Clamp On Conflict Of Interest May Hobble Sound Judgement

Do we want our councillors to be even less interested in local government policy than they already are?

As potential councillors submit their nominations for Victoria’s council elections next month, this is the message the State Government is broadcasting. A legislative change to local government administrative law now filtering through Parliament will exclude councillors from being able to vote on an issue in which they have an indirect interest.

Across the nation, councils have been embroiled in scandal after scandal over alleged corruption concerning development approvals. It would be nice to clean up council politics. But this new indirect interest rule is remarkably broadly defined. Apart from the obvious possible conflicts of interest – family members owning property that might be enriched by council decisions, and so on – it also considers an improper interest to exist if the council member had, at any time in the past, made a submission on the issue at hand.

But what if the councillor was elected specifically because of his or her position on that issue? Those activists who have in the past taken legal action against, say, the St Kilda Triangle or the 2am lockout would be unable to vote against them in council when the time came.

The only councillors who would be able to vote would be those who have no particular concern for the issue. Imagine this rule extended to state or federal government – democratic representatives could only vote if they didn’t care about what they are voting for.

It would be wrong to have a politician determining fiscal policy if they have a mortgage, or health policy if they have a relative in hospital.

The Government claims this new rule will apply in a small number of cases, but the legislation is worded so ambiguously that many councillors will have to excuse themselves to avoid an inevitable legal backlash.

Other ways the Government believes that councillors might have an indirect interest are just as dubious. One test is whether the councillor ever received a gift worth more than $200 from one of the parties appearing before the council. A sum of $200 is ridiculously small considering most contentious council development applications involve projects worth many millions of dollars.

Does Spring Street really think that bribing local councillors is that easy? If so, we have a much more serious problem than the State Government is making out.

When such trivial donations come to be considered a conflict of interest by the new law, councillors will find it hard to identify prominent members of the community who they don’t have an indirect interest in. Remember, councillors are politicians who have, over many years, needed to fund-raise from within their community.

While we all enjoy feigning moral outrage over the influence of money in politics, as long as councillors are able to make decisions that can make or break property developments worth millions of dollars, money is going to flow into councillors’ campaign chests, whether overtly or covertly.

The problem the State Government is trying to tackle is actually quite real. Councillors are asked to do two separate jobs that can easily come into conflict with each other. Half the time, they are supposed to be politicians, pressing palms, kissing babies and pronouncing judgement on the issues of the day.

The rest of the time, their role in Victoria’s planning framework requires them to be dispassionate judges, prostrating their personal opinions upon the cold concrete slab of administrative law.

This tension between councillors’ democratic and quasi-judicial functions is one they are not well-equipped to manage.

Local government seems to attract the dregs of our political class. There are young factional hacks from political parties who view local government as well-paid work experience. There are activists who don’t know much about government but know they hate ugly new houses spoiling their suburbs’ “traditional character”. And there are earnest greenies who campaign to declare their council “nuclear-free”.

Yes, local councillors are a bizarre collection of the uninformed, the uninterested and the weirdly over-interested.

But they were democratically elected. The State Government should allow them to vote on the issues that got them there.

Why Greed’s Just Too Small A Word To Hang A Crisis On

Pundits, letter writers, talk-back radio callers, John McCain and the Prime Minister all agree: It Woz Greed Wot Done It. In a speech in Sydney last week, Kevin Rudd recalled the movieWall Street and its main character, Gordon Gekko, before declaring that the era of “greed is good” is over. And McCain’s campaign – or at least what is left of it – has been busy blaming money-hungry fund managers for the financial crisis.

It seems that everyone knows who the villains behind the crisis are – those greedy, greedy share traders who grubbily fondle their portfolios with their fat, stumpy fingers, and all those greedy consumers hoarding investment properties.

But if there’s one thing constant in human history, it is greed. Even 2000 years ago, Roman moralists sounded old-fashioned when they complained about the avarice of the common people – the satirist Gaius Lucilius wrote that “a man can be cured of his lust, but never a fool of his greed”. So greed wasn’t invented with Facebook.

The causes of the financial turmoil have to lie elsewhere.

An extraordinarily elaborate patchwork of national and international regulation gave banks and traders a false comfort that regulators were protecting their investments. And after September 11, the US Federal Reserve lowered interest rates, making it seem that only a sucker wouldn’t borrow vast sums for their home. Restrictions on land use in many areas raised house prices so high that it became almost impossible to buy a home without borrowing 20 times your annual salary. Compounding all this were government policies that encouraged banks to loan to individuals with non-existent credit histories.

On the other side of the market, traders relied on complex models of the riskiness of certain assets that, it is now clear, were systematically hiding dodgy mortgages. The existence and practices of quasi-government mortgage lenders – Fannie Mae and Freddie Mac – further obscured the riskiness of subprime lending and, indeed, the risks of subprime borrowing. There was a lot of hubris – Western democracies have seen decades of rising house prices and traders have increasingly filled their investment portfolios with assets that appear far removed from the individual debtors at their source.

So, where is all the “greed”? Share traders working hard to increase wealth isn’t greed – it’s their job. And if we are to be completely honest, most Australians would prefer that their super fund managers were eager to beat the market.

It was complacency, not greed, that made everyone underestimate how risky their investments actually were. Greed might be a deadly sin, but so is sloth.

Even if greed did cause the crisis, then it was greed unfulfilled. All those sharks who have spent their careers scurrying around the big banks and mortgage houses looking for investment opportunities have had their dreams of mega-wealth spectacularly dashed. After all, it wasn’t the CEOs packaging up those dodgy assets; it was the ambitious middle-rung traders who are now filing out of their offices. It’s easy to be greedy. It’s a lot harder to be successfully greedy.

It is sort of understandable that people are trying to portray the financial crisis in moral terms – there are a lot of people watching their small investments hit bottom, for reasons that are complex and technical.

But the financial crisis is not a crisis of consumerism, or of morality. The international banking system isn’t a telemovie of the week, where the good guys are obvious because they love their mothers and the bad guys have silly moustaches and curse a lot. Gordon Gekko is a character in a movie written and directed by Oliver Stone – a guy who thinks that the US government is competent enough to execute its own president and keep it a secret. Wall Street is not a documentary; it is a well-executed caricature.

And it is remarkably patronising to tell people who are living in rented property that owning their own home would be greedy. Greed is easy to identify in others, but hard to identify in yourself.

There are serious discussions going on about what regulations caused or failed to prevent the crisis. But trying to compress the world’s economic problems to a cheap morality play helps no one.

Where’s The Local Goodwill When It Comes To Rates?

How do we know that our local councils have raised far more money than they need?

It isn’t the fact that local governments have enough money to send councillors on “diplomatic” missions to negotiate “friendship city” relationships. Moreland City Council proudly notes that it has relationships with councils in China, East Timor and on the beautiful island of Sicily. Ararat City Council carefully points out on its website that it took “many visits” to forge its relationship with the city of Taishan in China. And thank goodness for Latrobe City — apparently its fraternity with cities in Japan and China is responsible for all that peace, goodwill and friendship around these days.

But that’s not it. And it’s not because local councils have enough extra money and surplus bureaucrats to organise those cringe-inducing “community” events — the sort of events that assume people wouldn’t say hello to their neighbours unless they were coaxed to do so by a public servant.

Every council has a half-dozen silly programs that help the bureaucrats feel like they are encouraging diversity, harmony and other nice things. Boroondara has a spring planting festival, Frankston has a pet’s day out, Brimbank has a leisure challenge, Stonnington has a thrilling-sounding follow your recyclables tour and, rather ambitiously, Monash sponsors the clean up the world weekend.

No, what makes it most obvious that local councils have jacked our rates up far higher than they need to is this: council workers appear to have woken up one day and decided that they were no longer petty bureaucrats deciding the orientation of road signs. Instead, they decided that they were investment bankers, with striped suits and a large bundle of equity-leveraged, investment-shared, portfolio-bearing, interest-asset options.

Councils are harvesting such an enormous amount of money from home owners and businesses that they can afford to play the sharemarket. So, obviously, the financial crisis has hit local governments hard.

In NSW, where the law lets councils invest in pretty much anything they feel like, the subprime crisis has sucked so much money out of council investments that they are trying to sue their way out of the crisis. The ratepayers of Manly City Council probably didn’t expect that by paying their rates they were also speculating in low-doc mortgages in San Diego. They no doubt thought their money was going towards vital diplomatic missions to sunny Italy and essential dog beauty pageants. Instead, their councillors were being seduced by stockbrokers eager to sell shiny new investment portfolios that may not have been technically blue chip, but were definitely a secure-looking aquamarine.

In Victoria, our councils’ lesser subprime exposure is only due to the fact that they have been legally restrained from making the most stupid investments. Local governments have never been very competent at the best of times — if you want to organise a hard-rubbish pick-up in April, you had better get on to the council now — but it is particularly damning that the only reason Victorian councils haven’t all gone under from shonky trading is because the State Government made doing so illegal.

Of course, it’s a bit ironic watching local governments fall foul of the financial crisis. To a certain extent, it was local governments around the world that caused the crisis to begin with. For many years, local governments have attentively listened to those prudish property owners who are eager to block their neighbours’ development plans. Council bureaucrats have had great fun heritage-listing otherwise useful buildings and blocking subdivisions. And council planners have helped state governments restrict development in the name of stopping evil “sprawl”. These are the sorts of heavy-handed planning regulations that have artificially raised the price of housing and contributed to the housing bubble that spectacularly imploded earlier this year.

Admittedly, local governments didn’t invent the hoarding of tax. The Federal Government’s Future Fund — that accumulating mountain of cash — has now morphed into a giant cheque account that tries to make a virtue of the fact that budget after budget, Canberra is taxing us more than even they can think of ways to spend.

But instead of funding overseas trips, or playing the stockmarket, or hoarding for the future, perhaps governments should think about not taxing so much in the first place.

Get Off The Turps – Idiots Are The Problem, Not Alcohol

Hardly a weekend goes by without a heavily publicised nightclub bashing or brawl plastered all over the newspapers. Melbourne seems to have suddenly become a lawless combination of A Clockwork Orange — infested by teams of delinquents thumping each other and, presumably, killing homeowners with giant phallus sculptures — and Gangs of New York, with armies of the underclass engaging each other in battles along Flinders Street.

Indeed, once you cross into postcode 3000, there will be blood. State politicians and regulators have been having a great time allocating the blame for the recent upsurge in violence as widely as possible. Apparently, it’s all the pubs’ fault.

As Liquor Licensing director Sue Maclellan said earlier this week: “Licensees must accept some responsibility for this problem”. And Victoria Police Assistant Commissioner Gary Jamieson knew exactly who was responsible for the fatal bashing of Matthew McEvoy last weekend — “the licensees themselves have a lot to answer for”. Nevertheless, the police still plan on prosecuting those who are accused of actually doing the killing.

If there is one lesson to be drawn from all this political outrage, it is that pouring a pot of beer has suddenly become the moral equivalent of throwing that pot at somebody’s face. But the problem with “alcohol-fuelled crimes” isn’t the alcohol — or the liquor licence holders who are legally allowed to sell it — it’s the “crimes”.

Contrary to the animated moral panicking of our more aggressive talk-radio hosts, alcohol is not the primary contributing factor behind the recent increase in late-night street fighting. Drinking doesn’t cause violence. Idiots cause violence.

After all, how many readers of The Sunday Age reach the end of a bottle of wine or their third beer and decide that their evening will only be complete if they can find somebody to sucker punch? A few hours in the pub probably isn’t enough to turn your average, mild-mannered tax accountant into Begbie from Trainspotting.

And as a country originally founded as a convict settlement, we should know better than most how to deal with an idiot problem. Beating late-night violence requires stronger law enforcement, not amendments to liquor regulation.

Yet the State Government has decided to focus its energy on dreaming up new restrictions for venues that hold liquor licences.

The imposition of the lockout on clubs, bars and pubs between 2am and 7am downgraded Melbourne from a world-class 24-hour city to a world-class 19-hour city — at least until Spring Street finally realised that it was doing nothing except angering young voters.

The Government might claim that the 2am lockout was a trial and that they are busily reviewing the results, but does anybody really believe that they would have ended the lockout if it had been a success?

Only slightly deterred by the lockout’s manifest failure, the State Government is now considering a complete ban on alcohol in strip clubs — after all, strip club patrons and their staff aren’t likely to march on State Parliament. It’s also looking at closing down some of the city’s biggest pubs and clubs.

Every so often, dubious research tries to blame violence on something else. Facebook, YouTube, mobile telephones and the internet in general have all recently been proclaimed to “cause” teen aggression. Melbourne City Council recently commissioned a report that claimed rising temperatures caused by climate change would turn Melbourne into a wretched hive of scum and villainy.

So by disingenuously trying to link Melbourne’s problem of violence with the Federal Government’s anti-binge-drinking morality tale, the State Government has done the city a disservice.

The idea that alcohol directly causes violence has become just another talking point in the political assault on the demon drink — wrapped up in the breathless moral outrage that characterises the supporters of the nanny state.

It might take a bit more than five borrowed Hummer four-wheel-drives to quieten the streets of the city. When the 2am lockout was first announced, the Police Association argued that police numbers were critically low across the state, by nearly 3000. Nevertheless, from the Government’s perspective it must seem easier to try to regulate away our law-and-order problems, scapegoating pubs and clubs for the violence.

But as one of the placards at the protest against the lockout put it: “Police, not policy.”

Alexander Solzhenitsyn’s Challenging Legacy

It would not be possible to stare down the Soviet Union for as long as Alexander Solzhenitsyn had without deep personal courage. When he died in August this year, he had out-lived the regime that imprisoned him by nearly two decades.

For nearly thirty years, Solzhenitsyn was Russian communism’s most prominent dissident – in the meantime becoming a target of both Soviet propaganda and the KGB. But at the same time, Solzhenitsyn was no classical liberal. His reputation has been tainted by accusations – some accurate, and some overblown – of anti-Semitism and Russian nationalism.

Solzhenitsyn’s career as a dissident began in 1945, when, as a captain of artillery serving in World War II, he was arrested for the terrible crime of belittling Stalin. He spent the subsequent eight years in labour and prison camps, followed by a forced exile in southern Kazakhstan, the standard fate for released gulag prisoners.

It was during this period in Kazakhstan that Solzhenitsyn wrote the book for which is his most famous – One Day in the Life of Ivan DenisovichOne Day, published in 1962, is a short novel describing a prisoner’s struggle for survival in the Soviet gulag during a single day.

The book had an enormous impact in Russia and the West. After reading One Day, Nikita Khrushchev was moved to say ‘There’s a Stalinist in each of you; there’s even a Stalinist in me. We must root out this evil’. In the modestly liberal and politically complicated environment of the Khrushchev thaw, One Day was even assigned as a school textbook.

But the Khrushchev Thaw was short-lived – One Day ended up being the only book published in the Soviet Union that defied the official party line about the labour camps. Solzhenitsyn quickly fell out of favour with the regime when he tried to publish two further works – Cancer Ward, which chronicled his battle with cancer during his exile, and the monumental Gulag Archipelago, which chronicles his experience in the labour camps and the experience of others. In 1974, Solzhenitsyn was exiled again, this time entirely from the Soviet Union, four years after he had been awarded a Nobel Prize for Literature.

Despite his staunch anti-communism, it would not be possible to describe Solzhenitsyn’s political view as ‘liberal’-rather, his conception of the ideal nation was based on a romantic conservatism. After having been granted asylum in the United States, he famously criticised Western culture for being too legalistic, too materialistic, and obsessed with a ‘destructive and irresponsible freedom’.

But much more critically, he was dogged in the last few decades of his life by accusations of anti-Semitism – accusations which his Two Hundred Years Together, published in Russia in 2003, that purported to chronicle the complicity of Jews in Soviet repression, did nothing to dispel. And in his final years, Solzhenitsyn was conspicuously silent on the state of human rights under Putin, neglecting to criticise the same sort of transgressions of the new regime that he had opposed so vehemently a few decades before.

But none of this diminishes the courage and importance of Solzhenitsyn’s Soviet-era writing. The following passage from the Gulag Archipelago, where he demands his former captors face up to their crimes, could just as easily work as his epitaph:

But let us be generous. We will not shoot them. We will not pour salt water into them, nor bury them in bedbugs, nor bridle them up into a ‘swan dive,’ nor keep them on sleepless ‘stand-up’ for a week, nor kick them with jackboots, nor beat them with rubber truncheons, nor squeeze their skulls with iron rings, nor push them into a cell so that they lie atop one another like pieces of baggage-we will not do any of the things they did! But for the sake of our country and our children we have the duty to seek them all out and bring them all to trial! Not to put them on trial so much as their crimes. And to compel each one of them to announce loudly: ‘Yes, I was an executioner and a murderer.’

Emissions Trading: Towards the biggest economic change in Australian history

With Alan Moran
‘Placing a limit and a price on emissions will change the things we produce, the way we produce them, and the things we buy’, states the Federal Government’s Carbon Pollution Reduction Scheme Green Paper, which compares the economic impact of the proposed emissions trading scheme with the breaking down of tariffs and liberalisation of the financial sector in the 1980s.
The introduction of a wide-ranging emissions trading scheme (ETS) is, as the Minister for Climate Change and Water, Penny Wong, acknowledges, a ‘tough … whole-of-economy’ measure. It is an unsettling statement of politics in the 21st century that this dramatic change to the economic structure of the nation is being formulated without any clear appreciation of what it will cost, where the costs will fall and whether the costs will bring any benefits.

The ETS vs. the GST

Many commentators have pointed to the introduction of the GST in 1999 as an economic reform on the equivalent scale of the ETS. In fact the ETS is a far more comprehensive policy measure than the GST. The GST saw the introduction of a flat and stable broad based consumption tax, to raise revenue. By contrast, the ETS seeks to penalise energy intensive forms of production, such as coal, and to a lesser degree, gas based electricity production. And it plans to do so in ever-increasing increments.
After its introduction in 2010, the government plans to steadily raise the price of emissions permits by restricting their supply, until, in 2050, the country is emitting 60 per cent less greenhouse gases than it was in the year 2000. The government’s objective is for an ETS to bring snowballing price rises spreading across the economy for at least the next four decades. But the outcome will be far more injurious than this. It will mean-at least if Australia’s tax approach is not followed by all nations-the disappearance of staple industries like smelting, cement production, cattle and sheep rearing as well as the coal based electricity industry which supplies 90 per cent of our needs, and for which there is no alternative.
It will also mean a vast increase in the taxation of petrol. The price of petrol would need to rise to over $5 and perhaps $10 per litre to choke off the demand to the level proposed by the government.
As a consequence, the ETS will vastly devalue homes, factories, and commercial premises. It will require revolutionary and painful changes to the way we socialise, work and play.
The ETS differs from the GST in many other respects. Not least among these is the duration of its prior consideration. The GST was a policy initiative debated in political and business circles for nearly two decades and road tested in many nations around the world. Since it was promoted by then-Treasurer Paul Keating at the 1986 tax summit, the country fought three elections on the issue of a consumption tax. 1993 saw John Hewson’s FightBack! package partly flounder on the GST issue, 1998 saw John Howard successfully take the GST to the ballot box, and in 2001 Kim Beazley asked voters to support a partial rollback of the now implemented tax.
By contrast, the federal government’s approach to the ETS has been to emphasise urgency, and to produce a steady stream of draft and interim reports, green papers and government responses that add to the air of inevitability.
Moreover, we are not even going to see any modelling of the economic impact of the ETS until Treasury reports back in November this year.

An open-checkbook…

Less than 18 months away from the implementation of a ‘whole-of-economy’ reform, Australian businesses and consumers have almost no idea what is going to happen to prices. It is no surprise that investment is drying up in vital sectors like energy and energy intensive activities, while firms nervously wait to find out what impact the ETS will have on their business models-or what concessions they are able to squeeze out of the implementation process.
The level of ignorance about the facts and the rationale for an ETS is widespread. In July, an ACNielson poll reported that while 67 per cent supported the introduction of the system, only 39 per cent professed to understand what it was. Confusion is also apparent in political circles. For example the Treasurer, Wayne Swan, has claimed that the inflationary effect of the ETS will be a once off. Unless the initial permit allocation somehow manages to dramatically reduce carbon emissions to 60 per cent in the first twelve months after implementation, the ETS demands a steady price increase over a number of years to achieve that goal. The government is hoping that technological change will be able to offset some of the price rises, but this is surely the first time that the health of the Australian economy has been bet on the entirely unpredictable pace of invention and innovation. And throwing money at research and development-as the government plans to do with some of the proceeds of the ETS-is no guarantee of commercially viable technology.
The ETS is the largest change to the Australian economy since settlement 220 years ago. For such a significant reform, it is being designed, prepared and implemented at unprecedented speed. It lacks the comprehensive nature that would be crucial to ensure its impacts are felt equitably-the inclusion of major sectors like agriculture is being deferred and other sectors are receiving preferential treatment.
The opportunities created by inconsistent burdens and political favours will be targeted by lobbyists seeking competitive advantages around the new system.

…and the minister with the pen

And in charge of all of this is the Minister for Climate Change and Water, Penny Wong. Her stewardship of the political negotiations necessary to implement the ETS make her one of the most powerful government ministers in Australian history. Under the banner of the ETS, there is no sector of the economy which is outside of Wong’s purview; no price in the country which will not be affected by the political decisions made in her ministerial office.
One particular example of the scale of these ministerial decisions is the issue of ‘trade-exposed’ industries, which will be granted some free permits until there are ‘broadly comparable’ ETSs developed in competing countries. There are numerous unanswered questions about these measures, which will involve making arbitrary distinctions and relative value judgements. For instance, not all industries can be neatly siloed off into ‘trade-exposed’ – a small army of lobbyists are descending on Canberra with their briefcases full of trade statistics for the industries they represent. How ‘broadly comparable’ must international ETSs be to make industries ineligible for free permits? Those lobbyists will have a view on that question as well. The same challenge will be presented by the energy industry, many of which will be granted some degree of assistance as the scheme is implemented.
And as some industries are in part excused from paying for the cost of carbon, achieving the ETSs short and long term goals will be ever the more challenging, and borne by those industries which are unable to receive government assistance. Further discretion will be available to the Climate Change Minister as targets are set and adjusted and other sectors are dragged into the scheme. The complexity of the ETS and the political manoeuvring which will be necessary to implement it will make the administration associated with the GST look like a family picnic.
What of the goal of the ETS? The IPA Review has long been one of the few outlets in Australia which publishes views that dissent from the global warming consensus-from critiques of the science around carbon dioxide pollution and its impact on global temperatures, to discussions of green political ideology.
The government has to be asked how the ETS will be adjusted if the now ten-year-long period where the global climate has been stable continues. Is the ETS a policy to be pursued no matter what, or is it contingent on long term temperature rises and the sturdiness of the model of relationship between carbon dioxide emissions and temperature?
Nevertheless, even if we accept the government’s goal of reducing greenhouse gas emissions, there is much to be critical of in the ETS. How does the government intend to leverage a domestic ETS into a global carbon pact, when the self-interest of China, India, Russia and the United States seem firmly opposed to such a pact? Australia’s contributions to global emissions are as little as 1.1 per cent of the total. Do Australian politicians have such a surfeit of hubris that they imagine others will follow simply because of the example they set or be persuaded by the rhetoric they offer?
Australia is staring down the barrel of long-term, entirely unpredictable price increases, coupled with the opportunity for rent-seeking and political opportunism to redraw the contours of the Australian economy.
And, as the government points out, a domestic ETS is only the prelude to an international agreement – one which may take these complications out of the hands of our domestic climate change minister and into international bureaucracies.
The ETS may be ‘brave’, it may be ‘tough’ and it may even be ‘courageous’ economic reform. But that does not mean it is desirable.
Australia already has in place a plethora of taxes, subsidies and regulatory measures targeted at reducing emissions. These include requirements on electricity suppliers to use renewable energy, subsidies for low carbon dioxide emitting technologies and regulations on the design of houses and whitegoods. If there is a political imperative to maintain and augment these, the government’s approach should be one that is carefully targeted and able to be withdrawn or intensified causing minimal disruption, while avoiding jeopardizing international competitiveness. Recognizing the consensus that petrol is now out for the time being, a tax on gas and electricity that is directed to the household consumer would be a place to start-offering some incentives to start on what may or may not be a long haul to diminish the nation’s wealth and transform its economy.
But in the manic rush to implement the ETS, such a measured – and reversable – policy appears to be off the government’s table. It will be the Australian economy that suffers.

IPA Review Editorial, September 2008

This edition of the IPA Review focuses on the federal government’s new emissions trading scheme (ETS). It does not, however engage with the science behind climate change. In fact, in this edition at least, we avoid it deliberately.

We have all seen how the scientific contention that an increase in carbon dioxide emissions is causing rising global temperatures gets simplified and distorted by the meat-grinder that is the popular press. An article featured in The Age on August 9 shows just how far off the ranch the environmental hysteria has gone-‘rising temperatures are likely to bring increasing levels of violence to Melbourne by 2010′. As the blogger and Daily Telegraph columnist Tim Blair pointed out-‘that explains the constant riots in Queensland’.

At least these vacuous news items are slightly better than that cringe-inducing combination of moral superiority and product placement that passes for environment journalism in the lifestyle sections of our ‘serious’ broadsheets.

But anybody who points out that polar bears are not dying en masse, or that human history is full of doom-sayers who proclaim our imminent demise, are quickly characterised as ‘denialists’. Indeed, this has been the strategy pursued by the federal government to market its ETS. Rather than discussing the specifics of the scheme, the government has been careful to keep media focused on the unfortunate dithering in the upper ranks of the federal opposition.

Government-friendly commentators have been similarly eager to avoid discussing the mostly complete proposal set out in the emissions trading scheme green paper.

But as advocates for small government have argued for decades, there are two parts to every government policy. It is not enough to set a goal. You have to design and implement a policy to reach that goal. And it is most often in the design and implementation phases that policies reveal their critical weaknesses-unintended consequences creep in, and everything just seems to take on a life of its own.

But a discussion of the specifics of the ETS has been notably absent from public debate. And for good reason. For the last decade, public debate on climate change has been predictably orientated-skeptics on the right, alarmists on the left. The debate has consisted of a pastiche of hockey-stick graphs, apocalyptic predictions and ice-coverage maps.

As a consequence, left-wing commentators give the government a free pass on the scheme’s merits because they don’t fully understand the enormous economic and political complexities of an ETS. Nor do they recognise the opportunities for rent seeking and regulatory gamesmanship that the ETS presents. They don’t understand just how large the scheme looms over the economy, choosing simply to dismiss criticism as the ranting of ‘denialists’.

The science of climate change continues to be crucial to public policy debate, and the IPA Review will continue to interrogate it, as we have done for more than two decades.

But free-marketeers cannot refuse to engage and critique the ETS just because they are not happy with the science. The general public supports some sort of action on climate change, and until that support diminishes the government is unlikely to retreat from implementing a climate change mitigation policy. But as we note in this IPA Review, the public may be eager for action on climate change, but remarkably few people understand what that action might entail-let alone understand what ‘emissions trading’ means.

But if it is introduced, the ETS will define Australian economic life for decades. We have provided a condensed guide to the ETS in this edition (see pages 38-39)-we’ve stripped out the jargon, targeted the key problems with the scheme, and tried to answer some of the big questions the ETS raises.

This edition of the IPA Review was prepared under the shadow of the ETS.

Considering the ETS’s monumental importance to Australian prosperity, it could not have been any other way.

City Car Levy Is Just Another Taxing Burden

There are two basic tasks governments have historically been very good at – collecting taxes, and thinking of interesting new taxes to collect.

So it was heartening to learn that the Victorian Government has rejected a proposal by its own Department of Infrastructure to levy a tax on cars in the inner city.

Sure, the streets of Melbourne’s CBD seem to be getting more and more congested. The Federal Bureau of Transport and Regional Economics estimated in June that congestion costs us $3 billion a year. At least we don’t have as many problems as Sydney does, where congestion is so chronic that watching traffic slowly crawl through tunnels is fast becoming a popular tourist activity.

However, we should be a little suspicious when after public servants have completed a long, careful study of a problem, the only solution they can think of is to take more money from the public. As Mark Twain famously said: “To a man with a hammer, everything looks like a nail.” To a bureaucrat, every problem looks like an opportunity to raise taxes.

But should congestion just be taxed away?

In principle, charging drivers to use busy roads at peak time isn’t a terrible idea. Driving into the city is essentially free. (Well, it is free if you ‘assume away’ – as the economists and bureaucrats promoting these taxes like to – the cost of petrol, the cost of parking, the cost of toll roads, and the cost of the car itself.)

People tend to consume more free things than they would otherwise do if they were asked to pay for them. If the government started giving away free beer, then there really would be a widespread binge drinking epidemic in Australia.

This logic suggests that if we started charging cars to enter the city, those individuals who were unwilling to cough up the money would use public transport or avoid going into the city at all. Fewer cars on the road means a higher average driving speed in the city, and, presumably, fewer commuters going postal before lunch.

That’s the idea, anyway.

But a congestion tax in Melbourne is one of those ideas that’s great in theory, and not so great in practice. The state government has already imposed a form of congestion tax – the $850 per year charge on long-stay car parks which they originally hoped would reduce the number of people who drive to work.

But if driving to work is now a lot less appealing, then car park owners and their investors haven’t heard anything about it. There are now over 200 more car parks in the CBD than there were before the tax was introduced.

Nevertheless, the car park levy hands $40 million dollars to the state government every year, so, as Roads Minister Tim Pallas so eloquently put it a few days ago: “The government sees no reason why that levy can’t continue to operate.”

New taxes always quickly find comfortable positions in government budgets. After all, from the perspective of Spring Street, $40 million is $40 million – who cares if the car park tax has failed to do what it was supposed to do?

A very high congestion tax would, no doubt, reduce the number of cars in the inner city. But, as London’s experience has shown, a reduction comes at the expense of city retailers, who have seen a 25% drop in business following the introduction of a congestion charge in that city.

And it would also add to the many, many taxes and charges the government already imposes on motorists.

Driving is already one of the most highly taxed activities a modern Australia can pursue. Simply purchasing a car can subject you to up to five separate taxes – stamp duty, the GST, registration, and, for those with slightly more exclusive tastes, the import duty, and the luxury car tax. Car insurance gets its own separate taxes, with its own stamp duty and a GST.

Finally, drivers have to pay the petrol excise tax, the GST, and soon the cost imposed by the federal government’s new emissions trading scheme.

That’s nearly 10 taxes just to back out of the driveway.

No wonder the state government has hurriedly tried to reject the idea of burdening innocent motorists with yet another punitive charge.

Just because you can imagine a tax, it doesn’t mean you should impose it.

Battling Green Noise

“Beyond Petroleum” is a strange slogan for a company that sells mostly petrol. Is BP really that embarrassed by the 3.8 million barrels of oil they produce every day for grateful motorists, and presumably even more grateful shareholders?

If the amount of effort the petrol retailer is going to to promote its coffee is anything to go by, then it appears so.

BP has recently switched its entire coffee supply to “fair trade”. This switch has been matched by an ad campaign of billboards extolling fair trade’s social and environmental benefits.

Surely in the history of retail this is the first time that an oil company’s marketing department has decided to emphasise its petrol station coffee instead of its petrol. It’s an interesting strategy – come for the lattes, stay for the fossil fuels.

But BP is hardly alone. Corporations across the world are trying to squeeze into green clothes. Green is the new black. Apparently, environmentalism sells.

Traditional eco-activists describe all of this in the most disparaging of terms – “green wash”. But what did they expect? Years of environmental moralising has elevated eco-friendly products to the lofty status previously held by Chanel, Porsche and Rolex.

Would anybody really be surprised if in the next few years James Bond was driving a Prius? A licence to kill is not a licence to act irresponsibly, you know.

There are two characters in this story. The first is the usually well-meaning, if naive, environmental activist who seeks to activate green consciousness in the masses. The second is the entrepreneur who has figured out that consumers might pay just a little bit more for products described as “eco-friendly”.

We’ve seen the relationship between these two characters play out before. A few years ago, when “corporate social responsibility” was all the rage, businesses started filling their marketing departments with social activists and scheduling meetings between non-government organisations and CEOs. Both usually left these meetings either annoyed or just disappointed that they didn’t speak each other’s languages; businesses aren’t charities, and charities aren’t businesses. But everybody got to shake hands in front of the company photographer, and the photos were successfully reproduced in annual reports across the country.

But corporate social responsibility was so 2003. Activists and marketing departments are working together again – this time for the environment.

As a result, products claiming that they are environmentally conscious have flooded the market. Certainly, there’s nothing wrong with trying to be environmental or ethical when you shop. And there’s nothing wrong with businesses trying to market their products according to contemporary fashions.

Nevertheless, remember the good old days when products were just either “biodegradable” or “not biodegradable”?

In those simpler times, products either decomposed quickly, or survived 60 ka-trillion years in a landfill.

It is all getting a little bit silly now. Publicists pile adjective upon adjective, desperately trying to beat the competition – eco-friendly, environmentally friendly, renewable, sustainable, recyclable, reusable, natural, organic, low-footprint, low-carbon, low-impact, or just clean. How can something be “100% earth-friendly”?

Green products and services have multiplied. Should we buy new organic jeans?

Across the world, real estate agents have started marketing themselves as “EcoBrokers”. And the idea of “sustainable graphic design” would sound like a parody if it wasn’t for the dreary earnestness of its advocates.

This isn’t green wash, it’s green noise. Claims that products are sustainable are more often than not confusing and contradictory. Those organic jeans rely on dyes and finishing agents that should chill the environmental heart.

And most of the time, labelling a product as “eco-friendly” is as meaningless as labelling a product as “great”. Think back to your childhood – just because tiny chocolate bars are described as “fun-size” doesn’t mean they are any more fun.

It seems that in 2008, no self-respecting marketing department can avoid pointing out just how environmentally beneficial their new range of shampoo is. (Marketing seems like a fun job: “New slightly thicker shampoo bottles can now be refilled with water for your convenience – and the planet!” or “Now dolphin free!”)

But there is evidence to suggest that all this green noise is leading to green fatigue – everybody is just getting a little bit eco-exhausted.

In a recent survey conducted by the Shelton Group, a Texas-based ad agency, 49% of US consumers said the environment was an important consideration when they purchased a product. But only 21% said that environmental considerations had led them to choose one product over another.

That’s right – less than half of the people who said the environment was a significant factor when choosing products had ever chosen a product because it was better for the environment.

So either a quarter of consumers are deliberately choosing the most environmentally damaging product in a manic desire to destroy Mother Nature, or people are just buying what suits their needs – environment be damned.

And the survey found that in 2007, 20% fewer consumers deliberately bought an environmentally friendly product than in 2006. Consumers seem to be figuring out that most eco-friendly claims are just a lot of marketing bluster.

Environmental groups find green fatigue frustrating, but they have been encouraging the overmarketing of sustainability. Greenpeace enjoys putting out press releases disapproving of new products – when Apple’s iPhone was launched, it was greeted with a barrage of overexcited condemnation for its lack of green features.

In the face of these sorts of campaigns, it is no wonder that marketing departments are trying to play catch-up.

But for a lot of businesses, the environment is just another publicity stunt.

Memo Starbucks: Next Time Try Selling Ice To Eskimos

Globalisation has pulled millions of people in developing countries out of poverty. It has sent goods, services and people around the world, linking humanity into a vast network of communications and commerce that has ultimately benefited everyone.

But, still. In the case of one American coffee giant, globalisation deserved to fail. Starbucks makes really bad coffee.

Starbucks is almost entirely pulling out of Australia – closing 61 of its 84 stores. In Melbourne, just five of the 16 stores are tipped to remain.

Sure, the company is closing stores across the world. But while the closure of 600 stores in the United States sounds like a big deal, it is trivial when you consider that there are nearly 12,000 Starbucks outlets in that country.

The demise of the coffee giant’s Australian ventures speaks volumes about the challenge of globalisation.

The lesson of Starbucks’ Down Under fiasco is simple. Globalisation is a bit overrated. It’s much harder than everybody seems to think.

So why has Starbucks worked in the US but largely failed in Australia? The secret of the company’s success in the American market wasn’t that it sold coffee. It sold coffee culture.

It is remarkable how alien quality coffee was to US consumers. As late as the 1980s, the National Coffee Association was producing advertisements just trying to convince people that coffee could keep them awake. And what small prestige the drink held in the US was occupied by the old “cup of joe” – cheap, stale and reheated sludge poured from a pot.

No wonder that when Starbucks came on the scene in the 1990s, Americans eagerly embraced it. Starbucks coffees may be weak, poorly made and overly reliant on syrups to mask their flavour, but they are certainly better than what had previously been available.

The other aspect of Starbucks’ appeal in the US has been its establishment of the cafe as a social hub. From a Melbourne perspective, the typical Starbucks may seem somewhat sterile and too over-eager to appear “comfortable”. But it is one of the peculiarities of the US that the idea that a cafe could be a social venue was quite new, at least outside the circles inhabited by the cultural elite. Comfy chairs and pleasant, if bland, music have been just as important a part of the Starbucks product as its coffee.

But when Starbucks came to Australia to bring coffee and the cafe culture to the masses, it found that we already had it. Particularly in Melbourne, we have better coffee and more relaxing cafes than anything that Starbucks brought with it.

Undeterred, the firm simply dumped what seemed to work in America into this country. When Starbucks opened an outlet in Lygon Street – a store that has since sat empty surrounded by bustling cafes – it became an amazing example of just how comprehensively a company could fail to understand its target market.

The inability of Starbucks to adjust its product to local conditions is illustrated even more clearly when we compare it to the international strategy of that other evil American behemoth – McDonald’s. Where Starbucks offers almost the same products around the world, McDonald’s varies its menu depending on local culture and local tastes. In India, they sell the McCurry Pan. In Japan, the “Ebi Filet-O” is available – a shrimp burger. In Turkey, McDonald’s offers kebabs. Some of these products may sound stupid – and Canada’s “McLobster” sounds filthy – but their existence shows that McDonald’s understands the importance of understanding its regional markets, and tries to understand the peculiarities of local culture.

The failure of Starbucks in Australia tells us a lot about globalisation too. It isn’t enough – as some anti-globalisation activists seem to assume – for an American company just to blanket a foreign market with a mediocre product.

Multinational corporations actually have to offer something better than the local alternatives if they want to succeed.

This is true as much for products such as films and television as it is for syrupy coffee and fast food. Clearly, Hollywood films are better than Australian films on some level.

Audiences flock not just to the high-cost blockbusters but also to independent American movies well before they consider seeing a local production. Hollywood knows that a movie has to be entertaining before it can be successful.

If Starbucks can teach us anything, it is that in the global marketplace, turning up to compete just isn’t enough. You have to be really good.