Progressive intellectuals have poisoned the well for Labor

The general consensus is that NSW Labor enjoyed one too many election wins in 2007, with regretful voters longingly wishing to put the governing party out of its misery ever since.

With every political poll and betting market pointing to an electoral apocalypse for Labor at the state election later this week, all signs point to a realisation for voters that, eventually, some dreams do come true.

It is clear that much of the blame for the expected defeat of the Kristina Keneally-led government, in which even Labor seats with healthy margins are now perceived as ''marginal'', can be sheeted home to a host of state-own factors.

Since the retirement of the long-serving Bob Carr in August 2005, NSW has endured the unedifying spectacle of Labor's internal factional warfare directly contributing to a revolving door premiership.

Morris Iemma took over from Carr and, to his credit, won the 2007 election that a tired Labor administration arguably should have lost on an ''it's time'' factor alone.  Yet any political capital that Iemma built for himself proved to be transitory, with a resounding rejection by the ALP state conference in May 2008 of another electricity privatisation plan signalling the beginning of Iemma's eventual leadership demise.

The political capital of Morris Iemma fully depreciated when the powerful Right faction later refused the Premier's not unreasonable wish to clean out much of the dead wood, including Right factional heavyweights, from Cabinet.  With his position made untenable Iemma felt no choice but to resign, the first NSW Labor Premier to do so in 117 years.

With the initial backing of the Labor Right, the left-leaning Nathan Rees replaced Iemma to become NSW's forty-first Premier.  However this largely forgetful stint only lasted about fifteen months, with Rees earning the undistinguished title as the only Labor Premier not to lead his or her party into a NSW state election.

The Right jumped off the Rees train as swiftly as they boarded, according Keneally the opportunity to successfully challenge for the Labor leadership, and hence the position of state Premier, in December 2009.

Compounding the revolving door of the premier state's political leadership was the seemingly endless litany of scandals afflicting the NSW Labor Caucus.  These ranged from the serious, including state political manipulation of local planning and development processes, to the downright salacious with numerous sex scandals revealed over the past few years

All of these issues reinforced doubts amongst the increasingly restive state voters about the capacity of Labor to manage themselves, let alone govern Australia's most populous state.

The crisis of NSW Labor has also been the product of a sustained period of its own poor policy performance across a range of areas.

Economic growth in the premier state has consistently lagged that of the national economy as a whole since the heady days of the 2000 Sydney Olympics, which in turn has prevented the overall Australian economy from reaching its full potential.

The NSW economy grew by a sluggish 2.2 per cent on an average annual basis since the Olympics, the lowest growth rate of all the states and well behind the national growth rate averaging 3.1 per cent.  So serious has the state's economic underperformance been that its share of national GDP actually fell by two percentage points from 2001-02 to 2009-10.

One of the contributing factors toward state Labor's underwhelming economic record has been its unpreparedness to dramatically improve the tax competitiveness of the NSW economy.  State business tax benchmarking analysis I undertook has shown that NSW is consistently ranked as one of the highest taxing jurisdictions in Australia.

Even taking into account NSW's status as a high taxing state, the state budget papers show that in six of the past eight fiscal years growth in government operational spending had outstripped growth in revenues (including commonwealth grants).  In addition, the government has failed to meet a number of financial sustainability targets, including in terms of net debt, that it had set for itself in legislation.

There is evidence to suggest that there also exists a significant degree of dissatisfaction amongst NSW voters in terms of the management and delivery of services by the Labor government.

These include an inability to deliver on commitments for significant new rail services in Sydney's west, concerns about the availability of policing services to prevent crime particularly in urban and regional areas, and chronic hospital waiting lists directly related to a sufficient lack of new beds in the system.

It is notable that NSW has suffered the greatest average loss of people to other states over the past decade, with economic concerns and service delivery problems surely playing some role in this regard.  Instead of waiting to register their disapproval of the Carr-Iemma-Rees-Keneally government through the ballot box this week an average of 24,000 people each year for the past ten have already voted in disapproval with their feet out of NSW.

Clearly the NSW Labor brand became political poison even prior to the Icarus-like figure of former Labor Prime Minister Kevin Rudd crashing back to earth in mid-2010.  However, given the presence of the major parties at both federal and state levels and the extent to which the commonwealth now interferes with state responsibilities, election outcomes at the state level do not entirely hinge upon regional or local issues alone.

While Keneally and her band of ministers and backbenchers were, according to the polls, already at a point beyond political redemption, it appears that the announcement of the carbon tax proposal by federal Labor has only reinforced negative, and growing, perceptions of Labor everywhere as the party of financial pain for ordinary folk.

Indeed, NSW Opposition Leader Barry O'Farrell has capitalised politically on the close association between Prime Minister Julia Gillard and the federal Greens in his continuing efforts to reach out to Labor's traditional working class constituency as well as the growing cohort of ''aspirationals'' residing in the outer suburbs of Sydney.

If the electoral coin is to fall in favour of the Coalition's Barry O'Farrell in NSW following Ted Baillieu and Colin Barnett in Victoria and WA respectively, and with Tony Abbott coming within a whisker of consigning Rudd-Gillard federal Labor to the dustbin of history, the next big question that will be asked in Australian politics is:  where to next for the Labor Party?

To help answer that question, it is necessary to consider the tectonic shifts that have transpired within the ALP across the board over the past three decades or more.

As discussed by Edward Shann in his 1930 classic The Economic History of Australia, the Labor Party originally emerged as a political contrivance so that the voice of labour, as opposed to capital, interests could be heard in the halls of assembly.  Similarly, Frederic Eggleston stated in the early 1950s that Labor was little more than a trade union class party in which union apparatchiks fashioned its policy and determined its machinery and personnel.

When Shann and Eggleston made their observations the union movement was substantially drawn from men working in the manufacturing sector, which in turn was largely shielded from the value-added logic of global market competition due to significant tariff and other trade barriers.

However, a range of cross-cutting economic and social changes were to play a significant role in altering the character of Labor's membership and operations, with spillover effects for its policy outlook over time.

Some of these factors included structural change in manufacturing, a strengthening services sector and growing government, rising female labour force participation, increasing access to university education, and the emergence of secular, post-modernist outlooks on issues concerning environmentalism, gender equity, citizenship and sexuality.

While the manufacturing union movement still plays its pivotal role in funding, party organisation and political preselection to this day, this traditional working class base within Labor has made way, to a greater or lesser extent, for an emergent, ''progressive'' intellectual class.

Some of the previous old guard viewed the rise of the intellectual classes in the Labor Party with suspicion or derision.  Clyde Cameron would sometimes compare his early years as a shearer favourably against those of services sector backgrounds, while Kim Beazley Senior once facetiously remarked, ''When I joined the Labor Party, it contained the cream of the working class;  now it contains the dregs of the middle class.''

But even the cynical old guard could do little but accommodate the new chattering kids on the ALP block.  After all, membership of major political parties has been on the decline over many years, so best to bring the bookwormish intellectual breed under the Labor wing.

In general terms the policy stance of the new Labor intellectual cohort includes the reinforcement of state control over economic activity, albeit dressed in the garb of market jargon (for example, a ''carbon price''), and a social agenda of cultural and social reprogramming of public attitudes through legislation, NGO funding or standardised school curricula.

This policy agenda of ALP's intellectual classes, which arguably has more in common with Bob Brown than Joe De Bruyn, is likely to come at the continuing cost of Labor losing political support from the mainstream working and aspirational classes of Australian society.  This is because workers and aspirationals alike prefer economic growth to stagnation, loathe policies that hurt the hip pocket, and resent political correctness and its enforcement through government law or funding.

To put simply, phenomena such as ''Howard's Battlers'' or ''Abbott's Army'', could represent a more permanent addition to the Coalition voting pool at both federal and state levels at the increasing expense of Labor the longer the noveau intellectuals hold sway within the ALP.

To a degree more significant than most realise, the long term fortunes of the Labor Party will also be conditioned by choices made by current and future Liberal National Coalition governments.

The progressive intellectual arm of the modern Labor movement largely accumulates its power and influence today largely as a consequence of its previous Gramsci-like ''march through the institutions'' of government administrations, hospitals, schools and universities, not to mention the union representative bodies for these respective institutions.

These personnel are largely paid by the taxpayer but are in a state of ideological animosity toward a serving Coalition government of the day.  This poses certain risks for non-Labor governments, and opportunities for future Labor governments, if left unaddressed.

If an incumbent Coalition government fails to take meaningful action to reduce the expenditure commitments and workforce of the public sector it compromises its ability to protect itself from potential leaks and other forms of subterfuge by hostile public sector workers of progressive ilk.  Further, a non-reforming Coalition would effectively leave the furniture of modern Labor's power intact for the benefit of the next generation of governing Labor politicians.

The signs so far suggest that the new batch of state Coalition governments seem too unwilling to reduce the size of government and, in so doing, defund the political left.

The NSW Labor problem of today, which incidentally appears to have caught on to federal Labor like a cold, is also a combination of inflating community expectations combined with an inability to deliver upon those expectations in policy terms, and the mastery of ''spin'' political rhetoric to conceal or divert voter attention to such failure.

However to portray Labor's problems as being limited to these issues of style, as important as they may be, is to ignore the underlying forces which risk shifting the party away from mainstream concerns and values.

How Labor over the next few years manages to bridge the gap between its increasingly assertive intellectual base and the economically powerful working and aspirational classes will be most interesting to watch.  If we know anything of the Labor experience, expect some fireworks ahead as it wages war with itself.

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Energy price increases: hiding behind treasury's Pollyanna forecasts

Lane Crockett of wind farm builder Pacific Hydro accuses ''people such as Richard Wood'' of blaming ''a soft target like (the Renewable Energy Target) RET or carbon pricing for increased energy costs when in fact a majority of these increases have been driven by the policy principles of deregulation''.

He takes refuge in ''official estimates by the Australian Treasury Department, the RET is likely to result in an increase in energy bills of just 2% to 4% by 2020''.

There are three issues here.  First, what are the facts on energy price increases;  secondly, what has caused the increases to date;  and thirdly, what are the likely effects of regulations and taxes such as the renewable energy target and a carbon tax?

Over the decade to December 2010, Sydney's electricity prices more than doubled, those in Brisbane increased by 94% and those in Melbourne and Adelaide, 80% and 64% respectively.  During that period prices in general increased about 33%.

Much the greater part of the increases in electricity prices was due to regulatory sanctioned increases in the line charges of the poles and wire businesses.  These businesses have near monopolies on this element of supply.

Some of that increase may have been regulatory catch-up but this is controversial.  Work by Bruce Mountain and Stephen Littlechild (the latter a former head of the England and Wales regulatory agency) indicates the increases were excessive in Australia.  Mountain and Littlechild assemble information that indicates excessive costs in Australian distribution, especially in the supply monopoly areas of government-owned companies in NSW and Queensland.  Price increases have been lower in Victoria and South Australia, where private ownership brings greater disciplines on costs.

Though line costs and charges have dominated recent electricity price increases, carbon issues will dictate future price increases.

While Australia has no formal carbon tax at present, we do have a range of measures that have a similar affect to such a tax, the most important being the renewable requirements.  The ''20% renewable by 2020'' program sets a de facto carbon price by requiring retailers to incorporate a growing number (45,000 gigawatt hours by 2020) of high cost renewable energy into the electricity mix.  There is also a requirement for a proportion of extremely high cost solar energy as well as for the more common form of renewables, wind, which has a premium cost over coal based electricity of around $70 per MWh.

Unless treasury's Pollyanna forecasts of some imminent technology breakthroughs occur, the 20% renewables requirement by 2020 increases the average wholesale price of electricity by 40%.  This works out at an average carbon tax equivalent on household electricity of $14 per tonne of CO₂.  This in itself is a tax rate on the current household bill that approaches 20%.

On top of this is the government's proposed carbon tax.  Eventually this will need to be in the hundreds of dollars per tonne if it were to accomplish the carbon reduction forcing job intended of it.  But even at $20 per tonne, when combined with the existing renewable scheme it means a doubling of the costs of generation.  For the household this translates into a 50% increase in electricity prices, and perhaps more than this as a result of the investment paralysis the debate has triggered.  In addition there are increases in prices resulting form the higher electricity costs entailed in producing the goods and services we buy.

I have a considerable level of expertise in the energy market and have published many well-regarded books, chapters in books and journal articles on the matter.  I am fully aware of the drivers of price increases to date and the causes of these.  Though businesses dependent for their success on regulations that stymie their competitors may make gains, the costs of the measures driving these particular firms' profits is a loss of income by the rest of the community.

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Natural disasters give economic growth a moral dimension

Between 1990 and 2002, globally 815,077 people were killed by 4,300 natural disasters.

Since then, an earthquake in Bam, Iran in 2003 took 26,000 lives.  The 2008 Sichuan earthquake killed 68,000, and the death toll from Haiti earthquake in 2010 could have reached up to 300,000.

Now Japan, where 10,000 are missing and likely dead.

These numbers are numbingly large.

But tragedy is not aggregate but individual -- the personal toll of lost family members, lost livelihoods, lost homes, peaceful lives violated suddenly and destructively.

So what we know about reducing vulnerability to natural disasters is pressing.

And the academic literature is unambiguous:  a richer country is a safer country.

Sure, some regions are more susceptible to natural disaster.  Asia, for instance, suffers more than Africa.  But rich countries are statistically as likely to be hit by nature as poor ones.

It's just the rich countries cope much, much better.

Between 1985 and 1999, 65 per cent of deaths from natural disasters took place in nations whose per capita incomes were below $US760 -- in other words, those nations in the absolute bottom ranks of economic development.

Wealth buys better technology, more money to spend protecting assets against risk, and the wider availability of medical care, supplies, and services.

One economist calculated if a nation with 100 million people as poor as, say, Laos became as less-poor as, say, Turkey, that nation would suffer around 800 fewer deaths from natural disasters a year.

Wealth is not the only factor.  Governance matters too.  Living in a democracy is safer than the alternatives.

Further, a study published in 2006 by two economists, Hideki Toya and Mark Skidmore, found education level, openness to technological transfer and foreign investment, a more developed and complex financial sector, and even a smaller government (in this case, a smaller public service) were closely correlated with reduced economic damage and reduced loss of life in natural disasters.

That final one -- smaller government -- is counter-intuitive.

Certainly, larger governments have more resources to deploy in an emergency.  But size usually comes at the expense of efficiency.  After the 1995 Kobe earthquake, the sluggish response of the prefectural government meant one of the first coordinated humanitarian relief efforts was conducted by the Yakuza.

(Indeed, private sector disaster relief is more important than commonly acknowledged.  Hurricane Katrina also saw firms with resilient logistics and a large distribution network provide supplies and transport quicker than the grossly underperforming Federal Emergency Management Agency.  The mayor of Kenner, a badly damaged New Orleans suburb, said Wal-Mart was the ''only lifeline'' for his town in the first few crucial days.)

Some have been quick to praise Japan's building codes for the country's relative resistance to earthquakes and their aftermath.

But the difference between the impact of the Haiti earthquake and the Friday's disaster in Japan is not the strictness of the two nations' construction regulations.

Societies can only buy stronger buildings if they can afford them.

A country with tough building codes but no money will either price everyone out of the real-estate market, or, more likely, see those codes ignored.  The widespread collapse of Chinese schools during the 2008 Sichuan earthquake revealed schools in the region had been in violation of building codes for decades.  Regulators were very likely complicit.

And construction firms don't make buildings safe solely because it's mandatory.  As The New York Times pointed out on Friday, ''apartment and office developments in Japan flaunt their seismic resistance as a marketing technique, a fact that has accelerated the use of the latest technologies.''

Strong building codes have a role.  They may have a vital role.  But to be at all effective, those codes require the wealth and strong institutions described above.  Crediting tough regulation for disaster resistance gets the thread of causation exactly backwards.

As Alan Kohler pointed out in The Drum yesterday, Japan recovered from the Kobe Earthquake quickly.

Less than 15 months after devastation, Kobe's manufacturing industry was producing at 98 per cent of its pre-earthquake capacity.  All debris -- all of it -- had been cleared within two years.  Fifteen years later the only thing which has prevented Kobe fully restoring its earlier economic achievements is the 100,000 residents who just up and left after the disaster.

Compare this to Haiti.  More than a year since the earthquake and only 15 per cent of the required housing has been built.  Debris is still abundant.  The country is struggling through a cholera epidemic caused by inadequate water and health supplies.  Much aid money remains unused.

Obviously, the developing world desperately needs to catch up to the developed world.

But the devastations of 2011 -- Queensland, Christchurch, and Japan -- must remind us rich countries are still extremely vulnerable.

With greater wealth we can increase our resilience to natural disasters -- we can save more lives and livelihoods.  After all, there's no reason the buildings of 2111 can't be much stronger than the buildings of 2011, if we can afford to buy them.

That gives our political focus on economic growth -- casually and smugly dismissed by so many -- a moral dimension which must not be ignored.

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Hands up if you're in favour of cheap milk ... anyone?

One would be forgiven this week for assuming low prices are bad.

Coles's January decision to sell house-brand milk for $1 a litre was followed by Woolworths deciding to do the same, which was, in turn, followed by cries from the dairy industry about monopoly and unsustainability.  Leading, over the past few days, to a Senate committee sitting in judgment over $1 milk.

But the controversy is little more than the cries of producers seeking a political solution to competitive pressure.

In its submission to the committee, Bega Cheese expressed great concern.  As did Clover Hill Dairies, Amalgamated Milk Vendors, the South Australian Dairyfarmers Association, and the Southern NSW Collective Bargaining Group.

All up, there were 116 submissions, from businesses, lobby groups, and politicians.  Only three supported cheap milk.

Coles's critics weave a terrifying story:  that the supermarkets together want to drive out small dairy farmers from the industry.

Some farmers and industry groups have even seriously suggested that Coles wants to eliminate fresh milk from Australian supermarkets.  Australians will then have to be satisfied with UHT, which is cheaper to store.  The dairy industry will collapse.  Rural towns will disappear.  Then, once the milk plan has played out, on to eggs.  Then meat.

But when has destroying your own product ever been a good business strategy?

Predicting the collapse of the Australian dairy industry is a long bow considering all that's happened is a sale on milk.

Coles says it is covering the cost of reduced retail prices itself.

But if the chain were to demand savings from producers in the next round of supply contracts, it would be doing exactly what it should be doing:  pressuring suppliers to reduce costs and to find ways to be more efficient.

There are buyers and sellers all down the retail chain -- from farmers and processors, to supermarkets and us.  Everyone should be trying to get the best deal.  And if Coles thinks it can buy milk for less than the cost of production, nobody will sell it to the chain.

People will always want fresh milk, no matter what dastardly strategy is cooked up in a boardroom.  Demand, meet supply.

And cheaper milk will lead to more milk sold, not less.  The dairy industry is booming -- in 2011 dairy cows are selling for 25 per cent more than two years ago.

There's a lot backwards about the rhetoric over milk prices.  For years we've been told supermarkets are a cosy duopoly;  that Coles and Woolworths were less competitors than a cartel in a conspiracy against working families.

But the point of a cartel is to raise prices, not decrease them.  If this is a cartel, it's the most counterproductive in history.

Not only that, but cartel-mate Woolworths has joined the chorus saying Coles's strategy is unsustainable.  Woolworths is trying to turn public opinion on its rival.

More likely, it's what it looks like on the surface -- Coles being competitive, and Woolworths being forced to follow.  Yet that's enough to get the wheels of Parliament spinning wildly.

So who's standing up for consumers?  Unfortunately not the Australian Consumers Association, known as Choice.

Choice claims ''to ensure the consumer voice is heard loudly and clearly''.  But its statement to the Senate says cheap milk ''is not a 'win' for consumers''.

Instead, it has taken this price cut to a household staple as a chance to push an ideological barrow -- a grand national food policy with which the government can sustainably and benevolently guide agriculture, rather than leave production to the market.

No surprise, perhaps.  Choice sees consumer interest as a side issue at best.  The self-described association of consumers is more interested in fashionable environmental mantras such as food miles and ''green living''.

Each to their own.  (Although the government thinks Choice represents all consumers.  The non-profit was paid to run Kevin Rudd's ill-fated GroceryChoice website.) With Choice off on a tangent, nobody is defending consumers against dairy producers who want protection from competitive pressure.  It seems the only body truly acting in the interests of consumers is Coles.

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Meeting CO2 targets via carbon price will hurt

It's astonishing that Ross Garnaut takes himself so seriously in the face of collapsing support in Australia and elsewhere for a carbon tax and other abatement measures (''Regrettably, I was right about climate change'', Commentary, 11/3).  He says his odyssey around climate change has led him to believe global warming is now occurring on ''a balance of probabilities'' rather than ''beyond reasonable doubt''.  And yet, it is clear that there has been no atmospheric warming for the past 15 years.

Whether or not that will continue is uncertain but Garnaut shuts out all evidence that contradicts his preconceived view.

In assessing climate change, Garnaut is elevating himself into a super-judge.  This is remarkable for a man who has no expertise in the science he is assessing, has produced lengthy reports on the matter that are riddled with absurdities and owes his role, indeed his career, only to his rusted-on support for the ALP.

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Unmaking history

March may seem a little early to give an award for 2011's silliest contribution to public debate in Australia, but surely, Monash University academic Tony Taylor has the prize securely in his keeping.

Associate professor of education Taylor recently commented on the historical significance of the English Civil War or, to be more accurate, commented on its lack of significance.  According to Taylor, it was ''arguably just a series of confused and confusing localised squabbles that may have a special significance for UK history, but not for anybody else (unless they like dressing up in period costume)''.

What turns Taylor's views from amusing wackiness to something of serious concern is the fact that over the past four years he has been a key player in the development of the three drafts of the new national history curriculum.  Under both the Howard and Rudd/Gillard governments, he has been happily beavering away on deciding what our children should be learning in school, as well as developing national professional standards for the teaching and learning of history.

Anyone with the slightest knowledge of world history would realise that far from being ''localised squabbles'', the Civil War produced a seismic shift in thinking on how the state should, or even could, operate.  Until the 1640s, it was surely inconceivable that parliament could revolt against the monarchy, that a monarch could be tried and executed and a republic would be declared in its place.  The impact on Britain and Ireland of Cromwell's Commonwealth, the subsequent Restoration and the Glorious Revolution, was clearly enormous.

However, these events also had a profound influence on Europe and North America in the following century.  At the time the English were chopping off the head of their king, the alternative model on the Continent was absolute monarchy, which came to be personified by Louis XIV of France.  Without the alternative thrown up in England, absolute monarchy might have had even greater resilience.

Indeed, if we indulge in a little counterfactual history, it is hard to imagine any of the French or Scottish Enlightenments, the American War of Independence or the French Revolution taking place without the explosion radical ideas unleashed by the English Civil War.  These ideas led to the development of the founding principles of liberal democracy, the political system which has spread throughout much of the modern world.

Further, without the political ferment in 17th century England, it is extremely unlikely that the Industrial Revolution would have taken off in the manner it did, so the Civil War can lay claim to be an important contributor to the modern world's dominant economic system, market capitalism, as well as its political system.  Yet, here in Australia, a person as influential as Taylor does not rate any of this, believing interest in it is confined to eccentrics wanting to dress up.

His curriculum work done, Taylor was off to enjoy the benefits of an Australian Research Council grant to ''conduct a comparative analysis of the political contexts for the development of history national curricula in Australia and Russia'' when he was rudely interrupted.  I'm not sure how this would be treated in Putin's Russia, but a bit of lively criticism of the proposed curriculum by shadow education minister Chris Pyne was enough to give Taylor a ''museli-choking'' moment at his breakfast table.  In response, he fired off a piece to Crikey defending his pride and joy.

He was particularly concerned by Pyne's claim that Christianity was a bit underdone in the national curriculum.  Au contraire, Taylor said:  Christianity is covered in Year 8 under ''the spread of Christianity'', medieval Europe under the Crusades (not so good, that bit), the medieval dominance of the Catholic church and the Spanish conquest of the Americas (another not-so-good bit).

Just to be clear here, the bits in brackets were also Taylor's words, effectively undermining his own case by admitting that Christianity only cracks a mention in its ''not-so good'' moments.  It is a bit hard to fathom how anyone could draft a curriculum so openly hostile to the West's dominant religion and expect to escape uncriticised.

So, there are some things that are not there because they are trivial (e.g. the English Civil War);  and some things that, despite critics' claims to the contrary, are there, although they are generally bad (e.g. Christianity).  Then, there is a third category, which is perhaps the oddest of all Taylor's defences.  These are the things that are not explicitly there, but are there implicitly.  Hence, of Magna Carta, Taylor says, ''not that it's explicitly mentioned but, as a teacher, you'd be daft not to spend some time on Runnymede''.  But, if we can trust the teachers to teach the right things, it only raises the question as to why we are having a national curriculum in the first place.  And this is, indeed, a very good question.

The genesis of the history curriculum goes back to the History Summit of 2006.  As with a number of other policy areas, the Howard government, perceiving a problem in the states with the poor quality of history teaching, tried to impose a centralised solution.  The futility of this approach was highlighted by the fact that even while the Coalition remained in power they did not manage to get an outcome they liked.  Worse, it apparently did not occur to them that, if you create a centralised power, your political and ideological opponents might use it in ways which create an even worse situation than the one you were trying to rectify.

The realisation that the education system was not providing the opportunity to understand our cultural heritage was one reason why the Foundations of Western Civilisation Program was created, which undertook the analysis of the national curriculum as one of its first projects.  All the feedback the program has received is that young people crave to learn about what is important in the past.  No wonder they feel they are missing out, if those deciding what they should learn can display as great a degree of historical ignorance as Taylor.

However, perhaps in one way at least, we should be grateful to Taylor.  With his impetuous response to Pyne, he made it clear just how fundamentally flawed the national curriculum is.

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Say no to wealth fund

Of all the bad ideas going around, the suggestion that Australia should have a sovereign wealth fund isn't the worst.  It's the third worst.  It's behind the carbon tax and the mining tax.  It's the possible third leg in a trifecta of policies designed to have the government squeeze every last cent from the resources boom.

At least the Gillard government hasn't yet said we're going to have a sovereign wealth fund.  But based on current form it is only a matter of time before we are told the government is a better custodian of taxpayers' own money than taxpayers themselves and that is why it should collect more in taxes than it spends and why that money should be squirrelled away until the government decides to spend it (or waste it).  That, in simple terms, is the rationale of a sovereign wealth fund.

Norway is always the example of a supposedly effective sovereign wealth fund.  It's vast North Sea oil revenues are deposited in government owned investment funds to cushion potential exchange rate shocks and provide a source of revenue when the oil runs out.  There's no problem urging Australia to follow Norway's lead as long as it is acknowledged that Norway is a semi-socialist country.

The tax collected by government in Norway as a share of the country's economy at 42 per cent is among the highest in the developed world.  The comparable figure for Australia is 31 per cent.  The average for advanced countries is 36 per cent.  Operating a sovereign wealth fund is exactly the sort of thing that socialist and semi-socialist regimes like doing.  That's why the biggest funds are from the Middle East, China and Norway.

In the Australian context the main rationale for a sovereign wealth fund is that our windfall gains from resources exports should be invested in productive assets providing long-term returns, instead of being given back to the population as tax cuts.

Following from this, the question to ask is:  who is more likely to make the better investment decisions, individual and corporate taxpayers investing their own money, or the government?

The advocates for an Australian sovereign wealth fund ignore the fact that one of the best incentives to improve productivity is to cut taxes so people can keep more of the fruits of their labour.

Any government really committed to improving productivity could start by recognising there are 349,000 Australians who have been unemployed for more than a year.  That is 3.5 per cent of the workforce.  And 800,000 Australians are receiving the disability support pension, of whom less than 5 per cent get work each year.  Cutting taxes and reducing the disincentive for people to find a job will do more for Australia's productivity than installing roof insulation.

There are two other points about sovereign wealth funds.  The first is that the investment decisions of such funds inevitably end up politicised.  Efforts to maximise investment returns are compromised by political imperatives.  Look at the rollout of the national broadband network.  Armidale, in the middle of the electorate of one of the independents on whom the Gillard government is relying to stay in power, was chosen by the government owned company responsible for the network as one of the very first places to get fast broadband.  Norway's sovereign wealth fund doesn't invest in Wal-Mart because of the company's alleged breaches of labour standards.

Individuals are free to invest their money according to whatever ethical guidelines they decide -- but governments don't necessarily have that luxury.  Whether a sovereign wealth fund should forgo an investment in a Libyan oil refinery returning 15 per cent in favour of New Zealand returning 3 per cent is debatable.

The second point is that Australian governments are unable to keep their hands off a bucket of money for more than five minutes.  In 2008 Kevin Rudd established the Building Australia Fund to finance long-term infrastructure spending.  Within a year the government had spent $10 billion of the $11 billion endowment.  It's the same story for the Rudd government's health and education funds.

A few days ago Greens leader Bob Brown said, ''This nation should have a sovereign fund -- like Norway's''.  It's no surprise the Greens want a sovereign wealth fund.  Sovereign wealth funds allow governments to avoid giving back to taxpayers the taxpayers' own money, and they're a vehicle for governments to accumulate even more economic and financial power than they already have.

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Australia's Carbon Warning for Obama

President Obama's Environmental Protection Agency is fighting a rear-guard action to accomplish via regulation what voters rejected via Congress:  ruinously expensive restrictions on carbon emissions in the name of fighting ''global warming''.  This is perhaps partly out of the administration's own convictions, but also because Mr. Obama knows that a large slice of his left-wing base is clamoring for such measures.  But before he goes much further down that road, he should take a look at how a similar political calculation is playing out in Australia.  In short, not well.

Prime Minister Julia Gillard, in office for less than a year, is pushing forward with a carbon tax Down Under.  The measure is hugely unpopular -- its announcement this week pushed Ms. Gillard's Labor Party to its lowest popularity ever in an opinion poll conducted for The Australian newspaper (owned by News Corporation, which also owns the publisher of this newspaper).  Labor shouldn't be surprised.  The idea of a carbon tax was so controversial before last August's election that Ms. Gillard promised not to enact one as a ploy to win votes.  Members of her administration have repeated that refrain, to proverbial applause, several times since.

Why, then, has Labor been so politically foolish as to revive the idea?  Because Ms. Gillard has been backed into a political corner by anti-carbon advocates on the far left.  Under her leadership, Labor failed to win a majority in the House of Representatives and the Senate in that August vote, so she governs in an uneasy coalition with a clutch of independent and Green Party legislators.

The leader of those Greens, Bob Brown, has used his kingmaker sway to pull Ms. Gillard steadily leftward ever since, including inducing her to oppose tougher border protection and to support same-sex marriage.  The new carbon tax proposal is part and parcel of that.

The situation bears some striking similarities to events in the U.S., although the details are different.  In America, voters have shown again and again their distaste for carbon taxation or cap-and-trade emissions regulation in the name of slowing global warming.  Enthusiasts' ambitions finally collapsed last year when the Senate, controlled by Democrats, couldn't agree to hold a debate on even the most loophole-ridden version of cap-and-trade.

Meanwhile, although Mr. Obama is not beholden to a small band of congressional swing voters who support carbon regulation in the way Ms. Gillard must heed the Greens, he's in a box of a different sort.  He actually did campaign in support of carbon regulation, declaring his nomination to lead the Democratic presidential ticket as ''the moment when the rise of the oceans began to slow and our planet began to heal''.  This suggests that among his electoral base, and among his supporters in Congress, is a small but potentially important minority who want him to follow through on the promise implied by that grandiose claim.

Mr. Obama at least has the luxury of going about it in a stealthier way.  U.S. law gives his EPA just enough of a fig leaf to try to push forward with carbon regulation despite congressional opposition, though even then by most accounts he is pushing existing laws to their limits or even beyond.  Ms. Gillard has to go to her parliament for an up or down vote on carbon taxation.  That might be one reason why her anti-carbon moves are generating more pronounced opposition now -- the Australian public is more aware of what their leaders are getting up to than are their American peers.

Carbon-tax supporters in Canberra will try to make their proposal more palatable with additions like a rebate on the electricity bills the tax would push higher or the like.  But this will only further complicate the politics by giving tax opponents more fodder.  For instance, they can skewer the rebate as an inefficient and theoretically inconsistent way to hand carbon consumers' money back to them.  And while the tax may yet pass, that could prove a Pyrrhic victory for Ms. Gillard and her coalition partners come the next election.

Still, the news from Australia suggests Mr. Obama is taking a big gamble if he figures the public will never catch on.  Ms. Gillard's recent experience shows what happens when voters do, and the result is a disaster-in-the-making for any leader facing a re-election battle.

Carbon Bob: Can he fix it?

I mean, take environmental progressive Bob.  Bob's a model citizen and busy man trying to save the world from the hundreds of big bad carbon polluters required by law to report their environmental vandalism to the government.

He starts by using his mobile phone as an alarm clock in his Canberra bedroom.  (Telstra:  emissions of 1.43 million tonnes CO₂ in 2009-10).  It's cold this morning, so Bob's gotta have an environmentally considerate 4 minute shower to get clean and warm for the trip up the hill (ACTEW Corporation:  219,000t CO₂).

And that lentil stew from last night didn't sit right in his stomach (Kimberly Clark Pacific Holdings Pty Ltd:  370,000t CO₂).

He has baked beans (Heinz Watties:  90,000t CO₂) on toast and a coffee (Nestle Australia Ltd:  208,000t CO₂) with a dash of milk (Murray Goulburn Co-operative Co Limited:  638,000t CO₂) while reading his favoured Sydney Morning Herald and The Age online (Fairfax Media Limited:  97,200t CO₂).

He resents the fact that he needs to read The Daily Telegraph and The Australian (News Australia Holdings Pty Ltd:  128,100t CO₂) to see how the enemies of the future are justifying the raping of the planet.  But it's all part of Bob's job.

It's actually too cold to walk to work today so he gets picked up by his chauffeur-driven Prius (Toyota Motor Corp:  170,261t CO₂ and Caltex Australia:  2.1 million t CO₂) to the big doors on one of the four sides of his office building.

After some early media commitments about how only he can be trusted to save the planet, Bob hosts morning tea with staff.

It's Christine's birthday so there are some celebratory Arrowroot biscuits (Arnotts Biscuits Holdings:  91,000t CO₂) bought from a local supermarket (Woolworths Ltd:  2.8 million t CO₂) and cheese (Bega Cheese Ltd:  136,223t CO₂) bought from Coles (Wesfarmers Ltd:  5.2 million t CO₂) at the nearby Woden shopping centre (Westfield Holdings Limited:  339,000t CO₂).

Bob doesn't like tea so he sips from a Diet Coke (Coca Cola Amatil:  185,396t CO₂) from his big leathery, Australian-made chair.

And the regularly hazed non-vegan staff member eats his cold cuts (Nippon Meat Packers:  113,257t CO₂) from another local store (Aldi Stores:  172,987t CO₂) in the dunce's corner.

After morning tea, his staff make arrangements for a business class flight to Sydney Airport (Qantas:  4.18 million t CO₂ and Southern Cross Airports Corporation Holdings:  92,935t CO₂) with a donor who'll pay for TV ads before taking another flight (Virgin Blue Holdings Ltd:  1.74 million t CO₂) to Melbourne.

In Melbourne he's the guest of honour at a cocktail party with green carbon investors including representatives from banks (Westpac:  194,300t CO₂), National Australia Bank (158,268t CO₂) and other investors (Macquarie Group Limited:  98,347t CO₂ and AMP 180,458t CO₂).

Those at the function help themselves to the beer (Lion Nathan National Foods:  391,949t CO₂), Pinot Gris (Fosters Group:  233,899t CO₂), and delicious chicken bites (Baiada Pty Limited:  305,049t CO₂).

But being environmentally conscious Bob prefers a soy yoghurt (Parmalat Australia Ltd:  103,390t CO₂) and tap water (Melbourne Water Corporation:  420,035t CO₂).

Bob gives an inspiring address about the importance of cutting global carbon emissions to a standing ovation from the supportive university faculty members (University of Melbourne:  135,493t CO₂) also in attendance.

He just hopes he was convincing while he wipes sweat from his brow (SCA Tissue Australia Pty Limited:  226,592t CO₂) because the lights were bright and the room was hot because the air-conditioning was a little too low (Origin Energy:  1.926 million t CO₂).

It's been a long day so Bob gets frustrated that his trip to the hotel (Mirvac Ltd:  246,707t CO₂) in a Holden Statesman (General Motors:  150,813t CO₂) is delayed, but was relieved to see the traffic jam was caused by an ambulance taking an accident victim to a nearby hospital (Ramsay Health Care:  166,330t CO₂).

The day ends where it started -- in a hotel room where he boots up his notebook (IBM A/NZ Holdings:  99,927t CO₂) and sends some emails, including one about a direct mail (Australian Postal Corporation:  309,999t CO₂) to his supporters.

Some dedicated volunteers drop by to discuss a forthcoming protest march against big polluters and order Domino's vegetarian pizza (Competitive Foods Australia:  142,187t CO₂) before then they realise there's a 24 hour ''restaurant'' serving fish burgers downstairs and go there (McDonald's Australia:  131,862t CO₂) as they leave Bob's room for the night.

Finally Bob's alone and can go to bed after a productive day realising he's part of the greenhouse gas solution, while the big bad polluters remain the problem.

Let market decide on board seats

In the lead-up to International Women's Day, the drums were again beating on the issue of women in company boardrooms.

Governor-General Quentin Bryce called for quotas by government to ensure more women are appointed to the boards of Australian companies.

Pointing to the persistence of the ''old boys' network'', Bryce said that ''the progress of women in business at the very highest decision-making levels is too slow''.

The call for more women on private company boards can also be heard on both sides of politics.

The Minister for the Status of Women, Kate Ellis, has stated that nothing less than Australia's economic competitiveness rests on having more women in senior positions.  Speaking on the ABC TV Q&A program, shadow treasurer Joe Hockey called for a 30 per cent quota for women on boards if companies don't toe the line on the issue soon.

One of the key catalysts for this current debate has been research recently published by the Equal Opportunity for Women in the Workplace Agency, a taxpayer-funded body charged with improving and monitoring progress on affirmative action.

The research, based on surveys of the top 200 ASX-listed companies, shows only about 8.4 per cent of board members and 3 per cent of chief executives are women.  By comparison, 30 per cent of federal parliamentarians and 45 per cent of Australia's employees are women.

In one respect, the discussion about mandatory quotas risks degenerating the debate into a statistical argument.

Some feminists might suggest that Hockey's 30 per cent quota proposal is too low, and Australia should seek a number such as Norway's 40 per cent or even higher.

More deeply, the arguments supporting mandatory quotas reflect a curious impatience with the very economic and social changes and reforms that feminists of previous generations would have applauded.

Unquestionably, one of the major contributions to Australian economic growth over the past 50 years, if not longer, has been the mass entry of women into the labour market.  The removal of discriminatory policy edicts like the public service marriage bar, and changes such as greater female access to tertiary education, have made the world of work a real possibility for women.

The national participation rate of women in the labour market has jumped from 44 per cent in 1979 to 58 per cent today, while rates for men declined.  Clearly, many women have firmly grasped the economic opportunities.

The Australian labour market has arguably never been more open for women, making discrimination much harder to flourish.  This suggests that the gender discrepancy in senior corporate positions is mainly driven by career choices and life aspirations, including time out to raise a family.

Those who criticise the relatively low representation of senior women in large companies also tend to overlook the 700,000 women in Australia actively running their own small business or, to put it simply, being their own bosses.

More companies are hiring more women in senior positions, but this is a gradual process reflecting in part the availability of skilled women for hire.

Top-down government regulations to install women at the corporate table would discount individual skills or aspirations and risks letting down the very people that a freer market is already helping.

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It's deluded to think we're the only apple of America's eye

This year marks the 60th anniversary in security ties between Australia and the United States.  To mark the occasion this week, Julia Gillard is in Washington, where she will address a joint session of Congress, following in the footsteps of only three Australian prime ministers -- Robert Menzies in 1952, Bob Hawke in 1988 and John Howard in 2002.

Like all her predecessors since 1951, Gillard is acting out of sincerity as well as expediency.  In international relations, the beliefs and interests of politicians are rarely allowed to collide.

But an awareness of the advantages of the alliance -- which include favourable access to US technology and intelligence, as well as the all-important security insurance policy -- has certainly shaped emotions on both sides of the political divide in Canberra.

All true.  But it is also important to recognise we're not the only apple of America's eye.  In January, Barack Obama said:  ''We don't have a stronger friend and stronger ally than Nicolas Sarkozy and the French people.''  In July, Obama hailed the ''truly special relationship'' between the US and Britain, telling David Cameron there was ''no closer ally and no closer partner'' than Britain.  A few weeks earlier, Obama told the Indian people that ''they have no better friend and partner than the people of the United States''.

The point is clear:  ours is one of many special relationships in Washington.

Not surprisingly, the Prime Minister will be giddy with excitement in the US this week.  She's hardly alone:  Menzies used to get ''sweaty palms'' before he'd meet the US president in the Oval Office.  In 1969, John Gorton promised a possibly bemused president that Australia would ''go a-waltzing Matilda with you''.  In 1973, a nervous Gough Whitlam told Henry Kissinger he was worried that he'd ''freeze up'' in front of Richard Nixon.

In American calculations, Canberra ranks as an important strategic ally, but we are deluded if we think Australia is a major player in Washington policy circles.  Australians of a certain vintage will recall with embarrassment Jimmy Carter's reference to ''John'' at a press conference with Malcolm Fraser.  Harold Holt pledged Australia would go ''all the way with LBJ'', but Lyndon Johnson, who visited here twice during his five-year presidency, said virtually nothing about Holt in his memoirs.

In his book Lazarus, John Howard dedicates numerous pages of praise, including a chapter, to his good mate George Bush.  In his Decision Points, however, the former president hardly mentions the ''man of steel''.  Nor did Bill Clinton write much about Paul Keating.

As the distinguished conservative intellectual Owen Harries argued in the ABC Boyer lectures several years ago:  ''For extended periods of time in Washington, one needs very good peripheral vision to see Australia on the world map.''

History, moreover, is littered with examples of Australian and American interests colliding.  Consider the different responses to the Chinese revolution of 1949:  Washington pushed for an economic boycott of the mainland whereas Canberra supported trade with the new communist state.

Or take the Suez crisis of 1956:  Dwight Eisenhower opposed military action against Egypt whereas Menzies sided with the British, French and Israelis.

Or take the Indonesian annexation of Dutch New Guinea (or West Papua) in 1962:  John F. Kennedy placated the anti-Western Soekarno, whereas Menzies and the Labor opposition initially opposed Jakarta's aggression.

Add in the numerous trade disputes over the years and it is clear US-Australian relations have not always been smooth.

One can acknowledge all this and still strongly believe in the importance of the US alliance.  It has, after all, been the sacred cow of Australian foreign policy since 1951.  On most vital questions of the 20th century, Australian interests have coincided with those of what Menzies called ''our great and powerful friend''.  There is no reason why this should cease to be the case.

It is just that, as Gillard meets Obama and senior US officials this week, she should remember that Canberra's support for Washington should not imply uncritical and unqualified agreement and support on all occasions.  The point here is an old one, variously ascribed to Palmerston or de Gaulle, about minor allies, however loyal, not expecting inconvenient loyalty from a superpower.

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In a truly globalised world, immigration must be free

Four Corners last week told the story of Landina, a three-month-old girl lifted from the ruins of a Haitian hospital and evacuated to the United Kingdom for lifesaving medical treatment.

The show focused on the search for Landina's family and the ethical dilemmas faced by the British surgeon who saved her life.  Decisions had to be made about whether to return the girl to Haiti or keep her in England for long-term care.

But, at its heart, the story of Landina is the story of borders and immigration restrictions.

The choice to take the baby to England was a medical one.  Yet the sad reality is, if she stays permanently, her life will be on almost every measure better than had she gone home to Haiti.

Being separated from her mother will be, of course, hard.  But her potential income, to take an obvious indicator of wellbeing, will be at least five to six times higher than it would have been in Haiti.  No matter what level of education she obtains.

Landina has this opportunity because she was plucked from the rubble of an earthquake by a compassionate doctor.

Fifty per cent of Haitians say they would leave Haiti if they could.

Our world, we're continuously told, is a globalised world.  In 2011, trade is not completely free, but the barriers to trade are lower than they have been in centuries.

Capital, too, is allocated internationally -- investors shift their money from country to country, from market to market, looking for the most profitable enterprises.

Goods move easily.  Money moves easily.  That's all great.

But the situation for people is very different.  People don't move around the world easily at all.

With its quotas, plodding bureaucracy, and, more obviously, all the smuggling, immigration today looks strikingly like the restricted and protectionist global trade of yesterday.

Indeed, over the last century, migration has de-liberalised -- the relatively open borders of the 19th century have become the closed and rigid borders of the 21st century.

All the same principles which make free trade a win-win apply to free movement of people -- large scale immigration allows people to work where they can be most productive, further facilitating the economic specialisation that has boosted global prosperity.

The development economist Lant Pritchett describes our world as "everything-but-labour globalisation".

In his 2006 book, Let Their People Come:  Breaking the Policy Deadlock on International Labor Mobility, Pritchett cites a study which found the economic benefits of free movement of people would be spectacular.

Eliminating the planet's remaining trade barriers would increase global GDP by around $US100 billion.

Eliminating immigration barriers, by comparison, would as much as double world income:  that is, increase global GDP by $US60 trillion.

This added wealth would be shared, but the overwhelming beneficiaries would be people who now live in poor countries.

Sure, right now, poverty in the third world is caused and maintained by institutional failure:  bad governance, bad laws, bad justice, bad bureaucracies, bad political systems, and bad economic policy.  In recent decades, having seen the failure of too many foreign aid programs, the first world's development focus has been on fixing those institutions.

Slowly improvements have been made.

Yet slow improvements are no consolation for those people living in poverty, being told they cannot travel to rich countries where there is abundant work and where their labour could be usefully employed.

So the question -- repeatedly posed in discussions of economic development -- of whether we should focus on foreign trade or foreign aid is badly incomplete.  The biggest idea in development no-one has really tried (in the phrase of economist Michael Clemens) is allowing large scale immigration from the third world to the first.

The story of a Haitian baby being raised in Britain is just a small window into the possibilities of this shift in development thinking.

After all it is not Haiti, or, say, Nigeria, we want to be rich:  it is Haitians and Nigerians.

None of the standard arguments against immigration hold up to careful scrutiny.  Immigrants do not steal jobs.  They do not erode living standards.  Those who move for work contribute more tax than they take in public services.  Migrants -- for all the tedious polemic and hyperbole -- have never managed to undermine the political and social cultures of host nations.

(We can debate the merits of multiculturalism later, but for now it will suffice to say nobody agrees what the word actually means.)

In the Four Corners documentary, the difference between Landina's future life in the first world and her family's life was strikingly clear.  In Haiti, the filmmakers followed the surgeon to a tour of Landina's family home -- a single, unadorned room of concrete floors and walls and fire corner, deep in a Port au Prince slum.

When the camera turned to England, Landina was carried into a middle class British home, with long passages and yellow painted walls, full of furniture.

It was a graphic display of the difference in living standards between the first and the third world.

Development activists who have spent their careers obsessing over the difference between free and "fair" trade have missed the point entirely.

Any effective strategy to eliminate world poverty will have to focus on immigration.

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Selling out the Koran

First Tunisia, then Egypt, and now Libya:  Muammar Gaddafi looks set to join the cohort of fallen Middle East dictators.  And about time too.  Under Gaddafi's tribe-centric Stalinism, Libya has consistently ranked in the bottom 10 countries for economic, social, political, and press freedom.

Libya is not alone.  The Arab world fills the lower ranks of all these indexes.

The causes of the region's discontent are obvious.  It has escaped nobody's notice that the Arab world is almost uniformly undemocratic and illiberal.  And poor -- the 22 member states of the Arab League have a per capita income less than a third of that in the Western world.

Those truths colour the developed world's view not just of the region, but of its 360 million people.  And, just as importantly, their majority religion.

But how did the Arab world get that way?

A ground-breaking book released last year by the Turkish economist Timur Kuran, The Long Divergence:  How Islamic Law Held Back the Middle East, couldn't be more timely.  Kuran is a professor of economics and political science at Duke University in North Carolina.

The title of his book is very specific:  Islamic law limited economic growth in the Arab world.  Not Islam per se, but the legal framework which built up over centuries in Islamic societies.

After all, the Koran is pretty good on economic growth:  it encourages entrepreneurship;  it promotes commerce;  it praises the acquisition of wealth, instructing Muslims to "seek the bounty of Allah";  it endorses private property.

Muslims were once some of the world's greatest entrepreneurs.  When bandits captured the Chinese city of Guangzhou in 878, they found more than 100,000 Middle Eastern traders there.

So if 1000 years ago you were to wager what religion would dominate the next millennium, Islam would have seemed fairly safe money.  Christian Europe was far behind.  A European touring the Middle East would have met people who had much higher incomes.  So what happened?

Kuran argues Islamic law primarily failed to develop the concept of a corporation:  an economic and legal construct, separated from family and tribal loyalty, designed to encourage investment and profit sharing.

Islam's early strength -- shared faith to unite warring tribes -- became a weakness, as it manifested itself in hostility towards smaller, corporate, capitalist forms of organisation.

As corporations multiplied in Europe from the 17th century, the Arab world's relative success disappeared.  It needn't have been so.  There's nothing particularly un-Islamic about the corporation -- the organisation was embraced by Muslims in the 20th century.  Kuran shows Islamic law is flexible enough to change, but a failure to encourage economic growth meant Arab nations slipped behind the West.

Today, the other economic positions taken by the Koran -- the importance of commerce, the defence of private property, and the freedom to seek wealth uncompromised by state action -- are notably absent in the Arab world.

A rich country tends to be a liberal country.  Wealth and freedom progress together.  So too does social development.  Women and minorities in the First World have respect and rights that are the envy of those in the Third World.

Conversely, poverty feeds social backwardness, which reinforces that poverty.

The relative economic decline of the Arab world in the 20th century caused its political decline.  The political vanguard in the Middle East has careened from assertive nationalism, to Soviet client socialism, to Islamism.

Islam's critics focus on the obviously archaic and often brutal views held by Islamists.  They blame them for the problems of the Arab world.  Fundamentalist Islam seeks not only to restore premodern social relations, but premodern economic structures as well.  The future caliphate will shield itself from the dynamism of contemporary capitalism.

But it was defective legal institutions that originally put the Arab world behind, not culture or religion.  Hence reasons for optimism.

Institutional failures have institutional solutions.  An Arab nation that adopts the very best political, economic and legal structures of the developed world could be just as rich, successful, and liberal.

And the pro-market Koran won't need to be discarded to do so.  Timur Kuran's findings suggest Islamic faith is perfectly compatible with modernity.

Research published in February in the journal Public Choice, "Economic freedom, culture and growth", backs this up.

Using the World Values Survey, the most comprehensive database we have on global beliefs, two economists empirically answer the question of whether culture is a barrier to development.  It is -- up to a point.

If a country's economy is not free -- if it labours under the burden of an overbearing government, high taxes, and high regulation -- then culture matters a lot.

But the importance of culture disappears as a country becomes economically free.  Once a nation has the "peace, easy taxes, and a tolerable administration of justice" Adam Smith described, it will grow rich.  Regardless of religious or cultural baggage.

That's a lesson the revolutionaries trying to liberate the Middle East will need to quickly understand.

Right now, in Egypt, Tunisia, Libya and Bahrain, the revolt has a liberal character.  A lot of time has passed since the Iranian revolution in 1979.  Today, even radical Islamists in those countries are agitating for democracy above all else -- not theocracy.

Whether the revolutions remain liberal is far from certain.

But if the citizens in the Middle East wish not to just discard tyranny, but grow rich and prosperous too, they'll need to enact not just political but institutional change.  A free, capitalist economy is the foundation of a free society.

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Adapt to survive

The Labor party once made great fun of John Howard's distinction between core and non-core promises.  Julia Gillard has now added to that taxonomy:  a promise so intolerably core it has to be explicitly denied during an election campaign.

It's damned hard to reconcile August 2010's ''There will be no carbon tax under the government I lead'' with February 2011's ''The two-stage plan for a carbon price mechanism will start with a fixed price period for three to five years''.

Labor's goal during the 2010 campaign was to get over the line and govern another term.  Just like any political party.  But where Labor broke new ground was by being happy to say anything or promote any idea to get there, no matter how divorced from its own philosophy or the wishes of its supporters.

Disavowing a carbon tax is what US political consultants told Gillard to do.  So that's what Gillard did, no matter what she or her party thought.

Of course, the Prime Minister's reversal of what seemed a pretty explicit promise not to price carbon says nothing about the rightness or wrongness of that policy.  But it says a heap about her approach to politics.  She's very, er, political.

Careful policymaking would be a distraction from the important business of political manoeuvring.

The Greens might bear this in mind as they negotiate with Gillard and her ministers.  Any deal is one grumpy focus group or James Carville phone call away from being discarded.

Nevertheless, if all the government's legislative cards fall in place, after July 2012 Australia will have a price on carbon.  That's almost exactly when poor old Brendan Nelson suggested the Coalition under his leadership would implement one.

Nelson's policy had an important condition:  international action on climate change.  It was a more innocent, optimistic time.  Kevin Rudd and Malcolm Turnbull also spent 2008 and 2009 rabbiting on about Copenhagen and international agreements.

Yet in 2011 the closest Gillard comes to mentioning the molasses-like movement to international agreement is a vague ''the global economy is shifting''.  Just vaguely shifting, in general.

This modified rhetoric places the government's climate policy at one remove from its purpose:  to combat global climate change.

For this government, a carbon price is no longer about stopping, reducing or slowing global warming -- a task which would require concerted, co-ordinated global action.  Now it's just the season's most fashionable economic reform.

Gillard has implicitly admitted the chances of international agreement on emissions action in the foreseeable future are near zero.  The chances that the unco-ordinated and compromised carbon initiatives now being introduced in some countries will have a significant impact on the global climate are even lower.

Don't underestimate the magnitude of a transition to carbon-free energy production.  Or the economic and social change that transition would cause.

The Australian government's carbon price will start small.  But if it is to make any dent in our carbon emissions it will have to be steadily raised, year after year.

Even during the ''fixed-price'' period which Julia Gillard announced would precede the full emissions trading scheme, the carbon tax will still increase ''annually at a pre-determined rate''.

Any government facing complaints about the cost of living -- justified or unjustified -- will find that very challenging.

A Galaxy poll commissioned last week showed that 66 per cent of Australians were unsure about the relationship between human-induced carbon emissions and global warming.  This figure has remained steady for at least 12 months.

Combine this finding with survey data revealing that even people who fully accept the dangers of anthropogenic climate change are unwilling to pay the extra money a modest carbon price would demand, and you have quite a political pickle.

Gillard may initially win some political points for a courageous and aggressive stand on climate action.  But those points will disappear when higher energy bills are mailed out.  Especially since the Prime Minister has effectively taken personal, political responsibility for everybody's electricity costs.

Hers is a pickle shared by every government which wants to act on climate.

The situation is even more serious in the developing world.  Energy poverty is a serious development problem.  Traditional home methods of producing energy (burning wood, agricultural residue and animal dung) are a major health hazard for the world's poor.  Economic growth is held back by unreliable or inaccessible electricity.

So no responsible developing world government would penalise large-scale energy production significantly enough to have an impact on the global climate.

The only policy position sensitive to these political realities is a focus on adaptation.  Adapting to climate change -- whether natural or anthropogenic -- is the only approach which accommodates questions of political economy.

Sure, it's easy to imagine an ideal world where a mechanism can be developed which prices the externalities of pollution efficiently, consistently and effectively -- where the best legislators can team up with the best scientists and the best economists to write the best laws which take into account the best research, unimpeded by politics and democracy and the mendacities of self-interest.

But that's not our world.

If you fully accept the Intergovernmental Panel on Climate Change's dire scenarios, there's still reason for optimism.  The economist Indur Goklany, poring over the UK's Stern Review, found that human and environmental wellbeing in the foreseeable future will be, on balance, higher in a ''richest-but-warmest'' scenario.  His argument should carry weight:  Goklany has been a long-time delegate to the IPCC.  He argues that tackling the consequences of climate change is far more efficient than trying to prevent it.

That is, a rich world is better able to cope with the adverse effects of any climate change than a poor one.  When it comes to climate change, it is far more efficient, and far more practical, to treat the symptoms.

And it's the only approach which takes into account the raw, unforgiving logic of political action.

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Access to land the root of soaring house prices

In 2004, a report by the Commonwealth's normally reliable Productivity Commission (PC) completely misread the causes of high house prices.

It failed to recognise that government planning processes had boosted house prices by starving the market of land for urban development.

The PC instead blamed interest rates.

Since then house prices have defied gravity even though interest rates have gone up and down.

A new study by the PC into planning and zoning concludes that government regulation of land availability is the cause of Australia's high house prices.

It demonstrates how planning procedures are barriers to new housing development.

''Objectives overload'' is how the PC describes why all Australian states suffer from excessively high house prices caused by government squeezing land supply.

As well as unlocking land for housing, planning aims to promote environmental, social, safety, waste management and a host of other goals.

As a result, the PC's new study shows that even after receiving in-principle approval to build, ''in greenfield areas ... as many as 10 years may pass between the time a developable parcel of land is assembled and the subdivision of that land is completed''.

Over the past 40 years, town planning has morphed from facilitating urban expansion into preventing it.  Instead of supporting consumers' requirements by identifying what is needed in terms of trunk roads, mainline water and sewerage facilities etc, planning now seeks to cannibalise urban development in directions preferred by the planners themselves and by politicians.

The result is increased costs that are paid for by new house buyers.

One rationalisation for planning controls over the location of new housing is that development involves costs to governments.

Nowadays, however, government costs in new urban expansions are largely confined to trunk roads and schools.

These costs are dwarfed by those the new home buyer pays in land development, local roads, water and sewerage facilities, electricity and telecommunications, etc.

Yet, the government costs, which frequently carry excessive charges, often dictate planning and zoning approvals.

The PC demonstrates that using planning regulations to prevent ''urban sprawl'' is not justified for Australia.

Unlike densely populated Hong Kong, one of the few jurisdictions with higher house prices than Australia, urban development in this country comprises much less than 1 per cent of the land area.

Unfortunately, there are pressures to intensify ''objectives overload'' in the planning system.

The Council of Australian Governments (COAG) with its intrinsically heavy-handed bureaucratic procedures has got involved.

COAG's chief bureaucrat Terry Moran has called for ''co-ordinated infrastructure, transport and land use plans, clearly identified priorities for future government investment and policy effort, and to enhanced collaboration between all three levels of government''.

By adding new layers of costs and delays that approach would further gum-up the process.

At one time, entrepreneurs like Alan Bond simply bought scrubland close to the city, built local roads and subdivided land with little input from government.

At present day prices, such ready-to-build upon blocks would cost $70,000.  That's a far cry from the $200,000-plus slug for new buyers looking to build on the outskirts of Melbourne, let alone the $350,000 required for Sydney.

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Consumers and business will feel the pain of emissions tax

Ostensibly, the opposition and the government have similar policy goals regarding Australia's 2020 emissions of carbon dioxide.  Both have said that emissions should be reduced by 5 per cent from 1990 levels, which means a reduction of 24 per cent on business as usual levels.

There are different proposals on how this might be reached, but those most firmly on the table are a carbon tax favoured by the government and the more administrative approach of targeting the most promising areas outlined by opposition spokesman Greg Hunt.

Hunt has suggested that his administrative approach could achieve the objectives at a tenth of the cost of a carbon tax, but this is unlikely.

Issues concerning a carbon tax include its level and cost, how much is raised and what the effect would be in terms of emission reductions.

With a tax of $26 a tonne of carbon dioxide, the opposition estimates the annual additional cost of electricity at $300 a household.  The government refuses to say what tax level it has in mind, though $26 is consistent with previously quoted numbers.

The cost to households estimated by the opposition appears to be based on an electricity bill of $1400 a year, in which generation comprises about 30 per cent of the overall cost.  The opposition points out that there will be additional costs if, as is suggested, the tax also applies to petrol.

With or without an application to petrol, the estimated cost is very conservative.  Importantly, it does not count the cost of the electricity incorporated into the costs of goods and services that are bought.  This cost is likely to more than double the direct electricity bill costs of $300 a year.

In addition, we already have emission-reduction measures in place involving considerable costs.  One of the more important elements of these is a requirement to incorporate 20 per cent renewable energy into the supply.  Renewable energy is three times the cost of conventionally generated electricity.  By 2020, the requirement adds a further $20 carbon tax equivalent, bringing the direct tax effect on households to $540.

The second issue is how much will the tax raise.  If the tax were to be applied to all the 550 million tonnes a year of carbon dioxide emitted by Australia, at $25 it would raise a cool $13.8 billion, equivalent to a quarter of the sum raised by the GST.  If it is levied only on the 200 tonnes emitted from electricity, it still means $5 billion -- a tidy sum with which to buy future elections.

Though the government might argue that these sums will be reduced because the tax will cause a migration from carbon-intensive generation, there will in fact be little such movement.  Energy is a necessity for modern living standards.  And there is no alternative to high carbon-emitting sources of electricity except for nuclear power, which for Australia is expensive and has been demonised.

This brings us to the effect of the tax in bringing a reduction in emissions by the required 24 per cent on business as usual.  To achieve any meaningful migration from carbon-intensive plant would require first a certainty that the impost on the most efficient producers of electricity would remain in place.  And the impost must be high enough to make it profitable to replace coal plant with gas plant, which has half the emissions per unit of energy of coal.

The fact that the government has opted for a tax rather than a tradeable right means the former condition is less certain.  A tax can be more easily rescinded than a right to emit.  Easier on the taxpayer though this may be, it adds a further complication for investors since a gas investment that might have been predicated on a wholesale price of $65 is left financially stranded if the $25 tax component of this is removed.

Moreover, the price itself, while severely harming the carbon-intensive, coal-based generators, would not force their premature departure from supply, which would be necessary to leave a gap for new gas generators.  The tax would, however, leave huge gaps in generators' profitability -- $250 million a year for Loy Yang and $600 million for the New South Wales government's Macquarie Generation.  Similar costs would be felt by domestic businesses seeking to compete at home and abroad with foreign suppliers not facing the impost.

It is doubtful if the Prime Minister is across these interwoven issues involved, issues that massively complicate statements like ''we must put a price on carbon''.  It is certain that there is no simple means of introducing the price without causing considerable cost to consumers and businesses alike.

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Artificial markets: miles behind the real deal

The Federal Government and its faithful Opposition are falling over each other to say their own climate policy is market friendly.

On Lateline last week, Penny Wong and Greg Hunt each argued theirs was the most faithful ''market mechanism'' which could be devised.

Perhaps this should be taken as a positive -- recognition by both sides of politics that voluntary trade in a free market is the most efficient way to allocate resources.  A few decades ago this would have been a very different debate.

But a crucial distinction has to be made.  A market mechanism does not make a free market.

Indeed, while market mechanisms like an emissions trading scheme are superficially appealing -- it has all the buying and selling that we see in the most dynamic sides of capitalism -- they can only ever be a crude approximation of the real thing.

Sure, it looks like a duck.  It quacks like a duck.  But it swims like a robot which has been engineered to swim like a duck.

Ducks and robo-ducks are different.  So are genuine and artificial markets.

Genuine markets emerge, spontaneously and dynamically, to meet demands or to create them.  The market order which develops seems harmonious -- balanced, as if, by an ''invisible hand''.

But of course there is no invisible hand guiding the marketplace.  Ideally, the market is only limited by general rules:  private property, protection against fraud, and enforcement of contracts.

There are just billions of people working to produce things for other people to buy, and buying things which other people have produced for them.

It works.  The efficiency, wealth, and increase in living standards that results from this capitalist dynamic have been recognised, implicitly, by every side of politics.

An artificial market like the proposed emissions trading scheme is a completely different beast.  It has a very visible hand indeed.

Every side of the market is created by legislation.  The Government nominates the product.  The Government nominates the customers.  It nominates the producers.  The Government controls the supply and restrains the demand.  Then it regulates the whole thing over the top.

Someone has to design the rules of the game, the limits, and write the laws which govern them.

The contrived structure of an emissions market leeches away much of the dynamic efficiency it is supposed to encourage.

Markets out in the wild have booms and busts all the time.  Artificial markets are even more flimsy and prone to failure.  No planner could predict ahead of time the negative consequences of every single line of legislation which will construct this artificial economy.

On The Drum on Friday, the ABC's Chris Uhlmann speculated how soon the first great crash of this huge artificial marketplace would occur.  He could have added these crashes have precedent.  Two of the most dramatic corporate collapses in the United States in the last decade have been deeply involved in artificial markets and were pioneering carbon trading.

Enron was an energy company, sure, but its main business was broking -- it wasn't producing much energy, but trading a lot.

And when it traded energy, it was gaming the regulatory environment created by the inconsistencies of Californian electricity ''deregulation'' in 1998.  The opacity of Enron's business operations mirrored the opacity of the law which created the energy commodity market.  And as the firm got increasingly comfortable trading commodities which were for all intents and purposes fictitious, it started trading emissions credits.

Unsurprisingly, Enron was one of the biggest advocates of the Kyoto Protocol.

Enron specialised in markets which were created and managed by governments and regulators.  (They also traded in broadband, another highly regulated, imitation market.)  Those markets were artificial, the corporate collapse in 2001 was not.

So too that other iconic implosion of recent time:  Lehman Brothers.  Collateralised debt obligations weren't the only complex financial instruments Lehman Brothers was buying and selling at a far remove from their underlying value.  The financial services firm was looking to be ''the prime brokerage for emissions permits''.  Like Enron, Lehman too wanted a price on carbon, because then there'd be money to be made selling carbon derivatives.

Much goes on in the dark regulatory complexities of market mechanisms.

Nevertheless market-based schemes are still, on a theoretical level, an interesting way to resolve a public policy challenge.

If you ignore the emissions trading scheme's crippling complexity, the inevitable exemptions, the free and subsidised permits, the compensation to lower- and middle-income households, the politics, the rentseeking, and the possibility of bureaucratic or regulatory error distorting the framework even further, then perhaps a market is better than no market at all.

Well, it would be, if anybody thought it could work.

The idea behind carbon trading is to neatly arrange a regulatory framework, then let the profit motive and competitive pressures choose the most efficient suite of energy policies.  Set and forget.

But there's been no suggestion that the substantial subsidies and regulatory requirements for renewable energy will be lifted once an emissions trading scheme is implemented.  The Renewable Energy Target, for one, will stay.  The Government plans one of the biggest economic changes in Australia's history, but not even they have any faith in it.

A future emissions trading scheme will feature lots of buying and selling, sure.  But while it will have all of the risks of a marketplace, it will confer few of the benefits.

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Dirty little lie on carbon tax

The government has announced its carbon tax will commence in July 2012.  Consumers and taxpayers should be very concerned about this new tax.

The announcement is even vaguer than either of the mining taxes announced last year.  All we know is that a new and complex tax will be introduced next year.  So far, we can't even be sure how much revenue it will raise, except that it will be budget neutral;  not even revenue neutral.

This should not inspire confidence.  The government has shown itself capable of spending more than the revenue it already raises, and now it is promising to spend all the revenue from the new tax.

There is a dirty little lie at the centre of the government's plan to introduce a carbon price.  That is the notion that carbon isn't already priced.  The government must be hoping nobody has noticed the plethora of programs that have contributed to rising living costs while minimally reducing carbon emissions.

Some of these programs have enjoyed a high profile.  For example the home insulation scheme, which resulted in numerous house fires and four deaths.  Solar panel rebate schemes have proven as expensive as they are popular, while others, such as the Green Car Innovation Fund were probably just old-style protectionism.

The fact is the Australian government has introduced several expensive carbon prices.  The best that can be said for the proposal to introduce a fixed carbon price is that it will be cheaper than many existing programs.

The test the government faces is in abandoning the more expensive programs.  In the presence of a well-defined, well-designed carbon tax all those other schemes simply become corporate welfare.  Keeping them in place is a double hit on consumers.  That means mandated renewal energy targets, and windmills, and all those boondoggles so beloved by politicians will have to go.

The whole argument for a carbon tax is that it represents the most efficient way to achieve a given outcome.  If that is true, then it should substitute for all existing programs.

But that is not what the government seems to have in mind.  The carbon price mechanism announced last week makes no mention of substitution;  in fact the mechanism does not preclude other measures.  In other words, this price is not a substitute for other higher, yet less effective, prices, it is an additional price to those already in place.

How often will consumers have to pay for the same carbon?  Not often enough it seems.

There is another problem with this scheme.  It has the potential to generate vast streams of revenue to the government.  Governments quickly become addicted to easy money.  The whole idea of a carbon price is, over time, that revenue should decline.  But the government has spending plans.  It is going to be very difficult to increase spending when the funding source is expected to decline.

Making the tax budget neutral invites future deficits as revenues decline.  Conversely it gives government the incentive to stymie carbon substitution in order to maintain revenues.  In short the vagueness of the proposal introduces sovereign risk.

The vagueness of the proposal also means that its effects have not been modelled.  The government cannot know what impact it'll have on the economy and as such cannot have designed any compensation packages.

In their Shitstorm:  Inside Labor's Darkest Days, Lenore Taylor and David Uren recount how then climate change minister Penny Wong came to the conclusion that business was quite serious about the adverse impact the emission trading scheme would have had on the economy.

There is nothing in last week's announcement to suggest any of those problems have been addressed or resolved.  If anything a less developed proposal has been announced to commence next year.  The community is being asked to pay its money and await developments.

The challenge this government faces is that it has no track record in delivery of programs.  Its 2007 promises are yet to be achieved from healthcare reform through to the rather simple task of delivering computers to schools.  It has failed at every turn.  The community is now being invited to trust that they can successfully introduce a tax on every aspect of the Australian economy from a standing start to implementation in less than 16 months.

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Bring on the competition

It's hard to believe this is Australia in 2011.  People are complaining milk is too cheap.  The government wants books to be more expensive.  And unions are demanding that steel imports be either banned or have tariffs on them at such high levels they may as well be banned.

It's as though the last 30 years of Australian economic and political history never happened.  Up until the 1980s Australian governments put the interests of producers first.  Since then governments have put the interests of consumers first (the glaring exception to this being the treatment of the motor vehicle industry).  The result of this policy change is obvious for all to sec.  This is not to say that change has been easy, because it hasn't.  What changed 30 years ago is that politicians stopped trying to prevent competition.  Eventually politicians realised it's better to alleviate the negative consequences of competition and take advantage of its benefits.

Thirty years ago politicians at least had an excuse.  They had no idea how prosperous the nation could be if the shackles of protectionism were broken.  The notion that Australia should embrace free trade had been killed off at the time of federation in 1901, and within a few decades free trade had become practically an alien concept.  Whatever ideas of economic liberalism that did exist in this country resided in the works of foreign economists like Friedrich Hayek and Milton Friedman, and in the writings of people like the marginalised Liberal backbencher, Bert Kelly (whose Modest Member column appeared in The Australian Financial Review).

The standard of living we now enjoy is a direct result of the decisions of successive Labor and Coalition governments in the 1980s and 1990s to reject protectionism and its handmaiden, economic myopia.  Sure, there's been a degree of good fortune involved in the boom of the past few decades.  Australia is lucky we've got lots of iron ore and coal, and we're lucky Asia is at our doorstep, but these advantages could easily have been squandered.  The worst thing we could do is to assume that the decisions of government don't matter.  They do.

The Labor government believes that because its stimulus spending "saved" Australian consumers from the global financial crisis, consumers won't mind too much if they're saddled with a range of government-inspired cost of living increases, such as imposing a "carbon price".

A return to the bad old days of protectionism and tariffs would be a disaster.  Yet the Australian Workers Union with its new campaign against "cheap imports" has signalled it is quite happy for Australia to return to a pre-1980s world.  Our union leaders and politicians should know better.

Larry Summers, economic adviser to both Bill Clinton and Barack Obama, put it succinctly a few months ago.  "Rising protectionism is emerging as a major threat to global economic growth.  In the end, protectionism makes people poorer, makes nations more hostile to one another, reduces opportunities for business and for workers and it is as good as being a zero-sum game.  It is actually a negative-sum game that destroys value."

Few members of Julia Gillard's cabinet have the courage or the capacity to stand up for economic liberalisation.  Once there was Lindsay Tanner, but he's now gone.

Trade Minister Craig Emerson is one of the very few ministers left who is not willing to disown the Hawke and Keating legacy.  Last week Emerson did what the Prime Minister or the Treasurer should have done.  When Australian Workers Union boss Paul Howes -- fresh from launching his fight against free trade -- declared war on Rio Tinto, it was Emerson who made the obvious point that it wasn't particularly productive for companies and unions to spend their time beating up on each other.  When Wayne Swan was asked whether he supported Emerson's comments, Swan declined to answer.

At the moment an air of unreality pervades the decisions coming out of Canberra.  There's a feeling that because the China-led boom is going to go on and on, government doesn't count any more.  We can afford bad decisions because there's money to burn, and we don't need to make good decisions because things are as good as they're ever going to get.  Policy is on autopilot.  At the moment policymakers think they face only two issues.  The first is how government can squeeze as much money as possible out of the boom.  The second is how government can spend that money.

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