December 2014 – Chris Berg

Testing times make for great (and awful) leaders

Tim Fischer, deputy prime minister in the Howard government, thinks John Monash, the legendary Australian military commander during the First World War, deserves a promotion.

Fair enough. But Fischer has stumbled upon a bigger issue in Australian history – the mendacious jingoistic hopelessness of one of our most famous prime ministers in one of the most important times in the development of the nation.

In his new book, Maestro John Monash: Australia’s Greatest Citizen General, Fischer argues that Monash was denied the rank of Field Marshal because Billy Hughes, prime minister between 1915 and 1923, was both jealous and anti-Semitic. Monash had both German and Jewish ancestry.

A promotion is not the only honour Fischer would like for Monash. He would like the main street in Monash’s childhood home of Jerilderie to be renamed John Monash Parade. He’d like a bridge Monash helped build in Benalla to be renamed the John Monash Bridge. He’d like London’s Imperial War Museum to recognise Monash’s contribution, and some newspapers that downplayed Australian war efforts a century ago to rectify that error. Along the way he’d like some WWI battles renamed, for clarity.

(Yes, Maestro John Monash is a very policy-oriented biography.)

Fischer says the idea of promoting Monash to Field Marshal has precedent. The cause has been taken up by the Assistant Treasurer Josh Frydenberg.

But the real spotlight here has to be on the bad guy in Fischer’s story – Billy Hughes.

Historians tend to be most impressed by active prime ministers. Usually those that govern during war do well on that measure. Testing times make for great leaders. Take John Curtin, who has been the subject of more hagiographic praise than any other PM. (John Hirst makes the case against Curtin’s greatness in his 2010 book Looking for Australia.)

Billy Hughes benefited in his lifetime from the patriotic enthusiasms of the First World War. Now he’s largely faded into old Labor legend as the archetypal “rat”. Otherwise he’s best remembered for his two failed referendums on conscription during the war.

But in retrospect it is hard to think of a worse Australian Prime Minister than Hughes.

Hughes’ record is dismal. His support for conscription is bad enough. (Ronald Reagan once described conscription as the “assumption that your kids belong to the state”.)

Hughes fostered a split in the Labor Party and created an alliance to hold government united by nothing except aggressive wartime patriotism. This Nationalist coalition represents the final death knell of classical liberalism as a political force in Australia.

As an administrator he was a failure. Even as sympathetic a biographer as Donald Horne had to say that Hughes was an “incompetent wartime prime minister”.

At the Versailles peace treaty he was the most extreme supporter of German reparations. He even wanted Germans to compensate Australians who had financed their purchase of war bonds by taking out mortgages. The final harsh reparation settlement contributed to the later German economic collapse and the rise of Nazism.

Just as consequential was his aggressive and passionate support of the White Australia Policy. A Hughes biographer, W Farmer Whyte, writes that “nobody had fought harder than Hughes to place Australia’s immigration laws on the statute-book”.

When Japan proposed in 1919 that the covenant of the new League of Nations should have a clause defending the principle of racial equality, Hughes was the clause’s most aggressive critic. He was worried it would threaten White Australia.

The historians Geoffrey Blainey and Margaret MacMillan have both argued there is a clear relationship between the defeat of the racial equality clause and subsequent Japanese belligerence towards the West.

Either way, there is no doubt that thanks to Hughes, Australia’s contribution to world peace at Versailles was an unmitigated disaster.

Poor old Billy McMahon is regularly pummelled as the worst prime minister in surveys (Wikipedia has an overview here). Left and right like to argue that either Robert Menzies or Gough Whitlam was the worst.

But none of these leaders’ flaws can possibly stack up next to Hughes – who was incompetent during the First World War and the biggest supporter of mistakes which led up to the Second World War.

Hughes’ incredibly poor leadership is the embarrassing counterpoint to the Anzac heroism we are remembering during the WW1 centenary.

Australians don’t have a deep political memory. We don’t debate our political past as, say, the Americans do. Our newspapers aren’t filled with comparisons between political events and their historical precedents.

But our political history matters. Hughes was an inept leader who benefited from the patriotism of wartime. He was sustained by a political class who valued his populist touch more than good government. There are some lessons there we could file away for the future.

So should John Monash be promoted to Field Marshal? Monash was a great military leader, and deserves to be judged on his merits.

But, then again … if by doing so it further exposes our worst prime minister for the failures of his time in office, it might be worth it.

Welfare Plans An Assault On Our Freedom

Last Thursday Kevin Andrews, then minister for Social Services, wrote in The Australian that income management – the practice of “quarantining” a portion of social security payments for approved purchases like food and accommodation – is central to the Abbott Government’s welfare reforms.

Four days later he was replaced in the social services ministry by Scott Morrison. This has been seen as somewhat a demotion for Andrews, who now takes Defence.

But it is in no way a repudiation of Andrews’ plans. Far from it. Morrison was lauded at the reshuffle press conference as a minister who gets things done. One of the things to be done, no doubt, is the expansion of income management.

This is not a good thing. Income management is paternalistic and illiberal. It’s counter-productive, too: far from discouraging welfare dependency, it encourages that dependency.

Yet income management has bipartisan support.

Income management was first introduced as part of the Northern Territory intervention in 2007. The idea was to prevent the sort of child abuse and neglect that had been described in the Little Children Are Sacred report. The policy was originally imposed on a few dozen specifically nominated vulnerable communities.

The original idea was to use income management as an emergency measure in a moment of deep social crisis. But policies that are introduced in a crisis tend to stick around. They entrench themselves in the policy landscape as bureaucrats build reputations on their success – and try to hide their failure.

So the Rudd and Gillard government decided income management ought to be rolled out to at-risk populations across the country. Income management is now being tested in areas like Bankstown in New South Wales, Shepparton in Victoria, and Logan in Queensland.

Last week the Government released a commissioned report that found that income management had not substantially changed what welfare recipients buy. Nor had income management reduced alcohol purchases or problems like running out of food. (You can read the report here.)

It’s absurd that governments say they want to reduce welfare “dependency”, yet at the same time actively encourage such dependency by taking freedom of choice away from welfare recipients.

And instead of encouraging “financial literacy”, income management appears to reduce it – by treating welfare recipients as incapable and incompetent.

Right now income management affects very few people. Most Australians might not even be aware the system exists.

But it is peculiarly central to the debate about the proper size and shape of the welfare state.

One of the great philosophical arguments concerns how we understand the concept of “freedom”. In the classical liberal story, people are free when they are not being coerced by external forces like governments or other people. This is a negative conception of freedom. It’s all about the absence of constraints.

Social democrats have long criticised this idea of freedom by saying that it takes more to be truly free than just no constraints. A free person is someone who has the capacity – the resources – to pursue their own goals.

Thus, the goal of the welfare state is to enhance a positive conception of freedom, by giving all members of society not only the right to live lives of their choosing, but the ability to do so.

But those welfare recipients who now have their purchases micromanaged by Centrelink are unlikely to feel very liberated.

As this paper from 2013 points out, income management allows government to monitor shopping habits with attendant costs to privacy and feelings of autonomy.

Indeed, decades of paternalism applied to welfare recipients has undermined the idea that government-provided social security is in any way “liberating”.

Those placed on work for the dole schemes obviously do not feel more free for being conscripted to do menial tasks below minimum wage for non-profits.

And would those who would have been subject to the punishing high numbers of job applications proposed in the May budget – 40 applications per month – have felt that they were enjoying any sort of positive liberty? Of course not.

It is certainly possible to imagine a welfare state not built around paternalistic mutual obligation requirements. But, in Australia at least, it seems that every political incentive is driving our real-world welfare state towards them.

A person must not lose their rights the moment they receive government assistance. It would be incredibly dangerous to think otherwise. Governments have involved themselves in so many facets of our lives that there are few people who do not receive some form of assistance.

In 1944 the economist Friedrich Hayek wrote his bestselling book the Road to Serfdom, where he suggested that social democracy’s expansion of government control would undermine civil liberties.

Hayek has been ridiculed for that argument ever since – post-war Britain did not turn into a totalitarian dictatorship.

But 70 years after Hayek published his book, welfare paternalism is demonstrating that when government is involved, coercion almost always follows.

Stop Putting It Off: We Need A Surplus ASAP

The Mid Year Economic and Fiscal Outlook forecasts yet another budget blow-out of the sort that we’ve become used to over the last decade.

This time the budget papers predict a surplus in financial year 2019-20.

That’d be during the Abbott Government’s third term.

For the last few years we’ve constantly heard the government has “obsession” with surpluses. Take this piece by David Richardson in The Drum here, or Alan Kohler in Crikey here.

MYEFO has demonstrated, beyond a doubt, why that “obsession” is so necessary.

Budget repair is not a trivial task that can be delayed until it is more convenient, or just sidelined in favour of social policy reform. It’s never convenient. And there’s always another social program that can be introduced.

Back in 2011 Wayne Swan wrote in an essay for the Fabian society “If we are going to be Keynesians in the downturn, we have to be Keynesians on the way up again.” That is, having splurged money while the economy was going down, they should save money when the economy is back up.

It’s a shame that none of the Rudd, Gillard, or Abbott governments have ever had the strength or desire to make good on their words.

I wrote a grumpy piece for The Drum on the eve of the 2013 election after the Treasurer-in-waiting Joe Hockey downgraded his surplus promise. What had begun as a pledge to get the budget into surplus immediately became an ambition to be “on-track” for a surplus at the end of Coalition’s first term.

At the time, Hockey’s downgrade could have looked like prudent expectations management. In retrospect it was the entire political class throwing in the towel.

Budget politics is incredibly hard. Politicians don’t win friends when they cut spending.

Yes, Labor is much at fault here – they made the deficit, and they’re doing nothing to help clean it up their mess.

But there’s a deeper story below all the political argy-bargy. And it’s to do with the advice both Swan and Hockey have been receiving.

For a few months Hockey has been offering variations along the lines that the Australian economy is too weak to cut drastically. On Monday this assumed a more rigorous formulation. The budget is now a “shock absorber” for the collapse in commodity prices. If the government cut the budget harshly, “Australians would lose jobs and we will lose our prosperity.”

The economic theory behind this is pretty orthodox Keynesianism. Under this style of thinking, the government’s budget is a lever with which to manage the macroeconomy. Government spending doesn’t crowd out private spending, it substitutes for it.

That’s why Treasury don’t want the Coalition to introduce new, large-scale spending cuts. They reason that a drop in government spending would lower economy-wide demand.

Almost all the cuts in MYEFO are designed to offset new spending announced since the May budget. The government’s national security program and the conflict in Iraq are substantial new costs which have to be paid for. Hockey has sought out savings but only with the goal to leave the overall budget position where it is.

Can’t the government just raise taxes to get into surplus?

Well, in the Keynesian story an increase in taxes would have the same macroeconomic effect as a reduction in government spending – suppressing demand and confidence. Hockey suggested as much in his brief press conference yesterday.

One Keynesian alternative is that tax cuts might help boost the economy. But by reducing revenue, those cuts would make the budget bottom-line even worse.

So, with the advice Hockey is getting, there’s nothing to be done on the revenue side.

What we’re left with is a sort of vulgar Keynesianism that relies on just one tool – spending, not revenue – to manage the economy’s ups and downs. Monetary policy is seen as secondary. The real work is done by government spending.

In 2008 and 2009 the Rudd government adopted a kind of one-shot Keynesianism – a single, giant increase in spending to try to prevent Australia going into recession.

This was a sort of intellectual revolution for Treasury. Ever since the 1990s it had been sceptical about the virtues of stimulus spending. Sometime in the last years of the Howard government, Treasury changed its mind.

Rather than viewing fiscal policy as a break-glass-in-case-of-emergency fire axe, now Treasury is beginning to see fiscal policy as a way to micromanage the economic cycle, year by year, budget by budget.

We’ve had experience of this approach to fiscal policy before. In the post-war era, policymakers were mesmerised by the possibilities of the John Maynard Keynes’ ideas. Grasping copies of his 1936 book, General Theory Of Employment, Interest And Money, they pored over the tea leaves of economic statistics and tried to match the budget to the economy’s headwinds.

But this post-war budget Keynesianism was chaotic and unpredictable. Australian governments were derided as “stop-go” economic managers.

It would be nice to think that Treasury is better at micromanaging the economy in 2014 than it was in 1960. We’re so much smarter than our grandparents. We have more and better theory, and more and better data.

But so far the only thing that confidence has given us so far is a surplus pushed further and further into the future.

The Murray Inquiry Wants Regulation – But Why?

Financial sector inquiries have played a peculiarly central role in Australian history.

In 1937 the Royal Commission into Monetary and Banking Systems set the framework for what was to become Australia’s insular and credit-constrained post-war economy in the Menzies era.

The Campbell committee, which reported to the Fraser government in 1981, was an even bigger deal. It sparked the deregulation era that opened Australia’s economy to the world.

Yet it’s unlikely that historians will see Abbott Government’s Financial System Inquiry in these sorts of epoch-defining terms. The inquiry, chaired by former Commonwealth Bank chief David Murray, released its final report on the weekend.

Here’s why.

In 1979 Keith Campbell was asked to conduct his inquiry “in view of the importance of the efficiency of the financial system for the Government’s free enterprise objectives and broad goals for national economic prosperity.”

Campbell and his fellow committee members took those three words – “free enterprise objectives” – and ran hard with them. They presented a program of wholesale deregulation of the financial sector so ambitious it had to wait for the Hawke government to implement it almost in its entirety.

Joe Hockey didn’t offer David Murray anything as direct as that.

Rather, Murray had the rather anodyne command to offer recommendations for “an efficient, competitive and flexible financial system, consistent with financial stability, prudence, public confidence and capacity to meet the needs of users.”

Indeed, the philosophy of financial regulation was one of the things the terms of reference was asked to decide. (To “refresh the philosophy, principles and objectives underpinning the development of a well-functioning financial system”.)

So it’s hard to be shocked that the Murray inquiry has recommended big regulatory increases.

Indeed, David Murray told ABC’s 7:30 last night his inquiry represented a “paradigm shift” away from the regulatory philosophy of the Howard government’s more market-trusting Wallis inquiry.

Murray’s central recommendation is that banks should be required to hold more capital as a buffer against a future financial crisis.

The idea is that higher capital will lead to fewer bank failures and therefore less pressure on the government to bail out banks. (I wrote about the inevitability of government bank bailouts on The Drum when the Murray inquiry released its interim report.)

Murray says that at most this would only reduce Australia’s GDP by less than 0.1 per cent. Sounds piddly, right? But as regulatory imposts go, that would constitute one of the single largest new regulatory burdens in the last few decades.

Yes, larger capital buffers might reduce the whole privatise-the-profits, socialise-the-losses problem. But here’s the thing: Australia hasn’t had a proper bank crisis for 121 years. The last was in 1893. Neither the Great Depression nor the Global Financial Crisis saw any major bank failures in Australia.

Now, there’s nothing to say that we’re not on the brink of a catastrophic bank collapse. And all else being equal resilient banks are better banks.

But we shouldn’t delude ourselves into thinking that we understand why banking crises hurt so badly, nor the best regulatory restraints to place on banks to help them ride out those crises.

The very idea of “systemic” significance is a relatively new one.

At best, it’s a hypothesis based on observations about what seems to have happened during the Global Financial Crisis. At worst, it’s a collection of guesses about what could have happened if the American government hadn’t bought up toxic assets.

By calling for higher capital, the Murray inquiry is really just following the cues of the international Basel committee, which now drives financial regulation around the world.

Murray wants to make Australian banks “unquestionably strong” by ensuring they’re in the top 25 per cent of global banks when it comes to capital buffers. So Australia’s theory about what constitutes a safe bank is pegged to whatever other banks are doing.

This sort of cocktail napkin reasoning is a bit of a worry.

But that’s how it is. Governments regulate banks like they regulate everything else – according to a bunch of common assumptions, stylised factoids about the past, and half-remembered textbook theory.

As the economist and historian George Selgin wrote on the weekend, all these debates about banking rest on a collection of assumptions about how banks would act in a free market – assumptions almost never explicitly stated, let alone borne out by the historical record.

In the United States, massive, nation-wide banking failures during the Great Depression led to the establishment of a national deposit insurance scheme. The idea has been copied around the world, including in Australia.

But many scholars now blame deposit insurance for the fragility of the banking system. (See, for instance, here.)

One forgotten aspect of the Campbell committee was that while it recommended deregulation almost everywhere, it also recommended new controls to make banks more stable.

Yet as two scholars wrote at the time, the failure of the Campbell committee to back its call for more control with careful economic analysis was “disconcerting”.

One could say the exact same thing about the Murray inquiry.

Anti-Terrorism Law Reform Follows Legislate In Haste, Repeal At Leisure Approach

The national security debate over the past four months has been one of the most revealing about Australian political culture in a long time.

It’s exposed serious weaknesses in parliamentary oversight. It’s offered a case study of how big reform needs careful work. And it’s demonstrated how easily public debate slips into well-worn factions.

On August 5, the Abbott government launched its national security legislative agenda – three giant tranches of new anti-terror laws.

For good measure it also announced it was abandoning the proposed reforms of Section 18C of the Racial Discrimination Act. They were, apparently, a “complication”.

This was as complete a philosophical reversal as Australian politics has ever seen. One day the government was wholeheartedly dedicated to restoring freedom of speech. The next day Prime Minister Tony Abbott was saying that the delicate balance between liberty and security would have to shift, and not in favour of liberty.

But there were actually good reasons for the government to be in such a rush.

A knee-jerk reaction against any and all national security changes is not merely wrong, it’s dangerous. There is no more basic responsibility of government than security.

It’s hard to believe now, but until the 9/11 attacks anti-terrorism policy was the responsibility of the states, not the federal government. The first proper Commonwealth anti-terror legislation was enacted in 2002.

Even after more than a decade, in 2014 there is still a strong case for national security law change. The security environment has materially changed over the past 12 months. The Islamic State has attracted more foreign fighters – Australians travelling to be militants for the caliphate – than any other conflict since the war on terror began.

This is a big problem. A study published in the American Political Science Review last year found that one in nine Islamist foreign fighters between 1990 and 2010 later attempted terrorist attacks in their home country.

So we need to be talking about passport control and how to prosecute somebody under the Crimes (Foreign Incursions and Recruitment) Act 1978. Many of the Abbott government’s legislative changes reflect recommendations along these lines by the Council of Australian Governments and the Independent National Security Legislation Monitor.

It’s all complicated stuff. It’s highly technical and legalistic. It concerns marginal changes to existing legal frameworks.

Yet the debate over anti-terror law changes has been dominated by that school of thought which believes that to offer anything less than uncritical support of government proposals is to downplay the threat of terrorism.

This is incredible considering the number of extra security changes the government has pushed through the parliament over and above those targeted at the foreign fighter problem – and over and above those recommended by the many inquiries into counter-terrorism law in recent years.

The government hasn’t explained why the particular threat of foreign fighters means we need to make it illegal for journalists to report on ASIO operations.

Nor has it explained why IS means we need mandatory internet data retention, a requirement that internet service providers store vast databases of information about their users for two years.

The government’s national security laws look more like a shopping list of security desires rather than a targeted response to the specific foreign fighter threat.

Indeed, if you add all the legislative tranches together, it constitutes a reform program of incredible size. It’s a much more ambitious reform program than anything else the government has pursued, even including the budget. It’s more ambitious than you’d expect from any government in its first year.

But pushing through a reform program of this size in such haste has created problems.

For instance, last week parliament passed a follow-up bill to a security bill that was passed in October, designed to fix problems identified in the earlier legislation.

The debate has exposed some remarkable ignorance of the details of the legislation being proposed.

Take Anthony Albanese’s objection that the security measures threaten freedom of the press. This only came after he had supported those measures in parliament. Labor is terrified of looking soft on security, but that’s no reason not to do due diligence.

Likewise, the Attorney-General George Brandis seems to have been caught off guard by the details of his own bill. First Brandis denied that the restrictions on releasing information about ASIO operations was targeted at the media, then he tried to assure journalists he wouldn’t personally approve the prosecution of one of their number.

These issues should have been resolved while the legislation was being drafted. Not weeks after it was passed.

Then there are the problems the national security reforms have caused for the government’s economic agenda.

The time the government spent negotiating with the crossbench on national security issues not directly related to the urgent foreign fighters threat was time not spent negotiating the $7 medical co-payment and the higher education changes.

Now politics has been reset to where it was left in August. Parliament’s focus is back on the budget and the economy.

The foreign fighter threat is likely to ebb when it becomes obvious to Western jihadis that a trip to the Islamic State is a trip to certain, pointless, death.

But the hurried security decisions made in the past few months will stay on the books for a very long time.

Qantas: The Spirit Of Australian Nationalism

It’s hard to believe but – if what the Treasurer Joe Hockey said last week is accurate – the government is seriously weighing up the partial renationalisation of Qantas.

That’s one option, anyway. Qantas CEO Alan Joyce has been complaining that his competitor, Virgin, has an unfair regulatory advantage. Virgin does not suffer under the Qantas Sale Act, which limits access to foreign investment.

So renationalisation, and the taxpayer funds it would require, would prop up the airline against its competitor.

Another option, also being considered by the government, is more straightforward: amend theQantas Sale Act which is creating the problem in the first place.

An easy choice, you’d think. But apparently the Abbott Government can’t decide whether it prefers state socialism or free market capitalism.

How on earth did the government get into this extraordinary jumble? Tony Abbott said he hopes the airline stays strong as “Qantas is a great Australian icon”.

The Australian aviation market has been indelibly shaped by the same simple, superficial nationalism which constrained Australian industry throughout the twentieth century.

The government this week demonstrated we haven’t shaken that out-dated industrial ideology.

Why else would the Coalition – a party that claims to be for free markets and an open economy – even suggest that it was contemplating, for a single second, in a partial way, the nationalisation of a private company?

For most of the twentieth century, the airline industry was dominated by ‘flag carriers’. These were big airlines, owned or sponsored by national governments, servicing international routes. Think British Airways, Lufthansa, Malaysia Airlines, SwissAir, Singapore Airlines, Aeroflot.

Flag carriers served many purposes. They were supposed to be semi-official ambassadors for their home countries. An attractive national airline was supposed to impress the rest of the world. A nice, financially stable, globe-trotting airline was a sort of demonstration of national virility.

Qantas was one of these. It was nationalised in 1947 by Ben Chifley’s Labor government. Lots of countries set up their own flag carriers in the post-war era. It was the era of national champions and “scientific” industry policy. A bonus: a government airline could be easily mobilised in case of war.

Of course, along with this model came heavy levels of protection, little market competition, and extremely high prices. The flag carriers suited the purposes of politicians rather than consumers. The airlines flew uneconomic routes just for the prestige they offered.

When the market for air travel was deregulated, the old flag carriers were left holding the can. They were over-extended and uncompetitive. They were over-unionised and over-politicised.

No wonder low-cost no-frills airlines have ripped the market apart. They’re not bound to any national feeling – or to the political controls that come with such feelings.

When it was privatised, Qantas was saddled, unreasonably, with restrictions on how much capital it could raise from foreign sources. The Parliament just couldn’t bring itself to let the flag carrier fall into foreign hands. Qantas was too special. Australia needed to keep its flying symbol.

Most foreign investment restrictions are driven by a combination of xenophobia and paranoia. GrainCorp is just the latest victim of this anti-foreign bias translated into public policy. But theQantas Sale Act lacks even that boorish logic.

Our politicians are happy to privatise state-owned firms but unwilling to accept the lack of political control that privatisation implies.

And our politicians like holding onto Qantas. Patriotism is their profession. Trite orations on Australia’s national dignity are the bread and butter of politics. They don’t pay for their flights, anyway, and they get access to the Chairman’s Lounge.

On the weekend, Alan Joyce demanded the government revoke Virgin’s international flying licence. This is an obvious ambit claim. Cancelling Virgin’s licence is unimaginable. Joyce must know this. He doesn’t think the Qantas Sale Act will be changed, but he clearly thinks he can get something.

We’ll know Qantas is playing hardball when they start re-running the ‘still call Australia home’ ads. Samuel Johnson said patriotism is the last refuge of the scoundrel. For the crony capitalist, it’s the first.

Just a year after Ben Chifley nationalised Qantas he launched the first wholly Australian-made car, the Holden FX, helpfully subsidised by the Australian taxpayer. In the words of the National Museum, the Holden “was a vivid manifestation of Australian dreams of prosperity”.

We’re in a bind with our automotive industry because, like airlines, cars are also seen as a sign of national prestige. Real countries make cars and have planes that operate out of Heathrow.

But we’ve seen how fruitless a century of automotive protectionism has been. Australia has expended billions in tariffs and direct subsidies to prop up those firms, and they’re still on the brink of collapse.

Qantas’ privatisation was left uncompleted. The government can deal with the problems caused by partial privatisation in two ways.

It could abolish the absurd, nationalist and anachronistic restrictions on foreign investment in theQantas Sale Act – completing privatisation and increasing Qantas’ competitiveness. Or it could commit Qantas to the cycle of subsidy and decline that has entrapped our car industry.

It’s amazing the Coalition government even thinks that is a real choice.

Fixed Terms Made A Farce Of Victorian Politics

It’s true that on Saturday the Coalition government became the first one-term Victorian government in more than half a century.

But it’s also true that the Coalition was the first government to form under the new constitutional arrangements – the four-year fixed-term system.

The fixed term nurtured Ted Baillieu’s instinctive lethargy. It created an environment in which it was plausible to roll a premier two years into their first term. And it led to the constitutional crisis that prevented Denis Napthine from regaining any sense of movement.

The Victorian election has already been raked over for its federal implications. Denis Napthine tried to run an ‘ideology-free’ government. As my Institute of Public Affairs colleague James Paterson writes in The Age today, “the risk-averse, moderate, cautious approach to politics favoured by state Liberals is no guarantee of re-election”.

Institutions matter. All this happened under the shadow of the new fixed term.

In 2003, the Labor government under Steve Bracks introduced fixed terms as part of a broader suite of constitutional changes. The idea was to facilitate long-term thinking and allow governments to get on with governing.

The flip side is that long fixed terms reduce any sense of urgency.

Nobody expected Baillieu to win in 2010. When the Coalition got into office, there was no agenda ready to go, and no eagerness from the premier to push ahead. The ‘star chamber’ vetting process for ministerial staff meant that it was months before offices were even working at full capacity.

One line was the Coalition had “hit the ground walking”.

Of course, fixed terms aren’t unique to Victoria. They’ve done nothing to limit the popularity of the New South Wales Coalition Government.

But government is a marathon. It needs pacing. Faced with a new and unfamiliar electoral cycle, the Victorian Coalition got the pacing badly wrong.

The fixed term also played a role in the March 2013 leadership change from Ted Baillieu to Denis Napthine.

That spill was remarkable because it came so shortly after the spill of Kevin Rudd, which was being seen by almost all participants as an unmitigated disaster.

With that unhappy precedent, the spill in Victoria was only plausible because of the newly extenuated parliamentary terms.

Julia Gillard became prime minister on the cusp of an election. By contrast, Napthine had years to run as premier. A four-year term gives ample time to reset and rebuild a government.

Yet ultimately the Victorian Liberals made the same mistake as did Labor federally – a sudden change in government leader without explanation.

Which brings us to Geoff Shaw, the former Liberal member for Frankston. Napthine’s attempt to reset the government was hostage to the parliamentary soap opera played out between Shaw and another angry rogue Liberal, the former speaker Ken Smith.

The specific ins and outs of this debacle are known only to the participants.

Shaw and Smith created a serious constitutional problem. The Coalition only had a parliamentary majority of one, including Shaw. (Incidentally, that tiny margin was the defence Baillieu supporters offered for the early-term go-slow strategy.)

With the Parliament in such a precarious way, Napthine should have called an election. That’s the Westminster way. But under the fixed term he couldn’t.

The only way for an election to be held early was if Labor introduced a motion of no confidence in the government. (Antony Green outlines the procedure here.) At one stage Shaw was willing to support such a vote, giving it the majority needed.

Daniel Andrews didn’t want an early election. The worse the Parliament looked, the better it was for Labor when the election was held at its regularly scheduled time.

Instead, we were treated to an obscene and undemocratic debate about whether Parliament should expel or just suspend Shaw, a legitimately elected representative.

It looked terrible.

Every budding reformer has their own pet change they’d like to make to Australia’s political system. Perhaps they’d like elections to be run differently, or restructure the levels of government, or ‘get money out of politics’, or change the preferential voting system, or fiddle with upper houses.

Fixed terms were one of those reforms. Only a few months after it was introduced in Victoria, Steve Bracks was urging the Commonwealth to follow his state’s lead.

But it would be hard to see that fixed terms had delivered the sort of long-term thinking that its supporters prophesised.

Rather, it left Victoria with a sluggish government, encouraged a leadership spill, and turned a tight parliament into a farcical parliament.

There’s another sense in which the Coalition loss on the weekend isn’t that strange. The journalist Paul Austin pointed out in 2007 that a premier who lasted two terms would now expect to be in power for eight years (assuming they were not rolled in the meantime). While most Victorian governments have lasted longer than a single term, few lasted as long as eight years. Jeff Kennett only managed seven.

The fixed term isn’t the reason Denis Napthine lost. But it’s impossible to understand why they lost without understanding how it shaped the Coalition’s time in power.

The sharing economy: How over-regulation could destroy an economic revolution

With Darcy Allen

Executive Summary: The sharing economy describes a rise of new business models (‘platforms’) that uproot traditional markets, break down industry categories, and maximise the use of scarce resources. The best known services are the ridesharing system Uber and the accommodation service Airbnb. However, the sharing economy extends much further into finance, home tools, investment, and everyday tasks.

The ‘sharing economy’ emerged from dramatically falling transaction costs that had prevented certain markets from developing. The sharing economy coordinates exchanges between individuals in much the same way as a traditional market, but does so in a flexible, self-governing, and potentially revolutionary way.

These burgeoning benefits are profound: more sustainable use of idle and underutilised resources; flexible employment options for contractors; bottom-up self-regulating mechanisms; lower overheads leading to lower prices for consumers; and more closely tailored and customised products for users.

These sharing economy platforms are only in their embryonic stage of development. The benefits to the Australian economy as the market becomes more efficient are likely to expand. This expansion will only occur if Australia’s entrepreneurs are left to experiment and innovate.

The real threat to the sharing economy is government regulation driven by the incumbent industries that are challenged. The danger of excessive legislation and regulation will absorb the gains yielded by technology improvements, preventing mutually beneficial trade and stifling economic growth.

This paper recommends new approaches to regulatory design that would encourage the growth of the sharing economy:

regulators should encourage bottom-up, organic, self-regulating institutions prior to introducing top-down government control;
occupational licensing needs to be reduced to allow private certification schemes and reputation mechanisms to evolve;
industry specific regulatory frameworks need to be avoided;
regulations making it harder for start-ups to compete for labour need to be reduced; and
the status of individual contractors needs to remain separate from highly restrictive employment law

Available in PDF here.