Monday, August 31, 2009

The NBN and ... phone books

In matters relating to the NBN David Thodey has been reported in Communications Day as saying "One of the big things for me personally is to get Telstra to a position that we have less regulation and more freedom. Because, living in this environment where we are constantly regulated, is not a good place to be."

Telstra has been on about regulation a long time, and mostly it is about economic regulation (access to their network or anti-competitive conduct). but there is a host of social regulation whose genesis was a desire that with the introduction of competition everything would change but nothing would.

The littany of this stuff is huge and in the NBN exercise we do need to get rid of it. One area to look at is the whole directory area. Firstly we should follow this lead and make delivery of the phone book an opt-in activity rather than automatic. We could also move away from the idea of free directory assistance since there are online versions.

These are just some of the more minor.

But this also gives me the chance to talk about the launch of ACCAN on 3 September (this post took a while to write!) I like the idea that ACCAN's focus will be on "making the market work for consumers". Where there challenge lies is in trying to explain why they think the market doesn't work.

I have my own views - one of which is an almost Galbraithian belief that firms do manipulate customers - but more aptly decribed in Havyatt's Aphorism "marketing is the set of activities of the firm designed to ensure that economists assumptions of the free market do not apply".

If ACCAN believes the rhetoric they need to espouse a theory of markets - I suspect they don't and judging by their performance thus far it is the same tired collection of special purpose interventions by regulation, not serious market design that they have in mind.

The Rights of Indigenous Peoples

In 2007 the United Nations adopted The Declaration on the Rights of Indigenous Peoples.

The species known as homo sapiens evolved somewhere in middle Africa and dispersed around the planet. A good description of the current best theories of the global migration is provided by the Bradshaw Foundation. This highlights how various climatic events resulted in the routes which had been used being cut off and hence how groups developed separately. The first big event was the eruption of Mt Toba about 74,000 years ago eliminating the population in the India sub-continent and cutting off the population in South East Asia. Then during the last Ice Age about 20,000 years ago the American population that had crossed what is now the Bearing Straight was cut off.

History also records that across the planet there were very active trading systems over all of the last two millenia, over many different routes. These trading systems were regularly disrupted by various actions includng wars and conquests, but also natural events (such as the elimination of Pompeii which had been a important trading hub).

The descrption from the Bradshaw Foundation doesn't go as far as including the Austronesian migration through the Pacific Islands (the subject of a really great recent show at the National Museuem) and certainly doesn't cover the other mass migrations such as the Chinese diaspora through East Asia or the Slavic diaspora or indeed the various diaspora's including the one from which the term is derived in the Levant.

This results in seriuos difficulty in most of the world of genuinely identifying who are "indigenous" people. In Sri Lanka both the Ceylonese and Tamils are migrants from India, in the Balkans the racial mix is simply extraordinary, in Israel/Palestine both nationalities are migrants from the East, in the UK even the Celts are migrants from Northern Europe. This is componded by the fact that nowhere where nationalities (for the sake of discussion, language groups) share the same land mass have they maintained a consistent border resulting in large areas of co-mingled nationalities.

Further, while much mass migration has followed conquest, a great deal of mass migration has resulted from peoples who are fleeing either repessive regimes, invaders of their own lands or natural disasters. The more recent arrivals are not necessarily people whose intent was disruption. As an example, there was a surge in emigration from Germany to the United States after the failure of the liberal revolution in 1848.

It is understandable that there are peoples who feel "dispossesed" of their land. The ultimate question is how far back does one go in determining who are the "real" indigenous people. That is a core feature in the conflict in the Levant. In other areas of law there are very clear statutes of limitations, there are even under British Law ways that private land can be deemed to become a right of way if it can be demonstrated that it has been continuously used as such, even though each of those initial uses were technically trespass.

In the Australian case, the native title recognition only extended to land that had as yet not been "alienated" from native title, and for which the traditional owners could demonstrate a continuous connection.

The UN declaration includes many allusions to the concept of "national self-determination". This dangerous concept has had three main lives in global affairs. The first was in the national revolutions of 1848. While much of this activity was focussed on building "nation states" out of cultural/linguistic groupings such as the bringing together of principalities of Italy and Germany, or the attempts to separate out large ethnic groups from empires, such as the Magyars forming Hungary from Austria, they were as much liberal revolutions as national, the goals were more an end to autocracy than the need for a nation.

National self-determination was used as a rallying cry after the First World War as the basis for the victors dismembering the empires of the losers. Hence a plethora of states was created out of the fragmentation of the German, Austro-Hungarian and Ottoman empires, and their foreign holdings (e.g. Papua) were often transferred as protectorates rather than as colonies.

However that partition only reflected the weakness referred to above with regard to disputed territory. The Second World War had many real causes, but symptomatic of these was the German ambition to reconquer lost territory and extend its own image (Greater Germany as opposed to Little Germany in the language of AJP Taylor's The Course of German History).

Following that War the USA again raised national self-determination as a principle of settlement, and a wave of activity followed - with the dissolution of the European empires in Asia and some in the Middle East and less in Africa. (In reality the Asian case was more a matter of the Europeans being unable to re-establish the control they had lost in the war).

But again these moves resulted in the vexed question of exactly what constitutes "national" boundaries. The partition of India and Pakistan has left a record of war and conflict for half a century over disputed territories like Kashmir.

Perhaps it is time that we got over the idea of the rightsof indigenous peoples and recognised instead that there are three sets of rights that are being conflated and should be dealt with separately; the right to cultural and religious diversity; the property right in land; and the right to be free of autarchy.

The first of these rights necessitates an acnowledgement of the separation of "church" and state, and the complete rejection of theocracies. It includes the right to pursue cultural practices so long as those practices themselves do not infringe the higher level "basic human rights" - as a consequence practices that entail bodily mutilation of minors other than on established health grounds (so circumcission might survive - but the way it is conducted might need to change) would be illegal without infringing the cultural right, teaching the traditional beliefs would not be outlawed so long as that did not also forbid the teaching of the non traditional beliefs that would allow the child to prosper in the modern world.

The property right in land needs to be defended. More importantly the existence of shared title as occured in the Mabo judgement needs to be respected. This does not mean that States can't move to the idea of individual title, as there are good economic arguments and evidence that this leads to more efficient utilisation, just that anyone dispossesd of their common title is due compensation. However, where that act has been in the past it is important that there be recognised some statute of limitation, and a timescale of a generation (20-25 years) seems appropriate.

Finally there is the right to be free of autarchy. I will write later (as I may have already) that simply displacing dictators will not result in functioning democracy. Citizens value first security and will surrender to a strong central power if they believe that is what the power will deliver. The biggest crime of autarchy is the exercise of "arbitrary power" rather than not having the vote. Hence the first step is the establishment of the concept of the rule of law.

These are the essential rights that get confused in creating the rights of indigenous peoples. The Australia government has erred in acepting the declaration and needs to instead move more forcefully for the recognition of the threefold rights that obviate the need for such a dangerous concept as rights of indigenous people.

Note: In all the discussion of anthropogenic climate change we seem to forget to discuss the potential impact of sudden massive change induced by natural phenomena. The megavolcano Mt Toba of 74,000 years ago could be repeated, with some suggestion it could be in the same region in about 2012. While it might be impossible to do much for the people that would be buried by the pyroclastic cloud we could at the very least think through what the rest of the response neds to look like - most impotant of all is likely to be how to keep world trade functioning.

Narcissist or man of steel - which is Malcolm Turnbull

An extraordinary article by Peter Hartcher is Saturday's SMH. He did a nice job of describing the retiring Brendan Nelson as a thoroughly decent chap before giving us the good doctor's assessment of his successor.

That assesment began with the comment "If you had any idea of what he said to me over those 10 months [of Nelson's leadership], you would be shocked." Well, perhaps not, since it is I think already on the record that Turnbull lectured Nelson on the inadequacy of his victory speech on becoming leader to the party room on that day, and somewhere in the first week said something like "Face it you are no god at this you should give up now".

Nelson went on to suggest that Hartcher should look up narcissitic personality disorder.

Of course, our good friend Tony Abbott took on the mantle this morning of defending Malcolm while not criticising Brendon. He said "Well, look, Brendan - terrific bloke, great contributor - but you've got to have some steel if you're going to be the leader of this country."

It had a nice resonance - recalling for some George W Bush's description of our last PM as the "Man of Steel". The worrying idea might be the implication that true leaders need to have psychiatric disorders! Well, Hitler certainly did, and look at the great infrastructure he built (don't you love the autobahn and getting the trains to run on time story, oh and the "peopl's car")!

Thursday, August 27, 2009

A Bill of Rights, the Parliament and the Courts

John Howard has weighed into the Bill of Rights discussion in the Menzies Lecture reported in the SMH (and the full text provided by The Oz).

It is a most worrying speech because in it Howard repeats the conservative adage that all power should be vested in the Parliament saying;

Our parliamentary system has many flaws but ultimately it sets the tone of national debate and ought to be the ultimate decision maker. It is the identifiable and collective representation of public opinion.

In this speech Howard is building on his lecture on the media, and he repeats here his view of the underpinnings of our democracy;

The three great guarantees of Australian democracy are a robust parliamentary system, an independent and incorruptible judiciary and a free and sceptical press.

Presumably this means he is going to follow-up some time with a third speech on the "incoruptible judiciary". It is hard, however, to reconcile that view with the content of his speech. His speech mostly concerns the wisdom or otherwise of handing important decisions to unelected officials rather than to elected representatives, by which he means Ministers.

It is interesting that he doesn't draw the distinction that is drawn in republics between the separate roles of the legislature and the executive, that is really because that distinction has ceased to exist in Australia since the formation of the first Liberal Party under Deakin. Nowdays the parliament operates as little more than an electoral college to choose the "head of government" as Howard liked to style himself.

What is even more interesting is how seldom discussion refers to the written constitution as the greatest protection of all of the democratic state, and a constitution that in our case can only be amended by all the people in a national plebicite (with some interesting rules on majorities).

In his railing he misses the point that the idea of the Bill of Rights is not to empower just "any old" unelected officials - but the third of his guarantees being the judiciary. He called upon the US experience of 17 Chief Justices versus 44 Presidents and the number of very significant decisions that have been made by these courts. This argument is mostly spurious because what he is describing here is a conflict between the constitution and the executive and legislature, not between judges and the government. Should we conclude that there is a bigger conflict here, as we have had only one constitution but 26 PM's"?

More worrying was Howard's reference to an argument by Menzies that the great protection for Australians was "the common law". Howard seems to miss the obvious contradictio here - the common law is entirely judge made law, the kind of law he seems to loathe. How can judge made law not informed by legislation be superior to judge made law that is so informed (by a Bill of Rights).

In the other corner we have a former Chief Justice of the High Court in Sir Anthony Mason advocating for a Bill of Rights. It really is interesting because as a judge Mason points out that a Bill of Rights is mostly opposed by those in authority using the line that they in authority should be trusted and answerable to the people. Howard himself still waxes on about "the elites" and the idea that the elites want to embed some principles outside the remit of the ability of the common man to influence his elected representatives. But this latter idea is a fantacy - the masses may elect the politicians, but they hardly influence them. In fact the politicians are more beholden to the various "elites" than the judges.

Just how tenuous is Howard's grasp of the concept of law and an independent judiciary can be found in the failure of his legislation on military courts.

The other odd part of the Howard objection s the ongoing fixation of conservatives with the balance between rights and obligations. He writes;

I also reject a Bill of Rights framework because it elevates rights to the detriment of responsibilities. In a truly liberal and civil society we always need to balance the enjoyment of rights with the acceptance of responsibilities.

I do not understand how our current legislative framework can be claimed to represent this "balance". There are far more pages devoted to our obligations than our rights.

Finally, the most obvious rebuttal to Howard has not been made anywhere. That is, that as a legislated Bill of Rights it will not overturn the power of the legislatuure - it will merely mean that if the legislature wishes to introduce other legislation that would conflict with the rights then the legislature will need to expressly amend the Bill of Rights. That only adds transparency to the actions of our elected representatives, it does not restrict their power to act.

Note: I've often thought Howard delusional, but he exceeded himself when seeking to praise the man after whom the lecture was named, saying "Menzies ... founded the most successful political party Australia has yet seen" adding "Every political party owes it to itself, constantly, to weave a narrative of its ongoing contribution to the life of our nation."

The claim is presumably based on the cumulative years for which either party has provided Australia with its Prime Minister - at today's date 32.3 years for the ALP and 41.9 for the Liberals. But these are such insubstantial measures - for example, the "lead" rested with the ALP in 1996, and could rest again with the ALP with only two more election victories. If we measure State governments, the NSW story is vastly different, as is Queensland.

The ALP's achievements include being the first Social Democratic (or Labor) party to form Government in the world.

In the world of textiles to weave and spin are different things - but I suspect they are not in the field of political rhetoric.


On reading the latest announcement by the ACCC on petrol prices a friend wrote to me noting "how very helpful of the Commission to tell us that the petrol companies have changed the day on which they choose to exercise the market power that the Commission insists they don’t have." (The story is that the cheap petrol day is now Wednesday not Tuesday).

I've previously waxed lyrical on the subject of the abject error of the ACCC in permitting the "shop a docket" scheme for petrol retailing. But their ongoing gyrations on petrol pricing are a wonder to behold. I think someone needs to write a deeper piece about the economics of petrol pricing.

It can, of course, be explained under a competitive market model with the assumption that demand has been lower on Tuesdays and hence price drops back – put another way it is the efficient way to average the high fixed costs of petrol retailing to recover more of the fixed costs on the days of highest demand. The shift to Wednesday is then explained as a response by the market to the information about cheap Tuesdays – people have shifted their demand.

But this analysis begs two questions. The first is why the feature doesn’t occur equally in all Australian markets. The second is why motorists have needed a regulator to identify the cycle for them – petrol pricing isn’t exactly a secret.

To this could be added my friend's final comment "Also, why does this only occur in this market of all the petrol markets in the world?"

What have we done to deserve this?

The SMH among others has brought leadershiop speculation in the ALP to fever pitch - despite the fact that the critical players all seem to be out of the country.

This speculation is just one element of the current parlous state of NSW politics. Our situation makes the proposals in Tony Abbott’s book for constitutional change to enable the Federal Parliament to take over State powers look very attractive.

The ALP is in complete disarray, fractured between its parliamentary and organisational wings as a result of the power privatisation push and divided in the parliament between two main factions each of which has sub-factions. The factions no longer represent fundamental philosophical divides but merely clubs within which patronage is dispensed. Some of this, unfortunately, seems to be the consequence of the move to an elected upper house and the sinecures that can be dolled out to “safe” positions on the ticket.

Now we see more fevered speculation that the rearrangement of these sub-factions is aiming to replace the newbie Premier with an equally newbie one, with no public profile and more significantly with no real hope to “lead” the party. A core cancer in this horrible state of affairs seems to be the sub-faction known as the Terrigals – notably Eddie Obeid and Joe Tripodi, two people most notable for their complete lack of any achievements for the people of NSW.

The left and the remainder of the right need to unite now to remove this scourge from the party. The first act needs to be removing Tripodi from the front bench. The second is to act on long term ALP policy and abolish the Legislative Council.

It is too much to hope that the ALP will act. The consequence will be that we will stumble to the State election and elect Barry O’Farrell as Premier by default, leading an equally talentless and disorganised rabble. We don’t know what this mob would do – all they have done for two years is to promise more for less (more trains, lower fares). We will turn to them only in desperation, not in hope!

Wednesday, August 26, 2009

Comment word verification

Dear readers

Some robot somewhere has decided to start posting meaningless comments to my post about David Gyngell. This means I have had to turn on one of the single most annoying features on web sites - word verification - for comments.

If this becomes a problem for you please let me know.

On the subject of comments I do welcome any and all real comments, preferably named but happily anonymously. Part of my mission in my blog is to change conversations, not just to be a voice for one opinion. I know I have some small success from conversations from some readers. But even the occassional "Hear! Hear!" wouldn't go astray, or even a "What rubbish!". More nuanced responses are even more welcome.


Wednesday, August 19, 2009

The IPA and "choice"

It is becoming increasingly clear that the selection process at the Institute of Public Affairs simply is based on how often the candidate can say "choice", "freedom" and "Hayek". There is absolutely no requirement to be able to engage intellectually with the subject matter and certainly no need to understand economics.

The latest example is a piece by Julie Novak responding to the fact that Lindsay Tanner had some nice things to say about the book Nudge.

Her spray boils down to little more than the claim that the kind of "paternalistic libertarianism" being promoted is but a short step from paternalism. It misses three main points. The first is the importance of dealing in econmic models with agents as they are, not as we would like them to be; the second is that inaction is action; and the third is that the authors already deal with the question of the "slippery slope".

The first issue is with the question of how real people behave. The IPA concern is that the magical efficiency of markets to communicate consumer preferences and producers costs wil get distorted through the kinds of "choice architecture" or nudges described. However, this makes assumptions that real world agents are up to the task of making the complex rational choices that economists assume. As Daniel McFadden (who won the Nobel Prize for Economics in 2000) is quoted in the book as saying;

If consumers are not up to this task, then their choices will ensure that the [products and suppliers] that succeeed in the market are the ones that meet their needs. However, if many are confused or confounded, the market will not get the signals it needs to work satisfactorily.

The nudge theorists are not saying that "choice architecture" needs to be implemented by an all knowing Government to supplant individuals choices with those of the Government, but to be concious of the factors that we have learnt from studying real people and be concious of tose in choosing the design of real world systems. Most importantly "maximisining choice" is seldom the same policy presecription as facilitating "effective choice".

The law of misleading and deceptive cnduct makes it clear that you can mislead by inaction. The same is true in desighning the way consumers or citizens are presented with the opportunity to choose somethig. The design of "do nothing" is a concious decision that will affect choices.

Finally the authors own response to the "slippery slope" concern is (a) that it ducks the question of whether the proposals have merit in themselves, (b)that their requirement that choices should include low-cost opt-out choices works against over-reach and (c) whatever you do in presenting the choice has an effect, so it might as well be exercised conciously.

Let's quickly recap on what the basic recommendations of the book are;

1. Recognise that how the option to make a choice is presented to a decision maker/consumer affects what they will choose.
2. Design the choice so that the consumer is really required to choose. Forced choice is the best option, if not possible ensure the default is the one that with the admittedly more limited knowledge of the designer is likely to be best for the consumer.
3. Ensure changing choices is as frictionless/costless as possible.
4. nsure consumers of "renewable" choices are provided with annual summaries of how their choice has worked out for them and in such a way that it can be used to assist in making the next choice.

That much sounds like sensible ideas to make real world markets actually behave more like theoretical ones.

Tuesday, August 18, 2009

What data should Government have?

The Senate committee inquiring into the first Government NBN Bill has reported. This is the Bill to extend the provisions introduced during the NBN 1.0 process to provide carrier network information to the NBN bidders. This Bill proposes extending the requirement to utlities and to provide the information to the Implementation Study and to the NBN Co itself.

Outside of the specifics it raises the important question of exactly how much information should be available to Government for the purposes of policy mking. A related issue is how the processes for acquiring information shouldbe established - it is actually easier for regulated firms to provide data regularly in a standard form - effectively so it can be automated at the back end of systems - than respond to one off requests. That in turn raises questions about how we should coordinate the capture and presentation of geographic information.

For example, I know some local councils have used CAD CAM systems to basically map every piece of infrastructuere in their areas. That means some Local Governments can provide intricate details on infrastructure. Elsewhere major utilities have only "digitised as they go", is there a case for a massive remedial mapping task?

A report from the US shows how stupid this can get. To avoid having to provide details of exactly which premises they serve US ISPs will be required to provide the information "by block" which may be just a dozen premises. That means that each ISP needs to be able to map their data to the block data for the Government to aggregate it.

It would be far simpler to provide the data by address to a reporting authority, but then limit the reporting authority to reporting by block of twelve. Whether that "reporting authority" should be the PSMA or ANS is my next evaluation task. (Note to one earnest reader - yes I'm following hough on that contact with the PSMA).

Climate change - some thoughts

I remain fascinated by people (like Malcolm Colless in today's Oz who use the Y2K issue as an example arguing for inaction on climate change. The reality of Y2K is that millions were spent on remediating IT systems and the massive web of correspondence that flowed up and down supply chains checking that people were taking action worked.

I worked with two large telcos over the period. Both identified and remedied Y2K flaws that would have rendered their systems inoperable had they not been fixed. And yes - every one of those issues may have been fixable after the fact - but the cumulative effect would have seen commerce grind to a standstill.

Climate change is very similar - once real evidence of global warming that is faster than warming we've seen before and promises to peak at temperatures far higher than we've seen before there will be no swift mediation available. And it is not as if any of the moves to cap and trade carbon deviate from good modern economic rationalist thinking about ow to manage a pollution scenaro - that is, get the market to trade in the right to pollute. The solutions of moves to renewable energy sources have other long term benefits - the real risk with running out of fossil fuels isn't when they run out it is when new demand exceeds new supply (the so called peak oil theory) which is far closer than running out.

(Malcolm also makes a side reference to the hole in the Ozone layer and that it is now shrinking - he conveniently forgets that there was a massive global remediation program on that - it was called banning CFCs, which have been completely taken out of use in aerosol cans, as refrigerants and in the manufacture of polystyrene. Actually the full story is a stunning example of what global action can achieve.)

This piece from Malcolm followed a slightly more interesting piece from Miranda Devine in Saturday's SMH. Once you get past some of her nonsense she has some reasonable points.

The nonsense starts with a discussion of who did or did not participate or attend a Steve Fielding inspired "debate" at Parliament House. The biggest nonsesne was the idea that because only twelve attended the remaining parliamentarians were not prepared to devote the time to being informed. My sense is that every single one of them has already devoted far more than one hour to the subject. It is the height of Devine's arrogance and Fielding's stupidity that this "debate" could reach the level of being considered the definitive discussion.

Devine's second piece of stupidity is the old - we are only 1% of the problem so what we do doesn't matter. Stupid because everyone is only part of the problem.

Where she is right is in relating that to the Copenhagen discussion. What is the real benefit if we act and Copenhagen does nothing?

Australia, given its behaviour with Kyoto where we negotiated a really good deal for ourselves and then didn't sign, already lacks credibility in this forum. So the Devine strategy of only planning to legislate post Copenhagen will result in us really being voiceless.

There is a better alternative. That is to legislate before Copenhagen but to build in some kind of trigger that either delays the At taking effect until there is some positive outcome for Copenhagen, or requires the Act to be re-endorsed by the Parliament following Copenhagen.

Whatever course we take, it is time the deniers stopped thinking that inaction is an option.


For the record, I am not an expert on the Bill. I'm prepared to accept the fact that Wong has got it where it is as evidence that there is reasonable compromise (as also by the fact that neither the Greens nor Coalition are happy).

My view of climate change is that the theory is convincing, the evidence of (a) CO2 correlation to global temperatures and (b) massive ncreases in CO2 are enough to be concerned. That waiting for evidence of warming is like a general refusing to believe the intel of an invasion until he sees the first paratrooper land - by which time the skies and seas are full of the invasion force.

Monday, August 17, 2009

The (death of/future of)* newspapers

* Delete whichever you think is inappropriate.

The discussion of what's going to happen to newspapers is rushing ahead. One interesting piece was this hour long debate (I don't claim to have watched it). We know Murdoch has talked about the need for readers to pay for content, though as I've noted that itself raises interesting questions about the payments system.

One of the other interesting questions is exactly how will the readers of the future want their news delivered. The big contention currently looks to be between delivery to "smart phones" and delivery to "e-readers". Alan Kohler has done a neat job of stepping through the technologies old and new. He talks ably about how he gets news delivered as an iPhone App. He also speculates on the idea of there being an iPad just around the corner. **

Meanwhile the SMH tells us that Australian publishers have rejected the Amazon Kindle as a viable e-news delivery route.

Perhaps what remains the most fascinating part of all this is how a couple of ket features of the Digital Economy are on display here and not discussed. The first is the payments issue. The second is the whole business model - more particularly the relationships that need to exist between content publisher, conduit and device, and the way these players in the market (I will not call it a value chain for reasons discussed below) need to relate to each other.

The term value chain is inappropriate because in the classic value chain model each step in the chain has a service delivered/payment received transaction. There are e-media models that have the end user having their direct financial relationhip with any one of the device provider, the conduit provider or the source content provider (in order PayTV as the device provider is Foxtel while content comes from the separate channels, the classic internet and finaly the Kindle model).

The difficulty in all this remains how bandwagon or network effects operate. You can't get any model up and sustainable without the bandwagon, and once the bandwagon appears there is a natural tipping point to one platform. Once you get that tipping point the only potential saviour of "markets" is competition law - as Apple is now finding (and I recall Google is getting close to finding).

** A good time to remember the iRack.

And that found me an oroiginal and totally different use of the idea of an iPad

Friday, August 14, 2009

Truly Amazing

In the media and policy business one gets tired of all the ongoing babble of cultural identity and "hearing Australian voices told with Australian voices".

A highpoint of some complaints would be the "franchised TV show" formula, such as Idol. It took me by surprise to discover that there is a TV show called "Ukraine's Got Talent". But just to confound the cultural imperialist perception of the world, take a look at this.

Yes it is "sand animation" of the German invasion of the Ukraine. I guess it helps to have culture to live somewhere where tragic things have happened. Yes I'll pay that the decimation of the Aboriginal population, whether planned or unplanned, sanctioned or illegal, was tragic. But it dwarfs in comparison to those parts of middle and eastermn europe who have spent centuries being part of other people's empires.

Tuesday, August 11, 2009

The Howard (economic) legacy

I have written a few times now about not over dramatising the idea of a Howard epoch. That said it is appropriate as Gerard Henderson did today to emphasise that our current strong economic position is due to the cumulative good government from Hawke through Keating to Howard. All of them pursued a strtegy of encouraging the operation of markets and choice while not vacating the field, and recognising the importance of national and personal security through institutions of defence, intelligence, the law and property rights.

It can even be argued that the "good" process began about half way through the Whitlam government - it is just hard to sort it out from the dross.* The Fraser Goverment was "mostl harmless" and while it didn't undertake much reform things like the first banking inquiry (was it Campbell) and the Davidson inquiry in telecommunications started the intellectual movement that saw fulfillment in financial deregulation and micro-economic reform.

However, we need to not over sell Howard's achivements. The Commonwealth budget is conceded t have bneen in a "structural deficit" since 2005. This really is unforgiveable. The theory of keeping the budget "balanced over the business cycle" ca be rephrased as "keeping the structural budget in balance so that deficits and surpluses represent the business cycle". If you are Keynseian you'd go further and say the budget should be in structural surplus in a boom so you can afford to go into structural deficit for stimulus.

So Joe Hockey was probably right to concede the point that in its last two years "the Howard government spent too much, taxed too little and presided over a system of middle class welfare." But he needs to make the point it was only the last two years - not the whole period of Government. This goes with recognising that for Howard labour market reform (aka breaking the unions) was the same as nationalising the banks for Chifley. It was such an article of faith that he pursued it after there was any further need (the business community was notable for its reluctance to really endorse work choices), and it was deeply unpopular and a major contribution to his failure at the polls.

* As a partial explanation of the Whitlam comment.
The issue that brought down Whitlam, the crazed plans of Rex Connor, was not in the end part of government policy. However, structural issues in the party meant that Whitlam was too slow to deal with his Minister operating outside his brief. The other big economic issues of the day were, like most in Australia, driven by external influences (the oil price rises). Any economic text will explain how the then standard theory responses to a supply shock were inappropriate. Whitlam lurched between policy responses that were mutually contradictory - but the first effective Trade Practices law and the tarriff cut were ultimately examples of what the texts now explain as the right response - actions to reduce regulation to enable the economy to readjust to the changed supply costs.


Nice to see some support for my comments on funding politics.

In today's SMH George Williams explains the High Court's decision on an earlier attempt to limit advertising on the electronic media. He claims that proposal failed because the substitute of free air time was only available to the established parties (the cartel again).

And I thought I'd written somewhere about Government debt and the absurdity of the coalition claim that we wrre taking on debt "for generations to come". I can't find it though. But if anyone is interested Ross Gittins did a wonderful job in the weekend SMH of detailing the real amount of debt being "voluntarily" taken on (i.e. after automatic stabilisers) and how these will work in reverse.

Monday, August 10, 2009

The "big men" view of history

Okay - so I'm about to call myself out. I blogged earlier today about John Howard's public service, and in doing so I my have subscribed to the theory of "Howard as epoch".

Earlier I have made a comment about the fact that Howard did not define an epoch, just another phase. One of the triggers for that post was John Howard's address at Melbourne Uni which I have found online.

I have found it because of another item about it, now in New Matilda which stated with the phrase "John Howard's speech about the media at Melbourne University was a reminder of just how much one man's ideological obsessions continue to shape our national conversation." Yes it is of the epochal view.

The core of that argument is;

Over his 11 years in power, these personal beliefs became elements of media strategy, and then actually began to frame the way the media conducted itself. ... there's no doubt that the ABC lost some of its critical edge over Howard's tenure, began self-censoring, and eventually made counter-productive broadcasting decisions that were never going to placate its partisan critics.

Howard's dubious gift to the Australian media, and especially the ABC, is a continuing adherence to an utterly spurious version of "balance". The assumption that journos are lefties by default, and that this inflects their work with bias, has been institutionalised...

Howard's mission now is to entrench his mythology ... he dragged his party so far to the right as to be ungovernable and, in his absence, unelectable.

But we shouldn't allow Howard's own version of his engagement with the Australian public sphere stand unchallenged — understanding what happened to our key news media over the last decade or more is the first step towards repairing and renewing them.

This is an extraordinary claim - that somehow or other Howard has single handedly changed the way our media operates. This claim is made outside any consideration that there have been other changes, including to the structure and economics of print media, and the bizarre occurence of lots of TV politics shows which consist of interviews with print journalists. Howard in his address in reference to Alan Reid talked about the differences that occurred in the politici/media relationship with the advent of TV news.

An informed comment would identify the changes in television news that has focussed on any news story with a picture - not on its importance. It might also reflect in the change across media - not just political reporting - that "news" is about celebrity and the "horse race" (who is winning) and little about ideas.

This last point is what allows "But Fairfax's recent decision to publish a long essay by the Prime Minister without critical comment or context is also less than ideal." Why? Is not reporting what the PM says "news" - not all news needs commentary or criticism.

We need to get over the epochal view that Howard oversaw a fundamental change in our society. Our society changes all the time, Howard remaind in power because of his success in reflecting society, not in shaping it. Big men don't make history - they are made by it (see E.H.Carr What is History?)

Note: It is interesting to note that Howard's motivation for making the speech is that he is an opponent of a Bill of Rights. He sees instead that there are three pillars for protection of our rights, the first being a "vigorous and highly competitive parliamentary system", the second is an "admirably impartial and incorruptible jdiciary", and the third is a "free and sceptical media". Didn't talk about that - just a context for the talk. Will address distinction between cynicism and scepticism.

Over relying on "competition"

I have spent more than a decade now extolling the virtues of competition in telecommunications markets. However, I really approach the task with trepidation. Unlike my colleagues I;
1. Will regularly emphasise that infrastructure based competition is not necessarily the target,
2. Note that simply eliminating barriers to entry is not the solution, indeed that excessive entry can have very negative effects for consumers,
3. Firmly believe in very specific behavioural restraints including on bundling and on-net pricing that only look attractive to entrants when considered in the context of the incumbent doing them too,
4. Recognise that consumers are easily misled and that in the long run misleading them is in no one's interest even though it appears to grow revenue in the short run,
5. Believe that markets are made - there is no amorphous concept called "the market" and that it is in the long run interests of producers to develop well designed markts.

This is all a prelude to criticising two pieces of business journalism in the SMH on the weekend that over-hyped "competition".

The first was by Ian Verrender and was primarily about the proposition that there is another financial shock on the way as asset prices get revalued with comercial property following the residential property falls.

The worrying part of the post is the role that Verrender thinks was played by competition in creating affordable housing. He writes;

The most significant development in creating ''more affordable'' housing in the past 20 years came not from governments but from financial engineers and investment bankers - they busted up the home mortgage racket among our big banks.

Those of a certain age can probably remember visiting a bank branch manager before financial deregulation in 1983. It went something like this: That house you want to buy? We'll lend you 60 per cent of the value at 13 per cent. If you need more, go to our finance company and borrow the rest at 19 per cent.

Those were the good ol' days, when banks offered 2 per cent on savings and a smidgen higher on term deposits. They were cleaning up. And because they rationed credit, they reduced demand for housing; prices were artificially low.

The statement is absolute crap. The rationing of housing loans and the need to grovel before your banker was created by the direct regulation of mortgage rates - the rates were set at rates below the level of demand. The bank deposit rate was never 2% at the same time as mortgage rates were 13%. The babks were "cleaning up" in interest margin but charged bugger all fees. Most of the other limitations related to technology and regulation that enforced separation between trading and savings banks.

Yes it is true that the Aussie home loans of the world when they entered offered new competition, but they first wiped out the Building Society and Credit Unions who'd been doing a good job in the "value" end of the market, and in the latter case by prosletysing thrift. And in the "bad" days of rationing the thing that counted was a savings record - something that is the counter of the debt binge we've lived through.

But just to remind Verrender and others - there would be no subprime crisis if there were not collateralised mortgages from which derivatives of derivatives of derivatives were built. The reason why asset prices inflated is because the true "cost of lending" got lost - the cost of lending consists of the cost of funds and the cost of defaults. Under the fancy schemes the cost of default got assumed to zero, and a cheaper source of funds (short term bonds) was tapped instead of deposits (again bcause of the myth of security).

Competition in banking has been good, but one part of it, encouraging competition against regulated firms by unregulated firms, and allowing regulated firms to have notionally "unregulated" off balance sheet Special Purpose Vehicles has been a disaster.

The second is an article by Alan Fels and Fred Brenchley. This is one of those classic all the problems in health care would be resolved by more competition in particular a device called Medicare Select. The usual anti-competitive bogies of the collusive medical practitioners together with the protected fiefdoms of health care workers.

I always find the concerns in Australia about health care astounding, as our system actually works quite well. We have the second highest life expectency in the world and about the lowest health care expenditure as a percentage of GDP in the developed world. While sun sand and surf, and a reasonable passion for sport, would help these figures, as would wide variety in diet and general qualities of water and accomodation, they really aren't indica of a health system in crisis.

The idea that we need "more integrated health delivery businesses" is a nonsense. Such a model, including e-health records within businesses, ignores the fact that we travel around the country and can get sick away from our homes. It also ignores the fact that those of us sensible enough to have a family GP already have a skilled practitioner who receives lots of feedback providing us with recommendations of which other carer to see in the system.

By all means enable my Medicare refund to be claimed by my health fund, and allow my health fund to include in its product suite some "gap" insurance. By all means use that functionality to improve the payment process so that I can swipe my health card at my doctor to get him/her paid both the Medicare amount and the health fund. It could even include the idea I've referred to before of the card having a credit function.

The managed care model proposed by these two (which they don't want called managed care - but what else is "Armed with this new funding and buying power, the various plans would be responsible for the full health-care needs of their members, negotiating prices and services from doctors, hospitals and pharmacies. This is the core driver for reform.") makes the assumption that the information problem in health care is "solved" by absorbing lots of providers into some hierarchy or network that represents that the price and quality are acceptible. This is the Sol Trujillo theory of markets - Governments should deregulte markets and ot break big firms up because the CEOs of big firms know what they are doing.

All I want on top of the existing system is health care providers to give "fixed price" quotes before you undergo the procedure - such quote to include the "insurance" component for follow-up care if something goes wrong. My favourite example is a bloke who paid $6000 to get a kiney stone removed but the procedure only got part of it - to get the rest costs more. My provider should be able to quote my Nett cost once they have my insurer details.

I worry about anyone promoting "integrated networks" because that's what they have in the United States...the place that costs more and has worse outcomes. The trade practices laws that might need to be got around are those that prohibit the collusion and third line forcing that these groups represent.

There really is already a lot of competition in Australian health care provision. It needs to be better informed by better information on prices, simpler processes for consumers and continued reliance on the GP as a quality control manager for patients. "Corporatising" health care and creating a few "networks" that "compete" is not a solution.

We need to understand the dynamics of competition and get aawy from Government = bad, private sector = good thinking, and embrace models of competition and co-operation that work through extended informal networks not formal ones or hierarchies.

Funding politics

The media has suddenly become very excited about the issue of the funding of politics. Interestingly the focus has been far more on the subject of things like the "Business Briefing" seminars used by the ALP, or the business observers programs at conferences tha the straight donation process.

That has let some make simple claims like Glenn milne's that the ALP is mired in cronyism. Though he concededs the point made in the SMH that the other side of politics does it too.

Milne chooses to talk up the submission by Michael Ronaldson for amendments to the ALPs Bill to reduce campaign fund disclosure limits that reads in part;

"It is my strong view that the opposition should move amendments which will:
Limit to natural person (sic) the ability to donate money to political parties; provide for the public funding of the normal operations of recognised political parties; limit the quantum of donations to political parties to an amount of $1500 per financial year; prevent 'third parties' from expending money on campaigning for the election of particular candidates."

It is interesting to note though that the issue of more concern in these proposals is the issue of the big donors (unions and business) and third-party campaigns. The focus is not the events side of fundraising...though it does raise good sums.

I was asked recently what goes on at one of these corporate political fundraising events. I relayed that it was your typical big dinner at tables of ten with lternating serves of rubber chicken or over-cooked rack of lamb. You are seated at round tables of ten that give the illusion you can talk to anyone but in reality you are constrained to the people on either side. If you are seated with a Minister the chances are it is one you have no interest in dealing with.

The speeches are typical triumphalism that anyone in the room could have written from the last ten press releases. The benefits are slender, though they increase your overall face recognition as you stroll around Parliament House. And you may meet someone of use.

But if you really want to influence Government you are better going through the standard three stage process;
1. Meet with the Department to make sure you fully understand the current ituation and what is in train.
2. Meet with a Ministerial Adviser with a very target pitch on what you think needs to be done differently and why.
3. Once you are comfortable the adviser understands the pitch and you think you understand the objections organise a high level meeting (CEO to Minister) in which the CEO is required to sell one or two key messages. (Ministers are just as keen to meet CEOs as the reverse). If need be the high level meeting can be the industry association.

It really is just sales 101 - but you can't sell an idea that doesn't work.

The supposed solution that the funding of politics be by government expenditure and by only real individual donations is a cure worse than the disease. Firstly, the party that appeals to the wealthy will be the one that has the most funds. Secondly, while it may be outlawed that I can give you $1500 for you to give to the party, in corporations it is very easy to create the expectation that all he executive team will make their donation.

But worse, far worse, it entrenches the existing political parties. It creates an environment where only the parties who have historically had success can be funded for future success. This model of political parties has been labelled "cartel parties". It has been an unfortunate and unintended consequence of all the cycles of reform to date, be that initial public funding programs, and even disclosure regimes, that they support the idea that the two parties in the "two party" model are the only locus of activity.

Alan Kohler points out that the Australian Democrats (and before them the Australia Party) led the charge;

There has been concern for years that political donations would get out of control, so the Australian Democrats tried to reform the practice – before they died from lack of money, and relevance. Actually it has turned out that the danger is NOT that donations get out of control, but the exact opposite – that it gets organised and is very, very controlled.

We can expect the current version of Democrats to be just as naive.

Enduring campaign reform needs to focus on (a) limitting the amount of money that can be spent and (b) ensuring that the money that can be spent is spent more on explaining philosohical and policy positions and less on short jabs about opponents and various forms of fear mongering.

An essential first step in this exercise is in formally creating an organisational construct called "political party". At the moment the organisational form of a party remains the choice of the party and can range from company to incorporated association to unicorporated association. Each of these entails different costs, and results in its own compliance requirements.

These various entities then need to register as parties (under varying State and Federal rules) and then meet certain disclosure requirements (again under varying State and Federal rules). This results in double or quadruple processing of everything, wasting much resource in administration (and hence on its own favouring the cartel parties).

Further any regulatory reform that takes place today should accept that the Internet exists. That means two things - the first that requirements on transparency can require that information be published on a website, secondly that information transfer can be required to occur through some on line form (from e-mail to ftp to XML messsaging between applications).

As a consequence a "political party" can become a defined form of organisation. That form of organisation shall have certain rights (to advocate on behalf of political candidates) and responsibilities (continuous - monthly - disclosure of sources and applications of funds). A "registered political party" can be defined as a political party with a specified number of declared members with additional rights (to have the party name listed on ballot papers, to form lists in ballots that have lists, to receive public funding) and responsibilities (to provide the annual list of declared members, possibly requirements to make continuous disclosure about campaign activities).

Rather than limit the donations we limit the amounts that can be spent. In particular the rules should limit how much airtime any one party can acquire in TV or radio (or far more tightly that airtime is acquired for parties through public funding). Similarly the rules should limit the amount spent in paid print media, but not on letterboxing or street campaigning.

True campaign reform would reduce MPs printing and postage allowances. True campaign reform would require all Government advertising campaigns to be vetted by a parliamentary committee requiring a two-thirds majority before a campaign can proceed.

If there is to be public funding a component of it should be calculated as an advance to parties based on the results of an opinion poll conducted by the AEC for that purpose (therefore a much wider base than existing published polls).

Finally there is a very very strong case for "clean booths" as exist in New Zealand and the ACT - that is no expenditure on HTV cards, posters, bunting and (in some cases) booth workers. To make clean booths work each party/candidate can provide its voting recommendation that will be published in a consistent manner for each - either by wall poster or booklet.

All of this would be best managed as ONE process - a party is a party or is not. There may be a case for separate registration by State but nothing else.

Individual candidates create their own set of dilemmas, but there need to be some rules. Firstly two "independents" cannot work in consort in the same seat or same house. An independent can work in consort with a party or independent candidate in another house but the fact of the association needs to be declared (and published) as soon as it is formed.

As a person with some experience in these matters what looks like additional onerous requirements need not be so through the use of technology. The bigger challenge is getting to one system. The real concern is that campaign funding reform should not be left to the main parties to devise.

Howard's Service

In my first post on the Ozcar affair I noted that Grech in his Senate evidence said he'd learnt over twelve years "when the PMO or the Treasurer’s office approach you with something, you give it priority".

I note a longer piece in Crikey that makes a bigger claim about the politicisation of the public service. Rudd has left many of those bureaucrats in place, some are learning (or re-learning) the correct behaviour, of frank and fearless advice.

Let us all encourage them.

Friday, August 07, 2009

Misleading and deceptive conduct - a case study

The poster child of "good" regulation is often considered to be the prohibition on misleading and deceptive conduct as legislated in section 52 of the Trade Practices Act 1974. There are some who would even argue s52 is not needed because providers wjo lied would get bad reputations and go out of business, but they are in the minority.

Phil Dobbie on his Twisted Wire podcast has this week discussed the conduct of phone card operators and the ACCC's battle with them.

I should declare upfront that about 4 years ago I started to have my own concern about phone card operators. At telcos like AAPT that I then worked for consumer international voice minutes halved over a number of years - due to diversion to e-mail and phone cards (this is largely pre Skype and pre VoIP). I tried to undertake my own invstigation with my team of the price offers of phone cards but there were simply too many of them, time consuming to determine who owned each card and finally very hard to convert their complex terms and conditions into comparable prices.

Ultimately we gave up, in part because our own wholesale group made good money out of selling the voice minutes and other services to the operators. That revenue was deemed at risk if we took on the card operators. So we left it alone, confidant in the fact that the card operators themselves would find life tougher as they competed with VoIP etc.

In the podcast Phil Dobbie describes how misleading the priving offers are. He also interviews a provider to the industry who identiies other ploys of how the industry creates new brands - runs them as high quality for a while then degrades service (reduce cost). He didn't think it was a problem because the customers understood tis was how it worked.

He interviews Graeme Samuel who variously says that s52 is very powerful, that he doesn't have the resources to do anything other than react to complaints, that the industry should sort the dodgy players out and that there would be no benefit from tighter regulation because some of these online offers are based overseas.

The parallels between the phone cards and the mobile premium services are great - especially the Samuel call for inustry to act against thinjgs that are clearly in breach of the law. The industry at the same time wonders why they are being blamed for the regulators failure to prosecute breaches of the law.

There are some interesting lessons here. The first is that the ability of a single large provider to take action is limited. As described above an AAPT decision to act against card operators would just see the operators move their business elsewhere.

The second is the potential for conflict of competition laws. Co-operative action by the large providers would probably be interpretted as colluding to restrict competition in the market.

The third is that the idea that ease of entry to mrkets is necessarily good for competition is probably fallacious. Easy entry facilitates the easy creation and rebirthing of phone card operators and brands. In fact, one of their other ploys for earning is frequent rebirthing rendering existing issued cards worthless.

Finally there can be benefit in using technical regulation for competition purposes not just regulation of conduct. The law in Australia defines service providers by the act of providing services to the public. This does make it hard to regulate the actions of the provider. An alternative is to tie regulation to technical features such as use of numbers. It is relatively easier to regulate the operation of card operators if it is related to the use of a phone number for using the card.

An interestingly related issue is the reverse issue of Optus refusing to allow card operators to use a mobile number as the number for a calling card service - hence taking international calls out of free mobile to mobile price plans.

The case of calling card operators is a good case study on what is wrong in the regulatory framework of the industry. Three key issues are the excessive ease of entry, the divided roles of regulators and the limitation on the ability of large companies to provide industry stewadship.

Paying for online content

The "death of newspapers" has become a hot topic of late, including on line debates. I could argue that their impending death has been much forecast but in little evidence.

That said there has been dramatic concentration in mastheads in many markets. News Ltd way back in the 90s made representations to the print media enquiry that metropolitan markets would in the near future only sustain one title each. That is almost true in Australia - and perhaps explains the relative resilience of our market compared to others.

Rupert Murdoch has for some time been focussing on the "on-line" world as the enemy, talking about Google getting a free ride and now saying that he will make consumers pay for online content.

It is perhaps time for some reflection. Let's talk first about the historic newspaper model. In the really old days when printing presses first became accessible two things happened. Firstly there was a great industry in pamphleteering - mostly from a philosophical stance and sometimes it became a "regular" pamphlet. The second model was of the "Gazette" style publication that recorded the "facts" rather than "the news". So it included things like the details of ship movements etc. As the "newspaper" evolved the first part became "news and comment" while the second became the "rivers of gold" classified advertising. With the advent of wider circulation and a more consumerist sciety the model saw an increase in the quantity of display advertising.

The eco-system requires a number of things to work simultaneously. The first is that there is enough content of interest to get people to read the paper, and that interest can then generate enough readers to attract advertisers. Mind you enough of the right advertising also attracts circulation. It can be seen that this is a very classical dynamic system - not quite the "predator-prey" model but close. It is also important to note that the "cover price" of a newspaper has played a variable role in covering the production costs - it is often less than the paper cost alone. Interestingly the "free" newspaper in weekly suburbans and MX seems to still thrive.

The threat of "on line" to the newspapers has been threefold. The first is that online classifieds simply outperform print classifieds on functionality - in particular the ability to filter and sort ads. Finding cars for example is much easier on line thn in print - I can select by both price range and model, and rank by proximity to me.

The second is that readers continue to be less dependent on newspapers for news and analysis. This has been a long slow process starting with the impact of radio, but from the mid 80s TV got serious in this market. Online has taken it to another level with many "breaking story" outlets (which are mostly churnalism), the ability to subscribe to the the media releases of interest (e.g. Government agencies, Ministers etc) but also specialist online publishers and even the occassional moderately well informed blogger.

Both of these have the potential to reduce readership, and at the same time advertisers are faced with a plethora of alternatives including on-line. As Alan Kohler notes the advertisers get on-line cheaper and (because of models like payment on click through) get it cheaper.

Kohler is right to think that it isn't about finding ways to get the readrs to pay for content - that never funded the newspapers. In fact, the wrong online payment model runs the risk of just driving the users away faster (I now no longer buy the paper AFR since it is not available online - what's the use of stories I can't link to? - that is not just a blogger talking think about the number of links that ge e-mailed to you or posted on social networking forums).

However, paying for content may yet help. It will at least be a revenue stream, and it also allows us as readers to signal to potential publishers what we like to read. But as Stephen Bartholomeusz points out some publishers have figured out this needs to be a micro-payment model. Most readers buy A paper, not a subscription. On line I might like to buy a story. Think of the model where the entire newspaper headlines and first para are available on line but to read over the virtual fold you pay say 10c.

But ever since the failure of "beans" the micro-payment model has failed to materialise. The only common online model PayPal is more oriented to the larger purchase. Maybe, just maybe, micro-payments will get a new lease of life through the content industry - to do so they need to build a co-operative model (I always think of the non-take-up of EFT-POS when they were non-interconnected networks).

If there is to be a micro-payment model it should be built in such a way that I can contribute funds to it from within my banking application (a BPAY app) rather than I use a credit card on line. Ideally it is designed to get as wide a use as possible including internationally.

But ultimately for the newspapers they are never going to be able to cross-subsidise from the online world to a print world, especially when the print world is a declining circulation. Forcing customers to pay online won't arrest the decline.

The saviour of the "newspaper" model will be electronic publication to e-readers - e-readers will have a life because they are convenient (bigger than a mobile, lighter than a netbook, screens designed for long reading, battery power for a whol day).

So there's my future for newspapers - oh, and newspapers need to learn that it is now time to cannibalise their own business model especially advertising (see note 2 below).

Note 1. I always like the newspaper story because in an earlier life I was the Account Director for the media portfolio in Telstra. Frank McMahon then IT head at Fairfax asked us in 1994 for advice on doing something "on line". e were putting together the first On Australia JV with Microsoft at the time (a short lived proprietry on-line service) and Frank wanted our advice. My technical people told him that while On Australia was good they should look at this new online thing called Mosaic in America - that was of course the first web browser. As it transpired Fairfax moved more into the professional online service market buying some library orientated system.

Note 2. In hindsight it is obvious that the newspapers should have given away a free searchable on-line listing with every paper classified ad and thus strangled at birth the stand alone sites. But that was the classic revenue annibalisation model - but is it better to eat your ow young or sacrifice them?

Thursday, August 06, 2009

The NBN Board

I blogged about what I thought the composition of the NBN Board should be. Today Senator Conroy has announced the rest of the Board. The good news is that it is a small Board, and presumably has the capacity to appoint some additional directors.

My earlier comments were focussed on the need for the Board to be appointed to reflect that its task is actually a very large project delivery task. What we have been given is a Board highly skilled in fields of financial transactions, restructuring and acquisition. Only Doug Campbell has experience in building and running things. The Executive Chair and CEO Mike Quigley is experienced in telecmmunications as a vendor. Useful skills and certainly experienced at the managerial part of the task, but not the same as building stuff.

Reading the brief bios of the appointees it is hard to escape the conclusion that the entire focus is on engineering the transaction of vending in the Telstra CAN, not on being prepared to build it regardless. The only difficulty with that is it creates less incentive for Telstra to co-operate. This NBN Board does not look like a credible threat of an alternative network builder.

It is also potentially a worry that two of the Board members are McKinsey alumni while McKinsey in partnership with KPMG will be the lead adviser. McKinsey have been long term advisers in the Australian telco space - both through the recommendations to Telecom Australia in the late 1980s that abolished the State structure and developed the customer facing division structure (later adopted as the model for Telstra) as well as making the same structural recommendations for Optus in the 1990s. More recently they have undertaken significant work for Telecom New Zealand, mostly to do with failed strategies for delivering an NGN and avoiding regulation.

One concern of note is that as a consulting firm McKinsey's core focus is usually on how to generate superior returns - how to create and exploit market power. This is, of course, the complete antithesis of the objectives for the NBN Co.

That said all progress is good. I don't intend my comments as criticisms of the individuals appointed nor of the relevant firms. I am only interpretting them as strategic signalling, and suggesting that perhaps more needs to be done to make it clear that acquiring assets from Telstra is only one option.

Quality Service Provider Survey

As a piece of research I am conducting a survey on what constitutes a quality service provider in telecommunications.

I am keen to get as many responses as I can so would be pleased if readers would follow the link and complete the survey and/or forward the invitation to others they know.

The survey can be found at the following URL (which is also a hyperlink)

What next for Malcolm

In the wash-up of the "fake e-mail affair" I had a conversation with an acute political observer yesterday. He was particularly gob-smacked at Turbull's unwillingness to suggest that he handled the matter badly or any sense of contrition - instead blaming the whole exercise on being duped by the public servant.

We were both gob-smacked at how he released the e-mail correspondence from the public servant that showed how delusional the public servant was - what one journalist has described as red flags.

It brings to mind the Keating assessment of Turnbull that I've referred to before; that he is brilliant, that he is fearless and that he has no judgement. He has demonstrated the latter point both in his original handling and in its follow-up.

In reality it might be that Turnbull is not so much "unwilling" to suggest he handled the matter badly as "unable" to do so. Something in the personna he described on Australian Story of needing to achieve in the hope of inducing his mother to return seems to create this impenetrable veneer of infallibility.

My friend and I went on to discuss what happens next for Turnbull. It seems that he has no hope of winning the next election, but the Liberals might be well advised to leave him there (as Turnbull might have been advised to leave Nelson) on the grounds that losing leaders tend to be permanently damaged. We agreed that Turnbull himself doesn't yet accept the idea that he won't win, nor that not winning will result in him being dropped post election.

Our conclusion was that Turnbull will hang on until the day here he decides that he can't become Prime Minister - and that at that point he will walk away. When he walks away he will blame the party (they would not follow me) rather than himself (I could not lead them). (Note, if he does make it to the election and lose I wonder if he will match the "this is the Priome Minister who has broken Australia's heart" line of blaming defeat on the victor as he did with the republic).

That leads to a comment about this morning's speculation that Liberals are now considering Andrew Robb as last man standing as an alternative leader. This is based on the "we can't win but we'll lose less badly" theory - the same the ALP used in the move from Crean to Latham. It is a bad theory on two grounds - firstly, there is no evidence it works, and secondly, it just results in damaging another talent.

The article itself reflects that Tony Abbott is now out of contention because his own conservative base opposes him because of the support he has been providing to Turbull, especially on the Emissions Trading Scheme. This is bizarre - that loyalty is repaid by loss of support.

In fact, it provides some credence for the theory that Turnbull will ultimately pursue - that he could not lead because the party would not follow. The turmoil between Peacock and Howard was not just personalities but the same conservative/moderate divide. That experience showed the party oscillating then choosing a couple of inadequate leaders before suppressing the philosophical concern and jointly focussing on the pragmatic objective.

The ALP has gone through something similar, even though they notionally limit themselves to choices from the right. But the Rudd/Gillard partnership was a break from the mould. (There was a thought that the Crean/Macklin ticket looked like this but that was a case in which the Right picked its own Left Deputy and used it to stare down any real leadership challenge from the Left - the deal was back Crean/Macklin or the right would choose a right deputy and had the numbers to deliver. Macklin was carefully chosen as a Deputy who would never threaten the leader - a bit like Julie Bishop).

Is there any hope of the heaving mass of internal contradictions that is the Liberal party focussing on the task of winning Government or are they determined to fight out philosophical points. If the latter Turnbull might not only be wise to leave but justified in giving up because they will not follow. Or alternatively, his measure as a leader will be on how well he can make the party behave as the former.

This introduces the possibility that there was method in his madness of an over-the-top assault on Government - that the best way to get your own troops bound is to identify the enemy. It just wasn't executed well.

In conclusion - I suspect we have plenty of interesting times ahead of us.

Wednesday, August 05, 2009

John Howard and delusions

I haven't yet watched the SBS show Liberal Rule. But I have enjoyed some of the commentary about it. First up there is Gerard Henderson who claims it is all biased, because it has no right wing academics to match the left. The second criticism comes from Charles Richardson who notes that really the Howard era was not some grand epoch instead;

In psephological terms it would make more sense to think of the Howard government as a one-term government that, by a series of accidents, managed to prolong its term for eleven years.

That is a very interesting view and is perhaps a counterpoint to the other Henderson criticism that Howard didn't achieve much in the culture wars, or in remaking the ABC. Perhaps the reason for that was that Howard simply never had the authority that his longevity implied.

Other flaws have been set out by Peter Brent. These are threefold, that the show over emphasises the subject's importance, it over estimates Australia's importance and - echoing Henderson - just had former Minister's recounting the tale with a few left-leaning critics.

But to the subject himself. He has launched back into the spotlight courtesy of his own musings on the media and his relationship with Godwin Grech. On the media, in delivering a lecture at Melbourne Uni, he is reported as claiming the media was unfair on Hollingworth and Hanson. On the former he said (in part);

You can criticise his judgment...but I thought the relentless pursuit and character assassination of a very, very decent man - I thought that was appalling

It makes one wonder whether "judgement" is not indeed part of being a decent man. Wasn't the core concern that Hollingworth had shown himself not to be a "decent man" by the way he dealt with the claims of improprietry in the Church?

As to anson, the Howard defence is;

I think the media trivialised and therefore did a disservice to our long-term national interest in suggesting that Pauline Hanson was all about racism and nothing else. ...But I think there was a lot more to what was occurring then and I think many in the media failed to understand that she was articulating a sense of dispossession and a sense of being left behind felt by a section of the Australian community, and a sense that the values of this country were being changed without the country being consulted.

Unpacking this really says that the country is entitled to retain an approach to Asians or original inhabitants consistent with the Hanson view. This is Howard - cultural conservative - in full flight. This is the Howard who defended Hanson at the time, the Howard who appealed to the same red-neck approach.

Meanwhile we discover that Godwin Grech thinks of himself as close enough to have written to the former PM in the "depths of his despair". In response the PM has said that "Godwin Grech is a very good and sincere public servant".

It appears that Howard's view was formed in part because when he was in the prime minister’s department, Grech gave informal information to the Howard government. Actually this stands him as a not good public servant the first rule for whom should be observing the protocols for communicating with a Minister's office.

We should all be greatful that the Howard years were not an epoch, just another part of our unfolding story. As when I'm asked about the current economic position and whether I believe our good fortune is all Rudd's doing. My reply is that we have been blessed by Government's from 1975 on that have walked a careful line between a market economy and welfare state and have over the cycle maintained a balanced budget. In reality I could probably add parts of the Whitlam government (Trade Practices Act, tarriff reform) and leave out bits of the Fraser Government (slow on financial reform). The choice of date is more to do with the choice of the end of the oil shocks which necessitated changed approaches.

What have we learnt from the Ozcar case

Yesterday the Auditor-General published his report Representations to the Department of the Treasury in Relation to Motor Dealer Financing Assistance, that is his report on the Ozcar scheme and the "accusation" that the Prime Minister's office had sought special treatment for a "mate" - what became horribly known as Utegate.

It is worth repeating before we continue that the biggest claim the coalition ever really got to was that Treasurer Swan mislead the Parliament in replies to questions about said representations. There is possibly nothing inappropriate in the PMs office, say, contacting Treasury and saying "Mr X has been in contact with the PM in relation to scheme Y and the PM has referred them to you". That perfectly innocent communication could be intended to mean "I am letting you know so that when Mr X contacts you, don't be concerned by any reference he makes to the PM's office". It could however be interpretted by the recipient as "The PM expects you to look after Mr X."

The depressing part is that the obvious device of adding "I am informing you so that you can treat this the same as any other approach and not be influenced if Mr X mentions he was referred to you by the PMO." See if the recipient is of the kind who believes that politicians can, will and at times should so influence public servants, the the extra words will merely be read as "and you know I have to be prepared to deny any involvement."

Hence, ultimately, the public needs to rely scrupulously on the integrity of its public servants. There is some evidence that the public servant at the heart of this affair had both learnt inappropriate behaviour under the previous government, and had developed a taste for being "a player". There is reason to be concerned that many other members of the SES are similarly tainted. In fact, the current culture of the APS as a whole seems to be excessively focussed on doing the direction of Government rather than sound administration.

However, as I pointed out in a Senate committee yesterday there is no real distinction between Government and a Department, but there is a great deal of subtelty in the way that engagement occurs.

However, there are other significant lessons in the report as well.

It is worth repeating the words in the report on our system of Government;

Australia’s parliamentary system is based on the principles of
representative and responsible government. Members of Parliament are
elected by the people to govern Australia in the public interest and individuals
are able to approach Parliamentarians, including Ministers, for assistance.
Ministers are expected to discharge their responsibilities in accordance with
wide considerations of public interest; where arrangements are put in place to
provide assistance to particular industries, this includes equitable treatment of
industry participants, often based on publicly announced criteria.

The fact that a member is a Minister should not restrict them in their capacity to to assist. The question revolves around whether an intervention is designed to over-ride "equitable treatment". The report finds that 12 representations were received through various channels, that the responses varied markedly, but that

The variability in Treasury’s response did not reflect any
instruction on the part of the Prime Minister or his Office, the Treasurer
or his Office, or senior Treasury management that some representations
were to receive more favourable treatment than others.

However the Government does not come out of this totally unscathed. The ANAO report finds that there was errors in the concatenation of policy development and implementation, and that the implementation phase was poorly managed. In particular it notes:

The audit has not made any recommendations to Treasury as ANAO
did not examine, in the time available, whether the policy implementation
shortcomings identified are isolated or more widespread. However, Treasury
is encouraged to review its practices more broadly in the light of the matters
raised in this report so that the culture of the department, which is committed
to providing quality advice to government, absorbs the experience in a positive

This is perhaps the only thing that Mr Grech and the ANAO might agree on, as he has written in today's SMH;

Policy papers would be commissioned in the morning, usually after a discussion among the Prime Minister, Treasurer, Henry and a few others, and considered by much the same group later that day or the following day, with decisions often taken on measures involving billions. OzCar was developed in this environment. I began to rely on a small network of highly experienced former Treasury officers. I saw little point in putting up a policy option to the Prime Minister and the Treasurer if it could not ‘‘fly’’ politically. I would therefore ‘‘road-test’’ a few ideas so the risks of developing half-baked options involving contingent liabilities of $2 billion or more were reduced.

Michael Stutchbury writing in the Oz labels this part of the report as "the Rudd government still needs to heed the Auditor-General's warning that it's easy to generate 24/7 policy activism, but much harder to turn this into something that actually works."

The other part of this story that still needs exploration is the nature of the ongoing reltionship between Mr Grech and Mr Turnbull. In yesterday's press conference this was covered briefly;

QUESTION: Mr Turnbull, was it a case of you accepted this email because Mr Grech had provided you with information before?
MALCOLM TURNBULL: Well I don’t want to go into other discussions we’ve had with Mr Grech. Suffice it to say this – Mr Grech is a very senior public servant.

It does seem that the rumoured relationship between the two has substance, and that Grech had been the source of other material used by the Opposition. This is perhaps supported by Grech's own claim that "When I returned to Treasury in September last year, it became clear the ‘normal’ rules of direction, reporting and accountability had changed significantly and were often confused and chaotic." That is, Mr Grech thought there was serious systemic maladministration occurring.

In his press conference Malcolm Turnbull referred to the important role played by "whistle-blowers" in our democracy. It is time we really did more to distinguish between "whistle-blowers" and "leakers", the latter is an honourable act of disclosing maladministration or corruption. The latter is the process of providing information that is confidential for use in media or politics.

It is unfortunately true that some whistle-blowing occurs via leaks, but not all leaks are whistle-blowing. The manner in which Mr Grech and Mr Turnbull interacted was in the nature of a leak, especially the way in which it was manipulated for maximum political advantage.

Perhaps the Government might like to reflect on the fact that creating better "whistle-blowing" processes will damage the credibility of all leakers, by taking away the "whistle-blowing" defence. Establishing a rigorous external and independent process through which public servants can report maladministration and/or corruption and know that their careers will be not only unharmed but potentially advanced would seem to be a great defence against political leaks. Basically an effective wistle-blowing regime can bring all leaking to the Opposition into the frame of illegal activity.

There is much to be learned from Ozcar, the lessons include;
1. That there is a risk of systemic failures in administration of rushed programs,
2. That there is a culture withing parts of the public service that believes its job is to act politically,
3. That there are benefits in formal whistle-blowing rules.

I won't touch on the lessons to be leraned by Malcolm Turnbull, probably no point. But is the Government paying attention or just relishing the victory?

Note: I have also elsewhere speculated on whether the News Ltd journalist at the centre of the story, Steve Lewis, should "out" his source given that it wasn't a real source. I am pleased to say he has now done so.

Monday, August 03, 2009

The IPA attacks the NBN

Chris Berg from the IPA is a protagonist in the telecommunications space who is at least well meaning and intelligent, even though he is seriously misguided by an incredibly naive belief in how markets work and indeed why we might favour markets over government or vice versa.

Today he has an op ed piece in the SMH criticising the NBN.

He is right to note that the grand $43B plan is already behind schedule, but is the delay a negative given that the Government is just making sure it gets as much right as it can? The claim the business case is flawed is different. It rests on the analysis of an economist who, like everyone else, has had to make a series of assumptions.

However, Berg then tries to suggest that attacking the NBN plan for being undercooked results in charges of "Luddism". Well, not really, the charge of Luddism is only levelled at people who claim we don't in the future require broadband everywhere and at higher speeds than currently available. He is unfortunately right that many of the NBN's promoters use incredibly naive examples and over-worked cases of e-health and e-education.

But what he underestimates is the difference that occurs with ubiquity. Everyone who talks about penetration rates conveniently ignores that there are large chunks of our cities without any terrestrial broadband because coppoer runs are too long or because of active devices.

As for Berg's stupid sign off - tax cuts do not necessarily increase productivity. And in fact Government does spend a lot on sunshine (environmental control of pollution), flowers (botanical gardens) and walks along beaches (beach cleaning, beach access).

That said, the kind of people who would label Berg a Luddite include Paul Budde, a person usually referred to as an "industry commentator" but technically he runs a large research firm that writes largely unintelligible and often speculative reports on the telco industry around the world. He has recently blogged about the need for a "rethink" of telco regulation. The blog was big on sweeping generalisations and vague criticisms of the past, but desperately short on practical ideas about how regulation should change.

Indeed the posts biggest single failing was to repeat the naive belief that simply creating a separated open access network removes regulatory issues - ignoring that the old Telecom network was separated from content provision but still created a nightmare for content providers. The reasons are twfold. The first is that it is market power in a stage of production that creates the opportunity and incentive to prioce above cost - being vertically integrated just makes both the opportunity and incentive slightly greater. The second is that the person with market power always feels threatened by change in the market structure - as will NBNCo if they see some new downstream development that has the same implication for them as - say - the replacement of ISDN with IP. An example could well be in what happens as mobile networks get better at integrating the mobile device with the broadband to the home - depending on the NBNCo business model. (Example, all networks cost is built around managing peak load - if the mobile operators take the off peak broadband traffic at home that makes the fixed line peak look bigger).