The White Picket Fence

Saturday, October 02, 1999

The Easy Guide to the Republic Proposal

Backgrounder

On 6 November 1999, the Australian people will be asked whether to amend the Constitution of the Commonwealth of Australia so as to replace our current constitutional monarchy with a republic with a President chosen by Federal Parliament.

To date, most of the debate has focused on the broad issues of monarchy versus republic and directly versus indirectly elected President. But what the Australian people are actually voting on is a series of specific amendments to the Constitution. Are those amendments well-considered and well-drafted?

In this IPA Backgrounder, experienced legislative lawyer Kerry Corke casts a critical eye over the extensive changes to the Australian Constitution involved in the republic proposal. In straightforward, non-technical language, he sets out the proposed changes and identifies difficulties involved in the proposals.

Some of the problems he identifies include: the President being required to follow the advice of different, and potentially competing persons; the importing into the Constitution terms of highly uncertain content creating great uncertainty about the role of the High Court in situations of potential crisis; and the pervasive, yet dubious, assumption that the bi-polar, highly disciplined party politics of the current day will continue indefinitely.

These problems lead Mr Corke to conclude that the proposed changes are, to use the modern fable of a camel being a horse designed by a committee, a "constitutional camel".

INTRODUCTION

According to the modern fable, a camel is a horse designed by a committee. The proposed republican amendments to the Commonwealth Constitution -- based by and large on the Bipartisan Appointment of the President model passed by the Constitutional Convention on 12 February 1998, and to be put to the Australian people in the 6 November Referendum -- very much creates a constitutional camel.

The amendment proposal introduces concepts such as "reserve powers" and "conventions". They are labels quite well known to students of government. Unfortunately, they are also terms with no fixed ambit.

They may be familiar concepts to the political scientist. They are also a clear invitation for constitutional gridlock.

The indirect-election republic proposal also places the Prime Minister, an office not recognised in the current Constitution, in a position of unparalleled strength.

In a recent article, Senator Lees, Leader of the Australian Democrats, said:

When Coalition MPs talk about government, they mean the Prime Minister, his Ministers and themselves having all power and making all decisions, irrespective of the Parliament. Very big G. ⁽¹⁾

The proposal entrenches that big "G" in the Constitution.

The model is described as the "Bipartisan Appointment of the President" model. ⁽²⁾ As the name bipartisan implies, the design clearly presupposes the continuation of:

the two-party system;
contemporary party discipline;
the current system of single-seat constituencies;
the current preferential system of voting; and
Australians structuring their vote so that, at the end of the day, a Coalition or Labor candidate will be returned.

I. THE HIRE POWER: THE APPOINTMENT OF THE PRESIDENT

The proposed new Section 60 reads:

60. The President
After considering the report of a committee established as the Parliament provides to invite and consider nominations for appointment as President, the Prime Minister may, in a joint sitting of the members of the Senate and the House of Representatives, move that a named Australian citizen be chosen as the President.
If the Prime Minister's motion is seconded by the leader of the Opposition in the House of Representatives, and affirmed by a two-thirds majority of the total number of the members of the Senate and the House of Representatives, the named Australian citizen is chosen as the President.
The person named in the Prime Minister's motion is qualified to be President if, when the motion is moved and affirmed:
the person is qualified to be, and capable of being chosen as, a member of the House of Representatives; and
the person must not be a member of the Commonwealth Parliament or a State Parliament or Territory legislature, or a member of a political party.
The actions of a person otherwise duly chosen as President under this section are not invalidated only because the person was not qualified to be chosen as President.
Each person chosen as President shall, before the term of office begins, make and subscribe before a Justice of the High Court an oath or affirmation of office in the form set forth in Schedule 1 to this Constitution.

It is left to the Parliament to set up the Committee advising the Prime Minister, and to set out how it operates.

The Presidential Nominations Committee Bill ⁽³⁾ establishes a committee to recommend names of suitable candidates to the Prime Minister. It will comprise eight federal parliamentarians, one member from each State and Federal Parliament, and 16 ordinary people. ⁽⁴⁾

A short list of suitable candidates derived from community nominations is to be given to the Prime Minister, so that, one assumes, he can choose one as the presidential nominee. ⁽⁵⁾ In preparing the report, the Committee has to consider:

the "diversity" of the Australian community; and
the ability of the nominees to command the respect and support of the Australian community. ⁽⁶⁾

Taking the last point first, it a relief to know that the Committee has a duty to pick someone we can all wear.

What is meant by the "diversity" of the Australian community is more problematic. There are a number of ways in which the "diversity" of the community can be recognised. It can be by:

geography;
age;
culture;
gender

and the list goes on.

Under the current proposal, the Prime Minister will be able to appoint half the Committee. Given that the Prime Minister is Prime Minister because of his majority in Parliament, his party will also have people, in the form of MPs, on the Committee. ⁽⁷⁾ One doesn't have to be a genius to anticipate that, at some time in the future, there will be political complaints of the PM "stacking" the Committee to provide "his" sort of candidate.

Even if the Committee is not perceived to be doing the bidding of the PM, there will undoubtedly be debate about whether the shortlisted candidates satisfy the "diversity" test. (Assuming we're allowed to see the names. More about this below.)

One imagines that the Committee's report will become a public document. The Presidential Nominations Committee Bill is somewhat awkward on this point. This is because the Constitutional Convention's model required a person's nomination to be a secret unless the person consents to it becoming public. An official or Committee member cannot reveal the contents of the report given to the Prime Minister. ⁽⁸⁾ This is because the Constitutional Convention thought that revealing nominations may stop people from nominating. ⁽⁹⁾

This gag is not extended to the Prime Minister. Nor should it be. After all, if the Constitution ordains the Prime Minister to consider a report, it should be available to all. Particularly one dealing with the appointment of an Australian President. Indeed, one would have thought that the proposed Constitutional amendment would have required the report to tabled in the Parliament. However, such is not the case.

Let us assume that the confidentiality provision was honoured in any publicly released version of the document. What would be your reaction to reading that the Committee had on its presidential shortlist:

Smith;
Jones;
Mmth;
Mmth; and
Mmth

with modesty preventing the release of the names of 3, 4 and 5?

What the existing proposal delivers is a "sort of" transparency of process, and "sort of" public participation, which, alas, is half-baked. Unlike the remainder of the mechanism, however, at least this can be subsequently changed by the Parliament.

What will be constitutionally entrenched is a filter between the people and the appointment of a President. It will be up to the voters to decide on 6 November whether they are happy with an institutionalised "President by Committee".

THE NOMINATION

The Prime Minister may put a name forward for consideration. One assumes that it will be one of the names suggested by the Committee. Or some name. Just so long as the nominee is not a parliamentarian or a member of a "political party". ⁽¹⁰⁾ On the face of the document, the matter appears to be left to prime ministerial discretion.

When "may" is ordinarily used in legislation, it means that a person has a discretion to do something. ⁽¹¹⁾ One would have thought that if we were to have a constitutionally ordained committee (undoubtedly of "eminent people") to provide names for the Presidency, then the Prime Minister would be obliged to put one of those names forward. No doubt it can be argued that the term "After considering the report of a committee ..." will lead to the implication being drawn that the PM is bound to put one of the names forward. But if this is what was meant, it should have been made clear in the proposed section 60. Why leave it to implication?

On the other hand, where the legislative draftsman wishes something to happen, a term like "must" or "shall" is used. One example is the first arm of the third paragraph of the proposed section 59. Another is the proposed section 62, which says that a PM who sacks a President must seek the approval of the House of Representatives for its approval.

If, however, the proposed amendment is read as giving the PM the right to reject a committee report outright, it raises the question: is it desirable to give the PM this much power in a republican system of government?

The Leader of the Opposition is to second the Prime Minister's proposal. ⁽¹²⁾ Thus we have the Prime Minister and the Opposition Leader forming a unity ticket. The irresistible inference is that the Government and official Opposition will vote en bloc. Two-thirds will be obtained. Stability delivered.

Life, however, is continually changing. Nothing stays the same forever. The bipolar political system which the proposed bipartisan model anticipates may not be present in the future.

The Australian Democrats have again floated the concept of proportional representation as a method of electing people to the lower chamber, with a recent recommendation made to the UK House of Commons suggested as a realistic "good and practical compromise". ⁽¹³⁾ Who's to say that some Parliament in the future won't adopt some concept of proportional representation for membership of the House of Representatives?

Minor parties are increasing their overall percentage of the primary vote. In the most recent election in NSW, non-major parties received over 25 per cent of the primary vote. ⁽¹⁴⁾ If Australians perceive that parties other than the two majors may gain representation in the lower House to the extent they may influence how a government may be composed, even if they do not participate in it, they might vote for them. Parliamentary representation may fragment. As might this model.

Supporters say that this model will ensure the selection of a President who is above party politics, unsullied from participating in an election campaign and acceptable to those on both sides of the political fence. The person will be someone who can unify the nation. ⁽¹⁵⁾ What happens, though:

if the Opposition Leader refuses to second the Prime Minister's recommendation, either because he thought the appointed committee was "stacked", or because he genuinely thought the candidate a dud?; or
there is fragmentation of parliamentary representation, so that there are more than two sides to the political fence and the two-thirds vote isn't achieved. What happens?

This is answered by the proposed new section 61. The old President just keeps on going and going. Until a compromise candidate is found. Or the politicians stop playing politics.

One imagines that the argument will be that a "political" imperative will exist to get a President appointed. Imagine the embarrassment if there is political gridlock. People will get cross, they'll punish at the ballot box. It won't be worth it. And so on. But what happens? Does the Prime Minister keep drawing from the shortlist? Can the Opposition Leader play politics and simply decline to second the nominee? And for how long?

In one sense, the status quo is replicated. The Queen, acting on the advice of her Australian advisers, appoints the Governor-General. The first most of us hear of the appointment is to read about it in the newspapers. It could be anybody. Including, of course, a non-Australian citizen.

It differs from the status quo because, unlike now, where once an appointment is made, unless there is an enormous community outcry, the decision is made. Under the proposed constitutional amendments, the Parliament has a role in endorsing the prime ministerial choice. And the person must be an Australian citizen. However, the people only have an indirect say. They don't get a vote on it.

Electors will have to decide that in moving from the current system to a republican system, they want a republic where:

a committee of the "worthy" filters the views of the community;
the Prime Minister gets to choose the nominee;
only federal politicians get a direct say in affirming the prime ministerial nominee; and
if the Leader of the Opposition fails to second a prime ministerial nomination, or the two-thirds majority of Parliament is not achieved, there is built-in delay, and thus a period of political instability, while a compromise candidate is found.

II. THE FIRE POWER: DISMISSING THE PRESIDENT

The proposed new Section 62 reads:

62. Removal of President
The Prime Minister may, by signed notice, remove the President with effect immediately.
A Prime Minister who removes a President must seek the approval of the House of Representatives for the removal of the President within thirty days of the removal, unless:
within that period, the House expires or is dissolved; or
before the removal, the House had expired or been dissolved, but a general election of members of the House had not taken place.
The failure of the House of Representatives to approve the removal of the President does not operate to reinstate the President who was removed.

The Prime Minister has an "unqualified" power to dismiss the President. ⁽¹⁶⁾ It appears that giving the PM the power to sack the head of state has no precedent among republican constitutions. ⁽¹⁷⁾

For all intents and purposes, it reflects the status quo. The Governor-General holds office at the pleasure of the Queen. ⁽¹⁸⁾ If it ever came to sacking a Governor-General, the way the current Constitution is assumed to work would be for the Queen, acting on the advice of her Australian Ministers, to terminate the Governor-General's commission.

The proposed model has the additional feature that if the Prime Minister removes the President, he must seek the "approval" of the House of Representatives within 30 days ⁽¹⁹⁾ for the removal of the President. ⁽²⁰⁾ In this sense, the Parliament is given a role it currently doesn't possess.

What if the Prime Minister Is Knocked Back?

The model proposed by the Constitutional Convention suggests that the failure of a Prime Minister to have a presidential dismissal by the House of Representatives upheld would be the equivalent of a no confidence motion in the Prime Minister.

The proposed section 62 is, however, designed so that this is not the outcome. ⁽²¹⁾ What happens is to be left "for resolution in accordance with parliamentary processes, which must in turn develop within the broader constitutional framework". ⁽²²⁾

One would have thought that if Parliament is asked the question "do you approve of my removal of the President", and answers "no", the President would be returned. Wouldn't you expect that to be the outcome?

This would give some direct meaning to the House being involved in the sacking process, and give full meaning to the term "approval" used in the first paragraph of section 62. The last paragraph of section 62, however, makes clear that once the President is sacked, he's sacked. Without having to achieve a special majority of Parliament. Or without having to prove any sort of misbehaviour.

And, where you have the current system, where the parliamentary "numbers" are as sure as they are today with the system of single-seat constituencies, party discipline and secure majorities -- that is the end of the story.

It is curious that the head of state has less security of tenure than a High Court judge. A High Court judge can't be constitutionally removed unless both houses of Parliament "pray" for a sacking on the grounds of proved misbehaviour or incapacity. ⁽²³⁾

Electors will have to decide whether they wish to entrench a republican system where:

The Prime Minister has an unqualified power to dismiss the head of state;
A simple majority of the House of Representatives, sitting alone, is enough to confirm the dismissal; and
The head of state of the Commonwealth of Australia has less security of tenure than a High Court judge.

III. WHAT THE PRESIDENT CAN DO

The proposed Section 59 reads:

59. Executive power
The executive power of the Commonwealth is vested in the President, and extends to the execution and maintenance of this Constitution, and of the laws of the Commonwealth.
The President shall be the head of state of the Commonwealth.
There shall be a Federal Executive Council to advise the President in the government of the Commonwealth, and the members of the Council shall be chosen and summoned by the President and sworn as Executive Councillors, and shall hold office during the pleasure of the President.
The President shall act on the advice of the Federal Executive Council, the Prime Minister or another Minister of State; but the President may exercise a power that was a reserve power of the Governor-General in accordance with the constitutional conventions that related to the exercise of that power by the Governor-General.

The first paragraph effectively reconstitutes the existing section 61. The one addition is the declaration that the President is the "head of state" of the Commonwealth.

The second paragraph re-establishes the Executive Council.

The third paragraph is the interesting one.

On its face, the section appears to say that:

ordinarily the President has to act on the advice of the Executive Council or the Prime Minister or a Minister; but
if it's a "reserve power", the President can exercise the power if he wants, but must do so according to constitutional "convention".

CONVENTIONS

In a book dedicated to discussing constitutional conventions, entitled Conventions, the Australian Constitution and the Future, L.J.M. Cooray observed that conventions are based on usage. Quoting Sir Ivor Jennings, he suggests that two fundamental requirements are required for the creation of a convention:

a reason or purpose referable to the existing requirements of constitutional government; and
acceptance of it by those who are most immediately concerned with its application. ⁽²⁴⁾

As 1975 shows, however, when politicians become involved, the question of "acceptance" of rules becomes quite problematic.

And they can change. In his work Cabinet Government, Sir Ivor Jennings records that in the United Kingdom in 1932, the convention that Cabinet takes collective responsibility for decisions made by it in Parliament was not followed because of "exceptional political conditions". In that case, the Government was a coalition formed of three parties with distinct organisations, set up for specific purposes. As the relevant issue (tariff reform) was not one of those purposes, members of the Cabinet could speak and vote against it. ⁽²⁵⁾

This is recognised in the amendments being presented to the people. There is a Schedule 2 proposed to be added to the Constitution. It deals with "transitional provisions for the establishment of the republic". Section 7 of Schedule 2 reads:

7. Constitutional Conventions
The enactment of the Constitution Alteration (Establishment of Republic) Act 1999 does not prevent the evolution of the constitutional conventions, including those relating to the exercise of the reserve powers referred to in section 59 of this Constitution.

So, what is a "convention" is a settled thing. Unless the circumstances are such that it either makes sense not to follow "convention" or to make a new rule.

Professor Winterton observes that there is uncertainty about the actual contents of the conventions relating to responsible government. ⁽²⁶⁾ Equally, Cooray accepts that in any analysis of the operation of conventions in Australian law there is a degree of uncertainty. ⁽²⁷⁾

It needs to be said that "conventions" are nothing more than the application of common sense in the operation of government. They are not the sort of thing that can really be set down in writing. Because they are applications of common sense, they can change with circumstances.

Using conventions has been tried before in a constitution of a former "British dominion". In his book The King and His Dominion Governors, Dr Evatt referred to the Status of the Union Act 1934, which made various amendments to the South African Constitution following the Imperial conferences of 1926 and 1930.

The way in which the powers of the Governor-General were otherwise set out in that Constitution were not to be taken to affect the "constitutional conventions relating to the exercise of the functions of choosing of Ministers and the summonsing and prorogation of Parliament".

Evatt said:

The great difficulty about incorporating in a Statute references to constitutional conventions, usages, maxims and practices, is that there is greatest uncertainty not only as to what rules are to be applied, but how as to any particular case they are to be applied.

He continued:

It is obvious, therefore, that it is never safe to rely upon the application of mere constitutional usages, no matter how authoritative the documents by which they are evidenced. In the case of South Africa the difficulty is raised by the reference to the Conventions is much greater because it is impossible to say what the "conventions" are and where they are to be found. Is recourse to be had to Hallam or May? To Hearn or Bagehot? To Bryce or Anson? To Asquith or Dicey? To Todd or Keith? ⁽²⁸⁾

For reasons discussed later on, rather than providing certainty, or even the status quo, the insertion of "convention" may only give rise to litigation and great uncertainty.

THE FIRST ARM OF THE PROPOSED SECTION 59: "THE PRESIDENT SHALL ACT ON THE ADVICE OF THE FEDERAL EXECUTIVE COUNCIL, THE PRIME MINISTER OR ANOTHER MINISTER OF STATE; ..."

The Explanatory memorandum accompanying the proposed amendments says:

Proposed s.59 provides expressly for the President to act on the advice of the Government of the day in accordance with the principle of responsible government which governs the exercise of nearly all of the Governor-General's powers.

The proposed section does no such thing.

By the time of Federation, the concept of "responsible government" was well and truly established. It really means Cabinet government. In the British Dominions (of which Australia was one), the discretionary power of the Crown, other than the "reserve powers" (discussed later on) were not exercised by the representative of the Crown itself, but on advice from popularly-elected legislators.

So it is in the Australian Constitution. Quick and Garran analysed the existing section 63 of the Constitution thus:

(the object of s.63) is to make clear that wherever in the Constitution there is a provision that the Governor-General in Council may do certain Acts, such provision refers to the Governor-General acting with the advice of the Executive Council. This, as we have already seen, means the advice of the select committee of the Federal Executive Council known as the Ministry. ⁽²⁹⁾

The operating presumption is that when the head of state hears advice from a representative of Cabinet, the advice given will be fully supported in both parliamentary and public forums.

Sir Paul Hasluck, a previous Governor-General, thought that it was not appropriate for Ministers to have an argument in Executive Council about the merits of a particular proposal. They should go away and come back when the Cabinet can express a united view.

He thought that it was appropriate for a Governor-General to hesitate to follow the advice of a Prime Minister where there was reason to believe that the Prime Minister was at odds with his own Cabinet or his own party.

In that case, the Governor-General in Council might seek confirmation that he is acting on clear advice and not taking sides in an unresolved argument. In the case of a coalition government, if there was any substantial doubt about the unity of the coalition partners, he might find it advisable to seek assurances from the leader of any coalition party as well as from the Prime Minister. ⁽³⁰⁾

The proposed amendments not only require the President to exercise powers on the advice of the Executive Council, but also on that of the Prime Minister or a Minister of State.

It is odd legislative drafting. If you have, for example, a fractious government of the sort hinted at by Sir Paul: when does the President act with the advice of his Executive Council? Or the Prime Minister? Or a mere Minister of State?

Even in the exercise of an "ordinary" power, such as the commencement of a piece of legislation, or the appointment of someone to a board or committee (leaving aside issues such as ministerial reshuffles or dismissals), or the appropriation of money, there is a chance that a fractious multi-party government may exist, possessing different views.

Giving three separate people (or groups of people) a statutory right to advise a President in the fashion proposed can raise the spectre of an unseemly race to Government House so that the Prime Minister may beat a Minister with relevant administrative responsibility for an Act, or an "Executive Council", to tender advice, on which the President "must" act.

Let us look at an example of the problems this could create. Section 56 of the Constitution bars a parliamentary vote on the appropriation of revenue unless the purpose of the appropriation has been recommended by (now) the President. It is assumed that the President will make the relevant recommendation to Parliament on advice.

Assume now a fractious coalition, and the relevant purpose to be funded is one that stimulates the political tension. Does section 59 create a contextual implication that the PM, as the principal adviser to the President, may give advice notwithstanding a decision of Cabinet? Or, does it allow a Minister acting as an emissary of Cabinet to advise the President of the view of the majority of his Cabinet, and that the President must act on that advice? That would be a valid implication to draw, as it would accord with the standard concept of "responsible (Cabinet) government".

Yet can the PM then go back to Government House, and advise a reversal of the decision, again something the President might have to do. After all he is the boss. And the President must act on advice tended by (inter alia) the PM. What "convention" would apply in that circumstance?

In a submission to the Joint Select Committee on the Republic Referendum, Mr Griffith QC observed that the establishment of disjunctive (and apparently equal) sources of advice may place the President in a position of constitutional uncertainty as to whose advice he should act on. ⁽³¹⁾

The Committee considered the issue. They concluded that it was desirable to amend the constitutional amendments proposed by the Government so as to save and perpetuate the relevant conventions which presently assist the Governor-General in determining the appropriate source of advice. It also said that the Acts Interpretation Act 1901 -- which tells how legislative provisions should be interpreted -- could be amended "so that provisions dealing with giving advice to the Governor-General apply to the President." ⁽³²⁾

As we have discussed, however, conventions are pliable things. One must query whether in a particular case a "convention" will assist in breaking this impasse.

This is a timebomb waiting to happen -- inserted on the premise that today's political scene of tight party discipline and (effectively) one-party government will never change.

THE SECOND ARM OF THE PROPOSED SECTION 59: "... BUT THE PRESIDENT MAY EXERCISE A POWER THAT WAS A RESERVE POWER OF THE GOVERNOR-GENERAL IN ACCORDANCE WITH THE CONSTITUTIONAL CONVENTIONS RELATING TO THAT POWER".

Constitutional literature abounds discussing the concept of "reserve powers". The trick is identifying what they actually are. The Explanatory Memorandum says that there are probably four:

appointing a Prime Minister;
dismissing a Prime Minister;
refusing to dissolve a Parliament; and
forcing a dissolution of Parliament. ⁽³³⁾

It is quite something to put something into a constitution with an uncertain ambit. Yet that is what is being submitted to the people. And it is proposed that when exercising a reserve power, the President must act "in accordance with" constitutional convention. As the Explanatory Memorandum to the Republic Bill said, the conventions will apply to the exercise of those powers by the President. ⁽³⁴⁾

However, as we have discussed, conventions are uncertain things. And, as the Explanatory Memorandum to the Republic Bill says:

There can be circumstances, however, where there is no generally agreed convention to control the exercise of the Governor-General's reserve powers. Such a situation arose in 1975 when the Governor-General, Sir John Kerr, dismissed the Prime Minister, Mr Whitlam, after the Senate failed to pass the Supply Bill for Mr Whitlam's (sic) government. ⁽³⁵⁾

So, there may have been a convention to deal with the 1975 scenario. Or maybe not.

The change to the Constitution must surely drag the High Court into any exercise of a "reserve power". As Australia's constitutional court, it has a duty to ensure that the Constitution is not infringed. ⁽³⁶⁾ There is a legal debate as to whether the exercise of a "reserve power" by the Governor-General is currently "justiciable", ⁽³⁷⁾ that is, capable of being reviewed and reversed by the High Court. The traditional view, however, is that the reserve powers and the conventions which govern their exercise are "high political matters" and are not justiciable. ⁽³⁸⁾

An attempt has been made to ensure that an exercise of the reserve power is not capable of court review. The Parliament added a section 8 of Schedule 2 to the constitutional amendments to be put to the people, which reads:

8. Justiciability
The enactment of the Constitution Alteration (Establishment of Republic) Act 1999 does not make justiciable the exercise by the President of a reserve power referred to in section 59 of the Constitution if the exercise by the Governor-General of that power was not justiciable.

To read section 8 as blocking the High Court from reviewing any exercise of a reserve power would be to frustrate the clear terms of section 59.

It is obviously a fetter on a President to (for instance) prevent him from capriciously sacking a Prime Minister in complete distinction to the unfettered right of the Prime Minister to sack a President.

When section 59 and (the somewhat circular and non-committal) section 8 are read together, the effect must be that if there was a convention and the President generally acted within its terms, the High Court could not intervene. But if he didn't, they can.

"High political matters" also means "high political drama", and uncertainty. At least under the traditional view, once the reserve power was exercised, it was exercised. As there are fetters imposed on the exercise of the power, the High Court has an appropriate role to ensure that the rules are followed.

Let's look at 1975, and how these amendments could have affected the outcome.

In Australia, the House of Representatives and the Senate have equal and co-ordinate authority. One commentator, Professor Lane, thought that, as it couldn't gain supply, it was open for Sir John Kerr to remove the Whitlam Government, using the reserve powers. This was because the circumstance was one where the exercise of the reserve power was the only possible method of giving to the electorate an opportunity to say what was to be done in a political crisis. ⁽³⁹⁾

Winterton, to the contrary, thinks that a Governor-General arguably has reserve powers with respect to the dissolution of the House of Representatives, a double dissolution, to appoint a Prime Minister, and "even more dubiously" to dismiss the government. ⁽⁴⁰⁾

The Supreme Court of New South Wales observed in Greiner v. Independent Commission Against Corruption that the rules relating to the dismissal of the government are vague and uncertain. The only certainty being that it was a power exercisable only in "most extreme circumstances". ⁽⁴¹⁾

So, even assuming that there are "reserve powers" (an open question), and that there are settled conventions to guide their exercise (an equally open question), the better view is that they may only be exercised in "extreme circumstances".

What is "extreme" to one person may not be to another. This can be proved by asking one question: were the events leading up to 11 November 1975 "extreme" enough to justify the dismissal of the Whitlam Government? Ask that one at a party.

Courts are experienced in making decisions as to whether, in public law, a person has acted in a "reasonable" way. Conduct that no reasonable person would adopt, or outcomes so oppressive or capricious that no reasonable mind could justify them can, and are, overturned by the courts. ⁽⁴²⁾

It may be one thing for courts to correct decisions made by junior public servants that are stand-out shockers. In the atmosphere of an emotionally charged political situation, it is entirely unfair to put a constitutional court into a position to determine (for example) whether a set of facts fits the very value-laden term of whether a circumstance is "extreme". Which is what these provisions appear to do.

In the case of 1975, section 59 probably would have operated this way:

The dismissal of a government is something of great political moment and drama. Leaving aside whether it is appropriate to leave the government of the country rudderless for the High Court makes its decision, one wonders whether it is an appropriate sort of controversy for it to arbitrate in the first place.

Electors will have to decide whether they wish to insert into the Constitution:

the indefinite and inherently political concept of "convention";
in all likelihood an increased role for the High Court in time of political turmoil; and
in cases other than an exercise of the reserve powers, that the President must take advice from three separate sources identified in the Constitution, rather than the Cabinet.

WHY THE PROPOSED AMENDMENTS CREATE A CONSTITUTIONAL CAMEL

Reserve powers, and constitutional conventions, aren't conveniently listed anywhere. They are merely derived from usage and practice.

As a matter of statutory design, it is very bad practice for terms of art such as "convention" or "reserve power" to be contained in legislation when the ambit of the terms is uncertain.

The very best terms of art should be well known, such as the Ten Commandments: "Thou shall not kill; thou shall not steal; ..." Or be a term like a baker's dozen -- most of us know that that means 13 of something. When terms of art are used in a statute, their ambit should be well known, so that those well-known concepts can be applied to the facts of the case at hand.

Under no circumstances should a term of art be inserted into anything, particularly a constitution, where the ambit of a term can only be defined as probably constituting something.

One is left with the thought that the "Bipartisan Appointment of the President Model" has in mind the political landscape of today. Party discipline is all. The Prime Minister is king (if not President). This is done without anticipating that as the years turn into decades, things may change. The political certainty of today may not exist tomorrow.

Attempts to express the concept of responsible government in the Constitution in a way better than that of the founding fathers have been unsuccessful, largely because of the use of technical terms of art which, when it comes to the crunch, are of indefinite meaning.

These are all reasons why the proposed amendments to the Constitution should be regarded as a constitutional camel.

APPENDIX: CONSTITUTIONAL CONVENTION
RESOLUTIONS PASSED ON 12 FEBRUARY 1998

That if Australia is to become a republic, this Convention recommends that the model adopted be the "Bipartisan Appointment of the President Model".

BIPARTISAN APPOINTMENT OF THE PRESIDENT MODEL

A. Nomination Procedure

The objective of the nomination process is to ensure that the Australian people are consulted as thoroughly as possible. This process of consultation shall involve the whole community, including:

State and Territory parliaments
local government
community organisations, and
individual members of the public

all of whom should be invited to provide nominations.

Parliament shall establish a Committee which will have responsibility for considering the nominations for the position of President. The Committee shall report to the Prime Minister.

While recognising the need for the Committee to be of a workable size, its composition should have a balance between parliamentary (including representatives of all parties with party status in the Commonwealth Parliament) and community membership and take into account so far as practicable considerations of federalism, gender and cultural diversity.

The Committee should be mindful of community diversity in the compilation of a short-list of candidates for consideration by the Prime Minister.

This process for community consultation and evaluation of nominations is likely to evolve with experience and is best dealt with by ordinary legislation or parliamentary resolution.

The Committee should not disclose any nomination without the consent of the nominee.

B. Appointment or Election Procedure

Having taken into account the report of the Committee, the Prime Minister shall present a single nomination for the office of President, seconded by the Leader of the Opposition, for approval by a Joint Sitting of both Houses of the Federal Parliament. A two thirds majority will be required to approve the nomination.

C. Dismissal Procedure

The President may be removed at any time by a notice in writing signed by the Prime Minister. The President is removed immediately the Prime Minister's written notice is issued. The Prime Minister's action must be presented to a meeting of the House of Representatives for the purpose of its ratification within 30 days of the date of removal of the President. In the event the House of Representatives does not ratify the Prime Minister's action, the President would not be restored to office, but would be eligible for re-appointment. The vote of the House would constitute a vote of no confidence in the Prime Minister.

D. Definition of Powers

The powers of the President shall be the same as those currently exercised by the Governor General.

To that end, the Convention recommends that the Parliament consider:

the non-reserve powers (those exercised in accordance with ministerial advice) being spelled out so far as practicable.
a statement that the reserve powers and the conventions relating to their exercise continue to exist.

E. Qualifications for Office

Australian citizen, qualified to be a member of the House of Representatives (see s. 44 Constitution).

F. Term of Office

Five years.

WEBSITE RESOURCES

In addition to the references listed in the Endnotes (below), the following Websites are valuable resources for a wide range of views on the forthcoming Referendum.

Australian Republic Movement

Australians for Constitutional Monarchy

The Joint Committee Report on the Republic Referendum

Official "Yes" Committee site

Official "No" Committee site

Young Australians Against this Republic

The ABC site

ENDNOTES

1. "House of Ill-Repute Must Be Reformed", The Australian, 24 February 1999, page 10.

2. Attached as an Appendix to this Backgrounder.

3. The Bill will move forward in Parliament if the referendum approves the amendments to the Constitution.

4. Clauses 8-12 of the Presidential Nominations Committee Bill ("the Committee Bill").

5. Part 4 of the Committee Bill.

6. Clause 22 of the Committee Bill.

7. Clause 9 of the Committee Bill.

8. Clause 25 of the Committee Bill.

9. See paragraph 23 of the Communique for the 1998 Constitutional Convention.

10. What is a "political party"? The proposed constitutional amendments and supporting documentation are silent on the point.

The term "party" has been used in the Constitution since 1977. Section 15 provides for Senate casual vacancies to be filled by someone "publicly recognised by a particular political party as being an endorsed member of that party and publicly represented himself to be such a candidate ... ..." Nowadays, Australia's electoral law has the concept of registered parties. It is relatively easy to determine if the departed politician stood for a party registered with the Australian Electoral Commission for the purposes of standing at a federal election.

Otherwise, when is a group a "political party"? Sometimes, people (including presidential candidates) will keep membership of some organisations to keep their "local roots". Sometimes, community groups club together to form a "party" to influence political affairs. For example, the recent "No-Aircraft Noise" Party, formed by a number of Sydney community groups to influence decisions relating to the operations of Sydney Airport. The group stood people for Parliament in elections.

The third edition of the Macquarie Dictionary defines a "party" as:

4. a number or body of persons ranged on one side, or united in purpose or opinion, in opposition to others, as in politics, etc.: the Australian Labor Party.

The relevant definition of "political" in the Macquarie is:

3. exercising or seeking power in the governmental or public affairs of a state, municipality or the like; a political party.

Taking these definitions together, and looking at the context surrounding the term in section 60, a "political party" appears to be one which stands people for a Parliament (as well as, to be safe, even a local council) somewhere in Australia. This is because we are talking about the President of a Commonwealth. It would have to include candidacy for some sort of political organ within the Federation. However, this could be read down to mean participation at national level only. The point is that the issue is open to debate. One can only hope that we don't need a High Court case to work it out.

We must also assume that the relevant election had to be fought "recently" and not, say, 30 years ago. Again, it is almost certain that the High Court will have to tell us one day.

This provision could be a "sleeper" provision, like section 44 of the current Constitution. Section 44 prevents people from standing for Parliament who are "under the allegiance of a foreign power". From time to time it leaps out to invalidate the parliamentary victory of someone who considered themselves "Australian" enough to stand for the Australian Parliament, such as Senator Wood, or Miss Kelly in Lindsay.

11. Subsection 33(2A) of the Acts Interpretation Act 1901 (C'wth).

12. It is of interest that the exposure draft of the Republic Bill provided that the motion to second the presidential nomination was to be by the "Leader of the Opposition (if any)". The original draft certainly anticipated that there may be a breakdown in the current bi-polar political paradigm. The "(if any)" reference was removed by the time the proposed Bill was introduced into the Parliament.

13. "House of Ill-Repute Must Be Reformed", The Australian, 24 February 1999, page 10.

14. NSW Electoral Commission figures posted on the Internet as at 14 April 1999.

15. See speech of Mr McClelland, Member for Barton, on the consideration of Senate amendments to the Constitutional Alteration (Establishment of Republic) Bill, House of Representatives, Hansard, 12 August 1999 at page 6648.

16. A description given by paragraph 6.11 of the Explanatory Memorandum accompanying the Constitutional Alteration (Establishment of Republic) Bill ("the Republic Bill") through Parliament.

17. Winterton, G., "The 1998 Convention: A Reprise of 1898", in The 1998 Constitutional Convention: An Experiment in Popular Reform, University of NSW Law Journal Forum, Volume 2, No. 2, at page 5.

18. Section 2 of the Constitution.

19. However, there do appear to be gaps. The first is what happens if, for instance, the Parliament has, by it own resolution, adjourned for a period greater than 30 days, as can happen. Or the Parliament has been prorogued, under section 5 of the Constitution. So long as the House has not been dissolved, one would have thought that there would have been a mandatory provision requiring the Speaker of the House, a constitutionally recognised position, to convene the chamber on the occasion of the President's dismissal, just as the Speaker issues writs for by-elections under section 33 of the Constitution. This would remedy any procedural awkwardness.

20. One assumes that the "approval" would constitute a simple majority of those present and voting on the motion. No special majority is required. This is a little unusual given the other votes contained in the Constitution, for example, the existing section 57 regarding the determination of legislation following a double dissolution, and the proposed section 60 regarding the appointment of the President.

21. Although, of course, it may be the political outcome.

22. Paragraph 8.10 of the Explanatory Memorandum accompanying the Republic Bill.

23. See section 72 of the Constitution.

24. Cooray, L.J.M., Conventions, the Australian Constitution and the Future, Legal Books, Sydney 1979, pages 78-9.

25. Jennings, Sir Ivor, Cabinet Government, Cambridge University Press, Cambridge, 1969.

26. Winterton, G., Parliament, the Executive and the Governor-General: A Constitutional Analysis, University of Melbourne Press, Melbourne, 1983, page 2.

27. Cooray, op.cit., page 90. The author does say, however, that the degree of uncertainty is not as great as it is often portrayed to be.

28. Evatt, H.V., The King and His Dominion Governors, second edition, Cheshire Australia, Melbourne, 1967, pages 303-5. At the relevant time, the Irish Free State had similar provisions.

29. Quick, J. and Garran, R., The Annotated Constitution of the Commonwealth, 1976 reprint, Legal Books, Sydney, page 707. See also Crisp, L.F., Australian National Government, Longman Australia, Melbourne, 1977, pages 350-7. Also generally Jennings, Sir Ivor, Cabinet Government, Cambridge University Press, Cambridge, 1969, pages 13ff; Moore, W. Harrison, The Constitution of the Commonwealth of Australia, 1997 Reprint, Legal Books, Sydney, page 168; Cooray, op. cit., pages 66-8.

30. Hasluck, P., The Office of the Governor-General, Queale Memorial Lecture, Adelaide, 1972, pages 18-19.

31. Paragraph 8 of the submission to the Joint Select Committee on the Republic Referendum.

32. See generally the discussion at paragraphs 4.35-4.39 of the Advisory Report of the Joint Select Committee on the Republic Referendum. The Government accepted the Committee's recommendations by way of adding the words "including those" into the proposed section 8 to Schedule 2 to the Constitution -- see the speech of Senator Ellison, moving the amendments, Senate, Parliamentary Debates, 11 August 1999 at page 7222.

33. Paragraph 5.13 of the Explanatory Memorandum accompanying the Republic Bill.

34. See Paragraphs 5.6 and 5.16 of the Explanatory Memorandum accompanying the Republic Bill.

35. Paragraph 5.15 of the Explanatory Memorandum accompanying the Republic Bill.

36. See for instance the decision of the High Court in the decision of Cormack v. Cope, volume 3, Australian Law Reports, 419 generally, and in particular page 427.

37. See Paragraph 4.23, and 4.26-4.31 of the Report of the Joint Select Committee on the Republic Referendum, Canberra, 1999.

38. See the speech of Senator Ellison, moving to introduce section 9 of Schedule 2 into the Constitution, Senate, Parliamentary Debates, 11 August 1999 at page 7222.

39. Lane, P.H., Lane's Commentary on the Australian Constitution, second edition, LBC Information Services, Sydney, 1997, pages 411-9, especially 419.

40. Winterton, G., Parliament, the Executive and the Governor-General: A Constitutional Analysis University of Melbourne Press, Melbourne, 1983, page 17. In a lengthy footnote (F/N158, page 214), he thought it doubtful that the reserve power to dismiss a government had "survived". He also questioned whether the "reserve power" to dismiss should be conceded at all to the head of state with the "responsible government" model of government.

41. Volume 28 of the New South Wales Law Reports 125 at page 144.

42. Lawyers know this as "Wednesbury" unreasonableness, after the case which spelt out the concept in its modern form: Associated Provincial Picture House Ltd. v. Wednesbury Corporation, volume 1 of the 1948 King's Bench Reports, page 223.

Friday, October 01, 1999

Media bias: It's as easy as ABC

With the national broadcaster under the control of journalists, the lunatics are running the asylum

There is an idea abroad amongst journalists that the intrusion of proprietors, and concern for the bottom line and for audience reach, are all features which sully and diminish the journalist's craft. That if journalists were just left alone, they would pursue the journalist's craft in a pure and unsullied form, to the great benefit of free speech, open debate and democracy.

The obsessive focus on the doings of proprietors -- discussion of media policy in the media seems to be almost entirely driven by analysis of gains and benefits to particular proprietors -- the sneering at any current affairs program which is actually popular and worries about editorial policy being affected by those with responsibility for profitability, all indicate this belief.

Well, we can be very grateful to the ABC. The ABC provides us with a wonderful example of what happens when journalists do take over the asylum. And the record of the ABC shows quite clearly that journalists freed from effective constraints of accountability are not fearless prosecutors of free speech and open debate.

Let me start with a vignette from personal experience. I have no problem with same-sex marriage or adoption, believe that narcotics should be legalised because adults own their own bodies. This should clearly class me as a standard-bearer for the counter-culture.

But the ABC is cleverer than that: they can see right through me. I am, in fact, an ultra-conservative. Or at least, that is what they told Australia.

The second last occasion on which I appeared on ABC Radio News I was introduced as a "ultra-conservative" spokesperson for labour market reform which advocates the replacement of our 94-year-old arbitration system. I am reformist certainly, radical maybe. Yet, in ABC-speak, I am "ultra-conservative".

Now, when was the last time any of us heard an ABC announcer to refer to the "radical" Greenpeace, the "left-wing" Australia Institute or the "ultra-left" or "ultra-radical" anything? Only those deemed to be on the right of centre are automatically given ideological labels by ABC presenters. I doubt that anyone in the ABC will see any problem in this.

Which is precisely the point -- that ABC staff live in very a narrow intellectual universe for which taxpayers pay $630m a year.

I am advancing three propositions:

First, that the ABC does represent journalism taking over the asylum -- that the ABC is a staff-captured organisation.
Second, that the product of the ABC is biased as a result of this staff capture.
Third, that this has an invidious effect on public debate.

What do I mean by "the ABC"? It is true that rural services of the ABC are somewhat distinguishable in outlook from the rest of the ABC, and that there are some ABC journalists and presenters who do not replicate the general pattern.

Nevertheless, one of the ABC's distinguishing features is how the biases one notices in political commentary is replicated in foreign coverage, environmental issues, religious broadcasts, coverage of art and cultural events, even in drama series. There is clearly a common outlook amongst ABC journalists, presenters, producers, researchers, writers: a common ABC culture.

What I mean by staff capture is that the ABC lacks a real owner, and the result is that it is, in practice, unaccountable to the general public. Furthermore, this lack of accountability makes the interests of ABC staff the dominant interest in determining its behaviour.

Who owns the ABC? The ABC says we do, it is "your ABC".

Legally, this is incorrect. The Commonwealth Government owns the ABC. It is, in some sense, our agent, but it is the legal owner.

What power over the ABC does our indirect ownership give us? Effectively, none. Our personal wealth is not invested in the ABC, we have no power to elect or sack the Board or management of the ABC. In fact, we have none of the prerogatives of real ownership.

So, how about the Commonwealth Government? In theory, it has all the prerogatives of ownership. In practice, any Commonwealth Government which started to seriously exercise the prerogatives of ownership would be subject to deafening shrieks about attacks on the "independence" of the ABC. And, there is indeed a real point here.

Governments are players in the media: they have obvious and massive vested interests. We want media organisations to be independent of the Government.

But, if the ABC is independent of the Government, it is independent of its legal owner. So the role of owner of the ABC is rendered effectively an empty one. And if nature abhors a vacuum, power arrangements in human societies do even more. Whose interests move into the vacuum left by the lack of an effective owner? The staff's, of course.

There is a claim that this is nonsense because ABC staff are all publicly spirited types who would not abuse their position. This is simple, self-serving arrogance. The staff are human, and will act in human ways. If they are not accountable, they will act in their own interests. The ABC of all institutions is not in a good position to argue for accountability for everyone else except itself.

But the contemptible hypocrisy of public broadcasting -- where its denizens can comment on others but treat as completely illegitimate critical outside scrutiny of themselves -- is one of the more regrettable features of contemporary public life.

That the product of the ABC does tend to be biased there is little doubt. I have assembled evidence with my studies of coverage of the 1998 Federal Election and the 1998 waterfront dispute.

Perhaps the most powerful evidence is from Queensland University Professor John Henningham's survey of journalists, where journalists rated 7.30 Report, ABC News, Four Corners and SBS News (in that order) as the most pro-ALP media outlets.

Personally, I am less concerned with party-political bias -- though that is a genuine issue in a taxpayer-funded broadcaster -- than bias in coverage of issues and public debate: partly, no doubt, because that is the game I am in; partly because that then feeds into the behaviour of political parties but, far more importantly, because of its potential to disenfranchise whole sections of society and to harm people who are not otherwise in a good position to stick up for themselves.

A biased media is a media which rates other things more highly than truth. That is good neither for democracy, nor for the cause of the less powerful in our society.

But why would staff capture lead to a particular type of bias? One can see that people in a staff-captured organisation would recruit in their own likeness, but why should there be a particular likeness? The simplest answer for why a particular outlook is dominant is because they get something out of it. What they get out of it is shared social status and a signalling to each other of their moral "worthiness".

It is a huge advantage being able to sell moral vanity to journalists. And journalists are eager buyers, particularly in the Fairfax press, The Australian, The Canberra Times, the Canberra press gallery and the ABC. It offers to participants membership of a moral elite, one requiring no effort apart from agreeing to certain attitudes. Failure to join, however, offers the prospect of exclusion, abuse and reduced opportunities.

This opinion-hegemony has the advantage of a much greater ability to target moral vanity appeals to journalists. On a whole range of topics -- the republic, indigenous affairs, the environment, migration, multiculturalism, labour market issues -- there is a clear narrowing of debate.

The opinion-hegemony has another advantage: it rests on, and appeals to, the powerful influence of very primitive anti-liberal, anti-economic ideas. The ABC is crucial in this for various reasons.

First, it is disproportionately important in the amount of news, current affairs and documentary broadcasting it produces -- AM effectively sets the news agenda for the day.

Second, as a staff-captured organisation, it is far more dominated by the moral vanity games of journalists than any other media organisation, even the Fairfax press.

Such an approach is both inherently intellectually sterile, since it is hostile to genuine inquiry, and destructive of democracy. Both democracy and truth-discovery require flourishing debate and clash of opinion.

I am not arguing against bias in media. A media without people with points of view would be boring. What I am arguing against is a biased media -- against an "opinion-cartel" amongst journalists affecting their output.

Freedom of the press and the media is based on a deal, an implicit social contract: freedom for journalists greater than those given to other professions in return for open debate and application of critical scrutiny to all ideas and interests. If proving to their peers that they have the "right" attitudes becomes more important than a concern for truth and critical scrutiny, then journalists are betraying their side of the bargain.

It is because the ABC, at considerable expense to the public purse, is leading the charge in that betrayal that it should be privatised, broken up or massively reformed.

The Trouble with Auntie

Your ABC is biased, answerable to no one, and doing damage to our democracy

There is an idea among journalists that the intrusion of proprietors, and concern for the bottom line and for audience reach, sully and diminish the journalist's craft. That if journalists were just left alone, they would pursue their craft in a pure and unsullied form, to the great benefit of free speech, open debate and democracy.

The obsessive focus on the doings of proprietors, the sneering at any current affairs program that is popular, and worries about editorial policy being affected by those with responsibility for profitability, all indicate this belief.

Well, we can be very grateful to the ABC because it provides us with a wonderful example of what happens when journalists do take over the asylum. The record of the ABC shows that journalists freed from effective constraints of accountability are not fearless prosecutors of free speech and open debate.

Let me start with a vignette from personal experience. I have no problem with same-sex marriage or adoption, believe that narcotics should be legalised because adults own their own bodies. These should clearly class me as a standard-bearer for the counter-culture.

But the ABC is cleverer than that, it can see right through me. I am, in fact, an "ultra-conservative". Or, at least, that is what it told Australia I am. The second last occasion on which I appeared on ABC Radio News I was introduced as an "ultra-conservative" spokesperson for labor market reform which advocates the replacement of our arbitration system and adoption of a labour market system similar to many of our major trading partners, with freedom of association and contract. I am reformist, certainly: radical, maybe. Yet, in ABC-speak, I am "ultra-conservative".

Now, when was the last time any of us heard an ABC announcer refer to the "radical" Greenpeace, the "militant" CFMEU, the "left-wing" Australia Institute or the "ultra-left" or "ultra-radical" anything?

Only those deemed to be on the right of centre are given ideological labels by ABC presenters and commentators.

No doubt, this is in the interests of ideological hygiene: to warn listeners and viewers of the inherently dubious nature of the opinions the ABC has deigned to appear, briefly, prior to normal transmission being resumed.

ABC staff live in a very narrow intellectual universe, one that affects both the products of the ABC and national debate. The ABC is a staff-captured organisation. It is biased as a result of this staff capture. And this has an invidious effect on public debate.

One of the ABC's distinguishing features is how the biases one notices in political commentary are replicated in foreign coverage, in environmental issues, in religious broadcasts, in coverage of art and cultural events, even in drama series.

There is clearly a common outlook among ABC journalists, presenters, producers, researchers, writers: an ABC culture.

ABC staff are human and will act in human ways. If they are not accountable, they will act in their own interests.

I am less concerned with party-political bias -- though that is a genuine issue in a taxpayer-funded broadcaster -- than bias in coverage of issues and public debate: partly because that feeds into the behaviour of political parties but, far more importantly, because of its potential to disenfranchise whole sections of society and to harm people who are not in a position to stick up for themselves.

Think of the so-called "dissident" women of the Hindmarsh Island affair attempting to stick up for historical truth against fraudulent misrepresentation of its for political purposes: a fraud that the media in general, and the ABC in particular, were only too happy to accept.

On a whole range of topics -- the republic, indigenous affairs, the environment, migration, multi-culturalism, labour market issues -- there is a narrowing of debate. Interpretative journalism has come to mean not much more than the same, narrow set of values being broadcast across much of the media: particularly by the Canberra Press Gallery, where weird hours and confinement in an isolated building breed social isolation and a deeply incestuous and stultifying media opinion-consensus.

Journalism, of course, has moved in a generation from a job dominated by bright, working-class types with limited education to the tertiary-educated middle class.

The opinion-consensus offers to participants membership of a moral elite, one requiring no effort apart from agreeing to certain attitudes. Failure to join, however, offers the prospect of exclusion, abuse and reduced opportunities.

The ABC is crucial in this for various reasons. First, it is disproportionately important in the amount of news, current affairs and documentary broadcasts it produces -- AM effectively sets the news agenda for the day.

Secondly, as a staff-captured organisation, it is far more dominated by the moral vanity games of journalists than any other media organisation, even the Fairfax press or The Australian.

It is, because of its lack of accountability, something of a developer and epicentre for the moral vanity games that have such an invidious effect in narrowing debate.

Both democracy and truth-discovery require flourishing debate and a clash of opinion. If, on a wide range of the most contentious social issues, most of the media are going to line people up as "good" or "bad" depending on which side of particular issues they fall, then neither truth nor democracy is well served. Ignorance and bias provide powerful mutual support.

Freedom of the press is based on a deal, an implicit social contract: freedom for journalists greater than those given to other professions in return for open debate and application of critical scrutiny to all ideas and interests.

If proving to their peers that they are "kosher", that they have the "right" attitudes, become more important than a concern for truth and critical scrutiny, then journalists risk betraying their side of the bargain.

Because the ABC, at considerable public expense, is leading that betrayal, it should be privatised, broken up or massively reformed.

Thursday, September 30, 1999

The ABC, Contemporary Journalism and Moral Vanity

A Speech at a Dialogue
Whose ABC?: The ABC, Staff Capture and the Obstacles to Accountability
in Melbourne, 29 September 1999

One of the few sadnesses about the fall of the Soviet Empire is the demise of the Soviet joke, those acute and revealing sociological observations delivered in the guise of humour.

A classic Soviet joke asked: what is the difference between capitalism and socialism? In capitalism, man exploits man and, in socialism, it is precisely the opposite. To shift the antinomy a little, public ownership is supposed to increase accountability: in reality, it is precisely the opposite, as the ABC shows particularly clearly.

Well, we can be very grateful to the ABC. We can be grateful because the ABC provides us with a wonderful example of what happens when journalists do take over the asylum. And the record of the ABC shows quite clearly that journalists freed from effective constraints of accountability are not fearless prosecutors of free speech and open debate.

Let me start with a vignette from personal experience. I have no problem with same-sex marriage or adoption, and believe that narcotics should be legalised because adults own their own bodies. This should clearly class me as a standard-bearer for the counter-culture. But the ABC is cleverer than that: they can see right through me. I am, in fact, an ultra-conservative. Or at least, that is what they told Australia I am. The second-last occasion on which I appeared on ABC Radio News I was introduced as a spokesperson for the "ultra-conservative" H.R. Nicholls Society. The H.R. Nicholls Society is a labour market reform body which advocates the replacement of our 94-year-old arbitration system and adoption of a labour market structure similar to that of many of our major trading partners with freedom of association and contract. It is reformist certainly, radical maybe. Yet, in ABC-speak, it is "ultra-conservative".

Now, when was the last time any of us heard an ABC announcer to refer to the "radical" Greenpeace, the "militant" CFMEU, the "left-wing" Australia Institute or the "ultra-left" or "ultra-radical" anything? Only those deemed to be on the right of centre are automatically given ideological labels by ABC presenters and commentators. No doubt, this is done in the interests of ideological hygiene: to warn listeners and viewers of the inherently dubious nature of the opinions the ABC has deigned to allow to appear, briefly, on its airwaves prior to normal transmission being resumed.

I doubt that anyone in the ABC will see any problem in this. They would not even see the nature of the complaint being made, the inappropriateness being pointed to ("of course the H.R. Nicholls Society is ultra-conservative, what is the fuss about?"). Which is precisely the point -- that ABC staff live in very a narrow intellectual universe. A narrow intellectual universe that affects both the product of the ABC -- for which taxpayers pay $630m a year -- and national debate.

I am advancing three propositions here.

First, that the ABC does represent journalists taking over the asylum -- that the ABC is a staff-captured organisation.
Second, that the product of the ABC is biased and biased as a result of this staff capture.
Third, that this has an invidious effect on public debate.

What do I mean by "the ABC"? After all, any large organisation usually has a range of perspectives. It is true that the rural services of the ABC are somewhat distinguishable in outlook from the rest of the ABC, and that there are some ABC journalists and presenters who, whether due to prominence or whatever, do not replicate the general pattern. Nevertheless, one of the ABC's distinguishing features is how the biases one notices in political commentary is replicated in foreign coverage, in discussion of environmental issues, in religious broadcasts, in coverage of art and cultural events, even in drama series. There is clearly a common outlook amongst ABC journalists, presenters, producers, researchers, writers: a common ABC culture.

STAFF CAPTURE

What do I mean by "staff capture"? What I don't mean is that the ABC is therefore a happy organisation. On the contrary, I argue in the Backgrounder that there are pressures resulting from staff capture which would incline the ABC towards being an unhappy place to work. Universities suffer a similar problem -- the absence of real ownership, of a commercial focus with concern for asset values, means that politics and factionalism rule, leaving many staff unhappy.

What I mean by staff capture is that the ABC lacks a real owner, and the result of lacking a real owner -- and its nature as a large and powerful media organisation -- is that it is, in practice, unaccountable to the general public. Furthermore, this lack of accountability makes the interests of ABC staff the dominant interest in determining its behaviour. (I am told that there is an ample theoretical and empirical work exploring perverse behaviour in cooperatives due to exactly the same problem of lack of real owners leading to capture, internal politicisation and factionalism.)

THE PROBLEM OF UNOWNED CAPITAL

Who owns the ABC? The ABC's PR says we do: it's "your ABC". Legally, this is incorrect. The Commonwealth Government owns the ABC. It is, in some sense, our agent, but it is the legal owner.

What power over the ABC does our indirect ownership give us? Effectively, none. Our personal wealth is not invested in the ABC, we have no power to elect or sack the Board or management of the ABC, we cannot sell our notional stake in the ABC. In fact, we have none of the prerogatives of real ownership.

We can, and do, elect the Government. But this is something which we do once every three years or so in an election where many issues are more important than the ABC and where holding politicians to their promises is a standing sick joke. Moreover, governments are often elected on quite slender majorities, and majoritarianism can be quite careless of the interests of minorities.

So, if we have none of the prerogatives of ownership, how about the Commonwealth Government? In theory, it has all the prerogatives of ownership. In theory. In practice, any Commonwealth Government which started to seriously exercise the prerogatives of ownership would be subject to deafening shrieks about attacks on the "independence" of the ABC. And, there is indeed a real point here. Governments are players in the media: they have obvious and massive vested interests. We want media organisations to be independent of the Government.

This is a general problem with government ownership. The problem operates particularly intensively in the case of the ABC because of the aforementioned vested interest, but it applies to other government-owned bodies as well. Which is precisely why corporatisation -- having the government act more like an owner -- and privatisation -- creating a genuine owner -- typically lead to staff cuts. The importing into the pre-existing state of affairs of the interests of an owner concerned with asset value and return on capital leads to removal of rents previously going to staff.

There is, of course, a claim that this is a nonsense point because ABC staff are all publicly-spirited types who would not abuse their position. This is simple, self-serving arrogance justifying privilege and need not detain us. The staff are human, and will act in human ways. If they are not accountable, they will act in their own interests. The ABC of all institutions is not in a good position to argue for accountability for everyone else except itself. But, as I can testify, the contemptible hypocrisy of public broadcasting -- where its denizens can comment (often quite intrusively and censoriously) on others but treat as completely illegitimate critical outside scrutiny of themselves -- is one of the more regrettable features of contemporary public life.

Government ownership has the further problem of having the body responsible for regulation also being a major producer: the conflict of interest involved is quite serious and does adversely affect performance, as anyone who has followed the fortunes of public education can testify. The fact that, for example, average LAP scores are not published by school is a classic avoidance of accountability flowing quite straightforwardly from this conflict of interest.

BIAS AND MORAL VANITY

That the product of the ABC does tend to be biased there is little doubt. In the Backgrounder, I adduce various comments from a range of commentators, mostly centrists or on the left, to that effect. I have assembled evidence to the same effect with its studies of coverage of the 1998 Federal Election and the 1998 waterfront dispute. Perhaps the most powerful evidence is from Professor Henningham's survey of journalists, where journalists rated 7.30 Report, ABC News, Four Corners and SBS News (in that order) as the most pro-ALP media outlets. Personally, I am less concerned with party-political bias -- though that is a genuine issue in a taxpayer-funded broadcaster -- than bias in coverage of issues and public debate: partly, no doubt, because that is the game I am in; partly because that then feeds into the behaviour of political parties but, far more importantly, because of its potential to disenfranchise whole sections of society and to harm people who are not otherwise in a good position to stick up for themselves. As a writer in the Australian Left Review observed in criticising Richard Rorty's post-modernism, truth is the only weapon the powerless have. A biased media is a media which rates other things more highly than truth. That is good neither for democracy, nor for the cause of the less powerful in our society. One thinks particularly of the so-called "dissident women" in the Hindmarsh Island affair attempting to stick up for historical truth against fraudulent misrepresentation of it for political purposes: a fraud that the media in general, and the ABC in particular, were only too happy to accept and, even after exposure by the subsequent Royal Commission, are very reluctant to face to this day.

Michael James has pointed out to me that ideology can provide a useful sorting function. It's a way of sorting recruits who are likely to fit in and not threaten existing power structures. It is also a substitute for genuine performance indicators and so protects mediocrity and established rent-seeking activities of the existing staff. All the ideology needs to do is to make it plausible for the ABC to present itself as working in the public interest. Hence, Michael argues, the combination of leftism and nationalism at the ABC, even though the two are strictly in conflict.

Which, I agree, explains quite a lot, except for the specific content of the bias -- almost any ideology would do, after all. The simplest answer for why a particular outlook is dominant is because they get something out of it. More to the point, because they jointly get something out of it.

What they get out of it is shared social status and a signalling to each other of their moral "worthiness".

WHY SO LITTLE HAS CHANGED

It is striking how little effect the fall of the Soviet Empire and the collapse of socialism as a serious project of social transformation has had on Western politics. It is a case of how much has changed, yet how little has changed. David Gress, in his excellent book From Plato to Nato, argues that there has long been a struggle between two Enlightenment traditions. On one side is the sceptical Enlightenment -- the tradition of Locke, Montesquieu, the Physiocrats, Hume, Smith, Burke, most of the American Founders, Mill when he is not letting his rhetoric run away from him, Friedman and Hayek: the tradition which takes human nature as largely a given and works within that. Opposing that is the radical Enlightenment -- the tradition of the more radical French philosophes, such as Voltaire, Condorcet, d'Holbach, D'Alembert and Rousseau, of Marx -- when he is looking forward -- and modern American figures such as Dworkin (both Ronald and Andrea), Galbraith and MacKinnon: the tradition which sees human and social transformation as a serious project. These are the two visions that Thomas Sowell outlines in A Conflict of Visions.

The socialist collapse has demonstrated that socialism was not, in fact, central to the project of human and social transformation: it was merely a manifestation of it. A manifestation that could be, with startling ease, displaced by alternatives -- certain forms of feminism, "hard" multiculturalism, environmentalism, certain characterisations of indigenous rights and so forth. This is a process which has been going on for some decades, but has been accelerated by the Soviet collapse. What is even more striking is that these manifestations -- or at least certain characterisations of them -- have become far more protected from serious criticism in polite circles and public debate than socialism ever was -- even though many of them are also forms of collectivism: indeed, environmentalism is able to re-package policies which failed miserably, and at considerable environmental cost, in liberating workers as the way to preserve the planet. These opinions form a hegemonic -- to use Gramsci's term -- constellation of opinions in public debate.

The problem with socialism is that it was, to use contemporary terminology, a modernist project. It was concerned with logic, evidence, cause-and-effect, with consequences. It was based on certain specific claims about what one could achieve if one re-ordered society in particular ways. It was therefore subject to practical refutation: and systemic collapse in country after country is as great a refutation as one could hope for. Not only did serious prosecution of the socialist project of social transformation turn out to be tyrannical, massively environmentally destructive and with a worrying penchant for mass murder: in some fundamental sense, it didn't even work. Even its lesser forms in the West -- most notably nationalisation -- were subject to similar practical failure.

But what if you adopted political causes that were genuinely "post-modern"? Causes which were not worried about logic, evidence, cause-and-effect or consequences. Causes where the intention and the crusade itself was all that mattered. What if one could offer strong adherents purpose and meaning, and both strong and weak adherents a sense of moral worthiness and shared status, without requiring any serious concern for consistency or effect or any genuine renunciation of interests or pleasures and only the most cursory concern for evidence? What if one adopted causes, in other words, of pure moral vanity? Why, then the vistas are endless. All those within a certain social and intellectual range can play, without cost -- except that of social ostracism and loss of status if you refuse to play. And issues of consistency provide no constraints: one can be as inconsistent as one likes.

There are certain obvious social costs from this, of course. The entire outlook is hostile to genuine inquiry and to debate, because to accept certain propositions as contestable undermines one's moral assets -- hence a shared attitude that certain positions are beyond the pale. This hostility to genuine inquiry also means a hostility to truth, since serious search for truth -- facing what Derrida calls "stubborn and inconvenient facts" -- might upset the moral-status apple-cart. Still, the game is very rewarding, and very low cost, for the players.

But, to whom would such a game of mutual awarding of status particularly appeal? That is not a difficult question. In fact, it is an elementary matter of sociology. It would particularly appeal to those suffering the pangs of upward social mobility via mechanisms which involved separation from their family and social origins.

Welcome to modern higher education. The mechanism and consequences are discussed at length in Katharine Betts' book The Great Divide. Now, which profession is going to both find such an approach particularly congenial AND be especially targeted for such appeals? Journalism, of course, which has moved in a generation from a job dominated by bright working-class types with limited education to the tertiary-educated middle class.

It is a huge advantage being able to sell moral vanity to journalists. And journalists are eager buyers, particularly in the Fairfax press, the Australian, the Canberra Times, the Canberra Press Gallery and the ABC. It offers to participants membership of a moral elite, one requiring no effort apart from agreeing to certain attitudes. Failure to join, however, offers the prospect of exclusion, abuse and reduced opportunities. One thinks of the ostracism Chris Kenny suffered from exposing the Hindmarsh Island fraud -- particularly the way his book disappeared down the memory hole -- and how much more important, in that case, appearing to uphold indigenous culture was than actually doing so.

This opinion-hegemony has the advantage of a much greater ability to target moral vanity appeals to journalists than opposing positions. On a whole range of topics -- the republic, indigenous affairs, the environment, migration, multiculturalism, labour market issues -- there is a clear narrowing of debate. Interpretative journalism has come to mean not much more than the same, narrow, set of values being broadcast across much of the media: particularly by the Canberra Press Gallery, where weird hours and confinement in an isolated building breeds social isolation and a deeply incestuous and stultifying media opinion-consensus.

The opinion-hegemony has another advantage: it rests on, and appeals to, the powerful influence of very primitive anti-liberal, anti-economic ideas, as I have outlined in The Changing Fortunes of Economic Liberalism.

WHY THE ABC MATTERS

The ABC crucial in this for various reasons. First, it is disproportionately important in the amount of news, current affairs and documentary broadcasting it produces -- AM effectively sets the news agenda for the day. Secondly, as a staff-captured organisation, it is far more dominated by the moral vanity games of journalists than any other media organisation, even the Fairfax press or The Australian (which the late Paddy O'Brien memorably described as The Daily Keating). It provides, because of its lack of accountability, something of a developer and epicentre for the moral vanity games which have such an invidious effect in narrowing debate. As I said previously, such an approach is both inherently intellectually sterile, since it is hostile to genuine inquiry, and destructive of democracy. Both democracy and truth-discovery require flourishing debate and clash of opinion. If, on a wide range of the most contentious and difficult social issues, most of the media and most commentators are going to line people up as "good" people or "bad" people depending on which side of particular issues they fall -- or even worse, whether they characterise those issues in a particular way or not -- then neither truth nor democracy is well served. Ignorance and bias provide powerful mutual support.

The ABC, far from counteracting the worst aspects of contemporary journalism, intensifies many of them precisely because it is a staff-captured organisation. Which is to say, its journalists are more unconstrained, and less accountable, than any other journalists. Naturally, this lack of accountability magnifies faults. (When it comes to accountability journalists are, typically, deeply hypocritical: demanding that they have a freedom from outside scrutiny and accountability they would be the first to sneer at if demanded by any other profession.)

One of the problems is, where do you have the debate over the ABC's accountability? Their electronic media competitors have an obvious interest in not mentioning them. Tabloid newspapers are generally not very interested because their readers generally don't watch the ABC. As for the "quality" press, they tend to be protective of the ABC, partly because of the operation of the Old Mates Act and simple fellow-feeling as journalists, partly because they don't want to close off career options and partly because similar comments could be made about them. As for the ABC itself, it does little beyond propagandising on this matter. This problem of where do you have the debate? again indicates the problems of government-owned media: though it is, in this case, but a symptom of a deeper problem of media accountability. An edited version of this speech is being run in tomorrow's Sydney Morning Herald and in The Age: it will be interesting to see if it leads any further.

I am not arguing against bias in media. A media without people with points of view would be boring. Passion can often drive comment and journalism in very productive and revealing ways. What I am arguing against is a biased media -- against an "opinion-cartel" amongst journalists affecting their output.

Nor am I arguing that we should not expect most journalists to be left-of-centre in their personal views. The question is: whether that feeds into their journalism and how: in particular, whether and how an "opinion-cartel" operates.

Moreover, some degree of staff capture in any knowledge/information organisation is inevitable. The question is: what countervailing forces and accountability act to ameliorate its effects?

Freedom of the press and the media is based on a deal, an implicit social contract: freedom for journalists greater than those given to other professions in return for open debate and application of critical scrutiny to all ideas and interests. If proving to their peers that they are "kosher", that they have the "right" attitudes, becomes more important than a concern for truth and critical scrutiny, then journalists are betraying their side of the bargain.

It is because the ABC, at considerable expense to the public purse, is leading the charge in that betrayal that it should be privatised, broken up or massively reformed.

The Challenge of a Deregulated Market

Address to Conference:
Network Pricing, VoLL Interconnection in the NEM
Melbourne, 29 September 1999

ENERGY PRICE PATHS

DEVELOPMENTS SINCE THE MARKETS BEGAN OPERATING

Most of us remember the confident forecasts of 1994 where the world's most prestigious consultancies estimated the shadow price of new generation at something like $38 per MWh. Those forecasts still haunt the smaller consumer as they are the basis of vesting contracts. As the following chart shows, average prices have been around $20.

The frustration of the generators at this level of pricing has not been relieved over time. The joining of the NSW and Vic markets reduced prices as the greater producer depth tended to reduce the incidences of price spikes. The one exception to this generally downward pressure was the Victorian off-peak prices where the interconnector allowed higher prices.

Chart 1

In reducing Victorian volatility, the link with NSW made an entrepreneurial Basslink, always a questionable proposition, even more remote. In Victoria, for example, there were almost as many days (16) when the average price was above $50 in the four months to April 1997 as there have been in the 27 months since. Basslink's viability, requires a volatile price to amortise the cost of the transmission line.

The following two charts show a relatively trendless electricity price trend.

Chart 2

Chart 3

Prices in SA and Queensland have been far more volatile.

Chart 4

SA prices have been more than double those of the linked market and Queensland has been not much less.

FUTURE PRICE DEVELOPMENTS

Futures Markets

The Societe Generale one year forward data provides some useful market information. As can be seen in Chart 5, there is an optimistic and a less optimistic (realistic?) way of reading this data. A least squares regression has the market price trending towards a heady $35. A log curve has the market trending ever-so-slightly upwards.

Chart 5

Several developments have caused the price to shift. These include:

a close to VoLL event in late November 1997, accompanying interconnector maintenance, which caused a repricing in the market, shifting the contract price up from about $18 to $22-26; as memories faded, the price drifted down again
an upward shift in May 1998 as a result of the one year hedges from the early contestability tranche being renewed
some increase in prices early this year which may have been due to the Pacific Power/Powercor dispute causing Pac Power to cease seeking contracts thus relieving pressure on the market. This period also coincided with an increase in the spot price possibly resulting from Pac Power being undercontracted and reducing its generation.
a further softness in pool prices, reflected in lower contract prices, has taken place since June of this year as a result of AES Yarra (Ecogen) bidding more aggressively, presumably because it has access to take-or-pay gas. This softening of the market offset the effect on future contract prices of the ACCC forcing some reduction in the NSW vesting prices. (The lifting of VoLL is likely to have some effect but will not have an effect over the next two years.)

The trends in these prices reflects the reality of an over-supplied market. The Victorian generators claim the state owned nature of the NSW generators causes them to bid on a market share rather than profit maximising fashion. There may be something in this but the overwhelming cause of the low prices is excess capacity.

Planned Capacity and Future Prices

Major new licks of capacity in SA are in train with Pelican Point, Osborne 2 and the Transenergie link. These should bring the price down somewhat as they start to come on line in about a year's time, though SA is always likely to be higher priced than other states. That would doubtless be the major incentive for an entrepreneurial interconnect and Pelican Point may have been encouraged by especially low gas prices.

Queensland has both PNG gas looking for a market and some of the lowest cost coal available anywhere. The ESAA's survey of new power stations counts some 2,400 Megawatts of gasfired and 4,690 Megawatts of coal-fired electricity planned between now and 2003. That's getting close to the existing generation capacity in the State. Obviously it won't all go ahead in the time frame but there is a coming glut.

These developments have a bearing on price trends. The SG prices appear to have been ratchetting-up but only to the dizzy heights of $25-30! The link between NSW and Queensland may bring some price increase in the period prior to the latter part of the year 2000 -- even though it is less than 200 MW, as can be seen in Victoria with Newport generating, the price is often quite sensitive to small additional supplies. However this is likely to be short-lived if the avalanche of new capacity in Queensland eventuates. The more substantial regulated link between NSW and Queensland in 2001 seems likely to result in power moving south from an over-supplied Queensland market. Even so, notwithstanding a renewed price softening over the past month or so, it does not look like we'll plumb the price depths we saw a year and a half ago, possibly because some contracts for unwanted coal have expired.

MARKET STRUCTURE REGULATION

The First Steps

The general pattern of electricity restructuring involving the three way split:generation, transmission, and distribution was adopted worldwide.

Shifting from the nationalised or government franchised industry this was appropriate as the first stage. But we do not know whether energy suppliers are better run in an integrated or disaggregated fashion. Probably there is no one answer and, we should not try to impose a particular structure. It would seem that there are strong incentives on firms to integrate backward and forward to internalise risk. There is also some production specialisations that require markedly different skills of retailing, generating and distribution.

Privatisation

The process of unwinding government ownership in the industry has not yet reached the halfway stage. SA treasurer Rob Lucas has offered compelling reasons about why a Minister/shareholder cannot efficiently operate with rival businesses -- he knows that the strategies of one of his charges will adversely impact on others. It is impossible to apply strategic direction with such conflicts and the businesses become driven by the interests of the executives rather than attempting to maximise the wealth of the shareholders.

Beyond Privatisation

Assuming privatisation proceeds, how is the industry's structure to develop?

Crucial to this question are the relative efficiencies of producing in-house (integrated production) and contracting or selling through a production chain, together with the attitudes of the regulatory authorities. The ACCC is crucial to the latter question. The indications of its attitude to a proposed merger is normally final -- its position is seldom contested because of the costs and delay inherent in taking court action.

The ACCC applies a version of the Herfindahl-Hirschman Index. It may be "concerned" about a merger proposal where 70% of the market is held by the four largest firms with the merged firm to supply at least 15%; or where the merged entity is 40% of the market. These guidelines are similar to but somewhat more stringent than those of the US and Canada.

The ACCC has made some specific comments on electricity. Its merger guidelines say that an example of pro-competitive restructuring being undone would be the re-amalgamation of the five Victorian generators. That is clearly a very remote possibility (even so, the five firms concerned would comprise only 29% of the linked market).

In the past, the ACCC has often taken state markets as its frame of reference, even in areas like banking where the market is far from regional. Its statements on electricity may indicate a view that the national market is -- or was -- insufficiently connected. On a state based market, it is unlikely that two significant suppliers would be allowed to merge. In Victoria, any two of Yallourn, Mission, Loy Yang and Hazelwood would approach or exceed 40% of the market. It's also probable that merger attempts between Snowy, Southern Hydro and Newport would be heavily scrutinised in view of their combined importance to the peak market. The existing concentration in Victoria would bring any purchase by one of the big four outside of the ACCC's safe harbour provisions. Similar considerations would prevail in other states.

The UK experience has coloured a great many views on market power. The ability of the two majors there to hold prices higher than was considered to be a likely outcome under a fully competitive system continues to have a bearing on the regulatory arrangements in the England and Wales market. Even though the duopoly is now a triopoly with the growth of Eastern (TUA) as a generator, the authorities consider prices have been manipulated, although not through direct collusion.

But such sustained manipulation in a market without entry barriers is difficult to explain. And the increased capacity outside of National Power and PowerGen is a predictable market response and one that undermines any market power -- the profitable opportunities caused by high prices sucks in new capacity. Even so, the Australian competition authorities, like those in most other countries, are rarely impressed by claims that markets self-correct at lower cost than those imposed by their own interventions. In Australia, the ACCC has blocked or amended mergers in industries without entry barriers. These have included merger proposals in paints, banking, and the Australian Stock Exchange/Australian Futures proposal.

There would seem to be less justification for ACCC objection to interstate mergers. However, a merger between a major Victorian generator and one of the three major NSW generators could easily fall outside the ACCC's "safe harbour" guidelines, especially if the nature of the power were broken down into fast start, baseload etc. Similar considerations may apply if one of the Victorian or NSW generators were to seek to buy South Australia's Optima or even Northern power stations.

The ACCC has raised specific concerns about mergers in its authorisation of the NEM. In what, in the light of the low prices, reads like a sardonic statement, it drew off ABARE work to suggest that the excessive concentration in NSW could lead to "strategic" bidding. But the ACCC does had a point here. Even though there has been no sign of collusion, even of a non-overt kind, it would have been better to have started with a greater NSW disaggregation -- and such an approach is still possible prior to the NSW privatisation.

With regard to vertical integration, the ACCC NEM authorisation also expressed concern about generating businesses operating within retailing. This already occurs without any known adverse effects. However the ACCC may look closely on a more full-blooded integration. Some sort of indication of the ACCC's attitudes to mergers across and within sectors of the industry would be most helpful.

REGULATION OF THE "ESSENTIAL FACILITIES"

At the present time the area of regulation that occupies most of the industry's resources concern "essential facilities" -- the poles and wires. Both within the States and nationally, Australia's regulatory arrangements in these areas have been particularly intrusive. In contrast to the formalised processes for declaring that facilities must be opened to competitors and price fixing, some countries -- NZ and Germany for examplehave no specific regulation and simply rely on general competition law, backed up by the ability to by-pass.

In Australia, even where by-pass is clearly evident, as in Victoria's Docklands, the regulator is reluctant to leave things to market forces.

In terms of the outcome of reviews of price applications, the following itemises those that are presently available

Regulatory Inquiries and Outcomes

ISSUE	REGULATOR	APPLICANT CHARGE	DETERMINED CHARGE	DATE
AGL gas contract market	IPART	Annual revenue reduction from $140m to $128m	Annual revenue reduction to $99m	May 1997
Vic gas	ACCC/ORG	9.7-10.2 return post tax	7.75% return post tax	Oct 1998
Wagga gas (GSN)	IPART	Original 11.1% later offer 9.0%	7.75%	March 1999
Telstra Interconnect	ACCC	4.7c/minute	2.0c/min. with 1.6c suggested Sept 1999	June 1999
Adelaide Airport	ACCC	8.89% pre-tax or $3.66/ passenger	8.25% pre-tax or $3.45/ passenger	June 1999
Albury gas	IPART	9.6%	7.75%	July 1999
NSW vesting contracts	ACCC	43.64 cents	no more than 40 cents	Sept 1999
NSW distribution prices	IPART	8% average real price reduction 1999-2004 8.2-8.7% real pre-tax WACC (April 1999)	16% real price reduction 1999-2004 7.5% (7.75% AIE, AE) 15% O&M reductions (10% AE, 5% AIE)	Sept 1999 Draft Determination

Many of us will have waded through the material and attended the meetings behind these decisions. We know how resource intensive they are. In terms of outcomes, the authorities are moving towards a consistency, currently 7.75% but perhaps in the light of the latest IPART decision, trending down. Two major shortcomings of this approach are:

the intrusive nature of intervention brings an insecurity over the stability of a decision. Dr Stephen Littlechild, formerly the UK electricity regulator, has discussed the re-opening of the England and Wales regulated tariffs after the 1994 price setting. Originally, the UK distribution rates were cut by between 11 and 17 per cent and an X factor established at 2 per cent per annum. A readjustment was sparked by public criticism that these measures offered excessive gains to the regulated businesses, evidence for which was provided by a steep rise in their market values. The tariff levels were subsequently adjusted down by a further 9 per cent compared to the rates set only some six months previously and a 3 per cent X factor was imposed. Dr Littlechild stressed that although regulators are intended to be independent of Government, they cannot be oblivious to the same pressures that impact upon Government in determining the just price.
the setting itself is asymmetrical. If the regulator sets the price too high, the market provides the necessary discipline because the line is by-passed and, as a result, the owner will discount the regulated price. If the price is set too low, its sunk cost nature means it will not be withdrawn but:

there is less incentive to ensure optimal maintenance levels, upgrade the line and offer premium services;
there is a considerable disincentive to building new lines, a disincentive that has been attributed to underbuilding in US transmission, where since FERC Order 888 required open access, new transmission building has fallen 46 %.

CONCLUDING COMMENTS

In general price outcomes in the Australian electricity markets have been understandable, if not predicted.

Shortage of capacity in Queensland has shown the state, long considered to be the lowest cost generator, to be high priced ass a result of too little new capacity over recent years.

Higher prices in SA are prompting their own self-correction. Docklands demonstrates that a DB cannot seek higher prices than those a rival could provide the service for as long as by-pass is permitted.

Most discussion in the Australian energy industries has centred around issues of how to make the market work and how to prevent market power from having adverse effects on customers. But the upshot of all this is a considerable increase in regulatory oversight and resources allocated to persuade the regulators.

It is time to start a regulatory disengagement in this industry. The alternative is an industry that is regulator rather than customer focussed and one with a structure determined by the preferences of regulators rather than efficiency.

Friday, September 24, 1999

Want to win? Look after rural Australia

The 1990s are going out the way they came, with a competent State government led by a popular Premier with a large majority coming an electoral cropper despite being widely expected to win easily. It happened to Nick Greiner in NSW in 1991, to Wayne Goss in 1995 in Queensland and now to Jeff Kennett in Victoria in 1999.

In all three cases, the unexpectedly bad result was marked by large swings in provincial seats against the incumbent government (though, in Goss's case, the swing was consistent across the State). But this theme of provincial revolt does not only play at a State level. Paul Keating's 1996 debacle was notable for the ALP being almost completely wiped out in mainland provincial Australia. And in 1998, the Howard Government suffered the consequences of the rise of One Nation, again in provincial Australia. So, Greiner 1991, Keating 1996, One Nation 1998, Kennett 1999. What is going on here? With such a strong pattern, there has to be something bigger than the characteristics of particular Governments -- after all, it has affected both sides of politics.

Actually, it is not that hard to work out what is going on. Paul Kelly famously analysed the politics of the 1980s as being about the dismantling of what he calls the "Federation" Settlement. That settlement -- the policy principles of imperial benevolence, trade protection, wage arbitration, state paternalism and White Australia -- was not fully put in place until the Deakin Government of 1905-08. This led to electoral revolt by provincial Australia, culminating in the creation of the Country Party in 1920. There was nothing mysterious about the reasons for the revolt -- the whole Deakinite system relied on transfers to urban interests, via protection, from rural-based exporters.

Rural-interests were "bought off" by marketing boards, rural subsidies and expanded government investment through public utilities and business enterprises disproportionately concentrated in provincial Australia. This was the "work-fare" state.

The Whitlam Government greatly expanded the welfare state, an expansion which has continued. During the 1980s, the process of dismantling the work-fare state (through corporatisation, privatisation and rationalisation of services) in order to pay for this expanding welfare state began. In this process provincial Australia was obviously a loser, and it was not a winner from the expanded welfare state. This made some sort of revolt more likely.

The values of provincial Australia (or a caricature of them) have taken a battering. The period of the 1980s and 1990s saw a great surge in "moral vanity" commentary in public debate -- issues where media and media commentators show what "good" people they are by ostentatiously attacking those who disagree with them as racist, sexist, etc. Rural and blue collar people do not believe they suffer these moral shortcomings. What is more, they resent being accused by people with whom they have little in common and suspect of looking down on them -- namely city folk and the intelligentsia. As journalist Nicholas Rothwell has noted, the effect on a distraught intelligentsia of Hansonism was central to its appeal (until its proponent was revealed to be rather too much of a dill).

Moreover, job losses from urban posturing on indigenous and environmental issues have disproportionately affected provincial Australia.

So, provincial Australia has had jobs and services cut while its values are continually sneered at. Add to that presidential-style governments focused overwhelmingly on urban concerns, style and values with tight Party discipline suppressing feedback and ability to express regional concerns, and the situation is rife for provincial revolt. Which is exactly what we have seen.

So, what should governments (and others) interested in continuing the economic and social reforms embarked upon by Labor and coalition Governments do about it?

Obviously, more effort has to be put in to making sure the benefits of economic reform get through to provincial Australia. One of the best ways to do that would be labour market reform. Wage rates and employment conditions set in Melbourne and Sydney, imposed on provincial Australia, via awards and the arbitration system, are a major disadvantage and goes far to accounting for its much higher rates of unemployment. Provincial Australia has higher transport costs and lower housing costs. It must be able to compete on the basis of wages and conditions that suit its circumstances, rather than merely shifting to lower-wage industries like tourism. Given the strong correlation between youth unemployment rates and young male suicide, allowing it do so would probably also save lives.

Secondly, there must be more publicly sticking up for the values and interests of provincial Australia and a lot less pandering to urban moral vanity. Presidential-style election campaigns have an inherent problem here, since its central figure is almost always going to be an urban figure, concentrating on urban concerns.

Governments of either stamp which fail to heed these lessons will continue to suffer the humiliation of provincial revolt, preventing them from carrying out programs they correctly understand to be in the national interest and turning "sure-fire" wins into feather-duster experiences.

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RICHARD J WOOD

Today, those who subscribe to the principles of individual liberty, limited government, the free market, and the rule of law call themselves by a variety of terms, including conservative, libertarian, classical liberal, and liberal.

I see problems with all of those terms.

"Conservative" smacks of an unwillingness to change, of a desire to preserve the status quo.

Only in Australia do people seem to refer to free-market capitalism — the most progressive, dynamic, and ever-changing system the world has ever known — as conservative.

Additionally, many contemporary Australian conservatives favour state intervention in some areas, most notably in trade and into our private lives.

"Classical liberal" is a bit closer to the mark, but the word "classical" connotes a backward-looking philosophy.

Finally, "liberal" may well be the perfect word in most of the world — the liberals in societies from China to Iran to South Africa to Argentina are supporters of human rights and free markets — but its meaning has clearly been corrupted by contemporary Australian liberals.

The philosophy that animates my work has increasingly come to be called "libertarianism" or "market liberalism."

It combines an appreciation for entrepreneurship, the market process, and lower taxes with strict respect for civil liberties and scepticism about the benefits of both the welfare state and foreign military adventurism.

The market-liberal vision brings the wisdom of the Australian Founders to bear on the problems of today.

As did the Founders, it looks to the future with optimism and excitement, eager to discover what great things women and men will do in the coming century.

Market liberals appreciate the complexity of a great society, they recognise that socialism and government planning are just too clumsy for the modern world.

It is — or used to be — the conventional wisdom that a more complex society needs more government, but the truth is just the opposite.

The simpler the society, the less damage government planning does.

Planning is cumbersome in an agricultural society, costly in an industrial economy, and impossible in the information age.

Today collectivism and planning are outmoded and backward, a drag on social progress.

Market liberals have a cosmopolitan, inclusive vision for society.

We reject the bashing of gays, Japan, rich people, and immigrants that contemporary liberals and conservatives seem to think addresses society's problems.

We applaud the liberation of blacks and women from the statist restrictions that for so long kept them out of the economic mainstream.

Our greatest challenge today is to extend the promise of political freedom and economic opportunity to those who are still denied it, in our own country and around the world.

My ever-growing areas of expertise include the environment, deregulation, workplace relations, energy, and governance.

On these and other topics I speak at conferences, lectures and seminars, and publish a wide variety of magazines, occasional papers, and comprehensive issue backgrounders.

I also participate in the mainstream debate, appearing in newspapers and journals worldwide.

Take some time to look around my website.

I have currently an enormous range of papers, publications, commentary and issue analysis online, as well as information on upcoming events around the country.

Countdown:

Policy Papers

Australian coastal shipping: the high price of protection (1990)
Too few jobs: why governments can't cure unemployment (1990)
Vested interests and the public interest: Submission to EPAC (1990)
The destruction and creation of jobs (1990)
The Telecom monopoly, natural or artificial? (1991)
Australian grain marketing: achieving lower costs (1991)
Towards efficient transport (1991)
Higher education in Australia: a way forward (1991)
Empty bed blues: Australian health care policy (1992)
Free to fly: practical airline deregulation (1992)
The sources of union power (1992)
What do our children know?: a study of educational standards (1993)
Who pays for protection (1993)
Deregulate or decay: the lesson of the 1930s for the 1990s (1993)
Fiscal anarchy: the public funding of multiculturalism (1993)
Apprenticeships (1993)
Industry protection, a primer (1995)
The economics of mineral export licences (1995)
A new approach to defence: the Wrigley report and after (1995)
Dividing the spoils: markets, government and corruption (1996)
Honest money (1997)