This piece on the Rudd Government’s relationship with lobbyists and industry bodies says a lot about politics in Australia. As Katherine Murphy points out, Labor came to government with a desire to make lobbyists more transparent (which, presumably, would lead to their influence being less, or at least less pernicious).

But while they have made some moves in the direction of transparency (and will perhaps make further moves with the Faulkner Inquiry into electoral reform), by its policy actions and policy development processes, the new government has made lobbying vastly more important and more desirable than it was a year ago. As I wrote in a article early in December,

Big Australian companies will be quickly learning how important their Canberra lobbyists are under the Rudd Government: with a resurgent industry policy, an emissions trading scheme with more exceptions than consistencies, and a steady program of commercial bail-outs, it has been a long time since having the ear of a minister has been so important.

The Government can’t claim to be concerned about the influence of lobbyists in the halls of Parliament while making it impossible for companies to do business without them.

It isn’t the capacity to donate anonymously that encourages lobbying and money in politics. Corporations and special interest groups will only donate and lobby when they perceive a benefit from doing so. While such opportunities, money will flow into political parties by any means possible.

And by instituting the sort of policies above - the emissions trading scheme, elaborate industry policy, and corporate bailouts - the Rudd Government has only increased the opportunities firms have to gain from politics.

The end result is to make government more arbitrary. There is no consistent rule governing what sectors will be the recipients of government largess - “too big to fail” does not work with childcare organisations, and “too important to fail” surely does not apply to car dealers, no matter how elaborate their leasing arrangements might be. And the structure and exemptions of the ETS seems to be entirely without any rhyme or reason.

In the absence of such general rules, what benefits firms might be able to get from the government are governed instead by the particularities of the case - and it is lobbyists and donors who are there to argue those particularities.

Now, obviously, governance which is more particular than general is obviously not the invention of the Labor Party - there is absolutely no consistency that governs the regulation of the media sector, for example. But it is notable that the Howard Government often did decline to make “exceptions” - the Commonwealth never did bail out Ansett, for example, despite what was no doubt intense pressure to do so.

One wonders what the Rudd Government would have done when faced by the collapse of Australia’s second airline. (The Labor Party at the time was a bit confused.) It is that sort of wondering that makes lobbyists so important - the new government is arbitrary enough to make it worth opening a Canberra office and trying your luck.

No changes to the electoral act will be able to mitigate this incentive to donate and lobby political parties.

According to today’s Garnaut Review release, the modeling of the impacts of the emissions trading scheme assumes absolutely no deadweight costs caused by political preferment and regulatory gamesmanship. As it states:

…a distorted Australian emissions trading system, diverting management effort from commercial activities into applying pressure for political preferment, could have large negative deadweight costs.

The modelling has assumed no net transactions and other deadweight costs of the mitigation regime. We will learn whether this was an optimistic or pessimistic assumption when the realities are revealed as history.

But as Alan Moran and I have shown in the latest IPA Review, this assumption is clearly a fantasy - the ETS will be a thick stew of exemptions and special treatments.

As Ross Garnaut is no doubt well aware, there is huge reason to be pessimistic about the political bargaining required to get the ETS implemented. Excluding politics from the modeling will give a highly distorted picture of the consequences of the ETS.

From the 1951 film Home Town Story, now apparently only famous for a minor role by Marilyn Monroe. Link via Craig Newmark.

eBay announced yesterday that it going to fight the ACCC over its PayPal ruling.

I’m not big on internet auctions. But I use the secondhand book site Abebooks a lot. It is in many ways similar to eBay - rather than selling goods directly to consumers, Abebooks just acts as an intermediary between book buyers and secondhand book sellers. Like eBay, customers can contact sellers directly if they have questions or need to alter shipping details after the initial sale. And also like eBay, a rating system is used to build reputation, although, considering most sellers are established bookstores, the rating system isn’t as crucial to Abebooks as it is for eBay.

But unlike eBay, Abebooks has always had only one payment method. It has never opened its sales system to competing payment devices. It did mandate in 2006 that all credit card transations were to be processed by Abebooks itself, rather than passed onto the bookstores to process, but it has never offered customers the ability to directly transfer money from their bank account, or to send cheques to the seller.

But it is unlikely that the ACCC is going to pursue Abebooks anytime soon, even though the payment options the book seller offers are more limited than those now being implemented by eBay. (eBay will continue to allow cash payments upon pickup, and the PayPal system allows users to do bank transfers, rather than having to go through a credit card as an intermediary.)

eBay’s mistake was to allow third parties access to their sales system in the first place. The ACCC can only claim that it the auction site is in violation of the Trade Practices Act prohibition on exclusive dealing because eBay has already demonstrated that its sales system can technically be open to other payment devices. If eBay had only ever offered an internal payment device - as Abebooks does - then it would be unlikely that it would attract the regulator’s attention. PayPal is owned by eBay - to what extent should they be treated as seperate companies, rather than an entirely merged entity?

What does this matter? The comparison between Abebooks and eBay shows that the prohibition on exclusive dealing depends perhaps more on historical circumstances as it does on theories about economic efficiency. Forcibly opening up the industrial processes of integrated firms to competitors is a bit hard for the competition regulator. Blocking attempts at integration by firms that have in the past allowed a degree of open access is much easier. But surely both have similar merits - if the ACCC claims it knows the most efficient and competitive degree of any given firm’s integration, why wouldn’t it be going hard against Abebooks as well?

Kevin Rudd has gone to Tokyo and managed to bring the annoucement of Toyota’s green car production forward a few months, at the cost of $70 million.

But from the government’s perspective, what difference does it make if hybrid cars are built in Australia or in, for instance, China? If the Victorian and Commonwealth government wanted to encourage car manufacturers to build ‘green’ cars, why wouldn’t it just offer the firms their $70 billion and allow them to build the cars anywhere in the world? The resulting cars may eventually be cheaper, encouraging their adoption. And surely the aim is reduce global emissions, not only emissions originating from Australia. So what does it matter where those cars are finally purchased and used? (I might be mistaken - is there a reason that we might have to reduce emissions in certain areas around the globe more than other areas?)

Kevin Rudd and John Brumby’s green car announcement may be wrapped in the rhetoric of climate change and innovation, but it seems to be just traditional industry policy with a green twist.

(Sinclair Davidson and I asked the Labor Party 7 questions about their industry policy in early 2007. And earlier this year I penned a defence of the poor old automobile.)

Nicholas Gruen had an interesting piece in The Australian on Thursday which argued that Hayek’s theory of the distribution of knowledge in society could provide a guide to better regulation. (A longer version is at Club Troppo)

Gruen tries to resolve the assymetries of knowledge between the regulator and the regulated firm by reference to Hayek’s criticism of central planning. The biggest problem facing effective regulation is managing the flow of information from firm to regulator, and Gruen sees parallels here with the failure of socialist central planners to take account of local knowledge. His solution is deeper engagement with firms to draw out some of their specialised knowledge, as well as implementing extensive trials of new regulation to see how they perform.

It is hard to how these proposals differ in practice from extending mandatory disclosure regimes, as regulators burrow further and further into the internal operations of the firm. Of course, from a regulator’s perspective, this is an appealing suggestion. But regulation is antagonistic - regulators and firms rarely pursue the same goal. Gruen’s proposals would do little to reduce the cat and mouse games which characterise contemporary regulatory negotiation.

But in coming to this argument, Gruen has misread Hayek. As he rightly points out, Hayek was concerned with local knowledge being insufficiently distributed in a planned economy. But Hayek’s resolution wasn’t simply to develop a mechanism to distribute that knowledge better – his resolution was the price system. And the price system doesn’t inform a central body about how best to manage the economy, it informs an infinitely diverse array of producers and consumers, so that the economy manages itself.

Without reference to price, Hayek’s criticism of central planning would be just a lament about the Politburo being insufficiently informed about recent rainfall in Omsk.

Gruen’s proposals may have something to recommend them from the perspective of policy implementation – although some of them would, in my view, dramatically increase the power regulators have over firms. It is not always the case that businesses and regulators work together harmoniously, and not likely that increasing the amount of consultation would change that, except to add to the risk of regulatory capture or regulatory rent seeking.

But, nevertheless, Gruen’s proposals cannot be justified by reference to Hayekian theories of information. It wasn’t just local information that Hayek was concerned with, it was, very specifically, local knowledge embedded in prices. And it is not prices that define the relationship between firm and regulator, it is legal power.

I have a piece up at ABC News Online on one of the battles in the Telstra-Government war - the CDMA network shutdown. “Telco industry’s ‘red tape’ burden unfair“

I have a piece in The Age today on cultural protectionism, particularly in the film industry: “No need for local films on public purse“

Well, that might be it - EarthLink, partnered with Google in the San Francisco municipal WiFi scheme, has announced massive downsizing, shedding 900 staff, including their top municipal wireless executive, and the San Francisco office. The ambitious San Francisco project may be dead in the water.

At the same time, Chicago’s plans for a city-wide WiFi service are being reevaluated.

Nevertheless, the Sydney Morning Herald reported in July that the Sydney WiFi service was ‘on track’ despite delays. Given that the need for a government program to deliver wireless broadband in Sydney has hardly been demonstrated and that private firms are already beginning to offer similar services without government involvement, Sydney might be able to draw some lessons from the failure of the San Francisco network.

Last week, Mark Pesce responded to my piece on city wireless broadband initiatives in Crikey:

Although Berg attempted to spin an all-too-familiar tale of government foisting unwanted services on an indifferent public, his is a mendacious misstatement of the facts.

But while Pesce is quick to assert nefarious motives to any criticism of state run or financed wireless broadband networks, it’s hard to know what he is actually arguing. He misleadingly uses an independent, not-for-profit home WiFi sharing initiative to try to demonstrate the success of the entirely separate Google-Earthlink network.

The former is a voluntary community effort, and the latter is a public private partnership bogged down in contractual disputes and political stunts.

Further, he asserts that ‘corporate giants’ of the telecommunication sector are the biggest obstacle to the San Francisco project’s success, which will come as a surprise the to Google (market cap: US$160 billion) and EarthLink (market cap: US$864 million) executives who have spent the last two years hurrying between community interest group meetings to listen to local politicians preen for their constituents.

And its hard to figure out what market failure the NSW government is trying to address here. Wireless internet access is already offered to consumers in Sydney. And Spin Internet is now even offering it for free in Sydney, if with quite a small download limit.

Rather, the NSW plan is yet another case of politicians ‘giving the gift of broadband’ to voters, with little reference to the efficacy of doing so. When advocates of municipal wifi fudge the difference between government action and voluntary action, they merely give politicians free licence to spend.

Update: No free market writer should be without a quote from a ’sacred text’ to suit the occasion, and when the rare Australian quote is available, we are under a virtual obligation to supply it:

…if a democracy has a taste for bread and circuses, and politicians are willing to satisfy that taste, of course any system will fail…

…activities undertaken as part of a political regime have a very definite bearing on its efficiency and soundness: they may overload it with complex problems; [and] they may introduce new problems, new political influences, new vested interests… - Eggleston, State Socialism in Victoria, 1932