All is Positive on the Population Front

Population has been synonymous with crisis for so long, it is little wonder that Australians are concerned about the level and pattern of immigration.

Well, thanks to a host of recent research, we can be a bit more relaxed about population trends.

First, the population bomb has turned into a dud.  As the Danish academic Bjørn Lomborg outlined in his important new book, population growth rates are decreasing around the world in tandem with income growth.  Populations in most developed countries have either stabilised or are in decline.  Population growth rates are also down sharply in most developing countries -- particularly in the large countries of Asia and Latin America.  As a result, world population is now expected to peak at 8.9 billion in 2050 -- or about 30 per cent higher than today -- and then decline.

Second, while many countries are facing large reductions in their populations over the next few decades, Australia's population is expected to continue to grow.  Japan, for example, is forecast to experience a 20 per cent reduction in numbers over the next 30 years.  Italy, Germany, Spain and many other developed countries also face significant reductions in their populations.  In contrast, Australia's population is continuing to grow at a modest rate (1.2 per cent last year) and is forecast to continue on a modest growth path over the next few decades.

Third, while many countries, including some underdeveloped countries, most notably China, face major problems resulting from an aging population, Australia does not.  While the Australian population is aging, this trend is not nearly as significant as it is in other counties.  Australia has a relatively young population, indeed the third-youngest in the developed world.  It also has a relatively large immigration program which further lowers the average age.  While the dependency ratio -- the ratio of people of non-working age to people of working age -- will increase over the next five decades, it is not forecast to exceed the levels experienced during the 1970s.

Fourth, while people are still on the move internally, the flows have moderated significantly in recent years.  The flight to the capital cities has stopped.  Indeed, the net movement of populations is away from capital cities to coastal towns and regional cities.  After experiencing large net outflows of people in the early 1990s, Victoria is now a net destination for people from other States.  Many small rural towns in Victoria are, however, continuing to loose people albeit mainly to the regional centres.  Tasmania is also experiencing a declining population.

Fifth, Australia is also benefiting greatly from the international flow of skilled labour.  Over the five years to 1999-2000, Australia experienced a net gain of 96,526 skilled professionals -- 94,130 Australian professionals departed from our shores and 190,656 professionals came to work in Australia.  Indeed, with the exception of natural and physical science professionals, Australia experienced a net gain in every professional category in each of the five years.  Moreover, departing professionals characteristically return within a couple of years, while most arriving professionals tend to stay.

In summary, the evidence is that Australia faces no population crisis -- thanks largely to solid economic growth and a skills-based immigration policy.

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The Quiet Destroyer

Globalisation is steadily turning our IR system into a quiet job-destruction machine.

Ours is an adversarial system based on periodic, no holds-barred fights between management and unions.  In truth it was never the best system, but in this age where multinational firms predominate, where capital is mobile and where reputation is king, it is seriously malfunctioning.

The problem is that the bosses are increasing unable play the game.

In the past firms, even the multinationals, were willing to incur the cost of the system because they had few options.  Mining firms had huge sunk investments and scarce ore bodies at protect.  The major manufactures had high tariffs to cocoon them from international competition plus the promise of governments to help absorb the costs of the system.  Services and many manufacturing industries were more nationally focused and had no where else to go.

Things have now changed.  The mining industry has to a great extent moved its workforce out of the adversarial system into individual agreements.  The manufacturing sector has lost its protection through a combination of tariff cuts, and national competition policy.  Moreover, most manufacturing businesses are now global both in terms of operations and markets.  As such, the local manufacturing operations now by force and by choice must be internationally competitive to remain in business.

Two other factors have also changed:  brands have become more important and physical capital has become more footloose.

Brands are increasingly a crucial part of company's performance and value.  Indeed for some companies the brand now represents up to 25 per cent of capital value.  Moreover brands are increasingly global in reach.  Not surprisingly unions, in Australia and overseas, have increasingly targeted brands in their tussle with companies.

Manufacturing operations are also become more mobile in terms of actual transfer of plant and equipment and the manufacturer of goods in industries as food and computers is being increased sourced internationally to specialised contract manufactures.

The result is firms are not willing to take-on the unions in many individual tussles.  They are very reluctant to enter into a fight that may tarnish their brand, and they have options abroad.  Rather than hang in and play the adversarial game with unions, firms a give in and quietly prepare to leave.  After all, brands are not tied to the production process and production can be shifted off-shore without harming the value of the brand.

We now know that this has happened in the case of the Heinz plant in Dandenong.  It started quietly planning it exit ten years ago.  It is currently be under way in respect of the Saizeriya's operation in Melton.  Feltex claims, contrary to my speculation, that it has no plan to move but they warn that if things do not improve, they may be force out.

Some manufacturers are trying to follow the lead of the miners by moving to individual agreements and contractors.  However, these route are often blocked by unions attack.

What this all means is not only that the IR system needs to be changed, but that leadership must come from government -- Labor and Coalition.

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Fox-Lew Bid Could Present Wider Dangers to IR Reform

The Fox-Lew proposals for Ansett would take us forward to the past.  There was a time when each Australian manufacturing industry was granted a tailored tariff.  This was "scientifically" designed to offset the cost advantage of overseas competitors due to excessive wages and other conditions.  Volumes of evidence assembled by the loathed "economic rationalists", demonstrated how this had contributed to half a century of relative decline in our living standards.  Beginning with the Hawke Government, a process of reform led to businesses being exposed to the full blast of competition.  The long decline in relative living standards was reversed.

Fox and Lew are pioneering a new version of the scientific tariff.  Their plan is to re-establish jobs that re-incorporate many of the lavish working conditions a weak former Ansett management was forced to concede to tough union bargainers.  The demise of Ansett I proves the gangrene of excessive employee conditions destroyed the firm's competitiveness.  The demise of Ansett rests squarely upon the shoulders of the "hard won" gains the unions made with regard to the business's working conditions.  Fox and Lew have agreed to preserve most of these but to do so they and the union appointed liquidators require government support.

For Ansett II, rather than stopping competition at the border, this involves the government pitching in some direct funding, guaranteeing the Ansett Phoenix a share of Commonwealth travel and amending the Trade Practices Act to tie up the competitive responses of Qantas.  Astonishingly, according to some reports, Fox-Lew even want monopolies on certain routes!  The guarantee of a share of Commonwealth travel alone would be a licence to unsharpen the Qantas and Ansett pricing pencils and would require centralised buying by Commonwealth agencies.

The alternative offer by Lang Corp seeks no government support, no guarantees, no special trade practices legislation, no re-organisation of the Commonwealth departmental travel.

Rather than negotiating around the straitjacket of the Ansett union-dictated conditions, Lang's Chris Corrigan has the highly flexible Virgin Blue working arrangements.  These provide for job sharing and generally put management in control of the firm.  Delivering costs 25% below those of Qantas (and 35% below Ansett's) they allow a building of a no-frills airline to challenge Qantas on product differentiation as well as price and routing.

Virgin's market inroads were among the forces contributing to the Ansett collapse.  The implications of this were not lost on Qantas CEO Geoff Dixon.  He was among the first to sense a threat to his own business from low cost competition.  Observing the market penetration of no frills airlines like Southwest in the US, he moved quickly to contain costs in a process that involved a highly public wining and dining of the union bosses.

Much of this stimulus to cost-paring will go off the boil in the event of a Fox-Lew success.  Labour market reform will be at the mercy of an entrenched, if somewhat chastened, labour movement.

This suggests the success of the Fox-Lew bid would present wider dangers to industrial relations reform, the major agenda of the new Government.  The recent election campaign found the political aspirants at their most vulnerable to the siren call of subsidies to prop up jobs.  In a tight campaign it is remarkable that Mr Howard remained steadfast in refusing to open the chequebook to special favours that would restore many of the 13,000 Ansett jobs lost.  A Labor victory may have delivered, subsidies to Ansett and provided the springboard for an all-out assault on the modest industrial relations reforms the coalition had managed to push through a hostile Senate.

A rejection of the assistance that the Fox-Lew bid seems to require will, hopefully, bury the days of taxpayer support tailored to offset the excessive costs of inflexible workplace arrangements.

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Desirability of Regulating Political Parties

Agenda 8(4):  291-302, December 2001

Australia's major political parties have generally been held to be private associations of political activists who freely determine their own activities.  As such, they should not be subjected to government regulation.  The scrutiny of their behaviour is a matter for their members and the electorate should only assess the parties' public performance.  However, and more recently, the parties have developed into professional machines with head offices and organisers, and they receive funds from the taxpayer and from sources other than their members.  In these regards, the parties have a degree of freedom from the membership by way of professional advice and non-member sources of funds.  Furthermore, the parties' status has changed to the point where their history -- ideological, a large membership presence in the electorate and self-supporting -- belies their current role.  The present parties are brand names with a nominal membership presence in the electorate, where the market for political activism has shifted to interest groups and where they are heavily supported by the state.  For example, Gary Gray, the former national Secretary of the Australian Labor Party, estimates a third of all funds available to the ALP comes from taxpayers. ⁽¹⁾  The new status of registered political parties is semi-public.  Ideally, then, they should be beholden to the public, both electorally and in a more direct proprietorial way, as well as to their membership.  The issue is to decide the regulatory mix that would preserve free political association and satisfy the taxpayer's investment.

These questions depend on the extent to which the party system relies on public trust.  For example, the British parties are subject to a minor degree of regulation and almost no scrutiny.  This is because the argument that parties "are an essential part of civic society and the state should be kept at a distance" (Seyd 1988:  204), has won the day.  The sentiment was elegantly put in a report (Houghton 1976:  75) on public funding, "we think it mistaken and possibly dangerous to suggest that any work can be required of a political party -- by the State, by Parliament or by anyone other than its members." Further, "Direct state aid would breach the established British constitutional practice that organisation for political ends is a strictly voluntary activity" (Houghton 1976:  78).  It appears that British political life will remain "based strongly on trust" (Oliver 1997:  543).  Is Australian political life, specifically those parts run by the parties, based strongly on trust?  Do the voters trust the competition between the parties as a sufficient form of regulation or do they require as well, scrutiny of the internal operations of the parties?

There is a strong case to suggest that the still predominant feature of Australian electoral politics, loyalty to the major parties, depends on three features:  the electoral system of single-member electorates, compulsory preferential voting and public funding, and that these are all props for the major parties.  Each prop also tends to be a barrier to the successful entry of new parties and Independents.  The desire to regulate Australia's political parties arises from the fact that the three major parties (Labor, Liberal and National) have, since 1941, formed every Commonwealth and state government.  In other words, it is a response to an oligopoly.  Minor parties, such as the Australian Democrats, and Independents are keen on regulation of the majors in the name of enhancing competition.  The difficulty with this view is that the oligopoly may arise from a stable political climate and the electoral system, and not be amenable to a party regulation solution.  Nevertheless, it has not stopped the calls for legislative regulation (JSCEM 2000:  177).  A second source of support for regulation comes from the parties themselves.  They have devised systems of financial support, public funding, and consequently are subject to scrutiny in the administration of those systems.  A third source of support for scrutiny comes from party members seeking to resolve disputes by litigation.  A fourth source comes from the Premier of Queensland, who, as an exercise in winning favour with the electorate, intends to legislate to have the Queensland Electoral Commission scrutinise preselection ballots.

Each of these sources suggests that competition between the parties alone constitutes insufficient scrutiny.  Each implies a different form of regulation.  Some relate to the expenditure of public funds for elections, others to the internal operations of the parties, particularly with respect to the selection of candidates.  For example, Somes (1996:  157) argues, that the requirement for the registration of parties that seek public campaign funds, may change the status of parties from private to public.  The implication is that the behaviour of parties per se should be subject to scrutiny.  On the other hand, Forbes (1996:  11) cautions that registration "govern[s] a single external affair between the Commonwealth and the party as a whole", the implication being that the behaviour of parties at large should not be subject to scrutiny.

The suggestion from the regulators is essentially to impose internal democracy on the parties' as some form of compensation for the perceived shortcomings in the competition between the parties.  The view ignores the long history of self-regulation, which is a major and unseen task of political parties.  For example, they spend a great deal of their time managing the contest between party members for preselection.  A recent comprehensive study of the parties (Johns 2001) suggests the management of their procedures appears orderly and mature, in-as-much-as they each hold regular forums within which rules are discussed, often based on investigations and reports that involve the opinion and sanction of members.  Their machinery for deciding preselection contests and settling disputes is in some cases extraordinarily highly sophisticated, in others rudimentary, but in all cases suggest that the parties are able to manage the processes reasonably well and in the main fairly.

How much regulation is too much?  Finding the appropriate type and degree of regulation and scrutiny of Australia's political parties lies in an analysis of three phenomena:  the nature and extent of government assistance to parties;  changes in the propensity of members of private associations to assert their right to fair internal processes;  and, in the judgement of party leaders as to the sensitivity of the electorate to party behaviour.  In each respect, aspects of the internal behaviour of the parties are becoming more public.  Together, they constitute an increased level of regulation that may not necessarily be warranted by the behaviour of parties.  They may be a response to a wider climate of distrust in the political process (for a comprehensive analysis of this phenomenon see Nye et al 1997), but the parties as the most visible vehicle for political activism will reap their share of the urge by the public, the media and other political activists to know more about them.

TAXPAYER ASSISTANCE AND CONSEQUENT REGULATION

The taxpayer assists political parties in various ways.  These are not always distinguishable from those that assist non-party members of parliament, but as political parties, indeed the major parties, dominate parliament in Australia it is reasonable to regard the assistance as beneficial to the parties.  Indeed, of the 703 members elected to the House of Representatives between 1941 and 1998, only seven were not nominees of a major political party (DPL 1999:  586). ⁽²⁾  Moreover, in the thirty-one Ministries formed during the period no member of parliament who was not a member of the major parties has ever been a part of the government.  It is unlikely these parties, Labor and the Coalition, would devise legislation to assist members where they did not become the principal beneficiaries.

Based on party returns to the Australian Electoral Commission, Horvarth (1999:  56) calculates that Federal election funding between 1994 and 1997 constituted 19 per cent and 15 per cent respectively of ALP and the Liberal Party of Australia declared receipts.  The figures do not include other forms of state assistance.  If those other forms of assistance were included Gary Gray's observation of ALP finances would likely be accurate and valid for the other parties.  The primary form of assistance to parties that are registered with the AEC is public funding for election campaigns.  Registered parties spent $33.5m of public funds at the 1998 Federal election at $1.62 per vote (AEC 1998:  App. 2) and millions more at state and territory elections.  Reflecting their lack of votes, only $276,000 was spent by Independents.  This level of funding is so generous that the AEC concluded, "following the 1996 federal election most of the major parties were able to retire debt.  Or to put it another way, most of the major parties made a profit out of contesting the first federal election following the increase in public funding ... The positive cash flow effects of public funding on party finances continued into the 1998 federal election." (AEC 2000:  18).

Another form of assistance are the benefits, apart from salaries, members of parliament receive in order to pursue their work.  The total outlays in 1999-2000 for the provision and administration of Commonwealth parliamentarians' entitlements were estimated to be at least $354 million." (Auditor-General 2001:  11).  The difficulty with these entitlements is that members have to pursue a number of objectives.  The money they expend on printing and travel for parliamentary and electorate purposes for example are not always easy to separate from party business.  Moreover,

[a] number of reviews of the administration of Parliamentarians' entitlements have identified the need for clear guidance as to the definition of the terms "parliamentary business", "electorate business" and "party business" ... [G]iven the key role the terms play in determining Parliamentarians' eligibility for a number of otherwise largely unlimited entitlements, the transparency and accountability of the entitlements management framework would be improved by the provision of enhanced guidance to Parliamentarians on the activities likely to be considered to represent parliamentary, electorate and party business ... A particular need for greater clarity and certainty relates to the use of entitlements by Parliamentarians during periods of by-elections and general elections.  (A-G 2001:  21).

A third area where parties may seek to use funds for party purposes is in the employment of staff.  A recent case before the NSW Industrial Relations Commission, concerning a former staff member of a NSW state member of parliament provides an insight into the use made by members of their staff.  The staff member is suing the NSW Speaker for compensation for a harsh and unfair employment contract.  Part of the allegation is that she had been expected to gather names and ALP membership forms, while an unidentified third party -- who was neither an employee nor a volunteer -- paid the membership dues.  "The consequence of this activity, called branch-stacking, was one that was clearly directed from [the member] to [the staffer]." (The Australian 2001:  2).  Clearly, this is taxpayer assistance to a political party.

Another area where a party, in government, seeks to use public funds for electoral advantage is advertising.  The Auditor-General reported expenditure on government advertising on the changes to the taxation system, the GST in particular, in the lead up to the 1998 election.

In contrast to some other jurisdictions, there are no Commonwealth guidelines or protocols on information and advertising campaigns which would inform members of the Parliament and the Government on the framework to be applied, covering matters such as distinguishing between government and party-political advertisements, the distribution of unsolicited material and conduct of campaigns in the lead up to an election ... [H]istory shows it is not uncommon for Government advertising to increase in the period immediately preceding an election" (A-G 1998:  para 25).

The audit also noted, "[a]s at 31 August 1998, the date the Community Education and Information Program [the advertising for the new tax system] formally ceased due to the caretaker convention, $14.9m had been expended and committed on the Community Education and Information Program." (A-G 1998:  para 1.14).

While a party in government will continue to argue the right to inform the electorate of changes to the law and programs, Opposition will continue to criticise such expenditure as party-political;  right up until the time it is their turn to govern! Nevertheless, the opportunity for parties to sell their message at public expense provides a significant advantage over competitors and begs some form of regulation.

These four areas of expenditure are significant, they assist incumbents to retain their seats and given most incumbents are party members this is a considerable advantage to the parties.  Nevertheless, the fact that the expenditures are on the public record and subject to audit indicates that the advantages that parties may derive from such expenditures are subject to a regime of scrutiny.  Whether such scrutiny does more than legitimise the use of public funds for party-political purposes is open to debate.  What is clear is that information about the sources and extent of assistance, including disclosure of donations is publicly available.  Less clear is the means to distinguish the ability of parties to "piggy-back" party and electoral/parliamentary/government activities.  If such distinctions are well managed, that is, where the public is well informed, it is reasonable to conclude that further regulation of the parties at large is not warranted.

MEMBER AGITATION AND LEGAL SCRUTINY OF PARTIES

Another form of party scrutiny has emerged from the courts and involves members of political parties.  This has arisen because of a more general trend in the community to assert the rights of members of associations and to have disputes resolved by litigation.  Whether it is an effective means of providing individual members with a voice and a remedy is problematic.  In 1991, Mr Baldwin, a member of the Liberal party of Queensland, claimed that he had been improperly excluded from the Selection Council process by the Division executive, and consequently had failed to win preselection for the federal seat of Moreton.  He took the matter to court (Baldwin v Everingham) and for the first time a judge distinguished the Cameron v Hogan High Court decision which had regarded parties as no more than voluntary associations and as such not within the jurisdiction of a court.  The dispute was justiciable because the rules of the Liberal party, although a voluntary association, were registered under the Commonwealth Electoral Act 1918 (the Act).  "There is now a significant public interest in the enforcement of the rules of registered political parties" (BvE 1993:  24).  The decision of the party executive was held to be contrary to the party constitution, and consequently the selection process had miscarried.  A new preselection took place.  Baldwin did not stand however, so his was a pyrrhic victory.

A second case (Thornley v Heffernan), involved the Liberal candidate for the Federal seat of Macquarie.  In 1995, Jeanette Thornley was disendorsed and the party executive selected a new candidate without a plebiscite of local members, claiming that there was insufficient time to hold one because of the possibility of an imminent Federal election.  Thornley claimed that this was unconstitutional and took the matter to court.  The subsequent hearing determined that the executive acted within its powers and Thornley had to carry costs of $70,000. ⁽³⁾

Gerald Sullivan Labor MLA for Wollongong lost a preselection ballot in 1999 and took the NSW ALP to court (Sullivan v Della Bosca).  Sullivan alleged the improper use of the N. 40 Rule whereby, under prescribed circumstances, the Labor party NSW Administrative Committee may forgo a local plebiscite and, in combination with branch delegates, select a candidate.  The judge found that the Administrative Committee's suspension of the ballot was within the rules and that although the credential protest should have succeeded, the delegate numbers would not have varied sufficiently to change the outcome of the ballot.  Sullivan had to carry his costs for the action.

In July 2001, Bob Tucker, the Queensland Liberal party candidate for Ryan, sought relief from the courts (Tucker v Herron and Ors) because he faced a preselection panel consisting of essentially the executive, and excluding the local membership.  Tucker was successful, the court granted an injunction, with costs to Tucker, and directed the Division to hold a plebiscite in accordance with the party rules.  Unfortunately for Tucker, he lost the subsequent preselection.  One reason for the loss was the party rule that allowed one of his opponents to have new applicants for party membership constitute a majority of a party meeting.  The not yet accepted members were able to vote to waive a rule allowing them to become eligible to vote in the plebiscite.  Under other circumstances, there would be a period of qualification for eligibility to vote.  Incompetent rule-making is a matter for the parties.

These few cases hardly inspire an aggrieved member to take a political party to court.  In addition to the financial risk involved, the courts have only looked to the application of the rules.  They have not looked to see if the rules have been applied fairly, or indeed if the rules themselves are fair.  These are matters reserved for cases involving the interpretation of legislation or the decisions of public authorities, or indeed to contractual relations where equity is a consideration.  For example, in the Thornley case, the discretion that the NSW Liberal Executive reserved for itself under the rules was extraordinarily wide.  McLelland CJ found that public law principles such as the fair application of rules had no application to voluntary associations (TvH 1995:  9).  This left him with a literal interpretation of the rules such that so long as the executive believed that there was insufficient time to hold a new vote it was within its powers to use the emergency procedures.  The decision in fact entrenched a very broad power of the executive to disendorse a candidate and endorse its own without reference to the membership.

Indeed, the situation before Clarke v Australian Labor Party was hardly a major breakthrough in asserting the rights of members to fair dispute processes or democratic outcomes.  The Clarke cases, however, have opened to public scrutiny the integrity of the recruitment of party members and the processes afforded members for the resolution of disputes.  The dispute arose over an attempt to defeat Ralph Clarke, a former deputy-leader of the South Australian parliamentary Labor party, at preselection.  Clarke alleged that 70 new members in his area joined the party on 26 January 1999 but did not pay membership fees personally nor, when invited to, did they attend the local sub-branch.  The same occurred in other parts of the South Australian party.  In all, 2,000 members were "joined" on 26 January, which, in a party with a membership of just 3,500, was a veritable stacking spree.  The cost of these memberships was $42,000, which by extension means that "the entire South Australian branch [division] could be purchased for less than $100,000". ⁽⁴⁾  The question that arose was whether the struggle for power within the South Australian Labor party was played out according to the rules of the party.  The court found a number of serious deficiencies in the way in which those responsible for the administration of the party had handled the issues.

There are a number of outcomes from the Clarke victories.  There were rule changes to ensure that members "must earn their stripes" ⁽⁵⁾ before being eligible to vote in a preselection.  The policy behind the proposed rule changes is to encourage a more transparent process of membership recruitment and renewal.  The effect may be to slow and regularise the battle for preselection through recruitment.  There is also a more serious second matter, the protection of the integrity of association of the party.  For example, an association that consists of a large number of people who are unaware of their membership, or who have that membership paid for by others, or who have joined without any apparent adherence or knowledge of the objectives of the association, will not instil a great deal of confidence that it is an association of free individuals.  In such cases, the integrity of the association would be severely threatened.  Unfortunately for Clarke, he lost the subsequent preselection, but the legal victories have alerted parties that they are vulnerable to court scrutiny in the application of their rules and to public scrutiny, indeed ridicule, on the integrity of their membership.

In the matter of public funds the regulation and scrutiny of parties is relatively straightforward.  However, the knock-on effect of the acceptance of funds has been to expose the parties to the scrutiny of the courts.  This scrutiny has not proved directly beneficial to individuals but has encouraged the parties to offer some verifiable means of dispute resolution within their rules.

MORE DIRECT FORMS OF REGULATION

That scenario may well change if another, more direct form of regulation of parties succeeds.  The Premier of Queensland has vowed to introduce legislation into the Queensland parliament to ensure that the Queensland Electoral Commission supervises preselection ballots for registered parties.  The legislation was devised to respond to the crisis of confidence in the ALP caused by the conviction of three party members for electoral fraud, and the resignation of three Labor MPs and a number of party members for witnessing or enrolling voters falsely.  These transgressions of public law occurred in pursuit of advantage in preselection contests.  Justice Shepherdson, who conducted the Inquiry into electoral fraud for the Queensland Criminal Justice Commission, agreed with the Beattie view in his recommendations (Shepherdson 2001:  171).  The legislation is in the tradition of the public supervision of trade union ballots.  In the Commonwealth sphere for example, the Workplace Relations Act 1996 has specified since 1988 (and decades earlier in some circumstances) that, unless exempted, all elections for office in registered organisations, trade unions and employer bodies, must be conducted by the AEC.

The trouble is the Beattie and Shepherdson solution for the public scrutiny of private ballots will confirm a lack of trust in all parties.  The Shepherdson analysis does not justify public intervention in internal ballots.  The Premier's motivation to involve the Electoral Commission is to spread the blame and the shame of intervention to all parties.  This, despite the fact that no other member of any other party has been found to breach public law.  Moreover, few, other than members of the Australian Workers' Union faction of the ALP have been found to breach public law.  A problem predominantly in one faction, in one party, which is itself a small component of events affecting the overall standing of parties in the electorate, becomes every party's problem.

The reason that Labor entities defrauded the electoral roll was because they were responding to a particular set of party rules.  The fact that the measure of preselection eligibility was enrolment to vote in an election created an opening to win preselection by stacking the electorate through false enrolments.  Such behaviour is not necessary, for example, in the Queensland Liberal party where a voter in a preselection does not need to be on the roll in the relevant electorate.  If the National party opts for a non-electorate qualification for preselections, the ALP could end up as the only party whose preselections are supervised by the Commission.  Perhaps that would be a fair outcome, given that only ALP members breached public law.

The Beattie proposals are almost as invasive as those proposed by the Australian Democrats.  The Joint Standing Committee on Electoral Matters report into the 1998 Federal Election (JSCEM 2000) discussed matters that relate to the internal operations of parties as they affect preselection.  In particular, the Committee noted the AEC's view that "most political party constitutions are scant, and inadequately address the internal functioning of membership-based organisations" (JSCEM 2000:  160).  In fact, many of the parties' constitutions are not "scant" at all;  a recent audit of the rules of the major parties indicates their complexity and sophistication (Johns 2000:  401ff).  They may, however, not be adequate as guides to good democratic practice.  The issue is, who should determine, if not the parties, what is good democratic practice?  Indeed, it was the view of the Commission and agreed by the Committee that the Commission should not have the power to impose itself upon the internal operations of the parties or to impose a definition of what is a democratic structure.  The Committee was satisfied that the current approach for registration, whereby the parties lodge their constitution, was adequate.

This is not the view of the Democrats who seek a regulatory regime similar to that for corporations.  They argue that the common law has been inadequate as a form of scrutiny and that the Act does not address the internal rules and procedures of political parties.  The Democrats want political parties to be required to lodge a constitution with the AEC that must contain certain minimal elements.  Among other things, they want the Act to be amended to require standard items to be set out in a political party's constitution, in a similar manner to the Corporations Law requirements for the constitutions of Companies.

The key constitutional principles of political parties should include:  the conditions and rules of membership of a Party;  how office-bearers are preselected and elected;  how preselection of political candidates is to be conducted;  the processes that exist for dispute resolution;  the processes that exist for changing the constitution.  The relationship between the party machine and the party membership requires better and more standard regulatory, constitutional and selection systems and procedures, which would enhance the relationship between the party hierarchy, office-bearers, employees, political representatives and the members.  Specific regulatory oversight to include:  scrutiny of the procedures for the preselection of candidates in the constitutions of parties to ensure they are democratic;  all important ballot procedures within political parties to be overseen by the AEC to ensure proper electoral practices are adhered to (JSCEM 2000:  177).

The Democrats are particularly scathing of the "scourge of branch-stacking and preselection abuse" and suggest that a "Member or Senator who has won their seat through branch stacking or pre-selection abuse can be seen as morally corrupt" (JSCEM 200:  178).  To counter the problem, they recommend that the Committee and the AEC scrutinise branch stacking and pre-selection abuses.  In particular, they seek to use the public principle of "one-vote, one-value", and further recommend that the Act be amended to ensure the principle of "one-vote one-value" be a prerequisite of political party processes.  They suggest that if such a principle were translated into political parties, it would mean that no member's vote would count more than another's and that this may rid the parties of "undemocratic and manipulated pre-selections, delegate selections, or balloted matters" (JSCEM 2000:  179).

What is a democratic weight of balance between branch members and unions, a key issue in the ALP, or between local branch members and members in other districts, a key issue in the Liberal and National parties, or for each party, between members and the central executive?  The Democrats, for example, have so few members that they often have no local branch structure in most districts.  What is an insufficient number of members in a local district that would satisfy the Democrats that the state executive should select the candidate, only consulting the locals?  It may be possible to specify in the Act some of the basics of procedure and some elements of free association, such as the self-payment of a joining fee, but the balance or weight of votes is very difficult.  The notion that the AEC should oversee "important ballot procedures" is a very large step indeed, and certain to cement the view that the electorate does not trust the parties.  Still, the fact that the discussion is abroad stems directly from some considerable weaknesses in the integrity of the association of some parties and follows closely the discussion of the public funding of parties.  For example, a former Commonwealth Electoral Commissioner, Professor Colin Hughes, has suggested to the Committee that, where "candidates [of parties] registered with the Australian Electoral Commission are to be chosen by membership votes, those elections should be conducted by the officers of the Australian Electoral Commission" (SMH 2000).

The major political parties have legislated to ensure the scrutiny of the democratic process in the key voluntary associations in industrial relations.  They have done so it appears, to enhance the confidence of the community and members in the conduct of ballots.  There can be few more important ballots than those which determine who is to carry the party label of a major Australian party.  It is almost the only road to parliament.  Why then would the parties not do the same for themselves?  Clearly, the Democrats want the parties to be scrutinised by the courts using a highly prescriptive legislative model.  Such a model would incur all of the debate not only about the freedom of the parties to govern their own associations, but also the issues about the measures of democracy.  It is highly unlikely that the parties will agree to such an intrusive regime, though a government at some point, needing the support of the Democrats, may begin to allow further specification in the process of party registration.

AN ACCEPTABLE REMEDY?

An obvious way for the parties to escape the recent enhanced scrutiny of their operations is to reverse the acceptance of public funding.  If they ceased to accept public funds, in essence to reprivatise, would the grounds for public access to their internal regimes be any less compelling?  In the first instance, almost certainly so.  Apart from the rudiments of complying with electoral procedures, nothing is required of the parties by way of legislation other than that which arises from their registration for public funds.  It is clear that some of the work of the parties -- public information and voter registration -- have been taken over by the state through government advertising and compulsory voting.  They no longer have to get out the vote;  they do not even have to raise many of the funds that sustain them.  The education system and the media have taken up their role of educating the electorate.  The parties are performing less but being paid more from the public purse.  They barely represent the old class system cleavages of the electorate.  It is more likely that the electorate is squeezed into an old shoe, one that fits the electoral system rather than the electorate.

Nevertheless, entering the confines of essentially private organisations, albeit when they are playing a public role, is difficult.  It is made easier because the parties produce legislation that delivers them considerable public benefit.  The strict contract between the registered parties and the Commonwealth may only require a proper accounting for election expenses, but there may also exist an assumption that their candidates, specified under the Act and shown on the ballot paper, arrive under fair circumstances.  A possible remedy recognises both the right of private association and the harm that public control of preselections (for example, primaries) can do to the organisational integrity of parties, but seeks greater public scrutiny of the internal affairs of party candidate selection.

Presently, the parties registered under the Act, only have to lodge a copy of their constitutions with the AEC.  These documents are not available to the public.  A reasonable compromise on the tension between the external scrutiny of parties and the maintenance of the privacy of association would be, as a condition of registration, to make the party constitutions available to the public.  If the parties' rules were to be made available to the public so that voters may judge for themselves the fairness of the processes, the parties would, as far as their formal practices are concerned, be more likely to comply with basic democratic standards.  Of the possible options open to Australia's major parties -- reprivatise, a highly prescriptive regime of external scrutiny, continued court scrutiny of disputes or make public their rules as a condition of registration for public funds -- the latter two seem the most practical.  It would enhance democratic practice, maintain the trust in parties and ensure their freedom of association, itself an important element of democracy in Australia.

REFERENCES

Auditor-General (A-G) (1998), Taxation Reform -- Community Education and Information Program, Australian National Audit Office (Audit Report No.12).

Auditor-General (A-G) (2001), 2001-2002 Performance Report Parliamentarians' Entitlements:  1999-2000, Australian National Audit Office (Audit Report No.5).

Australian Electoral Commission (AEC) (1998), "Election Funding Payments", Funding and Disclosure Report of the 1998 Federal Election, Appendix 2.

Australian Electoral Commission (AEC) (2000), Submission to the Joint Standing Committee on Electoral Matters Inquiry into Electoral Funding and Disclosure, Canberra, 17 October 2000.

Baldwin v Everingham (1993) 1 QLDR 10, 24.

Cameron v Hogan (1934) 51 CLR 358.

Clarke v ALP (SA Branch), Hurley and Ors and Brown (1999) SASC 365 and 415.

Department of the Parliamentary Library (DPL) (1999), Parliamentary Handbook of the Commonwealth of Australia, 28th edition.  Canberra.

Forbes, J. (1996) "Judicial Review of Political Parties", Research Paper 21.  Department of Parliamentary Library, Commonwealth of Australia.

Horvarth, S. (1999), The ALP and LPA are Evolving into Cartel Parties, Honours Thesis, Department of Government, University of Queensland.

Lord Houghton (1976), Report of the Committee on Financial Aid to Political Parties, London:  HMSO.

Johns, G. (2000), "Party Democracy:  An Audit of Australian Parties", Australian Journal of Political Science 35(3):  401-25.

Johns, G. (2001), A Study in Democracy:  Candidate Selection for the Parliament of the Commonwealth of Australia, Doctoral Thesis, School of Political Science and International Studies, University of Queensland.

Joint Standing Committee on Electoral Matters (JSCEM) (1997), Report of the Inquiry into the Role of the Australian Electoral Commission in Conducing Industrial Elections, Parliament of the Commonwealth of Australia.

Joint Standing Committee on Electoral Matters (JSCEM) (2000), 1998 Federal Election, Parliament of the Commonwealth of Australia.

Nye, J., Zelikow, P. and D. King (eds) (1997), Why People Don't Trust Government, Harvard University Press, Mass.

Oliver, D. (1997), "Regulating the Conduct of MP's:  the British Experience", Political Studies 45:  539-58.

Seyd, P. (1998), "In Praise of Party", Parliamentary Affairs 51(2):  198-208.

Justice Shepherdson (2001), The Shepherson Inquiry:  An Investigation into Electoral Fraud, Queensland Criminal Justice Commission.

Somes, T. (1996), "The Legal Status of Political Parties", p. 157 in M. Simms. (ed), The Paradox of Parties, Allen and Unwin, Sydney.

Sullivan v Della Bosca (1999) NSWSC 136.

The Australian, 4 September 2001.

The Sydney Morning Herald, 15 November 2000.

Thornley and Heffernan CLS 1995 NSWSC EQ 150 and CLS 1995 NSWSC EQ 206.

Tucker v Herron and Others, Supreme Court QLD 6735 0f 2001.

---

ENDNOTES

1.  Private conversation with Gary Gray, ALP National Secretary, March 1997.

2.  Excludes those who resigned from their party while in parliament, and those who subsequently stood as an independent.

3.  Jeanette Thornley.  Conversations, late 1998-early 1999.

4.  Ralph Clarke MHA, ALP SA.  Interview, 27 October 1999.

5.  Ralph Clarke.  Interview, 27 October 1999.

In the Supermarket of the Soul, Not all Aisles Lead to Christ

One of the nice things about our multicultural and ecumenical society is that an irreligious Jew like myself can comment on disputes within the Catholic Church without anyone feeling able to complain about my right to do so -- at least in public.

But the current controversy about the involvement of the Presentation Sisters and the Sisters of Mercy in the Womenspace centre at Kedron suggests that many of the faithful think that ecumenism has gone too far.  Certainly, even to a non-believer, it does seem odd that Catholic orders would initiate and fund a centre which provides room for pro-abortion organisations and advertises magical paraphernalia, or that a nun would present classes celebrating "shamanistic journeying" and other supposedly "ancient Celtic tools" of paganism.

To conservatives in the church, this involvement is yet another sign that the "generosity of approach" that Brisbane's Archbishop John Bathersby urges "in trying to bring people to Christ", leads to a theological relativism, a pick-and-choose supermarket of the soul where nothing is forbidden and heresy is impossible by definition.

Nevertheless, the Archbishop may have a point.  An insistence on rigid orthodoxy is often inseparable from an arrogant self-righteousness in which religion is used as a bludgeon against rivals and personal enemies.  There is something distasteful about people going to particular Church services in order to obtain ammunition against priests and bishops who are not toeing a purist line, then sending the details off to the Vatican.  Apparently this has been happening for some years, and it is hard not to sympathise with Archbishop Bathersby's complaint that this involves "a desecration of worship".

In a predominantly secular and materialistic culture such as our own, where established denominations are struggling to gain committed adherents, particularly amongst the young, perhaps the best that mainstream churches can now hope for is to start with people who have real spiritual yearnings.  While the Archbishop probably wouldn't express matters in quite such terms, from this perspective leanings towards pantheism or polytheism may be preferable to atheism or religious indifference;  for with patience and sympathetic understanding genuine searchers may be led to more doctrinally acceptable positions.

This is the kind of approach that Catholic missionaries have adopted in many parts of the non-western world, in the hope of winning over the followers of tribal religions.  Provided that reprehensible customs are abandoned, the church has been prepared to accommodate more harmless practices, and even to incorporate some traditional elements into its liturgy.

However, this doesn't always work.  In one Vanuatu island where I carried out anthropological research, people interpreted the comparatively liberal attitudes of the Catholics as an indication that the church was ineffective.

To these indigenous people, a potent religion was one which demanded sacrifice and restraint.  Consequently, fundamentalist Protestant sects which denounced all non-Christian beliefs and practices thrived, while the Catholic Church attracted only a small number of followers.  The irony -- which a few perceptive Catholic missionaries did seem to appreciate -- was that those who took indigenous notions seriously had to be committed to destroying the traditional religion.

But whatever the merits of Archbishop's general approach towards religious conversion, I am not convinced that his statements on the matter are actually relevant to the Womenspace controversy.  For the centre and its supporters do not seem to show much enthusiasm for channelling the spiritual hunger of New Age dabblers and other lost souls into a path that will eventually bring them to Christ.

Judging from its website and the published reports about the activities at Womenspace, those involved with the centre seem more interested in encouraging women who are disillusioned with mainstream churches into non-Christian forms of worship, such as singing "Goddess Chants and Magical Uplifting Songs".  It is as though members of the Liberal Party were using party funds and resources to drum up support for the ALP and the Australian Democrats.  Certainly, such acts would demonstrate a "generosity of approach";  but one that would quickly become totally self-defeating.

The needs and desires which lead people to religion are diverse.  No doubt some individuals are looking for an "amorphous experiential spirituality" -- as a defender of Womenspace from the University of Queensland put it in a Courier-Mail article last week.  For such free spirits, a theological fruit salad containing dollops of the Bible, Eastern mysticism, neo-paganism and white witchcraft, all topped with a thick syrup of radical feminism, may be the best way of satisfying religious cravings.

I may be wrong, but I suspect that on this matter the majority of contemporary Catholics -- and prospective ones as well -- are more in tune with the wisdom of my tribal friends in Vanuatu.

They may not adhere to all, or even most of the strictures and doctrines laid down by the church.  But that doesn't mean that they want them to be swept away.  When they are told that core beliefs and practices should be abandoned in order to bring the church into line with contemporary fashions, they rightly sense a demoralising weakness.  What they expect from their church is a coherent structure of beliefs and practices, defended by a staunch but sympathetic clergy who sincerely believe that they are offering the true word of God.

And if priests or nuns lose this faith, and come to believe that people's spiritual longings are better served by other religious traditions, they should at least have the courage and integrity to leave the church and not draw on its resources.  Otherwise they can fairly be called impostors.

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Look for Strength in the Mainstream

When Australians voted overwhelmingly in favour of the 1967 Referendum, it is inconceivable that they wanted Aborigines to develop separately from the rest of Australia.  The Referendum was an act of inclusion.  Aboriginal leaders from the 1930s to the 1950s wanted equality.  With the support of the Australian people, they achieved it.  Unfortunately, the next generation of leaders wanted something else, collective self-determination.

When Aboriginal policy encouraged inclusion, it was good.  It has since overshot the mark and needs to be reined in.  Orthodox thinking in Aboriginal policy is that Aboriginal people have the right to establish their own society within the dominant society.  The orthodoxy forgets that traditional Aboriginal society was a gerontocracy, the rule of old men.  That world, and that authority, broke down a long time ago.

The technologically naïve, closed, geographically limited Aboriginal society was never going to survive European settlement.  Moreover, the conditions that make possible a modern re-creation of Aboriginal culture destroy the old.  Democracy destroys the authority of the elders, and new knowledge makes the old knowledge less powerful.  The new language, necessary to communicate the solidarity of Aboriginal people, destroys the need for the old languages.  Science destroys the need for much belief in myth.  Material wealth destroys every aspect of the previous economy, and the social organisation based on those practices.

The new authorities in Aboriginal society -- ATSIC, Land Councils, separate Aboriginal services and programs -- stand in the way of the bounty of the 1967 Referendum.  ATSIC is rallying support for a Treaty, an apology and reparations to the Stolen Generations, and the recognition of customary rights.  This agenda suits a political class, not necessarily Aboriginal people.  There are no Aboriginal nations with whom Australia could or should make a Treaty.  The democratic nation-state is one of the great triumphs of political organisation.  It is an insult for its title to be applied to tribes or clans, especially those that enjoy state protection and sponsorship.  The question of apologies and reparations are legal matters;  individuals are at liberty to pursue damages in the courts.  Customary rights are a misnomer;  customs derive from acceptance and use, not codification and enforcement.

Aboriginal people won their freedom in 1967, but they lost their livelihood and they lost their protection -- the missions, rural employment, remoteness -- from the onslaught of the modern world.  The task now is to help them adjust to that world.  Failing that, we condemn them to poverty and domination by the new authorities.  Aboriginal politics remains family and clan-based, and centres on the disbursement of someone else's surplus.  It is the same as the internal politics of political parties, personal and vicious.

Self-determination and self-government are not exercised by toy parliaments like ATSIC.  They only occur when a group taxes itself and disburses its own surplus.  Norfolk Island is seen as the political model for Aboriginal self-determination, but politics is not enough.  Norfolk pays its way, it is integrated into the modern economy.  Aboriginal people must make the transition that Norfolk Islanders made.

The new land rights deny traditional elders their land and the freedom to dispose of it as they think fit.  Aboriginal domestic violence services deny Aboriginal women protection from family violence.  CDEP keeps Aboriginal people trapped in poverty and meaningless activity.  Myriad other services -- housing, health, legal -- keep Aboriginal families in thrall of those who dispense government largesse.  Government largesse has destroyed self-respect.  With that comes drug abuse, and violence to women and children.

Any number of initiatives can sensibly assist Aboriginal people, but only those programs that assist the inclusion of Aboriginal people into the wider society should be supported.  All publicly-funded separatist programs must be phased out.  For example, buying and claiming land comes at a time when land resources have never been less valuable.  Spiritual attachment to land will not sustain communities, only the skills necessary for survival in a modern world can do that.

The policies Aboriginal people need are those that allow them to engage in the wider world.  At present, too many Aboriginal children are school truants.  Parents lack the authority to send them, schools are too afraid to make them attend.  In the NT, some Aboriginal parents are eschewing the local school system, where their children are treated as cultural curios, and are sending them to boarding schools where they will learn skills.

Dignity for Aboriginal people does not lie in the ideology of state-sponsored cultural solidarity and separate political and social institutions.  Aboriginal people need the same skills as every other citizen, skills that will allow them individual self-determination.

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Labor's Reform Must Heed the

The ALP may have won the Federal election had the tragic events of September 11 and the arrival of Tampa's cargo of illegal immigrants not occurred.  Then we would not be having this debate about the future of the ALP.  Mind you, the fact that Labor refused to pass laws denying "asylum seekers" unfettered access to judicial review, was asking for trouble.  The Government had lost control over who could come here, and under what circumstances they stayed.  The Prime Minister moved, on behalf of the electorate, to use other means to put Australia back in control of its own borders.  At the same time he exploited the perception that Labor served particular interests, those of economic refugees and human rights activists.

Having failed to deal with border protection in the parliament, Labor had no option other than to back the Prime Minister in the election campaign.  As former state MP, Mike Kaiser said, if Labor had the Greens policy on illegals, it would have ended with the Greens vote!  As for Roll-Back, my local butcher used to laugh.  He really looked forward to no GST on his funeral!  Labor was spending four times the amount on removing taxes on minor items such as Tampons than it was prepared to spend on Knowledge Nation.  If you do not believe in your own policies how do you expect the electorate to believe in them?

Knowledge Nation was just a sop to the secondary and tertiary teachers' unions.  Labor indulged in class-bashing over funds to private schools.  It was not enough to save its education spokesperson, Michael Lee, who lost his seat.  Parents of modest income are sending their children to private schools in great numbers.  Current policy is designed to support those parents who, out of the same income, decide to invest a greater part of their money on their child's education.  These are aspirations Labor had better acknowledge, or suffer the consequences.

What to do?  Some Labor governments have been good, some have been bad, sometimes with the same party structure and many of the same players.  So it is not obvious that party reform means success in government.  Nor is it obvious who is a quality candidate.  Democracy does not prejudge these things.  It is clear however that the working class do not elect or even preselect people in their image.  Above all, candidates require time and money, hence the prevalence of lawyers in the parliament.  This need not be a particular burden for Labor.  The blue-collar workforce is declining, and it needs a champion.  The trouble is, economic rationality will not go away.

Labor must once again join with the workforce to create a new future, not just cling to the privileges of the old protected one.  Labor did this successfully in the era of award restructuring.  The era did not help the union movement hold its members, but it did save many jobs and create new ones.  The health of the labour force and the health of the union movement are not always the same.

The whole public sector ethos is a challenge for Labor.  The party is struggling with some deep philosophical issues.  Government is not life, governments sets some rules to allow us to get on with life.  Too many in the Labor party think that the answer to life's problems lies in government programs.  This is what has caused such distress in the Aboriginal community.  Government takes over people's lives.

Labor needs the strength to hold out against the feral elements in the electorate, and the wisdom to know what is feral and what is not.  It needs to keep its focus on decent mainstream policy, not just bribe the activists and professionals who want to visit more of their bright ideas on an unsuspecting electorate.

Labor should think about loosening, not cutting the ties with unions.  Proportional representation in party ballots will help modify union power.  At the same time, major political parties need to recognise that they are no longer the only vehicles for political activism.  There are more exciting forums in the new non-government organisations, like Greenpeace and Amnesty International.  The challenge for parties, here Labor is particularly vulnerable, is not to be led by the nose by NGOs.  In government, mainstream parties must make NGOs prove their standing:  who do they represent, what is their expertise?  Remember, every time a party deals with an NGO, it displaces the voter.  The voters resent this.

Major parties provide stability, they have an ability to resolve the differences within the electorate.  The major parties are valuable synthesisers.  Independents, interest groups, NGOs and the media are very good at voicing problems, they are not so good at providing solutions, or at least convincing the electorate that their solutions are acceptable.

Both the Coalition and Labor have to think about their place in the world.  They are virtually instruments of government, rather than instruments of their members.  Their membership is few, their links with the community weak.  Policy comes from organised civil society, NGOs and interest groups.  A large slice of their income is from the government.  They may have to open their procedures to greater scrutiny in order to retain the privilege of running government.

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Liberals search for their own Third Way

No doubt Labor's campaign strategists thought it was a good idea at the time to put to air an advertisement claiming that a vote for John Howard might mean Peter Costello would become prime minister.  The concept completely backfired.

First, it showed that the Liberal Party had a clear plan of succession, as if it was needed, demonstrating security and stability.

More importantly, it unwittingly highlighted that the Liberals offered a leadership team encompassing generational change and different philosophical perspectives.

Since its formation in 1944 the Liberal Party has balanced two complementary and at times conflicting objectives.

It is the party of free enterprise and individual choice.

It is also the defender of the nation's key institutions the family, rural and regional communities, and Australia's system of government.  Those who seek to divide the modern-day Liberal Party into factions of moderates, wets and dries will be unsuccessful because the economic debates of the 1980s that gave rise to these labels are now largely settled.

While there will still be arguments at the margins about economic reform, they will be about the pace of change, not its direction.

On economic issues, following its victory the Federal Parliamentary Liberal Party is probably more united than at any time since Robert Menzies' retirement as PM in 1966.

It is difficult to categorise the protagonists of more recent arguments about the republic or reconciliation.  It also demonstrates the complexity of many of the issues that contain a "conscience" dimension.

The philosophical frame of reference on many non-economic matters is less certain and more fluid.

Some of the most vigorous defenders of low taxes and small government hold what would be called "conservative" moral views.

That these discussions have occurred without inciting the antagonism of the past is a tribute to John Howard's leadership.  It represents a new maturity in the Liberal Party, which has allowed a diversity of views within an overall cohesion.

A decade ago the idea that Liberal Cabinet ministers could take opposing positions on the republic referendum would have been unheard of.

The recent rediscovery of Edmund Burke as somewhat of an ideological progenitor to the Liberal Party is evidence of the uncompleted attempt to ground these new debates in a liberal tradition.

Of greater importance than management of internal philosophical differences in the Liberal Party is the need to continue reinvigorating policy development and to implement its vision in social policy fields such as tax, health, education, and welfare.

The American political scientists Seymour Lipset and Gary Marks in their recent book It Didn't Happen Here Why socialism failed in the United States examine the paradox of public policy in Australia in the 1980s.  Namely, that it was Labor that abandoned protection, deregulated the economy and privatised public assets.

The Liberal Party did not have an extended period in opposition to reconsider its policies and so was the victim of its own electoral success.

While critics complained during the election campaign about a lack of Coalition policies they ignored the fact that in its second term the Howard Government put in place a number of major reforms with long-term consequences, most notably in defence and welfare.

Traditionally, conservative governments have been reluctant to vigorously engage in fields beyond the economic, but it will be imperative for the third-term Howard Government to do so.

The Coalition will continue its emphasis on personal responsibility and self-reliance.  These directions, while usually associated with conservatives, have become central to the "Third Way" policies of Tony Blair.

As has occurred in the United States, there will be a renewed examination of the nature of the community, the family and the role of government, if any, in the development of social capital.

If a philosophical fault line was to develop on the liberal side of Australian politics it could well emerge in discussion about these issues, between those who believe it is a function of the State to encourage co-operative activity and those who believe it is the domain only of individuals and communities.

Both positions fit within the spectrum of liberalism, and discussion about voluntarism and the Coalition's First Child Tax Rebate are the first stirrings of this debate in Australia.  A third-term Howard Government can use its mandate to continue stressing three essential tenets of liberalism.

First, it can challenge and change the current community consensus that increasing government spending is a solution to most problems, and is preferable to reductions in taxation.

Second, that all Australian are treated as individuals with their own rights not as parts of groups, with some groups having different rights to others.

Finally, that it is the common interests of citizens that bring Australia together, not their differences.

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Regulated and Unregulated Interconnects

Keynote address to
Distribution 2001 Conference on Distribution and Transmission,
held in Brisbane on 12 November 2001

ENTREPRENEURIAL INTERCONNECTS

Views on interconnects range from those who see little in the way of future developments other than entrepreneurial interconnects, to the "planophiles".  They range on the one hand from Tony Cook, whose Australian subsidiary has pioneered entrepreneurial interconnects, to Transgrid which sees very little role for them.

At the distribution level, the natural monopoly case is much stronger.  In distribution networks, the only live case of duplication and competition is to be found in the Melbourne Docklands.  There, two firms decided to build competing lines.  Although the ORG placed some conditions on customer contracts that at least one of the competitors considers to be onerous, the outcome has been spirited rivalry and low costs with the two companies splitting the market roughly 50/50.

As far as distribution is concerned it is unlikely that we shall see more than occasional eruptions of head-to-head competition from two facilities.  Competition is likely to be for the field itself.

Whereas distribution performs a function with no real alternative, a particular transmission line is an alternative to lines linking different generation sources and, like other forms of trade facilitation, an alternative to producing the energy closer to the market.

With regard to transmission, a recent report for NEMMCO by PriceWaterhouseCoopers and Clayton Utz suggests that we should build more common carriage interconnects with regulated returns.

This is premised on transmission costs being only 5-10% of electricity costs.  Hence, the authors argue, the benefits of greater competition and lower prices through generator competition are more than likely to outweigh any inefficiencies.

A major problem with this argument is it fails fully to recognise the scarcity of capital.  Moreover, the sort of interconnects we are talking about are longer and more sparsely used than the existing main body of transmission–Latrobe and Hunter Valleys to the respective metropolitan centres–and the 5-10 per cent is not an accurate guide.  SNI, for example, would cost $500 per kW in capital for transport, which is similar to the cost of an open cycle gas turbine or half the cost of a combined cycle gas turbine.  And that is just for the transport.

When, as part of the process for designing the electricity Code, I raised the possibility of market provided transmission, there was universal scepticism that anything other than a planned wires system would ever work, given free-rider issues, balancing problems and so on.  But free markets were the essence of the Code and an obscure clause was introduced.  Few, myself included, thought it would have anything other than a marginal application.

Indeed, there is still very little consideration of the notion elsewhere.  None in the UK and it is absent from President Bush's 2001 Energy Policy document.  Though the Bush policy waxes lyrical about the need to massively reinforce transmission lines, it does not consider anything other than some form of planned system.  Eric Hirst's research for Edison Electric is typical of US injunctions when he says, "FERC needs to develop and implement transmission pricing systems that both ensure cost recovery for transmission owners and provide ... nada, nada, nada".  The same old anodine strictures favouring sensible planning.

The fact is that transmission businesses have clearly been underwhelmed by the FERC regulated prices they have been offered.  Transmission capacity in relation to demand has been steadily falling, a fall that the following chart indicates is increasing

Over the decade to 1999, transmission capacity (miles per GW demand) fell from 280 to 235.  Over that period, demand grew 30%, twice as fast as transmission capacity.  In real terms, annual US transmission investment halved over the 20 year period to 1999.

More recently, three entrepreneurial interconnects have been approved.  The ubiquitous Transenergie owns one in New York.  Black & Veatch and Siemens are proposing to build four power plants near coal mines in South Dakota and Wyoming.  This will transmit 6,000 MW of power along DC lines at a cost of $11 billion for the plants and $4 billion for the links.  Already approved is the Neptune Project with three cables, 3,600 MW in total, linking generation in Maine and Canada to New York and New England.

FERC has put conditions on these developments and it is not yet clear that they will prove successful.

Australian Transmission mileage has also shown less than a 10 per cent increase over the past decade, a trend similar to that of the US but one dictated by politics rather than economics for the period.

THE BENEFITS AND COSTS OF COMPETITION

PARTICULAR ISSUES IN ELECTRICITY

Bob Booth is one critic of market provision of interconnects.  He is strongly in favour of regulated links, and has championed the Riverlink proposal in its various guises.  Yet in his book, Warring Tribes, he documents the outcomes of government provision of transmission as being one of considerable waste, and in this respect cites the over-building of transmission capacity from the Latrobe Valley to Melbourne.

DC links offer scope for a link to determine whether or not it runs and therefore it becomes akin to a generator.  This allows competition in transmission, the lack of which involves several adverse effects:

• gold plating;  A notorious issue with government developed facilities is the tendency towards over-engineering.  The Victorian transmission system is a case in point.  The general consensus is that a private organisation would have been more parsimonious.  Government organisations are less disciplined than private organisations to these cost/benefit trade offs because the decision makers have little financial stake in the outcomes.  While excessive capitalisation is one result of government ownership, an alternative outcome is a squeeze on new developments where a government general budgetary position is strained.  The electricity industry throughout Australia has seen feasts, as governments have climbed on particular rationales for developments, followed by famines as a result of general budget constraints.  Such famines are rarer with the private sector since the absence of investment capacity by one firm would not prevent a rival stepping in.
• we also have a political response;  Government owned and regulated interconnects allow considerable scope for the pursuit of political goals using ostensibly commercial motives.  This obscures the merits of a particular proposal.  It leads to misallocation of production, often in the cause of regional development or saving of jobs of those whose votes are particularly valuable.
• finally, there is crowding out;  A regulated monopoly transmission is financed by a compulsory charge on consumers.  This differs from the alternative means of supplying the capacity:  new generation, and entrepreneurial interconnect or demand saving measures.  A compulsory charge is likely to crowd out those alternative measures and deny us the most economic industrial blend.

THE FUTURE OF INTERCONNECTS

It may be that the future will see no scope for anything other than a market provided entrepreneurial interconnected system, at least for major augmentations.

At issue, on whether a line should be regulated or entrepreneurial, is whether it is:

• to allow improvements in reliability, spending that would be difficult to cover in fees, and
• expenditure for an augmentation.

Australian debate on these matters has taken place against the backdrop of the ongoing saga of Riverlink/SANI/SNI.  The original application for a regulated link argued that only by having the revenues guaranteed could a major augmentation be built.  The application got bogged down by definitions of what constitutes the benefits that a planner could count up to decide whether consumers would voluntarily find it in their interests to finance such a facility if they did not have the option of free-riding on it.

Meanwhile Transenergie went ahead and commissioned a significant facility without requiring customers to be press-ganged into paying.  A change by the ACCC in the definition of what constitutes benefit has, at least ostensibly, incorporated producer benefits that would not otherwise be counted.

The trouble with all this, and with welfare economics on which planning rests, is twofold.  First the planner does not face the same incentives nor have the same quality of information on costs and risks that is found in the real market;  that's why planned economies and electricity systems are inferior to those that are market based.

Secondly, and more fundamentally, the apparent benefits added in the welfare economics case are invariably greater than those in the market case.  This is because it is well nigh impossible to restrict all the benefits of a market development to those paying for it.  For example, many consumers would be prepared to suffer brownouts and blackouts rather than face the costs of a new power station but once some consumers (those with the higher VoLL!) show a preparation to pay the extra costs the benefits flow to all.  Similarly, the welfare economics calculus estimates the value people place on a new development and adds in all the "consumer" and "producer" surpluses.  Market outcomes are limited in this by all-comers paying the same price.  Much of the value of a welfare justified development should be discounted if its merits are to be compared to a market development.  Otherwise it will divert capital to sub-optimal usages.

To reduce over-stating the benefits, in our own central planning we implicitly assume the new link will have no affect on the price.  This is the opposite fallacy;  it is inconceivable that the private sector would consider building a new facility without half an eye on the implications it would entail for the price of all outputs.  Neglecting this tends to increase the relative value of a planned facility compared to that driven by market forces (an outcome that appears to have been overlooked in the PWC/Clayton Utz report which declared the present test to be biased against regulated links!).

GAS INTERCONNECTS

These issues are far less controversial with gas where all suppliers are basically agreed on the entrepreneurial solution.

The main issues in gas are how to prevent the regulators strangling developments by requiring low pipeline charges.

However gas interconnects compete with electricity interconnects and with other solutions to providing energy to the user.  If electricity links are paid for by a regulated charge there will be a bias in their favour against gas links which have to find willing buyers.  Incentives are created to site prospective power stations close to the source of gas and have the transport costs financed by a hidden levy.

Clearly there are many options for the supply of energy even if this is defined solely as reticulated energy.  As well as electricity interlinks versus local generation versus gas links, there is potential competition from demand management.  And local generation includes a raft of possibilities including biomass, wind, micro-turbines, co-generation embedded generation as well as power stations delivering on a transmission network.

Biasing regulation for or against any of these will mean we are less well off as a community.  It may even undermine investor confidence in the regulatory framework.

THE SCOPE AND APPLICATION OF THE NATIONAL ACCESS REGIME

Access to eligible services may be through the NCC declaration process ⁽¹⁾ (after which the ACCC becomes the price regulator) or directly through the ACCC issuing a legally binding and non-appellable undertaking.

Addressing potential distortions was at the heart of the Hilmer Report which was the well-spring of current competition policy and heavily influenced structural change in energy.

Ostensibly, the Hilmer Report did not differentiate between private and publicly provided essential facilities.  It was however aware of the harm that could be visited on private property rights generally by regulatory seizure of some of those rights.

In reality the impetus for the Hilmer report was to redress the competition restraining effects of state government owned or controlled monopolies.  In Australia in the early 1990s the only "essential facilities" were those businesses which enjoyed government support or protection from competition.

To develop policy in recognition of the twin importance of property rights and competition, there are six important classifications of essential service or bottleneck infrastructure.  These can be developed into a taxonomy of regulatory approaches.  They are:

1. That which has been built without any market protection, especially that built since 1995 which is almost by definition "entrepreneurial" rather than regulated.
   In this case the preference should be "no regulation" since the entrepreneur had no privileges in seeking to find the customers and their needs.
2. That which introduces new competition, even if this is not identical to existing facilities.
   There is competition.  No regulation should be put in place and regulation on the existing facility should be removed.
3. Privately built infrastructure built prior to 1995 that enjoyed no government protection.
   The onus here should be on the authorities to make a case for regulation
4. That which is owned by the private sector but was built under a regime that offered protection from competition.
   This presents a clear case for regulation but one that needs careful handling to avoid shutting out future competition.
5. That which was owned by a government but has since been sold under contractual terms to the private sector.
   These should be regulated according to the contracted terms
6. That which was built by and remains owned by a government.
   This if it is not to be privatised needs to be regulated though in a way that does not pre-empt rival facilities.

So, logically, new unprotected infrastructure built by private enterprise in the "post-Hilmer" era should not be required to grant access or be subjected to price restraints.  The builders of such infrastructure are responding to a profitable opportunity that they foresee, one that, by definition, also confers gains on the buyers of the service.  The two parties obtain a mutual gain.  The sharing of the gain is one for bargaining between the parties but the consumers of the goods that the facility supplies cannot be worse off since without it they would not have that particular access route and perhaps not the product that the access delivers.

For its part, the owner of the new facility in this "post-Hilmer" era, cannot obtain gain from it by virtue of some form of government granted privilege.  The owner will, moreover, usually be building a project that carries some economic risk.  Such risk may emanate from a failure of the market to develop in the predicted way, new competitors, or the "howling gales of creative destruction" stemming from a technology that renders existing approaches archaic.

Achieving profits by better meeting market needs is at the heart of the private enterprise system.  Attempts to "redistribute" such profits can only harm the process.  This can be illustrated in the case of a new pipeline.  The owner of the pipeline will usually have considered a spectrum of alternative market projections (and perhaps a spectrum of cost projections).  There is uncertainty and, implicitly or explicitly, the owner will weight each scenario in making his investment decision.  If his threshold is a rate of return of 15% and he is considering scenarios that might yield rates ranging from 25% to 5% but provide a weighted average rate of 15%, cutting off the potential to earn the higher rates will reduce the weighted average to something less than the threshold.  The regulatory action would then eliminate the commerciality of the project.  In such a case, the sponsor and the customers would both be losers.

Access regulation can have significant disincentive effects on new investments in infrastructure through its impact in reducing expected rates of return.

One of the most contentious issues arose as a result of the EAPL pipeline busting the Moomba-Sydney pipeline monopoly.  We sought revocation of the coverage of the Moomba to Sydney EAPL gas transmission pipeline with the building of the rival Duke Energy line from Bass Strait.  We also sought that the Duke Energy line not be covered.  This provided a test about whether the NCC would "walk the talk".

We argued,

The Eastern Gas Pipeline means we have Coke versus Pepsi in pipelines to Sydney and the case for their regulation has disappeared.  With the construction of the Eastern Gas pipeline, the conditions that could warrant either an undertaking or any other form of regulated price and access conditions disappear.  The two pipelines themselves have considerable over-capacity and they will be engaged in a price war ... With two pipelines supplying an area, as long as there is no collusion, the case for regulation rests solely on the benefits to the regulators themselves.

The existence of two transmission pipelines serving NSW is the very definition of competition, the absence of which provided the initial rationale for regulation.

The NCC argued that they should regulate both pipelines since they did not traverse parallel routes and that, even if they did, regulation would still be necessary to prevent collusion!  It is clear such analytical reasoning by the NCC gives regulatory agencies the opportunity to control virtually every economic activity in the country.

All this said, these notions of allowing freedom for unregulated entrepreneurial links need to be moderated by centuries of application of the common law as outlined by Professor Richard Epstein ⁽²⁾.

Epstein draws on the seventeenth century tract by Lord Matthew Hales de portabis mari ("concerning the gates of the sea").  In that tract, which was not published until the 1780s, Hales argued, that an asset (he was discussing cranes in ports) can be "affected with the public interest" either "because they are the only wharfs (sic) licensed by the queen" or "because there is no other wharf in that port".

This offers strong support for regulation even where the asset has been developed without any government support of protection.

In light of the historical evidence that governments will control essential facilities (and that such control is part of the common law) a workable approach would be that access regulation be reformed to provide explicitly for the use of "access holidays" in relation to new infrastructure projects.

This provides a means, rather like patent protection, of allowing successful entrepreneurial investments to gain the super-profits that motivates them, while not locking in higher prices forever.  Equating an access holiday to a patent appears to be useful, insofar as it suggests that the access holiday constitutes an explicit recognition of the right of the facility provider to the return on his investment as the quid pro quo for his creation of new value.

The case for reduced regulatory oversight has received a chilling response from the ACCC.  The Productivity Commission report on the matter is with the Government.

THE INTERFACE OF REGULATION AND FREE MARKETS

The importance of all these matters boils down to the pricing regime.  The past few years have seen bruising disputes between the regulators and the regulated businesses over the appropriate rate of return for monopoly assets.  Philosophically, the ACCC has a strong focus on the price gouging potential of monopoly in setting the synthetic market prices it aims at.  This may be manifest in terms of the rate of return set, in the valuation of the assets themselves, or in excluding some assets from the total.

The tendency to bear down on price that the incumbent may charge also makes it difficult for rivals to enter the market.  Ironically, regulators' decisions therefore tend to prevent competition, the very process they were created to enhance.

Naturally the regulators concoct material to persuade others that they are being generous in their decisions.  Whether it concerns Telstra, GPU GasLink (now seeking to float itself at a 20% discount from its purchase price) or TXU networks (also apparently willing to take a capital hit), the outcome of Australian regulatory decisions has tended to reduce the values of the network businesses from those originally set by the market.

Many will argue that the original values were excessive, the fault of over-optimistic buyers, though this can hardly be said to be the case with Telstra where the Government set the price.

Although there may be a windfall to customers if the regulatory authorities set prices too low, the beneficial effects of this are highly transitory.  The adverse impact of setting prices too low has several dimensions.

If an asset is valued incorrectly by the regulator, market forces will tend to self-correct this.  But they will do so in ways that have damaging effects.

The effect of setting a transmission price that is excessive is likely to encourage new generation or some new rival transmission.  These developments are likely to motivate the owner itself to set a lower price and the damage will probably be slight.

Setting the regulated price too low has consequences that are rather more severe.  An asset that is priced artificially low will attract excessive demand and will "crowd-out" other, lower cost means of meeting the demand.  It will tend to:

• encourage generation to site itself more remotely from markets;
• encourage excessive demand;  and
• reduce demand for alternative fuel sources.

In addition to this, setting prices too low will lead to a reduction in its capacity and premature scrapping of the asset.  Operators, faced with a return that is too low will not be successful in obtaining adequate funding for maintenance.  The proposals will simply fail to make the hurdle rates and the owners will prefer to invest in assets where a better return is available.  Lower expenditure on maintenance will bring a deterioration in the productivity of the capital and a consequent waste of resources.

Finally, prices set at lower levels than the market expects, whatever they are, will deter new investment.

CONCLUDING COMMENTS

Competition is the means of promoting efficiency.  But its role is far more important than preventing sellers deliberately withholding supplies in order to allow higher prices and higher profits.

Competition is best regarded as having two functions, one generating "dynamic" gains and the other "static" gains.

The "dynamic" gains from competition stem from constant vigilance of many suppliers who need to cut costs and meet shifting market demands.

Commercial rivalry is superior to other arrangements in driving costs down.  Competitive firms must constantly seek cost savings, and other ways of maintaining or improving their profits;  these cost savings are largely converted into consumer benefits as rival suppliers adopt similar techniques.

The dangers are that, in seeking to redistribute the "static" gains, regulators and policy makers will close off opportunities for the more radical "dynamic" gains.  For the latter gains to be achieved, the innovator must be confident that government action will not deprive him of the profits of success.  This means having secure property rights.  If policy and regulation results in property rights being impaired, this compromises a fundamental plank on which competitive efficiency is generated.  For this reason, one of Government's most important role is ensuring the certainty that property will not be taken from individuals.

Requiring a low price for supplying a service where the supplier has previously sunk its main costs can be, in US terminology, a regulatory "taking".  It markedly reduces the value and security of property rights.  The initial adverse effects of this are felt on the firm whose value is partly expropriated but wider effects follow in deterring other firms contemplating similar activities.

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ENDNOTES

1.  or its related State certification process.

2.  Richard A. Epstein Principles for a Free Society, Perseus Books, Reading Mass, 1998.