Date created: 28 November 1996
Last modified: 18 November 1997
Maintained by: John Quiggin
John QuigginApril 19, 1996
In observing the debate over economic policy, it is striking how much attention is devoted to third-order issues. The current alarm over the performance of our container terminals is a case in point. Apparently, it takes Australian terminals two days to turn a container ship around, whereas the same task is achieved in Singapore in twelve hours. To see how much this matters, consider a typical trade transaction in which our ports might be involved. A shipload of TV sets is manufactured in, say, Taiwan and shipped to Australia in containers. On arrival, the containers of TV sets are unloaded and empty containers are put in their places. The ship returns to Taiwan and the TV sets are distributed first to warehouses, then to department stores and finally to Australian homes. In total, the process probably takes several months. A saving of 36 hours on the waterfront would make no perceptible difference. Assuming that the annual interest rate on inventory holdings is 10 per cent, the reduced shipping time for a $400 TV set would save consumers around 15 cents.
The savings in delivery time are not the only issue. There are currently about 3500 wharfies employed in Australian ports, about a tenth as many as were employed in 1960. Further reductions in numbers are apparently regarded as a national priority. Since wharfies are currently making as much as $75 000 a year, waterfront employers could reap significant benefits from reductions in numbers. However, from the viewpoint of society as a whole, the cost of waterfront featherbedding arises from the foregone output that wharfies could produce in alternative employment. Suppose that a further 1000 waterfront jobs were eliminated, with no loss in performance. It seems likely that the great majority of those retrenched would simply retire or else join the ranks of the long term unemployed. But, for the sake of argument, suppose that half of them remained in the workforce and that these displaced wharfies were as productive as the average worker. The gain in output from each such worker is approximately equal to average weekly earnings or around $30 000 per year. For 500 workers, this amounts to a net social gain of $15 million a year, just about enough to pay for the endless stream of reports and Commissions of Inquiry into the waterfront.
The advocates of microeconomic reform have occasionally attempted to calculate the benefits themselves. They have generally made the mistake of regarding reduced payments to wharfies as net social gains when in fact they are merely transfers between groups in society. Even so, the estimates of direct gains remain embarrassingly small.
The next step in the argument is to claim that the waterfront, or more precisely the container terminal sector, is 'strategic'; that is, its importance to the economy is greater than its measured contribution to GDP. It is not clear why rapid processing of containers should be a strategic activity, given that Australia is a net importer of most of the classes of goods shipped in containers, but let us pass over this point. In economic terms, an activity is strategic in the sense described above only if it generates positive externalities. In such cases, the appropriate policy response is a subsidy. Attempts to intervene in labour markets so as to reduce costs are a second-best and roundabout method of achieving an optimal level of the strategic activity. Although many economists have gone along with claims that the waterfront is strategic, none, to my knowledge, has drawn the obvious inference and advocated a subsidy.
Other commentators seem more concerned with the moral outrage they feel over wharfies taking home $75 000 a year. When compared to other blue-collar workers, this is not an equitable rate of pay. But most readers of this newspaper could nominate plenty of people being paid more than the average waterfront worker and making a smaller contribution to society.
While our attention is absorbed by trivial issues, nothing is being done about our real problems. The fact that container ships are being turned around slowly is of far less importance than the fact too many container ships are arriving fully laden with consumer goods and departing empty. The government's plans to reduce consumption of domestically produced community services by cutting public spending and to raise private consumption expenditure by holding down taxes will do nothing to improve this problem.
The fact that a few thousand wharfies are underworked and overpaid is utterly trifling in comparison to the fact that a million or more Australians are involuntarily idle and living on social security benefits. The monetary cost of chronically high unemployment amounts to tens of billions of dollars every year, without considering the disastrous social implications. Yet a newly elected government that has rushed to deal with the problems of our container terminals has so far not even mentioned unemployment.
John Quiggin is Professor of Economics at James Cook University and author of Great Expectations: Microeconomic reform and Australia, published by Allen & Unwin.