Jetsons Infrastructure vs Real World Infrastructure

Published on LinkedIn July 13, 2018

With BBC’s reporting of BlackFly, the latest attempt at a flying car, it is time to give these innovations a name. Jetson Infrastructure is infrastructure that is based on a vision for the future that whilst it may be technically possible, will not be delivered for some time. By contrast Real World Infrastructure is infrastructure that can be delivered with existing technology today to solve real world problems. A bit tongue in cheek, but in a contest Real World Infrastructure easily beats Jetsons Infrastructure. Yes we should continue to invest in new ideas for the future, but let’s not lose focus on where we can actually make huge social, environmental and economic benefits today.


The vision is of individual parcels delivered from point to point effectively bypassing congestion.

This would require changes to aviation laws. Opposition likely to come from households who won’t like drones flying over-head.

REAL WORLD: Instead of need to deliver parcels via drones we are already seeing innovation around pick up parcels. Amazon are building their own logistics. Australia Post have partnered in Australia to establish pick up points at 7-11 and other places. An alternative to drone delivery is pricing where consumer can pay for delivery to a distribution point, or delivery to home, with delivery to home would cost more.


The vision is of everyone with a driverless car, potentially avoiding new investment in infrastructure, with journeys more efficient as driver can do other things.

Driverless cars not only require perfection of the technology but implementation of supporting technology on road systems. Driving regulations need to change to allow drivers to take hands of wheel.

REAL WORLD: driverless technology is already being used in a whole range of industrial applications such as ports, agriculture and mining. There are huge benefits to be had, but the significant productivity benefits will be from implementation of technology in industrial applications.


Billionaires (Bezos and Musk in particular) are spending huge amounts of money to experiment with new technology with the objective of being able to live in space and habit a planet. The theory is that in the long term Earth may not be habitable and the human race should not perish. A huge amount of finite resources are expended in experimentation for this quest.

REAL WORLD: As billionaires invest in space we have a waste management crisis. Societies have not built waste management eco-system that is sustainable. A huge amount of waste goes to landfill every year. There is a need to focus on waste management infrastructure and supporting market structures which can deliver significant environmental and social benefits.


The vision is of a world where mobility is connected so that every part of a journey can be seamlessly managed from a device. Public and private journeys are interchangeable. Lots of experimentation is going on to get the right models. Some is working. Some isn’t. An example is the bike sharing company that recently got kicked out of Melbourne after its bikes ended up dumped in the Yarra….

REAL WORLD: Technology has no doubt changed but there is actually a long history of consumers interchanging public and private modes. Best practice now is where information service apps are providing real time information to consumers to inform their decisions. Real time information helps identify bottlenecks and increase pressure for government to address quickly. Building infrastructure before settlements, fast regional travel can also take pressure of congested cities. There is also the potential to use incentives to shift people from peak travel to avoid peak congestion.


Vision is of a world where the rooftops of city buildings are covered in solar panels. The problem is that the floor plates of city buildings are small and buildings often subject to shade. Therefore they are not that efficient producers of solar energy.

REAL WORLD: Remote applications of solar, particularly in off-grid mining are growing and have potential to save millions of litres of diesel. Productivity benefits of off-grid solar are immediate with potential to expand to agriculture. Reduced demand for diesel also directly improves energy security.

Links: The BlackFly….

Responsible investors can support International Maritime Organisation GHG target

Published on LinkedIn April 20, 2018

A little reported meeting of the UN’s International Maritime Organisation in London has relevance for infrastructure investors focused on climate change.

The International Maritime Organization’s Marine Environment Protection Committee agreed last week to adopt an initial strategy on the reduction of GHG emissions from ships. The IMO has agreed to a 2050 goal of reducing emissions from ocean going cargo ships to 50% below the 2008 level.

As the LA Times said this week in an editorial “The International Maritime Organization now must come up with a muscular and workable plan to hold individual nations responsible for enforcing global regulations on emissions”.

Ports, as the gates through which ships enter countries, are likely to play a critical role in meeting the IMO targets.

The challenge for ports however is that they face competitive pressures. As the LA Times says, the IMO’s decision may be good for the ports of Los Angeles and Long Beach that have already pledged to slash greenhouse gas emissions and diesel pollution from the shipping and freight industries. But how do should nations deal with Ports that resist change?

Responsible investors may have a key role to play here.

Ports have been an attractive asset for infrastructure investors, many of which are signatories to the UN backed Principles for Responsible Investment.

Responsible Investors could lead the establishment of a Sustainable Ports Initiative with a focus on bringing together the ports that are demonstrating leadership in implementing the IMO’s target – and highlighting those that aren’t.

For more information:

Can Amazon help solve America’s infrastructure deficit?

marcy stationHaving spent the week moving around New York, the evidence of America’s infrastructure deficit is clear to see. Catching a train from Marcy Avenue Subway Station in Brooklyn you can literally feel the station moving as trains approach. I am no engineer but I don’t think that is a sign of infrastructure in its best condition. And although the New York City of Design and Construction Department has new projects to replace water mains and sewers across the city, the sickly sweet smell of sewerage coming up through vents tells me that they have a big job ahead of them.

In a week of news two relatively small articles caught my attention. The first was a story on how Hurricane Irma had resulted in floods in Brunswick, Georgia which have overwhelmed the city’s water infrastructure. The second was an analysis about Amazon’s RFP for cities to support its new headquarters. Amazon’s RFP lists that it is looking for low taxes, incentives and the support of a diverse population in return for potentially $5 billion of investment. An arms race has started with cities competing to attract Amazon.

The articles raise the question is there are connection between infrastructure and large corporations? And should there be?

One of America’s most famous brands, Coca Cola in fact owes must of its success to infrastructure. As Bartow J Elmore discusses in his book Citizen Coke (bought incidentally on Amazon’s Kindle), Coke was able to benefit from two infrastructure investments in the 1880’s – tap water and railroads.

Coke’s syrup was shipped around the US via the new network of railways with bottlers taking advantage of new municipal water supplies to create the final product. The excitement of water infrastructure at the time is hard for us to comprehend today, but a daily reminder for New Yorkers is the Bethesda Fountain in Central Park, topped by a winged Angel of the Waters, which was built to celebrate the first supply of clean water via the opening of the Croton Aqueduct in 1842.

Amazon is clearly indicating in its RFP that good infrastructure is a requisite for new investment. But what role does Amazon have to help cities to procure that infrastructure?

The challenge that US municipal authorities have is that whilst the US has the largest municipal bond market in the world – which some experts are arguing is close to being “tapped out”, the market itself is based on the same credit principles that apply when consumers seek loans from banks. For municipal authorities with good credit ratings there is no problem accessing new debt. But for those whose economies that are struggling debt is more expensive, and in some cases almost impossible to secure. The municipal bond market creates a cycle where growing and prosperous cities are able to afford new infrastructure, and struggling cities cannot.

The question is whether Amazon can help break this cycle?

Amazon is one of the most successful companies in the modern era. Together with Google, Facebook and Apple, Amazon has added $2 trillion of market capitalisation since the global financial crisis.

Amazon has two things that cities could use. The first is an excellent credit rating. The second is cashflow.

Using traditional financial services techniques such as credit enhancement and securitisation, it is possible to bring these two elements together to support new investment in community infrastructure.

For Amazon the question becomes “not what the city can do for Amazon, but can Amazon do the city.” [apologies to JFK for this mangling]

Here is how it could work.

As part of a deal with the city that Amazon selects, it can provide credit enhancement for “community bonds” that would be issued to support the new community infrastructure that would be needed as a result of attracting new employees to the city.

For Amazon the cost of the credit enhancement is literally zero. The credit enhancement guarantees would only ever be called upon in the event of default, which is unlikely given the injection of economic development opportunities. But for the city it reduces the cost of credit and enables the city to finance the community infrastructure it needs.

The community bond would itself be used for soft community infrastructure assets such as sports fields and community facilities. The heavy lifting of roads and bridges would still belong to the municipal authority and Federal Government.

Through a process of activation, community facilities can deliver a range of service including child care and learning and support programs for aging population in the community. A Community Partnership Agreement is the mechanism by which the community would work with Amazon and the city to determine what it is that is needed, and how it would operate.

Finally Amazon would support interest payments on the community bond by for instance committing to paying 50% of interest payments over a ten year period. The remaining 50% would come from the activation of services with the municipal authority only requiring a small contribution on its own part.

The Community Partnership Agreement model is an acknowledgement that we need to move away from the days when we worked in silos. By working collaboratively there is the potential to unlock new investment and deliver economic, social and environmental outcomes.

Amazon’s need for new headquarters is a great opportunity but by developing a collaborative model Amazon can leverage its impact, supporting the development of facilities that its employees and the rest of the community will use, building a deep and lasting connection with the city it selects.

Gordon Noble is the President of the Network for Sustainable Financial Markets which has been working on the concept of community bonds through its Real Assets Working Group.

Originally published LinkedIn September 24, 2017

Was Australia settled to keep banks happy?


Before you ask whether I have had one too many beers in the lead up to the Australia Day long weekend there is some history behind this statement.

Once it became known that the British were establishing a colony on the east coast of Australia, both the French and Spanish sent expeditions to investigate. La Perouse famously landed just weeks after Governor Phillip arrived, only to disappear on the return trip home.

The Spanish sent two ships, the Descubierta and Atrevida, landing in Sydney Cove on 12 March 1793.

The commander of the expedition, Captain Alexandro Malaspina, had secret instructions to report back to the Spanish Government not only on what was happening at Port Jackson, but also on what the Russians were doing at Nootka Sound.

In his report, A Political Examination of the English Colonies in the Pacific, which was apparently prepared by Malaspino for submission to the Spanish Government, he explains why he thinks the British were settling in Port Jackson.

He states “ the first is to sustain the public credit with new speculations, which feed the hope of being able to one day to extinguish the public debt; hopes without which it would be impossible to contract new national debts, necessary on the other hand just at the moment when a Rupture is so feared”.

Was Malaspino right? Were the British settling Australia to keep their creditors happy?

There have been endless debates on why Australia was settled. When Lord Sydney announced on 18 August 1786 that a settlement would be established the argument was to house Britain’s growing convict population. But as Geoffrey Blainey says in The Tyranny of Distance “the settling of Eastern Australia was a startlingly costly solution to the crowded British prisons. It was also a very slow solution to what is often said to have been an urgent problem”.

So what was the issue with banks and credit?

At the time the decision was made to settle in Australia William Pitt (the younger) had just become Prime Minister. He had inherited debts from Britain’s war in America.

As William Hague (ex British foreign minister) says in his excellent biography of William Pitt “the financial position he inherited was dire. A country with annual tax revenues of about £13 million was paying £8 million a year interest on a national debt which now amounted to £234 million. The last four years of the American War had added some £80 million to that debt, and it had been further inflated by the habits of Pitt’s predecessors, who sold government stock at a nominally low interest rate but at a large discount. This kept the interest rates low, but eventually gave the lenders a very healthy return by hugely inflating the capital which would one day have to be repaid”.

Pitt raised a £6 million loan through the Bank of England and set out to address the debt through a range of taxes on hats, ribbons, paper, hackney coaches, bricks, candles, linens, calicoes, coal, gold and silver plate, imported silk, exported lead, postage rates, and shooting certificates. All except the tax on coal were accepted by the public, but the necessity of coal for heating led to its quick withdrawal.

As Hague says “It is hard to imagine in a later age the extent of the preoccupation of late-eighteenth-century politicians and commentators with the national debt. We are accustomed to the debt inflating in bad times and being reduced in good ones, and have often seen it greatly diminished as a problem by either inflation or economic growth. But the policy-makers of the 1780s did not know that they were on the brink of an Industrial Revolution which would multiply the size of their economy many times over; their experience of recent decades was of the inexorable growth of the nation’s debt until it was now some sixteen times greater than the annual income of the state. Pitt was therefore responding to what was seen as a national problem of immense importance, and he and his proposals were acclaimed because he not only announced a policy, but also the method and resources by which it could be put into effect”.

In Yuval Noah Harrari’s book Sapiens he outlines the importance of credit to development at that time. “Western Europe witnessed the development of a sophisticated financial system that could raise large amounts of credit on short notice and put it at the disposal of private entrepreneurs and governments. This system could finance explorations and conquests far more efficiently than any kingdom or empire”.

The problem, as Harrari identified, is that for banks to provide credit they needed trust. As the Dutch empire experienced turmoil lenders shifted to France and England. France’s crisis over the Mississippi Company in 1719 cost it dearly with Britain emerging to win the trust of the financial system with Louis XV subsequently finding it more difficult to obtain credit whilst the British could borrow money easily at low rates.

The mercantilist system of the day was fed by constant growth. For Britain whilst it had the trust of bankers, it has lost the American colonies. Where was this growth to come from?

Did Lord Sydney and William Pitt talk about the need to keep bankers happy as one of the reasons to settle? Who knows? But it certainly was a conversation that was on the governments mind at the time.

The First Fleet cost £84,000. In the scheme of the British government borrowing £6 million this was a drop in the bucket. The actual long term government outlay was small.  Out of the 11 ships sent to Botany Bay, 9 were contracted from the private sector. Having finished their duties ships like the Charlotte went off to China to pick up cargo from the British East India Company. The First Fleet sounds a little like a Private Public Partnership. But that is a story for another day…


William Hague, William Pitt the Younger: A Biography, HarperCollins, 2004

Yuval Noah Harrari, Sapiens, Vintage, 2011

Robert J. King, The Secret History of the Convict Colony, Allen & Unwin, 1990

Originally published LinkedIn on January 24, 2018

Why we need community focused microeconomic reform

Hawke Keating.jpg

Watching the recent Bob Hawke documentary provides a reminder that at one point in Australia’s political history micro-economic reform dominated the national debate.

During the 1990 Federal Election campaign Bob Hawke delivered a speech on micro-economic reform, apologising in advance as he outlined technical details.

In a speech that focused on the intricacies of competition and reforms to shipping and aviation, Hawke closed by stating “Institutions and attitudes can’t be changed overnight.  Results can never be immediate. Public debate will be dominated by the vocal complaints of the minority who are adversely affected, rather than by the vast majority of consumers and taxpayers who are incrementally advantaged. This underlines the need for creative thought, proper consultation and a willingness to ease the burdens on those facing change. It also shows that, at times, a Government needs to stand firm against those groups who, for short-term or selfish reasons, threaten to upset the gains that can be made by the community as a whole”.

One of the problems that we have with the national discourse on infrastructure is an assumption that the electorate can only digest, and support, large infrastructure projects. Hence the focus on multi- billion investments for in-land rail and Snowy Hydro.

The debate on microeconomic reform almost thirty years ago had a wider narrative. Microeconomic reform was, according to Bob Hawke about creating “a modern, growing economy, shaken out of the old complacent dependence on commodity exports, re-equipped and restructured in its attitudes, institutions and technology, to be fully competitive in the world”.

Narrative is important for change. The electorate may not have followed all the details of reforms to aviation and shipping but accepted the broader reason why it was important to focus on these areas.

The challenge for communities is that we have yet to create a narrative on why investment is important to the national economy and society.

We need to tell the story about what is actually happening in the community.

As an example, take recent conflicts in Melbourne over sporting facilities.

  • A bowls club resorts to national media as the council plans to move the club to an unspecified alternative to make way for basketball
  • With netball demand outstripping court availability, a local netball league argues that more courts should be built on the neighbouring athletics track. The athletics association is not impressed.
  • A golf driving range is proposed to make way for netball expansion.

The story in established city suburbs is one scarcity and competition. Meanwhile in the regions the story is a lack of capital.

  • A multi premiership winning football side in a Victorian country town operates with the most basic of facilities.
  • Swimming pools in the regions need significant investments just to keep them to operational standard.

Even when Governments do provide funding it may not be directed at needs.

Take the club that received a $100,000 commercial kitchen when it would have been happy with something for one-twentieth of the cost.

Or the multi- million investment to build new life saving facilities in a marginal seat, when the lifesaving club up the road is unable to get access to capital.

What is going wrong?

As a nation we need to understand the important role that investment in communities can play in unlocking social well- being and economic opportunities. Just as with the debate on microeconomic reform thirty years ago, we need to create a narrative on why we need a different approach to community investment.

The alternative is that conflicts and scarcity of capital will become entrenched.

Hawke’s 1990 Speech:

Originally published LinkedIn February 26, 2018

Journalism needs a new investment model

L'Ami_du_peuple_1We need new capital structures to support new forms of journalism

I confess to being a news junkie. I like nothing better than a pile of newspapers on the weekend. The best thing about travelling to London is that they have even more newspapers than we do – a stack of The Guardian, The Independent, The Times and the Daily Mirror literally takes hours of pleasure to consume. I have tried to go digital but at the end of the day paper is just better. I can read more stories, more quickly with a newspaper than I can online.

But I admit to being very concerned as to whether I will be able to enjoy my addiction in coming decades. But the loss of the smell of news print in the morning is nothing compared to the loss of quality journalism itself.

There is a lot of discussion about the future of newspapers. They not only face the growing threat from social media, but they have investors who demand a return on investment. An additional threat we should be worried about is the Federal Government’s ill-thought idea to legislate prison sentences for journalists that publish restricted government content.

Today’s Fairfax newspaper illustrates the problem. On one hand we have a glowing obituary to one of the icons of Australian journalism, Michael Gordon, who passed away at the age of 62. In the same pages there is a puff piece on drones with the journalist disclosing that Telstra had paid for a trip to the Gold Coast.

Are we witnessing the “passing of the elves”? Will corporate content continue to bleed into papers so that in the future it becomes hard to tell what is independent news and what is corporate spin? Will we produce a next generation of journalists of the same kinds of quality as Michael Gordon?

To answer this I believe we need to go back in history. The small number of corporate newspapers we have today was not always the case, During the French Revolution for instance (between 1789 and 1799) France had over 1,300 newspapers. The image in this post is of the L’Ami du people, complete with the blood stains of Marat who was stabbed in his bath whilst reading the paper .

Diversity of news is a great thing. Different thinking supports a vibrant democracy. Whilst in the last decade we have seen old mastheads struggle, we have seen the emergence of new forms of journalism. One of the best examples is Michael West, one of Australia’s best investigative journalists, who has established his own online publication (which my wife and I are proud to sponsor. See

Outside of the heroic efforts of individuals though we have a structural problem which is that we lack the capital structures to support not-for-profit investment vehicles.

This wasn’t always the way. The structure of capital that we have today has not been fixed over time, and may therefore not stay the same in the future. In the 1870’s for instance cooperatives were a rising form of organisation with 334 cooperatives organised in that decade in the United States. The Knights of Labour, which at its peak had almost a million workers, were responsible for organising around 200 industrial cooperatives around this time. Friendly Societies and mutual insurers were another form of collaborative capital that has been around for hundreds of years with members contributing to a mutual fund which enabled them to receive benefits at a time of need. By the late 1800’s there were around 27,000 registered mutual societies.

Impact investments are rising as an alternative investment opportunity. But to make them scalable we need to develop the products that have the risk and return characteristics that investors demand. If we can do that we can create an impact investment bond market that provides the market structure to support not-for-profit investments. With my colleagues we have been working on a new model of community bonds that is aimed at addressing the risk and return question.

Journalism has been the heart of civil society for the last two hundred years. We not only need to fight to ensure that quality journalism survives, as a society we need to develop the capital structures that can support future not-for-profit news organisations. Journalism needs to be the focus of impact investors.

Originally published LinkedIn February 6, 2018


Electric vehicles need their own infrastructure

Model TAlan Finkel recently wrote an opinion piece where he commented that “with the perspective of time we see a failure of imagination”. He was commenting that in the 1880’s the idea of electric street lighting seemed absurd and that today we face the same arguments around electric vehicles.

With new electric vehicle models coming on the market it is becoming clear that technology is reaching a tipping point. But is technology going to be enough for electric cars to dominate the road?

To understand the impediments that electric vehicles face it is worth going back in time, not to the 1880’s when gas lighting was beginning to dominate the streets, but to the turn of the last century when automobiles first began to be commercially manufactured.

The tipping point for car manufacturing was Ford’s Model T which took the automobile from a luxury good to a mass consumer good. In 1904 Ford manufactured 1,708 cars. By 1916, 533,921 cars were manufactured.

In addition to the actual car, drivers needed two things to be able to enjoy their new product; roads and petrol.

Today there are around 6,400 petrol stations scattered around Australia. This is down from a peak of 20,000. But a network of petrol stations wasn’t born overnight.

The first network of petrol stations in Australia was actually the Australian Motorists Petrol Company Ltd in 1936. Before that time distribution of petrol occurred through a variety channels. The first petrol stations were actually a side business for pharmacies in Germany. In Australia country pubs played a role as “filling stations’, taking on a role in transport that they had filled since the network of horse staging posts was established by Cobb and Co.

The point for electric infrastructure is that home delivery of petrol never really figured in the development of the automobile. At the moment however this is the principal mechanism available for electric vehicles. Without imagination, the lack of electric vehicle infrastructure will become the principal reason that could hold up electric vehicles.

There are a number of issues with home based electric infrastructure. The first is that it requires home ownership or enlightened landlords. In addition to buying an electric car, a driver has to install their own infrastructure. The issue is not just the cost, it is the evolution of technology. It is not yet clear how electric charging technology will evolve.  An electric driver can easily be left stranded with out-dated technology which can also be tied to a particular manufacturer. Specialist businesses are much better placed to manage this technology risk than households.

The second issue is around shifting living patterns. The growth of apartment living in particular is notable. Whilst there are examples of charging technology being installed in new apartment blocks, the cost of this technology is effectively paid by all building owners – whether or not they actually use the technology. There are also insurance implications around electric charging facilities that are still in the infancy of being addressed. This don’t stop the growth of electric vehicles, but it will make it harder for individuals to make their own choice. They will need to firstly consider whether their living arrangements can accommodate an electric vehicle.

The third issue is simply the number of cars that are not garaged in Australia but are parked on the street. You only have to drive down any street in a major city to see the number of cars that would struggle to be charged from a household connection.

So what are the options for electric infrastructure?

To understand where there may be opportunities we need to firstly understand the core difference between petrol stations and electric charging stations – and that is time.

With a petrol stations it is possible to fill up and be gone in a few minutes. For electric charging, although technology is changing the fasted charging options are still going to take 30 minutes.

The best opportunity for electric infrastructure is therefore where people park their cars for a period of time.

There are three opportunities that, with a bit of creativity could be developed; shopping centres, train stations and street parking.

It would be possible for instance for Westfield to develop part of its parking facilities to service electric vehicles on a pay for service basis.

Governments could also develop charging stations for electric vehicles at train stations.

There is the capacity that energy companies could offer street side charging. An option could be to trial this with local councils where a charging facility was placed on council land, aiming to overcome the ownership issues around housing and electric charging.

The early development of the automobile resulted in a fundamental changing in living patterns. It was also accompanied by the raft of rules and regulations on road use which we now take for granted.

We need to see electric vehicles as being not just about the car itself, but about the infrastructure. If we do that we can start to focus on all the elements we need to see a transition to electric vehicles.
Originally published LinkeIn Published on February 16, 2018

ASX Research Scheme Should Be Expanded and Regulated

Concerns that the ASX supported broker research on Big Un and GetSwift could lead to the end of the ASX Research Scheme, that would be detrimental to the Australian economy in the long run.

Getting rid of the ASX Research Scheme would be a mistake. Instead the scheme should be expanded to include all ASX listed companies with funding coming from a compulsory levy paid by all ASX companies. The scheme should be managed by an independent group. The ASX Corporate Governance Council would be perfect to take on this responsibility.

It is important to understand the problem that the ASX Research Scheme is seeking to address.

The ASX is in effect two markets. Institutional investors predominantly invest in ASX300 companies. These companies are mostly covered by broker research which is paid for by trading revenues.

The deeper you go into the ASX the less broker coverage there is. The problem that small cap companies find is that they would love to attract institutional investors onto their registers, but there is chicken / egg problem that without research there is a lack of confidence to invest.

The reason that this matters is that Australia’s superannuation system is rapidly outgrowing the ASX. In the next twenty years, for every dollar that goes into superannuation, more will be invested offshore.

Australia’s superannuation system’s choice of fund rules have an impact on the way funds invest. Liquidity is important with each superannuation fund managing its own liquidity budget. Small cap ASX listed companies can be illiquid and must also compete with other illiquid investments such as infrastructure.

For twenty years Australia’s superannuation system and the ASX were joined at the hip. Every dollar that went into super supported the growth of the ASX.

With the superannuation system expected to grow from $2 trillion to $6 trillion, the problem is that there are far more liquid investments offshore than there are in the ASX.

There is nothing wrong with that from an investment perspective. But there is a problem in terms of future growth of the Australian economy.
One of the key problems is that as a publicly listed company the ASX itself no longer has the same public policy responsibilities.

The ASX earns revenues from listing fees. As the CEO of ASX Dominic Stevens says in today’s AFR, the role of ASX is not to pick winners. But where the ASX puts its resources does impact on new listing opportunities. An example was that there was a time when the ASX was attracting a number of small cap miners operating in Mongolia. That wasn’t accidental as ASX was marketing its services directly in Mongolia.

The ASX Research Scheme has been operational since July 2012 but still only sees 100 small-mid cap ASX-listed companies receive in depth research from brokers. This puts ASX in the invidious position of having to select who receives the research and who doesn’t.

It would be far better if every ASX company was subject to broker research. Broker research should also be required to include ESG practices, which would help shine a light on the governance practices of companies such as Big UN.

The ASX has an opportunity to do this voluntarily. But if it is unable to convince market participants then the Federal Government should step in. It is in the interests of the Australian economy that we have a robust functioning small cap market which can provide opportunities for superannuation funds to invest in.

Superannuation’s problem with capital formation

Allowing first home owners to use their superannuation to fund deposits is not a good idea, but even if the Government decides not to pursue this thought bubble that has been running strongly within Coalition circles for the last couple of years, the superannuation industry still has a problem it needs to deal with.

In Australian politics there are some universal issues that governments have to get right. They can be summed up as health, housing and wealth.

Health and housing have universal support. Australians want access to affordable health care, and Medicare is the foundation of that.

It is fair to say that owning a house is not the great Australian dream, it is an expectation.

And whilst it may sound heretical to say this as someone who has worked in the superannuation industry for many years, superannuation, for all its universality through the Superannuation Guarantee, is not a foundation pillar of social policy.

The support in the electorate for superannuation is dependent on other needs being met, namely that an individual has access to healthcare, is able to buy an affordable house, and is able to work over their lifetime.

It is not surprising that as the economy restructures and work becomes more insecure, as housing prices continue to sky rocket, and with expectations amongst young people that retirement itself is a dream, that many people see superannuation as a “nice to have” social policy, but not a necessity.

It is worth reminding even as we debate the objective of superannuation, that superannuation itself was as an accidental social policy. The original industrial agreements that resulted in wage growth being diverted into retirement savings were an industrial compromise. In an era of centralised wage fixation and runaway inflation, allowing workers to have pay increases through superannuation enabled the nation to address inflation expectations and wage growth whilst acknowledging industrial realities.

For a long time there was universal support for superannuation. It seemed such a strong social policy that gave workers more at retirement than the pension, which was condemning many to a retirement on the borderline of poverty.

But over the years a system that started as simply putting money into cash, has become complicated. Superannuation fund members now wade through the mire of regulation that was brought about by the introduction of choice of funds with an increasingly wide range of investment options and decisions.

The system itself, with $2trillion in capital, is now also economically significant to the Australian economy.

The way in which superannuation funds invest has an impact on capital formation in the economy.

As the Australian Centre for Financial Studies said in its submission to the recent Financial System Inquiry, superannuation was structured to invest in financial products. ACFS questions whether superannuation can be expected to meet capital formation needs such as infrastructure.

We should also note that the way superannuation funds invest has been changing over the last few years.

Over the last twenty years a large amount of capital in superannuation flowed into the ASX.

But as the amount of capital in the system continues to grow, superannuation funds will increasingly invest offshore. APRA data shows that over the last couple of years this is already happening.

From an asset allocation perspective this make sense. Investment portfolios are more diversified and theoretically at least more resilient.

But the sight of superannuation capital flowing offshore will only increase scrutiny on the system around how it is meeting capital formation needs at home.

I have long argued that the superannuation system needs to proactively address its role in the Australian economy.

What that means is that superannuation funds need to transition from being product investors to being actively involved in capital formation.

The role of housing in the Australian economy is an important part of this, but superannuation funds should not need see their role as investing in housing, but alternatively about how to address the supply side challenges that exist.

In a continent with landscapes as wide and empty as ours, it is remarkable that housing can be so expensive.

One of the constraints for housing in the regions has been the connections with the city.

One of the solutions to expensive housing in Melbourne and Sydney that no one seems to be talking about is to unlock affordable housing in the regions.

Rather than talking about a fast train between Melbourne and Sydney, we need fast trains to the regions to open up economic opportunities.

And if structured properly, regional fast trains could be good long term investments for superannuation funds.

There has always been a differential in rural and urban land prices that reflects infrastructure.

But with innovations around battery storage, solar costs coming down and innovations in smart water technology we are not so far away from a time when it will be possible for communities to live off the grid. If we have internet connections and transport connectivity to cities then the new businesses of tomorrow may well be in towns such as Castlemaine which has transformed from a ghost town to a thriving village community.

Whilst investing offshore makes sense for individual superannuation funds, at a system level there needs to be investment of resources to create new investment opportunities. The lessons from societies that disconnected their capital and their economies is one that we should heed.

It is worth delving into the economic history of one of the great economic empires of the modern era – the Netherlands.

Kevin Phillips in his polemic book Wealth and Democracy examined the decline of the Netherlands which had been a significant merchant power in the 1600’s but by the 1740’s consisted of a divided society with a wealthy Dutch upper class and growing unemployment in towns that had once been thriving places for industrial production. Phillips attributes the decline of the Dutch empire in part to the fact that the Dutch upper class preferred to invest in economies other than their own, a fact that was not seen to be a significant issue at the time. In fact there were elements of Dutch society that advocated that the increased size of the finance sector that grew to service the Dutch upper class would more than compensate for the loss of domestic industries. This did not prove to be the case and the Dutch empire gradually faded, its demise accelerated by numerous wars.

Whilst things may have moved on over the last three hundred years, the reality is that the superannuation industry and the economy are interlinked.

Opening up the regions is an opportunity for superannuation funds.

But to do this there needs to be a shift of thinking and an understanding that the superannuation system has a responsibility for capital formation in the Australian economy.

Superannuation is being questioned as a social policy. This will continue so long as people feel that they are struggling to meet day to day needs, which is an inevitable result of large mortgages.

The way for the system to respond is to demonstrate not only that superannuation meets the needs of individuals in retirement, but the industry is not just a financial product investor, but an active contributor to capital formation in Australia.


Why we cannot ignore Hasting Club’s rent increase

Most local council decisions do not attract a lot of attention.

This one should.

The Mornington Peninsular Shire Council has made the decision to increase the rent of the Hasting Club from $4,000 p.a to $42,200p.a.

The Hastings Club goes back to 1887 when the Hastings Cricket Club was formed, with the Hastings Football Club formed in 1891. In 1967 the Hastings Cricket & Football Social Club Co-Operative Ltd was formed by 120 people.

Like most sporting clubs in Australia, the Hastings Club’s land is owned by the Council.

The Club argue that the rent increase will end their plans to renovate their 1970’s venue.

The problems facing Mornington Peninsular Shire and the Hastings Club deserve more attention than they get.

Local councils have an infrastructure crisis that has not been acknowledged at a national level.

According to the Australian Local Government Association, local councils across the country manage infrastructure with a gross replacement of $438 billion. According to ALGA, 11% or $47 billion of assets are in poor or very poor condition whilst a further 7% or $31 billion has poor functions and requires upgrading.

Local councils have been subject to constraints on their ability to raise income, either through rate capping measures or the freezing of indexation of Financial Assistance grants, which ALGA estimates permanently reduces funding to councils by more than $300 million per annum.

Why isn’t the local government infrastructure crisis on the national agenda?

Whilst the Federal Government makes plans for new infrastructure, with the estimated value of Infrastructure Australia Priority List projects that have been through a full business case at $60 billion, there is no plan to address the community infrastructure deficit.

It is likely that community facilities will bear the brunt of this crisis. They are already are. The urgent priorities of fixing roads, bridges and waterways will always have priority over community assets.

We only have to look at our own communities to see run down club houses, under-utilised scout halls and aging swimming pool facilities.

Every so often a community will receive a grant to build a new facility or patch up an old one, but with pressure on government budgets expected to only increase as our population ages we need to find alternative solutions.

Increasing rents on communities is however not the answer. It will only deprive community sporting clubs of a source of income, and permanently deny any improvement in assets.

There may be a solution – which is to develop community bonds as an alternative finance stream for communities.

Community bonds, if structured correctly, can be investable for superannuation funds, and can support the redevelopment of club facilities.
But this cannot happen if clubs have to bear the burden of commercial rents.

We need to resolve this community infrastructure crisis. If Councils are not able to continue to be the guardians of community land then we may need to find alternative structures that ensure that clubs are able to continue to service their communities as they have for the last 130 years.

The one thing we can’t do is ignore the plight of the Hastings Club. Because this is likely to be the plight of all community clubs in the future unless we find a way to resolve the community infrastructure deficit.