Healthy humans drive the economy: we’re now witnessing one of the worst public policy failures in Australia’s history

Australians are getting a stark reminder about how value is actually created in an economy, and how supply chains truly work.

Ask chief executives where value comes from and they will credit their own smart decisions that inflate shareholder wealth. Ask logistics experts how supply chains work and they will wax eloquent about ports, terminals and trucks. Politicians, meanwhile, highlight nebulous intangibles like “investor confidence” – enhanced, presumably, by their own steady hands on the tiller.

The reality of value-added production and supply is much more human than all of this. It is people who are the driving force behind production, distribution and supply.

Labour – human beings getting out of bed and going to work, using their brains and brawn to produce actual goods and services – is the only thing that adds value to the “free gifts” we harvest from nature. It’s the only thing that puts food on supermarket shelves, cares for sick people and teaches our children.

Even the technology used to enhance workers’ productivity – or sometimes even replace them – is ultimately the culmination of other human beings doing their jobs. The glorious complexity of the whole economy boils down to human beings, using raw materials extracted and tools built by other human beings, working to produce goods and services.

A narrow, distorted economic lens

The economy doesn’t work if people can’t work. So the first economic priority during a pandemic must be to keep people healthy enough to keep working, producing, delivering and buying.

That some political and business leaders have, from the outset of COVID-19, consistently downplayed the economic costs of mass illness, reflects a narrow, distorted economic lens. We’re now seeing the result – one of the worst public policy failures in Australia’s history.

The Omicron variant is tearing through Australia’s workforce, from health care and child care, to agriculture and manufacturing, to transportation and logistics, to emergency services.

The result is an unprecedented, and preventable, economic catastrophe. This catastrophe was visited upon us by leaders – NSW Premier Dom Perrotet and Prime Minister Scott Morrison in particular – on the grounds they were protecting the economy. Like a Mafia kingpin extorting money, this is the kind of “protection” that can kill you.

Effect as bad as lockdowns

On a typical day in normal times, between 3% and 4% of employed Australians miss work due to their own illness. Multiple reports from NSW indicate up to half of workers are now absent due to COVID: because they contracted it, were exposed to it, or must care for someone (like children barred from child care) because of it. With infections still spreading, this will get worse in the days ahead.

Staffing shortages have left hospitals in chaos, supermarket shelves empty, supply chains paralysed. ANZ Bank data, for example, shows economic activity in Sydney has fallen to a level lower than the worst lockdowns.

Spending in Sydney and Melbourne now near lockdown conditions

If relaxing health restrictions in December (as Omicron was already spreading) was motivated by a desire to boost the economy, this is an own-goal for the history books.

Relaxing isolation rules

Now the response to Omicron ravaging labour supply is to relax isolation requirements for workers who have contracted, or been exposed to, COVID-19.

The first step was to shift the goalposts on “test, trace, isolate and quarantine” arrangements by redefining “close contact”.

On December 29 the Prime Minister said it was important to move to a new definition “that enables Australia to keep moving, for people to get on with their lives”. The next day National Cabinet approved a definition such that only individuals having spent at least four hours indoors with a COVID-infected person needed to isolate.

Australians certainly want supply chains to keep moving. That won’t happen by simply pretending someone with three hours and 59 minutes of face-to-face indoor contact with Omicron is safe. Putting asymptomatic but exposed and potentially infected people back to work will only accelerate the spread.

The second step has been to reduce the isolation period for those who do pass this tougher “close contact” test. At its December 30 meeting National Cabinet agreed to a standard isolation period of seven days (ten days in South Australia), down from 14 days.

For “critical workers” in essential services including food logistics, the NSW and Queensland governments have gone even further, allowing employers to call them back to work so long as they are asymptomatic.

Snatching defeat from the jaws of victory

This follows a US precedent, despite scientific evidence indicating contagion commonly lasts longer than 5 days.

Employers will use this change to pressure exposed and even sick workers to return to work, risking their own health, colleagues, customers, and inevitably spreading the virus further.

Copying US COVID protocols only guarantees US-style infection rates. In fact, since 5 January, Australia’s seven-day rolling average infections per million now exceed that of the US.

From one of the best COVID responses in the world to one of the worst, Australia has snatched defeat from the jaws of victory.

It’s not too late to limit the carnage

The idea that health considerations had to be balanced with economic interests was always a false dichotomy. A healthy economy requires healthy workers and healthy consumers.

The Omicron surge has created an economic emergency that will be difficult to endure.

But it’s not too late to limit further avoidable contagion. Infection prevention practices (including masks, capacity limits, prohibitions on group indoor activities, PPE and distancing in workplaces, and free and accessible rapid tests) must be restored and enforced.

Income supports for workers who stay home must be restored. Staffing strategies need to emphasise steady, secure jobs, rather than outsourcing and gig arrangements which have facilitated contagion.

Above all, our policymakers need to remember the economy is composed of human beings and refocus their attention on keeping people healthy. Protecting people is the only thing that can protect the economy.

Jim Stanford, Economist and Director, Centre for Future Work, Australia Institute; Honorary Professor of Political Economy, University of Sydney

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Air Plane Gold Coast Airport Photo Blow the Truth

In 2020 international passenger demand was less than 25% that of 2019, according to the International Air Transport Association. 2021 data isn’t yet available, but the hiccups of the Delta and Omicron variants make the association’s forecasts of 50% of 2019 levels look optimistic.

With international and domestic routes reopening, airlines are offering a range of special deals on airfares. These deals are partly to entice back uncertain travellers and partly to compensate passengers for costs required to travel internationally, such as fees for COVID tests.

But don’t expect the cheap fares to last.

They are likely to have a brief lifespan, as the industry come to grips with post-pandemic realities minus the government support that enabled so many, contrary to predictions, to survive.

Now comes a reckoning, as surviving airlines seek to return to viability, repair their debt-laden balance sheets and future-proof their operations, with no guarantee they’ll get the same government support when the next crisis hits.

What this may mean is abandoning the business model of wafer-thin profit margins that delivered ever cheaper airfares from the 1970s until the beginning of 2020.

Regulation and jumbo jets

Up until the 1970s the airline industry was highly regulated.

Domestically, this was often done by governments to protect state-owned airlines. Australia’s “two-airline policy”, for example, restricted competition on major routes to just two airlines – the government-owned Trans Australia Airlines and a private competitor (Ansett Airlines for most that time).

Internationally, airfares were kept high by price cooperation through the International Air Transport Association (IATA), often described as a cartel. There were two ticket pricing levels – first-class and economy.

Until 1970 the biggest commercial jet aircraft was a Boeing 707, which could accommodate 180 passengers at a squeeze. Airfares had to be high to cover the high cost of operations (especially jet fuel). Most airlines accepted the IATA fare levels. Discounting was rare.

Then in 1970 came the Boeing 747 jumbo jet, which more than doubled flights’ passenger capacity, from 180 to 440.

This led to many changes in aviation operations and costs. Jumbo jets also enabled greater seat-pricing flexibility, with the introduction of business and premium economy classes.

Airfares plummet

When I began work as a travel consultant in 1981 the regulation of air fares was beginning to unravel.

The official IATA economy return fare from Sydney to London was about A$3,500. But you could find fares on selected airlines for about A$2,500. (This was still several months’ wages for most, with Australian average weekly full-time earnings in 1981 being A$311 for men and A$241 for women.)

In the 1980s and 1990s, travel agents began to set themselves up as “bucket shops” specialising in offering discounted air fares to fill empty seats on less popular airlines.

This was how Flight Centre started. It opened its first shopfront in Sydney in 1982, followed by stores in Melbourne and Brisbane. (It now has more than 650 shops in Australia, and more than 550 in 10 other countries.)

Lower costs and plummeting air fares made the IATA’s fares increasingly irrelevant. With the global rise of low-cost carriers, many of which were not IATA members, the IATA finally abandoned so-called “YY” fare-setting in 2017.

Government regulation was also unwinding. Australia’s two-airline policy ended in October 1990. Deregulation permitted more competitors, and airfares were driven by the market rather than set by regulatory bodies.

By 2019, a return fare between Sydney and London on a reputable airline could be bought for about A$1,250, less than Australia’s average full-time adult average weekly earnings of A$1,658.

A Sydney-Perth return fare that cost about A$1,100 in 1981 could be bought in 2019 for less than A$300.

Why the cheap fare era may end

These price falls depended on airlines embracing a business model based on lower profits per customer but flying a lot more customers, cutting fixed overheads by using larger-capacity aircraft.

This business model contributed to the number of global tourists increasing from about 166 million in 1970 to 1.5 billion in 2019. But it also meant airlines needed planes full of passengers to make a profit. By 2019 the average pre-COVID profit margin per passenger on a long-haul international return flight was about US$10.

It’s difficult to see how running on razor-thin margins can continue to be the industry model.

During 2022 it is likely we will see consolidation within the industry, with the airlines that survive looking to diversify into other businesses, such as catering or insurance.

Low-cost carriers may still be viable, but only by convincing customers to pay for “ancilliaries” beyond the airline seat, such as in-flight snacks, extra luggage capacity or a booking a hire car.

Although most airlines are committed to limiting price increases, there is no escaping the fact they have two years of massive losses to make up and the continuing extra cost of COVID-related regulations to absorb.

Higher margins with lower passenger volumes looks the more probable model.

David Beirman, Senior Lecturer, Tourism, University of Technology Sydney

This article is republished from The Conversation under a Creative Commons license. Read the original article.