Just a decade ago, Australian labour was easy to find and infrastructure projects were often no-brainers. Now our economic times seem to have changed – and policymakers may need to adjust to a new set of rules.
The world is always changing, but sometimes parts of it change uncharacteristically fast.
Take the 1970s. Anyone under 60 has little memory of the economic world before 1973. But in that year, oil prices soared, unemployment started to rise, the Bretton Woods agreement continued unravelling – in short, the rules changed substantially, and forever. Most of us have spent most of our lives in this world.
In the 2020s, it seems arguable that the rules are moving again. The challenge of this era is to manage changing resources constraints. We struggle with an emerging scarcities of human resources, but also scarcities of labour-related resources, such as housing, and possibly of capital. But we also have emerging new abundance in important areas.
Not surprisingly, governments seem reluctant to move away from the thinking that served them pretty well just a decade ago. Most politicians grew up in that world, its strategies seemed to work, and so those politicians are mostly reluctant to drop those strategies now. It’s not just generals who want to fight the last war.
Reining in the 2010s infrastructure spending
A paradigm case of 2010s strategy is the Victorian government’s Melbourne Suburban Rail Loop, an underground railway line through the middle suburbs of Melbourne, for which it currently plans to borrow more than $100 billion dollars. Most urban transport experts say these suburbs don’t warrant such facilities, but the government has stuck to its loopiness even after the departure of the loop’s chief backer, former premier Dan Andrews.
But now rising debt costs mean Victoria’s state Budget is suddenly looking … um, “pressured”. Though it might be too late for the Victorian government to stop now without losing face, it’s increasingly obvious that this project should never have been started.
I’ve written plenty about the Loop project. But the same pattern seems to apply to the energy transition, mostly overseen by an LNP government.
Australia is committed to sharp emissions reductions over the next quarter-century. That means reconfiguring our electricity transmission system. It also means replacing much of our existing energy infrastructure with solar panels, wind turbines, batteries and other systems, such as what is called “pumped hydroelectric storage”. In such a system you take water from the bottom of your hydroelectric system and pump it back uphill, using cheap power that might come from people’s rooftops on a sunny day – and run that water back through your hydro plant when it’s needed on an overcast day or a hot night.
If current projects are anything to judge by, the task of replacing Australia’s electricity infrastructure is going to be messy. The example par excellence is what began life as “Snowy 2.0”, back in the days when “2.0” was the sort of snazzy modern name you gave to a building project to make it seem more sexy.
When Malcolm Turnbull announced this project in 2017, he declared: “I am a nation-building Prime Minister and this is a nation-building project.” He might have been less enthusiastic if he’d known it would cost at least $12 billion and take until late 2028 to complete, but those are the latest projections.