Maybe there are some policies...

I've already bemoaned the tendency to report politics as personality or a horse race. However a flicker today that policy could surface.

John Durie writing in the Oz has gone back to Joe Hockey's budget reply speech and has questioned the worth of a review of competition policy. In doing so he seems to channel a Craig Emerson press release from 18 June. Some excerpts are woth quoting.

An obvious problem with the law promising to do so much is that it will plainly fail, because contrary to the view of some, its intent is to promote competition to help consumers -- not special interest groups.

This rules out small-business handouts for a start.

The new government will in fact have a big say in the future of the law because existing boss Graeme Samuel is due to step down in the middle of next year and he won't be seeking another term.

Maybe the Liberal Party will deliver the throne to University of NSW professor Frank Zumbo, who has had a hand in some of the more distorted small-business-oriented changes, like the so-called Birdsville amendments, which boosted section 46, which aims to stop abuse of market power. ...

If the review was aimed at simplifying the law rather than being a smokescreen for fictitious, unenforceable or contradictory small-business gifts, then maybe Hockey is on to something.

Former boss Alan Fels argues the competition sections could be scrapped in favour of one sentence: Any behaviour that substantially lessens competition should be prohibited unless it can be shown to be in the public interest. He has a point. Australian law should be allowed to settle, to allow the courts to set the parameters.

The underlying difficulty with all this is that the concept of "competition" is not as well defined as those commenting on it (including economists) would like to think, nor exactly what the benefits of competition are. A "standard theorist" from the orthodox or neo-classical school would talk about competition as the efficient ideal in which producers price at marginal cost. As Steve Keen has succinctly demonstrated the standard theory fails because costs don't start to rise and that individual firms face the same downward sloping demand curve as the market.

Does this mean we should give up on competition. No, because competition actually generates innovation and competition (or the market) does work as a mechanism that reveals preferences and costs across the economy. To put it simply, a central planner could set prices at cost - but they couldn't figure out how much of what to produce.

But markets have lots of design elements and all of these need to be considered to see the outcome delivered. The one thing that is sure to destroy the value of markets is excessive concentration. But equally relying upon "ease of entry" is not sufficient.

So yes the kind of intervention that worries about the survival of individual competitors is probably a good thing, not a bad one. In his defence from the attack by the Minister Assoc Prof Frank Zumbo wrote

Perhaps the Minister’s time could be better spent explaining why Australia consistently has some of the highest levels of food inflation in the developed world which is pushing up grocery prices for Aussie families.

He has a point.

Finally all of this has to be better than the other policy issue - the anti-filter brigade being driven to the choice of The Sex Party given the inability of the Pirate Party to get themselves organised.

Parallels

It was like this .... At his cabinets, it was absolutely forbidden to discuss in front of [him] his chronic failure to present a personality or fashion a vision with appeal to voters, his lack of capacity to run an orderly and collegiate government with a coherent long-term strategy and his crippling inability to remedy any of these flaws, whatever help he was offered. As a result, to use [a] word, they were "f**ked".

Sounds familiar? yet another background comment on Kevin Rudd?

Actually no this is on Gordon Brown from The Guardian. I've previously noted on comments of envy from the UK on how the ALP managed to do what British Labor couldn't.

The Guardian article makes a good read. It tells the tale of a Prime Minister (Blair) constantly under attack by a Treasurer (Chancellor Brown) and states;

There was unquestionably fault on both sides. But the greater part of the viciousness of the ugly Blair-Brown civil war was sourced in the Scotsman's consuming and utterly unreasonable resentment that he was not the leader. When he did finally lever out his rival, many of Brown's colleagues, even the prime minister he had putsched, prayed that he might be transformed for the better once his ambition was finally satisfied. The reverse proved to be the case as he was overwhelmed by a job that was much harder than he anticipated. As his premiership floundered, he became even more paranoid, chaotic and volatile.

For us that could sound like the all consuming story of both Hawke/Keating and Howard/Costello. In the end Hawke and Howard were both right - you have to get the bloke to blast you out not simply hand it over. Blair/Brown seems to fall in the middle - Blair handled the issue the same way with deferrals and future promises but in the end did "honour" the deal even though he (apparently) knew it was the wrong thing by the party - just as I suspect Howard handing over to Costello would have been.

But to our own case. Julia and others who have defended her have said that she moved because she was concerned their standing in the polls suggested Work Choices could make a return. To a degree she can already claim victory as Abbott has at least made a one term promise (core or non-core? s it written or was it the answer to a question?) not to change the Fair Work Act.

But really she could go further. She and her colleagues realised the failure that was Rudd's management style, including the non-use of Cabinet. Was the right choice for Australia the ALP under Rudd versus the coalition or did we the citizens deserve the choice between what the ALP now believes is its best choice versus the coalition?

It is the one feature of a Westminster system over an executive presidency that is perhaps worth preserving. The Parliament - whether by the rearrangement of allegiances that changes parties (e.g. Hughes and the Nationalists, formation of the UAP)or members of a Parliamentary Party can make a decision that some other of their number is a better choice. The other beauty of three year terms, compulsory voting and non-fixed terms is that ultimately the issue gets egularly decided by the governed.

How red are the Greens?

One of my themes here at "Anything Goes" is that it is okay to consider multiple theories (of anything) and it is actually okay to change your mind ... in fact, it is a good idea to change your mind in the face of new information that contradicts a previously held theory (if there is another theory available).

Consequently I don't share with some a concern that a person might previously have been a communist or fascist and is now campaigning as a democrat of some kind. (see note below)
However I did find the entry in Gerard Henderson's Friday issue of Media Watch Dog. In this he details some of Lee Rhiannon's personal background as a member of the Communist Party of Australia and the Socialist Party of Australia as revealed in Mark Aarons new book The Family File.

Now I have no difficulty with the fact that in the late 60s and early 70s people could still find full-blown Leninist-Stalinist communism attractive. I do find it hard that the Soviet could be defended after the details of the Terror became known or after the 1968 Czech invasion. But in global politics it was reasonable to think of the peasant communism that was Russia as being a solution to the need for rapid development of the colonies being freed from European empires.

Personally, I've always happily subscribed to being a socialist, but never a revolutionary socialist. And these days I'm that horribly confused beast that I describe as a "market socialist".

But if someone like Lee Rhiannon is going to hold herself out for public office as a potential Senator for NSW her Communist/revolutionary socialist past needs to be acknowledged in her official campaign biography.

My flirting with the Democrats leading up to the 2007 election was spurred by my dislike of the Greens, populated as I believe it is by many former communists and unreconstructed Trots. My thinking was that progressives who were uncomfortable with the ALP's internal ethos (aka the NSW Right and all it stands for) and organisational structure (unions having 50% vote at all conferences)needed a viable non communist alternative.

The fact that Rhiannon won't disclose her history suggests that she doesn't disown it - a vote for the Greens in NSW is a vote for a revolutionary socialist. Unfortunately this time the Greens might just get up in NSW. It looks like I failed.



Note: I also don't necessarily think that all those communists in the in the late 30s who sided with Soviet Russia and hence against war with Germany were necessarily absolutely wrong and by implication Nazi sympathisers. Certainly Stalin himself didn't expect the pact to last forever - but they had a common enemy in parliamentary democracy. The two of them were always going to fight it out and really the treaty achieved Stalin's aim - that Russia and Germany did not have to engage till Germany was already overstretched to its West. The treaty was a tactical error by Hitler - who in entering it abandoned his first option of a partnership with Britain to wage war to the East against communism. By being a little more patient that strategy could have been achieved.

Gravity, string theory and emergent phenomena

An interesting report in the New York Times on a paper by Erik Verlinde which outlines the possible start of a new theory of gravity.

Let's start at the beginning. Verlinde is a "string theorist" like about 95% of all physicists currently working in fundamental particle physics. String theory is the current leading (only) candidate for the great desire of a unified theory of physics.

However string theory itself has its critics. In books like Not Even Wrong and The Trouble with Physics the practice of string theory is heavily criticised both for its failure to generate testable results and its failure to provide any kind of explanation.

Without delving into the philosophy of science too far these are the two most common tests of "science" - that its results are testable (or falsifiable) and that the consequence is that something complex is "explained" (typically for example the trajectories of the planets explained by the force of gravity).

As such your standard string theorist would not be the prime candidate for a philosophical discussion. They are better known as incredibly smart individuals creating increasingly esoteric and largely irrelevant mathematical models. As the article states "Dr. Verlinde is not an obvious candidate to go off the deep end. He and his brother Herman, a Princeton professor, are celebrated twins known more for their mastery of the mathematics of hard-core string theory than for philosophic flights."

The article rather inaccurately describes the paper. The paper does not make the "contention that gravity is indeed an illusion". The paper actually claims that gravity - and indeed space itself - can be derived as emergent properties of a simpler universe "using only space independent concepts like energy, entropy and temperature."

Indeed as the newspaper article notes Dr. Verlinde explained “This is not the basis of a theory. I don’t pretend this to be a theory. People should read the words I am saying opposed to the details of equations.”

What is, however, is the first attempt to bring some of the learnings of chaos theory and statistical physics to the issues of fundamental particles. Up till now gravity has been required in the theory to exist between all objects of "mass" - and is a force that has to be reconciled in particle physics. The approach in the paper says that we can construct models of fundamental physics in which the "observable" phenomena of gravity are emergent properties of the underlying system.

Whether Verlinde's paper will be the basis of an actual theory or whether it will merely be a signpost to a theory that treats certain concepts of 20th century physics as emergent phenomena is yet to be revealed.

I have no scientific basis to believe this, nor the mathematics to come to grips with it. But quite frankly it seems "right". As a philosophical concept it requires a reconceptualization of the concept of "reductionism" which has mostly been thought of very mechanistically. In fields as diverse as psychology and neuroscience and economics the failure of the simple concept of reductionism in the face of complexity has been slowly developing. It is not surprising that it will come to physics too.





Note: The NYT article says

Lee Smolin, a quantum gravity theorist at the Perimeter Institute for Theoretical Physics, called Dr. Jacobson’s paper “one of the most important papers of the last 20 years.”

Smolin is the author of "The Trouble with Physics".

Sidere mens eadem mutato

The re-branding of the University of Sydney is again in the news. I wrote my own brief comment earlier when the new logo was revealed (incorrectly saying "starts may change" rather than "stars may change").

The University's own website explanation of the logo says;

If a literal translation is required, then "The constellation is changed, the disposition is the same" is perhaps appropriate. The ablative absolute in Latin can be used in place of a number of other constructions. Here it probably has a concessive force. "though the constellation is changed..." sidus means primarily in Latin 'a group of stars', 'a constellation'. To translate simply 'star', as many of the suggested translations do, is incorrect. Again, mens in latin has a much wider range of meanings than 'mind', 'the mental functioning of human animals': here, the sense is clearly disposition, e.g. towards learning and scholarship.

Hence it is easy to arrive at the general sense: "The traditions of the older Universities of the Northern Hemisphere are continued in here in the Southern."

The comments by Stuart Rees are that the re-branding is an expensive and largely pointless exercise driven by "management". I somehow think that that's entirely appropriate for the latin motto. Nothing Sydney is doing is any different to the "marketing" efforts of any northern hemisphere university.

And there perhaps is the rub. Success in a managerial or leadership sense doesn't come from being the same as everyone else - it comes from being different.

Horse race reporting masquerading as political coverage

Many thanks to Gerard Henderson for finding the about face reported below. It follows the comment I recorded of Malcolm claiming the media treats politics as "personality or the game" - which here on in I'm going to call "celebrity or the contest".

If Michelle Grattan had focused on reporting and analysing the policy rather than its electoral appeal she wouldn't have got into this mess.

GREAT MEDIA U-TURNS OF OUR TIME (CONTINUED)

Michelle Grattan On Why Julia Gillard’s East Timor Solution Is Oh, So clever.

Julia Gillard is devilishly clever. Her asylum seeker policy is a masterstroke of improvisation. And she’s tapping into community hostility to boat people with an empathy driven by Labor’s focus groups, while keeping her tone oh-so reasonable, scolding Tony Abbott on the way through. No wonder some refugee advocates initially weren’t sure whether to like or hate it…. The core of Gillard’s policy is a proposed regional processing centre in East Timor. - The Age, 7 July 2010

Michelle Grattan On Why Julia Gillard’s East Timor Solution Is Not So Clever After All


Julia Gillard is dancing an election jig atop a tightrope. Her bold pitch on boat people shows how much she is willing to dare for the sake of votes. It has also raised wider issues of what she stands for, the way she goes about things, and even whether she will be up to the job… Gillard might have been deputy PM for the best part of a term, but how she would go as a long-term leader is anybody’s guess - and, arguably, becoming harder to predict as she shifts position to get rid of problems and then to deal with subsequent consequences. - The Age, 9 July 2010.

Theory of the firm and Stakeholder Theory

My post earlier touched on the question of whether firms have an interest in the efficiency of the markets in which they compete.

A possible counter to that is that profit maximising firms cpossibly would, but ever since Berle and Means wrote The Modern Corporation and Private Property it has been known that managers can be driven by other values like revenue maximisation.

At the same time the field of Stakeholder Theory has gathered significant academic research. Ultimately this is the view that the firm owes obligations to multiple stakeholders not just equity investors.

Ultimately though this can resolve to the points raised by John Kay in Obliquity that the best way to deliver return to shareholders is to manage to the interests of all stakeholders. You don't maximise profit by planning to maximise profit, you maximise profit by serving your customers well, caring for your environment and developing your human resource base.

Which makes one think of poor BP - who tried to go green with their Beyond Petroleum logo, but now are reportedly at risk of collapse from the problem in the Gulf. Personally I can't believe that as there must both be insurance of some kind, and I'd have thought some liability from Halliburton who actually performed the work that failed.

It should however be a reminder to all that risk management and stakeholder analysis are as or more important than financial planning and developing the dividend policy.

New directions in regulation

Watchers of this page might note that I take an interest in the theory of regulation. I have brewing inside me a major work on the competition policy in telecommunications, but I have written on the approach to regulation recently.

The release of the Cooper report on superannuation provides an interesting case of the trends in regulation. The report focusses on questions of why competition is not delivering all its expected "benefits" in superannuation. Chapter 4 of Part 1 of the report addresses "The Super Fund Member" and commences;

A key tenet of the 1997 Wallis Report was that super fund members should be treated as rational and informed investors, with disclosure and market conduct controls being the main regulatory instruments with which to oversee the industry.

Later it states;

These realisations about financial literacy and engagement have led the Panel to propose the new ‘choice architecture’ framework for the Australian superannuation system that is detailed in this report. This framework is an adaptation of contemporary thinking in the field of behavioural economics. This field is currently being applied overseas to a variety of complex public policy challenges involving consumers ‐ for example, in the fields of health care, child nutrition, road safety and sustainability, as well as retirement savings.

The key tenet of this approach is the concept of ‘libertarian paternalism’ – the idea that the
outcomes experienced by inert or disengaged consumers should have inbuilt settings that most closely suit those consumers’ objective needs, as assessed by the expert providers of the product or service in question.

It could be noted that exactly the same tenet the report found in Wallis can be found in every other policy review from the mid 1980s on. While the Productivity Commission conducted a worthwhile seminar on behavioural economics and public policy, in its report on the Australian consumer policy framework the PC wrote;

Accordingly, the findings from behavioural economics, even if accepted without demur, are unlikely to require an overhaul or major redirection in consumer policy.

Specifically the Commission considered the option of specifying "default" options but somehow concluded there was an error risk in setting this incorrectly and assuming that the policy would create additional costs for the informed consumer. The PC wrote;

Many of these considerations evidently apply to all regulation making, indicating that designing policy responses to the issues raised by behavioural economics is not overly different from responding to more traditional problems such as externalities and the abuse of market power.

Hopefully the Cooper review is the start of a more informed policy response.

Meanwhile of course the industry is reported to be concerned that these policy initiative will actually drive up costs. It really looks like the usual concern from industry that a policy proposal designed to save consumers money is perceived as being to deny industry profits. The reality is that firms should share the interests of their consumers in having efficient and well working markets so they really can compete on the basis of their competencies not their inherited attributes.

Note: If all of the above on default options and behavioural economics is hard to follow I suggest you read Nudge by Thaler and Sunstein.

More on commies...

Following o the stories of commies in the ALP I wrote about yesterday, one of the Hawke Ministers named as having dual membership, Arthur Geitzelt, has said the claim is false.

It is interesting that the original claim by Mark Aarons as reported wasn't that he knew from his father's records as Secretary of the CPA that the two Senators - Geitzelt and Childs - were CPA members, but that it was the ASIO record that they were. After all the book is about the ASIO record not the family archives.

It reminded me of a story my father told of his time as a Lt Col in the CMF (now Army Reserve). He proposed to promote a young fellow to Corporal in the Field Ambulance he ran. He was visited by the spooks who told him he couldn't promote him because he was known to meet with communsts. It transpired that the fellow's real job was as a musician and that the spooks had observed him going to work at a club where communists were known to meet.

I'd suggest everyone have a Bex and a good lie down before they take as truth anything they fin in a ASIO file - especially one constructed any time before the Hope royal commission.

Telecoms Stuff

One aspect of the Government's new deal with Telstra and the NBNCo is the revision to the process of USO delivery. This could be either done very well - by realising how few people actually need a subsidised service - or very badly - by perpetuating the myth that the copper network has existed as a "carrier of last resort".

Meanwhile I've thought that the approach the RTIRC took had a lot of merit of defining a standard, and then the government procuring services to meet the standard if suppliers didn't.

What I can't understand are the reports today because a Finnish Law of October last year came into force. I don't know how passing a law that someone must offer something actually makes it come to pass. How is it structured to require all providers to be able to offer a service to one new dwelling outside the network fotprint?

Equally misleading has been the headlines saying Finland has made the Internet a "right". I don't see in these reports anything other than a right to access a 1Mbps service - our Government's promised us a right to a 12Mbps service and through the ABG we already have a right to a broadband service.

Meanwhile our friends at Telstra and Huawei have announced a first in the trial of FDD LTE in the 1.8 GHz band. Telstra said that it "expected that this spectrum will complement 2600MHz spectrum and the 700MHz band anticipated to be made available through the digital dividend." Apart from potentially being misleading in suggesting the 2.5/2.6 GHz band is being cleared by the digital dividend (its not the ACMA is relocating ENG services - a task that Telstra needs to cooperate in to find the new home for ENG), it begs the question of whether once 1.8 GHz can be used for LTE there is a need for all the extra spectrum that they want allocated.

I know President Obama has told the FCC to go find 500MHz more spectrum for wireless broadband - but no one can quite figure out where to get that. If you accept that the best spectrum is between 300 MHz and 3 GHz that 500 MHz is about one-fifth of all spectrum. There are better ways to use the spectrum more efficiently, the question is whether we will find a pathway to do so.

The other lot against democracy ... and understanding the NSW Right

In other democratic news, Bob Carr has written about Mark Aarons new book The Family File.

The book is the tale of one family's involvement in the communist cause over four generations. What Carr regards as explosive in the book is the revelation that many leading left-wingers in the ALP were also CPA members. Paul Norton has written that these aren't much in the way of revelations.

He goes on to try to describe two kinds of anti-communism - one being against specific instances of communism, and the other (an essentialist anti-communist) as being against the philosophy. He tries to argue that some kinds of anti-communism makes you a fellow traveler with some vicious regimes of the right. However, "my enemy's enemy is my friend" is a well-known fallacy in politics and diplomacy - though often breached - witness the Taliban.

Actually anti-communism is probably just as valid as being anti an islamist caliphate. Certainly there has always been a fine dividing line between the theoretical description of communism as a giant co-operative and the actual detail as fundamentally anti-democracy. Ultimately to be anti-communist because every instance has been anti-democracy is actually a pretty good place to be.

What is more important for everyone to understand is why the NSW Right of the ALP is so different. As the party split around the country and the anti-communists left the party stayed together in NSW. The right did not have a name till Paul Keating named it Centre Unity, while what is now the Socialist Left was known as the "steering Committee". Ultimately that division then crystallised around the real meaning of "democratic socialism".

The NSW Right's machine capabilities and reputation evolved as its means of ensuring the left was subjugated. As Freudenberg noted in Cause for Power, once the left agreed to "power sharing" the jig was up.

While Carr is right to note the important role of Whitlam and NSW the question is how relevant they are today. They are no longer battling a nascent communist core. The NSW Right has got used to exercising power for power's sake.

The person who will pick up Whitlam's mantle of reform is the person who challenges the NSW Right and reforms its approach to power.

Islam and democracy

One of the key issues raised by Phillip Bobbitt in Terror and Consent is that need to understand that "radical" Islam is opposed to the very idea of democracy.

It should therefore not be surprising to hear of cases of Islamist groups calling on Australian Muslims to spurn secular democracy and Western notions of moderate Islam and join the struggle for a transnational Islamic state. It is important to realise that this is not a universal view of Islam, and the specific group is outlawed in much of the Middle East.

The position explains in part the ongoing challenge of Afghanistan. Firstly we are naive to believe that simply inviting people to participate in democracy will make it so - democracy depends upon a universal acceptance of its precepts. Secondly we are naive in not understanding the overall resentment by people who have been colonised and fought over by others to yet another group of "colonisers" no matter how well intentioned their mission.

But most importantly we should not be surprised about the joining of church and state in Islam. Our own Western democracies had to battle the conjunction of the Catholic and Orthodox churches with the monarchical state. Even today Australia's ultimate "head" is a monarch who is also head of an establishment church - and a position that specifically excludes persons of the faith of the current leader of the opposition.

To be convincing in our claims for the benefit of democracy we need to ensure that democracy truly is founded on a secular state.

In which Lisbeth ...

For fans of The Girl with the Dragon Tattoo and the other Millennium novels, this short item from The New Yorker puts it all in perspective!

I surrender

Having received yet another comment that I need a spell checker to pick up my typos in my blog posts - and despite changing my description at the top of the post - I've installed Google Chrome as a new browser so that I have a spell checker without having to change blog software (currently blogger).

So fr it woks will - rather so far it works well, but didn't correct anything to the left of the dash! So it won't be perfect.

On justice and victims

Australia's media has taken to reporting on cases before the courts on the premise that the justice system is about justice for victims and that the end of the case is about that horrible meaningless word "closure".

The reporting of the Dr Patel case is an example -
the SMH headline was After five years, some justice for Patel's victims
the ABC led with Guilty verdict brings relief for Patel victims
Channel 9 wrote Victims find closure in Patel guilty verdict

The web version of the SMH story showed video (from Channel TEN) of one victim saying it was good to see justice done, not that there was justice done for him. The Channel Nine report quoted a victim sayin "It's just all confusing, but I'm just so happy ... I'm free, I'm free....It's closure alright." The construction of that reply suggests the word closure was offered by the interviewer in that annoying question "does this verdict give you closure?"

We need to understand that the purpose of our justice system is to enforce our social rules. When the system works it is working for all of us equally, not just those who were unfortunate enough to be victims in the specific case.

And those who supervise Australia's working journalists - the editirs and ultimately the owners of media - need to improve the standard of reporting.

The Hon Malcolm Turnbull - UoS alumnus

I had the pleasure of attending an alumni breakfast this mrorning at which the Hon Malcolm Turnbull spoke on "Politics, Policies and Personal Life". More interestingly it mostly took the form of a Q&A discussion.

It was the engaging contemplative Malcolm on show without any of the debater or the "try hard" about him. That is, the Malcolm that it is possible to like and admire.

He observed that politicians are judged on their competence and conviction, and that often the people will forgive the occassional failing on competence if there is demonstrable conviction. His view is that Kevin Rudd ended up with neither.

In response to a question that asked whether a third c - communication - belonged there, Malcolm made the observation that the communication failure was what I think of as the customer service gap. If you talk up the expectation but don't commensurately increase the delivery you increase dissatisfaction. A really good example is the gap between climate change as our "greatest moral dilemma" and what was ultimately (not)done about it.

He pointed out that it is really difficult to assess the claim that the Government's action averted the effects of the GFC and more importantly whether better managed policies might have been effective.

When asked "how's life" he replied that he believed it was better than the only available alternative. That is a strange answer for someone who is a Catholic - one would think he expects the alternative to actually be better!

He went on to note that the Westminster system has become more presedential than the executive presidency in the US because there the President doesn't by definition control the legislature.

He observed the error in the handling of the Henry tax review - the report should have been released when received (I didn't try to ask him about the other Henry (Ergas) tax review he commissioned).

Malcolm also commented on the 24-hour news cycle - which he more accurately called the 60 second news cycle - that's how fast there is comentary. e bemoaned the fact that the formal media is only full of polls and not analysis of policy positions. He described it as the media only reports "personality and the game" which aligns perfectly with David Forman's description that the media reports politics as "celebrity and a horse race".

Finally there was some reflection about the challenges of taking the public along on issues like climate change and the republic. This made me think they have the same problem - you can get people to agree on the fundamental question (should we be a republic - should we act on climate change) - but it all turns to mush when you get to detail because it is too easy to attack the actual proposal (the politicians republic or a great big tax).

And only as I type that am I reminded that Tony Abbott stood on the side of the negative attacker on both. Ultimately this will be Abbott's problem in ever winning Government - he really doesn't stand for anything.

Gratuitous promotion

In February vividwireless announced the extension of their network to select areas of Sydney and Melbourne.

There is now a registration page available for people interested in the service.

50 Years of Elizabeth David

As the Australian MasterChef contestants make their way back from their surprise trip to London and Paris, this article pays tribute to the fact that it is now 50 years since the first publicatioon of Elizabeth David's French Provincial Cooking. It is actually sixty years since the English got reconnected with food courtesy of her writings, starting with Mediterranean Food.

I had to wait till 1966 until my mother discovered the cuisine of Europe and returned from a trip with a clutch of David's books. These are books that explain more the joy of constructing and sharing the food, than the techniques of achieving it. As such they make great partners with Mastering the Art of French Cooking, which has gained renewed popularity off the back of the film Julie and Julia.

One of the joys though of cooking in Australia is that so many of the ingredients still apparently considered quaint and imported in Britain are available in plentiful supply in Australia. Many of my generation can still remember the kind of cuisine that is referred to in the article as being the standard fare. The beauty of both Child and David is that they thought that this was food we should make in our homes, not leave to dining experiences.

Structural Issues in Telecommunications

I cannot make it to all the conferences I would like to attend, and one of these is going to be this year's ACCC Regulatory Conference. The program notes that industry structure issues will feature twice, once on the issue of "Structural design for effective competition" and once specifically on communications covering "Structural models for NBN deployment".

It is perhaps a suitable time for this consideration, or it might alternatively be a conversation being held after the policy world has moved on. The relevant olicy issue is the agitation that followed the exposure draft of the NBN Co legislation and the "wriggle room" over the scope of the NBN Co's "wholesale only" operation.

But elsewhere Telstra seems to have reached agreement on "prospective separation" and Telecom New Zealand has announced that it is reviewing structural separation.

The main speaker at the ACCC conference on the overall question is Professor Martin Cave, who has had a bit both ways on the topic. In a report he wrote for CEDA Cave supposedly "argues that structural separation is an unnecessary risk." Meanwhile the T4 campaign pointed out that Cave had twice written approvingly of separation options.

The other speaker is Dr. Karl-Heinz Neumann, who is the head of a consulting firm WIK. WIK recently hosted a conference on National strategies for ultrabroadband infrastructure
deployment: Experiences and challenges. This was presumably how he put together his presentation, Investment in Broadband and Next
Generation Networks to Foster
Development and Innovation, a couple of weeks later for the ITU. At the conference both Rob lbon from the ACCC and Kris Funston from the NZ Commerce Commission spoke.

I hold little hope that either ACCC conference sessio will shed any new particular light on the issues. One of the critical factors is whether separation is seen as a regulatory solution to a problem or whether separation is seen as a good market issue. I've previously been published arguing that separation is in the interests of incumbent telcos. This contrasts with the usual view that separation is a regulatory instrument and hence designed to confiscate rents from a monopolist.

Is it possible to reconcile these views? The benefits of competition are usually described in two ways. The first is in terms of the price effect, and the idea that competing firms price at marginal cost unlike firms with market power. The second is that competition provides a stimulus for innovation as firms compete on matters other than price.

I'm increasingly convinced that the price effect is largely illusory. I haven't done the full study yet, but the decline in telco prices over the last thirteen years looks to be due to technology effects rather than competition effects. This is consistent with the dynamic market model constructed by Steve Keen and Russell Standish. That model assumes incremental change in firm production decisions rather than the simultaneous market clearing from an all knowing market in the classic model. They conclude;

The simulation results demonstrate that markets can be locked in a spiral of restricted production converging on monopoly pricing levels as though the firms were colluding, even though no interaction between firms takes place. Perfect profit-seeking rationality and the dynamics of the economy tends to lock firms into synchronous behaviour, leading to a global monopoly behaviour.

There is benefit from competition though, but it is the benefit that Hatek noted of the ability of the marketplace to transmit information on preferences. If all we had to do was set price to marginal cost then an all knowing central-planner could do that. But anyone who has been involved in regulatory price setting knows that it is revealling the demand that is the challenge.

In the competitive market model firms competing can all obtain their share of the monopoly rent, but to "outperform" their competitors they need to obtain the additional benefits from growing market share or reducing costs that comes from innovation.

Where structural separation becomes important for incumbents is where vertical integration becomes an impediment to innovation.

Perhaps the most interesting case study is automobile manufacture. One of the economists favourite examples of vertical integration is the case of Fisher Body and General Motors. The man responsible for much modern theory of the firm and a sub branch of institutional economics summarises the case well. We will ignore for now the details of the case, but instead observe that automobile manufacture was held as a case for vertical integration, but has subsequently evolved into a highly unintegrated business. Actual vehicle manufacture is a process of assembling parts made throughout the world.

The particular significance of this in the telco case is that we are in grave danger of imagining that the structural separation of NBN Co alone solves a regulatory issue, and that merely having a regulator set (or accept) a cost based price resolves all. What is most concerning is that no discussion of the NBN in Australia has considered how to create a dynamic element of the discussion between supplier and acquirer - at least that has been occurring meaningfully within the vertical structure of Telstra. (Yes sorry to disappoint theorists, but CEOs don't work like classic central planners either).

It is to be hoped that the ACCC conference discussion will touch on the dynamic aspects of separation, not just the pre-conceived regulatory constructs.

Self-regulation and convergence

The Australian Communications and Media Authority has published a thoughtful piece on Optimal conditions for effective self- and co-regulatory arrangements.

I must admit to being somewhat pleased that my own working paper on self-regulation was referred to in a footnote. The ACMA paper has considered a range of sources to propose ten optimal conditions for the operation of self- or co-regulatory frameworks. It is a great pity, however, that the work has largely lumped these two together as if they constitute the alternative to direct regulation. The detailed commentary of the ten factors does provide some indication of the relevance of the factors for the appropriateness of self-regulation over co-regulation, but this is only a minor consideration.

The paper is also marginally delusional - repeating as it does the kinds of exhortations found in the Office of Best Regulation Handbook. As a consequence the paper asserts "The ACMA, along with all Australian government agencies, must clearly analyse the costs and benefits of undertaking regulatory action and needs to consider alternatives to formal regulatory action before deciding that regulation is necessary." This reference to cost and benefits is usually met by toting up some list of unquantified impacts, whereas the technical definition stems from the microeconomics of policy evaluation and is meant to consider real costs and benefits as measured by producer and consumer surplus.

The principle is modelled on the economic analysis of "regulation" such as barriers to entry or price control, the effects of which can be assessed through static partial equilibrium models or more broadly using a general equlibrium model.

But for the vast bulk of real government regulation nothing like that ver occurs, nor is it practical to do so. The cost-benefit analysis degenerates into little more tha the "vibe" of the thing - and I have even heard a senior bureaucrat argue that the benefits of a policy existed because the Minister had identified benefits. A wider discussion of cost-benefit analysis is for another day.

In then describing self- and c-regulatory models the paper notes that;

In practice, pure self-regulation without any form of government or statutory involvement is rare. Commentators have noted that self-regulation has become embedded in the regulatory state, reflected in the range of 'joint productys' between the regulator and the regulated, and is best reflected in the understanding of the term 'co-regulation'

As it is at this point that the reference to my working paper occurs I tink it important to state that this is not my conclusion. My conclusion is that regulators habitually fail to utilise or promote self-regulation and instead rely upon the construct of co-regulation.

The paper itself identifies that the Telecommunications Act specifically states the policy intent that the sector be regulated to promote "the greatest practicable use of industry self-regulation". It doesn't go as far as my own paper i noting that that legislative prescription was a direction to regulators, not industry. The conclusion is that the ongoing failure to promote self-regulation is a failure of the regulator.

The issue will have particular significance as the "convegence review" of 2011 unfolds. A question for this review is whether the regulatory objects and policy across the four principle acts administered by the ACMA need to be reviewed and/or harmonised. The brodcasting and radiocommunications acts merely include the invocation that regulation not impose undue burdens on industry (which also is a failure of economic analysis because the policy concern with regulation is that the burdens are borne by society as a whole).

The paper includes as a concession to the primacy of self-regulation that;

To that extent, the relevant legislative schema requires the ACMA to give industry an opportunity to develop self-regulatory solutions before other forms of intervention are considered.

A strict reading of that claim would be that the ACMA should have declined to register industry codes until there was evidence that industry behaviour would not change through voluntary compliance. There is no documented case where the ACMA or its predecessor the ACA has ever given primacy to a self-regulatory rather tha co-regulatory outcome. The one instance where we might have got close was in unfair contracts, where industry had imposed a guideline. When the ACA undertook its assessment of performance against that guideline it was clear that there was one firm only that had made almost no progress, but rather than take action to get that firm to comply the ACA rushed to the principle of an "enforcable" code.

The simplest explanation for the ACA and the ACMA being unable to promote self-regulation is the hammer and nail analogy - when all you've got is a hammer, everything looks like a nail. This comes through in the paper's discussion of non-regulatory tools. Under "rewarding good behaviour - positive incentives" the paper states "Traditional approaches to regulation do not acknowledge or reward compliance with regulations." But this is still considering non-regulatory levers through the prism of regulation. It focusses on the idea of rewarding "compliance" as opposed to rewarding "good behaviour".

Ultimately this reflects the void between morality and legality, or between the idea that regulation can be a choice between "lowest common denominator" and an "aspirational" achievement. The boundary lines that denote behaviour that should be punished and behaviour that should be rewarded are not co-incident.

Finally, the ten optimal factors that the paper identifies as conditions for using other than explicit regulation are reasonable, but should be expanded on to identify how they affect self- and co-regulation separately.

At this point I just want to note the particular issue with the first two - these are "number of market players and coverage of the industry" and "whether its a competitive market with few barriers to entry". The conclusions reached on these points are contradictory - they suggest that a concentrated industry is easier to achieve self-regulatory co-ordination but at the same time that a competitive market with easy entry will facilitate self-regulation or co-regulation. These are contradictoy positions.

In fact, an issue with the telco market is the overall market structure being too concentrated in a few large firms but also having low barriers to entry. The former is an issue because no overall market improvement can occur without the will of the big incumbents, but equally ant attempt to achieve standards is disrupted by entrants.

The ACMA has made a god start, but it may be beneficial for the ACMA and or DBCDE to follow the occassional paper up with a consultative process - probably in the context of the conergence review.