Sunday, November 06, 2011

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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Friday, November 04, 2011

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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Wednesday, November 02, 2011

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.

Tuesday, November 01, 2011

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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Monday, October 31, 2011

Union militancy just doesn't fly

Qantas is fighting for its life and had no option but to take strong action.

The Qantas action to bring its disputes with unions to a head is justified.  The federal government's fair work system, combined with rising union militancy, has led to this very serious impasse.

The bargaining for agreements with the three protagonist unions has been exhaustive.  Negotiations with two of the unions commenced more than 12 months ago and the parties have held more than 200 meetings.

The scenes of union members marching through terminals were confronting.  They wore vests, carried banners and were shepherded by union officials bellowing into megaphones.  It appeared the chants were meant to convince travellers the delays they were to experience were justified.

The disputes have been fierce.  There have been reports of intimidation of workers who didn't join union action, threats, and damage to property.  Inflammatory comments have emanated from both sides.  Union leaders have warned us against flying with Qantas before Christmas.  It now appears many travellers took heed.

The parties say they have settled significant parts of the claims.  The confrontation appears to come down to a fundamental issue:  the airline needs to be able to run its own business.

The pilots' association wants Qantas pay and conditions to apply on all flights with subsidiary airlines.  Jetstar would be less competitive and its current agreements would be overruled.

The engineers' union wants to protect jobs by refusing to entertain work changes that accommodate procedures for new generation aircraft.

The Transport Workers Union, which covers baggage handlers, ground staff, catering and freight employees, is trying to limit, if not prevent, the use of contractors and labour-hire employees to meet peaks and troughs in operational demands.

Qantas claims the industrial action was causing losses of $15 million a week.  The unions were sending signals of intensifying the industrial action.

Qantas was faced with draining losses over a long period.  Acceptance of the unions' more contentious claims would jeopardise the survival of the company.  Qantas management is to be congratulated for refusing to stand by and let this happen.  In the end Qantas had no option but to take strong action.

Why did the dispute get to this juncture?  The tactics adopted by the unions are symptomatic of other disputes.

Union officials are using the new bargaining rules to orchestrate protracted negotiations for an enterprise agreement.  Industrial campaigns involving bans, strikes, belatedly cancelled strikes and media attacks are now common.  Qantas is the most recognised example, but similar protracted campaigns have affected Toyota, BHP coal mines, customs, police, buses and public servants.

Australian Bureau of Statistics data show an increase in most measures of industrial disputation for the June quarter of this year.  Working days lost rose from 20,000 in the March quarter to 66,000 in the June quarter.

Construction industry numbers are the worst for seven years.

The unions now display a confidence that the Fair Work Act has given them an enhanced ability to beat employers into submission.

Union militancy may have been tolerated in decades past, but it is an economic anachronism in today's connected and competitive world.

Unsurprisingly, militancy is not helping the unions.  Membership remains stuck at low levels.  Coverage has fallen to 14 per cent in the private sector and 19 per cent overall.

Unpleasant outcomes are on the horizon.  A short-sighted game is being played.  It will unravel when the economy deteriorates, if not before.

Workplaces with diminished employer/employee engagement will be less efficient.  Inflexible agreements and rules constraining employment options will limit responses to tough trading conditions.  Employers will respond by driving down labour costs, employing fewer people and transferring jobs offshore.

The ramifications of this dispute will play out for a long time.  It should become a catalyst for change to the rules governing bargaining and agreement making.  Union militancy should be consigned to history.  If not, Australia will continue to suffer economic damage.


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Friday, October 28, 2011

A throwback to union militancy

The television scenes last week of union members marching through airport terminals were arresting.  They wore vests, carried banners and were shepherded by union officials bellowing chants from the ubiquitous megaphone.  It appeared the chants were meant to convince travellers the delays they were to experience that day were justified.  To me it was further proof that Australia's union leadership is losing touch with the Australian community.  It was a throwback to the days of union militancy and arrogant union officialdom.

The federal government is today seen as disconnected from the issues and concerns of many Australians.  The disconnect apparently applies to those Australians categorised as its traditional heartland, the workers.

One frequently identified problem for the ALP is that too many of its parliamentary representatives are former union officials.  This predicament is now exacerbated as union officials themselves increasingly appear to be out of touch.

Both organisations joined in 2008 to leave Australia with an awful legacy, a fair work system that has major faults.  A system that is damaging workplace efficiency and the capacity to optimise incomes and jobs growth, while also entrenching union privilege, notwithstanding an alarming fall in union membership.

A major fault with the system is rapidly becoming registered in the public's mind.

Union officials are using the new bargaining rules to orchestrate protracted negotiations for an enterprise agreement.  Industrial campaigns involving bans, strikes and belatedly cancelled strikes are commonplace.  Qantas is the most recognised example.  Similar protracted campaigns are affecting Toyota, BHP coal mines, Customs, police and public servants, while campaigns are being planned for health and other areas of public sector employment.

Behind these campaigns, which target large employers, is a malaise affecting smaller businesses.  The new multi-layered system of National Employment Standards, awards and agreements is a disincentive to pursue creative agreements with workers.  Most take the easy option of paying the standard award or copping the union-endorsed agreement for their particular industry.

Union officials are also determinedly pursuing two other damaging strategies.  They are attempting to expand their rights of entry to workplaces.  Many workplaces that hardly ever saw an official are now logging numerous entries.  Clauses that expand the right are now commonly sought when bargaining for new agreements.

Independent contracting and labour hire are generally beyond union control.  As a result, unions now seek to limit the capacity of firms to engage contract labour on terms that suit the employer and help the business remain competitive.

Union militancy may have been tolerated in decades past.  But it is an economic anachronism in today's connected and competitive world.

Unsurprisingly, militancy is not helping the unions.  Membership remains stuck at very low levels, with coverage falling to 14 per cent in the private sector and 19 per cent overall.

Unpleasant outcomes are on the horizon as a short-sighted game is being played.  It will unravel when the economy deteriorates, if not before.

Workplaces with diminished employer-employee engagement will be less efficient.  Inflexible agreements and rules constraining employment options will limit responses to tough trading conditions and employers will respond by driving down labour costs, employing fewer people and transferring jobs offshore.

An inquiry into the fair work legislative framework is scheduled and it has the hallmarks of a whitewash.  A thorough review is needed.

We have to urgently consider reforms to the labour market that will take up the opportunities of our current strong economy and consolidate the gains for future prosperity.

The features of the system that encourage arrogant union militancy must be changed.  Union leaders need to become more mindful of the aspirations of most Australians.


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Thursday, October 27, 2011

''Occupy'' must understand there is nothing fundamentally wrong with banking

It is all too easy to dismiss the Occupy Wall Street protests in the United States and elsewhere over the past month.

After all it was almost inevitable that the assorted groups, ranging from communists to environmentalists and every other professional grievance movement in between, would tend to lack focus about what they're marching and camping out about.

Even so, it does appear that some of the anti-market sentiments expressed by their loudest protesting mouthpieces do reflect some ingrained, but mistaken, beliefs about the nature of the economy.

Some of the angered messages uttered by the occupiers are in fact similar to those one might occasionally come across in conversations with decent, hardworking, non-protesting kinds of folks in the outer suburbs.

A key criticism from some spokespeople in the protest movement concerns the workings of the financial system, and the bank bailouts during the 2008-09 global financial crisis.

There is no doubt that the financial system and its participants, including banks and traders of financial securities, have long been the subject of antipathy.  Even the Bible says that ''the love of money is the root of all evil''.

The economist Friedrich Hayek reckoned that hostile attitudes towards market activities are especially prominent in cases in which intangible services, rather than the exchange of physical goods, are being rendered.

Financial market services in particular tends to agitate those who believe that because a transaction is of an intangible nature, such as the lending of money at interest or the purchase of securities with the promise of a return later, then it is worthless at best or the product of black arts at worst.

Furthermore, it is claimed that any profits gained from such financial transactions must be underhanded in a zero sum manner in which the creditor or financier gains and the debtor or purchaser loses.

Perhaps to a great extent some of these hostile feelings towards the financial system might be due to a misunderstanding, or lack of comprehension, about the beneficial role of a functioning financial system for economic prosperity.

Fundamentally, the role of the finance sector in the modern economic system is to connect those in the economy who have saved part of what they earned with those who desire to borrow funds to invest in various ventures.

In other words banks and other financial institutions, when they function normally, play a constructive role in transferring financial assets to more highly valued uses.

And the beauty of a truly global financial system is that borrowers may tap into a greater pool of savings therefore securing credit at lower interest rates, while lenders have greater opportunities to diversify their financial portfolios that secure healthy financial returns.

That innumerable private sector operators, large and small, had to borrow funds to fill their financing gaps before producing the everyday conveniences we enjoy today is a point that seems to be lost on the Wall Street occupiers, and many non-occupiers for that matter.

And just like any other business, financial intermediaries have an occasional tendency to go bust.  While no financial institution or investment broker in Australia ceased operations during the 2008-09 global financial crisis episodes of bank failures, including as far back as the 1890s, have been a recurring feature in Australian economic history.

There is little question that the closure of any business, whether they be a corner store grocer to a bank with a multinational presence, is of great inconvenience to those personally involved in the venture.

That said the exit of firms usually acts as something of a cleansing process, in which private entities that cannot generate sufficient value get driven out of the market in favour of those who more effectively please their customers and thereby generate economic value.

It is from this perspective that the bailout of firms by governments, at taxpayer expense, is particularly reprehensible and should be opposed at every turn.

By preventing the closure of financial institutions on grounds that they were ''too big to fail'', governments effectively rewarded the practices of bank managers who engaged in overly risky financial practices prior to the GFC as well as shareholders who selected the managers who caused the banks to get into trouble in the first place.

The implicit transfer of wealth from poor taxpayers to rich bankers, who are prevented from being rendered poor as a consequence of bailouts, is another aspect of the bailouts that have not been lost on the Occupy Wall Street protestors.

Arguably the greater problem is what might occur down the track.

Having been rescued from almost certain insolvency by governments in the recent past, financial market participants expect that future governments will repeat a similar bailout strategy should another global economic downturn or significant episode of financial market dysfunction materialise.

And so an element of ''moral hazard'' becomes ingrained into the financial system whereby financiers are prepared to finance riskier economic ventures or purchase more securities of dubious financial backing, than would otherwise be the case, safe in the knowledge that a future government will rescue them anyway.

While it is convenient for the occupiers, with an inherent bias against market capitalism, to sheet home the entire blame for these unwelcome developments to the financial sector lobbyists who no doubt secured bailout arrangements much to their liking, they seem to miss the point.

As Germany's post-war Finance Minister, Ludwig Erhard, once said it is imperative for functioning markets to have strong-willed governments that are impervious to rent-seeking pressures from all vested interests who seek to transform the state into nothing more than booty to be ransacked at the expense of the general public.

To put simply the private sector banks and investment houses would not have received assistance, through the US government's Troubled Asset Relief Program (TARP) or other GFC bailout packages introduced throughout the OECD, if politicians credibly maintained a position not to negotiate with rent seekers and lobbyists.

In the United States, the epicentre of the GFC, there was precious little evidence of this stance being held by the Bush administration in any event.  In September 2008 then Treasury Secretary Henry Paulson hastily cobbled together a plan for legislative approval, including obligating the US Treasury to purchase up to US$700 billion of risky mortgage-backed financial securities.

Despite the confidence of President Bush that the bailout package would pass Congress, the House of Representatives initially rejected the plan on 29 September 2008.  With two-thirds of Democrats voting in favour of the plan the outcome hinged on the refusal by Tea Party Republicans to support the move.

Although the 2008 Tea Party position on this specific issue was virtually indistinguishable from the position of the 2011 occupiers, the Tea Party were nonetheless severely criticised for not bending to a strategy that rewarded financial market failures and extended the interference of the state in economic affairs.

Unsurprisingly the most trenchant critics of the Tea Party Republicans at the time were the political and business establishment that stood to gain from the deal.

The hysterical commentary in response to the initial fall in the Dow Jones share market index (which incidentally occurred just before the actual 29 September vote took place) only emboldened the rent seekers and weakened the resolve of politicians to reject, as a matter of principle, the socialisation of private sector financial losses.

There is certainly merit in the arguments that the responses by governments to the GFC not only consigned ordinary citizens to confront the overhang of unsustainable levels of public sector indebtedness, but it corrupted the integrity of the market process which is essential for the promotion of improved living standards and not to mention the amelioration of poverty.

But because of their prior disposition against markets, elements of the protest movement are not only arguing against bank bailouts but, on some accounts, for the abolition of private sector financial institutions and money itself.

If there is any example of throwing the baby out with the bathwater, this would be it.  For example if money as the medium of exchange were abolished then how could the coincidence of wants between individuals be reconciled?  Would the protestors successfully be able to barter their hand-woven baskets and hemp shirts for food, iPods, mobile phones or computers?

For some reason, that's perhaps little more than a hunch, I don't like their chances.

That the Sydney arm of Occupy Wall Street recently asked for state and local taxpayers to fund coal-fired electricity, wi-fi internet connectivity, motor vehicle parking spaces, tents, umbrellas and other paraphernalia would suggest even they realise they'd have a hard time in a world without money or capitalism.

While the denigration of the role of the financier in economic life represents something of a sport for the protest arm of the political left, a policy acceptance of the Occupy Wall Street positions on many aspects of capitalism would do nothing but cause irreparable damage to the lives of millions.


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Why doubt free trade with China?

On Wednesday Tony Abbott told The Age that he would make a free trade agreement with China less of a priority than one with Japan -- because China, he pointed out, is not a market economy.

Of course, there's nothing sacred about bilateral free trade agreements.  They're a poor cousin to multilateral agreements.  They can be written well or poorly.  A lot rides on their negotiation, and interest groups and rent seekers will want their say.

But the pros and cons of bilateral agreements plainly have little to do with the Opposition Leader's scepticism about a trade deal with China.

Last week's comments are not isolated.  Abbott also wants tougher laws against anti-dumping, to penalise goods subsidised by foreign governments.  With these policies, the Opposition Leader is close to endorsing retaliatory protectionism.

Abbott says he wants to ensure a ''genuinely level playing field with a fair go for Australian companies''.  In recent interviews, he has begun to talk not about ''free trade'' but ''free and fair trade''.

Abbott is not alone.  Barnaby Joyce also talks about his full-bodied support for free trade but only if it is ''genuine'' free trade.  The AWU's Paul Howes says, ''If trade is going to be on, it's got to be on a level playing field.''

Of course, the entire point of free trade is that the playing field isn't level.  The world isn't flat.  The world is very bumpy.  Different products are made more efficiently at different places.  Environmental, geographic and social conditions vary wildly.  If anything, the process of globalisation has emphasised just how different parts of the world are.

Free trade is beneficial precisely because the world is heterogeneous, not homogenous.

This applies even when those differences are created by deliberate public policy choices, not ''naturally''.

Yes, China is not a market economy.  As John Lee pointed out in Crikey last week, it would be flattering to even call it a mixed economy.  It is led and dominated by the state, rigged so state-owned enterprises are the main beneficiaries, and corrupted by industry plans and subsidies.

These are all bad things.  But to retaliate -- or, to use less-loaded language, compensate -- by bumping up our trade barriers would be compounding one error upon another.

We should feel sorry for Chinese taxpayers when they are asked to stump up for ever more industry subsidies, not resentful of them.  China is a developing country.  Yet it is taxing its citizens in order to prop up businesses.  Which then go sell their products below the market cost to rich countries.  These subsidies are a direct wealth transfer from third-world taxpayers to first-world consumers.

As Professor of Economics Donald J Boudreaux describes this perverse strategy:  ''To make its country's exports artificially more abundant and artificially less costly for foreigners to buy, a government taxes its citizens, effectively forcing people within that country to bestow benefits on people outside its boundaries.''

It's tragic.  But Australians are the beneficiaries of such misguided policies, not the losers.

There is no reason to believe the efforts of foreign governments to build industries using subsidies and industry plans will be any more effective for them than it has been for us -- that is, it will be entirely fruitless and extremely expensive.

So foreign subsidies do nothing to undermine the case for free trade.  Self-sufficiency is no virtue.  Just as it is nonsensical for an individual to make everything they need themselves, it is nonsensical for countries as well.  Free trade would be beneficial even if Australia was the only country in the world that believed in it.

The union movement offers one further objection to trade with China -- the Chinese government artificially undervalues the yuan, deviously making their exports more competitive than if their currency had been floated.

Perhaps.  Currency demagogues in the United States (where the strength of the yuan is a major political issue) have long pointed to the Economist's Big Mac Index, which compares the price of the iconic hamburger around the world.  It's a rudimentary but evocative test of currency health.  It measures a standardised product, allowing us some indicative comparisons.  The Economist found the yuan could be undervalued as much as 44 per cent.

At least it did until the index was drastically revised this year.  Big Macs should be cheaper in countries with low labour and land costs.  The index was adjusted to take account of that obvious complication.  Its revised data suggests the yuan is much less undervalued than everybody originally thought.

The Big Mac Index is certainly crude.  But we know an artificially low yuan is bad for China itself.  An undervalued currency is an effective subsidy to exporters at the expense of domestic consumers, raising the price of imports and increasing costs across the economy.

In the last 12 months domestic pressures have been getting more intense.  The Chinese growth model is a ticking time bomb.  What we're seeing is not cunning manipulation of a currency to undermine international competitors.  We're seeing an economy teetering on the edge of the abyss -- and Chinese policymakers know it.

It seems bizarre to claim economic self-harm in China justifies economic self-harm in Australia.

But that is exactly what Tony Abbott, Barnaby Joyce, Paul Howes and other free trade sceptics now recommend.

Wednesday, October 26, 2011

Most important to avoid the perception of crony capitalism

While there is a tradition of former bureaucrats moving to business or even politics, Ken Henry provides an interesting challenge to Australian governance.

There is no doubt that Henry has very valuable skills;  he has management experience in a large organisation, a sound knowledge of the economy and political influence.  It is not surprising that the private sector would want to employ him.  Similarly, it is entirely appropriate that he earn a return for those skills.

The challenge Henry poses is that it isn't clear where he sits in the accountability spectrum.  He wishes to serve on the boards of private organisations as a director while also serving the commonwealth as a public servant.

Ordinarily that couldn't happen.  But Henry isn't an ordinary public servant.  Since resigning his position as Treasury secretary he was appointed (part time) as a special adviser to the Prime Minister under section 67 of the Constitution, a provision that is rarely used and usually only for the head of the Australian Secret Intelligence Service.

The existence of a potential conflict of interest shouldn't be problematic in itself.  Conflicts always exist and it is how they are managed that is important.  What isn't clear is how any potential conflict of interest will be managed, or even if they can be managed.

There are clear separations of power in our political economy.  Executive government is accountable to parliament and bound by the courts.  Business executives are accountable to boards of directors and shareholders.  So, too, political power and corporate power should be separate.  Of course, the odd corporate executive is often a consultant to government, but never actually as an employee.

Contrary to what the Occupy Wall Street movement thinks, the same people who wield political power don't also wield corporate power.

Conflicts of interest are usually managed through trade-offs and common sense.  Not so in this situation.  The conflict between corporate power and political power is actually managed by prohibition.  The Reserve Bank governor, for example, must be sacked if he engages in paid outside work.  Cabinet ministers are expected to place their investments in blind trusts.  In other words, our system of governance has a clear separation between corporate and political power.

Henry potentially will be breaking that model of separation.  He will be firmly straddling the divide between the highest political office and high corporate offices.

The argument to consider is whether the Henry situation really matters.  After all, he is a man of great ability and integrity who, in theory, would be in a position to accomplish a great deal of good in almost any role he could take on.  If Australians are a pragmatic people, then having Henry across corporate and political decision making is very pragmatic.

While that kind of argument sounds sensible, close relations between government and business have the potential to quickly degenerate into crony capitalism or corporatism, which is why the principle of separation has existed.  It is always easier to define and explain the profit motive than the public interest.  A lack of separation between business and government has the potential to lead to government providing special privilege to business.

Business is already the beneficiary of special privilege.  Some is socially beneficial;  limited liability, for example, allows the corporate sector to raise the vast amounts of capital necessary to finance their activity.  Bankruptcy laws allow business to break contracts.  Laws that restrict trade and competition, however, do not benefit the broader community.  Not only has crony capitalism resulted previously in poor outcomes but the probability of future success is even poorer.

US blogger Arnold Kling highlights the differential between knowledge and power.  In the modern economy knowledge is becoming ever more diffuse, while power is becoming ever more concentrated.  Good policy relies on knowledge.  Just when government has greater power to make policy, so the likelihood of good policy declines.

Diffuse knowledge is best managed through markets and not government.

So the ''commanding heights'' model is unlikely to work well in future irrespective of the personalities involved.

This brings us back to Henry.  He has a skill set that could work well in either the public sector or the private sector.  It is unlikely that his skill set could add value to the public and the private sectors at the same time.

Close relations between government and business also would create the impression of impropriety.  Given what we know of crony capitalism it would be very difficult to credibly demonstrate an arms-length relationship between government and business when a high-ranking public servant is also a high-ranking private sector decision maker.

All up, despite what we know of the man himself, a man of integrity and ability, having Henry occupy influential positions in both sectors is going to generate a lot more heat than light.


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Monday, October 24, 2011

Taxing claims hot air

From July 1 next year, Australia is going to discover a carbon tax and trade barriers have the same disastrous economic impact.

Trade Minister Craig Emerson argues that the introduction of a carbon tax ''points to Gillard Labor governing in the Hawke-Keating tradition''.

The Hawke-Keating ''vibe'' that Emerson argues the Gillard Government is channelling is that policy changes presently being introduced, including the carbon tax, will provide foundations for a more flexible, dynamic and competitive economy.

But the economic benefit of trade liberalisation and floating the dollar cannot be compared with the introduction of a carbon tax.

At its heart, the past three decades of positive economic reform led by the Hawke-Keating and Howard governments removed barriers and distortions in the economy that misallocated economic resources and stopped Australia pursuing its comparative advantage.

Or, in layman's terms, producing things that we can most competitively to reduce costs to households and be internationally competitive.

Importantly, those reforms scrapped the false foundations that tariff and non-tariff trade barriers created for protected industries.

This stands in stark contrast to the carbon tax and its successor emissions trading scheme.

A carbon tax is designed to tax out of competitiveness otherwise-viable businesses within Australia's comparative advantage, and tax into competitiveness those that are not.

It's precisely why government Treasury modelling assumes so many foreign permits will be traded into Australia's scheme.

Our lack of capacity to cut emissions is not a result of absent enthusiasm.  It's not something we are competitive at because our emissions profile is dominated by burning coal for electricity, and the tax price needed to successfully tax it out of competitiveness is absurdly high if we want to keep the lights on.

If the rest of the world had emissions trading, Australia would be one of the last developed countries on earth you would try to cost-effectively cut emissions because it would always be cheaper to do it elsewhere.

A carbon tax operates as an ever-increasing internal tariff.  A carbon tax acts as false foundations to give lower-carbon industries an artificial boost, which will escalate over time as the tax rate goes up and permits are removed from an ETS, increasing the price of emissions permits.

Trade barriers, such as tariffs, act in the same fashion as a carbon tax, by taxing out of viability imports that compete with otherwise uncompetitive domestic production.

Non-tariff barriers ranging from abused quarantine standards, rules of origin certification requirements and compulsory labelling standards to prompt consumer boycotts have the same effect as tariffs, through a less transparent economic profile.

And the havoc trade barriers caused in distorting the unsustainable allocation of economic resources in the Australian economy from World War II until the start of reforms in the 1970s will be repeated.

The only scenario where an internal carbon tariff won't cause economic harm is if every other major competitor country takes on equivalent self-flagellation.  But that clearly isn't happening.

Such proposals aren't even being discussed in the US.  A recent commissioned review panel report recommended that New Zealand engage in liberalisation of its planned phase-in of its scheme.

Only Europe has made equivalent steps in the same direction as Australia, with the massive allocation of free permits though Europe's emissions reduction has occurred from reduced economic activity from the global financial crisis, exporting industries and jobs offshore to countries without equivalent carbon prices and the purchase of permits from developing countries through international emissions trading.  But the latter isn't looking like a viable ongoing option, with the World Bank recently reporting that the international carbon market is in recession as the world waits for the elusive successor agreement to the Kyoto Protocol to be negotiated.

That's why Japan and South Korea, understandably, are holding off introducing any scheme that acts as an internal carbon tariff.

The only commonality between the Hawke-Keating reforms and Gillard's carbon tax is that through the lifetimes of the government the rates imposed will change.

But unlike Emerson's 1980s employers, who gradually phased down the rate of false foundations and misdirection of capital in the economy, the Gillard Government is set only to increase them into perpetuity.

Sunday, October 23, 2011

Idealism turns us on, but reality bites

There's a particularly idiotic moment in the 2003 movie Love Actually when British Prime Minister Hugh Grant loses it.  Grumpy at President Billy Bob Thornton for hitting on No. 10 staff, he breaks off script at a press conference, describes his American ally as a ''bully'', and abandons the ''special relationship''.

Unbelievable?  Absolutely.  But what really throws this scene into the realm of high surrealism is the grinning faces of the PM's political and policy team.  Their leader has threatened the leader of the richest and most powerful economy on the planet.  And Grant's staff -- who would have to deal with the consequences -- are over the moon about it.  Hooray!

Pop culture doesn't do politics very well.  The depictions of government (and the people we elect) in movies and television are either wilfully naive, or naively conspiratorial.  Take The American President, where a Michael Douglas administration is inspired by the love of a good woman to decarbonise the US economy.  Right now, in 2011, radical climate change action by America is pretty unlikely.  But it was ludicrous to imagine when the film was made in 1995.  In more pessimistic and dramatic films, politicians and governments head up elaborate conspiracies -- they manufacture fictional wars (Wag the Dog), run military actions in secret (Clear and Present Danger) and cover up murders (State of Play, Absolute Power, and Enemy of the State).

But here's the funny thing.  All of these conspiracies pretty much work.  They're successful -- at least until the movie's hero intervenes.  Doing the wrong thing might be wrong, but the movies assume it will be simple.

In the movies, covering up a conspiracy is no big deal.  When needed, the wheels of government move effortlessly.  It's the same in the films with a more optimistic view of political leadership.  Prime Minister Grant or President Douglas only have to put their foot down to get stuff done.  Governments in the movies are competent.  They're nothing like the real world.  In the real world, government projects are characterised by disappointment and compromise.  Political operatives, not experts, make the final decisions over policy.  Petty leaks and cheap betrayals are commonplace.  Political favours are used like currency.

Even the worst fictional depictions of politics typically exclude the sad reality of policy botches, bureaucratic waste, and politicians with an exaggerated sense of self-importance.

More than anything else, the television show The West Wing has demonstrated pop culture's bizarre faith in the competence of government and the goodness of politics.  The show has a cult following among political boffins.  No wonder:  The West Wing flatters the political class by its suggestion that every person involved in politics is well informed.

And extremely well-intentioned.  The West Wing's President Bartlett is incorruptible.  Power has done nothing to him.  If anything, holding the most powerful office on earth has made him more honourable.  And his staff are all dedicated to public service, extolling self-sacrifice and duty.

Something's wrong here.  In The West Wing's depiction of politics, there appears to be no politics.  As Gene Healy, the author of the book Cult of the Presidency, has written:  ''Fans of the show never saw the sort of infighting, backstabbing and jockeying for position that appear in real-world accounts of White House life.''

No wonder virtually every character in The West Wing has an unwavering faith in government action as the solution to every problem.  They never come up against incompetence or dysfunction.  And barely any opposition.

This matters because these portrayals of politics shape in a big way how we understand real-world politics.  Rather than pointing at the inevitability of much government failure -- caused by its plodding bureaucracy, its base politics, and the inevitability that power will be used to pursue private interests -- movies and TV trivialise it.

If only the good people were in charge.  If only Mr Smith really had gone to Washington.  If only political leaders didn't use their powers for evil.  If only politicians weren't weak.

Politicians have tried to exploit these sorts of sentiments, but the dull, sad reality of government always sinks in.  Reforms go off the rails.  Supporters lose faith.

There are rare exceptions, like Yes, Minister, and the more recent, even more cynical The Thick of It.  But these are great because they are depressingly authentic compared with what we usually see on our screens.

Even in the darkest political thriller, pop culture's overwhelming vision of government is optimistic, almost utopian.  Shame the real thing can't live up to the fiction.

Friday, October 21, 2011

Democracy means doubt

Those business leaders bleating Tony Abbott's promise to repeal the carbon tax should remember one thing.  That's the price of doing business in democracy.  If they want certainty, they can move their company to Russia.

They should also ask themselves what would be the reaction of their shareholders if they, as a chief executive prior to their re-election as a director at the company's annual meeting, promised not to do something and then, following the meeting and the re-election, they went ahead and did it anyway?  And if they did it against the wishes of most of their shareholders?

The double standards in the debate about the repeal of the carbon tax are delicious.  A spokesman for Climate Change Minister Greg Combet claimed a few days ago that ''business needs certainty'' and blamed the Coalition for being ''irresponsible''.  Presumably that spokeman wasn't working at the ACTU when Comber was campaigning to overturn the Howard government's Work Choices legislation.

Kevin Rudd promised to get rid of Work Choices, and he did.  In principle, there is no difference between Labor repealing Work Choices and Abbott (if he becomes Prime Minister) repealing the carbon tax.  There are 11 million employees in Australia, all of whom are governed in one way or another by the nation's industrial relations system.

The goverment likes to claim that only ''big polluters'' will pay the carbon tax.  This is what Prime Minister Julia Gillard said in July:  ''Around 500 big polluters will pay for every tonne of carbon pollution they put into our atmosphere.''

You'd think those companies who wouldn't be required to pay the tax if the Coalition wins the next election would welcome Abbott's promise.  Not so.  Apparently some of those companies are unhappy that both sides of politics can't agree to impose the tax.

According to AGL Energy chairman Jerry Maycock, ''Clearly, if you had a bipartisan view on the price of carbon it would reduce uncertainty''.  So there you have it.  Australia in 2011 is the scene of a world first.  Company executives complaining they may not have to pay a tax.

Politicians aspiring to introduce new taxes in future should remember what we've learned from the episode of the carbon tax.  When faced with a choice of the certainty of Labor imposing a tax and the uncertainty of the Coalition removing a tax, some Australian business leaders prefer the former.  Maybe they have calculated the advantages to their companies from having to pay the tax.  Their own business might suffer but a competitor's business might suffer more.

Or maybe they've worked out how much better they'll be after receiving billions of dollars in government handouts to compensate for the tax.

The problem for a future Coalition government is, of course, that the carbon tax isn't just a tax.  It is a tax, an emissions trading scheme, an accounting process, and a bureaucratic regime all rolled into one.  Plus it's been designed to be integrated into the personal income tax system and the social security system.  Plus it attempts to invent an entirely new category of property rights.  And it's governed by more than 300 pages of legislation administered by 1000 public servants in the Climate Change Department.

It is much, much more than just a tax on 500 companies.  A ''price on carbon'' is the vehicle of the economic ''transformation'' of the Australian economy -- which is exactly how Penny Wong described Rudd's emissions trading scheme when she was climate change minister.  Gillard's carbon tax is no less transformative than Rudd's ETS.

It's precisely because of the enormous impact of the tax that it should not have been implemented the way it has.  Something such as this tax, that has as its objective the kind of economic transformation Labor and the Greens hope for, should only ever be implemented with support from both sides of politics.  Such measures should also have some degree of public support.  Neither of these condition apply to the carbon tax.

It's true that unwinding the tax and all its apparatus will be complicated, time consuming, potentially costly, and will cause headaches for companies.  If business wants to blame someone for this mess, it should look to the people who are proposing the tax in the first place, not those promising to repeal it.