Writing in the AFR (not online) both Laura Tingle and Dominic White speculate on the implications of the timing of Conroy's digital dividend green paper release. White writes;
In a sense, yesterday's announcement gives Telstra an extra incentive to a deal.
Tingle goes further saying;
..the announcement was widely interpreted in the telecommunications industry as being timed to maximise pressure on Telstra in its negotiations with the government over structural separation of its business.
I don't know who in the industry Tingle spoke to, but that is a long bow - nothing in that paper made the date of the spectrum release any sooner, nor is the amount to be released really in dispute.
If anything this paper was delayed, not brought forward, and nothing about the timing of the paper really will change the incentives on Telstra. Any NBN or separation deal needs to be concluded in months, the auction is still at least a year and a half away (the earliest possible would be two years before switch-off in June 2013).
There is however a linkage with the satellite plan for digital television. Conroy has to spend money for that, and to spend money he has to announce that he will really get the dividend. The Green Paper has been much delayed, but it looks like the delay was probably more to do with timing it with the satellite announcement.
More curiously is why either of them were announced when Conroy is actually on leave. My suspicion is the satellite announcement had been waiting for funding approval, but that it sits on the critical path of switch off.
It is a pity when EVERYTHING is seen through a filter of its impact on Telstra.
NOTE: This post has been amended from the original to more accurately reflect the comments of the journalists.
Wednesday, January 06, 2010
Bubbles
An interesting item by Stephen Bartholomeusz on a speech by Ben Bernanke on monetary policy and the housing bubble.
The question of whether to raise interest rates to stiffle bubbles was a key element in Galbraith's analysis of the Great Crash of 1929. He concluded as has almost everyone ever since that you can't use monetary policy to stiffle asset price bubbles in only part of the economy.
A bubble is really a case where herd pricing overtakes fundamentals pricing and relates only to one asset class. The best regulatory solutio is to include an automatic stabiliser in pridential rules that increases the risk weighting that needs to be applied to specific asset classes if the price of those assets is increasing faster than other economic measures.
But this does not resolve the Fed of blame. Keeping interest rates low is the way to the Japanese economic winter, not to avoiding it. Low rates become a disaster if you suffer a downturn while you have them - because you lose monetary policy as a tool.
That's also why the criticism by th coalition of Government policy that is maintaining fiscal stimulus while there is monetary tightening. The Government and RBA recognise the need to get interest rates back to a "normal level" sooner rather than later so they can be an effective tool.
The Fed's low rates should not be blamed for the bubble and the crash, they should be blamed for the trouble the US will have in getting out of this mess.
Greenspan personally can (and has) take the blame for an excessive belief in the self-correcting characteristic of markets that invaded US policy making.
The question of whether to raise interest rates to stiffle bubbles was a key element in Galbraith's analysis of the Great Crash of 1929. He concluded as has almost everyone ever since that you can't use monetary policy to stiffle asset price bubbles in only part of the economy.
A bubble is really a case where herd pricing overtakes fundamentals pricing and relates only to one asset class. The best regulatory solutio is to include an automatic stabiliser in pridential rules that increases the risk weighting that needs to be applied to specific asset classes if the price of those assets is increasing faster than other economic measures.
But this does not resolve the Fed of blame. Keeping interest rates low is the way to the Japanese economic winter, not to avoiding it. Low rates become a disaster if you suffer a downturn while you have them - because you lose monetary policy as a tool.
That's also why the criticism by th coalition of Government policy that is maintaining fiscal stimulus while there is monetary tightening. The Government and RBA recognise the need to get interest rates back to a "normal level" sooner rather than later so they can be an effective tool.
The Fed's low rates should not be blamed for the bubble and the crash, they should be blamed for the trouble the US will have in getting out of this mess.
Greenspan personally can (and has) take the blame for an excessive belief in the self-correcting characteristic of markets that invaded US policy making.
Mobile phones and health
As one part of the US political system calls for more wireless internet, another is calling for health warnings on mobile phones. Obviously these are different parts of the system, but it does reflect the complexity of the modern world.
Many people want to draw the analogy between mobiles and cigarettes to find both a health issue and corporate deception in the marketing of the products. There are sufficient other examples like asbestos to raise one’s concerns. And there is a grand temptation for a politician to be the one who puts their name to some great act of salvation.
But even the best of intentions can be wrong. The story of William McBride is instructive. He was hailed as a hero for identifying the birth defects caused by thalidomide, but then of fraud when making similar claims about Debenox.
If the US politician were successful in getting a health warning put on mobile phones today it would probably read,
The surgeon-general advises that the weight of scientific opinion is that there are no health effects from the use of mobile phones.
Many people want to draw the analogy between mobiles and cigarettes to find both a health issue and corporate deception in the marketing of the products. There are sufficient other examples like asbestos to raise one’s concerns. And there is a grand temptation for a politician to be the one who puts their name to some great act of salvation.
But even the best of intentions can be wrong. The story of William McBride is instructive. He was hailed as a hero for identifying the birth defects caused by thalidomide, but then of fraud when making similar claims about Debenox.
If the US politician were successful in getting a health warning put on mobile phones today it would probably read,
The surgeon-general advises that the weight of scientific opinion is that there are no health effects from the use of mobile phones.
Wireless broadband and competition
Yesterday Senator Conroy released his long promised Green Paper on the digital dividend. For the newbies the "digital dividend" is taken to be the spectrum previously reserved for broadcast services to be freed up by the conversion to digital broadcasting. One should note that there have already been two other "digital dividends" - the first in the provision of extra channels to consumers, the second in terms of an economic boon to equipment manufacturers, consultants and ad agencies to sell the conversion message. We also learnt yesterday of a fourth digital dividend - that for the satellite operators who will get to carry all the digital terrestrial channels.
The Green Paper doesn't reveal much new. The fact the Government is "targeting" 126MHz of spectrum as the dividend accords with the work genetrally in the ITU-WARC and APT on spectrum. The next AsiaPacific Telecommunity Wireless Forum (AWC-WF) in Japan is programmed to have a workshop on "Next Generation Mobile ommunications". (The membership of the APT is countries represented by Government Departments or regulatory bodies. However its Associate Members are more diverse and include operators and vendors. An interesting questio is how the European vendors decide which country they decide to be members of APT under.)
Meanwhile in the US the White House has called on regulators to make more spectrum available for wireless internet access. In a submission to the FCC the DoJ said;
Given the potential of wireless services to reach underserved areas and to provide an alternative to wireline broadband providers in other areas, the Commission's primary tool for promoting broadband competition should be freeing up spectrum.
This in part sees wireless delivered broadband as competition to fixed. But consumer groups have voiced concern;
Consumer groups, which have been critical of the FCC's approach on broadband, said the comments by Justice and the NTIA indicate the administration agrees there are not enough options for Internet users. "They are going out of their way to say competition is important and that there isn't enough and this is a new approach," said Mark Cooper, president of the Consumers Federation of America. "The FCC has been looking at spectrum as the great savior, but then they have to answer the question of what happens if spectrum gets captured by incumbent wireline companies."
In Australia the mobile industry is doing a valiant job of pushing the case for the need for additional spectrum as revealed in their various presentations staking claims for both the digital dividend and the 2.5 GHz bands. Both of these are already allocated in the US.
These thoughts of "inter-modal" competition are important (and will be discussed below). The issue I want to return to here is the question of whether - in the long run - competition in wireless delivered services is efficient. The first question to address is "what efficiency" as we may need to distinguish between static and dynamic efficiency (too long to explain here). But it isn't hard to demonstrate that in the long run one and only one wireless network is efficient - on the simple basis that every user can access all the available bandwidth, or more generally, there is less congestion for the same amount of spectrum. That is we probably need another NBN - this time a wireless NBN. This could be more relevant for the US - as there is not a lot of "unused" spectrum to be freed up. The issue might be about getting greater productive efficiency from the spectrum already released.
This brings us to the important question of inter-modal competition as opposed to competition between different networks in the same technology. This is the competition that does make sense where there is enough differentiation for both networks to have viable core business cases and they compete at the margins - wireless on mobility and fibre on speed. But it does introduce important questions about vertical integration in mobile networks and the potential anti-competitive consequences of allowing mobile network operators to start "bundling" FTTP services. The classic point will be where a mobile operator delivers the customer their telephony service on a picocell, so the customer's traffic is offloaded to the FTTP network while they are at home. Our policy makers and regulators will only think about this after it becomes a problem, not before.
The Green Paper doesn't reveal much new. The fact the Government is "targeting" 126MHz of spectrum as the dividend accords with the work genetrally in the ITU-WARC and APT on spectrum. The next AsiaPacific Telecommunity Wireless Forum (AWC-WF) in Japan is programmed to have a workshop on "Next Generation Mobile ommunications". (The membership of the APT is countries represented by Government Departments or regulatory bodies. However its Associate Members are more diverse and include operators and vendors. An interesting questio is how the European vendors decide which country they decide to be members of APT under.)
Meanwhile in the US the White House has called on regulators to make more spectrum available for wireless internet access. In a submission to the FCC the DoJ said;
Given the potential of wireless services to reach underserved areas and to provide an alternative to wireline broadband providers in other areas, the Commission's primary tool for promoting broadband competition should be freeing up spectrum.
This in part sees wireless delivered broadband as competition to fixed. But consumer groups have voiced concern;
Consumer groups, which have been critical of the FCC's approach on broadband, said the comments by Justice and the NTIA indicate the administration agrees there are not enough options for Internet users. "They are going out of their way to say competition is important and that there isn't enough and this is a new approach," said Mark Cooper, president of the Consumers Federation of America. "The FCC has been looking at spectrum as the great savior, but then they have to answer the question of what happens if spectrum gets captured by incumbent wireline companies."
In Australia the mobile industry is doing a valiant job of pushing the case for the need for additional spectrum as revealed in their various presentations staking claims for both the digital dividend and the 2.5 GHz bands. Both of these are already allocated in the US.
These thoughts of "inter-modal" competition are important (and will be discussed below). The issue I want to return to here is the question of whether - in the long run - competition in wireless delivered services is efficient. The first question to address is "what efficiency" as we may need to distinguish between static and dynamic efficiency (too long to explain here). But it isn't hard to demonstrate that in the long run one and only one wireless network is efficient - on the simple basis that every user can access all the available bandwidth, or more generally, there is less congestion for the same amount of spectrum. That is we probably need another NBN - this time a wireless NBN. This could be more relevant for the US - as there is not a lot of "unused" spectrum to be freed up. The issue might be about getting greater productive efficiency from the spectrum already released.
This brings us to the important question of inter-modal competition as opposed to competition between different networks in the same technology. This is the competition that does make sense where there is enough differentiation for both networks to have viable core business cases and they compete at the margins - wireless on mobility and fibre on speed. But it does introduce important questions about vertical integration in mobile networks and the potential anti-competitive consequences of allowing mobile network operators to start "bundling" FTTP services. The classic point will be where a mobile operator delivers the customer their telephony service on a picocell, so the customer's traffic is offloaded to the FTTP network while they are at home. Our policy makers and regulators will only think about this after it becomes a problem, not before.
Tuesday, January 05, 2010
Economics old and new
There are a number of ways of distinguishing between different economic traditions or positions. One way is to talk of orthodox versus heterodox economics. A more recent way is that of Cassidy in How Markets Fail and talk about utopian and reality economics.
An earlier distinction was between classical and institutional economics. I stumbled upon* an interesting paper yesterday. It is a 1957 review of "institutionalism" by Kenneth Boulding. He is reviewing the Institutionalism of Veblen, Commons and Mitchell. He makes a distinction between people who sit outside the mainstream (Kuhn's paradigms, Lakatos's reserach rogram or Galbraith's conventional wisdom) between challengers and dissenters. He says;
The challenger sets out to create a new orthodoxy; the dissenter cannot really bear the loss of something to dissent from, and hence would not really want to destroy that from which he dissents even if he could.
This in many ways sumarises some of the early institutionalists and their followers. I recall noting on the death of Galbraith the comment that "his sweeping ideas might have gained even greater traction had he developed disciples willing and able to prove them with mathematical models." That is he might have gained greater traction as a challenger rather than as a dissenter.
After undertaking his review he notes;
In a letter to me a few months ago, Professor Ayres accused me of having become an institutionalist. If a somewhat despairing concern for dynamics in theory (without losing a sense of the very real ac- complishments of statics); if a very strong concern for integration in the social sciences and for the bringing of contributions from psychology, sociology, and the biological sciences into the construction of better theories of individual behavior and social change; if a strong (if skeptical) interest and sympathy with empirical methods is enough to make me an institutionalist, then I gladly accept the title.
This article was published in 1957 (the year of my birth)! Those same three concerns - with dyanamics, with realitic agents and with empirical methods - constitute the ongoing core of the criticism of the orthodoxy.
Ayers himself comments on the article and takes issue with the Boulding description saying;
First, as I see it, the object of dissent is the conception of the market as the guiding mechanism of the economy or, more broadly, the conception of the economy as organized and guided by the market. It simply is not true that scarce resources are allocated among alternative uses by the market. The real determinant of whatever allocation occurs in any society is the organizational structure of that society-in short, its institutions. At most, the market only gives effect to prevailing institutions. By focusing attention on the market mechanism, economists have ignored the real allocational mechanism. Hence the hiatus between economics and the other social studies, all of which are concerned with various aspects of the institutional structure of society. Economics is more advanced than those others - in the wrong direction.
Second, what determines the relative scarcity or relative plentifulness of all resources is the state of the industrial arts. Ours is an industrial econ- omy. That is the paramount fact of the modern economic system; and the recognition of that fact is the most constructive achievement of institutionalists generally.
The latter point is an institutional one as the "state of the industrial arts" includes all the machinery of the modern corporation. Whether there is a distinction between the question of the primacy of markets or other institutions and the critique of market theory as ignoring dynamics, real decision making and data is a point for another day.
Boulding concludes by saying;
"In the work of the National Bureau, the Cowles Foundation, and the Survey Research Center; in cybernetics, operations research, general systems theory, organization theory, even in the humble contributions of a few economic theorists and in many other places, one detects -the ground swell of a "movement." If anybody wants to call this "neo- institutionalism," I shall only complain the word is too long."
In fact we wound up with both a neo-institutionalism and New Institutional Economics, though the first is grounded in property rights and law, and the latter in transaction cost theory. We also wound up with "behavioural economics" which focuses on the real agent question, and "evolutionary economics" which focusses on the dynamics.
The real worry is that - fifty years on - the orthodoxy is still the unrealistic market model.
* When I go to find a paper in a journal I usually look at the contents list of a few issues around the one I'm actually looking for. It is a useful way to stumble on stuff.
An earlier distinction was between classical and institutional economics. I stumbled upon* an interesting paper yesterday. It is a 1957 review of "institutionalism" by Kenneth Boulding. He is reviewing the Institutionalism of Veblen, Commons and Mitchell. He makes a distinction between people who sit outside the mainstream (Kuhn's paradigms, Lakatos's reserach rogram or Galbraith's conventional wisdom) between challengers and dissenters. He says;
The challenger sets out to create a new orthodoxy; the dissenter cannot really bear the loss of something to dissent from, and hence would not really want to destroy that from which he dissents even if he could.
This in many ways sumarises some of the early institutionalists and their followers. I recall noting on the death of Galbraith the comment that "his sweeping ideas might have gained even greater traction had he developed disciples willing and able to prove them with mathematical models." That is he might have gained greater traction as a challenger rather than as a dissenter.
After undertaking his review he notes;
In a letter to me a few months ago, Professor Ayres accused me of having become an institutionalist. If a somewhat despairing concern for dynamics in theory (without losing a sense of the very real ac- complishments of statics); if a very strong concern for integration in the social sciences and for the bringing of contributions from psychology, sociology, and the biological sciences into the construction of better theories of individual behavior and social change; if a strong (if skeptical) interest and sympathy with empirical methods is enough to make me an institutionalist, then I gladly accept the title.
This article was published in 1957 (the year of my birth)! Those same three concerns - with dyanamics, with realitic agents and with empirical methods - constitute the ongoing core of the criticism of the orthodoxy.
Ayers himself comments on the article and takes issue with the Boulding description saying;
First, as I see it, the object of dissent is the conception of the market as the guiding mechanism of the economy or, more broadly, the conception of the economy as organized and guided by the market. It simply is not true that scarce resources are allocated among alternative uses by the market. The real determinant of whatever allocation occurs in any society is the organizational structure of that society-in short, its institutions. At most, the market only gives effect to prevailing institutions. By focusing attention on the market mechanism, economists have ignored the real allocational mechanism. Hence the hiatus between economics and the other social studies, all of which are concerned with various aspects of the institutional structure of society. Economics is more advanced than those others - in the wrong direction.
Second, what determines the relative scarcity or relative plentifulness of all resources is the state of the industrial arts. Ours is an industrial econ- omy. That is the paramount fact of the modern economic system; and the recognition of that fact is the most constructive achievement of institutionalists generally.
The latter point is an institutional one as the "state of the industrial arts" includes all the machinery of the modern corporation. Whether there is a distinction between the question of the primacy of markets or other institutions and the critique of market theory as ignoring dynamics, real decision making and data is a point for another day.
Boulding concludes by saying;
"In the work of the National Bureau, the Cowles Foundation, and the Survey Research Center; in cybernetics, operations research, general systems theory, organization theory, even in the humble contributions of a few economic theorists and in many other places, one detects -the ground swell of a "movement." If anybody wants to call this "neo- institutionalism," I shall only complain the word is too long."
In fact we wound up with both a neo-institutionalism and New Institutional Economics, though the first is grounded in property rights and law, and the latter in transaction cost theory. We also wound up with "behavioural economics" which focuses on the real agent question, and "evolutionary economics" which focusses on the dynamics.
The real worry is that - fifty years on - the orthodoxy is still the unrealistic market model.
* When I go to find a paper in a journal I usually look at the contents list of a few issues around the one I'm actually looking for. It is a useful way to stumble on stuff.
Is POTS dead?
In the over-used telco jargon "POTS" stands for Plain Old Telephone Service. We also call it the Publisc Switched Telephone Network (or PSTN). AT&T has described POTS in the US as ‘relics of a by-gone era’ and has called on the Federal Communications Commission (FCC) to set a date to scrap it.
As we understand that today it consists of a twisted pair of copper cable from the customer to a telephone exchange. That exchange is these days a big computer (an SPC switch) that is also known as a "Class 5" switch - the switches used for local access. What we get as a service is a simple "analogue" telephone.
AT&T isn't saying the telephone is dead, just the means of delivering it. They (as they have remorphed into being one of the former "baby bells") are complaning about the regulatory striictures requiring them to maintain their existing POTS networks when they want to invest in something else.
It is worth remembering that it was just the same desire by Telstra that started our NBN journey. Their 2005 proposal for a Fibre to the Node (FTTN) network was accompanied by replacing all their voice switches with "five paired soft switches". They share the concern with AT&T with the need to call "time" on the PSTN - with one regulatory officer famously telling a Senate Committee that it was five minutes to midnight for the copper network.
This is all a really important message for NBN Co, the Government, Telstra and Telstra's shareholders to understand. Building a nice shiny new FTTH access network for Telstra is doing them a favour - there is no need for special "compensation" for moving their customer base.
As we understand that today it consists of a twisted pair of copper cable from the customer to a telephone exchange. That exchange is these days a big computer (an SPC switch) that is also known as a "Class 5" switch - the switches used for local access. What we get as a service is a simple "analogue" telephone.
AT&T isn't saying the telephone is dead, just the means of delivering it. They (as they have remorphed into being one of the former "baby bells") are complaning about the regulatory striictures requiring them to maintain their existing POTS networks when they want to invest in something else.
It is worth remembering that it was just the same desire by Telstra that started our NBN journey. Their 2005 proposal for a Fibre to the Node (FTTN) network was accompanied by replacing all their voice switches with "five paired soft switches". They share the concern with AT&T with the need to call "time" on the PSTN - with one regulatory officer famously telling a Senate Committee that it was five minutes to midnight for the copper network.
This is all a really important message for NBN Co, the Government, Telstra and Telstra's shareholders to understand. Building a nice shiny new FTTH access network for Telstra is doing them a favour - there is no need for special "compensation" for moving their customer base.
Monday, January 04, 2010
Cassandra or sage?
How can one ever tell the difference between a Cassandra and a sage? At any point in time there is a plethora of nay-sayers on any particular topic, and they are usually rubbished. They are typified as Cassandras - which is a funny misuse - because Cassandra was really a person who could foretell doom but not be believed, whereas the usage refers to people who always see the negative.
One favourite example of mine was during the phase where WorldCom convinced the world that the capacity of the internet was doubling ever hundred days. Andrew Odlyzko did a detailed study to show it wasn't, but every telco manager believed it was even though their own data didn't support the proposition.
The recent example came to me by reading a book called How Markets Fail: The logic of market calamities. It refers to a 2005 symposium held by the Federal Reserve Bank of Kansas City in 2005, and in particular a paper by Raghuram Rajan.
Rajan's paper is a perfect description of exactly how the liquidity crisis in American finance unfolded - given before the event. He neatly describes the two sources of instability as the incentive on fund managers to take risks that are concealed from ivestors and the incentive to herd with other fund managers on investment choices. The first is drive by the compensation scheme that rewards short term return. The second is driven by the need to perform as well as the next guy.
Ultimately these were the two underlying causes of the continued growth of the securitised mortgage market. Raja even describes in detail the nature of the heightened risk profile of banks and how a liquidity shock would spread like a ontagion through the system.
More interesting than Rajan's paper itself is the discussion that is also available on the symposium site - of great economic thinkers dismissing the argument. The dismissal comes down to little more than "but to fix this you want us to intervene in the market and the market is (almost) perfect so we won't.
The tragedy of what happened in 2007/08 is not that economists didn't expect it - it is that they were told and chose to ignore it.
That said, I'm not actually sure the solution necessarily works. If I have a system of very small "vibrating" agents and I connect them all together to dampen the overall vibration, I just make the size of the eventual instability greater. Would changing incentives and pridential requirements have stopped people adding more elements to the system or is it just adding yet more springs?
And more importantly how do you tell the difference btween a Rajan and all the other forecasters of doom?
One favourite example of mine was during the phase where WorldCom convinced the world that the capacity of the internet was doubling ever hundred days. Andrew Odlyzko did a detailed study to show it wasn't, but every telco manager believed it was even though their own data didn't support the proposition.
The recent example came to me by reading a book called How Markets Fail: The logic of market calamities. It refers to a 2005 symposium held by the Federal Reserve Bank of Kansas City in 2005, and in particular a paper by Raghuram Rajan.
Rajan's paper is a perfect description of exactly how the liquidity crisis in American finance unfolded - given before the event. He neatly describes the two sources of instability as the incentive on fund managers to take risks that are concealed from ivestors and the incentive to herd with other fund managers on investment choices. The first is drive by the compensation scheme that rewards short term return. The second is driven by the need to perform as well as the next guy.
Ultimately these were the two underlying causes of the continued growth of the securitised mortgage market. Raja even describes in detail the nature of the heightened risk profile of banks and how a liquidity shock would spread like a ontagion through the system.
More interesting than Rajan's paper itself is the discussion that is also available on the symposium site - of great economic thinkers dismissing the argument. The dismissal comes down to little more than "but to fix this you want us to intervene in the market and the market is (almost) perfect so we won't.
The tragedy of what happened in 2007/08 is not that economists didn't expect it - it is that they were told and chose to ignore it.
That said, I'm not actually sure the solution necessarily works. If I have a system of very small "vibrating" agents and I connect them all together to dampen the overall vibration, I just make the size of the eventual instability greater. Would changing incentives and pridential requirements have stopped people adding more elements to the system or is it just adding yet more springs?
And more importantly how do you tell the difference btween a Rajan and all the other forecasters of doom?
The Price of Sport
I can't help but wonder about the economic rationale of sports administrators and how they set the admission price to a sports event. An article today claims ticket prices for cricket have gone up by 88% since 2001-02, which is claimed is twice the rate of inflation (I'd think it is possibly more than that).
How should a sport set the price for admission. You'd think that the profit maximising price was the one that filled every seat, but that is not necessarily the case. It depends on what is the price the last person is prepared to pay for their seat. In fact, standard monopoly analysis would tell you that the profit maximising point is probably (depending on the exact shape of the demand curve) at some point less than this. The correct answer also depends on the balance between the fixed costs for use of the stadium versus the variable costs.
Given that stadium owners also have their own challenge in designing their pricing schedule, the issue could be as much about ow they design their prices. They do typically charge a two part price of a fixed fee and then a variable fee. Sometimes the latter is based on a share of revenue which also becomes problematic.
There are, however, two other factors that mean the simple monopoly analysis doesn't apply. The first is that not all seats are the same, and that each person is sold a specific seat. That means it is possible to run a version of either first degree price discrimination or third degree price discrimination. These are fancy terms for charging each customer by their willingness to pay and differentiating the product respectively. The first happens to a degree when ou bargain on the price at a market or buying a car, the second is the practice of selling very similar products under three brand names.
For sports events the existence of different seat categories is a version of third degree price discrimination. The real question is whether this strategy is being properly employed. A quick survey of most venues shows that the vast bulk of tickets are sold at the highest price, with a lesser number at usually no more than two cheaper prices based on the idea that these are inferior seats. This strategy usually reflcts the stadium's policy, not the hirer's, and reflects the stadium's desire to believe that there is almost) "no such thing as a bad seat". This becomes quite ridiculous at times. For test cricket anything within 10 degrees of the wicket is far superior to something further around, though there is a small number of people who favour direct square on.
But ticket prices as offered are the same over the whole bloody bowl just based on elevation and cover. A profit maximising strategy would chage more for the good tickets and less for those that aren't.
It is even possible to pursue a first degree price discrimination strategy, by the use of auctions. With the modern process of online ticket sales it is not too hrd to build a system that would auction off the most desirable seats. This maximises total revenue.
The second factor is the importance of maximising return from all sources over time. Watching sport on television being played in an empty stadium is no fun at all. The crowd at the game is important to its enjoyment on television. Also, most sports are better understood once you have watched them live. Failure to draw a live audience detracts from the future revenue potential for the sport.
The same is true for venue operators. They need to structure their prices to create a incentive for the hirer to fill the stadium. That is a problem because a high fixed fee does that, but then becomes a disincentive for marginal events to hire the stadium. However, as hirers tend to use venues for a series of events rather than one by one, it is possible to design appropriate case-by-case pricing structures.
If anyone knows of any published studies on pricing for sports venues I'd love to know.
How should a sport set the price for admission. You'd think that the profit maximising price was the one that filled every seat, but that is not necessarily the case. It depends on what is the price the last person is prepared to pay for their seat. In fact, standard monopoly analysis would tell you that the profit maximising point is probably (depending on the exact shape of the demand curve) at some point less than this. The correct answer also depends on the balance between the fixed costs for use of the stadium versus the variable costs.
Given that stadium owners also have their own challenge in designing their pricing schedule, the issue could be as much about ow they design their prices. They do typically charge a two part price of a fixed fee and then a variable fee. Sometimes the latter is based on a share of revenue which also becomes problematic.
There are, however, two other factors that mean the simple monopoly analysis doesn't apply. The first is that not all seats are the same, and that each person is sold a specific seat. That means it is possible to run a version of either first degree price discrimination or third degree price discrimination. These are fancy terms for charging each customer by their willingness to pay and differentiating the product respectively. The first happens to a degree when ou bargain on the price at a market or buying a car, the second is the practice of selling very similar products under three brand names.
For sports events the existence of different seat categories is a version of third degree price discrimination. The real question is whether this strategy is being properly employed. A quick survey of most venues shows that the vast bulk of tickets are sold at the highest price, with a lesser number at usually no more than two cheaper prices based on the idea that these are inferior seats. This strategy usually reflcts the stadium's policy, not the hirer's, and reflects the stadium's desire to believe that there is almost) "no such thing as a bad seat". This becomes quite ridiculous at times. For test cricket anything within 10 degrees of the wicket is far superior to something further around, though there is a small number of people who favour direct square on.
But ticket prices as offered are the same over the whole bloody bowl just based on elevation and cover. A profit maximising strategy would chage more for the good tickets and less for those that aren't.
It is even possible to pursue a first degree price discrimination strategy, by the use of auctions. With the modern process of online ticket sales it is not too hrd to build a system that would auction off the most desirable seats. This maximises total revenue.
The second factor is the importance of maximising return from all sources over time. Watching sport on television being played in an empty stadium is no fun at all. The crowd at the game is important to its enjoyment on television. Also, most sports are better understood once you have watched them live. Failure to draw a live audience detracts from the future revenue potential for the sport.
The same is true for venue operators. They need to structure their prices to create a incentive for the hirer to fill the stadium. That is a problem because a high fixed fee does that, but then becomes a disincentive for marginal events to hire the stadium. However, as hirers tend to use venues for a series of events rather than one by one, it is possible to design appropriate case-by-case pricing structures.
If anyone knows of any published studies on pricing for sports venues I'd love to know.
Thursday, December 31, 2009
The Brief of Arguments Against Public Ownership
As an extension of my short item on postage stamp pricing I have come upon a fantastic article by Richard Kleibowicz in the History of Political Economy.
The article is an analysis of the arguments that AT&T made in its Brief of Arguments Against Public Ownership (available online in three vols v1 v2 v3 or one volume at the State Library of NSW). This was a three volume, three ring binder "living document" that AT&T prepared to argue the case against Government ownership of the telephone system. The Brief itself was mostly a collection of useful references from other authorities for citing by management or supply to other parties.
It transpires that there were many who argued that both the telegraph and telephone should be government owned and operated in the USA in the late 1800s and early 20th century. The article is primarily about the use of political economy arguments and the process of doing so. For me it has a number of useful purposes.
1. It demonstrates the fact that there was a vibrant debate over the desirability of government ownership in the US, something necessary to understand the variety of structures globally.
2. Second it shows how the arguments mounted by AT&T became core parts of the American conception of political economy. In some ways this explains how vehement the likes of Sol Trujillo and Phil Burgess were in their views about the importance of the strong national telco being not under Government control. Interestingly Australia was used in the Brief a number of times - both by reference to the government owned railways and the telecommunications service. Kleibowicz includes one such example in his text, it is a quote from F.W.Taussig which says, in part;
The continued progress ... calls for keeness, vigor, enthusiasm, single-minded devotio to professional tasks on the part of trained administrators and experts. Only an intelligent and self-restrained democracy, or a very capable autocracy, can enlist such men and get them to do their work in the best spirit. The German Empire and the German States, in their post office, telegraph and telephone, perhaps in their railways, unmistakably i their military organisation, have maintained a high spirit of ambition and emulation. But the Australian colonies seem to have secured simply humdrum management; honest to be sure, ... but devoid of life and vigor.
I suspect Sol and Donald McGauchie thought little had changed!
3. The article notes that mass campaigns had just been introduced from the Atlantic as tools of the Progressives, and that the AT&T campaign largely aligns with the start of formal "public relations". Kleibowicz notes;
The Brief of Arguments against Public Ownership formed the centerpiece of an innovative effort to advance AT&T’s policy goals by shaping popular understanding of political-economic principles. AT&T took rhetorical and communication practices that had been tried piecemeal before and melded them into a comprehensive campaign that embedded the company’s specifi c policy preference in a broadly formulated economic argument. Unlike earlier industry missives created for policy debates, AT&T’s Brief functioned as a tutorial on economic ideas for popular audiences. It framed the debate over the policy choice—government ownership or regulation—as a matter of considerable economic import and only partly as a political decision. The Brief organized much of its evidence according to the economic relations involved, notably the effects of government ownership on consumers and employees. Even citizens were addressed in largely economic terms by emphasizing issues of public management such as government rate-making, accounting, credit, and taxation.
In many ways the Brief looks like a template for a modern day PR Key Message set. It astounds me whenever I find a firm or organisatio that thinks it is engaged in public debate that doesn't have just such a set.
As an aside Kleibowicz notes that the Brief "inexplicably" did not quote from the four-book series by Hugo R. Meyer. The interesting part is that this set of books was the source of the arguments the first Director-General of the Australian PMG used in his arguments for less Government control before the 1910 Royal Commission.
The article is an analysis of the arguments that AT&T made in its Brief of Arguments Against Public Ownership (available online in three vols v1 v2 v3 or one volume at the State Library of NSW). This was a three volume, three ring binder "living document" that AT&T prepared to argue the case against Government ownership of the telephone system. The Brief itself was mostly a collection of useful references from other authorities for citing by management or supply to other parties.
It transpires that there were many who argued that both the telegraph and telephone should be government owned and operated in the USA in the late 1800s and early 20th century. The article is primarily about the use of political economy arguments and the process of doing so. For me it has a number of useful purposes.
1. It demonstrates the fact that there was a vibrant debate over the desirability of government ownership in the US, something necessary to understand the variety of structures globally.
2. Second it shows how the arguments mounted by AT&T became core parts of the American conception of political economy. In some ways this explains how vehement the likes of Sol Trujillo and Phil Burgess were in their views about the importance of the strong national telco being not under Government control. Interestingly Australia was used in the Brief a number of times - both by reference to the government owned railways and the telecommunications service. Kleibowicz includes one such example in his text, it is a quote from F.W.Taussig which says, in part;
The continued progress ... calls for keeness, vigor, enthusiasm, single-minded devotio to professional tasks on the part of trained administrators and experts. Only an intelligent and self-restrained democracy, or a very capable autocracy, can enlist such men and get them to do their work in the best spirit. The German Empire and the German States, in their post office, telegraph and telephone, perhaps in their railways, unmistakably i their military organisation, have maintained a high spirit of ambition and emulation. But the Australian colonies seem to have secured simply humdrum management; honest to be sure, ... but devoid of life and vigor.
I suspect Sol and Donald McGauchie thought little had changed!
3. The article notes that mass campaigns had just been introduced from the Atlantic as tools of the Progressives, and that the AT&T campaign largely aligns with the start of formal "public relations". Kleibowicz notes;
The Brief of Arguments against Public Ownership formed the centerpiece of an innovative effort to advance AT&T’s policy goals by shaping popular understanding of political-economic principles. AT&T took rhetorical and communication practices that had been tried piecemeal before and melded them into a comprehensive campaign that embedded the company’s specifi c policy preference in a broadly formulated economic argument. Unlike earlier industry missives created for policy debates, AT&T’s Brief functioned as a tutorial on economic ideas for popular audiences. It framed the debate over the policy choice—government ownership or regulation—as a matter of considerable economic import and only partly as a political decision. The Brief organized much of its evidence according to the economic relations involved, notably the effects of government ownership on consumers and employees. Even citizens were addressed in largely economic terms by emphasizing issues of public management such as government rate-making, accounting, credit, and taxation.
In many ways the Brief looks like a template for a modern day PR Key Message set. It astounds me whenever I find a firm or organisatio that thinks it is engaged in public debate that doesn't have just such a set.
As an aside Kleibowicz notes that the Brief "inexplicably" did not quote from the four-book series by Hugo R. Meyer. The interesting part is that this set of books was the source of the arguments the first Director-General of the Australian PMG used in his arguments for less Government control before the 1910 Royal Commission.
Wednesday, December 30, 2009
Postage Stamp Pricing
Two times in the last few weeks I've had people in conversation refer to the concept of "postage stamp pricing". This is the concept of universal pricing as first applied in the UK with the penny post.
It is usually assumed that this was a reform driven primarily by social goals. However, an excellent little contemporary item by the Frenchman Frederick Bastiat explains the alternative to postage stamp pricing. This is a high transaction cost alternative (read it, it is fun).
While I usually quote this as being an argument that the UK Post Office raised more revenue through the reform, the actual outcome in the argument is still a reduction. However, the social and economic gains are perceived to outstrip them.
The issue usually arises in discussing telephony tariffs, the history of which is poorly understood in Australia. There is one excllent monograph which I have been given permission to post on my website but have not done so yet. The interesting fact s that with the growth of computatio power to make differential pricing easier we actually wound up with greater price averaging. This was due to competitive factors.
The other interesting thing in the Bastiat article is the fact that the postal service was a net source of revenue to Government. Eli Noam in Telecommunications in Europe notes that the revenue from the Royal Post was in most countries one revenue stream that the monarch did not need parliamentary approval to spend, and hence the outcome that in those countries the post office took control of first the telegraph and then the telephone.
It is usually assumed that this was a reform driven primarily by social goals. However, an excellent little contemporary item by the Frenchman Frederick Bastiat explains the alternative to postage stamp pricing. This is a high transaction cost alternative (read it, it is fun).
While I usually quote this as being an argument that the UK Post Office raised more revenue through the reform, the actual outcome in the argument is still a reduction. However, the social and economic gains are perceived to outstrip them.
The issue usually arises in discussing telephony tariffs, the history of which is poorly understood in Australia. There is one excllent monograph which I have been given permission to post on my website but have not done so yet. The interesting fact s that with the growth of computatio power to make differential pricing easier we actually wound up with greater price averaging. This was due to competitive factors.
The other interesting thing in the Bastiat article is the fact that the postal service was a net source of revenue to Government. Eli Noam in Telecommunications in Europe notes that the revenue from the Royal Post was in most countries one revenue stream that the monarch did not need parliamentary approval to spend, and hence the outcome that in those countries the post office took control of first the telegraph and then the telephone.
Tuesday, December 29, 2009
Ergas and the CPRS
Dear Henry Ergas has gone to print in his column in the Oz today on the topic of the CPRS.
He takes an interesting line that, of course, taxing "bads" is the best way to correct the markets failure to consider social costs (an externality) in making purchasing decisions. His gripe is that the consequence is that you collect a very large amount of tax as a consequence, and that instead of allocating this to everyone (by reducing income tax) Government has a habit of buying off special interest groups.
So, just like the GST an ETS might be a "New Tax" - the question is what you do with the proceeds.
Where Henry becomes fascinating is when he goes off to note that "our political system, under the guise of public beneficence, panders all too readily to these single-issue voters, while shifting costs around, including on to future generations, in ways that are as opaque and inequitable as they are inefficient. Against those pressures, there are pitifully few defences."
While he suggests reasoned public debate as one such way, one gets the feeling that he really wants Plato's enlightened despot in charge. Society run by the perfect economic regulator.
But then think of all his critique's of the ACCC.
Perhaps I misjudge him, maybe his real concern is transparency because he criticises the Government over the number of FOI requests knocked back. But then I remember that as an advocate he was a champion of the cause for confidentiality of submissions to that self-same omnipient economic regulator.
Maybe he just likes to grumble.
He takes an interesting line that, of course, taxing "bads" is the best way to correct the markets failure to consider social costs (an externality) in making purchasing decisions. His gripe is that the consequence is that you collect a very large amount of tax as a consequence, and that instead of allocating this to everyone (by reducing income tax) Government has a habit of buying off special interest groups.
So, just like the GST an ETS might be a "New Tax" - the question is what you do with the proceeds.
Where Henry becomes fascinating is when he goes off to note that "our political system, under the guise of public beneficence, panders all too readily to these single-issue voters, while shifting costs around, including on to future generations, in ways that are as opaque and inequitable as they are inefficient. Against those pressures, there are pitifully few defences."
While he suggests reasoned public debate as one such way, one gets the feeling that he really wants Plato's enlightened despot in charge. Society run by the perfect economic regulator.
But then think of all his critique's of the ACCC.
Perhaps I misjudge him, maybe his real concern is transparency because he criticises the Government over the number of FOI requests knocked back. But then I remember that as an advocate he was a champion of the cause for confidentiality of submissions to that self-same omnipient economic regulator.
Maybe he just likes to grumble.
Digital Economy what?
I try to track all things related to the Digital Economy. Most recently that means seeing a lot of references to the UK Digital Economy Bill.
Those references mostly relate to the fact that the UK Government is attempting through this to strengthen copyright protection through a variant of the "three strikes" rules. This is creating its own mini outrage in the UK.
The idea that you might put a legislative obligation on an intermediary to help prevent up or down stream crime is not unusual, as the things pawn brokers have to do attests. Nor is theidea of specifically targetting the "conduit" of telecommunications, as the old campaigns mounted by the PMG against SP bookies arrests.
I can see the idea that protecting intellectual propertyy and hence endeavour is significant in the digital economy but it hardly seems to be a core issue. Meanwhile the Bill seems to only cover inconsequential matters. Put it this way, how rapidly the UK advances to being a Digital Economy will not be much influenced by this Bill.
What would a Digital Economy Bill in Australia look like? Firstly it would have to deal with the necessary legislative merger to match our converged regulator model. Secondly it would have to deal with the need for greater speed in adjusting regulatory frameworks. Thirdly it would need to institutionalise the concept of an "independent" regulator.
Oh that reminds me I must blog about Henry....
Those references mostly relate to the fact that the UK Government is attempting through this to strengthen copyright protection through a variant of the "three strikes" rules. This is creating its own mini outrage in the UK.
The idea that you might put a legislative obligation on an intermediary to help prevent up or down stream crime is not unusual, as the things pawn brokers have to do attests. Nor is theidea of specifically targetting the "conduit" of telecommunications, as the old campaigns mounted by the PMG against SP bookies arrests.
I can see the idea that protecting intellectual propertyy and hence endeavour is significant in the digital economy but it hardly seems to be a core issue. Meanwhile the Bill seems to only cover inconsequential matters. Put it this way, how rapidly the UK advances to being a Digital Economy will not be much influenced by this Bill.
What would a Digital Economy Bill in Australia look like? Firstly it would have to deal with the necessary legislative merger to match our converged regulator model. Secondly it would have to deal with the need for greater speed in adjusting regulatory frameworks. Thirdly it would need to institutionalise the concept of an "independent" regulator.
Oh that reminds me I must blog about Henry....
PR and bananas
I found this post on the best and worst PR projects of 2009.
Two reasons for posting it here. The first is because it contains the now infamous banana smoothies clip from Westpac. The second is the heading "Getting better (at communicating) all the time", which is primarily about the need for continual professional development in PR professionals. But I choose to think of it as recognising the need to be communicating all the time, or, far more significantly, your company and brand are communicating all the time - the PR campaign at the end of it can't undo all that.
I also found the comment "I question whether really profound, organisation-changing work can be done from the consultancy position, as opposed to working in-house in a PR capacity, but there are certainly plenty of exceptions to this position."
These three thoughts provide the foundation for a principal that the corporate affairs/PR job function should not be mostly outsourced and that a PR stance of mostly "no comment" means that you aren't managing your communications at all.
Two reasons for posting it here. The first is because it contains the now infamous banana smoothies clip from Westpac. The second is the heading "Getting better (at communicating) all the time", which is primarily about the need for continual professional development in PR professionals. But I choose to think of it as recognising the need to be communicating all the time, or, far more significantly, your company and brand are communicating all the time - the PR campaign at the end of it can't undo all that.
I also found the comment "I question whether really profound, organisation-changing work can be done from the consultancy position, as opposed to working in-house in a PR capacity, but there are certainly plenty of exceptions to this position."
These three thoughts provide the foundation for a principal that the corporate affairs/PR job function should not be mostly outsourced and that a PR stance of mostly "no comment" means that you aren't managing your communications at all.
Wednesday, December 23, 2009
And now to consumers
My friend Frank Zumbo has had a crack today about the Federal Government's inaction for consumers in 2009.
In particular he is referring to grocery and petrol prices. I only have three short comments;
1. Frank is right that the generic only store ALDI exerts some strong price competition, but wrong to welcome the consequence of home brand products in the big two. Their home brands further entrench their market power and merely reflect further vertical integration. For all their other foibles brands do carry important consumer information in relation to quality and reliability. I want to choose my supermarket AND have a choice of brands.
2. The fact that Coles and Woolies drop prices geographically in response to competition is unfortunately seen by regulators as a good thing - i.e. competition working. The Birdsville amendment that is no more was one way to address this. The other would be to restore the original s49 of the TPA. This was a prohibition on price discrimination other than on the basis of cost. The arguments for its deletion were based on the claim that where the discrimination is injurious to competition it would fall foul of s46. This has proven not to be the case for two reasons, the first is that s46 doesn't work anyway, the second is that the staff of the regulator interpret the repeal of the old s49 as stating that price discrimination is not anti-competitive.
3. The fact (as I've written about before)that both the petrol and retail markets have been thoroughly screwed by the ACCC's continuing sanctioning of "shopper dockets" despite the fact that they are both anti-competitive (s46 breach) and misleading (s52).
On a completely different tangent I was thinking further about the "consumer and citizen" section at the ACMA. One of the troubling issues in telco is the divided responsibility between the ACCC and the ACMA for aspects of "consumer protection". For example a code on prices terms and conditions is enforceable by the ACMA though the conduct if illegal anyway is the responsibility of the ACCC.
The Government might claim their action has been to introduce the Australian Consumer Law - but even that did not get concluded before parliament rose.
It does not have to be this way. ASIC has responsibility for promoting confident and informed participation by investors and consumers in the financial system. The Bill referred to above maintains this responsibility and makes the same amendments to the ASIC Act as are made to the TPA. The industry body Communications Alliance in its submission on the Bill suggested that the telecommunications industry should get the benefits of the reform (i.e. less duplication) by the removal of the consumer protection powers of the ACMA.
There is an alternative and probably far better outcome which would be the exercise by the ACMA of the full ACCC (or new Consumer Law) powers (i.e. the TPA Part 5 powers). The ASIC powers provide the precedent and indeed the logic, that these are complex technical products for which consumer protection and technical regulation should go together.
Another interesting feature of the ASIC regime is their FIDO website. This puts the consumer interest pages somewhere other than the corporate pages. There was a brief flurry in 2006 where the Communications Law Centre with funding from the ACCC launched FairTel which was to be a consumer education campaign. At about the same time the ACA used FairTel as the name for a hypothetical telco on a model consumer contract. Unfortunately the idea of using "FairTel" as the brand for a telco version of FIDO couldn't happen now as a service provider is using the name.
In particular he is referring to grocery and petrol prices. I only have three short comments;
1. Frank is right that the generic only store ALDI exerts some strong price competition, but wrong to welcome the consequence of home brand products in the big two. Their home brands further entrench their market power and merely reflect further vertical integration. For all their other foibles brands do carry important consumer information in relation to quality and reliability. I want to choose my supermarket AND have a choice of brands.
2. The fact that Coles and Woolies drop prices geographically in response to competition is unfortunately seen by regulators as a good thing - i.e. competition working. The Birdsville amendment that is no more was one way to address this. The other would be to restore the original s49 of the TPA. This was a prohibition on price discrimination other than on the basis of cost. The arguments for its deletion were based on the claim that where the discrimination is injurious to competition it would fall foul of s46. This has proven not to be the case for two reasons, the first is that s46 doesn't work anyway, the second is that the staff of the regulator interpret the repeal of the old s49 as stating that price discrimination is not anti-competitive.
3. The fact (as I've written about before)that both the petrol and retail markets have been thoroughly screwed by the ACCC's continuing sanctioning of "shopper dockets" despite the fact that they are both anti-competitive (s46 breach) and misleading (s52).
On a completely different tangent I was thinking further about the "consumer and citizen" section at the ACMA. One of the troubling issues in telco is the divided responsibility between the ACCC and the ACMA for aspects of "consumer protection". For example a code on prices terms and conditions is enforceable by the ACMA though the conduct if illegal anyway is the responsibility of the ACCC.
The Government might claim their action has been to introduce the Australian Consumer Law - but even that did not get concluded before parliament rose.
It does not have to be this way. ASIC has responsibility for promoting confident and informed participation by investors and consumers in the financial system. The Bill referred to above maintains this responsibility and makes the same amendments to the ASIC Act as are made to the TPA. The industry body Communications Alliance in its submission on the Bill suggested that the telecommunications industry should get the benefits of the reform (i.e. less duplication) by the removal of the consumer protection powers of the ACMA.
There is an alternative and probably far better outcome which would be the exercise by the ACMA of the full ACCC (or new Consumer Law) powers (i.e. the TPA Part 5 powers). The ASIC powers provide the precedent and indeed the logic, that these are complex technical products for which consumer protection and technical regulation should go together.
Another interesting feature of the ASIC regime is their FIDO website. This puts the consumer interest pages somewhere other than the corporate pages. There was a brief flurry in 2006 where the Communications Law Centre with funding from the ACCC launched FairTel which was to be a consumer education campaign. At about the same time the ACA used FairTel as the name for a hypothetical telco on a model consumer contract. Unfortunately the idea of using "FairTel" as the brand for a telco version of FIDO couldn't happen now as a service provider is using the name.
Stephen Conroy's response deserves wider coverage
Stephen Conroy has responded today to Crikey over their coverage of the webpage blocking policy.
I post the link here because his response deserves further coverage, as it dispels most of the myths being peddled about the policy.
I post the link here because his response deserves further coverage, as it dispels most of the myths being peddled about the policy.
Citizens and consumers
The Australian Communications and Media Authority introduced a new structure in December. Key features of the restructure were the alignment of the structure to the key challenges in the sector including digital broadcasting transition and NBN issues.
The stand-out feature though was the formation of the Content, Consumer and Citizen Division. This is the first sign of a "post neoliberal" view of governance responsibility that issues in regulation extend beyond just the consumer.
I recall engaging with either the old DCITA or the old ACA on one of their proposed "customer service" charters and indicating that the word "customer" was inappropriate for a non-commercial relationship. I proposed instead a view that there are "four Cs'" of relevance - and that these divide across a two-by-two matrix of whether the relationship is commercial or not, and whether the relationship was actual or potential. This gives the following four terms;
Consumer - a person who may potentially enter into a commercial relationship to acquire goods or services.
Customer - a person who is currently entering into or considering a commercial relationship to acquire goods or services.
Citizen - a person who has rights and responsibilities under law.
Client - a person engaging with government or its agent (a regulator) in regard to their rights or responsibilities under law.
In these definitions a "person" could be an individual or one of the variety of "incorporated persons" recognised in law.
These distinctions are not entirely new. A UK site called "How to Complain" provides advice on
* your rights as a consumer, customer, client or patient [and]
* the history of and your current rights as a citizen
There are quite good papers that explain why treating citizens as customers in government interaction can make government agencies "citizen-centric", but I would argue the term "client" is more effective for that. While in general usage the distinction between "customer" and "client" may be about the distinction between goods and services, a more specific distinction is that the term "client" is used for interactions where the provider is offering a "professional service". In this usage "professional" does not mean for money but instead means a person who is both expert and covered by some particular ethical code.
A way of making that distinction is that a customer is expected to be able to know enough about the transacton to protect themselves, whereas a client is completely reliant on the professional expertise of the provider. To that end customer is a better description of all commercial transactions and client the description of a citizen interacting with government.
Finally I stumbled on a very good paper on the need to continue a concept of citizen distinct from that of consumer. It ties neatly together with "market state" theory and what the paper calls "New Public Management" which is a term for the amalgam of the reforms of the 1980s and 190s. This is the shift of government from a provider of services to the provider of a framework within which services are provided. It includes corporatisation, privatisation and the kinds of "outsouced" delivery models such as the Job Network.
(That paper came from what looked like a fascinating conference in 2006)
The stand-out feature though was the formation of the Content, Consumer and Citizen Division. This is the first sign of a "post neoliberal" view of governance responsibility that issues in regulation extend beyond just the consumer.
I recall engaging with either the old DCITA or the old ACA on one of their proposed "customer service" charters and indicating that the word "customer" was inappropriate for a non-commercial relationship. I proposed instead a view that there are "four Cs'" of relevance - and that these divide across a two-by-two matrix of whether the relationship is commercial or not, and whether the relationship was actual or potential. This gives the following four terms;
Consumer - a person who may potentially enter into a commercial relationship to acquire goods or services.
Customer - a person who is currently entering into or considering a commercial relationship to acquire goods or services.
Citizen - a person who has rights and responsibilities under law.
Client - a person engaging with government or its agent (a regulator) in regard to their rights or responsibilities under law.
In these definitions a "person" could be an individual or one of the variety of "incorporated persons" recognised in law.
These distinctions are not entirely new. A UK site called "How to Complain" provides advice on
* your rights as a consumer, customer, client or patient [and]
* the history of and your current rights as a citizen
There are quite good papers that explain why treating citizens as customers in government interaction can make government agencies "citizen-centric", but I would argue the term "client" is more effective for that. While in general usage the distinction between "customer" and "client" may be about the distinction between goods and services, a more specific distinction is that the term "client" is used for interactions where the provider is offering a "professional service". In this usage "professional" does not mean for money but instead means a person who is both expert and covered by some particular ethical code.
A way of making that distinction is that a customer is expected to be able to know enough about the transacton to protect themselves, whereas a client is completely reliant on the professional expertise of the provider. To that end customer is a better description of all commercial transactions and client the description of a citizen interacting with government.
Finally I stumbled on a very good paper on the need to continue a concept of citizen distinct from that of consumer. It ties neatly together with "market state" theory and what the paper calls "New Public Management" which is a term for the amalgam of the reforms of the 1980s and 190s. This is the shift of government from a provider of services to the provider of a framework within which services are provided. It includes corporatisation, privatisation and the kinds of "outsouced" delivery models such as the Job Network.
(That paper came from what looked like a fascinating conference in 2006)
The late Paul Samuelson
A part of The Economist obit for Paul Samuelson caught my eye.
As for Mr Samuelson’s friend of 50 years, Alan Greenspan, once chairman of the Federal Reserve, “the trouble is that he had been an Ayn Rander”—a devotee of laissez-faire capitalism. “You can take the boy out of the cult but you can’t take the cult out of the boy,”
A nice line about Rand and I like labelling it a cult, which I did not go as far as.
Ultimately Samuelson was a believer in regulation,
Yet Mr Samuelson also understood that beyond the ivory tower the conditions necessary for efficient markets rarely existed; they needed regulating. “To understand economics you need to know not only fundamentals but also its nuances,” Mr Samuelson would explain. “When someone preaches ‘Economics in one lesson’ I advise: Go back for the second lesson.” The latest crisis (for which he felt some responsibility, since he had helped develop financial derivatives that company executives did not understand) proved that “free markets do not stabilise themselves. Zero regulating is vastly suboptimal to rational regulating. Libertarianism is its own worst enemy!”
Ultimately there is an important lesson here. Command and control economies are not alternatives to market economies, because in the end aggregate behaviour comes down to individual choice. As the saying goes, you can lead a horse to water but you can't make it drink. You can't make the actual consumption decision for the individual. On top of that every command and control econmy inspires a thriving "black market." So ultimately markets always decide the final outcome.
But markets aren't perfect. There are lots of reasons why they are not - including assymetric information, herd behaviour (which causes bubbles) and lags. But equally relying upon the doctrine of "market failure" is an inadequate guide to how to regulate. As John Kay noted in Prospect magazine "The market failure doctrine is based on an imperfect understanding of why markets succeed, not just why they fail, and hence provides a misleading guide not only to when government intervention is appropriate, but also to the ways in which market forces can improve the operation of the public sector."
The purpose of regulation is not to cover market failure but to make markets work. Ultimately the protection of physical property and the law of contract is a piece of regulation to make markets work, the distinction between this "public law" and economic regulation (as promoted by say Anthony Ogus) is a false distinction.
As for Mr Samuelson’s friend of 50 years, Alan Greenspan, once chairman of the Federal Reserve, “the trouble is that he had been an Ayn Rander”—a devotee of laissez-faire capitalism. “You can take the boy out of the cult but you can’t take the cult out of the boy,”
A nice line about Rand and I like labelling it a cult, which I did not go as far as.
Ultimately Samuelson was a believer in regulation,
Yet Mr Samuelson also understood that beyond the ivory tower the conditions necessary for efficient markets rarely existed; they needed regulating. “To understand economics you need to know not only fundamentals but also its nuances,” Mr Samuelson would explain. “When someone preaches ‘Economics in one lesson’ I advise: Go back for the second lesson.” The latest crisis (for which he felt some responsibility, since he had helped develop financial derivatives that company executives did not understand) proved that “free markets do not stabilise themselves. Zero regulating is vastly suboptimal to rational regulating. Libertarianism is its own worst enemy!”
Ultimately there is an important lesson here. Command and control economies are not alternatives to market economies, because in the end aggregate behaviour comes down to individual choice. As the saying goes, you can lead a horse to water but you can't make it drink. You can't make the actual consumption decision for the individual. On top of that every command and control econmy inspires a thriving "black market." So ultimately markets always decide the final outcome.
But markets aren't perfect. There are lots of reasons why they are not - including assymetric information, herd behaviour (which causes bubbles) and lags. But equally relying upon the doctrine of "market failure" is an inadequate guide to how to regulate. As John Kay noted in Prospect magazine "The market failure doctrine is based on an imperfect understanding of why markets succeed, not just why they fail, and hence provides a misleading guide not only to when government intervention is appropriate, but also to the ways in which market forces can improve the operation of the public sector."
The purpose of regulation is not to cover market failure but to make markets work. Ultimately the protection of physical property and the law of contract is a piece of regulation to make markets work, the distinction between this "public law" and economic regulation (as promoted by say Anthony Ogus) is a false distinction.
Democrats and Republicans
In NSW we have been seeing some activity seeking a "recall" power in the NSW consttution. The campaign initiated by the SMH has gained the support of Opposition Leader Barry O'Farrell.
My letter to the editor (unpublished) said;
The calls (SMH 11 Dec) for a citizen recall mechanism to be added to the NSW constitution is the wrong solution. Recall requires a high volume of petitioners and as a consequence places significant power in the hands of new and old media to create the movement.
Better solutions include shorter fixed terms and direct election of the Premier.
Shorter terms would ideally be the Chartist request of annual election. But certainly the recent move from three to four year terms has shown to be a mistake.
Separating the electoral choice of the Executive and the legislature, as in the United States, resolves this absurd concept of party factions mid-term changing the shape of the executive from that last chosen by the people.
Ultimately though the best and most popular solution is the abolition of State Governments. If Barry O’Farrell is genuine on wanting to give the people of NSW the power to determine how they are governed he should put that option to the people.
It was interesting therefore to note an article in the bumper Xmas issue of The Economist on the problems "direct democracy" is causing in the US. In the article it explains the issues in relation to the formation of the new system of Government for the United States and the distinction of meaning between a "republic" (a representative democracy) and "democratic" wich can have a greater connotation of direct democracy.
During my flirtations with the Australia Party and more latterly the Australian Democrats the one policy area I never was comfortable with was the policy of citizen initiated referenda and other forms of direct democaracy. Similarly I have never been comfortable with calls for proportional representation in lower houses in a genuinely "Westminster" system wherein Governments are actually selected.
In the American political party parlance the Democratic Party was the first to emerge and it was actually a "states rights" party - it grew out of the anti-federalists. In other words it was more into "direct democracy" rather than a strong central government. The Republican Party came into being through the reformation of the Whigs as the primary opponents of the Democratic Party. The defining moment and issue was the Lincoln presidency and whether the Federal Government could outlaw slavery.
From the position of modern politics this distinction seems odd. At this time in the UK the two groupings wrre Tories and Whigs and the Whigs ultimately morphed into the Liberals who then largely fell into irrelevance in the battle between onservatives and Labour. In the US the labour movement attached itself to the Democratic Party while the Republicans became more noted as conservatives. It is a strange fact that it remains the Republicans who blieve in strong central government, though they believe it should be small.
There is a view that greater direct democracy is a necessary consequence of the move to a market state rather than a nation state. I hate to sound like a Phillip Bobbitt fan but it is one of the conclusions he reaches. I think there are other alternatives for how democratic governance changes in a market state.
In the Australia context it looks to me like there are a number of strands to this;
1. A directly elected executive Government.
2. Abolition of State Governments and reformation of the local government layer to be more democratic (probably full-time councillors but still only about 9 per area).
3. Completion of the reform agenda so that all large service delivery organisations are at the very least "corporatised" - that is the political process can define outcomes, policy and funding but the internal administrative features are run by the delivery organisations.
4. The democratisation of the positions on the governing bodies of the delivery organisations. (For example, if we are to have Area hospital boards re-introduced as per Liberal Party policy then have those positions directly elected - or at least some of them).
5. Bi-annual elections of the legislature on more proportional representation grounds - I have long favoured the idea of three member proportional electorates and each members vote in parliament represents the actual final preferential vote they received - hence "one man one vote" no longer requires continual redrawing of the boundaries. Bi-chameral parliaments work so long as there is a clear distinction between the function of the upper and lower house. The upper house should be made up of representatives appointed by the regional governments and have no more than a reviewing and delaying function - they should have no power to block legislation. In cases where issues in the lower house may become unmanageable due to PR then there needs to be a provision for the members who were first elected voting for their whole elecorate to constitute the parliament.
6. The structure needs to create real roles for "career politicians" - it is a pity that the current Australian system uses the unelected invisible staffer roles and then party factions to create preselections.
7. Political parties need to be recognised as a distinct form of organisation that is neither a company nor association. To be registered as a party and involved in political processes must require a great transparency.
On top of all this we need to use the communications technologies to reform politics. To use the Internet to "democratise" us and avoid the problem of the mob requires direct involvement by the State and the law in the conduct of campaigning. This would include;
1. Clean booths on polling day.
2. The AEC creating a suite of programs for the online management of political parties and in particular their bank accounts so that full disclosure is continually available.
3. AEC provided on-line campaig resources. Limitations on campaign expenditure by other than on-line means.
The more I think about it the more I want to start the Australian Republican Party!
My letter to the editor (unpublished) said;
The calls (SMH 11 Dec) for a citizen recall mechanism to be added to the NSW constitution is the wrong solution. Recall requires a high volume of petitioners and as a consequence places significant power in the hands of new and old media to create the movement.
Better solutions include shorter fixed terms and direct election of the Premier.
Shorter terms would ideally be the Chartist request of annual election. But certainly the recent move from three to four year terms has shown to be a mistake.
Separating the electoral choice of the Executive and the legislature, as in the United States, resolves this absurd concept of party factions mid-term changing the shape of the executive from that last chosen by the people.
Ultimately though the best and most popular solution is the abolition of State Governments. If Barry O’Farrell is genuine on wanting to give the people of NSW the power to determine how they are governed he should put that option to the people.
It was interesting therefore to note an article in the bumper Xmas issue of The Economist on the problems "direct democracy" is causing in the US. In the article it explains the issues in relation to the formation of the new system of Government for the United States and the distinction of meaning between a "republic" (a representative democracy) and "democratic" wich can have a greater connotation of direct democracy.
During my flirtations with the Australia Party and more latterly the Australian Democrats the one policy area I never was comfortable with was the policy of citizen initiated referenda and other forms of direct democaracy. Similarly I have never been comfortable with calls for proportional representation in lower houses in a genuinely "Westminster" system wherein Governments are actually selected.
In the American political party parlance the Democratic Party was the first to emerge and it was actually a "states rights" party - it grew out of the anti-federalists. In other words it was more into "direct democracy" rather than a strong central government. The Republican Party came into being through the reformation of the Whigs as the primary opponents of the Democratic Party. The defining moment and issue was the Lincoln presidency and whether the Federal Government could outlaw slavery.
From the position of modern politics this distinction seems odd. At this time in the UK the two groupings wrre Tories and Whigs and the Whigs ultimately morphed into the Liberals who then largely fell into irrelevance in the battle between onservatives and Labour. In the US the labour movement attached itself to the Democratic Party while the Republicans became more noted as conservatives. It is a strange fact that it remains the Republicans who blieve in strong central government, though they believe it should be small.
There is a view that greater direct democracy is a necessary consequence of the move to a market state rather than a nation state. I hate to sound like a Phillip Bobbitt fan but it is one of the conclusions he reaches. I think there are other alternatives for how democratic governance changes in a market state.
In the Australia context it looks to me like there are a number of strands to this;
1. A directly elected executive Government.
2. Abolition of State Governments and reformation of the local government layer to be more democratic (probably full-time councillors but still only about 9 per area).
3. Completion of the reform agenda so that all large service delivery organisations are at the very least "corporatised" - that is the political process can define outcomes, policy and funding but the internal administrative features are run by the delivery organisations.
4. The democratisation of the positions on the governing bodies of the delivery organisations. (For example, if we are to have Area hospital boards re-introduced as per Liberal Party policy then have those positions directly elected - or at least some of them).
5. Bi-annual elections of the legislature on more proportional representation grounds - I have long favoured the idea of three member proportional electorates and each members vote in parliament represents the actual final preferential vote they received - hence "one man one vote" no longer requires continual redrawing of the boundaries. Bi-chameral parliaments work so long as there is a clear distinction between the function of the upper and lower house. The upper house should be made up of representatives appointed by the regional governments and have no more than a reviewing and delaying function - they should have no power to block legislation. In cases where issues in the lower house may become unmanageable due to PR then there needs to be a provision for the members who were first elected voting for their whole elecorate to constitute the parliament.
6. The structure needs to create real roles for "career politicians" - it is a pity that the current Australian system uses the unelected invisible staffer roles and then party factions to create preselections.
7. Political parties need to be recognised as a distinct form of organisation that is neither a company nor association. To be registered as a party and involved in political processes must require a great transparency.
On top of all this we need to use the communications technologies to reform politics. To use the Internet to "democratise" us and avoid the problem of the mob requires direct involvement by the State and the law in the conduct of campaigning. This would include;
1. Clean booths on polling day.
2. The AEC creating a suite of programs for the online management of political parties and in particular their bank accounts so that full disclosure is continually available.
3. AEC provided on-line campaig resources. Limitations on campaign expenditure by other than on-line means.
The more I think about it the more I want to start the Australian Republican Party!
Tuesday, December 22, 2009
NBN Co consultation
NBN Co has issued its first consultation paper. This deals with important issues like being a Layer 2 provider (not Layer 3) and discussing a very strategic issue which is the location of POIs.
It is disappointing however because its focus on the Layer 2 elements diverts attention from other issues relating to the operation of an ATA port on the ONT, and the choice between an RF port and IPTV. The latter also opens the question of a Datacasting requirement.
The consultation paper is a good start but it is likely to continue to feed the negative perception that the NBN is just fast internet.
It is disappointing however because its focus on the Layer 2 elements diverts attention from other issues relating to the operation of an ATA port on the ONT, and the choice between an RF port and IPTV. The latter also opens the question of a Datacasting requirement.
The consultation paper is a good start but it is likely to continue to feed the negative perception that the NBN is just fast internet.
Monday, December 21, 2009
The Digital Economy and Copyright
I'm slowly finding comments from around the traps on the Realising our Broadband Future forum. Some really perceptive comments have been made by Roger Clarke.
Roger was highlighting the "public policy" issues thrown up by the NBN. He welcomes the realisation of the Government's role in building this kind of infrastructure, but worries about "censorship". I won't trawl over that again.
e is quite perceptive on the e-health and e-education challenges. The former needs to be about facilitating connection between separate initiatives - not one new "initiative". The latter risks being stifled by the concerns about the dangers of the online world.
He suggests that the consumer voice was missing, and perhaps it was from everything but the community stream. He is right that there are consumer prtection issues that emerge everywhere, and they are not just privacy or equity.
He steered into copyright saying "There was frequently a very large elephant in the room in the form of copyright legislation that's become completely lop-sided in favour of copyright-owners, and is completely at odds with the modern world that every session was enthusing about. Quite simply, we have to get the responsibility for the Copyright Act transferred to an agency that understands the digital age. But no-one talked about that."
That's a really interesting proposition given that the AS of the DE area has a background in copyright, at least in the creation of "Creative Commons" licences. I think I wrote here sometime about the problem Terry Cutler had trying to get Government to apply a CC licence to a report, and as they couldn't understand it gave Terry the copyright himself.
There is really a two-fold concern. Firstly that there aren't enough options for rights holders to deal with rights - that is what the creative commons is trying to address. But the second is that the legal interpretation of the right has become too restrictive - or alternatively too rigid.
Many of the interesting digital issues will be dealt with in the current iiNet case. Either way we are likely to find the need for some new legislation on copyright.
We might then make the same observation as Tom Watson;
[The record industry exec's] letter seems confused. On the one hand, he trumpets the tremendous success and creativity of the music industry. On the other, he suggests that piracy is destroying the business. I’ve been struck at the sheer magnitude of the recorded music industry lobby around the Digital Economy Bill. I’m going to prod around a little more when Parliament returns in the New Year.
The challenge in sorting through copyright issues is in making sure that the rights of original creators ae prserved, but not the existing business models that trade in those rights. In the regulation of on-line shopping you want to protect the consumer and the producer, but not the existing briocks-and-mortar retailers.
It creates some interesting challenges because, as we know, it is the middle me who have the most to lose.
Roger was highlighting the "public policy" issues thrown up by the NBN. He welcomes the realisation of the Government's role in building this kind of infrastructure, but worries about "censorship". I won't trawl over that again.
e is quite perceptive on the e-health and e-education challenges. The former needs to be about facilitating connection between separate initiatives - not one new "initiative". The latter risks being stifled by the concerns about the dangers of the online world.
He suggests that the consumer voice was missing, and perhaps it was from everything but the community stream. He is right that there are consumer prtection issues that emerge everywhere, and they are not just privacy or equity.
He steered into copyright saying "There was frequently a very large elephant in the room in the form of copyright legislation that's become completely lop-sided in favour of copyright-owners, and is completely at odds with the modern world that every session was enthusing about. Quite simply, we have to get the responsibility for the Copyright Act transferred to an agency that understands the digital age. But no-one talked about that."
That's a really interesting proposition given that the AS of the DE area has a background in copyright, at least in the creation of "Creative Commons" licences. I think I wrote here sometime about the problem Terry Cutler had trying to get Government to apply a CC licence to a report, and as they couldn't understand it gave Terry the copyright himself.
There is really a two-fold concern. Firstly that there aren't enough options for rights holders to deal with rights - that is what the creative commons is trying to address. But the second is that the legal interpretation of the right has become too restrictive - or alternatively too rigid.
Many of the interesting digital issues will be dealt with in the current iiNet case. Either way we are likely to find the need for some new legislation on copyright.
We might then make the same observation as Tom Watson;
[The record industry exec's] letter seems confused. On the one hand, he trumpets the tremendous success and creativity of the music industry. On the other, he suggests that piracy is destroying the business. I’ve been struck at the sheer magnitude of the recorded music industry lobby around the Digital Economy Bill. I’m going to prod around a little more when Parliament returns in the New Year.
The challenge in sorting through copyright issues is in making sure that the rights of original creators ae prserved, but not the existing business models that trade in those rights. In the regulation of on-line shopping you want to protect the consumer and the producer, but not the existing briocks-and-mortar retailers.
It creates some interesting challenges because, as we know, it is the middle me who have the most to lose.
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