Entrepreneurs Should Not Get Government Support

The 2014 Federal Budget cuts back family payments, places tough new rules around welfare for young people, taxes doctor visits to fund medical research, and reindexes the pension.

But it’s not all bad news!

If you own a business that’s more than three years old, has good turnover, and operates in any one of 14 favoured sectors, you’ll be eligible for $20,000 of taxpayers’ money to hire management consultants.

Better, you could receive a $50,000 grant to employ a researcher for a few months.

Or, the jackpot: if you own a company that’s about to launch a new product or service, you might get $250,000 of matched government funding to help.

The base immorality of corporate welfare is never clearer than in times of austerity.

These obscenities are part of what’s called the Entrepreneurs’ Infrastructure Programme. The program was announced in the May budget, but it’s only now the subject of a public discussion process. (An incredibly short discussion process. The program starts on July 1.)

The program partly rationalises and partly replaces a bunch of other grants and subsidies from the previous government.

It’s worth $484.2 million over five years – the better part of half a billion dollars. This is huge. The change in Work for the Dole payments will only save $1.2 billion over four years, and that will affect many more people.

The entrepreneurs program is funded from a larger cut of industry programs, so the government can say it is reducing expenses somewhat.

But it is still incredible that even in a horror budget the federal government plans to give money away to successful companies.

After all, we’re not talking about bailing out firms in trouble here. We’re talking about handouts to firms the government believes have “growth potential”. Of course, the real winners will be the management consultants paid to pore over business plans on the taxpayer penny.

The Australian government is awash with small grants, minor programs, petty subsidies. State governments are too. Yet these sorts of policies are rarely discussed, let alone justified.

The Australian government has always been in the business of giving privileges to private firms.

The great tariff barriers of the 20th century acted as an indirect transfer of wealth from consumers to manufacturing interests. By preventing cheaper goods from entering the country, consumers were forced to spend more in order to protect certain politically connected industries. Think the car industry.

Tariffs were not presented to the electorate as a gift to private enterprise. The justifications were more complex – Australia needed temporary barriers to build industries until they were adult enough to compete globally, or that the government knew which industries were “industries of the future” and needed a little kick along.

In retrospect these claims were absurd. The “infant industry” argument never went away, even after decades of tariff protection. Somehow our industries were always young.

And with 20-20 hindsight those “industries of the future” just look like wrong turns. Again, think the car industry.

But for all the intellectual debate, the practical, real-world effect of protectionism was to subsidise private companies; a privilege those companies lobbied hard to defend.

The Whitlam government took the first axe to the Australian tariff. Much of the growth in living standards over the last few decades is thanks to tariff liberalisation.

So what’s going on with the Entrepreneurs’ Infrastructure Programme?

It’s tempting to see programs like this as the last gasp of corporate welfare – simply the trinkets that remain after three decades of liberalisation, waiting to be swept up.

But such programs really demonstrate that the political dynamic that supported protectionism is still with us. Rent-seekers and their political supporters have just gotten smarter.

Instead of the implicit taxation of the tariff, governments just hand firms money directly. The grants are given fashionable titles. Labor had a “Green Car Innovation Fund” and “Innovation Precincts”. The Coalition talks about entrepreneurship.

This is a bit strange. Every minute entrepreneurs spend filling out a grant applications is a minute stolen from doing what makes entrepreneurism so valuable: developing new products, finding new markets, and adding value to the economy.

One of the successes of the economics profession has been to persuade politicians that entrepreneurs are important. Entrepreneurs take risks, and those risks are tested in the marketplace. That’s great. But politicians took that lesson to mean they should give money to entrepreneurs. Never say politics doesn’t have a sense of irony.

To the individual taxpayer, the Entrepreneurs’ program will cost a fraction of a cent a year. Who could be bothered complaining about a few cents of tax? To the recipients, though, these subsidies are huge. Politicians will like the subsidies, too. What better publicity than being photographed with innovative entrepreneurs – to have job creators thank politicians for their support in front of TV cameras?

Tony Abbott is fond of an Abraham Lincoln quote: “Government should do for people what they can’t do for themselves and no more.”

How on earth does taxpayer-funded management consultants for private businesses fit that criteria?

Expelling MP Geoff Shaw Should Not Be The Only Way Out For The Napthine Government

Resolving the Geoff Shaw crisis ought to be relatively simple. Ought to be, if a) the previous Labor government hadn’t fundamentally broken the flexibility of the Westminster system, and b) Daniel Andrews wasn’t trying to score disgracefully undemocratic political points by seeking to expel a fellow member of parliament.

Last time someone was expelled from Victoria’s Legislative Assembly was in 1901 and he had insulted the king. Shaw’s offence is even less serious than that.

Denis Napthine struggles to control the lower house. Now that Geoff Shaw has “gone rogue”, the Coalition’s previously razor-thin parliamentary majority is an unworkable one. Some days the government loses control of proceedings. This is not sustainable.

But nor is it particularly unusual. Sometimes governments lose control of the lower house. It happens.

Under a bog-standard Westminster system, Napthine would be able to call an election to resolve the problem once and for all. (Last week the Premier said he would have liked to go to an election six to 12 months ago. It might have been a tough election for the Coalition. But better than this damaging farce.)

Alternatively, the Governor of Victoria Alex Chernov could require that the Premier demonstrate he has control of the lower house. If Napthine was unable to do so, Chernov could appoint a new government or issue writs for a new election.

But we no longer have a bog-standard Westminster system. If you’re looking for someone to blame for the crisis, blame Labor’s decision to move to fixed terms a decade ago.

In 2003 the Bracks government introduced a four-year fixed parliamentary term, taking the decision to call an election out of the hands of the premier, and stripping the governor of their reserve powers.

It’s now obvious there is a fundamental contradiction between a Westminster system and fixed terms.

In the Westminster system, government is formed on the floor of the house. The ability of the premier to call an election provides the fail-safe mechanism if they lose control of Parliament. A secondary fail-safe mechanism is vested in the governor.

In 2003 those fail safes were eliminated. Instead, the electoral reforms jerry-rigged a complex workaround if the government lost control of the house outside predetermined election times. But – here’s the problem – that workaround relies on the opposition introducing a vote of no confidence in the government.

If the opposition refuses … well, then the whole process gets stuck.

Right now the only political actor with room to move is Andrews. Yet Andrews won’t pursue a no-confidence motion in the government because he says Shaw’s vote – necessary for a successful motion – is “tainted”.

Instead, he wants to simply to kick Shaw out of Parliament. What an undemocratic, unjust and entirely political ploy.

Vote taint is not a thing. Votes don’t go off. They don’t get spoiled. Vote taint wasn’t a thing when the federal Coalition claimed Craig Thomson’s vote was tainted. It isn’t a thing in Victoria now.

Yes, Shaw is dislikeable. He is anti-abortion. He is also a duly elected member of Parliament. The voters of Frankston chose him as their representative. He has a political constituency and his views are shared by a sizeable minority of the population.

Nor has it been shown that he has committed any crime that would make him ineligible to hold public office.

In an opinion piece last week former Labor speaker Ken Coghill suggested the basic problem is that Victoria lacks a corruption watchdog with sufficient heft to turf Shaw out of Parliament.

The argument that a corruption watchdog could sort out an essentially political problem is as strong an argument against such bodies as ever devised.

Shaw misused his parliamentary car for personal business. He shouldn’t have done so. But it’s clear that Shaw’s biggest misdeed is simply that he is in the way – that he holds the balance of power, has strong policy preferences, and is disinclined to compromise.

Obstinate? Absolutely. But Shaw isn’t being much more obstinate than Andrews is.

Shaw has one thing going for him. He isn’t so morally bankrupt as to try to banish a legitimately elected fellow member of Parliament for political convenience.

Labor’s legal advice suggests parliament can expel a member as long as the stated reasons for doing so are sufficiently “general”. Apparently detailing too many particulars – that is, particulars of what mortal sin Shaw is actually guilty of – would expose the expulsion to legal challenge.

One anonymous Liberal told The Age this weekend “We can’t just get rid of someone because they’re a tool.”

But, ultimately, a well-designed parliamentary system should be able to function or dissolve itself even if some of its members are tools.

Victoria’s Parliament is no longer well-designed.

There’s no reason to believe that fixed parliamentary terms has given us better government. Has there been any discernable increase in “long-term thinking”? Are we better off for letting the Shaw saga stagger along?

It’s easy to be seduced by grand plans for social reform. Fixed terms was one such plan – a parliamentary rule change that was supposed to reduce political uncertainty. We’re now living with the disastrous consequences of that seduction.

Budget Won’t Slow Government Spending

For all the fire and brimstone that accompanied last week’s commentary on the budget, the bottom line is simple: under the Coalition, government spending is going up, not down.

This is the long-term significance of Joe Hockey’s first budget.

A modest 1.7 per cent real reduction in expenditure next financial year will be more than offset by 0.4 per cent growth the year after, 2.1 per cent growth the year after that, and 2.6 per cent growth in the 2017-18 financial year (the end of the Treasury’s forward projections).

And tax? Well, while this year the government will collect $363 billion, by 2017-18 it plans to collect $467 billion. That’s a jump in the tax take from 23 per cent of GDP to 24.9 per cent.

Yes, the budget does things like abolish 70 government bodies and 230 programs. Some of that is great.

But, ultimately, a party which was elected promising to reduce the size of government and reduce taxes, will preside over large expenditure growth and is hiking, not axing, tax.

It’s widely appreciated that deep down Tony Abbott is a tax-and-spend conservative. Now we know his is a tax-and-spend government.

But there’s a lot of trickery in the budget to conceal that fact.

The most controversial policies (like the “learn or earn” welfare changes, the increase in the pension age, and the university reforms) sound like classic austerity measures but in truth don’t alter the fiscal equation all that much. They’re social reforms being smuggled in under the cover of a budgetary crisis.

And most of the big spending cuts to health and education have been punted far into the future – beyond the next election, and many out past the Treasury’s forward estimates.

Hockey says it would hurt the economy to cut hard immediately. Here’s a more cynical explanation. He’s hedging. The Treasurer is pledging but delaying cuts in the hope the Coalition will be able to rescind those cuts for future election sweeteners.

The budget is also full of policies that superficially look like aggressive cost reductions but are in fact new spending.

For instance, the $7 GP co-payment is, astonishingly, being poured into a huge new medical research fund. It will apparently be the biggest in the world.

This is a bizarre decision. The policy case for a co-payment is that introducing price signals will give patients a financial stake in their healthcare choices. But using that money to fund an entirely new government program makes the $7 charge look less like a co-payment and more like a research tax.

Likewise, the reindexation of the fuel excise isn’t to fix the budget emergency, but for new road projects. This is so Tony Abbott can live up to his self-applied “infrastructure prime minister” nickname.

Abbott said in August, 2013 that “the only party which is going to increase taxes after the election is the Labor Party”. It’s worrying the Coalition now pretends no such commitment was made.

In opposition Coalition spruikers said Abbott offered two things: the integrity Julia Gillard lacked, and the fiscal discipline Kevin Rudd lacked. After this budget, what’s left?

So this is a significant budget. In opposition, the Coalition was rhetorically committed to reducing the size of government – probably more so than any opposition since the time of John Hewson.

But now it has power, it can’t bring itself to make significant long-term change.

Abbott is no Gough Whitlam-of-the-right. He has no plan to redefine the relationship between state and citizen, despite his stirring oratory from opposition.

Nor, contrary to Joe Hockey’s assertions, has the age of entitlement come to an end. The paid parental leave scheme puts a lie to that little fantasy.

Governments think election to election. But Australia’s fiscal problem is measured in decades, not electoral cycles. Political logic means spending is popular and taxing is not. This encourages governments to go into deficit.

When the next economic crisis arrives, it seems unlikely a government of whatever stripe will be able to resist the calls for deficit-financed stimulus.

If the budget has not recovered by then – if we do not have the sort of surplus that was available to Kevin Rudd in 2008 – we’re going to be in trouble. The European fiscal death-spiral was driven by the fact that their budgets were ruined before the Global Financial Crisis hit.

Politically, however, Joe Hockey’s budget may work. At least for a bit.

Until now the Abbott government has lacked that patina of authority which marks a confident government. Things like reintroducing imperial honours have made the Coalition look indulgent.

The budget itself will be unpopular but it has at least given the government a purpose.

But the question the Coalition needs to ask is this: how will voters respond when they realise that, for all the harsh measures in the budget, it’s for very little? All that pain, and still both spending and taxation are going up.

How George Brandis’ Race-Hate Laws Are Good For Democracy

What would the repeal of section 18C of the Racial Discrimination Act symbolise? It is a sign the debate has progressed that columnist Waleed Aly and Race Discrimination Commissioner Tim Soutphommasane, both writing in Fairfax Media last week, now focus their objections to Attorney-General George Brandis’ proposed reform on the symbolism of such a move, instead of its practical effects.

Section 18C makes it unlawful to offend, insult, humiliate and intimidate someone on the basis of their racial or ethnic origin. Introducing the provision in 1994, the then attorney-general Michael Lavarch said it would be a “safety net for racial harmony”.

But two decades later, no serious person argues the aggregate level of bigotry in Australia has been affected one bit by section 18C. As Aly admitted: “We’re not exactly playing for cutthroat stakes.”

The proposed reforms are not about the “right to be a bigot”; they are about whether Australians should be able to sue each other for racism. And that is a much narrower question. Few people have the resources or inclination to litigate speech. No wonder the most articulate defenders of section 18C now focus on its symbolism.

But the symbolism is a two-way street. The proposed reforms are not just designed to protect freedom of speech. They appear to be written in a way to suggest that free speech is a basic democratic virtue.

How so? The core of Brandis’ proposal is a new defence to the accusation of racial vilification if it occurs in a discussion of “any political, social, cultural, religious, artistic, academic or scientific matter”. This distinguishes it from the existing defence, which requires the political discussion to be “reasonable” and made in “good faith”.

The intuition here is that your right to participate in public debate does not hinge on whether a Federal Court judge believes you are participating reasonably, or what your motives are. It is a fundamentally democratic change. The High Court has rightly found that the very foundation of our liberal democracy is a right to speak freely on matters of political importance. Brandis’ proposals extend that observation to all areas of public interest: cultural, social, religious and so forth. And doing so is symbolism, which everybody – including those who section 18C was originally designed to protect – should have an abiding interest in.

Human rights exist to protect the minority against the whims of the majority. To defend free speech is to recognise that no ideas are sacrosanct, that all ideas can be challenged. Historically, free expression has been one of the strongest weapons for pluralism. Speech rights are most necessary for the weak, not the powerful.

Nobody denies the harm of hate speech. But nor should anybody deny the necessity of protecting free expression for the maintenance of a democratic system and as a basic individual right.

Indeed, it is surprising the same human rights bodies lining up to oppose Brandis are also the strongest advocates of an Australian bill of rights. Any bill of rights would have a right to free speech. What if this right made section 18C invalid? Certainly, that has been the result of the United States’ First Amendment, which has made anti-hate speech laws unconstitutional.

Brandis’ reforms are carefully written. They appear to be designed to straddle two famous controversies. The first is the Andrew Bolt articles on light-skinned Aboriginal people, which were found to have been unlawful under section 18C in 2011.

The amendments have been tailored to cover all the major issues raised by the judge in that case. Brandis wants to clarify that the word intimidation means physical intimidation, reset the “reasonable person” test to mean a reasonable member of the Australian community, and make sure the free speech exemption does not rely on a judge’s feelings about what constitutes good faith. The Bolt columns would be perfectly lawful under the Brandis reforms.

The other controversy was when a 13-year-old girl yelled “You’re an ape” at Adam Goodes at an AFL match in May last year. The proposed new anti-vilification provision is designed to keep speech such as this unlawful. The girl was not commenting on a matter of public interest.

Goodes did not sue. He made his case against bigotry in the public arena. But many section 18C cases are like the Goodes incident: verbal altercations and family feuds that involve some sort of racial slur. Under the Brandis proposals, they are still supposed to be unlawful. The theory is that such abuse has no democratic merit.

Yes, the Abbott government should reform laws that constrain freedom of speech across the board. And certainly, it should not be proposing to censor social media as part of its anti-cyber bullying proposals. But that this government’s defence of free speech is less than comprehensive is no argument against reforming section 18C.

Soutphommasane and Aly are right. The symbolism of getting the courts out of the business of regulating public debate would be profound, and profoundly democratic.

Radical Reform Needed To Clear Up The Telco Mess

Telstra’s exclusion from the bidding process for a national broadband network reinforces how much of a fiasco Australian telecommunications policy really is.

The Labor Party’s high-profile promise that it would have in place by November 2008 a fibre-optic network was supposed to outflank the regulatory stagnation that had developed since Telstra first announced its plans to build such a network in late 2004.

Communications Minister Stephen Conroy clearly had no idea how difficult and entrenched the regulatory problems were.

The latest decision sets a terrible precedent for a minister with an already poor reputation. The Government is claiming the Telstra proposal was rejected because the company had not included a detailed plan to involve small and medium enterprises in the network’s construction. The first striking thing about this requirement is just how extraordinarily micro-managing it is. Does the Government want the fibre-to-the-node or not? Surely voters don’t care whether their broadband network is built by big companies, little companies or robots subcontracted by aliens.

Nevertheless, it is hard to avoid the impression – and certainly this is Telstra’s view – that being excluded over this odd requirement is nothing more than a convenient excuse to kick Australia’s biggest telco out of the running. After 11 years of forced access regulation, there is a lot of bad blood between Telstra, the industry, the regulators and, of course, the Government.

This decision signals a government willing to make decisions based on animosity rather than neutrality. Big Australian companies will be quickly learning how important their Canberra lobbyists are under the Rudd Government: with a resurgent industry policy, an emissions trading scheme with more exceptions than consistencies, and a steady program of commercial bail-outs, it has been a long time since having the ear of a minister has been so important.

The Government can’t claim to be concerned about the influence of lobbyists in the halls of Parliament while making it impossible for companies to do business without them. The problem facing Australia’s communications industry is deceptively simple. The original regulatory approach was to try to inject some competition after the industry’s partial deregulation. And so Telstra was forced to allow its competition to access the copper wire network, and at a price set by the ACCC.

Yes, Australia has seen an explosion of small telcos. If competition is a synonym for hundreds of companies selling pretty much the same product, then regulators can declare victory. But the more important point of the forced access model was to encourage companies – after they had a comfortable foothold in the industry – to build their own networks. That has not happened. Instead, Telstra’s competitors have invested more and more of their own resources into the ageing copper-wire network.

And when the idea that we need a new network comes along, it creates a perfect storm. Telstra isn’t sure how the access regime will be applied to a whole new network on which it wears all the financial risk. Telstra’s competitors are disgruntled because suddenly all their expensive equipment will become obsolete, and mortified by the prospect of being unable to compete with a flashy new network. The Government doesn’t like copping public criticism from a company that used to be its political stress ball, and the regulators would prefer it if they could issue orders unchallenged, as they could before.

With stakeholders at each other’s throats, the industry is unable to build the network. But this is no market failure by any definition of the phrase; it is a failure of the Government’s regulatory policies, which discourage investment in infrastructure.

It must be easy for politicians to imagine that a government could magically fix problems by throwing money at them. But yesterday’s exclusion of Telstra from the broadband tender indicates that the Labor Party might find our regulatory mess a trifle more complex to deal with.

The forced access framework has, ironically enough, cemented Telstra even further into the centre of the telecommunications industry. It will take radical reform to fix the telco mess. Governments are going to have to step back from micro-managing the telecommunications sector. Market forces need to determine the shape of such a quickly developing industry, not regulators.

No Umpire Needed In Sport Media

The AFL, with its of salary caps and draft restrictions, is one of the most regulated sports in the world. Unfortunately, the Australian media is just as regulated, and the regulations punish clubs, consumers and players.

Protectionism may no longer dominate as an economic ideology, but it lives on in the Australian Government’s approach to the media.

Invariably, from the artificial limitation on the number of television licences, to the banning of advertising on the ABC, to the digital transition debacle, each and every media regulation and reform proposal seems designed to protect incumbent free to air (FTA) broadcasters and penalise their competitors.

Anti-siphoning laws, which give FTA broadcasters first rights over a huge range of premium sporting content, are some of the most egregious examples of this protectionist approach.

FTA broadcasters are granted the privilege by government of not having to compete for broadcast rights in a fair and open market.

Like all protectionist rhetoric, advocates of the current system couch their arguments in the “public interest” and “protecting the consumer” terms. But preventing pay television from bidding for broadcast rights is not without cost.

A modern sporting competition is an extremely expensive affair, and, like any other business, its producers strive to appeal to demanding consumers.

To do so, the sports have evolved, not only in the manner in which they are played, but also through technological innovations that alter the experience for consumers.

Coaches utilise better communications and analysis tools to manage their teams.

Players utilise more powerful – and more expensive – medical advances to prevent injury and enhance performance.

And consumers utilise a variety of print, electronic and broadcast media to access statistics and interactivity to enjoy their game more.

But all this requires money. By restricting pay television from the market for broadcast rights, sporting codes are deprived of a potentially lucrative source of funds.

Competition is intense between the FTA broadcasters, but by banning alternative broadcasters, the final price that broadcast rights are sold at is likely to be lowered.

Anyone that doubts that this is a problem should identify any sporting code or club that wouldn’t be able to use the extra money. Many sports on the anti-siphoning list, like netball and the IndyCar series, do not command the enormous audiences that the big football codes do. Restricting the market for the broadcast of these sports punishes fans – it doesn’t protect them.

With the larger sports, problems are just as evident. The demise of the Fox Footy Channel, a casualty of the lopsided negotiations between FTA, pay television and the AFL, has been a loss for consumers. Die-hard fans are denied the opportunity to enjoy a channel dedicated to the sport to which they are devoted.

If the AFL had been able to negotiate with Foxtel directly, this may have not occurred.

As Justice Ron Sackville, judging a Federal Court case over AFL rights this month, stated: “The poor old AFL is denied the opportunity of a fair and competitive process to get the best price for its product . . .” He continued: “Now, that seems odd.”

Exempt from anti-siphoning restrictions, Football Federation Australia has been able to sign a deal with Foxtel to show all Socceroos, A-League and Asian matches. These rights were sold on mutually agreeable terms, and should help the code establish itself in the mainstream.

The anti-siphoning laws punish consumers and sporting codes, but the larger objection is philosophical, and one shared by the codes themselves.

Those who make a product, own it. The sporting codes should be able to determine to whom and under what condition those rights are sold.

The anti-siphoning laws confiscate the property rights of the producers of sport.

A better approach would be to treat content broadcast on television or radio neutrally. Governments should not be making a determination of the relative importance or merit of certain forms of entertainment. Doing so punishes the very consumers that these laws profess to protect.

The Government’s media reform bills have not tackled with any rigour the Government’s regressive approach to the media. Unfortunately, its penchant for protectionism does not appear to be abating.

Sports are supposed to be competitive, why can’t broadcasting be the same?

The Net Is Anarchy: Keep It That Way

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Film Classification Laws Out Of Sync With The 21st Century

With Tim Wilson

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.