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Big Brother vs. Big Brother: How politicians failed to understand reality television and in their confusion instead decided to regulate the internet

With Hugh Tobin

If the people who watch Big Brother are so stupid, why do we allow them to vote? After all, the cultural criticism of reality television is, implicitly, a criticism of its audience.

The political condemnation which has greeted a series of reality television controversies could easily backfire. The series is simple entertainment, but it is entertainment designed to reflect the social lives and concerns of its audience. There is more to Big Brother than voyeurism.

Nevertheless, in June this year, the cultural pessimists who have made sport of condemning the reality television genre were provided with yet another target for their concentrated hysteria. A new Dutch reality television programme, The Big Donor Show, starred a terminally ill woman with a kidney to donate. Three potential donor recipients were to compete for the life-saving organ. (The programme’s logo tastefully featured a drawing of a kidney in place of the final ‘o’ of ‘donor’.)

Of course, it was a stunt, designed to highlight the shortage of organ donors in the Netherlands and, indeed, around the world. The conservative politicians who had been quick to condemn the programme and call for its censorship awkwardly tried to back away.

The show may have been designed to attract attention to the shortage of organ donors, but the politicians who instinctively shot from the hip illustrated just how highly politicised reality television has become. Reality television attracts vehement criticism—criticism about its supposed emphasis on sex, its voyeurism, its artlessness, and its seeming appeal to the lowest common denominator.

On the surface, many of these objections seem unfounded. Artless voyeurism and sexual innuendo have not merely been a prominent feature of the history of television, but probably a big source of the medium’s popularity. Reality television, then, is simply another genre of entertainment, and should be judged by the same standards as ‘traditional’ genres such as sport or drama. Putting aside the intellectual snobbery adopted by culturally conservative politicians, there’s nothing harmful about a bit of trash TV.

The success of the Dutch kidney donor stunt was only made possible by exploiting the instant notoriety with which reality television has become synonymous. And just as in the Netherlands, over-zealous Australian politicians have rushed to condemn the tone and content of the genre. But the political response in Australia has gone much further than simple statements to the press. The knee-jerk reaction to a series of reality television scandals has led to a major regulatory expansion for online content and delivery.

The controversy surrounding Big Brother in mid-2006 has inspired the federal government to increase the powers of the Australian Communications and Media Authority (ACMA) to police mobile phone and online content. A hastily written piece of legislation now urges the regulator to develop industry standards for the entire Australian internet community, as well as enforce the removal of ‘objectionable’ material here and overseas.

Vague borders

It’s no surprise that Big Donor would originate in the Netherlands. Endemol, the production company which produced the stunt, was one of the major companies responsible for the modern wave of reality television. It produced the first series of Big Brother which aired in 1999 on Dutch commercial television.

The first of the Survivor franchise was aired in Sweden in 1997 as Expedition: Robinson, and 19 Entertainment’s Idol format began in 2001 with its UK series, Pop Idol. These have all been franchised internationally: there are now 95 different winners of the Idol series around the world, and more than 160 winners of Big Brother.

But reality television, a loose genre which presents largely unscripted non-actors in various contrived situations, has a long history. 1948 — the same year in which George Orwell wrote Nineteen Eighty-Four — also saw the first television broadcast of Candid Camera, the long-running and influential concealed camera show which pioneered the genre.

The borders of reality television are unclear. The genre borders upon documentary filmmaking — programmes such as the US’s COPS and Australia’s Border Security, or ‘celebreality’ shows, such as The Osbournes and Newlyweds: Nick and Jessica, document the daily lives of non-actors. The Seven Up! Series — the latest episode of which was reviewed in the December 2006 edition of the IPA Review — also shares some similarities with this strand of the genre.

What constitutes ‘reality’ television is often a matter of degree — many of the staples of the genre have close affinities with more traditional programme formats. Like a game show, the participants in Big Brother compete against each other for a prize, as do contestants in the Idol and Survivor formats. Talk shows such as the Jerry Springer Show have also sometimes been classified as part of the genre when they actively try to foment on-air drama between participants.

Much reality television blurs into fiction. The question of just how ‘real’ reality television is is made particularly problematic by shows such as Laguna Beach, which purports to follow a group of wealthy teenagers living in Orange County, California. Laguna Beach features a not-insignificant amount of scripting and ‘production manipulation’.

Scandal and controversy have accompanied reality television since its early days — reality television has been a more powerful conduit for debate about social and cultural issues than any number of high-minded, preachy Hollywood films. In the 1973 US series An American Family, which centred around a family experiencing a divorce, the eldest child’s homosexuality was the lightning rod for controversy.

In 1992’s Sylvania Waters, a series which filmed an Australian family, the perceived and real alcoholism, racism, and materialism of the Laurie Donaher/Noeline Baker de facto family drew much criticism. The Sun headlined its story on the series when it debuted in the UK: ‘Meet Noeline. By Tonight You’ll Hate Her Too’.

The most controversial programmes, however, have been those which have placed participants in special living environments. MTV’s The Real World has, since 1992, placed participants together in an urban house and given them jobs and group activities. Tensions and arguments over race and sexual orientations have been a recurring theme throughout the series.

Politics and Big Brother

Unsurprisingly, the Big Brother franchise has a tradition of controversy. Last year’s accusations of racism in the UK Celebrity Big Brother gained the British series world-wide attention. Politicians who have been so eager for the limelight that they have volunteered as participants have come under heavy public fire. The Scottish MP George Galloway thought that the best way to capitalise on his notoriety after being accused of Iraqi Oil-for-Food corruption was to appear on the 2006 edition of Celebrity Big Brother. The minority whip of the Mexican Green Party also participated in a 2004 Mexican Big Brother, to much political criticism.

The Australian Big Brother may not have featured any politicians as housemates yet, but the franchise has been readily embraced as a political totem. Beginning in 2001, early Australian seasons of Big Brother were aired with relatively little controversy. 2003 saw a small incident as one housemate identified a minor in an ongoing court trial — the producers frantically shut down the live Internet feeds and official Website discussion boards. A 2004 contestant staged a silent protest upon his eviction from the house, taping his mouth shut and holding up a banner reading ‘Free th refugees’ (sic), to the consternation of producers who had planned the usual extensive post-eviction interview.

The Dutch production company which developed the Big Brother format originally conceived as few as six contestants locked up in a house for a year. The format was partly inspired by the early Webcam movement, a late 1990s’ trend where exhibitionists document a usually unedited video stream of their lives onto the Internet, including sexual encounters.

And it is this lineage of total surveillance and exhibitionism that has provided the source of the major controversy. The 2005 series’ emphasis on the sex appeal of the housemates, in particular the weekly 9.40pm ‘Uncut’ programme which presented material not appropriate for the 7pm ‘Daily Show’, was a focal point of political condemnation. ‘Uncut’ featured, for the most part, conversations about the sex lives of the housemates, shower scene footage, and general playing around.

Following complaints from the Australian Family Association, Liberal MP Trish Draper condemned the programme as pornographic, arguing that the housemates have ‘an aspiration to be porn stars’. Big Brother participants are certainly exhibitionists, but it would undoubtedly be easier to get work on a porn film than become a housemate.

In 2005, ‘Uncut’ was the problem. Once the programme had attracted the attention of the Communications Minister, Helen Coonan, media regulators determined that the material chosen for broadcast was in breach of the free-to-air code of conduct. For the next year’s season the programme was retitled ‘Adults Only’ and the sexual content watered down. (Nevertheless, by June 2006, Channel Ten had succumbed to political pressure from government backbenchers and pulled the show; even though it was, as everybody acknowledged, firmly within the bounds of broadcasting regulations and the television industry’s code of conduct.)

But for Big Brother 2006, the biggest controversy wasn’t what was broadcast on free-to-air television. It was the Internet-only, subscription-only live feed which recorded the alleged sexual harassment by two contestants of a third female participant.

Steve Fielding of Family First led the critical charge of criticism at the show: ‘This show legitimises behaviour that is not acceptable anywhere in our community and this latest incident is disgusting and degrading and, quite frankly, this is not a community standard that’s acceptable … Family First is calling for Big Brother to be pulled’.

The Prime Minister also called Big Brother a ‘stupid program’, and the Communications Minister said that it was ‘disturbing and offensive’. Predictably, the ACMA was once again pulled back into the fray.

Whether the ACMA had jurisdiction over the online material was, however, uncertain. The incident was not broadcast on television. As the ACMA noted in its report, the footage wasn’t even stored on the Big Brother website — the site did not provide an archive of the feed. But enterprising subscribers had recorded it themselves, and the incident was soon viewable on video-sharing sites such as YouTube.

The ACMA’s report concluded that there was little the regulator could do about what was provided online. For the government this was an insufficiently dramatic political response to the August 2006 incident.

So now, in 2007, we have legislation which gives the ACMA that authority. The Communications Legislation Amendment (Content Services) Bill, which passed through parliament in late June, gives the regulator authority over ‘ephemeral’ content services such as Internet live feeds, as well as the power to regulate ‘convergent’ devices, such as mobile phones offering video or other content. But the importance of the new legislation is not limited to an expansion of the ACMA’s jurisdiction. The law places the regulator firmly at the centre of ascertaining the responsibility for content created and delivered on the internet.

The creation of content by Internet users, rather than professional content producers, has been one of the primary innovations in entertainment technology over the last decade. Sites such as YouTube provide a neutral distribution system for users to upload and broadcast that content. But the introduction of this legislation requires the site to police the material it hosts, rather than placing the responsibility with the producer of the material. As Microsoft has noted, this surpasses the high regulatory bar set by the European Union—an unfavourable comparison.

The high pace of innovation has blurred the distinction between forms of content and delivery—indeed, this is a good working definition of ‘convergence’. In an effort to translate the complex technological and cultural changes of the content industry, the legislation confuses and over-regulates.

For example, there are 22 exemptions to what is considered, for the purposes of the legislation, as a ‘content service’. Entrepreneurs eager to found their own YouTube killer in Australia will struggle to navigate the convoluted legal framework and liability issues. They will be doubly frustrated if they had originally been seduced by the federal government’s public desire to encourage a local content industry.

Between the audience and the activists

As has regularly been pointed out both by critics and contestants, ‘The Daily Show’ and ‘Uncut’/‘Adults Only’ programmes of Big Brother are not strictly ‘real’. Programme producers can cut and edit what is finally broadcast to direct or create narratives, play up potentially dramatic situations and even manipulate audience perceptions of individual housemates. But they have very little capacity to manipulate the live Internet feed.

What is shown live from the house is as close to ‘reality’ as audiences are likely to get from the artificial environment of Big Brother. If the programme’s original conceit was to broadcast the mundane lives of a group of people in an isolated house, then live streaming is the ultimate manifestation of that idea.

When politicians criticise or disparage the contestants on Big Brother, they implicitly criticise the (voting) audience.

In the UK, the programme’s audience is 58 per cent female, and 49 per cent are aged between 16 and 34. The Australian audience has a similar composition. The participants on most of the standard Big Brother series are deliberately chosen to replicate the likely audience.

This same demographic now spends more time online (38 per cent) than with any other entertainment medium. Again, the activity online provides an interesting parallel with the Big Brother format. This is the same generation that is likely to have a public profile on MySpace or Facebook, to record their daily activities publicly on services such as Twitter, to run a blog, to produce YouTube commentaries, or in some other way to participate in online discussions and forums.

Big Brother may be exhibitionism on the scale of free-to-air television, but the audience also practices their own smaller-scale exhibitionism online.

Politicians eager to court this key demographic should be wary of such instant point-scoring. The reactionary attitude of the political class to the genre is, particularly for young viewers, indicative of a failure to understand youth culture.

One recent paper in the International Journal of Cultural Studies has found that UK Big Brother viewers were, when assessing a politician, most likely to give their support to someone who they saw as an ‘ordinary’ person. The programme, this finding implies, is popular because the audience can relate to the housemates; and politics is unpopular because the participants are harder to relate to.

How individuals acted in the artificial environment of the Big Brother house was seen as a reliable guide to their personality and ability—a view that contrasts poorly with finely stage-managed political personas. The ‘Uncut’/‘Adults Only’ programme was both unfiltered titillation and a candid display of key aspects of the housemate’s personalities.

Endemol has itself encouraged the comparison between the programme and politics. The company’s UK division sponsored a 2003 study which contrasted what it saw as the typical Big Brother viewer — typically female, under 40, and largely uninterested in politics — with ‘Political Junkies’—male, 50-plus, professionals, who regularly discussed politics in social settings. Endemol’s UK chairman wrote in the study that the British government needed to replicate the most appealing aspects of Big Brother and ‘broaden its accountability, allowing the electorate more control via interactivity and thus earning more respect from the new generation of voters’.

Politicians should probably not apply to be housemates. George Galloway was, after all, voted out of the house early into the season. But the remarkably confused interpretation of the implications and importance of reality television and the internet has led Australian politicians to demonstrate just how little they understand this key demographic.

When the frills of Big Brother — the prize money, the weekly voting, the Friday-night games — are stripped away, the programme does nothing more than stick 14 young people in a house and watches what they do. They may be more attractive and extroverted than the norm, but they represent a cross-section of the social, political and economic make-up of their generation.

Politicians would do better to watch the show than to breathlessly condemn it.

Libertarian ascendancy

Review of Radicals for Capitalism: A Freewheeling History of the Modern American Libertarian Movement, by Brian Doherty (PublicAffairs, 2007, 768 pages)

If one relationship illustrates the uncomfortable and slightly paradoxical relationship between modern, big-tent conservatism and the radical libertarian movement, it is the one between Barry Goldwater and Karl Hess.

Hess was first and foremost an activist, standing in contrast to the more numerous academic types who constituted the American libertarian movement in the 1960s and 1970s. He was firmly counterculture. He sported a Castro beard, and dressed in that same South American revolutionary style. While Hess’s right-of-centre credentials were firmly entrenched — as a journalist for Newsweek he had expressed what was seen as an unbecoming enthusiasm for McCarthy-era anti-communism, and his own writing was strongly libertarian, as well as staunchly anti-war — he conspicuously allied himself with the New Left in the latter half of the 1960s.

Barry Goldwater, whose ideological footprint was stamped with his ghost-written Conscience of a Conservative, was the 1964 Republican nominee for President. Goldwater’s foils were the Soviets and liberals, in equal weight. And Karl Hess, the future counterculture icon, was his unlikely speechwriter.

By the early 1970s, Hess’s position as a libertarian anti-war protester had been the subject of numerous profiles in the mainstream press. His relationship with Goldwater was, however, just as strong. Hess maintained that Goldwater, despite his position as the proto-typical American conservative, was still a perfect fit for his libertarian anti-war coalition, telling the Washington Post that ‘I don’t know anybody who would make a better Weatherman’ — the anti-war terror cell of the radical left. In an almost beautiful vignette of improbable friendship, Goldwater, bumping into Hess on opposite sides of a rally outside the capital in 1969, pulled him aside to asked him to ‘give me a call as soon as you’re free’.

Libertarianism, as Bryan Doherty’s Radicals for Capitalism: A Freewheeling History of the Modern American Libertarian Movement reveals starkly, has always existed uncomfortably alongside its fairweather partner, conservatism. Libertarians, as Doherty points out, often have close personal and institutional connections with the traditional right — they share the same think-tanks, libertarians are often members of the dominant right party, and the two make common cause on many issues, particularly free market economics.

But in the areas of sex, drugs, some science issues such as cloning and stem-cell research, and (often) war, libertarians deviate sharply from the conservative movement. Ayn Rand, in her typically venomous, Randian manner, held conservatives ranging from National Review’s William F. Buckley to Ronald Reagan in utter contempt, dismissing them as wallowing in the ‘God-family-country swamp’.

And that swamp is repelled by libertarians’ radical views on emotionally charged issues, some of which can border almost on satire. Libertarianism often rejoices in how off-putting its beliefs are, relishing its outsider status. Doherty quotes a founder of the New York State Libertarian Party who says that ‘hard-core libertarianism has no mass constituency … there is no mass constituency for seven-year-old heroin dealers to be able to buy tanks with their profits from prostitution’.

Doherty structures Radicals for Capitalism around five major figures: four economists, Ludwig von Mises, Friedrich Hayek, Murray Rothbard & Milton Friedman, and a novelist, Ayn Rand. The title of Doherty’s book itself is in part a compromise for Rand, who hated the term ‘libertarian’ in the same manner that she hated everything else.

But around these well-knowns, Doherty brings in their intellectual ancestors and heirs, and many other peripheral figures largely ignored by modern libertarians. For instance, Doherty profiles the group Spiritual Mobilization, Christian libertarian pamphleteers who splintered out of Leonard Read’s Foundation for Economic Education (FEE). (Libertarian mythology, for some reason, tends to downplay the importance of explicitly Christian free marketeers — the Spiritual Mobilization group have suffered from the same selective memory-loss that the Free Bible Movement has suffered from in the popular mythology of the free trade Anti-Corn Law movement.)

Modern libertarian thought has coalesced around the United States and, as Doherty points out, rightly so. Read your Constitution; there has scarcely been a stronger declaration of the rights of the individual. But the history of nineteenth-century America depicts the demise of anti-statism as the dominant American ideology.

Radicals for Capitalism — after briefly surveying proto-libertarians such as Supreme Court Justice Stephen Field, Yale political scientist William Graham Sumner and political philosopher Herbert Spencer — begins the twentieth century with what were, by then, termed the ‘Old Right’ — a small, disconnected cadre of anti-statist intellectuals repulsed by Franklin D. Roosevelt’s fascistic New Deal.

The intellectual isolation of the Old Right in the country that should be most receptive to its ideas sets the trajectory of the Libertarian movement until at least the 1970s. Movements cannot thrive without an institutional base. Anti-staters before the Second World War were first and foremost intellectuals, and produced a large amount of material. But they failed to reassert themselves in the intellectual landscape of the time, let alone dominate it.

They were not helped by their theoretically incomplete political and economic programme — Ludwig von Mises and Friedrich Hayek were still formulating their comprehensive treatises before the war. The Old Right was an informal coalition built around a hatred of Roosevelt.

Libertarians emerged from the war even further from the intellectual zeitgeist. No post-war libertarian set the tone and structure of the movement more than Leonard E. Read. Read was a refugee from a pro-business lobby group which was usually free-market, but had the frustrating habit of providing an outlet for ‘both sides’ of any given debate. The anti-market side, Read thought, already dominated public debate — why build them another platform from which to attack American capitalism?

Read left the lobby group in 1946 and founded The Foundation for Economic Education (FEE) — the prototypical free-market think-tank. Read’s and the FEE’s approach was, as the name suggests, a purely intellectual and educative endeavour. FEE’s mission was to provide the intellectual stimulant for the remnants of American anti-state thought, and hopefully to convince others, through argument alone, of its merits.

The FEE defined the structure of Libertarianism. Until the Vietnam War era, libertarians almost uniformly focused their activities on education and intellectual outreach. ‘Full-service’ think-tanks, specialist schools such as the charismatic Robert LeFevre’s Freedom School, and outreach organisations focused around varieties of libertarian thought such as Ayn Rand’s objectivism — the movement spent the post-war decades building up the institutional base which it had lacked for most of the country’s history. Having been largely expelled from the government-supported educational establishment and its lucrative tenure tracks, libertarian intellectuals have had to be both scholars and entrepreneurs to stay afloat.

It wasn’t until the late 1960s and 1970s that these efforts really started to pay off. A new generation of libertarians mixed activism over academia, aping the activities of the left. The Libertarian Party held its first convention in Denver in 1972.

Karl Hess — as far from a Read-style educator as can possibly be imagined — with other young libertarians strategically aligned himself with the New Left. It was not a particularly comfortable fit. The movement was still dominated by intellectual types—as it is today. But as these intellectuals gained confidence, their proselytising took a more public dimension. Doherty relates a particular prank of the Circle Bastiat Boys, a group comprising Murray Rothbard, Leonard Liggio, Ralph Raico and others:

One of their favourite stunts involved filling the studio of a televised talk by the governor of New Jersey, hitting him with questions as if their ideological universal was the norm and his some sort of aberration. ‘What, governor? You are for public schools? Where did you get such strange ideas? Can you recommend any books on the subject?

The libertarian movement in the 1970s was a dramatically different one from the isolated remnants faced by Leonard Read, and its expansion was in no small part his achievement. Resembling the state of the movement in 2007, libertarian ideas formed the basis of a magnificent variety of sub-culture groups. And not just famous groups such as Randian Objectivists or Young Americans for Freedom. They also formed a quite sizable part of the hippy and drug movements, science fiction writers, and fans, even early computer enthusiasts.

A proliferation of small independent zines were produced across the country, amongst them Efficacy, Rights by Right, Bull$heet, Living Free and Invitu$. The now-widely circulated Reason Magazine, of which Doherty is a senior editor, was founded in 1968 as a movement zine, dedicated to libertarian gossip and libel.

Libertarianism is a large enough movement to spread out well across the academic/activist divide. However, by the 1990s, it is possible to speak of ‘establishment libertarianism’. Libertarian arguments are, certainly, a constituent part of liberal economic theory. How much the ‘radicals’ of Doherty’s book propelled the general policy drift towards free markets around the end of the century is an open question. We know that Milton Friedman and Friedrich Hayek had a significant impact by the concrete policies and politicians directly inspired by the two academics. But individualists such as Andrew Joseph Galambos, who argued that his ideas were so firmly his private property that you had no right even to describe them to others, perhaps not so much.

The Adam Smith Tie establishment — a network of libertarian-leaning academics and policy-wonks centred around free-market focused think-tanks such as the Cato Institute — has arguably been the movement’s greatest political asset. The employment stability, institutional base and open forum that think-tanks have given to free market writers, thinkers and activists contrasts with the unfortunate isolation faced by Mises, Hayek, and even Rothbard (although, one suspects, Rothbard’s instability was partly of his own making).

These institutions have also provided public credibility for libertarian ideas, even if they by necessity have had to couch their message in practical, rather than moral terms. One political philosopher, writing for Cato recently, titled his essay on broadcasting the libertarian message ‘I’m not a utilitarian, but I play one on TV’. The individuals who work at think-tanks typically have a wide span of philosophical views, but the messages they broadcast are more Friedmanite practicality than Randian moral elitism.

Although Doherty’s book is not an intellectual history, he handles the intellectual issues clearly and honestly. His discussion of Albert Jay Nock’s Our Enemy the State, a foundation text of the Old Right, reveals its uncomfortable ideological fit — its place amongst college-age libertarians is earned almost entirely by the quality of its title.

For an Australian reader, Radicals for Capitalism suffers a little from its scope. Little sense — at least once the Austrians Hayek and Mises move to America — is given of the international environment of the American libertarians. Doherty notes the role of Antony Fisher, a founder of the UK’s Institute of Economic Affairs, at franchising his think-tank model across the United States, but, with those few exceptions, American libertarianism is a closed shop. This is perhaps an unfair criticism — Doherty’s book is unambiguously a history of the modern American libertarian movement — so a synthesis of world-wide radical pro-capitalists remains to be written.

Despite its dramatic gains over the past 50 years, libertarianism still remains as marginalia in American politics. The New York Times’ review of Radicals for Capitalism demonstrates this neatly. The reviewer, an economics writer named David Leonhardt, after quickly dismissing libertarian ideas as a rhetorical aberration, dug through Doherty’s book to cherry-pick as many bad things as they could find — Milton Friedman in Pinochet’s Chile, Rothbard’s youthful flirtation with the segregationist Presidential candidate Sturm Thormond, and the anti-Semitic Merwin Hart (whose name is mentioned exactly once, and in an obviously negative context).

Leonhardt complains that ‘the book fails to ask why people who claim to love freedom have so often had a soft spot for those who would deny it to others’. It would be hard to make the case that Doherty’s book describes a libertarian movement that didn’t care about human, political and economic rights, but in the hands of the establishment left, that is its inevitable conclusion. He ends his review, appropriately, with a discussion of global warming — whatever you think about the left, they sure are focused. Leonhardt’s ignorance of libertarian beliefs and principles is, to be charitable, a reflection of the publishing and writing industry’s reluctance to produce books about the ideological foundations of the free market or the conservative sides of politics.

Sprawling and comprehensive, Radicals for Capitalism replaces Jerome Tuccille’s now 30-years-old It Usually Begins with Ayn Rand as the ‘official’ movement history. Doherty contextualises libertarian figures like Friedman and Rand amongst their peers in the wider movement and produces, as a result, a broad picture of an ideology in its ascendancy.

The Regulatory State’s democracy problem

Let’s briefly grant critics of ‘neo-liberalism’ their preferred terminology. Are Australia’s governments entranced by dreams of a neoliberal utopia?

‘Neo-liberalism’ has become commentariat dogma on both the left and the right. As any number of opinion pieces describe, Margaret Thatcher and Ronald Reagan engaged in privatisation and deregulation on a massive scale, fuelled by ideological zealotry. In Australia, Prime Ministers Hawke and Keating did the same, but in contrast to their Atlantic allies, they exhibited the measured and reasonable approach that could only be grounded in Treasury advice.

By the late 1990s, after a decade of continuous economic reform across the country, Australian governments had, sometimes reluctantly, handed their role in the provision of services to the private sector. Neo-liberalism, we read, rules the day.

But this reading of the form and function of Australia’s system of government is deeply incomplete. Instead, in 2007, the best characterisation of Australia’s political system is not a neo-liberal, ‘nightwatchman’ state, nor is it the social-democratic welfare state which dominated the twentieth century. Rather, it is a ‘Regulatory State’.

The Regulatory State shares elements of these traditional political models. Like the former, it has an economy relatively open to foreign capital and products. It has privatised most of its publicly-owned monopolies. And like the latter, Australia has a large welfare state, as well as extensive government provision of health and education services.

Australia is not, however, merely at a mid-point between liberalism and socialism. The phrase ‘Regulatory State’ indicates a separate alternative — the regulation of our economic and social life has come to be the primary activity of government, and the primary means by which government interacts with the economy and the individuals who comprise it.

In a Regulatory State, not only is regulating the first priority of the state, but regulation defines the state. It is a revealing way of analyzing Australian democracy.

Regulation governs our commercial interactions. It governs the work environment, the social environment — reflect for a moment on how many regulations there are by which you are suddenly administered the moment you walk into a bar — and the home environment.

From a historical perspective, regulation acts as a substitute for public ownership. The privatisations which critics of neoliberalism have fixed upon as indicative of a laissez-faire economy have been matched with a correspondingly dramatic increase in legislation and subordinate legislation to control these newly private entities. The Regulatory State has found that its social, environmental and economic purposes can still be achieved by the use of regulation, while avoiding the burden of actually owning, and being responsible for, the public utilities themselves.

The modern left’s primary criticism of privatisation is that private ownership will not deliver the social benefits that public ownership had (or could have). And yet no state business has been privatised without being saddled with an extensive regulatory programme aimed at trying to keep those benefits?

One exception to this is the padded workforces of the former state government trading entities. Privatisation — and its diluted form, corporatisation — has been fundamentally about forcing efficiencies by shedding labour. This willingness to jettison excessive, unionised jobs itself says much about the ideological progress of social-democratic parties. But job shedding in these former state entreprises has been accompanied by the creation of jobs in production management, as well as regulatory and governance jobs.

Almost all of the growth in regulation under the modern Regulatory State is social, rather than economic.

Environmental regulation has a long history, but its marked rise in the last quarter of a century was inaugurated by the 1972 Stockholm Conference on the Human Environment and the subsequent establishment in many nations, including Australia, of national environmental agencies. Consumer product safety, particularly in the transport sector, and Occupational Health and Safety regulations have also increased rapidly. Corporate and financial regulation has also displayed particular growth, often mandated by parallel international trends, but also propelled by what former British Prime Minister Tony Blair has described as an increasingly risk-averse population.

Charts 1 and 2 show just how dramatic this increase in regulatory and legislative activity has been. The impact of these regulations is cumulative — firms and individuals have to comply with the total body of law, not merely the law that has been passed in the most recent session of parliament. Certainly, much law is passed to override or amend existing legislation, but that in itself constitutes a further cost.

Furthermore, these charts do not include the web of quasi-regulations, codes of conduct, guidelines and other ‘voluntary’ self-regulations, which are often policed by regulators, or developed by the government, or instituted to ward off potential legislation. It would be a mistake to ignore these much-harder-to-quantify interventions when trying to ascertain just how significant regulation is in Australia.

Using the direct tools of legislation, or the indirect tools of subordinate legislation and quasi-regulation, government intervention in the economy is expanding, rather than, as left-wing critics would describe it, receding. Furthermore, regulation has assumed a sort of entrepreneurial role for government intervention—a mechanism to search out new areas of the economy just begging to be regulated.

This casts Australian governments’ enthusiastic regulatory activity in a new light. The development of regulation is unambiguously a political activity whose direction is determined by political imperatives, and which has just as many political consequences as it has economic and social consequences.

Independent Regulatory Agencies

The direction of regulation may be determined by elected legislators, but its administration is delegated to the central institution of the Regulatory State — the independent regulatory agency.

These institutions are deemed ‘independent’ because they exist outside the normal bureaucratic chain of accountability — ministers and other elected representatives are not directly responsible for the agencies’ actions.

Independent regulators are accountable through such indirect means as procedural norms, requirements to be ‘transparent’, jurisdictional limitations and, as a last resort, the right of aggrieved firms and individuals to judicial review of the regulators’ decision-making processes. Nevertheless, within the confines of these mechanisms of accountability, regulators have significant discretionary power.

While the United Kingdom had inspectors policing factories for violations of the Factory Act from 1833, the independent regulatory agency is largely an American invention. The socialist fetish for public ownership never took strong hold in the United States, but, pioneering the now familiar pattern, regulation administered by independent regulatory agencies provided a substitute. In 1887, the Interstate Commerce Commission was formed, followed quickly by the Food and Drug Administration (1906) and the Fair Trade Commission (1913).

Then, as now, independence was intended to protect objectivity — the regulators would be friendly to business, but neutral in their application of the law.

But this balanced objectivity has also been under-mined historically by the bureaucratic impulses of the independent regulator to expand its jurisdiction, its powers and its discretionary budget. Regulators lobby governments for increased regulations, increased powers to administer them and, of course, increased budgets and staff. Regulators involve themselves more deeply in the activities of the firms they regulate, trying to discern the levels of compliance while, at the same time, trying to expand their jurisdiction into other industries and sectors.

For instance, having decided that the free-for-all internet is littered with bottlenecks to genuine competition, the ACCC is using the migration of media content online to explore new opportunities for regulation — a textbook example of regulatory creep.

In Australia, there are approximately 60 federal regulatory agencies, and 40 federal ministerial councils. We know that there are approximately 70 agencies in Victoria (the only state which publishes this data publicly), but extrapolating that figure, the Productivity Commission estimates that there are up to 600 regulators across the country.

Doing a similar extrapolation for the budgets of those agencies, and taking into account government departments with regulatory functions, inter-governmental bodies, and the range of quasi-official agencies and boards, it is easy to imagine that at least $10 billion is spent on regulating our activities.

Reigning over this web of institutions that is the Regulatory State are three ‘mega-regulators’ — the Australian Prudential Regulation Authority (APRA), the Australian Competition and Consumer Commission (ACCC) and the Australian Securities and Investment Commission (ASIC) — the results of a concerted effort over the last decade-and-a-half to consolidate federal and state regulatory agencies into single, one-stop-shop regulators.

Rather than having their jurisdictions delineated by the industries they regulate, instead they are delineated by the regulator’s ‘function’. ASIC is responsible for consumer and investment protection in cases of market manipulations such as insider trading. APRA is responsible for the regulation of information asymmetries in financial services, and the ACCC is responsible for anti-competitive conduct and consumer protection economy-wide. Old industry-based regulators, such as the Insurance and Superannuation Commission, had their functions divvyed up into the new functional bodies.

Just as the volume of regulation is growing, so are the three ‘mega-regulators’. We can see, since the turn of the twenty-first century, a significant increase in government spending and staff. We see increased media profiles and public relations activities. (The ACCC’s activism in the media was the subject of much criticism during the 2003 Dawson Inquiry into the Trade Practices Act — chastened, it decreased those activities immediately following the Dawson report, but has been steadily returning to its former levels.)

These agencies preside over the most intense period of regulatory and legislative activity in Australian history. This gives them enormous political power and influence — for which they are largely seperate from the traditional chains of democratic accountability.

Distracted by ‘red tape’

Regulation, admittedly, doesn’t get much good press. But the criticisms that regulations do receive are revealingly narrow.

Overbearing business regulation stifles incentives to take risks and to innovate’, wrote Labor’s Small Business spokesman Craig Emerson in The Australian earlier this year, ‘crucial to the efficient functioning of a market economy and productivity growth’. Undeniably true.

But the content of ALP policy focuses on reducing ‘red tape’ — only a small part of the total regulatory burden. Eliminating ‘duplication’ or regulatory confusion, which constitutes the bulk of ‘deregulatory’ proposals by both the ALP and the Coalition Government, does not address the real issue — regulations which discourage investment and entrepreneurial activity, and divert firms away from profit-making opportunities.

For example, Telstra estimates that it has to provide the government with 486 compliance reports annually — a significant red tape, or ‘paperburden’ cost. But the real cost of regulation of the telecommunications sector, however, is much higher, constituting the forsaken investment in infrastructure, the cost of universal service obligations, and the cost of delayed innovation across the economy. Similarly, the tomes of compliance reports required by ASIC dwarf the less tangible costs of diminished entrepreneurship and reduced corporate flexibility.

Focusing only on the paperburden cost of regulations is like focusing on the time spent filling out a tax return rather than the amount of tax paid.

In fact, the anti-red tape movement is reminiscent of regular movements throughout the twentieth century for more ‘efficient’ government. An efficient government is not a virtue if it is just as large as an inefficient one — indeed, efficiency can help it dominate the economy even more.

The bipartisan red tape proposals do nothing to reduce the size of government and its impact on the economy. Promises to reduce the red-tape burden offer little if they are not a constituent part of a promise to decrease the scope or extent of regulatory interventions.

A reduction in the volume of regu-lations and the extent of regulatory intervention in the economy will not only have economic benefits, it will have democratic benefits as well.

The dominance of the indepen-dent regulatory agencies in political and economic life is dependent upon this enormous pool of legislation and regulation — the problems of accountability and discretionary power will be resolved only when that pool is drained.

Regulation is the defining feature of the modern Australian state, and the regulatory problem requires a political solution.

On Telecoms, Regulator Chuting Blanks

With Alan Moran

Far from a success of public policy, the $1 billion rural broadband subsidy won by Optus and Elders demonstrates once again the failure of the competition regulation.

Ever since Optus and Telstra rolled out similar cable networks in the mid-1990s, wasteful duplication has been the bogyman of telecommunications investment. Companies wield the term like a weapon when they want to avoid having to invest in their own infrastructure and, unfortunately, politicians listen.

This stands in contrast to the duplicated roll-out of Safeway/Coles supermarkets and the rival brand petrol stations located next to each other. Duplication in these cases is applauded as competition.

The roll-out of cable was one in which two private businesses went head-on for customers — just as we see competing supermarkets at every shopping centre and bowsers along every major strip. This is genuine competition and investment with shareholders’ funds.

By contrast, the latest Optus proposal to roll out broadband to rural areas is one that will be bankrolled by the taxpayer.

Broadband policy has, in the past few months, become highly politicised. For people who use the internet to watch high-definition movies, the ALP’s $4.7 billion fibre proposal would bring all their Christmases at once. But the cost to the taxpayer is daunting, especially considering that a private company, Telstra, is desperate to pay for the network itself.

The Coalition’s plan is an attempt to cobble together the wide variety of longstanding subsidies to rural broadband users. Communications Minister Helen Coonan has put herself into the uncomfortable position of defending the merits of specific technologies — the sort of “winner picking” that has long discredited national industry policies.

But broadband roll-out in Australia has been absurdist theatre since well before this year. And the Optus plan brings this theatre into sharp relief.

Most of the attention has been focused on choice of technology. Telstra claims the WiMAX standard won’t work as advertised. But, while WiMAX will provide the Optus/Elders network with a link to the most remote Australians, much of their plan rests on the wireline technology ADSL2+, an upgrade of the widely used ADSL.

In contrast to the cable roll-out, or competition between supermarkets, this is taxpayer-funded duplication. Telstra, with its own shareholders’ money, already has installed its ADSL2+ network in exchanges around the country.

Telstra will not switch its network in areas in which it is the only service available. For instance, in Tasmania Telstra has installed ADSL2+ in more than 100 exchanges. But only three of these have been switched on. This scenario is repeated across the country.

To Telstra, switching on the network risks its appropriation by the ACCC. The regulator would force it to be provided to other businesses at an artificially low price.

There are several competing telecommunications networks in Australia, wireline and wireless, but the ACCC sees the spectre of monopoly and the possibility of regulation everywhere.

Expropriating the value for innovatory business activity or new investment is a sure-fire way of stopping such activity.

Australia is facing deficiencies in infrastructure development in areas beyond telecommunications — rail and port services being the other hot spots. In all cases the investment shortfall can be traced back to regulatory impediments.

This is the outcome of a flawed competition law, compounded by poor administration of the law both politically and bureaucratically.

The answer is radical reform. The existing regulatory framework punishes entrepreneurial investments that bring a new or improved service.

We don’t regulate manufacturing plants or processes in this way. We don’t regulate such innovations in software. We resist the temptation in those areas for very good reasons — regulating them would grind down the economy’s productivity.

We should cease regulating new investments in infrastructure unless we want to see the economy falling behind in technology and capacity.

In telecommunications this is extremely important — the pace of technological change far outstrips the plodding feet of the regulator.

Today the conversation is about WiMAX and fibre to the node, but when the next, inevitable, upgrade is necessary, it will again be regulation that is holding investment back.

Media Faces An Unsentimental Future

Media critics have made careers proclaiming how dangerous media moguls are for Australian democracy. These critics now face an even more serious problem – no media moguls.

If PBL Media – which private equity now controls- is anything to go by, we may see nameless, faceless, investors replace these personalities.

Private equity firms may be nameless and faceless, but they are ruthless. CVC Capital Partners has already torn out the symbolic heart of the PBL empire, Alan Jones. The relationship between Jones and the late Kerry Packer was not atypical – the journalist under the mogul’s patronage.

Press critic A. J. Liebling wrote that few journalists under William Randolph Hearst’s tutelage would be employable elsewhere.

The Bulletin has long been made viable by a tacit acceptance of its unprofitability and its prestige as Australia’s oldest magazine. But sentimentality, as Jones and his audience have learned, is not a defining characteristic of private equity firms. CVC will be looking closely atThe Bulletin.

Private equity groups act when they see a company with good but underutilised assets. They assume a big risk. To make this risk pay off, private equity needs to cut fat and make money. Typically, after a few years they exit, selling a more efficient company for an enormous profit.

If this is CVC’s game plan, it picked a great time to get into the media industry. CVC has given itself a five to seven-year window. But by then, PBL Media will not just have to be a streamlined organisation, it will have to be radically different, if it is to keep up with the radical changes in the form and content that media consumers demand.

It took only 18 months for YouTube to go from a garage to a $US1.65 billion ($A1.96 billion) Google acquisition, during which the user-uploaded video website had firmly implanted itself in media consumption habits around the world.

The search giant quickly moved on to an even bigger acquisition this year, buying advertising outfit DoubleClick for $US3.1 billion.

The business of the media is to connect eyeballs with advertising. YouTube and DoubleClick present new competitive pressures on companies that depend on both. Given the pace of online innovation, how these companies will affect the market for media content is unknown.

Corporate responses to these changes have been mixed. In the US, the media empires have already begun dramatically overhauling their structure and, in many cases, spinning off subsidiaries.

It is far easier to point out failed attempts to modernise businesses than successes. The merger between America Online and TimeWarner, which was greeted by the US commentariat with fear and awe, is now an embarrassing failure.

In part, the struggle with modernisation is due to the dramatic internal and philosophical changes required. For instance, Google’s project to index all the information in the world forces media companies to rethink rapidly their relationship with their own content and the value received from it. The chief executive of Macmillan book publishing this month demonstrated his confusion of the issues underlying new media by swiping two laptops from the Google stall at a publisher’s expo.

Google Book Search has been indexing his company’s books under the US “fair use” copyright exception. But rather than giving Google “a taste of its own medicine”, the incident was a cringe-inducing display of the chasm between “new” media and the old. The CEO was devoted to the traditional business model on which his company was founded decades before. Hopefully, as we move towards private equity, similar attitudes in Australian companies will be jettisoned. The regulatory framework that has controlled the broadcasting sector for the past 50 years, for instance, has been a complex web of protectionism, restriction and government favours.

Relationships between press barons and governments have dominated Australian public policy. But private equity groups have few political aspirations – their only aim is to make money.

Politicians who have been used to trading favours with media moguls may have to adjust to a press less interested in politicking and more interested in marketing. CVC hopes to make a big profit out of PBL Media. To do so, PBL Media will not only have to be lean and efficient, but comfortable competing with all-new competitors in an all-new space.

A. J. Liebling once wrote: “The function of the press in society is to inform, but its role in society is to make money.” When private equity owns media, it hopefully can do both.

When Reform Has No Bang And Barely A Whimper

What a difference a year makes. One year ago, when Communications Minister Helen Coonan released the discussion paper which was to become the September 2006 media reform package, was also coincidently the same day that Apple’s iTunes service released its first movie for download – High School Musical, a movie apparently popular with the tween set. iTunes has now sold 50 million TV shows. Apple started shipping their Apple TV, a device which delivers content downloaded from the iTunes service to the family television, in March this year.

The frenzied media commentary which greeted YouTube’s sale to Google in October for $US1.65 billion wasn’t all hyperbole. YouTube only opened for business a year prior, and, due to its popularity, it now plays a central role in modern political campaigns, public relations, and is at the centre of debate about copyright online. No television program with aspirations of greatness can ignore the contradictory importance of YouTube – success on the online social video networking site can mean enormous popularity, but also copyright infringement on a massive scale.

YouTube and iTunes are merely two of the largest services. Video downloading services, in different shades of legality, have sprouted up rapidly over the last twelve months, and are injecting themselves into media consumption habits across the globe. In 2004, an American study found that in the United States, consumers spent roughly 10 per cent of their leisure time online. With the increase of applications and bandwidth since then, that number is no doubt higher.

There are few serious commentators on the media who doubt that in the near or at least foreseeable future, new media will be as popular, important and influential as the traditional print, radio and television triangle was in the second half of the 20th century.

On the one hand, change of this dramatic nature isn’t new. The history of media and technology is scattered with examples of disruptive, radical innovations.

Numerous technological innovations have altered the way we consume, produce and interact with media. The transition in the 1960s and 1970s of magazine printing from the older rotary press to offset lithography 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 the 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.

Similarly, entrepreneurs have altered patterns of media consumption with existing technologies with innovative new business models. Charles Dickens serialised his novels in popular magazines, changing the nature and structure of his stories, and creating new market opportunities to great effect. The practise of block booking, where film studios bundled multiple films together to sell to theatres, buttressed the Hollywood studio system, until it was prohibited by the Hollywood Antitrust Case of 1948.

The history of media is change, not continuity.

The dynamism of technological innovation couldn’t be better contrasted than by the narrow approach taken by governments to media law and regulation. It is a consequence of the inertia of the political process that major regulatory changes can be enacted perhaps once a decade. When policy is made and reform is pursued it must be forward-looking enough to facilitate unexpected changes in the industry it is trying to regulate. By this measure the government’s 2006 media law reforms were a regrettable failure – after ten years of promises to liberalise Australia’s media regulation, the package passed in Parliament in October had no bang, and barely a whimper.

Minor adjustments to ownership rules, the introduction of two crippled “non-traditional TV” licences, loop-hole closing in anti-siphoning regulations, another delay of switchover to digital television – it is only by force of habit that the package was referred to by commentators as “reform”. Where large regulatory decisions changes were made, they went in the opposite direction. Regional and rural radio licensees ended 2006 staring down the barrel of a draconian array of new regulatory controls, designed to keep rural politicians on the air, rather than increase any level of local “diversity”.

The federal government’s reluctance to pursue any meaningful reform after such a long build up is most unfortunate. The laws which govern Australia’s media are a fragmentary web of protectionism and restriction. It is hard to beat the Productivity Commission’s characterisation of a regulatory framework that “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”.

These regulations rest on an outdated conceptual framework. They assume that there is a fixed pie of media content and media outlets – there can only be so many television or radio stations, for instance. The regulatory framework then slices up that pie to a number of operators, and ensures they don’t get in each other’s way.

But this model is entirely unsuited to the contemporary media landscape. Gone are the days when our consumption of news and opinion was constrained by the number of printers in the town, or broadcasters with licenses. An infinite range of news and opinion can be now gathered at almost no cost from the Internet, produced by professionals and, increasingly, amateurs.

This new availability of sources requires us to look carefully at what we mean by “diversity”. The left-wing political critique of the 2006 reforms centred on the notion that a free market in media would necessarily result in media monopolies – Australians ruled over by omnipotent media moguls, rather than their democratically elected politicians. It’s true that the vast bulk of media consumed by Australians is still clustered around these “traditional” owners – Fairfax and News Limited have the lions share of online readership for Australian news sources.

But the measure of diversity should not be an analysis of what everybody is currently reading or watching, but what is available for their consumption, should they choose to investigate outside of the Murdoch, Packer and Stokes empires. We should not only include sources likeOn Line Opinion, but also the Washington PostPravda, and the Borehamwood & Elstree Times. Diversity is a question of available choice, not a question of how best to stop everybody reading Murdoch’s tabloids.

This question about what constitutes true diversity pervades the debate over ownership regulation. The reflections of former FCC chairman Michael Powell on a similar debate about reform in the United States could easily apply to Australia:

Here’s the truth: the ownership debate is about nothing but content … [The ownership rules] became a stalking horse for a debate about the role of media in our society. … It was really an invitation for people with particular viewpoints to push for a thumb on the scale, for content in a direction that people preferred.

Luckily, little the government does will alter the inevitable migration of our media consumption to the Internet. But retaining the byzantine regulations which we have inherited punishes consumers by both privileging and restricting the traditional media outlets which have, until recently, been protected from full exposure to the market.

There are a range of specific reforms that can be adopted. Governments could take convergence seriously and being to harmonise regulations across networks – the regulations that apply to radio broadcasting should apply to television broadcasting, which should also in turn apply to web broadcasting and podcasts. Similarly, the use of the electromagnetic spectrum should be determined by the market – who owns it, what technologies utilise it, how many television and radio stations are broadcast on it, and so on.

But the biggest change needed is philosophical. There is no legitimate role for government in the entertainment business. Consumers determine what they want to watch on television, listen to on the radio, or browse on the Internet. The sooner policy-makers acknowledge this simple fact, the better off our media will be.

Inventing Market Failure

Governments need problems. Without them, there would be nothing to solve. Australia’s broadband situation has presented governments across the country with ample opportunity to intervene. But is Australian broadband caught in a trap of underinvestment and market failure?

The importance of high-speed internet access to a nation’s economy is encouraging a great deal of policy experimentation around the world, and Australia’s state governments are enthusiastically embracing them. The Western Australian government pledged $1 billion to invest in a state-wide broadband network, modelled on a similar network in Alberta, Canada.

The New South Wales Government is tendering out a wireless broadband service, which is to echo the trend in the United States and Europe towards municipal WiFi. Municipal wireless networks tend to haemorrhage money, get bogged down in politics, and in the end deliver far less than they promise, so Sydney consumers should be glad that there are already a number of private wireless operators able to meet their demand.

There is perceived political benefit in attempting to deliver broadband to consumers. Queensland Premier Peter Beattie announced late last year a plan to pipe fibre directly into Brisbane homes, but private companies would have to pay for it, build it, and operate it. Beattie’s grand broadband initiative consisted of little more than a press release about how good a new network could be.

The federal government, having subsidised rural telecommunications since we first got a federal government, now feels compelled to update those subsidies to include broadband at increasing speeds.

If the prevailing political winds are to be trusted, it seems that governments have concluded that the marketplace cannot provide the level of telecommunications expected by consumers in the 21st century. But there is little good reason for their pessimism.

In the United States, Verizon is investing US$18 billion in fibre-optic cable straight to the home. It’s an enormously risky investment, and has its fair share of critics who note how uncertain the industry’s terrain will be when the rollout is completed in 2010. But nevertheless, Verizon has laid US$18 billion worth of chips on the table, to the benefit of US consumers.

An investment the size of Verizon’s would be almost impossible in Australia. Australia’s forced access policy would place any investment immediately into the hands of the ACCC, which would be likely to require it to give access to its competitors at a price of the regulator’s choosing. The disincentive to invest is obvious.

But the federal government has refused to reform the Trade Practices Act to encourage greater infrastructure investment. Instead, we are left with a set of telecommunications regulations which are designed to induce competition into a government-owned, 20th century telecommunications monolith, rather than regulations more suited for the 21st century consumer demand and technology.

The access provisions of the Trade Practices Act are far more draconian than in other jurisdictions. But entrepreneurial firms need to be given the freedom to invest on terms of their own choosing.

Some commentators have argued that the government should do that investment itself, but it would be better if the risk inherent in building a new network is borne by the companies that will profit from it, not Australian taxpayers. Would the government also commit to building every telecommunications network into the future? It is unlikely that a fibre optic network will be the last network Australian consumers demand.

Politicians are always eager to assert market failure – it gives them opportunities to gain publicity, deliver services which might translate into votes, and forge reputations for ‘getting things done’.

But Australian telecommunications is caught in a trap of poor public policy, not market failure. If the government wants to encourage investment, it should at least try to fix the problem.

Islam’s free market heritage

With Andrew Kemp

American strategy in the Islamic world has been aimed at the establishment of political democracy — a worthy goal, but a worryingly incomplete one. Social and political freedom cannot be fully established unless they are united with the other pillar of liberalism, economic freedom.

One of the late Milton Friedman’s great insights was the inherently peaceful nature of an open economy: the free market, he wrote ‘does not care what [the participants’] religion is; it only cares whether they can produce something you want to buy. It is the most effective system we have discovered to enable people who hate one another to deal with one another and help one another’.

This point also applies to states, as proved by the Economic Freedom of the World Index — reported in the December 2005 edition of the IPA Review. The higher a state’s measure of economic freedom, the less likely it is to wage war on other states. Economic freedom encourages valuable interdependencies between individuals which governments are reluctant to break.

While an Islamo-capitalism has yet to show its face in the most troubled parts of the Middle East, Muslim history and literature displays a sadly under-recognised liberal free market tradition. Islam is not inherently illiberal, as is sometimes portrayed, and there is a clear strand of Islamic tradition and thought that provides a stable base for a free society.

The Qur’an and the market

It is no coincidence that Makkah (modern Mecca), the site of Islam’s seventh-century theological birth, was also home to a thriving trading community. The early history of the Muslim world is a history of commerce—religious texts describing this period are replete with contextual references to commercial institutions, merchants and markets, commodities traded and commercial practices.

It would be hard to find a successful civilisation without a stable economic base at its origins, but it is worth emphasising the extent to which Islam, in particular, was conceived in a commercial environment. Makkah was a strategic trading hub, providing a gateway between East and West. Furthermore, its shrines to ancient gods attracted vast numbers of pilgrims, establishing the city as a form of sanctuary—an area recognised as free from interference by the internecine tribal rivalries of the time.

As a result, the Qur’an is infused with the smell of spices and the din of markets. Indeed, Muhammad himself, before arriving in history as a religious preacher, was a caravan trader and business manager. As the historian M.A. Shaban writes, ‘to attempt a study of Muhammad’s activities in Makkah and Arabia without taking trade into consideration is equivalent to studying contemporary Kuwait or Saudi Arabia without paying attention to oil’.

In a powerful article for the Islamic Free Market Institute Foundation, ‘Islam and the Free Market’, Peter J. Ferrara and Khaled Saffuri describe a Qur’an which strongly defends the market economy. The endorsement of voluntary trade is a keystone of the Qur’an’s attitude towards economic life, and is proclaimed in this early passage:

O ye who believe!
Eat not up your property
Amongst yourselves in vanities.
But let there be amongst you
Traffic and trade
By mutual consent (Qur’an, 4:29)

The Qur’an defends, amongst other things, private property, contract law, and profit through trade. It prohibits fraud. Muhammad himself prohibited price-fixing. The liberal scholar Dr Imad-ad-Dean Ahmad has argued that, even from a political perspective, the sacred text provides much guidance for believers in liberalism—advocating limited taxation, decentralisation, and strict restraints on the public sector.

Believers are to draw their income from the natural resources granted to them by God—it is not a legitimate role of the state to obstruct this process. The Qur’an is clear about Islamic priorities: pray, then profit.

And when the prayer is finished, then may you disperse through the land, and seek of the Bounty of Allah: and remember Allah frequently that you may prosper. (Qur’an 62:10)

The Qur’an is not a free market Bible. Islamic socialists have long pointed to an emphasis on the hero of ‘social justice’ within its pages, and many have drawn an inference in favour of state-granted minimum incomes, and even a large role for heavy public expenditures.

Others have cited Qur’anic prohibitions on usury (interest) as an indicator of anti-capitalist sentiment in Islam — even as an insurmountable problem for contemporary Islamic liberalism. (This objection will be dealt with below.)

But Muhammad, as the Marxist historian Maxime Rodinson wrote with perhaps a tinge of regret, simply ‘was not a socialist’.

As with many other religions, justice and fairness play a key role in Islamic theology, but it is disingenuous to ignore the emphasis on charity. Zakah refers to Muslims’ obligation to spend a fixed proportion of their income on the poor and needy—often supplemented by further charity (sadaqah). Just as voluntary charity is a vital part of a capitalist economy, zakah is the third of the Five Pillars of Islam.

Ibn Khaldun and The Wealth of Nations

These strong theological exhortations to prosper from God’s bounty have been reflected in early Islamic scholarship. Occupying a unique place in intellectual history, Ibn Khaldun was a medieval historian, historiographer, sociologist and economist who lived in Tunis, Granada, and Egypt in the fourteenth century. Largely written out of Western intellectual history — Joseph Schumpeter slandered Islamic scholarship by arguing that there existed a ‘great gap’ between the Greek scholars and the Christian scholastics — Ibn Khaldun deserves a central place in economic thought.

Indeed, Imad A. Ahmad argues forcefully that Adam Smith was ‘simply picking up where Ibn Khaldun left off’. Ibn Khaldun’s writings display a clear and unambiguous familiarity with many of the central tenets of what we know as classical economic thought — for instance, an appreciation of supply and demand, of causality, and an understanding of the difference between normative and positive analysis.

His support for the labour theory of value – the theory that the value of something is determined by the amount of labour that has gone into its production — is an open academic question. However, Ahmad convincingly argues that he had a strong appreciation of subjective value — a good’s value is solely determined by how much people are willing to pay for it — which would place him even higher on the intellectual hierarchy than many of the great nineteenth- and twentieth-century economists. While he wrote that labour was an important factor in production, elaborating on the work of Greek scholars, he nominated the utility of a good as a determining factor in its price.

Ibn Khaldun’s writings are rich with insights, and his clarity makes writing a review of his economic thought just that much easier. It is hard to avoid the temptation to quote him at length. For instance, he writes on the commercial ethic:

It should be known that commerce means the attempt to make a profit by increasing capital, through buying goods at a low price and selling them at a higher price, whether these goods consist of slaves, grain, animals, weapons, or clothing material. The accrued amount is called ‘profit’. The attempt to make such a profit may be undertaken by storing goods and holding them until the market has fluctuated from low prices to high prices. This will bring a large profit. Or the merchant may transport his goods to another country where they are more in demand than in his own, where he bought them. This will bring a large profit. Therefore, a veteran merchant said to a person who wanted to find out the truth about commerce: ‘I shall give it you in two words: Buy cheap and sell dear. That is commerce for you’.

He recognises the role of entrepreneurial risk and its relation to the supply of goods:

The transfer of goods from far away countries or through dangerous zones is of greater profit to traders and secures the fluctuations of the market in their favor, because the transferred good is rare and eagerly demanded, owing to its distant source or the risk incurred in its importation. It becomes thus rare, and much demanded and its price consequently rises … If, however, its exporting country was near and its communications secure, there would be many importers and it would be abundantly supplied and its price would tend to be low.

Ahmad’s characterisation of Ibn Khaldun as the Islamic Adam Smith is hard to dispute after reading his description of the advantages of a division of labour:

[T]he individual human being cannot by himself obtain all the necessities of life. All human beings must cooperate to that end in their civilization. But what is obtained through the cooperation of a group of human beings satisfies the need of a number many times greater (than themselves). For instance, no one by himself, can obtain the share of wheat he needs for food. But when six or ten persons, including a smith and a carpenter to make the tools, and others who are in charge of the oxen, the plowing of the soil, the harvesting of the ripe grain, and all other agricultural activities, undertake to obtain their food and work toward that purpose either separately or collectively and thus obtain through their labor a certain amount of food, (that amount) will be food for a number of people many times their own. The combined labor produces more than the needs and necessities of the workers.

Of course, no figure in intellectual thought can withstand all criticism, and Ibn Khaldun is no exception. For instance, he posited a beneficial role for public expenditure, writing, ‘if the state decreases its expenditures, the other markets follow its way and slacken much more’. But he quickly recognised the limits of this proto-Keynesianism, anticipating the Laffer Curve by about six centuries:

In the early stages of the state, taxes are light in their incidence, but fetch in a large revenue … As time passes and kings succeed each other, they lose their tribal habits in favor of more civilised ones. Their needs and exigencies grow … owing to the luxury in which they have been brought up. Hence they impose fresh taxes on their subjects … [and] sharply raise the rate of old taxes to increase their yield … But the effects on business of this rise in taxation make themselves felt. For business men are soon discouraged by the comparison of their profits with the burden of their taxes … Consequently production falls
off, and with it the yield of taxation.

Murray Rothbard’s two volume Austrian Perspective on the History of Economic Thought rightfully rehabilitates the Christian School of Salamanca in Spain as heretofore unacknowledged giants in economic history, pre-dating Adam Smith with many of the Scotsman’s
key insights, but unfortunately he too neglects Islamic scholars such as Ibn Khaldun.

But as Ahmad notes, the Salamanca School was born shortly after the reconquista of Spain from the Muslims in 1492. Given the intellectual cross-pollination of Medieval Europe, it is hard not to imagine that the leading scholars of the School of Salamanca did not have at least a passing familiarity with Ibn Khaldun’s work — he only died in 1406. Ibn Khaldun may have until recently been neglected by economic historians, but his work was not so neglected by his contemporaries.

It is hard not to be struck by Ibn Khaldun’s discussion of Islamic liberty:

Those who, of their own free will and without any compulsion, act according to the Qur’an and the Sunnah [the practice of the Prophet] wear the turban of freedom.

Ibn Khaldun may be a shining light in intellectual history, but he was by no means alone. For instance, one of his students, the Egyptian historian al-Makrizi applied his theory to the contemporary Arabic world, concluding that the causes of Egypt’s economic woes at the
time were government corruption, high taxes, and depreciated coins.

Earlier Islamic Economists

Preceding Ibn Khaldun, the eleventh-century scholar Abu Hamid al-Ghazali had an enormous influence on Islamic economic thought. Al-Ghazali investigated the relationship between the materialistic behaviour of the physical world on the one hand, and the moral foundations underpinned by religion on the other. Despite these conflicting elements, al-Ghazali clearly recognised individuals are motivated by self-interest. Observing traders, al-Ghazali wrote,

The motive behind all these activities is the accumulation of profits, undoubtedly. These traders exhaust themselves by travelling to satisfy others’ needs and to make profits, and then these profits too are eaten by others when they themselves obtain things from others.

Al-Ghazali was hardly an advocate of selfish behaviour, however. A conservative with many traditionalist underpinnings, al-Ghazali argued for moderation in the pursuit of profit, and was vehemently opposed to the excessive profitmaking of merchants.

A more accommodating view on the pursuit of profit and individual achievement was presented by the twelfth-century merchant Dimishqi, a Muslim writer from Damascus. Dimishqi wrote:

the wealthy individual is here considered a respected person who deserves people’s esteem because he is rich, not in need, and because he makes for good use of his fortune.

A similarly secular observation is seen by the Persian prince, Kay Kavus, who, in giving advice to his son, wrote:

Do not be indifferent to the acquisition of wealth, yet do not cast yourself into the danger for the sake of it. Assure yourself that everything you acquire shall be the best quality and is likely to give you pleasure.

Ibn Taimiya, whose life overlapped with Ibn Khaldun’s, showed an earlier, although less rich, appreciation of the role of supply and demand:

People’s desire is of different kinds and varies frequently. It varies according to the abundance or scarcity of the good demanded. A good is much more strongly desired when it is scarce than when it is available in abundance … It varies also depending on the number of demanders. If the number of persons demanding a commodity is large, its price goes up against when their number is small … It is also affected by the strength and weaknesses of the need for the good and by the extent of the need, how great or small the need is for it. If the need is great and strong, the price will increase to an extent greater than if the need is small and weak.

The Usury Problem

Depending on the interpretation, the Qur’an either forbids all interest, or merely usury, the charging of excessive interest on a loan. Known as riba — literally ‘in excess’ or ‘in addition’ — this practice is repeatedly denounced throughout:

Those who charge riba are in the same position as those controlled by the devil’s influence. This is because they claim that riba is the same as commerce. However, Allah permits commerce, and prohibits riba. Thus, whoever heeds this commandment from his Lord, and refrains from riba, he may keep his past earnings, and his judgment rests with Allah. As for
those who persist in riba, they incur Hell, wherein they abide forever (Qur’an, 2:275).

This seemingly unambiguous position has not been the restraint on economic activity that it is often assumed to be. As Maxime Rodinson noted in Islam and Capitalism, the practice of financial lending at interest was well entrenched within Meccan society before the birth of Islam, and remained a feature of Islamic commerce well after. Rather than grinding to a halt, with the assistance of Islamic scholars, Muslim money-lenders and merchants devised an array of legal devices (ruses, or hiyal) to avoid the prohibition on riba.

One technique, described supportively in a Shi’ite legal treatise, while in the same breath condemning riba, seems to indicate that this prohibition was not taken very seriously:

There is a way of avoiding riba. For example, Zeid sells Emru a bushel of wheat, in exchange for some other commodity, while Emru sells Zeid two bushels of wheat in exchange for something else. The goods handed over in exchange for the wheat being of little value, and being given in payment for the wheat, there is no riba here, since the things being exchanged are identical neither in kind or in weight.

A translator of this legal text notes that ‘no one could recommend more naively a legal way of breaking the law’. More sophisticated were the techniques detailed in the Book of Escapes and Ruses.

Regardless of the extent to which the prohibition on riba was enforced in Islamic commerce, or whether it refers to all interest or merely ‘excessive’ interest, the usury problem should not be overstated. Prohibitions against usury have been common in all cultures, including Judaism, Hinduism, Buddhism and Christianity. It is hard to beat the fifteenth-century Dominican prior Sant’Antonino’s condemnation of usury as ‘diabolic’, the great ‘harlot’ of the Apocalypse, and those who practise usury ‘worthy of death’. Despite Antonino’s passion, Christian banking has not suffered from his opposition.

Liberal Enclaves in Modern Islam

None of this discussion is to imply that the Islamic religion is consistently or inherently liberal, or necessarily free market. If nothing else, the process of discerning a liberal tradition in Islam illustrates the subjective nature of theology — individuals interpret sacred texts, rather than being controlled by them.

Further, authors should always be careful to interpret another culture’s religion. This article highlights a perspective of Islam not often examined in the west. Around the world, a small number of woefully under-funded free market think tanks are attempting to broadcast a liberal message to the Islamic world.

Organisations such as the Minaret of Freedom Institute and the Islamic Free Market Institute may be small but, with the fostering of Islamic liberalism constituting one of this century’s greatest challenges, their inheritance of the free market tradition has never been more important.

Aunty Will Be Proud Of Maxine’s Candidacy

The Labor Party has decided that its secret weapon in John Howard’s increasingly contestable seat of Bennelong is Maxine McKew. It couldn’t have chosen a better candidate to attack the Prime Minster. After all, McKew has had years of experience doing exactly that at “our” ABC.

Indeed, the national broadcaster has certainly been a more reliable critic than the Labor Party, a fact Kevin Rudd now seems to appreciate. Even after having apparently stacked the ABC board with conservatives, the public broadcaster remains more effective at landing body blows on a conservative government than the ALP has been for most of Howard’s tenure. But it wouldn’t pay to get too excited about McKew.

Bennelong, which the Prime Minister has held since 1974, is demanding more attention. Howard has won the seat in 13 straight elections but his margin has been steadily declining. Since the Coalition’s victory in 1996, it has dropped from 10.1 percentage points to 4.3. The redistribution that moved Bennelong further into Sydney’s western suburbs has merely sped up the decay in support.

Bennelong is also supposedly peppered with “doctors’ wives”, a group of voters whose concerns align perfectly with the concerns aired nightly on Lateline. If they dominate the electorate as much as the ALP thinks they do, then merely writing “ABC journalist” on her resume should give McKew a landslide victory.

But presumably some of the people who have returned Howard for more than a dozen elections still live in Bennelong. And the recent migrants to move into Howard’s electorate may be more sympathetic to Labor than the Liberals, but they may also be more concerned with maintaining strong economic growth and employment than levels of arts funding.

So where is the evidence that McKew is a political genius who can topple one of the toughest political figures in Australian history?

The art of journalism does not necessarily translate well into the art of politics. Success on the television screen does not imply success pressing palms and hugging babies. But even as a media commentator her political judgment leaves a lot to be desired. This is, after all, the person who said in the days leading up to the 2004 election: “Yesterday [the day after then Labor leader Mark Latham’s launch of Medicare Gold] for the first time I got a real sense of the inevitability of the Latham ascension … Yesterday, I saw someone who, if he does not make it on October 9 [the date of the federal election] — and I think he may — he will make it. And he might make it within six months: it may not be a three-year full term that he has to wait … I think Latham’s time could be coming quite soon.”

The financial recklessness of Medicare Gold stood in opposition to everything Latham had stood for as an independent-thinking backbencher. The ALP was punished with one of its greatest electoral defeats.

Right now, McKew’s appeal to the voters of Bennelong is largely theoretical. She may warm the hearts of the latte Left, but since Paul Keating hired author Don Watson as his speechwriter, this has not necessarily been sound political strategy.

And rule No.1 of Australian politics is that one should never write off Howard. Giving him the kiss of death always amounts to mouth-to-mouth resuscitation. In 2004, despite McKew’s confidence, Latham only strengthened the PM’s lead. In 2001, despite Kim Beazley’s seemingly strong position, Howard easily held government. In retrospect, it looks easy. Howard has won more “certain losses” than any other Australian politician. McKew needs more than her Lateline and The 7.30 Report credentials to unseat him.

This cannot help but reflect poorly on the ABC. One moment McKew is an impartial, objective journalist with no political interest except the truth, and the next moment she is a hungry political campaigner, determined to unseat the head of the government.

ABC host Virginia Trioli refuses to vote at elections. McKew has only just joined the ALP. Although ABC journalists may make these symbolic gestures to assure the tax-paying public that they maintain a balanced objectivity, history suggests otherwise. Barrie Cassidy, Kerry O’Brien, Mark Bannerman, Greg Turnbull, Alan Carpenter, Claire Martin, Mary Delahunty and Bob Carr, among others, have moved from the ABC to the Labor Party, probably to the benefit of both. Indeed, on ABC radio Sydney yesterday morning, former Greens candidate for Bennelong Andrew Wilkie may have jumped the gun when he said that “it’s great that Virginia [Trioli] is taking on Howard”. A slip of the tongue or a future Labor masterstroke?

The list of ABC journalists migrating into the Liberal Party is not nearly as illustrious. Peter Collins, a former NSW Liberal leader, and Pru Goward, candidate at next month’s NSW election, cut lonely figures against their former colleagues across the chamber.

The ALP is learning from its mistakes. What use is a celebrity candidate if they don’t contest the election? After parachuting Peter Garrett into the safe seat of Kingsford Smith with a whirlwind of publicity, he largely disappeared during the campaign. But putting McKew up against the seemingly impenetrable Howard, the ALP is signalling its confidence in McKew, and the Labor branches will respect her for it.

Perhaps this will translate into a stronger local campaign by the ALP; it needs any strength it can get.

Howard said yesterday that the McKew challenge will only provoke him to work harder in Bennelong. “When I get news like this it only steels my resolve to work even harder for the people I have had the privilege of representing for the last 30 years.”

Only a fool would think otherwise.

Waving Goodbye? Fans Will Decide

Rather than jumping up and waving about, well, jumping up and waving, lovers of the Mexican wave can easily look at alternatives to the MCG’s ban.

It’s not the wave itself that causes the problem – the wave is a fun example of the possibilities of spontaneous voluntary co-operation between thousands of people. Management could target the real problem – people throwing projectiles in to the air, disguised by everyone else’s fun.

It would be relatively simple to do so. Bags could be searched upon entry, and anything that could be thrown confiscated, including, presumably, the bags themselves. Food and drink – instant projectiles – would not be sold at the ground. The probably mythical cup of urine would be impossible with a ban on cups.

Security guards and video cameras could identify the culprits.

This method would be costly, and intrusive. Fans might not be happy with paying dramatically higher ticket prices and then being told they cannot bring a drink bottle into the stadium, and once inside have to go hungry.

How important is the wave to enjoyment of cricket? If it is the difference between having fun and not having fun, fans could set up a competing stadium where the wave is allowed. This is a high-cost strategy as well, but entrepreneurs who sense this unfulfilled demand could make a huge amount of money supplying it.

This may seem flippant but it happens all the time in a market economy. When companies stop providing what people enjoy, competitors fill the gap. Private schooling, for instance, has arisen out of dissatisfaction with public education.

If the MCG has imposed too harsh a rule on fans, then they will stop going and start looking for alternatives. The MCG is betting that the new rule will instead increase attendance.

Ultimately, the fans will decide whether the wave should be allowed.