Friday, 21 September 2007
President George W. Bush intends to address a September 27-28 gathering of 16 nations in Washington on how best to combat global warming, which he now accepts to be a "serious challenge."
But while Europe and the scientific community push for new binding targets to reduce greenhouse gases, Bush's approach emphasizes technological change and voluntary action by governments and companies.
"Countries are not just eager but desperate for US engagement on this issue," said Elliot Diringer, director of international strategies at the Pew Center on Global Climate Change.
"But some are quite skeptical and want to make sure that the US initiative does not undermine the broader effort to launch formal negotiations in Bali," he said, looking ahead to a major conference in December.
The Washington gathering will follow an unprecedented summit of about 80 world leaders on Monday to debate climate change ahead of next week's annual General Assembly of the United Nations in New York.
Then in three months, the conference on the Indonesian island of Bali will look at what kind of greenhouse gas regime should succeed the Kyoto treaty, whose binding reductions on emissions expire in 2012.
Bush refused to adopt the "fatally flawed" Kyoto pact, arguing that it would cripple the US economy and that it placed no requirements on fast-developing nations such as China to cut their own greenhouse gases.
After taking office in 2001, the president said the science of global warming was still open to doubt, querying to what extent it was a man-made or natural phenomenon.
But in February, the Bush administration saluted the conclusions of UN scientists who warned that rising temperatures from fossil fuel pollution would worsen floods, droughts and hurricanes, melt polar sea ice and damage the climate system for a thousand years to come.
What remains in question is the administration's commitment to craft a tough successor to Kyoto that would encompass the United States, the world's biggest polluter, along with China and the other emerging industrial powers.
This month's Washington meeting will gather nations that together account for 90 percent of all greenhouse gas output, including Australia, Brazil, China, India, Japan, Russia and European powers.
The White House's Council on Environmental Quality said it hoped to feed the results of the Washington conference into a new global agreement by 2009 that establishes national plans to reduce gases such as carbon dioxide.
"These national strategies will be based on what is best for the individual country," council spokeswoman Kristen Hellmer said.
Bush is under pressure to take firmer action from a diverse collection of interests ranging from big business and the Democratic-led Congress through to evangelical Christians and a resurgent green lobby.
The Oscar-winning success of former vice president Al Gore's documentary on global warming, "An Inconvenient Truth," has helped to propel the debate onto America's front pages.
In the absence of federal action, several US states including the economic behemoth of California now have their own policies to reduce emissions and set up a European-style "cap and trade" market among corporate sectors.
Several bills have appeared since the Democrats retook control of Congress last November, including a market-based proposal from veteran senators Joseph Lieberman and John Warner that they say would still safeguard the US economy.
However, some suspect Bush of pursuing a public-relations exercise on climate change as the clock winds down on his presidency.
National Environmental Trust president Phil Clapp said the sort of voluntary regime favored by Bush had been discredited in the 1990s.
"The president is recycling a 15-year-old approach on global warming that was invented by his father's administration and trying to call it new," he said.
Thursday, 20 September 2007
BY Amanda Witherell
There are a handful of freedoms that have almost always been a part of American democracy. Even when they didn't exactly apply to everyone or weren't always protected by the people in charge, a few simple but significant rights have been patently clear in the Constitution: You can't be nabbed by the cops and tossed behind bars without a reason. If you are imprisoned, you can't be incarcerated indefinitely; you have the right to a speedy trial with a judge and jury. When that court date rolls around, you'll be able to see the evidence against you.
The president can't suspend elections, spy without warrants, or dispatch federal troops to trump local cops or quell protests. Nor can the commander in chief commence a witch hunt, deem individuals "enemy combatants," or shunt them into special tribunals outside the purview of our 218-year-old judicial system.
Until now. This year's Project Censored presents a chilling portrait of a newly empowered executive branch signing away civil liberties for the sake of an endless and amorphous war on terror. And for the most part, the major news media weren't paying attention.
"This year it seemed like civil rights just rose to the top," said Peter Phillips, the director of Project Censored, the annual media survey conducted by Sonoma State University researchers and students who spend the year patrolling obscure publications, national and international Web sites, and mainstream news outlets to compile the 25 most significant stories that were inadequately reported or essentially ignored.
While the project usually turns up a range of underreported issues, this year's stories all fall somewhat neatly into two categories — the increase of privatization and the decrease of human rights. Some of the stories qualify as both.
"I think they indicate a very real concern about where our democracy is heading," writer and veteran judge Michael Parenti said.
For 31 years Project Censored has been compiling a list of the major stories that the nation's news media have ignored, misreported, or poorly covered.
The Oxford American Dictionary defines censorship as "the practice of officially examining books, movies, etc., and suppressing unacceptable parts," which Phillips said is also a fine description of what happens under a dictatorship. When it comes to democracy, the black marker is a bit more nuanced. "We need to broaden our understanding of censorship," he said. After 11 years at the helm of Project Censored, Phillips thinks the most bowdlerizing force is the fourth estate itself: "The corporate media is complicit. There's no excuse for the major media giants to be missing major news stories like this."
As the stories cited in this year's Project Censored selections point out, the federal government continues to provide major news networks with stock footage, which is dutifully broadcast as news. The George W. Bush administration has spent more federal money than any other presidency on public relations. Without a doubt, Parenti said, the government invests in shaping our beliefs. "Every day they're checking out what we think," he said. "The erosion of civil liberties is not happening in one fell swoop but in increments. Very consciously, this administration has been heading toward a general autocracy."
Carl Jensen, who founded Project Censored in 1976 after witnessing the landslide reelection of Richard Nixon in 1972 in spite of mounting evidence of the Watergate scandal, agreed that this year's censored stories amount to an accumulated threat to democracy. "I'm waiting for one of our great liberal writers to put together the big picture of what's going on here," he said.
1. GOOD-BYE, HABEAS CORPUS
The Military Commissions Act, passed in September 2006 as a last gasp of the Republican-controlled Congress and signed into law by Bush that Oct. 17, made significant changes to the nation's judicial system.
The law allows the president to designate any person an "alien unlawful enemy combatant," shunting that individual into an alternative court system in which the writ of habeas corpus no longer applies, the right to a speedy trial is gone, and justice is meted out by a military tribunal that can admit evidence obtained through coercion and presented without the accused in the courtroom, all under the guise of preserving national security.
Habeas corpus, a constitutional right cribbed from the Magna Carta, protects against arbitrary imprisonment. Alexander Hamilton, writing in the Federalist Papers, called it the greatest defense against "the favorite and most formidable instruments of tyranny."
The Military Commissions Act has been seen mostly as a method for dealing with Guantánamo Bay detainees, and most journalists have reported that it doesn't have any impact on Americans. On Oct. 19, 2006, editors at the New York Times wrote, in quite definitive language, "this law does not apply to American citizens."
Investigative journalist Robert Parry disagrees. The right of habeas corpus no longer exists for any of us, he wrote in the online journal Consortium. Deep down in the lower sections of the act, the language shifts from the very specific "alien unlawful enemy combatant" to the vague "any person subject to this chapter."
"Why does it contain language referring to 'any person' and then adding in an adjacent context a reference to people acting 'in breach of allegiance or duty to the United States'?" Parry wrote. "Who has 'an allegiance or duty to the United States' if not an American citizen?"
Reached by phone, Parry told the Guardian that "this loose phraseology could be interpreted very narrowly or very broadly." He said he's consulted with lawyers who are experienced in drafting federal security legislation, and they agreed that the "any person" terminology is troubling. "It could be fixed very simply, but the Bush administration put through this very vaguely worded law, and now there are a lot of differences of opinion on how it could be interpreted," Parry said.
Though US Sens. Patrick Leahy (D-Vt.) and Arlen Specter (R-Pa.) moved quickly to remedy the situation with the Habeas Corpus Restoration Act, that legislation has yet to pass Congress, which some suspect is because too many Democrats don't want to seem soft on terrorism. Until tested by time, exactly how much the language of the Military Commissions Act may be manipulated will remain to be seen.
Sources: "Repeal the Military Commissions Act and Restore the Most American Human Right," Thom Hartmann, Common Dreams Web site, www.commondreams.org/views07/0212-24.htm, Feb. 12, 2007; "Still No Habeas Rights for You," Robert Parry, Consortium (online journal of investigative reporting), consortiumnews.com/2007/020307.html, Feb. 3, 2007; "Who Is 'Any Person' in Tribunal Law?" Robert Parry, Consortium, consortiumnews.com/2006/101906.html, Oct. 19, 2006
2. MARTIAL LAW: COMING TO A TOWN NEAR YOU
The Military Commissions Act was part of a one-two punch to civil liberties. While the first blow to habeas corpus received some attention, there was almost no media coverage of a private Oval Office ceremony held the same day the military act was signed at which Bush signed the John Warner Defense Authorization Act, a $532 billion catchall bill for defense spending.
Tucked away in the deeper recesses of that act, section 1076 allows the president to declare a public emergency and dispatch federal troops to take over National Guard units and local police if he determines them unfit for maintaining order. This is essentially a revival of the Insurrection Act, which was repealed by Congress in 1878, when it passed the Posse Comitatus Act in response to Northern troops overstaying their welcome in the reconstructed South. That act wiped out a potentially tyrannical amount of power by reinforcing the idea that the federal government should patrol the nation's borders and let the states take care of their own territories.
The Warner act defines a public emergency as a "natural disaster, epidemic, or other serious public health emergency, terrorist attack or incident, or other condition in any state or possession of the United States" and extends its provisions to any place where "the president determines that domestic violence has occurred to such an extent that the constituted authorities of the state or possession are incapable of maintaining public order." On top of that, federal troops can be dispatched to "suppress, in a state, any insurrection, domestic violence, unlawful combination, or conspiracy."
So everything from a West Nile virus outbreak to a political protest could fall into the president's personal definition of mayhem. That's right — put your picket signs away.
The Warner act passed with 90 percent of the votes in the House and cleared the Senate unanimously. Months after its passage, Leahy was the only elected official to have publicly expressed concern about section 1076, warning his peers Sept. 19, 2006, that "we certainly do not need to make it easier for presidents to declare martial law. Invoking the Insurrection Act and using the military for law enforcement activities goes against some of the central tenets of our democracy. One can easily envision governors and mayors in charge of an emergency having to constantly look over their shoulders while someone who has never visited their communities gives the orders." In February, Leahy introduced Senate Bill 513 to repeal section 1076. It's currently in the Armed Services Committee.
Sources: "Two Acts of Tyranny on the Same Day!" Daneen G. Peterson, Stop the North America Union Web site, www.stopthenorthamericanunion.com/articles/Fear.html, Jan. 20, 2007; "Bush Moves toward Martial Law," Frank Morales, Uruknet.info (Web site that publishes "information from occupied Iraq"), www.uruknet.info/?p=27769, Oct. 26, 2006
President Jimmy Carter was the first to draw a clear line between America's foreign policy and its concurrent "vital interest" in oil. During his 1980 State of the Union address, he said, "An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force."
Under what became the Carter Doctrine, an outpost of the Pentagon, called the United States Central Command, or CENTCOM, was established to ensure the uninterrupted flow of that slick "vital interest."
The United States is now constructing a similar permanent base in Africa, an area traditionally patrolled by more remote commands in Europe and the Pacific. No details have been released about exactly what AFRICOM's operations and responsibilities will be or where troops will be located, though government spokespeople have vaguely stated that the mission is to establish order and keep peace for volatile governments — that just happen to be in oil-rich areas.
Though the official objective may be peace, some say the real desire is crude. "A new cold war is under way in Africa, and AFRICOM will be at the dark heart of it," Bryan Hunt wrote on the Moon of Alabama blog, which covers politics, economics, and philosophy. Most US oil imports come from African countries — in particular, Nigeria. According to the 2007 Congressional Budget Justification for Foreign Operations, "disruption of supply from Nigeria would represent a major blow to US oil-security strategy."
Though details of the AFRICOM strategy remain secret, Hunt has surveyed past governmental statements and reports by other independent journalists to draw parallels between AFRICOM and CENTCOM, making the case that the United States sees Africa as another "vital interest."
Source: "Understanding AFRICOM," parts 1–3, b real, Moon of Alabama, www.moonofalabama.org/2007/02/understanding_a_1.html, Feb. 21, 2007
4. SECRET TRADE AGREEMENTS
As disappointing as the World Trade Organization has been, it has provided something of an open forum in which smaller countries can work together to demand concessions from larger, developed nations when brokering multilateral agreements.
At least in theory. The 2006 negotiations crumbled when the United States, the European Union, and Australia refused to heed India's and Brazil's demands for fair farm tariffs.
In the wake of that disaster, bilateral agreements have become the tactic of choice. These one-on-one negotiations, designed by the US and the EU, are cut like backroom deals, with the larger country bullying the smaller into agreements that couldn't be reached through the WTO.
Bush administration officials, always quick with a charming moniker, are calling these free-trade agreements "competitive liberalization," and the EU considers them essential to negotiating future multilateral agreements.
But critics see them as fast tracks to increased foreign control of local resources in poor communities. "The overall effect of these changes in the rules is to progressively undermine economic governance, transferring power from governments to largely unaccountable multinational firms, robbing developing countries of the tools they need to develop their economies and gain a favorable foothold in global markets," states a report by Oxfam International, the antipoverty activist group.
Sources: "Free Trade Enslaving Poor Countries" Sanjay Suri, Inter Press Service (global news service), ipsnews.org/news.asp?idnews=37008, March 20, 2007; "Signing Away the Future" Emily Jones, Oxfam Web site, www.oxfam.org/en/policy/briefingpapers/bp101_regional_trade_agreements_0703, March 2007
5. SHANGHAIED SLAVES CONSTRUCT US EMBASSY IN IRAQ
Part of the permanent infrastructure the United States is erecting in Iraq includes the world's largest embassy, built on Green Zone acreage equal to that of Vatican City. The $592 million job was awarded in 2005 to First Kuwaiti Trading and Contracting. Though much of the project's management is staffed by Americans, most of the workers are from small or developing countries like the Philippines, India, and Pakistan and, according to David Phinney of CorpWatch — a Bay Area organization that investigates and exposes corporate environmental crimes, fraud, corruption, and violations of human rights — are recruited under false pretenses. At the airport, their boarding passes read Dubai. Their passports are stamped Dubai. But when they get off the plane, they're in Baghdad.
Once on site, they're often beaten and paid as little as $10 to $30 a day, CorpWatch concludes. Injured workers are dosed with heavy-duty painkillers and sent back on the job. Lodging is crowded, and food is substandard. One ex-foreman, who's worked on five other US embassies around the world, said, "I've never seen a project more fucked up. Every US labor law was broken."
These workers have often been banned by their home countries from working in Baghdad because of unsafe conditions and flagging support for the war, but once they're on Iraqi soil, protections are few. First, Kuwaiti managers take their passports, which is a violation of US labor laws. "If you don't have a passport or an embassy to go to, what do you do to get out of a bad situation?" asked Rory Mayberry, a former medic for one of First Kuwaiti's subcontractors, who blew the whistle on the squalid living conditions, medical malpractice, and general abuse he witnessed at the site.
The Pentagon has been investigating the slavelike conditions but has not released the names of any violating contractors or announced penalties. In the meantime, billions of dollars in contracts continue to be awarded to First Kuwaiti and other companies at which little accountability exists. As Phinney reported, "No journalist has ever been allowed access to the sprawling 104-acre site."
Source: "A U.S. Fortress Rises in Baghdad: Asian Workers Trafficked to Build World's Largest Embassy," David Phinney, CorpWatch Web site, www.corpwatch.org/article.php?id=14173, Oct. 17, 2006
6. FALCON'S TALONS
Operation FALCON, or Federal and Local Cops Organized Nationally, is, in many ways, the manifestation of martial law forewarned by Frank Morales (see story 2). In an unprecedented partnership, more than 960 federal, state, and local police agencies teamed up in 2005 and 2006 to conduct the largest dragnet raids in US history. Armed with fistfuls of arrest warrants, they ran three separate raids around the country that netted 30,110 criminal arrests.
The Justice Department claimed the agents were targeting the "worst of the worst" criminals, and Attorney General Alberto Gonzales said, "Operation FALCON is an excellent example of President Bush's direction and the Justice Department's dedication to deal both with the terrorist threat and traditional violent crime."
However, as writer Mike Whitney points out on Uruknet.info, none of the suspects has been charged with anything related to terrorism. Additionally, while 30,110 individuals were arrested, only 586 firearms were found. That doesn't sound very violent either.
Though the US Marshals Service has been quick to tally the offenses, Whitney says the numbers just don't add up. For example, FALCON in 2006 captured 462 violent sex-crime suspects, 1,094 registered sex offenders, and 9,037 fugitives.
What about the other 7,481 people? "Who are they, and have they been charged with a crime?" Whitney asked.
The Marshals Service remains silent about these arrests. Whitney suggests those detainees may have been illegal immigrants and may be bound for border prisons currently being constructed by Halliburton (see last year's Project Censored).
As an added bonus of complicity, the Justice Department supplied local news outlets with stock footage of the raids, which some TV stations ran accompanied by stories sourced from the Department of Justice's news releases without any critical coverage of who exactly was swept up in the dragnets and where they are now.
Sources: "Operation Falcon and the Looming Police State," Mike Whitney, Uruknet.info, uruknet.info/?p=m30971&s1=h1, Feb. 26, 2007; "Operation Falcon," SourceWatch (project of the Center for Media and Democracy), www.sourcewatch.org/index.php?title=Operation_FALCON, Nov. 18, 2006
The outsourcing of war has served two purposes for the Bush administration, which has given powerful corporations and private companies lucrative contracts supplying goods and services to American military operations overseas and quietly achieved an escalation of troops beyond what the public has been told or understands. Without actually deploying more military forces, the federal government instead contracts with private security firms like Blackwater to provide heavily armed details for US diplomats in Iraq, Afghanistan, and other countries where the nation is currently engaged in conflicts.
Blackwater is one of the more successful and well connected of the private companies profiting from the business of war. Started in 1996 by an ex–Navy Seal named Erik Prince, the North Carolina company employs 20,000 hired guns, training them on the world's largest private military base.
"It's become nothing short of the Praetorian Guard for the Bush administration's so-called global war on terror," author Jeremy Scahill said on the Jan. 26 broadcast of the TV and radio news program Democracy Now! Scahill's Blackwater: The Rise of the World's Most Powerful Mercenary Army was published this year by Nation Books.
Source: "Our Mercenaries in Iraq," Jeremy Scahill, Democracy Now!, www.democracynow.org/article.pl?sid=07/01/26/1559232, Jan. 26, 2007
8. KIA: THE NEOLIBERAL INVASION OF INDIA
A March 2006 pact under which the United States agreed to supply nuclear fuel to India for the production of electric power also included a less-publicized corollary — the Knowledge Initiative on Agriculture. While it's purportedly a deal to assist Indian farmers and liberalize trade (see story 4), critics say the initiative is destroying India's local agrarian economy by encouraging the use of genetically modified seeds, which in turn is creating a new market for pesticides and driving up the overall cost of producing crops.
The deal provides a captive customer base for genetically modified seed maker Monsanto and a market for cheap goods to supply Wal-Mart, whose plans for 500 stores in the country could wipe out the livelihoods of 14 million small vendors.
Monsanto's hybrid Bt cotton has already edged out local strains, and India is currently suffering an infestation of mealy bugs, which have proven immune to the pesticides the chemical companies have made available. Additionally, the sowing of crops has shifted from the traditional to the trade friendly. Farmers accustomed to cultivating mustard, a sacred local crop, are now producing soy, a plant foreign to India.
Though many farmers are seeing the folly of these deals, it's often too late. Suicide has become a popular final act of opposition to what's occurring in their country.
Vandana Shiva, who for 10 years has been studying the effects of bad trade deals on India, has published a report titled Seeds of Suicide, which recounts the deaths of more than 28,000 farmers who killed themselves in despair over the debts brought on them by binding agreements ultimately favoring corporations.
Hope comes in the form of a growing cadre of farmers hip to the flawed deals. They've organized into local sanghams, 72 of which now exist as small community networks that save and share seeds, skills, and assistance during the good times of harvest and the hard times of crop failure.
Sources: "Vandana Shiva on Farmer Suicides, the U.S.-India Nuclear Deal, Wal-Mart in India," Democracy Now!, www.democracynow.org/article.pl?sid=06/12/13/1451229, Dec. 13, 2006; "Genetically Modified Seeds: Women in India take on Monsanto," Arun Shrivastava, Global Research (Web site of Montreal's Center for Global Research), www.globalresearch.ca/index.php?context=viewArticle&code=ARU20061009&articleId=3427, Oct. 9, 2006
9. THE PRIVATIZATION OF AMERICA'S INFRASTRUCTURE
In 1956, President Dwight D. Eisenhower ushered through legislation for the greatest public works project in human history — the interstate highway system, 41,000 miles of roads funded almost entirely by the federal government.
Fifty years later many of those roads are in need of repair or replacement, but the federal government has not exactly risen to the challenge. Instead, more than 20 states have set up financial deals leasing the roads to private companies in exchange for repairs. These public-private partnerships are being lauded by politicians as the only credible financial solution to providing the public with improved services.
But opponents of all political stripes are criticizing the deals as theft of public property. They point out that the bulk of benefits is actually going to the private side of the equation — in many cases, to foreign companies with considerable experience building private roads in developing countries. In the United States these companies are entering into long-term leases of infrastructure like roads and bridges, for a low amount. They work out tax breaks to finance the repairs, raise tolls to cover the costs, and start realizing profits for their shareholders in as little as 10 years.
As Daniel Schulman and James Ridgeway reported in Mother Jones, "the Federal Highway Administration estimates that it will cost $50 billion a year above current levels of federal, state, and local highway funding to rehab existing bridges and roads over the next 16 years. Where to get that money, without raising taxes? Privatization promises a quick fix — and a way to outsource difficult decisions, like raising tolls, to entities that don't have to worry about getting reelected."
The Indiana Toll Road, the Chicago Skyway, Virginia's Pocahontas Parkway, and many other stretches of the nation's public pavement have succumbed to these private deals.
Cheerleaders for privatization are deeply embedded in the Bush administration (see story 7), where they've been secretly fostering plans for a North American Free Trade Agreement superhighway, a 10-lane route set to run through the heart of the country and connect the Mexican and Canadian borders. It's specifically designed to plug into the Mexican port of Lázaro Cárdenas, taking advantage of cheap labor by avoiding the International Longshore and Warehouse Union, whose members are traditionally tasked with unloading cargo, and the International Brotherhood of Teamsters, whose members transport that cargo that around the country.
Sources: "The Highwaymen" Daniel Schulman with James Ridgeway, Mother Jones, www.motherjones.com/news/feature/2007/01/highwaymen.html, Feb. 2007; "Bush Administration Quietly Plans NAFTA Super Highway," Jerome R. Corsi, Human Events, www.humanevents.com/article.php?id=15497, June 12, 2006
10. VULTURE FUNDS: DEVOURING THE DESPERATE
Named for a bird that picks offal from a carcass, this financial scheme couldn't be more aptly described. Well-endowed companies swoop in and purchase the debt owed by a third world country, then turn around and sue the country for the full amount — plus interest. In most courts, they win. Recently, Donegal International spent $3 million for $40 million worth of debt Zambia owed Romania, then sued for $55 million. In February an English court ruled that Zambia had to pay $15 million.
Often these countries are on the brink of having their debt relieved by the lenders in exchange for putting the owed money toward necessary goods and services for their citizens. But the vultures effectively initiate another round of deprivation for the impoverished countries by demanding full payment, and a loophole makes it legal.
Investigative reporter Greg Palast broke the story for the BBC's Newsnight, saying that "the vultures have already sucked up about $1 billion in aid meant for the poorest nations, according to the World Bank in Washington."
With the exception of the BBC and Democracy Now!, no major news source has touched the story, though it's incensed several members of Britain's Parliament as well as the new prime minister, Gordon Brown. US Reps. John Conyers (D-Mich.) and Donald Payne (D-N.J.) lobbied Bush to take action as well, but political will may be elsewhere. Debt Advisory International, an investment consulting firm that's been involved in several vulture funds that have generated millions in profits, is run by Paul Singer — the largest fundraiser for the Republican Party in the state of New York. He's donated $1.7 million to Bush's campaigns.
Source: "Vulture Fund Threat to Third World," Newsnight, www.gregpalast.com/vulture-fund-threat-to-third-world, Feb. 14, 2007
Tim Flannery, named the 2007 Australian of the Year for his work in alerting the public to the dangers of global warming, said the issue was the greatest challenge facing humanity in the 21st century.
Flannery said predictions in a 2001 UN report, warning the atmosphere was likely to warm by 1.4 to 5.8 degrees Celsius (2.5-10.4 Fahrenheit) from 1990 to 2100 now appeared conservative.
"In the six years since then, we've collected enough data to (check) whether those projections are valid or not," he said.
"It turns out they're not valid, but in the most horrible way -- because for the key performance indicators about climate, change is occurring far in advance of the worst-case scenario," he said.
"Carbon dioxide's increasing more rapidly, sea levels are rising more rapidly (and) the Arctic ice cap is melting away more quickly than were projected in 2001."
Flannery said the world needed an international organisation similar to the United Nations dedicated solely to climate change.
"The 21st century is going to be about environmental limits," he said.
"There's six billion of us on the planet, there will soon be nine billion, the atmosphere is tiny as a pollution receptacle, clearly that's going to be where the action is.
"But we haven't yet built the structures, the new version of the UN that helps us deal with the global pollution crisis as a species."
Flannery said nations needed to "de-carbonise" their economies by 2050, increasing reliance on geo-thermal, nuclear and renewable energy.
In 1934 the Professor of Anthropology at the University of Sydney, AE Elkin, published a small pamphlet which called for "a positive policy which aims at the welfare and development of the aborigines". To us, Elkin's words seem anodyne. For his contemporaries, they had a galvanising effect. Before Elkin's pamphlet, Aboriginal policy had passed through just two phases. In the first, the Aborigines, an impediment to the steady expansion of the pastoral economy, were subdued. By the end of this phase, as a result of disease, removal from hunting grounds and water sources and the impact of armed force, perhaps half of the 500 or so tribes that existed at the time of the arrival of the British settlers had vanished altogether from the face of the Earth. In the second phase, those Aborigines who had survived the initial onslaught were segregated, either voluntarily on government stations, Christian missions and reserves or involuntarily in detention camps, and protected by an ever-tightening net of special laws that controlled movement, marriage, sexual behaviour, the fate of children, employment, savings and the consumption of alcohol. At the time of Elkin's pamphlet most Australians believed it was only a matter of time before the surviving remnant would die out. Following his call for a positive policy, a 70-year journey of government-led policy experiments to build a future for the Aborigines began. The mood of these experiments has since lurched erratically between rather pessimistic realism and over-optimistic hope. The most recent experiment was the decision in June to dispatch police, troops and medical workers to protect Aboriginal children on the remote settlements of the Northern Territory. The Howard government has now altogether abandoned the hopes embedded in the language of reconciliation. Realism once more rules. How did we arrive at this point? It took a decade and a half for the first positive policy to be formulated clearly. It was labelled assimilation. The postwar Minister for Territories in the Menzies government, Paul Hasluck, was its philosophical driving force. For Hasluck, assimilation was not a set of administrative devices but a destination. The destination was this: "All Aborigines and part-Aborigines will attain the same manner of living as other Australians, as members of a single community enjoying the same rights and privileges, accepting the same responsibilities, observing the same customs and influenced by the same beliefs, hopes and loyalties as other Australians." The policy was frankly paternalistic, although the word was not used. Hasluck described welfare work among Aborigines as "sheltering, protecting, guiding, teaching and helping, and eventually, as the perhaps most difficult act ... quietly withdrawing without any proud fuss when the Aboriginal entered the Australian community". The policy was also gradualist. Hasluck assumed that the destination might not be reached for all Aborigines for three generations or more. He did not believe that assimilation implied racial inter-marriage and biological absorption, as many inter-war Australian native administrators did. He did not believe that it was necessary that all Aborigines would ultimately leave their ancestral homelands, although he thought that as a matter of fact very many would.
But where he was insistent was that Aborigines had no future as a distinct or separate people. The government might not actively work to destroy Aboriginal language and culture, but Hasluck believed that eventually both would have to go. In a letter to a churchman he put the point like this. Australians could not "have it both ways". If the aim was to facilitate eventual Aboriginal entry into the wider Australian society "on equal terms", such an ambition was quite simply "incompatible with full and active preservation of their languages and culture without any changes".
Towards the end of his life, after his policy had been discredited, Hasluck stated his case about the inevitable end of the Aborigines as a distinct people, about assimilation as their inevitable fate, with uncharacteristic polemical sarcasm. Were Aborigines, he asked in Shades of Darkness,
to be living museum pieces? Or a sort of fringe community whose quaint customs are stared at by tourists? Will the drone of the didgeridoo, the clicking of the boomerangs and the stomping in the red dust in the red centre of Australia still be the sufficient employment for the grandchildren of the people of Ularu? Will the separate development that is being pursued with a beneficent purpose today have the result that after two or three generations persons of Aboriginal descent find that they are shut out from participation in most of what is happening in the continent and are behind glass in a vast museum, or are in a sort of open-range zoo?
Aborigines were, in his vision, destined to be nothing more than an ethnicity. At most, Aborigines would have vague memories of what their people once had been. For Hasluck, the idea of a separate people was separatism; apartness was apartheid. He stared at the total destruction of the way of life of the people the British had encountered in Australia, and did not blink.
During the late 1960s and early '70s the policy of assimilation was abandoned. The most general explanation for this was the impact in Australia of the profound revolution in sensibility which took hold in the West at that time: the belated recognition of racism as a dimension of Western civilisation. Perhaps only now had the meaning of the Holocaust been grasped. Europeans and European settler societies realised that their history had for centuries been sullied by the assumption of their superiority and the barbarous actions which had been granted permission as a result. In the US the civil-rights movement grew. Western opinion became increasingly sympathetic to the anti-colonial liberation struggles of the peoples in the European empires. White dominance in South Africa and Rhodesia came to seem intolerable. And in Australia, not only were the cultural assumptions underlying the assimilation policy questioned; more deeply, the fate of the Aborigines, which had interested a small segment of the educated public since the 1930s, now became for the first time a matter of general political significance. The old indifference lifted. It was as if, from this moment, many Australians came only now to see with moral clarity what had been in front of their noses since the arrival of the British: what their presence had meant for the original inhabitants, what they and their forebears had actually done. Nor was recognition of racism all that was required of Australians. It seems plausible to suppose that all nations yearn for a noble myth of origin. As Australia was founded by an act of dispossession, coming to terms with what had been done was to prove unusually hard - far more difficult, for example, than for Americans to come to accept the ignominy of black slavery.
Grasping the true meaning of what had occurred in the settlement of Australia required something far less abstract than what I have written so far implies. It required an intimate understanding of the nature of the people which had been dispossessed. For this understanding Australians relied on the work of the anthropologists. Although many were important - Howitt and Fison; Spencer and Gillen, Walter Roth; Radcliffe-Brown; Elkin; Ronald and Catherine Berndt - in this vital task of national education, no one was of more significance than WEH Stanner, in my opinion if not the greatest of the anthropologists (I am in no position to judge), then certainly the most interesting writer on Aboriginal society Australia has ever seen.
The older anthropologists had looked on the Aborigines they studied as a Stone Age people on the edge of extinction. Baldwin Spencer, for example, introduced his two-volume 1928 memoir, Wanderings in Wild Australia, with these words: "Australia is the present home and refuge of animals, including man himself, that have elsewhere become extinct and given place to higher forms." Stanner, by contrast, never tired of trying to convince his readers that the Aborigines were a contemporary people. To think of history as "a linear sequence", with the primitive Aborigines at the beginning and Europeans at the end, he wrote as early as 1958, and to suggest that "all we have to do is to instruct them in the manifest virtues of our style of life" and wait for them to "‘unlearn' being Aborigines in mind, body and estate", was a malignant and self-centred "fantasy", whose consequences were to be seen "in a thousand miserable encampments around the continent".
The older anthropologists never doubted their superiority to the people they studied. "The idea of putting any of their beliefs to the test of experiment never entered their heads," Spencer typically informed his readers during a discussion of magic. This was a tone of which Stanner was incapable. Perhaps the finest essay ever written by an Australian is Stanner's portrait in White Man Got No Dreaming of one of his lifelong Aboriginal friends, Durmugam. In it, Stanner sails assuredly between the customary rocks of peril waiting for writers on Aborigines - condescension and sentimentality. It is hard to convey the flavour of the essay, but here are snatches from its final pages:
He was for me the most characterful Aboriginal I have known ... I am sure he was deeply moved to live by the rules of his tradition as he understood it. He wanted to live a blackfellow's life, having the rights of a man, and following up the Dreaming ... He venerated his culture ... I do not believe he ever formed a deep attachment to any European, myself included. He knew I was making use of him and, as a due for good service, he made use of me, always civilly, never unscrupulously or importunately ... [One] young man's remark, ‘If I live I live, if I die I die' had seemed to Durmugam monstrous. To him, how a man lived and what he lived for were of first importance. But he himself had in part succumbed. He now spent much time playing poker (there were five aces in one of his pack of cards) ... He still went bootless, but wore a hat and well-kept shirt and trousers ... Durmugam came to good terms with Europeanism, but found it saltless all his days and, at the end, bitter too ... it never attracted him emotionally, it did not interest him intellectually, and it aroused only his material desires.
Baldwin Spencer and Frank Gillen's The Native Tribes of Central Australia is probably the most influential book ever written by Australians. It provided the source material for Freud's Totem and Taboo and Durkheim's Elementary Forms of Religious Life. And yet, when Spencer wrote of Aboriginal ceremony it was as if he was peering through the glass of an aquarium. These passages are taken from his memoir:
The ancestor is rarely represented as doing anything more interesting than looking around, wriggling his body in an extraordinary way, or perhaps eating something ... The natives were very anxious that we should see everything, which sometimes resulted in our spending a good many uncomfortable hours watching dreary performances of no special interest.
WEH Stanner's most important work concerned Aboriginal religion. For him there is no aquarium glass: "While at song, the celebrants vie rather than compete ... The men's faces take on a glow of animation and tender intent. At the last exclamatory cry - Karwadi, yoi - everyone shouts as with one voice. An observer feels that he is in the presence of true congregation, a full sociality at the peak of intimacy, altruism and union." Because Stanner does not feel superior to what he is observing or to the people he is among, he is capable of entering the Aboriginal world of meaning in a quite extraordinary way. No one has explicated more lucidly for outsiders the metaphysic of the Dreamtime, for which he coined the neologism "everywhen". No one has taken us more profoundly to an understanding of the Aboriginal world view:
Murinbata religion might well be described as the celebration of a dependent life which is conceived as having taken a wrongful turn at the beginning, a turn such that the good life is now inescapably connected with suffering ... The Murinbata, like all the Aborigines, gave the impression of having stopped short of, or gone beyond, a quarrel with the terms of life.
And no one other than Stanner could capture the Aboriginal sense of life more vividly, and in a single phrase: "A joyful thing with maggots at the centre."
Stanner's 1968 Boyer Lectures are probably the most influential radio broadcasts in our history. For one thing, Henry Reynolds tells us that it was only after hearing them that he decided to study Aboriginal history. Most famously, Stanner identified and analysed what he called the Great Australian Silence on the dispossession. "Inattention on such a scale cannot possibly be explained by absent-mindedness ... Simple forgetting of other possible views turned under habit and over time into something like a cult of forgetfulness practised on a national scale." But he also captured the depth of Aboriginal attachment to country more powerfully than had any writer until that time:
No English words are good enough to give a sense of the links between an Aboriginal group and its homeland ... A different tradition leaves us tongueless and earless towards this other world ... What I describe as "homelessness", then, means that the Aborigine faced a kind of vertigo of meaning.
In the lectures Stanner provided the most devastating critique of the policy of assimilation that had yet been given by a non-Aborigine: "We are asking them to become a new people but this means that we are asking them in human terms to un-be what they now are." And, in addition, he provided the most plausible explanation of why the Hasluck policy of assimilation would eventually be rejected:
Just as in the nineteenth century a sense of physical and biological principle steadily permeated the public mentality so a sense of what I will broadly call "anthropological principle" may be permeating our own century's mentality. I mean by that a steady awareness that there are no natural scales of better or worse on which we can range the varieties of men, culture and society.
AE Elkin stood, in sensibility, halfway between Spencer and Stanner. He could write movingly of the enchanted Aboriginal world, but also about the Aborigines as a primitive people and the supposedly smaller size of the Aboriginal brain. As mentioned, he was the original source of the positive policy that ended in the idea of assimilation. For both these reasons I found very telling indeed an incident recorded in the biography of Elkin by Tigger Wise. Elkin had invited Paul Hasluck to address the 1959 annual congress of Australian and New Zealand anthropologists. In his speech, Hasluck told the audience: "Looked at from one point of view the weakness of the old Aboriginal society ... is an advantage. The more it crumbles, the more readily may its fragments be mingled with the rest of the people living in Australia." Elkin was agitated. Wise tells us that he saw in these remarks "all his ideas twisted and misapplied". He took to the rostrum to deliver a rebuke: "The Aborigines themselves will observe a partial and voluntary segregation - an apartness for an unpredictable period ... This apartness is a sense of belonging ... Our task is to see that the phase of apartness does not become apartheid ..."
Elkin had spent his life studying the Aborigines. He had come to admire deeply their way of life. Faced with light-hearted talk about the end of Aboriginal Australia, even Elkin, the intellectual father of assimilation, blinked. So did the political leaders of Australia in the
1970s - Malcolm Fraser no less than Gough Whitlam - as the policy of assimilation was abandoned in favour of a policy of self-determination and reconciliation.
There were very real achievements in the new, post-assimilation era. Land rights were granted by statute throughout Australia. In the Mabo and Wik judgements native title was discovered to exist in common law. In 1975 the Racial Discrimination Act was passed. In the new school of history pioneered by Charles Rowley and Henry Reynolds, the Great Australian Silence was shattered. The reports of both the Royal Commission on Aboriginal Deaths in Custody and the Human Rights Commission on Aboriginal child removal shook the nation. In 1991 a formal structure aimed at achieving reconciliation was established.
Yet it must be stressed that the generation educated by WEH Stanner, which had finally opened its eyes to the full moral meaning of the dispossession, now hoped for more than this. What this more consisted of is best revealed in the thought of the most influential intellectual figure of the post-assimilation era, the former Treasury head Nugget Coombs, Stanner's close friend and political collaborator. Coombs believed that through the policy of allowing Aborigines self-determination or, as he often preferred to call it, their autonomy, the traditional way of life of the Aborigines need not die. He advocated government support for hundreds of small, decentralised Aboriginal communities in what he called their homelands. He hoped these communities would be formed so far as possible, according to the pre-conquest divisions of language, tribe and even clan. He hoped for nothing less than the rebirth of the Aboriginal world.
Coombs was not the kind of Rousseauian, ‘noble savage' dreamer that his ideological enemies on the Right invariably suggest. He did not believe that these re-established groups would be unaffected in a multitude of ways by the undeniable fact of the dispossession, and by the existence alongside them of an advanced Western materialist-industrial civilisation. This presented no unsurmountable problem. He argued that far from being hidebound or inflexible, Aboriginal culture was dynamic, flexible and adaptive. Coombs imagined a future for the homeland communities where traditional hunting and gathering would be able to be combined with a monetary economy based on welfare payments and small-scale market activities, like cattle raising, emu or crocodile farming, land management, and the production and sale of arts and crafts. He did not deny that all Aboriginal children needed an education that equipped them for some participation in the contemporary world by providing them with basic modern skills. In one of his essays he wrote that he had yet to meet an Aboriginal parent who did not want his or her children to be literate and numerate. Nor did he ignore altogether the evidence of the social ills affecting the remote Aboriginal communities he knew. Coombs wrote from time to time about male violence against women, the indiscipline of the younger generation and the problem of alcohol. After visiting Yuendumu with Stanner, the pair accepted that there was need for a police presence to deal with "brawls and other disorder arising out of ... abuse of drink".
And yet, if Coombs' critics on the Right, like Peter Howson or Helen Hughes, offer a distorted picture of him as nothing but a utopian collectivist fantasist, his defensive friends on the Left, like Tim Rowse, now offer an even more distorted portrait of Coombs as a moderate economic rationalist, eminently capable of passing a contemporary neo-liberal respectability test. In the last two decades of his life Coombs was a critic of Western materialist civilisation, capable, for example, of calling it the "beer and Coca-Cola" culture, or quoting with approval a description of it as "life without reverence for the past, love for the present or hope for the future". Because he was open to such a bleak view about his own society, it is not surprising that he often wrote as if he genuinely believed that the Aboriginal way of life was superior to the one in which he lived: "That human beings are at home in a hunter-gatherer society is not surprising. They have been adapted to it for more than 500,000 years." Nor is it surprising that he was fiercely opposed to the imposition on Aboriginal children of a Western world view. On one occasion Coombs described purely Western education for Aborigines as "cultural genocide". On another he expressed opposition to the idea of compulsory school attendance. Rather, Coombs advocated a "two-way education", with not only a Western but also an Aboriginal dimension. This would help, he believed, to "decolonise" the Aboriginal mind. Coombs also wanted to "Aboriginalise work". He was enthusiastic about the possibilities offered by the Fraser government's Community Development Employment Projects (CDEP) scheme, which allowed Aborigines to be paid while continuing their hunting and gathering, and gave them time to devote to their religious ceremonies. He supported the re-institution, wherever possible, of Aboriginal customary law. He regarded attempts to interfere with traditional punishments, like leg spearing or the system of "pay-back", as "ethnocentric".
Coombs believed that in the era of self-determination and land rights an authentic revival of Aboriginal life was indeed occurring. "There are," he wrote, "widespread reports of increasing activity in Aboriginal ceremonial life." Distinctive forms of education were, he believed, thriving: "There is a quality of enthusiasm, indeed exuberance, about Yolgnu education at present." As traditional life revived, he thought the problems of young people fell away: "Almost universally the problems of delinquency appear to decline and disappear." While alcohol abuse might presently be a problem, he seemed convinced that it was coming under control. Indeed, "Aboriginal concern and action in this matter," he wrote on one occasion, compared "favourably with that in Western society". In the conclusion to his collection of essays, Aboriginal Autonomy, published about the time that John Howard regained the leadership of the Liberal Party, Coombs summarised the meaning of all this in the following way:
In the years since the apparent "consensus" in approach by the Whitlam and Fraser governments, the direction of change has inexorably been towards greater independence for Aboriginal Australians. Despite the repudiation of that "consensus", Aboriginals have made by their own initiatives, intelligence and dedication, remarkable progress in the achievement of a lifestyle more healthy, more creative and more characteristically Aboriginal than has previously been possible since their dispossession.
A miracle was occurring. Traditional Aboriginal life was in the process of revival. At the time, few members of the left-liberal intelligentsia would have disagreed strongly with these words.
In the 1960s the British anthropologist David McKnight first began fieldwork on Mornington Island, in the Gulf of Carpentaria. He continued regular visits over a period of 30 years. In 2002 he published a study of social life on Mornington Island, From Hunting to Drinking. It is the most remarkable portrait of an Aboriginal community in the age of self-determination I have read. For McKnight, by far the most significant event during the period of his visits was the opening of the canteen in 1976. For the vast majority of Mornington Islanders drinking now became the "main social activity". McKnight noticed that those who used to go hunting until dusk now returned by two in the afternoon, so as not to miss the opening of the canteen. "It felt," he tells us, "as if all the people were drunk all of the time or at least most of the people were drunk most of the time." Dreadful alcohol-related deaths soon began occurring: "Teddy Bell and his brother were drinking and in the middle of the night Pat Bell woke up and discovered that Teddy was drinking methylated spirits. He tried to stop him and in the resulting struggle Teddy accidentally stabbed himself to death."
By the '90s, of the 900 or so Indigenous inhabitants, McKnight calculated that there were 40 women and eight men who did not drink. Most drunk to wild excess. McKnight also calculated that by the '90s, on average 50% of income was spent on alcohol. The effects on health were catastrophic: "After ten years of drinking people were dying at such a rate that the carpenter built spare coffins." Wild drunken fights became common. Fights had once been about something - kinship loyalty or women - but now they were about nothing. Although McKnight continued to do so, it was now dangerous to walk about the community at night. Going to a film had been a pleasant experience when McKnight first came to Mornington Island. Because of the likelihood of a violent drunken incident, it ceased to be. The cinema was closed.
Children were badly affected. Babies were often neglected. Girls became vulnerable to sexual abuse. Although the community was awash with money, cases of malnutrition occurred. After ten years of schooling most children were illiterate. Even more, some could barely speak. Marital relations deteriorated badly: "Women appeared to be treated as objects, as if they were things." Rape had not been a problem in the past. It became so now, especially for white women or Indigenous women who associated with whites. Among the three tribal groups on Mornington Island - the Lardil, the Yangkaal and the Kaiadilt - suicide was unknown before the arrival of Europeans. Before the 1980s it remained virtually unknown. Yet between 1996 and 2000 there were 22 suicides on Mornington Island. In Queensland the rate of suicide for these years was 13.7 per 100,000; on Mornington Island it was 466. Between 1914 and 1978 there was one homicide on Mornington Island. Since the opening of the canteen there had been 15. All but one of the killers were male. Most of the victims were wives.
McKnight is an anthropologist. He offers some cultural explanations for this disaster. The Mornington Islanders were not a "moderate" people. They lived traditionally on "the edge", with dancing, initiation ceremonies, violent clashes. Drinking is also an exciting activity, with people living for the time at a heightened pitch. The Mornington Islanders have egalitarian traditions. Drink drags everyone down to the same level; no one is better than anyone else. They have no tradition of regulated consumption; everything available was and is instantly consumed. They were also a single-activity people. Once they were hunter-gatherers; now they are drinkers. Yet he also offers more political explanations. Work under CDEP has become meaningless. What the Mornington Islanders have learnt, he tells us, is that "a job not worth doing is not worth doing well". Ironically, in the age of so-called self-determination, almost everything is done by the whites who bowl in to work for the shire. They establish less human connection with the Indigenous Mornington Islanders than did the missionaries. The Mornington Islanders, especially the men, feel powerless and humiliated. Life has been stripped of meaning. A people that once lived vibrantly as hunter-gatherers is now profoundly, existentially, bored.
It is difficult to know how typical Mornington Island is of remote Aboriginal communities, at least of those where for some time alcohol has flowed; how far McKnight's terrifying portrait is coloured by his sceptical and sardonic disposition; and whether life has improved on Mornington Island since attempts began in recent years to restrict alcohol there. But there is one thing at least that seems clear. The contradiction between what McKnight and many others observed on remote Aboriginal communities, and what Nugget Coombs and a generation of left-liberals imagined was happening on such communities and, even more, what they dreamt might eventually happen there - nothing less than the revival of a healthy and authentic Aboriginal life - would sooner or later require some new and radical thinking to be done.
It was Noel Pearson who broke the ideological stalemate over Aboriginal policy and the remote communities. Pearson had been a land-rights activist and a man of the Left. At one memorable moment in the early years of the Howard government, during the political skirmishes surrounding native title, he had labelled his conservative opponents "racist scum". In 1999 he shifted gear. Pearson now acknowledged that over the past quarter-century or so the communities at Cape York had experienced what he would call "a descent into hell". For the Left, insofar as problems of violence, sexual abuse, suicide, alcoholism, drug dependency, petrol sniffing, gambling, illiteracy, truancy and child neglect were acknowledged, the historic process of colonisation and the trauma associated with the dispossession were blamed. Although this explanation might in the most general sense be true, for Pearson it was not only useless - by explaining everything it explained nothing - but also misleading. Pearson had grown up on the Lutheran mission of Hope Vale. He knew that conditions then were far less grim. In the early '70s not one Hope Vale Aborigine was in prison. Thirty years later, there were a dozen who were either in prison or had narrowly escaped that fate. Murder on the Cape York of his childhood was unknown. "In one of our communities," he wrote in 2000, "there were three murders within one month."
The Left was committed to Aboriginal rights. It focused, for example, almost exclusively on the provision of legal aid to Aborigines charged with criminal offences, and was neglectful of the fate of the women and children who suffered abuse at their hands. The Right was responsive to talk of Aboriginal responsibilities but was hostile to Aboriginal rights like native title, the cause for which Pearson had been struggling in recent years. At one level, Pearson's breaking of the ideological log-jam in 1999 was an attempt to refashion the agenda of Aboriginal politics, by marrying the idea of rights with the idea of responsibilities. Yet this formulation is somewhat misleading. In ideological politics, activists are invariably more hostile to the camp from which they have defected than they are to the camp of the former enemy, even when they keep their distance from it. Although Pearson was theoretically opposed to the Right, he was far more emotionally engaged in his conflict with the Left. For their unwillingness to confront the reality of the remote Aboriginal communities, he held the soft-headed Left to blame. Even though he remained committed to native title and Indigenous rights, he postponed the resolution of his differences with the hard-hearted Right for a later day.
What then was to be done? In Pearson's analysis, there were three inter-connected causes of the post-1960s catastrophe of the communities: alcohol, the poison of passive welfare, and disconnection from the real economy.
Pearson believed that the Left saw alcohol as a symptom of deeper problems. For him, it was vital to interpret the emergence of the alcohol epidemic not as a symptom but as a cause. In part, this was because the grog culture on a small community developed a momentum of its own, becoming increasingly difficult for individuals to resist. And in part, it was because seeing alcohol as a symptom of something deeper provided splendid justification for the easy option of inaction. Pearson advocated total prohibition on the communities, total abstinence, rehabilitation programs for drinkers and tough criminal sanctions for those who brought the alcohol in. He saw alcohol abuse as a paradoxical consequence of the citizenship rights won in the '60s. And he saw how the traditional hunter-gatherer ethic of kinship and reciprocity could prove disastrous under conditions of modernity when it was grog rather than food that was being shared.
For Pearson the liberation of Aborigines from the poison of welfare dependency and their return to the real economy was as vital as alcohol control. Here his thought developed. In 2000 he offered a social-democratic distinction between the virtue of the redistributive welfare state and the vice of a life of complete welfare dependency. This year, with the help of seconded Treasury officials, his Cape York Institute completed From Hand Out to Hand Up, a sophisticated, fully neo-liberal plan for the future of his people. The plan recommends that all welfare payments be made conditional. Those who are convicted of drug or drink offences, who fail to pay their rent, or who fail to care for their children or ensure their regular school attendance will lose control of family welfare payments, which are to be redirected to those who will act responsibly. The system is to be administered by a Family Responsibilities Commission with both Indigenous and non-Indigenous members. Welfare payments, including CDEP, will be reduced to remove what are called perverse incentives against employment. Worthwhile CDEP activities, like teaching aids, will be converted into real jobs. CDEP will not be available to anyone under 21. Various attempts will be made to let children break out of the cycle of inherited social breakdown. The talented will attend boarding schools. Those seeking work training outside the communities will be supported. Although native title will in general be staunchly defended, residents will be encouraged to purchase their present homes or newly built ones, which taxpayers will heavily subsidise. Businesses will be attracted to the communities with 99-year leases. Because it is accepted that there will never be sufficient employment available in the communities, many members will have to "orbit" in and out, throughout their lives. "Orbiters," we are told, "are people who periodically return to their communities or homelands and thereby retain their cultural heritage, their languages, their hunting skills, their rituals and cultural rights." In this way, the very idea of community is re-defined. Membership will consist not of those who live in a settlement but of those who feel connected with it in some way.
Pearson's plan is not merely an audacious (and very expensive) neo-liberal blueprint for the revival of Aboriginal community and the adaptation of Aboriginal identity to conditions of modernity. It is based on the paradoxical belief that the sticks and carrots of a transformative, interventionist policy of social engineering can create the character of the responsible, acquisitive individual on which the philosophy of neo-liberalism is premised. This is Pearson's gamble. It is very far indeed from Stanner's dream - many will think too far. Yet for the hope of the survival of autonomous and viable Aboriginal communities, it seems to me the most coherent policy which has yet been offered. If it too fails, it might turn out to have been the last throw of the dice.
As Noel Pearson was handing his report to the enthusiastic Minister for Aboriginal Affairs, Mal Brough, the prime minister, after reading another report into the sexual abuse of Aboriginal children on the remote communities of the Northern Territory, decided to declare a state of national emergency and to send in the troops, police, administrators and doctors. Like the majority of Australians, I was relieved that a decision for action had finally been taken. I am absolutely convinced that the crisis in the communities is real. The analogy drawn by some between this intervention and the children-overboard affair struck me as absurd. I opposed Howard over the question of the detention or military repulsion of asylum seekers because of the almost unbelievable cruelty it showed towards vulnerable children. On this occasion the aim was to protect children from abuse. Nonetheless, like many of those who support passionately the idea of reconciliation, I was dismayed but not surprised at the arrogant disregard for Aboriginal people and their leaders revealed by the failure even to pretend to consultation over issues as sensitive as land rights and the permit system for communities.
There is a Napoleonic streak in the present prime minister. As with the Tampa and the blank cheque commitment to the US in the War on Terror, he has a capacity for advancing basic policy trajectories through apparently instinctive and improvisatory acts. Although much of the policy over the Northern Territory settlements showed signs of being made on the run, behind it the Howard government's new remote-communities strategy was advanced. Those who wish to grasp the general direction of the government's policy should read Helen Hughes's new book, Lands of Shame. Hughes is a senior fellow of the Centre for Independent Studies, the most important ideological engine room for Australian neo-liberalism and the Howard government. Hughes supports the elimination of passive welfare and the introduction of private home ownership. In the short run, she advocates the liquidation of most of the settlements but continued support for a small number where decent education and medical services can be delivered, through a population-concentration policy. In the long run, she shows sympathy to the views of the Canadian conservative John Ibbotson, who recently advised young indigenous Canadians living on their settlements to pack their bags and permanently leave. Although Hughes thinks she is sympathetic to traditional Aboriginal values, it turns out that she is hostile to customary law and regards what Stanner called the Aboriginal "low culture" as little more than contemptible superstition. The policy Hughes outlines - cogently and persuasively, it must be said - is generally unsympathetic to land rights and self-determination, frankly paternalistic, opposed to those who presently exercise power in the Aboriginal communities and openly assimilationist in its ultimate ambition. Lands of Shame undoubtedly reflects the general thrust of the thinking of the Howard government and conservative Australia.
The considerable overlap between this and the neo-liberal dimension of the thought of Noel Pearson is clear. Yet the differences between Pearson and Howard are no less important. Pearson supports land rights and native title. Howard is hoping for their erosion. Pearson supports genuine, not phoney, Aboriginal self-determination. Howard supports assimilation, in fact if not in name. Pearson detests Windschuttle's denialist history of the dispossession. Howard is the country's most influential supporter. Pearson regards the rights of indigenous peoples as politically fundamental. In a recent essay in the Griffith Review, he tells us that when he discussed first peoples' rights with a senior and sympathetic member of the Coalition government, he was told, "I just don't understand the Indigenous-rights stuff." Pearson's life has been dedicated to the struggle for the survival and health of the remote Aboriginal communities. There is no reason to suppose that Howard would be concerned if they all eventually collapsed.
In the final essay of White Man Got No Dreaming, WEH Stanner, a supreme realist, warned against the temptation of pessimism. I take the warning seriously. My present hope is that in the next few months, if Labor is elected, Noel Pearson will be able finally to act upon his fundamental differences with Australian conservatives and join cause with Aboriginal leaders like Pat and Mick Dodson, Lowitja O'Donoghue and Patricia Turner and, as importantly, with a new generation of leaders, in their common struggle for the future of the remote Aboriginal communities.
Then there's that name. Apple Computer recently relaunched itself as Apple, explaining that it had left behind old-fangled ‘computers'. The ‘bank' in Macquarie Bank seems almost as archaic. In the financial world, the organisation is neither fish nor fowl, exhibiting characteristics of investment bank, asset manager, buy-out house, private-equity arranger and hedge fund. Perhaps that is why the custom has become simply to enumerate the assets under its control - a cliché beloved of the news media that nonetheless conveys something about Macquarie's diversity and geographic spread. Airports, antennae, casinos, car parks, turnpikes, tunnels: whether in Canada, Korea, Britain, Belgium, Singapore, Spain, Taiwan or Tanzania, all come alike to Macquarie's sophisticated metrics and financial heft.
You are most likely to find Macquarie under your wheels. It has made its name as a long-term holder of big infrastructure assets, and its chief fame is in toll roads. Interests in a host of them - from the Chicago Skyway to Britain's M6 Tollway; from Highway 407 in southern Ontario to the Indiana Toll Road, the so-called Main Street of the Midwest - repose in the Macquarie Infrastructure Group, the oldest and biggest of the bank's 31 specialist infrastructure funds. But Macquarie is no captive of its past. Of its 10,000 staff, 500 are peripatetic dealmakers in worldwide pursuit of the next asset, the next target, the next income stream.
On 15 May, Macquarie announced a record annual profit of $1.4 billion: a 60% increase on the previous corresponding period. For the first time, too, more than half its income came from offshore, and it would have been higher but for the strength of the Australian dollar. It looked like the crossing of an earnings Rubicon. Allan Moss was anxious to assure Australians that Macquarie would keep its headquarters here, where 6500 of its personnel are based. But it sounded a little like an ambitious son assuring an elderly parent that he wouldn't lose touch. Nor is it surprising that the bank's admirers can scarce forbear to cheer. Macquarie is a success story - perhaps the Australian business success story of the past decade.
Macquarie opened in Sydney in 1969 as Hill Samuel Australia, an outstation of the tweedy UK merchant bank Hill Samuel. Foreign financiers were then swarming all over Sydney, enticed by the chimeric nickel boom. But Hill Samuel Australia was a stayer, cultivating a reputation for diligence, discretion and, above all, excellent connections. Two of its stalwarts, David Clarke, now Macquarie's chairman, and Mark Johnson, now its deputy chairman, joined from the pioneering merchant bank Darling & Co in 1971, where they had trained under the future World Bank president Jim Wolfensohn. They did their first deal for White River Industries, owned by a wealthy family whose scion had been their MBA classmate at Harvard: Nick Greiner.
Hill Samuel Australia was sometimes more entrepreneurial than it received credit for. It was the fearless sole underwriter in the float of Westfield Trust 25 years ago; it pulled together the intricate structure that made possible BHP's landmark acquisition of Utah International; it launched Australia's first cash-management trust, and the first approved deposit fund not to emanate from a life office. The bank's alumni are among the best and brightest of their generation: ACCC chairman Graeme Samuel, his Grant Samuel co- founder Ross Grant, ING Australia chairman Tony Berg, Allco Equity Partners chief executive Peter Yates, Bendigo Bank chairman Rob Johansen, Goldman Sachs JBWere's investment-banking éminence grise Alastair Lucas. The organisation, nonetheless, would probably have gone the way of all merchant-banking flesh had its executives not successfully detached themselves from the parent company and sought a trading-bank licence in 1985. Then, its after-tax profit was just $7 million, and it would have made a tasty morsel for an acquirer - a fate that befell Hill Samuel in the UK, which disappeared into the maw of Lloyds Bank.
What had been an old-fashioned merchant bank came to resemble more a freewheeling Wall Street investment bank, though Macquarie deployed its capital frugally, building businesses in corporate finance, treasury, property and funds management that did not overtax its balance sheet. Mind you, not until Macquarie's recent spurt of infrastructure-fuelled growth has it been other than mediocre as a manager of investment monies. "It [Macquarie's funds-management business] has always been the runt of the litter," observes John Sevior, the head of Australian equities at Perpetual Investments. "They've never grown funds management, especially on the equities side. They were market leaders in cash management. But until infrastructure, they'd had two or three cracks at it and never gotten anywhere."
This makes Macquarie's eminence that little bit more remarkable, as though the Egyptians embarked on the Pyramids having earlier been unable to assemble a piece of IKEA furniture. "Maybe their time horizon is too short for equities management," speculates Sevior. "Because in this business you can have long periods where your performance is ordinary and you have to be patient. After this company [Perpetual] had been in the business six or eight years, there was a big board meeting where they had to decide whether to continue, because it wasn't profitable. Twenty years later we have $25 billion under management. It takes time and real commitment." Who knows the reason? Perhaps not even Macquarie.
The making of the bank might be said to have begun in 1991, when Macquarie's project and structured-finance teams started advising Mission Energy, an arm of the Californian utility SCECorp, in its $1.7-billion acquisition of 51% of the Loy Yang B power station, Australia's biggest infrastructure transaction to date. Loy Yang B was a gruelling 15-month deal in the dog days of a scandal-wracked Labor government in Victoria; the signing ceremony alone took eight hours. After all that, too, Mission subsequently sold out: the station is now owned by International Power and Mitsui.
But Macquarie developed a taste for and an aptitude in handling big infrastructure assets, while its executive director, Nicholas Moore, also identified a secular shift. Governments were not just stinting on infrastructure but exiting what they had: there was money to be made in the shift of public-sector assets into private hands, and in the provision of amenities and facilities on behalf of the state. Over the last decade, this initial jeu d'esprit has evolved into the ‘Macquarie Model': the closest thing in Australian finance to a perpetual-motion machine.
The ‘Macquarie Model' is begun when the bank buys all or part of a business, whether it be road or bridge, airport or utility. After a period of ingestion, the investment is passed on to one or more of its specialist funds, crystallising a profit, usually modest. But these funds not only pay Macquarie for management; they also pay fees for advice, underwriting and refinancing, as well as bonuses for outperformance of market indicators. In conjunction with rapid growth, Macquarie's fee structure sometimes produces bizarre excesses: in the three years from June 2002, for example, the rake-off from the Macquarie Infrastructure Group was 54% of cash flow.
In theory, it would be possible for investors to find a cheaper manager. In practice, to unseat Macquarie from one of its funds is almost as inconceivable as Westfield Holdings being booted out of Westfield Trust. So it goes - and when you are clipping per cents off $131 billion of infrastructure assets, there is soon plenty to go round. As Scoop Jackson observed, "A billion here, a billion there, and pretty soon you're talking about real money."
Able to charge a premium to investors in its specialist funds in what has increasingly become a commodity business, Macquarie is a market leader - perhaps the market leader. Peter Doherty, of the asset-management research firm Capital Partners, argues that Macquarie is in effect already the world's largest asset manager, although the quantum of its funds is less than giants like Fidelity and State Street: "We estimate that a dollar in a specialist fund will earn more than ten times the management fee earned from a generalised fund." Doherty is an unstinting admirer. "I think Macquarie is going to be an enormous enterprise," he says.
In the past five or so years, Macquarie has also developed a capability in private equity: the business of privatising mature businesses and ratcheting up their returns with liberal applications of debt. Qantas, of course, has been its most recent target, even if the failure of the Airline Partners Australia bid provided a rare interruption of Macquarie's triumphal progress. Macquarie, however, is unlike most of its competitors at this fashionable end of the market.
Big private-equity firms like KKR and Blackstone extract their returns by instilling financial controls, breaking companies up and floating or flogging the constituent parts. In the ‘Macquarie model', a Macquarie fund is substituted in the last leg of this process. Since
1994, the organisation's funds have sold only eight assets, worth just over $10 billion, to unrelated parties - all, it should be said, at sizeable profits. The emphasis of Macquarie funds is on holding assets and providing big dividends - which suits the retail investors who have suddenly flocked to the organisation as never before - rather than selling assets for the outsized capital gains expected by most private-equity investors. It's a philosophy reminiscent of Gus Levy's immortal injunction to his partners at Goldman Sachs: "Be greedy, but long-term greedy." The Macquarie funds contain some oddities. The Toronto-listed Macquarie Power & Infrastructure Income Fund, for instance, proclaims its "emphasis on power infrastructure"; yet it also contains, almost whimsically, a 45% interest in a chain of retirement homes. But in general, given the speed of their emergence, they are impressively coherent.
Macquarie's rise, and its involvement in offers for companies as recognisable as Qantas and Alinta, has been accompanied by an increase in the organisation's visibility. An unelected elite making big money from handling what the public used to own: it's a target- rich environment, if ever there was. But it hasn't really worked out that way. Five years ago, the bank did indeed incur the ire of Alan Jones when it floated Macquarie Airports, a fund underpinned mainly by Sydney's own. When alarm about the price paid for Sydney Airport sent shares tumbling, Jones proclaimed Macquarie "geared to the eyeballs" and "in big trouble". In fact, Jones has seldom been more wrong, and coverage of Macquarie resumed its faintly star-struck quality.
The announcement of Macquarie's remuneration is a perennial of the news cycle, with Peter Costello ("It's hard to think that anybody would be worth that kind of salary") and John Howard ("If you asked me as a citizen do I think it's a lot of money? You bet I do") taking turns in stating the bleeding obvious. The generosity of the bank's executives towards themselves scaled new heights in the latest financial year, when they shared $209 million, three-quarters of that being trousered by half a dozen individuals: chairman Clarke, boss Moss, his dauphin Moore, investment banker Michael Carapiet, property chief Bill Moss and treasury chief Andrew Downe.
Yet the tone of these media reports is seldom hostile: in recent times, the tendency has even been to pre-empt criticism that is scarcely audible anyway. In the Sydney Morning Herald, Peter Hartcher called Macquarie's latest pay bonanza "not a failure of Australian values but a success of Australian internationalisation". Public debate about salaries was excellent, stated Matthew Stevens in the Australian, because "it helps to educate all of us of the necessity to pay the price for the talent that creates the wealth-machine which is Macquarie".
It was Finley Peter Dunne who entreated his brother journalists to "comfort the afflicted and afflict the comfortable"; these days, the default position seems to be to comfort the comfortable. Nor do apologists for Macquarie's compensation bother with messy stuff, like whether the rewards adequately differentiate between the provision of genuine value and hugely commodious market conditions, or the paradox of extracting so much short-term enrichment from an ostensible commitment to "the long view": they prefer solemn references to "performance" and airy gestures to "the global market".
Not everyone, though, is quite so smitten. And it may not be coincidence that when the ‘Macquarie model' recently came under serious scrutiny, it was from onlookers overseas who were having their first acquaintance with it.
At a symposium in San Francisco on 23 May, the veteran American investor Jim Chanos was asked if he had a ‘short' to recommend: that is, a stock whose price he felt would fall. Without hesitation or qualification, Chanos nominated Macquarie, which he claimed was paying too much for assets and using suspect valuation techniques.
Chanos, of course, has a vested interest in talking Macquarie down: it's how he makes money. He made his first pile 25 years ago betting against the stock price of a high-flying insurer, Baldwin United. His work was denounced the length of Wall Street, but Baldwin, a colossal fraud, had filed for bankruptcy within a year. In 1985, Chanos founded a hedge fund specialising in such investments: Kynikos Associates is named after a sect of ancient Greek philosophers who believed that the key to life was self-discipline and independent thought. He lived up to that creed when he began taking a major short position in Enron during November 2000, and spread the word at a now-legendary conference of short sellers called ‘Bears in Hibernation'. It was Chanos who prompted Fortune's Bethany McLean to begin the story ‘Is Enron Overpriced?' which first made investors think it might be. Chanos set an analyst on Macquarie in January - Steve Schurr, formerly an editor at the Wall Street Journal - who began making similar conjectures about Macquarie.
Chanos's remarks flushed out another critic. Edward Chancellor is a former partner of the merchant bank Lazards who now works for breakingviews, a subscriber-only financial-analysis group with headquarters in New York. The author of an excellent history of financial speculation, Devil Take the Hindmost (2000), Chancellor is writing a sequel about credit, and it was Macquarie's affinity for debt that pricked his interest. He, too, began researching Macquarie in January, wrestling with the overwhelming bulk of the company's statutory filings: for, while it tends to be taciturn with the media, Macquarie is positively effusive where reporting to the market is concerned.
Chancellor wasn't impressed. "Modern finance is notable for three negative features," he says. "Excessive fees, excessive leverage and excessive complexity. Macquarie seems to have these in more extraordinary degree than most." His 6000-word critique, ‘The Wizards of Oz', was circulated by breakingviews on 1 June; a condensed version, ‘Macquarie's Secret Recipe', appeared in the Wall Street Journal three days later. Interestingly, one of his central arguments is not that Macquarie acts too much like a private equity firm, but that it doesn't act like one enough:
... whatever you think about private equity, and I take a rather dim view of it, it has at least the discipline in the last resort of the sale process: the need to sell the asset profitably. Macquarie does not have the sale discipline. In fact it has retail investors who are prepared to accept a lower IRR [internal rate of return]. But because those lower conventional expectations allow Macquarie to pay more for assets than their competitor, what you get in their funds is lower returns and also higher risks ... If you do pay more for assets than anyone else, if you do load the assets up with debt, if you do take enormous fees and pay out huge dividends, how do you also revalue the asset periodically and say it is worth more? It just seems to defy the laws of financial physics.
Macquarie responded soberly. Nicholas Moore wrote to breakingviews and the Wall Street Journal standing by Macquarie's track record. Macquarie Investment Bank issued a three-page "fact sheet", disputing among other things an inference of Chancellor's paper that Macquarie was overly reliant on fees and transactions involving its funds.
It is worth distinguishing between the bank and its nebula of 31 satellites. The profits of Macquarie are real, and their sources are diverse; infrastructure is the start of any story about Macquarie, but by no means is it the end. Nonetheless, Chancellor raised some pertinent questions about the ‘Macquarie model', at least insofar as investors understand it.
Infrastructure: there could hardly be a more boring word in English. It is no mean feat to have made it sexy. Good luck and good management are at work. Firstly, market conditions for investing have been extraordinarily benign: a 14-year bull market, lots of liquidity and plenty of easy credit. Secondly, Macquarie has shown a remarkable facility for the jiggery pokery that investment professionals call ‘financial engineering'. The assets in Macquarie's funds may be dull; but they are, as Dr Johnson said of Thomas Grey, dull in a new way.
By any traditional method of valuation, Macquarie pays a lot of money for its assets; it often gears these assets highly too, in order to wring from them the steady and sizeable distributions to which investors have grown accustomed. But it quarantines the risk, and also optimises tax benefits, by managing its assets through the ownership of minority stakes in holding companies, and relying on big licks of non-recourse debt: debt that, in the event of default, won't destabilise other assets in the fund, or come back to bite Macquarie itself.
Macquarie justifies its tolerance of gearing by pointing out that the assets concerned usually have stable cash flows and high barriers to competition. But the structures are such that it isn't unknown, at least during periods of high capital expenditure, for dividends from funds to exceed cash flow, while the precise level of indebtedness is also sometimes far from obvious.
One perceptive observer of Macquarie's modus operandi comes from within its ranks. Steve Johnson worked for Moore's project-finance team in Sydney, Vienna and London, then three years ago swapped the life of a high-flying banker for that of a low-flying pundit, buying into a newsletter called the Intelligent Investor. Johnson holds Macquarie, and its appraisal of risk, in high esteem: "When I was there, the risk department was ruthless. They really wanted you to go out there and make money without taking any risk at all." But Johnson also harbours a distaste for infrastructure, which he contends has been over-promoted as "safe". He refers with particular scorn to the financial lexicon on the website of the Australian Stock Exchange: "Revenues from [infrastructure] assets are not considered volatile, and infrastructure is generally regarded as a stable asset class." Johnson says, "It's one of the most misleading documents I have read in my life."
The financial statements published by Macquarie funds aren't quite so misleading, he thinks; but nor are they exactly clear:
The numbers in MIG's accounts, for instance, are massively under the actual indebtedness. And the non-recourse nature of the debt is very important for people to understand. The idea is that if, say, the Indiana Toll Road goes bust, it has no effect on the 407 International. From an accounting perspective, their treatment is OK. If I buy shares in Telstra, I don't have to take on a proportion of their debt. But in the interests of disclosure, they should disclose as a note the actual amount of debt that's tied up in these things. They're not doing anything blatantly wrong, but they could make their accounts much easier to understand.
Like Chanos and Chancellor, Johnson is not enamoured of the financial models that Macquarie uses to value assets. These, he points out, are easily skewed by their underlying assumptions:
I just think the fundamental logic behind them is flawed. They're buying assets like the 407 International in Toronto where they're assuming it's going to grow by 5% for the next 99 years, then they're using a discount rate to bring that back of 7%. If you fiddle around with just those two variables, you get massive changes in valuation, because you've got money growing almost as fast as you're discounting it back. In theory those two things can't ever overlap, but Macquarie occasionally gets pretty close to it. That's how they get these quite extraordinary valuations. Maybe one day they'll come up with an infinity valuation, meaning they can just pay anything they like!
Jim Chanos and Edward Chancellor have been particularly critical of the proprietary nature of Macquarie's "black box" models: an emotive phrase, because it was applied to, and richly earned by, Enron. Chancellor also tut-tutted Macquarie's use of independent experts, homing in on the US$3.8 billion that Macquarie and its Spanish partner Cintra paid for the Indiana Toll Road in January 2006. Although it was US$1 billion more than the underbidder and 50 times its historic cash flow, this valuation was independently attested by Maunsell, a firm of Australian consulting engineers who have been providing services to Macquarie for more than a decade. Other consultants who reported on the Indiana deal have concluded Maunsell was overly optimistic; Chancellor himself also expressed disquiet at Macquarie's practice of paying the firm success fees. The practice certainly seems at odds with the Australian Securities and Investment Commission's Practice Note 42.12, which states: "An expert who is paid a success fee will not be considered independent."
Steve Johnson isn't as alarmed by Macquarie's models: while working there, in fact, he helped design some. But he says they do place unacknowledged demands on investors. "I think if you go into these things, you have to chuck the Macquarie valuation out the window. You go there, look at the assets, and work out what you think they're worth. Like you would with any other business on the stock exchange. And they provide you enough information to do that," he says. "I mean, Macquarie isn't the next Enron. There are real assets there, real cash flows. It's just that the assets don't justify the valuations attributed to them." As for the success fees paid to independent experts: "It's ridiculous."
There is no question of malfeasance here, or even of mischief. There is no omertà about the risk profile of Macquarie's funds, and some professional investors have already made their own adjustments. Perpetual Investments, for instance, won't touch them. "We can't own them, because we take an old school, traditional approach to gearing," says John Sevior, the company's head of Australian equities. "Although they pay high yields, the borrowings and financial engineering just don't meet our criteria - which has been costly for us, because their market performance has been phenomenal." Nor can it be argued that Macquarie does not provide enough information to investors: its reports are exhaustive. Which, perversely, may add to the risk, if one accepts the famous argument of the Nobel economics laureate Herbert Simon that "wealth of information" usually leads to "poverty of attention".
Chanos and Chancellor, then, may be both right and wrong: correct that the ‘Macquarie model' probably will be tested in the future; premature in concluding that Macquarie won't be able to make the adjustments necessary. As Sevior relates: "A competitor of Macquarie said to me recently, ‘Every time we think we've found a new niche, or a new product, we find that Macquarie have already been there for three or four years, and they already own the market.'"
"I think there's going to be a lot of pain," says Steve Johnson. "No doubt about that. I'm convinced interest rates are going to go up quite significantly, which will have a massive effect on all these highly geared investments. In the long-term, though, they have a model of employing very smart people and encouraging them to build business under Macquarie's roof." Nicholas Moore is right to stand on his firm's track record, although perhaps not so much the financial part as the evidence of a culture both innovative and adaptable.
The risks attached to Macquarie aren't only financial. It is not just another big company making a tonne of money; it is a company increasingly standing in for the state, and not just in Australia. Two of its biggest recent purchases have been British assets of the most public kind: the venerable utility Thames Water, acquired by a Macquarie-led syndicate last October for £8 billion, and the emergency-services communications network Airwave, for which £1.9 billion was paid in April. Thames looks like the bank's gamest bet yet: massively profitable, but with pipes so decrepit that almost a third of the water that flows through them seeps into the ground. London's mayor, Ken Livingstone, has derided it as "the unacceptable, unsustainable and irresponsible face of privatisation".
In the public eye, Macquarie can look squeamish. Stan Correy from Background Briefing describes attending a financial industry conference to hear Nicholas Moore speak. When Moore heard that the ABC was present, he demanded that recording equipment be switched off. "I was just reading that Macquarie is investing in regional newspapers in the US," Correy says. "Which has got to be ironic, considering they absolutely hate journalists writing anything about them."
Its reputation, moreover, is for being prickly, even hostile, when criticised. When Business Review Weekly was preparing a cover story on Macquarie three years ago, the bank started issuing complaints to the magazine's proprietor, John Fairfax Group, even before publication. Two years ago, transport academic Dr John Goldberg published a paper casting doubt on the viability of the M2 Motorway and the Lane Cove and Cross City tunnels; the bank not only complained to the University of Sydney, where he was an honorary associate, but demanded the university disassociate itself from his comments. Whatever the rights and wrongs of Goldberg's critique, it seemed needlessly heavy-handed. Likewise the response to the Wilson HTM analyst Brett Le Mesurier, who was told recently that he was being denied access to management because he had had the temerity to write a note to clients comparing Macquarie to its smaller rival Babcock & Brown. "Of course," says the puckish Le Mesurier, "that just encourages me."
An investment bank undertaking roles previously performed by government is anything but a like-for-like swap. A government is elected on the basis of what it may giveth; an investment bank is chiefly interested in what it can taketh away. A recent reminder of the sparks struck by the clash of cultures is instructive. On 28 May, Liverpool City Council announced, very quietly, that it had reached a settlement with Macquarie over five development agreements involving council land: resolving a moribund arrangement colloquially known as the Oasis Project, Macquarie accepted $600,000 to walk away. Outside the locality, the name Oasis will pass mostly unrecognised. Few local-government fiascos, however, have been so abject and costly.
In February 2001, the council, the Canterbury Bulldogs and Macquarie signed a commercial agreement to develop a "world-class sporting, entertainment, cultural, educational and recreation precinct" around Woodward Park. For all manner of reasons - some of them colourful, to use a standard Sydney euphemism - the work barely proceeded beyond the pouring of a concrete slab, by which time $15 million of council funds had been expended and Macquarie had pulled out.
The council pressed on with a revised vision of the plan excluding the Bulldogs. But ‘Liverpool 2020', involving Macquarie as exclusive adviser and arranger, was driven mainly - according to a subsequent inquiry chaired by Emeritus Professor Maurice Daly - by the "perceived need to ... restore public faith in the council". Inevitably, it did the very opposite. The bewilderingly one-sided memorandum of understanding gave Macquarie sweeping powers over council land for residential development, yet did not even oblige it to share its financial modelling of the project with councillors.
Macquarie's property chief, Bill Moss, testified at the inquiry that "we wanted council to do its own feasibility and its own independent parties to sign off on their own model," and also that "we believed that if we gave council a hard copy of our model it would be on the front page of the newspaper the next day". Professor Daly was unimpressed, deciding that Macquarie was "motivated solely by self-interest", while the councillors were "captive to the reputations and experience of the parties with whom they were attempting to establish commercial relationships". He concluded: "The most generous summary of Macquarie's actions is to call them opportunistic. A more appropriate view might be that they were predatory."
This isn't the place to review Daly's findings, or to revisit in detail a convoluted and tawdry case. What is perhaps most interesting about the inquiry is that, as Professor Daly notes, "The financial press basically ignored it." Daly's judgement sounds damning to a lay reader. But in the Darwinian world of finance, to be opportunistic, even to be predatory, might almost be a recommendation; the naive and under-prepared are to be exploited. The question that follows forms itself: Does this also apply when the naive and under
-prepared are citizens to whom, thanks to the withdrawal of the state, a company is now providing a service - a service they used to take for granted, regarding it as a function of their tax dollars or council rates?
Complex financial structures are Macquarie's speciality. But what about complex social structures? "The powers that be at Macquarie, I'm sure, will have thought about this sort of stuff," says Steve Johnson of the Intelligent Investor. "But the people running around doing the deals, they just want to get the deal done and generate some fees. They won't have given a lot of thought to the bank's role in society." In fact, it would be easy for Macquarie to become mighty unpopular. The public sector might well have been riddled with inefficiencies, but at least you never suffered the galling thought of the people running it being paid tens of millions of dollars.
Time will tell how people deal with that notion now, and how Macquarie will deal with the response. Peter Doherty from Capital Partners thinks the company is up to it: "The lessons they learned after the Sydney Airport acquisition stung them badly. The share price went from $42 to $18. They learned that their interface with the public is important. It's not just about transactions; it's about image. I don't know whether they'll make that mistake again. They tend not to repeat mistakes."
On the other hand, Doherty, a staunch defender of Macquarie's levels of remuneration, also looks forward to its executives being paid far more: "Those packages are going way north. They are going to be very high." Macquarie's evolution from "fee-for-service to having a stake in the game", he argues, is analogous to comparing JP Morgan and John Rockefeller: where Morgan the adviser became very rich, Rockefeller the principal became stupendously rich. Yet perhaps only by the standards of modern hypercapitalism could JP Morgan be regarded as a relative failure, when his fortune would today have made him at least a billionaire, and Rockefeller be offered as an exemplar, when his widely hated empire was broken up by anti-trust authorities.
In this sense, the failure of the Airline Partners of Australia bid for Qantas may be a felix culpa. For one thing, taking a conservatively managed airline and turning it into a highly geared one looked to be asking for trouble. (Warren Buffett issued some sage advice after losing a bundle on preferred stock in US Air 18 years ago: "I have an 800 number now which I call if I ever get the urge to buy an airline stock. I say, ‘My name is Warren, I'm an air-aholic.' And they talk me down.") For another, the APA plan for Qantas smacked of turning a well-loved Australian institution into a fee-machine, with the upside enjoyed by Macquarie and its co-investors and the downside faced by the airline's employees. Steve Johnson explains: "I think it's a situation where the employees are well within their rights to say: ‘We've earned all these entitlements in a quite secure business, and now you're going to make it very insecure. If you go bust we lose what we've worked for.'"
In the past decade Macquarie has been one of the great stories of Australian business. In the next decade it will surely be one of the most intriguing. How ready is Macquarie for the consequences of owning businesses on which citizens vitally depend? And how ready are citizens to depend upon Macquarie? While what Macquarie Bank ends up being called is of only minor significance, the tone with which people say its name may matter a lot.