Hands-off approach the best way to foster innovation

For a growing and productive Australian economy, we need to embrace innovation in all forms without onerous regulatory obstacles.

Prime Minister Malcolm Turnbull has indicated, in no uncertain terms, that he is a man with a plan, and that plan is for a more innovative Australia.

In his first statement as Prime Minister, Turnbull implored Australians "to recognise that the disruption that we see driven by technology, the volatility in change, is our friend".

When he later announced his ministry the Prime Minister boldly stated:  "We must be more innovative.  We have to work more agilely, more innovatively, we have to be more nimble in the way we seize the enormous opportunities that are presented to us."

Since then, Turnbull gathered up representatives from venture start-ups, technology firms, universities, and government bureaucrats to talk at a roundtable forum about innovation issues, in preparation for a formal innovation statement later this year.

Doing his leader's bidding, Assistant Innovation Minister Wyatt Roy recently organised what has been described as a "policy hackathon", in which various interest groups were brought together over a weekend to hash out ideas for boosting innovative activity, such as business entrepreneurship.

Since theoretical developments from the 1980s identifying the likes of innovation spending and investment in human capital as bolstering the growth rate of an economy, most politicians have latched onto the notion of more subsidies and tax breaks for research and development, for schooling, and for selective industries.

For many years there have been advocates for governments to always do more to encourage innovation, pointing to statistics suggesting Australia's expenditure on research and development lags behind numerous other OECD countries.

According to a set of innovation indicators compiled by the federal Department of Industry, Australian gross R&D expenditure of 2.1 per cent in 2012 was eclipsed by the OECD average of 2.4 per cent, with R&D spending by the business sector exhibiting the same general pattern.

An obsession with international discrepancies in R&D expenditures has long animated the innovation policy discourse in this country, but is perhaps inappropriate given the vastly different industry structures and resources endowments for each OECD member.

In any case, innovation is far more than the R&D often stereotyped as learned people donning lab coats and toying with petri dishes, syringes, and machines until something miraculous happens.

Joseph Schumpeter, of "creative destruction" fame, put it well when depicting economic evolution being represented in things such as new consumers' goods, the new methods of production or transportation, the new markets, the new forms of industrial organisation that capitalist enterprise creates.

The key message here is that innovation is conceivably every worthwhile economic activity we do to produce goods and services which please our customers.

Taking this insight even further, irrespective of whether we produce, sell, or buy a product — be it a chocolate bar to satisfy a sugar craving;  financial advice to a client about to retire;  or a hydraulic excavator for a new mine — it carries bits of economic knowledge embodying past innovative efforts.

Conceiving innovation to be embodied in everything of economic value, one might say the total value of innovation generated by the private sector of the Australian economy in 2012 was certainly substantially greater than the $18.3 billion spent by business on R&D.

It was more like the $1.5 trillion of the final value of output produced by the private sector in that year, which is taken from the national accounts and excludes the costs of public sector consumption and investment expenditures.

This figure also includes the value of purchased imports, because innovative, valuable knowledge is also embodied in the goods and services that Australians buy from suppliers located in other parts of the world.

This broad conception of innovation underlines the fact that government statutory bodies, and entities primarily funded by the public sector such as universities, are not anywhere close to being the prime drivers of innovative outcomes in an economy.

Putting it bluntly, when the writer Mariana Mazzucato argues in her book The Entrepreneurial State that government is responsible for the innovative achievements of the IT sector, she is simply mistaken.

The amazing innovations during the Industrial Revolution required no government support to bloom, whereas the academic and military originators of the internet lacked the wherewithal to commercialise it into the gloriously equalising tool for economic and social connections the world over.

And the hostile regulatory attitudes displayed by various governments in Australia, and around the world, toward the sharing economy of Uber, Airbnb and other platforms clearly demonstrate that the public sector is by no means an innovation leader.

If Prime Minister Turnbull and his eager cabinet colleagues wish for a more innovative Australia that is readily embraced by every resident, better for them not to game the market process by forcing us to accept bundles of new economic knowledge we would prefer not to produce and buy ourselves.

The best innovation policy, in other words, is one which frees up the economy in every way imaginable so that innovation is generated by entrepreneurs in the marketplace.

As part of this, to hedge against the prospect of local entrepreneurs failing to come up with good ideas we should simultaneously accept innovation values wrapped up in the form of inflowing foreign capital, goods, and people.

We shouldn't forget, either, that once existing goods and services are available then inventors and consumers should be free to tinker with them, further improving the stocks of innovative practices known to humankind.

One of the better treatments of this concept in modern times has been covered by American technologist Adam Thierer, whose principle of "permissionless innovation" states that fiscal and regulatory obstacles should be removed from anyone who is prepared to assume risk and intends to innovate.

According to Thierer, "unless a compelling case can be made that a new invention or business model will bring serious harm to individuals, innovation should be allowed to continue unabated and problems, if they develop at all, can be addressed later".

In the final analysis, we should want to encourage market-based economic activities because growth and productivity is sourced from innovation.

But when we also appreciate that innovation is embodied in everything valuable we do economically, making and selling mundane and technical products alike, it becomes clear the best strategy for the Turnbull government is a "hands-off" approach in this key policy area.

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Turnbull has golden opportunity

The question now facing Malcolm Turnbull is what to do with his 58 per cent satisfaction rating.  Being the preferred Prime Minister by 63 per cent of Australians is nice for the time being, but both Kevin Rudd and Julia Gillard were once pretty popular too.

Turnbull still has time to decide his agenda, but maybe not as much time as he thinks.  MPs get impatient with party leaders quicker than the public.  The reality is that a PM or opposition leader is more likely to be struck down by their colleagues than by the electorate.  Since 1983 the Liberal and Labor parties have each changed their federal parliamentary leader 10 times.  Only three of the changes each party made was the direct outcome of a federal election.  As traumatic as it was, the manner of Tony Abbott's removal as Liberal leader, albeit that he was the prime minister, is not unusual.

There's one thing Turnbull shouldn't spend his political capital on — and that's raising taxes.

For two reasons.  The first reason is that he shouldn't even be contemplating raising taxes.  Australia is already a high-tax country.  As the Productivity Commission pointed out a few weeks ago in its report Tax and Transfer Incidence in Australia if taxes across countries were compared on a like-for-like basis "taxation revenue as a share of GDP from all other sources would be higher in Australia than the OECD average".

The commission's finding, which confirmed my own research, received no media coverage.

The second reason Turnbull shouldn't spend his political capital on raising taxes is that raising taxes is easy.  One of the few budget measures Tony Abbott got through the Senate was increasing the top rate of income tax.  Political capital should be spent on hard stuff, not the easy pickings.

There's one thing that's even harder to do in Australia than cutting government spending, or restoring freedom of speech although it's not as hard as Turnbull seems to think it is.  Does anyone honestly believe that in a free country it should be against the law to insult someone?

What's harder than any of these things is changing the industrial relations system to make sure it is about one thing and one thing only — getting people into work.  Hopefully Turnbull will turn out to be not quite as "progressive" as his left-wing boosters in the media would like him to be.

But, if Turnbull as a Liberal prime minister is going to spend his time giving exclusive interviews to The Guardian the least he can do is use the left's own language to make the left understand industrial relations reform is a question of social justice.

Nothing could be fairer than ensuring an individual has a job.  There's nothing fair about an unemployment rate for 15 to 19 year-olds of 20 per cent.  It is unfair that an adult Australian is forbidden from choosing to work for a wage of $17.28 per hour, because a government committee has decided the minimum wage should be $17.29 per hour.

Turnbull could point out to Guardian readers that Denmark, the country they want Australia to be like, doesn't have a statutory minimum wage, and neither do Norway or Sweden.

The Prime Minister's current preferred formulation for his vision of Australia as "a high wage, generous social welfare net, first-world society" is the jargon of economists.  As Goethe said:  "Dream no small dreams for they have no power to move the hearts of men."

If Turnbull wanted to blow his political capital well and truly he could banish the terminology that dominates the "reform" debate.  He could not talk about "productivity" or "GDP per capita" and he could even abandon the three-word-Holy Grail of the Coalition — "industrial relations reform".  All of these things are merely abstract concepts.  They say nothing about human flourishing.

In their place Turnbull could say something more important and meaningful.  He could for example say something like his government will be judged on how many people who want a job have a job.  Or how fewer families live in poverty.

The Prime Minister has the chance to reset what passes for the national conversation.  He should take it.

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Lego can avoid Ai Weiwei, but it can't avoid politics

On Friday the Chinese dissident artist Ai Weiwei revealed that Lego had refused a bulk order of bricks from his studio.  The bricks were to be used for a piece that he was going to show at the National Gallery of Victoria.

Lego says it has a long-standing policy to not knowingly supply its bricks for political uses.  Yet there might be something else going on here.  In an Instagram post, Ai drew a connection between Lego's action and the recent announcement of a new Legoland to be opened in Shanghai.  He later described Lego's actions as "an act of censorship and discrimination".

On the one hand, this ban means nothing in practice.  The company may not approve of using its product for political works but Ai does not need Lego's approval.  There's nothing stopping him from buying new Lego kits from retailers, rather than from Lego directly, then doing whatever he likes.  If that fails, there's a thriving global second-hand market for individual Lego pieces.  And the artist has apparently been "swamped" by offers of donations of Lego since Friday.

When Lego declined his order the firm was no more engaged in censorship than was the Brisbane bookstore that refused to stock Campbell Newman's biography as retaliation for cancelling the Queensland Premier's Literary Awards.

On the other hand, what we're seeing here is a toy company struggling with the political implications of its own enormous cultural profile.  Lego is a very particular toy company.

The global toy industry is dominated by a few big players.  Mattel and Hasbro are two of the largest umbrella firms.  Almost every toy brand and product you can think of — Fisher-Price, Barbie, Power Wheels, GI Joe, Mr. Potato Head, Transformers, Jenga, Monopoly, Battleship, Cluedo — falls under one of those two, giant publicly listed companies.

But last year the privately held Lego trumped Mattel and Hasbro to became the biggest toy company in the world.

Unlike its rivals, Lego is based around a single, iconic product:  the Lego brick.  And unlike its rivals, it professes a peculiarly utopian ethic about the nature of play and creativity that very much reflects the era and place in which it was founded:  1950s Denmark.  The firm is still based in the small Danish town of Billund.  It is still very much animated by its founding myths.

For instance, Lego avoids making realistic military kits or weapons because its founder, Ole Kirk Christiansen, didn't want to make war seem like child's play.  Star Wars branded Lego has been central to the firm's recent success.  But as David C Robertson points out in Brick by Brick:  How Lego Rewrote the Rules of Innovation and Conquered the Global Toy Industry, Lego nearly passed on the Star Wars license because "the very name ... was anathema to the Lego concept".

Robertson's book leaves you with the impression of a company struggling to come to terms with the way Lego has been repurposed and reimagined by its own consumers.

In 2010 the firm reported that about 5 per cent of its sales come from adult consumers buying for themselves.  This is certainly an understatement, given Lego's growth since, the Lego Movie, and the fact that some parents are choosing Lego for their children partly for self-interested reasons.

Large scale Lego sculptures are a minor pop culture genre.  Lego profits from this:  the Architecture line, marketed to adults, taps into the ways consumers have been using the pieces unintended by Lego's marketing team.  That Ai Weiwei wants to use Lego for art is a reflection of its cultural symbolism.  Ai is not a pioneer here.  There are artists who work exclusively in Lego.  Hobbyists make elaborate creations.  There's a rather incredible Battle of Waterloo.

Yet Lego is not a company well-geared for political controversy.  At first glance their policy on controversial uses of their product is sound and clear.  No politics, no religion, no military.  Chinese democracy activists won't get Lego's approval, but then nor will Klu Klux Klan members.  Lego wants to remain above the grubby material concerns of politics.

Such anti-political neutrality is obviously impossible.  Whether they like it or not, Lego is a player in the cultural life of the human species, and in a way that any of Mattel and Hasbro's competing brands are not.  Lego profits handsomely from that status.  Perhaps a truer form of political neutrality would mean paying no attention to the ultimate use of bulk Lego sales.

I suspect the refusal to fill Ai's order is more a case of mindless adherence to their no-politics policy rather than a sop to the Chinese state.  But if it is the latter, with this controversy they've found themselves in the invidious position shared by firms around the world who want to service markets in unfree countries like China.

Such relationships throw up serious ethical questions.  Refuse to abide by the state's rules and deny their oppressed citizens a product you believe will better their lives?  Or obey and hope the benefits outweigh the harm of cooperation?  You can imagine the tense meetings going on right now in Billund, as news of the Ai decision snakes around the world.  They're just a toy company after all.

Milton Friedman was correct when he said that the social responsibility of business is simply to increase its profits.  But ours is a fallen world.  Businesses are also participants in our political systems as much as our economies.

Sometimes that means toy companies have to take a stand on democracy in China.  They have to choose between the Chinese state and its dissidents.  Implicitly, inadvertently, perhaps even with the best of intentions, they already have.

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Film Thor promises an Australian jobs bonanza, but don't believe the hype

Flanked by a smiling telecast of actor Chris "Thor" Hemsworth and director Ridley Scott, foreign minister Julie Bishop and arts minister Mitch Fifield last week announced some blockbuster news for the Australian film industry.

Production of upcoming films Thor III, Thor:  Ragnarok, and Prometheus 2 from the Aliens franchise would all take place in Australia, they said.

True, Australian taxpayers will be partially footing the bill, with the Australian government chipping in A$47 million to 20th Century Fox and Disney's Marvel Studios to entice them onto Australian shores.

But the benefits will far outweigh the cost, we are told.  According to Fifield:

Every job created in the film and television industry supports 3.57 jobs in other industries.  Every dollar of turnover creates turnover of $3.52 in other industries.  And an amount equal to 13-20% of spend comes back to the Australian Government in taxation, and a further 3% goes to state governments in the form of taxation.

There's only one problem:  those figures are simply conclusions drawn from economic models (called input-output models) that assume very generous multiplier effects from initial government investment.

The magic of economic models

To be fair, Fifield is quoting industry figures and a 2013 report titled Valuing Australia's Creative Industries, prepared for the Creative Industries Innovation Centre by consultants at SGS Economics and Planning.

These sorts of consultants' economic impact studies drive economists crazy because of the way they are used to imply that a change in spending will multiply through creating all sorts of new jobs.  But that's not what these models mean.

I would argue that governments do not and cannot create jobs — only markets and entrepreneurs do.  Why?  Because creating jobs is hard and requires discovering new sources of value that others had not seen.

If the figures in Fifield's assertion were correct, then surely private investors (in the form of the financing industry) would have already spotted those opportunities.

And where does this blockbuster enticement money come from?  From tax, obviously.

And when you tax an existing business, you are imposing additional costs upon it.  That destroys incentives and jobs.  So for the extra jobs and spending created by giving money to one group, you have to subtract away the jobs and spending lost from the ones you took the money from.  Usually those will be similar, so there will be zero net effect.  But the figure could even be less than zero, because of the distortion created by the political interference.

And then there are rent seeking effects, where the beneficiaries of the subsidies (the film studios) spend resources lobbying for these tax breaks.  This is unproductive spending, further compounding the waste.

So when you hear about the wonderful flow-on benefits of hosting these film productions in Australia, don't simply wonder if the numbers are inaccurate.  It's not as though it is really 2.07 rather than 3.57 broader Australian jobs that every job in the film and television industry here supports.

It's that these are not checkable facts in the first place.  They are political promises that are never subsequently verified for their accuracy as a prediction.

And this is not just true of film and television.  It's true of every sector that seeks to promote its economic impact to public spending, such as big sporting events like the Olympics or the Formula 1 Grand Prix in Melbourne, which routinely promise thousands of jobs created and enormous multiplier effects.

As always, it's worth taking such political assurances with a very large grain of salt.

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Don't blame voters for a lack of competition reform

Malcolm Turnbull should count himself lucky.  Tony Abbott has handed his successor a remarkably fleshed out agenda for economic reform.

Shortly after the 2013 election, Abbott and Joe Hockey commissioned a series of reviews and inquiries.  There was one on the financial sector, which reported in December last year.  A federation inquiry and a tax inquiry are both working their way through the system.

And then there was the inquiry into competition policy, headed by the economist Ian Harper, which released its final report in March 2015.

The last major competition policy inquiry was the Hilmer Report under the Keating government in 1993.  That report laid the groundwork for half a decade of competition policy reform.  Hockey to his credit knew what he was doing when he commissioned a sequel to Hilmer.

It's easy to forget all these reviews.  The Abbott government was so policy shy in its last 12 months.  The Harper review sunk like a stone almost as soon as it was released.

Only one of the Harper recommendations was seriously considered by the Abbott government — the so-called "effects test", which would have made it easier to penalise firms for "lessening" competition.

The effects test divided the Abbott cabinet.  It is the only major recommendation from the Harper review that would constitute an increase in regulatory interventionism.  The free market right hated it.  Small business minister Bruce Billson was the effects test's biggest advocate.  He was dropped from the ministry when Turnbull took over.  We can speculate that this was not a total coincidence.

So when Scott Morrison announced on Friday that the Turnbull Government was going to look again at the Harper review, he was wading into a deep pool.

Morrison did not commit to the effects test either way.  He did, however, specifically note the much more ambitious proposals in the Harper review:  reforms to urban planning and zoning to open up the housing market, and subjecting social services to competition.

All good stuff.  But it will be a hell of a challenge to implement any of these proposals.  It's true that the Coalition now has a minister for cities.  But all functional power in planning and urban policy lies with state governments, who created the disastrous land supply restrictions that caused the housing mess in the first place.

Likewise, the Commonwealth can cajole and bully all it likes but the ultimate responsibility for most service delivery is in the hands of the states.  Very little marketisation of social services is going to go ahead unless state governments buy in.

Last week we had an even more glaring illustration of the institutional barriers to competition reform.  The Harper Review put particular emphasis on taxi deregulation and removing barriers to the ride-sharing firm Uber.  But on Monday the Commonwealth's independent competition regulator the ACCC provisionally denied the taxi industry authorisation to launch a smartphone app, iHail.

The iHail app would have allowed users to book the closest taxi from participating taxi networks.  The ACCC thought that this would reduce competition in the taxi sector because it was a joint venture between a number of taxi networks.  You can read their draft determination.

The ACCC's arguments don't even pass the laugh test.  There is virtually no competition between taxi providers right now.  Indeed, we've had a century of regulation with the express purpose of eliminating competition between taxis.  The only real competition that is exists is between taxis and ride-sharing services like Uber.

But the ACCC has decided that, because the legality of Uber is still unclear, for the purposes of competition law taxis do not compete with Uber.  (You can see this rather astonishing claim on page 21 of the draft determination.)

Therefore the ACCC believes that taxi companies collaborating on an app endangers the taxi market — rather than being an example of how competition from Uber is encouraging taxis to offer a better service.

Malcolm Turnbull and Scott Morrison should be looking at this draft decision closely.  Not because its specifics are particularly important.  The ACCC might well change its mind on the scope of taxi competition before it releases a final determination.  And as the Harper review noted, even a completely deregulated taxi market reform would do little to boost total Australian productivity.

But Harper thought taxi deregulation was important because failure to do so symbolised a lack of seriousness in competition policy.  The ACCC draft determination is important.  It's a warning.  We now have a legal framework where firms have to request permission from the government to innovate.

In an influential short book, the American technology scholar Adam Thierer argued for "permissionless innovation".  Thierer argues that if we want take advantage of technological progress, we must remove the approvals, authorisations and clearances that innovators and entrepreneurs need from government before they bring ideas to market.

For years commentators have complained that the era of economic reform is over.  In the most common version of this story, any attempt to restructure the Australian economy will be scuttled by a hostile Australian public.  This is really just blaming voters for the failures of the political class.

In fact, what is more likely to hold back economic reform is government itself:  the network of interests and institutions that believe their job is to supervise the innovation economy.

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Globally, extreme poverty closer to becoming history: World Bank

Don't believe the hype:  the poor are not getting poorer, either in Australia or globally.

There has long been a sense of gloom regarding living conditions experienced by those in outright destitution, and others struggling to make ends meet on a regular basis.

Arguably the most forceful voice in the world today concerning these issues is that raised by the head of the Catholic Church, Pope Francis, who has gone on a mission to focus upon the plight of the impoverished.

In his much debated encyclical letter, Laudato si:  On care for our common home, he urges people to be "particularly indignant at the enormous inequalities in our midst" because, in some respects, "we fail to see that some are mired in desperate and degrading poverty, with no way out".

Although Francis is particularly concerned about the relationships between poverty and environmental degradation, which is partly affected by what he sees as immodest consumption in rich countries, his key writings do tap into a chord of greater worry expressed in recent years.

Of course, there is a certain intersection between material poverty and the observation that inequalities within income and wealth distributions have been widening lately, with the words of Francis and others, such as Thomas Piketty and Joseph Stiglitz, tapping into the veins of concern in this regard.

I would humbly submit it is obvious there is poverty in this world, which needs to be countered, but by the same token let us not harbour fears out of all proportion that the poor, as a whole, are necessarily getting poorer.

The key point here is the rich are getting richer and the poor are getting richer, too, or at least certainly less discomforting.

Just last week the World Bank released a report examining global trends in extreme poverty rates, and came up with a stunning finding that countries around the world are getting closer to the threshold of making extreme poverty history.

According to the report, the number of people living in extreme poverty (defined at an international poverty line of $US1.90 a day, or $US668.80 per annum) is likely to fall at below 10 per cent of the global population by the end of this year.

The World Bank has projected that the extent of global poverty has fallen from 1.96 billion people, or 37.1 per cent of the global population, to 702 million people (9.6 per cent of global population) this year.

It should be obvious even to the casual observer of global trends that a precipitous decline in poverty in East Asia and the Pacific region, including China, is helping to make the worldwide anti-poverty drive a reality, reducing the numbers of extremely impoverished people from 999 million people to 83 million from 1990 to 2015.

Now, it is true that not every region has experienced an absolute decline in poverty, with 63 million more people in sub-Saharan Africa earning below $US1.90 a day since 1990, but the declining representation of poverty in population shares is a general global and regional observation.

Turning now to Australia, there is virtually nobody in this country earning below the international standard poverty line set by the World Bank, certainly if 2011 research by the American Pew Research Centre is of any guidance.

Australia is a developed country by international standards, by and large, thanks to its market-based economy, even if fettered by taxes and regulations and, also in part, because of large-scale public sector redistribution running over the top.

But even in these circumstances, one is also prone to hear the argument there is still widespread poverty in Australia, even if what we conceive of as being poverty is nothing like what is experienced in many other locations around the world.

Importantly, the claims of an extensive Australian poverty remains the key rationale for ever more demands for fiscal, and to a lesser extent regulatory, measures to shift resources from the rich to the poor.

Regardless of whether we believe extra redistribution is prone to help or hinder (and I find myself in the latter category), the truth is that across several dimensions those disadvantaged Australians are sharing in the improved living standards most of the rest of us enjoy.

My research shows average income by the bottom 20 per cent have risen, average life expectancies for people living in disadvantaged areas is increasing whilst mortality rates are falling, and educational attainment is also on the improve in low socioeconomic locations.

Comparing the affordability of goods, proxied by the amount of time it takes for a labourer on a low income to buy a good outright, also bears the hallmarks of dramatic improvement we often overlook in the poverty debates.

That those in poverty are being lifted up along with the rest of us is even more starkly illustrated when comparing the conditions of life between now and a century ago.

As an example, diseases that wreaked havoc in poorer communities in places such as Sydney and Melbourne 100 years ago, such as diphtheria, polio, tetanus and tuberculosis, are thankfully pretty much long forgotten today, even in less advantaged communities.

The general lot of people has improved, even for those at the lower rungs of the distribution of financial resources, but we still want to ensure that poverty, indeed, becomes history.

The most effective formula for anti-poverty success here in Australia is fairly much the same as it is anywhere else in the world, and that is forging and maintaining good institutions giving everyone a shot at prospering.

It is no coincidence that as poverty has abated, economic freedom has increased in degree, both here and abroad, during the past 20-odd years.

As a number of empirical studies about the relationship between economic freedom and poverty reduction have shown, more freedom has added in new rungs on the economic ladder of opportunities for all to climb up, once some of the worst forms of central planning and political interference have collapsed.

We shouldn't fall for the hype that the poor are strictly getting poorer, and future discussion during Anti Poverty Week could be greatly enhanced if we can start talking about how economic freedom helps dissolve poverty out of sight.

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The ACCC is ripe for disruption

Monday's decision by the Australian Competition and Consumer Commission to ban the use of iHail, a smartphone application to book taxis, is yet more proof its attitude to competition and innovation is outdated and old-fashioned.  The ACCC of 2015 would have been right at home in the Australia of Gough Whitlam in 1975.  There is no role for it in the age of digital disruption.  If anyone at the ACCC had ever come across the term "creative destruction" their first reaction would probably have been to ask "how do we stop it?"

On these pages in 2004, I wrote that unless the ACCC's powers were restricted it should be abolished.  In the 11 years since the ACCC has got from both Coalition and Labor governments more money and more power.  Just on Tuesday the Turnbull government announced it was giving the ACCC an extra $1.4 million to enforce new rules against "unfair" contracts for small business.  In 2014 the government gave the ACCC $179 million.  The year before it got $150 million.  With this money it makes stickers for people to put on their letterbox to warn off door-to-door salespeople.  In its so-called "horror" first budget the Abbott government cut welfare by $3 billion but it didn't dare touch the ACCC.  Its budget was merely kept at it was.  Meanwhile, the ACCC boss Rod Sims complains of his "constrained financial environment" and his "significantly fewer resources".  If he really wants to know what a "constrained financial environment" looks like he could go to work in the private sector with the people who pay the taxes that pay his salary.

MORE CONVENIENT WAY

In simple terms, the ACCC ruled against iHail because it is the product of a joint venture between a number of large taxi companies and the ACCC had the opinion that it would be impossible to say whether any future success of iHail would be because of its inherent advantages or because it was going to be used in lots of taxis.  If it was the latter, then iHail would be against the law because the "market power" of the large taxi companies would be being used to have an impact on competition from other taxi booking applications.  It took the six ACCC commissioners 19,000 words to make this single point.  The best part of this whole sorry story is that the ACCC admitted iHail would be a "more convenient way for consumers to book taxi services" but it would come at "too big a cost to competition".

This is one of the most starkly absurd decisions the ACCC has made, probably in its entire history.  In the midst of a furious contest between taxis and Uber, the ACCC has decided to cripple the taxi companies' ability to innovate in response to competition.

READ AND WEEP

If anyone has ever wondered what government regulators do all day, they can go to the ACCC website and read the correspondence between the ACCC and iHail's lawyers.  They can read — and weep — about how in making its decision the ACCC wanted to know from iHail its "view about the extent to which the iHail app may provide an incentive, or disincentive" to compete on things like price and service levels.  This is a completely hypothetical and speculative question and in any case the answer is "who cares?"  The idea that if iHail is better than the alternative people will use it and if it isn't they won't seems to be beyond the comprehension of the ACCC.

Any entrepreneur giving an honest answer to such a ridiculous question would say "I hope my product is so amazing that everyone buys it, all my competitors go out of business, and then I IPO the company and become a billionaire".

A month ago, at his press conference held minutes after becoming Liberal leader, Malcolm Turnbull said:  "The Australia of the future has to be a nation that is agile, that is innovative, that is creative."  Turnbull is right, of course.  Unfortunately that future won't eventuate if the Australian Competition and Consumer Commission has anything to do with it.

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Alcohol and the nanny state inquiry: This isn't just about money

It's one of the most cited numbers in Australian politics:  alcohol costs Australia $36 billion every year in preventable death, illness, inquiry and lost productivity.

Unsurprisingly it has become a centrepiece of the Senate inquiry into personal choice and community impacts — you might know it as the "nanny state" inquiry — which began its hearings last month.

In their submissions to the inquiry, the Australian Medical Association, the Alcohol Policy Coalition, the Foundation for Alcohol Research and Education, the Public Health Association of Australia, the Royal Australasian College of Physicians, and the Australasian College for Emergency Medicine all cite the $36 billion figure to variously justify higher taxes on alcohol, or more controls over alcohol supply, marketing and licensed venues.

The media loves this number, mainly because they love big numbers.

Public health activists and academics love this number too, because they hate being called nanny staters and wowsers.  The $36 billion figure is useful because it purports to take the question of whether government should regulate people's personal choices out of the domain of morality and philosophy and into the domain of economics and rationality.

But it is absolutely meaningless in any policy-relevant way.

And it ironically reveals how philosophical questions cannot be separated from the debate over paternalistic restrictions on alcohol.

The figure comes from a 2010 study conducted by the Alcohol Education and Rehabilitation Foundation.

The 13 authors of the paper came to $36 billion by piling on as many "costs" of alcohol as they could imagine.  They took the full kitchen sink approach.  They included everything from the lost productivity of workers affected by alcohol, to the cost of hospitalisation of children who have been abused by adults believed to be affected by alcohol.

Even where the connection to alcohol is tenuous — the fact that some crimes are committed by people who have alcohol in their system does not mean that alcohol causes those crimes — they derived costs and added them into the big headline number.

It is a credit to their creativity that the authors managed to add a further $20 billion to the $15 billion social cost of alcohol found by a study published by the Commonwealth government in 2008.

But the policy question is not whether alcohol consumption has costs.  All choices have costs.  The question is whether those costs outweigh the benefits from alcohol consumption.  Costs are meaningless if they are not paired against benefits.

And as the economists Eric Crampton, Matt Burgess and Brad Taylor point out in an important paper, these sorts of social cost studies dismiss the benefits of alcohol by leaning heavily on an assumption that drinkers are uninformed or irrational, and therefore do not really "benefit" from drinking.

It's a revealing move, because it shows how even this most rationalistic and economistic argument for alcohol regulation ultimately comes down to an assertion that people just don't know what's good for them — and that others do.

In fact, as the 2008 study found, the direct costs to the public healthcare system of alcohol consumption are much more modest:  about $2 billion a year.  This might still seem like a lot.  But the government received more than twice that from the excise on alcohol sales:  $5.2 billion.

You often hear in debates about paternalism that the government wouldn't care about what we ate or drank if it weren't for the fact that taxpayers pay for the consequences of those choices through the public health system.  Hence we need to regulate alcohol and reduce alcohol consumption for the budget's sake.

Even if the excise on alcohol didn't more than recover the direct healthcare costs of alcohol, this would still be one of the most counterproductive arguments in politics.

First, the argument suggests that a public health system is incapable of handling the freely-made health choices of its customers.  Second, it suggests that the corollary of public health provision is state control over our bodies and what we choose to put in our bodies.  And third, it suggests that there is no "right" to public health care — rather that access to health care is contingent on making the correct health decisions.

Far from being a defence of the nanny state, this argument looks like a rather powerful attack on the notion of a publicly funded and universal health care system.  I'm guessing this is not the intention.

Helping launch the nanny state inquiry last month Sam Dastyari told the ABC that "ideology has just been dead in Australia for too long.  Let's actually have some big debates, let's have some different views".

Like it or not, the debate about restricting what we drink, eat and otherwise consume cannot avoid ultimately considering deeper philosophical questions about the relationship between individual and government.

Why the Reserve Bank isn't the right regulator for our payments system

Sometimes boring debates are important.  Mind numbing detail gets in the way of good policy.  So it is with an obscure feature of credit cards known as "interchange fees".

At the moment these fees are both highly regulated, and inappropriately regulated by the Reserve Bank of Australia (RBA) and not the Australian Consumer and Competition Commission (ACCC).

People tend to overlook the complexity of the market economy.  It seems all so easy.  People trade goods and services all the time.  The Payments System is how we actually pay for things.  It isn't simply a matter of handing over cash — the Payments System is a complex technological infrastructure, a web of interconnections and protocols between consumers, merchants, and banks.  Cash makes up a part of that system but most of it runs on payments technologies that include debit cards, eftpos, and credit cards.

Here is where things get wonky — how many people actually understand how their credit card works?  Most people simply swipe their cards and all the "backroom stuff" that actually facilitates the transaction happens.  Card payments are very convenient for everyone.

But there is no such thing as a free lunch or a costless transaction.  All the technology and organisation that underpins the credit card system has to be paid for.  The costs can either be paid by consumers, or merchants, or some combination of the two.  That is where the so-called interchange fee comes in — historically merchants have paid the costs of operating the credit card system.

All that started changing in 2003, however, when the RBA began regulating interchange fees.  The rationale being that interchange fees were somehow monopolistic and the costs of operating the Payments System too high.  We have argued that this policy was a mistake.

Here we want to address a more general question:  Why is the RBA regulating interchange fees at all?

At first glance this seems a bit trivial.  After all the RBA is responsible for the conduct of monetary policy and it sets the overnight interest rate.  Credit cards are about money too, so it's obvious that the RBA should be involved in regulating them too.

Actually, no.

The main argument for why the regulation of the payments system remains with the RBA can be summarised, in essence, as "because it has been with the RBA since 1959".  There is no strong or explicit case for positioning the oversight and regulation of the payments system within the RBA.  There are a number of implicit arguments that can be approximated as follows:

• That the payments system has some connection with the monetary system — payments are made in money, and because the RBA controls money, it should also control payments.
• Interchange fees are connected to credit cards and credit cards involve interest rates — monetary policy involves interest rates, ergo the RBA should regulate interchange fees.  (This is a variant of 1 above).
• The payments system is a utility, (albeit run by the banks) or public good.  Therefore the central bank should regulate this.
• The RBA has acquired historical experience in oversight and regulation of the payments system, and so it should continue in this role.
• The RBA should regulate the payments system because it can regulate the payments system.

It does not require a great deal of logical skill to disassemble these arguments:  (1) and (2) are fallacies of composition;  (3) is an empirical claim;  (4) is the induction problem, and (5) is the naturalist fallacy.  The point is that none of these are solid economic arguments, each can be picked apart logically and empirically, and all carry a large amount of expediency.

The Payments System is not a public good and not a utility.  Rather it is a suite of technologies and organisations, that is, an industry.  It is useful to think of the payments system as a network infrastructure that has cumulatively emerged from entrepreneurial actions, as the economy has grown and developed, in order to facilitate the transaction needs of a market economy.

By contrast monetary policy is a utility, and monetary stability is a perfect example of a public good.  It is both non-rivalrous and non-excludable.

While there is no good economic argument for the RBA to regulate interchange fees, there are good arguments why it shouldn't.  In short — it is likely to be a distraction from the RBA's main function.

Monetary policy is a specialisation based on the theory of both monetary economics and macroeconomics.  It is built around the analysis of interest rates and various indices (inflation, asset prices, aggregate demand, GDP, unemployment, industrial production) and involves an understanding of emergent aggregates, transmission mechanisms, and macro-econometric models of economic systems.

Regulatory economics is, in essence, the study of the social control of business and is a very different branch of economic theory and practice to monetary economics.  It is entirely based in microeconomic theory (not macroeconomics) and is focused on private market behaviour under different degrees of competition (from perfect competition to monopoly).

So the RBA has no comparative advantage or good reason to regulate the Payments System.  Australia already has a specialist agency to regulate industry — the ACCC.  So in the first instance we argue the RBA should be stripped of its regulatory powers and focus its entire attention on monetary policy.

Of course once we recognise that the Payments System is an industry rather than a utility, the question arises why government would fix prices in that industry.  So whether the ACCC should fix prices is an open question of competition policy.  Our argument here is that the RBA has no business in regulating industry.

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Projects like Adani's are vital to lift India's millions out of poverty

Recent comments by India's Energy Minister Piyush Goyal should be compulsory reading for opponents of both the proposed Adani coal mine in the Galilee Basin and possible Federal Government amendments to national environmental legislation to deter vexatious environmental action.

Goyal reportedly told attendees at a Bengal Chamber of Commerce Environment and Energy Conclave last month that coal-based thermal power would remain "the staple power source for India".

He pointed out that most Western developed countries had "enjoyed the fruits of low-cost affordable thermal power for the last 150 years ... built their roads and ports, railways, airports, created large infrastructure and given jobs to their people", but that "today, we are being told about climate change ... without taking into account the concerns of the poor of India".

He added that:  "For the last 150 years, the West had coal — they reached a stage of development with $40,000-$70,000 per capita income and want poor Indians with $2000 per capita income to reduce use of coal ..."

This moral dimension should be kept in mind when people debate the desirability of increasing Australian coal exports.

Affordable electricity fuels the production and safe storage of food, clean drinking water, the mass manufacture of clothing and housing, the ability to heat and cool our living and working spaces, access to and safe storage of medicine, and improved transport options.  In other words, a better quality of life.  At least 300 million people in India have no access to electricity, and about 815 million people still rely on wood, dung and crop waste for cooking.

The United Nations has predicted that an extra 404 million Indians will live in cities by 2050, which will itself drive demand for additional grid power.

Narendra Modi's Government's new "Make in India" initiative, which aims to transform India into a new global manufacturing hub, will also necessitate significant investment in the size, quality and reliability of its electricity network.

Yet, while the Indian Government is exploring all options to improve the living standards, health, housing and employment prospects of its people, environmental activists in Australia seek to deny Indians the fuel to achieve this goal.

The International Energy Agency predicted that India will add another 342 gigawatts of coal-fired generation capacity before 2040, will overtake the US as the world's second biggest coal importer by 2020 and the world's largest coal importer by 2025.

New power station standards from 2017 will necessitate the importation of higher quality (i.e. high energy, low emissions) black coal, the type of which Australia, and Queensland in particular, has in abundance.

I published new research in June 2015 that found, using very conservative figures, that exporting an additional 120 million tonnes of high-quality Australian coal each year would enable 82 million Indians to access a regular and reliable source of electricity annually.

That Australia should take the opportunity to meet this demand, especially when cleaner Australian coal would replace lesser-quality Indian or Indonesian product, is a no-brainer.

As taxpayers, we should be grateful when any company, large or small, Australian, Chinese or Indian, seeks to invest in our country, employ people, build infrastructure and contribute to our enviable lifestyle by paying us taxes.

It is world demand for thermal coal that is driving new mines, not the other way around.  If the costs didn't add up, the private sector wouldn't want to invest its money.

It should be the genuine need of the market that determines whether a particular mine gets off the ground, and the final destination of its product.

The environmental movement can't be too confident of coal's "inevitable demise" when it is so desperate to increase taxes, shut mines, run court cases, ban new mine development and sponsor divestment campaigns.

If we are hungry, we can just go to the fridge, or put something on the stove.

If we feel hot or cold we can just turn on the airconditioner or heater.

If we need electricity we just put a plug in the socket.

Coal is the world's most important source of power because it is cheap and plentiful, and can run 24/7.  Solar and wind technology is yet to overcome the intermittency problem, and can't fully power a modern industrial economy.

Let's proudly help the citizens of the world's largest democracy to achieve a higher standard of living and reduce poverty.

It's cynical to attack business as a proxy for government

In a recent speech Human Rights Commission president Gillian Triggs argued that businesses should be held accountable for governments' violation of human rights breaches.  This is in the context of Australia's offshore mandatory detention policy.  Writing in these pages a week ago, The Australia Institute's Richard Denniss made much the same argument.

The logic underpinning this argument is cynical:  it is difficult to hold government to account when it acts "illegally", but it is easy to hold business to account.  Bullying business becomes a substitute for lobbying government to change its policies.

This anti-business strategy dresses itself up in economic terms.  Those businesses that engage in immoral or illegal behaviour will lose customers and/or find it difficult to attract long-term shareholders and/or borrow money from financial institutions.  Parallels are drawn with the 1980s anti-apartheid divestment campaign and the current fossil fuel divestment campaign.  It seems all so reasonable.

To be clear:  Australia's mandatory detention system is deliberately harsh, and the existence of offshore detention camps is immoral;  if it were illegal, however, the High Court would have said so.  It isn't clear that a campaign of vilification against business is a solution to that harshness and immorality.

The fact is that opposition to Australia's offshore detention policies is a minority position.  Offshore detention is very popular with the electorate.  We saw that in the popular response to the Tampa crisis and the outcome of the 2001 election.  We saw that again at the last election when both the Labor Party and the Liberal Party tried to outflank each other on how tough they would be on border protection.  Those of us who oppose Australia's bipartisan harsh approach to asylum seekers have lost the political debate.

OPPOSITION IS TO PROFIT MOTIVE NOT THE POLICY

As such, the campaign against Transfield Services, soon to be renamed Broadspectrum, is a proxy political fight.  The fact is the government has contracted the running of a government program to the private sector.  It isn't the private sector that is immoral but rather the government program itself.  It is here that people are getting themselves confused — their opposition is to the profit motive and not the policy.  Does anyone really believe that the offshore detention camps would be a more palatable and moral proposition if run by the government itself?  Perhaps people think that some other company rather than Transfield Services would make a difference.  But why?  The government sets the terms of the contract and any other organisation would have to comply with the same contract Transfield has agreed to.  The problem here isn't Transfield, it is the government.

The thing is this:  publicly listed companies have greater levels of accountability than do governments.  In the first instance they are accountable to their shareholders on a day-by-day basis.  If they perform poorly, or their business practices deviate from community norms, their share price will be marked down.  Governments, on the other hand, face the electorate once every three years.  Compared with public companies, the business of government is complex, opaque and secretive.

It cannot be unethical for a business to tender for a government project that enjoys bipartisan support and widespread legitimacy within the electorate.  The profit motive itself cannot be unethical.  The profit motive underpins consumer sovereignty, which in turn ensures producers produce those goods and services that best meet the needs of the broader community.  The profit motive serves us well — it ensures business provides the best "bang for buck" in meeting consumer needs.  It ensures resources are conserved and employed in their best and highest-value uses.

Earning a profit is ethical behaviour.  Those businesses that deviate too far from community standards and values will quickly find themselves being unprofitable.  The campaign against Transfield Services and so many other businesses is not about those businesses being unethical or behaving illegally, but rather a campaign about the profit motive itself.  Business is a soft target.  Ironically the very mechanisms that make business especially accountable can be deployed by anti-business activists to wage proxy fights against government policy.

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Tax reform a false start in pursuit of economic growth

The new Turnbull government should stop talking about tax reform.

Tax reform is a poor use of its political capital.  It is a waste of the goodwill Malcolm Turnbull brings to the prime ministership.  The challenge Turnbull faces is not to make our tax system slightly more efficient.  The challenge he faces is how to make the economy grow.

When he became Treasurer, Scott Morrison stated that the Commonwealth has a spending problem, not a revenue problem.  That is, the government wants to focus on spending cuts rather than tax increases.

This is excellent, as far as it goes.  But in truth our real problem is growth.

The International Monetary Fund estimates that the Australian economy is going to grow just 2.5 per cent this year.  Back in the Howard years, growth averaged 3.7 per cent a year.  The Reserve Bank governor has publicly speculated that our lower growth might be the new normal.

If you want to blame the stubborn budget deficit on anything, blame it on this.  John Howard, Kevin Rudd, Julia Gillard, Tony Abbott, Malcolm Turnbull:  they've all been riding the waves of our growth figures.

Some governments have made the problem better and some have made it worse, but the simple fact is that policymakers can no longer rely on the same level of growth that once delivered windfalls to the Commonwealth budget.

The focus on tax is a distraction.  Ever since Kevin Rudd commissioned his own Treasury Secretary to conduct a "root and branch" investigation of Australia's tax system in 2008, tax reform has been an obsession of governments.  Joe Hockey was only following Labor's lead when he launched the Coalition's tax reform process.

It is true that the tax system could be made more economically efficient.  It would be more efficient for taxes on income to be further replaced by taxes on consumption.  This is why many economists have said that the GST should be raised and personal and company tax reduced.  Morrison has been talking about this possible trade-off already.

But it's hard to see why this is a national priority.  Efficiency isn't the only thing we want from a tax system.  Indeed, a theoretical insistence on efficiency was what gave us the Rudd government's mining tax;  a tax which was understood by a tiny fraction of the population but was the inexplicable and unhappy centrepiece of Labor's economic agenda.

And while efficiency makes it easier for governments to extract more money out of us, is that really such a virtue?  We ought to know when we are being taxed.  Voters need to know what their government is doing.  They need to know how taxes are raising the prices of the goods they buy and reducing the money they have to buy those goods.

A budget emergency is the worst time to conduct tax reform.  There's not a person in the country who believes the economy will escape this round of tax reform with a lower total tax burden.

Every incentive in the Treasury department is to edge taxes up.  That's why Joe Hockey cracked down on so-called corporate tax "avoidance".  That's why the GST is now to be levied on online purchases.  And anybody who thinks eliminating superannuation "concessions" will help the economy has rocks in their head.

It's all incredibly counterproductive because the fixation on revenue and tax increases actually holds back the growth we need to encourage.  Taxes take money out of the productive parts of the economy.  Perhaps the government thinks it might be able to use its revenue to lay the foundations of growth — by investing in infrastructure and private education.  In practice, too much of this investment goes to white elephants and degree mills.

Governments — directed as they are by professional politicians with their eyes on marginal seats and swinging voters — aren't that good at spending our money wisely.  Turnbull needs to be careful his interest in innovation doesn't become a stream of taxpayer-funded boondoggles.  Much better to revitalise the Coalition's flagging deregulation agenda, refocus on industrial relations, and eliminate any regulatory burdens holding back employment and production.

Even the constant drumbeat of tax reform is likely to be harming growth.  We've been talking about tax reform for nearly a decade.  Uncertainty about Australia's future tax regime makes companies less eager to invest.  They know the tax system is probably going to change.  They don't know when, or how.

But there's a deeper reason Turnbull should fixate on growth rather than taxes.  Higher growth means increased living standards.  Higher growth means a more prosperous Australia and more prosperous Australians.  This — not spending, not revenue — should be what keeps Malcolm Turnbull and Scott Morrison awake at night.

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Don't complain about TPP pharmaceuticals, we already free ride off US consumers

Trade and Investment Minister Andrew Robb, with support from the Greens and Australian public health groups, was apparently "under pressure not to cave in the US on data exclusivity on biologics" in the just completed round of Trans-Pacific Partnership trade negotiations.  In fact, according to the AFR he "stared down the US on big Pharma".

Mr Robb presented himself as fighting for the Australian public health care system by holding firm in an intellectual property battle against big greedy US pharmaceutical companies who want provisions that will cost sick Australians hundreds of millions of dollars.  The media optics are clear about who is on the side of good and who is on the side of evil in this fight.

But biologics are extraordinarily expensive, difficult and risky to make.  All the huge costs are upfront, with very small marginal costs.  The spectacular economics of a few blockbuster drugs need to be set against the enormous costs, and often losses, of the many stages of testing and developing safe and effective new biologics.

So who pays for this?

The reality is that the US healthcare consumer pays for most of this — this is why the US spends a much larger fraction of its GDP per capita on healthcare (about 17.4 per cent) than Australia (about 9.8 per cent).

Let me put that more starkly — Australian healthcare consumers are free-riding on US healthcare consumers.  Sick people in the US are paying more so that sick people in Australia can pay less.  That's the issue here.  This is about fairness and Australia doing its part to pay its share of the cost of developing life-saving drugs that benefit everyone in the world.

The Greens position is particularly hypocritical here, and seems driven by instinctual hatred of multinational companies, particularly US ones.

Yet this situation is no different to a global climate change treaty or refugee agreement, where there is a basic collective action problem in which everyone benefits if everyone cooperates, but that it is in every country's strategic private interest to defect.

By refusing to concede more than five year's exclusivity, Australia is playing defect in this global game.  That means someone else has to pay, or, worse, new drugs will never be developed because they cannot profitably rely on just the US market.

Now maybe our negotiators have appeared to "win" and we will get away with this.  But it is not a proud moment.  Letting others carry the heavy load is not what Australians do.

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UN sustainable development goals won't help the poor

The UN ratified its Sustainable Development Goals (SDGs) a month ago.  $US2.5 trillion of foreign aid spending between 2015 and 2030 will be devoted to achieving them.  UN Secretary-General Ban-Ki Moon says they are a plan “for ending poverty in all its dimensions, irreversibly, everywhere, and leaving no one behind”.  He is wrong.  The SDGs are inefficient, driven by politics and misdiagnose poverty.

Unfortunately, it is poor people themselves who will suffer as a result of foreign aid programs that are less effective than they could be.

The SDGs are supposed to build on the work of the Millennium Development Goals (MDGs) which expired this year having run since 2000.  But whereas the MDGs consisted of 8 goals with 18 targets, the SDGs consist of 17 goals with 169 targets.

The SDGs fall into the trap common amongst big multilateral foreign aid organisations of trying to fix everything, rather than working in the areas where they can have the biggest impact.  In attempting to be everything for everyone, the SDGs have only succeeded in becoming a disparate wish-list for the development community.

As a result, the 169 targets are both too ambitious and too specific.  For example, goal 1.1 seeks to “eradicate extreme poverty for all people everywhere” whilst goal 14.9 wants to “provide access of small-scale artisanal fishers to marine resources and markets”.

This is because the establishment of the SDGs and future discussions about funding them are intensely political processes.  Foreign aid has often been a political tool.  The strategic, economic and political imperatives of donor and recipient nations are regularly placed ahead of the people foreign aid is intended to help.

To overcome this problem, Danish economist Bjorn Lomborg constructed a rigorous cost-benefit analysis on each of the SDG targets.  He whittled the list of 169 down to just the 19 most impactful targets.

That is not a hard-nosed "economic rationalist" approach to foreign aid.  It is about to trying to ensure development has the greatest impact for the people who need it.  Foreign aid can't fix everything but as development economist William Easterly says, it can help some people some of the time.  The fact that the SDG process is political and ideological means the kind of foreign aid the goals offer isn't as helpful to poor people as it could be.

But there is a far more basic problem with the SDGs.  They treat the symptoms of poverty, rather than the cause.  Poor people are poor because they have been prevented from participating in free markets.  This is because free markets are the best drivers of economic growth, which in turn provides access to health, education and other things the SDGs are trying to achieve.

Economic growth means governments collect larger taxation revenue, leading to more effective public provision of hospitals, schools and more.  It also allows access to private sectors in health, education and other fields.

No country has developed successfully without some measure of free markets.  The evidence of this is absolutely manifest in the last few decades.

In China, free market reforms such as allowing international trade, removing barriers to private enterprise and reducing state control of agriculture have lifted 680 million people out of poverty since 1980.  Furthermore, World Bank economist Martin Ravallion believes economic growth in other developing countries has lifted 280 million people out of poverty since 2000.

These gains have been underpinned by growing economic liberalisation in some parts of the developing world.  The Cato Institute's Economic Freedom of the World Report 2015 found that economic freedom has increased significantly since 1980 and that countries that are economically freer are almost always more prosperous.

As outlined above, it is this enlarged economic power that secures the social outcomes the framers of the SDGs are attempting to achieve.

In addition to these social benefits, unhindered participation in markets also achieves many of the non-material aspirations of the SDGs, such as reducing discrimination against women and minorities.  Evidence suggests increased market participation by a community generates greater social tolerance within it.

A recent study found that the economic liberalisation in India has partially eroded the caste system.  Increased female entrepreneurship precipitated by microfinance has been shown to reduce domestic violence and gender discrimination.  Swedish economists recently found that countries with greater economic freedom were more likely to have greater tolerance of gay people.

In light of the economic, social and moral benefits of economic growth precipitated by free economic participation, the solution seems clear.  Foreign aid must be focused on removing the barriers that prevent poor people from participating in free markets and facilitating the development of markets that benefit poor people.

The SDGs are unwieldy, political and inefficient.  But in treating the social symptoms of poverty, rather than the core economic reality, they also miss the point.  Poverty is best relieved not by cherry-picked initiatives or well-intended handouts.  It's relieved by giving the poor the ability to participate in the economy.  The framers of the SDGs — apparently the world's best and brightest development minds — ought to realise that.

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The tide is turning on penalty rates, but how far will Turnbull go?

All the ducks are lining up for changes to penalty rates under the Turnbull Government.

First, there's political momentum:  the employment minister Michaelia Cash is open to changing to penalty rates.  The Energy and Resources Minister Josh Frydenberg supports changes.

Warren Entsch, Dan Tehan, Russell Broadbent, Wyatt Roy, Sean Edwards, Craig Laundy, Alex Hawke, George Christensen, Dennis Jensen, Zed Seselja and Andrew Nikolic support changes.

Obviously aware of this drum beat, Malcolm Turnbull has signalled he is open to penalty rate reform.

Second:  penalty rate reform is backed by analysis that looks both independent and authoritative.  The Productivity Commission's draft report into Australia's Workplace Relations Framework, released in August, recommended that penalty rates for Sundays be reduced to the same rates as those on Saturday for hospitality and retail workers.  The PC argues this would boost both employment and consumer choice on Sundays.  (The PC's final report will appear in November.)

Third:  penalty rate reform might not be that challenging a contest.  Bill Shorten is hardly up to the task of a debate on minor industrial relations changes.  Yesterday he claimed penalty rates were the difference between parents sending their children to a public school or a private school.

Clearly, WorkChoices hyperbole infects both sides.

It's been a decade since the Howard government announced WorkChoices in May 2005.  The penalty rates debate is deeply symbolic.  Being able to move, even in a small way, on penalty rates would be a major arrow in Malcolm Turnbull's quiver.  Industrial relations has always been the high ground of economic policy in this country.

In fact, reducing Sunday penalty rates would be a very minor reform.  The Productivity Commission is usually parodied as a bunch of dry-as-dust economic rationalists.  But their penalty rates recommendation is hardly revolutionary.  They have rejected any change to penalty rates for long hours or night work.  And workers not employed in the entertainment, retail and hospitality industries would keep their Sunday rates.

Indeed, their whole workplace relations report is cloyingly moderate.

Take, for instance, the PC's conclusions on the minimum wage.  Back in January the PC wanted to prove once and for all whether minimum wages cost employment.  (I wrote about this ambition in The Drum at the time.)  Yet the draft report concludes "it is not possible to pinpoint the impacts of minimum wages on employment".  And despite admitting that the minimum wage mainly favours middle income households and there are better anti-poverty devices than the minimum wage, it believes that the minimum wage is good policy.

More generally, the PC report holds firmly to the idea that there is unequal bargaining power between employers and employees thanks to labour market "frictions" — things like how hard it is to find new work.  (Without those frictions employees would play firms off against each other for higher wages.)

The PC does nothing to challenge the popular belief that unregulated labour markets are unfair to workers.  Quite the opposite:  the PC implicitly agrees with the union movement that the world of employment is characterised by exploitation and inequality.

The PC should have challenged that belief.

Labour economists often say that labour is unlike any other commodity because many low wage labour markets are characterised by "monopsonistic competition".  This refers to situations where buyers have quasi-monopoly power and can effectively set wages in their favour.

But every commodity is unlike any other commodity.  While the idea of monopsonistic competition is an interesting theory, it is hard to see how such competition would be sustained in the real world, where every market imperfection is an opportunity for entrepreneurial disruption.

To be fair to the PC, they're reflecting a stream of economic scholarship published in the last two decades that seems to suggest labour markets function in this strange way.

But that scholarship is the centre of an extremely active debate.  Nor is there any consensus on what the strange behaviour of this market might mean for labour market law.

After all, regulation can create monopsony effects.  In this sense, labour market regulation is a self-fulfilling prophecy.  When you make it harder to hire and fire workers, you might create the frictions that reduce workers' bargaining power.  That lesser bargaining power means we need to regulate hiring and firing even more.  And round it goes.

Nobody expects the Turnbull Government to push radical labour market deregulation right now.  We're having a penalty rates debate precisely because it is such a small area of dispute.

After all, the PC only called for aligning Sunday penalty rates for entertainment, hospitality and retail workers with the Saturday rate.

Under Tony Abbott the Coalition government wasn't even game to consider that.  Abbott and his industrial relations minister Eric Abetz ran a mile when the PC released its draft report.

If Turnbull can't bring in this small change, then the possibilities for more substantial labour market reform in the future are slim indeed.

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Pharmaceutical sector in need of bracing reform

For better personal health outcomes, and for the fiscal health of the nation, the byzantine system of pharmaceutical regulations needs drastic renovation.

A longstanding concern has long been the financial sustainability of the Pharmaceutical Benefits Scheme, which provides subsidised prescription item drugs to Australian residents.  The government negotiates with manufacturers the price of items prior to their listing in the subsidised PBS schedule, and consumers then make a co-payment toward each listed item purchase with the taxpayer covering the rest.

Under the PBS the maximum cost for a PBS-listed item at a pharmacy is presently $37.70 for general patients and $6.10 for concessional patients, with "safety nets" reducing the direct cost of drugs borne by patients should they need to buy large quantities.

Completing the transactional process, pharmacists purchasing the PBS-listed items at the outset from the wholesaler or supplier are later reimbursed by government for the difference between the dispensed price (including additional handling fees and charges) and the consumer co-payment.

With the commonwealth budgeting an estimated $9.8 billion in spending on the PBS during the current financial year, covering some 298 million dispensed prescriptions, the longstanding policy concern has been that PBS expenditures might prove fiscally unmanageable.

The main PBS cost drivers include an ageing population, a rising incidence of chronic diseases needing treatments, and policy decisions including which drugs should be PBS-listed, with 170 new or amended listings since December 2014 costing an extra $1.6 billion over five years.

The Intergenerational Report paints a rather optimistic picture of fairly stable PBS funding as a share of GDP into the mid-2020s, but the 2014 Commission of Audit report noted potential listing cost pressures via new biologic medicines which are more complex to produce and whose PBS subsidisation costs are somewhat unforseen.

So from a prudent policy perspective there is a need to invoke reforms putting the PBS on a more financially sustainable basis while maintaining support for the genuinely needy to obtain affordable, quality medicine.

As noted previously Australia already has a regime of co-payments applicable to prescription medicines, but the last co-payment increase under the PBS took place a decade ago when it was increased by 21 per cent.

With the price of generic drugs falling, politicians should have the courage of their efficiency convictions to revisit this issue, enabling consumers to more effectively ration their own demands as they face more of the full costs of the medications they use.

But there is far more to ensuring an sustainable system of prescription medicine subsidisation than shifting more of the burden of financing directly to users.

Intellectual property systems such as patenting have long been rationalised as necessary to enable innovators to earn sufficient returns from investments they make in new goods and services, but the downside is IP regimes limit dynamic competition thus raising consumer prices.

Analysts in the United States, for example, have suggested that patents are particularly problematic in prescription drug markets since they allow big pharmaceutical companies to charge prices which are hugely above the marginal cost of producing drugs.

There is little reason to think that similar problems don't extend to Australia, and so it has been a boon for consumers that as major brand drugs lose their patent protection they tend to get sold as generic drug varieties at much lower prices.

The government has tried to take some advantage of this "patent cliff" to help reduce the overall costs of PBS financing, with Howard, Gillard and Abbott having negotiated price cuts for off-patent drugs listed on the PBS schedule.

Australia has also moved toward a system whereby the price of drugs paid effectively by pharmacies are disclosed, enabling government to adjust PBS subsidies with the aim of better reflecting the actual price at which the medicines are being sold.

But even if these changes have provided consumer benefits, several Australian health economists have warned that we are possibly still paying too much for generic drugs compared with patients in New Zealand, Britain, and elsewhere.

This is because, in part, there is a lag between the price disclosures being made and the adjustments rendered to the PBS.

There have also been suggestions that Australia introduce a vigorous, regular tendering process for drugs to get PBS listing, similar to that across the Tasman, in the hope that excessive prices paid by consumers (and associated taxpayer subsidies for affected items) will keep dropping.

If government were to do that it might help manage the burgeoning list of items on the PBS subsidisation list, providing fresh opportunities to pull medications off the PBS that either lack sufficient efficacy or are now cheaply available on the market.

But it is impossible to ignore the effects of broader regulatory policies that have contributed to historically excessive prices for certain medications in Australia.

The current pharmacy rules, recently negotiated between the federal government and the Pharmacy Guild of Australia, impinge upon the workability of the PBS, and indirectly upon its fiscal sustainability, by virtue of conditions restricting ownership and location of pharmacies.

Among these rules are stipulations that pharmacies are only be owned by registered pharmacists, that a new pharmacy can't be open within a set distance of an existing approved pharmacy, and a pharmacy must not be directly accessible to the public from within a supermarket.

The recent competition policy review headed by economist Ian Harper indicated the "ownership and location regulations impose costs on consumers directly and indirectly by erecting barriers to entry to the market for dispensing PBS medicines".

These archaic conditions need to be dust-binned so that suppliers of pharmaceuticals are sufficiently numerous and diverse to promote greater price competition for consumer benefit, which should ultimately flow through to reduced fiscal pressure to the extent that drugs are PBS-listed.

Another obstacle is posed by extensive delays in receiving approvals from the Therapeutic Goods Administration to sell medicines on the Australian market.

A good suggestion would be for Australia to assume a "mutual recognition" approach toward drug marketing approvals, piggybacking on clinical and efficacy approvals already made overseas, speeding up the introduction of new and potentially life-saving medicines.

Prime Minister Turnbull gladdened many reform advocates in this country with his rousing speeches encouraging Australians to embrace enterprise and initiative.

Let us now see if those fine sentiments are backed up his government by the likes of pharmaceutical sector reform.

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No-go topics are shaping our politics

We know that Australian politicians and journalists care about freedom of speech for people such as Peter Greste.  We'll soon discover whether they care as much about freedom of speech for the Catholic Archbishop of Hobart, Julian Porteous.

What happened to Greste was terrible.  In 2013, working as a reporter in Egypt, he and two other colleagues from the Al Jazeera network were arrested for the alleged crime of treason.  Greste was sentenced to seven years' jail.  He was released a year later after a campaign that ranged from installing a mural of Greste on the headquarters of the journalists' union in Redfern to the then prime minister Tony Abbott personally lobbying the Egyptian president.  Abbott told the president that Greste was simply doing his job.

Just last week, the doyen of the Canberra press gallery, Laurie Oakes, delivered the keynote address to the inaugural Melbourne Press Freedom dinner.  Oakes pointed out the federal government had a double standard as on the one hand it called for freedom for Greste while at the same time criminalising journalistic activities in Australia.

It's not only the federal government that has double standards.  Members of Australia's media are all too inclined to advocate freedom of speech only for people they like, on topics they approve of — as we found out when Andrew Bolt was on trial in the Federal Court.  There was no mural on the journalists' union building then.

Now we have the case of Archbishop Porteous.  A candidate for the Greens at the next federal election has lodged a complaint with the Tasmanian Anti-Discrimination Commissioner claiming a booklet Don't Mess With Marriage explaining the Catholic Church's opposition to same-sex marriage is insulting and offensive.

ISSUE GOES BEYOND FREEDOM OF EXPRESSION

There's a number of things to note about the case.

The first is that the booklet does little more than set out a position that was, until a few years ago, the settled policy of all of the country's major political parties.

The second point is that the complaint has been brought under new legislation introduced in 2012 by the then Labor/Greens government.  At the time, the government specifically said the new laws would not inhibit discussion about same-sex marriage.  Either by accident or design, something has happened that politicians promised would not happen.  Yet again, the intended consequences of a law have little resemblance to how the law actually operates in practice.

What's happening in Tasmania goes beyond a debate about the right to express a religious viewpoint.  Malcolm Turnbull has promised a plebiscite on same-sex marriage after the next election.  Same-sex marriage is therefore now both a religious and a political question.  If the complaint against Archbishop Porteous succeeds, one side of the debate on the same-sex marriage plebiscite will be shut down.

Anti-discrimination laws aimed at preventing people from being offended are chilling freedom of speech in Australia.  Such laws are a bigger threat to freedom of speech than outright regulation or control of the media because they're so insidious and because they affect everyone, not just journalists.  Anti-discrimination laws are now also chilling this country's political process.

The plebiscite on same-sex marriage is one of two significant and contentious votes to take place in the new few years.  The other is the referendum on Indigenous recognition that looks likely in 2017.  Again, it's entirely legitimate to have a debate about recognising Aboriginal and Torres Strait Islander people in the constitution, but if there is a chance for it to be regarded as legitimate, it must be the outcome of a free and open debate between two sides.  Under Australian anti-discrimination legislation, if someone participating in the debate on Indigenous recognition says something deemed by the authorities to be "insulting" or "offensive", they will be breaking the law.

A vote in a plebiscite or referendum, in which one side is not allowed to present its case, is not a legitimate vote.  That's why both supporters and opponents of same-sex marriage should be concerned by the complaint against Archbishop Porteous and the Catholic Church.

Freedom of speech is fundamental to liberal democracy.  Freedom of speech confers legitimacy on political outcomes.  That's the difference between Australia and Egypt.  In one country the election results are legitimate, in the other they're not.

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