Bolt is guilty, but the law is wrong -- let the markets deal with racial discrimination

Political activists and bad legislation have combined to create the extraordinary situation where eligibility for awards and prizes can't be questioned.

Not all prizes and awards -- we can still mock Wayne Swan's Euromoney award -- but only those that have an ethnic component to them.

In a society increasingly obsessed with ethnicity and race this will quickly become a problem.

Andrew Bolt has been found guilty of violating section 18C of the Racial Discrimination Act by suggesting that several individuals had claimed Aboriginality in order to further their careers.

Bad law

Despite the fact that some early commentary has focussed on the political orientation of the judge hearing the case, the simple matter is that the legislation itself is bad law.

Positive discrimination abounds and those who want to discriminate are going to find it ever harder to determine eligibility.

People respond creatively to incentives but the legal system has opened an avenue for anyone to claim any ethnicity.

As Sacha Baron Cohen's Ali G character once asked, ''Is it because I'm black?''.  I wouldn't want to cause offense by suggesting he isn't black.

This case opens all sorts of issues relating to free speech and definitions of ethnicity and so on.  A liberal democracy debating, ''What is a [insert ethinicty here]''', is problematic and inconsistent with the individuality we hold dear.  A very ugly debate could erupt.

Let the market decide

A far more interesting argument is how to deal with racial discrimination.  People seem to be looking more and more to government -- yet as this case makes clear that results in very divisive outcomes.

Gary Becker, an economics Nobel laureate, has suggested that discrimination is best managed by the market.  Legislation simply suppresses discrimination, whereas market forces punish discrimination.

Those people who have a ''taste for discrimination'' would manifest their preferences by, say, not employing those they don't like, or not buying from those they don't like, and so on.

That means they would restrict the number of trading partners they interact with and so incur higher prices.  In short, in a competitive market, racists pay -- non-racists don't.

Problems with legislation

Contrast that with the legal solution -- racists can be as racist as they like in private, but they don't have to pay for that.

Legislation also crowds out personal morality and public ethics.  If you really think certain types of behaviour are beyond the pale, social ostracisation rather than litigation may be appropriate.

If an op-ed writer annoys you, send a letter to the editor;  tell the whole world how wrong the columnist is.

The great Austrian economists Ludwig von Mises described society as cooperation under the division of labour.

Bad legislation undermines cooperation -- people who are incentivised for offense will quickly become offended and clog the legal system with somewhat trivial cases.

For example, an individual on TV with the tee-shirt, ''White people make me nervous'' should be very nervous right now.  The people protesting outside Jewish shops are clearly in violation of the Act.

It is not good enough to argue the legislation had good intentions -- bad laws bring the whole legal system into disrepute and ultimately undermine civil society.  These issues are best left to the market and personal morality.

Bolt case highlights discriminatory act

The laws that allowed Andrew Bolt to be pursued through the courts for expressing an unfashionable opinion stifle freedom of speech and do not even meet their own airy goals.

First introduced in 1975 and amended to widen its scope in 1995, the Racial Discrimination Act has stated aims which few could quarrel with:  no fair-minded person thinks that racial discrimination is a good thing.

But it is another thing entirely to argue that the Government has a role in policing opinions which it does not approve of.

It is a risky step to grant government the power to decide what can be discussed and debated in a democracy.  A free society is best preserved by allowing controversial opinions to flourish in an open debate.  Social attitudes change over time, and what government may regard as heretical in one generation may be accepted wisdom in another.  Prematurely outlawing discussion on a controversial topic is an attempt by government to freeze social attitudes in time by limiting debate.

For all the cute half-excuses -- for instance, Andrew Bolt isn't really silenced because he still has a TV show, or can still speak because the court hasn't ruled that he can't -- it is very clear that the effect of this case is to place a heavy burden on those who wish to discuss this sensitive topic.

Let's remember that a journalist, who wrote a couple of controversial articles, had to endure months of court hearings and legal uncertainty, and his employer was hit by a legal bill likely to reach into the hundreds of thousands of dollars.  In the meantime, his every public utterance had to be vetted by lawyers.  No-one observing what happened to Andrew Bolt would conclude that sharing their opinions on the topic publicly would be a wise move.

What's more, Bolt has had his reputation smeared in court.  He was accused of sympathy for eugenics, and it was suggested that it was views like his that led to the Holocaust.  Whatever you think of Bolt, it should be clear that his articles on the topic and his views on these issues do not even remotely fit that description.

These attacks on him by lawyers for the applicants were grossly over the top.  It would be hypocritical to on the one hand defend Bolt's freedom of speech and suggest that anyone else's freedom to respond to Bolt -- even in such an outrageous way -- should be curtailed.

Indeed, if they felt so strongly about the topic, in a free society those who disagreed with Bolt should be free to write articles or deliver speeches condemning him in whatever tone they see fit.  But by elevating a public debate, even a heated one, to a legal fight in a court of law, this act gives much greater credence to the political rantings of left-wing lawyers, and a platform which they do not deserve.

It's also far from clear that these laws will contribute to racial harmony or understanding in any way.  Providing people with additional avenues to sue each other is a bizarre way to combat tension and disagreement in the community.  The likely outcome of such proceedings is simply to entrench the positions of each side and increase animosity between them.

Aside from the Bolt case, we have already seen similar laws used in Victoria by religious groups to sue each other.  Placing public debate about controversial topics within the legal system, and signalling to the community that this is the final place for resolution of controversial views, we simply discourage dialogue and encourage a litigious culture of legal warfare.  It is not clear why anyone would think that this process would increase community harmony, rather than undermine it.

Even the most objectionable views are unlikely to be swayed by a stinging rebuke from a judge.  Even if the courts were successful in preventing their public airing, they will not make the beliefs behind them disappear.  A far more constructive -- and less draconian -- way of tackling speech that offends is to rebut it and articulate a convincing case against it.

To witness all this and still claim that freedom of speech has not been affected, as some have done, requires an extreme disingenuousness or a casual disregard for the importance of free speech.  Yesterday the refrain ''I support freedom of speech, but ...'' was all too common.  There can be no ''but''.  Freedom of speech means nothing if it is only for people who you like, ideas you agree with and topics no-one cares about.  Freedom of speech matters precisely when someone is offended -- that is when a society's commitment to the principle is really tested.  Disturbingly, the Racial Discriminatiom Act led a court to elevate the right not to be offended above the right to freedom of speech.

Whilst it is regrettable that people are offended in public debate on occasions, there should be no right in a free society to not be offended.  It should certainly never trump freedom of speech.

It is now clear this act is not consistent with support for freedom of speech, nor with Australian's attitudes on the topic, if polls are any guide.  It's time that this act was substantially amended to ensure this never happens again.

Inside dirt on clean energy schemes: they don't work

If Julie Gillard isn't paying attention to what's happening in Washington DC right now, she should be.  The first major scandal of the Obama administration looks similar to one of the centrepieces of her carbon price package.

Solyndra was the jewel in the crown of Barack Obama's green energy program.  This California-based solar cell manufacturer received a $US535 million loan guarantee from the US government in 2009.  Part of the administration's stimulus package, the guarantee was supposed to help spark the green revolution.

When Obama visited the company in May 2010, he announced Solyndra would demonstrate that ''the promise of clean energy isn't just an article of faith'' and would lead the way ''towards a brighter and more prosperous future''.

It wasn't just the federal government:  Solyndra was the biggest beneficiary of California governor Arnold Schwarzenegger's energy subsidies.  It was one of the most well-funded start-ups in history.

But last month Solyndra declared it was bankrupt.  A year and a half after Obama waxed lyrical about the oodles of green jobs the company would create, 1100 people are out of work.  There's a criminal investigation under way.  Executives have been put in front of a congressional hearing, where they have refused to answer questions for fear of self-incrimination.

Solyndra is Obama's Enron.  Not only a political mess (one of the company's private investors is a major Democrat donor), but it's a huge policy mess, too.

So why should Gillard care?  Because the program that financed Solyndra does much the same thing as her proposed Clean Energy Finance Corporation.

The corporation is part of the deal to get Greens support for the carbon package.  It will have a piggy bank of $10 billion to invest in ''clean energy proposals and technologies''.

Solyndra burnt through half a billion dollars of taxpayer money in two years.  The reason for its failure is obvious:  if the market thought Solyndra was good value, then the company wouldn't have needed the federal loan guarantee in the first place.

Companies collapse all the time.  But who could think a company that can only attract investment if the government promises to bail it out is the portent of a bright, green future?

The phrase ''picking winners'' is deeply misleading.  Governments generally subsidise firms that the market has already decided are losers.  Sure, it's possible to imagine a committee of career bureaucrats might stumble onto a great opportunity that investors have missed.  But you wouldn't want to put money on it.  Well, perhaps somebody else's money.

Like Obama in 2010, Gillard in 2011 is stamping her approval on a few trendy, subsidised companies.

The government's Clean Energy Future advertising blitz is stuffed full of fawning interviews with wind and solar energy companies.  It boasts about the new jobs they'll create.  But these jobs rely on government grants, or the carbon price, or mandatory renewable energy targets.  They wouldn't survive on their own.  The market has already bet against them.  Soon there will be $10 billion more to fund dozens of antipodean Solyndras.

And that money puts the lie to the claim that Gillard's climate package is a ''market-based'' solution to global warming.  Not even the government believes so.  Otherwise it would have eliminated the masses of climate programs that already exist.  (According to the Commonwealth Auditor-General, there are 550 across the country.)  Instead, they'd leave the tax to do the work of directing investment.  They definitely wouldn't be offering up even more subsidies.

Tony Abbott should study Solyndra, too.  Conservative parties aren't shy about spending money on energy boondoggles.  Even as they happily dance on Solyndra's grave, Republicans support loan guarantees for nuclear power plants.

And the Coalition's direct action plan will do its fair share of winner picking.  In fact, that's its whole point.  Their Emissions Reduction Fund will spend $1 billion per year on projects that an Abbott government reckons might reduce emissions.

When Obama announced his green stimulus plan in 2008, a coalition including the ACTU, the Australian Conservation Foundation, the Property Council and the Climate Institute urged the government to ape the American program.  Renewable energy outfits are fashionable, after all.

But doling out other people's money to businesses that only bureaucrats think are exciting is begging for trouble.  Most people thought governments had gotten over this sort of speculative activity.  Clearly that's not the case.  But the collapse of Solyndra should remind us why governments gave up, for a short while, trying to pick winners.

Flat tax leads to fairness

Giving the federal government more money would be like giving a cocaine addict more cocaine.  That was the response of the highest-ranking Republican in the US Congress, John Boehner, to Barack Obama's plan to raise taxes to reduce the US budget deficit.

On Monday during a 20 minute speech on the White House lawn the President announced he wanted to increases taxes on families earning more than $250,000 a year.

The strategy is based on the idea that when everything else fails, tax the rich.  In 2009 Obama got it right when he said ''normally you don't raise taxes in a recession, which is why we haven't''.  Now he's calling for ''everyone to pay their fair share''.  It shows what a difference dismal approval ratings and unemployment above 9 per cent makes.

Obama repeated Warren Buffett's claim that ''millionaires and billionaires'' pay a lower rate of tax than average salary earners.  In a now infamous opinion piece in The New York Times in August, Buffett complained that last year he paid only $US6,938,744 in federal government taxes.  He calculated that this amounted to 17.4 per cent of his taxable income compared to the average rate of 36 per cent paid by the other 20 people in his office.

If Buffett wants to pay more tax there's an easy solution.  He can.  And if he thinks taxes should go up he's perfectly entitled to express his opinion and support political candidates who agree with him.  Next month Buffett will be speaking at a fundraiser in Chicago for Obama's re-election campaign.  The price of a ticket is $US35,800 per person.  The event will be held at the home of a former managing director of Goldman Sachs.  Presumably Buffett would prefer potential attendees to the dinner to pay $US35,800 to the Democratic Party than to add that amount to their next tax bill (Last year Obama awarded Buffett the Presidential Medal of Freedom.  Obviously ''freedom'' is in the eye of the beholder.  Friedrich Hayek, a champion of free-market capitalism, was awarded the medal in 1991.)

The explanation for the different rates of taxation paid by the staff of Berkshire Hathaway is that in America, as in Australia, tax is levied on income at varying rates according to the source of that income.

In the United States salary income of the middle class is taxed by the federal government at the 25 per cent marginal rate.  Investment income on capital gains and dividends is taxed at 15 per cent.

As Buffett points out the income of the ''mega-rich'' is primarily investment income.  Obama said on Monday, ''Warren Buffett's secretary shouldn't pay a higher tax rate than Warren Buffett''.  This is the President's justification for the imposition of minimum rate of tax on millionaires.

Buffett's anecdote is cute but it doesn't match reality.  According to the Internal Revenue Service the average rate of US federal income tax paid by those with annual incomes of between $US500,000 and $US1,000,000 is 24.1 per cent.

The average rate for those on incomes of between $US50,000 and $US100,000 is 8.9 per cent.

Of course there's a simple solution to the issue of different tax rates paid by Buffett and paid by his secretary.  A flat tax.  A flat rate of personal tax is in theory simple, efficient, and fair.  The problem lies in the practice.

As Sinclair Davidson of RMIT University identified a few years ago in a research paper we already have a range of flat taxes, most notably the GST and company tax.

The challenge is to apply a flat rate of tax to personal income.  A flat rate of income tax at 30 per cent without an income-free threshold would be broadly revenue neutral but 90 per cent of taxpayers would pay more tax.  That makes it politically impossible and is why John Howard ruled out a flat rate tax when he was prime minister.

A tax rate of 30 per cent with a taxfree threshold of $US30,000 is politically more saleable as no one would pay a higher rate of tax but it would cost at least $US40 billion, which is about the same amount as the cost of the national broadband network.

A flat tax is the last thing Buffett or Obama would ever contemplate.

For that matter it is the last thing Wayne Swan would contemplate too.  For all of the treasurer's talk about wanting ''robust'' debate about tax reform at his forum next month, no one will dare utter a word about flat tax.

Instead of debating real tax reform, tax aficionados will discuss whether the GST rate should be lifted by one percentage point or two.

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Award is work of many men

Sir Isaac Newton, that great creature of the Scientific Revolution, once humbly declared, ''If I have seen further it is by standing on the shoulders of giants''.

While he is no Newton, Wayne Swan would be well advised to adopt a similar pose of humility now the Australian Treasurer has won Euromoney's Finance Minister of the Year award.

The London-based publication credits the Brisbane-based MP with keeping Australia's economy upright in the face of global financial turmoil.

But our miracle economy has more to do with the giants who preceded Swan:  Paul Keating (Labor treasurer from 1983-91 and prime minister from 1991-96) and especially Peter Costello (Coalition treasurer from 1996-2007).

They gave Australia the ballast it needed in the form of free-market reform, prudential financial regulation and budget surpluses to weather the storm.

(Keating also won the Euromoney gong in 1984 for his role in floating the Aussie dollar and deregulating the financial markets.  But he did also bequeath to the Coalition government in 1996 skyrocketing levels of debt and deficits, not to mention a downgraded credit rating and stubbornly high unemployment.)

Swan is really an accident of history rather than a force of it.  That is certainly how his Labor Party colleagues see him:  amid all the backroom jockeying over whether to replace the unpopular Prime Minister Julia Gillard, the name of the Deputy PM and supposedly hyper-competent Treasurer is never mentioned.

A closer look, moreover, suggests Swan is out his depth.  He claims he was, within a few months of Labor coming to office, well prepared for the financial crisis.  Why fiscal and monetary policy was tightened to contain some imaginary ''inflation genie'' during the months before the collapse of Lehman Brothers in September 2008 is never explained.

Worse, when the crisis hit, Swan panicked and started spending irresponsibly, distorting myriad sectors of the economy with overcooked boondoggles (pink batts, school halls).

Australians can be thankful they have survived twin calamities:  global meltdown and Labor profligacy.  For all the debt run up by both the Rudd and Gillard governments, they were at least preceded by Costello (who was seen as a more than plausible future leader).

The Howard government, having inherited a huge debt and a dented credit rating from Labor, got Australia back into surplus and its reputation as a borrower restored.

So, despite Labor's best efforts to run the nation into penury, Australia's debt-to-GDP ratio is still only 22 per cent, which would not have been achievable had we hit the GFC without a strong surplus and a AAA rating.

True, the mining boom has helped, but it was not until 2003, seven years into Costello's treasurership, that Australia's terms of trade surged.

Indeed, it is because of Costello's efforts -- his landmark reforms to our tax system, a restructuring of financial regulation and a commendable fiscal restraint -- that Australia is hailed as a ''miracle economy''.  The irony is Costello never won the Euromoney Finance Minister of the Year Award.  Never mind, it was his work that has put Australia in the box seat today.

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Is the nostalgia surrounding the Button Steel Plan misguided?

In late August, BlueScope Steel announced it would close a blast furnace in Port Kembla and a hot strip mill in Hastings, southern Victoria, as part of an operational restructure that would see the company withdraw from the export market.

Citing a number of factors including a strong Australian dollar, high raw material costs, the continuing economic stagnation following the global financial crisis and low prices commanded for its steel, the company is cancelling its export business and scaling back its operations to fit the needs of a smaller Australian client base.

It is fair to say that BlueScope's decision has come across as an unpopular one, especially given that up to 1,000 jobs are envisaged to be lost from the company as a consequence.

But one of the more intriguing elements of the BlueScope move is that it has enlivened the debate about the role of manufacturing, and even the merits of free trade in Australia.

The national secretary of the Australian Workers' Union, Paul Howes, cried foul on the announcement of the BlueScope restructure by suggesting, ''we are now facing a major crisis in Australian manufacturing.  Base metal manufacturing, downstream manufacturing -- everything is under pressure at the moment.''

The Australian Manufacturing Workers' Union national secretary Dave Oliver endorsed Howes' crisis memo, calling for ''government intervention to guarantee that we've got a viable manufacturing industry in this country.''

It is instructive that the two union bodies have not explicitly called for a return to the dreaded high customs tariff regime that existed prior to the 1990s, a false prophet of economic policy which harmed the long term viability of the Australian manufacturing sector like no other.

However, the manufacturing unions have not been shy in suggesting that government implement a suite of non-tariff policies with the intention of shielding domestic steelmakers from global competition.  For example, Howes has suggested that ''we need to get serious about a sectoral support plan -- one that includes tough local content policy, currency changes and a stronger anti-dumping regime.''

It is intriguing, and indicative of their longstanding ''us versus them'' culture, that the unions have targeted the Australian mining industry as something of a culprit for the manufacturing industry's woes, even though Rio Tinto, for one, has indicated that its existing operations comprise as much as 86 per cent local content with expansion projects using 75 per cent.

In what can only be construed as a worrying sign for the mining sector and the Australian economy more broadly, the federal Industry Minister Kim Carr stated in a recent speech that ''everyone ... knows there are disputed claims about the level of local content in resources projects.  My position is, whatever the level is, it's not good enough.''

The problem posed by an imposition of regulations conscripting local miners to purchase additional Australian steel, where cheaper inputs could be sourced overseas, is that it would simply drive up the input cost base of mining operations and weaken their cost competitiveness in global markets.

This would in turn compromise the economic viability of a mining industry that reputedly has a capacity, and in some instances a desperate need, to absorb a number of the 1,000 BlueScope employees to be made redundant, and other labourers with valuable skills.

What is less surprising than the local content policy ambit is the repeat of the oft-stated cries of anti-dumping by domestic industries, or unions representing workers in domestic industries, whenever it loses a contract to cheaper imports.

And so the process has been repeated, this time concerning the case of cost-competitive steel imports entering Australian markets.

But we shouldn't make the mistake of falling into the trap that anti-dumping isn't the rank protectionism that it is, that would deprive industries that use steel as part of their inputs to furnish final products at the most affordable prices to Australian consumers.

The yearning for a big Plan to rescue domestic industries from the continuous-improvement logic of markets, or to curiously substitute structural change sponsored by a caring, subsidy-sharing government for the structural change facilitated by markets, also still runs deep within the veins of the union movement and sections of the Labor Party and some industries.

This has been aptly illustrated by Dave Oliver's recently expressed approval of the fact that during the 1980s ''the government worked with the unions and the employers and came up with plans like the Button plan for ... the steel industry.''

There is unquestionably a great sense of nostalgia within the labour movement about the Button steel plan, with many claims that it transformed the Australian steel industry once before and a modern iteration could do so again.

In exchange for acceptance of the Hawke government's agenda for tariff reductions, then Industry Minister Senator John Button marshalled BHP and the unions to guarantee BHP 80 per cent of the Australian market if it invested $800 million in plant upgrades and agreed to no forced redundancies.

The unions committed themselves to restraining wage claims, a climate of industrial peace and accepting productivity improvements in the production plants.

For its part, the federal government committed initially to dole out bounty payments over a five-year period to BHP encouraging domestic production of certain cold rolled products, pipes, tubes, high alloy steel bar products and stainless steel flat products.

BHP certainly appeared to invest more than what they initially agreed, as well as providing skill upgrades for its workforce.  However, productivity improvements over the five years from 1985 under the plan did not succeed in closing the productivity gap between BHP and the best practice Japanese and Chinese steelmakers.

From 1986 there was also evidence of renewed industrial disputation, with strike action occurring in Newcastle and Port Kembla, leading to a substantial increase in the numbers of working days lost due to industrial disputes within the steel industry.

While improvements in production occurred during the life of the Button plan, the Industries Assistance Commission astutely noted in its 1986-87 Annual Report:

''There is a natural tendency for recent improvements in the steel industry's economic performance to be attributed to the steel plan ... however, a number of signs of improvement were evident before commencement of the plan.  The Australian economy moved back into growth in the September quarter of 1983, as did manufacturing production and domestic steel production ... The sustained depreciation of the Australian dollar since the end of 1984 has been another significant factor in the improved competitive position of the Australian steel industry in both the domestic and export markets.''

One might plausibly add the prevailing policy of tariff reductions, and the about-face of the Hawke government that saw bounties cut, to the list of factors aiding the steel industry's recovery.

To put simply, many policy deliverables or aspired outcomes under the Button plan were not achieved.  Any improvements in the steel industry's fortunes during the 1980s could be more plausibly attributable to a general improvement in the economic climate prior to the 1990-91 recession.

Moving back to the present, the government has already responded to union and industry calls to defy the economic gravity of market circumstances, including by doling out an advance of $300 million on the steel industry's envisaged carbon tax compensation and announcing a manufacturing jobs summit.

The Gillard government has also appointed former Queensland Premier Peter Beattie, who presided over the ineffectual ''Smart State'' strategy and a failed $1 billion Gladstone magnesium project, as a spruiker for local manufacturing business in resource projects.

But policy ideas of every hue that violate the freedom of Australians to contract with steel suppliers, wherever they may be situated, and thus attain the best economic deal for themselves should be strenuously resisted at every turn.

With the renewed calls for a retreat from free trade resembling a vampire once again rising from its crypt, economic reformers will need to equip themselves with wooden stakes if costly steel socialism is to be averted.

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One savings account we don't need

How could a Liberal support a sovereign wealth fund?

A number of Liberal MPs have recently been publicly floating the idea of a sovereign wealth fund for Australia.  They've been joined in their calls by the Greens (always a good barometer of bad policy) and some economists.  The idea is relatively straightforward:  the Federal government should take advantage of our unprecedented high terms of trade, driven by the mining boom, to save and invest capital for Australia's future.  A number of countries, most notably Norway and the oil-rich Gulf states, already have such systems in place.

The precise reasons for the establishment of a fund, however, are hard to pin down.  Advocates are typically vague about what specific purpose the fund would serve, beyond ''saving for the future''.  One argument is that thanks to our rapidly aging population we will need savings to fund the expensive retirements of a dauntingly large generation of baby-boomers.

This amounts to a recognition that while our current generous healthcare and pension schemes are fiscally unsustainable, instead of reforming them we should simply squeeze the current generation of taxpayers more to fund them.

Of course, Australians already have enforced saving for the cost of retirement, via compulsory superannuation.  Do we really need another layer of government-directed investment?

We're also told that a sovereign wealth fund will allow us to finance ''investment in the future''.  Whatever that means, it is logically flawed.  For starters, this is akin to poorer countries giving aid to richer ones, because every generation to come will be vastly wealthier than those before it if current growth trends continue.  The only reason to doubt this is if you believe that technological development and human innovation will cease in the future.

Nevertheless, the best way to ensure successive generations are as wealthy as possible is to keep government as small as possible and to tax the productive parts of the economy as little as possible.  If our economic future is uncertain, the best approach is to keep the economy strong, not to squirrel away productive resources in a misguided attempt to make government more able to face these challenges.  Levying higher taxes to fund government-directed investments will only depress economic growth.

The third argument for a wealth fund is that it would allow us to finance Keynesian government spending.  Supporters argue that if the economy took a turn for the worse, the government would have a large pool of assets that it could quickly liquidate to resuscitate the economy.  Clearly some politicians haven't noticed how Keynesian ''stimulus'' spending spectacularly failed to lift the US out of the economic mire.

While the Future Fund, established by then-Treasurer Peter Costello in the final years of the Howard government, is in some ways akin to a sovereign wealth fund, at least it had a very specific purpose:  to meet the unfunded liabilities of commonwealth superannuation schemes.  It was never designed to be a honeypot that governments could dip in to whenever they felt the need.  But there is always the risk that the temptation will grow too great -- and recent media reports have suggested the Gillard government will be raiding the jar in its next budget.

There is no evidence to suggest that government managers are better placed to determine the best investments for a nations' future.  In fact, there's ample evidence for the opposite.  After all, government decisions are inevitably influenced by political factors that have little to do with sensible, long-term investment.

But what is truly bizarre is the number of Liberal MPs who have been prominent among the sovereign wealth fund boosters.  Because there can be no doubt that a sovereign wealth fund is utterly incompatible with any reading of liberal philosophy.

At its core, the idea of a sovereign wealth fund comes from the government-knows-best school of politics.  It presumes that bureaucrats know better how to spend a nation's resources than do individuals and companies.  There is only one word to describe a sovereign wealth fund:  statist.

How else to describe a belief that, even after government has paid for all its current (extensive) spending commitments, it should continue to tax individuals so that it has a large enough surplus to lock away in government-managed investment funds?  After all, the capital to invest in a fund has to come from somewhere, and in this case, it comes from taxpayers.

Wouldn't that surplus government revenue be best returned to taxpayers via lower marginal tax rates?  The answer for Liberals should be clear.  Liberals believe that individuals know better than government how to spend their own money.  They trust them to make decisions in their own interests without ''guidance'' from the state.  They believe a small government best preserves individual freedom.  And they think that the free market and private enterprise are the best tools for generating wealth and prosperity.

A sovereign wealth fund violates all of those principles.

It's also peculiar that Liberals -- who fought so hard for decades to privatise government-owned businesses -- would advocate what amounts to the stealthy renationalisation of the private sector through massive government purchase of private assets.

So what accounts for the recent explosion of support in Liberal circles for a fundamentally illiberal policy?

On a superficial level it is easy to understand what attracts some Liberals to this idea.  First, it gives the Opposition something ''positive'' to talk about, and helps combat the Labor party line that the Opposition is purely negative and has no agenda of its own.  Second, it dovetails nicely with the Liberal party's criticism of the Rudd-Gillard governments' profligacy and the record debt they have accrued in office.  Finally, it allows individual MPs to brand themselves as ''thinkers'' who are future-focused and willing to explore innovative policy solutions to complex governance problems.

The embrace of the idea of a sovereign wealth fund by many in Australia's party of free enterprise and individual liberty is deeply concerning.  It suggests a wider disconnect with the values and philosophies that are supposed to underpin the Liberal party.  It is doubly unsettling when considered alongside other departures from liberal philosophy in the name of political expediency, most notably the Opposition's growing flirtation with outright protectionism and its stubborn fealty to an absurdly generous, government-funded, paid parental scheme.  It's time that Liberals who truly support the free market stood up to slay these illiberal policy ideas.

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Have the media watchers undermined press freedom?

It's not hard to see where the media inquiry is headed.

The terms of reference were released last week.  The inquiry will look at ''the effectiveness of current media codes of practice'', ''ways of substantially strengthening the independence of the Australian Press Council'', and ''any related issues pertaining to the ability of the media to operate according to regulations and codes of practice''.

Private entities are welcome to develop ethical and professional codes.  Indeed, they probably should.  But it doesn't follow that government should muscle in to enforce those codes -- particularly if the entities in question are newspapers critical of the government.  The risks to press and speech freedom are obvious.

But the path from self-regulation, to quasi-regulation, and then to black letter law is well-trodden.

Many industries have introduced self-regulation to stave off government interference.  Many also discover years later that governments turn those voluntary measures into heavy-handed regulation.

In the case of the press, the story dates back nearly 40 years.

The relationship between the press and the Whitlam government was deteriorating rapidly during 1975.  So much so that by August Whitlam's minister for the media, Dr Moss Cass, was openly canvassing ways to increase political control of the print media.

Cass offered choices.  He suggested licensing of newspapers.  He suggested government subsidise print journalism.  He suggested a Royal Commission into the Media.  And he suggested a Press Council run by the newspapers.

Obviously, from perspective of the media and press freedom, a council was the lesser of many evils.  The Australian Press Council was established in 1976.

As The Age editor Graham Perkin had said a few years earlier, ''I have no doubt that we will have a Press Council forced on us one day by this government or the next.  It would be best if we initiated this move ourselves so that the Press Council we get reflects the best ambitions and motives of the press rather than the ignorance and misunderstanding of public servants and some academics.''

But self-regulation is only ever a delaying tactic.  The terms of reference to the Gillard Government's media inquiry clearly suggest government involvement over developing and enforcing professional standards.  The current chairman of the Press Council, Professor Julian Disney, is asking for government funding and statutory powers.

Last week Media Watch's Jonathan Holmes mounted a stirring, but limited, defence of freedom of the press, writing in The Drum that ''Three hundred years of history would be turned on its head'' if Disney got his way.

It's an important article, and a revealing one.  Holmes's arguments are worth dwelling upon.  They're held by many other apparent supporters of free speech.  And they illustrate how heartfelt pleas for self-regulation are used to push for government interference.

Holmes argues regulation of the content of the print media is objectionable on freedom of the press grounds.  Excellent.

But he undercuts that by arguing regulation of broadcast media content is justified.

A lot rides on how the distinction is drawn.  Holmes describes broadcasters as ''licensed semi-monopolists''.  True, but only because government artificially restricts broadcast competition with radio spectrum licenses.

Rather than challenging this basic policy problem, Holmes would have bureaucrats regulate broadcast content to compensate -- chasing one regulatory error with another.

(An alternative is to grant property rights in radio spectrum and get the Government out, as the Nobel-winning economist Ronald Coase suggested half a century ago.)

And on closer inspection such an argument doesn't quite demonstrate why, say, The Herald Sun shouldn't be made as ''accountable'' to government regulators as 2GB.

Yes, broadcasters are unconscionably protected from competition.  But there are still many more metropolitan radio stations than newspapers.  Towns that now have only one paper still have five TV channels.  So if an exception to freedom of the press must be made, surely it must be made for our limited print media, not our relatively vibrant broadcasters?

Rather than defending freedom of the press, Holmes's rickety distinction between print and broadcast undermines it -- opening a huge gap that opponents of free speech can drive their regulatory desires through.

Yet there's a more critical way in which Media Watch has been complicit in self-regulation becoming government regulation.

Media Watch takes a very legalistic approach to media criticism.  Rather than simply pointing out lapses in ethics or inaccurate reporting, the program goes to lengths identifying codes of conduct or professional standards guidelines which have been breached.  And, as I argued in The Drum in March, where regulators do have power, Holmes has been quick to call for legal action.

Citing the codes of conduct is a rhetorical ploy that Media Watch has used to emphasise the naughtiness of editors and journalists.

But it is a very influential program with a very powerful audience.

It should be no surprise then that, as a result, the Government has latched onto the apparent inadequacy of those codes, and want to make them legally enforceable.

Media Watch's carefully documented collection of self-regulation botches have handed the political class an opportunity to restrain the press freedom Holmes so passionately defended in his column.

This is a dynamic we've seen in many other industries.  Activists pressure private industries to follow voluntary standards.  Lobbyists then convince governments to turn those standards into mandatory regulation.  Rinse, repeat.

Which is, it seems, exactly what's happening with the media inquiry.

Australians are working less and earning more

ACTU President Ged Kearney announced at the National Press Club the results of a poll of union members grandiosely labelled ''The Census''.  And she also talked about it yesterday on The Punch.  But far from being an impartial look at the Australian workplace, the ACTU's census is nothing but a narrow poll of self-selected participants.

The headlines shouted ''Australian workers productive but stressed''.  The findings to emerge from The Census included that respondents were working longer, finding it difficult to get by on their income, delaying dental treatment and were contacted about work outside of work hours.  An overwhelming majority supported unions campaigning for better pay and conditions of workers.

The Census survey methodology is instructive.

It was primarily an online survey, open between May and July 2011.  A temporary website was used.  The survey was promoted by unions to their members.  The ACTU also promoted the survey through its website, blogs and social media.

The respondents totalled 42,085.  They were eligible for three $1,000 prizes.  The prizes' eligibility was restricted to respondents who were over 18 and -- interestingly -- were union members.  The ACTU commissioned a parallel public poll of 1,000 Australians using ''an online public pool of people''.  This allowed for comparisons between The Census and public poll results.

The overwhelming majority of Census respondents in employment, 92.9 per cent, were union members.  This contrasts with union membership in the workforce now at an all-time low of 19.1 per cent.  At least the public poll at 20 per cent is more representative of the Australian workforce.

This all means that caution must be applied in analysing the results of The Census.  The ACTU report on The Census, ''Voices from working Australia'' acknowledges these limitations.  Admitting that:  ''The Census results are intended to be a discrete study and do not constitute a random sample of either the trade union membership or the overall working population.''

Ms Kearney used the announcement to express concern that the Reserve Bank and Productivity Commission by increasingly representing narrow corporate interests risk ''not only becoming aloof from the concerns of working Australians, but losing the confidence of the broader community.''

However, the institutions have a better fix on the issues of concern to Australians and their future well-being.  The ACTU is in denial over the growing crisis in productivity.  The unions equate productivity improvement with working harder.  In contrast, most see productivity emerging from working smarter -- not harder.

Data from the Australian Bureau of Statistics paints a very different picture to the hand wringing of the ACTU.

According to the ABS, the average number of hours worked per week has decreased over the last three decades.  The number has fallen from 35.7 hours per week in 1979 to 32.9 hours in 2009.

At the same time, household wealth has increased over the last decade, with the real income of low income households increasing by 41 per cent between 1997-98 and 2007-08.  The increase for middle income households was 46 per cent.

The ABS has found that participation by Australians in sport and recreation has increased between 2000 and 2006.  Attendance at cultural venues and sporting events has remained stable over the same period.

So according to the much more reputable data from the ABS, we're in fact working less, earning more and recreating more than ever before.

Australians overall are not as stressed and hard worked as the ACTU ''Census'' suggests.  A reliance on narrow union dominated surveys supported by prize inducements is unlikely to provide any meaningful insights into the attitudes of the broad Australian community.

If the ACTU really wants to get an accurate picture of Australians' attitude to workplace issues, they should commission a genuine scientific survey conducted by a member of the Australian Market and Social Research Society.

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Green bullies on the warpath

Deeply questionable tactics by environmental activists are taking away choices for consumers and business.  The coupled collapse of trade barriers in developed countries and the globalisation of supply chains, creating export opportunities for developing countries, has understandably driven consumer awareness of the impact their purchasing has had on the world's poor during the past 20 years.

In response, there has been a push by global activist groups for consumers to voluntarily demand, and business to adopt, ''ethical'' regulations reflecting the environmental, social and economic impact of producing a product.  Consumers can then identify these products through a recognisable logo certifying that from the extraction or production of the basic commodity ingredients through to their final retail sale, they have met non-governmental organisation-defined ''ethical'' standards.

The first mainstream scheme was the 1980s incarnation of Dutch group Max Havelaar's Fairtrade.  The scheme targeted coffee and encouraged consumers to pay voluntarily a few extra cents a cup, on the understanding the mark-up would be passed through to growers in higher commodity prices.  At the time growers faced low prices because of a global oversupply from developing world producers allowed to grow the sought-after commodity following the collapse of international regulation that locked them out.

The merits and efficacy of the scheme continue to be debated.  But it wasn't long before Fairtrade's voluntary appeasement of the conscience of coffee aficionados became a political tool.

In 2005 Oxfam International's Mugged:  Poverty in Your Coffee Cup report advocated that Fairtrade certification for coffee should become mandatory.  It didn't succeed and the market has corrected itself as farm consolidation and increased consumer demand have delivered higher coffee prices.

Oxfam's effort to create NGO-endorsed regulation is being replicated with the Forest Stewardship Council and the Roundtable for Sustainable Palm Oil, using far more subversive tactics.

Allegations of collusion by green activist groups to push businesses into certification schemes have traditionally been a speculative, connect-the-dots exercise.  But the recently published book Good Cop/Bad Cop:  Environmental NGOs and their Strategies toward Business shows green groups are gloating about their collusive efforts.

The head of research for Greenpeace, Kert Davies, wrote in his chapter about his employer that ''Greenpeace is willing to play the role of good cop or bad cop in partnership with organisations''.  In particular, Davies argues that Greenpeace's ''reputation for radical actions positions it particularly well to play the bad cop that can drive organisations to partner with [environmental] groups that seem more middle-of-the-road''.

It certainly has been the experience of Australian and US businesses targeted over the products they stock.  A report, Empires of Collusion, by a US-based consumer group, last year found bad cop NGOs, including Greenpeace, targeted office-stationery retailers through the media and political action about the paper they stocked for sale and its origins.  The bad cops argued that stopping criticism required stocking only Forest Stewardship Council-certified paper products.  Faced with sustained attacks, targeted businesses complied by then partnering with middle-of-the-road good cops such as WWF, which signed businesses up to stock only products approved by the certification schemes they founded and effectively own.  In the process WWF also regularly licenses its logo's use on products and collects royalties for the honour.

Once a business has been pushed into these schemes, the obligations on it progressively rise, and with them so do costs, with no real avenue to leave.

The strategy works.  Another chapter in Good Cop/Bad Cop by one of WWF's senior program managers outlines how in the ''uncommon case where [certification] commitments have not been met [WWF has] expelled a company from its programs and publicly shared its concerns''.

And the role played by the good cops is no less insidious.  According to WWF analysis, it is actively targeting the full supply chain, having identified that ''100 companies control 25 per cent of the trade of all commodities ... affecting around 50 per cent of all production'' and it is much easier to target them than to change the habits of six billion consumers.  WWF's objective is to have ''75 per cent of global purchases of WWF priority commodities sourced from WWF priority places''.

And that won't occur voluntarily;  government regulation is the next step.

Recent legislative experiences in Australia show progress is already being made.  There are two bills before the federal parliament that legally require products be certified to avoid discrimination if imported into Australia.

A bill supported by South Australian independent senator Nick Xenophon, the Greens and, oddly, the opposition, sought to require the commonly used oil from the fruit of the palm tree to be labelled separately from vegetable oils.  Before its passage through the Senate, the bill required that ingredients certified by the Roundtable for Sustainable Palm Oil be labelled differently, to shame manufacturers from using the non-certified variant.  At least the bill still allows business and consumers choice.

By comparison, the government-sponsored Illegal Logging Prohibition Bill compels the certification of the origin of imported wood into Australia, effectively requiring compliance with Forest Stewardship Council standards.

These examples highlight a worrying trend.

Activist NGOs are targeting the global supply chain and forcing businesses to adopt standards that increase prices to avoid public criticism, taking away both business and consumer choice.

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Media inquiry opens the door to intimidation

Politicians rarely like the coverage they receive in the media, but that's a tiny price to pay for one of the most important bulwarks against overbearing government:  a frank and fearless press.

So it is a good thing that the scope of the government's media inquiry has heen limited, at least compared with some of the expansive and deeply worrying approaches suggested by the Greens, some independents and a bevy of government backbenchers.

Communications Minister Stephen Conroy released the terms of reference for the inquiry on Wednesday.  It will be independent, not parliamentary.  Ownership and concentration are supposedly off the agenda, although, critically, there is a reference to enhancing ''diversity''.  Privacy is out too.  Instead, the inquiry will investigate the internet challenge to the journalism business, and the role of self-regulation.

This inquiry, limited as it is, should still worry supporters of free speech.  The government should not get a pass on questions of press freedom.

It's clear we would not be having an inquiry into the media if the government and the Greens were happy with the press coverage they have received.  Although Conroy was at pains to say that the inquiry was not focused on any one media outlet, or prompted by the harsh treatment the government believes it is receiving from the media, it doesn't take a cynic to doubt his sincerity.

After all, it is just two weeks since we learnt that cabinet recently spent time discussing whether or not it should go to war with News Ltd, including a suggestion they could damage The Australian newspaper by depriving it of government advertising.

The Greens have openly floated the prospect of investigating media outlets for bias, suggested that newspapers should be licensed (presumably so the government could threaten to take it away), that media barons should have to meet a ''fit and proper'' test, and that News Ltd could be forced to divest some of its newspaper assets because they have deemed it too powerful here.

Despite Conroy's protestations -- and the suggestion from Bill Shorten that the inquiry was focused on rogue bloggers, as if that was somehow better for free speech -- Greens leader Bob Brown said yesterday that the inquiry was not merely ''a foot in the door'' to look at media ownership, but a ''door wide open''.

The government argues it has limited the press inquiry.  But the Greens and, it appears, some members of the government, think otherwise.  A media inquiry in this environment can have no other impact than to chill criticism of the government and to cow the press.

Conroy has admitted that a super-regulator ''could be an outcome'', dragging print into the complicated and often arbitrary regulatory framework that governs broadcast media.

Julian Disney, head of the currently voluntary and industry-funded Press Council, has mused he might like to have some ''statutory teeth''.  Teeth is a strange word to use if you're worried about press freedom.  Disney is also asking for taxpayers' money to expand the work of his organisation.

This is yet another example of how voluntary codes of conduct morph over time into mandatory regulation.  We see this dynamic occur in many industries.  But those who have long complained that the industry does not adequately self-regulate -- like, for instance, the ABC's Media Watch -- program have opened a door to much more draconian regulation by the state.

The political nature of the media inquiry is obvious, especially considering its relationship to the other inquiries into media regulation.

The Convergence Review -- also independent -- is a serious investigation of how technological change has challenged or undermined the regulatory frameworks that govern communications and media networks.  The distinctions between broadcast, online and print have now been blurred.  As a consequence, the Australian Communications and Media Authority suggests the vast majority of media regulations are broken or strained.

Changing the regulations to suit this new world should be the most important regulatory game in town.

The Convergence Review will shed much greater light on the future of media law than the government's new inquiry.  But it provides no opportunity to criticise News Ltd, so the Convergence Review has been paid scant attention by politicians who feel victimised by Rupert Murdoch's press.

Increased government regulation of the press will not eliminate bad journalism.  On the other hand, it might encourage editors to hold back on a story that could unleash a vigorous debate.  It might make journalists think twice before digging for newsworthy information in the public interest that is likely to offend.  And increased press regulation by a government unhappy with the media coverage it has received can only have one purpose:  to restrict free speech for its political benefit.

The government has obviously worked hard to make the inquiry seem modest to media proprietors yet still robust to the Greens, but any attempt to investigate the press by a government as on the ropes as this one should be treated with utmost suspicion.

Protecting industries and living standards

Free trade provides the cheapest goods and services for the consumer and increases real living standards.

But pressures for increased industry protection from overseas suppliers are re-emerging in Australia.

In broad terms, the average Australian tariff, and its subsidy equivalent, has been reduced from about 35 per cent to 5 per cent over the past 40 years.

Other specific assistance measures like government purchasing preferences, local content arrangements, air travel, and agricultural marketing arrangements have also been substantially dismantled.

The two most protected industries are textiles clothing and footwear with support at 13 per cent (down from 20 per cent in 2003) and motor vehicles at 11 per cent (down from 17 per cent in 2003).

Tariff or subsidy protection is justified on two grounds.

The first is as a platform on which an industry might develop economies of scale, a policy often mockingly referred to as ''winner picking''.

Many developing countries have seen rapid growth and specific areas of industry protection taking place simultaneously.

But the key features of those successes were privatisation, deregulation and increased levels of domestic savings to fuel productive investment.

The second rationale for protection is defensive -- a means of allowing firms to survive in the face of lower-cost imports.

All Australian industry protection, even for clothing, footwear and motor vehicles, started life as industry development plans.

More recently, industry development plans have focused on green power (where state and federal support has been wasted on areas like solar farms and turbine blade factories).  The Government's carbon tax package includes a $1.2 billion program in subsidies to such developments.

Increased recent pressures for protection stem from the strong Aussie dollar making imports cheaper.

Steel, motor vehicles, clothing and horticultural products (which have quarantine restraints as trade barrier) are presently receiving or seeking protection from imports.

While government support for activities that are failing as a result of competitive pressures could reverse their fortunes, successful cases are hard to identify.

There is no example of a developed country like Australia increasing its relative success while de-liberalising its import markets.

In fact, Argentina provided a salutary lesson of the results of this.

A century ago Argentina was richer than Australia but it adopted highly protectionist trade policies and sank into relative poverty from which it is only recently emerging.

THE liberalisation of trade over the past 60 years has been crucial to Australia's higher living standards.  Reversing that trend would see a relative and, perhaps absolute, fall in living standards.

A major frontier left behind in trade liberalisation is agriculture.

Australia could gain considerably from the rapid income growth in China and India which is likely to see a considerable expansion in demand for higher protein and fat foods.  However Australian policy directions in recent years detract from this potential.

Farm investment is discouraged by reducing farmers' access to water, locking up vast tracts of land in northern Australia and arbitrary decisions like that on live cattle exports.

A deregulatory approach is necessary as well as continued resistance to backsliding on protectionism to shift jobs and investments to areas that offer us the highest living standards.

Free trade: offering the best value to consumers and producers

Developments in Australian Trade Policy

The Productivity Commission (PC) annually undertakes comprehensive estimates of industry protection, which combine tariffs and other forms of support.  The following diagram illustrates the changes in Australia's ''effective rate of protection''.  This measures the assistance on the local value-added (that is, if the tariff is 10 per cent and local value-added is 75 per cent, the effective rate is 10/75 or 13.3 per cent).

The PC's measure of assistance does not cover all forms of subsidy.  However, many of the measures it excludes have also been reduced over the past three decades.  This is true of government purchasing preferences, local content arrangements, air travel, anti-dumping and countervailing measures, agricultural marketing arrangements, rural support programs and resource access arrangements relating to mining, forestry and fisheries.

The two stand out areas of protection are textiles clothing and footwear, with support at 13 per cent (down from 20 per cent in 2003) and motor vehicles and parts at 11 per cent (down from 17 per cent in 2003).

Pressures for Trade Protection

There are always pressures to provide greater support for a local industry.  These come either as a means of offering it a platform on which it might develop economies of scale, often referred to as ''picking winners'', or as a means of preventing it from being out-competed by imports.

In Australia the former approach has never lacked sponsors.  Indeed, even protection for clothing, footwear and motor vehicles started life as industry development plans.  Later schemes favoured IT industry areas.

More recently, industry development plans have focussed on green power (where state and federal support has been extended to areas like turbine blade factories that politicians and lobbyists claim to be promising).  The Government's carbon tax package includes a $1.2 billion program in subsidies to these developments.

Pressures for protection in the home market occur throughout manufacturing and the intensive agricultural areas and are particularly strong when exchange rates make imports cheaper.  Steel, motor vehicles, clothing and horticultural products (where quarantine is used as a non-tariff barrier) are presently receiving or seeking political favours.  While government support for activities that are failing as a result of competitive pressures could reverse their fortunes, successful cases are hard to identify.

There is no example of a developed country increasing its relative success while de-liberalising its import markets.

Protection through tariffs and other barriers has however been present during the industrial growth periods of most major countries from the US onwards (where tariff increases sparked off the Civil War).  Protection of local production from imports was a significant policy measure in the rapid growth phases of Japan, Korea, and Taiwan though less important for Singapore and totally absent for Hong Kong.

Tariffs were also prominent (and, though they have been reduced, remain so) for China.  In the case of India, although tariff levels are double those of Australia, the nation's recent growth was triggered by deregulation, including declining levels of external protection.

Eastern European EU members have also seen rapid growth and have attracted manufacturing investment, while eliminating import protection vis-à-vis their EU partners.

It is therefore possible for a country to embark on a growth momentum in spite of protectionist restraint on imports.  But in all such cases the protection has co-existed with privatisation, deregulation and increased levels of domestic savings to fuel productive investment.  Those efficiency improvements have more than compensated for the adverse effects of protectionist policies.

And the respective outcomes in Singapore and Hong Kong indicate that the latter's free trade policy has achieved similar stellar growth while seeing less income allocated to savings.  In other words, it would appear that a more liberal trade policy allowed Hong Kong both to have and to eat more of its cake.

The point about free trade is that it provides the cheapest goods and services to the consumer.  This may entail importing from countries that follow practices that we ourselves reject.  Thus some countries have more relaxed laws than us on matters like child labour.  We can urge those countries to change such laws but the appropriate standards are matters of judgement.  After all, child labour is common on farms in Australia, some kids sell lemonade at charity stands and 30 years ago there were plenty of 14 year olds in the Australian workforce.

Similarly, some countries' workplace safety standards are sometimes cited as a reason why we should reject their imports.  Safety standards tend to be highest in the more affluent countries and in the end reflect the willingness of the worker to accept greater risk as a consequence.

Importantly, it is not up to us to pick and choose which imports we might allow on grounds of labour laws and so on, since to do so would require us to develop a vast new apparatus to determine what countries goods and services will be allowed.

It may well make sense to refuse some imports on quarantine grounds but, as already noted, quarantine provisions are often an excuse to protect domestic producers, thereby preventing domestic consumers from benefitting from the cheapest suppliers.  At the same time the protectionist policy means maintaining land, labour and capital in activities that produce less value than if they were to be shifted to areas of greater competitiveness.

Keeping Australian and World Markets Open

World trade negotiations have focussed on offering and accepting concessions in reducing domestic barriers to entry.  Although such mechanisms may have been useful in bringing political acceptance for trade liberalisation (and a general global reduction in barriers to trade, offers gains in excess of a unilateral reduction), we don't actually need reciprocity to make gains.

If some countries place barriers to getting the cheapest goods they are willingly accepting a diminution of their real income levels.  That can rarely be in their interests.

The liberalisation of trade over the past sixty years has been crucial to higher living standards in Australia and elsewhere.  Reversing that trend would see a relative and perhaps absolute fall in living standards.

A major frontier left behind in trade liberalisation is agriculture.  Australia could gain considerably from the rapid income growth in China and India, which is likely to see a considerable expansion in demand for higher protein and fat foods.

Though geographically well placed to benefit from this, Australian policy directions in recent years detract from this potential.  Disallowing water storages (and reducing existing water rights held by farmers), locking up vast tracts of land in northern Australia and arbitrary decisions like that on live cattle exports have reduced the attraction of farm investment.

A deregulatory approach is necessary as well as continued resistance to backsliding on protectionism to allow labour and capital to be used more remuneratively is essential if the prospects are to be realised.

Energy costs defy logic

In response to my Opinion article on September 8 on the costs of the carbon tax, the British High Commissioner (Letters, September 14) rejects the estimate of Prime Minister David Cameron's energy adviser that the carbon tax would raise UK energy costs by 30 per cent.  The High Commissioner says, ''UK domestic energy bills will be just 1 per cent higher because of climate change policies''.  This astonishing claim defies logic.  It is at odds with all serious studies including that of Australia's Productivity Commission, which estimated that carbon abatement measures had raised UK electricity prices by 17 per cent in 2010, a level that must increase further with the planned additional reductions in carbon emissions.

On the same day a rambling letter by [philosopher] Karey Harrison cites the discredited Clive Hamilton in an ad hominum attack on me.  Farcically, she argues that the carbon tax redresses fossil fuel subsidies, provides compensation for the increased flood and hurricane damage, and is an antidote to the barriers to entry into energy supply.

None of these claims holds water.  Fossil fuel production pays taxes rather than energy from wind and other renewables that relies on subsidies.  Indeed, last year the government reported to the G20 that Australia has no ''inefficient fossil fuel subsidies''.  Nor is there any likelihood of additional extreme events of nature as a result of our carbon emissions.  And the only barriers to entry in Australian energy markets are those that have been created by government carbon tax policies that would savagely undermine investment.

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Australia's Future Fund: a complex beast of good and bad

Beneath the heat of current public debate there is little light being shed on some important policy issues.

This week the story broke that the Federal Government would be raiding the Future Fund.  The story was quickly denied -- but there is probably more to this than meets the eye.

The Future Fund is a complex beast because it combines two ideas, one good and one bad.  Some form of compulsory savings vehicle is, on balance, a good idea.  Not because bureaucrats know better than private individuals how their own money should be spent, but because it reduces the temptation to operate Ponzi schemes -- this is the situation where old investors are paid from contributions by new investors.  This sort of scheme is common in public finances around the world and will become an ever-increasing burden on future taxpayers.

But the Future Fund is a sovereign wealth fund.  On balance this is a bad idea.  True, many countries have such things and appear to prosper.  Yet they create temptation for governments to engage in wasteful spending.  Government has a ''have money will spend'' approach to public finance.  We have seen this in Australia since the early 2000s and more so since 2007.

The Future Fund was established by the Howard government to provide for superannuation for Commonwealth bureaucrats.  The Commonwealth, like the states and territories, had been an irresponsible employer.  It had provided its employees with super entitlements, but had not funded those entitlements.  In other words, it had been running a Ponzi scheme.

By making provision for Commonwealth superannuation liabilities before the burden became too large the then federal government was being responsible.  Yet, at the same time, it set up a huge pot of money that could be raided by future governments and to that extent was being irresponsible.  Perhaps it should rather have cut taxes.  So the Future Fund is a mixed blessing depending on which aspects you want to emphasise.

Irrespective of whether the Future Fund was or wasn't a good idea, it does have a significant impact on the budget bottom line.  Despite the fact that the Fund will be used for superannuation, the Fund itself belongs to the Federal Government.  Earnings from the fund impact the budget bottom line each year.  Strictly speaking earnings from the Fund are excluded from the underlying cash balance but not the fiscal balance.

But what if the Fund sells assets and holds cash?  Would that be accounted for as an earning or as a cash holding?  Depending on the accounting treatment the act of transforming assets into cash could impact the budget bottom line.  So the Government wouldn't need to raid the Future Fund per se, all it need do is rebalance the portfolio between assets and cash.

Whether or not this will happen or can happen is an argument for the accountants.  No doubt this issue will be thoroughly canvassed in the Senate Estimates process and some sort of understanding will emerge.

It would be very disappointing if the Government isn't able to balance its budget without resorting to accounting tricks.  It would tend to suggest that the current Government isn't able or willing to make the tough economic choices that are necessary for sound fiscal policy.

What we shouldn't overlook, however, is the position Australia is in compared to most other OECD countries.  We have fewer Ponzi schemes in our public finances than they do.  Superannuation is a privatised pension scheme where people more or less save for their own retirement.  The Commonwealth superannuation scheme is now funded.  We are, more or less, paying our way and not placing a burden on future generations of taxpayers to finance our lifestyle choices.  Generally this is good policy -- but it would be all too easy to slip back into bad practices.

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Prime ministerial musical chairs

What possible benefit would the Labor Government receive from ditching Julia Gillard now?

Yes, a Fairfax poll on Monday suggested Kevin Rudd would win an election handily if only he was swapped back in as prime minister.  Forty-four per cent of voters prefer Kevin.  Only 19 per cent prefer Julia.

But there are some heroic assumptions here, not least of which the changeover would be seamless and appear effortless.  No late-night press conference with Gillard about how she won't stand by as her party lurches to the left on asylum seekers.  No teary farewell.  Some convincing explanation of why a leadership change was necessary.

And entirely absent from hypotheticals like these are any consideration of the shape of the alternative government.

It wasn't, after all, the simple fact of Julia Gillard's appointment as Prime Minister that put voters off her.  It was what happened next:  a series of backdowns, reversals, preening factional warlords, major policies announced without checking whether they were actually possible, and, as Annabel Crabb pointed out in The Monthly, her Government's complete inability to describe why she is Prime Minister in the first place.

In politics, like policy, implementation matters more than intention.

The air of illegitimacy about this Government grew over time.  It didn't spring up instantaneously.  It's not Julia Gillard, but the policy and political decisions she has made -- from the over-scripted ''moving forward'' speech, to the carbon price turnaround, to the High Court's ''Malaysia Solution'' case.

So the question is not really who the Labor Party would like as leader, but what they plan to do when they get there.

That's, in part, why Stephen Smith would be such a bizarre choice.  His primary qualification for the role appears to be that he exists.  Not that he has any particular views, or is driven by any standout philosophy of government.

Lots of people seem to think that Simon Crean would be good as PM, but, then, lots of people thought Julia Gillard would be good too.

There seems to be growing sentiment from within the Government that a change in leadership may be necessary, but no indication that a leadership change would have any policy consequence.

Prime minsters Smith or Crean would have to decide what to do about the one policy which is eating Labor alive -- the carbon tax.  It's not just ''Convoy of No Confidence'' types who disapprove.  Newspoll suggests the climate policy only has the support of 37 per cent of Australian of voters.

''Putting a price on carbon'' is a political trap.  From the moment the carbon bills are signed into law, the Government will -- fairly or unfairly -- take ownership of every single job loss in energy and manufacturing.  Gillard may get her bills through but the next Labor prime minister would have to decide whether to maintain the system as it stands.  If the new PM does nothing, then almost every dissatisfaction with Gillard will apply to them.

And the image for the Labor Party will be even worse.  What was an aberration would become a pattern.  Is the modern ALP fundamentally unable to keep one prime minister in the Lodge for a full term?  If Labor really wants to give the electorate the impression that it is completely unable to govern like adults, then continually swapping out prime ministers would be the best way to do it.

It wouldn't be just this Government at stake.  It would be the electoral viability of the party over the next few decades.  In 2007, Labor argued voters couldn't be sure whether the Coalition was offering prime minister Howard or prime minister Costello.  In 2013 voters won't know who in the entire ALP ministry they're being asked to support.  And then in 2016, and 2019, and on and on.

The story would be a little different if Kevin Rudd was returned to the leadership.  Imagine a Rudd coup tomorrow.  Gillard herself would be the aberration, not the leadership spill:  a 14-month failed experiment.  The Labor Government would be back on the path it set out on in 2007.  Wounded, embarrassed, contrite, but alive.

But that assumes that everything goes smoothly, and that voters don't mind political parties making colossal leadership errors whilst trying to run the government.

And Rudd would still face policy questions which have no easy answers.  The former PM certainly has more forthright views on questions about climate change and refugees, but they wouldn't provide much of a guide out of the Government's mess.  On the carbon tax, Rudd would be more likely to double down than fold.

A change in leadership is an answer to a question that hasn't been asked.  The Government's problem is not just the personality at its top.

Let's face it:  Labor cooked its Government when the smartest warlords in the room decided Kevin Rudd had to go.  Everything since then has been an extended death monologue.

Liberty gets the chop

Where are our great public intellectuals on new threats to freedom of the press?  Under the Howard government, there was a minor genre of books and essays condemning the prime minister's apparent antipathy to public debate.  With titles like Silencing Dissent, academics and activists lined up to say John Howard was cracking down on his opponents.  David Marr argued in a 2007 essay that Howard was ''corrupting public debate''.  Howard had ''cowed his critics'' and ''muffled the press''.

So the silence on the inquiry into media bias is jarring.  Yesterday the Greens proposed an inquiry to look at ''whether the current media ownership landscape in Australia is serving the public interest''.  Those are weasel words.  The inquiry -- also supported by some independents and many within the government -- is obviously intended to influence what the media publishes.

After all, Rob Oakeshott supports an inquiry because he thinks ''complete rubbish'' is being written about him.  Labor MP Steve Gibbons spoke of the need for an inquiry because of ''vendettas of hate'' being waged against the government.  Greens senator Christine Milne has said ''bias is certainly one of the things which is going to be looked at''.  Bob Brown talks of the anti-Green ''hate media''.

The federal cabinet reportedly held lengthy discussions several weeks ago about ''going to war'' with News Ltd and The Australian newspaper.  Along with an inquiry, the cabinet also canvassed a government advertising boycott, because it wasn't happy with coverage of the Craig Thomson affair and journalist Glenn Milne's airing of old allegations that Julia Gillard had been tangentially associated with similar things.

But recall:  in his Howard-era essay, David Marr described the government's reluctance to use taxpayer money on objectionable artistic grants as ''censorship by poverty''.

Many agreed.  Surely by this loose standard, the Gillard government's threat of withdrawing advertising from a media company it objects to is ''censorship'' as well?  Where's the outcry?

In 2007, Robert Manne wrote the foreword of Silencing Dissent.  But in a Quarterly Essay released last week, Manne complains the ''real and present danger to the health of Australian democracy'' is actually Rupert Murdoch and The Australian.

It couldn't be that the ''health of our democracy'' has been hurt by this government's unfathomably low popularity.  Or how it dumped a prime minister, reversed a core election promise and fouled up its refugee policy beyond belief.

No, more concerning is the The Australian's ''jihad'' against the Greens.  In his essay, Manne praises the Greens as ''the most important left-wing party in Australian history''.  The Labor Party -- Australia's oldest political party and the first labour party to hold government on the planet -- might disagree.

Well, perhaps Manne is using ''left wing'' as a synonym for ''authoritarian''.  Surely there's no other word to describe Bob Brown's recent suggestion the government should impose newspaper licences.

The only reason you'd impose a licence is so you have the power to take the licence away.  That's why in the English-speaking world, newspaper licensing was abandoned nearly four centuries ago.  It was tyrannical.

Certainly, the proposed media inquiry may be limited to studying things like privacy or media ownership.  Or it may not go ahead at all.  The government has enough on its plate.  And it is a legitimate question whether the law has set correct limits on media ownership concentration.  (Or whether any limits should exist.  The press is under extreme commercial pressure from the internet.  At no time in history have media moguls been less powerful.)

Still, there's a comprehensive review going on right now into every facet of media regulation -- the convergence review.  Few seem to care about that.

The idea that a government might regulate a media organisation specifically because it didn't like an editorial line is an obvious attack on free speech.  Should companies be broken up, their ownership divested, as punishment for being critical, fairly or unfairly, of a government?

Indeed, the fact the government is talking about an inquiry gives it leverage over critics.  Surely few genuine supporters of free expression are comfortable with that.  Imagine the furore if John Howard had done -- or suggested -- anything similar.

The Gillard government is one of the most shambolic in history.  No surprise then that some people want to talk about failings of the press.  Fixating on unfair media coverage must be comforting for those let down by Labor's performance in government.

In his recent book, Sideshow, former finance minister Lindsay Tanner argued the media was too easily distracted by the frills of public life, to the detriment of policy analysis.

This might be a fair point.  But his publicity tour was revealing.  Tanner was the fourth most powerful person in the Rudd government.  He retired just as it imploded.  He'd know some things of public interest.  Yet in interviews, Tanner refused to be drawn on the inside workings of that government.  He just wanted to speak about media perfidy.  Complaining about the media sideshow is just another sideshow.

Predictably, the News of the World scandal in Britain was used by Australian politicians to embarrass their press critics.  Months later there's still no evidence to suggest phone hacking of any kind has occurred Australia.  Yet cries for a media inquiry have only gotten louder.

Silencing Dissent asked readers to ''judge for themselves whether the erosion of democratic institutions described in this book is the accidental result of a particular leadership style or part of a more insidious attempt to reshape democracy''.

The question was shrill then.  But many nodded along at the time.  And for those who did, that same question should now be asked of the politicians clamouring for legislative solutions to negative media coverage.

Replay of Samson's fate

There's a touch of Samson-in-the temple about the Gillard government -- it's a government that could bring itself down and everything around it.

In the Bible, Samson is an Israelite blessed with superhuman strength.  An angel promises Samson's mother that her son's strength will endure for as long as he does not cut his hair.  Samson uses his powers to win many battles against the Philistines.

After Samson falls in love with Delilah, the Philistines pay her to find out the source of his strength.  When Delilah discovers Samson's secret, she has a servant cut off his hair.  The Philistines capture Samson, cut out his eyes and imprison him.

Later, the Philistines celebrate their victory and Samson is brought to a temple to entertain the assembled masses.  By this time his hair has grown back Samson asks his guard if he can lean against the temple's pillars.  Yelling ''Let me die with the Philistines'', he pushes against the pillars and destroys himself, the temple and everyone inside.

As the Book of Judges tells it:  ''Samson killed more people at his death than he had killed during his life.''

The Gillard government might be in its death throes for months.  The carbon tax, the mining tax, the broadband network and asylum seeker policy are now viewed as simply political issues to be managed until the next opinion poll.

The restraint that comes with a government implementing policy it may then have to manage during its next term in office is missing.

Impending electoral mortality may have been the reason behind the extraordinary statement from federal Transport Minister Anthony Albanese that the political coverage of Rupert Murdoch's News limited was a ''real concern'' and ''they've got to stop this sort of nonsense''.  Politicians complaining about the media are nothing new.  What's different this time is that there's the threat of a media inquiry in the air.  Government has done nothing to dispel the impression that an inquiry will be less about media balance and more about retribution.

A media inquiry is being urged by the Greens, who know their time as a co-equal partner in government will soon be over.  It will be a very long time before an Australian prime minister promises to share a weekly cup of tea with the leader of the Greens.

Those barracking for a media inquiry need to be careful.  There are more than a few Coalition MPs who would welcome an investigation of the Australian Broadcasting Corporation's understanding of political balance.

Greens leader Bob Brown was right when he said there is a blurring of news and opinion in the Australian media.  But that's been happening for years and it's none of the government's business.  Consumers can decide for themselves whether they want to buy what media organisations are selling.

Julia Gillard's attack on the High Court after its decision on the legality of sending asylum seekers to Malaysia, and Anthony Albanese's attack on the media, came only weeks after all sides of politics called for calm in the face of community anger over the carbon tax.

The people who are angry about the carbon tax are entitled to feel confused.  It appears prime ministers can be angry at High Court judges and newspaper editors, but voters can't be angry at politicians who break their promises.

The irony of the PM's complaining that the Chief Justice expressed an opinion before his appointment that was different from the one after he became Chief Justice could not have escaped her.

A government facing an almost inevitable election defeat isn't constrained by the ordinary conventions of political conduct.  As the carbon tax grows in unpopularity by the day, the chances of it being implemented increase.  The government and the Greens know they have only a few months in which to pass it into legislation.  The carbon tax is also the ultimate poison pill.  It will take years and billions of dollars for an Abbott government to unwind.

In a normal or semi-normal political environment, a government would at least pretend it had some sort of mandate to enact something as dramatic and far-reaching as the carbon tax.

But Australian politics has been far from normal ever since Kevin Rudd's decapitation.  The sight of those business leaders who, a year ago, were calling for a carbon tax so they could have ''certainty'' now calling for the tax to be delayed, only adds to the air of unreality that pervades Canberra.

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The case against the carbon tax

In a leaked briefing, UK Prime Minister David Cameron's energy adviser warned him that British carbon abatement policies would raise electricity prices by 30 per cent.

The briefing addresses questions raised by Cameron about the merits of these policies.

European Union climate action commissioner Connie Hedegaard has no such misgivings.  She says the EU policies drive job growth and innovation without sacrificing the economy.

Inauspiciously, this week US solar power industry poster child Solyndra went bankrupt, shedding 1000 jobs.  Even though it received $US535 million in low-interest government loans -- half a million dollars per job -- this was insufficient to tilt the playing field in its favour.  Australia's experiences with subsidies for turbine blade facilities in Victoria have similarly failed.

Subsidies and taxes can force production into high-cost and more labour-intensive directions but even when they do, this doesn't bring net job creation.  If it did, we would benefit from taxes to replace tractors on farms with hand ploughing.  That would require a tenfold increase in employment but would simultaneously lower productivity by nine-tenths.

Unfortunately, the job increases would be offset by job losses.  Net job creation from discriminatory taxes or subsidies is only possible with reduced living standards.

Electricity from wind in Australia costs three times as much as from coal or gas.  Forcing the adoption of wind farms for electricity supply can no more increase jobs than if we required labour-intensive, pedal-powered turbines for generating electricity.

As a recent Productivity Commission report demonstrated, Australia is no slouch when it comes to wasting money and raising costs in its energy policy.  The commission showed that Australian spending on greenhouse gas abatement, while not reaching the giddy heights of the EU, was higher than in China, the US, Japan and South Korea.

And our industries carry a far greater burden than those in rival primary product-exporting countries.  The commission estimated the cost of Australian emission-reduction programs at $473 million to $694 million in terms of total subsidy equivalent.

The largest component of this, the 20 per cent renewable energy requirement, is still gearing up and will cost $4 billion a year by 2020.  Moreover, the commission estimates exclude Australia's direct government subsidies in 93 programs, which cost $1 billion in 2009-10.

Australian carbon abatement taxes and subsidies mean lower competitiveness, exports diverted to rival suppliers and job losses, with no effect on global emissions.

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Union thuggery part of more damaging malaise

Recent allegations of misconduct are a dreadful example of union officials showing disdain for the interests of those they serve, their members.  Workers notice officials consumed by self-interest and it is a factor in the continued decline of trade union membership.

The union official's job is not a bed of roses.  They have to master elements of Australia's complex labour laws.  Unco-operative employers, unappreciative members and contrarian tribunals are encountered.  Union elections come regularly;  irksome rival factions have to be kept in their place.

Many unions are large organisations responsible for managing significant financial resources.  The CFMEU is one of the best resourced.  The latest report of the Victorian Branch of the CFMEU to Fair Work Australia recorded total assets of $48.7 million and total members funds of $42.8m.  The branch has 87 people on the payroll, 31 of them organisers.

The CFMEU is an active and aggressive union.  Its organisers can strike fear into contractors and workers.  However, there is a downside to strong-arm tactics.  The union and officials have incurred numerous court-imposed penalties and large legal expenses.  There are indications the courts are losing patience and awarding a higher level of penalty.

In May 2010 the CFMEU imposed a nine-day picket at the Epping markets site in Melbourne.  The union wanted a contractor, Fulton Hogan, to enter an agreement with it.  Fulton Hogan had reached an agreement with the AWU.  The CFMEU arranged the dumping of a load of crushed rock across the site entrance.  Forty-four gallon [100 litre] drums filled with wood were placed at the gate.  Locks were rendered inoperable.  The union continued the picket despite a Federal Court injunction that it cease.

As a result of legal action taken by the Australian Building and Construction Commission the CFMEU was ordered to pay penalties of $100,000 for contravening the relevant act and $150,000 for contempt of the court injunction.  It was also ordered to pay costs to the ABCC of $190,000 and compensation of $120,000 to affected contractors.  A total hit of $560,000.

In August 2011 the Federal Court ordered the CFMEU to pay Woodside compensation of $1.5m and $500,000 in costs.  The union and its Western Australia assistant secretary Joe McDonald were also ordered to pay Woodside penalties totalling $85,000.

In July 2011 the Federal Court imposed penalties of $150,000 on the CFMEU, McDonald and another official for a five-day strike at a Perth building site in June 2009.  The court also ordered the union pay almost $100,000 in compensation to the contractor.

In July 2010 the Federal Court penalised the CFMEU and two officials $1m for numerous breaches of workplace laws on the Westgate Bridge project in early 2009.

In the Epping markets case the Federal Court observed:  ''The union has not displayed any contrition or remorse for its conduct.  The contraventions are significant.  Substantial penalties for past misconduct have not served to prevent a repetition.''

Members of the union must question whether this is the best way to spend members' funds.

The destructive events in the building industry are well known.  However, a malaise in other industry sectors that has the potential to be more damaging.  There are signs of an insidious reluctance to embrace change in work practices.  The cause is the Fair Work system which was portrayed as a moderate response to Work Choices.  In fact it constituted a significant national economic change.  It changed the structure of agreements, introduced onerous bargaining obligations, expanded unfair dismissal protections, increased access to arbitration, amplified the role of the tribunal, expanded employee anti-discrimination rights, enlarged national safety standards and removed right-of-entry restrictions on union officials.  Access to an individual employment agreement stream was removed and collective agreement making entrenched.

An emboldened union leadership has asserted its power ruthlessly.  Claims are divorced from economic reality.  Massive job losses are occurring in manufacturing.  But the AMWU called Toyota workers out on strike last week.  Toyota's offer of 7 per cent over two years has been rejected.

In June this year building unions in Victoria reached a four-year agreement with the Master Builders Association which provides for wage increases of 27.5 per cent.  Not a single productivity improvement was negotiated.  Bill Oliver, Victorian Secretary of the CFMEU said ''We should be very proud of what we have achieved.''

Melbourne restaurateurs have warned oppressive penalty rates risk the city's world-class dining reputation by making it uneconomic to open on weekends.

These examples are symptomatic of a system gone awry.  Change is needed and soon.  The possible reforms are numerous and are not a return to Work Choices.  They include access to individual agreements supported by a no disadvantage test.  The regulation of independent contracting by commercial rather than industrial law.  Simplified bargaining rules that facilitate wage adjustments related to productivity improvement.  Lawful strike action available only after genuine bargaining has occurred.

On the night of the Fair Work Act's passage, union leaders celebrated with their parliamentary mates in Canberra.  But the glee has turned into despair for many firms and employees.  Change is needed soon to restore innovative and competitive workplaces.

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