Australia’s Red Tape Crisis: The Causes and Costs of Over-regulation

Edited with Darcy Allen. Connor Court Publishing, 2018

Red tape costs the Australian economy as much as $176 billion a year. Governments create and enforce thousands of regulations on our workplaces and our communities. These rules slow and prevent businesses forming, people from flourishing, new technologies from being adopted, and hold back Australia’s global competitiveness.

Australia’s Red Tape Crisis is an exploration into the economics, politics and culture of over-regulation. How should we structure our federation to achieve reform? Why should political responsibility sit with the elected? Does Australia have a deep desire for a federal bureaucracy? What is the future of red tape reduction policies?

Together, the contributions of economists, philosophers, politicians and lawyers help define a path for overcoming Australia’s red tape crisis.

Available for pre-order from Connor Court Publishing

Sober liberal

A review of Sir Joseph Carruthers: Founder of the New South Wales Liberal Party by Zachary Gorman, Connor Court, Qld, pp.425, $59.95

Australia has a rich heritage of nineteenth century classical liberalism. But that history has been almost completely lost in the flood of historical work focusing on either federation or the labour movement. Zachary Gorman’s new biography of Sir Joseph , the nineteenth century free trade liberal and founder of the Liberal party of New South Wales, helps balance the ledger – recovering the tradition of free market liberalism that has been so significant in Australian history.

In many ways, Joseph Carruthers embodies that tradition, with its strengths and flaws. In the colonial era liberal political thought was one of the dominant strands of public life, and Carruthers’ career reflected its dominance. Born in 1857, he entered NSW politics in 1887. Carruthers was a father of federation, a minister under Henry Parkes and George Reid, and after the establishment of the Commonwealth became premier of New South Wales. He only left politics when he died in 1932.

Like his university friend George Reid, Carruthers was a great admirer of William Gladstone. He believed in balanced budgets, individual liberty, and that ‘we should encourage commerce in its freest sense’ (as he once informed a branch meeting of the Labour Electoral League).

Carruthers was a liberal, but not a radical one by the standards of the time. Gorman positions him as a moderate, or pragmatic liberal within the free trade movement. On one side was Bernard Wise, whose support for free trade was matched with a pro-government intervention and regulation program. On the other side was the radical free market liberalism of Bruce Smith, whose 1887 book Liberty and Liberalism was a full-frontal attack on the left-liberalism advocated by people like Wise. A working politician has to satisfy multiple constituencies. Carruthers was no exception, balancing both liberal and conservative supporters, as well as managing coalitions with the progressives.

Histories of political life can sometimes be a little deadening. Much drama in politics consists of a stream of legislation and amendment, which can be both complex and (in the hands of poor biographers) dull. Gorman does not fall into this trap: he is able to very clearly explain the significance of each well-chosen controversy in a way that makes the relevance to liberalism and Carruthers’ life obvious.

Gorman is also sensitive to instances of where Carruthers’ thought deviated from classical liberal ideas. These are worth detailing, because classical liberals have not always lived up to their underlying belief in the inherent equality and political dignity of all people. One philosophically minor but historical significant example was temperance. His father had struggled with alcohol and was ultimately involved in the temperance movement. Likewise many of the Liberal party voters were motivated by temperance. Gorman writes that Carruthers believed ‘liberalism could bend on this issue’. Carruthers ended up supporting the so-called ‘local option’ which handed the regulation of liquor licences to electorates and municipalities – not always a win for liberty.

More serious to modern readers was Carruthers’ opposition to female suffrage, for which he believed the case had not yet been made. His was perhaps a half-hearted opposition, and he later supported the suffragette movement in Britain when he visited there in 1908. But his stance compares poorly with some contemporaries like Bruce Smith, who actively called for universal suffrage in Australia.

Carruthers’ attitude to immigration presents a similar story. While being supportive of high immigration levels, he also backed the white Australia policy on the grounds that a multiracial society could harbour ethnic tensions. This view changed when he began to visit Hawaii, as he did regularly late in life. He saw there a society in which Americans, native Hawaiians, Japanese and Filipinos coexisted prosperously, helped in no small part by American free trade relationships.

Carruthers’ views were more admirable when it came to the relationship between colonists and the Indigenous population. As a child growing up in Macleay he had spent much time playing with Aboriginal children, and he maintained a sympathy with Indigenous people his whole life. He wrote later of the ‘ruthless indifference [of] the whites, who have invaded their homelands, bringing with them new diseases and vile habits, and sometimes unspeakable cruelties that have unnecessarily wiped out millions of so-called inferior and backward peoples’. Carruthers’ language often betrayed a paternalistic or patronising mindset but he was more wide-eyed than most about who bore the costs of colonialism.

For the most part, Carruthers was a needed defender of liberal values. During the First World War he refused to get too caught up with the anti-liberal sentiment of wartime Australia, and opposed the NSW government’s sedition bill (which had been mainly targeted at the labour movement).

This is not the first full length biography of Carruthers. Beverly Earnshaw published One Flag, One Hope, One Destiny: Sir Joseph Carruthers and Australian Federation in 2000, which as its title suggests finds interest in Carruthers because of his federation role. (Carruthers’ own memoirs also received commercial publication in 2005.) But for Gorman, Carruthers’ greatest legacy is the New South Wales Liberal party, which he views as one of the crowning organisational achievements of nineteenth century liberalism. While it has repeatedly changed its name, the NSW Liberal Party is still, organisationally, the same entity today as the one Carruthers established as the Liberal and Reform Association in 1902.

For modern classical liberals the post-Federation decade has a somewhat melancholy tone. The rise of the Labor party led to an alliance, and then fusion, between the free traders and protectionists under the banner of anti-socialism. Gorman’s book both adeptly navigates this history, and, with his picture of nineteenth century liberalism, underlines just what we lost.

Are Australians ready to embrace libertarianism?

How much influence does libertarianism have on Australian politics? The first thing to know is that the Australian political system has very few libertarians in it.

The only federal member of parliament to self-describe as a libertarian is Senator David Leyonhjelm of the Liberal Democratic Party. Other candidates – like my former colleagues at the Institute of Public Affairs (IPA), Senator James Paterson and Tim Wilson – describe themselves as classical liberals.

Ideological classifications can get very tedious very quickly, but generally libertarianism is a variety of classical liberalism. Both philosophies believe that public policy should be designed to maximise free markets and civil liberties. That is, governments should get out of both the wallet and the bedroom. Libertarianism is generally seen as inhabiting the more radical end of the classical liberal spectrum.

A 2007 study published by the Centre for Independent Studies (CIS) estimated that 3–6% of the Australian electorate were classical liberals. So it is unsurprising they have little electoral influence on Australian politics.

The reason libertarians and classical liberals exercise some degree of influence is that they make up a disproportionate share of Australia’s policy wonks, think tank staff (especially at the IPA and CIS), and political commentators.

An extremely big tent

Australia’s right-of-centre political community is not so large as to have exclusively libertarian or conservative think tanks, as exist in the United States. Everyone works together. This co-mingling hasn’t generally been an issue because Australian political debate has tended to pivot around economic issues (taxation, regulation, privatisation) or basic shared liberty issues (like freedom of speech) rather than the thorny moral debates that might divide the two camps.

Occasionally there have been polarising issues. Same-sex marriage is one. Conservatives were generally opposed, while libertarians tended to be in favour. But there was also broad agreement that any change to marriage laws should also protect religious freedom.

Immigration – particularly asylum seeker policy – is another. Libertarians are inclined towards freer immigration, whereas conservatives want more control over the borders. Here the tiny number of libertarians have been completely ineffective against the policy stalemate.

For the most part, there is much agreement between conservatives and libertarians about the current state of Australian politics. Both think the Turnbull government is a disappointment, for much the same reasons. It failed on the campaign to repeal section 18C of the Racial Discrimination Act, which has become an iconic restriction on free speech. It has also repeatedly raised taxes, and been unable to drive any serious economic reform.

This may sound excessively Pollyanna-ish, as if everything is just swell between Australian conservatives and libertarians. Much has been said (almost all by commentators on the left) about a political split between libertarians and classical liberals on the one side and conservatives on the other. But I don’t really see it.

In the US, the fusion movement of the 1950s and 1960s was a deliberate project to build an alliance between these two distinct systems of political thought. The presidency of George W. Bush pushed that alliance to breaking point, and it seems the Trump administration has broken it.

By contrast, Australian politics has never been large enough to maintain such divergent streams. Every Liberal prime minister has for the most part maintained a sort of centre-right middle ground that kept everyone equally disappointed and dissatisfied. People are leaving the Liberal Party under the Turnbull government, not because it is too conservative or libertarian, but because it is too, well, nothing.

Liberal achievements and libertarian growth

The last quarter of the 20th century saw Australian public policy take major strides in a classical liberal direction. The economic reform movement that substantially liberalised the economy was matched with social reforms such as the decriminalisation of homosexuality and the repeal of obscenity laws.

I’ve argued in the past that Australian economic thought has had a distinct – even occasionally dominant – classical liberal tradition. There is no question that this tradition has driven policy debate and reform at a few key historical moments.

Though classical liberal efforts were often focused on economics rather than social policy, it’s worth pointing out that the IPA was one of the key voices against state overreaches such as the Hawke government’s ill-fated Australia Card, and more recently, mandatory internet data retention.

In recent years, there has been some notable growth of libertarianism as a self-aware and distinct group. A large part of that has been the Friedman Conference – named after Milton Friedman, David Friedman and Patri Friedman, who represent nearly the entire spectrum of classical liberal/libertarian thought in one family – which attracts hundreds of libertarians and fellow travellers to Sydney every year.

The Friedman Conference is in its sixth year, thanks to the organisational efforts of Tim Andrews (of the Australian Taxpayers’ Alliance) and John Humphreys (of the Australian Libertarian Society). The political success of the Liberal Democrats with David Leyonhjelm in the Senate is another factor in libertarianism’s modest gains.

My hope is that this sort of organisational effort fosters the idea in Australia of libertarianism as a distinct political philosophy, not just a quirky sub-category of the Australian right.

There is a need for this. The challenges we face now are not the same as they were in the over-mythologised 1980s. The combination of growth of the regulatory state, radical technological change, and the crisis of democratic trust require new ideas and new policy solutions. Libertarianism offers a framework to understand how these economic and social questions interact.

Against Public Broadcasting: Why we should privatise the ABC and how to do it

With Sinclair Davidson. Connor Court Publishing, 2018

The Australian Broadcasting Corporation is a media colossus with a reputation for integrity and quality. It is also a billion-dollar government program that lacks any coherent justification for its existence. Chris Berg and Sinclair Davidson provide a highly readable account of how and why the ABC has come to be in this position. This is the first serious analysis of the rationale for the ABC and its existence in decades.

When the ABC was founded in the 1930s the problem was a scarcity of media. Now that we live in a world of media plenty, it is hard to see why the government is still subsidising a media empire. This book provides an outline of how policymakers can dispose of the ABC, while at the same time preserving its value and realising that value for the benefit of taxpayers.

Available for pre-order from Connor Court Publishing

Blockchains Evolving: Institutional and Evolutionary Economics Perspectives

With Brendan Markey-Towler, Mikayla Novak, and Jason Potts

Abstract: In this paper we develop a perspective on systems for interaction organised by Blockchains which makes use of evolutionary-institutional and psychological economics to reveal the process of their origination, diffusion and interaction. We discuss Blockchain and its uses as a distributed ledger technology for the establishment of institutional systems governing socioeconomic interaction. We apply the micro-meso-macro perspective to the origination and diffusion of these systems as meso-rules, and formalise the microfoundations of this process of emergence using psychological and institutional economics. We establish that successful Blockchains will be those which continue to adapt their institutional structure to meet evolving capability requirements and provide complementarities. Our perspective offers valuable insights for designers of Blockchain systems and establishes some of the forms of resistance which might constrain their efforts to diffuse Blockchain technology.

Working paper available at SSRN.

Some Economic Consequences of the GDPR

With Darcy Allen, Alastair Berg, and Jason Potts

Abstract: The EU General Data Protection Regulation (GDPR) is a wide ranging personal data protection regime of far greater magnitude than any similar regulation previously in the EU, or elsewhere. In this paper, we explore the ways in which regulation changes the value of data and examine the potential impact of the GDPR on data markets. We suggest that the GDPR may result in unintended consequences analogous to previous government interventions into capital markets and financial services. Novel financial products of unknown complexity and systemic risk – and secondary data derivative markets – may emerge as a result, which suggests that market driven technological solutions, such as those using blockchain or distributed ledger technology, should be further examined.

Working paper available at SSRN.

Blockchain: An Entangled Political Economy Approach

With Darcy Allen and Mikayla Novak.

Abstract: This paper incorporates blockchain activities into the broader remit of entangled political economy theory, emphasising economic and other social phenomena as the emergent by-product of human interactions. Blockchains are a digital technology combining peer-to-peer network computing and cryptography to create an immutable decentralised public ledger. The blockchain contrasts vintage ledger technologies, either paper-based or maintained by in-house databases, largely reliant upon hierarchical, third-party trust mechanisms for their maintenance and security. Recent contributions to the blockchain studies literature suggest that the blockchain itself poses as an institutional technology that could challenge existing forms of coordination and governance organised on the basis of vintage ledgers. This proposition has significant implications for the relevance of existing entangled relationships in the economic, social and political domains. Blockchain enables non-territorial “crypto-secession” not only reducing the costs associated with maintaining ledgers, but radically revising and deconcentrating data-conditioned networks to fundamentally challenge the economic positions of legacy firms and governments. These insights are further illuminated with reference to finance, property and identity cases. Entangled political economy provides a compelling lens through which we can discern the impact of blockchain technology on some of our most important relationships.

Working paper available at SSRN.

Adam Smith and Jeremy Bentham in the Australian Colonies

History of Economics Review, 2018: DOI: 10.1080/10370196.2018.1449084

Abstract: How did 19th century Australians think about liberalism, economics and political economy more generally? Nineteenth century Australia has been described variously as having a ‘neoclassical’, enlightenment, or Benthamite political culture. This paper provides an empirical approach to the question of early Australian ideas. Exploiting the records of 1891 book sales and auctions in Australia between 1800 and 1849, the paper examines the relative prevalence of key economic, political and liberal texts available to 19th century Australians. The works of classical enlightenment authors such as Adam Smith and John Locke were far more prevalent, and more likely in demand, than those of Jeremy Bentham. To the extent utilitarian ideas were prevalent, they were more in the form of William Paley’s conservatism than Bentham’s radicalism.

Accepted manuscript available at SSRN.

Beyond Money: Cryptocurrencies, Machine-Mediated Transactions and High Frequency Bartering

With Sinclair Davidson and Jason Potts.

Abstract: As blockchain technology is adopted into modern economies, the underlying institutional protocols will evolve. In this paper we set out the reasoning behind how this will likely take us to an economy beyond both money and money prices. Money facilitates human-human exchange in the presence of cognitive limitations. However in the near future personal artificially intelligent machine agents will be able to conduct exchanges with a matrix of liquid digital assets (such as cryptocurrencies). We call this process high frequency bartering. The existence of markets without money present complex public policy challenges around privacy and taxation.

Working paper available on SSRN

Ledgers

With Sinclair Davidson and Jason Potts

Abstract: This paper develops the ledger-centric view of the economy. Ledgers provide an underlying infrastructure for exchange by allowing actors to prove, validate, and verify property ownership. In this sense ledgers map economic, political and social relationships. This paper provides some theoretical distinctions to frame the analysis of the economics of ledgers. First we offer a philosophical and institutional definition of ledgers. Second we provide three analytic categories of ledgers (general, actual, and perfect). Third we offer a ledger theory of the firm as a map of relationship between labour, capital, production processes, and information, and emphasise the economic significance of ledgerisation in the history of entrepreneurial firm creation. Fourth we draw some implications of our theory for the development of complex economies. This paper is based on the theory of institutional cryptoeconomics which was developed to understand the economic implications of distributed ledger technologies.

Working paper available on SSRN