In a short book published in 1944 and titled Bureaucracy, one of the godfathers of "neo-liberalism", the Austrian economist Ludwig von Mises, summed up one of the problems with government bail-outs -- it gives the government "unlimited power to ruin every enterprise or to lavish favours upon it".
So it has been that this week's media headlines have been dominated by whether Prime Minister Kevin Rudd and Treasurer Wayne Swan did or did not lavish favours upon a political donor seeking access to government funds. And the travails of Opposition Leader Malcolm Turnbull and Treasury official Godwin Grech have added the necessary air of intrigue and mystery to the affair.
One of the things we've learnt this week is that often it's the little things that get all the attention while the big things go unnoticed. So it is with "Utegate". The claim is that a used-car salesman who lent the Prime Minister a 13-year-old, $5000 ute and who attended a fund-raising dinner received special treatment to get finance from the government's OzCar scheme. Whether the used-car salesman received preferential attention is as yet not known -- and may never be known. But the mere suggestion that federal ministers have provided political favours in return for gifts was enough to provoke widespread (and justified) consternation.
But when the trade union movement provided $30 million of advertising against the coalition at the last federal election and the Labor Party government then rewrote the country's industrial relations laws to suit the ACTU, few bothered even to raise an eyebrow.
It seems the bigger the political favour the more willing we are to accept it. In the course of our history there have been few bigger political favours than the regime of tariffs and centralised wage fixation. For a century Australians put up with it as a fact of life. We're now about to put up with an emissions trading scheme that will allow for the distribution of preferment on a scale not seen since the end of tariff protection.
It's not surprising that a scheme like OzCar is engulfed with controversy. Controversy is the inevitable result of governments handing out money to some people but not others. At a supposed cost of $450 million, OzCar is a fraction the size of the $4 billion "RuddBank" program, which was going to bail out property developers. In a way the government should be thankful that the legislation to establish RuddBank was defeated. Property developers give more money to the Labor Party than do used-car salesmen. RuddBank being bigger than OzCar had the potential to cause many more problems. And OzCar hasn't even started yet.
The PM might baulk at attempting to regulate the whole of the economy, but he hasn't displayed any reluctance at regulating and re-regulating large swathes of it. His reach has lately extended past anything that emits carbon dioxide to now include anything from the provision of consumer credit to the size of executive remuneration.
In Bureaucracy, von Mises says the biggest problem with government regulation is it distorts the mechanisms by which consumers signal their preferences for what they want. The OzCar scheme and RuddBank were not designed to operate at a profit. They were created to rectify a perceived market failure. As von Mises put it; "In taking the profit motive as a guide, free enterprise adjusts its activities to the desires of the public. The profit motive pushes every entrepreneur to accomplish those services that the consumers deem the most urgent ... But if a public enterprise is to be operated without regard to profits, the behaviour of the public no longer provides a criterion of its usefulness." Precisely. The criterion of the usefulness of OzCar and RuddBank has been determined by politicians, not the public.
In any case the "market failure" OzCar was to rectify was nowhere near as big as first anticipated by Treasury.
Von Mises identified that, in addition to the manipulation of the market that comes with bail-outs, there is another consequence as well. Inevitably the entrepreneur must resort to either diplomacy and bribery. Thankfully in this country at least diplomacy remains the preferred option of business. Because of OzCar, car salesmen will spend their time telephoning the office of their local MP, lobbying for cash handouts instead of selling cars to customers.
The scandal of OzCar is not about the question of who leaked what to who. The scandal is that such a scheme as OzCar can even exist.
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