Samuel Smiles

Finished reading the books by Samuel Smiles: "Character" and "Self-Help", currently half way through "Thrift".

Seems very little has changed in industrial society, we get good times and otherwise avoid tackling the under lying problems within society which make the bad times the worst of times: namely that individuals squander and waste their own resources and try to live beyond their means.

It seems that which was starting to emerge during the 1800's if not before, has simply grown and, magnified, with the emergence of ever increasing forms of credit. Plus we have some push away from savings, as saving ties money up and so potentially shuts business down.

Its a problem: how to keep the economy going, and consider each individual as contributing fairly to society, but with out driving unwarranted consumption of material resources?

On Education, Industrial Awards, and Mobility of Professionals

I don't know but it appears that the modern world is highly focused on collecting credentials rather than actually doing work. Given a shortage of work probably not too much of a problem. Yes, I know there is apparently a global shortage of engineers, and also locally a national shortage of engineers in Australia.

But I have to question that shortage, the Engineers Australia linkedIN group has a variety of discussions taking place relative to the problems of overseas people getting their degrees accredited by Engineers Australia (IEAust). Not sure why they need to do this. But then the WFEO accords and consequent mutual recognition agreements, such as the Washington accord, the Sydney accord and the Dublin accord only really relate to qualified technical professionals. To become a qualified technical professional, the degree, only provides the enabling competence as IEAust puts it. Then depending on local requirements have to obtain anywhere from 3 to 10 years experience before can achieve, registration, license or charter. This may involve writing a collection of career episode reports, and combining into a work practice report, taking a professional interview, presenting a portfolio of work, sitting additional exam's (eg. FE/PE exams or IStructE part 3 exam etc...). If achieve the local requirements for full professional status, and that meets requirements of the WFEO accords, then mutual recognition holds and have the potential for mobility between countries.

However recognition of qualifications alone, doesn't mean going to get a job overseas, there are immigration issues, need to speak the language, and local experience requirements.

Those that finally have got accreditation of their degrees are apparently having trouble with local experience. Though I doubt the local experience is really the problem. Most jobs advertised require some 5 to 10 years experience: these are not jobs for graduate engineers. People who need accreditation of their degree are clearly not qualified engineers. The global shortage of engineers is not for graduates, for that matter it is not really for engineers. The real shortage is for highly experienced and competent persons with respect to established technologies, and highly innovative people with respect to unresolved problems.

Professional engineers, within engineering organisations governing the profession, having designed and defined an engineering team, have failed to educate practicing professional engineers about the differences in the membership of the team, and consequently professional engineers are failing to give the other members of the team the opportunity to put their education to work.

Part of the problem resides in past shortages of work, resulting in inflation of qualifications: thus a job that was previously the domain of an engineering associate has been raised to that of an engineer: the work complexity has not increased, and the person with a B.Eng in such job is never going to get experience required to achieve professional status: but since they can call themselves an engineer in anycase, what do they care about professional status? The problem however is that it produces an incorrect count of the necessity for engineers.

Up until the recent introduction of Federal industrial awards, in South Australia (SA), we had an award for draughtsmen and technical officers. This award covered drafters, engineering technicians, and engineeing associates. All 3 of these groups likely to have had a formal education of 2 years duration, so the duration of the education is not relevant to competency and capability. The Australian Qualification Framework (AQF) is based on competency and level of responsibility, not duration, though recently some guide line durations have been introduced. Basically AQF-6 (Associate Degree) upwards are university based qualifications, and AQF-6(Advanced Diploma) downwards are TAFE qualifications.

Apparently, the IEAust wasn't happy that engineering technologists and engineers were both AQF-7, since both have bachelor degree. So IEAust apparently responsible for honors degree AQF-8 being included, though 4 year professional degrees lost honors status some time back. It is also nonsense. Architects typically have a 5 year degree or 2 x 3 year degrees: the typical programme a 3 year degree in architectural studies, followed by time in practice, then return for the professional 3 year degree in architecture. There are other professions which comprise of a 2 stage study programme, resulting in 2 degrees. It should also be noted that from an industry employment viewpoint, not everyone goes onto to complete the 2nd stage and get the 2nd degree: it has no relevance to their employment.

That is part of the problem, professions have little relevance to the needs of industry and society, professional organisations are in some ways attempting to resurrect the restrictive practices of the old guilds. Science however is held partially responsible for the decline of guilds, along with national legislation and regulations. For example building codes specify requirements for buildings, whether prescriptive or perfromance based, the knowledge becomes public, and secret knowledge held inside guilds no longer acceptable: it has to become disclosed. Structural mechanics provides a disclosed method of validating adequacy of a building structure: so some secret ritual to appease the gods so that a building doesn't fall down, ceases to be accepted. Consequently mechanics institutes teaching artisans technical science, starts becoming alot more acceptable than the secret knowledge held by the guilds, and people outside the guilds start practicing and supplying more acceptable product than that supplied by the guilds. Some guilds cease to exist, others adopt the new learning, and become the examining and qualifying authorities. But still, whether guild, professional association, society, institution or union, there is some unwarranted restriction of practice already in place, or attempts are made to put such restrictions in place. Sure protection of the public is usually raised as the basis of the restriction, but that is generally misleading and invalid. The public is typically protected by regulatory and approval systems, with requirements for independent checks. Where licensing and restrictive practice is in place it is typically a relatively old practice and there is no conclusive evidence that such restrictions actually provide protection to the public. Arguments can tend to be presented either way, I favour arguments against licensing. Licensing tends to lead to self-certification, and code of ethics or not, tends to lead some approving things not in the public interest. Licensing tends to lead to monoply, escalation of prices and deliberate shortage of supply. Shortage of supply is achieved by making it difficult to enter the profession, and basing membership on requirements irrelevant to the task performed. Modern laws which protect economic competition, oppose granting monopolies to professions.

Having high standards to join a profession, is not opposed, having high ideals makes wanting to join the profession challenging and worthwhile. The objection is the shortage of supply. Requiring a building designed by a professional structural engineer is unacceptable, because it would tend to lead to restricted supply of buildings: when there are others who can carry out the design. For example engineering associates are capable of structural analysis and design, whilst the use of something like AS1684 timber framing code vastly simplifies the specification of timber framed houses which are structurally adequate. A engineering associate however is not likely to design a multistory building in a high seismic zone, or a bridge other than a short span foot bridge: they may however be involved in designing component parts or subsystems of such larger systems.

Universities and computers however have changed the nature of the workforce, engineering and otherwise. Traditionally designer-detailers would have done detailed design calculations, whilst the engineer concerned themselves with the analysis of the over all system. So for example whilst the engineer is calculating the bending moments in the individual elements of a multi-storey building, a design-detailer could be calculating stresses in beams already analysed and sizing concrete beams and determining reinforcement and producing the drawings specifying such requirements. The designer-detailer likley to have started career as a tracer, and moved onto drafter, and taken additional studies in the required technical sciences: their traing largely on the job working on real projects. The role of designer-detailer may be considered as a career for life, or a stepping stone towards becoming engineer. If no future positions for engineer in a company, then designer-detailer likely to be career for life, unless there is an opportunity to become engineer elsewhere. With more people going from school to university, the designer-detailer role displaced by graduate engineers. The role of engineer then becomes confused as does gaining the experience to become a fully fledged member of the profession.

The organisation becomes increasingly dysfunctional as more and more personnel become inexperienced graduates: both drafters and engineers. Many of the local South Australian consultancy businesses are like this. The "recession we had to have", resulted in shutdown of government departments and privatisation, along with lay offs from large businesses, almost over night there was a massive increase in consulting engineers, as those laid off set up sole proprietorships. Having established businesses these experienced engineers have no desire to show any loyalty to big business only to be laid off again, some do however provide services to the bigger consultancies on a contract basis. So some of the so called shortage of engineers is more a desire to have the experience back in-house at a lower cost. Whilst the IEAust is assisting with its graduate development programmes, and supply of mentors possibly external to a graduates employer organisation, there is still a lack of succession planning to sustain the technical workforce. That is largely because most of the effort is focused on the B.Eng and engineers is what we need: which is not so.

So first we have problem of professions defining idealistic requirements independent of industry needs, then a problem of educational institutions, universities and otherwise defining academic study programmes equally independent of industry needs, and a further problem of computer software and other technologies changing the industrial environment.

Technology has diminished calculation effort, first logarithms, then slide rules based on, then calculating machines, electronic calculators and finally digital computers. Engineer, structural analyst and stress analyst are different professions. The traditional engineer was more concerned with design, and supervising the implementation of such design. Engineering education in the 20th century however, shifted engineers into the role of structural/stress analyst and away from their traditional role. Hence the emergence of the problem of things being designed which cannot be built: a loss of understanding of their core function. The use of computer software is said to assist in a return to the core function. Computers can complete calculations in seconds, therefore don't need such a large team of people to assist in completing such calculations., and skill development doesn't have to be as focused on arithmetic or evaluating mathematical formulations. The problem is defining a new age profession whilst retaining past competencies, which are actually recently developed competencies anyway. The other problem is that other professions and occupations have arisen to take up those tasks engineers discarded as they moved away from their traditional role.


INDUSTRIAL RELATIONS AND QUALIFICATION FRAMEWORKS
The environment is dynamic, and roles in industry are constantly changing. It is partly because of changing roles that occupational groups or professions are designed and defined by those dealing with the industrial relations system and the associated industrial awards. For example the metal industry had a multitude of job definitions and associated restrictive work practices. If I recollect correctly from my studies of industrial relations in the early 1990's, it was considered an achievement that some 109 jobs were reduced to some 63. I never saw the awards at the time, but the most recent I've seen there were 14 occupational wage levels: C14 to C1. Where C14 is a production worker with a few weeks of on the job training, and C1 is professional scientist or professional engineer. Though there were separate industrial awards for scientists, another for engineers, and still another for draughtsmen and technical officers. I say were because we are currently in a transition of moving towards more federal awards rather than state awards. Though national organisations like APESMA would have tended to make state awards for engineers similar. Anycase now have a federal award for technical professionals, and it covers scientists, engineers and information technologists.

Part of the drive for this rationalisation and grouping is to increase mobility in industry, and reduce industrial disputes. For example a weld slag chipper may have been prevented from sweeping the floor. On the one hand this protected the job of the person who swept the floor, on the other it was unproductive. Additionally it creates unwarranted ranking of job roles: neither chipping weld slag or sweeping floors is something to make a life long career out off, though some may wish to. Sweeping the floor in a hazardous industrial environment may require some training, but not necessarily less or more than chipping weld slag. The rationalised awards rank a multitude of such similar jobs into appropriate wage groups. The next issue then becomes developing a multiskilled workforce, which then leads to defining new occupational groups. From which then emerges qualification frameworks like the Australian Qualification Framework (AQF). Given that industrial awards and occupational classification tend to be based on formal education, it is likely that further simplification will result in one industrial award based on minimum wages for each of the 10 levels of the AQF. One of the things the AQF does is define core knowledge for various occupational groups, with electives. So having obtained core knowledge and graduated completing one set off electives, it doesn't require too much effort at some future date to take other electives to move over to another job function. The purpose of the AQF is to enable articulation from one occupation to another giving proper recognition to prior learning (RPL) whether obtained through formal education, on the job training, or self-learning. So building a portfolio of work as evidence of learning is an important aspect of obtaining an AQF certificate.

To move people from wage level C14 to qualified tradesperson at level C10, requires defining a skill set for an occupational group, which enables them to move between a multitude of job roles and job functions. Naming such occupations is also problematic. The change in materials and the change in technologies used changes many job functions and skill sets. A carpenter traditionally worked with wood, but when it comes to building construction likely to also work with steel and variety of other materials. They cannot be called builders because builders already defined and builders don't actually build anything but rather supervise building works. They cannot be called technicians because that is a more knowledge oriented activity than trade activity. Job titles consequently either remain and change meaning to reflect new role. Or in the main job titles just become meaningless and pointless, since they poorly describe the real skill set that the individual has. Individuals have similar problems to business in explaining to the public the services they can provide. Even within a business enterprise which chooses own internal job titles, the actual roles of various individuals may be distorted by the job titles assigned. Businesses restructure every so often, and assign different roles and job titles to better reflect internal operations: but it can still misrepresent real roles and responsibilities.

BACK TO ENGINEERING PRACTITIONERS
As I was saying computer software reduces the size of the engineering team required to complete calculations in a given time frame. So whilst an engineer could do the structural analysis whilst a designer-detailer designed members to the materials codes and worked on drawings, and this was carried out in parallel once the analysis under way: such work break down (WBD) between people no longer required. For structural analysis software can now rapidly carry out the analysis and size all the members, and increasingly generate the technical drawings aswell. So designer-detailers not required, and nor enitirely are drafters.

With the introduction of CAD many drafters replaced by CAD operators. The CAD operators only have a few weeks training in the use of CAD and have poor knowledge of a technical discipline: such as structural, mechanical or electrical etc...They also have poor knowledge of CAD. Increased training produces CAD technicians who have extensive knowledge of CAD but still poor technical knowledge. This adds to the dysfunction of engineering business organisations.

As the software becomes more complex with increasing integration of documentation and engineering assessment, there are calls to have more engineers use the software, rather than CAD technicians. But software is a specific tool and requires trained specialist for each software package. Such training not considered appropriate for engineers who should know the science behind the software. So there are emerging issues as to who should be building such virtual models and who should be responsible for them.

The other problem is an increasing dependence on such software. In many instances the use of the 3D virtual models is inappropriate and unjustified: it takes far too long to build the models and adds no value. But with diminishing skill sets concerned with more generic tools, there is inceasing dependence on such tools, and so increasingly inefficient tackling of projects with unwarranted delays. The real thing could have been built whilst they were playing with the 3D model. Task becoming increasingly more like a video game than real design.

I recently read somewhere a proposal for a 3 year bachelor degree in virtual modelling. I don't see the value in such things. All the time the solution to everything  is an high level academic degree. Such does not have anything to do with the task at hand, it is only concerned with status. Attract people by defining a degree, an AQF-7 qualification, and slotting people in at wage level C1, thus bypassing C14 to C2, and no where to go.

By rights moving from AQF-1 to AQF-10 should reflect increased depth of knowledge and increased responsibility level. Most professional degrees reflect breadth, not depth of knowledge. Also continuing professional development (CPD) requirements are seen by many as a grab for money, especially when weighting is used to diminish value of on the job learning and self-learning: and biased towards paid seminars and otherwise gaining higher academic awards. If actually practising engineering then always learning on the job. If not then probably operating at a level below engineer, on highly routine stuff.

It is this situation of persons not operating at the level of their academic award that needs to be resolved in industry. Persons with B.Eng set out to become professional engineers, cannot achieve and ignore profession. When the first required stepping stone should be to become engineering technician, no choice in the matter, that is where all start. If their job is at an advanced level, then shouldn't be too difficult to advance through technician, associate, technologist and finally achieve engineer status in a short time. For those with relatively simple jobs, they will get stuck at a lower level. But it is now clearer that they need to move on to another company to achieve full status as an engineer, or they need an external mentor to assist in putting their knowledge to use as an engineer and providing more value to their employer and raising their job function.

Another part part of the issue, is that people with an interest in design get stuck on engineering programs, which don't really provide for their interests, and 4 years is a long time. This can be achieved by proper articulation through the AQF levels from AQF-1 to AQF-9, with more industrial experience imposed between each level. So complete first year of B.Eng get AQF-5, complete 2nd year get AQF-6, and complete 3rd year get AQF-7 etc...But before get AQF-5, also have to complete AQF-1 to AQF-4. There then becomes a common core knowledge throughout the industry which all participants are aware of. For example everyone in the industry from trades people upwards can read technical drawings and specifications, and understands them.

Part of the current problem in industry is that occupations are now defined by educational institutions, rather than by industry. When defined by industry people progressed up through various positions in a business or stayed where they were. Those that progressed were aware of the skills of those below because thats where they came from. But with the education system controlling qualifications, people are coming from all over the place and slotted anywhere into the business organisation. So no one really knows the capabilities of their subordinates, and become surprised when the subordinate cannot do what is considered to be a common sense task. Problem is common sense is not common, it is environment and culture specific. School leavers have not spent long enough in the required industrial environment. If they have to get AQF-1, spend time in industry gain some experience and return to study for AQF-2, then a better understanding will be developed of an industry and its processes.

The training of an engineer, thus follows the more traditional route, from tracer, copy-drafter, drafter, design-drafter, to designer. From designer an increasing knowledge of scientific principles becomes necessary depending on the technology involved with. There are also issues of planning, supervision and management to consider, but these are really separate strands of study. Which is the reason to pay more attention to the AQF, than to professions. As a person goes in and out of industry moving from AQF-1 upwards, they will increasing reach a situation where they are offered a fulltime job, and otherwise given guidance to electives to study directions to take. In the main only qualitative understanding of science is required, followed by knowledge of established technology and supervisory skills. Rather than pushing towards AQF-9, better to have multiple AQF-6 qualifications. This not difficult because in the main will only require 1 year of fulltime study, or 2 years part-time, because the first year of such 2 year qualification will be a common core the earlier AQF-5 qualification. In other words a common core of broad technical science with diversions into more specialised areas. So for example not that difficult to cover civil, mechanical and electrical engineering, in 4 years, at the AQF-6 level. The current practice would be to define this as a B.Eng in some specific field such as say architectural engineering. I don't agree with such. For that matter I don't agree with the B.Eng in the first place: should have stayed with the 3 year B.Sc, with the applied technical fields being covered by additional awards such as graduate certificates. For that is part of the real problem, tradition put science into industry where it was applied and provided technical solutions. The B.Eng obscures what is added to the science as do many other professional degrees they should be scrapped, and get back to the B.Sc with something else to cover the applied practice. So an engineer for example more likely to have a B.A to cover the creative design, and a B.Sc to cover the scientific principles. But basic technical design only requires AQF-6 not AQF-8.

The idea is to get people interested, keep them interested, and have them progressing through qualifications from the very beginning. Don't want people leaving the industry, want them to find the right role and level. Some may have preference for planning and supervision so they get diverted to that quickly, others for design. Do not want to confuse industrial design and industrial management with engineering. Academic programmes for engineers are focused on the numbers, not design or management. I believe the young are being misled about what engineering is about. All the promotional programmes are biased towards building technology, not the engineering supposed to be promoting. From such progammes the school students should be taking up trade studies not engineering degree.

So really need to identify that which is unique to the engineer, and I mean in practice, not the foundational beliefs of those defining the profession and supposed subordinates. Engineering technicians, engineering associates and engineering technologists may work as subordinates to engineers, but all are more likely to work independently and subcontract work to engineers on an as needs basis. The actual operation of the industrial economic environment is complex, and we need to make far better of use of the available human resources. Not demanding that people spend increasing amounts of time in formal education before they can start to earn their own income. Got to get them into industry sooner, making use of acquired knowledge. Innovation occurs when people with a different knowledge base than those currently at the coal face are placed at the coal face. So cycle people between industry and formal education. The industrial revolution cascaded ahead because artisans studied technical science out of curiosity, either by reading or due to the availability of mechanics institutes and night schools. Rather than push a few to AQF-8, we should be ensuring that the minimum any employee has is AQF-6, anything less than AQF-6 and the person is still in a training and development programme. The first step however is to ensure everyone has an AQF-1 qualification, and in the main that requires providing evidence of prior learning. The primary step therefore is not going around teaching any one, but assessing them and recognising the learning that they already have.

Pricing Labour and/or Services

Prices are not absolute, they are only ever relative to a given point in time and set of circumstances, and therefore related costs are also relative. In Australia we have state and federal industrial awards which set minimum working conditions for various occupations, including minimum wages. These awards have embodied within them wage relativities which are typically sustained. It creates something of a new age aristocracy, with ranking being based on academic ranking and some groups perceived importance of the occupation. For an otherwise equitable society this is inappropriate. The flaw with such state or national ranking is that its says engineers for example are always worth more than tradespeople: such is nonsense.  Whilst people do get paid over the award rates and therefore there is scope for variability in the market, the occupational representatives will appeal to the industrial courts and commissions to have the relativities reinstated, that is adjust minimum wages in the awards to market rates to keep one occupation ranked higher than another. The nonsense with such scheme is that it is applied across industries and across the state and/or nation, when relativities should vary between businesses dependent on staff and line functions. An engineer in a consultancy has a line function and is more important to business operations than a carpenter who looks after the buildings. An engineer who works for a building company has a staff function and is less important than the carpenters who fullfill the line function. Staff can be terminated and contracted on an as needs basis, line personnel cannot be contracted on an as needs basis for they are the point and purpose of the organisation.

Giving consideration to a sole proprietor, if they contracted the line function, then effectively handing the work over to someone else who gets paid for the job, and so the  sole proprietor doesn't make anything except maybe a small commission for having the work to handover. However tend to get paid more for doing the work than simply attracting it and handing over to others, so if going to hand the work over to others to do, then need to find a lot more work to do. A modern trend in business is to do exactly that: find work and get others to do it. Some engineering consultancies for example have a small core of personnel, they tender for work, and once they have the contract they then seek out personnel who can actually do the work: that is they don't have the expertise nor the labour capacity in house. But this not really any different than other businesses, builders contract to build, but subcontract to drafters, engineers, carpenters, plumbers, electricians, concreter's: a sole proprietor builder with no personnel at all. So what price, what value the effort of those who distribute work, what commission should they be paid? Should there be an industrial award for such activity, and should there be an occupational title for those who carry out such activity? My feeling is no! The industrial awards whilst useful for new startups, otherwise tend to distort the market. It may be beneficial to set a minimum wage to impose a minimum standard of living, but even that is questionable.

Some 95% of all businesses are small business, and account for some 48% of employment: small business employs less than 20 people in non-manufacturing and less than 100 in manufacturing. Some 80% of Architects, Surveyors and Engineers practices are very small business employing less than 5 people. Whilst industrial awards are imposed on employers, they are not imposed on sole proprietors: some industries are dominated by sole practitioner businesses. There are many activities where by individuals consider that they get a greater share of the potential income if they work for themselves rather than as an employee. For whilst it is possible to be paid over the award rates as an employee, something has to happen in the market place before that will happen. Changes in the market may only affect a few businesses and/or employees. If the market does not provide the desired increase in wages for employees then pressure is applied to bring about changes to the awards. This can impose on all businesses to increase wages even though the individual business has experienced no increase in sales or increase in productivity. Potential exists for big business and/or their employees to manipulate the system to grab a greater share of the market, at the same time as award wages are increased beyond capacity of small employers. Small employers tend to retract to being sole practitioners again. Sole practitioners are not bound by industrial awards, only need to cover cost of living.

For a business enterprise, sole proprietor or otherwise, income is what ever they are able to get, there is no industrial award which sets minimum income levels. The industrial awards however do provide a basis for minimum costs to be covered by the income. Business however is a real world experiment, and just because industrial awards set minimum wages for employees, it does not mean that the business is capable of recovering such costs from its sales and operations. The sales which can be achieved at any point in time are uncertain, therefore total income generated is uncertain. Possibly more importantly is that not all costs are visible, tangible, measurable and allocatable. It is a matter of emergence or synergy: the whole is different than the sum of the parts. For example calculate the visibile costs, release a product to market and it only sells for less than the sum of costs. Release another product to market and it sells for significantly more than the sum of costs. Labour, mind and body, is no different than any other product: it can be bought and sold for what ever price the market is willing to support. Sole practitioners don't allow the industrial aristocracy dictate wages to them, they leave it to the market place to determine their income. For some who quit their stable jobs in hopes of making more money than the industrial awards grant them, this may be a bad move. For those who lost their jobs because of changes in the economy, "recessions we had to have", then owner/operator of a small business may represent income not otherwise available: less than the award but more than unemployment benefits. Cities may represent a different kind of environment than our ancient hunter/gatherer ancestors, but it is still a wilderness and a we are still fighting for survival. Cities, and modern technologies do not gaurantee comfort and luxuries, no matter how hard you work. Further more hard work does not give right to such things.

PRICING
The basic guide for pricing labour as a owner/operator, is to divide desired income by the number of hours expect to work. Desired income has to cover minimum cost of living to survive, but can otherwise reflect desired lifestyle. The expected hours of work, can reflect the available hours willing to work, having spent time on other activities.Hence it is beneficial if can get paid to do what you like to do, spending as many hours as are able to do so.

Labour rate = Desired Income / Expected Hours of Work  [$/hour]

This only represents the cost of owner/operators labour to a project, also have to cover costs, and determine chargeout rate. For contractors, with little expenses, the typical guidelines reduce the expected hours to account for such things as: public holidays, sick days, vacations, and long service leave. This calculation is some what important to full time employees on industrial awards: for they get paid for more hours than they actually work. For example consider award wage group C14, last I looked $522.15/week, for a 38 hour week, and a 52 week year. Therefore annual income $27,151.80, for total of 38x52=1976 hours per year, leading to hourly rate of $13.74. But allowing some 47 days at 7.6 hrs/day, paid without work, that removes 357 hours, leaves only 1618 hours actually worked. Thus have to recover the costs of labour at rate of  $16.78/hour labour charged out, before additional expenses are added.

How to cover the additional expenses if not easy to directly allocate, or would otherwise cost more to track than the effort is worth. The simplest approach is to take expenses as a proportion of total revenue and otherwise assume zero profit.

P = R - E
if P = 0 then R = E

E = L + OH
Let OH = fR therefore E = L + fR

Therefore : R = L + fR
Or

R = L / (1-f)

Where P= Profit, R=Revenue, E=Expense, OH=Over Heads, L=Labour, f=OH/R

The fraction 'f' may be available in industry surveys, from historical sales data if business already operating, or otherwise some reasonable number adopted, that is guessed. For example if f=0.4, then: R = 1.67L., and so the $16.78/hr becomes $27.97/hr.

Having calculated a labour rate, by the preceding method it doesn't mean that going to get any work. The hours for a project multiplied by the labour rate may produce a price that the market doesn't like: and note the potential customers in the market are not caluclating costs, they are just guessing or have a gut feeling about what they believe to be a fair and reasonable price. If the customer can do this, then so also can the supplier, at the end of the day the price is what both buyer and seller are willing to accept.

"The successful producer of an article sells it for more than it cost him to make, and that's profit. But the customer buys it only because it is worth more to him than he pays for it, and that's his profit. No one can long make a profit producing anything unless the customer makes a profit using it. " [Samuel B. Pettengill]

In the building industry many businesses over value what they sell, from builders, to manufacturers, to designers and engineers. There contribution to a project is low value and unimportant. Many engineers would find themselves unemployed if regulations which imposed their presence was removed. You don't pay an engineer $1000 to remove and save $1000 worth of concrete, better to have the resistance of the concrete than some scribble that says not required. Too many engineers seem to make the mistake that they protect public safety and stuff would be hazardous without an engineers presence: not so. They neither impart real cost savings nor achieve safety. The issue is that the safe economical system has already been provided by heritage, and therefore current batch of engineers contributing little. Part of the problem is the wage relativity nonsense of the industrial awards: choosing to be an engineer because expect to get paid more than trades person. Engineers are being produced because we can produce them, just like we can produce cars we don't need. Having produced them have to make up reasons to need them, to sell them, or create legislation to impose them. Having a degree does not give a person a right to a high salary, nor to public recognition. Far too many modern professional engineers are relying far too much on the contributions of ancestors to conclude the value and importance of engineers. Those ancestors however do not however have the skills to match the modern specification of professional engineer nor did they have the same attitude. Business requires that can generate revenue, society requires that contribute benefit. To gain recognition modern professionals who want the recognition have to do the contributing. Much of the technology provided is not all that important, and people since the dawn of industrial society have questioned its real value, and still question its value. The survival of populations in cities is dependent on water pumped into them: no power supply, then no operational pump and no water, and if no water then no people can be supported in the city. Finite resources consumed to support a growing population, with no real thought to the future. One possible future is population catastrophically wiped out as it runs out of power. Another possibility is that population will simply age and die out without replenishing itself, leaving a ghost city. The future is uncertain and business is trying to predict future income from todays actions. Rather than engineers complaining about their status, and their incomes, they should better understand the nature of business, the environment and uncertainty. Problem is too many engineers worked for the government in the past building infrastructure to herd the population: they consequently have something of a more dictatorial attitude towards the people and sense of own self importance. Such attitude not going to get them very far in the new modern world of privatisation. The businesses the engineers work for have to provide real value at the right time. The infrastructure that engineers provided whilst working for the government is not seen as a benefit by all: though the engineers see it as a benefit. In business, think you have a good idea then pursue at own expense, not the peoples expense. Then again, the business has to get the money for research, design and development from somewhere, and that somewhere is the customers who pay more than the cost of the product they buy. People don't so much object to profits, but to what the profits are used for. Profits used for expensive suites, expensive cars, expensive houses, holidays, world trips, expensive offices, and typically an expensive lifestyle are objected to most especially if the quality of the service provided is low.

So for example there is a lot of DIY because people can cost the materials, and have spare time in which they can do the work. Without getting into complications of comparitive labour rates and opportunity costs, the individuals simply perceive that the cost difference between supply price and material cost is too high, and therefore choose to DIY. So to get the work have to demonstrate the value in service supplied. Builders cannot get the work, drafters cannot get the work because of DIY, but engineering practitioners get the work because legislation imposes a need for calculations that most people cannot DIY. But cannot rely on such captive audience remaining: also having a captive audience diminishes the recognition get from such audience. It is therefore necessary to build real value, and demonstrate that value to potential customers. That is recognition from customers not the population.

Part of that added value is having the solution before the customer turns up. Things can be designed once and made many times, or if a service carried out many times. Car manufacturers build cars with features that the market hopefully wants. Whilst buildings are typically built to customer requirements, and are thus not available when the customer turns up. On the other hand established buildings dominate the available supply, but typically can only buy an established building if it is not in use. However there are market builders who have stock plans, the house isn't available when the customer shows up, but they do have a choice of designs to choose from. Design and engineering are additional costs, new buildings represent delays in supply, and they also have teething problems, all compared to an established building. An established building may however have problems that need resolving. The value of available supplies thus determines decisions made and directions taken. Such decisions are not necessarily taken using any direct costing, or cost-benefit or value-analysis. At the end of the day these are just sophisicated methods to justify a guess. Using such tools the parts maybe weighted and valued, but the sum of these parts doesn't represent the value of the whole. So the opinion relative to the whole is no worst nor better than that based on the sum of opinions relating to the parts. A guess is a guess no matter how sophisticated. In the modern world there are far too many mathematical models which are given unwarranted credence, and yet there is only garbage to feed into them and consequently only get garbage out off them.

Costing methods can be made increasingly complex as can pricing methods, but at the end of the day, acceptance in the market is left to personal opinion or subjective judgement. Business is an experiment, and getting the price right is part of that experiment. The business has to be dynamic, adaptive, and responsive to feedback from its operating environment.

Not suggesting avoid sophisticated costing and pricing methods, just that they have to be appropriate to the age and nature of a business activity. The older an activity, the mre likely all its associated costs can be determined including those intangibles such as allowance for future needs. Further it can be determined whether detailed tracking is required, and the level of detail required. Often tracking costs more than the benefit obtained.

Time Is Life, Time is Not Money!
One problem with the previous rate is that it gives rise to the believe that time is money, and the concept that some engineers have that they sell time. Hourly rates are problematic. Contractors are likely to drag a contract out so that they don't have to find another contract, and so get the most from one contract. One recommendation for calculating contract labour hire rate is to allow 20% loss of time looking for work. This gives rise to different recommended rates for short contracts and long term contracts. Lower hourly rates are charged for longer contracts. The acceptable labour rates determines how long can be spent looking for work, so that more than 20% may be possible: since also dependent on what it costs the individual whilst they look for work. Also don't have to look for work, can spend the time in other activities, such as developing solutions, so that have available when a customer turns up looking for. Got to change mindset away from the 9 to 5 work time mentality. The difference between working on the business, versus working in the business. Most people who give up their job and start a business, are still locked into the employee mentality: do the work that flows in and pay no attention to where it comes from or why? A few years later no work, no business and no income. Firefighters are paid to be on stand by, there can be no doing something else when on stand by, they have to be available for fighting fires. Part of being in business means being available, even if not doing any work, and so there is a cost associated with such availability. For example a cost of not doing any work this week, so that can start work next week: if choose to do work this week may have to spend many more weeks without work. Hourly rates therefore have to be increased to account for reduced hours actually working.

Another issue to consider with hourly rates is that not every hour worked is worth the same value. With extensive division of labour within an organisation lower value tasks are carried out by persons on lower pay rates. But even then not everything that these people do is worth the same value, however the average value of their work is less than the average value of someone elses typical work. By distributing work to a collection of people on different labour rates a lower over all fee for a job can be determined, compared to fee worked out on the basis of the cost of the top level skills required on the project. For example internal to an engineering consultancy an engineer gets paid more than a drafter, the bulk of the work tends to be drafting, and fees worked out with costs distributed between drafter and engineer. As sole practitioners however the fees of the engineer are too high, the work flows to the drafter who subcontracts the engineer on an as needs basis. Further more the engineer typically cannot relate well to the customer, so subcontracting to the drafter, is the wrong direction for the customer, even if preferred direction for the engineer. The engineer has to be doing the drafting work if to relate to the customer, and needs to be charging a lower fee for such work. Since such engineer is doing both drafting and engineering, their average rate is lower than those just doing engineering, but still higher than the drafter. The net fee however may still be too high, however there will be less delay compared to the engineer and drafter combination. So there is a premium for the faster delivery time.

Higher prices have either premiums or penalties incorporated. A premium because there is benefit to the customer, penalties because there is some disadvantage to the supplier. Higher prices do not mean higher value or increased quality. Prices are relative things.High prices may just mean that the supplier doesn't want to do the work. So having found someone who can supply at lower price is no loss or detriment to the supplier with the higher price: they achieved what they set out to do, not be hassled with such work. Its not always a race to drop fees and grab work. Often greater benefit in pushing fees up and pushing the work away, ultimately the price gets high enough that the work no longer seen as a hassle and the work is accepted.

Whilst a project fee may be worked out on the basis of an hourly rate and an estimated time duration to complete with possibly material costs included. The final fee is subject to the nature of the market and may need to be dropped, or it may be possible to increase it. It is not necessary to have calculated detail as to where the fee came from. It is only really necessary for the business to have an accumulative income which stays ahead of the accumulated expenses: not for the individual project. Some projects are a loss, others a gain, on average the business achieves a nett gain. There should be no drop in quality due to a loss on the project, the business still has the resources to do properly, the project is just not self funding, and there is no reason why all projects should be. The problem is owners who extract excessive profits from the business to fund exorbitant lifestyles. Profits have to be retained in the business to fund future uncertainties.

Projects which make a loss are indicating something about the market. Like we are tired of paying large fees to be told what we already know, so if such "service" must be imposed on us, please do so at lower fee. Which means figure out what is really required, what value it has and charge an appropriate fee for. When it comes to engineering there is a perception that it means supply calculations: which is a low quality service to provide. Relevant calculations can now be done by computer in a few seconds, a mere fraction of the time taken by engineers calculating by hand. Selling time thus becomes silly. Further it is what happens prior to and after the calculations that is important not the process of calculation itself, such calculation process is an hindrance and delay. These "fore" and "after" actions are where the value lies. So let other than engineers use the computer programs and play around with the models, it is better than them building the real things and having the real systems fail. They still need some one to validate and certify the final design and a fee to be charged for. The playing around with design concepts however is where it belongs in the hands of end-users and/or makers, getting familar with a concept and experimenting with its benefits and detriments, and otherwise checking the consequence of variations. Designers do not have to be qualified, they do not have to understand scientific laws, they can build prototypes and understand the real thing. If they can build computer based virtual prototypes then they can save time and possibly expense: they get to find out for themselves why some part of a proposal is a bad idea.

Point is things become established, and technologies change, so there is an expectation that supply prices change, and typically that means decrease. What engineers complaining about declining fees fail to understand is that the value of their contribution to projects has been steadily declining, as their output becomes more and more routine, predictable and expected because variants already exist in the technological environment. It may be possible to sell each car produced at similar price because each one takes similar effort to build. But this does not hold true for specifications of a car, or anything else. The first specifications take a great deal of time and effort to create, copying however is a considerably simpler and less time demanding activity. Even variants are less demanding than the original. Heritage diminishes value of future endeavours, it provides a foundation on which to build. So cannot expect to keep charging same price for design work. Experience both diminsihes and adds value. Experience adds value because know the answer now whilst someone else has to work it out. The cost of someone else working it out basically matches the cost of knowing the answer. But once all know the answer, the value starts to decline. So all this hourly rate, time is money, selling time stuff is misleading, as is having national industrial awards. Prices, labour rates, fees are all highly variable and uncertain. Start with something, anything, monitor feedback and then change accordingly. Small business, sole practitioners are typically better able to respond quickly to the market, than large businesses. Larger business more into controlling the market than responding to. There are no certain answers, just got to get good at experimenting and predicting the right response, the desired response from a complex system.

Business, TelCo's, and Power companies

When studying quality assurance it was pointed out that quality cannot be acheived by constantly changing suppliers. If suppliers don't have a stable market then there is no incentive to invest in productivity or quality improvements, for there is too much uncertainty in the environment and may not gain a return on the investment. Therefore suppliers need a certain amount of loyalty from their customers.  On the other hand the customer needs the supplier to invest in quality and productivity and not just invest profits in luxurious lifestyle. To achieve this large corporate buyers can impose discounts and penalties on their suppliers, that is the buyer can can control the terms of supply rather than the supplier. For example a 5 year contract, on condition of a 5% discount each year: this actually justified on the basis that the buyer helped the supplier improve quality and reduce waste: and the buyer wants to share the benefit they helped achieve.

So enter the government privatising and deregulating everything, like telecommunications companies and electrical power supply. On top of which we have a competition watchdog, which is there to prevent monopolies and protect competition. Though given the subtle difference between the common perception of competition and the economists definitions, it may be better to protect diversity rather than competition. The theory is that by deregulating and protecting competition efficiency is produced and this benefits the buyers by lower prices and higher quality. Its all rubbish. Competition produces chaos, and annoyance and inconvenience.

Every 3 to 6 months, some telecommunications company phones up and tries to get the receiver of the call to change service provider: and typically calling from overseas, like from India to Australia. The benefit of changing supplier is discounted service for some time frame. Changing does not make these interrupting phone calls go away, and the new contracts may lock in for 1 to 2 years and impose a penalty if drop out earlier. The service providers are mostly retailers, they do not own the telecommunications infrastructure, they do not build it, and they neither maintain nor operate it. They are basically paper shufflers who play around with money on paper.

Similar situation arises for electrical power retailers. They come around knock on door, asking to see last bill, and some number on the form: because they are discounting in the area, and if have right number on form win the lottery or something and get the discount. Once again the majority are just retailers, they don't own power stations, or fuel supplies, they don't build, operate or maintain any of the infrastructure: just paper shufflers.

Some how these companies can buy the resource direct from the actual producers and sell to the public at lower price than the public can buy themselves direct from producer. Probably end up similar situation to that of the farmers pressured by the supermarkets. The supermarkets for that matter tend to impose the same contracts and discounts on all suppliers. Depending on what is being supplied to the supermakets can simply increase fee to allow for discount so that get fee normally get: not like they provide enough work to deserve a discount and certainly not providing any services to assist improvement of productivity or quality. But that's another story.

The point here is that just because these retailers are offering lower fees at the moment doesn't mean that the customer will benefit in the long term: financially or otherwise. The "otherwise" is probably the more critical issue, because as pointed out above, the retailers are just measuring things in terms of money and shuffling numbers on paper: the result is that the actual infrastructure can be placed at risk. Due to such risks, some regulation is required to control the retailers: so not actually deregulated market just a different set of regulations.

Price is not an absolute measure of anything: it is always relative to a time and set of circumstances. One retailer offering lower fees is just a stimulus in the environment, it is not a guarantee that prices will drop across the board, nor an indicator that prices can be maintained at that level. All the retailers have to buy from the same producers, they have to pay all the people doing the paper shuflling, making phones calls and running door to door making the sales, and otherwise make a profit to keep shareholders happy. Put simply costs that were not present in the previous government/people owned system. Admittedly the previous system may have had public servants employed not doing much of anything: for example plans for power stations not built, or simply attending pointless meeting after meeting making out to be involved in productive administration. A privatised bureaucracy is no more efficient than a government bureaucracy: so no real benefit to privatisation: just a shift in ownership and control. Fundamentally the minimum cost of everything is zero: don't do it. If choose to do it, then it costs what it costs. The objective of business is not to minimise costs, but to maximise profits: and having locked the costs: the only way to maximise profits is increase sales and prices. The exercise is therefore to redistribute the associated costs, to achieve higher benefit or added-value.
Competition does not lower prices nor produce efficiency. Diversity of suppliers merely offers variety in the quality of service and prices. A given total profit can be achieved by low prices and high volume, or high pr ices and low volume. Business is a real world experiment and each enterprise aims to see what works for them. If other players can ask high prices, then so can everybody else. Business pushes prices up in an attempt to get similar income and lifestyle to those with the higher prices: don't generally or sensibly want to be the one with the lowest price. Only drop prices if expectations of higher sales volume, and thus greater nett profit.

In terms of telecomunications and power supply, the market has been deregulated and the retailers are all out to get some share of a market not previously available. So to get a share of that market they all offer lower prices: what else can they do? They don't have anything or do anything, so price structures is all that they can play around with. So the lower prices is actually questionable, because the price constructs are not altogether comparable: except maybe on a fixed period: say the 1 or 2 years of a contract lock in. To provide the lowest rate need to know what rates everybody else in the market is offering. If it is truly unregulated then can only guess what the lowest rate in the market is going to be before publishing figures. Once figures published, then know real position in the market, but still a guess for next release of new prices: because do not know what the other players are going to do: raise or lower their prices relative to which other player. So at any point in time its anybodies guess which player offers the lowest price rate.

So for many consumers, there is no value to them in switching from the original producer/retailer to one of the new retailer only companies: its just an inconvenience and interruption to their day. Its similar to discount vouchers and end of season sales. For busy people collecting the discount vouchers is more effort than the discount is worth, for other people they have the time to get the maximum possible value from the vouchers: its a matter of opportunity cost to the individual. Stores making discount vouchers available understand these opportunity costs, and some what hoping that not everyone takes advantage of all the vouchers released.

The sales people for the telecommunications and power companies however, don't appear to understand such opportunity costs: for that matter many appear to have just stepped off the ship and can only just speak English. They seem to think that everybody would appreciate having their day interrupted to get a discount. No! If we didn't call the supplier chances are we are not interested. Also if people are locked into 2 year contracts and cannot change without paying a penalty, then there is also reluctance to change. But it does seem like the retailers may know, which households have never changed from the original producers, and therefore, who is not currently locked into a 1 or 2 year contract.

Point is many are not interested in the lower prices for a variety of reasons, not the least of which is that the sales person interrupted and wouldn't quickly accept no: the harder they try the more locked the answer "no" becomes. Also of importance is the perception that the over all quality of service is declining due to poor maintenance of the infrastructure, and that it will get worst. Its not lower fees people want, its more reliable service, and the paper shufflers cannot provide. If these retailers can affect the quality of service they do not mention so or explain how: they only ever present the option of lower prices. They are not creative enough with their paper work, nor do they explain how they get the resource they sell in the first place. In other retail, aware that local stores gets discount for buying in bulk from wholesaler, and wholesaler gets discount for buying in bulk from manufacturer/producer. So assume that this is what the telecommunications and power retailers are able to do: buy in bulk from the producers. This however also infers a need to push consumption: not really good for the power industry. {NB: most modern phones require a power point, whilst traditional phones didn't: want to lower costs put the traditional phone back.}

That is the retailers have to sell what they buy: whether the product is considered perishable or not depends on the terms of their contract. Like internet service providers, buy so many gigabytes or hours of activity for a month: if don't use it then loose it, it doesn't roll over to the next month with most suppliers. So if power retailers buy so many kWhrs for a year, and cannot sell them to consumers, it becomes like perishable fruit if have to sell with in a given period of time. That perished then becomes a cost to be recovered in price of next batch of power sold, and so the price goes up. But what are they actually selling? Its like the mobile phone companies, $600 for $50: next time I'm short of money I will just go mobile phone shop and exchange a $1 for $2. The problem is the only measure they have for what ever it is they are selling is dollars: the monetary value only. But not really measured: the original price really pulled out of thin air. The power companies seem to be moving in similar direction.

The power companies can only buy potential kWhr's, whilst consumers typically buy KWhr's actually used: though may be averaged and bill based on estimated yearly usage and every so often brought into alignment with actual usage. So retailer has a problem if consumers use more power than the "potential" the retailers bought: for which the producer may impose a penalty on the retailer. So irrespective of whether consumers use more or less power the price can climb: it all depends on how well the retailers can balance their requirements.

Prices are not absolute and all depends on what the individual considers reasonable. The more of a resource a consumer uses, the lower the price they want, however reliability of supply is also important, and they will not opt for lower at the cost of loss of supply. For example no power and the refrigerators don't work, and the fruit perishes and so do medical supplies: this represents losses to businesses and also potential loss of life. Reliability of a resource supplier is therefore important. If lower prices appear to be resulting in reduction in reliability people are not going to switch to lower price and reinforce lack of supply.

Also in terms of power reduction, no benefit can arise unless an entire generator/turbine can be shutdown. So if local power station has 5 turbines, there can be no real reduction in cost of supply, until only need to operate 4 turbines. Also with urban sprawl, there is likely to be increasing energy losses getting power from station to the outer suburbs. An option is to build a power station closer to the outer suburbs, but then got problem of transportation of the fuel supplies, and also the minimum size of power station that is practical to build and operate. It is a problem concerning the economics of geography and location: power station where the coal is, the water is, or where the usage is? The answer is typically only valid at a single point in time: and thus invalid once the power station is built and operational: because prices are not absolutes. For example power generated using coal is becoming an increasing environmental issue: basically been an issue since first used. Original issue was visible particulate matter, now it is invisible gases: but no one said gases have to be exhausted to the atmosphere. The exhaust gases are a resource currently wasted. The carbon tax may be an increasing issue of concern, but in the main both business and individuals are extremely wasteful. Its not lower priced power retailers that need to be looking for, nor suppliers of ever so questionable green power: rather use less power, pay less.

The way to use less power is to increase the real benefit required from the power used: so not a cost cutting exercise, but a quality, productivity improving, waste reduction exercise. For example achieve light without electricity, heating and cooling without electricity, and cooking without electricity. And rechargeable batteries are they a problem or a means of buffering peak demands. We primarily use the electricity we do because it is convenient and there is a lack of diversity in alternative systems. Similarly people mostly use mobile phones because of convenience not necessity: lets many in business be relatively incompetent: instead of paying attention during a meeting they sort it out afterwards with a phone: so could have saved the fuel travelling to a meeting. Which is another issue, all the houses and buildings empty during the day, whilst people out at work in other buildings. All this travelling back and forth, stuck in traffic jambs, to sit at a desk using a computer all very wasteful. Further how much energy used in houses occupied by one person during the day? Also we have mulitstory buildings for carparks to feed offices: we could be using the cars as workstations and the carparks as the office blocks. Some of the buildings we have are highly questionable. Like supermarkets with oceans of carparks: could just have a market with goods sold direct from vehicles. Then there is all the street lighting and the comercial buildings lit up during the night: is it all really necessary? Similarly offices that require lights on during the day, more poor design. The need for hi-rise buildings themselves are questionable. Geographical economics may imply the formation of central business district (CBD): but the construction of hi-rises buildings more create the CBD rather than a consequence of. That is the CBD is developed at the expense of more localised centres of business: and so unnecessary travel is imposed. Urban sprawl is largely sprawl because of the CBD: build and develop more local centres and have less concentration of pollutants, more built in redundancy and improved security of supply.

We have moved from population mostly engaged in agricultural work, to manufacturing onto service sector. Telecommunications and power retailers are a sign of modern society. Our problems are not so much those of production: we can produce what we need with few people: our problem is acceptable means of distribution to those that need. A lot more paper shuffling is going to be taking place, selling ever stranger financial products, to bring about transformations in the infrastructure, the heritage, we already have. As long as people are content with what they have they are unlikely to change behaviour. Its like the frog: throw into hot water it will immediately jump out, place in warm water and slowly bring to the boil the frog won't move and will be boiled to death. People in industrial society basically have all the material comforts they could possibly want: they are not overly certain however that is what they really need or wanted. Service sector is keeping people occupied, and finding alternative ways to buy and sell stuff., and pump money round the economy: this is necessary because we have more people than is required to physically produce stuff: on top of which got a decreasing population actually interested in producing stuff.

So it all becomes about buying and selling abstract somethings, which may turn out to be nothing, and get the likes of the global financial crisis (GFC).

Thoughts on Taxation, and Logistics of Industrial Society ...

Its that time of year again, BAS accountant due at end of week to check accounts so can submit end of quarter BAS statement, hand over GST collected and PAYG withheld, to tax office. So tend to get thinking about taxation.

We would like to operate business at zero profit, that is break even. If by definition profit is surplus to requirements then zero profit should be feasible, further more tax office could tax at rate of 100%. But surplus to requirements is not a precise definition when tax office considered.

For a sole proprietor or partnership, profits equal wages and the bread and butter required to survive. So zero profit means starve. For a company however, the business is an independent entity to the owner/operators. The owner/operators of a company either get paid as employees, subject to state and federal industrial awards minimum rates of pay, and/or paid directors fees. That is living expenses effectively become a business expense, and the company can operate at zero profit. The situation changes if there are shareholders who only contribute funds and who are only interested in a financial return on investment: and otherwise have no interest in what the business does.

The tax office basically only taxes profit, but there appears to be some inequity in the assessment of profits. The inequity is that business is taxed on what are essentially surplus to requirements, whilst employees are taxed on 100% of their income. Sure employees can claim certain things as legitimate expenses incurred in the process of making a living: but surely the cost of living itself is a legitimate expense in supplying labour to the market. If a business was producing livestock, cows, pigs, chickens etc... Then the cost of water, food, shelter, and various essential services (medical care) would all be expenses. Given that the fundamental law governing employment is the original Master Servant Act, and as Rousseau points out in the "Social Contract", slavery has many forms and we just exchange one for another, each employee is effectively a sole proprietorship supplying human flesh to the labout market, and as such the costs should be claimable.  After all when look at the social security system, have all kinds of payments for family allowance and giving birth to children, so why not abolish and transform to claimable expense?

Admittedly people have different living expenses, but these expenses are not all a matter of choice. For example we have a society which opposes caravan parks and high density housing. Hence some 30% of 3 bedroom house are occupied by one person and some 8% of 4 or more bedroom houses occupied by one person. I don't recollect the statistics for shared accommodation, or even if that was actually covered. Average household occupancy however is at less than 3 persons per household. Births are declining and population aging, but housing still being constructed so moving towards average of 2 persons per household, yet houses seem to be getting bigger on smaller blocks of land. Something is not right.

It is partly a consequence of property speculators, and also silly ideas on retirement. With introduction of superannuation and cuts in government pensions, many people concluded that do not have enough future income to support their retirement. Therefore they have been investing in bricks and mortar: not practical livable house, just expensive houses. To maintain the value of such houses they oppose construction of government trust houses, and high density housing, including retirement villages. The result too few retirement units available, and therefore high costs, and the sales of the expensive house still won't provide adequately for retirement. Should be noted however that retirement is a relatively recent concept: its only been around for a few decades not centuries. Also to be noted that many people don't want to retire, for retirement just represents getting bored to death: waiting for god as a TV series puts it.

The property speculators also not been investing in high density housing, they have been producing houses for the rental market, but otherwise diminishing the benefit of renting. The basis of the idea, is get into property, by using somebodies elses money. Historically the benefit of renting is that it costs less than buying a house. It costs less, because the landlord owns the house and only needs to cover operating and maintenance costs, with possibly some profit. The new landlords don't own the houses, they have mortgages to pay off, and profits they also expect to make, add to this the operating and maintenance costs. Result renting starts costing more and buying starts looking more promising. But to buy requires people moving out of established houses, or land available for new houses. Difficult to do when the property speculators are grabbing everything they can get. Basically there was only one way it could go, and thats is as its doing, taking a dive, though the property market may be picking up again by all accounts.

Anycase, the point is cannot actually buy what you want, can only buy what is available. The market does not work on the basis of supply to the demand. Suppliers to the market supply what they have, that which heritage and prior actions have provided access to. All people have mind and body, though some are more capable than others. As I was previously saying there is a cost in supplying mind and body to market, and it is currently being taxed. Rather than the government paying young couples to have kids, as current payments are perceived, stop taxing the cost of producing and raising kids, and stop taxing the general cost of living.

The infrastructure and certain social expectations impose a minimum cost for living in a given location, so allow such minimum as a claimable expense. Since we are all stuck with the inconvenience of submitting an annual income tax return, why not use it to collect more worthwhile information? For example how much spent on:

Water
Gas
Electricity
Food
Other Household consumables
Shelter/Accommodation
Household Appliances

Then for each of these catagories have a minimum and maximum claimable expense.If expense is less than minimum, then government assistance available, if greater than maximum then the excess is taxed. Since individuals distribute their income differently, the government assistance is only available if the total income less than the sum of the minimum allowances. The allowances are for individuals and adjusted for the economies of shared resources. For example given that single people and families are living in the same type of houses: the allowance per person with one person in house greater than with a family of 4 persons in the house. Given that some 5% of households don't have enough bedrooms when measured against some Canadian quality of life index: the tax return can help indentify these shortfalls and direct resources to assist in allevating such problem.

Through the tax return, can now say, you had this income, you should have spent this much on food, you didn't so you are not getting any assistance: go change the way you distribute your income. In other situations this is the income you had, its less than assumed to needed, but survived anyhow: therefore it is possible to reduce the minimum allowances and the assitance provided. Noting however that assistance is provided to set the minimum standard of living in a region. If the cost of living increases then the tax free allowances for such automatically increase.

Whilst we already have a tax free threshold, it doesn't explicitly cover costs of living, nor require consideration of: further more as indicated employees are effectively taxed on 100% of their income: not the real profit component of their incomes. The machinery of industrial society requires a minimum number of people to operate: those humans not only have to be produced they also need to be regularly replaced. Like it or not we are slaves to the machinery of the city, and the nation. Many towns in industrial society are turning into ghost towns, as the humans required to operate the machinery of society are not replaced. {NB: the machinery consists of systems which make society function, it is not a direct reference to lathes and such, though they may be involved.}

It seems the machinery of industrial society has no care for humans but cannot be driven without humans. It does seem in practical terms the market is not entirely capable of providing the core functions required of the machine, and its ability to do so is diminishing yearly. The core functions need to be better managed, individuals need access to appropriate information so that they can decide to supply those core functions or not. Once core functions of the machinery satisfied, then have the free market where have no choice but to dream up anything that can be exchanged for that required to survive.

My perspective on the money system is that money flows into natural wells of accumulation, where it otherwise is taken out of circulation. Therefore do not have to work hard to get rich, just have to be fortunate enough to claim ownership of one of these wells. If $1 satisfied an individuals needs for an entire day, and such dollar could flow around to all people in one day, then would need to stamp out only a single $1 coin. Unfortunately need more than $1 to satisfy daily needs, and it doesn't flow fast enough around all people, and it otherwise accumulates and is taken out of circulation. The money system has no natural restorative cycle, and will eventually grind to a halt. Therefore I see the purpose of the  tax system to be to take money from where it naturally accumulates and pump it to those places where it doesn't otherwise reach or doesn't otherwise return to. Therefore contend that individuals have not altogether earned the money they receive, nor altogether have right to retain.

If profits are to be taxed, then profits have to be a more proper measure of surplus to requirements. Future need is an essential requirement, therefore maybe better to identify what is permitted to be retained rather than what has to be handed over to the tax office. That is 100% of surplus is handed over to the tax office for the future benefit of all: but the surplus has to be properly accounted for. The government treasury is a kind of insurance policy: like Joseph and the Egyptians putting grain aside for the coming drought. To a certain sense of practicality we no longer have a ruling class and the government serves the people through public servants.

However the machinery of industrial society is still driven in a constantly changing environment with decisions made in the face of uncertainty. Business is an experiment, a gamble: yet employees want expected minimum wages. This is crazy! As hunter/gatherers we go out into the wilderness and either return with meat for supper or little more than berries: there are no guarantees. Just because we have built industrial society does not mean we have removed uncertainty: many years of apparent consistency may have given the impression that we had, but we hadn't and cannot.

It should also be noted that much of that consistency experienced in the past was based on growth and expansion of cities. But we cannot sustain further growth, more and more resources are being drawn from ever distant places to keep the cities operational. In more historic times we would have been more likely to move closer to the resources than waste energy in transport. There is a need to change our logistics: our supply and distribution systems.

Initially we industrialised agriculture, dropping the population required to be employed in agriculture to less than 10% of the population, and we became manufacturing nations. Now we have diminishing need for local manufacturing, local demand is close to replacement levels only, with population basically got all that they need unless innovative goods become available. Established cities don't really need materials, the materials are already there either in the goods or in land fill. Only fuels are required to energise transformation of the available materials to better meet the needs of the population. Thus the population moves away from manufacturing and becomes more service sector: operating, maintaining and adapting the existing facilities of the city. The economic system, including the tax system needs to assist this state of maintenance and adaptation rather than growth.

Adaptation however is a problem: it is like those magic square games: need an empty space otherwise no movement can happen. A new more efficient factory needs space in which to construct it, since shutting down existing when need its output is not viable. However new factories do not have to be built on land, nor built at ground level. So new factories can be built as ships, thus resurrecting the ship building industry: probably an important task to do given ultimate future in space: need to build up aerospace and ship building industry. Alternatively, given that many existing workplaces have a lack of parking for both clients and employees, new production facilities can be built below or above the existing buildings: the existing building can then be cleared for parking. Also given that industry can be designed to be better integrated such that the waste from one facility can be piped as resource into another facility. The vertical and horizontal integration of production facilities can take place on one site: a site where there is already one of the facilities to be integrated.

One thing missing from the industrial side of things is real design. Architects may plan and dream, individual buildings and estates, but there is little real dreaming and planning taking place relative to the physical machinery of industrial society: no dreaming by engineers {NB: this time I do mean the chunks of metal.}. It seems to me that designing a ship is the closest we have to designing an integrated industrial city: but populations moving to ships causes problems with national government and taxation. Infrastructure is required somewhere to build the ships and possibly register the ships: but such systems can also be held on board a ship aswell. The population of a ship can simply form a company.

Corporations to a certain extent permit the creation of governments within governments. Companies however are not constrained by geographical boundaries, whilst federal, state and local governments are. Also in the age of the internet nobody really needs to have a physical address. The population can be made increasingly mobile. With a mobile population, a so called global village, and massive commitments to humanitarian and development aid, investment in national infrastructure becomes somewhat questionable. It is not national infrastructure that we need but global infrastructure.

If business thinks it can do better than government, why are the multinationals not planning and supplying to a more global market? There is clearly a global demand for education, health care, water, gas, electricity, food, clothing and shelter. The demand is there so why aren't the multinationals supplying to it? Sure there are some local regulatory constraints, but they typically do not constrain supply, only control quality of supply. So we have a national health care system: but neither private nor the national system properly serves the rural communities. Demand and need is there, so why is it not supplied? What fault or defect lies within the money system which prevents goods and services not being supplied to where the need and demand lies?

Another thing is our government tossing money away because of the GFC. Each and every year the news reports a massive credit card debt for the nation: people buying things with money they do not have. So what does the government do: it hands money out to people to keep the retail sector going. Stupid! People didn't need government handouts to encourage spending, they were already spending what they didn't have: that was the primary cause of the original problem. Now retail is complaining of decline again, some criticism of online sales outside the country, other criticism because people reluctant to spend and savings are growing. But people need to save more to get a larger deposit for loan on a house, and develop greater confidence in long term capacity to pay the loan back. Also as already indicated they basically have all that they need, and otherwise potentially running out off personal space at the same time they are being told also running out off landfill space. Both fuel and material consumption need to drop.

If retail sells goods, and we are increasingly moving towards a service oriented society, then retail sales are going to drop. Plus we need logistics systems to get goods and services circulating around the city. Once upon a time the public library was preferable to owning a book: but whilst people now own their own books they are running out off space to retain and read more. But the internet and ebooks are partially resolving this problem, along with such organisations as book crossing. It is innovation in the service sector that is required: not throwing money at retail. Some retail is part of the core machinery of industrial society, other retail is not. For the most part the supermarket chains are providing the core function. It is however the local family owned store that typically provides goods and service: but not all provide service. If the service is not there then people will favour the lower prices of the supermarket.

People tend to want maximum wages and minimum priced goods and services. Though what they are mostly aiming for is maximum benefit from their available resources. So its not so much that prices need to drop but that service value needs to increase. When labour increases its productivity it tends to want higher wages. Increases in productivity however do not necessarily reflect a reduction in costs or an increase in sales, so not necessarily an increase in profits to shareholders to which workers can claim a fair share off. The problem is that optimising a part does not optimise the whole. Further productivity changes have to be reflected in the cost structures, and often it is the very costing system itself which is the burden to productivity improvements.

Take the building industry for example, the quantity surveyor typically costs construction in terms of dollars per unit weight such as $/tonne. Structural engineers are consequently pushed to design the minimum weight structure, rather than the true minimum cost structure. The actual minimum cost structure likely to be based on most readily available materials and the simplest labour input. Another situation is that subcontracting and outsourcing can place fixed prices on things that would otherwise be variable. Whilst this can simplify things, it also hinders cost reductions: with some simple things costing more than they otherwise would. Similarly productivity gains in the building industry may result in faster supply, but not an increase in the number of projects available: so no change in the price. Or those that can increase their share of the projects available, drop their price whilst the others have to increase price due to reduced time on projects available: then it all balances out at some intermediate market price. With the potential nett effect being no permanent reduction in price. So that changes in costing and pricing methods needs to take place, before changes in production method passes benefit onto the customer.

By the same measure customers themselves have to modify and change the distribution of their own personal monetary resources. For example spending excess money on foods which are fattening and surplus to requirements, results in poor health requiring more money for health care, but the money was otherwise spent on getting the poor health. Modify diet, improve health, and have more money available for the more random and accidental health problems rather than recurrent problems. But that is another problem, random and accidental becomes more and more remote, and reserves for emergency events get spent on more desirable things. Thus buffers are cut short, and increasingly so in the modern world of "lean" where inventories are attempted to be cut to zero, and a continuous flow set up. Once again fully integrated on a ship has the greater potential for achieving. Anycase, it is the government that people look to as a national buffer, provided for by the tax system. But once again have that conflict between the maxim buffer and protection from the government and the minimum tax. Presently the primary complaint against successive governments is tax paid and services being removed or privatised.

Privatising isn't really the problem, the problem is the quality of service and the way the service is paid for. Tax is a buffer, an insurance policy and a collective payment. Services provided by the government are paid for, just not at the time they are used. When privatised, people then have to pay on an as needs basis. That poses a problem of no funding to sustain the availability of the service when not in use, and people not otherwise having the necessary funds when they do need the service. Privatise but still have to have the collective insurance buffer system of payment.

So returning to the beginning there are certain essentials that people have to pay for to support a basic national lifestyle, and the costs of such are an operational expense not a luxury: only the real surplus should be taxed, not the employees full income. Making it a requirment of the mandatory income tax return to explicitly cover the essentail costs: imposes a need on individuals to pay more attention to how they spend their money before they start demanding pay rises, and at the same time collects more national statistics annually to better manage the economy. Given yearly income tax returns the national census is somewhat wasteful, and only collects slightly more information. Much of that information would be a constant on the tax return, and whilst it deals with individuals with incomes, it otherwise does deal with households and families in terms of dependencies. So the tax system could be providing more timely summary statistics for decision making, and better "means testing" of recipients of benefits. Also based on the earlier references to minimum allowances for costs of living, everyones income becomes measured as a multiple of the minimum: so this person has 80% of the minimum, that person has 5 times the minimum. Further more they are employees with wages set by industrial awards: so unions set the wages at 5 times the minimum: didn't really earn. Whilst those not on industrial awards, typically working longer hours, and would be getting less then the minimum allowances: they may get federal or state minimum hourly rate, doesn't mean they get enough hours for whole year: or that hours reasonably spread throughout the year. So tax returns could keep track of hours as well as incomes.

However, for small business owner/operators keeping track of own hours often on the unproductive side of activity: time isn't money, time is life. Whilst some service sector businesses think they sell time, that is not true. Engineers in particular who think they sell time have a particularly flawed view. Clearly cannot be selling time. I cannot remember where it comes from: but there is the case of the old retired guy who turned up with an hammer hit the machine fixed and got working, then issued bill for $100,000. This was considered extortionate for the 5 minutes taken: the response was the fee was for knowing where to hit it, not the time taken. Other case is that for the painting of the "whistlers mother" I think, once again only a short time to paint and a high fee: this time not the time to paint it, but the years of experience developing the skill leading up to the point in time when able to produce the required painting. Engineers should not sell time. If they do, they will have a problem: because 40 hours of hand calculations can be collapsed to a few minutes of computer time. This process can typically be repeated again and again, 40 hours block after 40 hour block collapsed to a few minutes: with no real increase over the few minutes: because a computer completes calculations in nanoseconds: and the calculations are interdependent: so no increase in the input parameters. So if only selling time, new comers to the market only have a few minutes to sell not thousands of hours. Though given the quality of what some engineers sell, they may aswell just be selling time. The real value does not lie in the time, nor being able to do the calculations manually: the value lies in the understanding of physical systems, imagination and ingenuity, social interaction on the project, and what can be achieved with available knowledge on current project. As a client do I really want to interact with this person, and what benefit do I get in return? There is a need to get away from time, and get away from averaging costs over time for convenience. Prices are not absolute measures they are only ever relative to a given time and circumstance.

Circumstances may be that don't like the work available, and don't really want to do it, and got plenty of other work to do anyhow. Even so it can be difficult to get rid of the work. Tell potential client, cannot do for 12 weeks, try 12 months and still they come back. Timing doesn't make them go away, so next option is to try high price, since everyone else must have tried timing, so pull a big number out off thin air. If still won't go away then getting close to fishing out the market price. I don't know why consultants always complaining of cost cutting bottom feeders: small business does the work that big consultants don't want: they provide more of a public service. Further more if not really concerned about the work, can drive the work away and around the block, and push the fees up. Sure someone may offer lower fees, but they will get swamped, and have to push the fees up: unless they get enough work to expand and employ more people. It has been said that the purpose of business is to maximise profit not minimise costs. My contention is that profit should be considered in terms of benefit not financial surplus. But still should be pushing prices upwards whilst minimising time expended to generate income. {eg. Spend more time doing what like doing, not increasing hourly pay rate: whats the point of that! if still working same total hours in year. Objective is to change what you spend time on: time equals life.}

Business is a real world experiment: there is no certainty. Likewise appropriate taxation is also an experiment: the more dynamic, adaptive and responsive to real world changes the more acceptable the system becomes. One contention is that the government and tax office doesn't know what it really costs people to make a living, I'm suggesting explicitly putting it into the income tax return so that they will know in future. The only tax on cost of living should be by the GST, income tax should only be on real profit not total wages.