Tag: ABC The Drum

The Murray Inquiry Wants Regulation – But Why?

Financial sector inquiries have played a peculiarly central role in Australian history.

In 1937 the Royal Commission into Monetary and Banking Systems set the framework for what was to become Australia’s insular and credit-constrained post-war economy in the Menzies era.

The Campbell committee, which reported to the Fraser government in 1981, was an even bigger deal. It sparked the deregulation era that opened Australia’s economy to the world.

Yet it’s unlikely that historians will see Abbott Government’s Financial System Inquiry in these sorts of epoch-defining terms. The inquiry, chaired by former Commonwealth Bank chief David Murray, released its final report on the weekend.

Here’s why.

In 1979 Keith Campbell was asked to conduct his inquiry “in view of the importance of the efficiency of the financial system for the Government’s free enterprise objectives and broad goals for national economic prosperity.”

Campbell and his fellow committee members took those three words – “free enterprise objectives” – and ran hard with them. They presented a program of wholesale deregulation of the financial sector so ambitious it had to wait for the Hawke government to implement it almost in its entirety.

Joe Hockey didn’t offer David Murray anything as direct as that.

Rather, Murray had the rather anodyne command to offer recommendations for “an efficient, competitive and flexible financial system, consistent with financial stability, prudence, public confidence and capacity to meet the needs of users.”

Indeed, the philosophy of financial regulation was one of the things the terms of reference was asked to decide. (To “refresh the philosophy, principles and objectives underpinning the development of a well-functioning financial system”.)

So it’s hard to be shocked that the Murray inquiry has recommended big regulatory increases.

Indeed, David Murray told ABC’s 7:30 last night his inquiry represented a “paradigm shift” away from the regulatory philosophy of the Howard government’s more market-trusting Wallis inquiry.

Murray’s central recommendation is that banks should be required to hold more capital as a buffer against a future financial crisis.

The idea is that higher capital will lead to fewer bank failures and therefore less pressure on the government to bail out banks. (I wrote about the inevitability of government bank bailouts on The Drum when the Murray inquiry released its interim report.)

Murray says that at most this would only reduce Australia’s GDP by less than 0.1 per cent. Sounds piddly, right? But as regulatory imposts go, that would constitute one of the single largest new regulatory burdens in the last few decades.

Yes, larger capital buffers might reduce the whole privatise-the-profits, socialise-the-losses problem. But here’s the thing: Australia hasn’t had a proper bank crisis for 121 years. The last was in 1893. Neither the Great Depression nor the Global Financial Crisis saw any major bank failures in Australia.

Now, there’s nothing to say that we’re not on the brink of a catastrophic bank collapse. And all else being equal resilient banks are better banks.

But we shouldn’t delude ourselves into thinking that we understand why banking crises hurt so badly, nor the best regulatory restraints to place on banks to help them ride out those crises.

The very idea of “systemic” significance is a relatively new one.

At best, it’s a hypothesis based on observations about what seems to have happened during the Global Financial Crisis. At worst, it’s a collection of guesses about what could have happened if the American government hadn’t bought up toxic assets.

By calling for higher capital, the Murray inquiry is really just following the cues of the international Basel committee, which now drives financial regulation around the world.

Murray wants to make Australian banks “unquestionably strong” by ensuring they’re in the top 25 per cent of global banks when it comes to capital buffers. So Australia’s theory about what constitutes a safe bank is pegged to whatever other banks are doing.

This sort of cocktail napkin reasoning is a bit of a worry.

But that’s how it is. Governments regulate banks like they regulate everything else – according to a bunch of common assumptions, stylised factoids about the past, and half-remembered textbook theory.

As the economist and historian George Selgin wrote on the weekend, all these debates about banking rest on a collection of assumptions about how banks would act in a free market – assumptions almost never explicitly stated, let alone borne out by the historical record.

In the United States, massive, nation-wide banking failures during the Great Depression led to the establishment of a national deposit insurance scheme. The idea has been copied around the world, including in Australia.

But many scholars now blame deposit insurance for the fragility of the banking system. (See, for instance, here.)

One forgotten aspect of the Campbell committee was that while it recommended deregulation almost everywhere, it also recommended new controls to make banks more stable.

Yet as two scholars wrote at the time, the failure of the Campbell committee to back its call for more control with careful economic analysis was “disconcerting”.

One could say the exact same thing about the Murray inquiry.

Qantas: The Spirit Of Australian Nationalism

It’s hard to believe but – if what the Treasurer Joe Hockey said last week is accurate – the government is seriously weighing up the partial renationalisation of Qantas.

That’s one option, anyway. Qantas CEO Alan Joyce has been complaining that his competitor, Virgin, has an unfair regulatory advantage. Virgin does not suffer under the Qantas Sale Act, which limits access to foreign investment.

So renationalisation, and the taxpayer funds it would require, would prop up the airline against its competitor.

Another option, also being considered by the government, is more straightforward: amend theQantas Sale Act which is creating the problem in the first place.

An easy choice, you’d think. But apparently the Abbott Government can’t decide whether it prefers state socialism or free market capitalism.

How on earth did the government get into this extraordinary jumble? Tony Abbott said he hopes the airline stays strong as “Qantas is a great Australian icon”.

The Australian aviation market has been indelibly shaped by the same simple, superficial nationalism which constrained Australian industry throughout the twentieth century.

The government this week demonstrated we haven’t shaken that out-dated industrial ideology.

Why else would the Coalition – a party that claims to be for free markets and an open economy – even suggest that it was contemplating, for a single second, in a partial way, the nationalisation of a private company?

For most of the twentieth century, the airline industry was dominated by ‘flag carriers’. These were big airlines, owned or sponsored by national governments, servicing international routes. Think British Airways, Lufthansa, Malaysia Airlines, SwissAir, Singapore Airlines, Aeroflot.

Flag carriers served many purposes. They were supposed to be semi-official ambassadors for their home countries. An attractive national airline was supposed to impress the rest of the world. A nice, financially stable, globe-trotting airline was a sort of demonstration of national virility.

Qantas was one of these. It was nationalised in 1947 by Ben Chifley’s Labor government. Lots of countries set up their own flag carriers in the post-war era. It was the era of national champions and “scientific” industry policy. A bonus: a government airline could be easily mobilised in case of war.

Of course, along with this model came heavy levels of protection, little market competition, and extremely high prices. The flag carriers suited the purposes of politicians rather than consumers. The airlines flew uneconomic routes just for the prestige they offered.

When the market for air travel was deregulated, the old flag carriers were left holding the can. They were over-extended and uncompetitive. They were over-unionised and over-politicised.

No wonder low-cost no-frills airlines have ripped the market apart. They’re not bound to any national feeling – or to the political controls that come with such feelings.

When it was privatised, Qantas was saddled, unreasonably, with restrictions on how much capital it could raise from foreign sources. The Parliament just couldn’t bring itself to let the flag carrier fall into foreign hands. Qantas was too special. Australia needed to keep its flying symbol.

Most foreign investment restrictions are driven by a combination of xenophobia and paranoia. GrainCorp is just the latest victim of this anti-foreign bias translated into public policy. But theQantas Sale Act lacks even that boorish logic.

Our politicians are happy to privatise state-owned firms but unwilling to accept the lack of political control that privatisation implies.

And our politicians like holding onto Qantas. Patriotism is their profession. Trite orations on Australia’s national dignity are the bread and butter of politics. They don’t pay for their flights, anyway, and they get access to the Chairman’s Lounge.

On the weekend, Alan Joyce demanded the government revoke Virgin’s international flying licence. This is an obvious ambit claim. Cancelling Virgin’s licence is unimaginable. Joyce must know this. He doesn’t think the Qantas Sale Act will be changed, but he clearly thinks he can get something.

We’ll know Qantas is playing hardball when they start re-running the ‘still call Australia home’ ads. Samuel Johnson said patriotism is the last refuge of the scoundrel. For the crony capitalist, it’s the first.

Just a year after Ben Chifley nationalised Qantas he launched the first wholly Australian-made car, the Holden FX, helpfully subsidised by the Australian taxpayer. In the words of the National Museum, the Holden “was a vivid manifestation of Australian dreams of prosperity”.

We’re in a bind with our automotive industry because, like airlines, cars are also seen as a sign of national prestige. Real countries make cars and have planes that operate out of Heathrow.

But we’ve seen how fruitless a century of automotive protectionism has been. Australia has expended billions in tariffs and direct subsidies to prop up those firms, and they’re still on the brink of collapse.

Qantas’ privatisation was left uncompleted. The government can deal with the problems caused by partial privatisation in two ways.

It could abolish the absurd, nationalist and anachronistic restrictions on foreign investment in theQantas Sale Act – completing privatisation and increasing Qantas’ competitiveness. Or it could commit Qantas to the cycle of subsidy and decline that has entrapped our car industry.

It’s amazing the Coalition government even thinks that is a real choice.

Fixed Terms Made A Farce Of Victorian Politics

It’s true that on Saturday the Coalition government became the first one-term Victorian government in more than half a century.

But it’s also true that the Coalition was the first government to form under the new constitutional arrangements – the four-year fixed-term system.

The fixed term nurtured Ted Baillieu’s instinctive lethargy. It created an environment in which it was plausible to roll a premier two years into their first term. And it led to the constitutional crisis that prevented Denis Napthine from regaining any sense of movement.

The Victorian election has already been raked over for its federal implications. Denis Napthine tried to run an ‘ideology-free’ government. As my Institute of Public Affairs colleague James Paterson writes in The Age today, “the risk-averse, moderate, cautious approach to politics favoured by state Liberals is no guarantee of re-election”.

Institutions matter. All this happened under the shadow of the new fixed term.

In 2003, the Labor government under Steve Bracks introduced fixed terms as part of a broader suite of constitutional changes. The idea was to facilitate long-term thinking and allow governments to get on with governing.

The flip side is that long fixed terms reduce any sense of urgency.

Nobody expected Baillieu to win in 2010. When the Coalition got into office, there was no agenda ready to go, and no eagerness from the premier to push ahead. The ‘star chamber’ vetting process for ministerial staff meant that it was months before offices were even working at full capacity.

One line was the Coalition had “hit the ground walking”.

Of course, fixed terms aren’t unique to Victoria. They’ve done nothing to limit the popularity of the New South Wales Coalition Government.

But government is a marathon. It needs pacing. Faced with a new and unfamiliar electoral cycle, the Victorian Coalition got the pacing badly wrong.

The fixed term also played a role in the March 2013 leadership change from Ted Baillieu to Denis Napthine.

That spill was remarkable because it came so shortly after the spill of Kevin Rudd, which was being seen by almost all participants as an unmitigated disaster.

With that unhappy precedent, the spill in Victoria was only plausible because of the newly extenuated parliamentary terms.

Julia Gillard became prime minister on the cusp of an election. By contrast, Napthine had years to run as premier. A four-year term gives ample time to reset and rebuild a government.

Yet ultimately the Victorian Liberals made the same mistake as did Labor federally – a sudden change in government leader without explanation.

Which brings us to Geoff Shaw, the former Liberal member for Frankston. Napthine’s attempt to reset the government was hostage to the parliamentary soap opera played out between Shaw and another angry rogue Liberal, the former speaker Ken Smith.

The specific ins and outs of this debacle are known only to the participants.

Shaw and Smith created a serious constitutional problem. The Coalition only had a parliamentary majority of one, including Shaw. (Incidentally, that tiny margin was the defence Baillieu supporters offered for the early-term go-slow strategy.)

With the Parliament in such a precarious way, Napthine should have called an election. That’s the Westminster way. But under the fixed term he couldn’t.

The only way for an election to be held early was if Labor introduced a motion of no confidence in the government. (Antony Green outlines the procedure here.) At one stage Shaw was willing to support such a vote, giving it the majority needed.

Daniel Andrews didn’t want an early election. The worse the Parliament looked, the better it was for Labor when the election was held at its regularly scheduled time.

Instead, we were treated to an obscene and undemocratic debate about whether Parliament should expel or just suspend Shaw, a legitimately elected representative.

It looked terrible.

Every budding reformer has their own pet change they’d like to make to Australia’s political system. Perhaps they’d like elections to be run differently, or restructure the levels of government, or ‘get money out of politics’, or change the preferential voting system, or fiddle with upper houses.

Fixed terms were one of those reforms. Only a few months after it was introduced in Victoria, Steve Bracks was urging the Commonwealth to follow his state’s lead.

But it would be hard to see that fixed terms had delivered the sort of long-term thinking that its supporters prophesised.

Rather, it left Victoria with a sluggish government, encouraged a leadership spill, and turned a tight parliament into a farcical parliament.

There’s another sense in which the Coalition loss on the weekend isn’t that strange. The journalist Paul Austin pointed out in 2007 that a premier who lasted two terms would now expect to be in power for eight years (assuming they were not rolled in the meantime). While most Victorian governments have lasted longer than a single term, few lasted as long as eight years. Jeff Kennett only managed seven.

The fixed term isn’t the reason Denis Napthine lost. But it’s impossible to understand why they lost without understanding how it shaped the Coalition’s time in power.

The Abbott Government’s Chance For Real Reform

The word “deregulation” has been steadily degraded over the last two decades. Like the word reform, it is both overused and overly abstract.

Earlier this month Malcolm Turnbull’s Department of Communications released a discussion paper on the way the government manages the radiofrequency spectrum.

The paper has received little attention. That’s not a surprise. Spectrum governance is about as interesting and accessible as how the tax office calculates franking credits.

But what’s being proposed is rather radical and incredibly important – a move away from the Soviet-style command-and-control regulation of spectrum to market-orientated governance.

It is, in other words, the sort of deregulation that the government is going to have to pursue if it wants to be remembered as a reforming government.

Spectrum is one of the economy’s most valuable assets.

We need spectrum for everything from broadcast television to mobile internet access.

The services and technologies that rely on spectrum add billions to the Australian economy. One British estimate of the economic value add of spectrum in that country was AU$90 billion.

Yet for all its economic significance we regulate and control it in an incredibly retrograde way – through central planning and government allocation.

Think of spectrum a little bit like land. There’s a limited amount of it, but it can be divided up almost infinitely and used in different ways.

And of course, some ways are better value than others. We’re using spectrum more efficiently than we used to (the spectrum that once could only fit one broadcast television channel can now fit many) but we’re also demanding more of it as new technologies are adopted.

The Australian Communications and Media Authority (ACMA) dictates how spectrum is allocated – which parts are used by broadcasters, which are free for domestic uses like WiFi, which parts are for military or law enforcement use.

Nobody seriously suggests that ACMA allocates spectrum efficiently – that is, to its best use. And basic economics tells us that inefficient resource allocation is an unnecessary burden on the economy, on long term growth, and ultimately on our living standards. And it slows the spread of new technologies.

Indeed, it is the government’s tight control of spectrum which has kept the entire broadcast sector so farcically protectionist. This archaic system of spectrum allocation is why there is so much rent-seeking and crony capitalism in broadcasting.

The commercial television broadcasters have long lobbied against a fourth television network which would undercut their profitability. When broadcasting moved from analogue to digital, the government gave away masses of spectrum to the existing broadcasters – shirking this once-in-a-century opportunity to inject some competition into the sector.

If you’re unhappy with the quality of commercial television in this country, well, blame the government’s spectrum protectionism.
Likewise, centralised spectrum management gives the government a stick to control the free speech of broadcast media. All those hapless ACMA investigations into Alan Jones are based on a threat – however distant – that station broadcasting licenses might be revoked.

Turnbull’s discussion paper raises a number of proposals to simplify spectrum management.

But the most important is number 8, under the rather bland title “Facilitate greater user involvement in spectrum management”.

Under this proposal, ACMA would devolve spectrum management to users and private spectrum band managers.

Users and private firms would decide how spectrum was allocated, the rules under which it was used, figure out pricing mechanisms, and they’d adjudicate disputes. ACMA would be reduced to a spectrum watchdog.

Imagine band managers with a financial incentive to allocate spectrum to the highest value. This would be a big step towards treating spectrum like an economic asset like any other.

Eventually the vast bulk of ACMA’s regulatory apparatus should be replaced by a property rights based spectrum regime. In other words, the market would decide how spectrum is allocated.

The idea that the market could allocate spectrum better than government planners is an old one in the history of economic thought.

The economist Ronald Coase won his 1991 Nobel Prize for a program of work that begun with an examination of how the Federal Communications Commission in the United States prevented the efficient allocation of spectrum.

A paper commissioned and published by ACMA itself in 2007 acknowledged some benefits of granting property rights in spectrum – not least in reducing the inefficiencies caused by command-and-control allocation.

And we’ve been inching towards a property rights based spectrum regime over the last few decades.

The government has been allocating some spectrum licences through competitive auctions since the early 1990s. The Gillard government’s Convergence Review called for “a market-based pricing approach” for all spectrum, broadcast and non-broadcast. And the Communications Department is trying to figure out how to create deeper secondary markets in spectrum trading.

In other words, fully embracing the property rights model of spectrum management would be reform in the direction we are already travelling.

The Abbott government has trumpeted loudly its deregulation and red tape reduction agenda. But it’s likely that the real reforms will come outside those highly publicised “repeal days”.

Government spectrum management dates back to the Wireless Telegraphy Act 1905, when the Commonwealth decided it wanted absolute control over the new communications technology.

That makes spectrum control one of the oldest and most stubborn regulatory constructs in Australian history.

For more than a century it has been a burden on the economy, a handbrake on the adoption of new technologies, and a weapon for suppressing free speech.

Deregulating spectrum might be one of the most important things the Abbott government could do.

Abbott Deserves Only Praise For Embracing Free Trade

The economics of trade can be a little counter-intuitive.

This is no more so than for its central lesson, which is this: the benefits of tariff liberalisation primarily accrue to the countries that lower their own tariffs, not their trading partners.

Or, putting it another way, even if we lived in a world where every single country had high barriers to trade and refused to budge them, it would still be in our interest to lower our own.

So while the China-Australia free trade agreement (FTA) is a big deal, it’s not a big deal for the reasons most reports have suggested.

Take the provision in the FTA which phases out Chinese tariffs on Australian dairy for infant formula over a four-year period.

The Age is predicting that this formula market will be “enormously lucrative” for Australian businesses. The Australian Dairy Industry Council is chalking the agreement up as a win.

But the winners here are really Chinese consumers.

Access to quality infant formula is a serious problem in China. In 2008, there was aninternational scandal when it was discovered the largest budget infant formula firm had been adding industrial chemicals to fake protein content.

More than 50,000 children were reported to have become sick from the formula. Four died.

Now, understandably, Chinese parents don’t want to buy domestically produced formula. The demand for formula imports is so high that Hong Kong and Macau have placed limits on the amount of formula Chinese tourists can bring home with them.

So while it might be true that opening up the Chinese formula market will be lucrative for Australian firms, this seems to miss the point. The real winners are surely the Chinese people who have been genuinely suffering from their government’s dairy protectionism.

A lot of trade discussions are like this – focused on the benefits to firms and workers when it ought to look at how consumers fare.

Of course, most people are both workers and consumers, and are interested in both the supply and demand parts of the economic equation.

But as Adam Smith wrote, “Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.”

Hopefully we all love our jobs, but no doubt what we most love about our jobs is the fact that we get paid to do them, and that money is available to spend on the things we want or need.

So a few happy Australian dairy firms is nothing compared to the millions of Chinese families who will benefit from the FTA.

It is this producers’ bias that has led us to a world where the cause of free trade is being driven by two-party trade agreements.

For while it might be easy to demonstrate that – on an academic level – a country will be better off if it lowered its own trade barriers unilaterally, few politicians have the sort of political nous and conceptual clarity to present such a case to the public.

Governments have worked out that the politics of trade liberalisation is easier if it is done on a piecemeal and bilateral level – emphasising what it has managed to get other countries.

This isn’t necessarily a bad thing. Anything that makes beneficial change more politically palatable should be welcomed.

But the fact that trade liberalisation benefits the liberaliser first and foremost suggests that the economics of FTAs are very different from the way they are presented.

Have a look at the official Australian announcement of the deal. It is completely dominated by reforms China will have to make to allow market access to Australian firms. There is very little mention of what we have to do.

The deal involves Australia reducing tariffs on clothes, cars, components and electronics from China. We also will be relaxing our foreign investment guidelines. Tony Abbott said on Monday that some aspects of the deal would require legislation to be passed.

Politics being what it is, using self-interested producers eager to open up foreign markets to agitate for the reduction of protectionism at home isn’t a bad way to build a political coalition for change.

Earlier this year in The Drum, I argued that the bilateral trade negotiation process holds back the cause of domestic reform. It can perversely encourage countries to hold back unilateral changes as a bargaining chip.

But here’s the thing. The Abbott Government has been criticised for being too eager to sign these agreements. Bill Shorten says that Labor is pro-free trade but thinks the government is “more focused on booking a venue for the signing ceremony than examining the fine print or getting a better deal”.

Yet if we view FTAs as primarily a tool for shifting domestic policy, then what sort of deal are we holding out to get? Playing the tough negotiator would be counter-productive – harming ourselves by delaying our own reform program. It is in the interest of the Australian economy to conclude these agreements as quickly as practicable.

And that’s why it is in the realm of free trade agreements that the Coalition has been most clearly successful.

For all the Gillard government talked about the ‘Asian century’, it has been the Abbott Government that has given us free trade agreements with Korea, Japan, and China.

Big Government, Big Opportunity For Rent-Seekers

In the 2012-13 financial year, the Australian Labor Party received $55 million in donations. The Liberals received $73 million. The Greens and the Nationals attracted around $8 million each.

Name a large corporate in Australia and their name is almost certainly somewhere on the Australian Electoral Commission’s donations register. Lots of firms even donate to both sides. And of course the Labor Party has a healthy union donor base as well.

But that’s only a fraction of the total amount of money spent on trying to influence government. Federally, Australia has 590 registered individual lobbyists representing 1,708 corporate and non-profit clients.

Then there’s all the money firms spend lobbying with their in-house government affairs staff (who don’t show up on the lobbyists register).

Sounds like a lot? But consider this: the Abbott Government says it plans to reduce the regulatory burden by $1 billion every single year.

Never mind how accurate that figure is. $1 billion is an enormous amount. It makes the amount of money spent on lobbying and rent-seeking in Australia seem tiny by comparison.

Whole industries live and die on the regulations and taxation laws imposed upon them. A new regulation, or a tiny alteration of an existing one, might destroy an enterprise or create a monopoly.

So the real question is, why isn’t there more lobbying? Why don’t firms spend much more money trying to influence the political process than they do?

This is called the Tullock Paradox, named after Gordon Tullock, the great American political economist who died last week at the age of 92.

The puzzle is even deeper because we have lots of evidence that suggests the return on investment from lobbying is enormous.

One American lobby group brags that for the $11 million it charged its clients in fees, it has delivered $1.2 billion in regulatory advantage. An academic study found that $1 of lobbying resulted in $220 in benefits – an incredible 22,000 per cent return on investment.

There are a few possible ways to resolve the Tullock paradox.

Tullock titled the 1972 article where he outlined this paradox “The Purchase of Politicians”. But perhaps politicians aren’t available for purchase, and the examples we have of large returns for small amounts of money lobbying are, in truth, just coincidences – the government was likely to make that decision anyway.

Alternatively, perhaps the returns to rent-seeking are so unpredictable that firms see it as a gamble. If so, then the big lobbying windfalls are extreme outliers. Most experiences with lobbying aren’t as incredibly successful.

Or businesses might not be aware of the opportunities that lobbying presents – they might be irrationally avoiding easy opportunities for profit, or wrongly believe it’s not worth their time to learn their way around the complicated world of rent-seeking.

Perhaps corporate donations are given with no expectation of benefit. Individuals donate to political parties as a form of expression. Maybe corporations do as well. Perhaps, by donating, or even by lobbying, they seek to signal to regulators and consumers than they’re in the tent, rather than outside it. They’re cooperating.

Or perhaps corporate executives just enjoy the access to celebrity politicians that being a big donor can assure. We shouldn’t assume that executives, who decide whether to donate and how much, are always acting in the best interest of their shareholders.

Anyway, lots of possibilities. Some are more plausible than others.

But the Tullock paradox isn’t just a little intellectual conundrum, and it isn’t just about clarifying how much money is spent on politics.

Rather, it’s a window into one of the central dilemmas of government – how can we ensure that government works in the interest of the people who elect it?

Gordon Tullock is most famous for inventing the economic concept of rent-seeking, where private interests influence the government to deliver private benefits. (He didn’t invent the name. That was Anne Krueger.)

The lesson from the vast literature on rent-seeking that has sprung up since is simple: where there is political power, special interests will try to capture that power.

It’s easy to think of ideas for new laws or regulations or government programs that might, on paper, make us better off.

But these laws, regulations and programs won’t be introduced by benevolent and omnipotent dictators. They’ll be introduced by politicians and bureaucrats – plain old humans, swimming in a pool of competing interests.

The more a government does, the more opportunities are presented for rent-seeking. Rent-seekers thrive in the minutiae of policy detail. Corporations know much more about how regulations affect their business interests than regulators or politicians do. It’s not hard for lobbyists to take advantage of that knowledge gap.

Resolving the rent-seeking problem isn’t as easy as banning or restricting donations, putting barriers in front of lobbying firms, or any of those other solutions we regularly hear.

The Tullock paradox emphasises how enormous the gains from rent-seeking are.

With such great windfalls available, money is going to flow into the system no matter how we try to prevent it.

The Jig Is Up On Data Retention Plans

Last week was the second time the Government announced its mandatory data retention policy, and the second time it gave the game away while doing so.

Data retention keeps spinning out of the Government’s control.

First, in August, Tony Abbott admitted in a television interview that requiring internet service providers to retain data on their customers’ activity was not just about anti-terrorism and national security but could be used to fight “general crime”.

This time the mistake was made not by politicians but by the Australian Federal Police commissioner Andrew Colvin.

Asked whether data retention could be used to police copyright infringement, Colvin responded:

Absolutely, I mean any interface, any connection somebody has over the internet, we need to be able to identify the parties to that connection … So illegal downloads, piracy … cyber-crimes, cyber-security, all these matters and our ability to investigate them is absolutely pinned to our ability to retrieve and use metadata.

Over the next few days George Brandis, Malcolm Turnbull and Colvin tried to roll this back. Copyright is a civil wrong, not a criminal one, they said. Copyright holders are responsible for bringing legal action against pirates. The AFP isn’t interested in civil cases. (This is only partly true. Commercial scale copyright infringement is a criminal offence.)

But here’s why Colvin’s misstep matters.

Mandatory data retention would create massive new databases of internet users’ activity in every internet service provider across the country.

A lot of opponents of data retention have pointed out that this creates a very real risk of unauthorised access. It’s hard to keep data secure.

Yet just as concerning is authorised access. Once these databases have been created they will be one subpoena away from access in any and every private lawsuit.

Many people have some residual faith that police and security services are benevolent. After all, their mission is absolutely essential – to protect us. But do Australians have the same faith in movie studios? Their neighbours? Their employers?

After all, it’s been undeniable that data retention could help copyright infringement cases ever since the Government included “download volumes” in the list of data it wanted ISPs to retain.

But this is just getting started. Think about how useful mandatory data retention might be in other civil cases.

It would be easy to trace where somebody has been based on the source IP addresses of their mobile phone, as the phone moves from cell tower to cell tower, connecting and reconnecting to the network and internet every time.

In other words, under mandatory data retention ISPs will have to keep records of your movements for two years.

Imagine how this sort of information might be used, for instance, in a workplace relations lawsuit.

Likewise, online defamation cases will be strengthened by records that match IP address to account holder. Do you sometimes comment anonymously on blogs and news websites? Under data retention lawyers could track down who you are months after the fact.

We could go on.

Remember the Government wants this data stored solely for the purpose of future law enforcement investigations. It would be deleted otherwise. It has no business purpose.

Yet not everything about the policy the Government announced last week is terrible.

It was long assumed that data retention would be shoehorned into the existing telecommunications access regime – the regime that allows agencies and authorities from ASIO to the RSPCA to access your phone records without needing a warrant.

Instead, the Government has decided to change that regime.

The proposed bill limits warrantless access to the both the existing set of data, and any future data retained under the new policy, to “criminal law enforcement agencies”. Those agencies are the AFP, Customs, state police, and the state anti-corruption commissions. (You can see the list in the explanatory memorandum here, paragraph 197.)

The upshot is that the RSPCA will no longer have warrantless access to phone records. Nor will the Australian Competition and Consumer Commission, the Australian Securities and Investment Commission, or any of the dozens of bodies that have enjoyed such access for years.

They, like movie studios and your neighbours, would have to ask a judge for permission.

I’d guess there was a fair bit of jaw-dropping in bureaucracies across the country when Brandis and Turnbull announced that new rule.

Now, the legislation allows the Government to authorise more agencies at will, so the list could easily expand.

Still it is a striking admission that there has been too much access to too much data by too many bureaucrats for too long.

And that’s why the new limits on agency access to telecommunications data doesn’t compensate for the threat to civil liberties that is mandatory data retention. Fewer agencies, sure, but with access to a much more complete record of our lives.

One of the clichés of the internet era is that “information wants to be free”. But information doesn’t want anything, of course. People want information.

Data retention will create vast archives of data about what we have done and where we have been. People will definitely want that.

No Wonder MPs Are Confused About Security Laws

I have a fair amount of sympathy for Anthony Albanese.

Sure, his intervention in the national security debate came nearly a fortnight late.

When Albanese told Sky News he was concerned about section 35P of the National Security Legislation Amendment Bill (No.1) 2014, it had been 11 days since he and his party voted that restriction on free speech into law.

But this is exactly why the bill was rushed through in the first place. To prevent opposition to the measures from coalescing. To prevent analysts and those affected by the provisions from delving into the detail. To prevent information about the bill’s practical consequences from spreading until it was too late.

In The Drum earlier this month Michael Bradley showed how little senior politicians on both sides understood of the national security legislation they voted for.

But let’s not be too harsh. Academics with expertise in national security legislation have told me that even for people who live and breathe this stuff, the legislation was incredibly opaque and the significance of some of the big concepts within it entirely unclear.

If this sort of law is hard for the experts, imagine how hard it is for the politicians who have to vote on it.

As of Tuesday morning there are 130 separate bills being considered in federal parliament. Just reading them all is an incredible amount of work.

Some bills are brief, just a couple of pages. Others are like a short book. The Building and Construction Industry (Improving Productivity) Bill, which re-establishes the Australian Building and Construction Commissioner, runs to 21,000 words. It isn’t the longest.

The bills under consideration total 594,032 words. At an average reading speed (say 200 words per minute) it would take 49 hours just to read all that legislation.

Add the explanatory memoranda for the bills (the essential first step if we’re interested not just in reading but understanding) and their 1,271,218 words would constitute another 106 hours of reading.

If somebody made that their full time job (8 hours a day, 5 days a week) that’s four weeks – the better part of a month – of dedicated reading.

But reading legislation isn’t enough to understand policy. It isn’t really possible to comprehend, for instance, the latest national security proposals without having read the reports of the Independent National Security Legislation Monitor. The INSLM’s 2014 report, which goes into detail about the legislative framework governing foreign fighters, is another 6 hours or so of reading.

So Australia’s politicians have a mammoth amount of reading and learning if they want to become even minimally informed about what they’re voting about.

No surprise that they are not minimally informed.

In the system of direct democracy in Ancient Athens, citizens would personally vote on each public policy measure themselves.

But direct democracy is incredibly time consuming. Most people have to work for a living. We can’t all sit around all day considering legislation. So instead we elect representatives to act on our behalf. They do it so we don’t have to.

Yet nobody who has been involved in any public policy debate can avoid noticing the incredible ignorance that legislators often have of their own proposals, or of the misinformation they accidentally peddle.

Sure, some misinformation is intentionally peddled. But most of it is accidental, and most of it comes from this extraordinary information overload.

Your average backbencher spends their life dashing from one meeting to the next branch meeting to the next community fete. They don’t have the time to get across all the material. That’s no excuse of course. But that’s just how it is.

As a result, so much of our public policy debate falls back on a feeling about whether one ought to support the purpose of a bill, rather than the specifics of the proposals.

Politics isn’t really about policy, after all – it’s about signalling to voters what your values are.

Do you support greater national security powers, in general? Then vote for the National Security Legislation Amendment Bill (No.1) 2014. The detail is just detail.

But that detail included a new and dangerous restriction on free speech, as Labor slowly realised after they waved the bill through.

One proposal in the United States is the Read the Bills Act, which, among other things, would require legislators to sign an affidavit that they’ve actually read the bills they vote for. (You can read about it, and read the bill itself, here.)

The Read the Bills Act would also require amending legislation to quote the words it intends to replace. The idea is to make legislation not just available, but comprehensible.

This matters because laws are imposed on everybody but only a narrow group of dedicated lawyers and analysts are able to decode them.

Legal complexity and parliament’s heavy workload empowers the bureaucracy and the government at the expense of legislature. This isn’t good for responsible democracy.

Last week the Liberal Democrat Senator David Leyonhjelm released a tongue-in-cheek quiz -How well do you know the Foreign Fighters Bill?

That quiz was addressed to journalists. It could have just as easily been addressed to his fellow politicians.

The WHO Has Failed The Ebola Disaster

What is the point of elaborate and expensive international bureaucracies if they are unable to deal with cross-border crises?

The United Nations’ World Health Organization (WHO) has completely botched the Ebola disaster sweeping West Africa.

That’s not my assessment, but the assessment of the WHO itself.

Ebola has now killed more than 4500 people, mostly in Liberia, Guinea, and Sierra Leone. It’s the largest outbreak of the virus in history.

Over the weekend the Associated Press published details of an internal WHO report outlining the organisation’s mistakes, information failures, staff incompetence, and governance problems tackling the crisis.

“Nearly everyone involved in the outbreak response failed to see some fairly plain writing on the wall,” the document apparently says.

The report isn’t public – it’s a draft – and WHO doesn’t want to talk about it until it has been “fact-checked”. But WHO’s failures have been publically and tragically evident long before now.

Months before WHO declared Ebola a global health emergency in August, aid agencies in West Africa were saying the disease was out of control.

In March, Médecins Sans Frontières was talking about “an unprecedented epidemic regarding the distribution of cases” in Guinea. WHO spokespeople actively rejected that characterisation.

Even as late as July 30 WHO leadership said it was “pessimistic” to suggest that the Ebola outbreak was an international health emergency, as this Washington Post article reports.

It wasn’t until August 8 that WHO finally relented and announced that the Ebola outbreak was “an extraordinary event” demanding an extraordinary response.

This is exactly the sort of crisis WHO was created to prevent. But it delayed, denied, and obfuscated for months.

WHO was formed at the end of WWII, but its roots stretch back to the mid-19th century.

It’s hard to think of a better candidate for international collaboration than infectious disease. Outbreaks of cholera in Western Europe in 1832 and 1849 led to the first international efforts on health. The reasoning was simple. Cholera, and other diseases like the plague and yellow fever, paid no heed to national borders. Controlling them would require cooperation.

This policy need remains. The Ebola crisis demands an international solution. Individual countries need assistance. Liberia is one of the poorest countries in the world. Ebola is one of the hardest diseases to manage. And cooperation is needed to prevent it from spreading. Ebola’s long incubation period – up to 21 days – means it can travel far from the place of infection.

So this is exactly the sort of crisis where international organisations should be proactive.

But WHO is directed by the World Health Assembly – an assembly of the health ministers and delegations of its 194 member states.

And that assembly is more interested in nanny state paternalism and sociology-masquerading-as-medicine than infectious disease.

The May meeting of the assembly opened with a speech by the Director General that WHO would “end childhood obesity” and focus on the health consequences of climate change and inequality.

The assembly spent its time talking about non-communicable diseases (cancer, diabetes and so forth), nutrition, and gender-based violence.

As the Ebola crisis has been developing WHO leadership has been hard at work hosting an anti-tobacco conference and pushing for increased cigarette taxes.

You may think these are all important topics. Yet they’re far away from what international health cooperation ought to be best at: the management of cross-border pandemics.

Non-communicable diseases demand national solutions. Pandemics demand international solutions. Resources are scarce, and WHO increasingly spends them on the former rather than the latter.

Nor is WHO’s distance from its core mission justified by any reputation for bureaucratic excellence.

The organisation has been criticised for decades for being heavy politicised, for its cronyism, for its excessive bureaucracy, and for its unwieldy structure. (So it’s a pretty typical United Nations body in that sense.)

One former WHO assistant director general wrote after the 2010 Haiti cholera outbreak that WHO was dysfunctional and coming “closer and closer to irrelevancy”. Global health academics write about WHO’s “crisis of leadership”.

Recent funding problems caused by the global financial crisis have led it to focus even more on non-communicable diseases. As for pandemics, WHO’s plan has been to promulgate health regulations and let individual countries sort themselves out. But this isn’t much help for poor countries like Liberia.

Now, as the New York Times reports, the entire pandemic and epidemic scientific team at WHO has just 52 permanent employees. Until this year it had just one Ebola expert.

WHO can complain about budget troubles all it likes but in a $4 billion organisation this is pathetic.

Thank God for civil society organisations like Médecins Sans Frontières.

Perhaps nothing WHO could have done would have prevented the crisis taking the course it has so far. Tackling infectious disease is hardest where institutions and infrastructure are worst, as they are in Liberia.

But that’s a hypothetical. The fact is, by its own assessment, WHO failed badly.

The Ebola crisis has exposed a dangerous weakness in the international security framework – a weakness caused by caused by bureaucratic incompetence and a deliberate decision to emphasise non-communicable diseases.

National Curriculum: Written, But Not Designed

Does the national curriculum even exist?

Much press coverage of the Abbott Government’s review of the national curriculum has focused on the “culture wars” bits.

The report, written by Kevin Donnelly and Kenneth Wiltshire, identifies a stark absence of Australia’s Judeo-Christian and Western Civilisation heritage in the curriculum.

But the most important findings concern the national curriculum as a piece of public policy.

For the most part Donnelly and Wiltshire support a national curriculum. But they write, almost casually, that, “If the definition of a national curriculum includes that it must be implemented comprehensively, with certainty, and consistently, then Australia does not currently have a national school curriculum”.

There is widespread confusion about how tightly teaching should cohere to the curriculum. Is the national curriculum a strict syllabus, or a “guideline”, or just “a bit of a framework”? Is it compulsory or optional? How much can the curriculum be adapted to suit teachers and student bodies?

And, most importantly, who decides?

While in theory adopting the curriculum is a requirement for states and sectors to receive national school funding, in practice there’s no way to ensure compliance.

While Donnelly and Wiltshire conclude that most stakeholders like, or have come to accept, the idea of a national curriculum in the abstract, they also find that this acceptance is based on the curriculum’s vagaries. The national curriculum is in the eye of the beholder.

For all the hundreds of pages of text that has been produced by the Australian Curriculum, Assessment and Reporting Authority (ACARA), in practice the curriculum is a surprisingly blank slate onto which various education players can impose their own ideas about what ought to be taught and how. It’s “all things to all people”.

That is, the national curriculum is not really a national curriculum at all.

I argued on The Drum in January that the national curriculum ought to be abolished. But what we have now is the worst of both worlds – a curriculum whose implementation is deeply uncertain and confused.

The national curriculum is a classic case study of how political imperatives churn out undercooked and poorly thought out policy programs – even when the process is handed over to a cadre of experts.

In 2008 Commonwealth education minister Julia Gillard managed to get all Australian education ministers to agree to the “Melbourne Declaration” – a statement of intent about the way forward for the national curriculum. You can read it here.

The development of the curriculum itself was then handed over to ACARA, and ACARA got to work writing up the subjects.

But the Melbourne Declaration was a statement of broad principles whose big takeout was an overall agreement to develop a national curriculum in the first place.

The Melbourne Declaration was not an investigation into the philosophy that a national curriculum should adopt. It was not a discussion about the educational foundation of the new curriculum. It was not an argument for a national curriculum – it was just instructions to get one written and introduced.

Donnelly and Wiltshire call this the “missing step” problem. There was a lot of discussion and consultation about what should go into each individual subject. But at no time was there a detailed, rigorous investigation of what we actually wanted out of the curriculum overall, what values should underpin it (beyond motherhood statements like the “curriculum will include a strong focus on literacy and numeracy skills”) and how students’ time should be divided and balanced.

Hence the overcrowded subjects. ACARA dumped more and more material in the curriculum to appease various education lobbies, untethered by any ideas of what the curriculum, as a whole, should look like.

In other words, the national curriculum was written, but never designed.

The worst example of the missing step problem is also the most controversial part of the curriculum – the so-called “cross curriculum priorities”. In the words of ACARA, Aboriginal and Torres Strait Islander histories and cultures, Asia and Australia’s engagement with Asia, and sustainability are “embedded in all learning areas”.

These priorities have always been Exhibit A in the case that the curriculum is deeply infused with ideological bias – one might that ideology has been embedded in all learning areas.

But why are the priorities there at all?

Donnelly and Wiltshire find that “not a lot of thought has been given to the actual concept of cross-curriculum priorities” – they seem to have been conceived by education ministers and shoehorned into the process. It appears we’re the only country that has such a thing. “No attempt seems to have been made … to conceptualise the cross-curriculum priorities in educational terms.”

In her just published memoirs Julia Gillard says she was “adamant” that experts, not politicians, needed to design the curriculum: “There was absolutely no political interference in the content.”

But that just isn’t true. It was education ministers – professional politicians – that came up with the cross-curriculum priorities, not experts. And the much-praised experts didn’t second-guess their orders.

So much for a non-political national curriculum.

Education Minister Christopher Pyne has said the Abbott Government will take on board the findings of the Donnelly-Wiltshire review, reduce overcrowding, and bring the curriculum “back to basics”.

Funnily enough that’s exactly what Gillard said when she became education minister in 2007 and kicked off this national curriculum project in the first place.

An enormous amount of political capital has been vested in the national curriculum process. For decades educationalists have treated the national curriculum as the great unpursued reform, akin to floating the dollar and lowering tariffs, and essential for our “maturing” as a nation.

That, when given the opportunity, they stuffed it up so comprehensively is a major indictment on Australia’s education establishment.