Friday, February 28, 2014

Coalition about-face on hatred disappoints

It's concerning that the Abbott government is walking away from its promise to repeal the law that sent Andrew Bolt to court.

Worse, the government has said it is considering laws that would jail people for inciting ''hatred'' — a vague and ambiguous term — on the basis of race, religion or political opinion.

On September 28, 2011, a Federal Court judge found that News Ltd journalist Andrew Bolt had breached section 18C of the Racial Discrimination Act.  Section 18C makes it unlawful to ''offend, insult, humiliate or intimidate'' a person because of their race, colour or ethnic origin.

Section 18D of the Racial Discrimination Act provides exemptions for conduct caught by section 18C.

Some, including Australian Human Rights Commission president Gillian Triggs, have called this provision the ''free speech defence''.

Others have claimed that Bolt didn't fall under any of the exemptions because he ''got his facts wrong''.  This is incorrect.

The judge in the case would have made the same decision even if Bolt had his facts right.  This is because the judge decided that the use of ''inflammatory and provocative language'' disqualified Bolt from the exemptions.  Getting the facts right or wrong is irrelevant.  Section 18D does not protect free speech.

The case sparked a significant debate on free speech.  In August 2012 then opposition leader Tony Abbott delivered an address in which he championed this cardinal liberal democratic principle.

Abbott used the speech to make an important election commitment:  ''So let me assure you, the Coalition will repeal section 18C in its current form.''

That commitment gave all those who were troubled by the Bolt case a feeling of profound relief.  The promised repeal couldn't change the past.  But there was relief in knowing that never again would a journalist be silenced by the court under this illiberal provision.

Now the Coalition has reversed its position.  Instead of strengthening free speech, the government is examining whether to introduce a new criminal offence.

Section 80.2A of the Commonwealth Criminal Code makes it an offence to commit violent acts motivated by ''race, religion, nationality, national or ethnic origin or political opinion''.

Of course, provisions against inciting violence are appropriate.  But Attorney-General George Brandis recently said:  ''It seems that section 80.2A of the Commonwealth Criminal Code is probably too narrowly drawn''.  He appears to be suggesting that he will broaden section 80.2A to make it illegal to incite hatred of someone on the basis of political opinion.

A person can have a political opinion about anything.  It's a term that applies to politics, as much as economics, morality, the environment and everything else.

Such a law would shut down debate.  It would create an environment that is more hostile to free speech than the one that exists now.

Saying or writing things — even if they might inspire hatred, contempt or ridicule — should never be treated as criminal acts.

If such a law existed in 2011, a judge hostile to free speech could have sent Bolt to prison because he expressed his opinion on an issue of public policy.

Even the specific election promises made to restore free speech have not been fulfilled by the government.  The government has yet to release a section 18C repeal bill.

But in Senate estimates on Monday, Brandis said:  ''The government is committed to repealing from the Racial Discrimination Act those provisions which enabled the journalist Andrew Bolt, for example, to be successfully pursued through the courts for expressing an opinion on a matter of public policy.''

The only way to deliver on this promise is to repeal section 18C in its entirety.

Unfortunately, Brandis has also recently suggested that the Coalition was considering repealing only half of section 18C.

In an interview with this newspaper last month, Brandis suggested that only the words ''offend'' and ''insult'' would be removed, but the words ''humiliate'' and ''intimidate'' would remain.

If the Coalition doesn't want to see another Bolt case, it must repeal the whole of section 18C.

The judge in the Bolt case didn't distinguish between the four words in section 18C.  Bolt was found to have offended, insulted, humiliated and intimidated the complainants in the case.

It's clear from the judgment that Bolt would have breached section 18C even if the words offend and insult were removed, as Brandis proposes.

For all those who cheered Abbott's commitment to free speech in August, 2012, the Coalition's new position on this issue is deeply unsatisfactory.

The government should be extending, not restricting, free speech.  It should act immediately to repeal section 18C, as the Coalition promised to do before the election.  And it must immediately abort the dangerous idea that could see individuals sent to jail for expressing views about others' political opinions.

G20 tax rule a new business burden

The indifference of the Australian public to the meeting of the Group of 20 finance ministers in Sydney last week was appropriate.  Australians have better things to do than be lectured to about how Australia should be more like Europe.

The ABC, though, couldn't get enough of the visitors from foreign lands.  The taxpayer-funded national broadcaster devoted an entire episode of its leading current affairs program, Q&A, to a single guest, Christine Lagarde.

Before getting her current job as head of the International Monetary Fund (as the result of a deal between the European Union and the United States), Lagarde was finance minister in the mediocre government of Nicolas Sarkozy, in the increasingly mediocre country of France.

But because Lagarde is the embodiment of global cosmopolitanism, and because she supports Australia's carbon tax, the ABC accorded her the sort of treatment usually reserved for prime ministers.

The host of Q&A fawned over Lagarde as she pronounced her opinions of the economic theories of Martin Luther King and Pope Francis.  Like so many organisations of its kind, the IMF is full of its own self-importance.  Lagarde might believe, as she said on Q&A, that the IMF can ensure ''stability in the world in order to induce prosperity'' — but she's wrong.

Private enterprise secures sustainable prosperity.  Lasting prosperity is not secured by the government, or the IMF, the World Bank, or the United Nations.


DRAMATIC EXPANSION OF DATA-SHARING

However, there was one outcome of the G20 meeting that the Australian public should have paid attention to.  Australians should not be indifferent to plans that could force local banks to hand over to foreign governments the name, address, and date of birth of Australian citizens together with their account numbers and details about what's in those accounts.

The sharing of taxpayers' information already happens between a limited number of countries and in specific circumstances.  What happened last week is that the G20 finance ministers agreed to support a dramatic expansion of automatic data-sharing across national borders.  China, Saudi Arabia, and Ukraine, for example, are all signatories to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, and it's to these places that Australian citizens' bank accounts details could go.

In the name of stopping tax evasion, the OECD, the G20 countries, and the EU have developed a ''common reporting standard'' requiring financial institutions in signatory countries to automatically provide the financial details of non-residents to the home country of those non-residents.

Financial institutions are defined broadly to include not just banks but also insurance companies and sharebrokers.

In Sydney the standard was endorsed by the G20 finance ministers.  The problem is that while the standard is aimed at non-residents, because of the high level of detail that will be shared, it is inevitable that personal information about Australian citizens will end up overseas.

A commercial transaction between an Australian citizen and a non-resident that produces a return as relatively small as $US250,000 ($278,000) will be required to be reported to foreign governments.


ENORMOUS COMPLIANCE COSTS

Instead of falling at the feet of Lagarde, the Australian media attending the press conference at the end of the G20 meeting should have asked Joe Hockey what guarantee he could give that the details of the bank accounts of Australian citizens would remain private between themselves, their bank, and the Australian Tax Office.

His answer would have been interesting.  Presumably he wouldn't have talked about how our own Department of Immigration had leaked the personal details of 10,000 asylum seekers just a few days prior.

There's also the issue of the standard's burden on business.  As befits something drawn up by Europeans, compliance costs will be enormous.  The standard requires that if a financial institution can't provide electronic copies of specified information, it must undertake a manual search going back five years.  It's ironic the Abbott government is talking about deregulation while at the same time signing up to the new reporting standard.  And it should be no surprise that Lagarde is an enthusiastic supporter of the standard.

Qantas needs to grow up — a bailout won't solve its problems

If we really care about the long-term viability of Qantas, the worst thing the government can do is offer any sort of debt guarantee.

There is no doubt that Qantas is facing serious financial difficulties.  There is also no doubt that yesterday's profit results will be especially felt by 5,000 Qantas employees that will be laid off as the company looks for $2bn in savings.  Ultimately, however, Qantas needs to grow up and not look to government to solve its problems.

It is easy to be swept up in sentimental feelings about having a ''national carrier'', and wanting to help an ''Aussie icon''.  Beyond sentimentality, no one has offered a convincing argument as to why Qantas is a special case in need of government assistance.

A debt guarantee is corporate welfare.  It would potentially put billions of dollars of taxpayers' money at risk, and provide the airline with millions of dollars' worth of tangible benefits by way of cheaper credit.

Yesterday, Qantas CEO Alan Joyce complained that Qantas was under pressure in the domestic travel market from foreign ''government-backed'' competitor Virgin Australia.  If the taxpayers of Singapore, New Zealand, and the United Arab Emirates want to continue to subsidise the airfares of Australian consumers, frankly that is a matter for them.  Australian consumers have been the beneficiaries of this increased competition.

Importantly, no one is claiming that Qantas is destined to fail without government intervention.  The opposite is true.  The great tragedy of any bailout package is that it discourages companies from being competitive by rewarding inefficiency and loss-making behaviour.  In the long run, companies become dependent on corporate welfare, and the vicious cycle continues until eventually a decision is made to turn off life support.

The slow death of Australian car manufacturing is the obvious case study.  Corporate welfare in that industry has finally ended after 60 years of being drip fed a mixture of quotas, tariffs, tax concessions and direct cash handouts.  If the government bails out Qantas, it will be destined for the same fate.

The government's role in this situation is to foster the best economic and regulatory environment possible.  Removing substantial barriers to foreign investment would be a good start towards allowing Qantas to remain globally competitive.  The government should proceed with repealing sections of the Qantas Sale Act that cap foreign ownership.  An ambitious government would also abolish the Foreign Investment Review Board to boost investment Australia wide.

There is also scope to reforming Australia's anti-competitive and outdated industrial relations system.  Qantas has been particularly affected by the increase in union power delivered by the Rudd and Gillard governments.  For example, in 2011, the Transport Workers Union (TWU) hijacked the enterprise bargaining process as a mechanism to prevent Qantas from utilising employees of its subsidiaries, and from engaging contractors, in order to remain cost competitive.  Although the Fair Work Commission eventually rejected the union's restrictions, this was not before Qantas was forced to make the extraordinary decision of grounding its fleet in order to bring unions to the bargaining table.

Qantas estimated that industrial action by three separate unions in 2011 cost the company $68m, disrupted 70,000 passengers and saw 600 flights cancelled.  To put these costs in perspective, Qantas yesterday announced a $252 million half-year loss.  True to form, the TWU yesterday threatened strike action to prevent Qantas from restructuring to make its business viable.

While it is pleasing that the government has recently announced sensible amendments to the Fair Work Act, these changes are relatively minor compared to the entire re-regulation of the labour market under Labor.  A true industry assistance package would increase access to foreign investment, deregulate the labour market, cut the cost of business and allow businesses to make their own decisions.

That would not just bail out Qantas, but hundreds of thousands of businesses right around the country.

Thursday, February 27, 2014

Thirty years on and government still tackling over-regulation

This year marks the 30th anniversary of when an Australian government first turned its attention to combating excessive regulation.

In 1984, prime minister Bob Hawke, questioning a Labor Party philosophy that stressed greater political control over the economy, said Australia had, ''accumulated an excessive and often irrelevant and obstructive body of laws and regulations''.  Thirteen priority areas of over-regulation were identified.  And procedures were introduced to curb the flow of new regulations.  These included requirements for new regulatory proposals to be accompanied by Regulation Impact Statements overseen by a regulatory gatekeeper, now called the Office of Best Practice Regulation.

An early estimate placed the costs of business regulation at 16 per cent of GDP, while acknowledging that there were offsetting benefits.

Included among the designated priority areas for review were export controls over a range of mineral and agricultural goods, financial market regulations and transport including air services.  In all of these areas the following decades saw deregulatory reforms, which were key to the prosperity Australia has enjoyed.

There was less success in other activities identified as being deregulation targets.  These included the building codes, controls over chemicals, food laws and childcare regulations.  Those areas are among the many where we have seen costly new rules and government intrusions, in spite of a great number of reviews.


CHILDCARE INQUIRY

We currently have yet another inquiry (conducted by the Productivity Commission) into childcare, one of the notable failures among the 1984 activities targeted for regulatory review.  The Productivity Commission estimates that childcare costs have doubled in real terms over the past decade.  Consult Australia reckons it now costs an astonishing $59,000 a year for two children to be looked after in long-term day care.  One regulatory feature alone, the National Quality Framework (NQF), was calculated by the government to add costs of over a $160 million dollars a year due to excessive staffing requirements.

One outcome of a regulatory instrument is that, even if it is not introduced at the behest of a vested interest, it creates new pressures for its retention from those who make investments on the basis of the rules put in place.  This makes it difficult to reverse the process.  Even in childcare, those who have responded to government over-accreditation NQF requirements would resist the influx of people who have not had to make the same sacrifices as themselves to become accredited even though the qualifications are superfluous.

We can see similar pressures operating in the case of housing.  The overwhelming cause of the excess house prices found in all Australian cities is the regulation of land supply through the planning process.  Once in place, egregious regulations of this kind that restrain supply attract support from those obliged to make investments in response to them.

Thus, the Real Estate Institute in its pre-budget submission to the Commonwealth makes several sensible proposals to assist cost containment but does not address the freeing up of development land.  It cannot do so since its members, in accordance with sound business practice, have invested in land stocks, the price of which are inflated by the regulations.  They would lose money with deregulation which would bring more land onto the market and cause prices to fall.  The present losers — those unable to afford homes at today's excessive prices — have no lobby group to promote their cause.


ROLL BACK MIXED

Clearly, the efforts to roll back the stock of excessive regulations have been, at best, mixed.

In addition, during the 30 years since procedures were introduced to vet new regulations these have demonstrably failed.  The number of pages of regulations has increased exponentially over the past three decades.  Unfortunately during the six years of Rudd/Gillard governments, Labor totally abandoned the agenda laid out by Bob Hawke.  At least 4300 major new regulatory measures were introduced together with thousands of minor changes and amplifications to existing regulations.

We now have a renewed assault on regulatory costs with an industrious Parliamentary Secretary, Josh Frydenberg, specifically tasked to assist Tony Abbott in rolling back regulations.  Frydenberg has laid out an ambitious program to cut $1 billion a year in red and green tape.  The measures he has proposed include expediting approval processes, simplification of paperwork and an annual bonfire of regulations, the first scheduled for the end of March.

What we have seen since the Hawke initiative is considerable reduction in economic regulations such as price controls, tariffs, monopoly supply arrangements and privatisation.  These have been offset by increases in social regulations concerning the environment, workplaces and safety as well as a huge increase in the paper burden.  Cutting into these areas will be the challenge for the Abbott government.

Wednesday, February 26, 2014

Gender reporting is a red-tape nuisance

Scrapping gender reporting laws will relieve businesses of unnecessary red tape without harming the ability of women to rise to the top of their profession.

Since 2012 the federal government has obligated employers of 100 people or more to report on gender-related matters, such as the gender composition of company staff and boards, pay equity arrangements and the availability and use of flexible work for parents and carers.

In advance of the planned legislation ''repeal day'' for federal parliament, scheduled for late next month, speculation has been rife that mandatory gender reporting, if not the Workplace Gender Equality Agency, which enforces the reporting regime, will meet their demise.

Not surprisingly, there has been significant resistance by prominent Australian feminists to the idea, nominating several arguments in their efforts to maintain the status quo.

The first is that the mandated gender reporting requirements are not really ''red tape'' because large firms are collecting gender-related information about their staff already.

It would be obvious that large firms — firms of all sizes, for that matter — would collect some form of information about the gender status of their staff, and keep track of maternity, carer and other forms of leave taken up by workers.

That firms would voluntarily keep records in any case, even in the absence of government intervention as part of prudent human resources management, suggests that government-mandated gender reporting is an instance of red-tape overkill.

That is because company HR managers and administrators are now obligated to spend extra time, filling out and lodging additional paperwork as part of their daily business, to satisfy WGEA requirements.

The prevailing regulatory arrangements are defended on the basis that the administrative compliance burdens are minimal, as if large firms readily have the resources at hand to undergo the rigmarole of more compliance in the interests of gender equality, or some other regulatory fashion of the time.

But this is beside the point:  the burdens of adhering to gender-reporting regulations, even if not nearly as great as, say, environmental regulatory compliance, do, nevertheless, exist.

The second argument for keeping gender reporting, contradicting the first, is that if the obligation to report is wiped from the statute books, Australia will be plunged into the dark recesses of no disclosure.

It is something of a stretch to suggest that businesses would not ordinarily make public disclosures about their senior staff, at the very least names, if not photos, from which gender identity can be fairly readily established.

In fact, any customary glance over business websites or corporate reports in Australia suggests that firms often do reveal who works for them, and who represents them, without being obligated by the government.

This is because it is often to their advantage that they disclose their staffing details, as this provides a way of signalling the diversity of in-house labour skills and capabilities on offer to potential customers.

Companies may also voluntarily engage in initiatives, organised by others, to provide and publish detailed data about the gender mix of staff.

The Australian Securities Exchange maintains a framework in which listed companies can disclose in their annual reports achievements against gender objectives set by their boards, and the share of women in senior management and other employment roles.

There are also economy-wide regulations obligating companies to lodge statements that, among other things, must disclose the names and particulars of directors and other officeholders.

Even back in the 1980s and 90s, when the Affirmative Action Act existed with its emphasis on imposing ''equal opportunity'' standards on firms, it was not beyond the wit of journalists to uncover details about the gender composition of senior management among Australia's biggest firms.

Therefore, it should be reasonably clear that the government's gender reporting, again, represents a clear case of nuisance red tape forced on business.

The final criticism of the proposal to end gender reporting regulations is that firms will be relieved of naming and shaming campaigns against them, so that, allegedly, they can go about their discriminatory ways.

These cynical views ignore the fact the costs of gender discrimination are largely borne by the firm, which forgoes the opportunity to hire a woman who can provide sufficient value to the firm's production processes.

Compounding this cost is the risk that consumers, who are particularly sensitive about these matters, would direct more of their custom towards non-discriminating firms.

Employers should remain free to select employees, including excellent female staff, on their merit, and female employees should be free to seek employment in conformance with their own lifestyle and other needs.

But the risk is that the existing gender-reporting obligations could serve as the basis for even more prescriptive and burdensome regulations into the future.

This is because dissatisfied Australian feminists will keep using gender reporting to claim that women are under-represented in the corporate sector, irrespective of actual improvements, and conclude that Scandinavian-style formal gender quotas are needed to force companies to heel on this issue.

If the time ever comes that regulated quotas become a reality, the business community will rue the days when it initially supported gender-reporting regulations, only to meekly complain about their compliance costs later on.

Qantas needs tough love, not corporate welfare

So it begins — a company running to Canberra with a good story and in need of some or other political favour.  To be fair, these companies tend to have very good stories — consumer safety, national security, skills development, employment prospects, and the like.  It is very hard to say ''No'' and for a long time Canberra has tended to say ''Yes''.

The problem being that the amount of money available to be spent on corporate welfare is finite, the demand for corporate welfare infinite, and the prospects of those companies needing corporate welfare poor.

To its credit the Abbott government has being saying ''No'' to some companies — but not others.  We know that government is poor at picking winners, so while saying ''No'' is an improvement on previous practice there are likely to be problems with the new practice.

It looks like Joe Hockey has developed a four point test ($) to inform his decisions on corporate welfare.

These four points can be summarised as follows:

  1. Is the firm subject to unique regulation that impedes its business model?
  2. Does the firm provide an essential service?
  3. Does the firm compete against foreign State Owned Enterprises (SOE)?
  4. Is the firm working to restructure its operations?

The Abbott government is likely to argue that Qantas meets all four criteria.  My opinion is that it meets one, at best, with the other criteria being arguable or irrelevant.

Qantas is subject to the Qantas Sale Act and this does impede its business model.  The solution to this problem is to repeal, or at least relax, the Act.  This is the course of action that the government should pursue to the exclusion of any other support.  Prime Minister Tony Abbott has signalled support for this option.  Unfortunately it appears there is little political will in the Parliament for it.

We need to be clear — Qantas does not provide an essential service.  We need to differentiate between the service being provided and the service provider.  It is true that the failure of the company would cause a temporary disruption and inconvenience to the travelling public, but very quickly we would find planes flying the same routes and providing much the same service.

Competing against a state-owned enterprise is a furphy.  Every single Australian firm that competes in any international market is competing against an SOE on some margin.  We in Australia decided long ago that the government had no business running airlines (or most other types of business) — it was a good decision to privatise Qantas and that decision should not be revisited.

Finally there is the question of whether the firm is restructuring its own operations, with Abbott stating Qantas must get its ''house in order''.  The Abbott government is looking closely at industrial relations when thinking about this question.  Quite rightly so, but that isn't enough.

Premium price for premium service?

Qantas appears to be pursuing a strategy where it will provide a premium service while charging premium prices.  I'm not convinced — as a long-time Qantas customer — that it's succeeding in providing a premium service.  Nor do I believe Qantas will be able to maintain its premium prices.  As Sam Wylie explained ($) in the Australian Financial Review, the capital markets share this opinion.

Qantas has a book value of A$6 billion and a market value of just A$2.7 billion.  Qantas has turned each dollar invested into 45c.  Turning that around is going to be a lot harder than being tough on unions or cutting back on the drinks menu.

Allowing Qantas to borrow at the government bond rate — even if it has to pay a fee — will distort the market.  The thing is that Qantas can borrow — just at junk bond rates.  Borrowing at the government rate would mean Qantas could borrow more and more cheaply than the market thinks it should.  That means Qantas would maintain its size and dominance when the market thinks it should contract.

Government has no business propping up businesses that should be contracting.  As things stand Qantas is a poor investment.  Yes;  unique government regulation is partly to blame for that and the Qantas Sale Act should be repealed.  Yet I suspect Qantas' current strategy has more to do with its troubles than the Qantas Sale Act.

By repealing the Qantas Sale Act Qantas will have to survive on its own terms — this is the outcome that would best serve the interests of the flying public (broadly defined).  Any other form of assistance is likely to leave Australians worse off in the long run.

Tuesday, February 25, 2014

Another G20 deal for everyone to ignore

The G20 finance ministers and central bankers have emerged from their weekend meeting in Sydney with a promise to grow the world's economies by an extra 2 per cent.

Okey-dokey.

It's a cliché after these international conferences to point out they're long on motherhood statements and short on blueprints.

But the Sydney G20 communique is a classic of its genre.  It is, in a way, symbolic of the entire G20 to date:  bold, plain-spoken and fundamentally worthless.

After all, who wouldn't want 2 per cent extra growth?  That'd be great.

Yet the only concrete policy in the whole document is hitchhiking on the OECD's Base Erosion and Profit Shifting action plan, which is designed to prevent multinational corporations from taking advantage of low tax countries.

And focusing on how to extract more money from the private sector doesn't exactly scream ''growth-inducing''.

The most sympathetic interpretation is as follows:  The extra money governments take from multinationals might be spent on the most economically vital infrastructure and in a few years (infrastructure takes time to build) will manifest in future growth.

But the far more likely scenario is the money will be spent ineffectively and slowly on programs that please voting blocs or interest groups, and will come at the cost of suppressing international tax competition.

A tax crackdown is easiest to agree on at the G20 because it is in the G20's interests.  As some of the world's biggest governments, they don't like having to compete against small, lower-taxing jurisdictions.

As for other ways to boost growth?  Well, we have to wait for them.  The idea is that all the finance ministers now go home, brainstorm ways to reach 2 per cent growth, and come back to Australia in November along with their leaders.  Then a ''Brisbane Action Plan'' will be devised, and everybody goes home and gets rich.

The G20 is relatively young.  It was formed in 1999 to facilitate cooperation about the global financial system.

It was only when the financial system collapsed that the G20 became, as a 2009 statement put it, ''the premier forum for ... international economic cooperation''.

Many people argue the G20 helped prevent the world falling into a second Great Depression.  This is a complete fantasy.

An emergency G20 summit held in Washington in November 2008 was all about creating a ''Bretton Woods II'' — completely redesigning the international monetary system — but that didn't happen.

It also pledged to avoid the protectionism that was so damaging during the depression of the 1930s.  In his book Who's in Charge Here?, the Financial Times journalist Alan Beattie points out this pledge lasted just 36 hours before G20 member Russia announced new car tariffs.

Certainly the G20 was no constraint.  Beattie writes:  ''I have never heard a G20 pledge cited as the reason why a serious amendment to policy was made.''

The next summit, in London, focused on fiscal stimulus plans and monetary easing.  But that meeting was held in April 2009 — that is, after many countries had gone ahead and done those things anyway.

Both Australia's and the United State's big stimulus packages were announced in February 2009.  China's major stimulus pre-empted the November 2008 summit by a week.  It's not obvious how ''coordinated'' the G20's approach to the Global Financial Crisis really was.

In subsequent years the G20 became bogged down in debates about austerity.  The United States wanted everybody to continue expansionary fiscal policy.  But European countries were being compelled by their dire budgets and the European Central Bank to slow government spending.

Between 2010 and 2013 the G20 argued about austerity because there was actually something to argue about.  It's not just that each country had starkly different needs.  It's that there is no consensus on how to survive and recover from a major economic crisis.

Indeed, the ease with which the G20 has managed to sign up to a growth agenda now that the crisis has abated is a sign of its irrelevancy rather than vibrancy.

Ultimately countries are going to pursue their own domestic agendas in their own way.  Organisations like the G20 either endorse pre-existing national policy preferences or are ignored.

The G20 agreements are non-binding.  In theory this is supposed to enhance the institution's flexibility but just means that it is unable to achieve the goals it sets.  As one paper in 2012 put it, the ''G20 has proved about as far from effective as Greece is from solvency.''

Perhaps we are asking too much from what is really just a chance for finance ministers, central bankers, and government leaders to catch up.

But then perhaps it would be better to refrain from the ridiculous claims that the Sydney meeting was a ''win'' for Treasurer Joe Hockey, because he managed to convince the G20 to nominate a specific, entirely hollow, growth target.

Or the claims that the G20 is now ''back on track'' because it agreed to go for growth in the first place.

Or the most ridiculous claim of them all:  That what a G20 communique says means anything of significance to the world economy.

Saturday, February 22, 2014

Academics against The Don

Don Bradman was ''peculiar''.  That is the startling finding of a pair of Monash University academics.  Of course, anyone with even the vaguest knowledge of cricket already knew that to have a Test batting average of 99.94 was clearly ''peculiar''.  Yet our Don Bradman's prodigious feats with the bat are not the reason why Monash duo David Dunstan and Tom Heenan claim he was ''an extremely peculiar Australian'', but rather because they believe he was an ''acquisitive, ruthless, and self-interested loner''.

Writing in the New Daily, the academics make it clear their real motivation for demolishing the ''myth'' of Bradman is because they regard praise for Bradman as part of a shift which sees Australia's ''popular history now being built on nationalistic self-aggrandisement in war and sport''.

The fact that John Howard once praised Bradman as ''the greatest living Australian'' is apparently enough evidence of guilt by association for members of the intelligentsia to decide that besmirching Bradman's reputation is an important aspect of fighting the culture wars.  The fact that Bradman is admired by plenty on the Left, such as former Wran government minister Rodney Cavalier, who has written vigorously in defence of The Don, is no obstacle to those on an ideological mission.

Apparently, in academic land, it is ''peculiar'' that a boy from a humble background used some of the connections he got through cricket to secure good jobs and endorsements.  This seemingly rational response to the opportunities which were presented to him is described as ''intense acquisitiveness''.  Oddly, having criticised Bradman for being too commercial in the 1930s, Dunstan and Heenan then turn around and accuse him of not being commercial enough as an administrator in the 1970s.

The authors claim that his teammates' criticisms of Bradman's personality have been ''swept under the carpet''.  While it is true that some works have tended to eulogise Bradman, these have been counter-balanced by numerous books and articles detailing the gripes of the likes of Victor Richardson, Bill O'Reilly, Jack Fingleton and Keith Miller.  Of course, Bradman was not popular with all his teammates, for the same variety of reasons which mean that, even in the most successful sporting teams, not everyone is great mates.

Dunstan and Heenan seem to be firmly in the camp of the ocker Aussie bloke wanting to booze with his mates for hours after the game, rather than the more ''new age'' Bradman who preferred to head home.  As we saw with the post-game bust-up between Michael Clarke and Simon Katich in the recent past, the divide between the drinkers and those wanting to get away to do something else continues to have a contemporary resonance.  But it is surely stretching things to try to make the sides of that divide fit into the competing sides of the culture wars.

The academics suggest that ''in many respects Bradman was more a sportsman of our age than his'', citing the ruthless manner in which Clarke and his team dispatched England this summer as being in Bradman's style (though surely in their sledging the current team owe more to the 1970s Chappell legacy than the 1930s and 1940s Bradman one).

So determined are Dunstan and Heenan to demonstrate that there was ''not much about Bradman that was great, or deserving of the adulation heaped upon him'' that as well as attacking Bradman's alleged character flaws they are unable to resist the temptation to undermine his on-field performances.  They claim that, while Bradman was a ''ruthless destroyer of ordinary bowling'', he did not do so well ''when the going got tough'' and ''often got out''.  This is presumably a reference to the Bodyline series of 1932-33 when Bradman averaged a mere 56.57, something that could only be considered a failure compared to his own lofty standards, not compared to anyone else's.

Reading the article one almost gets the impression that Bradman was the sole opponent of bodyline in Australia and that he got it banned for his personal benefit.  It seems that the Australian cultural Left are now happy to place themselves in the camp of snobbish English captain Douglas Jardine, who considered Bradman ''scared of the quick stuff'', and against the Depression-era Australian hero Bradman.

It does not fit the authors' narrative, but it is worth remembering that Bradman was an innovative captain and remains the only leader to have inspired a comeback from 2-0 down to win a five-test series.  He did this in 1936-37, engineering a comeback on a sticky wicket in the Third Test at the MCG by an early declaration in the first innings and a rearrangement of the batting order in the second.  In the latter dig, Bradman himself made 270 while suffering from a severe bout of influenza.  The aggregate attendance of 350,534 at that Test remains a record, so maybe Bradman's contemporaries appreciated his batting more than his modern critics.

Although they lecture in Sports Studies, Dunstan and Heenan are also happy to engage in a spot of medical diagnosis.  They suggest that Bradman might have been on the autism spectrum, commenting that ''he certainly lacked empathy and had a near obsessional ability to concentrate intensely for long periods on repetitious tasks''.  Normally, it might be regarded as poor form to pick on someone because of a condition with which they were born, but obviously that does not apply if attacking an alleged conservative.

However, they do have a contemporary authority for their view.  In 1939 the NSW Cricket Association vice-president commented that Bradman lacked ''social charm'' and was ''intensely suspicious''.  The vice-president was one Bert Evatt, the very same Bert Evatt whose own ''charm'' helped split the Labor party in the mid-1950s;  and, as for ''suspicious'', Evatt was probably the most paranoid figure in Australian public life in the 20th century.  But because he was on the Left, Evatt was presumably ''normal'' whereas Bradman, a conservative, was obviously ''peculiar''.

Thursday, February 20, 2014

Dud tax proves nanny does not know best

The nanny state's experiment with behavioural taxation has failed.  Such taxes are causing countless unintended consequences without achieving their original policy aim.

The primary objective of such taxation is to artificially increase the price of a product and thus persuade individuals to consume less of it.

But it is operating under a flawed ''government knows best'' assumption.  The motivation is, in principle, completely illiberal;  the government interferes with the rights and freedoms of individuals to make choices about their own consumption.  And the efficacy of behavioural taxes is questionable.  Although the taxes can change consumer behaviour, they also contribute to perverse and unintended consequences.  The taxation of alcohol is the obvious example.

Australia has a complicated and inconsistent form of behavioural tax in the form of an alcohol excise, with three separate taxing regimes:  differing rates of excise for different beverage types;  the wine equalisation tax;  and Customs duty.  The GST is applied to retail sales on top of all other taxes.

The nanny statists would have us believe there is an alcohol epidemic in Australia, and a binge-drinking crisis.  Yet long-term trends show that Australian alcohol consumption is declining.  Australian Bureau of Statistics figures show that per capita consumption has actually fallen more than 20 per cent during the past 40 years.  Beer consumption has almost halved during the same period.

Although total consumption has decreased, the consumption of one product category — spirits and ready-to-drink mixed beverages — has moderately increased.

It was perhaps this trend that prompted the Rudd government in 2009 to legislate a 70 per cent increase in the excise imposed on RTDs, a measure that was backed by the nanny state lobby right around the country.  We were told the ''alcopops'' tax would curb heavy binge drinking among young consumers and prevent associated alcohol-related injuries and diseases.

Research shows that significant behavioural taxes may influence moderate drinkers, but not the heavy drinkers that the policy was aimed at.  Similarly, such taxes appear to be less effective with young people who have higher disposable incomes.  The alcopops tax certainly prompted a rapid decline in consumption of RTDs as they became relatively more expensive.

However, the evidence is that consumers simply substituted privately mixed spirits, white wine and cider.  Unsurprisingly, young consumers mixed their own spirits and cocktails to avoid the additional cost of the alcopops tax, allowing them to established their own alcohol to mixture ratios.  This potentially increased the amount of alcohol that they consumed overall.

Increasing the price of alcohol also led young people to ''preloading'', or to consume large volumes of cheaper alcohol at home before going out to a bar or a club.

Perhaps more alarming is the evidence to suggest that the alcopops tax led consumers to substitute illicit drugs such as cannabis and ecstasy for the alcohol.  Research conducted by the University of Queensland identified that there was no reduction in the consequences associated with alcohol, such as alcohol-related hospital admission rates.

The effectiveness of behavioural taxation does not improve when applied to other consumer products.  In 2011, the Danish government introduced the world's first explicit ''fat tax'' as a measure to promote healthier lifestyles.  It was scrapped after 15 months after research showed Danes simply switched to cheaper brands or went over the border to another country to shop.

The rising cost of tobacco taxes can similarly prompt consumers to switch from legal products to illegal ''chop-chop'' or counterfeit tobacco products.

Tuesday, February 18, 2014

The great corporate welfare con-versation

It's a worry that we're having pretty much the same economic debates in the 21st century as Adam Smith was in the 18th century.

After all, the intervening centuries of experimentation have surely demonstrated one principle beyond doubt:  do not give welfare to private corporations.

Corporate welfare is economically ineffective, politically corrupting, and morally dubious.

It lowers our living standards, entrenches privileged corporate interests, and enriches some at the expense of all.

And yet here we are.  The Abbott government has spent the last few months debating whether it should stump up cash for Qantas, SPC Ardmona, Toyota, Cadbury, and now the entire farm sector.

Qantas is likely to get a government debt guarantee.  SPC Ardmona's request for money was declined by the Commonwealth, and accepted by the Victorian government.  Toyota left before the Abbott government could formally decline further subsidies.  Cadbury got a dozen or so million as part of an election promise.  Australian farmers are about to get a big wad of cash packaged up as drought relief.

All in all, that's not a bad success rate for the rent-seekers.  If you were a struggling business, why wouldn't you chance your arm?  Why not ask for a bailout?

Firms fail all the time.  It's hard to measure, but we could guess from page 40 of this paper that, say, one in 20 businesses fail every year.

The unknown question is how the political system will respond.  If the dollar or interest rates are unpredictable, then the Australian parliament is doubly so.

It is tempting to use taxpayers' money to ''save'' jobs.  The benefits of doing so are highly visible, and the costs are diffused across the population.  There's always a clamour to intervene.  Many people view government as a deus ex machina — an opaque and limitlessly powerful entity that can fix problems with the strong of a pen ... if only it had the ''will'' to do so.

So the fact these claims on the taxpayers' dollar seem to have all come at once has made an interesting test of the Abbott government.  Especially after its shaky first few months.

But governments are temporary things.  More important is the longer-term dynamic:  That of the parliament unsure how to relate to the private sector in an era when their biggest interventionist tools have been decommissioned.

For most of the 20th century, Australian industry was protected by large and complex tariffs.  The theory was that protecting manufacturers against cheap imports would grow the economy and encourage exports.  Exports being better than imports.  Building cars better than riding the sheep's back.

(Tariffs and subsidies are two sides of the same coin.  Tariffs transfer wealth from consumers to producers.  Subsidies transfer wealth from taxpayers to producers.  The Productivity Commission collapses both into the phrase ''effective assistance''.  The PC is too ... PC ... to call it all ''corporate welfare''.)

Old-school protectionism has no serious supporters today.  For all the hand-wringing about neoliberalism, the intellectual case for protectionism fell when the tariffs did.

Yet the political calculus that supported Australia's corporatist industry policy remains.

Voters liked protectionism because the gains (keeping out foreign competition) were obvious, and the costs (lower standards of living, more expensive consumer goods, a slower economy) were harder to see.

Furthermore, corporatism was a vehicle through which politicians could share their vision of the future.  Our political class has always declared it wants to shift the economy from primary industry to manufacturing.  Both Kevin Rudd and Tony Abbott said they want Australia to ''make things''.

In other words, they're in denial of the fact that a government overseeing an open economy is not able to decide what that economy looks like.

And that denial leads to haphazard, confused and unpredictable policy.

Take the distinctions the Abbott government is trying to draw between the corporate welfare it is willing to pay and that which it is not.  It insists that Cadbury (welfare application successful) is different from SPC (welfare application denied).

In an important way, Tony Abbott is right.  Cadbury is different from SPC.  Cadbury is being paid to build ''tourism infrastructure''.  Tourism is a bottomless pit of government spending:  A unique policy area where no spending can be too much and where no evidence needs to be produced that the spending is effective.

In this way Australian governments have camouflaged traditional industry assistance to fit the economic philosophy of the times.

After all, it wasn't an accident Kevin Rudd recast car subsidies as ''green'' car subsidies.  He wanted to pretend Labor's customary support of automotive unions was instead part of its climate change plan.

Likewise, the government's drought assistance package is old industry policy in a new guise.  20th century Australian governments aggressively regulated and protected the agricultural sector.  They controlled production volumes, stabilised prices, and imposed marketing boards.

Most of those direct interventions have been eliminated.  Now agricultural subsidies come at arms-length, disguised in the form of periodic drought packages, and wrapped in rhetoric about national disasters.

Yes, we have learned a lot since Adam Smith's day.  But economic knowledge and political incentives are very different.  The government simply cannot resist the political demand for corporate welfare.

Friday, February 14, 2014

No minister would be the best plan

Given that successive Coalition and Labor industry ministers have spent the past 30 years doing basically just one thing, deciding how much money to give to car companies, Toyota's demise means there's now no need for an industry minister.

Since the federal election, Labor's spokesman on industry, Kim Carr, has spent more than half his time talking about the car industry, at least as measured by the number of press releases he's issued.  Given that car workers comprise just 3 per cent of the number of people employed in manufacturing in Australia, that's an awful lot of attention bestowed upon them by Carr.

The federal Industry Minister, Ian Macfarlane, has spent only slightly less time talking about cars than his opposition counterpart.

Ministers for industry should instead have been called ministers for the car industry.  Or to be even more accurate, they should have been called ministers for the unionised employees of the car industry.

The problem with having an ''industry minister'' is that like all ministers, industry ministers want to do things — and the easiest thing for them to do is give out money.  In an ideal world, there wouldn't be an industry minister.

All firms and all sectors of the economy should be treated equally.  Car manufacturing is worth about $5.5 billion to the Australian economy.  Hairdressing and beauty services are worth about $4 billion, but hairdressers and beauticians do not get their own minister.

The industry minister could be replaced in cabinet by something Australia has never had before — a ''minister for consumers and taxpayers''.

This minister could go into the media and explain that an end to automotive subsidies and the abolition of tariffs would reduce the cost of a new car by up to $2000.  They would point out that last year more than a million new cars were bought in Australia.

They would also say that scrapping the customs duty on imported second-hand cars would reduce their cost by $12,000.


GOVERNMENT PLAN ''OXYMORON'

This minister could do other things as well.  They could talk about how families prefer their food to be cheaper and that when government regulators stop competition between retailers, food prices go up.  This minister could likewise talk about how families like discount vouchers for their petrol.

Another reason not to have an industry minister is that then the government wouldn't be expected to have an ''industry plan''.  (Of course an industry plan from the government is a oxymoron anyway.)

After Toyota announced it was closing, the opposition demanded a ''jobs plan'' from the government.

In the letters page of this newspaper on Wednesday, a law academic from the University of New South Wales called for a plan B to ensure the country's manufacturing capacity after the car makers leave.  And they've been demands for things like a ''research plan'' to deal with the potential loss of $700 million the car industry spends annually on research and development.

Thirty years ago this year John Button as industry minister started work on this ''Button Plan'' to help the car industry cope with a reduction in tariff protection.  The plan worked for a little while, but it came at a huge cost to consumers and taxpayers.  And, as we've seen this week, Button's plan failed, as all government plans do.

It should be obvious the country does not need a research plan to make up for the automotive industry R&D that could be lost.  Spending money on research and development for locally built cars is like spending money to make a better typewriter.  It's an interesting exercise, but commercially futile.

There is not much of a market for typewriters — or locally built cars.

After all the experience the world has had since 1917 of governments' economic plans, it might be thought that some lessons have been learned.  Apparently not.

Economic plans are as popular now as they've ever been, and they're just as unsuccessful as they've ever been — as the workers at Ford, Holden and now Toyota have discovered.

No number of industry ministers could have saved car making in Australia.

Wednesday, February 12, 2014

Divining the meaning of elections is a mug's game

What does the Griffith by-election mean?  What is its deeper, broader significance for the trajectory of the Abbott Government, and, through it, Australian politics?

In Fairfax papers, Peter Hartcher said Labor's win suggests ''the people are reserving their judgment on Tony Abbott's government''.  The victor, Terri Butler, thinks, ''We've said to Tony Abbott:  hands off Medicare''.  Tony Abbott believes it's ''a poor result for Bill Shorten''.  A Labor pollster reckons, ''The by-election showed Labor too has some way to go to build trust with many in the electorate.''

Of course none of them have any idea what the Griffith result means.  Politics is all about converting ignorance into popularity.

There are two theories about what drives a by-election result.  The first, and most appealing, is the referendum theory.  This says that a by-election reflects the electorate's satisfaction or dissatisfaction with a government.  Polls are necessarily hypothetical — they can only ask people how they might vote.  By-elections are definitive.

The second theory is that a by-election is all about local candidates.  In the off-election season (and assuming the by-election won't topple the government), voters are free to think more about the personality of individual politicians.  Without the national significance, voters are more interested in local issues.

But in an important way, it doesn't matter which theory is most true.  What matters is which theory the political class believes.

Pundits like the referendum theory because it makes by-elections more significant;  more worthy of their scrutiny.  Losers like the local candidate theory because it's all about creating exceptions to national trends — ''that by-election was unique because the candidate had a strong local profile, well-known in their community ...'' etc, etc, etc.

Of course, much of the nonsense of Australian politics is self-interested nonsense.  But the desire to impose narrative on disparate and complex events isn't just driven by the political necessity to spin in their favour.

We have an innate human desire to create order where there is disorder — to create meaning from the muddle of history.

The question at the front of this column — what does the Griffith result mean? — is an example of exactly that.  Commentators who try to answer it aren't just filling word counts and news pages, but are trying to make the world intelligible.

Too bad that meaning-seeking is utterly futile.  At best it lulls us into a false sense of security that we understand more than we do.  At worst it's a confidence trick.

Philip Tetlock influentially argued in his 2005 book Expert Political Judgment that political experts — pundits, pollsters, analysts, consultants — are no better at making predictions than the general public.

Tetlock found that while a little knowledge about a subject can help us improve our predictions about political events, having a great deal of knowledge is actually counterproductive.

When the book was published, most people focused on why it was so hard to get experts to make bets — that is, put money on the line — to back their predictions up.

But what was more important, and more interesting, was why experts are incredibly bad at predictions.  It's that our social system is far too complex to even read, let alone understand well enough to forecast its future.  The most learned expert can grasp only a few small elements of a political order.

When it comes to understanding infinitely complex systems, learning doesn't create authority, it creates overconfidence.

Far from being harmless, our demand for narrative and meaning in politics creates heroes where there are none.

The political class builds up elaborate mythologies about great election campaigns and great election strategists to explain the twists and turns of political fortune.  There are giants of Australian politics who can read the ''mood'' of the electorate, who have a unique vision into what the battlers or working families want.

But these giants are more like soothsayers than scientists.  Statistical chance is just as plausible an explanation for short term political change.

There's a parallel here with financial markets.  Eugene Fama won the economics Nobel last year for his bubble-bursting empirical work on the efficient market hypothesis, which suggests most success in the share market is determined by random chance.

Every fund manager claims to consistently beat the market.  Yet statistically speaking, somebody has to be Warren Buffett, and somebody has to be Gil Gunderson.  It's the same in politics.

Hopefully Terri Butler doesn't actually believe Griffith was a referendum on Medicare.  Hopefully Peter Hartcher doesn't believe the by-election can reveal anything deep about the aggregated opinions of the Australian electorate with any degree of certainty.

Hopefully they realise the game that they are playing:  trying to impart meaning on events no person can possibly understand.

Friday, February 07, 2014

Take control of your business

Rejecting SPC Ardmona's application for $50 million in government ''co-investment'' support, Treasurer Joe Hockey announced ''the age of entitlement is over, the age of personal responsibility has begun''.

SPC Ardmona was seeking the State and Commonwealth governments each to provide half of the $50 million.

Based on SPC's planned investment program, the $50 million was equivalent to a 25 per cent subsidy.

Previous governments have provided lavish funding to prop up firms in the motor industry, and to nurture those said to show promise in green and hi-tech areas.

This included the Bracks government's wasted millions for a windmill blade factory.

The Gillard government allocated spending in the current year of $111 million to underpin the car industry and $222 million for fruitless green energy businesses.

Earlier the Commonwealth spent $380 million on stillborn ventures in information and communications technology.

In the case of motor cars, even Labor could not find enough money to keep Ford going, while the Abbott Government has knocked back applications for hand-outs from GM and has signalled a similar response to Toyota should the firm seek support.

The kneejerk response when a business is in difficulty is why not preserve the jobs that are being threatened, especially when the firm itself has good prospects and links to many other businesses?

The brutal answer is that every dollar of government support or every regulatory favour for one firm comes at the expense either of other firms or out of the pockets of consumers.

And where the firm benefiting from subsidies is in the tradeable goods business, keeping it afloat means hurting other firms participating in international trade.  That's because supporting a failing firm raises the value of the dollar and makes exports more difficult and imports cheaper.

Nor is it possible, as in the case of SPC, to claim that support is necessary because the firm is being hit by unfairly priced cheap imports.  Such a claim is no more legitimate than claims by Japanese coal producers that they are suffering from cheap Australian exports or by European cattle growers that they are being harmed by cheap Australian beef.  Upholding claims like these would mean the end of world trade.

Clearly governments cannot involve themselves in ''co-investment'' in all businesses.

The 25 per cent subsidy sought by SPC, applied to firms across the economy would cost some $60 billion a year, bringing a budget deficit far worse than in troubled economies like Greece!

And if the support were to be selective, rather than across-the-board, how would favoured activities be chosen?  This is an issue of special concern given Australian governments' lamentable records in picking business winners.

Taxpayer support to Ford and GM went to businesses with overgenerous wage costs and working conditions.  But the support was even more detrimental.

In supporting firms where management has acceded to excessive wage rates, featherbedded employment conditions and micro management by union controllers, governments harm overall productivity within the economy.

Failing firms need to review their operations not call for taxpayer assistance.

Where their distress stems from pandering to union monopolies and incurring excessive production costs, management's solution is clear — take control of your own business!

Tuesday, February 04, 2014

PM's ABC critique masks deeper security debate

Sometimes the backdrop is more interesting than the performance.

It was significant that, when Prime Minister Tony Abbott launched his critique of the ABC last Wednesday, he singled out the ABC's apparent promotion of the National Security Agency leaker Edward Snowden, who he described as ''a traitor ... who has betrayed his country''.

Because it's easier to argue about the ethics of whistleblowing or the role of public broadcasting than come to terms with the radical changes in the politics and governance of national security over the past decade.

As James Paterson wrote in Fairfax papers last week, the case for ABC privatisation isn't altered one bit by whether the network is pro-Australia or not.

(The hysterical fears about Malcolm Turnbull's efficiency review are also a bit much.  The ABC is a $1.2 billion piece of public policy.  Public policy ought to be constantly reviewed — especially public policy that big.)

No, what we are seeing is the antipodean wing of a bigger debate about the place of national security in an open society.

The Indonesian spying revelations and the National Security Agency surveillance scandal are elements of this larger issue.

And with the military secrecy focus of Operation Sovereign Borders, the Abbott government has managed to drag asylum seeker policy into the national security net.

National security has always been an insiders' game — a privilege of political power.  Politicians who win government are suddenly taken into the tent.  They're granted the right to hear secrets kept from the people who elected them.

This is both an honour and a terrible responsibility:  Those politicians inevitably get the blame if anything goes wrong.

Their responsibility makes them risk-averse and more sensitive to the desires of intelligence bureaucracies than other bureaucracies.  It's easier to say no to the deputy secretary of the Education Department than the director general of ASIO.  It's easier to bring innovative ideas from outside government to education than to the black box of national security and intelligence.

This has always been the case.  What's changed is the size of that black box.

It's hard to overestimate the significance of the September 11 terrorist attacks for the development of the modern national security state.

With a decade's hindsight, it has been as big a deal as the introduction of standing armies in the 19th century — a permanent, impossibly ambitious mass intelligence operation on a constant war footing.

Hence the United States' historically unprecedented surveillance program, where a secretive bureaucracy hoovers up the world's internet and phone records under the theory that almost anyone, anywhere is potentially a terror suspect.

The program is either unconstitutional or questionably constitutional.  Either way, it certainly exceeds its legislative mandate.

At the end of last month a bipartisan government commission found the National Security Agency was misusing powers in its collection of phone records.

It's pretty damning.  Congress only permitted the collection of material related to ongoing investigations, and, even then, the agency given this power was the FBI, not the NSA.  Nor could the commission identify any terrorist attack that had been directly thwarted by the use of this program.

This is all before we get to the grave civil liberties consequences of the mass data collection.

Of course, much of what we know about it comes from the Edward Snowden leaks.  It doesn't matter whether you think Snowden is a traitor or hero or something in-between.  It is undeniably true that had those leaks not occurred, we would be none the wiser about the Obama administration's probably illegal, unquestionably disturbing, and obviously dangerous security program.

It's an interesting hypothetical as to whether, even had September 11 never occurred, governments would have sought and acquired such powers anyway.

But that's the key:  The NSA surveillance is only possible thanks to technological developments that enable such huge amounts of information to be collected, stored and processed.

And, conversely, it is those technological developments that have made it possible for the new era of whistleblowers and leakers to have the impact they have had.

Daniel Ellsberg had to photocopy the Pentagon Papers by hand on a very new and unfamiliar Xerox machine.  It took him and a colleague all night.  By contrast, Bradley Manning easily transferred a quarter of a million documents onto a blank CD while pretending to lip-sync a Lady Gaga song.  Uploading them to WikiLeaks would have been even quicker.

As explosive as they were, the Pentagon Papers were only an internal history of the Vietnam War up to 1967 — not the raw material of diplomacy and intelligence we're seeing today.

There's another important development that has been somewhat obscured by the political contest surrounding our new era of leaks.

What we're seeing is not the surreptitious transfer of secrets from one country's intelligence agency to another country's intelligence agency — as has been the historical norm — but the very open transfer of secrets from intelligence agencies to the public sphere.

All the political sound and fury has been over the release of information to voters.  In other words, the opening of the national security black box to democratic scrutiny and debate.

The Indonesian spying scandal was a particularly stark demonstration of that dynamic.  Indonesia knows we spy on them, as we know they have spied on us.  The political problem is that the Indonesian public now know too.

These leaks will keep happening.  Maybe not from Snowden or Manning, but the next person.  Embarrassing disclosures about the secret inner workings of the national security state is the new normal.  It's not necessarily a good or a bad thing — it just is.

And democratic governments are just going to have to learn to deal with it.

The ABC doesn't pass the Adam Smith test

The government is picking a fight with the media, actually its own wholly owned corporation, the ABC.  It would be easy to simply dismiss this as being simply a case of ''Another government;  another stoush with the media''.  But there is more to this fight — the ABC is not just another media outlet, it forms part and parcel of the government.  This stoush raises questions as to the role of government generally.

The latest flashpoint is a story about naval personnel allegedly torturing boat people on the high seas.  The Prime Minister took the view that the ABC was instinctively taking sides against Australia.  In short the ABC was being unpatriotic.  Subsequently an efficiency study of the ABC has been announced.  This could easily be interpreted as being some sort of ''punishment''.

The problem is that it isn't clear that having the ABC being ''patriotic'' is a good idea.  I'm happy to accept that government would like a patriotic media — and a pro-government media while we're at it.  I would expect, however, that the Australia Network — the media organisation that broadcasts to the region — should broadcast pro-Australian propaganda (if it broadcasts at all).

I'm even happy to accept that taxpayer funds should be carefully and wisely expended and that ''efficiency studies'' should be the norm and not a ''punishment''.

To my mind the question is why we have an ABC at all?  The argument we see a lot these days is that the industry is in trouble, business models are failing, and the government needs to step in.  People making that argument could attempt an appeal to Adam Smith — although they never do.  He had argued that government should undertake those activities that are ''advantageous to a great society'' while not actually being profitable.

While we know the ABC is not profitable — by choice — it isn't clear that having a public broadcaster is advantageous to a great society.  This may strike many readers as being somewhat counter-intuitive.  After all public broadcasters exist to entertain, educate, and inform.  Economists refer to this line of logic as the ''public interest'' argument.

There is a ''public choice'' argument too;  public broadcasters facilitate the diversion of public resources to political elites and narrow interest groups or distort and manipulate information to benefit and entrench those elites.

In a paper published in the prestigious Journal of Law and Economics a group of Harvard University and World Bank economists untangled those two arguments using an extensive database of 97 countries, including Australia.  They found that the data tends to support the notion that public broadcasting is an elitist activity that benefits political elites.

Surely not in Australia?  We keep hearing that the ABC is a one of our most trusted institutions.  Well, yes.  But what does that actually mean?  ABC audiences are small.  On 2013 television figures over 75 per cent of audiences were watching something other than the ABC.  Not too much entertaining there.  Most damning, however, is that the ABC did not make it into the top 5 news and current affairs shows.  So much for educate or inform.

A bigger issue is that it isn't clear that the ABC occupies any market niche that the private sector doesn't or couldn't occupy.  Even emergency radio broadcasts can be subcontracted out.

Of course there is no reason why the ABC couldn't be profitable if it were run on a commercial basis.  Several media organisation are profitable and don't have anything near the lavish taxpayer support that the ABC enjoys.

In short, the ABC doesn't meet Adam Smith's criteria for government support.

It is true that some business models within parts of the (print) media industry are under threat.  Here, however, it isn't clear that having a government owned media organisation is an innovative solution to that problem.  Generally we accept that industries evolve over time and, from time to time, entire industries may cease to exist as we know them.  It may well be the case that the media, in order to survive, will have to move to a patronage model.

Patronage is well-known as a model in Australia — The Conversation has a consortium of universities as patrons, Crikey has Eric Beecher, the local version of the Guardian has Graeme Wood, The Monthly has Morrie Schwartz.  Fairfax could have Gina Rinehart if it wanted.

Need I point out that the ABC itself has the federal government as its patron?  Although, as I have argued above it isn't clear this is in Australia's best interests.

The thing is this;  if it is honest the efficiency audit will find a large sprawling organisation with a small audience and no apparent reason for its existence other than political inertia.

Bob Dylan's Super Bowl ads create heartbreak — again

On Sunday, legendary singer Bob Dylan was the face and voice of the 2014 America Super Bowl commercials, lending his voice to Chobani and the Chrysler 200 advertisers.

So Bob Dylan now writes songs to sell yogurt and cars to people who watch football.  This is utterly unacceptable to many boomers, it seems.  He has sold out his legacy, his reputation, his precious brand, they say.  How dare he?

First of all, it's his brand, not ''ours'' — and one that has been built, to a degree, on confounding expectations — so he can do with it what he will.

But what is a reputation and brand such as Dylan's worth?  Many millions and more, but this is true of most highly successful professionals and businesses.  The brand of a company such as Disney or Coca Cola is worth billions.

Brands are valuable because they are reputational capital that matters to consumers in various ways, whether assuring quality or some caché.  Brands are hard to build, and easy to lose.  They are in essence a costly information signal that carries value in proportion to what it signals, which in his case means not selling out.

Theoretically, he won't be able to do this again and again — or maybe he will.  People tend to forget that in 2007 he appeared in an ad for the Cadillac Escalade, a vehicle made by Chrysler's rival GM:

In 1965 he made a promise to a reporter that if he ever sold out, he'd do it with ''ladies' garments'', and followed through for Victoria's Secrets in 2004.  Clips of Dylan playing Forever Young backed a Pepsi commercial with Will.I.Am in the 2009 Super Bowl.

At 72, Dylan's getting old, and so is his core audience.  His brand is a capital asset that is an input into generating income streams from, for example, touring, music sales, or appearances.  But he does not earn money directly from his brand, only from what it can do (it is a capital asset in that sense, like a building that he might rent out).

Now at some point, as with a building, the owner will decide it's worth more to someone else than the value he can generate from it.  At that point, it's worth selling.  I don't know what Dylan was paid for the recent ads, but I would hope a lot.

This looks to me simply like a rational choice, from the perspective of Mr Dylan.  It's his house, and if he chooses to sell it he can.

But the real issue here is the public disappointment that seems to be erupting through the social media.  People are upset because they feel betrayed.  Words such as ''ironic'', ''crazy'' and cries of ''sellout'' are being used to describe his performance.

Of course, Dylan's no stranger to backlash.  His famous 1966 performance at Manchester Free Trade Hall was hailed with with the cry of ''Judas'', with fans insulted the acoustic folk artist had ''gone electric''.

Fans — it would seem — bought the music, listened to it, wore the T-shirts, went to the concerts, worshipped at that seemingly everlasting temple, and now it's being pulled down.

That loss is real in the devaluation of a seemingly incorruptible asset they thought they had, and because of the investment in personal identity that fans subsequently made.  But here's the thing:  that asset was Dylan's all along.

You never owned that house;  you were just renting it.

Friday, January 31, 2014

End the cotton wool culture for kids

A lot of nonsense has been written lately about young people, alcohol and violence.  But there's one particular bit of nonsense that stands out.  It's this statement from Michael Daube in The Sydney Morning Herald last week:  ''Today's youth have vastly more freedom than before, and are much more affluent''.  Daube is a professor of health policy at Curtin University and one of the country's leading public health experts.  Daube was arguing for more restrictions on the sale of alcohol and tighter regulation of licensed premises in NSW.  He didn't point out in his article that in NSW the rate of violent incidents on licensed premises and alcohol-related assaults have both been falling.  Nor did he point out that per capita alcohol consumption in Australia has been going down.  Yet this didn't stop him calling for even more government controls on how people spend their money and their leisure time.

It's true that today's youth are more affluent than in the past, but if Daube thinks youths have more freedom then he hasn't been to a school, or a children's sports event, or a playground lately.

Belgian Gardens State School in Townsville banned children doing cartwheels and handstands in the playground — even if they did them on the grass.  According to the principal, ''gymnastic activities'' were classed as a ''medium risk level 2'' in the Queensland Activity Risk Management Guidelines.

Mount Martha Primary School in Victoria banned children from touching each other after some students suffered playground injuries.  The school said a ban on students playing tiggy and doing high fives was ''not an overreaction''.  A student at the school who put his arm around a friend who was winded was punished by being forced to walk around the school grounds with the teacher on yard duty.


BANNING TRADING CARDS

It's not just physical danger that children are being protected from.

Last year Southmoor Primary School in Melbourne banned students from trading football cards.  The principal said that ban would ''protect our little ones'' and would ''spare younger students the distress of bad trades''.  Apparently younger students were getting upset because sometimes older students made ''unfair'' trades with them.

Somehow, someone somewhere once decided that younger children playing sport should not be allowed to know the score.  It's now a widespread practice.  Last year I was coaching my son's cricket team in a neighbourhood tournament conducted by the local cricket association.  In response to a request from one of the children to be told what the score was, I made the mistake of telling him how many runs had been scored and how many wickets had fallen.  Unfortunately this exchange was overheard by one of the event organisers who said the child should have been told the score was unimportant and the only thing that counted was having fun.

To no avail did I try to explain that the child's idea of fun was in fact to know whether his team was winning or losing.  A further attempt to explain that every single boy and girl playing the game was keeping score in their head anyway was similarly unsuccessful.

These are not isolated examples.  Some are extreme, but they're all representative of how society and the government now treat children, regardless of whether they're in primary school or are teenagers.  Supposedly for their own good, children are wrapped up in metaphorical cotton wool and are protected from the risk of physical harm or psychological distress.  The inevitable result is that children lose the capacity to experience a sense of adventure or responsibility or self-control.  Social media and binge drinking are some of the few opportunities for self-expression young people have left.

Today's youth are less free than previous generations.  It's ironic that ''resilience'' is the new buzzword in education given that schools and society are determined to take away from young people the very freedoms that will allow them to learn resilience.  If the behaviour of young people is as big a problem as Michael Daube claims, then the way to improve their behaviour is to give young people more freedom, not less.

Thursday, January 30, 2014

Ignore the hysteria:  it's time we privatised the tone-deaf, left-leaning ABC

No media organisation is above criticism — even from a prime minister.  That's especially the case when the media organisation in question is funded by taxpayers.

The reaction to Prime Minister Tony Abbott's criticism of the ABC has bordered on the hysterical.

Former ABC managing director David Hill told Fairfax Media Abbott's criticism was ''dangerous''.  The Age's political editor Michael Gordon labelled it ''astonishing''.  The Guardian's Katharine Murphy warned darkly that things might ''escalate''.

The ABC is not such a faultless organisation that it should be above criticism.  As a media outlet totally funded by taxpayers, it deserves much greater scrutiny, and has special obligations to be rigorously fair, balanced and impartial.  As an organisation, it has shown itself to be tone deaf when it comes to the legitimate concerns of many Australians, that it leans to the left and is not a welcome home for conservatives or classical liberals — particularly among its salaried employees.

In many ways the ABC has made a rod for its own back.  Its defenders are right to argue that it should not be an uncritical cheerleader for Australia, and that it should place the pursuit of truth above nationalism.  The ABC was perfectly entitled to report on revelations from Edward Snowden on the growing apparatus of state surveillance in much of the Western world.  It was a legitimate news story unquestionably in the public interest, and ignoring it would have done Australians a disservice.

But at the same time as it claims to be a news organisation dedicated to the pursuit of truth at home, it also assures Australians that it is best placed to sell our wares abroad.  In bidding — aggressively — for the Australia Network tender, the ABC opted to become a tool of diplomacy on behalf of the federal government.  The ABC is set to receive $223 million over 10 years to promote Australia's interests in our region.

That's not an appropriate role for any media organisation — public or private.  It hopelessly conflicts its news gathering operation and opens the ABC up to criticism that it undermines Australia's interests through its reporting.  That's why it is in the ABC's best interests that the federal government is now considering axing the Australia Network service altogether.  The Abbott government should go a step further, and privatise the ABC — but not because it is unhappy with their journalism.

Ultimately the case for reforming the ABC does not rest on one week of reporting.  If there was ever a case for a taxpayer-funded state broadcaster, it doesn't exist today.  Australians have at their fingertips access to more news from more varied sources than ever before.  Online, every niche interest and point of view is well covered.  And as private media companies continue to struggle with profitability, the continued lavish funding of the ABC only serves to undermine their business model further.

Tuesday, January 28, 2014

The Olympics:  a tool for autocrats since 1936

Another Olympics, another repressive state using the Olympics to boost its international reputation and gain legitimacy at home.

This time it's Russia and the Sochi Winter Olympic Games.

When will it sink in that repression is not a regrettable anomaly in some host nations, but a central feature of the Olympic package?  That the Olympic movement feeds, legitimises, and even encourages political authoritarianism?

Here's the rap sheet for Sochi.  The 2012 presidential election, which put Vladimir Putin back in the Russian presidency, was surrounded by allegations of fraud.  His government met the resulting mass protest movements with a suite of legislation designed to suppress dissent, free speech, and free assembly.

The prosecution of members of the band Pussy Riot was just the most highly publicised attack on political and religious dissent in the last few years.

Amnesty International estimates that 4,000 people across Russia were detained for protesting in 2012 alone.  International non-government organisations engaging, however vaguely, in ''political activity'' are required to register as ''foreign agents'' and are subject to routine harassment.  Foreign journalists are intimidated and sometimes banned.

Then, of course, there's Russia's ''gay propaganda'' law, which makes it illegal to suggest that gay relationships and heterosexual relationships are in any way equal.

All this is on top of the usual forced evictions, construction and development corruption, and extra-legal environmental damage that is par for the course for any Olympics held outside the very richest countries.  Putin promised a ''zero waste'' Olympics as part of its bid back in 2007;  apparently the Olympics committee is unable to detect outrageous nonsense when they hear it.

Indeed, it was clear during 2007 that Putin's Russia was an illiberal Russia.  This chronology by FreedomHouse shows how political repression has increased since Putin's first election to the presidency in 2000.

But by now there is a well-established Olympic media cycle.  Negative stories are aired before the games commence.  The opening ceremony is 10 days away.  The next week and a half will, no doubt, be full of exposures of Putin's political perfidy, about the environmental and economic cost of the Sochi Olympics, warnings that Sochi's infrastructure isn't up to speed, fears about terrorism, and revelations of waste and mismanagement.

But those tales subside the moment the opening ceremony wraps up.  Unless there is a major political, logistical, or security crisis, the international coverage of the Sochi games will immediately focus on the sport.

Athletic performances will wash away the political stench.  Putin and his government will be the beneficiaries.  They will be photographed with sports stars and visiting celebrities.  They will feed off the praise of organisers and fans and athletes, for whom there is no world outside the Olympic villages and stadiums.

All the pre-Games bad press will be chalked up to anti-Russian sentiment.

That's the Olympic calculus — repressive regimes have to tolerate a few months of quiet and steady negativity, which is more than adequately compensated by a fortnight of blisteringly positive press.

Western complaints about Russia's anti-gay law will not take the shine off Putin's Olympics.

Defenders of the Olympics make much of the one historical instance where the games bought genuine, welcome political change:  Seoul, in 1988.  South Korea's democratisation dates roughly from that time.

But this is not much of a defence.  The country was at the time of its bid in 1980 controlled by a repressive military dictatorship, who wanted the Olympics to legitimise its rule.

As this 2004 paper makes clear, at best, the Olympics can be seen as a catalyst, rather than a cause, of South Korea's democratisation.  There were many factors pressuring the country towards change.

And anyway, the International Olympic Committee had no problem being used for authoritarian propaganda.  From the Olympic movement's perspective, it was just a happy accident that South Korean democracy emerged from South Korean dictatorship.

There's simply no reason to believe the Olympic movement cares about political freedom, and many reasons to believe it is happy to be a tool of the world's worst regimes.

The 2007 assessment of the Sochi bid (here, page 9) is a masterpiece of amoral detachment.  In its assessment of Russian politics, the only factor it feels worth relating is the overwhelming political support for holding the games, as if democratic debate about the virtues of the Olympics would be would be a negative.

It's true that the repression in Russia is now less than the last time Russia hosted the games in Moscow in 1980.  Or than that of Berlin in 1936, or even Beijing in 2008.

But it's no coincidence that the three most brutal totalitarian dictatorships of the twentieth century have each been granted an opportunity to host the Olympics.

Or that many other undemocratic nations have used the games to build legitimacy at home and aboard.

The Olympics movement simply doesn't care that it — and all the athletes who compete in their events — is being used as pawns in an authoritarian political game.

Sunday, January 26, 2014

Eye on the prize

Prizes are a common feature on the cultural economy landscape.  In Australia there is the famous Archibald Prize for portraiture, there are numerous prizes for literature and poetry, the AFI Awards in film and television, the Walkley Awards for journalism, and so on.

Prizes can be entertaining spectacle;  they can guide consumers to what is new and best;  they make a fine vehicle for a generous benefactor;  and they surely nudge cultural producers, whether they will admit it or not, closer to excellence.  Yet a case can be made that, due to the interaction of three emergent effects, we'd actually be better off without them.

First, prizes function for consumers as what sociologists call ''judgement devices''.  An overarching feature of the cultural economy is the continuous production of novel products that are of uncertain quality:  they are pure experience goods.  In most markets, such as for furnishings, shoes or cars, the price of a product is a reliable guide to quality.  But an awful movie has much the same ticket price as something brilliant.  A few years ago some colleagues and I looked at the role of the choices of other consumers as a judgement device in what we called social network markets.  Prizes also fulfil this role, but through the mechanism of an expert panel rather than wisdom-of-crowd effects.

Second, prizes introduce a discontinuity between winners and other nominees (also-rans) that distorts perceptions of underlying differences in quality:  consecrating a select few, and throwing the near winners back into the vast pools of mediocrity.

Third, because prizes are awarded by juries of experts — usually with different tastes and preferences than mass audiences (preferring stories about righteous courage in overcoming historical injustice, say, than street-racing robot fighting aliens) — prizes are costly to go after in terms of market risk.  If you try and fail, you end up with not only no prize, but also with something without much market appeal.

When we think about the effect of prizes, we usually have in mind a single-valued reward structure — that is, simply rewarding excellence that has already happened.  But as Gabriel Rossman and Oliver Schilke in a paper just published in the American Sociology Review (an ungated version of the paper is available here) explain the problem is that prizes are actually bimodal in their reward structure because of what economists (following the work of Gordon Tullock) call an all-pay auction.

In an earlier piece I was bullish on prizes, but the issue is complex.  The thing about prizes is that we need to consider not only the benefits to those who win, but also the costs to the losers.  Everyone pays to enter, in sacrificing market appeal, but only a few take the prize, and receive the consumer pay-off;  for the rest, they're now in a worse position than if they had never sought the prize.

Fittingly for this time of year Rossman and Schilke's research focuses on Oscar nominated Hollywood films.  Their method is to identify films that are seeking prizes by constructing and estimating an index they call ''Oscar appeal'' (which correlates well with actual Oscar nominations).  They then study the correlation between that index and a film's financial returns (box office revenues divided by production cost).

They find that Oscar appeal splits into two categories:  those that do receive nominations (and that tend to make money) and those that don't receive nominations (and that tend to lose money).  But the interesting thing is that ''taken together these two types of movies are no more or less profitable than movies with low Oscar appeal''.  In econ-speak, this means that ''the Oscars follow the structure of a Tullock lottery and seem to exhibit rent dissipation.''

Economists tend to be sceptical of the value of artificially created rents by government, such as exclusive licensing, or preferential purchasing provisions, because of rent-dissipation in all-pay bidding to obtain these benefits.  But what is significant about this research is that it extends this economic critique to the domain of prizes, which are a prominent mechanism in the cultural economy (and also in the academic research economy:  a research grant is also a prize!).

Should we abandon prizes?  The counter-factual world without prizes would mean fewer prize worthy films, which means less breadth in the field, but this only occurs if prize-seeking is actually costly in terms of market risk.  The take-away is simply that nothing is for free, including prizes;  or more specifically at the industry level that prize seeking strategies do not produce above-market returns.