Tuesday, March 21, 2006

Bread & Circuses

Gee, where to start?

Well, I suppose the best place is with the important bits of the thread on Cam site.

Did the Commonwealth Games opening ceremony suck?

Apparently lots of people think it did. I obviously didn't watch it. Did you? What did you think? Was it pathetic? The whole "flying tram" thing seems lame to me. But I hate opening ceremonies…

To which I posted a comment about “Bread & Circuses”, lifted from the US PBS site, ‘cause I was to lasy/time constrained to write my own.

Bread & Circuses

Augustus, realizing that the masses of average Romans had to be kept both fed and happy enough to remain peaceful, began the system of patronage we now refer to as "bread and circuses." He gave the people food — by means of grain distribution and legislation of food prices — and free entertainment such as chariot races, gladiators, and lavish spectacles in amphitheaters and the Circus Maximus.

a quote from http://www.pbs.org/empires/romans/life/life3.html

So, every wondered why farmers & truckies never get a break?

At the end of it, I added a general throw always line, about farmers & truckers. The responses I got to that comment, I didn’t expect. It all goes to show what you think is common sense & common knowledge, isn’t!

Cam’s response was

Farmers and truckies? What do they need a break from?

and my response

Cam, when a government arranges a benefit for a group of people, it can fund it in one of two ways. Take from a large group (usually everyone) and hope that noone notices or take from a small group(s), knowing that no matter how hostile a group(s) becomes, it's too small to make a difference.

In the case of cheap food, Australia uses the second option! The small groups in this situation are farmers & truckers.

If a government/system can keep the bulk of the population 'fat, dumb and happy', it can stay in power without doing much else.

When I say 'farmers & truckies', I mean the people who do the real work for not much money, the drivers etc, not Lindsey Fox or Janet/Peter Holmes aCourt.

and Cams response

So give us details Gnoll! How are the government taking money from the farmers and truckers?? The last I heard, farmers were getting subsidies and cheap loans and truckies were making $100K a year including overtime.

How's the car situation going?

Now where now? Timeline…

As me original comment about ‘Bread & Circuses’ shows, governments/systems have understood (for a least 2000 years), the desirability of having a cheap food supply for keeping the bulk of the population happy/staying in power.

Crop failures & civil unrest during the depths of Little Ice Age reinforced this lesson to governments from Ireland to Japan as recently as C17.

Europe had this lesson reinforced again in late C18, in the form of the French Revolution.

Keeping food cheap requires action in two areas, firstly the cost of the produce itself and secondly in the cost of getting the produce to the consumer. To do this requires one of two actions, either rigorous free markets or systematic subsidies.

The driving force in setting global food prices is the massive subsidy system of the EU’s Common Agricultural Policy (the CAP). This has been the situation since the EU’s inception as the EEC (European Economic Community) in the 1950s. Remember the Europeans have starved as recently as the early 1940’s.

The US also subsidies it’s farmers, but does not set the pace, it only matches the EU. It would rather put its money into other project/activities.

Australia’s only option is to use rigorous free markets in production & transport to try to match the EU & US. Why, because the EU & US have productive industrial bases they can use to subsidize their agricultural sectors.

Australia doesn’t have this industrial base to subsidise agriculture. Indeed, Australia has historically used its primary industries (both agriculture & mining) to subsidize its industrial base to create jobs in the cities, build infrastructure etc. This historical cross subsidization dates back to early C19 and was strongest during the gold rushes & agricultural booms from 1850 to 1890. This period was the ‘Golden Age’ of Australian agriculture.

It is this rigorous free market environment from 1890 onward that leads me to make the “So, every wondered why farmers & truckies never get a break?” comment.
Miners and transport generally have been under these rigorous free market conditions since the 1890s too. The rest of the economy has been shelter to some degree until the reforms of the 1980s began.

Now I want to divide recent history into 2 periods, for some additional analysis. The first period is what I’ll call the ‘High Industrial’ period. It’s the time from 1890 to the early 1970s. I chose 1890 as a start date because it’s the end of the initial settlement development booms. I chose the early 1970s as the end date because it’s the end of the great post WWII boom.

During the ‘High Industrial’, the isolation between national economies was strong enough to allow each nation to set its own economic policy (within reason). Ggovernments could choose how each section was ran and what cross subsidizations were allowed/encouraged. As long as the books balanced overall & in the long run. The isolation could be maintained due to the relative solidness of nation borders.

In the 1970s, the Oil Shocks started to destabilize the situation.

At this point I’d like to add to the definition of ‘bread’. In Roman times, ‘bread’ referred to food alone. Over the last 500 years, ‘bread’ has grown to include access to shelter, clothing, transport & energy. Like with food stuffs, the cheaper, the better for stable government.

During the late 1970s, the micro computer emerged. New machines like the Apple IIE where developed. This meant the changes that were start to occur in government & big business could spread to all other part of the economy. In the early 1980s, IBM released the PC. This legitimised the micro computer for general use by business. In parallel, cheap high speed communication were also emerging.

The stage is set!

Now we get onto the second period I wish to call the ‘Information Age Transition Crisis’ period. I’ll want to define this as starting in 1989, with the Fall of the Berlin Wall. For me this event marks the first major crisis caused by the affect of information technology/high speed telecommunication on the solidity of national borders.

As the porousness of national borders increases, the industries used by the developed world to cross subsidies other sectors have begun to leak to other places.

So the EU and US are losing the old sectors they used to subsidize their agricultural sectors to Asia and Latin & Central America. They are trying to develop new sector to keep their economies stable.

The EU still wants to retain its subsidies to agriculture. To-date France have held the line against moves for change from Germany and particularly Britain. Guess the French want the subsidies way more than the British & Germans want change. The reason, in France, farmers are critical swing voters. Goes to show, it pays to be a swing voter in a marginal seat!

The US feels it can’t stop its farm subsidies until the EU does. It too, is trying to develop new sectors to counter the move of manufacturing, particularly to China.

In Australia, we are also trying to develop new sectors. We have given ourselves a better start by not trying to hang onto inefficient industries, anywhere near as much as the EU or US have.

So the Information Revolution has made the old ‘High Industrial’ status quo unviable. Where to next? Gnoll looks to his crystal ball and notices it is cracked! The crystal ball gazing of others is welcome.

Well that’s the timeline done.

Next, some comment about specific comments in Cam’s thread

comment 1

How are the government taking money from the farmers and truckers??

As I’ve outline above, the main interest of government is keeping ‘bread’ cheap. This is done by rigorous free markets. If the farmer has the money in the hand, he made too much profit. The government have failed to keep prices as low as possible. I know this is a cynical outlook, but at a very fundamental level it’s true. What makes it impossible to achieve continuously is random variation in weather at both the local & global level. Farming is after all a percentages game.

This aside, there are plenty of examples of governments with hands in farmer’s pockets. I will outline two here.

The first example is from the ‘High Industrial’ period.

Back in WWII, farmers sold wool to the government as part of the war effort. The government got good prices & terms. The terms include delayed payment of significant amount of money until after the war was over.

After the war was over, the time came to make the post war payment. The federal government of the day invented a number of new fees and charges to be taken out of the outstanding monies. The fees and charges were large and bore no relationship to any real expense incurred to the government. A special once off tax in all but name!

The second example is from the ‘Information Age Transition Crisis’ period.

Now I’m not going to go into any detail for this one, it’s a current issue. All the stuff I hear about it are rumours I don’t want to repeat in detail here. I will talk about the rumours only in their general nature. I could not find any solid details from googling.

The rumours are that both the NSW & Queensland state governments have/are entered into public private partnerships of the Cross City Tunnel & Lane Cove Tunnel style. 4 Corners recently run a programme on these public private partnerships.

The difference here is that the private partners are not building new assets, they are taking over existing assets (government programmes) intrusted to the state governments.

The state governments are getting up front lump sums from the private partners. The private partners are getting access to the cash flow on the programmes. They can then ciphen part of the cash flow as their profits, leaving the remaining cash flow to fund the programme’s core function.

The total cash flow comes from a federal statutory levy. The farmers direct it to whom they choose. It will take money or time to redirect these monies to other/new bodies. It may even lead to the establishment of new non-profit NGOs. They regard this as still their money, put aside for a dedicated purpose. Farmers/industry bodies only agreed to the current programmes being establishment on the understanding that all of the levy would go to the programme’s core function.

comment 2

The last I heard, farmers were getting subsidies and cheap loans

subsidies and cheap loans?

Let’s look at what a real subsidy system looks like. Firstly, there is lots of money involved. After all, the government is trying to reduce the price of the product to below the cost of production. Secondly, everyone producing the product gets some of the action. Thirdly, the more you produce, the more money you get. Big player get more money.

Look at the Australian measures. They trend to be disaster recovery or industry restructuring. Once off payments/loans, not systematic payments/loans. They tend to be small, measured in 4 digit figure range for diaster recovery. Like all government compensation, industry restructuring payments/loans tend to be on the very low side.

When a government runs one of these schemes, they try to maximize the publicity they get within the industry and the general community. Often figures get rolled out. Remember these are maximum figures, based on wanting to look like they are doing something. Often, after the fact, the actual amounts of money spent can be as low as less than 5% of the headline figures.

These schemes are hard to qualify for and also usually have strict asset & income tests. See the second and third points of what a real subsidy system look like.

There are many political tricks that governments pull to look good on the media

Tax exemtions

Farmers do get a few special things. Like a few cents tax exemption on diesel fuel. Some tax exemption on farm vehicles (Utes). These exemptions are usually justified by the user pays principle. The taxes were introduced to fund roads and the farmers on the few occasions have successfully argued they should be exempt because their uses of fuel and vehicles are off-road.

comment 3

and truckies were making $100K a year including overtime.

A new one on me. Any examples, anyone?

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