The socialist calculation debate

The great debate in political economy isn't between Friedrich Hayek and John Maynard Keynes, but between Friedrich Hayek and Oskar Lange.

This debate began in the 1920s and focussed on whether it was theoretically possible for a socialist country to plan its economy, as advocates of socialism suggested.

Could a socialist planner allocate scarce resources efficiently?  How would they decide whether to send rubber to Tyre Factory 12 or Hose Factory 7?  In a market economy, the factory that needed the rubber most would be willing to pay the highest price.  But there is no natural price system in socialism -- consumer prices are decided by the planner, and rubber allocated according to their diktat.

Hayek thought socialist planning was practically impossible -- the information to choose without prices was too hard to get.  His mentor, Ludwig von Mises, also believed planning was theoretically impossible -- without market prices, the necessary information simply wouldn't exist.

On the other side was a group of socialist economists, led by the Polish Oskar Lange.  Lange argued all the information buried in prices would be accessible to socialist planners:  they could carefully watch inventories to ascertain supply and demand and therefore where goods should be allocated.  Lange's views firmed in later life as he recognised the power of computers, writing just before his death in 1965 the market process was just ''a computing device of the pre-electronic age'' and therefore ''old-fashioned''.  Computers could do everything a market does, and do it fairer.

Such was the theoretical debate.  Lange and his contemporaries lost twice:  first with the fall of the Soviet Empire, and second with the left's apparent embrace of the market.  The same Australian Labor Party that damned Hayek during the global financial crisis can't stop praising the virtues of market pricing when talking about its emissions trading scheme.

But both sides of the socialist calculation debate spoke in ideal terms.  Lange and his contemporaries imagined a unified and purposeful socialist commonwealth.  And, however critical they were, Hayek and Mises assumed the same.  The question was whether socialism could work in theory -- not whether socialism worked.

Actually existing socialism was nothing like Lange's ideal model.  In a 2004 book, The Political Economy of Stalinism, the economic historian Paul R Gregory dug through the Russian archives to see how socialist planning worked in practice.

It was chaotic.  At best, resources were allocated throughout the Soviet Union ''by feel and intuition''.  Stalin had an enormous bureaucracy at his command but there was little delegation.  Even the smallest economic decisions were pushed up to the Politburo, and to the dictator himself.  Should the state buy an oil tanker?  Should they sell 200 trucks to Mongolia?  Should steel pipes be imported or produced domestically?  It was not disinterested planners working towards efficiency, but Stalin and his senior colleagues who decided such things.

This extreme centralisation was not some Stalinist aberration, as Gregory points out.  Any political order that wishes to plan for national uniformity inevitably has to concentrate power.  Stalin was not overworked because he was a totalitarian leader, but because he was a socialist one.

There was a great irony in Oskar Lange's faith in the power of computers to resolve the calculation problem.  The development of a Soviet computer was itself a case study in the inability of socialism to efficiently produce and innovate.  While the West had pushed ahead with the development of computers after the Second World War, the Soviet hierarchy apparently saw little need to do so until the mid-1960s.

When a native computer was finally mass-produced, it was so poorly built it was virtually worthless.  And the central plan called for the production of lots of computers, not for them to be well maintained or integrated.  The USSR was never able to implement the technocratic ideal.  It was constitutionally unable to do so.

Central planning failed not because it was logically impossible, but because it couldn't deal with the ignorance and self-interest that characterises all human activity.

This is still the basic problem in public policy.  Governments no longer comprehensively ''plan'' their economies.  Yet they now try to supervise them.  We are often told the debate between Hayek and Keynes is the great question in political economy.  But whether governments can spend their way out of recessions is just one element of the larger debate about the coordinating power of markets.

Lange believed economic calculation was just a matter of throwing enough computing power at the problem.  Today's regulators believe the same thing -- extensive risk models purport to give regulators enough information to manage the private sector.  The global financial crisis demonstrated that those models are elaborate fictions.  Yet the response from regulators has been to double down and insist on greater powers and more complex models.

The calculation problem is endemic in highly regulated sectors like health, where it is not the price system that coordinates resources, but bureaucrats and politicians.  Every government proposes to reform health but the sector will remain unreformable until this basic problem is recognised.  In the meantime health will continue to be dominated by rent-seekers and rife with inefficiency.

And the calculation problem shapes the debate over tax and spending.  Social democrats claim in certain circumstances governments can spend money more rationally, more efficiently than taxpayers could.  But this claim relies on a belief that bureaucracies have enough knowledge to do so, and can surmount the political and commercial interests which flock to the centres of power.

Much has changed since the 1920s but the basic problem in political economy has not -- ignorance.  We should not be talking about Hayek versus Keynes, but Hayek versus Lange.

ADVERTISEMENT

The ''indispensable country'' struggles to hold its place

The year 2011 marked two very different anniversaries for the US.  Ten years ago, the horrific terrorist assault on the twin towers and the Pentagon had occurred.  Ten years earlier, the Soviet Union had imploded, ending the long conflict of the Cold War.

Each event profoundly shaped American behaviour in the decade that followed.  In contemplating what the future holds for the US, it is worth recalling the character of these two very different decades.

In the 1990s, the US emerged the victor from the Cold War without a shot being fired.  It achieved global hegemonic status, not by assertive or ambitious action on its own part, but by the self-induced collapse of its rival.  It had no plan in place to exploit its unexpected dominance, nor did it adopt one during the decade.

The man who was to be its president for the next eight years, Bill Clinton, showed little interest in foreign affairs, had no grand doctrine and insisted that the economy should be the country's main preoccupation.

Certainly, the armed forces were maintained at a high level, but their commitments were kept limited in time and scope.  The US military often seemed more concerned with having effective exit strategies in place than with implementing ambitious, open-ended, foreign policy projects.

By the end of the decade, the secretary of state, Madeleine Albright, was able to boast that the US was ''the indispensable country''.  As Thomas Friedman of The New York Times summed it up:  ''Today's era is dominated by American power, American culture, the American dollar and the American navy.''

But what was more striking was the extent to which the comparative restraint of the new hegemony allowed its dominance to be accepted with comparatively little complaint.  The French foreign minister of the day, Hubert Vedrine, reflected the conventional wisdom when he said:  ''American globalism ... dominates everything.  Not in a harsh, repressive, military form, but in people's heads.''

The character of American behaviour in the first decade of the 21st century was also determined by an unanticipated event, the terrorist attack of September 11, and the character of a new administration.  The attack on September 11 created pressure for immediate and drastic action.  But unlike his predecessor, the new President, George W. Bush, was not inclined towards the careful weighing of policy options.  Nor were he and his advisers alert to the dangers of unintended consequences.

The Bush doctrine of preventive war, democracy promotion and aggressive unilateralism encouraged the belief that the US could impose its will and leadership across the globe.  As one White House adviser told journalist Ron Suskind in 2005:  ''We are an empire now, and when we act we create our own reality.''

Two US wars brought down Saddam Hussein in Iraq and the Taliban tyrants in Afghanistan, but in the process they have cost the US dearly in credibility and prestige as well as blood and treasure.  Meanwhile, Washington's reckless spending policies and lax financial regulation, along with the Federal Reserve's loose monetary policies, helped set the scene for the subprime mortgage crisis, stubbornly high unemployment, gut-wrenching stock market volatility and skyrocketing national debt.

How do things look at the beginning of the third decade of the post-Cold War era?  A mere decade ago US military power was universally considered awesome in its scope;  today the world is much more aware of its limitations and costs - and less impressed.  The US was widely hailed as the miracle economy, but there are no surviving illusions on that score.  As last July's brush with default showed, serious doubts have been raised about whether Americans remain willing and able to pay for any grand, activist foreign policy.

True, Barack Obama was dealt a bad hand by Bush, whose radical, grand strategy to transform the Middle East with military force and massive social engineering dramatically increased the level of anti-Americanism around the globe.  But it is not so much that the US is hated.  What is more serious is the loss of credibility and consequently a reduced ability to lead and influence.

The US's famous capacity to rebound from adversity is going to be put to a severe test in the next decade.  Whether it can rebound could be the key question of our time, bearing in mind recovery should mean a return to confidence and clarity along with those Clinton principles of prudence, discrimination and an understanding that the world does not conform to American expectations.

ADVERTISEMENT

Opposition to coal seam gas doesn't hold water

New technology has allowed coal seam gas (CSG), previously known as the menacing cause of mine explosions, to become prominent as an energy source.  In the US over the past 10 years CSG, together with shale gas, has grown from zero to 20 per cent of total gas supplies and new export terminals will reverse the country's traditional position as a gas importer.

Australia's east coast reserves of CSG may comprise 275,000 petajoules, far more than the 160,000 petajoules estimated for conventional natural gas.  They are set to supplement the already substantial North-West Shelf gas exports unless governments strangle the industry with regulations and that peculiarly Australian device of rolling ''moratoriums''.

In most of eastern Australia, gas prices have been relatively unaffected by global prices due to the lack of an export link.  Australian east coast prices have averaged about $3 a gigajoule, while overseas prices have ranged up to $10 and more, but the global recession has brought prices sharply down.  Once Australian CSG export facilities are built, local prices should converge with those overseas (although Australian consumers will benefit from avoiding ocean shipping and liquefaction costs).

Gas would receive a competitive lift if there is a carbon tax.  It is already a cheaper source of electricity in countries that do not have Australia's low coal prices, but for it to become cheaper than coal in Australia would require a carbon tax of about $50 a tonne.  However, even without a carbon tax, according to work by ACIL Tasman, if CSG is approved, not only will Australia gain valuable export markets, but gas prices will fall 6 per cent in Queensland and 15-20 per cent in the southern states.

The promise of CSG riches has brought out anti-growth activists and NIMBYs campaigning against development.  Much misinformation has accompanied these campaigns.  Some activists have even suggested that the water used to pressurise the gas out of the coal seams could threaten to deplete the Great Artesian Basin.  In fact, this would require the peak development of coal seam gas to be sustained for 600 million years.

Other confected concerns have already led to bans on benzene, toluene, ethylbenzene and xylene (collectively referred to as BTEX), chemicals used in minute quantities in the lowest-cost extraction processes.  Banning these chemicals means a productivity loss of about 15 per cent.  Activists have sought to justify the bans on the basis that, of the tens of thousands of wells in the US, which have been subject to the most stringent analysis, one has shown possible evidence of the presence of these chemicals in the local groundwater.

Added to these concerns are those of people who want to preserve areas for farming and hobby farms and are mistakenly of the view that gas recovery is incompatible with this.

Confronted by NIMBY groups and a strong campaign by Alan Jones, the New South Wales government has been highly resistant to the industry.  More so than in Queensland, NSW politicians generally are placing increasing numbers of reviews, delays and special regulatory barriers in the path of any development.  The opponents clearly see these as measures that will add costs to development and perhaps see it stopped entirely.

Already the inhospitable political approach in NSW has allowed Queensland to forge ahead.  Gladstone is about to become one of the world's most prominent gas hubs, with BG, Santos, Origin and Shell all building export facilities.  As a result, Queensland rather than NSW stands to gain hundreds of millions of dollars in royalties as well as the investment the industry attracts.

Any successes of the CSG industry's opponents will adversely affect Australian prosperity.  Even if projects are allowed to proceed, the increased regulatory measures by states and the Commonwealth will ensure that the costs of development are excessive and doubtless thwart some otherwise valuable projects.

CSG seems to be facing the same chorus of dissent from vociferous elements within urban communities that all too frequently thwart novel opportunities.  Opposition towards new ventures by Australia's southern urban elites is contributing to areas outside of the north and the interior of the continent becoming the ''two-speed'' economy's slow gear.

The politically powerful in southern capitals are holding back potential developments with rafts of regulations.  Though primarily targeted at urban and near-urban areas, much of this regulatory morass also has an impact on resource projects in the more remote areas, endangering the resource-based resilience that so far has enabled Australia to weather the international recessionary storms.

ADVERTISEMENT

Convergence Review: complete, spectacular failure

The Convergence Review ''has assembled what could be a workable model for regulating the converged media environment,'' said Greens Senator Scott Ludlam last week.

Really?  The review's interim report, released on Thursday, is a lot of things but ''workable'' isn't one of them.

The Convergence Review's purpose is to reshape communications and media law in light of the rapid technological changes over the last decade.

And if its interim report is anything to go by, the review has completely, spectacularly failed.

Just take one of the most prominent examples of its entirely unworkable suggestions.  The report recommends imposing minimum Australian content requirements on all ''Content Service Enterprises'' that provide audio-visual services.  Those Content Service Enterprises include websites.

The extent of regulatory intervention to do so would be extraordinary.  The effort to distinguish Australian websites from international websites would be significant.  The incentives to avoid these new regulations would be enormous.

Certainly, the Interim Report says ''emerging services, start-up businesses and individuals should not be captured by unnecessary requirements and obligations''.

Yet that one-sentence caveat begs more questions than it answers.  Who draws the line between an ''emerging service'' and an established one, and according to what principle?  And why, exactly, is it that start-ups and individuals should be excluded?  What theory of media regulation distinguishes between old and new companies, between companies run by one person and companies run by two, between companies doing innovative things and those which are not?

So that caveat, rather than suggesting the Convergence Review has thoughtfully engaged with the complexities of its task, reveals it has been unable to devise a coherent model of communications regulation which makes sense in an online world.

This failure is a particular disappointment because the Convergence Review was supposed to be the real game.  Yes, it is just one of a bunch of reviews into media law.  But only the deliberately naïve think the Independent Media Inquiry is anything but a political attack on hostile newspapers, and the National Classification Scheme Review is too constrained by its limited brief to recommend any serious reform.

The Convergence Review, by contrast, had scope and ambition.  Scope:  it was to look at all media from broadcast television to blogs to newspapers.  Ambition:  it was to take the communications revolution seriously and construct a regulatory framework which could last 20 years.

And it asked the right question.  Now that you can listen to the radio on your computer, browse the internet on your TV, and read newspapers on your phone, why should the law treat each service and each technology differently?  Forget whether News Limited gave the stimulus package a fair go, or whether Rob Oakeshott is being quoted accurately.  This is the most important media policy question right now.

In The Drum in September I argued media convergence necessarily implies deregulation.

It is impossible to impose on the internet the same complex, technocratic, micromanaging regulations which have governed Australian broadcasters.

And even if it were possible, it would not be desirable.  Any limit or imposition on what an organisation can publish or broadcast is a restriction on freedom of speech.  In Crikey last week, Bernard Keane wrote the Convergence Review ''represents the most far-reaching proposals for internet regulation since the Howard government banned online gambling'' -- much more substantial and threatening than the internet filter ever was.

It follows that if we are to have a new framework regulating all services consistently, broadcasting regulations should be lowered, not internet regulations raised.

Yet such genuine reform would require challenging the obsolete content regulations which have built up over the last half-century.  The idea ''Australian voices'' need to be protected and subsidised is anachronistic -- since the rise of home video, television networks or regulators stopped being able to dictate what media content we watch.  More than ever our media consumption is about choice.  If Australians want Australian content they will seek it out.  If they don't, they won't.

The Convergence Review goes boldly in the other direction.  Drawing on a ''wide range of views'', the report concludes there ''is an ongoing need for government intervention to support the production and distribution of Australian content''.  This claim makes it impossible for the review to meet its brief.

Not to say they haven't tried.  One option for Content Service Enterprises, if they can't produce Australian content themselves, is to support ''a converged content production fund''.  In practice, that seems to be a tax on websites to fund Australian television production companies.

Not quite the radical, principled rethink about media regulation we were hoping from the Convergence Review.

But a sad reminder of how hard it will be for regulators and legislators to ever come to grips with the communications revolution.

ADVERTISEMENT

Why have an ABC at all?

Alan Kohler makes an important point about the on-going Finkelstein media inquiry.  It is all about making life uncomfortable for News Ltd and providing some or other intellectual underpinnings for government support of the ABC.

In my last article for The Drum I indicated that there was no reason for the Australia Network to be put for tender because the government already had an agency to do the work.  I also indicated that perhaps the whole of the ABC could be put out for tender.

That latter line caused some consternation in the comments.  Many readers were outraged.  But putting the ABC up for tender simply raises a more fundamental issue -- why have an ABC at all?

A lot of people think of the ABC as being a public good.  By that they usually mean a good provided by the government on behalf of the public.  People also tend to think of schools and hospitals and the like in the same terms.  Other times people think of public goods as being those things that are good for the public.

Economists, however, have a somewhat different definition of public goods.  To qualify as a public good the good or service must be both non-excludable and non-rival.  So nobody can stop you from using a particular good or service and my use of the good or service doesn't prevent others from using it too.  There are remarkably few goods and services that meet those criteria.  Remember, to qualify as a public good both conditions must be met.

National security and the rule of law are usually held out as examples of public goods.  Public broadcasting, however, may be good for the public but it isn't a public good.  Of course, that shouldn't be the end of the discussion.  That is just quibbling over definitions.

Adam Smith had a less technical and more intuitive definition of public good.  Those goods and services, ''which, though they may be in the highest degree advantageous to a great society, are, however, of such a nature that the profit could never repay the expense to any individual or small number of individuals, and which it therefore cannot be expected that any individual or small number of individuals should erect or maintain.''

That suggests a two-prong test;  a public good must be advantageous to a great society but must be inherently unprofitable.  Note there is a difference between being a non-profit organisation and being inherently unprofitable.  The ABC is the former but, perhaps, not the latter.  No doubt there are many who would argue that the ABC passes the ''advantageous to a great society'' test.  The ABC has some excellent programming and many fine employees.  Yet so too do its competitors.  Therein lies the rub.

There may well have been a time when the provision of broadcast media was too expensive for the private sector and required some level of government ownership and/or subsidy.  If there ever was such a time it has long since passed.

But perhaps it isn't the organisation itself that is important, but rather the content.  For example, it may well be that the ABC carries material that the for-profit media will not broadcast.  Those niche markets that we deem to be important for non-economic reasons could be covered by the ABC.  To be fair, there are some areas where the ABC does perform well -- lawn bowls on a Saturday afternoon, and coverage of religion on a Sunday are niches that other might not cover.

Yet are these niche markets enough to justify the entire organisation?  A cheaper solution might be the restructure existing local content rules that the government already imposes on all other media.  Conversely to lift those rules on the private media and insist the ABC undertakes more of those activities.

If the government wants intellectual support for its ownership and funding of the ABC it should think carefully about what needs doing that the private sector either can't do, or won't do.  That approach rather than a private media bashing exercise will result in better policy outcomes.

Right now the best argument for the ABC is that it already exists.  While status quo is a powerful argument for preservation of any institution, the point remains that the ABC is a billion-dollar government program.  Getting the best value for money requires more careful thought than simply following a more of the same policy.

ADVERTISEMENT

How the Red Cross virtually lost the plot

As long as human beings have been creating fictional worlds, moralists have been denouncing their creations.  But the news that the Red Cross might prosecute 600 million video gamers for war crimes was still pretty ground-breaking.  A daily bulletin of the organisation's annual conference two weeks ago recorded an ''overall consensus and motivation'' to act ''against violations of international human rights law in video games''.

The conflicts simulated in games like Call of Duty, Battlefield and Metal Gear don't rigorously comply with the Geneva Conventions.  Game developers are understandably more interested in playability than legal realism.

But the bulletin had been written ambiguously.  A week later, the Red Cross clarified that ''serious violations of the laws of war can only be committed in real-life situations''.  It just wants to ''engage in a dialogue with the video gaming industry''.  So we can all breathe a sigh of relief.  Log back on to Xbox Live.  Reinstall the iPhone games.  Plug the Playstation into the TV again.  But the very fact that the Red Cross decided to investigate video games is deeply, almost incomprehensibly, absurd.  It is about as sensible as objecting to slasher movies because murder is against the law.

This year has been one of the most important years in human rights in decades.  Yet the supreme deliberative body of the biggest human rights organisation in the world thought now would be a good time to discuss how international law is portrayed in entirely fictional settings.  This suggests that some human rights activists are animated not just by an admirable defence of individual rights around the world, but by an all-encompassing moral crusade.  Sure, the Red Cross does a lot of great work, but does it really think fictional violence, in games played mostly by those who will never enter a combat zone, is an urgent problem?

The liberal philosopher Richard Flathman talks about the pervasive tendency in politics towards moralism.  Handwringing, showy and excessive moral judgmentalism infects democratic debate around the world.  It's driven by politicians and professional moral activists.  They're extremely confident in the rightness of their cause.  They're deeply earnest.  They have a belief in an ideal world -- they're on a quest for purity.  And they believe that to achieve the pure goals stipulated by their moral vision, they need to force change on the rest of society.

For those stirred by such moral fervour, even fictional depictions of the world -- in video games, movies, novels -- are a challenge to their vision and an opportunity for action.

It was this sort of moral activism which gave us the famous film codes in the mid-20th century.  These insisted married couples could not be seen in the same bed, and no evil could be depicted as ''attractive'' or ''alluring''.

And in our century, the same passion motivates the public health activists trying to ban cigarettes in movies, anti-consumerists denouncing product placement in television shows, and religious groups picketing Harry Potter book launches.  Sometimes they want the offending material banned.  Other times they just want to ''work with'' the transgressing filmmakers and artists.  Either way, moralists believe that society should be engineered to make it more moral, more ethical, more clean.  And they appear to have infiltrated the otherwise clear-headed and respected Red Cross.

There's hardly any better example of this moral self-seriousness than the 2009 research report which sparked the Red Cross' video games discussion.  Playing by the Rules, produced by a Geneva-based advocacy group, pedantically scrutinises popular games according to a strict legal criteria.

For example, in 24:  The Game, a terrorist is killed after he surrenders.  The report concludes that this is a violation of Article 3(1) of the Geneva Conventions, and Article 8(2)(b)(vi) of the Rome Statute of the International Criminal Court.  Then one of the terrorists -- sorry, ''alleged'' terrorists -- takes a hostage.  This is a clear breach of the 1979 International Convention against the Taking of Hostages.  Of course, there is no cause to believe the game developers approve of terrorists taking hostages.  Or that gamers will be convinced hostage-taking is an admirable thing to do.

In one edition of the Call of Duty franchise, set during the Second World War, players can use flamethrowers.  Such weapons were used in that conflict, but were technically illegal according to the 1907 Hague Conventions.  So, the report meticulously points out that this too is a human rights violation.

Such absurdities are apparently enough to get the world's peak human rights watchdog in a flurry.  Certainly, the Red Cross has a remit to ''promote respect'' of the rules of war.  But the elimination of war crimes will not be furthered one bit by changing video game content.  No person has ever believed that Castle Wolfenstein is a guide to just or unjust behaviour.  Yet the Red Cross still solemnly claimed that ''600 million gamers'' may be ''virtually violating'' international human rights law.  If this is not an attempt to stoke a moral panic, then nothing deserves that title.

ADVERTISEMENT

Should alcohol carry warnings?

Proposals for government-mandated health warnings on alcohol treat Australians as if they are too stupid to look after their own health, and are unlikely to work.

Alcohol is already taxed highly in an effort to discourage consumption, most children are taught about its harmful side-effects in school and we're bombarded with responsible drinking advertising, funded by our taxes.  So yet another message from the ''Nanny State'' about the evils of alcohol is unnecessary.

And the details of these proposals are ludicrous.

For example, in the Blewett Report handed to the Government in January this year, recommendation 27 suggested that pre-mixed drinks should ''comply with all general nutrition labelling requirements, including disclosure of a mandatory Nutrition Information Panel''.

Is there one person in Australia who thinks that alcohol is nutritious and who would reconsider their purchase of that four-pack of sugary vodka because it had too many kilojoules?

There's no clearer evidence the public health lobby has gone completely off the rails than the proposal that government-mandated health warnings adorn everything from an alcopop to a bottle of Penfolds Grange.

As public health lecturer Dr Michael Keane argues, public health used to be about protecting people from the harmful activities of others.  Governments sensibly took action, for example, to prevent the pollution of our water supply.  But these new proposals are not about protecting us from each other, but advocate laws that seek to protect us from ourselves.

It's firmly from the ''government knows best'' school of policy.  It stems from an outdated notion that a group of experts is better placed to judge what is good for us than we are.

Of course, advocates of this world view are careful to couch their arguments in more sympathetic terms.

We're told that alcohol warning labels are necessary to protect children, particularly during pregnancy, as if parents are too dumb and careless to exercise caution when starting a family.

Mothers and fathers who don't care about the risks of alcohol consumption to their kids are not going to change their behaviour because of a warning label.  No law can protect children against bad parenting.

And just as we have seen with tobacco, what seems like an innocuous proposal at first to help ''inform the public'' or to ''protect children'' almost always subsequently morphs into something much more draconian and oppressive.

Australians aren't stupid.  Most of us know how to enjoy a drink or two without harming our health.  And those who don't won't change because of a government warning label.

ADVERTISEMENT

Australia not as deserving of presents as it was at past Christmases

One of the intrinsic parts of Christmas in Australia is cricket.  From backyard games on the day itself, to the Boxing Day Test, it is hard to imagine this time of year without it.

For almost two decades it was easy to be complacent that all was well with the game in this country.  Coincidentally, for most of the same period it was easy to imagine that the Australian economy was in safe hands.

Before last Monday, Australia's most recent loss in a cricket Test at home to New Zealand, was 26 years ago.  Not that it was in any way related to cricket, but a few months after Australia lost that 1985 game, Paul Keating declared that Australia was running a risk of becoming a banana republic.

Fortunately, just as the then Australian cricket captain, Allan Border and coach Bob Simpson rejuvenated Australian cricket, so Treasurer Keating and a few other key politicians of his generation, on both sides of the political divide, not only recognised that Australia had an economic problem, but also knew that it had to be addressed.

So for a quarter century Australia was just about the most deserving recipients of Santa's largesse.  All Australians could sit around each Christmas knowing that not only would the cricket team most likely show its superiority come Boxing Day, but their nation's economy had been reasonably well-managed over the previous twelve months.

The cricket team might not have won every Test, and they might have irritated plenty of people with their boorish behaviour, but you felt that overall the game was doing well.  Likewise, Hawke, Keating, Howard and Costello may have made mistakes, but it is hard to argue that their collective efforts meant that Australia was in significantly better shape in 2007 than it had been in 1982.

As On Line Opinion is suggesting, ''traditionally Santa rewards good kids, and ignores the bad'' -- then, if judged by either its cricket team or its Federal Government, in 2011 it seems Australia will be struggling to secure many presents.

Now this might seem a bit unfair to the ordinary citizens, but in democracies Santa favours those who mange to elect governments, which shows some degree of political courage in pursuit of a positive end.

Twenty years ago this summer, the Australian cricket selectors stuck with a young leg-spinner who took 1/150 in his first Test against India in Sydney.  At the same time, in the early 1990s recession, Keating stuck to his guns and kept his tariff cuts in place despite a chorus of opposition from interest groups.  The big reforms of the twenty-five years to 2007 were all designed to make the Australian economy more competitive.  In that period, we symbolically went from being a nation of striking metal workers to a nation of self-employed tradies.

These reforms also meant that when the Asian meltdown occurred and the dot.com bubble burst, Australia hardly suffered.  Something similar could have happened with the Global Financial Crisis in 2008, but instead Kevin Rudd grossly overreacted.

If you go and blow the family budget on pink bats and unnecessary school halls, you can hardly expect to be able to afford too many big presents under the national Christmas tree.

If you tie up huge swathes of government funding for many budget cycles to come on the NBN, you can hardly complain when there is only loose change to spend on potentially economically beneficial transport infrastructure projects.

Perhaps even more than blowing the budget, what has made Santa consider Australia ''naughty rather than nice'' has been the dismantling of two decades of industrial relations reforms.  The current Government's Fair Work Act rolled back not just the key aspects of Work Choices, but also aspects of the 1997 legislation, which the Howard Government negotiated with the Australian Democrats, and even some of Keating's 1993 reforms.  Suddenly, the unions were back having a far bigger say in the Australian economy.

The decline in political courage is exemplified by the Liberal Party's lack of willingness to argue for industrial relations reform from the Opposition.  The contrast with the 1980s is stark when both sides of politics regularly exhibited a crazy, brave approach to many of the big policy issues.

Of course, this year has also seen legislation aimed at imposing special taxes on carbon and mining profits, which are depressing enough in themselves, but are made more so by claims that they are examples of economic reform.  Economic reform is when you do things that make your economy more competitive, such as floating the dollar or cutting tariffs -- not when you impose extra costs on your economy.

It is almost as if Australians have taken a sudden dose of economic illiteracy tablets.  Take the response to the RBA's decision to cut interest rates earlier this month, which had the tabloid media running a series of truly over-the-top attacks on the big four banks, for having the temerity to wait a couple of days to see if it was responsible to lower rates for borrowers.  Given that the key cause of the GFC was the lax lending policies of overseas financial institutions, it hardly seems unreasonable for the banks to be cautious.

Politics in Australia seems to have become infantilised, as Government seeks more and more ways to deny citizens the right to make decisions about their own lives.  So we get everything from the Bob Brown-inspired media enquiry threatening free speech, to the Andrew Wilkie-inspired attack on the freedom to gamble.

When Australia lost to New Zealand in 1985, there was the consolation that the Kiwis had been bowled to victory by one of the all-time greats in Richard Hadlee, and that with Roger Douglas as Finance Minister, their politicians were even more deserving of presents than we were.  It is harder to identify sources for consolation now.

The one advantage that Australia does have is that because the grown-ups were in charge here for years longer than they were in many other countries of the world, and because we have been blessed with existing gifts such as the mining boom, we are in much better shape than other countries.

And after all, at Christmas time here we get warm sun and cricket;  the basket case economies of Europe get neither.  It is just our own recent naughtiness that causes us to get fewer presents than we otherwise might.

ADVERTISEMENT

Left's delusions laid bare

This year sounded the death knell for the euro, government stimulus packages and international action on climate change.  The year should therefore count as highly successful.  Maybe one day, 2011 will rank up there with that other great year of freedom, 1989 -- the year the Berlin Wall came down.

It would be wonderful if the achievements of 2011 could be attributed to the victory of common sense.  Unfortunately that's not the case.

All that's happened is that reality has collided with the grand assumptions, delusions and theories of the global intellectual class.

''Neo-liberalism'' was blamed for the first global financial crisis.  In 2011, neo-liberalism got its revenge.

The website of The Guardian newspaper in Britain now has a ''live'' blog on the ''euro zone crisis''.  It is updated every 20 minutes.  Over the next 10 years, the person who runs that blog is going to be very busy indeed.

Decarbonising the economy, more government spending and the euro were projects of the left and centre-left.

All the projects envisaged a massively expanded role for government and for government regulation.  They also all had one other thing in common.  They were all overwhelmingly supported by the prevailing opinion of academics, experts and the media.

Anyone who doubted the science of climate change was a ''denialist''.

Opponents of the European common currency were ''troglodytes''.  And when he was prime minister, Kevin Rudd claimed free-market critics of his stimulus packages believed in an ideology of ''personal greed dressed up as an economic philosophy''.

The euro zone crisis will be the gift that keeps on giving for economics correspondents.  Meanwhile, times are not good for climate-change journalists.

Sydney has just had its coldest start to summer in half a century.  Canada has pulled out of the Kyoto Protocol.

And at the climate change conference in Durban last week it was agreed that countries would spend the next four years negotiating about how to negotiate a treaty that would start in 2020.

In an era of permanent European crisis, any journalist on the continent wanting to keep their job will have to swap their knowledge of ''COP 17'' (the 17th meeting of the Conferences of the Parties under the United Nations Framework Convention on Climate Change) with an understanding of the ''LIBOR'' (the London interbank offered rate).

The governor of the Bank of England, Mervyn King, famously said in March that he and the world's central bankers bad ''prevented a Great Depression''.  Let's hope he didn't speak too soon.  Central bank governors enthusiastically supported the twin policies of printing money and government stimulus spending.

Tho days ago, unemployment in Britain reached 8.3 per cent, the highest in 17 years.  Youth unemployment is 22 per cent.  It wouldn't be the first time King has been wrong.  In 1981 he was one of the 364 economists who signed a letter to The Times complaining that Margaret Thatcher's economic policies wouldn't succeed and would be a disaster for the country.  The world's central bankers may have prevented a Great Depression.  Instead, they may have given us the Long Recession.

In the face of an unemployment rate of 8.6 per cent in the United States, a few brave souls are still willing to argue government spending can save the economy.  Paul Krugman in The New York Times is fond of writing that the only problem with President Barack Obama's stimulus packages was they weren't large enough.

Not surprisingly, there's been a backlash;  it's not just the Tea Party worried about the size of government.

A survey by Gallup released this week reveals 64 per cent of Americans think the biggest threat to the country is ''big government'', 26 per cent think ''big business'' is the biggest threat, and 8 per cent think ''big labour''.  So much for the ''Occupy Wall Street'' movement.

In 1965, 35 per cent feared big government the most, compared with 29 per cent who feared big labour, and 17 per cent who feared big business.

The less said about the euro the better.  The euro was never going to work.  If there's anything amusing about what's happening to the euro zone it is that the Europeans think they can resolve the problems themselves.  Not since Waterloo have the Europeans sorted out a European crisis on their own.

In 1918, 1945 and 1989 it was the United States that decided the course of European history.  This time the US might not have the money, the time or the inclination to fix Europe.

ADVERTISEMENT

New technology and the call for censorship

The first recorded call for press censorship wasn't for reasons of politics, or heresy, or public morality.  It was to police ''quality''.  The gatekeeper mentality is a very old one indeed.

Printing spread rapidly after Gutenberg's first Bible went on sale in 1454.  Following the Bible and legal documents, one market priority for early printers was ancient texts.  The first edition of Pliny the Elder's Natural History produced in Italy was printed in 1469.  It was riddled with errors and was in some parts incomprehensible.  A second edition was printed the next year, by a printer in Rome, whose editor was a Bishop by the name of Giovanni Andrea Bussi.

Bussi's edition also had problems.  Lots of them.  Demand for books at their now much lower prices was enormous, and Pliny was not the only book the editor was working on at the time.  (Bussi blamed ''technical reasons'' for errors in his work -- an excuse no more convincing then than it is today.)

The print industry was already highly competitive, and Bussi's rivals played dirty.  One of those rivals was Niccolò Perotti, an archbishop and author of one of the earliest guides to Latin grammar.

Perotti wrote a letter to Pope Paul II.  Bussi's corrupt version of Pliny, Perotti complained, was one of many corrupt versions of Roman and Greek books being pushed around Italy.  Editors who ''set themselves up as correctors and masters of antique books ... pervert what is correctly written''.  They do not understand what they are editing.  They interfere and impose their own views on the classical masters.

Perotti's solution was two-fold.  First, there should be a common standard for editors -- a code of practice, we would say.  But no doubt some editors would violate the standard.  So Perotti asked the Pope to set up a bureau to regulate the quality of books.  This bureau would ''prescribe to the printers regulations governing the printing of books'' and ''examine and emend'' each book.  ''Reckless advertisement'' of the editor's views would be limited.  The performance of this task ''calls for intelligence, singular erudition, incredible zeal, and the highest vigilance''.

The Pope did not take up Perotti's proposal.  Censorship in the decades to come focused on banning heretical and Protestant books, and regulating obscenity.

But this early peculiarity in the history of censorship looks conspicuously like a debate we are having five and a half centuries later.

It took a few decades for Church and secular authorities to understand the revolutionary potential of mass printing.  But they got there.  The institutions to censor and restrict bad books were being developed half a century before Martin Luther posted his 95 Theses against Rome.  The medium necessitated censorship more than the message.

Perotti's argument is almost an exact parallel of one made today.  Online media is out of control.  In the print media, editorialising is crowding out description.  The pressure of competition is undermining quality everywhere.  New technology is bringing out the worst in the journalist and reader alike.

Niccolò Perotti welcomed the printing press yet said it was being abused and needed to be regulated.  The head of the Press Council Julian Disney told the Independent Media Inquiry last month that the internet is ''a cacophony'' and that ''serious bloggers and serious websites'' should submit to Press Council regulations.  The council has written that bloggers exist in a ''regulatory void'' and ''print or post material before facts have been adequately checked''.

One academic submission to the Media Inquiry decried ''blog troll chatter''.  Another group of academics suggested that the Media Entertainment and Arts Alliance's union code of ethics was vital for blogs (even though they are not bound by it) because the codes' ''standard is one against which their actions can be judged''.  Ken McKinnon, a former Press Council chair, argued ''news-type'' blogs should be dragged into the council's jurisdiction.

The internet is to these advocates what the printing press was to Perotti -- something that, unless judiciously tamed, will lead to the coarsening of public debate.  According to this mindset, new technology has to be bought under old frameworks.  It is too anarchic to be left by itself.  Online debate is wild and uncontrolled.

''Cacophony'' is an evocative word.  It doesn't mean simply too many loud voices.  It means too many loud, discordant, clashing, harsh voices.  Online debate is not being coordinated by a body like the Press Council.  It is meaningless until it is tamed by regulators.  Julian Disney's complaint seems like an aesthetic one on the surface, but it masks a deeper objection to the nature of democracy.  When everybody can have a say, everybody will have a say.

You would think this is a good thing.

But just as Perotti's vehement attack on Bussi was driven by rivalry, so too is the backlash against online media being driven by those who see it as a threat to the established order.

Perotti eventually took Bussi's job.  He produced his own version of Pliny's Natural History in 1473 -- which was promptly denounced by another scholar for being even more error ridden.

And his proposal was ridiculous -- Perotti obviously did not foresee the explosion of book production in the subsequent decades, let alone centuries.  Obviously the Church had no moral issue with censorship.  But even if the papacy had wanted to enforce quality in the press, how could it do so?

We will remember complaints about the ''cacophony'' of the internet as just as foolish.

Every new media technology is met with earnest concern that it undermines standards or is out of control.

ADVERTISEMENT

Household electricity prices to rise, year on year

An agreement to try to reach a deal by 2015 on emissions of carbon dioxide and other greenhouse gases is the bottom line of the past fortnight's climate change jamboree in Durban.  A few days before the conference's inevitable failure to reach any meaningful agreement on emission reductions, Australia's electricity regulator, the Australian Energy Market Commission, issued its estimates of the likely increase in household electricity prices between 2010-11 and 2013-14.

In nominal terms, the average electricity price increase is estimated at more than 37% across all Australian states.  A large share of the cost is due to increased charges from the regulated ''poles and wire'' component.  According to the distribution and transmission businesses, these stem from the need to renew a system falling into disrepair as a result of previous clampdowns on allowable spending.  Energy users claim the allowable cost increases are excessive, especially in NSW, Queensland, Tasmania and Western Australia, where the businesses are less efficient because they are government-owned.

The AEMC puts the direct contribution of the carbon tax on increased household prices at 8%.  However, the indirect effects of other greenhouse gas emission reduction measures need to be added to this to provide an accurate picture.  The most direct of these is the passing on of the carbon tax in retail margins.  This adds about a 1% supplementary impost.

In addition, there are two other effects.

These comprise, first, a higher wholesale cost of electricity.  This is a result of government regulatory risk on carbon, which prevents new power stations using coal from being built.  The coal for those power stations is cheap and abundant and the cost of new power stations is not increasing.  The risk-induced higher wholesale prices from preventing new coal stations from being built add a further 7% to prices.

Second, there is the effect of the various renewable energy programs.  These are divided into requirements to use the output of high-cost, large-scale facilities (mainly wind farms) and even higher cost small-scale facilities (such as rooftop panels).  In addition the costs include high feed-in prices resulting from state-based regulations.  Together these add a further 3% to electricity charges.

So the costs of the greenhouse gas restraining measures means an increase in electricity prices of 19%.  Hence, an average household would see its annual electricity bill rise about $300 to about $1900 a year in 2013-14.

And the increase will continue year after year in line with the policy intent of imposing costs on fossil fuels to bring about an increasing share of supply from low-carbon sources.

These costs are not the full extent of price increases for households.  Consumers also incur the costs of the price increases embedded in the goods and services they buy.  For the average household this would bring a further cost increase of at least $300 a year.

Then there is the cost loaded on to the traded goods Australian firms produce, costs that none of our rivals have to bear and that will bring a loss of competitiveness and, therefore, income levels.

Kevin Rudd proudly ratified the Kyoto Protocol on carbon emission reductions in Bali four years ago.  As the protocol enters its death throes, Australian consumers are reaping its legacy in spiralling costs of electricity, a commodity in which out natural cost advantage is being destroyed.

ADVERTISEMENT

A challenge for Shorten, IR insider

Bill Shorten is presented with an excellent opportunity to prove himself to be a minister who is not dictated to by the unions.  The Australian workplace relations system requires substantial reform and he may be the man to do it.

It is sometimes said that a minister with inside experience can bring unexpected and lasting change to a portfolio.  A good ''insider'' minister will use knowledge and credibility to push change beyond expected boundaries.

Shorten is now presented with such an opportunity.  He has been a prominent union official rising in 2001 to the job of national secretary of Australia's oldest union, The Australian Workers Union.  He also developed a reputation of being accessible to business.

It is clear that the Australian workplace relations system is plagued by problems.  Reform in a number of areas is required.  A failure by Shorten to introduce changes will damage Australian workers and the economy.  He should take five key reform steps as a matter of urgency.  All require an ability to stand up to the unions.

First, allow individual flexibility arrangements (IFAs) to operate as intended by removing the capacity of unions to constrain their use.  A common stipulation found in agreements is that the union has a right to be consulted about or even approve an IFA.

IFAs bind individuals;  unions do not have a role.

Second, transfer the regulation of independent contracting from workplace relations laws to commercial law.  Many Australians prefer to work this way because of the freedom it affords them.  The ACTU is running a campaign to load more workplace relations regulation into the oversight of contracting.

Third, withdraw the bill to abolish the Australian Building and Construction Commissioner.  As a former AWU secretary, Shorten will be aware that the main winner from the bill is the militant Construction, Forestry, Mining and Energy Union.

Fourth, restore right of entry for union officials to workplaces to the 2007 election policy position.  The right to enter should be based on members of a union working at a workplace.  At present, entry can be achieved on the pretext of people in the workplace being eligible to join a union.

Fifth, revise bargaining rules to avoid protracted negotiations and industrial action.  Australia's reputation is suffering through a re-emergence of union militancy combined with a complex and inflexible workplace relations system.  Shorten portrays himself as someone who understands business challenges as well as union factions.

He now has a chance to deliver a system suited to a multifaceted economy operating in a competitive world.  A system reflecting union dogma based in the 1970s will not grow jobs and investment.

ADVERTISEMENT

Struggling welfare state in EU is a stark warning

The question as to how European nations arrived at their present state of economic dysfunction is perhaps as important as what they should do to revive their sick economies.  The factors which have driven Europe's crisis are deep seated, and cannot be resolved through monetary manipulation by central banks or the substitution of technocrats for popularly elected politicians.

Many economists have rightly cited the maintenance of the euro currency zone as an issue, which places the Greek tourism economy under the same monetary policy umbrella as manufacturing giant Germany.  Allowing Greece and others to exit the eurozone is a sensible option, however, the exile of heavily indebted nations from the currency union will not resolve a crisis of excessive public spending that has spanned many years.

The share of general government expenditures to GDP for the original eurozone countries plus Greece averaged 52% last year, increasing by seven percentage points since 2007 as countries subsequently embraced big spending fiscal stimulus.

The historical data for the eurozone countries, where it is available, shows that the size of government increased dramatically since the late 19th century, when spending as a share of GDP was capped at about 10 to 15%.

This spending growth was caused in large part by a transformational change in the scope of activities that governments took upon themselves, including publicly provided payments for unemployment, pensions, health care, housing and other social purposes.

Notwithstanding the exploits of Bismarck in Germany the welfare state was a largely unimaginable concept in Europe during the 1880s, as welfare state spending remained at below 1% of GDP.

By 2010 the landscape had changed with average expenditure on cash transfers and social benefits in kind within the original eurozone and Greece standing at 30% of GDP, or over half of total general government spending.  The welfare state in Europe and elsewhere has done much more than displace core public expenditures in areas such as defence, policing and justice.

From an economic perspective numerous studies show that larger welfare states impede private sector production and growth by distorting incentives to work and save.

The eurozone states also impose internationally uncompetitive tax regimes to finance welfare payments, worsening the burdens shouldered by those not reliant upon government handouts.  Combined with population ageing, low fertility rates and large immigrant populations whose work prospects are hampered by slow jobs growth and labour market skill mismatches, the ingredients exist for a welfare state that generates significant fiscal and economic harm.

As much as the Europeans now find themselves trapped in this Catch 22 situation, it would be a mistake to think that Europeans themselves have not been long aware of the challenges of a growing welfare state.

Writing in the aftermath of World War II, German economist Wilhelm Ropke warned of the degeneration in social values, including self reliance, as governments cater for a growing array of perceived social needs throughout the community.

Ropke referred to the irony of the growing welfare state when individuals and families, with their unprecedented wealth levels, can now more effectively help themselves than at any other period in human history.

Similar sentiments were echoed by another German, Walter Hamm, who wrote in the early 1980s that ''equality must be paid for with great sacrifices of prosperity for the general public''.  Hamm raised concerns over what he saw as a ''possible defect in parliamentary democracy,'' whereby politicians tried to secure votes by seducing the public with promises of ever increasing welfare payments.

As European riots poignantly demonstrate this argument can run both ways, since voters who become dependent upon government subsidies tend to strongly object to any plan to reduce their entitlements.  While these and similar criticisms of the welfare state have proven to be prescient, they were not heeded as the ''social market economy'' compact entailed more welfare supplicants feeding off the taxes siphoned from the fiscally besieged productive classes.

A case can be made for the argument that Europe's struggle to contain its welfare state holds some lessons for us here in Australia.

While welfare state expenditure in Australia at 19% of GDP is significantly lower than the eurozone average, significant growth in spending has been nevertheless recorded since the 1970s.

To some extent this has been reflected in the working age share of welfare recipients rising from 13% to almost one third last year.

The integrity of our means-tested welfare state has also been fraying at the edges through the extension of family payments, child-care subsidies and other benefits to middle and upper classes.

The degree to which the Australian welfare state is subject to fiscal churn has been revealed by analysis showing that more than 40% of Australian families receive more in welfare payments than they pay in taxes.  By creating the fiscal illusion that increasing welfare spending is somehow costless, the long-term risk is that we too will inherit a system that fails to assist the genuinely needy at reasonable cost.

As the current European situation attests, this prospect is something that is best avoided.

ADVERTISEMENT

Durban deal isolates Gillard

Durban's meek outcome doesn't bode well for international efforts to cut greenhouse gas emissions or the sustainability of Australia's domestic scheme.

After 13 days of negotiations, governments agreed to the Durban Platform.  But they did not agree to a new international treaty to cut emissions.

The key component of the platform includes all countries negotiating ''an agreed outcome with legal force'' by 2015 to start cutting emissions by 2020.

It's a platform to continue debating the details of an agreement where countries disagree on most of the substantive matters.

The negotiations for other countries to sign an agreement to engage in climate-based economic hardship, as Australia has through its carbon tax, are all uphill from here.

Significantly, Kyoto has been taken out of its casket and been put on critical life support.

With Kyoto's emission reduction commitments expiring on December 31 next year, its future will be decided at next year's December meeting guaranteeing a gap.

Kyoto's survival is still in doubt.  Canada is likely to withdraw in the next year.  Japan and Russia aren't likely to sign up to a new Kyoto emissions reduction round.

Keeping Kyoto alive is a strategic move to use it as a 2012 bargaining chip to pressure developing countries to stay in the negotiating tent.

It's their cause celebre because it puts emission cutting obligations on rich countries.

The legal architecture of a $100 billion-a-year Green Climate Fund will also be established to finance climate change adaptation for developing countries.

Ultimately, financing the GCF will become the negotiating chip for rich countries to buy off support from poorer ones.

Where the GCF's money is coming from remains unclear.

If financing is direct, Australia's contribution is expected to be between $2bn and $3bn a year.

The option to finance the GCF from an international shipping and airline tax that disproportionately hits geographically isolated, trade dependent nations (read Australia) remains.

The division and hostility that exists around negotiating a document to progress negotiations doesn't indicate positive outcomes in future talks.

Structurally, negotiations remain difficult because they are required to be progressed on an equity-based approach where developed countries take on more obligations, and developing countries fewer obligations despite being the major source of emissions growth.

The extent of the wrangling about whether the world negotiates a new treaty probably doesn't make much sense from the outside.

But there are good reasons for division.

Any agreement is about cutting global greenhouse emissions levels.  But it will also be about if, and how, the world agrees to radically restructure the global economy.

Cutting emissions means countries have to take on higher costs bases.  All countries will have to rededicate resources from economic development to the high cost of emissions reduction, slowing growth.

Because most of Australia's emissions profile comes from cheap coal-based electricity, the cost gap to alternatives is high.  Europe desperately wants other countries to impose equivalent costs that they've shackled their economy with through the introduction of an emissions trading scheme.

But proportionate to the size of the economy it's less burdensome than for developing countries.

In India, the bulk of their population has never turned on a light switch.  Before agreeing to the deal Environment Minister Jayanthi Natarajan argued India wouldn't ''write a blank cheque and sign away the livelihoods and sustainability of 1.2 billion Indians''.

Any future treaty can make the difference between whether Indians living in electricity-free shanty towns ever enjoy the modern conveniences we take for granted.

The conference isn't a victory for global emissions reduction.  It's a victory of intent.

It still leaves Australia and its carbon tax plan well ahead of global action.

The entire economic case for the scheme was built on the premise that other countries would impose equivalent carbon prices, which would have reduced the acute economic pain inflicted on the Australian economy.

The Durban Platform does not rectify that.

It means Australia's carbon tax, starting on July 1 next year, will be implemented years before we know whether a successful international agreement can be struck and other countries take action.

As a result, the Durban Platform perpetuates the problems with Australia's carbon pricing scheme.

It is politically unsustainable to increase a carbon price without a comprehensive international agreement and a price in other countries.

With no certainty about equivalent action in other countries, the ''certainty'' the government claims will be provided by the Australian price remains elusive.

The Treasury modelling's carbon tax impact scenario is at odds with reality.

That leaves the Durban Platform as a breath of life for the Gillard government and their carbon price.  But it's a long way from the outcome Australians need if they're going to shoulder the world's largest carbon tax.

ADVERTISEMENT

Our building regulations need a major overhaul

How many separate approvals are required before an owner can move into a new house in Melbourne's designated urban growth area?  Twenty?  Fifty?

According to Victoria's Growth Area Authority (GAA), 540 different ticks are needed from regulators.

It's no wonder that not enough houses are being built and that completed houses cost so much.

It's miraculous that 35,000 new houses actually get built each year in Victoria.

We have lots of land and an efficient building industry so there should be plenty of new houses available on Melbourne's urban fringe at under $200,000.  This is the case in many major US cities -- even those like Dallas with booming populations.

But few houses are available in outer Melbourne even at $300,000.

Land supply regulations create an artificial shortage.  As a result, once farmland obtains regulatory ticks for home building, its value increases from less than $3000 per housing block to more than $100,000.

Part of this is the uncertain process of navigating regulatory barriers, which brings delays of up to 10 years with all the paperwork and holding costs these entail.

Levelling the land, installing pipes and wires and building local roads costs a further $60,000.  This is often increased by further regulations that require additional costs for open space and Rolls-Royce road structures.

On this developed land many builders offer completed new three-bedroom, two-bathroom houses from $120,000.

So regulations drive up the price of a house that could cost $200,000 to more than $300,000.

Last June, Planning Minister Matthew Guy established an inquiry to advise on how to improve the state's planning system and it attracted more than 500 submissions.  It was Victoria's 10th major review of planning and transport over the past decade.

Previous reviews have actually added to the regulatory thicket.

As a result, even with a sluggish economy over the past year, lot prices increased by 16 per cent.

Senior state planning bureaucrats are exploring ways of expediting regulatory approval processes and the Government has funded a ''flying squad'' of planning specialists to expedite approvals.  But such approaches can only scratch the surface.

What is needed is a drastic pruning of the regulations themselves.

To this end, the Housing Industry Association argues for exempting small lot developments from many requirements.

It is also seeking dilution of the very onerous native vegetation regulations.  These involve preservation of remnant vegetation on the misplaced contention that urban development threatens this with extinction.

The Urban Development Institute of Australia offers a 10-point plan to ease these and other onerous State Government requirements, including preventing councils from adding their own regulatory layers.

Many voices, however, want to deny developments in the outer Melbourne areas.  Some councils advocate increased planning controls.

Melton, for example, wants greater restraints on urban expansion, saying ''greenfield land is not an infinite resource'' -- maybe, but Victoria's urban footprint is only 1 per cent of the state and greenfields will never be scarce.  The council also wants to see homes that are ''environmentally sustainable'' with expensive accessibility features for the disabled.

Meanwhile, regulatory measures add wasteful costs to development and price young people out of home ownership.

ADVERTISEMENT

Gillard left out on a limb in Durban talks

The absence of an outcome at the Durban climate change talks has significant implications for the Gillard government and its carbon tax.  The substantive issues that need to be resolved to give new life to a global carbon cutting agreement are unresolved.

A full 2½ days before the end of the conference, UN Secretary-General Ban Ki-Moon said a new treaty was ''beyond our reach'' this time around.  The Kyoto Protocol's emissions reduction agenda after 2012 is also dead.

So the negotiations amble on with no mutually agreed desirable outcome.  On the final day of the Durban talks there will be a face-saving declaration.  There always is.

Ministers cannot go home empty handed.  For governments tackling public debt mountains and high unemployment rates it will be a relief.  They won't have to impose costs on industry that will make them less internationally competitive.

But a failure in Durban creates a nightmare for the Gillard government, which has boxed itself into an impossible policy and political position.  In selling the carbon tax package, the government significantly overstated the commitment of other governments taking equivalent action.

As time has gone by it has become clear governments that have already taken action are now seeking to water them down.

New Zealand will do so.  Canada is reportedly set to abandon the Kyoto Protocol.  Momentum for Europe to weaken its emissions trading scheme is building irrespective of the consequences of the region's debt crisis, though it is compounding the problem.

Countries delaying action until a new international agreement is signed off are likely to defer efforts further.  Translated domestically, post-Durban the political spin that other countries will follow Australia's ''leadership'' will be exposed for the hollow rhetoric that it always was and remains.

The only remaining living part of the Kyoto Protocol will be its contribution to international carbon markets, particularly the clean development mechanism (CDM), which allows rich countries to buy emissions reductions in poorer ones.  But without a second Kyoto period for cutting emissions, the number of CDM projects has already collapsed.

It's now likely to go into free fall.  Buying cheap emissions reductions overseas was central to the government meeting its goals without imposing a significant impost on business and households.

If present price trends continue, successful negotiations to internationally link our emissions trading scheme to Europe's and New Zealand's will ensure the carbon price bumbles along at the $15 per tonne of emissions floor.

To give the Greens credit, at least they were intellectually honest in recognising that Australia needs a high carbon price to radically change behaviour.  It's because the main transition needs to occur in our electricity generation.

At present we rely on cheap coal, which means the carbon price gap to gas, the next viable base load technology, is significant.

The carbon price necessary to start Julia Gillard's claim to ''decouple economic growth from carbon pollution growth'' won't be achieved until the price hits at least $40 to $70.

To actually deliver it requires a carbon price closer to between $250 and $500 where, on current prices, less intermittent renewable technologies become viable.

Without a high price, the policy will be ineffective at driving significant emission cuts.

In response, the government can either cut imports of foreign permits or increase its emissions reduction target -- both will force up carbon permit prices.

But such action will be politically and economically unsustainable if other countries aren't also imposing an equivalent high price.

Australia's window of opportunity out of Durban is that there may be a favourable side agreement for reducing emissions through land use, making it easier to achieve our target.  Ironically, with an ineffective carbon price the burden of delivering legitimate emissions cuts will fall on regulatory measures in the government's plan that bear similarity to Tony Abbott's direct action policy.

A failure at Durban also compromises the business certainty that the government claimed its scheme would deliver.  Without the high carbon price needed to underwrite multi-decade investments to cut emissions reinforced by international action, the uncertainty the business community deplored will persist.

Previously, it was the uncertainty of whether there would be an explicit carbon price.  Now the uncertainty comes with its trajectory.

It's a remarkable moment.  There is no longer an operational international agreement to cut greenhouse gas emissions.

What's incredible is that our government has allowed Australia to be boxed into this position.

Signs of the failure to secure a new international agreement have been glaringly obvious since at least the 2007 Bali conference.  Kyoto was the high water mark and it's been downhill from there.

Durban's failure will ensure Australia's carbon tax package struggles to deliver.  Instead, it will be a noose around the political and policy neck of government and the cost neck of businesses.

That's assuming it survives the politics of Canberra.

Corporate welfare looms as major hurdle

The idea the Australian automotive industry can remain competitive on the global stage, while being propped up by trade barriers and subsidies, cannot be sustained.

Until the 1980s, the evolution of the industry effectively was governed by a compact among domestic manufacturers, trade unions and government.  The consumer was excluded.

Manufacturers of vehicles and parts wanted to establish and maintain a production presence in Australia, but a highly regulated labour market meant their production costs were high.

The unions wanted an automotive industry to boost their membership rates, but didn't want to forgo labour regulations that incidentally made local car making uncompetitive against cheaper imports.

Successive federal governments smoothed over the deal for a local industry through an elaborate regimen of trade barriers, including import quotas, tariffs on imported vehicles and explicit local content requirements.

State governments from Thomas Playford onwards played their part in the corporatist deal by providing cheap land and tax incentives.  What emerged was an uncompetitive Australian automotive industry weighed down by high production costs.  Consumers made their preferences felt as the share of sales of imported vehicles steadily increased, despite the deliberate price penalty of a tariff rate on imports that peaked at 54 per cent in the early 1980s.

Ironically, it took a Labor government federally to recognise the car-making compact needed to be shredded.

Import quotas for the industry were abolished by 1988 and tariff rates were reduced by 2.5 percentage points each year from 1990 to 15 per cent in 2000, with further reductions to 5 per cent today.

The economic proposition that the elimination, or thereabouts, of trade barriers would lead to a smaller manufacturing base more responsive to market conditions largely has been borne out by the evidence.  The number of manufacturers narrowed to GM Holden, Toyota and Ford, while employment in vehicle and parts manufacturing fell by 38 per cent from 1990 to 2000, with more cuts in recent years.

What we also have seen is an Australian automotive industry increasingly export-oriented, with substantial markets in the Middle East and elsewhere.

Its remaining labour force has become more productive over time.  Having largely conceded on the tariff debate, manufacturers, unions and the Government now see heavy subsidies as the best way to achieve the political ambition of a country that makes things.

The Productivity Commission says vehicle and parts manufacturers received about $721 million in outlays and tax concessions in 2009-10 -- an implicit transfer from poor taxpayers to rich company owners equivalent to more than $12,000 a job.

The Australian automotive industry has progressed on the road to improved competitiveness, but can realise full potential only once all remaining obstacles of corporate welfare are removed.

ADVERTISEMENT

2016 holds hope for Republicans

Looking at the current crop of Republican presidential hopefuls, it's no wonder many conservatives are despondent.

To call the field lacklustre is putting it politely.  But using this to claim the Republican Party is in real trouble, as some have sought to do, or laying blame at the feet of the Tea Party, as others have, is wishful thinking.

There's no question that the 2012 Republican field is the weakest in some time.  The closest in recent memory is 1996, when the party reluctantly agreed to nominate the boring but inoffensive Bob Dole.

Mitt Romney, quite possibly the Dole of 2012, is still the likeliest nominee.  And it's not surprising that Republicans have a hard time accepting him as their standard bearer.  After all, he did pioneer Barack Obama's much-loathed healthcare plan, as Governor of Massachusetts, where he made health insurance compulsory.  He has shifted positions on a number of key issues, including immigration, gun control and a range of social issues.  His populism on trade policy, laced with anti-Chinese rhetoric and craven support for hugely inefficient ethanol subsidies, is shameful.  And his denunciation of Ronald Reagan in his 1994 campaign against then-Senator Ted Kennedy makes his current embrace of the Reagan legacy as entirely confected.  But almost all published opinion polls suggest that he has the best chance of defeating Obama.

His most recent — and serious — challenger, Newt Gingrich, offers little more hope for conservatives.  Sure, his current positioning is to the right of Romney, and his debate performances have conveyed an impressive grasp of issues.  But he is equally if not more guilty of the flip-flopping tendencies that have bedevilled Mitt Romney's candidacy.  Gingrich too supported health insurance mandates, has had a variety of positions on immigration and can't seem to make his mind up about entitlement reform.  Recent revelations have showed that Gingrich took millions from the government-backed mortgage giant Freddie Mac, regarded by Republicans as a key suspect in the housing bubble that precipitated the global financial crisis.  Most famously, he recorded a bizarre ad with former Democratic House Speaker Nancy Pelosi, perhaps the most hated figure amongst Republicans, advocating government-led action on climate change.  And Gingrich fares extremely poorly in head-to-head match-ups with Obama.  But polls now show him leading by substantial margins in important early states like Iowa, South Carolina and Florida.

The rest of the field is characterised by kookiness (Ron Paul), scandal (Herman Cain), and a series of contenders clearly out of their depth (Rick Santorum, Michele Bachmann, Rick Perry) or who haven't been able to register meaningfully in any polls (Gary Johnson, Jon Huntsman, Tim Pawlenty).  So Republicans are entitled to feel downbeat about their 2012 field.

But it is another leap to argue that this reveals some systemic weakness in the Republican Party, or even more fancifully, that it is the fault of the Tea Party.

Presidential candidates, particularly in modern American politics, are almost always drawn from election cycles preceding the current one.  They are either vice-presidents from relatively successful incumbent administrations, or prominent senators or governors who have been in office for long enough to establish a political identity, but not too long to be seen to be ''career politicians'' or ''creatures of Washington''.

The 2006 and 2008 election seasons were devastating for Republicans.  In 2006 they lost control over the house of representatives and the senate.  In 2008 they lost the White House.  In both elections they lost key governorships in major states and a slew of state houses and state senates.  So it's unsurprising that the 2012 field, which would have normally have been drawn from these cycles, is a relatively weak one.

The flipside is that Republicans can look forward to two things:  almost certain control of the Senate after the next election, even if they lose the presidency, and an exceptionally strong 2016 presidential field.

Because US senators serve six-year terms, roughly one third of the US senate is elected every two years.  The class of 2006, up for re-election next year, was a bumper year for Democrats.  Of the 33 open seats, Democrats hold 21, plus two Democrat-leaning independents.  Republicans hold just 10.  It would require an extremely successful year for Democrats to hold all of those seats.  Just a small swing from the 2006 result will see many seats change hands, and Republicans only need to win four seats to retake control of the Senate.  Barring a major surprise, Republicans also look set to retain control of the House of Representatives, which they won in 2010.  This means that Obama's final term is likely to be substantially restrained by total Republican control of congress.

The list of potential 2016 presidential contenders for the Republican Party is a long and enticing one.  Reformist governors like Chris Christie in New Jersey, Scott Walker of Wisconsin, Bobby Jindal of Louisiana and Nikki Haley of South Carolina could all feature prominently.  Entitlement-reform guru Congressman Paul Ryan is considered likely to run.  And the first-term Senator from Florida, Marco Rubio, is electrifying conservative activists.  In different ways, each has the capacity to appeal to Americans well beyond their own political base.  Rubio, the son of Cuban immigrants, appeals to the US's fastest-growing community:  Hispanic voters.  Both Haley and Jindal are children of migrants from India.  And Christie has shown an enviable ability to appeal to Democrats and win in the North-East — an area thought by many to be off-limits for Republicans.

And almost all owe their election to the backlash against growing government that gathered pace after the global financial crisis.  Far from being held back by the Tea Party, the movement has delivered the Republican Party their best hopes of regaining the Oval Office.  And if Obama is unable or unwilling to tackle the United States' growing fiscal crisis, it will fall to one of these candidates to confront it.

So while Republicans may be depressed about their prospects next year, they can look forward to 2016 with hope.

ADVERTISEMENT

Selling the ABC and other tricky media issues

The media talking about itself can be very self-indulgent not to mention annoying to outsiders.  Yet the politics of media have exploded in the last while and so it has been necessary for the media to take a good hard look at itself.

The government's current inquiry into media regulation isn't about poor behaviour per se, but rather political payback.  Similarly the botched tender process for the Australia Network was an absolute disgrace.  Here the tender process has been perverted by claims of payback against News Limited, about disputes between Julia Gillard and Kevin Rudd, cabinet leaks, and what not.  Sky News should be compensated for their time and effort.  But the real question to be asked is who should own and/or run the Australia Network?

The feral state of media politics is masking some important economic issues and considerations that relate to the media.  The issues, as I see them, relate to the role of government in regulating and owning media outlets.

Economists have well-developed theories of regulation.  The standard argument, following the English economist Arthur Cecil Pigou, is that government regulates in the public interest.  The view being that governments can intervene in the economy to improve market outcomes.

This sort of argument, for example, justifies the existence of the ABC.

This isn't a particularly good argument, but is the best argument that can be mounted for public media ownership.

Then we have the private interest argument developed by the American economist George Stigler.  This theory suggests that regulated industries capture the regulator and create barriers to entry and fix prices.

Regulation works for the benefit of the regulated and not the general public.

Unfortunately these two theories are somewhat static and can't explain a number of real-world features.  To overcome that problem Harvard University's Andrei Shleifer (and various co-authors) has developed an institutional theory of regulation that examines the trade-off between the costs of ''disorder'' that arise when there is no regulation and the costs of ''dictatorship'' that arises when there is too much regulation.

This trade-off a nowhere better illustrated than in media regulation.

There are no elegant solutions to media regulation, only messy trade-offs and value judgements.  We are all appalled when a dead girl's mobile phone records are hacked, but bemoan the decline in investigative journalism.  Different segments of the population welcome Wikileaks revelations or ClimateGate emails but deplore the other.

It seems that the profit motive imposes high costs of disorder.  But what people overlook is that disorder is tempered by defamation laws, and existing laws that protect privacy.  Those who would argue that the media requires more regulation need to explain why the existing legal framework is failing.  It's all very well to point to the more egregious media behaviour observed in the UK, yet few can point to that kind of poor behaviour in Australia.  So arguments for more media regulation in Australia must be pretty poor.

But what of government ownership?  As it turns out the Australian government owns a significant portion of the Australian media industry.

Australia is hardly alone in having significant government media ownership.  In a study of 97 countries, Andrei Shleifer and his co-authors found that government ownership in broadcast media is quite common.

There are good arguments for government ownership in some industries.

Prison services, for example, are a classic case where public ownership is a better option than private ownership.  The question is whether media is such an industry.

Shleifer and his co-authors investigated whether a public interest argument could be sustained in justifying extensive government ownership in the media.  Alternatively a public choice argument whereby government regulates and owns media in order serve its own interests.  After extensive analysis they find that government ownership of media is not in the public interest, but rather suits the private interests of political elites.  In other words, we should be suspicious of significant government ownership in the media as it generally undermines political and economic freedoms.

It would seem that Australia is something of an outlier in that analysis — our political and economic freedoms are high by world standards.  Our level of government ownership is low by world standards and government market share is low by world standards too.  On that basis it is unlikely that the government abuses its media ownership — ABC audiences are too small.  Government media, in Australia, faces competition from private providers.  There is no basis, however, for complacency.  Private competitors to government owned media can be regulated by the government.

It isn't clear why Australia needs to have a soft propaganda message broadcast to the region.  But I'm happy to concede that reasonable people might disagree on that point.  Why would the government put that program out to tender when it already has an agency to do the work?  To my mind the ABC should be performing that function.  That isn't to say that the government shouldn't put the whole of the ABC out to tender — but that is a far more controversial proposition.

To sum up;  there is no good reason to increase media regulation in Australia.  There is no good reason for government to own media in Australia.  To the extent government does own the media, that media should be used to provide soft propaganda services to the region.  There is no good reason why the whole of the ABC couldn't be put out to tender rather than bits and pieces.

The ''Right'' morally culpable for Breivik's actions, really?

Serial killers and terrorists often claim to be making political statements through violence.  But we don't immediately have to take their word for it.

Last week Norwegian psychiatrists declared that Anders Behring Breivik, who killed 77 people in Oslo and the island of Utøya in July, is insane.

Breivik disagrees.  Through lawyers he told a Norwegian newspaper that the psychiatrists ''do not have enough knowledge of political ideologies''.

The psychiatrist's 243 page report will be reviewed by the Norwegian Board of Forensic Medicine — the assessment may then be changed — and then presented to the court — which may not accept it anyway.

Perhaps Breivik is clinically insane, perhaps he is not.

But a surprising amount seems to rest on the diagnosis.

On Utøya:  Anders Breivik, Right Terror, Racism And Europe was launched by Lee Rhiannon in October.  Edited by Elizabeth Humphrys, Guy Rundle and Tad Tietze, the book is an unapologetic attempt to make ''the Right'' morally culpable for Anders Breivik's actions.

They argue ''the significance of Utøya has been demoted, obscured and ignored'' by ''hard right commentators''.  Calling Breivik insane is a furphy used to downplay his political significance (Tietze also argued this on The Drum last week).  Breivik executed terror ''in the name of the West, against those too 'tolerant' of Islam''.  The Utøya massacre was ''an unambiguous attack on the Left'' and now ''[t]he task for the Left is ... to ruthlessly expose the true nature of the Right and its authoritarian project''.

If the shape of this argument seems familiar, no wonder:  it is an almost exact inversion of that made by some conservatives in response to terror attacks carried out by Muslims.

The conservative thesis is that terror conducted by Muslims reflects something intrinsically violent in Islam itself.  The thesis of Humphrys, Rundle, Tietze, and their contributors is terror conducted by someone who cites John Howard and claims to be of ''the Right'' reflects the dark heart of mainstream conservatism.

It is no more convincing when the protagonists have been reversed.

Mainstream Muslims exist in the same ''general ideological framework'' as Osama bin Laden, insofar as they share a religion.  Yet Muslims who condemn violence are in no way responsible for violence perpetrated by others.  It is obscene to suggest otherwise.  So surely neither are conservatives, who loudly condemned Breivik in any way, responsible for his actions.

One could draw other parallels which would be equally damning and equally hollow.  All supporters of the carbon price have some moral relationship to eco-terrorism.  Stalin's Great Terror means mainstream social democrats need to have a good hard think about themselves.  Scientists are at all times one step away from fascist eugenicists.  This makes good polemic, and it's idiotic.

There is an enormous moral leap between believing multiculturalism is a bad policy and systematically slaughtering 77 members of the Norwegian Labour Party, some as young as 14 years old.  To suggest they are on the same continuum is to obscure how anybody could make that leap.

And to suggest so in order to make a domestic political point (Andrew Bolt is not mentioned once in Breivik's manifesto, but is mentioned 21 times in On Utøya) is opportunistic and petty.

The authors argue Anders Breivik is a leading indicator of the rise of a violent far right in Europe:  the massacre ''marked the transition of a section of the current European far Right to lethal violence against political enemies, characteristic of the fascist era.''

If that's true, so then Breivik's actions would take on a greater significance, putting aside On Utøya's cheap political digs.

But the data on politically motivated violence does not bear this claim out.

The latest report of the European Police Office on domestic terror within EU member states documents 249 separate terror attacks in 2010.  Of those, 3 attacks were conducted by Islamist organisations.  The vast bulk were separatist (160 attacks).  There were no ''right-wing'' terrorist attacks.  But there were 45 ''left-wing and anarchist'' attacks.  The Europol report cites the ''increased violence'', and ''increased transnational coordination between terrorist and extremist left-wing and anarchist groups''.

If we are simply looking for trends, the data suggests we should watch our left, not our right.

In fact, Europol concluded right-wing terrorism was ''on the wane''.

Obviously, that assessment was tragically inaccurate.  Europol's analysis may well be very different next year — that is, if they determine the Norway massacre was not an isolated incident.

But, while we wait, the authors of On Utøya do not offer much evidence Breivik is part of a newly violent movement, rather than a shocking outlier.  Right-wing terrorism deserves study, certainly.  Guy Rundle's contribution on the history of right-wing terror confidentially reaches back to Julius Caesar's Gallic campaigns, but stops in Italy in 1980.

Commentators are sickly eager to pin extremist violence on their ideological opponents.

The attempts to characterise Jared Loughner (the definitely mad person who tried to kill a Democratic congresswoman earlier this year) as a child of the Tea Party is just the most farcical illustration.  There was, and still is, no reason to believe Loughner had strong political views.

But the problem with On Utøya is deeper than that.

One of the fundamental mistakes in American strategy in the War on Terror has been feeding the egos of the terrorists.  Trials by military commission of terrorists confirm their self-image as soldiers of God, where trials in civilian courts would classify them more accurately and mundanely as criminals.

On Utøya does something similar, but does it deliberately.  Breivik fantasised his actions and spoke on behalf of critics of multiculturalism.  Those critics have uniformly rejected him.  Yet On Utøya seeks, bizarrely, to legitimise Breivik — and to claim violence is a logical extension of political debate (There is a striking parallel with Marxist philosopher Slavoj Žižek's argument that terror is a justifiable weapon to fight liberal democracy).

The contributors to On Utøya say Anders Breivik's actions have been depoliticised.  They seek to ''repoliticise'' them.

But by opportunistically trying to get conservatives to own the Norwegian massacre, they break down the moral barriers between democratic debate and evil.

ADVERTISEMENT