No State Role in Family Affair

If a married man fathers a child from an affair with an adult woman, and persuades his existing family to accept mistress and child into his own home, should he be prosecuted?  While many people would probably see this de facto polygamous household as offering a butt for delicious gossip, only the most moralistic would say it warranted government intervention.

As far as family structures go, we live in tolerant times.  Over the past generation the social and even legal boundaries between heterosexual marriage, cohabitation, and other long-term sexual relationships have gradually dissolved.

Open marriages, de facto marriages, single parent families, gay and lesbian families, extended families, and blended families have all become more or less accepted components of our much touted social and cultural diversity.  It is the nuclear family which is in decline, with a recent study from KPMG Consulting indicating that this type of family now comprises only 19 per cent of Australian households, a drop of 7 per cent since 1976.

Given that this situation is common to all English-speaking Western nations, it is surprising that bigamy continues to be treated as a criminal offence.  In Australia, bigamists can be sentenced to five years in jail;  in some other countries the punishment is even more severe.  In Utah, Tom Green, a fundamentalist Mormon with five wives, faces up to 25 years in prison because last week a jury found him guilty of four counts of bigamy.

Certainly, Green does not sound like an endearing sort of fellow.  He took his "head wife" in 1986 when she was 13, and as a result he is also facing statutory rape charges, although a trial date has not yet been finalised.

And while he had a job, it did not pay enough to support his twenty-five living children, with another three on the way.  So he has been involved in a long-running welfare scam which allegedly netted $US54,000 over a four year period.

Green would marry a woman, then go to neighbouring Nevada for a quick divorce after she gave birth.  The "ex-wife" would then become eligible for welfare benefits as a single mother, even though she continued to live with him as his "spiritual wife".  This also enabled Green to claim that he wasn't a bigamist in the legal sense, although this argument failed because the law in Utah -- unlike Australia -- treats cohabitation as equivalent to marriage in cases of bigamy.

Green also flouted the authorities by going public.  For the past half-century Mormon-dominated Utah has adopted a "don't ask, don't tell" policy towards polygamous unions.  But Green appeared on a number of national television programs with his wives, arguing that mainstream Mormons had abandoned their heritage.

Invoking the precedent of the Old Testament prophets, the fathers of the Mormon Church believed that only polygamists could enter the most exalted levels of heaven, although initially they were rather duplicitous about this aspect of their theology.  But in order to assist Utah's bid for US statehood, the church disavowed polygamy in 1890, and a few years later began excommunicating people in plural marriages.  Fundamentalists like Green argue that they are only returning to the founding doctrines of their faith.

As unpalatable as it may be to argue points of principle around the case of a child molester and welfare cheat, Tom Green has some claim to be thought of as a martyr to his religion.  He believes he is following a path laid down by God, and can provide what he sees as scriptural authority for his beliefs.  He decided to challenge a hypocritical state policy by going public.

His case, and that of the estimated 80,000 other fundamentalist Mormon polygamists living in Utah and other parts of North America, raises an important civil rights issue.  Given the latitude now accorded to all kinds of private behaviours that were once thought iniquitous, and the unwillingness of most politicians and opinion leaders to celebrate the traditional nuclear family, why should polygamy involving consenting adults continue to be a crime?

American anti-polygamy groups such as Tapestry Against Polygamy, which largely comprises women who have escaped from plural marriages, argue that such marriages are often accompanied by incest, wife and child abuse, forced and underage marriage, as well as welfare and tax fraud.  Perhaps this is true, but these crimes are not necessarily an inherent part of polygamy.  And some of them also accompany other family forms.

The great majority of human cultures have permitted, and even encouraged polygamy, at least in the form of polygyny, where a man takes two or more wives.  (Polyandry, where a woman takes several husbands, is extremely rare).  After over fifty years of studying Pacific cultures, the veteran American anthropologist Douglas Oliver wrote that he had been unable to discover a single traditional society in the Pacific or Aboriginal Australia which censured polygyny.  Indeed, had Tom Green been a Native American attempting to revive his polygamous heritage, it is hard to believe that he would have been prosecuted.

Don't get me wrong on this.  Personally, I believe that as well as providing the best environment for rearing children, the nuclear family is the structure most compatible with gender equality and liberty.

But that doesn't mean other forms of the family should be illegal -- provided, of course, that they do not involve taking child spouses, as Green did.  And if adults wish to place a polygamous union on a more secure footing by entering into some kind of long-term contract which they want to call marriage, it should be no one else's business but their own.

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Corporate Code of Conduct Ruse

The Australian Democrats' Corporate Code of Conduct Bill 2000 is being scrutinised by the Parliamentary Joint Statutory Committee on Corporations and Securities.  The Bill aims to regulate the activities of Australian companies overseas in the areas of human rights, environment, labour and occupational health and safety.  My advice to the Committee is to scrap the Bill.  It says more about the Democrats agenda than about corporate behaviour.  It is the next instalment in a much bigger game, to make global moral activists the rule-setters and monitors of corporate behaviour.

Its impact will be to weaken the prospects of Australian multinationals operating overseas by subjecting them to standards of conduct additional to those imposed by a host country.  It will create the opportunity for Australian competitors and other interested parties to interfere in the operations of Australian multinationals.  It will not assist the supposed beneficiaries, the poor or the environment.  It is a ruse to replace the old rule makers of corporate conduct -- the parliament -- with the new -- Non-Government Organisations and the courts.

The Second Reading Speech of Senator Bourne is a scandal of unrelated diatribes in search of problems, problems to which her Bill provides no solutions.  She recalls the cyanide spill at the Australian owned Esmerelda mine in Romania.  But Esmeralda was fined by the Romanian government.  As a consequence the company no longer exists.  Of what use is the Bill?  She recalls the environmental damage caused by the Ok Tedi mine.  BHP is, in effect, a joint partner with the PNG government in this venture.  If it pulls out the PNG government will seek another, possibly less able partner, to pursue the venture.  The Bill suggests that the Australian government should legislate for the PNG government, an overt piece of imperialism.  What of the rights of other nations to establish their own regimes for corporations and make their own judgements about development and the environment?

She perpetuates the Brent Spa myth.  In 1995, Shell Oil was granted permission by the British to dispose of the North Sea oil rig Brent Spar in the North Atlantic Ocean.  Greenpeace maintained that there were hundreds of tonnes of petroleum wastes on board, and that some of these were radioactive.  A boycott of the company cost the company millions.  The deep-sea disposal was abandoned.  Independent investigation revealed that the rig had been properly cleaned and did not contain the toxic and radioactive waste claimed by Greenpeace.  Greenpeace apologised to Shell for its wrong allegation.  Why does the Senator act as if Greenpeace was right?

She perpetuates the myth that poverty is caused by corporate imperialism.  "Globally there are 100--200 million children between 4 and 15 years old, labouring in mines, making matches, cooking, washing, weaving, sewing and working in fields, building sites and rubbish tips".  But the greatest gains in standards of living have generally been made in those regions and nations where trade, new technology and foreign direct investment have been greatest.  Multinational corporations have often been the vehicles for these developments.

The Bill establishes a series of standards of conduct for corporations of the most general kind.  These standards are to be reported to the Australian Securities and Investment Commission and in turn to the Parliament.  Based on these general standards, not only will a person suffering a loss or damage because of the action of a corporation have a cause of action, "an association of persons whose principal objects include protection of the public interest" may bring an action.

What is the public interest in these instances?  The Bill borrows the 1999 European Union standards for European Enterprises operating in developing countries.  Presumably a EU multinational, operating in Australia, could have a complaint brought against it by an Australian, based on the EU Code of Conduct.  That complaint may mean that Australians using European conventions may sideline the interests of other Australians, especially the taxpayer.  To the extent that NGOs complain about multinationals, globalisation, and the loss of sovereignty suffered by nations, the Code of Conduct may well inhibit rather than enhance one concept of public interest, national sovereignty.

The distinct impression is that the Bill is designed to deal unelected and self-appointed moral activists into the game, and deal governments out.  This tactic leads to the conclusion that governments will need to know more about the integrity and organisation of NGOs.  If NGOs desire to have a role in setting standards of conduct, and standing in the complaints process, then they must be subject to the same scrutiny as are corporations and governments.

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Has the Inheritance Been Well Spent?

When the Bracks Government came to power eighteen months ago, it enjoyed a huge inheritance built on seven year of vigorous reform.

The question was:  Would it squander its inheritance?

With the release of its second budget this week, we have finally got some indication.  And while there are some positives there is also cause for concern.

The main concern lies with the growth of spending on operating costs -- mainly public servant's salaries.  During its first year, the Bracks Government allowed this spending to increase by $1.5 billion or 10 per cent, which is large by any standard.  The Government argued that this increase was a one-off adjustment to meet election commitments.  However, in the latest budget, this coming year's spending on operating costs is forecast to increased by a further $690 million or 4 per cent.  While this is not a huge figure in itself, it represents a threefold increase over the level forecast the previous year.  Far from being one-off adjustments, the spending base has been ratchetted up.

Moreover, as shown by the reaction of the public sector unions to the latest budget, this Government confronts same constituencies for fiscal debauchery as did its Labor predecessors.

The latest budget puts in place a very large capital works program -- $2.4 billion in new spending over the next four years.  While the overall priority given to capital spending and many of the specific initiatives are appropriate, the program has its weaknesses.

First, the large increase in capital and recurrent spending has pushed the budget -- measured on the old cash basis -- into the red.  While, the projected level of borrowing is no cause for concern, given the state's low levels of debt, the speed with which the inheritance has been consumed is a worry.

Second, the budget gave no priority to the private-public partnership program or any other measures to drive value for money and innovation.  The budget restricts the partnership program to a limited range of previously announced projects.

Third, many of the capital initiatives add little to the state's productive capacity.  For example, the decision to open up the passenger train lines to Mildura, Ararat, Bairnsdale, and South Gippsland costed at $33 million is really nothing more than shopping subsidy for a few lucky pensioners.

The highlight of the budget was the Government's cuts to business taxes.  This initiative not only gave tax relief of $774 million over the next four years to overtaxed Victorian businesses but removed a number of particular onerous taxes.

Nonetheless, there remains significant scope for further tax cuts.  Even after the announced tax cuts, Victoria remains a high tax state.  The Victoria tax take after the tax cuts will still be $800 per person higher than the tax take imposed in Queensland and Western Australia.  Also the cuts to payroll tax did little more than give back revenue gained by bracket-creep over the last few years.  Indeed even after the tax cuts, the Government expects to earn more this year in payroll tax receipts than it forecast it would two year ago.

In summary, the Bracks Government has done the easy things by quickly spending its fiscal inheritance.  And it claim to being a fiscally responsible new Labor Government remain to be proven.

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California: Causing a Re-think of Electricity Policy?

The Californian power crisis presents all governments with a salutary lesson.  For almost two years now Californians have been facing rolling blackouts and spiralling charges for electricity.  The crisis has forced two of America's largest electricity utilities to file for bankruptcy.  Global icon high tech firms like Intel have announced they will not build new factories in the State.

Some have sought to blame the crisis on power market deregulation while others sheet home the blame to continued and clumsy regulation of the power market.  These claims and counter-claims are matters of major concern to Australia since our own electricity market shares much in common with the Californian.

There are however some important differences.  Californian law, for the most part, forbade Californian suppliers from entering into contracts for long term power supplies, requiring them to rely on buying through the spot market.  In contrast, about 90% of Australian electricity demand is covered by contracts between retailers and generators.  These contracts are important in the context of a market where short term demand is highly inflexible.  They make it difficult for generators to take risks with their supply availability since they may get caught being required to cover their contracts at a high spot price.  In addition, they allow greater certainty to commit to building new plant

Until recently, California has been regarded as the leader of modern electricity development.  The State's regulators had pushed solar power and forced the conversion of power stations from "dirty" coal to "clean" gas.  On top of this, policies had emphasised energy savings as the preferred means of allowing demand and supply to be kept in balance.

Moreover, the State's leadership role in environmental matters had placed roadblocks in the way of new power stations.  This started in the late 1970s under Governor Jerry Brown.  And lest anyone think that the present Governor, Gray Davis, was unfortunate that the crisis hit during his watch, the same Gray Davis was the Chief of Staff under Governor Brown.  Not only that, but his actions, once the crisis hit, fanned the flames by imposing caps on generator prices, thereby discouraging more power supplies.

Over the decade of the 1990s, the Californian economy grew by 34% and electricity demand increased by 20%.  Yet supply was stagnant with only two small plants being built in the 1990s.  Supply actually fell by 5% between 1995 and 2000.  Regulations facilitating NIMBY (not in my backyard) and BANANA (build absolutely nothing anywhere near anyone) made it 17 years before one nuclear plant got operating.  Even a standard gas plant that takes one year to get up and running in Texas takes over three years in California.

Some of this must strike a chord here in Australia.  Nobody here would dream of running the gauntlet of regulatory approvals and government sanctioned protests that would accompany a nuclear plant in Australia.  And, as night follows day, any new development will inevitably find itself in the midst of an endangered frog, worm or parrot.

To date, Australia's energy problems have been due to overbuilding of plant by bloated unionised workforces and over staffed facilities.  Privatisation has solved much of this, but industrial muscle did force blackouts last year.

Australian governments have nonetheless been vulnerable to Greenmail over new projects.  Right now there is pressure to de-rate the Snowy hydro system to divert water down the Snowy River.  The most celebrated green victory was in preventing Tasmania building the Franklin Dam, the last major potential hydro operation in the Apple Isle.  Less well known, but more serious, was the Queensland Labor Government's thwarting of a major hydro facility, Tully-Millstream, in the early 1990s.  In the process, Queensland was transformed from the State with the lowest cost, most reliable electricity industry into the State with the highest electricity costs.

In Australia, the dangers for power system security and excessive energy prices stem not from a lack of government action but from a surfeit of it.  Governments can easily destroy incentives to build facilities at the right time and place.  This was made clear by ACCC Commissioner Rod Shogren in a recent address to an energy conference in Melbourne.  Mr Shogren pointed out that, "Governments are likely to make decisions that protect their constituents from negative short-term impacts but which compromise the ability of the market to deliver long term benefits".  And, in a pointed reference to the NSW and Queensland governments, he added that it is hard to be confident that the overall interests of the market will be promoted "given that some governments have vested interests in the market as owners of generation and retail businesses".

A new government transmission line, or a new power station built with government money or on the back of favourable treatment delivers a message to the market.  It says that prices will be held back, thereby reducing entrepreneurs' incentives to undertake investment.  For Victoria in particular, such government measures would put in doubt power station developments like those being considered by Mission Energy, AGL and AES Transpower.  In turn, this creates risks of intensifying the role of government, shifting us back to the system of state provided provision of electricity that ill-served us in the past.

Populist actions by governments intervening in the supply of goods and services are pregnant with risks of undermining markets.  In California's case, the crisis was the culmination of two decades of policies that opposed new power stations, along with politically correct statements about cutting down on fuel use while the hot tubs were left running.  Just as poisonous to demand and supply finding the right balance is government intervening to build new facilities.  Government is just too far removed from commercial pressures for this.  It needs to confine itself to areas where it can contribute:  the creation of stable overall rules.  This will facilitate allowing market forces do what they do best -- efficiently provide the goods and services that consumers want.

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Cook Plays Racism Card

What is the most effective way of making race a political issue?

In the United Kingdom, the Commission for Racial Equality has provided a simple answer in the lead up to next month's general election -- a demand that politicians sign a pledge promising not to exploit racial matters.  This has stirred up a hornet's nest of charge and counter-charge as political parties scramble for the moral high ground.

The pledge has also been a great trap for the opposition Conservative Party.  This was probably its real purpose from the start.

Although the Commission for Racial Equality is supposedly independent, a majority of its executive members either belong to the governing Labour Party, or have close links with Labour-leaning bodies.  Dr Raj Chandran, a former commissioner of the CRE, has accused the organisation of acting in collusion with the government.  He also claims that the CRE has consistently refused to investigate serious allegations of racism against Labour.

The trap works in two ways.  Firstly, the names of politicians who refuse to sign are published, leading to demands that they be punished.  While some Labour backbenchers have acted honourably, criticising the pledge as irrelevant, most of the miscreants are Conservatives.

No doubt the British Labour Party contains its fair share of racists.  But as a result of the general confusion between race and culture that afflicts contemporary thinking, the greater willingness of Conservative politicians to celebrate and defend British traditions makes them more vulnerable to the "racist" smear.

This confusion is also the key to the second part of the trap.  A number of legitimate but controversial social questions have a cultural or ethnic aspect.  So opposition politicians who voice popular concerns about rising numbers of illegal immigrants, or preferential treatment for some ethnic groups, or certain other matters that are troublesome for Labour, can be attacked for "breaking the pledge", thus distracting attention from the issues themselves.

Unfortunately, events over the past few weeks confirm this cynical interpretation.  Even more unfortunately, they also show that sometimes the "racist" tag is justified.

Last month, in a speech to the Social Market Foundation, the British Foreign Minister, Robin Cook, said there was no such thing as a British race.  He pointed out that the racial composition of the British people has always been in flux, as individuals from many places have come to the British Isles over the centuries, contributing to the cultural and economic strength of the nation.  He added that "the modern notion of national identity cannot be based on race and ethnicity, but must be based on shared ideals and aspirations".

The sentiments and the history are sound.  Africans and other non-Europeans have lived in England and intermarried with the locals since Elizabethan times.  In 1788, for instance, at least a dozen blacks arrived in Australia on the First Fleet.

But Mr Cook wasn't just offering an innocent statement of historical facts and noble ideals.  Rather, despite having signed the CRE pledge on race, he was clearly attempting to heighten tensions in the Conservative Party over immigration and national identity.

The legitimate aspect of the foreign minister's message was further compromised by the dopey illustration he gave of Britain's ability to absorb and adapt external influences.  According to Mr Cook, chicken tikka masala had become the country's national dish, created by adding masala sauce to the dry Indian dish of chicken tikka, in order "to satisfy the desire of British people to have their meat served in gravy".

This means nothing, of course.  A lager lout could happily sit down to a curry or chicken tikka masala before venturing out to bash some "Pakis".

It would have made more sense to state that, provided they are welcomed and given appropriate incentives to integrate, non-European immigrants can frequently become stronger supporters of the "British way of life" than many locals.  The plight of countries they are leaving often helps them to appreciate the political and cultural strengths of liberal Western nations.

But even if Cook foolishly confounded culinary taste with racial tolerance, some Conservatives took the bait, causing just the row he was obviously hoping to trigger.  Yorkshire MP John Townend, one of the Conservatives who refused to sign the pledge, and whose previous comments on immigration had already caused problems for his party, suggested that Labour ministers wanted to transform the British into a "mongrel race".

Not surprisingly, these offensive and genuinely racist comments upset many people.  Lord Taylor of Warwick, who became the first black Tory peer in 1996, said that Mr Townend should be thrown out of the Conservative Party.

Conservative leader William Hague initially responded that as Townend was retiring at the forthcoming election, it would simply be "gesture politics" to expel him, as it would only make him a martyr.  Perhaps he knows enough about Australia to remember what happened to Pauline Hanson after she lost her Liberal Party endorsement in the 1996 elections under somewhat comparable circumstances.

But with the controversy dragging on, Hague forced Townend to sign a letter of apology last week, retracting his comments.  A few days later, the Yorkshire MP was reported to have withdrawn his retraction, claiming that he had only made it under pressure.

This unpleasant episode shows that sanctimonious politicians and activists are rarely willing to put racial harmony ahead of struggles for political advantage.  But people genuinely committed to a colour-blind society would never have allowed a counter-productive quango like the Commission for Racial Equality to exist in the first place.

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Third Sector

Third Sector:  the contribution of nonprofit and cooperative enterprises in Australia
by Mark Lyons
Allen and Unwin, 2001, 248 pages

Mark Lyons is a dedicated third sector person, he has been writing of voluntary associations in all their many guises -- nonprofits, nongovernment organisations, civil society organisations -- for a very long time.  He brings a fidelity to the study of a sector of society, which is the subject of the aspirations of the political left, right and centre.  The sector is variously lauded as the training ground of democracy, a bulwark against the state, a bulwark against capitalist excess, the net below the welfare net and more.  It is also regarded as the milieu of the lady bountiful, and of the new moral entrepreneurs -- human rights and environmental activists -- engaged in an associational revolution of global proportions.

This is why much of the book is devoted to defining and locating the third sector in Australian society.  Its extraordinary diversity -- 700, 000 organisations with a combined income of over $60 billion, employing 630, 000 workers -- makes the job of taxonomy a difficult one.  Nevertheless, Lyons manages to impose some order without collectivising beyond recognition the various activities, fields of endeavour, legal form and roles played by third sector organisations.

The heart of the book is the analysis and policy discussion, why the sector is growing in parts, declining in others.  A major source of decline is business offering services where none existed or where they were provided by government or the third sector.  Banks and superannuation funds displace mutuals;  the needs of professional sport impacts local clubs;  pubs and pokies displace social clubs;  employment services and hospitals run by nonprofits are taken over.

Lyons' major dip at politics, apart from critical comment on the impact of the GST, is his support for the view that business should operate for the community as a whole, not just shareholders.  This, combined with his view that the major challenge for the third sector is for Australians to see themselves not just as consumers, but as active citizens lies behind an otherwise benign exercise.  He is keen on the third way model, which sees government as no more than facilitator for groups, citizens and communities to work out their own solutions.  I disagree with the editorial, but there are few better qualified than Lyons to state it.

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Time to Stop Bashing Petrol Companies

It is time that pollies and the regulators stopped playing politics with petrol.

Their frequent claims of price gouging by the petrol companies are false.  Moreover they are undermining public trust in markets and the regulatory system.

The petroleum industry is one of the most intensely investigated industries in this country.  Over the last twenty years there has been by forty-two formal inquiries into the industry with a new one currently underway.  Moreover every aspect of the industry from pricing to ownership, to location is monitored on a on-going basis by states and federal governments,

Governments and the regulators know from the accumulated mountain of evidence that the petrol industry is hellishly competitive and produces some of the lowest priced petrol in the world.  But they choose to turn a blind eye.

Two years ago when world oil price were rising rapidly, the major petrol companies were roundly accused of excessive price increases.  Australian Competition and Consumer Commission (ACCC) eventually took a look at the evidence and found that instead of over-recovering the petrol companies were under-recovering.  That is, between January 1999 and August 1999 "actual unleaded prices were below the retail import price indicator by 1.65 cents per litre (cpl) for the five major metropolitan cities;  and actual diesel prices were below the retail import price indicator by 2.93 cpl for the five major metropolitan cities".

In March this year politicians and the ACCC berated the companies for supposedly failing to pass-on the 1.7 cpl cut in excise tax.  When the ACCC finally got around to looking at the evidence, it found that the companies had passed on the excise cuts immediately and in full.

Last week the pollies and regulators were at it again.  The Chairman of the ACCC, Professor Alan Fels claiming that the petrol companies were "un-Australian" for raising petrol prices on ANZAC Day.  The evidence shows however that the average price of petrol at the bowser actually fell on ANZAC day in Melbourne, Perth and Adelaide.  The average price did rise on the day in Brisbane and Sydney, but this was in line with the established weekly cycle rather than because of the holiday.

Australia has the lowest cost petrol on a pre-tax basis in the developed world.  This has been achieved by major improvements in efficiency with refining and marketing expenses declining by about 30 per cent in real terms since 1992.  The highly competitive nature of the industry has ensured that the lion's share of these cost reductions have been passed on to consumers.  Over the last decade petrol price before tax have declined 40 per cent after adjusting for inflation.  Moreover, the petrol industry's return on its refining and marketing operations on an after-tax basis has declined steadily over the last decade and now averages around 2%.  This is about a quarter of the average rate of return received by listed companies.

The regulators and the politicians know that Australian consumers are getting a tremendous deal from the local petrol industry.  However, they choosing to pander to populist myth.

The result will be a further decline in public support for market-based outcomes and tighter regulations -- as it is currently underway in South Australian and Western Australian Government.

It will also inexorably result in more costly petrol.

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Funding End-User Advocacy

Supplementary Submission to the Productivity Commission's
Inquiry Into Clause 6 of the Competition Principles Agreement
and Part IIIA of the Trade Practices Act 1974

1 SUMMARY

The Commission sought views on ways to facilitate the participation of consumer interests in Part IIIA (and other access) decision making.

There are proposals to ensure greater consultation in the electricity and gas industries with bodies claiming to represent end-users.  Such proposals are usually accompanied by calls for levying suppliers to fund bodies claiming to represent consumers.

There is presently considerable opportunity for almost any organisation or individual to comment on regulators' proposals regarding electricity and gas.  Accordingly, we see no reason to support the proposal that the bodies claiming to represent consumers be afforded rights, in excess of those they already have, to be involved in the decision making process.

The proposals amount to a tax on market participants (in the final analysis, the consumers) with the sums raised to be allocated to groups that claim to represent consumers.  We consider that:

• A consumer representative role can have merit only where provision of the good or service is through a natural monopoly.  The responsibilities for verifying that such markets meet consumer needs fall to agencies of government like departments of consumer affairs, the ACCC, state regulatory bodies and Ombudsmen. ⁽¹⁾  Within the limits of their budgets and legislative and ministerial guidelines, such agencies may seek advice from any bodies they consider to be useful.  Unless accompanied by a reduction in funding to existing regulatory agencies, the proposal to fund outside bodies would, de facto, increase the funding for these purposes.
• There will be many bodies claiming to represent consumers, most of which represent only their sponsors and seek to obtain revenue through compulsion rather than by demonstrating their ability to provide value.  Associations claiming to represent consumer interests rarely have the appropriate accountability or governance structure and are often dominated by and express the views of a small clique.  If those groups are given preferred access, this could actually undermine consumer interests.
• It will be difficult to control the cost, and the coalition of interests necessary to agree a budget is likely to ensure a progressive increase year by year.
• In well-functioning markets, like the emerging gas and electricity markets, it is retailers that represent the interests of consumers;  they do so not out of benevolence but out of necessity, since the retailer failing to supply goods and services that meet consumers' needs will lose market share and eventually be forced out of business.

2 CONSIDERATION OF THE FUNDING ISSUES

2.1 TAXATION TO FUND ADVOCACY GROUPS

2.1.1 Rational for Funding

It has been said that levies to fund consumer representation are common.  However, such arrangements in gas and electricity pre-date the existence of markets.  Where monopolies are in place, it is not unreasonable that the monopolist funds some voice from the users (though this would not obviate the normal problems of capture either by radical consumerists or by sectional user groups).  We are now in the process of shifting to a full market where all customers are contestable and where retailers will be anxious to win sales by acting in the customers' interests.

2.1.2 Who Pays

Some suggest that a levy will be derived from suppliers' profits.  This is not possible.  If it were to occur resources would leave the industry to seek out better avenues for income.  This would frustrate the development of the efficiency these industries are capable of achieving.  Hence, a levy is quite clearly a tax on the retailers, the impact of which must be passed back onto the customer.

Current funding of regulatory agencies is determined by Parliaments.  These provisions can be modified in the light of changing circumstances.  However, an end-user advocacy function, in effect, introduces a major new body.  Its funding through an impost on suppliers (and hence consumers) is the equivalent of governments hypothecating a tax to it.

2.1.3 Current Telecommunications Arrangements

One Australian industry which is in an analogous situation is telecommunications.  Under the previous monopoly Telecom used to fund independent representation and research.  Parliament agreed to section 593(1) of the Telecommunications Act (1997).  This makes provision for Parliament to appropriate, and the Minister to disburse, funds for consumer representation and research.  The funds are recouped from carrier licence fees.

The telecommunications model has a number of differences from a proposal sent to the ACCC by NECA. ⁽²⁾  These include provision for:

• an annual appropriation made by the Parliament with the Minister (not as in the proposal, an appointee) determining how much of this shall be actually spent;
• a strict requirement for any consumer funded representation to demonstrate its consumer ties (and for this reason the Communications Law Centre is not significantly funded).

Most funding, around $800,000 last year, actually went to three organisations:  the Consumers' Telecommunications Network, the Small Enterprise Telecommunications Centre and the National Federation of the Blind Citizens of Australia.

2.2 GOVERNMENT AGENCIES AS CONSUMERS' REPRESENTATIVES

It is our view that a formally constituted and funded consumer advocacy body would assume functions which are already being undertaken.

Bodies charged with ensuring efficient outcomes and taking into consideration all interests include NECA, the ACCC, and the Office of the Regulator-General and the Ombudsman in Victoria (with other jurisdictions having comparable agencies).  As previously mentioned, the Victorian Government is even suggesting a further agency, the Essential Utility Services Consumer Advocacy Centre (EUSCAC), as an additional tier.  The body the proposal would create is at best a waste of money and at worst could lead to inefficiencies.  The proposal is akin to that about which the Commission has sought advice.

The regulatory bodies act as honest brokers between different interests to take decisions on price and service in monopoly areas.  They must necessarily provide their own input where they consider a party is insufficiently represented.

It is the deemed existence of monopoly elements in the electricity and gas supply industries (the wires and pipes) that gives rise to the need for regulatory oversight and regulatory bodies at the state and national levels.  The price and service controls that the regulatory bodies possess are designed precisely to prevent monopoly elements exploiting their positions in the marketplace.  To the degree these bodies with the designated responsibilities consider they need to solicit additional views that canvas a consumer perspective, they are funded to do so.  In fact several agencies already provide some such funding to ensure they are fully appraised of views that take this perspective.

However, determining the prices and/or revenues for these natural monopoly facets of supply is a matter of estimating costs of supply and putting in place appropriate incentives to ensure efficiency.  It is not obvious that consumer representatives have expertise in these matters.

2.3 CONTROLLING THE COSTS AND DETERMINING WHO SHOULD BE FUNDED

The only rationale for any funding or regulatory control is the existence of natural monopoly.  Already we are seeing entrepreneurial interconnects undermining monopoly in electricity transmission and developments like Powercor's Docklands grid impacting on the monopoly of local distribution.  Distributed energy in the form of co-generation will further diminish the need for regulation.

In the case of gas, the Australian Competition Tribunal has recognised the superiority of commercial rivalry over regulation in overturning the NCC's decision to regulate the Duke Energy pipeline into Sydney.

In these circumstances, even if there were a justification to do so, it is not advisable to introduce yet another rate-payer funded body into the energy supply industry.

In addition, deciding the aggregate level of funding for the group will be difficult.  In the case of the national electricity market, the starting bid for those seeking funding was $2.7 million per annum, most of which was to be spent on their own remuneration and travel.

The Energy Users Group, in its Submission to NECA on this matter, said "Determining funding priorities is a matter best left to end-users themselves through the National End-User Council, which end users have already moved to establish".  In this regard, the Public Interest Advocacy Centre (PIAC) has drawn attention to the likelihood of a coalition of advocates carving up the cake between themselves (and presumably leaving too little for PIAC).  PIAC argues that there is nothing to be gained from research financed by a levy that simply benefits business and other large users who should be capable of funding their own research.

We see merit in the arguments PIAC raises.  We also maintain that if an organisation is to have claims on public funding it should demonstrate it is truly representative.  We know of no organisation that purports to represent consumers that has a mass support base of consumers.  The most widely known organisation is the Australian Consumers Association (ACA).  This has just 650 members.  ACA claims it does not accept money from governments at least on an "on-going" basis.

Representational claims on the part of self-appointed consumer cadres are reminiscent of analogous claims of groups maintaining that they were the "vanguard of the proletariat".  People claiming to speak for consumers without having a mandate from them may no more represent their views and interests than did East European socialist parties who made a similar claim on behalf of workers.

Indeed, many "consumerist" organisations out of ignorance of the way that markets operate will act in ways that are inimical to consumer interests.  Such actions may include seeking that suppliers take measures to connect remote areas at no extra cost or that they extend non-commercial payment terms to customers in arrears.  Measures like this are founded on a false premise that the cost is borne by the supplier.  In fact, the operations of markets and of financial systems are such that the costs are ultimately paid by other consumers, either in higher prices or in reduced levels of service.

This raises the issue of what are the true costs of regulation that requires a compulsory payment from consumers which is hypothecated to particular activities.  The costs imposed by regulations or taxes are rarely confined to the immediate impact or the sums directly raised.  Numerous studies have identified two other sorts of costs accompanying the direct costs.  These are, first the paperburden and corresponding lobbying costs the regulated businesses are obliged (or feel obliged) to incur as a result of the regulations.  Secondly, they are the market distortion costs resulting from their compliance.  While we are not in a position to estimate the magnitude of these additional costs, on average the paperburden costs are twice the direct costs and the distortions caused by compliance are tenfold the direct costs.

2.4 RETAILERS AS CONSUMER REPRESENTATIVES

The analysis used to justify the proposal for a levy to fund "representative" bodies is that consumers are diffuse, inclined to "free ride" and individually gain little to make it worthwhile for them to fund a lobby organisation.  On this basis, it would be possible to argue for a levy to finance such bodies for almost every activity.  After all, do not the same issues arise with motor cars and houses, to say nothing of small item and "impulse" purchases?  We do not have such bodies generally because markets that comprise many buyers and many sellers ensure adequate disciplines on suppliers, who are required to give good value and respond to consumers' needs.

The retailer becomes the customers' agent in most markets, discovering consumer needs, matching these with the producers' offerings and in the process bringing about revisions to these needs and offerings.  Competition, and the wish of all parties to maximise their welfare, brings efficient outcomes from this interaction.

Littlechild ⁽³⁾ identifies and describes the valuable functions that electricity retailers undertake.  Once the retail function ceased to be regulated, retailers asked their customers what price system they wanted:  uniform time of day, interruptible and so on.  At the same time they asked generators what could be supplied and went about matching these requirements and offerings.  Customers for their own part shopped around to get the best deals.

This has allowed consumers, retailers and generators to make better informed decisions about what is available, in the process raising the performance of suppliers and reshaping the demands of users.  Like gas and electricity, most lines in supermarkets have margins of only a few percentage points of the final price, yet the retailers are major interpreters of the consumer needs and hence value-drivers.

3 CONCLUDING COMMENTS

As far as supporting the consumer is concerned, we subscribe to Adam Smith's view "Consumption is the sole end and purpose of all production, and the interests of producers ought to be attended to, only insofar as it may be necessary for promoting that of the consumer."

Some of the bodies campaigning most vigorously for funding are represented by experienced people with useful analytical perspectives on the electricity industry.  In spite of this, we question whether any of them have any legitimate representational claims.  Some may draw attention to a high readership of their literature, but on that basis the Sydney Daily Telegraph could mount much more powerful claims to be representative.

We have no objection to regulatory and quasi-regulatory bodies, consistent with their charters, financing the provision of advice from able people.  However to introduce a new charge for this would be an unjustified impost on the consumer.  And to set up a body at arms length from the accountability process is not acceptable.

We are conscious of the ability of taxpayer funded advocacy groups to obtain influence out of all proportion to their representation and, once established, to perpetuate themselves indefinitely.  We therefore urge the Productivity Commission to reject this proposal.

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ENDNOTES

1.  And in Victoria, it is proposed to add a further tier, the Essential Utility Services Consumer Advocacy Centre (EUSCAC).

2.  NECA, End-user advocacy in the national electricity market, November 2000.

3.  Stephen C Littlechild Why we need electricity retailers:  A reply to Joskow on wholesale spot price pass-through, The Judge Institute of Management Studies, University of Cambridge, 22 August 2000

First Nations? Second Thoughts

First Nations?  Second Thoughts
by Tom Flanagan
Montreal:  McGill-Queen's University Press.  2000

Tom Flanagan has been writing on Canadian aboriginal issues for 25 years.  After observing and participating in the Royal Commission on Aboriginal Peoples -- which produced a 3500 page report at a cost of $54 million and recommended a completely new level of aboriginal government, and a bucket-load of new money for aboriginal affairs -- Flanagan has blown the whistle on the whole damn show!

He decided to sketch the orthodoxy that surrounds aboriginal policy in Canada, and tell the story of the great harm its separatist and romantic notions are doing to Canadian aborigines.  There are immense lessons in Flanagan's analysis for Australian policy-makers.  Especially those who are slaves to fashionable ideas.  I note with fear and trepidation the "next big thing" in aboriginal orthodoxy, "the indigenous order of governance".  This notion has been taken up with gusto by The Australia Institute in its September 2000 paper for ATSIC, "Resourcing Indigenous Development and Self Determination." It borrows heavily from the Canadian orthodoxy and recommends that Australian aboriginal governments -- indigenous governance structures to be correct -- should receive a guaranteed share of national tax revenue, i.e., a bucket-load of new money!

The Canadian orthodoxy consists of eight propositions:

1. Aboriginals differ from other Canadians because they were there first.  As first nations, they have unique rights, including the inherent right of self-government.
2. Aboriginal cultures were on the same level as those of European colonists.  The distinction between civilised and uncivilised is a racist instrument of oppression.
3. Aboriginal peoples possessed sovereignty.  They still do, even if they choose to call it "the inherent right of self-government".
4. Aboriginal peoples were and are nations in both the cultural and political senses of this term.  Their nationhood is concomitant with their sovereignty.
5. Aboriginal people can successfully exercise their inherent rights of self-government on Indian reserves.
6. Aboriginal property rights should be recognised as full ownership rights in Canadian law and entrenched, not extinguished, through land-claims agreements.
7. The land-surrender treaties in Ontario and the Prairie Provinces mean something other than the words indicate.  Their wording needs to be modernised -- reinterpreted or renegotiated -- to recognise an ongoing relationship between nations.
8. Aboriginal people, living and working on their own land base, will become prosperous and self-sufficient by combining transfer payments, resource revenues and local employment.

Flanagan answers each of these propositions, one per chapter, in a systematic and effective way.  I will not give you his responses, because I want you to buy the book and arm yourselves for the same fight that is unfolding in Australia.  However, in case you need convincing that there is certain madness in Canada on these matters, try these morsels, which Tom has sent me, extracted from a recent lecture.

Annual federal expenditure on Indians is about $6.5 billion (more than $10,000 per capita).

Last year, the Squamish Nation (about 2000 people) in British Columbia received $92.5 million compensation for "historical injustice".  The alleged injustice is that the federal government did not stop the BC government from relocating the Squamish reserve 100 years ago.  The Squamish surrendered no land rights and continue to maintain their claim for aboriginal rights and title.

The cost of the newly approved Nisga'a Treaty is conservatively estimated at $500 million (for about 6,000 people).  Between 50-80 similar agreements will be needed to complete the treaty process in British Columbia.

In 1998, the federal government set aside $23.4 million to buy farmland in southwestern Ontario to create a reserve for the "Caldwell First Nation".  The latter embraces people who claim their ancestors were missed in a treaty signed in the 1790s.  They have been living as ordinary Canadians for over 200 years but now want to become registered Indians.

I think it is high time in Australia that someone takes a big stick to the home-grown variety of the Aboriginal Orthodoxy:  treaty-talk, recognition of customary law, self-determination, separate funding and more.  In fact, that is precisely what a group of aboriginal and non-aboriginal writers is doing at this very time.  The fruits of their labour will be published in the near future.