9-11 theories in overdrive

Despite long and expensive inquiries, thousands of eye witnesses, and conclusive video, sound and picture evidence, more than five years after the attacks, sceptics continue to challenge every part of the official story of what happened on 11 September 2001.  Unsourced photos, quotations taken out of context and confused eyewitness accounts have inspired complex and often bizarre conspiracy theories.

Rather than a terrorist attack, on that day in 2001 the Pentagon was in fact struck by a missile, the World Trade Centre buildings were brought down by a controlled demolition, Flight 93 never actually crashed, and some of the hijackers are still alive in Pakistan -- a logistical feat planned and executed by the US government using remote-controlled planes.

September 11 conspiracy theories generally fall into two categories.  Either US government agencies knew that the September 11 attacks were going to occur and failed to act, or, alternatively, the government was directly involved in planning and executing the attacks.  A MIHOP is, therefore, someone who believes that the government Made It Happen On Purpose while a LIHOP believes the government Let It Happen On Purpose.  A large and growing number of people subscribe to these theories.

A poll taken by the Scripps Survey Research Centre in September 2006 found that 36 per cent of American respondents thought it was very likely or somewhat likely that the government either took part in the attacks or allowed them to happen.  Meanwhile, 16 per cent thought the destruction of the World Trade Centre was aided by explosives.  Other polls have reflected these results around the world.

A simple web search on September 11 conspiracy comes up with hundreds of websites and groups devoted to the topic.  Some are simple websites set up by individuals but others are the work of complex organisations such as The 9/11 Truth Movement which is a collection of individuals, researchers and collections of people who are working together to reveal the conspiracy.

Another group, known as the Scholars for 9/11 Truth, believes September 11 was a psychological operation to launch somewhere from 50 to 100 years of aggressive warfare against Middle Eastern and Central Asian countries.  That the official account of 9/11 is a lie and that 9/11 appears to have been an inside job is no longer a matter of serious scientific debate.  Many of the experts used by the Scholars and other conspiracy theorists to explain why it would be impossible for the World Trade Centre to have collapsed the way it did, have very little scientific training apart from watching a couple of cheaply-produced videos on the Internet.

Conspiracy theorists co-operate tightly, despite the contradictions that may arise.  One theorist who claims that a missile was fired into the Pentagon will associate himself with another theorist who thinks that a remotely controlled plane flew into the Pentagon.

With every new video posted on YouTube, or book published, or website launched, there arise new opportunities for the theorists to quote each other and therefore claim to have overwhelming evidence of the conspiracy.  This has led to the popularity of videos such as Loose Change, which had 10 million views in 2006 alone.  The producer of Loose Change supposedly originally investigated the attacks to make a fictional story about the attacks being an inside job, only to find evidence that there was a real cover up:  That 19 hijackers are going to completely bypass security and crash four commercial airliners in a span of two hours, with no interruption from the military forces, in the most guarded airspace in the United States and the world?  That to me is a conspiracy theory.

Most of the September 11 theories are about as credible as a belief in Nazis on the moon.  And although the theories are a form of entertainment and fantasy for many people, it isn't just boredom driving the conspiracy theory movement.  Psychologists believe humans are compelled to conspiracy theories, particularly for world-changing events such as September 11.  The authors of Debunking 9/11 Myths, a comprehensive rebuttal published by the engineering magazine Popular Mechanics, argue conspiracy theories share a basic thought pattern:  great tragedies must have great reasons.

A conspiracy theorist will look at an event such as September 11 and quickly conclude it is impossible for a small handful of terrorists to inflict widespread death and destruction against the world's most powerful nation.  Conspiracy theorists then proceed to find supporting evidence.  At this point, science and conspiracy theory split.  Whereas science makes an evaluation of the truth based on all the available evidence, conspiracy theories generally look for evidence to support conclusions that have already been established.  Other evidence is either ignored or discredited.

For the conspiracy theory to gather a popular following, it needs to explain elements of the story that the official account is unable to explain easily to a lay person.  In the case of 9/11, it was strange the World Trade Centre building 7 also collapsed, despite not being directly hit in the attacks.

Similarly, many find it strange that the Pentagon was so easily attacked, and even more bizarre that not one of the planes was shot down by the military.  Many people also find it impossible to believe that the World Trade Centre could fall in such a uniform fashion without that being the result of a controlled demolition.

Conspiracy theorists also often connect unrelated information and sources.  September 11 conspiracy theorists, for instance, claim the World Trade Center buildings could not have collapsed because of a plane impact as temperatures inside the building would not have been high enough to melt metal.  This is true but is disingenuous.  Although it is true steel's melting temperature is 1500°C and that temperatures in the World Trade Centre would not have likely exceeded 1100°C, steel heated to over 1000°C softens and is reduced in strength to 10 per cent of its room-temperature value.

September 11 conspiracies all suffer from serious factual and logical flaws.  How could anyone have possibly prepared a controlled demolition in the World Trade Centre without being noticed?  Why would the government go to so much trouble planning such a complex conspiracy using foreign terrorists?  Why were black-box recorders and bodies found at the Pentagon if a 747 didn't crash there?

September 11 is the most watched event in history and one of the most important events of our lifetime.  The 9/11 Commission produced a 571-page report that explains the events in full.  The National Institute of Standards and Technology also produced 10,000 pages of evidence on how and why the World Trade Centre buildings collapsed the way they did.  It could find no corroborating evidence for alternative hypotheses suggesting the WTC towers were brought down by controlled demolition using explosives planted prior to September 11, 2001.  Certainly there is strong evidence to suggest there were serious errors made by the Bush and Clinton administrations in the lead-up to the September 11 attacks.  But suggestions that the United States Government, or aliens, or the X-Files' Cigarette Smoking Man were involved in the tragic events of our past have little basis in reality even though they might feed some deep-seated psychological need for operatic complexity.

Carbon tax or trade? It's all academic

The clamour for measures to prevent global warming is becoming more insistent.  It is fashionable that nature is reflected in John Howard's Australian of the Year committee picking evangelical scientist Tim Flannery.

In England, the Government has awarded itself a tax bonus on air travel in the cause of saving the world from the carbon scourge.  In the US, President George Bush's rejoinder to the pressure he is facing to do something about global warming is to start a new "Star Wars" program.  This time, instead of missile-seeking lasers, it is sun-reflecting mirrors.

The recent release of the scientific summary of the Intergovernmental Panel on Climate Change update suggests that over the next century temperatures will rise by 1.1 to 6.4 degrees and sea levels will rise 18 to 59 centimetres.

None of the prognostications are as severe as those portrayed in such films as The Day After Tomorrow (where ocean current reversals bring on an ice age) or the fabrications that Al Gore fronts in his film, An Inconvenient Truth.  An enduring image of the Gore documentary is of mass extinctions facing species such as polar bears.  In fact this is less likely than the sight of a pink one swigging Bundy rum at a disco.  In most of their habitats, their numbers are increasing.

While the IPCC has yet to give its economic estimates of the impact of global warming, the British team under economist Nicholas Stern last year produced The Economics of Climate Change.  This has been comprehensively rebutted, notably by a group of economists that includes former British chancellor of the exchequer Sir Nigel Lawson and former Organisation for Economic Co-operation and Development luminary David Henderson.

The critics say Stern combined all the most extreme forecasts and some untenable discount rates to somehow prove we would all be better off with a stiff dose of carbon regulation.  Trumping all other scenarios, Stern claims inaction could cost up to 33 per cent of world consumption.  He argues that technology will come to the rescue as long as a tax at $130 a tonne of carbon dioxide is in place and we'll lose only 1 per cent a year of world gross domestic product.

Stern, like the Prime Ministerial Task Group on Emissions Trading, favours tradeable rights as the means of control rather than a carbon tax.  Carbon trading with credits grandfathered and allocated to existing users benefits companies by providing a subsidy to scrap outdated plant.  Commodity traders and companies that have expertise in trading see carbon credits as a new and lucrative product.

Others favour carbon taxes to increase public revenue, even though this is a de facto expropriation of particular energy businesses.  Carbon taxes are a graduated levy on energy supplies and the biggest losers are coal-based electricity generators.  While both have their merits, neither is more flexible than the other.  A tax allows adjustment to price if we are overproducing or underproducing emissions, while a tradeable right automatically brings that price adjustment.

Both are preferable to existing measures, including subsidies for windmills.  Once these schemes are phased in, Australians will pay $1 billion a year.

But the choice of instrument between taxes and allocating rights is only meaningful if there is overwhelming agreement among sovereign states about the need for action.  Most emissions increases will come from the developing world and these will only ease once the countries have reached the developed world's living standard.  This means the choice of instrument is academic -- a tax and a tradeable rights allocation will have only a trivial impact on global emissions increases.

We have confronted forecast catastrophes such as global warming in the past.  In the 1970s, the Club of Rome assembled a collection of scientists to warn us the world would have run out of most minerals by now and India and other countries would be facing mass starvation.

These and other impending certainties were undermined by empirical evidence.  The Club of Rome forecasts confronted a world with abundant raw materials to fuel its massively expanded demands and booming Asian economies.

With global warming, we have claims that are immune from empirical testing.  We won't know for at least 50 years if the IPCC forecasts are right.  Even if we did not find it difficult to adopt measures that would reduce our emissions, we have no means to impose these on the developing world.

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Regulating the end of neighbourliness

Last Sunday was Neighbour Day.  The idea behind the day is simple and worthwhile.  Neighbours are encouraged to say hello to one another.  Neighbour Day was started by Melburnian Andrew Heslop in 2003 and is now celebrated throughout the country.  The concept has been welcomed by politicians from both sides of politics, federal and state governments and local councils.

It is ironic that governments support Neighbour Day, given government regulations are a chief cause of the decline in the sense of community in our neighbourhoods.  Forty per cent of Victorians engage in some sort of voluntary activity, and voluntary organisations are central to strong neighbourhoods.  Yet government rules are putting the future of those organisations and what they do at risk.

Community initiative is being stifled as regulations become so burdensome that many volunteers find that their participation is simply not worth the trouble.

Fund-raising sausage sizzles are now subject to 40 pages of regulation from the Department of Human Services.  It is a legal requirement that functions appoint an "event co-ordinator", who must complete a checklist of more than 30 questions, ranging from the time the event started and finished, to whether the area was free of pests, to the name, address and phone number of anyone who supplied food.  To conduct a sausage sizzle will probably require two separate permits from the local council.  One permit to authorise the fund-raising and another to allow food to be sold.

The purpose of all this bureaucracy is, of course, to prevent food poisoning.  And, possibly because of additional regulation, a few people have been saved from an upset stomach.  But there is a trade-off.  As governments make it harder and more complicated to run voluntary activities, volunteers become less willing to organise those activities.  People no longer attempt to help themselves, and instead they look to government for the solution to their community's problems.

It might be obvious, but what is often forgotten is that voluntary organisations are run by volunteers.  Even if they wanted to, volunteers don't have the time to navigate their way through 40 pages of instructions, fill out five pages of paperwork, and then wait 14 days for council approval, all so that they can cook some sausages.  Common sense has been replaced by adherence to a rulebook.  Most people understand that buying food at a school fete is different from buying it at a commercial restaurant.  Many of the issues council health inspectors try to solve could be fixed by simply declaring that anyone purchasing at a community event does so that their own risk.

The modern-day mania for "risk management" has eliminated a range of activities previously conducted by voluntary associations.  While risk was once an accepted part of everyday life, now it is something that must be eliminated.

For a number of years a group of volunteers has operated an after-school sports program for children living on an inner-city housing commission estate in Melbourne.  The program was supported by an AFL club whose players regularly visited the estate to teach drills to the 30 children who attended each week.

This year, with the program growing and consuming more time, the volunteers decided to hand over the running of the program to a local government agency.  The first requirement from officials at the agency was that the program institute a "risk management" plan and that every volunteer have a "position description".  It didn't matter that the worst accident any child had ever experienced was a bump on the head, and that volunteers had spent years working quite happily without "position descriptions".  The result was that because none of the volunteers had the time or expertise to complete the necessary paperwork the program was cancelled.

Victorians would be surprised to know there's a state government department responsible for voluntary organisations.  It's called the Department for Victorian Communities and its mandate is to work "with local people throughout Victoria with the mutual goal of strengthening communities".  The department is even running an inquiry into the red tape faced by community groups.  So far nothing much has happened.

Maybe a new and radical approach is necessary.  The best thing government could do is get out of the way.  Rather than attempting to abolish the inevitable risk associated with practically anything a community group does, government could let people make their own choices.

It is hoped that as attitudes change back to what they once were, we may no longer need to be reminded to say hello to our neighbours.

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That does not commute: transport policy flawed

The Bracks Government has adopted some strong pro-public transport and anti-car stances.

One irksome illustration of this is the increased use of the motorist as a cash cow.  Increased parking imposts and the new 40km/h speed limits are examples of revenue raising trumping traffic management.

The nature of trip origins and destinations together with the consumers' wish for flexibility means that cars are indispensable.

While 50 years ago public transport accounted for more than half of Melbourne's trips, it's now at 8 per cent, with cars delivering 92 per cent.

Public transport is only cost-effective in servicing the central business district, which has seen its share of jobs fall from over half the total 50 years ago to only 12 per cent.

Short of crippling the State's economy, there is no possibility of the trends away from public transport being reversed.

But the State's 2030 plan envisages doubling public transport's share of trips.

The problem with planning fantasies of this sort is that they start to influence policy and spending.

In fact, Spring St plans to spend almost three times as much on public transport investments as on roads.

And road spending in real terms, having risen until 2001, fell sharply under the present government before recovering last year with the $2.5 billion Eastlink project.

With the Eastlink project, the Government has shown a welcome hard-headed business approach.  It had previously allowed itself to be skinned by insisting on the unions controlling projects like the MCG redevelopment.  Perhaps it learned a lesson from the resulting cost overruns.

On Eastlink, the Thiess-led consortium was determined to run its own show.  It refused to accept the hire-a-dope, pay-a-wrecker requirements of the CFMEU.

Instead it sought agreements with unions like the AWU which are more focused on their members' incomes than fighting destructive class wars.

It insisted on flexible work practices and on setting and policing for itself high levels of site safety.

This was made possible by the Commonwealth's industrial relations reforms.  Having voiced the obligatory ALP indignation about these, the Bracks government actually allowed its contractor to run its own show.  This meant it could do so without the union stand-overs that have plagued so many of Victoria's major projects.

The outcome has been a triumph for all concerned.  Eastlink is opening months ahead of schedule.  Management savings are at least $200 million.  And the workers involved have benefited with pay packets 10 per cent above the norm, as well as from a safety record second to none.

As long as it is only paying lip-service in favour of union and green crazies, the Bracks Government will prove an able manager of the State's economy.  This makes it a capable, though reluctant, implementer of the reforms set in place by the Kennett Government.

The danger remains that in adopting a different rhetoric it, or some of its Ministers, may come to believe that they can bring radical change.

Already some such "back to the Kirner" policies are evident and it will need careful management from the top to prevent them being implemented and undermining the State's economy.

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Economy still main game

The announcement this week by Kevin Rudd that Labor would use part of the Future Fund to pay for a nationwide broadband network has provoked shock and outrage from the Howard government.  What did the Liberals think would happen?

Hoping that a future Labor government wouldn't raid the Future Fund's $50 billion is like hoping that a five-year-old won't reach for the jar with the chocolate biscuits as soon as no one's looking.  The way to stop five-year-olds demanding chocolate biscuits is not by preaching abstinence.  It's a fact of life that children want chocolate biscuits, just as it's a fact of life that governments like spending other people's money.

It is completely unrealistic to expect that any government, Liberal or Labor, would behave itself and not dip into the Future Fund until 2020.  There's only one solution to the problem.  Remove the biscuit jar.  Unfortunately, the Future Fund already exists.  The biscuits should never have been put in harm's way in the first place.

There's something else about children and chocolate biscuits.  One chocolate biscuit is never enough.  This year it's a plan to spend a few billon dollars for internet broadband.  Next year it will be a plan for a high-speed rail link between Canberra and Sydney.  The following year it will be a plan for a highway from Perth to Brisbane.  In the reputed words of American politician Everett Dirksen, "a billion here, a billion there, pretty soon it adds up to real money".

Leaving a five-year-old alone with the chocolate biscuits is bad enough.  But allowing a five-year-old to run around the house with the scissors is much worse.  However, that's exactly what the coalition has done.  The commonwealth's new power over industrial relations that's been sanctioned by the High Court will allow the ALP to do more than just cut up Work Choices.  Australia would be landed back in a pre-1983 industrial relations regime.

The coalition won't save its electoral fortunes by complaining about the ALP's broadband policy.  Most of the electorate will probably think it's a good idea.  And if the polls are to be believed, dissecting Rudd's dinner guest lists won't work for the coalition either.  The only outcome of that tactic has been the loss of two government ministers.

In February, the Prime Minister told government MPs there were four things that gave the coalition a head start over Labor.  In order of importance they were that the economy was strong, the government was competent, ministers were well regarded and the coalition was united.  In the space of a few weeks the government has succeeded in shredding two of those four advantages.  At least the economy is still strong, and because cabinet is displaying no interest in abolishing the monopoly privileges of AWB, for the moment the coalition is holding together.

The government's obsession with the Labor leader's character has meant that the Liberals have spent the past month only talking about what an ALP government might do, instead of talking about what the coalition has already done.  Any political party is going to present its opponent in as bad a light as possible, but highlighting the negatives of the other side shouldn't be at the expense of presenting the positives of your own side.

The danger for Howard is that the good times will be taken for granted.  The more time he spends discussing Rudd the less time he has to take credit for what he's achieved.

For example, there's been almost no attention given to the fact that last year Australia experienced its lowest ever level of strikes.  In the last quarter of 2006, 2.3 working days were lost to industrial action per 1000 working Australians.  In the early 1990s, the comparable figure was more than 100 days lost per 1000 workers.  This is a result for which the government should take the credit.  Certainly low unemployment has helped to discourage industrial action, but Australia has previously experienced such economic conditions without a consequent fall in industrial disputes.  Work Choices has changed the mindset of employers and employees.  The first response to an industrial problem by employers is no longer to contemplate a lock-out, and from employees it isn't to down tools and walk off the job.

If the worst flights of Labor's policy fancy eventuate, what's been achieved by decades of economic reform will be lost.  When the stakes are as high as this, who Rudd had dinner with fades into irrelevancy.

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Rudd's broadband plan doomed to commercial failure

Stephen Bartholomeusz got it right yesterday when he likened the Rudd-Conroy proposal to fund a broadband network by raiding the Future Fund to failed government policies picking winners.

As Paul Keating once said, when earlier governments picked winner industries, they expected an ample return for the investment in tariffs and subsidies they outlaid on behalf of taxpayers.  The fact their selections almost invariably turned out to be dogs is ample evidence politicians and bureaucrats should not be let loose in the commercial world.  Not only are the politicians over-enamoured by seemingly exciting new projects, they are incapable of spending prudently.  They are under voter pressure to append loss-making features onto the investments.  These include requiring a padding of workforces to pander to unions, and extending investments to areas where they become loss-making.

A Telstra scheme to use its shareholders' funds for a fibre-to-the-node system was to cost $3.1 billion.  This has become, under the ALP's proposal, an $8 billion scheme, into which the Opposition plans to tip $4.7 billion from the Future Fund, which is designed to meet the Commonwealth's superannuation obligations.

Such a network in a fast-moving technological age is fraught with risks.  Several other ways of delivering high-speed internet are under consideration, ranging from wireless to speculative proposals such as piping it through power lines.  Alternative delivery systems can severely devalue a new network.  So, do taxpayers want to back government decision-makers in such areas of high commercial uncertainty?

One danger is that a government telecommunications network would become a legislative monopoly that prevented new rival facilities, undermining industry's competitiveness.

Mr Rudd is building credentials as a big-spending interventionist with this scheme, following proposals to outbid John Howard in water and clean-coal policies and in appointing Socialist Left anti-capitalist Kim Carr as industry spokesman.

But the Government has created the potential for the intervention the ALP proposes.  Communications Minister Helen Coonan and the Australian Competition and Consumer Commission have refused to allow Telstra to build a network, except on the basis that its management is handed over to the ACCC.  No company would want this.  And Senator Coonan is in denial that Australia has fallen behind in internet speeds.

Rapid adoption of telecommunications advances is essential to our competitiveness.  But by requiring any company undertaking the risky business of building a network to accept that it will be defined as an "essential facility" subject to government control is a sure-fire way of ensuring it will never be built by the private sector but be sorely missed.

Peter Costello has accused the Opposition of economic irresponsibility, but the Government must share some blame.  It has been in the thrall of a regulatory policy that seriously hinders the building of new infrastructure and it is within its power to correct this.  To refuse to do so will make it inevitable that taxpayers again fund these facilities, with all the risks and inefficiencies that follow.

Amending TRIPS: Protecting Property Rights and Public Health

Submission to the DFAT review of the
TRIPS and Public Health Amendment

INTRODUCTION

The Department of Foreign Affairs and Trade is currently seeking input into the “TRIPS and Public Health” Amendment to the Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement of the World Trade Organisation.  This amendment is currently being considered for adoption by WTO members, including Australia.

It is recognised that the proposed amendments are merely the formalisation of existing waivers to the Agreement on the grounds of public health concerns.  However, this should not ignore the central role that intellectual property rights play in the promotion of solutions to public health concerns.

THE IMPORTANCE OF INTELLECTUAL PROPERTY RIGHTS

Intellectual Property rights should be treated akin to all other property rights;  they should be recognised and enforced.  Any relaxing of property rights law comes to the detriment of all property rights and the lack of security property owners can place in their property.  While these property owners suffer from direct risk to their property, it should not be ignored that society at large also suffers.

The pharmaceutical industry provides a very good demonstration of this.  The pharmaceutical industry relies heavily on an intangible good for its ongoing existence, its intellectual property.  Undermining their intellectual property rights directly undermines the ongoing viability of their business to create life preserving and enhancing medicines.  Their intellectual property provides them with an asset to raise capital from the marketplace to invest into the research and production of goods that promote public health.

While the short term benefits of addressing immediate public health crises can be alleviated by undermining intellectual property, this alleviation is short term gain for long term pain.  It comes at the expense of the long term sustainability of the industry’s development of new medicines for diseases that have not yet been cured or that have not yet impacted on society.

PROTECTING PUBLIC HEALTH AND
INTELLECTUAL PROPERTY RIGHTS

The proposed amendment attempts to balance out the public health challenges that flow from intellectual property protection and the suggested need for parallel imports for patented pharmaceuticals where a country does not have the manufacturing capacity in a public health crisis;  while also recognising the need for protection of intellectual property rights for patent holders.

The proposed amendment reasonably addresses this balance.  In particular the requirements for parallel imports produced under a compulsory license should be branded in a different form than patented medicines to minimise its trade on the black-market.  It is also essential that compensation be paid to the patent holder under a compulsory license regime for the use of their patented material.

It is also too often ignored that many pharmaceutical companies engage in voluntary licensing to assist with public health problems removing the need for compulsory licensing.  This is always preferable to compulsory licensing and the interference of Government in the licensing arrangements of patents.

While these amendments will help to secure the alleviation of public health concerns that arise out of intellectual property rights protection, it should not be used as a method for developing countries to obfuscate their responsibilities.  The pharmaceutical industry has been abused for too long for the public health problems in developing countries.  Any person with a reasonable understanding of public health problems in developing countries is aware that the availability of patented medicines is a minor problem in comparison to other public health challenges;  including the availability of qualified health professionals and facilities, distribution methods for goods, corruption and access to clean drinking water.

THE CAMPAIGN AGAINST PROPERTY RIGHTS

Since the establishment of the WTO and TRIPS there has been an ongoing campaign against pharmaceutical companies to blame them for public health challenges in developing countries.  Concurrently too little attention has been given to these simple problems that would have a much greater impact on improving public health in developing countries.

This campaign has been run by professional anti-property rights, anti-market activists.  They are merely using this campaign as part of an incremental step in a long-term campaign against free markets and intellectual property rights.  This runs contrary to Australia’s national interest and the interest of addressing many of the real public health concerns throughout the developing world.

In addition, there has been a paucity of effort made by developed countries to recognise the important role and success these companies have had in promoting public health.  They have allowed the impression to build in the media and other avenues of public commentary that pharmaceutical company’s are coveting their IP like a spoilt child with a bag of lollies;  rather than recognising the significant role they play in research and development of life saving and preserving medicines.

SUMMARY COMMENTS

Regardless, Australia should accept the proposed amendment to the TRIPS Agreement;  but it should be done in concert with ensuring developed and developing countries address the real challenges facing developing country public health.

Inventing market failure

Governments need problems.  Without them, there would be nothing to solve.  Australia's broadband situation has presented governments across the country with ample opportunity to intervene.  But is Australian broadband caught in a trap of underinvestment and market failure?

The importance of high-speed internet access to a nation's economy is encouraging a great deal of policy experimentation around the world, and Australia's state governments are enthusiastically embracing them.  The Western Australian government pledged $1 billion to invest in a state-wide broadband network, modelled on a similar network in Alberta, Canada.

The New South Wales Government is tendering out a wireless broadband service, which is to echo the trend in the United States and Europe towards municipal WiFi.  Municipal wireless networks tend to haemorrhage money, get bogged down in politics, and in the end deliver far less than they promise, so Sydney consumers should be glad that there are already a number of private wireless operators able to meet their demand.

There is perceived political benefit in attempting to deliver broadband to consumers.  Queensland Premier Peter Beattie announced late last year a plan to pipe fibre directly into Brisbane homes, but private companies would have to pay for it, build it, and operate it.  Beattie's grand broadband initiative consisted of little more than a press release about how good a new network could be.

The federal government, having subsidised rural telecommunications since we first got a federal government, now feels compelled to update those subsidies to include broadband at increasing speeds.

If the prevailing political winds are to be trusted, it seems that governments have concluded that the marketplace cannot provide the level of telecommunications expected by consumers in the 21st century.  But there is little good reason for their pessimism.

In the United States, Verizon is investing US$18 billion in fibre-optic cable straight to the home.  It's an enormously risky investment, and has its fair share of critics who note how uncertain the industry's terrain will be when the rollout is completed in 2010.  But nevertheless, Verizon has laid US$18 billion worth of chips on the table, to the benefit of US consumers.

An investment the size of Verizon's would be almost impossible in Australia.  Australia's forced access policy would place any investment immediately into the hands of the ACCC, which would be likely to require it to give access to its competitors at a price of the regulator's choosing.  The disincentive to invest is obvious.

But the federal government has refused to reform the Trade Practices Act to encourage greater infrastructure investment.  Instead, we are left with a set of telecommunications regulations which are designed to induce competition into a government-owned, 20th century telecommunications monolith, rather than regulations more suited for the 21st century consumer demand and technology.

The access provisions of the Trade Practices Act are far more draconian than in other jurisdictions.  But entrepreneurial firms need to be given the freedom to invest on terms of their own choosing.

Some commentators have argued that the government should do that investment itself, but it would be better if the risk inherent in building a new network is borne by the companies that will profit from it, not Australian taxpayers.  Would the government also commit to building every telecommunications network into the future?  It is unlikely that a fibre optic network will be the last network Australian consumers demand.

Politicians are always eager to assert market failure -- it gives them opportunities to gain publicity, deliver services which might translate into votes, and forge reputations for "getting things done".

But Australian telecommunications is caught in a trap of poor public policy, not market failure.  If the government wants to encourage investment, it should at least try to fix the problem.

The Values Deficit

Address to the Australian Financial Review Housing Conference
9 March 2007

HOUSE PRICE TRENDS IN AUSTRALIA

The two most salient indicators of the housing market are the comparisons of median prices over time and the comparison of those prices in different Australian cities and in cities worldwide.

Using the HIA standardised price at 2006 prices for new houses and land, we can see the pattern shown in Chart 1.

Chart 1:  Real House and Land PricesSources:  Sydney:  REI of NSW;  Melbourne, Brisbane and Adelaide:  UDIA;  WA:  HIA.

The building component cost of new house prices has changed little in real terms since 1973.

Not so land supply.  Since 1973 the price of the land component has outpaced general inflation by between tenfold (Adelaide, albeit from a low base) and threefold (Melbourne).  Sydney, which has long experienced higher prices than elsewhere in Australia, saw an increase eight times greater than the overall rate of inflation over the period.

There is nothing predestined about these contrasting trends of stable building costs and escalating land prices.

Building costs have remained stable in spite of regulatory impositions, especially those concerning energy where recent 5-Star measures according to the industry increased cost by some $7,000 plus per home.  The increased imposts placed on new housing raises its costs.  As a result the value of existing housing increases.  Such measures are therefore a means by which the incumbent home owners salve their consciousnesses about global warming, shortage of water and so on, at the expense of those without their own homes.

For house building there remains a relative ease of entry into an industry characterised by a highly efficient non-unionised sub-contracting structure.  Both of these features are under some pressure by governments keen on promoting credentialism and disadvantaging the independent contractor over the unionised employee.

The industry itself has absorbed the regulatory cost imposts, though without them we would see modest but welcome reduction in house prices, and has to date successfully resisted continued government attempts to deem the "subbies" as employees and make them eligible for unionisation.

CROSS-COUNTRY COMPARISONS

In the case of land prices, Australian trends are seen in other but not all jurisdictions.  Demographia publishes an annual survey of median house prices against median family incomes.  The 2007 study examines 159 Anglosphere cities, dividing them into "affordable" where prices are under threefold the median family income and highly unaffordable where they are over 6.5 times the median family income.  Forty two of the 159 fall in the affordable category and 25 fall in the highly unaffordable, with the rest in between.

Table 1:  25 Most Unaffordable Housing Markets

#	Nation	Market	Median Multiple
1	United States	Los Angeles-Orange County, CA	11.4
2	United States	San Diego, CA	10.5
3	United States	Honolulu, HI	10.3
4	United States	San Francisco, CA	10.1
5	United States	Ventura County, CA	9.4
6	United States	Stockton, CA	8.6
7	Australia	Sydney	8.5
8	United States	San Jose, CA	8.4
9	United Kingdom	London (GLA)	8.3
10	United Kingdom	Boumemouth-Dorset	8.2
11	Australia	Perth	8.0
12	Unted States	Riverside-San Bernadino. CA	7.9
13	Canada	Vancouver	7.7
14	United States	Miami West Palm Beach, FL	7.6
14	United States	Modesto, CA	7.6
16	United Kingdom	Cardiff	7.5
17	United Kindom	Bristol	7.3
18	United States	Fresno, CA	7.2
18	United States	New York, NY-NJ,-CT-PA	7.2
20	Australia	Hobart	7.0
21	New Zealand	Auckland	6.9
21	United Kingdom	London Exurbs	6.9
23	Australia	Melbourne	6.6
23	United States	Sacramento, CA	6.6
23	United States	Sarasota, FL	6.6
23	Canada	Victoria	6.6

Sydney, Perth, Hobart and Melbourne fall in the highest cost 25 and Brisbane falls just outside.

It costs over 6.6 median income levels to buy the median house in Australian cities.  The average house requires only 3.2 years of average income in Canada, 3.7 years in the US and 5.5 years in Britain.

The fact is that house prices are highly conditioned by government policies -- if this were not so we would see a more consistent pattern of prices and price changes.  Having established the facts we need to dig beneath them to find out what is driving the price changes.

DEMAND, SUPPLY, COSTS AND PRICES

In its "Inquiry into First Home Ownership 2004", the Productivity Commission understated the importance of supply constraints in pushing up prices.  The report saw accretions to supply as being relatively low and therefore of limited influence in the market as a whole.  In point of fact new house supply can respond quickly to increased demand and does so where land is not rationed.  For example, in Houston, the vast expansion in demand that followed people leaving New Orleans after Hurricane Katrina placed only minor upward movement on house prices.

The PC also placed undue emphasis on the effect of new demand being dominated by people trading up in house value.  This may in part be a consequence of land scarcity causing prices of new houses to be beyond the reach of first home buyers.  More pertinently, it matters little who is buying the new property since if it is people trading up this should release stocks of existing houses and depress their prices.

Glaeser, Gyourko and Saks (2005) analysed housing costs in the context of different variables.  They developed a proxy for regulatory restraints though noting that, "The very richness of the regulatory environment means that there is no one law or regulatory structure that would allow us to identify some metropolitan areas as being more onerously regulated compared with others".  Their analysis indicated that in areas where the regulatory restraints were considerable the effect of a 10 per cent increase in demand led to a $60,000 price increase;  in areas with lower levels of regulatory restraint, the increase was $5,000.

Some have argued that we are now seeing an overheated market that new demand cannot cope with.  This view is difficult to sustain from the data.  Commencements remain below the levels of the early 1990s and are considerably below those of the 1970s.

In NSW current levels at under 30,000 per annum compare with 50,000 in the early 1990s.  Victoria was suffering from the Kirner ALP blues in that period but its present level at 30,000 is fewer than the 36,000 of 2002.  Queensland in the early 90s and again in 2002 was starting 40-50,000, well above last year’s level and South Australia’s 11,000 compares with 14,000 in the early 1980s.  Even Perth is commencing fewer dwellings than in the late 1980s.

Chart 2:  Dwellings Commenced

DWELLINGS COMMENCED

Charts 3-7 from the UDIA show how the price of new broadhectare housing blocks has risen over the past decade in the different Australian cities.

Chart 3:  Adelaide Lot Supply v Ave. Price ($)

Chart 4:  Brisbane Lot Supply v Median Price ($)

Chart 5:  Melbourne Lot Supply v Ave. Price ($)

Chart 6:  Perth Lot Supply v Ave. Price ($)

Chart 7:  Sydney Land Supply v Ave. Price ($)

In Adelaide we can see the price rising precipitously especially as the supply headed south in the past year or so.  A similar pattern is observed in Brisbane with prices surging from the year 2000 and lot availability actually falling.  A similar fall in lot supply can be seen in Melbourne.  And in Perth the picture is especially dramatic with lot supply almost halving in the past three years while prices more than doubled.  Finally, Sydney is far and away the worst placed city -- an economy stagnating, house prices high and rising and land releases halving over the past decade.

The cost escalation is all about the land component.  Land prices are high not because it is either expensive or time-costly to prepare land for development.  Land can be brought on-stream in a matter of months once an approval is given.  Preparing a piece of land for a housing development is not an expensive process.

The following shows costs per allotment in a South Australian development some 50 minutes from the Adelaide CBD.  Total costs averaged $36,000 which with selling costs and so on might come to $45,000.

The virgin land in its normal usage as farmland is worth at most some $4000 per hectare and, even with the requirements for set asides, schools and other non-housing usages there are at least ten 600 square metre blocks per hectare.

These sorts of data demonstrate the fallacy in statements that maintain we must have a greater concentration of housing because preparing infrastructure outside of existing areas is exorbitant.  Not only is the preparation of land not vastly expensive but it is by no means certain that urban renewal is cheaper than building on the fringe given the fact that all infrastructure in the end needs to be replaced.  It is actually cheaper in a great many case to start anew rather than tear down and rebuild outdated or decaying infrastructure.

Some state housing and planning ministers claim there is an abundance of land available but that developers are hoarding it.  This is not credible.  There are dozens of developers and it would need collusion on a massive scale if they were purposely seeking to drive up prices.

The fact is that developers are planning their businesses years ahead and need a land inventory.  They also face the problem of slow approval processes including sequential approval processes that can take a decade between land release and the ability to actually build on the land.  Governments should be able to do something about this, much of which is caused by the accumulation of heritage, environment and other laws that they have introduced.  Victoria is piloting an on-line clearance system which should be helpful in speeding up approvals.

In any event, if the problem is a reluctance of developers to prepare and build on land that has been released, that is easily resolved by releasing more land.  There is no land shortage -- even in Sydney with its extensive national parks funnelling growth there is room for a million plus new homes on the Cumberland Plain alone.  Less than 0.3 per cent (less than one per cent in Victoria) is urbanized, far less than the US areas where land releases are keeping pace with demand.  An average sized block on the fringe of any Australian city would cost $50,000 if the government were to release more land for development.  This compares with costs that are at least twice that and in Sydney and Perth several multiples of that.

There are those who argue that it is only demand that is forcing up house prices.

Macquarie Bank’s Rory Robertson is of this view.  Mr Robertson thinks the reason why house price have gone up in some places but not others is because some places are "sexy".  He defines these as those cities he likes:  Australia is rather flattered by this perspective because all our capital cities are sexy.  They are joined by US cities including New York, LA, San Francisco, and Honolulu, as well as British cities like London, Bournemouth (Fawlty Towers territory) and Cardiff (famous only when the Wallabies or All Blacks visit!).  New Zealand, with Auckland also scores a heart as does Vancouver in Canada.

Those cities he evidently considers to be "dull" include bustling Toronto;  Houston the world’s space industry capital;  Cosmopolitan Quebec;  Dallas, one of the premier energy and high-tech centres in the world.  If people in these cities were aware of Hobart and Adelaide they could be forgiven a quiet snigger at having their cities compared unfavourable to those and perhaps other Australian cities.  He also argues, "Important coastal cities are expensive everywhere".  Presumably those that aren’t expensive -- including Halifax, Nova Scotia;  Toronto (on a Great Lake) New Orleans and Melbourne (that’ll be Melbourne, Florida) as well as Houston, are not in Mr Robertson’s view "important".

Like Beauty, sexy and important is in the eye of the beholder.  What really distinguishes cities that have affordable prices from other cities, sadly including all of Australian capitals, is the supply of land on which the authorities allow new houses to be built.  Some cities like Houston, Dallas and Atlanta are kept affordable despite growing faster than any Australian cities.

Another element of demand that is often blamed for high house prices is interest rates.  Interest rates are important for house prices but they will only inflate prices if supply cannot be increased.  Other high value consumer durables like yachts, light planes, and Mercedes cars did not increase in price with lower interest rates.  Just as in cities like Houston, Dallas, Atlanta and a host of others in the US, this was because supply is flexible and not regulated by government

The dominant factor for prices of housing in general is government created scarcity.  Aside from taxes there are three factors in the price of a house:  the cost of preparing the land, which with selling costs should not be more than $50,000 per block;  the cost of building a house and we can open up any national weekend newspaper to find that this is anywhere from $110,000 to over $200,000.  Finally there is the cost of the virgin land.  The dominant use of such land is for farming and hardly any of it would sell for more than $4,000 per hectare.  At 10 houses per hectare the virgin land cost is only $400;  a trivial amount.

The artificially induced price escalation also has an effect in encouraging greater in-fill.  This increased pressure has induced an amplified NIMBY presence and which has to a greater or lesser extent been successful in preventing "inappropriate development".  This has tended to cut off an alternative, if inferior means of augmenting supply by more intensive development in existing urban areas.

TAXATION AND POSITIONAL SCARCITY

It is sometimes difficult to determine whether specific taxes add to prices or are absorbed by the supply chain.

In general taxes that comprise general charges like GST, stamp duty and land tax are in the main a further impost that the consumer pays.  In this respect, the taxes boost the value of existing houses to the degree that the impost on these was originally lower.

Some other taxes probably get absorbed by the suppliers.  This is likely to occur where government restrictions in land availability have created a scarcity and boosted land prices.  In Sydney local and state wide specific infrastructure charges offer no value to the new house owner but are simply a convenient way of clawing back to the government some of the regulatory tax created by their policies in restricting land supply.  Such charges in Sydney amount to $42,000-$83,000 per block.

The discussion of these costs should not overlook that some land and houses that are positioned well are likely to be more costly than others.  And with higher levels of discretionary income, one might hypothesise that the more desirable places will see higher than average price increases.  Even cities with no planning restraints like Houston have their $2 million houses.  Doubtless, whatever is done about the availability of land on the fringe of Sydney would have only a minor effect on property prices in Rose Bay.

Table 2:  Costs per allotment in Adelaide CBD

Nature of cost	Cost per allotment
Civil works construction costs including:     Establishment & Disestablishment    Sedimentation Control Works    Allotment filling    Road Formation works    Roads, pavements & gutters    Hot-mix seal coat    Stormwater drainage works    Sewer reticulation    Water reticulation    Common Service Trenching    ETSA/Telstra conduits materials    Survey Certificate    CITB levy	$30,415
Sewer	$2,495
Water Supply	$500
Survey & Engineering	$3,000
Planning, registration, title fees	$110
TOTAL	$36,520

But this is immaterial to the main problem whereby artificially induced scarcity is boosting prices and resulting in excessive prices which ration supply.  The losers are the first home buyers.  Compared to previous years, the first home buyer on average in Australia faces a median house price at 6.6 times median household income levels.  For decades this ratio was 3:1.  The median household looking to buy their first home is likely to have a combined income under $90,000.  This limits borrowing levels to $270,000, and little more than half of this with only one breadwinner.  Denying young families the opportunity to own their own home constitutes a sever failure of public policy.  This failure is even more acute when the solution to the problem is well-known.

Hot air and hot cars may suit pollies, but do they serve us?

Victorians are proud of Melbourne as the sport and major events capital of the country.  But few bother asking:  is that title worth the money?  This week's formula one Grand Prix will cost the state's taxpayers at least $30 million.  The World Swimming Championships, starting on Saturday, will cost more than $50 million.

To put these amounts into context, State Government spending on these two events alone is equal to every adult Victorian making a compulsory payment of $20 to the organisers.  Some Victorians would gladly hand over $20 for the privilege of Melbourne hosting a car race and a swimming carnival, but most wouldn't.  So why have governments (Labor and Liberal) been allowed to get away with spending hundreds of millions of dollars on such activities?

The lack of public curiosity about the cost of major events seems to encourage ministers to make increasingly extravagant promises to promoters.  Governments have little incentive to seek value for money when they can make secret deals exempt from parliamentary and public scrutiny.  The Grand Prix contract remains a secret, while the cost of security for the swimming championships has not been revealed and probably never will be.

The usual justification is that major events spending provides economic benefits for the state through additional employment, increased tourism and international advertising exposure.  This is true.  However, it ignores one obvious point:  any sort of government spending, whether it is for worthwhile purposes or wasteful purposes, has economic benefits.

If the Government decided to devote an additional $80 million to recruiting extra literacy teachers in primary schools, there would be economic benefits.  Better educated students will be more productive once they are in the workforce.  But if the Government chose to use the money to have the rocks at the bottom of the Yarra painted red, there would also be economic benefits:  paint would be purchased, painters employed and tourists would flock to see a river that was red instead of brown.  Such a stunt would certainly generate worldwide headlines.

The question for Victoria is not whether there are economic benefits from taxpayer-subsidised major events, because obviously there are.  The question is whether there are better alternative uses for the money.

In some circumstances, government financial support for major events may be justified.  But those circumstances are rare.  There shouldn't be a situation, as exists now, where any major event offered to Victoria is greeted with an open chequebook.

When Melbourne won the Grand Prix from Adelaide in 1993, the dilapidated parks and ovals of Albert Park were restored.  Thanks to the Grand Prix, substantially improved sports and recreational facilities are now available to the public.  There are isolated instances of long-term public benefit from spending on major events, but those instances are rare.

Victoria spends four times more on major events than any other state.  But then no other state suffers from the same sort of inferiority complex as does Victoria.  NSW has Australia's international city, and Queensland and Western Australia power the nation's resources boom.  Meanwhile, Victoria prides itself on winning the right to host the World Hot Air Balloon Championships and have formula one racing cars travel at 60 km/h down Lygon Street.

Major events have as much to do with the political benefit for the party in power as they do with any economic benefits for the state.  The line about giving the people "bread and circuses" is true enough, but in Victoria it increasingly seems to be all circus and no bread.

In the midst of a water crisis that everyone saw coming except the Government, and while Melbourne's public transport system lurches from problem to disaster, it is convenient for Premier Steve Bracks to spend his time discussing the gold medal prospects of swimmer Pieter van den Hoogenband.

Achieving a reassessment of the state's major events strategy is not going to be easy.  The major events industry will have to learn that it can't rely indefinitely on taxpayer-funded bail-outs.  Politicians won't like being separated from their photo opportunities.  Spectators at major events might have to pay more because ticket prices will no longer be subsidised by taxpayers.

It truly would be a major event if Victorians started to question the cost of our major events.  But hopefully that will happen sooner rather than later.

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Poll will trigger power shake-out

The courtship of Origin Energy by AGL will not be the final chapter of the turmoil in the energy market that began almost as soon as Victoria privatised its electricity industry.

Nobody anticipated the developments that have occurred in the 10 years since the first privatisations and the simultaneous creation of genuine markets for electricity.  That process unleashed a whirlwind of activity as firms jostled with different product offerings, sought economies by downsizing and pursued alliances to reduce risks of trading a commodity that can have its price increase one hundredfold within minutes.

The pedestrian process of converting coal to electricity and transmitting power to users was transformed by competition and the prospects of higher profits.  The outcome drove an unprecedented search for greater efficiencies, the result of which is arguably the world's most efficient, and lightly regulated, electricity supply industry.

Of the 14 Victorian electricity and gas firms privatised out of the state's gas and electricity monopolies, not one has been untouched by merger, spin-off and ownership changes.

This private-sector competition also infected the remaining government-owned firms to the extent that they are barely different in their management approaches.

There has also been an almost casual commingling of private and public equity.  This is the case with the largest NSW retail business, EnergyAustralia, which has a strategic alliance with privately owned generator-cum-retailer International Power that gets close to being a merger.

The Queensland government's sale of its two retailers is another landmark.  Ten years ago most analysts placed a negligible value on electricity retailing.  It was stapled together with electricity distribution because that was seen as the only way it could be offloaded.  Very soon Origin saw the value of retailing in its own right.  At the same time the Chinese owners of Powercor and Alinta recognised that the distribution and retail functions attracted different sorts of equity and that there was greater value in them being in separate corporate entities.  Previous fears that joint ownership would lead to monopolistic practices proved totally unfounded.  The retail and distribution arms simply had to operate independently if the latter were to offer sufficient assurances to non-affiliated businesses that they were genuinely independent.  In selling its two retail businesses, Powerdirect and Energex, Queensland raised $2.4 billion.  Based on the Queensland values, NSW has more than $4 billion tied up in retail assets alone, assets that serve no public purpose in the highly competitive market we see today.

The NSW electricity supply is the elephant in the room that nobody wants to mention, fearing that its privatisation might be derailed by a "who's selling the family silver" campaign.  Whoever wins the March 24 state election, some privatisation is certain.  But our politicians have little faith in the voters' common sense.  Hence, in a conspiracy of silence, all Australian governments have acquiesced in shelving the report of the Energy Reform Implementation Group (ERIG).  That report's predictable exhortations include further privatisation of an industry most of which now has no justification for government ownership.

With the NSW election out of the way and publication of the ERIG report we will see a flurry of new activity in ownership and structure of the energy supply businesses.

This will also cover generation since, simultaneous with the retail/ distribution separation, a process of generator and retailer merging began.  The imperative for this, one facet of which is the Energy Australia/ IP alliance, was risk mitigation.  Both retailers and generators see at least a partial mutual ownership as the best form of insurance against very high prices.  The Queensland and NSW governments will therefore see increasing value in privatising their generation assets and this will bring a further round of asset redistribution.

Hence, even if AGL is eventually successful in persuading Origin to mop up some synergies in an asset exchange, this will not be the last piece of the jigsaw being put in place.  However, with 50 per cent of the retail electricity market, that merger would present the Australian Competition and Consumer Commission with its first genuine grounds to insist on some divestment.  In the interest of continual searches for efficiency gains, hopefully such interventions will be rare and confined to real cases of monopoly and not ones the regulators contrive simply to deal themselves into the industry policymaking process.

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Regulation creates climate for political deals

The Commonwealth's productivity commission and the Victorian Competition and Efficiency Commission have produced admirable reports highlighting over-regulation.

VCEC estimates Victorian regulations introduced last year will cost more than $2 billion.

There are few benefits offsetting these costs, which it acknowledges exclude costs of a stack of measures.

But in spite of regulations being in the spotlight and facing more frequent reviews, each year more regulatory layers are piled on.

Maybe one year we will see the bonfire of ordinances, orders, rules and bylaws heralded by the Bracks Government's target of reducing regulations by 25 per cent.

There is a fat chance of this happening, but at least setting a target shows the government is on a guilt trip about its impositions.  And increased scrutiny of new proposals might slow the regulatory steamroller.

However, governments thrive on crises which are often fomented by noisy advocates and provide the fodder for new regulatory measures.

This year we have a new swag of restrictions stemming from the government-inflicted urban water shortages.  Last year, wailing about global warming provided a rationalisation for new housing regulations.

Though these were damaging to new home buyers, they brought little political fallout because they left existing home owners untouched.

Most businesses see regulations as bureaucratic hoops to be jumped through to make a living.

But the travails in WA illustrate a darker side of regulations and the loopholes that accompany them.

Brian Burke was brokering MPs' pre-selections and electoral support in return for favours for clients.  His currency was ministerial discretion over the vagaries of regulation.

Having, as in Victoria, a Premier and Treasurer of high personal integrity provides no immunity.

In WA, influence buying was not at the top.  Premier Alan Carpenter himself is beyond reproach but this was not the case with junior ministers with powers to decide planning, mining and environmental issues.

There are also backbench MPs with early access to ministerial decisions who have been guilty in at least one case of exchanging this for electoral funding.

Victoria has also had its fair share of issues.  A case that came to light concerns Cr Mohamed Abbouche from the City of Hume.  Steve Bracks forced him to quit the ALP because, through an "honest oversight", he failed to report a campaign donation from a developer whose planning application he supported.

In WA, the companies on Brian Burke's books were heavily into areas where regulation creates the opportunity for fortunes to be made by using political rather than business skills.

Many of these companies were looking to recruit political muscle to circumvent regulations or out-manoeuvre rivals.

Not only is the buying of such favours unfair but it undermines commercial values and, with them, efficient businesses.

Regulation -- and the discretion it gives to politicians in administering it -- offers considerable potential for replacing market with political decision making.

If we allow political savvy to trump market skills, we raise the costs of doing business and move towards the bribe-based economy we so rightly deplore.

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Unions beholden to the past

It is not often that John Howard and the government receive a compliment from a union official.  Yet that's what happened this week after Holden's decision to cut 600 workers from its plant in Elizabeth, Adelaide.

The announcement provoked the national secretary of the Australian Manufacturing Workers Union, Doug Cameron, to bemoan that "the government's got a hands-off approach to manufacturing" and there "is no plan for the future of manufacturing in this country".  They weren't intended to be, but these comments are high praise.

It's a welcome relief that for once the Prime Minister doesn't have a plan.  In recent weeks there have been a surfeit of plans:  plans for Canberra to manage the water of the Murray-Darling basin;  plans for Canberra to write the curriculum for schools;  plans for Canberra to install broadband internet around the nation.  Any issue, large or small, now requires a plan.  Strangely enough, government plans seldom allow for free operation of markets.  More often they are about distorting or stopping competition.

Industry Minister Ian Macfarlane is sensible enough to realise that if manufacturing is to be viable it won't be because of government planning.  Wisely, he's refused to back down from the decision to cut car tariffs from 10 per cent to 5 per cent in 2010.

According to Cameron, more than 200 jobs have been lost in manufacturing for every week the coalition has been in office.  What Cameron hasn't revealed is the price consumers would have had to pay to keep those jobs.  Decades of intervention have left Australian manufacturing dependent on protection and unable to compete internationally.  In the case of the car industry, 50 years of industry policies haven't yet secured its future and there is no indication that another 50 years of planning would make any difference.

Another industry plan is the last thing car manufacturers should get.  Or, put more precisely, the last thing the country needs is a plan that has taxpayers and car buyers subsidising inefficient and uncompetitive automobile companies.

Government industry plans don't work.  From Kodak to Blundstone Boots, the evidence is clear.  A competitive advantage provided courtesy of tariff protection is not sustainable in the long run.

The Australian Council of Trade Unions is dogged in its refusal to consider the facts of economic history.  Its commitment to the policies of the past is almost admirable.

After Holden's decision was made public, ACTU president Sharan Burrow pondered:  "Why on earth aren't we asking them to manufacture a small-to-medium car that might be popular in the domestic market?"  If only picking winners was so easy.

This question could be answered by posing another question:  "Why would consumers buy a domestically produced small car when a better and cheaper imported model is available?"  Another might be:  "What on earth would government know about the sort of cars that would be popular with consumers?"  Maybe the ACTU believes there is a government department with access to information about the preferences of vehicle purchasers that isn't available to the car makers.

Planning ACTU-style is reminiscent of East German economic policy circa 1957.  In that year the Trabant was put into production.  A product of government diktat, the Trabant was a car with a two-stroke engine that had a top speed of 100 kilometres per hour and which suffocated driver and passenger alike in exhaust fumes.  The Trabant sold well because it was the only car available.

Productivity is the new economic mantra of the Labor Party, and the ALP is absolutely correct to identify the slow rate of productivity improvement as a major policy challenge.  But Labor can't have it both ways.  It can't demand policies to boost productivity and at the same time blame the coalition for job losses that are the result of more efficient work practices.  The $500 million that Holden has invested in new plant means it can produce the same number of cars as previously, but with 600 fewer workers.

This equation neatly sums up the conundrum of manufacturing.  As manufacturing becomes more efficient it is inevitable that jobs will be shed.  The challenge for governments is to manage this process instead of trying to stop it.

We have become accustomed to measuring the success or otherwise of our manufacturing sector purely in terms of the number of people it employs.  This attitude is as old-fashioned as the Trabant.

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Nothing radical about equal opportunities for all citizens

It's no surprise that the Prime Minister is considering reforming access to government benefits for same-sex couples.  Based on his own brand of conservatism, John Howard should support equal recognition for same-sex couples.

In 2005 Howard gave a speech to launch the publication The Conservative.  He articulated his interpretation of conservatism, its values and how it is held in Australian society.  The Prime Minister discussed the role of institutions and said conservatives "believe that if institutions have demonstrably failed, they ought to be changed or reformed".

There is little doubt the institutions charged with respecting the legitimacy and choices of same-sex couples have failed them.

Government institutions are perpetuating discrimination against same-sex couples in superannuation law, Medicare payments, migration law and taxation.

Liberal values and a belief in small government should promote downscaling these benefits, but if they are to be available, they should be provided without discrimination.

In the same speech Howard confessed to being a "profound opponent of radically changing the social context in which we live".  It would be hard to argue that providing access for benefits to existing relationships would radically change the way homosexual or heterosexual individuals live their lives.

Same-sex relationships are an irreversible feature of Australian society.  If there were a radical change in our social context that recognised same-sex relationships, it happened years ago when Will & Grace gained a prime-time television slot.  Howard aligned his personal values to the values of average Australians:  "[We] live in a classless society [where] a person's worth should be determined by a person's character and hard work".

Those Liberal MPs pushing for reform have shown that, as yet, the PM's words have not been put into practice.  Warren Entsch became the proponent for equalisation of government benefits to same-sex couples following a constituent complaint from a gay military serviceman denied resettlement benefits for his partner.  This example should directly offend Howard's ethic.  Perhaps most poignantly, Howard articulated his strong belief "in the concept of mutual obligation, the reasonable expectation of a society built on individual achievement that, having given a fair go, they will return the compliment".  Same-sex couples have paid their taxes, taken responsibility for their lives and are active contributors to society.  Unlike other debates in society, the lapse in mutual obligation in this debate is not on the individuals.  The Government cannot say the same for itself.

Howard also professed his support for the institution of the family because it provides emotional support and reassurance as "the best social welfare policy that mankind has ever devised".

The Prime Minister's interpretation of the family was traditional, but that needn't mean its social welfare capacity doesn't apply to other mutually supportive relationships outside his model.  Pushing gay rights is hardly Howard's wheelbarrow, but the move to provide government benefits to same-sex relationships shouldn't cause social conservatives discomfort.  The Liberal Party is a combination of two distinct political traditions, liberalism and conservatism.  Whether conservatives believe sexuality is by choice or design, respecting individual choices is a shared position of conservatives and liberals.  Still, this action may seem surprising in light of Howard's efforts to overturn the ACT civil unions bill.  It shouldn't.  The ALP used the gay community as patsies to try to retrieve its credibility on gay issues.

Gay activists felt abandoned by Mark Latham's support for Howard's commitment that marriage should be between a man and a woman.  The ACT Government's bill was designed to enrage the federal Government and be overturned for Labor's political benefit.  Had a state government passed the same bill it may have stood, but sections would likely have been in conflict with federal law and the federal government's constitutional responsibility to define and establish marriage.

Political pragmatism has always ensured the PM is attuned to backbenchers' concerns because they are often attuned to voter sentiment.  Voters may not support gay marriage but they don't believe same-sex couples should be locked out of government benefits.  Debate on gay marriage has been suffocated by a failing to consider why government is regulating marriage in the first place.

Regardless, Howard faces the challenge that many gay Australians vote Liberal because of their support for small government and fiscal conservatism.  But their patience has been wearing thin.

In the face of a difficult election the PM is also playing smart politics.  Reforming government attitudes to same-sex relationships may even appeal to doctors' wives.  It will also pre-empt the forthcoming Human Rights and Equal Opportunity Commission report that details government discrimination against same-sex couples.  Howard should be able to take confidence that, according to his values, he is delivering conservative reform for same-sex couples.

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Chance for safer workplaces, if laws matched the new attitude

The NSW Government has launched a new attack on the unacceptably high death and injury rate in the state's workplaces.  In 2004-05 there were 125 deaths and 50,000 serious injuries in work-related incidents in NSW.

The new campaign is a multimedia blitz, Homecomings, and is based on a successful Victorian campaign last year, punching the message that work safety is about coming home to your family.  If you are injured or killed at work your loved ones and friends bear the emotional and other consequences as much as you suffer.

This psychological tilt at work safety attitudes targets a great weakness:  one of the hardest attitudes to create at work is to have everyone thinking about safety every moment of every day.  Injuries and deaths too often occur because of inexplicable lapses of safety attitude.

Accident case studies groan with such instances.  A big trick in work safety is to achieve a 100 per cent safety focus all day every day.  Homecomings says:  "For your families' sake, think safe".

If work safety is to be improved, state governments need to learn from each other.  Best practice needs to be repeated across Australia.  But this is where NSW needs to learn a lot more.

The Homecomings campaign in Victoria emerged from a 2004 sea change in Victorian work safety laws.  This produced a big shift in the approach of the Victorian WorkCover Authority to how it relates to businesses and workers on safety.

Before 2004 Victoria had experimented with highly aggressive prosecutions against employers.  Because work safety is such an emotional issue, often the reaction is to blame someone.  This reaction reasons that employers always cause work safety incidents and that tough laws and aggressive prosecutions are needed to scare employers into behaving.

This is the policy approach used in NSW.  It's the design feature of NSW work safety legislation and is the force underpinning NSW prosecutions.  But after much public debate Victoria rejected this approach.  The 2004 Victorian laws are built around the recognition that everyone at work contributes to safety.  The laws hold everyone, employers and employees, equally responsible over what they control.  Prosecutions target everyone who may have contributed to a safety breach.

Further, the Victorian laws removed legal blockages to the WorkCover Authority's capacity to advise and help business with work safety procedures.  Co-operation rather than aggression is seen as the first, essential part of a total package to improving work safety.  Out of this new approach the creative Homecomings campaign was born.

But the NSW approach of aggressive, fearsome attacks against business is at odds with Victoria's.  So obsessed is NSW with instilling employer fear that natural criminal justice has been stripped from the system.  Occupational health and safety criminal prosecutions impose presumption of guilt, apply unachievable criteria for proving innocence and deny full rights to appeal or trial before jury.

This stripping of justice is justified on the grounds of needing to obtain convictions regardless of safety behaviour, to create a culture of employer fear.  Academic literature on the topic openly promotes this.  But inevitably injustices occur under such a regime.

Many cases have emerged of clearly blameless persons being convicted.  Irregularities in prosecution processes have been documented.  And the judiciary is concerned.  A senior NSW judge recently described one prosecution as "constituting more than prosecution and amounting to persecution of the defendants", said the prosecutor had acted "inappropriately", and argued for fixing of the laws and the sacking of the NSW WorkCover Authority as the Government's prosecuting department.

Last year the Government seemed to recognise the problem.  It tried to reform the laws but NSW unions campaigned against them.  The Government backed down and the laws and culture of employer-hate on work safety remain.  Co-operation and guidance as the first benchmark for safety are not part of the NSW Occupation Health and Safety system design or practice.

NSW is at a threshold on work safety.  The Homecomings campaign is a great initiative.  But the Victorian ads are underpinned by a realistic and practical approach to achieving better work safety cultures.  NSW does not have this.  The NSW campaign may fail because it's marketing spin lacks policy substance.

For work safety's sake, NSW needs to take the next step and fix its laws.

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Friends in a naughty world

The Partnership:  The inside story of the US-Australian alliance under Bush and Howard
by Greg Sheridan
(UNSW Press, 2006, 260 pages)

There's a saying about the Cold War.  "The right side lost, but the wrong side won."  This is the attitude of most Australians writing about their country's foreign policy.  This is not to say that it's the attitude of most Australians.  It's just that in this country practically anyone who puts pen to paper about international affairs comes from an instinctively anti-American position.  What passes for foreign policy analysis is usually little more than a recounting of America's sins, which are variations on a theme:  America is too rich, America is too unilateralist, or America is too imperial.

So if being American is bad, being an ally of America is just as bad.

Greg Sheridan is different.  For more than a decade as Foreign Editor of The Australian newspaper he has consistently supported freedom for individuals, and liberal democracy for nations.  He's never believed that the economic and political privileges we have in "the West" should be confined only to those lucky enough living there.  What's more he's been prepared to support those who argue that the West has a moral obligation to do what it can to spread liberal democracy.  This makes him almost unique in Australia.  And it places him at odds with those in the domestic foreign policy establishment who, if they had to choose, would prefer the countries they deal with to be predictable rather than free.

At the same time though Sheridan is realist enough to appreciate Australia's alliance with the United States is not a product of convenience or an inferiority complex.  The alliance has been supported by both major parties because its maintenance is in Australia's national interest.

The philosophical perspective from which Sheridan approaches the alliance is made clear early in The Partnership.  Sheridan presents his case honestly and sincerely.

One of the reasons I always hated Marxism, which was fashionable when I was an undergraduate, was because of its determinism:  its view that history had an inevitable course that it must follow.  I don't believe anything is inevitable, and think that history is enacted, un-predictably, by independent human beings who made unpredictable judgments.

For all its sins, the United States has stressed in its founding and defining documents, in its highest public leadership, and in most of the life of the nation, qualities which accord with the deepest nature of human beings -- liberty, self-determination, democracy, hard work, the rule of law, civic equality, religious equality.

The Partnership is presented as "the inside story of the Australia-US alliance under Bush and Howard".  Much of what Sheridan writes about in relation to the operation of the alliance, particularly regarding military and security operations in Afghanistan and Iraq is revealed publicly for the first time.  The book has already become a vital source document on the alliance.

Many Australians would genuinely be surprised by the extent to which the American military rely on the skills of the Australian Special Air Service Regiment (the "SAS").  Sheridan uses Operation Anaconda to demonstrate the importance of military cooperation between the allies.  Anaconda was a Coalition forces action against al-Qaeda and Taliban fighters in Afghanistan in February 2002 and if it had not been for the performance of the Australian SAS the mission would almost certainly have failed.

However The Partnership is important not only because of its detailed examination of the alliance.  The book also provides an engaging and often engrossing account of the themes of Australia's defence and foreign policy since the Second World War.  Sheridan brings his vast practical experience and his deep learning to bear on questions such as whether we should have an "independent" foreign policy, the failures of the "Defence of Australia" doctrine, and the phenomenon of international terrorism.

The idea that Australia must have an "independent" foreign policy is one of our nation's great moral hypocrisies.  To stand aside and to not become involved in a battle between two sides is effectively to condone the actions of both.  For the last century this country's foreign policy choices have been clear.  "Independence" was an idea pursued by Doc Evatt, Labor's foreign affairs minister of the 1940s, and someone who is still a hero to the Left.  Evatt wasted no opportunity to display his "even-handedness" between the Soviet Union and the United States.  Notoriously, he defended the post-war imposition of Soviet totalitarian rule on eastern Europe as Stalin simply engaging in an act of self-defence.  Evatt, like many of his confreres, was in awe of the sacrifices made by the Soviet Union during the Second World War and he was blind to the failings of communism, both in theory and in practice.  He didn't understand that the alliance of Roosevelt and Churchill with Stalin, was nothing more than an arrangement formed with one evil regime in order to defeat another evil regime.

In the Second World War it would have been unimaginable for Australia to have done anything other than what it did.  Similarly during the wars in Korea and Vietnam it was in our national interest to intervene.  The same applies to our battle with radical Islamism.

The "defence of Australia" doctrine (DOA) is the modern manifestation of the sort of thinking behind an "independent" foreign policy.  Sheridan's discussion and dissection of DOA is one of the highlights of The Partnership.  Put simply DOA asserts that Australia's only defence interest is to protect our own shores and therefore we don't need an army because it will be the navy and air force that will stop potential invaders.  As Sheridan says "This unnatural and frankly weird doctrine lead to many bizarre results".  Yet DOA was official policy under Labor, and under Kim Beazley as defence minister.  The result of DOA was that the army was starved of resources.  For example, when a coup occurred in Fiji in 1987 the then Labor government considered employing the Australian military to restore democracy.

Sheridan's comment about Labor's Fiji strategy is acute.  "That [strategy] may in any circumstance have been a very problematic proposition, but it was entirely irrelevant because Australia had absolutely no way of transporting the troops there and mounting any kind of operation."

Very perceptively Sheridan unpacks the ideology behind DOA.  It was based on the myth that in 1942 Labor prime minister John Curtin "brought home" the troops to protect Australia, rather than having them overseas to protect Britain's imperial interests.  Sheridan notes that of course those troops that were "brought home" were actually sent overseas to New Guinea.  "But the myth served the Labor Right well, because it allowed them to steer the Labor Left away from outright pacifism and to maintain some defence spending, rather than abolishing almost all modern defence capabilities in the mode of New Zealand".

Sheridan's final remarks in The Partnership about the Australia-US alliance are accurate:  "In a naughty world, it is a candle in the darkness."

What's wrong with retail

Wal-Mart:  The High Cost of Low Price
Robert Greenwald (dir.)
(Brave New Films, 2005)

&

The Wal-Mart Revolution:  How Big Box Stores Benefit Consumers, Workers, and the Economy
by Richard Vedder & Wendell Cox
(AEI Press, Washington DC, 2007, 175 pages)

Is it ironic that Wal-Mart has spurred a successful supply chain of criticism?  One of Wal-Mart's greatest innovations is its state-of-the-art logistical network that dramatically reduces the cost of delivering products from producers to consumers.

Criticism of Wal-Mart is not new.  As with other successful big businesses and multinationals, it is the latest vehicle for "exposing" the evils of capitalism, globalisation and the "exploitation" of cheap, foreign labour.

The film Wal-Mart:  The high cost of low price by producer Robert Greenwald is the latest contribution by the anti-business chorus.  There is no ambiguity about the films agenda.  The name says it all.

To counter the recent rash of anti-Wal-Mart sentiment, the American Enterprise Institute has released its monograph The Wal-Mart Revolution.  The authors, Richard Vedder and Wendell Cox, soberly assess the role of Wal-Mart in the US economy, trying to write a fair-minded assessment of the benefits and ills of America's largest retailer.  The book was published following the release of the film and the authors use this advantage diligently.

Not surprisingly, the film and book differ in many regards.  In style, the film is designed to be an easily consumable puff piece of resentful tales of Wal-Mart employees, consumers and social justice activists.  The book is a justification for, and defence against populist criticism of, the Wal-Mart business empire.

As a piece of propaganda, the film rates highly.  It successfully draws a linear relationship between the success of Wal-Mart at the expense of the environment, small business, subsidised healthcare and worker's wages and conditions.  The benefits are few and limited mostly to those at the top of the food chain, particularly the Walton family, who own the chain.

The book takes a very different approach.  It is a didactic tale.  Rather than lambasting readers with evidence and hearsay, it tells the story of retail and creative destruction in the industry.  The book is written with a narrative that places its evolution and current business practice in context.  The authors also provide a beginner's lesson on economics for readers who do not understand the distinctions between consumer and producer surpluses and the theory of comparative advantage.

The book places Wal-Mart in its retail context, as part of a super-store industry that has developed over a decade.  It reminds us that every time a business becomes overtly successful, from railways in the 1800s to Wal-Mart in more recent times, public scepticism leads to calls for the business to be regulated;  and that that regulation acts as a hidden tax on the public.  It is not a ripping yarn, but it puts Wal-Marts's role and contribution in perspective.  It leaves behind hysteria and emotive language to ensure that it communicates a consumable message which educates at the same time.

The book is much broader than Wal-Mart alone.  Its role in contextualising the growth of Wal-Mart ensures that the reader gains a primer in basic economics, retail history and globalisation wrapped into one.

The film, by contrast, strings together interviews with frustrated people who have had their lives in some way adversely affected by Wal-Mart.  Obviously, they have nothing positive to say.  No contribution of Wal-Mart's to the community is shown:  instead, viewers are hit with tale after tale of aggrieved individuals who have personal interests in an alternative to the status quo.  It is the output one might expect when you cash-up unreconstructed university activists with a compassion surplus.

To be fair, the film should be recognised for what it is -- produced solely to bash Wal-Mart.  It successfully delivers an emotive and passionate image of the lives challenged by Wal-Mart's shortcomings.  You know you are not getting the whole story, but it doesn't change the fact that you have sympathy for the "victims".

Indeed, the notion of victimhood is central to the film's message.  Societal attitudes to victimhood seem to be legitimised when the decisions of the "few" affect the "many" for a personal benefit.  Following the Kodak factory's closure in Victoria some years ago, there were few tears for the factory workers who lost their jobs.  Most people just shrugged, acknowledging that it was the result of creative destruction following the adoption of digital cameras.  Yet Wal-Mart's creative destruction does not attract the same ambivalence.

Sadly, the film also uses this footage to preach to entrenched prejudices against foreign workers.  It is not just cheap Chinese labour, but Bangladeshi and Hon-durian labour as well -- stealing American jobs and undermining employment standards back home.  It is the same sort of hysteria in which Australian unions indulge when discussing the proposed Australia-China Free Trade Agreement.

In apportioning blame for people's woes, apparently size matters.  And not just in terms of customer base and turnover, but also in market capitalisation.  The term "billion dollar corporation" is often bandied around throughout the film to justify aggrieved persons' expectations.  It seems that once a business get over the billion dollar mark, its made enough money and should stop being hawkish in pursuing its -- and its shareholders' -- interests.

The book and the film do find some common ground over Wal-Mart's acceptance of subsidies.  It aptly demonstrates that Milton Friedman was correct when he remarked that businessfolk are often the worst enemies of capitalism.  Wal-Mart, in some areas, receives subsidies as high as $2.3 million just to set up shop.

Of course, while they both share this distaste for subsidies, they do so for quite different reasons.  The book criticises subsidies because they distort market outcomes.  The film, on the other hand, is more concerned with the damage done to local business and by the fact that subsidies are not equitably shared.  If one follows the film's logic, at this point, Wal-Mart is the harbinger of all evil for local business.

The authors of The Wal-Mart Revolution use its post-film publishing date to include a chapter at the end titled "Critiquing the critics", but it would have been more appropriately named "What's wrong with that anti-Wal-Mart movie".  This section provides a powerful retort of The high cost of low prices arguments, but, having covered most of this in the body of the book, it seems redundant to summarise it again.  This is a common flaw in books written primarily to influence public policy debates -- readability and flow is too often sacrificed to contend with all possible criticisms.

But, when contrasted with the conclusion of The high cost of low prices, this is a minor flaw.  The film tries to frame the crusade against Wal-Mart as religious in nature.  The producers selected religious figures who opposed Wal-Mart and its role in society to tell viewers why the Wal-Mart empire was against Christian values.  They then had opponents chanting "David beat Goliath" after ballot measures knocked back Wal-Mart's authority to establish stores in some counties.  The final moments of the film show the word "Victory" emblazoned across the screen.  Please!

This was one of the core efforts of the film:  to contextualise criticism of Wal-Mart within the framework of American conservatism.  Waving flags and self-identified "conservatives" were littered throughout it.

Yet, for all its proselytising about Wal-Mart's abandoning America and its values, the DVD comes in a slip case that doesn't identify itself as "Made in the USA".