Letter to the Editor of the Australian
In its penultimate paragraph your article “Up to their eyes in it but entitlement denied”-The Australian 17 October; reads”....nature has remained the true determinant of the health of the Murray Darling”. This is a profoundly accurate truism. The failure of our scientists and water bureaucrats to recognise this, is at the heart of the totally flawed Murray Darling Basin Plan.
In the depths of the Millennium Drought we mistakenly blamed the natural impact of low river flows on “mismanagement and over allocations”. We then developed highly impractical mechanisms to remedy the situation at great cost to production and socio-economic health.
Recent flooding has dramatically demonstrated the highly variable nature of our river flows and the limited power of man to intervene. The Plan should be rescinded and practical knowledgeable people involved in its re-writing.
David Boyd
17.10.16
17 October, 2016
16 September, 2016
More Homework
Nearing 80
I have always believed that age is a state of mind. It is sobering to recall that in my youth I viewed people of my age as ancient.Last Sunday I heard a preacher say that those of my age will be 100 in 2041.That sounds a long way off and I’m not sure I will want to be there!
In 1963 I bought a life assurance policy which required a noting of my retirement year of 2006. This induced spontaneous laughter, it seemed such a distant date.
Monitoring fashionable words and expressions has been a lifetime hobby. I once attended an in-house company conference at which the senior executives spoke. As I noted the most used words, it became apparent they all used the same terms. This is much the same in the wider community. How much is true knowledge and how much pretence?
Think about today’s fashionable words-”sustainable”, “political correctness”, ”digital disruption”, “transition” ”identity politics”, ”innovation”, “data”, ”google”. I wonder what the buzz words will be 2041? Will we be using battery powered driverless cars, centrally owned? What will we do with all the space freed up by the need for many fewer individually owned vehicles? Or does that not follow?
Finding new ways of doing things and predicting the unintended consequences, can be tremendously exciting and those who forecast and position themselves correctly, can gain great economic benefits. I am mindful of the African message -”Every morning in Africa, a Gazelle wakes up. It knows it must run faster than the fastest lion or it will be killed. Every morning a Lion wakes up. It knows it must outrun the slowest Gazelle or it will starve to death. So it doesn't matter whether you are a Lion or a Gazelle... when the sun comes up, you'd better be running.”
But, the mind may or may not be willing, and the body will almost certainly be weak!
David Boyd
07.09.16
More Homework For My Writing Course
There Should Have Been …..
I took a week off work and headed bush. I wanted to show my English soldier cousin Michael, on his first visit to Australia, the real thing. He was looking for a cup of coffee before we were over the Blue Mountains! This could be a long trip. The season was good and the country looked great, but I don’t think the Lieutenant Colonel had much appreciation.
We were headed for Walgett-a long drive. We made small talk. I was conscious of my early lessons in stock and station agency-if you had a difficult client take him for a drive to a sheep or cattle sale and get to know him. Years later I added to my collection of maxims; “I don’t like that man, I must get to know him”. We were to stay a night at our mutual cousin’s Walgett station homestead on the banks of the Barwon. We were greeted warmly enough and eventually invited in. Michael seemed uncomfortable and next morning was anxious to get moving.
We were asked to give a neighbour a lift to Tamworth as we headed for the high country at Walcha. The neighbour was a garrulous, extrovert “bushie”, with none of my inhibitions, who had clearly decided that he was going to find out how this “pommy bugger” ticked.
What evolved was quite the most entertaining, interesting drive I have ever experienced. With sustained questioning from our passenger, the Colonel regaled us with a fascinating account of his war-time experiences. His exploits in North Africa, (for which I subsequently discovered he earned an M.C), his presence at the signing of both the German surrender in Europe and the Japanese surrender, his role in the capture of the German SS Commander General Himmler and the discovery and liberation of the horrific Belsen concentration camp.
There should have been a recording.
David Boyd
14.09.16
31 August, 2016
My Feet
My Feet
What an extraordinary topic for our writing teacher to set for homework. My unimaginative mind goes immediately to the literal-ingrown toenails, dry heels, unattractive, functional. But, perhaps it is intended to provoke the mind towards a metaphor?
Our set reading directs us to George Orwell’s views on motives for writing.Orwell suggests sheer egoism, I have plenty of that. Aesthetic enthusiasm, is always present. Historical impulse, certainly.Political impulse, for sure.
Why do I write my blog, venture occasionally into Facebook and sometimes Tweet? Because I like writing and getting my passions expressed and public. Getting it ‘off the chest’. I am attracted by Australian born UK based psychologist Dorothy Rowe’s thesis, that our psychological make up depends on “how we see the world and how we see our place in that world”.
At heart I am an emotionally driven optimist. We live in a wonderful country in extraordinary technological times. None of this is our doing, we were just lucky to be born where we were and when. (Even with writing, technology impacts. The ease of corrections and rewrites should result in ever better expression and presentation.)
Notwithstanding, (I love that word) all of the world’s horrific trouble spots, we need to remember how free markets and free enterprise has lifted millions out of poverty and disease and the process continues. With that progress comes the ability to correct our environmental misdemeanours and stem population growth. On the other hand,it’s a great pity that we have not learnt to live more peacefully with each other.
If we are to encourage this ongoing social progress and the search for peace, we need to spell out the principles involved (as we see them), as we attempt to influence public opinion by good writing.
We need to make our footprint.
David Boyd
29.08.16
28 August, 2016
Dairy Crisis
I have followed the dairy industry crisis with horror and sympathy for the farmer's who are being asked to refund monies they have been paid, because the processors got it wrong and apparently their contracts allow the processors to recover retrospectively. In other words the farmers carry the price risks for the processors.
One can understand how such a situation arose, given the fact that the processors were (mostly) originally farmer owned co-operatives. I have long been sceptical of the co-operative model where it has so often seemed that there is conflict between how farmer shareholders should be rewarded-by way of dividends or through the commodity price. I have long been attracted to farm gate competition. I also had experience in chairing a flood relief fund for the cotton industry where a major seed supplier was prepared to make a relieving gesture to cotton growers by way of a payment to a representative grower body rather than direct to cotton growers. With the co-operation of growers we developed a formula to distribute the funds, this proved highly successful in rewarding those most affected by floods without criticism from those who missed out.
I developed an idea that as farmers seem to have the sympathy of consumers and the processors and retailers (supermarkets) are seen as villains, there may be a way by which all parties can benefit in public relations terms and economic terms. Furthermore, it would not require any Government involvement. I put the proposal to a number of parties all of whom responded with a significant lack of enthusiasm! The most recent (17th August) advocacy was to Barnaby Joyce the Federal Minister for Agriculture and Water, in the following terms-
One can understand how such a situation arose, given the fact that the processors were (mostly) originally farmer owned co-operatives. I have long been sceptical of the co-operative model where it has so often seemed that there is conflict between how farmer shareholders should be rewarded-by way of dividends or through the commodity price. I have long been attracted to farm gate competition. I also had experience in chairing a flood relief fund for the cotton industry where a major seed supplier was prepared to make a relieving gesture to cotton growers by way of a payment to a representative grower body rather than direct to cotton growers. With the co-operation of growers we developed a formula to distribute the funds, this proved highly successful in rewarding those most affected by floods without criticism from those who missed out.
I developed an idea that as farmers seem to have the sympathy of consumers and the processors and retailers (supermarkets) are seen as villains, there may be a way by which all parties can benefit in public relations terms and economic terms. Furthermore, it would not require any Government involvement. I put the proposal to a number of parties all of whom responded with a significant lack of enthusiasm! The most recent (17th August) advocacy was to Barnaby Joyce the Federal Minister for Agriculture and Water, in the following terms-
Dear Barnaby,
The Four Corners programme on Monday night for once got it pretty right. I wrote the following back in May. I still believe that something along these lines could be done. It would cost the Government nothing. With the supermarkets and processors under so much pressure I believe they would be responsive.
"Dairy Crisis
I have followed the Murray Goulburn/ Fonterra milk issue closely. How extraordinary that the processors would actually pay farmers a price more than they were recovering, with a price volatile commodity and have the ability to recover from the farmers. The processors have effectively left the full price risk with the farmers.
I acknowledge the significance of the dominant exports. However, I do believe that there is an opportunity for the much criticised Australian supermarkets and the milk processors, to win some really valuable goodwill by offering a brand with a 25c per litre (50c per 2 litre bottle) loading, widely publicised. The loading would be directly payable on some clever formula basis, to dairy farmers. Some years ago a similar thing was done following a flood in the cotton industry with the bulk payments made to a farmer representative industry body who distributed in full to those most impacted, on an agreed formula.
The scheme would be entirely voluntary, with no Government involvement. It is no fault of most farmers, other than the Co-op Directors, that they have been caught in this squeeze. As I assess it, they currently have the sympathy of Australian consumers. But they need to act quickly whilst the issue is topical.
Branded milk products are selling strongly, clearly demonstrating the sympathy factor. The purchase of branded milk helps, but it seems to me that more could be done. "
For what it's worth I pass it on.
I acknowledge the significance of the dominant exports. However, I do believe that there is an opportunity for the much criticised Australian supermarkets and the milk processors, to win some really valuable goodwill by offering a brand with a 25c per litre (50c per 2 litre bottle) loading, widely publicised. The loading would be directly payable on some clever formula basis, to dairy farmers. Some years ago a similar thing was done following a flood in the cotton industry with the bulk payments made to a farmer representative industry body who distributed in full to those most impacted, on an agreed formula.
The scheme would be entirely voluntary, with no Government involvement. It is no fault of most farmers, other than the Co-op Directors, that they have been caught in this squeeze. As I assess it, they currently have the sympathy of Australian consumers. But they need to act quickly whilst the issue is topical.
Branded milk products are selling strongly, clearly demonstrating the sympathy factor. The purchase of branded milk helps, but it seems to me that more could be done. "
For what it's worth I pass it on.
Regards,
David
The email did not elicit a reply, however I read in The Weekend Australian yesterday that Coles are now to introduce just such a scheme. If this proves to be correct, and it proves successful, then Woolworths and IPA would surely follow.
I seek no attribution, but would be delighted if such assistance is well supported by consumers. I only see it as a short term palliative and longer term, farmers need to have stronger competitive contracts with processors with the co-operative relationship ethos consigned to the dustbin.
23 August, 2016
Global Warming and Energy
Last Monday fortnight Gail and I were in the audience for QandA at the ABC's Ultimo studios. The panel included U.K. scientist Brian Cox, Federal Minister for Science Greg Hunt, and newly elected One Nation-Senator Malcolm Roberts. Cox is a former rock band player and could fairly be described as a "showy" celebrity scientist. Roberts sees Global Warming/Climate Change as a fraudulent fad unsupported by empirical facts and with no clear "cause and effect" supporting case. I am inclined to agree with him.
Cox came prepared with a graph which purported to show ever increasing levels of atmospheric carbon dioxide (no argument there) with a strong correlation to increasing warming. At one stage he threw this graph and other documents across the table at Roberts, who in spite of pressure including ridicule, bravely 'stuck to his guns'.
I am delighted to discover a thorough analysis of Cox's graph which shows it to be an outdated widely discredited document-see here.
I submitted a question"Does the Panel believe that Australia is right in pursuing a high cost energy policy?"
Not surprisingly it was not chosen for submission.
Last night we attended a presentation at the Sydney Institute by Finance Minister Mathias Cormann. He was his usual professional self and he made good consistent points on the Coalition's "jobs and growth" theme. Afterwards I raised with him the apparent contradiction between 'jobs and growth' and high energy costs, the direct consequence of pursuing the Government's Renewable Energy Target, putting Australia's businesses at a competitive disadvantage. His only response was "that is our policy". I suggested to him that as Finance Minister he should be very concerned with having a high energy cost policy with very dubious environmental benefits.
I was surprised that the matter was not otherwise raised, as I believe that with ever increasing mechanisation, energy costs will become an even bigger competitive element than labour costs. The US is demonstrating this already.
Cox came prepared with a graph which purported to show ever increasing levels of atmospheric carbon dioxide (no argument there) with a strong correlation to increasing warming. At one stage he threw this graph and other documents across the table at Roberts, who in spite of pressure including ridicule, bravely 'stuck to his guns'.
I am delighted to discover a thorough analysis of Cox's graph which shows it to be an outdated widely discredited document-see here.
I submitted a question"Does the Panel believe that Australia is right in pursuing a high cost energy policy?"
Not surprisingly it was not chosen for submission.
Last night we attended a presentation at the Sydney Institute by Finance Minister Mathias Cormann. He was his usual professional self and he made good consistent points on the Coalition's "jobs and growth" theme. Afterwards I raised with him the apparent contradiction between 'jobs and growth' and high energy costs, the direct consequence of pursuing the Government's Renewable Energy Target, putting Australia's businesses at a competitive disadvantage. His only response was "that is our policy". I suggested to him that as Finance Minister he should be very concerned with having a high energy cost policy with very dubious environmental benefits.
I was surprised that the matter was not otherwise raised, as I believe that with ever increasing mechanisation, energy costs will become an even bigger competitive element than labour costs. The US is demonstrating this already.
22 August, 2016
Renewable Energy Targets (RET)Disaster
Thank God for sensible organisations like the IPA for providing factual common sense.
http://ipa.org.au/news/3545/energy-ministers-need-to-facilitate,-not-limit,-consumer-choices
http://ipa.org.au/news/3545/energy-ministers-need-to-facilitate,-not-limit,-consumer-choices
17 August, 2016
John Constable Joins Global Warming Policy Foundation Academic AdvisoryCouncil
The Global Warming alarmists are resorting to ridicule to dismiss the misgivings of those who question the conventional wisdom. They suggest that those who raise legitimate questions are all idiots. Consider the quality of the list below.
JOHN CONSTABLE JOINS GWPF’S ACADEMIC ADVISORY COUNCIL
The Global Warming Policy Foundation is pleased to announce that Dr John Constable has joined the GWPF’s Academic Advisory Council.
John Constable is a British energy analyst and the GWPF’s energy editor. Amongst his many energy-related publications are The Green Mirage: Why the low carbon economy may be further off than we think (Civitas: London, 2011), Energy Policy and Consumer Hardship (REF: London, 2011), and Shortfall, Rebound, Backfire: Can we rely on energy efficiency to offset climate policy costs? (REF: London, 2012).
The GWPF Academic Advisory Council is composed of scientists, economists and other experts who provide the GWPF with timely scientific, economic and policy advice. It reviews and evaluates new GWPF reports and papers, explores future research projects and makes recommendations on issues related to climate research and policy.
The other members of the GWPF Academic Advisory Council are:
Professor Christopher Essex (Chairman)
Sir Samuel Brittan
Sir Ian Byatt
Professor Vincent Courtillot
Professor Freeman Dyson
Professor David Henderson
Christian Gerondeau
Dr Indur Goklany
Professor William Happer
Professor Terence Kealey
Professor Deepak Lal
Professor Richard Lindzen
Professor Ross McKitrick
Professor Robert Mendelsohn
Professor Ian Plimer
Professor Paul Reiter
Dr Matt Ridley
Sir Alan Rudge
Professor Nir Shaviv
Professor Philip Stott
Professor Henrik Svensmark
Professor Richard Tol
Professor Anastasios Tsonis
Dr David Whitehouse
Sir Samuel Brittan
Sir Ian Byatt
Professor Vincent Courtillot
Professor Freeman Dyson
Professor David Henderson
Christian Gerondeau
Dr Indur Goklany
Professor William Happer
Professor Terence Kealey
Professor Deepak Lal
Professor Richard Lindzen
Professor Ross McKitrick
Professor Robert Mendelsohn
Professor Ian Plimer
Professor Paul Reiter
Dr Matt Ridley
Sir Alan Rudge
Professor Nir Shaviv
Professor Philip Stott
Professor Henrik Svensmark
Professor Richard Tol
Professor Anastasios Tsonis
Dr David Whitehouse
31 July, 2016
The Role of Entrepreneurs and Government in Australia-Wolfgang Kasper-July 2016
Bastiat Forum/Vaucluse Branch, Lib Party
Public Library – Double Bay, NSW, 5 July 2016
The Role of Entrepreneurs and Government in Australia
Wolfgang Kasper
Abstract
Coming from overseas in the 1970s, Australia looked to me like the 'Land of Missed Opportunities'. Partial liberalisation during the Hawke-Keating era and some further reforms under Howard-Costello let Australian entrepreneurs and citizens realise much of their considerable potential: Australians became winners. Since then, we have suffered wealth-sapping political curtailments of economic freedom. After the 2016 election, overdue and urgent reforms are likely to be postponed. This heralds further relapses into a less citizen-friendly policy setting.
In this situation, it is urgent to re-examine the role and size of government, in particular unsustainable redistribution policies and enterprise-hampering interventionism in a Green or a social-justice guise. Australians will only master the challenges of a dynamic global economy, if governments become lean and modest and leave more breathing space for self-responsibility and risk-taking enterprise. Failing that, we will again become losers.
To be intellectually and morally unprepared for reform in these times of profound structural change could cause economic trauma for a whole generation, which is used to sustained growth. Some unexpected event could suddenly complicate the currently unstable situation. Then, what most now may consider impossible may well become the only possible course of action. Now is therefore the time for civic groups to do the intellectual groundwork for a new reform strategy!
Australia struck me as a country of missed opportunities when I came here on what was meant to be a brief academic visit in 1973. My views were shaped by the two formative experiences as a young economist, first the post-war economic recovery of West Germany, then the take-off into accelerated growth in East Asia. In both cases, governments got out of the way, opened markets to competition and stuck to fiscal and monetary discipline. The people responded by working, saving and taking risks, and their wealth creation soon resulted in confidence and optimism.
Only ignorant journalists and Keynesian pseudo-economists called these episodes ‘miracles’. The ‘German economic miracle’ and later the ‘East Asian economic miracle’ demonstrated what free people will do in a free economy under the rule of law. Only observers who refuse to learn this fundamental lesson will call it a miracle.
When I arrived at the Australian National University late in the Whitlam era, I encountered an intensely unhappy social atmosphere. Fiscal profligacy, loose monetary policy, currency devaluation and waves of wage increases and strikes failed to lift the spirit. Nor did it stimulate employment or growth. All political discussion was about how the visible hand of government should redistribute a poorly growing national product. Soon, the Fraser government switched to restrictive monetary policy and made marginal policy adjustments, but clung to high tariff protection and heavy-handed regulation. Unemployment ratcheted up. The unhappiness persisted.
This struck me as wholly unnecessary and perverse: Here was a country rich in natural resources, located in the booming East-Asian time zone, with essentially good social and legal institutions inherited from Britain, a high savings rate and a reasonably educated population. Yet, the economy kept lagging behind, because job creators had to apply for numerous permits and often got lost in a bureaucratic maze of contradictions. The Reserve Bank employed a small army of well-paid officials to approve or reject foreign investments. Despite sitting on the world’s best iron-ore and coal resources, BHP was earning a meagre 2% return on its steel-producing assets. Highly protected car plants were turning out poor-quality clunkers costing twice world-market prices. A two-airlines policy ensured that two planes flew the same routes at the same time, each half empty.
We now know that intellectual groundwork by business leaders, a few academics (I became one of them), a few civil servants, the “Dries” in Parliament and a few journalists helped to pave the way for the sea change in economic policy under Hawke and Keating. The Labor government opened the economy, freed up most product and capital markets, cut tariffs and floated the currency. But big government and union-dominated, regulated labour markets were, however, treated as holy cows. The expected boost to productivity therefore eventually petered out. –– In the late 1990s, the Howard-Costello gave Australians more leeway to be enterprising, here and in overseas markets. Treasurer Costello rid us of Commonwealth government debt and costly interest burdens and encouraged us to save more for old age by tax cuts.
Over the quarter century between 1982 (when reforms began) and 2008 (when the Rudd-Gillard-Swan trio took over),
• Australians mastered a period of rapid structural change;
• on balance, more than 4 million additional and better jobs were created –– despite much destruction of previously mollycoddled jobs; and
• average real per-capita incomes more than doubled, overall a most impressive 220%, with only one recession in between.
We did not just drift passively along on the tails of a China boom, but enterprises risked investments and innovated; bankers ventured out; workers learnt new techniques and most acted pragmatically and sensibly.
We became winners!
Alas, the long growth wave came to an end. As we prospered, the public discourse was no longer about the merits of freer markets, leaner governments and completing the reform agenda. The public mood – the zeitgeist – lapsed back into the out-dated ‘Federation concept’ of big government and dependency. The last Howard administration showed worrying signs of reform fatigue, trying to buy the election with unaffordable handouts. The Rudd-Gillard governments then not only upped the handouts, but made long-term, unfunded spending commitments, for example for the schools and hospitals for which the States are responsible. At the first whiff of a global recession, the Labor government eagerly embarked on an unnecessary, silly, futile spending binge. We have suffered relapses into wealth-sapping politicking ever since, both at Commonwealth and State levels. When China’s breathtaking take-off into capitalism and fast, private-enterprise-driven growth decelerated, which was predictable, and a crisis shook the world financial system, we were intellectually and morally ill prepared for tackling these challenges.
To my mind, we are still poorly prepared to face the challenges ahead.
•••
We would now be well advised to reflect anew about the role and size of government. What can we, the voters, reasonably expect of governments at national, State and local levels? And what should we not expect of them? Only when a community gives rational, far-sighted policy its moral support will we get such a policy. In the final analysis, we get the governments –– the elected politicians and the unelected bureaucrats –– that we deserve. But small groups of like-minded people can do much to shape the zeitgeist, and with it what is possible in a democracy.
To answer the question about the appropriate size and role of government, we may find guidance in international and historic experience, as I did when I came to Canberra during the ‘Whitlam party’. –– Better still, we should look to basic economic insights and philosophical wisdom.
The great minds of the Enlightenment –– such as John Locke, Voltaire, the Baron de Montesquieu, Immanuel Kant, Alexander von Humboldt, David Hume, Adam Smith and Frédéric Bastiat –– saw individual liberty and individual self-responsibility as the main motivators and guarantors of people’s well-being and crucial to fostering social harmony. Government was to be minimal. Most choices about what was to happen in a country were to be made by self-interested private individuals and firms. Their competition would lead to a market order. The United States of America drew on this 18th century concept of governance: the Declaration of Independence (1776) and the US Constitution (1787) turned the ideas of Locke and Montesquieu into the lodestar for governance. To some extent, similar sentiments of individual freedom and limited, rule-bound government also guided the early Australian colonies.
Later in the 19th century, the philosophy about government changed. The general popular vote and the rivalry of organised political parties increasingly altered perceptions about governance. Thinkers –– such as John Stuart Mill, Jeremy Bentham, and later even more so the socialists and Fabians –– saw government increasingly as a utility: What can government – (falsely) assumed by them to be benevolent and well informed – do for the electorate? If something goes wrong: How can government rectify things? Reliance on individual self-responsibility was depicted more and more as cruel and unjustifiable. More and more choices were becoming collective, public and hence politicised. The patron saint of this Forum, Frédéric Bastiat, castigated this utilitarian attitude to government when he warned: “Everyone wants to live at the expense of the state. They forget that the state wants to live at the expense of everyone.” Such warnings had no effect. The more collectivist, utilitarian conception shaped opinions in the late 19th century, not least in the new Australian Federation.
Americans or the Swiss, who retain a stronger, more deeply entrenched preference for liberty and responsibility, are bemused when looking at democracy Downunder. Would it ever occur to an Australian politician, who wants to be elected, to say what Ronald Reagan did: “The most terrifying words in the English language are: I'm from the government, and I'm here to help”. Or (another Reagan quote): “Government is like a baby. An alimentary canal with a big appetite at one end and no sense of responsibility at the other.”
The trauma of the Whitlam-Fraser years – and inspiration from Thatcher and Reagan – made it possible in the 1980s for public sentiment in Australia to deviate from the utilitarian tradition of conceiving government. Alas, under the reactionary Rudd-Gillard and the reform-shy Turnbull governments, deeply ingrained utilitarian attitudes have again gained the upper hand:
• You hear daily pleas for more government and more interventionist redistribution on the state broadcasters ABC and SBS.
• The most admired people in the community are those who lobby for handouts. And because everyone does it, you’d be stupid not to join in the feeding frenzy. We admire the activists who are generous with other people’s money. I recently heard a church leader praise a ‘welfare rights activist’ as a ‘Good Samaritan’. In my Bible, the Good Samaritan used his own resources to help the victim whom he found on the road and paid the innkeeper with his own denarii to care for the aggrieved victim.
• Meanwhile, public debt grows every day; the prospect of budget balance recedes into the fogs of the distant future. Credit rating agencies have now put our governments on their negative watch lists.
• When the political elites and their media lackeys are not pleading for handouts, they urge more regulations of that evil human pursuit: the production of goods and services by capitalist enterprises. Single-issue groups, legal practitioners and lobbyists push relentlessly for more freedom-sapping regulations. Opportunistic politicians and bureaucrats eagerly oblige. Indeed, bureaucrats often hand our taxes to single-issue lobbies, which demand more restrictions of our freedom. Red tape is Australia’s biggest industry. Recently estimated at $176 billion, it absorbs 11% of the costs of generating the national product! Admittedly, the Coalition government’s ‘Red Tape Reduction’ programme has led to some net reductions in compliance costs. But at present deregulation speed, we would reach zero regulation not before the year 2175! –– Not that zero regulation should be the objective. What is needed is more citizen-friendly regulation, and less regulation that just serves bureaucratic and political interests; more regulation that expedites and reassures enterprise, not hampers it. In Asia, there are One-Stop Shops for investors. When some Australian State governments imitated the idea, these were promptly turned into One-More-Stop Shops!
• Concerns about the environment and possible global warming have given rise to a major increase in single-issue politicking. Irrespective of whether humans contribute much to climate change (which I personally doubt), new political elites use this to curb our freedom, especially our economic freedom. They endanger our security, violate justice, and diminish the life opportunities of the many. Often blatant attempts to gain power overturn the established rule of law.
• In addition, rational discourse is now increasingly hampered by political correctness and legislated limitations on free speech. Tony Abbott, when Prime Minister, withdrew his promise to scrap Section 18C, which constrains free speech, because he found it opportune to appease thin-skinned Muslim activists. All Australian universities, bar one, now circumscribe free speech in lecture theatres. This atmosphere now stifles individual liberty and enterprise. It infantilises us and favours more government.
The end result of these developments is an erosion of economic freedom, and that means a sapping of the forces of economic growth. An environment that is saturated with regulations also tends to go along with a less equitable income distribution. To give you a few examples:
• Labour-market regulations are often impediments to the young and other outsiders. The minimum wage hinders many from getting their foot on the first rung of the job and skill ladder.
• Subsidised solar panels are installed by the rich, while the poor just have to pay higher and higher electricity prices.
• Often, land classification and development applications prevent the poor from getting cheaper housing or starting a business.
• It is an illusion that redistribution policies favour the poor and take from the rich. In reality, the politically well-connected and well-organised gain at the expense of everybody else. Let me quote Bastiat again: “Government is the great fiction through which everybody endeavours to live at the expense of everybody else”.
Since 2005, the international economic freedom ranking of Australia has been sliding backwards. The weak points are always the same: big government, labour-market rigidities, and cumbersome business regulation, while we are credited with good monetary management and a decent legal system.
•••
Economists have long taught us that government has three key functions:
• the classical protective function –– protection from fraud, violence and external coercion,
• the productive function –– providing those infrastructures and services that competing private enterprises cannot, and
• the redistributive function –– assisting the “waifs and widows”, which has become the foremost growth industry of the 20th century: rob Peter to pay Paul!
Classical liberals accept that governments have a protective function. We are not anarchists. Governments should have the ‘violence monopoly’, and violence professionals –– the courts, the police, the military, the jailers etc. –– should be tax-financed, because the purse strings are the best control to ensure that they, the violence professionals, do not turn against us.
The argument for a considerable productive function of government used to be that infrastructures, such as roads or canals, were very costly and could only be financed by government. Moreover, their use was impossible to measure and user fees were too expensive to collect. Meantime, capital markets have grown, so that big projects can be financed privately. And thanks to the IT revolution, the use of privately built infrastructures, such as motorways, can now be effectively measured by transponders and similar devices, and paid for by electronic billing.
The prominent American ‘public choice school’ of economics has taught us that there is much scope for privatisation and that the role of government should now only be to ensure equitable access to goods and services, as well as to control quality and honesty. Bureaucrats need not run schools; and hospital services need not be provided along the lines of the Soviet model. Instead, parents and patients can often be empowered through tax-funded vouchers. In many instances, people will shop around to buy the competitively produced education and health-care services that best suit them. Roads need no longer be built and repaired by local council workers. Councils should only plan the work and then sub-contract. No more workers leaning on shovels between extended tea breaks! No more flagmen, when automatic traffic lights can do the job! If the Baird government of New South Wales had directed local governments to switch to competitive sub-contracting, they could have saved costs and avoided unpopular forced amalgamations.
In short: in our age, governments should greatly reduce what they produce; they only need to be providers of access to public-domain goods and services.
The most vexatious issue with big government, however, is the proliferation of its redistributive function, by taxes and subsidies and by redistributive interventions in free markets. This has been the growth industry of the 20th century. The election campaign of 2016 revolved almost exclusively around more grubby redistribution.
The welfare state has led us on a slippery slope. Ultimately it leads to a dead end, as competing political parties rival inevitably with each other by offering more and more handouts and interventions. Proliferating redistribution by the visible hand of government has numerous negative consequences:
• It destroys individual responsibility and creates disincentives to work, save and risk. My friend, veteran US economist Tom Sowell, put it well: “What the welfare system and other kinds of government programs are doing is paying people to fail. In so far as they fail, they receive money; in so far as they succeed, even to a moderate extent, the money is taken away.” People become disdainful of productive work and addressing the challenges of changing market conditions. Long ago, Charlemagne decreed: “No man must give alms to beggars who will not work”. But that was long ago. His wisdom shows why he was called “Charles the Great”!
• Redistribution by regulations has led to a minefield, in which job creators and inspired technical and commercial achievers are ever so often discouraged. Instead, the scene is dominated by government committees, lobbyists and lawyers, who have little incentive to promote entrepreneurial success and economic growth. To quote Tom Sowell again: “It is hard to imagine a more stupid and more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong”.
• The modern market economy is a dynamic, incredibly complex system. The supplies of, and demands for, millions of different products and services are ordered by price signals. They coordinate people’s productive contributions with what other people would like to buy. Growing redistribution destroys this essential signalling device. Bastiat wrote some 150 years ago that it is “costly to divorce personal rewards (incomes) from personal contributions (productivity)”. Ecologists have taught us not to tangle with Nature, which is a complex system, because unintended deleterious side effects will harm us. Yet, these same people often advocate wanton interventions in an equally complex system – the competitive free-market market order that is essential to our wellbeing!
• ‘Entitlements’ – because they are never sufficiently generous – polarise society and create discontent and cynicism. The young become rebellious. The entitlement culture leads ultimately to social degeneration.
• Redistribution also leads to a growing dislike, even a hatred of political elites: I must yet again quote Tom Sowell: “If you have been voting for politicians who promise to give you goodies at someone else’s expense, then you have no right to complain when they take your money and give it to someone else, including themselves” .
• Redistribution policy produces public deficits and piles up growing, costly debt burdens.
• It creates cost disadvantages in international competition.
Populist appeals for more redistribution now gain massive influence through the social media, in particular among the young. Interventionist giving and taking is now vigorously influenced by single-issue activists. Shared values and the understanding that all policy must simultaneously pursue a multiplicity of fundamental objectives – such as liberty, security, justice, maintaining a liveable environment, and prosperity – give way to an antagonistic, fractious society. Redistributive activism is now gradually destroying the social cohesion of mature democracies, and with it our common wealth and our trust in democratic government. One look at the mature welfare states of Old Europe will show you how the utilitarian-democratic approach to government is making nations ungovernable.
There is no need to argue against all redistribution. Some of it is justified in a wealthy nation like ours: helping the young, the incapacitated and those old people who have insufficient means to live decently. But the welfare state must not subsidise those unwilling to work. It must not relieve people of self-responsibility. In Australia, it needs to be pruned back a lot and must be targeted at genuine poverty, as well as ensuring equitable starting opportunities for all! Equality of outcomes irrespective of effort (and luck) is poison.
•••
If my argument has not yet convinced you, here come the two ‘killer arguments’:
❏ First, politicians and bureaucrats simply do not know, but often only pretend to know. They often rely on modelling based on facile, unrealistic assumptions. –– When you hear “modelling shows...”, immediately think: “Garbage in, garbage out!” The economic discussion in Australia is dominated by so-called economists, who may be good at applied maths, but lack all understanding of how real enterprises and real people make economic choices and how competitors in markets discover what is useful. Most policy advisors simply do not understand the essence of capitalism.
❏ Second, politicians and bureaucrats in reality pursue their own interests. Economists call this the ‘agent-principal problem’. In theory, we the citizens, are the principals, and elected politicians and appointed bureaucrats are our agents: “Government of the people, by the people, for the people.” In reality, public choices are made by officials, who rarely face the direct consequences of their decisions. In reality, the bureaucrats and politicians are well informed and close to the action, and we, the citizens, often choose to remain ‘rationally ignorant’. If we turn our backs on the political process in disgust – as happens widely in Europe – we self-disenfranchise ourselves. Our agents then become the bosses and act in their own interest: “Government of the bureaucrats, by the bureaucrats, for the bureaucrats”.
When 19th century philosophers argued for bigger government and 20th century practitioners and the public followed suit, they made the completely wrong assumption that government officials were well informed and dedicated to the public interest. This is plainly wrong! This is why private choices and reliance on the invisible hand of competition are in most instances more effective and citizen-friendly than reliance on the choices by public decision monopolists.
We ignore the systemic weaknesses of public choices at our peril, whilst we take the benefits of private choices by capitalist entrepreneurs and free consumers for granted. Though we enjoy the benefits of capitalism, we only nod when opinion leaders revile it and depict the competitive economy as selfish and immoral! Most political leaders and their enablers in the media habitually doubt that there will be further benefits from letting untrammelled markets rip. The socialist Bernie Sanders in the US, his socialist bedfellows in Europe, and GetUp and the Greens in Australia get much media attention and much acclaim for their wrong-headed positions! Politicians of all colours promise to better our lives by public spending and subjecting free enterprises to more regulatory impediments. Yet, it is free enterprise that is creating the iPhones, the iPads, the live-saving pharmaceuticals and all those new amenities that we take for granted. Capitalist enterprise creates and tests new knowledge, and offers us more diversity and choice. Why do not more of us laugh the regulators and interventionists out of court?
Innovation is essential for sustaining our well-being. But it does not come from “a plan”. Malcolm Turnbull’s message that he had “a plan” sounded a hollow. Nor does “innovation” come from government subsidies, governments picking winners, or governments telling what energy sources we must use. Even worse, politically opportunistic handouts to ailing industries, such as Arrium Steel, when sold as innovation measures, signal that the government is ready to erect outright obstacles to market-driven structural adjustments and proper innovation. If Australians want to extract useful innovations from defence contracts, they should know that it would be easier to get milk from a bull! In the election campaign, ‘innovation’ remained an abstract, anaemic and vacuous concept. In reality, innovation comes from free enterprise and competition among free people. No cronies! The flower of innovation blooms when the climate and soil are right, its bud cannot be pulled open by the visible hand! I missed this insight during the recent election debate, nor have I heard the Commonwealth Minister for Innovation ever talk intelligently about competitive markets and market incentives for people to shoulder innovation risks. If we want the broader public to embrace innovation, we need discussion of concepts such as capitalism, competition, private enterprise, and deregulation.
•••
After what I have said so far, you may well ask: Why do not more Australians opt for more freedom? Tradition is part of the explanation. But we also must realise that freedom and self-responsibility come with risks. Freedom imposes the burden and obligation of staring into the fogs of the future to make choices, for which they will later have to bear the consequences. Economists say that innovators must “incur transaction costs” without being sure of the outcomes. Many costly projects end in losses, few oil-exploration drills lead to a bonanza! Living in a free society also means that we have to enforce agreements and rules – and that can be uncomfortable. Better to delegate that to the government nanny! The competitive capitalist system ceaselessly invites people, who made a profit and gained a certain socio-economic position, to reinvest their wealth into new ventures. Those who refuse may well find that the value of what they own gradually decays. Therefore, many of us find that being unfree is more comfortable. These are the reasons why the demand for freedom is in truth often a pretence, and the assumption that people want to be free an illusion.
•••
After this long, tiresome election campaign and the election result, which will be a debacle for whoever will form government, you will ask me: What does all this mean for economic policy?
In my view, the ongoing structural changes in the world economy and growing uncertainties about the near future require a cohesive, confident economic strategy, which should be focussed on productivity growth. Innovation and good productivity growth can be had when governments get out of the way, when economic freedom serves as a lodestar, which orients all individual policy actions. The following considerations should be given high priority:
Let us enhance openness and competition –– free people in free markets, in particular in what economists call ‘factor markets’. Labour market reform is a priority, as free labour markets are the best way to reduce unemployment and give the young and less-well-skilled a chance to get their foot on the job and income ladder. Labour-market competition also controls the power of employers, because they have to rival with each other for the best workers and skills. –– The market for the factor capital could also do with a little more competition for the Big Four banks by the adoption of the proposals made by the Financial Systems Inquiry. –– The rules on the treatment of lifetime superannuation savings should remain stable. A possible exception should be a stipulation which makes it much harder for superannuants to squander the ‘golden hand-shake’ in order to qualify for a government pension.
In product markets much could be gained by replacing the cobwebs of costly past regulations at Commonwealth, State and local levels with streamlined, citizen-friendly regulations, which are simple, certain and uniformly enforced. No more preferential deals for cronies! No regulations to advance bureaucratic careers or create electoral advantages for politicians! – As one of Australia’s most pronounced and pervasive competitive advantages is cheap energy, good economic policy must ensure that this advantage is freely and equitably accessible to every potential energy user.
The entire system of government finances, indeed the design of the Federation, needs to be critically re-examined. Let’s ask: What are the essential tasks of government? Defence, law and order, essential health care and safeguards for the environment would be covered under the protective function, which is the primary task of government. Education and basic skill formation can be seen as highly desirable ways to ensure equitable starting opportunities and ways of imbuing a sense of communal integration. Australian governments of all stripes should become serious about streamlining all welfare. Let’s replace the myriad of specific programme handouts with negative income taxes and vouchers. Such reforms could well allow us to dismiss many who now are on the payroll of the ‘redistribution industry’.
To my mind, a priority task would be to ask anew, which specific tasks should be exclusively assigned to which level of government. If this were done according to the principle of subsidiarity, this would put an end to off-putting, infantile blame shifting. –– Prime Minister Malcolm Turnbull recently had a welcome 30-minute attack of economic rationalism when he spoke about the idea that each level of government should be responsible for raising the revenues necessary to fulfil their assigned tasks. Such ‘fiscal equivalence’ would pave the way for competitive federalism and do away with the destructive system of vertical and horizontal transfers, which is the most damaging leftover from a bygone era of confused government.
If market reforms encourage faster productivity growth, budget repair should be a target within four years. This must be done without tax increases, since Australia – with a ratio of 26.8% to domestic product – now is markedly above the weighted OECD average of 22%.
Generally, the economy must be made a priority in times of possible stagnation or recession. Topics such gay marriage, feminism, votes for 16-year olds, or racial recognition in the Constitution may well serve as tempting diversions from the hard economic issues. But they will drain the limited stock of political and administrative energy. The government should stop funding single-issue lobbies with tax money, realising that this makes a cohesive, rational economic strategy harder.
Above all, the next Australian government should show leadership by talking about the fundamental liberal and Liberal values that make for the good government of a good society: freedom, security, justice, peace, equity, conservation of a liveable environment and prosperity. This would create a shared reference system against which to judge specific policy proposals. And affirming these basic truths with some passion could have the welcome, contagious effect of furthering social cohesion in our multi-ethnic society.
•••
How realistic is my counsel for such a bold flight forwards? As of 5 July 2016, not at all! Deficit repair? Forget it! AAA rating? Going, going, gone...! Labour-market reform? Impossible! –– More free trade? Not with the Xenophon mob!
With prospective political paralysis and the distraction of second-order non-economic issues, the Australian economy is now headed into perilous waters. If some new challenge comes out of left corner, a generation, who have not experienced a recession, massive job destruction and strict monetary restriction, is in for big trauma.
Should that eventuate, we need to be prepared with a well thought-out strategy, based on intellectual capital that civic organisations, like tonight’s gathering, create by their deliberations now. Let’s think boldly. What may today look like completely impossible, may before long become the only possible solution. Let us prepare now by tackling the policy issues based on first principles and insights from history, which the political-bureaucratic elite have obviously parked in the too-hard basket.
Thank you!
ca. 5,300 words
Public Library – Double Bay, NSW, 5 July 2016
The Role of Entrepreneurs and Government in Australia
Wolfgang Kasper
Abstract
Coming from overseas in the 1970s, Australia looked to me like the 'Land of Missed Opportunities'. Partial liberalisation during the Hawke-Keating era and some further reforms under Howard-Costello let Australian entrepreneurs and citizens realise much of their considerable potential: Australians became winners. Since then, we have suffered wealth-sapping political curtailments of economic freedom. After the 2016 election, overdue and urgent reforms are likely to be postponed. This heralds further relapses into a less citizen-friendly policy setting.
In this situation, it is urgent to re-examine the role and size of government, in particular unsustainable redistribution policies and enterprise-hampering interventionism in a Green or a social-justice guise. Australians will only master the challenges of a dynamic global economy, if governments become lean and modest and leave more breathing space for self-responsibility and risk-taking enterprise. Failing that, we will again become losers.
To be intellectually and morally unprepared for reform in these times of profound structural change could cause economic trauma for a whole generation, which is used to sustained growth. Some unexpected event could suddenly complicate the currently unstable situation. Then, what most now may consider impossible may well become the only possible course of action. Now is therefore the time for civic groups to do the intellectual groundwork for a new reform strategy!
Australia struck me as a country of missed opportunities when I came here on what was meant to be a brief academic visit in 1973. My views were shaped by the two formative experiences as a young economist, first the post-war economic recovery of West Germany, then the take-off into accelerated growth in East Asia. In both cases, governments got out of the way, opened markets to competition and stuck to fiscal and monetary discipline. The people responded by working, saving and taking risks, and their wealth creation soon resulted in confidence and optimism.
Only ignorant journalists and Keynesian pseudo-economists called these episodes ‘miracles’. The ‘German economic miracle’ and later the ‘East Asian economic miracle’ demonstrated what free people will do in a free economy under the rule of law. Only observers who refuse to learn this fundamental lesson will call it a miracle.
When I arrived at the Australian National University late in the Whitlam era, I encountered an intensely unhappy social atmosphere. Fiscal profligacy, loose monetary policy, currency devaluation and waves of wage increases and strikes failed to lift the spirit. Nor did it stimulate employment or growth. All political discussion was about how the visible hand of government should redistribute a poorly growing national product. Soon, the Fraser government switched to restrictive monetary policy and made marginal policy adjustments, but clung to high tariff protection and heavy-handed regulation. Unemployment ratcheted up. The unhappiness persisted.
This struck me as wholly unnecessary and perverse: Here was a country rich in natural resources, located in the booming East-Asian time zone, with essentially good social and legal institutions inherited from Britain, a high savings rate and a reasonably educated population. Yet, the economy kept lagging behind, because job creators had to apply for numerous permits and often got lost in a bureaucratic maze of contradictions. The Reserve Bank employed a small army of well-paid officials to approve or reject foreign investments. Despite sitting on the world’s best iron-ore and coal resources, BHP was earning a meagre 2% return on its steel-producing assets. Highly protected car plants were turning out poor-quality clunkers costing twice world-market prices. A two-airlines policy ensured that two planes flew the same routes at the same time, each half empty.
We now know that intellectual groundwork by business leaders, a few academics (I became one of them), a few civil servants, the “Dries” in Parliament and a few journalists helped to pave the way for the sea change in economic policy under Hawke and Keating. The Labor government opened the economy, freed up most product and capital markets, cut tariffs and floated the currency. But big government and union-dominated, regulated labour markets were, however, treated as holy cows. The expected boost to productivity therefore eventually petered out. –– In the late 1990s, the Howard-Costello gave Australians more leeway to be enterprising, here and in overseas markets. Treasurer Costello rid us of Commonwealth government debt and costly interest burdens and encouraged us to save more for old age by tax cuts.
Over the quarter century between 1982 (when reforms began) and 2008 (when the Rudd-Gillard-Swan trio took over),
• Australians mastered a period of rapid structural change;
• on balance, more than 4 million additional and better jobs were created –– despite much destruction of previously mollycoddled jobs; and
• average real per-capita incomes more than doubled, overall a most impressive 220%, with only one recession in between.
We did not just drift passively along on the tails of a China boom, but enterprises risked investments and innovated; bankers ventured out; workers learnt new techniques and most acted pragmatically and sensibly.
We became winners!
Alas, the long growth wave came to an end. As we prospered, the public discourse was no longer about the merits of freer markets, leaner governments and completing the reform agenda. The public mood – the zeitgeist – lapsed back into the out-dated ‘Federation concept’ of big government and dependency. The last Howard administration showed worrying signs of reform fatigue, trying to buy the election with unaffordable handouts. The Rudd-Gillard governments then not only upped the handouts, but made long-term, unfunded spending commitments, for example for the schools and hospitals for which the States are responsible. At the first whiff of a global recession, the Labor government eagerly embarked on an unnecessary, silly, futile spending binge. We have suffered relapses into wealth-sapping politicking ever since, both at Commonwealth and State levels. When China’s breathtaking take-off into capitalism and fast, private-enterprise-driven growth decelerated, which was predictable, and a crisis shook the world financial system, we were intellectually and morally ill prepared for tackling these challenges.
To my mind, we are still poorly prepared to face the challenges ahead.
•••
We would now be well advised to reflect anew about the role and size of government. What can we, the voters, reasonably expect of governments at national, State and local levels? And what should we not expect of them? Only when a community gives rational, far-sighted policy its moral support will we get such a policy. In the final analysis, we get the governments –– the elected politicians and the unelected bureaucrats –– that we deserve. But small groups of like-minded people can do much to shape the zeitgeist, and with it what is possible in a democracy.
To answer the question about the appropriate size and role of government, we may find guidance in international and historic experience, as I did when I came to Canberra during the ‘Whitlam party’. –– Better still, we should look to basic economic insights and philosophical wisdom.
The great minds of the Enlightenment –– such as John Locke, Voltaire, the Baron de Montesquieu, Immanuel Kant, Alexander von Humboldt, David Hume, Adam Smith and Frédéric Bastiat –– saw individual liberty and individual self-responsibility as the main motivators and guarantors of people’s well-being and crucial to fostering social harmony. Government was to be minimal. Most choices about what was to happen in a country were to be made by self-interested private individuals and firms. Their competition would lead to a market order. The United States of America drew on this 18th century concept of governance: the Declaration of Independence (1776) and the US Constitution (1787) turned the ideas of Locke and Montesquieu into the lodestar for governance. To some extent, similar sentiments of individual freedom and limited, rule-bound government also guided the early Australian colonies.
Later in the 19th century, the philosophy about government changed. The general popular vote and the rivalry of organised political parties increasingly altered perceptions about governance. Thinkers –– such as John Stuart Mill, Jeremy Bentham, and later even more so the socialists and Fabians –– saw government increasingly as a utility: What can government – (falsely) assumed by them to be benevolent and well informed – do for the electorate? If something goes wrong: How can government rectify things? Reliance on individual self-responsibility was depicted more and more as cruel and unjustifiable. More and more choices were becoming collective, public and hence politicised. The patron saint of this Forum, Frédéric Bastiat, castigated this utilitarian attitude to government when he warned: “Everyone wants to live at the expense of the state. They forget that the state wants to live at the expense of everyone.” Such warnings had no effect. The more collectivist, utilitarian conception shaped opinions in the late 19th century, not least in the new Australian Federation.
Americans or the Swiss, who retain a stronger, more deeply entrenched preference for liberty and responsibility, are bemused when looking at democracy Downunder. Would it ever occur to an Australian politician, who wants to be elected, to say what Ronald Reagan did: “The most terrifying words in the English language are: I'm from the government, and I'm here to help”. Or (another Reagan quote): “Government is like a baby. An alimentary canal with a big appetite at one end and no sense of responsibility at the other.”
The trauma of the Whitlam-Fraser years – and inspiration from Thatcher and Reagan – made it possible in the 1980s for public sentiment in Australia to deviate from the utilitarian tradition of conceiving government. Alas, under the reactionary Rudd-Gillard and the reform-shy Turnbull governments, deeply ingrained utilitarian attitudes have again gained the upper hand:
• You hear daily pleas for more government and more interventionist redistribution on the state broadcasters ABC and SBS.
• The most admired people in the community are those who lobby for handouts. And because everyone does it, you’d be stupid not to join in the feeding frenzy. We admire the activists who are generous with other people’s money. I recently heard a church leader praise a ‘welfare rights activist’ as a ‘Good Samaritan’. In my Bible, the Good Samaritan used his own resources to help the victim whom he found on the road and paid the innkeeper with his own denarii to care for the aggrieved victim.
• Meanwhile, public debt grows every day; the prospect of budget balance recedes into the fogs of the distant future. Credit rating agencies have now put our governments on their negative watch lists.
• When the political elites and their media lackeys are not pleading for handouts, they urge more regulations of that evil human pursuit: the production of goods and services by capitalist enterprises. Single-issue groups, legal practitioners and lobbyists push relentlessly for more freedom-sapping regulations. Opportunistic politicians and bureaucrats eagerly oblige. Indeed, bureaucrats often hand our taxes to single-issue lobbies, which demand more restrictions of our freedom. Red tape is Australia’s biggest industry. Recently estimated at $176 billion, it absorbs 11% of the costs of generating the national product! Admittedly, the Coalition government’s ‘Red Tape Reduction’ programme has led to some net reductions in compliance costs. But at present deregulation speed, we would reach zero regulation not before the year 2175! –– Not that zero regulation should be the objective. What is needed is more citizen-friendly regulation, and less regulation that just serves bureaucratic and political interests; more regulation that expedites and reassures enterprise, not hampers it. In Asia, there are One-Stop Shops for investors. When some Australian State governments imitated the idea, these were promptly turned into One-More-Stop Shops!
• Concerns about the environment and possible global warming have given rise to a major increase in single-issue politicking. Irrespective of whether humans contribute much to climate change (which I personally doubt), new political elites use this to curb our freedom, especially our economic freedom. They endanger our security, violate justice, and diminish the life opportunities of the many. Often blatant attempts to gain power overturn the established rule of law.
• In addition, rational discourse is now increasingly hampered by political correctness and legislated limitations on free speech. Tony Abbott, when Prime Minister, withdrew his promise to scrap Section 18C, which constrains free speech, because he found it opportune to appease thin-skinned Muslim activists. All Australian universities, bar one, now circumscribe free speech in lecture theatres. This atmosphere now stifles individual liberty and enterprise. It infantilises us and favours more government.
The end result of these developments is an erosion of economic freedom, and that means a sapping of the forces of economic growth. An environment that is saturated with regulations also tends to go along with a less equitable income distribution. To give you a few examples:
• Labour-market regulations are often impediments to the young and other outsiders. The minimum wage hinders many from getting their foot on the first rung of the job and skill ladder.
• Subsidised solar panels are installed by the rich, while the poor just have to pay higher and higher electricity prices.
• Often, land classification and development applications prevent the poor from getting cheaper housing or starting a business.
• It is an illusion that redistribution policies favour the poor and take from the rich. In reality, the politically well-connected and well-organised gain at the expense of everybody else. Let me quote Bastiat again: “Government is the great fiction through which everybody endeavours to live at the expense of everybody else”.
Since 2005, the international economic freedom ranking of Australia has been sliding backwards. The weak points are always the same: big government, labour-market rigidities, and cumbersome business regulation, while we are credited with good monetary management and a decent legal system.
•••
Economists have long taught us that government has three key functions:
• the classical protective function –– protection from fraud, violence and external coercion,
• the productive function –– providing those infrastructures and services that competing private enterprises cannot, and
• the redistributive function –– assisting the “waifs and widows”, which has become the foremost growth industry of the 20th century: rob Peter to pay Paul!
Classical liberals accept that governments have a protective function. We are not anarchists. Governments should have the ‘violence monopoly’, and violence professionals –– the courts, the police, the military, the jailers etc. –– should be tax-financed, because the purse strings are the best control to ensure that they, the violence professionals, do not turn against us.
The argument for a considerable productive function of government used to be that infrastructures, such as roads or canals, were very costly and could only be financed by government. Moreover, their use was impossible to measure and user fees were too expensive to collect. Meantime, capital markets have grown, so that big projects can be financed privately. And thanks to the IT revolution, the use of privately built infrastructures, such as motorways, can now be effectively measured by transponders and similar devices, and paid for by electronic billing.
The prominent American ‘public choice school’ of economics has taught us that there is much scope for privatisation and that the role of government should now only be to ensure equitable access to goods and services, as well as to control quality and honesty. Bureaucrats need not run schools; and hospital services need not be provided along the lines of the Soviet model. Instead, parents and patients can often be empowered through tax-funded vouchers. In many instances, people will shop around to buy the competitively produced education and health-care services that best suit them. Roads need no longer be built and repaired by local council workers. Councils should only plan the work and then sub-contract. No more workers leaning on shovels between extended tea breaks! No more flagmen, when automatic traffic lights can do the job! If the Baird government of New South Wales had directed local governments to switch to competitive sub-contracting, they could have saved costs and avoided unpopular forced amalgamations.
In short: in our age, governments should greatly reduce what they produce; they only need to be providers of access to public-domain goods and services.
The most vexatious issue with big government, however, is the proliferation of its redistributive function, by taxes and subsidies and by redistributive interventions in free markets. This has been the growth industry of the 20th century. The election campaign of 2016 revolved almost exclusively around more grubby redistribution.
The welfare state has led us on a slippery slope. Ultimately it leads to a dead end, as competing political parties rival inevitably with each other by offering more and more handouts and interventions. Proliferating redistribution by the visible hand of government has numerous negative consequences:
• It destroys individual responsibility and creates disincentives to work, save and risk. My friend, veteran US economist Tom Sowell, put it well: “What the welfare system and other kinds of government programs are doing is paying people to fail. In so far as they fail, they receive money; in so far as they succeed, even to a moderate extent, the money is taken away.” People become disdainful of productive work and addressing the challenges of changing market conditions. Long ago, Charlemagne decreed: “No man must give alms to beggars who will not work”. But that was long ago. His wisdom shows why he was called “Charles the Great”!
• Redistribution by regulations has led to a minefield, in which job creators and inspired technical and commercial achievers are ever so often discouraged. Instead, the scene is dominated by government committees, lobbyists and lawyers, who have little incentive to promote entrepreneurial success and economic growth. To quote Tom Sowell again: “It is hard to imagine a more stupid and more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong”.
• The modern market economy is a dynamic, incredibly complex system. The supplies of, and demands for, millions of different products and services are ordered by price signals. They coordinate people’s productive contributions with what other people would like to buy. Growing redistribution destroys this essential signalling device. Bastiat wrote some 150 years ago that it is “costly to divorce personal rewards (incomes) from personal contributions (productivity)”. Ecologists have taught us not to tangle with Nature, which is a complex system, because unintended deleterious side effects will harm us. Yet, these same people often advocate wanton interventions in an equally complex system – the competitive free-market market order that is essential to our wellbeing!
• ‘Entitlements’ – because they are never sufficiently generous – polarise society and create discontent and cynicism. The young become rebellious. The entitlement culture leads ultimately to social degeneration.
• Redistribution also leads to a growing dislike, even a hatred of political elites: I must yet again quote Tom Sowell: “If you have been voting for politicians who promise to give you goodies at someone else’s expense, then you have no right to complain when they take your money and give it to someone else, including themselves” .
• Redistribution policy produces public deficits and piles up growing, costly debt burdens.
• It creates cost disadvantages in international competition.
Populist appeals for more redistribution now gain massive influence through the social media, in particular among the young. Interventionist giving and taking is now vigorously influenced by single-issue activists. Shared values and the understanding that all policy must simultaneously pursue a multiplicity of fundamental objectives – such as liberty, security, justice, maintaining a liveable environment, and prosperity – give way to an antagonistic, fractious society. Redistributive activism is now gradually destroying the social cohesion of mature democracies, and with it our common wealth and our trust in democratic government. One look at the mature welfare states of Old Europe will show you how the utilitarian-democratic approach to government is making nations ungovernable.
There is no need to argue against all redistribution. Some of it is justified in a wealthy nation like ours: helping the young, the incapacitated and those old people who have insufficient means to live decently. But the welfare state must not subsidise those unwilling to work. It must not relieve people of self-responsibility. In Australia, it needs to be pruned back a lot and must be targeted at genuine poverty, as well as ensuring equitable starting opportunities for all! Equality of outcomes irrespective of effort (and luck) is poison.
•••
If my argument has not yet convinced you, here come the two ‘killer arguments’:
❏ First, politicians and bureaucrats simply do not know, but often only pretend to know. They often rely on modelling based on facile, unrealistic assumptions. –– When you hear “modelling shows...”, immediately think: “Garbage in, garbage out!” The economic discussion in Australia is dominated by so-called economists, who may be good at applied maths, but lack all understanding of how real enterprises and real people make economic choices and how competitors in markets discover what is useful. Most policy advisors simply do not understand the essence of capitalism.
❏ Second, politicians and bureaucrats in reality pursue their own interests. Economists call this the ‘agent-principal problem’. In theory, we the citizens, are the principals, and elected politicians and appointed bureaucrats are our agents: “Government of the people, by the people, for the people.” In reality, public choices are made by officials, who rarely face the direct consequences of their decisions. In reality, the bureaucrats and politicians are well informed and close to the action, and we, the citizens, often choose to remain ‘rationally ignorant’. If we turn our backs on the political process in disgust – as happens widely in Europe – we self-disenfranchise ourselves. Our agents then become the bosses and act in their own interest: “Government of the bureaucrats, by the bureaucrats, for the bureaucrats”.
When 19th century philosophers argued for bigger government and 20th century practitioners and the public followed suit, they made the completely wrong assumption that government officials were well informed and dedicated to the public interest. This is plainly wrong! This is why private choices and reliance on the invisible hand of competition are in most instances more effective and citizen-friendly than reliance on the choices by public decision monopolists.
We ignore the systemic weaknesses of public choices at our peril, whilst we take the benefits of private choices by capitalist entrepreneurs and free consumers for granted. Though we enjoy the benefits of capitalism, we only nod when opinion leaders revile it and depict the competitive economy as selfish and immoral! Most political leaders and their enablers in the media habitually doubt that there will be further benefits from letting untrammelled markets rip. The socialist Bernie Sanders in the US, his socialist bedfellows in Europe, and GetUp and the Greens in Australia get much media attention and much acclaim for their wrong-headed positions! Politicians of all colours promise to better our lives by public spending and subjecting free enterprises to more regulatory impediments. Yet, it is free enterprise that is creating the iPhones, the iPads, the live-saving pharmaceuticals and all those new amenities that we take for granted. Capitalist enterprise creates and tests new knowledge, and offers us more diversity and choice. Why do not more of us laugh the regulators and interventionists out of court?
Innovation is essential for sustaining our well-being. But it does not come from “a plan”. Malcolm Turnbull’s message that he had “a plan” sounded a hollow. Nor does “innovation” come from government subsidies, governments picking winners, or governments telling what energy sources we must use. Even worse, politically opportunistic handouts to ailing industries, such as Arrium Steel, when sold as innovation measures, signal that the government is ready to erect outright obstacles to market-driven structural adjustments and proper innovation. If Australians want to extract useful innovations from defence contracts, they should know that it would be easier to get milk from a bull! In the election campaign, ‘innovation’ remained an abstract, anaemic and vacuous concept. In reality, innovation comes from free enterprise and competition among free people. No cronies! The flower of innovation blooms when the climate and soil are right, its bud cannot be pulled open by the visible hand! I missed this insight during the recent election debate, nor have I heard the Commonwealth Minister for Innovation ever talk intelligently about competitive markets and market incentives for people to shoulder innovation risks. If we want the broader public to embrace innovation, we need discussion of concepts such as capitalism, competition, private enterprise, and deregulation.
•••
After what I have said so far, you may well ask: Why do not more Australians opt for more freedom? Tradition is part of the explanation. But we also must realise that freedom and self-responsibility come with risks. Freedom imposes the burden and obligation of staring into the fogs of the future to make choices, for which they will later have to bear the consequences. Economists say that innovators must “incur transaction costs” without being sure of the outcomes. Many costly projects end in losses, few oil-exploration drills lead to a bonanza! Living in a free society also means that we have to enforce agreements and rules – and that can be uncomfortable. Better to delegate that to the government nanny! The competitive capitalist system ceaselessly invites people, who made a profit and gained a certain socio-economic position, to reinvest their wealth into new ventures. Those who refuse may well find that the value of what they own gradually decays. Therefore, many of us find that being unfree is more comfortable. These are the reasons why the demand for freedom is in truth often a pretence, and the assumption that people want to be free an illusion.
•••
After this long, tiresome election campaign and the election result, which will be a debacle for whoever will form government, you will ask me: What does all this mean for economic policy?
In my view, the ongoing structural changes in the world economy and growing uncertainties about the near future require a cohesive, confident economic strategy, which should be focussed on productivity growth. Innovation and good productivity growth can be had when governments get out of the way, when economic freedom serves as a lodestar, which orients all individual policy actions. The following considerations should be given high priority:
Let us enhance openness and competition –– free people in free markets, in particular in what economists call ‘factor markets’. Labour market reform is a priority, as free labour markets are the best way to reduce unemployment and give the young and less-well-skilled a chance to get their foot on the job and income ladder. Labour-market competition also controls the power of employers, because they have to rival with each other for the best workers and skills. –– The market for the factor capital could also do with a little more competition for the Big Four banks by the adoption of the proposals made by the Financial Systems Inquiry. –– The rules on the treatment of lifetime superannuation savings should remain stable. A possible exception should be a stipulation which makes it much harder for superannuants to squander the ‘golden hand-shake’ in order to qualify for a government pension.
In product markets much could be gained by replacing the cobwebs of costly past regulations at Commonwealth, State and local levels with streamlined, citizen-friendly regulations, which are simple, certain and uniformly enforced. No more preferential deals for cronies! No regulations to advance bureaucratic careers or create electoral advantages for politicians! – As one of Australia’s most pronounced and pervasive competitive advantages is cheap energy, good economic policy must ensure that this advantage is freely and equitably accessible to every potential energy user.
The entire system of government finances, indeed the design of the Federation, needs to be critically re-examined. Let’s ask: What are the essential tasks of government? Defence, law and order, essential health care and safeguards for the environment would be covered under the protective function, which is the primary task of government. Education and basic skill formation can be seen as highly desirable ways to ensure equitable starting opportunities and ways of imbuing a sense of communal integration. Australian governments of all stripes should become serious about streamlining all welfare. Let’s replace the myriad of specific programme handouts with negative income taxes and vouchers. Such reforms could well allow us to dismiss many who now are on the payroll of the ‘redistribution industry’.
To my mind, a priority task would be to ask anew, which specific tasks should be exclusively assigned to which level of government. If this were done according to the principle of subsidiarity, this would put an end to off-putting, infantile blame shifting. –– Prime Minister Malcolm Turnbull recently had a welcome 30-minute attack of economic rationalism when he spoke about the idea that each level of government should be responsible for raising the revenues necessary to fulfil their assigned tasks. Such ‘fiscal equivalence’ would pave the way for competitive federalism and do away with the destructive system of vertical and horizontal transfers, which is the most damaging leftover from a bygone era of confused government.
If market reforms encourage faster productivity growth, budget repair should be a target within four years. This must be done without tax increases, since Australia – with a ratio of 26.8% to domestic product – now is markedly above the weighted OECD average of 22%.
Generally, the economy must be made a priority in times of possible stagnation or recession. Topics such gay marriage, feminism, votes for 16-year olds, or racial recognition in the Constitution may well serve as tempting diversions from the hard economic issues. But they will drain the limited stock of political and administrative energy. The government should stop funding single-issue lobbies with tax money, realising that this makes a cohesive, rational economic strategy harder.
Above all, the next Australian government should show leadership by talking about the fundamental liberal and Liberal values that make for the good government of a good society: freedom, security, justice, peace, equity, conservation of a liveable environment and prosperity. This would create a shared reference system against which to judge specific policy proposals. And affirming these basic truths with some passion could have the welcome, contagious effect of furthering social cohesion in our multi-ethnic society.
•••
How realistic is my counsel for such a bold flight forwards? As of 5 July 2016, not at all! Deficit repair? Forget it! AAA rating? Going, going, gone...! Labour-market reform? Impossible! –– More free trade? Not with the Xenophon mob!
With prospective political paralysis and the distraction of second-order non-economic issues, the Australian economy is now headed into perilous waters. If some new challenge comes out of left corner, a generation, who have not experienced a recession, massive job destruction and strict monetary restriction, is in for big trauma.
Should that eventuate, we need to be prepared with a well thought-out strategy, based on intellectual capital that civic organisations, like tonight’s gathering, create by their deliberations now. Let’s think boldly. What may today look like completely impossible, may before long become the only possible solution. Let us prepare now by tackling the policy issues based on first principles and insights from history, which the political-bureaucratic elite have obviously parked in the too-hard basket.
Thank you!
ca. 5,300 words
28 July, 2016
Free Enterprise (otherwise known as capitalism).
American Enterprise Institute president Arthur Brooks explains in this insightful 8 minute video why not eating your pet dog helps us understand the moral case for economic freedom. You absolutely have to watch it:
29 May, 2016
Great Stuff From John Roskam
On 27 May 2016, at 5:54 PM, John Roskam <jroskam@ipa.org.au> wrote:
One of the questions that I spend a lot of time talking with IPA Members about is why it is that despite all the evidence of modern history so many people continue to be hostile to the idea of capitalism and free markets. Between 1990 and 2010 the number of people living in extreme poverty in the world fell by one billion. In China alone in the three decades to 2010, 680 million people escaped extreme poverty. Those are huge numbers and they are all the result of the expansion of capitalism and free markets. Of the 7 billion people on the planet, 1 billion still live in poverty. And the way to get those 1 billion out of poverty is by using the methods that have been proved to have worked in the past.
Yet somehow for all of this, in the media, in our schools and universities, and in the public discourse, the image of capitalism and free markets is often overwhelmingly negative. Why? I think that part of the reason is that capitalism and free market ideas are believed to be selfish and self-centred. Too often we lose the moral case for capitalism and free markets.
When I taught politics at the University of Melbourne I'd often be told by 19 year-old, first year students that 'capitalism is for rich people and socialism is for poor people'. In response I'd try and explain that if anything it was the other way around! And then I'd turn their world view upside down by pointing out that in the United States more billionaires donate to left-wing causes than to free market ones.
Nothing could be further from the truth than the claim that free markets are all about being selfish. After all a market needs two people to trade. You can't trade with yourself. A free exchange in a free market produces a win-win situation. The individuals on each side of the exchange each believe they will get something better than they are giving up. David Ricardo wrote about this two hundred years ago.
I was prompted to these thoughts on Tuesday evening as I watched a video of the commencement speech at Hamilton College in the United States delivered by Peter Thiel a few days ago. We included the link to the speech in Hey...What did I miss? yesterday. If there's such a thing as a hard-core libertarian capitalist it's Thiel. According to Wikipedia he's worth $2.8 billion. Thiel is 48 years old and was the co-founder of PayPal. He was also one of the early investors in Facebook. In 2004 he bought 10% of the company for $500,000. Within less than 10 years that initial investment was worth $1 billion.
Thiel is also a big supporter of Donald Trump! In fact he's on the ballot in California on 7 June to be a delegate to the Republican convention to vote for Trump. How exactly Thiel's support for Trump squares with his libertarianism we'll presumably find out in in the months ahead. In 2009 in an essay entitled 'The Education of a Libertarian', Thiel wrote - 'I remain committed to the faith of my teenage years, to authentic human freedom as a precondition for the highest good. I stand against confiscatory taxes, totalitarian collectives, and the ideology of the inevitability of the death of every individual. For all these reasons, I still call myself 'libertarian'. '
And yet. For all of this Thiel put his belief in the central importance of friendships and relationships at the front and centre of his speech to the graduating class of Hamilton College. He recognised that the philosophies of liberalism, and even libertarianism, are philosophies about how we live with each other. Thiel told the class that they should always questions clichés - and identified two in particular. The first was 'To thine own self be true'. He pointed out that knowing exactly what your own 'true' self is can be problematic. And then he said this:
The other cliché goes like this: 'Live each day as if it were your last.' The best way to take this as advice is to do exactly the opposite. Live each day as if you will live forever. That means, first and foremost, that you should treat the people around you as if they too will be around for a very long time to come. The choices that you make today matter, because their consequences will grow greater and greater.
That is what Einstein was getting at when he supposedly said that compound interest is the most powerful force in the universe. This isn’t just about finance or money, but it’s about the idea that you’ll get the best returns in life from investing your time in building durable friendships and long-lasting relationships.
If there was one way I could have improved what Thiel said, I would have added something to the fourth sentence so that it would have read like this - 'That means, first and foremost, that you should treat the people around you as if they too will be around for a very long time to come - and they will be treating you as you treat them.'
Treating someone as you yourself would like to be treated is the foundation of a humane society - and is the essence of all the varieties of liberalism. And it is the exact opposite of selfishness.
Thank you for your support.
regards John
John RoskamExecutive Director
A graphic addendum:
25 May, 2016
Dairy Crisis
I have followed the Murray Goulburn/ Fonterra milk issue closely. How extraordinary that the processors would actually pay farmers a price more than they were recovering, with a price volatile commodity and have the ability to recover from the farmers. The processors have effectively left the full price risk with the farmers.
I acknowledge the significance of the dominant exports. However, I do believe that there is an opportunity for the much criticised Australian supermarkets and the milk processors, to win some really valuable goodwill by offering a brand with a 25c per litre (50c per 2 litre bottle) loading, widely publicised. The loading would be directly payable on some clever formula basis, to dairy farmers. Some years ago a similar thing was done following a flood in the cotton industry with the bulk payments made to a farmer representative industry body who distributed in full to those most impacted, on an agreed formula.
The scheme would be entirely voluntary, with no Government involvement. It is no fault of most farmers, other than the Co-op Directors, that they have been caught in this squeeze. As I assess it, they currently have the sympathy of Australian consumers. But they need to act quickly whilst the issue is topical.
Branded milk products are selling strongly, clearly demonstrating the sympathy factor. The purchase of branded milk helps, but it seems to me that more could be done.
I acknowledge the significance of the dominant exports. However, I do believe that there is an opportunity for the much criticised Australian supermarkets and the milk processors, to win some really valuable goodwill by offering a brand with a 25c per litre (50c per 2 litre bottle) loading, widely publicised. The loading would be directly payable on some clever formula basis, to dairy farmers. Some years ago a similar thing was done following a flood in the cotton industry with the bulk payments made to a farmer representative industry body who distributed in full to those most impacted, on an agreed formula.
The scheme would be entirely voluntary, with no Government involvement. It is no fault of most farmers, other than the Co-op Directors, that they have been caught in this squeeze. As I assess it, they currently have the sympathy of Australian consumers. But they need to act quickly whilst the issue is topical.
Branded milk products are selling strongly, clearly demonstrating the sympathy factor. The purchase of branded milk helps, but it seems to me that more could be done.
23 April, 2016
Rationally Optimistic
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