Developing Australia's non-fossil fuel energy industry: Costs of measures targeting CO2 emissions

Submission to the House of Representatives Standing Committee on
Industry and Resources Review of Renewable Energy in Australia

NON-FOSSIL FUEL ENERGY

THE STERN REPORT

Harnessing the UK Kyoto Treaty negotiating team, Sir Nicholas Stern has lent his name to a report, issued earlier this year that managed to raise the ante on costs of not restraining emissions at the same time as it understated the costs of acting.

The bottom line of the Stern report is that it assesses the damage from global warming if left unchecked would be 20 per cent of world GDP.  These costs are far more severe than those in the Intergovernmental Panel on Climate Change (IPCC) report itself.  And the outlays for the abatement action he proposes amount to a mere one per cent of world GDP.

Stern came to this scenario by taking all the "worst case" estimates of detrimental effects and the "best case" cost measures.  He assumed a great deal of emission reduction would be achieved by "education".  Heroic and highly unlikely assumptions were made about the pace at which renewables would improve their efficiency levels.

Another major driver of the low costs in Stern is the valuation of time he uses.  In contrast to commercial discount rates -- which are anywhere from 7 per cent to 15 per cent -- Stern used a rate of under 1.5 per cent.  This means the future costs are far greater than in conventional analyses.

Even though it is over 700 pages long, the Stern Report itself was highly selective in its evidence.  It did not mention the House of Lords very distinguished Economic Affairs Committee report published in July 2005 that included several senior businessmen and scientists and was headed by a well regarded secretariat.  That committee arrived at far less alarmist conclusions.  It expressed concern that, "UK energy and climate policy appears to be based on dubious assumptions about the roles of renewable energy and energy efficiency".  In fact, it is surely no coincidence that Stern was appointed by Chancellor Gordon Brown not long before that House of Lords Report was due to be handed down.

There was no sensitivity analysis in the report, in spite of its length and there was no consideration of the nuclear option in the Executive Summary.

THE AUSTRALIAN DEBATE

One matter of neglect in the Australian climate change debate is that no government agency has undertaken -- or at least published -- the aggregate costs of the measures presently in place.

The Department of the Environment has attempted to amass all the Commonwealth data but this is not complete and of course does not include the separate state schemes and the regulatory taxes.  And although we have pieces commissioned by governments from CSIRO and others into the outcomes of global warming for the stone fruit industry, Alpine ski industry and other sectors, there is no estimate of the aggregate benefits of taking these measures and hence of the limits of such expenditures.

This might be partly due to the fact that the promoters of these polices have little interest in economics or the costs that their favoured approaches impose on the community.  But government central agencies are seriously amiss in failing to require such analysis.  It would be inconceivable that they would overlook evaluating a scheme that said, "No child shall live in poverty" or "All children will receive education up to Year 12", or even, "We shall purchase four new frigates".

Kevin Rudd has assembled the National Climate Change Summit, which "will bring together business leaders, scientific experts, and environmentalists with community and political leaders to share ideas about addressing the threat of climate change".  The summit will doubtless tell us about how we will save the world, spawn vast new productive industries and save money by using less electricity.  All we need to do is follow the examples of such luminaries as Al Gore and Bob Brown and stop air travel move into small homes and wear woolly jumpers!

AUSTRALIAN COSTS INCURRED IN DEFRAYING CO₂ EMISSIONS

Even though we don't have a compendium of schemes we do have a plethora of them.  These fall under three categories:  obligations imposed on consumers to take a given amount of renewables or low carbon emitting energy subsidies by governments to the CSIRO, for carbon dioxide reductions and so on;  and the regulatory impositions on consumers and businesses designed to redirect purchases away from the avenues they would otherwise prefer.

A) Obligations on consumers

These are found in four pieces of legislation:

• The Commonwealth's Mandatory Renewable Energy Target (MRET) requires an increasing amount of electricity sales to be purchased in the form of sources that are designated as eligible renewables.  By 2010 9,500 GWh (around 4.5 per cent of supply) must be so sourced with a fall back cost of $380 million from the $40 per MWh penalty.
• The Queensland 13 per cent gas requirement applies to a load of about 40 million GWh by 2010 (9 million is exempt and load losses are assumed at 8 per cent).  The penalty for shortfall is $15 per GWh (not tax deductable) indexed at the CPI.  By 2010 the scheme is estimated to cost $97 million.  With great fanfare in June 2007 the Queensland Government launched a, "$414 million climate change strategy ClimateSmart 2050", though it is not clear what additional funding this will entail.
• The Victorian scheme requires 10 per cent renewables or 3672 GWh per annum when it hits maturity (around 2015).  The penalty rate is $43 indexed with the CPI.  If it were assumed to be mature in 2010 the penalty rate at, say, $47 per MWh means a cost of $184 million.
• The NSW scheme is actually targeted at greenhouse emission levels rather than using essentially wind power as in the Commonwealth and Victorian schemes or gas in the Queensland scheme.  Based on published material, NSW retailers by 2011 are required to buy credits to offset 13,600 tonnes of CO₂ (over and above MRET obligations) with a penalty of $13.36 per tonne.  This is a cost of $182 million (and will continue to rise indefinitely).

These four schemes amount to an annualised cost of $843 million.  Currently MRET emission credits are selling at a 25 per cent discount to the penalty rate.  If other schemes are similar, this reduces the costs to $600 million.

B) The direct government expenditures and subsidies

These cover diverse issues like staffing of the Environment Department (DEH), the Greenhouse Office and the CSIRO.

Many programs were started as part of the Club of Rome inspired hysteria about us running out of all manner of resources including energy.  Such notions after a quarter of a century of remission are back with us in the form of fears on "peak oil" but in the interim were converted, without missing a beat, into greenhouse mitigation measures.  DEH estimates these across the Commonwealth as:

• $21 million for Greenhouse Gas Abatement Program
• $20 million for Solar Cities
• $50 million for Low Emission Technology Demonstration fund
• $36 million for Payment to states (renewable equity, photovoltaics, etc)
• $154 million for Others
• Total $281 million

And new schemes are rolled out with alarming frequency.  In April to placate the concerns anticipated by the Stern visit, Minister Turnbull announced a $200 million scheme to mitigate greenhouse gas emissions by saving Indonesia's forests.

Other expenditures not included are those of the Cooperative Research Centre, the program documentation of which is opaque, though they did commission work that purports to demonstrate that they have contributed mightily to the national income.  From CSIRO we can discern CRC expenditures on greenhouse in 2005/6:

• $4 million lignite clean coal
• $13 million for GHG and sustainable development coal
• $5 million for GHG accounting

There are many other measures in place to serve the same ends, programs like Green Buildings, greenhouse gas accounting, some overseas aid and some coastal and Great Barrier Reef spending, public transport, urban consolidation -- in fact one is hard pressed to find policy interventions that do not have a climate change dimension.  The total would certainly exceed $300 million per annum.

In addition most of the states are convinced that with an active industry policy favouring renewables we will capture a considerable share of the coming booming world market for such facilities as well as contributing to saving the world.  Those state based expenditure schemes that can readily be estimated include:

• NSW claims to be spending $40 million a year in a 5 year program.
• Queensland has set aside $300 million from the sale of its electricity retailers to be spent over an unspecified time frame.
• Victoria says it is spending $106 million over 5 years.
• The other states are probably spending less than a few million a year.

If none of the claimed state expenditure is money reallocated from the Commonwealth it may add up to a further $90 million a year.

C) Regulatory measures include impositions on businesses and on consumers

These are very attractive to governments since their impact is not readily assessable.  They include measures ranging from preventing businesses from starting a new facility unless it is greenhouse compliant, through stopping some ventures from proceeding, to placing a regulatory tax on the consumer.

Among the consumer taxes are all measures which limit choice.  They include energy efficiency measures for fridges, small electric heaters, and especially housing.  For new housing, the 5 Star energy saving requirement adds somewhere between $7,000 and $14,000 per house.  With 150,000 new houses each year, this is an annual imposition of between $1,000 and $2,000 million.

This is an ideal regulatory measure for a cynical government to implement since it is not likely to cause a voter backlash.  It falls only on the new house buyer, thereby allowing established homeowners, especially those, like Sir Nicholas Stern, who live in old houses, to avoid any personal cost while smugly basking in the planet-saving expenditures of those who are vastly poorer than us.  It might be claimed that (unlike the MRET schemes) these requirements have an offsetting benefit but the new home buyer would see this as inadequate (otherwise the measure would not be necessary).

Adding to those already in the pipeline is a whole raft of energy efficiency requirements proposed for commercial buildings.

In summary, Australians are incurring expenditures comprising at least the following:

• $600 to $850 million in state and federal requirement for wind and other preferred sources.
• $330 million in Federal and State subsidies and other disbursements to promote reduced emissions.
• At least $1 billion and possibly more than $2 billion in regulations on purchases, mainly houses.

The above three classes of measures alone come to $2 billion and $3.2 billion a year.  In terms of a greenhouse tax on emissions this is equivalent to $3-5 per tonne or $5-8 per tonne on the stationary sources like power plants.  While Stern estimates a tax of $US 100 per tonne would be necessary and others have put a tax at $US 24 for less draconian reductions than that emerging from the Stern recommendations of 60 per cent.  EU countries have a plethora of regulations and de facto taxes.  In addition to these, the EU has a cap and trade approach, which because governments have overstated their base level emissions to obtain more generous future caps, is currently trading at much less than one euro per tonne of CO₂.

And on top of these costs are the compliance costs caused by distortions to firms' decision making.  These include moves like that of the NSW Government to prevent the building of a power station it had contracted, Redbank 2, and the millions of additional dollars that the Victorian Government caused International Power to incur to upgrade its Hazelwood facility.  The costs of this sort of intervention are difficult to assemble but might be in the hundreds of millions and they certainly result in massive sovereign risk costs.

In addition to these are regulatory impositions on business which lead to compliance costs as firms seek to meet consumer demands in ways that avoid them.  We might be seeing a facet of these in electricity where forward prices are high but no private sector money is looking to build a coal fired power station.  Such investment inaction brings higher electricity prices as a result of the risk of future punitive action irrespective of what action might be taken.

Among these additional costs are the paperburden costs imposed on firms.  One set of these is the audits required of businesses by the government to demonstrate that they are looking after their shareholders' interests adequately in saving money on energy use.  Other than that there are massive lobbying costs as industry associations seek favours or try to avoid damage to their clients in wind, coal, hydro, transport, and building design.

This is among the matters that the Prime Minister's Task Group on Emissions Trading would have been mindful of when it said, "The sheer number of abatement programmes across levels of government also imposes compliance costs on industry, with businesses often required to repackage data for several programmes.  Regulatory approaches often impose a heavy burden of 'red tape' on industry."

Governments in Australia now say how they favour a price signal for carbon so that the market can meet the policy goals at the lowest cost.  The tradeable right variant is preferred.  Unfortunately, what politicians normally mean by making use of a "carbon signal" is not, "We will abandon all the current interventions in the market place -- the subsidies, the taxes, the regulatory requirements -- and replace them by a single scheme that uses market forces".  Rather they have heard from economists that there is a means of augmenting the measures they have in place in a way that is good and just.  The market mechanisms offer a means by which politicians can place yet another level of taxes or regulations upon us to placate the noisy interest groups that are calling for action and, possibly, to garner more revenue.

COST OF ALTERNATIVE FUEL SOURCES

The following estimates of future electricity costs (see Table 1 on the following page) draws from material assembled by SKM regarding projections of technology developments to construct a hierarchy of costs in the year 2010.  The costs of providing electricity from the various sources are listed in the third column and the costs with a CO₂ charge of $40 per tonne are listed in the final column.

Table 1:  Costs of different fuel sources for electricity

	Estimated Position in 2010
	kgs CO2/MWh	$/MWh cost	with CO2 at $40/tonne
Natural Gas Combined Cycle (low)	430	35	52.2
Natural Gas Combined Cycle (high)	430	45	62.2
Super Critical Black Coal (low)	780	30	61.2
Super Critical Black Coal (high)	820	35	67.8
Supercritical Brown Coal (low)	1000	36	76
Supercritical Brown Coal (high)	1100	40	84
Wind (low)	0	55	55
Wind (high)	0	80	80
Small Hydro (low)	0	50	50
Small Hydro (high)	0	70	70
Solar Hot Water (low)	0	80	80
Solar Hot Water (high)	0	100	100
Photovoltaic (low)	0	250	250
Photovoltaic (HIGH)	0	400	400
Nuclear	0	60	60

Of course, if the implicit price of $40 is insufficient to encourage new energy sources/bring about the required lower energy usages a higher charge would be necessary.  It has already been mentioned that Stern's recommendations, notwithstanding some optimistic assumptions about voluntary emission reductions, equates to a price of $US 100.  In that event all the fossil fuel sources would become more expensive with coal costs ranging between $124 and $172 per MWh.

Many of the assumptions about future technology improvements incorporated in the above estimates are likely to prove incorrect.

Thus, a lower price estimate for wind is $55 per MWh, a price that cannot be conceivably achieved.  Wind is now a relatively mature technology and major advances in its cost reductions are unlikely.  In addition, the inherent instability of wind and some other solar energy sources imposes additional costs in terms of ancillary services to ensure frequency control and back-up in the event of rapid changes in output.  Wind, according to the International Energy Agency, is not capable of providing more than 9 per cent of aggregate generation for these reasons.

Similarly, the natural gas cost is heavily dependent on the raw gas price.  This is at very low levels in Australia, half the price of many other countries.  Its price, having increased markedly over recent years is set to rise further and it now seems unlikely that gas based electricity, even without a carbon imposition, could be generated at less than $50 per MWh.

Nuclear costs are also uncertain and might be less than estimated since the costs themselves are enhanced by excessive regulatory oversight.  In any event, with the sort of carbon charges widely surmised to be the minimum likely to emerge from major reductions strategies, nuclear becomes the cheapest source of electricity.

There are other possible technologies like harnessing tidal flows, tapping the heat in "hot rocks" and the hydrogen economy.  None of these have advanced to a stage where any reliable estimate of costs is currently possible.

CONCLUDING COMMENTS

Kevin Trenberth is head of the large US National Centre for Atmospheric Research and key adviser in the UN's Intergovernmental Panel on Climate Change (IPCC).  In a recent contribution to Nature magazine's Climate Feedback blog, he argues "... there are no (climate) predictions by IPCC at all.  And there never have been".  Instead, there are only "what if" projections of future climate that correspond to certain emissions scenarios.

Trenberth points out that the General Circulation Models that form the basis of these scenarios fail to consider some important matters like the recovery of the ozone layer, the state of the oceans, sea ice and soil moisture.  Nor is an El Nino sequence modeled.

Such doubts about the value of the forecasts comes from a distinguished scientist not associated with the so-called "climate sceptics".  It provides a further set of reasons, in addition to those like the relatively trivial effect of any such policies that can be seriously contemplated, for proceeding cautiously with any measures requiring abatement that will bring economic damage.

Labor's new workplace relations discoveries

Lately the work reform debate has started spinning in unexpected directions.  Last week Julia Gillard criticised the government for creating a massive bureaucracy around employment regulation.  Craig Emerson seems to be picking up on free market arguments.  Dean Mighell has attacked Kevin Rudd for not understanding the "harsh realities" of industrial relations.  What's happening?

The answer lies in the significant misunderstandings about the nature and structure of the government's workplace reforms.  Unions attacked the reforms for unleashing unrestrained employer power.  They succeeded in locking in significant community concern around the "evil bosses" theme.

But the reality is that the reforms impose heavy constraints upon employers to the extent of micro managing the employer-employee relationship.  In effect the micro managing that occurred under the old industrial relations system has been transferred to the bureaucracy.  The style and content of the micro managing has changed but not the central policy thrust.

The real union complaint is that they have been dealt out of the micro managing exercise.  And for unions the reality of how workers are actually treated is of secondary importance to the need to maintain imagery of the oppressed worker.

The greatest weakness of the government has been that their new bureaucracy has taken time to get up to speed.  But it's starting to get there.  The political punt of the government is that the politics with catch up with the truth of their policy in time for the election.  That is, many voters will realise that bosses are restrained.

The ALP perhaps may be sensing this, explaining the shifting ground of Rudd, Gillard and Emerson.  The threat to the ALP is that the government's micro managing of employers may succeed in diminishing the unions oppressed worker imagery, just enough to neuter union influence with swinging voters at the election.

Hence the ALP seems to be probing for new avenues of attack.  It would be odd if they discovered the free market!

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Floods and Drought -- So What's New?

A friend who lives in the Tinderries, in the Upper Murrumbidgee Valley catchment, tells me the district's good snowfalls and snow storms of recent weeks are reminiscent of the late 1950s and early 1960s.

Of course, 1956 was a flood year in much of eastern Australia, with the 1956 River Murray flood described downstream as the greatest catastrophe in South Australia's modern history.

A year ago, Macquarie Generation -- the largest producer of electricity in Australia -- warned that with half of its water for the cooling at its generators coming from the Hunter River during "high flow events", the continuing drought meant "electricity output may be affected from late 2008".

A year later the Lower Hunter has flooded, devastating some farm businesses, and shoring up water supplies available for electricity generation.

Indeed we live in a land of drought or flooding rains.

The Bureau of Meteorology says there are signs of a La Nina being declared in the coming months bringing truly drought-breaking rains.

So, let us keep our fingers crossed that there is more snow and rain to improve the grim outlook for the next irrigation season in the Murray-Darling Basin.

"Global warming" is the biggest issue on the national agenda and, interestingly, both sides of federal politics, Labor and Coalition, are forming their climate change policies on advice from the Intergovernmental Panel on Climate Change (IPCC).

Their general circulation models (GCM) cannot account for, or explain, the La Nina and El Nino cycles which have so much influence on rainfall and snowfall in Australia.

Furthermore, there is no agreement among the IPCC scientists how global warming may affect the El Nino cycle, with some climate models suggesting there may be a more "general El Nino-type average state".

Head of the US Centre for Atmospheric Research, and a key advisor to the IPCC, Kevin Trenberth, recently cautioned against using any of the models from the IPCC for predicting climate.

He emphasised the IPCC models were all "what if" projections of future climate that correspond to certain greenhouse gas emission scenarios.

They aren't forecasts.

It is interesting to ponder such an admission while listening to many experts claim the "science is settled".

Indeed, many politicians and environmentalists give the impression that climate change research is an exceptionally dull field with little left to discover, just the knowledge that the earth will warm and there will be more droughts.

These days you are a brave person if you publicly declares any scepticism of the projections.

I am sure there will be both more droughts and also more floods in the future -- but nobody, least of all the IPCC, seems to be able to tell me when or where they will occur.

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Policy builds on irrationality

On Monday, Labor leader Kevin Rudd released the document New Directions for Affordable Housing.  This rejects the best solutions for an affordable housing future and takes the party back to the economic irrationalist days of Gough Whitlam.

The document shows how houses have risen in price but denies the main factor causing this -- regulatory restraints on the use of land for housing.  There is abundant land around Australia's cities that as farmland is worth $5000 a hectare.  This translates into $500 a housing block.

Miraculously, the value of the farmland as a basic housing block becomes worth more than $ 150,000 to $300,000 once it is permitted to be used for housing.  On top of this are the costs -- $50,000 to $70,000 -- of servicing a block of land with sewerage, roads, telecom lines etc.

It is regulation, not land scarcity, that is creating the present excessive housing land prices.  Only 0.3 per cent of Australia is urbanised.  Abundant land is available for development on the edge of all our cities.  This is true even in Sydney, which is constrained by national parks and the Blue Mountains.  Perth, which has had raw land prices treble over the past dozen years, has oceans of low-quality grazing land on its doorstep.

The price increase caused by state government regulatory "planning" restraints is incorporated into the ultimate price of a home.  That cost is amplified by excessive levels of taxation and spurious state and local development charges, to which the ALP policy document rightly draws attention.

It is also aggravated by regulatory measures requiring new homes to have expensive energy-saving features, matters about which Rudd's document is silent.

Land costs are the main cause of rising housing prices but the ALP document argues that land supply is unimportant.  It cites several people with links to major developers in support of this view.

But, to use the Mandy Rice-Davies aphorism, "They would say that wouldn't they?"  Asking permit holders whether additional permits should be created is like asking publicans whether they support the licensing of another pub near by.

Labor is constrained in its immediate policy options by having wall-to-wall ALP state governments holding the land availability levers.

Other considerations in its policy thinking are the pressures of the anti-growth greens, and Labor's housing spokeswoman.  Tanya Plibersek, is personally vulnerable to these threats in her own inner Sydney electorate.

In addition, the policy offers the ALP Left an opportunity to engage in a piece of nanny-state business bashing:  it proposes cracking down on unscrupulous lenders who are said to be encouraging people to borrow more than they can repay.  Such statements reek of ignorance about the business world, which has strong incentives to avoid the costs of foreclosing on delinquent borrowers.

Shadow treasurer Wayne Swan has previously argued against increasing housing land supply, saying this would reduce the price of established houses.  That may well be the case, but is then the solution continued restraint and an inevitable ratcheting up of prices, denying young Australians the dream of home ownership?

Hence, Rudd is left with interest rates with which to blame the coalition government for house prices.  Yet interest rates have been rising globally, with a negligible house price effect in most areas of the US and Canada, where restrictive land supply policies are not in place.

The ALP housing policy has clearly been prepared within a maelstrom of general strategic considerations:  the need to attack the Howard government on interest rates, the only area where it is remotely vulnerable;  constraints on addressing the main cause, the policies of its brother state governments;  reducing the target sitting members present to inner-city greens;  avoiding alarming existing home owners with possible house price reductions;  and a flailing at phantom rapacious lenders.

All that considered, the policy needs to be assessed within the context of its analytical framework.  In this respect, it fails largely because it demonstrates gullibility about the relationships between supply, demand and price in housing.

This raises broader issues about the party's economic credibility because the same paradigm could be used to argue that money supply does not matter for inflation.

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The snobbery of Melbourne 2030

Suddenly politicians have discovered our housing unaffordability "crisis".  They ask themselves why, if the economy is booming, are homes so unaffordable.  It's not as though there's a shortage of land.

Although there's more than enough land, people are not allowed to build houses on it.  State governments have done everything in their power to restrict the building of new homes in new areas.  It has been a deliberate policy of governments around the country to limit "sprawl" in favour "consolidation" (code for high-density development).  There's one flaw to this grand plan.  Few people want to live in high-density accommodation, and existing residents don't want to live near it.

For all the talk about housing unaffordability, there's no mystery to the cause of the problem.  The economics of house prices is simple.  If the demand for something exceeds supply, its price goes up.  In Melbourne over the past 30 years, the cost of constructing a new house has matched inflation.  But the cost of land has increased by more than twice the rate of inflation.

While housing unaffordability in Melbourne is not yet as bad as in Sydney, all capital cities are suffering from the same nationwide phenomenon, a shortage of housing.

On Monday, Kevin Rudd announced federal Labor's response.  While he acknowledged the issue of land availability, he said that "excessive land release could, however, lead to (reductions) in the value of properties in neighbouring suburbs".  Yes, this would happen -- and it would be a good thing.  The ALP can't have it both ways.  Either it wants more affordable housing or it doesn't.

The State Government refuses to accept that Melbourne's families want to live on a quarter-acre block in a house with a backyard.  Further proof of this came last week with the release of the 2006 census data.  Our fastest growing suburbs, such as Melton, Whittlesea, and Pakenham, are those where people live in houses, not apartments.  In these areas, the increase in population has been much faster than the Government predicted.  In older suburbs such as Essendon and Box Hill there has been almost no growth.  This lack of growth in traditional middle-class suburbs is being blamed on local residents opposed to high-density development.

Three years ago, the State Government was bewildered by the reaction of Mitcham residents who didn't want to live near a 17-storey apartment building.  This bewilderment is a testament to how far removed the Government is from community attitudes on this issue.

Victorian Planning Minister Justin Madden refused to be interviewed about the census figures.  This is hardly surprising given that the census is proof that the state's planning policies have fundamentally failed.

In 2002, the Bracks Government launched its planning policy, Melbourne 2030.  The key point of the policy is that housing development is limited to specified growth corridors with any building outside those corridors being prohibited.  The State Government has refused to consider the alternative strategy of setting planning guidelines and allowing local councils to implement them.

The only thing that Melbourne 2030 does is deliver windfall profits to property developers who are lucky enough to have their land inside the corridor.  The planning rules have proved so unworkable that the corridor boundaries have been changed five times since 2002.

The supposed justification for Melbourne 2030 is that high-density accommodation is environmentally and socially preferable to low-density suburban housing.

The environmental argument is dubious.  Around the world high-density cities have worse air pollution and worse infrastructure problems than low density cities.  New services, for example broadband, are more expensive to install in old suburbs than in new ones.  The social argument is also ill-conceived.  International research shows that families living in new suburbs have a stronger sense of community and connection with their neighbours than those living in older suburbs.

Melbourne is not the sprawling metropolis that its critics make it out to be.  On a worldwide scale Melbourne's density is average for a city of its size.

The motivation behind policies such as Melbourne 2030 is not environmental or social -- it is ideological.  Architects and urban planners who have no knowledge of and no interest in how most people live are trying to foist onto others their own vision for Melbourne.

There is a deep-seated hostility to the values of those who choose to settle in the suburbs.  The inner-city with its theatres, bookshops and cafes is assumed to be the epitome of cultural sophistication while Kath and Kim country is dismissed as a wasteland.  Anyone is entitled to their opinion about how other people live.  But when intellectual snobbery turns into bad policy then we have a problem.

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Economics is history

If any proof that history matters was needed, it has certainly been provided in the past week or so.

First, there was some vigorous historical debate between John Howard and Paul Keating about who contributed most to the economic reforms of the recent decades.  Both the former prime minister and the incumbent sought to claim as large a share of the credit as possible for reforms that have done more than anything else to shape modern Australia.

Then, a draft copy of the proposed new secondary school Australian history curriculum found its way into the media.

This document does not consider the fundamental economic reform of the past quarter century worthy of mention.  Yet, it does find space for consideration of cliched left-wing causes celebres such as protests against the Vietnam War, the Dismissal (of the Whitlam government) and the Mabo judgment.

While Howard and Keating may not agree on much, they would both agree that the process of economic reform has been a crucial development in Australia's history.

The question therefore needs to be asked why it is not included as a possible topic in the national history curriculum that has been drafted in the wake of the History Summit which the Howard Government held last year.

The revelations about the draft curriculum certainly make more sense of the recent announcement by Education Minister Julie Bishop that a four-person reference group was being set up "to provide advice on a model curriculum to be used as the foundation for the teaching of Australian history in Years 9 and 10".

In other words, they will provide some much-needed reworking of the draft history curriculum.

From what has been made public, the draft curriculum clearly fails to meet the Prime Minister's original stated aim for federal intervention to bring a "root and branch renewal" of history teaching.  It is probably an improvement on the Studies of Society and Environment (SOSE) subject taught in most states.

At least a new stand-alone history subject may be better than what one critic described as the "new aged and one sided" Queensland SOSE curriculum that was introduced in 1999.

However, the national draft, in its current form, does not bring back the sort of structured narrative that would make sense of the past for students.

Nor would it infuse in them the joy of learning history that comes much more readily in a narrative approach.

There also remains the overriding concern, which has not been properly addressed since this whole process started, of how the renewed focus on Australian history in Years 9 and 10 is to be placed within an overall history syllabus at other year levels.

The Howard Government now finds itself having to set up yet another reference group and having to defend itself from renewed attack from various elements of the history establishment and opportunistic politicians.  These critics have attacked the inclusion of Geoffrey Blainey and Gerard Henderson in the group.

The main gripe with Henderson being included is that he is not a professional historian or a teacher of history.  He has done a good job of defending his own claims -- a history PhD, a couple of history books, journal articles and so on.

However, Henderson's appointment has still attracted the same sort of sneering around the academic community that the choice of journalist Les Carlyon as joint winner of the Prime Minister's history prize has also generated.

What Howard and Bishop have attempted highlights the difficulty of top-down reform.  At some point, the Government has to let the curriculum leave the summit, or leave the reference group, and at that point it will be taken over by academics and schoolteachers.

These "history professionals" will want to ensure that all well-educated students leave school knowing that Australian participation in the Vietnam War was wrong, the Dismissal was an assault on democracy and that the Mabo judgment was one of the few high points in Australian history.

As for the economic reform of the 1980s, students sadly will be left to wonder what on earth Howard and Keating are arguing about.

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The Second World War's brutal prelude

The Battle for Spain:  The Spanish Civil War 1936-1939
by Antony Beevor
(Weidenfeld & Nicolson, 2006, 584 pages)

The formal date for the beginning of the Spanish Civil War is the army's attempted coup of 17 July 1936, but many would say that the catalyst was the assassination of the leader of the (right) Parliamentary Opposition, Jose Calvo Sotelo, five days earlier.

But if that's the chain of events, surely the assassination of the prominent Socialist, Jose Castillo -- for which Calvo Sotelo was swift revenge -- was what set the ball rolling?

More likely, according to historian Anthony Beevor, the point of no return was reached even earlier, in 1934, with the attempted "rising" against the (then) conservative government.  After that, the fear of being attacked and persecuted by the other side could only increase, and that fear drove thoughts of pre-emption and the need for a pitiless social cleansing (the limpieza in the parlance of the right).

Anthony Beevor handles these conundrums of causality diligently and deftly.  He outlines the major political machinations and the progress of the military campaigns, but does not rest there.  In each case he pushes to understand the forces behind events, such as the political machinations behind many of the military defeats suffered by the republican forces.

By 1937, the Moscow-aligned Communists had effective control of the army and were determined to launch repeated assaults, to prove their "anti-fascist" credentials and gain further political power inside Spain.  This led to the selection of targets with no military value, utilising bloody frontal assaults, with the inevitable reverses made worse by a refusal to countenance tactical retreats.

Defeats were blamed on the sabotage of supposed "fascist spies" or phantom Trotskyites who would duly be identified by NKVD agents and shot, destroying morale and exacerbating paranoia.  The International Brigades of "anti-fascist" volunteers were not spared this treatment and the recruitment of further such troops ground to a halt.

Before the partly-successful army coup and subsequent civil war, Spain had had five years of republican democracy since the departure of the last in a series of ineffectual and unpopular monarchs.  Since 1931, the left had come in and gone out, and then a Popular Front won the 1936 poll.  At each turn, the stakes had become higher, the left resentful of the dismantling of what reforms they had managed to put in place, and the right fearful of Socialist leader Largo Caballero's over-the-top promises of a forthcoming "revolution", with all the implications of a Leninist bloodbath carried by that word.

Despite the supposed dominance of "fascists" and "communists" there was an astonishing proliferation of political groups on both sides.  Before the coup, the only formally fascist organisation, the Falange, probably had no more than 30,000 members and had to compete for attention on the right with the ultramontane "Carlists", the mainstream Catholic party (CEDA), conservative republicans, (somewhat) liberal monarchists and even a so-called "radical" party, which had supplied the Prime Minister in the right-wing government.

On the left, the mainstream liberals were swamped by descendants from all branches of the family tree of radicalism.  Proudhonite socialists (PSOE) carried on the ideological debate against the Marxists, while the latter had bifurcated into the Moscow-aligned PCE versus the independent (and not formally Trotskyite) POUM.

Perhaps most appealing to the romantic imagination were the anarchists, who traced their origins to Marx's old antagonist, Mikhail Bakunin, and who, through their affiliated trade union and massive membership, wielded real power.

Once in firm control, Generalissimo Franco amalgamated by fiat the major political organisations of the right, with Falangist and Carlist units operating within the regular army chain of command.  By contrast, the Moscow-aligned forces and the anarchists fought both political and sometimes actual battles with each other throughout the war.  The Stalinists controlled the main republican forces and couched their efforts to bring the anarchist and POUM fighters under a centralised military command in terms of military necessity, but their clear political objective was to destroy the other parties of the left as independent political entities.

Both left and right also had to cope with the regional aspirations of the Basques and the Catalans, but in managing the various tensions the right was ultimately more successful.  Beevor says:

The Spanish Civil war has so often been portrayed as a clash between left and right, but this is a misleading simplification.  Two other axes of conflict emerged:  state centralism against regional independence and authoritarianism against the freedom of the individual.  The nationalist forces of the right were much more coherent because, with only minor exceptions, they combined three cohesive extremes.  They were right wing, centralist and authoritarian at the same time.

Beevor's account of the many factions and personalities, particularly in the early parts of the book, can be hard going.  Unlike the accounts of WWII, few of the key personages, cities, and battles are familiar and repeated reference to the (excellent) maps is required.  Wikipedia is also an invaluable aid to readers.

Also hard going is the unrelenting brutality described by Beevor.  Orwell pointed out that, in the polarised politics of the time, atrocity stories were believed or disbelieved according to ideological allegiances, but in truth both sides were capable of unrelenting viciousness.

The carpet-bombing of the Basque spiritual home at Guernica by the German Condor Legion was made famous by Picasso, but the true horror lies in countrymen engaging in highly personal slaughters of their supposed class enemies.  In the province of Badajoz, for example, estimates of the nationalist (Francoist) killings range from 6,000 to 12,000, and this was after the main battle.  Within the Republican zone -- the areas which had stayed loyal to the Popular Front Government, including Madrid, Barcelona, Valencia and the Basque country -- the killings were driven more by local action than direction from the centre, but Beevor nevertheless puts the figure for victims of the Red Terror at 38,000.

Part of the explanation for the viciousness lies in the economic backwardness of Spanish society and the social distance this created between landless peasants and urban workers on the one hand, and the landowners, church, and army on the other.  In the nineteenth century, while the rest of Europe was moving forward, the Spanish aristocracy and the army were stuck in a reverie for the glory days of Ferdinand and Isabella.

The Church functioned as an arm of the repressive State, providing it with its symbolic legitimacy, drawing upon it for funds to support a bloated priesthood, and acting as its eyes and ears in the villages.

The role of the Church partly explains (but does not excuse) the often bloody anti-clericalism of the left in Spain, in contrast to Ireland or Poland where the priests were allies against the oppressor.  At the outbreak of the War, there were widespread massacres of priests and nuns, and the Church aligned (even more) firmly behind the Nationalists.  Mussolini's provision of assistance to Franco (up to 60,000 troops) increased his political support from conservative Catholics at home.

Beevor, also the author of Stalingrad and Berlin:  The Downfall, explains how the major powers reacted to the Spanish Civil War.  A League of Nations "non-intervention committee" became a shield behind which Soviet, Italian and German activity increased.  Only Britain, France and the US took it seriously, starving the republican forces of arms and equipment and driving them into further dependence on the Soviets.

It was at the time the golden age of appeasement, and British Foreign Minister Anthony Eden believed he could avoid conflict with Germany and perhaps keep Spain out of the axis camp.  Beevor claims, controversially, that a disgusted Stalin realised that he could not count on Britain in any resistance to the Nazis, and therefore moved towards the Non-Aggression Pact with Hitler of August 1939 (only four months after their forces had been fighting each other in Spain).

The left mythology of the war holds that, with British and French support, Spain could have become the first and decisive response to fascism, but even as the tide turned after Munich, those countries could not have diverted resources from their own belated defence preparations.  In a bizarre coda, Franco told Hitler in 1940 that he was willing to join the axis forces, but his demands for cash and materielwere so outrageous that a frustrated Führer passed on the offer.  After 1945, an ever-duplicitous Franco would conveniently forget this, trumpeting his "neutrality" in WWII and courting the US as the Cold War gathered pace.

One of the many tragedies of the war is that it brought forward a repressive Fascist regime, an outcome impossible if ordinary politics had continued.  Unfortunately, ordinary politics could not be managed in a splintered and immature polity, and the centre did not hold.

While typically seen through the prisms of ideology and of the wider conflagration that followed, this was a war with local roots, as captured brilliantly in this definitive account.

Libertarian ascendancy

Radicals for Capitalism:  A Freewheeling History of the Modern American Libertarian Movement
by Brian Doherty
(PublicAffairs, 2007, 768 pages)

If one relationship illustrates the uncomfortable and slightly paradoxical relationship between modern, big-tent conservatism and the radical libertarian movement, it is the one between Barry Goldwater and Karl Hess.

Hess was first and foremost an activist, standing in contrast to the more numerous academic types who constituted the American libertarian movement in the 1960s and 1970s.  He was firmly counterculture.  He sported a Castro beard, and dressed in that same South American revolutionary style.  While Hess's right-of-centre credentials were firmly entrenched -- as a journalist for Newsweek he had expressed what was seen as an unbecoming enthusiasm for McCarthy-era anti-communism, and his own writing was strongly libertarian, as well as staunchly anti-war -- he conspicuously allied himself with the New Left in the latter half of the 1960s.

Barry Goldwater, whose ideological footprint was stamped with his ghost-written Conscience of a Conservative, was the 1964 Republican nominee for President.  Goldwater's foils were the Soviets and liberals, in equal weight.  And Karl Hess, the future counterculture icon, was his unlikely speechwriter.

By the early 1970s, Hess's position as a libertarian anti-war protester had been the subject of numerous profiles in the mainstream press.  His relationship with Goldwater was, however, just as strong.  Hess maintained that Goldwater, despite his position as the proto-typical American conservative, was still a perfect fit for his libertarian anti-war coalition, telling the Washington Post that "I don't know anybody who would make a better Weatherman" -- the anti-war terror cell of the radical left.  In an almost beautiful vignette of improbable friendship, Goldwater, bumping into Hess on opposite sides of a rally outside the capital in 1969, pulled him aside to asked him to "give me a call as soon as you're free".

Libertarianism, as Bryan Doherty's Radicals for Capitalism:  A Freewheeling History of the Modern American Libertarian Movement reveals starkly, has always existed uncomfortably alongside its fair-weather partner, conservatism.  Libertarians, as Doherty points out, often have close personal and institutional connections with the traditional right -- they share the same think-tanks, libertarians are often members of the dominant right party, and the two make common cause on many issues, particularly free market economics.

But in the areas of sex, drugs, some science issues such as cloning and stem-cell research, and (often) war, libertarians deviate sharply from the conservative movement.  Ayn Rand, in her typically venomous, Randian manner, held conservatives ranging from National Review's William E Buckley to Ronald Reagan in utter contempt, dismissing them as wallowing in the "God-family-country swamp".

And that swamp is repelled by libertarians' radical views on emotionally charged issues, some of which can border almost on satire.  Libertarianism often rejoices in how off-putting its beliefs are, relishing its outsider status.  Doherty quotes a founder of the New York State Libertarian Party who says that "hard-core libertarian-ism has no mass constituency ... there is no mass constituency for seven-year-old heroin dealers to be able to buy tanks with their profits from prostitution".

Doherty structures Radicals for Capitalism around five major figures:  four economists, Ludwig von Mises, Friedrich Hayek, Murray Rothbard & Milton Friedman, and a novelist, Ayn Rand.  The title of Doherty's book itself is in part a compromise for Rand, who hated the term "libertarian" in the same manner that she hated everything else.

But around these well-knowns, Doherty brings in their intellectual ancestors and heirs, and many other peripheral figures largely ignored by modern libertarians.  For instance, Doherty profiles the group Spiritual Mobilisation, Christian libertarian pamphleteers who splintered out of Leonard Read's Foundation for Economic Education (FEE).  (Libertarian mythology, for some reason, tends to downplay the importance of explicitly Christian free marketeers -- the Spiritual Mobilisation group have suffered from the same selective memory-loss that the Free Bible Movement has suffered from in the popular mythology of the free trade Anti-Corn Law movement).

Modern libertarian thought has coalesced around the United States and, as Doherty points out, rightly so.  Read your Constitution;  there has scarcely been a stronger declaration of the rights of the individual.  But the history of nineteenth-century America depicts the demise of anti-statism as the dominant American ideology.  Radicals for Capitalism -- after briefly surveying proto-libertarians such as Supreme Court Justice Stephen Field, Yale political scientist William Graham Sumner and political philosopher Herbert Spencer -- begins the twentieth century with what were, by then, termed the "Old Right" -- a small, disconnected cadre of anti-statist intellectuals repulsed by Franklin D. Roosevelt's fascistic New Deal.

The intellectual isolation of the Old Right in the country that should be most receptive to its ideas sets the trajectory of the Libertarian movement until at least the 1970s.  Movements cannot thrive without an institutional base.  Anti-staters before the Second World War were first and foremost intellectuals, and produced a large amount of material.  But they failed to reassert themselves in the intellectual landscape of the time, let alone dominate it.

They were not helped by their theoretically incomplete political and economic programme -- Ludwig von Mises and Friedrich Hayek were still formulating their comprehensive treatises before the war.  The Old Right was an informal coalition built around a hatred of Roosevelt.

Libertarians emerged from the war even further from the intellectual Zeitgeist.

No post-war libertarian set the tone and structure of the movement more than Leonard E. Read.  Read was a refugee from a pro-business lobby group which was usually free-market, but had the frustrating habit of providing an outlet for "both sides" of any given debate.  The anti-market side, Read thought, already dominated public debate -- why build them another platform from which to attack American capitalism?

Read left the lobby group in 1946 and founded The Foundation for Economic Education (FEE) -- the prototypical free-market think-tank.  Read's and the FEE's approach was, as the name suggests, a purely intellectual and educative endeavour.  FEE's mission was to provide the intellectual stimulant for the remnants of American anti-state thought, and hopefully to convince others, through argument alone, of its merits.

The FEE defined the structure of Libertarianism.  Until the Vietnam War era, libertarians almost uniformly focused their activities on education and intellectual outreach.  "Full-service" think-tanks, specialist schools such as the charismatic Robert LeFevre's Freedom School, and outreach organisations focused around varieties of libertarian thought such as Ayn Rand's objectivism -- the movement spent the post-war decades building up the institutional base which it had lacked for most of the country's history.  Having been largely expelled from the government-supported educational establishment and its lucrative tenure tracks, libertarian intellectuals have had to be both scholars and entrepreneurs to stay afloat.

It wasn't until the late 1960s and 1970s that these efforts really started to pay off.  A new generation of libertarians mixed activism over academia, aping the activities of the left.  The Libertarian Party held its first convention in Denver in 1972.

Karl Hess -- as far from a Read-style educator as can possibly be imagined -- with other young libertarians strategically aligned himself with the New Left.  It was not a particularly comfortable fit.

The movement was still dominated by intellectual types -- as it is today.  But as these intellectuals gained confidence, their proselytising took a more public dimension.  Doherty relates a particular prank of the Circle Bastiat Boys, a group comprising Murray Rothbard, Leonard Liggio, Ralph Raico and others:

One of their favourite stunts involved filling the studio of a televised talk by the governor of New Jersey, hitting him with questions as if their ideological universal was the norm and his some sort of aberration.  "What, governor?  You are for public schools?  Where did you get such strange ideas?  Can you recommend any books on the subject?"

The libertarian movement in the 1970s was a dramatically different one from the isolated remnants faced by Leonard Read, and its expansion was in no small part his achievement.  Resembling the state of the movement in 2007, libertarian ideas formed the basis of a magnificent variety of sub-culture groups.  And not just famous groups such as Randian Objectivists or Young Americans for Freedom.  They also formed a quite sizable part of the hippy and drug movements, science fiction writers, and fans, even early computer enthusiasts.

A proliferation of small independent zines were produced across the country, amongst them Efficacy, Rights by Right, Bull$heet, Living Free and Invitu$.  The now-widely circulated Reason Magazine, of which Doherty is a senior editor, was founded in 1968 as a movement zine, dedicated to libertarian gossip and libel.

Libertarianism is a large enough movement to spread out well across the academic/ activist divide.  However, by the 1990s, it is possible to speak of "establishment libertarianism".  Libertarian arguments are, certainly, a constituent part of liberal economic theory.  How much the "radicals" of Doherty's book propelled the general policy drift towards free markets around the end of the century is an open question.  We know that Milton Friedman and Friedrich Hayek had a significant impact by the concrete policies and politicians directly inspired by the two academics.  But individualists such as Andrew Joseph Galambos, who argued that his ideas were so firmly his private property that you had no right even to describe them to others, perhaps not so much.

The Adam Smith Tie establishment -- a network of libertarian-leaning academics and policy-wonks centred around free-market focused think-tanks such as the Cato Institute -- has arguably been the movement's greatest political asset.  The employment stability, institutional base and open forum that think-tanks have given to free market writers, thinkers and activists contrasts with the unfortunate isolation faced by Mises, Hayek, and even Rothbard (although, one suspects, Rothbard's instability was partly of his own making).

These institutions have also provided public credibility for libertarian ideas, even if they by necessity have had to couch their message in practical, rather than moral terms.  One political philosopher, writing for Cato recently, titled his essay on broadcasting the libertarian message "I'm not a utilitarian, but I play one on TV".  The individuals who work at think-tanks typically have a wide span of philosophical views, but the messages they broadcast are more Friedmanite practicality than Randian moral elitism.

Although Doherty's book is not an intellectual history, he handles the intellectual issues clearly and honestly.  His discussion of Albert Jay Nock's Our Enemy the State, a foundation text of the Old Right, reveals its uncomfortable ideological fit -- its place amongst college-age libertarians is earned almost entirely by the quality of its title.

For an Australian reader, Radicals for Capitalism suffers a little from its scope.  Little sense -- at least once the Austrians Hayek and Mises move to America -- is given of the international environment of the American libertarians.  Doherty notes the role of Antony Fisher, a founder of the UK's Institute of Economic Affairs, at franchising his think-tank model across the United States, but, with those few exceptions, American libertarianism is a closed shop.  This is perhaps an unfair criticism -- Doherty's book is unambiguously a history of the modern American libertarian movement -- so a synthesis of world-wide radical pro-capitalists remains to be written.

Despite its dramatic gains over the past 50 years, libertarianism still remains as marginalia in American politics.  The New York Times review of Radicals for Capitalism demonstrates this neatly.  The reviewer, an economics writer named David Leonhardt, after quickly dismissing libertarian ideas as a rhetorical aberration, dug through Doherty's book to cherry-pick as many bad things as they could find -- Milton Friedman in Pinochet's Chile, Rothbard's youthful flirtation with the segregationist Presidential candidate Sturm Thormond, and the anti-Semitic Merwin Hart (whose name is mentioned exactly once, and in an obviously negative context).  Leonhardt complains that "the book fails to ask why people who claim to love freedom have so often had a soft spot for those who would deny it to others".  It would be hard to make the case that Doherty's book describes a libertarian movement that didn't care about human, political and economic rights, but in the hands of the establishment left, that is its inevitable conclusion.

He ends his review, appropriately, with a discussion of global warming -- whatever you think about the left, they sure are focused.

Leonhardt's ignorance of libertarian beliefs and principles is, to be charitable, a reflection of the publishing and writing industry's reluctance to produce books about the ideological foundations of the free market or the conservative sides of politics.  Sprawling and comprehensive, Radicals for Capitalism replaces Jerome Tuccille's now 30-years-old It Usually Begins with Ayn Rand as the "official" movement history.  Doherty contextualises libertarian figures like Friedman and Rand amongst their peers in the wider movement and produces, as a result, a broad picture of an ideology in its ascendancy.

Against group-think

What's Left?  How liberals lost their way
by Nick Cohen
(Fourth Estate, 2007 400 pages)

Whatever else one can say about the left over the last century or so, it is clear that it has always taken its fantasies for reality.  The great value of Nick Cohen's What's Left:  How Liberals lost their way is that the author, as one of the left's own, is saying what the rest of us already know.  Impervious to criticism, the best way to stir up the worker bees is to have a good old apostate spilling the beans.

In this limited sense, the book does have the satisfaction of displaying the "Christopher Hitchens" effect -- authors and intellectuals of the left who question the confused moral priorities of their ideological siblings.  Unfortunately, these critics are briefly listened to, but quickly dismissed.

Cohen's message is blunt:  the left, through its uncompromising hatred of America and self-loathing for Western democracies, has managed to back and support Islamic clerical fascism and other vile regimes around the world that would have been anathema to the left in earlier times.

Some critics have suggested that Cohen's book is simply about the Iraq war, and that his zealous support for it ignores the legitimate concerns about destabilisation in the Middle East and the rising influence of Iran.  Cohen pre-emptively counters these attacks.

This book isn't all about Iraq or mainly about Iraq.  It raises questions about morbid symptoms on the liberal-left which were there before George W Bush and Tony Blair came to power.

Throughout the book he asks why the left supports fascists "who believe in the subjugation of women, the killing of Jews, homosexuals, freemasons, socialists and trade unionists".  He asks why men and women of the left were denying the existence of Serb concentration camps and why Palestine is a cause for the liberal-left but not China, Sudan, Zimbabwe, the Congo or North Korea.  In short, "why is the world upside down?"

But Cohen displays a considerable amount of naivety if not disingenuousness.  Any number of people could have told him at any time that the left has always been attracted to monsters such as Lenin, Pol Pot, Stalin and Mao Tse-tung.  Is it surprising that they now sympathise with Mugabe, Rafsanjani, Kim Jung II, and even Saddam Hussein in white Y fronts?  Should we celebrate this partial conversion of a man who proudly confesses that:

Like the fellow travellers with the Hitler-Stalin pact, I couldn't walk and chew gum at the same time;  criticise the faults of democratic governments while supporting democracy against it enemies.

Notwithstanding these irritations, particularly enjoyable is Cohen's sustained criticism of the left's outrageous heroes Noam Chomsky, Michael Moore, and George Galloway, along with other familiar fools, Tariz Ali, Robert Fisk, Ken Livingstone, Richard Dawkins and Arundhati Roy.  But although he chastises Chomsky's attacks on Western "hegemonic" capitalist media as conjuring up, as Cohen puts it, "the old notion of false consciousness that Friedrich Engels invented in 1893 after Karl Marx's death", he supports, perhaps predictably, Chomsky's list of Western "felonies", including its involvement with Vietnam, and the overthrow of Allende's "democratic" regime in Chile.

Overall, Cohen is attempting to make amends for the chronic dishonesty of the left.  Anthony Daniels (aka Theodore Dalrymple of Spectator fame) observes that, at heart, Cohen is an idealist for whom intractable reality does not really exist.  But that, in the end, he "veers strongly towards honesty".  Whether the book really does wake many on the left is yet to be seen.

Friedman's benchmark

Milton Friedman:  A Biography
by Lanny Ebenstein
(Palgrave Macmillan, 2007, 272 pages)

Since Milton Friedman died in November last year, there has been a plethora of writing dedicated to one of the most influential economists of the twentieth century.  Ebenstein's biography is unintendedly timely -- the author received word of Friedman's passing only days after he completed the book.

Friedman himself was interviewed five times by Ebenstein over the last seven years, and helped review preliminary drafts of most parts of the book, as well as maintaining correspondence with Ebenstein throughout the project.

As one would expect with the subject keeping a close eye on the work, this is a fairly uncritical biography.  Some of the actual application of Friedman's ideas, particularly in relation to monetary policy, could have been discussed at greater length.  There is more criticism in this book from Friedrich Hayek than there is from the emerging New Keynesians who would, one imagines, have been more rigorous.

The strength of this book is its simplicity.  There will be continuous debate over the intellectual and technical merits of Friedman's work for many years to come.  Ebenstein has provided a very readable overview that will appeal to the layperson.  It has been said before that the success achieved by Friedman was due to his constant efforts to reach out to three key groups -- politicians, academics and the public.  This is most certainly a book for the public.

Even so, many will be interested to read about his technical abilities, particularly those who are accustomed to thinking of him as a political philosopher.

His work at the Statistical Research Group during the Second World War saw him indirectly involved in the Manhattan Project, attempting to find statistical measures that would allow the detonator of the atom bomb to function properly.  During this period he helped calculate the optimal number of pellets in anti-aircraft shells, was involved in designing anti-aircraft projectile fuses, and contributed to the development of sequential analysis.  It was only later that this maths whiz became the leading free-market advocate we know him as today.

This early career, which highlights his incredible statistical and mathematical skills, helps to explain his success in future public policy debates.  Friedman's emphasis on the importance of empirical evidence in economic theory, and its predictive abilities, not only strengthened his proposals but also forced him to understand his opponents.  Often he would better understand the case for government intervention than the people he was arguing against.  Indeed, his impeccable debating skills are now legendary, available for all to see in his Free To Choose television series.

One student of Friedman's, Robert Lucas, recalls his graduate classes:

It was not dismissal I feared -- no graduate student would have been dismissed ... but the exposure of my confusion next to Friedman's quickness and clarity.  He would engage a particular student in a dialogue, and once engaged no escape ... was possible.  [Exit] lines like "Well I'll have to think about it" were no use:  "Let's think about it now", Friedman would say.

There are plenty of amusing and insightful anecdotes from Friedman's time in Chicago, and Ebenstein's coverage of this period should be of particular interest to students wishing to undertake a similar path.  The rigorous mental work demanded by Friedman and the incredible minds that emerged from Chicago during his teaching have provided an ambitious benchmark for future defenders of the classical liberal cause.

Again, having the subject review the book creates certain weaknesses.  Any assessment of why Friedman acted in a certain way will come from Friedman's mouth.  There is no detailed assessment on the author's part, nor any of the psychological analysis that is so fashionable with biographies these days.  For some, the latter may be considered a strength.

This is not Ebenstein's purpose, though, and no doubt the definitive multi-volume biography has yet to come.  Nonetheless, Ebenstein has successfully produced a book that provides a very readable summation of Friedman's career and his ideas, particularly suitable for the layperson to whom Friedman himself took the effort to reach out.

The problem of staffers

Power Without Responsibility
by Anne Tiernan
(UNSW Press, 2007, 304 pages)

It is best not to judge this book by its cover.  A darkened John Howard in the foreground, with two key staffers highlighted in the background and a quotation that says the author "shines light into some of the darker corners of government" certainly gives the impression that the reader will get the usual Howard-hating, threat-to-democracy screed.

Although the book does devote a perhaps disproportionate amount of space to what the children overboard issue revealed about staffing, Anne Tiernan's work overall provides quite a balanced account of how ministerial advisers have grown both in numbers and importance at the federal level in the past 35 years.

She takes her narrative back to the election of the Whitlam Government and explains that, after 23 years in Opposition, Whitlam and his ministers wanted to avoid "being 'run' by Canberra's permanent public service elite" and so wanted "to seek alternative sources of policy advice".  Hence, the modern adviser, located in the ministerial office, was born.

At times, as she traces the history through successive governments, the work reads a little too much like an extended literature review.  Better to err too much on the side of recognising previous work in a field, however, than appear oblivious to it.  There is also plenty of original material, gleaned from interviews with past and present staffers and members of the press gallery, almost all of whom appear anonymously.

Another pleasing aspect of her work is that she has looked at the examples of other countries (US, Britain and Canada).  This seems an obvious thing to do, but many writers on public policy seem to operate in a nationalistic vacuum.

Tiernan touches on the differences between federal and state ministerial office arrangements, but could have devoted more space to this topic.  The co-location of ministerial offices and departments at the state level clearly changes the dynamics, generally for the better.  The geographic isolation from departments federally probably contributes to the greater use of public servants as Departmental Liaison Officers, a measure that blurs what should be clear distinctions between ministerial staff and public servants.  Another questionable practice, seemingly more prevalent at the federal level, is ministerial staff signing correspondence.  On the other hand, one feature of state governments that fortunately has not been replicated at federal level is the centralised media unit.

For Tiernan, the foundation principle of staffing is that the ministers would take responsibility for their staffs' actions.  She sees that principle breaking down under the Howard Government in the cases of travel rorts and children overboard.  The actions of Peter Reith's media adviser, Ross Hampton, in relation to the latter, are examined forensically.  A little less focus on this hobby-horse issue and a touch more on, for instance, the role of advisers in the budget process would have rounded out the book better.

More problematic than the actions of individual advisers in particular situations is the role of bodies such as the previous Labor Government's National Media Liaison Service or the current Government's Government Members Secretariat.  They get off surprisingly lightly.

Adding to my initial trepidation about this book was the fact that it forms part of the Australia and New Zealand School of Government series on contemporary issues in Australian government, politics and public management.  Maybe my reluctance was unfair, since I had read only one other book in the series, but The Australian Electoral System:  Origins, Variation and Consequences was so full of basic factual errors and inaccessible language that one had to be sceptical about its companion volumes.

Anne Tiernan has produced a much better book.  It retains the annoying social science habit of previewing things before actually saying them, but otherwise it is a well-researched and well-written contribution.  It could be particularly useful for anyone contemplating a career as a political staffer.

Power Without Responsibility may not provide all the right answers, but at least it asks most of the right questions.

Escape from tribalism

Infidel
by Ayaan Hirsi Ali
(Free Press, 2007, 368 pages)

Societies structured on principles of liberty and tolerance can often be lulled into thinking that these core attributes are secure.  But those who believe that the current threat from Islam comes only from a fanatical fringe may well be shocked when they read Infidel by Ayaan Hirsi Ali.  Liberty, she shows, is always under threat.

All's autobiography reads in many parts like a thriller novel.  Early scenes start with a happy childhood under large shady trees but soon move to her desperate flight from war-torn carnage in the Horn of Africa in her late teens.  As an adult, we find her being whisked from secret location to secret location under high-level police security.

Ali was a Somali refugee who was granted citizenship in Holland.  She became a controversial member of the Dutch Parliament, whose speeches lead to riots and arson in that peaceful country, and whose short movie, Submission Part 1, resulted in the assassination of the movie's producer.  She now lives under permanent high-level security and works for the Enterprise Institute, a free-market think-tank in the USA.  She's an extraordinary figure.

Ali is the daughter of a respected Somali freedom fighter.  She was once a devout Muslim who lived much of her early life in the Muslim-dominated societies of Somalia and Saudi Arabia.  Her description of life as a Muslim woman is ugly.

To be a Muslim woman in a society ruled by strict adherence to the Qur'an is to have no liberty.  Women are chattels of men.  They cannot leave the home without a male escort.  They must be available for sex when the husband wants.  If they are beaten by their husband, it is because they defied him.  If incest or pedophilia is committed upon them, it is their fault and they are shamed.  If they are raped, it is because they have not guarded their sensuality from men.  After all, men cannot be expected to control their sexual urges.

But Ali's most disturbing description is of the horrific manner in which Somalian women were genitally mutilated.

Ali escaped her Muslim life at the age of 22 when she fled from an arranged marriage.  Staying in Germany while in transit to her new husband in Canada, she crossed into Holland and applied for refugee status.  Her new life began.

Dutch life was a stark contrast to that which she had known before.  The sight of female flesh did not send men wild.  She found that she had a voice and views that were listened to.  She discovered that if a woman rejected one man for another, there was no ensuing violence.  She obtained a degree in political science, became an adviser to the Dutch Labor Party, but defected to the Liberals to win a seat in Parliament.  She's now a firm proselytiser of the liberal society.

But it is her account of the small ways in which liberty is practiced that provides her greatest observations.  She found that people in Holland readily say "no" to one another and look each other in the eyes when they do so.  Offence or shame is not taken.  And it's these small behavioural features of everyday interpersonal acceptance of difference that are the bedrock of tolerant societies.  Contrary to expectations, this casual tolerance of difference does not lead to chaos, but to a rather ordered and peaceful society.

However, Ali also witnessed an in-built weakness in the Dutch (and Western) societies psyche.  She explains that the post-colonial guilt complex of Western society has created selective tolerance of intolerance.  There's a double standard in applying expectations of basic human rights and dignity.  This is dangerous, she says, particularly in the context of die Muslim-inspired terror being waged against free societies.

Working as an interpreter in the Dutch legal and social welfare systems, she saw the institutions turn a blind eye to forced genital mutilation, rape and murder within Muslim communities.  She proved this, she says, when she forced the authorities to collect statistics of such occurrences.  In an eight-month trial period, it was recorded that eleven Muslim girls were killed by their families in just two of Holland's 25 police regions.  It was a rude shock for the Dutch to discover such barbarity within their midst, and the complicit blind-eye of their institutions.

Ali argues that the Dutch have been so keen to accept and placate their own Muslim communities that they have failed to apply the same standards of equality, tolerance and civil behaviour which they demand of themselves.  She criticises Muslim leaders in Holland for not being prepared to talk about and confront the truth of their own religion.

It's easy to see why Ali challenges.  She demands that Muslims openly confront die truth of their own religion.  And she challenges free, democratic, liberal and tolerant societies to apply the same standards to Islam that they apply to themselves.  She challenges Muslims to be tolerant and, at the same time, challenges Western societies not to tolerate Muslim intolerance.

Certainly Ali experienced life as a devout Muslim under one of Islam's strictest creeds.  There is a wide diversity of interpretations of the Qur'an amongst the billions of Muslims worldwide.  The vast majority of Muslims conduct their lives in peace and harmony.  Only a tiny number of Muslims want to murder every non-Muslim.  But Ali argues that the teachings of Muslims who seek violent jihad against every non-believer are accurate reflections of the Qur'an.  Reading the Qur'an as a literal text, the intolerant views are plainly present.  The core problem of Islam is its radical intolerance of anyone who does not adhere to its literal word.  She suggests that it's a religion caught in a seventeenth-century time-warp of ignorance.

Nevertheless, Infidel is much broader than a critique of Islam.  Ali also targets tribalism -- an ideology which demands blind adherence to dictated creeds, and which practises psychological control or physical destruction of those who are not compliant.

Rampant tribalism destroyed a functioning society in her homeland of Somalia.  It occurred largely under the banner of Islam, but the destruction was in reality a result of centuries of ethnic and extended family hatreds.  Tribalism can occur in any society and can take many forms.

Further, she states that Muslims who are tolerant and liberal must not pretend that the intolerance of Islam is not the truth of the Qur'an.  She asks Muslims not to shy away from reality.  Doing this, she argues, is effectively de facto support for Islam-inspired violence.  Every Muslim who disagrees with murder within families, rape, genital mutilation and the debilitation of women must not stay silent when they become aware of them within their communities.  Silence is the oxygen that feeds Muslim violence and terrorism.

Ali is a whistleblower.  And, as a reward, she is the target of a fatwa.

Her message is, of course, particularly important given the violent terrorist jihad being waged against the non-Muslim world by some Muslims.  But it's not an unfamiliar battle.  It's the same battle waged against fascism and communism in the Twentieth Century.  In this century, intolerant Islam is perhaps just the first of these tribal forces that will need to be confronted.

If free societies tolerate intolerance, we arm the destroyers of freedom with their greatest weapon.

The curriculum crisis

Dumbing Down:  Outcomes-based and Politically Correct -- The impact of the Culture Wars on our Schools
by Kevin Donnelly
(Hardie Grant Books 2007, 230 pages)

Kevin Donnelly's Dumbing Down is book that many parents will read, wishing that their politicians were reading it as well.  This book, like the author's 2004 offering, Why Our Schools are Failing, is a notable moment in the politics of education in Australia.  It is a book that matters, about an issue that matters greatly:  the quality of the education of the nation's children and youth.  It has important criticisms to make, insights to offer, and solutions to propose.

Donnelly appears to care deeply about the declining standards of education in Australia.  As a former teacher, he also cares about those current teachers who share his concerns about the issues he articulates, and he wants a better deal for them.  However, he seems to care most of all about the students and their families whom he perceives as being short-changed by the current system, so much so that he is doing something about it.

Donnelly's study focuses more on developments in educational policy rather than on anecdotal evidence of grassroots classroom experiences to make his case.  He is impressively conversant with education policy documents and curricula spanning the state and territory jurisdictions.  He is equally familiar with the relevant research and various testing procedures that provide international benchmarks for comparison.

The target of Dumbing Down's criticism is an educational model that its advocates have jargonistically titled Outcomes Based Education (OBE).  OBE is the latest umbrella term for a host of progressive, constructivist, Marxist, post-modern and other approaches favoured by the politically correct left-wing educationalists who, as Donnelly points out, dominate the state and territory education systems.

Donnelly argues that this model, and the concepts that informed it, has led to educational practices that have produced a decline in literacy, numeracy, and cultural literacy, and led to courses that produce an imperfect grasp of the fundamental knowledge required to perform best in the key disciplines of learning.  It has also led to a proliferation of complex, non-competitive modes of assessment featuring euphemistic terminology that deny the motivated and talented students a sense of reward for their efforts, while also denying parents a clear understanding of their children's circumstances.

Above all, the current policy regime has produced politicised compulsory curricula constructed around the promotion of values associated with the ideology of political correctness, with educationalists brazenly using the education system to remodel society in the manner of their choosing.

Donnelly takes delight in using quotations, especially from members of the educational establishment, to make his case against them.  For example, in regards to his explanation of the role of the Australian Education Union (AEU) in the politicisation of the curricula, Donnelly quotes AEU President Pat Byrne, who said the following in her address to her union's conference in 2005:  "we have succeeded in influencing curriculum development in schools, education departments and universities.  The conservatives have a lot of work to do to undo the progressive curriculum".

Donnelly's solution primarily involves the adoption of a liberal/ humanist view of education, summarised as an appreciation of the best that has been thought and said.  For example, in literature, students would study great works by great writers who are appreciated for their intellectual significance, rather than chosen, or assessed, according to their compatibility with political correctness.  Donnelly's solution would also involve, where necessary, returning the organisation of knowledge and methods of inquiry to their traditional disciplines -- that is, literature, history, geography, etc..  It would involve the reintroduction of a teaching syllabus to courses, which would provide each subject with a clear roadmap for teachers to follow.  Importantly, he advocates a return to the standards approach, which involves challenging examinations and clear, competitive standards of assessment so that motivated students can be rewarded and the less accomplished given reasons to improve.

Dumbing Down is more than worth reading, it is worth re-reading.  It represents an important contribution to the education debate and a fundamental resource on the politics of education.

WorkChoices is radical; and that’s a good thing

The main reason why unions are doing so well in their campaign against WorkChoices is because they are appealing to long-held conservative values.

This conservatism is not primarily economic, but rather based on deeply held cultural and moral precepts.

First, there is the structure of the working week, the nature of public holidays and the connection with traditional ideas of the family.  Then there is the idea that a stable society is heavily dependent upon security in employment.  Further, there is the paternalistic notion that individuals are incapable of determining their own work contracts and need someone older and wiser to do this for them.  Each of these ideas is profoundly conservative.

WorkChoices dramatically upsets and reshapes these cultural values.

WorkChoices gives workers and employers the right to eliminate pay loadings on public holidays, on weekends and on shift work.  What is supposed to happen is that average hourly rates are increased to compensate for loss of "loaded" rates.  Workers are paid less on weekends, but receive more midweek.  Weekly pay stays the same, but the hourly structures alter.  Until now, the industrial relations system largely stopped this happening.  Why?

Pay rate loadings were originally introduced as a disincentive to businesses operating on weekends, public holidays and outside "9 to 5" hours, and to compensate workers for working in these periods.  It reinforced the structure of a society where work, leisure, family and religious norms aligned with the Christian ethic.  In Australia, the man worked from 9am to 5pm, children went to school from 9am to 3-30pm, the family gathered at night for dinner, football was played and watched on Saturday, Sunday was for church and the family roast, and public holidays followed the Christian calendar.  So dominant was this lifestyle pattern that it became entrenched as a fundamental conservative value underpinning family, church, community and state.  And labour awards under the old industrial relations system were deliberately structured to bolster this.

But Australian society has changed.  Public holidays still follow the Christian calendar, but churches know that they must function in a secular society.  Religious beliefs are diverse.  People want shopping and hospitality services at any time.  Sport is watched and played on any day of the week.  Schools run before- and after-school programmes to accommodate parenting needs.

The old industrial relations system, however, was unable to adapt to these changed norms.  Awards and industrial agreements maintained pay loadings but under the notion of workers "rights" rather than workers "imposition".  Labour law, rigid and inflexible, enforced subservience to older values.

Few people understand the extremes to which the system would go to enforce the outdated cultural norms.  Fewer than ten years ago, a shearer in Queensland was jailed for daring to shear sheep on a Sunday, defying the shearers’ award in doing so.  Assaults against non-compliant workers, vandalism of their vehicles, and destruction and sabotage of businesses’ plant and machinery have been common, even recently.  The system had a heavy totalitarian element to it, all in the cause of enforcing older conservative values.

Another example where WorkChoices defies Australian tradition lies in its practical commitment to belief in the power of the individual.

Labour tradition has long held the view that individuals do not have the intelligence, wit, inclination, education or capacity to negotiate their own work contracts.  To "protect" individuals from their own incapacity, the collective (unions) negotiated contracts through the industrial relations processes.  This was enforced rigorously.  Any individual who did not conform to the required collective behaviour threatened the collective, and ultimately themselves, and had to be disciplined.  This occurred through legal sanction, intimidation, bullying and sometimes physical abuse of defiant workers.

In reality, the industrial relations system imposed the worst aspects of the tyranny of the collective, and it did so in the name of enforcing conservative values.  In many respects it is the uglier side of the Australian mateship ethos.  It continues to operate as a core cultural value — at least in the union movement.

The unwillingness to acknowledge the capacity of the individual at work has, however, been challenged in the last two decades.  This is demonstrated by the rise in the self-employed, independent contractor sector, which now stands at some 28 per cent of the private-sector workforce.  These 1.9 million Australians have demonstrated that they believe they have the capacity to negotiate their own contracts.  The take-up of Australian Workplace Agreements also reflects this.

Many workers now believe that, with the right tools and a suitable legal framework, they can negotiate their own work contracts.  They do this primarily to make work fit more readily with their lifestyles.  Under individual contracts, pay is not normally the big-ticket item of negotiation.  Rather, what really matters are changes to work hours to fit in with child care and other lifestyle needs.

Of course, the unions claim that this phenomenon is a sham and an employer "con".  Like many other defenders of old conservative values, they are doing little more than simply denying that people are capable of managing their own work affairs and ignoring the obvious fact that society has changed.

Another conservative position under attack by WorkChoices is the idea that security in employment is essential to a stable society.  This argument suggests, for example, that if people don’t have a secure job (presumably for life if they want it), they can’t get a bank loan or may lose their house if they lose their job.  This creates a vulnerable, unstable society.

Fear of losing income is, of course, a sensible prudential concern for everyone.  But most people now realise that jobs are only secure if firms are making good profits.

Job permanency has been replaced by the realisation that what is important is continuity of income.  This is not necessarily achieved by a single job with one employer.  In fact, nowadays, that can be a risky strategy.  What’s necessary is to be entrepreneurial in the approach to work.  People need always to be alert to the next job;  and that includes the 61 per cent of the workforce who have a permanent job.

Sometimes multiple contracts and casual jobs are a safer way to create continuity of income.  The possible mix of work and jobs has now become vast and represents a new "norm".  Society has changed, as have the individuals which comprise it.  Lifestyles are now a significant mix of many influences, with the ideas of family, community, state and stability being somewhat different from the past.

In making changes under WorkChoices, the Howard Government has not created a new work environment.  Instead, it has simply pushed labour law to catch up with a changed society.  Yes, the Government has depowered the institutions that ran the old system:  the unions and industrial relations commissions.  Yes, it has assaulted powerful conservative values.  But even if these values are no longer universally held, they still resonate in the imagination as values to be respected.

Unions say that workers need the protective umbrellas of permanent employment, a union, and a rigid, paternal, industrial relations system.

In creating WorkChoices the Howard government has focused its sales pitch on economic arguments — that, basically, WorkChoices means more jobs.  However, the cultural debate has been left almost exclusively to unions, giving them an unchallenged run in this area.

With the Rudd Opposition now lining up with unions on key policy planks, the next federal election will place central cultural values before the community.  The union/Rudd team offers a strong appeal to conservatism.  In 2007, the ALP is the conservative party.

Price ceilings on electricity need to go

Last week marked the first ever retailer failure in the Australian electricity market.

Energy One, a retailer serving customers mainly in Queensland and NSW, closed its doors.

Its customers were taken over by other retailers and now find themselves with higher prices (up to 10 per cent above the maximum price in the case of Victorian customers and more than this for larger customers in other states).

Though painful for the Energy One shareholders and somewhat costly for its customers, the episode represents a triumph for the electricity market and its institutional settings.

The process unravelled quickly, there were no "knock-on" effects on other companies within the industry and no customer was cut off.

The intrinsic nature of electricity means that most customers' prices are fixed.  But because demand is highly variable and supply cannot be stored, prices from generators are extremely volatile.

This requires considerable contracting care to avoid situations where insolvency becomes infectious.

Central to ensuring confidence is a requirement that energy retailers are fully insured.  To cover their energy purchases they must either have cash or bank guarantees.

All new business ventures face inherent disadvantages, simply because their suppliers don't know them and they have no track record.

The industry is looking at ways for new start-up companies to overcome these by better facilitating credit and swapping of contracts.

But these improvements might not have helped Energy One.

It got caught because its prices did not incorporate higher energy costs caused by the Queensland Government's water-saving regulations reducing power stations' output.

Unlike other businesses it did not have enough pre-arranged swaps at agreed prices.

While the resilience of the energy market in the face of a bankruptcy is good news, this does not mean there is no room for improvement.

There is increased uncertainty as a result of caution on the part of new investors worrying about the risk of greenhouse-inspired charges.

This would be a major consideration in the Victorian system, dominated as it is by brown coal.

Government statements about impending new greenhouse measures will need to be tempered by other measures to ensure an energy supply vacuum does not result.

The increased energy uncertainty raises the importance of other policy reforms.

The energy retailers want higher maximum prices that small businesses and households can be charged.

Most customers in Victoria are benefiting from prices below the maximum.  This has been a factor in Victoria having the highest proportion of consumers who have switched retailers, an outcome that arguably makes this state's market the most competitive in the world.

Understandably there is resistance to fairer, cost-reflective prices from those benefiting from artificially low prices.  Everybody likes low prices.  But the problem with regulated price ceilings is that they lead to unprofitability.

Price caps also deter the roll-out of smart metering that allows people better control over their electricity usage.  In the end they bring business failure and inadequate investment to assure future supplies.

We don't have price ceilings on petrol, beer or bread.

They were put on electricity as part of the process of weaning people off the old inefficient socialist industry.

But they need to be phased out.

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