Saturday, January 17, 2009

Submission to the Senate inquiry into the Fair Work Bill 2008

Submission

1) EXECUTIVE SUMMARY

In summary, the bill:

  1. seeks to rewrite Australian unions into the processes of workplace relations law.
  2. attempts to create a model of workplace relations which genuinely serves the interests of both business and workers.
  3. creates several new concepts in workplace relations law in Australia, the implications and outcomes of which cannot readily be predicted.

2) THE BILL'S WORKPLACE RELATIONS MODEL

The model has a three tiered approach to providing employment standards:  legislative, awards and enterprise agreements.  At each level individual employment contracts are provided for conditional that individual arrangements do not drop below the standards.

The bill provides for the following:

Legislated minimums

  • All employees are guaranteed 10 minimum legislated National Employment Standards (NES):  (clauses 59 to 131)

Individual arrangements $100,000 plus

  • Employees earning more than $100,000 a year have individual employment arrangements conditional on the arrangements not falling below the NES:  (clauses 59 to 131).  Although there are some uncertainties about how the arrangements will interface with the NES, the bill seems to create a genuine individual contract stream.  (For example, it is not clear how someone earning say $200,000 a year and working 60 hour weeks will meet the NES requirement for a 38 hr week.)

Award minimums

  • Employees earning below $100,000 a year have 10 basic award conditions applying to them in addition to the 10 NES. (clauses 132 to 168).  The 4000 or so industry awards are going through a 2 year simplification and consolidation process which is being conducted by the Australian Industrial Relations Commission.  The process seems to be progressing within the planned timetable.

Individual arrangements award minimum plus

  • All awards must contain a clause enabling individual employees to enter an individual agreement with their employer should both parties wish, the terms of which must deliver better conditions to the employee than under the award (clause 144).  Unions or any other third party cannot be a party to the agreement.  Similarly, approval of the agreement cannot be subject to union or any other third party interference (clause 144(4:5)).  The provisions seem to be genuine individual employment arrangements underpinned by award and NES minimums.

Enterprise agreements

  • Enterprise agreements must deliver conditions better than the award and NES minimums.  There are some surprises here because what was anticipated to be a two tier system of union and non union agreements really only provides for union agreements.  Furthermore, there is a new element in the model "good faith bargaining" which is a large deviation from enterprise models applied over the last several decades.  This is explained and discussed below.

Individual arrangements enterprise agreement plus.

  • All enterprise agreements must have a clause enabling individual employees to enter an individual agreement with their employer should both parties wish, the terms of which must deliver better conditions to the employee than under the enterprise agreement (clauses 202-204).  As with award individual arrangements, unions and other third parties cannot be included in the agreement or exercise control over approval (clause 203(5)).

Union entry rights

  • There are some aspects of union entry rights that are familiar;
    • For example unions must give 24 hours notice and give the occupier an entry notice (clause 487).  Entry is only allowed during meal and other breaks during work time (clause 490).  Unions must comply with work safety requirements of the occupier (clause 491) and conduct meetings in a room designated by the employer (clause 492).
  • Other aspects are unfamiliar and new;
    • The bill allows unrestricted union entry rights even where the union does not have members (clause 484) [A permit holder may enter premises to hold discussions with one or more persons:  (a) who perform work on the premises;  and (b) whose industrial interests the permit holder's organisation is entitled to represent;  and (c) who wish to participate in those discussions.] Further the bill gives unions wide powers to inspect any company records (clause 482).  [While on the premises, the permit holder may do the following:  1(c) require the occupier or an affected employer to allow the 1 permit holder to inspect, and make copies of, any record or 2 document relevant to the suspected contravention ...]

Industrial action & pattern bargaining

  • On the surface the bill only allows legal strikes (protected action) during enterprise bargaining and when authorised by a secret ballot of employees.  Further, industrial action is allowed for pattern bargaining.  Illegal (unprotected) strikes open unions and others to litigation for damages.
    • The clauses that reflect this include;  A strike is only allowed over matters to do with enterprise negotiations (clause 409).  A ballot is required for a strike (clause 409(2)).  Strikes over pattern bargaining are illegal (clause 409(4)) and strikes over union demarcation disputes are illegal (clause 409(5)).
  • However strong uncertainty exists given other provisions.
    • The bill creates an avenue of workplace bargaining for "low paid" employees which is quite different to the general provisions for enterprise agreements (clauses 260 to 265).  There are a number of problems with this, in particular that no definition is given to the meaning of "low paid" creating an undefined reach of the sections and the provisions can apply to "multi-enterprise" agreements.  What this means is hazy and could well create the possibility of de-facto, backdoor pattern bargaining.  Because there is insufficient clarity in the bill to dispense with this possibility it is prudent to assume that pattern bargaining will be legal under the "low paid" steam of enterprise bargaining.

Small Business Dismissals

  • A new regime for "fair dismissal" is created for businesses with fewer than 15 employees.  Unfair dismissal laws apply to businesses larger than 15 employees after 6 months employment.  For businesses with less than 15 employees a new "fair dismissal code" applies enabling fair dismissals in the event of theft and other matters (clauses 379 to 405).

[Note:  There are other elements of FFII that are not relevant to the Fair Work Bill and are not commented on in this submission (e.g. the construction sector "cop").]


THE ENTERPRISE AGREEMENT STREAM

In relation to enterprise agreements the bill is significantly new in that it applies concepts of "good faith bargaining." Good faith bargaining is completely new as a legal idea in Australian workplace relations law.  It is a new invention created and promoted by the Australian union movement.

The Fair Work Bill has an enterprise bargaining model which imposes "good faith" negotiation processes on employers and employee representatives (unions and others).  While the bill asserts conditions in an agreement cannot be imposed orders can be made against parties by Fair Work Australia requiring the parties to engage in certain discussion processes.  And there are legislative "hooks" that seem to turn the process into something potentially much more than a requirement to negotiate in certain ways.  In fact there appears to be little effective choice available to employers and employees in the type of enterprise agreement they may want.  Union enterprise agreements appear to be the only agreement available.  The following features give some sense of the restriction of choice.

  • Majority support determinations:  (clauses 236 to 238).  This enables Fair Work Australia to declare that a majority of employees want to negotiate an enterprise agreement and to force an employer to engage in negotiations.  There is no requirement for an employee ballot.  The majority support determination effectively removes the choice of the employer not to have an enterprise agreement.
  • Bargaining related workplace determinations:  (clauses 269 to 271).  This enables Fair Work Australia in circumstances where agreement cannot be reached to impose conditions in an enterprise agreement.  This is at odds with earlier sections in the bill that declare that parties would not be forced to accept terms in an agreement.  However these provisions have all the features of imposed, old style industrial relations arbitration, in that conditions can be imposed on employers that do not suit their business needs.
  • Default bargaining representative:  (clause 176).  This gives unions automatic bargaining representative rights where they have at least one member on a site and employees fail to make written authorisation for an alternate representative.
  • Union party to agreements:  (clause 183) Where a union has been a bargaining agent and the agreement does not cover the union, the union can notify FWA that it is a party to the agreement.  This can occur without employee or employer sanction.
  • Low paid stream:  (clauses 241 to 246 and 260 to 265) The outcome of these clauses is to pull into enterprise bargaining processes a multitude of businesses into collective "multi-enterprise" agreements.  The processes are complex and have the features of denying employers the choice not to enter enterprise agreements.  They appear very much like sanctioned pattern bargaining using another name.  There is no definition of "low paid" raising the prospect of very wide reach of the provision.
  • Union only Greenfield agreements. Greenfield agreements are used where a new enterprise has begun and before anyone has been employed.  They are common in the construction sector.  Greenfield agreements now must only be with a union (clause 182(3)).
  • Employees voting on agreements. An agreement is passed when a majority of the employees who voted agree.  Where all employees do not vote it is highly likely that agreements will be passed on the vote of a minority of the employees to be covered by the agreement (clause 182(1)).
  • Matters pertaining. This is perhaps the most significant part of the enterprise agreement stream.  It determines what content can be included and not included in enterprise agreements.  There are three primary parts.
    1. An agreement cannot contain matters that are unlawful (clause 194).  For example it prohibits union "bargaining service fees" from being included.
    2. Matters must pertain to the relationship between the employer and employee (clause 172(a)).  The explanatory memorandum argues that the reach of this provision is well known through long established legal precedent.
    3. Matters can pertain to the relationship between the employer and the union (clause 172(b)).  This is an unprecedented and historic shift in the design of industrial relations law which will have wide consequences.  It has been accepted to date that legitimate union authority is derived from the fact that they represent and have employee members.  This clause undoes this principle and delivers to unions a statutory authority independent of any employee representation they may have.  They stand institutionally disconnected from employees.

Taken as a package these measures do not deliver an enterprise agreement process focused on the employer-employee relationship but rather makes employers and employees subservient to union statutory authority.


3) OVERALL VIEW OF THE BILL

Most of the bill has a model of workplace relations law which should enable a balance between the needs of employers and employees through a focus on the employer-employee relationship.  In these areas the bill offers a workable model of workplace relations.  The exception is the enterprise agreement processes that focus almost entirely on the interplay between employers and unions.  Employees seem to be ancillary to the processes.  It's a model that could result in the slow death of the enterprise agreement process in Australia (see discussion below).

On the positive side:

  • The National Employment Standards are obvious and straightforward.  The simplified award arrangements and minimum standards are also likely to prove straightforward.  In employing people, businesses and employees will have clear guidelines to which they must adhere.
  • The individual agreement stream appears to be simple.  If a business and an employee want to establish an individual agreement between themselves they can do so without interference from any third party.  They have one responsibility, to ensure the arrangements are better for the employee than the minimums required under the NES and the relevant award.

A NEW UNION AUTHORITY MODELED ON NEW SOUTH WALES LAWS

The delivery of a new level of union authority under enterprise arrangements has its closest modeling on the industrial relations laws in NSW.  In NSW the industrial relations commission is a law unto itself.  Natural justice is denied particularly with the prevention of appeals.  The commission has authority to and does intrude into commercial transactions unrelated to employment and creates and sanctions commercial price fixing.  The commission has higher authority than the High Court, NSW Supreme Court, ACCC and NSW workcover authority to name a few.  NSW unions are the policing body for the NSW IRC with wide and almost unrestricted powers.  They conduct work safety prosecutions and have unfettered powers of search and seizure of commercial company documents which they exercise regularly.  They persistently breach privacy and confidentiality laws under the mask of the NSW IRC authority and processes.  The full sweep of arrangements under the Fair Work Bill significantly reflects key part of these NSW laws.


4) RECOMMENDATIONS

AREAS OF ACCEPTANCE

Other than paying attention to drafting and technical matters the following sections of the Fair Work Bill provide the probability of a good workable model of workplace relations law within the current political environment:

  • National Employment Standards
  • Individual arrangements for employees earning more than $100,000 a year.
  • Award minimums
  • Individual arrangements for employees under awards
  • Individual arrangements for employees under enterprise agreements.
  • Sections on protected industrial action requirements.
  • Prohibitions on pattern bargaining.
  • Unfair dismissal and small business fair dismissal.

These sections offer a balance between ensuring minimum standards for employees and giving businesses an opportunity to work individually with employees to improve business outcomes.

There is one suggestion we offer.  The fair dismissal processes should be extended to businesses employing less than 50 employees.  Themodel of a fair dismissal process is a positive initiative.  Employers should know when they can dismiss someone and the code that has been developed is practical.  The fair dismissal process has been developed to assist small businesses.  But a small business does not have to be that big to employ more than 15 people particularly when casuals are taken into account.From an equity perspective extending the fair dismissal process to a wider range of small businesses would assist employment and commercial certainty


AREAS TO BE REVIEWED AND CHANGES

Provisions relating to enterprise agreement processes do not offer a workable workplace relations model because it shifts the focus away from employers and employees and is effectively dependent on unions for its operations.  There is no effective choice in this respect.

For around 20 years enterprise agreements have been viewed as a productivity driver for businesses and the economy.  It is recognised that for businesses and the economy to be internationally competitive each individual business must constantly improve its internal operations.  Enterprise agreements have been seen as the legal process by which businesses, with workers could modify national and industry based requirements to suit each specific business need.  It is asserted that the enterprise approach has been an important contributor to wealth creation and distribution over the last few decades.

However during this same period private sector union membership has plummeted creating a "business model" crisis for these unions.  Their response in many instances has been that to survive they must force their way into the relationship between employers and employees.  Some unions seek to do this through intimidation.  Most unions seek to do this through legislative favour.  The enterprise agreement provisions of the Fair Work Bill deliver such favours.  The key to understanding this aspect of union survival motivation is that union membership is more dependent on employer attitudes and actions rather than employees.  If employers can be induced into creating business dependency on unions', employees will join unions.  Whether right or wrong this is the thinking.  Whether this suits the commercial viability of businesses is not of concern to unions who think this way.

However, union survival is not what motivates businesses.  Businesses are concerned with their own viability and survival.  What exists is a disconnect between the needs of unions and businesses.  Rather than finding common ground, the Fair Work Bill institutionalises and expands the disconnect between unions and businesses.

There are three probable outcomes:

  • Some businesses may find that their relationships with unions are constructive, that unions understand the pressures of business and that win-win productivity driven outcomes can be achieved.  The bill in these instances may prove of assistance.
  • Other businesses may find that unions they must deal with do not understand or want to understand the business pressures.  Negotiations will be within the old paradigms of "worker-boss war" and outcomes will be winner-loser focused.  In these scenarios the bill will work against the interests of business productivity and the economy.  Considerable damage to business viability, investment potential and jobs is probable.
  • Other businesses may conclude that the enterprise route is not viable, decide to stay exclusively within award boundaries and look for employee relationship building, productivity outcomes and win-win through the individual agreement provisions in the bill.  That is, the bill provides an effective escape route from enterprise agreements.

It is likely that each of these scenarios will play out once the bill is passed.  The consideration for the Senate is the extent to which it believes enterprise bargaining should be a primary element in a workplace relations model for Australia.  It is highly probable that employers may simply avoid the use of enterprise agreements heralding the progressive demise of these workplace relations instruments.

In the Senate deliberating on the future of enterprise agreements the following items at least should receive close attention:

  • The suitability of forcing employers into agreement negotiations against their wishes throughmajority support determinations.
  • Whether imposing agreement terms through bargaining related workplace determinations is appropriate.
  • Whether union bargaining representative rights should only be available on the written authorisation of employees.
  • Whether union can make themselves a party to agreements after an agreement has been approved without consultation or agreement from employers and employees.
  • The extent to which the low paid stream processes amount to de-facto pattern bargaining
  • Whether an avenue for non-union Greenfield enterprise agreements should remain available.
  • Consideration to requiring mandatory voting of all employees on agreements to ensure the intent of all employees is obtained.

The following amendments at minimum should be made particularly to create clarity around the bill.

  1. Matters pertaining:  The content of agreements is too ill determined and will lead to disputes requiring time consuming and expensive litigation for resolution.  Reliance on legal precedent does not serve the interests of clarity.  The Senate should list those things that can and cannot be included in agreements by amending the unlawful content clauses and/or creating a list of matters that pertain/do not pertain to the relationship between employers and employees.
  2. Employer-union relationship:  Clause 172(1)(b) should be deleted.  Unions should only derive their authority from their representation of employees.  This is covered under clause 172(1)(a).
  3. Define low paid:  Should the Senate conclude that the low paid stream of enterprise agreements be retained, a definition of low paid should be included so that the parameters and reach of the low paid stream of enterprise bargaining is clear.

What is at stake is the viability of the enterprise agreement processes.  It will only have a future if it is relevant to both employers and employees and genuinely reflects their joint intentions and wishes.

Friday, January 16, 2009

No need for the Libs to move left

Since the federal Coalition's defeat in 2007, several commentators have called on the Liberal Party to embrace a progressive agenda.  The argument goes like this:  From climate change to border protection, Liberals should ditch the conservative shibboleths that defined the Howard era, inch back towards the political centre and demonstrate they are not as out of touch as the critics allege.

The party of Menzies, urges frontbencher Christopher Pyne, "must again be a force for change".

The problem, though, is that, notwithstanding the loss of conservative government, the centre of political gravity in Australia remains conservative.  No longer, for instance, is welfare seen as an unconditional right.  No longer are activist judges rewriting our constitution.  No longer are Australians ashamed of our past, pessimistic about our future and unsure about our place in the world.

In this environment, why should Liberals lurch left when Labor could only win power by moving right?  Why should a right-of-centre party run to the left of a church-going, family-values Labor leader almost as conservative as the prime minister he replaced?  Indeed, Kevin Rudd -- first as opposition leader and then as Prime Minister over the past 13 months -- has had a lot more in common with John Howard than he has with Phillip Adams.

As opposition leader, Rudd not only styled himself as an "economic conservative" but also mimicked Howard on virtually everything from opposition to gay marriage and teacher unions to support for anti-terrorism laws during the Haneef debacle and the federal intervention in remote indigenous communities.  Such tactics worked a treat.  He convinced key segments of the socially conservative working and lower middle classes in marginal suburban and regional electorates to vote Labor again after their 12-year affair with the Coalition.

What about Rudd's record since he's been PM?  True, he has jettisoned some of the former government's positions.  He ratified the Kyoto protocol, expressed a formal apology to the stolen generations, and he is in the process of tilting the workplace balance in favour of unions.  His decision to withdraw combat troops from Iraq, moreover, marked a clean break with what the Australian people regarded as the biggest mistake of the Howard era.

But take a closer look at Rudd's other positions.  This is a malleable pragmatist who was far more critical of Bill Henson's so-called art of photographing naked young girls than Malcolm Turnbull;  who defied his left-purist base by keeping Howard's citizenship tests;  who prefers the teaching of narrative history over the black armband view;  and who is contemplating another round of income and company tax cuts.  Just this week, the Australian Human Rights Commission's annual report on detention revealed that Rudd is maintaining the very policy of indefinitely detaining asylum seekers, including children, that Howard's foes regarded as cruel and evil.  So much for being a change agent.

In this environment, do Liberals win electoral kudos by becoming more progressive?  In fact, the most politically important voters remain not the so-called doctors' wives from metropolitan Australia, but the so-called Howard battlers from middle Australia, particularly in outer suburbs of Sydney and Brisbane and sunbelt seats of Queensland.  It was these people who formed Howard's core support.  It is these people to whom Rudd has appealed in the past two years.  It is these people to whom today's Liberals need to appeal in coming years.

They may not read Edmund Burke but they are a temperamentally conservative lot, wary of change, believing that efforts to transform anything quickly will have, as Burke wrote, "pleasing commencements" but "lamentable conclusions".

They were attracted to Howard because he championed Australian values, based on a robust patriotism and the repudiation of Paul Keating's political correctness.  They turned off Howard because they believed his Work Choices and the rising costs of living threatened their personal security and prosperity.  And they felt reassured by Rudd's conservatism, including his pledge to turn back people-smuggling operations.

Would a progressive agenda that includes zealous efforts to combat global warming really play well with this group?  Take the debate over emissions trading schemes.  After proclaiming that "climate change is the great economic, environmental and moral challenge of our time", Rudd has significantly downgraded his Government's carbon targets.

This was wise.  After all, it would have been crazy for Australia, heavily dependent on fossil fuels, to slash its greenhouse gas levels at a high cost in jobs and cash when no nation that matters would follow our lead.

But in their rush to outflank Labor on the environment, there is a risk that Malcolm Turnbull and his spokesman Greg Hunt could further alienate the party from the very constituency they need to win back (not to mention the energy-intensive industries that will be slugged by the trading schemes).

It is one thing for Liberals to place themselves at the forefront of this debate.  It is another for Liberals to insist that a single-income family should pay more to run their air-conditioner, fridge and stove, computer and large flat-screen television.  Middle Australia may not understand emissions trading but they understand hits to the hip pocket.

For these reasons, it would be a mistake for Liberals to embrace a progressive agenda in a political landscape that remains conservative.  As Peter Costello argued on these pages recently:  "The Liberal Party should remember it is the guardian of the centre-right tradition in Australia."  If Liberals cede the nation's heartland to Rudd, they might as well kiss the next election goodbye.


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Thursday, January 15, 2009

Recovery lies in savings and public sector wage cuts

WHILE it is obvious that financial markets and the markets for goods and non-financial services are linked, stock exchange bubbles and crashes have not always spread misery to the wider economy.  Until the 1930s, recessions tended to be short and sharp, and financial ruin was largely confined to the speculators whose exuberance had diverted capital into ventures where it was less than productive.  Such sectorally confined downturns have also occurred in recent times, as with the dotcom collapse in 2000-01.

However, this time it is different.  The reason is the boom that peaked in 2007 was fed by easy money.  Unlike in the run-up to the dotcom boom, over the past few years central banks in the US and most other economies were expanding credit.  The financial engineering of collateralised mortgages and pressures on US lenders to extend mortgages to low-income people caused this to be siphoned into housing.

In places where regulations were constraining supply, prices escalated.  But the inflationary symptoms were largely disguised, as house price increases do not feed fully and rapidly into the normal measures of inflation.  Having claimed the success for a long period of prosperity, governments now feel obliged to follow measures they are told will rescue that prosperity.  But they are no more able to do this than they were able to foster the previous affluence.

Governmental roles in creating the affluence we have seen were passive.  There were deregulations, outsourcings and privatisations, all of which from the 1980s allowed higher levels of capital and labour productivity.  There was even a reduction in the size of governments within many national economies, including Australia, bringing additional productivity bonuses.

By contrast, current government measures are activist.  They include subsidies to failing firms, regulations favouring unproductive investments such as renewable energy, gifts to pensioners and vast expansions in the supply of credit.  Australia even has a new set of labour arrangements that threaten to increase real wages and reduce firms' hiring and firing flexibilities, further adding to the risk firms face in expanding production.

These government interventions will exacerbate the downturn.  New spending by government inevitably fails market efficiency tests and often directly generates inefficiency in pursuit of ideological targets or in responding to political donations.

What is needed is a reallocation of income to savings, with this used to finance productive investments.  We have seen inadequate levels of savings in countries such as the US, Britain and Australia, where inflated house prices led people to believe they had masses of equity in their homes.  Falling house prices add to the realisation that wealth in terms of superannuation investment is much less than people had anticipated.

But the actions being taken by governments are preventing this rebalance towards savings;  handouts to foster increased consumption cannibalise the savings that arerequired.

Other policy measures will further aggravate recovery prospects.  These include propping up failing businesses, which prevents the reallocation of capital and labour to more promising ventures, and regulations that add to the cost of energy and employment.

As a result, the volcanic eruptions that have destroyed nearly half the value of the world's share markets will be followed by a tsunami that wipes out jobs and businesses.

The rebuilding of domestic savings levels and the drying up of foreign capital infusions has brought reductions of about one-third in bank lending and sales of homes, cars and holiday packages.  Firms supplying these goods and services have to reduce their production by a third, and that means eliminating a similar share of jobs.  Firms that resist such actions are saddled with excessive costs and will go bankrupt.  The downturn thereby contaminates all of the private sector.

So far the public sector has been immune from such cost cutting.  Indeed, increased numbers and inflated gradings are likely to follow from the present crop of measures.  Yet the need to make savings is even more urgent in the public sector, much of which does not add to productivity.  California, facing a desperate fiscal crisis, has reduced real wages of public servants (by cutting leave).

Lowering the remuneration of the public sector is one necessary measure.  Not only does this allow lower levels of taxation, it restores some parity between the public and private sectors.  With private sector employment vulnerable to market forces, the higher degree of job security in the public sector is worth far more than it was previously.

Moreover, the senior levels of the public sector have shown themselves to be of little worth.  The advice of thousands of Treasury and Reserve Bank personnel has done nothing to prevent the economic debacle that will hit hard this year.

Unfortunately, salary and job pressures on the public sector will not happen.  Instead we will face more pain as a result of the interventionary policies public sector advisers are promoting to governments eager to increase the power they have over the economy.  This means the recession will need to be more prolonged and deeper, with 10 per cent plus unemployment levels, budget crises and perhaps stagflation, before market forces are able to revitalise the economy.


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In a state of dysfunction

Despite what most people think these days, state and territory governments still matter.  By managing more than $167 billion of spending, including on law and order, education and health, they have a significant influence over the national economy.

While the states remain relevant, they have a major credibility problem.  The lack of infrastructure provision and inefficient service delivery has played a major role in this.  The year 2008 will be seen as one where the credibility of state governments as responsible budget managers took a severe battering.

The latest midyear budget estimates reveal the extent of the short, sharp deterioration in state and territory finances.  The combined general government budget balance will decline from $4.2 billion, as originally forecast for this financial year, to $813 million.  Four jurisdictions -- NSW, South Australia, Tasmania and the ACT -- are anticipating a collective $950 million deficit in 2008-09.

Although some states anticipate temporary deficits only, the estimates over the next four years reveal the full extent of the budget meltdowns.  The budget balance of states and territories combined will decline from $15.8 billion to $4.5 billion, a reduction of 71 per cent.

State governments point to revenue deficiencies when explaining their growing budget gap.

Over the next four years, tax revenues for all jurisdictions are expected to fall by $7.5 billion compared with what was originally forecast.  The most affected taxes include property, motor vehicle and payroll taxes.

Some states have announced increases in taxation.  NSW and Queensland will increase land taxes, with Queensland also raising vehicle registration fees.  Some states are also defying an agreement with the commonwealth by deferring the scheduled abolition of nuisance taxes.

These actions might help avert temporary deficits in some cases, but might prolong subdued economic activity and risk the relocation of firms to lower-taxing states.

It must be recognised that taxes will still be growing over the next four years.  It is estimated that tax growth will exceed a benchmark of consumer price index plus population growth by almost 2 per cent.

Over the next four years, states and territories will increase their spending from $690.5 billion to $708.1 billion.  In 2008-09, spending has been revised upwards by $5.2 billion.  This spending trend is well in excess of any revised changes in revenue.

The long-serving state governments have clearly formed an overspending habit.  From new regional slush funds and corporate welfare programs to hiring more solicitors and bailing out film studios, the extra spending will deliver severe budgetary pain if economic conditions worsen.  More bureaucrats and wage increases for existing public servants will add to the states' fiscal pressures.

States and territories need to pare their expenditure.  It has gone well beyond that cited by economists as the appropriate preserve of collective action.  In 2007-08, about 22 per cent of state general government spending was on the core functions of law and order, justice and administration, and interest expenses on debt and superannuation liabilities.

Private-sector alternatives exist in the remaining areas of state government spending.  These include not-for-profit schools, private hospitals and privately funded infrastructure.  There is little need for states to provide universalised services that in effect make people pay twice for the privilege of using private alternatives.

Privatising social services for those on middle to higher incomes can eliminate the excess spending and provide much needed tax relief.  States should also seek to cut wasteful and inefficient spending.

The states should also revitalise and strengthen their fiscal responsibility programs.  Some states have fiscal responsibility legislation (including, surprisingly enough, NSW!) while others have charters or policies for fiscal sustainability.  Clearly, these have failed.

State and territory governments should implement strong tax and expenditure limitations to prevent their budgets from growing out of kilter.

A constitutional or legislative framework could be introduced, requiring governments to balance their budgets.  Governments should also constrain revenue growth to less than gross state product or inflation plus population growth.

The states' budgetary dysfunction is largely a self-inflicted one.

They portray their situation as a revenue issue caused by global economic ructions, but the insatiable appetite for spending is the real problem.

The only way for states to restore their credibility is to engage in real reform and submit to strong fiscal rules.


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Wednesday, January 14, 2009

Pulping reality

Developing a pulp mill in Tasmania has been a 25 year saga that remains unfinished.

Back in 1983, the Wesley Vale proposal launched the career of Christine Milne and placed the green movement at the political centre of power.  That proposal was founded on a peerless set of environmental guidelines that had been negotiated by the Industry Minister, Senator Button and endorsed by the CSIRO.

At that time, the Machiavellian Senator Richardson was in charge of the environment portfolio and the Labor Party was anxious to maintain its green credentials.  Into this brew Treasurer Paul Keating, showing his limitless conceit, considered he could squeeze out a few more concessions from the applicants.  Button assured his colleagues that further demands would cause the prospect to collapse and was proven correct.  He left it to a temporarily humbled Keating to deliver the news that investors in Australian resource projects were now subject to sovereign risk.

Once the Wesley Vale mill window was closed it took 20 years before a further viable business proposal could be developed with the current plan fostered by Gunns at Bell Bay.

Aside from finding markets, finance, equipment and labour -- the conventional complexities behind any turnkey project -- Gunns also has to satisfy a government agency that is fundamentally opposed to business development other than creation of mythical "green" jobs.  And two decades of environmental activism has brought a massive inflation in the number and complexity of the conditions governments impose on new pulp mill applications.

Gunns is required to comply with an incredible list of 48 different criteria on each of 16 modules that constitute the environmental conditions.  That means a total of 768 individual environmental approvals on which politicians and bureaucrats can find fault.  In announcing the Government's decision, Environment Minister Peter Garrett indicated that 720 of the Commonwealth requirements have been accepted, with 48 remaining.  On top of these, the company also needs to obtain a legion of local and state government approvals.

Steering an environmental proposal through the shoals of government processes is proving to be a Herculean task for any company to undertake.  The conditions required of the mill are not only numerous but also include requirements that its discharges are cleaner than the river that carries them and contain far fewer dioxins than drinking water.

The considerable barriers to development Australia has erected are testimony to the distance we have travelled in rejecting new, commercially oriented investment.  The demonisations and costs, delays, and uncertainties imposed on the proposed mill have spooked prospective lenders, with the original financial supporter, the ANZ Bank, walking away from it.  Not surprisingly, Gunns has been unable to tie down alternative sources of finance.

With such a prominent and controversial project, the Environment Minister, Peter Garrett would be subservient to the control of Kevin Rudd's office.  In Rudd's absence, Julia Gillard, as Acting Prime Minister, has demonstrated a total misunderstanding of the decision paralysis that follows from an incomplete specification of the costs a government approval will entail.  She said, "More work needs to be done, Minister Garrett made that perfectly clear yesterday.  But construction can start."  Garrett himself has only added further confusion when he said that a decision to reject might expose the Government to claims for compensation.  This suggests that Garrett would like to create circumstances under which Gunns, rather than the government, takes the initiative to cancel the project.

Predictably, the opponents of the mill focus on bogus matters of pollution and the alternative ventures it allegedly closes off.

Emotively huge numbers like "30 billion litres" and "100 toxic substances" are promoted without addressing their context;  residues from the project are trivial in relation to the area in which they are to be discharged and would impose far less environmental harm than if the output were to be produced anywhere else in the world.

The green industries the mill is said to close off will as usual prove to be mythical -- and in any case presumably including tourism which green policies would strangle in carbon taxes.  Meanwhile a genuinely productive investment is denied and a warning is given to others that activists will markedly raise the costs of doing business if they consider ventures in Australia.

Australia's handling of environmental issues might be great political theatre but is a lousy way to run a country.  Any proposed use of natural resources is now subject to an additional premium in terms of delays, paperburden costs and uncertainties over whether previously envisaged requirements will be escalated in the course of the proposal's consideration.

This is denying us opportunities for development and wealth creation.  And doing so in the context of a deteriorating world economic situation will sharply increase the penalties for our casual enhancements of sovereign risk.


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Tuesday, January 13, 2009

Throwing good money after bad

Prominent New York fund manager Bernard Madoff embezzled $US50 billion from his investors.  In doing so he increased public awareness of the meaning of a "Ponzi Scheme".

This involves collecting money ostensibly to invest but actually using new collections to pay existing investors.

Madoff's operations were naked fraud -- he falsified entries to fool investors into thinking he was making good returns.

When the value of a bank or investment fund's assets decline substantially it is converted into a sort of Ponzi Scheme.  Such an asset-value collapse brought down the formerly great US financial institutions like AIG and Lehman Brothers.

Australia is seeing similar plummeting asset prices -- share prices are off by 40 per cent.

Australian house prices have been stable, unlike those of the US and Britain, which have seen price falls of 15-40 per cent.

Only the most optimistic real estate agents expect to see stable Australian house prices this year.

Compounding this, prices of rural and mineral export commodities are falling.  The effects of these developments are not yet evident.

Before Christmas, Canberra's $10.4 billion gift to pensioners kept retail sales buoyant, though this did little for new-car sales which started to plunge from the middle of last year.

The fillip provided by the government hand-out is temporary and there is little further scope to repeat it.

Governments are attempting to kick-start their stuttering economies by spending money they don't have and lowering interest rates.  Current circumstances doom such approaches to failure.

A successful kick-start can clear a blockage in a basically healthy engine.  But, where the engine trouble is more serious, kick-starting, at best, means wasted energy and, at worst, aggravates the problem.

And that's the situation Australia faces right now.

The economy is seriously unbalanced.  Shares and houses comprise two-thirds of household wealth.  The decline in their values represents a correction of inflated prices.

These were caused in part by governments strangling the supply of land for housing and partly by loose credit.

In recent years the houses and shares we own have seen higher values but these largely reflect price escalation rather than genuine savings.

The upshot is that we are all a lot less affluent than we thought we were.  The value of our shares and superannuation is less than we had hoped and the equity we have in our homes is about to fall.

So any correction must involve repairing our savings rather than subsidising consumption.

While 2009 is likely to be filled with bad economic news, government measures to boost demand will only make it worse.

Governments cannot prevent the downturn by throwing money at consumers and hoping this will increase spending, generate investment and bring a sustained recovery.

Such policies bring a lengthy stagnation and mounting government debt.

Right now the government should be redoubling its efforts to reduce its own spending.


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Saturday, January 10, 2009

Green plan won't help spluttering car makers

News that exports of Holden utes to America have been cancelled is the latest nail in the coffin of the Australian automotive industry.

It is an industry in terminal decline, and it's time the Rudd Government admitted it.

Yet in 2008 prime Minister Kevin Rudd and his Industry Minister, Kim Carr, did the opposite and expanded automotive industry assistance to $6.2 billion.

With 64,000 workers employed in the industry, the package is equivalent to nearly $100,000 per worker.

And that's on top of tariff protection.

But neither subsidies nor tariffs are helping to create a long-term, viable industry.

Tariffs and subsidies make industries unresponsive to consumer demand.

And being unresponsive has caused the problem that now plagues the industry.

The Australian automotive industry has traditionally produced large passenger vehicles.

But Australians clearly don't want them.

Last year just 171,432 of the 1,012,432 cars sold were made locally -- less than 20 per cent.

Tougher economic times have seen overall sales drop 3.6 per cent on 2007.

But sales of locally made cars dived by 14.5 per cent.

Meanwhile, demand for small and medium cars, primarily made by importers, account for more than 50 per cent of the market.

At least 60 per cent of locally made cars are sold through fleet to corporates.  With company belt-tightening, the pressure to turn over their fleets may wane.

There have been some markets that demand Australia's large cars, notably the Middle East.

Cars being exported to the Middle East are being subsidised by our taxpayers' dollars.

But we aren't getting subsidised oil in return.

The Rudd Government may argue that it's reforming the sector by continuing to phase out tariffs.

But with every drop in tariffs, it is simply increasing equivalent subsidies.

The only difference is, the cost is being spread to every taxpayer, instead of just to consumers of new cars.

The Government is also using its $1.3 billion green-car fund to achieve its industry and climate-change objectives by encouraging research and development of lower-emissions vehicles.

If the objective of the fund is to get consumers to buy lower-emitting cars, subsidising research and development isn't the best way to go about it.

Estimates show that State and Federal Government taxes and tariffs add $7000 to the cost of a Toyota Prius.

Removing these taxes and tariffs would be the best way to increase sales.

And Australia is highly unlikely to become a green car innovator.

At best, Australia will contribute to the development of their next range of vehicles.

And any short-term benefit will be small.

During a global economic downturn, the first concern of consumers is not to buy expensive "green" cars.

It's to buy cheaper ones.

According to the Australian Bureau of Statistics, more than a million new cars are bought annually.

Yet only 5000 Priuses are estimated to be sold this year.  Consumers are still voting with their hip pockets, not their green thumbs.

The Rudd Government may argue their plan is working.

Days before Christmas, Holden announced that it was to develop its new four-wheel-drive model out of Adelaide and will deliver 1200 jobs.

But so long as these 1200 jobs are built on the false foundations of government subsidies, no worker can have faith in the sustainability of their job.

Successive governments have conned automotive industry workers into thinking their jobs are viable.

They never have been, and it is the Government's job to clean up this mess.

To be fair to workers, the Rudd Government should use its industry assistance to retrain workers and find them alternative employment.

Government spending on infrastructure projects provides a potential pathway.

The geographic concentration of the industry in Geelong and Altona will mean any collapse will be devastating.

Retraining will lessen the impact on these individuals and communities.

More importantly, young workers need to be stopped from entering a dead-end industry.

But the Government won't, because the affected communities correlate strongly with marginal seats.

And the cost of inaction will be borne by consumers with higher car prices, and workers with an uncertain future.


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Wage rises will cost jobs

You never want a serious crisis to go to waste.  These words of wisdom came from Rahm Emanuel, Barack Obama's chief of staff, last November.  Rahm said one of the benefits of a crisis was that you could do things you previously thought you couldn't do.  He said the economic crisis gave Obama the chance to make radical health and education reforms.

This week ACTU president Sharan Burrow warned that the crisis could be used by Australian businesses for an altogether different purpose.  She's worried that bosses will use the crisis as an excuse to sack workers.  Instead, she wants companies to "retain, reskill and redeploy".  Private-sector economists and commentators have also felt free to offer their opinions.  We've witnessed the situation of those economists and commentators urging bosses not to slash and burn, while the financial institutions that employ those economists and commentators are instigating massive retrenchment programs.

The sentiment that businesses should try to avoid job losses is worthy -- but nothing more than sentiment.  Sentiment doesn't pay the bills.  There are few things easier than telling other people what to do.  After all that's what unions do.  But there wouldn't be too many employers in the country who need advice from the ACTU on how to run their business.  Instead of telling bosses how to do their job, maybe the ACTU should spend more time representing the interests of the 15 per cent of private sector workers who are members of a union.

It looks like the severity of the crisis is dawning upon the Rudd government.  Yesterday, Julia Gillard was (fortunately) far more sensible than the ACTU.  In response to Construction Forestry Mining and Energy Union demands for pay increases of 33 per cent for workers in the aluminum industry, Gillard in effect told the union not to be ridiculous.  Whether her comments make any difference remains to be seen.  Presumably the CFMEU wants to make its pay demands before the emissions trading scheme sends Australia's aluminum industry offshore.

Successful businesses rely on their ability to attract and retain good staff.  Employers don't need to be told this by the ACTU.  What the ACTU forgets is that an employer's primary responsibility is not actually to their employees.  An employer's primary responsibility is to the business itself.  If the business doesn't exist then the jobs don't exist.  To remain in existence, some businesses will inevitably be forced to make redundancies.

It's fine to talk about reskilling and redeploying employees and these are options that some businesses may take up.  But if the government and the unions were serious about maintaining employment, or at least restricting the extent of job losses, they'd contemplate an obvious but unpalatable reality.  Wages may need to fall.  Ultimately it is the price of labour that determines the level of employment.

Over the past 15 years Australians assumed wages were like house values and stock prices -- they could only go up.  In the past 12 months we've discovered the truth about house values and stock prices.  In the next 12 months we might discover the truth about wages as well.

The evidence is clear.  In economic conditions such as we are about to face, when governments and unions prevent real wages from falling, unemployment increases.  An important paper published last year by the Melbourne Institute of Applied Economic and Social Research (Phillips Curve and the Equilibrium Rate of Unemployment) recounts the Australian experience of unemployment since the 1960s.  It demonstrates "that declines in real wage rigidities lowered the equilibrium rate [of unemployment] in the periods 1971-1983 and 1992-2002, while increases in real wage rigidities increased the equilibrium rate in the period 1983-1992".  Broadly translated, this means that the more flexible the method of determining wages, the lower the expected rate of unemployment.

The paper identifies something else of significance.  In Australia when unemployment increases, the increase is dramatic and rapid.  Rises in unemployment are seldom gentle and gradual.  Going back to 1960 there have been four episodes of significant growth in unemployment -- roughly 1960 to 1962, 1974 to 1976, 1981 to 1984, and 1989 to 1992.  In each case the unemployment rate approximately doubled in the space of 12 to 36 months.  And unemployment stayed high for years.  Reregulating the labour market is a bad idea at the best of times.  But a crisis and the beginning of a possible recession is the very worst time for the Rudd government to embark on its industrial relations "reforms".


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Tuesday, January 06, 2009

Submission to the Preventative Health Taskforce's Discussion Paper ''Australia: the healthiest country by 2020''

EXECUTIVE SUMMARY

In summary the National Preventative Health Taskforce's Discussion Paper:

  1. downplays the positive role individual choices can play in the health sphere,
  2. pays little attention to the rights of individuals to consume legal products of their choosing, and for commercial vendors to provide consumers with those legal products,
  3. fails to interrogate the extent to which the management of individual risk should be appropriated by the state,
  4. neglects to properly assess the evidence base of its policy prescriptions, and
  5. presents policies that fail to live up to the framework of evidence-based public policy.


INTRODUCTION

This submission is divided into two sections.  The first section tackles some of the specific issues raised by the Preventative Health Taskforce's Discussion Paper, and outlines some of the ways the Discussion Paper's approach to policy making has been deficient.  The second section discusses the Discussion Paper's conceptual framework, dealing specifically with two issues — the use of the term and concept of "public health", and the issue of individual risk management, and the role that risk management should be subject to government intervention.

In an effort to address as many of the issues raised by the Discussion Paper, attached to this submission are two articles which cover some of the topics at hand.  While these do not directly deal with the Preventative Health Taskforce's Discussion Paper or technical documents, they raise points which cut across many of the proposals within.



POLICY-MAKING IN PREVENTATIVE HEALTH

The need for evidence-based policy

The Discussion Paper's recommendations are not sufficiently grounded in the basic principles of evidence-based policy making.  While it suggests that building the evidence base of preventative health measures is an important priority, it neglects to apply an evidence-based framework to its own policy prescriptions.

"Evidence-based policy" sounds uncontroversial — what policy could possibly be instituted without evidence to support it? — but it is in fact an increasingly important (and contentious) approach to policy design.  Evidence-based policy is policy based on evidence of that policy's efficacy at achieving its goals.  "Evidence" is taken to mean not merely research-based, but rather indicates the adoption of a scientific approach to public policy analysis — the purpose of evidence-based policy making is to discover in the most rigorous way the costs and consequences of policy design and implementation.  To do so, evidence-based policy makes use of combinations of systematic or randomised trials, benchmarking, cohort studies and the results from these trials and studies are ranked in a systematic hierarchy to determine their reliability. (1)

The Discussion Paper's recommendations are starkly deficient when seen through such a framework.  The Discussion Paper's policy proposals are justified by reference to a wildly varying standard of evidence.  And the policy goals are a complex patchwork hierarchy of "targets", "priorities", "imperatives", "actions", and "capacities to do".  In the tobacco technical paper alone, there are 42 of these categories, with additional references to measures and performance indicators in the document.  Overall, there are 79 "points of consideration" that the Discussion Paper urges the government to consider.  The technical paper on obesity paper targets 21 "initiatives", with dozens of "actions" nested within them.

By contrast, rarely throughout the Discussion Paper or in the technical papers are policies considered in their entirety.  The goals of individual policies are rarely clearly articulated.  Alternative proposals are not canvassed.  Policies are not presented in a cost-benefit framework, let alone coupled with the necessary analysis.  The criteria for policy success is not defined beyond the vaguest of motherhood statements, and metrics by which that success could be measured are not offered.  Unfortunately, the Discussion Paper's evidentiary emphasis has been on describing the extent of health problems, or, for example, secondary "problems" such as the increasing hours Australian children spend watching television or the frequency of advertisements for "non-core" foods, rather than looking at the evidence that lies behind their specific policy proposals.  (The specific issue of advertising and food is examined below.)

Furthermore, a fundamental lack of seriousness of the Discussion Paper's policy recommendations is demonstrated by the "future outlook" sections within the Discussion Paper, which set a combination of near impossible goals and vague assertions.  For example, the Discussion Paper asserts that "Australia has the capacity to:  ensure no tobacco products are sold to children". (2)  Tobacco sales to children are already illegal.  But the implementation and enforcement challenges that have meant that this goal has not already been achieved are never going to go away, despite the well-intentioned reforms proposed in the Taskforce's papers.  The sales of cigarettes to children will always be above zero because enforcement can never fully reach 100 per cent.  Similarly improbable or vague goals are given for alcohol, such as the claim that "If we act now, by 2020 ... there will be less drunken behaviour on the street" and "commercial activity in city centres, particularly at night, will become more diverse and prosperous." (3)  These statements undermine the Taskforce's serious purpose and unfortunately reveal a distinct lack of policy realism.

In many cases, to achieve these vague goals, the Discussion Paper recommends little more concrete than the institution of new regulatory agencies, a National Prevention Agency, education campaigns, health interventions and worker training, research and development, town planning schemes, tax measures and other regulations.  The Discussion Paper suggests vague work programs, but spends little time dealing with the administrative costs of such programs.

Lacking a strict evidence-based approach, the Discussion Paper risks recommending regulatory and spending measures which may not achieve their goals at all, are open-ended, and are riddled with consequences unintended by their designers.


Specific policy proposals

With the Discussion Paper's enormous array of policy options, it is not possible in this space to fully tackle each recommendation listed in the Discussion Paper or the technical documents systematically.  I have a long track record of dealing with individual policy proposals as they enter the public debate.  My Nanny State research has illustrated some of the flaws with proposals such as alcohol tax increases, advertising bans, obesity-related public policy, and broader issues to do with the impact of regulation on social capital and the philosophy and governance of the risk society.

One consistent theme that my research has found is that regulatory policies from all areas of government can have impacts on seemingly unrelated issues.  This is particularly made clear in my article "Your child is a wuss" (4) (Appendix A) that details the ways that overly risk-averse school administrators are unintentionally undermining exercise and physical activity in playgrounds.  But the obesity technical paper, when it discusses the school setting, focuses on diet and school layout, rather than on deliberate and already-existent public policies which are acting to limit playground exercise.

Indeed, it is a condemnation of the Taskforce's approach to the issue of obesity that in the 64 page technical paper, the word "exercise" appears only five times, and is even downplayed in those contexts.  To virtually ignore one major contributory factor towards obesity prevalence only illustrates the Taskforce's predisposition to attribute health problems to collective and social causes, rather than the choices made by individuals.  Physical activity, in the Taskforce's approach, is less a deliberate choice by individuals — "exercise" — and more a consequence of political decisions, hence the concentration of the Discussion Paper on environmental factors and urban planning initiatives.  My article indicates a positive step the National Preventative Health Strategy could pursue to encourage children to exercise.

Policy settings can also act as unintended consequences in other ways.  The tobacco technical paper raises the issue of smokeless tobacco, but, despite acknowledging the wealth of new evidence that suggests that smokeless tobacco is substantially less harmful than cigarettes, does not recommend any significant investigation or change of approach to these products.  The restriction on smokeless tobacco is a clear example in Australia of a policy, which, designed to protect individuals from harmful products, actually limits the ability of Australians to act in ways that are less harmful.  As the objectives of the National Tobacco Strategy include encouraging and assisting as many smokers to quit as soon as possible and to eliminate harmful exposure of tobacco smoke among non-smokers, the Taskforce has a responsibility to allow tobacco users the full array of harm reduction products provided in an open marketplace.


Obesity and advertising

Given the prominence of advertising restrictions and bans in the public debate over alcohol, tobacco and obesity policy, it is worth looking at in some detail.  Unfortunately, the Taskforce's approach to this issue is critically flawed.

The Discussion Paper reverses the conclusions of the federal government's most detailed study into the impact of food advertisement restrictions and body weight, the Australia Communications and Media Authority's 2008 review of Children Television Standards. (5)

That 2008 review was informed by the ACMA's earlier study "Television Advertising to Children" which concurs with a British Ofcom report that it was "difficult to determine the relative contribution of television advertising compared with all the other factors that influence children's food choice and health". (6)  This conclusion was reiterated in the ACMA's Children's Television Standards review.  The ACMA cited an analysis reviewed by Ofcom which concluded that "advertising/television exposure accounts for some two per cent of the variation in "food choice/obesity".  Given the vagaries of such a claim — "advertising" and "television exposure" are not the same thing — Ofcom was careful to point out that estimates vary.

But the Discussion Paper has instead discarded the ACMA/Ofcom conclusions by referring only to an appendix of the ACMA's 2008 review that analysed only the economic impact of an advertising ban.  The Taskforce's Discussion Paper pointed out that the cost/benefit analysis used in that economic study has been since superseded by subsequent data.  The Discussion Paper does not detail how that subsequent data may alter the analysis.  Nevertheless, even if it significantly altered the analysis of the economic impact of advertising bans, the new data would do nothing to challenge the original ACMA/Ofcom conclusion that it is nearly impossible to parse out the relationship between advertising and obesity.  The Discussion Paper has inappropriately dismissed the ACMA/Ofcom conclusion, and conducted an only rudimentary literature review that does not have the same depth and breadth as the more comprehensive ACMA study it discarded.

The early 20th century retailer John Wanaker summed up the conceptual and analytic problems in this area when he exclaimed:  "I know half my advertising is wasted, I just don't know which half."  This famous quip has formed the basis of a century's worth of investigation into the impact of advertising on consumer demand and brand awareness.

Contemporary economic analysis of advertising emphasises the practice's informative rather than manipulative qualities.  Advertising is a device used by producers to inform consumers of the availability of certain products.  This argument emphasises that consumer demand is less forged than discovered.  Consumers may not know that they want certain products until they are informed about them, but that does not mean that the act of informing was manipulating their demands — rather, that there was an undiscovered demand waiting to be fulfilled.  This is a much richer and nuanced view than the simplistic belief that advertising somehow "creates" demand, robbing individuals of both their free will and their heterogeneous range of preferences. (7)  This model also explains how advertising for existent products tends to focus on brands rather than the product themselves;  rather than being able to increase the pool of total demand, advertisers seek to shift brand preferences.

This is a critical point which is unrecognised by the Discussion Paper.  Children who identify advertised brands when they "pester" their parents for junk food may have already — independently of the brand's advertising — wanted some sort of junk food.  For example, just because a child pesters their parents for Cadbury chocolate, it does not necessarily follow that the child did not want chocolate before the advertisement was aired.  It defies credibility that children only want sweet food because they have been manipulated by advertising.

This intuitive view is backed up by the literature, and accounts for much of the ambiguity in empirical analysis of the relationship between food advertising and obesity.  Nevertheless, as the lead editorial of a 2004 edition of the Journal of the Royal Society of Medicine argued, "there is no good evidence that advertising has a substantial influence on children's food consumption and, consequently, no reason to believe that a complete ban on advertising would have any useful impact on childhood obesity rates."  It went on to argue that "the claim that food advertising is a major contributor to children's food choices and the rising tide of childhood obesity has obvious appeal, but as an argument it does not stand up to scrutiny." (8)

Unfortunately, the sections of the technical papers that deal with this issue appear to be intending to squeeze the evidence into their deliberate policy preference.  The critique of the claim that advertising bans in Sweden and Quebec have not positively impacted the obesity rates in those jurisdictions is dismissed by the Discussion Paper with a weak response that the efficacy of the Swedish and Quebecan policies has been hampered by external factors, such as television broadcasts originating outside the jurisdictions and other legal technicalities.  But such issues with the policies are, at best, hypothetical.  Instead of urging caution about policy implementation or the need for further study, the Discussion Paper claims that the negative consequences of the advertising bans have been comprehensively "refuted" by these unempirical and theoretical objections.  The Swedish and Quebecan cases are the only real-world examples of the Discussion Paper's proposed policies in action.  Given that they have failed — whatever the cause of that failure might be — the Discussion Paper could afford to be little less certain about its recommendations.  This sort of argument is an unfortunate consequence of the Discussion Paper's failure to adopt a rigorous evidence-based policy framework.

Similar critiques can be made of the approach to alcohol and tobacco advertising which form key parts of each respective technical paper.  The proposals concerning alcohol promotion and marketing, and the proposed regulatory body to oversee tobacco marketing and labelling do not adequately explore the relationship between marketing and choice.  Establishing the extent and limits of that relationship has to be a key task for the government before it acts on any of the Discussion Paper's recommendations.



CONCEPTUAL PROBLEMS WITH THE DISCUSSION PAPER'S APPROACH

What constitutes "Public health"?

It is worth briefly addressing the use of the phrase "public health" in discussions about preventative health measures.  According to the Discussion Paper, "one of the greatest public health challenges confronting Australia and many other industrialised countries is the obesity epidemic", (emphasis added) and the Taskforce uses the phrase to similarly describe alcohol and tobacco control measures.

George Rosen's definitive 1958 book The History of Public Health (9) described the historical role that government action has taken in managing health.  Some health problems are categorised as "public" health problems because they are most usefully tackled as collective problems, primarily because they involve the use of collective goods.  Public health problems are problems such as contaminated water, sanitation, epidemics — in other words, those health areas covered by the title of the Hippocratic book On Airs, Waters and Places.  Where problems are collective, the government has historically forged a role — for instance, in the draining of swamps to prevent spread of malaria through mosquito breeding, or in the construction of city-wide sewerage systems.  (It should be noted that there are many examples where collective problems can be efficiently and effectively tackled by non-state agents such as the private sector.  But for our purposes here, government can have a legitimate role dealing with collective problems.)

By contrast, most of the problems which the Preventative Health Taskforce seeks to tackle are not "public health" problems in any sense of the phrase.  The individual choices which contribute towards health problems from alcohol, tobacco and obesity do not, for the most part, have any collective attributes at all.  An individual's consumption of fatty food does not cause the group to consume fatty food.  While it is possible to project externalities from the consumption of such food, or, of course, the "second-hand" impact of tobacco, those externalities that do exist are in no way indicative of a "community" problem.  Just because a health problem occurs widely in a given population does not mean that it is a "public health" problem — to describe it as such is to mischaracterise it.

This point may appear semantic, but it is an important one to recognise while trying to conceptualise the problems caused by tobacco, alcohol and obesity.  For example, the Discussion Paper states that "Australia needs to ... ensure that policy directions to tackle overweight and obesity as a major public health issue have a population-wide focus".  Apart from the tautology — by definition, public health problems are population-wide problems — this argument illustrates a key flaw in the intellectual framework by which the Taskforce is addressing these health issues.  To classify something as a public health problem is to immediately imply government responsibility for that problem.  The Taskforce has tangled up the notions of "public" and "population-wide" in order to justify government action.

Such confusion is important because the Taskforce has to develop a public policy justification for government intervention in these areas.  Most of the Discussion Paper's policy proposals do not meet any of the economic criteria under which governments have intervened in individual choices.

There is no market failure in the areas of obesity, alcohol and tobacco.  And there is no obvious public good that is being underprovided, unlike, as we have seen, in the cases of sanitation and epidemic management.


Health spending and public health

One potential cause of this confusion is the relationship between public health spending and private health decisions.  Many advocates of preventative health regulation argue that private health decisions become public problems because the costs of those private decisions are, through the health system, borne by the taxpayer.  The Discussion Paper appears to partly endorse this view, citing the "massive economic burden on the community and the health system" of chronic diseases caused by obesity, alcohol and tobacco.  But there are a number of problems with this argument.

The Discussion Paper uses assessments of the costs of alcohol, obesity and tobacco that conflate costs privately incurred, costs incurred by the health system, and costs incurred by "society".  For example, on top of the direct costs to the health care system, the Discussion Paper and technical papers often include assumed aggregate productivity losses.  In the case of alcohol, the data used by the Discussion Paper goes so far as to include the cost of policing, property damage, insurance administration, lost productivity of those incarcerated due to offences caused after the consumption of alcohol, and the cost of lost household labour.

But every human action incurs some costs — the act of choice is, in fact, the act of deciding which sort of costs one would like to incur, if only costs from lost opportunities.  It is easy to add up all imaginable costs and compare it to an ideal alternative, but the results are not particularly insightful.  Individuals will never act in the lowest cost, most socially optimal, ideal.

All public policy should be subject to economic assessment.  But the use of costs to the health care system as a justification for curbing individual behaviour is a slippery slope.  In the United Kingdom, the spiralling costs of the National Health Service have led to discussions about excluding individuals who have engaged in unhealthy behaviour or made lifestyle choices deemed poor from being able to use the health system.


Risk assessment by individuals and governments

The Taskforce's approach to alcohol, tobacco and obesity is one in which it is the government's responsibility to alter individual preferences — even, in the case of alcohol, to alter an entire culture — to meet its goals.  In other words, the Taskforce seeks to shift the management of long-term or low risks from individuals and groups to the state.

Whether consciously or sub-consciously, individuals make thousands of risk assessments every day.  Indeed, every individual action involves risk — from minor risks such as those risks involved in eating prepared foods, to major risks such as those involving global catastrophe.  Individuals who choose to use a mobile telephones have implicitly made an assessment of the risks doing so — are there known or unknown dangers involving electromagnetic radiation?

Driving involves thousands of risk assessments;  not just choosing to drive to a destination, but more mundane and arguably more risky choices such as the timing of lane changes or how loud a car radio can be before it impairs the driver's attention.  When individuals choose to go faster or slower, they are weighing the risks of faster driving — that is, the potential to get in an accident or be ticketed for speeding — with the potential benefits of arriving at their destination sooner.

Similarly, the consumption of food can be weighed against the long term risks involved for an individual's health and lifespan, as well as more mundane risks about taste and enjoyment.  An individual purchasing any good takes the risk that their purchase might not be subjectively worth the price they paid.

Academic definitions of risk usually take into account decision-making within a framework of probability, and this level of risk is presented in terms of its statistical occurrence — for example, the risk that action A would lead to result B is 50 per cent.

Nevertheless, popular usage of the concept of risk tends to see risk levels as binary — an activity is either risky, or it is not risky.  Eating at a restaurant is not risky;  base-jumping is risky.  Driving at half the speed limit is not risky;  driving at twice the speed limit is risky.  But this dichotomy is value-laden.  Classing an activity as "risky" is itself a characterisation of an unacceptable level of risk.  Similarly, an individual participating in an activity that they would describe as "not risky" still involves a certain level of (apparently acceptable) risk.

As this indicates, assessing whether an activity is "risky" involves highly subjective individual judgment.  Furthermore an activity that is risky may still be pursued — if the individual is willing to wear that risk for a potential benefit.  It is easy to see how some individuals may view base-jumping as an unacceptably risky activity, and yet others — even if they acknowledge a high level of risk — perceive the benefits to be high enough to accept that level.  Assessing the level of risk is only the first part of the decision to pursue a course of action — that assessment has to be processed by an individual's subjective views of the balance between risks and benefits.

Crucial to risk assessment is information.  Risks can only dissuade individuals from action if they perceive those risks.  This observation is particularly important for risk politics.  That an activity carries with it a level of risk has no political consequence;  risks can only become politicised if individuals perceive those risks.  Knowledge about risk — whether accurate or erroneous — is the dominant currency in what the sociologist Ulrich Beck has influentially termed the "risk society". (10)

A large part of the challenge of living in a risk society is reconciling different claims about relative risks.  Alcohol is both unhealthy and healthy.  Regular alcohol intake cuts down the incidence of heart attacks in men, (11) but it also raises blood pressure. (12)  As Radley Balko points out, alcohol consumption has been variously shown to also reduce the incidence of Type 2 diabetes, the stiffening of the arteries, prostate cancer, skin cancer and the common cold. (13)  But to oppose that list, the Cancer Institute of New South Wales argues that alcohol consumption has been positively linked with breast cancer, liver cancer, upper aero-digestive tract cancer, colorectal cancer and stomach cancer, as well as heart disease. (14)  These medical claims are further confused by claims about the social consequences of risky behaviour, which are commonly reported as simple cause-and-effect stories that classify certain activities as the exclusive cause of unwanted results.  Recent studies have claimed that binge drinking in women leads to unsafe sexual practices, (15) or that there is a positive correlation between neighbourhoods with high numbers of alcohol vendors and high numbers of injuries sustained by local children. (16)

For the non-scientifically trained public, assessing the validity and applicability of these studies is further complicated by the prisms through which the media reports on them, and the way that politicians, lobbyists and advocates harness the evidence to defend their arguments.

But for those "experts" (Beck's term) who professionally hold the knowledge that allow them to interpret relative risk levels, the uneven awareness in the public and the media is a never-ending source of frustration:

The "irrationality" of "deviating" public risk "perception" lies in the fact that, in the eyes of the technological elite, the majority of the public still behaves like engineering students in their first semester.  They are ignorant, or course, but well-intentioned;  hard-working, but without a clue.  In this view, the population is composed of nothing but would-be engineers, who do not possess sufficient knowledge.  They only need to be stuffed full of technical details, and then they will share the expert's viewpoint ... Protests, fears, criticism, or resistance in the public sphere are a pure problem of information.  If the public only knew what the technical people know, they would be put at ease — otherwise they are just hopefully irrational. (17)

But, while this belief is widespread, risk assessment on the level of the individual involves mgathering technical data about health and safety costs.  Risks are only perceptible within an individual's value system;  and the effect of this value system on risk assessment is not something which can be deduced by expert studies.  Values determine risk.  As Beck writes:

Even in their highly mathematical or technical garb, statements on risks contain statements of the type that is how we want to live — statements, that is, to which the natural and engineering sciences alone can provide answers only by overstepping the bounds of their disciplines.  But then the tables are turned.  The non-acceptance of the scientific definition of risks is not something to be reproached as "irrationality" in the population, but quite to the contrary, it indicates that the culture premises of acceptability containin scientific and technical statements on risk are wrong.  The technical risk experts are mistaken in the empirical accuracy of their implicit value premises, specifically in their assumptions of what appears acceptable risk in the population.  The talk of a "false, irrational" perception of risk in the population, however, crowns this mistake;  the scientists withdraw their borrowed notions of cultural acceptance from empirical criticism, elevate their views of other people's notions to a dogma and mount this shaky throne to serve as judges of the irrationality of the population, whose ideas they ought to ascertain and make the foundation of their work. (18)

In other words, the third party risk assessments provided by experts cannot possibly substitute the risk assessments performed by individuals, as highly subjective values play such a key part.  Risks can only be determined on the level of the individual, not on the level of groups or societies.

The Preventative Health Taskforce's Discussion Paper downplays the role individuals play in assessing their own risks, instead focusing on the risks perceived by the health advocates, who — by virtue of their choice of profession — have different concepts of what constitutes "acceptable" risk.  The Taskforce needs to recognise that these questions are subjective, rather than objective.

While individuals may choose to pursue activities that the Taskforce considers excessively risky or detrimental, the Taskforce needs to also recognise that it does not necessarily share the same value system as all of those individuals they seek to regulate.  Many Australians may be happy to forgo some health benefits in order to use alcohol, tobacco, or consume fast food.  Considering the widespread knowledge of the health impact of these unhealthy practices, it would be reasonable to assume that this sort of conscious decision is one which is widespread in Australia.



CONCLUSION

The issues raised in this submission are by no means the only problematic issues contained within the Discussion Paper and its associated technical papers.  Preventative health, as the Taskforce has conceptualised it, can impact on the autonomy individuals have over their own decisions, the limits or otherwise of individual responsibility, and, as elaborated above, the concept of individual risk management and risk assessment.

Individuals need to retain the autonomy to consume products of their own choosing, and the autonomy to accept responsibility for those choices.

Unfortunately, the Discussion Paper does not recognise any limits of government interference in individual choices.  This has led to some poorly made policy recommendations.  But perhaps more importantly, it has led to an assumption that the most effective way to tackle health issues is through government intervention — that regulation, taxation and government bodies should be allowed to overrule individual choice and responsibility.



APPENDIX A

Your child is a wuss

When Belgian Gardens, a Townsville state primary school, banned cartwheels and handstands in August, it ignited a media frenzy.  But as bizarre as it is, the handstand ban is only one incidence of a widespread trend affecting all Australian schools.

Carlton Gardens Primary School has removed its monkey bars, St Michael's Primary School has banned football and soccer during recess, St Peter Chanel Primary School now allows students to play football and soccer only if there is no tackling, and Ascot Vale West Primary has banned all games that are deemed "too rough".

Many schools have even instituted birthday cake bans to prevent children bringing cakes to school to share with their classmates;  cakes are too unhealthy and raise food safety concerns.

The Belgian Gardens cartwheel ban drew attention from both the Queensland and federal governments.  Federal Education Minister Julia Gillard promised to look into the ban, while Queensland Premier Anna Bligh and Education Minister Rod Welford made it clear responsibility for the decision rested on the principal's shoulders.

The media never picked up on, and the politicians never admitted, that the Principal, Glen Dickson, was following Queensland Activity Risk Management Guidelines when instituting the ban.  He correctly classified cartwheels as a level 2 (medium risk) activity requiring adult supervision.  He followed the rules and in return has been given the cold shoulder by politicians who should ultimately be responsible for these ridiculous state department guidelines.

In addition to the general risk management guidelines, there are 133 curriculum activity risk management modules that Queensland teachers must follow.  The modules cover nearly every activity a child could undertake at school, and some they likely will not.  There are even modules for candle making, tractor driving, shooting and bait gathering.

The NSW Department of Education and Training's Guidelines for Safe Conduct of Sport and Physical Activity in Schools is 284 pages long, with detailed requirements for 61 different sports from abseiling to water polo.

The document is full of useful advice including diagrams to locate the seat, handlebars and pedals when conducting a bicycle safety check.  Prohibited sports include bungee jumping, break dancing, tobogganing, rodeo, hang-gliding, multi-pitch rock-climbing, boxing, and rock-fishing.

NSW students should remain in the shade if possible between 11am and 3pm daylight savings time and padding must be 2m high on goal posts.  Students aren't allowed to throw curve balls at baseball until they are in Year 9.  Finishing tape is banned from certain running events for fear of choking runners.  Teachers are recommended to confirm that students can swim before letting them onto the high diving platform.

The Victorian Government's Schools Reference Guide fairs little better, it has 66 pages dedicated to student safety and risk management.  Paragraph 4.4.2.3.1 recommends young children should wear identity tags if taken outside school premises.

In case this wasn't enough, the federal government released its own guidelines for Children's Safety in Sport and Recreation.  The Rudd Government contributed over $300,000 to Sport Medicine Australia to develop the guidelines and subsequently plans to distribute over a million brochures and 40,000 copies of the guidelines across Australia.  Alarmingly, it advocates pre-participation screening of students before physical activity using a questionnaire to ascertain the medical history of all participants as well as family, school, other sporting and social commitments.

Swings, see-saws, flying foxes and roundabouts are also now banned from NSW and Victorian public schools.  Playground equipment must meet strict building standards which regulate falling heights, impact absorbing surfaces and construction materials.

Litigious parents are taking the blame for these bans after Education Queensland released figures showing that 93 compensation claims were brought against the Queensland Government last year over school yard injuries.  No consideration has been given to the fact that these guidelines actually invite litigation;  setting unrealistic and complex safety requirements is throwing ammunition to litigious parents and encouraging stupid bans from fearful principals.  What principal will want to admit at court that they chose not to follow safety guidelines?

The real losers are the children.  Not only are they being harassed by the fun police, but experts are saying these bans are having long term consequences on children's development.  The child and adolescent psychologist Dr Michael Carr-Gregg believes that sanitising children's playing environments will create a generation of wimps who lack decision making skills and resilience to life's setbacks:  "it's all part of this 'wussification' syndrome that we're seeing in contemporary Australia where schools have been forced to bow to the great God of occupational health and safety."

Long and complex education department guidelines are encouraging a culture of risk adversity in schools.  If governments wish to continue denying liability for these maternalistic bans, they must remove these absurd guidelines and restore true autonomy to teaching staff.



APPENDIX B

Big fat beat up

Arnold Schwarzenegger is obese.  He's been obese his entire adult life, including the seven times he won the Mr Olympia bodybuilding title.

Despite obesity not impacting his own, clearly excellent, health, Governor Schwarzenegger has introduced many anti-obesity programs in an attempt to combat what he regards as California's obesity epidemic.  In doing so, Governor Schwarzenegger becomes just another in a long line of policy makers attacking the wrong problem with the wrong solutions.

Before any public policy responses to obesity can even be considered, a single, surprisingly controversial, question has to be answered:  when does being fat become a health problem?  Only then can the second, also controversial, question be asked:  what, if anything, can policy makers do about obesity?


Carry that weight

According to the World Health Organisation anybody with a Body Mass Index above 30 is considered obese, and anything over a BMI of 25 is classified as overweight.  At his bodybuilding peak Arnie was 1.88m (6'2") and weighed 107kg, leaving him with a BMI of 30.2.

So where did the magic number of a BMI of 25 come from?  What makes a woman of average height (164cm/5'4½") fat at 67.5kg but normal at 67kg?  Has she actually increased her risk of diabetes, cancer, or heart disease by gaining half a kilo?  The use of BMI, and the classifications, come from life insurance tables of the 1940s.  But the adoption of 25 as the magic number is credited to the International Obesity Taskforce (IOTF) whose members are also prominent on the US National Institute of Health and World Health Organisation obesity panels.  It was the adoption of 25 as the cut-off by the WHO that led to that number becoming the international standard of fatness.  Eric Oliver in his book Fat Politics demonstrates that the IOTF is funded by diet drug companies such as Hoffman-La Roche.

The dirty secret of the BMI is that health experts know the BMI is a deeply flawed way to measure whether someone is too fat.

If the classification for overweight was moved to a BMI of 30 then 52 per cent of Australians — some 10 million people — would immediately be classified as having a "normal" weight.  And there is considerable evidence that the greatest public policy intervention legislators could make in this area is to do exactly that.  When the US moved the obesity goal posts the other way in 1998 and overnight reclassified 37 million previously normal weight Americans as overweight, the immediate impact was to stigmatise many newly overweight women as too fat — for no measured public health benefit.

But the BMI has one big advantage over accurate methods to measure body fat — it's cheap and easy.

Obviously, diet pill companies have a big incentive to make more people think they are fat — it's good for business — but the drug companies are by no means alone in creating the "obesity epidemic".  Obesity researchers in Australia have proved highly media savvy in getting out the message that obesity is killing us.  In the crowded bazaar of medical research, where it's hard to get your message heard above the clamour of competing illnesses and causes, it helps to proclaim, as Access Economics did earlier this year, that your "disease" affects seven in 10 adult Australians and costs the country $58.2 billion a year.


So what's wrong with being a bit tubby?

It is therefore surprising to learn the evidence does not support a BMI of 25 as an important marker of health outcomes.  In their 2006 book Diet Nation, Patrick Basham, Gio Gori, and John Luik demonstrate that the evidence shows higher mortality rates don't become prominent until beyond a BMI of 35 (about 118kg for a 183cm/6' man).

It is clear that the extremely fat (those who have a BMI over 40) face a range of health risks and problems and there is some evidence that the relatively fat, (BMI 35-40) face some additional health risks.  The very fat (the morbidly obese) and the very thin (the anorexics) have appreciably higher mortality rates than the rest of the population but, according to Diet Nation, what is not clear is at what point fatness causes disease rather than any other factor such as smoking, age, metabolic disorder or family history.

Nevertheless, over and over researchers trumpet links between disease and obesity.  Being even slightly overweight is meant to cause diabetes, some cancers, heart disease and strokes.  How can it be that the evidence doesn't appear to confirm the health risks except for the very fat?  Researchers are beginning to re-examine the evidence on weight and health, and coming to some dramatically different conclusions than those which obesity lobbyists rely upon.

Critically, health researchers rarely measure health problems "caused" by fatness along the full range of body weights.  This approach fails to distinguish whether a BMI of 22, 32 or 42 is the tipping point for whatever disease excess fat is meant to cause.  For this reason, the Australian Institute of Health and Welfare, in its report Burden of Disease and Injury in Australia 2003 notes that its methods inflate the risk attributed to high body weight.  Yet the authors continue to assert being even slightly overweight is a cause of a range of medical conditions.  This research flaw is found widely in the obesity literature.

For example, recent research casts significant doubt on the supposed link between obesity and heart disease risks.  Research published this year in The Archives of Internal Medicine found over half of those classified as overweight have normal blood pressure and cholesterol levels.  More importantly though, is that study found weight was not the major risk factor.  In all weight groups, inactivity, smoking and age were linked with higher risk factors for heart disease than waist circumference.  People with normal weight but larger waist circumference had a greater risk than fatter people with smaller waists.

Another paper in the same journal found no difference in insulin sensitivity between a normal weight group and an obese group leading them to conclude that not all obese people face higher risks for developing diabetes.  Similar studies exist for all other supposed diseases of fatness.  Increasingly researchers are being faced with evidence that being merely overweight does not cause the raft of diseases attributed to it.  A key part of that evidence is from Katherine Flegal and colleagues in a paper published in April 2005 in the Journal of the American Medical Association which noted the continued increase in life expectancy and the continuation of the fall in deaths from heart disease and stroke despite more than 25 years of increased weight in the US population.

For sure, there is substantial evidence that being very heavy — those with morbid obesity — is correlated with a range of health problems and risks.  Hefting around additional weight puts stress on the joints causing increased demand for hip and knee replacements as well as osteoarthritis.  The very fat are more likely to suffer from diabetes, heart disease, some cancers and strokes.

Continuing research does point to one worrying trend, the super fat — the morbidly obese and even fatter — are both getting fatter and increasing in number.  However, even the country with the most massive people, the US, only has 4.8 per cent of its population in the morbidly obese or worse category.  Yet the very fat are unlikely to be properly targeted for assistance, not least of which because if the money made available to "fight the obesity epidemic" is spread across 70 per cent of the population, it is unlikely the substantial sums required to treat the multiple health and behavioural problems experienced by the extremely obese will be made available.

As Oliver writes in Fat Politics, the reason why a majority "are overweight is because a nineteenth-century astronomer, a twentieth-century insurance actuary, and a handful of contemporary scientists concocted some ideas about what a normal weight should be".  The original definition of a normal weight came from a Belgian astronomer who measured the most common weight for their height of Scottish and French army conscripts — and he did so in the 1830s, a time when life expectancy was about 40 as a result of chronic malnutrition and disease.  No wonder their average weight was so low.  The other major source of data for what is "normal" came from measuring men to develop life insurance tables in America in the 1940's.  Because of their different physiology, it is likely women gain additional protective benefits from carrying more weight than men yet the "ideal" weight is deemed to be the same for a man and woman of equal height.

Given the increasing evidence that the categories of overweight and mildly obese have fewer elevated health risks, and definitely lower health risks than the underweight, is it not possible that the healthy ranges are set too low, particularly for women?  It is hard to see any benefit in public health terms or for the individuals concerned by stigmatising large swathes of the population as overweight or mildly obese if the huge effort of them losing weight will not appreciably improve their health or life expectancy.


Neither cause nor cure are correct

The way to reduce fatness is to eat fewer calories and exercise more.  This approach has the great advantage of matching common sense.  We see the contestants on Australia's Biggest Loser go on a diet and do huge amounts of physical activity and — Hey Presto! — they all lose weight.  It is therefore very surprising to learn that the extensive research literature on exercise and dieting shows virtually nobody loses weight through low calorie dieting, that the overweight do not eat more than the lean and exercise is not correlated with weight loss.

Although all experts agree imbalance between energy in and energy out causes weight gain, it seems the actual amount of food needed varies so dramatically between people that no general diet recommendation works across the population.  Short of locking all the overweight up with an individual dietician and trainer, the obesity industry has no workable way to help most people get to the weight the experts deem ideal.

The obesity industry — that is, those researchers and drug companies that rely on the notion of an "obesity epidemic" — therefore face an increasing amount of evidence suggesting that the links between fatness and various diseases are weaker than believed, and that the industry's proposed solution to obesity — a low calorie/high carbohydrate diet with exercise — does not work.  Moreover, if current definitions of overweight are set too low — so that attaining a "normal" weight requires constant dieting — then this in itself may be leading many people to feel discouraged when the ideal is unattainable.

Survey after survey tells us that most people — including the fat themselves — blame fat people for their size.  If only all the fatties could get a grip on themselves, they wouldn't be fat.  Being over-weight or obese is typically seen to be a result of lack of control.

This is also the message pushed by the weight loss companies and gyms as well as the writers of diet books and sellers of weight loss additives.  Even though weight loss, particularly to the weight range deemed ideal, is recognised as very difficult to achieve, losing weight is still seen by most as a private decision.

Increasingly policy makers and activists are out of step with this response.  Increasingly the Nanny State intrudes into obesity policy.  Instead of obesity simply being the result of an energy imbalance caused by an individual's eating patterns it is some unquantified combination of genes, metabolism disorders and an "obesogenic" environment.

Despite the failure of research to identify either that moderate fatness causes other health problems or, more importantly, that there are cures for this supposed health crisis, increasingly a disparate number of researchers and activists think they have the public policy answers to the "epidemic".  Unlike the public's preference for individual self-control, the obesity activists favour extensive government intervention and a severe restriction of the civil liberties of the entire population, regardless of whether they are too fat or not.

These activists blame processed food companies, modern agricultural methods and fast food companies for obesity.  Television watching (especially presumably plasma TV watching), car driving and urban sprawl are also highly cited.  Activists argue that modern agriculture and processing has made food very cheap, and that this cheap food is then shovelled out in huge portion sizes at the supermarket and by fast food companies to people who live in suburban fringe estates with no footpaths;  who drive their cars through drive-throughs so they can return to eat in front of the TV;  where they watch increasing amounts of advertisements that trick them into repeating the process the next day.

Over all this they have little or no control.


Forgive your upsize

For some obesity activists the public-spirited response to this is to ban junk food advertising, ban suburban fringe development, build new public transport services, increase labelling requirements, ban super-sized servings, tax junk food, and increase the number of bariatric surgeries done on Medicare.

And these are responses to reducing the number of adults who are obese and overweight.  There are far more draconian options proposed for childhood obesity.

One commonly seen proposal is the restriction of fast food outlets in low income areas.  Supporters of this heavy-handed restriction on civil liberties imply that poor people are incapable of making good food choices, and so the only option is to restrict their choices to good food.  Yet recent research shows that while there is a greater preponderance of fast food outlets in low income areas, there are also more supermarkets.  The choice is already there.

Another popular proposal is a fat tax — a tax on high calorie dense foods such as soft drinks, confectionary and much fast food.  The idea is if these types of foods are taxed to the point that reduces consumption and the proceeds are used to subsidise "too expensive" healthy foods, then the poor will be able to eat better.

But beyond the practical problems with this idea — do we really want to make food more expensive for poor people?  And do we really want to set individual tax rates for every single food type?  There is something deeply repugnant about expecting people to vote, to raise their children, to hold a job or to serve on a jury yet at the same time use policy settings to forcibly change what people eat.

Moreover, it is not clear at all that fast food is the culprit of the obesity "crisis".  A number of research studies have failed to find a link between fast food consumption and obesity.  Those dreadful news clips of fat people chowing-down on chips, fried chicken and burgers while slurping huge buckets of coca-cola, do not, obviously, tell the whole story.

The studies show people compensate over the day so that overall very few additional calories are consumed compared to people not eating fast food.  Another claim made by supporters of a fat tax is that supposedly the poor live on soft drink and chips because they are much cheaper than a healthy alternative.

But it does not stand up to scrutiny.  Consider this hypothetical — a one litre bottle of coke from the supermarket costs about $2.10, a 200g packet of chips $3.80 or a large fries from McDonalds $2.75.  Total meal cost around $5 or $10 for a couple.  For much less money, that couple could have purchased ingredients to cook pork chops and vegetables, pasta with tuna, chicken breast and vegetables or risotto with chorizo and peas, or any number of other meals.  The argument that the poor — perhaps with the exception of those who live in the most remote locations — cannot afford unprocessed fresh food is simply not true.

Policy makers of all political persuasions like to be seen to be doing something, especially when there's an apparent crisis, the "obesity epidemic".  Some are open in claiming it is the right and duty of the state to dictate what a good life should look like.  Others are more circumspect, hiding behind disputed science and drug company funded reports, to justify a supposed cost-benefit of limiting people's basic life choices.

In either case, Nanny State proposals to solve a crisis that may not exist, with proposals that are known not to work, embodies the worst excesses of the government interventionism in a democratic society.



ENDNOTES

1. For more information on the principles and challenges posed by evidence-based policy, see Richard J. Wood, "Evidence-based Policy and Public Sector Innovation", Occasional Paper, November 2008.

2. Australia: the healthiest country by 2020, p22.

3. as above, p33.

4. Richard J. Wood, "Your child is a wuss", November 2008. Available at Appendix A.

5. Australian Communications and Media Authority, "Children's Television Standards — Report for the Review", 2008.

6. Australian Communications and Media Authority, "Television Advertising to Children", June 2007

7. For a further overview of the economic theory of advertising, see Alberto Mingardi, "Advertising", in John Meadowcroft (ed.) Prohibitions, Institute of Economic Affairs, London, 2008

8. "Food advertising and childhood obesity", Journal of the Royal Society of Medicine, Feb 2004, v97n2

9. George Rosen, A History of Public Health, MD Publications, New York, 1958

10. Ulrich Beck, Risk Society: Towards a New Modernity, 1992, SAGE, London

11. K. Mukamal, K. Conigrave, M. Mittleman, et al. "Roles of drinking pattern and type of alcohol consumed in coronary heart disease in men", New England Journal of Medicine, 2003, vol. 348

12. R Zilkens, V Burke, J Hodgeson, et al. "Red Wine and Beer Elevate Blood Pressure in Normotensive Men" Hypertension, 2005, vol. 45

13. Radley Balko, "Back Door to Prohibition: The New War on Social Drinking", Cato Policy Analysis, No. 501, December 5, 2003.

14. "Alcohol Consumption and Cancer Risk", Cancer Institute of New Wales Position Statement, May 2008.

15. "The Relationship between Recent Alcohol Use and Sexual Behaviors: Gender Differences among STD Clinic Patients". Alcoholism: Clinical & Experimental Research, November, 2008

16. "Neighborhood Alcohol Outlets Tied to Kids' Injury Risk", HealthDay News, September 4, 2008.

17. Ulrich Beck, Risk Society: Towards a New Modernity, 1992, SAGE, London, p58

18. as above, p58