Wednesday, January 18, 2006

Somalia calling

A colleague brought my attention to this item in The Economist.It is a story that claims that calls from mobiles in Somalia are cheaper and clearer than elsewhere in Africa, and attributes this to an absence of regulation.

This story may give comfort to anti-regulationists everywhere, were it not for the fact that at least part of the success seems to be due to the complete lack of the first tenet of anti-regulationists - that is property rights. If the telcos are not paying to put up towers they are not paying land rents.

The article also mentions that Somalia has had no government since 1991 and was "cut off for a while" before the mobile companies arrived. The CIA World Fact Book describes it as "the public telecommunications system was almost completely destroyed or dismantled by the civil war factions". So in those countries where regulation exists to deal with the market power of formerly government owned monopolies now have a different model to follow. Don't regulate - just have a civil war to destroy the incumbent's infrastructure.

You might think me strange - but I'll stick with the regulatory path.

Monday, January 16, 2006

Child Care

Will John Howard respond to Jackie Kelly's call for a review of child care? The answer is "almost certainly". Just as Howard has been prepared to oversight the destruction of Australia's universities once his children are through them, he will happily undertake to "fix child care" as his own children seek to use it.

Monday, January 09, 2006

What are "property rights"?

Michael Duffy wrote an opinion piece on property rights for the SMH on Saturday. ("Safe as Houses? Don't Count On It" at )

The fundamental flaw in the Duffy piece is the assumption that on acquiring "real property" one can, does and should acquire an unfettered right to do anything you like with that land.

This is clearly not the case. At all times you acquire land with the full realisation that there are other processes, run by Government as representative of the people, that can change your use of the land. Indeed the property "rights" that have been acquired are only those that are explicitly stated. The property rights lobby is at times guilty of the same failing as the free speech lobby, that is the extent to which the right should be unfettered, irrespective of land use policy (offensive language in the case of free speech) or intrusion on neighbours (defamation).

Yes, property rights are important for the functioning of a capitalist market economy. But what is important is that there is a set of rules for allocation which are followed. To claim all the unspecified "rights" as accruing to the property owner is just as wrong - when you buy a suburban residential building block you do not buy the "right" to build a ten story office tower.

And while real property rights are a means of "wealth" creation - asset price bubbles are just as damaging to the economy in residential housing prices as they are elsewhere, potentially more so as housing mortgages receive a 100% risk weighting in the calculation of lending institutions capital adequacy. What that means is that a sustained drop in the value of residential property would put real strains on the entire banking system.

There is clear justification for compensation when a property right is acquired - that is why the Federal Constitution guarantees compensation "on just terms". But this needs to be clearly understood as being different from the risk that Government policy on building materials or fire ordinances might change. Similarly, property owners do not owe Government compensation when changes result in appreciating values, such as rezoning to allow a commercial development or the improvement in value due to better transport links.

Finally, the core case on which Duffy wrote was a potential heritage listing of former display villages is really a case of an inappropriate policy. There are plenty of ways of "recording" these villages without having to preserve them. However, it should be noted that what attracts residents to these kinds of areas remains the amount of open space - because the houses really were "poky" compared to the land blocks. But if every resident goes and builds a block filling "McMansion" these areas will become indistinguishable from the newer developments further West.

The Whitlam Legacy

The Australian editorial for 7-8 January, 2006 (" The Whitlam Myth") repeats the common criticism of the Whitlam government, that no matter how progressive its social record may have been it was an absolute failure in economic management. It further suggests that the social record is over-promoted, but it is the economic record I wish to defend.

Two major policy decision set up the Australian economy for the reforms and changes we had to wait for the Hawke-Keating era to conclude. The first was the 25% across-the-board tariff cut - the first dramatic step in opening the Australian economy. The second was the passing of the Trade Practices Act 1974, the first coherent step to make corporations more competitive.

A third but less significant step was the creation of Australia Post and Telecom Australia, the first major Australian step in the program of what became known as corporatisation and privatisation.

Yes, during the Whitlam Government both inflation and unemployment grew. This was the consequence of stagflation - a rise in the input costs of factors of production (in that case oil). The Keynesians who occupied all senior economic posts had no idea what to do.

Modern textbooks explain that you need to "free up the economy" - and reducing protection, improving competition policy and removing Government from the direct running of enterprises are pretty good starts.

Lord knows how the country would have faired under the Coalition as their record up to 1969 and from 1975 to 1983 was that they knew absolutely nothing about how to reshape the Australian economy.

Friday, January 06, 2006

The IPA and Economic Libertarianism

The extreme form of advocation of market capitalism that in the 80s was associated with "economic dries" and in the 90s promoted the title "economic rationalism" is a variant I refer to as "economic libertarianism". David McKnight calls it neo-liberalism, which I think does a discredit to the word "liberal" - which in the US sense is associated with the idea that Government has a valid economic role.

A variant of it can be seen in today's AFR by John Roskam in an article on CSR. I don't have time for the full critique now - suffice to say the article fails to recognise the consequences of the corporation having achieved the status pf "natural person". It also fails to acknowledge that in the real world "the firm" draws on a number of inputs - all of which expect compensation. The shareholders do not deserve to get all the "upside" over and above the return they expected.

The focus on "shareholder value" has resulted in a degree of managing in the short run that makes it easier for management to externalise costs.

But the most telling point is how his two concluding paragraphs are self-contradictory. He first claims that firms need to confront the underlying assumption that without regulation companies will ignore social, environmental and ethical consequences - but then that the second task is to re-establish the principle that the single best contribution a firm can make is to be profitable (i.e. in a choice between profit and the environment, profit must win).

The IPA item can be found here

Thursday, January 05, 2006

Wow - it has taken me three years to revisit this blog. And that was after I even got noted on John Quiggin's site for having joined the blog community.

I'm sticking with "Anything Goes" - but who knows what will show up here. I've become a serial pest somewhere else, and think I should lurk here a bit more.

The real problem is - does anyone read it? When I left I hadn't worked out "comments" but it looks like while I've been away Blogspot has improved, so I think I need to do a bit of digging to figure out what else has changed.