Wednesday, October 31, 2001

How to Beat the Dealers

A recent article in The Economist told us that a kilo of heroin, 40 per cent pure, sells on the streets for up to US$290,000 and that import prices are about 1015 per cent of retail in rich countries.  The more successful the authorities are in restricting supply -- either by capturing shipments or scaring off illicit drug traders -- the wider "the wedge" between import and street prices becomes and the greater the potential profits.  Australian authorities cite the recent hike in the price of illicit heroin as evidence of success, but such success is necessarily its own substantial undoing -- it increases rewards for smuggling or manufacture, and causes addicts to take even more desperate measures.

It is virtually inevitable that such huge profits will be employed in their own preservation, by corrupting the enforcement authorities and influencing the political system.  This happens in legal industries with far smaller margins of profit.  Think of how the motor industry tried to preserve its "wedge" by regaling us with the horrors that would be associated with reduced import restrictions.  The horrors never did eventuate, but their improbability didn't stop the motor manufacturers.  And even at the height of protection, cars sold in Australia for only about half as much again as they could be imported, whereas drugs sell for six or seven times import parity.  The last thing the drug barons want is a policy that removes "the wedge".  In my political days I marvelled at how quickly and generously the case against drug liberalisation could be financed.

The heroin or cocaine addicts' cravings must be awful when they are prepared to rob old ladies and prostitute themselves.  (I don't accept, as some are wont to claim, that many of these people are shameless).  The safe injecting rooms being tried in NSW address only one of several problems:  death through overdose.

When no less an authority than the chairman of the National Crime Authority argues that attempts to restrict supply are doomed to fail, and that we therefore should experiment with giving addicts lawful access to the drugs they crave, he deserves a better hearing than our Prime Minister gave him.  I accept that any policy change involves risk, but so does burying one's head in the sand.  Let's look at the public policy options, for those who are not yet addicts, and for those who are.

Drug dealers long-term profits depend on new addicts.  It beggars belief that they would do anything significant to prevent the sale of their wares in (to take the most horrible example) schools, unless it were made unprofitable for them to do so.  The death penalty might raise their costs to the point of unprofitability, but in no country where the death penalty applies for trafficking has the trafficking stopped.  I don't see that as an option.

At whatever level of supply, tomorrow's demand for addictive drugs would be reduced if non-addicts were discouraged from experimenting.  To this end, governments could add further state-imposed punishments to the well-known potential clinical costs of using the various illegal drugs.  It is, however, the experimental user, not the addict, who would need to be punished.  Gaoling would probably be counter-productive.  There is not a single gaol in Australia where drugs do not gain access;  and, in any case, the trend seems to be away from punishing for possession of drugs for personal use.  The government, fortunately in my view, hasn't the stomach for anything draconian, and so let's forget that option too.

What, then, about the more subtle punishments of social disapproval and conscience?  People crave approval and are much influenced by the attitudes of the company they keep.  The drug problem might be seen as but one of several consequences of an attitudinal trend that people of my age (65) and a bit younger once accepted or even encouraged.  In the 1960s, confusing liberalism with licence, many of us disparaged personal responsibility and gratification deferral, saying in effect that "if it feels good, do it now".  In the 1970s, we consciously abandoned our behavioural ideals and replaced virtues with mere values.  In the 1980s, we began smothering even moral debate under a blanket of political correctness.  And in the 1990s and beyond, if we don't personally reap the whirlwind of being perpetually worried about drug-addicted children and grandchildren, then we have friends and acquaintances who do.

Our long-term hope must lie with reversing what Gertrude Himmelfarb has called "de-moralisation of society".  Abandoning moral discrimination didn't work, and we must rebuild those institutions that we once dared to call virtues.  But that is a long-haul task.  What is more, acceptance of personal responsibility is a virtue that any government (and especially the current one) is ill-equipped to advise upon.  A Cabinet with a time horizon that seems to stop at the next election, and which squanders the budget surplus by bribing voters, simply does not have the necessary standing to be influential.  Since we wouldn't want its standards to become community standards, the less it says directly about either prudence or responsibility, the better.  It might, nevertheless, fund others to "educate" the not-yet-addicted about the consequences of drug taking.  However, not too much should be expected of that policy either.  Such programmes are genuinely difficult to pitch appropriately, are prone to take-over by those who hold the values that have contributed to the problem, and are greeted with cynicism by their targets.

Neither rebuilding institutions nor education can materially help the already addicted, from whom comes the vast bulk of the current demand for illegal drugs.  They are given medical and psychological help, and the substitute drug methadone, through the healthcare system.  Although there is good objective and published evidence (from both Australia and the US) that methadone programs reduce crime, methadone does not seem to be a close enough substitute to reduce sufficiently the demand for street heroin.  There is no closer substitute for an illegal product than the same product supplied legally.  Government has the options here of simply removing the wedge between import and street prices by decriminalising supply, or of greatly reducing the wedge by supplying addicts with cheap drugs of higher quality.  The drugs might still reduce users' average life-spans, as nicotine does, and reduce physical and mental capacity, as alcohol does, but, if provided by either lawful means, sudden premature death and nearly all of the social side effects, especially the crime, could be greatly reduced.  Not just the addicts would benefit.  Surprisingly, prolonged use of pure opioids does not have the deleterious health effects of alcohol on the brain or of tobacco on the lungs or circulation.  Used medicinally, heroin is a very safe drug.

There are three strands of opposition to the legal provision of highly addictive drugs (nicotine aside).  One is that the effectiveness of anti-drug education would be undermined -- "all the wrong messages would be sent".  Another is that if a drug were readily available to addicts, then more people would be prepared to risk addiction.  And the third is that some addicts, once given legal and cheap access to their drug, would not attempt abstention.  None of these counter-suggestions is simply erroneous, but the consequences of each are easily overstated.

The first, I believe obvious, point about "all the wrong messages" is that the state is only one source of leadership and instruction concerning personal behaviour;  and, except to the extent that it resorts to punishment, it is not a very effective one.  Even for the person who looks to government for moral guidance, the link between allowing addicts access to the drugs (which are used medicinally anyhow) and condoning their use for their psychotic effects is tenuous.  Governments license the provision of alcohol and gambling facilities, and even use them as a revenue source, but do not thereby admit to encouraging drinking and gambling.

If addicts knew that they would not be condemned to lives of shame and such rapid self-destruction, then more might risk addiction.  I accept as much, but I doubt that many experimenters are so coldly rational.  Moreover, even though premature death and the need to resort to crime and prostitution are partially effective deterrents, are they deterrents that the state is entitled to employ?

Governments should, wherever possible, avoid precipitous changes.  This is not merely because any course may, with hindsight, prove wrong, but also because both the authorities and the public learn to live with the existing institutions.  So let's also put across-the-board decriminalisation to one side.  That leaves supplying addicts by a controlled means.  If undertaken on sufficient scale, the policy should almost totally eliminate "the wedge".  If undertaken with sufficient care, the predicted adverse incentives could almost be avoided.  The incentive for dealers to recruit new addicts would be all but eliminated.  I'm normally no advocate for the counselling fad, but drug addicts' problems are not molehills to be turned into mountains.  Might it not be a good idea to offer them a drug supply that comes with counselling?

The risks associated with supplying the addictive drugs (or even initially just the opiates) at known and sterile dosages only to registered addicts, and only when they attend registered premises, seem trivial beside the potential benefits.  Such a policy should prevent several overdose deaths and a good deal of disease, much crime and much hard living.  By taking (much of) the profits that keep the dealers in business it would reduce the size of "the wedge", making the measures that raise the cost of drug dealing more effective.  The policing of the illicit drug traffic and penalties for dealing need not be abated.

People's attitudes would not be rescued by this or any other government policy.  In some circles, especially late at night, passing delights do not seem as silly or immoral as at other times, and peers are likely to disparage common sense.  To ask a government to fix that problem is, however, akin to pissing into the wind.  It is our task.


ADVERTISEMENT

Sunday, October 28, 2001

Dealing with the Indonesian Connection

Kim Beazley is right.  Proper management of the humanitarian, security and economic problems caused by boat people arriving illegally on our shores requires the full co-operation of the Indonesian government.  He has promised that if Labor is elected on November 10, he will send the new Foreign Minister and other ministers to Jakarta within days to work out a lasting solution.

Kim Beazley is also lucky.  He is not being asked the hard questions on this issue.  Why should Labor be any more successful than the present government in persuading Jakarta to accept the return of unauthorised arrivals who have set out from Indonesia?  Many in the media are acting as though fine words about "building a new relationship with Indonesia" will win over President Megawati Sukarnoputri and her government.

But while the Howard government has made mistakes in its dealings with our most important neighbour, Labor also has a lot of lead in its saddle-bags.  After all, Kim Beazley was a senior member in the Keating government, and it was Paul Keating who became best mates with Suharto, Indonesia's discredited former president.  Australia has sound reasons for maintaining an amicable relationship with Indonesia, but the Keating--Suharto bond went well beyond what is required.

Megawati has no cause to feel fondness for Suharto, who was forced to step down in 1998, after violent demonstrations against his corrupt and repressive regime.  Two years earlier, Suharto had done all he could to destroy her.  Some observers believe that it was only her popularity -- based partly on being the daughter of Sukarno, Indonesia's still revered first President -- that saved Megawati from coming to serious harm.  And she was very close to her father, who was toppled by none other than Suharto, who placed him under house arrest, where he remained till his death in 1970.

Maybe Megawati can set aside personal feelings and think only in terms of her country's interests.  However, even if she can forget about the unseemly enthusiasm that former Labor leaders had for her antagonist, Megawati is a strong believer in a unified nation state, and she was not happy about the loss of East Timor.

And the person that Beazley would be sending over as Foreign Minister is almost certain to be Laurie Brereton.  More than anyone else, Brereton was responsible for changing the bi-partisan approach in which both Labor and Coalition governments accepted Indonesian sovereignty over East Timor.

Indeed, in early 1999 it was Brereton who was well ahead of Howard and Alexander Downer on the issue, with Labor arguing for East Timor's independence while the Coalition was still saying that the territory should remain within Indonesia.  In May that year, Jakarta refused to allow Brereton to accompany a parliamentary delegation to East Timor, saying that he was not a friend to Indonesia.

Later events may have vindicated Brereton's stand -- although it is too early to tell whether East Timor can be a viable nation.  And a couple of months ago the Indonesian Foreign Minister Hasan Wirayudha said that East Timor was no longer a matter of contention in relations with Australia.  Nevertheless, this doesn't mean that Megawati and her government now see Brereton as their good buddy, or that they would be eager to get a new Labor government off the hook on the boat people issue.

It is not just the past that will discourage Indonesia from embracing a Beazley government.  Notwithstanding its unfortunate record with the Suharto regime, Labor tends to be more preachy than the Coalition on human rights.  While Beazley and Brereton are basically pragmatists who understand the difference between what is desirable and what is achievable, a Labor government will be more susceptible to pressure from activist groups and many of its own members who are committed to causes that make Jakarta very nervous.

One of these is the independence of Irian Jaya -- or "West Papua" as the province is still called in a document on Labor's official web-site, even though use of the name "West Papua" greatly annoys Jakarta.  Late last year, Greg Sword, the ALP's National President, signed a "memorandum of understanding" with Jacob Rumbiak, a visiting leader of Irian Jaya's independence movement.  Sword signed as a Vice-President of the ACTU, stating that "the Australian union movement wants the United Nations General Assembly to examine Indonesia's claim over the independent territory of West Papua".

Certainly, Brereton quickly disassociated Labor from Sword's actions, stating that they were not in accord with the party's policy, which accepts Indonesian sovereignty over the province.  But it wasn't so long ago that Labor acquiesced in Indonesian sovereignty over East Timor.  The incident did nothing to allay the suspicion of some in Jakarta's elite that Australia wants an independent "West Papua" because this would weaken Indonesia.  Even Indonesians less prone to believing in conspiracies will worry about Beazley's ability to keep the lid on unions and non-government organisations who want to interfere in their country's affairs.

The dreadful loss of life in last week's sinking of an unseaworthy vessel in Indonesian waters demonstrates that it is in the interests of everyone -- apart from corrupt Indonesian officials and the people smuggling gangs -- to halt the sad trade in illegal immigrants.  Irrespective of who wins on November 10, Australia must do its best to get an effective agreement with Indonesia, and Jakarta's decision to call a summit on the issue is welcome.  But if Kim Beazley thinks that Labor is more likely to solve the problem than the present government, he is deluding himself.


ADVERTISEMENT

Tuesday, October 23, 2001

Too Much Energy Going into Regulations

No serious authority can deny the price and performance improvement that has taken place in Australia's electricity and gas industries.  Since its various entities were competitively unleashed against each other, many being privatised, we have seen prices down by a quarter and productivity more than doubling.  We have seen the industries turned upside down from a series of sheltered workshops to a customer oriented set of businesses.

Yet all is not well.  The industry still has the glue of regulation and government intervention injected into many cracks and crevices.  Governments have created a plague of regulatory agencies to control the industry.  And these agencies risk shifting the entrepreneurial activities of the industry's firms from a customer-directed to a regulator-pleasing perspective.  Adding all the regulatory agencies together would leave something like one agency for every two active suppliers in the industry.  Naming them all in response to a quiz show question would take up the entire program!

At the Commonwealth level, regulatory agencies fall under acronyms that include ACCC, NCC, NECA, AGO and NEMMCO.  In addition, all states have their own regulatory agencies -- for Victoria alone, those overseeing the $6 billion electricity industry include ORG, Vencorp, EIO and OCEI.

And none of these agencies, which collectively eat up over $200 million a year, actually produce anything.  Instead they provide directions, some of which are necessary, to the producers and sellers of electricity and gas on matters like:

  • the prices they may charge,
  • their permitted terms of dealing with each other,
  • the fuel inputs they must use,
  • the safety arrangements they must take, and
  • the way they must treat their customers.

To do all this, the regulatory agencies have spawned a plethora of hearings, reports and decisions.  For electricity, Victoria's Office of Regulation Review (ORG) alone has produced or caused to be produced some 500 documents, comprising well over a million pages.

Whatever else competition policy has done, it has certainly proved bountiful to the regulatory industry.

Undaunted by the possibility of over-analysis, at the June meeting of the Council of Australian Governments, Energy Ministers decided to establish a three member Independent Review of Energy Market Directions.

The review however has a confusing agenda.  One of its terms of reference seeks to identify impediments to the full realisation of benefits of energy market reform;  this is code for reducing regulations.  Other priority issues are to chase the Kyoto will-of-the-wisp to bring about carbon dioxide emission reductions and to increase the means of encouraging natural gas usage.  Neither of these sits comfortably within the electricity market framework, a fundamental feature of which is to avoid favouring gas, coal, wind or any other type of technology.

The review process and the issues it is to address reflects politicians' schizophrenia with regard to electricity and gas.

The more sensible politicians wish to allow the market to operate in the same way as it is does in producing food, cars and hotel accommodation.  But many of this view also fear an electoral backlash if things go wrong or prices rise, and wish to keep their hands on the levers.

Others are intrinsically mistrustful of the market.  Never having learned the lessons of the past, they want to distort it to operate in favour of specific customers:  low income, small business, those in regional areas or whoever else is considered meritorious or politically muscled.

Still others believe in the fantasy of cheap green energy and that people would be better off if they could only be "educated" to need less energy.

Overlaying much of this is the normal state rivalries and the wish of some jurisdictions to advantage their own industry to enable it to win market share in other states.

Finding a path through these priorities won't be easy.  This is evidenced by the pedestrian pace of the review's present progress.  It was to report within 12 months.  Yet, almost four months have passed and the Energy Ministers still can't agree on who is to conduct the review.  The Commonwealth has appointed the Chair, ex minister Warwick Parer, who is well-credentialed as a politician and businessman but is no expert on the complexities of the Australian electricity and gas markets.  Doubtless, the calling of the Federal election will cause further delay

There is a plethora of reviews underway being conducted by the electricity regulators and the Productivity Commission.  The energy market review will therefore find it difficult to locate an unexplored niche.  But one such area is the regulatory inconsistency between gas and electricity.  Lack of consistency in the regulatory approach to the two energy sources is assuming greater urgency:  they are increasingly competing head-to head and gas is a major fuel competing with coal and other sources for the generation of electricity.

Lack of consistency in the treatment of gas pipelines and electricity transmission, means costly distortions.  If the review, when it finally gets underway, can harmonise the treatment of gas and electricity, preferably reinstalling the light handed regulation that was originally intended to prevail, it will have performed an invaluable service.  But the path to this has numerous potholes and roadblocks.


ADVERTISEMENT

Friday, October 19, 2001

The ABC Collective

For the second federal election in a row, the ABC has succeeded in pushing the politicians off the front and making its own incompetence into an election issue.

In 1998 election it was political bias.  In 2001 it is internal warfare.

Heads should roll, as there are few more serious errors for a public broadcaster than making itself an issue at times such as these.

But at the ABC, they are baying for blood, that of Mr Shier.

Mr Shier is only doing what he has been hired to do, which is turn the ABC into something it is not currently -- a national broadcaster.

Of course the ABC, claims to be The National Broadcaster -- to be Your ABC.  In reality it is a workers' collective run by clique of aging baby-boomers, who hire and fire in their own image and likeness and who cater to people with similar views, interests and prejudices.  What Shier is trying to do is to re-assert public ownership of the ABC and to get it to cater to the broad range of views and interests in the community.

Not surprisingly, the collective and their mates have undermined him and this process at every step of the journey.  In reality this is nothing new;  they have done the same to every previous Managing Director over the last twenty years.

The difference now is that funds are tight, the institution is a mess and the current Managing Director more determined.  The collective also seems more determined to resist, even if it means destroying what is left of the institution.

They have accused Mr Shier of being unsuitable for the job, when in truth his background is near perfect.  He is an outsider without allegiance to the collective with a lifetime in broad-based broadcasting and deep understanding of the new digital world.  If he were one of them, he would have no hope of changing the ABC.

He has been accused of lacking vision, when in fact he has a vision, but one that is different and broader then theirs.  He has been accused of letting the ratings slide by people who have spent a lifetime arguing that ratings do not matter for a public broadcaster.  He has been slated for a high turnover of senior staff and management, when this was a necessary part of reform process.

They have repeatedly accused him of bias in favour of the current government.  All such accusations have proven to be baseless.  The worst example was in July this year when he was lambasted in all the major dailies for allegedly pulling a Four Corners program to "protect his Liberal mates".  The staff were even reported to have hidden the master tapes and supporting document for fear that Shier would bring in the police to confiscate them.  As it turned out, he correctly held the show back for a week to get outside legal advice.  Given the accusation made in the program and the fact that the ABC has had to pay-out over $10 million in libel claims over the last few years, it would have been negligent of him not to act as he did.

Shier has repeatedly been accused of undermining the quality of programming, for example, by getting rid of the Littlemore program and precipitating the exit of Gail Jarvis, the Director of Television.  The fact is the Littlemore Program was a disgrace.  It used the lowest standards of journalism to attack Littlemore's pet hates.  Mr Littlemore was a known commodity who had previously compered the Media Watch Program.  Jarvis took it a upon herself to appoint him.  She was warned by Shier that she would be held responsible for the program's outcome.  When Littlemore showed true form and standards remained predicably low, the complaints flowed and Shier acted properly and Littlemore and Jarvis left.

Shier has been accused of being rude and abusive to staff.  Given what he has been through, this is very believable.  After all, it is only human to be a bit cranky and abrupt when you are falsely accused in the media of sexual abuse.

More recently he stands accused of being rude to Max Uechtritz, head of News and Current Affairs.  Perhaps there was no cause for rudeness, but anger at losing the rating game over the coverage of September 11th was justified.  The ABC should have won the ratings on this issue, but were simply outsmarted by Channel 9.

Now, during a election, the collective and the media are claiming that Mr Shier is about to get sacked.  The truth is that they and the ABC's unions are the only groups calling for him to stand down.  This is not new -- they have been doing this from the day he started.

The constant public denigration of Shier is, however, getting to the ABC Board, in particular the Chairman Mr McDonald.  His failure to support Shier when asked by the press recently, provided the excuse the collective needed to make Mr Shier an election issue.

Shier is our last hope this decade for reclaiming the ABC.  If he goes, the collective stays and continues to use $700 million of taxpayers' funds to crowd-out the views and concerns of many Australians.  This would be a tragedy.

Thursday, October 18, 2001

Kim's Corner Has Talent but no Killer Punch

Should Kim Beazley find himself in government on November 11, what would he do?  We know about his stand on Tampa, not to mention funerals, but how would he respond to those events and those constituencies that will knock on his, and his Ministers' doors, in the next three years?  John Howard produced very little by way of a plan for the 1996 election, but he spent 20 years developing his thoughts.  When in government, these came to the fore -- tax reform and industrial relations.  If the same holds for Kim Beazley, the election promises will only be a shadow of what he actually does.

Cautious Kim has spent twenty years in parliament, 13 of them doing mostly what those around him considered good policy or good politics.  In other words, Kim Beazley, more so than some leaders, will be hostage to the performance of his team.  He is more likely to work within the bounds of the climate created by his Cabinet.  Howard, by contrast has created the climate of his Cabinet.  This is not a criticism of Beazley, Hawke worked with his Cabinet, often to great advantage.  Keating sometimes worked without one, sometimes with dire consequences.

If Beazley is to depend on those around him, will the team be policy-minded, or a team of fixers?  Former Labor Cabinet Minister Neal Blewett recalls, "[John Dawkins] bemoaned the fact that every one ... seemed to be fighting the battles of their own most vociferous interest groups, as though it was a minister's task to win these battles rather than to represent the national interest".  The test of a Minister is one who can say no to their constituency.

Every Cabinet needs its fixers, machine men like Graham Richardson and Robert Ray, whose main interest was to deliver a win, often by delivering whatever a key constituency wanted.  Having said that, Ray was one of the nation's best Immigration ministers.  When it mattered, he solidly defended the national interest, rebutting the claims of the multicultural lobby and their party mouthpieces.  But if a Cabinet consists of too many fixers, there is no room for what Blewett called the national interest.  The national interest is not easy to determine, but when you sit in Canberra, you know the national interest has very little to do with what your constituents or a swag of interest groups say it is.  Each politician has to have a sense of the national interest, whether conceived through a left or right or some other ideology.  Not to have one, marks one down as a fixer.

Dawkins, Blewett, Evans, Walsh, Button, Willis, Kerin, Keating as Treasurer and the like, were policy people.  They would pursue a line of reason and only accept a fix if they had no other option.  Others always go for the fix.  Their only line of reason is electoral advantage.  The essential tension in a Cabinet is always between fixers and policy police, between the imperative to survive and to govern, between a populist view of democracy and an elite one.

Crean is a classic constituency man, always looking for electoral opportunity.  Nevertheless, sometimes the job makes the man.  As Treasurer, he may become more responsible.  There are two curious portfolio allocations, which leave us wondering.  John Faulkner presently speaks on public administration, which is fine for a bit of fun at Senate Estimates committees, but provides no clue to his real job in government.  The other is Bob McMullan who speaks on Aboriginal affairs, which is not a Cabinet rank portfolio.  He is sure to move.  They are good policy people, it depends how they are used.  Lawrence and Lee could rise to the occasion, the test for both is whether they can advance matters in the face of a party-base heavily weighted to manufacturing and public sector (especially teaching) unions.

The real story lies in the Left.  Of those most likely to be the reformers in a new Labor government, they are from the Left.  In addition to Faulkner, Lindsay Tanner, in Finance is a considerable talent.  Jenny Macklin is a reformer, but she will be expensive.  She still believes societies can spend their way to equality.  That Martin Ferguson told the truth about Ansett not flying again, says a great deal about his integrity.  Jennie George is formidable, and sure to replace Cheryl Kernot who, in the unlikely event she holds the seat of Dickson, will certainly not take a place in Cabinet.  Mark Latham is the most cerebral of the Right and will take his place, in time.  The remainder are fixers.

Look for a government that has neither the vision of Whitlam nor the market-oriented policy discipline of Hawke-Keating.  My guess is a lot more gestures to the human rights, social justice, green agendas, which the Labor Right abhors, but are happy to run with.  A lot more public sector initiatives in buying constituencies, more commissions, more statutory advocates.  No progress on wealth creation, no further reform in industrial relations or industry policy.  A cautious, left-leaning Labor government.


ADVERTISEMENT

Sunday, October 14, 2001

Green Power Will Cost Us

The ALP's policy decision to ratify the Kyoto Convention on greenhouse would deliver a cruel blow to the Victorian electricity industry and to the Latrobe Valley.  At Kyoto, Australia agreed to limit its carbon dioxide emissions in 2010 to 8 per cent above the 1990 level.  Already we are over 20 per cent above the benchmark and it would take a monumental recession to prevent this reaching 30 per cent by the 2010 witching hour.

The only way Australia could feasibly reduce its emissions in line with the Kyoto goals is by massively reducing coal usage.  That's what the Europeans have done.  The European Union can meet its Kyoto goals because the inefficient East German coal based electricity industry has been dismantled and gas has displaced high cost coal-fuelled electricity in the UK.

Australia has no such easy options.  Coal is far and away our cheapest means of generating electricity.  This is especially the case with Victoria's brown coal, an El Dorado of 1000 years electricity supply sitting under the Latrobe Valley dairy country.  Currently using this coal in Victoria are five generators that have been honed into world class outfits.

Ratification of Kyoto would require a mechanism like a tax on carbon dioxide emissions which would spell curtains for the Latrobe Valley's brown coal.  No amount of soft soap about protecting existing jobs or using cleaner processes can change that.

In the process, Victoria would be transformed from one of the lowest cost producers of electricity in the world to a relatively high cost importer and producer.  Consumers would see higher electricity bills.  Ominously, however, the State would lose its competitiveness in the energy intensive industries like aluminium smelting and see costs notched up across the board in all industries.  That's why the Liberals have balked at ratification, although the Government itself is spending hundreds of millions of dollars a year on reducing carbon emissions through the Australian Greenhouse Office.

Ironically, Federal Labor's greenhouse policy decision comes hard on the heels of a decision by the State Government only last week to open up new areas for brown coal development.  In announcing that decision, the Minister, Candy Broad said, "The Bracks Government is using the coal tender to encourage industry to adopt new, clean technologies to ensure brown coal remains a viable energy source for Victoria in the future".  Oh dear!

On November 10, electors will have a chance to decide whether they want to adopt the greenhouse myth and see a gradual strangulation of the economy.

Unfortunately, there are always a great many other issues on which voting decisions are based.  In addition, the options are not so clear cut for the voters of McMillan, the centre of the brown coal industry.  You see, aside from already spending big on reducing carbon dioxide emissions, the Liberals have chosen Jim Forbes as their candidate.  He favours ratification of the Kyoto Agreement albeit later than Kim Beazley.

Hence the choice is between the light green of the Liberal Party and the darker green of Labor.  The Liberals want to avoid or at least delay action that will emasculate Australia's cheap energy.  Labor wants to move us faster along that road.


ADVERTISEMENT

Time to Condemn Fanatics

Imagine that a wealthy, far-flung and fanatical Christian group, outraged by the mistreatment of Christians in a Muslim country such as Sudan, was attracting increasing admiration because of its indiscriminate violence against Muslims and Sudanese, together with well publicised threats of worse to come.  There would be a never-ending rush to the media by Christian clerics and lay people impatient to denounce such acts as a terrible corruption of Christianity.

As Sheikh Abdul Hadi Palazzi explained in an article in last Wednesday's Courier-Mail, the Islamist ideology -- usually though misleadingly called "Islamic fundamentalism" -- that animates Osama bin Laden and his supporters involves a similar perversion of Islamic teachings and traditions.  The outcome is a totalitarian political doctrine that has many affinities with fascism, and indeed, Syed Abul Ala Maududi, one of the founders of the Islamist movement, was a great admirer of the European dictators of the 1930s.

In common with other observers, Sheikh Palazzi argues that despite their professed friendship towards the West, it is Saudi Arabia and certain Gulf countries who have done most to promote radical Islamist ideas, and that Saudi subsidies are allowing mosques in Western countries to come under the control of extremists.

This helps to explain an otherwise puzzling situation.  While there can be little doubt that most Muslims in the West are disgusted by the barbarities that have been committed in the name of their faith, the public response of many of their leaders to the radical Islamist notions that justify these acts has been ambivalent, despite honourable exceptions.

Certainly, many Muslim organisations in Australia and elsewhere quickly issued media statements which condemned the terrorist attacks on New York and Washington, and quoted from the Koran to demonstrate that Islam promoted tolerance and peace.  Such statements are admirable.  But given the gravity of the situation that Western nations now face, and the extent to which extremist Islamist ideas seem to be gaining influence, they are far from sufficient.

A number of Muslims have pointed out that at a time when the media is saturated with images of terrorists who claim to be acting on behalf of all Muslims, it is imperative for their co-religionists who oppose extremism to seize every opportunity to repudiate the Islamists, both within their own community, and to their fellow non-Muslim citizens.

Writing in the Wall St Journal a few days after the terrorist attacks, Tarek Masoud noted that instead of asking what could be done to help those affected and to prevent similar horrors in future, the most visible reaction of Muslim leaders in the United States had been to wrap themselves "in the mantle of victimhood".  The leadership was devoting its energies to warning Muslims that they would be the target of "hate crimes" by other Americans seeking revenge.

But as Masoud noted, even though the biggest "hate crime" in American history had just been perpetrated, the outbursts against Muslims have been few and far between.  President Bush and other American leaders have been scrupulous in drawing a distinction between the small minority of terrorists and their sympathisers, and the great majority of Muslims in the United States, who are loyal and law-abiding citizens.

This was not a cynical ploy to ensure the co-operation of Muslim nations whose continuing support will be necessary for the struggle against terrorism.  Rather, it is consistent with a major theme of contemporary American -- and Western -- culture.  Progressive intellectuals may disparage the individualistic focus of our culture, but it does have the great virtue of providing a powerful antidote against ethnic stereotyping and attempts to make a people collectively responsible for the actions of some of their number.

Similarly in Australia, the focus has been on Muslims as victims, even though political leaders acted promptly to allay their fears and provide additional resources to protect their communities.  True, there have been a few nasty incidents involving attacks on mosques and harassment.  While these must have been distressing for those affected, they were the work of craven individuals, and they were far outnumbered by written, emailed and telephoned messages of kindness from ordinary Australians condemning such acts.

Nevertheless, it is an article of faith amongst Islamists that most people in Western countries hate Muslims and seek the destruction of Islam.  Greatly exaggerating the threat that Muslims face from supposedly racist and intolerant Westerners is one way of undermining internal opposition and gaining further support.  Unfortunately, this political tactic of the Islamists is given credibility by "progressive" intellectuals, who have their own reasons for promoting nonsense about the supposed level of anti-Muslim bigotry in mainstream society.

In their constant desire to assert their moral superiority over their benighted fellow countrymen, the "progressives" overlook the fact that individual Muslims are far safer and freer in places such as Australia and America than they would be in most Muslim nations.  Of course, many Muslims know this to be true from their own personal experience, but either their message is being lost in the rush to denounce the West, or they are reluctant to speak out.

Local Muslim leaders may feel it is unfair that they should be called upon to do much more to repudiate and combat the messages of anti-Western hatred that are coming from the radical Islamists.  But just as Australian Muslims have every right to have their fears allayed, so too does the wider community.  If the multicultural industry had any sense, this is the message it would have been promoting since September 11.


ADVERTISEMENT

Thursday, October 11, 2001

Is National Sovereignty Out Of Date?

The Hal Clough Lecture for 2000


INTRODUCTION

Many voices now tell us that sovereignty has become irrelevant or anachronistic in our age of globalisation.  I don't believe this claim.  I don't see how anyone can seriously believe it.  Certainly, it would make the dispute between Israel and the Palestinians quite easy to solve, if these peoples could see that sovereignty is irrelevant.  But they are still fighting about who has sovereignty over what portions of Jerusalem.  Perhaps they have noticed that no other patch of land in the world operates under the shared sovereignty of two different states, because it matters too much who gets the last word over any particular territory.

The simple truth is that, for most countries, there really is no decent alternative to national sovereignty.  But a lot of people want to hide this fact from others or from themselves.  This confusion can make a fair bit of trouble for all of us while we are recovering our wits.

Churchill said, "You can always count on the Americans to do the right thing -- after they have first exhausted every other alternative".  In this respect, America is not at all an exceptional country.

We might all save ourselves a lot of trouble if we acknowledged that sovereignty is serious and here to stay, and then viewed our respective national policies accordingly.  But contrary pretences have a lot of momentum right now.  Let me start by explaining why that is so, before returning to my argument that these pretences can't finally be more than that.


THE WILL TO BELIEVE

Something remarkable has happened in Western Europe in recent decades -- that is true.  The European Union is a remarkable example of ancient states coming together under a new form of supranational authority.  But it is unique in the world -- that is why it is so remarkable.  (For speculation about the sources of European uniqueness, see the Endnote appended to this lecture.) Meanwhile, year by year, the European Union seems to be evolving into a federal superstate rather than a specialised supranational body.  It already has its own Parliament and its own court, along with its own flag and its own ambassadors.  It now even negotiates and signs its own treaties with outside countries on behalf of its member states.  It is now developing its own currency, its own criminal law and its own military force.

So, if the European Union does not fall apart, it will cease to be a remarkable exception and emerge as another sovereign state in its own right.  It will be different from the federal governments of Australia or Canada or the United States, only in having acquired its sovereignty in stages and by some degree of stealth and trickery rather than in an open and honest constitutional act at the founding.

But to project this example to the world at large is surely chimerical.  One is tempted to describe talk of "global governance" as "visionary" -- except that visionaries believe in their visions, as pacifists genuinely believe that disarmament is the path to peace.  What feeds talk of "global governance" is better described as "sentimentality" -- the mood of the audience at the end of a "heart-warming" film, where the story ends so much more happily than it would in real life.  It is what literary critics call "suspension of disbelief" -- the willingness to follow the twists and turns of an improbable plot-line without worrying about whether it could really happen that way.

A sovereign state is one that is not subject to higher legal authority, not subject to the commands of a superior.  Member states of the European Union are no longer quite sovereign in this sense, since EU councils and the EU court can legally override even enactments of national parliaments in the member states.  And of course, Western Australia, California, Ontario and other states in federal systems are not sovereign in this ultimate sense.  The terms of their co-operation with the other states in their federal scheme are determined, in the last analysis, by federal authorities.

But what stands above states that are actually sovereign?  Clearly, we don't have a world government.  Clearly, we wouldn't much enjoy one, if it existed.  Do a thought experiment if you doubt this:  Suppose we had a world authority accountable to the member states or to their peoples.  How long before China, India and the majority of states (or the majority of the world's population living in these less developed states) ganged up on the handful of affluent nations in the West and sought to redistribute their wealth to those who need it more?  How long would it take, then, for Western nations to revolt against this onerous world system?  Probably they would not try to conquer every other country but just insist on their "separate and equal station among the powers of the earth" -- as Thomas Jefferson put it, in the American Declaration of Independence.

When we aren't indulging in sentimental fantasies, we can just skip to the obvious conclusion and acknowledge that successful countries are not going to sacrifice their independence.  Advocates of global governance, however, like liberal screenwriters in Hollywood, seem to believe that if we are confronted with enough sentimental images, we will come to accept the sentiment for reality.  And we have, for fifty years, seen the construction of sentimental institutions -- rather like the theme rides at Disney World which perpetuate the memory of successful films.

The greatest of these, of course, is the United Nations, a standing monument to the high hopes -- or high rhetoric -- of the Allied victors in World War II.  The UN Charter was supposed to have made war unlawful.  In the old days, before the establishment of the United Nations -- or its more short-lived predecessor, the League of Nations -- you would, if attacked, have to defend yourself by military means.  Now, under the new system, if attacked you can … still defend yourself.  The UN Charter may say that no one state should attack another.  But it guarantees nothing to the victims.  Yes, the UN has a Security Council which has the power to impose binding resolutions to settle conflicts in the world.  In the bad old days, a small country could ignore great powers, so long as some other great powers would serve as its shield or champion against others.  Now, small countries must obey the great powers on the Security Council -- unless one or more of the great powers wants to take the side of the small country in question and veto the Council's resolution (which must have unanimous approval from the permanent members of the Council).

You can view all this as a great change in the world if you want to.  And if you do, you will find it equally plausible to think that the United Nations has also worked a great change by establishing a convention against genocide.  Perhaps you will be a bit discomfited when you recollect that this convention was duly signed by Cambodia, Rwanda and Yugoslavia, before any real trouble started in those places (and when Bosnia was a part of Yugoslavia), yet neither the UN nor any other power did much of anything to stop mass slaughter in these places.  If you want to, you can console yourself with NATO's three-month bombing campaign against Serbia in the spring of 1999, ostensibly to stop ethnic cleansing of Albanian separatists in Kosovo.  You can say (as some politicians and editorial writers said at the time) that this episode marked a dramatic change in world affairs and gave real force to international humanitarian law.  Then you must say that it was sheer good luck that NATO sustained not a single casualty among its own forces in this venture.  And you must believe that NATO countries and others would still be quite prepared to risk significant casualties to uphold human rights in the next venture.

If you believe this sort of thing, you will find it quite plausible to think that the endless enumeration of human rights obligations in UN conventions is gradually changing the world.  You will find it quite plausible to think that as Western governments submit their own conduct to inspection by brutal regimes in poor countries, the latter will respond to criticism by Western countries and everyone will be much improved by these exchanges.  (As workers in the old Soviet Union pretended to work, while the state pretended to pay them, brutal governments around the world pretend to honour human rights standards, so you can pretend to believe them.)

You should then find it quite easy to believe that Western countries will actually reduce their energy use by almost one-third over the next decade -- as they have promised in the 1997 Kyoto Protocol -- to reduce emission of greenhouse gases, primarily carbon dioxide, supposed to be generating a global warming trend.  You will believe that what the OPEC cartel could not do in the 1970s, an international treaty structure really can do now.  And you will believe that less developed countries (soon to represent more than half of global energy consumption and global greenhouse gas emissions) do not mean it when they insist that they will never agree to reduce their own emissions.  You will believe that the inspirational force of international agreements and international authority will eventually bring them around.  (That is, where poor countries do not even pretend to co-operate, you will pretend even harder that you haven't heard or don't believe their disclaimers.)

But surely, at some point, you will find that the effort to believe all this -- to keep up your suspension of disbelief -- just requires too much effort.  At that point, you might find more solace in older religious beliefs where the promised transformation in the human condition is supposed to be further down the road.


FEAR OF COMPETITION

There is one kind of international agreement that is generally thought to work rather effectively.  I mean trade agreements -- most notably the General Agreement on Tariffs and Trade (GATT), which has been lowering barriers to international trade since 1947.  It started with two dozen trading nations in the developed West and now has almost 150 signatories from all parts of the world.  Along the way, it has moved from reducing tariffs to lowering other sorts of barriers to trade and achieved, since 1995, a more formalised structure in the World Trade Organisation.

Whatever the creaks in the institutional machinery of the WTO (and they are not, in fact, trivial), no one disputes that international trade has grown by leaps and bounds in recent decades and trade agreements presumably deserve at least part of the credit for facilitating this trend.  But this very success has inspired many people to think that what could be done for trade can now be done for everything.  That is, in itself, an important factor contributing to contemporary delusions about global governance:  if we can have treaties to foster the globalisation of trade, why not treaty structures to advance other global aims?

But that is only half the point -- and probably the lesser half.  More importantly, the growth of international trade has persuaded many people that the world now needs to organise itself to slow down or halt this trend.  The growth of international trade has put pressure on business to compete with foreign rivals, which in turn generates pressure on governments to limit burdens that make home industries less competitive.  Those who favour more controlled economies therefore seek to limit free trade.  Or they seek to balance international trade agreements with international regulatory agreements -- which may be just another way of saying that they seek to limit free trade.

So President Clinton has repeatedly called for a "New Deal for the global economy" (invoking the resonant slogan that President Roosevelt coined for his domestic regulatory programme in the 1930s).  European leaders have eagerly seconded this call.  Indeed, there is much more support for the idea in Europe than in the United States.  So we hear calls to integrate standards of the International Labour Organisation or the terms of international environmental agreements into the trade system.  The idea is that all countries should honour minimum standards for labour protection and environmental protection, so that countries which already have high standards in these areas do not experience "unfair" competition from countries with much lower standards.

It is true that something like this bargain does occur in the European Union.  Less affluent and less environmentally conscious member states have been forced to adopt labour and environmental standards favoured by the richer and greener states -- above all by Germany -- as the price for access to lucrative markets.  Europeans decided that they could not remove all barriers to cross-border trade without "harmonising" regulatory standards, which meant, among other things, promulgating European-wide environmental and labour standards.  In some ways, the European Union now imposes more standardisation of regulatory policy on its member states than the federal government of the United States imposes on its fifty component states -- which is perhaps less remarkable than it may sound, since the European Union (as an entity, in itself) is less of a democracy than the American federal government.

But to do this sort of thing effectively on a global scale requires strong global institutions.  Europe has strong institutions.  Among other things, regulations issued by the European Commission take direct effect in national law.  Private firms or private individuals can drag their own governments before the European Court of Justice (and the European Commission can sue national governments, on its own) to enforce European policies on delinquent or recalcitrant national governments.

The world has no institutions of this kind and is not at all likely to develop them.  So, for example, the International Court of Justice (the so-called "World Court") only hears disputes between sovereign states -- and then only when both parties agree to submit their dispute to the Court's judgment.  For reasons I will get to a bit later, our experience with trade agreements is no indication that we can develop strong global institutions to enforce wider regulatory agendas.

Yet there is one other factor that promotes the fantasy of global governance and it is closely related to the fear of economic competition.  Governments have their own fears of competition.  Certainly, politicians do.  They like to tell voters that their hands are tied, that they have no choice, that they are doing what any other politician would have to do in the circumstances because, indeed, all others are doing it.  In other words, politicians often find it convenient to hide behind international norms and international agreements and the supposed expectations of other countries.

These claims are not always hollow.  In a few areas, there really are international norms that almost all countries accept and if you violate them, you risk being treated as a pariah.  And, yes, there are times when an ally or trade partner will lean hard on another government to make some particular concession or join in some controversial initiative.

But I think it is the other side of the coin that comes into play more often, and that accounts for the proliferation of new international agreements -- and particularly agreements of a sentimental or dreamy kind -- in recent decades.  Politicians often find it convenient to have outside allies.  And international institutions are particularly convenient allies because they are the sort of partners that don't hold you strictly to account.  So, around the world, governments cheerfully sign agreements that they don't quite mean.

Should we eradicate sexual stereotyping in school textbooks and ensure that women workers are paid what they are "worth" compared with men?  Absolutely, said Australian and European and Canadian politicians when they signed on to the Convention for the Elimination of All Forms of Discrimination Against Women in the 1980s.  And the ensuing national legislation was then presented as something these countries were "obligated" to put through -- so no need for a lot of domestic debate.  And if Libya signs, too (as it has) or Romania (as it has) or Guatemala (as it has) and they don't quite live up to these standards?  There is no way to force them to change and there is hardly any disposition to do so.  But, never mind.  It's the thought that counts.

If voters in democratic countries are sceptical, there are middle men to help close the deal -- so-called "non-governmental organisations".  That is, advocacy groups.  NGOs attend international conferences and draw media attention to what would otherwise be rather tedious events.  NGOs publicise international agreements.  NGOs try to give a sense of reality -- and weight -- to talk of what "world opinion demands".  They like to speak of themselves now as representing "global civil society".  They claim to express what "people" around the world want, rather than what mere governments want.  And the corollary, of course, is that these unelected, self-directed advocacy groups are better reflections of what "people" want than mere governments, even if those governments are freely elected.

These groups can be a nuisance at times for governments, but they are also partners in the game of facing down voters.  So, when homosexual advocacy groups complained to the UN's Committee on Human Rights about a traditional sexual morality statute in Tasmania, the Australian federal government announced that it simply had to respect the Committee's ruling and enact federal legislation, overriding Tasmania's constitutional authority to determine its own criminal law in this area.  Was the ALP government at the time "forced" to act by the clamour of human rights advocacy groups, insistently invoking Australia's obligations under "international law"?  To talk of "force" in this context would -- to say the least -- be engaging in some exaggeration.

This sort of team-tag between international authorities, NGO advocacy groups and obliging governments, is a rather new phenomenon.  It may seem to be gaining momentum.  Quite a few scholars and analysts and advocates believe that "global civil society" is already a major force to be reckoned with and, in particular, a force that is eclipsing national sovereignty.  Now I want to explain why I think this is all wildly exaggerated.


WHAT SOVEREIGNTY HAS GOING FOR IT

Sovereignty began, in the sixteenth and seventeenth centuries, as a doctrine about the authority of princes.  But it became most irresistible when the power of governments was conceived as something conveyed by the people -- when, that is, sovereignty was associated with notions of popular sovereignty.  This was already the argument of Locke in defence of England's Glorious Revolution and explicitly the argument of the American Declaration of Independence:  if government rests on consent, then the government which receives the people's consent must be independent of any outside control.

By the nineteenth century, doctrines of popular sovereignty had become so powerful that few monarchies could survive without casting themselves as somehow an expression of popular will -- and the multi-ethnic empires that could not plausibly present themselves in these terms did not survive the strains of the First World War.  New dictatorships still sought to wrap themselves in populist trappings and described themselves as "people's democracies".  When the last of them in Europe finally collapsed, at the end of the Cold War, they broke into national pieces.

People want more control over government.  Sharing policy decisions with 150 other governments is not a good way to get more control.  Within countries, people are demanding (and often getting) more devolution of policy-making power to regions, states and localities.  Thirty years ago, when government planning had a much higher reputation than it does today, many people predicted that the United States would see a trend toward metropolitan governments, embracing cities and suburbs in the same planning structure.  It has not happened.  Indeed, the reverse has happened:  developers have organised new condominium developments as private communities, subject to the direct control of the home owners.

Around the world -- in democracies as well as more repressive systems -- people have grown more distrustful of government.  Is it plausible that, in this climate, people will ultimately put more trust in far-away international institutions?

The counter-argument, which mesmerises many people (at least at universities and in the fevered world of NGOs), is that people demand effective solutions and national governments are no longer big enough to deliver these solutions.  By pooling their resources, we are told, national governments can achieve "effective sovereignty" which, they tell us, is the real point of sovereignty -- the power to achieve results.

This may sound like common sense to many people but, at bottom, it is silly.  The truth is that no government in the history of the world has had "effective sovereignty" in this sense.  It is a totalitarian fantasy -- or perhaps just a socialist delusion -- that political power gives government the capacity to achieve any objective.  Sovereignty is a political status, not a magical property.  King Canute was not less sovereign for his inability to command the waves and Australia's government is not less sovereign for its inability to get rain to fall in the Great Sandy Desert.

To remind you of this is not to engage in definitional quibbles.  One of the key arguments for abandoning or sharing sovereignty is that national governments can no longer control their economies by themselves, so we need global institutions to control a global economy.  Yet this is not a problem of scale but of expectations.  Little Singapore has done very well for itself by giving free rein to private commerce.  National governments that seek to manage their economies more closely find that this is very hard to do, not because their countries are too small but because a modern economy is a hard thing to control -- at least it is if you want to assure continued growth and then try to assure that everyone keeps the same job and the same markets for as long as they like.  What socialist or social democratic governments cannot do well in a smaller territory, no world organisation can do more effectively on a larger scale.  It is no doubt possible to choke off trade and choke off growth.  But there is no reason to think that scale alone will magically provide international institutions with powers of insight and control that are denied to national governments.  On the contrary, understanding and control are bound to weaken as the scale of governmental undertakings expands.

Nor does the growth of "global civil society" make much difference.  What this phrase means, if it means anything, is that advocacy groups find it easier to form networks across national boundaries in the age of the fax machine and the Internet.  That is some help to human rights advocates and environmental activists and champions of social justice, with whatever cause they champion.  But by themselves, these groups have no power to coerce anyone.  Their power is parasitical -- even when they cloak themselves in international agreements or claim to speak for international organisations.  These international agreements and authorities are, in themselves, parasitical.  When it comes to applying actual coercion -- collecting taxes, putting people in jail, deploying troops -- you must deal with a real government.

It is true that advocacy groups can sometimes rally public opinion in their own country and in other countries and, in this way, can sometimes force governments to change.  But rallying public opinion is not quite so easy:  if it were, governments would always be popular.  I do not mean to denigrate the success of human rights groups in building resistance to repressive governments.  But I do not think such success can be readily or routinely repeated in democracies.  The Catholic Church was quite effective in rallying resistance to the Communist government in Poland;  that did not make it a decisive force for resistance when a democratic Poland decided to liberalise its abortion laws.  Even the Polish labour movement, Solidarity, so effective in its struggle against Communism, was ultimately rejected by voters under the new democracy in Poland.

Sovereignty is finally about force:  it is an answer to the question, who is authorised to use force?  A government that can't exercise force will not be around for very long.  A government that can't prevent others from imposing their will on it by force -- or by lawful compulsion, acknowledged as such -- is not sovereign.  The point is not that the world is ruled by force.  Perhaps it is ruled by opinion or fashion or poetry or beauty.  Perhaps it is not sensible to say that the world is ruled by any one thing, unless it be by Divine Providence.  But what makes a government legitimate is that its right to use force is accepted.  No international organisation is a legitimate government in this sense and there is not much disposition in the world to give international authorities this status.

Talk of global governance is essentially a strategy for confusing people.  It tells them that their own government must change if it comes under condemnation from international authority or from advocacy groups claiming to speak for "global civil society":  global governance implies that authority is shared between their own government and these amorphous, free-floating global monitors.  International institutions, which can't defend or protect you, are supposed to have the moral authority to direct you in your own internal policy because we have somehow transcended a world of well-defined governing powers and escaped into a world of presiding spirits.  (The US Supreme Court Justice Oliver Wendell Holmes once put the point quite succinctly when he protested against appeals to natural law constructions as if they were a "brooding omnipresence in the sky".)

So the Australian government has to answer to international inspectors if it authorises a mine at Jabiluka, because the World Heritage Convention supposedly gives UNESCO the authority to protect "World Heritage" sites like Jabiluka Park.  So the Australian government has to answer to human rights officials in Geneva if too many Aboriginal people are punished under criminal sentencing laws in Western Australia.  I don't have any definite opinion about whether there should be mining near Jabiluka or whether the criminal sentencing laws in Western Australia should be retained.  My point is that the rest of the world does not, either.  If you put up with this sort of thing, you are playing a game with yourselves.

And it is finally a rather pointless game.  After we get done with all the bluster and fantasy, it really does matter where sovereignty resides.  In the end, most people will want it to stay that way, especially when they have some trust in their own government or in their own constitutional system for holding their government to account.  As soon as a UN body starts to make demands that are genuinely unpopular, any Australian government will resist -- or find itself replaced by another that will.

But you would have more honest and more genuinely accountable government if you acknowledged this from the outset.  If a government wants to give in to the clamour of advocacy groups or international admonitions, that is the government's own choice and it should be held accountable for that choice -- as for any other.  The "international community" does not sustain a "mystic overlaw" (to borrow another apt phrase from Justice Holmes) which forces your government to do what its own people reject.  That will be clarified in the crunch, but it is inviting trouble and confusion to wait for the crunch before making this clear.


SO, WHAT'S LEFT FOR INTERNATIONAL CO-OPERATION?

Nothing I have said implies that there is no scope for co-operation among states.  Very serious and learned people have been writing treatises about international law for more than three centuries -- not just visionaries, but lawyers, who are rarely visionaries.  There is obvious potential for codifying or at any rate, stabilising, certain customary courtesies in dealings between states, which is what international law was basically about for most of its history.  The rule that you don't seize ambassadors from another country is very ancient and was even observed by Hitler and Stalin toward each other's ambassadors on 23 June 1941.  The Islamic Republic of Iran really did find itself universally condemned when it allowed the staff of the American embassy in Tehran to be held hostage by student radicals for over a year in 1979–80.  There is no doubt that the condemnations were sincere:  they were made, after all, by other diplomats.

Regional understandings on air and water pollution have had some success and this is not surprising when countries have a common interest in a relatively focused problem.  But seemingly serious people (including the immediate predecessor to the current Secretary-General of the WTO) say we now need a central authority to supervise global environmental policy.  I doubt that we can expect a Global Environment Organisation to impose regulatory standards for the world -- anymore than we can expect the existing International Labour Organisation to be much more than what it has been, a cheerleader from the sidelines.

Success with relatively undemanding ventures in international co-ordination does not show that the world can sustain systematic, global regulation.  To believe such a thing, one must think that government success in co-ordinating traffic flow on city streets indicates that government can manage investment flows in a modern economy.  The difference isn't just in scale but in character.  People will co-operate with rules of the road to get to their separate destinations with a minimum of conflict;  that doesn't mean that they agree to go wherever a government wants to send them.  And sovereign states have much greater ability to resist and evade global regulation than private individuals have to resist or evade national controls.

How can there be successful international trade agreements, then?  The short answer is that the WTO succeeds, to the extent that it does, because it is not, in fact, a global regulatory agency or anything like it.  The WTO does not enforce trade agreements.  It does not enforce anything.  What it does is simply to provide arbitration panels for trade disputes.  When State A complains that State B has imposed barriers to A -- in ways that are contrary to the latest agreement -- the dispute can be referred to a panel of trade experts.  But in the end, the only sanction (if the dispute cannot be settled voluntarily) is for A to impose retaliatory tariffs on imports from B -- something it could have done at any time, if there never had been trade agreements.

The truth is that countries can manage exchanges by treaty, because both sides have something of value that they can withhold.  For that reason, countries have been making trade agreements for centuries and they often have endured through other disputes.  The world has no real experience with regulatory standards that impose costs on behalf of the world at large.  Certainly countries can impose trade sanctions on each other to try to change domestic practices.  But such sanctions rarely work well, among other reasons because they are rarely sustained long enough by enough countries to make a difference.  Unlike an actual government, neither the World Trade Organisation nor any other international institution has the power to force countries to keep up trade sanctions.

The experience of Iraq suggests this is very hard to do, even when the stakes are very high.  Australia's own Richard Butler, in charge of UN inspections in Iraq, has warned that Saddam Hussein is building weapons of mass destruction in defiance of his promise not to do so.  From its seat on the Security Council, France yawns.  The UN inspection system was supposed to be enforced by trade sanctions on Iraq but the inspection system has broken down and the trade sanctions are widely ignored.  The world has too much thirst for Iraqi oil.  Is it at all plausible that a world which can't keep sanctions in place on a proven aggressor like Saddam Hussein -- even when the prevention of nuclear or biological war is at stake -- is a world that can, nonetheless, organise itself to enforce sanctions for infractions of a labour code in some wretched developing country?

I think the world will be worse off if it overburdens and thereby undermines the existing trade rules.  I trust economists when they tell us that free trade generally benefits all participants.  But I don't mean to insist that any country is obliged to go further toward free trade than it wants to go.  Perhaps the WTO is already too ambitious.  That may be.  But we shouldn't fool ourselves into thinking that the relative success of the WTO implies a transformation of world affairs.


HOW TO PROTECT SOVEREIGNTY --
WITHOUT LOSING YOUR WITS

I think we should recognise that efforts to erect supranational authorities on top of sovereign states are hopeless.  They are, in effect, attempts to return to the era that preceded nation states -- that is, to a medieval world where princes and barons held conditional or partial authority of uncertain extent and all were supposedly united in Christendom or in the Holy Roman Empire.  The point of sovereignty, at the outset, was to insist that no human authority -- not the Pope, not some German emperor -- stands above a sovereign state.

Some ceremonial remnants of the medieval Germanic Empire actually lasted into the early nineteenth century.  And as late as the nineteenth century, Protestant states still made much of their opposition to papal authority.  But it has been a long time since papal authority represented any threat to civil government.  At some point, people who continue to obsess over ceremonial forms are rightly suspected of mental imbalance.

Personally, I think it is silly when Americans get so worried about governmental "establishment of religion" that they bring lawsuits to challenge Christmas displays which are (they say) placed too near to government buildings.  For the same reason, I have never understood why so many people in Australia want to place an exclamation point over Australian independence by repudiating the monarchy and establishing a republic.  I cannot see that Queen Elizabeth is any more of a threat to Australian independence than Christmas displays are to American liberty.

And I have basically the same view of international institutions.  I don't think sovereign states need to withdraw from the United Nations or repudiate UN human rights conventions, just to prove to themselves or their people that they remain sovereign states.  The important thing is not what ceremonial institutions you have, but what political understandings you have behind them.  It may be rather harmless for your diplomats to attend international functions and clink glasses with other diplomats -- or for your NGO activists to exchange e-mail addresses and fax numbers with their counterparts.  But you need to remain clear that your government cannot be forced.  And that you have no great obligation to go along, just for the sake of building international solidarity.  Your leaders can promote this understanding by voicing it out loud -- not, perhaps with rude bluntness, but with enough candour to make the point.

Instead, I hear conservative politicians in Australia say that they want to reform the UN and its human rights machinery.  I suppose they say this in order to sound constructive.  But I doubt that they will make much difference to the way the UN operates.  I doubt very much the UN is capable of being reformed.  It is a club which cannot exclude anyone and must treat every member equally, so it is not a club that will ever be very congenial for countries that hold themselves to high standards.

Your government's primary job -- any government's primary job -- is to look after its own people.  That is probably enough to satisfy most voters.  Governments which set themselves global aims should be suspected of regarding their own countries -- or their own electorates -- as otherwise unmanageable.

"Advance, Australia!"  I don't see that this old motto has become anachronistic.  America's motto, the one they still put on their money, is, "In God we trust".  It was adopted in Lincoln's time, but it is only another way of saying that they insist on what Jefferson called our "separate and equal station among the powers of the earth".  That is, they seek no international authorities to serve as intermediaries between their own sovereignty and God's.  Australia may be a smaller country than the United States, but it has as much right -- and probably as good prospects -- of preserving its "separate and equal station" among the sovereign states of the world.


ENDNOTE
The Case of the European Union

Why has Europe gone so far down this path?  Various explanations have been offered and no one factor may be enough to account for such a remarkable development.  But whichever way one looks at it, there remain strong reasons to doubt that the European experience could be readily duplicated in other parts of the world.

It is often said, for example, that European states have been drawn together by a shared determination to diffuse the national conflicts that unleashed such devastating results in two world wars.  If peace could be assured, however, just by submitting to regional authority, we would expect to see strong regional structures emerging in many other parts of the world.  All states in the Balkans should be trying to resurrect a greater Yugoslavia, for example, while Israel and its Arab neighbours should be negotiating common institutions of a Middle East Community.  But in most of the world, people expect to diffuse tensions precisely by separating hostile communities into entirely separate states.

What caused such terrible wars in Europe was not the existence of independent states, per se, but the existence of one overly large and overly aggressive state -- Germany.  European integration has been a way of "integrating" Germany into a larger structure, following its catastrophic defeat in 1945.  Until 1990, Germany's European partners were only dealing with a truncated West Germany, now about the same size as France.  There was always a great deal of ambiguity about whether "regional integration" was fundamentally a device for other states to restrain Germany -- or a politically acceptable mechanism for a reviving Germany to guide its anxious neighbours.  No such ambiguity could be maintained in a Union of the Americas, with the United States at its core nor in an East Asian Union with Japan at its core.  It remains to be seen how well the EU will now do with an enlarged and invigorated Germany at its core.

Other accounts stress the economic motivations driving European states toward regional governance.  But if dismantling trade barriers were the sole concern, the General Agreement on Tariffs and Trade (which predates even the initial agreements on European economic co-operation) was always available for this purpose.  The special appeal of the European process was that it allowed for a fuller reduction of trade barriers in some areas -- while retaining special protective subsidies in other areas, as, notably, for agricultural products, where France insisted on special subsidies within Europe and resisted all efforts to incorporate agriculture into international trade agreements.  To sustain this two-track approach, the European scheme had to be large enough to reap substantial internal efficiency gains from regional co-operation and cohesive enough for the associated states to act as a disciplined bargaining unit resisting more general liberalisation schemes in the wider world.  Elsewhere in the world, regional trade agreements, like the Mercusor pact in South America or the ASEAN pact in Southeast Asia, are too small to attain great bargaining strength in global trade negotiations.  Or else, like the APEC agreement of Pacific rim states, they are large enough but don't have the internal cohesion to bargain as a block in global forums.

It is true that the wealth and scale of the European scheme has brought neighbouring states into its orbit, so the original six states eventually increased to fifteen -- with a further doubling in the number of states now under discussion.  Less developed countries (particularly Ireland, Portugal, Spain and Greece) received extremely generous subsidies for accepting EU regulatory standards, in a period when the core members were wealthy enough -- and these less affluent new members were small enough -- to make such subsidies affordable.  In over a decade since the collapse of communism, however, when a helping hand might have seemed most urgent for the new democracies of Eastern Europe, the EU has been extremely hesitant and sluggish about moving to embrace new members.  EU expansion to the borders of Russia will likely be a quite protracted process, because the core states can't afford to subsidise so many newcomers -- but still want to require new-comers to accept costly EU regulatory standards as the price for admission.  The whole process of "regional integration", then, was much easier when half of the "region" was frozen out by the Iron Curtain.  Other parts of the world do not offer such ready-make, digestible "regions" where policy consensus can be bought off by a core of affluent states of just the right size and scale in relation to other participants.

In the meanwhile, it is true, the emergence of a fifteen-state European Union means, in some respects, the emergence of a new superpower, with an aggregate GNP greater than that of any single nation, including the US.  Of course, that has some appeal to Europeans officials, who, in speaking for the combined European Union, can expect to wield more influence than in speaking for any one of the member states.  But on many strategic issues, the European states do not agree among themselves.  During the long decades of the Cold War, European states depended on NATO -- that is, on the United States -- for their ultimate security, so they did not need to worry about tensions between European policy and competing national security concerns.  Europe itself may no longer have this luxury as it comes to grips with the implications of current plans for a separate European military force.  It is doubtful that any other region can contemplate major moves toward regional integration without worrying about differing strategic priorities of members or potential members.

Beyond such analyses, the underlying facts speak rather impressively.  There are regional trade agreements and regional co-operation agreements of other kinds around the world.  A number of them, like the Organisation of American States, were launched before the European Economic Community that was the nucleus of today's European Union.  But nowhere, apart from Western Europe, have regional organisations developed a court with the power to overrule and direct national courts;  nowhere else is there a regional parliament, a regional currency, a regional flag or regional financing on the scale of the EU budget.  Nowhere else have countries been ready to emulate the European experience, after several decades now of witnessing Europe's remarkable example of regional governance.


FURTHER READING

For a sceptical view of European governance as an alternative to nation-states, by a generally sympathetic historian, see Tony Judt, A Grand Illusion?, Penguin, 1996.

For the official manifesto of the globalist vision, see Report of the UN Commission on Global Governance, Our Global Neighborhood, Oxford University Press, 1995.

For a succinct statement of "realist" scepticism toward globalisation theories, see Kenneth Waltz, "Globalisation and American Power" in The National Interest, No. 59, Spring 2000.

For a very instructive survey of problems in implementing trade liberalisation agreements through the WTO, from a scholar quite sympathetic to free trade but sceptical of WTO's institutional capacities, see Claude E. Barfield, "More than you can chew?  The New Dispute Settlement System in the World Trade Organisation", American Enterprise Institute, Washington, DC, 2001.

For a recent survey of programs and proposals for international environmental co-operation -- which reflects notable caution about the prospects, despite its official sponsorship -- see Pamela Chasek, ed., The Global Environment in the Twenty-First Century:  Prospects for International Co-operation, United Nations University Press, Tokyo and New York, 2000.

For a more sceptical view of international environmental efforts, from authors with a general free market perspective, see Terry L. Anderson and Henry I. Miller, The Greening of Foreign Policy, Hoover Institution Press, Stanford, California, 2000.

Sunday, October 07, 2001

Politics of Power

QUEENSLAND Premier Peter Beattie has made the astonishing suggestion that he will turn national competition policy into an election issue if he can't continue subsidising rural electricity prices.  The subsidy is paid by city dwellers in higher electricity bills.

Beattie said:  "National competition policy reforms have hit rural and regional Queensland hard in recent years and Cabinet decided we had to draw a line in the sand".  His assault doubtless tugs at some populist strings and closes the gap between himself and economic irrationalists like Bob Katter.  But it is absurd to say that the policies have hit at rural Australia.

National competition policy has formally been in place for only six years but governments had already begun to open up the economy to increased competition.  These moves have lifted national productivity and seen the economy develop greater flexibility.  This has brought more resilience to workplaces and allowed them to adapt to sudden changes in demand.  The policy has served us particularly well given the world economic turbulence of the past five years.  It has allowed the economy to ride through the Asian economic crisis without suffering.

Greater efficiency throughout Australia as a result of competition reforms leaves our economy well placed to minimise damage from the current world economic downturn.  The lift in productivity means Australians on average are now some 10 per cent better off then we would have been.

Nor are these gains confined to urban areas.  In fact, the Productivity Commission has found that 32 out of 50 rural areas grew faster than the national average.  This strength in rural areas is a sharp break with the past.  It is in contrast with the period of the 1980s which saw a decline in rural areas.

Some of the Queensland Government's detractors could present its proposal to prevent retail competition for the household consumer as a self-interested strategy.  This is because stymieing full retail electricity competition would bring a windfall gain to the state Treasury.  By preventing consumer choice of electricity retailer, average prices to households are held higher to the benefit of the state-owned suppliers.  This in turn means higher profits can bc funnelled to the Treasury.

Queensland's wholesale electricity prices have fallen as a result of the increasedcapacity brought on stream and the operations of the National Electricity Market.  As aresult, once competition in supply to households is allowed, commercial rivalry would mean lower prices would be passed on to consumers.  If Beattie prevents this, he slugs the Queensland consumer with a hidden tax while pretending he's looking after country folk.  This is good politics but it is appalling economics.

While it would doubtless work to Queensland's overall advantage if the Government were to stop the city-to-bush cross subsidy, national competition policy does not require this.  Indeed, many states already provide subsidies to different consumer segments without attracting any competition policy issues.  Competition policy seeks to prevent governments distorting prices by shutting out some suppliers from the market.  It does not prevent governments from offering benefits to particular regions or to the less well off.

If Queensland wishes to cross subsidise in different regions there are ways that this can be accomplished without abandoning all the benefits that competition can bring.  The most obvious approach, and one to some degree followed by Victoria, is to equalise the states electricity distribution fine charges.  Like any government intervention, such an approach brings efficiency costs, for example by discouraging generators and customers from setting up in low-cost locations.  But these costs are not as great as if all elements of competition were to he abandoned.

Allowing competition in choice of retailer has brought marked cost reductions to the business customers who are already free to choose their own supplier.  That was acknowledged by the Queensland Government as recently as last June in the joint communiqué of the Council of Australian Governments.  Nothing has changed since then to justify the Government now walking away from this.

National competition policy has been the key reason why the Australian economy has done so well in the past six years.  The lower costs it has brought have considerably assisted the Queensland economy's growth in industries as diverse as tourism and raw material processing.  To abandon it would jeopardise these gains, undermine living standards and make the economy highly vulnerable to a world economic downturn.


ADVERTISEMENT

Friday, October 05, 2001

Union Muscle Chokes Business to Death

Ansett's bankruptcy has a message that goes far beyond the airline industry.  It is a message that union muscle can strangle the goose that lays the golden eggs.  Moreover, the lessons need to be sheeted home to other industries less easily disciplined by the immediate competitive repercussions than the airline industry.

Imagine the furore three months ago if Ansett had said they would get rid of 3,000 people and expect the remaining 13,000 to make up the lost production with increased productivity.  As is now well known, this is a scenario that would still have left Ansett's productivity far behind that of Virgin Blue.  Nonetheless, the firm would have been targeted by unions who would lament "the loss of hard won gains" without any regard to the likelihood that such lavish conditions were bankrupting the source of jobs for their clients the workers.  The Industrial Relations press would have given full and sympathetic coverage to the union calumnies.

Management has largely been blamed for Ansett's demise.  It is a much softer target than unions and one that seldom hits back in the public arena.  There can be no question that Ansett's working conditions were well above that level but is this a result of pusillanimous management?  Maybe, but to use the terminology much loved by the left, workers are also "stakeholders" with all this entails in terms of reward AND responsibility.  In truth, part of the problem for the Ansett workers was that their representatives also had other goals.  Ansett conditions could be used as the stalking horse for those of Qantas.  And because the union negotiators did not face the same downside risk -- unemployment -- as the clients they represented, they overplayed their hand.  This speaks volumes against the notion of industry wide unions and the pattern bargaining strategies they adopt.

While management should resist productivity-sapping claims of union negotiators, this is often more easily said than done, especially when unions' demands are backed with strike threats and the business has been weakened by other events.  In such circumstances it takes a rare mixture of desperation and especially thick-skin for a management to confront the unions head on.

The two notable cases of taking unions head-on have been Chris Corrigan of Patrick's with the waterside workers, and Charles Copeman of Robe River.  Both Corrigan and Copeman succeeded in breaking the iron jaw of union excesses that were forcing their firms into a downward spiral.  Both business leaders were men of great determination who faced considerable personal threat, and ridicule from politicians and the press.

Moreover, neither Patrick's nor Robe River had to also protect valuable brand names from demonisation.  The vulnerability of these brand names is illustrated by Nike and Macdonald's, each of which pay considerable danegeld to NGOs and their support bases but still face protests.  The vulnerability of Australian manufacturing firms to brand-name damage is particularly evident in the Australian food industry where the brand name is more valuable than any of their capital assets.

A Kellogg, a Mars, a Unilever, dare not contemplate the damage that could be done to their prime assets by a concerted attack on them with the claim they are "un-Australian".  Yet they face the same labour inflexibilities that have undone Ansett.  And unlike the former airline duopoly, the food industry is under no illusion that it has a cushion against the marketplace discipline of competition.  As a result of the investments they have in their brands, they would prefer to cut their losses from the existing labour relations environment and quietly pack up to establish their facilities in more accommodating workplace environments.

Victoria's Treasurer, John Brumby, was unfortunately quick off the mark to condemn Arnotts and to threaten to ban its products in Victoria when the company sought to rationalise its production facilities outside of Victoria.  In doing so, he imitated the siren call used by all who would exert pressure on firms by attacking their brand names.  What Mr Brumby did not want to confront was the reason for Arnotts and other firms packing up from Victoria and relocating elsewhere, normally outside of Australia.  What many politicians don't want to ask, is why firms are turning their backs on the conditions -- cheap high quality ingredients, sizable local market, proximity to rapidly growing Asian markets -- that have promised so much for the Australian food industry for over three decades, but have left it as the perpetual bridesmaid.  Of course the answer is that this great promise is continually shipwrecked on the shoals of union work practices.

The lessons of Ansett need to be applied throughout Australian industry.  If we are not to see a hollowing out of manufacturing, work practices must adapt, and management, not unions, must manage.


ADVERTISEMENT