From the Chesapeake to the Yarra – comment by CEO Craig Robertson

The proposed US infrastructure plan of President Biden is eye-watering. A massive US$2 trillion – that’s 2,000 billion – and comes on top of the America Rescue Package of US$1.9 trillion.

For policy diehards it is inspiring – in one part folding education and training into the mainstay of economic strength and as a vehicle of recovery for a faltering economy. And, in other part, recognition that wages and opportunity can’t be sidelined in the recovery.

I’m no political economist but it is no coincidence that Washington DC, on the upper bounds of the Potomac River leading up from Chesapeake Bay, may be the birthplace of a new form of economic development. English colonisation of North America – around Chesapeake Bay – tells a story about the birth of individual opportunity.

Daron Acemoglu and James A Robinson in their seminal work Why Nations Fail – The Origins of Power, Prosperity and Poverty offer a quick lesson on English settlement in North America – around the Chesapeake. Seeking to exploit the local tribes for gold and silver like the Spaniards had succeeded in South America, the settlers were confronted by a resolute alliance of (American) Indians. Failing in their attempt to ‘extract’ wealth, the settlers were required to toil by hand for survival, with the harsh winter of 1609-10 almost ending the endeavour with 440 of the 500 settlers starving to death.

Starting over, King Charles I gifted land to Lord Baltimore to establish the province of Maryland (adjacent to Washington DC). Baltimore also planned an extracting regime of another form, on his own settler community! Strict society hierarchy with landholding gifted to proprietors along with the wealth and power that followed. The underclass demanded their own land and with the New World offering so many other options for earning a living outside of servitude to the landholders there was little option other than opening land to all. Economic freedom was soon followed by political rights at least for all free males (not women or African Americans at that stage).

This form of democracy created inclusive economic instruments and opportunity for all, which may have faltered had it not been for this one pocket of resistance from the local tribes around the Chesapeake.

Much has changed since those days, including the belief of the 1980s, thanks to Thatcher and Reagan, that government should get out of the way in favour of private effort. The American Jobs Plan – the actual title of the package – is a new way of opening-up opportunity. As with Roosevelt’s New Deal that got people back into work following the Great Depression, post COVID calls for Government intervention and spending to spread wealth through opportunity.

Soft infrastructure involving skills development, wages and labour conditions are crucial parts of the plan. Building the care economy by creating jobs and raising wages, building 500,000 Electrical Vehicle chargers across the country while promoting strong labour and training standards and training the workforce to operate and maintain 21st Century infrastructure. There’s $12 billion to upgrade community colleges, $100 billion for workforce development for under-served groups and $48 billion for workforce development infrastructure, including 2 million new apprenticeships.[1]

The philosophy aligns with the approach recommended by Jenny Macklin in her report to the Victorian Government – Future Skills for Victoria[2]. Macklin says: “skills deepening that is coordinated with industry policy not only meets new skills needs, it also helps to capture those industry opportunities in the first place.”

As if heralding Biden’s model, Macklin describes it as an active skills policy, ‘change will only occur… when these new industry opportunities are integrated with skills policy to produce structural reform to accelerate economic, industry and jobs growth’.

Critics are questioning whether the resulting debt burden makes the investment risky. The US golden era post World War II was laid by the New Deal. Americans who were afforded opportunity contributed to a great wave of economic growth. Americans may be thinking the same is needed again – 70 per cent of American adults support the $1.9 trillion rescue package[3]. And an active, skilled and well-remunerated workforce of 160 million who pay taxes would appear a reliable strategy to pay down debt.

Australia has more room for such investment according to John Edwards, former member of the Reserve Bank Board and member of the then Australian Workforce Productivity Agency. IMF figures show deficits in the US and Canada as one-fifth of GDP compared to just one-tenth in Australia, and the cost of servicing Australia’s debt, even accounting for the large expenditures like Job Keeper, is less than pre-COVID levels because of extraordinarily low interest rates[4].

It might be some distance between the Potomac and the Yarra but the thinking comes together. New investment in skills as soft infrastructure offers opportunity for all. In our case, inspired by Biden and outlined by Macklin.