Cutting the slack and saving the budget

With uncertainty surrounding the growth prospects of European and US economies, and a languid non-mining economic performance in Australia, attention has again turned to how the federal government will achieve a budget surplus in 2012-13.

Despite their best rhetorical efforts, government ministers in recent months have softened their stance to now enlighten us that the surplus is now an ''objective'' rather than a steadfast policy commitment.

But as the economic scene worsens internationally, there is heightened speculation that the government will have no choice but to belatedly add to the customary efficiency dividend policies by eliminating some existing programs to meet its budgetary promise.

A chorus of politicians, including Greens leader Senator Bob Brown, and business representative organisations, have not aided the fiscal consolidation cause by lambasting the surplus policy as a political ploy lacking economic merit.

Others, such as the Centre for Policy Development, have sprung up defending the commonwealth public service against the prospect of cost savings through a reduction in government employment.

A recent CPD report purports to show that the case of bloated, or excessive, government employment is overstated.  According to the CPD figures, if we compare ongoing APS employment against population growth then the total number of Australians per public servant has increased from 1991 to 2009.

In the opinion of the report's key author, James Whelan, this trend means that the ''service delivery capacity of the APS has diminished.''

Alternative measures, drawn from ABS wage and salary earner statistics over a longer period, show a similar trend but it is unclear that such indicators tell us much about the appropriateness of existing public service employment.

As the CPD report rightly notes, it is true that small-government adherents such as myself have suggested that numerous employees within the commonwealth public sector do not deliver any frontline services of any kind.

To a great extent this is a product of deliberate policies to reduce the extent of commonwealth services delivery, as exemplified by privatisation in the areas of aviation, banking and telecommunications from the 1980s to the mid-2000s.

Most economists agree that such microeconomic reforms were appropriate, enabling the more efficient private sector to innovatively deliver a range of additional services to customers at lower costs in real terms over time.

While the CPD report bemoans our successful privatisation record there is no credible evidence, apart from a few nationalisation agitators in the recent debate over the Qantas dispute, that most Australians are clamouring for a return to an era in which the commonwealth assumed the commanding heights over a wide range of services.

The divesture of government assets played its part in reducing commonwealth government employment, but its effects were temporary as total public sector numbers once again increased over the previous decade to 243,700 people in June 2010.

A considerable number of these extra commonwealth public servants are solely engaged in policy advisory, administrative and regulatory roles that unnecessarily burden business with obligations inimical to the encouragement of entrepreneurship and a broader growth in the economy.

These burdens will only worsen when the carbon tax administrative machinery, to accompany the Climate Change Department, possibly becomes a reality next year.

And these trends do not fully account for the growth in outsourcing of government work to private sector contractors, a number of whom were themselves public servants retrenched during the period of APS rationalisation during the late 1990s.

Another factor which must be taken into account when considering the appropriateness of public service size is the increasing commonwealth policy influence over functions and services traditionally undertaken by the states.

This erosion in state policy autonomy has enabled the federal bureaucracy to mushroom in areas such as education and health, blurring financial and policy accountability to taxpayers and provoking intergovernmental blame games abhorred by most Australians.

Those arguing against retrenchment within the public service as a way to reduce the budget deficit effectively argue that the existing size and composition of the APS is optimal, and must be quarantined from further rationalisation.

It follows from this argument that the government should only seek to return the budget to surplus and pare back public debt by seeking explicit tax increases or gamble on future economic sunshine delivering additional government revenue.

There is little doubt that these propositions are instinctively supported by the current government as a matter of political principle.

This is because as domestic manufacturing industries continue their slow decline, the public sector unions have gradually displaced manufacturing unions as kingmakers within the wider trade union movement.

And spending cuts won't please public sector union members whose livelihoods depends on maintaining, and indeed growing, government expenditure.

Election survey statistics also show that the majority of public sector workers tend to vote for left of centre political parties, leaving the Gillard government to believe that it is best not to bite the political hand that feeds it.

For these reasons there is little surprise that the Australian federal government has shown so far that it reacts to calls to reduce the size of the commonwealth public sector in a manner similar to someone who endures a toothache.

But to overlook opportunities to consolidate the budget by cutting expenditure, including reducing public service numbers where the role of commonwealth government is inappropriate or no longer relevant, severely limits our options to regain fiscal credibility and sustain economic prosperity.

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For and against an ABC-run Australia Network

On Monday night the Federal Government killed off the tender process for the Australia Network contract.

But debate continues over who should host the service;  should it be maintained by the public broadcaster, or should commercial media have the same opportunity?

Despite today's hoopla surrounding the Australia Network, the Government was right to go to tender and should have given the contract to the most competitive bidder -- Sky News.

The late announcement of the cancellation of the calamitous Australia Network tender process may have been justified by Stephen Conroy because of leaks to The Australian.  But few would buy it.

The earlier transfer of the tender process from Kevin Rudd to Stephen Conroy was the first clear sign that the Government was never going to let Sky win.  And that meant twice rejecting the recommendations of an ''independent'' government panel against Aunty.

In response to the debacle Greens Communications spokesperson, Scott Ludlam, argued ''the idea that a commercial identity could replace Australia's interests and culture in this region better than the ABC -- our national broadcaster -- was really misguided''.

His proposition is absurd.

First, the Government was right to tender out the contract to extract the maximum value from the different bidders.  Even if the government was always going to unfairly give the contract to the ABC they're still likely to get better value for our taxpayer buck through a competitive tender process.

Second, Ludlam assumes the ABC is best capable of carrying Australia's message to the region.  That's doubtful.

The Australia Network is not a logical extension of the ABC's local programming.

In the lead up to the tender the ABC pulled a sneaky punch trying to merge their mandated delivery of Radio Australia with the Australia Network.  It would have made it impossible for Sky News to bid since it cannot deliver Radio Australia.

But according to reports the competitive edge Sky News has over the ABC came from its successful negotiations with the Chinese CCTV state broadcaster to carry the Australia Network into the People's Republic.  And as part of that deal Foxtel will allow Chinese Communist propaganda to be made available for broadcast through our airwaves.

There are legitimate questions about the merits of that deal.  But it points to a highly significant and relevant structural problem with the ABC bidding for the Australia Network contract in the first place.

The Australia Network contract is part of Australia's suite of soft power public diplomacy.

The Howard government's 2007 foreign affairs and trade In the National Interest white paper described public diplomacy as a ''diplomacy which operates in that area of intersection between the soft realm of image and the hard edge of a country's economic and political interests''.

The title of the white paper perfectly encapsulates the objective of the Australia Network -- to promote our national interest.

And that isn't necessarily achieved by broadcasting Monday night's Q&A bunfight to Jakarta.

In his 2009 Bruce Allen memorial lecture ABC Managing Director Mark Scott highlighted the contradiction between the ABC's public broadcaster role and the Australia Network's pseudo-state broadcaster role.  In his lecture Scott extolled that the ABC ''insisted that the service [Radio Australia] could not exist as a mouthpiece of government ... [and] that tradition endures''.

Leaving aside views about the cultural left-wing bias that extends within the organisation, the ABC isn't charged with being a state broadcaster.  It's a public broadcaster.  The former pushes the government line.  The latter informs the public.

Yet the ABC shares a large component of its domestic-targeted news and current affairs programming on the Network including programs like ABC News Breakfast and even the Gruen Transfer.

Despite the quality of the programming, it's highly debatable that pushing some of those programs advances our soft power national interests.

For a 2007 senate inquiry into Australia's public diplomacy program my submission The Values Deficit included a content analysis of the programs the network broadcasts, rating them against the Australian values of a liberal democracy, human rights and free markets.

Based on the analysis the programs only sent out positive messages on one category -- liberal democracy.  By comparison most programs were values-neutral on human rights and there was not a single supportive message of free markets.

But for the ABC to share content on the Australia Network to meet our values-driven public diplomacy objectives it would be required to compromise its neutral role.  That wouldn't be good for the ABC.

Irrespective, the ABC should be allowed to bid if they can find a way to achieve these twin objectives required of them to deliver the contract.  It would be a considerable challenge.

But nostalgia for ABC delivery should not factor into who wins the contact.  That should be made based on the value of the bids.  Based on all ''leaked'' reports, that's Sky News.

The best way for the right to win culture wars is to privatise them

The best way for prime minister Tony Abbott to win the culture wars might actually be to withdraw the government from them.  One of the greatest criticisms conservatives have levelled at the Howard government is that it failed to win the culture wars, despite its 11½ years in office and many other successes.

When the Coalition government fell in 2007, the ABC remained hostile to conservatives and an outpost for cultural liberals, universities continued to be a safe haven for the Left where conservatives continued to feel unwelcome and our cultural elite was dominated by prominent leftists.

Now is the time for him and his team to begin to think about what impact they will have on the culture wars, just as Julia Gillard and Kevin Rudd did when they were in opposition.

To succeed where John Howard failed, Abbott will have to approach the culture wars in a totally different fashion.

Instead of trying to beat the Left at its own game, Abbott needs an agenda that fundamentally changes the culture wars, by getting the federal government out of them.

Broadly understood, the culture wars during the Howard years were about Australian identity.  They were about who gets to define what it is to be an Australian, and the terms by which it was defined.

Recent history has shown that the Left is much better at using government to favour its side of the culture wars and in many ways the tactics employed by the Howard government in the culture wars actually set back the cause it was trying to advance.

For instance, the appointment of prominent conservatives to the board of the ABC was unsuccessful at changing the tune of the public broadcaster.

Instead, it just gave the Left ammunition in its argument that the Howard government had a political agenda when it came to the ABC.  Of course, the Left does not need to stack the board of the ABC to ensure that coverage is sympathetic to its ideology, because most of the staff of the ABC are already of the Left.

To be clear, bias at the ABC is rarely of a crude partisan nature.  It is true, as the defenders of the organisation protest, that both Labor and Liberal politicians almost always get an equally tough run on its flagship political programs.

Nor is bias at the ABC likely to be part of some conscious, sinister plot to indoctrinate the Australian people.  It is simply the product of the homogenous worldview of staff who are overwhelmingly drawn from similar cultural and ideological backgrounds.

But that doesn't mean it isn't a problem.  As a publicly funded broadcaster, the ABC is obliged to treat the views of all Australians with respect and ensure its reporting remains free of bias.

Instead of recommencing a futile effort to change the culture of the ABC via board appointments, prime minister Abbott should seek to reduce the public broadcaster's reliance on taxpayers' support.  Further corporatisation of the ABC and a requirement that it raise more of its own revenue, such as by advertising through its high-traffic websites, would provide a much greater incentive to management to deliver content that is in demand by Australians.

And the more revenue the ABC collects in its own right, the less valid political meddling in its editorial decisions becomes.

Another example of an effort to advance a conservative agenda that backfired in the culture wars is the debate about values in education.  As education minister, Brendan Nelson proposed that a statement of values, written by the federal government, should be used to ensure that appropriate values were taught in schools.

Building on this idea, his successor Julie Bishop attacked ''Maoist'' state education curriculums and suggested the solution was to hand the power to draft a curriculum for all students to the federal government.

In doing so, they handed Peter Garrett the tools to force these ''Maoist'' curriculums that applied in just some states into every classroom in the country with the highly ideological national curriculum.

While admitting that it sets out to ''shape'' students, not just teach them, the curriculum is appallingly biased and its history section either denigrates or leaves out major events in the development of Western civilisation.

Yet interwoven throughout the whole document is the importance of ''sustainability'', and highly ideological viewpoints, such as the idea that we are running out of natural resources and face an ''energy crisis'', are treated as uncontentious facts.

But instead of redrafting this curriculum with an equally ideological but conservative bent, an Abbott government should throw the curriculum out to the market, through a tender process that allows schools to choose from multiple competing private curriculums.

By taking government out of the drafting of the curriculum, except for setting broad minimum standards, the education system would become depoliticised, and parents would be given the power to choose the schooling they want for their children.

The true strength of this approach is that because of its lack of reliance on control of government spending and regulatory power to fight the culture wars, the important wins that are achieved stand a much better chance of enduring a change of government.

What's more, applying liberal philosophy to a comprehensive cultural reform agenda will also lead to much-needed sensible policy changes that will enhance individual freedom and reduce the size of government in Australia.

The clear lesson from the Howard years is that the Right should be highly wary of using the power of the state to advance its side of the culture wars.  Often, it was unsuccessful.  Worse, it sometimes backfired and made the job of their ideological opponents much easier.

It would be far better for an Abbott government to adopt a totally new strategy by getting government out of the culture wars.

Not only is this much more likely to advance his own side of the conflict, it is also consistent with conservative principles.

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Pursue productivity in order to slash the costs

Because businesses increasingly compete with international rivals, relatively small cost increases can force radical decisions.

To survive against overseas competition, firms must pursue productivity improvements and cut out excessive costs.

This also leaves the economy in general ever more vulnerable to cost burdens resulting from government regulations.

Yet we are seeing the Gillard Government introduce an avalanche of regulatory impositions.

This week, Parliament passed the carbon tax.  Upcoming is the new minerals tax.

And we are seeing the Fair Work Australia Act re-arming union militancy, notwithstanding Julia Gillard's rhetoric about ensuring we have a ''tough cop on the beat''.  Days lost from industrial disputes are threefold higher than last year.

After two years' incubation, Labor's industrial relations regime is now generating a glut of union demands that would impede management's ability to improve productivity.  The Qantas dispute is the highest profile example of unions seeking to control a business.  If the unions successfully force Qantas to forego productivity improvements, they will condemn the firm to gradual decline.  But few existing Qantas employees will suffer as their terms and conditions are guaranteed.

Qantas is only one of a growing list of companies pressured by government policies.

Sydney-based firm ResMed is a home-grown world leader in technologies that combat breathing disorders during sleep.  Most production is exported in a trade worth over $750 million a year.

Cost impositions from the carbon tax and workplace inflexibilities stemming from Fair Work Australia, are leading ResMed to shift its production to Singapore, which offers more certain electricity prices and superior industrial relations laws.

Coogee Chemicals faces a similar outcome.  Because of the carbon tax, the firm has abandoned plans for a $1 billion new plant in country Victoria and is reviewing the viability of its existing Laverton facility.

Government ministers, in inflicting costly regulations on business, are unaware of the role of profits, in driving efficiency.  As the leftovers after all costs are paid and the reward to owners, profits dominate business decisions, including location choices.

ResMed's decision illustrates the effects of this.  If electricity comprises as little as 3 per cent of the firm's costs, a carbon tax that doubles its energy price can be crucial.  Doubling of ResMed's energy price means an annual cost increase of $20 million on the firm's $750 million output.

That $20 million cost comes straight off the bottom line and with ResMed's profit at $50 million this represents a cut of 40 per cent.

As the company's chairman Peter Farrell said, ''ResMed, like other global companies, can and will vote with its feet.''

The company's board of directors cannot remain in a high cost location for sentimental reasons.  Indeed, to opt for higher costs than necessary would eventually threaten ResMed's existence.

Only governments can command the resources to pay for superfluous costs but it is the private, not the government, sector that creates wealth.

Private-sector employers must win customers in the marketplace and competition forces them into the cost savings.

These cost savings drive the productivity gains that enable higher living standards.  But regulatory impositions that discourage investment or push firms overseas mean lower living standards.

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Politics and economics of a balanced budget

There is a lot of doubt as to whether the Gillard Government will be able to deliver a budget surplus in 2012/13 as promised.

The problem is that government is spending too much and expected revenues will not be as high as initially forecast.

When government needs to balance the books (i.e. run a modest surplus), but cannot raise more revenue, the only solution is to cut spending.  Or, renege on the budget surplus promise.

Each of those choices is politically tough.  The beneficiaries of government spending are usually well-organised and vocal.  Seemingly, however, the promise of a budget surplus has few friends, and many are now suggesting that the Government quietly shelve that promise.

Many economists are making the argument that a budget surplus in 2012/13 isn't really economically important;  it is just the politics that dictates the need for a surplus.  The fact of the matter is that budgets matter, and politics matters too.

To his credit, Wayne Swan has resisted that sort of argument.  While I doubt that he will actually deliver a budget surplus at least Swan has some understanding of the need for fiscal prudence.

Government spending is ultimately financed through taxation.  I am going to ignore financing through inflation -- that is unsustainable and dishonest.  Taxation can be deferred through bond issues, but bonds should be repaid, with interest.  Public debt is deferred taxation.

Now there are always very compelling reasons for government to spend more money.  Lobbying government to increase expenditure is a very lucrative industry in itself.  But we have to trade off the benefits of additional government spending (which actually decline very quickly) against the costs of additional taxation (which rise very quickly).

As government spending increases so private activity is crowded out making the economy more reliant on government.  But like any other organisation there are limits to what government can do well.  As government expands it increasingly undertakes activities that it isn't very good at, and inefficiencies grow.  Combine that with an increasing tax cost and it quickly becomes clear that government spending should be constrained.

Australians have an intuitive understanding of the costs of budget deficits -- every month (except January) the RBA interest rate announcement is widely covered in the news.  Loose fiscal policy, sooner or later, results in high interest rates -- at least, higher than they otherwise would be.

Providing a coherent and credible path back to surplus was a clear message from ratings agencies that enabled Australia to maintain its AAA credit rating after the 2008 stimulus package.

All up this sort of argument suggests that budgets should be smaller rather than larger and balanced rather than unbalanced.  It is fully consistent with Kevin Rudd's argument that, ''This reckless spending must stop''.

The problem is that government can be fiscally irresponsible for a long time.  Much longer than individual households or firms.  As Adam Smith said, ''There is a lot of ruin in a nation''.  Just look at the Europeans, and the Americans.  Fiscal irresponsibility has taken a long time to manifest itself in crisis, but the day of reckoning has arrived.

Taxation and government spending in a democracy are ultimately decided at the ballot box.  It is here that many economists make a fundamental error.  James Buchanan, the 1987 Nobel laureate, has argued many economists propose policy as if they were advising God, or at least an omnipotent and benevolent dictator.  Economists very often overlook the fact that governments have to govern with the consent of the governed.  The bottom line is that there is no economic policy that isn't political.

The electorate has good reason to demand fiscal prudence, after all the costs of imprudence are very high.  So when the electorate decides that it prefers low levels of public debt to high levels of public debt that means that government needs to deliver within a tight budget constraint, or convince the electorate otherwise.

Government also needs to convince the electorate (not to mention the international bond markets) that the public sector is being well-managed.  Expectations play a very important role in economic decision making and confidence is an important component of a healthy growing economy.  One easily observed measure of government performance is the budget balance.  It isn't the only measure and shouldn't be a mechanical measure but nonetheless is an important measure.

A government that cannot balance a budget is not doing a good job.  That must undermine confidence in the economy and it also means that government is imposing huge costs on the economy and future generations.  Of course, just as there are always ''good reasons'' why government should spend more, so too there are always ''good reasons'' why the budget should be balanced sometime in the future, but not just yet.

A government that gets into the habit of not managing its finances ends up imposing huge costs on the economy -- and the electorate knows that.  That is why the Australian electorate has a low tolerance for debt and deficits.

So yes, honouring the promise to deliver a budget surplus is political, but it is good economics too.

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Media inquiry motives: accountability or revenge?

Bob Brown's submission to the Independent Media Inquiry has an appendix of criticisms he's received in the press since calling for a media inquiry:  ''totalitarian'', ''self-serving'', ''prejudicial and dishonourable'', ''witch-hunt'', ''pillory'', ''fascism'' and so on.

It's a strange appendix to include, considering that the substance of those critiques is how the Greens leader's support for a media inquiry is motivated by personal animus.  And, further, such a motivation means the inquiry is not a benign investigation of the current media regulation, but something more sinister -- politicians trying to use their powers of legislation to punish critical newspapers.

So a bit of an own-goal there.

The Government has repeatedly rejected claims that the inquiry will be focused on News Ltd.  That's clearly not the way many of the inquiry's supporters see it.  Brown can barely go a media appearance without talking about The Murdoch Press.  Critics of the Greens say the minor party is actually the government.  If so, then Brown sees Rupert Murdoch as his loyal opposition.

Labor's backbenchers are also loose-lipped on the inquiry.  A furious Senator Doug Cameron said last week, ''The Murdoch press are an absolute disgrace, they are a threat to democracy in this country and we should absolutely be having a look at them''.

Cameron was angry about reports of leadership instability in the Daily Telegraph.  Maybe the Telegraph reports were a beat up.  Maybe they were not.  ''Government backbencher says leadership speculation is baseless'' is not a decisive rebuttal.

But regulation of the press imposed as revenge for anti-government reporting is much more a threat to democracy than any tabloid headline could be.  That neither Bob Brown nor government backbenchers like Doug Cameron appear to recognise this blindingly obvious problem is worrying enough.

Governments and the press have never gotten along.  The two are, and will continue to be, absolutely opposed to each other.  One accumulates power.  The other undermines it.  Australia's first media proprietor, Robert Wardell, described the free press as a weapon to ''frustrate the designs of tyranny, and restrain the arm of oppression''.  One 19th century Chicago Times editor said ''It is a newspaper's duty to print the news, and raise hell''.

This is certainly not to defend media ethics.  Bad journalism deserves harsh criticism.  Raising hell can bring up devils.  But the choice presented is not between our current media and a noble, ethically-unimpeachable media.  It is whether the Government should to try to ennoble it for us.

What constitutes ethical practices is not for governments or bureaucrats to decide, and certainly not for them to enforce.  Governments are subordinate to civil society.  They must not be the supervisors of their critics.  This is a much more fundamental principle of democracy than the often-repeated idea that free elections require an informed citizenry.  Restraining the actions of government once a parliament has been formed is surely just as important making sure people can decide who to vote for every couple of years.

Sometimes attacks on government or politicians are misinformed, simplistic, or propagandistic.  Sometimes those attacks mix up facts and opinion.  Wrongheaded views -- even wilfully ignorant ones -- are not unique to the press.  They are a feature of democracy.

In his submission, Brown suggests the fact a journalist described him as ''self-serving'' helps strengthen his case.  God knows we wouldn't want the public to think politicians can be that.

Nevertheless, Brown's submission is interesting.  The Greens leader has said journalists don't tell both sides of a story accurately or reasonably.  The submission builds his case at length, free of media gatekeepers.

Brown conflates two separate grievances into one.  First:  The journalist's Code of Ethics, administered by the media union, ''has become a hollow vessel''.  Second:  Rupert Murdoch has oligarchical control over the print media.

Are these two linked?  Brown thinks they are.  A core problem for the Greens leader is ''Almost all the news media in Australia is owned by private corporations, outside of the ABC and SBS''.  In July, as the News of the World scandal hit its stride in the UK, Brown asked whether the News Ltd board meetings should be opened to public broadcast.  This would impose a degree of public scrutiny on a single company that isn't even applied to federal cabinet, or, indeed, his own party conferences.  Perhaps he thinks all private companies should open their boardrooms.  But that's not what he said.  Just News Ltd -- a firm which employs his most strident critics.

The profit motive is one of the most powerful forces in our society precisely because it delivers consumers what they want.  Organisations which offer people goods or services which are attractive and desirable and not prohibitively expensive succeed.  Those which do not, fail.  All government should do is provide a legal framework, under which laws are universally applied.  For instance, to choose a law completely at random, don't hack phones.

The profit motive seems like a pretty good way to deliver journalism which people want to read, watch and listen to.  But, otherwise, the Government spends a billion dollars a year on the ABC -- specifically to address an assumed failure by the market to provide quality media in the absence of a public broadcaster.

Bob Brown would no doubt like the ABC budget increased.  But that's not the argument he is mounting.  Tellingly, the ABC barely rates a mention.  His focus is on the private News Ltd, not the ability of existing institutions to achieve any democratic objective.

Brown's enthusiasm for the media inquiry seems more about fighting his party's critics than any principled position about the relationship between democracy and media.

Greens pressure led to the formation of the inquiry in the first place.  So it is hard to take the Government's reassurances that the Independent Media Inquiry has nothing to do with the hostility of the press.

What happens to carbon trading after Durban?

The collapse of the price of carbon permits in Europe tells you everything you need to know about the prospects for international carbon trading.  Unfortunately, the government isn't listening.

Earlier this week Climate Change Minister Greg Combet rejected the idea that there are serious issues with international carbon trading and yesterday spoke rosily about the global carbon market's prospects while the EU carbon price crashed.

To support his argument Combet cited the World Bank's Carbon Finance Unit State and Trends of the Global Carbon Market 2011 report that the market has now grown to $US140 billion ($136bn).  But he's clearly only read it to recite convenient anecdotes.

According to the report ''after five consecutive years of robust growth, the total value of the global carbon market stalled suffering from the lack of post-2012 regulatory clarity''.

Meanwhile the price of some emissions permits ''fell by double-digits for the third year in a row'' and ''shrank as well in 2010''.

A carbon market recession should hardly come as a surprise.

An international agreement that provides regulatory clarity so countries commit to cutting their emissions is central to the stability and security of a workable global carbon market.

Until now clarity has been provided by the Kyoto Protocol.  But on December 31, 2012, Kyoto expires without a successor agreement.

Since the 2007 Bali summit countries have been negotiating a successor agreement but cannot agree on how it is to be achieved, despite it having a huge influence on how we should design our own scheme.

At present, negotiations surround whether countries should seek emissions cuts through a second-generation Kyoto Protocol or a non-binding, long-term co-operative action agreement.

Poor countries want a second-generation Kyoto because it obliges rich countries to cut emissions while they're not bound to do anything.  Rich countries want the non-binding agreement because it brings every country into the same tent.

The failure at Copenhagen was about this unresolved impasse.

If agreement eventually can be reached, large emitting countries such as the US, China and other economies will then design their domestic emissions reduction schemes to work within this framework.  Trying to do this retrospectively is likely to be harder.

In three weeks countries will descend on Durban, South Africa, for the last opportunity to successfully lock in a post-Kyoto deal before the protocol expires.  Not even the Gillard government believes that will be achieved.

A recent survey of carbon traders found that fewer than 5 per cent were optimistic there would be a new global emissions reduction agreement by 2015.  Their faith rose only to about 20 per cent for one by 2020.

At least Kevin Rudd realised after Copenhagen's collapse that introducing a carbon price should be deferred until there is greater international clarity.

But the Gillard government appears oblivious as they've guzzled the Greens' carbon Kool-Aid.

As Treasury modelling outlines, Australia will rely heavily on international carbon trading to keep the scheme's cost down.

The point of carbon trading is to facilitate cutting emissions where it is cheapest first and where it is most expensive last.  Mapped across a 100-year time scale, emissions in Australia would not be cut until the last decade.

The reason is because the gap between the source of the majority of our emissions from the burning of cheap, plentiful coal for electricity and the next viable alternative in gas is so large.

To make gas competitive requires a carbon tax of at least $40 a tonne.  To rely on renewables the carbon price needed is in the hundreds of dollars.

Not that other schemes are providing much confidence.

Before its closure in the middle of last year, the price of voluntary Chicago carbon exchange permits plunged from $7.40 a tonne to a mere 5c.

And Europe's carbon price has not been in parity with Australia's $23 a tonne price since June and now sits at about $10 following a downward price trend.

As long as the EU's emissions trading scheme accounts for 97 per cent of the global carbon market, the price will be set in Europe and a price drop there will significantly influence whether emissions cuts will be achieved in Australia.

Not that Europe is leading by example.  China accounts for 40 per cent of Europe's emissions reduction through Kyoto's clean development mechanism that allows developed countries to buy emissions reduction in developing countries and count the cuts against their own register.

At least Europe is consistent.  It is going cap in hand to China to finance its debt crisis and then giving it back to China to cut its emissions.  It's all becoming a bit of a merry-go-round.

The lesson for Australia should be not to get ahead of ourselves.  Talk of climate leadership may be a good sound bite.  But it's a global challenge and requires a globally co-ordinated solution to successfully cut emissions at least cost.

Lack of policy leadership in Australia

Leadership is still about ''that vision thing''.  But it's also about being able to prosecute it within your sphere of influence for challenges you can respond to.

For those of us enthusiastic about public policy, the Australian debate is rather depressing.  Sound bites rule.  Substance doesn't seem to matter.  Scant regard is paid to outcomes.  What's most concerning is that the lack of policy leadership is intertwined with the enormity of the challenges we face.

Broadly speaking, the private sector is fine.  Australia's relative ease in sailing through the global financial crisis' choppy waters demonstrates the importance of a flexible liberal economy.  If Australia had industries propped up by the false foundations government regulation and protectionism provides we would have struggled to adapt.

We haven't struggled.  Not that everything is perfect.  But considering events overseas, every morning Australians should wake up and be thankful for their good fortune.

But our political leaders have lost the plot on influential leadership resulting from the international alignment of Australia as a country worth emulating because of survival through the crisis.

The Rudd and Gillard government's efforts to ''show leadership'' in tackling climate change by introducing a carbon tax, succeeded by an emissions trading scheme, is foolhardy.  No one disputes the government's commitment to cut emissions.  But it's an absurd proposition to suggest we are going to take on significant economic costs for a global environmental challenge and then expect the rest of the world to follow.

Based on the government's logic, the rest of the world would have followed our lead in unilaterally liberalising their trade barriers in the 1980s and 90s.  After all it would have been in their economic interest.  But they didn't.  Instead many have maintained trade barriers ranging from heavy industry subsidies, tariff protection to local content restrictions that make their economy less flexible, dynamic and capable of responding to economic downturns.  In short, they're worse off.

So if countries won't follow us in helping themselves, it remains a fascinating proposition that they'll follow us in imposing economic pain.  The European Union's longstanding emissions trading scheme also shows it unlikely.

You cannot lead by sound bites when you're extending beyond your zone of influence.

Australia can reasonably have an impact by imposing a domestic carbon price.  But greenhouse gas emissions are a global challenge, the externality is also global, and can therefore only be addressed with a global carbon price.

Australia showing leadership may make us feel warm and fuzzy, but it doesn't address the challenge if there is no global price to feed into.

Considering a World Bank Carbon Finance Unit survey of international carbon trader found around only 20 per cent believe there'll be a new international agreement that could provide the pathway to imposing one by 2020, shows we're over reaching.

What's sad is that while we are trying to lead from the front, while other countries are walking in the opposite direction, we need leadership to address challenges we can directly influence.  The real leadership challenges are at home in the public sector reform to convert many of our public sector institutions onto a more sustainable footing.

As the government's intergenerational report outlines by 2050 Australia's health bill will increase by three and a half times compromising the sustainability of taxpayer-funded universal healthcare.  Worse the number of working people to pay the taxes to support it will also decline.

In many ways it is the same challenge that faced the Hawke/Keating government over the sustainability of taxpayer-funded pensions.  Millions of Australians had paid taxes their entire lives with the reasonable expectation that other taxpayers would foot the bill when they decided to give up work.  Nice idea.  But it has struggled to work in practice.

The ongoing crisis of the American social security system provides a clear example of how the interests of working Australians could have been compromised if government didn't show leadership.

But the Hawke/Keating government rose to the challenge and our compulsory superannuation scheme now provides a more sustainable scheme to provide certainty to us all when we retire.  It was a known challenge.  It was within the government's sphere of influence.  It required a mature discussion with the public.  Leadership was shown.

Now it is needed in health.  As the government's own reports show, Medicare is unsustainable in its current form.  And the revenues provided from the present mining boom provide the opportunity to structurally readjust Medicare to make it sustainable.

The establishment of superannuation-inspired Medicare health accounts where individuals contribute to saving for their health costs could be one solution.  Individual Medicare health accounts, coupled with tax cuts reflecting the reduced expenditure by government for healthcare, would enable working people to save for their healthcare throughout their lives.  Considering around a third of all health costs are incurred in a patient's final years everyone would have plenty of time to make sure they are sufficiently protected.

Of course any scheme would require equalising government contributions to ensure those who were not working, did not earn enough, or have overly burdensome health costs don't miss out.  But it would mean we were directly subsidising those who need it most, unlike the current private health insurance rebate, which is not.

What such a scheme would also do is drive competition in the health sector, which is currently an option for those in the private system, and not for those in the public system.  Using the power of competition would drive up standards in the interests of patients and would start to address the shocking information asymmetry between those who provide, and those who receive healthcare.

But most importantly it would put Medicare's universal healthcare principle on a sustainable footing.

But structurally adjusting from the unsustainable Medicare of today to a sustainable system requires mature debate led by responsible leaders.

The same leadership challenge exists if we are to reform education and move towards a system that provides choice for the rich and the poor.

Currently well off Australians buy their way out of the public health system, into independent schools, increasing their choice in values-based education as well standards.  Meanwhile, less well off Australians are trapped in a one-size-fits-all public education system where competitive pressure doesn't drive up standards and kids are locked into their local school.

Under the current system wealthier parents can even game the system by purchasing a house close to a better school than their local one, to improve the standard of education for their kids.  Poorer families cannot.  Introducing a vouchers system where education funding is tied to a student, enabling them to move between schools that increase choice for all parents and children while driving competitive pressure, requires significant structural reform.

Like in health, the leadership effort to do so would be well worth it.  But in a hotly contested political environment, doing so would require our politicians to lead us beyond our comfort zone.  That means the onus is back on us.

As the citizens whom they serve, we have a responsibility to engage in constructive discussion about future policy challenges and not to be played like a fiddle.  In many ways the leadership dilemma rests on our shoulders.

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Memo to unions: White Australia was a bad idea

Rarely was the relationship between economic nationalism and xenophobia made so clear.  The Transport Workers Union's Tony Sheldon, after complaining about Qantas's industrial relations tactics, said that his union would ''stand by the workforce, the Australian brand of Qantas and not have it Asianised''.

Asianised?  This was not a slip of the tongue.  A variant Sheldon has also used is ''Asianisation''.  So is Asianisation worse than normal outsourcing?

That's no dog whistle;  there is no subtext.  Google ''Asianisation'' and the first page of results offers up ''Australian nativists'', manic claims about the Yellow Peril, and warnings about our ''national suicide''.  Sure, those hysterics are on the margins of Australian society.  But the TWU boss is the chief opponent of the Qantas restructure and of Alan Joyce who, as many people have pointed out, has a thick accent, betraying his foreignness.  Sheldon's easy use of these terms is damning.

Damning, but not damned.  Contrast this missing outrage to the handwringing that followed Tony Abbott's clearly rhetorical ''blood pledge'' to repeal the carbon tax.  There would have been fury if a conservative leader said anything remotely like what Sheldon did.  The ABC's Q&A would have spent a show debating whether Australia is a racist country.  Serious talkback hosts would have spent the week talking about Enoch Powell.  None of those things happened.

Opposition to trade, outsourcing and labour migration has always been tightly bound up with xenophobia.  In Australian history, racism has usually had an economic context.  After all, why should it be a matter of urgent public policy that some jobs be kept within Australian borders?  On what moral basis is limiting immigration to protect workers from competition a good thing, as was proposed by unions at the start of the financial crisis.

Protectionism is bad for many reasons.  It raises prices and lowers living standards -- worrying enough.  But its moral core is dark.  Surely Australians are no more deserving of jobs than people from China, Japan or Singapore.  Economic nationalism implies natives are worth more than foreigners.  The far right is explicit about this.  The Australian Protectionist Party makes its regressive views (nationalisation, high tariffs, less immigration) part and parcel of its hostility to multiculturalism.  One Nation was also sceptical about globalisation.

So given the union movement's historical culpability for the White Australia policy, you would think someone like Sheldon might be sensitive to the nuances of xenophobia.

Labor-sympathetic historians in recent decades have tried to sheet the White Australia policy home to prejudice.  Immigration restriction was, many post-1960s historians have claimed, simply the result of a racist zeitgeist.

But the White Australia policy was led by a union movement trying to eliminate competition in the labour market.  This is an awkward truth.

The government's own fact sheet on the policy mentions how ''hard-working'' immigrants were, yet neglects to mention the role played by unions and the Labor Party in kicking them out.

Immigration restrictions were just a part of it.  It was the official policy of Labor prime minister Andrew Fisher to grant ''absolute preference'' to white unionists in workplaces -- and to encourage employers to fire ''coloured'' workers.  The Australian Socialist League called for the ''exclusion of races whose presence under present competitive conditions might lower the standard of living of Australian workers''.

The only serious opposition to White Australia came from pro-market thinkers -- particularly the great free-trade MP Bruce Smith, who described the policy as ''racial prejudice''.

Steven Landsburg, an American professor of economics, asked recently:  ''If it's OK to enrich ourselves by denying foreigners the right to earn a living, why shouldn't we enrich ourselves by invading peaceful countries and seizing their assets?''  Obviously the latter is wrong.  The former is just as wrong.

There's no reason to believe workers made redundant by Qantas will end up on the scrap heap.  That sort of theory was barely plausible when the Australian economy was being opened up in the 1980s and 1990s.  It is ludicrous now.  We've had 30 years of globalisation and the unemployment rates are at record lows.  International trade is not war.  There is no fixed pie of jobs over which protectionist governments must fight for a share.  Nor is there any reason to believe basing some Qantas services in Asia will be bad for consumers.  Few companies would deliberately make their service less desirable.

All this leaves us with is a union boss attempting to stoke xenophobia in service of his own economic interests.  That's something with which Australian history is sadly familiar.

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Market lessons from the financial crisis

The lesson of the global financial crisis is that freer markets work and are vital to address our current local challenges.

At the heart of the crisis were government-mandated, sub-prime loans that were repackaged as ''toxic debt'' -- hot potatoes that banks passed around in a circle.  When the music stopped and people couldn't repay these bad debts, the private sector was exposed because of government failure.  This was compounded by unsustainable public debt.

But governments haven't learnt their lesson.  And we need them to before the next round of government failure harms our society.

At the moment we pay a lifetime of taxes expecting governments to foot our health and education bills.  The ''common weal'' system appeals to our sense of a ''fair go''.

But government reports show health costs are set to increase 3 times by 2050, while fewer people pay taxes because of an ageing population.  That means longer waiting lists, higher taxes, or both.

In future, delivering sustainable, equitable services will require free-market approaches.  We can start by adapting the lessons of compulsory superannuation and, with offsetting tax cuts, create Medicare private health savings accounts.  Taxpayers' money would only be needed only if a person hadn't, or couldn't, save enough.  Considering a third of a person's health expenditure occurs around their final years, most would have plenty of time to save.  This would also create incentives for people to stay healthy.

We also need real education reform to increase opportunities and drive upstandards.

Under current education funding, less well off families don't get to choose their school and are denied the benefits of competition that the private sector provides.  It's not fair.

Instead, government should provide parents a per-student voucher redeemable at any school for the cost of an education, thereby giving all families the same choices.

That would narrow the advantage wealthier families have over poorer ones.

But achieving these outcomes would require those on the left of the political spectrum to explain why governments are not always the solution, as they promised.  Sadly, that leadership is lacking.

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Owners have the final say

For once, it's possible to have some sympathy for the Gillard government.  Politically, it's in a no-win situation with Qantas.

If it sides with Qantas management, the chances of the company's survival improve but the government alienates its trade union base.

If the government sides with Qantas employees it's quite possible that in a few years' time, the company those employees now work for won't exist, or at least not in its present form.

So far the government has sided with Qantas employees.  Prime Minister Julia Gillard has made it quite clear, many times, that she's got no problems with staff taking industrial action to stop Qantas outsourcing and establishing overseas operations.

The legislation the PM engineered when she was industrial relations minister established the regime that gave Qantas no choice but to lock out its staff.

It's her legislation that Fair Work Australia was using when it applied an apparent double standard.  According to Fair Work Australia, months of persistent strikes by the unions did not cause significant harm to the aviation industry, but management's lockout did.  But as flawed as the Fair Work Act is, the legislation did not cause this fight.

A showdown between Qantas and its employees was probably always inevitable.  The fight is existential.  It is literally about the existence of the company.  According to Qantas chief executive Alan Joyce, if the company is to continue as a going concern, he must, have the ability to cut costs and change staffing arrangements.

You don't have to listen to Joyce's words to judge if he genuinely believes what he's saying.  His actions prove he's serious.  If the chief executive did not believe Qantas's future was at stake, he would not have shut down the company and risked irreparable harm to staff relations, to customer relations, and the company's brand.

It's as close to betting the firm as you can get.  And the board of Qantas would not have allowed Joyce to do what he did if it did not think what he did was necessary.  Clearly, the company's owners thought Joyce did the right thing, which is why the Qantas share price jumped on Monday morning.

The politicians might not like it and the Qantas ground staff, engineers, and pilots might not like it either, but ultimately the future of the company rests with its owners -- not anyone else.

That's the situation under the law and it's the commercial reality.  The responsibility of Qantas's management to the owners of the company is something that's been all but ignored in the past week.  It's cute that people have an emotional attachment to children in white shirts singing I Still Call Australia Home but this doesn't stop them shopping around for the cheapest fare to Europe.

In a world of ''stakeholder engagement'', a concept such as ''management prerogative'' is not much in vogue these days.  Keeping stakeholders happy is a nice thing to do, but that's a bonus.  If the company isn't around, there won't be any stakeholders left to keep happy.  The stakeholders of Ansett were probably quite happy, right up until the company collapsed.

The only interest the federal government has in Qantas is a political interest.  It suited the politicians just as much as it suited the company for Qantas to be handed special privileges as our ''national carrier''.

As yet, no one has ever defined what ''national carrier'' means.  No doubt Qantas management doesn't like being preached to by government ministers, but that's the price the company has to pay for the government keeping out the competition.

The interest of Qantas employees is their own continued employment on the best possible conditions.  The pilots' union can talk all it wants about how Qantas planes should be flown by ''Qantas pilots'' (by which the union means that the company should not at any time in the future employ pilots on lesser conditions than they now enjoy) but that's a decision for the company's owners to make.

Sometimes the interests of company employees and company owners coincide.  At least that's the theory.

Qantas is an instance where that theory breaks down.  The way our system of corporate governance works is that when push comes to shove, it's the owners who have the final say over running the company -- not the employees, and not the government.

If Qantas employees want to run Qantas, they can;  they can buy the company and turn it into a workers' collective.  If the government wants to run Qantas, it can nationalise it.

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The battle between political and economic freedom

It's the ultimate political chicken and egg question:  which comes first, economic freedom and the market economy, or political freedom and human rights?

Of course, some claim the chicken has no relation to the egg at all.  Or worse, chickens are constitutionally incapable of providing eggs -- many argue that free markets actively encourage political and civil repression.

The interaction between market freedom and social freedom is one of the most important questions in development.  It's crucial to the future of China and the Arab world, and it animates much of the revived anti-capitalist movement.

So a recent paper by two European economists, Indra de Soysa and Krishna Chaitanya Vadlamannati, is extremely important.  Published in the journal Public Choice in July this year, the paper sets out to determine, as empirically as possible, whether human rights violations truly are the unhappy companion of pro-market economic reforms.

Soysa and Vadlamannati compare two sets of data.  The first is the CIRI Human Rights Dataset, which assesses human rights practices in 195 countries -- in particular the rights not to be tortured, summarily executed, imprisoned for political beliefs, or to be ''disappeared''.  Using US state department and Amnesty International sources, the coordinators of this dataset give each country a single human rights score.

The second is the Fraser Institute's Economic Freedom of the World Index, which assesses 42 indicators of economic freedom -- from property rights to tax rates to the regulatory burden -- also spitting out a single score.

These are the two most comprehensive and authoritative indexes we have at the moment.  Soysa and Vadlamannati also control for other factors which might affect the results:  a country's size, for instance, can make governing hard and therefore make repression more likely.  Same with entrenched ethnic differences.  By contrast, economic growth calms both population and government, so they control for that too.  The famous ''resource curse'' has unpredictable effects, so they also factor in how dependent each economy is on oil exports.

And, critically, the authors control for democracy.  Just because a country is democratic provides no guarantee human rights will be protected.  The tyranny of the majority makes democracy an unstable foundation for civil liberties -- unless there are significant countervailing pressures like a liberal culture or a free economy.

Even after taking all those factors into account, Soysa and Vadlamannati find that market-orientated economic reform is unambiguously beneficial for human rights.  Between 1981 and 2006, freer economies have been freer societies.

This shouldn't be a surprise.

Market reform takes economic power away from political interest groups.  Indeed:  it eliminates much of the financial reward from politics.  In a market economy there are none of the vast sums of money to be made controlling nationalised industries.  Economic freedom undermines power rather than strengthens it.

Property rights are revolutionary -- reorientating sovereignty from the state to the individual.  And private competitive industries mean people do not have to rely on the government and patronage for employment.

The liberating effects of economic freedom are particularly strong in the developing world.  In the 20th century, many poor countries merged their traditional autocracies with socialist economics.  The result was corrupt bureaucracies and networks of political power controlling entire economic systems.

Of course, market reform in these countries has to be done well.  Crony capitalism can easily perpetuate corruption -- an issue faced by countries like China.  But when reform is done well, it breaks down those entrenched power structures.

So then why have we heard for the last two decades that market reform and globalisation are threats to human rights?

Many academics specialising in ''globalisation studies'' have long argued that humanity is being trampled by a single-minded race for corporate profits.  And Naomi Klein's bestselling Shock Doctrine:  The Rise Of Disaster Capitalism claimed the greatest human rights violations of the last 35 years have been by governments terrorising their own population to prepare for privatisation and market liberalisation.  For Klein, political repression is a necessary precursor to free market reform.

Soysa and Vadlammanati's paper demonstrates just how wrong this claim is.  And how desperate.  The first-comes-privatisation-second-comes-murder story is apparently too seductive to check.  Perhaps that's because it gives otherwise dry debate over political economy a moral dimension.  But more likely because it implicitly claims corporate power is more dangerous than state power -- exactly the story you'd want if your goal was to increase state intervention in the economy and society.

The Public Choice paper finds that even edging towards economic reform is positively correlated with human rights protections.  For the chicken and the egg question, this suggests economic freedom comes first.

Market reform is good for human rights.  The corollary is true as well:  reversing that reform, or simply delaying it, can be bad.  We should be worried how the global financial crisis has taken much of the energy out of pro-market reform in the third world.  Combine lack of reform with an increased likelihood of political unrest when economies stagnate, and the risks to human rights over the last few years have grown substantially.

The anti-globalisation crowd -- by fighting economic reform in poor countries -- could be unintentionally encouraging the human rights problems they claim to oppose.  Economic freedom and political freedom are part of the same package.

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Free trade reform must look beyond tariffs

The Gillard Government's recent rhetoric on free trade deserves praise.  Now they have to deliver.

At a CHOGM business forum last week the Prime Minister vowed to scrap all remaining tariffs for developing country imports into Australia.

Gillard reportedly said ''Australia will continue the strongest possible commitment to market access for the world's poorest countries, irrespective of the settlement of other issues in the Doha Round''.

Her comments come off the back of Trade Minister Craig Emerson's recognition last week that the World Trade Organisation's Doha round of negotiations is going nowhere.

Emerson's right.  What's surprising is that it has taken him this long to figure out, or at least say what everyone else in trade policy has known for years.  He's now trying to lobby WTO members to start negotiating bite-size liberalisation pieces where agreement will be easier to secure.

That won't be an easy task considering the perfect tango that needs to be achieved to get rich countries to cut their agriculture subsidies and developing countries to slash tariffs on industrial goods.  And that's before there's any focus on an extensive number of substantive, but peripheral issues.

Emerson is more likely to achieve his free trade agenda at home.  In a speech to the Lowy Institute last December he correctly outlined that ''domestic economic reform is essential to lifting productivity growth and through it the international competitiveness of Australian businesses ... [and that the Gillard Government] will continue to devote enormous energy to opening up other countries' markets, gaining market access for our exporters''.

He continued arguing that the spirit of the Hawke, Keating and Howard government's efforts in cutting trade barriers should be reinvented during the Gillard Government.

Gillard's CHOGM statements would appear to be an adoption of Emerson's ideal.

But there are two problems for the Prime Minister in achieving her objectives.  First, there are virtually no tariffs left to scrap.  And second, Australia's fragile free trade consensus has crumbled.

Despite the rest of the world not following, Australia (with New Zealand) led the rest of the world in the 1980s and 90s in liberalising tariff barriers.  Some remain but are trivial;  though they should be scrapped.

For many developing countries promoting growth through trade requires them to cut their self-imposed barriers against each other.

To truly live up to the Hawke/Keating/Howard legacy the real task for the Prime Minister is to actually re-form Australia's fragile free trade consensus.

The liberalisation of that time period existed because both the government and opposition supported trade reform.

All that remains of that consensus is a no-tariff policy.  But free trade covers more than tariffs.

On liberalisation grounds the ''benefit'' of tariffs is that they are transparent and easy to phase out because their economic profile is straightforward.

But while both sides of the political aisle have been cutting tariffs, protectionist non-tariff trade barriers have been increasing over time.  Non-tariff barriers are far more insidious because they're successfully paraded as ''justified'' based on alternate policy grounds and include subsidies, local content requirements, certification of origin requirements and quarantine, to name a few.

What's ignored is that non-tariff barriers have a damaging economic profile just like tariffs.  They are just more opaque.

When Australian Workers Union head, Paul Howes, argues for ''local content requirements'' to help Australian producers it means local businesses are saddled with extra costs that make them less competitive in the international marketplace.

And this is a growing bipartisan trend supporting the introduction of non-tariff barriers on perceived ''environmental'' grounds.

Recently a greens group-backed bill designed to foster consumer boycotts against Australian food and cosmetic manufacturers who use palm oil as an ingredient nearly came into law.

The bill was introduced by independent Senator Nick Xenophon, but puzzlingly was supported by Opposition in the Senate.  Puzzling because free trade isn't a fad for liberals;  it is a load-bearing philosophical pillar.

Ultimately the bill failed in the House of Representatives after the Opposition finally realised it was not compliant with international trade rules.

The whole process is now being repeated as a greens-backed bill to add costs to wood imports is likely to pass the Parliament in an effort to tackle ''illegal'' logging.

The bill has the backing of the Government despite its own-commissioned advisers completing an analysis showing Australia's imports of the offending material was non-existent and that the bill's requirements would have virtually no effect.

Other policy concerns are also trumping trade liberalisation.  Not scrapping non-tariff import restrictions on copyrighted books on the misleading grounds that they protect local culture was another free trade failure.

Non-tariff barriers like these are precisely the policies Gillard and Emerson need to stare down if they want to unilaterally liberalise and maintain global leadership on trade.

Both add costs and restrict market access to Australia for developing country primary industry imports.  More concerning is that they target industries based in rural industries that already lack the greatest opportunity to harness the economic opportunities of globalisation.

In Emerson's speech to the Lowy Institute last year he correctly highlighted that ''unilateralism in tariff reductions incidentally gave Australia credibility in international trade negotiations way beyond the relative size of our economy''.

If Emerson and Gillard want to be successful in tackling the challenges of global trade liberalisation that same credibility will be needed again.  But it requires staring down protectionist sentiment across the political divide at home.

Pre-commitment policy will punish all gamblers

One of the criticisms of proposals to restrict the use of poker machines is that it will hurt non-problem gamblers in the cause of helping problem gamblers.

MP Andrew Wilkie's insistence that the Gillard government introduce mandatory pre-commitment conditions for playing the pokies is like trying to crack a walnut with an anvil.  Yet the Gillard government is prepared to crack problem gambling with a heavy-handed policy proposal because its political survival rests on implementing Wilkie's gambling policy wish list.

Part of Wilkie's crusade against poker machines is motivated by a heavy dose of emotive moralising.

For example, in a letter of appreciation to the GetUp! lobby group Wilkie stated that problem gamblers tore apart families and referred to pokies as the ''crack cocaine'' of the gambling industry.

If there is any semblance of reasonableness that the Tasmanian MP portrays when making his anti-gambling arguments, it is when he draws from his suitcase the Productivity Commission's 2010 inquiry report on Australia's gambling industries.

Jenny Macklin, the minister charged with implementing Wilkie's policy demands, also has drawn heavily from the PC's analysis when outlining claims about the prevalence and effects of problem gambling.

In a political environment increasingly dominated by demands for policies to be informed by a credible evidence base, an inquiry report packed with big numbers can seem compelling at first glance.  The PC stated that the numbers of Australians categorised as problem gamblers averaged about 116,000.

Not to be outdone, there are about 279,000 people the PC characterises as being at moderate risk of forming problem-gambling behaviours.

These numbers suggest that almost two-thirds of people who play poker machines weekly or more are problem gamblers or at moderate risk of becoming so.

The PC also undertook the task of estimating the amount of expenditure by problem gamblers on poker machines, finding that the share of total spending on pokies by problem gamblers averaged 41 per cent.

Read in isolation the PC's numbers have provided powerful ammunition for those groups already predisposed against gambling activities to argue for even greater restrictions.

As the critics of the PC analysis have already pointed out, when viewed in a broader perspective the numbers of problem gamblers in Australia are a small, and falling, minority among the adult population.  However, a closer inspection of the PC gambling inquiry report does raise questions about the veracity of the estimates.

For a start there appears to be a lack of statistical weighting in the PC's numbers of the variations in the size of the adult population across the states and territories, and not to mention differences in the availability of poker machines because of population size and other issues such as varying regulatory standards.

Another issue is that the PC has drawn on outdated survey data when making estimates of the lower and upper bounds of problem gambler numbers.

On top of this, there is a mixing of problem-gambling screen survey results as far back as 2001 right through to 2009.

The problem with the use of older surveys is that it might contribute to an overall inflated estimate of the prevalence rate of Australian problem gambling, particularly when couched against later surveys showing lower prevalence rates.  If we take the most recent gambling screen survey results and account for state population variations the national problem-gambling prevalence rate is 0.49 per cent of the adult population, or about 75,300 problem gamblers.

Taking into account that the PC believes between 75 per cent and 80 per cent of problem gamblers use poker machines the numbers targeted by the proposed policies drops to between 57,000 and 60,000 people.

What has not been given serious attention is that there are even lower numbers of gamblers who vote with their feet and seek counselling and referral services, arguably the best evidence we have on the true extent of the problem gambling.

Analysis also suggests that expenditures by problem gamblers on poker machines may range between $1.2 billion and $2bn in total spending by Australians of $11.9bn on the pokies, or at least half that presented by the PC.

In fairness, the PC stresses the problems of inconsistent survey and other data repeatedly through its gambling inquiry report and rightly recommends national consistency in the application of problem-gambling prevalence surveys.

However, such warnings appear to have been ignored by Wilkie, who is prepared to advocate a gambling policy that would override the freedom of Australians to use their own money as they see fit, in what is an iteration of the nanny state.

Given the intrusiveness of the proposed policy, including its detrimental effects on local clubs and pubs, to claim that ''near enough is good enough'' on the evidence base just doesn't stand up to scrutiny.

How Tony Abbott should fight the culture wars

The best way for Prime Minister Tony Abbott to win the cultural wars might actually be to withdraw the government from them.  One of the greatest criticisms conservatives have levelled at the Howard government is that it failed to win the culture wars, despite its eleven and a half years in government and many other successes.

When the Coalition government fell in 2007, the ABC remained hostile to conservatives and an outpost for cultural liberals, universities continued to be not just a safe haven for the Left where conservatives continued to feel unwelcome, but a veritable factory of progressives, and our cultural elite was overwhelmingly dominated by prominent leftists.

To succeed where John Howard failed, Tony Abbott will have to approach the cultural wars in a totally different fashion.  Instead of trying to beat the Left at its own game, Abbott needs an agenda that fundamentally changes the cultural wars.  It is also crucially important that this agenda has its own rationale beyond simply being seen as an effort to use the power of government to benefit one side of politics.

In short, Tony Abbott needs to get the federal government out of the cultural wars.  After all, why should taxpayers' money be spent fighting partisan or even ideological battles?  For a start, there are far better ways to spend taxes -- or even better, not spend them at all, and leave them in the pockets of Australians -- than an effort to prop up one's own side of a long-running argument.  The use of compulsorily acquired funds to push causes dear to the hearts of our elected representatives is not an activity government should be involved in.  Australians should not be forced to fund political causes they may disagree with.

Continuing to use the power of government to benefit one side of the cultural wars over the other will simply ensure that the culture wars ebb and flow as government changes.  Recent history has also shown that the Left is much better at using government to favour its side of the culture wars.

A new approach is needed.  Direct government intervention in the cultural wars should be wound back so that it has a neutral impact on them.  Of course, given the extensive succour government policy has given to the Left in the cultural wars, a reversion to a neutral position would naturally benefit the broad Right in Australia.  But it would allow cultural warriors to fight each other on their own merits, rather than with an unfair advantage.

Broadly understood, the cultural wars during the Howard years were about Australian identity.  They were about who gets to define what it is to be an Australian, and the terms by which it was defined.  Is Australia a xenophobic, cultural backwater that is lucky to be as wealthy as it is?  Or are Australians tolerant and creative people who made their own luck?  Is our past something to be proud or ashamed of?  Key battlegrounds in the cultural wars were Australian history and the way it is taught, the media and public debate, political correctness and patriotism.

In 2003 Julia Gillard, then a humble member of the opposition front bench, issued a call to arms for the Left to take on the Howard government in the culture wars.  She despaired that progressives were being outgunned, chiefly thanks to the work of prominent conservative newspaper columnists, who in her words engaged in ''pure and simple propaganda'' to ensure that ''progressive views are lampooned'' and ''howled down''.

In 2006, shadow Foreign Minister Kevin Rudd also entered the cultural wars, with two seminal articles for the Monthly magazine.  The first argued that John Howard used ''right-wing Christian extremism'' as the ''handmaiden in his political project to reshape Australia''.  The second, published one month before Rudd's election as Labor leader, argued that Howard's economic policy was defined by ''free-market fundamentalism'' and that the cultural wars were merely cover for his neo-liberal agenda.

During the Howard years, leading Labor politicians were thinking deeply about how to use their eventual return to government to reverse any gains conservatives had made in the culture wars.  Now is the time for Tony Abbott to begin thinking about how his prime ministership will influence these long-running battles.  There is much to learn from recent history.

In many ways the tactics employed by the Howard government in the cultural wars actually set back the cause they were trying to advance.  For instance, the appointment of prominent conservatives to the board of the ABC was unsuccessful at changing the tune of the public broadcaster.  Instead, it just gave the Left ammunition in their argument that the Howard government had a political agenda when it came to the ABC.  Of course, the Left does not need to stack the board of the ABC in an effort to ensure that coverage is sympathetic to their ideology, because the staff of the ABC are already of the Left.  Being drawn from universities taught by progressive academics, residing primarily in the inner cities and choosing to work at a publicly funded broadcaster means that by a simple process of self-selection (rather than sinister design) the ABC is full of people who think in remarkably similar ways.

Another example of an effort to advance their agenda in the cultural wars that backfired is the debate about values in education.  The Education Minister, Brendan Nelson, proposed that a statement of values should be used to inform teachers about how to teach students about Australian history and culture.  He even drew up a list of nine values and earmarked $30 million of funding to ensure they were taught Australia-wide.

His successor as Education Minister, Julie Bishop, took this development to its next logical step by calling for a national curriculum to be agreed to by the states.  Bishop argued that state curricula had been hijacked in many cases by Maoists.  Other more pedestrian arguments were also made in favour of a national curriculum, such as the efficiency benefits of having a seamless national education system.

As we have since seen, the Labor government has used the pretext of efficiency set out by the Howard government to draft its own national curriculum of a highly ideological nature.  The ALP's proposed national curriculum is egregiously biased with an over-emphasis on Asian and Aboriginal histories at the expense of teaching children about the history of Western civilisation.  It implies that human rights come from modern NGOs such as the United Nations, rather than from the development of Christian philosophy during the Enlightenment.  Indeed, one of the key drafters of the curriculum admits that its only mentions of Christianity are unfavourable.  The concept of ''sustainability'' is embedded throughout the document, as are highly contestable ideas such as the problem posed by the ''energy crisis'' and dwindling natural resources.  The document even admits that it sets out to ''shape'' the next generation of leaders, rather than just teach them.

This curriculum, which amounts to a campaign document of the Left in the cultural wars, will be the basis on which every child in Australia will be taught in the future.  And it was made easier by the precedent set down by ministers in the Howard government.  It has totally hamstrung the position of Tony Abbott's Opposition -- after all, they can't rely on the argument of federalism to discredit the scheme, given they were all too happy to junk it for their own curriculum.

The Howard years were not a complete failure on the cultural war front.  There is no doubt that Australia was a prouder and more patriotic nation in 2007 than it was in 1996.  The celebration of our war heroes on Anzac and Remembrance days has rarely been more widespread.  The resurgence during the Howard years of the Australian flag as a symbol of national unity is an important development.  Some reforms, like extending the concept of voluntary unionism to students on campus, enhanced individual freedom in concert with classical liberal philosophy, and also marked important victories against the Left in the cultural wars.

But the true test of success in the cultural wars is not what you can achieve while your ideological allies are in government, but how much of it endures after they leave office.  By this standard the Howard years and its immediate aftermath demonstrate that the Left is better at using government to fight the culture wars.  From an ideology that is based on collectivism and state power, this should not be surprising.  But the centre-Right can turn to the basis of their own philosophy, not only to develop a coherent and effective alternative strategy, but also to buttress other reforms that are important in their own right.

Core classical liberal philosophies of choice, individual freedom and small government should inform a comprehensive agenda that advances personal liberty in Australia and has the added benefit of removing the culture wars from state influence.

Arguably the Howard government's greatest victory in the cultural wars was the significant expansion of private school education.  According to the Australian Bureau of Statistics, the proportion of students enrolled in non-government secondary schools increased from approximately 34 per cent in 1996 to nearly 40 per cent in 2007.

Private education was a significant battleground in the culture wars during the Howard years.  The union movement, particularly the strongly left-wing Australian Education Union, accused the Howard government of undermining public education.  The Labor Opposition at various times promised to reduce federal government support for private schools.

The growth in private schooling was a win for conservatives in the cultural wars because fewer students were being educated in the highly unionised public system, and more were attending private and religious schools where many parents believed that a greater emphasis was placed on values.  Many conservatives fear that students in public schools are either being taught in such a politically correct manner as to degrade the quality of their education, or else they are exposed to biased teaching that gives them a skewed view of the world.  As a graduate of public schools, I experienced and witnessed an educational culture that was both insufficiently academically rigorous and which tended to discriminate against conservative views.

Significantly, reforms to support private education were also consistent with liberal principles to facilitate parents' right to choose an education that best suits their children.  And the reforms were so successful politically that they created their own constituency to keep the system in place, something that has prevented the Rudd and Gillard governments from overturning them.  It also makes good policy sense-private school students generally perform better academically than their public system counterparts, even when controlling for the education and income of their parents.

This serves as a good template for reform for an Abbott government.  In fact, it is one policy which could easily be taken further both for its own sake and as a tool in the cultural wars.  One way to enhance parental choice in education is to move towards a system of vouchers that would fund all or part of the costs of educating students in the private sector.  Significant proportions of parents in the public system say that they would like to transfer their children into the private system if they could afford to.  Why not unlock the thousands of dollars that are spent on giving a ''free'' education to students in the public system, and let their parents spend that money at the private school they would prefer?

However, perhaps an even more important reform in education is to tackle the appallingly drafted national curriculum.  Unfortunately it appears that, politically at least, the idea of a consistent curriculum nationwide has advanced too far to be totally dismantled.  Whilst many on the Right would prefer to return responsibility for the curriculum to the states, that seems unlikely unless state governments stand up against the national curriculum on the grounds of states' rights.

A more plausible solution is to license multiple private curricula at the federal level.  Through a competitive process, private companies, religious institutions and school and community organisations could design a curriculum that met minimal broad standards.  Then, schools and groups of schools would be free to choose from a wide variety of curricula based on what they believe best suits their students.  Some might place a greater emphasis on learning foreign languages, others might focus on transmitting practical workplace skills, and others still might adopt a rigorous maths-and-science-focused curriculum.

This is a worthwhile reform because it allows for educational variety, helping parents to choose a school that suits their child's needs.  Empowering parents in this way would also mean that they can opt for an academic curriculum that will ensure their children can read, write and add up competently rather than one which indoctrinates them about climate change or social justice.  But those parents who really did want their children to have that sort of education would be free to choose it.

It's also likely that these tailored curricula would be too popular with parents for a future Labor government to overturn.  Importantly, such a reform takes power away from the federal government in determining exactly what children are taught, and instead places this in the hands of parents and schools, moving the culture wars out of the realm of government.  This avoids the mistakes of the Howard years, which in effect handed their political and ideological opponents the perfect platform to institute a highly politicised curriculum for all students.

Universities are another area where the Howard government failed to have a major impact.  Whilst worthwhile reforms did take place, particularly in the government's earlier years, universities remain inefficient organisations and havens for left-wing ideologues who subsist on public money.  Various proposals were aired during the Howard years to tackle this problem.  Any proposal to involve the federal government to a greater degree in education, whether to stamp out bias or supposedly enhance the standard of education, is both unlikely to work and would be too easily used by activists of opposing political stripes to simply slant the field in their direction again when they return to government.

Instead, further market-based reforms to the higher education sector are needed.  For a start, caps on the number of students that can be enrolled in each course should be lifted, so that universities can admit as many students as they see fit.  Price caps should also be deregulated.  Currently low caps mean that universities typically charge less per student than the actual course costs to deliver.  The cost of education should be reflected in the price, even if government continues to subsidise students directly to undertake higher education.  A price that more accurately reflected the cost might lead to students being more conscious of the need to undertake study that actually enhanced their earning capacity, rather than subjects that have little application in the real world.

As with secondary education, government funding could be redirected to each student via a voucher system rather than going straight to the institution.  This would help transform the relationship between the university and its students to more closely resemble a customer-provider relationship, and empower students.  This might encourage academics to be more responsive to student demands rather than their own political peccadilloes.  Furthermore, this is clearly a reform which fits comfortably in the liberal tradition of promoting choice for students, and would also reduce the role of the federal government in regulating higher education.

Australia's national broadcaster has long been regarded as enemy territory to those on the Right.  To be clear, bias at the ABC is very rarely of a crude partisan nature.  It is true, as the defenders of the organisation protest, that both Labor and Liberal politicians almost always get an equally tough run on its flagship political programs.  Nor is bias at the ABC likely to be part of some conscious, sinister plot to indoctrinate the Australian people.  It is simply the product of the homogenous worldview of staff who are overwhelmingly drawn from similar cultural and ideological backgrounds.

Many ABC staff genuinely believe that the only reason you would be a climate change sceptic is if you are mad or the recipient of funding from a major polluter.  The idea that a tough approach towards refugees is a reasonable response to increased arrivals of asylum seekers is frowned upon by many.  And the idea that some people genuinely oppose gay marriage and are not also religious fundamentalists or intolerant bigots is hard for some to grasp.  That is the inevitable product of being educated amongst, socialising with and working alongside people who have similar views.

But that doesn't mean it isn't a problem.  As a publicly funded broadcaster, the ABC is obliged to treat the views of all Australians with respect and ensure that its reporting remains free of bias.

The public policy rationale for a government-funded broadcaster is also not nearly as strong as it once was.  The availability of digital spectrum means that commercial broadcasters are providing a much broader array of programming than ever before.  Niche channels and programs are now financially viable, unlike the times when limited spectrum forced commercial broadcasters to appeal to the broadest possible audience.  The development and growth of the internet also mean that virtually cost-free content of every imaginable variety and to suit every possible taste is now extraordinarily accessible.

So there is a case for changing the relationship between the ABC and the taxpayer.  Whilst public support for the outright privatisation of the ABC may be decades away -- or never materialise -- the further corporatisation of the ABC and the requirement that it raise more of its own revenue is reasonable, particularly in fiscally straitened times.

Already, the ABC operates commercial outlets that sell books, DVDs, CDs and other ABC-branded and private products at a profit.  Naturally, the next step to securing more revenue for the ABC from private sources is advertising.  This case is particularly strong with its online presence, which although high quality, is directly competing with private providers, including newspapers who are having their business model undermined by free content online.  If successful, it could be expanded to other media offered by the ABC.

The advantages of this reform are two-fold.  First, the ABC, which currently costs taxpayers almost $1 billion per annum, would become more self-sufficient and require less public funding.  Second, by taking on advertising, ABC management would have much greater incentive to deliver content that is actually in demand by Australians, rather than pet projects of ABC staff or programs that only appeal to a very narrow proportion of Australians.

Institutionalising the need to appeal to a market would also do far more than the appointment of conservatives to the board of directors to ensure ABC content was relevant and accessible to Australians.  As with other reforms proposed here, it would at least begin the process of reducing government participation in the cultural wars -- the more self-sufficient the ABC is, the less legitimate interest politicians of any stripe will have in intervening in its management and programming.

Although all governments have been occasionally guilty of using public funds to fight ideological wars or for partisan advantage, this has increased markedly in recent years.  A number of overtly political and ideological organisations now receive significant taxpayer resources to engage in activity that is much more appropriately funded by private supporters.

For example, my freedom of information requests recently revealed that the Climate Institute, which campaigns for the introduction of a price on carbon, was awarded $70,000 to help fund a supposedly independent report that argued that Australia was falling behind the rest of the world in its efforts to tackle climate change.  The government then went on to quote this report as evidence that Australia needed to take greater action to address climate change.  In an effort to bolster its credentials the government has also touted the support of the Climate Institute for its carbon tax package.

This kind of overt politicking using public money is highly improper.  My other recent research has shown that a slew of environmental groups receive significant public funds that could be used to cross-subsidise their political activities.  Nor are they the only ones.  Refugee advocates have also been on the receiving end of public money.  Even the union movement received millions of dollars in a recent federal budget, purportedly to help train workers about health and safety, but you don't have to be cynical to suspect that the funds had political motivations.

The answer for conservatives is not to turn around in government and simply replicate this process but with a conservative bias.  Instead, an Abbott government should establish clear regulations or even legislation that prevents the federal government from funding organisations that engage in ideological campaigning.  This would help get the government out of funding participants in the cultural wars.  Admittedly, it is entirely possible that a future government would simply overturn this legislation and recommence supporting like-minded organisations.  But at least they would be forced to publicly reverse this policy and bear the resulting public opprobrium.

The generous public funding of the arts in Australia has been a highly successful tool for progressives in advancing their side of the cultural wars.  Aside from sustaining the Left's ideological bedfellows who would otherwise potentially have to seek employment elsewhere in the economy, government support of the arts sector has arguably contributed to its loyalty to the Left of politics.  It is no coincidence that so many of Australia's actors, artists, writers and musicians favour left-wing politics.

The political preferences of artists are a matter for them, but public money should not go towards projects that are ideological in nature.  In an excellent article for the June edition of Quadrant, Michael Connor wrote about the overt politicisation of publicly funded artistic events, including writers' festivals (which rarely, if ever, invite conservative authors), drama festivals and support for creative works through bodies like the Australia Council and the Arts Industry Council.

While it would unquestionably be politically difficult to withdraw all government support for the arts, there may be ways of delivering support that would be less likely to lead to politicised outcomes.  Rather than the current system of grants administered by bureaucrats, which encourages artists to pitch ideas that are politically trendy, support could instead be delivered in the form of expanded tax-deductibility for artistic endeavours.  This would introduce at least some element of market rationality to the sector, as successful -- that is, popular -- events and works would benefit more than works that have little interest or resonance with the community.  It would also encourage the sort of risk-taking in art that every entrepreneur has to face when starting a business.  Again, it would represent the government taking a backward step out of the culture wars instead of weighing in on one side of the fight.

The clear lesson from the Howard years is that the Right should be highly wary of using the power of the state to advance their side of the cultural wars.  Often, it was unsuccessful.  Worse, it sometimes backfired and made the job of their ideological opponents much easier.  It would be far better for the next Coalition government to adopt a totally new approach to the cultural wars.

Tony Abbott should get government out of the cultural wars.  Not only is this much more likely to advance his own side of the conflict, it is also consistent with conservative principles.  The true strength of this approach is that because of its lack of reliance on control of government spending and regulatory power to fight the culture wars, the important wins that are achieved stand a much better chance of enduring a change of government.  What's more, applying liberal philosophy to a comprehensive cultural reform agenda will also lead to much-needed sensible policy changes that will enhance individual freedom and reduce the size of government in Australia.

This will not guarantee that conservatives triumph in the cultural wars.  But it will ensure that the cultural wars are not fought by taxpayer-funded mercenaries.  The alternative, simply to re-engage government in the service of one side of the battle over the other, guarantees that it will continue on forever and waste an extraordinary amount of taxpayers' money in the process.

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