Is There Market Power in Australian Electricity Generation?

Address to the ACCC 2004 Regulatory Conference
29 July 2004

HOW THE DEITIES APPROACHED MONOPOLY

Professor Fels was fond of quoting the following famous words from Adam Smith ⁽¹⁾

"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."

Smith went on to say

"It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice."

Clearly, he had a more robust view of liberty than those who enacted the anti-trust acts!  He was however close to the mark when, to discourage government regulatory activism, he continued

"In a free trade an effectual combination cannot be established but by the unanimous consent of every single trader, and it cannot last longer than every single trader continues of the same mind."

PRICE SETTING

There is a vast literature in economics about prices.  Indeed, price is at the heart of the discipline in so far it is the ultimate proxy for the value people assign to a purchase, and the cost to producers in its supply.  Price is therefore the means of signaling new supplies and rationing existing supplies.

However, there is not a great deal of material on the procedures by which the price gets set, especially when the product is subject to rapidly changing demand and supply and when costs have a large fixed cost element.

The process by which price was set was glossed over by Adam Smith, who merely stated that "The actual price at which any commodity is commonly sold is called its market price.  It may either be above, or below, or exactly the same as its natural price."  He noted for example, "All commodities are more or less liable to variations of price, but some are much more so than others.  In the linen or woollen manufactures, for example, the same number of hands will annually work up very nearly the same quantity of linen and woollen cloth.  The variations in the market price of such commodities, therefore, can arise only from some accidental variation in the demand.  A public mourning raises the price of black cloth.  But as the demand for most sorts of plain linen and woollen cloth is pretty uniform, so is likewise the price."

Significant in this statement is the acceptance of price rises being demand driven and the need for market, not government force to react to them.

MARGINAL COSTS

One important feature of modern economics is the notion of marginal cost.  It is, however, a concept that is difficult for regulators to use either is setting prices or in determining whether suppliers are exercising monopoly powers.  Setting supply so that price just covers costs of incremental production is a criteria for efficient production.  Where costs are rising with additional output, pricing at marginal cost generally allows this production to be profitable.  Where costs are falling because of lumpy capital, a price that barely covers marginal cost defines the least price at which a seller can supply his product to the market for any reasonable time.  A price below this is not uncommon for short periods – some goods are given away as a promotional exercise, while electricity commonly is offered at a negative price to ensure a station is operational when a better price is being set.  These and other deviations from charging above marginal cost, on closer scrutiny, are not exceptions to the general rule.

Marginal cost based prices that fail to cover average costs mean, if they are applied, their efficiency in allocating the good itself is overcome by the inefficiency in allocating the capital to produce it in the first place.  If the capital can be covered by a lump sum, marginal cost pricing for the units as used is highly efficient.

This lump sum charge is easiest to accommodate in government owned facilities.  But those facilities are notoriously cost padded and often built unwisely.  Elsewhere however we see it in areas like gas pipelines where customers offer take-or-pay contracts, especially to foundation customers (where the "lump sum" price component is often in practice rolled-in with the unit supply price).  Such efficiency enhancing features of contractual based prices are, of course, undermined if the supplier is obliged to offer non-foundation customers quantity supply at prices that do not include the risk premium that earlier customers have absorbed.

For electricity, using marginal costs as a basis for price setting has diverse implications for the different sorts of plant.  It is useful to think of these as falling in pone of three categories:

• First there is the energy limited plant, usually thought of as hydro based plant, or sometimes gas fuelled where there is a daily limit.
• Secondly, there is the highly capital intensive baseload plant which has a marginal cost in Australia of between $5 and $15 per MWh.
• Finally, there is the high cost plant designed to operate only for a few hours per year but requiring very high prices, perhaps in the thousands of dollars, for those few hours if it is to be viable.

Almost everyone is in agreement that the energy limited plants should bid in a way that ensures they operate at the time when demand provides them the best price.  But for the other plants, there is a perception in many quarters that they ought not to "game" the market by exploiting any temporary monopoly powers they might have.  In some markets, the manager places a plant-by-plant limit on the price that might be bid.  Usually, that limit is associated with some capacity mechanism price under which a portion of fixed costs are covered.

Now, private enterprise works best when the firm seeks to maximise the shareholder value from its operations, a construct that is actually the normal requirement under company law.  Once a central body starts to second guess what is Aristotle's "just" price and Adam Smith's "normal" price and starts to enforce this, we have an unwinding of the market system that is the foundation of efficiency.

It is the basis of Frank Wolak's work ⁽²⁾ that the market in California deviated from the competitive ideal.  While this is uncontroversial, much of his analysis is posited on wrongdoing where prices exceed system marginal costs because those bidding into the market were taking advantage of temporary monopoly.  The paradigm promoted in this analysis relies on non-energy limited plant bidding their true marginal costs.

Yet we do not see such behaviour being routinely followed in markets.  Thus for example:

• Newspapers have a trivial marginal cost and are clearly operating in oligopolistic markets yet seldom does the price fall to zero even when there is very intensive competitive wars
• Cable tv once the satellite space is booked is relatively cheap to bring to additional homes yet seldom does its price fall to near zero levels
• Airlines seldom sell seats at the bare minimum needed to cover marginal costs (though Ryanair in Europe appears to do so) even when planes are far from full
• And, as work we have published by Timothy Brennan of the University of Maryland illustrates, hotels seldom drop their prices to the real marginal cost even after they have been built and tend to do so only in distress situations where there has been a sustained fall in demand.

One reason why marginal cost based prices cannot occur on a regular basis is that the marginal producer would not recover the cost of its plant and would avoid building it in the first instance, and the whole supply system unravels.  There are analysts of the electricity market who consider the situation is saved by having energy limited plant bid to maximise its revenue but this begs questions on how to treat plant competing in similar market segments.  Surely it would not be appropriate to require such plant to operate with less flexibility.  Even if an exception were to be made for energy limited plant, this clearly would not work in all electricity markets.

Cramton ⁽³⁾ demonstrates that bidding above marginal costs is the norm in most bid based markets where there is some unhedged capacity.  The supplier is inhibited from using this potential by the existence of other suppliers, and by risk that demand can be curtailed.

The latter risk might seem to be slender in the context of a highly inelastic electricity market but, at the margin it is real.  He produces the following diagram.  This shows that even though the demand is highly inelastic for the market as a whole, for the relevant part of the market at the margin, a small scope to reduce demand offers some reasonable elasticity.  Thus, if we have a 9000 MWh demand in the Vic/SA region even if only some 100 MW of this responds to price (last year according to NEMMCO there was some 250 MW of demand side response) the price elasticity faced by an individual firm in possession of some residual market power can be significant.  In some cases, the supply bids are able to be made by large firms adjusting the voltage or frequency controls within their facilities.

More important than this discipline on the supplier in electricity markets is the discipline of competitors.  All suppliers seek to maximise profits and economists or regulators who try to prevent this are frustrating the market processes that drive efficiency.  There are hardly any real life examples of perfect competition in which the supplier is a pure price taker and if efficiency rested on this premise, market economies would not have prevailed in the way they have.  For the profit maximising firms that populate the electricity industry in Australia, bidding above marginal cost is actually, and quite properly, inevitable.

As Cramton illustrates, a 1000 MW plant will bid the last MW at the price cap if this can be profitable.  Thus, simplifying the Australian market, if the last MW of a 1000 MW plant is bid at $10,000 per MWh and this sets the price for an hour, the plant receives this for all its output, earning a revenue of $10,000,000.  If it fails to set the price and the marginal bid is $9900, the firm earns ($9900*999) $9,890,100, losing out only on the last MW and foregoing revenue of $9900 from the last MWh.  If its marginal cost for the last MW is $100, it has foregone $9800 in the example.

Hence, it is outlaying $9800 hoping to gain additional revenue for all its output or ($100*1000) $100,000 less the $100 incremental cost.  In the example, if it estimates the chances are better than 10:1 of setting the higher price, this is the best option.  The constraint on the firm's actions is the existence of other firms all seeking to do the same thing, but losing marginal revenue when their competitor edges them out.  The more players, the more potent that constraint until, with the stylised perfect market, comes fully constrained behaviour.

Over time, as firms learn more about their competitors' behaviour the scope to gain diminishes.  This tends to mute the degree to which firms will put some capacity at risk since their competitors' behaviour becomes familiar.  But they will commonly leave some supply at high levels because that behaviour is never fully anticipated and because the circumstances of competitors are likely to change as a result of outages etc.  Prices are therefore not closely related to fixed costs but reflect marginal costs, demand and the levels of competition.

The other major factor in quelling the firms' proclivity to take advantage of their demand curves is forward contracting.  Once a firm has a contract, it has no incentive to bid at greater than marginal costs for the contracted part of its output.  To the extent it does so it is, in fact, overriding the benefit it had arranged to have price certainty for a specific volume.  Suppliers are as keen to forward contract as are the retailers, since this means risks are hedged.  The forward contracts normally have a premium over marginal costs reflecting the market behaviour that has been described.

Contracting is also the means by which high cost marginal plant is normally built.  High cost occasional use plant is developed to be used in abnormal circumstances.  Individual users often have "back up" generation for their own use.  Where such generation is made available to several users, it has a similar insurance contract effect, rather like the supply side contracts that retailers have to enable back-offs at needle peaks.

To achieve a stable supply of electricity means it is actually necessary for some firms to bid some capacity above marginal cost and to seek to raise prices.  Without this there is too little incentive for additional investment in marginal, occasional use plant. ⁽⁴⁾  If marginal costs are all that can be earned, this would mean very discontinuous investment decisions driven by sudden soaring prices which, unless locked in, would collapse as soon as the capacity was brought on-stream.  Indeed, it is hard to see how any investment in high fixed cost assets would take place.

APPLICATIONS TO AUSTRALIAN SUPPLIERS

But, let's look at some station bids on a hot day in summer.  The following charts are derived from the excellent material on the Intelligent Energy Systems website.

The first, Loy Yang A is offering power at the limit of its capacity at a relatively high price but it is also raising its supply price at the peak hour to the $9000 per MWh level.

Another privately owned generator, Loy Yang B has all its capacity offers carefully sculpted to its marginal costs.  Just a small margin is offered at the capacity limit at a price of $500 per MWh

The intermediate Newport station bids in an apparently erratic fashion.  Again however, this reflects contracts (especially with TXU and for reactive power) and its marginal costs.  If the firm can push the price up for the odd short period, they'll take it thank you very much.

The same pattern is seen with the government owned stations.  Here is Bayswater seeking to gain increased spot revenue where it has an absence of contractual cover.

By contrast, Stanwell is bidding closer to its marginal cost with only a thin sliver of supply being offered at extortionate prices and with a bit of a try-on (which failed on this day) for a highish price late at night.

And Tarong is not engaged in any "gaming" at all, bidding only its marginal cost for what is, presumably, a fully contracted supply.

SOME OUTCOMES IN AUSTRALIAN ELECTRICITY MARKETS

Overall prices remain low.  They are still below the fabled $40 per MWh level that was said, back in 1995 to be the new baseload investment level. ⁽⁵⁾  Prices last year ranged from $25 in Victoria to a heady $35 in South Australia and few would see the following graphed prices as doing other than trending down.

Average Annual Price

Although the NECA analysis of flat contracts (see below) shows a little upward movement for the coming years, few enterprises would be rushing to build new baseload plant by 2007 on the back of these prices.

The point about all this is that with almost total freedom of electricity firms to seek the best possible price for their product, they like other such suppliers in the economy are only achieving a modest level of profit.  Nonetheless, increased capacity at the needed peaking end has been commissioned

A relatively free market has proved to offer adequate incentives for new capacity.  Since the late 1990s in the eastern connected system, this has amounted to over 4,000 MW - about a ten per cent increase in a system that was largely oversupplied.  This has been broadly of the type that might have been expected to be built:  a mixture of intermediate and peak in increasingly peaky South Australia and Victoria, mainly baseload in Queensland, where energy demand is growing more rapidly.  The table below indicates the particular capacity commissioned.  In addition to this, construction of over 700 MW of capacity is committed and considerably more is at various stages of evaluation, including one not shown here, Kogan Creek, that is now actually underway.

	Year	Max capacity (MW)
Oakey Creek	1999	344
Roma	1999	84
Callide C	2001	1000
Millmerran	2002	900
Swanbank E	2002	410
Total Qld		2738
NSW Redbank	2001	150
Bairnsdale	2001	94
Somerton	2002	160
Valley Power	2002	390
Total Vic		644
Ladbroke	2000	100
Pelican Point	2001	510
Quarantine	2001	100
Hallett	2002	220
Total SA		930
NEM Total		4462

This investment outcome is a vindication of the "energy only" market approach adopted in Australia.  Supplier bids that are free to incorporate all costs provide the same incentives for entrepreneurs to build new capacity in electricity as they do in all other industries.  As long as there is workable competition, prices that are free to fluctuate will give the appropriate signals.  Such market structures are superior to other options like a two part tariff with a "supply" charge and a "capacity" charge.  They avoid regulatory guessing to set prices for capacity payments and consequent restraints on each plant manager's price strategy to ensure that market bids reflect marginal costs.

The NEMMCO 2004 Statement of Opportunities released at the beginning of August shows some tightening of demand in the Vic/South Australia region for the coming summer in particular.  It appears that Snowy is to build a relatively large gas fired plant in Melbourne and Basslink is progressing but these will not be available until December 2005.  It is also the case that the forecasting methodology may underestimate the plant availability, since it relies on forecasts from suppliers that are not independently verified.  In any event, the lack of a substantial forward price hike indicates that the retail industry is not anticipating shortages.

In summary though, the Australian market has worked well.  It has delivered low prices, and provided adequate incentive for new capacity.  Its frailties are associated with continued government intervention and, perhaps, muted incentives that are inherent in government ownership.

The vulnerabilities from government intervention are seen especially with household sector retail price controls and mandatory retail insurance provisions.  These could distort new investment signals.  Concerns over government ownership would be intensified if this resulted in non-commercial investment activity as a form of industry assistance since this could undermine private investors' confidence in the industry.  But for the present, market processes are working well and market imperfections in the form of government regulation and ownership have not seriously undermined the supply industry's efficiency.

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ENDNOTES

1.  Adam Smith Wealth of Nations Ch 10

2.  see, for example, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=503464;  http://www.accc.gov.au/content/item.phtml?itemId=489167&nodeId=file410db2dbc3069&fn=Session%201:Market%20Power%20-%20Frank%20Wolak%20paper%201.pdf.  Though Wolak supports a deregulatory approach in principle in, ftp://zia.stanford.edu/pub/papers/response.wolak.pdf

3.  Peter Cramton, Competitive Bidding Behaviour in Uniform-Price Markets, Hawaii International Conference on System Sciences, January 2004

4.  It would be possible for government to undertake such investment but this begs the same questions as any other government investment, namely at what level to make the investment and how to do so without this impacting on the incentives of the mainstream suppliers.

5.  Though very low coal costs and, according to some sources, a low target return on capital, has allowed development of the new Queensland Government owned generator at Kogan Creek to proceed on contracts said to be under $32 per MWh.

Renew Drive for Growth

Nine years ago Australian Governments decided to collectively and systemically promote competition and markets under the banner of National Competition Policy.

This represented a fundamental shift in government policy.  Governments in Australia and elsewhere have historically been anti-competitive.  That is, they have traditionally pursued policies aimed at restricting markets and stopping competition with regulation, government control and ownership.  Moreover, they have tended to act in an incoherent and hodgepodge manner, with their rationale left unstated and untested.

The market based reform agenda did start prior to, and extend beyond, the formal NCP process.  However, NCP formalised and greatly expanded the scope of the process.

There is no doubt that for the country as a whole, and for most Australians, NCP has been hugely beneficial.  The research indicates that it has contributed significantly to the rejuvenation of the Australian economy over the last decade.  And the benefits go beyond just growth.  The policies have helped make the economy more robust and able to adjust to unforeseen and potentially harmful shock -- such as our major trading partner, Japan, descending into a decade long recession.  It has given consumers new freedoms -- for example in most states we no longer have to organise our shopping according to the holiday preferences of shopkeepers.

Of course, the policy has not been positive for all.  It has resulted in the erosion of many privileges.  It has made many producers work harder and smarter.  It has exposed them and, to a lesser extent, consumers to more of the risks of their own actions.  It has impacted on regions and people differently, and sometime negatively.  In particular, it has had a significant, adverse impact on people and regions, such ex-SECV workers in the LaTrobe Valley, whose livelihoods were sustained to a great extent by government protection.

But on the whole however, the benefits have greatly exceeded the costs.

The question at hand is, what next?  The Policy is up for review.  Funding provided by the Commonwealth, some $15 billion to date, is coming to an end.  And the process is losing some momentum, both political and administrative.

The truth is that the job as initially gazetted is only half done -- albeit the most important half.  Moreover, there is scope to expand the NCP to other areas, including industrial relations and government services.

Moreover, there is great need to continue the pressure for greater levels of productivity.  While productivity growth has increased markedly over the last decade, their levels remain far below those of other nations (around 20 per cent below the US) as a result of previous decades of stagnant growth.

The Productivity Commission is currently undertaking a review of the process which will provide guidance to governments.

The real question is one of political will.  Most of the States have been at best reluctant participants, pulled into the process more by the lure of money than a commitment to market based reform.  The Howard Government has done the right thing and carried out the leadership role inherited from the Keating Government.

The process now, however, now needs to be invigorated.

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Outsourcing: Latest trends, costs, benefits and risks

An Address to The Australian Workplace Changes to Law/Management/Practice.  A Practical Approach
conducted by IR Conferences of Australia,
Melbourne, 22 July 2004.

Ladies and gentlemen

My thanks for the opportunity to talk to you today, and to IR Conferences of Australia for organizing this conference.  My task is to look at the changing environment and trends relating to outsourcing and, in particular, to consider the risk and risk-management environment of outsourcing.

My comments are based on a proposition that industrial relations management has long ceased to be a process of managing union negotiations through industrial courts and tribunals, guided by specific legislative processes.  Industrial relations have entered a new phase in which the core values of your individual businesses are coming under strategic assault.  These attacks are conducted by adversaries who use networked and co-ordinated processes to damage or interfere with business brand names and reputations.

Outsourcing is a primary cause of this development.  Further, the ability to successfully outsource depends on being aware of, and managing, this new "industrial relations" environment.

But first, some background.

I formed a Work Reform Unit in 2001 at a time when the business community had effectively become dormant on the workplace reform agenda.  For example, the Business Council of Australia, long an important institution for reform, had just closed their industrial relations unit.  There was a general view that the industrial relations boat did not need to be rocked.

But, we were receiving a very different story.  A wide variety of businesses were telling us privately that there were continuing deep, systemic labour relations problems.

When we started the unit, our first task was to undertake detailed "on the ground" research about what was (and is) happening inside businesses and industries.

Our studies supported the stories we were receiving from business.  For example, our investigation of the food manufacturing sector unearthed enormous labour problems, both cultural and structural, which were on such a scale that we concluded that the Australian food manufacturing sector was in a long-term process of closing down.  And we didn't (and don't) make that statement flippantly.

Another important part of our research, for example, looks at various firm's capacity to manage as a consequence of industrial agreements.  And that is not a good picture so far.  You can find the work reform units output at our Website.

One of our earliest pieces of research involved a highly detailed, extensive look at the campaign being waged against the clothing industry over the outworker issue.  Most people aware of our research have wondered why we bothered to look at this issue.

To my mind, however, the outworker research is the most important research we have undertaken so far, because it turned out to be an exposé  of the trends, campaigns, directions and newly emerging corporate risks associated with my topic today:  that is, outsourcing.

Outsourcing in all its forms is perhaps one of the most significant business structural trends of the last two decades.  Outsourcing has many forms, but at its core it involves the deconstruction of the old Taylorist or scientific model of the firm;  that is, deconstruction of the employee command-and-control pyramid.  Outsourcing involves isolating the core things that a firm can do well, looking at the supporting elements that are required to enable the core things to function, and entering into commercial partnerships with other specialists to provide the supporting functions.

Outsourcing occurs internationally on grand scales.  For example, it's understood that the USA Wal Mart supermarket chain consumes some 1 per cent of China's Gross Domestic Product -- that really is large-scale outsourced manufacturing!  Or outsourcing can be small, involving the engagement of someone who works from their own home doing the bookkeeping or debt collecting for a small business.  The possibilities are endless.  But outsourcing has become one of the key productivity and wealth creation drivers in all economies and it is a core aspect of most businesses operations.

Yet outsourcing as an idea, a structure and a legal right is under sustained global and local attack.  In the USA, outsourcing of American jobs to foreign countries, even with the clear benefits provided by free trade, is a major campaign item in the current US Presidential election campaign.  In Australia, outsourcing is being pilloried and subject to legislative attack.

The most frequent (non-legislative) mode of attack against outsourcing involves targeted, co-ordinated, media assaults against the core brand name value of companies engaged in outsourcing.

The size or wealth of a business is not an indicator of whether or not it will be brand attacked for daring to outsource.  Internationally, Nike has long weathered the brand attacks mounted against it for daring to manufacturing in developing countries.  Telstra is constantly chastised for even thinking about using overseas call centres.  The Australian media monitoring company Rehame has been subjected to attack for using people who work from home undertaking media monitoring work.

Often these brand name attacks involve the use of competitors who may benefit from their rival's misfortune.  There is some evidence that the internationally coordinated campaign against Nike was, at least in part, generated by corporate affairs persons associated with one of its competitors.  Telstra is chastised for outsourcing call centres, yet Optus has been doing this for years.  Earlier this year, when Rehame was subjected to extensive, negative media exposure over outsourcing, one of Rehame's competitors mass marketed to clients seeking business on the basis that it did not engage in Rehame-type outsourcing.

In this brand attack process, however, most competitors tend to breed off any brand mailing, rather than run it themselves.  For the most part, the attacks are driven from a single and familiar source, have clear and understandable motives and, thanks to our research on the clothing industry, we can now understand the end game.

The union movement, domestically and internationally, is in trouble.  Their business is dying.  Declining membership is the symptom not the cause.  Outsourcing is the principle problem.

Put simply, the union movement came into existence as a consequence of the Taylorist model of the firm.  Unions exist because they empower those at the bottom of a command-and-control pyramid against those at the top of the pyramid.  As firms deconstruct the pyramid, the outsourcing model places limits on the power of those at the centre of the firm and instead empowers those who are the outsourced suppliers.  When outsourcing comes down to the level of the individual, empowerment becomes individual.  Through outsourcing, power becomes constrained, diversified, spread and balanced within free-market regulation through commercial contracts.

Lack of time prevents me expanding on this explanatory thesis.  Instead, I need to look at the implications.

Mostly, unions are not consciously aware that the outsourcing power shift is the cause of their decline but are intuitively reacting to events.  Their reasoning goes something like this:  unions protect the weak, unions are moral, anything that damages unions must be immoral, consequently outsourcing is immoral and the people undertaking outsourcing must also be immoral.  Labour regulators and academics are generally caught up in the same psychology.

How do we know this?  Our research into the domestic clothing industry on the outworker issue turned out to be an outstanding case study, spread over two years, into the psychology, background, reasons and approaches of the anti-outsourcing networks.  We now know the campaign techniques, the networking of the players and the end game being targeted.

The domestic clothing industry has used home outworkers for more than one hundred years.  They supported the large clothing manufacturing sector during most of last century until the collapse of textile trade barriers in the 1980s caused the clothing manufacturing industry to enter a period of sharp decline.  By the late1990s, factory sweatshops had almost disappeared and industry union membership had near-vanished.  About 12,000 outworkers could be identified by the ATO who continued to work as before -- supporting a small industry focused on high quality product.  The textiles union set on a campaign of legislatively capturing the outworkers as the first step in garnering renewed membership.

The union movement undertook a decade-long campaign of demonizing outworking through direct brand attacks against the clothing labels and retail stores.  This involved numerous media raids and stunts, including some where activists stripped off in retail stores.  School children were heavily targeted.  The campaign was well co-ordinated with several church and other non government organizations, it involved activists trained by Greenpeace, it received funding from benevolent trusts, and millions of dollars from state and federal governments.  All the details are on our web site.

The end result was the outworker legislation now operating in NSW and Victoria.  This legislation effectively destroys outsourcing in the clothing manufacturing sector.  It controls the manufacturing price of goods to be paid by every business in the contract manufacturing chain.  It imposes price controls over all commercial transactions in the manufacturing chain, something that would otherwise be illegal under the Trade Practices Act.  The legislation layers industrial relations-type legislation directly on top of commercial transactions.  The legislation destroys free-market activity in the domestic clothing manufacturing sector right through to the retailer.  It sounds the death knell of the domestic clothing manufacturing sector and will reduce the industry to cottage industry status.  This process is well advanced.

The oddity is that this decline also signals the death knell of the textile union.  But the union does not comprehend the rationale of cause and effect, because it is blinded by an obsession with a singular view of its own high moral positioning:  They are good.  You must be evil if you outsource.

And this sort of campaign is coming your way if you outsource.

And forget about truth.  The campaigns are all about leveraging for a media story.  Channel Seven's Today Tonight programme ran a story with the textile union in 2002, in which the reporter and union were caught, on tape, lying about the pay rates paid to clothing workers being filmed.  Don't expect the truth.

The campaigns have as their objective the rolling out of industry-specific price and process controlling legislation modelled on the clothing industry legislation.

For example, after subjecting the Rehame group to brand name attack, there is now concerted behind-the-scenes lobbying of State governments to introduce media monitoring industry-specific legislation modelled on the clothing outworker legislation.  The call centre industry is being targeted.  The labour hire industry has been subjected to a sustained assault for about five years.  The IT sector is experiencing the early stages of leverage.  The end game in all these cases is the same.

The reason for relaying this story is to make the point that, when you turn to outsourcing, you are now operating in an environment of risk.

Outsourcing is legal and it is moral.  It makes for good commonsense business.  It drives productivity.

But be aware.  If you contemplate outsourcing, you are operating in a new environment in which your participation will be seen as part of a structural assault on the business models upon which the union movement depends for its survival.  Even if you do not have a union presence in your business or your industry, you are at risk.  The union movement has created new campaign techniques, new allies, new moral positioning and are leveraging substantial government support and clout in some sectors.

You can choose to ignore the risk and calculate that your chances of being targeted are remote.  But remember the food packaging industry, where just a small number of blackmail-motivated product-tampering instances forced the entire industry to develop tamper-proof and tamper-identifying packaging.  They were forced to address the risk.

Outsourcing is now a risk environment subject to brandmail campaigns which are designed to convince others that your legal activity is immoral and that the outsourcing you undertake must be made illegal through legislation.

There are many other levels to the campaigns.  Outsourcing is under threat through enterprise bargaining strategies, payroll tax changes, realignment of workers' compensation approaches, development of joint employer concepts, and many others.

You cannot do much about these bigger picture public policy items, but you can look to protect your brand.

In response to brand name attack, the approach to date has been to bring those on the outside of the tent, inside, based on the old proposition of better pissing out than in.  In other words, succumb to the brandmail and pay off the attackers.

The clothing industry study and the experiences of many corporations and industries over the last few years, however, have demonstrated that acquiescence doesn't work.  Those brought inside continue to piss in, only once they are in, they have accumulated your resources to continue their efforts.

To protect brand names, the first step is to eliminate managerial naivety.  Brand name attacks scare the heck out of every executive in a business, particularly the marketing and sales people who hold most sway.  With foreknowledge and planning, however, the traps that are set for you can be avoided.

Quite recently I was called in by a company that has a high profile national and international brand name.  There had been an alert that they were about to be subjected to a brand name attack media stunt.  The company is involved in critical outsourcing activity, which they claim has caused a turnaround in their business over the last three years.  They were worried.  Within an hour, a crisis meeting was called of all the senior decision-makers.  An analysis of the situation was undertaken.  The intent of the likely media stunt was identified as an attempt to secure leverage against their outsourcing activity.  What on the surface was a media and public relations problem, was really an old style industrial relations issue which had to be managed as a media issue.  Identification of risk occurred.  Plans were formulated and put in place.  The counter-strategy put in place has thus far foiled the attack and, aware of the true game being played, the company is now prepared, is focused on courses of action it needs to take, and feels under control.

The message is clear.

Outsourcing has direct industrial relations implications.  I've only looked at a tiny sample of the forms this now takes.  But the industrial relations game has taken a new and sophisticated leap forward -- thanks to the union movement -- which has at its core the attack of brand names and the reputations of businesses and industries.

You can stop outsourcing, but I suspect that competitive pressures will, in the end, deny you that option.  If you continue to explore partnerships through outsourcing, brand name risk assessments and management strategies in this new environment are going to be forced upon you.

Dry Land Meets World Demand

How does Australia -- the driest inhabited continent on earth -- manage to feed so much of the world?

The Department of Foreign Affairs and Trade is predicting that Asia's demand for food, including wheat, beef and milk, will have grown by more than 20 per cent by 2010 (Asia Agri-hungry, The Land, July 15, page 30).

These estimates are probably conservative.

Globally about 40 per cent of all grain is fed to livestock.  For some time it has been anticipated that the increase in demand for chicken, pork and beef, particularly in China, will cause a surge in the demand for feed grain.

Australia contributed approximately 14 per cent of the wheat traded globally last financial year.  We are expected to continue as a key grain exporter.

We even export rice to Asia.  Australian rice production over the last 10 years was enough to feed almost 40 million people a meal each day, every day of the year.

However, just last week I received information from my local catchment management group reminding me that I live on the "driest inhabited continent on earth".

When total rainfall is divided by total land area, the Australian situation may look thirsty;  especially over the last few years.  But, we inhabit a large continent, there are few of us, and we don't water our desert.

According to the World Resource Institute, Australia has 51,000 litres of available water per capita per day.  This is one of the highest levels in the world, after Russia and Iceland, and well ahead of countries such as Indonesia (33,540), the United States (24,000), China (6,000) and the United Kingdom (only 3,000 litres per capita per day).

Furthermore, according to the Federal Government's Australian Water Resources Assessment 2000, we divert only five per cent of average annual runoff with most of the rain falling across northern Australia.

This doesn't mean we should pipe water south but it does indicate that nationally 95 per cent of the rain that falls is still for the environment.

Yet the recently signed National Water Initiative had a focus on clawing back water for the environment.

This agreement -- like most government water policy -- is significantly influenced by negative and narrow-minded campaigning from a few environmental groups.

The ink hadn't even dried on the National Water Initiative and the Australian Conservation Foundation (ACF) was campaigning for more water for environmental flows.

Instead of forever doing deals with the ACF, perhaps the National Farmers Federation could encourage government to consider the big picture and the hard data when it comes to national water policy.

Globally the environment must be looked after and people must be fed.  I think the environmentalists call it "thinking globally, acting locally".

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The Strange Return of an Industrial Club

Early this month the Business Council of Australia released an analysis of the federal ALP's industrial-relations policy that concluded adverse outcomes for business and the economy.  The political responses to the Access Economics report by the federal government and the ALP has suddenly thrust Labor's IR approaches into central consideration, for business at least.

The Shadow Minister for Workplace Relations, Craig Emerson, has accused ALP critics of falsely scaremongering asserting Labor's IR policy closely resembles that of New South Wales and Queensland and involves a light touch on regulation.  An understanding of NSW and Queensland's IR regimes should then assist business to assess ALP policy.

The key point about NSW is that industrial IR introduced by the Carr government does not regulate relationships between employers and employees.  The legislative scope embraces "work in an industry".  This simple definitional shift away from normal employment regulation to regulation of "work" has in fact turned the NSW Industrial Relations Commission into a powerful regulator of commercial transactions.  The implications of this comparatively recent and radical shift are now only being understood as the NSW Commission tests the parameters of its new powers.

For example, in unfair contract cases the commission now regularly seeks to control franchise and other commercial agreements.  In 2002, the Commission decided to allow the insertion into NSW awards of compulsory employer remittances of union dues.  In 2003, it approved compulsory union agent fees on non-union employees and endorsed enterprise agreements, accepting that the parties were agreeing to breach the Trade Practices Act.

This last matter raised the concern of the Australian Competition and Consumer Commission, which contemplated intervening.

The Supreme Court of Appeal of NSW is unhappy.  A surprise twist in the NSW legislation is that appeals against decisions of the Full Commission are not allowed.  In attempting to overcome this denial of natural justice in NSW, parties in one unfair contract application (Mitchforce v Starkey) went to the Supreme Court.  In deciding to refer the matter back to the commission, the Supreme Court stated that it was "troubled by the continued intrusion of the NSW IR Commission into commercial contracts".  The Court also expressed "grave doubts" as to the constitutional validity of denying people their right to appeal to the High Court of Australia.

Under Premier Beattie, Queensland has traveled down a similar path.  Although the much newer legislation remains focused on the employment relationship, Queensland Labor introduced similar NSW unfair contracts provisions but went one radical step further -- introducing a significant first by empowering the state's IR Commission to declare corporations to be employees.  (This has led the Queensland commission to express concern at having to declare something "to be what it is not").  One such application, now running for two years, attempts to change the commercial contracts of 13 transport companies.  It's costing the small firms large sums of money to protect their commercial rights.

What's in evidence in NSW and Queensland is something new and probably summarised by the title of my recent report.  The Strange Return of the Industrial Relations Club, claims that in the last five years industrial relations IR commissions, particularly in NSW and Queensland, have grasped new IR legislation to assert an expanded role as new super regulators.  But because the process is unfamiliar and is being applied selectively, company by company and industry by industry, analysis of the economic implications is only just emerging.

This may help explain why the key industry associations -- the Business Council of Australia, Australian Chamber of Commerce and Industry and Australian Mines and Metals Association -- have been vocal in expressing opposition to these new models of IR re-regulation.

What Queensland and NSW perhaps show is that business concerns may include, but also expand beyond, the traditional battle over labour de-regulation versus re-regulation.

There is an additional trend in state IR law creating reach into commercial regulation thus destabilising core business structures, creating unknown and unpredictable discord between competition and labour regulators, and concern over economic outcomes.

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David Kemp: a Liberal for all seasons

David Kemp's retirement from politics marks the end of a family tradition unique in Australia.  In the 1940s his father, Charles, wrote the manifesto that determined the economic policies of the Menzies government.  In the 1990s David Kemp as the leader of the "dry" faction in Victoria helped set the Liberals' agenda on tariff reform, economic deregulation and small government.  He was responsible for radical policies on university deregulation, school funding, and national literacy testing.  He presided over the privatisation of the Commonwealth Employment Service and the introduction of work for the dole, and argued against signing the Kyoto Protocol.  With Kemp's departure there will be a shift in the location of the intellectual leadership of the Liberal Party.  Victoria has always been considered the "jewel in the crown" of the Liberals.  In electoral terms this is now no longer the case.  After the last federal election Liberals held 15 lower house seats in Victoria, compared with 21 in NSW.  In policy terms, although Peter Costello will most likely be the next Liberal leader, the key influences on the party will be from NSW.  Tony Abbott, Malcolm Turnbull and Brendan Nelson are all from Sydney.  Beginning with his time as a senior adviser to Malcolm Fraser, there have been few issues of national significance with which David Kemp has not been involved.  On the afternoon of November 11, 1975, Fraser read from Kemp's scribbled handwritten notes to announce to the House of Representatives that two hours earlier John Kerr had sacked Gough Whitlam.  The image Fraser presented as prime minister was very much the product of Kemp's advice.  After the Liberals' loss at 1972 federal election, Kemp, then a 31-year-old academic, wrote an article entitled "A Leader and a Philosophy".  He passionately put the case that only a strong leader could bring the Liberal Party back from the wilderness.  In a little more than a year, Malcolm Fraser became leader.  In 1979 Kemp became professor of politics at Monash University.  Following on from his doctorate work at Yale University in the US, he was the first political scientist in this country to identify a growing trend in the electorate.  Australians were less likely to vote according to their "class interest" and more likely to vote according to a set of emotional and intellectual values.  Today this might seem obvious, but at the time it was a controversial conclusion.  While state director of the Liberal Party in the late '80s, Kemp collaborated with those such as Alan Stockdale, his friend from their time as students at Melbourne University, to introduce a sharper policy focus to the party.  The long-term legacy of the work of Kemp and others was the Kennett government's reforms.  Kemp's preselection for the blue-ribbon bayside federal seat of Goldstein in May 1989 -- when he defeated Ian Macphee -- was tumultuous.  That outcome and the selection of Peter Costello in Higgins symbolised the ideological shift that had taken place in the Liberal Party over the previous decade.  Macphee was opposed to everything that has since come to be called "economic rationalism".  That there has been no serious challenge to the prevailing economic philosophies of the Liberal Party since the late '80s is not evidence that opposition has been silenced.  Instead, it shows that there is no alternative to "economic rationalism" that is not intellectually bankrupt.  In government, Kemp established the policy framework for many initiatives, not all of which he was able to implement.  As a minister, Kemp at times betrayed a tendency to allow facts to speak for themselves.  The cabinet recoiled at what it feared would be the electoral impact of his proposals to loosen government control over the tertiary sector.  However, he did succeed in fundamentally changing the way non-government schools in Australia were funded, allowing many more low-income families to exercise choice.  As environment minister, probably his greatest achievement was the negotiation of a plan to save the Murray-Darling basin.  He believed that his opponents, if provided with sufficient evidence, could eventually be won over.  In this regard he displayed his classical liberal belief that all individuals have the capacity to make reasoned choices, and that because of this, government should intervene in people's lives as little as possible.  Consistent with this position, as a university student in the early '60s he campaigned for gay law reform, something that comes as a surprise who see him only as a caricature of a "new right" warrior.  David Kemp's influence on the Liberal Party over the past three decades can only be matched by that of John Howard.

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Private Sparks Hot Debate

Following Victoria's electricity restructuring and privatisation there were massive generator performance improvements.  Gradual increases in demand have whittled away the consequent excess supply, bringing increased wholesale prices over the past year.  But last month NEMMCO, the Australian electricity market manager, issued a report that deflated fears of an electricity shortage in the coming summer.  By February of next year, half a dozen new generators in Victoria and South Australia are now expected to increase capacity by 750 MW or 7 per cent.

What this flurry of new capacity building demonstrates is that markets, if allowed to work, bring their own cure to shortages.

It also shows that Victorian Energy Minister Candy Broad was right to resist proposals for the government itself to finance extra generation.  Not only do the latest NEMMCO estimates show such actions are unnecessary, but Government provision of new plant also undermines the incentives of private sector providers.  As a result, the short term relief stores up long term problems -- and the outcome can require government to administer steadily increasing "fixes" until it controls the industry.  Then it's back to the inefficiency of the bad old days.

What goes for new generators, broadly applies to new transmission links.  Increased demand for electricity can be accommodated by building new plant or transporting it from somewhere else.  But if the government builds new transmission this crowds out the private sector, undermining its incentive to invest in both new plant and new transmission.

For this reason, the Victorian Government has acted cautiously and avoided building or offering guaranteed payments for new electricity plant or transmission links.

However, the issues are more complicated when investments can piggy-back on a facility which already has guaranteed payments.  This is the case with the SPI Powernet's Snowy link between Victoria and NSW.  A report by Vencorp, the Victorian market manager, concluded that the link's capacity can be upgraded by 400 MW at a cost of only $43 million.  That's a bargain price for a link equivalent in size guaranteed payments to Basslink from Tasmania with its price tag of $500 million.  And it would cost $400 million for a similar sized new generator.

The challenge for Minister Broad and the regulatory bodies is for the facility to proceed without this jeopardising other private investment.  And the difficulties are intensified because the additional capacity of the link will vary.  The policy trick is to arrange for private provision to add to the capacity from the Snowy in a way that allows the Victorian consumer and Powernet to share the gains.

But a further policy complication is that the NSW Government wants permission to build a totally new transmission link from NSW to South Australia and have it paid for by a compulsory customer fee.  It is more difficult to accommodate this without undermining private sector investment incentives and regulators and the Victorian Government needs to ensure the two proposals are treated separately.

These are just a few of the unresolved issues left in the wake of the momentous changes in the electricity industry.  None of them are insoluble.

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Let the Market Fix a Price

The saga of the price determination for the Moomba to Sydney Pipeline is compelling evidence of the reasons for avoiding government price regulation.  The pipeline has been in negotiation with the regulatory authorities since May 1999.  Last week the Australian Competition Tribunal (ACT) rejected the ACCC's valuation of the pipeline (and, therefore, its price determination) with a decision that can only bring further price paralysis.

Commissioned in 1976, the basic pipeline was a Whitlam Government project built at a cost of $240 million.  It was privatised by the Keating Government for $534 million in 1994.  And, using an alphabet soup of accountancy acronyms to update these sums, the ACCC now says its value is $559 million while the pipeline's owners, the Australian Pipeline Trust, say it is worth between $784 million and $998 million.  The owners appealed the decision of the ACCC to the ACT which has required to the ACCC to re-assess its calculations applying an accountancy approach, depreciated optimised replacement cost (DORC), plus other adjustments that might result in a value approaching $800 million.

Clearly, the different means of calculating the capital base on which prices should be set is proving both tortuous and controversial.  We have witnessed five years of arguing, establishing positions, and shoring these up with reports from expensive consultancies.  Nor is the Moomba to Sydney pipeline unique -- its experience is duplicated in the case of Australia's five other major gas pipeline systems, a sad commentary on the bureaucratic system of price determination that we have put in place.

Moreover, the regulation is unnecessary.  The peregrinations around the capital base are misplaced.  There, in fact, are sufficient market disciplines on this and most other gas pipelines for the regulatory authorities to exit the game.  Since first having to seek the ACCC's agreement to its prices, the Moomba to Sydney pipeline has seen its competitive situation revolutionised with the August 2000 commissioning of the rival Easterb Gas Pipeline transporting gas from Bass Strait to Sydney.  Within the next decade, there is likely to be another pipeline to Sydney from Queensland -- unless, that is, the regulatory authorities stifle competition by establishing an artificial low price for gas hauled along existing pipelines.

The increased competition from the East Coast Pipeline has already resulted in the haulage price from Moomba to Sydney being marked down from 72 cents to 65 cents per gigajoule.  The ACCC capital costs were developed to establish a price similar to that which their consultants had estimated to be the competitive price equivalent (53 cents).  But this is simply an artificial construct, one that nobody regards as superior to a price that is the outcome of a competitive market.

Clearly, the market for the haulage of gas can never approach a "perfect market" comprising many sellers and many buyers but very few markets do.  However, the past five years experience clearly demonstrates the superiority even of the imperfect competition that stems from lumpy capital to the rituals of price determination by the ACCC.

The Government, recognising the existing regulatory deficiencies has commissioned several reviews of the industry.  The latest, from the Productivity Commission, is awaiting release.  The PC is unlikely to have changed its draft advice that seeks a relaxation of controls on gas transport in line with the emerging competition evident in the industry.

Both the ACCC and the ACT will claim that the regulatory rules confine them to making decisions within the confines set by the regulation itself.  This, they say, requires them to set a synthetic price and not to allow the price to emerge from market interaction.

There is some merit in such claims by the ACT.  The ACCC had however a suite of criteria it could have used either to establish price or to allow the market to do so.  The fact is that, stemming from its own interests and its personnel's flimsy experience outside of government, it is predisposed towards regulation.  Indeed, the ACCC makes liberal use of its taxpayer supplied funding to promote, in a wide number of fora, additional regulation (and of course more funding).  This license means a schizophrenic ACCC is both a policy body and an arbitrator.  The government has successfully removed the advocacy role in taxation policy from the ATO and if it is to restore confidence in its competition commission it should adopt a similar approach with the ACCC.

In the meantime the Government needs to release the latest report of the Productivity Commission and restore price determination in the gas industry to the marketplace.

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Trade Liberalisation Must be Sustained

Free trade is all the rage in the Asia-Pacific region.  Thailand, for example, which just signed a free trade agreement with Australia, starts formal negotiations with the US next week on a similar deal.

Thailand is discussing FTAs with more than seven countries, or groups of countries, including China, ASEAN and the European Union.

Singapore, which has long been a beacon for free trade, already has FTAs with Australia and the US and is discussing similar arrangements with virtually any country willing to do so.

Malaysia, which under its previous prime minister was leery of such deals, is starting to send positive signals.  Even China is discussing FTAs including with Australia.

But not all free traders are happy.  Many lament the growth of bilateral arrangements, believing they come at the expense of a multilateral agreement negotiated under the World Trade Organisation.

One thing all free traders agree on is multilateral deals are superior to bilateral.

Bilateral deals can, and no doubt do, lead to trade diversion where as a result of a deal, trade is diverted from a non-signatory country to a higher cost signatory county.

There is also valid concern about protectionist measures being inserted into bilateral deals.

Among these are measures that impose onerous environmental requirements that result in higher costs, requirements that go far beyond anything likely to be agreed in a multilateral framework.

The problem is, however, the multilateral trade liberalisation has ground to a halt.

The street battles accompanying inauguration of the world trade talks in Seattle in 1999 demonstrated powerful political forces were against further liberalisation, and this was followed by the virtual collapse of those talks at Cancun last year.

Any country nailing its colours to the mast of multilateral trade talks was sailing thereafter in a becalmed ship.

Anti-trade non-government organisations, protectionist trade unions and the cosseted agricultural industries of Europe, Japan and the US had derailed the process.

One reaction is to persevere solely with multilateral processes.  But this may mean taking a step backwards, with trade liberalisation failing to keep up with the growth of new forms of commerce, especially in the services trade.

Placing all eggs in this basket would risk energising the anti-trade protectionist forces that are never far from the surface.

Moreover, as shown by the European Union, expanding trade and markets even if via the imperfect path of bilateral agreements, leads to greater competition, growth, and gives impetus to more wide-ranging and uniform liberalisation.

Hence governments have, rightly, embarked on the more cautious but forward-looking approach of negotiating bilateral free trade treaties.

In this respect, Australian negotiators have been careful to use bilateral deals to build on and not undermine multilateral arrangements.  This not only keeps the liberalisation process going, but adds impetus to restarting multilateral negotiations.

And this appears to be happening with the governments pushing bilateral also doing the most to re-energise multilateral negotiation in the WTO.

Over the past 50 years, trade liberalisation has been among the two or three factors that have propelled the world economy into its present unprecedented prosperity.

It would be a tragedy if it was allowed to wane for the lack of purity.

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Quolls Policy: Just a Plot?

In the High Country some graziers believe environmentalists are using native quolls as an excuse to drive them from their land.

Cute, cuddly and cat-like, quolls belong to a group of meat-eating marsupials known as Dasyurids.  Found only in Australia and New Guinea, they are thought to be threatened in particular by predation from foxes and wild dogs.

Wild dogs eat more than quolls.  They also prey on kangaroos, wallabies, wombats, possums, sheep and calves.  In the regions bordering Kosciusko National Park large areas have been de-stocked because of continuous and significant livestock losses.

So you would think that perhaps the environmentalists and graziers could join forces to control wild dog and fox numbers?

During the past three years there has been a successful program in the Brindabella region involving trappers.  This program will be extended to Monaro and its surrounds.

But many say the cost-effective answer is aerial baiting with the poison 1080 -- a program banned in southern NSW in the late 1990s because of concerns that quolls might be susceptible to 1080.

Many scientists and graziers argue that quolls are much more susceptible to increasing dog and fox numbers.

There has been over 20 years of research into the possible effects of 1080 baiting on native Australian animals including quolls.

A recent study just published in the journal Australian Wildlife Research tracked 57 quolls with radio-collars during four experimental baitings in north east New South Wales.

Interestingly, while the quolls often took the baits, they subsequently discarded them.

The study concluded that the baiting did not threaten any of the quoll populations sampled.

The results from this study accord with other published studies, including an extensive aerial baiting study in Western Australia, where quoll populations increased -- probably due to the removal of the predators.

Aerial baiting with 1080 is an integral part of feral animal control programs in both Queensland and Western Australia -- two states with more diverse quoll populations.

This should be good news for quolls and livestock in the High Country.

But when I recently discussed these findings with a High Country grazier, the response was that quolls are not really the issue.

It was suggested that "the politics of the national park is anti-grazing" with the quolls the excuse.

"They will hatch something else to obstruct dog control.  They like the dogs because they have forced us to de-stock", the grazier said.

Others hold a similar view.

However, I hope this cynic got it wrong, and that there is still a place for the man from Snowy River, quolls and wombats in the High Country.

A reversal of the 1997 decision to ban aerial baiting with 1080 would be a gesture of good will.  Perhaps it would be a much needed life-line for quolls and other wildlife suffering the effects of fire, drought and intense predation.

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The Glass Ceiling: a case of genuine discrimination or choice?

An address to Mallesons Stephen Jaques,
Level 28, Rialto Tower, 525 Collins Street,
Melbourne, 6 July 2004

NOT SO long ago, feminists the world over reviled Miss Universe contests and the like.  Driven by two parts ideology and, perhaps, one part envy, they bemoaned how beautiful women in high heels would strip down to their bikinis or glide around in evening gowns.  It was, they said, evidence that women were still playing roles assigned to them by a sexist society.  That some women might choose to do so swayed few feminists.  Back then, nothing was too frivolous for feminism's anti-choice ideology.

What a relief, then, that the Miss Universe contest came and went recently without the usual feminist angst-fest.  Not even a home-grown winner from Newcastle, the stunning Jennifer Hawkins, could lure our feminist anti-fashionistas out.  These days, feminists are even strapping on their own soul-destroying instruments of torture, high heels.  So has feminism matured?

The best that can be said is that feminists in our midst are now more discerning in choosing their targets of disdain.  And the enduring favourite for discrimination divas is the workplace.  That women are not in the workplace in equal numbers to men, that they do not earn the same as men, that they have not risen to the top in equal numbers can mean only one thing:  women are still victims of a sexist society.

The orthodox view says that the feminist revolution has stalled.  The statistics at the starting gate are promising enough.  Women are pouring out of universities in greater numbers than men.  But down the track, the picture is apparently bleak.  After all, these highly educated women were the ones who were meant to have taken on the world.

But where are they?  Very few are judges in our courtrooms, partners in law firms or silks at the bar.  Very few are in our boardrooms or running our big companies.

In support of this thesis, we are presented with a range of raw numbers.  For example, recently, newspapers ran headlines such as "Women still poorer in economy boom", "Women's pay falls further behind", "Women's wage inequality grows".

Behind these headlines was the story that the wage gap between men and women had grown by a further $80 a week.  According to the Australian Bureau of Statistics, average weekly earnings for men are $894 and $582 for women.

The message is clear enough.  Women are victims of pay discrimination.  Sex Discrimination Commissioner Pru Goward told one newspaper that equality will only move from an idea to reality when the pay gap closes.  In Britain, the Equal Opportunity Commission is using savvy marketing to get the message across, handing out beer coasters that say "What's a nice girl like you doing in a pay gap like this".

But raw numbers rarely support the sort of simple story that discrimination divas would have us believe.  Look at the law.  As women embark on a legal career, pay packets are more or less equal.  A wage gap begins to appear when you compare women and men aged 30–34.  In 2001, women in that age bracket earned 81 per cent of their male peers.  Over time, with each decade, that wage gap increases, so that by her fifties, a female lawyer is earning 72 per cent of her male colleagues.

So is the pay gap a case of genuine discrimination or is it dogma?  The mere fact that one group of people earns less than another is not, of itself, evidence of discrimination.

A finding of discrimination depends on a great deal of detail that numbers like these simply do not tell us.  Dr Anne Daly, associate professor of economics at the University of Canberra, says that they don't tell us anything about how differently men and women work, the sorts of areas they work in, whether they work in high-fee grossing areas, or what level of commitment in terms of hours they put in.

All of these variables matter when you compare earnings of men and women at this later career point.  But we never hear about them when feminists peddle their tale of discrimination woe.

So let's add some detail.  Sociologist Catherine Hakim is now wellknown for her research into women's preferences.  Her research reveals that only 20 per cent of women treat their jobs as the primary focus of their lives.

By contrast, 60 per cent of men describe themselves as work-centred.  Thus for every woman who regards work as the centrepiece of their lives, there are three men.  So men and women are not competing in equal numbers.  Yet some feminists illogically believe that equality for women means a 50/50 per cent ratio in the workplace -- at all levels.

A few months ago, the Australian Financial Review magazine, Boss, added some more detail.  It pointed to statistics that show how, overall, women work fewer hours than men.  It concluded that "as long as that remains true, it means that women's chances of reaching parity in the corner office will remain remote".

Let me suggest that choice is the detail that old-style feminists are reluctant to include in their big picture of discrimination.  Many professional women are choosing to work less or not at all.  The New York Times called it the opt-out revolution.  Some will say that these are all rich, have-it-all, women;  women lucky enough to make choices.  But that is precisely the point.  These are the women who perhaps should have taken on the world, climbed the ladder, made partner, taken silk.  But they didn't.  These are the women who can afford to employ full-time nannies or pay for five-day-a-week child-care if they wish.  But they haven't.

And the trend to work part-time goes beyond professional women.  As of May 2004, of 1,026,000 women in the work-force, married or partnered with children under the age of 15, 622,000 work part-time and 404,000 work full-time.  By contrast, for men in that same category, almost 1.5 million work full-time and 93,000 work part-time.  Some will say that this is evidence of a stalled revolution, of women being excluded from full-time work.

The alternative view is that the boom in part-time work is a blessing for women.  In the Labour Force Survey for May 2004, women working part-time were asked if they wanted to work more hours.  An overwhelming majority of women -- by a factor of 4 to 1 -- said "No thanks".  That may explain why the proportion of women aged 15–64 working full-time has changed very little since the mid-60s.

Old-style feminists will dress up numbers in simplistic terms as bad news, as evidence of discrimination.  But for every negative slant, there is a positive one.  It is not just a case of the glass being half full.  Sometimes the other angle, for example the one about women's choices, is a more truthful one.  Unfortunately, that doesn't get much of a run in the media because those doing the writing tend to be the ones who also try to sell us discrimination dogma.

The details behind the raw numbers suggest that women's preferences for part-time work, or just less work or different work, with its inevitable consequences for promotion and pay packets, is a voluntary act, not the result of patriarchal oppression.

And if we are to talk frankly about discrimination, let's not forget how old-style feminists deride those who make different choices.  Feminists like to label those who stay at home with children as "conservative", and it is not meant as a compliment.  A few years ago, when the International Social Science Survey of 15,000 Australians revealed that two-thirds of the general population believe it's best for young children if their mothers care for them full-time, Adele Horin used the "c" word three times when reporting the ISSS results in a news item in the Sydney Morning Herald.

Personally, I can tell you that the women I know who choose to stay at home are hardly conservative.  God forbid, many of them wouldn't vote for John Howard in a pink fit.  But the sisterhood's condescension for those who make different choices runs deep.

Along the same lines, old-style feminists tell tired old stories about a collective "duty to gender".  Upon her appointment as Victoria's first female Chief Justice, Marilyn Warren announced that when the big job offer comes, "there is a duty to accept.  A duty to gender".

Well, only if you believe that being a member of a group and a proponent of an agenda is more important than being true to your own preferences, having a duty to one's self.  It strikes me that this has always been feminism's failure.

If there is a duty to one's sex, surely it is to allow women to choose.  It is a large and offensive presumption that the "duty to gender" is a duty to put work at the centre of one's life.

Most women get on and do what they want, oblivious to this rigid agenda of working hero stereotypes and discrimination dogma.  Constrained neither by the 1950s' picket fence nor the 1970s' feminist shackles, many young women now enjoy genuine choice when it comes to having and raising children.  That is feminism's success.  But you won't hear it from the discrimination divas.

A Pipeline to Nirvana

Terry Dwyer (Letters, 1 July) claims that gas pipelines cannot compete with each other and that "eminent economists" favour building infrastructure and then setting prices for its use that don't fully cover costs.

Pipelines do of course compete with each other.  The Australian Competition Tribunal recognised this when it found there was no case for regulating the Longford to Sydney pipeline that competes with that from Moomba.  We even have discussion about a parallel pipeline being constructed in Western Australia where the government expanded the DBNGP easement as part of the sale.

Dwyer invents a new school of economics, Nirvana Economics, with his suggestion that economists say we would all be better off if we required facilities to be built that did not cover costs.  Why stop at gas pipelines?  Why not require Ford to sell capacity of its car plants to rivals at marginal cost?  Why not require Foxtel to provide its cable services free -- after all the cost is overwhelmingly sunk?

Marginal cost is a useful concept and defines a lower price for producers facing a distressed market situation.  If suppliers can find ways where sunk costs are paid by a lump sum, marginal cost also becomes a useful pricing approach.  But to require it as a condition of investment or to impose it after firms have sunk their capital, means foregone investment and gradual impoverishment.

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