Grilling Qantas

The hansard of last Friday’s Qantas Senate hearing was released today and it’s a real eye-opener.  I recommend you read it cover to cover because you’re unlikely to find anything quite so darkly amusing for some time. What it shows is that there is something very weird happening in relations between government and business these days. Here, for instance, is one exchange between Senator Nick Xenophon and Jetstar boss Bruce Buchanon :

Senator XENOPHON:
Is Jetstar subject to an investigation by Fair Work Australia in relation to overseasbased cabin crew that work within Australia?

Mr Buchanan:
There are two investigations going on by the Fair Work Ombudsman at the moment, yes.

Senator XENOPHON:
I was told that there was a night in July when there were 37 Thai and Singapore basedcabin crew staying at a Darwin hotel to be deployed on flights within Australia. Would that sound about right to you?

Mr Buchanan:
I have no idea. I can take it on notice, though, if you want me to investigate a specific date.

Senator XENOPHON:
Sure. But you have a specific situation where, if it is an internationally tagged flight,you think it is appropriate for there to be overseas based crew on that internationally tagged flight?

Mr Buchanan:
I think what is important is that, as you look across our network, we are running around 3,000flights a week now, and we operate almost 200 flights domestically each day. We have around five to six flights aday that start off in a domestic port and the aircraft goes through to international destinations. The domestic tags,if you will, that go on that feed those international flights are part of those international flights and they helpactually create a viable service internationally. They are primarily through two ports, which are Darwin andCairns, and they help build what become very successful and viable services.

Senator XENOPHON:
I am just trying to understand this. Those overseas based crew spend most of theirtime either flying in or out of Australia, based in Australia. You would agree with that proposition?

Mr Buchanan:
I think there are two separate issues here, one of which is the domestic tags, as you arereferring to them, or what we call international flight tags, which is an aircraft that starts internationally — and there are five or six of these a day that start internationally, the aircraft goes through a point, in Darwin or Cairns,which creates that regional tourism impact and comes to other points in Australia.

Senator XENOPHON:
Can we just pause there, because there are some flights where you clear customs for instance, JQ58, the Singapore-Darwin-Cairns flight, where you clear customs at Darwin and then you put domestic passengers on. Or you do not clear customs, rather, but you can put domestic passengers on the flight. It is predominantly an international flight. But there are other flights where passengers disembark in Darwin, they clear customs and it is still tagged as an international flight using those foreign based crew on contracts of $400 a month.

Mr Buchanan:
First and foremost, the $400 a month is nonsense and I have said to you many times it iscompletely incorrect. That is like saying, about the taxi driver who gets a $2.50 flag fall, that that is all he earns.These people are earning $2,000-plus a month, and to refer to 10 or 20 per cent of the total component of their salary as their income is completely false.

Senator XENOPHON:

Could provide on notice details of what an average overseas based flight attendant would be earning?
Mr Buchanan:

I am happy to do that. I am also happy to say that our Thai cabin crew are paid 10 times theaverage salary in Thailand. They are paid 17 times the minimum salary in Thailand. We recruit some of the best.We have the lowest turnover and the highest engagement in Thailand and we are paid, as I said, at some of the managerial levels in Thailand. To say otherwise and to not take into account the fact that our operations in Asia — two-thirds of our flying is outside of Australia and we are a successful Australian business competing in Asia.

Senator XENOPHON:
But those Thai based crew who are earning much less than Australian based crew aresubject to different rules in relation to fatigue management, aren’t they, and their duty roster hours?

Mr Buchanan:
Absolutely not.

Senator XENOPHON:
Are you absolutely sure about that?

Mr Buchanan:
Yes— absolutely not.

Senator XENOPHON:
Could I ask you to provide, without breaching any confidentiality, the roster for youroverseas based crew for flights in and out of Australia for October and this month?

The hansard is chock’o’block with grillings of Buchanon and CEO Alan Joyce that resulted in the now widely quoted exchange between Joyce and Senator Doug Cameron:

Mr Joyce: Once I got to the stage where we had made the decision, as a consequence of the union action, that we were going to do the lockout, there was not an alternative to sit down with anybody and talk it through, because that safety case said we had a risk and we had to ground. All other options then start closing off once you have that safety case.

Senator CAMERON: Let’s talk about the safety case for a minute. In the safety case that was argued, I understand that one of the arguments before the full bench was that the pilots would be distracted because of the industrial action—is that correct?

Mr Joyce: It is one of the potential risks that were there and it was the potential of distraction causing those unknown consequences. There are plenty of studies saying that, as I mentioned. I have—

Senator CAMERON: Yes, but just—

Mr Joyce: But there are plenty of studies on this.

Senator CAMERON: Mr Joyce, I am happy to hear your answers but I have got really limited time and I am
trying to get some idea of what was behind this crazy thinking of Qantas to ground 70,000 people around the
world. If you could just bear with me for a minute.

Mr Joyce: Okay. Could I just say, Senator—

Senator CAMERON: You are a bit like Richard Nixon at the moment; you are trying to talk your way out of
this. Do not do it, please. Just let me ask the questions.

Mr Joyce: Senator, I would ask you—with deep respect—to allow me to answer the questions. I have the
same thing: this is a bit like a McCarthy trial. Let me answer the questions, because I believe I have the right.

Senator CAMERON: The boot is on the other foot now, isn’t it?

CHAIR: I am going to help. That was a good comeback, I will give you that.

Indeed yes, it is good comeback and has resonance as a bigger issue. Why are Qantas executives being subjected to this grilling? Is it because Qantas has violated the rules of commercial conduct? Or is it because Qantas is a strategic asset to the country?

In my view it is neither and both. The Qantas grilling is the result of a collapse of the boundaries that should demarcate government and commerce. Qantas is only the latest manifestation of that collapse.

To understand what I mean, I’m going to quote from my co-authored book with Ross Garnaut, The Great Crash of 2008. The following section was composed by the good professor and captures nicely the frame of reference through which the Qantas debate should be viewed:

There is a ‘libertarian’ rather than a ‘liberal’ or ‘neoliberal’ view of society that says that individuals can be left to pursue their own interests independently of social constraints. This view is associated with the writings of Ayn Rand, among others. The major figure in public policy who acknowledged the strong influence of such views was Alan Greenspan.

Greenspan said that he believed that the owners of capital—the shareholders of firms—could be relied upon to avoid taking decisions that placed the firms at risk. This view freed regulators from concern about rules or regulations. They needed only to wind themselves back and the market would allocate available capital in the most productive manner possible. After the Great Crash, in October 2008, Greenspan repudiated this approach in a mea culpa before Congress. ‘Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included,’ he said, ‘are in a state of shocked disbelief’.

Greenspan’s apostasy is the end for the time being of explicit libertarianism close to the levers of power in major countries. It also needs to be the beginning of a new search for a sustainable, productive balance between constraints on and freedom for private maximising behaviour in a modern market economy. The new balance will include tighter and more effective regulation of the financial sector. It will include rigorous regulation or corrective fiscal measures whenever there are large external costs resulting from decisions by private entities that can be corrected at a lower cost than is imposed by the market imperfection itself.

But it will eschew government intervention in markets where this is not justified by clearly identified failures, and by rigorous analysis of the costs of correcting the market distortions. Otherwise there is a risk that the undisciplined expansion of government interventions will increase the use of government power to support private rather than national interests.

The new balance will recognise the importance of equity and environmental amenity as well as economic efficiency as objectives of policy.

The lightly regulated market economy has always been tolerated rather than embraced in the late twentieth and early twenty-first centuries. Following the Crash, it is now under fundamental challenge everywhere. The tolerance was warmest in the Anglosphere, and there it will be most severely tested by the longstanding fiscal hangover from bailing out finance. Australian Prime Minister Kevin Rudd wrote in an essay in The Monthly:

The time has come, off the back of the current crisis, to proclaim that the great neo-liberal experiment of the past 30 years has failed, that the emperor has no clothes. Neo-liberalism, and the free-market fundamentalism it has produced, has been revealed as little more than personal greed dressed up as an economic philosophy. And, ironically, it now falls to social democracy to prevent liberal capitalism from cannibalising itself. Similar sentiments have been articulated by heads of government in the United States, the United Kingdom, France and Germany.

Such attitudes are creating a generalised justification for increased government intervention in the economy. This is an environment that encourages rent-seeking behaviour in the corporate sector and soft responses from government. Too-big-to-fail is now a general catch cry that that is used by any large employer that has fallen upon hard times. The possibility of business failure and reductions in employment become arguments for exemptions from all manner of regulation that has been applied in the national and international interest. It becomes the basis for sympathetic consideration of all manner of subsidies to individual businesses. It is an organising point for business leaders’ resistance to regulation that doesn’t suit their private interests.

Protection is always easier politically than free trade. Its premises and lines of argument appeal to the democratic polity. The natural prejudices of humanity are reinforced by investment in political processes by businesses that gain from preferential treatment.

The Great Crash will leave another long and costly legacy in developed countries if it weakens commitments by governments to open and competitive markets. In these markets, success goes to the firms that use resources most efficiently, in the places in which goods and services can be produced at the lowest cost.

The search for a new balance between individuals maximising their personal gain and the common good is not helped by a distinction between historical positions of mainstream ‘liberals’, ‘conservatives’ and ‘social democrats’ in the developed countries. Prime Minister Rudd’s ‘past 30’ years in Australia encompasses roughly equal periods of social democrat (Labor) and conservative (Liberal–National) administrations. Market-oriented reform has been the exclusive preserve of neither. Indeed, the most far-reaching reforms have been undertaken under Labor administrations, and have been widely and accurately assessed as having contributed to a marked improvement in Australian economic circumstances.

Both Labor and conservative administrations modified income distribution in favour of those on lower incomes through adjustments to the taxation and social security systems. Both placed considerable emphasis on regulating aspects of financial market behaviour. This seems to have limited the problems of the Australian financial system.

In the United States, while the first initiatives of financial deregulation lay with the Republican Reagan administration, they were continued under successive Democrat and Republican presidents. The fateful last step in removing constraints on the investment banking operations of the deposit-taking banks—the repeal of the Glass-Steagall Act—was the work of the Democrat Clinton administration.

The category ‘neoliberalism’ may help a little bit in identifying what went wrong in the lead-up to the Great Crash. Old-style liberalism, which we can call paleo liberalism, came out of the work of Adam Smith and John Stuart Mill. It recognised the importance of a sound moral and institutional framework for a successful market economy. Within that framework, it made a case for the freedom of market exchange, and required the state to give good reasons for influencing the allocation of resources that emerged from market transactions. The so-called ‘neo’ liberalism of the late twentieth and early twenty-first centuries represented a reassertion of some of that old wisdom. It was influential in bringing a much larger part of humanity within the beneficent reach of modern economic growth. It was an element in the rise of the Platinum Age and in the reduction of human poverty at a rate that had never before been known.

There was a fault in some but not all of the exposition of liberal ideas about economic policy in the past few decades. The mistake was to ignore or underplay the essential role of law, institutions and moral restraint.

These are vital in constraining market outcomes to secure socially, environmentally, politically or economically sustainable development. The moral and institutional framework was taken for granted. This was most dangerous and costly in relation to the financial sector.

The universe of ideas within modern economics can handle these issues well enough so long as we are open to the whole. The whole includes the objectives of policy alongside economic efficiency, the special issues that surround the supply of public goods, and income distribution. But the wider framework often has been lost as economic ideas have become instruments in the wars fought by commercial interests over policy, and have been simplified in popular discourse.

Now we must move beyond the oversimplifications and the slogans. There is now no alternative to the careful application of old ideas to the new circumstances that have been revealed by the Great Crash. It would be a mistake, one with fateful consequences, to expand the role of government in the economy in general. To do this at the same time as hanging back from the hardest and most necessary interventions in the financial sector—that would be to throw out the baby and keep the bath water.

The Qantas grilling is a case in point, if in reverse. Rather than a firm seeking government intervention for competitive advantage, we have a government intervening to prevent, in its mind,  job losses. As our previous Qantas discussions showed, there are safety concerns about the full commercialisation of Qantas but that may simply mean that the airline is no longer an appropriate candidate for private operations at all. Arbitrary intrusion of government into private business only encourages the ongoing erosion of national interest economic policy and productivity will continue to suffer.

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Comments

  1. Is it because Qantas has violated the rules of commercial conduct? Or is it because Qantas is a strategic asset to the country?
    .
    Probably the latter, because unlike any other private business, Qantas also has the Qantas Sale Act still governing some of its commercial conduct. So the line of questioning can be viewed in the light of exploring whether the Qantas management has violated the letter/spirit of the Qantas Sale Act.
    .
    The major figure in public policy who acknowledged the strong influence of such views was Alan Greenspan.
    .
    The Biggest A$$hole In The Universe is not only an Ayn Rand fan, he was a loyal and the last remaining member of her inner circle.

  2. “Arbitrary intrusion of government into private business only encourages the ongoing erosion of national interest economic policy and productivity will continue to suffer.”

    Hoo-Effing-ray!! Best comment I’ve read in ages.

    • H&H, Shame on you. Mining Fanboy actually likes your blog post. So you must have done something horribly wrong there 🙂

      • Lol – No need to mention it (pleased to see you thought of it) as the principle applies across industry sectors and I have no doubt of your consistency on this issue. I look forward to it.

      • No principle in that comment that now renders support for a MRRT inconsistent. There is such thing as nuance.

  3. dumb_non_economist

    I’ll most probably get yelled down for this, but I don’t care.

    Imo, you need to understand what a tagged flight is and it’s history. This is something that has only occurred since the start of Jet*.

    A tag a flt is just pseudo term added to a domestic flt to give it an appearance of an international flt, which it isn’t.

    For example a tagged dom flt, say MEL-PER-SIN, will start at the Dom terminal in MEL, drop off it’s pax @ the Dom treminal in PER, bus the remaining 5-10% of pax continuing to SIN (if you’re lucky) over to the Intn terminal and then pick up the REAL international pax for the PER-SIN sector. The sectors that this has been used on before are as above, MEL-PER-DPS-PER-MEL, MEL-PER-SIN-BKK-SIN-PER-MEL etc. Most of the flts are domestic in nature and the tag allows them to use overseas based crew to fly internally to cut costs. I’m sorry, but I object to this charade in using foreign labour for domestic work.

    In addition to this AJ makes a big deal about how high much higher the wage rate is for the Thai crew compared to their national average, national average of what workers are we talking about here, market stall workers? The rates he quoted also includes their overnight allowances for meals, laundry as they can be away for 7-10 days, cosmetics, stocking, shoes etc. Their allowances are not based on the ATOs daily Australian rate or it’s overseas equivalent. He’s massaged their pay as he did for the pilots and engineers.

    Companies or individuals who would exploit labour to get a $50 cheaper ticket or improve their bottom line make me sick. While in the M.E. I saw western expats justify paying domestic helpers $150 pm working a 12 hr 6 day week with the excuse that it was more than they would get back in their own countries plus “we’ll only upset the locals who can’t afford more than that”

    Vomit inducing.

    • Clearly some object to the use of cheap labour more than others, but is Qantas’ use any different to, say, a textile sweatshop?

      • Too right. “Spirit of Australia’ should be white-washed from all QF aircraft.

        How about ‘Spirit of Globalisation’? Ahh that’s better.

      • dumb_non_economist

        If the textile workshop is in Australia, NO, and it shouldn’t happen, if it isn’t, YES. We can’t control what happens outside of this country, but we can within.

        If QF wish to use cheap Asian labour either through one of its Australian or overseas subs to operate to or within this country, then remove any protection on the US route and let the likes of SQ or CX onto the routes if they can get US approval, so QF can no longer milk it.

        I’d oppose way less Joyce and Co’s attempts to cut their Australian wage costs, which is what this is all about, if the pay for the senior managers and board wasn’t so bloody obscene.

  4. Joyce was grilled in an attempt to ensure that any blame moves away from the govt and rests squarely on Qantas. Nothing more or less.

    Remember these guys are politicians, small details like “national interest” arent high on their list of priorities. They are just there to get re-elected.

    If the govt wishes to support “free trade” (which isnt really, as it needs to occur in the absence of currency manipulation, tariffs and subsidies) then they need to reap what they sow.

    • More than politicians , they are union hacks who have manipulated their way into the biggest trough available- the Australian Treasury.

      The whole episode is disgraceful. The unions will not rest until Qantas goes the way of Australian Airlines and Ansett.

      Former shop stewards interrogating the CEO of our National carrier. Pathetic.

      Our system is so screwed.

      • National Carrier? When was it last that?

        GSM, what industrial action have domestic pilots undertaken?

        International pilots? Flight attendants?

        When was Nick Xenophon a union hack? I see no connection when he was a barrister but he was a young liberal at U of A.

        I’m sensing Dunning-Kruger effect. (google it)

      • Bob Brown was a medical doctor (MBBS from Syd) practicing at various times at hospitals in the ACT, NT, London and Tassie before becoming an environmental campaigner. No union connection as far as I can tell.

      • “Bob Brown was a medical doctor (MBBS from Syd) practicing at various times at hospitals in the ACT, NT, London and Tassie ”

        In which capacity, IIRC, he was the doctor who pronounced Jimi Hendrix dead.

        And if you want another weird connection, Germaine Greer alleges she caught a STI from Jimi not long before that.

  5. “The time has come, off the back of the current crisis, to proclaim that the great neo-liberal experiment of the past 30 years has failed, that the emperor has no clothes. Neo-liberalism, and the free-market fundamentalism it has produced, has been revealed as little more than personal greed dressed up as an economic philosophy. And, ironically, it now falls to social democracy to prevent liberal capitalism from cannibalising itself.”

    From my understanding, it is not libertarianism or free market that has failed. I would argue that the problems we face today are because markets aren’t actually free. Instead, we have unprecedented government intervention which propped up insolvent companies – banking, auto, manufacturing – which, in a genuinely free market system, would have failed.