Wednesday, October 12, 2011

What is the opposite of Godwin's Law?

I don't know what the opposite of Godwin's Law is, but in a strange piece of irony it appears that Malcolm Turnbull is trying to define it.

The irony is, of course, that it was another Godwin (Grech) who caused Turnbull so much trouble when leader, resulting in a classic case of over-reaching and rhetorical flourish. To remind you Godwin's Law states "As an online discussion grows longer, the probability of a comparison involving Nazis or Hitler approaches 1."

As the Wikipedia entry notes "Godwin's law is often cited in online discussions as a deterrent against the use of arguments in the widespread Reductio ad Hitlerum form." Turnbull has resorted to Reductio ad Communism (see note below). Turnbull started by simply relying on the Economist Intelligence Unit report on broadband investments (for purchase here). (That report and Turnbull's reliance on them show a complete lack of understanding of the principles of both economics and accounting...but more on that later.) But Turnbull's rhetorical flourish got the better of him, to the press he reportedly said;

This is the telecommunications version of Cuba. Cuba is the last communist state … I stand corrected, there's North Korea too. [Communications Minister] Stephen Conroy doesn't even have a North Korea to his Cuba, he's a one-and-only.

 (Intriguingly what looks like the official Cuba promotion site picked up the story and ran it without comment.)

 Let's start with some simple facts. There has been a national telecommunications monopoly for fixed line access in Australia since before Federation. The introduction of competition reforms and encouraging competitive investment did not fundamentally change that.

As I outlined in a recent submission to the ACCC the fixed line access network is even more a natural monopoly now than it was before. The decision being made is not whether to have a monopoly or not - that is determined by the cost structure. It is how to regulate that monopoly. As Senator Conroy said at the press conference announcing the FTTH version of the NBN;

This solves once and for all the core problem created when the previous Prime Minister privatised Telstra a decade ago without ever resolving the conflict of a private monopoly, owning the network infrastructure and dominating the retail market.

Australia's telecommunications network was Government owned until 1996. Indeed Government ownership was the global norm. The British government assumed full ownership and control of the British telephone system on 1 January 1912. Even the US Bell System (AT&T) was placed under Government control for one year to 1 August 1919.

In the discussion leading up to this the head of AT&T Theodore Vail said "all monopolies should be regulated." (See John Brooks Telephone).

Despite Robert Menzies determined efforts to ban the Communist Party, there is no evidence that he ever saw the ownership of the telecommunications network as socialist in any way. The entry on Menzies on the National Museum of Australia website notes;

Following increasing public dissatisfaction with Joseph Benedict Chifley's Labor government, the Liberal and Country parties swept to power at the general election on 10 December 1949. The fall of JB Chifley's Labor government followed a series of Communist-inspired strikes, controversies over Labor's wish to nationalise private banks, medical practitioners, transport and communications, and mounting public impatience with continuing wartime austerity measures.

The nationalisation of communications proposed referred to was only of overseas links. Ann Moyal in Clear Across Australia (at P.181) details how the Cable and Wireless Ltd monopoly on international cables was regarded as an impediment to war efforts. The initiative to replace Cable and Wireless' monopoly with "autonomous but interlocked government-owned telecommunications entities" was proposed by Australia and New Zealand at meetings of the (British) Commonwealth Communications Council in 1944 and 45.

It was enacted in Australia in 1946 and only one parliamentarian, a Liberal Senator from WA, took exception to a separate overseas telecommunications body 'when officers of the Post-Master's General Department are capable of undertaking their work.' (To be fair I should go read the debate on the OTC Bill to see if any Liberal voices were raised against this nationalisation or proposing privatisation of the PMG, and also read Alexander Grahame Bell's evidence to the 1910 Royal Commission .... but that will have to wait).

Ultimately the question is not whether government ownership of natural monopolies is communism; it is whether it is good policy (noting Vail's comment that "all monopolies should be regulated.") Sanford Berg and John Tschirhart in their Natural monopoly regulation: Principles and practices note;

If regulation of private natural monopolies results in inefficient production techniques and output prices, then one solution might be to socialize these monopolies: change the ownership from private to public. However, this proposal raises the hackles of many consumers, producers and regulators for reasons that extend beyond the domain of economic analysis.

Within the realm of economics though they list three main studies comparing cost of private monopolies versus public ones, Two conclude that public monopolies operate at lower cost, while the third finds no difference. The major basis for the assertion of the inefficiency of public enterprise is an article by Alchian (in a 1965 paper in Il Politico which only seems to be held in 4 libraries in Australia). Berg and Tschirhart state;

Alchian and subsequent authors have argued that public ownership will be less efficient because managers of public firms have more latitude in pursuing non-profit-maximizing objectives. Yet their hypothesis was not supported by the data.

The neo-liberal faith in privatisation is like so much of the neoclassical economic framework - a triumph of theory over observation, of analysis over empiricism.

Finally a note on the EIU study. The Australian Government financing of the NBN is totally by way of an equity investment in an enterprise that will return the cost of capital. The other programs it is compared to appear to be all grants - just like all the Howard Government programs. That Government can fund telecommunications this way is demonstrated by the PMG/Telecom story. The telecommunications function was financed by loans from the Commonwealth from 1959 on. All those loans were repaid with interest owing prior to privatisation in 1996.

If Malcolm Turnbull really wants to invoke a "communist" stance he might target a policy of "direct action" on climate change instead of the use of a price - but that is happening on his side of the chamber.

I propose Turnbull's Corollary to Godwin's Law "As a politician with no policy keeps talking, the probability of an illogical comparison approaches 1."

Note: Reductio ad Communism has been proposed previously for a Wikipedia entry but immediately deleted due to lack of references. Any readers who feel inclined to remedy that with references to Turnbull feel free (unless I get there first myself).

Novae Meridianae Demetae Dexter delenda est

1 comment:

Jimmy said...

Eh, nice article! Haven't thought about that for a while.

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