Tuesday, February 04, 2014

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.

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