POLICY Volume 29 No. 1 • Autumn 2013 ideas • debate • opinion

CONTENTS

FEATURES:

3 Over-Regulation is Stifling Australia’s Media 43 Target 30: Reducing the Burden for Future Generations Ian Robertson Simon Cowan The current regulatory framework is broken, with poor prospects for reform. A campaign to reduce government spending below 30% of GDP within the next 10 years 8 Moochers Making Movies: Government Assistance to the Film Industry Gene Tunny INTERVIEW Governments should not chase the overseas film production dollar. 46 The Armchair Economist Steven Landsburg, author of The Armchair Economist, 16 Why Economists Succeed (or Fail) to Influence talks about making economics accessible to a general Policy audience. Peter Shergold Research findings get lost in translation between 53 Security in Sri Lanka academia and public administration. Dayan Jayatilleka speaks to Sergei DeSilva-Ranasinghe about the security situation in Sri Lanka. 21 How Economists Succeed (and Fail) to Influence Policy Stephen Kirchner BOOK REVIEWS Can economists do well and do good?. 57 The Modest Member: The Life and Times of 25 The Tribes that Hire the PhD Bert Kelly Dan Klein By Hal Colebatch Academic hiring perpetuates ideological outlooks. Reviewed by Stephen Kirchner

28 James Buchanan: An Assessment 58 Organizing Entrepreneurial Judgment: A New Geoffrey Brennan Approach to the Firm Buchanan taught us to focus on the rules of the By Nicolai J. Foss and Peter G. Klein game. Reviewed by Barry Maley

34 Crony Capitalism Adam Creighton 61 The Great Persuasion: Reinventing Free Markets since the Depression The Tea Party and Occupy movements can find common ground in opposing crony capitalism. By Angus Burgin Reviewed by Brian Doherty 39 Liberating Aboriginal People from Violence Stephanie Jarrett 63 Redefining the Poverty Debate: Why a War on Stephanie Jarrett on the event that motivated her to Markets is No Substitute for a War on Poverty research and write about violence against Aboriginal By Kristian Niemietz women. Reviewed by Andrew Baker POLICY staff Editor-in-Chief & Publisher: Greg Lindsay Editor: Stephen Kirchner Assistant Editor: Mangai Pitchai Design & Production: Ryan Acosta Subscriptions: Kerri Evans and Alicia Kinsey We are pleased to announce that Dr Stephen Kirchner is taking over as the Editor of Policy magazine. Dr Kirchner is well known to Policy Policy Magazine readers, having been a frequent contributor over many years. He is also Ph: +61 2 9438 4377 • Fax: +61 2 9439 7310 known to many through his Institutional Economics blog and op-ed Email: [email protected] contributions to The Australian and the Australian Financial Review. He is ISSN: 1032 6634 ideally suited to the role and we eagerly await his first edition. Please address all advertising enquiries and correspondence to: Dr Kirchner is Research Fellow at The Centre for Independent Studies The Editor and a former Senior Lecturer in the School of Finance and Economics, Policy University of Technology Sydney Business School He has worked as a PO Box 92 St Leonards NSW 1590 Australia financial market economist with Action Economics LLC and was Director of Economic Research with Standard & Poor’s Institutional Market

© 2013 The Centre for Independent Studies Limited Services, based in Sydney and Singapore. He has also worked as an Level 4, 38 Oxley Street, St Leonards, NSW adviser to members of the Australian House of Representatives and ABN 15 001 495 012 Senate. He has published in leading academic journals, including Public

Cover images: © Ambro10, Hocusfocus | Dreamstime.com Choice and the Australian Economic Review. Printed by Ligare Pty Ltd Distributed by Gordon & Gotch Australia Dr Kirchner holds a BA (Hons) from the Australian National University, and Gordon & Gotch New Zealand. a Master of Economics (Hons) from Macquarie University, and a PhD in The Editor welcomes unsolicited submissions. All full-length economics from the University of New South Wales. articles (other than reproductions) are subject to a refereeing process. Permission to reproduce articles may be given upon With the new editor, there will be a number of initiatives designed to application to the Editor. enhance future issues of Policy. Editorial Advisory Council In addition to the existing print edition, the Winter 2013 issue of Policy Professor James Allan, Professor Ray Ball, includes a new digital edition that will be accessible on the web and a Professor Jeff Bennett, Professor Geoffrey Brennan, Professor Lauchlan Chipman, Professor Kenneth wide range of tablet and other devices The digital edition will be fully Clements, Professor Sinclair Davidson, Professor searchable and better integrated with social media. It will also enable an David Emanuel, Professor Ian Harper, Professor Helen Hughes, Professor Wolfgang Kasper, Professor improved digital archive of back issues. The digital edition will replace Chandran Kukathas, Professor Tony Makin, Professor the current emailed pdf for online-only subscribers, but will also be Kenneth Minogue, Professor R.R. Officer, Professor Suri available to other subscribers. CIS will be in touch with subscribers in Ratnapala, Professor David Robertson, Professor Razeen Sally, Professor Steven Schwartz, Professor Judith Sloan, the near future with a sample edition. The new digital edition will improve Professor Peter Swan, Professor Geoffrey de Q. Walker. the reader experience and make Policy more accessible to a wider range Policy is a quarterly publication of The Centre for of readers. Independent Studies in Australia and New Zealand. Views expressed are those of the authors and do not necessarily reflect Policy is open to feature articles, interviews, review essays and book the views of the Centre’s staff, advisers, directors, or officers. reviews covering a wide range of policy issues and ideas from any disciplinary perspective. Feel free to get in touch with Stephen to discuss POLICY is a publication of any ideas you may have at [email protected]. We are also open to The Centre For Independent Studies. inquiries from potential advertisers.

The Centre for Independent Studies (CIS) is Australia’s leading independent public policy institute. Its major Contributor deadlines are as follows: concern is with the principles and institutions underlying a free and open society. Spring 2013: 30 July CIS believes in: Summer 2013–14: 30 October • individual liberty and choice, including freedoms of association, religion, speech, and the right to property Further information for contributors and subscribers can be found at • an economy based on free markets www.policymagazine.com. • democratic government and the rule of law • the importance of an autonomous and free civil society CIS promotes its vision by fostering public debate about major social, constitutional, and economic issues. Policy has been the flagship publication for the CIS for many years, To remain independent of government influence on and we look forward to your company as we continue our tradition of its activities and direction, the Centre relies on untied exploring ideas and public policy challenges from a classical liberal contributions from individuals, companies, and charitable trusts, and income from the sale of its publications. perspective. Greg Lindsay For information on CIS membership, Policy Executive Director subscriptions, and other CIS publications and events, please visit our website at www.cis.org.au or: The Centre for Independent Studies ph: +61 2 9438 4377 • fax: +61 2 9439 7310 email: [email protected] FEATURE

OVER-REGULATION IS STIFLING AUSTRALIA’S MEDIA The current regulatory framework is broken, with poor prospects for reform, argues Ian Robertson

hen the Broadcasting Services the 55 legislative concepts that form the basis of Act (BSA), which regulates current Australian media regulation and found broadcasting and online services the majority to be either ‘broken or under in Australia, was passed by significant strain.’ ParliamentW in 1992 it totalled fewer than 100 pages. Today it is 10 times that length. The Convergence Review The BSA was intended to be a significant In December 2010, Minister for Communications departure from the previous regime of detailed Stephen Conroy announced the Convergence and complex black letter law and an adversarial Review. At the time of releasing the terms of approach to regulation and enforcement. The reference for the review he said: ‘The government Act aimed to substantially free up broadcasting recognises that regulatory measures designed in regulation in Australia with a much lighter touch the 1980s may not be the most appropriate for approach, and an emphasis on co-regulation and the 21st century.’ appropriate flexibility to meet ever-changing The Convergence Review Committee was circumstances. And for a while it did. established in early 2011 with Glen Boreham, However, regular complex amendments to a former managing director of IBM Australia the BSA in the 20 years since have significantly and current chair of Screen Australia, as its chair. increased its length and made parts of it similar The terms of reference for the review covered a to income tax law in the complexity of their broad range of issues, including media ownership provisions. Much of this complexity stems from laws, media content the BSA’s underlying principles of strong standards, local content restrictions on ownership and control, and rules, and the allocation extensive anti-avoidance provisions to prevent of radiocommunications them from being circumvented. Other restrictions spectrum. in the BSA are intended to stifle competition. The review set out The very detailed provisions restricting the on a deregulatory path activities of datacasters are an example—they have operated effectively to ensure that datacasting has not occurred in Australia. And the Australian Communications and Media Authority (ACMA), which is the regulator Ian Robertson heads the media, responsible for the BSA and 25 other Acts and entertainment and communications 523 pieces of regulation that regulate much of practice of Holding Redlich, and Australia’s media, itself recognises that the current was from 1997 to 2004 a part-time media regulatory model is substantially flawed. board member of the Australian In its submission to the Convergence Review, Broadcasting Authority. titled ‘Broken Concepts,’ the ACMA reviewed

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from the outset. It adopted the following an independent regulator could apply, fundamental principle: amend or remove regulatory measures as circumstances require. This approach Citizens and organisations should be is used in comparable countries such as able to communicate freely and, where the United States, the United Kingdom regulation is required, it should be the and Canada. minimum necessary to achieve a clear public purpose. The review also stated in its final report that the new communications legislation should In its final report, the review stated that a give the regulator clear guidance that regulatory consistent theme of the submissions it received forbearance—that is, the option not to apply was that the communications environment, regulation in a specific case—is often the most particularly broadcasting, is overregulated desirable approach. and many of the rules are unnecessary and The review recommended the abolition of the difficult to comply with. The review agreed and existing communications regulator, the ACMA, concluded that a range of existing regulations no and its replacement with a new regulator that longer served their policy purpose, were difficult would operate largely independent of government for government to administer, and were an control and with the flexibility necessary to unnecessary burden on industry. properly administer new principles-based communications legislation to efficiently achieve The review recommended that all the best possible policy outcomes in the interests of the industry and the public. other ownership and control rules should be abolished and that the licencing of The collision of the Convergence broadcasting services should be ended. Review and the Independent Media Inquiry In September 2011, almost a year after In the important area of ownership and announcing the Convergence Review, Senator control, the review proposed that the only Conroy announced an ‘independent inquiry ownership and control rules which were into the Australian media’ to be conducted required were a ‘minimum number of owners by a former judge of the Federal Court, Ray rule’ at the local level, and a public interest test Finkelstein QC. at the national level should apply to changes Senator Conroy stated that the Independent in the control of media companies of national Media Inquiry would focus on print media significance. The review recommended that all regulation, including online publications, other ownership and control rules should be and the operation of the Press Council: abolished and that the licencing of broadcasting services should be ended. The Government believes a separate and The review recommended a shift towards distinct examination of the pressures principles-based legislation rather than rigid black facing newspapers and their newsrooms, letter law so that the regulatory environment including online publications, will could respond effectively to the future challenges enhance our consideration of the policy of convergence. The review stated: and regulatory settings Australia needs to ensure that the news media continues Given the ongoing changes in to serve the public interest in the technology and in the way Australians digital age. use media, legislation would be more effective if it focused on creating a The inquiry was greeted with a mix of deep framework of principles within which suspicion and outright hostility by Australian

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news media companies. Most considered the Convergence Review proposals were it a political response to the media’s critical strongly opposed by the media; Mark Day, reporting of the federal government and a tawdry a leading columnist for The Australian, attempt to muzzle the press and bring it under wrote a front page article attacking the review’s government control. final report days before the report was published. The government also decided that rather than As a result, rather than being welcomed as reporting directly to it, and notwithstanding an important step towards deregulation, the that the government directly commissioned and review’s final report was generally criticised by paid for the inquiry, the inquiry would report to the media. the Convergence Review and its findings would be incorporated into the review’s final report. This set the review on a collision The reason for this was never explained and the decision was surprising given that the issues course with Australia’s media. Whereas being considered by the inquiry had only the review favoured substantial peripheral relevance to the issues being examined deregulation of the media, the inquiry by the review. recommended precisely the opposite. This set the review on a collision course with Australia’s media. Whereas the review favoured substantial deregulation of the media, the The ACMA and the co-regulation inquiry recommended precisely the opposite. of content The inquiry recommended the establishment Australia operates a ‘co-regulatory’ system for of a new government-funded body, the News regulating broadcasting content and dealing Media Council, to set journalistic standards for with complaints about that content. The peak the news media and to handle complaints when bodies that represent Australian broadcasters— those standards are breached. The inquiry also principally Free TV Australia and Commercial recommended that the News Media Council Radio Australia—develop codes of practice, should have these roles for news and current after consultation with the general public, that affairs coverage on all platforms—print, online, prescribe content and programming practices. radio and television. The codes must be registered by the ACMA The Convergence Review did not agree with if the ACMA is satisfied that the codes are these proposals: endorsed by the industry, the public has had an adequate opportunity to comment, and the codes While the establishment of a publicly provide ‘appropriate community safeguards.’ funded statutory authority to look at In practice, members of the public make few news and commentary as proposed by submissions to the periodic reviews of the codes the Independent Media Inquiry remains of practice undertaken by the broadcasting an option available for government, industry, and the wording of the codes is the the Review considers this to be a position result of tough negotiations between the peak of last resort. broadcasting industry bodies and the ACMA. A person who wishes to complain about Instead, the review recommended the material broadcast by an Australian broadcaster establishment of an industry-led body to promote must first complain to the broadcaster, and standards, adjudicate complaints, and provide if dissatisfied with the response, may then timely remedies. The body would be funded complain to the ACMA. The ACMA may also principally by its members with some government initiate investigations about material broadcast funding, and would cover all platforms—print, by a broadcaster if the ACMA considers the online, television and radio. issues involved to be sufficiently serious. While a less interventionist model than that In performing its regulatory functions, the proposed by the Independent Media Inquiry, ACMA often demonstrates undue emphasis on

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black letter law rather than displaying flexibility the ACMA and the ACCC, the ACCC also has a to achieve outcomes that serve the public interest significant role in consumer protection. One of and the needs of the industries it regulates. The the areas of consumer protection in which the ACMA’s adversarial approach to regulation has ACCC is and always has been active is misleading seen it involved in frequent litigation, and its and deceptive advertising. relationship with key industry sectors is thought In a number of cases over more than a decade, by many leaders of those industries to be strained. the ACCC has sought to make media companies, In a recent federal court case, the owner of including advertising agencies, publishers, Sydney radio station 2GB successfully sought broadcasters and most recently the search to have the ACMA stopped from conducting engine provider Google, responsible for publishing an investigation concerning breach of the or broadcasting misleading or deceptive commercial radio codes of practice because a valid advertising even though the relevant advertiser complaint had not been made. In his judgment, is clearly liable. Justice Buchanan was critical of the ACMA for In the Google case, the ACCC claimed not being able to state a clear position to the a number of search engine results displayed by court as to whether the relevant code of practice, the Google search engine between 2005 and which had been developed in conjunction with 2008 were misleading and deceptive, in breach the ACMA, applied to the complaint made of section 52 of the Trade Practices Act (which is to 2GB. The court rejected all of the ACMA’s now section 18 of the Australian Consumer submissions in the case and ordered it to pay Law). The search results were a form of paid 2GB’s costs. advertisement known as ‘sponsored links’ or ‘AdWords.’ The case took five and a half years The case took five and a half years to resolve to resolve in Google’s favour and in Google’s favour and involved more than involved more than 16 days of hearings 16 days of hearings before nine judges in three courts. It was undoubtedly enormously expensive before nine judges in three courts. for both parties, including the Australian taxpayer. A company with fewer resources than In addition, the ACMA, like some other Google may not have been able to afford to regulators, has a well-resourced media unit fight the ACCC all the way to the High Court headed by a senior former journalist to ensure that and would, instead, have had to agree to accept the ACMA is portrayed in the best possible light. liability and a penalty sought by the ACCC even It clearly sees public relations and publicity as though it had not, as determined unanimously important weapons in its regulatory armoury. For by the High Court, breached the law. example, in a recent investigation concerning a It was not in contention in the High Court Sydney FM radio station, the ACMA held a press that the sponsored links in question, concerning conference to announce tough licence conditions travel, car sales, classified advertising and before the radio station had had time to exercise dog training, were misleading and deceptive. its statutory right to make submissions to However, Google successfully argued that each the ACMA. sponsored link was specified by the relevant advertiser and Google merely implemented the The ACCC and the media industry advertiser’s instructions and was not responsible Another regulator with extensive power that for the misleading and deceptive representations. affects the news media is the Australian The High Court rejected the ACCC’s Competition and Consumer Commission contention that Google rather than the (ACCC). In addition to its role in competition advertisers produced the sponsored links. law, which has the practical effect that anybody The High Court also accepted that Google’s wishing to acquire an Australian broadcasting behaviour in displaying sponsored links at the business has to seek the approval of two regulators, direction of advertisers was the same in principle

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as the behaviour of other intermediaries such willing to order a pecuniary penalty and to as newspaper publishers and broadcasters who accept an undertaking from the airline. However, publish, display or broadcast the advertisements the court was not prepared to accede to the of others. ACCC’s request for an order for corrective In absolving an intermediary from liability advertising to be published on the Air Asia for the publication of misleading and deceptive website to punish the airline for its conduct. advertising, the Google case is consistent with The court commented that the power to some earlier cases in which the ACCC sought make corrective advertising orders under the unsuccessfully to make advertising agencies Competition and Consumer Act ‘is intended to liable for misleading advertisements prepared for be protective and not punitive’ and was not their clients. appropriate even though conduct that misled In 2003, the Full Federal Court overturned consumers about the price of air fares had on appeal a decision that an advertising agency clearly occurred. should be held liable for misleading and deceptive conduct in preparing an advertisement for the There is general agreement among health fund MBF. The case was one of several in which the ACCC sought to impose the role all relevant players, including the of gatekeeper on advertising agencies to make federal government, that the Australian them primarily responsible for misleading and media is over-regulated and that the deceptive advertisements. However, in the current regulatory model is broken. MBF case, the Full Federal Court decided that advertising agencies would only be liable for such advertising if they were reckless, negligent or Conclusion knew misleading representations were conveyed There is general agreement among all relevant in an advertisement. players, including the federal government, that Another area of frequent conflict between the Australian media is over-regulated and that the ACCC and Australian businesses accused of the current regulatory model is broken. However, misleading or deceptive conduct is in the area there is no indication that any meaningful of corrective advertising. change is likely in the foreseeable future. The Competition and Consumer Act and At the time of writing, the federal government’s its predecessor legislation, the Trade Practices legislative response to the Convergence Review Act, contain provisions that enable courts to, appears likely to be limited to a licence fee rebate among other things, make what is described as for commercial television broadcasters and some ‘a non-punitive order’ requiring corrective inconsequential changes to local content rules for advertising to be published if a breach of the commercial television. Even the simple removal legislation has occurred. of the ‘reach’ rule, which prevents one person However, the ACCC has never been happy controlling television stations that broadcast to that the relevant provisions are intended to be more than 75% of the Australian population, used for a non-punitive purpose rather than appears to have fallen victim to vested interest and to punish offenders. In a large number of cases political weakness. over many years, the ACCC has sought orders The cases referred to above highlight the from the Federal Court requiring that corrective importance of regulators such as the ACCC and advertising be published by businesses that have the ACMA exercising appropriate regulatory engaged in misleading and deceptive conduct. forbearance and carefully considering the impact In most of these cases, the court has refused to of their actions on those they regulate. accede to the ACCC’s request. In a recent case concerning misleading and deceptive advertising of air fares by the airline Air Asia on its website, the Federal Court was

POLICY • Vol. 29 No. 1 • Autumn 2013 7 FEATURE

MOOCHERS MAKING MOVIES: GOVERNMENT ASSISTANCE TO THE FILM INDUSTRY Governments should not chase the overseas film production dollar, says Gene Tunny

n February 2013, then Arts Minister Simon subsidise the film industry to the extent federal Crean confirmed that the federal government and state governments do now. As discussed in would offer financial incentives to attract to this article, there is little public policy rationale Australia the filming of Disney’s production for these subsidies and no guarantee they will of 20,000 Leagues Under the Sea: Captain Nemo, promote a long-term, sustainable film industry I 1 starring Brad Pitt and Angelina Jolie. The minister locally. Indeed, some other regions around the also called for state government assistance on top world, such as the US state of Michigan, have of this federal assistance. realised that film industry subsidies are highly Previously, in April 2012, the federal costly and not justified by the relatively small government announced it would give $12 million economic gains. to attract the filming of The Wolverine, starring This article provides an overview of current Hugh Jackman, to Australia.2 The justification assistance by Australian governments to the for The Wolverine subsidy was that it would film industry, considers the rationale for such increase the existing Location Offset tax incentive, assistance, and provides recommendations for discussed below, to 30% from 16%, a rate the future. considered by the film industry as uncompetitive given the current historically high value of the Industry overview Australian dollar. No doubt Disney would be The Australian film industry is relatively making this argument for 20,000 Leagues Under small compared with Hollywood, and typically the Sea, too. produces 30–40 feature films every year; the Clearly the film industry, once concentrated industry spent an average of $240 million per year in a few centres and Hollywood being the largest over the five years to 2011–12. Major locations for and most prominent, has become increasingly feature film production in Australia, particularly internationalised, particularly since the 1970s, big budget features under and both financing and production are globalised. foreign creative control, So productions that might typically have been are Fox Studios (which produced in Hollywood have spread to countries recently completed and regions around the world, notably Canada filmingThe Great Gatsby) and the United Kingdom. There has been some in Sydney and Village limited activity in Australia, including the Roadshow Studios on the production of movies such as Scooby-Doo, the Gold Coast. Matrix films, andThe Great Gatsby. In part, the growing internationalisation in production has been driven by incentives Gene Tunny is a former provided by governments to attract films to their Commonwealth Treasury officer and countries. Countries around the world, including is currently a Brisbane-based senior Canada, the United Kingdom and Germany, consultant with Marsden Jacob and US states are competing for film productions. Associates. Views expressed in this Despite the economic activity and attention article are not necessarily those of provided by film productions to Australia, it is current or past employers. doubtful whether Australian governments should

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Productions under foreign control have a in the early to mid-2000s. So while productions major impact on the scale of Australia’s film under Australian creative control are numerically industry from year-to-year, and a handful of dominant, they do not always represent the large foreign productions can almost double total largest share of total spending by the industry spending associated with the industry, as they did (Figures 1 and 2).

Figure 1: Feature film productions in Australia, by source of creative control

Source: Screen Australia data.

Figure 2: Spending in Australia by film industry

Source: Author’s calculations based on Screen Australia and ABS data.

Foreign productions, especially where a large foreign productions have spent between part of the movie is made in Australia, as opposed $20 million to $60 million. to a few scenes, have much larger budgets than So yearly production spending is volatile Australian productions, and hence, can lead to due to the impact of a number of big budget big fluctuations in the industry. While Australian productions, most recently, The Great Gatsby. productions have spent between $5 million Given the challenges of financing large budget and $10 million over the last decade and a half, feature films, it is unsurprising they do not come

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in predictable numbers every year. Further, the value in response to the mining boom, making attractiveness of Australia as a destination for Australia a less attractive place to make movies, foreign productions will depend on the value-for- either in whole or in part. As a result, spending money of producing in Australia, which depends by foreign productions in Australia has plunged significantly on the exchange rate. (Figure 3). As Greg Jericho has observed, the The initial attraction of Australia to appreciation of the dollar makes the production international productions in the early 2000s of The Wolverine in Australia ‘unusual,’ and it was the low value of the Australian dollar. Since could only have occurred with substantial then, the Australian dollar has increased in government subsidies.3

Figure 3: Foreign productions in Australia

Source: Author’s calculations based on Screen Australia, ABS and RBA data.

The exchange rate and the cyclical factors motion picture and video production, the inherent in the sector have increased the volatility available data do not allow separating motion in the number of international productions picture producers from video producers.5 in Australia—and prevented the realisation Post-production service is often identified as of a Hollywood on the Gold Coast. As Local an important industry supported by the film Hollywood observed, ‘The Gold Coast’s production, but it employs fewer than 1,000 production history is marked by discontinuity and people across Australia; moreover, it competes irregularity as international work is subject to in an international marketplace and attracts cycles of boom and bust.’4 overseas productions as well, so co-location is not The film industry is not a large employer, and, particularly relevant.6 as would be expected based on the ‘discontinuity and irregularity’ of the industry, many of the Assistance overview jobs are temporary. Throsby and Zednik (2010) Assistance to the film industry is provided by estimate that in Australia, of the 7,000 or so actors both Commonwealth and state governments, and directors who are practising professionals, though the Commonwealth’s Screen Australia only 41%, fewer than 3,000, spend at least half is the predominant funder. All the states and their time in industry jobs. Additionally, while territories have their own film industry promotion we know that 7,350 people are employed in bodies such as Screen NSW, Film Victoria,

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Screen Queensland, and Screen WA. Broadly Table 1: Tax offsets available for the film speaking, state film agencies may be viewed as industry providing topup assistance to that provided by the Commonwealth. The film agencies are not Offset type Description solely confined to feature films but also provide Producer 40% rebate on the qualifying spend of funding for producing and script writing for Offset qualifying Australian films (and a 20% documentaries and TV programs. rebate for other qualifying media) In addition to ongoing support programs, Location 16.5% rebate on Australian spend of Commonwealth and state governments tend Offset large budget productions that do not to offer ad hoc assistance designed to attract meet the significant Australian content particular productions, such as The Wolverine test for the Producer Offset and potentially 20,000 Leagues Under the Sea. Indeed, the Commonwealth arts minister PDV Offset 30% rebate which supports work on post, digital and visual effects recently announced that $20 million is being production (PDV) in Australia, set aside to attract an international production, regardless of where a project is shot most likely 20,000 Leagues Under the Sea.7 At a state-level, however, these ad hoc assistance Source: Australian government websites. arrangements are often not transparent and the level of assistance is undisclosed, being labeled The majority of films (representing over 90% ‘commercial-in-confidence.’ of total budget) qualify for the Producer Offset. It appears that the test for significant Australian Commonwealth assistance content under the Producer Offset must be lenient, Assistance by the Commonwealth comprises because The Great Gatsby passed the test, based tax offsets and direct support for a range of on Australian involvement in the production, activities. The government provides three tax including director Baz Luhrmann, even though it offsets collectively known as the Australian is a quintessentially American story. Screen Production Incentive. The tax offsets are Total Commonwealth assistance to the film the Producer Offset, Location Offset, and the industry amounts to several hundred millions PDV (post, digital and visual effects production) of dollars every year (Figure 4). As the tax Offset (see Table 1). incentives are percentages of total spending, the level of Commonwealth assistance fluctuates with spending on production in the industry.

Figure 4: Commonwealth assistance to the film industry, 2003–04 to 2010–11

Source: Productivity Commission, Trade and Assistance Review 2010–11. Note: Figure includes assistance to feature films, and TV and documentary productions.

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Screen Australia spends money on feature State government assistance film development support ($2.7 million on The oldest of the state film bodies in Australia 102 feature films in 2011–12) and investments is the SA Film Corporation, established by the in feature film production ($18.1 million on Dunstan government in 1973. The SA body 16 films in 2011–12).8 In 2011–12, Screen has funded many well-known Australian films Australia also invested $21.8 million in television such as Breaker Morant, Picnic at Hanging Rock, productions and $14.9 million in documentary Storm Boy, and Sunday Too Far Away. Arguably, productions. While Screen Australia invests in the its most successful films date from the 1970s and Australian film industry and is entitled to a share early 1980s, and neither it nor other state bodies of the profits, the profits it receives from film have funded films with the same cultural impact investments appear to be small—an average in recent years. Other states have followed South of around $0.25 million per annum between Australia in establishing their own film agencies, 2011 and 2012.9 with Victoria’s agency now the largest in size (Figure 5).

Figure 5: Expenditure by state film agencies, 2008–09

Source: Productivity Commission, Trade and Assistance Review 2009–10

State film agency assistance also includes from either Screen NSW funds or from the $120 funding for the development of screenplays and million State Investment Attraction Scheme.11 attendance at international events. Typically, a limited amount of financing for film productions Assistance in other countries is available through loans from a revolving fund, Film producers have become adept at appealing to justified in part as ‘cash flowing’ the producer offset governments across the world for tax breaks and (where it is not paid until project completion), production subsidies. Unfortunately, governments distribution guarantees, and pre-sales.10 are too willing to compete against each other to State governments also typically provide attract film productions. funds to attract films to their states, such as New Zealand appears to have offered very Queensland’s Production Incentive. Assistance large subsidies for the Lord of the Rings trilogy, is also potentially provided on an ad hoc basis, amounting to hundreds of millions of NZ dollars, such as for The Great Gatsby, which the NSW and was criticised by the OECD for doing so.12 government is subsidising by an undisclosed The OECD would prefer countries reform product amount. In NSW, film projects can be funded and labour markets and invest in education and

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health for long-term benefits, rather than waste equity argument would apply to government money on film productions that bring temporary support for the film industry, leaving only market production and jobs. failure as a justification for public support. Britain has offered incentives to attract But is the Australian film industry providing a international films since the 1970s. Total film public good? In economics, a public good is a good industry incentives have recently come into or service that is non-rivalous and non-excludable focus as the UK government aims to trim its in consumption. Non-rivalous means one person’s budget deficit, and Prime Minister Cameron has consumption does not limit another person’s announced he would prefer the government funds consumption in anyway. Non-excludable means ‘commercially successful pictures’ such as The people cannot be excluded from consuming it in King’s Speech.13 This may suggest the government anyway, so there is no way to collect payment. For may be willing to divert money from local films a true public good, people can ‘free ride’ on it and to foreign-produced films with a greater chance of not pay for the benefit they receive. Hence, there international success. is a case for public provision, financed through There is also extensive competition for film taxation. National defence is the classic example productions among North American jurisdictions, of a public good. that is, among Canadian provinces and US states. Canada offers tax relief at the provincial and Even if the cultural protection argument federal levels, designed to attract US feature films, were to justify some public support with British Columbia providing up to $300 million Canadian dollars of tax credits each year.14 in the limited number of cases of Up to 40 US states have offered tax and financial culturally enriching films, it certainly incentives, but several states have questioned does not justify public support for the value of these incentives. Arguments that Hollywood productions with no incentives have cost too much in tax revenue discernible Australian content. losses have prevailed in Michigan, with a more generous scheme replaced by a smaller, capped tax incentive in 2011.15 Concerns have been expressed Films are clearly not public goods in the in other US states, too. An economic analysis strictest sense, as they are neither non-rivalous from the Legislative Fiscal Office of the US state nor non-excludable. Instead, the film industry of Louisiana in 2005 found negative fiscal impacts tends to rely on arguments around the promotion from incentives to attract film production, with or protection of Australian culture. Some may the chief economist observing that ‘the economic argue that films with Australian content enrich benefits are not sufficient to provide tax receipts our culture by helping tell the Australian story. approaching a level necessary to offset the costs of Films such as Storm Boy or Breaker Morant may be the tax credits that stimulated the increased film seen in this regard, and many would argue such production expenditures.’16 films yield benefits across successive generations, so it may be socially optimal to provide public Is there a rationale for public support subsidies to assist with production. However, of the film industry? there is no clear case for public support as there is Generally, there are two permissible justifications in the case of a pure public good such as national for government intervention in the economy. defence. First, market failure—a very limited set of Even if the cultural protection argument were circumstances where the market fails to provide a to justify some public support in the limited socially optimal outcome, such as where there are number of cases of culturally enriching films, environmental externalities, or so-called public it certainly does not justify public support for goods. Second, equity concerns—where the Hollywood productions with no discernible government intervenes to redress some perceived Australian content such as Scooby-Doo or 20,000 inequity or injustice. It is difficult to see that an Leagues Under the Sea. Of course, industry

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supporters would argue there is Australian there was indeed this capacity before significant content by virtue of Australians working on public support commencing in the 1970s—even the production, but this is just an argument for though it would have been on a much smaller government subsidising jobs. There is, however, scale. There would be a significant number of no justification for the government supporting people across Australia with the required skills jobs in one sector over another, if there is no but who may be working in other fields—for market failure. example, personal training—as the data on the Governments long ago abandoned the notion employment experience of actors referred to above that they have a major, direct job creation role, would suggest. and it has been a long time since the government Finally, the policy of specific one-off payments has seen its role as employer of last resort, such to attract international film productions has as when state railways would employ otherwise even received criticism from Australian film unemployable young people as porters. The industry participants. Academy Award nominated right policy is for governments to promote film producer Grant Hill has described the job creation with sensible fiscal and monetary discretionary payments for The Wolverine and policies and framework conditions such as potentially for 20,000 Leagues Under the Sea as flexible industrial relations and efficient market ‘fluky and flaky.’17 Of course, the domestic film regulations. Unfortunately, although the lesson industry does not oppose assistance, but it appears that governments should not buy jobs has been it may prefer replacing ad hoc assistance to attract mostly learned, governments still succumb to international productions with enhanced tax special pleading by politically attractive sectors offsets available to all. such as the film and car industries. From a policy perspective, it is preferable to provide what the Productivity Commission Specific one-off payments to attract calls generally available measures—assistance promoting some desirable activity not limited to international film productions has particular firms or industries, avoiding the need even received criticism from Australian to pick winners. Even if ad hoc special assistance film industry participants. to the film industry were ended, film industry assistance would still not qualify as a generally available measure because it specifically targets the Government officials also hope that film film industry. In contrast, the R&D tax credit, productions will add glamour and attention to a at least before the recently announced changes region, creating goodwill and attracting tourists taking it away from our largest companies, is with associated economic impacts. It would be generally available across firms and industries and impossible to quantify any benefit to tourism, and is designed to ameliorate a market failure: the hence, this appears a spurious ground for public public spillover benefits of innovation that are not support. There is also the potential for ill will, captured by private investors. It is unclear what where a region is displayed in a negative fashion market failures are incentives to the film industry in a film production. For example, some US states designed to address. such as Texas do not permit a film receiving public support to show their state displayed in a negative Conclusions fashion. There is no rationale for the ad hoc payments to Another more subtle argument is that it is attract international productions to Australia, and necessary to support the film industry through hence, governments should discontinue them. international productions so it has the capacity Other clear areas for reform include: and scale to produce the limited number of films with genuine Australian content. This appears to • cutting the Producer and Location offset be a spurious argument, as there will always be and reallocating funds to other government some film production capacity in Australia, and priorities or tax cuts; or, at least

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3 Greg Jericho, ‘Wolverine and a blockbuster case of • tightening up the operation of the tax secrecy,’ The Drum Opinion (26 April 2012). Significant Australian Content test to 4 Ben Goldsmith, Susan Ward, and Tom O’Regan, ensure only genuinely Australian films (that Local Hollywood: Global Film Production and the is, with some cultural value, and certainly Gold Coast (UQ Press, 2011), 31. not The Great Gatsby) qualify. 5 Stuart Cunningham and Peter Higgs, What’s Your Other Job? A Census Analysis of Arts Employment in In terms of industry sustainability, assuming Australia (Australia Council, 2010), 25. this is a worthwhile goal for the time being, it 6 As above. would be better to focus on the domestic industry 7 Philip Hudson, ‘Arts Minister Simon Crean asks why instead of foreign productions, which as shown sports always gets first go over the arts,’ The Herald Sun (13 March 2013). above can introduce a large degree of volatility into 8 Screen Australia, Annual Report 2011–12, 21–23. the industry, and, hence, the risks of crowding out 9 As above, 133. or having to rely on significant amounts of foreign 10 Screen Queensland, 2011–12 Annual Report, 84. labour to produce the films. 11 Paul Wallbank, ‘Going insane with government Ultimately, subsidising any industry means subsidies,’ Decoding the new economy, blog post, governments have less money to spend on areas (16 February 2013); of Government NSW, Budget of arguably greater public need, such as health Supports Jobs in NSW Through Trade and Investment and education. Given that government assistance (2012) to the film industry does not even appear to 12 Simon Louisson, ‘OECD knocks “Rings” films’ guarantee the development of a sustainable film multimillion tax subsidies,’ The New Zealand Herald (10 December 2003). industry in Australia, subsidising the industry, 13 BBC News, UK films urged to be more ‘mainstream’ especially through special, undisclosed payments, in new report (11 January 2012). such as to The Great Gatsby production, appears 14 Mark Brownlee, ‘Does Ottawa’s film industry need doubly wrong. public subsidies?’ Ottawa Business Journal (19 February 2013). 15 Steve Wells and Mark Ross, ‘“One for the Money, Endnotes Two for the Show” An Update on State Tax 1 Simon Benson, ‘Angelina Jolie and Brad Pitt headed Incentives for the Film Industry,’ Journal of State Down Under to film 20,000 Leagues Under the Sea: Taxation 30:5 (July/Aug 2012), 21–30. Captain Nemo,’ The Daily Telegraph (14 February 16 Greg Albrecht, Film and Video Tax Incentives: 2013). Estimated Economic and Fiscal Impacts (State of 2 Prime Minister Julia Gillard and Minister for the Arts Louisiana: Legislative Fiscal Office, 2005), 4. Simon Crean, ‘“The Wolverine” to film in Australia,’ 17 Michael Bodey and Michaela Boland, ‘Our media release (20 April 2012). international film policy is “confusing, flaky and fluky”,’The Weekend Australian (2–3 March 2013).

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WHY ECONOMISTS SUCCEED (OR FAIL) TO INFLUENCE POLICY Research findings get lost in translation between academia and public administration, argues Peter Shergold

studied politics and American studies at article, ‘Seen but not heard,’ Australian Literary university, and through the rigours of a Review, 4 May 2011). doctorate at the London School of Economics, The more specific question I seek to address turned myself into a university lecturer in here is why economists who work outside Ieconomic history. I never presented Economics governance institutions (particularly those who 101 although I did on one occasion teach applied work in universities) generally exert so little direct statistics for historians. Indeed, during the short beneficial impact on public policy decisions—or rise and precipitous fall of economic history as at least a lot less than I would prefer. an academic discipline, I rather fancied myself a More particularly, in searching for a bit of a ‘cliometrician.’ With economic historians comparative benchmark, I wonder why does in Australia finding their services no longer their influence appear more modest than that of required by universities, I was fortunate to make medical scientists? It’s not just that health and a new career in the Australian Public Service medical research is typically better funded than (APS). It was serendipity. the social services and liberal arts; it’s also that In the two decades as a bureaucrat, my with some notable exceptions, such as Bruce training in economic history—the ability to write Chapman’s design of an income-contingent loan coherently, count carefully, analyse methodically, scheme to fund university education, academic and synthesise research findings persuasively— economists have wielded less influence on specific often came in handy. I hope that the Task Group policy initiatives. on Emissions Trading, which I headed, exhibits At first blush this some evidence of the application of these skills. seems odd. After all, Unfortunately, the so-called ‘Shergold Report’ debate on Australia’s will forever remain a minor if interesting economic policy settings footnote in Australian history. As I discovered is intense. It dominates first hand, sound economic arguments often political discourse. founder on the rocks of party politics. Rhetorically, at least, During my time in the APS, I occasionally economists are sought spoke in frustration about how rarely academic research was able to exert a significant impact on the deliberations of government (see Stuart Peter Shergold is Chancellor of Macintyre, The Poor Relation: A History of Social the University of Western Sydney. Sciences in Australia). Since then, I have written This is an edited version of a talk more reflectively on how frequently relevant he gave at the Australian Economic research findings get ‘lost in translation’ between Forum, Sydney, on 19 July 2012. academia and public administration (see my

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after. Indeed, every Australian government today The world of public policy, however, tends genuflects before the altar of ‘evidence-based to make the process of decision-making more policy.’ Never have the auguries been so favourable susceptible to politically focused ‘evidence.’ This for economists … and the outcomes so modest. makes it most difficult for outside economists, especially those in universities, to influence policy. The limits of evidence-based policy Academia tends to perceive research methodology One problem is that evidence is not neutral. I’m in linear terms. Questions are framed and not just referring to the ever-present challenge conceptualised, existing paradigms synthesised, of achieving academic objectivity. Rather I’m evidence gathered and analysed, hypotheses making the obvious point that the formative tested and conclusions derived. decisions on which policy evidence is to be collected and for what purpose are generally It is far from unusual for government made by governments, influenced by confidential advice from their public servants. officials to collect ‘evidence’ to support a To take a glaring example, the terms of policy proposition that is being pursued reference for the Australian Future Tax System for political or philosophical reasons. Review in 2008 were set before the committee of eminences, led by then Treasury Secretary Ken Henry, at their first meeting. Significant The iterative nature of public policy constraints were established. Most importantly, In contrast, the making of public policy is there was to be no consideration of increasing generally iterative in nature. Policy, as every good the rate or broadening the base of the Goods public servant knows, is driven by opportunity and Services Tax. Equally important was that the (often unexpected), moulded by political Commonwealth government made its decisions negotiation, and framed by compromise. As on how to respond to the review’s ‘findings’ a result it’s often perceived to be a world of without allowing the committee, or its head, second- or third-best outcomes, although my to present publicly the strategic intent of their experience is that progressive modifications arguments on tax efficiency. Evidence, as so sometimes improve the original ‘elegance’ of often in the world of political contest, became a the proposal. Policy generally has substantive rationalisation for the promotion of one particular intent but its manifestation and timing are outcome, the introduction of a mineral resources often a consequence of the need to gather party rent tax—the implementation of which, as it and public support, to open up new areas of happens, was misjudged and mishandled. political differentiation, to divert attention This is not an isolated incident. It is far from policy liabilities elsewhere, or to wedge from unusual for government officials to collect the opposition. In a robust democracy, political ‘evidence’ to support a policy proposition that leaders have only so much capital to invest in is being pursued for political or philosophical bold initiatives. reasons. Evidence becomes an ex post facto This environment, in which economic rationalisation of policy intent. We should not policy is progressively rewritten in response to feign shock and disbelief. This approach is rather political contest and media scrutiny, is one that cruder than in academic life but not necessarily senior public servants enjoy. They tend to focus distinctive. Economists may be trained in testing on the details. They know that policy is only as null hypotheses with critical objectivity, but good as the manner in which it is drafted and I can predict with a fair degree of accuracy the implemented. They will be excited by the thrust of the conclusions to which the same prospect. It’s a world that academic economists are evidence will lead many academics as well as reluctant to enter, for, as I have discovered in many politicians. Politicians, public servants and conversations, they often perceive the process as academics almost always never approach the rather tawdry and demeaning. ‘I have published collection or interpretation of evidence with my research,’ one respected university economist a completely open mind. told me last year. ‘I’ve reached my conclusions.

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Governments can use them as they will. I’m not each of Australia’s governmental jurisdictions. interested in compromising my results.’ It was an It gathers an extraordinary array of authoritative entirely reasonable proposition, but nonetheless data on skills training, both in-house and through disheartening. Real influence requires deep and funded academics, and produces research papers. ongoing engagement and pragmatic flexibility. It is intended to be a source of economic evidence The iterative development of public policy and does not aspire to be a policy commentator. constrains even sources of economic authority Yet much of the data—for example, on the level of within public administration. Beyond Treasury, training completions, the returns on investment the Commonwealth government funds a series in vocational education, or the relative scale of agencies that provide evidence—collecting and significance of the public and private VET statistical data, monitoring policy impact, and providers—can have political implications. It is writing (or contracting out) research reports. necessary to be sensitive to the political difficulties The Productivity Commission is the best known that NCVER’s evidence may have for the and most influential independent research and governments that fund its operations—but to be advisory body, although we need to remember so without forsaking the integrity that underpins that the matters it investigates are commissioned institutional credibility. by the government. Also important are the Bureau of Infrastructure, Transport and Regional The value of economics Economics (economic analysis, research and Economics is not just useful to policy development. statistics); the Australian Bureau of Agricultural Its methodological discipline can help evaluate and Resource Economics and Sciences (applied the programs that are designed to make policy economic research); and the Bureau of Resources manifest. Unfortunately the costs and benefits and Energy Economics (economic research, data, of publicly funded services are often assessed analyses and advice). Many of these institutions far too narrowly. To take an instance in which engage the expertise of outside economists directly. I was directly involved, the net benefits of helping a person find work tend to be defined in terms Such bodies are caught in the paradox of the cost of achieving employment outcomes (allowing for deadweight costs). More broadly, of public policy. The more protected evaluation also recognises the positive effect that they are from government intervention training and job placement have on workforce and the more ‘independent’ their participation and—in direct financial terms—on status, the less influence they are likely increased tax revenue and reduced welfare costs. to wield over policy development. The challenge, however, is to take a more holistic view and estimate the positive returns on paid work for the individual and the community, Yet such bodies are caught in the paradox such as improved health, more stable housing, of public policy. The more protected they are more functional families, and greater civic from government intervention and the more engagement. This approach is too rarely taken. ‘independent’ their status, the less influence As a result, the funding of programs is nearly they are likely to wield over policy development. always perceived as immediate expenditure Conversely, even the publicly funded organisations rather than longer-term investment in improving that collect economic evidence but refrain from pro-social outcomes. making policy recommendations frequently find I’d like to think that this is one area in which themselves entangled in public policy debates at university-based economists could influence and a cost to their authority. improve public administration, but they rarely I chair one such organisation, the National do. Unfortunately, the incentive structures of Centre for Vocational Education Research academic publishing tend to reward practitioners (NCVER). It’s an independent not-for-profit who undertake methodologically sophisticated company largely funded by a contribution from but tightly focused analyses. Public servants

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and academic economists have failed to lead in agency, or more boldly, spend some time on measuring the social returns on public investment. a secondment. As a departmental secretary, Much of the impulse for broadening evaluation I gained significant benefit from such contractual metrics has come from the community sector. arrangements. Unfortunately, academics can often be left feeling chewed up and spat out in The limited role of economists the process: They risk career progression by I do not wish to imply that outside economists taking time out from academic publishing; completely fail as influencers of public policy. their contract work is often subject to restrictive They do make an important contribution. confidentiality arrangements, which slow and As the 24/7 electronic news media seek to limit public presentation; and they do not always find ‘talking heads’ who can simplify complex get the chance to argue for the policies they economic issues into 15-second grabs, a espouse in the meetings that count. At the very network of ‘public economists’ has emerged as least, the measurement of academic research commentators. They influence policy through impact (the source of funding and status) needs to their ability to frame public discourse. While credit the contribution that university economists a few academics have risen to the challenge, can make to the formulation of public policy. Australia’s financial institutions have seen most value in having a corporate economist able to speak with public authority on interest rates, Unfortunately, academics can budget deficits, or sovereign risks. It helps brand often be left feeling chewed up the business as authoritative, engaged and reliable. and spat out in the process. Academic economists influence policy in a variety of other ways. Many of those who write reports or head inquiries are often senior figures The greater influence of medical whose role as ‘public intellectuals’ blossoms near research the end of their productive publishing careers. Yet, as I discovered from feedback when I wrote Many of their colleagues agree to serve on on the cultural ethnographics and institutional government advisory boards, councils, authorities dynamics that prevent academics from wielding or commissions. They add value to discussions. greater influence on public policy, it’s not a Their views can be influential. In most instances, universal picture. Many medical scientists however, their power to persuade is modest. emailed me complaining that I had grievously Too often the policy decisions continue to be underestimated their influence. They emphasised made elsewhere, with their own perspectives how persuasive they had been and directed me conveyed and assessed (or ignored) through to policy that bore testimony to the evidence the intermediation of public servants and they had marshalled. It was fair criticism. So ministerial advisers. why is health policy more open to outside Similarly, making submissions to public influence than economic policy? There are at least enquiries, either directly or on behalf of an three reasons. organisation, can be a disheartening experience. First, medical data can often appear to be The drafting of a response may provide a more—how can I say this gently—persuasive. useful vehicle for policy advocacy but rarely, To the public it seems more scientific. Doctors in my experience, does it alter the fundamental and nurses score high on public trust and so, approach to a policy problem. The danger is that I suspect, does medical research. Certainly elements of one’s evidence can be seized upon to such findings tend to be conveyed as cautiously give substance to a policy position in a manner optimistic: How many times in a week does one that might not adequately convey the substantive read, hear or view a news story about exciting thrust of the arguments presented. research breakthroughs that may alleviate disease Some academic economists also agree to and suffering through improved diagnosis and undertake consultancy work for a government treatment? Scientists have become adept at

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promoting medical advances in a manner that it is suggested that their influence is pervasive. attracts greater research funding, both from The so-called ‘neo-liberal agenda,’ which is government and the community. By comparison, associated with a decreased role for the public economics presents itself as the ‘dismal science,’ sector, is often ascribed by critics to the baleful its practitioners emphasising how every economic impact of like-minded ‘economic rationalists’ circumstance that seems to presage a silver lining within officialdom. remains overshadowed by threatening clouds. I do not subscribe to these criticisms. One Second, medical researchers often find it easier can argue about the merits of government to articulate the policy implications of their work commissioning, and contestability—and, more into specific budget-circumscribed programs— generally, about the appropriate balance between access to IVP treatments, vaccinations for the market and the state—but why would we not cervical cancer, or improved interventions for want public policy to be economically rational? those with adult-onset diabetes. Interestingly, It is true that many public service economists when it comes to using research to influence believe to varying degrees in free trade, more wide-ranging policy initiatives related to the competitive markets, and deregulation, but I saw allocation of scarce resources or the promotion little evidence in the Australian Public Service of well-being, the influence of academic of dogmatism: On any particular issue, widely researchers is less (but still greater, I think, than differing views were expressed on the value and with economic policy). benefits of state intervention and the form it should take. Medical research is strongly aligned Outside public services, the opportunity for outside economists to exert substantive influence with the interests of powerful sector are far more limited and too little seized. and industry advocacy organisations, Don’t get me wrong. My faint praise of academic which harness academic research economists is not intended to damn them. The to enhance policy lobbying. standard of community discussion and debate has been raised by the critical judgment of those who participate as public commentators. Their Third, medical research is strongly aligned research can on occasion be of significant value. with the interests of powerful sector and industry Their influence in quasi-official roles (sitting on advocacy organisations, which harness academic advisory boards, serving on enquiries or engaging research to enhance policy lobbying. The as contracted researchers to public sector agencies) organisations that represent medical practitioners is worthwhile. and pharmacists, and the Big Pharma companies Too rarely, however, do they have the that commercialise research, seem to wield greater opportunity or desire to be directly involved aggregate policy influence than the disparate throughout the iterative processes of policy viewpoints of the Business Council of Australia, development. The unfortunate consequence is the Australian Chamber of Commerce and that the setting of Australia’s economic policies, Industry, and the Australian Industry Group. including the pursuit of productivity-enhancing micro-economic reform initiatives, as well as A cautious conclusion cost-benefit evaluations of existing programs, Economists influence public policy, particularly is diminished. Whether that is seen as a failure through their role as public servants (and not or as limited success depends on the eye of just in the governments’ central agencies). Indeed the beholder.

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HOW ECONOMISTS SUCCEED (AND FAIL) TO INFLUENCE POLICY Can economists do well and do good, asks Stephen Kirchner

come to this topic having worked as an You might, however, still get published based on adviser to federal politicians, a financial yet another variation on the idea of the optimal market economist, an academic economist, tariff—a theoretically interesting idea, but one and a think tank economist. Based on this that is difficult if not impossible to operationalise Iexperience, I would argue that the scope and as public policy. potential for an economist to influence policy Hutt was concerned that because of the is generally greater in the think tank world than incentives they faced, academic economists were in other roles. Whether this potential translates increasingly preoccupied with what he called into actual influence depends on a wide-range of ‘curiosa’—and that this not only limited their factors that are not specific to think tanks. But practical relevance but also undermined their think tanks are unique in the way they go about authority with politicians and the public. If this influencing policy. was a concern in 1936, it is an even more serious Think tanks, especially philanthropically problem now. funded private think tanks like The Centre for If Keynes or Hayek were going before an Independent Studies, could not survive unless academic promotion committee today, they they were doing things other institutions were would most likely be told: ‘We see you’ve written failing to do. The space think tanks occupy in some books, but what else have you done?’ Writing public policy debate is one that has been left books, even for a purely vacant by universities, business groups and other academic audience, is institutions that are constrained in various ways now a hindrance rather that think tanks are not. than a help to academic The many constraints on academicpromotion in the economists are well known. Unless an academic discipline of economics. economist’s involvement in public policy is highly Academic success complementary with publishing in highly ranked requires a singular focus journals, their public policy work is going to be a distraction from their career—and the opportunity cost of that involvement is too high. This limits and even distorts the contribution Dr Stephen Kirchner is a that academic economists make to public policy Research Fellow at The Centre for debate. This problem was recognised as long ago Independent Studies. This is an as 1936 by William Hutt in his book, Economists edited version of a talk he gave at and the Public. The way Hutt framed the problem the Australian Economic Forum, was like this: no one is going to get published Sydney, on 19 July 2012. in a top journal restating the case for free trade.

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on publishing articles in a small number of [Paul] Krugman are quick to say, an journals whose prestige is inversely related to their ‘ideologue’ ... When a young libertarian accessibility on the part of potential contributors economist with publications in policy and readers. work or non-academic periodicals asks my advice, I tell him to remove such Can economists do well while items from his academic vitae. Especially doing good? at the more prestigious departments, It has to be said that not all academic economists the optimal participation in public succumb to these incentives. I have always been discourse (from a narrow career-interest inspired by Gordon Tullock’s essay, ‘How To Do perspective) is close to zero. Well While Doing Good!’ in which he exhorts academic economists to become more engaged While Klein’s judgement is almost certainly with public policy. His argument is a classic cost- correct, this may change. Adam Smith argued that benefits analysis. While the private career benefits universities were ‘sanctuaries in which exploded from public policy work are low, so are the costs, systems and obsolete prejudices found shelter and while the social benefits in terms of influence on protection after they had been hunted out of every public policy are potentially very large. other corner of the world.’ Smith understood that academics responded to the incentives given to them by the institutions in which they were The medieval guild-like structures and located. It is likely that digital technologies will restrictive practises that sustain what severely disrupt the existing models of both higher Ronald Coase derisively calls education and academic publishing and change ‘blackboard economics’ will likely these incentives for the better. The medieval be severely challenged. guild-like structures and restrictive practises that sustain what Ronald Coase derisively calls ‘blackboard economics’ will likely be severely Tullock’s essay is also a cautionary tale, challenged. For academic economists, public however. He wrote it in the 1970s and I think it policy work may be a good hedge against the is fair to say that in the period since he did not demise of existing models of higher education get the academic recognition his contributions and academic publishing. deserved. It is not clear to me whether he enhanced Tullock’s essay is still commendable because his own influence to the extent that he followed it is full of great advice on how to influence this advice. public policy and defeat rent-seeking interests in In his essay, ‘A Plea to Economists Who Favour the public sphere. Think tanks were not as well Liberty,’ Dan Klein argues that, for academics at developed in the 1970s as they are today, yet least, Tullock was ‘disguising the facts to service Tullock cleverly anticipates many of the strategies the greater good’: that think tanks now employ to influence public policy. In the economics profession today, excellent basic public policy work cannot Efficiency in ideas get published in leading journals, or even So what is it that think tanks do differently? secondary journals. And the academic- Fundamentally, think tanks represent new and career payoff to think tank work and more efficient ways of organising intellectual general interest articles is, on average, activity. If you want to be Coasean about it, you probably not above zero. Such work might say think tanks lower the transaction costs can count negatively. It reveals that one associated with intellectual activity relative to is ‘unfocussed,’ ‘not a scientist,’ ‘not a other institutions like universities. That’s not a serious economist,’ or, as establishment big hurdle to jump in a world where universities Democrats such as [Robert] Solow and if anything raise the transaction costs associated

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with intellectual activity and misallocate human The report drew upon the work of a number capital through their inefficiency. of Australian and overseas academics who had So how do think tanks influence policy? It addressed various aspects of this issue. Our is certainly not the case that a think tank comes contribution was to tie this material together into up with a new idea, issues a report, and the a more coherent and comprehensive treatment government changes policy. I wouldn’t say that and make it accessible to a wider audience. never happens, but it’s rare. In that sense, we are So what influence did the monograph have? no different from anyone else competing in public We released it in February 2012, which proved policy space, but we compete in different ways. fortunate because the governance of the Future One of the ways in which we complete is Fund became an issue in March, something we by taking a very broad and long-term view of had addressed in the monograph. We drew on the transmission process from ideas to public some work by a Washington-based think tank, policy. Hayek gave a very good account of these the Peterson Institute, that showed that the transmission mechanisms in his essay, ‘The Future Fund ranked very poorly in international Intellectuals and Socialism.’ His model borrowed comparisons of sovereign wealth fund governance. explicitly from what he saw as the success of Based on this evidence, the problems that socialists in influencing the ‘second-hand dealers’ emerged with the Future Fund board were in ideas: journalists, teachers, clergy and intelligent not surprising. lay people. He also argued that liberalism needed to once again become an intellectual adventure Think tanks represent new and if it were to compete with socialism. more efficient ways of organising Changing the conversation intellectual activity. It is primarily through changing the conversation about public policy that think tanks exert their The media only became interested in the influence. While this can be a somewhat slow and Future Fund when there was a personality conflict indirect channel, it can also be a very powerful one. and a horse race they could report on, but since we Perhaps the best way to illustrate how think tanks had something to say about governance, we had influence economic policy is to give an example an opening to inject ourselves into the discussion based on my own experience. and say that the issue not was just about In 2011, my CIS colleague Robert Carling and governance but more fundamental questions I became concerned about the growing number about what the Future Fund was for. of politicians calling for greater use of a sovereign By the middle of March, the outgoing wealth fund. What really intrigued us about this chairman of the Future Fund wrote an op-ed was that the idea was coming from members of for the Weekend Australian, the first sentence of both the Liberal Party and the Greens. What this which read: suggested to us was that the idea of a sovereign wealth fund was something of an empty vessel, During the past month, Australian resting on unexamined assumptions, which public debate on sovereign wealth funds meant virtually any politician could latch on has taken a surprisingly cynical turn. to it. Our concern was not just that a sovereign wealth fund was starting to sound a little bit like He went on to defend the Future Fund against motherhood in terms of its appeal to politicians, these cynics who seemed to have sprung out of but that the idea was crowding out consideration nowhere. This is a good example of a think tank of much more important policy ideas, such as changing the conversation. The idea of a sovereign reforming fiscal responsibility legislation. wealth fund went from being something of a We co-authored a monograph on the issue, motherhood issue to one that was now suddenly Future Funds or Future Eaters? that sought to controversial within a few weeks of releasing our expose some of these unexamined assumptions. monograph. Changing the conversation is not

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the same as changing policy, but it is a necessary, put forward earlier by Adam Smith, if not sufficient, condition for doing so. but most of the audience would have It is also possible that by changing the assumed that he was someone else in the conversation, we change policy in unobservable pay of the American Gas Association. ways—for example, by pre-emptively steering policymakers away from certain policies. This This of course is the way many people perceive is what we sought to do with this particular think tanks and I mention Coase’s anecdote to monograph. As Ronald Coase once observed, an demonstrate that think tanks are not alone in economist only has to defeat one really bad policy engendering this sort of reaction. It is possible idea to earn their lifetime pay many times over, to point to examples where whole fields of even if these benefits accrue to the public rather academic scholarship have been bought off by than the economist. special interests. For example, the government- sponsored enterprises (GSEs) Fannie Mae and Freddie Mac were very effective in ensuring Think tanks like the American Enterprise that most of the academic economists working Institute, in contrast to certain Nobel on housing finance in the United States were Prize winning academics, were warning receiving research funding from those institutions. back in 1999, nearly a decade before This had disastrous implications for public the event, that the housing finance GSEs policy development well documented by Josh were a financial crisis waiting to happen. Rosner and Gretchen Morgenson in their book, Reckless Endangerment. Think tanks like the American Enterprise Coase tells the story of a University of Chicago Institute, in contrast to certain Nobel Prize law and economics professor by the name of winning academics, were warning back in 1999, Edmund Kitch going to Washington in 1971 nearly a decade before the event, that the housing to give expert testimony on the regulation of finance GSEs were a financial crisis waiting to natural gas prices. This is how Coase described happen and needed to be reformed. Legislation the reaction in Washington: to do that was put forward by the Bush administration in 2004, but defeated by a Much of the audience consisted of Congress that was also in the pay of the GSEs. Washington journalists, members of Did the AEI succeed in influencing public policy the staff of congressional committees in this case? No. But there is a certain amount concerned with energy problems and of influence that comes from being right about others ... They displayed little interest an issue—influence that no amount of public or in the findings but a great deal in private money can buy. discovering who had financed the study. Many seem to have been convinced Conclusion that the law and economics program My conclusion then is that think tank at the University of Chicago had been economists can successfully influence public ‘bought’ by the gas industry. In fact, policy in ways that generate very large social the study had not been financed by any (although relatively meagre private) benefits at organisation ... but a large part of the very low cost. While think tanks are to some audience seemed to live in a simple extent still dependent on ideas generated within world in which anyone who thought universities and academic journals, they represent prices should rise was pro-industry very good value for money, especially for the ... I could have explained that the marginal philanthropic dollar. essentials of Kitch’s argument had been

24 POLICY • Vol. 29 No. 1 • Autumn 2013 FEATURE THE TRIBES THAT HIRE THE PHD Academic hiring perpetuates ideological outlooks, according to Daniel Klein

hink of culture as a system of validation pyramid are the most prestigious departments. of interpretations and judgments. They produce the most new PhDs and sweep Within a culture, for validation, people them into positions up and down the pyramid. often look to the learned, the eminent Tscholars. People also look to the institutions of Ideological outlooks power and permanence. Scholars themselves What Oprisko finds for political science also feel the pull of what seems most powerful and holds true for sociology,2 law,3 economics4 (1, 2), permanent. It’s probably in our genes. and other disciplines.5 In the Georgetown Public Policy Review, Oprisko does not discuss what happens when Robert L. Oprisko, a visiting professor at Butler the thinking of the University, notes that ‘eleven schools contribute apex welcomes certain 50 percent of the political science academics to ideological outlooks, research-intensive universities in the United notably centrism and States.’1 More than a hundred political science left-leaning outlooks, PhD programs are graduating students who will and the lack of other contest the remaining 50 percent of openings. outlooks, such as classical With fewer jobs in the field and a surplus of liberalism, libertarianism PhDs in a tightening market, Oprisko writes: and conservatism. It is well established that Many universities are losing the ability to place their own students within Daniel Klein is professor of academia. The theoretical consequence economics at George Mason of such hiring practices is that hiring University, editor of Econ Journal committees often appear to favor people Watch, and author of Knowledge like themselves rather than candidates from schools like the ones in which and Coordination: A Liberal they work. Interpretation. A close version of this piece appeared at the The pattern of placing and hiring new young Manhattan Institute site Minding faculty has implications for the ideological profile the Campus (on 11 February 2013), within departments. Think of the academic and an acknowledgment is due to discipline of political science as a tribe. The the editor of that site, John Leo, for tribe’s settlements are situated laterally, in helping the author with this piece. universities across the country. There is an established hierarchy of prestige among the settlements. Culturally, however, the array has Endnotes for this feature can be the structure of a pyramid. At the apex of the found at www.policymagazine.com.

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the professoriate leans heavily Democratic in the way it works, for example, in the market for politics6 and social-democratic in public policy.7 waiter services. It is well established that classical liberals, Consider a thought experiment. Let’s say libertarians and conservatives are quite scarce you arrive on a planet on which the market for in most fields. The same pattern of ideology is waiters is like our market for academic political seen in the products of academic scholarship, scientists. This other-worldly market exhibits the including the journals8 and the elite presses.9 following features: If the apex became solidly centre-and-left, the sweep of the apex will ensure that the whole • Each waiter job is controlled by a collection pyramid goes that way. Of all social groups, of other waiters, a Waiter Department. the professoriate is one of the most caste-like and prestige-oriented, with the top forming • Each waiter department spends money a tribal elite. with little regard for the preferences of Decision-making over personnel is located restaurant customers. Indeed, much of the principally within the department, and the money comes from coercive extractions procedure is majoritarian. In ‘Groupthink in from extraneous parties. Academia,’ Charlotta Stern and I explain that once the apex becomes sufficiently centre-and- • There are 200 waiter departments, but they left in outlook, departmental majoritarianism all form an encompassing cultural pyramid. and disciplinary prestige sweep the outlook into Each waiter department gets whatever positions throughout the pyramid.10 prestige and revenue-base it commands principally by adhering to the accustomed Once the apex becomes sufficiently standards of the pyramid. centre-and-left in outlook, departmental • Each waiter department produces new majoritarianism and disciplinary young waiters, whom it tries to place as prestige sweep the outlook into high up in the pyramid as possible. positions throughout the pyramid. • Non-waiters are deemed unqualified to criticise the standards and practices of the The apex has leverage encompassing Waiter club. Outsiders are Stern and I had said that since the younger ignored. professors had fewer Republican voters, the Democratic bent of the professoriate was likely • Waiters at departments at the apex set the to grow. Recently, Inside Higher Ed reported on tone for the entire pyramid. the findings of the Higher Education Research Institute at UCLA—that the leftward tilt of the • Waiters at the top departments sometimes professoriate continues to grow.11 rub shoulders with political elites and I do not mean to suggest that at some point power-holders. Sometimes they are in history the apex changed and then transformed appointed to positions of influence and the whole pyramid. The lower ranks have never power. Many aspire to be, or imagine been much different from the upper. The point is themselves to be, part of society’s governing that the apex has tremendous leverage, and seeing set. Their governing-set standing depends that helps us understand the cultural system and on playing according to the rules of the current predicament. conventional political culture, particularly If a discipline fell into groupthink, what the culture of one’s peers. mechanisms would bring correction? We might think that correction will come from This waiter market is very different from our consumer choice and new competition. That’s real-life waiter market.

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The pyramid grows more integrated I suggest that to understand the cultural In the real-life market for professors, it is hard to dynamics within academia, one should see a see the system as anything but self-reinforcing. number of key points. First, each discipline is a Think about an upstart political science tribe that imbues members with a strong sense department that dared to be different. How of identity and that has great influence on their would its differentness be validated? What thinking, discourse and scholarly activities. For an standing could it achieve in relation to the parallel economist, being an economist is an important disciplinary pyramid from which it differentiates part of one’s selfhood, and, to validate that itself? Where would it place its new PhDs? selfhood, he or she will cling to the tribe and Is there any such political science department often scratch and claw for bits of prestige within in the United States today? it. Second, the tribe has a pyramidal structure. Modern technology and communications Third, the apex of the pyramid has tremendous might empower newcomers in the competition leverage throughout the pyramid. for recognition, prestige, and cultural influence. Perhaps regular people shrug more about Harvard Taxpayers may increasingly regard credentials. Perhaps the credibility of academia the university as another interest has declined, including that of the academic group, like the teachers’ unions. elite, and, if so, perhaps it will continue to decline. On the other hand, American society grows more governmentalised, credentialised and Further, we need to think about academia as it academified, trends that might tend to raise the is embedded in the moral and cultural universe, average citizen’s regard for academia. and in history. Around the year 1880, a rising tide At any rate, modern technology works to make of cultural change arose, in part as a reaction to the pyramid itself more integrated. No longer is liberalism, and was reflected in a transformation there much scope for regional difference, or local of the Liberal Party in Britain. There was a competing pyramids. Indeed, the pyramid is generational shift against classical liberalism. increasingly not just nationwide but worldwide. Later, after World War II, individuals rediscovered The result is less diversity. The integration of the classical liberal ideas, and something of an pyramid may be one reason (among others) why intellectual resurgence took place, represented there is no Milton Friedman today. Gone are by such figures as Friedrich Hayek and Milton the days of Chicago versus Cambridge. Friedman. Today, 50 years after landmark books by Hayek and Friedman, we are seeing that The dependence on dollars perhaps that wave has had limited success within Even the economics profession seems to be sliding the deeper, wider tide that came in 120 years ago. gradually towards the other academic tribes. A Meanwhile, students and parents will 2010 survey of economics professors with 299 increasingly approach college with eyes wider respondents includes 17 policy questions. Here open. Taxpayers may increasingly regard the I cite just one: Only 49% opposed increasing the university as another interest group, like the minimum wage.12 teachers’ unions. Academic tribes and their hiring The academic system depends on dollars. patterns matter, and they deserve much more Argumentation for reducing taxpayer support of attention, particularly if we want to understand higher education has been developed by Jeffrey the culture we swim in and its tacit system of Miron and Richard Vedder.13 Bryan Caplan is validation. working on a book arguing that since education is mostly about signalling, it is crazy to subsidise higher education.

POLICY • Vol. 29 No. 1 • Autumn 2013 27 FEATURE

JAMES BUCHANAN: AN ASSESSMENT Geoffrey Brennan explains how James Buchanan taught us to focus on the rules of the game. This article first appeared at the Online Library of Liberty http://oll.libertyfund.org

t is one of the features of an intellectual’s In what follows, I will deal first with work that it has a life independent of—and Buchanan’s contractarianism and then turn to the possibly more extensive than—its creator. In constitutionalism, trying to indicate how these that sense, Jim Buchanan’s death (‘after a short two c’s are related. I will then try to connect the Iillness’) on 9 January is of no particular academic ‘constitutional contractarian’ project to Buchanan’s significance beyond the fact that Jim himself is no credentials as a classical liberal and raise a number longer around to correct misinterpretations of the of other queries about the intellectual scheme Buchanan position (as he saw it).1 On the other that seem to me worth hand, it would be unseemly for the occasion to discussing. go unmarked. At the very least, Buchanan’s death provides an opportunity to restate and re-assess Contractarianism the ‘Buchanan position’ (at least as I see it)—such For Buchanan, restatement and reassessment is my purpose here. economics properly Most economists are of the ‘have-brain-will- pursued is the ‘science’ travel’ kind. Armed with our kitbag of techniques and our distinctive disciplinary perspective, we look around for varied applications (often Geoffrey Brennan is professor finding them in unlikely places). For most of in the Moral, Social and Political us, our lifetime ‘contribution’ is the sum of our Theory Centre, Philosophy little inroads (if any at all) into a range of little School, RSSS, Australian National problems. There is no particular dividing line in University. He holds a research the epistemic division of labour that marks off our individualised ‘contributions’—the lifetime whole professorship jointly at UNC- is not much more than the sum of the parts. Chapel Hill (philosophy) and Duke In that sense, Buchanan was distinctive—not University (political science). He just in the size of the contribution but also in its spent the years 1976–83 in the coherence. There is, associated with his work, an Public Choice Center at Virginia identifiable ‘research program’—not so much the Tech, and is co-author with James ‘Public Choice theory’ but what is sometimes called Buchanan of The Power to Tax the ‘Virginia School political economy,’ or what (1980) and The Reason of Rules I prefer to call ‘constitutional contractarianism,’ (1985), as well as a dozen or so because the latter term is more descriptive. Of articles in refereed journals. course, that program evolved and became more self-conscious as the work accumulated,2 but it is uncanny how much of it can be identified in Endnotes for this feature can be Buchanan’s writings right from the start.3 found at www.policymagazine.com.

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(with much emphasis on the ‘logic’) of exchange.4 adding his own ‘rational reconstruction’ of the In other words, ‘exchange’ is the lens through Hobbesian position. which economists should look at the social world, Indeed, much of Buchanan’s mid-career work identifying both actual and potential instances involved exploring details of the market-failure of it and its consequences, where present. In this argument. Two of his most famous (certainly his Buchanan was a faithful (if originally unconscious) most widely cited) papers were his analysis of disciple of Richard Whately.5 Jim used to say that price-excludable collective goods—his ‘theory of the proper point of departure for an economics clubs’ (1965)—and his ‘externality’ piece with principles course was Menger’s account of two Craig Stubblebine (1962). And in 1968 he offered horse-traders [auf deutsch], and more generally a book-length treatment, The Demand and Supply that the measure of the quality of any principles of Public Goods, of the public goods argument, course was how soon it got to ‘exchange.’ For him, explicitly trying to connect his own exchange exchange was central. variant to the standard neoclassical version. Of course, he saw markets as the primary institution for the mobilisation of exchange Broadly Buchanan accepted the possibilities. But his version of the ‘economic Austrian critique of the ‘socialist analysis of the study of political processes’ (or calculation exercise’. ‘Public Choice theory,’ as it came to be called) was distinctive in Public Choice circles for its emphasis on politics as exchange—a phrase he repeated many Equally, however, Buchanan recognised— times.6 (As an aside, we should note that for many again, from the earliest point in his career—that libertarians/classical liberals, it might be more the mere fact of market failure to appropriate gains natural to think in terms of politics as coercion— from exchange does not show that government and though Buchanan certainly did not deny can succeed. The message that Buchanan took the possibility of coercion in politics, he equally from the public goods literature is rather that the certainly denied that all government action is appropriation of possible gains from exchange intrinsically coercive.) He believed that exchange represents an institutional problematic. Again via political action is possible and that the role following Wicksell, he explicitly and forcefully of the economist is to uncover those exchange rejected the ‘benevolent despot’ model of possibilities. In this, he followed Knut Wicksell government he saw as dominating standard (unquestionably one of Buchanan’s intellectual public economics.7 Indeed, critique of this heroes) and Wicksell’s other interpreter, Erik ‘benevolent despot’ model became the focus of Lindahl—Buchanan was a participant along the entire Public Choice movement in the early with Musgrave and Samuelson in the analysis of decades of its development. One way (Buchanan’s public goods and the associated market failure way) to express that critique was to emphasise that dominated the welfare economics/public that efficiency/Pareto optimality8 is an emergent economics of the 1950s and early 1960s. property, reflecting the institutional features of Buchanan fully accepted the public goods the process in which different exchanges are made argument that markets sometimes fail to exploit (or fail to be made). The standard neoclassical all the mutual benefits on offer in human approach deriving from Samuelson’s treatment, society. And he also accepted the (Wicksellian) by contrast, was to treat Pareto optimality as a proposition that collective action could in property that could (in principle) be imposed by principle appropriate such ‘gains from exchange’ governmental fiat.9 in public goods supply. In other words, he thought Broadly Buchanan accepted the Austrian there is (in principle) a role for the ‘productive critique of the ‘socialist calculation exercise’10— state’ as well as the ‘protective state’—to use a but unlike the Austrians, he was not prepared to distinction he developed explicitly in the Limits of accept that governments (or social planners) would Liberty (1976). He explicitly rejected anarchy as a be motivated to secure Pareto optimality (even for viable option, broadly embracing the Hobbesian the purposes of the argument)! For him, any such argument for government, and in the process, assumption of government ‘benevolence’ assumed

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what had to be proven, that is, it assumed that of choice is the constitutional level. Constitutions agents motivated by the same kinds of desires that in Buchanan’s sense have two central features: apply to market agents would, by the operation of democratic incentives, be led to behave in the 1. A specification of the proper domains of public interest. That claim, he thought, requires market and political operation (which an argument—not an assumption! And exploring entails, in particular, limits on the domain whether any such argument could be sustained of political decision-making). The notion became the central agenda for Public Choice that it might be left to in-period political analysis. In that exploration, Public Choice processes to determine their own sphere theorists took it as obligatory that political of activities struck Buchanan as totally agents should be assigned the self-interested inconsistent with the constitutional logic. motivations ascribed to market agents—to Limited government is the sine qua non of treat the political process as a scramble for rival the constitutional approach. interests, just as market processes are taken to be. It is in this spirit that Buchanan referred to the 2. A specification of how in-period politics is Public Choice enterprise as ‘a theory of political to operate. The most familiar illustration failure’ to set alongside the analysis of so-called of this latter concern is, of course, the ‘market failure,’11 or to use another of his well- determination—in the Calculus of chosen epithets, Public Choice is ‘politics without Consent, written with Gordon Tullock— romance.’ of the ‘optimal decision rule’ (or rules more accurately, since different kinds of decisions would predictably call for more A central part of the Buchanan or less inclusive majorities). Of course, the intellectual scheme is the distinction Calculus contains many other interesting between the rules of the game and the arguments about bicameralism and the plays of the game within the rules. separation of powers, and fascinating suggestions about the role of institutions that are not strictly either markets or At this point Buchanan might seem to face political processes, but something else— a problem: how this comparison of markets institutions of ‘civil society’ perhaps. But and politics in terms of the exchange norms he the issue that most readers take away from endorsed could conceivably influence anything. If the Calculus is whether simple majority markets fail less than politics fails, what possible rule would be the ‘appropriate’ rule for impact could this have on either politics or collective decisions—with ‘appropriate’ markets? There seemed no point in the exercise here taken to mean ‘unanimously chosen at where the normative force of the comparison the constitutional level.’ could gain any purchase. As I see it, it is in the face of this problem In an important sense, the significance of that Buchanan’s ‘constitutional’ turn is to be ‘constitutional choice’ lies in its capacity to understood. And it is to this I now turn. instantiate the normative authority of exchange. In a move redolent of Rawls’s famous ‘veil of Constitutionalism ignorance,’12 Buchanan’s thought was that A central part of the Buchanan intellectual scheme uncertainty about where one would lie in relation is the distinction between the rules of the game and to the rules over the long horizon they were the plays of the game within the rules. Buchanan expected to be in place would moderate the effects conceived of markets and politics as games played of self-interest and thereby permit application of within rules. But he thought there was a ‘higher’ the unanimity rule (universal veto). In this way, level of choice—the choice of the rules. This level Wicksell’s ideal of unanimity—the rule that

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Buchanan and Wicksell both saw as the ‘exchange economic/political game to which citizens ideal’—could be applied. Such a rule could not be are to be subject. In that latter exercise, applied for in-period collective decision-making all individuals hold a virtually complete because of ‘decision-making costs’: This was the right of veto over what those rules will be central claim in the Calculus analysis. In that sense, (including the specification of the personal unanimity at the in-period level is self-defeating: and property rights that the individuals will One would expect (virtual) unanimous consent to possess and be subject to). Many libertarians the proposition that unanimity be abandoned as have thought that this collectivist point of the decision-rule for ordinary politics. departure is inconsistent with true liberal In-period politics could never be expected, individualism. Buchanan insisted that then, to be fully ‘efficient’—to appropriate all social outcomes are not chosen because possible gains from exchange—any more than they are efficient (or fair)—they are markets could. The objective is not to eliminate efficient (or fair) because they arechosen (in market or political failure, but to optimise across the appropriate unanimous setting). In that institutions so that ‘failures’ are minimised. That sense, the foundational liberal element is is, within the limits of what is institutionally embodied in the unanimous constitutional feasible, one could specify an optimal mix of choice—whatever the outcome of that decentralised (market) and centralised (political) choice process may turn out to be. decision-making institutions—and it is that mix that would emerge in a unanimously chosen Buchanan was an unusual classical liberal constitution behind a suitably thick veil of in other ways too. He believed rather ignorance. passionately in confiscatory estate and gift duties: He reckoned that inherited Questions and queries wealth (though not self-made or first- Now that I have outlined Buchanan’s main generation wealth) violates basic equality contributions, I would like to raise some points of opportunity, and his enmity towards about his work that seem worth discussing. dynasties was notable. Hence the antipathy to John F. Kennedy mentioned in endnote 1. Buchanan as a classical liberal: Buchanan 12. Buchanan thought Papa Joe had is a self-declared classical liberal. By this, bought the White House for his boys, and I take it that he means he places a high it infuriated him. However, one might value on liberty (understood as something think individual sovereignty should extend like ‘noncoercive social relations’) and to gifts and bequests, and that totally is a minimalist about the appropriate confiscatory gift/estate duties are unlikely role of governments. His Public Choice to emerge from unanimously approved analysis can clearly be viewed as providing political rules. reasoned grounds for that minimalism, as his description of Public Choice theory as The objective is not to eliminate the ‘theory of political failure’ suggests. Yet he is an unusual classical liberal. For one market or political failure, but to thing, whereas most classical liberals take optimise across institutions so as their point of departure some kind of that ‘failures’ are minimised. conception of the individual’s moral rights and derive their conception of liberty in terms of rights violations (or coercion), 2. The double role of exchange: A related Buchanan’s normative point of departure aspect of the Buchanan construction is the is in the intrinsically collective exercise of double work that the notion of exchange jointly working out the rules of the social/ plays. At one level, individuals behind the

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veil of ignorance will predictably assess brute fact about human progress and not alternative institutions according to the something that exists merely in the mind mutual gains to which those institutions of the observer/evaluator. give rise: Clearly, certain basic facts about the operation of markets and the operation 4. The supply of rules versus the demand for of democratic politics under various rules: It is one thing to establish the ‘reason specifications will predictably be taken into for rules,’ and even what rules agents might account by the constitutional contractors. choose in the hypothetical constitutional And it is specifically the role of economics setting, and another entirely to explain (and Public Choice analysis as part of that how those rules will be enforced at the in- enterprise) to reveal those facts in relation period level. As Bentham famously put it both to markets and the democratic in relation to rights, the demand for rules political process. But within Buchanan’s no more are rules than hunger is bread. In scheme, the ultimate exercise of ‘exchange’ the treatment in the Calculus, where the occurs in and through the constitutional agenda is to discuss modest modifications contract itself, and the ultimate test of rules that are already in play (the size of markets and politics lies in the of the majority), the assumption that the constitutional endorsement they receive. modifications will be enforced can be In this way, the determination of the truth carried perhaps by the uncontestable fact of claims about markets and/or of Public that simple majority rule seems to be pretty Choice seems assigned to the judgment robust. But as the agenda is generalised of actual constitutional contractors. to include the entire template for rules Buchanan could sometimes make such governing social, political and economic subjectivist gestures towards truth claims, life, the problem becomes acute. It needs but it seems bizarre to allow claims about to be explained just why agents who know the exchange properties of markets (say) to their positions and who are presumed to be be determined by constitutional contract. predominantly self-interested will find it in their interests to enforce and/or comply In the late afternoon of his life, with the provisions previously agreed. To Buchanan became intrigued by the the extent that we look to courts to make significance of ‘increasing returns’ decisions on the rules, and to the police to enforce court decisions, do we not need in the operation of markets. a theory of legal failure, alongside market failure and political failure, to sustain the 3. Market operations: In the late afternoon entire project? Buchanan seems to have of his life, Buchanan became intrigued by had a blind spot about this issue. But the significance of ‘increasing returns’ in without some response to the quis custodet the operation of markets. In essence, this ipsos custodes challenge, it is by no means involved a recapturing of Smith’s account clear that the whole elegant intellectual of the fundamental forces making for edifice can get off the ground. And to the wealth of nations and recognising the extent that the necessary response its distinctiveness (as say from Ricardo involves some modification of the extreme and the modern mainstream tradition). homo economicus motivational hypothesis, One notable feature of this work was its may we not be required to carry that ‘objectivist’ qualities, that is, the ‘general modification into the analysis of markets opulence’ distributed across all classes of and in-period politics on exactly the same society that was the explanandum for Smith generality grounds that Public Choice is an externally observable phenomenon—a mounts its attack on the benevolent despot?

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5. Chosen rules versus inherited rules? It is a the Rawlsian/Buchanan veil of ignorance, critical feature of Buchanan’s constitutional in that agents are distanced from their paradigm that citizens choose the rules by interests by the circumstances of choice. which they are to live: Those rules have to This fact very much blunts the distinction be products of explicit consent. That fact Buchanan draws between constitutional explains why the market is an ‘efficient’ and in-period levels of choice in two senses: institution only to the extent that it is first because interests are attenuated in both constitutionally endorsed. Many observers settings, and second, because individuals (including Hayek and in another sense are in a large-number setting in making Hume) are inclined to respect ‘evolved their constitutional agreements; hence, a rules’ in themselves and to doubt the significant element of expressive behaviour intellectual pretension that Buchanan’s kind is likely to enter at the constitutional level. of constitutional constructivism involves. That is, people can quite rationally ‘cheer’ Buchanan himself explicitly rejects that for democracy or ‘trial by jury’ or whatever, kind of ‘respect’: He thought it invokes a even when such institutions would not kind of quietism towards the institutional deliver better outcomes for them. This is status quo that is ultimately servile. Middle not just a matter of rational ignorance— ground is presumably available here—but though there will predictably be plenty of one would certainly want some principled that. It is also a matter of giving rational way of discerning which established rules assent to all kinds of nostrums that ‘have ought to be treated with piety and which strong expressive appeal’ even when one ought to be interrogated and perhaps knows they are silly or worse. Consider ruthlessly overturned. There may be a for example the vast extension of ‘rights’ tension between American vigour and that seem characteristic of most modern European traditionalism here. (popularly endorsed) constitutions.

6. Expressive constitutionalism? I cannot The best way to honour Jim is forbear to mention, by way of conclusion, an anxiety that arises out of work of my own to take his ideas seriously. on voting.13 That work is an extension of the idea of rational ignorance attributable to It is possible that in raising such queries, I have Downs in the sense that it takes as its point been unjust to Buchanan’s intellectual scheme or of departure the asymptotic irrelevance of placed the emphasis inappropriately—or perhaps each individual voter in determining the ‘buried’ where I should have ‘praised.’ My own electoral outcome. This means the relation view is that the best way to honour Jim is to take between interests and behaviour has a his ideas seriously. That is what I hope I have done character in markets quite different from here. And I take confidence from the fact that that in the ballot box. The individual voter is Jim himself never drew back from a good robust subject to a veil of insignificance not unlike argument!

POLICY • Vol. 29 No. 1 • Autumn 2013 33 FEATURE

CRONY CAPITALISM The Tea Party and Occupy movements can find common ground in opposing crony capitalism, says Adam Creighton

ou can spend your own even folly—either by dint of force (government) or money on yourself, [then] institutional design (limited liability companies). you really watch out for what Spending other’s resources is the hallmark of you’re doing ... You can spend socialism, that naive idea that wise, altruistic yourY own money on somebody else. planners can distribute the fruits of individual For example, I buy a birthday present efforts and endowments for the betterment of for someone. Well then, I’m not so society. careful about the content of the present, The global financial crisis and the ensuing but I’m very careful about the cost. public debt crises in Europe and the United States I can spend somebody else’s money are sapping confidence in the West’s economic on myself ... [then] I’m going to have system and undermining its economic dominance. a good lunch! Finally, I can spend Both crises are born of equally malign incentives; somebody else’s money on somebody in fact, they have arisen from the ‘socialist’ ways else. [Then] I’m not concerned about of spending that Friedman identified above. how much it costs, and I’m not Recognising this and reforming the economic concerned about what I get. incentives that key social institutions face should be a public priority. — Milton Friedman

Milton Friedman’s pithy classification of the Public protests four ways to spend money is a salutary reminder The economic fallout of the global financial crisis of the economic and moral superiority of freedom sparked widespread anger, particularly in the second over coercion. The first two ways, freely spending half of 2011. The protests’ scope and durability one’s own money, produce the most satisfactory were remarkable. Almost results. The owner of resources is in the best every Western city— position to expend them efficiently, and has the from Vienna to New most right to do so. York, from Sydney to The incentives underlying these two ways of London—witnessed spending are also those that underpin capitalism. disruptive ‘occupations’ One’s right and ability to spend the resources of some sort for days, one rightfully acquires promotes effort, creativity often weeks. Protestors and prosperity. Indeed, the ‘welfare theorems’ of economic theory that formalise the superior efficiency of the free market economy assume Adam Creighton is the economics that households rationally allocate their incomes correspondent for The Australian. according to their own preferences.1 The other two ways to spend money, freely spending someone else’s money, produce poorer Endnotes for this feature can be outcomes because they result in waste, excess and found at www.policymagazine.com.

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ranged from Tea Party activists to socialists, from world is Chinese water torture for taxpayers and young people to old. No particular event or person shareholders. provoked these rancorous ructions; rather, they Public support for financial institutions appeared to be animated by a collective disdain has also exacerbated the public debt crises in for the status quo that seemingly took about three the United States and Europe. Take the United years to manifest. Kingdom. Its public debt has surged to £1 trillion To be sure, it was easy to mock the protestors. since it started rescuing its banks in 2007; GDP Protesting about greed and inequality is akin to per person there is now 13% lower than its pre- complaining about human nature. Moreover, they crisis trajectory. Only penal inflation, substantial had no coherent alternative. Many of the budding tax hikes, or massive cuts to state welfare (the latter sans-culottes were better termed avec-ipods: not necessarily a bad thing in itself) will be able relatively well-off, educated and accessorised with to alleviate the fiscal burden. Even in countries the clothes and gadgets produced by the economic with no immediate exposure to the crisis, such as system they damned. Australia, government debt has leapt dramatically. Nevertheless, their anger was understandable. People might be forgiven for seeing socialism In OECD countries alone, the credit crunch for the elites, and capitalism for everyone else. and economic stagnation prompted by the financial crisis has thrown 15 million people out of work. Overwhelmingly, these job losses To be sure, it was easy to mock have occurred in industries far removed from the the protestors. Protesting about financial services and government sectors, which greed and inequality is akin to were in their own ways responsible for fostering complaining about human nature. and causing the crisis through their involvement in the US sub-prime securitised mortgage market. Moreover, government attempts to revive Pernicious incentives economic growth have proved largely ineffective. The global financial crisis was undoubtedly a Yet government financial regulators and consequence of the third and fourth types of politicians, who were paid to prevent such spending that Friedman outlined. The employees conflagrations, gained from the crisis with of large financial institutions (including the bigger budgets, more staff, and increased gravitas directors) were spending shareholders’ funds attached to their public statements. (quite rationally) for their own short-term Banks continue to gamble and profit on the purposes: boost the stock price, meet short-term back of state-guaranteed deposits, and enjoy bonus thresholds, outbid other banks for staff who improved access to cheap credit from central would likely leave soon after, etc. These firms were banks. Indeed, innovative monetary policies run like partnerships, but unlike partnerships, the in Europe and the United States, known as managers had no personal liability. ‘quantitative easing,’ appear to entail creating Meanwhile, government officials sanctioned money out of nothing and handing it to large increased public debts and contingent liabilities financial institutions hoping they will lend some without permission from taxpayers, the ultimate of it—whatever the theoretical merits, it is not a paymasters. And it shielded the biggest firms and policy likely to attract public support. their most senior staff from the bracing winds of Recall Henry Ford’s quip: ‘It is well enough ‘creative destruction,’ what Joseph Schumpeter that people of the nation do not understand considered the hallmark of genuine capitalism. our banking and monetary system, for if they As Kevin Dowd has argued, the world’s did, I believe there would be a revolution before financial system was—and still is—riven with tomorrow morning.’ The intense reporting of the pernicious incentives that made a mockery of global financial crisis is increasing the public’s the sort of capitalism envisaged by thinkers from understanding of the banking and monetary Smith to Hayek.2 Bank shareholders, let alone systems. Meanwhile, the steady drip of ‘bonuses’ their employees, could profit substantially from for directors in the banking and wider corporate behaviour that ultimately put taxpayers at risk.

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Besmirched capitalism Take the financial sector itself. No part of The response from the public to recent economic the economy had more highly paid, educated events has been a disaster for classical liberals.3 bureaucrats watching over it. It was far from Both the causes of the economic crisis and ‘unregulated’; on the contrary, a very detailed the unedifying aftermath are being blamed code of behaviour placing limits on banks’ on capitalism. behaviour—know as the Basel capital accord— The protestors should be agitating for more was designed and enforced by government. capitalism. Capitalism is animated by the first Central banks, and domestic and international two ways of spending in Friedman’s schema— financial and corporate regulators by the being able to spend one’s money on whatever thousands, were watching over and analysing one sees fit. It rewards talent and effort, and financial institutions, routinely liaising with leaves the biggest rewards for those who risk their them and their ‘risk managers.’ In fact, most own money and time to bring goods or services central banks had financial stability reports that to market that consumers can voluntarily buy. expressed little alarm in the lead up to 2008.6 Think Henry Ford or Lang Hancock, Steve Jobs or John Symonds. An ideological rut Capitalism is not about corporations being For too many years advocates of small able to transfer their losses to taxpayers, as government, both official and academic, have financial institutions and even car manufacturers ignored the serious structural perversions in and insurers have done in Europe and the United our economic institutions. Perhaps while the States. It is not about allowing senior employees West competed with dictatorial socialism in to scrape off the profits of capital simply because Russia, any such problems were quite reasonably they can—capital that has been supplied by confined to academic discussion. But ‘the end of others. Nor is it about armies of bureaucrats, history’ in the early 1990s should have ushered corporate welfare, implicit guarantees for banks, in more economic introspection among Western or welfare states so pervasive and meddling they liberals. Western democracy no longer had viable have dulled citizens’ appetite for individual economic competitors. responsibility—all of which characterise Western Countless books lauding globalisation economic systems. demonstrated how ‘capitalism’ was lifting millions out of poverty in the Third World.7 The ubiquitous state Indeed, they were right that freer trade and In fact, it is laughable that so many people still growing consumer demand in the West were believe we live in an unbridled capitalist economic helping poorer counties develop. And they were system, yet the belief is widespread. Whatever right to point out that living standards in the measures one takes—volume of legislation, West were rising inexorably. quantity of government spending, quantity of But they failed to critically evaluate the nexus regulations, the size of the bureaucracy—the state between finance and government. Commentators is more pervasive than it has ever been outside on the Right were quick to deplore public wartime. Through direct spending and creeping subsidies to individuals, but they were less regulation, Western governments have permeated contemptuous of direct and indirect government almost every facet of the economy.4 The absolutist support for business. They appeared to be unaware monarchs of seventeenth and eighteenth century of the behavioural consequences of permitting Europe would be amazed if they could see the large corporations to operate with implicit state extent to which executive government permeates guarantees. Some commentators expressed twenty-first century life. reservations8 but were drowned out by more Yet misguided essays like former Prime triumphant analyses; in any case, such voices had Minister Kevin Rudd’s5 perpetuate the no effect on financial regulation. ludicrous notion that Western countries exhibit As John Kay has written, the ‘subtle but unbridled capitalism, and that financial markets important distinction between policies that are unregulated. support a market economy and that support the

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interests of established large firms was not widely The macroeconomic response has been appreciated.’9 Too many equated gargantuan just as bad. Most economists have agitated for growth and outsized remuneration in financial Keynesian pump priming and artificially low services (much of which entailed trading and interest rates to revive lacklustre economies. dealing among financial firms themselves, as Yet Keynesian economic demand management opposed to interaction with the real economy) had been widely discredited in the economic with capitalism. literature.13 And low interest rates are considered by many to be responsible for prompting the crisis An economic tragedy in the first place.14 The attribution of the financial crisis to capitalism is worse than just a public relations disaster for liberals. It is an economic disaster for everyone, If genuine liberals want to maintain as it has fanned and promoted anti-capitalist credibility, they need to distance interventions from government. The best way themselves from corporatist and to promote prosperity and equity is to curtail managerial rent-seeking as much as government, limit regulation, and entrench from the labour and bureaucratic kind. institutions that permit individuals to profit (and fail) from taking risks with their own funds. The ‘solutions’ to the crisis have entrenched The limited liability company bigger government and exacerbated the links If genuine liberals want to maintain credibility, between government and financial services. For they need to distance themselves from corporatist instance, in the United States the Dodd-Frank Act and managerial rent-seeking as much as from has tightened financial regulation and designated the labour and bureaucratic kind. They need to a list of banks that are ‘too big to fail,’ exacerbating continually highlight that the financial crisis was the very implicit guarantee that encouraged the borne of incentives that have nothing to do with crisis in the first place.10 Although the new Basel free markets and capitalism. III regulations, which are set to apply to all major One constructive way forward for liberals is to banks, are an improvement, they suffer from the question whether the limited liability company same problems the first two incarnations of those is an appropriate legal form for companies rules exhibited: arbitrary rules applied to diverse with potentially massive systemic importance. institutions which in turn feel less obliged to Arguing for a greater role for owners of capital oversee their own risk profile. in our economy—shareholders—is an important Regulators have always had sufficient powers. way to encourage enduring support for But they naturally lack the ability to foresee capitalism. Adam Smith railed against the avarice the source of the next financial crisis. Take the and waste of the managers of the British East International Monetary Fund. Its flagship World India Company, and he recognised how limited Economic Outlook noted as late as 2007 that the liability companies are a perversion of the global economic outlook looked ‘very favorable’ capitalist system: and ‘world growth will continue to be strong.’ Even in July 2008, as the crisis was beginning to The directors of such [joint-stock] unfold it noted that the ‘risks of a financial tail companies, however, being the event have eased.’ managers rather of other people’s Moreover, many regulators were and still are money than of their own, it cannot well captured by the financial services sector. Many be expected, that they should watch public service employees themselves hanker over it with the same anxious vigilance for the incomes and (supposed) prestige that with which the partners in a private senior ‘bankers’ command,11 and are therefore company frequently watch over their reluctant to disrupt or crimp the industry in any own ... Negligence and profusion, meaningful way.12 therefore, must always prevail, more or

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less, in the management of the affairs of form for businesses whose failure could have such a company.15 economy-wide ramifications. One must wonder if, starting from scratch, society would have Limited liability companies are a gift and chosen to grant (at practically no charge) the construction of the state. They are clearly a shareholders of large financial firms limited contingent as opposed to a natural form of liability and their employees no liability. Without business organisation. These forms of business a strong moral code fostering prudence and organisation promote risky business ventures restraint among managers, the incentive for staff because the maximum loss the owners can incur to gouge shareholders is strong. is the value of their investment. I am under no illusions about how difficult They have been a boon for Western economies. it would be to alter these fundamental Contemporary authors rightly consider them characteristics of our financial and corporate ‘the most important organisational form in the architecture. Nevertheless, it is incumbent on world and the basis of the prosperity of the West classical liberals to think about how to reform in the modern world.’16 Because owners have our economic and financial systems to ensure limited liability, companies foster economic the best incentives are fostered. Certainly, moves activity that would not otherwise have occurred. to give shareholders greater voting power, They allow capital to come together from different especially in relation to remuneration, is a good sources to create large business enterprises, which idea. Perhaps shareholders of financial firms in turn can enjoy economies of scale and scope should also have liability that extends somewhat that are passed onto consumers. beyond their investment to better protect taxpayers for having to make up any losses of Limited liability companies are a gift firms with implicit state guarantees. and construction of the state. They are clearly a contingent as opposed to a Conclusion The economic crises that have bedevilled the west natural form of business organisation. since 2008 have drawn attention to the major defects of our economic system. Even if the But the separation of ownership and control is a distribution of income and wealth is of no concern source of inefficiency, as Smith recognised above.17 to a classical liberal, how it comes to manifest Companies were not universally welcomed when itself is. If the current trend continues, whereby they became more common in the late nineteenth ever-increasing rent-seeking and bureaucratic and century. At the beginning of Queen Victoria’s corporate parasitism contribute to ever greater reign, for instance, conservatives considered the disparities of wealth, Western democracies will company a disputed, legally suspect, and morally leave themselves open to extreme elements that dubious organisational form. could remove the freedoms and liberties we Indeed, British economist Alfred Marshall still have. believed honesty and uprightness on the part of The protestors struggle to articulate it. But senior employees can sustain the efficiency of they are not angry about inequality per se— companies. He might have added public support. they deplore an economic system that appears Stellar growth in executive salaries since the to allocate rewards arbitrarily and unfairly. And 1980s, which in many cases have appeared to be they are depressed by a political class that is limited only by the personal greed of directors too timid to acknowledge that the financial themselves, reflect erosion of that moral code. crisis was born of deep-seated and pervasive The global financial crisis and its aftermath flaws in economic incentives—not by a lack have raised questions about whether the limited of ‘regulation,’ or more laughably, inadequate liability company is an appropriate organisational government spending.

38 POLICY • Vol. 29 No. 1 • Autumn 2013 FEATURE

LIBERATING ABORIGINAL PEOPLE FROM VIOLENCE This essay by Sara Hudson is based on a speech Stephanie Jarrett gave at the launch of her book; extracts of her speech are reproduced here with her permission.

t the launch of her book Liberating middle-aged, it was a topic of amusing Aboriginal People from Violence, conversation, or to join in blaming the Stephanie Jarrett talked about the event victim. Here are some examples: that motivated her to research and write aboutA violence against Aboriginal women: [He] couldn’t go out fighting on Saturday night! He had a sore wrist In 1991, I saw the David Bradbury movie and hand so he had to stay home! State of Shock about an Aboriginal man who killed his partner in a drunken rage. And the women laugh as the storyteller His lengthy prison sentence was later gesticulates a sore wrist for all to see. reduced due to a judge’s sympathy for his harsh and troubled life, and he was [He threw] boiling water over [her] released after only two years. The movie on the weekend. She got just what persuades the audience to be sympathetic she deserves too, leaving such pretty to this ‘hero,’ who was also guest speaker little girls like that. I’d do the same at the movie session. Indeed, my first myself to her! response was one of sympathy. I asked There were three men involved in the one of my Aboriginal students what she act, but the girl, well, she was one of thought of the film. She said: those … and you couldn’t call what What about the woman? She’s dead happened to her now. He killed her! I’ve travelled rape. 2,000 kilometres to get away from that kind of violence in my family, I found listening to and I find it upsetting to see films like these conversations that teaching people to feel sorry for physically upsetting, Aboriginal men who are beating and and I wanted to leave. killing the women! Dr Stephanie Jarrett undertook A few years later during my thesis fieldwork, I began to wonder whether her Politics-Geography PhD at the the violence among Aboriginal University of Adelaide in the mid Australians had connections with a 1990s, with a focus on critically different culture. At an Aboriginal assessing policy and judicial women’s venue, the weekend’s violence responses to Aboriginal domestic was a regular conversation topic. White violence. She also has a Graduate women spoke about violence but not Diploma in Environmental Studies, often, and more from concern. Among University of Adelaide. the town’s Aboriginal women, young to

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And I wondered whether I was witnessing to practise ‘pay-back’ and ‘marry’ child brides. a different cultural norm about violence. Judges have used culture as a mitigating factor in court sentencing, and most Australians continue Jarrett described some of the reactions she to turn a blind eye to the horrific levels of violence encountered in her project to document the pre- in many Aboriginal communities. contact origins of Aboriginal violence, particularly Jarrett describes her background in feminism against Aboriginal women. Reactions ranged from and social justice as having helped sustain her for puzzlement to shock: ‘She’s doing WHAT?’ the 20 or so years of dealing with the seemingly I must admit to feeling a tad uneasy while intractable issue of Aboriginal violence. She reading Jarrett’s book. I was concerned that her hopes the polarisation that dominates Aboriginal description of the violence in traditional Aboriginal affairs can be put aside to focus on Aboriginal society could be misconstrued. My concerns were violence and its causes, arguing that both sides of justified when Queensland’s child protection mainstream politics bring important values to the commissioner, Tim Carmody, after reading an task. extract of Jarrett’s book in The Australian, said that The Right in this country hold dear the The high rate of violence among liberal-democratic principles of freedom, universal individual human rights, many Aboriginal communities is non-relativism regarding violence, and the legacy of failed government policies, freedom of speech. The Left in this which under the banner of Aboriginal country hold dear to speaking out against self-determination have failed to injustice and oppression by the powerful, integrate Aboriginal people including against male domination and violence against women. into mainstream society. She describes how she has never voted Liberal ‘violence is almost a cultural value’ and implied we in her life, but has received crucial support from need special approaches to deal with the violence the Bennelong Society, a group associated with in many Aboriginal communities.* A hypothesis at the Right. Indeed, politics should take second odds with Jarrett’s central tenet of integration and place to addressing the high rates of violence in the abandonment of race-based separatist polices. many Aboriginal communities, and Jarrett is to The high rate of violence among many be applauded for trying to bridge this divide. Aboriginal communities is the legacy of failed Yet, it remains to be seen whether those on the government policies, which under the banner Left of politics are willing to remove their rose- of Aboriginal self-determination have failed to tinted glasses and acknowledge the devastating integrate Aboriginal people into mainstream impact of cultural traditions and practices on the society. Instead of educating Aboriginal people high rate of intra-familial violence in Aboriginal on adapting their cultural practices to fit the communities. Still, as Bess Price acknowledges social norms of a Western liberal democratic in a speech she gave at the launch of the book, society, government policies have promoted a Jarrett is ‘one very brave whitefella’ for speaking culture of separatism. Cultural relativism has up about the level of violence in many Aboriginal allowed Aboriginal people to sit outside the law, communities today.

* Roseanne Barrett, ‘Carmody refers to violent kinship,’ The Australian (17 January 2013).

40 POLICY • Vol. 29 No. 1 • Autumn 2013 LIBERATING ABORIGINAL PEOPLE FROM VIOLENCE

The following is an edited version of the because they were black or Aboriginal but because they speech Bess Price, Member for Stuart were human with no other choice. in the NT Legislative Assembly, gave at My people have kept up that tradition of the use of the launch of Stephanie Jarrett’s book violence. We all learn to fight and we all feel justified in Sydney and is reproduced here with to fight when we think that we, or our loved ones, have been insulted or are in danger. We are still taught that Price’s permission. men have the right to beat their wives. Women do not have equal rights under our customary law. The grog and the drugs and the petrol that whitefellas have In the lifetime of my parents and my white parents-in- brought into our country have made all of our problems law, a police party led by a First World War veteran went much, much worse but they are still our problems. through my people’s country and shot dozens of men, There is much more violence now than ever before. women and children in response to the murder of one Whitefellas are not killing us anymore; we are white man. They were not punished. In the early days, killing ourselves. white station bosses could flog Aboriginal workers in my I have lived with this violence all my life. Too many of my country with whips and get away with it. That frontier loved ones have been killed, have killed themselves, or violence happened in my country much more recently have lost their freedom because they have used violence than it happened down here in New South Wales. We on others. I carry too many scars on my body and on still remember those times. Our parents lived through my soul to deny that my people are violent. Those who them and saw these things happening. Every Australian say violence, especially against women, is not part of should know this history. Many still don’t, or don’t our culture don’t know what they are talking about. acknowledge it, or don’t want to talk about it, especially It has been part of every traditional culture, including on Australia Day. whitefella culture in the time of my parents. We are Now all of that frontier violence is gone, although it part of the human family; we have problems with our seems to us that sometimes some police, in some places, traditional culture just like everybody else. can still kill our people and get away with it. There are those who have said to me that I shouldn’t talk about Now we Aboriginal people have to give up the Aboriginal violence because it will encourage racists. willingness to use violence. To do that, we need a It will make Australians forget the white violence that cultural change. This is up to us and we can do it. After we suffered. It will mean that we will lose some of our a long, hard fight we became Australian citizens. We rights. asked for equal rights. We can’t now deny those rights to Aboriginal women to preserve our culture. We want It will encourage people like Pauline Hanson and her the same rights that all other Australians have. followers. The people who talk that way are not losing their loved ones. We are burying our children and even On Australia Day, I sat at Olympic Park with a big crowd our grandchildren. Our young men are filling the gaols. of very excited and happy Sri Lankans. Most of them We need to talk about the reasons for that, and when were also Australian citizens. There were Sri Lankan the problem is our own then we need to admit that and and Australian flags waving about. We watched a ritual do something about it ourselves. battle going on. Sri Lanka won. I was surrounded by extremely happy, warm, welcoming people the same My people do accept violence more than whitefellas colour as me. They have a completely different culture do. In Australia, only the police are allowed by the and language. law to use violence to keep order, to protect citizens from crime. And they have to be very careful they only I wanted Australia to win but I was also very happy use it as a last resort according to the rules. Not long for all those happy Sri Lankans. It meant so much ago, in my parents’ lifetime, my people didn’t have a to them to win for a change. And they seemed very police. Everybody had to learn to use violence to protect happy to have my husband and me sitting with them. themselves and their families. There was nobody else to They certainly made us feel welcome. I was very happy do it for them. All small-scale, hunter-gatherer societies on that Australia Day to be an Australian. are like that. Whitefella society used to be much more When I think of Australia I think of those Sri Lankans, of violent than it is now. My people were violent not the Scotsman who loves my daughter, of the Sudanese

POLICY • Vol. 29 No. 1 • Autumn 2013 41 LIBERATING ABORIGINAL PEOPLE FROM VIOLENCE

who guard our airport, of the Thais whose wonderful because I have said things about my own people in cooking I ate at a restaurant last night—and I think of my public that they don’t agree with will attack her. Most of parents born in the desert out of contact with whitefellas those people will be white or they will be of Aboriginal and the rest of the world. I don’t just think of the white descent but know nothing about my people’s history, policeman who murdered my people all those years ago. politics, culture or problems. Their ignorance will not We live in a society where people from every culture on stop them from attacking her, and her whiteness will Earth can be citizens and live by Australian law while make her an easy target for them. Some of them will be keeping their language and those parts of their culture from my part of the world, my people who disagree with that don’t interfere with other people’s rights. me. That’s democracy. Aboriginal people argue with To make our society work everybody, including each other as much as any other people do. We don’t all whitefellas, have had to make changes. Whitefellas think the same like some kind of cultural robots. have had to become less racist and more tolerant. It is I know Stephanie. She is doing the work she is doing only in my lifetime that women have won equal rights because she cares about the victims of violence as I do. in whitefella culture. All those people with different She is not willing to sacrifice the lives and well-being of cultures have had to give something up to become our young women and the freedom of our young men Australian to gain the benefits Australia gives them. I to preserve our culture or to fight racism. We Aboriginal am asking the same of my people. I want my people to people can determine our own future but only if we are give up violence because it is hurting our own people prepared to accept the truth. We need the honesty of and nobody else. I am asking for equal rights for women people like Stephanie to remind us of what that truth because it is right and just, and our women and girls is. We already know but it is necessary that we are have suffered enough. reminded from time to time by someone as decent and The Australian law that everybody else lives by is a good compassionate as Stephanie is. law if it can stop the violence in our communities and I encourage Aboriginal people everywhere to read this give us women equal rights. book. If you disagree with what Stephanie has said, then I am now a lawmaker in the Northern Territory. I debate with her and with me. Don’t demonstrate, wave have four Aboriginal colleagues in the new Territory banners, shout insults, and burn flags. We’re past that government. One of them is a Koori from this country stage now. We need to talk politely and with wisdom. We down here. We’ve adopted him as a Territorian now. can discuss and debate like adults and we can work out We were invited by political conservatives to join them solutions to our problems with other caring Australians. in government. We were elected by the people of the Australia needs our help to solve these problems. The Northern Territory in all their wonderful cultural diversity. people of the Northern Territory have accepted that by We know we can help make laws that are good for all giving us Aboriginal members of their government the Territorians whatever their culture and skin colour. We chance to take part in making their laws. We should take have to give it a go. We Aboriginal people can accept up this challenge like caring, intelligent adults, not like change because we can make it happen ourselves. cranky, immature adolescents. Australia is asking us to do that, to work it out for We will get rid of the violence that is destroying our ourselves in partnership with all other Australians. communities but there’s a lot of hard work to be done That’s why I am so happy to support what Stephanie first, and I thank Stephanie Jarrett for helping us to get Jarrett is doing. She is one very brave whitefella. on with that job. The same people who have insulted and attacked me

42 POLICY • Vol. 29 No. 1 • Autumn 2013 TOWARDS SMALLER GOVERNMENT AND FUTURE PROSPERITY

• Over the last 40 years, government has been charitable sector, foster personal responsibility, steadily expanding into areas far beyond its and reforge the community ties that once core responsibilities. bound our society together. • Since 1972, government spending has grown • TARGET30 is not an ‘austerity’ campaign. at an average of more than 4% per year and is It does not propose to abolish the welfare now at nearly 35% of Gross Domestic Product safety net, or punish the poor. (GDP) – and approaching critical levels. • TARGET30 asks all Australians to consider • Australia faces budgetary pressures in the what they really need government to provide, coming decades from an ageing population, rather than simply demanding more of what falling economic growth, and rising costs, they would like but don’t want to pay for. especially in health care. These challenges and • TARGET30 will show how crucial government escalating government spending will impose services in health, welfare and education can heavy burdens on future generations. be delivered efficiently and effectively while • As Australia’s leading public policy research curbing the uncontrolled growth of wasteful institute, The Centre for Independent Studies government spending. is best placed to address rising government • Australia is in an enviable economic position spending because we at the CIS have been compared to the rest of the world, but the leading the fight for smaller government for size of government more than 35 years. is growing rapidly. • Our TARGET30 campaign will prepare We need to learn Australia for its future challenges by proposing lessons from the fiscal realistic policy solutions to reduce the level and debt crises in of government expenditure to less than big-spending, big- 30% of GDP over the next 10 years. government countries • Without TARGET30, government and act now to ensure expenditures may exceed 50% of GDP by prosperity for future 2050. The result could be ruinous: higher generations. taxation, higher debt, lower economic growth, and a further reduction in social capital. Simon Cowan is a Research Fellow • Instead, smaller government would boost in the Economics Program at The economic growth and reduce taxes – and Centre for Independent Studies and that’s where TARGET30 comes in. Shrinking specialises in government industry the size of government will also stimulate the policy and regulation.

POLICY • Vol. 29 No. 1 • Autumn 2013 43 Government has been expanding … TARGET30 will slow the growth and make The size of government in Australia has rapidly savings … expanded in the last 40 years, beginning with the TARGET30 takes a pragmatic approach to cuts – implementation of the Whitlam government’s reflecting a compromise between the economically social policies. Its reach now extends into areas ideal size of government (20% to 25%) and what far beyond core government responsibilities. is achievable given the difficulties in cutting government spending. General government spending across all levels of government is nearly 35% of GDP.

New and expanded programs have been the biggest driver of spending over the last 10 years, making up 75% of Commonwealth spending growth.

Government spending since 1972

TARGET30 can be achieved just by holding government spending constant on a per capita basis.

Percentage of GDP Even after TARGET30, government spending in 10 years will still be $65 billion a year higher than now.

By focusing on areas like health, welfare And will continue to grow and grow … and education … The thirdIntergenerational Report (IGR 2010) The majority of government spending goes into predicts that an ageing population, increasing social security and welfare, health and education. health costs, and slower economic growth will put That is why we will focus our initial research on pressure on future budgets. these areas.

General government expenditure 2010-11

Social Transport, security & Public Order, welfare Housing, Defence 27% & other IGR 2010 almost certainly underestimates the growth rate in government spending; a more 38% accurate figure should include the effect of likely new spending programs to be introduced over the Health next 30 years. 19% Education 16% Without TARGET30, government spending may exceed 50% of GDP by 2050.

44 POLICY • Vol. 28 No. 2 • Winter 2012 Health: To address long-term affordability personal responsibility for retirement savings and problems in health, TARGET30 will look at minimising lifetime tax-welfare churning. improving the level of private sources of health funding. In addition, TARGET30 will look at Education: TARGET30 will look at the Gonski ways to encourage competition that will spur reforms, as well as education spending in general, improvements in public hospitals. to identify areas where increased productivity and savings can be achieved and to combat Social security and welfare: TARGET30 will the belief that any money spent on education, look at spending on the aged and focus not only on however inefficiently, is a good investment. reducing government expenditure but increasing

And providing simple tips to help government to TARGET30.

1. Limit and independently review new spending 6. Enforce fiscal targets and policy rules

2. Prioritise and save from existing programs 7. Automatically index income tax thresholds 10 tips to 3. Audit government programs 8. Provide greater transparency of to see if they are working long-term fiscal predictions 4. Contract out government services to the private sector 9. Eliminate fiscal churn

5. Extend means testing while 10. Increase public sector efficiency optimising Effective Marginal Tax Rates

It is also important to combat the expectation So what are we waiting for? that government services will continually increase, Australia is currently the envy of the world but especially through price signalling via user charges we must act now to ensure prosperity continues and more transparency around the costs of for future generations. Support TARGET30 and government subsidies. lend your voice to the call for smaller government and a brighter future.

What is TARGET30? TARGET30 is a campaign to reduce government spending from its current level of 35% of Gross Domestic Product (GDP) down to 30% within the next 10 years. Why does Australia need TARGET30? Having a smaller government will increase economic growth in Australia and strengthen social and family bonds, leading to better communities and better outcomes for all Australians. Without TARGET30, by 2050 government could be clawing more than 50% of the value of all goods and services produced in the economy. What does TARGET30 involve? TARGET30 is a campaign promoting the benefits of small government, supported by a series of research papers and companion activities, including public events. TARGET30 provides concrete plans and policy suggestions for reducing the size of government in key areas including welfare, education and health care. The campaign focuses on ensuring that the crucial services Australians need are delivered efficiently and effectively by all levels of government while curbing the uncontrolled growth of inefficient spending.

For more information on how you can be involved in TARGET30

visit cis.org.au

POLICY • Vol. 29 No. 1 • Autumn 2013 45 INTERVIEW

AN INTERVIEW WITH THE ARMCHAIR ECONOMIST, STEVEN LANDSBURG This interview first appeared in Region Focus (fourth quarter 2012), published by the Federal Reserve Bank of Richmond, and is reprinted here with permission.

any people find economicsRegion Focus: What prompted you to write inaccessible and many of the The Armchair Economist? questions that economists pursue Steven Landsburg: One day in 1991 I walked are divorced from the issues they into a medium-sized bookstore and I found Mface in their own lives. Steven Landsburg has more than 80 books on fundamental physics spent much of the last 20 years trying to make and cosmology, a couple dozen on evolutionary economics understandable and relevant to a broad biology, and Richard Dawkins’ classic on the audience, through a column in Slate that ran from selfish gene. And the best of those books made me 1996 to 2008 as well as a number of books, most feel like I had been allowed to partake in a great famously The Armchair Economist. Part of the intellectual adventure. They were exciting; they motivation for this work is that Landsburg himself gave me new ways of seeing the world. came to economics from a different discipline, Economics is also a great intellectual adventure, earning a Ph.D. in mathematics at the University and yet there was no book that aimed to share of Chicago. After completing his Ph.D., he was that with the layman. So I resolved to write awarded a post-doctoral fellowship in economics that book. I thought that I could do it, partly at Chicago. But much of his education in because I had just written a textbook and believed economics came from informal conversations with I could write, but also because I had the enormous economists who debated a broad range of issues, advantage of having lunch every day with a trying to find out which arguments worked and boisterous and brilliant group of economists which didn’t. who were out to use economics to understand Landsburg is a professor of economics at everything about the way the University of Rochester, New York, though the world works, and he continues to pursue academic work in everything about the way mathematics. His interests range across a number the world could be made of other disciplines as well, including philosophy, better. which he believes is crucial to evaluating the And those lunches were desirability of many economic policy issues. How, among the most exciting for instance, should individuals, policymakers, intellectual events of my and society as a whole determine what should life. Every day somebody be maximized without first having ideas about what is just? Landsburg runs a blog, thebigquestions.com, Steven Landsburg is professor where he and his readers discuss such questions of economics at the University and many others. Aaron Steelman interviewed of Rochester. Landsburg in October 2012.

46 POLICY • Vol. 29 No. 1 • Autumn 2013 INTERVIEW

would come to lunch with a completely out-of- that have been published. It doesn’t really try to the-box idea, and it would get ripped to shreds, explain the logic of economics the way Armchair and it would get rebuilt from the foundation. does and the way some of those others really do. People were absolutely committed to intellectual honesty—if somebody found a mistake in your Region Focus: To what extent do you think basic idea, you would abandon it immediately. And economic ideas are essentially intuitive when people were very committed to intellectual explained clearly? consistency. If it was pointed out to you that Steven Landsburg: To understand economics you had just said something that contradicted seems to require repeated exposure for a lot of something you had said a couple years ago, people. And after many years of thinking about people worried about that—they worried about this stuff, I sometimes am baffled that it isso getting things right and whether they were difficult for so many people to grasp. But I have to wrong then or wrong now. remind myself that it was difficult for me to grasp I would come back to my office every day, at the beginning too. These are ways of thinking thinking what a tremendous privilege it was to that most people don’t have in their toolkits be present for those lunch conversations and unless they have really studied economics. that I wanted nothing more than to share them My general experience—talking to students with the world. So The Armchair Economist and communicating with the general public— was partly a chronicle of what I had learned at is that a lot of extremely intelligent, extremely lunch. Another reason, in addition to the fact thoughtful, extremely well-educated people have that I thought I could write it and had that a great deal of difficulty grasping the logic of an material coming from the lunch group, was that economic argument. having no degree in economics, having no course background in economics, I was largely learning The Armchair Economist is the book the stuff myself or learning it from friends. I thought that gave me some real insights into that economists generally advise their what were the difficult things to learn, the easy noneconomist friends to read. things to learn, and what were the explanations that worked and those that didn’t work. Region Focus: Turning to Fair Play: What Your Region Focus: Since you wrote Armchair, there Child Can Teach You about Economics, Values, have been many other ‘popular economics’ books and the Meaning of Life, what have you learned published. How do you think Armchair differs from explaining economic issues to your daughter from some of these? from quite a young age? Steven Landsburg: I take pride in the fact that Steven Landsburg: Well, explaining economics even with all those competitors out there, my to undergraduates requires you to boil it down sense is that The Armchair Economist is the much more to the essentials than explaining it to book that economists generally advise their graduate students. And explaining it to freshmen noneconomist friends to read. It’s the book requires more of that than explaining it to seniors. that economists give to their mother when they And explaining it to third-graders requires you want their mother to know what they do all day. to really get at the absolute essence of the issues, A lot of those other books are quite good. I have and that makes you think very hard. But part reviewed several of them, and I have reviewed of the message of Fair Play was not so much several of them positively. Freakonomics stands what I learned by explaining economics to my out from the bunch, not just by its sales, but daughter. A lot of Fair Play is about what I see also in being more about facts than about logic. as the disconnect between the things people I think it’s a rollicking good read and gave it a teach their children and the way people behave rave review in the Wall Street Journal, but it is of in the marketplace. We often accept protectionist a somewhat different genre than the other books legislation to protect people from competition,

POLICY • Vol. 29 No. 1 • Autumn 2013 47 INTERVIEW

which I think nobody would tolerate on the work don’t survive. You could, of course, equally schoolyard if a bunch of kids formed a cartel ask why physics has such a powerful set of tools and refused to let anybody else trade with them for understanding the physical world, or why or their classmates, or if we refused to let kids in mathematics has such a powerful set of tools for one class associate with kids from other classes. understanding the world of abstraction. These I think we would all view that as ugly. Why are things that people have considered for a very don’t we view that as ugly when it’s done on a long time, and most of the ideas that people grand scale? A lot of Fair Play is about that kind came up with have long since been discarded. of disconnect. But the good ones generally survive. Now, it is true that economics has been more successful I think it’s impossible to do any kind than some other subjects. I suspect that partly of policy analysis without making has to do with the culture in economics of some ethical judgments. being willing to follow logic wherever it leads you, of not rejecting something just because it’s counterintuitive, of not having preconceived Region Focus: In almost all of your writings, notions of where you’re trying to go. There are one gets the sense that without a theory of the people who violate those principles all the time, good—of the desirable and the undesirable, the but there is a general culture of being the servant fair and the unfair—you believe it’s hard to say of logic, not the master of logic. much of consequence about a lot of issues. That certainly is behind the success of Steven Landsburg: I think it’s impossible to do physics, the success of mathematics, and I think any kind of policy analysis without making some it’s also behind the success of economics. ethical judgments. I also think that economists have made an excellent case for the efficiency Region Focus: You make frequent use of criterion as a general standard for policy. There counterintuitive examples in your books. are many different ways that you can present this Steven Landsburg: Counterintuitive examples to your students. I have just finished writing the do run the risk of just causing some people to 9th edition of my textbook and I now have four shut down. But I like them because, first of all, separate sections on four separate arguments for they’re fun. We laugh at jokes because they’re why you might want to buy into the efficiency counterintuitive. They appeal to the sense criterion. Those are all ultimately philosophical of playfulness in us. So, partly, it filters the arguments, but they’re completely informed by audience. The people who are just not willing to an economic way of thinking. listen to something counterintuitive are probably If you are going to argue for one policy over the people who are not going to learn anything another, then you have to argue at some level that anyway. It brings in the sort of people who have this policy is good and the other policy is bad, more open minds. and the difference between what’s good and Beyond that, when you are forced to a really what’s bad is a philosophical question, however counterintuitive conclusion, from what appeared you address it. I think that economics often, to be completely noncontroversial principles, though perhaps not always, gives you all the tools that’s when you’ve learned something. I mean, you need to do that, but the mere fact that all if all we ever learned were things we sort of the tools come from economics does not mean knew anyway, then we wouldn’t really be it is not ultimately a philosophical question. learning. The fact that a set of noncontroversial principles leads to a very surprising conclusion Region Focus: Why does price theory offer such causes you to become aware that those principles a powerful set of tools for understanding a broad are much more powerful than you thought they range of issues? were. It causes you to confront your prejudices, Steven Landsburg: Part of it is evolution. The causes you to open your mind up and be willing ideas that work survive, and the ideas that don’t to see the world in a somewhat wider way, and

48 POLICY • Vol. 29 No. 1 • Autumn 2013 INTERVIEW

makes you more open to the idea that you might so many of those benefits go to the world’s very be wrong about other things. It helps you poorest people. When we open our borders to understand that there might be a lot of things trade, when we open our borders to immigration, that are worth rethinking that you didn’t have Americans as a group benefit, but very poor exactly right the first time around. people in other countries also benefit. I think it’s a great thing that I don’t have to trade off Region Focus: What role do you think economists benefits to Americans versus benefits to foreigners, should play in speaking not only to the public but because the economics tells me that both sides are also to policymakers? And what pitfalls might going to benefit. But even if I did have to trade come with that? them off, I would have to say that I am more Steven Landsburg: I have not had the experience concerned about policies that will benefit people of being asked to be anyone’s policy adviser. who have the misfortune to be born in Mali or I suspect that it would be very easy for an Albania or the poor parts of Mexico than will honest person to fall prey to a certain amount of benefit middle-class Americans. corruption there, because you want to be a team player, you want to be on board with the general thrust of where the candidate is going. That might I am more concerned about policies not cause you to say things you don’t believe, that will benefit people who have the but it might cause you to pick and choose your misfortune to be born in Mali or Albania emphases—pick and choose what issues you’re or the poor parts of Mexico than will going to talk about. So I worry about that. benefit middle-class Americans. I also worry about the general human tendency to pretend that we know more than we really do. And whenever somebody gets put in the spotlight I am very disturbed at a visceral level by and asked his views on policy, I think there’s a people who think that we should care more tendency to pontificate, there’s a tendency to about people who happen to share a nationality. think, well, all these people are asking me this To me, that’s no different in terms of the way it question, that must mean all these people think feels than caring more about people who happen I’m very wise, and so I should share my wisdom. to share your race. People will disagree about But we all know as economists that there are that, and I think I have to acknowledge that this plenty of things we don’t understand. We also is not an economics point. It’s a point of personal all know as economists that there are plenty of preference, of aesthetics—it may be no more things that we understand much better than interesting than the way I like my eggs cooked we usually get credit for. And I think that it is in the morning—but I do have that very strong important for us to keep telling people over and visceral feeling that, when we set policy, we over again that there are things we understand, should care about the effects for everyone. And and that we’re right about those things, and that in many ways, I care more about a normative they will do better if they listen to us. criterion that says that when people are extraordinarily poor, through accidents of birth, Region Focus: You wrote in Forbes that trade and those are the ones that we should put a little immigration are the two most important issues more emphasis on. In addition, I just have this for you. Why? visceral, gut antipathy to people who want to try Steven Landsburg: Trade and immigration to tell other people who they should hire, who are the two most important issues for me for they should trade with, who they should transact several reasons. First of all, the economics is so with. Again, as I noted in my response to your unambiguous that trade and immigration are, on question about Fair Play, it just feels ugly to balance, good things by just about any normative me, to be sticking your nose into other people’s criteria you would want to apply because their business, and to tell them who they ought to be benefits are so very widespread. And beyond that, trading with, when it’s none of your business.

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So often you will hear the opponents of caring about other people, and caring about other immigration say things like, well, we should be people’s problems. So, on the one hand, this is allowed to keep immigrants out of the country not economics, but on the other hand, it’s the on the same principle that says I should be kind of view that I think one is led to by doing allowed to keep strangers out of my living room. economics, because economics does foster this It seems to me that this principle works exactly insight into other people’s problems, which leads the opposite way. to compassion. I should be allowed to invite anybody in my living room who I want to, and if I want to Region Focus: An issue where there seems to invite a guy from Mexico City into my living be a pretty wide gap between economists and room and he happens to have to cross your noneconomists is population growth. Most border on the way, you shouldn’t have a right to economists seem to think that population growth stop me. And so I feel in so many ways that the is generally good for well-being while most anti-immigration view is an ugly one because it noneconomists have doubts. Why do you think degrades the importance of people on the basis that is the case? of where they were born, it ignores the poorest Steven Landsburg: I’m not certain the anti- people in the world, and it involves this impulse population growth argument is incorrect, but to control other people’s choices. I am pretty sure it is. I think the reason people get this wrong is that the costs of population growth are very obvious and the benefits are less I should be allowed to invite anybody visible to the casual eye, and so people tend to in my living room who I want to, do the cost-benefit analysis incorrectly because and if I want to invite a guy from Mexico of that. The benefits of population growth come City into my living room and he happens from the fact that the more people there are in to have to cross your border on the way, the world, the more people you have to interact with, the more potential friends you have, the you shouldn’t have a right to stop me. more potential mates, the more potential business partners, customers, employers, employees. But even more than any of that is the fact that Region Focus: Someone, of course, might say: we all free ride on each other’s ideas. Virtually all ‘Why should I care what you find personally of our prosperity comes from the fact that each distasteful? As an economist, you have no greater generation free rides on the ideas of the previous insight about what should be viewed as ugly generation, and improves on them—not just behavior than anyone else.’ uses those ideas in and of themselves, but uses Steven Landsburg: I agree that, on one hand, them to inspire the next generation of ideas. these are not issues that I have any more We use them to build on and to make the world expertise on than anybody else. On the other a more prosperous place. A lot of that is invisible. hand, I think that economics fosters a sense of You have all this technology around you and you compassion and a sense of caring about people, tend to forget the fact that had there been half because in order to do economics well, you need as many people, there would have been half as to think about what people are maximizing, many ideas—probably fewer than half, in fact, which means you need to think about what’s because ventures actually inspire each other, so important to other people, which means at some there’s a more than linear buildup of ideas as level you have to put yourself in other people’s the population grows. shoes. You have to think about what’s going on I like to say that when you’re stuck in traffic in other people’s lives, you have to think about on a hot summer night, it’s very easy to remember what problems other people are facing, and to that the guy in front of you is imposing the do economics well, you have to really think hard costs, and, unfortunately, you also easily forget about that stuff, which is the first step toward that the guy who invented air conditioning has

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conferred on you quite a benefit. You remember new material in there appeared first on my blog, that if the guy in front of you had never been and certainly the presentation in the book is born, your life would be a little easier right vastly improved from what I’ve learned from now—but it’s also easy to forget that if one less my blog commenters. If things were unclear person had been born it might very well have to my blog readers, I realized that I had to say been the guy who would’ve invented air them in a different way, and in many cases conditioning, not the guy who’s in front of you. I found better ways of saying them from what So, the real way in which people get this wrong, I read in the blog comments. Blog commenters I think, is that the mind immediately goes to often pointed to aspects of the questions that the fact that there is such a thing as too large I had failed to address, and I went back to a population. And there is such a thing as expand on those things. There are many, many a population so large that the earth cannot ways in which the new edition of Armchair has support it—we all know that. But that does benefited tremendously from my commenters. not address the question of whether the current population is too large or too small. And somehow people often confuse one of those You remember that if the guy in front questions with the other. I’m not sure why, but of you had never been born, your life I’m out to unconfuse them. would be a little easier right now—but it’s also easy to forget that if one less Region Focus: What have you learned from person had been born it might very writing your blog and the comments you receive from readers? well have been the guy who would’ve Steven Landsburg: My readers are amazing. invented air conditioning. I am absolutely blown away by the brilliance of the commenters on my blog. I don’t know where they came from, but they dazzle me every day Region Focus: Your Ph.D. is in mathematics. with their commentary and insights. They pick It’s still relatively uncommon for people to my arguments apart, they force me to defend have appointments in economics departments myself, and sometimes they force me to retreat, without formal training in the discipline, even and sometimes they force me to rethink things though it’s increasingly mathematical. entirely. I don’t know any other blog where Steven Landsburg: Well, when I was in graduate the quality of the discussion is as high as it is school in mathematics, I did write one paper on mine. in economics. And it was not a mathematical Even the other blogs that are certainly as paper, it was an empirical paper. It appeared in smart as mine, other blogs that are as entertaining the Journal of Political Economy. It was an as mine, don’t get the quality commenters that exploration of the stability of tastes over time. I do, on average. And I feel extraordinarily blessed I found evidence that at least in the United by that. These are people who will go deep into Kingdom, which was where all my data were the heart of a logical argument and will insist from, that the tastes of consumers had been that assumptions be clearly spelled out, insist remarkably stable over the past hundred years. that every step of logic will be clearly spelled out. The results were very strong. That was no We have very lively discussions there. It’s almost tribute to my skills; it was just what happened a re-creation of what I used to have at lunch. to be in the data. But because the result was so strong, it got a fair amount of attention, and it Region Focus: Have any of those comments got published in a very prestigious journal, influenced arguments that you have made in and that I think was the credential that got me subsequent published work? started. I was offered a postdoctoral fellowship Steven Landsburg: Oh absolutely. I have recently in economics at Chicago mostly on the strength revised The Armchair Economist, and much of the of that paper, I think. And during the two years

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of the post doc was when I first started actually him. Whenever I spoke to him, whenever I saw learning some economics. him talk, I had the feeling that this was the most thoroughly honest man I had ever encountered. Region Focus: Which economists have influenced He just wanted to know what was true. He had you the most? no agenda. And, of course, he had this incredibly Steven Landsburg: Donald (now Deirdre) powerful mind and this incredibly powerful McCloskey first and foremost, who had such way of thinking about macroeconomics, which a tremendously unique and down to earth style I found absolutely inspiring and brilliant and of applying price theory to all human behavior, made me want to emulate him. And on a personal and sometimes to nonhuman behavior, with level, he, too, was exceptionally kind to me. these beautiful little logical stories, where a I asked him to read the first attempt at a few lines of reasoning led you to an amazingly macroeconomics paper I had ever written. surprising conclusion. I never took a course from And, in retrospect, it was terrible. I should have McCloskey, but all my friends in graduate school been embarrassed to show it to him, but he who were in the economics department were was extremely kind and gentle about taking me all taking those courses and they were reporting through that paper, almost line by line. He spent back to me what they had learned. I was blown far more time on it than any reasonable person away. I was getting all those lectures secondhand, would have spent. But he did it because he’s a and I was transfixed by them. And then later very kind and giving person, and I will appreciate on, when I had the opportunity to meet him, he that forever. was extraordinarily encouraging and really went out of his way to inspire me and to help me along. Region Focus: What are your current or So that’s number one. upcoming projects? Steven Landsburg: Well, I just signed a contract to write a one semester economic principles Bob Lucas was a huge inspiration. book. That’s a big one. And I have two clear I always thought that Lucas was visions for Armchair-like trade books, which single-mindedly committed to I’m kicking around, but I don’t think I’m ready following the truth wherever it led him. to talk about either of those things yet. And then, the other thing that’s taking more and more of my time these days is a website I also got a lot of encouragement from Gary called mathoverflow.net, which has absolutely Becker. I got a lot of encouragement from George transformed the way mathematical research Stigler—at least at the beginning, although I is being done in the world. It’s a place where think Stigler became a little disillusioned with mathematicians, including many of the very best me later on, because he thought, correctly, that of the mathematicians in the world, go every I was still spending a lot of time thinking about day to talk about what they are working on, math and he thought that given my employment and to get help from other people. Stuff that I ought to be spending all my time thinking about you used to think about for six months before economics. So he had a legitimate gripe. But you could make progress, now you can post it earlier on he had been very encouraging, and on mathoverflow.net and somebody answers it prodded me along into thinking more and more within six hours. I’m spending a lot of time about economics. there, asking some questions, answering some Bob Lucas was a huge inspiration. I always questions, and just learning a fantastic amount of thought that Lucas was single-mindedly mathematics every day. committed to following the truth wherever it led

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IN THE SECURITY OF SRI LANKA Dayan Jayatilleka speaks to Sergei DeSilva-Ranasinghe about the security situation in Sri Lanka.

n Australia, Sri Lanka continues to dominate We do not, however, have a unified nation—a headlines about allegations of war crimes nation that considers itself Sri Lankan, irrespective and the influx of asylum-seeking refugees, of and transcending ethnic, linguistic and but comparatively little is known about religious markers. The challenge is not so much ISri Lanka’s history and politics. Dr Dayan state-building but nation-building. Jayatilleka is among Sri Lanka’s leading and Whether Sri Lanka can win the peace and most respected political commentators. A prolific ensure the long-term durability of that peace writer, he has published several books, including depends on the nature of the peace. If it is a The Travails of a Democracy: Unfinished War, victor’s peace, and if victory is defined or felt to Protracted Crisis (1995); Fidel’s Ethics of Violence: be one of the Sinhalese over the Tamils, it will The Moral Dimension of the Political Thought of not be a durable peace. On the other hand, we Fidel Castro (2007), and Long War, Cold Peace: can only win an inclusive and fair peace if there Conflict and Crisis in Sri Lanka(2013) . In addition, is a redrawing of the social contract that addresses and until recently, he was Sri Lanka’s ambassador the root causes of the conflict—the mutual to the United Nations in Geneva (2007–09) and alienation of the island’s majority and minority ambassador to France, Portugal and UNESCO communities—and if there is an equitable (2011–13). In March, he spoke to defence analyst integration or a reasonable, centripetal measure Sergei DeSilva-Ranasinghe about Sri Lanka’s of devolution. political future; the defeat of the Liberation Tigers of Tamil Eelam (LTTE); allegations of war crimes Sergei DeSilva-Ranasinghe: Why is the defeat against the Sri Lankan state; the causal factors of of the LTTE significant? You call the war against Tamil secessionism; Sri Lanka’s evolving relations the LTTE a ‘just war.’ How do you explain it in with the United States, India, Pakistan and China; the context of Sri Lanka’s and its future strategic options. civil war and its bloody conclusion? Sergei DeSilva-Ranasinghe: Now that the civil Dayan Jayatilleka: The war is over, what are the challenges for Sri Lanka’s LTTE was arguably one political future? Can Sri Lanka ‘win the peace’ of the contemporary and achieve enduring political stability? world’s most ferociously Dayan Jayatilleka: The protracted mid-intensity formidable terrorist militia civil war has been won, but the peace has not. or irregular armed I have encapsulated our situation in my new book, Long War, Cold Peace. The challenge that lies ahead for the nation is precisely to create a nation. Dayan Jayatilleka is a Senior We have a state—one that has laudably restored Lecturer in Political Science at the its legitimate territorial boundaries, which are University of Colombo, Sri Lanka. co-extensive with the island’s natural ones.

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formations. The decisive military defeat imposed Dresden—which may be judged atrocities, war on it and the destruction of the LTTE as crimes, or crimes against humanity—altered the a fighting machine are surely significant and fundamentally just character of the Allied war contain lessons for Asia and the global South, against the fascist Axis powers. though one cannot of course speak of a ‘model.’ I believe the term ‘Srebrenica moment’ was Despite certain ghastly excesses, which were coined by Gordon Weiss, who wrote a significant exceptions, I have always held that the Sri Lankan book, The Cage, but used the S-word in a later war against the Tigers was unavoidable given interview or article in his advocacy mode rather the nature and behaviour of the LTTE. The Sri than in an authorial voice. In Srebrenica, the Lankan use of force was not disproportionate Bosnian Serb militia removed 8,000 unarmed given that the Tigers fielded a larger number of males from UN custody and slaughtered them suicide bombers than did any radical Islamist in cold blood in a premeditated massacre. The movement, deployed a pirate navy (with a suicide chain of command was also clear because Radko boat component), and had a fledgling air force. Mladic visited the camp. When and where did The Sri Lankan war was to save its citizenry from the Sri Lankan armed forces do anything of the weekly terrorist suicide bombing and restore the sort? If the Sri Lankan side had done so, or ever island state’s territorial unity and integrity, both intended to, why would it have sacrificed many of which are legitimate objectives. Had the Lankan soldiers belonging to elite units, in the successful state not gone to war or had it permitted the Tiger attempt to breach the LTTE’s bund-bunker leadership to be evacuated, the cost in blood and complex, to free tens of thousands of Tamil treasure would have been far worse than it was civilians? Would there have been over 10,000 in the war itself. All told, I continue to hold that LTTE prisoners of war, most of whom have been in its basics, the war of the Sri Lankan state met released after rehabilitation? the classic criteria of a ‘just war.’ Any talk of a Srebrenica moment does two things, both of them exceedingly damaging: It belittles the horror of Srebrenica, just as loose talk I continue to hold that in its basics, of a holocaust in any context but that of Nazism the war of the Sri Lankan state met belittles the unique horror of the Holocaust. the classic criteria of a ‘just war.’ It also provides a carpet under which to hide specific crimes and atrocities committed during Sri Lanka’s war, crimes that were exceptions Sergei DeSilva-Ranasinghe: Some human rights rather than the rule. activists insist that 40,000 civilians were killed in the final months of Sri Lanka’s secessionist-civil Sergei DeSilva-Ranasinghe: How do you war, which they claim was won in a manner that respond to the school of thought that espouses mirrored the war crimes committed at Srebrenica the belief that the rise of Tamil secessionism in Bosnia. Is this an accurate interpretation? and the LTTE, including the justification for Dayan Jayatilleka: I do not want to get into the the tactics that the group adopted to emerge numbers game either to inflate or deny, because supreme and fight its war of secession, was I do not have the answers. I do know though principally caused by the actions, policies and that even the Charles Petrie report, the internal responses of the Sri Lankan state? report into the actions or inactions of the United Dayan Jayatilleka: The emergence of Tamil Nations during the final stages of the last war, has secessionism and even the LTTE could arguably a redacted figure, which has been resurfaced by be seen as a response to and a result of the non-Sri Lankan investigative journalists, and that behaviour of the Sri Lankan state, but not so figure is 7,000. As a political scientist by training the strategy, tactics and character of the LTTE. and profession, I do not believe, however, that The renowned scholar Walter Laqueur, editor the number of civilian deaths negate the ‘just of the Penguin Reader’s Guide to Fascism, wrote war’ character of the Sri Lankan war against the in his book The New Terrorism (1999) that in its Tigers, anymore than Hiroshima, Nagasaki and ruthlessness and fanaticism, the only parallels he

54 POLICY • Vol. 29 No. 1 • Autumn 2013 INTERVIEW

can see for the LTTE are the European fascist the elected representatives of the Tamil people movements of the 1920s and 1930s. Pulitzer on the issue of provincial autonomy, had its own Prize winning journalist John F. Burns described message been more credible, then relations with the LTTE’s leader Prabhakaran as the Pol Pot of the United States could have easily been put on South Asia. The Economist (London) wrote that a better footing and the elements in Washington the LTTE was almost classically fascist. who wish to give Colombo the benefit of the Now I do not see how the depredations of doubt would have had a stronger hand to play. the Sri Lankan state, which is a multi-party democracy, albeit of an ethnocentric sort, could justify the fascistic terrorism of the LTTE. How I do not see how the depredations can the sins of omission and commission of the of the Sri Lankan state, which is a Sri Lankan state justify or even explain the murder multi-party democracy, albeit of an by a Tiger suicide bomber of Rajiv Gandhi, Nehru’s grandson and then prime minister of ethnocentric sort, could justify the India; of Neelan Tiruchelvam, Harvard scholar fascistic terrorism of the LTTE. and Tamil nationalist leader; or of Rajini Tiranagama, the doctor and human rights activist whose life and killing by the Tigers is the subject Sergei DeSilva-Ranasinghe: What of the of the movie No More Tears, Sister narrated by future for Sri Lanka-India relations? You have Michael Ondaatje? referred to the southern Indian state of Tamil Nadu as constituting a ‘permanent threat’ to Sergei DeSilva-Ranasinghe: What has caused Sri Lanka. Why? the continued deterioration in Sri Lanka-US Dayan Jayatilleka: Taking the long view, indeed relations? Should this trend continue to escalate, the very long view, Tamil Nadu has always been what are the likely implications for Sri Lanka? the source of a geopolitical and geostrategic Dayan Jayatilleka: The United States views Sri threat. Today, separatist sentiment is as high as it Lanka through the prism of its competition or was in the 1980s, perhaps higher. Given that 70 contestation with China in Asia and the Indian million Tamils in Tamil Nadu regard the Tamils Ocean, and sees the island as an actual or potential of Sri Lanka as their ethnic kin, and given the ally of China. The United States is also committed geographic proximity between Tamil Nadu and to a ‘liberal humanitarian’ notion of the world northeast Sri Lanka, the abiding Lankan threat order, in which national sovereignty does not perception remains valid. play a major role—unless it is the national Sri Lanka must realise that we cannot get the sovereignty of the United States and its allies, support of Asia, the Non-Aligned Movement, the of course. Significant segments of the US polity BRICS or the larger global South if we do not and society have been influenced by the highly have the support of India, and with an actively effective, sophisticated and emotive lobbying hostile Tamil Nadu in play, the only way we can by the Tamil diaspora. Sri Lanka’s President win back India’s support is by strengthening Rajapaksa is also regarded as too independent New Delhi’s hand so it can balance off Tamil minded, too much of a maverick. These and Nadu. This can be done by fast-tracking a other factors have increased the gap between the political solution to the Tamil issue by successfully United States and Sri Lanka. negotiating with the elected representatives of That being said, had the Sri Lankan state and the Tamil people, mainly the Tamil National government managed the post-war situation in Alliance (TNA), on the basis of implementing the a more transparent and democratic manner, had arrangements for devolution already embedded it been more rational in its discourse and political in our Constitution. There is no non-aligned conduct, had it taken a leaf from the book of option for Sri Lanka without India; no Indian Myanmar and opened up, had it been more option without settling with the Tamils; and no sensitive to US concerns over civil liberties, had settlement with the Tamils without devolution or it made progress in its political negotiations with the TNA.

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Sergei DeSilva-Ranasinghe: What role does Sri Lanka. Sri Lanka has, logically, always valued India’s nemesis—Pakistan—have in Sri Lanka’s an influential friend far away who could help foreign policy? Given Pakistan’s significant balance the rather more complex or fickle assistance to Sri Lanka, which helped defeat the friend next door. Sri Lankan public opinion has LTTE, do you foresee bilateral relations evolving consistently placed China ahead of all others as into a strategic partnership, or is there a limit to a friend of the country. the relationship? Dayan Jayatilleka: Sri Lanka and Pakistan have Sergei DeSilva-Ranasinghe: Can Sri Lanka always had a solid military relationship. Indeed, reconcile its foreign policy balancing act with the my fear is that the new surge of Sinhala-Buddhist United States, India and China? What strategic Islamophobia led by elements of the Buddhist options does it have today? clergy, and perceptions of proximity of these Dayan Jayatilleka: Yes, Sri Lanka can do so clergymen grouped in the Bodhu Bala Sena but isn’t at the moment, which is dangerously (BBS or Buddhist Force Army) to some highly counter-productive. In 1962, during the India- influential officials, may be detrimental to our China war, Sri Lanka led by Prime Minister strategic relations with Pakistan. At the same time, Sirimavo Bandaranaike was admirably successful I do not see Sri Lanka and Pakistan growing into a in balancing its strategic interests. In her second qualitatively closer relationship, nor do I see such term, this balancing expanded to include the a need. Such an upgrade may even negatively United States. More recently, during the tenure affect an already dicey relationship with India. of President Kumaratunga and the stewardship of Foreign Minister Lakshman Kadirgamar (who was shot dead by the Tigers), Colombo successfully The Sri Lankan ruling elite is completely managed its relationship with Beijing, New Delhi out of sync with the temper of our and Washington. So it can be done because it has been done more than once. times, not only in terms of the global What is lacking in Colombo today is a strong zeitgeist but also that of twenty-first dose of realism, which is an imperative given the century Asia. geostrategic vulnerabilities of a relatively small island. Instead, the regime’s ethos today are of an overly ideological, truculent, slightly xenophobic, Sergei DeSilva-Ranasinghe: Tell us why China is and rather isolationist outlook. I have defined important to Sri Lanka. this in the Sri Lankan press as the ‘garrison state Dayan Jayatilleka: China is a permanent delusion.’ Sri Lanka sounds and acts as if George member of the UN Security Council. It has had W. Bush never left office and the ‘Global War on excellent relations with Sri Lanka since the early Terror’ doctrine and discourse are still in fashion. 1950s, whichever the ideological line in Beijing The Sri Lankan ruling elite is completely out and whichever the elected administration in of sync with the temper of our times, not only Colombo—centre-right or centre-left. China in terms of the global zeitgeist but also that of is stronger than it has ever been in centuries twenty-first century Asia. If it continues this and it has not yet peaked in its rise. Beijing has way, it will find itself on the doorstep of a less supported the Sri Lankan military and our war than friendly India and an actively hostile Tamil effort throughout our long conflict. China’s Nadu, caught in an Indo-US pincer, and isolated strategic threat perceptions with regard to from global public opinion. Sri Lanka may then separatism, terrorism and China’s high priority for wind up with its military victories jeopardised national sovereignty and non-intervention make and its control shrunk to its ethno-lingual and for great value congruency between China and ethno-religious heartland.

56 POLICY • Vol. 29 No. 1 • Autumn 2013 BOOK REVIEWS

The Modest Member: The most valuable personal quality Kelly brought The Life and Times of to his anti-protectionist crusade was persistence. Bert Kelly It is hard to imagine how lonely and frustrating the By Hal G.P. Colebatch battle must have been in an intellectual and policy Connor Court, Ballan, 2012 climate so thoroughly dominated by protectionist $29.95, 300 pages thinking. Kelly would never lose an opportunity to ISBN 9781922168023 speak at length to an empty House of Representatives on Customs Tariff Amendment bills and other legislation. ert Kelly was the federal Kelly had no formal training in economics, member for Wakefield but taught himself what he needed to know. He from 1958 to 1977. Kelly spent most of probably had a better intuitive grasp of economic Bhis political career as a government backbencher. relationships than many academic economists. Yet in combination with his role as columnist and Kelly’s thinking was ahead of his time—and not only author, Kelly had a more profound influence on on the question of tariffs. Partly as a result of his Australian public policy than many cabinet ministers. travels in the developing world, Kelly saw the From the moment he entered parliament, Kelly connection between free trade and economic waged a mostly lonely battle against Australia’s system development at a time when development policy was of tariff protection at a time when protectionism firmly wedded to statist models of economic growth. was unchallenged as an article of faith in Australian He saw that foreign aid was every bit as harmful to public life. By the time of his death in 1997, Australia’s foreign economies as handouts to domestic industry, tariff barriers had been substantially lowered. a view only now well established in the development Kelly came to politics as a farmer. His father had literature. He also understood the connection between been a member of the Tariff Board, while one of free trade and peaceful international relations. his predecessors in the seat of Wakefield, Charles However, it must be said that Kelly was not Hawker, had opposed tariff protection. Kelly a complete free trader. He argued for ‘low tariffs,’ understood the burden that the protection of not ‘no tariffs.’ He accepted in principle the ‘infant Australian manufacturing imposed on rural industry’ argument for protection, although he was producers. He also understood that government scathing of it in policy practice. He recognised that intervention to support farmers often did them more the more assistance an industry required, the less long-run harm than good. More fundamentally, likely it was to ever stand on its own feet. Kelly tariff protection offended Kelly’s keen moral sense. was careful not to be pigeonholed as a free trade Bert Kelly had two weapons in his battle against ideologue or extremist. This pragmatism made him protectionism: knowledge of policy detail and mastery an even more effective opponent of protectionism. of the written word. Kelly became an expert on the Kelly was also suspicious of the benefits of processes and reports of the Tariff Board, a precursor immigration and city life. But judged against the to today’s Productivity Commission. Through hard intellectual and policy climate of his time, Kelly was and mostly thankless work, Kelly’s command over a standout libertarian. the facts ensured that he could effectively challenge Kelly’s direct influence on policy is hard to delineate. government policy, not least the policies pursued by Hal Colebatch suggests that Kelly may have had his own side of politics. some influence on the 25% across-the-board tariff Kelly’s other weapon was his ability as a writer to cuts of the Whitlam government in July 1973. But inform and entertain. As a columnist in both the rural the motivation for this cut was a ham-fisted attempt and national press, Kelly savaged protectionism and at controlling inflation rather than intellectual rent-seeking in folksy, satirical and accessible prose. recognition of the damaging effects of protectionism. It would be difficult to underestimate the influence Kelly’s clever question time baiting of Whitlam of his writing. This reviewer still recalls as a teenager government Treasurer Jim Cairns—getting Cairns to in the 1980s reading Kelly’s ‘Modest Farmer’ column argue for printing money to lower unemployment—was in The Bulletin magazine. probably a factor in Cairns’ demise.

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Kelly’s indirect influence through both his writing with fish, lots of arable land and pastures, and readily and personal relationships was far more important available labour does not, of itself and automatically, and profound. Kelly changed people’s minds about make a people wealthy. Natural riches and human policy, and many of those he influenced paved the capacity are simply potential sources of real and extended way for reductions in tariffs in the 1980s and wealth. They will not take human life beyond a modest early 1990s. By 1993, the federal Liberal-National subsistence until those resources are marshalled and Party coalition was committed to abolishing tariff worked upon, coordinated and transformed by human protection, although it did not deliver when in ingenuity and labour into the large-scale production government from 1996 to 2007. of useful and exchangeable goods and services and Kelly showed that politicians do not need to attain improved forms of production. All over the world, high office to be influential. Indeed, his short time hundreds of millions of people live in nations that as minister for the navy was as much a hindrance as possess great natural resources, yet its citizens live in a help to his cause. Current and aspiring politicians poverty. This is so because they do not have the kinds more interested in doing good than doing well can of civic cultures and liberties, political and economic find in Kelly a great role model. institutions, and supportive laws and regulations Kelly’s work remains unfinished. However, the fact that propel human ingenuity into creating capitalist that the government now feels obliged to refer to enterprises and the great engines they may become in subsidies to industry as ‘co-investments’ shows how producing widespread wealth. much opinion has shifted against protectionism, even ‘Human ingenuity’ crucially includes capitalist where policy practice has not. entrepreneurship, the subject of this book by Nicolai We can be grateful to Bob Day’s Bert Kelly Research J. Foss and Peter G. Klein. Within modern industrial Centre and Connor Court for making possible the society, entrepreneurship is the child of those cultures publication of this biography. and institutional arrangements such as free markets Kelly’s life should serve as an under the rule of law, modest taxation, contractual inspiration to those carrying certainty, access to financial capital, secure private on his important work property rights, and predictable public policy that on behalf of an Australian allow and encourage budding entrepreneurs to exercise economy free from trade their creative and transformative energies. barriers. Foss and Klein, writing from an ‘Austrian economics’ perspective, do not dwell, at this point, upon the Reviewed by broad institutional environment that supports Stephen Kirchner entrepreneurship—and which comes later. They hasten to focus on what the entrepreneur brings to economic production and the skills that must be Organizing exercised in creating a profit-making enterprise— Entrepreneurial the firm or organisation. Their contribution, and it Judgment: A New is a major and well-argued one, is full of historical Approach to the Firm and theoretical detail that drives their theme of the By Nicolai J. Foss and entrepreneur as not just an ‘ideas’ man or woman, Peter G. Klein but one who creates, when successful, an organisation Cambridge University that finds and orders the capital and processes Press, 2012 appropriate to the tasks of producing goods and $36.99, 299 pages services at a profit. ISBN 9780521697262 For the professional economist, therefore, this book is a well-organised dissertation on the essential atural abundance in intertwining of entrepreneurship with the firm and a nation blessed, let’s the questions, both practical and theoretical, that this say, with gold-rich rocks, huge deposits of raises. For those interested in organisational Ncoal and iron ore, wonderful soil, waters brimming management, it has much to offer. For the interested

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general reader, it is an accessible insight into a subject Kirzner’s entrepreneurs do not own central to economic production, and relatively light on capital, they need only be alert to profit jargon and technicalities. opportunities. Because they own no assets, The authors’ view goes beyond the traditional image they bear no uncertainty. For this reason, the of the entrepreneur as essentially one who innovates link between Kirznerian entrepreneurship or brings forth something novel or imaginative within and the theory of the firm is weak. business, or something startlingly ‘fresh,’ whether of product or method of producing, and sometimes For them, ignoring the significance of the entrepreneur both. This is a common view of those writing about as an owner and organiser of the capital of a firm is a organisational management and tends to focus serious deficiency, since that responsibility of the role attention not so much on what the entrepreneur demands the critical personal quality of judgment does but on what kind of person or perspicacity is if the enterprise is to succeed in making a profit. the key element in entrepreneurship. It is the necessity for exercising judgment in the Among economists, speculation on the essential deployment of owned assets under conditions of contribution of the entrepreneur ranges from uncertainty that links entrepreneurship-as-discovery Ludwig von Mises’ ‘the driving force of the market’ with the theory of the firm. They follow Robert H. to Frank H. Knight’s ‘judgment.’ For Joseph Coase’s argument (1937) that the rationality of Schumpeter, the entrepreneur is one who introduces establishing a firm or formal organisation derives ‘new combinations—new products, production methods, from the reduced transaction costs that it achieves. markets, sources of supply, or industrial combinations This avoids the costs that would otherwise be …’ In the hands of Israel Kirzner, in a sustained inquiry involved in ‘executing separate contracts for each stretching over the last 40 years, the entrepreneur is seen of the manifold market transactions necessary as a key figure in market competition, and an exemplar of to complete a number of complex production Friedrich Hayek’s ‘discovery process’ within markets. For operations’—operations that could be completed Kirzner, the entrepreneur is one who sees and seizes an and coordinated within the firm at less cost. Thus, ‘opportunity’ for undiscovered profit. Foss and Klein for Foss and Klein: observe that Kirzner’s concept of entrepreneurship has become highly influential in management literature. The firm emerges as the entrepreneur’s means of maximizing the returns from his Kirzner’s notion of alertness to undiscovered judgment. This overall idea can explain not profit opportunities is a dominant strand only the emergence of firms, but also their of the contemporary entrepreneurship boundaries and internal organization. literature, along with Schumpeter’s notion of entrepreneurship as innovation and They then move on to examine aspects of this Knight’s idea of entrepreneurship as ordering, or management process, that the entrepreneur judgment. (p. 43) must undertake. For example, they ask and attempt answers to the question: ‘What about the firm’s upper This, they argue, has prompted research programs bound?’ Next, they relate this question of size and the concentrating on the ‘cognitive, motivational and costs of internal organisation to Hayek’s ‘knowledge environmental antecedents’ of entrepreneurship to problem’ and the impossibility of rational economic understand why some individuals come to be ‘alert’ planning under socialism. From there, the discussion to opportunities and how such alertness may be delves deeply into the book’s central theme of fostered in organisations or in society. ‘organizing entrepreneurial judgment’ within the context of the firm. The entrepreneur and the firm The concluding chapters of the book accordingly The authors have a fundamental criticism of contain a rich and penetrating analysis of Kirzner’s widely accepted position (and that of entrepreneurial-organisational issues, primarily from Schumpeter)—the explicit disassociation of the firm the perspective of an ‘Austrian’ economics that and the entrepreneur. foregrounds ‘dispersed knowledge.’ A variety of topical

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questions are explored, such as ownership and the If, for example, the entrepreneur needs a government rewarding of employees, authority and hierarchy, and licence to operate legally, and if that licence costs their implications for the entrepreneurial division more than the official fee because it cannot be of labour and organisational design. There is much acquired without paying a bribe to the bureaucrat of interest here not only for economists but also for who issues it, part of the enterprise’s resources are managerial theorists and practitioners, and sociologists. effectively wasted and the creation of value reduced. If intimidation of this kind is not stopped, or if The entrepreneur’s properly rights and intimidation of other kinds is protected by the law, public policy entrepreneurial creativity is threatened. The concluding discussion, Chapter 9, pulls the So, bargaining under conditions of justice and threads together and summarises the implications fairness between the owners of resources and those of what has been said for entrepreneurial theory who want to acquire or control them is an essential and practice. Importantly, this includes several condition of legitimate enterprise. pages assessing the implications of public policy for This says nothing that has not been said before entrepreneurship. about capitalist enterprise and the circumstances An issue of crucial importance for the entrepreneur, under which it flourishes. But it is often forgotten commerce in general, and national economies in and often ignored by those who should know better. predominantly capitalist societies is the clear definition Regrettably, that is the case in Australia today. One has and security of property rights under law. only to note the proliferation of stifling commercial As Foss and Klein put it, ‘ownership of resources and industrial regulation in this country, the influences the incentives to make specific investments’ expropriation via taxation, the reintroduction of and ‘and ownership of a resource is defined in terms the labour intimidation permitted by industrial relations of having the residual control rights over a resource, law and the continuation, and the sometimes extended especially the right to exclude others from a resource.’ feather-budding and government subsidisation of Also: ‘The allocation of ownership rights thereby shapes rent-seeking industries. It has become significantly the bargaining positions of contracting parties.’ more difficult for entrepreneurs to work their This being so, it follows that distribution or productive magic. dissemination of rights of control of resources in Australia is a country blessed with considerable natural an enterprise may critically affect the nature of the and human resources whose productive organisation incentives at work within an enterprise, including under human ingenuity and entrepreneurship have so how, and to what end, investments may be made far led it to an abundant life for the great majority of and resources used or appropriated. In that sense, its people. That could continue at a greatly increased to control a resource is, effectively, to own it. pace and spread if only the existing and potential It is the honest entrepreneur’s intention, within the entrepreneurship waiting to be released could be set law, to organise and use resources for the creation of free. This book is a significant contribution to better value in the form of consumer goods or services, and understanding the nature of entrepreneurship and in doing so, to make an acceptable profit. To the extent the conditions, especially the that an entrepreneur (qua enterprise) loses control over organisational processes and a resource, the creation of value may be compromised exercise of entrepreneurial because, as Foss and Klein put it, ‘judgment and asset judgment, under which it ownership are complementary.’ might thrive if given the In creating an enterprise, the entrepreneur has to chance by supportive public enter into any necessary bargaining relationships with policy. the owners of the resources, physical and human. The conditions under which that bargaining takes Reviewed by place are accordingly of considerable importance. Barry Maley

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The Great Persuasion: a vulgar simplification of economists’ thinking and Reinventing Free thus believed in unrestricted free markets. (Those Markets Since the were the days: laissez-faire, allegedly the unconsidered Depression prejudice of the masses.) Keynes declared laissez-faire By Angus Burgin intellectually dead among the more educated class Harvard University Press, and the economics profession. By the end of 2012 World War II, that death sentence seemed so obviously $29.95, 303 pages true that an international group of economists, ISBN 9780674058132 philosophers and entrepreneurs who still believed in the competitive market (though even they tended ngus Burgin, a historian to reject pure nineteenth-century laissez-faire) felt at Johns Hopkins University, has produced so embattled and lonely they create a brotherhood, a well-researched, well-written, and largely the Mont Pelerin Society, to keep from guttering well-consideredA study. The Great Persuasion chronicles the flame of those ideas in their professions and the intellectual adventures of F.A. Hayek; Milton countries. While in and of itself the group, which Friedman; and other market-supporting academics, met regularly to discuss and hash out ideas related think tankers and entrepreneurs who comprised the to markets and liberty, did no persuading and Mont Pelerin Society, founded in 1947. It also offers produced no branded work, its members—especially Burgin’s accounts of who he thinks were Pelerin’s Friedman—often identified the sense of fellowship, most important intellectual predecessors. The book’s intellectual exchange, and connections it provided only overarching flaw is that Burgin at times seems with helping cement their ideas and strengthen their confused about what ideology his book is a history intellectual work. of, conflating conservatism with libertarianism. Burgin tries to create a direct lineage for Pelerin It’s a mistake I strove to correct with my 2007 book, in the early twentieth century, citing the first-wave Radicals for Capitalism: A Freewheeling History of the Chicago School economists Frank Knight, Jacob Modern American Libertarian Movement, which reports Viner, and Henry Simons. Those figures did teach on many of the same characters and stories as Burgin. a second wave of strong free-market defenders, most Burgin knows there is a distinction between the two importantly Friedman. But in modern, post-Friedman ideologies—he mentions libertarianism a few times, terms, they barely qualify as free-market advocates. but he misses the importance of the distinction in As Burgin writes, ‘they varyingly embraced the ways that complicate his efforts to link post-Pelerin prospects of public works programs, progressive developments to pre-Pelerin forebears. In many taxation, social insurance, and vigorous antitrust respects Hayek, and especially Friedman, represented policies.’ Knight was aggravated by the pro-market something new, or at least long missing in action, under writings of the London School of Economics’ Lionel the intellectual sun. So Burgin talks about evolutions Robbins (who brought Hayek to teach at the LSE), in a body of thought that are more fruitfully believing he promoted: explained by imagining a new species inhabiting a fresh ideological space. When Burgin writes of [A] picture of laissez-faire bordering on the a ‘they’—the free-market advocates he traces from conception of a worldwide anarchist the 1930s to now—who saw ‘their assumptions and utopia ... a vision of universal freedom and arguments discreetly but decisively transformed’ brotherhood, if only governments would in the direction of greater acceptance of untramelled cease from troubling and politicians go out free markets, I’d argue that there is no ‘they’ there, and die, except for police functions. that Burgin is really telling the story of the rise of libertarianism from its roots, without crediting it as Knight also worried over the morality of markets, such or broadening its story from Hayek and Friedman. sounding less like an ancestor of Friedman than an Burgin starts with the king of twentieth century ancestor of a Brooklyn lit-zine editor with his lament interventionist economists, John Maynard Keynes, that ‘a considerable fraction of the most noble and lamenting in 1924 that the popular mind had embraced sensitive characters will lead unhappy and even futile

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lives’ in modern capitalism. When Knight wrote Lippmann, a nearly identical team was responsible; that neither ‘freedom nor truth can be treated as an hardly anyone new had arisen in defence of these absolute,’ he could have passed as an Ayn Rand villain. ideas. Lippmann’s work failed to gin up many new At best, these first-generation Chicagoites endorsed defenders. That perhaps justifies the general desuetude free markets as a least-bad solution; none saw particular in which his reputation has fallen in the historiography virtue or creative power in them, and none saw of twentieth-century market popularisation, a fall himself as part of a movement promoting them. Burgin laments. Lippmann was chary of seeming Friedman when young believed Henry Simons was either a propagandist or tool of any moneyed interests, a free-market guy, but when he re-read Simons later and by the end of World War II wanted nothing to he was shocked to think he had ever thought so. do with any organised promotion of market ideas; Burgin admits that this generation’s ‘measured Hayek, annoyed that Lippman refused to meet approach proved ineffective in preventing the rapid with him on his 1945 Road to Serfdom book tour, expansion of the state,’ which is why a distinctly and noting Lippman was generally being aloof with libertarian tradition arose not just from Hayek but all ‘our other friends in America with whom he used from the more strongly free-market Austrian economist to agree,’ decided that Lippman had turned against Ludwig von Mises, who gets too little attention in his own ideas; certainly Lippman was never again an this book. This tradition spread through characters enthusiastic promoter of them. and institutions that Burgin only alludes to, from Burgin admits that despite all their talk—and Ayn Rand to Leonard Read and the Foundation for there was much such talk, though non-libertarian Economic Education. historians of the Pelerines make more of it than is But Burgin’s scholarship breaks fresh ground in warranted—about moving above and beyond the popular history of market ideas. He rescues, and nineteenth-century liberalism, the Mont Pelerin crew tells in as fine a detail as I’ve seen, the story of how were ‘remarkably vague’ about how or what needed the American star journalist Walter Lippmann rose changing. They never ‘identified precisely what the and then quickly fell from a position as leader of an [non-laissez-faire but non-socialist] vision entailed,’ ur-libertarian movement in the late 1930s. Lippmann he wrote; nor is there much evidence that they tried was the direct inspiration for Hayek and others when very rigorously. they formed a proto-Mont Pelerin Society, which The Pelerines—according to a founding statement they threw together in 1938 for just one meeting crafted by Lionel Robbins—claimed to believe in under the name ‘Colloque Lippmann.’ Lippmann also ‘moral absolutes,’ but they never dared make the inspired the strategy pushed by both Pelerin and the anarchist leap of applying the moral standards of 1940s–1950s libertarian funding organisation, individual behaviour to the state. Between the lines in the Volker Fund, which funded Americans’ travel Burgin one detects the aching need for the libertarian to Mont Pelerin meetings: In a world where market project that Ayn Rand and Murray Rothbard made advocates were scattered and alone, find them and get popular; defenders of free markets needed the moral them communicating with each other, across national base and the outrageous consistency of Rand’s and and disciplinary boundaries. Rothbard’s thinking. Lippmann pulled proto-libertarian thought These post-Pelerin libertarians whom Burgin barely together in accessible form in his 1937 book mentions, especially Rand and Rothbard, really did Inquiry into the Principles of the Good Society. He what he says the Pelerines strove for—‘provide was no radical, explicitly distancing himself from a convincing account of the ethical foundation Herbert Spencer, the nineteenth-century classical of a market-centered world.’ An attempt to defend liberal who most closely resembles a modern free markets without defending freedom—the ability libertarian. (While Spencer was willing to argue to do what you want with your life and property as that, say, the state didn’t have the right to protect long as you aren’t directly harming others—is going people pre-emptively from quack medicine through to seem wan, confused or incomplete. One might licencing, Lippmann found such conclusions question the rigour or success of Rand’s or Rothbard’s embarrassing.) It is a telling sign of the moribund project, but at least they really did it. Unfortunately, quality of this pro-market crowd that when Mont those Pelerines who seemed to be dying for an Pelerin launched a decade after the Colloque airtight intellectual excuse for at least some

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interventionism never succeeded in a complex reversing the victories of the Fabian socialists whose defence of their non-laissez-faire attitudes. techniques they emulated. But they certainly helped Embedded in the original Pelerin group were form what the British historian A.V. Dicey, who the likes of the German-born economist Wilhelm shaped Friedman’s theories of social change, called Röpke, with his belief in, as Burgin categorises it, the ‘spirit of an age,’ what Burgin colourfully calls ‘forceful state interventions’ to guarantee a properly ‘an implicit rebuke to the fatalism engendered by artisanal and agricultural economy. But rather than encounters with the real.’ They wonder how a Röpke perspective evolved into a did it, contra what Burgin Friedman one, it’s better to recognise, as Mises sometimes implies, not by did, that Röpke just didn’t belong in the Mont Pelerin being conservatives but by Society to begin with as far as its core commitments being libertarians. went. The stated distaste for laissez-faire and for market defenders who went ‘too far’ is a real element Reviewed by of the early Mont Pelerin mix, and much beloved Brian Doherty, by those seeking surprising ironies in intellectual senior editor, Reason history. But too much is made of it, especially in magazine, where this the context of the important and lasting things that article first appeared. came out of Pelerin. Who today remembers Röpke? Burgin interestingly contrasts Hayek and Friedman’s two most popular early works, Road to Serfdom (1944) and Capitalism and Freedom (1962): Redefining the Poverty Serfdom was ‘a defensive manifesto for an ideology Debate: Why a War in a state of retreat and disarray,’ while Friedman’s on Markets is No work ‘provided a platform for a movement that Substitute for a War was prepared for an aggressive offense.’ Friedman on Poverty is presented as evolving from institutions such as By Kristian Niemietz Pelerin and the Volker Fund with a bolder, more Institute of Economic libertarian defence of markets, willing to admit he Affairs, London, 2012 thinks ‘society needs a few kooks, a few extremists’ Free download, 250 pages and willing to argue that the supposed historical ISBN 9780255366526 defects of nineteenth-century laissez-faire might be largely mythical. Despite all this, his ideas shaped a edefining the Poverty lot of the modern Republican Party’s stated views Debate is in a sense a sequel to Kristian on everything from taxes to welfare to the draft Niemietz’s award-winning book, A New to inflation. Burgin makes a convincing case that RUnderstanding of Poverty, which addressed poverty rhetorically, Milton Friedman created Ronald Reagan. policies not through the traditional lens of income Despite the president’s failures, this might explain but of expenditure. why so many libertarians still have deep affection Income-based measurements of poverty (for for Ronnie. Burgin proves how Friedman succeeded example, the widely used 50% of median income with the public beyond the dreams of most other poverty line) tend to rig the debate towards increasing founding Pelerines even as he strode ever closer to welfare payments for the poor. By increasing welfare true laissez-faire. payments for those who live below an income-based My critique of this book is presented in the spirit poverty line, you raise their income, push people of engaging with a fine and important work. It is a above the line, reducing poverty. very smart volume, well worth the time of anyone Calls to increase welfare payments are typically who cares about free-market thought, and Burgin coupled with increasing cost-of living-pressures—for almost never tips his hand about whether he believes example, as the cost of housing increases, disposable his subjects were right or wrong. Even this libertarian income decreases, life on welfare becomes tougher, partisan thinks Burgin somewhat overestimates and political pressure from the welfare lobby to increase the extent to which the Pelerines succeeded in payments intensifies.

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This argument has been prevalent in the recent Like housing and child care, the factors driving social security debates in Australia, particularly with energy costs in the United Kingdom are echoed in respect to the 2009 increase in the base rate of the Australia. Niemietz points the finger at green tape single pension by $32.50 per week, and the current policies such as mandatory renewable energy targets and campaign to increase the base rate of Newstart feed-in tariffs as driving energy bill costs. He also Allowance by $50 a week. criticises the government’s propensity for ‘winner Redefining the Poverty Debate attempts, as the title picking’ policies where governments pick programs states, to redefine the poverty policy debate in the aimed at carbon mitigation for support, rather than United Kingdom away from constant calls to increase more market-based approached like cap-and-trade. welfare in response to increasing cost-of-living pressures, The savings from reducing green tape and eliminating to tackling cost-of-living pressures head on with unnecessarily and ineffective green energy requirements a market-based strategy. would be passed onto all consumers—and reduce While the primary focus is on the United Kingdom, cost-of-living pressures. the factors Niemietz tackles are easily applicable in While market-based reforms tackling housing, an Australian context. For example, the rapid and childcare, food and energy would all help reduce continual increase in housing costs (Sydney and cost-of-living pressure for the poor, this is only half Melbourne have some of the most expensive property of Niemietz’s solution to tackling poverty. He also prices in the world), and Niemietz’s solution to recommends an ambitious overhaul of the welfare it—deregulation and de-politicisation of the planning system, which would include merging in-work benefits, processes—are entirely relevant to Australia. Given income tax, and national insurance into a ‘single that housing costs can take up more than 50% of system of positive and negative taxation.’ This would a poor person’s income, it is important to appreciate eliminate numerous perverse incentives created just how critical reform of planning processes is in by effective marginal tax rates, and improve the avenues any anti-poverty strategy. As Niemietz says, ‘Planning to move off welfare and into work. liberalisation is not a poverty “silver bullet”, but it is Unfortunately, the pragmatic and sensible solutions the closest to one that a policy measure can get.’ to reducing cost-of-living pressures in housing, child Like Australia, the drivers of growing cost of care, food and energy outlined in this book aren’t childcare are the same. ‘The government now sets going to be enough to reduce poverty in the United detailed requirements about staff qualifications, Kingdom (or in Australia for that matter). Niemietz, staff-to-children ratios, conditions of the premises, like many others, comes to the conclusion that there is safety measures, activities, etc.’ Niemietz recommends a need for an overarching and comprehensive reform of deregulating the child care sector to reduce these the tax-welfare system. costs, and suggests child-minding agencies develop While these reforms are no doubt warranted, standards to help consumers discern good child care the likelihood of any government undertaking such providers from the bad. His recommendation to a reform program seems unlikely even in the present simplify the funding arrangements for child care could economic environment. However, this does not be equally applied to Australia. diminish Niemietz’s arguments. Niemietz has made Niemietz notes that the situation relating to food a valuable contribution to the policy debate on costs in Australia is starkly different (and much poverty—in the United Kingdom and in Australia— better) than in the United Kingdom because Australia by reinforcing the message does not have to deal with the European Union’s that market-based policies Common Agricultural Policy (CAP), which can have a significant role to play account for up to 25% of a European farmer’s revenue. in reducing cost-of-living This in turn affects agricultural productivity and the pressures, and therefore, on price consumers pay for food. It is a timely reminder improving the well-being of for those in Australia campaigning for greater regulation the poor. in the agricultural sector (that is, those who are against cheap milk). Reviewed by Andrew Baker

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