Wind in sails of a new chorus of claims

The first cancellation of a project as a result of environmental activism took place 30 years ago.  The previously unknown snail darter was judged to be under threat and would face extermination if the then 95 per cent completed Tellico Dam in Tennessee were commissioned.

Federal Environment Minister Ian Campbell justified his decision early this month to prevent the building of a wind farm in Gippsland on fears its blades would chop up the occasional rare orange-bellied parrot.

Australia has had many examples of anti-development zealotry.  Unlike the Gippsland wind farm, most of the halted projects would have had considerable economic benefits.  Malcolm Fraser led the way.  Shortly after the snail darter stopped the Tellico Dam, he brandished his green credentials by banning sand mining on Fraser Island, where it would have done no harm.

We saw mighty oaks of green economic vandalism flourishing from such acorns.  The ALP tapped the environmentalist current in winning the 1983 election.  A policy banning the construction of a major new dam began the gradual process of locking up Tasmania for development.

This was followed by the Hawke government's banning uranium mining on a former cattle station -- which one minister described as "clapped-out buffalo country" -- within the boundaries of a national park.  And we have seen the travails of the ALP policy from resolutely in favour of uranium mining, to adamant opposition, to "three mines" and now heading back towards support.

The High Court provided another arm to regulatory imperialism when, in the Mabo decision, it reversed the established law of property by inventing a new notion of indigenous rights.  Native title overlaying ordinary title is, with environmentalism, throttling new mining developments.

Both have proved enduring and immune from criticism.  Hence, Minerals Council of Australia chief executive Mitch Hooke ("Unblock minerals investment", AFR, April 11) complains about "structural impediments" to exploration.  Rather than seeking removal of the regulatory measures that have a choke hold over the industry he represents, Hooke falls back on seeking tax breaks.

Campbell's ostensible concerns for the orange-bellied parrot are in stark contrast to former Victorian premier Jeff Kennett's dismissal of suggestions that the bird might prevent the relocation of the Coode Island chemical complex;  he declared he would not be thwarted by some "trumped-up corella".

Campbell must have clear and well-justified reservations about the Gippsland wind project and used the Commonwealth's Environment Protection and Biodiversity Conservation Act to halt it.

One problem with using the act is that its provisions are sufficiently malleable to be exploited by opponents of economic development.  There are suggestions a bird previously considered extinct could be used to stop new iron ore mining proposals at Hamersley.  A Melbourne housing development is also in the sights of the anti-development brigade, who claim a moth may be threatened.

There are too many grounds for reducing prosperity by regulating business.  The wind farm furore coincided with the publication of the report of the Taskforce on Reducing the Regulatory Burden on Business, which addressed excessive regulation driven by "societal and political pressures" stemming from "a growing and unsustainable aversion to risk".  Contrary to the findings of that report, Campbell has stoked the fires of environmental activism.  He is wrong if he thinks he can harness them.  Not only will his reactivation of the Environment Protection Act's provisions engender a new chorus of claims, but it will build pressure for hiving off such decision making to an expert committee, the membership of which will doubtless become dominated by those with environmental concerns.

A postscript:  The outcome for the Tellico Dam was a deal five years later involving unrelated measures that allowed the dam to proceed.  The snail darter was found to be far from endangered.  It thrived throughout the area and was sufficiently adaptable to continue doing so in the dam.

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Future use of unassigned television channels

Submission to Australian Communications and Media Authority's discussion paper

INTRODUCTION

Australian spectrum policy is largely characterised by a "command and control" approach to allocation.  Government allocates rights, conditions of their use, and the services which may be provided.  Such rights can rarely be traded, and are subject to continuous government supervision and regulation.

Such a top-down approach is ill-suited to managing the implementation and diffusion of technological innovations, nowhere more so than in the field of communications and information technology.  While such a framework may satisfactorily -- although certainly not ideally -- manage a limited and static array of services, its capacity to manage the allocation of new and future technologies is limited.

Centrally planned licenses, regardless of whether they are auctioned off or simply distributed, require detailed comprehensive studies and consultations with regard to demand, public policy objectives, technical obstacles and cost factors.  Such a detailed system rigidly defines the parameters and extent of the spectrum rights, but at the cost of restricting flexibility, experimentation and innovation on the part of the licensee. ⁽¹⁾

While extremely difficult to estimate, it is certain that this framework costs consumer welfare enormous amounts of money.  For instance, looking at the delays in mobile telephony rollout in the United States caused by regulatory spectrum allocation, Jerry Hausman estimated that the cost to American economic welfare exceeded US$85 billion in 1990 dollars. ⁽²⁾  It is particularly hard to estimate the cost of foregone investment, but it is clear that inefficient allocation of spectrum costs Australian consumers similarly.  With only an extensive consultation process as a means to second guess market outcomes, regulators are unable to reliably respond to consumer demands and the potential benefits of uncertain new technologies.

This "command and control" approach of government policy towards spectrum, particularly in the Broadcasting Services Band is a government intervention designed to prevent one user of the electromagnetic spectrum from interfering with another.

However, it has been well recognised in the economic literature on spectrum rights that management of the electromagnetic spectrum would be best conducted under a secure property rights framework.  Highly regarded from the time of its first enunciation (1959) is Ronald Coase's demonstration of how well-defined and transparent property rights would result in spectrum being allocated to its highest value uses, regardless of the manner in which it was first distributed. ⁽³⁾

Such a system would include clear and unambiguous initial definition of interference rights in terms of power limits, subject to negotiated changes by rights holders.  Spectrum rights would be flexible in their use -- no restriction would be placed outside interference limitation, international agreements and economy-wide competition law.  Rights would be transferable and exclusive. ⁽⁴⁾

In Australian radiocommunications policy, only "spectrum" licenses approach this ideal.  While initially allocation of such licences may not be in practice technologically neutral, given an active secondary trading, the market would allocate technologies to its best use area of spectrum.

In contrast, "Apparatus" Licenses are a highly prescriptive and inflexible method of allocating rights to the electromagnetic spectrum.  Apparatus license require regulators to predict and usher in new technologies and services, a task which they are ill-suited to perform satisfactorily under the best of circumstances.

ACMA DISCUSSION PAPER

It is within this context that we approach the ACMA discussion paper "Future use of unassigned television channels".  Given the rapid technological innovation in this area, it is disappointing to see that the additional channel capacity left after the remarkably ineffective digital television allocation should be allocated to apparatus licenses, particularly datacasting transmitter licenses (DTLs).  While recognising that this allocation is largely up to the government, We urge ACMA and the government to reorientate spectrum allocation and management away from its "command and control" past.  Ronald Coase's insight was that the initial allocation of these rights is immaterial as long as these rights are tradable.  Government and ACMA should focus on assuring that the two new licences are as flexible as possible and allow the market to dictate an efficient outcome.

POTENTIAL USES

The availability of these channels represents a rare opportunity for media companies of all sizes to experiment with a variety of services if they feel it is in their commercial interest.  But given the rapid development of on-the-shelf and future technologies and their uncertain reception in the Australian public, it is not possible to reliably forecast future demand for services.

For instance, datacasting seems to have no role in an Australia being blanketed with internet coverage, but may have temporary use for rural and regional areas poorly served by telephonic and broadband communications technologies.  Similarly, subscription television and mobile television may only have temporary appeal, as bandwidth increases and online services, still in their embryonic stage, develop.  DTL restrictions on certain genres of television programs and audio content could further reduce forecasted demand for services on these channels.

But to develop policy on such predictions, and to then allocate scarce resources based on those policies, invites policy failure.

If government is serious about providing new media and content for Australian citizens, it should introduce flexible, consumer-responsive services on these two channels.  Ideally, these channels would not be allocated as DTLs at all, but instead as spectrum licences.  Whether this would result in two new free-to-air commercial broadcasters, or as experimental internet delivery mechanisms, or as subscription television networks, is a question that the market, aided by a strong institution of spectrum property rights, should be left to answer.  Anything else invites significant inefficiencies leading to a loss of consumer welfare.

COMPETITION ISSUES

Given the above, and that the two new potential services have not yet been utilised, it makes little sense to restrict licence acquisition beyond economy-wide competition law.  ACMA and competition regulators should treat potential new services as part of a wide, and steadily increasing, media market which includes traditional media services like FTA television, radio and print media as sharing its market with subscription television and internet media.  Even more useful would be to also factor in mediums like DVDs and other time-shifting and recordable devices.

Media ownership regulations are already extensive, even if recent DCITA proposals are implemented in full.  It is not necessary to supplement them with extra provisions for the two new television services -- instead of encouraging competition and new services, doing so would have a contrary effect.

Similarly, "use-it-or-lose-it" provisions needlessly restrict flexibility on licence usage.  Given the challenge posed by new technologies and media for incumbent broadcasters, companies that have invested in rights to the new television channels will have an incentive to utilise them in whatever way they find most commercially viable.  With an increasingly insatiable public demand for audiovisual entertainment and information, it is highly unlikely that it would deem restricting supply the best way to compete with subscription television or online entertainment.

CONCLUSION

Not all the recommendations above are under the jurisdiction of the ACMA.  However, as the regulatory body with the most expertise and an advisory role, the ACMA must push further for a strong, property rights focused and consumer responsive regulatory regime.  Regulatory bodies are ill-suited to predict the development of new technologies and are unlikely to result in equitable and efficient outcomes.

RECOMMENDATIONS

• Regulators should not attempt to second guess consumer demand and market outcomes of implementation of the new channels.
• Licencees should be given maximum flexibility to experiment with services, business models and technologies.
• New services require no special competition regulation.

REFERENCES

1.  Evan Kwerel & John Williams, "A proposal for a rapid transition to market allocation of spectrum", p62.

2.  Jerry A. Hausman "Valuing the effect of regulation on new services in telecommunications" Brookings Papers on Economic Activity, Microeconomics. V. 1997 (1997) p1-54

3.  Ronald Coase, The Federal Communications Commission, Journal of Law and Economics, v. 2 (Oct, 1959), p1-40.

4.  It may also be necessary to institute special provisions for low-power devices -- cordless telephones, wi-fi networks etc.  Evan Kwerel & John Williams, "A proposal for a rapid transition to market allocation of spectrum", p3-8

Hats off to the Patrick visionaries

The takeover of Patrick Corp by Toll Holdings will bring to an end one of Australia's most remarkable and successful business ventures.

All Australian managers, particularly in the manufacturing sector, should study it carefully.

It not only provides guidance on how to effectively break out of the straitjacket of established thinking and norms, but also how to flourish in this competitive world.

Back in the late 1980s, Patrick operated in the traditional Australian way.  Its business plan was built on a tripartite deal between the company, the government and the union.

The union ran human resources policy;  the government took care of the politics and the competition;  and Patrick got a 50 per cent share in a monopoly business to provide stevedoring services in Melbourne, Sydney and Brisbane.

The business was, however, under huge threat.  The users, particularly the farmers, were demanding change:  not only lower prices but fast throughput and more reliable services.

Governments were increasingly in a reformist state of mind and globalisation and technology were transforming the transport business.

The tripartite team responded with a series of "nip and tuck" reforms, funded by taxpayers.

However, in the end these achieved little except higher retirement packages for some wharfies.

Enter Chris Corrigan and Peter Scanlon.

They saw the latent potential in the business, and put their own money on the line by buying a sizeable share of Patrick.

For the first six or seven years they tried to work within the tripartite arrangement.  Eventually, however, they came to realise the need and potential for change.

The Howard Government no longer wanted to be part of the deal.  The new industrial relations Act allowed change.  Customers wanted change and unions were not delivering.

Thus began the famous waterfront dispute of 1998.  While it left all involved emotionally scarred, and the MUA retained the right to represent workers on the docks, Patrick got what it wanted -- the right to manage labour on its docks.

It made the necessary changes which quickly converted Australian docks into some of the most efficient in the world.

P&O, Patrick's main competitor in the stevedoring business, sided with the status quo during the dispute.  However, once it saw the gains in productivity made by Patrick it followed suit.

Patrick's vision did not stop at the docks;  it went after the holy grail of an integrated logistics system covering all modes of transport.

Others had tried, but government ownership and infrastructure bottlenecks had prevented them from achieving it.

The situation was changing.  The ports -- the key node in the transport system -- were under its control.

Governments were privatising and/ or deregulating rail, air and road transport systems and encouraging private investment into new infrastructure.

Enabling technology, such as GPS, satellite communications and the internet, was advancing rapidly.

Accordingly Patrick bought into road, air, rail and logistics businesses while continuing to build its ports business.  Toll Holdings pursued a similar vision, sometimes in joint venture with Patrick.

The process led to Patrick's share price increasing from $1.60 in 1997 to $8.71 at last night's close.

It has made Mr Corrigan and Mr Scanlon very wealthy.  It spawned a huge economy-wide improvement in productivity and competitiveness.

And it paved the way for other businesses to break out of the old mode, to compete and hopefully to flourish.

Three cheers for the visionaries.

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Free West Papua not viable

Claims that our relations with Indonesia are at a crisis because of Australia's decision to provide temporary asylum to 42 West Papuans are wrong.  A more accurate description of the state of the relationship was provided by Prime Minister John Howard a few days ago when he said the situation was difficult but not insurmountable.

Given the history of the two countries, it is an achievement that for most of the past 50 years the relationship has been so cordial.  Throughout the 1950s Australia feared that Indonesia would turn communist, and we'd be facing a hostile power on our doorstep.  In the 1960s we sent troops overseas to help Malaysia repel Indonesian attempts to crush Malaysian independence.  In the 1970s and the 1980s there was the problem of East Timor.

Australia's current situation with Indonesia is complicated by the fact that there are two separate interests that have been combined into one single problem.  On the one hand there is the humanitarian concern for the rights of the West Papuans claiming refuge in this country.  On the other hand there are Australia's foreign policy and security considerations.

By providing asylum to separatists, the Australian government is viewed by Indonesia as giving at least tacit support to the political objectives of those seeking asylum.  Australian ministers can claim that the administration of the refugee program is disconnected from issues of foreign policy, but it is completely naive to imagine that Indonesians would regard the actions of Department of Immigration officials in any way differently from the way they have.  What is at stake are questions not only about Australia's national interest, but also about the human rights of those left behind in West Papua.

The history of European colonialism in the Pacific can't be changed.  Once there might have been an opportunity for a single country to be formed on the island of New Guinea, but that chance passed decades ago.

Whether we like it or not the future of the island will be bedevilled by an arbitrary line drawn in the 19th century that separated the Dutch possessions in the western half of the island from those of the Germans and the British in the eastern half.  The process that incorporated West Papua into Indonesia in 1969 might have been corrupt, but it can't be undone.

It is in Australia's national interest for West Papua to be part of Indonesia.  Despite its natural resources, it would stand little chance of survival as an independent nation.  Its economic, political and social infrastructure is undeveloped and it would have every chance of becoming a failed state.  The Solomon Islands provide a daily demonstration of what West Papua could become.  The churches and non-government organisations campaigning for independence have the right to express their opinions, but they wouldn't be the people taking responsibility if an independent West Papua failed.

Transmigration from other parts of Indonesia into West Papua over the past half century has produced massive demographic change.  Native Melanesians are predominantly Christian, but of a total population of 2.5 million in the province there are now 1 million non-Melanesian Indonesians, most of whom are Muslim.  The future of the non-Melanesian population in an independent West Papua would be uncertain and the potential for ethnic conflict enormous.  Quite correctly, both the Liberal and Labor parties support Indonesian sovereignty over West Papua.

The reality is that West Papua is not viable on its own, and Indonesia will not cede it independence, as occurred with East Timor.  The best way to improve the economic and humanitarian conditions for all of the West Papuan population is for the Indonesian government to continue its moves towards the granting of a degree of local autonomy for the province in the same way as was provided to Aceh.

In as much as there is a role for Australia in these developments it must be to continue to support the establishment of democracy in Indonesia;  from this will come improvements for the benefit of West Papua.

In a strictly legal sense the granting of temporary asylum to the West Papuan arrivals might have been the correct course of action.  However, in the short term at least, it has damaged Australia's ability to assist in the process of political reform in Indonesia.

Relations between Australia and Indonesia have always been difficult -- and there is no reason to think that this will change soon.

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Buy into the bunk or let biotech forge on

Early this year a professor from the University of Queensland predicted 60 per cent of the Great Barrier Reef would bleach this summer because of global warming.

Then a few months later, at the end of summer, Professor Ove Hoegh-Gieldberg revised his estimate down to just one per cent.

In some ways global warming is a bit like genetically modified food, there is an awful lot of hype.  A couple of years ago Jeffrey Smith published Seeds of Deception claiming that genetically modified (GM) food is unsafe.

I heard Mr Smith on radio when he was over here promoting his book.  When asked for an example of an unsafe food on the supermarket shelves, he made some reference to how GM foods had not been properly tested.

A second book by Mr Smith about how GM foods are going to kill us will be published in August.  Called Genetic Roulette, it will apparently document the health risks from GM foods, which is interesting because I thought that was what the first book was all about.

In fact, I feel Mr Smith should tell us right-a-way what the health risks are.  Why should we wait until August, unless it's all hype?  I am starting to wonder whether people buy books about global warming and GM foods because they want to be titillated?

These two issues are particularly popular with people who like to have something frightening to chatter about.

The trouble is that politicians are often looking for something to legislate and I suspect that Mr Smith's last book, which was promoted by Greenpeace and subsequently frightened people, helped create enough angst for the NSW government to put in place the current bans on GM food crops.

In the meantime, Australian scientists recently made a major breakthrough finding an anti-freeze gene in a grass from Antarctica.  They claim that through genetic modification, this gene could be used to frost-proof grain crops.  The finding was announced this month at a Biotechnology Conference in Chicago, but what the audience wasn't told was that GM food crops are banned in all Australian States except Queensland.

Interest in the anti-freeze gene has drawn attention to the extent of agricultural losses from frost -- an ironic topic in this age of concern over global warming.  In the US there are more crop loses to frost than any other weather phenomenon.

But the problem is we also have people like anti-GM campaigner, Jeffrey Smith, and the professor who wrongly predicted the reef would bleach this year, who are expert scaremongers.  Some may be titillated by their dire predictions, but it is important to understand whether their claims have any basis in reality and what we can do about them.

Australian farmers have never had much influence over the weather, but Australian farmers do have some control over issues of genetic modification.

Farm organisations can chose to buy Jeffrey Smith's doomsayer predictions about the safety of this already proven technology, or they can start insisting that the current bans on GM food crops are lifted and research like that into the anti-freeze gene is fast tracked here in Australia.

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Fat ducks equal fat cows

Graziers like water, and the cheaper it is, the better.  Environmentalists thrive on crises -- no environmental problems, no crusades.  In the Macquarie Marshes both groups have formed a symbiotic relationship with graziers diverting water to their own uses, creating a perceived "crisis" in native bird populations, leading to them receiving even more water, but with zero effect on the "crisis".

All this at the expense of the taxpayer, who should be getting paid for the water, with the blame being sheeted home to the innocent bystander, the irrigators, who are not only the most profitable industry in the area, but pay full freight for the minimal amount of water they get.  Confused?  Here's how it works.

Last September, New South Wales Environment Minister Bob Debus announced that 30,000 megalitres of water, worth about $3 million dollars on the open market, would be released into the Macquarie Marshes as environmental flow.  Because of subsequent rainfall this was increased to 120,000 megalitres worth about $12 million.  A best kept secret is that most of this water was used to fatten cattle on private land.

The Macquarie Marshes cover an area of 220,000 hectares in central western NSW and are famous for their water birds.  But few realise that 88 per cent of the marshes are privately owned and through the construction of levies, diversions and channels, marsh graziers have ensured environmental water goes to private land first.  There is a northern and southern nature reserve, where grazing has been excluded:  these areas make up the remaining 12 per cent and are managed by the NSW Government.

With the construction of the Burrendong Dam in 1967 and subsequent development of irrigation and a local cotton industry, there has been a widespread perception that the marshes have suffered and the fault is all the irrigators.  In reality the marshes still receive 85 per cent of the water they received before the dam was built -- this was 32 per cent of the total inflows into the Macquarie system and is now 27 per cent.

The only real monitoring of the biodiversity of the marshes has been the breeding of water birds.  Bird-breeding sites were first mapped in the late 1970s.  At this time the major breeding colonies were along the Macquarie River and most within the nature reserve.  But over the past 30 years there has been a migration east to the Terrigal-Gum Cowal wetland, which is all on private land.

The last big waterbird breeding event in the marshes was in 2000, and ten of the 12 main breeding colonies were located on private land with only two in the nature reserve.

When the numbers of water birds breeding during major flood events over this period are compared, it is evident that, contrary to popular perception, there has not been an overall decline in the total number of birds, but there has been a decline in the number of birds breeding within the nature reserve.  The movement of birds out of the nature reserve reflects the channelling of water out of the nature reserve to private land.

In 2002, 18 per cent (12,000 megalitres) of an environmental flow allocation for the marshes was directed to the Terrigal system that supplies private landholders rather than the core marsh area.  In 2003, 27 per cent (15,000 megalitres) of an environmental flow allocation for the marshes was directed to the Terrigal system.

Last year, the 30,000 megalitres of water, so proudly announced by the minister as being for the marshes was blocked from reaching the southern marsh nature reserve for a period of days.  It is unclear how much of the total 120,000 megalitres of water, worth $12 million, eventually got through and then how much water would have made it further down stream to the northern marsh nature reserve.

Does it matter that environmental flow is being directed away from the nature reserve to privately owned land if 88 per cent of the Macquarie Marshes are privately owned and if healthy colonies of birds can co-exist with cattle?  The local graziers have a saying, "fat ducks equal fat cows".

The nature reserves were grazed under lease rights until 1990.  In 1943 restrictions were placed on grazing and burning in these areas because the reed beds were considered under threat.  It became illegal to burn reed beds except with the written consent of the district surveyor.  According to the regulations, stock were to be excluded from all reed re-growth until it was 3ft high, and rookeries for bird nesting and breeding were to be completely fenced.

Incredibly in this age of increased environmental concern, there are currently no restrictions on stocking rates, or stock access to watercourses, and bird breeding sites are not protected on most privately owned land.

The Burrendong Dam was built in 1967.  There is some evidence that there has been an increase in the overall number of water birds breeding during large flood events since 1986.  Have the graziers, by running water down additional river systems, increased the number of potential breeding sites?

What about other indicators of environmental health?  What is the state of the reed beds in the southern nature reserve:  have they also migrated to private land?  Upstream irrigators and Australian Geographic have documented the extent of overgrazing in parts of the marshes.  Their photographs suggest the cattle would be having a significant impact on ground flora and fauna and water quality.  But the data necessary to understand this impact is not being collected.

It seems incredible that the flood-plain graziers of New South Wales should scream so loudly for water and be supported by committed environmentalists and both attract considerable media attention while issues of overgrazing are ignored and while they get their water for free.

Across Australia there is an expectation that we will all have to pay more for our water, and use water more efficiently.  If the Macquarie Marsh graziers paid the same as irrigators for their average annual water usage, I calculate they would be up for $3.19 million this year and $7.55 million next financial year.  Under current arrangements, however, they pay nothing and the water is delivered through levies, diversions and channels that criss-cross the Ramsar-listed wetland.

The NSW Government has been provided with aerial photographs that show the levy banks blocking environmental water from reaching the nature reserve.  Government officers have confirmed that at least one of these levies is legal and been in place for 15 years.

Government has a responsibility to determine whether or not it is in the best interests of the marshes to bulldoze the levies, or leave them in place.  If most bird breeding is now on private land, because this is where the environmental flow is being channelled, then there should perhaps be some protection for the rookeries.  Public monies should not be squandered on fattening cattle.

There will likely be more environmental flow allocations next spring.  And the graziers and environmentalists may again scream that there are fewer birds breeding in the nature reserve.  They may scream loudly for more water for the marshes and point the finger at the irrigators.  The perception may be that the marshes are starved of water, while in reality it is just the small area of nature reserve that is dry, because yet another channel or levy may have been built pushing that little bit more water away from the reserve and onto private land that holds fatter cattle.

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Some holes in the greenhouse debate

Jon Stanford's "Carbon signal now firmly on the agenda" (Opinion, April 12) and the Allen Consulting report on which it is based illustrates some of the deficiencies of the debate on greenhouse economics.

The report argues that we should introduce a "price signal" (a euphemism for a tax) on the carbon content of energy.

It says we need a 60 per cent cut in emissions and that acting early will bring GDP costs at only 6 per cent rather than 13 per cent if we wait.

But the report arrives at these conclusions by assuming that there will be considerable innovation.  It excludes from the analysis nuclear power, surely the only future source that can conceivably deliver without imposing exorbitant costs.

Its assumptions allow for a tax of only $10 on carbon dioxide when even the European scheme's "price signal" is $40 per tonne and this only garners the "low-hanging fruit" of a 2 per cent reduction.

To make its numbers work, the report also assumes a credibility-stretching oil price reduction of 50 per cent.

In his article, Stanford claims that a tax is needed now to discourage any business from investing in coal-powered electricity but goes on to argue that no firm would do so anyway without a government indemnity against a future tax.

It would surely be simpler to ban such investment, a measure that even governments displaying green credentials have rejected.

While gas producers may find some comfort in a carbon tax conferring an early disadvantage on coal as a competitive source of fuel, gas, too, must face reduced market shares if reductions of the order proposed by Allen and its six sponsor businesses are to take place.  All this demonstrates that considerably more dispassionate analysis is required before governments embark on such economy-busting measures as those proposed by the greenhouse tax proponents.

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Meeting the Digital Challenge

Submission to the Department of Communications Information Technology and the Arts discussion paper on Media Reform Options

INTRODUCTION

The Australian media is heavily regulated by a wide range of legislation and industry codes.  Ownership, content, structure and reach are all subject to government interference.  These regulations are complemented by numerous government interventions and subsidies -- film financing, public broadcasting, arts grants, tax concessions.

The Productivity Commission report into broadcasting services argued that the current approach "reflects a history of political, technical, industrial, economic and social compromises.  This legacy of quid pro quos has created a policy framework that is inward looking, anti-competitive and restrictive". ⁽¹⁾  The regulatory and subsidy labyrinth has been a recipe for inefficient and inequitable outcomes.  It represents failures in Australian governments' attempts to manage the introduction of new technologies and services, to foster "diversity" and equal access and unnecessary measures to prevent monopoly.

Relatively recent far-reaching technological changes in media content production and delivery have exacerbated the adverse efficiency effects of this unsatisfactory policy progression.  The upshot has made it more urgent to implement a major adaptation of the sector's regulatory framework.  As we have long been involved in the economic, social and political debate over media and communications policy, we welcome the chance to comment on the government's media reform discussion paper in the light of these developments.

LEGACY OF MEDIA REGULATION IN AUSTRALIA

Media regulation in Australia has been characterised by concern over competitive outcomes.  These have been motivated by fears that untrammeled competition would lead to undersupply of content or at least an undersupply of the variety of content.  They have also been motivated by fears of monopoly which might pose threats to democracy and the free flow of information.  In more recent years, the rationale for this policy response has been reinforced by the vertical integration of the industry as a content supplier, platform owner and a supposed monopoly over content delivery.

Compounding this, when not assuming outright ownership, government policy since federation has often been focused on ensuring the commercial viability of media and communications firms.

In the first parliament, Sir Edward Braddon asked Prime Minister Barton whether the proposed wireless link between Tasmania -- then thought of as a primarily point to point communication device -- would damage the viability of existing postal or telegraph services.  The Prime Minister responded that the system was not advanced enough to do so. ⁽²⁾  Since this initial exchange, broadcasting has been thought of as not merely a commercial service, but an essential service which needed government regulation to ensure its viability. ⁽³⁾  Indeed, commenting on the possibility of advertising on the ABC, Prime Minister John Howard criticised the proposals by questioning how it would affect the commercial networks. ⁽⁴⁾

Despite demonstrable consumer demand for media, concern for the commercial success of broadcasters has historically been so important to government policy that the government's 1923 radio broadcasting conference was focused on developing a business model for the industry -- the famously short-lived "sealed set" regulations.

But this protectionist strain is not absolute.  From the Wireless Telegraphy Act of 1905 to the competition law of the 21st century, fears of the size and reach of media and communication companies have countered this strain by imposing limits on ownership and control.

These two competing strands of regulatory approaches are detectable in the earliest interactions between the wireless media and the government.

For instance, it has been argued that the Wireless Telegraphy Act, which gave the Commonwealth control of the new medium, was broadly accepted because of concerns over the relative power of the telegraphic cable companies -- power which the government did not want to see replicated in the wireless field. ⁽⁵⁾

Given the presumed power that media and communications organisations have in the public arena, governments have placed restrictions on ownership, content and micromanaged the utilisation and uptake of new technologies.

A (MORE APPROPRIATE) DIGITAL ACTION PLAN

The government must recognise that the transition from analogue to digital television signals has been a policy failure of the highest order.  Any Digital Action Plan must necessarily focus on how best to extricate the government and industry from this legacy.

Digital television offers the consumer little above what they already receive, and uptake reluctance is understandable.  This is not a failure of the technology -- until relatively recently, DTV could be considered cutting edge -- but instead a failure of the government's approach to the new medium.  Regulations designed to protect incumbents and to ease the digital transition have held back uptake and damaged digital television's competitive advantage.

This section will look at the rationale for compulsory digitisation of the television networks, and then propose an alternative approach which would better allow industry and consumers the freedom to choose the technologies and products they prefer.

WHY ENFORCE DIGITAL AT ALL?

What is the rationale behind the compulsory transfer to digital television?  In many respects it is a technology which has already passed into near obsolescence.

Freed from regulatory constraints, DTV is certainly a technological jump ahead of analogue television, and can provide consumers with a significantly better choices and experiences.  Utilising better compression techniques, it can fit more content into less spectrum, provide interactivity, and enhanced picture and sound quality.

But the government and regulators need to face the fact that, even if they get the switchover perfect from here on in, and the regulatory environment is at its theoretical most effective, digital television is unlikely to ever be the cornerstone of Australian media.  That ship has long sailed.

It is not even appropriate to call media delivered over the internet "next generation" -- new services like Google Video and iTunes, delivering television and video content on demand for negligible cost may be the sharp end of the wedge, but they are fully functional and increasingly popular.  On the same day that of the release of the discussion paper, Apple's iTunes--which has already sold 1 billion music files worldwide, and offers extremely popular television programs like Lost and Desperate Housewives -- offered its first movie for purchase and download.  The online retailing giant Amazon will shortly offer movie downloads, and Google Video has been offering classic films since the start of the year.  This is all before accounting for the massive, virtually immeasurable peer-to-peer networks trading in current international television programs and films.

Unlike digital television, the advantages of these new services are clear -- providing content free from quotas, timetables or geographic borders.

Even in its infancy, the internet commands significant ground in consumers' entertainment choices.  This is before on-demand television and film services have begun to take effect -- most services currently available were only launched in early 2006.  It is unquestionable that during the six years before the DTV switchover date, consumers will migrate more of their entertainment options on to the internet.

While the cost of broadband is often considered prohibitively high for many lower income households, it bears noting that this cost is going down rapidly -- there is no reason to suggest it won't have plummeted in real terms by 2012.

It may be important to note that consumer reluctance to purchase a set top box during the dual transmission period could be considered an entirely rational one.  Given that the current meager offerings on DTV provide little incentive to convert, consumers would be well advised to wait until the cost of the conversion goes down.  As, in 1999, the cost of a entry-level set top box was roughly $500, ⁽⁶⁾ and it has lowered since then to roughly $200, ⁽⁷⁾ it is inevitable that these prices will continue to decrease.

Government should not be managing the transition from one technology to another technology -- it should not be in the business of "picking winners".  Governments, and the bureaucracies that advise them, have very poor track records in choosing technologies for consumers.  Technological changes are often incremental and evolutionary, and that the application of current embryonic innovation is impossible to predict.

While this holds true economy-wide, it is a particularly important point in the media and communications sector, which has experienced particularly rapid rates of innovation and change since the beginning of the twentieth century.

Instead, technological change and uptake should be left to market forces and competitive pressures.  It is an inappropriate realm for government action.

A MARKET-BASED DIGITAL ACTION PLAN

In this light, we recommend a Digital Action Plan which better reflects the needs and desires of consumers.  This plan would consist of three major features:

1. Remove content restrictions on DTV services

Commercial broadcasters are prohibited from offering multichannelling until the switchover date.  But it is clear that the limited features of DTV are a major barrier to consumer uptake.  Given that the government has happily delayed the switchover date before due to lack of consumer enthusiasm -- it would be unlikely that until broadcasters are allowed to offer consumers value for their investment in a digital box, this reluctance to embrace the new technology will continue.

It follows then that content restrictions which hold consumer uptake back would be removed if the government is serious about DTV.  Concerns about the commercial impact on broadcasters of greater choice for consumers bring into question the government and regulator's appreciation of consumer preferences.

This has been recognised by the removal of multichannelling restrictions on the national broadcasters.  Equivalent removals should immediately apply to commercial broadcasters.

Similarly, anti-siphoning regulations lower the capacity of DTV broadcasters to provide value to consumers.  Anti-siphoning provisions lock consumers into old technologies, rather than encouraging them to migrate to new ones.  As the provisions target content (ie sport) that is deemed specifically popular, this effect is all the more intrusive.

2. Postpone analogue switchoff indefinitely

If broadcasters are allowed to provide new services on the digital spectrum, the requirement that they switchoff the analogue spectrum in the future is no longer necessary.  We recommend that the switchoff date be postponed indefinitely.  There is no good reason to forcefully remove a legacy network;  particularly when there is a clear demand for the services provided upon it, and to do so would incur significant cost on consumers and, if done equitably, government.

3. Allow broadcasters freedom to trade and utilise spectrum as they see fit

Rather than have government and regulators manage the use of spectrum by broadcasters, a better approach would be to allow the broadcasters to do so.

In order to facilitate this, we recommend that the restrictive apparatus licenses which govern the broadcasting services band be converted into the far more flexible spectrum licenses.  Broadcasters could then manage their licenses as they see fit, whether that is to divide them up, trade them on secondary markets, or to use them to experiment with new technologies and services.

While we recognise the substantial cost of the conversion from apparatus licenses to spectrum licenses, this is a cost which needs to be borne in order to facilitate new networks and services.  This cost, in the long run, would be substantially lower than the cost of pursuing outdated technology and mandating the digital conversion.  Giving broadcasters the flexibility to manage their conversion between services themselves, rather than having the government force them, sets Australian broadcasting up to cope with any number of unforeseeable, but inevitable, technological developments.

OWNERSHIP RESTRICTIONS

We broadly welcome the partial relaxation of foreign and cross-media ownership restrictions contained in the discussion paper.  But the proposals beg the question, not adequately address, why retain these legacy restrictions at all?  Ownership restrictions are applied to only some of the media marketplace -- broadcasting and newspapers, but not internet media, for instance, or magazines.  Given that all segments of the media sector are subject to economy-wide competition law, it makes sense to re-examine the rationale behind media-specific ownership regulations.

Diversity of ownership in media is not a goal in itself, particularly when potential lessening of competition through takeovers is protected by competition law.  There is some evidence to suggest that regulating for ownership diversity in the media can lead to loss of significant efficiencies.  These efficiencies can have notable effects on services and competition:

The potential for stitching together media businesses to create a fully integrated corporation -- from making the product to selling it in more and more markets to controlling the very outlets from which customers buy or rent -- offers the vertically integrated corporation significant economic advantages. ⁽⁸⁾

The challenge of providing a product with the global scale and quality of content that is expected from the broadcast media, particularly when it competes with a huge range of -- regulated and unregulated -- competition, is a challenge best met with large, integrated corporations.  The fantasy that small, localised media organisations can meet this demand is unsustainable.

OWNERSHIP RESTRICTIONS FOR DIVERSITY

Here's the truth:  the ownership debate is about nothing but content ... [The ownership rules] became a stalking horse for a debate about the role of media in our society. ... It was really an invitation for people with particular viewpoints to push for a thumb on the scale, for content in a direction that people preferred. ⁽⁹⁾

The goal of ownership restrictions is not diversity of ownership per se, but diversity of content and opinion.  And in this, it must be recognised that such restrictions are a strikingly indirect method of achieving this goal.

Concentration of ownership does not necessarily imply concentration of content.  As Adam Therier argues in Media Myths:  Making Sense of the Debate over Media Ownership, "competition and concentration are not mutually exclusive;  citizens can have more choices even as the ownership grows somewhat more concentrated or vertically integrated". ⁽¹⁰⁾  Even with the fixed-pie in television of three commercial networks and two national broadcasters, program managers have incentives to differentiate their networks from the others -- to search out new markets, to increase their share of the viewing public.  As content offerings spill over into 3G mobile phones and the internet, content diversity and choice is increasing.

Rather than being merely due to the introduction of personal computing and high speed broadband services, this massive increase in content has been a process over the past thirty years, since the introduction of subscription television, video games, compact disks, recordable VCRs and DVD players.  Even with the artificial restrictions on broadcast networks placed upon the Australian media, our access to content is unparalleled in history.

A further claim on the benefits of ownership restriction is that it regulates not merely for diversity of content, but also diversity of opinion.  Popular criticism argues that corporate ownership of the media affects the opinions broadcast.  This view has been summarised by the Productivity Commissions 2000 Broadcasting Inquiry:

The likelihood that a proprietor's business and editorial interests will influence the content and opinion of their media outlets is of major significance.  The public interest in ensuring diversity of information and opinion, and in encouraging freedom of expression in Australian media, leads to a strong preference for more media proprietors rather than fewer.  This is particularly important given the wide business interests of some media proprietors. ⁽¹¹⁾

This argument can be taken much further -- the conspiratorial view of, for instance the war in Iraq has media moguls, in this case Rupert Murdoch, pressuring the British government into going to war. ⁽¹²⁾  Noam Chomsky argues that media corporations in concert with government manufacture "propaganda" for the purposes of "controlling the public mind". ⁽¹³⁾

Modern conspiratorial views of media owners radically underestimate the diversity of opinion in forms in media producers which share the same ownership.  By being able to cater to a wider variety of niche markets -- and, in the internet era, servicing the long tail -- corporations are able to expand their market.  For instance, given an order from the owner to run a specific line on an issue, companies with shared owners would be suddenly forced to compete with each other.  If The Age and the Australian Financial Review were compelled to share the same opinion on, say, the deregulation and sale of Telstra, they would eat into each others -- previously separate -- market.  Media proprietors have a vested interest in increasing, rather than decreasing, the variety of opinion they broadcast.

Given the multiplicity of sources of opinion, even before internet access became near ubiquitous, the influence of contemporary "moguls" like Rupert Murdoch pale in comparison to early 20th century media owners like William Randolph Hearst in the United States and Lord Beaverbrook in the United Kingdom.  The competition between media platforms available to consumers in the 21st century and abundance of opinion quashes any capacity owners may have to engage in monopolistic practice in the market of ideas.

It therefore must go without saying that any artificial ownership restrictions designed to enhance diversity of opinion will never be able to compete with the diversity of opinion afforded by the internet.  Given that "bias" in the traditional media is a reflection of carefully researched consumer demand and that, for those who desire a viewpoint that they may not commonly hear on traditional media services, there is near ubiquitous internet access available, the justification for such restrictions are receding rapidly.

FOREIGN OWNERSHIP

We welcome long needed adjustments to foreign ownership restrictions.  However, given that the government considers that there is "no compelling basis" for singling out newspapers and commercial free to air television broadcasters for specific limitations on foreign ownership, this begs the question:  why limit foreign ownership in the media sector at all?  While relaxations are certainly welcome, it is not necessary to retain the media as a "sensitive sector" under Australia's Foreign Investment Policy.

Foreign ownership restrictions necessarily limit the pool of potential investors, and constrains media organisations' capacity to utilise international assets and networks.  In industries like the media, which often require large capital investment -- and, as has become common to innovative new networks and services in the internet era, the capacity to sustain losses for sometimes up to a decade before turning a profit -- disallowing foreign investment restrains potential media options for consumers.

Such decisions should not be left up to a political actor -- who, due to electoral pressure has an interest in gaining the confidence of existing or potential media personalities -- but instead should be left up to the market to allocate the most efficient owner of media organisations.

Fears over foreign interference in domestic media are also becoming more irrelevant as internet vastly expands the array of media available.  Owners, of whatever nationality, are less able to force their views on consumers who have access to a multiplicity of services.

MINIMUM NUMBERS OF OWNER RULES

Proposals to replace cross-media ownership rules with minimum numbers of owner rules address substantial potential inefficiencies.  By their very nature, such restrictions prevent innovative products which, in the post-convergence era, blur dimensions between previously distinct outlets.

But the retention of restrictions on ownership misses the essential changes in the nature of media consumption and production in the last three decades.

WHY DO WE NEED OWNERSHIP RESTRICTIONS AT ALL?

Entertainment and information gathering services have faced changes on all sides -- from distribution to storage.  For instance, in 1970, television programming was distributed from a single source -- broadcast FTA stations -- received on a single device -- a television set.  Programs were consumed on an "appointment" basis -- if you missed a program, there was no way to watch it again unless it was repeated by the broadcasters.

Compare this with 2006.  Television programming can be distributed from FTA stations, pay-TV, satellite television, the internet, VHS tapes and DVD discs.  It can be received by computer screens, portable devices such as travel DVD players, and, of course, traditional television sets (themselves with an ever widening variety of choice -- LCD, plasma or CRT).  Freeing consumers from appointment based consumption, it can be stored on VCR, recordable DVDs, hard drives, and PVRs.

This example is easily replicated across the media landscape -- radio, music, movies, print media etc.  But adding to the existing services we can add media like video games, internet content and e-mail, and new pay-TV services.

Briefly scanning such a landscape illustrates its expanse.  It makes little sense to define a media market by a specific technology -- television or radio -- when it competes with video games, the internet, and even pre-recorded television or radio content.  If it was a sensible policy goal to enforce, for example, minimum number of owners in the media, then these restrictions would apply uniformly across all distribution networks and content formats.  But, as this is clearly not possible, the rationale for such restrictions is severely undermined.

Ownership restrictions create significant potential inefficiencies, do not address questions of content and opinion diversity, and are inapplicable to the continuously expanding media landscape faced by consumers and industry.  Media should be subject merely to economy-wide competition law, rather than industry specific ownership restrictions.

ANTI-SIPHONING RESTRICTIONS

Anti-siphoning impedes pay television from acquiring sporting content on a fair playing field with free to air providers.  At the minister's discretion, the list of protected content under anti-siphoning provision now covers 10 separate sports -- from soccer to motor racing -- and the Olympic and Commonwealth games.

The logic behind these restrictions are necessarily stacked heavily against pay television and, potentially, new services.  Any event that the Minister considers is popular enough to make the anti-siphoning list is an event presumably (giving the Minister full benefit of the doubt) popular enough to add value to a pay television network.  By obstructing pay television's capacity to acquire this content, the value of pay television is artificially reduced along with consumer incentive to subscribe.  Given the slow uptake pay television has had in Australia -- Foxtel only lay claim to a operating profit after interest and tax for the first time in January 2006 -- it is hard to avoid the conclusion that anti-siphoning regulations needlessly stack the deck against subscription television services.

No content laws are content neutral, but anti-siphoning and anti-hoarding laws are the most highly subjective.  If the Minister decides that an event should be "available free to the general public" it is eligible to be placed on the list.  All events on the list are sporting events, even though the BSA does not specify that they are a requirement.

Instead of devising methods by which loopholes could be closed in anti-siphoning laws, their utility should have been seriously questioned.  Anti-siphoning laws reduce value in new services and thereby lock in outdated technology.

PREMIUM CONTENT AND THE ACCC

The ACCC is now presenting the acquisition of content as a significant enough barrier to entry to warrant government intervention. ⁽¹⁴⁾  This is a most unwelcome development for choice and technological innovation.  The ACCC chairman's formulation assumes a fixed quantity of desirable content which must be divvied up amongst providers -- the reality is that the sporting content delivered on a mobile device or via the internet will be so dramatically different to the sporting content delivered on a television to render it incomparable.  The medium that content is delivered on influences the content itself -- for instance, an internet live broadcast of a football match could be heavier on statistics than would be possible on the less interactive traditional television broadcast.

But the most disturbing aspect is that the ACCC is indicating that it wishes to run media content regulation parallel and supplementary to the existing scope of the ACMA.  Presumably, the "premium sporting content" will be decided in a manner similar to anti-siphoning provisions -- that is, in an arbitrary and subjective fashion by a political appointee.

ACCC creep into media regulation beyond the norms of competition law is an undesirable development, and will, if statements by the chairman are any indication of ACCC thought in this area, produce public policy detrimental to media diversity and consumers.

Any reform covering either content regulation like anti-siphoning, or the role of the ACCC, must recognise and anticipate the danger of expanding competition regulation into the distribution and creation of content.

RECOMMENDATIONS

DIGITAL ACTION PLAN

• Remove content restrictions on DTV services.
• Postpone analogue switchoff indefinitely.
• Allow broadcasters freedom to trade and utilise spectrum as they see fit.

OWNERSHIP RESTRICTIONS

• Remove foreign ownership limits on media, including classification as a "sensitive sector" under foreign investment policy.
• Remove cross media ownership rules and "minimum voices" restrictions.

CONTENT

• Remove anti-siphoning restrictions.
• Restrict ACCC from content considerations in determining competition bottlenecks.

REFERENCES

1.  Productivity Commission 2000, Broadcasting, Report no. 11, AusInfo, Canberra.

2.  Curnow, R. 1963, "The origins of Australian broadcasting", in I. Bedford & R. Curnow, Initiative and organisation. p 50

3.  Thornley, Broadcasting Policy in Australia:  Political influences and the Federal Government's role in the establishment and development of public/community broadcasting in Australia.

4.  "Howard dismisses ABC advertising suggestion", The World Today, ABC Radio, 15 March 2006.

5.  Curnow, p53

6.  Philips Sound and Vision.  Digital Television, Australia's Options.  p9

7.  http://www.dba.org.au/index.asp?sectionID=18

8.  Alexander, A, Owens, J. and Corveth R. (eds) Media Economics:  Theory and Practise (1993) p65

9.  Michael Powell, chairman of the Federal Communications Commission in the United States, in a 2005 interview

10.  Adam D. Thierer, Media Myths:  Making Sense of the Debate over Media Ownership, p72.

11.  PC, Broadcasting.  p314

12.  For a summation of these arguments, see the documentary Outfoxed:  Rubert Murdoch's War on Journalism.

13.  Chomsky, quoted in Thierer, p110

14.  see Graeme Samuel's speech to the ACMA, 10 November 2005

Government policy will increase the cost of energy

Energy Minister Theo Theophanous (The Age, Business, 4/4) says, "Other states are looking to Victoria to once again take the lead".  If that were true it would be a rerun of the 1990s Kennett/ Stockdale era.  The reform agenda of that time, which is now universally acknowledged and applauded, was opposed lock, stock and barrel by Mr Theophanous, who was attempting to prevent the increased efficiency that the market-driven private system has delivered.

Then, as now, Mr Theophanous' policies stem from a belief that he knows the best interests of suppliers' and consumers' businesses better than they do.  His latest policy thrust seeks to impose smart meters on electricity consumers.  Smart meters have advantages but forcing their premature roll-out is overly expensive.  Marco Bogaers in his letter (The Age, Business, 22/3) takes Mr Theophanous to task for understating these costs, overstating their benefits and misleadingly saying costs will be absorbed by business.

Mr Theophanous' policies all appear to share a common theme:  that businesses can be milked and that consumers will not notice the higher costs.  Other instances of this include:

• The imposition of environmental costs on the Hazelwood power station stemming from its routine application to continue in operation beyond 2010;
• Arbitrarily doubling coal royalties on generators;
• The Victorian renewable energy proposals to subsidise wind generation, with costs to consumers of $1.2 billion and 2000 lost jobs.

The Minister is leaning on the electricity retailers to use cost savings to improve social welfare and fund greenhouse gas measures.  This would deny lower prices to the consumers.  In addition it would seriously undermine Victoria's original electricity retailers which would be placed at a competitive disadvantage to new suppliers.  Electricity markets work best without the incessant meddling of an overactive minister who has no understanding of business.  Greater investment caution and higher costs will be the upshot of an electricity supply industry continuously having to interface and respond to Mr Theophanous' intrusiveness.

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Federal scheme a monopoly buster

Ask just about anyone involved in running a business about workers' compensation and you're likely to receive a highly negative response saying it's a huge business headache.

The problems with workers' compensation are many.  But central to understanding this is the fact that the eight different schemes run by the states and territories are mini-empires of monopoly.  And like all monopolies they do a job but fail to deliver the highest quality outcomes to consumers.

However, some change is now beginning to unfold that will expose the state schemes to competition.  And it could be the start of much bigger change.

In what can only be described as the emergence of "competitive federalism", the Federal Government is now making its workers' compensation scheme, Comcare, available to some sections of private business.

For private companies to enter Comcare, they must be large enough to self-insure and be in competition with a Commonwealth authority or former authority.  The state governments are not happy with this.  The first to enter Comcare was Optus in 2004.  In response, the Victorian Government mounted a legal challenge but this failed.  Now the door seems open to large numbers of companies to follow the Optus lead.

Transport company Linfox recently entered the scheme.  And many companies are making applications or seriously considering the option.

Commonwealth Bank, for example, would automatically succeed because it is a former government authority.  ANZ, NAB and all others banks and financial institutions could enter because they compete with Commonwealth Bank.

Any transport company that competes with Australia Post should be eligible.  Mining companies may be eligible where they compete with a former government power company that operated mines, for example.  The number of businesses that may be eligible is large and the benefits of shifting to Comcare are significant.

Any business that operates nationally is now forced to register and comply with each individual state workers' compensation scheme.  The complexity of compliance is massive.  The schedule of claimable injuries and compensation amounts is different from state to state.  The administration rules that apply are totally different in each state.  The premium rates and administration vary hugely and claims administration has no consistency.  This was all detailed in a Productivity Commission report in 2004.

The state governments may claim that these differences are important if federalism is to operate properly.  States with superior workers' compensation schemes can attract businesses, they might say.  But the horse-and-buggy days of states running self-contained economies have long passed.  Even small businesses frequently need to operate in national if not global economies if they are to be viable.

For companies operating nationally, the appeal of having one national workers' compensation scheme across their entire business makes enormous sense.  For a long time the states have had a committee of heads of compensation authorities to try to bring some consistency but the process has been a complete failure.

It's not surprising, then, that the Federal Government has decided to take the lead and open the states to competition.  Initially the benefits will only be felt by large businesses that can handle self-insurance.  But the implications are much wider.

The states will come under pressure from businesses and workers who are their clients and who, for the first time, now have another option.  Some listening to clients might actually occur.  The state schemes may feel the need to improve administration and servicing and stop many of the rorts in which they are involved.

For example, in the labour hire area, all state workers' compensation schemes apply what they call "recovery".  When a labour hire worker is injured, the states regularly sue the client of the labour hire business and "recover" the cost of the injury claim against the client's public liability insurance.  The states use a legal loophole they have created to avoid their insurance obligations.  In this respect the schemes are a sham.  Labour hire companies are likely to rush Comcare if they can.

Many other workers' compensation scams exist.  The federal scheme is likely to create competition for the states to mend their ways, to create truly effective and efficient schemes.

At this stage Comcare is only available to larger businesses.  But as Comcare grows the states will be worried that all businesses and workers will demand entry.

Many states may say the Federal Government is destroying federalism.  But Australia's federalism has always been about creating competition between the states.  If this has failed in some areas, the entry of the Commonwealth to create a new level of competition must be welcome.

In the end, the ones who stand to benefit are Australia's workers and businesses.

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IR balancing act relies on lots of fine tuning

Any confusion over Work Choices comes not just from the legislation's massive size but also from a misunderstanding of its political framework.

Work Choices, in fact, exists on two key levels, in an interplay of conservatism and liberalism that is the hallmark of the Howard coalition.

On one level Work Choices de-collectivises the process of workplace control that has long underpinned the industrial relations structure in Australia.  On another level it attempts to balance the workplace individualism it introduces with a government-imposed protection of workers.

The worker protection being created, however, is not that delivered by unions, but rather protection provided through government authorities.

This is a historic shift.  It's witnessed by the huge increase in funding for workplace inspectorates and the extensive regulation power delivered to the Workplace Relations Minister.

This emphasis on individual choice between employees and employers, balanced by a new system of delivery of worker protection, is consistent with the history of the Howard government.

The Prime Minister has frequently stated that the coalition is a complex combination of conservatism and liberalism, reflecting the vast middle ground of the Australian population.  On one hand, Australians want to be entrepreneurial and economically creative, but on the other, want government to look after them.

This duality in the Australian mind-set is what the Howard government has always sought to appeal to and manage, but it creates political tension.  It frequently causes heavy reaction against the government during the implementation of reform agendas.  This is why it only attempts one big reform in each electoral cycle.

Political capital was lost in trying to turn around endemic government deficit spending.  It happened again with the introduction of the GST and PAYG tax.  On each occasion the government fell into a hole when the community was staggered by the scale of the complex changes.

But on each occasion, persistence in fine tuning pulled the government back into line for the next election.

Work Choices is in its most difficult phase.  Its recent introduction and the scope of its changes mean the community is only slowly gaining an understanding of it.

The government is facing attack from both ends of the political spectrum.  Unions say workers are being dealt out because unions are being dealt out.  Deregulation-minded free-marketers can't believe the scale of the re-regulation involved.

Community confusion is unaddressed because the government has not yet begun its detailed community education program.  The greatly expanded workplace inspectorate is only being established and will take some months to be properly operational.

And there is still a new piece of legislation to come:  the Independent Contractors Act.

It should not be misunderstood as part of a secret agenda to introduce an unregulated labour environment.  In fact the Independent Contractors Act will ensure that independent contractors are regulated through commercial and trade practices law.  And everyone in business knows that regulation of commercial activity in Australia is heavy indeed.

It can't be denied that Work Choices takes away unions' traditional role in the legal system as the pre-eminent protector of employees.

But employers have not been given a free hand.  In some respects the restraint on them is heavier than in the past (for example, the prohibition on cashing out an employee's full four weeks of holidays).

The volume and complexity of Work Choices is partly the product of using a limited and untested constitutional hook to create a national system.  In transition, it has to retain aspects of the old system.  And it has to keep unincorporated businesses within its reach.

But underneath the confusion are some basic principles.  These include the liberal desire to allow individuals to explore their own workplace arrangements, balanced with the conservative inclination to impose basic protections.

For a reformist Howard government this is a political risk, one it has run in the past (the GST, slashing the budget deficit).

But there is an additional, broader context within which Work Choices must be understood.

Work Choices is only one part of a dramatic reshaping of the national working environment by the Howard government.

This reshaping is partly driven by the government's view of how Australia should operate, but more importantly by a need to respond to changing demographics and the challenge of sustaining economic growth.

The first element in the reform package is the imposing of law in the, at times, criminally corrupt construction sector.  Construction unions have been viewed by the government as operating like organised gangs, sanctified by the old industrial relations system.

The activity of the sector's new policeman, the Australian Building and Construction Commission, is already having an impact.

Collapsing unemployment and (soon to be felt) postwar baby boomer retirements are expanding the labour shortage problem.  The booming mining industry is sucking in skilled, semi-skilled and unskilled workers from across Australia to highly paid mining and construction work.

The expanding shortage is so acute it's threatening new business investment across the country.  The sustained economic growth miracle to which Australia has recently become accustomed is at risk of being undermined.

Rapid reform to the education system is accepted as necessary to address the skills shortage, but Australia does not have enough young people to fill the gap.

The government instead has been forced to turn to a fast expansion of the "skilled" immigration program (included in this category are truck drivers).

In addition, the government has to address the welfare-to-work conundrum.  Unemployed people frequently lose more in benefits by starting work than they do by staying unemployed.

Finally, the promised Independent Contractors Act is a response to, rather than a cause of, the rapid rise of the independent worker movement, now constituting 28 per cent of the private-sector workforce.

Within this mix the ALP has a longer-term problem.  Its core institutional and funding constituency, the unions, are brilliant political marketing machines but that is the limit of their current influence.

Labor leader Kim Beazley's industrial relations policy -- fleshed out this week -- responds to an immediate political and union agenda but has difficulty creating the visionary Blair-like revolution some within the ALP may crave.

Instead, Beazley's policy has focused on reinstating former prime minister Paul Keating's industrial relations system, with modified unfair-dismissal laws.

It's being sold within set themes of hating Howard, fearing Americanisation, demonising individuality as dog-eat-dog, distrusting big corporations and assuming that bosses, their managers and supervisors will always be inclined to screw the worker.

Labor's pitch against Work Choices is having some effect.  Consequently, the legislation is a challenge for the Howard government, but it's reasonably familiar territory within its liberal/ conservative beliefs.

From the government's perspective the major question is:  does it have the skills and time to pull Work Choices into line for the next election?

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The perils of small business in NSW

Many Central Coast people will have heard of the Small Business Reform Group.  SBRG formed a few years ago after the local regional office of the NSW WorkCover Authority did audits of small businesses.

After the audits, a swag of small businesses who used self-employed subcontractors received massive workers compensation bills some amounting to tens of thousands of dollars.  It put several businesses out of business.  The WorkCover Authority had targeted self-employed people who had subcontracted work to other self-employed people.  The Authority claims workers compensation premiums should have been paid on the subcontractors

But here's the catch.  The Authority won't insure self-employed workers and even if premiums are paid won't guarantee to cover claims.  It's a, "no cover-insurance scheme".  But the NSW government gets away with this rort because they write the rule book.

SBRG was formed after local meetings saw hundreds turn up.  SBRG began lobbying, forcing the government to conduct a review.  The review resulted in legislation late 2005 which strengthened the government's ability to collect workers compensation premiums from small business.  However it did not guarantee claims would be paid on subcontractors.

It's a sham and a con, made possible because the scheme is a monopoly.  People suffer.  But the government can behave arrogantly while it thinks it can limit political damage.

But the Commonwealth has recently entered the scene by making its workers compensation scheme, Comcare, available to businesses large enough to self-insure.  It's likely to cause a rush of large businesses to exit the NSW arrangements.  This is the start of competition in workers compensation.  Change is in the wind.

The state government will face huge pressure to fix its own scheme.  If it doesn't, don't be surprised if the likes of SBRG and their small business community, lobby the federal government to open Comcare to all businesses.

Dig deep for nuclear waste fix

It seems possible Australia will take advantage of its extraordinary good fortune to have major deposits of uranium at a time when a number of countries are planning to expand their electricity generation with nuclear power.

It is surely time to consider a solution for the disposal of the spent fuel from these reactors by deep geological burial.  The time scale for general agreement, site selection, planning, negotiation and construction is likely to be 10 to 20 years.  If we start now, it could be the beginning of a major contribution to the Australian economy and a contribution to regional and global concerns about the use of nuclear power.

It's an irony that despite Australia possessing a large proportion of the world's uranium reserves and making major technical contributions to disposal and enrichment, it reaps no economic benefit beyond mining.  Especially since the greatest economic opportunity comes from the re-interment of the uranium as spent fuel or waste.  This takes advantage of our continent's geology.

Australia possesses a research reactor at Lucas Heights and a solution is required for the long-term disposal of its waste.  If this problem has to be dealt with at the level of a few tonnes then it provides the reason to start serious consideration of the problem on a larger scale.

The present cost of nuclear fuel reprocessing corresponds to about 4¢ per kilowatt hour for a nuclear power plant.  This equates to a disposal cost of $1 million per tonne of spent fuel.

About 12,000 tonnes of waste are generated annually worldwide.  Even restricting the waste to Australian-sourced uranium would be a substantial annual market of 1000 to 2000 tonnes of spent fuel.  The disposal system for the repository, which is essentially a deep underground mine, would cost between $1.5 billion and $2.5 billion with revenue of between $1 billion-2 billion.  The optimum geology occurs in remote regions of South and Western Australia and the Northern Territory.  Such a mine is essentially an underground driveway with access to a number of chambers for the disposal of thousands of tonnes of material.  This is not major bulk material handling but rather a high-quality material handling operation.

We would not be alone in this enterprise;  Finland and Sweden are well advanced and the first repository may be operational by 2010 in Germany.  South Korea is also examining deep disposal.

There are very good reasons to host spent fuel and waste from any source.  Australia's twin stabilities, geological and political, offer important advantages.

However, bipartisan support will be necessary if this project is to succeed.  International agreements may also be necessary, particularly with the issue of title to the spent fuel.

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Chasing the great Australian pipedream

House prices are constantly in the news.  Melbourne housing remains unaffordable to a great many who don't own their own home.

A rule of thumb is that when average house prices are over three times average incomes too many people are priced out of the market.

Melbourne's average house prices are over six times average incomes.

There are many reasons given for our high prices.

One senior Victorian official has even suggested that water shortages cause Melbourne's high prices!  Heaven knows what he would advise high growth cities like Las Vegas or Phoenix.

It is sometimes argued that high house prices are caused by upsurges in demand.  This was disproved by the Demographia study of 100 cities around the world.  Demographia found the three fastest growing cities -- Dallas, Houston and Atlanta -- all had average house prices less than three times average income levels.

If Melbourne had those cities' planning and regulatory arrangements, a typical new house would cost $160,000 instead of $367,000.

In research for the Property Council, urbisJHD analysed the component costs of new housing.

They estimate that one quarter of new housing developments' costs in outer Melbourne comprise government taxes and regulatory requirements.

These estimates may be overstated because they include company tax and GST.  However, they exclude some taxes, for instance the stamp duty on conveyancing from which the government collects nearly $2 billion.  They also leave out the recently introduced $5000 per block development charge.

Most importantly, they exclude the escalating prices caused by the regulatory squeeze on land availability.

Land on Melbourne's outskirts in its alternative agricultural use may be worth $3000 per hectare or a few hundred dollars per block.  The Government planning system creates shortages of land by strictly controlling if and when landowners are permitted to offer their property for housing development.

As a result, prices are inflated pushing up the value of a block of raw land to over $50,000.

On top of this is the development to make the land suitable for housing.  These costs should never amount to more than $25,000 per block but regulations double this.

The house structure itself also has regulatory imposts.  Without these and stamp duties building costs would be under $130,000 for an average home.

The upshot is that a house and land package which should cost $160,000 is more than doubled in price.  Regulations create a land shortage that inflates the price of developable land.

Regulations also require costs that the purchaser might prefer to avoid on infrastructure and on the house's structure.

Compounding these is a series of state taxes -- stamp duty on land, on the finished house, on conveyancing and on mortgages.

The Property Council work illustrates how government itself has a vested interest in boosting the cost of housing.

High house prices result from government land rationing.

These high prices, in turn, increase the government's tax return and leave it with a real quandary.  Should it maintain the land scarcity to protect its own revenues or should it reduce price-boosting regulatory measures to benefit the new home owner?

Governments have seldom proved responsible enough to pursue the second course.

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Stirring Labor's possum

Backbenchers writing books on policy is a perilous business.

Their opponents take their words out of context and use them as ammunition, while those in their own party look with envy at anyone who can string a sentence together.  In Britain, where having an interest in policy is not a disqualification to holding public office, it is de rigueur for parliamentarians to commit their thoughts to paper.

In Australia, by contrast, it seems that MPs aspiring to be ministers adopt the approach that the less they say about policy the better.  (The exception to this rule was Mark Latham -- and as it turned out he didn't prove to be much of a role model to ambitious politicians).

So the publication of a new book, Vital Signs, Vibrant Society, by federal Labor backbencher Craig Emerson should be welcomed.

The blurb on the cover tells only half the story.  It proclaims that "Emerson challenges many of the current narrow ideological orthodoxies that tend to box in the debate about Australia's future".  The blurb would have been more accurate if it had said Emerson challenges many of the current narrow ideological orthodoxies that make the federal ALP unelectable.

As might be expected from someone who was an economic adviser to former prime minister Bob Hawke and former finance minister Peter Walsh, Emerson gives short shrift to most of Labor's policy shibboleths.  When Opposition Leader Kim Beazley launched the book a few weeks ago, he was careful to distance himself from the policies it advocated.  No wonder.

Emerson dismisses as a relic of class war his party's typical attitude that all government schools are good and all non-government schools are bad.  Thankfully it seems some commonsense is seeping through to the party -- it's reportedly about to dump its private school hit-list.  Emerson himself proposes a market mechanism that gives wealthier private schools an incentive to enrol disadvantaged students.

Emerson also wants teachers' pay to be based according to the quality of their teaching, and teachers in hard-to-staff schools to be paid more -- an anathema to Labor's supporters in the teachers' unions because it assumes that the quality of the work of individual teachers can be measured.

On health he is equally unorthodox as he exhibits none of Labor's unremitting hostility to private insurance.  He appreciates that while no one should be denied access to medical treatment, those who can afford additional treatments should be allowed to buy them.  "We must not insist that where Australians want extra services they are always to be funded by taxpayers".

As Emerson identifies, Australia is now closer to being a welfare state than ever before.  With unemployment at its lowest level in 30 years, one in five Australians of working age currently receive income support.  At the end of the 1980s that figure was one in seven, and in 1969 it was one in 25.

Governments of all persuasions have found it easy and politically beneficial to maintain a regime of high taxes and high spending, rather than return the benefits of economic growth direct to taxpayers in the form of tax reductions.

It is inevitable that in a book covering policy on everything from aged care to water to international trade there will be areas of analysis that can be disputed.  The claim that the level of the minimum wage has little or no impact on employment is arguable, as is Emerson's opinion on the value of preferential versus multilateral free-trade agreements.  However, these matters don't detract from his central arguments, which are essentially correct.

Emerson is right to vigorously defend the economic reforms of former prime ministers Bob Hawke and Paul Keating.  But what he doesn't acknowledge is the intellectual and political support provided for Labor's policies by the coalition when it was in opposition.  Any fair comparison of what the ALP did in the 1980s against what the coalition has done since 1996 must take into account that Labor has opposed practically every reform measure proposed by Prime Minister John Howard and Treasurer Peter Costello.

If Labor was serious in co-operating in pursuing the next wave of reform, it could start by doing some simple things.  It could abandon its position against uranium mining, it could support the privatisation of Telstra, and it could agree to the sale of Medibank Private.

The only trouble is that to do any of these things would require Beazley to demonstrate some of the qualities of policy leadership displayed by Craig Emerson in Vital Signs, Vibrant Society.

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