Only The Market Can Properly Reshape The Media

Robert Menzies despised television and stated privately that he hoped it would not be introduced during his government. Does Communications Minister Helen Coonan have a similar attitude towards the next radical media change?

Given the opportunity to robustly liberalise the regulatory environment that the Australian media has been subject to for over a century, the government has declined to act.

There are big entrenched media companies which have made large investment decisions based on the current framework, and the political reality is that genuine deregulation would have to be a slow and careful process. But instead of attempting to unwind our Byzantine media regulations, at whatever pace, the government’s media reforms do nothing more than add more rope.

For instance, the proposed auction of two additional swathes of spectrum should have been greeted with enthusiasm. Entrepreneurial companies which had won these new licences could have used them to deliver whatever services they perceived to be in demand.

Instead, the government has chosen to dictate to potential users the terms and conditions of their licences, terms and conditions which will not apply to existing users of broadcast spectrum. This “command and control” approach to economic management has been discredited in both theory and practise. It’s ill-suited to managing a limited and static array of services, and it’s doubly unsuited to manage the fast paced and high-risk communications and media industry.

It does, however, allow the government to claim credit, as the Communications Minister did this week, for any potential new services delivered within their strict framework. What Coonan fails to mention is the services that the government will not allow us to receive. To this end the government has invented two terms, “narrowcasting” and “datacasting”, defined not by what they can do, but what they cannot.

One of the channels to be auctioned is allowed to broadcast free-to-air, but not replicate traditional TV services. Why not?

The government is not a suitable body to predict the possibilities of and the demand for newer forms of media. Only a market unhindered by restriction is capable of doing so with any success.

Similar objections can be raised to the government’s proposal to replace one elaborate formula for media ownership restriction within a market with another elaborate formula. While touted as a grand liberalisation of ownership regulations, they are in fact, little more than minor adjustments. For advocates of genuine deregulation throughout the economy, this should be a disappointment.

Many critics of the reform proposals hinge their arguments upon the potential lessening of diversity that could be the result of consolidation within the industry.

It is absurd to argue that media diversity will decline without stringent checks on the ownership of broadcast media outlets. In no era in history has this been less true. While the internet has been justifiably praised in bringing alternative viewpoints and independent media outlets to the home, rapid technological improvements in seemingly mature industries like printing have increased in the last few decades the volume of magazines, newspapers and printed material manyfold.

Anybody who doubts that minority or niche voices will not get heard after genuine media reforms should consult the vast ethnic press, made possible by dramatically lower print production costs.

In fact, mergers between media organisations could have tangible benefits. A fully vertically integrated corporation, able to command world-wide news gathering and content production, may be able to produce a far better and diverse range of services.

The massive competitive pressure exerted upon existing media companies from the proliferating new media compels dramatic change, even in such seemingly dominant organisations as News Ltd. Rupert Murdoch’s recent acquisition of the social networking website MySpace is a case in point.

These gains are not guaranteed, however. The US market, after a rush of media consolidation in the 1990s as companies rushed to prepare for the digital era, has been beset by a series of failures and divestitures. AOL Time Warner has been shedding assets now that the financial gains expected from its highly publicised merger have not appeared. Viacom, Disney, Clear Channel, Knight-Ridder and many others have downsized or spun off companies in the last few years.

But these companies need the freedom to experiment, and fail, with new business models.

New media organisations are popular and influential, and will become more so. Governments of all stripes across the world are struggling to predict its significance. That is understandable – nobody has any inkling of how these changes will pan out.

But instead of indulging itself in public consultations and submission processes, commissioning reports and carefully releasing sections of the spectrum with highly prescriptive regulations, the government would be far better to leave the future of the Australian media up to the market.

There is no convincing reason why entrepreneurs, allowed to experiment with new technologies and business models, cannot amply deliver the services that Australian consumers demand now and into the future.

Submission to the Inquiry into the Broadcasting Services Amendment (Media Ownership) Bill 2006 and related bills

Introduction: Reform to the regulatory framework of the Australian media should be unambiguously directed towards liberalisation of the sector. It is important to place the relatively recent, and highly publicised changes in production, distribution and consumption of media made possible by communications technology in a context of long term and continuous radical media change. Technological and commercial innovation have provided Australians with a multitude of choice over the content we consume, the way we receive and display it, and our capacity to store it for future consumption. Not only this, but the cost of production has rapidly dropped for seemingly mature industries like print, which has allowed niche and specialist publications to flourish. Never before have Australians had access to so much information packaged in so many formats.

Available in PDF here.

Regulator Should Butt Out On Fibre-Optic Broadband

It is unfortunate for consumers and businesses that Telstra’s potential $3 billion-plus investment in a large-scale fibre-optic network and the coming T3 sale have coincided.

The debate over the two have rarely been separated, but at stake are two very separate issues, with very separate stakeholders. Treasury officials are concerned with maximising the price of Telstra’s sale, but consumers and businesses should be concerned about the circumstances in which we allow infrastructure investment in this country.

As Australian Competition and Consumer Commission chairman Graeme Samuel has correctly noted, Telstra’s fibre-optic plan is “not the only game in town”. A consortium of Telstra’s competitors, including Optus, Macquarie Telecom, Primus and Internode, have proposed an open-access network. Tellingly, all their proposals would require heavy investment from Telstra.

Telstra’s competitors are merely following Telstra chief executive Sol Trujillo’s lead and conducting regulatory negotiations through press statements.

Unfortunately for the regulator, the obstinate Telstra refuses to sign up to its competitors’ plans. Telstra has the money to do so, but, under the current regulatory framework, no desire. And why should it? The ACCC has argued that any investment by the carrier would be subject to a “fair” return. But it is not the ACCC embarking on this risky business venture – Telstra is a company that at least in theory should be aiming to maximise its financial returns. If a company, or individual for that matter, makes an investment in the market, they should be subject to their own judgement of what constitutes a fair return, not what a national regulator considers one to be.

But such thinking is largely alien to the ACCC, which has long believed itself to be the patriarch of large infrastructure investment in Australia.

The classic justification for the imposition by a regulator of shared access does not apply to Telstra’s fibre-to-the-node (FTTN) proposal.

The carrier built its copper-wire network under a government-imposed monopoly. It used taxpayers’ funds to do so. Under these circumstances, it was perhaps reasonable to have a regulator open the network up to ensure at least the vestiges of competition. But there are very real problems with such a regulatory regime.

Access-based competition encourages service providers, initially leeching off the monopoly provider’s network, to step up the “ladder of investment” – slowly investing more and more in the existing infrastructure. This has its advantages in a marketplace with little innovation.

But having now invested a great deal in the existing network, these carriers are faced with the prospect of being abandoned by Telstra as it jumps into a largely separate new network.

The ACCC’s framework has encouraged the growth of small, fly-by-night internet service providers, whose business model is nothing more than a reliance on the ACCC-determined access prices. Country-wide, there are more than 250 of these ISPs, encouraged not by the whim of the free market, but by the decrees of the regulator. Given their perilous profitability, they are ill-equipped to withstand the rapid technological change of the sector.

Access sharing does nothing to encourage true, facilities-based competition. And there are few other industries where facilities-based competition, and the innovation which propels it, are of such paramount importance. Given the ever-increasing range of technology by which high-speed broadband can be delivered to the home – and to the mobile phone – we cannot afford to discourage entrepreneurs from experimenting with new business models and products.

And, not least, access sharing constitutes a massive taking of property rights. This may not have been of much concern to regulators a decade ago, when they were faced with the taxpayer-supported Telecom, but with a nominally private company whose investments are subject to free will, this should be of great concern.

The communications market has been liberalised for the past decade and subject to a radical shift in emphasis. It is important to remember that consumer demand has moved from the basic telephone service to mobile telephones, to video-playing iPods. There are now large numbers of telecommunications providers, many of which are justly proud of their investments in infrastructure across the country.

But Telstra’s competitors and the ACCC want to migrate the access-sharing framework, developed a decade ago for a monopoly network provider, onto a fibre-optic network developed by an entrepreneurial company with private capital. The FTTN network is highly speculative. Given the current state of technological innovation, it is a risky investment. Telstra must bear this risk alone.

The FTTN network will not be the last investment Australian firms make in telecommunications infrastructure. Rapid technological change makes it a certainty that every few years significant upgrades will be made to our national communications networks. But if regulators are given a right of reply to every investment and pricing adjustment, Australian broadband will lag well behind what a wealthy, prosperous nation should have.

You Are What You Chose To Eat

It is a tribute to Australia’s prosperity that people in poverty are more likely to be overweight than underweight. But rather than a celebration of the achievements of economic growth, this has instead led to cries of an “obesity epidemic”.

For instance, Ross Gittins argued (Opinion, 28/6) that this is a case of market failure that we need the government to remedy.

It is clear that the average weight of Australians is increasing. But obesity is a complicated area, and health advocates would do better to analyse the long-term causes and effects before rushing into calls for government regulation.

Using the standard measure of obesity, the body mass index (which, in simple terms, compares weight with height), obesity is on the rise. At present, 21 per cent of Australians are classed as “obese”.

However, the medical literature is highly sceptical of the validity of this measure that takes no account of body composition, such as muscle or bone. It may be that many people now classified as obese are, in fact, “big-boned”.

Our consumption habits also tell a complex story. OECD data shows that daily energy consumption per Australian has actually decreased since the early 1960s by about 125 kilojoules. Similarly, our sugar consumption has also gone down. Many nations, including the United States, have seen increases along these lines, but these figures indicate that Australian consumption is getting more, rather than less, healthy.

Even more surprising: a study from the Centres for Disease Control in the United States found that “overweight” people had a lower risk of death than those of normal weight. Not only that, but this lower risk partly cancelled out the increased deaths from obesity.

But we are getting heavier. Part of this is to do with the composition of our diet.

As the millions of supporters of the Atkins diet will argue, what we eat now is radically different from what our ancestors ate 50 or 100 years ago. But it is also true that what those ancestors ate is radically different from what their ancestors ate. Food consumption has been one of the biggest changes brought about by our centuries-long process of globalisation.

More recently, technological change and supply-line innovation in food manufacturing has drastically reduced the cost in time and money of food preparation. It is arguably a wise economic decision to eat out rather than in, especially when factoring in the time of shopping and cooking a meal.

As the quality and variety of manufactured food has gone up, its price has gone down.

But most of the recent growth in weight is not directly attributable to our food.

A study by the economists Darius Lakdawala and Tomas Philipson found that only 40 per cent of weight gain since the 1970s is due to changes in diet. Rather, the large part of our weight increase can be attributable to changes in lifestyle and work practices.

Contrary to what Gittins has argued, this is not an opportunity for government to intervene.

First, government regulation doesn’t seem to work. Sweden has every program on the book to combat childhood obesity. Advertising aimed at children under 12 is banned. Sports programs are heavily subsidised. Healthy cooking is part of the curriculum. But the number of overweight Swedish children has tripled in the past 15 years.

The market is remarkably good at educating people on the negative consequences of their decisions. Balancing against the advertising for high-sugar snacks, television programmers have provided shows like What’s Good for You and The Biggest Loser.

All of these programs have been produced not by government, but by corporations eager to maximise their ratings, and therefore their profits.

In fact, data from the United States indicates that the number of food and restaurant commercials viewed by children has actually declined over the last decade.

Consumers are becoming more aware of the consequences of fatty and unhealthy food. This change in demand goes far past the salads at McDonald’s. Juice bars, wheatgrass shots, bioengineered food and even sushi were unheard of to Australians 50 years ago.

The notion of a government regulating to protect people against obesity used to be unthinkable, used as a parody of anti-tobacco legislation. Unfortunately, it shows us how far the political debate has moved from personal responsibility to government responsibility.

But is there a clearer area in which individual responsibility must take the fore than when choosing what we eat? Government regulation is not the solution to the obesity crisis.

Orwell’s Curse

A review of Privacy without Principle: The Use and Abuse of Privacy in Australian Law and Public Policy by Brett Mason (Australian Scholarly Publishing, 2006, 228 pages)

Privacy is a strange concept. Few debates over new technologies, changes in social structure or security measures are free from appeals to the right of citizens to conduct their affairs without surveillance, from either the corporate or the political sector.

As Brett Mason argues in Privacy without Principle: The Use and Abuse of Privacy in Australian Law and Public Policy, privacy has become a term of convenience for advocates of one or another political position.

The term itself has little conceptual core. Mason traces the variety of methods by which legislators, judiciaries and commentators have attempted to define the core of privacy — what is it that we are trying to protect? Privacy could be control of information regarding oneself, or deeply personal information that one may not wish to be made public. Privacy could be a manifestation of the autonomous individual, or could be the protection of intimacy.

In order to make consistent public policy decisions which respect the notion of privacy, legislators need an unambiguous and comprehensive definition. But none of the answers listed above, Mason argues, are conceptually clear, and provide little guidance for practical policy decisions. How, then, is the concept of privacy used in Australian politics? Mason singles out two debates within the last few decades — the 1994 Human Rights (Sexual Privacy) Act and the 1986 Australia Card Bill. Both of these debates exhibit the critical flaws in privacy discourse.

For example, why was privacy the vehicle upon which to legitimate homosexuality? While not always consistent with a liberal society, from a historical perspective, the state has always had an interest, or at least believed it had an interest, in the sexuality, sexual acts and reproductive habits of its citizens. The Human Rights (Sexual Privacy) Act sought to remove homosexuality from the interests of the state, but by hanging the act upon the concept of privacy, it did gay rights movement’s cause a great disservice.

The 1994 legislation posited that homosexuality was acceptable, as long as it was a private or intimate matter. If privacy is the foundation of the state’s interest in homosexuality, homosexual ‘legitimacy’ is premised on a staying in, rather than out, of the closet.

Mason also raises some other, challenging questions. For instance, if privacy determines the state’s interest in individual sexuality, does it follow that all (non-coercive) sexual acts are also legitimised? Such a formula would seem to legitimise acts which policy-makers may prefer not to condone, for instance, incest. It is unfortunate that the debate over the government’s interest in homosexuality in Australia led to a debate over what distinguishes homosexuality from incest. Advocates of gay rights are not well served by such appeals to privacy.

The Australia Card debate, and indeed, subsequent debates about national identification cards, have similarly used the concept of privacy loosely, often to their detriment. In this sense, George Orwell has done civilisation a great disservice. Both sides of politics ask a great deal of contemporary governments.

Government services need to be efficient. The terms of property have to be clearly defined. Laws need to be uniformly and rigorously enforced. Citizens need to be secure and, argue many from the progressive side of politics, they also need to be protected against their own choices.

Privacy is an inadequate focus of the debate over the relationship between the state and its citizens. That relationship, particularly in a time when social regulation and legislative paternalism are on the rise, needs to be closely examined.

But the doctrine of privacy against all else — undefined and unchallenged — does such a debate a great disservice.

Market The Massage, Not Media Moguls

The release of submissions to Communications Minister Helen Coonan’s media reform proposals merely confirm a few truisms about the debate over media ownership in Australia: The public is deeply ambivalent about the spectre of ownership concentration. And few commentators and organisations are willing to break the cycle of protectionism and regulation that has characterised the sector for the past century.

Much of the debate about the removal of cross-media ownership rules, and their proposed replacement – a minimum number of owners in each market – has missed the point. Competition law, rightly or wrongly, governs the sector to protect against monopolistic practices. But ownership regulations relating to broadcasting go beyond that to encourage structural diversity.

Why do we fear, as Senator Coonan’s media reform paper put it, “excessive ownership concentration”? An aim of the broadcasting law is the promotion of opinion diversity.

Access to this is one of the foremost assumptions of a democratic society. It is widely believed that to ensure people are adequately informed about their choices in a democracy, they require a wide range of information.

Given the large influence the media has on our democratic process, legislators fear a media mogul could unduly manipulate public opinion for their personal ends. With ownership limits, the Government tries to encourage “diversity”.

Unfortunately, we have not come far from the views of Robert Menzies who feared that “the most intimate form of propaganda known to modern science” could be controlled by “people who do not belong to this country”.

Senator Coonan has his spirit. Menzies was no lover of the free market and his Toryism is still reflected in the backward attitudes of the Liberal Party to media ownership.

The Government’s media changes will probably remove restrictions on foreign investment and ease cross-media ownership restrictions. While these changes go a small way to liberalising the industry, they do not challenge the widely held belief that moguls manipulate public opinion, to the detriment of Australia’s democracy.

Compare our relatively objective media with the highly partisan media of the 19th century and before.

Objectivity has not arisen because of ownership restrictions or the best efforts of legislators. Instead, it is a response to market demands through changing technology.

In the early 20th century, many media proprietors realised there was a greater market for a news media without overt partisanship. Technology in this period, from cheaper printing presses to radio and television, enabled them to capture that market. The notion of journalistic objectivity has been the result of these changes and consumer demand.

More recent changes in market structure could be pushing our broadcast media the other way. We often desire objectivity in reporting, but also enjoy reading highly partisan blogs or opinionated columnists.

Today’s proprietors face an explosion of technologies. Some are well appreciated, such as blogs on the internet. But some are not often recognised for how significantly they have changed viewing habits, such as the video recorder.

Despite their well-publicised views on political issues, the moguls, including Rupert Murdoch, have comparatively little influence compared with the all-powerful newspaper tycoons such as William Randolph Hearst and Lord Beaverbrook, who operated without substantial competition. Murdoch is no Citizen Kane.

Radical change over the past 30 years has inundated media companies with competition. The high capital costs that encouraged the media to package objectivity are being replaced by the extraordinarily low costs of cheap printing and the internet.

As any first-year marketing student will predict, media companies, big and small, are attempting to respond to this highly competitive environment by differentiating their product from competitors.

One effective way is the careful, studied introduction of political viewpoints.

Any assessment or assertion of bias in a media organisation has to take into account this fact – more often than not, bias is an intentional technique to attract and retain an audience.

The internet gives people interested in political ideas more viewpoints than they would be able consume in a lifetime.

We live in an age of information and opinion abundance, rather than one where we need to be wary of the undue influence of media tycoons.

The reality is that no ownership regulation is going to prevent media organisations from chasing markets they consider to be profitable. Legislators should treat the media no differently than any other industry – neutral and respectful of the services they offer consumers.

It is unfortunate the Government, and many of the contributors to the media reform consultations, do not believe that.

Scandinavian Idol

Since William Lane’s disastrous attempt in the mid-1890s to create a socialist Australia in Paraguay, Australian social-democrats have looked offshore for their idols. This year marks the twentieth anniversary of the trade union mission to Scandinavian countries which culminated in the Australia Reconstructed report, a report which extolled Sweden above all others as a nation of unsurpassed social-democratic virtue. Since then, it has been used as an aside in numerous speeches, op-eds and policy papers – ‘If Sweden can do it, why can’t we?’

But does Sweden vindicate the Social-Democratic model? Sweden, and its Scandinavian neighbours, have long been touted as the archetypal well-functioning welfare states — stable, democratic, and, most indicatively, competitive. Ericsson and Ikea, models of successful globalising companies, originate in Sweden. Both symbolise innovation and international competitiveness, Eric-sson the high-tech mobile phone industry (joined by its regional competitor, (joined by its regional competitor, the Finish Nokia), and Ikea, the radical- and Ikea, the radically consumer-centric model of low-price, semi-disposable furniture.

But competitiveness in global markets is clearly not the major appeal of these Scandinavian countries to those who lean left around the world. Instead, it seems to hold the holy grail of social-democratic politics — record-high levels of social spending, a ‘consensus’ model of democratic governance, and internationally incomparable levels of trade union involvement in the political process.

It is no surprise that the Scandinavian model is much referenced as the ideal. Australia Reconstructed, presented a contrarian case to boost welfare and labour market restrictions at just the time Australia was moving away from that model. In May this year, RMIT academic Andrew Scott presented a paper to Melbourne University’s Contemporary European Research Centre arguing that the Scandinavian model described by Australia Reconstructed still had much to offer Australian policy-makers.

As the report is, in Scott’s words, ‘still the most comprehensive policy manifesto ever published by the Social-Democratic left in Australia’, its influence in the union movement and left-of-centre parties in Australia more generally is still significant. Scandinavian idolatry has lasted well into the twenty-first century. In the past six months, Stephen Smith has used Sweden as an example to attack recent workplace reforms. Wayne Swan has used it to condemn Australia’s R&D policy. In a speech in Melbourne to the Australian Institute of Company Directors late last year, Kim Beazley argued that social-democracy can still work, because Nokia and Ericsson produce high-quality phones. Praise for the Scandinavian model is a regular feature of Parliamentary and intellectual debate around the country.

But the tributes paid to the Scandinavian, particularly the Swedish, model by the ACTU researchers came at a peculiar moment in Swedish history. While not yet self-evident, it was clear that the Swedish model was in trouble. The Business Council of Australia, who replicated the ACTU’s Nordic retreat in October 1986, found that the Swedish economy was in dire trouble, having begun a slow but perceptible decline since the beginning of the 1970s and, even in the economic environment of the 1970s and 1980s, was more prone to stagflation than other comparable nations around the world. (A summary of the findings by the BCA, ‘Avoiding the ‘Swedish Disease’, by the head of the mission, Peter McLaughlin, appeared on these pages in April 1987.)

Less than five years after the debate over Australia Reconstructed, Sweden’s economy nearly collapsed. The economy went into deep recession, official unemployment figures skyrocketed, and the budget deficit rapidly increased. The economic crisis forced sharp cuts in welfare expenditure, and stopped to a halt the welfare expansion that had characterised the country over the previous few decades.

It is true that many other nations, Australia included, experienced economic crises at this time. But it is also the case that the source of these crises was more often than not the outdated social-democratic restrictions on the economy. The magnitude of the crisis in Sweden was therefore remarkable – the more inflexible you are, the less ready you are for the fall.

A brief history of the Swedish Model

Sweden is, surprisingly to outside observers, one of the great examples of liberal modernisation in the world.

Until relatively late by Western standards, the Swedish people were agrarian and dispersed. The aristocratic and political elite had little control over the economy. A series of land redistribution reforms in the late eighteenth and early nineteenth centuries broke up the feudal villages and set the stage for what became a modernisation with an unusually wide popular base. A massive liberalisation of economic barriers was instituted mid-century, beginning with the liberalisation of shipping and mining in the 1830s, until 1864, when the final barriers to trade and enterprise were eliminated.

Democratic reforms and the removal of aristocratic privileges followed from the 1860s onwards. Having shut down the old monopolies, strengthened rights to private property, and removed regulatory barriers and corporate subsidies, Sweden experienced one of the most rapid modernisations and industrialisations in the developed world.

With rapid growth, came calls for increased social regulations. In 1912, a universal workers protection law was passed, followed by a basic pension, universal accident insurance, new poor and unemployment relief system, and significant increases in health funding.

Out of this newly urbanised and industrialised state, was forged the famous Swedish ‘consensus’. Says Swedish Historian Emil Uddhammar:

public expansion during the 20th century (has) taken place without any consistent opposition, on grounds of principle, by any party … The expansion of public power has taken place without any significant controversies.

The consensus which grew out of the rapid growth of the late nineteenth century, it seems clear now, was fundamentally opposed to the reasons for that growth. Instead of embracing the liberal democratic model which had brought it such sudden wealth, it emphasised the role of the State in creating the preconditions for the best possible life, in organising the economy and society for common ends. This grandiose project was known by the motherly phrase folkhemmet, a combination of folk (people), and hem (home) — the all-embracing welfare state.

This consensus was only possible because the Social-Democrat Party, which held power in Sweden for most of the twentieth century, and whose vision of Sweden most informs the Swedish model, separated with its previous orthodox-Marxist ideals and co-operated with business, viewing its capacity for wealth-generation as the economic source by which it could construct folkhemmet. In co-operation with the strong trade union movements which guaranteed constant pay improvements, the Swedish consensus was born.

It was not until the Second World War, however, that the full force of folkhemmet could be mustered. Wrote Ernst Wigforss, the Finance Minister at the end of the war:

The important thing is that we felt our experiences during the war had given us new and decisive arguments for a bolder social policy being both economically feasible and politically justifiable … While realising that the difficulties were greater in peacetime, one could still unhesitatingly make reference to wartime experiences. Our resources were greater perhaps than most people had suspected. Would it not be possible, with a completely different strength from previously, to appeal to people’s feeling for the greatness of a common peaceful task of construction?

Having a fully functioning industrial base and a largely unharmed civilian population within reaching distance of the devastated continent turned out to be sufficient support to sustain record high levels of employment and steady, if not particularly impressive, growth.

As the consensus, and the faith in the Swedish model, grew, the level of social spending and state intervention matched it. The historian Arne Ruth writes:

The planning mentality was accepted on a scale, which even its keenest advocates in the thirties could hardly have imagined. The already dead-straight highway of Swedish industrialism was asphalted into the condition commonly known as the Swedish model. It was so outstandingly successful that virtually all criticism was silenced for decades. Through its very success it tended to exterminate all other options, all the objections great and small, which could have helped to correct its bearings in time. It killed history, not least. The planners extrapolated their graphs for decades ahead.

By the mid-1970s, as the 1987 BCA report indicated, it was possible to perceive deep flaws in the Swedish economy. Industrial employment had declined since the mid-1960s, and was similarly declining in importance to the economy. Absolute employment growth in the industrial sector culminated as early as 1965.

The core of the folkhemmet, lavish welfare entitlements, began to show its flaws during the 1960s and 1970s — so much so that Astrid Lindgren, the children’s author of, among other things, Pippi Longstocking, in 1976 wrote Pomperipossa in Monismanien, a fable about how the title character Pomperipossa lives out her life on welfare payments and never has to write another book.

As Mauricio Rojas, author of Sweden after the Swedish Model: From Tutorial State to Enabling State, writes, Sweden’s progressive taxation and welfare policies had changed Sweden’s ‘basic distributive principle from “equal pay for equal work” to “equal pay (or in-come) regardless of work”.’

What Australia can learn from Sweden

In the early 1990s, Sweden faced the fruits of four decades of social-democratic governance. Unemployment rocketed up from 2.1 per cent in 1990 to 12.5 per cent in 1993. The Swedish consensus, at least at this stage, was, however, largely intact — broadly supportive of an extensive, redistributive state.

This set of pressures — a devastating economic crisis, without a significantly reduced support for a large welfare system — inspired Swedish governments in that decade to institute a series of major innovative reforms to the government provision of social services.

In 1990, as part of a series of reforms to decentralise government services, the Swedish municipalities were given full financial control of the compulsory and the upper secondary schools. In 1992, this was followed by the introduction of what could roughly be described as a school voucher system, a major reform to the education system which has been advocated by liberal policy makers around the world for a long time. In Sweden, this consisted of an obligation on the municipalities to give independent schools 85 per cent of the cost of educating a child in the municipal schools, and giving parents the right to choose the right school for their children. Subject to maintaining certain educational standards, all independent schools are eligible for this funding.

For advocates of school choice in Australia, the empirical results from the adoption of such a system in Sweden have served as a vindication. A series of studies has found that competition between education providers has improved educational outcomes. As F. Mikael Sandström and Fredrik Bergström find in their paper ‘School Vouchers in Practise’:

Greater competition improves the standards of public schools. The wide scope of reform of the system for financing primary education makes the Swedish experience particularly interesting. Sweden has left a system with virtually no parental influence over school choice, and an almost complete dominance of public schools. A voucher system, where parents are allowed to choose any school approved by the National Agency for Education, has been put in its place. Independent schools receive funding on close to equal terms with public (municipal) schools. A widespread concern among opponents of school choice is that competition will hurt the public schools. The present study shows this fear to be without foundation.

For an Australian observer, it is interesting to learn that the school voucher system implemented in Sweden has been embraced by the teachers’ unions themselves. According to the head of the Swedish Teachers Union, Lärarförbundet, teachers were ‘a little suspicious at first’, but have come to embrace the new system — which not only gives parents choice of education institutions, but grants teachers greater choice of potential employers.

Nevertheless, their Australian counterparts continue to oppose them, arguing that such an innovative policy model is a mere ‘smokescreen to avoid tackling real equity issues in schools … the best way to improve schools is to improve public schools’.

Although not as advanced, Sweden has also made significant inroads into health care reform. The mid-1990s witnessed a series of slow but unmis-takable moves towards greater choice and competition in health care. By 2002, health authorities were utilising an extensive internal market, purchasing services from more than 2,000 medical providers in the Stockholm region alone. Most of these are medical practitioners.

Swedish health care analyst Johan Hjertqvist argues that given the unpromising state of international health care, these reforms ‘may represent the biggest privatisation of health care services production ever in the long history of socialised medicine’. Even emergency care is moving towards private ownership, as previously government-controlled emergency hospitals corporatise in preparation for their eventual privatisation.

Sweden has a pension scheme not dissimilar to Australia’s, where citizens are given ownership of part of the pension savings and the freedom to choose which funds to invest in.

It should be clear by this stage that the impression of Sweden as a social-democratic wonderland is incomplete at best. Like Australia, the nation is going through a long period of economic reform and rejuvenation. Privatisation has been a recurring theme. The postal monopoly was abolished in 1993, having been challenged in Stockholm by a private company, CityMail, which had been operating since 1991. Water services have been privatised throughout many municipalities since the mid-1990s.

In a setback in 2004, the national government banned the further privatisation of public hospitals. However, this year, the opposition conservative coalition has agreed to privatise a huge range of state-owned companies, indicating the continued appeal of liberal economic reform.

The harsh reality of the Swedish utopia

Many, but not all, of these reforms have been embraced by the Swedish public and have been integrated into the ‘consensus’. However, their history and the circumstances from which they were born make it clear that they were creations of necessity — possibly because of a public recognition of a crisis within the welfare state and the need for reform in services.

Despite these many changes, the welfare state remains largely intact, sustained by the largest tax burden in the OECD — 50.6 per cent of GDP, down from roughly 70 per cent in 1993. The consequences of such continuing massive government weight on the economy are entirely predictable and unsurprising — Swedish exceptionalism has not expelled economic man.

Although growth is high compared with the rest of Europe, since 1998 the economic recovery has, unfortunately, been only partial, and accompanied by a number of disturbing trends.

The crisis of the early 1990s threw a much larger segment of the population from 20 to 64 years of age on to some sort of aid or social security, from just over 700,000 in 1990 to nearly 1,200,000 in 1994. Since then, however, despite a significant economic recovery over the last ten years, this has only dropped moderately — in 2003, more than one million out of a total of 5.2 million within that age bracket of people were the recipients of wealth transfers.

Similarly, a significant growth in absenteeism due to illness has coincided with the reduction in unemployment levels. None of these trends will be un-familiar to those acquainted with general critiques of the welfare state, and despite the sentiments expressed by advocates of a similar model for Australia, are well in evidence in Sweden.

Mauricio Rojas states that:

A country like Sweden that provides broad and generous social benefits, necessarily assumes that, on the one hand, its citizens are willing to work and contribute a high percentage of their income to the State coffers and, on the other hand, will not misuse or take advantage of the subsidy systems. It is simply assumed that the people and State build this relationship on a strong foundation of decency and social solidarity. However, this moral foundation is showing visible and worrying cracks. Sweden in general and social democracy in particular are currently suffering what can be called a widespread moral crisis…

Sweden is similarly held back by a series of regulatory fashions whose time is certainly past. For instance, much Swedish housing is governed by a unique rent regulation system characterised by a collective bargaining system analogous to collective bargaining in labour markets. While the 1990s saw significant migration into metropolitan areas, the combination of restrictive planning laws and this collective bargaining system saw very little growth in housing construction, as well as the rise of a significant (although nearly impossible to measure) black market in rental contacts. Despite this, reform is opposed by the strong tenants union.

The effects of the still-strong Swedish model extend well past the predictable. The combination of the corporatist relationship between business and government and the expansive welfare state influences the structure of the nation’s industries, disincentivising certain industries over others.

For instance, by looking at job generation and the Swedish IT industry, the economist Dan Johansson has found that the nation’s large and centralised institutions systematically discriminate against innovative and small firms in favour of larger, older ones. Industrial subsidies and support have been confined to more traditional industries such as farming, construction and manufacturing; furthermore, even within these industries, the taxation system favours older, capital-intense firms with strong institutional links to the state.

Despite highly visible and publicised international successes such as Ericsson, and record high levels of public R&D spending, the Swedish economy is not the innovative one presented by supporters of Australia Reconstructed. Ericsson itself, along with Telia (Sweden’s largest telecommunications network operator), dominate the IT industry within the country at the expense of smaller, independent companies. Indeed, out of the 50 largest private firms, not one of them was established less than 35 years ago. Thirty-one were established before the First World War. The ownership of these firms has been concentrated in a small group of banks and families.

The well-established link between a strong welfare state and low levels of entrepreneurship is, despite the protestations of Kim Beazley, clearly in evidence in Sweden. As the Swedish economist Magnus Henrekson notes, ‘the entrepreneur is largely an alien in the Welfare State’.

The Scandinavian idol

Sweden is as good a test case for models of the political economy as policy makers are going to get. Until relatively recently it has been ethnically homogenous. Before the introduction of the welfare state it was small, yet highly industrialised and prosperous. It was not significantly affected by the wars which engulfed its European neighbours. It is untroubled by non-economic internal strife.

But despite all these advantages, the social-democratic model fares as well as theory predicts — unable to diminish the disincentives of universal welfare, unable, with a rigid and inflexible labour market and taxation system, to deindustrialise and reorientate the economy toward more entrepreneurial and technologically advanced sectors, and unable to increase productivity at the rate needed to maintain living standards in the long term.

Why is Swedish and Scandinavian idolatry so prevalent in Australian political debate? It is used by political ideologues as corroborative evidence that increases in state spending and welfare can work. Close examination, however, reveals it to be no exception to general political and economic principles.

It is also curious that its advocates neglect to mention its highly successful experiments in school choice and other market reforms.

But if social democracy doesn’t work in Sweden, few other nations present lynchpins on which to hang the dreams of social democrats in Australia — few, at least, with comparable social freedoms and democratic institutions, unlike the frustrating totalitarianism in Cuba. As the foregoing analysis has shown, Swedish idolatry is a chimera, little more than a rhetorical trick, and has little bearing on reality.

Media regulations need massive, radical reform, not minor tweaking

The latest proposals for media reform do nothing but reinforce the corporatist approach that the government has taken towards the industry. Designed to entrench incumbents and ‘future-proof’ them against competition, references to dramatic changes in media brought about by information technology are mere wrapping around minor regulatory tweaks. The discussion paper released in March, Meeting the Digital Challenge: Reforming Australia’s media in the digital age, has been greeted by much press and industry as a bold reform agenda for the sector, but the reality is that the government’s proposals do not even scratch the surface of the reforms which are desperately needed.

The Government’s reforms do no justice to the massive, sweeping changes faced by media in Australia and around the world.

In this field, few commentators, regulators and policy-makers shy away from the term ‘revolution’. If the word was not just as uniformly applicable to so many other industries whose business models are under siege from cheap, ubiquitous, and steadily more powerful computing and communications technologies, then it would no doubt be appropriate. Few, areas of economic activity — if any — are immune.

The histories of media content, delivery, and technology have been histories where radical change is the norm, not the exception. The twentieth century saw dramatic changes in the format, delivery and content of a huge range of media, from the amateur radio and recorded sound of its first decade to the MP3 of its last. Numerous technological innovations have altered the way we consume, produce and interact with media. The transition of magazine printing from the older rotary press to offset lithography in the 1960s and 1970s dramatically reduced the cost of printing, resulting in the proliferation of hundreds of specialty publications, in contrast with the previously rather limited selection. The history of popular music was shaped by a potent combination of the use of the FM band by independent broadcasters and the emerging competition from television in the 1950s. Vinyl recordings, tapes, CDs and MP3s — and the devices they are played on — have further altered our relationship with popular music, and the content of the music itself.

To a degree, the regulatory environment which has evolved has reflected the constantly mutating forms of its target. Ever since the ill-conceived ‘sealed set’ radio scheme — where, after a government-business conference in 1923, licensed stations would sell receivers locked so that they could only tune into the licensee’s station — there has been little attempt to allow the market to determine the topography of the Australian media terrain. Originating with a progressive-era pact between government and business for an orderly and restricted radio network, similar frameworks have been adapted for each new technology as it entered the market.

As the 2000 Productivity Commission report into broadcasting services aptly stated, the Australian media ‘reflects a history of political, technical, industrial, economic and social compromises. This legacy of quid pro quos has created a policy framework that is inward looking, anti-competitive and restrictive’.

In praise of stupidity

Traditional media are commonly viewed through the traditional vertical ‘silo’ model—separate, distinct networks which do not interact. Content delivered over radio is distinct from content delivered at the news-stand, and both are distinct from content delivered over television. And the networks themselves are designed to deliver and interpret the specific content they were designed for. Radio is unsuited to being delivered over the television network. The resolution of a basic television signal is ill-suited for delivering text in bulk.

Australian regulation is built around this silo model. For instance, content requirements and quotas are platform-specific. Anti-siphoning regulations use business models as their determinant. And, most obviously, cross-media laws specifically regulate different networks — artificially restricting ownership and, implicitly, content sharing — in local markets.

‘Convergence’, the process by which multiple products — for instance, video, person-to-person communication and broadcast audio — are delivered over a single network (the Internet) has made this regulatory approach increasingly unsuitable. Instead, the Internet is governed by an ideal termed ‘end to end’ (or e2e). Writes Lawrence Lessig:

e2e says to build the network so the intelligence rests in the ends, and the network itself remains simple. Simple networks, smart applications. The reason for this design was simple. With e2e, innovation on the Internet didn’t depend upon the network. New content or new applications could run regardless of whether the network knew about them. New content or new applications would run because the network simply took packets of data and moved them along. The fundamental feature of this network design was neutrality among packets. The network was simple, or ‘stupid’ … and the consequence of stupidity, at least among computers, is the inability to discriminate. Innovators thus knew that if their ideas were wanted, the network would run them.

The neutrality of the Internet Protocol (IP), essentially just an agreement on how computers communicate with each other, has encouraged innovators to develop countless programs unimagined by the Internet’s architects. The ‘dumb pipe’ of the Internet, unlike the highly regulated silos of traditional media, just doesn’t know how to distinguish between any of these.

As the content is divorced from the infrastructure that provides it, the Internet is infinitely expandable. There is no theoretical limit upon how many devices can connect to the Internet, subject to realizable minor adjustments such as IPv6 (Internet Protocol version 6.)

Stuck in the silos

But Meeting the Digital Challenge, despite its ambitious title, shuns any major realignment of media policy towards this new environment in favour of minor and insubstantial readjustments. Most clearly, the paper indicates a continual focus on what can only be described as a textbook example of government’s mis-regulating a new technology, digital television. Digital television is a perfect example of the poverty of the silo model of regulation, indeed, of regulation in the sector as a whole.

A new Digital Action Plan is intended to spur along take-up of digital television, and is likely to provide for a switchover period sometime between 2010–2012, having admitted that the previous deadline of 2008 was unrealistic.

Although the discussion paper is scornful of a ‘purely market based’ approach, it is the rejection of market processes that has left the transition bogged down in its technological quagmire. While ostensibly trying to encourage takeup of the new technology, content restrictions which force networks to simulcast the same content on both digital and analogue television remove the natural advantage that new forms of media have – the capacity to show something new. Instead, for most people, the investment in a set-top box or television capable of receiving the new signals will provide merely an increase in picture quality.

Digital television needs to add value for consumers, value above its ‘digital’ attribute — which is not inherently good in isolation. But instead of addressing this key issue, proposals for a Digital Action Plan focus on measures to stimulate take-up while most existing restrictions remain in place — including digital television awareness campaigns, compulsory labelling for analogue receivers, and financial assistance for those who cannot afford the new-fangled technology.

It is good that the ABC and SBS have been allowed to provide multi-channelling on their digital spectrum — why could not similar measures be taken for the far more popular commercial networks? It is unlikely that this relaxation will be sufficient to reverse the national apathy to a technology which the government bodies are so enthusiastic about.

The only reform is radical reform

But both government and regulators need to face the fact that, even if they get the switchover perfect from here on in, and the regulatory environment is at its theoretical most effective, digital television is unlikely ever to be the cornerstone of Australian media. That ship has long sailed.

It is not even appropriate to call media delivered over the Internet ‘next generation’ — new services such as Google Video and iTunes, delivering television and video content on demand for negligible cost, may be the thin end of the wedge, but they are fully functional and increasingly popular.

On the same day that Communications Minister Helen Coonan released the discussion paper, Apple’s iTunes — which had already sold 1 billion music files worldwide, and was offering television programmes such as Lost and Desperate Housewives — offered its first movie for purchase and download. The on-line retailing giant, Amazon, will soon offer movie downloads, and Google Video has been offering classic films since the start of the year. (And this is all before accounting for the massive, virtually unmeasurable peer-to-peer networks trading in current international television programmes and films.)

Unlike digital television, the advantages of these new services are clear – providing content free from quotas, timetables or geographic borders. Even in its infancy, the Internet commands significant ground in consumers’ entertainment choices. The low price of Internet usage obscures its significance as an entertainment competitor, but a recent National Bureau of Economic Research paper, ‘Valuing Consumer Products by the Time Spent Using Them: An Application to the Internet’, showed that, in the United States, around 10 per cent of all leisure time was spent on the Internet.

This is before on-demand television and film services have begun to take effect — most services have been launched in early 2006. Once it gains even the moderate popularity commanded by music downloading, and across a wider demographic, the real ‘digital challenge’ will become evident.

Therefore, whether the government recognizes it or not, the only regulatory framework that can fulfil the objectives of the Broadcasting Services Act — particularly, diversity of content and ownership, quality, competition and even development and reflection of Australian national character — is one that allows entrepreneurial investors to roll out high speed end-to-end networks free from government interference.

Rather than promoting services with dubious value, the government would do better to radically deregulate media industries to level the playing field across the sector — reducing distinctions between types of network, and recognizing that, regardless of whether the service traditionally delivers only sound, or only television, they now compete with a technology uniquely suited to delivering entertainment.

Any regulations which apply to one form of media should, by rights, apply to any other. Mismatched regulations artificially cripple legacy networks at the very moment that they need maximum flexibility to compete.

Regulations which restrict content need to be quickly reassessed. Australian and local content quotas, whatever their nationalistic intent, are meaningless on an end-to-end network — there is no way to measure 55 per cent of infinity, and even if there were, no mechanism by which Australian regulators could enforce it on a global entertainment service such as iTunes.

Anti-siphoning and anti-hoarding provisions have necessarily disadvantaged new media networks like pay television and digital television by providing incumbents with privileged access to ‘premium’ content. It is more worrying that, as the Chairman of the ACCC has intimated, premium content on so-called ‘third generation’ mobile networks and broadband services could be considered competition bottlenecks. Rather than further entrenching this regime by tweaking ‘loopholes’ as the discussion paper does, a forward-thinking media policy would look carefully at the rationale for anti-siphoning. Releasing popular content from restrictions such as these would encourage migration to new services far more than a top-down Digital Action Plan ever could.

Meeting the Digital Challenge allows for greater flexibility in foreign and cross-media ownership, but significant restrictions still remain. Even before the Internet became a significant challenge to the market share of traditional media, the regulated diversity of ownership is a strikingly indirect method of ensuring diversity of content — editorial or otherwise. As consumers migrate to an infinitely expandable network which allows for unlimited entrants in a global entertainment market, artificial restrictions on ownership in Australia make less sense. Media companies no longer face competition from a restricted set of similarly protected competitors, but from IT upstarts across the world. The sector, and consumers, could benefit from a radical liberalization of the market.

It is unfortunate that the Government has skipped the chance to push through radical reforms of the media sector, at a time when the need for such reform is evident. Forward-thinking deregulation is not a pipe-dream in this area—every newspaper across the country has emphasized the ‘revolutionary’ potential of the Internet—but what remains is for the Government to take the same leadership it has shown in other areas such as industrial relations, rather than to kowtow to the largely protectionist media industry.

Releasing popular content from restrictions would encourage migration to new services far more than a top-down Digital Action Plan ever could

Submission to Meeting the Digital Challenge Discussion Paper on Media Reform Options

Introduction: The Australian media is heavily regulated by a wide range of legislation and industry codes. Ownership, content, structure and reach are all subject to government interference. These regulations are complemented by numerous government interventions and subsidies – film financing, public broadcasting, arts grants, tax concessions. The Productivity Commission report into broadcasting services argued that the current approach ‘reflects a history of political, technical, industrial, economic and social compromises. This legacy of quid pro quos has created a policy framework that is inward looking, anti-competitive and restrictive.’

The regulatory and subsidy labyrinth has been a recipe for inefficient and inequitable outcomes. It represents failures in Australian governments’ attempts to manage the introduction of new technologies and services, to foster‘diversity’ and equal access and unnecessary measures to prevent monopoly.

Relatively recent far-reaching technological changes in media content production and delivery have exacerbated the adverse efficiency effects of this unsatisfactory policy progression. The upshot has made it more urgent to implement a major adaptation of the sector’s regulatory framework. As the Institute of Public Affairs has long been involved in the economic, social and political debate over media and communications policy, we welcome the chance to comment on the government’s media reform discussion paper in the light of these developments.

View in PDF here.

Submission to Future use of unassigned television channels

Introduction: Australian spectrum policy is largely characterised by a ‘command and control’ approach to allocation. Government allocates rights, conditions of their use, and the services which may be provided. Such rights can rarely be traded, and are subject to continuous government supervision and regulation. Such a top-down approach is ill-suited to managing the implementation and diffusion of technological innovations, nowhere more so than in the field of communications and information technology. While such a framework may satisfactorily – although certainly not ideally – manage a limited and static array of services, its capacity to manage the allocation of new and future technologies is limited.

Available in PDF here.