Policy without Parliament: the growth of regulation in Australia

Introduction: Regulation is a political activity. It sets the framework for the market economy by defining the boundaries between private action and government action. It is, since the failure of overtly socialist models of political economy, the primary method by which the government relates to individuals and communities.

Regulations, and the regulatory agencies which administer them, cast an increasingly large shadow over the freedom to interact, both economically and socially, in Australia.

The first part of this IPA Backgrounder looks at the rapid growth in regulation-making, and the recent institutional changes in Australia’s regulatory agencies. It charts the consolidation and expansion of the three major economic regulators — the Australian Competition and Consumer Commission (ACCC), the Australian Prudential Regulatory Authority (APRA) and the Australian Securities and Investment Commission (ASIC)—and examines the theoretical justifications for constructing such ‘mega-regulators’.

The second part attempts to explain how these mega-regulators are themselves able to encourage their own growth. It looks at the internal pressures towards regulatory and institutional expansion, as well as the political pressures which the agencies themselves are able to exert upon directly elected politicians.

Available here.

While You Weren’t Looking, Freedom Went Up In Smoke

Are we freer today than we were half a century ago? That question is surprisingly hard to answer. The state control over the economy that characterised Australia in the 20th century is quickly being replaced with nanny state controls.

Barriers to trade have been mostly eliminated, and state monopolies eradicated. But accompanying that has been explosive growth in social and environmental regulations. There are now more pages of Commonwealth legislation introduced every year than were passed in the first 40 years of federation.

In our social lives, freedom has both advanced and retreated. For example, restrictions on the sale of alcohol have eased. But they have been replaced by nanny state measures such as smoking bans. In the future, cigar bars will be as distant a memory as the six o’clock swill.

Since smoking bans were enacted this year in Victoria and NSW, sales growth in pubs has dropped significantly. Hotel patronage may return to former levels – international experience seems to indicate that it will – but when smokers return to the pub, they will be less free than they were in October last year.

Unquestionably, advocates of individual liberty and personal responsibility have lost the battle on smoking. That’s not surprising – smoking is reviled by everybody who doesn’t enjoy it. In a liberal state, that disagreement would be sorted out by negotiation; before the bans, many restaurants and hotels already enforced non-smoking areas or disallowed it entirely. But in a nanny state, such negotiations are replaced by force of law.

Similar sentiments lie behind restrictions on poker machines. The gaming industry is a political football to be kicked around at every state election, while individuals who value their freedom to enjoy the pokies are ignored.

In a nanny state, the government morphs into an over-eager insurance company, assuming the role of risk-manager for its citizens. Any risky or unhealthy endeavour has to be eliminated – individuals cannot be trusted to assess the risks themselves.

The next target is food. Numerous proposals are on the table to tackle our expanding waistlines, including banning certain types of fats, banning junk food advertising, and even taxing fatty food.

Earlier this year, the Labor Party hinted that it was considering banning the use of licensed characters such as Shrek in junk- food advertising, should it win government. Last week, the Cancer Council of Australia came out in support of a general ban on junk food ads aimed at children.

However, there is little evidence that such bans work. Both Quebec and Sweden have tried them, but neither have seen any reduction in childhood obesity. There are twice as many overweight children in Sweden as there were 15 years ago, even though the Scandinavian country has had a ban on all advertising aimed at children since 1991.

Furthermore, politicians hurrying to make political capital out of medical problems such as obesity and lung cancer rarely think through the unintended consequences of their policies.

Swedish advertising bans have not reduced obesity, but they have had other results. Losing the revenue from the highest-paying advertising has reduced the quality and quantity of children’s television programs. Similarly, restricting the advertising market has raised the cost of toys in Sweden to 50 per cent above the average European level.

The Australian Government’s hard line on tobacco has had similar consequences. Smokeless tobacco products have been swept up as the nanny state tries to purge society of everything that meets its disapproval.

It is unfortunate that Australia lacks a strong intellectual history emphasising individual liberty and personal responsibility. Our “she’ll be right mate” attitude is easily swamped by our calls for government to intervene in personal decisions.

Laws are passed with little reference to how they will affect our freedom. As a result, individual liberty in Australia is slowly being eroded by neglect.

The Net Is Anarchy: Keep It That Way

The internet, long seen as a neutral realm free of government interference, is now hot political property. Not surprisingly, therefore, both the European Union and the United Nations are now trying to grab control of the internet. This has major consequences for business and for individuals.

Since 1998, a non-profit organisation named ICANN (Internet Corporation for Assigned Names and Numbers) has been responsible for managing and coordinating the internet’s domain names. ICANN ensures that what is typed in the address bar matches the site trying to be accessed. Such an organisation is necessary to ensure the stability and growth of the internet.

At the moment, the internet is an ungoverned, unregulated, anarchic medium – merely a mutual agreement between computer users all around the world to connect to each other in a certain way. Given this blank slate, business and innovation has thrived online. Business to business commerce has exploded over the past few years. In Australia, 31 per cent of businesses reported placing orders over the internet in 2004. This will grow as business uptake of broadband intensifies.

Until now, ICANN’s role has been merely to facilitate and smooth this explosion of internet activity.

The European Union, as well as a motley collection of less-than-democratic nations such as Iran, Cuba and China, are forcefully trying to replace ICANN with an as-yet-unspecified UN department. Such a proposal will be under consideration at the United Nations Working Group on Internet Governance meeting next month in Tunis.

Arguing that the internet is a global resource, the European Union insists that the private sector must share its responsibility of overseeing it with the UN.

By ceding this power over to governments, every aspect of the anarchic freedom that the internet represents is under threat. The UN wants to use the internet’s structure to pursue specific goals – to close the “digital divide” and to “harness the potential of information” for the world’s impoverished.

But the inequalities the UN claims it wants to overcome stem not from the internet itself, but from government policy. Syria has even advocated taxing domain names to subsidise an international universal service right.

No matter how hard the new UN body will try to reverse the “digital divide” by reallocating domain names and shifting the location of servers, the only way that internet uptake can be increased internationally is through action within the countries themselves.

That is, the same way any technological advance has filtered down to the poorer countries. By building stable institutions, maximising economic freedom, and ensuring prosperity, which creates consumer demand. No amount of political action by the UN can replace this process.

The defining characteristic of the internet is not intelligence or its capacity to fulfil specific aims, but its simplicity. It is a “dumb” medium, which is only structurally suited to transmitting data from one computer to another. It can’t conduct public policy.

Businesses and individuals have come to rely on the internet to carry out their personal and commercial interactions. UN control threatens this.

What this new bureaucracy would clearly be able to do is restrict and censor websites and addresses, as well as place heavy regulatory burdens on their authentication, maintenance and pricing structure. This is a prospect no doubt relished by European social democrats who would like to extend their national content and industry policies across national borders.

Consider the countries most actively pushing for the UN takeover. Leading the charge is Iran, with Saudi Arabia, China, Cuba and Venezuela hot on its heels. None of these nations is known for their promotion of political, economic or social freedoms. Iran bans more than 10,000 websites on charges of immorality, and jails journalists and bloggers who disagree with the ruling elite. The “Great Firewall of China” has a similar effect.

Should the internet be under the control of a network of regulators hammering out compromises about what is and isn’t proper online activity? Member states in the UN run the gamut from the totalitarian to the democratic. Any attempt to assert control will result in an approach contrary to the liberal democratic ideals that dominate online activity.

The internet needs the technicians of ICANN, not the policy committees of the UN.

Broadband: Another Telco Monopoly Would Be A Disaster

If the Expert Taskforce into broadband infrastructure was supposed to delay scrutiny of the government’s broadband policy until after the election, then it isn’t working.

The Taskforce was formed to evaluate proposals for broadband infrastructure roll-out, and assess the regulatory or legislative changes that that may require.

Debate over telecommunications regulation hardly needs its fire stoked. But, oddly, the loudest agitator over the last week has been the communications minister herself.

Helen Coonan has spent the last few days apologising for speculating that the taskforce could recommend the structural separation of Telstra.

And yesterday in the Australian Financial Review she raised the possibility that the government could help pay for a proposal that delivered fibre-optic broadband all the way to the home. This too was quickly retracted. The Minister, a spokesman claimed, was speaking “hypothetically”.

Conspicuously, one option which has been not withdrawn is the potential that the winning broadband proposal will be granted a monopoly over broadband infrastructure. Coonan periodically refers to this possibility in her public addresses and it goes unchallenged. But granting an infrastructure monopoly would stifle competition in the telecommunications industry far more than it is already.

While the Taskforce prepares to receive the first broadband proposals, almost any regulatory change is on the table. But the one thing that the taskforce cannot yield on is the most important and controversial – the requirement that any new network be open to access by competitors at a “non-discriminatory” rate. The taskforce’s job is to devise some regulatory conditions under which a firm would both build the fibre network and share it with competitors.

But it is this sort of mandatory access regulation that has drawn the telecommunications sector into its current regulatory quagmire. Access regulation encourages firms to piggyback on existing infrastructure, rather than competitively build infrastructure themselves.

And fibre-to-the-node will hardly be the last broadband infrastructure Australia ever needs. When the next upgrade inevitably appears on the horizon, mandatory access regulation will still be hampering investment.

Coonan let this cat out of the bag when she raised the possibility of government subsidies for a future, higher-speed network – a tacit admission that she does not believe that the telecommunications industry can manage and fund its own investment while the existing regulatory framework remains.

The Taskforce’s requirement that the new network be open for access by competitors merely demonstrates that the government has learnt little from the failures of telecommunications regulation. To appropriate the Minister’s artless phrase – whatever the Taskforce concludes in February next year, telecommunications regulation will still not be “future-proofed”.

Telco Industry’s ‘Red Tape’ Burden Unfair

The telecommunications industry has never been as politicised as it is in 2007.

As a result of the ongoing fight between the Federal Government and Telstra over broadband regulation, there are few of Telstra’s business decisions that aren’t immediately pounced upon by politicians trying to gather potential votes.

One new target in this seemingly eternal stoush is Telstra’s migration of its rural customers off its CDMA mobile telephone network, and onto the highly publicised Next G service.

Next G was launched in November 2005, and provides customers with a far superior service than the ageing CDMA network due to be switched off in January next year.

But doing so isn’t that simple.

Communications Minister Helen Coonan and the Attorney General Philip Ruddock have argued that Telstra should be prevented from making the switch until the Next G network provides at least the equivalent coverage of the existing CDMA network.

The Government has imposed an additional licence condition upon Telstra to that effect.

However, Telstra argues that that level of coverage will be achieved later this month and therefore the new licence condition is redundant.

With so many marginal seats in rural areas, that the Federal Government would be paying attention to a new mobile network in the bush is not surprising. But, by imposing a new condition on Telstra’s CDMA licence, it indicates a willingness to intervene opportunistically in the affairs of a private sector company for political gain.

The Government has preached at length about the need to cut ‘red tape’, but its continued regulation-making demonstrates that it is merely rhetoric.

The telecommunications industry has one of the highest regulatory burdens in the Australian economy. The pages of legislation governing the sector has grown from 1,600 ten years ago to over 10,000 today.

For Telstra, this constitutes nearly 500 regulatory reports to government agencies a year. The Australian Competition and Consumer Commission, which manages much of this regulation, has itself doubled in size since 1999.

Regulation diverts firms away from productive activity. And the telecommunications industry is awash with regulatory affairs managers, communications and policy directors, consultants and lobbyists.

There are few sectors of the economy that require more innovation and flexibility than the technology sector. But instead, the future of Australian telecommunications services is vested with governments and regulators, who operate at glacial speed.

When they do finally act, they frequently misunderstand the nature of what they are regulating, or act only to please political constituencies, or even act just to justify their own existence.

It is hard enough for the industry to keep up with Australian consumers’ insatiable demand for new technologies. So when it is deeply intertwined with politics and regulation, it is doubly unable keep up.

But taking a long-term view, this episode illustrates a major policy issue that the telecommunications sector has to grapple with.

The radio-frequency spectrum licences that are necessary to operate a mobile network like Next G or CDMA are ultimately controlled by regulators and the Government, not the firms which actually operate the networks.

This government control of spectrum licences leaves telecommunications firms susceptible to political manipulation. Spectrum management has, since its last major reform in 1992, been overhauled to allow for greater flexibility and ‘ownership’ of spectrum licences by firms.

As Senator Coonan has bluntly shown, these licences still have a long way to go until they can be free of arbitrary government intervention.

Governments need only to follow due process – Telstra alleges that the Communications Minister in this case has not – and they can alter the terms of those licences at their whim.

Licence holders are exposed to the political calculations of the government of the day.

Ideally, firms which held spectrum licences would be able to use those licences as they saw fit and make business decisions about how best to serve their customers.

But in an election year, and in an industry that is highly politicised and highly regulated, that ideal is still far away.

Film Classification Laws Out Of Sync With The 21st Century

With Tim Wilson

Recently a small St Kilda video store, Out Video, drew the attention of the federal Attorney-General’s Department for selling and renting imported titles that have not been classified in Australia. Bureaucrats may be doing their job, but by acting against a small niche video shop, they have inadvertently exposed critical flaws in our film classification laws.

Out Video markets films primarily directed at the gay and lesbian community. Many are produced overseas and never achieve general or selected release in Australia. And because of the prohibitively high cost of classification, they never get classified.

The A-G’s Department contacted Out Video because they were selling and renting out titles not given the all-clear by the Office of Film and Literature Classification (OFLC). As a result, Out Video says nearly half their stock will have to be shelved permanently.

This highlights two major flaws in Australia’s classification regime:

1. The regime has not adapted to a marketplace that allows media to be accessed through more than just domestic broadcasters and distributors. Consumers demand access to an increasingly wide selection of entertainment from overseas, and they can get it through the internet.

2. Our classification laws are not designed to accommodate small markets. Instead, the classification processes are optimised for large, general-release films. The system simply doesn’t lend itself to small-run films, and the law unfairly harms businesses trying to service niche markets.

The targeting of Out Video by the A-G’s Department should give it and the OFLC impetus to review the classification laws. With a vibrant and diverse international entertainment sector, these laws should not blanket-ban content. Such a policy makes a mockery of the liberal legal principle that all things should be legal unless there is a reason to make them illegal.

Many of the films these niche providers import have already been classified in the UK, US and Canada. So one possible solution is to recognise comparable classifications from other media-exporting countries.

But a preferable outcome would be the elimination of mandatory classification. If consumers demanded classification to guide their decisions, then distributors would have a commercial incentive to seek it.

Furthermore, classification need not be the preserve of government. Many private classification regimes exist to rate films on special criteria (the Christian community, for example, has pioneered many alternative rating systems). Under such a regime, films that failed to obtain any form of classification would be burdened with the trepidation of some consumers to buy or rent the product.

The removal from sale or rent of Out Video’s titles will do nothing to reduce their availability. All the “offending” titles are available from online stores outside the country. Australians can order them online and watch them at home, avoiding the scrutiny of the censors.

Furthermore, internet-aided piracy is now extremely common. By denying consumers legal access to small-run films, mandatory classification provides additional incentives for consumers to download illegal copies.

The sale of unclassified material is hardly uncommon. If government bureaucrats want to clamp down on unclassified videos, they should take a walk down Victoria Street or Sydney Road. Both are hives of foreign-language video stores that stock unclassified foreign-language films. In all likelihood the Government wouldn’t dare act in these cases: the electoral backlash would be considerable.

It is unlikely that homophobia played a part in the Government’s decision to enforce the law: it acted because it received a complaint. But if homophobia was the cause of that complaint, it would merely demonstrate how the classification laws can be manipulated.

Current film classification laws undermine access to films for different sections of the community. And businesses that are trying to meet a diverse market demand for unique niche content should not be punished for doing so.

A disgusting history of England

A review of Hubbub: Filth, Noise & Stench in England by Emily Cockayne (Yale University Press, 2007, 335 pages)

For Europe, the seventeenth and eighteenth centuries saw the rise of the nation state and the consolidation of sovereign power. It was a period in which the Baroque and Rococo movements celebrated the aesthetic potential of art, and in which we can first glimpse modernity in the fields of political theory, the media, commercial endeavours and industry.

But it was also very disgusting.

Two recent films graphically depict the repulsive squalor of urban Europe on the cusp of the Industrial Revolution. Perfume: The Story of a Murderer, based on Patrick Suskind’s novel of the same name, describes the ghastly scent of eighteenth-century Paris — from its gruesome montages of fishmongers, rotting meat, manure, to the heat and stench of the tannery to which the protagonist is apprenticed. The perfume of the title is the ultimate contrast to the film’s visceral portrayal of urban life.

In The Libertine, the 2nd Earl of Rochester — played by Johnny Depp — pursues his rakish lifestyle amongst the squalor of Restoration London. While wealth largely protects Rochester from the filth experienced directly by the protagonist in Perfume, his end is nevertheless gruesomely unglamorous. It is not revealing too much about the plot to write that Rochester’s debauchery leads to the macabre but inevitable contraction of syphilis.

Emily Cockayne’s Hubbub: Filth, Noise & Stench in England keeps the attention firmly on all this unpleasantness. Influential and great individuals figure in her survey of everything that was repulsive about life in the period, but only incidentally.

Samuel Pepys is awoken in 1660 to discover that ‘a great deale of foule water’ had seeped into his parlour from his neighbour’s house. Alexander Pope is disgusted by the ‘large tribute of dead dogs’ floating down the Thames. Jonathan Swift, frustrated by the roar of a vegetable merchant hawking his wares to passers-by, complained that

Here is a restless dog crying cabbages and Savoys, plagues me mightily every morning about this time. He is at it now. I wish his largest cabbage was sticking in his throat.

Thomas Hobbes also pops up in a section on the ugliness of growing old: 60 years old, but dressed in a manner inappropriate for his age, and a little bit ‘French’.

As Cockayne writes in the first chapter, Hubbub is designed to provide an alternative to the customary histories of the period — which tend to focus on the pleasures of the times — by looking at all that is noisome and disgusting. Drawing from diaries, paintings and illustrations, court records, government archives, and even maps and architectural drawings, Cockayne lovingly combs the margins of the period to document all the possible grievances that an individual could have with everyday life. No nuisance is left unacknowledged. She neatly divides the book into separate categories of complaints: ‘ugly’, ‘itchy’, ‘mouldy’, ‘noisy’, ‘grotty’, busy’, ‘dirty’ and ‘gloomy’.

Some of these grievances seem, at least upon their first citation, relatively petty. Hobbes may invite ridicule for having dressed too young and French for his age, but vanity certainly did not disappear with France’s ancien régime. Ugly people were ridiculed, but being ugly did not seem to harm career prospects, at least for men; women were at a much greater disadvantage, and those with physical deformities even more so.

As Cockayne’s sources are by necessity biased towards the literate upper class, it is not surprising that the din of everyday commercial traders and street sellers receives a great deal of attention. The poet Nicholas Breton summed up the situation well by noting that ‘the cry of the poore is unpleasing to the rich’.

And some of the poor must be forgiven for perhaps thinking that this essentially aesthetic complaint had the backing of the force of law. Two individuals were convicted of vagrancy in 1685, despite their protestations that they were shilling for work: one yelling ‘have you got any knives to grind?,’ the other ‘have you got any worke for a tinker?’.

Similarly, satirists singled out ugly, scruffy and apparently atonal buskers for ridicule.

Cockayne notes that the wealth of the new merchant class combined with increased literacy had architectural consequences. In the early sixteenth and seventeenth centuries, a study tended to be located on the outside of an urban dwelling to maximise light. The heightened sensitivity to noise felt by a literate occupant meant that, by the eighteenth century, studies were mostly located in the centre of buildings to minimise street noise.

Some of the complaints were mere nuisances. Others were certainly not. ‘Itchy’ and ‘mouldy’ make for very uncomfortable reading.

Sometimes the source of an itch was the ubiquitous wigs of the period. Wearers would shave their heads for fitting, but the rough underside of the hairpiece would have caused much discomfort. Wigs could accumulate dirt and become greasy and disgusting.

Poor quality clothing was not helped by almost non-existent hygiene. It is difficult to discern how often or how thoroughly people washed in this period, but what little evidence we have does not flatter — rare was the ‘wet wash’. (It is alleged that Louis XVI took just one bath in his life.) While the diarists of the period rarely mention bathing, Pepys manages to slip in a note that he ‘rubbed myself clean’. Soaps were either greasy irritants or extremely expensive.

Worse still was the food. It is no surprise that one of the most popular cookbooks of the era, Hannah Glasse’s 1747 The Art of Cookery, had a section to teach aspiring cooks how to clear a room of bugs. Cockayne’s descriptions of the deteriorating food quality of this period are as close to gut-wrenching as a history book can get. Her description of everything that could go wrong with pork is indicative of the culinary challenges of the time:

While rootling in the back alleys and dunghills, pigs picked up contamination from city industries and noisome ditches filled with night soil and street sweepings. Mingling with dogs increased the circulation of disease and intestinal worms. Pork from city pigs needed to be cooked thoroughly to ensure it did not cause illness or worm infestation … Pork with flabby fat and a hard ring, or with any part that felt ‘clammy’, should stay on the block.

Butcher shops open to the elements were susceptible to mud splashes and insect contamination. Fruit was prone to disease: apples were dismissed by one contemporary author as ‘unwholesome’.

But not all of the risk for food shoppers was unintentional. Shoddy merchants often knowingly disguised rotting meat or stuffed bread with filler — grit, wood, sand, and even stones were used to make up weight.

The list of unpleasantness is nearly endless. Choking smog so blanketed London that people detected house fires not by the smell of smoke, but by the crackle of flames devouring wood. The pavement was so uneven as to be dangerous. The wheels of carts bumping along poorly laid streets would shed their lubricating fat, which would combine with animal dung, soot and other filth.

The Thames was so ‘impregnated with the filth of London,’ said a character in Tobias Smollett’s The Expedition of Humphry Clinker, that ‘human excrement is the least offensive part’.

Cockayne’s catalogue of the filth of urban England is hardly balanced. There are scores of histories extolling the virtue of the polished and refined city lifestyle (albeit upper class city lifestyle), and to match each description of filth with a counter example of the luxuries of elaborate sixteenth century English gardens would be fatuous.

But she does address the overwhelming question that Hubbub raises — if the city was so bad, why did it continue to grow? City life was certainly filled with unpleasantness, but individuals were aware of the need to accept trade-offs in order to prosper. As Cockayne writes,

There were consolation prizes for those citizens prepared to put up with congested roads and grimy houses. The prospect of finding secure employment, with the opportunity to specialise and diversify, attracted migrants to the cities and induced them to settle, despite the risks and squalor.

‘Muck and money go together’ said a contemporary proverb. So too did the social interactions, arts and cultural life offered by urban density. And while the primary source for Hubbub is a seemingly endless list of contemporary complaints, individuals were able to acclimatise and cope with the vast majority of daily nuisances.

Furthermore, Cockayne rarely leaves the city limits. Rural life had its own share of complaints — urban unpleasantness was so visible to contemporaries because it was relatively new. Living and working in the English countryside was scarcely the idyllic life portrayed in Marxist anti-Industrial Revolution tracts, or even by John Stuart Mill or William Cobbett.

Even so, at the end of the period of Cockayne’s survey, London was progressing towards a cleaner, healthier place, despite the conspicuous acceleration of the Industrial Revolution in the last few decades of the eighteenth century. Indeed, this period has modern political significance. Modern environmentalists point the finger at the Industrial Revolution as the originating point of today’s environmental problems — Leonardo DiCaprio’s upcoming The 11th Hour will reportedly do just that.

But as Hubbub reveals, long before even the most revisionist historian dates the beginning of the Industrial Revolution, Londoners were complaining of ‘duskie cloudes’ over the city. Traditional biofuels such as wood, coal and charcoal were big sources of lung damage. The shift towards electrification that came in the early twentieth century may have spurred a great increase in the use of natural resources for energy generation, but it also shifted noxious smoke out of the kitchen and the living room.

The improvements in sanitation, public works, masonry — Cockayne details how poor craftsmanship meant that buildings in this period tended to fall down without warning — medicine and food technologies achieved during the Industrial Revolution have increased living standards far beyond the imagination of seventeenth-century diarists. Whatever environmental challenges we face, we are not served well by naïvely utopian paeans to pre-industrial Europe or by appeals to wind back development.

Annoyances such as toothaches, itchy clothing, excessive noise and drunken neighbours are all recognisable to twenty-first-century Australians, but to be so immersed in it is not.

IPA Review Editorial, October 2007

In the security scare that followed September 11, it became something of a sport for American news organisations to sneak prohibited items through airport screening security.

So when The Chaser — the Australian political satire group — loosely disguised themselves as the Canadian delegation convoy, and easily passed the security at APEC, it wasn’t surprising. The media pounced on the incident — after all, not much else was happening of interest at APEC. The Chaser’s War on Everything, when it aired the next week, achieved its highest ratings ever.

The Chaser is part of a genre of satirical news programs, which include the US’s The Daily Show and its spin-off, The Colbert Report that are gathering loyalty from the apparently ‘disengaged’ youth demographic.

(It is conspicuous that the commentators who bemoan the Australia’s ‘disengaged’ youth always assume that once they become engaged they will immediately become Left activists. But what if all those yoof got off their bed, put down their headphones, and en masse joined the Young Liberals?)

The popularity of satirical news programs with youth audiences has led some on the Left to view these programs as the saviour of democratic engagement. But satire is a double edged sword. It doesn’t always do what you think does.

Some on the Left have cottoned on to the uncertain potential of satirical news. One piece last year in the Boston Globewas titled ‘Why Jon Stewart Isn’t Funny’, and it argued that the host of The Daily Show, through his relentless satire of Washington buffoonery, encouraged political complacency.

The article claimed that The Daily Show leads audiences to adopt a ‘holier than art thou attitude toward… national leaders’ and undermined ‘any remaining earnestness that liberals in America might still possess’. Given the dreary sanctimony of so many of those in the American Left, if this is true then Jon Stewart does a fantastically important public service. But the Boston Globe writer is spot on. Satirical news programs display an extremely cynical attitude towards the political class.

After all, making fun of politicians is really easy, and fantastically rewarding. The Colbert Report and The Chaser’s War on Everything are able to take advantage of the self-seriousness and cautious approach to the media that politicians harbour. Stephen Colbert, in his ‘Better Know a District’ interviews, successfully tricks junior politicians into making outlandish statements. (‘It was wrong to break the law to get people out of slavery — that’s what you just said’) And The Chaser is never funnier than when they are harassing humourless politicians at their press conferences.

But Left politics relies on the heroic politician, blessed with intellect and political cunning, to enact policies in the ‘national internet’ for the betterment of ‘society’. Cynicism about the type of people who choose to go in to politics and the capabilities of government action does clash with the ongoing hunt in the left for the political saviour.

For this reason, The Chaser’s jokes may seem fairly leftwing, but by undermining the sacred authority of the political class, satirical news tends to be more libertarian than socialist. A generation raised on cynicism and sarcasm are far less likely to jump on the bandwagon of a charismatic leader-type.

The IPA Review has been sceptical of governments, politicians, regulators and other self-appointed ‘leaders’ for sixty years, and this edition is no different. Sinclair Davidson and Ken Phillips criticise the ideological baggage of the union movement, in teaching and construction respectively. Tim Wilson treats yet another call for a government petrol price inquiry with the contempt it deserves. Jennifer Marohasy and Alan Ashbarry decry the cultural divide of forest politics. And in our cover story, Nicholas Eberstadt stares directly into the eyes of the anti-natalists, and asks what they have against children.

Wolfgang Kasper reminds us that federalism is more than just anachronistic ‘State’s rights’, as the Prime Minister seems to consider it. Instead, the principles of federalism are at the heart of liberal government. And Richard Allsop completes the thankless task of reading recent Prime Ministerial biographies, to try to discover more important things than the hometown of John Howard’s grandfather.

There is, of course, the standard array of book reviews, complaints about regulation, personal digs at high-profile environmentalists, and references to Adam Smith that have made the IPA Review Australia’s leading free market review of politics and public policy

Regretting Privatisation: Broadband and the 2007 election

Telstra was sold barely a year ago, but both major parties want to bring the government back into the telecommunications infrastructure game.

The Federal Government has responded to its own failure to reform the decade-old regulatory framework for telecommunications with an array of subsidies and initiatives to introduce high-speed broadband networks. In response, the Labor Party dangles in front of voters a $4.7 billion high speed fibre-optic network.

Both parties are trying to make political capital out of the regulatory quagmire which government action has created for the telecommunications industry. But their proposals offer far less than substantive regulatory change could, and they offer it at a much greater cost to taxpayers.

How broadband became an election issue

A decade is a long time in the communications industry.

In 1997, the ABS reported that barely 300,000 Australians subscribed to Internet connections. In 2007, that figure is now six-and-a-half million. (The number of actual users is far higher. With modern networking hardware not widely available a decade ago, many people share Internet access in the household or workplace.)

With the limited speeds offered by dialup technologies, accessing video and audio was then idle futurism. Today, some estimates place video and audio downloads at 90 per cent of traffic.

Nevertheless, the regulatory framework which was developed in 1997 to govern the industry remains the same regulatory framework governing the industry in 2007. While technology and consumption patterns are almost unrecognisable a decade later, the regulation hasn’t budged.

This regulatory framework was designed to encourage the competitive provision of telecommunications using the legacy infrastructure owned by Telstra. By purchasing capacity from the infrastructure owner, competitors could share the network, introducing competition where previously there was none, and without the need for competitors to build their own network from scratch. The approach favoured by regulators under such a framework is to encourage competitors first to resell Telstra’s products, and then progressively to install hardware into the network to compete with the dominant telco.

With carefully regulated access prices, this ‘ladder of investment’ is designed to encourage both competitors and incumbents to invest in infrastructure—the former in order to siphon off some of the market share of the incumbent; the latter to invest to stave off hungry competitors.

The high level of competition for basic internet and telephony service attests to the success — at least on one metric — of this regulatory model. Indeed, at one time, there were more than 600 internet service providers (ISPs) in Australia.

But a mere two dozen of those have had more than 10,000 customers, and competition is not merely a synonym for ‘lots of companies’. Most Australian ISPs are small shoestring operations — reliant on regulated access prices for reselling Telstra services, and highly prone to failure. This segment of the industry looks like a caricature of the economic models of ‘perfect competition’ — hundreds of companies, prices down to marginal cost, and homogenous products.

Nevertheless, the structure of the market is not the most significant flaw in the existing regulatory framework. Critically, the ‘ladder of investment’ theory is unable to deal with major shifts in technology. When it becomes time to move beyond the legacy copper-wire network — the need for a fibre-optic network in Australia is manifestly clear — access regulations are unable to encour-age the creatively destructive investments required.

After all, regulators have encouraged firms to invest further and further into the existing Telstra infrastructure. These firms rely on a specific regulatory framework to provide them with a business model. Furthermore, the prospect of entirely new networks threatens their existing hardware investments — a fibre-optic network may strand a firm’s assets, or at the very least provide unwelcome competitive pressures. Understandably, these firms resist any proposed change to the telecommunications access regime.

The ‘ladder of investment’ may encourage investment up the ladder, but it discourages investment in alternative ladders. There have been indications that this framework was distorting investment for some time. Optus had been migrating customers off its own cable network and on to the Telstra network when the regulated access price turned in its favour. Fearful of having its service declared by regulators as open access, Telstra is only turning on its recently upgraded high-speed ADSL2+ equipment in areas where there is investment from competitors — in Tasmania, for example, the telco has installed ADSL2+ in more than 100 telephone exchanges, but has switched it on in only three.

But the big evidence came in a flurry of controversy last year. The impasse between the Australian Competition and Consumer Commission (ACCC) and Telstra late last year over the access price for their proposed fibre-to-the-node network pivoted around the application of the regulatory framework to new infrastructure investments.

The fact that the two organisations could not come to an agreement (Telstra very publicly announced that it was scrapping its plans to build a new network) should have provided federal policymakers with a very clear indication that the decade-old regulations had finally collapsed.Unfortunately for taxpayers, this was not to be the case. Instead of reform, the political reaction to this regulatory failure has been to propose subsidies, grants, programmes, initiatives and plans. Worse — all of the proposals on the table would increase government involvement in communications investment, not decrease it.

With the ink barely dry on the full sale of Telstra, das broadband problem has politicians wanting to try their hand again at managing the telecommunications industry.

Picking winners, 2007 style

When Communications Minister Helen Coonan announced a one billion dollar award to an Optus–Elders consortium (dubbed ‘Opel’) to deploy a WiMAX wireless network for regional and rural broadband, she had to defend the technology against its legion of critics.

WiMAX is a successor technology to the WiFi standard that is common in home internet networks. In optimal conditions — that is, with access to the right licensed spectrum band, and in the best geographic and environmental circumstances—the technology can deliver broadband speeds at distances of up to ten or fifteen kilometres, wirelessly from the base station.

However, WiMAX’s reputation has suffered from over-hype. Early enthusiasts proclaimed a range of seventy kilometres, and when the technology failed to deliver even half of that, cynicism about its capabilities crept in.

The Communications Minister has not avoided this trap. Releasing maps of the coverage of the Opel network, the Government has assumed a range of 20 kilometres, with a ‘possible’ further 5 kilometres, a much further distance than the broadband is likely to be available.

Two other factors work against the network’s favour. First, the Opel network will deploy a ‘fixed’ WiMAX network, which is being superseded by the superior ‘mobile’ WiMAX technology. Second, such range is only possible on licensed spectrum, to which the Opel network does not currently have access. WiMAX operating on unlicensed spectrum has to compete with a range of consumer technologies such as home wireless phones, private radio transmitters, garage door openers, and so on.

Given these problems, a more likely range for the WiMAX deployments would be in the region of five to ten kilometres. To be uncharitable, when considering environmental and topographical factors, a maximum range of as little as one or two kilometres is entirely possible.

When the maps of WiMAX coverage that were paraded around by the Communications Minister after the Opel announcement are redrawn with a more realistic range, the difference is stark.

Figures 1 to 4 illustrate this difference in two marginal electorates — Gippsland in rural Victoria, and Wakefield in northern Adelaide. (In an election year, electorates are always the most appropriate unit of measurement.) Figures 1 and 2 are the maps produced by the Department of Communications, which assume a twenty kilometre range with a possible added 5 kilometres for the WiMAX network. Figures 3 and 4 depict what the coverage would be like when we assume a more realistic, but still charitable, range of ten kilometres. In both cases, what appeared to be blanket coverage is now revealed as relatively spartan.

A range of ten kilometres may still be too optimistic. Many WiMAX experts predict even less—down to five, or even one or two kilometres. Experience with a similar technology used by the wireless ISP Unwired in Sydney gives little hope. That the likely range of a wireless network could be overestimated is certainly not unique. A firm competing in an open market that found its network was under performing would merely deploy more towers or upgrade to a better technology. But when the source of funding is public dollars, it should be of some concern.

As these maps make clear, it is highly unlikely that the one billion dollar grant for rural broadband will produce the services advertised.

There is one further core problem with the Federal Government’s rural broadband proposal. While the choice of WiMAX has been the major public focus, the Opel plan also relies on widespread ADSL2+ installations. (For instance, Omeo in Gippsland will be serviced by ADSL2+, rather than WiMAX.) However, as we have seen above, Telstra has deployed ADSL2+ in hundreds of exchanges, but because of the risk of regulatory appropriation, has not switched it on until there has been competing investment.

It is yet another striking demon-stration of the perversity of the regulatory framework that governs the sector: once Opel has installed its equipment in exchanges around the country, and as a result Telstra feels free to switch its equipment on, taxpayers will have paid to build duplicated infrastructure.

Broadband to urban areas is to be dealt with separately, and a taskforce set up by the Government has released guidelines for firms applying to build a network. Applicants have until April to apply, and can specify any necessary regulatory changes required. The minister has gone so far as to suggest that one possible regulatory change would be to grant an infrastructure monopoly to the successful firm to protect it from competition, something which would resemble the legislative monopolies that have characterised Australia’s economic history for most of the twentieth century. Nevertheless, one of the core guidelines recommended by the taskforce is the maintenance of an ‘open access’ regime.

It is clear that few lessons have been drawn from the failures of access regulation in the telecommunications sector.

‘Well, we could just pay for the damn thing ourselves’

While the federal government has provided the most detailed plans, they were beaten to the punch by the ALP. In March, the Federal Labor Party announced its solution to the broadband problem — a $4.7 billion grant to build a national fibre-optic broadband network. Specifically, the ALP proposes a fibre-to-the-node network, which is the same sort of network that Telstra proposed and then abandoned six months earlier.

There is a degree of irony when con-sidering the source of the $4.7 billion. $2.7 billion will come out of existing communications funds—a legacy of the more than a dozen broadband infrastructure programmes of the Howard Government’s last five years. But the remaining two billion dollars will be drawn from the Future Fund, itself a result of the sale of Telstra. Telstra is, as the country’s biggest telecommunications infrastructure providers, likely to be a big contender for the grant. The ALP proposal may return to Telstra the proceeds of its own sale.

But less facetiously, it is hard to justify the use of taxpayer money to build a network that the private sector — in this case, Telstra — was desperate to build itself. And instead of regulatory reform, both the ALP proposal and the Federal Government’s proposal lock the telecommunications sector back into a cycle of government investment and regulated access.

To appropriate the graceless expression made famous by the Communications Minister, neither proposal adequately ‘future-proofs’ the communications sector. When the next inevitable infrastructure upgrade is faced — fibre-to-the-node is hardly the last communications network that will be built in Australia — the same regulatory challenges will arise, unless a more comprehensive and ‘future’ orientated reform is pursued.

As Alan Moran and Warren Pengilley have demonstrated in their recent Institute of Public Affairs monograph, Regulation of Infrastructure: Its Development and Consequences, telecommunications is hardly alone in suffering from inappropriate access regulation. Ports, gas, airports, electricity and railroads have all been negatively affected by infrastructure regulation which grants competitors access to their networks at a regulated price.

In telecommunications, a regulatory framework that includes a disincentive to invest is particularly damaging — technological change requires continuous investment. Broadband in Australia is less than it could be, not because the federal government has failed to assume responsibility for its infrastructure, but because it refuses to reform obsolete regulations that hold private investment back. Bringing the government back into the telecommunications market is no solution.

No Need For Local Films On Public Purse

Some phrases deserve scare quotes more than others. And it’s hard to find a better candidate for the sarcastic use of punctuation marks than the phrase “cultural imperialism”.

After all, the popularity of Hollywood films in Australia hardly resembles the violent military occupation of a foreign nation. If cultural imperialism wasn’t invoked so often, it would be self-evidently absurd.

Nevertheless, many people believe that, somehow, cultural products made by Australians are superior to those made by foreigners. Australians should be watching Australian films, listening to Australian music and reading Australian books.

Cultural nationalists — who come from both the left and right of politics — assume that only after burying ourselves in cultural products produced within our geopolitical borders will we be able to develop a genuine national identity.

This is silly on a number of levels. For instance, what about the poor old states — do we suffer from a lack of films set in Victoria and featuring Victorian voices? Similarly, suburbs could also be considered distinct cultural units. If so, we have an oversupply of television programs set in St Kilda and Brunswick, and an undersupply of those set in Frankston and Dandenong.

At the same time, cultural nationalists argue that if Australia’s culture is not protected by government through regulation, subsidies and broadcast quotas, then that culture is at risk. The market cannot provide what Australians need, and the government has to step in.

But the case for cultural protectionism is weak. Often calls for subsidy are just naked special pleading. These are easy to dismiss — probably the worst thing for both taxpayers and artists would be a special category of welfare for creative industries.

Decades of government subsidies have already fostered dependency in the cultural sector. And relying on government rather than consumers for finance provides little incentive for cultural producers to tailor their work to the demands of the public.

As a result, the steady stream of below-par and ideologically heavy-handed productions funded by the Government has given Australian films a poor reputation. Recent films Candy, Little Fish and 2:37 have depicted urban and middle-class life as awash with drug use, depression and death.

For audiences, the “made in Australia” brand now often has negative connotations. And when critics deliberately go easy on local films, they compound the problem.

Taxpayer support is seen as a right by artists who believe they are serving a higher purpose — rather than satisfying the demands of their audience.

But a culture dependent on government handouts is a weak culture. Throughout history, the most vibrant intellectual and artistic cultures have been those that were decentralised, entrepreneurial and commercial.

The market economy has been the driving force behind most of what we consider to be “great” art. Markets in which consumer choice dominates provide cultural producers with far greater freedom to supply niche products to consumers with diverse tastes. And markets discipline artists to produce accessible work.

French history provides an illustration of both the negative consequences of cultural subsidies and the virtues of marketplace-driven art.

French cinema dominated the first few decades of the 20th century. Indeed, it was so popular that American filmmakers argued that the US required protection.

But as the French government set up lavish film bureaucracies after World War II, its industry atrophied and its films grew less popular. US films now make up 60 per cent of the market in France — in the 1930s, that figure was just 15 per cent.

The reaction against cultural imperialism has the unintended consequence of making cultural industries uncompetitive.

Robert Manne hoped in the latest Monthly that if a Kevin Rudd government was elected that the gulf between the government and the nation’s creative artists would be bridged.

It is hard to imagine how turning more artists into tax-eaters would be good for Australian culture.