, so you need to have all this enabling infrastructure and to overcome these challenges, we see that the Developing countries need to have a multi pronged approach that addresses all aspects of digital payments ecosystem, and not only implementing the technology but also creating and enabling regulatory environment and investing in initiatives to educate the end users, this is something which. We think is there, and towards this, we see that most of the championing role is of the central banks, which is very crucial to steer these initiatives, promote the ongoing commitment of all stakeholders. If they have also taken initiative, then there needs to be a commitment and align the interest of all private as well as public, so that these are certain things. And keeping this in mind, we also have one of our focus notes, the on this championing role played by some of the Select central banks in the same
Gene Tunny 20:39
okay, we’ll take a short break here for a word from our sponsor.
Female speaker 20:45
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Gene Tunny 21:14
now back to the show. I mean, I guess it’d be good to talk about the central banks, because the central banks obviously play a critical role in a payment system, because the well, at least in Australia, the banks bank with the central bank, they have accounts there. They’re exchange settlement accounts. And so when there’s a when there’s a deficit from one bank to another, or when one bank has to at the end of each day. Because of the flow of funds between customers at different banks, one bank may have to transfer some money to another bank, so there’s the settlement of accounts at the end of the day, so the banks have to trust each other. So the this is what I find really interesting about this. How did the how do the banks know that, like, if someone I’m I’m a farmer, say, and I’m going to buy seed or what, some, you know, some consumables or equipment from from a merchant in town, and I make the the fast payment on my mobile phone, and I’m at a different bank from the merchant how does the Yeah, how does the Merchants Bank know that I will have the funds in my account to that so that that merchant bank will get the funds from the the buyer’s bank. So how do they know that, in real time? Is that That’s all about the it? Technology? Is it?
Nilima Chhabilal Ramteke 22:39
So this is a good question, actually, and that is the i i said, one of the benefits and trust is that the beneficiary gets the funds real time I’m making a payment, I scan the QR and I make the payment that you as a merchant would receive it immediately, and it depends on how the banks are communicating with it, but normally, most of the jurisdictions, they have gone for the immediate response to the beneficiary as well that the funds have come to your account. So this has helped in bringing the trust. But then that is on the design side as well, because on alerting, both whose account is debited, but also the account the person whose account is credited. Yes. So that alert needs to go across, but with mobile apps and all, it automatically gets updated immediately. If you are your bank is providing that service to you. So on your app, you’ll always you’ll be able to get the response of the transactions which are there. So if you see many countries, like the India’s ups as well, you are able to make payment for online purchase of airline tickets, and you can do that using your first payments. So once you give your what you say, BPA, what’s your address that is either your areas, no, like we said about corporate or email ID. Once you give that and the payment is made by the beneficiary, it immediately gives time, and it responds back to the bank that this payment has been received, and you get your airline tickets immediately issued, because of this infrastructure, which is integrated, but then that depends On the various message that flow through the system. So the merchant should be able to get the response from his bank with whom he’s banking, because once I scan the QR, I’m making a payment to the merchant. My my transaction, my account is debited, and that transaction flow this to this channel which is there, and the the merch. And receives the funds immediately, right?
Gene Tunny 25:02
So does it go from one bank to the other at the same time? Does it right? Okay?
Nilima Chhabilal Ramteke 25:11
The the, the the and that is the beauty of the system payment, real time credit on your real time credit to the beneficiary, the settlement between the banks could happen on real time, or we call at a defer net basis, depend on the design of the system so it could the settlement between the banks could happen real time, yeah, or at a designate point of time, yes. But in the end users, it’s immediate field. Gotcha,
Gene Tunny 25:39
okay, yeah, yeah. It’s all fascinating, trying to, yeah, I was just trying to figure out in my head how it must, how it must work. So, yeah, that’s great, okay, and the issue of, I find this issue of the internet and availability of that, I mean, that’s, that’s a critical part of it. I mean, mobile phones. I mean, there has been extensive mobile phone penetration through even in emerging economies, I’ve seen that. But what about the internet? I mean, does the program, I know some of this is confidential, but does project fast? Does it actually provide funding or support for connecting people to the Internet, whether it’s via actually, is it satellites or Starlink technology like that? Can you talk about that at all?
Nilima Chhabilal Ramteke 26:27
So the funding, financing of the product, a project, is for implementation of the system, but also the bank supports fraud social causes as well. So that goes as part of that social benefit, and all as part of that in some of the projects, the bank has supported the client countries as part of the not part of the project pass, but as part of the other projects where in the client countries have provided mobile instruments to the beneficiaries, so, but that that is a different channel. Totally
Gene Tunny 27:11
Gotcha. Okay, that’s fine, right? Oh, okay. And finally, I’m wondering, does does this help reduce the appeal of crypto currencies? I’m just wondering to what extent, you know, there’s a lot of buzz about crypto, and to what extent is there appeal of crypto in emerging economies, and is this something that is, this is something that is a substitute for that, or something that is will reduce the appeal of cryptocurrencies. Can you talk about that please? Yeah,
Nilima Chhabilal Ramteke 27:46
this is the good area, I think so. And yes, a lot of countries are looking at it, and the World Bank has actually published a technical note. What does digital money mean for emerging markets and developing economies. I share that link probably you can share with the and the note categorizes new digital money proposals, which includes crypto assets, and cryptocurrency is one of them, so stable coins and central bank digital currencies, the note also assesses the supply and demand factors that may determine in which countries these innovations are more likely to be adopted, and it compares actually the digital innovations such as mobile money, retail, fast payment systems, new products By incumbent financial institutions and new entrants, such as specialized cross border transport operators as well. So when we talk about crypto assets, actually, they suffer from various impediments, including high price volatility and scalability challenges, which actually prevents them from being adopted as a mechanism, as a mainstream means of payments or store of value, and much less unit of account. And this is, as per the BIS paper, 2018 I can share that link as well. And many jurisdictions have also banned the use of crypto, also due to these, these issues, but also from the angle of AMS, CFD aspects as well the other now we’ll hear more about stable coins, which has entered the free and more stable coins actually attempt to maintain a stable value relative to the fiat currency, or the basket of fiat currencies, which which they identify and but stable coins also face various challenges and post news new type of risk, particularly in the emerging and developing economies, though some of the countries have begun to accelerate. Their investigations, we see that some of the countries have started investigation into cbdc for consumers, central bank digital currency for consumers, but however, a new digital equivalent of cash, which is cbdc, also raises various challenges for the emerging markets and developing economies. We see that the research is ongoing, but it’s not yet clear whether cbdc are necessary or desirable for all jurisdictions. And when we look at this in a holistic manner with see it is it is seen that fast payments serve the payments needs of the people, and the other argument in favor of FPS is that it’s key to the needs of the bulk of the end users, because it also supports different type of use cases and the ease of with which it can be used, and also because of the cost consideration and convenience it provides, also fast payments have sort of put in place. Many jurisdiction have put in place fraud mitigation measures, consumer redressal measures as well, which could be a point in placing FPS over crypto and reducing the appeal of crypto, while we know that crypto caters to a different user base then so although and the appeal is still there for a different reason For the different
Gene Tunny 31:39
Yep, fair points. Okay, very good. Well. Nalima, thanks so much for this overview of project fast. I think, yeah, I’ve learned a lot, actually, about what’s going on and the issues with these fast or instant payments. I think that’s been that’s been really great. Is there anything you think we missed? Anything that’s worth reiterating before we wrap up, please.
Nilima Chhabilal Ramteke 32:02
Yeah, I would, I would like to, once again say about thanks for having us. And I would like to share the link of the fast payments as well, probably because this has a good publication on the past payments, on the focus notes, as well as the research which has gone into that. And people who are interested in the subject would also benefit out of this. So yeah, absolutely.
Gene Tunny 32:25
I’ll share that in the show notes. Okay, malema, thanks so much for for joining me this episode. I’ve I’ve really enjoyed the conversation. I’ve learned a lot. So thanks again. Thank you so much for having me. Thank you, righto. Thanks for listening to this episode of economics explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact at economics explored.com or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you, then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week. You
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Credits
Thanks to the show’s sponsor, Gene’s consultancy business, www.adepteconomics.com.au. Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple Podcasts and other podcasting platforms.
There’s an upcoming election in Australia, and housing will be a big issue. Show host Gene Tunny chats with Fusion Party candidate Owen Miller about Fusion’s sweeping housing policy proposals. Topics include eliminating negative gearing, taxing capital gains on owner-occupied homes, and increasing public housing. They also discuss ideas like charter cities, high-speed rail, and a government-run real estate platform.
You can listen to the episode via the embedded player below or via podcasting apps including Apple Podcast and Spotify.
About Owen Miller
Owen Miller grew up in Sydney and has long been interested in science fiction, ultimately leading to the study of mechatronics (robotics & control systems) and computer science at the University of Sydney.
After working in different software roles in Sydney and even dealing Blackjack for some months, Owen moved to Seattle to work on the recommender systems at Amazon. Owen later moved to New York and was involved in smaller startups, especially in hospitality. Although the start-ups didn’t take off, this rite of passage involved less shielding from the real world and helped clarify the roles of the market and the state in the provision of essential aspects of life, such as software and social cooperation.
In 2020, Owen started the Non-Human Party; a vision for an opt-in online nationality that would optimise the existence of robots and animals, in addition to humans.
Upon moving to Melbourne in 2022, Owen became the Registered Officer of Fusion, with the hope of enabling Australia to reach its full potential as a wealthy, sustainable and harmonious paradise; a beacon for the rest of the world. He currently serves as Fusion’s Convenor.
Owen was Fusion’s candidate for the 2023 Aston federal by-election.
In 2024, he ran as a candidate for local council in Merri-bek (for the Bulleke-Bek ward).
He will again be running as a federal candidate in 2025, this time in Wills.
In 2024, Spotify classified Owen as belonging to the top 0.05% of Kylie Minogue fans.
Tax reform is central to Fusion’s housing strategy — They propose reducing capital gains tax discounts and phasing in land tax for all properties, including owner-occupied homes.
Fusion supports a major investment in social housing — Advocating a jump from 3.2% to 10% of housing stock as public housing.
Tenant rights need an upgrade — Fusion argues for banning no-fault evictions and establishing minimum standards like clean air and energy efficiency.
Livret A accounts could revolutionize infrastructure funding — A French-style citizen savings bond to fund high-speed rail and public housing projects.
Urban sprawl isn’t the answer — Fusion favors infill development and transport-driven decentralization over expanding city fringes.
Transcript: Fixing Australia’s Housing Crisis: Fusion’s Plan w/ Owen Miller – EP277
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
Owen Miller 00:03
You know, it encourages people like you should spend as much money as you can afford on buying a home. And you know, that obviously creates rich suburbs poor suburbs. It’s interesting to note as well. You know, if you look at like domain, the real estate side, if you look at their list of top 10 most livable suburbs in Sydney doesn’t match the list, you know, the price list. So you know the most livable suburb is not actually the most expensive.
Gene Tunny 00:34
Welcome to the economics explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode. Please check out the show notes for relevant information. Now onto the show. Hello and welcome to the show. Today we’re looking at the housing policy of the fusion party. So this is an Australian political party, and I’m joined by Owen Miller, who is the convener of the fusion party, and he’s also a candidate for the Federal seat of wills in the upcoming election. Owen, thanks so much for joining me on the program. Adrian,
Owen Miller 01:38
good to be here. I’ve enjoyed listening to it so far. And, yeah, I’m also becoming a fan of the organic coffee from the highlands of Peru.
Gene Tunny 01:45
Oh, very good. So you’ve ordered some brilliant I love to let him know. He’ll be, he’ll be super excited. Very good. Okay, now. Oh, and I read in your bio. I mean, there are a couple of things that stood out to me. I mean, one is, you’re in the top. What is it fraction like point, oh, 5% of Kylie Minogue fans guilty. It’s
Owen Miller 02:05
inspirational. You know, especially you know the song your disco needs you. It really, you know your nation’s falling. You know what needs to be done. Your disco needs you. It feels like it’s resonating for anyone you know, thinking about getting into politics.
Gene Tunny 02:19
Well, she’s a great Australian Export, really. I mean, she’s brilliant. I remember going to her impossible Princess concert here in Brisbane at the entertainment center. I mean, now she’d have to have a bigger venue. I imagine that was back in 1998 I think that was the start of when, I mean, she was, I mean, she was always huge, obviously. But that was really the start of when she started to become an icon. I think, where, oh, this is, it’s really changed. It’s not just the pop. It’s really getting sophisticated. And so, yeah, yeah, I can, I can see where you’re coming from. So that’s, that’s, that’s fine. I don’t want to talk about Kylie or all. We’d be here all night. Very good. So what I want to chat with you about is the housing policy of of fusion party. First, can you just explain what’s the relationship between fusion party and Pirate Party? Because I’ve previously spoken with John August, who’s involved with Pirate Party. Can you just tell us a bit about
Owen Miller 03:16
that, please? Yeah, so pirate party, that was one of our branches, so there was the law change a few years ago, 2018, I think it might have been previously, to have a party registered. You only needed 500 members, but then the rule changed, so you needed 1500 so, you know, various parties merged together. So the founding ones of fusion were, yeah, pirates, secular science, vote planet, and then also climate change justice. Gotcha.
Gene Tunny 03:43
Okay, gotcha. So you’re fusing together those different, those different philosophies or platforms. Okay, great. Oh, plus,
Owen Miller 03:51
we support nuclear fusion. Hence the like,
Gene Tunny 03:55
very clever. Okay, got it. Okay, that’s brilliant, right? So, can you tell us, I mean, what’s the overarching philosophy behind your housing policy? Can you? Can you give us an overview of your housing as a home policy, please, before we dive into some of the specifics.
Owen Miller 04:13
So what we were trying to solve for, there were three main goals. So there’s lowering the barrier of entry, not necessarily buying, but, you know, just being able to get a place to live. The second idea was increased mobility, you know, moving more easily. And the third is the efficient allocation of capital. Because, you know, homes the moment they’re doing double duty, you know, is it a place to live, or is it an investment? By trying to get them to do both, it ends up, you know, undermining both purposes.
Gene Tunny 04:42
Gotcha. Okay, so I guess the background is, I mean, in Australia, we’ve got a real problem with with housing. At the moment we’ve had, particularly in it was 2223 we had something like 20% growth in rents in some capital cities. Uh, we’ve had, you know, big, you know, massive appreciations of property prices. It’s becoming much harder for for young people, for first home owners, and we’ve got a growing homelessness crisis. So certainly, we certainly need some policy, policy measures. What are the major specific policy measures that you are advocating for Owen, can you tell us please? Yeah,
Owen Miller 05:23
so one of the main things at the moment there’s a capital gains tax discount. So the idea is, if you sell your home and it’s raised in value over the years, part of the reason it rose in price is just because there’s inflation going on around you in the economy. So you know, it makes sense that you don’t have to pay capital gains tax at 100% of that gain. Currently it’s up to 50% but we feel that that’s a bit too generous. So for owner occupiers, we’re suggesting the discount at the moment is, you know, 0% we’re suggesting it gets changed, you know, 15% and then for people who don’t live in the property, currently the discounts 50, but we’re also suggesting lowering that. So yeah, the main thing is, if we treat homes as if they’re going to keep rising in value and that you’re going to get a tax discount for this rise in value, then it sort of incentivizes the tap. And so, yeah, by us taxing these gains more, they’re sort of people are less likely to pursue it,
Gene Tunny 06:29
right? And so is this your this is the where you’re coming from. You think that these tax, the tax policies regarding housing? I mean, do you think that’s a significant source of the problem that we have in Australia with housing? Yeah. So
Owen Miller 06:45
especially if people want to visit the website where they can review our policy in detail, you’ll see, I’ve got comparisons with different countries. At the moment, we’re most comparable to the Netherlands. The similarities there, it’s mainly that in the Netherlands, they were allowed to borrow, sort of out of control, and then also they got tax discounts for the mortgage payments on their primary residence. So, you know, when you give all these generous tax treatments, pushing people into buy homes, then you know, that’s sort of what they do. And you know, you could get a mortgage in the Netherlands up to 105% of the value of the property. So, you know, I guess, you know, covering stamp duty and moving costs, all that sort of thing. And so one of the things they did to rein this in, in the early 2000s was to lower it so you can only borrow 100% the value of the home.
Gene Tunny 07:35
How did they do that? I mean, did they have, did they have state owned banks, or was there, so was there government support for I mean, I’m just wondering how they managed to do that, because that seems risky from the from the banks perspective, yeah,
Owen Miller 07:49
yeah, because you’re right, the risk of default, yeah, I’d have to look into that more. But I guess, in terms of how much anyone can borrow, I guess, you know banks, it’s pretty common worldwide, isn’t it, for, you know, banks to get bailed out by governments. I
Gene Tunny 08:04
guess, regrettably, there is that. There is that issue there that yes, and I mean, we’re still dealing with, I think, the the implications of the bailouts in the financial crisis, I think, I think, I think a lot of the reason that we have we’ve ended up with such toxic politics is that we’ve got a lot of people who are, you know, the people are mad that the people who are seen as the villains in the financial crisis ended up getting bailed out or didn’t go to jail when they probably should have. So I guess that’s a that’s a matter for another day. Oh, and I think, I think it’s Yeah. It’s interesting this point about taxes, because this is a debate I’ve been involved in. I used to be in the treasury, and so I probably got a different view. But that’s, that’s okay, I mean, I mean, I guess the sort of standard view would be that, well, okay, these are probably having some impact, but maybe it’s 4% two to 4% or something. It’s, yeah, the bulk of the the actual problem that we’ve seen recently. And so I’m just wondering, how do you see the the tax policy settings, and you mentioned capital gains, and there’s obviously the other thing, people argue about negative gear. And so be keen to hear your views on negative gearing. But how do you how do you compare these tax policy settings to say, immigration, there’s a lot of concern about rate of immigration. So could you tell us about both your views on negative gear and also immigration, please, in regards
Owen Miller 09:33
to that two to 4% Yeah. So one of the sources I was relying upon heavily was from Peter Tullet, the Center for Independent Studies. And yeah, so he included that figure where he’s saying, if we were to, if we were to have the same application of negative gearing that Paul Keating perform, you know, what many people think of as scrapping negative gearing, if we would do that, and then also we were going to change the capital gains tax for quote, unquote invest. Dollars, you know, people who don’t live in the home, then those two effects combined have been estimated be responsible for two to 4% of property prices. Where fusions policy differs is that we’re also changing the capital gains tax for owner occupiers, so we have more than this two to 4% impact. But then also, yeah, in terms of the impact of immigration, yeah, obviously that’s a huge component to it. So we did have a specific section on immigration, and that it’s skewed towards students at the moment. And you speak to anyone in the tertiary education sector, and they’ll tell you that there are whole there’s just rampant fraud going on at the moment. Many of these students are not learning anything. The colleges will never equip teach them anything. And, yeah, which even, even the skilled migrants. I saw a talk by Matt Barry, the CEO of freelancer, I believe he said he had some figures where it was showing 20% I think it was 20% of skilled migrants aren’t paying income tax, you know, because they don’t have a job, presumably. And 7% of skilled migrants are on unemployment benefits. These are the skilled ones. And so, you know, there are certainly arguments we can make, you know, in favor of immigration, you know, covers shortages where we have shortages. So you know what? I mean, yeah, but then yeah, it doesn’t seem to be panning out in Australia’s best interest at the moment. So, so yeah, we’ve suggested lowering it back to 2017,
Gene Tunny 11:30
levels, right? Okay, do you know for the top of your head what that was? I mean, I can look it up later and put it in the show notes. So
Owen Miller 11:36
500,000 net immigrants versus 650,000 at the moment, right?
Gene Tunny 11:42
So 500,000 would still be high relative to,
Owen Miller 11:47
oh, the world, sure, yeah.
Gene Tunny 11:49
No, I guess so, 500,000 we’re talking so this is for Australia. Is that? Yeah? 500,000 net immigrants. Yeah. Net immigrants. Okay, I’ll have a look at your policy, because that still sound to me that still sounds high relative to the sort of rates that we’ve had in the like, pre, you know, pre pandemic, and we also had, I guess, what the Mac the macro business guys, I think they want to, you probably know, the macro business guys that I think they want to take it back to about 100,000 or something. I mean, that might, I mean, who knows? That may be too low, but it’s sort of, for many years, it was sort of running around, I think 150 to 200 or two to 250 and then it sort of, you know, went up to this very high level, post pandemic. That’s okay, we’re gonna, we’re gonna,
Owen Miller 12:35
oh, sorry, you’re right. I did sorry. This was the, I was quoting the gross arrivals. Yeah, you’re right. Net arrivals is has been, yeah, you’re right. In 2017 net arrivals was 250,000
Gene Tunny 12:48
sorry, yeah. I think that’s probably, that sounds good. Yeah. That sounds fine. I mean, I think that’s sort of the level that yeah would be, well, definitely more sustainable than what we’re having now. I think the points you make about the rorting, I think they’re good. I think they’re good points. I think, unfortunately, there is, you know, quite a bit of that going on. So, so that’s good. Now I need to know, I want to ask about this owner occupier capital gains tax. Because So isn’t it the case. If you live in the principal place of residence long enough, is it over 12 months, you don’t, there’s no capital gains. Yeah, that’s my understanding. Yeah, yeah. Okay, so you’re tweaking this for people who own occupy and what they only occupy it for they occupy for only a few months, or something. Is that the, oh,
Owen Miller 13:35
we’re saying that even if you, even if you live it, in it for a long time, you should still have to pay, you should only get a 15% discount on on that gain, as opposed to 100%
Gene Tunny 13:47
so really, okay, that’s interesting. So
Owen Miller 13:50
one of the, one of the issues that people have with that is basically, you’ll sort of depart from the rest of the housing market. You know, it’s gone. Let’s say you bought your house for a million dollars. Now the price is around. You are 2 million. You sell yours. You know you’re gonna some of that 2 million is going to get taken away in tax and you can no longer buy the house near you. Yeah. But I guess what I was suggesting before that part of that rise was because there were these incentives for people to, like, want it to rise and everything. If housing prices were more steady, then, you know, maybe the prices rose, you know, $20,000 around you. And so this capital gains tax that you’re paying, you know, just wouldn’t be as significant.
Gene Tunny 14:33
Yeah, okay, so that’s, yeah, that’s quite a bold policy. Uh, what feedback are you getting on that? Oh, well, I
Owen Miller 14:40
mean, as I said, there was the, there was the idea that, you know, the house prices around you could escape, yeah, yeah. But then also, it’s worth noting that, you know, this could be phased in over, you know, decades even. So, you know, if, if we started to increase this tax and, you know, we did see, you know, terrible outcomes, you know, since it’s been rolled out slowly and be. Shocked or reversed? Yeah, it’s I should mention as well. Sorry, I said this was the biggest feature, perhaps just as large is we want to move towards land tax, but land tax in the way that Henry George proposed, not what we’re getting now. So, you know, some states offer quote, unquote land tax, but the primary place of residence is immune from this tax.
Gene Tunny 15:23
Yeah, gotcha. Okay, so this is just want to go back to this, yeah? Owner occupier, so capital gains tax, so you’re saying, only was it discounted 15 or 50% I couldn’t hear it clearly. Sorry,
Owen Miller 15:36
oh, sorry that they get a discount of 15% 15, like, 1415, yeah. Okay.
Gene Tunny 15:41
So that means they have to pay tax on the bulk of the the capital gain, so 85% of the capital gain, even though,
Owen Miller 15:52
oh, no wait, sorry, um, I’m quitting it the wrong way around. Oh, good, okay, they have to pay tax on, they have to pay tax on 15% of the capital gain. Sorry, Gotcha,
Gene Tunny 16:01
okay, okay, so that’s, that’s going to be, that’s not going to be as drastic, Okay, gotcha.
Owen Miller 16:07
Because I’m not an economist, it was keeping up with all these the
Gene Tunny 16:11
way I was sort of, yeah, I was interpreting my going, that sounds really people with their pitch box. Yeah, exactly. Well, but, well, I mean, I guess it’s interesting. It’s interesting proposal, because, I mean, there are a lot of concerns about inequality, and now, I mean oligarch is the word everyone’s talking about in the US. I mean less so in Australia. I mean, is this? Do you see this as a measure to address wealth inequality as well? Do you have policies regarding inequality? Yes,
Owen Miller 16:41
so especially for homelessness. So I guess homelessness is often mischaracterized, the causes, all that sort of thing. So there’s a graph I included here. They had a comparison of housing affordability versus homelessness for various American cities, and you can see this so closely correlated. You can see that, you know, housing affordability is, like, quite obviously, the number one driver of how many people are homeless, yeah. And so, yeah, by all these tax treatments, infusions, housing policy, we’re aiming to level the playing field more between owning versus renting. And then, you know, once there gets to be more renters, so there is about 30% at the moment in Australia, in Germany and Switzerland, it’s about 50% so basically, the more renters we have in Australia, the more rights they will achieve, which, you know, creates a virtuous cycle of making renting more and more appealing,
Gene Tunny 17:37
right? Okay, so what? What additional rights do you think renters should have? I mean, there have been changes in Queensland. I’m not sure exactly what’s happened in New South Wales. I mean, we had some changes to so that, you know, rents could only go up every 12 months. I mean, that just means they have a higher rental increase at the, you know, the start of a 12 month lease. What? What additional measures or rights do you think should be in tenancy agreements? Well, it
Owen Miller 18:12
really starts with no ground, no fault evictions. So if we’re going to create any extra rules that landlords have to follow, if they can count people, you know, at the drop of a hat, then it means that any of the other rules can’t easily be enforced. You know, you could say, like, Hey, you are meant to give me, you know, energy efficient appliances. Then you didn’t. And so then, you know, the landlord can say, Oh, well, you know, get out then. So, yeah, preventing against no fault evictions is really the starting point. One of the other things that we call for is an upgrade in extra rights for clean air. So we can think that as our standard of living gradually evolves over the years, you know, like internet is now seen as, you know, a basic necessity of living in modern society. And so if anything becomes commonplace in a home where the owner lives in it, then basically those facilities should also become expected in rental accommodation. And so, you know, things like air purifiers, having clean air, it helps you think, it helps you live longer, you know, staying healthy. And so we would like to see some minimum standards about clean air and apartments. Yeah, right.
Gene Tunny 19:31
And what’s your policy on social housing? Because one of the things we’ve seen in Australia is that state governments don’t invest in social housing anymore. And I mean, I guess economists have to blame for this, partly because for a long time, the common wisdom was that, oh, well, social housing is inefficient. It doesn’t make sense for governments to hold on to this social housing stock and have to look after it. You can get people can get stuck in social housing for years. And it’s not a really, you know, it’s not a really great way. Deliver to deliver the support, and you may as well just provide decent rent assistance. The problem, I guess, the mean, I guess the problem we’re starting to see now is just that, well, there are so many people are just falling through the cracks. Who just they do end up homeless. So I’m just wondering, what’s your policy on social housing? Please. Owen,
Owen Miller 20:21
yeah, well, actually, many people would be surprised to know, if you see a comparison of social housing worldwide, you know, the United States, anyone who’s been there can see that. You know, if you’re down on your luck in the United States, you can fall very far down the, you know, complete disdain for homeless people there, and yet they have more social housing, you know, as the proportion more social housing than Australia does. So Australia’s social housing is currently at 3.2% at the other end is the United Kingdom with 16% so we’re suggesting that the Australian Government should get to 10% public housing. So social housing includes public and then also nonprofits. But you know, unfortunately, you know, some nonprofits, some of them, have a tendency to sort of problem going, you see as well, like there’s this book dead a where they’re talking about all the money that’s been paid to Africa over the years as charity. And, you know, lots of that gets funneled off. And you know this, if the public housing is run by the government, their incentives are most aligned to, you know, actually look up the population, right?
Gene Tunny 21:35
Okay, gotcha, I might go back to the tax issues now with with capital gains. So you’re seeing a role for greater taxation of the capital gains so that there’s less what speculative investment in housing is that? Yeah,
Owen Miller 21:56
well, so you know something that’s making housing and appealing investment for many people, they regard that, you know, it’s safe that’s going to go up forever. Yeah, there’s this. Seems to be a correlation between these nations, where house prices stay more level, those nations seem to invest more in research and development. And you know, if you think about startups, here, for instance, the funding for startups is nothing like it is in the US. And yeah, it it seems like such a such a waste that, you know, the best thing we can possibly spend our money on is just buying a home and just leaving it there for decades. You know, like, what value are we actually adding and you know that comes into the justification for land tax as well. You know, if, if your gain is thanks to basically, the rest of society evolving around you, then, you know, shouldn’t the rest of society be rewarded for doing that? Like, why should you get the reward for just sitting
Gene Tunny 22:57
there? Right? Yeah, yeah, yeah. I think I know John’s got a he wants to come on. Well, yeah, I want to have John on to talk about George’s policies in a future episode. For sure, absolutely, just so on the tax so capital gains. Yep, you can, they’re certainly at it. There’s certainly income those capital gains, and there is a case for for taxing them. I mean, we’ve made an exception for owner occupied housing where people live in the house, if it’s their principal place of residence and and, I mean, there’s social policy reason, and it would be incredibly unpopular. And also, we don’t allow people to tax deduct mortgage payments, unless it’s for an investment property. So, yeah, that’s, that’s probably part of the, the reason to you have a discussion of imputed rent in your policy. So you’re, what’s the pirate, sorry, what’s fusion party’s views on this concept of in imputed rent, and how does that figure in your your housing policies? Yes,
Owen Miller 24:03
just a bit of background for everyone. So imputed correct me, if I’m wrong. Gene imputed rent is the idea that if, let’s say you and I, we both buy homes for a million dollars, I choose to live in mine, you choose to rent yours out. So if you’re collecting, say, $500 per week in rent, you have to pay tax on that income. So for me, living in this house, I’m getting, you know, a $500 per week benefit from living there, but I’m not paying any tax on that benefit. And so, you know, some people would say, you know, but you bought it, you should be able to do whatever you want with what you buy. Another view is that, you know, basically, I bought a money printing machine. And you know, if I’m able to print money every week, essentially, like and never pay tax on it. But I guess putting that aside, it’s worth noting. So in a few countries in Europe, they have imputed ran the UK. Used to be one of those, and they got rid of imputed rent explicitly to encourage home ownership, so that sort of, you know, resolved the debate. And so, you know, after discovering this, you know, it’s eye opening in terms of, how can we change our tax system to make it, you know, less skewed towards, you know, pushing everyone into you have to buy a home. And you know, with the different tax treatments for owner occupied homes, you know, it encourages people like you should spend as much money as you can afford on buying a home. And you know that obviously creates rich suburbs poor suburbs. It’s interesting to note as well that, you know, if you look at like domain, the real estate site, if you look at their list of top 10 most livable suburbs in Sydney, doesn’t match the list, you know, the price list. So you know the most livable suburb is not actually the most expensive. And so like double bay, for instance, it’s a very expensive place if you want to buy a house, an apartment, and yet it’s not livable. And you have to wonder, like, are all these people in double bay just lying to each other that it’s a great place to live there, right? Their property price is high,
Gene Tunny 26:08
yeah. How do they how do they assess livability? Does it have to do with transport links? Does it have to do with nightlife or,
Owen Miller 26:17
yeah? Yeah, not quite sure. Yeah,
Gene Tunny 26:20
I’m not. I don’t either. I’m not sure either. I mean Double Bay, I know. I guess it seems, I mean, it seems reasonably livable, but it is a nice place. It is. It can be hard to get a like, Get get a seat at a, you know, one of those cafes or restaurants there. I remember, I haven’t been there that offered. But I think, I think
Owen Miller 26:41
lavender Bay was number two in terms of livable. But not, yeah, not the most expensive. Yeah, interesting.
Gene Tunny 26:47
Yeah. I’ll have to have a look at that. Okay, so, so you’re not proposing to tax imputed rent, are you?
Owen Miller 26:53
Oh, well, no, not explicitly, but we are proposing to make it more even for renters in the same, you know, charging imputed rent would make things more even for renters, as do our policies. But we don’t. We’re not suggesting explicitly, let’s introduce imputed rent. Okay, a big motivation for that is, you know, like, we have to deal with political realities. Fusion says, like, here’s a new tax you’ve never heard of, and now you have to pay it. Yeah, I
Gene Tunny 27:19
think if you introduce that you’d have to introduce tax deductibility for mortgage interest payments as well, so that that’s, that’s something that’d probably have to go along with that. Okay, that’s interesting. I thought it was good. You had that discussion there in the in your policy now, what about, what about on the supply side? Lot of, a lot of the concerns about housing relate to, well, there’s just not enough housing stock where productivity is low. We’ve got, we’ve got a union that I won’t name, but that is allegedly, you know, responsible for holding up projects to to, you know, increase benefits their members have been done very well for their members, I must say. But a lot of concerns about, about that, about industrial relations in construction, there are concerns we’re not allowing enough development, enough greenfield development. What are your thoughts? What? What does fusion party proposed regarding supply, yeah.
Owen Miller 28:22
So I was looking, there’s a chart from where’s the source? St Louis, fed, yeah. So it’s a chart of dwelling completions per 100,000 people. And yeah. So Australia is leading the way above the UK, US, Canada, France. We’re building, you know, more dwellings per capita than these other countries are. And so in I believe it was 2020 Sydney had the second most cranes in the world, behind Dubai. And so this notion that, oh, well, let’s build quicker. Like, how quickly can we we’re already, we’re already building so fast. And so another supply argument that gets brought up is, you know, basically, let’s have lots of urban sprawl. Let’s subsidize urban sprawl. If only, you know, various councils would just, you know, get out of the way. And you know, we can build a new you know, we can build these new towns in the middle of nowhere, and, you know, create like industry hubs to spur them on. But you know, even one argument is that nobody wants to live there. And we can also see, so there’s this mathematical concept of benford’s law. There’s a notion that some numbers like, if we say city population, it’s more common to have a city population that starts with the number one and then the number two and sort of declining as you go along. And it doesn’t matter what what base you use. So, you know, we normally can in base 10, if you change the base, it’s still more common. So, you know, it’s an odd phenomenon. I mean, it sounds like a joke when you first hear a bit, but so city populations already have this odd phenomenon happening to them. Right? And so for you to say, like, No, I’m going to intervene, you know, the government is going to subsidize these new cities. Well, if you do spur on a population growth in, say, golden, then you’re just going to create all these smaller places nearby with, you know, the previous population of gold. And essentially, so, you know, this is basically a natural phenomenon. I don’t think you should fight it in this way of urban sprawl. I should note as well, many people in the fusion party, including myself, you know, have an affection for the environment, and so we don’t like urban sprawl from that perspective, either.
Gene Tunny 30:35
Okay, so does that mean you would favor greater redevelopment in in the cities, in the inner cities, relaxing heritage restrictions, that sort of thing, character protection.
Owen Miller 30:49
I’m hesitant to relax her protections, because, you know, like, what’s the point of actually living in the city? You know, it has to, it has to still maintain something about it, you know, like, we don’t, we don’t we want a country that actually has a culture, don’t we want cities that we’re proud of? You know, if we want to move to just like a warehouse of people, you know, who does that serve? Although it can be a bit ridiculous, I included in our housing policy situation in Brunswick. So there’s how many was it? I believe there’s like 714, old. Power what do they call them? Power substation? From the outside, it looks like a shed, a shed built in the 1920s or so, you know, they’re dilapidated. They’ve covered in graffiti. And yet, this new development in Brunswick, they’re going to have, like, this old thing in this like glass atrium. You know, it’s completely unused now, it’s just an old shed. You know, some old buildings are glorious. Some, you know, a good example is the council’s getting in the way.
Gene Tunny 31:52
Okay, we’ll take a short break here for a word from our sponsor.
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Gene Tunny 32:27
Now, back to the show. What type of development Do you Do you see occurring So, broadly speaking, what, what type of development, where do you see the people living will will you? Is it in well, one
Owen Miller 32:42
of the main things is, you know, let’s create a better alignment between government and, you know, this, the rest of society who wants to build these homes? Because at the moment, you know, Council, they don’t have too much incentive to prove the extra development. You know, they could get extra rates from the people who live there. But you know, that’s in a few years time, in the next people’s next people’s term, there are more immediate concerns. And so one of the big parts of our housing policy is the introduction of the Livret A at a it’s a government bond. It’s hugely popular in France. 82% of people have one. And so the Australian version of the lever at a we would use, once people put their money into the bond, then this bond would be used to fund city building projects, you know, sustainable infrastructure, high speed rail. I mentioned before that we don’t want to create, you know, urban sprawl in middle of nowhere. But if we had, like, high speed rail connections between, you know, all of Australia’s, at least the East Coast, large cities. Then, you know, easier transport around cities would also allow, like, if we think of, you know, Ricardian advantage. And you know, why is this city rich? What does it do better than other cities? And so with much easier travel, you know, different pockets could spring up around Australia that have their own unique societies, their unique economic advantages. And, yeah, basically, we could spur on the evolution of society even faster,
Gene Tunny 34:14
right? Okay, so it is a form of decentralization, is it? I mean, you’re saying you’re not supportive of urban sprawl, but you well, you’re supportive of connecting our major cities up with with other centers, and then that can encourage population growth in those other centers,
Owen Miller 34:33
plus, you know, places along the way that might be that could grow further. Yeah.
Gene Tunny 34:38
Gotcha. I think I might have been chatting with John about this was, is there the idea of this Turing? Oh,
Owen Miller 34:47
yeah, yeah. So that was from The Science Party, so we suggested having a charter city near Canberra. So, yeah, charter cities, you know, I guess maybe you know more about this gene, like worldwide. You know, if you are. For these special immigration permits, where it’s like easier for foreigners to move to this place. And then, yeah, if it starts off with some sort of economic reason for why this city is going to succeed in some industry, then yeah, you know, more people will move there. But, you know, I guess this stuff, it’s hard to achieve. I mean, you see, like the city building projects being pursued by the Emirates by the Saudis at the moment. And it’s really hard to start a city out of nothing. I mean, why does anyone need to be there? But I guess it is an interesting way to look at like, how can we quickly spur on, you know, science, technological development, and, yeah, like, this is one way to achieve it,
Gene Tunny 35:46
yeah, gotcha, okay, okay, yeah, I thought that cheering idea was the city idea was, that was, I thought that was interesting. I mean, I think, yeah, cheering, obviously. I mean, huge, huge contribution. So, great name. So absolutely. So I might go over your recommendation summary, because there’s a good summary of your your housing policy, and I’ll put a link to this in the show notes. So one abolish stamp duty and then introduce taxes on unimproved value of land. So I think there’s a lot of sort of economic logic behind this? So, yep, I think that gets a that can get a tick of approval eradicate homebuyer grants and schemes. So what’s your concern about these first home owner grants, etc?
Owen Miller 36:34
Well, they’re not a long term solution. It’s just another band aid you see over the last, say, 20 years. Yeah, liberal labor governments, they only implement band aids. And so one of the current ones being proposed is, you know, let’s let people access their super earlier to buy a home, especially for first time buyers. Well, I mean, you know, home buyers, the first time buyers, obviously haven’t saved up much super yet. Anyway, you know, besides, you know, we see this like equilibrium, where basically house prices are basically as expensive as people can afford. And so if you give people extra spending power, well, the house prices will go up by pretty much the same amount. Obviously, the people who actually get the money actually get, you know, if we say first time buyers get this extra cash, then they’re the ones who benefit most. But if they’re getting, say, 50k extra, it’s not like, you know, it’s not an actual 50k improvement, it’s maybe a 10k improvement, right?
Gene Tunny 37:33
Okay, okay. I mean, we’ll have to, I haven’t. I’m trying to think of, I’ve seen a good study on what that that impact is, I mean, I agree there is some impact. I might have to think about just how large it is, and I’m but, you know, it’s debatable. So I think, you know the point about the first homeowner grants. I think, I think so less lakes made a similar one, and so I think there’s a reasonable amount of support there. There’s probably a question about the magnitude of that impact. But fair enough, we might, we’ll move on. And you’ve got, then this is another, I mean, this is, I think what you’ve done is you’ve got, you know, a set of proposals you’ve thought about. There’s a they, I mean, you’re, there’s a risk of, you know, I mean, some of these things are going to be hugely unpopular as you’re as you’re aware. That doesn’t mean they’re they’re not, they’re not good policy measures. So this is, this is interesting. You you want to stop excluding property wealth from the means testing of government benefits. What government benefits do you have in mind? Can you give us an illustration of what you’re talking about there, please. Owen, yes, I believe the, I believe
Owen Miller 38:43
it was the age pension. So there’s a notion, you know, are you basically poor enough qualify for these ongoing government payments? And in New South Wales, I believe the your primary place of residence in the valuations, that’s capped at 150k so, you know, if you own a mansion, you know, and they’re assessing your assets, it’ll get, you know, marked down as only 150k worth of assets. And I mean, you know, we can obviously see the problem with this. If, if people are paying a mortgage over, say, 30 years, if, if everyone is spending as much money as they can on a home, and then, you know, we say, like, later in life, should we pay this person all these government benefits, like they only have their home and, you know, their quote, unquote cash poor like, you know, let’s, let’s give them the benefits, versus if the person had been spending all they could afford for their entire life on gold, yeah, tell them, like, are you really poor? Why don’t you just sell something that’s called,
Gene Tunny 39:41
yeah, gotcha, gotcha. I mean, there’s, yeah, I think with the appreciation of property prices, there’s, there’s more of an argument for that. Again, it’s, it’s one of these things that, you know, we’ve made this judgment as a society that we, you know, we find that so. But that we don’t approve of that, or there’s a widespread view that against that sort of proposal, even though it, you know, there is some there is some sense to it. I guess it’s got, I mean, obviously, you know, a lot of pensioners vote. I mean, I guess they all vote, generally,
Owen Miller 40:17
I guess as well. The other thing I’d say in defense of introducing this change is that, you know, the city changes around people. You know, as we said before, the house prices have gone up in value. Because, you know, Australia has changed. These cities have changed. And so when you say, like, you know, I’ve lived here for 50 years, well, you lived in basically somewhere else years ago. And so I guess, you know, land tax best captures that if the city changes around you, then your ongoing taxes change as a result of it. I recall John was giving the example of, let’s say, a rubbish dump gets built next to your house. And so, you know, you can rightfully demand that, you know, society pays you some sort of compensation for ruining your place of residence now, but if it’s the opposite, if you know, a train station is built nearby, nobody says like, oh, well, you know, now that I have such a better place to live, you know, I should give back to society some of this compensation. So, yeah, we can think as well. I mean, you know, in Brisbane, just recently, you know cyclone Alfred, you look at the photos of the beach afterwards, and so who would want to buy a beachfront home in Brisbane anymore? So you know, those people are going to be worrying. Well, I spent all this money on this beachfront mansion, and now it’s smashed in value because, like, who’s going to buy this now, if more of their money had been going to land tax over the years as opposed to the asset price, then, you know, their loss would be far reduced now. So, you know, here’s a way where rich people can get on board for these tax changes as well. Yeah,
Gene Tunny 41:55
yeah. There are a lot of other interesting ideas, and we probably won’t have time to go through them, but I’ll, I’ll put a link to this in the show notes. So very interesting ideas, government shall fund and operate an open source service for real estate listings and history. So yeah, that would smash some of the business models for for what is it domain and for real estate? Yeah, right. Okay, what do you see as the benefits of of this policy measure? Diffusion
Owen Miller 42:25
is very big into openness, transparency and so, you know, getting into the housing market, it’s such, you know, it’s such an important aspect of everybody’s life, and everybody wants to live somewhere, like there might be exceptions, you know, for something this critical to be in the hands of people who don’t have the same incentives as society like, it’s just a recipe for disaster. I mean, there was an instance real page, I think it was called this company in the US, they had a monopoly, and they, you know, they run, they offer real estate data, and so they changed their algorithm, or something, how they report the prices. They were telling these people that the prices were now 14% more expensive. And so then all the landlords thought, oh, shit, you know, I better keep up with the market. I better raise my rents 14% Yeah. I mean, you can see it’s a very problematic situation to have. Yeah,
Gene Tunny 43:18
I remember seeing some of the stories on that? Yeah, absolutely. Okay, that’s interesting. But what about this idea about an open source service for landlord reviews and background checks residents shall be made aware of the criminal background of a potential or current landlord. Is that? Is that an issue? Is that a concern?
Owen Miller 43:36
It seems very asymmetric. So you know, if I’m going to move into a place to rent, you know, the landlord wants to check, you know, what’s Owen’s criminal background, what’s he going to get up to? This person has keys to my house? Like, what if, you know I’m there sleeping at night, they can just sneak in into my bedroom. I want to know about their criminal background. You see, like, um, you know, sexual assault in Australia is still rampant, you know, physical assault, you know, sort of non sexual assault, still rampant. This person has keys to where I’m living, like, I want to know,
Gene Tunny 44:10
yeah, that’s a fair point. And I think so this could be part of this greater rights for tenants that you were, that you were talking about before, right? Oh, and there are these other, the other, the other aspects of your policy, I found interesting that you want to publish data. So the government, using data from universities, in the tax office, shall publish data about future earnings and job titles based on each student’s degree TAFE course to allow potential students to assess whether the education is worthwhile and whether they should visit Australia for their education. I think that’s that’s interesting. And so that’s so people can figure out whether, okay, is this going to get me a useful job? Use that it can help me get a, you know, help me get into the property market at one stage? I think, yeah. Yeah,
Owen Miller 45:00
they’re messing with people’s future with their advertising. I mean, I’ve seen billboards. It says, you know, come to whatever university, get a degree in sustainability. I think it was, yeah, yeah. The first question my head was, like, sustainability, like, that’s not really a job title. If I did this degree, like, sort of, what would be the use of it? Then, you know, most people go into university. You know they’re 1718, you know they they haven’t learned sort of all these cons that are going on in the world. You hear, it’s a regular phenomenon that you know someone study. If you look at, you know what someone studied at university, and you try to guess their job title, say, 10 years later, you know, it’s yeah, it’s anyone’s guess. It’s yeah, gotcha the universities, yeah, it’s just conceivably,
Gene Tunny 45:47
they could do that pretty easily, because they’ve got the living in Australia. Data Set used to be, I think it used to be called, made it. But essentially, the, you know, you know that data set, the data set that the ABS manages, where they link up tax data, they’ve got their census data, they’ve got social security data, and they’ve got this huge, you know? Well, it’s not synthetic. What’s the right word? They’ve it’s, it’s the piece together, the all of these administrative data sets to create this one big data set, like matching all of these records, and conceivably, you could achieve what you’re recommending very cost effectively. Now, there are limits on the access to it at the moment, but they should be able to produce some summary data along the lines of of what you’re suggesting,
Owen Miller 46:42
it seems, yeah, like, you know, if we combine all the government departments, then, yeah, there’s information they already have, yeah,
Gene Tunny 46:48
yeah, yeah. So I think that’s reasonably feasible. That could be, yeah, you could get a pretty good return on investment from that. So yeah, big TIG of approval on that one. So before we go, I want to go back to this liberate a just to make sure I understand it. Because this is so this is a French idea. Is it a bit so your recommendation, a bank account, liver at a shall be created available to all Australian residents. Account holders can have some options of risk reward with the account being used to fund city building, including the creation of high speed, high speed rail and public housing projects. The increased land tax revenue in these places shall go towards subsidizing low income housing and amongst the public housing projects, as well as towards a return on investment for the liver day clients. Okay, so which, which bank is it? And, yeah. I mean, how does it work? So,
Owen Miller 47:44
how it works in France? Yeah. So it’s government bonds. You know, in essence, you put your money there, it makes the money available to be spent by the government. Except, I guess I don’t know, many people aren’t familiar with government bonds. So it’s marketed in France as though it’s the bank account. When you’re interacting with it, multiple banks offer it, and to an everyday person, it behaves the same as the bank account, and so that’s partly why it’s so popular. 82% of people in France have one. It’s capped at 29,000 euros, and it offers tax free returns. Admittedly, the returns aren’t great. I think it’s around two to 3% at the moment. But the idea here is that if we could, you know, if we’re going to tax housing more strictly, then you know, we need some other way for Australians to invest. And I guess they already had the share market. And so if they’re not going there, you know, what else can we offer them? And so investing in our future, investing in our cities, you know, it’s a no brainer. It’s so aligned to, you know, the interests of both making money and to, you know, society. I mean, um, Brisbane, for instance, you know, they’re building a village to host the Olympians in the future. The Queensland Government, they didn’t want to actually build the homes. They sold off those rights to someone else. Yeah, and you know who bought the rights? The Saudi Development Fund. You know, some other foreign government thinks it’s a good investment build homes there. Yet, for some reason, the Queensland Government doesn’t think that’s good investment. Think that’s good investment. And so, you know, if people want to get in, if people, if everyday Australians, want to invest in high speed rail in city building, like I think many people would be, you know, chomping at the bit to get this chance,
Gene Tunny 49:35
right? Okay, so I have to look at this liberal day concept, interesting idea. I mean, traditionally. I mean, I don’t think our governments, probably are, they really don’t offer the retail bond offering, do they? I mean, they’re mainly selling to the big investors. That’s a, that’s an interesting concept. So it’s an on demand. So it’s an ON. Call bank account effectively,
Owen Miller 50:02
I’m not quite sure about like, any sort of time delays.
Gene Tunny 50:05
Yeah, I’ll have to look into it just to see how they manage it and what the financial, the finances of it are. But yeah, potentially an interesting concept, right? Oh, and this has been great. I’ve enjoyed talking about your housing policy and chatting about these important issues before we wrap up. Are there any other points you’d like to make before we before we wrap up, please?
Owen Miller 50:26
Oh, yeah, I should just clarify one last thing about the deliver it a I mentioned the high speed rail. Yeah. So if we imagine, if we imagine moving towards land tax in the way that Henry George proposed, so let’s say the land tax. And, you know, let’s use Goldman as an example. Again, all the tax revenues collect from land tax in Goulburn. If we then build high speed rail through Goulburn, we can say that most of it was attributable to the high speed rail. So let’s give some of that extra cash to those investors who invested in the high speed rail. And so this like easy attribution for investment means that it’s a lot easier to make it happen. And so, so, yeah, you know, governments can more easily spend money on this. Citizens can get the return, but, but yeah, to close out, Gene, yeah, as you said, there are losers in this policy. But you know, hopefully people will see that overall, it better aligns the interests of Australian society with the interests of the government. So hopefully people can, yeah, hopefully people can see that this will create a brighter future for us, right? Oh,
Gene Tunny 51:37
very good. Helen Miller, the convener of fusion party and the fusion party’s federal candidate for wills. Thanks so much for your time. I really enjoyed the conversation. Thanks, Gene Righto, thanks for listening to this episode of economics explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact at economics explore.com or a voicemail via speak pipe, you can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you, then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.
Obsidian 52:35
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Credits
Thanks to the show’s sponsor, Gene’s consultancy business, www.adepteconomics.com.au. Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple Podcasts and other podcasting platforms.
Show host Gene Tunny speaks with Louis O’Connor, CEO of Strategic Metals Invest, about the increasing demand for strategic metals like gallium, hafnium, and indium—essential for modern technology. They discuss China’s dominance in rare earth processing, the geopolitical stakes, and how supply chain vulnerabilities could impact global markets. Louis also shares insights into investing in these scarce resources.
Transcript: Gallium, Hafnium & the Strategic Metals Shaping Our World w/ Louis O’Connor, Strategic Metals Invest – EP276
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
Louis O’Connor 00:03
This year might be the year where we see a lot of sort of strategic sort of stockpiling beginning as well. The US Department of Defense needs these raw materials. The geopolitical situation also can have an effect, like I said, China in retaliation for the US block and some of the semiconductor technology to get into China is restricting. So the West, you could say, has the technology, but Chinese have the raw materials.
Gene Tunny 00:36
Welcome to the economics explored podcast, a frank and fearless exploration of important economic issues. I’m your host, Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode. Please check out the show notes for relevant information. Now on to the show. Hello and thanks for joining me. I’m really looking forward to sharing this conversation with Louis O’Connor, CEO of strategic metals, invest in this episode, we dive into the world of strategic metals, resources like gallium hafnium and rare earths that are essential for everything from smartphones and semiconductors to electric vehicles and space technologies. We discuss why China dominates global processing of these metals and what that means for international supply chains, geopolitics and the prices of our favorite gadgets, like smartphones. Louis explains how his firm helps both manufacturers and private investors navigate the complexities of buying, storing and selling strategic metals. If you’ve ever wondered about the hidden backbone of modern technology and where it all comes from, this is the episode for you. Before we get started, I want to give a quick shout out to our sponsor, Lumo coffee. This top quality organic coffee from the highlands of Peru is full of healthy antioxidants. As a listener of economics explored, you can get a 10% discount. Details are in the show notes. Now let’s jump into the conversation. I hope you enjoy it. You Louis O’Connor, CEO of strategic metals, invest. Welcome to the program. Thank you. Gene, happy to be here. Excellent. And you’re joining us from Ireland. That’s, that’s terrific. I think you might be the first guest I’ve had on from from Ireland. That’s, that’s great that that you can join us from, from Ireland. So can you tell us a bit about the company? It seems sounds like a real multinational operation. There’s quite a Yeah. Anyway, please, please tell us about the company. Please. Louis,
Louis O’Connor 02:53
sure, sure. So we had our core we’re based in Central Europe, so I’m, I am in Tipperary in Ireland. But our main office is in Frankfurt in Germany. We’ve got 3540 people there. We’ve been in business since 1999 and our main, our core business is we were a supplier of technology, metals, rare earths, to industry, to manufacturers. So we’ve probably more than 4000 clients in 7475 different countries. That’s our core business. We also have a evolved storage facility in the banking district in Frankfurt, and we also, we still, we have an inventory there, but we also allow some of our industry clients to store the metals there, and then we also invite private investors to participate in the supply chain. So strategic metals, I suppose I’ll just just explain gene it’s not an academic term. It’s more of a an umbrella term for the metals that are basically the backbone of manufacturing in the 21st century. So all modern technology, energy transition, aviation, military applications, but the ones we sort of we sell about 4045, maybe 50, to industry, and then as if we only offer about maybe 10 or 12 to private investors. And the characteristics of those ones are, you know, where does sort of supply, concentration, risk and stuff like that. But essentially, at our core, we’re supplying manufacturers all over the world with raw materials, right?
Gene Tunny 04:39
Okay, so you’re buying them from the mines, are you’re buying them from the miners, and then you, you then sell them to manufacturers that need it. Is that right?
Louis O’Connor 04:49
Correct? Yeah, we, we buy them directly from producers, suppliers. In a lot of cases, you know, there’s a supply concentration risk, like China, it’s. Funny we’re talking this week, because in the last probably two weeks, I have, I’ve never heard rare earths, which is our product, mentioned, as much in the media, or by, you know, heads of state. You know, President Trump in America is talking about rare earths in Ukraine. And of course, their interest in Finland is the same thing. Australia actually would be the second largest producer outside of China. China pretty much dominates, you know, a lot of these, not all, but a lot of you know technology, metals and rare earths, China is about a generation ahead of the rest of the world with the processing technology. So in a lot of cases, I’ll just explain, these metals sort of differ from base metals in the sense that they don’t occur naturally in the Earth’s crust, so they’re always a byproduct of another raw material. For example, gallium is a byproduct of aluminum, and halfnium is a byproduct of zirconium. So for every 50 tons of zirconium, you just get one ton of Hafnium. So it’s very, very limited in what’s available. But at the same time, hafnium is in the industry. Some people call them the spice metals, which is a good analogy to use, like if you think of the spice added to a bit of food. So although they’re used like, hafnium is like a super alloy in jet engines and rocket engines and nuclear reactors. There’s only a small amount, you know, applied or needed, but it’s critical. You couldn’t fly a jet engine won’t work without half Tim in there because of its ability to withstand extremely high temperatures. So on the one hand, they recommend a sort of a small economic they have a small economic visibility, visibility. But on the other hand, they’re critical. They’re absolutely critical. You You couldn’t swipe your phone without indium, you know, I could go on and on. But they’re, they’re, they’re basically the upstream raw materials that become trillions of dollars in in Downstream GDP, right. Okay,
Gene Tunny 07:01
now you mentioned strategic metals, and then there are rare earths. So a rare earths, rare earths are different from strategic metals. Are they?
Louis O’Connor 07:12
No, I would say the best probably description is strategic metals are an umbrella term for all all all metals, let’s say that are critical to all nations, economic prosperity and military applications. Now probably a good way to explain it would be on the in Europe and in the US, the Geological Society or association in the US, they have a list of what they deem 40 critical metals that are critical to their nations, and those would probably be the best description of what strategic metals are. They’re they’re critically needed, and in some, lot of cases, there’s a supply concentration risk, or there’s a heavy localized production, as you know, with gallium, 98% of the world’s gallium is coming from is being processed in China. That’s why, you know, President Bush and the EU and even yesterday, South Korea is maybe going to do a cooperation with Mongolia. Some countries have the resources and others have the demand, sort of because of China’s sort of domination. A lot of there’s a lot of cooperation gone on outside of China. That’s why Trump is after the wrong materials in Ukraine. That’s why Putin, actually a lot of that territory they’ve taken has these In fact, the EU President recently said that these rare earths are fast becoming, or are already more important than oil and gas. So they’re hugely important, yet they sort of have a sort of relatively small economic visibility, right?
Gene Tunny 08:54
Okay, so you, it’s, it’s President Trump, you, you’re talking about, I think you might have accidentally mentioned Bush earlier on, but you’ve been Oh, Donald Trump, yeah, President Trump, just okay, yeah, right. Oh, so you mentioned gallium, and that is, so it’s a soft, silvery white metal, similar to aluminum, and what’s it used in? Or it says it looks like it’s used in semiconductors, is that, right? Is it used in microchips? Indeed,
Louis O’Connor 09:23
it is, yeah, yeah, semiconductors. But it also has, it’s, it’s got, sort of, most of these raw materials are have multiple applications. So it’s used in semiconductors. It’s also considered, as well as an energy transition metal. So for, you know, electric cars, solar, wind, it’s using military applic or, sorry, medical applications and military applications, actually. And 98% of the world’s gallium is processed in China. And that’s, you know, a. Sort of an unusual situation to be in for Europe. Basically what happened gene was when rare earths were first discovered, or, sorry, when we first began to use them. So until the 60s and the 70s, they were really waste materials. And you could have considered them recycled materials, because, as I said, there are by galliums of byproduct of aluminum mining. So it was white. But when we went from black and white TVs to color TVs in the 60s, that’s when we began to have a use for these raw materials. Then in the 1980s in fact, the premiere of China at the time, Deng Xiaoping, who’s considered the modern the architect of modern China in 1987 you could Google this, you’ll see he made a very shrewd prediction. He was standing at a rare earth mine, and he said the Middle East has oil. China had. China has rare earths. And it looks like now that China sort of understood, maybe quickly, or before Europe and the US and the rest of the world how important these materials would be. Because, from that date, the 1980s to now, at that time, China was producing, responsible for maybe 12, 15% of the world’s rare earths. Now they completely dominate the market. So they sort of understood before everyone else, how important they would be in the you know, like China, they do. They made a very, very, you know, long term plan. Now, at the same time, during the 80s and the 90s, the US and Europe and other countries sort of allowed China to do that, because, number one, they could produce them for less money, and it’s a bit messy, it’s a bit complicated. And they said, well, we just let China make them, and we’ll buy them, you know, inexpensively from them for the cars. But, you know, it just sort of, you know, wasn’t, maybe, watched as carefully as it should be, because now all of a sudden, you know, somebody in Europe recently said, we’re in the middle of a Cold War 2.0 and it’s not a race for arms, it’s a semiconductor race. I mean, semiconductors are literally the most critical technology needed in the world today. You know, we needed steel and sort of armor in World War Two. In the Cold War, it was the atomic threat. And today, it’s precision and semiconductors that are in all these military application. So they’re hugely important and usually critical to military and to economic prosperity. Gotcha.
Gene Tunny 12:27
And so what are the top I mean, what are the top five strategic metals? Can you just give us a sense of what the major ones that you’re trading in?
Louis O’Connor 12:36
Yeah, from a because I work mostly with private investment and private investors. So which ones would be the most relevant as a physical asset? Because despite the name, like rare earths, they’re not all that rare. There’s 17 of them, but there’s only four we would we would deem relevant. Now we sell all 17 to industry. They all have in Indus industrial applications. But there might be not that rare. There might be no problem at all with with supply. So out of you know, we also so categories, architect technology, metals, and say, platinum group metals. So we offer about 4550 to industry, but to private investors at any given time, we’re never recommending more than eight or 10. And I’ll give you the eight that we currently recommend is there’s gallium, germanium, indium, rhenium. They’re all technology metals we sell in ingot form or in bar form. And then there’s the rare earths, which are the powdered or the oxidized form that be dysprosium, neodymium, for seidymium and terbium, and all of those eight, six of those are 100, were pretty much 100% dependent on China. And that’s why they’re relevant as physical assets. So gallium germanium were completely dependent on China. In fact, China is banning, well, restricting, the export of gallium and germanium to the US. At the moment, you know, they’re in a trade dispute technology, I suppose, war more than anything. So you know, that’s why they’re relevant as physical assets. China. Can they have us what you might call a smart tap, they can push, put it on and off, and at the moment, there’s restrictions the other characteristics that determine why we deem them relevant as physical assets. One I mentioned is China. There’s a high, localized concentration risk. The other one is we look at what which ones are the most, I suppose the quantitative approach, which is which ones are actually the rarest, and hafnium, it’d be a good example. There’s only 70 to 90 tons of hafnium produced every year, which you could literally fit in the back of a big truck. But hafnium is critically needed in nuclear reactors, in jet engines and space. Technology, our space exploration is becoming a fully fledged space industry. So, so hafnium is critically in demand, yet there’s only 70 to nine tons a year. And then the other thing we look at is qualitative which is just, you know, which ones are most in demand? You know, I mentioned Indium. You can swipe your phone because of indium. So the most in demand at the moment are technology metals for, you know, all semiconductors and phones and computers. You know, one smartphone has probably 12, maybe 13 semiconductors in it. It has probably 12 or 13 of these metals. And yeah, you know, we touch them and see them and feel them every day and and don’t realize, oh, we can. We can own these metals, just like gold and silver, and profit from owning them. So, so those are the main characteristics, the the supply concentration, the qualitative and the quantitative approach,
Gene Tunny 15:56
right? Okay, this is fascinating. And are you helping your investors store the strategic metals? Yes,
Louis O’Connor 16:03
we do. And that’s very, very important question. Actually, Gene because, you know, if we weren’t active in the industry, like we’re in business since 1999 and we 85% of our business activities on a daily basis are, we’re buying and selling metals. So we have a logistics and distribution platform in Frankfurt, and on any given day, I mean, we’ve over 4000 clients in 74 different countries around the world. We’re also like a tier one supplier to companies like, let’s say, Siemens in Germany. What that means is they buy metals every single month from us, and have done for the last 15 years. In exchange for that, they audit us once a year. They come in to the office and to the distribution platform. Well, they hire somebody to do it. But the reason I mentioned that is, if we weren’t active, or not only active, if we weren’t in the middle of this industry, it wouldn’t make sense. I mean, if I was, I don’t know if this was just a sales and marketing operation, there’d be red flags everywhere for investors, because, you know, one like, obviously, because we’re selling to manufacturers, we know what the industry demands. We know what Siemens need, what BMW want, what Apple wants. So we know what purity levels to buy and that we can resell. And to when a investor wants to sell, we’ll mediate a sale immediately to one of our our industry buyers. So, so that’s very, very important, is that what we call the chain of custody. If these raw materials are not in the chain of custody. They’re really useless, no and buyer will. So we’re basically inviting investors to participate in the industry. We can offer them a safe entry and a safe exit from the supply chain. Gotcha,
Gene Tunny 17:53
okay, that’s That’s fascinating. How did you get involved in the industry? Louis, are you a geologist? Did you study geology or how did you get involved? No,
Louis O’Connor 18:03
actually, I’m quite recent. I’m on board like my my sales partners are, the supplier is a German company. I just worked exclusively with them. And, you know, I was, I was actually living in Central America until about five years ago, and I was planning to come home to Europe for my kids to go to school. And I was looking for some sort of, you know, I’d lived in Germany before, for 10 years, I’d lived in in the Americas. And I was coming home and was looking for something interesting to do. And, you know, I sort of, you know, I know Germany. Understand Germany well and and I heard about this company. I was up in the US at a precious metal sort of a conference and investment conference. And somebody told me all about them, and I went to visit them. And I initially was an investor, myself, interested as an investor, this is about 2015 and then I came, when I I immediately was interested in becoming sort of involved, but it took until about 2020 to, you know, to go through the process of becoming a part of of the business Gotcha.
Gene Tunny 19:17
And what type of price growth have we seen in strategic metals? So your, you know, your investors are investing in them, then they’re obviously, you know that? Well, your tagline is, profit from scarcity and growth. So, yeah, yeah, that’s what you’re you’re aiming for. You’re aiming for all the factors these things are in, in short supply, and there’s, you know, there’s a steady demand, or a growing demand for them, and so we’re going to have price rising prices, I imagine. Can you tell us what’s been happening with the prices of these metals, please. Louis,
Louis O’Connor 19:52
yeah, that’s exactly it. Gene, we have what we call scarcity driven price increases. And then. Is also growth. I mean, I think when you look at all the applications and you know, our sort of now, first of all, when I tell you it is a speculation, prices go up or down, yeah, I if I was to say to you now, you’ll make this amount of money. You know, that would be morally wrong, and I’d be telling a lie, because we don’t know. But the truth of it is that the equation we work from is that when there’s, you know, increasing demand, supply can be limited, also subject to disruption, you’ve the potential for profit. Now, historically, we can shoot, we can prove, you know, they they do, they have gone up in value. But one thing we say to our clients is, look, we’re not financial advisors. Our poor our DNA is We buy and sell metals, and we’re inviting you to participate. But we do have an investment strategy, and we say, don’t buy unless you’re not aligned with this strategy. The strategy is simple, buy them and keep them for five years, and you’ll make money. And historically, that’s proven to be true. But what happens, for example, if you look on our website, you’ll see, on average, the metals are up about 34% a year. But I’m just going to give you two examples. If you look at terbium, you’ll see, in the last four years, it’s up 100% so it’s up about 25% a year. But that doesn’t tell the whole story. The whole story is, if you look at the price charts, you’ll see that when we went into lockdown, the terbium is used in semiconductors. When the whole world, you know, when we had COVID and the whole world went into working from home, there was a surge in demand for computers and laptops and stuff. So how a terbium went up 500% in three years, and that’s what we call a scarcity driven price increase. And the reason for that is terbium is a byproduct of another raw material. So just because demand increased for terbium doesn’t mean supply can it can’t. And that’s where we recommend, or, you know, investors can make a profit is if you know, depends what your goal is. But I honestly think if, if you’ve invested 10,000 or 25,000 euro, and it’s double in value, maybe that’s a good time to sell your initial capital, at least. So that’s what happened with turbine. Then when terbium, sort of the prices will correct themselves as well. Then, when we came out of COVID, you know, Boeing and Airbus put in all these orders for airplanes again, so hafnium went up 250% why? Because demand increase for hafnium and supply cannot be increased. So, you know, when does an increase in price? The manufacturers just absorbed the price because, you know, let’s say use Apple as an example, it will be far more catastrophic for the production of the iPhone to stop than for Apple to pay a 50% increase in Indian which is needed to swipe the phone. So anytime there’s increases like that, you know, I mean, companies and nation states do stockpile if they can and when they can. But invariably, from time to time, we have these, what we call scarcity driven price hikes, and then in terms of growth, you know, I don’t think anybody would argue, if you look at where we’re heading with electric cars, wind, solar, space exploration, or space industry, nuclear reactors, we’re going to have more nuclear energy technology. I don’t think anybody would argue that demand will not only continue, but will will probably grow absolutely
Gene Tunny 23:34
this supply concentration risk. I think that is so important. And you, I think you explain, you explain that, well, just how reliant we are on China. What do we know about alternative reserves around the world? I mean, presumably there’s a lot of exploration activity going on. What do we know about attempts to diversify, to find other sources of these strategic metals. Yeah,
Louis O’Connor 24:05
it’s, it is the hot topic at the moment. I mean, as I said, as President Trump highlighted in the last two weeks that these rare earths are, they’re very, very important to the US, and they us needs to wean its dependence off China and Europe as well. I mean, they’re that important that they might use them as leverage to end that war, you know. So there’s no question that you know Europe, the US, Australia, all of any you know nations are seeing. How can we wean our dependence off China? But it’s just, I suppose I’ll give you a good some context there the process. It’s not really mining, it’s metallurgy. And what that means is, because they’re a byproduct of another raw material, you have to first extract them, then you have to separate them, and you have to re metallize them. Yeah. So it’s a very complicated sort of specific, you know, precision driven process. China has about 28 universities that graduate degrees in metallurgy, in, you know, geology and, you know, the technology needed. So China has been graduating probably about 200 metallurgists a week, every week for the last 30 years. You know, there’s maybe 10 to 14 universities in North America that you know. The other thing is, not many of the kids in in US or Europe are interested in in geology or mining as well. So there’s very little. So even if, like, for example, there’s plenty of rare earths in Australia, they’re in North America, they’re probably, you know, they’re not that rare in a lot of cases. However, the engineering expertise does not exist in Europe or the US or Australia actually would be the second biggest, or after China would be producing the most, and probably the most technologically advanced Linus Corp in Australia. So you guys are sort of right behind China, Europe. Us. We’ve a long way to go.
Gene Tunny 26:13
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Gene Tunny 26:48
now, back to the show, right? Oh, well, that’s that’s good to know about Australia, okay, yeah, but yeah, just very concerning. I mean, is, are we just so reliant upon China now that, I mean this idea of decoupling, that we were talking about decoupling several years ago, or there was a lot of talk about that, and I’ve had guests on my program who are very concerned about China, and they’re, they’re advocating, yeah, they advocate that decoupling, or having a very strong strategic stance against China, pushing back against China. But it sounds like we’re just, we’re just so incredibly dependent economically now on on China that we need to find, we need to find some way of of dealing with with China, resolving our differences peacefully. I mean, I think that. I mean, we all want peace just because we’re just so incredibly dependent and anyway, that that’s more of a comment on my part. I’m just thinking through it all. But if you have any reflections on that, please, Louis, I’d be grateful. Yeah,
Louis O’Connor 28:00
I suppose I mean China. Its main focus is China, you know, you know, for example, let’s use the rare earth sector as an example. You know, they have China has big plans for energy transition, for for wind, for solar, for electric cars. That’s now becoming apparent. So, you know, it looks to me like now that they’ve sort of, let’s say, are the dominant market leader in technology, metals and rare earths. Now they’re going to move up the value chain. And for, you know, for to to serve China, first and foremost, but then also to export so, you know, they’ve always made, you know, helping planning, maybe, maybe further ahead. But I think we will see alternative, independent supply, because, as I said, these raw materials are not, you know, China does have about 50% of the world’s reserves. But, you know, there’s Africa and there’s South America, you know, Afghanistan, you you’ll hear a lot of countries all of a sudden going, oh, yeah, we’ve got, like, a trillion, a million tons or a trillion. But, you know, it’s just like anything else, it’s, it’s, it’s more complicated when you delve in a little bit. And for example, let’s suppose, like, even in North America, there’s about 500,000 abandoned coal mines that have what we call tailings, mine tailings, that there are rare earths there, but the technology isn’t there to to re metal, eyes them, and so I think we’ll see over The next 1015, 2025, 30 years independent more supply from from other areas, but it’s just going to take time and again. That’s why my focus is on private investment. Is there’s a window of opportunity over the next 1015, 20 years, even, where investors can own these raw materials and profit from the. Scarcity driven price, like we’re about to head into a cycle. We believe it’s already begun, but it’ll really kick in 2027 and then 29 and 30 and 32 where there won’t just be periods where there’s limited amount, there’ll be periods where there’s there’s none available, and the most important thing to have then will be inventory. And that’s our goal, is to continue to build the inventory. And we also think as well, this year might be the year where we see a lot of sort of strategic, sort of stockpiling beginning as well, the US Department of Defense needs these raw materials just depends on things. The geopolitical situation also can have an effect. Like I said, China in retaliation for the US block and some of the semiconductor technology to get into China is restricting. So the West, you could say, has the technology, but Chinese have the raw materials.
Gene Tunny 31:00
Yeah, gotcha. I mean, that stockpiling point is, is interesting. I mean, certainly. I mean, if you could corner the market, so to speak, then, yeah, you could, really, I mean, you could drive up the price quite significantly. So, yeah, if you get, if you end up being the holder of a, you know, a large quantity of this, of these strategic metals, at a time when there’s a otherwise limited supply, certainly, yeah, that could be very lucrative.
Louis O’Connor 31:33
Yeah. And it does happen, as I said, just, you know, every within every three to five year cycle, there are scarcity driven price hikes. You know, in 2012 the Japanese detained a Chinese trawl, a captain of a fishing trawler for fishing in disputed waters, and in retaliation, China blocked the export of rare earths to Japan. And, you know, right, yeah, prices went up, and things were have been relatively peaceful from about 2014 2015 until COVID. And you know that just that was just an not geopolitical, that was just, you know, this, you know, life or reality and that cause. But now what we’re seeing is this sort of Cold War, 2.0 Yeah, and also the rise in demand. I mean, nobody will argue like, you know, I think we’ll always have fossil fuels, but we’ll also have more nuclear power, and we also have more what we call green energy. I don’t know if that’s the right word, and we like to consider it green energy. But you know, electric cars, solar, wind they, you know, like the magnets in in your smartphone is, is, is similar to the magnet in in the electric car or wind turbine. So there’s raw materials are needed for this energy transition. Yeah,
Gene Tunny 32:59
absolutely. And how are your investors without naming them, obviously, I mean commercial, in confidence and all that. But are we talking? I mean, what are the types of investors? Can you just give us a description, like broad categories, please?
Louis O’Connor 33:13
Sure. Well, I mean, our minimum investment is only $10,000 or 10,000 euros. So when we initially started, it was very much organic and word of mouth, and most of our clients were in the sort of German speaking region of Europe, so Germany, Austria, Switzerland. And, to be honest, we didn’t, that’s why I was able to come on board in 2020 it was, it’s been very successful. And initially we, you know, we didn’t think that, you know, somebody, maybe in Australia or America, would buy metals and store them in Germany, because in order for it to make sense, you need to it is record. You should store them in our city. You do own them, but you store them in the custody of our facility, because that’s what keeps them extremely liquid. That’s what’s give you access to error, 4000 lines in 70 different countries. And it’s not like gold and silver, where, if you, I mean you to be honest, if somebody wants to move them, they welcome to, but they’re, I want, I don’t want to say they’d be worthless. But who’s going to buy them from somebody? Nobody. No manufacturer will buy a small amount anyway. The point I’m making is it started quite small, organically, and we, we haven’t, we don’t really do any marketing directly to private investors, because it, you know, our core business is most important. We don’t want to be seen, to be, you know, marketing to private investors. So, so we’ve just grown it very organically, and until very recently. You know, outside of the outside of Europe, you’d have to, you would have to be pretty on the ball to have found us. But I’d say most of our clients, a lot of them would would understand like there might be engineers or surgeons or people who are. Probably using these raw materials, and a little bit more about them and their capabilities than most people. And then I would say people who are sort of impressed have a curiosity for alternative investments. You know, what’s the next? Not the next big thing, but what’s the thing I don’t know about that’s going to be very important in three years from now, or in five years from now, some crypto people, people who’ve made money on crypto, are looking, you know, when they when they when, when they’ve made some money. They’re looking to diversify and cash out a little bit. So it’s still in its infancy in terms of private investment. Because, you know, somebody asked me recently, Gene What, give them a profile of what our private investor looks like, and I really couldn’t, because I’d say it’s the biggest obstacle to private investors profiting from owning these raw materials are just simply they don’t know they can. And that’s sort of changing. I mean, we’re the only supplier that invites in private investors. I’d imagine it won’t remain that way forever, but again, one has to be so careful, because the only reason we can do this is we’re in the industry. We’re we’ve turned over a billion dollars in in transactions already on the industry side. So we know we can liquidate for our clients, you know, if we, yeah, you know, and it’s not a financial instrument. I mean, we offer, we allow private investors to buy these raw materials. We offer storage in a sister facility, where it’s also a distribution platform. And then we also have a practice when somebody wants to sell that will buy them back from you, and we’ll resell them to a manufacturer. Yeah,
Gene Tunny 36:45
that’s fascinating, fascinating business. And it’s a it’s part of the market that maybe people don’t often think about. Or I think what you’re doing is, I mean, it’s, you know, it’s an important service you’re offering. Are there other companies, I mean, that are doing, that are doing similar things, or, like, where are you in the in the market? I mean, are you sort of on your own offering this, or are they you have competitors? Presumably, what’s this market situation like?
Louis O’Connor 37:18
Well, on the industry side, it’s a very competitive industry. I mean, there’s probably in Europe, 2025 companies, very similar to us, yeah, all over Europe, probably a similar amount in in North America, I’m not too sure, to be honest. And most, you know, thankfully, most of the suppliers like us. You know, stay in their lane. They focus on what they do best, which is they buy and sell metals. That’s what they’re good at. It’s what they know. Our business is. It’s 100% owner operated. It’s a family business, and there’s a little bit of an entrepreneurial flair. And I’ll tell you how what happened. Gene is about 2010 2012 the CEO Matthias route decided that it’d be a good idea to build an inventory, not to be just a middle man, not to just broker in deals. And so they looked for our premises to store metal so they could keep an inventory. And they found a place that actually was a bunker in World War Two. So it was a shelter two levels below ground in the banking district, and Frank converted it to a bank level ball. Now it has a third level above ground and offices and atrium. And at that time 2012 the idea was they begin when prices were low. They they buy inventory for themselves, and then some of their manufacturers, like, there’s one example, there’s a thermometer maker in Easton, north of Frankfurt, who have been a client since day one. They need a regular supply of gallium or germanium, whatever it is. They wanted also to buy, maybe when prices are low, when they could buy some more and have it in storage. So they began to offer the industry clients storage, and then they just said, Well, why don’t we offer it to private investors? It’s the same thing. So the idea was it wasn’t just a direct thing. It was just evolved over time. So since about 2012 they’ve been offering it, mostly in the German speaking region of Europe. But it’s, you know, again, it’s, it’s a success. I mean, people who are interested in gold and silver are interested in these metals as well.
Gene Tunny 39:30
Oh, that’s great. I mean, that’s fascinating. You’ve got an old World War Two, a German World War Two bunker. I mean, there must be some stories there. I mean, I imagine the Americans must have captured it when they rolled through in the in after, you know, D Day, yeah, so, yeah. Well,
Louis O’Connor 39:49
I mean, Frankfurt. If you look at Frankfurt, Frankfurt has always been known as the crossroads of Europe. And if you look it’s smack bang in the middle of all of Europe. So it’s always been a. A busy sort of a thoroughfare. And Frankfurt was of any city in Germany. It was leveled in World War Two. There was, if you look at photos of Frankfurt after in 1946 47 leveled, and it’s just a question as well, like somebody was saying, you know, it’s funny that, you know, even with the Japanese, if you look at America today, it’s, we’ve sort of a short memory, and history moves on very quickly. Because if you look at, you know, how many, you know, we’ve clients from the US who store the metals involved that maybe you know their their granddad was, you know, flying over not too long ago and dropping bombs on it. Or, you know, if you look at Japan and America as well, that it’s all, you know, it’s economics nowadays, the most important thing is that is the business. And, you know, everybody’s doing business together. So, yeah,
Gene Tunny 40:51
yeah, absolutely, yeah. Pass that in. What conditions do you need for that bunker, for the to store the metals are the other special atmospheric conditions that you need? Yes,
Louis O’Connor 41:04
for some of them. For precious metals, no. And for technology matters now you can store them almost indefinitely, just about anywhere they’re in that metal form. But for we have a facility has a reach certification, which is an acronym, and we’ve a lot of bureaucracy, obviously in Europe. So we were regulated. Buying and selling metals is not a regulated industry. Anybody can do it. But the storage like we sell in metal form, oxide, nitrate, even liquid form sometimes. So, so yeah, some of the rare earths that we offer to private investors do need special conditions. But you know, as I always say to my clients, is once you when they complete the purchase, they have a safe keeping receipt to show what’s stored for them, what’s, you know, an account statement, and that shows the facility is reach certified. And once you have that certification, your raw materials are extremely liquid. What that means is, any manufacturer won’t hesitate to buy them, because they were bought from a recognized supplier, and they’re stored in a recognized facility. Gotcha.
Gene Tunny 42:14
Gotcha. Okay, so finally, Louis, there’s a lot of I mean, market volatility at the moment. I mean, we’re recording this on 13th of March, 2025, and I mean just extraordinary. I mean very extraordinary time with what’s happening with tariffs and and all sorts of, all sorts of threats. And the market has, you know, reacted, and it’s, it’s down. The market’s down. Stock markets, is that affecting you at all? Are you? Do you have concerns about, about the future, about your business at all, but with what’s going on, although all the volatility that’s coming out of the United States, well,
Louis O’Connor 42:53
I mean, just purely, I’m not going to say I’m happy with what’s happening in the world. It’s, it’s, we seem to be in dark time. But from from an investment perspective for these metals. I mean, like gold, for example, metals in general have, have not faltered in three, you know, 3000 years as a store of wealth, as a physical asset and and these raw materials survive all economic cycles. I mean, there’s four economic cycles, and metals have proven always to be a good store of wealth during them. But it’s funny gene, I would say now that, you know, we’ve shared a lot of information, and you’ll probably, you know, you know, the way, once you hear about something, you’ll start to notice more. But watch what’s happening over the next few weeks and a few months. I mean, I think possibly even as early as this week, China is going to retaliate to these tariffs, and one way, because I mentioned to you earlier on, China is restricting the export of gallium or germanium in the for the last 18 months. Now. What that means is, prior to this restriction, producers of gallium could sell gallium to whoever they want it. They could export anywhere after the restriction. If you’re producing gallium, you have to apply to the Chinese government for a license to export. And what that means is the Chinese government wants to see who the consignee is. They want to see where it’s gone, and then they can say, yes, we’ll give you the license. So they’ve in the last 18 months, the Chinese have put in a system, and it’s like a tap that they can turn on and turn off of who will receive. I have a feeling, possibly as early as this week, but certainly watching the next four to six weeks, China might say they might put in an outright ban on gallium, germanium and the four rare earths I mentioned the sprosium, neodymium, for serodyne and Terbium. And if they do, you know the likelihood is we’ll see prices we go into a scarcity driven price increases. Yeah,
Gene Tunny 44:56
absolutely, absolutely, yeah. It’s fascinating learning about. About this, because this is, it’s going to become a, well, I presume it is a focus of policy now at the mean, the White House, they’re thinking about it. Our administration here in Australia is presumably concerned about the supply of these, of these strategic bills. I mean, mate, well, I mean, we’re not manifest. We’re probably not, I guess we, you, you said you’re selling some of these metals, strategic metals, to Australia, aren’t you to some of our manufacturers? Is that? Ryan,
Louis O’Connor 45:30
correct? Yeah, we, we’ve, you know, yeah, globally. We sell them globally. But yeah, like, or, sorry, Australia is probably the most advanced in terms of the processing of any country outside of China. In fact, I think Linus Corp is signed up with the US Department of Defense to build a processing facility in either Florida or Texas. Like, unbelievably, Gene Yeah, there’s one plot. There’s one mine in in North America, in California, MP raw materials, producing rare earths, but they have to sell most of their ores, most of their product, to China for processing, because they have no processing capability in the US, and that’s why, you know, it’s funny you hear politicians talk, oh yeah, you know, just because there might be raw materials in Ukraine and in Greenland doesn’t mean you’ll have them in three to five years in smartphones you’re looking at. The average time in America is 29 years from discovery to production of a mine. Not, not you know, it’s, it’s just the industry has dwindled so, so, but Australia has been on it longer than you know anybody else, and they’re sort of way ahead of Europe and the US,
Gene Tunny 46:56
right? So, I mean, this is, I know that critical minerals are part of the discussion between our government, or our and the US administration at the moment, because I don’t know if you saw the news. I mean, well, I guess you know, Trump’s put on the 25% tariff on steel and aluminum, and we thought that as a long standing ally of the US and, I mean, we thought we would get exempt from it, and we haven’t been exempt from it. We’re being accused of dumping. And I think our strategy now is to say, Well, look, we’ve got these critical minerals. We call them critical minerals over here, that that are important for for the US. And so I think I can see now how that can be part of the discussion, given, you know, the conversation we’ve had just, you know, how how critical they are, how much in shortage, how China can actually control the supply of some of these, of these strategic metals. So I can see how this all comes into the negotiations.
Louis O’Connor 48:01
Yeah, and Australia would definitely have some leverage there because of their how far advanced they are in terms of the metallurgical side of it, as well as the production so, yeah, yeah, that’s the thing. I mean, I don’t think most politicians wouldn’t understand Resource Economics. Or, I think President Trump is mixing up rare earth minerals with critical minerals, right?
Gene Tunny 48:28
Oh, yeah,
Louis O’Connor 48:29
not even getting sort of and it seems to be complicated. I mean, you know, we, as I said earlier, strategic metals is not an academic term. And then, like, for example, energy transition metals, defense metals, green metals are sort of, gallium is all of those three as well. But the thing to look at is, is, you know, what’s the most critical technology we have today, semiconductors, and that’s sort of, you know, if you start from there and work your way up, you’ll, you’ll figure it out, you know,
Gene Tunny 48:58
yeah, I think, I think that was really good, Louis, I think there’s really good briefing on no strategic metals, and their importance and and the supply potential, supply problems, what that means to prices. I think that’s, that’s all, all very good stuff before we wrap up any further points you think would be worth, worth us knowing, with people in the audience knowing? No,
Louis O’Connor 49:25
I might. I might just add gene. As I said, until recently, all of our sales partners were in Europe. And you know, if anybody’s listening, who’s who’s involved in precious metals or wants to maybe not. No, I’m not pitching for a customer or an investment, but that’s always welcome. But yeah, we might be interested in talk with somebody about an affiliate and a partnership, an affiliate partnership, if somebody knows a little bit about battles and is entrepreneurial and like, you know, I’m what. We’re open. Into partnerships globally. We have no problem on the industry side, but we, you know, as I said, without doing any marketing, we’ve clients all over the world, private investors, and somehow they’re finding us. But you know, it’s our business is doubling every year on the industry side, so we may as well bring in more partners to work with private investors. So there could be an opportunity there for somebody, if they want to contact me, they can go to the website strategic metals invest and leave an email, or actually, I’ll just give you my email. It’s Louis l, o, u, i s at strategic metals invest.com if anybody wants to get in touch, as I said, I’m not necessarily, I’m definitely not looking. Look. If somebody wants to explore, I’m happy to assist, but, but, yeah, you never know. Business wise, somebody might be interested,
Gene Tunny 50:52
right? Yeah, absolutely not all, all good stuff. Okay? Louis O’Connor from strategic metals, invest. Thanks so much for your time. I really found that fascinating, and I learned a lot about about the market and what that you’re in and some of the risks that we’re facing in the future. So I found that really valuable. So again, thanks so much. Thank you, Gene. Thank you, right. Oh, thanks for listening to this episode of economics explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact at economics explore.com or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you, then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week. You
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Thanks to the show’s sponsor, Gene’s consultancy business, www.adepteconomics.com.au. Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple Podcasts and other podcasting platforms.
In this episode, Gene Tunny interviews Prof. Adam Boddison, CEO of the Association for Project Management. They explore why projects—whether in construction, IT, or public infrastructure—often go over budget and run late. Adam shares insights on project planning, risk management, and the importance of stakeholder engagement. They also discuss real-world case studies, including the Sydney Opera House and the Channel Tunnel, highlighting how long-term benefits sometimes outweigh initial budget overruns.
About this episode’s guest: Prof (Dr) Adam Boddison OBE
Adam is Chief Executive of the Association for Project Management. He has a non-executive director portfolio that has previously included being Chair of the Corporation for a Further Education college and a Trustee for a multi-academy trust providing education for 32,000 pupils across 58 primary, secondary and specialist settings. Adam is also a Visiting Professor at Stranmillis University College (Queens University Belfast) and the University of Leicester (School of Business).
Prior to this, Adam held a number of executive leadership roles including Chief Executive for nasen (National Association for Special Educational Needs), Director of the Centre for Professional Education at the University of Warwick and Academic Principal for IGGY (a global educational social network for gifted teenagers). He has published a range of education books and mathematics text books and is a qualified clinical hypnotherapist.
Adam has a particular interest in leading organisations that deliver societal benefit.
Most projects fail at the start, not the end. Poor initial planning and unrealistic expectations often set projects up for failure.
Stakeholder engagement is critical. Involving the right people from the beginning can prevent costly mistakes later.
Project success is about more than time and budget. Long-term benefits, such as economic impact and societal improvements, should be factored in.
Mega-projects are prone to overruns. Large-scale projects often face budget and timeline issues due to political, technical, and financial uncertainties.
The “Pre-Mortem” approach helps mitigate risk. Imagining a project’s worst-case scenario before starting can identify potential pitfalls early.
Transcript: What HS2, Channel Tunnel & Sydney Opera House Teach Us about Mega Projects w/ Adam Boddison OBE – EP275
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
Adam Boddison 00:00
You know, when you’re talking about people’s health, you know, this isn’t just like, you know, any old IT system, if we get this wrong, people could die. You know, that’s the kind of risk we’re talking about here, because we’re talking about a computer system that’s going to fundamentally underpin the National Health Service and people’s access to what could be life saving medicines. So when you’re talking about that level of risk, you know the stakeholder engagement piece that we just sort of you know that that becomes absolutely critical.
Gene Tunny 00:36
Welcome to the economics explored podcast, a frank and fearless exploration of important economic issues. I’m your host, Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode. Please check out the show notes for relevant information. Now on to the show.
Speaker 1 01:09
Professor. Adam bodison, welcome to the program. It’s a pleasure to be here. Thanks for inviting me. Oh, of course,
Gene Tunny 01:14
Adam, so you’re the CEO of the Association for project management. And you know, as an economist, project management is something that is of great interest, because as economists, we’re often asked to advise on the economics of of different projects. And one of the things you quickly discover is that there’s a tendency for a lot of projects to blow out or blow out in time and cost budget overruns. And what I want to what I’m interested in is to what extent is poor project management related to that. So I think that’d be that’s one of the things I’d like to get into. But first, can you just tell us a bit about the association, please, and your path to becoming the CEO there, please? Adam,
Adam Boddison 02:06
yeah, absolutely. So let me start with me, then I’ll move on to the association. So this might sound a very strange thing to say, but my background is actually not really in project management. I’m an educator by trade. Started life as a mathematics teacher, involved in teacher training, worked in lots of charities, and my route to being CEO of the Association for project management was because I run a number of other professional associations and professional bodies. So it’s quite interesting. I bring a knowledge of how to run a professional association. But actually, it’s been a pretty steep learning curve over the past four years to really build up my project management knowledge. And of course, I started by doing all of our qualifications. And it turns out there were quite a few things that I already knew, because there’s a correlation, I think, between kind of strategy execution that might be associated with kind of leadership and kind of project and program delivery, which I think is quite interesting in terms of the organization itself. So I say professional membership association. We have around by 45,000 members in the association. We’re also a chartered body, so we are guardians of the chartered Project Professional Standards, the only chartered membership association for the project professional in the world is something we’re really proud of. And of course, we have corporate partners as well. So we’re working with around about 500 organizations, some that you know, your listeners will have heard of organizations like, you know, the BBC, you know Google, you know, so big organizations right down to small organizations across a whole range of different sectors. So not just infrastructure and construction and telecoms, but also financial services, you know, government departments, retail, tourism, so a real breadth of organizations that we work with,
Gene Tunny 03:56
right? So is the definition of project expansive? Is it like it’s not just a construction project, it’s not just a bridge or a tunnel or a new building? Is it an expansive definition? That’s
Adam Boddison 04:08
exactly right. Yeah. So when we actually talk about projects themselves, it is broad, as I say, it’s it’s across all sectors. And you know, the actual kind of formal definition. We talk about the application of processes, methods, skills, knowledge and experience to achieve kind of specific objectives. So we talk about, for example, acceptance criteria, final deliverables and and importantly, the fact that there’s a finite time scale and budget. So it’s got a start and an end, if you like, which is what distinguishes it from business as usual. So, just like you can have business as usual in any sector in any organization, the same is true of projects. The difference is, as I say, that they have that clear set of deliverables within a specified time scale.
Gene Tunny 04:57
Gotcha, yep. Okay. And that could be, could be an IT project, a software development project in government, developing and implementing a new policy, a new program. Yeah, exactly.
Adam Boddison 05:10
And that breath is one of the things that makes the job really interesting, but also challenging, because, you know, it in a sense, you can have people who have these kind of multiple identities. On the one hand, they might be, you know, let’s say they’re an engineer, because they’re involved with construction projects, but then also they’re delivering projects. So to what extent do those two things, you know, overlap? And you can make a similar argument for, I don’t know, you mentioned it projects, for example, people who are, you know, software developers, but actually they’re working with organizations to put in a new CRM system or something like that. We very much see ourselves as almost the glue of the wider professional association landscape. Great.
Gene Tunny 05:53
Just to understand fully what the Association does. You’re a membership association. Do you also offer professional qualifications. Do you do the training? So we don’t
Adam Boddison 06:05
deliver the training, but we accredit the training. So we set the standards and make sure that that people who receive the qualifications are at the standard. So if you like, we do the exams. Think of it like that. So we set, What? What? What the You know, what is COVID in those so we set the standards, set the exams. We have partnerships with more than 100 training providers who are based all over the world, actually, again, some very niche and specialist providers, some who are providers of all kinds of other things, not just project and program management. They do the training, and then they come and then they come and do the qualifications with us.
Gene Tunny 06:42
And is this the prince two qualification? Is that what it’s called, no
Adam Boddison 06:47
so Prince two, for people who will have heard of that, of course, it was, we used to be a standard qualification that was kind of half owned by the UK Government and half owned by the private sector, and that was until about, I would say, you know, five or 10 years ago, that was the kind of the go to standard, that qualification has some legacy value now, but it’s kind of moved on. I think there was a recognition that Prince was great if you were talking to other people that also had prints. It was like a language, right, like that. But actually, where it fell down was that, how do you as a someone who delivering projects and programs, communicate what you’re doing to, you know, the C suite, to other domain experts, and that’s where what we do is slightly different. So the chartered standard is now replaced print to us as the go to standard in the UK, and is starting to make similar kind of tractions in other parts of of the world too. So if you look at the government’s you know, capability framework for delivering publicly funded projects, it will say that if you are a senior responsible owner for projects or programs, you need to be chartered with the Association for project management, or you need to be a fellow of the organization, because it’s all about competence. So it’s not just a qualification, it’s a standard that you need to maintain to say that you are competent to deliver projects as well.
Gene Tunny 08:13
Okay, so does that mean I need formal training and practical experience? Exactly.
Adam Boddison 08:18
So there’s a technical knowledge aspect, and that’s where the qualifications come in. And that’s where Prince two and other qualifications, and our own qualifications, like we have the project management qualifications and so on, and there are other professional bodies out there, so that all comes in in the technical knowledge space. But there’s then this professional practice aspect, and that’s where the it’s not just the experience, but it’s it’s demonstrating through that experience that you’ve covered off a range of the of the different areas of competence that would meet the kind of minimum standard we talk about it as a kind of license to practice and in the third aspect is around ethics and values. So it’s not just about being able to deliver at any cost, if you like, that has to fit in with the wider expectations around things like sustainability. For example, you want to be using kind of materials that are going to make our world a better place. You can your listeners won’t be able to see but I’ve got a little slogan behind me here that says, because when projects succeed, society benefits. That societal benefit piece we think is fundamental to project success, it’s not just about time, cost, quality, actually, it’s about improving the world, making the world a better place, one project at a time.
Gene Tunny 09:35
Yeah, absolutely. I mean, like, as an economist, I think about the net benefits, or the net present value of a project, and a cost benefit analysis, and if, exactly, if you reduce the costs of it through better project management, then certainly you you increase the net benefits. So that’s great. Can I ask? I mean, what would I learn in in one of your courses? And do you have short courses? So say, I just need a refresher, or I need to brush. Show up my project management skills for projects I’m running. Can i Is there a little course for me? Is there a wider course I can do? What type of things can I learn? Yeah, so
Adam Boddison 10:09
we have a whole range of different things and formal courses. As I say, we tend to work with the training providers if you’re doing a course to lead to a qualification, but let’s say that you’ve decided that you want to know more about either something like critical chain project management is a good example of a methodology that’s less well known. Then that’s the kind of thing where we have a learning, learner management system, where you can as a member, you get access to that system, and then you can kind of do a kind of online professional development, kind of top up, if you like, to learn about specialist areas. We also have various guides which can which can help people, and those guides are developed by the profession, for the profession. So it’s where we kind of take areas of best practice and expertise, and as a professional body, we then make that available to the wider profession. So, so there’s everything from the kind of formal standards, which will be our competence framework and our body of knowledge, right through to those kind of more thought leadership innovation, kind of white papers and and skills guides and things like that, right? So
Gene Tunny 11:18
by critical chain, is that the critical path of what I would think of as the critical path of a project the things that need to happen in sequence. So
Adam Boddison 11:27
critical path, of course, and I say this with my maths teacher hat on, now used to teach critical path analysis. So critical path is obviously around optimization and identifying those tasks or activities on the critical path that if any of those are delayed, the overall project is still project is delayed. It’s a kind of classic staple of the project management world. Critical chain moves the debate on a little bit. And unlike critical path, what it does is it actually identifies and prioritizes the most resource intensive tasks as part of a project or a program, and uses kind of buffers or shared floats, if I use critical path terminology to kind of ensure that resources are available when needed for the most resource intensive activities in a project, it’s not widely used. I don’t really know why it’s not widely used, because it seems to me an absolute game changer in terms of organizations who are delivering complex projects within resource constrained environments, but it kind of takes the debate further, and that’s a great example, as I say, of where, you know, we provide a kind of something quite, quite niche, quite specific, but actually can have a broad impact on project outcomes. Yeah,
Gene Tunny 12:40
I’m going to have to look that up. That sounds fascinating, potentially, that is something that could could help with improved project delivery. Because, I mean, I’m in Brisbane, and Australia, we’ve got to build we’ve got the Olympics coming up in 2032 and we’re going to have all sorts of issues trying to get the city ready for the Olympics. And I just hope that they are thinking laterally about how to deliver projects. And I suppose one of the reasons it’s not, why it may not be taken up, is because people might see it as a bit of this slack, or there’s it’s inefficient to begin with, but but actually, having this buffer, having this this capacity to bring in extra resources helps. It means that the overall project is probably going to run better and more you’re going to deliver it more cost effectively. Yeah,
Adam Boddison 13:25
that’s right. I mean, not to get too technical about it, but the thing about critical path analysis is, you know, all of the kind of float and you know, the buffer is all tied up within individual pathways and within individual activities. One of the things about critical chain is that you end up with this kind of shared capacity, so you can start with a more constrained set of resources, but make sure that they are available to be deployed because of the way in which you’ve set it up. From the outset, some people would say it’s just good project management, right? I mean, that’s that’s also a way of looking at these things. But for those people who are interested in this, we have published a senior manager’s guide and a project manager’s guide to critical path, sorry, to critical chain, which is very new. It’s come out within the last few months, and that’s available on the APM website. That’s apm.org.uk
Gene Tunny 14:17
Great. I’ll definitely check that out. It sounds really interesting, right? Well, we might get into my questions about project management. What characterizes good versus project management? What do you think are the hallmarks of good project management? Adam,
Adam Boddison 14:32
well, you know, we’ve already started talking about kind of setting up for success in a conversation. So far, we have a phrase that we use a mantra, if you like, which is that projects don’t go wrong. They start wrong. To me, almost universally, when I look at projects, whether they’re ones in the public domain or not, nine times out of 10 you look at those and you say, what’s really gone wrong here? But. You can trace it right back to the beginning that something wasn’t set up right now. Why does that happen? Right if we know that, why does it still happen? It happens in my mind, not because people wake up in the morning and say, I’m going to take shortcuts on my planning to this project. I think it happens because of external constraints and expectations. Take, for example, a project that’s publicly funded. It could be any country in the world. You know, you always hear government ministers or leaders of countries talking about, in infrastructure projects, we must get spades in the ground. And it’s like, it’s like, it kind of hasn’t started right until they start to see the building go up, or they start to see the diggers turn up on site or something. And therefore, there’s a pressure both through the procurement process for these, for, you know, for commissioning projects, but then also through the the kind of delivery phase to say, don’t waste lots of time planning this. Let’s get on with it. And actually, that results in some of the long term, you know, cost overruns that you talked about it results in some of the kind of the scope changes that are needed, where things are not set out clearly enough or thought through clearly enough from the outset, and those are the things that end up costing the taxpayer a huge amount of money. Right?
Gene Tunny 16:14
Is it because they’re not doing the and the right feasibility studies or in geotechnical investigations. What are the,
Adam Boddison 16:24
no, I don’t necessarily think it’s that, you know, let’s, let’s take a specific thing. Let’s take something that’s really kind of controversial in the UK, which is the HS two project. You know, the red line. I’m sure that’s probably known about globally as well. It’s, you know, one of those scales and complexities of projects, which I’m sure will give it a status, kind of globally, but, you know, that’s been really, really challenging. You know, there’s been, you know, various debates over time about, you know, is it on, it? Is it off? What’s the scope? Or, you know, actually we’re going to cut back. Oh no, actually, we’re going to do more again, you know, one of my reflections on this is that the more you kind of change the scope of something that just adds layers of cost and complexity, and that should have been thought about in the planning stage, and once you get past that planning stage, I’m not saying you should never change the scope, because sometimes you know you need to kind of be Agile, small a Agile to kind of to change things. But actually these changes were not to do with changes in the operating environment or the kind of benefits realization piece. These were changes that were due to political will or particular political prioritization. And I think it plays into this bigger misconception, which is this idea that if you stop doing something, it will automatically cost less. That’s not necessarily true. There is a cost to stopping something once you’ve already got resources in play, you’ve got your workforce trained, you’ve started delivery, even if you reduce the scope to zero, then you’ve got to wind all of that down, and you might have to wind it back up again, you know, to deliver other aspects of the project and or the resources that you wanted to use, there’s now a gap in what you need them for because of the change. And so you have to lose all of that resource and then pick it up again somewhere else, which ends up costing more than if you just carried on. That, I don’t think is well understood by, you know, the those in public, Senior Public Sector positions, but also by the general public. I would say, think there’s a view that, well, surely we’re doing less. It should cost less. It’s not necessarily true.
Speaker 2 18:35
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Female speaker 18:41
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19:10
now. Back to the show,
Gene Tunny 19:14
I guess. Yeah, one thing I’d like to ask, are there any rules of thumb regarding, I mean, how many, how much time or effort is there a percentage of the budget that should go into that upfront conceptual stage or project planning stage? Adam,
Adam Boddison 19:32
no, I don’t think we put a specific number on it, but whatever number people are starting with is probably more where I’d start from. And, you know, there are some studies out there. I can’t think I’m off the top of my head, but there are some studies out there which talk about the idea for, you know, for every extra pound spent in the planning phase, it saves X number of pounds, you know, kind of on the whole, whole project life cycle. People, and I think that those are kind of sector specific as well, but, but, but, but, yeah, I think, I think it is important. And I think that business case piece, yeah, is important as well. You know, you know this with your kind of economics back background and so on, you know that the business case can change. And we’ve talked a little bit about kind of project success, right? You know, in terms of, you know, time, cost, quality and so on. I’m not always sure that that’s the only thing we should be caring about. You mentioned cost benefit analysis earlier on. That benefits piece for me is often the bit that gets squeezed. It’s like what we’ve done, the projects finished now, and the benefits will automatically get delivered. I don’t think that’s always true, and also sometimes the benefits are not the ones. In the business case, the Channel Tunnel is a great example of this. The Channel Tunnel joining England and France. If you look at the business case, it was all about moving people from England and France, backwards and forwards. But look now, and actually, probably one of the biggest benefits is not just about people. It’s about moving energy between England and France. EDF is one of the big energy companies. They’re a big supplier to the UK market. They use the Channel Tunnel as the main vehicle for getting the energy from France to England. That was not in the original business case. So when you think about a channel tunnel on paper, it’s a disaster, right? It was late, it was over budget, you know, all the traditional measures that you might use, it fails, right? You ask the general public what they think about it now, they say, yeah, that’s, that’s a project success. We use it. It’s great. It, you know, and actually it delivers benefits that weren’t that so, you know, is that successful project or not? You know, I do think that benefits piece is important to focus on.
Gene Tunny 21:49
Yeah, absolutely. I mean, I’m a great believer in doing that, that ex post, or after the fact evaluation, benefits evaluation, or, you know, benefit cost assessment, as well as having done at ex ante before the before the fact. I think, I think that’s, yeah, I think that’s a very good point. Can I ask just as a dumb question, because I don’t know much about the what was that energy company? Was it EDF? It’s a French EDF. I was talking about here. How are they transporting the energy from brands to England? How’s that work? That’s
Adam Boddison 22:24
a good question, I presume, through cables. But okay, the point is, they’re using the tunnel to actually transfer from one, from one one and one place to another. And have that tunnel not being available, that would have been a much more challenging job, right? Yeah.
Gene Tunny 22:39
So they are actually exporting electricity. I was just wondering if it’s fuel, or you’re talking about liquid fuel, but it sounds like it’s, you’re talking about electricity. I’m thinking, I think
Adam Boddison 22:47
it’s electric electricity primarily. But this points about benefits, though, it’s not just kind of immediately post project. I think it’s really long term this, you know, the Channel Tunnel thing. And just use that, because we’re talking about that example, it was decades afterwards before we really knew whether that was a successful approach. You know, let’s take an Australian example, the Sydney Opera House, right? You know, I think the guy who was the architect of that, right, never, never came back to see the finished thing, right? Because he was so disappointed by by it. Yeah, actually, I think probably it’s true. If I talk to Australians, if I talk to, you know, the many, you know, millions of tourists, they would say, this is a huge success, right? I mean, it’s probably paid for itself many times over in terms of its economic contribution, but, you know, on paper, that was not, would not have been considered a success, but, but if you were looking at it from the long term and the benefits that it’s brought, you know, particularly in terms of the tourism side of things, it’s a huge success. So I think sometimes we don’t know for sure until a long time after, and this is where, in my mind, governments around the world are well placed to take the long view, to actually open the box up on things that were delivered and closed, probably years and years and years ago, decades ago, and say, you know, looking back now with the benefits of hindsight, would we still have done that, or would we done it differently, and use the lessons learned from that type of analysis and apply them to the commissioning and procurement of projects going forwards? Yeah.
Gene Tunny 24:21
Yeah. Very good. I think I like the idea of having the long view. Yes, Sydney Opera House example, that’s a, that’s a very good one. And I think I agree with you. I mean, it, it certainly was a project. I think it ran over budget, 14 100% or something like that. I mean, when, and you, you mentioned the architect, I think Jan Woodson must. I think he was, I think that was his name. There are all sorts of problems with the building of it. They had to blow up the original foundations they laid for it because they wouldn’t support the shells. Yeah, there are all sorts of things that went wrong. But, yeah, I think now, I mean, Australians love it. It’s hard to imagine Sydney. Other without it, it’s just perfect. So, yeah, very good point. Okay. Now, Adam, do you have any examples of where good project management has led to superior infrastructure delivery? Are there any gold standard examples that that are cited, that your association promotes? Yeah, we’ve
Adam Boddison 25:22
got plenty, plenty of them. In fact, it’s a great we celebrated our 50th anniversary a couple of years ago as an organization. And as part of our celebrations, we decided that we try and identify 50 projects in the past 50 years that that we really wanted to showcase. Yeah, these are projects that are, you know, Pan sectors. So some of them are infrastructure, some of them are other types of projects. But what’s really interesting about them is we didn’t want to necessarily pull those out and say, Look, this is a, you know, a perfect textbook example of exactly how to do a project. Because, you know, I’m not sure how realistic that is to say that you’ve got a perfect one, right? Because there’s always things you could do better or differently. But what we wanted to do is, is to pull out ones that, you know, we can be, we can be proud of. And they came from many, many different fields. So, you know, to give an example of some of them, you know, one of them was, for example, Dolly the sheep. If people remember that one of the fast cloning technologies that led on to some of the great advances in kind of medical science. So, you know, that’s an example of a project which, at the time, was quite novel and innovative, but actually led on to some huge advances in medical technology. In the UK, we had one which was around it, so the electronic prescription service. So for to explain what this is, because people might not have heard of this, we used to have a system where, if you went to your doctor because you were, you know, you were unwell, and they prescribed you with some medication, they handwrite a kind of prescription, and you take it down to your local pharmacy, yeah. And because the way that system worked, there was a lot of, I said there was a lot of corruption. I can’t put a number on that, but let’s say there was a potential for corruption in that type of process, and it wasn’t very fast and so on. So the government under Turk, a national kind of, you know, IT project to kind of automate this so that the doctor on their computer, which is a kind of NHS, you know, National Health Service, kind of computer, can say what you you need. That will automatically be picked up by what are a private a private sector set of pharmacists in a very secure way, and you can just go and pick that up by the time you’ve got to the pharmacy, your prescriptions ready. This was a government funded it project that was within budget changed probably the life of every person in the country, directly or indirectly, overnight. And you know what was really interesting about it? I didn’t see a news story about this in any newspaper, because there’s a problem here. You know that there’s a kind of trial by media, I call it, where projects that go wrong are from page news, you know, government, you know, overspends on infrastructure project or IT project. But the ones that go well, we don’t hear about, and I think that’s the problem. That’s why I want to showcase the these great examples, right?
Gene Tunny 28:19
And can you reiterate, please? Adam, why did that one go? Well, was it because of good project planning at the outset? I
Adam Boddison 28:26
think there definitely was good, good project planning in there, but I think it was also because of really effective stakeholder engagement. You know, they understood what is the problem that we’re actually trying to solve here, and so they knew already that the solution was going to actually deliver the benefits that they wanted to, and they kept monitoring the benefits afterwards to make sure, you know, the project wasn’t, kind of clicked. Once the system was in place, it wasn’t job done. They’ve made further changes to that system since then. So, so that’s just, that’s just one example. I think
Gene Tunny 29:00
talking to stakeholders is so important. I mean, I just know that from my own projects, like, if I think about the work I do as an economist, if I’m doing, you know, doing a cost benefit analysis or an economic impact study, I think you really need to talk to relevant people who know about the issues, who be effective, because you get such great insights, and if you don’t talk to them, you could miss something really important. So I think it’s, it’s so important to have that stakeholder, yeah,
Adam Boddison 29:29
I think I’d also just adding the, you know, really effective monitoring of the risks here as well, and those risks, because, you know, when you’re talking about people’s health, this isn’t just like any old IT system. If we get this wrong, people could die. That’s the kind of risk we’re talking about here, because we’re talking about a computer system that’s going to fundamentally underpin the National Health Service and people’s access to what could be life saving medicines. So we’re. You’re talking about that level of risk. You’ve, you know, the stakeholder engagement piece that we’re just sort of, you know, that that becomes absolutely critical. I mean, it should be critical anyway, but, you know, the stakes are really, really high to get that right.
Gene Tunny 30:11
Yeah, that’s, that’s a very good point. It just got me thinking about, with the tech sector, or with with startups, there’s this view that you should move fast and and break things. I mean, do you have much? Does your association have much to do with startups in the in the tech sector, and are you trying to encourage them? Well, you actually, you should be, you know, doing more project planning.
Adam Boddison 30:36
Well, we do have some some involvement with some of those organizations. What we’re not doing is telling them they shouldn’t take a shouldn’t take risks. I think, understanding what the appetite for risk should be given the context that you’re operating in. And clearly, if you’re a tech startup, you’re going to need to take risks. So you’re not going to get very far, right? I mean, if you’re running a kind of national infrastructure project, or a national IT project, which is operating in the kind of high risk health sector, for example, then I think you’re going to have a different level of tolerance around risk. But I think it’s understanding what that is, and therefore how that determines what you should do on a real, practical level. One of the bits of advice, I think, is probably works well unanimously, irrespective of where you are on your risk appetite spectrum, is this idea of undertaking a pre mortem? Now, pre mortems, I don’t know if your listeners would be familiar with this. Everybody’s probably heard of a post mortem. You know, when we picked the bones out so someone’s died. What was the cause of death, if you like, in a medical sense, but a pre mortem is the opposite of that. You’re almost saying at the outset of a project, if this goes wrong, and I don’t just mean the small risk, but if this goes catastrophically wrong, and in a year’s time, we are all, you know, licking our wounds, you know, to say this was a complete and unmitigated disaster. You know, how on earth, how on earth did we get here? You’re almost putting yourself in that situation and saying, what could the cause of death have been? And you start with that at the outset. And with stakeholders. You do this with stakeholders a really transparent process. You know, I found that those organizations that invest in that kind of process as part of the planning, you know, that’s the kind of thing which is really going to enable them to be more effective in their approach to risk,
Gene Tunny 32:21
yeah, yeah, absolutely, absolutely, okay. And, I mean, how do you go about finding a good project manager? So I guess you’ve there are the qualifications. Is your your association, these are your members, aren’t they? They’re, they’re project managers. And okay, and so. So, I mean, you’d want to find someone with those qualifications, with experience in successfully delivering programs, wouldn’t you? I’m just thinking about who, the types of people you’d want, yeah. I mean,
Adam Boddison 32:52
the qualifications is one part of it, but right, look, I started off this whole conversation today by saying, Look, I’ve done some of our qualifications. You know, should you employ me to come and, you know, deliver some of your projects? Well, I wouldn’t employ me to do that, because just because I have the knowledge and understanding doesn’t mean I’m the right person to do it. And I think that’s why the chartered standard that we have, that standard piece, is so important, because that says it’s not just about the technical knowledge, which you can learn from the book. It’s about saying that actually, you have demonstrated through other projects in the past that you are able to apply that knowledge and understanding in specific contexts to deliver the kind of outcomes and benefits that we’re talking about.
Gene Tunny 33:35
Yeah, but how much of it comes down to? I mean, the challenging thing often is or the challenging quality in people to evaluate is often judgment, unless you see them performing again and again. I mean, there’s that quality of judgment. Is it the case? There’s a project manager you often have to make on the fly decisions, or you’ve got to make a trade off you didn’t expect to make. Is that the type of thing that the type of thing that happens in project management, you need some people with good judgment. I
Adam Boddison 34:04
think judgment is probably essential in goodness think of a job where good judgment is not a good, good thing to have. But the thing with judgment right is, how do people don’t just rock up on day one with good judgment? Some people do, but I think most people don’t. Yeah, that’s something that people acquire over time, and they acquire it because they’ve seen things like that before. You know, I go back to my maths teacher years and years ago when I started my profession, and I remember my students would say to me, sir, how did you know to solve that particular problem in that particular way? And the answer was, usually, because I’ve seen something like this before, and so I kind of had an idea of what to try. You know, there’s a bucket of strategies over here that I think probably aren’t going to work, and there’s a bucket of strategies here that I think there’s probably something here that’s going to have a good chance that comes with time and experience, and I think that helps to really hone your judgment over time. Yeah. Yeah,
Gene Tunny 35:00
yeah, absolutely. Okay. Adam, can I ask about the mega project literature? There’s the Danish geographer, and I’m not going to say I’m going to pronounce his name incorrectly, so I won’t even try, but it’s bent. F, l, y, v, B, J, E, R, G. I think a lot of people, lot of listeners will be familiar with him. I mean, he he argues that the mega projects are almost doomed to run over budget. So if we think of a mega project as something a billion dollars or more, like a very large project, they just seem to invariably run over budget. We’re not very good at estimating what these things are going to cost. Are you? Do you have any thoughts on mega projects, on that literature? Yeah, well,
Adam Boddison 35:45
I mean, I, you know, bent has his view on the world. I would say that other views are available as well. And, and I would say that Ben bent is, you know, he’s an APM Honorary Fellow. So we know him well, I think he’s probably at the more pessimistic end of the impact of projects. And there are others who are at the more optimistic end. However, all of them, actually, any of the figures that you look at in the literature, none of them are great, really, probably the most positive you’ll find. It says something like maybe, you know, 40 or 50% of projects are successful. I mean, if that was the case in any other business, you’d probably close down tomorrow, right? Yeah. Why are we doing this? But I think it comes back to what I was saying earlier on about what do we really mean by success, if we really pin our colors to the mast on time, cost, quality, which is where, you know, Ben’s stat of, you know, only naught point 5% of projects are successful then, then I think you can come and step quite quickly, and you will get those negative numbers. But let’s use there’s a great expression in the Netherlands, actually medical expression, where they talk about things which are successful in terms of the outcomes, but don’t deliver any benefits. So you imagine the surgeon that says the operation was successful, the patient is dead. You know, you know, the operation went exactly as planned. We did all the things we said we’re going to do. You know, there were no hitches whatsoever, but, but that means nothing if the person is dead, right? So, so you can imagine this in the context of an IT project. Let’s say you set out to deliver an IT project, but because the pace of change in in, you know, in the IT world is so fast, and maybe it takes 18 months to deliver this, you get to the end and approach, you know, it’s not needed anymore. It’s in a situation where you’ve delivered everything on time, within budgets, the required specification, you’ve engaged with the stakeholders, you’ve managed all the risk, all of these things have been great. You’ve planned it properly, but you get to the end, then it delivers zero benefits because no one needs it anymore. You know, that’s the kind of thing we’ve got to get away from. So that’s why I think this kind of pinpointing success by saying, you know, was it on time? Was it within Bucha? And then saying, Well, yes, therefore it’s successful or unsuccessful. I’m not sure how helpful that is. Yeah,
Gene Tunny 38:10
yeah. Very good point. Very good point. Okay, Adam, this has been great. Yeah. I think it’s good to get your perspective on project management as someone involved in the field as the CEO of the association in the UK. Does the association have international connections? Are there associations in other countries that you’re liaising with?
Adam Boddison 38:30
Yeah. So although we kind of are headquartered in the UK, we are a global professional body. So we have members all around the world, including in Australia, in the Middle East, Canada, you know, lots of different places, and that includes chartered project professionals as well. So we have direct relationships with organizations and individuals around the globe, but we also work collaboratively with other professional bodies in the project space in those countries as well. So yeah, anyone who’s listening to this, it doesn’t matter where you are in the world. If you’re interested in being more involved in the association, you’ll be very welcome. Very
Gene Tunny 39:08
good. Okay, that’s excellent. I’ll put a link in the show notes before we go out. It turns out you you have an OBE so of the British Empire for services to children with special educational needs? Can you tell us about that, please? I mean, that sounds I mean, that’s phenomenal. That’s brilliant. Yeah, very, very
Adam Boddison 39:27
kind of you to say that. So as I mentioned the beginning, you know, my background is in education and other professional bodies. Before I joined the Association for project management, I did six years as Chief Exec of the National Association for special educational needs, and I was in that role during the global pandemic where children with special educational needs, particularly those with complex medical needs, were really obviously in a very vulnerable situation, because some of these children were already had life limiting conditions, where, if they were to, you know, become unwell. You know that. Had been very, very serious indeed. And we had government policy in the UK which was to which was with good intentions, but the policy was to protect children with special educational needs. We should protect their education, and they should go into school. Well, of course, for these children, that was almost the worst thing we could possibly do, because we didn’t want them to have that exposure to to what was going on with the children. So my role really was trying to help convene those people who were making the key policy decisions with those people who were leading some of the schools and residential organizations to make sure there was a proper join up, I suppose, in effect, to bring it back to a project. Well, I was helping to manage the significant risks there and helping to ensure there was effective stakeholder engagement. Very
Gene Tunny 40:52
good. It’s a, it’s a very, I mean, as I understand it, it’s a very prestigious award. And, I mean, you would had there was a ceremony at the palace. Is that right at Buckingham Palace? Yeah,
Adam Boddison 41:05
that’s right, yeah. So it was Princess Anne who presided with, with the award. So, a very special day, indeed.
Gene Tunny 41:12
Very good. Okay, well done. And, yeah, thanks for your for your contribution. I mean, that that’s, yeah, that’s really valuable work. Adam, really, really good stuff. And look, thanks so much for the conversation. It’s, it’s been great. I’ve really enjoyed it. I think I’ve, I’ve learned a lot. And, yeah, all the, all the best in in future endeavors, with with project management. And, yeah, look forward to connecting with you sometime in the future. Excellent.
Adam Boddison 41:40
Thank you. It’s been a pleasure. Thanks. Adam
Gene Tunny 41:44
Righto, thanks for listening to this episode of economics explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact at economics explored.com or a voicemail via speak pipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you, then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week. You music.
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Credits
Thanks to the show’s sponsor, Gene’s consultancy business, www.adepteconomics.com.au. Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple Podcasts and other podcasting platforms.
Show host Gene Tunny sits down with Professor Cordelia Fine to discuss her latest book, Patriarchy Inc. Professor Fine argues gender biases are embedded in jobs and organizational structures, affecting women’s career prospects. Topics include ‘greedy jobs,’ the undervaluation of feminized professions, the limits of diversity programs, and the role of evolutionary psychology in shaping gender assumptions. Whether you agree or disagree, this discussion offers a fresh perspective on gender in the modern economy.
You can listen to the episode via the embedded player below or via podcasting apps including Apple Podcast and Spotify.
About this episode’s guest: Professor Cordelia Fine
Cordelia Fine is a Canadian-born British academic and writer. Her work analyses scientific and popular biological explanations of behavioural sex differences and workplace gender inequalities, explores the effects of gender-related attitudes and biases on judgements and decision-making, and contributes to debates about workplace gender equality. She is the author of three popular science books, published in 13 languages. Among other accolades, Testosterone Rex won the Royal Society Insight Investment Science Book Prize. She is currently a professor in the History & Philosophy of Science in the School of Historical & Philosophical Studies at the University of Melbourne.
The Gender Pay Gap Is Complex – It’s not just about discrimination; factors like ‘greedy jobs’ (roles demanding long, inflexible hours) and the devaluation of feminized jobs play a major role.
Diversity Initiatives Have Limits – Many corporate DEI (Diversity, Equity, and Inclusion) programs focus on ‘fixing’ women rather than addressing structural workplace issues.
Workplace Norms Favor Men – High-status, high-paying jobs often assume an ‘ideal worker’ who can dedicate unlimited hours—an assumption that disadvantages women with caregiving roles.
Traditional Economic Models Miss the Full Picture – Traditional market-based explanations of wage determination often overlook workplace hierarchies, organizational power dynamics, and societal gender norms.
Evolutionary Psychology Oversimplifies Gender – Popular claims that men and women have biologically determined career preferences are challenged by alternative theories emphasizing cultural and social learning.
Transcript: Patriarchy Inc. – Gender and Workplace Dynamics w/ Cordelia Fine – EP274
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
Cordelia Fine 00:03
And so the idea here is that that kind of gender biases and other kinds of biases can become embedded in jobs themselves over time, in ways that are shaped by the demographics of who’s doing those jobs, you know. And that takes us back to this conversation about when, when jobs become feminized, they have a harder time making claims on these organizational resources.
Gene Tunny 00:34
Welcome to the economics explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode. Please check out the show notes for relevant information. Now on to the show. Hello and welcome to this episode. In this episode, I’m speaking with Professor Cordelia fine, a distinguished academic and author known for her research on gender psychology and workplace dynamics. She’s professor in the history and philosophy of science at the University of Melbourne, and she’s written several acclaimed books, including testosterone Rex, which won the Royal Society insight investment science book prize. Our conversation explores key economic and social questions surrounding gender in the workplace, how much of the gender pay gap can be attributed to personal choice versus structural factors. To what extent do economic models accurately reflect Workplace Realities, and how effective are corporate diversity initiatives? I’m particularly interested in hearing cordelia’s perspectives on these issues, given her interdisciplinary approach, drawing on psychology, sociology and economics, whether or not you agree with her conclusions, this discussion offers valuable insights into ongoing debates about gender and the economy. Please let me know what you think about what either Cordelia or I have to say in this episode, you can send an email to me at contact@economicsexplored.com a special thanks to Lumo coffee for sponsoring this episode. This top quality organic coffee from the highlands of Peru is packed with healthy antioxidants, economics explored. Listeners can enjoy a 10% discount. Details are in the show notes. Now let’s jump into the episode. Cordelia, fine. Welcome to the program. Thank you very much for having me. It’s a pleasure. Cordelia, you’ve written a very interesting, provocative for economists, I think in some instances, book, patriarchy, Inc. So I’m keen to talk to you about that just before we get into it. Could you give us a sense of, how did you get interested in these issues in the first place? Please?
Cordelia Fine 03:05
Yeah, that’s a good question. So I’ve been, I actually started my life, you know, interested in questions of moral psychology and moral philosophy, and I plunged into the area of sex differences and gender issues, sort of around 2008 or so. And then I spent quite a lot of my time interested in questions about why men and women are different, and how those kinds of explanations help us make sense of social structure. And I’ve long been interested in, of course, there are lots of really important issues to do with that, such as, you know, violence and so on. But I’ve always been interested in structure in terms of organizations and who does what kind of work, and you know, what they what they get into in return. And from about 2010 or so, I was working at the Melbourne Business School, and that’s where I encountered the sort of, sort of two components of my interests came together in some sense. So on the one hand, I was much more integrated in a business community that had a growing interest in gender diversity as it was being referred to, and at the same time, I was encountering more people from a discipline that I hadn’t had much interaction with, namely, economics. And economists were getting interested in gender differences and and sort of the contribution of biological or even evolutionary factors in kind of core concepts for economics, like risk taking and competition. So my previous work has sort of examined that from, you know, really unpacking the science, exploring the science of that and in patriarchy, Inc, I kind of brought that together with what I was also seeing, which was the sort of rise of the business. Case for gender diversity, so, but perhaps we can talk a little bit more about that later.
Gene Tunny 05:05
Yes, yes. So what do you mean by patriarchy? Inc, to start off with, please. Cordelia,
Cordelia Fine 05:13
yeah. So it’s such a fun way to start interview, isn’t it talking about patriarchy? So there are lots of different meanings, or people can mean different things when they say patriarchy. When I say patriarchy, I’m just referring to this quite simple idea that men as a group have higher status and more power than women as a group. Social Scientists often refer to that instead with the term gender hierarchy. And so that’s what I mean by patriarchy. And by patriarchy, Inc, I’m referring to the many social processes that are operating in post industrial countries that help maintain this gender hierarchy by shaping women and men into different roles in the division of labor and shaping what they get in return. So to put it even more simply, patriarchy, Inc, is referring to the gender dynamics that the gender dynamics of who does what and who gets what in countries like Australia, UK, US and so on. Can
Gene Tunny 06:14
I ask? I mean, I understand, I think I understand the concept of patriarchy, and clearly in I mean, decades ago, I think you’d have to say we were clearly a patriarchy. There’s no doubt about that. But things have changed over the last 50 years. And I mean, we’ve had sex discrimination act, we’ve had a female prime minister, we’ve had various female CEOs, and the mean female representation on boards is, I think it’s increasing, but at least it is over the long term. What what remains of the patriarchy? Can you please give us a sense of that? Cordelia,
Cordelia Fine 06:57
yeah, of course. So society, yes, it has been changing. It has been changing for a long time, and it’s had sort of very rapid changes, really. Perhaps, one might say, in the last century or so, although many would argue, depending which country you’re looking at, things have have stalled a bit. But, and I think it’s also important to say that, perhaps more than ever, men’s circumstances vary widely. So there’s lots of variation among men, as there is among women, with with education level and race being particularly important factors in circumstances. But overall, when it comes to the division of labor, we still have men holding more leadership positions. They’re more likely to work in well paid industries. They earn, earn higher wages, they have greater earnings, they hold more wealth, they enjoy more leisure, and they’re treated more with more respect in workplaces. It’s not all good news for men. I mean, if you look at a workplace fatalities, for example, which is a very important outcome you have, 95% of those are are men. But I think in terms of looking at who holds the sort of high status positions in society and who has most, most power over resources, I think it’s hard to make the case that we’re in a kind of gender flat arrangement or a matriarchy. So if you know, if you look at the ASX, 300 recent stats show that 91% of CEOs of men, 86% of the chairs of ASX. 300 boards are men in 2021 men were holding three quarters of C suite and senior senior leadership roles in financial services in Australia and even political representation, where I think there’s a kind of much still disputed, but a sort of stronger philosophical view that our political representation, in order to have legitimacy, needs to somehow reflect the community that it’s serving demographically in certain ways. I mean, yes, we’ve had a female prime minister, but it’s one, was it 31 you know, there is really good equality across both chambers and senior executive service roles in government, administration and so on. But that’s that hasn’t come about organically. I don’t think there’s been a lot of work to make that happen. And if we look across state premiers and chief ministers, we’re still seeing majority majority men. So So that’s in terms of the leadership, and in terms of, you know, we all know. We hear every year about the gender pay gap, we hear less about the gender wealth gap, which is probably more significant for economic well being and well being more generally. It’s quite hard to get data on that, but the studies that have been done show that there’s a sort of universal gender gap in wealth across across OECD countries, for instance. And then you know who has respect in workplaces? So, you know, there are, you know, some men can be targets of sexual harassment, but women are more likely to be targeted for sexual harassment than men. So I’d certainly take the point that things, things have changed a lot and often for the better. But you know, these stats are the stats that don’t think they’re really too much up for dispute. I think what what gets interesting? And I don’t spend a lot of time in the book talking about these statistics, because they are so familiar to many people. I think what gets interesting is the question of why we see these patterns, and what if anything we should do about them. So those are the, those are the, really the questions that I’m targeting in the in the book, and trying to challenge one point of view that says, Actually, we don’t really have a problem anymore, and another point of view that says, Oh, we do have a problem, but here’s how we’re going to here’s how we’re going to fix it. So kind of the patriarchy in account is trying to offer a sort of different account of what the problem is and what we need to do about it. Yep,
Gene Tunny 11:10
yep. Now, did you mention that the Senior Executive Service of public of the public service is that reasonably equal? Is it, is that, I’m just trying to remember what you said about that, is that is diversity or gender representation, or there’s less of a patriarchy there, or there’s more balance there. Is that, right? And that’s been the you think that’s, that’s the result of specific policies, is it?
Cordelia Fine 11:37
Yeah. So, for example, positions on Australian Government boards and Deputy Chair positions on on boards are, you know, pretty, pretty gender balanced. I have to say gender representation in politics isn’t, isn’t my, isn’t my area of expertise. So, you know, there’ll be other people who could talk, talk a lot more about about that. Yeah,
Gene Tunny 11:59
gotcha now, when it comes to the if we talk about gender pay gap and the types of roles that women are disproportionately employed in because that, you know, that’s part of that story. And then there’s the story about greedy jobs, so to speak, to what extent is it due to women and men selecting jobs that they’re they would prefer to do. To what extent is it any remaining gender norms or or biases? To what extent is it still? Is there still some discrimination or that should be outlawed? How do we unpack that I’ve chatted with? I mean, I know you’ve listened to the conversation I had with Leonora, and I think there’s a legitimate, you know, this is a really important empirical question. What are your thoughts on the relative contributions of all of these factors? Cordelia,
Cordelia Fine 12:57
I think it’s very difficult, slash impossible, to separate them out in a way. So I say that knowing that you know, if you come at this from a sort of traditional economic perspective, you can look at the gender pay gap, and you can, you can decompose it into different contributory factors, and there’s even been work this is based on the US gender pay gap. I don’t know if the same has been done here in Australia, but sort of actually even identifying the the contribution of the gender gap in overwork to the overall gender gap. So you have a premium for overwork. More men than women are likely to overwork, and that that makes a sort of certain contribution to the to the gender pay gap, and I don’t remember the exact number, but it was, it was actually counteracting the gains that women had got from their educational progress. So, you know, women have been getting more and more college degrees relative to men and overall, and that kind of benefit, in terms of their wages, had been sort of canceled out right by by this premium on on overwork. So certainly you can, you know, use those kinds of economic methods to sort of allocate a percentage of the gender pay gap to something like greedy jobs and the difference between men and women and men in doing that, but, but I think you know, when you come at this from other disciplinary perspectives, it becomes much more complicated. So if you think about greedy jobs themselves, you know a sociologist or a psychologist would say that there’s something inherently gendered about greedy jobs, because if you are in a greedy job, that job is assuming the kind of ideal worker who can work very long hours and be constantly available, and that assumes that there is someone at home providing this flow of family work that will keep things going and. And you know, that’s a very gendered that’s a very gendered division. I think it’s also worth pointing out that having a premium for overwork isn’t a kind of inevitable natural law of the market. So the same analysis that I referred to showed that it’s only relatively recently that there’s been a premium for overwork, and they attribute that to sort of changing economic structures, you know, the sort of increasing polarization into good, but very greedy jobs versus sort of bad, precarious, precarious jobs. So, you know, in but in the past, there wasn’t that premium for for overwork. You know, above and upon beyond that you’re simply, simply working more hours. I think there’s also an assumption that that there’s a kind of exponential increase in productivity when you’re working longer hours. That might be the case in some occupations, but sometimes it might be more assumed than empirically proven. And there’s lots of, you know, interesting discussion and debate about the link between long hours, working hours, and productivity. And of course, they’re people who say we’re actually much more productive, particularly in these kind of knowledge industries, when we do have time to rest and take a break and be a bit more creative. And I think, you know, sometimes organizations haven’t been very imaginative about how they might make jobs a bit less greedy, and the implications that might have for gender representation. And I know the economist Claudia golden, you know, has, has, has made this point herself. But just to, just to give an example, there was a really interesting series of interviews with Norwegian women and men who were working in male dominated areas of finance, so sort of asset management, markets, investment banking, corporate banking, and within large corporates. So obviously there’s a sort of gender gap in who’s working in these kinds of in these kinds of areas, and that helps to contribute to the gender pay gap, because these tend to be, you know, very well paid occupations. Now in Norway, they’ve made quite a lot of progress in terms of men taking parental leave, but there’s still a kind of gap in that men, even in these Scandinavian countries, they tend to be taking leave at times when it’s convenient for the organization, rather than when it’s most needed at home, so they’ll take it on Fridays or in summer holidays and so on. And so what they found was that the men who are even men who are fathers, were taking leave in ways that meant that they could kind of cling on to the clients that they had, that that they needed for their career success, and in order to get these these large bonuses, whereas for women, when they became parents, they took parental leave in the kind of more so to speak, disruptive ways. And if they took, you know, too long a leave, they would lose their clients to someone else, and that they would rarely get them back. And the researchers were talking actually to a Norwegian financial professional about this. And you know, he made the point that, you know, we don’t need to have people sort of owning clients necessarily. They he suggested maybe there could be a more collectivist approach to clients own ownership. So he said, and I quote him here, there should be a structure where the bank owns the client and not me. Therefore, if I’m away from my desk or get run over by a bus, it doesn’t really matter, because the client will be taken care of by the company. In addition, if anyone is on parental leave, it makes no difference, because everyone knows all the clients, and there’s a common pot, so everyone is equally happy. So you know, we can have arguments about, you know, how practical that would be how the clients would feel, and so on. But you know, it, he’s pointing out that there’s a norm, there’s an assumption about how it works between the professionals and the clients, and it’s a way that disadvantages people who, you know, aren’t, you know, endlessly committed workers who will never step a step, you know, step off the treadmill at any time at all, or even, you know, get unwell, for example, or have a aging parent. And it doesn’t necessarily, necessarily have to have to be that way. So, you know, there’s a whole lot of things to be unpacked behind the contribution of greedy jobs to the gender pay gap. And just to add one sort of last point to this, there was a really interesting, very deep analysis of bonuses in French banking firms by a French sociologist. And this was, sort of, he was looking at the data. He was, you know, doing an ethnographic study. It was a whole bunch of different methods. And one of his conclusions was that when you’re trying to explain the bonuses that bankers are getting, which could be extremely large, you can’t explain them simply in terms of the sort of normal explanations of productivity, supply and demand, etc. And he said one of the explanations was that these bankers would sort of exert this de facto ownership over particular. To their clients, and then they would use that as leverage in their kind of endless negotiations and politicking. So I think that this is just the greedy jobs example. Tells us like there’s so much behind you know, you can, you can allocate a percentage of the gender pay gap to gender gap and greedy, greedy jobs, but there’s so much more to unpack behind that that’s mixing together a whole lot, a lot of different assumptions and and phenomena and different and different factors. So yeah,
Gene Tunny 20:34
and what was that? You mentioned a study. I hadn’t been aware of that study. There’s a study that shows that the rewards, or the return on overwork, or the the returns to greedy jobs, they’ve increased over time. Do you recall the details of that study? I can put a link in the show notes. I’ll look, I’ll go back to your book and try and find it, but if you know it off the top of your head, I’d be interested in learning more about it. Um,
Cordelia Fine 21:03
I’m gonna, I’m gonna get the name wrong. I’m not gonna, I’m not gonna attempt to find it. But I can say I’m not sure it was in the book, but I can certainly send it to you, and if I remember correctly, it was maybe around the 1980s that this difference started to emerge. And one thing they found was that there wasn’t gender bias in who was getting the premium on overwork. So women who were overworking were not kind of being under rewarded relative to men. The gap came from women just being less likely to overwork in that way, which they defined as 50 hours or more per week,
Gene Tunny 21:36
right? Yeah. And so this, I mean, this could be for any number of reasons. There’s the reasons yet the the greedy jobs model assumes that there’s somebody at the at home, or, you know, it’s more, I think I had this conversation with Leonora. I mean, it’s not going to apply in every every family better or partnership, but it’s more likely that the the man will be the one doing the greedy job than the than the woman, the woman would be at home and looking after children. So yeah, that’s absolutely right.
Cordelia Fine 22:12
And I think that comes down to, you know, we often talk about, you know, the choices that women are making, but you know, we also have to ask questions, and I do ask questions in the book about what what men’s preferences are, and it’s, it’s not like men have full control over how long hours they’re going to work. You know, if you’re in a very competitive, high turn corporate environment, and you’re the main breadwinner, because that’s the decision that’s been made. Well, you might not feel that you have you might be working many more hours than you would actually prefer to. And this is a problem that people, you know, couples, heterosexual couples, actually same sex couples as well, are kind of being forced into patterns of work but do not necessarily reflect contemporary society, where we don’t have this kind of understanding that there’s a male brand breadwinner and a female caregiver with at most a secondary job.
Gene Tunny 23:16
Yeah. And one of the other issues I think, look, we I think I chatted about this with Leonora, that women are more likely to choose caring or professions that are well, caring professions, nursing or well teaching, and they’re typically well, they’re not as well paid as some of the the job, the more jobs that men more Typically or disproportionately represented in so I think that’s a, yeah, that’s another part of it. I just wonder is, I mean, are there psychological rewards to doing some of these jobs? I mean, are the do women prefer to work in these jobs relative to others? Is there any evidence or or psychological reasoning for for that that justifies it? Yeah, look,
Cordelia Fine 24:01
this is the idea of kind of compensating differential. So there’s one economist who, I think, Julie Nelson, who describes it as women being compensated in warm feelings. So look, I think, I think there are a few, a few things to say about that. So one is, you know that there are many people have argued that these kinds of jobs are undervalued, so like setting aside, you know why? Why women are choosing them and men aren’t, they’re also just undervalued, and part of that comes from the sort of rise of gender norms. They haven’t been with us forever, but this idea that caring is caring is something that comes naturally to women and that they’re sort of, they’re doing what’s natural to them. And so it’s not really that kind of work isn’t skilled work, per se, and so it doesn’t have the kind of wages that are commensurate with the skilled work that that it actually. Is, so, yeah, so that’s, that’s one aspect of it, that a lot of this work is skilled, demanding, you know, actually really hard work, you know, aged care, whatever it is, but that it’s, it’s, it’s being that it’s being undervalued. And I think that the other thing that people can overlook is that when we think about these post industrial economies, they they grew through the kind of expansion of these so called Pink collar jobs and so, you know, during that period when women were kind of being brought much more into the labor market. They were these jobs were sort of quite explicitly designated as being for them, and then they were sort of made compatible with this assumption that they would be fitting them around their caring responsibilities. And so so that had a number of consequences. So one consequence was that, you know, these sort of caring possession occupations became very female identified, and that sort of stigmatized them for men. So men would be kind of less interested in participating in what was seen as, you know, female, female occupations. And it also meant that the sort of male jobs weren’t necessarily also being arranged in ways that made them compatible with caring responsibilities,
Gene Tunny 26:30
right? I might need you to explain that a bit more. I’m not sure I understood that properly. I can understand, yeah. I mean, we’ve seen a big drop in the number of males who are teachers, that’s for sure. I’ve seen that. And, I mean, one theory, and I don’t know how much explanatory power this has, or one hypothesis, is that men are concerned about judgments that are made about them, if they’re a male teacher, and they’re just concerned about the the scrutiny, and, you know, concerns about. I mean, you know what I’m I think, I think you know what I what I’m talking about. There’s that concern men have and why they wouldn’t be in in teaching a particularly primary school teaching, but I can’t, it’d be good to sort of explore this. You mentioned that some of the the rise of the pink collar jobs, those jobs were arranged in a way that was they were assuming that women had family or caring responsibilities, yeah, which
Cordelia Fine 27:27
they would have. So, you know, we think about what was happening say, in the 1980s there was this kind of compromise whereby the idea was that it wasn’t that we had a male breadwinner and a female caregiver who was a full time homemaker, but there are more women coming in and having sort of part time jobs that they could fit in around their sort of caring responsibility. So it was still being taken for granted that, you know, taking it home and the kids was was, was their job. And so in order to bring women into those into those jobs, they had to be made such that they could be fit, fit in around those caring responsibilities. I remember being at a sort of industry workshop about gender equality, and someone was talking about how it was sort of impossible to be a part time uniform police officer, because there was a sort of 24/7 demand for policing. And somebody there said, oh, like nursing, right? It was just a good example of, like, yeah, we need nurses 24 hours a day, seven days a week. But somehow they’ve managed to, because most nurses are female, it is actually possible to be a part time nurse, to take periods off and so on and so forth, so but to come back to your question about the stigma. I mean, this comes back to, you know, it’s sort of ugly talk about it, but that, you know, men are higher status than women, and that’s in our, you know, current societies. You know, that’s a function of the fact that men hold the majority of positions of leadership. I mean, a really sort of simple, intuitive way of kind of grasping that the kind of stigma of femininity is to think about, if you had a child, and how you would feel about dressing your daughter in, you know, jeans and a footy top, versus dressing your son in a pink frilly dress. And I think most people would feel more comfortable dressing their girl in the boys clothes than the boy in the girls clothes, for instance. So that’s just a sort of very intuitive example of this fact that you know this idea like, well, if women are doing it, how important? How important can it be? And they’re, they’re, you know, economists and sociologists have been looking at these patterns of women coming into certain kinds of occupations. There’s occupations becoming sort of more gender balanced, or even feminized, and what the effect of that is? So some have looked at, you know, wages going down. And as a job becomes more feminized, and even more recently, people have sort of looked at how much of occupational segregation is actually to do with men tending to leave jobs that have become sort of, quote, unquote, too, too female dominated. And that can you know you can see that at different different levels of fine greatness, you know, it might even be in the form of sort of, what’s called micro segmentation, where it’s about, okay, well, you know which specialties come male dominated, for instance. So you’re still maintaining this distinction between women and men, there’s something very persistent about gender segregation. And when people have done interviews with men who have even chosen kind of female dominated roles, like being a, you know, cabin crew on aircraft, or librarians, they notice that they’re even though they’ve chosen these, these occupations. And these are not ones where you have these concerns about, you know, trying to get access to children in a kind of nefarious way that they’re kind of trying to distance themselves from, from, from it. So they might as well, I call myself a sort of information to do with information analysis. If they’re a librarian, or they talk about, they emphasize the security and the safety aspect of being a cabin crew member, as opposed to the sort of service side of it, which, of course, is quite appropriate. Cabin crew are at core. They’re there for safety.
Gene Tunny 31:33
Yeah, okay, we’ll take a short break here for a word from our sponsor
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Gene Tunny 32:10
now. Back to the show. I like to look at some of those studies. So you mentioned there are studies where they show that as you have a traditionally male dominated field, and more women enter the field of the occupation, and what the average pay goes down. The average wage was earnings, is that the is that the point you were making? Yeah, that’s right, right. Do you know any examples off the top? Yet, I can have a look at the study. I’m just, it’s just it’s just fascinating point that one. I’d just like to explore that a bit.
Cordelia Fine 32:47
I’m not gonna, I’m not gonna remember. I’m not very good
Gene Tunny 32:50
at members. We can find it after the show. Just keen to have a look at that, that study and and what professions, and just how they establish that, and what the nature of the impact is. It sounds fascinating. And
Cordelia Fine 33:04
look, I think I’m pretty sure that those studies are done in the US, and you know, have to be careful about generalizing to other labor markets. But
Gene Tunny 33:14
yeah, yeah, no problem. Okay. What about dei programs? You have some some incisive comments on or insightful comments on dei programs. What do you see as the the merits or demerits of of those programs? Please? Cordelia,
Cordelia Fine 33:35
yeah, interesting time to be discussing dei and you know, with Trump’s executive orders, and so maybe I’ll just preface my remarks by saying that I have a particular target in my book, which is, I’m not against diversity and quality and inclusion. Hopefully that goes without saying what I’m what I’m criticizing is what I call a kind of business case Dei, which is captured by kind of familiar phrases like, you know, gender diversity isn’t just the right thing to do, it’s the smart thing to do. So, you know, we can create more profit. We can take create more high performing organizations, more innovative firms, by ensuring that we ensuring that we include women, and I have a I think this is there. You know, there are certainly forms of dei that are helpful, and I don’t want to make any sweeping generalizations about the merits of dei that are going on in any particular organization. I think many of them have brought about very beneficial effects, but I think it’s also the case that some di programs are not effective, and often those are quite popular ones, like anti bias training. Yes, but they can also miss the real problems. They can overlook opportunities to genuinely enhance merit, and they’re sometimes unnecessarily divisive, which we’ve definitely seen some evidence of of late. So you know, if we think about the business case dei a lot of gender di programs, although they don’t come out and say this necessarily explicitly, they’re kind of geared around the idea that the problem to be solved by organizations, and the way that we get to gender equality is by solving a kind of under utilization or under development of female human capital. So a kind of classic example of this is Sheryl Sandberg, best selling book Lean In so she wrote that when she was CEO of Facebook. And there’s a sort of associated lean in foundation with lots of resources for for women and companies. And basically, when you look at dei programs, there are. There are basically three approaches which have been dubbed, fix the women, create equal opportunities and value the feminine. Now they all have some pros to them. They’re not sort of unambiguously, you know, ineffective or negative. But you know, they do, they do have some some problems. So maybe I’ll just give you one example, or I can give as many examples as you want, up to three. So if we start with the sort of fix the women programs, and these can be a bit divisive, right? So these are things like women’s leadership and development programs, and the idea is that you’re encouraging women to sort of lean into opportunities to grow their human capital or to be more confident about selling their assets, right? So you know, if you look at the Lean In website, you’ll see videos with titles like, you know how to use body language for power or influence, or how women can be powerful speakers and own any room. Now look, these kinds of resources can be useful. I’ve got nothing against people watching videos like this to try and be more powerful, powerful speakers and so on, and to think about how they’re using their body language. But there’s not, there’s not much evidence that these leadership and development programs are actually effective for one thing. So that’s a, you know, we have to think about the resources and women’s time that’s that’s going into that. There’s also a sort of interesting study suggesting that this kind of talk about let’s empower women to lean in, can actually allow some kind of subtle victim blaming to fly under the radar, because the idea is that you say by sort of indicating that women can solve the problem of gender equality, you’re kind of putting the responsibility on them to solve it, and also a little bit blaming them for causing the problem in the first place by not leaning in, right? But I think that you know the main, perhaps the main problem with the fix the woman approach, is that it’s a distraction from the sort of features of jobs and workplaces that need fixing. So, you know, and this is going to vary depending on, you know, what jobs we’re talking about, what industry in what country. But you know, it’s about improving the quality of part time jobs, for example, working out ways to ensure that jobs aren’t being kind of unnecessarily constructed around this expectation that we’ve just talked about, that workers will never take time for family or for any other reason ever. So it’s not really kind of scrutinizing jobs to think about ways that it might be the jobs or the organizational structures, you know, is there, is there a proper career advancement for this kind of jobs that women are clustered in and so on? Are we undervaluing what women are contributing? So if we turn now to the value the feminine approach. So, you know, we hear, we heard a lot of this following the global financial crisis, for example, this idea that women are risk averse if we have more women on Wall Street or in financial, you know, in financial leadership positions. You know, the financial crisis might not have, might not have happened. And I think the problem with this is, well, one problem is that it’s really, at least in some quarters, and I’d be very, you know, clear to say that some diversity consultants are very careful and cautious and accurate, and the way they talk about these things, other people will engage in the most sort of egregious gender stereotyping in order to sell the idea that you know you can just add women and stir and you’ll enhance your profits, right? So this idea that men and women think in such different ways that if you’ve just got men, you’re missing something really crucial. So we need to bring in, you know, we need to bring in the women. And that will, that will, you know, compliment men’s skills, Nas is insulting to women. It’s actually also insulting to men, and it’s just simply not accurate. When you look at the literature on. Are sex differences and the kinds of traits that are important in in organizations. But I think, you know, moving, you know, setting that aside, I think too often it just comes in the form of lip service, you know, we should value the feminine, as opposed to really thinking about what contributes to organizational success, what merit looks like, and ensuring that that is actually embedded in the organization. You know, is it the people who are ruthless, relentlessly self interested, taking, you know, terrible risks, engaging in misconduct, or actually getting ahead in the organization? And if so, there’s a lot of work that needs to be done within that organization to change what’s rewarded and what’s punished within that within that organization.
Gene Tunny 40:50
Yeah, can, can I ask about that? So to what extent can one organization do this, or unilaterally, given they’re in competition with other organizations and they may need to. They rely on these, you know, the some of the the men, or the or not just necessarily men, but they rely on the people doing the greedy jobs, to do the greedy jobs, to help them maintain their competitive position or get the deals done. If we’re talking about Goldman, Sachs or or JP Morgan. So how do we actually get to that position that you’re describing? Please. Cordelia,
Cordelia Fine 41:27
does that make sense? No, it makes sense, right? It’s hard to answer. So I guess one answer is, you know, this is very broadly speaking, like, you know, I don’t have, like, here’s my five point solution to the financial system. Okay, so I don’t, I don’t have that, let’s but you know, so some people might say, well, regulation can help, and regulation with teeth, because then, you know, the people who are misbehaving, you know, will actually not be rewarded from it. That might be punished. I suppose it’s worth thinking about, you know, competitive advantage in the long term. So if we think about some of the ethical scandals that we’ve seen that, have, you know, ultimately led to, you know, very large losses in share price, for example, you know, if we think about the Volkswagen diesel cheap devices or the Wells Fargo fake accounts scandal, right? You know that it didn’t end up going terribly well for those organizations in the long term, even though, in the short term that you know, it was, it was beneficial for them, or particularly for the people at the top of those organizations. So, you know, I think within organizations, it’s probably important. I, you know, I certainly acknowledge the point you’re making about industry norms, and often, like when I talk about the Volkswagen scandal in a business school environment, people who come from the auto industry, you know, say, look, a lot of this, you know, the way that you You’re kind of gaming the system in terms of emissions. You know, these are, these are industry norms. And if you, you know, if everyone else is doing it, then you know you’re at a disadvantage. If you, if you’re not doing it too. So, you know, one can recognize this thing. But I think it’s also probably important to recognize that there can be quite a lot of variation within firms, even within the same within the same industry, so that we there’s a probably limit to the extent to which we can, you know, blame sort of industry wide conditions on what’s going on, but, but I think you know, If you know, if CEOs are going to be saying that they are earning their very large, often very large salaries, then if they’re just, you know, doing what everyone else is doing, and there isn’t much scope to do things differently, then that, then that seems, that seems a bit that does seem A bit strange. And I think you know, particularly when we’re talking about these kinds of they’ve been described as Hobbesian environments, where you do have people behaving in ways that benefit themselves, but are not necessarily benefiting the organization. It does seem to me that there is scope to think about what’s actually being rewarded and who’s advancing in those organizations. I mean, one really nice example of that. It wasn’t a it wasn’t so much a gender equality example, but it was to do with a cultural change on deep sea oil rigs and. And it was the impetus was to increase safety, because it was a sort of new oil rig. There were, you know, it was becoming even riskier, even more dangerous. And there was this concerted effort. It was called safety 2000 strategy, and it involved doing like thinking about what is being defined as competence here? Is it? Is it genuine competence, or is it just performances of masculinity? Are we making people behave as if they always know what they’re doing, or are we creating an environment where people say, I don’t feel safe, or I don’t know how to do this? Do people on the you know? Are we creating environment where it’s just produce as much oil as you can, regardless of other considerations. Or, you know, is safety a little bit, you know, more of a more of a concern, and this, this strategy was remarkably successful in reducing the safety rate, but it also increased productivity and efficiency of of oil production. And the other thing that it did, and this wasn’t that they weren’t looking for this as an outcome, but it really changed the almost all men who are working on these rigs in those kinds of roles, they became to understand themselves quite differently as men. So they used to be sort of hyper masculine environments, and the researchers found that they become quite different. They were, they were safety conscious, they were quite compassionate. They might be, they might be like sending baby tapes of Mozart, you know, for for colleagues who just had a new baby. It, you know, it actually had, as you would expect, these these efforts to change the culture, changed the way that men behaved, how they interact with each other, and even how they understood what it meant to be, what it meant to be a man, and their kind of understandings when they’re asked of what it meant to be a man were quite sort of gender neutral, or even sort of even feminine. So I think, you know, that’s a really good example of where you originally had a situation in which, you know, competence was aligned with masculinity. And when they actually made the effort to they didn’t have a gender hat on, but when they actually thought, you know, what’s going on here? How can we create a safer environment? It not only did create a safe environment, but it also didn’t have a detrimental effect on the kinds of things that affect the affect the Bottom. Bottom line,
Gene Tunny 47:29
yeah, that’s a good example. I think that’s in your book, isn’t it? If I remember that correctly, yeah, yeah, very good. Okay, excellent. Now there are a couple of things I wanted to cover just before we we wrap up, you make a comparison between market thinking and relations thinking, and you see that as a you see this market thinking as a concern. Could you just explain briefly what you mean by market thinking versus relations thinking, please? Cordelia, yeah,
Cordelia Fine 48:00
so market thinking, I’m kind of referring to the sort of, you know, classic approach that mainstream economists might take towards understanding these kinds of phenomena like the gender wage gap, and we’ve talked a little bit about that already. Relations thinking is, I was really drawing, you know, to give it some more formal academic title, I was drawing on a sociological theory which is called relational, uh, relational inequality theory, which is developed by sociologists called Donald Thomas COVID, Stevie and Dustin Abbott, Holt. And it’s quite a mouthful. I hope I pronounced the names correctly. But just to take a step back, and I think, you know, it’s important to be clear that I’m not, you know, I think the way that economists, the information that economists have produced about the gender pay gap, for example, using their sort of typical decomposition analysis like this, is really useful information, you know, it’s helping us see what are the different parts that are contributing to the gender pay gap. So one thing we can see is it’s not just employers paying women less for the same work, right? Okay, so we can there’s still, there’s still a gap which, which might is a candidate for discrimination and underpayment. But we can also see that there are contributions from factors like, you know, what kind of firms or organizations people are working in, you know, the human human capital variables and so on. So, you know, this is useful. This is useful information. But sort of to take a step back a bit social scientists when they are trying to understand complex phenomena like the gender pay gap, they’re always operating within frameworks that have, you know, favored theories, particular key concepts, important variables that tend to get included or excluded and often particularly. The kinds of methods that are used to investigate their questions. And so in sort of what I call market thinking, when economists are trying to understand inequalities between women and men, such as in the gender pay gap, the key concepts do tend to be focused on individuals. So we might talk about the, you know, the differences between women and men in how they develop and use their human capital. So, you know what, as we’ve just been talking about, and then once we’ve controlled that, we can, we can infer that the gap that’s unexplained, so to speak, you know, maybe that’s discrimination. Maybe it’s something else that we haven’t measured yet. We don’t, we don’t know. Okay, so as I said, I said, I think this can be useful, but it only goes so far. And it, you know, and we’ve already talked about lots of the different ways in which, you know, even when we take a single number, like the percentage of the gender pay gap that can be attributed to overwork, for example, there’s a lot more going on around and I think there we need different frameworks and different conceptual theories and conceptual resources and variables and methods to understand what’s going on. And that’s where I draw on what I call relations thinking. And so in this particular theory, the way they distinguish themselves, you know, from the from the economists, if they’re thinking about the gender pay gap, for example, is that for economists, the kind of assumption is that wages are determined by the labor market. In the labor market through the sort of laws of supply and demand, but they say, Well, look, it’s not the labor market that’s actually determining wages, but organizations so managers aren’t kind of just rubber stamping the wage that comes down from the invisible hand, but that these wages are the result of people negotiating in organizational life. And so yes, of course, human capital variables are important. Of course, supply and demand is important, but they’re really focused on how, how people are relating to each other and making demands on organizational resources. So whether that’s particular industries asking for support from governments in the form of subsidies or tax breaks or regulatory environments that are beneficial for them, whether that’s particular groups of people making claims on wages or conditions or other kinds of benefits. Um, it’s all to do with these negotiations between groups of people who are in sustained relationships with with with each other. And you know, some some people play with more hands in their cards, in their deck, in their hand, then, yeah, then others and stronger and stronger ones. So what they argue is that part of that has to do with the kinds of, you know, the status of the kind of occupation that you might be in, or the human capital variables that you have. But it also has to do with what sociologists call status characteristics, which to do with, you know, gender, race and class or education level. And so, you know, one example of this, which I think is really interesting, kind of really interesting test of relations inequality theory, is that they say that, you know, this link between wages and productivity. Okay, they say, look, managers aren’t, you know, super accurate calculators of individual merit and productivity. There’s this loose coupling between productivity and market forces, and that leaves plenty of scope for bias to creep in. And one of those forms of bias can be gender bias. You know, we’ve already talked about this idea that, you know, caring professions are undervalued because it’s seen as not really skilled work, but just, you know, what comes naturally to women, or what they find, what they find rewarding. And so what they’ve argued is, if this is right, then when we see positions that are being dominated by high status groups, like white men, those kinds of groups are going to have a better, easier time of making demands on organizational resources than occupations that tend to be dominated by lower status groups, so women and members of ethnic minorities, for example, or people don’t have particular educational credentials, and a really example, interesting example of a study that that was supportive of this idea was an analysis of both us and Australian workplaces. And what they found was that in more most of these workplaces, unsurprisingly, the managers were earning more than the core production workers, which isn’t which isn’t very surprising, but what they found was that this kind of, what they call class inequality was bigger when the workers were primarily women and the managers were primarily men, and they found a sort of similar result when managers were primarily white in the US. Or a native language speaker in Australia, and this is, you know, controlling for, you know, things like education and experience. And so the idea here is that that kind of gender biases and other kinds of biases can become embedded in jobs themselves over time, in ways that are shaped by the demographics of who’s doing those jobs, you know. And that takes us back to this conversation about when, when jobs become feminized, they have a harder time making claims on these organizational resources, which helps to explain why we sometimes see the wages, the wages going down. And of course, there’s a there’s a history to jobs, you know, and in some cases, this history will go right back to a time when it was sort of enshrined in policy that certain jobs were for men and they needed to be paid more because they were the breadwinners and they had a wife and to keep of course, that seems Like a very alien idea now, but those kinds of assumptions about the value of a particular job, can you know, can can follow, can follow those jobs? Yeah, it’s not like we start the Monopoly board all over again at the start of each year or each each decade. There are these kind of legacies that that, that linger on.
Gene Tunny 56:19
Yeah. Yeah. I mean, that sort of situation. I mean, it’s still in the I mean, there’d still be people alive today who would have experienced that or, I mean, they’d be very old now, but I know that my my great aunt, when she was a teacher, she had, I think the teachers have to resign when they had a baby, when they had a child, and, yeah, yeah, yeah, extraordinary. And then she needed to get special approval to go back to work, because she had to for financial reasons from the Education Department. When she was a and she had young children, it was, you know, and that’s suddenly the, I mean, that was the 1960s right? I think still early 60s, maybe
Cordelia Fine 57:02
it changes the rule within at least some of our lifetimes,
Gene Tunny 57:06
right? Yeah. I mean, there’s Yes, so, yeah, it’s just extraordinary to think like we have come. We have come a long way. But I take your point that there could, there’s still these. It sounds like there is your hypothesis that these norms, they’re so biases, they’re so widespread across industries, that the normal sort of market operations that economists would talk about forces of supply and demand, the ability of say you’re being undervalued in one job, so you’re a female working in a job where you’re not being valued. Well, what the economist would say is, well, then there’s an opportunity for you to move to another job. Well, an employer who recognizes your value should be able to offer you a job, a higher paying job, and you can take that job at another, at another workplace. Now, I know that’s sort of an idealized, abstract sort of model, but that’s, I think that’s how a lot of economists thinking are thinking about it. But is the hypothesis that because these, there are these biases, these are norms that sort of, that type of thing can’t happen.
Cordelia Fine 58:10
Yeah, it’s, I think it’s that the that this, this idea of the the mechanisms of supply and demand acting as a correction on overpayment or underpayment. You know, it is an idealization, and it’s not clear that there is sort of distortion of it, distortion of it in practice, to the extent that you know, is it? Is it a helpful to what extent is that a helpful assumption when we’re trying to understand, when we’re trying to stand understand gender equality? I mean, you know, one example, I think, is when we think about aged care workers, for example. So not that long ago, there was a Fair Work Commission that ultimately resulted in pay rises for certain people working in the aged care industry. But you know, that didn’t happen kind of necessarily organically, through processes of supply and demand, even though, you know, often in these care sector areas, we do have a supply a supply issue. It had to sort of be forced through unions, right? I mean, Another example might come from analyzes of CEO pay. So there’ll be some arguments that would say, Look, we’re not, we’re not really seeing, you know, neutral market forces here measuring genuine productivity and contribution to the to the firm, we’re seeing a kind of expensive game of executive leapfrog, where one CEO uses the best paid CEO as a kind of a standard for, usually, his own salary, right? You know? So these, obviously, these are complicated issues, and people can people. Can argue about it, but yes, the the sort of relations thinking would be much more skeptical about how powerful this market mechanism of supply and demand is in actually, kind of determining wages and ensuring that there’s this close coupling between productivity and wages.
Gene Tunny 1:00:22
Gotcha. I think I’ll have a closer look at that literature. It sounds fascinating. I think economists, we it’s it’s incumbent upon us. We need to think about just how applicable our abstract models are to the real world, where we’re making certain assumptions about how things work. And I think it’s important to then confront those with actual well data or experiences or just understanding what’s happening out there. Okay, so, yeah, we’ve had a Oh, two in depth conversation. This is really interesting. It’s, you know, really important issues, really fascinating. I love, you know, I like thinking about how the labor market works, learning about, you know, all of these studies I haven’t heard of before. I’d like to end with this question good early, just to give you another opportunity, I’m keen to understand what your recommendations are. I think we sort of started talking about that when I asked that, that question that maybe was a bit that I wasn’t very well expressed on my part. But how could we fix the problems that you see? Do you think that the market outcomes we’re experiencing, are they? They’re unfair, they’re significantly unfair. Do they require significant government interventions to fix Can you give us a sense of that your thinking there, please.
Cordelia Fine 1:01:38
Yeah. So this is you know, for me, these, these are, I think this is a hard question to answer in the abstract, because so my, you know, my book isn’t focused on any particular country, and partly that’s just because, you know, often the interesting studies that have been done, you know, have been done in all different countries, depending on which data sets the researchers happened, happened to use. And then even you know, so there’s a huge amount of variation in the situation. You know, the US context is very different to the Swedish context, for instance. And then even within countries, you know, it depends on the industry, you know, in some in some industries or organizations like I think, there are continuing issues of, you know, straightforward agenda bias in terms of how people are being evaluated, whereas in other industries or in other firms, Actually, organizations have done a really good job of ensuring that women and men are being evaluated fairly. And, you know, the research supports the fact that, you know, sometimes things aren’t fair, and sometimes things things are. And there’s, there’s some examples of that in the book. So you know, if you’re if your organization is already doing a really good job of making sure that job applicants are being evaluated fairly. Then, you know, that’s not going to be a priority for you. Whereas, if, if you’re in one of the organizations that doesn’t, that’s, that’s pretty low, that’s pretty low hanging fruit. So again, that’s that. It’s difficult to sort of talk about that in the in the abstract, but I suppose, yeah, so one, I think one way that we can make progress, I think, is to continue to try and reorient our economy And our society away from this old fashioned breadwinner, caregiver model, which, I think, for a number of reasons, isn’t really working for anyone. And you know, some of that’s going to be about changes at the government level. Some of that’s going to be a changes in the organizational level. Sometimes that’s even going to be about decisions that people private, decisions that people make, make in their in their own homes. I think we do need to do a better job of kind of many cases, scrutinizing our concepts of merit, particularly, and I think particularly in male dominated industries or occupations where there can be a conflation of merit with just performances of masculinity. Now, you know, we it’s not, I think we have to be careful about saying like, well, anything that has a smidge of masculinity to it that must just be, you know, gender biased, you know, it’s something we have to be able to talk about and disagree and disagree on and discuss, but we do need to be, as I said before you know, thinking about who’s getting rewarded, and are they genuinely contributing to the organization, and are there contributions that people are making to the organization that are not being recognized? And not being rewarded. And we need to make sure that when we do identify where we’re going wrong, that that is reflected in both our formal systems and our informal system. So selection criteria, promotion criteria, onboarding, training, but also the sort of informal norms, the rituals, the heroes, the kind of advice that people, that people are, are, you know, giving to other people about this is how you get ahead in this organization.
Gene Tunny 1:05:28
Gotcha. So who’s your book? Just Just wondering. Just just occurred to me, then who, who are you aiming your book at? Who would you I mean, I guess you want as wide a readership as possible everyone, yeah, yeah. But I’m just wondering, I mean, it seems like it needs to be read by people in I mean, it gives people in corporates something to think about, gives policy advisors something to think about. Also gives economist something to think about too. How can we make sure that we’re analyzing these, these labor market phenomena as best we can? Are we measuring the right things, that sort of thing, are we asking the right questions, testing the right hypotheses, so that, you know, just just wondering, what’s the what would you like to see as a result of your book?
Cordelia Fine 1:06:12
Yeah, so Well, one thing I’d like to see, and we haven’t really talked about this, is, you know, in many ways, this book is a it’s a science book. So it’s, you know, a large part of it we haven’t really talked about this is talking about sex, differences in behavior, where they come from, what partly what they are, where they come from. How persistent are they, you know. So my book spends a lot of time challenging ideas that can be quite popular, including mine, economists that you know, we have these because of evolution. We have different personalities in the sense of traits, abilities, skills, values and motivations. And so even in the situation of perfect equality, we’re always going to see inequalities of outcomes. So I don’t reject that point of view out of hand. I think it’s really it’s a quite widely held point of view, roughly speaking. And you know, we are biological creatures, we have evolved. Our minds have evolved, and there are sex differences right in our in our bodies and our reproductive roles. So a lot of the book is it’s just people who are interested in these questions about how we become who we are. And in the book, I point out that there are quite different evolutionary theories on offer about the evolution of the human mind and social life, and the kind of evolutionary psychology that has a lot of currency in the popular domain, and perhaps I would say among some economists, is not the only theory on offer, and I don’t think it’s the most the most compelling. So part of it is thinking about what other evolutionary perspectives on the human mind can tell us about this issue of why the division of labor exists, why it’s so persistent, for example, so part of it’s just a kind of intellectual curiosity,
Gene Tunny 1:08:13
yeah, fair enough. I mean, maybe I should have asked you about that. So have you got time now, just to, just just keen, to understand what are those alternative perspectives. So I think the one perspective, if I’m getting this right, is it this? This view that evolution means that men are there, the hunters. They’re going to be the aggressive ones, the ones who go out and kill the beasts and bring them back, and the women are doing the work around the campfire. The doing looking after the children is so they’re more suited, like evolutionary to or they’re more predisposed to those sort of caring roles, is that the sort of synopsis of that view is that, is that wrong? And why is that wrong? Or what are the other perspectives? Yeah, um,
Cordelia Fine 1:08:56
no, that’s that’s not wrong. And the evolutionary psychologists and also we have to think about, you know, sort of reproductive success as well. Where the differences in the evolutionary accounts come from is what’s, what’s in our minds, right? That enables us to successfully survive and reproduce in these sort of demanding environments. And so for the evolutionary psychologists, you know, you often hear people talk about, oh, you know, dismissing social science as being blank slate test. So what they mean by that is a mind that has the sort of general purpose learning capacities of sort of associating stimuli with response, or, you know, stimuli with stimuli. So we have this sort of general purpose associated learning, but not much else. And the evolutionary psychologists would say, Look, we just can’t, there’s we don’t get enough information from the environment to be able to solve the kinds of challenges that we face as humans. So there must be. Some pre existing content in our minds. And in addition, that content is at least in some realms, different for women and men, because the kinds of challenges that women and men faced and the kinds of solutions that were most successful were different, okay? And that comes back to, you know, men being able to, you know, impregnate many females, females. Okay, I think people are so familiar with that I probably don’t need to ban on it. They’re quite right that, no, that a sort of completely blank slate view of the human mind is not a plausible one. But there are other evolutionary perspectives that do not that take a quite different view on what it is that we are born with that enables us to solve these problems. So one point of view is that we’re born with biases to copy certain kinds of people. So we copy people who are kind of like us. So we actually have a same sex bias. We tend to copy people who are the same sex, or we tend to copy the people who are most prestigious, because they’ve been successful. So we’re gonna, you know, we should copy, we should copy them, right? So we have these, they’re called Content biases. There’s other points of view that say, well, actually, we can actually go quite far in understanding these capacities that we have that enable us to cope in the world with even less, even less than that. So we have, if we just start off with keen interest in people, particularly faces and voices, you know, like we all know babies, you know, from an early age, they’re already kind of gazing at us, right? We were tolerant of each other in ways that other animals typically, typically aren’t. And then we do have these very powerful General, General learning abilities. And we also have this culture where we are teaching and learning and picking up information, and you can get a long way with with just that kind of starter, starter kit. So this is a kind of really live debate within evolutionary science. And what I argue in the book is that, you know, part of what makes us so successful, or maybe sort of the thing that makes us most so successful as a species, is our capacity to to cooperate, our capacity to, you know, pick up, enhance and pass on, you know, culture, you know, beliefs, technologies, ideologies, values, practices and so on. And that we can understand the gender division of labor as something that has kind of culturally evolved, because it was a because it was efficient, and then we’ve built up this sort of whole structure around it, but we have minds that are in order to enable us to cooperate. Have all these sort of capacities to enable cooperation. So we’re very good at picking up norms. You know, here we are. We’re having a conversation. You’re the interviewer. I’m the interviewee. You didn’t have to say to me at the beginning, all right now, Cordelia, I’m going to ask some questions, and you’re going to answer them, and please stay seated. You know, don’t leave, you know, right? So all these norms
Gene Tunny 1:13:07
don’t leave. What I asked really silly questions. So, yeah, go ahead, yeah.
Cordelia Fine 1:13:13
We kind of take it for granted, but we, you know, we can identify people as holding particular social roles. We have identities as particular members of particular groups. So, you know, you’re an economist, I’m a psychologist, you know, you’re a man, I’m a woman, right? And so we learn the roles. We have an identity. We know what the expectations are, you know, we’re just really, really good at that as creatures. This is something that no other animal does, and that we can understand gender and the gender division of labor as really recruiting all of all of these capacity. So it is an evolutionary account, but it’s not the evolutionary account that we think of from from evolutionary psychology. Gotcha.
Gene Tunny 1:13:56
Okay, I’m gonna have to go reread that, that section I probably focus more on the the economic sort of sections. And looking, think, reading about the gender pay gap, I should go back and read that. That’s fascinating. And it’s, it’s something that economists, yeah, definitely, probably should think more about. And, yeah, I’m gonna have to, I’m gonna have to have another look at it sounds, yeah, sounds, sounds like there’s a lot of, you know, really interesting research that you’ve that you discuss in the book. So very good. Well, anything else important that I’ve missed or I haven’t appreciated Cordelia before we wrap up?
Cordelia Fine 1:14:34
No, it’s been a great conversation. I’ve really enjoyed
Gene Tunny 1:14:36
it. Excellent. Yeah, well, well done on the book. I’ll put a link in the show notes, and definitely recommend people check it out. I think that, yeah, very, very important issues, and I mean issues we’ve been talking about for I mean, gender pay gap certainly is one of the most studied issues in economics. It’s always you. Been there. There’s lots of, lots of really fascinating research on it. And I mean, Claudia golden won the Nobel Prize a year or so ago, if I remember, yeah, not last year, the year before, and yes and yes, lots of really good, good points to think about in your book. So Professor Cordelia, fine. Thanks so much for your time. I really enjoyed the conversation.
Cordelia Fine 1:15:24
Oh, not at all. It was a pleasure. And thank you for having me on the podcast, of course. Okay,
Gene Tunny 1:15:28
thanks, Cordelia, thanks, righto. Thanks for listening to this episode of economics. Explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact at economics explore.com or a voicemail via speak pipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you, then please write a review and leave writing. Thanks for listening. I hope you can join me again next week.
Obsidian 1:16:18
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Credits
Thanks to the show’s sponsor, Gene’s consultancy business, www.adepteconomics.com.au. Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple Podcasts and other podcasting platforms.
Kate Schecter, CEO of World Neighbors, returns to the show and reveals how empowering local communities leads to long-term self-sufficiency in developing economies. She explains that roads connecting isolated communities to local markets can massively improve opportunities. She also explains that even modest interventions, like access to municipal water, can have profound impacts. From disaster preparedness in Indonesia to sustainable farming in Africa, Kate illustrates how World Neighbors helps communities build resilience.
You can listen to the episode via the embedded player below or via podcasting apps including Apple Podcast and Spotify.
About this episode’s guest: Dr Kate Schecter
Kate Schecter, Ph.D., joined WN as President and Chief Executive Officer in June, 2014. Dr. Schecter is responsible for managing World Neighbors’ programs and operations in 14 countries in Asia, Africa, Latin America, and the Caribbean. In her previous position, she worked for the American International Health Alliance (AIHA) for 14 years. As a Senior Program Officer at AIHA, she had responsibility for managing health partnerships throughout Eurasia and Central and Eastern Europe. Through her work with over 35 partnerships addressing healthcare and treatment, she has extensive experience successfully implementing AIHA’s health partnership model.
From 1997 to 2000, Dr. Schecter worked as a consultant for the World Bank specializing in healthcare reform and child welfare issues in Eurasia and Eastern Europe. She taught political science at the University of Michigan in Ann Arbor for four years (1993-1997). She has written extensively about healthcare in post-Soviet states, and has made three documentary films for PBS. Over the past eight years at World Neighbors, Dr. Schecter has authored or co-authored 21 articles about the challenges of international development in very poor rural countries, the impact of climate change, and how to help alleviate mass migration through effective international aid.
Dr. Schecter holds a Ph.D. in political science from Columbia University and an M.A. in Soviet Studies from Harvard University. She is a member of the Council on Foreign Relations and served on the Board of Children’s National Medical Center in Washington, D.C. from 2010 to 2018.
Infrastructure can be transformative – Building a simple road or bridge can unlock market access for rural farmers, dramatically improving incomes and food security.
Local savings and credit groups empower communities – These groups help farmers and entrepreneurs access capital for investments without relying on exploitative lenders.
Disaster preparedness saves lives – Teaching communities to plan for floods, earthquakes, and other disasters helps them recover quickly and with fewer casualties.
Indigenous crops can boost resilience – Reviving traditional drought-resistant crops helps communities adapt to climate change and maintain food security.
Full transcripts are available a few days after the episode is first published at www.economicsexplored.com.
Transcript: Bang for Your Buck in Economic Development: Access to Town Water, Roads to Connect Isolated Communities w/ Kate Schecter, World Neighbors – EP273
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
Kate Schecter 00:03
The government built a road, and all of a sudden they were able to bring their crops down from the mountain and sell at very good prices. And I’ve seen that happen all over the world. You know, just one small new road, one new bridge, something that helps link these isolated communities can change everything.
Gene Tunny 00:33
Welcome to the economics explored podcast, a frank and fearless exploration of important economic issues. I’m your host, Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode. Please check out the show notes for relevant information. Now on to the show. Hello and thanks for joining me in this episode. I’m excited to welcome Dr Kate Schechter, the President and CEO of world neighbors, an international development organization. This is Kate’s second time on the show, and I’ll put a link to a previous appearance in the show notes. For nearly 75 years, world neighbors has been helping communities in Africa, Asia and Latin America. It’s been helping them build resilience and self sufficiency. Kate is going to share valuable insights into how local savings and credit groups, sustainable farming practices and disaster of proudness empower people in some of the world’s most vulnerable areas. We’ll discuss how even a small investment like building an access road or connecting the village to municipal water, how they can significantly transform lives by creating economic opportunities and improving well being. Before we get started, I want to give a quick shout out to our sponsor, Lumo coffee. This top quality organic coffee from the highlands of Peru is full of healthy antioxidants. As a listener of economics explored, you can get a 10% discount. Details are in the show notes. Now let’s jump into the conversation. I hope you enjoy it. Hey, checta from World neighbors, welcome
Speaker 1 02:19
to the program. Thanks for having me. Gene it’s
Gene Tunny 02:23
good to catch up. So you’re on the show. Back in 2022 if I remember correctly, we learned about the work you do in emerging economies with the savings and credit group. So I mean all over the world, really. I mean play is it Nepal and Indonesia? Could Can you tell us a bit about that? And am I right that you’ve got that broad geographical reach we
Kate Schecter 02:46
do? Yes. We are in 14 countries, Africa, both in East and West Africa, and we’ve added Malawi since I spoke with you last. And we are in Asia, in South Asia, in Nepal and India, Southeast Asia in Indonesia and Timor Leste and in Latin America and in Haiti in the Caribbean. So we really, we cover the globe,
Gene Tunny 03:15
right? Okay, and so what have been the big development since, uh, 2022 so what have been some of the significant projects you’ve worked on in the last couple of years. Kate,
Kate Schecter 03:25
well, there’s, there’s more and more of a focus on climate change. Of course, just as as the more developed countries are facing extreme weather. Well, of course, these other countries are as well. And in the case of these subsistence level farmers, it can be very, very devastating. So we’re doing a lot of work to mitigate the impact of climate change through both working on planting a lot of trees and working on creating barriers for situations like flooding or landslides, of course, trying to have more drought resilient crops all around the world, going back to a lot of crops that were abandoned because they were considered kind of local and indigenous, but are actually more resilient in many cases and also very nutritious. Spending a lot of time now on maternal child health. You know, it were post we like to think that we’re post pandemic at this point. So really learn, trying to learn lessons from that about maintaining health, improving health, having more screenings for for the communities, and making sure that women are getting better anti and prenatal, prenatal and postnatal care. So really, the gamut the world neighbors approach. Approach is what we call a holistic approach. We don’t focus on one particular sector. We believe that if we want these communities to really be self sufficient, and we’re putting a big investment into them, we work with them and train the farmers and the communities for up to 10 years, we really want to walk away feeling confident that they will continue to be self sufficient on their own. So all of that is going on, but I would say there’s more and more of a focus on preparing for disasters and dealing with the impact of climate change.
Gene Tunny 05:38
Yeah, gotcha. And you mentioned drought resilient crops. So what does what does that look like? What types of crops are you talking about?
Kate Schecter 05:48
Well, we’re trying to make sure that crops will produce more. So you don’t want delicate crops that you know only that you you plant them and you only get one, one sort of product out of them. For example, there is, there’s a type of kale that we’re growing in East Africa that continues to produce leaves and and nourishing, you know, products for eight months, so the same plant keeps going. So everything we’re doing is really focused on trying to create nutritious food, food that will produce longer might, you might be able to have two or three crops a year, and also, you know, resilient to drought or flooding, and in cases where we have situations where there are floods, we also are teaching the farmers to grow crops that that that grow quickly. Beans are a good example. They grow very quickly, so you get them in the ground, and a couple weeks you’ve got you’ve got your vegetables. So all of these things are going on at the same time. Of course, the focus is on food security, getting people more food, healthier food, making sure that people have at least two nutritious meals, if not three nutritious meals a day, and that they have year round food. I mean, one of the biggest problems is, you know, there’s sort of this cycle of feast or famine, and we want to level it out so that people have food all year round.
Gene Tunny 07:33
Gotcha. Gotcha. One thing that comes up in economic development or or you hear about is this concern about the seeds that are being sold by the big the big suppliers, and I think one of the companies that used to be the accusations level against was Monsanto. And is it the case that you keep having to buy new seeds, that there’s some licensing or there’s some intellectual property issue. Is that an issue in economic development? Kate, Oh,
Kate Schecter 08:07
absolutely. It’s a big issue, and it’s problematic because many times these farmers are given seeds by big corporations, and the initial crop can look really fantastic, yep, but it can then damage the soil, and then the subsequent crops are either don’t really happen or are not very good. So one time I was in Haiti when Haiti was still safe enough to visit, and one of the communities started talking about Satan seeds, yeah, yeah, they were talking about Monsanto seeds. So we have spent a lot of time working with the communities to make sure that they are always growing new seeds. There are a lot of communities that have created seed banks so that they’re sharing the seeds and and making sure that they’re, you know, always providing for the next season. Also doing a lot of experimentation with seeds to, you know, again, find the most resilient and the most productive, for example, with corn and and also preservation. A lot of work on preserving the seeds, making sure that they’re good for the next season, but also preserving crops, you know, in in storage, that is, containers that are not going to allow for rotting or, you know, loss of the product.
Gene Tunny 09:39
Yep, gotcha. Gotcha, right? You mentioned, I mean, climate change, there’s a lot of focus on that, and so investments in the community. So there’s the drought resilience you’re talking about. What are some other other ways you’re preparing communities for climate change? Could you go into some of the this? Pacific side, please. Kind Well,
Kate Schecter 10:01
we are creating in these communities a plan, but disaster preparedness plans, okay? And that entails one of the things I haven’t really mentioned is that we don’t have a lot of full time staff. The way we operate is that we work with local community based organizations, and we help those groups to create good governance around their organization, their local organizations, you know, to teach them to have good leadership and to to really create a community based approach to all of these different things that we’re talking about, and in doing that, we are also helping them to prepare for the worst. Many of these communities face yearly flooding or yearly droughts, and so instead of it being a big shock, and, you know, not being prepared at all, we’re trying to figure out ways to be prepared to handle it well, and also to help neighboring communities so that you don’t have, you know, if one community is okay and nobody else is, it’s not going to it’s not going To work out very well. So all of that entails a lot of training, providing some drills to, you know, kind of act out what could happen in certain cases. And in, for example, in Indonesia, where we have been working for many years, we have been very successful in helping during some of these very difficult natural disasters. There were, there was a series of earthquakes five or six years ago, years ago in Sumbawa and a couple of islands near Bali. And we, where we work and our communities were prepared. They had a plan, and they were able to immediately identify people who needed help and to and to really mitigate the impact of the earthquakes, because they had thought ahead, right.
Gene Tunny 12:18
Okay, so what? What’s thinking ahead, involved where to evacuate and how to get emergency medical assistance. Yeah,
Kate Schecter 12:26
where to go, if you know if there’s danger of a tsunami or an earthquake, thinking about a sort of plan for how to deal with the injured. If you know, if the hospitals and the clinics collapse, and just having, you know, assigned roles for people so that there’s not this kind of level of chaos where nobody knows what to do, so that Whole disaster preparedness is very important, buildings, homes and and and, you know, fields with terracing and different types of patterns to prepare for the possibility of landslides or flooding and to mitigate that, all kinds of different techniques that are emerging around the world to help people, especially people like this, who are living on the land, who are very exposed to to, you know, anything that might happen with a natural disaster. But as we’ve seen, you know, even in urban areas, you can’t always be ready and or protected. I mean, the tragedy of Los Angeles, I think, just shows that even in the most you know, wealthiest and most kind of you know, people who were who were not living on the land and weren’t so dependent on the land, they still were terribly impacted by a natural disaster.
Gene Tunny 14:05
Okay, we’ll take a short break here for a word from our sponsor.
Female speaker 14:10
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Gene Tunny 14:39
now. Back to the show. One of the things I’ve found out, or I think your colleague, John, sent me some information about some about some work that you’ve been doing in Nepal, and he mentioned that it’s. Uh, private organizations, I suppose, like, well, neighbors that that can connect some of these communities, like some of these communities are actually disconnected from the national or regional administrations and and organizations such as yours can actually help connect them and help, you know, actually get some of the assistance delivered, which I thought was, I think it’s a good point. And can you tell us about what’s been happening is, is it the ganja or ganja farmers group in Nepal, please. Okay,
Kate Schecter 15:30
well, this, that phenomenon, is, is really at work all over the world, but Nepal is a very good example of it. So one of the things that we do is we try not to work under the radar of the national or the local governments. We want the government to know what we’re doing, because we want to be in line with whatever their efforts are. So we’re trying to build on those as opposed to kind of, you know, go off and do something that we want to do that’s not necessarily what the local community wants. We we’re definitely looking to build on past investments and to eventually hand over the work that we’ve done with the communities, to local governments and to the national government, and have them continue to support their own people. So we’re dealing with a lot of countries where rural communities often do not get support. They may be off the grid, they may not have central you know, they may not have water from their municipality. And so a big goal of ours is to be a liaison to whatever is available and and that entails, many times, just informing communities, especially women, who are, you know, often the farmers in Nepal, because many of The men go off to to to send home remittances from, you know, working in the Gulf states. So you have a lot of communities in Nepal that are primarily women, and then they may be undereducated or completely illiterate, and they don’t know about benefits that they may be eligible for. So a big role we play is just informing the governments about what we’re doing and informing the communities and making sure that people get the benefits that they’re eligible for. In India, we work in Bihar, which is one of the poorest states. It’s in northern India. And again, we’re working with large groups of primarily illiterate women. Many of them are from the Dali class, which is our cast, which is the untouchable caste, and they just don’t even know about a lot of the things that they’re eligible for. So, you know, in an ideal world, we’re there. We we sort of get the ball rolling. We do all this training, we get people, we develop capacity, and in the communities, we help people start their own businesses, and then we hand it off to the local governments so that they can continue to keep all of this, going,
Gene Tunny 18:22
Yeah, gotcha, yeah, gotcha. And it looks like this example with this farmers group. So the 23 farmers and you help them set up a savings and credit group. So they this is something we talked about last time. They contribute small amounts of money each month, and then that capital that’s used to make loans to members at very low interest rates, and then they invest in in equipment that, or whatever they need to to boost their productivity, their agricultural productivity, or whatever they’re doing in their business. And then they have the regular loan repayments. And that goes back to that, that fund, and what I found interesting is that that group, they were unaware of some of the programs that could help them to buy or to fund those, those investments, and you you help them, you know, finding out some of that information, getting access to, I think there’s a subsidy for mulching plastic. There’s a subsidy for a mini tractor. So I think that, yeah, that’s that looks like. It’s really valuable work being able to help these communities tap into that. So are there any other examples of that, Kate, that come to your mind?
Kate Schecter 19:34
Yeah, so we, we’re doing that also in India. So you, you see that there are subsidies all over the world for farmers, you know, to for equipment and seeds and things like that. In addition, many times, there’s more health care available bull than people realize. So we’ll go into these communities. And women are not getting pre and postnatal care, and all it takes is letting them know about local facilities that they have access to, and they just simply don’t even know about it. Sometimes, again with water, we might be simply finding out about municipal water sources that could be brought to their communities with just the knowledge that that is that that is a benefit, that they are eligible for. Electricity is the same thing I’ve gone to visit. You know, some of the ward the ward managers in Nepal, and many times, they just don’t even know about what’s going on in these very isolated communities, and they’re excited to help them, because, of course, it helps their reputation to to help out the communities and for everybody to do better. Well, there’s a great example of a situation where there was a Dalit community, untouchable community, that lived on the other side of a river, and they built this really rickety wooden bridge, which I refused to try to even cross, because it was too scary. But they so they build this bridge. And every year the bridge would get washed away when the, you know, when it was heavy rains. And all we did was connect them with the local municipality, and together, they raised enough money to build a solid, you know, very safe suspension bridge with with a metal suspension bridge that I was willing to cross over. I mean, it just, just building a road or building a bridge, getting help from, you know, local government that they that they may not know about, it can change everything. Another great example was in Timor Leste. I went up into the mountains of in in which is this very isolated part of Timor Leste. And we get there, and there’s a whole, you know, group that’s very excited to meet with us, and the leader stands up and he says to this year, we saved $36,000 in our in our savings and credit groups. And I thought, Oh, where are they keeping that money? That’s a lot of money. And they said, the reason they have raised so much money is because the government built a road, and all of a sudden they were able to bring their crops down from the mountain and sell at very good prices. And I’ve seen that happen all over the world. You know, just one small new road, one new bridge, something that helps link these isolated communities can change everything.
Gene Tunny 22:56
Yeah, yeah, absolutely. It’s It’s so true. It’s so true getting that mobility and and that helps people connected. It helps economic activity. Yeah, absolutely
Kate Schecter 23:05
poor. I mean, they also have to have the knowledge and capacity to, you know, get the trucks and get the product to the market on time, etc, etc. But, but that one, you know, key factor, can really change things?
Gene Tunny 23:21
Yeah, absolutely. And Kate, where does the funding come from? Is it private philanthropy? Is there some some funding from international financial institutions? Where does the funding for your work come from? Our
Kate Schecter 23:34
funding is, is very diverse. We have a number of family foundations that have been giving to world neighbors for many, many years. We are about to have our 75th anniversary in 2026, and some of these families have been giving for 75 years. So it’s, it’s both private donations we get. We also get grants from several corporate foundations. Starbucks Foundation has been giving to world neighbors now for 10 years in primarily in Latin America. And then we also have individual donations, people around the country, primarily in the United States, some foreign donations, but primarily United States, and we’ve also received some grants from international foundations. Again, primarily our grants have come from us foundations, right?
Gene Tunny 24:35
Yep, yep, yep, absolutely. And you were founded in your headquarter in Oklahoma City is that rod and you’ve, you’re sorry, that’s
Kate Schecter 24:42
right. We keep our headquarters in Oklahoma City, where world neighbors was founded. We’re the only organization of our kind there, and so, you know, that makes us quite unique. We have a very strong base of support in Oklahoma. Both in Oklahoma City and in Tulsa. And I speak a lot. There’s a lot of universities in Oklahoma, and young people are very eager to learn about what we’re doing. So I speak at a various different universities throughout the state and in Texas as well. So it’s kind of it kind of defies the stereotype of Oklahoma and Texas as being kind of, you know, not as involved in international development as the east coast or the west coast. There’s a very strong interest and desire to be considered, you know, global citizens in Oklahoma and Texas,
Gene Tunny 25:42
yeah, yeah, no, it’s very good. There’s this idea of donor fatigue, or because there was a lot of skepticism about how official development assistance, how far will foreign aid, and whether it actually achieves its outcomes, or concerns about corruption. You know, money being wasted, money leaking. I mean, like in Indonesia, you’d be aware there are studies of, like, losses on World Bank road projects. They did some study in East Java and concluded that on one project at least, at least 20% was lost in corruption or something like that. I mean, just like, it’s really bad, you know. So people are concerned about that. How do you go about like when you’re talking to potential donors? How do you try to allay or sort of mitigate those concerns that people have about where development assistance goes? We
Kate Schecter 26:34
have all funding come to the United States, which is highly, highly regulated, yeah, so that, you know, we are in control. We’re a small organization compared to many others, and we are, you know, we’re extremely careful because we are. We’re working in places that have a reputation for being highly corrupt. So there’s very little cash. You know that we’re, of course, we’re paying our staff. We do give small sub grants to these community based organizations so that they can, you know, pay trainers and things. But compared to many organizations we’re, you’re getting a lot of bang for your buck from World neighbors. Yeah, we’re reaching, you know, hundreds of 1000s of people. We estimate that over the 75 years we have, we’ve had an impact on 29 million people. We, you know, the numbers are big, but the the actual operation is, is very streamlined and, and so, you know, you don’t have these, this huge bureaucracy where things can get a little bit fuzzy sometimes. And so, you know, that’s a big way to control the costs. We have a very good ratio of 87% of the funds that we get from various different, you know, from donors and from foundations, etc, goes to program. So we really have a pretty low overhead um, and we’re trying to always make it even better and and that way where, you know, the money is getting spent on what it’s supposed to be spent on, and not on expensive cars and fantasy offices. Yeah, most of us work from home at this point. Yeah. You know, that was actually kind of a challenge for me, because when I first got to world neighbors, and I saw that, you know, the two cars and and a nice office and everything. And I thought, no, no, this is we really got to cut back on this culturally. That was that was not easy in certain places where people just had a very hard time adjusting to the idea that they weren’t going to have an office where they could invite people for coffee, and then they weren’t going to have, you know, sort of this fancy place to to meet people. And, of course, now you know now that COVID has happened, and so much has changed. Everybody’s adjusted very well, but, but, but it took some time in in certain places where people just culturally, didn’t like the idea that that they were going to have to work from their homes.
Gene Tunny 29:25
Yeah, yeah. Well, okay, look, thanks for the update. This has been really interesting.
Kate Schecter 29:30
I really appreciate you, you know, coming back and your interest in the work we’re doing. It’s always, it’s always a pleasure to talk to you and to kind of delve into some of the these difficult issues. So thank you. Oh,
Gene Tunny 29:43
no problem. Kate, well, I mean, I’ve done, you know, I occasionally do work with Indonesian finance ministry or Baptist, and, you know, it’s some capability building courses. And, I mean, I just find it fascinating learning about the challenges they face and just real. Seen. I mean, there are things we take for granted here in developed economies, such as the ability of a functioning payment system and all sorts of things that they often come up that are impediments to, like the lack of these things in those countries. So I always, always find it fascinating learning.
Kate Schecter 30:20
Yeah, many years ago, when I was working on my dissertation, I looked into this question of trust. And there’s a wonderful book by Francis Fukuyama called trust, yeah, about how do developed economies create trust? You know, how can you, how can how can you sign a contract and be confident that it’s, it’s a legal document that you can rely on, and I’ve always thought about that as we, you know, go around the world and contract for consultants and things that it’s, it’s much shakier in some of these other places. Yeah,
Gene Tunny 30:59
yeah. Absolutely. Okay, Kate, check this. CEO, well, neighbors, thanks so much for your time, and look good luck with everything. And hopefully we can catch up again in the future and find out some more of the great work you’ve been doing.
Speaker 1 31:13
Thank you so much. Gene, you take care. You too. Thanks. Kate, bye,
Gene Tunny 31:19
righto, thanks for listening to this episode of economics explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact at economics explored.com or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you, then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week. You
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Credits
Thanks to the show’s sponsor, Gene’s consultancy business, www.adepteconomics.com.au. Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple Podcasts and other podcasting platforms.
Is free trade always good for workers? Gene Tunny explores the Stolper-Samuelson theorem, which shows how trade can lower wages for some while benefiting others. He discusses key economic insights from Wolfgang Stolper and Paul Samuelson, real-world historical examples, and the implications for today’s global trade debates.
Free Trade Creates Winners and Losers – The Stolper-Samuelson theorem predicts that free trade benefits the owners of a country’s relatively abundant factors (e.g., capitalists in capital-rich countries) but can harm the owners of relatively scarce factors (e.g., workers in industrialised economies).
Economic Theory Still Favors Free Trade Overall – While trade can hurt specific groups, economists argue that overall national income rises, making it possible (though not always politically feasible) to compensate the losers.
Historical Evidence Supports the Underlying Theory – Examples from 19th-century trade patterns show factor price convergence, with land rents rising in the U.S. while falling in Britain due to increased trade.
Trade Policy Shapes Political Alliances – Farmers in land-rich nations like Australia and the USA often supported free trade, while industrial workers in capital-rich nations tended to favor protectionism.
Full transcripts are available a few days after the episode is first published at www.economicsexplored.com.
Transcript: Does Free Trade Benefit Everyone? A Deep Dive into the Stolper-Samuelson Theorem – EP272
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
Gene Tunny 00:00
Gene, welcome to the economics explored podcast, a frank and fearless exploration of important economic issues. I’m your host, Gene, Tunny, I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode. Please check out the show notes for relevant information. Now on to the show. Hello and welcome to the show. In this episode, I want to talk about an important issue that came up in my conversation with Ian Fletcher last episode. That was an episode on industrial policy. The issue is the distributional impact of international trade. So how does trade affect different groups within the community? Many commentators have expressed concerns over the impacts of China’s emergence as a new global manufacturing power and exporter in the 2000s have expressed concerns on that, the impact of that on workers in the US and other advanced economies. Before that, in the 90s, there were concerns about the impact of NAFTA, the North American Free Trade Agreement there were, there was a famous interview with Ross Perot. I think it was a presidential candidate who said NAFTA represented it was a giant sucking sound out of America, by which he meant jobs and an investment would would go south to Mexico. Now economists generally support free trade. We see free trade as benefiting consumers. It means lower prices. It’s better from a macro economic perspective, because economists can specialize according to their comparative advantage. That’s the critical intellectual contribution of David Ricardo, so the famous British classical economist in the early 19th century, so countries can specialize in goods that they produce at lower opportunity costs relative to their trading partners. They can sell those goods to their trading partners and buy products that are better produced by their trading partners. So products that their trading partners have a lower opportunity cost of producing relative to to the other country. Now this means that production across all countries together is higher, and it means that there’s an opportunity for countries to gain from international trade. So I have an explanation of comparative advantage. I have some illustrations in my Top 10 Principles of Economics ebook. You can get that off my my website. It’s probably a topic we should come back to and spend a whole episode on and go through a few illustrations, but for now, we’ll just acknowledge that, as Ian Fletcher pointed out last week, the the case for free trade depends on this, this concept of comparative advantage. I think it was Paul Samuelson who famously said something along the lines of comparative advantages, is one principle in economics that is both undeniably true and non trivial. So something along those lines and Samuelson is going to get mentioned in this episode, of course, because this episode, we’re looking at a famous theorem that he was partly responsible for, called the Stolper Samuelson theorem. And this helps us understand the distributional consequences of international trade. So because of this theorem, economists aren’t so naive, they’re not so ignorant that they they will expect that everyone’s better off under free trade. That would be just too optimistic, right? The fact that some groups in the community can be made worse off by free trade has long been recognized. Well, well, it’s been recognized since the Stolper Samuelson theorem was. Presented in the early 1940s and what this theorem does is it predicts the winners and losers of international trade. It explains why, among other things, manufacturing unions typically favor tariff protection, why farmers typically favor free trade, although not always. It depends on the conditions in particular countries, as we’ll talk about. It depends on whether a particular factor of production can be considered scarce or abundant in that country relative to the situation in the rest of the world. So this is where it gets a it gets a bit tricky, but I’ll try and give some examples that explain this important, important theorem. So it’s named after two economists, Wolfgang Stolper, who lived from 1912 to 2002 and Paul Samuelson, who lived from 1915 to 2009 Samuelson will be familiar to anyone who’s studied economics, even at the introductory econ 101 level, he was definitely the more famous of the two. He won the Nobel Prize in Economics in 1970 however, as I’ll explain, the Stolper Samuelson theorem actually came out of an insight of Stolper. So Stolper, Stolper deserves a lot of the credit for this theorem, as possibly does Paul Samuelson’s wife, Marion, who didn’t get enough credit at the time for her contribution. She typed up the paper that she had she was a student of economics herself, and she’d written some some articles on international trade previously. And so it looks like she might, by typing up the article, she may have improved it in some way. There’s a bit of debate about that that’s covered in the there’s this great book that I’m drawing on extensively in this, in explaining the Stolper Samuelson theorem. It’s a book by Roger Backhouse, who’s a historian of economics, Paul Samuelson, founder of modern economics, founder of modern economics. So that’s definitely worth reading among another book I’ll mention later. Let’s begin with Stolper. So Wolfgang Stolper, he was a German American economist. He was born in Vienna in 1912 so in the days of Austria, Hungary, the Empire, he moved to the United States and studied for a PhD under the renowned economist Joseph Schumpeter at Harvard University. It was at Harvard that Stolper met Samuelson. We’ll talk about that a bit later. He spent much of his career teaching at the University of Michigan, where he influenced many future economists and beyond his great contribution to the theory of international trade, the Stolper Samuelson theorem. He was also known for writing an insightful biography of his mentor, Joseph Schumpeter. Schumpeter is also a fame I mean, he’s a super famous economist responsible for the idea of creative destruction. We’ve probably talked about that on the show, and if I haven’t, I better make sure I do that soon. Very, very important concept. Schumpeter made some great contributions to the study of innovation, to the study of economic growth and development, and he made some rather profound observations about the progress of economies over time. How he saw there was a tendency, a move toward socialism, away from laissez faire capitalism. So it’s lots of interesting contributions. We’ll have to come back to Schumpeter another time now. Paul Samuelson, he was an American economist. He was celebrated for transforming the discipline through rigorous mathematical modeling. He was born in Gary, Indiana, studied at the University of Chicago before earning his PhD at Harvard. His academic reputation, well, a lot of it, I mean, I guess he’s, you know, he’s made a huge amount of contributions, but his, his initial great contribution was a book published in nine. 147 called Foundations of economic analysis, which was an amazing exposition of how you can apply mathematical tools to economics. It unified a range of different areas in economics, so very profound contribution to economics. He spent much of his career at MIT and shaped the field for generations with his innovative research and influential teaching. And I mean he touched, ended up touching or affecting or teaching millions of students, really, through his famous textbook economics and introductory analysis that went through, it’d be over a dozen editions and generations of of college students have been have been taught using that textbook. As I mentioned, the renowned historian of economics, Roger Backhouse, he’s described Samuelson as the founder of modern economics, and that relies largely on Samuelson’s application of mathematics to economics, and so an approach to economics that has has been very influential. So we have to talk about how the Stolper Samuelson theorem came about. It was published in 1941 in the Review of Economic Studies, which is one of the top economics journals in the world. Comes out of Oxford, has both. I mean, I think it would started out as as a British American project, so you had economists in Britain and America collaborating on it. I mean, that have editors from all over the world now. But it’s, it’s a major economics Journal, the paper by Stolper and Samuelson. It was titled protection and real wages. Incidentally, I should note that when this paper, when they wrote the paper, and they said they first submitted it to the American Economic Review, which is the leading economics journal or one of the leading ones in the world. It’s the Journal of the American Economic Association. It was rejected by the AEA because it was seen as highly theoretical and not particularly practical. So yeah, really odd decision by the editors. I guess maybe it wasn’t obvious at the time the implications of this paper, because it is, it is an absolute brilliant paper. It’s one of those papers you read it, or you read you under, or you learn the theorem, and you go, wow, that’s really insightful. That’s something I may not have thought of. And it’s one of those, one of those pieces of economics that I think really makes you fall in love with the discipline, at least it’s one of those, one of those great contributions that I often think about as as really, you know, showing the power of of economics like Samuelson. Stolper was a Harvard graduate student. They lived near each other. So this is Cambridge, Massachusetts, in the greater Boston area. And Samuelson recollected the following about the origin of the Stolper Samuelson theorem. This is in back house’s book, and it’s written by Samuelson. And I might as I’m reading it, I’ll just, I’ll offer some clarifications as we’re going through it. One day in the late 1930s Stolper mentioned to me a curiosity, old Taussig. So Taussig was a famous economist at the time. He asserts that free trade raises American wages by drawing workers into the sectors of maximum comparative advantage. How do we square this with Olin’s notion? So Olin is a famous Swedish economist, how do we square this with Olin’s notion that the input America is most niggardly endowed with can have its return lowered by free trade, in comparison with autarky? Autarky is a situation of no trade, I should note. And so Samuelson reflects on this. This is a question from Wolfgang Stolper. He’s asked Samuelson, well, hang on, Taussig saying one thing trades going to raise wages of for Americans, but then. It. There’s another economist who points out, well, hang on, it could be the fact that trade reduces wages, or at least of some workers through Well, I mean, we’ll talk about this later, but the idea is trade actually means that laborers in the US end up competing with laborers overseas, whose labor is embodied in the products that that are imported. So this is a very good question that that Stolper has asked. And so Samuelson goes on in his recollection, he writes, The point was a new one to me. I said, you’ve got something there. Work it out. He did. And in the course of his explorations, we talked endlessly about the many ramifications of the problem. The analysis soon went beyond the point about free trade, which naturally fell into place after one had sorted out the issues. So that is the story of how we ended up with the Stolper Samuelson theorem regarding Olin. That’s Bertolt Olin. He’s a Swedish economist, as I mentioned, he was a politician. And if you, if you’ve studied economics, to say, a third year level or a graduate level, you you’d no doubt recognize that Olin is the Olin in the famous Heckscher Ohlin model of international trade. So we did talk about that, because the Stolper Samuelson theorem comes out of the Heckscher Ohlin model of international trade. In fact, I think what we call nowadays the Heckscher Ohlin model was first formalized in the paper by stopper and Samuelson. I seem to recall reading that in in some of the some of the articles I was reading while preparing for this episode. So to understand Stolper Samuelson, you need to understand the basics of the Heckscher Ohlin model. And I think one of the best explanations of this that I’ve read, it’s it’s in a paper or a chapter in a book I’ll link to it in the show notes. It’s it’s by Edward lemur, who was a professor of economics at UCLA, and he explains how the key to understanding Heckscher Ohlin is to understand that traded goods are essentially bundles of factors of production, so land labor and capital. So the land labor and capital that go into them, think about the the goods that are traded internationally. So if it’s a car or if it’s wheat, then you’ve got combinations of land, labor and capital going into those in in different in different ratios. So wheat, for example, that’s going to be embodying a ton of wheat is going to embody, you know, probably more land then, than a car for for example. So, and, you know, likewise, something that’s very labor intensive is going to embody more labor than something that is capital intensive to produce. So think about commodities being bundles of factors of production. Model predicts that countries specialize in producing goods that use factors they have in abundance. The theorem states that countries will export goods that use their abundant factors and they will import goods that use factors that they lack. Okay, so if you’re a country with a lot of land or a lot of land suitable for agriculture as Australia has, then you’re more likely to be exporting goods that rely on those that abundant factor well, such as wheat, such as beef, etc. So, I mean, it seems rather obvious. Yes, but it’s important to have a formal model like this, because then it allows you to to generate fascinating theorems like the Heckscher Ohlin theorem. This is the really important part of Heckscher Ohlin, in my view, or one of the key lessons from it, and this is what leads us to Stolper Samuelson. This is a point that that that Lima makes, that the the Heckscher Ohlin model really implies what you call indirect factor arbitrage. So it’s a way of taking advantage of lower well more abundant, lower cost resources or factors of production in other countries, and effectively importing them into your own country, so that could be taking advantage of abundant land in another country, taking advantage of abundant labor in another country, that is where there’s lower so the abundant land would have lower rents, the abundant labor would have lower wages. International Trade allows a country to to benefit from that, and what we what we see is that the empirical evidence tends to support this convergence of factor prices, although maybe not as strongly as as a abstract model would predict, but there is certainly evidence that this has occurred over time. So there is evidence of this factor price convergence occurring to an extent, and there’s a great example in one of the books that is a good source for this conversation on the Stolper Samuelson theorem. The book is called a splendid exchange, how trade shaped the world, and it’s by William Bernstein. So really terrific book. It was nominated for, I think it’s Goldman Sachs, Financial Times, Business Book of the Year in 2008 so really highly regarded book, and it has this fascinating bit of data in it on the convergence of rents for land between the United States and Europe in the 19th century. This is based on research by economic historians Kevin O’Rourke and Jeffrey Williamson. O’Rourke and Williamson found that between 1870 and 1913 us rents rose 249% while British rents fell 43% so what was going on is with international trade in this period before the First World War, that’s generally regarded as the sort of high point of free trade in the 19th century. What you had is this convergence, because you had goods produced using abundant land in the US, they could then be sold into Britain and Europe. They would be competing with the agricultural products produced on the the land in in Britain and Europe, which was relatively scarce relative to the other factors of production, like labor and capital. And so there’s this competition that drives down the rents in Britain, or this trade that drives down the rents, and it increases the returns in the US, because the US produces, the farmers are they have a larger market now they can sell into Britain and Europe. So what we had was, well, this is, this is associated with the free trade error. It’s also due to cheap, cheaper transport, development of railways and I suppose, steamships, etc. And what we had was the cheap transport leading to Britain and Europe being flooded with grain and meat. From the US. So prices were driven down, and that lowered the value of the farmland in the old world and increased it in the new so that’s an example of this factor price convergence. It’s consistent with hex Olin. Okay. Now this, this is suggesting, you know one of these, one of the well, what is the key insight of the the heck sure Olin model that the predicted impact on on the returns to the factor so whether it’s rent or whether it’s wages, that depends on how abundant or scarce the factor of production is in a particular country relative to so in their famous paper, in a simplified and abstract model, initially with two countries and two commodities, but you can, you can generalize this. It’s all, there’s a, I won’t go into it here, but I think it this theorem is generally considered robust to different assumptions. So in this simplified and abstract model, the theorem proves that if labor is the scarce factor of production, then protection, so the application of a tariff can raise wages in in the country. But what it’s doing is it’s it’s effectively redistributing income from capital to to labor. William Bernstein, the neurologist, the finance writer whose book I mentioned previously, he has used this Stolper Samuelson theorem to explain the impacts of international trade in different places and times. And I’ll put a link in the show notes to the book, because it really is a brilliant exposition of this theorem and how useful it is in explaining different episodes in in economic history. And it really brings this Stolper Samuelson theorem, which, if you read it in an in an international economics textbook, you go, Well, I guess that’s that’s really interesting. However, it may not have the color, the life that that it gets when you when you read it in a, you know, very well written book aimed at a, at a, you know, an audience that’s not of people studying economics or academics. It’s aimed at an educated, lay person audience. It’s a very good book, and I like Bernstein’s explanation of Stolper Samuelson, so I’m going to read it, and we’ll just so we’ll just go through the logic of it. Bernstein writes, If labor is scarce in nation a and abundant in nation B, then wages will be lower in B. So think of a as an advanced economy where, relative, to say, an emerging economy with a with a high population, but very little capital, very little well relative to the the advanced nation, nation a, then wages will be lower in B, so okay, and labor intensive products made in B will consequently be cheaper there as well. With free trade, merchants and consumers will prefer the less expensive goods made in B to those made in a. So imagine those less expensive goods could be T shirts that are that are being manufactured in B relative to to A. So they’re manufactured in the emerging economy rather than the advanced economy. So workers in in B will benefit, and workers in a will lose. Okay, so if there’s international trade, then nation a starts buying the product produced by the abundant labor, which could be T shirts in Country B, and that benefits the workers in B, but it it, it harms or the workers in a. So that what the Stolper Samuelson theorem shows is that they will have lower wages relative to the situation if you had had protected that that sector or that the production of that commodity using that. Factor labor that is relatively scarce in nation a, the advanced economy relative to capital relative to other countries, nation a has more capital less labor, whereas nation B, the emerging economy, has an economy where there’s much more labor relative to to capital. So that’s, that’s a simplified explanation of what’s happening with Stolper Samuelson and Bernstein goes on to to say that this is true of the other two factors as well. Free trade helps farmers in countries with abundant land. Okay, so that would be Australia, the United States historically. Well, it was the United States for in the late 19th century, for sure. And it hurts those so we’re talking about free trade, it hurts those factors in country. It hurts, sorry. It hurts those in countries with scarce land, and it helps capitalists in rich nations. So it hurts farmers in countries with scarce land and it helps capitalists in rich nations with abundant capital and Hertz capitalists in poor nations. So what you’ll see is that this stealth or Samuelson theorem can give you some really interesting predictions into what will happen if you either go from a situation of free trade to imposing a tariff, or go from a system of protection and then going to free trade. It’ll give you a sense of who will win and lose. Now, it’s not always perfect, because other things can change in economy. There can be technological change. There could be changing demand for a product. Globally, for some reason, there’s there’s a whole bunch of other things that could move this is all, all else equal, ceteris paribus, as economists say it’s, it’s a prediction from a model. At a point in time you change your trade policy, this is what’s going to happen. But of course, other course, other things can happen, which mean that, in practice, these predictions may not end up occurring. Okay, so that’s, uh, that’s Stolper Samuelson. It doesn’t mean that economists are wrong to argue for free trade. So I think this is, this is something that Stolper and Samuelson themselves made sure that they emphasized, because they wouldn’t want to be the economists that turned economists away from free trade, not at all. And hence they wrote a conclusion that clarified that fact. So this is the final paragraph from the Stolper Samuelson paper. I’m going to leave out a few words that are actually their qualifications or their extensions of of the the argument, but I don’t we’ll just get they’ll probably just go off on a tangent if I start talking about those. So I’ll just leave out a few words, so you can go to the the paragraph the article, and just check out. Check it out. But I’m going to give you the essence of what they say here. And this is, this is them responding to to what was called the pauper labor type of argument for protection, which is essentially that, well, if you have free trade, your workers will, indirectly end up competing with a whole bunch of, well, you know, lots millions of workers in in other economies, so emerging, developing economies that have lower wages. So that’s the the pauper labor type argument for protection. Okay, so they begin. We have shown that there is a grain of truth in the poor labor type of argument for protection. Thus in Australia, where land may perhaps be said to be abundant relative to labor, protection might possibly raise the real income of labor. The same may have been true in colonial America. We are anxious to point out that our argument provides no political ammunition for the protectionist it has been shown that the harm which free trade inflicts upon one factor of production is necessarily less than the gain to the other in. Hence, it is always possible to bribe the suffering factor by subsidy or other redistributive devices so as to leave all the factors better off as a result of trade. So this is the really good point about free trade. So free trade is making the pie bigger, but it doesn’t necessarily mean that the size or the slice that each group in the community gets. It doesn’t necessarily mean that that slice is bigger, even though the whole pie is bigger, but there is the opportunity to recut the pie so that everyone gets a bigger slice of pie. In economics, this is called the keldor Hicks criterion, after Nicholas, keldor and John Hicks, famous economists. Hicks was British, keldor was, I think it was Hungarian. But they’re both both famous economists. And there’s this potential, well, it’s also known as a potential Pareto improvement, technically, Pareto optimal and a Pareto optimum. Optimum in economics is where neither party can be made better off without making the other party worse off. So free trade does offer you that opportunity, but in practice, you may not see that redistribution occurring. You could see well as, as I talked about with Ian in the previous episode, you could see the the China shock, for example, that ends up, you know, causing significant job losses in, in in America, in, you know, outside of, outside of the capitals as so in in regional America, and you know, people you know, made they don’t get significant support. Social Security benefits are not, you know, they can be rather lacking in the US. The US doesn’t have a public health care system, as we do in Australia or the UK or Europe. And so these economic shocks can have, can have really profound and long, lasting consequences on on communities that that feel those shocks from from trade and look, I mean, economists have to acknowledge that, and I think Stolper Samuelson really helps us understand those impacts of trade and understand which groups in the community will be affected. Okay, so before we go, I’d just like to talk about the empirical basis of Stolper Samuelson. I think I’ve probably done a bit of that already, but, but let’s just, let’s just go over it again, my feeling or my sense, reviewing the literature. And there’s a, there’s a huge economic literature on the impacts of trade. We may need to have another episode going on over it after because, you know, I’ve spent, you know, a fair, you know, quite a lot of time this episode trying to just explain the logic of Stolper Samuelson as best I can, and it may be that I need to come back and do that again, so I’ll be interested in your thoughts on Stolper Samuelson. Does it make sense to you? Is, does how I describe it make sense? Do you think I, if you’re a fellow economist, do you think I actually got it right, or whether, whether issues with how I explained it, just let me know. So you’ll find my contact details of the show notes. I’ll be interested in hearing from you. I’d say, I would say that the the evidence is moderately supportive of the theorem. I think it you do see through economic history, stalled by Samuelson effects. And I mean, it’s, it’s going to be as much evidence supportive of the theory as, as you’ll see for for any, for most theorems in economics that that come out of these abstract models. So I am, I would say, I think that the Stolper Samuelson theorem is, is a good theorem. It’s a great bit, a great piece of of of economic theory. It’s part of the toolkit for economists in understanding the the impacts of protection. Versus free trade. So I think it’s a really good theorem. Bernstein, in his book, explained it exchange. He he argues, or he thinks it has a lot of explanatory power and economic history, and I gave the example of convergence of of rents before. And I’ll just go through this explanation or this elaboration from him, because I think this is really, really useful. Before 1870 England had, relative to other nations, abundant capital and labor and scarce land. By contrast, the United States had relatively scarce capital and labor, but abundant land. I mean, that makes sense, doesn’t it? Because, I mean, Britain is much smaller than the US and in the, in the, you know, 19th century, the US still had, you know, had huge, huge territory, so that makes sense. And then Bernstein goes on to say, right that tariffs rose dramatically during the period that period around the world, especially in the United States after the Civil War, but trade grew more free as rapidly decreasing. Shipping costs more than compensated for the higher tariffs the stopper Samuelson theorem predicts that the main beneficiaries of increased trade would be the owners of abundant factors in each nation, capitalist and laborers in England and landowners, that is, farmers in the United States, this is precisely what happened, and thus it was no coincidence that all these groups favored free trade. Okay, so according to Stolper Samuelson, the increased trade in this period that would benefit. It would benefit the capitalists and laborers in England, because they were abundant relative to to land. So capital and labor, there was plenty of it relative to the land in England, so they could take advantage of of trade and the landowners in the US, well, they would benefit because they were abundant. So Bernstein writes, that’s precisely what happened. And thus it was no coincidence that all these groups favored free trade. Likewise. It’s no surprise that the owners of scarce factors in each nation, English landowners and American laborers and capitalists sought protection. Okay? And he goes on to to explain that in in continental Europe, the nations had scarce capital and land but abundant labor. So Stolper Samuelson predicts falling transport costs after 1870 would have generated a wave of protectionism by Continental capitalists and farmers and farmers and again, the theory is dead on. European farmers reacted vehemently and brought to an end the free trade era that began with the corn law repeal, repeal in 1846 and the Cobden Chevalier treaty. So that was the Anglo French free trade area in 1860 right? So might have to come back in another episode and just go over the history of of free trade versus protectionism in that period, because it’s all rather, seems a bit messy, doesn’t it? Because, like, my impression is that, and this is the argument that that’s made by Polanyi. And the great transformation is that the pre World War One era was an era of of, of, you know, free trade relative to what came after. It initially well during the inter war period, and then in in early years after World War Two, then. But it does there are, there are cases where there were tariffs, there was protection, as is suggested here. So I think I might have to come back to that period and just really unpack what’s going on, just so we understand, because this is critical, in terms of understanding well, are tariffs important or critical, or do they help economic development? Because, well, there’s this, there’s now, there’s this debate about, will tariffs, can tariff support so called infant industries, and I mean the the rhetoric coming out of, uh. Politicians. So President Trump, he refers to William McKinley. He talks about the tariff king. And there’s a view that the tariffs were a contributing factor to economic growth, to economic development during that period. Now I’m skeptical of that view, and I think there’s evidence that the US had started taking off before those tariffs were imposed, but I do acknowledge that, you know, there’s a lot of a lot of evidence to review, and I think we probably should come back to that in a future episode, but for now, hopefully I’ve given you a flavor of of how you can use Stolper Samuelson to to understand what’s happened at different periods in history. And Bernstein has this terrific table in his book on Stolper Samuelson categories, and he’s he’s done his best to identify in different periods of time what the abundant factors, the abundant factors that favor free trade have been, versus the scarce factors that favor protectionism. And he’s identified, say, the US before 1900 the abundant factor was land, the scarce factors were labor and capital. And so therefore that explains why, before 1900 labor and capital would have favored protectionism, and the farmers would have favored free trade, and then after 1900 in his view, land and capital are the abundant factors. I think this is that’s fair enough relative to to other countries, and so they’re going to be favoring free trade versus protection versus labor. So labor as the scarce factor, it favors protectionism. So this goes to explain why, particularly manufacturing unions in industrial countries tend to favor protection, because it does involve a redistribution in their favor. Okay, so, gee, there’s a whole bunch of other evidence of we could talk about, but I better leave it there, because I think we’ve covered quite a bit of ground, and hopefully I’ve given you a sense of what the the key implications of Stolper Samuelson are, and how it can be used to understand or to predict the impacts of of a change in trade policy. So I think it’s a very important theorem. I wanted to get it into into the podcast so we can come back to it in future episodes and talk about a bit more look at the evidence. Also, as I mentioned, I want to go back to that 19th century period and really understand what’s going on there, because it’s coming back into the the political debate. There’s talk about William McKinley being the tariff King, and you know, our tariffs an important part, or are they a way that you can, you can stimulate your your economic growth and and development. So, I mean, I would say no, and I think there’s plenty of examples. I mean, I don’t think economic theory supports that, and I don’t, and I think examples around the world, they don’t support it either. So we’ll talk about that in a in another episode. Okay, so thanks for listening to this discussion of the stole plus Samuelson theorem. As always, if you’ve got any thoughts on it, have any questions, want me to clarify anything? Think I’ve that I that I need to fix something up in my exposition of it. Then, yep, please get in touch so you can find my contact details in the show notes, you can email me contact@economicsexplored.com.. Thanks for listening.
Credits
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