Is this the end of the American Creed?

Who are We?  The Challenges to the America's National Identity
By Samuel P. Huntington
(Simon & Schuster, 2005, 428 pages)

At the presidential inauguration of John Kennedy in 1961, Robert Frost recited a poem he wrote about the "heroic deeds" of the "glorious" founding fathers of America.  In 1993, at Bill Clinton's inauguration there was also poetry.  Maya Angelou recited her own poem that didn't once use the words "America" or "American".  Instead she listed 27 racial, religious, tribal and ethnic groups, and she spoke of the fear that her country might be "yoked eternally to brutishness".

According to the American political scientist Samuel Huntingdon, such a difference reflects something more than the contrasting approaches of Kennedy and Clinton.  To Huntingdon, it represents what is happening not just to America, but to the idea of America.

Who are we? has three main claims.  The first is that the American sense of national identity is disappearing, and is being replaced by a range of sub-national and ethnic identities.  Although the events of September 11 and the threat of terrorism certainly re-ignited a national "spirit", in the long-term, such a spirit is set to decline.

Second, he argues that American identity is the outcome of a unique Anglo-Protestant culture, which includes the English language, Christianity, the rule of law, human rights based around a strong concept of the individual, and a strong work ethic -- such elements often being called the "American Creed".

And, third, according to Huntingdon, this Anglo-Protestant culture of America is gradually being replaced by an Hispanic culture.

Huntingdon catalogues the evidence for the undermining of American culture and he analyses the methods by which it has been brought about.  Everything from the incidence of US flags being flown in the aftermath of 9/11 to church attendance among different ethnic groups is analysed.  (It was reported that, on the day of the terrorist attacks in September 2001, Wal-Mart in the United States sold 116,000 flags, and on the following day it sold a quarter of a million flags.  On September 11 a year earlier, Wal-Mart had sold 6,400 flags, and on the next day 10,000).

The policy objective of the book is absolutely clear.  He believes that "Americans should recommit themselves to the Anglo-Protestant culture, traditions, and values ... that have been the source of their liberty, unity, power, prosperity, and moral leadership as a force for good in the world".  Huntingdon himself says that he's a "patriot" and a "scholar", and provides us a useful way to examine his arguments.

His first and second claims are based on scholarship.  In the seventeenth and eighteenth centuries, American society was formed as the product of the particular attitudes of its settlers.  The early settlers had the opportunity to establish a new political culture as they faced a future without one of the key defining characteristics of the society they left behind in Europe -- class.  Without a class-based hierarchy, those who arrived in the New World could focus their allegiances on the nation as a whole.  Over time, this "American Creed" came to be the allegiance of the settlers.  To Huntingdon it is not an exaggeration to speak of "Americanism" as an ideology, in much the same way that socialism or communism is an ideology.  In the phrase of GK Chesterton, America is "a nation with the soul of a church".  All citizens, regardless of race or background subscribed to the Creed.  Unlike Europe, which in the nineteenth century had many ideologies, America had just one.

The Creed was dominant in America until the 1960s, having peaked during World War Two.  It was in the 1960s that America began to be "deconstructed" as the traditional idea of the "melting pot" was replaced by the concept of the nation as a "tossed salad" of different identities.  The responsibility for this is placed at the feet of "institutional elites" who Huntingdon lists as "bureaucrats, judges, and educators".  "These efforts by a nation's leaders to deconstruct the nation they governed were, quite possibly, without precedent in human history".  He suggests that what happened was not the product of a decision of the American people as a whole, but instead was the outcome of a deliberate strategy of those institutional elites.

He identifies various reasons for the deconstruction of the American identity.  At one level, as America gained global dominance, the fear of attack that bound the country together was weakened, thus providing more opportunity for groups to pursue their own interests.  There was also the influence of electoral calculations which had politicians manipulating ethnic interests to gain votes.  Government officials applied the widest possible interpretation to anti-discrimination legislation to expand their own budgets and their own power.  In universities and in the media, the "cults of multiculturalism and diversity took the place of left-wing, socialist, and working-class ideologies and sympathies".

Huntingdon's third claim, about "Hispanic culture" and its relationship to American values, is obviously controversial.  But it is here that he writes not as a scholar but as a patriot -- and his arguments suffer for it.

He argues that there are profound and irreconcilable differences between the attitudes of Americans and those of Mexicans, who are those carrying the Hispanic culture into the United States.  America has a Protestant culture deriving from Martin Luther, while Mexico has a Spanish-Indian "Catholic" culture.  The manifestation of this is captured in three Mexican sayings:  Ahi se va ("Who cares?  That is good enough");  Manana se lo tengo ("Tomorrow it will be ready");  and El vale madrismo ("Nothing is really worthwhile").  By contrast, the standard America attitude is centred on a Protestant work ethic and the idea that hard work is almost an end in itself.  As support for his position, Huntingdon draws on figures showing higher levels of poverty rates and an increased likelihood of school failure among the Hispanic community, compared with America as a whole.

But Huntingdon here is on much less sure a footing.  In last year's The Right Nation -- Why America is Different, John Micklethwait and Adrian Wooldridge of The Economist convincingly drew a conclusion that is nearly the exact opposite.  So, for example, Huntingdon writes that "Mexican immigrants have had low self-employment or entrepreneurship", while in The Right Nation there is an extended discussion about the propensity of Latinos to be "hard-working, God-fearing, family-oriented and upwardly-mobile", and their "marked propensity to start their own business and buy their own homes".

So what is the reader ultimately to make of Who are we? given that so much of it relies on information from which conclusions can be drawn that clearly contradict his thesis?  Aspects of his work are thought-provoking, but at times he fails to answer the key question:  "so what?"  Even if America is going the way that he suggests, what are the consequences that follow?  It is this that is missing from his 400-page book.  The dissolution of English as a common language across the country, for example, has many effects, but remains undiscussed in the book.

Likewise the fact that the Ten Commandments can't be displayed in public buildings in America might be regrettable, but what are the consequences?  Will the United States therefore be less willing to intervene militarily around the world?  Will recruiting for the armed forces decline?  Will the US therefore decline as an economic superpower?

As in The Clash of Civilisations, Huntingdon displays in Who are we? his gift for asking important questions.  His questions are easy to understand, but the answers he gives are impossible to prove right or wrong.

The extent to which such a discussion about America is relevant to the Australian situation is unclear.  It certainly is the case that, just as in the United States, in Australia there are those who preach a "cosmopolitanism" as a replacement for whatever we believe to be an Australian identity.  Perhaps the key difference between America and Australia on issues of culture and identity is that in the United States it is possible to define what the "American creed" is (even if that creed is changing).  In an Australian context, before we concern ourselves with whether our "Australian creed" is disappearing, we'd have to ask whether there is such a thing as an "Australian creed" in the first place.

Drinking from the bottomless well

The Bottomless Well:  The Twilight of Fuel, the Virtue of Waste, And why we will never run out of energy
By Peter W. Huber & Mark P. Mills
(Basic Books, 2005, 215 pages)

Writing in the style of Isaac Azimov, Peter Huber manages to take dry-as-dust economic issues and convert them into epic sagas based on solid research.  He has done this with books that have examined telecommunications, the development of liability law, junk-science-based environmentalism and now energy.

It was almost two decades ago when Huber first came to prominence as an exponent of small government.  His massive submission on behalf of the Department of Justice to the US review of AT&T divestiture was followed by a further polemic on deregulation, Law and Disorder in Cyberspace:  Abolish the FCC and Let Common Law Rule the Telecosm.

In examining liability law, he dissected the explosive mixture of ambulance-chasing lawyers and leftist legal theorists (whom he referred to as The Founders) who had seized the commanding heights of the US legal system and were creating a changed form of liability law much loved by the "trial lawyers" who used it to extort vast sums from businesses.  For Huber, the real damage of this lies in creating risk aversion on the part of businesses and less resilience in the economy.  He is also concerned that US-based firms may fall behind those in jurisdictions offering greater legal certainty.

Looking at environmental politics in Hard Green:  Saving the Environment from the Environmentalists, he distinguished the Hard Greens, concerned with wilderness, oceans, rivers, lakes and mountains from the Soft Greens.  His Soft Greens were the modern ideologically bound campaigners for intangible matters such as global warming, chemical residues and resource depletion.

He was among the first to identify the bottomless pit of studies that would be required before an innovation would be able to pass the precautionary principle test advocated by the Soft Green cadre.  And he pointed out the logical flaw embedded within their nostrums -- for example, in wanting to ban new biotech products such as GM food while at the same time wanting to ban the pesticides that such innovations do so much to reduce.

In The Bottomless Well, written with physicist Mark P. Mills, Huber argues that energy efficiency gains result in lower prices and that this increases, rather than decreases, the demand for energy.

The very nature of the energy demanded is changing.  The more refined energy product, electricity, is demanded in increasing shares.  But while comprising very little energy themselves, the production of highly refined energy such as beams of light and X-rays requires the use of vast amounts of less-refined energy.

He reproduces data from the Energy Information Administration which illustrates the cost of power, ranging from one third of a cent per kWh for raw coal through 10 cents for grid-based electricity, all the way up to $3 per kWh for computer-grade power.

One of the gee-whiz facts about efficiency of electricity that he provides concerns the difference in energy usage of computing.  The first application in 1946, called ENIAC -- built to compute trajectories for artillery shells -- used 10 watts per gate.  A Pentium uses one-one-millionth of a watt and is twenty thousand times faster.  Put more pedestrianly, they note, "The ... PlayStation II incorporates ten thousand times the computing power of the ENIAC, and requires two thousand times less power".

But this greater efficiency notwithstanding, the growth in PlayStations means that the product actually uses more power than the ENIAC.  Efficiency improvements from power plants to light bulbs have resulted in dramatically lower costs of energy.  In the process, these improvements have vastly expanded demand.  And over 90 per cent of the energy we use is in mining, refining, processing and converting the energy itself.

One aspect of his analysis has been severely criticised:  the amount of total electricity use which is attributable to computers, the Internet and other such micro-processor based technology.  The authors argue that the packets of energy we call bits have risen massively in spite of -- or because of -- the improvement of their efficiency of use.  Much rests on semantics about what constitutes computer usage, but the aggressively hostile response to the original Huber contentions has now moderated.

One measure popularly advocated to reduce energy use is to mandate more efficient light bulbs.  The authors show that, notwithstanding the apparent savings from this lighting, consumers have only really adopted it when regulation required them to do so.  The pace of innovation has meant that those who committed themselves to the wonderful financial savings promoted by the lighting efficiency analysts of the 1990s have wasted their money.  Much more efficient fluorescent and LEDs have been developed since then.

The book also traverses the grand issues of power outages.  With the highly politicised California blackouts, it correctly diagnoses the problem as having stemmed from the state's ban on new plant -- a ban actuated by a combination of distaste for dirty industries and a politically correct belief that we are using too much electricity anyway.  The Californian state government's mandating of a 10 per cent price reduction and forbidding long-term contracts led it to come scuttling back to a statement that it would "never again ... allow out-of-state profiteers to hold Californians hostage".  Other outages are often caused by the increasingly interconnected system and its susceptibility to human error or natural causes;  these outages could be significantly reduced by applying the correct incentives to allow better control.

Finally, the book draws the strong correlation between energy use and GDP, with the Western Europeans achieving slightly higher GDPs than their energy usage would predict because of the high energy taxes and other restraints on energy use they impose.

He thoroughly skewers the eco-puritanism that advocates living simply and frugally as the key to environmental holiness, pointing out that human wants tend to grow to fill our means.  If we manage, say, to make refrigerators more energy-efficient and thus cheaper, we just make a bigger, better fridge that uses the same, or even more, energy for the same or less expense.  New ways to "save energy" always lead to more energy being used -- but that's all right, we have plenty.

As Huber explains so well, the kinds of energy that left/Soft Greens tend to fear the most, such as nuclear, are in fact the most Green -- giving us the greatest amount of power for the least amount of disturbance of the earth and environment.  Meanwhile, "renewable" sources such as solar, wind, or burning wood leave enormous scars on the land or add pollution to the air.  What we don't have plenty of, he stresses repeatedly, is untouched wilderness.  This is the only scarcity we need be concerned with, Huber argues, and its preservation is what a right/Hard Green ought to be dedicated to.

A miserable trilogy

The Third Try:  Can the UN work?
By Alison Broinowski & James Wilkinson
(Scribe, Melbourne 2005, 208 pages)

No prize for guessing the answer.  In time for the sixtieth anniversary celebrations of the United Nations, two former diplomats -- one Australian, the other American -- have produced an autopsy of this organisation and somehow declared that it still has life.  Much ink has flowed on the ills of the UN and most commentators have called for urgent reform.  This book, however, must be seen as one of the most extraordinary triumphs of optimism over reality in recent book publishing history.

Broinowski and Wilkinson give the appearance of doing an even-handed and thorough analysis of the organisation's shortcomings.  They tackle it under the three key planks from the Preamble to the UN Charter:

• Ending the scourge of war;
• Reaffirming faith in fundamental human rights;  and
• Promoting social progress and better standards of life "in larger freedom".

The sentimental and idealistic vagueness of these three statements infects the whole book, as indeed it already does the UN.

In an attempt at ruggedness, they enquire "Cynics ask whether any of the successes of the last six decades were really due to the UN, or just to the fact of cooperation among the liberal democracies that have given the money and called the shots".  Of course, very quickly the reader discovers that the UN's shortcomings are all the fault of liberal democracies or, more especially, the United States.

While it is absolutely true that one can point to successes in peace-keeping, supervision of elections, emergency aid, health and education projects, etc., one has to make the obvious observation that some good must come from so much effort and spent treasury.  But what of the cynical Economist which observed that, in the 680 international conflicts between 1945 and 1989, the UN sat by and watched?  On the Volker Report and the oil-for-food scandal?  This book endorses the view that the oil-for-food scandal was the fault of an intellectually dishonest campaign by UN congressional conservatives and a right-wing commentariat aimed at destroying the UN as an institution.

Nowhere to be seen are the essential criticisms of the UN.  No discussion of the UN's democratic deficit due to the structural effect of an unaccountable body.  No awareness of the nature and functioning of the activist transnational progressives and the ways in which they use the UN to threaten sovereignty and democratic traditions within nation states.  Instead, there is a bland attack on the neo-cons, George Bush and John Howard, as central factors for why the United Nations is failing.  The USA and Australia don't support Kyoto or the ICC, and they went into Iraq.

Moreover, nowhere do the authors ask the most important questions of political science:  Who governs?  Where does authority reside?  How are rulers chosen?  Tackling the obvious faults and shortcomings, avoiding the main game, and then pleading for urgent reform that never comes is not an incisive critique.

The corruption and moral vacuum in the peak council of the UN is only complimented by the authors' hypocritical insistence on the moral and legal authority that they believe the UN deserves.  Forget about the role of China and Russia in the UN's repeated failure to do anything about its own resolutions on Saddam.  Just remember Kofi Annan's response:  "Serious nations could not be bought or sold"!  Tell that to President Chirac.

Gareth Evans graces the pages of the book in an Afterword.  All the promised and needed reforms rehearsed in the book and endorsed by "Gareth Gareth" have now fallen to water.  On the eve of the sixtieth anniversary in October, the former Australian Foreign Minister declared the botched attempt at wholesale reform "a depressing disaster".  The last words should be left to him:  "It is still the piranha pool of diplomats enjoying tearing flesh off each other, to the total exclusion of any enthusiasm for high principle or effectiveness of the organisation".

Policy-makers shouldn't shy away from risk

Risk-Benefit Analysis
By Richard Wilson & Edmund A.C. Crouch
(Harvard University Press 2001, 361 pages)

Managing risk in modern society has proved to be one of the most vexing issues for policy makers.  We are concerned about bird 'flu and climate change.  We have had Y2K and worries that an asteroid may collide with us.  We have all these catastrophic risks as well as more mundane ones -- cancer from power lines or mobile phones, falls from ladders and bicycles, and movements in bank interest and currency exchange rates.

How do or should we assess these risks?  Risk-Benefit Analysis is a comprehensive and authoritative guide to thinking about risk and how to balance it against benefits for society.  The authors, Richard Wilson and Edmund Crouch, have as much wisdom on this subject as a barn full of owls.

It is not an easy read, but it is written for a general readership and has a wonderful selection of data and New Yorker cartoons.

The authors proceed from methods of risk estimation, uncertainty, perceptions of risk, risk and benefit, and finally to managing and reducing risks.

Old and new risk estimation covers historical risk and risk arising from new technologies.  This allows them to discuss the "Precautionary Principle" under the delicious heading of "Risk of the Impossible".  Examples are drawn from nuclear radiation issues and epidemiological ambiguity problems.  Finally they state that zero risk is unattainable.  This simple statement should be given the status equivalent to one of the Ten Commandments for policy makers.

There are extraordinary examples of the difference between the lay perception of risk and the expert assessment.  These may be value judgements of what to do about a known quantitative risk.  Others are public misconceptions about the size of the risk.

One of the most telling examples is the difference of perceived risk from using X-rays and nuclear power.  The public sees the use of X-rays as low risk but expert assessment considers them high risk.  Nuclear power is perceived in exactly the opposite way.  Wilson and Crouch analyse these common misconceptions and try to prescribe some remedies.

There is a sense of frustration here that this sensible and logically derived signal is lost in the noise of NGOs claiming disaster and catastrophe.

The challenge is to compare risk with benefit, and that, inevitably, is discussed in terms of mathematical functions.

But to do that is to risk condemnation.  As the Nobel Laureate, Joshua Lederberg put it:  "Anyone who tries to deal with health in economic terms, which is a necessary part of a system analytic point of view, is exposing himself to the risk of misunderstanding and even bodily harm from outraged citizens".

A chapter on risk management shows how to think about reducing risk.  Criteria are grouped into three classes, Zero risk, As low as reasonably achievable or best available control technology, and Cost risk-benefit analysis.

A ban on an activity is the most primitive risk-reduction action.  If uniformly applied, this is zero risk.  It is still used in peculiar circumstances, as in banning the use of RU486, an abortion pill.  Somewhere in this space the "Precautionary Principle" makes itself felt.  The principle is not well defined -- a problem compounded by the fact that its proponents oppose the use of quantitative assessment.  But, as Lord Kelvin said, until something has been expressed in numbers, it is not understood.

The last chapter and some onethird of the book is given over to lists of risks.  There are examples of risk calculations, all manner of risks from being a president or monarch to working in retail, from mountain climbing in the Himalayas to bear attacks when backpacking.  Some risks are discussed in detail, finishing with the accidents at Chernobyl and Bhopal and the oil-well fires in Kuwait.  Finally, there is a table of 500 life-saving interventions and their cost-effectiveness.

Wilson and Crouch combine deep understanding of methods with practical experience and entertaining presentation.  The lesson is clear:  government policy needs to refocus on the central question of risk versus benefits before condemning innovation and progress.

Let's be smart on genetic crops

CSIRO has scrapped its $5 million project to develop a genetically modified pea because it produced an allergic reaction in trials on mice, according to a front page story in The Courier-Mail (Nov 18).

But even if the GM pea had passed all the safety testing, it could not have been grown commercially because there are bans on GM food crops in all states except Queensland -- and we don't grow field peas in Queensland.

The bans on GM food crops are a result of campaigning by Greenpeace against GM canola.  Canola is grown in southern Australia in rotation with wheat and is a source of vegetable oil.

GM canola has passed all national safety tests and been approved by the Federal Government's Gene Technology Regulator who determined that it was as safe as conventional varieties.

In 2003, the Victorian Government slapped a one-year ban on GM canola while commissioning an independent review.

The Victorian Government accepted the regulator's determination that there is no health, or environmental issue with GM canola but on the basis of lobbying by Greenpeace determined there might be a market risk.

In March 2004, the same day Premier Steve Bracks announced he was extending the ban to 2008, two government commissioned reports were released.  Both stated that while there are sensitivities to GM in key markets there is little or no evidence of any general price discrimination or market access problems.

A detailed study undertaken in 2003 by the Australian Bureau of Agricultural and Resource Economics reached the same conclusions:  GM products are being traded on the world market;  GM producing countries dominate the world grain trade;  and there is no premium for non-GM product.

It seems double standards are increasingly common when the agenda is being driven by environmental campaigning.  Indeed while there is a ban on GM food crops in New South Wales, the cotton industry has been growing GM cotton for nearly 10 years and selling GM derived cotton seed oil.  Cotton is exempt from the bans on the basis it is grown primarily for fibre.

Few people realise that fully 35 per cent of the vegetable oil consumed in Australia is from cotton seed and that more than 90 per cent of the Australian cotton crop is now GM.

The first plantings of GM cotton predate the launch of Greenpeace's anti-GM campaign in Australia.  Greenpeace has conveniently ignored cotton as an important source of vegetable oil and falsely promoted GM canola as the first GM food crop.

The cotton industry, fearing a backlash from the anti-GM lobby, is saying nothing.  But there are costs and they are not just economic.

When Premier Geoff Gallop declared Western Australia a GM-free zone early last year it was purportedly to protect the state's "clean green status".

The immediate effect was to prevent WA canola growers from planting a new variety that could be grown with softer and less persistent chemicals.  Traditional varieties are dependent on use of the herbicide atrazine -- a chemical being phased out in Europe on the basis it poses an unacceptable environmental risk.

The WA Department of Agriculture acknowledges that dependence on atrazine is a problem because of concerns over groundwater contamination.  So Gallop was in reality increasing the risk of groundwater contamination with atrazine.  GM crops are cleaner and greener than conventional varieties and in the case of canola give a 20 per cent higher yield.  Last week CSIRO abandoned trials on GM peas because the trials indicated there was a potential human health risk.  Clearly not all GM crops are safe and there is a need for each new GM variety to be carefully tested.

But when crops pass all the tests, as was the case with GM canola, then shouldn't they be given a fair go?  Now is perhaps the time for southern states and WA to lift their ban on GM food crops and encourage the planting of GM canola.

We don't grow canola in Queensland, but we could give more support to research into crops that we do grow.

Scientists now are working on a new GM sugarcane variety that provides resistance to cane grub attack, and there is a drought tolerant GM wheat variety under the microscope.

Both offer the potential for smarter farming -- and after all, aren't we the Smart State?

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ACCC paying lip-service to innovation

Australian Competition and Consumer Commission chairman Graeme Samuel now argues that content is the determining factor in whether a media company is being anti-competitive.  ("Consumers the key to media revolution", AFR, November 18).

Samuel says that the bar for monopoly has been substantially lowered.  Now all it takes is an assessment that a company is acquiring too much premium content -- sporting content, obviously, but movies as well.  This judgement will continue to change as tastes do.  He mentions tennis, AFL, rugby and cricket, but not soccer, which is now about as premium as you can get.

But it is the capacity for companies to make exclusive content deals that encourages entry into new, developing markets.  If the ACCC punishes companies that it deems too enthusiastic in offering value to consumers, it will only make these consumers think twice about adopting the new technologies at all.

Why would the ACCC warn companies off experimenting with new products and services?  Samuel may think that he is protecting competition, but by arbitrarily punishing companies he is punishing consumers and stifling innovation.

Such arguments as this betray the fact that the ACCC is merely paying lip-service to the possibilities of new media, rather than understanding its revolutionary consequences.

Bracks' plan has lost its way

After just three years, the Bracks Government's much trumpeted 30 year plan for Melbourne is in tatters.

In recognition of its fundamental flaws, this week the Bracks Government announced major changes to the Melbourne 2030 plan.  It should have junked it and started anew.

The central theme of Melbourne 2030 is that our traditional suburban lifestyle is unsustainable.

It must therefore be replaced by denser, high-rise living, concentrated in a restricted number of areas with less reliance on cars, more public transport and more public green spaces.

While this may fit the preferred lifestyle of the planners, it goes directly against the preferences of the vast majority of Melbourne residents.

Melburnians have a strong desire for their gardens and their own stand-alone home.  While some people prefer apartment living, they are a very small minority.

They also like their cars and have integrated them into their lifestyle.

The metro area already has an abundance of public parks, one of the city's great strengths.

Melburnians want reasonably priced houses and they want to be treated fairly and with due process when it comes to development of their own property and their suburb.

But the plan largely sees the preferences of Melburnians as something that needs to be changed and controlled.

At its core the plan restricts the amount of land available for housing;  this will necessarily result in high land value.  Indeed, this is what has already happened.

The plan has also altered the rights of many land holders -- giving additional rights and windfall gains to some and removing rights and inflicting losses on others.

The character of many suburbs is being changed by the government.  And these decisions have often been made in a haphazard manner without due process.

Of course politicians are responsive to the preferences of their electorate, particularly when it concerns their homes.

And the Government is fully aware of the failure of the plan.  Developers are also keenly aware of its faults and its political instability.  Some are getting richer from gaming the plan.

In response, the Bracks Government this week announced a significant expansion in the supply of land to address rising land prices;  changes to boundaries to allow a greater spread of development rights;  and a new planning office to oversee the announced changes.

It also announced a tax of $8000 per block to recoup for itself the scarcity of rents it created with the plan.

While this addressed some faults, it gave rise to new ones.

The decisions give developers a clear signal to lobby for further boundary and zoning changes.

The new tax locks in the higher land prices created by the plan and provides a new instrument for governments to gouge landholders.

The solution lies with starting again with a market-based approach which considers people's preferences and is based on open competition rather than political influence.

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Putting a tax on our parks

The State Government is to introduce parking fees in Albert Park, the first such tax imposed on users of a park.

Among the fine-sounding rhetoric the Government uses to justify this is that the measure is necessary to provide "a fairer parking system" and "a sustainable revenue stream" for the park and the improvement of facilities.  It declares, with a straight face, that parking profits will be spent in the park.

The Government has an irrepressible desire to squeeze the public for money -- especially revenue that it can argue promotes a public benefit.

There are, however, other motives.  Central to these is that the policy is in accord with the Government's Melbourne 2030 plan, which aims to stop Melbourne spreading geographically by restricting people's choice of housing.

One significant element of the 2030 plan is to reverse the long-standing increase in car use.  The plan favours "sustainable" transport options, which are defined as walking, cycling and public transport.  Public transport is expected to increase its share of travel from the present 9 per cent to a highly improbable 20 per cent.

The Government says it proposes to bring this about by increasing the speed, reliability, convenience and frequency of public transport.  Reducing availability of parking is also a stated strategy.  Parking and road use fees would reduce the affordability of using the car.

Hence, in addition to new parking charges in Albert Park, we have measures such as the $800 tax for each car space in central Melbourne.

Though there are good public policy reasons for the Government's backflip on the Scoresby freeway, charging for its use is also a mighty handy accessory to the goal of forcing car users onto public transport.

Melbourne 2030's anti-car philosophy is convenient for an ALP Government if it succeeds in delivering a larger share of the travel business to public transport.  In the first place, this means increased opportunities for traditionally Labor-voting transport employees.  In addition, it helps the transport unions, which are important funders and controllers of the ALP.  If the Latham diaries tell us anything, it is that ALP politicians are beholden to unions.

Albert Park is in fact a hub for football, cricket, tennis, basketball, swimming and other amateur sporting activities in Melbourne.  Using parking fees to tax these competitive sports flies in the face of the Government's stated goal and vigorous propaganda encouraging Victorians to enjoy more outside activities.

The users were gearing up to mount a protest.  This would have been unlike the Save Albert Park protests of yesteryear, which used the Grand Prix to canalise dissent to the Kennett reform agenda.  A protest against parking charges would have been mothers and fathers protesting to save Albert Park for sports users.

Not relishing the prospect of watching people with a genuine grievance filling their television screens, the Government has bought acquiescence from the park's sports groups.  The minister in charge, John Thwaites, has (for the time being) reduced the fees he originally proposed and offered concessional permits to sports clubs.  In addition, there is a funding offer of "up to 20 club grants of $5000 each year".

The problem is that once parking meters are in place, the precedent is set and the Government has a new tax cudgel.

With parking fees in Albert Park, the Bracks Government is on a trifecta.  Increased parking revenue provides funds that governments can pretend are charges rather than taxes.  In addition, for an ALP Government there are auxiliary benefits:  potential job increases for traditional Labor voters and payment of dues to the transport unions.

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Wind subsidies stifle economic growth

Bob Grant, chief executive of wind energy producer Pacific Hydro, ("All energy industries depend on crutch", Australian Financial Review, November 15) maintains that wind power to be viable needs only the sort of government support that he says conventional fuels have enjoyed.

Although Australian governments nationalised electricity generation, it is difficult to think of any industry anywhere in the world that owes its existence to government support.  Oddly, one of the Australian support mechanisms that he cites is the absence of taxes on diesel fuel and liquefied petroleum gas.

Wind is taxless throughout the world and few people object to this -- what is less palatable is the subsidy that allows wind power to get double the price of conventionally generated electricity.

Not only is wind expensive and likely to remain so, but it is so irregular that each wind farm needs to be duplicated with conventional back-up facilities if reliability is to be maintained.

Wind power can lay any claims to viability only in a world where carbon taxes double the price of conventional electricity.  Even then, wind cannot come close to nuclear, its rival carbon-free source of generation.

Grant applauds the Victorian government for its proposal to subsidise wind power in order to deliver "enormous employment benefits".  Why not subsidise clothing manufactures or computer-chip industries instead?

The reason is that even if such winner-picking policies create jobs in the target industries, their funding brings greater adverse impacts in all other industries.

The Hawke government embarked on a process of ridding Australia of these sorts of industry policies.

In doing so, it and subsequent governments removed a deadweight from the economy which has done much to bring the increased prosperity we have enjoyed over the past two decades.  Reinventing totally discredited industry policies and wrapping them in a green cloak will take the economy backwards.

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Why organics should give GM a go

When my brother came home for Christmas last year I asked him to bring a large tub of yoghurt.

It is not that you can't buy yoghurt in Toowoomba, but the best yoghurt in Australia is surely Mungalli Creek yoghurt sold at Rusty's Market in Cairns.  It's organic, of course, and so creamy and smooth but with a unique acidic tang that screams Far North Queensland.

There is nothing like it in the supermarkets.  Organic food can be so delicate and delicious.  It is also expensive with organic produce often selling for many times the price of the conventional equivalent.

During his recent visit to the United States much was made of the Prince Charles' affair, not with Camilla, but organic food.  With rock star, Sting, he launched an international "Food for Life" campaign to promote organic farming.

Organic production has grown substantially in the past 10 years in the US and elsewhere, at the same time genetically modified (GM) crops have been commercially introduced and widely grown (now to 81 million hectares worldwide).  GM foods tend to be cheap because they are designed to be low input while high yielding.

Organic growers have campaigned against the introduction of GM canola into Australia and advocated the introduction of a "strict liability" regime for GM crops.  Scott Kinnear, representing many organic growers has objected to a 0.9 percent level of legal contamination for GM canola, seeking zero tolerance.  But interestingly, organic products are allowed a five percent non-organic tolerance.

In other words a product can contain five per cent non-organic ingredient and still be labeled organic.

The organic industry has established these standards for very pragmatic reasons:  There must be tolerance of a level of contamination;  there will be inevitably some mixing of different products.

However, it seems inconsistent that organic can be only 95 percent pure, but a 0.9 percent contamination with GM material is considered by the same industry to be unacceptable.  According to a recent study by consultants, ACIL Tasman, it would be difficult for the organic industry to claim damages under "strict liability" on the basis that GM crops are "hazardous and inherently dangerous" because that would involve the courts over turning the decision of the Office of the Gene Technology Regulator, which for example, has ruled that GM canola is as safe as conventional varieties.

There is a place for organics, but there is also a place for other production systems, so I reckon organic farmers should give GM a fair go.

The ACIL Tasman "Managing genetically modified crops in Australia" can be downloaded from the Avcare website at www.avcare.org.au.

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Reforms will allow managers to face fears

Normally, any link between a business closure, job losses and the activities of unions is indirect.  But the recent closure of Kemalex Plastics' Melbourne plant provides a direct link.  Kemalex specifically blames the plant's recent placement into voluntary administration on a 10-week campaign conducted against them by the Australian union movement.

The case also highlights why a deep sickness exists in manufacturing and why it hasn't been fixed, and it gives some clues as to the potential impact of the Federal Government's industrial relations reforms.

The principle relationship that exists between unions and managers in the manufacturing sector is fear and intimidation.

Profit margins and production processes are so finely tuned in manufacturing that managers fear that any disruption to production could push the company into the red.  They are correct.  Manufacturing unions are obsessed with having businesses run in a certain way and intimidate managers to get their way.  But constant global competitive pressure means the union way is an unprofitable way.  Change is urgent but gridlocked.

The Kemalex case shows what happens if managers don't toe the union line.  Kemalex's Melbourne operation is small and has long been unprofitable.  The plant turned over $12 million last year in plastics components mainly to the car industry.  About two years ago, managing director Richard Colebatch introduced independent contractors to help change the way the plant operates.  Colebatch got the approval of the union.  As one part of an overall strategy, the use of independent contractors was producing positive results.

But in April this year, the union decided it didn't like independent contractors.  The union teamed up with other unions and, through the ACTU, conducted a 10-week strike and public relations demonising campaign of Kemalex.  Colebatch kept the plant operating as only half the staff went on strike;  but he was no match for the combined might of the union movement.

There are 1.6 million unionists in Australia, who feed annual revenues into the unions conservatively estimated at more than $550 million.  Unions are big business.  However, they don't produce anything.  In fact, they are a huge marketing conglomerate.  By focusing their huge infrastructure and resources on a single target, they can intimidate on many levels.

In the Kemalex case, the unions paid workers to stay on strike.  They shifted personnel onto the picket line, brought in heavies to jostle the police and non-striking workers, and unleashed a co-ordinated media and political assault.  Plant and vehicles were vandalised.

The business being terrorised may have been Kemalex but the real union target was the Federal Government's industrial relations changes.

Colebatch stood up to the physical, legal and media intimidation and kept running his business.  But the one-off costs directly resulting from the campaign and its aftermath amounted to more than $1.1 million.  This forced the closure.  The unions knew no industry association or friendly government would come to Colebatch's aid, thus allowing Kemalex to be a sacrificial lamb for union slaughter.

Kemalex's Melbourne plant and the 80 jobs are now history.  But the industrial relations changes are the future.  Would the new laws have made a difference to Kemalex's capacity to undertake change?  Do the changes offer opportunity to Australian manufacturing to competitively catch up?  Probably, yes.

Under the new federal laws, awards and agreements cannot place restrictions on independent contractors or labour hire, for example.  Such clauses will be void and attempts to introduce such clauses, or strike over them, would be illegal and subject to fines.  In addition, businesses will be able to sue unions for damages.  If Colebatch had suffered the union assault in 2006 instead of 2005 he presumably would have been able to sue the unions for the $1.1 million costs incurred.

No wonder the unions are campaigning so hard.  Unions don't like being subject to the same responsibilities faced by the general community.  But Australian history has shown that where unions and union officials are subject to civil litigation for damages they cause, they become highly restrained in their action.

For manufacturing businesses that need to change, the new laws offer opportunity to avoid the Kemalex experience.  But to achieve the required competitiveness, managers will need solid strategic direction, sound legal advice and a firm focus on success.  They will need to step beyond their fear.  History has also shown that many managers will do this.

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It's all just water off Howard's back

What do George W. Bush, Tony Blair, Jacques Chirac, Angela Merkel and Helen Clark have in common?  They have been having such a difficult time lately that they are widely written off as lame-duck political leaders.

Bush's approval rating is at a record low following his inept handling of the aftermath of hurricane Katrina.  A spy scandal engulfs his administration;  his nominee for the Supreme Court quits;  and Republican party candidates were beaten in the two governors' races contested last week.  Meanwhile, a war rages that America may or may not be winning.

Blair had already announced he would resign as prime minister during his current term.  He may now be considering bringing his retirement plans forward after his humiliating parliamentary defeat last week.  His attempt to increase to 90 days the time suspected terrorists could be held without charge was lost when nearly 20 per cent of his own MPs defied him and refused to support it.  The rebuff is all the greater given that only six months ago Blair led Labour to an unprecedented third election victory.

In France, Chirac disappeared from public view for a fortnight as riots raged throughout the country.  When he emerged he said only his government "will have to draw all the consequences from this crisis".  It is debatable whether Chirac, or for that matter anyone else in France, can fathom the causes or the consequences of the violence that resulted in 2000 people being arrested and 5000 cars destroyed.

In Germany over the weekend, Merkel concluded an agreement that will make her chancellor and allow her to form a government of both the conservative and social democrat parties.  The document that sets out the terms of this coalition is a mere 130 pages.  How long it will last is anyone's guess.  Proposed tax increases to fund the budget deficit have been labelled as "poison" by Germany's largest employer group.  The prospects of reform to Europe's biggest economy, are, for the moment at least, practically nil.

In New Zealand, September's general election produced a hung parliament and Clark is now governing with the support of the minor parties.  Winston Peters, the leader of New Zealand First, a party with seven members out of a parliament of 121, is the country's minister for foreign affairs, although he doesn't actually sit in cabinet.

Meanwhile, in Australia, John Howard's problems are inconsequential.  Indeed, far from being a lame duck, the PM is in the process of implementing a reform agenda that will bring about long-ranging structural changes in the way Australia is governed and so guarantee another era of prosperity.

Sure, Barnaby Joyce wants to change a few commas in the 687 pages of the industrial relations package;  and Danna Vale has recently called for the trial or release of David Hicks.  But neither issue will cause the Prime Minister to lose any sleep.

Although his government is a few points behind the opposition in the polls, an election is still two years away.  And if there was as much outrage in the community at the industrial relations legislation as is assumed by the media and the trade unions, the ALP would be much further ahead than it is.

Every politician needs a degree of luck, but it would be hard to say that Howard has been any luckier than Bush, Blair, Chirac, Merkel or Clark.  The funny thing about Howard's luck is that as he gets older he gets luckier.  But of course it's not his "luck" keeping him in power, it's his experience.  It's usually forgotten that he is one of the world's longest-serving democratically elected leaders.  What Arnold Palmer said about golf applies to politics -- "The more I practise the luckier I get".

From the way that he's handled issues throughout his term of office it's obvious that Howard has learned some lessons from his 30-plus years in politics.

For one thing, contrary to accepted wisdom, he's allowed backbenchers a greater policy role than probably any other Liberal leader.  Howard, remember, saw first-hand the difficulty that Malcolm Fraser had in managing a large party room of ambitious MPs, and he's adopted a strategy the opposite of his predecessor's.  Instead of attempting to restrict party dissent, Howard has tolerated it, and sometimes even encouraged it.  No fewer than three policy journals are now published by Liberal MPs -- covering everything from vouchers for education to uranium mining.  On the new anti-terror laws, Howard has genuinely listened to backbenchers such as Petro Georgiou and Malcolm Turnbull and taken their views into account -- even if he disagrees with them.

Second, Howard has never been short of policies.  This is a testament to both the qualities of the man himself, and of the ability of the Right in Australia to constantly reinvent itself and its agenda.  After nearly a decade in power, it is almost a compliment for Labor to call Howard a "radical", as it did last week in the wake of the introduction of his industrial relations legislation.  Next on Howard's agenda will be the overhaul of the media laws, the implementation of welfare-to-work policies, and the development of a framework for further reform in federal-state relations.  And on Wednesday, the Prime Minister leaves for South Korea to attend the Asia-Pacific Economic Co-operation forum.  Hardly a man who's running out of puff.

Third, and most importantly, Howard has never allowed himself to step too far beyond the bounds of public opinion.  This can be both a weakness and a strength, and most of the time it is the latter.  Blair and Bush have both lost touch with their electorates;  Howard hasn't.  His caution on some issues might be frustrating for those of us who believe that a flat rate of income tax should be introduced tomorrow.  But Howard knows he always has to deal in the realms of political possibility.

It's long been a favourite claim of the Left that conservatives such as Howard and Robert Menzies have been successful merely because they were lucky.  The problem with this argument is that it ignores the fact that in a two-party system for one party to win the other must lose.  Howard's victories are as much a product of Labor's failures as of anything else.

The commemoration of the dismissal last week demonstrated all that was wrong with the Labor Party.  Given that federally it has been unable to make headway against the Coalition in this century, it is no wonder many in the ALP have decided to maintain their rage over something that happened last century.  For some on the Left the annual anniversary of Gough's sacking is all of they have to look forward to.  True, Labor values its traditions more than do the conservatives, but it's a problem when a regard for history comes at the price of presenting a picture for the future.

On Friday Kim Beazley summed up the ALP's predicament:  the party had to stop "navel-gazing".  And until Labor does stop its navel-gazing it appears safe to assume that Howard won't be going the way of so many other current world leaders.

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Carbon taxes: an expensive solution for Australia

Australian electricity generation is 90 per cent coal.  Because it is inexpensive and located conveniently to major electricity loads, now that market systems have replaced the centrally controlled direction, Australia's power costs are among the lowest in the world.

However, electricity costs change markedly in a Kyoto constrained environment.  This is true whether the measures in place to reduce carbon dioxide emissions are a form of cap and trade regulation, a carbon tax or even a more arbitrary set of regulations that have similar effects.

Australian measures ostensibly aimed at reducing carbon dioxide emissions appear in many forms and vary from one state to another.  They impact most heavily on coal, Australia's lowest cost energy source and include:

• the Federal Government's Mandatory Renewable Energy Target (MRET);
• the Queensland Government's 13 per cent gas target;
• the NSW Government's Greenhouse Gas Abatement Certificate (NGAC) scheme;
• subsidies to wind and other exotic renewable sources offered through the Australian Greenhouse Office and state governments (the latter in the form of regulatory measures that reduce connection costs to wind generation);  and
• schemes that mandate minimum energy savings on appliances.  First applied to fridges and freezers and targeted at energy conservation, these regulatory requirements have been re-badged as greenhouse measures and extended to include houses.

The MRET scheme focuses on renewable energy and requires retailers to acquire and annually surrender a progressively increased number of Renewable Energy Certificates (RECs).  These essentially require usage of novel energy sources like wind, though some existing and expanded hydro capacity is eligible.  By 2010, 9,500 GWh (around 4.5 per cent of demand) will be required under the MRET scheme.  For the three schemes combined, over 30,000 GWh is estimated to be covered amounting to over 13 per cent of total demand.

The Queensland scheme seeks to substitute gas for coal-based electricity inputs.  The NSW scheme seeks to introduce a penalty on CO₂ graduated in line with the emissions per unit of energy of each electricity generation source.

The default penalty costs of the three regulatory measures provide a cap on the costs they are likely to entail.  These costs entail a premium over the costs of conventional electricity to retailers.  By 2010, when the schemes are fully mature, the fall back penalty rates for the Commonwealth, NSW and Queensland schemes respectively will be $40, $14.3 and $13.1 per MWh.  Present rates are below these levels but are expected to equal them once the requirements are fully phased in.

Table 1 below summarises the more readily identified costs.

Greenhouse support measures

A greenhouse trading regime has considerable support in Australia, with most state governments urging national adoption.  This would entail a cost, which for a similar scheme in operation in the EU works out at $41.  Figure 1 below estimates the costs of electricity with and without the sort of additional charges implicit if Australia adopted the EU cap and trade scheme and left other schemes in place.  The estimates are based on the carbon dioxide content of the different fuels.

Based on recent developments, we have relatively good information on the costs of conventional generation for the eastern seaboard of Australia.  For coal, these vary from about $32 per MWh in Queensland, around $40 in NSW and $38 in Victoria.  Gas is estimated at around $45 per MWh based on a cost of $4 per Gj, a cost that may rise if greenhouse measures raise the demand for gas.

Nuclear costs have been taken from a recent University of Chicago report (the costs exclude disposal and de-commissioning costs which would add 10-15 per cent).  Doubtless given the strength of the anti-nuclear lobby in Australia and its capacity to cause additional costs and delays, the estimates provided would be conservative

Wind power at $75 per MWh represents the costs at prime sites.  These costs exclude any additional transmission charges that may be required for the more remotely located facilities.  They also do not take into account the need for conventional power back up which is necessary once wind, with its unpredictable and intermittent nature, becomes a significant component of the aggregate supply.

Applying the EU price of $41 per tonne of CO₂, cost to current power sources would result in nuclear power becoming marginally cheaper than coal and natural gas generation.

Use of alternative fuels to the coal (with some gas and hydro) that presently feeds Australia's power industry would entail sharp cost increases.  Wind is so costly that it is not a viable long term energy solution.  In the case of nuclear, even if it were able to meet its estimated costs, it would entail an increase in generation costs by at least a quarter.  Natural gas, if used extensively for base load (as opposed to its present role in supplying peak power) would be still more expensive.

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Kemalex saga shows why IR system needs to be reformed

Last week the Howard Government introduced its much-awaited WorkChoices legislation into Parliament amid scenes of political hysteria and overblown rhetoric.

Opponents of WorkChoices argue that the current industrial relations system is working well.  But in the same week, another Victorian car components manufacturer hit the wall.  Another 80 jobs have vanished.

The company wasn't the victim of cheap Chinese labour, corporate downsizing, bad management or even globalization.  This time the blame for the job losses sit squarely at the feet of the unions.

Kemalex Plastics was based in Dandenong.  It's a family business running a struggling plant that needed improvements in work practices to survive.  As part of the improvements the company had been using independent contractors for over two years.  The National Union of Workers had agreed to this.  But early this year a new enterprise agreement had to be negotiated and the NUW said the independent contractors had to go.  The owner said no.

In late April this year, the NUW organised a strike with about half the workers.  The rest of the workers continued working alongside the owner, Richard Colebatch.  Mr Colebatch's family business had been running for more than 50 years and he had never experienced a strike.  He didn't know what was about to be unleashed upon him.  The union movement had decided that the little Kemalex plant would be used in a national, political campaign against the Howard Government's industrial relations reforms.

The Australian Council of Trade Unions has one of the largest media units in the country.  They spun out a media line that Richard Colebatch was forcing workers to become independent contractors.  This was a total lie but a great story lapped up by many media outlets.

But when some of the striking workers began to wander back to work after a week, the unions got worried.

They moved in the heavy strike team.  They allegedly paid the Kemalex strikers more than $200 each a week to stay on strike.  They blocked the movement of the company's truck.  Police had to be called constantly.  Cars and trucks were vandalised.  Windows of the plant were smashed.  Kemalex staff who continued to work were shoved, threatened and abused.  The media circus continued.

No big business association came to assist Kemalex.  Mr Colebatch was on his own.  Then, after 10 weeks of violence, intimidation and media hype the strike suddenly stopped.  Why?  On June 30, the unions held a mass rally in the city protesting against industrial relations reforms.  Three Kemalex strikers stood on the podium and one gave a rehearsed speech to the crowd about how evil was Kemalex.  The following day the strike ended.

The unions had used Kemalex entirely in a prolonged public relations stunt.  Mr Colebatch has put the Dandenong plant into administration.

The plant is broke for one simple reason.  The strike cost the family business more than $1.1 million in legal fees, lost production, lost sales, plant and truck damage, excess transport fees, sabotage resulting in poor quality product and excess overtime during and since the strike.  The Dandenong plant only turned over $12 million a year.  Any business that has imposed upon it a one-off, unexpected cost, equivalent to one twelfth of its yearly revenue, cannot survive.

Australian unions are campaigning hard against John Howard's industrial relations changes.  They claim that, without unions, workers will be exploited and they need the right to strike.

But until now the industrial relations system did more than legalise strikes, it gave unions cover to break normal laws giving them mafia-like power when they wanted.  In this instance the unions have won.  They have destroyed a business that would not do as they said.

But the workers at Kemalex have learnt that unions are only interested in workers if bosses run businesses the way unions demand.  It's either the union way or no way.  And the workers jobs can go down the drain if the bosses don't bow to union demands.

The current system is not working well, as the jobless Kemalex workers will testify.  The system needs reform urgently.

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Protecting feta won't make it betta

Last week the European Court of Justice ruled that only Greeks in Greece make feta and all other feta makers are fakes.

Now this may sound like more EU madness, and it is, but it is with intent and it is beginning to matter.

In 1992 the EU introduced a set of laws -- pushed, as usual, by the French -- which give geographic regions property rights over names and manufacturing processes originating from their region.

They argue that the rights of communities and farmers who "discovered" traditional foods were being violated by foreigners copying their technology and their names without compensation.

The initial battleground was wine, where the French (joined quickly by others) successfully sought exclusive rights to names of wine types such as Champagne, Burgundy and Cognac.  The process was subsequently expanded to over 700 food and drinks products including cheeses, pork pies, processed olives, potatoes, cider, Scottish farmed salmon, beer, wine and spices.  Another 300 applications are currently under consideration.

The process has many faults.  The rights do not go to those who invested in the product.  Instead they are collectively owned by all producers located in a specified region, no matter the quality of their product or their contribution to the industry.

The main aim has clearly been to protect inefficient, craft industries from innovative producers.

Greek feta producers continue to use the old methods using goat's milk cured in brine.

The Danish innovated upon this recipe, improving the product by using cows milk and modern processing technology.

Consumers, even Greek restaurants, increasingly prefer the Danish feta.  The EU's response was to ignore the consumer, protect the laggards and penalise the innovators.

This protected status was initially supposed to be restricted to names, but has expanded to sourcing and production processes.  For example, the specification for the curing of prosciutto is "by air reaching it through the Versillan Sea which, tempered by its passage through the olive groves and pine forest of the Val di Magra, dried in the Apennine passes and enriched in chestnut air".

This protection has been expanded even further up the prosciutto food chain, now requiring that the pigs be grown and sourced locally and that the ham be packaged and sliced locally.

To date the restrictions apply only within the EU.  However, the EU has been trying to force trading partners to accede to their rules and adopt their approach.  This has worked in the case of Australia wine industry, for which Europe is a major market.  The EU is now targeting the World Trade Organisation as a means of gaining extraterritorial coverage of their rules and approach.

At the next World Trade Organisation meeting in Hong Kong the EU plans to push for the adoption of geographic and cultural rights.

Given that Frenchman Pascal Lamy -- a former EU Trade Minster and proponent of the cultural protectionism -- is the new WTO Commissioner, the EU will get a hearing.

Let's hope our trade negotiators do not fall for this nonsense.

It will not only further Balkanise world trade in food, but encourage the many protectionists within our own food sector.

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Jared Diamond's gated community of the mind

According to Californian professor and Pulitzer Prize winning author Jared Diamond, the reason the Maya civilisation failed is because the elites lived in walled cities, insulated from the environmental degradation which led to their eventual demise.  He sees a similar problem in the Western world today with elites living in gated communities, standing aloof from the rest of their society and the world.

But are these privileged ghettoes the problem?  Is it an issue that our elites don't see the environmental problems that exist?  Or perhaps, is it that they see problems that don't exist?

When Diamond visited Australia earlier this year to promote his new book Collapse:  How societies choose to fail or survive he told an audience of about 850 people -- including government ministers, journalists, business executives and myself -- at Brisbane's Performing Arts Complex that we should phase out agriculture altogether in Australia.  The professor was frequently clapped and cheered during his hour-long address.

I understand the message and mood were similar at the Sydney Writers Festival where Diamond spoke at two closing ceremonies (two because the first was sold out) and in Melbourne were he gave the Deakin Lecture, replayed on ABC Radio National's Science Show.

An entire chapter in the book is devoted to Australia with the prognosis that the Australian environment is generally unproductive and has been irreversibly damaged by European farming, forestry and fisheries practices.

Diamond states that we import most of our food.  This may be the perception, but the reality is we export much more than we import.  Last financial year Australia exported fish, meat, grain and so on, worth $22 billion and imported food and beverage to a value of $6 billion.

He also says Australian farmers are inefficient and in Australia we need to cultivate more land to produce the same quantity of food as our overseas competitors.  The reality, however, is that Australian agriculture is highly productive with some commodities achieving double the world average on a tonnes per hectare basis, including for rice and cotton.

Wheat is one of the few crops with a yield well below the world average.  This reflects the economics of wheat growing in Australia.  Wheat in Australia is not irrigated and inputs are low with better land used to grow higher value crops -- we have a low yield by design and for good ecological and commercial reasons.

Diamond suggests Australian agriculture is on the verge of collapse, yet we had a record wheat harvest just two years ago.  The bottom-line is that yields continue to increase for most crops and with the adoption of minimum tillage the impact of farming on the environment continues to decrease.

Diamond writes that Australians are cutting down too many trees and as a consequence Australia's forests will disappear "long before our coal and iron reserves".  He states that wood chip from Tasmanian forests is being sold to Japan for $7 per tonne.  Check the statistics at the government's Australian Bureau of Agriculture and Resource Economics and you will find that in December 2004 a total volume of 1,413,300 tonnes of wood chip was exported to Japan at a value of $214,147,000 which gives a price for wood chip of $152 per tonne.

His chapter on Australia is full of errors.  By ignoring the evidence and suggesting there is everywhere a crisis, Diamond spreads misinformation and makes it difficult to identify the real environmental issues that need to be addressed.  How could he get so much, so wrong?

Diamond seems to have gleaned much of his information from environmental organisations and their policy documents which are notoriously misleading.  For example, during the last federal election Greenpeace, the Australian Conservation Foundation (ACF) and the Wilderness Society didn't only campaign to close down the Tasmanian forest industry.  Their joint efforts also included a "Save the Murray" campaign, by taking water from irrigators.  They claimed, "The once mighty Murray River is dying.  On current trends, Adelaide's drinking water from the Murray River will be too salty to drink two days out of five by 2020".

In reality salt levels in the Murray have halved -- that's right halved -- since 1982 due in part to the construction of salt interception schemes as well as improved land management practices.

Australia's farmers and foresters are under intense pressure from environmental activists who run campaigns targeting the emotions of our elite, with the aim of closing down industries in rural and regional Australia.  I use the term "elite" in the broadest sense to refer to tertiary educated Australians, who tend to live in the leafy suburbs of metropolitan Australia, and who form the professional and public service cohort who make, influence or implement most of the significant policy decisions in Australia.  In repeating the misinformation Diamond nurtures a growing divide between this group and farmers, fishers and timber workers who live and work in distant rural and regional Australia.

I'm a member of that elite and I live in the leafy electorate of Toowoomba North.  The junk mail from the Wilderness Society on the issue of tree clearing in the lead up to the last state election was relentless.  A clear impression was given that the last bit of scrub (expressed in football fields) was about to be bulldozed in western Queensland.  Yet the hard data indicates that even during the height of clearing, during the 1990s, there was a net increase in forest cover of 5 million hectares in western Queensland.  In fact, there is more tree cover in Queensland today than when Europeans arrived 200 years ago.

In short, Australia's elite are repeatedly being fed "cods-wallop" and academics like Jared Diamond who are paid to determine the truth, keep repeating the propaganda.  As a result decisions are made which are not in the interests of the environment or Australia as whole and huge amounts of taxpayer's money is wasted.

At the Brisbane lecture, Diamond said that in writing Collapse he began to realise the extent to which the elite can often insulate themselves from the consequences of their actions and how this can lead to the collapse of complex societies.  Australia's elite tend to be well insulated from the consequences of the environmental campaigns they generally support.

Over the past few years The World Wildlife Fund (WWF) has successfully orchestrated a campaign to close down the line fishery of the Great Barrier Reef where the yield is arguably well below sustainable levels at 17 kg/km².  At other Pacific reefs the annual harvest averages about 7,700 kg/km².

As a consequence of the campaigning, the Queensland Government now has a structural adjustment bill likely to exceed $300 million to pay damages to fishermen who can no longer fish.

Our elite aren't, however, going to stop eating coral trout.  They will just buy fish sourced from overseas.  In Australia, fishermen are only permitted to use hook and line techniques to catch coral trout, in contrast to our north where many fishermen still use cyanide, dynamite and gill nets.  So we have found a new exportable product -- environmental degradation.  We unnecessarily restrict fishing activities on the basis of manufactured environmental need and then buy the same products from overseas interests who are in fact vandalising their environment.

Australia's elite really have forgotten where their milk, bread and trout come from, and they have no idea that their own fishers, foresters and farmers are among the most efficient and environmentally-friendly in the world.  Sure there are remaining problems including overgrazing in our rangelands, but these issues are best approached with our minds open to the evidence and all the options.

Jared Diamond says it is an issue that our elite are locking themselves away in gated communities:  that the wealthy and powerful are increasingly physically separated from the rest of society.  He's right, it is a problem because isolated and insulated our elite too easily fall victim to fads.  Diamond helps construct and reinforce a divide which is not just physical, but mental.

In repeating misinformation about the state of the environment in rural and regional Australia, Diamond helps build a ghetto in the mind.  As a consequence Australians are diverted from finding real solutions to those environmental problems that remain.

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We cannot eliminate risk

The Productivity Commission's review of government regulation shows that -- contrary to popular belief -- we don't actually live in an era of economic deregulation.

Australian government departments and agencies introduced 2380 regulations in 2004-05 -- a record.  The federal parliament passed 172 pieces of legislation -- an increase of more than 10 per cent over last year.

Meanwhile, compliance of government authorities with the obligation to complete regulation impact statements has fallen.  The regulators are ignoring their own regulations.

Given this, the federal government's announcement last month of a regulation taskforce to cut business red tape should be welcomed.  The aims of the taskforce are worthwhile.  Identifying duplicate or redundant regulation is important, as is examining the alternatives to regulation, such as self-regulation.  The quality of the people on the taskforce is first rate and no doubt it will make some valuable recommendations.

The only fault is that the taskforce's terms of reference miss the point.  It has been asked to consider how regulations could be simplified and compliance costs reduced.  No mention is made of the factors that cause governments to impose regulation.  There won't be any real reduction in red tape as long as politicians and bureaucrats pretend that reform is achieved when a questionnaire is reduced from 10 pages to five pages, and it takes one hour to complete instead of two.

Excessive regulation is a symptom of a society-wide problem.  And that problem is our attitude to risk.  Voters now seek a life without risk.  Where there is risk, they expect government regulation to eliminate that risk -- regardless of cost.  And on the occasions when harm does eventuate, judges willingly pass on the burden of compensation to the whole community, often regardless of fault.

Liberals don't baulk at business regulation because they have become accustomed to measuring state interference in markets purely in terms of the size of the public sector, and placing additional burdens on business doesn't necessarily increase the government's share of gross domestic product.  Regulation is attractive to many in the ALP because it appeals to their distrust of market mechanisms.

Undoubtedly, the impact of regulation on business is enormous;  an estimate some years ago put the cost at $17 billion.  But a focus merely on costs of regulation neglects the issue of how to discriminate between good and bad regulation.  Worse, by concentrating only on business regulation the rapidly expanding regulation of social activities is ignored.

In the long term, the consequences for a free society of regulating previously unregulated social activities could be greater than those flowing from any restrictions on economic activity.

Perhaps surprisingly, one of the best statements on the topic came in May this year, in a speech by Tony Blair to the Institute of Public Policy Research in London.  The British Prime Minister spoke of how "the idea that it is the job of government to eliminate risk can lead to the elimination of common sense".

Governments around the world are now intent on promoting "social capital".  The exact nature of social capital is still debated, but at a minimum, it is the network of relationships of trust and reciprocity between individuals upon which a healthy society depends.  While social capital is being encouraged, social regulation is destroying the basis on which people once used to interact.

The imposition of food-handling regulations on a parent who bakes a cake for a fete at their child's school might minimise the risk of food poisoning.  However, it also limits the likelihood of parents taking the trouble to bake a cake in the first place.  As a result children, schools and the community suffer as private, voluntary effort is reduced.

Blair talked of aged-care workers not being able to assist patients who fall on the floor.  Instead of simply helping patients to their feet, assistants are required to obtain hoists before they can help.  "No doubt, most care workers help anyway -- but if basic human acts of care are being prevented by intrusive regulation, it is absurd", he said.

If the Regulation Taskforce succeeds in cutting red tape, it will have achieved something useful.  But it will be only the beginning.

As the taskforce proceeds, it could contemplate Blair's admonition:  "There is usually a seductive logic to any new regulation.  There is almost always a case that can be made for each specific instrument ... We cannot respond to every accident by trying to guarantee ever more tiny margins of safety.  We cannot eliminate risk.  We have to live with it".

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Graziers must lift water game

Out on the Macquarie Marshes, downstream of Warren, graziers have a saying:  Fat ducks mean fat cattle.

Last week, NSW Environment Minister, Bob Debus, announced a release of 30,000 megalitres of water for the marshes.

With 88 per cent of the marsh area privately owned and grazed, much of this water will go to fatten cattle as well as hopefully maintain ecological biodiversity.  Marsh graziers receive water free of charge as environmental flows, although the government expects upstream irrigators to pay for their water, and from next year the price will be significantly higher.  In fact, if the Marsh graziers paid the same price as irrigators, I calculate they would be up for $3.19 million this year, and $7.55 million next financial year water charges alone.

If they had to buy the associated licences, then this one-off bill would be $465 million.  I am all for multiple use and limited regulation -- if we can have fat ducks and fat cattle at the same time, that's great.  But the community perception is that the marshes are in trouble, and the reality is that some areas are overgrazed.

Over recent years there has been a focus on Australia's intensive agricultural industries (including cotton, rice and sugar) and the environmental impacts of each.  These industries have undertaken audits and developed environmental codes of practice.  The adoption of minimum tillage agriculture has greatly reduced the impact of cultivation on surrounding environments.

The grazing industry has had to contend with bans on tree clearing, but there seems to have been limited real interest in addressing issues of overgrazing.  In the 1940s and 1950s, there were restrictions on grazing and burning in the Macquarie Marshes, including a ruling that reeds could not be burned unless the written consent of the district surveyor was obtained.  Stock was excluded from reed regrowth until it reached a sustainable height, and rookeries (for bird nesting and breeding) were fenced.  These provisions seem to have been forgotten.

While many claim the biggest problem for the marshes is irrigation, according to the most recent water-sharing plan, the marshes now get 85 per cent of natural flow.  Indeed, maps show large areas of reed bed were lost before the Burrendong dam was build as a consequence of altered water flows, overgrazing and burning.

Across Australia, there is an expectation that, in the future, we will all have to pay more for our water, and must continue to use water more wisely and efficiently.

Similarly, the time has come for marsh graziers to lift their game if they want to retain the privilege of free water.

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Reforms spike unions' guns but empower workers

Some lawyers are calling the Work Choices legislation the Old and New Testaments.  But at 700 pages it may be longer.  The biblical reference comes from the reality that to capture all of the workforce, Work Choices needs both the conciliation and corporations powers of the constitution.  It's in fact two bills in one.

It's important, however, to see Work Choices in context.  It's only one part of the reform.  The full package includes the proposed Independent Contractors Act, new tendering requirements for construction projects and the start of the Australian Building and Construction Commission.  Each element targets different aspects of the government's agenda, which is a response to a changing society.  The Prime Minister's speech in July to the Sydney Institute explained this.

The Prime Minister says that the vast number of workers no longer seek dependency on a protective employer.  The "enterprise worker" mindset is what has caused 28 per cent of the private sector workforce to become independent contractors, according to my analysis of Australian Bureau of Statistics data.  And huge numbers of employees now have all the enterprise attitudes and aspirations required to be self-employed.

The Independent Contractors Act will quarantine independent contractors from all industrial relations legislation, clarifying that they are subject to commercial laws.

Work Choices will empower employees to directly control their own agreements.  The government is convinced that workers not only want to control their work destinies but have the intellect and capacities to do so.  It is giving workers the power.

The industrial relations system never empowered workers.  It empowered unions to engage in war with employers, allegedly on behalf of workers.  And have no doubt, Work Choices is a huge legal and cultural shift.  The capacity of unions to initiate and engage in war with bosses is being significantly narrowed.

For unions, the industrial relations system has always been about their control of the processes of worker war.  The ability to create paper "disputes", pull employers into an expensive, complex industrial legal system and to conduct strikes without facing financial pain themselves has been core to their place in society.  They have had the ability to threaten the financial viability of businesses without themselves being threatened.

The collapse this week of Kemalex Plastics in Melbourne demonstrates the worst excesses of the old system and gives a glimpse of the new.

The small car-component maker turned over $12 million last year.  It had been using independent contractors for over two years with union approval.  Under enterprise bargaining agreement negotiations in early 2005, the union demanded Kemalex dispense with independent contractors.

What followed was a strike by half the staff and a nationally run union campaign involving violent pickets, vandalism and co-ordinated media attacks.  Unions brought in seasoned picketers and paid the strikers to stay on strike.  After 10 weeks, the unions dropped the campaign and even agreed to the continued use of independent contractors.

Kemalex says the $1.1 million in legal fees, excess production costs and plant damage forced the demise of the business and the loss of 80 jobs.  It's a familiar story.  Industrial laws allow unions to physically, legally and financially intimidate business while protecting themselves from similar intimidation.

But under Work Choices, clauses in industrial agreements and strikes that relate to independent contractors or labour hire, for example, will become illegal.  If the new laws had been in place earlier, hefty fines would have applied to the unions.  Kemalex would have been able to sue for civil damages.  The unions would not have been able to force Kemalex into the commission, saving it large sums in legal fees.

Work Choices goes further.  There's a $33,000 fine for even attempting to include a prohibited clause in an agreement, such as stopping or restricting labour hire or independent contractors.  Protected strikes cannot occur while an agreement is current.  The ability to sue for civil damages will be sped up.  Secret ballots will be mandatory for protected strikes.  Third parties affected by strikes will be able to make applications to stop them.

In the Kemalex case, car-component customers of Kemalex could have made application to stop the strike.  In summary, the range of options available to unions to intimidate will considerably narrow.  This will not, however, stop old-style thuggery, which is where the building reforms are critical.

Physical intimidation has had industrial relations cover.  Some companies co-operate with the union devil to block competitors.  The intimidation culture bred in construction infects most other unions and the nature of industrial campaigns.

The Australian Building and Construction Commission is designed to mirror the Australian Competition and Consumer Commission, with wider powers to target corruption and intimidation.  Key ABCC officers have been drawn from police ranks who specialised in organised crime suppression.

This dovetails with new government construction tendering requirements that control the nature of allowed industrial agreements on government jobs.

The government is using its financial muscle.  It funds in excess of 40 per cent of construction.

No construction company or union will be unaffected by the tender rules.

This amounts to a package aimed at the prevention of intimidation.

Overarching this is the idea of worker power.

Some say Work Choices will disempower employees.  Some argue that workers can never be capable of controlling their own work futures.  They may be right.  The government is punting on an alternate view.

A line in the sand is drawn.

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Creative Destruction

Facts

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Productive Reform in a Federal System

Address to the Productivity Commission Roundtable on Federal Reform
at Old Parliament House, Canberra on 28 October, 2005

The past two days have provided an excellent opportunity to consider the strengths of Australia's federal system, and how that system can continue to provide a framework for further economic and public policy reform.  In this context my remarks will come under three headings:

• the nature of federalism;
• the nature of the issues confronting Australia;  and
• the impact of globalisation and its relationship to federalism.

THE NATURE OF FEDERALISM

A comment that has been made about the discussion on school funding in Australia could also be applied to the topic of our current considerations -- debate on federal-state relations is like a Russian novel "... long, tedious, and everybody dies at the end".

The statement was made earlier at this roundtable that anyone involved in public policy in Australia will undoubtedly need to consider the issue of federalism.  Nothing could be more true.  That is a little like saying that anyone wishing to play cricket will sooner or later come up against the need to have a bat and a ball.

The point about federalism in Australia is that it is believed in theory but ignored in practice.  The arguments for federalism are well-known and I do not propose to list them.  However, sometimes familiarity with the propositions can breed contempt.  We cannot consider federalism in the abstract -- in 2005 we need to ask the question, what do we want federalism to do?

This question must be considered within a broader framework of what should be our policy objectives:  "equity", "economic development", "sustainability"?  All these objectives are laudable but they are in conflict and they involve making policy choices.  Politicians and the public do not usually like to admit that there must be tradeoffs.  Australia could have an even lower unemployment rate than it has now if we were willing to reduce real wages, but to many the equity consequences of this would be an unacceptable trade-off.

FEDERALISM AND EQUALITY

For much of the last century policy pressures actually mitigated against federalism.  Certainly the States had more financial and policy autonomy than they do now, but overwhelmingly the desire was to equalise economic and material conditions across the nation.  "Equality" was relatively easily measured, and we had a tendency not to be much interested in the cost.

There is still the legacy of such attitudes in the debate about telecommunications for example.  Those who live in remote areas expect the same level of telephone service as those living in inner-city Sydney.  Usually policy-makers have acceded to such demands.  The transfer of wealth to non-urban areas from urban areas, and to small States from large States has long been, broadly, accepted.  Ideas of "federalism" have not had much to do with this process.  To a large extent the national government has operated as the mechanism for initiating the transfer of wealth.

Occasionally national governments have acted in the name of "national interests" as, for example, when it promoted population and land settlement policies for defence purposes, but often they have operated on the assumption that circumstances across the country should be "equal".  The notion of federalism, as a system in which levels of government operated in different spheres of policy, was compromised in this country from the very start.

Instead of calls for "equality" we have now in the twenty-first century demands for "efficiency" and "national markets".  Critics of a federal system cite the need for "efficiency" and "national markets" as one of the reasons why the overlap and duplication of state jurisdictions should be abolished, and why regulation should be centralised.  While it is true that further economic reform does require some degree of administrative clarity, such administrative clarity only needs to exist in the markets for products that are traded on a global basis.

Reform to the regulation of such products is only one-half of the reform challenge confronting Australia.  There is a significant reform challenge in many areas of government activity for which no market exists, such as in areas of social policy, and in such realms it is not necessary or desirable to streamline every aspect of regulation, if such a process results in a reduction of diversity in the way services are offered to the community.

In the debate about efficiency of regulation the states are automatically taken to be the "bad guys", holding out against reform in the name of petty-minded parochialism, while the national government are the "good guys" fearlessly pursuing reform against the entrenched self-interest of rent-seekers.  Such a picture probably has more to do with the superior media management techniques of Australian Government press secretaries than with reality.

Federal Governments are no less effective at pandering to self-interest than are State Governments.  Recent decisions on the regulation of pharmacies, the electronic media, and international air transport are examples of this.  And this is not to mention the matter of tariff protection.  The policies of protection pursued by Federal Governments (of both political persuasions) have had a far more deleterious effect on the economic welfare of the nation than any economic policy ever pursued by a State Government.

There is one respect in which Federal Governments are better placed than State Governments to pursue reform.  The political pressure points of Federal Governments are different from those at the State level, and reform which impacts on, for example, public sector employment can be more easily pursued by a government in Canberra, than by one in a State capital.  There is a sense in which the political (and geographical) isolation of Federal Governments is an advantage.

FEDERALISM AND SIMPLICITY

The desire to "reform" and make regulation "simple" is perfectly understandable.  And sometimes the solution to a problem is simple -- but often it is not.  The claim that providing the Australian Government with regulatory powers over areas which were previously the province of the States is sometimes made.

However, as has been discussed at this roundtable, the track record of the Australian Government in relation to "simplicity" is mixed -- income tax, industrial relations, the regulation of financial services and superannuation are all the responsibility of the Australian Government, and the laws governing these areas are not particularly simple.

WASTEFUL COMPETITION

In the course of the roundtable a number of remarks have been uttered about federalism resulting in "wasteful competition".

My view is that competition is seldom "wasteful" -- and anyway we have to define what we mean by "wasteful".  Certainly in one sense it is "wasteful" that we have more than one television channel -- but the existence of "waste" must be matched against the benefits of choice and diversity.

Competition, by its very nature, involves "waste".  As an argument against federalism, "waste" is not strong.  It may be wasteful for each State and Territory to have its own school curriculum, and indeed this is one of the arguments for a "national curriculum".  Few proponents of a national curriculum, however, pause to consider the practical consequences.

The example of "wasteful" competition provided to the roundtable was that of State Governments offering subsidies and inducements for industries to locate in their State.  Whether this is "wasteful" is extremely debatable.  Given that States have so little capacity and so few means to compete against each other for inward investment it is perfectly understandable that State Governments will resort to using one of the few mechanisms they have left to them to attract business.  Subsidies might be legitimately criticised as a means of economic policy, but this has nothing to do with federalism.

THE NATURE OF THE ISSUES CONFRONTING AUSTRALIA

In the 1980s the economic policy challenges had answers that were more clearly defined than are the challenges we currently face.  The term used during this roundtable to describe today's challenges was "vexed".  The issues of the interface between economic and social policy are not obvious.  As Andrew Podger identified in his paper, there is an intimate relationship between education, health, and welfare issues, and they cross traditional portfolio boundaries.  It is unlikely that there will be one single "answer" to the problems of the future.

Discussions of social policy will inevitably involve all three levels of government -- a "one size fits all" model across the country to, for example, improve indigenous employment outcomes will be inappropriate.  State and Local Governments will have varying areas and levels of expertise, and only a federal system can provide solutions that take advantage of these differences.

THE IMPACT OF GLOBALISATION

The impact of globalisation on the Australian economy and on national politics is yet to be fully appreciated.  However, one consequence that is already apparent is the different rates of economic development of our States and regions.  Western Australia, for example, with its energy and mineral resources and its exposure to Asia is a State whose economy is rapidly "internationalising".

On the other hand, the economy of South Australia is not.  In Queensland, when one talks of China the word "opportunity" comes to mind, while in Victoria because of its manufacturing industries, China is more often associated with the threat of job losses.

All of this demonstrates the need for the application of different sorts of policies according to individual circumstances.  The capacity of States and regions to respond to fiscal challenges is obviously hampered by the existence of a single national currency.  The point has often been made that if during the 1980s Victoria had had its own freely floating currency the worst depths of the recession in that State might have been avoided.

This is not to argue for such a policy, but simply to recognise the costs and benefits of single national systems.  If Australia is to take advantage of the opportunities that globalisation provides all levels of government must be able to respond with policies that take account of the differences between States and regions -- and only a federal system allows this to occur.

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