Deregulation is no pipe-dream

Premier Peter Beattie campaigns in elections as Queensland's Sir Galahad, saving voters from his own government's depredations.  Incongruous as this may be, it differs little from the detachment of our elected leaders from their own decisions and outcomes when addressing business regulation.

Politicians recognise that red tape ties people up in needless and usually counterproductive activities.  And they see red tape as costly.  Yet they see themselves as only vaguely connected to these outcomes.

Moreover, their deregulation proposals are often coupled with new proposals and rules for business.

Thus, doffing its hat to deregulation, the ALP federal platform says that Labor will introduce "business regulation only to the extent necessary to protect the public interest and the interests of employees, shareholders and investors".  But even that insipid assault on regulation is qualified;  in the next breath the platform announces a plethora of new policies for environmental enhancement, job creation and pursuing the new Holy Grail of "corporate social responsibility".

The federal government's arsenal of deregulatory measures, under prodding by the Business Council of Australia, is reportedly being revived.  This is in contrast to many of its policies which exhibit a curious wish to micro-manage.

On climate change, there are some 50 different regulatory measures designed to reduce the level of emissions of carbon dioxide.  Yet the most junior graduate recruit could easily demonstrate that, if reducing carbon dioxide emission was a worthwhile policy goal, all of these programs should be jettisoned and replaced by a single carbon charge.

Similarly, the federal government seems intent on increasing the Australian Competition and Consumer Commission's regulatory role extending it to every price proposal Telstra makes and threatening to set it loose on the Queensland ports.

This is notwithstanding the ACCC's failings in economic expertise when it comes to other areas that fall within the commonwealth's bailiwick, such as airports and gas pipeline regulation.

Recently, influential ALP policy innovators have been most active in revisiting the issue of regulation.  Shadow treasurer Wayne Swan has publicly recognised "the creeping tide of regulation and the inadequacy of procedures to ensure the benefit of any new regulation outweighs the cost to business".  He also foreshadows proposals to reform the regulatory impact statements process.

The Bracks government assumed a high profile in promoting regulation reform even before the Business Council.  With the Victorian Competition and Efficiency Commission, Victoria has tough vetting machinery to police new regulatory proposals.  That agency, in its first major review, questioned the merits of a poster-child piece of government regulation, the five-star energy efficiency requirements for new housing.

Premier Steve Bracks and Treasurer John Brumby have also called for a "third wave of national reform".  This is bigger on concepts than on detailed reform measures.  And its deregulatory thrust is inconsistent with the Victorian government's frequent inability to resist pressure groups' calls for new restrictions, whether in the form of banning genetically modified food technology or delaying approvals for an upgraded coal-fired power station.

With his record, Bracks's challenge to Prime Minister John Howard to support a 25 per cent cut in regulation smacks of chutzpah.  Even so, he deserves high marks for placing the matter on the table.

Regulation is not some abstraction that politicians have discovered and can eradicate.  It gives expression to the laws that politicians themselves make.  It is idle for those in government to rail against regulations that prevent farmers from chopping down a tree, or a new radio station from operating.

Twenty years ago, the first commonwealth regulation review list included export controls.  The prices that companies negotiated for coal and other mineral exports needed ministerial approval.  In those days, politicians and public servants thought they had superior commercial skills to businesses.

We have made progress in liberalising businesses to make their own pricing decisions.  But environmental, consumer and workplace regulations continue to mount, and new deregulatory initiatives are needed to restore a more limited form of government with all the advantages this brings in terms of personal and economic freedom.

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Economic mentoring in Asia pays off big time

BHP Billiton's announcement this week of a record $8.66 billion profit is cause for celebration and reflection.

Millions of Australians own shares in the big Australian and thus share its profits.

BHP Billiton is also one of the largest contributors to government revenue including taxation, royalties and fees.

While credit for BHP's success must be given to the Chinese, and the management and staff of the firm past and present, decisions by governments also contributed.

One of the remarkable facts accompanying the profit announcement was that China has replaced Japan as our major trading partner for resources.

The Australian Government's approach toward China has helped.

Three decades ago when the country was still under the sway of the Mao administration, Australia began a policy of dialogue focused on encouraging China to join the world economy and encouraging other countries to let them do so.

After Deng Xiaoping gained power in the late 1970s, Australian governments continued to urge China along the path of economic liberalism.

Its policy was to emphasise the need for economic freedom over political freedom, knowing that increased wealth would provide the best path towards eventual political freedom in China.

Then BHP (now BHP Billiton) and CRA (now Rio Tinto) were closely associated with the government policy and dialogue and it is paying off -- for China, the firms and Australia.

One of the few negatives in the BHP's announcement was the $266 million writedown against the hot briquette iron facility in the Pilbarra.  This closes the book on the project and brings its total lose to date to $1.7 billion.

It also highlights the last vestiges of old, failed policy.

For decades, governments saw resources not as source of export wealth in itself, but as means to developing down-stream industries.

Of course, the market saw little sense in building steel mills in the Pilbara.  To fix this "market failure" governments used a array of measure, including tax and royalty incentives, condition on mineral leases, infrastructure and preferential access to government deals, to induce miners to become processors.

The policy failed.  It not only resulted in series of dud processing plants, but slowed development of resource and distracted management from the real game.  The policy was, quietly, down graded in the 1990s to the benefit of the overall economy as well as the resource sectors.

BHP has also been one of the key beneficiaries of the economic reforms in particular industrial relations reform.

The mining sector led the adoption of individual workplace agreements allowed firstly under the WA state legislation and then under federal legislations.

Indeed, this former bastion of union influence is now virtually a non-union shop and largest adopter of the individual agreements.

This was achieved not by force but through choice.

The workforce decided that the higher wages and more flexible arrangements available under individual agreements suited them best.  It was Rio Tinto not BHP that led the way in IR reform.

Nonetheless, BHP eventually saw the gains being made by its arch-rival and jettisoned its long held partnership with the union movement.

This decision has paid off greatly for BHP and the nation as a whole.

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Technology can help save environment

Not so long ago the sale of Telstra was all about the environment.  Remember Senator Meg Lees from the Australian Democrats lamenting the level of service in the bush, but also suggesting there was opportunity for negotiation if the proceedings of the sale could go to saving the environment?

In 2002 she suggested the money from the sale of T3 could be spent on salinity.

The initial sale of Telstra enabled the establishment of the "Natural Heritage Trust".  Back in 1996 John Anderson suggested this would be a "one billion dollar investment in natural capital".

I have never believed that throwing government money at problems fixes them, but for the sake of everyone in the bush who has never experienced the joys of broadband internet, I hope that I am wrong this time around.

Federal politics has changed with the arrival of Barnaby Joyce and the demise of the Democrats.

Politics of the environment is also changing.

The new Australian Environment Foundation (AEF) was registered in February, launched in June on World Environment Day, and recently recruited Aussie icon, gardening guru, part-time farmer and pioneer environmentalist, Don Burke to the role of chairman.

Like other AEF members, Don Burke sees the environment as dynamic -- ever changing.

He says we must learn to ride change.  The new group is set to challenge the status quo.

The AEF has already ruffling feathers, with the Australian Conservation Foundation (ACF) threatened to take the AEF to court over trade mark infringement.  While the names are similar, the logos and philosophies of the two groups are poles apart.

Imagine an environment group that cared about people -- people and their aspirations are one of six core AEF principles.

The AEF also respects technology, recognising that appropriate and innovative technological solutions can fix environmental problems.

The AEF accepts that environmental protection and sustainable resource use are generally compatible -- so we don't necessarily need to chase timber workers, horse riders and bee keepers out of healthy forests.

The first campaign for the AEF focuses on the Australian education system and the need for science to underpin environmental education nationally.

How the politics of Telstra and the environment can change, oh so quickly.

Readers interested in AEF activities can contact info@aefweb.info or visit www.aefweb.info.

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Bracks' Third Wave hard one to catch

As a public relations exercise, the Bracks Government's "A Third Wave of National Reform" was a roaring success.

It received national coverage after its release on August 14 and was given high praise from business and pro-reform commentators, while the many critics of reform were studiously silent.

The praise from reformists such as Hugh Morgan of the Business Council is not surprising -- one of the lessons of the past 20 years is that agreement on reform produces the best outcomes.

Even though the Labor Party has been in denial over the past 10 years, Mr Bracks' Third Wave not only publicly applauds past reforms, it claims them for his party and expresses the need for another wave of reform.

The Third Wave document also highlights the need for a renewal of the National Competition Process (NCP).

The NCP has been very successful in its achievements and in the way they were accomplished.  It induced the states to open their business enterprises to competition, and this contributed -- more than any other reform -- to Australia's recently improved competitiveness.  NCP also induced the states to subject thousands of business regulations to a public-interest test.

The key to its success was its process.  It was carried out on a national basis with monetary incentives and was supported by an independent, non-political review board.

On the other hand, the process became a symbol of hate to many socialists, and few states would have carried it out without the monetary incentives and the opportunity to shed the blame on an outside body.  Moreover, the national approach stopped state governments from watering down the process.

The NCP process is coming to an end;  the challenge now is to invigorate it with a new program and a new funding arrangement.

Mr Bracks highlights the need for this and adds to the debate about a renewed agenda, but is he a credible leader of reform?

Not if he is judged on his record to date.  His government is a master of the endless study;  a government of process rather than results.  It has also proven to be highly malleable to vested-interest groups -- particularly those of the green and union varieties.

Nonetheless, he can change and others can lead.  What he has done is start a dialogue on the renewal of the NCP, and that is a worthwhile contribution.

In term of priorities, Mr Bracks is more or less correct.  A renewed NCP should focus on business regulation and expand into key government services such as health, education and welfare.

Mr Bracks is also correct, albeit for the wrong reason, that industrial relations should not be part of the package.  IR is without question a major national reform issue.  Business, big and small, is demanding reform.

However, Labor governments are proving incapable of acting in the public interest on this issue -- they are far too beholden to a union movement desperate to maintain its monopoly powers.

Thus, cross-government agreement, which is an essential part of NCP, is not possible.  Instead, the only way forward with IR is the route being pursued by the Howard Government -- that is, for the Commonwealth to assume control over the system and implement essential reforms.

It is in its process and aims that Mr Brack's Third Wave is decidedly muddled.

The main focus of the health strategy is to reduce the incidence of chronic diseases by preventive action, to reduce obesity, smoking, alcohol abuse and physical inactivity.  These are all worthwhile aims, but they are not profound, new or sufficient.  Governments have pursued these aims for decades and it is absurd to suggest that the health costs associated with the population's ageing can be addresses by banning smoking or encouraging physical exercise, or that keeping people healthy will keep them in the workforce, even at 80 years of age.

The health system is the last bastion of socialism and protected monopolies.  Opening it to competition, personal choice and responsibility and market-based systems is the key task and it is consistent with the NCP philosophy.  The Third Wave document contains a few throwaway lines in this direction, but basically avoids the real game and stays with the status quo.

The Third Wave's approach to education is similarly muddled.  The document does contain some ideas that are part of an effective reform agenda, such as paying teachers by performance, funding people, not schools, and funding according to outcomes, not a school's ownership.  However, its main focus is simply on increasing participation, on spending more public funds on formal education -- preschool, high school, TAFE and university.  Again, not profound, new or enough.

While Bracks' Third Wave document falls far short of being a blueprint for reform, it is a tentative start.

Given the current stage of the political cycle, nationally and in Victoria, we need to get on with the job.

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Let's distinguish between dumping and differential pricing.

Zone Severn's letter (Business Age 19/8) in response to my article on dumping confuses dumping with differential pricing.  Companies set different prices to meet particular market situations;  we see it daily in petrol prices, which vary considerably from suburb to suburb.

An example of alleged dumping under review by the Australian Customs Service concerns seven or eight different producers of carpet backing that may be selling at a lower price in the Australian market than in their own markets.  This is no more dumping than when Australian farmers get a lower overseas price for beef or wheat than in Australia.

In both cases, the producer is meeting the competitive conditions.  The constraint on this is the ability to reimport product sold into low priced markets.  This is as potent an antidote to price differentiation as the ability to shop around for lower-priced petrol in another suburb.  It limits the seller's scope to price according to customer needs, but will never prevent differential pricing.

Price is far from the sole consideration in the marketing mix, but there is no shortage of entrepreneurs who are keen to spot opportunities for arbitraging prices and no shortage of buyers who will use them, bypassing the normal supplier.

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Occupational Health and Safety Act 2000

Response to the New South Wales Review of the Occupational Health and Safety Act 2000 --
Based on the Review Discussion Paper June 2005

1. SUMMARY OF RESPONSES

We have identified numerous faults in the NSW OHS laws.

In summary, the laws:

1. Apply different measures of work safe responsibility and liability to different persons in the workplace, thus encouraging unsafe work cultures.
2. Distort, rather than apply, the internationally accepted principles of OHS legislation, where parties are to be held liable for what they "control" within bounds of what is "reasonable and practicable".

Specifically the laws breach notions of justice by:

1. Creating presumption of guilt for certain parties and presumption of innocence for others, even though the offences in question are identical.
2. Denying full rights of appeal.
3. Conducting OHS prosecutions in a jurisdiction (the Industrial Relations Court) which is not competent for that purpose.
4. Allowing parties (unions) who have conflicts of interest to conduct prosecutions.
5. Encouraging conflict of interest by allowing unions who prosecute OHS breaches to collect up to half of the resulting fines.

Our response to the Discussion Paper discusses the following questions from the Paper:

Question 3.
Comment is sought on issues in regard to the scope of the general duties.

Answer:
Part 2 of the OHS Act describes the general duties.  It is the flaws in the design and structure of Part 2 that distort the accepted international principles of OHS.  The 2000 OHS Act is consequently compromised.

Question 4.
Are the general duties appropriate for securing the objectives of the OHS Act?

Answer:
No.

Question 6.
Comment is sought on the issues associated with the defences on the OHS Act?

Answer:
The discussion paper attempts to argue that because the tests of "control" within the bounds of "reasonable and practicable" form the basis of defences under the Act, that the internationally accepted principles of OHS have been applied.  This argument is, in fact, a demonstration of the distortion of the international OHS principles rather than an application of them.

2. THE OHS ACT 2000 IN CONTEXT

In Australia, work safety laws are primarily the responsibility of State governments.  In March 2005, however, Australia assumed an obligation to adhere to international OHS principles under an international treaty.

The international obligations are set out in Convention 155 of the International Labour Organisation.  Signatory countries are required to adopt OHS laws that apply liabilities and responsibilities according to what people "control" within what is "reasonably practicable" for them to do.  This is in accord with the "Robens" principles referred to in the Discussion Paper.  These guiding principles impose obligations on all parties involved in all aspects of work situations.  No-one is exempted.

3. CULTURE OF PREDETERMINED GUILT

The NSW OHS Act 2000 appears to reflect a perspective that presumes that workplace injury and death are, by their very nature, the 'fault' of a specified class of persons.  Those who are regarded as being responsible for death and injury are assumed to be employers.

It is one thing for such a perspective to exist.  It is another thing for this view to be the basis of OHS legislation.  But this is the position in NSW.  The NSW legislation of 2000 has predetermined employer guilt built into the fabric of its design.

This legislative structure, which posits employer guilt, breaches key notions of justice.

4. HOW THE PREDETERMINED GUILT IS CREATED

Employers and the self-employed in NSW are charged with an absolute OHS obligation under the Act which is not measured against what they "control" or contained within the parameters of what is "reasonably practicable".

Div 1

8 Duties of employers
"An employer must ensure the health, safety and welfare at work of all the employees of the employer." [Extends to "people"]

9 Duties of self-employed persons
"A self-employed person must ensure that people ... are not exposed to risks ... etc"

The legislative use of the word "must" creates an absolute liability for safety, as there is no consideration granted for "control" in the context of what is "reasonable and practicable".  This legislative framework creates a presumption that employers and self-employed persons are to be singled out as the guilty parties where an OHS incident occurs.  The Act automatically apportions guilt to both legal categories once an incident occurs.  There is no consideration given to the reality of practical control in determining guilt.  It is an Act of clear legislative discrimination.

There is, however, some consideration of "control" for persons who supply or manage premises, supply plant and equipment and so on:

Div 1:
10. Duties of controllers of work premises etc.
(1) A person who has control of premises used by people as a place of work must ensure that the premises are safe and without risks to health."

And in relation to plant or substances responsibility exists

"...only to matters over which the person has control..."

Only employees are accorded "reasonableness" in their actions:

Div 3:
20 Duties of employees.
(1) "An employee must, while at work, take reasonable care..."

In its structure, the NSW Act applies OHS obligations in a totally inequitable and discriminatory manner:

1. Employers and the self-employed are assumed to have total control over their workplaces and are, therefore, presumed to be the parties to whom guilt will attach when a breach occurs.
2. Controllers of work premises and suppliers are allocated obligations over what they control.
3. Only employees are allocated obligations according to what they can reasonably contro.

It is in the realm of penalties that the inequitable standards become even more glaring.

Employers, the self-employed and suppliers, as individuals, face large penalties and even jail for breaches of the Act:

Div 1
Individuals up to 750 penalty units ($82,500)
Individual 2nd offence 2 years jail.

Individuals who are employees face comparatively (and mockingly) small penalties and no prospect of jail:

Div 3
Employees up to 45 penalty units

The stark difference between the penalties applied to individuals as employers and the penalties applied to individuals as employees demonstrates a systemic bias and inequity within the Act.  The Act sends powerful signals to some people at work that they have comparatively minimal obligations under OHS and that other people have heavy obligations.  It encourages a work culture of liability and responsibility transference, where "others" are seen as responsible for safety instead of each individual person.  This must lead to dangerous work cultures where responsibility for safety is not shared.

But the NSW Act is not content to stop at that point.  It moves on to apply the "fall guy" principle.  Where a corporation breaches the OHS Act, directors and managers are automatically found guilty of the same breach.  No evidence or facts are needed to determine guilt.

Div 4
Clause 26. Offences by corporations

1. "If a corporation contravenes, whether by act or omission, any provision of this Act or the regulations, each director of the corporation and each person concerned in the management of the corporation is taken to have contravened the same provision...."
2. "A person may be proceeded against and convicted under a provision pursuant to subsection (1) whether or not the corporation has been proceeded against or been convicted under that provision."

5. DEFENCE DISTORTION

The only occasion in which the Robens principles or ILO Convention 155 are granted any sort of consideration lies in the defence that managers, directors or corporations (who are already presumed guilty) can attempt to mount to disprove their guilt.

Clause 28:  Defence
Must prove "it was not reasonably practicable for the person to comply ...", "the person had no control ..." and "impracticable".

The fact that "control" within the bounds of what is "reasonably practicable" is a basis for individuals to "un-prove" their guilt is a distortion of the Robens principles, Convention 155, and normal justice, rather than an application of them.

6. DENIAL OF JUSTICE

Normal processes of justice are distorted (and sometimes removed) in situations where not only fines but potential jail terms are involved.

Trial is not before a jury and not before a proper Court that has a background and expertise in matters of normal justice.  Instead, judgment takes place before the peculiar institution of the NSW Industrial Relations Commission, which has been heavily criticized on more than one occasion by the NSW Supreme Court for stepping beyond its expertise and its brief.  And there are no appeals to decisions of the Full Bench of the IRC.

The NSW OHS Act also gives NSW unions the power to undertake prosecutions.  And there is an added hook because the NSW Fines Act 1999 Sect. 122 allows for payment of a share of a fine to go to the prosecutor.  This creates compromised prosecutions if:

1. Unions have political, industrial and other agendas against employers.
2. Unions have financially vested interests in seeking, initiating and undertaking prosecutions for financial gain.

7. ORIGINS OF THE CURRENT SITUATION

It would appear that aspects of the legislation are predicated on a view which continues outdated notions of class consciousness and class warfare within the work environment.  The employment relationship is assumed to be one in which the employee is powerless.  The employer is assumed to be all-powerful and controlling.  These notions should not be transferred to the area of work safety.

Under the employment contract, the law of vicarious liability involves the transfer of liability of personal actions from the employee to the employer.  This may serve sound commercial purposes, but on work safety issues it is an invitation to death and injury.

The bedrock of safe work cultures, systems and behaviours must be that individuals are held liable and responsible for situations and actions over which they personally have reasonable and practical control.  Legislation that distorts this foundation contorts work behaviours and invites unsafe workplaces.

8. CONCLUSION

Work safety is too important an issue for games to be played with it.  Laws cannot make people behave safely.  But laws can set the frameworks within which work cultures, systems and behaviours are formed.  The laws must imbue people with confidence that obligations and responsibilities are applied equitably, fairly and with common sense.  The principles of justice must apply.  Transference of liability and transference of obligations cannot be allowed to occur.  If the law fails in these areas, people will conspire to avoid their obligations for fear of the unjust laws.  This sets the scene for work cultures that are endemically unsafe.  People's well-being and lives will be placed at risk.

The Robens principles and Convention 155 have laid the international standards for OHS regulation, based on accountability for that which persons actually "control" within the confines of what is "reasonably practicable".

NSW should amend its OHS Act to align the central structure of the Act (under General Duties) so that offences under the Act for all persons in the work situation are judged against what persons actually control within the parameters of what is reasonable and practicable.

Splitting Telstra is not the right move

Last week, the US Federal Communications Commission abandoned its decade-long experiment with forced access sharing.  Under this process the four so-called "baby bell" phone companies were required to open their phone lines to competing broadband retailers, rather like Telstra's ADSL must be opened to its rivals.

As the former chief executive of US West, the baby bell that served the US Midwest, Sol Trujillo is intimately aware of the harmful effects that forced access policies have on telecommunications services.  In the name of competition, access requirements also disingenuously known as unbundling make an entire industry subservient to regulators, rather than the market and consumers.

Telstra's last attempt to change prices for high-speed internet, involving the introduction of the entry level $30 per month price early last year, was subject to vigorous action by the Australian Competition and Consumer Commission and Telstra's retail rivals seeking to have the price increased.

This was punishing the customer to preserve the competitors and was just as odious as the policies that US regulators have unanimously decided are harmful to true telecommunications competition.

Telstra's decision last year to lower the cost of home broadband should have been welcomed around the country.  Instead, a pricing arrangement which resulted in a massive surge in ADSL uptake was greeted with threats of a multimillion-dollar fine and a brutal series of condemnations in the press.

Telstra's basic broadband pricing has not changed in 1½ years, probably as the result of lessons learnt from last year's ugly fight.  Such stagnant pricing in such a dynamic sector is not the sign of healthy competition.

The most harmful effect of forced access regulation is on infrastructure.  The telecommunications market does not have the same stability as electricity or water;  the steady progression of new communication technologies requires significant infrastructure investments to meet consumer demands.

It is clear that allowing competitors to leech off Telstra's copper wire network at a nominal rate that ensures their profitability, means that there are poor incentives to invest in newer, more advanced infrastructure.

To argue that the capital required to build such a network is so large that no company would possibly do so is fallacious.  One need only look at the sudden explosion in aviation competition with the advent of Virgin Airlines to recognise this fact.

In telecommunications we can be confident that this will emerge in the US now that price shackling has been abandoned.  Not only do the existing regulations dissuade young competitors from developing new services, but they give Telstra a significant disincentive to upgrade lines.  This point was made clear in a Senate committee earlier this year in a discussion on comparable broadband speed.

Telstra's reluctance to roll out fibre optic cable to the home a technology which will rocket broadband speeds to among the best in the world is based not upon a lack of desire to do so, but a fear that the ACCC will force the company to open its lines at a rate which could make the roll-out a poor investment.

This is the regulatory environment Trujillo faced in the US, and this is the one he faces in Australia right now.  However the recent developments here have not followed the positive developments in the America.

While recent Australian debate has focused on the National's rent-seeking demands for future-proofing, it is the operational separation of Telstra into a wholesale and retail division which threatens to be the legacy of the coalition's compromise.

If it goes through as planned, separation will lock in the regressive forced access regulation.  Telstra Wholesale will be no more than a province of the ACCC empire controlled not by consumer demand but by an ACCC managed cartel of parasitic competitors trying to suck concessions from the one provider of significant communications capital that the country has.

The timing of the US decision is fortuitous for the federal government and those who will draw up the new arrangements for the final sale of Telstra.

We can look to the US, and their momentous decision to end this regulatory arrangement, for ideas on how to progress.

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Insurance company whips up a storm

There are corporations that just want to be loved.  Philanthropy used to be the preferred vehicle, now it's corporate social responsibility.  The danger of corporations involving themselves in social responsibility is that they may begin to play the role of government, either in service provision or deciding public priorities.  At the very least, they are distracted from their core responsibility by messing around with "community stakeholders" and lose value for their real stakeholders, owners, workers and customers.

Take for example the decision by Insurance Australia Group, Australia's largest insurance company, to employ Lynette Thorstensen.  She is head of community and environment for IAG and a former chief executive of Greenpeace Australia and director of the Greenpeace International climate-change campaign based in Amsterdam.

Promotional material for a corporate social responsibility conference to be held in Sydney reads, "Lynette draws on her depth of experience to share how to build a business case and get support and buy-in from the board and other key stakeholders".  Well, IAG certainly bought into a debate when it bought Thorstensen.

A number of companies have been applauded for entering the public debate over climate change;  it was their "buy-in" to corporate social responsibility.  The impact of man-made greenhouse gas on the climate is, however, not certain.  Even less so is the correct response to the phenomenon.  Undaunted, last year's winner of the Ethical Investor sustainable company of the year award, IAG, argues that there is a strong relationship between rising global sea temperatures and the ferocity and frequency of storm events.  It has said that "the link between insurance and environmental risk is even clearer when considering that 19 out of 20 of Australia's major insurance payouts have been related to weather events".

But no empirical relationship has yet been observed between modest temperature changes of a degree or so and the frequency or intensity of such events.  The evidence that increases in atmospheric greenhouse gases have warmed the seas or caused wild weather is tenuous.

It may also be true that the traditional source of damage to property, from fire and chemical spills and the like, has become much better managed in recent years.  In other words, the sources of destruction that are possibly not man-made are more in evidence because of the excellent management of risk by governments and insurance holders of those that are.

By contrast, an insurance company cannot change the climate, especially using a poor policy instrument such as the Kyoto Protocol, but it can change the climate for customers.  IAG is using the data to scare people to take out insurance.  In other words, it is doing what it normally does, drum up business but in this instance it is using the cover of the greenhouse issue.  IAG is indulging in public policy debate in order to win customers.  The Kyoto policy is being used as a "dog-whistle" on climate change to have people take out insurance on weather damage to their properties.  Good for business, bad for public policy.

On that basis, what is IAG to make of the Asia-Pacific Partnership on Clean Development and Climate, which Australia has announced in conjunction with the United States, China, India, Japan and South Korea?

The statement released by the partners makes it perfectly clear that Kyoto means sacrifice, and sacrifice will be felt not only by wealthy resource-rich countries such as Australia, but also by poor countries.  Development and poverty eradication are urgent and overriding goals internationally as well.

The World Summit on Sustainable Development made clear "the need for increased access to affordable, reliable and cleaner energy".  The international community agreed in the Delhi Declaration on Climate Change and Sustainable Development on the importance of the development agenda in considering any climate change approach.  Greenpeace, of course has no time for the Partnership on Clean Development.

Should IAG sack its climate-change campaigner and substitute her with a development campaigner from Oxfam or World Vision?  Or should it go about its business, providing insurance for those who want it, and assessing risks accurately in order to set the best premiums?  Dabbling in public policy can be an awful messy business.

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Sheltering business saps competition

Many people confuse dumping with straightforward cost advantages.  Writing in these pages last week, Martin Feil showed himself to be among this group.

Anti-dumping actions force overseas suppliers either to raise their prices or see a special tax placed on their imports.

Dumping is where a company seeks to knock out a competitor with artificially low prices and then recoups its losses in higher prices.  The predator must have deep pockets and be able to prevent a newcomer (or the original victim) entering the market to take advantage of the higher prices.  Nobody has ever documented credible evidence of a successful knock-out-and-subsequent-price-gouge predatory strategy.

In many areas Australian suppliers are not competitive against overseas rivals.  This can be due to higher labour costs (clothing), inability to exploit economies of scale (computers) or costly raw materials (as may be the case with artificial fibres).  Obviously these disadvantages cannot extend to all internationally tradeable goods and services, otherwise we could not pay for imports.

Mr Feil's confusion is perhaps excusable as many government agencies appear to share it.  Australian Customs has been prosecuting a case against polypropylene carpet-backing fabric exported from Belgium, Colombia, Britain, Saudi Arabia and the US.  Customs said dumping had occurred but never explained how such a varied group had formed and how it could hold together as a cartel to raise prices on the demise of the Australian supplier.  Clearly, the Australian producer has a problem competing with all these suppliers.

In another case, Canadian grinding machinery was said by Customs to be selling in Australia at an 80 per cent discount to the price in Canada.  If this were so, enterprising traders would be shipping the machines back to Canada quick smart and undercutting the supplier's domestic market price.

Pharmaceutical manufacturers have the devil's own job preventing the re-import of concessionary priced treatments back to developed-country markets.  The Canadian grinding-machine supplier could surely have fared no better.  Clearly, the Australian supplier had lost competitiveness.

What the government anti-dumping agencies are doing is using a World Trade Organisation rule to impose "temporary" restrictions to prevent a local company going under in the face of a sudden product glut.  As world trading profiles change, anti-dumping agencies have to keep modifying the bases on which they intervene in trade to, on the one hand, mollify domestic loser companies and on the other, to avoid tit-for-tat actions and reprobation in the WTO.

China's long march to becoming a market economy has been the touchstone of dumping policy.  China is becoming such a dominant force in world manufacturing that the old ability to class its exports as dumped products would overwhelm anti-dumping systems.  We would seriously damage the economy if we used such action on a large scale to shelter Australian suppliers from competitive rivals.  Australian companies have to hold their own against the best in the world if we are to improve or even retain living standards.

While anti-dumping action is really only a means of protecting a domestic supplier from overseas competition, a company's loss of competitiveness is not unusual.  Bankruptcies and restructurings are testament to rivals, domestic or not, displacing incumbent suppliers.  Even when the assailant of such failing companies is a domestic rival government occasionally try to bolster them.  But just imagine if Virgin was taking market share from Qantas, and was required to raise its prices to even things up!

Not that there is no precedent for Australian government agencies requiring companies to increase their prices.  Those people who buy the cereal Shredded Wheat might wonder why it has come from the US when we have ample ingredients here.  Part of the reason is that labour restraints have left the food processing industry unable profitably to renew its facilities.  But the main reason is that under Professor Allan Fels the former Prices Justification Tribunal refused to allow Arnotts, the Australian producer's dominant competitor, to raise its prices.  This forced Arnotts to "dump" its product and, in the process, drive its rival business out of the market.

For the most part, we recognise competition on the level playing field as the key driver of efficiency and the intercession of government as a key driver of industrial decay.  Indeed, the economist Schumpeter argued that it was not "that kind of [static price] competition which counts but the competition from the new commodity, the new technology, the new source of supply strikes not the margins of the profits and the output of the existing firms but at their foundations and their very lives".  Taking the chill out of the cold shower of competition might have a place but it can also convert us into a moribund economy.

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Car industry at the crossroads

The Australian car industry is at a crossroads similar to the one it faced 20 years ago when the tariff wall began to fall.

The test will be whether its workplace culture -- particular in the component sector -- is up to the task of taking on the world.

The threats facing the industry are large and numerous.  The recent commodity driven rise in the exchange rate has stripped away a key source of competitiveness.

The world car industry is struggling under huge overcapacity, with a raft of manufacturers facing a near-death experience, including GM, Ford and Mitsubishi.

This is forcing a focus on efficiency like never before.  China is rapidly become the future centre of the car industry, with three out four cars over the next 50 years forecast to be built and sold in China.

On top of this, the local tariff for vehicles and components has been cut to 10 per cent from 15 per cent and is scheduled, subject to a review, to go to 5 per cent by 2008.  The effective tariff rate has been further reduced by free trade agreements with the US and Thailand.

On the positive side the industry did not just survive the reduction in tariffs but came though it smaller but much stronger.

Back in the 1980s the Australian car industry was a cosseted backwater producing poor quality cars at exorbitant cost protected by effective tariffs of more than 100 per cent.

Since then industry has slowly but surely become more world competitive in quality and price, with exports now accounting for 30 per cent of domestic production.

But there is no scope for resting on laurels.  Over the past year, despite near-record sales and levels of local production, more than 1000 jobs have been shed from the local component manufacturers, and some are forecasting that another 2000 could go, mostly in Victoria.

The key problem lies with the workplace culture.  While improvements have been made, the industry is still held back by inflexible work practices, multiplicity of unions, excessive industrial action and a general reluctance to change.

While enterprise-based agreements have been widely adopted, these have done little to improve this culture or add to flexibility.

Proposed changes to IR laws may help, but as the Productivity Commission has made clear, responsibility for better workplace relations lies largely with the industry.

Let's hope they are up to the challenge.  After all, taxpayers are investment billions in the industry in the form of subsidies, and thousands are jobs are at stake.

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Student union fees a farce

This being the week that the coalition took control of the Senate, it was inevitable media attention would focus on anything that could threaten their unity.  In coming months the sale of Telstra will dominate Liberal/ Nationals relations.

But in the past few days the flashpoint has been the government's proposed legislation to ban universities from imposing compulsory fees on students to pay for campus services such as sporting facilities, welfare and counselling assistance, and political advocacy.

That students should be free to join or not join student associations, and that they should be able to choose which activities they support financially, are the twin ideas behind the campaign for voluntary student unionism.

The idea of VSU has long been an article of faith for Liberal politicians, who argue for it as a matter of principle.  Opponents of VSU include, naturally enough, representatives from student organisations, the Labor Party, and unfortunately, but perhaps not surprisingly, some in the Nationals party.

The junior coalition partner has at times revealed itself to be not immune to the appeal of forced collectivisation, and this is no exception.  The Nationals maintain that regional universities will be less equipped than those in metropolitan areas to deal with any reduction in income from student fees.

The debate over VSU is interesting not only because of its immediate political consequences.

The stance taken on the issue by university vice-chancellors demonstrates everything that is wrong with Australia's tertiary sector.  The mindset of the country's university administrators, as revealed in their attitude to VSU, reveals why our universities struggle to be world class.

According to the Australian Vice-Chancellors Committee the lobby group representing the nation's 37 public universities VSU would devastate universities.  The AVCC assumes that students would choose not to spend their own money on services they don't use and that therefore such services would cease to exist.

Any business operating in a free market facing the loss of its guaranteed customers would seek to provide better services to maintain and grow its client base.  But universities and their student organisations, in common with many other sectors of the Australian economy, shirk from the challenge when confronted with the prospect of competition.  Instead, they rely on governments to legislate to ensure their protected position.

The AVCC says the problem with allowing students choice is that they do not have an understanding of the impact of their decisions on the provision of campus services.

It is almost breathtaking that the vice-chancellors could furthermore make the statement, as they did last year, that the AVCC believes representative student organisations work best when membership is universal.  According to the AVCC, if students don't want to join a student organisation they must make a case in writing which is acceptable to the university.  Such a view has more in common with unreconstructed bolshevism than with modern Australia.  (Of course, some would say that the whole problem with the tertiary sector is that it is the last bastion of unreconstructed bolshevism).

The value of fees compulsorily acquired from students represents around 1 per cent of total university income.  If the universities genuinely believe that student services are so important, but that students won't pay for them themselves, then there should be more than enough capacity in the other 99 per cent of university budgets to fund those services.

In 2004, a survey by Shanghai Jiao Tong University to find the world's top 500 universities (by academic outcomes) found that no Australian university was in the top 50.  Australia did have two universities in the top 100.  But this is scant consolation given that Switzerland, a country with one-third our population, had three universities in the top 100.

The leaders of our universities have no understanding that their antagonism to VSU is untenable in principle and in practice.  Similarly, with a few notable exceptions, they don't appreciate that their resistance to deregulation of the tertiary sector could consign their institutions to international irrelevance.

If the AVCC won't even accommodate the basic right of students to not join a student association, then there's not much chance they'll be able to deal with the rigours of competition from the worldwide market in higher education.

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Releasing industry from government ownership

Aside from his role as NSW Finance Minister, one of Michael Costa's new jobs is, alongside new Premier Morris Iemma, as the shareholder minister to the state's eight corporatised electricity businesses.

This role is one fraught with peril.  As one former shareholder minister, South Australian Minister Rob Lucas related, being shareholder representative of several competing businesses presents severe conflicts of interest.  Rob Lucas found that he would hear confidential plans from one government business in which he held a stewardship and other plans from another rival business only one of which could profitably proceed.

Former NSW treasurer Michael Egan, with lukewarm support from former premier Bob Carr, had a solution:  privatise the industry.  Egan's eyes lit up when he saw the $22 billion booty that Victorian Treasurer Stockdale amassed from the Victorian electricity industry privatisation.  Mr Carr however had no stomach to face the various tribal interests that comprise the NSW Labor Party.  These included those on the left who are ideologically opposed to private ownership.  Many on the right were also opposed since they represented union interests keen to maintain a closed shop and, if possible, bloated workforces.

Today marks the tenth anniversary of the sale of Victorian electricity retailer-distributor United Energy.  This was the first of a dozen businesses sold and it realised $1.553 billion.  At the time, many especially within the Labor Opposition, were talking down the sale process and made vague statements that it would be reversed.  Some speculated that, as a result, the sale might bring as little as $800 million.

All of the businesses sold by the Kennett Government have since experienced major ownership changes.  In some cases, notably the electricity generation businesses, the buyers proved to have been over-enthusiastic in the prices they paid.  The level of inefficiency in Victoria was such that better management by private profit-oriented owners effectively added 20 per cent to the available capacity.  This drove down wholesale electricity prices, stripping the industry's profitability.

Partly as a result of this, many of the original owners lost money on their outlays.  The original buyers of the massive Loy Yang generation business (now controlled by an AGL-led consortium) copped a $1 billion loss on their $4.7 billion original outlay.  This was in spite of it cutting costs by slashing its workforce.

The Victorian and later the South Australian electricity privatisations were the incubator of a new breed of Australian or Australian-based energy businesses.  AGL grafted electricity onto existing assets;  others like Alinta and Origin have been created from standing starts;  other overseas-owned businesses like Powercor, International Power, Truenergy and Singapore Power have added strong Australian arms.  None of this occurred painlessly.  Every one of the original businesses has been re-sold, re-structured and re-parcelled.  Private owners of generators and retailers strove to wring value out of assets in their new highly competitive environments.  The network businesses added functions and divested others to maintain profits in the face of price regulation by independent regulators.

By most measures the privatised Victorian industry has outperformed the state-owned industries in NSW and Queensland.  But the wonder is that these government-owned businesses have done as well as they have.  Notwithstanding their often politically appointed boards and constrained ability to deal with their workforces, the corporatised businesses have been able to operate not far below the level of efficiency of their privatised rivals.  Part of this is bred from the necessity of having to show similar performance levels in markets where they face competition.

But as time goes by the difficulties of government ownership mounts.  The Erarings, MacGens and Energy Australias are always going to be subject to controls.  Sometimes the government shareholder will restrain investment, as is said to be the case in NSW.  Sometimes the government will encourage unprofitable investment, as is said to be the case with the Queensland-owned generation businesses.

The new brooms in NSW, Premier Iemma and his co-shareholder Michael Costa, have a rare opportunity to recognise electricity as the competitive business it is and to move into the 21st century.  This will also offer a welcome opportunity to cut taxes.

Releasing the industry from its government ownership shackles could also herald new development in the Hunter Region.  As well as the state's energy heartland, the Hunter is also one of Mr Costa's other ministerial responsibilities.  This would give the new minister ample opportunity to display his famed combat skills by confronting the power unions head on to promote state prosperity and energy security.

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GM -- it's a tale of endless misinformation

Some months ago grain and beef producers from Victoria met in Canberra with cattle, sheep, cotton and grain farmers from NSW and Queensland to talk about issues associated with producing genetically modified (GM) foods.

The farmers knew the benefits of GM cotton and were frustrated with state bans preventing the planting of GM canola and other GM food crops, and after the meeting they formed a loose network called the Producer's Forum.

They are up against the Network of Concerned Farmers (NCF) which opposes GM food crops here and has campaigned hard against GM canola.  They have insisted that there must be proven procedures for segregating GM and non-GM product.

Perhaps it was this concern that drove the CSIRO to mix small quantities of GM canola with several truckloads of regular canola to determine levels of detection as detailed in Alan Dick's story "Alarm at NSW GM Trial" (The Land, August 4, pg. 9).

The NCF has insisted that these types of tests, but promptly put out two media releases claiming alarm and concern.

The first claims Australia could lose its status as a producer of GM-free canola because of the trial -- then goes on to suggest that these types of trials are important!

Confused?  It gets worst.

The lobby group is concerned GM canola for the trial not come from overseas as "this would show how vulnerable farmers are to sabotage".

The release also states GM canola used in the trial should not be grown here because if this happened the "federal government would have deliberately broken a State law".

I suggest we just grow GM canola and, like the Canadians, sell it un-segregated.  Europe has imported unsegregated soybeans from the USA for years.

Indeed, most of the world has been eating GM soy and canola for years and 35 percent of the vegetable oil consumed in Australia is from unsegregated GM cotton seed.  The only people who really seem concerned are Greenpeace and the NCF.

Meanwhile, members of the Producer's Forum want timely access to agricultural biotechnologies for the economic, social and environmental benefit of all Australians and to promote informed discussion and decision making.

This won't be easy given the current level of misinformation.

Readers interested in the forum's activities can contact info@producersforum.net.au.

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Two grumpy old leaders

A punch-drunk boxer entering the ring one last time is tragic.  Almost as sad is the sight of former Liberal leader, John Hewson joining the board of GetUp!, a left-wing internet organisation launched last week that uses spam emails to campaign against the Coalition.

The objective of GetUp! is to hold the Howard Government "responsible" for its Senate majority which takes effect this week when parliament resumes after its winter recess.  Presumably the irony of Hewson's stance is not lost on the man himself.

For one thing, John Howard's industrial relations policies are far less radical than what Hewson wanted to do during the 1993 election campaign.  Under Fightback, awards would have been abolished, and automatic entitlements to unemployment benefits would have been eliminated after nine months.

At this stage it is unclear what part of the Coalition's agenda Hewson objects to.  Even the full privatisation of Telstra is something he promised to do in his second year of office.

Hewson's position would be understandable had he joined a lobby group urging the federal Government to do more reform, not less.  Alas, he now appears to be abandoning some of the good ideas he once believed in.

Hewson once wanted to align the top personal income tax rate with the company tax rate to simplify the tax system and make it fairer for those who can't afford the expensive tax avoidance schemes of the wealthy.  Political porkbarrelling masquerading under the guise of industry assistance schemes would have been shut down.

Somehow it seems unlikely that GetUp! will campaign to have the Coalition adopt such policies.

If Hewson -- or for that matter anyone else involved in GetUp! -- were genuinely concerned about the accountability of governments that have unfettered parliamentary control they would have set up comparable organisations to monitor Labor governments in Victoria, Queensland, the Australian Capital Territory and the Northern Territory.  Funnily enough, that hasn't happened.

Were the Coalition to attempt to use its Senate numbers to gerrymander that chamber's voting system and so prevent its opponents from ever winning a majority the outcry would be heard all the way to the UN Human Rights Commission.  Yet this is exactly what a Labor government has recently done to Victoria's upper house.  How unfortunate that the vigour and intellectual capacity which Hewson once devoted to arguing for economic and social reform is now employed against his own party.  Why this is so is a mystery.

When he became federal leader in 1990, the Liberals gave him almost total authority, in a way unparalleled since Menzies, to determine their direction and policies.  After seven years in opposition he was trusted to take the party back into government with ambitious and bold policies.  His loss to Paul Keating in 1993 (in terms of seats he took the Liberals backwards) was not due to a lack of support from his colleagues or his party.  Hewson alone was responsible for his failure.  Yet his attitude towards the party he led for four years is one of resentment, not gratitude.

The parallels between Hewson's experiences and those of another former federal leader are striking.  Mark Latham, after all, was to be Labor's political messiah.  Although in the end he was brought down by factional bickering, at least initially Latham had the ALP united behind him.  Importantly, he had the backing of many prominent columnists in the media.  The sympathetic coverage he gained was not entirely undeserved.

Latham's first speech as leader, flanked by his wife and children, signalled that he understood the ambitions of the Howard battlers, and that Labor would attempt to win back their support.

Latham had a reputation as a bold thinker who was not afraid to challenge the prevailing orthodoxy.  As a backbencher from 1998 to 2001, he had championed the equivalent of school vouchers and the end to indigenous welfare dependency.  In 2001 he rejected a central tenet of social democrats all over the world when he proclaimed that social problems couldn't be solved simply by governments throwing ever larger amounts of taxpayers' money at them.  He once said:  "Whether we like it or not, the days of tax-and-spend policies have ended".

In 1993 the prime ministership was John Hewson's to lose, while admittedly at the federal election 11 years later Latham had a more difficult task.  Still, he comprehensively blew it.

The financial irresponsibility of Medicare Gold was a repudiation of everything Latham had ever stood for, while his non-government schools funding policy was sheer folly.  Aspirational voters aren't much interested in either class warfare or class envy.

The question inevitably arose of whether Latham ever really believed in any of the things he had spent years talking about before he became leader.  His commitment to "bring home the troops before Christmas" was political stupidity.

Latham might complain about Labor premiers being "A-grade arseholes" but they weren't responsible for his loss of the 2004 election.  It appears that in his forthcoming memoirs Latham will blame his failure on everyone in the Labor Party but himself.

It is difficult to imagine any of our three most recent prime ministers acting in the way either Hewson or Latham have.  Perhaps that's why Bob Hawke, Keating and Howard got to be PM, while Hewson and Latham didn't.

Hawke, as the nation's longest-serving Labor leader, would have had every right to turn on his colleagues after he was unceremoniously dumped by them -- but he didn't.  Keating had his chance and is at least philosophical about the experience.

Of those three prime ministers Howard, until he became prime minister, was perhaps the one treated worst by his own side of politics.  But to do a Latham, or a Hewson, or (sadly) a Malcolm Fraser would never have entered his mind.

There is one further thing that Hewson and Latham have in common.  They each suffered from a fundamental misconception about the Australian people.

Both attempted to impose their own radical prescriptions on the electorate, and both were comprehensively rejected.  They thought they could remake the nation in their own image and they were wrong.  Governments don't change people -- people change governments.

GetUp! suffers from the same misapprehension.  The political spam group proclaims that "after nearly a decade of conservative government, our country has changed".

Of course the country has changed, but that is not merely of Howard's doing.

The Coalition, for instance, might like to take credit for the fact that there are now in Australia more workers who are self-employed than are union members, but this is an outcome of the economic and social transformation that has been going on for decades.

Likewise, in the international context, despite what the founders of GetUp! might think Australia's foreign policy which is firmly behind the US war on terror could only have been sustained with broad community support.

Terrorists, remember, have changed the world, not George Bush.

Our most successful political leaders have understood that the Australian people are cautious in temperament, and conservative by nature.  This is not to say that the community will never support change, but it first must be convinced of the benefits of change.

Next time Hewson or Latham contemplate the tragedies that are their political careers, they might ponder these truths.

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More (cheaper) power to the people

Ten years ago this month, Kansas City-based Utilicorp headed a consortium that bought Victorian electricity distributor and retailer United Energy for $1.55 billion from the Kennett government.  At the time, few had any real idea of what the assets were worth and there was speculation that the sale would bring in as little as $800 million.

The sale of United Energy was the opening chapter of an energy privatisation process that was completed by 1999.  The process was to net the Victorian taxpayer $28 billion for the assets formerly owned by the Electricity Commission and Gas and Fuel.

Back in 1995 there were many voices raging against privatisation.  A socialistic anti-business mentality remained strong.  Added to this was the self-interest of the power industry unions anxious to avoid the ending of wasteful management practices that all this entailed for the excessive staffing levels built up over the years of political control of the energy supply businesses.  Michael Rizzo, Victorian assistant secretary of the Australian Services Union (ASU), declared that the United Energy sale was bad economics and would lead to a deterioration in the quality of supply.  He said:  "We have always opposed privatisation, not just out of concern for our members' jobs but because our members are consumers as well".

One factor muting the opposition to privatisation was Victoria's financial crisis.  This had already propelled the Cain/ Kirner governments to commence a serious labour-shedding program for the industry.  It was to be the midwife of the Kennett government's 1992 election that brought an acceleration of public-sector reform.

For Kennett and his treasurer, Alan Stockdale, the sell-off of the assets was not only to raise money for a financially strained economy.  It was also intended to introduce an automatic pilot behind the constant search for improved efficiency.  This was to be accomplished first by ensuring profit-oriented owners were in charge of the businesses and secondly by setting up an industry structure that kept competitive pressure on energy suppliers.

None of the businesses sold by the Kennett government has moved into the 21st century without a major ownership change.  The original dozen or so assets formerly housed in the Electricity Commission have been re-parcelled and on-sold, often on multiple occasions.

Sometimes the motivation for this was pressure on the new owners' other global assets, sometimes it was to eke out additional efficiencies, and sometimes a new owner came along with a different business plan.  In the process, Australian-owned businesses such as AGL, Alinta and Origin have emerged as major forces.  Similarly, the local arms of the mainly British, Singaporean and Hong Kong-owned businesses, many of which are under Australian management, have assumed increasing influence within their parent companies.

Though only South Australia has, to date, followed Victoria's lead in comprehensive privatisation, the market structure pioneered by Victoria was largely adopted by other states and evolved into a national market for electricity.  That market structure involves breaking up the suppliers into competing businesses to ensure the disciplines of commercial rivalry are in place wherever possible.  Where natural monopoly is unavoidable, the structure involves putting in place a regulator independent of the government itself.

The outcome of the privatisation of the electricity and gas industries has been a triumph of public policy in every sense.  It allowed Victoria to become substantially debt free and created businesses that stand tall among their peers elsewhere in the world.  More important for consumers, competition and improved efficiency have meant lower prices and a more reliable supply of electricity.

The Essential Services Commission (ESC) monitors electricity businesses' reliability performance.

It has sticks and carrots to supplement the commercial motivations the businesses have in maintaining a favourable image among its users.

Since 1993-94, minutes-off-supply per customer in Victoria have halved to 132.  Over the same period, all other states have shown deteriorations in this measure of service.  According to the latest data, NSW electricity customers supplied by the government-owned system (which used to outperform Victoria) experienced an average 219 minutes-off-supply.

The ESC has reported other achievements.  Among these was that last year only 0.14 per cent of appointments were not met on time (less than 15 minutes late) and only 0.3 per cent of customers experienced a level of unreliability that entailed them being off-supply for more than 12 hours.

Improvements to Australia's electricity supply industry were under way before the Victorian privatisation program, and have continued in the years since it was complete.

However, private ownership in Victoria has given the electricity supply industry in this state a greater flexibility to adjust to changed circumstances and in many cases -- perhaps aided by the ESC's sticks and carrots -- greater customer orientation.

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Aid targeted at poverty will not halt terrorism

Tim Costello is wrong to draw a link between terrorism and poverty and then go on to argue for more taxpayer funds to be spent on foreign aid.  He is not alone.  The problem is that poverty does not cause terrorism.  What's more, Costello even concedes as much when he notes that the terrorists responsible for September "were for the most part children of the Saudi elite" and the terrorists responsible for the recent London bombings were "middle-class Britons".

When asked about the link between poverty and terrorism, Costello's brother, Federal treasurer Peter Costello, was right on the money when he said in a TV interview that "I have heard people say that his [bin-Ladens] terrorism was born out of poverty" but "that's not the case".

The Treasurer's view is backed up by a body of research into the topic.  Summarising this research in the Hoover Institution's Policy Review, terrorism expert Walter Laqueur wrote that "it is not too difficult to examine whether there is such a correlation between poverty and terrorism, and all the investigations have shown that this is not the case".

Perhaps the most commonly cited research is that conducted by Princeton University economist Alan B. Krueger and Middle Eastern expert Jitka Maleckova of Prague's Charles University.  Krueger and Maleckova looked at the backgrounds of terrorists from various parts of the world and compared them to average members of the terrorists' own societies.  What they discovered was that the terrorists tended to be more affluent and better educated than the average citizen.  In addition, they also found that support for terrorism did not rise as poverty increased.  In fact, affluent Palestinians were more likely to support suicide bombings than poor Palestinians.

Krueger and Maleckova have argued that terrorism is more like a "violent form of political engagement" than property crime.  According to the researchers, the "more-educated people from privileged backgrounds are more likely to participate in politics, probably in part because political involvement requires some minimum level of interest [and] expertise ... all of which are more likely if people are educated enough and prosperous enough to concern themselves with more than economic subsistence".

There is no direct link between economic disadvantage and international terrorism.  In spite of this, the foreign aid industry, which has been behind making this largely misleading connection between the poverty and terrorism and then arguing for higher levels of foreign aid for essentially self-serving reasons, has been successful in getting a number of politicians and the media to march to their inane drumbeat.

It is true that terrorists do thrive in failed states, which no doubt accounts for greater attention being given by Western countries to development issues in recent years.  But as in the case of the Solomon Islands and Papua New Guinea, these problems are not solved by simply throwing more money at the problem.

We've been down that path before and it hasn't solved anything.  Tackling these problems required a whole-of-government approach rather just giving more foreign aid.

Aside from the fact that poverty does not causes terrorism, its also debatable just how effective foreign aid is at alleviating poverty.  Markets, economic freedom, free trade and capitalism are a better solution to poverty than handouts in the form of foreign aid, though curiously you won't hear many in the foreign aid NGO sector talking about this.

Foreign aid not only has a very poor record when it comes to ending poverty, it has actually has made things much worse in many countries;  something conveniently ignored during the recent Make History Poverty campaign directed at G8 leaders in Gleneagles.

There are a few limited ways which foreign aid can be used to make Australians safer and more secure.  For example, by funding and building up the type of institutions in the developing world that are in the frontline against terrorists.  To its credit, the Howard Government has already started doing this in the area which is set out in the policy paper "Counter-Terrorism and Australian Aid".

If the objective of spending taxpayer money is to make Australians safer, then forming another SAS Regiment is a far better use of taxpayer monies than simply throwing more taxpayer money into the abyss that is foreign aid.

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