Brexit: Bruised egos will heal, trading relationships will endure

Brexit's victory in last Thursday's referendum may very well have been a surprise for the pollsters, financial markets, and possibly even the leaders of the Leave campaign but, to twist the words of Mark Twain, reports of the UK's impending economic demise have been grossly exaggerated.

It is neither in the interests of the UK nor the European Union to start a pointless and mutually destructive trade war.  Similarly, while short term volatility in the value of the pound or the FTSE 100 is inevitable as markets deal with the consequences of betting on the losing side, in the longer term the strength of the UK's economy and the policies of its government will assume greater relevance.

Trade relationships aren't formed out of pity and nor, with the exception of some industries like defence, are they a government-to-government function.

Australians don't buy Japanese cars because it is a unitary state and China doesn't buy our iron ore because we have kangaroos.  Australian consumers and businesses want Japanese cars because they are well built, affordable and reliable.  Chinese businesses want our iron ore because it is conveniently sourced and makes high quality steel.

Trade is about people-to-people and business-to-business relationships.  It is the means by which we satisfy the needs of supply and demand.

According to recent UK Trade Office statistics, just under 50% of the UK's exports go to the EU, and just under 50% of the UK's imports come from the EU.  While some claim this means Brexit is dangerous for Britain, in fact the strength of existing relationships means the very opposite.

Geographic proximity, the free-flowing exchange of people, a shared economic and legal framework and the billions upon billions of pounds of sunk business investment over the last 43 years will ensure that the EU remains a leading UK trading partner, at least in the short term and most likely well into the future.

Is it really feasible that German car companies would allow their access to Europe's second-largest car market, which is also Germany's single largest car export market and heavily integrated with its own car firms, to fall victim to EU political intrigue?

The first item of business for the UK's next prime minister, when establishing the UK's new economic, political and legal arrangements will likely be determining how to maintain its existing relationships, including a free trade agreement with the EU, as well as the creation of new ones with the rest of the world.

To that end, it is interesting that the UK's top single export destination is actually the US, and that its exports to non-EU countries exceed (just) exports to EU countries.

The UK is the gateway to Europe for the US, and its most important European defence partner.  Despite US President Barack Obama's ill-advised comment that the UK will go to the back of the queue in securing a new trade deal in the event of Brexit, his statement after the vote makes it clear that the relationship is unlikely to suffer.

However this is not to say the whole process is without danger.  The political class in both Europe and the UK, given its almost unanimous support for the status quo, has a vested interested in muddying the waters so its members can say "we told you so".

The major political parties, civil service, business organisations, trade unions, commentators, journalists and a number of foreign governments clearly followed the wishes of the Cameron government to publicly support the Remain campaign, and now find themselves backed into a corner, blaming everyone else but themselves for the result.

Holding the Leave campaign responsible for not having the machinery of government in place in the event of its victory is like blaming an opposition party that has just won an election for not having its legislation and government appointments already to hand.

If the famed British Civil Service did not already have its version of the Red and Blue Books in place to deal with the implementation of either side's plans given the national vote, it would say more about public service standards than it does about the Leave campaign

The Scottish National Party and Northern Ireland's Sinn Fein, which both went backwards in their respective parliamentary elections earlier this year, are also using the result to increase their own domestic profile.

While it is still early days, the EU will react in one of two ways;  it will either act irrationally, try to punish the UK and use it as a warning to other countries, further poisoning the well and accelerating its own dissolution, or it will treat Brexit as a wake-up call and embark on a process of genuine internal reform.  The verdict of British voters will be validated either way.

As time passes, wise heads will likely prevail, bruised egos will heal, and the strength of existing relationships and the need to accept the democratic will of the people will ensure that the world does not end.  The vote was not a declaration of war, or a global financial crisis, so there is no genuine need for the pound or the stock market to come under sustained pressure, short of speculation or the initiation of business-unfriendly policies by the new government.

For Australia, one of our oldest friends has come out of an unhappy relationship after 43 years and will soon be back on the market, keen to secure new relationships.  In fact, if the EU is smart, both entities will be racing each other to secure preferential trade deals with other nations, increase their political influence and boost their supply of skilled migrants.

In late 2015 Australia and the EU announced that they were starting negotiations on a free trade agreement.  Given that our complementary negotiations with Japan and China helped us to secure deals with both, so too Brexit increases the likelihood of sealing a deal with the EU as well as with the newly independent UK.  Improved access to both markets for Australian goods, and particularly services, would be a godsend.

Most important of all however, the people of the UK stood up, rejected an undemocratic, arbitrary, and bureaucracy-centred state, and have forced the political class throughout the world to pause, despite the political, social and economic pressure that was applied.  The country that gave birth to parliamentary democracy as we know it has shown that it still has some lessons to give, and for that we should all be grateful.

It is not often that the world's fifth largest economy is suddenly open for business.  It is clearly in Australia's interest for whoever forms government after this weekend's Federal Election to do whatever it takes to ensure we take advantage of this opportunity.

ADVERTISEMENT

Perverse small-target strategies leave voters guessing

Industrial relations and climate change have dominated election campaigns for years, but this time around you can barely hear a whisper on either.  We shouldn't have to be detectives to work out what the policies are.

Oppositions often run small-target strategies.  It's been pretty special to watch an incumbent government run one.

On the one hand, this approach by the Turnbull Government has its logic.

Looking at nothing but precedent, you'd bet on a first term government holding power.  Yes, even after the recent upsets in Victoria and Queensland.  Commonwealth politics is still very different to state politics.  It has a different dynamic.  The chance that this government would be the first Commonwealth government since James Scullin to lose an election after one term is low.

But on the other hand, the strategy leaves voters with a dilemma.

A vote at an election is either an endorsement (or rejection) of the performance of a government's previous term, or an endorsement (or rejection) of its promises for the future.  The two are of course related — previous performance offers some guide about how promises might be fulfilled — but what use is that if the government is coy on its future plans?

It is striking how many policy issues have been ruled out, are seen as out of bounds, or deliberately downplayed throughout this campaign — issues that have dominated the elections of the past, issues that have swung votes, issues that have led to the downfall of leaders and governments.

Take climate change policy for one.  For the last decade Australian elections have featured complicated, emotional and often arcane contests about emissions trading schemes, carbon taxes, the cost of emissions restrictions on living standards, and the ability of Australia's parliament to affect the global climate.

But this year you'd be hard-pressed to find much discussion on the national stage about the fact that not only does Labor have a policy to reintroduce the emissions trading scheme, but the Coalition's direct action scheme has a built-in mechanism — the so-called safeguard mechanism — that could easily be switched into a full-blown trading scheme at will.

Labor doesn't overemphasise its policy for fear of sparking the sort of criticism that characterised the last three elections.

For its part, the Coalition doesn't want too many voters to know about their safeguard mechanism because the whole thing relies on a confidence trick.  The Turnbull Government is building an emissions trading scheme that doesn't look like an emissions trading scheme.

In this sense, climate policy is not just bipartisan.  It is deeply misleading.  Voters deserve to know that debate on Australia's role in global climate policy has been ruled out.

Same with industrial relations.  The reforms to union management that were the justification of the double dissolution in the first place have been underemphasised to the point of constitutional negligence.

When Turnbull became leader last year it looked like the ducks were lining up for changes to penalty rates.  I wrote about this at the time.  Earlier this month Turnbull even ruled out legislation to enact the minor penalty rate change recommended by the Productivity Commission — that is, bringing Sunday penalty rates in line with Saturday ones.

Both Labor and the Coalition have decided to defer to the independent Fair Work Commission, which will make a decision on penalty rates sometime after the election.

But penalty rates are such a minor part of Australia's industrial relations system — and the proposal to bring Sunday rates and Saturday rates together is such a minor change — that this hardly counts as any policy at all.

Ironically, Tony Abbott — the leader who declared WorkChoices "dead, buried and cremated" — had a more prominent policy on industrial relations in 2013, when he was very clear that the Fair Work Act was going to be reviewed for its red tape burden.

After the success of Brexit many supporters of the Remain camp have focused on the apparent ignorance of voters.  It is certainly true that people make votes with less than complete knowledge.  How could they do otherwise?  A vote to change a government is one of the most complex, information-intensive decisions we ask the population to make.

Even voters who are relatively informed compared to their fellow citizens are, in an absolute sense, highly under-informed.  There is just no way a single voter could maintain a working knowledge of the sheer volume of policy responsibilities of the Commonwealth government.  Governments are so large, have their fingers in so many pies, and affect our lives in so many ways.

That's what makes the deliberate, strategic shrinking of the range of political debate so perverse.

The next government, whether it is under Bill Shorten or Malcolm Turnbull, will have an industrial relations policy and they will have a climate change policy.

It shouldn't require painstaking detective work for voters to figure out what those policies are.

ADVERTISEMENT

The British have spoken, but hard work lies ahead

The British people have spoken and they chose Brexit.  The result is the most important victory for freedom and democracy since World War II.

Once again the UK pollsters were proved wrong and this time the bookies were as well.

The Brexit vote is claiming scalps.  Prime Minister David Cameron will go in October, if not before.  Labour leader Jeremy Corbyn is clinging on, but the rupture between the progressive Labour MPs who campaigned to Remain and their working-class base who voted to Leave means the party is facing an existential crisis.

It's fair to say there is a rising anti-establishment sentiment in the UK as there is in Australia and the United States, but Friday's result should not be interpreted as a triumph of bigots over the tolerant;  isolationism over internationalism.  The Brexit result is a clear rejection of an unelected bureaucracy over democracy, a rejection of the UK subsumed into federal Europe over an independent nation.  Britain has spoken and reclaimed its democracy and sovereignty.

For Britain's leaders, the challenges over the near term are twofold.  First, how to reunite a country that is divided, not along the usual partisan lines, but on a much deeper level over the future of its institutions and democracy.

The 48 per cent who voted to Remain, including a majority of Londoners, Scots and Northern Irish, cannot be ignored.  Many are devastated, concerned about the future and how the far Right backed the Leave campaign.

The second and equally important challenge is how to negotiate an orderly exit from the EU that promotes stability and prosperity for the UK and the EU.

The unelected EU leadership is angry and wants a quick divorce.  But German Chancellor Angela Merkel is more pragmatic and will push EU leaders to behave rationally.

Merkel acknowledges the importance of Britain's economy to Europe (it's the second biggest in the EU) and likewise Europe's to Britain.  It will be in everyone's interests for a proper trading relationship to continue.

I think Britain should push for an associate EU membership, where it can enjoy economic ties with Europe without debasing parliamentary sovereignty, the British rule of law or the rights of British people.  But Britain must also look beyond the short term.  And it must begin to look beyond Europe, to Australia and Asia.

Australia's political leadership should now begin pushing for a bilateral free trade agreement.  Australia should rekindle the strong trade enjoyed between the countries before Britain joined the European Economic Community in 1973.  For Australia, there would be significant opportunities for our high-quality agriculture exports into the UK market, as well as our services industries.

Britain should also look to Australia as an exemplar of a more robust, rational and functional immigration policy.

Australia focuses on skilled migration as a source of its continued growth.  It is a win-win for migrants who can call Australia home and for the Australian economy, which can plug skill shortages and find productivity gains.  By maintaining an orderly skilled migration program in lock-step with a strong economy, Australia can also accept refugees and takes a large share through the UNHCR program.  Australia's sovereign control over its border and immigration policy means it can balance the legitimate competing concerns between our nation's economy and future with compassion for refugees.

There is no reason why Britain, freed from EU shackles, cannot take a similar approach.  This could also herald a reversal of the trend of declining Australian migration to the UK.  The traditional rite of passage for young Australians to work in the UK has been narrowed as Britain clamped down on non-EU migration.  David Cameron promised to reduce the number of migrants to Britain but his only solution was to cut down on non-EU migration, with Australian migration dropping by 40 per cent since 2008.

Finally, an independent Britain outside the EU will be free to refocus its foreign policy on its traditional allies, like Australia and New Zealand.  It will also naturally turn its focus to the engine room of the global economy, Asia.  We should encourage this shift as a Britain engaged in our region, sharing our values of democracy and respect for the rule of law, can be a significant contributor to solving the region's strategic challenges.  Most pressing for Australia is a strong international response to China's increasingly aggressive behaviour in the South China Sea.  We would value Britain's independent voice and strategic presence on this issue.

Welcome back, Great Britain.

ADVERTISEMENT

The Rise of the Joyful Economy

The relationship between the art world and the market economy has long been one of Sturm und Drang.  Deep down, a battle of weltanschauung plays out between light and dark, sky and earth, imagination and rationality, between two different value systems that still must occupy the same physical, political and moral universe.

The great value of modern cultural economics is to have brokered a grand reconciliation between these worlds, with the analytic concepts of market failure and externalities in cultural production and consumption, and the application of non-market valuation techniques to, as it were, price the priceless.  The result is a formula to transfer resources from the economy to the arts that is allocatively efficient, maximising the value of both.

And while the target of various grumblings from those who would prefer such decisions were determined more historically or politically, rather than economically, there is a rigorous beauty to this way of counting.

So it is an interesting development when a preeminent cultural economist (and economic sociologist) publishes a new book of broad historical sweep, arguing that the deep relationship between these two worlds (between the arts and the economy) is not what we have previously thought.  The book was the subject of a special, standing-room-only panel at the recent International Conference of Cultural Economists.

Michael Hutter's The Rise of the Joyful Economy (2015), which focuses on the visual arts, begins in 1420 with the development of linear perspective, and traces how that artistic development played out in the economy of the day, creating surprising new opportunities.

He then examines the paintings of conversations, of among others Joseph Wright, Francis Hayman and William Hogarth, and the way this focused a consumer revolution in the emergence of social taste.  Moving into the 1950s and 1960s, Hutter traces the translation of artworks into experience goods through case studies of repetition in the modernist architecture of Ludwig Mies van der Rohe (the Seagram building) and in Andy Warhol's Flowers series.

Later in the book he maps these artistic revolutions to three associated periods of economic growth:  the period of exploiting cognitive illusion (1430-1860);  the period of exploiting social relations (1730-1890);  and the period of exploiting serial variations (1920s-present).

Hutter then runs the argument the other way, examining artistic responses to economic change.  First in the "silent narratives of assertion" in merchant society in the paintings of Flemish artists Petrus Christus (Goldsmith in his Shop, 1449) and Pieter Aertsen (Meat Stall with the Holy family, 1551).  Then in the painting of new consumer entertainment of Parisian artists Antoine Watteau (Shop Sign, 1720) and Édouard Manet (Bar at the Folies-Bergère, 1882).  And thirdly in the intentional entanglements between high art and high commerce in, for example, Andreas Gursky's digital photograph 99 Cent (1999) and in Takashi Murakami's installation Vuitton Shop (2007).

These micro-sociological case studies in art history illustrate an overarching idea about the nature of the dynamics in the arts, culture, and the economy.  The idea is to conceive of distinct arts and economic worlds, or "plays of value" as Hutter frames it, and to propose a general theory of change that arises from the clash between these worlds.  This approach fundamentally recasts the relation between arts and economy by showing them to be statically distinct, but dynamically coupled.

Consider what this implies about the dynamics of both the arts world and the economy.  In the standard account, growth and change originate from within each world, from the artist and from the entrepreneur respectively.  The arts world and the economy are self-contained, linked only by brokered side payments (cultural policy) to generate efficient levels of output.  That understanding, in which the different worlds are distinct, is part of the modern consensus and the grand reconciliation between the cultural sector and the market economy.

But if Hutter is right, then that understanding is wrong.  If dynamics in each world originate from the clashes and irritations between each world (which Hutter both theorises and extensively documents) then we may need to rethink the basic relationships between economic and cultural policy.

Yet the book isn't about policy — a third "play of value", in Hutter's terms.  It's about a new type of economy that he seeks to differentiate from such policy fashionable neologisms as knowledge economy, creative industries, or experience economy.

Joyful Economy argues for us to redirect our attention away from isolated industry sectors towards the dynamics of tension and resolution, created by interactions between different "logics of worth".

The joy in The Joyful Economy is an answer to the brilliant but pessimistic Hungarian-American economist Tibor Scitovsky, who argued that a growing consumer economy that failed to nurture ever enhanced consumer sophistication in high quality experience goods would plunge society into, as he put it in the title of his 1976 book, a Joyless Economy.

Hutter does not fault the logic of Scitovsky's diagnosis, but finds that Scitovsky failed to understand the deeper co-evolutionary dynamics at play.  That difference matters because it is from those outworkings that the Joyful Economy emerges.

ADVERTISEMENT

Labor costings pass, but scare tactics detract

The ALP have just released their budget costings document.  I have mixed feelings — on the one hand it is a necessary feature of "democracy by auction", while on the other, it is necessary to prevent irresponsible and unaffordable promises hoodwinking the electorate.  It is also a game where the government of the day has an inbuilt advantage.

It seems to me that budget costings have to tell a plausible story about policy without being bogged down in gory detail.  The ALP failed this test in 2004, while the Liberals failed in 2010.

This time I think the ALP have a good story to tell — I'm just not convinced they tell it well.  Quite rightly, they point out that the Tony Abbott-Malcolm Turnbull government have done little to repair the budget damage inflicted by the previous Rudd-Gillard government.

Therein lays the problem — yes, the first two Hockey budgets were poorly conceived and poorly received.  That the ALP has managed to convince the electorate that Hockey's increased spending over Wayne Swan's last budget somehow represented "unfair" cuts reflects poorly on the government's communication strategy.

It is true that budget deficits have grown and public debt too.  One of the biggest mistakes the Abbott government made was to abolish the debt-ceiling.  If the ALP wanted to demonstrate its commitment to budget responsibility it would commit to re-introducing the debt ceiling.  This is one "hard decison" that both the government and opposition could commit to, yet neither does.

An additional criticism of the ALP costings is the petty and trivial examples given in the initial press release.  This is "form above substance" politics.  The first is to cap at $5000 the cost of managing tax affairs — this excludes small business and is aimed at a very small number of high income individuals.

It will "save" $1.7 billion over ten years (that is $170 million per year or 0.038% of this year's budgeted expenditure).  Then there is the removal of "junk" private health care policies that will "save" $384 million over ten years ($38.4 million per year or 0.009% of this year's budgeted expenditure).  These "savings" are highly speculative, but ultimately will make no contribution to budget repair.  Why mention them at all?

The ALP does two things well in its budget costings.  First it keeps emphasising that it has worked closely with the Parliamentary Budget Office.  This office was created expressly for the purpose of providing sound advice to politicians and to allow the electorate to have some confidence in electoral promises.  Second, it has invited a distinguished panel of public intellectuals — Robert Officer, Michael Keating and James MacKenzie to evaluate their costings and assumptions.

Importantly for our purposes the panel concludes:

All of the costings in Labor's Budget Plan are of a similar quality as budget estimates generally, and therefore represent a reasonable basis for assessing the net financial impact on the Commonwealth Budget.

Now make of that what you will — the Opposition's costings are just as good or bad as the government's costings.  In one sense that is very pleasing because we can then focus on the substance of the policies and abstract from the numbers themselves.  Mind you, the ALP doesn't reveal its assumptions, it provides long lists of budget estimates (so see for yourself that despite criticising the government on the NBN the ALP won't be spending anymore on it than the government will).

What is worrying is that both the government and the Opposition have a 10 year plan, and both plan to return the budget to balance in the same year, 2020-21.  In other words, a long time from now — after the next election.  That is simply not plausible.

The other difficulty is that the policy costings are long on slogans, long on criticism of the government and short on actual budget repair.

To be fair, the Abbott-Turnbull government is easy to criticise.  To be even fairer, the Abbott-Turnbull government has failed in precisely the same (economic) area where the Rudd-Gillard government failed.  The Shorten opposition don't address that collective failing anywhere in their budget costings.  Why will the ALP succeed now in its economic management, when it failed so comprehensively in its last term of government?

The ALP tells us it has a six point plan:

1. Investing in people
2. Building Australia
3. Driving investment in new industry and renewables
4. Supporting innovation and startups
5. Helping small business
6. Budget repair that's fair

That sounds like the long version of "Jobs and growth".  It is here that the ALP has to engage in scare tactics.  It is not clear what "privatising" Medicare even means.  How are we going to spend even more money on education — last time the ALP were in office we were tearing down perfectly good school halls and then rebuilding them.  Let's rather focus on increasing the quality of education before increasing the quantity of money thrown at education.  So the scare tactics are not serious policy work, they are transparent tactics to detract from the similarity in overall policy.

Of course in a democracy we expect the government and opposition to converge towards similar policies — and that, I think, is what is happening here.  Very similar policies and costings that are as good or bad as each other, however, don't suggest that a change in government is warranted.

So we have a competent attempt at policy budget costing — that must be good for the democratic process.  What is missing, to my mind, is a competent attempt to grapple with the actual budget deficit.  Mind you, they are hardly alone in that failing.

ADVERTISEMENT

Digital economy offers wealth of opportunity

Australia needs simpler, more flexible rules and regulations to become more agile in a digitally disruptive world.

With the click of a button, or a swipe of a finger, more and more Australians are purchasing goods and services through a "digital economy" consisting of the internet, cloud computing, sensors, and smartphones.

Digital platforms such as Uber and Airbnb are assuming a greater foothold in the Australian services sector, despite regulatory and other impediments, and our internationally high smartphone and tablet uptake rates suggests considerable room for more digital growth.

It is reasonably straightforward to figure out why the digital economy has taken off, with one of its most important benefits being its capacity to reduce transaction costs, or the costs of engaging in market exchange.

Thanks to a digital platform the owners of idle and underutilised assets, such as empty seats in a car or spare rooms in a house, can more easily find people prepared to pay money to use the available capacities.

And this reduction in transaction costs aids the expansion of market opportunities between willing sellers and willing buyers, as indicated by a Deloitte Access Economics study that 61 per cent of UberX rides nationally would not have taken place in the absence of the digitally enabled service.

One of the more amazing implications of recent digital innovation is that it empowers owners of varied consumption goods to reconceptualise them as capital goods which may generate returns, a particularly significant development for low and middle-income families seeking new income streams.

The availability of diverse products for consumers stands as a substantial benefit from the emergent digital economy but, as incumbent taxi drivers and hoteliers have made clear, the onset of digital platforms for accessing alternative goods and services can conceivably be disruptive for some.

Complaints by suppliers affected by digital disruption, whose economic existence have long been insulated by high barriers to entry, harkens back to Joseph Schumpeter's "gales of creative destruction" threatening to outdate conventional ways of making and selling things.

The temptation is for those whose enterprises are being digitally disrupted to seek policy refuge by government, often in the form of punitive regulations against the new digital upstarts, but recent experience around the world is showing such an approach futile.

A recent report by the Productivity Commission sheds important light upon the challenges faced by public sector regulatory agencies, contending with perceived (by, ultimately, non-existent) trade-offs between digital agility and the interests of those already in the marketplace.

Most sensibly, the commission has come out in favour of not condemning the likes of Uber and Airbnb to a premature end at the hands of regulators.

As the commission says in its digital disruption report, "getting the most from technological change requires an adaptive regulatory approach".

One of the key recommendations is that governments should avoid the temptation to merely extend existing regulatory approaches to the digital world, "particularly where new entrants present negligible risk to consumers or others".

Rather, the commission suggests that digital disruption presents a fresh opportunity for government "to reassess risk and adjust regulation accordingly".

In this context governments should provide "fixed-term exemptions from regulatory requirements that inhibit the entry of new businesses", or at least apply a "regulatory sandbox" whereby some regulations are lifted for a sample of customers and subject to risk-based criteria.

The commission recognises there is some potential for existing mandatory standards to lock in existing technologies and hamper innovation, so lighter-touch standards are needed that are "outcome focused and not overly complex or prescriptive".

What is also interesting about the commission's report on digital disruption it that it duly recognises the interconnected ways in which our complex and overbearing regulatory state can affect the incentives for people to get involved in the digital economy.

Can the existing workplace relations system, with its tendency to dictate quite prescriptive terms and conditions of employment across the Australian economy, accommodate the desires and interests of people who want flexible working roles enabled by digital platforms?

Trade unions and other selected interest groups have long railed against the emergence of part-time and casual work, and are equally hostile to independent contractors, but the question posed here will take on greater importance as the digital economy assumes greater popularity.

The interplay of economic and political interests have yielded vast differences in fortunes for the digital economy around the world, with the ACT legalising ridesharing services last year serving as an interesting case study.

As a condition of Uber's entry into Canberra's transport market the ACT government invoked criminal history and driver history checks, even though Uber already imposes self-regulation in these respects, and is aiming at accreditation requirements for ridesharing services.

Uber and other ridesharing service operators must also install cameras in their vehicles, to the extent that consumers are allowed to pay for the service in cash.

The ACT reforms substantially reduce taxi licence fees and remove red tape restrictions around uniforms and cleanliness, while taxi drivers retain an ability to pick passengers off the street and at taxi ranks.

What has taken place in Canberra is a far cry from the outright bans and punitive fines seen in Europe and elsewhere, but the horses-for-courses changes don't necessarily come across as the unambiguous deregulation needed to put all market participants on an equal footing.

Because it is well known that much innovation occurs at the boundaries of industries, occupations and technologies, we should ideally seek regulations that are not only technology-neutral but also industry-neutral and occupation-neutral.

Otherwise, what looks like sensible precautionary regulation for a new industry today may, as industries evolve, become the unwarranted red tape of tomorrow.

And we should guard against slippage in commitments to competitive neutrality principles in regulation-making, especially in the event that certain operators attempt to convince future governments their competitive vulnerabilities are of political importance.

As was the case with the steam engine of yesteryear, people will use technologies introduced today to creatively discover new ways to truck, barter and exchange.

Like the entrepreneurs that challenge them, Australian regulations must be simple and even-handed, yet flexible, so that there's enough room for disruption to fit in.

ADVERTISEMENT

Red tape the big hurdle for the mining industry

This week the Mining Business Outlook 2016 by Newport Consulting outlined the challenges and opportunities facing 50 of Australia's most prominent mining leaders.

The report demonstrated beyond a doubt that cutting unnecessary red tape on mining is essential if governments are concerned about the future growth and prosperity of Western Australia.

A quarter of respondents to Newport Consulting cited red tape as a critical area for government to act.

This comes after Gina Rinehart's comments last week that Australian politicians don't have the guts to cut red tape.

The scope of Australia's red tape problem is difficult to grasp because it stems from many different regulators and is made up of thousands of different pages of legislation.

However, my research has found that red tape costs the Australian economy as a whole at least $176 billion dollars every year in foregone economic output.

That means if red tape were an industry, it would comprise a larger portion of our economy — 11 per cent of GDP — than any other industry.

One of the most telling impacts of our red tape problem is how it impacts new mining projects.  Those mining companies prospecting, investing and seeking new opportunities spend a remarkable amount of time and money dealing with government.

One prominent example is the Roy Hill Iron Ore project by Hancock Prospecting, which had to work through over 4,000 government licenses, approvals and permits before production even began.  Many of these obligations are duplicated across jurisdictions, especially between state and federal governments.

According to the government's registry, Australian businesses and individuals are now burdened by over 30,000 licenses, permits and approvals.  Small and big businesses spend more and more of their time complying with red tape, taking their attention off serving their communities.

This red tape burden leads to serious delays in getting projects up and running.  In 2012, research for the Minerals Council of Australia by Port Jackson Partners found that Australian thermal coal projects experienced 1.3 years' additional delay relative to the rest of the world.

Every minute our mining companies spend pandering to government is a minute they don't spend hiring an additional employee, or discovering new innovative and efficient processes.

The costs of compliance activities only seem to be getting worse.  A Deloitte Australia report estimated that in 2006 the mining workforce spent 7.6 per cent of its time undertaking compliance activities.  By 2011 that number had increased to 8.9 per cent.

It's no wonder Australia is in the bottom half of the world in terms of the burden of government regulation in the World Economic Forum's Global Competitiveness Report.  We now sit behind many of our major competitors including the United States, Singapore and China.

Australia cannot afford an international reputation of regulatory complexity and onerous government control.  Australian governments should be facilitating our miners to compete in global markets and export our high quality resources.

To be clear, unleashing Australia's miners into a new era of prospecting, investment and innovation doesn't mean removing all licenses and permits.  It means cutting out the wasted time and money spent on compliance benefitting no one but bureaucrats.

Indeed, as the Productivity Commission noted in 2013, many environmental processes could be "greatly reduced without lowering the quality of environmental outcomes".

If it is successful, the Western Australian government's new red tape reduction plan — the #ShredTheRed campaign — will drive growth.  The plan includes a dedicated parliamentary repeal week, where for one week parliament is restricted to cutting red tape, rather than passing new rules and regulations.

But there is a risk with these sorts of plans.  The WA government will have to work hard to maintain its momentum.  It needs to continue to lift unnecessary red tape burdens on business long after those weeks are over.

A real economic growth plan — a plan that enables WA to continue its enormous contribution to our economy — should focus on shorter approval processes, removing regulatory duplication, and dramatically reducing the complexity of rules.

Governments need to free the resources industry to employ, grow and compete.  Cutting mining red tape will not only lead to higher investment, encourage innovation, and stimulate employment.  It will unleash Australian prosperity for years to come.

ADVERTISEMENT

It's time to kill parallel import restrictions

Abolishing parallel import restrictions on books isn't neoliberal ideology, as Tim Winton, Richard Flanagan and Magda Szubanski claim — it is social justice reform.

It is a reform that would deliver lower book prices to Australians by removing a rent-seeking benefit to the multinational publishing industry.

Currently, Australian booksellers are prevented from importing books manufactured overseas if the book has been published by an Australian copyright holder within 30 days of overseas release.  In effect, Australian publishers are granted a monopoly over any book they choose to publish and are protected immediately from foreign competition.

Parallel import restrictions are an effective tariff on international trade, similar to the archaic tariffs that were abolished under the Hawke-Keating government.  We now have a wealth of evidence to confirm this.

In 1998, the New Zealand government took the brave decision to remove import restrictions on books.  A 2012 review of that reform by Deloitte Access Economics commissioned by the NZ Ministry of Economic Development found that book prices are lower in New Zealand than in Australia and that the changes "had little impact on overall creative effort in the New Zealand book industry".

Australian authors claim the changes will decrease profitability in the Australian market and will result in fewer Australian books being published.  This claim is not backed up by evidence.  The same report found that the number of new New Zealand book titles published annually has remained fairly steady, and that the share of authors in overall employment and income earned by publishers actually increased following the changes.

The Prices Surveillance Authority report 1989, the Australian Competition & Consumer Commission reviews in 1999 and 2001, the comprehensive Productivity Commission report in 2009 and, more recently, the Harper review all found that removing import restrictions would make books cheaper for consumers, and recommended their abolition.  The Harper review's recommendation was accepted by the Turnbull government.

The draft Productivity Commission report into intellectual property recommends that the Australian government abolish parallel import restrictions on books, saying there is no new evidence that changes the case for removing the remaining restrictions and that it is the analogue equivalent of geoblocking.

Reading and literacy are a social good.  Removing these restrictions will mean libraries and schools can order more books, families will be able to buy more books for their kids, university students won't have to struggle to buy textbooks, and local bookstores will be able to compete on a level playing field with Amazon, to the benefit of small businesses and the consumer.

Labor's recent arts policy announcement had a piece both ways but slanted towards taking the side of the publishers without clearly stating its position.

This is a disappointing development as it slows what was rising bipartisanship on the issue.  Labor's student wing, the National Union of Students, launched a campaign against the laws, as they recognise that PIRs make textbooks substantially more expensive for struggling students.  Labor shadow treasurer Chris Bowen brought the proposal to cabinet under the Rudd government and is a known supporter of the changes, along with former Labor ministers Bob Carr and Craig Emerson.

Emerson said of the reform:  "Cheaper books for kids in poor communities is a good social reform."  He also said that multinational book companies put pressure on local authors and publishers to oppose the removal of restrictions.  Authors like Tim Winton are lining up to be that very face.

A famous Australian like Winton is a much gentler face to argue for the status quo than that of a large multinational publishing giant that uses this archaic tariff to make profits at the expense of Australian consumers.

At the recent book industry awards, Richard Flanagan launched an attack on the government's position, with an emotive plea to vote against the Liberal Party.  This is a disappointing worldview from Flanagan to completely dismiss the struggle many Australians face with book prices.

Attempts to derail the government's attempt to abolish parallel import restrictions on books recall the fear campaign ran by Peter Garrett and John Farnham in 1998 when the Howard government abolished parallel imports on CDs.  Did the music industry in Australia die as they suggested it would?  No.  Did CDs almost halve in price?  Yes.

We are in an age of digital disruption where businesses have had to adapt to adjust to a changing consumer climate.  The prominence of Amazon has been around for quite some time.  Australians know they can buy books cheaper from Amazon, and they do.  Yet our retailers have no opportunity to adapt due to import restrictions inflating the price of our books.  When the Prime Minister talks of the needs to be an agile economy, this is exactly the type of reform that does that.

The jig is up.  This is a case of out-of-touch authors teaming up with big business at the expense of the consumer — book-loving Australians.

ADVERTISEMENT

Brexit would be good for the UK and good for Europe

This week's referendum on whether the UK remains with, or leaves, the EU is primarily about democracy and the right of a sovereign people to live under their own laws.

A vote to leave would be a positive outcome for the UK, but would also send an important message to the EU that it is headed in the wrong direction, its people are unhappy, and urgent institutional reform is required.

Democracy is, at its heart, the process by which personal freedom of expression finds its voice.  A nation's executive and legislative system, its courts, its police and armed services, and the laws they pass, interpret and enforce, form a framework that governs how its citizens live and interact with each other.  A properly functioning nation-state and democracy must have the ability to perform these functions.  Unfortunately it is clear that the citizens of the UK no longer enjoy these privileges.

Over the last 25 years in particular, the EU has extended its grip over not just trade and competition policy but social policy, energy, public health, transport and even to culture, tourism, education and youth.  The sovereignty of the UK's parliament and courts is increasingly subject to the European Commission and its Convention on Human Rights, Court of Human Rights, Charter of Fundamental Rights and Court of Justice.  In areas where EU and British laws are inconsistent, EU law prevails.

The real reason why EU regulations, such as banning curved cucumbers and bananas or requiring restaurant olive oil to be served in separate containers, are so absurd is that the EU is barely decades old yet already sees its role as micro-managing behaviour, literally down to the dining-table level.

Yet the UK has never voted for Europe as it is.  The UK's often cited 1975 referendum was about staying with the then Common Market, rather than signing up to a federalist super-state.

The arrogance of the European project, with its un-elected Commission, opaque decision-making and onward march of centralism, is also likely responsible for some of the peculiar arguments that have been deployed against independence.  Apparently, if the British leave they will be unable to secure their own trade deals, prevent the mass migration of large businesses to the continent, protect their own borders and will even be responsible for the end of Western civilization.  But if the fifth-largest economy in the world, and successful NATO and UN Security Council member, which has successfully exported its language, parliamentary democracy, legal system, literature, and even civil society all over the world over many hundreds of years can't make it on its own, then who can?

Even when UK Prime Minister David Cameron tried to get a commitment from European leaders in early 2016 to some governance, competitiveness and freedom of movement reforms in advance of the referendum, they considered their position so comfortable that he was arrogantly rebuffed.

Of course, democratic traditions in the EU have never been strong, given that French and Dutch rejection of a European Constitution in 2005 led to the back-door Treaty of Lisbon in 2009 and the Irish and Danes were required to vote again after initially rejecting the Treaties of Lisbon, Nice and Maastricht.

The EU's argument that its ongoing existence and even greater integration is necessary to maintain the peace in Europe is seriously dated, and highlights how its 20th century thinking is hurting its prospects in the rapidly changing 21st century.  The EU's inability to manage its own financial system or its own borders, deal with its intractable competitiveness problems, or satisfactory deal with overseas crises such as the Ukraine are topical cases in point.

That Austria's disputed presidential election run-off last month was between the Freedom Party and the Greens, or that National Front leader Marine Le Pen tops most polls for next year's French presidential election, demonstrates that the British are not alone in their distrust of Europe's institutions.  The EU is in desperate need of competition, and for the development of an alternative agenda to ever-closer integration and centralisation.  Brexit is the way for Europe to be saved from itself.  An independent Britain that chose tax and spending reform, workplace deregulation, free trade and cheap energy, and was better off than those countries remaining in the EU, would be an important symbol of the potential of alternative policies.

Of course if the newly independent UK's parliament wished to mirror the EU's existing economic and social policy, it would be free to do so.  In fact Australia's thirty-year-old trade agreement with New Zealand proves that countries can have a close economic relationship without political or currency union.

On 16 August 1950 at the Council of Europe, then Opposition MP Harold Macmillan said on the prospect of joining the European Coal and Steel Community:  "(f)earing the weakness of democracy, men have often sought safety in technocrats.  There is nothing new in this ... But we have not overthrown the Divine Right of Kings to fall down before the Divine Right of Experts."

That argument is as strong today as it was 66 years ago.

ADVERTISEMENT

The Greens soft drinks tax: illiberal, ineffective, regressive

This Greens' proposed soft drink tax is not only an affront to individual choice, it would do little to address obesity and, in practice, amounts to an attack on poorer Australians.

Greens leader Richard Di Natale has announced a new policy for a 20 per cent tax on sugary sweetened drinks to tackle obesity.  The new impost will apply to water-based drinks with more than 5g of sugar per 100ml, increasing the price of a 2 litre bottle of drink by about 45 cents.

Taxing soft drinks, using the coercive power of the state to manipulate individual behaviour, is patently paternalistic.  The policy treats parents as fools who are unable to raise their own children, and adults as mugs incapable of making their own consumption decisions.

The policy flies in the face of the Greens' supposed social liberalism, however this should come as surprise coming from the party that has previously proposed banning junk food advertising.

Various studies have also seriously questioned the effectiveness of such taxes on overall rates of obesity.

A study published in Journal of Public Economics found that although the tax may slightly reduce consumption, "this reduction in soda consumption is completely offset by increases in consumption of other high-calorie drinks".  Another study published in Contemporary Economic Policy similarly found that sugary drink taxes do not have a substantial impact on population weight.

Although increasing the cost of soft drinks may reduce their consumption, it does little to change overall dietary decisions.  If we make one product more expensive, individuals looking for a sugar hit can, and will, swap to other unhealthy drinks and food.

The Greens' policy would, for example, push up the price of regular Coke though not change the cost of Diet Coke and Coke Zero, which contain no sugar.  In reality these alternate beverages are not particularly healthier.

Perhaps the biggest injustice of the tax will be who it impacts the most:  the poor.

A study of French dietary habits published in the American Journal of Agricultural Economics found that fat taxes are "extremely regressive".  That is, they have a far bigger impact on lower income households who have the least capacity to pay for the additional impost.

The regressive nature of taxes that seek to discourage conduct was explored in John Stuart Mill's seminal work of political philosophy, On Liberty, first published in 1859.

Mill argued that we should only tax goods to make them more difficult to obtain if we support total prohibition, because:  Every increase of cost is a prohibition, to those whose means do not come up to the augmented price.

This is particularly potent point:  the wealthy can easily pay the extra 20 cents for a can of drink.  It is only relatively poorer members of our society who will suffer under the Greens' policy.  And, as the tax does not change habits or appetite, they will likely substitute to other unhealthy consumption.

The final practical justification of such a tax is that it is necessary to address the societal and public health costs of obesity.  However, an investigation of a 20 per cent sugary drink tax by the Obesity Policy Coalition earlier this year found that the tax would raise $10 billion over 25 years, and save just $480 million in government expenditure over the same period.  This makes it far more of a tax grab than a way to compensate for government service delivery costs.

Obesity is a complex problem, impacted by changing cultural habits and best addressed through voluntary changes in individual behaviour:  the classic formula of improving your diet and getting more exercise.

Although a tax on sugary drinks might sound like an easy solution, it would be extraordinarily paternalistic, ineffective and have a regressive impact on poorer Australians.

ADVERTISEMENT

Rio's financial crisis reveals the moral bankruptcy of the Olympics

The Olympic movement likes to affect an image of sporting valour and nobility.  But it is the epitome of government waste, almost always doing great harm to its host and taking a real human toll.

The mayor of Rio de Janeiro would like the world to know that the economic crisis engulfing Brazil "in no way delays the delivery of Olympic projects and the promises assumed by the city of Rio."

Other non-Olympic promises are in jeopardy.  On the weekend Rio's state governor declared a state of financial emergency.  The city faces "a total collapse in public security, health, education, transport and environmental management" if it does not receive funding from the federal government of Brazil.

What a contrast.  On the one hand, Rio's politicians have absolute confidence they will deliver this year's summer Olympic games, which begin on August 5.  On the other hand, they have almost no confidence they will be able to provide their citizens with the basic functions of government.

Rarely is the moral bankruptcy of the Olympics so starkly put.  Bread and circuses both consume scarce resources.  What should we think of governments that put circuses first?  What should we think of the circus?

Brazil is in the middle of an economic and political crisis.  The Brazilian economy has been in recession since the start of 2015.  It has shrunk a massive 5.4 per cent since this time last year.  Brazil's inflation rate is around 10 per cent.  The only silver lining is that the economy shrunk by slightly less than experts had predicted.

Brazil's recession is having social consequences.  The cash-strapped Rio state government cut the police budget by a third, reversing advances in crime reduction made since the turn of the century, and raising concerns about tourist safety during the Games.  Unemployment is at 11 per cent and growing, and 24 per cent of young people are unemployed.  This is the worst economic crisis in Brazil since the 1930s.

The political crisis is almost as calamitous as the economic one.  President Dilma Rousseff has been stood down while she is impeached by Brazil's senate.  Rousseff is formally accused of manipulating the government budget to hide the size of the deficit.  (Simply servicing Brazil's debt costs 7 per cent of the country's GDP.)  But she's also tied up in a major corruption scandal concerning a state-owned oil company.  The interim president is also tied up in a corruption scandal.  Indeed, up to 30 per cent of the country's politicians might be implicated in a corruption scandal shortly.

It could well be that the Rio Olympics go off without a hitch.  News stories about delayed projects and panicked construction are as much a part of the Olympic ritual as the torch relay and parade of nations.

But outside the athlete's village and ticket-only areas will be a country straining to foot the enormous Olympic bill.

Hosting the games is a terrible economic deal at the best of times.  Hosting the games when you're a developing economy in the middle of a serious recession is its own scandal.

The woeful economics of the Olympics are clear-cut and, outside the corridors of political power, uncontroversial.  A paper published in the Journal of Economic Perspectives in May this year summarising a mass of scholarship and analysis found that the Olympics are almost always a "money-losing proposition".

The influx of tourism rarely compensates for the decline of economic activity displaced by the Games, and rarely translates into long run tourism increases.  It is true that hosting an Olympics encourages governments to invest in infrastructure, but the bulk of those funds are spent on uneconomic specialised venues that cities struggle to utilise once the closing ceremony is finished.  Only construction and development companies gained from the Sydney Olympics, as Sinclair Davidson has found.

The economics are even worse for developing countries.  To avoid disaster host cities need extremely capable and non-corrupt management, as well as the political stability to facilitate that management.  These sorts of institutions are sadly lacking in poorer nations.

Hosting the Olympics is particularly dangerous for countries that lack tight control over government expenditure.  For instance, the Athens games in 2004 exacerbated Greek fiscal profligacy — while the Olympics did not cause the Greek economic crisis, the stadiums and infrastructure stand as monuments to the reckless spending that did.

Brazilian governments spend 41 per cent of the country's GDP, which, as the Wall Street Journal pointed out in April, approaches the sort of spending levels seen only in mature social democracies like Germany and Norway.  It is just not a country with the institutions to manage the extreme political and economic pressures of Olympic hosting.

It is galling, then, that the International Olympic Committee has been encouraging bids from developing countries.  Even a failed bid can be extremely expensive – the "low cost" bids for the 2024 games cost about $AU80 million each.

This money of course comes not from the politicians who flank their bids and take box seats at opening ceremonies.  It comes from the taxpayers of the bidding countries, and from the public services not provided as scarce resources are redirected towards stadiums and ceremonies.

The Olympic movement likes to affect an image of sporting valour and nobility.  But it is the epitome of government waste, almost always doing great harm to its host and taking a real human toll.  Once the athletes have gone home, let us hope Brazil can recover from this recklessness quickly.

ADVERTISEMENT

Comprehensive reef protection plan could begin with Science Ombudsman

Prime Minister Malcolm Turnbull has just announced a $1 billion plan to protect the Great Barrier Reef.  He describes the plan as the "largest ever" financial investment in the reef, and as a "comprehensive plan".  But Graham Lloyd was reporting in the Weekend Australian that there are major problems with quality assurance when it comes to scientific research concerning the Great Barrier Reef.

If Peter Ridd, a professor at James Cook University, risks being disciplined simply for querying the veracity of claims regarding damage to individual coral reefs, how can Mr Turnbull be sure that this new fund is targeting real priority issues?

Water quality has been identified as a key issue, with runoff from agriculture needing to be curtailed.  But a decade ago, when I was a member of a high level Queensland Government Reef Protection Taskforce, the evidence for any impact from agriculture on the reef was wanting.  Sure, there was evidence of grazing and sugarcane having an impact on the water quality in adjacent rivers and streams, but not on corals.

That taskforce was formed by the Queensland government in response to a campaign launched on World Environment day in 2001 by the World Wide Fund for Nature (WWF).  In the first year, the campaign targeted the fishing industry claiming it was the greatest threat to the reef.  In the second year, sugarcane farming was identified as the greatest threat to the reef.

I was the sugar industry representative on the Taskforce, and in order to bring my industry onboard, I wanted to be able to show the Canegrowers Ltd Board the best evidence that we were impacting the reef.  The science representative on the Taskforce, Christian Roth, was tasked with coordinating the development of a science statement in consultation with experts at the CRC Reef Research Centre, the Department of Natural Resources and Mines, and James Cook University.

The first 3-page science statement was developed for the Taskforce to provide a "consolidated view of our current understanding of the impacts of terrestrial run-off on the Great Barrier Reef World Heritage Area".  This document presented to the Taskforce on the 12 November 2001 discussed threats to the reef, but provided no reference of actual damage to the reef.

Several Taskforce members noted this fact, with the following comments being made by Taskforce members at that meeting:

'So the widespread impact (of terrestrial run-off on the Great Barrier Reef) is not substantiated.'

'Let's put the anecdotal data together as a science paper.'

'But the scientists have tried very hard to prove there is an impact.'

'Let's not get hung up on the science.'

'Let's go forward on the basis of the precautionary principle.'

'Let's bring science along with a balanced view from other things.'

'This document (the science statement) has been written for this Taskforce and should not go to Cabinet.'

It is easy for science to be bulldozed by politics.  Indeed, the final scientific statement, eventually endorsed by the taskforce, claimed an impact from agriculture on the Great Barrier Reef even though there was no evidence ever provided to support this claim.

A decade ago, there were newspaper headlines claiming dugongs were being killed by a dioxin, which was from pesticide runoff from sugarcane farms.  Two years later, the National Research Centre for Environmental Toxicology concluded that the dioxin of concern was naturally occurring and common in soils along the entire Queensland coastline, including in regions beyond sugarcane cultivation.  Yet even after this clarification and after the information had been passed on to senior bureaucrats, the false claim of elevated levels of fat-soluble pesticides in dugongs was repeated in their influential briefing papers and reports.

Professor Ridd has suggested that the solution is the establishment of an independent agency to check the science before governments commit to spending hundreds of millions of dollars.

This could perhaps begin with the establishment of a science ombudsman with the resources to investigate and attempt to resolve complaints about scientific integrity and freedom.  The exact role of the Ombudsman would be defined by a constitution, and in the first instance might be restricted to the investigation of universities.

It is university research which has precipitated the massive investment, ostensibly in actions that will result in actual reef protection.  As Universities are federally funded the establishment of such an office by Mr Turnbull could be seen as prudent, especially if he intends to make such a massive investment in practical measures that will result in reef protection.  Indeed, such an office could be established with an investment of less than $ 2 million, less than 0.2 percent of the new $1 billion announcement.

Professor Ridd would be the perfect candidate for such a position, he understands science and the need for organized skepticism.

ADVERTISEMENT

Australia isn't immune to the Brexit debate

The European Union represents the worst inclinations of modern government — heavily bureaucratic, deliberately undemocratic, meddling and interventionist.  Australian policymakers should not imagine that British discontent with Brussels has no lessons for them.

It is not always a good idea to draw an opinion on the domestic affairs of other countries.  But in the case of the upcoming British referendum on June 23 to withdraw from the European Union, Australians should be paying close attention.

The pathologies that have led to the Brexit vote are not unique to Europe — there are deep lessons for Australian policymakers too.

At its heart Brexit is a contest between technocracy, red tape and administrative power on the one side, and democracy and sovereignty on the other.  In other words, what we see in the byzantine bureaucracies and agencies of the EU is an extreme form of trends that are common across all Western liberal democracies.

Polling this weekend showed the vote to withdraw from the EU has a 10-point lead over the vote to Remain, with 55 per cent of respondents supporting Leave.

This finding is important not just because of what it suggests about the outcome of the vote.  The received wisdom has been that voters primarily concerned about immigration — the free movement of people across Europe has never been more controversial than after the Syrian refugee crisis — would vote Leave.  Voters primarily concerned about the economy would vote Remain.

Modelling done by the UK Treasury has claimed that British households would be £4,300 worse off in 2030 if the country had left the EU than if it had stayed.  This result is derived from the apparent decline in openness to trade and foreign investment that withdrawing from the EU might bring.

But the weekend's polling shows that the Leave argument is making significant inroads into the group of voters who see the economy as paramount.

As Dan Hannan, a British member of the European Parliament and supporter of Brexit has pointed out, catastrophic claims about the decline of trade and openness resulting from a Leave vote are nonsense.  Withdrawal will not be instantaneous following a successful referendum.  Rather, the referendum is a mandate for the British government to negotiate withdrawal;  to forge new trade agreements and arrangements while simultaneously stepping back from Europe-wide ones.

There are two distinct visions of European unity.  One has perversely flourished, and the other has become distorted beyond recognition.  The first is the dream of a government of Europe — a transnational European equivalent of the bureaucracies and political institutions that run national governments.

This first project, it must be said, has been an enormous success.  The EU has a parliament, courts, a monetary system, and an enormous administration.  One 2008 estimate of the number of bureaucrats working in EU institutions — the EU itself is cagey on its total staff — came to 170,000.  This is more than the British army.

But it's one thing to create a government, it's another to create a responsible, legitimate government.  Even the EU acknowledges that it suffers from a perceived democratic deficit — that the citizens of Europe do not feel they are able to reject the administrations and policies that rule them.

While the European Parliament is an elected body, the six other key European institutions are not.

The European Council, the Council of the European Union, the European Commission, the Court of Justice of the European Union and the European Central Bank are all at one or more steps removed from popular control.

In this sense EU institutions are the natural end point of a trend that affects Australian administration as well — the spread of administrative and regulatory independence designed to keep politics out of policymaking.  But this comes at the expense of democratic control.

The second vision of European unity was as a free trade bloc.  The 1957 Treaty of Rome conceived of Europe in distinctly classical liberal terms, allowing goods, services, capital and labour to move across borders.  This was an enormous achievement at the time, given the economic source of so much intra-European antagonism.

The perversion of the ideal of European free trade occurred with the development of the common market.  Properly understood, a country with its markets open to free trade is still able to write its own rules about the conditions in which goods and services are produced and sold within the borders of that country.  However, the European common market developed in such a way that widened its focus to the regulatory constructs within each country that make it harder to sell (for instance) an Italian product produced according to Italian standards in France, where French standards apply.

The common market aimed to eliminate these differences.  Unfortunately it did so by imposing pan-European regulatory requirements across the whole continent.  Without the constraints provided by democratic institutions, the EU has been an enormous source of new regulation and red tape — what is understood by European citizens as EU meddling and domestic interference.

One think tank calculated that since 1957 the EU had passed and incredible 666,879 pages of law.  In some states up to 84 per cent of national legislation involves the implementation of new and adjusted EU rules.  Analysis based on the British government's own regulatory impact statements show that red tape coming from Europe costs the British economy at least £33 billion (AUD $63 billion) a year.

The European Union represents the worst inclinations of modern government — heavily bureaucratic, deliberately undemocratic, meddling and interventionist.  Australian policymakers should not imagine that British discontent with Brussels has no lessons for them.

ADVERTISEMENT

The election bidding war over school education funding ignores how to get a better "bang for the buck" from existing resources.

Since the 1963 federal election debate concerning state aid for non-government schools, both major parties have fought intensely over how much tax funding should be allocated to Australian schools.

In 2016, the Bill Shorten-led federal opposition has attempted to gain the upper hand by committing to spend even more than the record-spending Abbott-Turnbull government has done over the past three years.

By their own account, Labor's funding commitment of $37.3 billion over 10 years is intended to conform to the former Rudd-Gillard government's interpretation of what "giving a Gonski" is all about on needs-based funding.

Casting aside the issue about how the schools package will actually be funded, with Treasury indicating further tobacco excise hikes, to help pay for spending, may deliver less revenue than anticipated, the opposition has enunciated doubtful modelling interpretations to advance its cause.

Shorten insists that a 2015 OECD study, Universal Basic Skills:  What Countries Stand to Gain by respected education academics Eric Hanushek and Ludger Woessmann, confirms that additional funding for schools will necessarily deliver massive economic gains in the long run.

The Hanushek-Woessmann study estimates the economic returns from attaining basic skills through education, enabling future workers to become more productive and adaptable ("agile", one might dare say) in a globalised economy.

The study encompasses 76 countries, including Australia, and the modelled scenario discussed here assumes full schooling participation and each student attaining a minimum of 420 points on the international PISA test (or the country's mean score, whichever is higher) by 2030.

In a rare, nevertheless welcome, canvassing of academic-quality analysis in an election campaign the Labor schools policy recites the OECD study to say, "high-school graduates with the basic skills needed ... by 2030 ... would be the equivalent of adding 2.8 per cent of our GDP today".

But as is often the case in the heat of an election campaign, Bill Shorten recently overcooked the case by claiming his party's education policy, incidentally not considered in the OECD study, would immediately boost GDP.

Embarrassingly for the opposition, Hanushek himself was drawn into the campaign discourse to correct the record, stating that "if we increase the achievement of somebody in secondary school today we will not see it in today's GDP".

Another misinterpretation potentially exacerbated by Labor's school-funding campaign is that, somehow, the federal opposition Gonski-inspired spending largesse would induce the universal access and improved test scores needed to achieve the 2.8 per cent GDP gain by 2030.

Now, most agree that improving the quality of schooling for young people would most certainly deliver economic gains, but what do Hanushek and Woessmann actually say about funding issues in their OECD paper?

It is true more facilities and a greater, high-quality teaching workforce would be needed in future, and that isn't costless, "but higher spending is not necessarily the same as higher achievement, as the record across countries shows".

Hanushek-Woessmann go further to add, "numerous programmes and policies that sound good and that have been introduced by governments in good faith have turned out to be ineffective at raising achievement, leading to increased cost with little gain".

The publication of the 2015 OECD paper isn't the only occasion in which these esteemed researchers have cast doubts over the link between increasing funding and better student outcomes in the school setting.

In their impressive recent book, The Knowledge Capital of Nations, Hanushek and Woessmann note that "simply providing more resources gives little assurance that student performance will improve significantly.'

To be more precise, the authors indicate "how money is spent is more important than how much money is spent".

Going back a decade ago, Eric Hanushek noted an array of econometric and experimental studies, not to mention observations of aggregate school outcomes, suggests "overall resource policies have not led to discernible improvements in student performance".

These kinds of assessments resonate in the Australian context, given the observations made by many education experts and policy commentators that rapid growth in schools funding by governments since 2000 has not necessarily delivered substantial academic improvements.

Recent rounds of PISA international testing, used as the basis of analysis in the Hanushek-Woessmann OECD study, reveal Australian rankings in the likes of reading, mathematics and science have slipped, both absolutely and in comparison with other OECD members.

An oft-cited empirical study by former academic, and now senior Labor politician, Andrew Leigh and Chris Ryan illustrates a long-term trend of declining school productivity, as real per student school expenditure rises amidst declining literacy and numeracy test achievements.

The point made here is not that resourcing considerations do not matter in school education policy, a proposition belied by the fact that finances are, in fact, necessary to at least cover the fixed costs of providing schooling services throughout Australia.

The issue is that there is immense scope for improvement in the school sector once it is appreciated that, following Hanushek, "much remains to be learnt about when and where resources are most productively used".

An elevated, "better bang-for-buck" policy discussion could open up interesting reform possibilities, such as government schools managed by parents and other community members rather than bureaucrats, and encouraging philanthropic financing of education and for-profit schooling.

Other prospective aspects of schooling reform include deregulating teaching labour markets and better rewarding the best teachers, and cutting red tape to allow principals to manage their schools better.

One of the great tragedies of schooling policy in Australia is the creeping centralisation of policy control and finances, preventing states from experimenting even more with alternative models of schooling provision and funding to produce better outcomes for students.

So, less intervention from Canberra in education policy should also be in the reform mix.

It seems instinctive for the voting public to rally behind greater schools funding to signal how much we care about kids, so, in that sense, the politicians adding billions to the spending tab are simply trying to grant us our wishes.

But caring for kids isn't inconsistent with also demanding that hard-earned taxpayer money be spent on schools more efficiently and effectively, especially if we're concerned about preparing young Australians for the future.

And we can't forget the affordability aspects, either, with government budgets already overspent leaving our children lumbered with public debt.

Let's demand more from politicians than this spend-a-thon, and elicit ideas about better outcomes from existing finances already spent upon schooling.

ADVERTISEMENT

Why Oliver Curtis shouldn't go to jail for insider trading

Last week, Sydney socialite Oliver Curtis, who has attracted headlines through his marriage to public relations adviser Roxy Jacenko, was convicted of insider trading.

Curtis is now looking at up to five years in prison and a fine of up to $220,000.  This might seem fair enough to some, or even too lenient.  Indeed, the Greens have been arguing that the penalties for white collar crime are too soft.  But as a society we should debate whether prison is the best way to punish Curtis and other white-collar offenders.

Curtis's crime was making trades in contracts for difference based on information procured for him by his equities trader friend, John Hartman.  Hartman pleaded guilty to insider trading in 2010 and served 15 months in prison.

However, it is becoming well understood that Australia locks up too many people.  The national incarceration rate has grown by 40 per cent in the last decade.  And prison sentences are incredibly expensive.  Prison in Australia costs on average $100,000 per prisoner per annum.  It's one thing to be outraged by Curtis and insider trading.  It's another thing for taxpayers to be asked to pay for his punishment for the next five years.

The key consideration in sentencing is proportionality:  the punishment must fit the crime.  White-collar criminals, whose crimes often involve a breach of trust, are usually held to account for the damage they cause to both their victims and to public confidence in the financial system.

But there is evidence that markets do not respond one way or another to high-profile cases like this one.  Perhaps the public already considers the financial system to be rigged.  Or perhaps the public's faith in the integrity of white-collar workers is unshakeable, though that is probably less likely.  Either way, the public don't take much notice of cases like this when they are making investment decisions.  The market's reputation does not depend on Curtis going to jail.

White-collar offenders normally pose no physical threat to the community and generally have a history of prior good character.  Putting them in prison does nothing to keep us safe.  So when courts give prison sentences to white collar criminals, those sentences are usually justified on the basis that public outrage demands such a punishment and that prison might have some general deterrence effect.

Both of these needs can be serviced without society having to incur the steep cost of imprisonment.

As it stands, the maximum fine that Curtis may pay would barely cover the cost of sending him to prison.  Why would we want to pay to keep Curtis locked up when we could be making him pay us?

Curtis should have to pay a fine sufficiently large that it hurts him and communicates the public's outrage.  And if this were a tort, which arguably it should be, Curtis would have to make restitution.  He should have to do so here as well.

The fine should also communicate to the financial industry that it needs to be more vigilant in policing itself.  Just as batsmen get hit in the head more often now that they wear helmets, our financial industry seems to think that regulation alone will protect it.

Combined with losing the ability to work in his chosen profession and the public shaming to which he has been subjected, a fine and restitution would likely be as effective a deterrent as prison.  If something stronger is needed, home detention should be an option.

It might be argued that this is unfair because it allows wealthy offenders to buy their way out of prison.  But there is a genuine principle at stake.

Whatever their social status, nonviolent, low-risk offenders, should be given the chance to avoid prison.  Our skyrocketing incarceration rate is not lowering the amount of crime or reoffending and it is costing a fortune.  National expenditure on prisons is $3.6 billion per year.

The cynical push by the Greens to appear tough on white-collar crime will only make this problem worse.

Lastly, we should wonder about the role of the Australian Securities and Investment Commission in the Curtis case.  Curtis' offending took place between 2007 and 2008.  After Curtis's accomplice turned him in in 2009, it took more than six years to secure his conviction.

A recent review of ASIC's capability revealed that it spends more on enforcement actions than comparable overseas regulators.  ASIC also struggles to perform all of its expected functions.  Its resources are tied-up in pursuing lengthy, high-profile criminal cases, which do not contribute to achieving its strategic purpose.

The fact that ASIC is a poorly functioning regulator does not mean, as the Turnbull government thinks, that ASIC needs more money.  Instead, rather than headline-chasing, ASIC should focus more on prevention and education.  It would be aided in these tasks if government would cut red tape and give ASIC fewer regulations to police.

Oliver Curtis broke the law and should be punished.  White-collar offenders like Curtis should have to pay large fines, make restitution, and forfeit their right to work in positions of trust.  Justice, however, does not require that we jail non-violent, low risk offenders.  We ought to think again.

ADVERTISEMENT