The real cost of global warming

Kevin Rudd made quite a splash at the recent Bali Conference -- the latest chapter of the continuous global warming gabfest.

The conference was the 10th since the 1997 Kyoto Agreement designed to reduce the use of coal, oil and gas.

Australia was represented by four federal ministers and a back-up group of state ministers including Victorian Premier John Brumby.

Fears about global warming led all developed countries under the Kyoto Agreement to promise targeted reductions in their greenhouse gas emissions.

Notwithstanding the fervour and rhetoric surrounding the issue, no country will actually achieve its originally agreed target.

This is equally true of Australia, which made the grand gesture in Bali of ratifying its 1997 signature to the agreement.

Australia, like other countries, has re-interpreted the original commitment to claim we have complied.  Even so, in 2012 we will exceed our target unless the newly elected Rudd Government manages to put the economy into a recession.

Measures to force lower levels of emissions don't come cheap.  Already Australia is spending some $3 billion annually in subsidies, taxes and regulations requiring use of expensive wind power, housing insulation, etc.

But that expenditure is just for starters.  The Rudd Government has commissioned Professor Ross Garnault to prepare plans for greater reductions.

These will involve imposing a cost on carbon dioxide emissions.  In Britain, government economists have set a price per tonne of carbon dioxide at $62 for 2007 rising to $145 by 2050.

For Victoria's brown coal generators, even the 2007 price would increase costs by 150 per cent.  That increases household electricity bills by 70 per cent, even more for industrial and commercial customers.

The Victorian Government has been a cheerleader for more action to reduce greenhouse gas emissions.  Yet the state's electricity supply means going into an economic tailspin if we introduce major new measures.

Only the snake oil salesmen ever said it was easy being green!

There is, however, a ray of sunshine.

The results of the 2007 weather patterns look as though Armageddon is deferred!

Geophysicist David Deming has documented how weather patterns refuse to behave as forecast.

"2007 saw one of the quietest hurricane seasons," he says.  "Snow fell in Buenos Aires for the first time since 1918 and extreme cold weather was experienced in Seoul and in several US states."

In California, thousands of workers were laid off after a freeze reduced the citrus harvest just months after Governor Arnold Schwarzenegger signed a law designed to bring a cooler climate.

Australia shared in the cooling -- Townsville underwent the longest period of continuously cold weather since 1941.

You can bet your fridge that none of this will chill the enthusiasm of those who have built their careers on global warming and enjoyed the good life of international travel and hospitality courtesy of the taxpayer.

But more data like this will cause politicians to ponder future approaches.  After all, it is they who will be sacrificing their jobs in the wake of the misery that measures like carbon taxes will entail.

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Xmas buying is full of spirit

Before the three wise men went to visit Jesus at his birth, they first had to visit the gold, frankincense and myrrh traders.  Retailers have been cashing in on Christmas since, well, before Christmas.  Nevertheless, a chorus of commentators each year decries its commercialisation.  The retailers who market their holiday stock in October become the targets of droll cynicism about how the holiday season arrives earlier and earlier.

According to these critics, between the Santa-themed lingerie and the mechanised excess of the Myer windows, the true meaning of Christmas has been lost somewhere on the Bourke Street Mall.  Certainly Jingle Bells piped over the cheap speakers in supermarkets might be irritating, but presumably some people like it.  Businesses that go out of their way to annoy their customers don't stay in business very long.  And the excruciating kitchiness of so much holiday decoration just proves the old saying "there's no accounting for taste" is never more insightful than at Christmas time.

But there is more to Christmas than just bad taste.  The opponents of a commercial Christmas have always had a distinctly political message.  George Bernard Shaw, a fervent anti-capitalist and apologist for Stalin, put his case against the holiday merchandising half a century ago:  "Christmas is forced upon a reluctant and disgusted nation by the shopkeepers and the press;  on its own merits, it would wither and shrivel in the fiery breath of universal hatred."  Shaw was a great playwright, but was probably not very good at small talk.

The anti-commercialism message ties neatly into the common belief that we, as a society, are over-consuming.  Cheap political paperbacks and moralising opinion pieces drearily list the possible consequences of buying one too many trinkets -- clinical depression, environmental catastrophe, spiralling levels of personal debt, the loss of social cohesion, child obesity, economic turmoil and big houses.

The critics of the consumer society have coined an evocative new word -- "affluenza".  Capitalism, they imply, is some sort of psychotic mass hysteria.  And the Christmas period is a massive annual epidemic; a deranged orgy of consumption and spending.

But what's wrong with a commercial Christmas?  It really does seem like a strange complaint, even for those ideologically opposed to excessive consumption.  After all, Christmas is the one time of the year that we go shopping not for ourselves, but for others.

Exchanging gifts has always been a central part of building social relationships.  When world leaders exchange gifts at diplomatic meetings, it isn't because they were conned by shiny advertisements.

And as every parent who has received a handmade present from their child is well aware, gift-giving has more symbolic importance than practical importance.

Amusingly, some biblical scholars have suggested that the gold, frankincense and myrrh given to the infant Jesus were more like gifts of much-needed medicine for a new mother.  This would make the three wise men the spiritual ancestors of that uncle who always buys you "useful" presents like socks and underwear, rather than things you actually want, like an Xbox.

Nevertheless, a good gift at Christmas is one that strengthens a relationship; a bad gift is one that reveals that relationship to be shallow.  Giving presents to friends and family members, even if those presents are extravagant, hardly fits into the affluenza theory.

Most of the criticism of commercialism seems to stem from a dislike of commercial activity intruding upon the "non-commercial" parts of society.  How dare businesses drag their filthy profit-making into our nice clean holiday?  But these critics vastly overemphasise the distinction between activities we might class as commercial and those we might class as social.  The difference isn't so great.

Commercial society is much more warm and fuzzy than is depicted by anti-capitalists.  Interaction in the marketplace is inherently co-operative.  Certainly, businesses do compete against each other, and this competition sounds like it is very aggressive, impersonal and distasteful.  But they only compete in order to co-operate -- that is, trade with their customers.

And on a practical level, the celebration of Christmas benefits from the introduction of commercial values.  Vigorous competition during the holiday season keeps the prices of gifts low, allowing us to give more gifts to more people who are important to us.

We continue to agonise over the "true meaning" of the holiday.  But whether Christmas is religious or secular, there's little reason to fear that its personal significance will drown in a sea of holiday jingles and advertising.

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Strangled by regulation

It is unfortunate that the first act of the new minister for deregulation was to enact the latest tranche of the federal anti-money laundering and counter-terrorism financing laws -- a major regulatory increase for the financial sector.

To be fair, the legislation's origins lie in the halcyon days of the Howard Government.  But it illustrates just how big the job of finance and deregulation minister Lindsay Tanner is going to be.  The Labor government inherits an Australian economy which is rife with Byzantine and often unnecessary regulations.

Federal and state governments have been legislating and regulating at an ever increasing pace.  Where less than 30,000 pages of Commonwealth legislation were passed during the 1980s, we are on track to pass nearly 80,000 pages this decade.

Regulation has accelerated similarly -- the Howard Government has the record for the most enthusiastic regulators and legislators in history.

It is hard to get a concrete grip on the consequences of such increasing regulation on the economy, but it is certainly having an effect.  The Business Council of Australia recently identified one example of this increase:  a total of 227 pages of documentation need to be given to a customer to open a simple cheque account with an overdraft limit and home loan, roughly five times the number of pages in 1985.

The Rudd government has rightly acknowledged high regulatory burdens as a major economic problem.  However, the fixation that the Labor Party had during the 2007 campaign on reducing "red-tape" -- that is, the paper-burden cost of regulation -- may prove to be a distraction from the real effects that regulation has on the economy.

Certainly, the significance of the paper-burden cost varies by sector -- in the food industry, most regulatory costs can be attributed to the paper-burden.  But for much of the economy, that paper-burden cost is dwarfed by the restrictions on economic activity imposed by the regulations.

For instance, the "chilling effect" of mandatory third-party access regulation far outweighs the paper-burden cost of those regulations by holding back infrastructure investment.  Focusing only on "red tape" in these cases is like focusing on the time spent filling out a tax return rather than the amount of tax paid.

If Tanner is to fulfil the promises of a minister for deregulation, it will be necessary not only to tackle excessive "red tape" but to seriously cut back the regulations which distort investment, divert entrepreneurial and innovative activity, and inhibit business flexibility.  His recent reaffirmation of the election promise of adopting a "one-in, one-out" approach to regulation is a positive sign, but his uncritical support for the Australian Competition and Consumer Commission is less so.

Tanner will be continually pressured by his fellow lawmakers, regulators and bureaucrats, activist groups and the community, and too often businesses to increase regulation.  Cropping back the regulations which restrain the Australian economy will require challenging nearly everyone with a political voice.

Review of "The Shock of the Old: Technology and Global History since 1900"

Hyperbole is one of the byproducts of technology.  Writers soaked in the spirit of futurism proclaim new technologies are "paradigm shifting", imagining that the value of their chosen technology is self-evident and that it will be universally adopted by an enthusiastic population.  History is often dubiously divided into eras defined by their "dominant" technology-the twentieth century has been neatly chopped into periods of electrification, motorisation, and computerisation.

David Edgerton's The Shock of the Old:  Technology and Global History since 1900 is a contrarian account of the relationship between technology and social and economic history.  Dividing the book into what he sees as the common fallacies of popular accounts of technological history, Edgerton tackles the distinction between invention and innovation, the "technonationalism" behind national science programs, the lag between the introduction of technology and its widespread adoption, a similar lag between adoption in the developed and developing world, and the under-rated importance of production and maintenance technologies.

But Edgerton's biggest target is accounts of history that overemphasise the historical importance of cutting-edge technologies.  He argues that technologies have a remarkably long shelf life:  seemingly obsolete technologies remain in common use long after they have been superseded.  This is hard to argue with.  Anyone who has worked in a large organisation will be familiar with the stubborn longevity of enterprise computer systems.

Few fields demonstrate the gap between highly publicised cutting-edge technologies and the greater importance of legacy technologies better than warfare.  As popular history would have it, chemistry and engineering, represented by the twin menaces of gas and the airplane, defined World War I, and motorisation and nuclear physics defined World War II.

Yet, as Edgerton demonstrates, such a view is deeply misleading.  Of the millions killed in World War I, 80% died from injuries inflicted by ballistic weaponry.  Far more important than gas, airplanes, and tanks was artillery, particularly as it was combined with new logistics and coordination techniques.  In World War II, small arms and artillery were even more important again, relative to the leading technologies being introduced at the time.  Edgerton recounts the development of the rifle over the last one hundred years, focusing on the popularity of the Lee-Enfield rifle in the first half of the century and the Kalashnikov assault rifle in the second.  Rather than the "zeppelin and the bombing aeroplane", which H.G. Wells believed had brought battles to the home front, Edgerton writes that it was the cheap rifle that civilianised warfare in the twentieth century.

The Shock of the Old also emphasises the primacy of production and maintenance technologies in technological history.  Production has hardly been neglected by historians -- the Industrial Revolution consisted of developments in production technologies, and few casual observers of the modern economy are not aware of the supply chain innovations made by firms like WalMart.  But the primacy of maintenance in technology choice and diffusion is not as widely recognised.  For instance, Edgerton cites a study estimating that the upfront cost of a personal computer represents just 10% of its total lifetime cost, once installation, repairs, upgrades, and training are factored in.  Edgerton does not explore or provide a citation for this estimate -- but most "total cost of ownership" studies apply to computers used in business, not the home.  Part of the explanation for this large cost is the complexity and longevity of the enterprise systems mentioned above.

Edgerton jumps haphazardly from the developed to the developing world, and from issues like technology transfer to the Soviet Union during the Cold War to animal husbandry and then to the Japanese bicycle industry.  Such scope is necessary-part of his aim is to rebut the myopic focus that high-school-level histories have on the English Industrial Revolution -- but by doing so, his arguments tend to lose their coherence.  The Shock of the Old gives the unfortunate impression of being a thematic collection of trivia, rather than a revisionist account of technology and its social and economic role in history.

Similarly, some of his arguments come frustratingly close to the banal -- the difference between the availability of consumer technologies in developing and developed countries is most obviously a consequence of wealth disparities.

Furthermore, while reviews have praised the novelty of Edgerton's arguments, The Shock of the Old does not represent an advance in the history of technology.  The distinction between "invention" and "innovation" is a well-recognised one.  Indeed, that distinction has become a pivotal point in modern debates about technological change in communications and software industries.

Similarly pivotal is the crucial distinction between the development and diffusion of technologies -- or as Edgerton describes it, the difference between a history that focuses on when a technology was invented and one that focuses on when and where it was used.  On this point, The Shock of the Old is clearly not novel.  Technological diffusion is the central issue of the major texts of the genre.  How and why the Industrial Revolution began in England is just as much a question of diffusion as it is of invention -- European manufacturers in the late eighteenth century were as easily able to obtain English technology as the early English adoptees.  Edgerton gives these questions a broader geographic context than Western Europe, but the issues he raises are much the same as those raised by the more seminal works of technological and economic history, and he does little to resolve them.

Diffusion is, for example, one of the core problems for our understanding of economic development in classical Rome.  Roman innovators were able to make some important advances in agriculture, water management, and seafaring, but the limited adoption of their technologies remains striking.  For instance, the Roman water mill was tantalisingly close to providing an epoch-shifting economic breakthrough, but it remained limited in use and scope.  We can only speculate what such a breakthrough might have meant for civilisation.

Edgerton's book is an engaging and accessible exploration of the core myths of technological history, but is, unfortunately, less groundbreaking than its title implies.  The Shock of the Old is interesting, but not innovative.

Culture wars are good for society

Since it lost the federal election, the Liberal Party has had lots of advice -- much of it useless or self-interested.  One of the more useless pieces of advice it has received is that the party should stop fighting the "culture wars".

If John Howard had been more successful at prosecuting the culture wars, he would still have lost the election.  But at least he would have ensured that public debate in Australia was a little bit more diverse, lively and vigorous than it is.

In the weeks since the election, there has been a call for the opinion pages of the country's newspapers to be purged of non-left contributors, and for the Howard government appointees to the ABC board to resign or be sacked.  So far, there's no sign of a ceasefire in the war.

On the Monday after Howard's loss, the normally thoughtful political commentator Brian Toohey wrote:  "The Liberals also need to turn their backs on the ridiculous amount of time wasted in recent years on the so-called culture wars."  And "the general public doesn't care about the culture wars.  Nor is it obvious why a conservative government should intervene in cultural issues best left to civil society."

There are two reasons why a conservative government should intervene in cultural issues.  First, the public does care about the culture wars.  Second, the culture wars are not about culture.  Of course, questions of cultural taste should be left as far as possible to individuals and civil society -- but this is not what the culture wars are about.  The culture wars are about what governments do and what governments provide money for.

The kind of history taught to school students is a political issue that goes to the core of our concept as a nation.  That's precisely why history is so controversial.  There's a big difference between regarding Australia as "settled" or "invaded".  For as long as the government determines and regulates what is taught in classrooms, curriculum will be the legitimate subject of political debate.

If the ABC was purely a creature of civil society, the quality of its broadcasting would be irrelevant.  However, the ABC is not a creature of civil society.  It is owned and operated by the government and funded by taxpayers.  The ABC should be subject to examination in the same way as is any government department.  Whether the purpose of the ABC is to provide a left-wing alternative to the allegedly conservative mainstream media is not the issue.

It was entirely appropriate that the board of the National Museum of Australia investigate the museum's exhibits.  As a public institution, the museum has a responsibility to at least attempt some form of partisan balance.  Lauding Gough Whitlam while ignoring Robert Menzies was not balance.  And clearly it was inappropriate for the museum to give credence to the fantasy that Harold Holt was whisked away by a Chinese submarine.  The board of the museum wasn't engaging in cultural warfare when it investigated these issues.

For the past 11 years, complaining about ministerial oversight of research grants has been a favourite activity of university professors.  While professors should be entitled to spend their time researching anything they want, they shouldn't expect taxpayers to support them.  "Academic freedom" is the right to free expression -- it is not the right to demand government money with no strings attached.

If John Howard really did set out to muzzle the universities, than he did a bad job of it.  Invariably his opponents came from one of three sources:  the ALP, the ACTU or the universities.  Nor was the former prime minister any better at stimulating alternative voices within the tertiary sector.  It is noteworthy that very few of the right's cultural warriors come from universities -- compared with the warriors of the left, many of whom are firmly ensconced in publicly funded academic sinecures.  Sometimes the claim is made that humanities faculties of Australia's universities are dominated by left-wing academics because conservative academics simply don't exist.  Unfortunately this is true.  Anyone who verges even slightly from the accepted wisdom of university staffrooms -- which is that George Bush is an evil idiot, that globalisation is a plot by big business to impoverish the world's poor, and that terrorism is merely a political construct -- is unlikely to gain preferment.

When it comes to gaining promotion, conservative candidates need to be at least twice as good as their left-wing opposition.  In the face of this, conservatives simply give up.

What's curious in the debate about the culture wars is why anyone would want the wars to stop.  If dissent is one of the hallmarks of an active intellectual life in this country there should be calls for more disagreement, not less.  So far this hasn't happened.  In fact, the opposite has occurred.  What are people afraid of?

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Stars in the Net sky

Is the internet making us stupid?  That, at least, is the conclusion of Doris Lessing, this year's winner of the Nobel prize for literature.  In her acceptance speech, she argued that our newfound love of trivial inanities on the internet was replacing our previous appreciation of learning, education and literature.

It would be easy to dismiss Lessing's arguments by claiming that she is unfamiliar with the possibilities of technology, and that she is merely defending her favourite medium, the book.

But Lessing is not alone in her view.  She joins a large group of pessimists who are instinctively sceptical about technological progress and cultural change.  This deeply conservative pessimism is an unfortunate attribute of modern political and social debate.

Another recent example of cultural pessimism is provided by internet entrepreneur Andrew Keen in his book The Cult of the Amateur.  In it, Keen argues in a similarly unhappy tone that the internet has allowed non-professionals to drown out high-quality culture with rubbish.

Certainly, there are some remarkably stupid things on the internet.  There are also some disgusting things, pointless things, and obscene things.  Hours can be wasted on Facebook or YouTube or in the virtual reality world of Second Life.  Wikipedia has lists of fictional detective teams, lists of historic fires, and lists of lists -- all of which promise the dedicated procrastinator many opportunities for distraction.

But while the traditional book may now have to compete with the lavish offerings of the internet, Lessing's glumness is hardly justified.  For our intellectual life, the widespread adoption of the internet has been unambiguously positive.

It is hard to over-estimate the educational advantages of super-abundant information, particularly when we compare it to the information scarcity that has characterised most of human history.

One famous academic paper showed that each edition of The New York Times contained more information than an individual in the 17th century was likely to come across in their lifetime.

And the variety of information now instantly available on our computer screen makes what was available to us even 20 years ago seem like a short blurb on the back of a book.

While Lessing may fear the effects of substituting reading books for online activities like blogging, a number of studies have shown that students are now far more comfortable writing than their predecessors.

Remember all those fatalistic cries that the practice of shortening and abbreviating words for text messages would irreparably damage young people's writing skills?  This was yet another misguided prediction of cultural doom.  It appears that most students are easily able to tell what style of writing is appropriate for school work.

If young people do have problems reading and writing, it isn't the internet or mobiles that are at fault, but the education system.

Even television, that passive, much-reviled entertainment, is getting richer and more complex.  The undemanding plots and one-dimensional characters of a typical television sitcom 30 years ago contrast poorly with the multiple, interlinked storylines and highly developed characters of today's programs.  Compare for example the basic linear narratives of early Simpsons episodes with the intricate structures of the show's more recent outings.  Television is becoming more engaging and, indeed, more mentally challenging.

Nevertheless, cultural pessimists argue that our ancestors were better off.  In the 18th and 19th centuries, Lessing argued, the literate classes were respectful of great literature.  Similarly, T.S. Eliot surveyed Western culture 50 years ago and famously wrote that "our own period is one of decline;  that the standards of culture are lower than they were 50 years ago;  and that the evidences of this decline are visible in every department of human activity".  Even earlier, Plato criticised his fellow Greeks' love of the emotions in theatre and poetry, believing that what he considered serious thought was dying out.

But when cultural pessimists reminisce about earlier times, they are too often highly selective.  The 18th-century gentlemen who respected literature were a small minority of the total, mostly illiterate population.  And cheap, poorly written paperbacks were just as large a portion of the market for books as they are today.

Doris Lessing and Andrew Keen compare the best of the past with the average of the present.  With a formula like that, it's no wonder today always loses.

People are resistant to change.  During the industrial revolution, British textile and agricultural workers destroyed the new labour-saving machines, as they saw them as threatening their jobs and the world they were comfortable with.

Of course, their predictions of doom turned out to be inaccurate -- the introduction of those machines was the beginning of a massive spurt of economic growth that raised the wealth and living standards of the working class.

When Lessing condemns the internet as full of mere inanities, she similarly ignores the exciting possibilities of culture now that the internet has freed it from scarcity.

But cultural pessimism is not just resistance to change.  What is most striking about contemporary cultural pessimism is just how elitist it is.  Not everybody can be a novelist, but anyone can write a blog.

We should be glad that cultural pessimists have found a new target in the internet -- it means that our culture is becoming even more diverse, anarchic and, best of all, truly democratised.

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They're all pushing the same trolley

This week the Productivity Commission reported on its inquiry into the 300,000 retail leases around Australia.

The inquiry stemmed from the grumbles and disputes inevitably present in commercial relationships.  But the PC found reform is most needed in regulatory matters.

Shopping centres were the report's main focus.  These now comprise about 40 per cent of retail space but are facing stiff competition from newer retailing forms such as the bulky goods centres and DFOs.

Australian shopping centres with all outlets undercover are somewhat different to those overseas.  In the US the centres are often owned by a department store, while both there and in Britain supermarkets are seldom located within the centres.  Thus turnover per square metre tends to be higher in Australia.

Many of the major owner-managers -- such as Westfield, AMP, Gandel and Centro -- are taking the Australian formula overseas.

The PC inquiry covered a range of issues.  Some smaller retailers claim they are paying excessive rents and subsidising "anchor" clients, such as Coles.  The PC found rate differentials to be justified by the traffic the anchor store brings in.

Rent reviews, stipulations on opening hours or changes to the centre layouts were other areas of dispute.

The Australian Competition and Consumer Commission however has found retailer disputes that have genuine merit are few and declining.

The PC's findings support this.  The report states shopping centre vacancy rates are less than 1 per cent and the vast majority of leases are renewed.

The PC suggests legislation to protect the tenant is getting out of hand.

Their report shows how management of a centre provides advantages to tenants as well as the landlord.  Skilful management ensures the centre is attractive to consumers by getting the right mix of outlets and weeding out poor performers.  Coordinating the variety of retailers and aspects of their marketing allows shopping centres to be more attractive to consumers.

The bottom line is, shopping centre owners and shop owners have a common interest.  Retailers and landlords want to see heavy traffic in shoppers.  The businesses are trying to please the customer.  Strong commercial rivalry between different shopping locations is the key to achieving this.

The only impediment to prices, rents and conditions that adequately reward all parties is the presence of some monopoly conditions.

The PC suggests that zoning and planning regulations operate against the consumer's interest by creating restrictions to competition.

Comparisons with shopping spaces elsewhere suggest that regulatory restrictions have left Victorians underprovided.  The solution to this is in the hands of government.

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A kick in the behindsight

Politics is usually interesting and 2007 was no exception.  First, what we've learned during 2007:

Past performance is no guarantee of future results

This warning is so obvious it's usually ignored.  Or else it is in such small print at the bottom of the disclosure form that comes with financial products that people don't realise it's there.  It's no certainty that simply because a stock has returned growth of 20 per cent a year for four years in a row that therefore such a performance will be repeated in the fifth year.  The same applies to election victories.  In fact, winning four consecutive elections increased the chances of John Howard losing the fifth.  As has now been revealed, this truth dawned on nearly every member of the former prime minister's cabinet during the Asia-Pacific Economic Cooperation meeting in Sydney in September.  The pity, in retrospect, is that no one did anything about it.

Time is of the essence

For all the good things achieved by the Howard government, there was a sense that after its first few years in power it was willing to keep on delaying big reform until after its next election victory.  Against Simon Crean or Mark Latham, the assumptions upon which this strategy was based were reasonable.  And the memories of the helter-skelter approach of Paul Keating's last years led Howard's ministers to caution against undue haste.  However, eventually time runs out.  The coalition's "aspirational" aims for tax reform announced during the election campaign could have been implemented years ago.  With the honourable exception of the Northern Territory intervention, policy making during the 11 years of the coalition government was not usually characterised by any sense of urgency.

Cicero was right

Two thousand years ago, the great statesman of the Roman republic, Marcus Tullius Cireco, wrote that people were more likely to fail than to succeed.  And in any case, success can be the product of luck.  Cicero argued that therefore people should be judged according to what they strived to achieve rather than according to what they did achieve.  Such a criterion ensures a far more sympathetic treatment of some of the Howard government's initiatives than would otherwise apply.  For example, the intention of Work Choices was admirable to free up the labour market and stimulate economic growth.  The problem was that once Work Choices was put into practice it turned into a blancmange of complexity.  The ultimate legacy of Work Choices might be the Rudd government reregulating the labour market to produce a system more inflexible than that which Howard inherited in 1996.  If this is indeed the outcome of Work Choices, Cicero would have been amused but not surprised.

Here's what we might learn in 2008:

It's not easy being green

It is one thing for United Nations bureaucrats to propose cuts in greenhouse emissions of 60 per cent.  It's amore difficult task for elected national politicians to implement those cuts.  UN bureaucrats don't face the electoral consequences when households' electricity bills double.  As yet the Australian populace hasn't realised the economic costs when the Prime Minister commits to whatever scheme follows from Bali.  If we want to save polar bears, we'll need to pay more for petrol.

You never hear the one that hits you

This is what soldiers say about bullets.  The same could apply to economics.  A year ago there would have been a bare handful of federal MPs who knew what a sub-prime loan was.  One year on, the corridors of Parliament House in Canberra are filled with worried conversations about the impact of falling house prices in Orlando, Florida.  What will occupy the minds of Treasury officials over Christmas will be, as Donald Rumsfeld put it, "the unknown unknowns" of the world economy.

The proof of the pudding is in the eating

We will soon find out whether Kevin Rudd really is a "fiscal conservative".  And we'll soon find out whether the Labor Party really has changed since it was last in power.  So far the signs are encouraging.  Wayne Swan saying that he will deliver Labor's promised tax cuts was a good first step.  And we'll soon find out whether the new government will resist the urge that ultimately overcomes all federal governments, which is to regulate and centralise anything that hasn't already been regulated or centralised.

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Wheels have fallen off transport debate

Victorians had until today to comment on proposals for "a new legislative framework for transport in Victoria".

A discussion paper inviting such comment was issued in October.  It contains the normal fluff of government-issued reports.

It is full of pictures, fashionable climate change statements and warm headings such as "improving environmental sustainability", "a healthy Victoria", and so on.

The discussion paper is unashamedly biased towards the public transport mode of travel and against the car, which accounts for 80% of work trips and more than 90% of total trips.  But it gives little away in terms of current and planned travel times, what sort of costs are acceptable in achieving its goals of a "world-class transport system" and what are the needs and aspirations of Victorians that it purports to be seeking to fulfil.

One thing clear from the various reports on the industry, including a recent comprehensive analysis by the Victorian Competition and Efficiency Commission, is that public transport is heavily subsidised and car use heavily penalised.  The VCEC reckons that users pay only 30% of rail and bus costs and 55% of tram costs.

By contrast, car users pay more than twice what is spent on roads and other infrastructure in direct government charges and fuel taxes.

Melbourne, like every other city, has seen its transport flows shift from the radial patterns centred on the central business district.  Radial flows allowed commercially viable frequent public transport services.  But trips are now increasingly cross-town, with highly diffuse origins and destinations.

Government policy must recognise this and allow the city to adapt to the car.  The emphasis on public transport should be overturned and the priority switched to building more roads, tunnels and bridges.

Over the past few years, the 50-year downward trend in Melbourne's public transport's market share has even been reversed.  The trams and trains have been responsible for this, doubtless due to the improved efficiency of a privatised system, and possibly helped by increased parking costs.

But consumer travel trends mean these gains cannot continue.  Mass transit such as trams and trains can only be economic if they serve highly concentrated corridors to the central business district, which now only account for 12% of Melbourne's jobs and a very small share of non-work-related trips.

Buses have not participated in the recent resurgence of public transport.  According to the latest census data, last year buses provided only 1.5% of Melbourne's work trips (and considerably less of overall trips).

This represents a problem for the transport planners, who are aware that cities' geographic developments increasingly marginalise public transport (which in the US has only a 1% share of trips).

Buses offer the only plausible means of tapping into the growing cross-town market and they provide the key strategy for the Government in meeting its goal of increasing the trip share of motorised public transport from 11% in 2002 to 20% in 2020.

That target is highly aspirational.  It requires a rapid increase in the cross-town public transport share, an increase that has not been documented in the world.

Indeed, the vast dispersion of cross-town origins and destinations and the consequent impossibility of achieving high service frequency may consign buses to a trivial share of this market segment, irrespective of the policies followed.

After all, frequency of service is a key feature for passengers, and the private car is equivalent to an infinite on-demand frequency that mass transit could never achieve.

As if buses did not have sufficient problems in their competitive environment, two further factors undermine the probability of their success.

The first is the monopolies extended to existing bus operators on each route.  The Government is keeping these monopolies in place though they are totally contrary to national competition policy and to all we have learned about the potency of competition to provide better consumer orientation and lower costs.

This, in addition to pandering to the bus owners' interests, reflects a culture of "planning" among transport bureaucrats.  Officials see themselves as the best judges of demand and micro-manage routes by offering subsidies to those they see as best value.  It would be preferable to make use of markets by allowing a consistent subsidy to bus owners and allow them to search out the routes that best meet market needs.  Unleashing such entrepreneurial market discovery processes is a potent means of finding out what consumers want.

All this though should be kept in perspective.  Commuters and other travellers are voting and paying for car use and governments should respond to this.  New-age, trendy policies to favour public transport already involve massive subsidies, and should be pared back in favour of improving roads.  This meets the wishes of the community, as expressed in their purchasing choices, and makes Melbourne more liveable by facilitating faster journeys.

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Where the Liberals went wrong

When you change the government, argued John Howard in the last few days before the election, you do change the direction of the country.  Paul Keating's clarion call proved to be just as ineffectual the second time round.  That could perhaps be because it obviously isn't true.  Despite the high level of state economic and social intervention in Australia, the nation isn't steered by Captain Government.

Part of the problem that the Coalition faced in its final years was the unwillingness of government to grapple with key demographic and social changes.  Similarly, in industrial relations, the rise of independent contracting has been meteoric to the extent there are now far more self-employed people than members of a union -- but the cause of this change was economic, not legislative.

Between 1996 and 2007, a lot of things happened and very few of them were the consequence of Commonwealth legislation.  The "change the country" line was doubly inappropriate because of the status quo strategy of the Rudd Opposition.  Federal Labor's big-ticket items may have been climate change and broadband but fibre optic networks and carbon trading don't win elections.

Rather, it was Labor's mantra of economic conservatism that was specifically designed to repudiate Howard's argument.  To try to emphasise their credentials, Rudd and Gillard repeatedly affirmed the independence of the Reserve Bank -- as if that was ever up for grabs.  The message was simple: vote for the ALP and they won't change the country.  But if you vote for the Coalition, they will embark on another round of industrial relations reform, and the country certainly will change.

The Howard government became alienated from its own record of conservative governance.  The 2007 election re-established the status quo brand in the minds of political strategists.  It will likely go down as one of John Howard's major legacies, and it is largely a positive legacy.  With the government's extraordinarily flattering economic record, it is no wonder voters prefer more of the same.

Unfortunately, brand status quo has applied to areas which advocates of liberal philosophy -- that is, the ideological combination of limited government and the open society -- would prefer it did not.  Despite their professed sympathy with small government principles, the Coalition delivered no reduction in discretionary spending and its election promises foreshadowed no future reduction.

Along a wide range of public policy areas, the Howard government could have done more.  Industrial relations reform was used as a federal power grab, rather than as a push towards common law contracts.  Taxation reform drove yet another stake into the already terminal federal compact.

Other reforms were barely reforms at all -- the 2006 changes to media law did little to free up a stifled commercial media sector.  It is hard to avoid concluding that the government's approach to reform was about quantity, not quality.  Economic reform packages may have started out well-intentioned but when they emerged from the meat-grinder of parliament, they too often represented steps backward.

Nevertheless, elections are not won or lost on the size of government, weak media regulations, or eroding federalism.  Elections are won on appeals to the status quo, issues such as immigration, or security fears.  Federal seats are won on vacuous -- and, for federalists, deeply concerning -- issues such as graffiti, hoons and train lines.  It isn't just that voters are not interested in liberal policies.  In many cases it has proven far easier to win votes with an illiberal platform.

What role can liberal philosophy have if it can't be successfully marketed to voters?  Liberal political parties are unlikely to win future government on a platform of radical change, except in times of crisis.  The biases of the irrational voter mean that dramatic increases in immigration or a reduction in the minimum wage are hardly tickets to electoral success.  In an era of status quo politics, it appears that ideology is, on net, an electoral negative rather than a positive.

But conversely, the final years of the Howard government demonstrated what can result when a political party has no philosophical base, lacks the fiscal restraint imposed by ideology, and simply purchases the votes it needs.  Sooner or later, voters or in the case of the 2007 election, the Opposition, punish them for their directionless expedience.

Perhaps one reason why liberalism seems impossible to market to voters is because it hasn't yet been tried.  No major party has gone to an election from opposition or from government with a full program of social liberalism and economic liberalism.  The Howard government suffered from its abstract message -- economic growth is far less concrete than fibre-to-the-node and the Kyoto Protocol.

Voters may instead respond to campaigns targeting over-bureaucracy and regulation, particularly as they affect business and community life.  The record levels of regulatory and legislative activity during the Howard government provide ample scope to do so.  It is fair to say such a campaign would be a direct repudiation of the Howard record.

What is not under question is the need for liberalism in Australia, and the challenges which liberals face -- limited government and the open society remain simple and obvious goals regardless of their electoral popularity.

Reshaping the landscape: the quiet erosion of property rights in Western Australia

Occasional Paper

INTRODUCTION

Throughout Western Australia fundamental changes have occurred in the way private property rights are protected by law.  The impact of these changes can be felt by home buyers struggling with excessive prices, farmers unable to profitably use the land and water they own, and miners increasingly hamstrung by land being locked away in conservation parks and reserves.  Together they amount to a gradual, but significant erosion of traditional protections for private property rights.

This paper brings together what may appear on first notice to be unconnected regulatory intrusions into an exposition of the underlying diminution of property rights they all share.  In turn, the Western Australian examples are contextualised within a broader discussion of the importance and nature of property rights, with special emphasis on the link between robust property rights and income.  In summary, the paper argues that Western Australia has embarked on a risky path that is already resulting in negative outcomes.

FARMING

"Farmer Jim is thinking of felling one of the 20,000 trees on his property for fence posts.  He has used up his 30 tree (0.15 per cent) exemption.  He looks at one of the 19,970 remaining trees.  He has to consider:  what slope it is on;  whether it is a rare species;  whether it has any hollows or is on the way to having hollows;  what native animals or birds are feeding off it or are likely to do so;  what effect it has on the forest canopy;  whether it is near a stream;  whether it is of aboriginal significance;  etc., etc.  Then he will be in a position to make a lengthy submission to government seeking permission to fell". ⁽¹⁾

The operation of the various environmental protection laws, but especially the Western Australian Environmental Protection Act (1986) as amended in 2004, is increasingly restricting the capacity of farmers to farm their own land. ⁽²⁾  One particular aspect of the Environment Protection Act, the manner in which farming land is assessed for its environmental value, is critically flawed.  Under current processes, the government sets regional principles of assessment and then assesses farming land in the region against those principles.  Once assessed, any patches of native vegetation or wetlands are in effect ceded to the state since no development can then occur on them.  Affected farmers can only appeal on the question of whether the assessment meets the regional principles.  However, the consultation process only starts after the regional principles are adopted so farmers have no capacity to even know what the principles of assessment are until it is too late to change them.  The WA Property Rights Association (WAPRA) and others have documented many instances of virtually entire farms being assessed as having high conservation value, and therefore unable to be farmed.  Cruelly for the farmer, in almost every case the existence of the high conservation value area is as a result of the farmer voluntarily fencing off wetlands, planting trees and retaining hollow trees for habitat.  In other words, the habitat has been reintroduced by the farmer's actions and at the farmer's cost, yet the result is the loss of control over that part of the land for no compensation.

When the Productivity Commission reviewed the national impact of native vegetation and biodiversity regulations, it found that the current approach is placing heavy burdens on landholders without compensation.  Furthermore, the commission noted that "nor does regulation appear to have been particularly effective in achieving environmental goals -- in some situations, it seems to have been counter-productive". ⁽³⁾

A major source of disagreement is the conservation value of swamps, river flats and bogs, now called wetlands.  Once land is designated as wetlands it cannot be grazed or otherwise used productively, despite the fact that in many cases the land is often very fertile and good for grazing, and has been used this way for decades.  In other cases, ⁽⁴⁾ private land on hills and nowhere near water is classified as wetlands, while nearby lower ground in public ownership is not.  Apart from definitional issues over what is a wetland, there are additional problems created by the 200 metre wide buffer zones required around some designated wetlands.  Depending on topography and property lines, the combination of wetlands and buffer zones can render entire properties legally unusable.

In all cases the problem is not so much that land is taken out of production -- often that is the only way to preserve high conservation areas -- but that it is done so with no recourse and no compensation.  As farmers continue to hold title to the land no compensation measures are triggered.  In extreme cases, "conservation covenants" can mandate maintenance and even improvements of conservation or landscape values, all without compensation.

HOUSING AFFORDABILITY

Housing in Perth is widely regarded as too expensive ⁽⁵⁾ and the cause is lack of supply. ⁽⁶⁾  Successive government policies have attempted to increase infill development at the expense of the new housing on the edge but have generally only been successful in limiting green fields development rather than also increasing infill consolidation.  Many have argued that the whole premise of forcing infill is movement in the wrong direction as many families seek to own their own home, built to their specifications, in an area with other families doing the same thing.  However, it is not necessary to have a preference for either infill or edge development to understand that lack of supply is the clear cause of house prices being so high that a family needs to earn one and a half times average earnings to buy a house.

Moreover, in Perth, land shortages cannot be blamed for the lack of supply.  The city has ample land that is currently being used for agriculture that could rapidly be developed for housing.  Instead, the cause of land shortages is planning policies, as well as taxes and charges that have resulted in a piece of land with planning permission being worth 100 times what the same piece of land is worth without the permission to build.  At the same time, property owners with land adjacent to Perth, but not designated as useable for housing, are unable to use their land for its best use, which is to subdivide it for housing.  So while the current system delivers huge windfall profits to those fortunate enough to own property that receives subdivision approval, other owners receive nothing, the end buyers pay well over the unrestricted price and many others are denied the choice to buy a house at all because they are all priced out of reach.

The distortion of Western Australia's property markets through the design and implementation of the planning system has occurred over a long period.  Western Australia was the first state to pass a planning act in 1928 (after thirteen years of argument before it passed through parliament).  The scope of the planning scheme has continuously expanded to the current point where even the most minor alterations and additions require planning permission.  Each of these rules reduces the right of owners to use their property as they wish and are therefore a diminution of property rights.  It is not feasible to repeal all this legislation as too many investment decisions have been made on the basis of it.  However, the deficiencies of the approach are manifest and growing.

In more recent times, the introduction of conservation schemes such as Bush Forever, Conservation Wetland Buffer Zones and Biodiversity Reserves, are removing from future development large tracts of land in attractive development areas.  For example in the south west corridor some 26,000 Hectares are now locked away in these reservations. ⁽⁷⁾  While ensuring areas of high conservation value are not lost forever due to inappropriate development, it is becoming increasingly evident that these schemes are in some instances being deliberately used to limit the ability of landholders to provide more lots for housing rather than primarily for conservation.

MINING

Throughout history, mining has been a focal industry for the formal and informal allocation and management of property rights.  During the Californian gold rush, miners set up their own registry of titles and set their own rules for claim size and operation.  In the absence of a functioning state, the miners developed a set of rules which worked so effectively that a miner could leave his marked claim for days to get supplies and return to not only find the claim untouched, ⁽⁸⁾ but also his valuable tools untouched.  The story of the Ballarat miners and their revolt against excessive taxation and other infringements on their rights to mine is iconic to generations of Australians. ⁽⁹⁾

As the major driver of economic prosperity in Western Australia, it is of utmost importance that exploration and development of new ore bodies is not stymied by archaic or intrusive regulation.  Two unrelated problems highlight some of the issues facing mining that are caused by a failure to properly take account of property rights.

The first is the operation of the WA Warden's Court, or more specifically, the failure of successive Western Australian governments to properly resource the Wardens' Court and to reform its operation.  The Warden's Court hears matters relating to mining tenement applications, objections and forfeiture, as well as civil matters related to mining.  It is unusual in a number of respects.  Firstly, it has both administrative and judicial functions, ⁽¹⁰⁾ and the administrative functions are enabled through wardens making recommendations to the Mining Minister;  or an odd arrangement that has the potential to compromise the independence of the court.  Secondly, there is no right of appeal for many of the types of decisions wardens make.  This has led to the use of judicial review in the form of prerogative writs of decisions.  Such review can only be on the technical question as to whether the court has acted outside its jurisdiction, not on the merits of the case.  Lastly, although a section of the Magistrates Court, the Court of Wardens has the right to rule on matters worth hundreds of millions of dollars, amounts more usually seen in much higher courts.

Apart from an antiquated and arguably defective structure, the Court also suffers from the problem of resourcing.  Wardens are also Magistrates, and the operation of the Warden's Court takes a secondary position to the needs of the Magistrates Court.  In practice, this means the Warden's Court may only sit for one day a month, making it impossible to get consecutive hearing days and dragging out cases over years. ⁽¹¹⁾  In February 2007 the backlog of mining tenement applications peaked at 18,700 yet, it was not until August that a small amount of additional funding was announced. ⁽¹²⁾

The effect of the deficiencies of the Warden's Court is to create uncertainty over mining claims.  Without a settled title to a claim miners are unable to raise capital to get their project off the ground.  This has particularly harsh effects for junior miners without other projects that can be used as collateral.

Another current problem for miners is the classification of former pastoral leases as conservation parks.  In September 2007, the State Government announced the conversion of a further 5.5 million hectares of pastoral leases to parks and nature reserves.  While conservation park status does not ban mining or exploration, it changes the default position to no mining which then has to be appealed to the minister on a case by case basis. ⁽¹³⁾  In practice ,this means that existing mining operations are allowed to continue while new exploration and undeveloped tenements face additional hurdles.  The Environmental Protection Authority (EPA) is open in pursuing this approach to restrict further mining in areas already being mined, such as Portland Mining's operations in the Mount Manning region. ⁽¹⁴⁾  In a similar case, centred on Mount Gibson, the project was allowed to proceed, but only after 32 appeals against EPA decisions were successful. ⁽¹⁵⁾

Both the Minister for Mining and the EPA have been criticised by Ian Loftus of the Association of Mining & Exploration Companies for constantly changing the rules:

"For example, Cazaly Resources had a tenement ... but the government took it off them.  The Mid-West Corporation had an agreement, which they used to raise capital, but the Minister wrote to Mid-West and told them they were going to get rid of it. ... There's 1200 separate mining tenements on that land and each one of those tenements is jeopardized by government extending the conservation area". ⁽¹⁶⁾

For miners, the classification of mineral rich land as a conservation park after it has been pegged for mining is a clear change in the value of the land.  While the resource under the ground remains the same, the cost of extracting the resource has increased due to the additional processes and appeals required.  The right to use the land is diminished.  This could be of a net value if the conservation value of the land is such that its preservation outweighs the additional costs.  However, in the current case the land is former pastoral leases with only very small plots with high conservation value.  The lack of real conservation value is demonstrated by the overturning on appeal of every case appealed against.  However, this process is costly and time consuming, and often outside the capacity of small companies to undertake.

The boom in mining and exploration in Western Australia is obscuring the real problems the industry is facing, as the government fails to consider the impact on new projects and the attractiveness of the state for additional investment, by the persistent curtailment of property rights in the mining industry.  The situation where land of low conservation value is designated as a park, thereby adding additional layers of complexity to attempts to mine it, but not actually stopping mines, seems to have little logic.  If areas of high conservation, as determined by scientific experts, were locked away from mining but the rest was allowed, more land would be conserved, as the mining industry would concentrate on the vast areas permitted, rather than the current situation where everything is targeted as high and low conservation is not properly designated.  This is another case of the poor application of the principles of property rights leading to both poor environmental outcomes and poor commercial ones.

WHY PROPERTY RIGHTS MATTER

It is a mistake, often made by those ambivalent or opposed to capitalism, to equate property rights with financial gain;  as though the importance placed on strong property rights is a smokescreen to obscure the interests of the rich elites.  Yet such a reading is profoundly wrong.  Instead, a system of strong property rights offers the greatest benefits to the poorest members of society and is the foundation of a free society.

Hernando de Soto, a Peruvian economist, tells the story of some consulting he did in Indonesia.  De Soto noticed when he walked through the rice fields a different dog would bark as he entered each property.  The rice farmers had to rely on barking (and biting) dogs for protection because they held no legal title to the land.  Compared to a system based on records, titles and shares, dogs, fences and guards are expensive and inefficient methods of protecting the land and crops.

As de Soto notes, "with titles, shares and property laws, people could suddenly go beyond looking at their assets as they are (houses used for shelter) to thinking about what they could be (security for credit to start or expand a business)". ⁽¹⁷⁾  It is this fundamental change from forcibly defending occupation to a legal right that forms the basis for the capitalist system.  Property rights are therefore not only about ownership, they are the basis of credit, banking and entrepreneurship.  Indeed, property rights are the basis of a free society.

As Gerry Eckhoff, the former New Zealand MP said, "our property rights are almost subliminally recognised by the public, banks and commerce.  Most importantly, they are a legally enforceable transaction.  This legal system is hidden deep within the property rights concept.  It's this system that allows us to transform ourselves from mere squatters to landowners, or perhaps more correctly, right owners". ⁽¹⁸⁾

Unfortunately, it is the very fact that property rights are the foundation, rather than the parapet, of the legal system and free society that often obscures their role and makes easy their erosion.

THE RIGHT TO TRADE PROPERTY:  ABU DHABI As neighbouring Dubai boomed, Abu Dhabi stagnated.  Despite Abu Dhabi sitting on the most oil in the world, little of the wealth generated was invested back into development as the oil barons preferred to buy property in Western capitals where they knew it could be resold. There was no private property ownership in Abu Dhabi, the capital of the United Arab Emirates (UAE) before August 2005, when UAE nationals were permitted to own land and land registration was created.  And until February 2007, foreigners were banned from owning property in Abu Dhabi.  Then, in a further relaxation of the law, the President allowed foreigners to own buildings (but not land) in specified investment areas.  Further, non-UAE nationals were permitted to lease land on 99 year leases. Prior to the land reforms, all attempts to diversify the economy from oil failed dismally, and little new building was undertaken.  The results of creating property rights have been spectacular and immediate.  Just one of the multiple projects currently being built "will feature 36 mixed-use towers, two shopping malls, two mosques, and a five-star hotel.  On Al Reem Island, Shams Abu Dhabi will have a canal system like Venice's, a central park like New York City's, and an 83-story skyscraper". (19)  Already opened is a US$3 billion hotel, where basic rooms cost US$1,000 a night and the city has now attracted the first branch of the Louvre.

PROPERTY RIGHTS AND INCOME

The twentieth century saw many experiments in the effects of the total removal of property rights.  Despite the common result of these experiments -- totalitarian states with recurring widespread hunger and depredation -- a number of states continue to forcibly remove property from groups they are opposed to.

However, totalitarian states are not alone in restricting property rights.  All modern states restrict the property rights of their citizens to some degree.  And we can demonstrate a link between the level of protection a state gives property rights and the level of poverty in that state.  The 2007 International Property Rights Index measured the strength of property rights against a wide range of indicators and found a strong correlation between property rights and income.

Table 1:  Strength of Property Rights & Relationship to GDP

IPRI quartile	Ave. GDP per capita
Top 25 per cent	$32,994
2nd quartile	$15,679
3rd quartile	$7,665
Bottom 25 per cent	$4,294

Source:  IPRI 2007 Report, p. 31

The clear causal relationship between strong property rights and income has important lessons for developed societies.  Property rights deliver the foundations of the wealth enjoyed in developed societies.  If such societies are to continue to prosper, close attention must be paid to maintaining robust protections of property rights.

Chart 1:  International Property Rights Index and Gross Domestic Product per capitaSource:  IPRI 2007 Report

WHAT RIGHTS ARE PROPERTY RIGHTS?

Property rights are not a single, unitary right, but a bundle of rights relating to property ownership.  They include the right to own property, the right to dispose of property and the right to exclude others (also known as the right to "enjoy").  Another way of looking at property rights is to think of them as the right to control property (by stopping anyone else acting against your wishes) and the right to title (the reasonable belief that others understand it is yours to control, even when you are not in possession).

Contemporary property rights mean owners have the right to obtain economic benefits from their property, whether by using it, renting it out or selling it.  The extent to which these rights exist is a product of the existing law supported by social customs.  The limit of ownership, that is, what owners can and cannot do with their property has always been circumscribed.  Nevertheless, traditionally the limitations placed on property owners were intended to overcome obvious problems that impacted either neighbours or the wider society.  For example, hunting every bird and animal until none remain has been banned by regulation for over 1,000 years. ⁽²⁰⁾  However, what constitutes fair use of private property, and which externalities the society has the right to intervene with are challenging problems.  In recent years the level of regulation of property has escalated, often stripping owners' rights unfairly to the extent that, for many property owners, a substantial part of the value of their investment has been destroyed.

Everyday, every Western Australian makes decisions only possible because of property rights.  Yet, often the link between security of general property rights, and security for the ones a particular individual exercises is not made clearly.  As a result, the first home buyers getting their first mortgage are unlikely to ever consider the role their security of title plays in their ability to get a mortgage.  Moreover those same first home owners are even less likely to link their property rights to that of a mining company or a farmer.  Yet, if the government alters the rights of one group, perhaps because they are relatively small in number, then it can reduce the rights of all.

THE RIGHT TO ENJOY:  CELEBRATION, FLORIDA Property rights are often voluntarily forfeited by aspiring homeowners in "gated communities". The town of Celebration in Florida is a planned community constructed by the Disney Corporation.  Through the use of covenants, easements and servitudes, a set of rules property owners must abide by have been created that restrict what all owners can do with their properties.  There are limitations on house styles, colours, fences, outside blind styles and a myriad of other requirements.  House prices in Celebration are higher than comparable suburbs without the restrictions. What does a themed community where people voluntarily restrict their own rights have to do with the right to enjoy?  At Celebration, home owners gain the guarantee of their aesthetic preference.  In other words, people who buy there like the style and are prepared to pay extra to make sure all their neighbours like it too. As Andrew Morriss, a law professor at the University of Illinois, said "Celebration increased the value of the bundle of rights each person purchased because it added rights worth more (the ability to prevent an aesthetic disaster down the street) than it took away (the ability to create one's own aesthetic disaster)". (21) The legal instruments of covenants and easements are the enforcement mechanisms when something goes wrong.  However, they are rarely used.  The market mechanism of higher prices for these houses results in only people attracted to the rules buying there.  It is a virtuous circle of additional value created by codifying the right to enjoy.

WHAT THE EROSION OF PROPERTY RIGHTS LOOKS LIKE

As recently as 1962, the High Court of Australia held that landowners possessed the "proprietary right to subdivide without approval". ⁽²²⁾  Western Australia has changed a great deal since then.  Now, only tracts of land zoned for housing may be subdivided and there are additional highly prescriptive rules governing the number of blocks per hectare, local and regional open space set-asides ⁽²³⁾ and, increasingly, requirements for the provision of other services to the subdivided blocks.  Compared to this labyrinth of planning law in operation nowadays, the idea a property owner could subdivide at will is remarkable.  With the clear relationship between Perth's unaffordable housing and lack of supply of new housing lots, ⁽²⁴⁾ the effects of placing such high barriers to subdivision are painfully obvious.

How Western Australia went from no restrictions on subdivision, to a situation where neither the farmer who tries to sell off a surplus house nor the suburbanite wanting to subdivide her quarter acre block can do so without intricate planning permission to subdivide, was not a single event.  Similarly, the rise of heritage legislation and council rules has been a disjointed set of fits and starts, often in response to an egregious act.  Little by little, what seem to be reasonable restrictions to stop someone pulling down an important building, or to stop a five story strata titled block of flats on a suburban block, or to stop a farmer obliterating the last remnant of forest to install an irrigation system, are added to the statute books.

Most people believe themselves to be personally unaffected by each encroachment and may even agree that old buildings should be preserved, or flats should not be built in suburbs with predominately detached housing or, that native vegetation should be protected.  For many people, citizens and legislators alike, the first response is to ban whatever the perceived problem is.  However, that approach inevitably results in a diminution of all property rights because every time a new restriction is enacted without compensation the door is left open for further encroachments.

These regulations are not costless.  The value of people's and firms' wealth is reduced every time a new regulation is passed which restricts the ability of property owners to use their property to the best advantage.  For example, the introduction of height restrictions in an area, perhaps as a result of a particularly large building being proposed against existing residents' wishes, takes away the capacity of all property owners to redevelop their property as multi-story flats.  However, when there have been only few of these laws passed without affecting that many people, both bureaucrats and the general public forget about the private costs, and focus on the supposed public benefit. ⁽²⁷⁾

Paradoxically, the cheapest, most effective and fairest way to deliver the outcomes being mandated in much of the pernicious creep of takings perpetrated by all levels of government against property owners is to strengthen property rights.  As the example of Celebration, Florida showed, with strong property rights, an outcome desired by a community can be delivered in a way that adds value to the entire community.  The key is a legal structure that allows investors to buy property with its uses clearly defined and incorporated into the price.  Moreover, when community attitudes change so that previously accepted practices are no longer supported, for example demolishing very old buildings, then the community can achieve their new goals through appropriate financial payments to existing owners to comply with new restrictions.

COMPULSORY ACQUISITION:  SUSETTE KELO AND GRAHAM HARDIE In 1996, Susette Kelo, a nurse and recently divorced mother of five, moved back to the town she grew up in.  Ms Kelo bought and renovated an 1893 cottage on East Street, Fort Trumbell.  The daughter of factory workers, Ms Kelo describes herself as "about as ordinary as you can get".  However, she has ended up as the public face of eminent domain -- the name used in the US for compulsory acquisition of property. Her small pink house became the centre of a string of law suits, which went all the way to the US Supreme Court, arguing over whether the city council could compulsorily acquire her property to sell to a private developer as part of a plan to revitalise the area.  Unlike Australia, where property has always been able to be compulsorily acquired by the state (including local government) for any purpose, in the US, governments were limited to only compulsorily acquiring property for public purposes.  The argument in the Kelo case was over whether compulsory acquisition for private purposes that would result in higher economic activity and taxes paid was legitimate.  In a highly controversial decision the Supreme Court split 5 to 4 against Susette Kelo, forcing her to move. (25) In 1986, ten years before Susette Kelo was buying her cottage, Graham Hardie started putting together his property on the corner of Roe and Lake Streets, Northbridge.  At the time Northbridge was pretty down at heel, a rough and often dangerous place to be, especially at night.  Now, of course, Northbridge is the thriving and increasingly fashionable entertainment, dining and residential neighbourhood with a prime position close to Perth's CBD.  And Mr Hardie has spent the past six years developing plans to further enhance Northbirdge with a mixed use residential and shopping complex. In late 2006, the Western Australian State Government announced that it was compulsorily acquiring Mr Hardie's land to build a police complex, Magistrate's Court and watch house. (26)  The announcement bought strong condemnation from many Perth leaders including the City Council, the Property Council and the WA Chamber of Commerce and Industry.  However, there was no possibility of a legal challenge because there are no limitations in Australia over compulsory acquisition, and anyway, the police complex was clearly for a public purpose, even though it was clearly not the best use of the site.  The public pressure was effective;  in July 2007 the State Government backed down and announced it would locate the police complex on government land in Northbridge. Despite the differing outcomes and purposes for which the compulsorily acquired land was to be put, the cases share one profound similarity;  the ease with which elected officials and their bureaucrats decided that the best outcome was to compulsorily acquire land.  In both cases other options could have been pursued.  In the Kelo case, many of her neighbours were pleased to sell their properties to the council, but her house and other objectors were close to the edge of the site where development could have occurred without forcing her to move.  In the Hardie case, the WA government owned hectares of land in and around Northbridge suitable for the police complex, a fact confirmed by the eventual location of the complex on government land. Public opinion towards both decisions was overwhelmingly negative;  in the US the Kelo decision has proved so unpopular that most states have subsequently changed their constitutions or enacted laws to stop it happening again.  In Perth, the government backed down, thereby taking the immediate heat out of the call for law reform.

ROLE OF THE STATE IN THE PROTECTION OF PROPERTY RIGHTS

Westminster tradition, King John's 1215 acceptance of his baron's demands to restore the properties he had confiscated, is remembered as the historic beginnings of limits to capricious action by the Crown.  From this period also comes another key milestone in the development of property rights, the doctrine of due process.

The promise by the English crown that no free man shall be deprived of his life, liberty or property subject to the law of the land is one of only three clauses of Magna Carta still in legal force in the UK.

"No Freeman shall be taken or imprisoned, or be disseised of his Freehold, or Liberties, or free Customs, or be outlawed, or exiled, or any other wise destroyed;  nor will We not pass upon him, nor condemn him, but by lawful judgment of his Peers, or by the Law of the Land". ⁽²⁸⁾

The two restraints agreed to by King John, namely that the crown cannot grab private property without compensation and that all people are entitled to be judged by the law of the land, were instrumental in the development of property rights.  Together they form a strong defence for the weak against the strong.  In the first case, the protection is against the strongest of all, the crown or government, and in the second against more powerful citizens.

Over time a coherent and large body of law grew up in England which enshrined and explicated the fundamental principles of property rights.  In the succeeding centuries since Magna Carta protection of property rights became more entwined with ideas of individual liberty and limited government.  Later other countries such as the US and Australia inherited these same traditions.  In the US, for example, the 1788 Constitution referred to the people's "rights as Englishmen" which predominately meant a continuation of English property rights.

The US has been at the forefront of codifying law to protect property rights as fundamental to the protection of individual liberty.  Perhaps most notable amongst these codifications is the Fifth Amendment to the Constitution which directly echoes clause 29 of Magna Carta.

"No person shall ... be deprived of life, liberty, or property, without due process of law;  nor shall private property be taken for public use, without just compensation".

The Australian Constitution echoes these sentiments when it restricts the Federal Parliament to only acquiring property when compensation is paid.

"The Parliament shall, subject to this Constitution, have power to make laws for the peace, order, and good government of the Commonwealth with respect to ... the acquisition of property on just terms from any State or person for any purpose in respect of which the Parliament has power to make laws". ⁽²⁹⁾

However, as this paper will argue, the effectiveness of this provision has been limited by High Court interpretations.  In addition, no other level of government in Australia has this restriction on its actions.

CONTROLLING THE CROWN

"In the free and open society, the organized force of government is to be used only if necessary to protect the lives and property of peaceful individuals".  Paul L. Poirot

Without specific controls, the State, as the most powerful entity in society, has the capacity to behave both capriciously and excessively.  As the International Property Rights Index shows, such actions reduce the wealth of the entire society as well as being highly correlated with human rights abuses.

In Australia, despite there being no Constitutional bar to states and local councils totally expropriating property without paying compensation, this is not the most pressing problem.  Conventions exist such that governments pay compensation, although the basis and amount of that compensation is often disputed.  For example, it is common for property being compulsorily acquired to be valued at its current use even if the land has the potential to be put to a much higher value use.  This becomes especially problematic when government is proposing an urban renewal project on a blighted site.  However, total expropriation, to the extent that title is extinguished, is not necessary to destroy value.  None of the examples in this paper involve the state taking all rights to a property without compensation.  However, to concentrate only on that type of case is to miss the much more prevalent effect of government regulation reducing property owner's rights while still leaving her name on the title.  Moreover, the amount and determination of compensation payable, even in cases of total expropriation, are also key issues which need urgent reform.

The legal basis for property rights is of utmost importance in societies built on the rule of law.  However, in the classical liberal tradition property rights are natural rights which exist independently of the law.  This is perhaps best enunciated by Frederic Bastiat,

"Life, liberty, and property do not exist because men have made laws.  On the contrary, it was the fact that life, liberty, and property existed beforehand that caused men to make laws in the first place". ⁽³⁰⁾

In Australia, the High Court has moved away from the notion of deep or fundamental rights and has done so specifically in relation to property rights.  The court has held that in the matter of compensation for expropriation, governments are completely entitled to legislate the amount of compensation even if it is manifestly inadequate.  In a recent speech Justice Michael Kirby went to some lengths to explain the court's current position and to contrast it to other legal systems operating in the Westminster tradition.  It is worth quoting him at some length to better understand how the court now embraces a strict interpretation of the constitution and rejects the doctrines of common law as this has profound implications for persons and companies seeking any remedy against state and local government laws.

"Further cases, decided in Australia in 2004, may be mentioned to show the current approach of the High Court of Australia to "deep” or "fundamental” rights lying outside the Australian constitutional text.  They are, I will suggest, discouraging to the notion that the law, and the judiciary, will hasten to the assistance of people where their "deep” or "fundamental” rights are denied.

Although sometimes judicial relief is given, it is a comparatively rare event.  Far from embracing Lord Cooke's concept about inalienable fundamental or "deep” rights, the trend of decisions in Australia at least, must now be seen as generally unhelpful to such protection.  This is so whether by way of elaboration of the constitutional text or by invoking the doctrines of the common law". ⁽³¹⁾

In practice, what this means is that the court will not provide protection to those who find themselves fighting against an unjust determination of compensation for the loss of their property.  Nor is it likely to accept an attempt to argue that legislation which in practice removes rights, but in letter retains title, makes its victims entitled to compensation unless the legislation explicitly allows for compensation.

With the High Court effectively dealing itself out of traditional property rights disputes, the only avenue left to remedy the problem of regulatory takings spiralling out of control is through amending the Western Australian Constitution to mandate compensation at the rate of best use for land owners when land use restrictions reduce the value of their property by excision of existing rights or when the government wants to compulsorily acquire property.

REFORM AGENDA PRINCIPLES

The scope and size of the regulation affecting property owners allocates substantial powers to quite junior bureaucrats who may interpret the same provision in different ways.  Particularly problematic are differences across local government in the interpretation of heritage laws and inadequacies in the number and specialisation of magistrates sitting in WA's Wardens Court of mining disputes. ⁽³²⁾  Similarly, some farmers have faced inordinate delays in receiving answers to applications in relation to clearing native vegetation, and inconsistent advice through the process.  Lastly, accusations of favouritism and even corruption continue to bedevil a small number of councils in relation to development approvals.

The growing arbitrary nature of much of the administration of laws which impugn property rights is a problem in itself and one not easily remedied by more or different regulation.  Similarly, piecemeal reform to attempt to address a particular problem is an inadequate response to a systemic problem.

This paper recommends the adoption of a system based on four principles:  compensation, consistency, openness, and right of appeal.

Compensation

At a minimum the WA constitution should be amended to match that of the Federal constitution to pay just compensation when property is taken from private landholders by the government.  However, regulation often reduces the value of property without actually changing title, so the law needs to go further.  An appropriate protection for property owners would be legislation with constitutional effect which requires the state to compensate land owners when land use restrictions reduce the value of their property by excision of existing rights.

Such a measure would have the added blessing of providing a financial incentive that it does not now have to the government to prioritise its heritage, environmental and water use goals, concentrating on the most important.

Consistency

All existing legislation needs to be reviewed to introduce consistency for how landholders are treated by all levels of government.  The review will need to include planning laws, water entitlements and use, mining tenement law and its administration, native vegetation laws and any other aspect of Western Australian law which affects private property ownership and use.

Legislation arising from such a review will;

1. require all state government departments and local government to apply a uniform process to detail any actual harm or public nuisance that proposed regulations are designed to stop or prevent, the extent to which they affect private property owners, and whether the goals of the proposed regulations can be achieved using less prescriptive means, such as voluntary programs,
2. introduce mandatory benefit-cost analysis of proposed regulation using a standardised framework across government which values economic, environmental and, where possible, social benefits and costs from proposed property regulation.  No legislation is to be enacted without the results of such analysis being made public for an adequate time period,
3. prohibit state and local governments from using their compulsory acquisition powers to expropriate private property for private development in order to generate more tax revenue, and,
4. prohibit non-legislative policies which have the effect of placing restrictions over the use of private property.  All limitations on private property must be legislative and open to usual accountability mechanisms.  Property owners who believe non-legislated mechanisms are adversely affecting them should have access to appeal mechanisms.

Openness

All government agencies, including statutory authorities, must be required to contribute to a central database, operated by the Valuer General, of any covenants, heritage listings, environmental restrictions or other listings which place restrictions on individual properties, including heritage overlays of entire suburbs.  Landowners and potential purchases must, at a minimum, be able to easily, and at low cost, discover what they can and cannot do to their own property.

Right of Appeal

Establish a Private Property Tribunal to rule on the reasonableness of compensation paid by government to private property owners when their property is expropriated or devalued due to restrictions.

CONCLUSION

Western Australia has the natural resources to deliver an enviable standard of living for all its citizens.  The current economic conditions are such that sub-optimal policies, which demonstrably destroy wealth, are obscured by the extraordinary growth from the mining boom.  This paper has concentrated on three areas where the erosion of property rights are affecting either large numbers of people, viz housing affordability or important export industries, namely mining and agriculture.  However, the erosion of property rights, and the concurrent rise of regulation as the first option to address a perceived problem, can be identified in many other areas.  For example, heritage listings that place all the costs and restrictions on existing property owners supposedly to benefit the aesthetic preferences of society.  Another example is the continuing vexed problem of how native title is constructed;  bring few benefits and certainties to aboriginal people while simultaneously limiting investment over vast tracts of land.

These examples share a reduction in the rights accorded to property owners, often in the name of promoting community values such as heritage and environmental conservation.  Paradoxically, by using punitive regulations which bring no benefit to existing owners, often the results of regulation are the complete opposite of the intention;  for example, when a listed heritage building is allowed to decay until it is condemned or a farmer refuses to plant a single tree for fear of a future assessment of conservation value.

The development of property rights has a long and important history.  The evidence is irrefutable that the protection of property rights is the key to wealth accumulation and secure and stable societies.  Western Australia has the capacity to better protect its future prosperity, and to enhance it by implementing a much stronger protection of private property rights than now exists.

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REFERENCES

1.  Jim Hoggett, "The Death of Rural Freehold Rights", Review 54, no. 4 (2002).

2.  See for example, Pastoralists and Graziers Association, Submission to the Department of Conservation and Land Management on Discussion Paper:  Towards a Biodiversity Conservation Strategy for Western Australia (2005)., Richard J. Wood, Public Good Conservation -- Impact of Environmental Measures Imposed on Landholders (2000), Submission to the House of Representatives Standing Committee on Environment and Heritage Inquiry.

3.  Productivity Commission, Impacts of Native Vegetation and Biodiversity Regulations (2004), Inquiry Report.

4.  See the WAPRA website for an example of this at Canning Vale.

5.  Mike Nahan, "Waking up to the Great Australian Nightmare", The West Australian, 7 September 2006, p. 9.

6.  Richard J. Wood, Fixing the Crisis:  A Fair Deal for Homebuyers (2006).

7.  Western Australia Property Rights Association, "Unaffordability and Government Policy", WAPRA Newsletter (2007).

8.  Andrew Morriss, "Miner, Vigilantes, and Cattleman:  Property Rights on the Western Frontier", The Freeman (2007).

9.  Ron Manners, Keynote Address:  Erosion of Property Rights Would Appall Ballarat Diggers.  Paper presented at 150th Anniversary of the Eureka Stockade, 4 December 2004.

10.  Wayne Martin, Paper presented at AMPLA Inaugural Warden's Court Dinner, 13 November 2007.

11.  Marsha Jacobs, "WA Court Fails to Keep Pace with Miners", The Australian Financial Review, 6 July 2007.

12.  Kate Haycock, WA Government Promises Funding to Clear Applications Backlog (MiningNews.net, 31 August 2007, accessed 15 November 2007).

13.  Alex Forrest, Land Reclassification Another Hurdle:  AMEC (MiningNews.net, 20 July 2007, accessed 15 November 2007).

14.  Colin Jacoby, AMEC Calls for Cool Heads over EPA Decision (MiningNews.net, May 15 2007, accessed 15 November 2007).

15.  Colin Jacoby, Future of Mid-West Mining Uncertain:  AMEC (MiningNews.net, 3 August 2007, accessed 15 November 2007).

16.  Haycock, WA Government Promises Funding to Clear Applications Backlog.

20.  In medieval times all game was the property of the sovereign and landholders were required to gain a grant of free warren to hunt.

21.  Andrew Morriss, "The Economics of Property Rights", The Freeman (2007).

22.  "Lloyd V Robinson", (CLR, 1962).

23.  Coalition for Property Rights, Property Rights under Attack in Western Australia (2004), Discussion Paper.

24.  Richard J. Wood, Fixing the Crisis:  A Fair Deal for Homebuyers.

25.  Andrew Napolitano, "Property Rights after the Kelo Decision", Imprimis, January 2007.

26.  Graham Hardie, Northbridge Deserves Better (2007, accessed 23 November 2007).

27.  Richard J. Wood, Property Rights in Western Australia:  Time for a Changed Direction (2006), Occasional Paper.

28.  The National Archives, Magna Carta Translation:  A Translation of Magna Carta as Confirmed by Edward I with His Seal in 1297 (US Natioanl Archives and Records, accessed).

29.  "The Australian Constitution", in Commonwealth of Australia Constitution Act (Australia:  1900).

30.  Frederic Bastiat, The Law, ([1849] 1998).

31.  Michael Kirby, Deep Lying Rights -- a Constitutional Conversation Continues.  Paper presented at The Robin Cooke Lecture 2004, 25 November 2004.

32.  Jacobs, "WA Court Fails to Keep Pace with Miners".