Contractors and Tax

In the last ten years or so the use of contractors has grown from 3% to more than 10% of the workforce.  Yet even this substantial growth has been held back by business concerns over tax arrangements.  Businesses thinking of using contractors could never be sure if the contractor arrangements they used would be accepted by the tax office.  The tax push was to use PAYE employees.  Contractors were considered by many to be tax evaders.

This is all about to change.  Under the federal tax reforms, contractors are set to enjoy a new tax legitimacy that will remove business worries thus increasing prospects for use.

The tax confusion over the use of contractors has been a result of the Income Tax Acts' tying of the collection of PAYE to master-servant employment.  The courts have used PAYE to denote "controlled" employment, ensuring that PAYE workers were brought within the jurisdiction of industrial relations regulation.  Conversely, PPS payers were taken to be contractors not subject to IR regulation.  As a result, the legislative objective of collecting income tax and the employment definitions used by the Australian Taxation Office have been linked to IR issues, a bad outcome for the ATO and Australian workers and businesses.

Critical to understanding the IR-tax dilemma is the often repeated claim that PPS causes a loss of tax revenue relative to PAYE.  The truth is that PPS and PAYE payers have always paid the same amount of tax.  The difference has been in the method and timing of tax collection.  PAYE workers pay on a sliding scale and enjoy a tax-free threshold.  PPS workers pay at a lower flat rate but from the first dollar earned.  Any differences are corrected by the provisional tax system.

Tax deductions said to be available to PPS contractors but not to PAYE employees merely reflect the transfer of deductions away from a business using PPS workers, who generally supply some tools and on-the-job transport.  They are paid more than PAYE workers by way of compensation, have higher expenses and consequently claim tax deductions for these items which would have been claimed by a business if PAYE workers were used.

The remaining potential tax-revenue problem arises from income splitting.  But even this is not the dramatic issue it is usually claimed to be.  The tax losses from income-splitting have often been alleged to be between $2 billion and $3 billion a year;  but the ATO has shown these figures to be false.

In the most detailed audit for income splitting ever conducted, the ATO, in its Alienation of Personal Services Project, targeted the tax returns of 65,000 taxpayers profiled as likely income splitters.  In an intense eighteen month audit only 714 taxpayers were issued adjustment notices, with increases in tax paid varying from 1.9% to 11.6% per taxpayer.  The audit confirmed that the great bulk of individuals who form companies do so for legitimate business purposes, not to avoid tax.  The audit team was disbanded in late 1998 because the additional tax collected did not cover the cost of the audit.

The Ralph Committee thinks, however, that there is a residual income splitting.  But it is recognised that the issue arises not from contractors as such but from artificial company structuring.  People do not necessarily need to create a company to be a contractor.

The truth has always been that the facts on contractor tax, have not justified the accusations of contractor tax avoidance.

The more serious but largely ignored issue, has been that the tax collection system has been corrupted by being an instrument of industrial relations systems.  The important overriding principle is that legislation should, as far as possible, avoid confusing the ATOs' obligations to collect tax with non-tax issues.

The federal tax reform package addresses this issue, beneficially separating tax from common law employment definitions and thus from industrial relations issues.  Through the interconnecting mechanisms of the Australian Business Number (ABN) and PAYG, all people will pay income tax under PAYG without the legal issues of contracting or employment even being a consideration.

No longer will managers need to sit down and study pages of legalistic style ATO rulings to decide if they should withhold tax.  Managers will not need to become bush lawyers knowledgeable on common law presidential case studies to determine a persons tax status.

The decision will be simple.  If a person supplies an ABN, GST will normally apply and no income tax will be withheld.  If no ABN is supplied income tax will be withheld and remitted to the ATO under PAYG.  Under labour hire, the labour hire company will charge GST and attend to workers income tax under PAYG.

Where community concerns exist over artificial income this will be partially controlled through the ABN because, on achieving an ABN, GST applies.  This, combined with the Ralph Committee's recommendation on personal income tax application where 80 per cent of income is obtained from one source, will limit the commercial incentive to split incomes.

The ABN/PAYG aspect of the new tax system will supply comparative administrative simplicity and legal surety.  Consequently businesses will be able to focus on the true managerial alternatives presented by employment and contracting.

Employment as both a legal and a top driven management paradigm, is about human inequality where control of one human (employee) is exercised by a dominant other human (employer).  In comparison, using contractors involves legal and managerial ideas of equality where control of humans is replaced with achievement of results through mutual agreement.

With these tax changes businesses will be freer to focus on people performance dynamics without having decisions confused by administrative tax demands.

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A Headless State Could be the Answer

I find both sides of the Republic debate equally unappealing, with their common resort to shabby arguments and specious warnings.  Once again, the politically active elites are patronising the electorate and showing that they do not trust Australians to make intelligent and informed decisions.

On the one hand, advocates of the "No" case are making the outlandish claim that a republic would be the first step on the road to a Stalinist tyranny or worse.  While I am not drawn to any of the favoured candidates for first President, none of them strike me as being likely to metamorphose into a Saddam Hussein or Idi Amin once they take office.

The "No" case is also indulging in the humbug of offering up politicians who warn that politicians cannot be trusted to choose a president.  Apart from the question of whether this really means that they cannot be trusted with anything, many of the same individuals want us to stick with the present system in which politicians have effectively been choosing the governor-general for nearly seventy years.

True, a few of the politician-picked governors-general turned out to be duds.  But there have also been some genuine successes, and no system of selection is ever going to be perfect.  Popular elections can throw up a Joe Bjelke-Petersen or a Gough Whitlam, and hereditary succession can produce a Prince Charles.

The people promoting the "Yes" case are no better, with their shameless attempts to invoke the cultural cringe by pretending that the rest of the world will laugh at us if we vote to remain a constitutional monarchy.  And Kim Beazley's vacuous declaration that "it is time to tell kids across the country they are good enough to become president of Australia" could not have come at a worst time, given that NSW members of his party have just told the kids' parents that they are not even good enough to be given an honest chance of getting tickets for the Olympic Games.

So I would like to suggest an alternative course of action.  Admittedly, some may dismiss it as fanciful.  But it would certainly blow an equally large raspberry at both the "yes" and the "no" sides of the Republic Referendum, as well as offering many other wonderful benefits.

My humble proposal is for a republic without a president, or indeed, without any head of state at all.  The whole point of a republic is supposed to be about symbolism, and the kind of image that we should be presenting to the world.  If we really think it is necessary to make a grand statement about the egalitarianism of our nation, then no-one should be occupying a symbolic position above the sovereign and equal Australian people.

Such a move could restore us to the status we held around the end of the last century, when people in Europe and America saw us as a great beacon of democratic hope.  The secret ballot was an Australian innovation, and we were one of the first countries in the world to give women the right to vote.  Australia was held up as an exciting social laboratory, where many radical ideas about equality, justice, and welfare were starting to bear fruit.

A headless republic would show the world that once again we are prepared to indulge in worthy social experiments of our own provenance, rather than slavishly following dubious nostrums imported from the United States and Canada.  It could even help our own chattering classes to abandon their deep sense of shame at being Australian.

A republic without a president would also provide a boost for reconciliation, for it could readily be presented as an adaptation of traditional Aboriginal beliefs that tribes or clans should not be led or represented by a single individual.  It would involve a more substantial acceptance of the idea that indigenous cultures could enrich the life of our country than fatuous New Age sounding claims about "their deep kinship with their lands", or exhortations for us to "taste the spirituality of our first peoples".

So how would the duties of a president or head of state be divided up under this alternative proposal?

Occasional political crises involving the appointment or dismissal of governments could be dealt with by the judges of the High Court.  This would do little more than regularise the situation which now exists, where many of the judges seem to believe that they should be able to make creative political determinations which usurp the law-making powers of popularly elected governments.

Ceremonial duties, such as opening Parliament, receiving visiting dignitaries, or hosting garden parties at Yarralumla would be handled differently.  They could be allocated in a way that truly expresses the Australian ethos, through a national lottery in which every citizen would have an equal chance of wearing the ceremonial plumes for a day.

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Fine-tuning GM labels

On Friday, Health Ministers will meet to determine the labelling requirements for Genetically Modified (GM) Food.  Their decisions will have a profound effect on Australian food development and agriculture generally.  There is a tapestry of changes that can be introduced into existing stock to allow them to use less water, more readily take up fertilizer, secrete their own "natural" pesticides and so on.

We are told that GM foods may:

• create hazards to human health;
• harm the environment;
• cross breed with other plant stock or cause organic foods to reduce their relative tolerance to pests.

Nobody contends the need to be address these issues with GM, as with traditional introductions of new genes into existing plant varieties.  But, the scientific community, overwhelmingly supports the new technology, seeing its outcome as identical to the traditional practices.

The best known genetically improved variety, Monsanto's Roundup Ready Soyabean, improves yields by 5%, and lowers production costs by 10-20%.  It also uses 22% less herbicide, with positive environmental spin-offs.  In future, GM products will also appear that improve taste or create more healthy food.

At their previous meeting in August, Health Ministers decided to require "reasonable steps be taken" to establish the origin of food ingredients if manufacturers were to make a "may contain" claim.  Where, as is normal, the GM product is identical to existing product, the issue is the tolerance levels which trigger manufacturers' need to patrol the chain of supply.  Organics in Europe are allowed to contain 5% of non-organic material.

The impact of mandatory GM labelling is on product segregation.  The cost increases range between 6 to 50% and higher.  Some of this brings offsetting gains:  voluntary labelling in response to consumer demand (as opposed to consumerists' regulatory demands) delivers benefits in excess of the costs.  If manufacturers are allowed to label as "GM free" food that may occasionally contain some 1-2% GM product, the costs are likely to be at the lower end of the scale.  If "GM free" requires a total segregation of GM from other ingredients, the costs will be at the top end.

Even at a 6% cost impost, labelling of Australian crop production, worth about $15 billion per annum, adds up to almost $1 billion.  That sum is based on the realistic view that genetic modifications will be developed for all crops.  In addition, there has been little debate to date of secondary GM produce -- animal produce from GM inputs.  This extends beyond grain fed beef and chicken.  Virtually all existing grasses have been introduced by farmers and GM techniques will be found to raise their protein levels, allow them to grow faster and so on.  Hence the next round of GM demonization will attach itself to the meat and dairy industries.  And this is even before we have GM for livestock itself.

Health Ministers are unaccustomed to taking decisions that impact upon the whole of primary industry and much of the manufacturing sector.  They will need to brief themselves comprehensively about the costs their decisions may unleash onto the community.

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Massacre of Truth at Forrest River

Horrific murders create two sets of surviving victims.  The most obvious are the grieving families of those who have been killed.  But the families of the perpetrators also suffer, carrying the burden of their loved one's villainy for as long as people remember the crime.

Their plight tends to attract expressions of sympathy, but little genuine concern, particularly if they attempt to deny their relative's guilt.  It usually requires courage to take up their cause.

Five years ago, Perth journalist Rod Moran wrote a lengthy article for The West Australian arguing that the 1926 Forrest River massacre of Aborigines in the Kimberley was simply a myth, despite its widespread portrayal as one Australia's worst crimes this century.

The family of the late Constable James St Jack, who was supposedly a major participant in the murders, felt vindicated.  They have long believed that St Jack was maliciously accused of an outrage that never actually occurred.

Understandably, Kimberley Aborigines, whose forebears died in the disputed massacre, were deeply offended, saying that Moran was "stealing their history".  Their sentiments were shared by many other people, both black and white.

Unfazed by this anger, Moran continued his researches, and he has just published a book, Massacre Myth.  Though not an engrossing read, this sets out his arguments in painstaking and seemingly compelling detail.  He dissects the testimony presented to the Royal Commission set up in 1927 to investigate the murders, focusing on the inconsistencies and other weaknesses in the evidence.

Moran maintains that the massacre stories involved a fantastic distortion of much less egregious events -- the slight wounding of a man during a raid on an Aboriginal camp, and Constable St Jack's shooting of the camp occupants' dogs.

More sensationally, Moran maintains that the rumours that grew out of these incidents were promoted and embellished by Reverend Ernest Gribble, the head of the Forrest River Mission, as part of a devious plan to protect himself by discrediting Constable St Jack.  Moran suggests that Gribble learnt the constable had obtained information that the reverend and his son were supposedly engaged in serious hanky-panky with Aboriginal women.

The purported evidence comes from St Jack and his family, and includes reference to a long-destroyed personal diary, combined with some fanciful interpretations of scraps of other material.  The slender grounds on which this allegation is based makes it hard to accept that Moran is the rigorous and sceptical researcher he would have us believe.

The most comprehensive account of the killings has been presented by the Western Australian historian Dr Neville Green, in his 1995 book The Forrest River Massacres.  Having worked with Green on another project, I have some confidence in his judgement and his respect for the facts.

The Forrest River Massacres makes no attempt to disguise the problems involved in uncovering the truth about the murders.  Nor does Green shy away from revealing the extent of Reverend Gribble's many personal faults, which eventually led to his removal from the mission.

But unlike Moran, Green describes the massacre in the full context of four decades of bitter race relations in the Kimberley.  Very few people felt impelled to seek justice for Aborigines who had suffered violence, particularly if the interests of respected local identities were threatened.

Green has no doubts that Aborigines were murdered by a police expedition led by Constable St Jack and Constable Dennis Regan.  The party of fourteen, comprising Aboriginal assistants as well as whites, were trying to capture an Aborigine named Lumbia for the killing of a station owner who had raped his wife.

Although Lumbia himself was eventually found and brought in for trial, many innocent Aboriginal men, women and children were killed along the way, and their bodies were incinerated in an attempt to hide the evidence.

No-one knows the precise number.  The Royal Commission concluded that at least eleven Aborigines were killed at three separate locations.  Police Inspector William Douglas, who had been sent to investigate Gribble's allegations before the Royal Commission was established, reported that sixteen Aborigines were killed.

Reverend Gribble thought that the number was at least thirty.  And in 1968 Charles Overheu, the brother of one of the participants in the massacre, told Neville Green that as many as three hundred Aborigines lost their lives, although Green believes this figure is far too high.

Commissioner Wood recommended that charges of murder be laid against Constable St Jack and Constable Regan.  In May 1927, the two were arrested for the murder of just a single Aborigine, a man named Boondung.  Fearing that public sympathy for the two constables in the Kimberley would preclude a fair trial, the committal hearing was held in Perth.

But, as the Royal Commissioner himself had been forced to admit, all the evidence for the massacre was circumstantial.  It had not been possible to identify a single body of those who had been killed;  and neither was it possible to state that any particular individual had been responsible for the deaths.

Worse, at the committal hearing even Gribble could not state for certain that Boondung was dead.  And the Government bacteriologist, who had examined the burnt and fractured skeletal remains collected at the massacre sites, testified that he did not think they were from humans.  Green suggests that the material had been tampered with, because others who had examined it beforehand were convinced that it contained human remains.

The presiding magistrate dismissed the case against the two constables, who were quickly reinstated into the police force.  Gribble, whose determination had been almost solely responsible for bringing the case to public attention, was largely discredited.

Gribble was clearly an extremely self-righteous, autocratic and intolerant man, which made it so easy for many to dismiss everything he said.  But sometimes it requires a real ratbag to point us down the path towards truth.  It would be most unfortunate if Rod Moran's writings lead people to believe that the Forrest River massacre is just another fabrication perpetuated by the Aboriginal industry.

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Risk Assessment and Decision Making for Genetically Modified Foods

Biotechnology Backgrounders

SUMMARY

The introduction of genetically modified foods has been accompanied by a level of concern in Europe which was not seen in the United States.  This is seen as reflecting both a different cultural appraisal of risk, sensitised by the "mad cow" experience in the United Kingdom, and a desire by European farmers to protect the advantages they enjoy under the Common Agriculture Policy.  The level of concern over GM foods is much greater than for GM medicines, where the benefits of the technology are more readily defended.

This Backgrounder, while arguing that risk management must build on the best possible science, draws attention to the social, economic and political aspects of the risk management process.  It draws attention to the use of exaggerated claims and the misuse of the precautionary principle by the opponents of GM foods, and argues that many of the concerns about the technology reflect such factors as a sense of unease about the power of the corporations which employ it.

It argues that, like any technology, GM food carries with it both advantages and risks, and that the costs of forgoing GM plants includes environmental costs such as the greater use of pesticides.  It argues for careful assessment of the risks, which (if it is to address the public concerns) must be conducted in a transparent and credible manner which builds public trust.  The acceptability of risks, it concludes, depends on this as much as science, since the prevailing "culture of fear" thrives on secrecy and attempts to manipulate public opinion.

INTRODUCTION

The recent experience in the UK with "mad cow disease" or bovine spongiform encephalopathy (BSE) has engendered a particular sensitivity among consumers over what they are eating.  BSE -- thought to be caused by a protein molecule called a prion -- produced the devastating "new variant" Creutzfeldt-Jacob disease (nvCJD) in humans who had consumed nerve tissue.

BSE was shocking not so much because of the scope of the problem in humans (relatively few people have contracted nvCJD), but because of the horror of the disease.  "Spontaneous" CJD was best known previously among those treated with growth hormone extracted from the pituitary glands of dead humans, or as kuru in Papua New Guinea, where ritual cannibalism involved the consumption of human brain tissue.  The BSE experience has fed concerns about foods which have been produced using the new technology of genetic engineering.  But the way in which concerns have developed into policy responses has been markedly different in Europe than in the United States, where concern exists but has not had a significant impact on policy development.  Why?

To answer that question we must delve into the process of risk assessment, whereby different political systems confronted with the same scientific evidence can reach fundamentally different positions on how to manage any particular risk.  In so doing, we can also shed some light on why what the alarmists have labelled "Frankenstein food" has evoked much more concern than the use of genetic engineering to produce pharmaceuticals.  In a wonderful irony, genetic engineering has, for a decade, allowed the production of a growth hormone which has avoided the risk of CJD without giving rise to any alarm.  Understanding risk assessment also allows us to understand why this is so, and points towards the ways in which we should assess the risk of genetically modified organisms (GMOs).

Concerns about beef in Europe are not new.  Hormone-treated beef has been in dispute between the European Union and the US since 1985, when the then European Community imposed a regulation prohibiting the sale or importation of beef raised with the assistance of artificial hormones.  At that time, problems had arisen in Italy among children who consumed (European) beef which had been injected intramuscularly with hormones, while the US argued that their production methods did not give rise to the same risks, since they used hormone patches behind the ear of cattle beasts.  Since the ear was not consumed, there was no chance that high concentrations of residues could find their way into meat sold for consumption. ⁽¹⁾

The more recent dispute has not involved artificial hormones at all, but naturally-occurring bovine somatotrophin (BST) produced by organisms which have been genetically modified.  Recombinant BST (produced by bacteria whose genetic material has been modified so they will produce it) has been available for commercial use in the US since February 1994, but was not approved for use in the European Union, Australia, Canada, New Zealand and Norway.  The product is produced using the identical BST synthesised by the cattle and is thus indistinguishable from "naturally-grown" beef -- itself the result of animal husbandry techniques and eons of selective breeding by humans to improve productivity.  So why the concern?

Part of the answer can be gauged from the way in which other EU nations exploited Britain's BSE tragedy, in which about a million cattle had to be slaughtered.  (The economic cost to the UK has been over £3 billion.)  This was a bonanza for Continental beef producers, since it allowed bans on trade in British beef within the European single market and restaurants were able to advertise their steak as being "non-British" or "French Charolais".  There is almost always a silver lining for someone in any such dark cloud -- but more on that later.

RISK AND NATURE

Increasingly, we care about how our food is grown and prepared.  We no longer eat restaurant dishes with classic names like "steak Diane", but "rump of grass-fed yearling King Island beef, pan-fried ..."  The sizzle has become at least as important as the sausage, and part of the sizzle has to do with our conceptions of nature, particularly with somewhat romantic notions of purity or the absence of contamination.  "Organic" is good, despite the fact that organic chemistry has given us all those pesticides about which we are so concerned.

"Chemical" is usually synonymous with synthetic chemical, and these notions of purity extend to the bottled water we buy.  It is possible to buy bottled water from the Snowy Mountains which is labelled "organic" -- somewhat absurd when the whole point of drinking bottled water is to be sure that it is absolutely free from organic substances.  Similarly, the label of water bottled at a spring in Tasmania boasts that it is free of chemicals -- right beside an analysis of the calcium and other minerals it contains.

And while we are told that we should be concerned about traces of chemicals in the environment which can mimic hormones, we are increasingly drinking soy milk.  This contains sufficiently high concentrations of phytoestrogens that it is recommended by some as both a natural alternative to hormone replacement therapy and as a means of preventing prostate cancer.

Our perceptions of risks and benefits, as these examples show, are almost inevitably affected by factors other than just the "objective" science describing toxicity, carcinogenicity and so on.  Many of our perceptions of risk are affected by questions such as:  whether the risks affect children or adults;  whether they are accepted voluntarily or imposed;  whether processes are secret or open;  whether risks are assessed by industry or by analysts seen as disinterested;  whether they involve the catastrophic death of large numbers of people or a succession of isolated deaths;  the kind of deaths involved;  whether the effects are immediate or delayed;  and whether the risks are natural or man-made.  Travelling 10 miles by bicycle in the US and living for 50 years within 5 miles of a nuclear reactor, for example, have both been estimated to yield an increased probability of death of one in a million, yet we respond to these risks quite differently. ⁽²⁾

One factor which affects our perceptions of risk associated with chemicals, GMOs and drugs is the fact that these products are manufactured by large, faceless corporations, usually transnational corporations which are seen as being beyond the control of governments.  As anthropologist Mary Douglas has pointed out, many of our fears about such risks reflect our sense of powerlessness in the face of such corporate giants in an increasingly globalised world. ⁽³⁾  But she also argues that risks are used to blame those already disliked.

This problem is exacerbated by the fact that the regulation of such hazardous substances poses problems which are tailor-made for those who would wish to amplify the risks.  All typically involve intellectual property, and patent law provides for a period of monopoly to recover development costs and profits, balancing the public good of having the lower prices which competition would bring against the public good of encouraging research and development by industry.  But this means that most of the research into the safety of such products is conducted either by the corporations themselves or by contract scientists or research laboratories who must be contractually bound to honour commercial confidentiality.  (Patents for pharmaceuticals might offer no protection if a competitor could add to the molecule an additional but meaningless chemical element or two which might simply be removed in reaction with stomach juices, for example.) ⁽⁴⁾

Regulators must use such science in making licensing decisions, but it is easy to construct a somewhat paranoid discourse around both the science and the scientists in such circumstances.  Products found to represent a low hazard can still be claimed to constitute an unacceptable risk when most of the science can be dismissed as the biased product of self-interested industry, or of corrupted scientists who have undertaken research consultancies -- if not now, then at some time in the past. ⁽⁵⁾

Science can be wrong.  Bias is a constant problem.  But science has developed means of minimising such pitfalls.  It can never eliminate them completely, but the canons of the scientific method -- if followed -- can improve the reliability of scientific knowledge.  The courts in the hyper-litigious US have had to rule on what constitutes acceptable scientific evidence in the face of a tendency for parties to each hire their own expert witnesses, and (not surprisingly) decided that the appropriate test was whether the information was generated by following key elements of the scientific method, such as replicability of results and publication after anonymous peer review. ⁽⁶⁾  Scientific knowledge always contains some residual uncertainty, but we have learned to place more faith in knowledge which emerges from such a process than that which appears from research which has not followed established scientific protocols.

While the source of funding might alert us to the direction in which a piece of scientific research might be biased, the appropriate test must be adherence to the scientific method.  Against such science, we are often asked to be alarmed about the implications of research which has not yet been replicated and, in some cases, not yet published in peer-reviewed journals.  Regardless of its source -- industry or environment group -- we should be extremely wary about acting upon such "science".

This is so even for those interest groups which profess to have the public good at heart.  It has been suggested that there is a "danger establishment", consisting of scientists (especially in "grant-rich" areas of research), journalists, politicians, bureaucrats and environment and other public interest groups, which has an interest in exaggerating dangers. ⁽⁷⁾  And because many researchers and journalists are often clamouring to build support or a readership, there is a tendency for them to shout in order to be heard.  We need to be aware, in other words, that bias can enter our social risk assessments from many directions, and recall examples such as the McBride case where research was found to have been falsified to exaggerate the dangers of a drug in order to secure continued funding for a research institute.

We should see Greenpeace -- even if we share its goals -- as not just an environmental group, but also as a transnational private company which licenses its trademark to thus-controlled foreign subsidiaries and which has among its informal goals that of system maintenance.  Like any organisation, it has salary and operating costs to cover and it must try to retain its annual revenue base of well over A$150 million worldwide.  It would be an exceptional organisation which managed to purge itself of the pursuit of goals of system-maintenance.  It can therefore be expected to focus its effort in areas and ways which will heighten concern and willingness to pay (especially since it rewards fund-raising success internally with decision-making influence).

Greenpeace specialises in politicised science, often committing the cardinal scientific sin of bringing the evidence to the theory, usually in the form of dramatic visual footage supplied to the media from some remote location.  Perhaps because of the remoteness and perhaps because of Greenpeace's perceived disinterestedness, news editors screen such footage when they would not do the same for footage supplied by more obviously interested sources.  (At a political science conference in Christchurch last year a TVNZ news executive stated that his corporation never screened footage from sources outside the company of established news services -- except for Greenpeace!) Footage of the retreating Bering Glacier provided on the eve of a climate change conference provides powerful support for action on climate change, but science is also interested in why, for example, glaciers in New Zealand are advancing.

We can illustrate this with the problems generated by Greenpeace's politicisation of science associated with GMOs.  In June 1999, France was leading the push within the EU to have the EU ban the importation of GM food.  France is not regarded as an environmental vanguard state in Europe, but it is one of the strongest supporters (and greatest beneficiaries) of the Common Agricultural Policy.  It was supported in this push by Greenpeace, whose members dressed as butterflies and carried a banner containing the slogan "Give butterflies a chance" to the meeting of EU Environment Ministers in Luxembourg on 24 June.  Citing a recent US study which indicated that pollen from genetically-engineered Bt maize could kill the larvae of monarch butterflies, Greenpeace invoked the precautionary principle in urging a ban.  The EU froze the approval process.

This piece of scientific knowledge, combined with the precautionary principle, gave considerable power to the coalition of Greenpeace and European agriculture, but it took what appears to have been sound but limited science further than it should have and ignored contextual factors completely in providing a convenient protectionist cloak.

The monarch butterfly research was published by John Losey at Cornell University in a (refereed) letter to the journal Nature. ⁽⁸⁾  Losey issued a careful press release which was totally ignored by the media (and Greenpeace), stating that the research was conducted in the laboratory and that it would therefore be inappropriate to draw any conclusions about the risk to monarch populations based solely on these initial results.  The reasons for this caution are obvious when the nature of the experiment is considered.  Hatchling monarch larvae were given a diet consisting solely of milkweed leaves (their sole food) dusted with corn pollen.  (Older larvae might be less susceptible.)  In the wild, larvae are known to avoid leaves with pollen on them and move to a clean leaf.  Further, milkweed is rarely found in cornfields, because farmers avoid them at all costs;  it is commonly found in pastures and old fields.  Maize pollen also does not travel far:  little can be found 30 feet from a cornfield and it is practically non-existent at 100 feet.  Finally, the period when maize pollinates and monarch larvae feed are both very short and might not even overlap in some seasons.

It is interesting to note that the toxin produced by the GM maize in this experiment was Bt toxin, so named because it is found in a common soil bacterium, Bacillus thuringiensis.  Bt toxin is used by organic farmers as essentially their only pesticide, and they fear that its use in GM crops might cause the insects it protects against to develop immunity.  This, rather than concerns over Bt toxicity, lies at the heart of opposition from organic farmers. ⁽⁹⁾

Reductionist risk assessment -- attempting to regulate solely on the basis of toxicity -- ignores these crucial exposure factors and relies solely upon the science of toxicity, which can be persuasive, especially to those who wish to invoke the risk-averse precautionary principle.  It not only advantages economic interests threatened by the advantages of Bt maize, however, but also carries an environmental opportunity cost (what has to be given up as a consequence), since non-modified maize is sprayed for insect pests 8–10 times, a practice which is likely to cause substantially more harm to monarch butterflies and other insects.

Social risk assessment requires a careful analysis of the best available science, an understanding of the social and psychological factors which will inevitably intrude into the process, and careful policy analysis. ⁽¹⁰⁾  Such policy analysis requires prioritisation of candidates for risk management, which is made all the more difficult because of the "shouting" of the "danger establishment", and a careful weighing of the costs and benefits involved.  No activity can ever be risk-free.  (American author Robert Benchley once remarked that the only way of avoiding accidents was to remain in bed, but even then there was a chance you might fall out.)  There is always a need to consider the costs of risk management -- including opportunity costs -- and to be careful of the social context within which the decision is made.  A cholera epidemic in Peru once killed 3,000 people because of a decision to follow a US EPA risk assessment and not chlorinate water supplies. ⁽¹¹⁾  Chlorinated water carries an elevated risk of bladder cancer of 0.8 per 100,000, ⁽¹²⁾ but we need to remember that the costs of avoiding this risk can be much higher.

RISK AND PRECAUTION

The cholera example is particularly apt, because the actions of a physician amid the squalor of the industrial revolution are often taken as reinforcement of the need to apply the "precautionary principle" in cases of environmental or health risk.  In 1849, before the discovery of the cause of cholera, a London doctor, Dr John Snow, suspected that the source of one outbreak might be the water from a particular well, and removed the pump handle.

Precaution is, of course, much better than cure, but such an anecdotal understanding of history glorifies post hoc those who happened to be right and ignores the multitude of cases where doctors acting on similar imperfect knowledge got it sadly wrong.  How we should exercise precaution is by no means self-evident, and the reasonable-sounding, commonsense precautionary principle is frequently misquoted and distorted to the point of nonsense.

The accepted version of the precautionary principle (in the Rio Declaration in 1992) reads:  "Where there are threats of serious or irreversible damage, lack of full scientific certainty shall not be used as a reason for postponing cost-effective measures to prevent environmental degradation". ⁽¹³⁾  This is commonsense, but alone it cannot be operationalised:  we need to add meanings to "serious", "irreversible" and "damage" and decide what level of uncertainty we are prepared to accept as the basis for action.

Advocates often use the example of cigarette smoking.  It involves both business interests and uncertainty, and they like to point to the exploitation of that uncertainty by industry to forestall regulatory action.  We now know the precise mechanisms by which substances initiate cancer and aid progression by damaging two genes, but in fact we commenced regulatory action against tobacco long before we had identified precise mechanisms of causation.  We did so on the basis of good peer-reviewed science which indicated a problem over 30 years ago, and while the tobacco lobby has been particularly active and we have not banned tobacco, that reflects a number of factors, including the loss of regulatory control (and taxation revenue to pay the costs of damage) prohibition regimes carry with them (witness heroin).

But it is not prudent to take regulatory action on the basis of no evidence, or non-peer-reviewed science, or even a handful of scientific papers.  Sometimes we choose to accept risks:  a risk assessment of quartz almost resulted in a ban on children's sandpits in Sweden until reality prevailed. ⁽¹⁴⁾  Motor vehicles kill thousands, directly or indirectly, but we accept that their benefits outweigh these risks.  But some seek to invoke the precautionary principle as a justification for not just reversing the burden of proof, but to demand a logically-impossible proof of safety, or the absence of harm.  Demanding that a negative be proved is the logical equivalent of asking people to prove that they are not witches.

In addition, however, environment groups and official documents have stretched the meaning of the precautionary principle to the point where it legitimises the risk management strategy of Chicken Little and this has even found its way into international policies.  For example, Recommendation 89/1 of 22 June 1989 of the Paris Convention for the Prevention of Marine Pollution from Land-based Sources (PARCOM) stretched it to include action "even where there is no scientific evidence to prove a causal link between emissions and effects". ⁽¹⁵⁾  If this is accepted, all one needs is some indication of serious and irreversible effects and one can demand logically-impossible proof of an absence of harm or else regulatory action will be taken.

Everything is capable of causing harm under some circumstances:  as Paracelsus put it 500 years ago, everything is poisonous -- the dose makes the poison.  So we must insist that the precautionary principle is not misused and that risk assessment considers factors such as doses, exposure pathways, individual and species susceptibilities, costs and benefits and the consequences of regulatory actions.  Unless we do, we are to forgo the benefits that a product might bring, and produce either policy paralysis (as regulators freeze like rabbits in the glare of a multitude of precautionary spotlights), or a wasteful misplaced set of priorities (causing regulators to chase any number of hares which have been released).

RISK AND GMOs

How does this apply to GMOs?  In order to answer that question, it is necessary first to state that the discussion which follows does not seek to make a risk assessment of GMOs, nor engage in a detailed discussion of the science of genetic modification and the hazards it might pose.  The analysis accepts that genetic engineering is a hazardous activity which has been subjected to regulatory scrutiny from basic research through to its applications since its inception in 1970.  It accepts also that the products of this technology provide benefits.  It accepts that the risk management process will be difficult and complex, but unless it is performed we run the risk of either forgoing benefits or experiencing hazards.

But it also holds that risk assessment must be sensitive to particular products and practices and specific exposures.  A bacterium modified to produce BST poses different risks than genetically modified cotton, and cottonseed oil so produced poses different risks from the consumption of a GM tomato, where live DNA might be ingested.  The dangers posed by the possible escape of genes to wild species depend crucially upon the GM species and the environment into which it might be placed.  For example, for the UK, there are no compatible wild relatives for maize or potatoes, so no gene transfer can occur.  Rice and soya are inbreeding species, so transfer is possible, but unlikely.  With oil rapeseed, on the other hand, this is an outbreeding species with many wild relatives, so greater caution is necessary.  The same holds for the dangers from consumption.  Sugar from GM sugar beet contains no genetic material whatsoever;  flour from GM soya may contain the new gene or its product, but many of the purification processes used in food production will destroy any DNA present in the raw material. ⁽¹⁶⁾

It is entirely possible that we might as a society decide that the risks of one GM product are worthwhile while rejecting others.  We might reject a GM blue rose as being a trivial use of the technology which poses an unacceptable risk, while accepting the gains of GM foods which taste better, keep better and thus result in less wastage.  Lumping all genetic engineering together, and certainly condemning all GM foods as "Frankenstein food", is neither accurate nor helpful.

Making such decisions requires the participation of a wide range of people other than just the relevant scientists, industry and environment groups.  Risk management is a process which requires the application of relevant science, as well as statistics, ethics, economics, sociology and even political science, and certainly must have regard to the views of the public.  Attempts by scientists to prevent what they might see as the intrusion of "non-experts" into the process are not only unhelpful, but are likely to heighten public suspicion and apprehension.  Transparency and trust are vital.

There is a legitimate role for both industry and environment groups in this process, but neither should be allowed to dominate the process.  Unfortunately, the alarms seem to have run ahead of a reasoned consideration of the issues in Australia.  Despite the fact that there are few GM plants yet licensed for use here, we have considerable apprehension as the result of tabloid reporting of the perils of "Frankenstein food", with local government authorities even banning GM food in kindergartens and day-care centres.

The fear of "Frankenstein food" has been markedly more in evidence in Europe than in the US, and it has had more impact on government policies and on the policies of corporations.  Some supermarkets have refused to stock GM foods as the result of the effectiveness of boycotts by Greenpeace's "Genetic Hazard Patrols".  The responses of European governments have varied.  The UK, France and Spain appeared initially to be more permissive than the Northern European nations where support for Greenpeace and green political parties is strongest, but the question arises as to why the alarms have had greater impact in the European Union than in the US.

A similar question arises as to why concern has been almost non-existent over the use of genetic engineering to produce pharmaceuticals.

The answer to the first question lies partly in the accepted fact that cultural dispositions to risk vary, ⁽¹⁷⁾ even within Europe, with much higher support for such causes evident in Northern Europe than in Southern Europe.  But consumers in the US, especially in the Western States, are well known for their propensity to be concerned about such risks.  The best explanations for these regional differences lie in a happy coincidence between such values and economic interests which has led to institutional innovations which privilege risk-averse responses.

The precautionary principle had its origins in Germany as the vorsorge prinzip (roughly "preventive action principle") and was used to justify the "Green Keynesianism" developed by Helmut Kohl, also known as "ecological modernisation". ⁽¹⁸⁾  The export of the precautionary principle has not only bolstered the approach domestically, but has helped create markets for the export of technology and services developed domestically.  This is known as a "first mover" strategy and runs counter to the widespread belief that environmental regulation hinders the competitiveness of nations -- though it does depend on the successful export of policies and standards which will create a market for the technologies and services in which the nation has new-found advantage. ⁽¹⁹⁾

As we saw before, misapplied, the precautionary principle has considerable potential to undermine the risk management process from the outset by giving credence to poor science, and this has happened with GM food.  In a notable case, research on rats at the Rowlett Research Institute in Aberdeen was reported on television in 1998 to suggest that potatoes modified by the addition of a snowdrop gene to produce a natural insecticidal chemical, lectin, interfered with the development of both the rats' internal organs and their immune systems.  The research was not on transgenic potatoes about to be marketed, but an early part of research aimed at finding whether a form of lectin which was (on the basis of previous testing) likely to be least toxic to humans could protect potatoes from nematodes.

The researcher, Dr Arpad Pusztai, has since been dismissed from his job for a serious breach of scientific protocol -- going public with his claims before his research had been peer-reviewed and published in a recognised scientific journal.  No paper has yet been submitted for publication, and a panel of six toxicologists appointed by the Royal Society has dismissed the research as irrelevant and inconclusive, being flawed in many aspects of design, execution and analysis. ⁽²⁰⁾

By the time this rebuttal appeared, the claims had already been a key catalyst in the GMO debate in Britain, and a group of 20 scientists had held a press conference to declare their support for Dr Pusztai.  Despite the conclusion by the Royal Society panel that any observed differences between GM-fed rats were uninterpretable because of the technical limitations of the experiment and the incorrect use of statistical tests, Friends of the Earth was unswerving in its views of the dangers of GM foods.  FOE spokesman Tony Juniper resorted to the "witchcraft" position:  "There's no concrete proof that they are safe".

According to Debora MacKenzie in the New Scientist (not known for its conservatism on such matters), the "technical limitations" of the experiment included the fact that Pusztai could not get the rats to eat enough potato (they were malnourished no matter what kind they were eating and had to be given protein supplements to meet Home Office guidelines for animal experiments).  Another was the presence of known toxins in potatoes.  The only obvious conclusion supported by his research, MacKenzie stated, was that rats hate potatoes. ⁽²¹⁾  In fact, it was worse than that, as the methodology did not involve "blind" testing under which researchers are unaware of which rats were in the control group, and which were being fed GM potato.  This introduced the possibility for the introduction of researcher bias, something of a concern when Dr Pusztai was prepared to go public before publication.

There are a number of technical issues which make the testing of GM foods difficult, but as the reference to toxins in potatoes suggests, this holds for unmodified food also, since dozens of people die each year from the cyanide in peach seeds, and under-cooked kidney beans are poisonous (they contain the very lectins for which Pusztai's research was trying to find an alternative).  Many foods also naturally contain chemicals which have exhibited carcinogenic properties in laboratory tests, ⁽²²⁾ but in such small amounts that test procedures are likely to require such large quantities to be fed to rats that the acute toxicity of other substances is likely to kill them first.

An attempt to test GM tomatoes in the Netherlands involved feeding rats the freeze-dried equivalent of 13 tomatoes a day each, but this dose was still not enough.  Monsanto's GM maize does not contain enough of the Bt toxin produced by the novel gene for it to be isolated for testing, so they have to produce it from bacteria and then test it, but this raises questions about whether the two toxins are identical.  Some transgenic foodstuffs (Flavr Savr tomatoes, Round-up Ready soybeans, and virus-resistant squash, for example) have undergone extensive testing without any suggestion of serious health effects, ⁽²³⁾ which should have suggested caution about the potato research.

This suggests there is a need for caution with how we evaluate the hazards of GMOs, but it also stresses the need for the best possible science underpinning our risk assessment processes.  Much of the difference between the approaches of the EU and the US reflects the different philosophies of risk which operate in each jurisdiction.  The institutionalisation of the precautionary principle in Europe encourages both calls for action and government action itself on the basis of such "scientific" evidence as the potato research of Dr Pusztai, while the US approach to risk (since the Reagan Administration required the conduct of Quantitative Risk Assessment) has been to examine the economic costs and benefits of any risk management action.

Ironically, the relative absence of the consideration of economic factors in the EU approach facilitates the use of fears of GMOs by economic interests.  The fight against US beef produced using recombinant BST has been led by British beef producers, themselves harmed by BSE, and the whole issue has allowed Europe to revisit the 1985 issues.  The US has advantages in the use of biotechnology, and its economic efficiency poses a considerable threat to the enormously costly and inefficient Common Agricultural Policy, already under pressure after the Uruguay Round liberalisations in agricultural trade.  The GMOs debate has provided less efficient European producers of beef, soybeans and so on with an opportunity to try to nobble their more efficient US competitors.

This partly explains why there has not been a similar outcry over genetic engineering in the pharmaceuticals sector:  Europe has an efficient, competitive pharmaceuticals sector which would oppose and contest campaigns on the issues, rather than support them (as with agriculture).  But even though the consumption-related risks from pharmaceuticals -- often directly injected into the body or packaged in such a way as to facilitate absorption even after attack by digestive juices -- would appear to be equivalent to those associated with foods, there has not really been a campaign mounted against them.  There are at least two other factors at work here:  one relating to pharmaceuticals and the other to agriculture.

The first is that the benefits side of the equation is much clearer with pharmaceuticals and would be much more difficult to counteract.  A soybean which can be produced more cheaply does not quite offer the same kind or size of benefits as a drug produced by a GM bacterium.  Focusing political campaigns on food promises better political returns than attacking possible cancer cures, especially when it coincides with agricultural interests in Europe.

The second is that the anti-GM food campaign resonates strongly with an earlier campaign in the early 1980s over the introduction of Plant Variety Rights (PVR) -- or intellectual property rights for plants.  Many of the concerns then, such as the fear that agricultural genetic material would be controlled by large transnational corporations, not only have been repeated with the GMO campaign, but the same fear of transnational dominance is (as we have seen) a key factor in amplifying risk perceptions of GMOs.

These fears have been heightened by the insertion of so-called "terminator genes" into seeds, which render the seeds of transgenic crops infertile, requiring growers to buy again from the multinationals rather than engaging in the traditional practice of saving seed for next year's crop.  This would appear to be something of a non-problem:  Third World farmers will be perfectly able to continue traditional farming practices with traditional seed;  transgenic crops will only be grown where the benefits outweigh the costs of doing so.  The situation is no different from that obtaining with the seeds of infertile hybrids, except that "terminator genes" could be seen to serve a useful risk management function by preventing the escape of GM stock into the wild.

CONCLUSION

The assessment of the risks of GMOs can be seen to reflect numerous social and institutional factors, and these help explain the differences between the approaches in the US and the EU, and between transgenic food and transgenic medicine.  These factors are giving rise to particular problems for the trade regime as they offer plenty of scope for non-tariff barriers to be erected in the name of the protection of health or the environment, but they also throw some light on the elements we need to bring together in order to assess properly the risks associated with GMOs.

First, there is a fundamental need for good science and insistence on sound, peer-reviewed science and rejection of evidence gathered to support theoretical predispositions -- either that GMOs are dangerous or that they are harmless.

Second, there is a need to consider the benefits as well as the dangers, and the costs (including opportunity costs) of any decision we take.  We should expect that any GMO might not be all that the owners of the technology might make it out to be, but neither are they without the promise of considerable benefits and cannot, therefore, be rejected lightly.

There is also a need to undertake specific risk assessments for different kinds of GMOs, taking care to distinguish production-related risks (of, say, GM canola cross-pollinating or out-breeding with other species) from consumption-related risks (such as, if Dr Pusztai turned out to be right, GM potatoes affecting our immune systems).

There is also a need to accept that the social evaluation of risks is likely to be more accepting of GMOs in medicine than in food, and that such evaluations must be a central part of any risk management process.  There are identifiable reasons why what society will accept in saving lives, it might not tolerate in producing food.  That might hinder the adoption of GM technology in agriculture, but attempting to impose outcomes on a reluctant public is likely only to heighten fears.  Openness and transparency -- together with good science and a consideration of costs -- are the keys, but this does not mean that the proponents of GM technology should abandon the field to their critics.  Society requires a full and open debate which will expose the exaggerated claims which might come from any side and allow it to make better decisions about which risks to accept and which to reject.

Issues such as genetic engineering are tailor-made for the development of what Frank Furedi has called a "culture of fear". ⁽²⁴⁾  Such a culture thrives on secrecy and attempts to manipulate public opinion to secure consent, which inevitably arouse suspicion and hostility.  If genetic engineering is to come to be regarded as involving socially-acceptable risks, the process by which the risks are assessed and managed will have to be one in which the public trusts.

Our assessment of the risks of GM foods must therefore be careful to take many factors into account.  Genes -- that is, DNA -- are a normal constituent of our diet.  It is 200 years this year since the first report of hybrid cereals was made, and we have been consuming the fruits of the deliberate human transfer of genetic material between species since 1876 (Triticale wheat x Rye cross).  GM techniques expand these possibilities enormously and rightly should be subjected to careful regulation.  But we would be wrong in supposing that all the risks we face are caused by human agency, or that we are completely incapable of regulating them.

Ironically, both these lessons can be drawn from the "mad cow disease" experience.  The former is suggested by the fact that the best hypothesis about the origins of BSE and nvCJD seems to be a chance occurrence of a rare spongiform encephalopathy (probably from scrapie in sheep) which found its way into cattle food and thence into the human diet. ⁽²⁵⁾  The route might just as readily gone straight from sheep to humans, but for a roll of the genetic dice.  The outbreak might have resulted from feeding rendered sheep carcasses to cattle, but the genetic chance occurrence appears to have been a completely natural occurrence.

The BSE/nvCJD outbreak, despite the alarms, also demonstrates that we are capable of regulating risks.  BSE in cattle was first positively diagnosed in cattle in 1986, and regulatory action was taken in 1988 and 1989 to remove infectious material from the animal and human food chains.  The risks of human exposure were highest at this time, when public concern was almost non-existent, and with a possible ten-year incubation period;  by 1997 there were only 19 established cases of nvCJD in Britain and one in France.  About a million cattle were slaughtered and Britain's beef trade was harmed, but (despite the high economic stakes) scientists and regulators minimised the impact of the tragedy.  It is most certainly a tragedy, but it has not quite been an apocalypse, yet the role of good science and risk management in limiting the scope of the tragedy has been submerged in a climate of dread, and the risk management success overlooked.

The BSE/nvCJD tragedy, as has been noted, had nothing to do with the GMO debate, except in its impact on public perceptions -- indeed, GM growth hormones have removed the major source of risk of transmission of spontaneous CJD (barring outbreaks of ritual cannibalism).  But the suspected origins of the BSE outbreak also contain an important lesson about how we should evaluate the risks of GMOs.

It is thought that until the early 1980s, the process by which carcasses were rendered for stock food destroyed the infectious prion from the scrapie as they were subjected to high temperatures and organic solvents to remove the tallow.  The price of energy rose, the price of tallow fell, and concerns emerged over the exposure of workers to organic solvents, so a new process was adopted to avoid solvents and high temperatures.  The scrapie prion survived the new process and subsequently it is believed to have infected cattle. ⁽²⁶⁾

This serves to remind us that our actions have consequences that are difficult to imagine.  This holds not just for the introduction of new technologies, but both changes to old ones and decisions to withhold new technologies.  GMOs present risks, but they also present considerable opportunities.  The challenge is to manage the risks in order to maximise the benefits.  How we do this requires the best possible science, the right amount of precaution, and open and democratic processes, an admixture which will be difficult (but not impossible) to achieve.

ENDNOTES

1.  See John H. Jackson, "Dolphins and Hormones:  GATT and the Legal Environment for International Trade after the Uruguay Round", UALR Law Journal, 14, 1992, pages 435–36.

2.  See Paul Slovic, "Perception of Risk:  Reflections on the Psychometric Paradigm" in Sheldon Krimsky and Dominic Golding (eds), Social Theories of Risk, Westport, CT, Praeger, 1992;  or Joseph V. Rodricks, Calculated Risks:  Understanding the Toxicity and Human Health Risks of Chemicals in Our Environment, Cambridge, Cambridge University Press, 1992.  For an excellent introduction to the topic of risk, see John Adams, Risk, London, UCL Press, 1995.

3.  Mary Douglas, Risk and Blame, London, Routledge, 1992;  page 15.

4.  For a discussion of the importance of patents in regulation of chemical and pharmaceutical risk, see Aynsley Kellow, International Toxic Risk Management:  Ideals, Interests and Implementation, Cambridge, Cambridge University Press, 1999 (in press).

5.  For an example of this genre, see Sharon Beder, Global Spin:  The Corporate Assault on Environmentalism, Melbourne, Scribe, 1997.

6.  See James T. Rosenbaum, "Lessons from Litigation over Silicone Breast Implants:  A Call for Activism by Scientists", Science, 276, 6 June 1997, pages 1524–25.

7.  See Thomas M. Dietz and Robert W. Rycroft, The Risk Professionals, New York, Russell Sage Foundation, 1987.

8.  John E. Losey, Linda S. Rayor, Maureen E. Carter, "Transgenic pollen harms monarch butterfly", Nature, 399, 1999, page 214.

9.  See VitalSource, "GM:  What is known and/or in dispute?" at http://www.vitalsource.org/gm/science.html.

10.  See John D. Graham and Jennifer Kassalow Hartwell, "The Risk Management Approach" in John D. Graham and Jennifer Kassalow Hartwell (eds), The Greening of Industry:  A Risk Management Approach, Cambridge, Mass., Harvard University Press, 1997.

11.  Christopher Anderson, "Cholera epidemic traced to risk miscalculation", Nature, 354, 1991, page 255.

12.  Rodricks, op. cit., page 218.

13.  See Lawrence E. Susskind, Global Diplomacy:  Negotiating More Effective Global Agreements, New York, Oxford University Press, 1994;  page 79.

14.  See Robert Nillson, "Integrating Sweden into the European Union" in Roland Bal and Willem Halffman (eds), The Politics of Chemical Risk:  Scenarios for a Regulatory Future, Dordrecht, Kluwer, 1998.

15.  Nigel Haig, "The Introduction of the Precautionary Principle into the UK" in Timothy O'Riordan and James Cameron (eds), Interpreting the Precautionary Principle, London, Earthscan, 1994;  pages 243–246.  (Emphasis added.)

16.  For a discussion of these issues, see The Royal Society, Genetically Modified Plants for Food Use, London, The Royal Society, September 1998.

17.  Aaron Wildavsky and Mary Douglas, Risk and Culture, Berkeley, University of California Press, 1981.

18.  Sonja Boehmer-Christiansen, "The Precautionary Principle in Germany -- Enabling Government" in Timothy O'Riordan and James Cameron (eds), Interpreting the Precautionary Principle, London, Earthscan, 1994.

19.  David Vogel, Trading Up:  Consumer and Environmental Regulation in a Global Economy, Cambridge, Mass., Harvard University Press, 1995.

20.  See the report "GM food study was 'flawed' " by BBC News on 18 May 1999 at http://news.bbc.co.uk/hi/english/special_report/1999/02/food_under_the_microscope/newsid_289000/289002.stm

21.  Debora MacKenzie, "Unpalatable Truths", New Scientist, 10 June 1999 at http://gmworld.newscientist.com/

22.  See Bruce N. Ames, Renae Magaw, Lois Swirsky Gold, "Ranking Possible Carcinogenic Hazards", Science, 236, 17 April 1987, pages 271–80.

23.  See OECD, Food Safety Evaluation, Paris, OECD, 1996.

24.  Frank Furedi, Culture of Fear:  Risk-taking and the Morality of Low Expectation, London, Cassell, 1997.

25.  The Royal Society, Second Update on BSE, Statement by the Royal Society, London, 21 July 1997.

26.  The Royal Society, BSE -- A Statement by the Royal Society, London, 2 April 1996.  As John Adams has noted, however, the prion theory of causation is by no means universally accepted.  See John Adams, "Cars, cholera and cows:  virtual risk and the management of uncertainty" Science Progress, 80, 1997, pages 253–272.

Don't Forget Gas Rivals in Pipeline

The quest for the "just price".  This is how ACCC Chairman Allen Fels has described the mountain of paper and cacophony of voices that have contributed to the debate on the price for the carriage of Victorian gas.  He and Victorian regulator John Tamblyn have compiled 450 pages in their final reports alone.

The allowable price of transport is critical to the price the Victorian Government can expect from the proposed privatisation of the state owned gas system.

The regulators' decision requires the transport price for gas to be based on a 7.75 per cent real pre-tax return on capital.  Although this represents an increase from the draft decision of 7 per cent, it falls far short of the 10.2 per cent sought by the Victorian Government.  That price application itself discounted present returns and therefore represented a reduction on the price levels that Victorian industry and consumers had willingly entered into.

The Victorian regulator estimates that the average household will benefit by $40 per year in lower gas bills as a result of his reducing the price basis sought by the Kennett Government.  Of course, the $40 per year benefit on the gas bill has an equal offsetting $40 cost to the consumer-as-taxpayer because of the lower returns the verdict will bring.

The catastrophe at Esso's gas plant added a further dimension to the task of estimating the "just price".  From now on, neither customers' decisions nor investors' profit projections can be based on a near certainty of continuous supply.  This alone will require some adjustments to buyers' valuations of the assets.  It is also likely to result in the State Government spending money on storage as well as the link with the Cooper Basin system to improve the system's security.  All of this means the Government has already effectively reduced the 10.2 per cent return sought from the assets.

The regulators' gas decisions are based on a misplaced assumption that pipelines are natural monopolies that can charge any price they choose.  For a start, they are subject to competition from electricity and other fuels.  Moreover, although the pipes are difficult to duplicate in full, they can be partially by-passed, thereby limiting their owners' pricing latitude.  Curiously, the regulators saw "uneconomic by-pass" as a major reason to keep the price low.  Yet the price cap they imposed does not prevent gas pipeline owners from reducing prices to meet competition.  Regulators' suggestions that the avoidance of uneconomic by-pass is a reason for them to reduce prices implies a pompous self-deceit on their part.  They are saying that the owners would be too stupid to make the correct decision themselves.

The ability of rival firms to by-pass existing lines and of rival fuels to win market shares provides strong disciplines on price gouging.  Customers have willingly accepted existing price levels and these levels should be treated as having been contracted.  It should be left to the competitive process to drive down prices.  Where a regulator attempts to do so, we run the risk of prices being set too low with inadequate incentive to upgrade and maintain the facilities.

The quest for the "just price" boils down to two measures:  the price that can now be achieved under competitive conditions;  and the price that an entrepreneur would have required to build the system in the first place.  With respect to the latter, the present system was built 30 years ago, prior to which there were virtually gas supplies.  It is impossible to believe that anyone at that time would have risked their own money for a new venture to pipe gas around Victoria and been satisfied with a pre-tax return of 7.75%.  Commonly, such high risk ventures would seek twice that return.

All this said, the Victorian Government willingly agreed to have an independent regulatory authority determine its financial future.  The most pressing task is to return the gas transport and marketing to the private sector and thereby obtain greater efficiencies and lower costs for customers.  It is unlikely that the Regulators can be persuaded to shift ground on the issue and the Government should swallow and proceed with its privatisation reforms.

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Your ABC and a big case of bias

Lee Burton and June Factor (on this page on Wednesday) have enunciated a fascinating new theory of media analysis -- big is beautiful or, at least, unbiased.

They say my allegations of a common ABC culture (outlined on this page on 30 September) can't be true because the ABC is a large organisation.  They can't be serious, surely?  Of course an organisation of several thousand people will not have exactly the same opinion, but a culture of bias is entirely possible.

One of the more powerful pieces of evidence of ABC bias 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.

And the suggestion that size protects the ABC from bias makes the concerns about media concentration seem somewhat inconsistent.

It was also a wonderful irony that Bettina Arndt's excellent piece on the narrowness of debate on social policy -- across many media organisation and universites -- was run on the same day.  Arndt has been largely banned from the ABC over the past five years or so because people in the ABC do not like what she has to say.

Burton and Factor themselves allude to another piece of evidence of ABC bias -- the common nature (they say "hackneyed") of allegations of ABC bias.  It is indeed a fact that the ABC is perennially accused of left-wing bias.  I wonder why?

Nor is the internal debate within the ABC that Burton and Factor cite evidence of a lack of bias.  Western Marxist parties and organisations are notorious for bitter internal struggles and debates:  this does not make them broad intellectual churches.  A key problem with the ABC is not that it lacks internal debates, but the range of opinions represented inside the ABC is so narrow.  As former 3LO broadcaster Doug Aiton pointed out in these pages (26 February 1997).

Burton and Factor point to the ABC being under a legislative charter to "present a diversity of views".  Yet, as former ABC acting managing director Keith Macriell has pointed out in Review, the ABC charter does not require the ABC to fairly reflect national opinion, which is the issue.  "A diversity of views" can still reflect a narrow spectrum.

In private conversation, ABC staff and supporters will admit the ABC is left-wing, but say that is OK, because it "balances" the commercial media.

This is nonsense at two levels.  First, left of centre opinions have no difficulty getting into major newspapers and media.  Second, the ABC is not full of raging right-wingers who, out of a sense of public-spiritedness, doggedly make sure left of centre views get a fair run.  On the contrary, the poor accountability which is so sadly common in the public sector allows them to indulge in satisfaction of their own prejudices at taxpayer expense.

Taxpayers' money should not be used to disproportionately support some opinions over others in national debate.  That is the issue.

If the ABC cannot be reformed so that it is genuinely open to the range of national opinion, then it should be privatised to take its chances in the market place like everyone else.

Studious Ignorance: How Ministers Can Really Not Know What They Are Talking About

Talk to Netizen seminar on the topic of the
Broadcasting Services (Internet Services) Amendment Act
Thursday, October 7th, 1999

The phrases which come most to mind in discussions I have had with members of the online community about the "Internet Censorship Act" -- as it is commonly known -- are phrases like "but it's so dumb", "how can they possibly think that?", "they clearly don't understand", "it's the wrong model" and so forth.

There seems to be this enormous gulf between what the online community understands to be the case and to be practicable and what the legislation and the Minister are committed to happening.

It is not for me to talk at this venue about why the broadcasting model is so inappropriate for regulation of ISPs ⁽¹⁾, given that there are people much more expert than me in the technicalities, present and speaking.  I will note, however, as I have in my forthcoming article in Agenda -- which has also been included in our Submission to the Productivity Commission Inquiry into Broadcasting Services -- that one is stuck with the broadcasting model if you are going to make imposing a censorship regime on ISPs have any plausibility at all.  Any use of a telecommunications model would put up in stark relief what was wrong -- in terms of practicality, reasonable liability and free speech -- with the proposal.

What I want to talk about is how come such an inappropriate model could be adopted at all.  After all, merely saying the broadcasting model was the only way to make a censorship regime on ISPs plausible is not enough.  The question is, why then go ahead?  Why not just either:

1. abandon the exercise;  or
2. look at more practicable alternatives to keeping dubious and nasty things away from children?

THE PROBLEM OF KNOWLEDGE

Let us take it as read that the Government did want to protect children and did want to conciliate Senator Harradine and the sentiment he represents.  Let us also take it as read that that then imposed on the Government a major time constraint, due to the change in the Senate numbers on the 30 June, hence the remarkable speed with which everything was done.

What does that major time constraint do?  It means that the Government has to make major decisions very quickly and using resources readily at hand, including the stock of knowledge it has quick access to.  This is an often greatly underrated virtue of lengthy policy development and inquiry processes:  they can provide a means of educating policy makers and turning up information or, more specifically, making it available to policy-makers.

Now, I happen to know that the Internet censorship proposal was not driven by the Department, but by the Minister's office.  So we are not even talking about the knowledge-stock on hand in the Department, but in the Minister's Office itself, though the expertise of Canberra Departments, especially in areas of rapid technological change, is not necessarily all that great either.

OK, so we are looking at the level of understanding of the Minister's Office and a few key bureaucrats.  Immediately, we see how lack of knowledge can be a serious problem.

Then we have to consider the enormous range of Government activity.  Even in the one portfolio of Communications, Information Technology and the Arts, we are dealing with media policy, telecommunications policy, information technology policy and arts policy.  That is everything from Telstra, Australia Post, the ABC, commercial media (both radio and TV) through to the Arts Council and the National Museum.

True, any major proposal has to go via Cabinet and get Cabinet approval, but it is precisely in areas of new technology and dramatic technological change that that process can be expected to be at its weakest.  Since other Ministers, their Staff and Departments are going to lack useful background knowledge, they are going to be in a very poor position to demur from anything the relevant Minister puts up -- every current member of Cabinet entered Parliament before the Internet entered general public consciousness.

If you want some idea of the scale of activity we are talking about, look at this.

Graph 1

Isn't it wonderful to live in an age of de-regulation?  [You can see the effects of] photocopiers in the 1970s, word processors in the 1980s and PCs on every desk in the 1990s.  Just to give you some idea of the ever-increasing scale of legislative activity, the Commonwealth Parliament passed in the first eight years of this decade more pages of legislation than it passed from 1901 to 1980 inclusive.  That is, an eight-year period of no great national emergency apparently required more pages of legislation that establishing the Commonwealth jurisdiction, WWI, the Great Depression, WWII, postwar prosperity, the Whitlam reforms and beyond combined.

The enormously increased "productivity", in some sense, is obvious.  Quality control, however, is clearly a bit of an issue.  And, in case you were wondering, the Acts are getting longer as well.

Graph 2

So, more law and more complex law and a problem of quality control, particularly in areas of new technology and rapid technological change.  It should becoming obvious how there is a serious issue about lack of knowledge and lack of time to access appropriate knowledge.

At this point we can see how the salient thing is not how much a person knows, but access to Ministerial attention, either directly or through the Minister's staff.  One of the classic Canberra games is for a bureaucrat or staffer to ring up to get "Industry's opinion" where by "Industry" we typically mean the Executive Director of the relevant industry association -- that is, lobby group -- or one or two larger players who, for whatever reason, have become known to the bureaucrat or staffer.  They themselves are generally fairly keen to retain their favoured position and/or gain advantage from it, so are perhaps not ideally placed to tell their inquirer that the Minister's pet project is a load of codswallop.  The less time you have, the more such apologies for genuine information-gathering are going to be relied upon.

A friend of mine tells a great story about the person in charge of developing industry policy for an industry whose stock of knowledge consisted of occasional lunches with the head of the "Australian" lobby group that represented only about 40 per cent of the industry -- and only the big ones at that -- and ONE walk-through of a facility.  Canberra Departments reward ability to play the policy game, more than genuine knowledge.

As an aside, I note that the Minister has informed the Senate that, when he visited Silicon Valley, nobody criticised him over his Internet censorship Act.  A couple of fairly obvious points.  First, Silicon Valley inhabitants must be pretty used to a never-ending parade of visiting foreign politicians all eager to touch the Silicon Valley magic and work out to replicate it back home.  It must have become standard background noise, so why would you pay much attention?

Second, if they do pay attention, they are probably hoping to sell something or otherwise get the Australian Government to be helpful.  What sort of strategy is it to start with, "oh, by the way Minister, your latest pet project is complete garbage?".  One suspects that, even in Silicon Valley, it ain't going to happen.  Which is why Ministers saying that no-one from the industry has complained to them to their face should never be taken terribly seriously:  Ministers are potential walking cheque books for sums that start with six figures and work up; of course people in industry are going to be nice to them and not want to make them feel bad about themselves and their pet projects.

Now, I hope we can see how a really bad idea can get all the way into law.  In fact, how it can happen quite frequently.  How, for example, a Minister's Office, under a great deal of time pressure, dealing with a subject it really doesn't understand can look around and say "well, the Internet is a bit like narrowcast broadcasting -- that is, cable TV -- so we will regulate it as a tack-on to the Broadcasting Services Act and get the ABA ⁽²⁾ to do it and treat ISPs like broadcasters".

And when they talk to get "Industry's opinion" it is entirely possible that they may merely be a couple big players who may be quite happy to raise entry costs to the industry and so cull their competitors.

WHY REGULATION OFTEN FAILS

At this point, it should also be clear that there is nothing particularly mysterious about why government regulation in markets is often counter-productive -- it has been well, if not exhaustively, analysed.  In practice, there is usually very little real quality control on regulatory provisions, either before or after the fact.  Determining effects is often quite difficult -- since the effects of any particular provision tend to be very hard to pick out from a mass of government action (though that is not likely to be the problem in this case).  The enormous increase in legislative activity militates further against effective quality control, few resources are put into systematically doing so and there is very limited feedback into the legislative process from such measurement as does occur.  Worse, such feedback and measurement as does occur is often left to the regulators, who have a vested interests in the regulations they administer -- not least, in preserving the "human capital" of intimate knowledge of the regulatory structure, with future earning potential.  This situation was much improved by the creation of the Industries Assistance Commission in 1975 (now the Productivity Commission) but, 29 years later, there is still far to go.  There are also obvious conflicts of interest in government funding evaluation, since governments are not likely to want to be publicly and authoritatively told that their policies are not working.

Furthermore, interest in public policy itself is a "public good", subject to considerable "free-riding", so therefore tends to be under-provided.  By contrast, those with concentrated special interests often have powerful incentives to be involved, leading to intrusive regulation tending to favour those with such interests (e.g. by raising market-entry costs in, say, law and medicine).

Unlike ordinary commercial exchanges -- where people only come together in expectation of benefit, where people have to know only their own situations and preferences -- regulatory action is the application of centralised coercion.  The regulator cannot learn of the diversity of ever-changing personal preferences, aptitudes and resources.  Even if they could, they must adopt a "one size fits all" approach, even though they know perfectly well that it does not.  Were they to adopt the "flexible" approach, so often advocated by business, they would very soon find themselves accused of favouritism, of corruption.  The provisions now in the Act which require action to be commercially feasible, and which the Minister has informed the Senate will indeed mean that different ISPs will have different legal obligations, create an enforcement minefield in this regard.

There is a place for judicious regulation (they can, for example, reduce what economists call "transactions costs; the expenses involved in making commercial exchanges) but there are also powerful reasons why there should be no presumption that extensive regulation is socially beneficial.

CURRENT CIRCUMSTANCES

The Minister's remarks on Silicon Valley were made during the Senate debate on a joint Democrat-Labor motion soundly criticising the Act which was passed by the Senate on the 30 September, confirming that the Act would not have passed if it had been voted on after 30 June.  The Minister's comments in that debate centred quite heavily on the propositions that:

1. something needed to be done;  and
2. there was a lot of community support for control of pornography and related material.

That is, he concentrated on the intention of the legislation.  This is pretty normal in political debate, which tends to be very much based on the proposition that intention + effort = outcomes.  So, for example, if someone claims that schools are not doing a good job of teaching literacy, the immediate cry is "more money!, more money!" rather than questioning whether there might be a quality control problem on the billions already spent on public education.  People are what economists call "rationally ignorant" about many issues of public policy -- it is not in their interests to spend time becoming informed on issues that don't directly concern them.  Intentions they can understand, crude measures of level of effort they can judge, so it just simplifies everything if outcomes are assumed to follow from them.

This is also very convenient for politicians and bureaucrats, because it makes life simpler for them.  If you want some idea of why government delivery often isn't a great way to go, one needs to look no further than the banal level much public debate is carried on at.

Which is a real problem in this case, as in so many, because the devil is in the details.  It is inside that glossed-over "black box" where, as is typical, the problems are.  It is difficult to get debate focussed on the problems of the means, but it is not impossible to do so.

There is, of course, a very real free speech issue, but that is a contestable value, particularly regarding concern over children.  If you want to restrict people's freedom, child-protection is one of the most powerful weapons for doing so, since it plays into parental fears.  Moreover, children are not adults:  there is not a presumption that they are able to look after themselves.  Which is why parental responsibility and authority, and general respect for the family, is also a very basic freedom issue.

The advocacy advantage of focusing on impracticality and unnecessary damage is that it puts things on less value-contested grounds and plays directly to the widespread presumption (based, lets face it, on much experience) that politicians and governments do have some tendency to cock things up.  The disadvantage of doing so is that you are working with poor background knowledge in the general public.

Clearly, the key thing is to convince people that, in the rush to conciliate Harradine and get it through the Senate, the Government chose the wrong model and that this will have serious consequences.  That ISPs are not like TV and radio stations, but like phone companies, the post office and courier services.  That the appropriate regulatory model is telecommunications, not broadcasting.  The analogy probably makes immediate sense for e-mail users, but is probably less intuitive for lay people looking at websites, when the monitor does look at bit like a TV does, pictures and all:  except, of course, the signal comes down a phone line, there tends to be a lot of text and not all that much movement.

To get people to look inside the "black box" of government activity, to look beyond intention and effort, is difficult, but not impossible.  The Productivity Commission Inquiry into broadcasting legislation provides an unusually good opportunity to do so, even though TV and radio regulation will get most attention.  The draft report comes out in mid-October, but the Commissioners are still accepting submissions and there will be a further round of comment and consultation before the final report comes out.  If the Commission is critical, it certainly will make it harder for the Minister to dismiss critics as "fringe".

The main thing is to keep plugging away.  In particular, to try and to develop ways of explaining to a lay audience -- which, after all, includes most journalists -- the fundamental impracticality of the legislation.  The point is not to deny there is a free speech issue, because clearly there is, but because the most powerful argument possible against any policy is that it doesn't work, and/or that it imposes such high costs it is not worth it whatever you think of the intent.

And it helps in that explanation if people understand that it is by no means surprising that Ministers may not actually know what they are talking about.

Thank you.

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ENDNOTES

1. Internet Service Providers

2. Australian Broadcasting Authority

ABC Watcher

Letter to the Editor:

ABC Managing Director Brian Johns' response (Opinion, October 1) to my article (Opinion, September 30.) is at least proof that he watches the ABC -- it was worthy of Sir Humphrey Appleby of Yes, Minister and Yes, Prime Minister fame.

It was particularly disingenuous, given that he and the rest of the ABC Board all have copies of my Backgrounder "Whose ABC?", which considers at length whether the existing mechanisms of accountability are adequate and argues that formal appearances are deceiving.

To take one example, he refers to the ABC-appointed Independent Complaints Review Panel -- and how Yes, Minister-ish it is to have an "independent" complaints panel appointed by the body subject to potential complaints.

The latest ABC annual report informs us (page 64) that in 1997-98 it received precisely 13 complaints, many of which did not meet the Panel's criteria.  One was withdrawn, leaving three to be investigated, none of which investigations were completed in that year.  "Accountability" ABC-style.