In the Supermarket of the Soul, Not all Aisles Lead to Christ

One of the nice things about our multicultural and ecumenical society is that an irreligious Jew like myself can comment on disputes within the Catholic Church without anyone feeling able to complain about my right to do so -- at least in public.

But the current controversy about the involvement of the Presentation Sisters and the Sisters of Mercy in the Womenspace centre at Kedron suggests that many of the faithful think that ecumenism has gone too far.  Certainly, even to a non-believer, it does seem odd that Catholic orders would initiate and fund a centre which provides room for pro-abortion organisations and advertises magical paraphernalia, or that a nun would present classes celebrating "shamanistic journeying" and other supposedly "ancient Celtic tools" of paganism.

To conservatives in the church, this involvement is yet another sign that the "generosity of approach" that Brisbane's Archbishop John Bathersby urges "in trying to bring people to Christ", leads to a theological relativism, a pick-and-choose supermarket of the soul where nothing is forbidden and heresy is impossible by definition.

Nevertheless, the Archbishop may have a point.  An insistence on rigid orthodoxy is often inseparable from an arrogant self-righteousness in which religion is used as a bludgeon against rivals and personal enemies.  There is something distasteful about people going to particular Church services in order to obtain ammunition against priests and bishops who are not toeing a purist line, then sending the details off to the Vatican.  Apparently this has been happening for some years, and it is hard not to sympathise with Archbishop Bathersby's complaint that this involves "a desecration of worship".

In a predominantly secular and materialistic culture such as our own, where established denominations are struggling to gain committed adherents, particularly amongst the young, perhaps the best that mainstream churches can now hope for is to start with people who have real spiritual yearnings.  While the Archbishop probably wouldn't express matters in quite such terms, from this perspective leanings towards pantheism or polytheism may be preferable to atheism or religious indifference;  for with patience and sympathetic understanding genuine searchers may be led to more doctrinally acceptable positions.

This is the kind of approach that Catholic missionaries have adopted in many parts of the non-western world, in the hope of winning over the followers of tribal religions.  Provided that reprehensible customs are abandoned, the church has been prepared to accommodate more harmless practices, and even to incorporate some traditional elements into its liturgy.

However, this doesn't always work.  In one Vanuatu island where I carried out anthropological research, people interpreted the comparatively liberal attitudes of the Catholics as an indication that the church was ineffective.

To these indigenous people, a potent religion was one which demanded sacrifice and restraint.  Consequently, fundamentalist Protestant sects which denounced all non-Christian beliefs and practices thrived, while the Catholic Church attracted only a small number of followers.  The irony -- which a few perceptive Catholic missionaries did seem to appreciate -- was that those who took indigenous notions seriously had to be committed to destroying the traditional religion.

But whatever the merits of Archbishop's general approach towards religious conversion, I am not convinced that his statements on the matter are actually relevant to the Womenspace controversy.  For the centre and its supporters do not seem to show much enthusiasm for channelling the spiritual hunger of New Age dabblers and other lost souls into a path that will eventually bring them to Christ.

Judging from its website and the published reports about the activities at Womenspace, those involved with the centre seem more interested in encouraging women who are disillusioned with mainstream churches into non-Christian forms of worship, such as singing "Goddess Chants and Magical Uplifting Songs".  It is as though members of the Liberal Party were using party funds and resources to drum up support for the ALP and the Australian Democrats.  Certainly, such acts would demonstrate a "generosity of approach";  but one that would quickly become totally self-defeating.

The needs and desires which lead people to religion are diverse.  No doubt some individuals are looking for an "amorphous experiential spirituality" -- as a defender of Womenspace from the University of Queensland put it in a Courier-Mail article last week.  For such free spirits, a theological fruit salad containing dollops of the Bible, Eastern mysticism, neo-paganism and white witchcraft, all topped with a thick syrup of radical feminism, may be the best way of satisfying religious cravings.

I may be wrong, but I suspect that on this matter the majority of contemporary Catholics -- and prospective ones as well -- are more in tune with the wisdom of my tribal friends in Vanuatu.

They may not adhere to all, or even most of the strictures and doctrines laid down by the church.  But that doesn't mean that they want them to be swept away.  When they are told that core beliefs and practices should be abandoned in order to bring the church into line with contemporary fashions, they rightly sense a demoralising weakness.  What they expect from their church is a coherent structure of beliefs and practices, defended by a staunch but sympathetic clergy who sincerely believe that they are offering the true word of God.

And if priests or nuns lose this faith, and come to believe that people's spiritual longings are better served by other religious traditions, they should at least have the courage and integrity to leave the church and not draw on its resources.  Otherwise they can fairly be called impostors.

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Look for Strength in the Mainstream

When Australians voted overwhelmingly in favour of the 1967 Referendum, it is inconceivable that they wanted Aborigines to develop separately from the rest of Australia.  The Referendum was an act of inclusion.  Aboriginal leaders from the 1930s to the 1950s wanted equality.  With the support of the Australian people, they achieved it.  Unfortunately, the next generation of leaders wanted something else, collective self-determination.

When Aboriginal policy encouraged inclusion, it was good.  It has since overshot the mark and needs to be reined in.  Orthodox thinking in Aboriginal policy is that Aboriginal people have the right to establish their own society within the dominant society.  The orthodoxy forgets that traditional Aboriginal society was a gerontocracy, the rule of old men.  That world, and that authority, broke down a long time ago.

The technologically naïve, closed, geographically limited Aboriginal society was never going to survive European settlement.  Moreover, the conditions that make possible a modern re-creation of Aboriginal culture destroy the old.  Democracy destroys the authority of the elders, and new knowledge makes the old knowledge less powerful.  The new language, necessary to communicate the solidarity of Aboriginal people, destroys the need for the old languages.  Science destroys the need for much belief in myth.  Material wealth destroys every aspect of the previous economy, and the social organisation based on those practices.

The new authorities in Aboriginal society -- ATSIC, Land Councils, separate Aboriginal services and programs -- stand in the way of the bounty of the 1967 Referendum.  ATSIC is rallying support for a Treaty, an apology and reparations to the Stolen Generations, and the recognition of customary rights.  This agenda suits a political class, not necessarily Aboriginal people.  There are no Aboriginal nations with whom Australia could or should make a Treaty.  The democratic nation-state is one of the great triumphs of political organisation.  It is an insult for its title to be applied to tribes or clans, especially those that enjoy state protection and sponsorship.  The question of apologies and reparations are legal matters;  individuals are at liberty to pursue damages in the courts.  Customary rights are a misnomer;  customs derive from acceptance and use, not codification and enforcement.

Aboriginal people won their freedom in 1967, but they lost their livelihood and they lost their protection -- the missions, rural employment, remoteness -- from the onslaught of the modern world.  The task now is to help them adjust to that world.  Failing that, we condemn them to poverty and domination by the new authorities.  Aboriginal politics remains family and clan-based, and centres on the disbursement of someone else's surplus.  It is the same as the internal politics of political parties, personal and vicious.

Self-determination and self-government are not exercised by toy parliaments like ATSIC.  They only occur when a group taxes itself and disburses its own surplus.  Norfolk Island is seen as the political model for Aboriginal self-determination, but politics is not enough.  Norfolk pays its way, it is integrated into the modern economy.  Aboriginal people must make the transition that Norfolk Islanders made.

The new land rights deny traditional elders their land and the freedom to dispose of it as they think fit.  Aboriginal domestic violence services deny Aboriginal women protection from family violence.  CDEP keeps Aboriginal people trapped in poverty and meaningless activity.  Myriad other services -- housing, health, legal -- keep Aboriginal families in thrall of those who dispense government largesse.  Government largesse has destroyed self-respect.  With that comes drug abuse, and violence to women and children.

Any number of initiatives can sensibly assist Aboriginal people, but only those programs that assist the inclusion of Aboriginal people into the wider society should be supported.  All publicly-funded separatist programs must be phased out.  For example, buying and claiming land comes at a time when land resources have never been less valuable.  Spiritual attachment to land will not sustain communities, only the skills necessary for survival in a modern world can do that.

The policies Aboriginal people need are those that allow them to engage in the wider world.  At present, too many Aboriginal children are school truants.  Parents lack the authority to send them, schools are too afraid to make them attend.  In the NT, some Aboriginal parents are eschewing the local school system, where their children are treated as cultural curios, and are sending them to boarding schools where they will learn skills.

Dignity for Aboriginal people does not lie in the ideology of state-sponsored cultural solidarity and separate political and social institutions.  Aboriginal people need the same skills as every other citizen, skills that will allow them individual self-determination.

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Labor's Reform Must Heed the

The ALP may have won the Federal election had the tragic events of September 11 and the arrival of Tampa's cargo of illegal immigrants not occurred.  Then we would not be having this debate about the future of the ALP.  Mind you, the fact that Labor refused to pass laws denying "asylum seekers" unfettered access to judicial review, was asking for trouble.  The Government had lost control over who could come here, and under what circumstances they stayed.  The Prime Minister moved, on behalf of the electorate, to use other means to put Australia back in control of its own borders.  At the same time he exploited the perception that Labor served particular interests, those of economic refugees and human rights activists.

Having failed to deal with border protection in the parliament, Labor had no option other than to back the Prime Minister in the election campaign.  As former state MP, Mike Kaiser said, if Labor had the Greens policy on illegals, it would have ended with the Greens vote!  As for Roll-Back, my local butcher used to laugh.  He really looked forward to no GST on his funeral!  Labor was spending four times the amount on removing taxes on minor items such as Tampons than it was prepared to spend on Knowledge Nation.  If you do not believe in your own policies how do you expect the electorate to believe in them?

Knowledge Nation was just a sop to the secondary and tertiary teachers' unions.  Labor indulged in class-bashing over funds to private schools.  It was not enough to save its education spokesperson, Michael Lee, who lost his seat.  Parents of modest income are sending their children to private schools in great numbers.  Current policy is designed to support those parents who, out of the same income, decide to invest a greater part of their money on their child's education.  These are aspirations Labor had better acknowledge, or suffer the consequences.

What to do?  Some Labor governments have been good, some have been bad, sometimes with the same party structure and many of the same players.  So it is not obvious that party reform means success in government.  Nor is it obvious who is a quality candidate.  Democracy does not prejudge these things.  It is clear however that the working class do not elect or even preselect people in their image.  Above all, candidates require time and money, hence the prevalence of lawyers in the parliament.  This need not be a particular burden for Labor.  The blue-collar workforce is declining, and it needs a champion.  The trouble is, economic rationality will not go away.

Labor must once again join with the workforce to create a new future, not just cling to the privileges of the old protected one.  Labor did this successfully in the era of award restructuring.  The era did not help the union movement hold its members, but it did save many jobs and create new ones.  The health of the labour force and the health of the union movement are not always the same.

The whole public sector ethos is a challenge for Labor.  The party is struggling with some deep philosophical issues.  Government is not life, governments sets some rules to allow us to get on with life.  Too many in the Labor party think that the answer to life's problems lies in government programs.  This is what has caused such distress in the Aboriginal community.  Government takes over people's lives.

Labor needs the strength to hold out against the feral elements in the electorate, and the wisdom to know what is feral and what is not.  It needs to keep its focus on decent mainstream policy, not just bribe the activists and professionals who want to visit more of their bright ideas on an unsuspecting electorate.

Labor should think about loosening, not cutting the ties with unions.  Proportional representation in party ballots will help modify union power.  At the same time, major political parties need to recognise that they are no longer the only vehicles for political activism.  There are more exciting forums in the new non-government organisations, like Greenpeace and Amnesty International.  The challenge for parties, here Labor is particularly vulnerable, is not to be led by the nose by NGOs.  In government, mainstream parties must make NGOs prove their standing:  who do they represent, what is their expertise?  Remember, every time a party deals with an NGO, it displaces the voter.  The voters resent this.

Major parties provide stability, they have an ability to resolve the differences within the electorate.  The major parties are valuable synthesisers.  Independents, interest groups, NGOs and the media are very good at voicing problems, they are not so good at providing solutions, or at least convincing the electorate that their solutions are acceptable.

Both the Coalition and Labor have to think about their place in the world.  They are virtually instruments of government, rather than instruments of their members.  Their membership is few, their links with the community weak.  Policy comes from organised civil society, NGOs and interest groups.  A large slice of their income is from the government.  They may have to open their procedures to greater scrutiny in order to retain the privilege of running government.

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Liberals search for their own Third Way

No doubt Labor's campaign strategists thought it was a good idea at the time to put to air an advertisement claiming that a vote for John Howard might mean Peter Costello would become prime minister.  The concept completely backfired.

First, it showed that the Liberal Party had a clear plan of succession, as if it was needed, demonstrating security and stability.

More importantly, it unwittingly highlighted that the Liberals offered a leadership team encompassing generational change and different philosophical perspectives.

Since its formation in 1944 the Liberal Party has balanced two complementary and at times conflicting objectives.

It is the party of free enterprise and individual choice.

It is also the defender of the nation's key institutions the family, rural and regional communities, and Australia's system of government.  Those who seek to divide the modern-day Liberal Party into factions of moderates, wets and dries will be unsuccessful because the economic debates of the 1980s that gave rise to these labels are now largely settled.

While there will still be arguments at the margins about economic reform, they will be about the pace of change, not its direction.

On economic issues, following its victory the Federal Parliamentary Liberal Party is probably more united than at any time since Robert Menzies' retirement as PM in 1966.

It is difficult to categorise the protagonists of more recent arguments about the republic or reconciliation.  It also demonstrates the complexity of many of the issues that contain a "conscience" dimension.

The philosophical frame of reference on many non-economic matters is less certain and more fluid.

Some of the most vigorous defenders of low taxes and small government hold what would be called "conservative" moral views.

That these discussions have occurred without inciting the antagonism of the past is a tribute to John Howard's leadership.  It represents a new maturity in the Liberal Party, which has allowed a diversity of views within an overall cohesion.

A decade ago the idea that Liberal Cabinet ministers could take opposing positions on the republic referendum would have been unheard of.

The recent rediscovery of Edmund Burke as somewhat of an ideological progenitor to the Liberal Party is evidence of the uncompleted attempt to ground these new debates in a liberal tradition.

Of greater importance than management of internal philosophical differences in the Liberal Party is the need to continue reinvigorating policy development and to implement its vision in social policy fields such as tax, health, education, and welfare.

The American political scientists Seymour Lipset and Gary Marks in their recent book It Didn't Happen Here Why socialism failed in the United States examine the paradox of public policy in Australia in the 1980s.  Namely, that it was Labor that abandoned protection, deregulated the economy and privatised public assets.

The Liberal Party did not have an extended period in opposition to reconsider its policies and so was the victim of its own electoral success.

While critics complained during the election campaign about a lack of Coalition policies they ignored the fact that in its second term the Howard Government put in place a number of major reforms with long-term consequences, most notably in defence and welfare.

Traditionally, conservative governments have been reluctant to vigorously engage in fields beyond the economic, but it will be imperative for the third-term Howard Government to do so.

The Coalition will continue its emphasis on personal responsibility and self-reliance.  These directions, while usually associated with conservatives, have become central to the "Third Way" policies of Tony Blair.

As has occurred in the United States, there will be a renewed examination of the nature of the community, the family and the role of government, if any, in the development of social capital.

If a philosophical fault line was to develop on the liberal side of Australian politics it could well emerge in discussion about these issues, between those who believe it is a function of the State to encourage co-operative activity and those who believe it is the domain only of individuals and communities.

Both positions fit within the spectrum of liberalism, and discussion about voluntarism and the Coalition's First Child Tax Rebate are the first stirrings of this debate in Australia.  A third-term Howard Government can use its mandate to continue stressing three essential tenets of liberalism.

First, it can challenge and change the current community consensus that increasing government spending is a solution to most problems, and is preferable to reductions in taxation.

Second, that all Australian are treated as individuals with their own rights not as parts of groups, with some groups having different rights to others.

Finally, that it is the common interests of citizens that bring Australia together, not their differences.

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Regulated and Unregulated Interconnects

Keynote address to
Distribution 2001 Conference on Distribution and Transmission,
held in Brisbane on 12 November 2001

ENTREPRENEURIAL INTERCONNECTS

Views on interconnects range from those who see little in the way of future developments other than entrepreneurial interconnects, to the "planophiles".  They range on the one hand from Tony Cook, whose Australian subsidiary has pioneered entrepreneurial interconnects, to Transgrid which sees very little role for them.

At the distribution level, the natural monopoly case is much stronger.  In distribution networks, the only live case of duplication and competition is to be found in the Melbourne Docklands.  There, two firms decided to build competing lines.  Although the ORG placed some conditions on customer contracts that at least one of the competitors considers to be onerous, the outcome has been spirited rivalry and low costs with the two companies splitting the market roughly 50/50.

As far as distribution is concerned it is unlikely that we shall see more than occasional eruptions of head-to-head competition from two facilities.  Competition is likely to be for the field itself.

Whereas distribution performs a function with no real alternative, a particular transmission line is an alternative to lines linking different generation sources and, like other forms of trade facilitation, an alternative to producing the energy closer to the market.

With regard to transmission, a recent report for NEMMCO by PriceWaterhouseCoopers and Clayton Utz suggests that we should build more common carriage interconnects with regulated returns.

This is premised on transmission costs being only 5-10% of electricity costs.  Hence, the authors argue, the benefits of greater competition and lower prices through generator competition are more than likely to outweigh any inefficiencies.

A major problem with this argument is it fails fully to recognise the scarcity of capital.  Moreover, the sort of interconnects we are talking about are longer and more sparsely used than the existing main body of transmission–Latrobe and Hunter Valleys to the respective metropolitan centres–and the 5-10 per cent is not an accurate guide.  SNI, for example, would cost $500 per kW in capital for transport, which is similar to the cost of an open cycle gas turbine or half the cost of a combined cycle gas turbine.  And that is just for the transport.

When, as part of the process for designing the electricity Code, I raised the possibility of market provided transmission, there was universal scepticism that anything other than a planned wires system would ever work, given free-rider issues, balancing problems and so on.  But free markets were the essence of the Code and an obscure clause was introduced.  Few, myself included, thought it would have anything other than a marginal application.

Indeed, there is still very little consideration of the notion elsewhere.  None in the UK and it is absent from President Bush's 2001 Energy Policy document.  Though the Bush policy waxes lyrical about the need to massively reinforce transmission lines, it does not consider anything other than some form of planned system.  Eric Hirst's research for Edison Electric is typical of US injunctions when he says, "FERC needs to develop and implement transmission pricing systems that both ensure cost recovery for transmission owners and provide ... nada, nada, nada".  The same old anodine strictures favouring sensible planning.

The fact is that transmission businesses have clearly been underwhelmed by the FERC regulated prices they have been offered.  Transmission capacity in relation to demand has been steadily falling, a fall that the following chart indicates is increasing

Over the decade to 1999, transmission capacity (miles per GW demand) fell from 280 to 235.  Over that period, demand grew 30%, twice as fast as transmission capacity.  In real terms, annual US transmission investment halved over the 20 year period to 1999.

More recently, three entrepreneurial interconnects have been approved.  The ubiquitous Transenergie owns one in New York.  Black & Veatch and Siemens are proposing to build four power plants near coal mines in South Dakota and Wyoming.  This will transmit 6,000 MW of power along DC lines at a cost of $11 billion for the plants and $4 billion for the links.  Already approved is the Neptune Project with three cables, 3,600 MW in total, linking generation in Maine and Canada to New York and New England.

FERC has put conditions on these developments and it is not yet clear that they will prove successful.

Australian Transmission mileage has also shown less than a 10 per cent increase over the past decade, a trend similar to that of the US but one dictated by politics rather than economics for the period.

THE BENEFITS AND COSTS OF COMPETITION

PARTICULAR ISSUES IN ELECTRICITY

Bob Booth is one critic of market provision of interconnects.  He is strongly in favour of regulated links, and has championed the Riverlink proposal in its various guises.  Yet in his book, Warring Tribes, he documents the outcomes of government provision of transmission as being one of considerable waste, and in this respect cites the over-building of transmission capacity from the Latrobe Valley to Melbourne.

DC links offer scope for a link to determine whether or not it runs and therefore it becomes akin to a generator.  This allows competition in transmission, the lack of which involves several adverse effects:

• gold plating;  A notorious issue with government developed facilities is the tendency towards over-engineering.  The Victorian transmission system is a case in point.  The general consensus is that a private organisation would have been more parsimonious.  Government organisations are less disciplined than private organisations to these cost/benefit trade offs because the decision makers have little financial stake in the outcomes.  While excessive capitalisation is one result of government ownership, an alternative outcome is a squeeze on new developments where a government general budgetary position is strained.  The electricity industry throughout Australia has seen feasts, as governments have climbed on particular rationales for developments, followed by famines as a result of general budget constraints.  Such famines are rarer with the private sector since the absence of investment capacity by one firm would not prevent a rival stepping in.
• we also have a political response;  Government owned and regulated interconnects allow considerable scope for the pursuit of political goals using ostensibly commercial motives.  This obscures the merits of a particular proposal.  It leads to misallocation of production, often in the cause of regional development or saving of jobs of those whose votes are particularly valuable.
• finally, there is crowding out;  A regulated monopoly transmission is financed by a compulsory charge on consumers.  This differs from the alternative means of supplying the capacity:  new generation, and entrepreneurial interconnect or demand saving measures.  A compulsory charge is likely to crowd out those alternative measures and deny us the most economic industrial blend.

THE FUTURE OF INTERCONNECTS

It may be that the future will see no scope for anything other than a market provided entrepreneurial interconnected system, at least for major augmentations.

At issue, on whether a line should be regulated or entrepreneurial, is whether it is:

• to allow improvements in reliability, spending that would be difficult to cover in fees, and
• expenditure for an augmentation.

Australian debate on these matters has taken place against the backdrop of the ongoing saga of Riverlink/SANI/SNI.  The original application for a regulated link argued that only by having the revenues guaranteed could a major augmentation be built.  The application got bogged down by definitions of what constitutes the benefits that a planner could count up to decide whether consumers would voluntarily find it in their interests to finance such a facility if they did not have the option of free-riding on it.

Meanwhile Transenergie went ahead and commissioned a significant facility without requiring customers to be press-ganged into paying.  A change by the ACCC in the definition of what constitutes benefit has, at least ostensibly, incorporated producer benefits that would not otherwise be counted.

The trouble with all this, and with welfare economics on which planning rests, is twofold.  First the planner does not face the same incentives nor have the same quality of information on costs and risks that is found in the real market;  that's why planned economies and electricity systems are inferior to those that are market based.

Secondly, and more fundamentally, the apparent benefits added in the welfare economics case are invariably greater than those in the market case.  This is because it is well nigh impossible to restrict all the benefits of a market development to those paying for it.  For example, many consumers would be prepared to suffer brownouts and blackouts rather than face the costs of a new power station but once some consumers (those with the higher VoLL!) show a preparation to pay the extra costs the benefits flow to all.  Similarly, the welfare economics calculus estimates the value people place on a new development and adds in all the "consumer" and "producer" surpluses.  Market outcomes are limited in this by all-comers paying the same price.  Much of the value of a welfare justified development should be discounted if its merits are to be compared to a market development.  Otherwise it will divert capital to sub-optimal usages.

To reduce over-stating the benefits, in our own central planning we implicitly assume the new link will have no affect on the price.  This is the opposite fallacy;  it is inconceivable that the private sector would consider building a new facility without half an eye on the implications it would entail for the price of all outputs.  Neglecting this tends to increase the relative value of a planned facility compared to that driven by market forces (an outcome that appears to have been overlooked in the PWC/Clayton Utz report which declared the present test to be biased against regulated links!).

GAS INTERCONNECTS

These issues are far less controversial with gas where all suppliers are basically agreed on the entrepreneurial solution.

The main issues in gas are how to prevent the regulators strangling developments by requiring low pipeline charges.

However gas interconnects compete with electricity interconnects and with other solutions to providing energy to the user.  If electricity links are paid for by a regulated charge there will be a bias in their favour against gas links which have to find willing buyers.  Incentives are created to site prospective power stations close to the source of gas and have the transport costs financed by a hidden levy.

Clearly there are many options for the supply of energy even if this is defined solely as reticulated energy.  As well as electricity interlinks versus local generation versus gas links, there is potential competition from demand management.  And local generation includes a raft of possibilities including biomass, wind, micro-turbines, co-generation embedded generation as well as power stations delivering on a transmission network.

Biasing regulation for or against any of these will mean we are less well off as a community.  It may even undermine investor confidence in the regulatory framework.

THE SCOPE AND APPLICATION OF THE NATIONAL ACCESS REGIME

Access to eligible services may be through the NCC declaration process ⁽¹⁾ (after which the ACCC becomes the price regulator) or directly through the ACCC issuing a legally binding and non-appellable undertaking.

Addressing potential distortions was at the heart of the Hilmer Report which was the well-spring of current competition policy and heavily influenced structural change in energy.

Ostensibly, the Hilmer Report did not differentiate between private and publicly provided essential facilities.  It was however aware of the harm that could be visited on private property rights generally by regulatory seizure of some of those rights.

In reality the impetus for the Hilmer report was to redress the competition restraining effects of state government owned or controlled monopolies.  In Australia in the early 1990s the only "essential facilities" were those businesses which enjoyed government support or protection from competition.

To develop policy in recognition of the twin importance of property rights and competition, there are six important classifications of essential service or bottleneck infrastructure.  These can be developed into a taxonomy of regulatory approaches.  They are:

1. That which has been built without any market protection, especially that built since 1995 which is almost by definition "entrepreneurial" rather than regulated.
   In this case the preference should be "no regulation" since the entrepreneur had no privileges in seeking to find the customers and their needs.
2. That which introduces new competition, even if this is not identical to existing facilities.
   There is competition.  No regulation should be put in place and regulation on the existing facility should be removed.
3. Privately built infrastructure built prior to 1995 that enjoyed no government protection.
   The onus here should be on the authorities to make a case for regulation
4. That which is owned by the private sector but was built under a regime that offered protection from competition.
   This presents a clear case for regulation but one that needs careful handling to avoid shutting out future competition.
5. That which was owned by a government but has since been sold under contractual terms to the private sector.
   These should be regulated according to the contracted terms
6. That which was built by and remains owned by a government.
   This if it is not to be privatised needs to be regulated though in a way that does not pre-empt rival facilities.

So, logically, new unprotected infrastructure built by private enterprise in the "post-Hilmer" era should not be required to grant access or be subjected to price restraints.  The builders of such infrastructure are responding to a profitable opportunity that they foresee, one that, by definition, also confers gains on the buyers of the service.  The two parties obtain a mutual gain.  The sharing of the gain is one for bargaining between the parties but the consumers of the goods that the facility supplies cannot be worse off since without it they would not have that particular access route and perhaps not the product that the access delivers.

For its part, the owner of the new facility in this "post-Hilmer" era, cannot obtain gain from it by virtue of some form of government granted privilege.  The owner will, moreover, usually be building a project that carries some economic risk.  Such risk may emanate from a failure of the market to develop in the predicted way, new competitors, or the "howling gales of creative destruction" stemming from a technology that renders existing approaches archaic.

Achieving profits by better meeting market needs is at the heart of the private enterprise system.  Attempts to "redistribute" such profits can only harm the process.  This can be illustrated in the case of a new pipeline.  The owner of the pipeline will usually have considered a spectrum of alternative market projections (and perhaps a spectrum of cost projections).  There is uncertainty and, implicitly or explicitly, the owner will weight each scenario in making his investment decision.  If his threshold is a rate of return of 15% and he is considering scenarios that might yield rates ranging from 25% to 5% but provide a weighted average rate of 15%, cutting off the potential to earn the higher rates will reduce the weighted average to something less than the threshold.  The regulatory action would then eliminate the commerciality of the project.  In such a case, the sponsor and the customers would both be losers.

Access regulation can have significant disincentive effects on new investments in infrastructure through its impact in reducing expected rates of return.

One of the most contentious issues arose as a result of the EAPL pipeline busting the Moomba-Sydney pipeline monopoly.  We sought revocation of the coverage of the Moomba to Sydney EAPL gas transmission pipeline with the building of the rival Duke Energy line from Bass Strait.  We also sought that the Duke Energy line not be covered.  This provided a test about whether the NCC would "walk the talk".

We argued,

The Eastern Gas Pipeline means we have Coke versus Pepsi in pipelines to Sydney and the case for their regulation has disappeared.  With the construction of the Eastern Gas pipeline, the conditions that could warrant either an undertaking or any other form of regulated price and access conditions disappear.  The two pipelines themselves have considerable over-capacity and they will be engaged in a price war ... With two pipelines supplying an area, as long as there is no collusion, the case for regulation rests solely on the benefits to the regulators themselves.

The existence of two transmission pipelines serving NSW is the very definition of competition, the absence of which provided the initial rationale for regulation.

The NCC argued that they should regulate both pipelines since they did not traverse parallel routes and that, even if they did, regulation would still be necessary to prevent collusion!  It is clear such analytical reasoning by the NCC gives regulatory agencies the opportunity to control virtually every economic activity in the country.

All this said, these notions of allowing freedom for unregulated entrepreneurial links need to be moderated by centuries of application of the common law as outlined by Professor Richard Epstein ⁽²⁾.

Epstein draws on the seventeenth century tract by Lord Matthew Hales de portabis mari ("concerning the gates of the sea").  In that tract, which was not published until the 1780s, Hales argued, that an asset (he was discussing cranes in ports) can be "affected with the public interest" either "because they are the only wharfs (sic) licensed by the queen" or "because there is no other wharf in that port".

This offers strong support for regulation even where the asset has been developed without any government support of protection.

In light of the historical evidence that governments will control essential facilities (and that such control is part of the common law) a workable approach would be that access regulation be reformed to provide explicitly for the use of "access holidays" in relation to new infrastructure projects.

This provides a means, rather like patent protection, of allowing successful entrepreneurial investments to gain the super-profits that motivates them, while not locking in higher prices forever.  Equating an access holiday to a patent appears to be useful, insofar as it suggests that the access holiday constitutes an explicit recognition of the right of the facility provider to the return on his investment as the quid pro quo for his creation of new value.

The case for reduced regulatory oversight has received a chilling response from the ACCC.  The Productivity Commission report on the matter is with the Government.

THE INTERFACE OF REGULATION AND FREE MARKETS

The importance of all these matters boils down to the pricing regime.  The past few years have seen bruising disputes between the regulators and the regulated businesses over the appropriate rate of return for monopoly assets.  Philosophically, the ACCC has a strong focus on the price gouging potential of monopoly in setting the synthetic market prices it aims at.  This may be manifest in terms of the rate of return set, in the valuation of the assets themselves, or in excluding some assets from the total.

The tendency to bear down on price that the incumbent may charge also makes it difficult for rivals to enter the market.  Ironically, regulators' decisions therefore tend to prevent competition, the very process they were created to enhance.

Naturally the regulators concoct material to persuade others that they are being generous in their decisions.  Whether it concerns Telstra, GPU GasLink (now seeking to float itself at a 20% discount from its purchase price) or TXU networks (also apparently willing to take a capital hit), the outcome of Australian regulatory decisions has tended to reduce the values of the network businesses from those originally set by the market.

Many will argue that the original values were excessive, the fault of over-optimistic buyers, though this can hardly be said to be the case with Telstra where the Government set the price.

Although there may be a windfall to customers if the regulatory authorities set prices too low, the beneficial effects of this are highly transitory.  The adverse impact of setting prices too low has several dimensions.

If an asset is valued incorrectly by the regulator, market forces will tend to self-correct this.  But they will do so in ways that have damaging effects.

The effect of setting a transmission price that is excessive is likely to encourage new generation or some new rival transmission.  These developments are likely to motivate the owner itself to set a lower price and the damage will probably be slight.

Setting the regulated price too low has consequences that are rather more severe.  An asset that is priced artificially low will attract excessive demand and will "crowd-out" other, lower cost means of meeting the demand.  It will tend to:

• encourage generation to site itself more remotely from markets;
• encourage excessive demand;  and
• reduce demand for alternative fuel sources.

In addition to this, setting prices too low will lead to a reduction in its capacity and premature scrapping of the asset.  Operators, faced with a return that is too low will not be successful in obtaining adequate funding for maintenance.  The proposals will simply fail to make the hurdle rates and the owners will prefer to invest in assets where a better return is available.  Lower expenditure on maintenance will bring a deterioration in the productivity of the capital and a consequent waste of resources.

Finally, prices set at lower levels than the market expects, whatever they are, will deter new investment.

CONCLUDING COMMENTS

Competition is the means of promoting efficiency.  But its role is far more important than preventing sellers deliberately withholding supplies in order to allow higher prices and higher profits.

Competition is best regarded as having two functions, one generating "dynamic" gains and the other "static" gains.

The "dynamic" gains from competition stem from constant vigilance of many suppliers who need to cut costs and meet shifting market demands.

Commercial rivalry is superior to other arrangements in driving costs down.  Competitive firms must constantly seek cost savings, and other ways of maintaining or improving their profits;  these cost savings are largely converted into consumer benefits as rival suppliers adopt similar techniques.

The dangers are that, in seeking to redistribute the "static" gains, regulators and policy makers will close off opportunities for the more radical "dynamic" gains.  For the latter gains to be achieved, the innovator must be confident that government action will not deprive him of the profits of success.  This means having secure property rights.  If policy and regulation results in property rights being impaired, this compromises a fundamental plank on which competitive efficiency is generated.  For this reason, one of Government's most important role is ensuring the certainty that property will not be taken from individuals.

Requiring a low price for supplying a service where the supplier has previously sunk its main costs can be, in US terminology, a regulatory "taking".  It markedly reduces the value and security of property rights.  The initial adverse effects of this are felt on the firm whose value is partly expropriated but wider effects follow in deterring other firms contemplating similar activities.

---

ENDNOTES

1.  or its related State certification process.

2.  Richard A. Epstein Principles for a Free Society, Perseus Books, Reading Mass, 1998.

IR is Destroying Value

We are set to lose one of our largest and more prospective wool-processing firms.

Feltex Australia -- the largest local manufacturer of carpets, employing around 500 workers -- will almost assuredly close its doors during the next year and revert to importing product -- probably from New Zealand.

This could have been avoided.  The operation has had problems, but these could have been fixed.  The recent strike over wage rates and security of entitlements could have been resolved in a manner that enhanced the competitiveness of the firms and secured the jobs.  Instead, we have once again shot ourselve in the foot.

The plant complex in question has changed hands many time over the years.  Five years ago it was purchased by Shaw Industries which is one of the largest carpet manufacturers in the United States.  Shaw saw the potential and sought it through a program of workplace reform, new investment and innovation.  It failed and sold the complex less than two years ago to Feltex.  Feltex is not only New Zealand's largest carpet manufacturer but a leading exporter of carpets to Australia.

Given its skills base and knowledge of Australia, Feltex reasonably thought that if anyone could make a go of the plant it would be them.

Their timing could hardly had been better in terms of market conditions.  The Aussie exchange rate is super competitive.  The housing market, which is the main market for carpets, has soared to record levels both in terms of new construction and renovations.  And they have experienced good demand growth from non-residential, hospitality and public sectors.

Yet, they ran into a brick wall in the form of a destructive and intransigent workplace environment.  A them-versus-us mentality prevails in the workplace.  Management is by committee.  Innovation and structural change is frowned upon.  And the laws of the land are not conducive to resolving the impasse.

A few months ago, the firm was hit by a 15 per cent wage claim to be paid over three years.  The problem was not so much the size of the claim but the failure to get offsetting productivity improvements.  More recently the firm was hit with an industry-wide campaign by the unions designed to give the union control over worker entitlements -- not just redundancy but all entitlements.  The firm has quite justifiably refused to budge on the entitlement issue.  The union in question, the TCFU is virtually bankrupt.  Similar trust fund arrangements, such as in the building industry for long-service leave, have not served workers well.  And as a point of principle, liabilities should remain with the liable party and not be shunted to a third party.

The result has been months of rolling strikes and pickets that have not only resulted in the firm losing around $200,000 per day but undermined the firm's reputation in the market.  The dispute has seriously disrupted supplies causing financial hardship to carpet retailers and builders and left thousand of customers living on bare floors for months.  In the carpet business, as in most businesses, an aggrieved customer is a lost customer.

Although it will not admit it publicly, Feltex is now preparing to exit Australia.

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IR is Killing the Food Industry

The industrial relations system is killing the food manufacturing industry.

Over the last sixteen months, fourteen food processing plants have closed in Victoria alone.  These closures will result in the loss of over 2000 good paying, full-time jobs.  And it's not just a matter of moving interstate, as most of these jobs have been lost to Australia.

Of course, there are a number of reasons for the closure of these plants, but a malfunctioning IR system is the key.

The food industry around the world is changing.  Small nationally focused processing plants are being replaced with larger, more technically-advanced plants serving regional markets.

This process should be to Australia's advantage.  Australia has high quality, competitively priced basic food products.  We have a relatively large, affluent home-market for processed foods.  We sit next to Asia which is the fastest growing market for processed food in the world.  In short, the food industry should be booming.  Instead it is going out the back door.

Three current examples illustrate the problem which were discussed in The Australian this week by Robert Gottliebsen.

Six years ago, the world's largest manufacture of chocolates, Barry Callebaut from Switzerland, sent a team to Australia to investigate building a new state-of-the-art processing plant to service the Australian and Asian markets.  While Australia had most things going for it, the poor workplace culture endemic to the food industry ruled us out.  Instead the firm left and built the plant in high-cost Singapore.

At about the same time, Nestle, the world's second largest food manufacturer and also from Switzerland, decided things were changing for the better.  They built a new confectionary plant in Broadmeadows to manufacture its Kit Kat bar for the Australasian market.  The plant has been plagued with industrial disputes and poor productivity levels.  During one of the lock-outs the firm was forced to import stock from overseas.  In the process, it found that it could do so much cheaper than it could manufacture locally.  So when Nestle introduced its new Chunky Kit Kat bar, it had it made in Malaysia and not in Australia.

More recently, the City of Melton and the State government have been pursuing the giant Japanese food company Saizeriya to locate a $400 million processing plant in the city.  This was to be the start of a $1 billion food processing centre.  The city and state put together a generous package including free land.  Things were advancing nicely -- until the unions got involved.  At that stage a turf war broke out between competing unions.  The project now faces union-imposed bans on plant construction and is having difficulties negotiating a sensible enterprise agreement.  As a result, the company is set to walk.

Lost opportunities in the food industry as a result of a destructive workplace culture are not restricted to the food industry but are spread throughout the manufacturing sector.

Unless things change quickly and we allow enterprises and their workers to agree conditions free of unions seeking to impose their own costly management control, the up-coming world slowdown will see a hollowing out of our manufacturing base.  And once this is gone, it is gone forever.

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It's Not Easy Beating Greens

A leftist vegetarian academic who once belonged to Greenpeace writes about the state of the world's environment.  The outcome would seem predictable -- a tale of deepening gloom, accompanied by a metaphorical kick in the guts to the industrial capitalist system that is destroying our fragile planet.

That was Bjørn Lomborg's intention when he started his project.  In 1997 the Danish professor of statistics was infuriated by reading an interview in Wired Magazine with Julian Simon, an American economist who claimed that the environmental movement had got it all wrong.

Simon argued that readily available and uncontroversial official statistics showed the environment was not deteriorating.  He predicted that the material conditions of life would "continue to get better for most people, in most countries, most of the time, indefinitely".  The real problem was that too many people had accepted the green litany that the earth's ecosystems are breaking down, and that we are all going to hell in a handbasket.

So Lomborg assembled a team of his best students to test Simon's claims, expecting to show that they were just the ravings of a right-wing American Pollyanna.  To their complete surprise, most of what Simon was saying turned out to be correct.

Despite substantial increases in population and economic growth over the past three decades, air pollution in the developed world is actually decreasing.  Indeed in London -- the city which has the best available relevant data -- air quality is now higher than at any time since the late 16th century.  A similar trajectory can be expected in Third World countries as their prosperity grows through investment in physical and human capital, and further participation in international trade.

While there has been an increasing loss of biodiversity over the past four centuries, the threat has been vastly overstated.  Prominent scientists such as Paul Ehrlich and E.O.  Wilson have claimed that we are losing somewhere between 25,000 and 100,000 species each year, with perhaps 50 per cent of all species becoming extinct within the next 50 years.

But Lomborg found that these figures are fanciful -- either the outcome of wild guesses that have achieved respectability through constant repetition, or the results of careless back of the envelope calculations.  A much more realistic estimate, which is also consistent with one produced by the 1995 United Nations Global Biodiversity Assessment, is that in the next 50 years around 0.7 per cent of species will become extinct.  Certainly, this is a problem;  but it is not a catastrophe.

A similar picture emerged with most of the other supposed environmental crises that Lomborg and his team examined.  Using the best available data, the evidence indicated either that the situation was improving, or that the problem had been greatly exaggerated.

Acid rain is not killing off the forests, and in any case the rate of deforestation even in tropical developing countries is three to ten times less than the figures bandied around by environmentalists.  The temperate forests of North America and Europe have actually expanded in area over the past four decades.

Fears about an approaching exhaustion of non-renewable resources have proved to be unfounded.  The population explosion has peaked, and the rate of growth is now declining.  Furthermore, technical advances have allowed world food production to keep well ahead of population increases without bringing additional land under cultivation.

Realising that many of his countrymen shared his previous fear of an impending environmental disaster, Lomborg wrote four articles for the left-of-centre Danish newspaper Politiken, setting out his findings.  He set off a furore, with hundreds of commentaries and critiques appearing across the whole Danish press.  A book soon followed.

That book has been revised, updated, and translated into English as The Skeptical Environmentalist:  Measuring the Real State of the World.  While accessible to anyone with an intelligent interest in the environment, it is documented with relentless thoroughness and its 350 pages of text are followed by 150 pages of notes and references.

Released only a few weeks ago, The Skeptical Environmentalist has already created a sensation, and is now into its fourth printing.  English greens are braying about a pie-in-the-face attack on Lomborg by one of their number at the book launch in Oxford, clearly oblivious to what such an act says about their attitude towards a critical assessment of their arguments.

Despite attempts to discredit him, Lomborg is not an anti-environmentalist.  He acknowledges that the world faces significant environmental problems.  But he stresses that we must take a realistic approach to risk, and deal with the genuine threats in the most cost-effective and technologically sophisticated way.  This approach upsets many greens, because they try to use the environment as a weapon against economic and technological progress.

Lomborg does not dismiss the dangers of global warming, for instance.  But he is concerned that we address the problem sensibly, and he argues that the Kyoto Protocol will be a very expensive way of achieving only minuscule reductions in greenhouse gases.  Nor is he someone who believes that the market can solve all our difficulties, and he accepts the need for strong regulations in some areas, such as with genetically modified foods.

Bjørn Lomborg will be coming to Australia later this month as the keynote speaker at the Australian Institute of Energy's conference in Sydney.  Whoever becomes Minister for the Environment after today's election would be well advised to meet with him.  He may help to set an environmental agenda for the new government that is directed at genuine improvement rather than satisfying green illusions.

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Labor's Anti-Science Green Deal Betrays Knowledge Nation

Political parties have to change with the times.  Sometimes they go too far.  For example, in the time that my former Labor colleague Barry Jones was Science and/ or Technology Minister from 1983 until 1990, and indeed in more recent times in his Knowledge Nation, Barry Jones and Labor put their faith in science.  Science and technology were friends of working men and women.  The party platform notes that the nation's capability in science is central to, among other things, its environmental survival.  Science was a core value.

Unfortunately, the Jones' and the Labor party's commitment to scientific endeavour, and by implication to Knowledge Nation, has been sold for a few second preferences.  In 1990 Labor had insufficient first preference votes to retain government.  The second preferences of Greens and Democrats helped Labor survive.  Labor pursues the same strategy this election, but at what cost to a fundamental value?

Three commitments in particular smack of a commitment to irrationality as much as to the environment.  Labor will ratify and implement the Kyoto protocol, it opposes a new reactor at Lucas Heights in Sydney, and it will endorse the Earth Charter.  Labor was never a blind adherent of technological determinism, but these commitments are a part of what Patrick Moore, founder of Greenpeace, described as:  "Our original vision of Spaceship Earth and one human family was stolen and transformed into a virulent attack on corporations, technology, trade and science".

The Kyoto commitment will destroy the wealth and jobs of Australians, and yet no cost-benefit analysis of Greenhouse has ever been undertaken.  As Professor Garth Partridge, Director of the Institute of Antarctic and Southern Ocean Studies at the University of Tasmania says, "in view of the uncertainties, it would be cheaper and more sensible to spend money on adaptation to climate change if and when it occurs".

The replacement of the reactor at Lucas Heights has been the subject of much enquiry, the latest being a Senate Report.  A Labor/ Democrat majority recommended further studies.  This, despite the support of the scientific community for replacement.  To be sure, scientists are just another lobby, but their reasons were compelling.  "To not replace the facility within the next five years would dramatically diminish Australia's long term capabilities in emerging technologies such as nanotechnology, new materials processing, nuclear medicine, and environmental management processes".

Labor will establish a Commissioner for the Environment, an Office of Sustainable Development and a National Sustainability Council.  This massive political infrastructure will be based on, among other things, a commitment to the spirit and aims of the Earth Charter.  The Charter is a declaration of principles for building a "just, sustainable and peaceful global society".  The Earth Charter has been developed by a global coalition of green organisations and community groups.

It is also a pseudo-religious document that is opposed to science.  For example, it seeks to "recognise that all beings are interdependent and every form of life has value regardless of its worth to human beings".  There goes medical research!  Again, "eradicate genetically modified organisms harmful to the environment".  This is an anti-GM food clause, it will be used to strangle research and production, and with it the hope of feeding the Third World.

Most important is its adherence to the very unscientific precautionary principle.  "Prevent harm as the best method of environmental protection and, when knowledge is limited, apply a precautionary approach".  This implies the absence of harm, it ignores the classic scientific approach of proof.

Labor appears to have reneged on a fundamental value, its commitment to scientific endeavour.  It is now with the fairies at the bottom of the garden.

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Protocols with NGOs: The Need to Know

Backgrounders

Among a number of competing concepts of democracy, two stand out for the purposes of this paper:  democracy as a body of active citizens working together for public and private purposes;  and democracy as a set of constitutional arrangements designed to disperse and balance power.  Where, in practice, these are in balance, democracy is healthy.

In those societies where constitutional arrangements are weak, for example, where governments may be unaccountable to the people, corporations unaccountable to owners and customers, and corporate-government relations corrupt, Non Governmental Organisations (NGOs), consisting of active citizens, may be an important force for democracy, an opposition where none exists.  They may restore the constitutional deficit with an activist surplus.

In democratic societies with accountable government, strong regulation of the corporate sector and an absence of endemic corruption in business-government dealings, the role of NGOs is problematic.  NGOs compete with other people for access to government and other centres of power.  Democracy as an institutional concept needs to balance the interests of the organised and the unorganised.  An organised and active citizenry on some issues may be good for the activists;  but it may be bad for everyone else.

In the interests of an open and informed policy arena, and as a contribution to balance the two concepts of democracy, this Backgrounder proposes the use of protocols for the management of relations between NGOs and democratic governments, and between NGOs and corporations (and charitable foundations).  The purpose of a protocol is to ensure that provider organisations -- government, corporations, foundations -- assess the standing of an NGO before granting the NGO access to resources.  The providers should insist on this NGO information on behalf of the primary "owners" of the organisation -- citizens, shareholders, trustees -- and make it available so that those owners may assess the use made of their resources.  In this way, unorganised interests may reclaim some of the power that government and corporations sometimes cede to organised interests.

PROTOCOLS:  THE NEED TO KNOW

The foundation paper in our NGO Project -- NGO:  Way to Go -- concluded that NGOs are a legitimate vehicle for the advocacy of public policy and should not be subject to any form of regulation, unless they receive privileges from the state.

Democracy is enhanced by an open debate among interest groups, and NGOs' credibility in this realm of ideas rests in the value they add to public debate, subject only to the usual tests of veracity and relevance.  The state has no business in controlling NGOs.  Equally important, however, the growth of NGOs, fuelled by the very success of liberal democratic market regimes, has enhanced the range and intensity of issues now given voice by the activity of NGOs.  In doing so, NGOs have made the task of resolving and accommodating issues more complex.  Formal democratic institutions, in particular, democratically elected governments, have to cope with the electorate's enhanced ability to voice their concerns.  This has reached the stage that some NGOs seriously challenge the legitimacy of democratically elected governments.

For example, in July 2001 Britain's Development Secretary Clare Short condemned international aid agencies' part in the protests at the G8 summit in Genoa.  She remarked:  "These are NGOs from Britain, well-meaning good people who collect £200 million a year in charity.  Our government gives £3 billion a year and they want to claim to speak for the poor of the world".  The response from an NGO journalist was, "NGO relations are already strained with a Labour government whose democratic legitimacy -- and the claims it makes to speak for the poor -- rests on just 25 per cent of eligible British voters". ⁽¹⁾

If there is a contest between governments and civil associations to represent opinion, are there legitimate grounds to test the representative credentials of those who purport to represent society?  Some NGOs are being given representative status by governments on the basis that they represent broad interests, such as consumers or environmentalists, when in reality they express the interest of a few activists.  Moreover, some of these organisations are directed and driven from abroad, with few local members.  Some NGOs are given standing on the basis of their expertise, even though they undertake no research, do not subject their statements to independent peer review, have little technical expertise in the topics upon which they make pronouncements, and base their utterances more on emotion than evidence.  Their activities are sometimes driven more by fund-raising than advancing the public good.

Governments rely heavily on a myriad of intermediaries to articulate the demands of citizens.  All kinds of organised lobbies, including political parties, provide a link between the electorate and the government.  The "old hands" -- trade unions and corporations -- are not only well known, they are regulated.  Each is registered for commercial or industrial purposes.  It is possible to enquire about their organisational structure, as well as make judgements about their behaviour.  The "new hands" are advocacy NGOs;  they are less obviously interestor constituency-based than the old.  They are either identity-based -- female, homosexual, indigenous and the like -- or ideas-based -- environmental sustainability, human rights, equality, etc.  In both instances, they seek to appeal to universal ideals rather than specific interests.  Unlike corporations and unions, NGOs are neither directly accountable to market forces nor regulated by the state.  Unlike the old hands, the new "NGOs" credibility and legitimacy depends heavily on their capacity to provide technical, organisational, and political services to underrepresented groups". ⁽²⁾  Advocacy NGOs stand accused of making demands on the community without necessarily having the backing of a constituency.  These NGOs often lay claim, not only to a constituency interest, but also to the public interest.  In these instances, their ideas matter more than their support base.  Clearly, this is a challenge to government, which, in addition to being arbiters of private interests, are also formally the repository of the public interest.  The difficulty for governments is to judge not only the efficacy of the views of NGOs, but the weight of their opinions.

The close relationship between the old intermediaries and governments was often described in pejorative terms, such as the "corporate state".  It suggested favourable deals between those who had access to governments;  it implied losses to those who failed to gain access.  Such criticism may be well-founded.  Having a voice in the councils of government is of immense importance.  Politicians will take note of the number of voices represented by each group, be it trade union or industry group or corporation.  The corporate model may be to the public benefit (if for example, the participants decide to enhance free trade), or it may be to the public bad (if participants enhance protection).  If free trade was always good, the fact that it had few supporters in the 1950s and 1960s, but sufficient support in the 1980s and 1990s, determined its chances of success as a policy.  Clearly, while ideas may be the stuff of public policy debate, in a democracy, ideas need constituencies in order to "get up".

Where does this leave those who are not represented by old or new groups, and whose major recourse is simply to participate in elections?  They have a formal voice, but a muted one.  To assist those whose interests are not organised to monitor the activities of those whose are, the unorganised should insist on knowing something about the advocates that have access to government.  This is not to argue that governments should always have a right to such information.  Concepts of rights, however, are raised the moment an NGO wants something from government.  An NGO that seeks access to government enters into a contest with the unorganised.  Any weight given to the opinion of an NGO must, of necessity, be weighed against the opinions of other NGOs, and the unorganised.  Although each constituent has a right to see their member of parliament, in practical terms it is clear that the weight of opinion granted to an individual is not great.  If their standing is exceptional, their opinion will carry weight, but that will depend on their expertise in the field, or on their direct involvement in the issue.  A certain amount of displacement occurs when the organised are granted access to government.  This is not necessarily a bad thing -- NGOs, like political parties, help to aggregate and filter opinion, and in doing so, they contribute to the work of politics.  But such displacement needs redress, and one way to do that is to give the unorganised a right to know something about the groups who, collectively, displace them.

The same logic may be applied to corporations and foundations.  Corporations are called upon to act in various ways beyond their strict responsibility to their shareholders and to the law, for example, to be socially responsible. ⁽³⁾  Foundations are asked to support causes somewhat distant from their original charter, for example, not simply to alleviate the suffering of the poor or sick, but to support political agendas to solve poverty. ⁽⁴⁾  For example, Royal Dutch/Shell released a report in February 2001 extolling the virtues of sustainable development.  The company credits three NGOs with helping to draft the report.  Why did Shell rely on NGOs to give legitimacy to its report?  Why did it not ask a panel of scientists, or several governments' environment protection authorities?  Clearly, Shell made the judgement that it would be more credible in the eyes of its shareholders and customers to involve the NGOs.  The primary owners, the shareholders, were displaced.  The relationship between the corporation and the NGO should be explicit.  The shareholder should know with whom the company is dealing.  They need sufficient information to be able to judge whether the NGO's views coincide with their own.  They also need to know their expertise, their membership and their sources of funds.  Shareholders needs to maintain their standing vis-à-vis any other players.  One way of doing so is to seek information that establishes the standing of others.

The right to speak on behalf of others does not generate a government right (or corporation or foundation right) to regulate NGOs.  Governments should not, however, grant NGOs privileges greater than those accorded any citizen.  They should not assist NGOs nor give them access to policy forums unless NGOs have standing.  Corporations and other funding bodies such as charitable foundations should do likewise.  One way of managing the relationship with interest groups is to use a protocol.  A protocol, for the purposes of this discussion, means a publicly available statement containing the information about an advocacy body, which a government, corporation or foundation can use to establish the standing of the advocacy body.  Those NGOs granted standing should make the information available by way of a publicly accessible register.  The benefit of a protocol is that it enhances the openness of the relationship and the accountability of both parties to their constituencies.  It also provides a protection for bodies that wish to deny access to groups because they lack standing.  The key assumption in the protocol strategy is the recognition of the primacy of the granting body.  For example, government derives legitimacy from the formal act of democratic elections.  Corporations derive legitimacy from their legal obligations to their shareholders.  The legitimacy of foundations is based on their charter.  Where NGOs seek something from one of these bodies, their standing -- their legitimacy -- should be proved to the satisfaction of the provider.  A protocol suggests that when a government wishes to invite an NGO into the processes of government, the government should know with whom it is dealing.  Moreover, the salient characteristics of the organisation should be revealed to the public.

The key questions in the proposal that provider organisations should insist on a protocol are:  What level of access generates the right to know the standing of an NGO?  And what are the measures of standing, and what information should be made available to satisfy the measure?  These questions are applicable to all providers, but in this Backgrounder, the questions shall be explored for the government of the Commonwealth of Australia.

STANDING AND THE STAKEHOLDER PLOY

The casual nature of the proof of standing in NGO-government relations in Australia may have arisen for a number of reasons.  The most obvious is an admirable openness in the operations of government in Australia, in particular the value of consulting with, and being seen to consult with, the electorate.  Second, is the fact that major NGOs, established many years ago, were of a representative nature and were registered and scrutinised for other purposes.  Corporations, and employer and employee bodies were forced to reveal much about themselves before they approached government.  NGOs of the day may also have been of such standing in the community (church-based, for example), or with expertise so clear and narrowly defined (the Red Cross, for example), that the issues of standing did not arise, or if they did, did not generate too much scrutiny or controversy.

In the last 30 years much of this has changed;  there are far more NGOs making far greater claims to represent, or to be expert, or to know the mind of the electorate.  Indeed, the whole notion of standing, the right to be heard, has taken a particular twist.  Debate about the nature of the relationship between civil society and government, and civil society and other significant centres of power, particularly corporations, has suggested the idea of stakeholder democracy or stakeholder capitalism. ⁽⁵⁾  While the notion that everyone has a stake in the future of society is comforting, it also implies a new form of collectivism.  This trend has been detected by, among others, David Henderson and Vaclav Klaus ⁽⁶⁾ who, in recent lectures, have reflected on the rise of NGOs and their penchant for collective solutions to societal problems.  For example, the proposals that corporations should have a responsibility for matters that are not in their domain -- corporate social responsibility -- and that governments must be accountable in an ever-expanding number of ways -- that is, listen to and be accountable to NGOs -- are a means to grant privilege to one set of opinions over another.  Typically, those who are politically organised are heard in preference to those who are not.  Corporations are in a similar position and risk placing the demands of NGOs ahead of the interests of their customers, shareholders, employees and creditors.  For example, BP has decided to market itself as an environmentally friendly corporation.  BP sells non-renewable fossil fuels, and, more recently, it has begun investing in a renewable resource, solar energy.  It is positioning itself for the future, which involves a transition to renewable fuel, at the same time trying to sell fossil fuels to those concerned about the environment.  This transition would have come about regardless of the existence of any environmental NGO.  So why deal with NGOs?  Because some of its customers believe the NGOs rather than a fossil-fuel producer about the future of the environment.  BP feels that it needs Green NGOs to help it in its transition:  "We work very, very well with the different non-governmental organisations in the environmental sector". ⁽⁷⁾  BP has in fact conceded not only its ability to determine its own future by ceding some of its power to Green NGOs, but has thereby conceded on behalf of its shareholders, employees, creditors and customers their standing as direct agents in the corporation.  At the very least, where a corporation believes it may be assisted by creating links with NGOs, it should have them prove their standing to the satisfaction of its direct stakeholders, and it should make clear the nature of the relationship.  Is the NGO to set the standard by which BP is to perform?  What information obligations does BP have towards Green NGOs?  At the very least, it should ask similar questions of the NGOs, and satisfy its owners that they are still in charge, that they are still the primary stakeholders.

One example of the stakeholder approach in action is the use of a Code of Conduct in relations between NGOs and governments, and between NGOs and business.  A Code is not a protocol between the organisations, rather it is an agreement that an organisation will behave in a certain manner.  In this way, an apparently harmless Code can be a weapon to hold a corporation to scrutiny by an NGO. ⁽⁸⁾  The new dialogue of stakeholders and the device of Codes of Conduct imply equivalence in standing between the government/business/foundation and any other player.  In other words, legitimacy by advocacy!  The Code of Conduct is a device designed to make an organisation justify itself;  non-compliance in the use of, or adherence to, a Code implies a lack of legitimacy.  A corporation or an industry ⁽⁹⁾ may adopt a Code based on a judgement it makes about the need for enhanced relations with the NGO sector.  In many instances, however, a Code is pressed upon a corporation by an NGO with the purpose of modifying corporate behaviour.  The Code is a strategic instrument, which may be employed by a corporation to forestall or deflect criticism, or it may be an instrument the corporation uses to enhance its operations.  A corporation, as in the BP and Shell examples, will want "to position its genuinely desired outcomes as socially responsible", but NGOs will want "to sustain their own long-term credibility by demonstrating their ability to influence" ⁽¹⁰⁾ the corporation.

A further danger with the Code strategy is that governments may seek to impose these on business, in addition to existing legal requirements.  The key feature of a recent proposal by the Australian Democrats for a Corporate Code of Conduct to be imposed on all Australian large corporations operating offshore is the standing it gives to NGOs to bring an action against the firm, and on the broadest of grounds. ⁽¹¹⁾  The extraordinary feature of the growth of corporate Codes of Conduct is the number and the stature of companies that have chosen to use them. ⁽¹²⁾  Corporate Social Responsibility (CSR) is a fashion that seems to have taken hold in a number of multinational corporations and finds its expression through Codes.  The CSR fashion seems to have arisen out of pressure by NGOs on corporations to act as more than generators of capital;  they are urged to be good citizens, where "good citizen" means supporting the objectives of NGOs, particularly, the principles of "sustainability".

In the government arena, the Blair Government in the UK has devised a Compact ⁽¹³⁾ on relations between government and the voluntary and community sector, which seeks to recognise the legitimacy of the voluntary and community sector's role, and its own responsibilities to promote a healthy sector.  The UK Compact is not a legally binding document, but its underlying principle -- that the sector is fundamental to a democratic and socially inclusive society -- while deceptively inviting, nevertheless compounds the weakness of the stakeholder approach.  It enhances the tendency for government to share legitimacy with the community sector -- an important part of which is advocacy NGOs -- and thereby demotes the electorate.  The Blair Government's concession undermines the formal elements of responsibility that governments have to constituents, by passing the right to judge the actions of government, and often the right to set the standards by which a government will be judged, to a sub-group.

The stakeholder dialogue assumes that everyone -- civil society -- has an equal stake in the decisions of government and corporations.  For example, if everyone has a stake in the decisions of a corporation, it follows that the formal obligations that corporations have to their customers, owners, employees, creditors and the law, are downgraded.  The idea that those with a direct part to play in a particular decision, or those directly affected by a decision, are on an equal standing with any other person, has the result of weakening the benefit in having a direct contractual relationship or a formal political relationship.

Using stakeholder dialogue to intrude on the formal relations between provider and provided is a subtle and potentially destructive form of displacement.  In a situation where a corporation fails, there is a formal, though contested, order of creditors.  In the case of governments, the pecking order is just as important.  No-one should displace the voter, save those who have a direct standing on a particular issue.  While every citizen has a stake in the decisions of government, not everyone has the same stake in every decision.  This is not to argue that the issues for whom there is no immediate human constituency, classically the natural environment, should not be represented.  Rather, it suggests that if anyone pretends to represent any opinion or persons, then their access to resources should be subject to proof of their standing.

ACCESS AND OBLIGATION

The obligation on any constituent to prove standing depends on the level of access sought.  Governments grant access to individuals and organisations for many reasons.  For constituents, the primary reason is that, as citizens, they have a right to see their member of parliament or, if possible, a member of the government.  The range of constituent-to-government interaction is usually limited to meetings with a member of parliament, and standing arises because the individual is a constituent.  Should someone seek access to a Minister, it is usual to grant an interview where the individual has a direct involvement in the issues covered by the portfolio, that is, where matters decided by the Minister affect them, or where they are particularly knowledgeable and may be able to assist the Minister.

The standing of organisations usually arises from their ability to represent a class of persons, or because they have an expertise in the area.  A Minister will generally seek advice on the bona fides of the organisation.  Rarely will such information be shared with the electorate.  In addition to lobbying the Minister, individuals and organisations may make submissions to government or parliamentary inquiries.  Such submissions carry the name of the organisation, and may, as part of the submission, argue the case for their right to represent a constituency or claim an expertise, but these are rarely requirements of the submission process itself.  In a more permanent relationship, a Minister may appoint certain persons to the Minister's or government's advisory council.  Such committee membership is from time to time made public, but although the individuals are named and some details given to suggest their expertise, it is rare for the organisation they may represent to be named or details made available.  Beyond access for the purposes of meeting and giving advice, there are other levels of access which involve government funding, or the delivery of government services.  The Commonwealth funds certain peak councils, especially in the welfare area, as a deliberate means of forcing a community sector to aggregate its opinions.  Still, there is little material made available to the public for them to judge the standing of such bodies.  Many NGOs receive taxation benefits, for example, tax-free status, or gift deductibility status.  In order to gain such standing, they must prove their bona fides to the Australian Taxation Office and in some instances to a government department as well.  The information gathered for the purposes of tax status is not made available to the public.  At the most complex level of access, an NGO will deliver a government service or programme.  Usually, this is on a commercial basis, as with employment programmes, and the NGO may be a sponsor to a service organisation.  Church groups and development NGOs perform at this level, and the requirements for proof of standing are rigorous.  The considerable information about such service delivery NGOs is not made available to the public because the matter is a commercial relationship.

The obligation to prove standing and to supply information, in order to gain access to government, generally becomes more formal and onerous as the degree of access increases.  However, and data will be presented below on these matters, there are few rules in the area and almost no conception that the proof of standing should be judged by the electors as well as the government, or that the criteria should be a matter of public interest.

INFORMATION

When it comes to consultation and policy development, the World Bank ⁽¹⁴⁾ asks of NGOs, "who is in and who is out?" Government, corporations and foundations could pose the same question.  The answer will depend on the nature of the NGO and the requirements of the government, corporation, or foundation.  The Bank identifies five different functions that NGOs perform, in fact implying five types of NGOs.  These are:

1. Representation -- aggregate citizen voice (unions, churches, NGO peak groups).
2. Technical expertise -- advice/lobby (advocacy NGOs, think-tanks, professional associations).
3. Capacity-building -- support other NGOs, (foundations, training organisations).
4. Service-delivery -- implement projects or provide services (service NGOs, mutual aid societies).
5. Social functions -- foster collective recreational activities (sport and cultural clubs).

For our purposes, the first two are the most important in the policy-making arena, although from time to time, capacity-building and service-delivery organisations may also act as advocacy organisations.  It is also more likely that where an NGO delivers a service, there is already a contract in place with far greater information requirements than are necessary for a protocol.

The World Bank ⁽¹⁵⁾ selection criteria for NGO "partners" are based on the following qualities (depending on the nature and purpose of a particular task):

1. Credibility:  acceptability both to stakeholders and government;
2. Competence:  relevant skills and experience, proven track record;
3. Local knowledge;
4. Representation:  community ties, accountability to members/beneficiaries, gender sensitivity;
5. Governance:  sound internal management, transparency, financial accountability, efficiency;
6. Legal status;  and
7. Institutional capacity:  sufficient scale of operations, facilities and equipment.

Where an NGO wants access to a government or a corporation or a foundation, it should be granted on the condition that the NGO is competent in the areas relevant to the particular task required.  Each of these competencies requires proof.  Specifically, an NGO should provide data about their source of funds, their membership and the means of electing their office-holders.  Similarly, they should provide data as to their expertise.  Matters of institutional capacity probably have more to do with service-delivery than with policy issues, and are less relevant to a simple protocol.  In relation to access to governments, the data should be made public.  Business and charitable foundations should disclose such matters to shareholders, and to trustees or other such persons as required by their charter.  We will use a brief survey of the information requirements of the Commonwealth Government to explore the level of access that may generate a given level of information.  At the conclusion of the survey, some recommendations will be made about standing, access and information.

PROOF OF STANDING REQUIREMENTS
OF THE COMMONWEALTH GOVERNMENT

The information requirements to satisfy proof of standing could be extensive and relate to membership, finances and competence of officers, as well as the conduct of the organisation.  On the other hand, they could be minimal -- merely the aims and membership of the organisation.  The amount of information required to prove standing will vary with the purpose for which it is sought.  The Commonwealth Government's NGO information requirements vary considerably.  For example, where Commonwealth Ministers grant NGOs access to government committees, information about NGOs is not gathered in any systematic or formal sense, and is not available to the public.

Guidelines for Ministerial conduct suggest only that, "In dealing with a lobbyist who is acting on behalf of a third party, it is important to establish who or what company or what interests that lobbyist represents so that informed judgements can be made about the outcome they are seeking to achieve". ⁽¹⁶⁾  Where NGOs have the responsibility to deliver government programmes, the requirements of standing, especially competence and expertise, are highly scrutinised.  In the Department of Foreign Affairs aid programme, a great deal of material is gathered to assess the competence of an aid agency.

In other areas where NGOs have direct access to public funds, for example the Department of Immigration and Multicultural Affairs -- Living in Harmony Community Grants Program -- data requirements are more modest and not publicly available.  In the Department of Family and Community Services, the data requirements are similarly modest.  Where access to public funds is indirect, such as tax-free status, the information requirements are modest, and the nature of the data requirements is public, but the information about each NGO is not publicly available.  A separate category of NGOs which receives government funds is political parties registered under the Commonwealth Electoral Act.  Information about the use of public funds awarded to parties for elections is gathered and monitored, as are donations (effectively deductible gift recipient or "DGR" status).  However, no information gathered by the Australian Electoral Office to satisfy itself of the eligibility of a party for registration, such as membership numbers and the existence of a constitution, is available to the public.

The issues are:  What information should governments' collect to enable them to judge the standing of NGOs?  And how much of that information should be made available to the public?  Table 1, based on a brief survey of the information gathered and made public by the Commonwealth, suggests a hierarchy of information needs.  The greater the role the Commonwealth wishes the NGO to play, the greater the data requirements.  There are, however, inconsistencies in the information required of NGOs and in the public availability of the criteria.  In all cases, the information gathered on NGOs is not available to the public.  This means that there is no information on which the public may judge the merits of the government's selection of those who are given access to government resources.  That is, the public has no way of judging those that have access to government who seek to speak on their behalf, in effect who displace them as constituents.

Table 1:  Access to Commonwealth Government Resources
and Data Requirements of NGOs

Levels of Access to Government Resources	Data Gathered on NGO?	Data available to the public?
Lobbying the Minister	No	None available
Submission to government/parliament inquiry	No	Name only
Minister's or government advisory council	Little	If any, name only
Research funding	Some	Name only
Funding a peak council	Some	Name only
Receipt of tax benefit	Some	Name only
NGO delivers programmes	Considerable	Name only

Source:  Author.

A number of portfolios and programmes illustrate the variation in Commonwealth practices and the degree to which the Commonwealth is aware of the importance of proof of standing and its public availability.

Table 2: Total Funds Provided for National Secretariats of Peak Bodies

Peak Body	$ Allocation for 1999-2000	$ Allocation for 1 July-31 Dec 2000
Welfare
ACOSS	467,227	233,613
Disabilities
—services
ACROD	269,953	134,976
—consumers
Australian Association of the Deaf	114,134	57,067
Blind Citizens of Australia	165,386	82,693
National Council on Intellectual Disability	129,785	64,892
Deafness Forum of Australia	169,239	84,619
Head Injury Council of Australia National Caucus	112,758	56,379
of Disability Consumer Organisations	82,316	41,158
National Ethnic Disability Alliance	112,759	56,379
Physical Disability Council of Australia	112,432	56,216
Women with Disabilities Australia	112,432	56,216
Families
—services
Centacare Australia	107,720	53,860
Family Services Australia	153,822	77,044
Relationships Australia	105,730	52,865
—lone parents
Lone Fathers Association of Australia	50,000	25,000
National Council of Single Mothers and their Children	36,538	25,000
Children's services
Australian Early Childhood Association	301,101	150,550
Secretariat of National Aboriginal and Islander Child Care	129,785	64,892
Communities
Volunteering Australia	129,785	64,892
Homelessness
Australian Federation of Homelessness Organisations	301,101	150,550
TOTAL	3,164,003	1,588,861

Source:  FaCS, 2000. "Funding Peak Bodies", 4.

Issues in Family and Community Services

The Department of Family and Community Services released a discussion paper ⁽¹⁷⁾ in July 2000 on future funding structures for 20 peak community-based organisations.  The programme provides financial support to a large number of peak community-based organisations that represent the community and family services, welfare, disabilities and children's services sectors.  In return for funding, organisations are expected to contribute to government policies that support families and communities, and to carry information between the community and the Government on important social policy issues.  The paper directly raises the issue of representation.  The new funding model will need to ensure "that peak bodies truly represent the views and interests of their constituents". ⁽¹⁸⁾

The Department offered contracts to each of the 20 peak bodies for 1999-2000 based on a number of outcome measures.  A key issue was the desire to support peak bodies that truly represent their sectors and are "consumer" driven.  Currently, the Department of Family and Community Services funds a range of organisations that represent community-service providers, consumers or both.  In practice, this system can lead to conflicting views being put to government from different groups claiming to represent the same sector.  A 1997 review of the Community Sector Support Scheme questioned whether "service provider representative organisations" should be included in the funding programme.  The Review defined this group as "those organisations whose primary function is to represent the views and interests of persons whose occupation is the provision of services in the health and community services field". ⁽¹⁹⁾

At present, it appears that some funded organisations do not have effective mechanisms in place to consult properly with their membership and convey the issues raised to government.  Eligibility criteria for funding will require peak bodies to have broad-based membership and mechanisms to represent consumers' views to government effectively.  To qualify for a particular level of funding, for example, an organisation would be required, among other things, to:

• Represent the whole or a major part of Australian society on issues, directions and policies relevant to outcome areas;
• Convey to government the consolidated views and aspirations of constituents and the community on issues within that area;
• Be managed and directed by consumers (or a typical cross-section of consumers).

The discussion paper is aware of the need to question the standing of NGOs, although the criteria on which decisions are based are not publicly available, nor are any details of the organisations, apart from receipt of funding.  There is no way for the electorate to judge whether an organisation is representative, how many members the organisation has, or how those members are able to express a view within the organisation.

Information Requirements for Taxation Assistance

One common way in which the Commonwealth assists NGOs is to grant access to tax concessions.  Many advocacy NGOs have tax-exempt status.  For example, as a not-for-profit organisation, the Institute for Public Affairs is exempt from Income Tax. ⁽²⁰⁾  Under the current system, the Australian Taxation Office generally encourages organisations to self-assess their entitlement to tax concessions.  Where administrative approval is a pre-requisite to a concession, the decision-maker is normally the ATO.  Endorsement by the ATO is a pre-requisite for charities and gift-deductible bodies in relation to income-tax exemption, receiving deductible gifts, and refund of excess imputation credits.  In some situations, these decisions are not made by the ATO but by other bodies with appropriate expertise.  For example, for various gift deductibility categories, decision-makers include Departments for the environment, foreign affairs, the arts, health and education, and the CSIRO.  Where other administrative bodies are involved, there is commonly a shared responsibility, with the ATO looking after the more direct taxation aspects.

The current information requirements for deductible gift recipients (DGR) ⁽²¹⁾ for the Australian Tax Office are minimal.  To be endorsed as a deductible gift recipient, an applicant must have an Australian Business Number (ABN), satisfy the gift fund requirements, be in a category set out in the income-tax law, satisfy any special conditions for the category, and be in Australia. ⁽²²⁾  At its simplest, the gift fund requirement is to maintain a fund that receives gifts only for the principal purpose of the fund, authority or institution, and that is, there is no siphoning of funds for other purposes.  A society or association is non-profit if it is not carried on for purposes of profit or gain to its individual members.  A fund is a public fund where it is intended that the public will and does in fact contribute, and the public participates in administration of the fund.

Secrecy provisions preclude publishing data held by the ATO on particular organisations.  An exception is deductible gift status.  The fact that an organisation can receive tax-deductible gifts is included on the publicly available Australian Business Register.  Again, there are no data available about the organisations.

Some prominent NGOs (and their public funds for the receipt of gifts) are named in the DGR Table.  Amnesty International, the Australian Conservation Foundation Incorporated, the World Wide Fund for Nature, the Herbert Vere Evatt Memorial Foundation Incorporated, the Sir Robert Menzies Memorial Foundation Limited, the Centre for Independent Studies and The Menzies Research Centre Public Fund are required to furnish only statistical information about gifts to the fund.  They are listed in the Australian Business Register and this information is publicly available to allow people to find out whether gifts they make may be income-tax deductible.  The remainder of the information, which the ATO may gather to verify the status of the NGOs and their fund, is not is made available to the public.  Some of the information provided may be made available to other government agencies authorised by law to receive it.

Table 3:  Income Tax Exempt Charity (ITEC) and
Deductible Gift Recipient (DGR) endorsement statistics
in early January 2001.

	Received	Endorsed	Refused
DGR	18909	15242	2110
ITEC	41538	37159	1586
Total	60447	52401	3696

Source:  ATO submission to The Inquiry into Charities and Related Organisations,
January 2001, 26.

Environmental NGOs

NGOs and their funds not listed by name in the DGR Table are listed by other Government Departments.  For example, environmental NGOs' public funds are placed on the register of environmental organisations kept by the Department of the Environment and Heritage.  The Treasurer and the Minister for the Environment and Heritage decide whether to register the organisation and its public fund.  The information gathered by the Ministers in order to satisfy them of the veracity of the organisation is not publicly available.  There are 200 environmental NGOs currently listed on the Register of Environmental Organisations.  The Register is a Commonwealth government tax-deductibility scheme that enables environmental groups to receive endorsement as DGRs.  Approximately 260,000 Australians donated gifts to environmental organisations listed on the Register in 1998-99. ⁽²³⁾

The majority of these organisations have established themselves as legal entities, and this is a prerequisite for their entering financial agreements with the government to undertake projects funded through the Natural Heritage Trust programmes.  Organisations listed on the Register of Environmental Organisations fall into the following categories:

• Approximately 84 per cent are incorporated bodies;
• 8 per cent are trusts;  and
• 6 per cent are companies limited by guarantee and semi-government organisations.

These organisations are traditionally non-profit, have regular elections to determine their office holders, and rely on volunteers to manage the organisation and to undertake activities designed to protect and enhance the environment.  They also rely heavily on donations from the local community to cover their running costs.  A number of organisations are also involved in commercial activities, such as running an environment shop, conducting raffles, and selling arts and crafts donated by the public.

The Department of Environment and Heritage maintains the Register, and, by direction of the Environment Minister and the Treasurer, lists environmental organisations and their public funds on the Register.  As of 30 June 2000, 197 organisations and 196 public funds ⁽²⁵⁾ were entered on the Register.  Only the names appear on the Register, no information about the organisations is available.  The Register of Environmental Organisations has been a successful mechanism for generating donations to a range of voluntary conservation organisations.  The Register came into operation in 1993-94, and in its first year, donations through it amounted to $4.3 million.  This figure rose to $25.3 million in 1998-99 and is estimated to be around $30 million in 1999-2000. ⁽²⁶⁾  Table 4 sets out the level of donations each year since 1993-94.

Table 4:  Donations Received: Register of Environmental Organisations

Financial Year	1993/94	1994/95	1995/96	1996/97	1997/98	1998/99
Total Donation	$4.3m	$5.9m	$10.0m	$11.3m	$16.6m	$25.3m

Source:  Submission to The Inquiry into the Definition of Charities and Related Organisations. Department of Environment and Heritage (Environment Australia). December 2000. ⁽²⁴⁾

The number of environmental NGOs has increased substantially in recent years.  As they become established and consider their long-term viability, they are increasingly recognising that, in order to remain economically viable, they need actively to seek financial assistance from the government and the community.  In addition, as organisations become more aware of the provisions of the new tax system, they are applying for income-tax-exempt charity status in order to obtain exemption from a range of Commonwealth, State/Territory and local government taxes.

Development NGOs

Analogous to the environmental arena, the Minister for Foreign Affairs controls the Overseas Aid Fund sub-category of DGR's, and the register is available through AusAID.  Information about the NGOs is not available to the public from this source.  The Department of Communications, Information Technology and the Arts keep the Register of Cultural Organisations.  The Treasurer and the Minister for Communications, Information Technology and the Arts decide whether to register the organisation and its public fund.  Information about the NGOs is not available to the public.

In cases where governments fund NGOs, accreditation and information requirements are extensive.  For example, in the foreign-aid arena, an accreditation process aims to provide AusAID, and the public, "with confidence that the Australian Government is funding professional, well managed, community based organisations, that are capable of delivering quality development outcomes.  Accreditation acts as a front-end risk management process and ensures accountable use of funding with minimal activity overview by AusAID". ⁽²⁷⁾  This boast from the Commonwealth raises the issue of public confidence in placing public money in the hands of NGOs.  Such confidence is probably well-placed where the accreditation criteria are extensive and well-monitored.

The Accreditation Criteria Table (Table 5) indicates that the Department of Foreign Affairs should know the identity and structure of the NGO, its development philosophies and management practices, its links with the Australian community, and its financial systems and risk-management.  These criteria have been developed in consultation with the Australian Council for Overseas Aid (ACFOA) and the NGO community.  They reflect both minimum standards required to receive government funding and the requirements of the ACFOA Code of Conduct for Non-Government Development Organisations. ⁽²⁹⁾  In addition to information about the organisational attributes of an NGO, they are required formally to adopt, become a signatory to, and demonstrate compliance with, the ACFOA Code of Conduct.

Table 5:  AusAID NGO Accreditation Criteria Table (Abridged) ⁽²⁸⁾

Criteria	Examples of Indicators	Possible Verifiers
A AGENCY IDENTITY AND STRUCTURE
It is voluntary, not-for-profit and non- government.	VOLUNTARY: Governing body is drawn from the organisation's constituency and members are not renumerated ... NOT-FOR-PROFIT: surplus funds cannot be distributed to members/shareholders. NON-GOVERNMENT: independent from any Government institution.	Constitution, Memorandum Articles of Association, or Trust Deed List of Governing Body members' names and occupations
It is a legal entity with identified office holders with a documented structure of responsibilities and appropriate systems to ensure accountability.	Responsibilities of the Governing Body and its members are outlined in its Constitution or Articles of Association. The NGOs Objectives outlined in the Constitution, Articles or Trust Deed specifically include development/aid activities in developing countries.	Certificate of Incorporation, Constitution, Memorandum and Articles of Association ... Evidence that appropriate procedures have been followed if conflict of interest issues have arisen (e.g Board minutes).
B DEVELOPMENT PHILOSOPHIES AND MANAGEMENT PRACTICES
It has a demonstrated record of undertaking effective aid projects consistent with the objectives of the Australian Aid Program.	Track record over two years of a project which achieved demonstrable development outputs. Successfully managing at least one completed project.	Documented record of development activities undertaken by the agency.
It has development philosophies not inconsistent with the objectives of the Australian Aid Program.	Agency policies showing an understanding of development principles include cross cutting issues; such as gender, environment, human rights, etc.	Organisation Profile. Documented policies approved by the Board or Governing body.
D. LINKAGES WITH THE AUSTRALIAN COMMUNITY
It is clearly identifiable as Australian and can demonstrate responsive interaction with an Australian community base.	Agency has procedures in place to enable any member or supporter to have free access to, and to make copies of, all decisions of the governing body.	Evidence that Agency encourages new membership/supporters.
It provides accurate information about the nature of the organisation, its objectives and its activities in its public presentations.	Publicity material shows due respect to the dignity, values, history, religion and culture of the people with whom it works consistent with principles of basic human rights (ACFOA Code of Conduct).	Annual report. Promotional and educational documentation submitted.
E. FINANCIAL SYSTEMS & RISK MANAGEMENT
It has effective management, administration and financial systems for accounting for funding.	Documented policies and processes for accounting for funding.	Table of contents of Operation Manual and specific extracts.

Source:  http://www.ausaid.gov.au/ngos/display.cfm?sectionref=4984793623

SUGGESTED PROTOCOLS

Judging from the foregoing survey of the Commonwealth government information requirements, NGOs that have access to government (beyond the mere act of lobbying), are required to furnish information about their organisation to government.  Where the relationship between the provider and the NGO is substantial and involves the delivery of services, the data requirements -- the implied protocol -- are complex.  In these circumstances, the need to know about an NGO extends beyond the essentials of the organisation to its capacity to deliver and its accountability to its constituents.  The ACFOA Code of Conduct, for example, represents the commitment of overseas aid agencies to conduct their activities with integrity and accountability.  A Code of Conduct Committee monitors adherence to the Code and investigates complaints, which may be brought by any member of the public.

At the minimal level, the information requirements are less onerous, sometimes as little as the name and address of the organisation.  Perhaps the most disconcerting aspect of the Commonwealth's requirements is that for tax-advantaged status.  The criteria for acceptance are very broad, it is not clear if these are checked by an external agent, as opposed to self-assessed, and the information on which one may assess the standing of a tax-advantaged organisation are not made publicly available.  Information requirements for organisations that receive public funding on the basis that they are meant to represent a constituency, for example, in the peak welfare organisations, are not explicit and not available, nor is the information on which the assessments are made.  The ATO submission to the Inquiry into Charities noted the lack of information provided by non-profits that enjoy tax concessions.  There have been concerns about accountability to donors, possible erosion of confidence in the sector, the lack of data for policy development, and so on:

The Commission is concerned that accountability to donors and the general public is inadequate in terms of the availability of easily understood information and the transparency of operations.  This may reduce donor confidence and ultimately public support for the sector. ⁽³⁰⁾

In some overseas jurisdictions, legislation gives public access to various information about concessionally taxed non-profits, including administrator's decisions, constituent documents and financial data.  For example, in the USA,

Registered charities must file (annually) form T3010 that requires detailed information on their revenues and expenditures, assets and liabilities, remuneration paid to senior staff, and more general information about their charitable purposes and activities.  All of this information is available to the public. ⁽³¹⁾

In terms of a protocol at a level beneath that required for service delivery, and clearly not including those that have a commercial contract to deliver government services, NGOs that seek access to government or to corporations should supply information within the following categories.  The decision on how much information is sufficient to grant standing is, of course, a matter for the provider.  It will vary with the degree of access sought.  Whatever the detail of the protocol, the information should be made available to the public or to shareholders.  The position with tax-advantaged foundations is slightly different.  There is a clear obligation for governments to seek information not only about the foundation, but also about the organisations that receive their tax-assisted funds.

CATEGORIES OF INFORMATION TO JUDGE NGO STANDING

1. Governance
• Legal status.  The Constitution or Articles of Association should be made available.  These should be sufficiently detailed to prove the status of the organisation and to identify office holders, along with the structure of responsibilities and appropriate systems to ensure accountability.
• Operating Status:  Proof that the organisation is voluntary in that the governing body is drawn from the organisation's constituency and members are not remunerated;  is non-profit in that surplus funds cannot be distributed to members/shareholders;  is non-government in that it is independent from any Government.
2. Representativeness and Linkages to the Australian Community:
• Membership:  There must be a verifiable list of the membership, in all categories in which they are available.  That is, distinguishes members -- people with voting rights -- from supporters.  List should not be made public.  Provide evidence that new membership is encouraged.
• Elections.  Document the process whereby the governing body is drawn from the organisation's constituency;  the process by which members are able to be involved in the policy-formation process and the procedures to ensure that any member or supporter has free access to, and ability to make copies of, all decisions of the governing body.
• International Affiliation:  provide information on off-shore affiliates, associated parties;  on the degree of non-resident input in terms of board membership and general membership, and extent of offshore funding.
3. Financial Accountability:
• Financial statement:
• Financial statements which will present the overall financial activities and financial position of the organisation, prepared in accordance with generally accepted accounting principles and reporting practices.
• Information should include:  a) significant categories of contributions and other income;  b) expenses reported in categories corresponding to the descriptions of major programmes and activities contained in the annual report, solicitations, and other informational materials;  c) accurate presentation of all fund-raising and administrative costs;  and d) when a significant activity combines fund raising and one or more other purposes (e.g., a direct mail campaign combining fund raising and public education), the financial statements should specify the total cost of the multi-purpose activity and the basis for allocating its costs.
• The use of funds.  That monies are used in a manner specified by the NGO when it asks donors (and those funds are tax assisted) for donations.  That is, money should not be diverted to other purposes.  More specifically, information should be provided which shows:
• The percentage of total income from all sources that has been applied to programmes and activities directly related to the purposes for which the organisation exists.
• The percentage of public contributions that has been applied to the programmes and activities described in solicitations.
4. Fund-Raising:
• Solicitations and informational materials must be accurate, truthful and not misleading.
• Solicitations shall include a clear description of the programmes and activities for which funds are requested.
5. Expertise:
• The nature and extent of its claims to expertise, other than membership interest.  The qualifications, whether formal or by way of publications, of those who will speak or act on behalf of the organisation in its representations to the provider, research undertaken, and whether research has been assessed by independent peer review.

This list could be gathered as part of the correspondence between a provider and an NGO.  It seeks to establish the bona fides of the NGO, the fulfilment of which will be the acceptance by the provider of the NGO as being a body of standing.  These requirements do not arise at large, but because the NGO wants access to the resources of a provider organisation, and seeks to represent a body of opinion.  The protocol is not a matter of imposing behaviour, but of making information available to the formal owners of the providing organisation.

CONCLUSION

The single greatest failing of the Commonwealth's NGO strategy is that, other than in an administrative sense, it has no conception of standing for NGOs.  It has generally not conceived NGOs as interest groups, at least in so far as insisting on a test of their standing.  NGOs that seek access to government resources should be the subject of scrutiny, and the results of that scrutiny should be made available to the public.  The acceptance of an NGO as a body with standing should lead to the publication of the data on a publicly accessible register.  This simple procedure would reassert the dominance of the relationship between governments and their citizens, corporations and their shareholders, and foundations and their trustees, a dominance that has tended to be displaced by the all-too-ready willingness of providers to accept NGOs without at least questioning their credentials.

The new language of Corporate Social Responsibility, and Codes and Compacts, are all designed to allow new players a chance to define what is appropriate and what is not appropriate behaviour.  They are predicated on an assertion of equal standing -- that everyone has the same stake in any issue.  Governments and corporations that have fallen into the CSR and Code devices have ceded the issue at the outset.  They have ceded legitimacy too lightly and in the process have damaged their own legitimacy.  Governments, corporations and foundations are not "bad" and in need of further control, as is the orthodox NGO critique.  Rather, they are legitimate centres of power operating within a formal democratic and legal framework.  To undo that framework may come at the expense of weakening the contributions they make.  New players are no doubt welcome, but the views put by NGOs have already been put in democratic forums.  The various devices referred to above are a second bite of the cherry.  NGO activity is not going to fade, but it can at least be put in perspective.  Consumers and citizens need to know about NGOs that seek access to their resources.  The simple device of a protocol should help put the owners back in charge.

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ENDNOTES

1.  Nick Cater, 2001, Reuters Limited via Alertnet, August 2001.

2.  Fox, J. and L. Brown, 1998.  The Struggle for Accountability:  The World Bank, NGOs, and Grassroots Movements.  Cambridge, Mass:  The MIT Press, 21.

3.  Henderson, D. 2001 Misguided Virtue:  False Notions of Corporate Social Responsibility.  Institute of Economic Affairs, London.

4.  Holcombe R.  2000.  Writing Off Ideas:  Taxation, Foundations, and Philanthropy in America.  The Independent Institute.  California:  USA.

5.  The term is used extensively in corporate management literature as well as in political science.  For example, see Carroll, A. and A. Buchholtz, 1999.  Business and Society:  Ethics and Stakeholder Management.  Cincinnati:  South-Western.  Mathews R. 1999.  Jobs of Our Own:  Building a Stakeholder Society:  Alternatives to the Market and the State.  Sydney:  Pluto Press.  Winter M. and U. Steger, 1998.  Managing Outside Pressure:  Strategies for Preventing Corporate Disasters.  New York:  Wiley.  Kelly, G., D. Kelly and A. Gamble editors, 1997.  Stakeholder Capitalism.  New York:  St. Martin's Press.  Ackerman, B. and A. Alstott, 1999.  The Stakeholder Society.  Yale University Press.

6.  Henderson, D.  2000.  "Anti-Liberalism 2000".  Wincott Lecture.  The Institute of Economic Affairs, London, 12 October 2000.  http://www.iea.org.uk.  Dr Vaclav Klaus, 2001.  "Dismantling Socialism:  An Interim Report".  CIS Lecture.  Centre for Independent Studies, 30 May 2001.  http://www.cis.org.au

7.  ABC Lateline 13 August 2001.  Greg Bourne, BP's regional president for South-East Asia and Australia.

8.  Manheim, J.  2000.  Corporate Conduct Unbecoming:  Codes of Conduct and Anti-Corporate Strategy.  Tred Avon Institute Press.

9.  Some Codes are developed by an the NGO sector for an industry as a political tool, for example, Australian Asia-Pacific Mining Network, 1998.  Principles for the Conduct of Corporation Operations within the Minerals Industry.  35pp.

10.  Manheim, 2000, 31.

11.  See our submission on the Australian Democrats, Corporate Code of Conduct Bill 2000.

12.  See the website for examples.  http://www.codesofconduct.org/

13.  Home Office, UK, 1998.  Compact on Relations between Government and the Voluntary and Community Sector in England.  14pp.

14.  The World Bank, 2000.  Consultations with Civil Society Organisations:  General Guidelines for World Bank Staff.  NGO and Civil Society Unit, Social Development Department, 12pp.

15.  The World Bank, 2000.  "Involving Nongovernment Organisations in Bank Supported Activities".  Operational Manual:  Good Practices, 4.

16.  Prime Minister, 1998.  A Guide on Key Elements of Ministerial Responsibility.  Department of the Prime Minister and Cabinet, Canberra, ACT, 10.

17.  Department of Family and Community Services, 2000.  "Funding Peak Bodies:  A Discussion Paper".  July 2000, 11 pp.  http://www.facs.gov.au

18.  FaCS, 2000, 1.

19.  FaCS 2000.  "Funding Peak Bodies", 6.

20.  It does not have Deductible Gift Status.

21.  http://www.taxreform.ato.gov.au/publications/2000/nat3132/part1.htm

22.  Chapter 2 Income tax ITEC endorsement.  http://www.taxreform.ato.gov.au/general/searchframe.htm

23.  The figure is based on data collected by Environment Australia from annual statistical data submitted by environmental organisations fulfilling a requirement of the Register of Environmental Organisations.  The data quoted are from the statistics received for the 1998-99 financial year.  Submission to The Inquiry into the Definition of Charities and Related Organisations.  Department of Environment and Heritage (Environment Australia).  December 2000.

24.  A requirement of the Income Tax Assessment Act 1997 is that environmental organisations listed on the Register of Environmental Organisations submit annual statistical data to the Environment Department.

25.  Department of Environment and Heritage (Environment Australia).  Annual Report 1999-2000, appendix 3.

26.  See endnote 24 -- Register of Environmental Organisations Annual Statistical Data.

27.  http://www.ausaid.gov.au/ngos/

28.  http://www.ausaid.gov.au/ngos/ The abridged Accreditation Table has excised, Section C:  Approaches to Partnership and Development Collaboration.

29.  Australian Council for Overseas Aid, 2000.  ACFOA Code of Conduct for Non Government Development Organisations.  21pp.  http://ww.acfoa.asn.au

30.  Quoted in submission by Australian Taxation Office to Inquiry into Charities and Related Organisations, January 2001, 20.

31.  Quoted in submission by Australian Taxation Office to Inquiry into Charities and Related Organisations, January 2001, 20.