Articles – Chris Berg

A Run on the Banks

A review of Battle of the Banks: How ad men, barristers and bankers ended Ben Chifley’s boldest plan by Bob Crawshaw (Australian Scholarly Publishing, 2025, 242pp). Published in the IPA Review, Spring 2025

What was Ben Chifley thinking when he and his cabinet decided to nationalise Australia’s banks?

The consequences of that decision in August 1947 were monumental. The bank nationalisation legislation passed parliament later that year but was struck down by the High Court in 1948. The proposal almost certainly caused Labor to lose the 1949 election. On the eve of that election Robert Menzies described bank nationalisation as proof that Labor promised “socialism without limit”.

The consequences were as much ideological as political. This episode ground to a halt the economic program that the Labor Party had built up since the Great Depression; one of extensive control of industry and the nationalisation of the commanding heights of the economy.

Nationalisation was in the Labor Party’s DNA. Its ‘socialist objective’—the constitutional object of the party to pursue the “democratic socialisation of industry, production, distribution and exchange”—dates from before Federation.

Bank nationalisation was so fraught politically that it killed the old Labor Party. Twenty-three years after Chifley lost, the Labor Party that returned to power was a very different Labor Party. It was focused on Vietnam and youth and it rejected “the slogans of the 1950s”. Today its socialist objective is a stubborn, and for some in Labor embarrassing, historical artifact.

Bob Crawshaw’s book Battle of the Banks: How ad men, barristers and bankers ended Ben Chifley’s boldest plan is a lively retelling of the story of this attempted bank nationalisation and its consequences.

Crawshaw’s is the second major book published on these events. A. L. May’s The Battle for the Banks was published by Sydney University Press all the way back in 1968, so the story is ripe to revisit. Crawshaw has the advantage of access to many more memoirs, diaries, and the half a century of scholarship that has emerged since May’s publication. It is still a hard ask for Crawshaw because May’s book is a genuine classic of Australian history. But Crawshaw holds his own well, recognising correctly that this is, first and foremost, a narrative of politics and people.

It is hard to beat the symbolism of the bank nationalisation story. The decision was made seemingly out of the blue in a cabinet meeting on a cold Saturday in a quiet Canberra, our bush capital isolated by design from the major Australian population centres and financial hubs. On Wednesday 13 August 1947 the High Court struck down a provision of Labor’s 1945 Banking Act which would have required all Australian governments—local and state—to bank with the government-owned Commonwealth Bank unless the Commonwealth treasurer gave express permission.

Within 24 hours the Chifley cabinet was sitting considering the implications of the High Court decision. On Saturday a short, bare press release was sent around the country, declaring that cabinet had resolved to “prepare legislation … for the nationalisation of banking, other than State banks, with proper protection for shareholders, depositors, borrowers, and staff of private banks”.

News of Canberra’s decision ricocheted around Australia’s populous cities. Crawshaw documents how officers of the private banks learned of this decision through the weekend. The General Manager of the National Bank of Australasia (now NAB), Leslie McConnan, had been golfing that Saturday when he was told of the press release. He finished his game and turned to address the reporters who had rushed to get his take: “If I understand today’s announcement correctly, the objective is that every citizen’s financial affairs will be subject to Government inspection and control”.

By Monday all of Australia’s private banks had met in Melbourne and decided to oppose their nationalisation. This was the launch of one of the most effective private sector political campaigns in Australian history. Plans hatched in Canberra were received very differently by the financial centres of Melbourne and Sydney, and that reception led, ultimately, to the legal and political humiliation of Labor for more than a generation.

It’s a good story and Crawshaw tells it well. His thesis is in the title. Bank nationalisation was defeated by an unprecedented campaign of political resistance by the Liberal Party and the private banks, working with a new generation of advertising and marketing professionals, the conservative print media, think tanks (the Institute of Public Affairs was founded in 1943 and was unsurprisingly focused on the nationalisation debate), and conservative lawyers who chased the government all the way to the Privy Council.

As Crawshaw writes, the story:

… shows how governments can overestimate the openness Australians have for grand ideas, how bold plans need big efforts to communicate them, and that wealthy and threatened institutions always find ways to rally for survival.

I have difficulty with this framing of the story though, no less in Crawshaw’s telling than when A. L. May made the same argument. Both authors agree that the Chifley government was massively outmanoeuvred by its opponents. The bank nationalisation proposal did not exactly come out of nowhere, but the government had not done any of the serious groundwork necessary to support it. Nor did it effectively follow up the proposal.The supporters of private banks were fighting, at least to start, on largely uncontested land. The banks had money, many passionate and loyal staff that did not want to be subsumed into the Commonwealth Bank, and allies across conservative industry.

Memory of the battle of the banks has captured left-wing reformers ever since, who see political resistance to their efforts to tax, regulate, or socialise industry as a rigged game of corporate power almost impossible to win.

But surely we should first acknowledge how profoundly revolutionary the bank nationalisation proposal actually was. It was not simply a ‘grand idea’ or a ‘bold plan’. It was a radical decision made recklessly that would have upended Australia’s economic compact and threatened the country’s prosperity. It was the expression in law of a visceral political hatred for private banks that dated back to the Labor Party’s founding, and an indulgence of crank economic doctrines for the Labor faithful.

Its failure, and the failure of the government that proposed it, need to be understood on their own terms, not just as a marker of poor political tactics or the rise of a new generation of commercial and advertising interests.

Crawshaw is helpful here in outlining what it would have actually meant for the government to take over the vast Australian banking sector. The plans for nationalisation ran to thousands of pages. Each bank was to become a division of the Commonwealth Bank. The employees would help dismantle their banks. They were to hand over everything immediately—share registers, staff lists, information on their accounts. The government would then calculate compensation for the fifty thousand shareholders of the private banking system. There were elaborate carrots and sticks to ensure that everybody cooperated. It was an immense task.

And to what end? The banking sector was not in the middle of a crisis. The Great Depression had long passed, and the wounds from James Scullin’s one-term loss in 1932 should have been long healed.

In fact, the Labor Party had just passed banking legislation. The Banking Act 1945 was itself far reaching, establishing the Commonwealth Bank as a modern central bank with recognisably modern responsibilities for the regulation of the private banking sector. Chifley had told his cabinet at the time that the 1945 Act “did provide for adequate control and could be accepted as a very definite and substantial step in the direction of nationalisation”. It was only the discretionary activation of a provision in the 1945 Act to compel state and local governments to bank with the Commonwealth Bank that was struck down by the High Court in 1947. Other than that, the government’s banking agenda had been realised, and indeed the regulatory structure of the 1945 Act was maintained for decades to come.

By any measure, nationalisation was an extraordinary over-reaction to a minor High Court setback. What was the policy goal, other than to fulfil a long-standing Labor Party ambition? There is little evidence to suggest the public was unhappy with the banking system. The private banks were a core part of the Australian economy. During the Depression Joseph Lyons had called them “the sheet anchor of Australia”.

And bank employees were the archetypal forgotten people of Menzies’ famous broadcasts—middle class and professional. Bankers were hired straight out of school and trained by the banks themselves. Their loyalty to their firms was not surprising, and their reluctance to be thrown into a massively amalgamated Commonwealth Bank was entirely reasonable.

More politically sensitive was what would happen to the private banks’ depositors. The government argued that moving all private deposits to a socialised banking system would provide depositors with more protection than they currently enjoyed. But arguably it was the Commonwealth Bank that was the less sound financial institution.

These days public faith in the solvency of Australian governments is virtually absolute. It was not so absolute in the 1940s. New South Wales under Jack Lang had almost defaulted on its debt. And one of the few banks that failed during the Great Depression was the Government Savings Bank of New South Wales. The Commonwealth Bank declined to take over the GSB because it believed doing so would be indirectly supporting the NSW state budget and that to do so might threaten the Commonwealth Bank’s solvency.

Bank nationalisation did not occur in a vacuum. It does not make sense to look at this policy in isolation as it was not experienced by voters in isolation. Rather, it was one pillar of a vast agenda that Labor had been pursuing in office: nationalisation, the concentration of power in the federal government, and the creation of government monopolies over industry.

There were, in fact, many sectors that the Chifley government wanted to consolidate into a single government monopoly. Before World War II Australia had 16 airlines. War demands and confiscations caused the sector to shrink. Once fighting stopped, the Chifley government tried to establish a single government-owned monopoly in domestic aviation with Trans Australia Airlines (TAA). And in 1947 the government nationalised Qantas as an international carrier alongside British Commonwealth Pacific Airlines—which was itself also majority government owned.

It tried to do the same with broadcasting. FM radio when it was introduced in legislation was to be a monopoly of the Australian Broadcasting Commission, and television, which was yet to come, was also to be a monopoly. A single television monopoly was not a popular idea. A Gallup poll in 1949 found that 78 per cent of the Australian public opposed the idea of an ABC monopoly over this exciting new visual medium.

The post-war priority of the Chifley government was to confirm and extend the controls and powers that it had taken as a temporary wartime measure. Another example was shipping. Merchant ships requisitioned during the war were transferred to the Australian Shipping Board, as the government moved to dominate (although not in this case monopolise) a sector that had been almost entirely private in 1939.

The government made no secret of its intention to consolidate power in itself. The 1944 Fourteen Powers referendum would have given the federal government powers which the Constitution vested in the states, including power over corporations, manufacturing, commodities marketing, and foreign investment. After that referendum failed the government came back in 1946 to ask for power over social services, the marketing of agricultural products, and industrial employment. The social services question passed. The other two failed. Then it came back again in 1948 with a proposal to control rents and prices. This too failed.

It is sometimes granted that the Chifley government overextended itself with this program of socialisation and control, and that the bank nationalisation moment revealed the limits of its reach. Even given the scale of the program I have described, banking was by far the biggest and most consequential sector in the government’s sights.

Australian historians usually characterise our wartime and immediate post-war history as a series of government interventions in the economy born of necessity and a certain expediency, and the Curtin and Chifley governments then sought to consolidate these under the banner of ‘reconstruction’.

But as Stuart Macintyre documented in his book, Australia’s Boldest Experiment, reconstruction in Australia was nothing like reconstruction in the war-ravaged cities of Europe. What was there to ‘reconstruct’? Nugget Coombs, Director-General of Post-War Reconstruction, saw it as an “opportunity to move consciously and intelligently towards a new economic and social system”.

It is possible the citizens of a safe and relatively free Australia, even after the rationing and constraints of the war years, did not share the ideological verve of their government. Certainly, the Menzies era seems to suggest that Australians wished to return to normalcy, not to strive forward with Labor’s social democratic revolution.

But I think there is a more severe critique we might make of the usual narrative. It is not always obvious that the wartime controls imposed on the economy were themselves justified. The federal grab for power was just as opportunistic during the war as after it.

Banking is a useful example. During the Great Depression the Lyons government held a Royal Commission into banking, partly to assuage its rural supporters who were being seduced by its own crank economic theories about how the financial system worked.

The royal commission’s report, released in 1937, recommended private banks remain private but come under the heavy supervision of the Commonwealth Bank, which would be able to control interest rates, product offerings, and require them to hold special accounts with the Commonwealth Bank. (Chifley, for his part, was a Labor representative on the Royal Commission and wrote a dissenting report calling for nationalisation.) But neither the Lyons government nor the first Menzies government took up these recommendations.

The banking controls imposed by the Curtin government in November 1941 were almost exactly the recommendations made by the Royal Commission. The very same controls proposed by the Royal Commission to provide for prudential stability in peacetime were imposed to prevent unseemly profiteering and credit expansion in war. The controls were made permanent in the 1945 Banking Act and left the Australian financial system moribund and repressed until the deregulatory movements four decades later.

We tend not to second-guess regulations that have been imposed during wars—it seems reasonable to give wartime governments the benefit of the doubt, given the scale of the challenges they face. But perhaps historians should. Certainly, if these governments are going to use the existence of wartime regulations to validate post-war regulatory repression.

Bob Crawshaw has done great work revisiting this consequential story for modern readers. The book is relatively sympathetic to the nationalisation cause. The battle of the banks killed the old Labor Party and locked in two decades of conservative government. But readers should always remember the stakes. Australia remained a relatively open commercial and liberal economy. That outcome was not guaranteed.

Changes to auctions are just selling everyone short

With Peyman Khezr. Published in the Herald Sun, 27 November 2025

The Allan government’s proposed changes to house auctions won’t make things easier for home buyers. In fact, they are likely to make things worse, pushing sales into opaque private markets rather than public auctions.

The plan involves requiring sellers to publish a reserve price seven days before the auction. On the surface, this sounds like a victory for transparency. No more guessing games. No more “price guides” with a tenuous resemblance to the actual reserve price.

But it is driven by a very serious misunderstanding of why auctions exist in the first place.

The market for houses is not like the market for groceries or cars. Every property is unique and the value of a unique asset is inherently uncertain. It is hard to estimate what exactly a house is worth until you put it to auction. Auctions and buyer advocates will tell you that they are regularly surprised by how a house fares at auction.

That’s because an auction is itself the mechanism to determine what the house is worth. We discover the value of a house during the auction, not before it. It follows the seller (at least) the depth of demand on the day. It allows buyers to reveal what they are actually willing to pay.

By forcing sellers to commit to a reserve price well before the hammer falls, the government is asking vendors to predict the demand for the house on the day of the auction. This imposes a significant risk for sellers — a risk that they are going to have to compensate for.

Consider the two scenarios that will play out under these new rules.

In the first scenario, the seller, terrified of setting their primary asset for less than it’s worth, over-estimates the value of their house and sets the reserve too high. So the auction passes in and the property sits on the market.

In this scenario, the “honesty” of the new regime helps nobody. This is costly for the seller, who has wasted thousands on a marketing campaign but it’s also pretty unsatisfactory for the buyer, who spent all their energy and enthusiasm on what turned out to be a non-event.

In the second scenario, the seller underestimates the value. They set a reserve that looks attractive. But because the property now appears competitive, the market takes off. The bidding soars well past that reserve.

This is a better scenario for the seller but hardly solves the problem of buyer frustration. In fact, it replicates the exact feeling of underquoting that the policy is designed to stamp out.

We are going to end up with a crowd of disappointed buyers who thought they had a chance at the reserve price, only to be blown out of the water by market reality. The disappointment will remain, but it will now come with the government’s seal of approval.

There is a reason it is hard to find international examples where sellers are forced to publicly announce a reserve price in this manner. Other jurisdictions understand that mandating certainty in an uncertain market is a fool’s errand.

If you make auctions economically risky for vendors, they will simply stop using them.

We could well see a mass exodus from the public auction system toward private negotiations. If sellers cannot test the market openly without locking themselves into a number, they will test it privately. There will move into “expressions of interest” or private sales.

This would be a disaster for transparency. The public auction, for all its faults, is the most transparent way to sell a property.

Buyers can see their competition. They can see the bids.

By contrast, private negotiations are opaque. They happen behind closed doors. Private negotiations are far more prone to manipulation than a street auction.

By fiddling with auction rules, the government risks driving the market into the shadows, where information asymmetry is even worse.

Ultimately, tinkering with auction rules misses the broader point. The reason underquoting and auction anxiety are such potent political issues is not because the rules of the game are unfair, but because the stakes are terrifyingly high. That anxiety stems from Victoria’s incredibly high house prices, not the specifics of the auction process.

The emotional toll of the property search is real.

But legislating for pre-auction honesty by forcing vendors to guess the price of their home won’t move prices, and it won’t lower stress. It will just change the shape of the disappointment.

The RBA is why your credit card surcharge fees are so high

Published in the Australian Financial Review, 20 November 2025. Written with Julian Morris.

The Reserve Bank’s position on payment system fees is a mess.

As Commonwealth Bank chief executive Matt Comyn told parliament this week, the way the RBA regulates payment system fees unbalances the competitive dynamic between banks, credit card networks and the global tech players that now also offer payment services. The domestic banks feel that they’re being penalised while international players are left alone.

But competitive unfairness is the virtually unavoidable result of the RBA’s regulatory philosophy. For over 20 years, the central bank has been trying to micromanage how merchants and banks charge each other and consumers for access to credit and debit card payments. And it has found itself playing a constant game of whack-a-mole with an evolving payment system while trying to clean up the unintended consequences of its own regulatory choices.

The clearest example of the mess created by the RBA’s payment system price controls is its proposed reforms to credit and debit surcharges.

Anthony Albanese has been running a political campaign against excessive card surcharges imposed by merchants. On social media last year he asked why a flat white should cost $5 with cash but $5.10 with a card.

It’s a fair question – but one which should have been directed not at voters but at the RBA, which since 2003 has prohibited the card networks (Visa and MasterCard) from imposing their own ban on card surcharges.

So now the RBA proposes to remove its prohibition on the network-imposed “no-surcharge” rules.

This is good. But it is hard to give the RBA credit for resolving a problem of its own making. The no-surcharge prohibition should go down as a case study of regulatory mismanagement.

The justifications the RBA gave for its prohibition are absurd in retrospect. Twenty years ago the RBA argued that no-surcharge rules “deny merchants the freedom to set their own prices” for card use. It now admits its goal back then was to tilt the competitive balance against cards – which were increasingly popular – and towards cash.

Unfortunately, though, the RBA now wants to double down on another price control: that on card interchange fees. Interchange fees are retained by the cardholder’s bank each time a card transaction is processed. Like the no-surcharge rule, since 2003 the RBA has imposed price controls on these fees.

It has set these controls by benchmarking the actual costs (well, “eligible” costs, with the eligibility of costs determined by the RBA) of interchange, such as funding, settlement, and fraud protection. Now the central bank wants to impose simpler – and much harsher – price caps.

The interchange fee regulation is just as misconceived as its contemporaneous no-surcharge rule. The RBA has itself noted that annual card fees rose and card rewards fell once the rules came in. There is little evidence that merchants passed through any of their savings.

Interchange fees aren’t arbitrary or exploitative. They are the mechanism by which payment networks balance the interests of merchants and consumers.

The keyword there is “balance”. Payment networks are multisided markets that balance the interests of the different “sides” – merchants, consumers, banks – by setting fees to maximise system value. Among other things, interchange fees fund rewards, insurance and other card benefits. All of these are there to incentivise consumers to use their cards.

To be fair, in 2003 the economic study of multisided markets was still maturing. So perhaps the turn-of-the-century RBA can be forgiven for not fully understanding the implications of this complex economic structure.

But ignorance is no longer acceptable. One of the pioneers of multisided market economics, Jean Tirole, has a Nobel Prize. And we can see that the digital economy is all about multisided markets.

The RBA doesn’t acknowledge that the function of payment networks is to maximise the value of the system.

Fees are not a bug, they are a feature. They must be high enough to sustain investment in innovation and consumer benefits, but low enough that merchants continue to accept cards. It is a balancing act, refined through constant competitive pressure and trial and error. Regulators cannot replicate this by decree.

From Diocletian’s edict on maximum prices in the Roman Empire to modern rent controls, the result has always been less investment, lower quality, and unintended harm to the very people regulators purport to help.

The Minns AI disaster

Published in the Spectator Australia, 14 August 2025

Last week, with almost no fanfare, the Minns government introduced legislation to regulate the use of artificial intelligence in the workplace.

This would be one of Australia’s first AI laws. Unfortunately, it is a lesson about how laws on frontier technology can sound reasonable but be unworkable and counterproductive in practice. The bill is a recklessly broad bid for union control over workplaces, and, if passed, would be a serious brake on business productivity growth in New South Wales.

The bill is a revised version of the workers compensation bill stalled in the upper house. Unlike the earlier bill it also creates a new health and safety duty for employers that use “digital work systems” to ensure that the way these tools allocate or monitor work does not create health and safety risks.

The idea is to prevent digital systems from being used to push workers into unreasonable workloads, to prevent businesses from imposing excessive worker surveillance, and to provide protection from discrimination. Union officials will be empowered to inspect the digital work systems if they suspect a violation.

You might think all of this is fair: the idea of being digitally managed and remotely monitored by our employers is pretty dystopian. But the bill is wildly over-drafted, and would give unions power to interfere with almost every aspect of the workplace.

On suspicion that a computer is “unreasonably” being used to allocate, coordinate, or monitor work, union inspectors would be able to access and inspect the software platforms and data that power every organisation.

The bill defines a “digital work system” as an “algorithm, artificial intelligence, automation, online platform or software”. This definition reads like the government is just throwing everything at the wall to see what sticks. It is redundant, for one. Artificial intelligence, automation, online platforms, and software are all made of algorithms.

But more importantly, this definition covers basically any way a business uses computers for work allocation. Everything from Microsoft Teams to Slack would fall under this umbrella. Email is a digital work system – so routine task allocation through a calendar invite could be grounds for union inspection if it is deemed “unreasonable”.

And this bill will present a serious disincentive to use modern AI platforms like ChatGPT in business. Explaining why a prompt returned one output and not another output is an unsolved problem in AI research. Any use of these AI models for management would be begging for union scrutiny under this new regime.

Businesses that don’t want to hand unions leverage over their basic operations will either sever the digital work allocation systems from other systems, or avoid using them all together.

That may, of course, be the goal. Workplace law already targets psychosocial risks like excessive workloads and demands. The NSW Workplace Surveillance Act already regulates worker monitoring, and discrimination is the subject of a vast array of state and Commonwealth law. The novelty of the NSW bill is that it targets digital technology directly.

At the Commonwealth level, the Albanese government is currently in the middle of an internal debate about whether to regulate AI with a big, economy-wide bill or just address problems as they come. The government is reluctant to do the former because it is desperate for the productivity boost that many economists believe AI will spark. Productivity is meant to be the theme for the second term of the Albanese government. The union movement disagrees with this strategy. They want unions to have a veto over technologies that might threaten jobs. The Minns government’s proposal goes a long way towards achieving the unions’ goal: giving unions the right to inspect digital technologies that manage work.

We’ve been here before. During the Fraser government in the 1970s there was an energetic debate about the impact of computers on work. Then as now, many feared that the emerging frontier of digital systems might cause profound disruptions to the organisation of work. The union movement wanted businesses to be forced to consult with unions before they introduced computers.

Once again, the Australian economy is suffering through a severe productivity crisis. Once again, we have a suite of technologies that promise massive productivity gains. And once again, this technological revolution is being used as a ploy for union control over business.

AI tapping copyrighted content to learn from it is not piracy

Published in the Australia Financial Review, 9 August 2025

The Productivity Commission announced this week that it was investigating how artificial intelligence models could be more easily trained on Australian copyrighted content. The backlash from our creative industry has been severe and instant.

For the past few years, AI labs have been accused in Australia and elsewhere of large-scale piracy. It is, we are told, outrageous that the PC would be providing moral cover for this theft.

But the PC is right to probe here. We need a copyright regime that reflects how AI models actually work, and our policymakers need to understand the full economic and geopolitical stakes that the AI revolution represents.

The PC’s report into data and digital technology is more modest than you would expect from the reaction of the creative industry. It is “seeking feedback about whether reforms are needed to better facilitate the use of copyrighted materials” for AI training.

But we need to be clear about how AI training actually works. AI models do not copy the content they are trained on. They learn from that content. Specifically, when they “read” a text, they identify patterns in it and relate those to patterns they’ve learnt from other texts.

If a person reads a book and learns from it – updating the weights in their own neural network – we do not accuse them of piracy. What we do when we learn, and what AI labs do when they train their models, is quite different from copying. There are some legal subtleties here.

In the US, courts have distinguished between how the models are trained and how the training data is collected.

Meta and Anthropic are accused of downloading large quantities of copyrighted books and papers from piracy websites to feed them into the training process.

If they were to do so in Australia that would probably be a violation of our copyright laws. But that doesn’t mean the training itself would necessarily be.

The PC notes that the process of AI training necessarily involves temporarily copying content onto the labs’ servers. But that proves too much. We do the same when we read anything on the internet. The moment we browse to a website, our computer downloads that website into a cache folder. But that downloading is a technical necessity, is not economically meaningful, and we don’t treat it as a violation of intellectual property.

All these subtleties around AI training were, of course, completely unforeseen by the parliaments that created our copyright regime decades ago. We don’t need to review the economic upside of AI here. It has been interesting to watch the Albanese government over the past year realise that AI could be a Hail Mary pass.

We might be able to fix our deep productivity problems without the need for tedious reform. AI presents the best chance we have right now to bring about a surge in economic growth.

But there are also real geopolitical reasons not to hamper AI development in Australia and the rest of the free world. We are in the middle of a great global technological contest around AI capability. The contest is of a larger scale and is more economically consequential than the space race of the 1950s and 1960s.

The Western world dominates AI chip development. This domination allows the US to exert a degree of influence over Chinese AI capabilities through export controls. But there is, almost certainly, a moment coming when Chinese chips will be competitive, and China will have full sovereign capability over the complete stack necessary for state-of-the-art AI.

Mark it: this will be a political shock in the West, much greater than when Deepseek R1 was released in January. When it happens, I hope it will finally pop the sense of complacency that has allowed us to indulge the idea that US tech firms are the bad guys.

Some in the creative industry would like AI training to be a matter of negotiation between rights holders and AI labs, book by book, photo by photo.

The Chinese AI labs do not share the same view. In a statement published this year, one website hosting pirated books – they call themselves “shadow-libraries” – stated that while most US firms have shied away, “Chinese firms have enthusiastically embraced our collection, apparently untroubled by its legality”.

The more data a model is trained upon, the better the model. We should not be trying to cripple AI in Australia while others rush ahead.

There are good reasons that authors and other creatives should want their work to be part of AI training sets. What writer would wish their work to be unknown by the first superintelligence?

But policymakers have a choice here. If they want Australia to shape the future of AI, they need to develop a policy regime that adapts to innovation, not a stagnant one that gives our geopolitical rivals an advantage.

Donald Trump is right. Australia has been free-riding on US tech

Published in the Australian Financial Review, 25 February 2025

Over the weekend the Trump administration launched what appears to be a devastating blow against large swathes of the Albanese government’s policy agenda.

Under the heading “Prevent the Unfair Exploitation of American Innovation”, a presidential memorandum declares that it will retaliate with tariffs against countries that penalise US technology companies with taxes, fines, regulations or adverse policies.

This is a problem because penalising American companies has become the bedrock of Australia’s technology policy.

Already last week the Albanese government pre-emptively decided to go slow on its media bargaining code – which, in one iteration, was going to tax companies such as Google and Meta – out of fear of how Donald Trump would respond.

But that’s just the most obvious example where Australian law targets US tech firms.

The Trump policy statement would seem to capture the digital platforms competition policy (currently being developed by Treasury), the under-16-year-old social media ban (passed in an absurd hurry before Christmas), the misinformation bill (withdrawn, but likely to be revisited if there is a minority Labor government with teal support), local content requirements on streaming platforms (stalled but apparently still a government priority) and our freelancing eSafety commissioner, which has given Australia so much embarrassing international attention.

In almost every one these regulatory frameworks, firms have to be specifically named in law to be regulated, or the rules drawn so precisely that they are as good as singled out.

For instance, app stores on mobile operating systems with significant market share, as the digital competition policy would target, could only be the app stores run by Apple or Google.

Defenders of the government might argue that it is hardly Australia’s fault that all the technology infrastructure of the 21st century is American-owned and operated. It is simply a coincidence, therefore, that regulation targeting the tech sector targets US firms.

This argument rings hollow. Our heavily and indulgently regulated and taxed economy has made it incredibly difficult to build and sustain world-beating technology firms here.

Both sides of politics have been arguing for a decade about reform that might moderate our globally high corporate taxes.

Then there are the technology-specific laws – such as mandatory data retention and the encryption and access rules that give law enforcement the power to compel technology companies to give access to encrypted communications – that make it legally hazardous to build technology in Australia.

So it is a bit rich to feign confusion that the US is so entrepreneurial in technology relative to Australia when we systematically penalise firms that do well. It is Australia’s fault that young Australian technologists and entrepreneurs have to go overseas for the best job markets.

This new Trump policy is as much of a challenge to the opposition as the government.

It is underappreciated how much of the technology regulations being pushed by the government originated under the Coalition.

The eSafety commissioner began as the children’s e-safety commissioner under Tony Abbott, and was given its predictably expanded mandate under Malcolm Turnbull.

Likewise, the misinformation bill, the media bargaining code, and the digital competition changes all began their life as Morrison government initiatives.

And those policies they did not initiate, they have supported anyway. The opposition rolled over immediately on the under-16 social media ban.

Opposition Leader Peter Dutton should be careful not to remind the Republican administration of all this history. He has not made technology policy a focus of the Coalition’s campaign. So the Trump policy statement over the weekend is an opportunity.

The correct response to an “America first” international economic order is to restructure the Australian economy so that it can be competitive. We don’t even need a full DOGE to do it.

One reason these bipartisan technology regulations have been so galling is they’ve been introduced during a political stalemate on the basic things we need to do to grow the economy and increase productivity: reduce red and green tape, remove barriers to employment, cut tax rates.

Ultimately, the Trump administration is right. We have been free-riding on the American technology sector. The first thing we should do is stop penalising them. The second thing we should do is to stop penalising ourselves.

Policy Without Policymaking: Australia’s New Digital Competition Regime Is Primarily Designed to Get Through Parliament

With Aaron M Lane. Published at Truth on the Market

The Australian government’s announcement earlier this month of a proposed new competition regime for digital marketplaces has a long history.

The Australian Competition and Consumer Commission (ACCC) has been investigating digital-market competition for nearly a decade. The latest iteration of the ACCC’s digital platforms inquiry has published nine interim reports, with a tenth report to come. A previous iteration of the inquiry also released its own issues paper, preliminary report, and final report.

The current Australian Labor Party government is soon heading to the polls after its first term in office. The proposed new regime is likely to be a small but significant part of Prime Minister Anthony Albanese’s election pitch. This whole process was, however, instigated by the previous conservative Liberal National Coalition government. This bipartisan momentum reflects a persistent drive toward a more interventionist regulatory approach in digital markets.

The proposals that have come out of this process to date have been case studies in policy incoherence. The case of the News Media Bargaining Code, which had its origins in the first ACCC platform inquiry, is a particular example of incoherence in the aid of naked self-interest: it is no more than an expropriation from a politically disfavored sector (tech) to a politically favored sector (traditional media).

The government’s latest proposal requires one to accept some bold logic. The argument goes something like this:

There are a few global digital platforms with significant market power (where the relevant market is both static and narrowly defined);
This power allows digital platforms to either unilaterally increase consumer costs (notwithstanding many digital platforms providing zero-price services to their end users), or to do things like self-preferencing and locking consumers into particular hardware or software systems (ignoring pro-innovation incentives and pro-consumer effects);
Enforcement is difficult, because technological development and adoption occur quickly, but court proceedings against digital platforms are lengthy and slow (notwithstanding the absence of a single example of regulatory competition enforcement against digital platforms in Australia); and therefore
Australia needs an ex-ante system of anticipatory rules rather than an ex-post system that judges conduct following actual evidence of harm.

Let’s just accept all of that for now. What does the proposed new regime actually require?

The government proposes to designate particular digital platforms that have a “critical position in the Australian economy” using quantitative criteria similar to those in the European Union’s Digital Markets Act (i.e., turnover and user numbers) as well as qualitative criteria (for “flexibility”).

Once designated, the digital platforms would be subject to general obligations around anticompetitive conduct and unfair dealing that (presumably) go above and beyond what exists in Australia’s economy-wide competition law, as well as specific obligations that have been tailor-written to apply to particular digital platforms.

The whole idea here is that Australia is a “fast follower” of international platform regulation. But at the same time, the approach is relatively novel. Parliament will be asked to approve a general legislative regime that specifies the role of the ACCC, the process for designation, the general obligations imposed on all designated services, and a first-pass list of the types of platforms that could be designated. The Department of the Treasury suggests that everything from app marketplaces to operating systems, web browsers, search engines, cloud-computing services, and “virtual assistants” might be listed in the legislation.

This is an enormous swathe of the digital economy. And it is designed to expand. Once the legislation is implemented, the government will be able to add to it without legislative amendment. It is marketed as “ex-ante” regulation but there is something quite “ex-post” about it, as the regulatory target can be identified later without any of the usual procedures for finding that it has engaged in anticompetitive behavior or caused consumer harm.

Once a type of service is listed, which firms reach the size and significance to be designated under the regime is up to a government minister (presumably the treasurer) following advice from the ACCC. The ACCC and the government would then develop service-specific rules to which designated firms would be subject. For example, the government might require app stores to allow applications to host their own in-app payments without going through the app store’s payment platform.

While the designation of a firm is up to the minister, the rules that designated services have to abide by will be implemented as subordinate legislation (typically described as “regulation”). Under Australia’s parliamentary system, Parliament has the right to “disallow”—that is, veto—the regulation. Such vetoes do occur, but not that often.

Treasury claims that the government’s “hybrid” approach—half legislative, half regulatory, with the potential for parliamentary disallowance—is structurally inspired by the Digital Competition Bill currently being considered by the Indian government. That legislation has, however, been pushed to next year, amid apparent disagreements within the Indian public service as to its scope and structure.

And while the government has clearly spent a lot of time trying to build a model that has both parliamentary oversight and regulatory flexibility (the flexibility here is all for the government, of course—not for participants in the digital economy), the scope of its ambitions is enormous. The political goal is clear: it is the first stage toward implementing the enormous body of recommendations of the ACCC’s last decade of work on digital platforms at the lowest possible political cost. The strategy shunts the actual policy decisions (that is, what are digital platforms in Australia allowed to do?) to regulation.

It’s worth pointing out that Australia is a Westminster-style system of government, where the executive is drawn from and responsible to the Parliament. The proposed model hands significant power to executive regulatory agencies more typically found in direct executive systems (with quite different checks and balances, such as formal rulemaking processes).

The fact that the rules will be subject to disallowance by the Senate is of little comfort. Indeed, the whole purpose of this structure is driven by the assumption that Parliament is unable, or unwilling, to seriously investigate the complexities of regulating the digital economy.

One of two things will happen. The Senate might waive through the vast majority of the government’s obligations, as it does with most subordinate legislation, in which case the legislative body will be handing enormous policy control over digital platforms to the ACCC and the government. Alternatively, the Senate might scrutinize these novel obligations carefully, in which case it ought to be capable of making such consequential policy decisions itself.

Nor is it entirely true to say that everything the government does under the proposed regime here is reviewable by Parliament. The government is considering giving the ACCC the power to specify “technical” rules in the implementation of the obligations. Treasury says this is broadly consistent with other regimes, such as the Gas Market Code. But in digital markets, technical rules are policy rules: the choice of standards and requirements around things like interoperability can easily favor one incumbent over another, or otherwise distort market competition.

The primary purpose of the Australian government’s proposed competition framework is to get through Parliament. It is not a policy proposal per se. We can surmise what policies it might enable—Treasury provides a few examples of what could be implemented to regulate app stores and ad markets, and the ACCC inquiries have an encyclopedic list of complaints and suggestions—but those are just examples.

In practice, this proposed framework pushes the hard policy choices about the digital economy onto future regulators and ministers who are willing to play chicken with the parliamentary-disallowance process.

Dutton is losing the debate over nuclear energy right when we need it for AI

Published in Crikey

Peter Dutton is losing the debate over nuclear power. Even the pro-nuclear Financial Review agrees, which ran an editorial last week wondering where the Coalition’s details were. And the Coalition’s proposal for the government to own the nuclear industry has made it look more like election boondoggle than visionary economic reform.

It is starting to look like a big missed opportunity.

Because in 2024, the question facing Australian governments is not only how to transition from polluting energy sources to non-polluting sources. It is also how to set up an economic and regulatory framework to service what is likely to be massive growth in electricity demand over the next decade.

The electrification revolution is part of that demand, with, for instance, the growing adoption of electric vehicles. But the real shadow on the horizon is artificial intelligence. The entire global economy is embedding powerful, power-hungry AI systems into every platform and every device. To the best of our knowledge, the current generation of AI follows a simple scaling law: the more data and the more powerful the computers processing that data, the better the AI.

We should be excited for AI. It is the first significant and positive productivity shock we’ve had in decades. But the industry needs more compute, and more compute needs more energy.

That’s why Microsoft is working to reopen Three Mile Island — yes, that Three Mile Island — and has committed to purchasing all the electricity from the revived reactor to supply its AI and data infrastructure needs. Oracle plans to use three small nuclear reactors to power a massive new data centre. Amazon Web Services is buying and plans to significantly grow a data centre next to a nuclear plant in Pennsylvania.

Then there’s OpenAI. The New York Times reports that one of the big hurdles for OpenAI in opening US data centres is a lack of adequate electricity supply. The company is reportedly planning to build half a dozen data centres that would each consume as much electricity as the entire city of Miami. It is no coincidence that OpenAI chief Sam Altman has also invested in nuclear startups.

One estimate suggests that data centres could consume 9% of US electricity by 2030.

Dutton, to his credit, appears to understand this. His speech to the Committee for Economic Development of Australia (CEDA) last week noted that nuclear would help “accommodate energy intensive data centres and greater use of AI”.

But the Coalition’s mistake has been to present nuclear (alongside a mixture of renewables) as the one big hairy audacious plan to solve our energy challenge. They’ve even selected the sites! Weird to do that before you’ve even figured out how to pay for the whole thing.

Nuclear is not a panacea. It is only appealing if it makes economic sense. Our productivity ambitions demand that energy is abundant, available and cheap. There has been fantastic progress in solar technology, for instance. But it makes no sense to eliminate nuclear as an option for the future. When the Howard government banned nuclear power generation in 1998, it accidentally excluded us from competing in the global AI data centre gold rush 26 years later.

Legalising nuclear power in a way that makes it cost effective is the sort of generational economic reform Australian politicians have been seeking for decades. I say in a way that makes it cost effective because it is the regulatory superstructure laid on top of nuclear energy globally that accounts for many of the claims that nuclear is uneconomic relative to other renewable energy sources.

A Dutton government would have to not only amend the two pieces of legislation that specifically exclude nuclear power plants from being approved, but also establish dedicated regulatory commissions and frameworks and licencing schemes to govern the new industry — and in a way that encouraged nuclear power to be developed, not blocked. And all of this would have to be pushed through a presumably sceptical Parliament.

That would be a lot of work, and it would take time. But I’ve been hearing that nuclear power is “at least 10 to 20 years away” for the past two decades. Allowing (not imposing) nuclear as an option in Australia’s energy mix would be our first reckoning with the demands of the digital economy.

Albo’s reckless and draconian misinformation legislation completely undermines itself

Published in Crikey

The Albanese government’s misinformation legislation — a new draft of which was introduced in Parliament late last week — is one of the most extraordinary and draconian pieces of legislation proposed in Australia in the past few decades. It is so obviously misconceived, recklessly drafted and wilfully counterproductive that it undermines the entire argument against political misinformation.

The bill would grant the Australian Communications and Media Authority (ACMA) a vast regulatory authority over digital platforms such as Facebook and X, roughly similar to the sort of controls it imposes on broadcast television and radio.

On the surface, these new powers seem modest. ACMA would have the ability to approve “codes” and make “standards” for the platforms’ anti-misinformation policies. It would impose record-keeping requirements and transparency obligations for fact-checking.

The government says the bill does not provide ACMA with the power to directly censor any particular internet content or any particular users. And that’s exactly right! Instead, the bill empowers ACMA to write codes of conduct and standards that require digital platforms to conduct censorship on its behalf.

Censorship done at arm’s length is still censorship. The point of the legislation is to make codes that are legally enforceable. We already have a voluntary disinformation code. The government is trying to launder the radicalism of this legislation through the complexities of delegation and regulatory outsourcing.

Anybody with a passing familiarity with the evolution of Australian policy can guess what happens next. When the (children’s) eSafety commissioner was established under the Abbott government it was meant to target cyberbullying against children in response to specific requests. A decade later the commissioner is trying to take content down from X globally because of the risk that some (adult) Australians may be using virtual private networks. We’re a long way from the original intent of the Parliament in 2015.

I’m not trying to make a slippery slope argument here (“this bill seems reasonable, but it’ll lead to something outrageous later on”). The misinformation bill is outrageous already.

It targets misinformation as content that can cause serious harm to the electoral process, harm to public health (and the efficacy of public health measures), content that vilifies, that risks damage to critical infrastructure, and might cause imminent harm to the Australian economy, including to financial markets or the banking system.

These categories are ripe for abuse. It is trivially easy to imagine how the concept of “serious harm” could be manipulated by this government or a future one. Let’s say we have a debate over voter ID at polling booths in the coming years. Would we really be better off having that debate mediated for us by Commonwealth regulators and Meta’s compliance department? If anything, that would be more damaging to trust in the electoral system than leaving the discussion unbridled.

Digital platform fact-checkers can be skittish and they tend to overreact, particularly when they have regulators peering down their necks and when political tensions are elevated. Mark Zuckerberg admitted as much in August, saying it had gone too far during the pandemic and the 2020 presidential election. But moments of high tension are when censorship does the most damage to trust in institutions and the political system. High tension is when we need free speech the most.

The inclusion of banking and financial market harm as regulated misinformation is bizarre. What’s the most generous interpretation of this provision? That Facebook might be able to stave off a bank run through judicious content deletion? There is no credible economic theory that says suppressing public discussion about the financial system makes it more resilient.

The inclusion of public health, too, is galling if we see it in the current political context. The Albanese government has declined to institute a full inquiry into the COVID-19 policy responses of state and federal governments. Something seems backwards here. We’re not getting a proper audit of what was true and what was not true during the pandemic, but we are getting laws that would prevent untruths from being shared?

The government has been incensed by misinformation since it lost the Voice referendum, convinced that its opponents were being misleading. But it is often a mistake to turn political arguments into concrete legislation. Imagine if the misinformation law had passed before the referendum. It would have been an absolute gift to the No campaign — what are they hiding from you? The Albanese government has not thought this through.

The fact that the misinformation bill excludes the mainstream press and government speech from misinformation is obviously self-interested. But more critically this legislation reveals the incoherence of the anti-misinformation crusade. By trying to be precise about what speech is out-of-bounds, the government is asserting an authority over information it does not, and could not, have. We will absolutely regret putting the government in charge of public debate about the government.

Dutton’s anti-immigration stance is a symptom of a deep failure in Australian public policy

Published in Crikey

It wasn’t long after it lost the 2022 election that we started to hear how the Coalition would be focusing its attacks on immigration.

Anti-immigration is a crutch, one that political parties use to avoid facing up to Australia’s actual economic problems. Ramping up the rhetoric against migrants is not honest and courageous. It is evasive and cowardly.

By far the most galling example of this is housing. Reducing house prices is what passes as the respectable centrepiece of the Coalition’s argument for reducing immigration. Opposition Leader Peter Dutton put it this way in his May budget reply: “By getting the migration policy settings right, the Coalition can free up more houses for Australians.”

Dutton’s description of the problem is revealing. And weird. We don’t need to free up more houses, as if the policy question is how to shuffle around a fixed stock of houses until they are allocated to their most virtuous occupants. We need to create more houses.

We cannot build enough homes to support our growing population because we wrap building up in an absurd mesh of regulatory burdens that slow construction and raise prices. In the middle of a growing population, our home-building approvals have been virtually flat. Australia had fewer new houses approved in July 2024 than it did in July 2014.

The guilty regulations aren’t federal regulations, sure, but that makes it worse. It means the Coalition is attacking migrants and international students because it lacks the courage to stand up to local governments and planning bureaucrats.

Of course many of these same charges have to be levied against the Albanese government: its caps on international students will do nothing to slow house price growth.

Dutton and his colleagues have also cited the burden of immigrants on infrastructure: roads, hospitals, public transport. Again, an alternative to cutting migration then could be to build more infrastructure to cope with a growing population, regardless of the origin of that growth.

But infrastructure development in Australia is very expensive and very slow. One cause of this is high construction labour costs that are not justified by high productivity. Another is the high regulatory burden imposed on projects — particularly environmental regulation. And the Reserve Bank’s struggle to get inflation on track is making the infrastructure cost problem worse.

However, the Coalition is still shellshocked from its efforts under John Howard to introduce industrial relations reform. It is bruised from the on-again, off-again Australian Building and Construction Commission saga, reintroduced every time there is a Coalition government and eliminated every time Labor returns.

It’s true Dutton has promised to reintroduce the ABCC if elected. On Wednesday this week he said he also wants to try — again — to reform section 487 of the Environment Protection and Biodiversity Conservation Act (which expands legal standing to activists so they can object to major projects) — a policy the Coalition had to give up in government because it couldn’t get it through the Senate.

But these policies aren’t going to boost infrastructure building in any serious way. We’ve tried the ABCC before, and section 487 is a convenient scapegoat for a much deeper problem. A 2013 Productivity Commission report found that development approvals for major projects were rife with “unnecessary complexity and duplicative processes”, “lengthy approval timeframes” and a “lack of regulatory certainty and transparency in decision making”. Reforming section 487 is tinkering. It is not the root-and-branch regulatory reform required to build the needed infrastructure at scale. That would be hard. Pointing at migrants is easy.

In truth, the level of migration we’re experiencing is not unexpected or surprising. We’re on roughly the same trajectory of increasing permanent and long-term arrivals that we have been since the 1990s. Remember that our migration numbers dropped to virtually zero in 2020 and 2021. You’d expect there was a lot of deferred migration as a result. But we are only back on the pre-pandemic trend.

And while permanent and long-term arrival numbers are larger than ever before, so is our economy. And so is the need in the economy for workers. The fact the Australian political class cannot get the settings right for economic growth — and so have to shunt the blame for their own failure onto migrants and students — is damning. Dutton’s anti-immigration stance is a symptom of a very deep failure in Australian public policy.