Now's a good time to work on your rules to live by

The week between Christmas and new year is unique among the 52, a week of no great consequence, a kind of no man’s land between the end of the old year and the start of the new. Not a gap year, but a gap week. A week where all the sensible people are on leave and having fun with the family, while the few who must work while others play hope there won’t actually be much work and no one will mind if they skive off early.

But I’ve always found it a good time for reflection and taking stock. What were my great achievements in the year just past – if any? And what are my grand plans for achievement in the coming year?

A few days ago I happened upon a list of "17 Things I Believe", written by the American management professor Robert Sutton, which I put away a decade ago because I believed so many of his 17. Some of them are useful for anyone using this week for a little reflection.

Let’s start with number 14: "Am I a success or a failure?" is not a very useful question.

That’s because all of us are both a success and a failure. Successful in some aspects of our life and less successful in others. Good at making money, for instance; less good as a spouse and parent.

If so, see number 17: Work is an overrated activity.

Many men do need to find a healthier balance between work and family. They need to stop kidding themselves that sending their kids to an expensive school and buying their loved ones expensive presents is a satisfactory substitute for their presence and attention.

More generally, however, the school of "positive" psychologists says that, rather than always focusing on fixing your weaknesses, you make more progress if you concentrate on getting the best from your strengths.

But Sutton has his own twist. "Rather than fretting or gloating over what you’ve done in the past (and seeing yourself as serving a life sentence as a winner or loser)," he says, "the most constructive way to go through life is to keep focusing on what you learn and how you can get better in the future."

This ties in with number 8: Err on the side of optimism and positive energy in all things.

Yes, a much happier way to live your life.

And it leads on to number 5: You get what you expect from people. This is true when it comes to selfish behaviour; unvarnished self-interest is a learnt social norm, not an unwavering feature of human behaviour.

This really chimes with my experience. I’ve found it particularly true of bosses. If they can see that you expect them to give you a square deal because they’re a decent person, they most likely will if it’s within their power.

That’s because of a person’s natural desire to meet the other person’s expectations of them. Hold them to a high standard and they’ll rise to it. But let them see you distrust them and half expect to be cheated, and they’re unlikely to dash your expectations.

Another one I really like is number 7: The best test of a person’s character is how he or she treats those with less power. Or, as I prefer to say after too much Downton Abbey, how you treat the servants. The taxi drivers, shop assistants, receptionists and executive assistants trying to stop you getting through to their boss.

It’s a test I apply in retrospect to my own behaviour, and often don’t pass.

Now here’s a better one for this time of year, number 9: It is good to ask yourself, do I have enough? Do you really need more money, power, prestige or stuff?

Like many economists always have, in this age of hyper-materialism and vaulting ambition it’s easy to assume more is always better. It often isn’t, particularly when quantity comes at the expense of quality. Nor when we use cost as a measure of quality.

I think the world would be a nicer, less frantic, more generous, less unequal and, above all, more enjoyable place to live if our politicians and business people put more emphasis on making things better rather than bigger. (And by quality I don’t mean striving for an all-Miele kitchen.)

Sometimes I think top executives strive for ever-higher remuneration because they don’t get much satisfaction from the jobs they do. They’d be better off themselves if they put more emphasis on making sure their staff had more satisfying and reasonably paid jobs, and their customers always got value for money.

Which brings us back to work. There is more to life than work, but since work takes up so much of our lives, I think the secret to a better life is to keep wriggling around until you find a job that’s satisfying. And a business full of satisfied workers – from the boss down – should still be one that makes a big profit. That is, big enough.

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Business - and customers - pay for bad business behaviour

It's remarkable the way the Business Council of Australia constantly lectures us on the "reform" we should be accepting to improve our economic performance (and, purely by chance, their profits), but never seems to lecture its big-business members on their manifest need to "reform" their own standards of behaviour.

Among its most profitable members would have to be the four big banks. But the litany of scandals over their bad treatment of customers never seems to end.

The latest was CommInsure's denial of legitimate life insurance claims, but there's also been ANZ's alleged manipulation of a key commercial interest rate and the Commonwealth Bank's bad financial planning advice that lost money for many customers.

Now the chairman of the Australian Securities and Investments Commission, Greg Medcraft, has joined Australian Prudential Regulation Authority boss Wayne Byers in demanding the finance industry fix its corporate culture.

"Time and again, we have seen firms blaming [behaviour] on a few bad apples driving bad outcomes for consumers, rather than taking responsibility by looking more closely at their organisation and implementing the necessary changes to address the cause of the problem," Medcraft said on Monday.

"At the end of the day, you need to have a culture that your customers can believe in."

The captains of finance have not reacted well to the bureaucrats' admonition. David Gonski complained about the corporate regulator being the "culture police", while someone from the Institute of Company Directors offered the uncomprehending advice that corporate culture could not be imposed by law.

It would be wrong to focus only on the bad behaviour of the banks, of course. There have been other instances from other industries. Take 7-Eleven's underpaying of foreign workers.

Or take the many notorious cases of businesses rorting government subsidy schemes in ceiling insulation, childcare and vocational education and training.

It's possible what we're seeing is merely greater exposure of the bad behaviour of big business thanks to a surge in business investigative journalism, with Fairfax Media's Adele Ferguson at its head.

But I've been in and around businesses since I left school 50 years ago, and I think bad corporate behaviour is definitely worse than it was. As executive remuneration has headed for the stratosphere, so the willingness to exploit customers and staff has grown.

But why? One reason is the rise of a more fundamentalist approach to economics. "Economic rationalism" has prompted much deregulation, privatisation and outsourcing, which has made competition a lot more intense in many industries.

That's not necessarily a bad thing, but as managers have experienced greater pressure to perform – as it's become harder to keep profits high and rising – they've passed the pressure on to staff and customers.

Economic fundamentalism is both a product of the greater materialism of our age and a cause of it, with all its emphasis on monetary values and view of "labour" as just another resource to be exploited along with other raw materials.

What's worse is that economic fundamentalism has had the effect of sanctifying selfishness. When I put my own interests ahead of other people's, I'm not being greedy or self-centred or antisocial; I'm just being "rational".

One effect of the greater pressure to perform is the present "metrics" fad – the obsession with measuring aspects of the firm's performance, then using those measures to improve performance, such as by setting targets based on "key performance indicators".

What the KPI obsession is saying is: just get results; how you get them is of lesser interest. I'd lay money that the reason people at CommInsure were knocking back legitimate claims was they were being encouraged to do so by KPIs or other "performance incentives". (That's why it's dishonest for people at the top to blame "a few bad apples".)

Most people's sense of what is acceptable, ethical behaviour is determined by what they believe their peers are doing. If they do it, it's ethical for me to do it; if they don't do it, maybe I should feel guilty about it.

The trouble is, studies show that adults, like children, often harbour exaggerated impressions of how many others are doing it.

Social conformity (aka "culture") is such a powerful influence that it's always been hard for people to follow their own "moral compass". With the decline of religious adherence, it's harder even to have one.

The Business Council and its members ought to be a lot more worried about the decline in their standards of behaviour than they seem to be.

One fundamental the economic fundamentalists keep forgetting is that market economies run best on widespread trust: mutual trust between management and staff, and between businesses and their customers.

Allow declining standards of behaviour to erode trust and the economy suffers. Customers become harder to persuade, argue more with counter staff, are surlier with call-centre staff and more inclined to take their business elsewhere. They resist "upselling".

With less trust you have to waste a lot of money on increased security in its many forms. And governments react by multiplying laws and legal requirements.

When so many companies demonstrate their contempt for other taxpayers by the way they manipulate the tax they pay – their ethic is that if it's (barely) legal, it's ethical – it becomes much harder for governments to get voter support for cutting the rates of those taxes.

Who knew?

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How to find happiness at Christmas

The beauty of Christmas is that it's a time when everyone's happy. Well, not quite. Better to say, it's a time when everyone tries to be happy, but we succeed in varying degrees.

When Dr Peter Clarke, of Griffith Business School in Brisbane, surveyed 450 people to ascertain the nature of "Christmas spirit", he found it had five components: bonhomie, gay abandon, ritual, shopping and a little bit of dejection.

Yes. We all have periods of less-than-perfect bliss and perhaps we don't have any more of them at Christmas than at other times; it just feels that way because we expect to be happy at Christmas and are surrounded by people trying so hard to be.

Perhaps. But my guess is more of us do experience periods of unhappiness at Christmas. There are those who, for various reasons, have no family or friends with whom to celebrate, or those who miss those now missing.

Then there's all the distress arising from overadministration of that substance supposed to magically generate good moods. Too many hangovers after too many Christmas parties, regretted behaviour at the office party (this year, Fairfax Media employees received a stern warning that no tolerance would be shown), things said around the dinner table that would have been better left unsaid. Old wounds opened.

Yes, Christmas has its share of unhappiness, even if just the wish we hadn't eaten (or spent) so much. There are, of course, a few traps that can be avoided.

If, as some clerics allege, materialism has become our dominant religion, Christmas must surely be our most sacred economic festival. But the evidence suggests that's not the way to wellbeing.

I've said it before, but it's one of my strongest conclusions after decades of economy-watching, so I'll say it again: the trick to succeeding in the capitalist system is to say no to most of the blandishments of the capitalists.

Professor Tim Kasser​, a psychologist at Knox College, Illinois, and Kennon Sheldon, a professor of psychology at the University of Missouri, wanted to determine what makes for a merry Christmas.

They asked 117 people of varying ages questions about their satisfaction, stress and emotional state during the Christmas season, as well as questions about their experiences, use of money and consumption behaviour.

They found that those who most remembered family and religious experiences were happier than those for whom spending money and receiving gifts were the main things they remained conscious of.

Of course, for many of us, religious experiences are no longer part of Christmas. Don't take this the wrong way – I'm not on a recruiting drive – but I suspect those who retain a religious commitment already have "man's search for meaning" sorted, while the rest of us can spend a lot of time looking for substitutes.

All those claims that the environment or economics or libertarianism or a dozen other things have become "the new religion" are unconsciously affirming that humans function better when they have something to believe in, something outside and above their own self-centred concerns.

There's psychological evidence to support that. It doesn't have to be the Christian religion, however. And other research has shown that a big part of the benefit people get from church-going, or its equivalent, is social contact and membership of a group.

One advantage of a religious upbringing that's of particular relevance at Christmas is an instinctive understanding that, to quote some chap supposed to have been born at this time, "it is more blessed to give than to receive".

Think of Christmas as about giving rather than receiving and you're well advanced towards a happier time. And, naturally, there's empirical support for the notion.

A study by Elizabeth Dunn and Lara Aknin​, of the University of British Columbia, and Michael Norton, of Harvard Business School, first asked a sample of 632 Americans to rate their general happiness, report their annual income and estimate how much they spent on bills and expenses, gifts for themselves, gifts for others and donations to charity.

They found that personal spending was uncorrelated with happiness, whereas higher "pro-social spending" correlated with significantly greater happiness.

Next, 16 employees were tested for their happiness well before and well after they received a profit-sharing bonus. They found that those who devoted more of their bonus to spending on other people or a charity experienced greater happiness after receiving the bonus. And how they spent their bonus was a better predictor of happiness than the size of the bonus itself.

This, of course, is just a narrower application of the much-noted principle that happiness can only be achieved indirectly. If you want to end up realising you're happy, focus on increasing the happiness of others, not your own.

In discovering all these studies, I must acknowledge the assistance of the British psychologist, Dr Jeremy Dean, author of the blogsite PsyBlog.

I'm indebted to him for drawing to my attention a study by Vohs, Wang, Gino and Norton, which finds that engaging in ritualised behaviour enhances the enjoyment of food, particularly if it makes you wait a little longer.

So, Christmas rituals are important. In my family, we repeat a short but almost incomprehensible Scottish grace by Rabbie Burns that our mother taught us, to the bemusement of in-laws.

Have a happy one.

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We can grow GDP if we stop growing natural resource use

Some things are more important even than the fate of the goods and services tax. A question I regard as just a tiny bit more significant to our future is whether we can continue increasing our population and material standard of living without doing irreparable damage to the natural environment.

Few of us noticed in all the excitement over tax reform, but last week we made a big step forward in answering this question. The CSIRO unveiled the results of a ground-breaking, two-year project – the Australian National Outlook report – in which it integrated a model of the economy with no less than eight models of different aspects of the global and domestic natural environment in which the economy exists.

So, is ecologically sustainable growth possible? Is it possible to "decouple" continuing economic growth from continuing environmental vandalism?

It depends on what you mean by "growth". There's enormous confusion on this point because what economists take the word to mean is not what scientists take it to mean.

What scientists mean by growth is growth in the "throughput" of natural materials and energy – using those resources to generate economic activity and, in the process, turning them into various forms of pollution and other waste.

They point out that such growth simply cannot continue indefinitely because the natural world – the global ecosystem – is of fixed size. And they have to be right because they're merely stating the first law of thermodynamics.

But that's not what economists mean by growth. They mean an increase in gross domestic product, most of which is cause by increased productivity (efficiency). It may or may not involve an increase in the economy's throughput of natural resources.

So what does the CSIRO's modelling say about whether we can continue to grow without inflicting further damage on the environment?

It says GDP can continue growing strongly, but throughput of natural resources can't. So the people who want continued growth in GDP win, but so do those saying ever-increasing use of natural resources must stop.

Since no one knows the future, CSIRO's economists and scientists ran through their super model 18 different scenarios covering different rates of growth in the global population, different degrees of global action to restrain climate change and a range of differing development in Australia and its economy.

All 18 scenarios project continuing strong growth in Australia's population and GDP out to 2050. But get this: only three of those scenarios also saw improvement or no further deterioration on the model's three key indicators of environmental health: emissions of greenhouse gases, water stress, and loss of native habitat.

As well, two of the three scenarios see no increase in the economy's annual throughput of natural resources, while the third projects a fall in material throughput of 38 per cent.

All this says ecologically sustainable growth and decoupling do seem to be possible, provided the world gets its act together.

The good news is that the model's results don't rely on "technological optimism" (don't worry, market forces will call forth a technological solution to every problem before the proverbial hits the fan) but nor do they require that we renounce our materialist ways and become greenie vegan mud-brick makers.

We don't need to do anything we don't already know how to do and, in many cases, have already begun doing. We just need to do a mighty lot more of it.

The bad news is that we can't do it on our own. To achieve improvement in the key environmental indicators and a fall in material throughput we need effective international action to limit the world's population to 8 billion in 2050 and limit global warming to 2 degrees in 2100.

This would require "very strong" global and Australian effort to reduce greenhouse emissions.

The two other environmentally not-so-bad scenarios – involving world population growing well beyond 8 billion and global warming limited to 3 degrees – would require "strong" global and Australian effort to reduce emissions.

Strong translates as a worldwide price per tonne of carbon dioxide emissions of $US30 ($42) in today's dollars; very strong translates as $US50 a tonne.

These world prices would be applied in Australia. But we'd have a comparative advantage over many countries that would reduce the carbon price's adverse effects on our economy: we could achieve up to half our required reduction in net emissions by "carbon sequestration" – reforestation of cleared land, either with one species of eucalypt (to maximise sequestration) or a range of eucalypts (to also restore native habitat).

At these carbon prices, our farmers could earn up to five times what they make from using the land to produce beef.

Our greenhouse emissions per person would fall from five times the global average in 1990 to below average by 2050.

Our biggest problem would be avoiding water stress, particularly because reforestation would add to the problem. The price of water for agriculture would be a lot higher and, in the cities, we'd have to do a lot more desalination and water recycling for industrial use.

I don't regard this as the last word on the subject. All modelling is far from infallible and this exercise is no different. The good thing is that a last we've made a start at reconciling our materialist ambitions with the constraints imposed by the natural environment we hope to continue living in.

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KPIs a dumb way to encourage good performance

You've been doing good work lately, and the boss is thinking of acknowledging your contribution. How would you like to be thanked? With a bonus, or with some kind of award?

If you want the money rather than the glory you'd be in good company. That's how most bosses want their own good work rewarded (and arrange their compensation package accordingly).

And it's how almost every economist would advise your boss to reward you. But don't be so sure it is what you really want, what would yield you the most lasting satisfaction.

One of the big issues in business - particularly big business - is how best to motivate and reward good performance.

Since economics is defined by some economists as the study of incentives, you'd think this was right up their alley. But economics is so focused on monetary incentives that most economists tend to assume away any non-monetary motivations.

They'll tell you the best way to "incentivate" people is performance pay: promise them a particular bonus provided they meet the targets you've set on a few "key performance indicators". Apart from that, just pay the good performers more than the poor performers.

But there's a lot more to human motivation than that and, fortunately, some economists are starting to take a less narrow approach to the topic. One is Professor Bruno Frey, of the University of Zurich.

In a paper with Jana Gallus he discusses The Power of Awards and puts them into the context of other forms of reward. Money is obviously the most common form and it has the great advantage of "fungibility" - you can spend it however you choose. And it can be applied marginally - do a bit more, get a bit more; do a lot more, get a lot more.

A second form of reward is non-monetary, but still a material award: fringe benefits, such as a company car or a particularly attractive office. These have the disadvantage of lacking fungibility (I might prefer money to a car), but usually carry a tax advantage. Even a corner office brings me status that isn't taxed.

Money and cars are "extrinsic motivators" - you do a good job as a means to getting what you really want. The message is slow to get through to business, but among behavioural economists there's now more interest encouraging "intrinsic" motivation - you do a good job because it makes you feel good. You're good at what you do and you enjoy doing it. You like knowing you've done a lot to help your customers.

The way to foster intrinsic motivation is to treat your staff well, of course, but the key is to give people discretion in the way they do their jobs. It's the opposite of trying to tie them up with KPIs.

Frey and Gallus say awards fall somewhere between these two approaches - they're extrinsic, but often not material. They include titles, prizes, orders, medals and other decorations. They are ubiquitous in society, if not business.

They're widely used in public life (various ranks of the Order of Australia), the entertainment industry (Oscars, Grammys, Logies), journalism (Walkleys, journalist of the year), sport (Brownlow medal, Dally M medal, Olympic medals), academia (fellowships of prestigious scholarly bodies, honorary doctorates, Nobel prizes) and the Catholic Church (canonisation and papal knighthoods).

The point is that the many advantages of awards suggest they should be used more in the business world.

For one thing, they're cheap to confer, but highly valued by the recipient because of the recognition as well as status they bring - provided you don't give out too many, make them too easy to attain or award them to the clearly undeserving.

More significantly, they avoid the drawback of KPIs and performance pay. The authors say such inducements are appropriate only if the performance criteria are precisely determined and measured. But for many complex activities, this is  not possible.

If it isn't, KPIs encourage what social scientists euphemistically call "strategic behaviour" - gaming the system by performing well only on those dimensions that are measured.

Monetary rewards may reduce work effort by crowding out intrinsic motivation, training people to try hard only when there's money to be gained. Why spend time helping a colleague when this might help them achieve their KPIs at the expense of your own?

The authors say monetary rewards don't induce employee loyalty. They're a strictly commercial transaction. But awards do encourage loyalty, as well as intrinsic motivation.

Overpaid chief executives shouldn't assume their workers are as materialistic as they are, nor should they imagine their firm would do better if their workers' materialistic tendencies were heightened.

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Materialist era a qualified success

Tired of obsessing over what happened in the economy yesterday? Let's go to the other extreme and look at what's been happening in the past 200 years, and broaden the focus from poor, ailing Australia to the world.

In October, the Organisation for Economic Co-operation and Development published a report, How Was Life? Global Well-Being Since 1820. It's an extension of the work of great economic historian Angus Maddison.

His life work was to piece together estimates of real gross domestic product for all the big countries and regions of the world between 1820, which he took to be the end of the (first) industrial revolution, and 2000.

This latest study has extended the GDP figures to 2010, but also tried to estimate measures of various other socio-economic indicators of well-being.

It paints a picture of the way economic development has spread throughout the world, raising living standards, widening but then narrowing the gap between incomes, fostering population growth and, when you combine the two, causing great damage to the globe's natural environment.

The world's population was about 1 billion at the start of the 19th century, but has grown to more than 7 billion today. That growth was both a cause and a consequence of economic development and the technological advance it promotes.

Advances in public health, particularly sewerage and clean water, led to falling death rates, which slowly encouraged people to have fewer children. Then advances in medical science took over, eventually including more effective means of contraception.

However, these improvements took a long time to spread from Western Europe and the "Western Offshoots" (Maddison's name for the United States, Canada, Australia and New Zealand) to the rest of the world.

This is the story of the huge challenge the world economy has faced in the past 200 years: how to feed, clothe and house this growing population. Overall, we've done it.

Between 1820 and 2010, the world's average real GDP per person increased by a factor of 10. Multiply that by the sevenfold increase in population and world real GDP rose by a factor of 70.

The first weakness in this materialist success story is obvious: this economic growth was spread very unevenly. In 1820, the richest country, Britain, was at most five times as wealthy as the poorest countries. By 1950, the richest countries were more than 30 times as well off.

Only recently has the spread of industrialisation to China and India, which between them contain about one-third of the world's population, caused global income inequality to begin to decline.

Another indicator the study examines is the movement in the real wages of unskilled labourers. They rise more or less in line with real GDP, suggesting that some income does indeed trickle down, even if it has to be helped along by government interventions such as minimum wages.

During the first half of the 19th century, unskilled wages were above subsistence level only in Europe and the Western Offshoots. Now, however, world unskilled real wages are about eight times what they were then.

They were always highest in the Western Offshoots, with Western Europe catching up only since World War II, and they are still low in south-east Asia and Africa.

Turning to education, in 1820 less than 20 per cent of the world's population was literate, and most of these were in Europe and its offshoots. Today, literacy is nearly 100 per cent almost everywhere, although in south-east Asia, the Middle East and North Africa, it's about 75 per cent, and in the rest of Africa it's only 64 per cent.

Much of the increase in literacy has been achieved since the war and decolonisation. It has been accompanied by rising average years of education in all parts of the world. Levels of global inequality are much lower for education than for income.

At the start of the industrial period, average life expectancy was about 40 years in Europe and its offshoots, and 25 to 30 in most of the rest of the world. Only after the late 1890s did life expectancy start to rise significantly. Now, it's about 80 in the rich countries. Elsewhere, the catch-up started after the war, with most of the other world regions now up to about 60 to 70, and only Africa lagging significantly behind.

Income inequality within particular European and offshoot countries has followed a U shape, declining between the end of the 19th century and about 1970, since when it has risen sharply. In other parts of the world, particularly in China, recent trends have led to greater income inequality.

However, when we look at global income inequality, it was driven largely by increasing inequality between countries, as opposed to within them. It worsened until the 1950s, but has since stabilised.

The other big weakness in the success story is, of course, what we have done to the quality of the environment. There has been a long-term decline in biodiversity worldwide. Emissions of carbon dioxide have been rising since the industrial revolution, with its shift to fossil fuels such as coal and oil.

Although almost all the greenhouse gases that have built up in the atmosphere since the early 19th century are the result of economic activity in the developed countries, China's huge population and remarkably rapid industrialisation mean that it has now taken over from the US as the world's largest emitter.

Something tells me that, from here on, climate change and other environmental damage will be the main factor limiting the spread of industrialisation and prosperity to the remaining less-developed parts of the world.

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Competition is a wonderful thing - up to a point

The older I get the more sceptical I become. Goes with being a journo, I guess. I've become ever-more aware that no one and nothing is perfect. Not political leaders, not parties, not any -isms, not even motherhood.

Take competition. Economists portray it as the magic answer to almost everything, but the more I see of it, the more conscious I become of its drawbacks and limitations.

Which is not to say I don't believe in it. Far from it. We could use a lot more competition than we've got. But only in the right places and for the right reasons.

The recent draft report of the review of competition policy, chaired by emeritus professor Ian Harper, argues that we need to step up the degree of competition in the economy if we're to cope with three big sets of challenges and opportunities that we face: the rise of Asia, our ageing population and the advent of disruptive digital technologies.

Dead right - up to a point.

We need more competition in the economy because it's what keeps the capitalist system working in the interests of the populace, not the capitalists. But that doesn't mean it makes obvious sense to take areas of our lives that have been outside the realm of the market and turn them over to the capitalists.

Economics is about efficient materialism; making sure the natural, man-made and human resources available to us are used in ways that yield maximum satisfaction of our material wants. It argues that economies based on private ownership and freely operating markets - "capitalist" economies - are the most efficient.

What's to stop the capitalists using markets to exploit us and further aggrandise themselves? Competition. Competition between themselves, but also between us (the consumers) and them (the producers).

Get this: the ideology of conventional economics holds that the chief beneficiaries of market economies should be, and will be, the consumers, not the capitalists.

Market economies are seen as almost a con trick on capitalists: they scheme away trying to maximise their profits at our expense, but the system always defeats them, shifting the benefits to consumers (in the form of better products and lower prices) and leaving the capitalists with profits no higher than is necessary to keep them in the game.

What it is that performs this miracle? Competition. It's not nearly as fanciful as it sounds. Since the industrial revolution, the history of capitalism is the history of capitalists latching on to one new technology after another, hoping for the killing that never materialises.

Take the latest, digital technology and its effect on my industry, news. Who's losing? The formerly mighty producers of the soon to be superseded newspaper technology, including many of their journalists and other workers. Who's winning? People wanting access to as much news as possible as cheaply as possible.

For good measure, the cost of advertising - reflected in the prices of most things we buy - is now a fraction of what it was. Tough luck for producers, good luck for consumers. Competition at work.

But, amazing though this process is, it's far from perfect. Competition doesn't work as well in practice as it does in theory, for many reasons. A big one is "information asymmetry" - producers know far more about products than consumers do. Another is the presence of economies of scale, which has led to most markets being dominated by a handful of big companies.

Perhaps most pernicious, however, is the success of some producers in persuading governments to protect them from the full rigours of competition. Some industry lobbies are particularly powerful, and the ever-rising cost of the election arms race has made the two big parties susceptible to the viewpoints of generous donors.

The report produced by Harper, a former economics professor, emphasises that competitive pressure needs to be enhanced for the ultimate benefit of consumers. With so many big companies enjoying so much power in their markets, we need laws against anti-competitive practices. He proposes refinements to make these laws more effective.

He points to industries where governments need to reform laws that limit competition at the expense of customers: retail pharmacies, taxis and coastal shipping. He advocates "cost-reflective road pricing" and an end to restrictions on "parallel imports" of books, recordings, software and so on (fear not, the internet's doing it for us) and local zoning laws that implicitly favour incumbents (Woolies and Coles, for instance) at the expense of new entrants (Aldi and Costco).

But, predictably, there's little acknowledgement that competition has costs as well as benefits. It's assumed that if some choice is good, more must be better. And competition-caused efficiency outweighs all social considerations.

So the report advocates liberalising liquor licensing, and deregulation of shopping hours on all but three holy days a year (the holiest being Anzac Day), without any serious consideration of the effects on sobriety and crime in the first case or family life, relationships and what I like to call re-creation in the second.

Similarly, it sees nothing but benefit in maximising choice and competition between schools, and wants much more outsourcing of the delivery of government-funded services to profit-motivated providers.

The inquiry we need is one to check how well previous experiments in mixing government funding with the profit motive - in childcare, for instance, or training courses for international students - have worked in practice. We need more evaluation and fewer happy economist assumptions.

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Greed is the market's forgotten vice

Where do Easter and business intersect? Well, what about at greed.

According to Dr Brian Rosner, principal of Ridley Melbourne, an Anglican theological college, greed has been glamorised by the market economy and is a forgotten sin.

Maybe it's this that allows those Christians who are business people, economists and politicians to share their colleagues' commitment to unending economic growth and an ever-rising material standard of living.

In his book, Beyond Greed, Rosner defines greed as ''wanting more money and possessions'', a refusal to share your possessions and ''the opposite of contentment''.

Greed has always been with us, and insatiability isn't unique to modern Western civilisation, but we're certainly giving it a workout. To us, money is the simplest measure of whether you're winning at the game of life.

But what is unique to our age, according to another author, is the cultural acceptance, even encouragement of insatiability. A survey of regular churchgoers in America found that whereas almost 90 per cent said greed was a sin, fewer than 20 per cent said they were ever taught that wanting a lot of money was wrong, and 80 per cent said they wished they had more money than they did.

It seems that, by comparison with the past, greed is regarded as a trivial sin. A retired priest has recounted that, in his long years of service, all kinds of sins and concerns were confessed to him in the confessional, but never once the sin of greed.

But Rosner's having none of that. He says greed is at the heart of three major threats to our existence as individuals and societies: pollution, terrorism and crime.

Pollution is caused by human unwillingness to pay the price for the cleaner alternative (ain't that the truth, Tony). ''On any reckoning, climatic change due to the effects of pollution could cause major 'natural' disasters in the days to come,'' he says.

In most cases of terrorism, each side accuses the other of some form of greed, whether involving people, land or property. ''Greed also fits both sides of the equation in many cases of crime,'' he says. ''Thieves steal because they want more, and often because they perceive the victims as having more than their fair share.''

The greedy are those who love money inordinately, trust money excessively, serve money slavishly and are never satisfied with their possessions.

Rosner says greed is a form of religion, the religion of Mammon. Literally, mammon means wealth or possessions, but it could just as easily be taken as the biblical word for the economy. And if greed is a religion, that makes it a form of the greatest of all sins: idolatry. (First Commandment: you shall have no other gods before me.)

In Western society, the economy has achieved what can only be described as a status equal to that of the sacred.

''Like God, the economy, it is thought, is capable of supplying people's needs without limit. Also, like God, the economy is mysterious, unknowable and intransigent,'' he says. ''It has both great power and, despite the best managerial efforts of its associated clergy, great danger. It is an inexhaustible well of good(s) and is credited with prolonging life, giving health and enriching our lives.

''Money, in which we put our faith, and advertising, which we adore, are among its rituals. The economy also has its sacred symbols, which evoke undying loyalty, including company logos, product names and credit cards.''

Rosner says we have to distinguish between the legitimate enjoyment of material things, which the Bible takes for granted, and an illegitimate and unhealthy attachment to wealth as an end in itself.
But if we don't want to be greedy, what should we be? Contented.

''To be content is to be satisfied, to enjoy a balance between one's desires and their fulfilment. To be content is in effect to experience freedom from want,'' he says. But note, it's being content with your own lot, not those of others less fortunate than you.

And the other side of the contentment coin is giving. Rosner says that if Charles Dickens' Scrooge epitomises greed, giving is epitomised by Victorian jam maker Sir William Hartley. Hartley regularly and voluntarily increased wages, practised profit-sharing and supplied low-cost, high-quality housing to some of his employees and free medical attention to all of them.

He was also concerned for his suppliers, and would amend contracts in their favour if a change in the price of fruit and economic circumstances conspired against their making a decent living.

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Our econocrats' vision is too narrow

Part of my job is making sure readers are kept fully informed about the messages our top econocrats are trying to get across to the public. They're usually much franker and clearer than the spin we get from our political leaders.

But just because I report their views faithfully doesn't mean I always agree with them.

As it related to the outlook for the economy, the message in the speech Treasury secretary Dr Martin Parkinson delivered last week fitted well with the messages we've been getting from Glenn Stevens and Dr Philip Lowe, of the Reserve Bank.

It's a warning that, between the slowdown in our rate of productivity improvement, the expected continuing fallback in mineral export prices and the reversal of the "demographic dividend" delivered by the baby boomers, "we face a significant challenge in maintaining the rate of growth in living standards that Australians have come to expect".

Specifically, Parkinson projected that, even if we assume labour productivity grows at its long-term average, the other two factors would cause real income per person to grow by just 0.7 per cent a year over the decade to 2023-24, rather than the 2.3 per cent "to which Australians have become accustomed".

So over 10 years our present annual real income of $63,600 per person would grow only to $69,000, rather than $82,000, leaving us only $5400 a year better off, rather than the $18,400 a year to which we've become accustomed.

To keep average incomes growing as fast as we've come to expect will require us to double our present rate of productivity improvement to 3 per cent a year.

Sorry, but I very much doubt we'll be willing to make the many controversial reforms needed to achieve such a transformation. More to the point, I'm not convinced we should.

The admonitions we get from our econocrats are far too relentlessly materialist and, hence, mono-dimensional. Whatever their professed "wellbeing framework", when the chips are down their advice is to make maintaining the rate at which our material standard of living is rising our highest priority, if not our only priority.

We're always being reminded of the pecuniary price to be paid for worrying about foreign ownership, or saving family farming or preserving the weekend. But the warnings never run the other way: the greater personal stress or relational problems or loss of leisure or greater social disharmony that could accompany going all out to maximise economic growth.

No one knows better than I do that you can't say everything you want to say in the time allotted for a speech or the space allotted for a column. But, even so, some obvious caveats and qualifications almost never rate a mention.

The most obvious is the environment. What reason is there to believe acting to maintain our rate of growth won't do significant further damage, even unacceptable damage to the ecosystem? How do we know continuing climate change - a problem about which we've decided not to make a genuine contribution to international efforts to combat - won't negate our productivity-raising efforts?

How can we talk about capturing a big share of the growth in Asia's demand for Western foodstuffs without mentioning climate change?

To be fair, their present political masters are so down on the environment that our econocrats aren't free to speak on the subject. Parkinson is facing the sack for having been chief designer of the emissions trading scheme (including the Howard government's version) and his successor - an outstanding Treasury officer - has already had the chop. It's a wonder Professor Ross Garnaut isn't behind bars - or at least had his office raided by ASIO.

Another obvious but never-mentioned caveat is the distribution of all this increased income. It's all very well to talk about increasing the average income, implicitly assuming the extra income will be shared in line with the existing distribution. Our experience of income growth over the past 30 years is that a disproportionate share ends up in the hands of the people at the top.

Why no mention of this when ordinary workers are being asked to support reforms that could cost them their jobs?

More basically, how do the econocrats know we'd find a slower rate of growth in our affluence bitterly disappointing? They don't. Their confident claims that we would are based on their faith in materialism, not evidence.

Most of us are condemned to spend 40 years of our lives working 40 hours a week. Why do econocrats never wonder whether making that work more satisfying would do more for our "wellbeing" than making extracting more productivity from our labour the only priority?

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Outlook for the economy: short-term and long

A lot of people believe Tony Abbott and Joe Hockey begin their first full year in office facing a daunting economic challenge, even a crisis. But what is the nature of the challenge? How daunting is it, and how pressing?

Well, let's analyse it - and do so using some of the standard distinctions economists use to get their heads around a problem.

People see the government as having a problem with the economy and with its budget. To the casual observer, the economy and the budget seem pretty much the same thing. But, though the two are obviously interrelated, economists draw a clear distinction between them.

The government's budget (its spending and revenue-raising) has an effect on the economy (the whole nation's production and consumption of goods and services, income-earning and spending) and, equally important, the much-bigger economy has an effect on the government's budget.

But we'll get a clearer picture of what's happening if we deal with the two separately. Let's focus on the economy and leave the budget for another day. (Don't worry, you'll hear a lot more about the budget in coming weeks.)

And in thinking about the economy, let's use the economists' trick of distinguishing between cyclical and structural factors. Cyclical factors are those temporary influences that are causing the economy to speed up or slow down at present and over the coming year or two.

Structural factors are those that operate underneath the cyclical factors, affecting the economy less dramatically at any particular moment, but having a much longer-lasting and hence more important influence in changing its shape.

Starting with the cyclical outlook, it isn't too hot. The economy's production of goods and services (real gross domestic product) grows at an average rate of about 3 per cent a year, sufficient to keep the rate of unemployment steady and inflation within the Reserve Bank's 2 per cent to 3 per cent target range.

But we've been growing more slowly than 3 per cent for the past few years, and Treasury's expecting growth to slow to just 2.5 per cent this financial year and next, 2014-15. The recent slow growth explains why unemployment has been creeping up - to 5.8 per cent on the latest reading - but inflation hasn't been a worry.
The forecast of continued weak growth implies unemployment will continue creeping up - to 6.25 per cent by June next year - but inflation will stay controlled.

The reasons for the past and coming slow growth are well known: the end of the resources boom's investment phase and the high dollar the boom brought with it. Most growth was coming from mining construction, with the rest of the economy pretty subdued, but now mining construction is expected to fall off rapidly, with the rest of the economy only slowly getting back on its feet to take up the slack.

We've already done what we need to get the economy growing faster: the Reserve Bank has cut interest rates to historic lows, and the dollar has fallen by about 16 per cent (partly because the Reserve has been talking it down). Now we're waiting to see how long it will take for the medicine to work.

Remember that primary responsibility for managing the macro-economy rests with the Reserve Bank, not the elected government. Hockey's main job is to make sure the budget doesn't add to the present weakness, but also stand ready to apply emergency fiscal stimulus should mining construction spending unexpectedly collapse at some point.

So the economy's short-term, cyclical position isn't wonderful, but there's isn't a lot more we can or need to do. Leaving aside the inevitability that one day our record period of expansion since the last severe recession will have to end, the economy's longer-term, structural position is vaguely similar: it's not as dire as some imagine but, as usual, there's plenty of room for improvement.

While Labor was in power, it suited some business lobby groups to claim our rate of improvement in productivity (output per unit of input) had stalled. Surprisingly, the answer was always for the government to give them the rent-seeking privileges they wanted.

The truth is less apocalyptic. It's true we had an uncharacteristically strong burst of productivity improvement in the second half of the 1990s, but then weak to non-existent improvement through much of the noughties. Since then, however, productivity has been improving at a rate that's OK but hardly wonderful. Analysis of our formerly weak performance suggests much of it was explained by one-off factors and measurement problems.

But in Treasury's periodic intergenerational reports, it has consistently projected slowing in our long-term rate of growth in real GDP. Most recently, in 2010, it projected that the annual rate of growth in GDP per person would slow from 1.9 per cent over the previous 40 years to 1.5 per cent over the coming 40.

This may not sound disastrous - and to me it isn't - but to our deeply materialist economists and business people it is. So note that half the decline is explained by a fall in the proportion of the population participating in the labour force as the baby boomers retire and the population ages.

This can be predicted reasonably confidently, but the other half is explained merely by Treasury's assumption that our 40-year average rate of improvement in the productivity of labour will fall from 1.8 per cent to 1.6 per cent a year.

Plenty of economists around the world share Treasury's fear that productivity improvement will be slower in coming years. And this probably wouldn't take anything like 40 years to become apparent.

So for the Abbott government and those who share its professed commitment to maintaining strongly rising material affluence (and don't worry about little annoyances such as the survival of the planet), there is a reason to pursue reforms that improve labour force participation and labour productivity.

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What if growth slowed to a trickle and no one cared?

It is the professed belief of almost every economist, business person and politician that Australians require governments to achieve maximum improvement in their material standard of living. I'm not sure that's true - but we're about to find out.

Of late the econocrats have been warning that, unless we undertake major reform, national income will grow a lot more slowly in the coming decade than it did in the past one. According to Dr David Gruen, of Treasury, gross national income per person grew at an annual rate of 2.3 per cent over the past 13 years, but may grow by only about 0.9 per cent over the coming 10 years.

This projected slowdown is explained mainly by the switch from rising to falling prices for our mineral exports - that is, it focuses on income rather than production. It implies only a small slowdown in the underlying rate of growth in gross domestic product (GDP) per person, being based on the assumption that we maintain our long-run rate of improvement in the productivity of labour - an assumption some may question.

Reserve Bank deputy governor Philip Lowe says that, if we don't achieve a substantial improvement in productivity, "we will need to adjust to some combination of slower growth in real wages, slower growth in profits, smaller gains in asset prices and slower growth in government revenues and services".

So far, these supposedly dire warnings have met with a giant yawn from the public. And, assuming the slowdown comes to pass, I'm not convinced the public will notice it, let alone care. I doubt that we will retain the national resolve to implement the reforms economists say we need to keep incomes growing strongly, nor am I sure the economists' favourite prescription would work. As for myself, I think slower growth could be a good thing.

Would the punters notice? Maybe not. Despite a decade of above-average growth in real income per person, most people would swear that, whoever had been benefiting from the resources boom, not a cent of it had come their way.

For at least seven years, the popular perception has been that people are struggling to keep up with the cost of living - that is, living standards are slipping. And get this: politicians on both sides, who profess to believe that rising living standards are governments' raison d'etre, have fallen over themselves to agree - contrary to all the objective evidence - that times are tough.

Clearly, they believe failing to agree that times are tough is more likely to get them tossed out than falsely confessing to have failed in their supposedly sacred duty to keep living standards rising.

You may object that the punters' failure to perceive that their living standards have been rising may not stop them correctly perceiving that living standards are now rising only slowly. But consider the United States, where real median household income has been flat to down for the past 30 years because almost all the real income growth has been appropriated by the top few per cent.

Have decades of failure to enjoy rising material comfort caused the American electorate to rise up in revolt? Not a bit of it.

It's significant that the advocates of eternal growth never promote it in terms of rising affluence, but always in terms of the need to create jobs. Barring recession, there's no suggestion production won't be growing fast enough to hold unemployment at about 5 per cent over the decade.

Of course, a recession that led to rapidly rising joblessness would undoubtedly cause great voter disaffection, but that's not what we're talking about.

While it may be possible for the economic, business and political elite to agree their precious materialism has sprung a leak and that something must be done, that doesn't mean they could agree on major reform; it's more likely to lead to continued rent-seeking at the expense of other interest groups. If my share of the pie is bigger, what's the problem?

Economists have no evidence to support their fond belief that the burst of productivity improvement in the second half of the 1990s was caused by micro-economic reform. But even if you share their faith, it's a dismal record: if you undertake sweeping reform of almost every facet of the economy then, 10 to 15 years later, you get no more than five years of above-average improvement. What's more, all the big reform has already been done.

With the global ecosystem already malfunctioning under the weight of so much economic activity, it's time the age of hyper-materialism came to an end and we switched attention from quantity to quality.

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Easter message to business is think relationships

At this time of year it's worth pondering: many business people and economists think of themselves as Christians, but what implications does this carry for the way they view the world and conduct their affairs?

According to Michael Schluter, founder of Relationships Global and, these days, a business consultant, Christianity is a "relational" religion. If so, it doesn't sit easily with market capitalism as it is conceptualised by economists and practised by business people.

The primary emphasis of economics and business is on satisfying the wants of the individual. In this they give little priority to individuals' human relationships.

Is Christianity much different? Certainly, in the Evangelical version I grew up with, it too focuses on the individual. And you could be forgiven for wondering whether it pays much attention to relationships.

But here Schluter begs to differ. He says all of Christianity is a relational story. It starts with humankind created in God's image, but then the relationship is ruptured in the Garden of Eden. Finally, God comes to earth as a baby and ends up dying on a cross with the expressed purpose of restoring the broken relationship with humankind.

What does God require of us? Jesus summarised it: all the law and the prophets depend on two commandments - love God with all your heart, and love your neighbour as you love yourself. What could be more relational than that?

Schluter says life can be viewed from many perspectives: financial, environmental, individual, material. But "as Christians, we need to see all of reality through a relational lens if we are to look at the world as God sees it".

All of life is ultimately about relationships. For example, he says, "every financial transaction is an expression of an underlying relationship between nations, organisations or individuals".

The development of a society can be measured not in terms of economic growth but by the quality of relationships between individuals and between ethnic and other social groupings.

Education's goal can be defined as acquisition of wisdom for children to be able to serve their family and community, rather than acquisition of technical skills merely for personal career advantage.

"At a personal level, our happiness and wellbeing are determined primarily by the quality of our relationships. Arguably, financial issues - for example, debt and savings - matter to us primarily due to their relational implications," he says.

Above a certain income, wellbeing indices point to the central importance of relationships. Even for those below this income threshold it's not clear if the priority of income is for personal benefit or for group benefit, such as the care of children.

Debt is closely associated with depression and also with divorce, child abuse and social isolation, he says. Survival rates after serious illness are more closely associated with levels of relational support than with levels of income.

"It is easier to find someone financially rich and miserable than someone relationally rich and miserable," he says. "It is hard to find someone on their death bed who says, 'I wish I had spent more time in the office'."

The individualism of our culture leads us to miscalculate the significance of events because it takes little or no account of "externalities" - that is, the effects on third parties.

For example, companies and public service agencies move staff to new locations to maximise economic productivity, and economic analysis applauds their decision to do so. But no attempt is made to measure the social or relational costs of such dislocation, especially to spouses or partners, children, friends and parents and grandparents whose relationships have been disrupted.

Schluter says business, finance and public sector organisations are increasingly coming to recognise that financial evaluation of performance is insufficient.

"The purpose of companies is increasingly defined inclusively to recognise the significance of company decisions for many stakeholders, rather than instrumentally, where customers, suppliers and so on are regarded simply as means to increase shareholder profits."

Low levels of national debt - a measure of inter-generational loyalty - decrease economic instability and aid economic growth. Political stability is a foundation for economic prosperity, but depends on peaceful relations between ethnic and religious groups and between rich and poor.

"To see the world in relational terms requires a re-education process as the media, corporate advertising and our own inclinations constantly point us towards seeing things from an individualistic or materialistic point of view," Schluter concludes.

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'Wealth creators' push materialism over social side

There is a contradiction at the heart of the way we organise our lives, the way governments regulate society and even the way the Bureau of Statistics decides what it needs to measure and what it doesn't. Ask people what's the most important thing in their lives and very few will answer making money and getting rich. Almost everyone will tell you it's their human relationships that matter most.

And yet much of the time that's not the way we behave. Too many of us spend too much time working and making money, and too little time enjoying the company of family and friends.

We live in an era of heightened materialism, where getting and spending crowds out the social and the spiritual. That's the way most of us order our lives and it's the way governments order our society. They worry about the economy above all else.

Indeed, the parties' chief area of competition is over their ability to manage the economy. The opposition's latest criticism is that under Labor we're losing our "enterprise culture". What's an enterprise culture? One where all the focus is on "creating wealth" - making money, to you and me - and none is on how that wealth should be distributed between households or what it should be spent on.

It's one where the demands of the "wealth creators" (read business people) should receive priority over the selfish concerns of the wealth recipients and dissipaters (read you and me). But above all, it's one where the chief responsibility of governments is to hasten the growth of gross domestic product.

On the face of it, Julia Gillard seems to fit the opposition's criticism. This week she's hoping to make progress in putting her long-cherished national disability insurance scheme into law. Last week she was in the western suburbs of Sydney celebrating international women's day and offering "a pledge to all women and girls" that "Australia is promoting a world where women and girls can thrive and where their safety is guaranteed".

And Gillard used the occasion of her visit to the west to demonstrate her practical concern about growing traffic congestion and to announce a "national plan to tackle gangs, organised crime and the illegal firearms market".

At one level, all this is true, none of it's made up. At another level, however, it's carefully crafted image building, intended to highlight the difference between Gillard and her opponent and emphasise those differences considered most likely to appeal to traditional Labor voters who show every intention of changing sides.

The deeper truth is that, like most politicians, Gillard is working both sides of the street. Ask her and she'll assure you her government is just as good at managing the economy - and "creating wealth" - as her opponents, if not better.

Unsurprisingly, this other, harsher side of Labor was revealed at the weekend by the Treasurer. Wayne Swan opened his weekly economic note thus: "Putting a budget together is always about priorities. For the Gillard government, our No. 1 priority will always be putting in place the right strategies to support jobs and growth to keep our economy one of the best performing in the developed world."

Ah, yes. Labor professes to be just as devoted to the great god GDP as its evil, uncaring opponents. As part of this, it's been struggling - unsuccessfully so far - to get its budget back to surplus. And as part of this struggle it has required all government agencies to economise in their use of resources.

The Bureau of Statistics has been required to find savings of between $1.1 million and $1.4 million a year - hardly a huge sum in a government budget of $387 billion. But the bureau has found a way to solve its problem for the coming financial year pretty much in one go. It's decided to cancel the "work, life and family survey" long scheduled for this year.

This is mainly a survey of how people use their time, requiring a random sample of households to keep diaries of the way their time was spent for a short period. GDP measures only the value of work that's been paid for in the marketplace. It ignores all the unpaid work performed in the home, including caring for kids, and the work of volunteers.

Time-use surveys fill that gap. How much time are women spending in paid and unpaid work? How is women's participation in the paid workforce changing over time as they become better educated? How much paid work is being done by people of retirement age? To what extent is paid work encroaching on our weekends? How is the burden of housework being shared between husbands and wives in two-income families?

It had been hoped that this year's survey would shed more light on changes in the time devoted to caring for invalids and the frail aged as governments try to save money by keeping people out of institutional care. And while we're at it, what has growing traffic congestion done to the time we spend commuting?

One of the most popular maxims of the wealth creators is: you can't manage what you don't measure. Directly or indirectly, most of the Bureau of Statistics' efforts are directed at measuring GDP. It's so important it's measured four times a year. Our time use hasn't been measured since 2006. The cancellation of this year's survey means it won't be measured again until 2019.

How do we keep on our present, hyper-materialist path? One of the ways is by failing to measure its consequences.

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